Jul 102020

Gerry Cranham Protection for the pretty 1963



Imagine you’re standing across the street from a house that’s on the verge of falling apart, a condemned building, an edifice devoured by rot from bottom to top. Now imagine you see a construction crew arriving to repair it, and they start to fix the roof. You would think that’s not much use if the walls, floor and foundation are just one wolf’s huff and puff away from collapse.

Still, that is what the world’s central banks are doing today: they “fix” the top by bailing out banks and allege that somehow that will fix the rest of the edifice too. In that same analogy, while central banks prop up banks, governments try to support the walls, by bailing out businesses. Again, while the floors and foundations keep on rotting away. And when the floors cave in, so of course will the walls, just like the roof.

There may appear to be some logic to all this, but it’s only the “inner logic” of an economic and political ideology that deals exclusively with how things should be, not how they are. Of course it’s nice to have a shiny new roof, and strong walls. But neither have any value if there are no more floors to support them.

This is what is happening today to our economies and societies. The 2008 crisis wasn’t bad enough to expose the failures of the “inner logic” of the system, but the fallout of COVID19 will be. And it’s not the virus that does it all, or the lockdowns, they merely expose a system that’s been rotting for many years without its floors and foundations ever being repaired.

(And yes, you’re right, the central banks are not merely fixing the roof, they’re gold-plating it for good measure).


So you got the Fed team working on the roof and the government team working on the walls, and absolutely nobody working on the floors and foundations. And at some point you’re going to have to ask what these people actually know about building and construction, even about gravity: are they aware that roofs and walls are infinitely more dependent on solid floors than floors are on them?

Actually, I think they are. They just don’t think it’s possible that the floor may fall out from underneath them (i.e. they deny gravity). But that is what is threatening to happen. Not only in the US, but all over the western world. And if there’s one thing you don’t want to happen to your house, or your economy/society, it’s for the bottom to fall out. Because where will you live?

Still, with headlines such as

“More Than Half Of The US Population Is Not Working”,
“50 Million Americans Have Lost Their Job In Past 6 Weeks”,
“42 Million Unemployed, 25.5% Unemployment Rate”,
“52% Of Small Businesses Expect To Be Out Of Business Within Six Months”,
“53% Of Restaurants Closed Amid Coronavirus Have Shuttered Permanently”,
“US Retail Apocalypse: Over 25,000 Stores Could Close By Year End”

and more of the same on the way, we should at least consider the possibility of the bottom falling out, and prepare accordingly.

It’s one thing to want to save the businesses, but if you have huge amounts of people who can’t afford to buy anything from them, businesses will inevitably fail in huge numbers. If the bottom threatens to fall out, you need to focus on saving the floor and foundations, the people, not the businesses. Nothing to do with socialism or anything like that, but with preserving your society as a going concern.


The first thing I didn’t quite get, but then again did, was that all the PPP’s and their equivalents, the various global payment protection programs, were aimed at protecting businesses by guaranteeing wages and salaries of their employees. What an odd idea, I thought. After all, if you want to protect wages, there is no reason to do that through a business, you might as well pay the employee directly.

If you pay the business which must then pay the employee, how would that help or protect that business? By giving off the false impression it can still pay the wages? Of course, if you do pay it through businesses, at least no-one can bring up a theme such as Universal Basic Income, anymore than they can MMT. While you in effect practice both, you can also deny practicing either. Pretty smart, right? Neat!

But turn this around for a moment. Say the governments pay the wages and salaries. These are the biggest cost for many if not most businesses, certainly the small ones, which are, obviously, the most vulnerable to sudden events like a pandemic and lockdown. So as a government, you take that liability, and that risk, away.

It would appear that then you can assess much better how viable such a business really is. Because a business that doesn’t have to pay its biggest cost should be able to survive for a few months, even if there’s no revenue coming in, unless it has deeper problems, like -too much- debt. The advantages for everyone are clear: less paperwork for government and business owner, guaranteed wages for employees, and a better view of a business’s financial situation for everyone.


Not that you should pay employees 100% of their wages, as many countries have. You would only do that if you think the problems will be over soon, but in reality you have no idea if they will be. You need to support the lowest-paid people -because they are the bottom that’s about to fall out- but as you work your way up to higher wages, you start taking off a percentage, rinse and repeat, and end up paying maybe $50,000 to people who made $100,000 (and yes, that goes for government employees too).

Why would you hand someone, anyone over $100,000 for not working? Of course there are people with mortgages and car loans that are so elevated that they need more than $100,000 to keep their families alive, but that is a different story. That does not deal with the bottom falling out. For those cases, you need a separate program. Just like you do for businesses that still can’t survive once all their wages have been taken care of by the government.

Obviously, as Midwest small businessman Bruce Wilds said recently in his guest post here, Small Business Firings to Start, for some businesses showrooms, or inventory, taxes, utilities, can be major liabilities. Again, separate program. Support the bottom, the people, first. Because it’s urgent. Because you risk too many people having too little to survive on. In fact, so many that your businesses come under threat from having no customers left.


As one of its first measures, Greece, when it went into lockdown, lowered rents for businesses by 40%, without as much as a plan for how to compensate landlords. That’s the spirit. But it’s a spirit few will understand, let alone politicians. In the end, the reality is that most landlords and mortgage lenders will get less money. For a long time. You can try to help everyone out with cheap loans to individuals and businesses to pay off their mortgages, but that’s a just another short term plan, and has nothing to do with long time views.

And cheap loans won’t save the bottom from falling out. If you put it like that, people will actually understand: you don’t save a failing economy by pouring in cheap money. Any more than a lick of paint will save a condemned building.

But at the same time, that’s all our political systems manage to come up with. While fervently hoping for, counting on, a miraculous recovery, and planning to make the poor pay by raising taxes when we’re “back to normal”. It’s just that there comes a time when the poor have nothing left to pay with, not even for their food. That’s when the bottom falls out.

To be continued. I have much more to say on this. Like: what to do now?

Look, it’s quite simple really: if you ask yourself, or your friends, or someone on the street, if they think the economy will recover within a “reasonable” timeframe, most will say yes. Conditioned by politicians, by the media, and by their own fear of what will be their fate if it doesn’t. But that is a giant blind spot. If half of businesses and half or restaurants are shut for good where ever it is you live, where would that recovery have to come from? Do ask yourself that question, and try not to be afraid of the answer for a moment.





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Mar 182020

Matson Aircraft refueling at Semakh, British Mandate Palestine 1931


Global Powers Unleash Trillions Of Dollars To Stem Coronavirus Crisis (R.)
We’re at a Real Risk of Financial Markets Being Closed – Bianco (NZZ)
The Lesson (Henrich)
Boeing Seeks ‘Tens Of Billions’ In Bailouts (ZH)
Hotel Industry To Ask Trump For $150 Billion In Aid (LAT)
American Indian Casinos Close For Coronavirus, Seek $18 Billion Aid (R.)
Mnuchin Warns Senators Of 20% US Unemployment Without Coronavirus Rescue (R.)
18% Of US Workers Have Lost Jobs Or Hours Since Coronavirus Hit (LAT)
COVID-19 Pandemic Could Continue For 2 YEARS – German Health Expert (RT)
New Coronavirus Can Persist In Air For Hours And On Surfaces For Days (R.)
Australian Scientists Map How Immune System Fights Virus (BBC)
A Coronavirus Outbreak In Jails Or Prisons Could Turn Into A Nightmare (Vox)
Cyprus Bans Flights From 28 Countries From March 21 (R.)
Beijing Tells NYT, WSJ, WaPo Journalists To Hand In Credentials (RT)



It is truly great to see that over the past 10 days or so, millions of coronavirus experts worldwide have come out of hiding whose existence we knew nothing about beforehand. We at the Automatic Earth have been following the virus for well over 2 months, and not only do we still not understand as much as all these experts, we even contradict ourselves and each other from time to time. With all the new expert knowledge and -especially- opinions, no doubt the crisis will be solved real soon now.


When I started working very early this working, one of the first things I saw was this from Reuters. Which shows, while for instance Worldometer still had total deaths at 7,915, a 8,410+ number. Somehow it feels too specific for just a random mistake. Worldometer now says 8,010, so there is an increase, but not nearly as much.



Do note, however, that both cases and deaths are up by much larger numbers in the past 24 hours than ever before…


Cases 202,270 (+ 18,137 from yesterday’s 184,133)

Deaths 8,012 (+ 830 from yesterday’s 7,182)


These numbers, too, are rising relentlessly.

From Worldometer yesterday evening (before their day’s close)



From Worldometer -NOTE: mortality rate is now at 9%!- (Note: some call this rate “misleading”, but that can by definition only be true if you don’t know the parameters. Worldometer is very clear: the death rate is part of Closed Cases, not All Cases. You may argue that Active Cases should be part of the equation, but that would only insert uncertainty into the number. Neither Worldometer nor I imply that 9% will be the ultimate fatality rate, just that at present it’s the rate among Closed Cases.)



From SCMP: (Note: the SCMP graph was useful when China was the focal point; they are falling behind now)



From COVID2019.app: (New format lacks new cases and deaths)





Somebody found a money tree. Or, rather, one in every country.

Global Powers Unleash Trillions Of Dollars To Stem Coronavirus Crisis (R.)

The world’s richest nations prepared more costly measures on Tuesday to combat the global fallout of the coronavirus that has infected tens of thousands of people, triggered social restrictions unseen since World War Two and sent economies spinning toward recession. With the highly contagious respiratory disease that originated in China racing across the world to infect more than 196,000 people so far, governments on every continent have implemented draconian containment measures from halting travel to stopping sporting events and religious gatherings. While the main aim is to avoid deaths – currently at over 7,800 – global powers were also focusing on how to limit the inevitably devastating economic impact.

In the world’s biggest economy, U.S. President Donald Trump’s administration has proposed pumping $1 trillion into the market. Trump wants to send cash to Americans within two weeks as the country’s death toll approached 100 and more testing sent the number of coronavirus cases to over 5,700. Airlines are among the worst-hit sector, with U.S. carriers seeking at least $50 billion in grants and loans to stay afloat as passenger numbers evaporate. Britain, which has told people to avoid pubs, clubs, restaurants, cinemas and theaters, unveiled a 330 billion pounds ($400 billion) rescue package for businesses threatened with collapse. Budget forecasters said the scale of borrowing needed might resemble the vast amount of debt taken on during the 1939-1945 war against Nazi Germany.

“Now is not a time to be squeamish about public sector debt,” Robert Chote, head of the Office for Budget Responsibility, which provides independent analysis of the UK’s public finances, told lawmakers. France is to pump 45 billion euros ($50 billion) of crisis measures into its economy to help companies and workers, with output expected to contract 1% this year. “I have always defended financial rigor in peacetime so that France does not have to skimp on its budget in times of war,” Budget Minister Gerald Darmanin was quoted as saying by financial daily Les Echos. The European Union eased its rules to allow companies to receive state grants up to 500,000 euros ($551,000) or guarantees on bank loans to ensure liquidity.

But even with the promised cash splurges, world stock markets and oil prices were unable to shake off their coronavirus nightmare after Wall Street on Monday saw its worst rout since the Black Monday crash of 1987. The Philippines was the first country to close markets, while Europe – now the epicenter of the pandemic – saw airline and travel stocks plunge another 7%.

Read more …

Central banks have run out of tools. Philippines the first to close markets altogether.

We’re at a Real Risk of Financial Markets Being Closed – Bianco (NZZ)

Mr. Bianco, the Federal Reserve takes massive emergency actions. What does this mean for financial markets? The Central Banks went all in. They fired all of their ammunition and they’ve got only one goal in mind: They have to stop the decline in financial markets. This started late last week with the Fed’s giant repo operation. You can also throw in the announcements of the ECB and the Bank of Japan. Plus, we have the extraordinary actions taken by European governments to stem the effects of the pandemic. The government of Germany for instance is basically guaranteeing everybody’s job.

However, investors don’t seem convinced. What’s going to happen if markets drop further? Central Banks need to stop the stock market from falling through last week’s low. I believe if markets fall through those levels and keep going down, the so-called Fed Put is dead. It doesn’t work anymore, so quit trying to find new ways to exercise it. Just understand Einstein’s definition of insanity: Doing the same thing over and over again, and expecting different results.

What are the ramifications if the Fed Put doesn’t work anymore? Central Banks will need to move on. So if stocks make new lows we’re at a real risk of financial markets being closed. The Fed and other Central Banks have fired all their ammunition and if markets crash through last week’s lows, there’s nothing left. The Fed can’t buy equities outright without a change of the Federal Reserve Act. It would take weeks for Congress to do that. Even if Congress moves with lightning speed it will take them at least a week, and it will be over before that.

What would be the benefit of closing markets? It took the stock market sixteen trading days to drop by 27% from the all-time highs to Thursday’s lows. We have never seen anything close to that in history. The closest we’ve ever been in history was 1929, when it took 42 days to get from the all-time highs to a 20% correction. The speed in this decline is unprecedented.

Why is it so important to stop this crash? If it continues, you will get margin calls, involuntary liquidation. Markets will lose their ability to price securities, especially things like high yield bonds and emerging markets securities. Funds in those areas will be unavailable for people to redeem because they won’t have any prices. There will be trapped money. Also, you will get broken covenants in the corporate debt area, and that will force changes of control or restructurings. But the biggest damage will be that pensions will become underfunded. Companies will be forced to pony up billions of Dollars to get their pensions back into funding.

[..] You’re been in the investment business for a long time and have seen quite a few crashes. How do you experience this crisis personally? This is unlike anything we’ve seen in our lifetime. What’s going on in financial markets today exceeds the financial crisis of 2008, it exceeds 9/11, it exceeds the tech peak, and it exceeds the 1987 crash. Maybe 1929 is still bigger, but few of us were alive then. We’re writing a new chapter for American and world history textbooks. We’re only a few pages into it, and we’re not sure how it will end, but our grandchildren will one day learn school about the great pandemic of 2020 and what it meant for world history.

Read more …

“What I’m opposed to is the hype, hypocrisy and excess that has preceded it. People got greedy, they piled into stocks at ungodly valuations. Companies that didn’t save or prepare for a crisis, instead were focused on short term market gains to juice up their stock prices. Companies such as Boeing that cut corners and blew money on buybacks for financial engineering purposes to enrich upper management and shareholders. I say screw them..”

The Lesson (Henrich)

The lesson of it all? The lesson is that lessons are not being learned. Of course the human species has an ingrained problem: We are all born with a blank sheet and have to learn everything from scratch. It would be helpful though if the elders could pass lessons from past mistakes on to the new generation. But no. So we keep making the same stupid mistakes. And here we are. Just four weeks after all time highs in markets America is again turning into bailout nation. Yes coronavirus is an unforeseen shock. So what? We’re supposed to handle a shock. We’re supposed to be prepared. We’re supposed to have savings and great balance sheets.

