Jan 152018
 
 January 15, 2018  Posted by at 10:48 am Finance Tagged with: , , , , , , , , , , , ,  6 Responses »
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Elliott Erwitt Jack Kerouac 1953

 

Nearly 40% May Default On Their Student Loans By 2023 (Brookings)
3 Years After Currency Shock, Swiss Central Bank Can’t Get Back To Normal (R.)
China Vows to Toughen Rules on $38 Trillion Banking Industry
Bitcoin Not Even In Top 10 Of Crypto World’s Best Performers (AFP)
UK’s Carillion Files for Liquidation After Failing to Get Bailout (BBG)
London Housing Woe Endures as Prices Drop to 2 1/2-Year Low (BBG)
Let’s Wrench Power Back From The Billionaires (Bernie Sanders)
Trust in News Media Takes a Hit During Trump Presidency (AP)
Outgoing EWG Chief Says Greece May Get Debt Relief With Conditions Attached (K.)
Berlin Worried EU Reform Will Boost Immigration Influx (DS)
A New Refugee Flow To Europe: Turkish Refugees (AM)
Why We’re Losing the War on Plastic (BBG)

 

 

The reality of -personal- debt.

Nearly 40% May Default On Their Student Loans By 2023 (Brookings)

The best prior estimates of overall default rates come from Looney and Yannelis (2015), who examine defaults up to five years after entering repayment, and Miller (2017), who uses the new BPS-04 data to examine default rates within 12 years of college entry. These two sources provide similar estimates: about 28 to 29% of all borrowers ultimately default. But even 12 years may not be long enough to get a complete picture of defaults. The new data also allow loan outcomes to be tracked for a full 20 years after initial college entry, though only for the 1996 entry cohort. Still, examining patterns of default over a longer period for the 1996 cohort can help us estimate what to expect in the coming years for the more recent cohort.

If we assume that the cumulative defaults grow at the same rate (in percentage terms) for the 2004 cohort as for the earlier cohort, we can project how defaults are likely to increase beyond year 12 for the 2004 cohort. To compute these projections, I first use the 1996 cohort to calculate the cumulative default rates in years 13-20 as a percentage of year 12 cumulative default rates. I then take this percentage for years 13-20 and apply it to the 12-year rate observed for the 2004 cohort. So, for example, since the 20-year rate was 41% higher than the 12-year rate for the 1996 cohort, I project the Year 20 cumulative default rate for the 2004 cohort is projected to be 41% higher than its 12-year rate.

Figure 1 plots the resulting cumulative rates of default relative to initial entry for borrowers in both cohorts, with the data points after year 12 for the 2003-04 cohort representing projections. Defaults increase by about 40% for the 1995-96 cohort between years 12 and 20 (rising from 18 to 26% of all borrowers). Even by year 20, the curve does not appear to have leveled off; it seems likely that if we could track outcomes even longer, the default rate would continue to rise. For the more recent cohort, default rates had already reached 27% of all borrowers by year 12. But based on the patterns observed for the earlier cohort, a simple projection indicates that about 38% of all borrowers from the 2003-04 cohort will have experienced a default by 2023.

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The reality of central banking.

3 Years After Currency Shock, Swiss Central Bank Can’t Get Back To Normal (R.)

Three years after the Swiss National Bank shocked currency markets by scrapping the franc’s peg to the euro, it faces the toughest task of any major central bank in normalising ultra-loose monetary policy. If it raises rates, the Swiss franc strengthens. If it sells off its massive balance sheet, the Swiss franc strengthens. If a global crisis hits, the Swiss franc strengthens. And the abrupt decision to scrap the currency peg on Jan. 15, 2015, means it still has credibility issues with financial markets. “The SNB will most probably be one of the last central banks to change course, and it will take years or even decades for monetary policy to return to ‘normal’,” said Daniel Rempfler, head of fixed income Switzerland at Swiss Life Asset Managers.

The Bank of Japan illustrated the problem of reducing expansive policy when a small cut to its regular bond purchases sent the yen and bond yields higher. The scrapping of the cap – which sought to keep the franc at 1.20 to the euro to protect exporters and ward off deflationary pressure – sent it soaring. On the day of the announcement it went to 0.86 francs buying a euro before easing in later days. Although it weakened last year, SNB Chairman Thomas Jordan said in December it was too early to talk about normalising policy. The SNB has to wait for the European Central Bank to start raising interest rates before it can start hiking its own policy rate from minus 0.75%.

If the SNB acted first, the spread between Swiss and European market rates would narrow, making Swiss investments more attractive and boosting the franc. The ECB has already scaled back its asset purchasing programme, which is expected to end this year, but more action may be someway off. Meanwhile, any attempt by the SNB to cut its balance sheet – which has ballooned to 837 billion francs ($861 billion) – will be hard because 94% of its investments are in foreign currencies, held via bonds and shares in companies such as Apple and Starbucks.

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The reality of Chinese borrowing.

China Vows to Toughen Rules on $38 Trillion Banking Industry

China’s banking regulator pledged to continue its crackdown on malpractice in the $38 trillion industry in 2018, vowing to tackle everything from poor corporate governance and violation of lending policies to cross-holdings of risky financial products. The China Banking Regulatory Commission unveiled its regulatory priorities for the year in a statement on Saturday. They include: • Inspecting the funding source of banks’ shareholders and ensuring they have obtained their stakes in a regular manner • Examining banks’ compliance with rules restricting loans to real estate developers, local governments, industries burdened by overcapacity, and some home buyers • Looking into banks’ interbank activities and wealth management businesses.

The statement comes after China’s financial regulators started 2018 with a flurry of rules to plug loopholes uncovered in last year’s deleveraging campaign, showcasing their determination to limit broader risks to the financial system. Still, analysts have warned that the moves will make it more difficult for companies to obtain financing from loans, equities and bonds and could undermine economic growth. The “CBRC’s regulatory storm continues” with the weekend announcement covering almost all aspects of banks’ daily operations, Bocom International analysts Jaclyn Wang and Hannah Han wrote in a note. “We believe challenges for smaller banks in the current regulatory environment remain high,” they wrote, noting that curbs on off-balance-sheet lending and interbank activities may drag on profitability.

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There’s no such thing as the reality of crypto.

Bitcoin Not Even In Top 10 Of Crypto World’s Best Performers (AFP)

Bitcoin may be the most famous cryptocurrency but, despite a dizzying rise, it’s not the most lucrative one and far from alone in a universe that counts 1,400 rivals, and counting. Dozens of crypto units see the light of day every week, as baffled financial experts look on, and while none can match Bitcoin’s €200 billion ($242 bilion) market capitalisation, several have left the media darling’s profitability in the dust. In fact, bitcoin is not even in the top 10 of the crypto world’s best performers. Top of the heap is Ripple which posted a jaw-dropping 36,000% rise in 2017 and early this year broke through the €100 billion capitalisation mark, matching the value of blue-chip companies such as, say, global cosmetics giant L’Oreal.

“Its value shot up when a newspaper said that around 100 financial institutions were going to adopt their system,” said Alexandre Stachtchenko, co-founder of specialist consulting group Blockchain Partners. Using Ripple’s technology framework, however, is not the same as adopting the currency itself, and so the Ripple’s rise should be considered as “purely speculative”, according to Alexandre David, founder of sector specialist Eureka Certification. Others point out that Ripple’s market penetration is paper-thin as only 15 people hold between 60 and 80% of existing Ripples, among them co-founder Chris Larsen. But it still got him a moment of fame when, according to Forbes magazine, Larsen briefly stole Facebook founder Mark Zuckerberg’s spot as the fifth-wealthiest person in the US at the start of the year.

Ether is another rising star, based on the Ethereum protocol created in 2009 by a 19-year old programmer and seen by some specialists as a promising approach. Around 40 virtual currencies have now gone past the billion-euro mark in terms of capitalisation, up from seven just six months ago. The Cardano cryptocurrency’s combined value even hit €15 billion only three months after its creation. In efforts to stand out from the crowd, virtual currency founders often concentrate on the security of their systems, such as Cardano, which has made a major selling point of its system’s safety features.

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After having been given numerous gov’t contracts just to stay alive. Biy, that country is sick.

UK’s Carillion Files for Liquidation After Failing to Get Bailout (BBG)

Carillion, a U.K. government contractor involved in everything from hospitals to the HS2 high-speed rail project, has filed for compulsory liquidation after a last-ditch effort to shore up finances and get a government bailout failed. The company, which employs 43,000 people worldwide – 20,000 of them in the U.K. – had held talks with the government Sunday to ask for the 300 million pounds ($412 million) it needed by the end of the month to stay afloat, the Mail on Sunday reported. On Monday morning, the board of Carillion said in a statement it had “concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect,” adding that it has obtained court approval for the move.

The challenge for liquidators and the government is now to ensure that the company’s break-up is orderly, with contracts and staff moved to rivals. For Prime Minister Theresa May, the collapse comes as opposition Labour Party leader Jeremy Corbyn questions the longstanding British policy of getting private sector contractors to deliver public sector projects. “This is very worrying for a lot of groups,” Labour’s business spokeswoman Rebecca Long-Bailey told the BBC. “We expect the government to step up now and take these contracts back into government control. Where it’s possible to take those back in-house it should do.” She also questioned why the company had been awarded further government contracts despite issuing profit warnings.

[..] Carillion’s struggles posed a conundrum for May over the political cost of using public money to assist a private company, or allowing it to fail, putting public services and infrastructure projects nationwide in danger. The company has contracts with many wings of government, including building roads, managing housing for the armed services, and running facilities for schools and hospitals.

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Timber!

London Housing Woe Endures as Prices Drop to 2 1/2-Year Low (BBG)

The new year brought little cheer for London’s housing market with asking prices dropping to the lowest since August 2015. New sellers cut prices 1.4% in January to an average of 600,926 pounds ($821,500), according to a report by Rightmove on Monday. In a further concerning sign for the market, the average number of days required to sell a house jumped to the longest since January 2012, reaching 78 from 71 a month earlier. The report suggests 2018 won’t be any brighter for the capital’s housing market, which was the worst performing in the U.K. in 2017. Asking prices are down 3.5% from a year ago, according to the report, with the slowdown due to factors including an inflation squeeze, Brexit uncertainty and tax changes affecting landlords and owners of second homes.

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Now find the language that the people respond to.

Let’s Wrench Power Back From The Billionaires (Bernie Sanders)

[..] all over the world corrupt elites, oligarchs and anachronistic monarchies spend billions on the most absurd extravagances. The Sultan of Brunei owns some 500 Rolls-Royces and lives in one of the world’s largest palaces, a building with 1,788 rooms once valued at $350m. In the Middle East, which boasts five of the world’s 10 richest monarchs, young royals jet-set around the globe while the region suffers from the highest youth unemployment rate in the world, and at least 29 million children are living in poverty without access to decent housing, safe water or nutritious food. Moreover, while hundreds of millions of people live in abysmal conditions, the arms merchants of the world grow increasingly rich as governments spend trillions of dollars on weapons.

In the United States, Jeff Bezos – founder of Amazon, and currently the world’s wealthiest person – has a net worth of more than $100bn. He owns at least four mansions, together worth many tens of millions of dollars. As if that weren’t enough, he is spending $42m on the construction of a clock inside a mountain in Texas that will supposedly run for 10,000 years. But, in Amazon warehouses across the country, his employees often work long, gruelling hours and earn wages so low they rely on Medicaid, food stamps and public housing paid for by US taxpayers. Not only that, but at a time of massive wealth and income inequality, people all over the world are losing their faith in democracy – government by the people, for the people and of the people.