After an 11 year recovery and market bull run based on cheap and easy money shouldn’t things be great and shouldn’t we be well prepared for the next downturn? Is that really too much to ask? Apparently. We can’t even go 4 weeks without the Fed going apeshit on cutting rates to zero, launching $700B in QE, making discount windows available and launching $500B, even trillion dollar repos. We can’t even go 4 weeks without the government launching a proposed $850B stimulus package, tax cuts, free money checks of $1,000 to Americans and suggesting bailouts for $BA and $GE. That’s how fragile things are. They must be, otherwise the system would be able to handle a temporary shock. But it can’t. Why? Well for one our supposed great economy ever has the vast majority of Americans live paycheck to paycheck:

That’s a systemic problem. Sure you can blame people for living beyond their means, but in general most people just don’t have the income power to keep abreast with rising medial costs, home prices and all the other fun inflationary items that the Fed simply doesn’t count as inflation. How ignorant they are. PCE deflator. Please. And then of course the same lesson again not learned that keeps repeating ahead of every bust: Greed and more greed. When has it ever been a good idea to chase stocks to 150% market cap to GDP or even higher? The answer is never. Yet they convinced themselves and others that it’s different this time. New flash: It wasn’t. A lesson not learned and yet they did it. The chart was screaming unsutainability. And here we are 4 weeks later, yesterday closing at 109.5% market cap to GDP:

Reversion to the mean. And it could eventually get much worse. I showed this chart in Bull Cliff in February and I stated: “Investors keep piling money into this historically priced market….Central banks can deny all they want that they are not responsible for asset price inflation, but everybody knows better. The denials are not only hollow they are straight out lies. And having created the Pavlovian effect we now see in the investment community they are leading investors to abandon all sense of risk when risks are mounting ever more around us as valuations and earnings multiples keep expanding as a result of monetary policy. And hence it may be said that central bankers may be leading investors off the cliff.”

[..] I’m not opposed to the government stepping in to help in an emergency. That’s why we have government. What I’m opposed to is the hype, hypocrisy and excess that has preceded it. People got greedy, they piled into stocks at ungodly valuations. Companies that didn’t save or prepare for a crisis, instead were focused on short term market gains to juice up their stock prices. Companies such as Boeing that cut corners and blew money on buybacks for financial engineering purposes to enrich upper management and shareholders. I say screw them. If you don’t learn the lessons of the past then live with the consequences. And who pays ultimately for the consequences? We’ve seen this movie before

Read more …

Even Tyler Durden vehemently disagrees. But this is major military supplier Boeing.

Boeing Seeks ‘Tens Of Billions’ In Bailouts (ZH)

In its latest 8K, the plunging planemaker has completely drawn down its $13.8 billion credit line that it entered in October 2018 as it “navigates current business challenges” exposing just how fast this company is burning through cash. [..] This comes just hours after sources told Reuters that Boeing is seeking a bailout of ‘tens of billions’ in US government loan guarantees amid the Covid-19 crisis.[..] As we raged previously, this bailout demand comes after the company blew nearly $100 billion on stock buybacks since 2013 helping push its stock to all-time highs not that long ago, and instead of selling stock to get liquidity, they’re asking the Trump administration for a massive bailout.

So, no, nobody in their right minds should give Boeing even one penny in “short term aid”. Instead, management and the board should be ordered to sell as much stock as they need – you know, the opposite of buying it back – to maintain the business, even it means sending the stock price crashing far lower. Because it’s called capitalism, and because there is no reason why taxpayers should foot the bill for a company which instead of saving cash when times were good, was handing it out to shareholders and a handful of executives, and which should now for some insane reason be eligible for a bailout when times suddenly go bad. No: force Boeing – and others like it that spent billions repurchasing its stock while incurring massive amounts of debt – to sell its stock.

After all that’s what a public company’s stock is – a currency – and just as Boeing could repurchase it when it had cash, and lifted its stock price to all time highs, it should now sell its stock and use the proceeds to fund itself, like any other corporation does when it needs funding. Last time we checked, Boeing’s market cap was $73 billion, and it certainly afford to drop much more as the company now does the buyback in reverse. This is also a warning to Congress and the White House: if chronic stock repurchasers such as Boeing, are bailed out instead of ordered to find their own sources of liquidity, there will be a mutiny in America and rightfully so, because it was Boeing’s shareholders that got rich on the way up, and now it is somehow up to taxpayers to make sure the company, loaded up with record amounts of debt used to fund buybacks, survives one more quarter. That, in a word, is bullshit.

Read more …

We have this opportunity to get the rotten apples out, but are we going to use it?

Hotel Industry To Ask Trump For $150 Billion In Aid (LAT)

Staggered by the coronavirus outbreak, the lodging industry requested $150 billion in aid from the Trump administration Tuesday as Marriott International announced plans to furlough tens of thousands of workers. After a White House meeting with President Trump and Vice President Mike Pence, hotel industry leaders said the virus outbreak is on pace to cause a bigger economic hit than the 2001 terrorist strikes and the 2008-09 recession combined. In addition to the $150 billion requested by the hotel industry, other sectors of the travel industry — such as convention centers, theme parks and tour companies — have requested $100 billion in funding to overcome the crisis, said Roger Dow, president of the U.S. Travel Assn., the trade group for the country’s travel industry.

That is on top of the $58 billion in aid requested Monday by the airline industry to overcome a surge in flight cancellations amid new travel restrictions. Without federal aid to the travel and lodging industries, the U.S. could lose as many as 4 million jobs in 2020, pushing the unemployment rate from 3.3% to 6.3% across the country, Dow said. Hotel occupancy rates were around 80% a few weeks ago but are now 10% to 20% in the busiest cities of the country, Chip Rogers, president of the American Hotel & Lodging Assn., said in a conference call with reporters. The federal aid, he said, has been requested in the form of grants to keep workers employed until the crisis subsides. Details about how the money would be disbursed had yet to be decided, Rogers said.

Read more …

Should casinos be bailed out? Or only those owed by Native Americans?

American Indian Casinos Close For Coronavirus, Seek $18 Billion Aid (R.)

The Native American gaming industry on Tuesday requested $18 billion in U.S. federal aid as it shut casinos that are the sole source of commercial revenue for dozens of tribes in a bid to slow the coronavirus epidemic. Tribal governments will be unable to provide health and education services and will default on loans unless they get federal support to make up for lost casino money, the National Indian Gaming Association said in a letter to members of the U.S. House of Representatives. “Providing the means for tribal governments to continue paying all employees’ salaries and benefits will immensely help this country recover,” according to the letter addressed to Representatives Deb Haaland and Tom Cole of the House Native American Caucus.

The United States’ roughly 460 Indian casinos are in the process of closing given the threat of coronavirus to tribal members and many non-Native American employees. Tribes are sovereign nations but are following advice from U.S. states and the federal government to slow the virus’ spread. That means shutting American Indian casinos which employ a combined 700,000-plus people directly and indirectly and generated over $37 billion in 2017, making them the largest segment of the U.S. gaming industry, according to the association.

Read more …

Frances Coppola: “Demand is falling because of virus control measures. Giving people money to spend (above their normal income) while simultaneously making it impossible for them to spend it is absurd.”

Mnuchin Warns Senators Of 20% US Unemployment Without Coronavirus Rescue (R.)

U.S. Treasury Secretary Steven Mnuchin warned Republican senators on Tuesday that the country’s unemployment rate could hit 20% if they failed to act on a proposed coronavirus rescue package and there was lasting economic damage, a person familiar with the closed-door meeting said. Mnuchin met with senators to persuade them to pass a $1 trillion stimulus package that would send cash to Americans within two weeks and backstop airlines and other companies. The Senate is majority-controlled by President Donald Trump’s fellow Republicans. A Treasury official said Mnuchin was not providing a forecast but trying to illustrate the potential risks of inaction.

“During the meeting with Senate Republicans today, Secretary Mnuchin used several mathematical examples for illustrative purposes, but he never implied this would be the case,” Treasury spokeswoman Monica Crowley said in an emailed statement. The warning was similar to one issued to U.S. lawmakers at the depths of the 2008 financial crisis, when Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke went to Capitol Hill to urge passage of a $700 billion plan to buy toxic mortgage assets.

Read more …

“56% of Americans considered the coronavirus outbreak a “real threat,” while 38% said it was “blown out of proportion.”

18% Of US Workers Have Lost Jobs Or Hours Since Coronavirus Hit (LAT)

As fallout from the coronavirus pandemic hits the economy, it’s slamming the American workforce: Some 18% of adults reported that they had been laid off or that their work hours had been cut, a new poll found. The proportion affected grew for lower-income households, with 25% of those making less than $50,000 a year reporting that they had been let go or had their hours reduced, according to a survey released Tuesday by NPR, PBS NewsHour and Marist of 835 working adults in the contiguous United States. The poll was conducted Friday and Saturday, just after stocks began their steep plunge and normal life started grinding to a halt, with schools and places of worship closing, concerts and conferences being canceled and sports leagues suspending their seasons. The same poll found that about 56% of Americans considered the coronavirus outbreak a “real threat,” while 38% said it was “blown out of proportion.”

Read more …

Couldn’t we all make this prediction? It depends on 1001 variables. Who needs an expert for this?

COVID-19 Pandemic Could Continue For 2 YEARS – German Health Expert (RT)

A senior German disease control expert has warned that the coronavirus pandemic could continue for two years, depending on how long it takes for an effective vaccine to be developed and if people develop immunity after illness. Speaking on Tuesday, the Robert Kock Institut’s (RKI) president, Prof. Lothar Wieler, said pandemics tend to run their course in waves, and factors influencing how it unfolds from this point include how many people become immune to it after contracting the virus – and how quickly a vaccine is made. The RKI, a German federal agency responsible for disease control and prevention, on Tuesday raised the country’s threat level from the ongoing coronavirus pandemic from ‘moderate’ to ‘high’.

It said the revision comes in light of the continuing increase in new infections of the rapidly-spreading virus, which originated in China late last year and whose symptoms range from fever to serious respiratory illness. Germany has recorded over 7,900 cases of Covid-19 to date, with 20 deaths. New research from RKI scientists and the Helios clinic group also says that the novel coronavirus can more seriously afflict adults aged under 60 who have no underlying health conditions than similar patients suffering severe pneumonia in the regular flu season.

Although countries around the globe have largely stepped up measures to counter the spread of the virus, including border closures, shutting schools and limiting mass gatherings, Covid-19 cases outside of China recently surpassed the total figure recorded inside the country that had, until now, suffered the worst of the outbreak. Italy, in particular, is struggling with the pandemic and recorded a larger single-day number of deaths last weekend than China did at the worst of the peak there.

Read more …

I thought we already knew that, but the article is dated the 17th.

New Coronavirus Can Persist In Air For Hours And On Surfaces For Days (R.)

The highly contagious novel coronavirus that has exploded into a global pandemic can remain viable and infectious in droplets in the air for hours and on surfaces up to days, according to a new study that should offer guidance to help people avoid contracting the respiratory illness called COVID-19. Scientists from the National Institute of Allergy and Infectious Diseases (NIAID), part of the U.S. National Institutes of Health, attempted to mimic the virus deposited from an infected person onto everyday surfaces in a household or hospital setting, such as through coughing or touching objects. They used a device to dispense an aerosol that duplicated the microscopic droplets created in a cough or a sneeze.

The scientists then investigated how long SARS-CoV-2 remained infectious on these surfaces, according to the study that appeared online in the New England Journal of Medicine on Tuesday – a day in which U.S. COVID-19 cases surged past 5,200 and deaths approached 100. The tests show that when the virus is carried by the droplets released when someone coughs or sneezes, it remains viable, or able to still infect people, in aerosols for at least three hours. On plastic and stainless steel, viable virus could be detected after three days. On cardboard, the virus was not viable after 24 hours. On copper, it took 4 hours for the virus to become inactivated.= In terms of half-life, the research team found that it takes about 66 minutes for half the virus particles to lose function if they are in an aerosol droplet.

That means that after another hour and six minutes, three quarters of the virus particles will be essentially inactivated but 25% will still be viable. The amount of viable virus at the end of the third hour will be down to 12.5%, according to the research led by Neeltje van Doremalen of the NIAID’s Montana facility at Rocky Mountain Laboratories. On stainless steel, it takes 5 hours 38 minutes for half of the virus particles to become inactive. On plastic, the half-life is 6 hours 49 minutes, researchers found. On cardboard, the half-life was about three and a half hours, but the researchers said there was a lot of variability in those results “so we advise caution” interpreting that number.

Read more …

Encouraging, but looks like a long time option.

Australian Scientists Map How Immune System Fights Virus (BBC)

Scientists in Australia say they have identified how the body’s immune system fights the Covid-19 virus. Their research, published in Nature Medicine journal on Tuesday, shows people are recovering from the new virus like they would from the flu. Determining which immune cells are appearing should also help with vaccine development, experts say. “This [discovery] is important because it is the first time where we are really understanding how our immune system fights novel coronavirus,” said study co-author Prof Katherine Kedzierska. The research by Melbourne’s Peter Doherty Institute for Infection and Immunity has been praised by other experts, with one calling it “a breakthrough”.

Many people have recovered from Covid-19, meaning it was already known that the immune system can successfully fight the virus. But for the first time, the research identified four types of immune cells which presented to fight Covid-19. They were observed by tracking a patient who had a mild-to-moderate case of the virus and no previous health issues. The 47-year-old woman from Wuhan, China, had presented to hospital in Australia. She recovered within 14 days. Prof Kedzierska told the BBC her team had examined the “whole breadth of the immune response” in this patient. Three days before the woman began to improve, specific cells were spotted in her bloodstream. In influenza patients, these same cells also appear around this time before recovery, Prof Kedzierska said.

Chest scans showed the patient’s lungs clearing after immune cells appeared

Read more …

Iran has released 54,000 + 85,000 prisoners “temporarily”.

A Coronavirus Outbreak In Jails Or Prisons Could Turn Into A Nightmare (Vox)

The next site of a deadly coronavirus outbreak may not be a cruise ship, conference, or school. It could be one of America’s thousands of jails or prisons. Just about all the concerns about coronavirus’s spread in packed social settings apply as much, if not more, to correctional settings. In a prison, multiple people can be placed in one cell. Hallways and gathering places are often small and tight (often deliberately so, to make it easier to control inmates). There is literally no escape, with little to no space for social distancing or similar recommendations experts make to combat coronavirus. Hand sanitizer can be contraband.

Such an outbreak could not only infect and kill hundreds or thousands of people in prison, but potentially spread to nearby communities as well. Visitors and correctional staff could spread the disease when they go back home, and inmates could spread it when they’re released. Even an outbreak contained within a jail or prison could strain nearby health care systems, as hundreds or thousands of people suddenly need medical care that jails and prisons themselves can’t provide. So if you want to “flatten the curve” to spread out the illness and avoid overwhelming health care systems, experts say, you should worry about coronavirus in prisons and jails.

In the US, the concern is particularly acute because America puts so many people in jail or prison. The US locks up about 2.3 million people on any given day — the highest prison and jail population of any country in the world. With an incarceration rate of 655 per 100,000 people, the US locks up people at nearly twice the rate of Russia, more than five times that of China, more than six times Canada and France, nearly nine times Germany, and almost 17 times Japan. “We can learn what works in terms of mitigation from other countries who have seen spikes in coronavirus already, but none of those countries have the level of incarceration that we have in the United States,” Tyler Winkelman, a doctor and researcher at the University of Minnesota focused on health care and criminal justice, told me.

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While France and Germany go out of their way to keep EU (Schengen) borders open, EU member Cyprus says no.

Cyprus Bans Flights From 28 Countries From March 21 (R.)

Cyprus on Tuesday announced a two-week ban on flights from 28 countries, including Britain and Greece, to curb the coronavirus outbreak. The measure will come into effect from 0100 GMT on March 21 for a 14-day period, an official statement said. It does not affect cargo flights. The island has already enacted stringent entry requirements, effective from March 16, barring anyone into the island, including Cypriots, without a medical certificate that they are clear of coronavirus. Those who do arrive are placed in compulsory quarantine in a government-supervised facility for two weeks. The east Mediterranean island has reported 49 cases of coronavirus.