They increasingly recognise that the global economy has been rigged to reward those at the top at the expense of everyone else, and they are angry. Millions of people are working longer hours for lower wages than they did 40 years ago, in both the United States and many other countries. They look on, feeling helpless in the face of a powerful few who buy elections, and a political and economic elite that grows wealthier, even as their own children’s future grows dimmer. In the midst of all of this economic disparity, the world is witnessing an alarming rise in authoritarianism and rightwing extremism – which feeds off, exploits and amplifies the resentments of those left behind, and fans the flames of ethnic and racial hatred.

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Typical? Sign of the times? Laurie Kellman and Jonathan Drew for AP prove their own point by pretending to write about Americans from all stripes losing faith in news media, but then turn it into a one-sided Trump hit piece anyway.

Trust in News Media Takes a Hit During Trump Presidency (AP)

When truck driver Chris Gromek wants to know what’s really going on in Washington, he scans the internet and satellite radio. He no longer flips TV channels because networks such as Fox News and MSNBC deliver conflicting accounts tainted by politics, he says. “Where is the truth?” asks the 47-year-old North Carolina resident. Answering that question accurately is a cornerstone of any functioning democracy, according to none other than Thomas Jefferson. But a year into Donald Trump’s fact-bending, media-bashing presidency, Americans are increasingly confused about who can be trusted to tell them reliably what their government and their commander in chief are doing. Interviews across the polarized country as well as polling from Trump’s first year suggest people seek out various outlets of information, including Trump’s Twitter account, and trust none in particular.

Many say that practice is a new, Trump-era phenomenon in their lives as the president and the media he denigrates as “fake news” fight to be seen as the more credible source. “It has made me take every story with a large grain, a block of salt,” said Lori Viars, a Christian conservative activist in Lebanon, Ohio, who gets her news from Fox and CNN. “Not just from liberal sources. I’ve seen conservative ‘fake news.'” Democrat Kathy Tibbits of Tahlequah, Oklahoma, reads lots of news sources as she tries to assess the accuracy of what Trump is reported to have said. “I kind of think the whole frontier has changed,” said the 60-year-old lawyer and artist. “My degree is in political science, and they never gave us a class on such fiasco politics.”

Though Trump’s habit of warping facts has had an impact, it’s not just him. Widely shared falsehoods have snagged the attention of world leaders such as Pope Francis and former President Barack Obama. Last year, false conspiracy theories led a North Carolina man to bring a gun into a pizza parlor in the nation’s capital, convinced that the restaurant was concealing a child prostitution ring. Just last week, after the publication of an unflattering book about Trump’s presidency, a tweet claiming that he is addicted to a TV show about gorillas went viral and prompted its apparent author to clarify that it was a joke. Trump has done his part to blur the lines between real and not. During the campaign, he made a practice of singling out for ridicule reporters covering his raucous rallies.

As president, he regularly complains about his news coverage and has attacked news outlets and journalists as “failing” and “fake news.” He’s repeatedly called reporters “the enemy of the people” and recently renewed calls to make it easier to sue for defamation. About 2 in 3 American adults say fabricated news stories cause a great deal of confusion about the basic facts of current affairs, according to a Pew Research Center report last month. The survey found that Republicans and Democrats are about equally likely to say that “fake news” leaves Americans deeply confused about current events. Despite the concern, more than 8 in 10 feel very or somewhat confident that they can recognize news that is fabricated, the survey found.

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Greece will be monitored till 2060. I’m going to bet that’s not going to happen.

Outgoing EWG Chief Says Greece May Get Debt Relief With Conditions Attached (K.)

Greece could receive debt relief but with terms attached when its bailout program is concluded in August, according to the outgoing chief of the Eurogroup Working Group (EWG), Thomas Wieser. In an interview in Sunday’s Greek edition of Kathimerini, Wieser said that despite there being no discussion about post-bailout arrangements, he expects that debt relief would be granted conditionally. “If there should be further debt relief after the end of the program then it’s only logical there will be some kind of additional agreements.” His comments imply there will be no clean exit from the bailout program as envisioned in the government’s narrative. Greece’s post-bailout status was raised at last week’s EWG meeting in Brussels where, according to sources, the taboo issue of Greece debt relief was raised.

It was noted in the meeting that if there is to be debt relief, then questions regarding Greece’s post-bailout framework have to be addressed. According to EU regulations, bailout countries including Ireland, Spain, Portugal, Cyprus – as well as Greece in the near future – will be monitored until 75% of their loans have been repaid. This means in Greece’s case that it will be monitored until 2060. Wieser added that one of Greece’s biggest problems, which remains unresolved despite eight years of fiscal adjustment programs, is that it doesn’t lure foreign investments like other countries. “I still have the feeling that foreign direct investment is not welcomed in Greece as it is in many other countries,” Wieser said.

While adding that he has the feeling that many domestic rules and regulations over the last eight years have indeed changed, he bemoaned the fact that investments have not picked up. “I think it’s only very recently that international and national investors trust that Greece is finally approaching the time where it can stand on its own feet again financially and that it is not a huge risk to invest in its economy,” he said, adding that one of the main reasons that investors have been reluctant to do business in Greece is its justice system.

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Unlimited?

Berlin Worried EU Reform Will Boost Immigration Influx (DS)

The European Parliament is planning to amend the Dublin Regulation, which requires asylum seekers to register in the first European Union member state they set foot on. That state would also be responsible for processing these requests. The proposed amendment, however, could possible shift that responsibility to wherever any asylum seeker claims to have family in the EU. Under such a change, “Germany would have to accommodate significantly more asylum seekers,” said an Interior Ministry memo, quoted by Der Spiegel. Furthermore, any and all caps on refugees and immigrant intakes would be nullified. This would effectively render Germany’s decision to cap immigrations influxes at around 180,000 to 220,000 as agreed upon by the working groups aiming to form a new German government.

Germany has been struggling to form a new government since the Sept. 24th elections; however, Chancellor Angela Merkel’s Christian Democrats (CDU), their sister party the CSU and Social Democrat Party leader Martin Schultz have agreed to go into official coalition talks, now made harder by the proposed EU bill. The proposed reform of the Dublin Agreement was put forth last November and now has to be approved by the European Council, which is composed of every single member states’ government leaders. Despite Germany’s worries, given the circumstances, the proposal is not expected to have much support. Between the nations of Eastern Europe, who never wanted any immigration at all, and the ever-more skeptical western nations, as well as the ones in Southern Europe, such as Greece, Italy and Spain that became the frontlines of the crisis, the proposed reform is not guaranteed to pass.

While the exact number of people that have entered Europe since 2015 is unknown, it is estimated that it is about 2 to 3 million, with the United Nations Human Rights Commission reporting that tens of millions more are on the move, mainly from sub-Saharan Africa. While Germany was probably Europe’s biggest supporter of asylum seekers and chain-migration, it now worries that it in particular will be negatively affected by what it sees as immigration on “an entirely different scale.” The German Interior Ministry noted that it was particularly worried by a section of the proposal that stated: “The mere assertion of a family connection was enough.” “As a result, a member state hosting many so-called ‘anchor persons’ will take over responsibility for far-reaching family associations.”

“If every one of the more than 1.4 million people who have applied for asylum in Germany since 2015 becomes an anchor for newcomers arriving in the EU, then we’re dealing with [numbers] on an entirely different scale compared to family reunifications,” said Ole Schröder, a parliamentary state secretary in Germany’s Interior Ministry.

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It only gets messier.

A New Refugee Flow To Europe: Turkish Refugees (AM)

This past November, three bodies were found washed ashore the Greek island of Lesbos. They were later identified as a Turkish husband and wife, Huseyin and Nur Maden, and one of their three children. The Madens were teachers in Turkey, but they were among the 150,000 civil servants dismissed from their jobs after the failed coup in July 2016. Some of those dismissed tried to flee to Greece to avoid arrest or find work. More than 12,000 Turks applied for asylum in Europe for the first time in 2017, according to Eurostat. This figure is triple what it was the year preceding the failed coup and is the highest it has been in the past decade. Since July 2016, Turkish authorities have arrested over 50,000 people, including journalists and intellectuals.

Around 150,000 Turks have both had their passports revoked and lost their jobs as police officers, soldiers, teachers and public servants. For some, the solution was to leave Turkey and find work in another country, where they could have a better life and avoid prosecution. With their passports revoked by the Turkish government, Turks prefer to go to Greece as opposed to other European countries since they can arrange transport by boat via smugglers. The journey from the Turkish coast to certain Greek islands can be short, distance-wise. “Turkish refugees [in Athens] are the most educated and intellectual segment of Turkish society,” said Murat, who fled Turkey for Greece after July 2016. “We can learn a new language or adapt to the culture in Europe really fast.”

Murat has been a member of the Gulen movement since 1994. He worked alongside his wife as a teacher in the Gulen schools in southeastern Turkey, but they were both dismissed from their jobs after the 2016 coup attempt, which the government claims was planned by the Gulen movement. Their children’s school was shut down after the coup attempt, and they were denied registration at a new school in their hometown due to their parent’s affiliation with the Gulen movement. “We tried to start over, but we were already marginalized in the community as ‘putschists,’” said Murat. “Our children were not accepted to schools, and finally, when 50 police arrived at our parent’s village to detain my wife, by chance we were not there. I sold my car within a week and with that money, we came to Greece.”

The Gulenists are not the only ones who have had to leave Turkey following the coup attempt. There are others, like Merve, 21, and her uncle Hasan. Merve was only 19 when she was arrested after the coup attempt and put in jail for a year. “I was studying philosophy in Tunceli and was part of a left-wing student organization at my university,” she said. “Now there are only two possibilities left for us Kurds in Turkey. If you don’t want to be jailed, you should either join the PKK [Kurdistan Workers Party] fighters or flee into exile.”

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Nope, there is no war on plastic. So we can’t be losing it either.

Why We’re Losing the War on Plastic (BBG)

T.V. naturalist Sir David Attenborough made his viewers weep last month with an exposé on how plastics are polluting the oceans, harming marine animals and fish. Last week, British prime minister Theresa May announced a slew of new measures to discourage plastics use, including plastic-free supermarket aisles and an expanded levy on plastic bags. A ban on microbeads in cosmetics came into force this year. Not to be outdone, the EU is mulling plastics taxes to cut pollution and packaging waste. Is this industry the new tobacco?It’s no wonder politicians feel compelled to act. About 60% of all the plastics produced either went to landfill or have been dumped in the natural environment. At current rates there will be more plastic than fish in the ocean by 2050 by weight, much of it in the form of small particles, ingestible by wildlife and very difficult to remove.

Public awareness has increased in recent years, yet that hasn’t led to falling consumption. More than half of the total plastics production has occurred since the turn of the millennium. Producers such as DowDuPont, Exxon Mobil, LyondellBasell and Ineos, as well as packaging manufacturers like Amcor, Berry Global and RPC have been happy to meet that demand. They don’t plan on it ending suddenly. Plastic packaging is an almost $290 billion-a-year business and sales are forecast to expand by almost 4 percent a year until 2022, according to research firm Smithers Pira. Demand for polyethylene, the most used plastic, is set to rise at a similar rate, meaning total consumption will rise to 118 million metric tons in 2022, according to IHS Markit. In the U.S., the shale gas boom has encouraged the construction of new ethylene plants. Oil companies are counting too on rising plastics consumption to offset the spread of electric vehicles, as my colleague Julian Lee has explained.