Australia’s DFAT travel advisory map has been updated. Every country in the world is labelled “Do Not Travel”, for the first time ever.

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Best friends.

Beijing Tells NYT, WSJ, WaPo Journalists To Hand In Credentials (RT)

China is pulling the press credentials of US journalists from outlets including the New York Times and the Washington Post whose passes expire in 2020, in the latest move of an ongoing tit-for-tat with America over media access. In a statement about China’s “countermeasures against US suppression of Chinese media organizations in the United States,” Beijing announced that American reporters working for the NYT, Wall Street Journal, Voice of America, Time and the Washington Post whose credentials are due to expire by the end of this year must hand them over within 10 days. These reporters will also not be allowed to work in China – including Hong Kong and Macau – in the future, and other US journalists will face new visa restrictions similar to those Washington recently introduced for Chinese reporters.

“In view of the US’ discriminatory restrictions on visas, administrative review, and interviews of Chinese journalists, China will take reciprocal measures against US journalists,” it added. The back-and-forth expulsions of journalists started in February, when Chinese authorities gave three Wall Street Journalists five days to leave the country after Beijing objected to an opinion piece in the outlet calling China the “real sick man of Asia.” The paper refused to apologize for the piece. Shortly afterwards, the US dramatically reduced the number of journalists it would permit to work for four Chinese state-owned media companies inside the US, cutting the number allowed from 160 to 100. They also reduced the length of time those permitted entry could remain in the US. Beijing condemned the move as reflecting a “Cold War mindset” and warned of retaliation.

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Clean water in Venice for the first time in forever. The flipside of this: Free parking in Athens to limit use of public transportation.








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Jun 192019

Gustave Courbet The village maidens 1852


I intentionally start writing this mere minutes away from Fed chair Jay Powell’s latest comments. Intentionally, because the importance ascribed to those comments only means we have gotten so far removed from what capitalism and free markets are supposed to be about, that it’s pathetic. The comments mean something for rich socialists, but nothing for the man in the street. Or, rather, they mean that the man in the street will get screwed worse for longer.

And it’s not just the Fed, all central banks have it and do it. They play around with rates and definitions and semantics until the cows can never come home again. And they have such levels of control over their respective societies and economies that the mere use of the word “markets” should result in loud and unending ridicule. There are no markets, because there is no price discovery, the Fed and ECB and BOJ got it all covered. Any downside risks, that is.

But it doesn’t, because the people who pretend they’re in those markets hang on central banks’ every word for their meal tickets. These are the same people we once knew as traders and investors, but who today function only as rich socialists sucking the Fed’s teats for ever more mother’s milk.

Our economic systems have been destroyed by our central bankers. Who pretend they’re saving them. And we all eat it up hook line and sinker. Because the rich bankers and their media have no reasons to counter Fed or ECB actions and word plays, and because anyone who’s not a rich banker or investor is kept by the media from understanding those reasons.


What the Fed and ECB have done, and the BOJ, between Greenspan and Bernanke and Yellen and Powell and Draghi and Kuroda, is they have made it impossible for economies to let zombies go to die as they should. They have instead kept those zombies, banks, corporations, alive to the point where they are today a very big live threat to those economies, and growing. Look at Deutsche Bank.

How healthy do you think your economy can be if all the wealthy people are focused on whether Powell uses the word “patient” or not in his notes? Why would a vibrant company or entrepreneur give a flying damn about whether he does or not use a certain word? There is no reason.

But we have let our central banks take over, and that’s what they did. And it will be very hard to take back that power, but we will have to. Because central banks, while pretending to guard over the entire economy, in fact only protect the interests of commercial banks, and rich “investors”. And then tell you it’s the same difference.

There’s a case to be made that Paul Volcker was right when he raised US interest rate in the 1980s, but after Volcker it’s only been one big power and money grab for Wall Street, starting with Alan Greenspan and the housing bubble he blew. The Oracle my behind.


Japan is only just beginning to assess the damage Kuroda and Abenomics have done, and that’s at a point where both these men are still in power, and hell bent on doing more of the same. Something all central banks have in common; there are very few tools in their boxes, so they just repeat and repeat even as they fail. And that failure, by the way, is inevitable.

The Bank of Japan by now owns half the country, and they just want to do more. Kuroda’s plan to get rid of deflation was to force the Japanese to spend their money/savings. But the fully predictable result was that the grandmas did the exact opposite: they clued into the fact that if he wanted that, they had reason to be afraid, and so they sat on their money. And now it’s ten years later.


Draghi is going to leave in a few months’ time, and he’ll lower rates even more (towards 0º Kelvin), even if he knows that’s a really bad idea (it is), because at this point it’s about his legacy (after me, the flood). Same thing that Bernanke, Yellen did, clueless intellectuals who told themselves they had a grip on this. They never came near. That’s why they were elected, for being clueless. Wall Street doesn’t want Fed heads who know.

The pivotal moment was when Bernanke said they were running into “uncharted territory”, and then never looked back and started pretending he knew where he was. He didn’t and none of them ever did since. But they have academic degrees, and they’re willing to sell their souls for money, so there you are.


Central banks, or let’s say handing them the powers that we have, are the worst thing we have ever invented, and that’s saying something in the age of Pompeo and Bolton and Trump and the Clintons. The latter may take us into war with Iran, or any other country from a long list, but central banks are set to destroy our societies and economies from within.

It’s real simple: your central bank does NOT serve your interests. So get rid of it. Don’t wonder whether it’ll use the word “patient” or raise or lower rates by 25 or 50 points, get rid of the entire thing. There’s nothing there that benefits you, it only ever benefits bankers.

Now, of course, if you’re a banker…..


Note: I knicked the headline from something Tyler Durden said yesterday, that central banks are back to square minus zero. Too good to let go. Draghi back to square one, but then again not. Central banks should be abolished.






Mar 052019

Vincent van Gogh Weaver 1884


China Warns Of ‘Tough Struggle’, Cuts Growth Target To Lowest Since 1990 (G.)
China’s Largest Property Developer To Sell All Homes At A 10% Discount (ZH)
Relying On Central Banks For Growth Is A Bad Idea (Das)
Theresa May ‘Did Not Understand EU When She Triggered Brexit’ (G.)
Dear Europe, Brexit Is A Lesson For All Of Us: It’s Time For Renewal (Macron)
EU Must Learn From Brexit And Reform – Macron (G.)
The Prisoner Says No To Big Brother (John Pilger)
White House Lambasts Trump Probe (BBC)
Fox News’s Propaganda Isn’t Just Unethical, It’s Enormously Influential (Vox)
Manafort Asks Judge to Revisit Order on Lies to Special Counsel (CN)
Britain Puts New Roof On Skripal House of Horrors (Galloway)
Sunset Boulevard with Chimp (Kunstler)
Heatwaves Sweeping Oceans ‘Like Wildfires’ (G.)
World’s Rarest Orangutan Under Threat In Indonesia From Dam Project (G.)



To reiterate from yesterday, Xiang Songzuo, professor at Renmin University in Beijing, former deputy director at the People’s Bank of China and chief economist at the Agricultural Bank of China, said in a speech in December that real GDP growth was 1.67%, and now says: “I think this year, regulators will encourage more shadow banking financing, particularly to the private sector.”

Perhaps the biggest takeaway today is that China is failing to increase domestic demand, long predicted to be the country’s saving grace.

China Warns Of ‘Tough Struggle’, Cuts Growth Target To Lowest Since 1990 (G.)

China has set its lowest growth target in nearly three decades as premier Li Keqiang warned of “tough” challenges facing the world’s second-largest economy. He set the country’s growth at 6.0 to 6.5%, down from a target of 6.5% last year. In 1990, growth sank to 3.9% because of international sanctions sparked by the Tiananmen square protests. Growth in 2018 was 6.6%, the slowest rate since 1990. Speaking at the opening of the National People’s Congress, China’s legislative body, on Tuesday, Li said: “We will face a graver and more complicated environment as well as risks and challenges … We must be fully prepared for a tough struggle.”

Li’s state-of-the-nation-style address comes as the ruling Chinese Communist Party faces a difficult year amid a slowing economy, a trade war with the US, and diplomatic tensions over Huawei, the Chinese tech giant. Domestically, China has been hit by public health scandals as well as protests by workers, students, and small pockets of activists. Striking a sombre tone, Li stressed the “severe challenges” China is faced last year, including trade frictions, “mounting protectionism and unilateralism” and slowing domestic demand. “Downward pressure on the Chinese economy continues to increase, growth in consumption is slowing, and growth in effective investment lacks momentum. The real economy faces many difficulties,” Li said.

Read more …

The people who gave you empty cities.

China’s Largest Property Developer To Sell All Homes At A 10% Discount (ZH)

“Property accounts for roughly 70 per cent of urban Chinese families’ total assets – a home is both wealth and status. People don’t want prices to increase too fast, but they don’t want them to fall too quickly either,” said Shao Yu, chief economist at Oriental Securities. “People are so used to rising prices that it never occurred to them that they can fall too. We shouldn’t add to this illusion,” Shao added, echoing Ben Bernanke circa 2005. The bottom line is that just like true price discovery for US capital markets is prohibited (and sees Fed intervention any time there is an even modest, 10-20% drop in asset prices) or else the risk of an all out panic is all too real, in China true price discovery is also not permitted, however when it comes to the country’s all important, and wealth effect boosting, real estate.

Which is a problem, because whereas China suddenly appears to be suffering from all the conventional signs of deflation in the auto retail sector, where as we noted previously, neither lower prices nor easier loans have managed to put a dent the ongoing demand plunge the same ominous price cuts – which are clearly meant to boost flagging demand – are starting to emerge in China’s housing sector. Case in point, according to China’s Paper, Hui Ka Yan, the Chairman of Evergrande, China’s biggest property developer, and China’s second richest person announced it must ramp up home sales and to do that it would sell all its properties at a 10% discount after its home sales tumbled in January amid a cooling market.

[..] In November, Evergrande, which carries the industry’s largest debt pile of any Chinese housing developer, was caught in a vicious funding squeeze and raised eyebrows with a $1.8BN, 5-year bond deal, which it had to pay a whopping 13.75% coupon, prompting analysts to say the move “carried a whiff of desperation.” The fact that chairman Hui Ka Yan, China’s second-richest person, bought $1bn of it himself, added to a sense that outside investors were shunning the company. In many ways, Evergrande had no choice: after the property market boomed for the past three years, helping to power the economy through Xi Jinping’s crucial political transition year of 2017, in 2018 the market slowed sharply, after local governments shifted focus to controlling frothy prices and China Development Bank, the policy lender, phased out a $1 trillion subsidy program for homebuyers in smaller cities, where Evergrande’s projects are concentrated, the FT reported.

Even the official China News Service, usually a cheerleader for the economy, acknowledged recently that the property market “was a bit chilly”. Nomura chief China economist Ting Lu put it more starkly, forecasting a “frigid winter”. The bigger problem for Evergrande, which had $208 billion in total liabilities at the end of June 2018 — the most of any Chinese developer — including $43bn maturing in 2019, is that should China’s housing market suffer a steep downturn, it will likely be the company to suffer the most, if for no other reason than its massive leverage which stood at a net debt to equity ratio of 400%.

Read more …

I like and appreciate Satiayit Das, but the Fed doesn’t make grand policy errors, it simply protects its clients with public money. Since it does that by killing off price discovery, let’s stop talking about ‘markets’.

Relying On Central Banks For Growth Is A Bad Idea (Das)

Just since December 2018, central banks have collectively injected as much as $500 billion of liquidity to stabilize economic conditions. The U.S. Federal Reserve has put interest rate increases on hold and is contemplating a halt to its balance-sheet reduction plan. Other central banks have taken similar actions, fueling a new phase of the “everything bubble” as markets careen from December’s indiscriminate selling to January’s indiscriminate buying. The monetary onslaught appears a reaction to financial factors – falling equity markets, rising credit spreads, increased volatility – and a perceived weakening of economic activity, primarily in Europe and China.

If they heeded Walter Bagehot’s oft-cited rule, central banks would act only as lenders of last resort in times of financial crisis, lending without limit to solvent firms against good collateral at high rates. Instead, they’ve become lenders of first resort, expected to step in at any sign of problems. U.S. central bankers are currently debating whether quantitative-easing programs should be used purely in emergency situations or more routinely. Since 2008, the global economy has grown far too dependent on huge central bank balance sheets and accommodative monetary policy. The U.S. economic boom President Donald Trump loves to tout is largely fake, engineered by artificial policy settings.

Such dependence is dangerous and, for various reasons, could well backfire. For one thing, central banks are poor forecasters. GDP growth, inflation and labor markets may prove more resilient than feared, remaining at or above trend. Key risks, such as the trade dispute between the U.S. and China, may recede. Financial markets and asset prices have already recovered substantially. It’s possible that central banks may be forced to make another U-turn to reduce the risk of reflating asset price bubbles and overheating economies. This flip-flop would be destabilizing and affect decisionmakers’ credibility.

Printing money was always going to be easier than withdrawing it later. In effect, central banks are boxed into a situation where they can’t normalize policy and must maintain low rates and abundant liquidity, lest they destabilize fragile asset markets and spur low growth and disinflation. This state of “infinite QE” risks miscalculations and major policy errors. If central banks are, as is now fashionable to state, the only game in town, then the game is lost.

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The Tories thought they could get deals done with separate EU countries.

Theresa May ‘Did Not Understand EU When She Triggered Brexit’ (G.)

Theresa May and her circle of advisers did not understand how the European Union works, and consequently followed a negotiating strategy in 2016 that was doomed to fail, the former UK ambassador to the EU Sir Ivan Rogers has said. Speaking to the Institute for Government on Monday, Rogers said the people around the prime minister at the start of the article 50 process “didn’t know very much about European councils or that much about the EU”. Rogers, who resigned a year ago and has developed a reputation for producing some of the most caustic assessments of the misunderstandings between the UK and the EU, said the UK lived under the illusion that it could circumvent Brussels by making direct deals with the major capitals.

He said: “Capitals obviously matter, but I think having lived through this with a number of prime ministers, a number of different negotiations … that reflex in the British system always to think that we can deal direct with the organ grinders and not the monkeys: it never works like that. “It didn’t work like that in the Cameron renegotiation either. That stuff is not done in the way British politics works, leader to leader. It’s done via the bureaucrats, and the sherpas, and the people at the top of the institutions.” Rogers also warned that the chances of a no-deal Brexit sticking for long were close to zero. “The UK and EU know there is no chance of no-deal Brexit being the long-term end state, as the UK would quickly come back to the negotiating table,” he said. “There is not a world where we are going to end up with no deal.”

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A 25% approval rating won’t keep Little Napoleon from designing grande plans. More Europe!

Dear Europe, Brexit Is A Lesson For All Of Us: It’s Time For Renewal (Macron)

Never since the second world war has Europe been so essential. Yet never has Europe been in such danger. Brexit stands as the symbol of that. It symbolises the crisis of a Europe that has failed to respond to its peoples’ need for protection from the major shocks of the modern world. It also symbolises the European trap. The trap lies not in being part of the European Union; the trap is in the lie and the irresponsibility that can destroy it. Who told the British people the truth about their post-Brexit future? Who spoke to them about losing access to the EU market? Who mentioned the risks to peace in Ireland of restoring the border? Retreating into nationalism offers nothing; it is rejection without an alternative. And this is the trap that threatens the whole of Europe: the anger mongers, backed by fake news, promise anything and everything.

Europe is not a second-tier power. Europe in its entirety is a vanguard: it has always defined the standards of progress. In this, it needs to drive forward a project of convergence rather than competition: Europe, where social security was created, needs to introduce a social shield for all workers, guaranteeing the same pay for the same work, and an EU minimum wage, appropriate to each country, negotiated collectively every year. Getting back on track also means spearheading the environmental cause. Will we be able to look our children in the eye if we do not also clear our climate debt?

The EU needs to set its target – zero carbon by 2050 and pesticides halved by 2025 – and adapt its policies accordingly with such measures as a European Climate Bank to finance the ecological transition, a European food safety force to improve our food controls and, to counter the lobby threat, independent scientific assessment of substances hazardous to the environment and health. This imperative needs to guide all our action: from the Central Bank to the European commission, from the European budget to the Investment Plan for Europe, all our institutions need to have the climate as their mandate.

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Not the Onion. The man who has his police maim his own citizens now says “the people will really take back control of their future”.

EU Must Learn From Brexit And Reform – Macron (G.)

Macron later said: “The Brexit impasse is a lesson for us all”. In a nod to the Brexiters’ campaign slogan “take back control”, he said that in a changed Europe “the people will really take back control of their future”. In a suggestion the UK would deepen its future relationship with the EU, he said that “in this new Europe, the UK, I am sure, will find its true place”. The call for a Europe-wide agency “for the protection of democracies” to shield against electoral interference from outside powers comes as campaigning for May’s European parliament elections gets underway. Security officials are preparing for potential attempts by Russia-linked hackers to sway the vote and potentially deepen divisions in the bloc.

“There’s a strong likelihood that people will try to manipulate the debates and falsify the European election results,” the EU’s security commissioner, Julian King, told France’s Alsace newspaper last week. The May vote is shaping up as a continental clash between populist and Eurosceptic movements on the one hand, and pro-European internationalists on the other. Macron, who has faced months of gilets jaunes or yellow vest anti-government protests, has sought to style himself as a progressive voice against nationalism. His centrist party La République En Marche is narrowly ahead of Marine Le Pen’s far-right National Rally in French polls – a re-run of his face-off with Le Pen in the 2017 presidential election.

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John Pilger gave this speech at a rally in Sydney for Julian Assange recently, organised by the Socialist Equality Party. Unfortunate name.

The Prisoner Says No To Big Brother (John Pilger)

Whenever I visit Julian Assange, we meet in a room he knows too well. There is a bare table and pictures of Ecuador on the walls. There is a bookcase where the books never change. The curtains are always drawn and there is no natural light. The air is still and fetid. This is Room 101. Before I enter Room 101, I must surrender my passport and phone. My pockets and possessions are examined. The food I bring is inspected. The man who guards Room 101 sits in what looks like an old-fashioned telephone box. He watches a screen, watching Julian. There are others unseen, agents of the state, watching and listening. Cameras are everywhere in Room 101. To avoid them, Julian manoeuvres us both into a corner, side by side, flat up against the wall.

[..] Julian is a distinguished Australian, who has changed the way many people think about duplicitous governments. For this, he is a political refugee subjected to what the United Nations calls “arbitrary detention”. The UN says he has the right of free passage to freedom, but this is denied. He has the right to medical treatment without fear of arrest, but this is denied. He has the right to compensation, but this is denied. As founder and editor of WikiLeaks, his crime has been to make sense of dark times. WikiLeaks has an impeccable record of accuracy and authenticity which no newspaper, no TV channel, no radio station, no BBC, no New York Times, no Washington Post, no Guardian can equal. Indeed, it shames them. That explains why he is being punished.

For example: Last week, the International Court of Justice ruled that the British Government had no legal powers over the Chagos Islanders, who in the 1960s and 70s, were expelled in secret from their homeland on Diego Garcia in the Indian Ocean and sent into exile and poverty. Countless children died, many of them, from sadness. It was an epic crime few knew about. For almost 50 years, the British have denied the islanders’ the right to return to their homeland, which they had given to the Americans for a major military base. In 2009, the British Foreign Office concocted a “marine reserve” around the Chagos archipelago. This touching concern for the environment was exposed as a fraud when WikiLeaks published a secret cable from the British Government reassuring the Americans that “the former inhabitants would find it difficult, if not impossible, to pursue their claim for resettlement on the islands if the entire Chagos Archipelago were a marine reserve.”

The truth of the conspiracy clearly influenced the momentous decision of the International Court of Justice. WikiLeaks has also revealed how the United States spies on its allies; how the CIA can watch you through your iPhone; how Presidential candidate Hillary Clinton took vast sums of money from Wall Street for secret speeches that reassured the bankers that if she was elected, she would be their friend. In 2016, WikiLeaks revealed a direct connection between Clinton and organised jihadism in the Middle East: terrorists, in other words. One email disclosed that when Clinton was US Secretary of State, she knew that Saudi Arabia and Qatar were funding Islamic State, yet she accepted huge donations for her foundation from both governments. She then approved the world’s biggest ever arms sale to her Saudi benefactors: arms that are currently being used against the stricken people of Yemen. That explains why he is being punished.

Read more …

Nadler et al sent Julian Assange a request for documents. Imagine the brain damage required for that. Other than that, from what I get, there’s nothing new. All 81 requests concern people who’s already sent docs before, to Mueller and elsewhere.

White House Lambasts Trump Probe (BBC)

House of Representatives Judiciary Committee Chairman Jerry Nadler, a Democrat, said it was the “obligation” of Congress to “provide a check on abuses of power” by the White House. Mr Nadler, whose committee has the power to conduct impeachment hearings, also said it was “very clear” that the president had obstructed justice. But Mr Nadler told ABC News it was too early to discuss removing the president from office. President Trump dismissed Mr Nadler’s probe as a “political hoax”, but added: “I co-operate all the time with everybody.” Democrats, who took control of the House of Representatives in January, have vowed to open investigations into the president and White House.

More than five House committees are now investigating alleged attempts by Russia to meddle in the 2016 election campaign, the president’s tax returns and potential conflicts of interest involving Mr Trump’s family. Those inquiries are in addition to the investigation by Special Counsel Robert Mueller, who is expected to file his report soon. In a statement, White House press secretary Sarah Sanders said: “Today, Chairman Nadler opened up a disgraceful and abusive investigation into tired, false allegations already investigated by the special counsel and committees in both chambers of Congress. “Chairman Nadler and his fellow Democrats have embarked on this fishing expedition because they are terrified that their two-year false narrative of ‘Russia collusion’ is crumbling.

[..] Trump Organization chief financial officer Allen Weisselberg, longtime Trump personal assistant Rhona Graff and ex-White House counsel Don McGahn are also on the list of names released by the House Judiciary Committee. Donald Trump Jr has previously been forced by members of Congress to answer questions about a June 2016 meeting at Trump Tower, in which he sat down with a Kremlin-linked lawyer who had offered dirt on Mr Trump’s opponent Hillary Clinton. Wikileaks, and its founder Julian Assange, have also been sent documents requests by the committee. Wikileaks published emails stolen from the Democratic National Committee and released them during the 2016 campaign, causing political embarrassment to Mrs Clinton and her campaign team.

Read more …

Yes, Trump has Fox. The other side has just about everything else: CNN, MSNBC, NYT, WaPo, ABC, Politico, etc etc etc. Doesn’t someone who writes pieces like this one see the irony?

Fox News’s Propaganda Isn’t Just Unethical, It’s Enormously Influential (Vox)

Jane Mayer, the New Yorker’s longtime star investigative reporter, has a fantastic new longform piece out detailing the extent to which the Fox News Channel has become propaganda television for the Trump administration. Many of the basic points — like Fox’s bending of ethical standards to accommodate Sean Hannity, the collaborative relationship between Fox and Trump in shaping the news agenda, and the extent to which Trump at times seems to take his policy cues from Fox & Friends – will be familiar to Vox readers. But Mayer adds critical new insights into the arc of change at the network during a period when CEO Roger Ailes was deposed and then died, vice president Bill Shine left to become White House communications director, and the company’s owner Rupert Murdoch has restructured his media holdings and prepared to pass the baton to his son.

She also adds a couple of key scoops, including: • A Fox reporter named Diana Falzone had pieced together the entire Stormy Daniels story before the election, but network executives killed the story, demoted her, and then, after she sued them, reached a settlement with her that included a nondisclosure agreement. • “Trump ordered Gary Cohn, then the director of the National Economic Council, to pressure the Justice Department to intervene” and sue to block AT&T’s proposed takeover of Time Warner. (The DOJ did sue, though they denied this was due to improper interference from the White House, and ended up losing in court.) • “During the Bush Administration’s disastrous handling of Hurricane Katrina, Fox’s ratings slumped so badly, a former Fox producer told me, that he was told to stop covering it.”

Fox’s propaganda broadcasting matters. It’s a somewhat underexplored topic in political science research, but the information that’s available suggests that right-wing propaganda broadcasting — led by Fox but also including Sinclair Broadcast Group — has a decisive influence on American politics. [..] A study by Emory University political scientist Gregory Martin and Stanford economist Ali Yurukoglu estimates that watching Fox News translates into a significantly greater willingness to vote for Republican candidates. Specifically, by exploiting semi-random variation in Fox viewership driven by changes in the assignment of channel numbers, they find that if Fox News hadn’t existed, the Republican presidential candidate’s share of the two-party vote would have been 3.59 points lower in 2004 and 6.34 points lower in 2008. Without Fox, in other words, the GOP’s only popular vote win since the 1980s would have been reversed and the 2008 election would have been an extinction-level landslide.

Read more …

Interesting twist. But under wraps.

Manafort Asks Judge to Revisit Order on Lies to Special Counsel (CN)

Former Trump campaign chairman Paul Manafort asked a federal judge Monday to reconsider her earlier ruling that Manafort violated his plea agreement by lying about his contacts with suspected Russian spy Konstantin Kilimnik. The details of the request remain under seal for now, but a short order from U.S. District Judge Amy Berman Jackson entered into the docket in the case shows it is a request to reconsider her earlier decision based on new evidence. The docket entry specifically references a supplemental filing last month from Special Counsel Robert Mueller’s office that informed Jackson of new information relevant to Manafort’s plea deal that came up in an interview with longtime Manafort associate Rick Gates.

Jackson said in the short order Monday she will “deem [Manafort’s] filing as a motion for reconsideration” of her earlier decision. The motion is under seal for now, but Manafort and Mueller’s office will discuss whether portions of the filing may become public, according to the order. Manafort is scheduled to be sentenced in Washington, D.C., on March 13. He pleaded guilty to head off a second criminal trial after a federal jury in Virginia found him guilty last year of various financial crimes. In Washington, Manafort pleaded to conspiring to defraud the United States, obstruction of justice and violations of lobbying laws in relation to work he did on behalf of a pro-Russian political party in Ukraine.

Read more …

Britain would fall apart if it could no longer unite vs Russia.

Britain Puts New Roof On Skripal House of Horrors (Galloway)

In 12 months of shifting sands, one thing remains as its original foundations: the British state narrative on Salisbury stands as a castle in the air. One year from the dastardly fate of Sergei and Yulia Skripal, no one is a step forward on what happened to them, how, why, or of course where they are. One year ago, a nerve agent was allegedly sprayed onto their front doorknob. One year later, their house needs a new roof as a result. And why the roof? And why only the roof? I don’t know what happened to the stricken pair but then, neither do you, however much you’ve followed the story in Britain’s mass media. In fact, the more you’ve read, the more confused you’re likely now to be. There are some things I do know, however. The first is that the Russian state had as little to gain from attacking this pair in broad daylight on a Salisbury street with a signature Soviet-developed weapon, ‘novichok,’ as I said at the time.

It was exactly 100 days before the World Cup, just days before President Putin’s re-election. If – and it’s a big if – the Russian state wanted to kill the Skripals, many things would’ve been different. Firstly, they would’ve been dead. Yulia would’ve been dead in Russia where she lived. And Sergei would’ve been dispatched at a less sensitive time by rather more reliable, less identifiable means, and by rather less comical killers. The killers would not have flown directly from and back to Moscow. They would not have entrusted their egress to the Sunday service of Wiltshire public transport. They would not have smiled up at every CCTV camera they could find. They would not have stayed at a downscale small hotel in East London, they would not have smoked drugs there, and they would not have noisily entertained a prostitute in their room. They would not have left traces of their nerve agent in their hotel room.

They would not have spent a mere hour scoping Salisbury the day before the alleged poisoning of the Skripals. Nor would they have returned by public transport to London for their sex and drug party, only to retrace their steps by public transport the next day. If they were going to kill a man and his daughter, they would not have trusted nerve agent on a doorknob when there was no conceivable way of knowing who’s hand would touch it. Yulia? Sergei? The milkman? Any Tom, Dick or Harry in the street (or any of their children)? If they were going to smear nerve agent on a doorknob, they would’ve done it in the dark – not at noon the next day, when anyone or any camera could watch them doing so, yet no one did. Quite apart from the salient fact that by noon the victims had already left the house never to return to it.

Read more …

Very sorry to see what Jacko was up to.

Sunset Boulevard with Chimp (Kunstler)

If you want some insight into how deep the collective public psychosis of this land runs, check out Dan Reed’s four-hour documentary about the late Michael Jackson streaming on the HBO cable network. The film apparently provoked outrage when it premiered at the Sundance Festival recently, as if it were in bad taste to disclose the icon’s peccadillos in these days of Progressive intersectional triumph. Mr. Jackson methodically assembled a harem of catamites as his show business fame exploded and he struggled with the personal horror of developing into a full-grown man. He solved that problem by restricting his social consort to little boys while surgically metamorphosing into a schematic approximation of a woman — interesting, since he repeatedly referred to women as “evil,” but then his greatest hit was the self-revealing song, Bad.

Everybody and his uncle’s-second-cousin in Hollywood at the time must have known what the deal was with him but they went along with the gag that he was the reincarnation of Peter Pan, just a harmless character out of Show Biz’s own catalog of manufactured mythology, something they could understand, a framing device to spin cotton candy out of the truth that Mr. Jackson was simply a child-molester. [..] perhaps, Leaving Neverland signals an interesting turning point in the madness that has gripped this country for years, and especially the bewitched, bothered, and bewildered thinking class, lost in its labyrinth of sacred monsters. This year 2019 — and especially the coming springtime — promises to be a time of spectacular reversals in politics, manners, and markets.

Read more …

Most of you will be eating yellyfish in your lifetime, it’s not just your kids anymore.

Heatwaves Sweeping Oceans ‘Like Wildfires’ (G.)

The number of heatwaves affecting the planet’s oceans has increased sharply, scientists have revealed, killing swathes of sea-life like “wildfires that take out huge areas of forest”. The damage caused in these hotspots is also harmful for humanity, which relies on the oceans for oxygen, food, storm protection and the removal of climate-warming carbon dioxide the atmosphere, they say. Global warming is gradually increasing the average temperature of the oceans, but the new research is the first systematic global analysis of ocean heatwaves, when temperatures reach extremes for five days or more. The research found heatwaves are becoming more frequent, prolonged and severe, with the number of heatwave days tripling in the last couple of years studied.

In the longer term, the number of heatwave days jumped by more than 50% in the 30 years to 2016, compared with the period of 1925 to 1954. As heatwaves have increased, kelp forests, seagrass meadows and coral reefs have been lost. These foundation species are critical to life in the ocean. They provide shelter and food to many others, but have been hit on coasts from California to Australia to Spain. “You have heatwave-induced wildfires that take out huge areas of forest, but this is happening underwater as well,” said Dan Smale at the Marine Biological Association in Plymouth, UK, who led the research published in Nature Climate Change. “You see the kelp and seagrasses dying in front of you. Within weeks or months they are just gone, along hundreds of kilometres of coastline.”