The reasons for the bullishness are obvious. Growing populations, rising living standards and the march of e-commerce mean more demand. In developed countries, per capita polyethylene use is as much as 40 kg per person, whereas in poorer countries like India the figure is just one tenth of that, according to IHS Markit. Plastics are displacing materials like glass and paper because they tend to be cheap, lightweight and sturdy. That plastics don’t easily decompose is an asset – it prevents food going bad – as well as a liability for the natural environment. Cutting consumption will be difficult. While bioplastics are an alternative, they make up only about 1 percent of global plastics demand. Quality and cost issues have prevented wider adoption. “A lot of these materials aren’t really competitive in a world of low to mid oil prices,” says Sebastian Bray, analyst at Berenberg.

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Jan 142018
 
 January 14, 2018  Posted by at 11:00 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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Carl Mydans Pearl Harbor 1940

 

Hawaii Panics After False Alert Of Incoming Missile (AFP)
Rising Rental Rates Suppress Consumer Demand (Roberts)
The Chinese Are Now Spending As Much As Americans (ZH)
China To Step Up Banking Oversight In ‘Arduous’ Fight On Financial Risks (R.)
EU Set To Target UK’s Overseas Tax Havens (Ind.)
Historic Brexit Vote Could Be Reversed, Admits Nigel Farage (O.)
Globalization Is Stuck In A Trap. What When It Breaks Free? (Varoufakis)
The Trump-Russia Dossier Rehab Campaign (WSJ)
Chelsea Manning Seeks US Senate Seat (AFP)
Greeks Avoid Seeing A Doctor When Ill Due To Cost (K.)

 

 

Orson Welles strikes again.

Hawaii Panics After False Alert Of Incoming Missile (AFP)

An alert warning of an incoming ballistic missile aimed at Hawaii was sent in error Saturday, sowing panic and confusion across the US state – which is already on edge over the risk of attack – before officials dubbed it a “false alarm.” Emergency management officials eventually determined the notification was sent just after 8:00 am during a shift change and a drill after “the wrong button was pushed” – a mistake that lit up phones across the archipelago with a disturbing alert urging people to “seek immediate shelter.” There were frenzied scenes of people rushing to safety – a bathtub, a basement, a manhole, cowering under mattresses. Adventurer Alison Teal called it “the worst moment of my life.”

The erroneous message came after months of soaring tensions between Washington and Pyongyang, with North Korea saying it has successfully tested ballistic missiles that could deliver atomic warheads to the United States, including the chain of volcanic islands. “I deeply apologize for the trouble and heartbreak that we caused today,” said Vern Miyagi, administrator of Hawaii’s Emergency Management Agency. “We’ve spent the last few months trying to get ahead of this whole threat, so that we could provide as much notification and preparation to the public. “We made a mistake,” he acknowledged in a press conference. “We’re going to take processes and study this so that this doesn’t happen again. “The governor has directed that we hold off any more tests until we get this squared away.”

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And lead to recessions. Still lots of people out there saying price increases equal inflation. They don’t.

Rising Rental Rates Suppress Consumer Demand (Roberts)

[..] the cost of Housing, Medical Care, and Transportation have all risen sharply over the past 5-months with those three components comprising 67% of the inflation calculation. Clearly, the surge in “health care” related costs, due to the surging premiums of insurance due to the “Un-affordable Care Act,” pushed both consumer-related spending measures and inflationary pressures higher. Unfortunately, higher health care premiums do not provide a boost to production but drain consumptive spending capabilities. Housing costs, a very large portion of overall CPI, is also boosting inflationary pressures. But like “health care” costs, rising housing costs and rental rates also suppress consumptive spending ability.

Importantly, while households may be receiving a modest “tax cut” over the coming year, given the rise in three of the biggest expenditures in most households, whatever increase in incomes maybe received has likely already been absorbed by higher costs and debt service payments. “For the middle-class and working poor, which is roughly 80% of households, rent, energy, medical and food comprise 80-90% of the aggregate consumption basket.” – Research Affiliates. The problem for the Fed is that by pushing interest rates higher, under the belief there is a broad increase in inflation, the suppression of demand will only be exacerbated as the costs of variable rate interest payments also rise. With households already ramping up debt just to make ends meet, another increased expense will only serve to further suppress “consumer demand.”

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Brought to you as a success story.

The Chinese Are Now Spending As Much As Americans (ZH)

In the US, the latest batch of data, released this week, showed retail sales climbed in December for the sixth straight month – though they missed expectations, with growth slowing to 0.3% MoM. With the personal savings rate at a 10 year low, the US consumer is now fully tapped out: This latest uptick in spending has presumably been fueled by debt, as credit-card borrowing has reached an all-time high. But another milestone in the history of global consumerism passed last month: As the Washington Post points out, China tied the US in 2018 in terms of domestic retail sales – according to data compiled by Mizuho. In some important categories, China has overtaken the US: With 17.6 million vehicles sold in the US in 2016, for example, but that was far below the 24 million passenger cars sold in China.

US automakers account for about one out of every five cars sold in China, even though the communist party placed a 10% tax on luxury cars and trucks imported from the United States. This economic heft has made the problem of confronting China intractable: China is now responsible for 20% of sales for some of the largest US corporations. This is making it difficult for Trump to confront Xi Jinping. Any restrictions on Chinese access to the US market would be met with barriers to American companies selling in China. One area where there’s a lot of agreement across the political spectrum is to go after China’s theft of US intellectual property. Over the summer, Trump ordered an investigation by the US Trade Representative Robert Lighthizer to examine China’s IP policies.

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Xi’s knee jerk is to increase central control. But the bubble couldn’t have happened without the shadow system, i.e. decentralization.

China To Step Up Banking Oversight In ‘Arduous’ Fight On Financial Risks (R.)

China will step up oversight in the banking sector this year to reduce financial risks, the country’s banking regulator said, stressing that long-term efforts would be needed to control banking sector chaos. The China Banking Regulatory Commission (CBRC) said late on Saturday in a statement that its priorities included increasing supervision over shadow banking and interbank activities. “Banking shareholder management, corporate governance and risk control mechanisms are still relatively weak, and root causes creating market chaos have not fundamentally changed,” the CBRC said. “Bringing the banking sector under control will be long-term, arduous, and complex,” it said. The regulator said violations in corporate governance, property loans, and disposal of non-performing assets will be punished more strictly, and that it would strengthen risk control in interbank activities, financial products and off-balance sheet business.

China has repeatedly vowed to clean up disorder in its banking system. In recent months, regulators have introduced a series of new measures aimed at controlling risk and leverage in the financial system, with everything from lending practices to shadow banking under the microscope. Already in January, the CBRC has published regulations that put limits on the number of commercial banks that single investors can have major holdings in. President Xi Jinping has declared that financial security is vital to national security. The government is particularly concerned about the massive shadow banking industry, lending conducted outside of the regulated formal banking system. It fears that a big default or series of loan losses could cascade through the world’s second-biggest economy, leading to a sudden halt in bank lending.

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And not its own.

EU Set To Target UK’s Overseas Tax Havens (Ind.)

Demands to open up Britain’s shady network of overseas tax havens are set to be used by the EU as leverage to force concessions during Brexit trade talks, The Independent understands. The European Commission will soon review whether British territories previously left off a Brussels tax haven blacklist should now be added – just as negotiations move on to the all-important future trade deal. Publicly EU officials say the blacklisting process has nothing to do with Brexit, but separate sources in Brussels told The Independent British territories where billions of pounds are stashed will come into play. One official made clear the EU would “go after” them, while another said the UK Government must ask itself if it wants to fly in the face of British public opinion on tax avoidance.

EU commissioners in December produced a blacklist of uncooperative tax jurisdictions, in a bid to clamp down on evasion and avoidance, tackle “threats” to members states’ tax bases and take on “third countries that consistently refuse to play fair”. But the 17 jurisdictions listed included no British Overseas Territories or Crown Dependencies, despite them being named in earlier EU lists and some being implicated in the Paradise Papers scandal. The EU had agreed the blacklisting screening process would be put on hold for territories caught in Hurricane Irma, meanwhile the UK is said to have pushed back against tougher sanctions for blacklisted territories. But officials confirmed that the screening process will now restart in “early spring” for British territories including Anguilla, the British Virgin Islands and the Turks and Caicos Islands. Other British territories – Bermuda, the Cayman Islands, Guernsey, the Isle of Man and Jersey – promised to try and address EU concerns to stay off the list, which will now be reviewed annually.

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Covering his tracks?

Historic Brexit Vote Could Be Reversed, Admits Nigel Farage (O.)

Nigel Farage today makes a dramatic admission that the vote for Brexit could be overturned because Remainers have seized control of the argument over Britain’s future relationship with the EU. The former Ukip leader told the Observer that he was becoming increasingly worried that the Leave camp had stopped fighting their corner, leaving a well-funded and organised Remain operation free to influence the political and public debate without challenge. “The Remain side are making all the running,” said Farage. “They have a majority in parliament, and unless we get ourselves organised we could lose the historic victory that was Brexit.” On Thursday Farage angered many Brexiters, and many in Ukip, when he said he was coming round to the view that the country might need to hold a second referendum in order to close down the EU argument for good.

He said then that he believed such a vote would see the Brexit side win with a bigger majority than the one it achieved on 23 June 2016, when it triumphed by 52% to 48%. But, speaking on Friday, Farage appeared to change his tune, making clear that he was seriously worried that Brexit could be undone and reversed. The case for a complete break from the EU was no longer being made, even by pro-Brexit MPs in parliament, he said. Instead, the Remain camp was relentlessly putting out its message that a hard Brexit would be ruinous to the British economy and bad for the country, without people hearing the counter-argument that had secured Brexiters victory in the 2016 referendum campaign.

His latest intervention comes ahead of another vital week for the Brexit process in the House of Commons and as peers in the overwhelmingly pro-Remain House of Lords prepare to argue for retaining the closest possible links with the EU – and in some cases for a second referendum – when legislation reaches peers at the end of this month. Farage said he now had a similar feeling to the one he had 20 years ago when Tony Blair appeared to be preparing the country for an eventual entry into the euro. “I think the Leave side is in danger of not even making the argument,” he said. “The Leave groups need to regather and regroup, because Remain is making all the arguments. After we won the referendum, we closed the doors and stopped making the argument.”

Last Monday Farage held a meeting in Brussels with the EU’s chief Brexit negotiator, Michel Barnier, which, he said, left him convinced that the UK would not be offered the kind of deal that would be easy to sell as beneficial to the UK economy unless Leavers upped their game. “We no longer have a majority in parliament. I think we would lose the vote in parliament,” Farage said.

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Decentralize.

Globalization Is Stuck In A Trap. What When It Breaks Free? (Varoufakis)

Humanity has been globalizing since our ancestors left Africa, the earliest economic migrants on record. Moreover, capitalism has been operating for two centuries like “heavy artillery,” in Marx and Engels’ words, using the “cheap prices of commodities” to batter “down all Chinese walls,” “constantly expanding market for its products” and replacing “the old local and national seclusion and self-sufficiency” with “intercourse in every direction, universal interdependence of nations.” It wasn’t until the 1990s, when we noticed the unleashing of momentous forces, that we required a new term to describe the emancipation of capital from all fetters, which led to a global economy whose growth and equilibrium relied on increasingly unbalanced trade and money movements. It is this relatively recent phenomenon – globalization, we called it – that is now in crisis and in retreat.

Only an ambitious new internationalism can help reinvigorate the spirit of humanism on a planetary scale. But before arguing in favour of that antidote, it is worthwhile recounting globalization’s origins and internal contradictions. In 1944, the New Deal administration in Washington understood that the only way to avoid the Great Depression’s return at war’s end was to transfer America’s surpluses to Europe (the Marshall Plan was but one example of this) and Japan, effectively recycling them to generate foreign demand for all the gleaming new products – washing machines, cars, television sets, passenger jets – that American industry would switch to from military hardware. Thus began the project of dollarizing Europe, founding the EU as a cartel of heavy industry, and building up Japan within the context of a global currency union based on the U.S. dollar.

This would equilibrate a global system featuring fixed exchange rates, almost-constant interest rates and boring banks (operating under severe capital controls). This dazzling design, also known as the Bretton Woods system, brought us a golden age of low unemployment and inflation, high growth and impressively diminished inequality. Alas, by the late 1960s, it was dead in the water. Why? Because the United States lost its surpluses and slipped into a burgeoning twin deficit (trade and federal budget), rendering it no longer able to stabilize the global system. Never too slow to confront reality, Washington killed off its finest creation: On Aug. 15, 1971, then-president Richard Nixon announced the ejection of Europe and Japan from the dollar zone. Unnoticed by almost everyone, globalization was born on that summer day.

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The Wal Street Journal doesn’t mince its words.

The Trump-Russia Dossier Rehab Campaign (WSJ)

There’s no such thing as a coincidence in Washington, so why the sudden, furious effort by Democrats and the media to give cover to the Steele dossier? As in, the sudden, furious effort that happens to coincide with congressional investigators’ finally being given access to FBI records about the Trump-Russia probe. This scandal’s pivotal day was Jan. 3. That’s the deadline House Intelligence Chairman Devin Nunes gave the Federal Bureau of Investigation to turn over documents it had been holding for months. Speaker Paul Ryan backed Mr. Nunes’s threat to cite officials for contempt of Congress. Everyone who played a part in encouraging the FBI’s colonoscopy of the Trump campaign – congressional Democrats, FBI and Justice Department senior career staff, the Hillary Clinton and Barack Obama political mobs, dossier commissioner Fusion GPS, the press corps – knew about the deadline and clearly had been tipped to the likelihood that the FBI would have to comply.

Thus the dossier rehabilitation campaign. Weeks before, the same crew had taken a desperate shot at running away from the dossier, with a New York Times special that attempted to play down its significance in the FBI probe. You can see why. In the year since BuzzFeed published the salacious dossier, we’ve discovered it was a work product of the Clinton campaign, commissioned by an oppo-research firm (Fusion), compiled by a British ex-spook on the basis of anonymous sources, and rolled out to the media in the runup to the election. Oh, and it appears to continue to be almost entirely false. When the best you’ve got is that a campaign orbiter made a public trip to Russia, you haven’t got much. But with Congress about to obtain documents that show the dossier did matter, it was time for a new line.

And so the day before the Nunes deadline, Fusion co-founders Glenn Simpson and Peter Fritsch broke their public silence to explain in a New York Times op-ed that what really matters was their noble intention – to highlight Donald Trump’s misdeeds. The duo took credit for alerting the “national security community” to a Russian “attack.” Meanwhile, Dianne Feinstein, ranking Democrat on the Senate Judiciary Committee, decided it was suddenly a matter of urgency that the nation see Mr. Simpson’s testimony, which he gave back in August. That move provided the cable news channels with more than 300 pages of self-serving material. Mr. Simpson extols his journalistic chops, praises the integrity of dossier author Christopher Steele (a “Boy Scout”), professes his love of country and his distaste for Russians (other than those paying him), and ladles on more disinformation about Mr. Trump.

Democrats and the media have spun this into a new contention: What mattered were the motives and credentials of the dossier’s creators, which were sufficient to give the FBI good cause to run with the document. Which you have to admit sounds a lot better than “Hillary Clinton’s Campaign Conjured Up an Opposition-Research Document That Was Fed to the Obama FBI, Which Then Used It to Spy on the Trump Campaign.” Even if that’s a more accurate headline.

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Very smart, brave and strong.

Chelsea Manning Seeks US Senate Seat (AFP)

Whistleblower Chelsea Manning, jailed for leaking classified information, is seeking election in the US state of Maryland, a document seen on Saturday says. The Federal Election Commission document, filed Thursday, lists Chelsea Elizabeth Manning of North Bethesda, Maryland, as a Democratic candidate for the United States senate. Manning, now 30, was an army intelligence analyst sentenced to 35 years in prison in 2013 for leaking more than 700,000 classified documents related to the wars in Iraq and Afghanistan. The revelations by Manning, who is transgender and was then known as Bradley Manning, exposed covered-up misdeeds and possible crimes by US troops and allies.

Her actions made Manning a hero to anti-war and anti-secrecy activists but US establishment figures branded her a traitor. Then-president Barack Obama commuted Manning’s sentence, leading to her release in May. During her incarceration, Manning battled for, and won, the right to start hormone treatment. On Twitter, she identifies herself as a “trans woman,” and carries the slogan: “Make powerful people angry.”

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A great health care sytem has fallen victim to Brussels. Unforgiveable.

Greeks Avoid Seeing A Doctor When Ill Due To Cost (K.)

30% of people who fell ill in Greece in 2016 did not see a doctor, according to a new survey which found that 35.8% of those people who did not seek treatment did so due to the financial cost. The nationwide survey, based on a sample of 2,000 adults, was carried out in January 2017 by the National School of Public Health in Athens. The results, which highlight the impact of the financial crisis on access to medical care, were made available only recently. The study showed that the main reason Greeks consulted a health professional in 2016 was because they were experiencing a symptom or pain, with 47.4% giving that as a reason. In 2006 only 21% gave that as a main reason as most people visited doctors to receive medical prescriptions or routine checkups. Meanwhile, 26.4% of Greeks who needed healthcare in 2016 received it for free, compared to 52.6% in 2006.

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Jan 122018
 
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Do these people ever consider this perhaps helps Trump? The Man’s on Fire!

 

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)
Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)
South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)
China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)
China Sets New Records for Gobbling Up the World’s Commodities (BBG)
Household Debt Boom Sows The Seeds For A Bust (CBR)
Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)
We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)
Why We Have to Talk About a Bubble (BBG)
Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)
Monsanto Seeks To Cash In On The Organic Food Market (CP)
Electric Car Dreams Run Into Metal Crunch (BBG)
Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

 

 

It’s a slide! It’s a surge! Depends who you ask, and what time of day. Ask again every half hour, or you may miss the big moves. Translation: bitcoin is far from ready for the big leagues. It’s about stability.

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)

Bitcoin steadied Friday after four days of losses for the largest cryptocurrency amid increasing scrutiny from regulators around the world with concerns ranging from investor losses to strains on power systems. Bitcoin was little changed on the day, at $13,467 as of 1:27 p.m. Hong Kong time, reversing an earlier decline. It was down as much as 23% for the week at one point, on track for the deepest decrease since January 2015, according to Bloomberg composite pricing, and is now down about 20%. The token peaked in mid-December soon after the introduction of futures trading on regulated exchanges in Chicago. Among the blows to cryptocurrencies this week was the South Korean justice minister’s reiteration of a proposal to ban local cryptocurrency exchanges, though the comments were later downplayed by a spokesman for the president.

Meanwhile, bitcoin mining is set to become more expensive as China’s government cracks down on the industry, in part out of concerns about power use. In the U.S., scrutiny is set to increase amid concerns about the potential use of cryptocurrencies for fraudulent purposes such as money laundering. Securities and Exchange Commission Chairman Jay Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo are set to testify to the Senate Banking Committee on risks tied to bitcoin and its counterparts, according to a person with direct knowledge of the matter. The committee intends to hold a hearing in early February, the person said.

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The reaction scared the sh*t out of Seoul. But they still have to act, because bitcoin’s wide acceptance in the country means it’s a real danger to the whole economy.

Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)

After what has seemed like a non-stop barrage of bad news for crypto bulls from South Korea, we noted some cracks in the foundation of the anti-cryptocurrency push as the ministry of finance refused to support the ministry of justice’s exchange shutdown bill. Tonight we get further clarification that the end of South Korean crypto trading is not nigh as Yonhap reports the various government ministries need more time and more consultations over the mininstry of justice’s plan to ban crypto-exchanges. “The issue of shutting down (cryptocurrency) exchanges, told by the justice minister yesterday, is a proposal by the justice ministry and it needs consultations among ministries,” Kim said.

Ministers reportedly seek a “soft-landing” considering the shock the measures may have on the market is an issue that can result in huge social, economic damage. Additionally Yonhap notes that even if pursued, shutdown of exchanges would take some time as it needs discussion at parliament (it would take months or even years for a bill to become a law). All of which can be roughly translated as – we have no idea of the impact of banning this stuff and just how much damage to the nation’s wealth could occur if we do… The result is a broad-based rally across the major cryptocurrencies… Tens of thousands of people filed an online petition, asking the presidential office to stop the clampdown against cryptocurrency trading. South Korea is home to one of the world’s biggest private bitcoin exchanges, with more than 2 million people estimated to own some of the best-known digital currency.

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Stand up comedian minister: “..a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.”

South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)

South Korea’s finance minister on Friday said that relevant officials need to hold more consultations over the justice ministry’s plan to ban cryptocurrency exchanges in the country. “All government ministries agree on the need for a government response to an overheating in cryptocurrency speculation and for a degree of regulation,” Minister Kim Dong-yeon told reporters, according to news agency Yonhap. “The issue of banning exchanges that the justice minister talked about yesterday is a proposal by the Justice Ministry and it needs more coordination among ministries,” Kim added. He also said that discussion was under way on how the government could reasonably regulate cryptocurrency trading that’s overheating with irrational and speculative behavior, Yonhap reported.

Kim said “a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.” Kim’s comments followed news that the country’s justice ministry appeared to have softened its stance after remarks from its chief on Thursday saw billions wiped off the global cryptocurrency market. The justice ministry explained, according to Yonhap, that the ban was not a done deal in a text message to reporters on Thursday. “The ministry has been preparing a special law to shut down all cryptocurrency exchanges, but we will push for it after careful consideration with related government agencies,” the justice ministry said.

[..] “Justice Minister Park Sang-ki’s remarks regarding the shutdown of cryptocurrency exchanges is one of the measures that have been prepared by the Justice Ministry, but it is not a finalized decision and will be finalized through discussion and a coordination process with each government ministry,” the chief press secretary to President Moon Jae-in said in a statement reported by Yonhap. Even if a bill aiming to ban all cryptocurrency trading is drafted, it will require a majority vote in the country’s National Assembly before it can be enacted into law. That process could take months — or even years.

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This must worry Xi. China sets itself up for a strong reaction. And then? Withdraw back into its own cocoon? Not an option for an export-dependent economy. The shift to domestic consumption has so far failed miserably.

China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)

China’s 2017 trade surplus with the U.S. was $275.81 billion, the country’s customs data showed Friday, according to Reuters. By that data, last year’s surplus is a record high, the wire service reported. For comparison, the previous record was a surplus of $260.8 billion in 2015. The world’s second-largest economy had a surplus of $25.55 billion in December, data showed, compared to $27.87 billion in November. Trade with China is politically sensitive as the world’s second-largest economy runs surpluses against many of its trading partners. President Donald Trump has repeatedly signaled tougher action on what he calls unfair practices that have lead to a massive trade deficit with China. Overall, China’s trade balance for 2017 was a surplus of $422.5 billion

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Stocking up on oil and gas instead of Treasuries, just in case Trump launches a trade war.