The damage global warming is causing to the oceans has also been shown in a series of other scientific papers published in the last week. Ocean warming has cut sustainable fish catches by 15% to 35% in five regions, including the North Sea and the East China Sea, and 4% globally, according to work published by Pinsky and colleagues.

Read more …

More victims of European fossil fuel replacements. This is so easy to solve: pay them to NOT build that dam. Demand phasing out of palm oil, in fuel and food.

World’s Rarest Orangutan Under Threat In Indonesia From Dam Project (G.)

Environmentalists in Indonesia have lost a court challenge to a Chinese-backed dam project in Indonesia that will rip through the habitat of the most critically endangered orangutan species. On Monday, the state administrative court in North Sumatra’s capital, Medan, ruled that construction can continue despite critics of the 510-megawatt hydro dam providing evidence that its environmental impact assessment was deeply flawed. Experts said the dam would flood and in other ways alter the habitat of the orangutan species, which numbers only about 800 primates, and was likely to make it impossible to ensure the species survived.

Scientists announced the discovery of the species, Pongo tapanuliensis, in November after DNA analysis and field study revealed unique characteristics. The population, with frizzier hair and distinctively long calls, was previously believed to be Sumatran orangutans, also critically endangered. Without special protection, it is in danger of rapid extinction, according to scientists. The species is found only in the Batang Toru forest, where the dam will be built. Announcing the decision of a three-judge panel, presiding Judge Jimmy C Pardede said the witnesses and facts presented by the Indonesian Forum for the Environment, the country’s largest environmental group, in its case against the North Sumatra provincial government were irrelevant.

A newly-discovered species of orangutan, the Pongo tapanuliensis, is only found in the forest where the dam will be built. Photograph: HANDOUT/Reuters

Read more …

Jan 062019

Rembrandt van Rijn Man with a falcon on his wrist (possibly St. Bavo) 1661


This Fed thing just keeps going on, and it needs to stop. There is nothing in the discussion about the Federal Reserve these days that has any value other than it provides even more proof that the Fed has killed off the most essential elements of what once made the US economy function. All markets, stocks, bonds, housing markets, all price discovery, all murdered. No heartbeat. Pining for the fjords.

And instead of addressing that, and I’m not even talking about addressing fixing what is wrong, all I see is neverending stuff about Jay Powell using, or not using, terms such as “patient” or “accommodative”. Like any of it means anything coming from him and his ilk. Other than for making ‘investors’ a quick buck. Like a quick buck could ever trump the survival of entire market systems.

People discussing whether Jay Powell is doing a good job all miss the point. Because Powell should not be doing that job in the first place. The Fed should not have the power to manipulate the US economy anywhere near as much as it does. Because that power is perverting America like nothing else, and the US economy will never recover as long as the Fed holds that power. Is that clear enough? Do we understand that at least?


Powell apparently changed his tune Friday in order to let the mirage that the stock market has become, live another day. Almost literally a day, since it will come crumbling down no matter what he does, just a day or so later. It’s all some message hidden in his use of “patience” or “accommodative”. Nothing he does will have any effect in the medium or longer term, and he knows it.

The entire US economy today is about the quick buck. It’s about tomorrow morning only because nobody has the guts to look at 10 years from now. That makes Jay Powell and his whole Federistas staff worse than useless. It makes no difference if perhaps jobs are doing well; the pre-Powell Fed launched a bubble and that bubble will burst one day, a whole series of them will.

The only good thing he can do is get out of the way and let the markets be the markets, to let them discover prices by letting people interact with people. But who exactly in the US has the power to make the Fed go away?

If you were one of the people who thought Jerome Powell was different from the rest of the Fed head honchos, the ones who preceded him, and I’m by no means just talking Greenspan, Bernanke and Yellen, you can now consider yourself corrected.

Powell is not going to keep hiking rates if a bunch of zombie markets keep falling like they did in December 2018, even though that’s just what we should want zombies to do, and even if hiking is the only way to resurrect a degree of normality and functionality into the markets.

Greenspan, Bernanke and Yellen, by the way, like Powell, just serve(d) to give the beast a human face, and one that the actual power brokers can hide behind. Over the past nigh 106 years since the blinded wagons rode to Jekyll island, the individual brokers may have died their natural deaths, but the institution they represented and served blindly, never did.

Seen in that light, the Fed was/is a kind of a forerunner of the 2010 Citizens United legislation that granted corporations the same rights as individual citizens. The -perverse- sense, that is, in which citizens do die, but corporations do not. So they are much more, and much more powerful, than citizens. Citizens Limited should have set a time limit, like the ones all corporations used to have, and the Fed should have had the shortest and strictest limit of all.

And you were worried about Brett Kavanaugh being named to the Supreme Court…


Just as an example of how wrong we get these things these days, Let’s turn to Sven Henrich’s piece in MarketWatch this weekend. Henrich is the founder and lead market strategist of NorthmanTrader.com, and g-d bless him, I’m sure he means well, but he gets things so upside down it’s not funny. He writes about that quick buck only, and doesn’t see the future.

It’s like Danielle DiMartino Booth writing on Twitter Friday: “In one word Powell CAVED to pressure 16 days after a taking hard line. The one thing he did do he should have done after last FOMC meeting was convey that the Fed would truly be data dependent going forward. “Gradual” needs to go. Winner: Stock Market. Loser: Powell’s Credibility”.

Danielle is great, and probably much smarter than I am, but she’s also a former Fed employee, and that brings a shade of blindness with it. What are the odds that she will state anytime soon that the Fed can only, possibly, make things worse for the American economy? I don’t think those odds are good.

Back to Sven Henrich. In essence, it’s ridiculous that a news outlet like MarketWatch still has the guts to publish a piece like his, or that someone like him has the guts to write it. Because it means there still are people, perhaps the author(s) and editors among them, who haven’t yet understood what has happened, even after 10 years and change. They are people who think the Fed can do right, that they can fix things if only they find the right policies.

We have to get rid of this illusion because the Fed will not, can not, fix what is wrong with the economy, or the ‘markets for that matter. Quite the contrary, the Fed can only make things worse. We know this because the only way the markets can be fixed, brought back to life indeed, is to let them function, and the only way they can function is when they can discover what things, stocks, bonds, homes etc., are worth, without some unit with unlimited financial power interrupting.

Central banks are founded for one reason only: to save banks from bankruptcy, invariably at the cost of society at large. They’ll bring down markets and societies just to make sure banks don’t go under. They’ll also, and even, do that when these banks have taken insane risks. It’s a battle societies can’t possibly win as long as central banks can raise unlimited amounts of ‘money’ and shove it into private banks. Ergo: societies can’t survive the existence of a central bank that serves the interests of its private banks.



Stock-Market Investors, It’s Time To Hear The Ugly Truth

For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up. As I’ve been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch. And don’t think this is hyperbole on my part. I will, of course, present evidence.

In March 2009 markets bottomed on the expansion of QE1 (quantitative easing, part one), which was introduced following the initial announcement in November 2008. Every major correction since then has been met with major central-bank interventions: QE2, Twist, QE3 and so on. When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history. The sum: More than $5 trillion between 2016 and 2017, giving us a grand total of over $15 trillion, courtesy of the U.S. Federal Reserve, the European Central Bank and the Bank of Japan:

When did global central-bank balance sheets peak? Early 2018. When did global markets peak? January 2018. And don’t think the Fed was not still active in the jawboning business despite QE3 ending. After all, their official language remained “accommodative” and their interest-rate increase schedule was the slowest in history, cautious and tinkering so as not to upset the markets.

With tax cuts coming into the U.S. economy in early 2018, along with record buybacks, the markets at first ignored the beginning of QT (quantitative tightening), but then it all changed. And guess what changed? Two things. In September 2018, for the first time in 10 years, the U.S. central bank’s Federal Open Market Committee (FOMC) removed one little word from its policy stance: “accommodative.” And the Fed increased its QT program. When did U.S. markets peak? September 2018.

[..] don’t mistake this rally for anything but for what it really is: Central banks again coming to the rescue of stressed markets. Their action and words matter in heavily oversold markets. But the reality remains, artificial liquidity is coming out of these markets. [..] What’s the larger message here? Free-market price discovery would require a full accounting of market bubbles and the realities of structural problems, which remain unresolved. Central banks exist to prevent the consequences of excess to come to fruition and give license to politicians to avoid addressing structural problems.


is it $15 trillion, or is it 20, or 30? How much did China add to the total? And for what? How much of it has been invested in productivity? I bet you it’s not even 10%. The rest has just been wasted on a facade of a functioning economy. Those facades tend to get terribly expensive.

Western economies would have shrunk into negative GDP growth if not for the $15-20 trillion their central banks injected over the past decade. And that is seen, or rather presented, as something so terrible you got to do anything to prevent it from happening. As if it’s completely natural, and desirable, for an economy to grow forever.

It isn’t and it won’t happen, but keeping the illusion alive serves to allow the rich to put their riches in a safe place, to increase inequality and to prepare those who need it least to save most to ride out the storm they themselves are creating and deepening. And everyone else can go stuff themselves.

And sure, perhaps a central bank could have some function that benefits society. It’s just that none of them ever do, do they? Central banks benefit private banks, and since the latter have for some braindead reason been gifted with the power to issue our money, while we could have just as well done that ourselves, the circle is round and we ain’t in it.

No, the Fed doesn’t hide the ugly truth. The Fed is that ugly truth. And if we don’t get rid of it, it will get a lot uglier still before the entire edifice falls to pieces. This is not complicated stuff, that’s just what you’re made to believe. Nobody needs the Fed who doesn’t want to pervert markets and society, it is that simple.



Apr 232018
 April 23, 2018  Posted by at 12:46 pm Finance Tagged with: , , , , , , , , ,  12 Responses »

René Magritte La trahison des images 1929


“[Price discovery] is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers”, says Wikipedia. Perhaps not a perfect definition, but it’ll do. They add: “The futures and options market serve all important functions of price discovery.”

What follows from this is that markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is.

Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all. Also, if you don’t have functioning markets, you have no investors. Who’s going to spend money purchasing things they can’t determine the value of? (I know: oh, wait..)


Ergo: we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

Or is it because they once started out as ‘investors’ or finance journalists, bankers or politicians, and wouldn’t know what to call themselves now, or simply can’t be bothered to think about such trivial matters?

Doesn’t a little warning voice pop up, somewhere in the back of their minds, in the middle of a sweaty sleepless night, that says perhaps they shouldn’t get this one wrong? Because if you think about, and treat, a ‘thing’, as something that it’s not at all, don’t you run the risk of getting it awfully wrong?

A cow is not a dinner table; but both have four legs. And “Art is Art, isn’t it? Still, on the other hand, water is water. And east is east and west is west and if you take cranberries and stew them like applesauce they taste much more like prunes than rhubarb does. Now you tell me what you know”. And when you base million, billion, trillion dollar decisions, often involving other people’s money, on such misconceptions, don’t you play with fire -or worse?


This may seem like pure semantics without much practical value, but I don’t think it is. I think it’s essential. What comes to mind is René Magritte’s painting “La Trahison des Images”, better known as “Ceci n’est pas une pipe”, (The Treachery of Images – this is not a pipe). People now understand -better- what he meant, but they were plenty confused in the late 1920s when he painted it.

An image of a pipe is not a pipe. In Magritte’s words: “The famous pipe! How people reproached me for it! And yet, could you stuff my pipe? No, it’s just a representation, is it not? So if I had written on my picture ‘This is a pipe’, I’d have been lying!”.

But isn’t that what the entire financial community is doing today? Sure, they’re making money right now, but that doesn’t mean there are actual markets. They don’t have to go through “the process of determining the price of an asset in the marketplace..” I.e. they don’t have to check if the pipe is a real pipe, or just a picture of one.



What killed price discovery, and thereby markets? Central banks did. What they did post-2008 is two-fold: they bought many, many trillions in ‘assets’, mortgage-backed securities, sovereign bonds, corporate bonds, etc., often at elevated prices. It’s hard to gauge how much exactly, but it’s in the $20+ trillion range. Just so all these things wouldn’t be sold at prices markets might value them at after going through that terrible process of ‘price discovery’.

Secondly, of course, central banks yanked down interest rates. Until they arrived at ultra low interest rates (even negative ones), which have led to ultra low yields and the perception of ultra low volatility, ultra low risk, ultra low fear, which in turn contributed to ultra low savings (in which increasing household debt also plays a major role). As a consequence of which we have ultra high prices for stocks, housing, crypto(?), and I’m sure I still forget a number of causes and effects.

People wanting to buy a home are under the impression they can get “more home for their buck” because rates are so low, which in turn drives up home prices, which means the next buyers pay a lot more than they would have otherwise, and get “less home for their buck”. In the same vein, ultra-low rates allow for companies to borrow on the cheap to buy back their own stock, which leads to surging stock prices, which means ‘investors’ pay more per share.


Numbers of the S&P 500 and its peers across the world are still being reported, but what do they really represent? Other than what central banks and financial institutions have bought and sold? There’s no way of knowing. If you buy a stock, or a bond, or a home, you no longer have a means of finding out what they are truly worth.

Their value is determined by central banks printing debt out of thin air, not by what it has cost to build a home, or by what a company has added to its value through hard work or investment in labor, knowledge or infrastructure. These things have been rendered meaningless.

Central banks determine what anything is worth. The problem is, that is a trap. And your money risks being stuck in that trap. Because you’re not getting any return on your savings, you want to ‘invest’ in something, anything, that will get you that return. And the only guidance you have left is what central banks purchase. That is a much poorer guidance than an actual market place. The one thing you can be sure of is that you’re paying more for ‘assets’ -probably much more- than you would have had central banks remained on the sidelines.

The Fed may (officially?) have quit purchasing ‘assets’, but the Bank of Japan and ECB took over with a vengeance (oh, to be a fly on the wall at the BIS); in Q1 2017 the latter two bought over $1 trillion in paper. The Bank of Japan has effectively become its nation’s bondmarket. The European Central Bank is not far behind that role in Europe.

And the ‘market’, or rather the 2-dimensional picture of a market, depends only on what they do. The one remaining question then is when will this end? Some say it can go on forever, or, you know, till these policies have restored growth and confidence. But can, will, anyone have confidence in a market that doesn’t function? Martin Armstrong recently addressed the issue:


The Central Bank Crisis on the Immediate Horizon

While the majority keep bashing the Federal Reserve, other central banks seem to escape any criticism. The European Central Bank under Mario Draghi has engaged in what history will call the Great Monetary Experiment of the 21st Century – the daring experiment of negative interest rates. A look behind the scenes reveals that this experiment has been not just a failure, it has undermined the entire global economic structure.

We are looking at pension funds being driven into insolvency as the traditional asset allocation model of 60% equity 40% bonds has failed to secure the future with negative interest rates. Then, the ECB has exceeded 40% ownership of Eurozone government debt. The ECB realizes it can not only sell any of its holdings ever again, it cannot even refuse to reinvest what it has already bought when those bonds expire. The Fed has announced it will not reinvest anything.

Draghi is trapped. He cannot stop buying government debt for if he does, interest rates will soar. He cannot escape this crisis and it is not going to end nicely. When this policy collapses, forced by the free markets (no bid), CONFIDENCE will collapse rapidly. Once people no longer believe the central banks can control anything, the end has arrived. We will be looking at the time at the WEC. We will be answering the question – Can a central bank actually fail?