China Sets New Records for Gobbling Up the World’s Commodities (BBG)

China continues to gobble up the world’s commodities, setting new records for consumption of everything from crude oil to soybeans. In a year of flux marked by industrial capacity cuts, environmental curbs and financial deleveraging, demand for raw materials has continued to grow in the world’s biggest consumer, helping drive a second annual gain in global commodity returns. As President Xi Jinping consolidates power behind an economy that may have posted its first full-year acceleration since 2010, there are few signs of the Chinese commodity juggernaut slowing as it rolls into 2018. “China’s economic expansion has been beating expectations since the second half of last year, boosting demand for all kinds of commodities,” Guo Chaohui at China International Capital, said by phone. “We are expecting continued strength in economic growth in 2018 which will keep up the nation’s import appetite.”

Inbound shipments from across the globe – Russia to Saudi Arabia and Venezuela – jumped about 10% to average 8.43 million barrels a day in 2017, data from China’s General Administration of Customs showed on Friday. The unprecedented purchases may be bettered in 2018, if import quotas granted by the government to China’s independent refiners are a signal. The first batch of allocations was 75% higher than for 2017. The world’s second-biggest economy is also realizing that the key to winning its war on smog may lie overseas. Record amounts of less-polluting grades of iron ore – typically not available within China – are being pulled in to feed the nation’s mammoth steel industry, with imports rising 5% to 1.07 billion metric tons in 2017.

Purchases of less-polluting ore is only one tactic in China’s war against pollution. Another is curbing coal use and encouraging the use of cleaner natural gas instead. Imports of the fuel via both sea and pipeline surged almost 27% to 68.57 million tons in 2017.

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Coherent.

Household Debt Boom Sows The Seeds For A Bust (CBR)

What causes the ebbs and flows of the business cycle? In the first of two videos, Chicago Booth’s Amir Sufi argues that one key factor is the financial sector and its willingness to lend. As credit becomes more and more available, the economy booms—but when household debt becomes unsustainable, it sows the seeds for a bust.

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Financial stress at a record low. There’s no stronger stress indicator.

Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)

“So, what am I worried about?” New York Fed President William Dudley, who is considered a dove, asked rhetorically during a speech on Thursday at the Securities Industry and Financial Markets Association in New York City. “Two macroeconomic concerns warrant mention,” he continued. And they are: One: “The risk of economic overheating.” He went through some of the mixed data points, including “low” inflation, “an economy that is growing at an above-trend pace,” a labor market that is “already quite tight,” and the “extra boost in 2018 and 2019 from the recently enacted tax legislation.” Two: The markets are blowing off the Fed. He didn’t use those words. He used Fed-speak: “Even though the FOMC has raised its target range for the federal funds rate by 125 basis points over the past two years, financial conditions today are easier than when we started to remove monetary policy accommodation.”

When the Fed raises rates, its explicit intention is to tighten “financial conditions,” meaning that borrowing gets a little harder and more costly at all levels, that investors and banks become more risk-averse and circumspect, and that borrowers become more prudent or at least less reckless – in other words, that the credit bonanza cools off and gets back to some sort of normal. To get there, the Fed wants to see declining bond prices and therefor rising yields, cooling equities, rising risk premiums, widening yield spreads, and the like. These together make up the “financial conditions.” There are various methods to measure whether “financial conditions” are getting “easier” or tighter. Among them is the weekly St. Louis Fed Financial Stress Index, whose latest results were published on Thursday.

The Financial Stress Index had dropped to a historic low of -1.6 on November 3, meaning that financial stress in the markets had never been this low in the data series going back to 1994. Things were really loosey-goosey. On Thursday, the index came in at -1.57, barely above the record low, despite another rate hike and the Fed’s “balance-sheet normalization. And this rock-bottom financial stress in the markets is occurring even as short-term interest rates have rocketed higher in response to the Fed’s rate hikes, with the two-year Treasury yield on Thursday closing at 1.96% for the third day in a row, the highest since September 2008.

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Nomi doesn’t really clarify what is radical about events.

We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)

In last year’s roadmap, I forecast that 2017 would end with gold prices up and the dollar index down, both of which happened. I underestimated the number of Fed hikes by one hike, but globally, average short term rates have remained around zero. That will be a core pattern throughout 2018. Central banks may tweak a few rates here and there, announce some tapering due to “economic growth”, or deflect attention to fiscal policy, but the entire financial and capital markets system rests on the strategies, co-dependencies and cheap money policies of central banks. The bond markets will feel the heat of any tightening shift or fears of one, while the stock market will continue to rush ahead on the reality of cheap money supply until debt problems tug at the equity markets and take them down.

Central bankers are well aware of this. They have no exit plan for their decade of collusion. But a weak hope that it’ll all work out. They have no dedicated agenda to remove themselves from their money supplier role, nor any desire to do so. Truth be told, they couldn’t map out an exit route from cheap money even if they wanted to. The total books of global central banks (that hold the spoils of QE) have ballooned by $2 Trillion in assets (read: debt) over 2017. That brings the amount of global central banks holdings to more than $21.7 trillion in assets. And growing. Teasers about tapering have been released into the atmosphere, but numbers don’t lie.

That’s a hefty cushion for international speculation. Every bond a central bank buys or holds, gets a price-lift. Trillions of dollars of such buys have artificially lifted all bond prices, and stocks because of the secondary-lift effect and rapacious search for self-perpetuating returns. Financial bubbles pervade the world. Central bank leaders may wax hawkish –manifested in strong words but tepid actions. Yet, overall, policies will remain consistent with those of the past decade to combat this looming crisis. US nationalistic trade policies will push other nations to embrace agreements with each other that exclude the US and shun the US dollar.

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Jean-Michel Paul, founder and Chief Executive of Acheron Capital in London, says: “..one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash.. “. Well, not in my circles, which talk ONLY about that.

Why We Have to Talk About a Bubble (BBG)

Back in November, former Fed chief Janet Yellen described the current low level of inflation as a “mystery.” Despite a small pickup in prices, Europe has the same mystery to solve: Economic confidence in the euro area is at its highest point for a decade, according to the European Commission’s measure, released this week. But there’s no sign of the inflation that you’d normally expect with that kind of economic upsurge. The ECB minutes from December, released Thursday, show some in the ECB are similarly baffled by what they call a “disconnect” between the real economy and prices. With QE having multiplied the amount of fiat money issued by central banks in just a few years, it’s fair to wonder: How come it didn’t trigger much higher levels of inflation than what we now see?

The technical answer is that the money created has ended up full circle – on the books of the central banks. The more fundamental answer is that QE resulted in a wealth increase for the richest, who consume relatively little of their revenue, while the middle class and the neediest largely failed to reap any benefit. Having not gained from QE, their consumption has not risen, leaving prices pretty much flat. There are many problems with this, from growing inequality to pressures on social cohesion. But one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash, as Jeremy Grantham, co-founder of the investment firm GMO, argued in a note last week. He predicts a “melt-up” – where investors pile into assets as prices rise – followed by a significant decline “of some 50%.”

[..] central bankers are still using inflation as a measure to gauge how much more QE they should proceed with. The ECB has repeatedly justified QE expansion because its goal of 2 percent consumer inflation remains unmet. [..] British journalist Ambrose Evans-Pritchard, commenting on the Grantham thesis recently in the Daily Telegraph, put the challenge now in the starkest possible terms, as a threat not simply to the recovery but to democracy: “The central banks themselves entered into a Faustian Pact from the mid-Nineties onwards, falsely thinking it safe to drive real interest rates ever lower with each cycle, until they became ensnared in what the Bank for International Settlements calls a policy “debt trap”. This has gone on so long, and pushed debt ratios so high, that the system is now inherently fragile. The incentive to let bubbles run their course has become ever greater.”

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Can’t decide if this is hard to believe, or entirely normal by now.

Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)

In May 2015 about 10 investigators for the Quebec tax authority burst into Uber Technologies Inc.’s office in Montreal. The authorities believed Uber had violated tax laws and had a warrant to collect evidence. Managers on-site knew what to do, say people with knowledge of the event. Like managers at Uber’s hundreds of offices abroad, they’d been trained to page a number that alerted specially trained staff at company headquarters in San Francisco. When the call came in, staffers quickly remotely logged off every computer in the Montreal office, making it practically impossible for the authorities to retrieve the company records they’d obtained a warrant to collect. The investigators left without any evidence.

Most tech companies don’t expect police to regularly raid their offices, but Uber isn’t most companies. The ride-hailing startup’s reputation for flouting local labor laws and taxi rules has made it a favorite target for law enforcement agencies around the world. That’s where this remote system, called Ripley, comes in. From spring 2015 until late 2016, Uber routinely used Ripley to thwart police raids in foreign countries, say three people with knowledge of the system. Allusions to its nature can be found in a smattering of court filings, but its details, scope, and origin haven’t been previously reported. The Uber HQ team overseeing Ripley could remotely change passwords and otherwise lock up data on company-owned smartphones, laptops, and desktops as well as shut down the devices.

This routine was initially called the unexpected visitor protocol. Employees aware of its existence eventually took to calling it Ripley, after Sigourney Weaver’s flamethrower-wielding hero in the Alien movies. The nickname was inspired by a Ripley line in Aliens, after the acid-blooded extraterrestrials easily best a squad of ground troops. “Nuke the entire site from orbit. It’s the only way to be sure.” [..] Uber deployed Ripley routinely as recently as late 2016, including during government raids in Amsterdam, Brussels, Hong Kong, and Paris, say the people with knowledge of the matter. The tool was developed in coordination with Uber’s security and legal departments, the people say. The heads of both departments, Joe Sullivan and Salle Yoo, left the company last year.

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Monsanto wants a monopoly on all the world’s food. If you don’t stop them now, it’ll soon be too late.

Monsanto Seeks To Cash In On The Organic Food Market (CP)

At the recent Codex meeting in Berlin, there was an attempt to define genetically engineered (GE) food ingredients as ‘biofortified’ and therefore mislead consumers. This contravened the original Codex mandate for defining biofortification. That definition is based on improving the nutritional quality of food crops through conventional plant breeding (not genetic engineering) with the aim of making the nutrients bioavailable after digestion. The attempt was thwarted thanks to various interventions, not least by the National Health Federation (NHF), a prominent health-freedom international non-governmental organization and the only health-freedom INGO represented at Codex. But the battle is far from over.

The Codex Alimentarius Commission’s Codex Committee on Nutrition and Foods for Special Dietary Uses (CCNFSDU) convened in Berlin during early December and drafts provisions on nutritional aspects for all foods. It also develops international guidelines and standards for foods for special dietary uses that will be used to facilitate standardized world trade. Based upon previous meetings, the initial intention of the Committee was to craft a definition for biofortification that could then be used uniformly around the World. Biofortification originally referred to increasing certain vitamin and mineral content of basic food crops by way of cross-breeding, not genetic engineering, for example by increasing the vitamin or iron content of sweet potatoes so that malnourished populations would receive better nutrition.