So where do you go from here? Everything you -think you- know about markets is potentially useless and doesn’t apply to what you see before you today. There are many voices who talk about similarities and comparisons with what happened to markets for instance in 1987, but what’s the value of that?

Back then, to all intents, constructions, and purposes, markets were functioning. There was price discovery. There were some ‘novel’ instruments, such as portfolio insurance, that you could argue influenced markets, but nothing on the scale or depth of what we see today with high-frequency trading, robots, Kurodas and Draghis.

The temptation is obvious, and large, to compare today’s financial world with that of any point in the past that seems to fit, even if not perfectly. But the lack of price discovery means any such comparisons must of necessity be way off the mark; you cannot stuff that 2-D pipe.

The BIS-designed unity in central bank policies is under threat, as Armstrong indicates. The Fed has moved towards quantitative tightening, not investing or even re-investing, and raising rates, but it doesn’t look like the ECB will be able to follow that change of direction. It can’t stop ‘investing’ because it has become too big a player. The Bank of Japan appears to be in that same bind.

Central bankers jumped into the markets to save them (or so goes the narrative), but they will instead end up killing them. In fact, they killed them the minute they entered the fray. Markets can’t survive without price discovery, and vice versa. The moment it becomes clear that Draghi MUST keep buying sovereign debt from countries with failing economies, the game is up.


All those trillions created by central banks, and the even much bigger amounts conjured up by the creation of loans by commercial banks, will have to be eradicated from the system before markets and price discovery can return. And return they will. There are lots of things wrong with our economic and financial machinery, but functioning markets are not wrong.

Things run off the rails when governments and central banks start interfering, not when markets are allowed to function. But it’s long turned into a giant game of whack-a-mole, in which economists and other know-it-betters are forced to plug one hole by digging another, and so forth.

The best we can hope for is some sort of controlled demolition, but the knowledge and intelligence required to make that happen don’t appear to be available. The political climate certainly isn’t either. A politician who campaigns on “let’s take this sucker down slowly” will always lose out to one who claims to know not only how to save it, but to let it bloat even more.

The Draghis of the world will continue to believe they are in control until they are not. At first, some people will start taking out their money while it’s still there, and then after that the rest will trample over each other in a bloody stampede on the way to the exits trying to save what’s left. After the first $100 trillion is gone, we’ll be able to survey the terrain, but by then we won’t, because we’ll be too busy trying to save ourselves.

And I know you’ve heard this before, and I know central banks bought us 10 years of respite. But it was all fake, it was all just a picture of a pipe. They had to pile on insane amounts of debt on your heads, kill off your pension systems and make markets a meaningless term, to achieve that respite.

They had to kill the markets to create the illusion that there still were markets. With the implied promise that they would be able to get out when they had ‘restored growth’.

But you can’t buy growth. And yet that is the only trick they have up their sleeves, and the only thing the emperor is wearing. Next up: a rabbit and a hat. And a pipe. And then the lights go out and someone shouts “FIRE!”.





Feb 072018
 February 7, 2018  Posted by at 11:07 am Finance Tagged with: , , , , , , , , , ,  7 Responses »

Jean-Michel Basquiat Aboriginal 1984


Why Did US Stock Market Crash On Monday? Blame The Central Banks (Steve Keen)
Asian Shares On Edge As US Futures Slip (R.)
Two Tiny Volatility Products Helped Fuel Sudden Stock Slump (BBG)
Inside Wall Street’s $8 Billion VIX Time Bomb
The Death Of The “Death Of Contagion” Central Bank Meme (Luongo)
Icahn: “One Day This Thing Is Just Going To Implode” (CNBC)
Good Riddance, Janet, You Were A Colossal Failure, Part 1 (Stockman)
How “Opioid Janet” Got Wall Street Hooked On Monetary Heroin, Part 2 (Stockman)
The EU Is The Enemy Of The Working Classes (Spiked)
German Pay Deal Heralds End Of Wage Restraint In Europe’s Largest Economy (R.)
UK Crops Left To Rot After Drop In EU Farm Workers In Britain (Ind.)
Refugee Arrivals Have Doubled Since August, Greek Migration Minister Says (K.)



Coming to you from a Russian propaganda channel.

Why Did US Stock Market Crash On Monday? Blame The Central Banks (Steve Keen)

Everyone who’s asking “why did the stock market crash Monday?” is asking the wrong question. The real poser is “why did it take so long for this crash to happen?” The crash itself was significant—Donald Trump’s favorite index, the Dow Jones Industrial (DJIA) fell 4.6% in one day. This is about four times the standard range of the index—and so according to conventional economics, it should almost never happen. Of course, mainstream economists are wildly wrong about this, as they have been about almost everything else for some time now. In fact, a four% fall in the market is unusual, but far from rare: there are well over 100 days in the last century that the Dow Jones tumbled by this much. Crashes this big tend to happen when the market is massively overvalued, and on that front this crash is no different.

It’s like a long-overdue earthquake. Though everyone from Donald Trump down (or should that be “up”?) had regarded Monday’s level and the previous day’s tranquillity as normal, these were in fact the truly unprecedented events. In particular, the ratio of stock prices to corporate earnings is almost higher than it has ever been. There is only one time that it’s been higher: during the DotCom Bubble, when Robert Shiller’s “cyclically adjusted price to earnings” ratio hit the all-time record of 44 to one. That means that the average price of a share on the S&P500 was 44 times the average earnings per share over the previous 10 years (Shiller uses this long time-lag to minimize the effect of Ponzi Scheme firms like Enron).

The S&P500 fell more than 11% that day, so Monday’s fall is minor by comparison. And the market remains seriously overvalued: even if shares fell by 50% from today’s level, they’d still be twice as expensive as they have been, on average, for the last 140 years. After the 2000 crash, standard market dynamics led to stocks falling by 50% over the following two years, until the rise of the Subprime Bubble pushed them up about 25% (from 22 times earnings to 28 times). Then the Subprime Bubble burst in 2007, and shares fell another 50%, from 28 times earnings to 14 times. This was when central banks thought The End of the World Is Nigh, and that they’d be blamed for it. But in fact, when the market bottomed in early 2009, it was only just below the pre-1990 average of 14.5 times earnings.

Read more …

Give it a few days, and complacency may well be reinstated.

Asian Shares On Edge As US Futures Slip (R.)

Asian shares reversed their earlier gains on Wednesday as investors dumped U.S. stock futures for safer harbors, a sign market participants remain jittery after this week’s global markets rout. While most analysts believed this week’s distressed selling looks to have run its course for the moment, allowing volatility to abate a little, the prospect of monetary tightening across the globe remains a challenge for the long term. “If we look at some of the drivers of the recent volatility – the natural correction and the bond sell-off – we don’t foresee any of these factors contributing to a lengthy period of extreme volatility,” said Tom Kenny, senior economist at ANZ. “The correction is probably a healthy development and is not reflective of a souring of the macroeconomic outlook.”

Investors took their cues from a late rebound on Wall Street overnight, though many had an anxious eye on E-Mini futures for the S&P 500 which slipped about 1% in late Asian trading. Dow Minis were down 0.9%. MSCI’s broadest index of Asia-Pacific shares outside Japan was a tad softer, having risen as much as 2% in early trade. Japan’s Nikkei eased too but was still up 0.2%. Chinese blue chips and South Korea’s KOSPI index dropped more than 2%. “The only surprise about the current volatility is that it hasn’t happened sooner. Normally, even in a bull market, investors should expect a sell-off of 10-percent-plus at some point,” said Richard Titherington, chief investment officer of EM Asia Pacific Equities. “While a major market downturn is possible, it is not our current expectation. The underlying backdrop of an improving global economy, a weakening U.S. dollar and a pickup in global earnings all remain supportive factors.”

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Why have these things ever been allowed into existence? Who and what do they serve? The American people?

Two Tiny Volatility Products Helped Fuel Sudden Stock Slump (BBG)

Two days after a sudden spike in volatility sparked a stock-market crash, market participants are left to ponder the wreckage of the sell-off and the mysterious dynamics that caused it. One theory that’s emerging: the curious case of the tail wagging the dog. Two exchange-traded products that democratized access to one of Wall Street’s most tried-and-true strategies – selling volatility – had just $3.6 billion in assets on Monday. That’s a tiny fraction of the roughly $2 trillion estimated to be linked to short-volatility strategies – and a speck of dust compared to the $23 trillion in market value of S&P 500 companies. Yet the popularity of these vehicles might have contributed to one of the most violent moves in U.S. equities in history: one that saw the Dow Jones Industrial Average slump more than 6% in a span of six minutes.

After the dust settled, the combined assets in the two exchange-traded products shrank to $135 million. One of them – the VelocityShares Daily Inverse VIX Short-Term ETN, known as XIV – will soon be extinct. No one knows for sure what played out on the afternoon of Feb. 5 on Wall Street, cautioned Societe Generale SA managing director Ramon Verastegui, but there’s reason to believe the sharpness of the retreat in equities was linked to traders’ understanding of how the exchange-traded products would behave. As funds’ assets swelled, so too had their power to move the underlying VIX futures markets, he suggests. And market participants knew it. Products such as XIV and its close relation, the ProShares Short VIX Short-Term Futures ETF (SVXY), aim to offer investors exposure to the inverse of the daily moves at the front portion of the VIX futures curve, and typically benefit from market tranquility.

Demand from leveraged VIX exchanged-traded products was “the major driver for the move post the cash close,” Barclays analysts led by Maneesh Deshpande said. There are other clues in the case — notably that the big fall in stocks hasn’t yet significantly affected other asset classes. That the volatility spike was concentrated in equities supports the notion of a VIX product-propelled plunge, according to George Pearkes, macro strategist at Bespoke Investment Group. During other eruptions of volatility — the aftermath of China’s shock devaluation of the yuan in August 2015, for instance – volatility in stocks, bonds, currencies and even oil jumped. “This is the exact opposite of a number of different volatility spikes we’ve seen in recent years,” he said in an interview on Bloomberg TV. “Frankly, it’s a reason to think that some of the worst of the recent moves in the VIX and the delta moves in cash equities have been driven specifically by equity-vol products that have not spread out to other asset classes.”

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If it were just $8 billion, we wouldn’t be having this talk.

Inside Wall Street’s $8 Billion VIX Time Bomb

It was the hot trade on Wall Street, a seemingly sure thing that lulled everyone from hedge fund managers to small-time investors. Now newfangled investments linked to volatility in the stock market – until a few years ago, obscure niche products – have exploded in spectacular fashion. The shock waves have only just begun. How these investments proliferated is a classic story of Wall Street salesmanship and old-fashioned greed. In a few short years, financial engineering transformed expectations about the ups and downs of the stock market into an asset class that could be marketed and sold – as tradable as stocks but, it turns out, sometimes far riskier. Call it the volatility-financial complex. All told, financial players have created more than $8 billion of products tied to one index alone.

In a low-interest-rate world, investors desperate for returns snapped them up, and bankers collected fees along the way. But, as with mortgage investments a decade ago, complacency – in this case, over a history-defying period of market calm – masked potential dangers. No one is saying the wild swings of late presage a broad collapse like the one that hit in 2008. But the fallout nonetheless provides a glimpse into the myriad products, and growing complexity, driving global markets a decade after the last debacle. The risks, in hindsight, were clear enough even before the Dow Jones industrial average plummeted nearly 1,600 points on Monday, snapped back, and then took a wild bungee jump of nearly 1,200 points Tuesday. The CEO of Barclays, which pioneered notes linked to U.S. market volatility, warned only last month that investors might be losing their heads.

“If this thing turns, hold on to your hat,” Jes Staley told a panel at the World Economic Forum in Davos. Now, hats have been blown off by a whirlwind the likes of which Wall Street has never seen. To some, the volatility complex feels like a monster that’s been lurking in the shadows. Even one of the inventors of the VIX, Devesh Shah, is perplexed why these products exist in the first place. “Everybody knew that this was a huge problem,” said Shah, who was in his 20s when he helped create what’s become the market’s fear barometer. “Everybody knows that Inverse VIX is going to go to zero at some point, and all these inverse and leveraged products, not just in the VIX but elsewhere too, at the end of the day cost people a lot of money.”

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VIX as CDOs with lipstick on.

The Death Of The “Death Of Contagion” Central Bank Meme (Luongo)

Last year now-former FOMC Chair Janet Yellen downplayed the possibility of another financial crisis. In her hubris she believes the central banks have walled off the financial system from ‘contagion risks’ brought on by over-investment in synthetic derivative market products. Like generals, however, central planners are always fighting the last war. We’re experiencing a major correction in the equity markets brought on in a mean-reversion exercise thanks to central banks trying to shore up their defenses around the last battle they lost, namely off-exchange, unregulated CDOs — synthetic debt-based investment products. Humans are clever and will always find a way around a problem. The problem is incentives. he banks created CDO’s because there was a demand for investment returns far above what the central banks were allowing the market to pay, by setting interest rates well below the real risk profile of the investment community.

In other words, government bonds were over-priced and investors went looking for better returns. Now that Yellen et.al. have stamped out most of that market investors still need yield. And that’s where the equity markets and the VIX come in. The response to the 2008 financial crisis was zero-bound interest rates and trillions in liquidity created by the central banks sitting around looking for yield. It found its way into the equity markets which over the past six plus years been on an historic rally off the October 2011 low. During that time the VIX became more important. What was once only discussed by the real pros was now in the hands of everyone. Contagion risks jumped asset classes. For the uninitiated the VIX — or volatilty index — is a bet about the behavior of the S&P 500, itself an index of stocks. Higher VIX values equal higher implied future volatility in the S&P 500 and vice versa.

In mathematical terms the S&P 500 is the first derivative of any single stock. Stocks in the index trade in sympathy with it regardless of their current business. The VIX is then the 2nd derivative of any stock in your portfolio. During a rally the VIX falls. But, now with so many products out there, ETNs — Exchange Traded Notes — both leveraged and un-leveraged — to speculate in the VIX it became easier and more profitable to trade it than the S&P 500 or individual stocks. Trading volumes in these products have soared. The tail didn’t just wag the dog, it became the dog. Now these ETN’s are another derivative of the equity markets. And if they are leveraged, i.e. the note trades with twice or three times the volatility of the VIX itself (volatility of volatility), then options on these ETNs is the fourth derivative of the underlying stock. Volatilty of volatility of volatility.

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No doubt there.

Icahn: “One Day This Thing Is Just Going To Implode” (CNBC)

Billionaire Carl Icahn told CNBC on Tuesday there are too many exotic, leveraged products for investors to trade, and one day these securities are going to blow up the market. The market is a “casino on steroids” with all these exchange-traded funds and exchange-traded notes, he said. These funds, especially the leveraged ones, are the “fault lines” that will eventually lead to an earthquake on Wall Street, he said. “These are just the beginnings of a rumbling.” The latest example is an obscure security, designed to be a bet on a calm market, that’s being blamed for causing an influx of selling in recent days. The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) blew up overnight as investors were forced to sell when the market went haywire. As a result, Credit Suisse on Tuesday said as of Feb. 20, it will end trading for its XIV, which was supposed to give the opposite return of the Cboe Volatility Index (VIX), often referred to as the market’s fear gauge.

“The market itself is way over-leveraged,” Icahn said on “Fast Money Halftime Report,” predicting that “one day this thing is just going to implode.” He described the possible implosion as “maybe eventually worse than 1929,” making reference to the stock market crash that contributed to the Great Depression. “The market has become a much more dangerous place,” he said, adding the current volatility is a precursor of potential trouble. “It’s telling you something, giving you a warning.” Investors are piling into index funds thinking they’ll never go down, Icahn said. “Passive investing is the bubble right now, and that’s a great danger.” But as much as he was sounding alarm bells, Icahn said, “I don’t think this is the explosive time.” The market will “probably bounce back,” he continued. “I don’t think this is the beginning of the end.”

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I read far too much praise for Yellen. Stockman doesn’t swallow it either.

Good Riddance, Janet, You Were A Colossal Failure, Part 1 (Stockman)

This is one for the record books. During Janet Yellen’s last week in office, the Dow dropped by 1,095 points or 4.1%. But by her lights, apparently, that wasn’t even a warning bell – just the market clearing its collective throat. So on the way out the door our Keynesian school marm could not resist delivering what will soon be seen as a grand self-indictment. There’s nothing to worry about, she averred, because Wall Street’s OK and main street is positively awesome: “I don’t want to label what we’re seeing as a bubble….(even if) asset valuations are generally elevated….(but) when I see the unemployment rate fall to 4.1%…I feel very good about the progress we’ve seen there.” No, there is a monumental bubble out there that was born, bred and nurtured at the hands of the Fed.

At the same time, Yellen and her merry band of money printers had virtually nothing to do with the 4.1% unemployment rate – even if that were a valid measure of return to full employment prosperity, which it is not. To the contrary, the mainstreet economy is sick as a dog, and it is the Fed’s giant Wall Street bubbles which made it so. That said, hereupon follows the ringing economic and financial indictment that Janet Yellen so richly deserves. In the first place, that Fed’s dangerous digression into massive QE and 100 months of near-ZIRP had virtually nothing to do with the limpid “recovery” that has transpired since the June 2009 bottom. And we do mean its contribution amounted to nothing – as in zero, zip and zilch.

[..] In general, our thesis is that central bank stimulus of household spending is equivalent to a one trick pony. Once all the latent headroom on household balance sheets and income statements to raise leverage levels is used up, cheap debt loses its efficacy in the main street economy. In fact, that is exactly what has happened. During the first 20-years of the Greenspan-incepted era of Bubble Finance, household leverage ratios exploded. Whereas wage and salary incomes rose by $4.2 trillion or 2.9X, household liabilities soared by nearly $12 trillion or 5.2X. Over the two decades, therefore, household leverage ratios (liabilities to earned income) nearly doubled from 124% to 224%.

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Yellen has been a terribly destructive force for America. It’s just that the consequences take time to seep through.

How “Opioid Janet” Got Wall Street Hooked On Monetary Heroin, Part 2 (Stockman)

Janet Yellen deserves exactly none of the adulation being conferred upon her tenure by the mainstream financial press. In fact, her reign will be judged by history as a spectacular failure that left main street high and dry—even as it finally and completely addicted Wall Street to the toxic monetary heroin that is the specialty of Keynesian central bankers. Accordingly, it may take a dozen or more episodes like the 12% crash of the last few days to finally purge the “buy the dips” addiction that is rampant in the casinos. Pending that day of deliverance, however, the soon-to-be shaking and shivering cold turkeys of Wall Street will surely come to see that Opioid Janet was not their friend at all, but their very worst nightmare.

[..] much of the mischief, madness and reckless speculation now implanted in the global financial markets happened during the Yellen-enabled global QE phase of 2014-2018. During that period, for example, corporate debt issuance set all-time records. But as we documented in Part 1, the proceeds went into financial engineering and bidding up the price of existing shares to ludicrous heights, not new growth capital. Likewise, carry trade speculation by front-runners went to mindless extremes, such as the fact that the Italian 10-year note traded under 1.0% during points in 2016. The facts that Italy’s public debt stood at 133% of GDP, that its political system was completely broken and dysfunctional and that its economy was 10% smaller than it had been earlier in this century were irrelevant to the price of its debt.

The latter was being set by front-running speculators who were buying on massive repo leverage what the idiot central banker, Mario Draghi, promised them he would be buying, too. Indeed, as Yellen dithered, deferred, ducked and delayed the urgent imperative of monetary normalization at the Fed, the other lesser central banks were given leave to expand their collective balance sheets at a stupendous $2.2 trillion annual rate during much of 2016-2017. With two massive central bank vaults swinging their doors wide open, it’s no wonder that upwards of $15 trillion of sovereign debt traded with a negative yield during the peak of the madness.

And that wasn’t the half of it. By killing the yield on sovereigns, Yellen and her convoy of Keynesian central bankers forced money managers into what will soon be evident as crazy-ass risk taking in order to scrape-up a semblance of yield. Not only did European junk bonds trade inside the UST 10-year yield at one point, but the corporate bond market was literally primed for an explosion of issuance by fund managers desperate for returns. The proceeds, of course, went almost entirely into funding giant, pointless M&A deals, stock buybacks and other forms of debt-financed recapitalization.

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“Workers” and “working classes” is the language of the 1850s. It‘s not going to get you anywhere today.

The EU Is The Enemy Of The Working Classes (Spiked)

here are two European Unions, it seems. There is the EU that stands up for the citizen, for his or her rights; the EU that can face down the behemoths of global capitalism and rein in their avarice and callousness; the EU that has legally enshrined workers’ freedoms, and which exists as a bulwark against untrammelled neoliberalism. And then there is the real EU. That heroic EU is a castle in the anti-Brexit sky, built by those who identify themselves as left-wing. It is maintained by those Labour MPs and peers who, as they did on the eve of Labour’s autumn conference, ceaselessly urge Labour leader Jeremy Corybn ‘to commit to staying in the Single Market and Customs Union… and to work with sister parties and others across Europe to improve workers’ rights’.

It is fortified by the self-appointed keepers of the left-wing flame, those among the commentariat who never tire of telling us that ‘workers’ rights… would be imperilled’ by a so-called ‘Hard Brexit’. And it is peopled by all those who cling to this image of the EU as an essentially social-democratic institution, sticking it gently to the man, defying the Daily Mail, and protecting working men and women against the inhuman workings of capital. Then there’s the other EU, the one that actually exists. This is the EU that uses the pooled-without-consent sovereignty of its member states to pursue its own institutional self-preservation, impoverishing struggling Eurozone members, from Spain to Italy, in the name of economic stability; imposing leaders-cum-administrators on recalcitrant electorates in the interests of austerity; and brazenly betraying workers’ rights at every self-interested turn.

This EU – the actual EU, the one stubbornly committed to its own, not citizens’, interests – is not on the side of the worker. And it never was. Because this EU, when the economic imperative demands, is always against the worker. But those attached to their fantasy left-wing ideal of the EU refuse to see the reality. To face up to this reality would simply be too much. It would mock their left-wing pretensions, humiliate and expose them for what they are: a craven defence of the status quo – a status quo in which they have long prospered. This is presumably why so little attention has been given to what happened in Greece last month, when the real EU was there for all to see. The EU forced the Syriza-led government of Alex Tsipras to implement new anti-union legislation, rendering strike action illegal unless over 50% of union members have formally approved it. The effect of such a measure, as the British trade-union movement discovered in the 1980s, will be to strangle workers’ freedoms in bureaucracy, and emasculate organised labour.

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The country with the most political power in the EU already has the richest citizens. And they stand to get richer. Those is Spain, Italy, Greece: not so much. Two-tier Europe is here.

German Pay Deal Heralds End Of Wage Restraint In Europe’s Largest Economy (R.)

A hard-fought deal on pay and working hours for industrial employees in southwestern Germany sets a benchmark for millions of workers across Europe’s largest economy and heralds wage growth in the coming years. The agreement between labour union IG Metall and the Suedwestmetall employers’ federation, struck overnight, foresees a 4.3% pay raise from April and other payments spread over 27 months. Tough pay negotiations are expected to end years of wage restraint in Germany, potentially aiding the ECB as it tries to get euro zone inflation back up to the bank’s target rate of just below 2%. On an annual basis, the agreement is equivalent to a 3.5% increase in wages, according to Commerzbank analyst Eckart Tuchtfeld, well below IG Metall’s initial demand for a 6% hike over 12 months, but was still seen as a good deal.

“The agreed pay rises, and accompanying measures, are at the top end of expectations and should result in annual wage increases of close to 4% over the next couple of years,” Pictet economist Frederik Ducrozet said. The “pilot” deal, struck against a backdrop of a strong economic recovery and the lowest unemployment since German unification in 1990, covers half a million employees in southwestern Germany, home to industrial powerhouses like car maker Daimler. It is expected to be applied in the rest of Germany as well and is likely to influence negotiations in other industries.

Germany’s second-biggest union, Verdi, is due to publish its wage demand for public sector workers on Thursday. Verdi and IG Metall together account for about 15% of the German workforce. IG Metall’s deal will reinforce market expectations for the ECB to dial back stimulus further this year as growth in the bloc is now self generating and wages are moving slowly upwards. It comes as world stock and bond markets are selling off on fears that a jobs bonanza in the United States may force early interest rate hikes there. But the euro zone outlook is much different with the jobless rate still at almost 9% and the broader slack, which includes part-time and temporary workers, perhaps twice as high, economists say.

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Farmers say they can’t get people to harvest their crops. Question: have you tried raising their wages enough? Something tells us if you pay them well, they will be glad to come work. Something also tells us you haven’t done that. You may say: that makes my products uncompetitive, but that’s another discussion altogether.

Also: the article says “Enough broccoli to feed 15,000 people for a year was wasted..” on that farm. And: the farmer’s loss was “between £30,000 and £50,000.” Does that mean he can feed people for £2 a year? £3? It certainly reads that way.

UK Crops Left To Rot After Drop In EU Farm Workers In Britain (Ind.)

British farmers have been forced to leave thousands of pounds worth of vegetables to rot in their fields, because of a drop in the number of farm workers from the EU. James Orr, whose farm outside St Andrews produces potatoes, carrots, parsnips, broccoli, cauliflower, said his farm suffered a 15% drop in the number of workers between August and November. “We simply could not harvest everything, and as a result we left produce in the field to rot,” he told Scotland’s Sunday Herald newspaper. Enough broccoli to feed 15,000 people for a year was wasted, he added. Mr Orr’s farm supplies more than 1,000 tones of the vegetable and he estimated he lost between £30,000 and £50,000.

The UK farming industry is heavily dependent on pickers from the EU, particularly those from eastern Europe. Britain’s low unemployment rate and the the seasonal nature of the work makes it difficult to attract domestic workers. But the fall in the value of sterling against the Euro since the Brexit vote, means the UK has become less attractive to seasonal workers from Romania and Bulgaria. Farmers also fear that a Brexit deal restricting freedom of movement could leave them with even fewer people to help harvest their crops. [..] NFU Scotland President Andrew Mr McCornick told the Herald access to workers was a key priority for the industry. “This year, there has been a shortage of between 10 and 20% of seasonal workers coming from the EU,” he said. It was essential a scheme was introduced in 2018 that would provide work permits for up to 20,000 workers from outside the EU, he added.

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Mouzalas says: “Whoever says that emptying the islands will improve the situation is wrong..” That doesn’t seem an honest assessement, because it would certainly improve the situation on the islands.

Refugee Arrivals Have Doubled Since August, Greek Migration Minister Says (K.)

Migrant and refugee arrivals onto Greek shores have doubled since August 20 to reach as many as 180 people a day in clement weather, Migration Policy Minister Yiannis Mouzalas said on Tuesday. The increase in arrivals from Turkey has resulted “in a bad situation again” on the islands of the eastern Aegean that host migrant reception and processing centers, Mouzalas admitted, saying that the ministry is trying to improve conditions at overcrowded and under-resourced facilities. Speaking on Thema radio, Mouzalas accused the European Union of contributing to the problem by failing to honor its commitments to Turkey in a deal for that country to take back asylum seekers whose applications are rejected and to crack down on migrant trafficking from its shores.

Mouzalas was also critical of what he described as contradictory reactions from local authorities and communities on the affected islands. “On the one hand, they prevent moves to improve conditions and on the other they are hysterical about dissolving the deal with Turkey at any cost so as to transfer the migrants to the mainland,” Mouzalas said, referring to reactions toward ministry plans for increasing the number of housing units at certain island camps. “Whoever says that emptying the islands will improve the situation is wrong,” Mouzalas said, reiterating concerns that moving all migrants and refugees to the mainland will simply encourage more arrivals. “In 2017, we transferred 27,000 people to the mainland and 19,000 arrived on the islands,” he added.

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Dec 152017

Gustave Courbet The bathers 1853


Central Banks Want World To Party On As They Remove Punch Bowl (BBG)
This Is What Happened To The American Dream – It’s Not Pretty (MW)
The Rude Awakening Of Slumbering Bulls (Roberts)
MiFID’s Cautious Start on Bond-Price Rules Shows Lobbying Impact (BBG)
Why American Capitalism Doesn’t Work For All Americans – Deaton (MW)
Europe’s Sovereign-Bank ‘Doom Loop’ Can’t Be Broken (BBG)
Jim Chanos: We Think Tesla Is Worth Zero (CNBC)
WikiLeaks Recognised As A ‘Media Organisation’ By UK Tribunal (G.)
EU Leaders Clash Over Refugees (R.)
Palau Makes All Visitors Sign Pledge To Respect Environment (G.)
Arctic Warming So Rapid That Computer Measuring It Rejected The Results (Ind.)



And that’s not going to fly. So back to QE in 2018? Or will they wait so long the damage becomes irreversible (I know it already is, but still..)

Central Banks Want World To Party On As They Remove Punch Bowl (BBG)

Central bankers are gingerly trying to take away the punch bowl without interrupting the party. Led by interest-rate increases by the Federal Reserve and the People’s Bank of China, central banks around the world shifted toward a tighter monetary stance this week. Yet the moves were either so well-telegraphed, or so tiny, and the language about future action so hedged, that there was barely a ripple in financial markets. “They’re terrified of upsetting the markets,” said Paul Mortimer-Lee, chief market economist at BNP Paribas. So “they’re all exiting quite slowly from emergency settings” on monetary policy. The likely result of this leisurely approach: another year of synchronized global growth in 2018.

Indeed, both the Fed and the ECB revised up their forecasts for the growth of their respective economies next year even as they signaled that they would be slowly scaling back the stimulus they are providing. “The global economy is doing well,” Fed Chair Janet Yellen told reporters on Wednesday after the U.S. central bank raised interest rates for the third time this year. “We’re in a synchronized expansion. This is the first time in many years that we’ve seen this.” [..] Policy makers though played down fears that asset price bubbles were building that could threaten the financial system and the economy. “When we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange,” Yellen said.

[..]“Central banks, who’ve been pumping money into the system for the past decade or so, are going to be removing it,” said Iain Stealey, fixed-income portfolio manager at JPMorgan Asset Management in a Bloomberg Television interview on Thursday. “It’s going to be slow to start with, very gradual, but it’s going to be a real change in rhetoric.”

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The course of inequality is very different from one continent to the other.

This Is What Happened To The American Dream – It’s Not Pretty (MW)

There’s one area where there’s been huge growth in the U.S. — the gap between the rich and poor. The divergence in the levels of inequality has been “extreme” between Western Europe and the U.S., according to the 2018 World Inequality Report, released by the World Inequality Lab, a research project in over 70 countries based at the Paris School of Economics, and co-authored by the French economist Thomas Piketty. “The global middle class has been squeezed,” it said. In 1980, the U.S. and Western Europe had similar levels of inequality. And today? Not so much. While the top 1% of earners made up just 10% in both regions in 1980, it increased slightly to 12% in 2016 in Western Europe, but doubled to 20% in the U.S. “Since 1980, income inequality has increased rapidly in North America, China, India, and Russia,” it said.