However, according to president of the NHF, Scott Tips, Monsanto wants to redefine the definition to include GE ‘biofortified’ foods and it has seemingly influenced Codex delegates in that direction. Tips says, “I am sure that Monsanto would be thrilled to be able to market its synthetic products under a name that began with the word ‘bio’.” [..] Including GE foods within any definition of biofortification risks consumer confusion as to whether they are purchasing organic products or something else entirely. “Monsanto seeks to cash in on the organic market with the loaded word ‘bio’,” argues Scott Tips. At the Codex meeting in Berlin, Tips addressed the 300 delegates in the room. “Although NHF was an early supporter of biofortification, we have since come to see that the concept is in the process of being hijacked and converted from something good into something bad,” explained Tips.

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Luckily the CIA is still dividing the people in the Congo. And making money selling all sides weapons.

Electric Car Dreams Run Into Metal Crunch (BBG)

When BMW revealed it was designing electric versions of its X3 SUV and Mini, the going rate for 21 kilograms of cobalt—the amount of the metal needed to power typical car batteries—was under $600. Only 16 months later, the price tag is approaching $1,700 and climbing by the day. For carmakers vying to fill their fleets with electric vehicles, the spike has been a rude awakening as to how much their success is riding on the scarce silvery-blue mineral found predominantly in one of the world’s most corrupt and underdeveloped countries. “It’s gotten more hectic over the past year,” said Markus Duesmann, BMW’s head of procurement, who’s responsible for securing raw materials used in lithium-ion batteries, such as cobalt, manganese and nickel. “We need to keep a close eye, especially on lithium and cobalt, because of the danger of supply scarcity.”

[..] Complicating the process is the fact that the cobalt trail inevitably leads to the Democratic Republic of the Congo, where corruption is entrenched in everyday business practices. The U.S. last month slapped sanctions on Glencore’s long-time partner in Congo, Israeli billionaire Dan Gertler, saying he used his close ties to Congolese President Joseph Kabila to secure mining deals. There’s also another ethical obstacle to negotiate. The African nation produces more than 60 percent of the world’s cobalt, a fifth of which is drawn out by artisanal miners who work with their hands — some of whom are children. The country is also planning to double its tax on the metal.

“There just isn’t enough cobalt to go around,” said George Heppel, a consultant at CRU. “The auto companies that’ll be the most successful in maintaining long-term stability in terms of raw materials will be the ones that purchase the cobalt and then supply that to their battery manufacturer.” To adjust to the new reality, some carmakers are recruiting geologists to learn more about the minerals that may someday be as important to transport as oil is now. Tesla Inc. just hired an engineer who supervised a nickel-cobalt refinery in New Caledonia for Vale to help with procurement. But after decades of dictating terms with suppliers of traditional engine parts, the industry is proving ill-prepared to confront what billionaire mining investor Robert Friedland dubbed “the revenge of the miner.”

Read more …

Never use Greece and Recovery in one sentence together. Because you’d be spouting nonsense.

Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

According to the market, the situation in Greece has staged a tremendous recovery. So much so, in fact, that Greek 2Y bonds are now trading inside US 2Y Treasurys. Yes, according to the market, Greece is now a safer credit than the US. And yet, a quick peek inside the actual Greek economy, reveals that nothing has been fixed. In fact, one can argue that things are now worse than they were when Greece defaulted (for the first time), According to statistics from IAPR, unpaid taxes in Greece currently make up more than 55% of the country’s GDP due to – well – the inability of people to pay the rising taxes. Overdue debt to the state has reached nearly €100 billion with only €15 billion possible to be returned to the government’s coffers, as most are due to bankrupt businesses and deceased individuals.

The Greek tax authorities seized pensions, salaries, and assets of more than 180,000 taxpayers in 2017, meanwhile bad debt to the state treasury continue to grow. The Independent Authority for Public Revenue confiscated nearly €4 billion in the first 10 months of this year with forced measures to be reportedly taken against 1.7 million defaulters in 2018. Bad debt owed to the state in Greece has been growing at €1 billion a month since 2014, and nearly 4.17 million taxpayers currently owe money to the country, which means that every second Greek is directly indebted. Demonstrating the full extent of the economic mess, a recent report from Kathimerini revealed that Greek lenders are proposing huge haircuts, as high as 90%, for borrowers with debts from consumer loans, credit cards or small business loans without collateral.

In the context of the sale of a 2.5-billion-euro bad-loan portfolio named Venus, Alpha Bank is using the incentive of major haircuts in letters it has sent to some 156,000 debtors. The fact that this concerns some 240,000 bad loans means that some debtors may have two or three overdue loans. Another major local lender, Eurobank, is employing the same strategy for a set of loans adding up to 350 million euros. Most of them range between 5,000 and 7,000 euros each and have been overdue for over a decade. Yes, most Greek are unable to repay a few thousands euros and would rather default. This means that the banks are expecting to collect a small amount of those debts, coming to 250 million euros for Alpha and 35 million for Eurobank – whopping 90% haircuts – accepting that the rest of the debt is uncollectible.

Read more …

Jan 072018
 
 January 7, 2018  Posted by at 10:43 am Finance Tagged with: , , , , , , , , ,  9 Responses »
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Edward Hopper Gloucester Beach, Bass Rocks 1924

 

UPDATE: There still seems to be a problem with our Paypal widget/account that makes donating -both for our fund for homless and refugees in Greece, and for the Automatic Earth itself- hard for some people. What happens is that for some a message pops up that says “This recipient does not accept payments denominated in USD”. This is nonsense, we do. We notified Paypal weeks ago.

We have no idea how many people have simply given up on donating, but we can suggest a workaround (works like a charm):

Through Paypal.com, you can simply donate to an email address. In our case that is recedinghorizons *at* gmail *com*. Use that, and your donations will arrive where they belong. Sorry for the inconvenience.

 

 

 

Everyone Knows Pensions Are Screwed (Felder)
Shares Have Gone Through The Roof: Could They Possibly Go Even Higher? (G.)
States Threaten “Economic Civil War” On Washington (ZH)
UK Companies Will Face Huge New VAT Burden After Brexit (G.)
China To Move Millions Of People From Homes In Anti-Poverty Drive (G.)
Trump Takes Credit For Olympics Talks Between North and South Korea (G.)
11 Saudi Princes Sent to Maximum-Security Prison After Protesting Utility Bills
Scientists Lament The Likely Loss Of ‘Most Of The World’s Coral Reefs’ (Grist)

 

 

So Why Are They Investing In The Exact Same Fashion?

Everyone Knows Pensions Are Screwed (Felder)

The average pension fund assumes it can achieve a 7.6% rate of return on its assets in the future. As noted in Monday’s Wall Street Journal, the majority of these assets are invested in the stock market. The rest are invested in bonds, real estate and alternatives. An aggregate bond index fund yields 2.5% today. Real estate investment trusts, as a group, yield nearly 4%. Alternatives are a mixed bag but the point is that, in order for pensions to meet this 7.6% rate of return they require that stocks (and, to a much lesser degree, alternatives) do far better than even that optimistic assumption because the balance of the portfolio is nearly guaranteed to fall short of that mark. The trouble is that for stocks to return anywhere near 8% they would need to fall more than 50% first.

Warren Buffett famously said, “the price you pay determines your rate of return.” John Hussman puts an even finer point on it this week showing that if you want an 8% rate of return over the coming 12 years you should not be willing to pay more than 1,281 for the S&P 500 today. Currently, the index trades at roughly 2,690 thus it would take a major stock market crash for investors to have the opportunity to invest at a level that would enable them to achieve anything close to what pensions now require. But if stocks were to crash again, as they did after the last two times valuations reached current extremes, that would obviously create other problems for pensions that are now fully invested in risk assets and already underfunded to the tune of several trillion dollars.

Even if they don’t crash, however, it is now almost inevitable that pensions will face a massive crisis sometime over the next decade or so. Still, it’s fascinating to note that even though this issue is common knowledge today, investors as a group have decided to ensure they will come to the very same fate. Passive investing, which has exploded in popularity in recent years, is essentially a way for individual investors to model pension investing, typically with an even greater exposure to equities.

Read more …

Of course they could. But Jeremy Grantham’s ‘Melt-Up’ is being criticized by quite a few voices. The question is not ‘could they rise’, but ‘how long until they will plunge’?

Shares Have Gone Through The Roof: Could They Possibly Go Even Higher? (G.)

Shares are expensive – keep buying them. That appears to be investors’ consensus view. The storming run for stock markets in 2017 seemed almost too good to be trusted, but 2018 has started in similar style. In the US, the Dow Jones industrial average soared past 25,000 last week, almost exactly 12 months after 20,000 was achieved. In the UK, the FTSE 100 index stands at a record high. Even the Japanese market, for years an international laggard, is back at a 26-year high. Last year the MSCI World index – a proxy for a global stock market – delivered a return of 20.1%. Optimists expect more of the same. The other camp warns that a dangerous bubble is about to burst. Both sides could probably agree that the recent run in stock markets has been astonishing.

Or, rather, the truly remarkable feature has been the steady and unbroken pace of the march upwards. Stock markets, we used to think, offered thrills, spills and rollercoaster rides. Individual shares still provide such excitement, of course, but the overall market seems bizarrely free of stress. Andrew Lapthorne, who crunches the market numbers for French bank Société Générale, called 2017 “the year volatility died” in his end-of-year round-up. He wrote: “Those of us expecting greater market turbulence in 2017 could not have been more wrong. Not only did global equity markets perform well, but they did so with such low volatility and consistency that, if this were a fund, it would perhaps merit a visit from the authorities to check exactly what you were up to.”

What happened? First, investors seem to have decided that rising interest rates in the US, a big worry a year ago, are not the bogeyman they seemed. The US Federal Reserve has been a protective nurse. Rate rises have been gradual, and ultra-cheap money has been followed by very cheap. A US rate of 1.5% ain’t so bad. Second, President Donald Trump’s administration, amid its chaos and crises, has delivered the policy investors in companies cared about most: corporate tax cuts. Maybe a growth-generating splurge on infrastructure, the second part of his economic agenda, will follow.

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More of a partisan thing.

States Threaten “Economic Civil War” On Washington (ZH)

The new year has only just begun, but already Democratic politicians in the country’s largest high-tax states are threatening lawsuits and publicly touting proposed workarounds to help compensate tax payers for the elimination of the state and local tax (SALT) deductions which were dramatically rolled back, along with deductions for mortgage interest, as part of the White House’s tax reform plan. During his state of the state address earlier this week, New York Mayor Andrew Cuomo threatened to sue the federal government over the tax bill, claiming that the plan is unconstitutional and overly burdensome to New Yorkers. Cuomo said that the new law could raise some families’ taxes by as much as 25% and said the plan amounted to “double taxation.”

He later accused President Donald Trump of waging “economic civil war” on states that didn’t back him during the election, and promised to consider workarounds that would help lower residents’ federal tax bills, according to Bloomberg. Then, on Thursday, California Senate President Pro Tempore Kevin de Leon introduced a bill that the Washington Post said could become a model for how blue states push back against the Trump tax plan. According to the Trump tax plan, which took effect in January, taxpayers can only deduct up to $10,000 in state and local taxes when they file their federal return.

“De Leon’s bill, if it became law, would essentially allow Americans to deduct much more than the $10,000 limit by redirecting state tax payments into a type of charitable contribution that would be later redirected to the state. The new federal tax law, which was supported only by Republicans, went into effect in January and does not include any caps on charitable deductions. “The Republican tax plan gives corporations and hedge-fund managers a trillion-dollar tax cut and expects California taxpayers to foot the bill,” de León said in a statement. “We won’t allow California residents to be the casualty of this disastrous tax scheme.” Several states have said they are looking for ways to challenge or work around the law, particularly states such as California and New York where residents pay a higher level of local taxes that they have traditionally been able to deduct without any limits. New York Gov. Andrew M. Cuomo (D) has said he is looking at a way of challenging the new law in court.”