“The income-inequality trajectory observed in the U.S. is largely due to massive educational inequalities, combined with a tax system that grew less progressive despite a surge in top labor compensation since the 1980s,” it found. In Europe, tax and wage inequality was moderated by educational and wage-setting policies that were more favorable to low and middle-income groups. In the U.S., out of 100 children whose parents are among the bottom 10% of income earners, only 20 to 30 of them actually go to college. However, closer to 90 out of 100 children go to college if their parents are within the top 10% earners. What’s more, research has shown that when elite colleges open their doors to students from poor backgrounds, academic performance at the institution doesn’t decline.

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“Animal spirits”, “irrational exuberance”, “value investing”, “momentum chase”. What is this, verbal bankruptcy?

The Rude Awakening Of Slumbering Bulls (Roberts)

Here’s a little secret, “Animal Spirits” is simply another name for “Irrational Exuberance,” as it is the manifestation of the capitulation of individuals who are suffering from an extreme case of the “FOMO’s” (Fear Of Missing Out). The chart below shows the stages of the previous bull markets and the inflection points of the appearance of “Animal Spirits.” At the peak of previous bull market advances, the markets have entered into an accelerated phase of price advances.

Since “the price you pay day is the value you receive tomorrow,” as famously noted by Warren Buffet, it should not come as a surprise that “value investing” is lagging the “momentum chase” in the market currently. But again, this is something that has historically, and repeatedly occurred, during very late stage bull market advances as the “rationalization” for a “never-ending bull market” is promulgated.

Given the length of the economic expansion, the risk to the “bull market” thesis is an economic slowdown, or contraction, that derails the lofty expectations of continued earnings growth. While tax reform legislation may provide a bump to earnings growth in the near-term, it is the longer-term growth rates of the economy that matters. Furthermore, while providing a tax cut to corporations will certainly boost their bottom line, there is little evidence, historically speaking, “trickle-down economics” actually occurs. If it did, wages as a share of corporate profits wouldn’t look like this.

With an economy that is 70% driven by the 90% of the population who don’t benefit from corporate tax cuts, the long-term effects of a deficit and debt busting tax bill should be worrying investors. But, for now, that is not the case as the rise in “animal spirits” is simply the reflection of the rising delusion of investors who frantically cling to data points which somehow support the notion “this time is different,” a point recently made by Sentiment Trader: “We’ve discussed a multitude of momentum studies in the past month or two, with an almost universal suggestion that the types of readings we’ve seen this year are rare and hard to bust. This unrelenting bid has been one of, if not THE, most compelling bullish argument, and it shows little sign of stopping.”

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K-Street has taken over Brussels too.

MiFID’s Cautious Start on Bond-Price Rules Shows Lobbying Impact (BBG)

For years, the bond industry argued that price-disclosure requirements in MiFID II were unsuited to the market and would hinder trading. With less than 1% of notes affected when the rules kick in on Jan. 3, that lobbying seems to have paid off. The European Securities and Markets Authority said last week that 566 bond instruments out of 61,761 it analyzed were sufficiently liquid to fall under the pre- and post-trade transparency rules in the MiFID II package. Most were sovereign bonds, which are used as collateral in everything from repurchase agreements to derivative trades. About 150 corporate securities made the list, issued by financial firms such as CaixaBank, Italian power giant Enel and telecommunications company Wind Tre. But the small number of securities initially captured by MiFID II means the law’s goal of shedding light on the market may not be achieved anytime soon.

“ESMA’s approach will contribute very little towards improving transparency in this notoriously opaque market segment,” said Christian Stiefmueller, who’s in charge of banking for Finance Watch, a public-interest watchdog in Brussels. “ESMA’s approach is a present to market makers, i.e. traders at the major investment banks, who thrive on a lack of transparency.” As part of its efforts to prevent another financial crisis, the EU is implementing rules designed to shift trading on to exchanges where regulators can track it, boost transparency to protect individual investors and level the playing field for professionals. MiFID II transparency rules require market operators and investment firms that run a trading venue to make public “current bid and offer prices and the depth of trading interests at those prices” continuously during trading hours for some bonds and other non-equity securities.

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People only get poorer, the dream is over.

Why American Capitalism Doesn’t Work For All Americans – Deaton (MW)

MarketWatch: I want to make the bridge from your findings to the economy. You have said that white working class workers are facing a loss of their way of life.

Deaton: This is much more hypothetical because of course, you are saying “what is doing this?” Tying it to the economy is tricky because it is certainly not true that it was the Great Recession that made this happen, for example. And in fact even if you go back to the late 1990s, the patterns of income and so on are not that different across groups. They don’t match up. Any simple story that said “it is the economy stupid,” is stupid. So we trace this back sort of a long way, and if you look at birth cohorts it is like each successive birth cohort is doing worse. They are more susceptible to these deaths throughout life, and the deaths rise with age more rapidly for younger cohorts, so we’re attracted by this idea that there is a cumulative process going on which is steadily getting worse over time. And, you know, the destruction of the way of life of the white working class is maybe a good way of thinking about this.

I mean we are very attracted by that. You know, the ultimate poison may be in the labor market, but, it works through a lot of other bad stuff that is going on — like the decline in marriage rates, the increase in out-of-wedlock childbearing, and all those sort of things. It is those things that get to middle age and your life has not worked out the way you thought, not just in terms of the salary you earned, but also your marital relationship, your kids who you may not know anymore and who are living with someone else. So there are a lot of people who in their 50s that find that their life has just sort of come apart. One story is just that there has been this slow loss of the white working class life. There has been stagnation in wages for 50 years. If you don’t have a university degree, median wages for those people have actually been going down. So it is just like that model, whereby American capitalism really delivered to people who were not particularly well-educated, seems to be broken.

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“..the phenomenon whereby weak banks can destabilize governments that support them and over-indebted governments can push banks holding their bonds over the precipice..”

Europe’s Sovereign-Bank ‘Doom Loop’ Can’t Be Broken (BBG)

Ever since the financial crisis, the European Union has grappled with how to solve the so-called sovereign bank doom loop – the phenomenon whereby weak banks can destabilize governments that support them and over-indebted governments can push banks holding their bonds over the precipice. The widely touted solution is the European Banking Union, which the European Commission wants completed by 2018. New rules introduced European bank supervision, a new resolution framework that limits sovereign support and a pan-EU deposit insurance scheme as a means of breaking the interdependence between banks and sovereigns. The first problem with this approach is that it’s actually not possible to break the doom loop. The second is that trying to do so through the banking union may actually increase risks in the European Union.

Euro zone banks, who are legally required to hold safe and liquid assets, often buy disproportionately large chunks of their home country sovereign debt because these are often the most familiar safe assets, and the sovereign yield curve is used as a baseline for pricing most credit. However, if the price of these bonds plummets – or, worse, if these bonds have to be restructured – banks get into trouble, as Greek banks found. The doom loop works in other ways too. Rating agencies have a separate methodology for rating banks wherein the possibility of state support raises bank ratings between one and six notches above what these would be on a standalone basis. A weak government means that investors discount the ability of the sovereign to support a bank in times of trouble, so a bank’s rating will also fall.

That explains why, during the euro zone crisis, badly run German landesbanken (a group of state-owned banks) had a better credit rating compared to Santander, one of Europe’s best-run banks, headquartered in Spain. Sometimes the bill for bailing out banks is so large that an otherwise healthy sovereign itself needs to be bailed out, as Ireland found out. Finally, the doom loop can kick in if depositors doubt that governments can honor their guarantees. Rumors of a bank being in trouble can be self-fulfilling, leading to the withdrawal of short-term funding and deposits. It was a fear of such a run on deposits in Spanish banks that prompted ECB President Mario Draghi to say the ECB would do “whatever it takes” to stem the crisis. Deposit guarantee schemes are important in reducing the risks of such a run on the bank. But these guarantees are only as good as a government’s ability to pay.

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He’s probably right.

Jim Chanos: We Think Tesla Is Worth Zero (CNBC)

Famed short seller Jim Chanos took another shot at Tesla on Thursday, saying the company’s equity is worth nothing. “Let’s just say Tesla and Mr. Musk have a broad interpretation of the truth,” Chanos, founder of Kynikos Associates, told CNBC’s Kelly Evans. “There have been all kinds of announcements that this company has made … that turned out not to be true.” Chanos mentioned the unveiling of Tesla’s electric Semi truck and roadster last month as examples. The short seller noted that Tesla CEO Elon Musk said “the Semi would be available in 2019 and the roadster in 2020. Where is he producing those? Those production lines have to be up and approved years before we get into production.”

Chanos has been short Tesla for a long time. On Nov. 14, he said he added to his short position against the electric vehicle maker throughout the year. However, Tesla shares are up sharply this year, advancing nearly 60%. “To me, where the stock is now is not the story,” Chanos said. “I don’t care that it came from $30 or $200 or $300. That’s just meaningless.” “We think the equity is worthless,” he said in the interview on “Closing Bell.”

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Politics will trump the legal system, wanna bet?!

WikiLeaks Recognised As A ‘Media Organisation’ By UK Tribunal (G.)

A British tribunal has recognised Julian Assange’s WikiLeaks as a “media organisation”, a point of contention with the United States, which is seeking to prosecute him and disputes his journalistic credentials. The issue of whether Assange is a journalist and publisher would almost certainly be one of the main battlegrounds in the event of the US seeking his extradition from the UK. The definition of WikiLeaks by the information tribunal, which is roughly equivalent to a court, could help Assange’s defence against extradition on press freedom grounds. The US has been considering prosecution of Assange since 2010 when WikiLeaks published hundreds of thousands of confidential US defence and diplomatic documents. US attorney general Jeff Sessions said in April this year that the arrest of Assange is a priority for the US.

The director of the CIA, Mike Pompeo, after leaks of emails from the US Democratic party and from Hillary Clinton, described WikiLeaks as “a non-state hostile intelligence service often abetted by state actors like Russia”. He added Assange is not covered by the US constitution, which protects journalists. But the UK’s information tribunal, headed by judge Andrew Bartlett QC, in a summary and ruling published on Thursday on a freedom of information case, says explicitly: “WikiLeaks is a media organisation which publishes and comments upon censored or restricted official materials involving war, surveillance or corruption, which are leaked to it in a variety of different circumstances.” The comment is made under a heading that says simply: “Facts”.

The tribunal’s definition of WikiLeaks comes in the 21-page summary into a freedom of information case heard in London in November. An Italian journalist, Stefania Maurizi, is seeking the release of documents relating to Assange, mainly in regard to extradition, and had lodged an appeal with the tribunal. While the tribunal dismissed her appeal, it acknowledged there issues weighing in favour of public disclosure in relation to Assange. But it added these were outweighed by a need for confidentiality on the matter of extradition.

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A long cold lonely winter.

EU Leaders Clash Over Refugees (R.)

Two years after the Mediterranean migrant crisis blew a hole in the European Union, a tentative effort to patch up differences over what to do with refugees underlined continuing rifts among the bloc’s leaders. A free-wheeling discussion over a Brussels summit dinner that began on Thursday night and spilled into the wee hours of Friday was intended to clear the air and see if there was a way to reconcile opposing views on how to reform defunct asylum rules. But leaders emerging from nearly three hours of talks made clear that while there was little of the angry passion of 2015, when a million people flooded into Greece and headed for Germany, the “frank and sober” discussion failed to blunt sharp rifts pitting some eastern states against many of the rest.

“We have a lot of work to do,” German Chancellor Angela Merkel told reporters. “The positions have not changed.” Divisions over how to share out relatively small numbers of refugees have poisoned relations in the EU, complicating efforts to present a united front in talks with London on Brexit and to agree an EU budget out to 2028. New Polish and Czech leaders stuck to lines shared with Hungary and Slovakia that their ex-communist societies cannot accept significant immigration, especially of Muslims. Czech Prime Minister Andrej Babis called the debate “quite stormy” and told reporters that Greek Prime Minister Alexis Tsipras had been “quite aggressive.” But, he said, the eastern allies would not let the majority impose obligatory refugee quotas on them.

Merkel and Italian Prime Minister Paolo Gentiloni were among those who demanded that all countries take in a mandatory share of people requiring asylum, who have been concentrated on the Mediterranean coast, or after chaotic movements across Europe, in the richer northwest of the bloc.

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Only viable in countries that provide the good example.

Palau Makes All Visitors Sign Pledge To Respect Environment (G.)

The tiny Pacific island nation of Palau has introduced a new law requiring visitors to sign a pledge not to harm the environment before entering the country. The pledge will be stamped into the passports of international arrivals from this month. Visitors will be required to sign before proceeding through immigration, making a formal promise to the children of Palau to “preserve and protect your beautiful and unique island home”, and to “tread lightly, act kindly and explore lightly”. Almost 6,000 people signed in the first two weeks. It’s the first time such a pledge has been written into a country’s immigration policies, but Palau has long been vocal about the environment. The country has already reported larger tides and an increase in severe tropical storms. The sea level around its 700 islands has risen by about 9mm a year since 1993, almost three times the global average rate.

President Tommy Remengesau is a vocal environmental campaigner. He told a United Nations climate forum in 2014 that if the world failed to act to curb its carbon emissions, “our global warming doomsday is already set in stone”. In 2015 Palau created the world’s sixth-largest marine sanctuary, protecting 80% of its maritime territory, an area of tuna-rich ocean the size of California, from both fishing and oil drilling. Remengesau said he hoped that requiring visitors to sign a pledge to protect the environment would create a cultural shift among tourists and make them aware of the fragility of the environment. “While Palau may be a small-island nation, we are a large ocean-state and conservation is at the heart of our culture,” he said. “We rely on our environment to survive and if our beautiful country is lost to environmental degradation, we will be the last generation to enjoy both its beauty and life-sustaining biodiversity.”

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Not surprising.

Arctic Warming So Rapid That Computer Measuring It Rejected The Results (Ind.)

Climate change in the Arctic has “outrun” a computer designed to measure it. So rapid was the temperature change at a weather station in Alaska, the computer analysing the data detected an error and stopped recording the correct temperature. In a blog post, US National Oceanic and Atmospheric Administration (NOAA) climate scientist Dr Deke Arndt explained the recent incident, referring to it as “an ironic exclamation point to swift regional climate change in and near the Arctic”. The weather station is located in Utqiagvik, the most northerly town in the US. Low levels of sea ice in the region caused the air temperatures to rise quickly. The computers NOAA use to automatically record climate data have in-built algorithms that ensure the information they record is accurate.

This algorithm is meant to be triggered if the instruments measuring temperatures are damaged, or if there is an artificial change in the environment surrounding them. In this case, the temperature change was such a shock to the system that the computer “disqualified itself” from the Alaskan temperature analysis. This left northern Alaska “analysed a little cooler than it really was”, wrote Dr Arndt. The data from the station was missing for all of 2017, and the last few months of 2016. “In this case, instead of a station move, or urban sprawl, or an equipment change, it was actually very real climate change that changed the environment, by erasing a lot of the sea ice that used to hang out nearby,” wrote Dr Arndt. The Arctic is warming at twice the rate of the global average, meaning the effects of climate change are felt particularly keenly in polar regions.

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Oct 132017
 October 13, 2017  Posted by at 7:45 pm Finance Tagged with: , , , , , , , ,  7 Responses »

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 »

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.