Then on Friday, incoming New Jersey Gov. Democrat Phil Murphy said he’s working on a plan similar to California’s that would allow taxpayers to pay a percentage of their state income taxes as if they were a charitable donation. The money will eventually be redirected to the state. And there’s nothing in the Republican tax plan that limits charitable deductions. Predictably, the White House has threatened to push back against these strategies. During a televised interview this week, Gary Cohn said the administration would be looking into ways to stop states from implementing these work-arounds.

Read more …

Seems easy to avoid.

UK Companies Will Face Huge New VAT Burden After Brexit (G.)

More than 130,000 UK firms will be forced to pay VAT upfront for the first time on all goods imported from the European Union after Brexit, under controversial legislation to be considered by MPs on Monday. The VAT changes spelled out in the taxation (cross-border trade) bill – one of a string of Brexit laws passing through parliament – are causing uproar among UK business groups, which say that they will create acute cashflow problems and huge additional bureaucracy. Labour and Tory MPs and peers said that the only way to avoid the VAT Brexit penalty would be to stay in the customs union or negotiate to remain in the EU-VAT area. On Sunday night the Tory chair of the all-party Treasury select committee, Nicky Morgan, said the committee would launch an urgent investigation.

She also said she would be writing to the head of HM Revenue and Customs to see what contingency plans were being made to avoid hitting UK firms. The bill, which has its second reading in the Commons on Monday, spells out clearly how VAT would have to be paid upfront by companies. The government’s own explanatory notes on the bill say the existing regime will end “so that import VAT is charged on all imports from outside the UK”. The Labour MP and former minister Chris Leslie said that the VAT hit to firms was “yet another aspect of Brexit that the Leave campaign failed to inform the public about”. He added that he would be tabling urgent amendments to ensure the UK remained in the EU VAT area – a move that would enrage pro-Brexit MPs.

UK companies that import machine parts or goods ready for sale from the EU can currently register with HMRC to bring them into the UK free of VAT. They register the VAT charge and reclaim it later, all as a paper exercise. VAT is added to the price of the product whenever it is sold to the final customer. Without a VAT deal with Brussels, importers will have to pay the VAT upfront in cash and then recover the money later, creating a huge outflow of funds before they can be recouped.

Read more …

“Once made, a promise is as weighty as a thousand ounces of gold..”

China To Move Millions Of People From Homes In Anti-Poverty Drive (G.)

Over the next three years Xi Jinping’s anti-poverty crusade – which the Communist party leader has declared one of the key themes of his second five-year term – will see millions of marginalised rural dwellers resettled in new, government-subsidised homes. Some are being moved to distant urban housing estates, others just to slightly less remote or unforgiving rural locations. Other poverty-fighting tactics – including loans, promoting tourism and “pairing” impoverished families with local officials whose careers are tied to their plight – are also being used. By 2020, Beijing hopes to have helped 30 million people rise above its official poverty line of about 70p a day while simultaneously reinforcing the already considerable authority of Xi, now seen as China’s most powerful ruler since Mao Zedong.

China’s breathtaking economic ascent has helped hundreds of millions lift themselves from poverty since the 1980s but in 2016 at least 5.7% of its rural population still lived in poverty, according to a recent UN report, with that number rising to as much as 10% in some western regions and 12% among some ethnic minorities. A recent propaganda report claimed hitting the 2020 target would represent “a step against poverty unprecedented in human history”. In his annual New Year address to the nation last week Xi made a “solemn pledge” to win his war on want. “Once made, a promise is as weighty as a thousand ounces of gold,” he said. The current wave of anti-poverty relocations – a total 9.81 million people are set to be moved between 2016 and 2020 – are taking place across virtually the whole country, in 22 provinces.

[..] Mark Wang, a University of Melbourne scholar who studies Beijing’s use of resettlements to fight poverty, attributed Xi’s focus on the issue partly to the seven years he spent in the countryside during Mao’s Cultural Revolution. Xi was born into China’s “red aristocracy” – the son of the revolutionary elder Xi Zhongxun – but was exiled to the parched village of Liangjiahe in the 1960s after his father strayed to the wrong side of Mao. Wang claimed those years of rural hardship continued to shape Xi’s political priorities: “From the bottom of his heart he knows the Chinese farmers … He understands what they want … He even knows the dirty language the people use in the fields when they are farming.”

But hard-nosed political calculations also explained Xi’s bid to paint himself as a champion of the poor – an effort undermined by a recent crackdown on migrants in Beijing which has reportedly seen tens of thousands of poor workers forced from the capital. “How can you make sure a billion people trust you and say: ‘This is our strong leader?’” asked Wang, who argued one answer was waging war on poverty.

Read more …

Dunk.

Trump Takes Credit For Olympics Talks Between North and South Korea (G.)

Donald Trump said on Saturday he was open to talking to Kim Jong-un and hoped good could come from negotiations between North and South Korea over this year’s Winter Olympics in Pyeongchang. The US president also took credit for those talks, saying: “If I weren’t involved they wouldn’t be talking about Olympics right now. They’d be doing no talking or it would be much more serious.” North and South Korea have agreed to discuss cooperation on the games as well as other issues in rare meetings set to begin on Tuesday in Panmunjom, a village that straddles the demilitarised zone between the two countries. Amid international concern over Pyongyang’s ballistic missile and nuclear programmes, the talks will be the first staged since December 2015. The discussions will be held at the Peace House on the South Korean side of Panmunjom.

[..] Speaking to reporters at Camp David in Maryland on Saturday, at the end of a week marked by the publication of an explosive book about his administration and his mental capacity for his job, the president was asked if he would speak to Kim on the telephone. “Sure, I believe in talking,” he said. “… Absolutely I would do that, no problem with that at all.” Asked if that meant there would be no prerequisites for such talk, the president said: “That’s not what I said at all.” Trump added: “[Kim] knows I’m not messing around, not even a little bit, not even 1%. He understands that. “At the same time, if we can come up with a very peaceful and very good solution, we’re working on it with [secretary of state] Rex [Tillerson], we’re working on it with a lot of people. “If something good can happen and come out of those talks it would be a great thing for all of humanity. That would be a great thing for the world. Very important.”

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Prines have been arrested, tortured, forced to sign away their fortunes. But now they protest over water bills? And think they’ll win that one?

11 Saudi Princes Sent to Maximum-Security Prison After Protesting Utility Bills

Saudi authorities made a fresh round of arrests of royal-family members as a group of princes staged a palace protest in the capital over the non-payment of their electricity and water bills. Security services on Thursday arrested the 11 princes after they refused to leave Qasr Al-Hokm in Riyadh, Saudi Arabia’s Attorney General, Sheikh Saud Al Mojeb, said in an emailed statement. The princes, who objected to a decree that ordered the state to stop paying their utility bills, will be held at al-Ha’er prison pending their trial, Al Mojeb said. “No one is above the law in Saudi Arabia, everyone is equal and is treated the same as others,” Al Mojeb said. “Any person, regardless of their status or position, will be held accountable should they decide not to follow the rules and regulations of the state.”

In November, authorities swept up dozens of Saudi Arabia’s richest and most influential people, including princes and government ministers, and detained them at the Ritz-Carlton in Riyadh. The arrests were ordered by a newly established anti-corruption committee, headed by Crown Prince Mohammed bin Salman. The prince’s anti-graft drive appeared designed to tap into a popular vein among young Saudis who are bearing the brunt of low oil prices and complaining, privately and on social media, that the kingdom’s elite were above the rule of law. King Salman on Saturday ordered extra pay for Saudi government workers and soldiers this year after the implementation of value-added taxation and a surge in fuel prices stirred grumbling among citizens, highlighting the kingdom’s struggle to overhaul its economy without risking a public backlash.

The handouts will cost the state more than 50 billion riyals ($13.3 billion), Saud Al-Qahtani, an adviser to the royal court, said on his Twitter account. The princes arrested at the palace were also seeking compensation for a death sentence that was issued against one of their cousins, who had been convicted of killing another man and executed in 2016, according to Al Mojeb’s statement. Earlier Saturday, the Jeddah-based newspaper Okaz reported the princes had been arrested. The Al-Ha’er facility south of Riyadh is one of Saudi Arabia’s maximum-security prisons. Many of Saudi Arabia’s Islamic militants who have fought abroad are held there.

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That’s where the life is.

Scientists Lament The Likely Loss Of ‘Most Of The World’s Coral Reefs’ (Grist)

“Before the 1980s, mass bleaching of corals was unheard of,” Terry Hughes, a coral scientist at Australia’s James Cook University and lead author of the new study, said in a statement. Hughes personally surveyed thousands of miles of the Great Barrier Reef during the 2015 and 2016 bleaching. “It broke my heart,” he told the Guardian last year. The new study finds that 94% of surveyed coral reefs have experienced a severe bleaching event since the 1980s. Only six sites surveyed were unaffected. They are scattered around the world, meaning no ocean basin on Earth has been entirely spared. The implications of these data in a warming world, taken together with other ongoing marine stressors like overfishing and pollution, are damning.

“It is clear already that we’re going to lose most of the world’s coral reefs,” says study coauthor Mark Eakin, coordinator of the National Oceanic and Atmospheric Administration’s Coral Reef Watch program. He adds that by 2050, ocean temperatures will be warm enough to cause annual bleaching of 90% of the world’s reefs. For conservation biologists like Josh Drew, whose work focuses on coral reefs near Fiji, that loss of recovery time amounts to a “death warrant for coral reefs as we know them.” “I’m not saying we’re not going to have reefs at all, but those reefs that survive are going to be fundamentally different,” says Drew, who is not affiliated with the new study. “We are selecting for corals that are effectively weedy, for things that can grow back in two to three years, for things that are accustomed to having hot water.”

Reefs are incalculably important not only as a harbor for life — they shelter about one-quarter of all marine species in just a half-percent of the ocean’s surface area — but also for human nutrition and many nation’s economies.

Read more …

Jan 052018
 
 January 5, 2018  Posted by at 10:30 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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GordonParks Place de la Concorde, Paris, France 1950

 

UPDATE: There still seems to be a problem with our Paypal widget/account that makes donating -both for our fund for homless and refugees in Greece, and for the Automatic Earth itself- hard for some people. What happens is that for some a message pops up that says “This recipient does not accept payments denominated in USD”. This is nonsense, we do. We notified Paypal weeks ago.

We have no idea how many people have simply given up on donating, but we can suggest a workaround (works like a charm):

Through Paypal.com, you can simply donate to an email address. In our case that is recedinghorizons *at* gmail *com*. Use that, and your donations will arrive where they belong. Sorry for the inconvenience.

 

 

 

Global Debt Hits Record $233 Trillion (BBG)
The Tsunami Of Wealth Didn’t Trickle Down. It Surged Upward – Buffett (CNBC)
Apple Says All Macs, iPhones and iPads Exposed to Chip Security Flaws (BBG)
2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth (USAW)
Inflation Risk May Shake Global Markets (BBG)
Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong (Mish)
China Won’t Be Prioritizing Growth This Year – Andy Xie (CNBC)
‘Melt-Up’ Coinage Could Signal Last Hurrah For US Stock Market (G.)
US on The Cusp of Enjoying ‘Energy Superpower’ Status (CNBC)
A Good German Idea for 2018 (Varoufakis)
Monsanto Forecasts Profit Increase as Farmers Plant More Soy (BBG)
Greek State To Start Its Own E-auctions (K.)
Work To Improve Greek Island Centers For Refugees Moving Slowly (K.)
Oceanic ‘Dead Zones’ Quadruple In Volume In 50 Years (Ind.)
Iguanas Rain From Trees As Animals Struggle With US Cold Snap (G.)

 

 

Private debt is the one to watch. Up rapidly in Canada, France, Hong Kong, South Korea, Switzerland and Turkey. And Australia, New Zealand, Scandinavia, Holland.

Global Debt Hits Record $233 Trillion (BBG)

Global debt rose to a record $233 trillion in the third quarter of 2017, more than $16 trillion higher from end-2016, according to an analysis by the Institute of International Finance. Private non-financial sector debt hit all-time highs in Canada, France, Hong Kong, South Korea, Switzerland and Turkey. At the same time, though, the ratio of debt-to-GDP fell for the fourth consecutive quarter as economic growth accelerated. The ratio is now around 318%, 3 percentage points below a high set in the third quarter of 2016, according to the IIF. “A combination of factors including synchronized above-potential global growth, rising inflation (China, Turkey), and efforts to prevent a destabilizing build-up of debt (China, Canada) have all contributed to the decline,” IIF analysts wrote in a note. Yet the debt pile could act as a brake on central banks trying to raise interest rates, given worries about the debt servicing capacity of highly indebted firms and government, the IIF analysts wrote.

Read more …

Warren in praise of technology. Blind and boring. “This game of economic miracles is in its early innings. Americans will benefit from far more and better ‘stuff’ in the future.”

The Tsunami Of Wealth Didn’t Trickle Down. It Surged Upward – Buffett (CNBC)

Warren Buffett knows first hand the power of American capitalism. As the third richest person in the world, with a net worth of more than $86 billion, the octogenarian investor has personally benefited from it. And yet, in a piece penned for Time magazine, published Thursday, Buffett says there is a problem with that economic system, which made him a king: Many individuals suffer even as those at the top prosper wildly. He points to the Forbes 400, which lists the wealthiest Americans. “Between the first computation in 1982 and today, the wealth of the 400 increased 29-fold — from $93 billion to $2.7 trillion — while many millions of hardworking citizens remained stuck on an economic treadmill. During this period, the tsunami of wealth didn’t trickle down. It surged upward.”

America’s capitalist economy requires its winners not ignore the system’s faults, says Buffett. The market system has “left many people hopelessly behind, particularly as it has become ever more specialized. These devastating side effects can be ameliorated: a rich family takes care of all its children, not just those with talents valued by the marketplace,” writes Buffett. He also notes that, in particular, those workers replaced by technological advancements will be left behind. “This game of economic miracles is in its early innings. Americans will benefit from far more and better ‘stuff’ in the future. The challenge will be to have this bounty deliver a better life to the disrupted as well as to the disrupters,” Buffett writes. “And on this matter, many Americans are justifiably worried.”

In the long term, those technological advancements are a boon for the economy. But in the short term, they cause unemployment and anxiety for those who lose their jobs to automation and are left unemployed. To demonstrate his point, Buffett points to 1776, when the United States declared its independence, and the evolution of farming technology. “Replicating those early days would require that 80% or so of today’s workers be employed on farms simply to provide the food and cotton we need. So why does it take only 2% of today’s workers to do this job? Give the credit to those who brought us tractors, planters, cotton gins, combines, fertilizer, irrigation and a host of other productivity improvements,” writes Buffett.

“We know today that the staggering productivity gains in farming were a blessing. They freed nearly 80% of the nation’s workforce to redeploy their efforts into new industries that have changed our way of life.” Indeed, despite the warnings, Buffett is optimistic. “In 1776, America set off to unleash human potential by combining market economics, the rule of law and equality of opportunity. This foundation was an act of genius that in only 241 years converted our original villages and prairies into $96 trillion of wealth,” he says.

Read more …

Don’t be fooled: this is not a flaw, it’s a feature. It’ll be interesting to see how companies aim to fix a pretty much hardware feature with a software patch.

Apple Says All Macs, iPhones and iPads Exposed to Chip Security Flaws (BBG)

Apple said all Mac computers and iOS devices, like iPhones and iPads, are affected by chip security flaws unearthed this week, but the company stressed there are no known exploits impacting users. The company said recent software updates for iPads, iPhones, iPod touches, Mac desktops and laptops, and the Apple TV set-top-box mitigate one of the vulnerabilities known as Meltdown. The Apple Watch, which runs a derivative of the iPhone’s operating system is not affected, according to the company. Despite concern that fixes may slow down devices, Apple said its steps to address the Meltdown issue haven’t dented performance.

The company will release an update to its Safari web browser in coming days to defend against another form of the security flaw known as Spectre. These steps could slow the speed of the browser by less than 2.5 percent, Apple said in a statement posted on its website. Intel on Wednesday confirmed a report stating that its semiconductors contain a vulnerability based around a chip-processing technique called speculative execution. Intel said its chips, which power Macs and devices from other manufacturers, contain the flaw as well as processors based on ARM Holdings architecture, which is used in iOS devices and Android smartphones.

Read more …

Danielle DiMartino Booth seems like a smart person. But “We can have deflation and inflation at the same time.” is utter nonsense. If only because defining inflation without referencing money velocity is a useless exercise.

2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth (USAW)

“We have seen 24 consecutive back-to-back months when credit card spending has outpaced incomes. That tells you households are struggling to get by. This is not Yves Saint Laurent handbags and Jimmy Choo shoes. These are families who are using their credit cards to take care of the necessities, to fill up the gas tank, to buy groceries and fill up their refrigerator… We have seen month after month of subprime automobile delinquencies, and we are starting to see a big tic up in FHA mortgage delinquencies as well. …We are at almost 10% (delinquencies) of FHA mortgage loans. Underlying this sugar high that we will see from all of these hurricanes and rebuilding efforts and wildfires, underneath that, still waters run deep and the economy is not doing well. We are a consumption driven economy that is weakening underneath. The sugar high will absolutely wear off in 2018.”

What about the bond market in 2018? Booth says, “We have gone from $150 trillion (in global debt) in 2007 to $220 trillion and counting today. If you delude yourself into thinking a rising rate environment can be good when we have tacked on $70 trillion of debt in the last decade, you are fooling yourself. It is an accident waiting to happen, and anyone who doesn’t think that it will take the stock market down with it is more optimistic than I am by a country mile.” Booth says, along with a “bond market debacle,” the world will see inflation right along with it. Booth explains, “Look at lumber prices, look at the cost of packaging, plastics, raw materials, the producer price index… is at a six year high right now. It’s called the mother of all margin squeezes.

Companies are suffering. We have inflation. We have very real inflation, and it is hitting corporate America between the eyes. We have seen inflation happening, and we continue to see it happening… Rental inflation is off the scale…Inflation is up for 2018, and it has been up. We can have deflation and inflation at the same time. If all of this debt that has built up, especially for households, if they are allocating more of their income to servicing debt, then they have fewer dollars to spend on other things. So, you are going to have deflation and inflation at the same time.” What does the regular guy on the street do? Booth says, “Figure out a way to have exposure to precious metals. Put your bubble vision on mute. You do not have to be invested in the market. That is a fallacy. Take what you have and pay down your debts.”

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This whole discussion is vapid. Central banks have been trying in vain for over a decade to push up inflation, and now, overnight, they have not just succeeded, but overdone it?

Inflation Risk May Shake Global Markets (BBG)

Investors devoted to the idea that inflation will stay subdued should be worried. Worldwide data have recently made clear that producer-price increases have picked up steam. That’s led bond buyers to begin wagering that consumer inflation could be soon to follow, with U.S. breakeven rates above 2 percent in many tenors for the first time since March. The shift represents a sea change for investors who have grown complacent about the threat of rising prices over the past few years, when inflation was subdued by modest economic growth rates, suppressed wages and shifts in technology and demographics. While few are betting on runaway increases anytime soon, even a modest uptick in prices could have an outsize impact on sentiment and change the prevailing narrative.

“There is this idea that inflation is dead,” said Peter Boockvar, the chief financial officer at Fairfield, New Jersey-based Bleakley Financial Group. “But what we are beginning to see – such as in the purchasing managers index surveys – is a lot of talk about inflation pressures. For the markets, inflation is an under appreciated risk in 2018.’ The latest sign of prices pressures came Wednesday. U.S. manufacturing expanded in December at the fastest pace in three months, as gains in orders and production capped the strongest year for factories since 2004, the Institute for Supply Management said. The index of prices paid rose to 69 from 65.5 the month before.

Factories across the globe have warned they are finding it increasingly hard to keep up with demand, potentially forcing them to raise prices as the world economy looks set to enjoy its strongest year since 2011. Purchasing Managers Indexes published Tuesday from countries including China, Germany, France, Canada and the U.K. all pointed to deeper supply constraints.

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Mish is one of the few who still understand the issue. Yes, it’s about definitions. But that doesn’t mean any definition is as as good as the next one.

Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong (Mish)

Reason Number Five – Money Velocity This reason I found in a Tweet by LizAnn Sonders.

Money Velocity Rebuttal: A three month average vs a six month average offset by 21 months seems like a lot of curve fitting. Here is a Tweet Reply by Martin Pelletier that makes sense to me.

By the way, let’s look at what we are talking about here in actual terms instead of percentage increases.

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Beijing telegraphing lower growth.

China Won’t Be Prioritizing Growth This Year – Andy Xie (CNBC)

China’s fears of a financial crisis will spur Beijing to keep the country’s growth target in check, a widely followed China expert said Friday. “Their top priority is to prevent a financial crisis, so the government is looking for any pockets (of risk) that might be a trigger,” independent economist Andy Xie told CNBC’s “Squawk Box.” Chinese authorities have been cracking down on money fleeing the country and warning on “gray rhinos,” which are risks that could potentially be solved but have been unaddressed so far. “The government does not view growth as the top priority right now — we have to take the government’s word at face value. The government is worried about financial risk,” Xie added.

China will keep its target for economic growth at “around 6.5%” in 2018, unchanged from last year, Reuters reported on Thursday, citing unnamed policy sources. The world’s second-largest economy has been fighting debt for years, but with little success so far as it balances economic stability against fallout from a sharp deceleration. There have also been difficulties with the political buy-in for the debt crackdown. That’s been especially true down the Communist Party pecking order as many local governments still need to hit growth targets. “It takes time to filter down the ranks. Most government officials still don’t believe in the new direction,” said Xie.

However, unlike officials in previous administrations, Xie said current ones are likely to be changed if they don’t agree with the current economic direction, so the government will have more power to push through its agenda. Policies are working toward that direction, with higher interbank interest rates that will remain at elevated levels for the foreseeable future, Xie added. China is also looking to further slow money supply growth in 2018 after it already slowed to the all-time low around 9% in November 2017. With China likely headed toward a money supply growth rate of 7 to 8% in the next few years, it will be a “very different situation” for the economy, said Xie.

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A bit more on Jeremy Grantham: “Keep an eye on what the TVs at lunchtime eateries are showing..”

‘Melt-Up’ Coinage Could Signal Last Hurrah For US Stock Market (G.)

Welcome to the world of “melt-up”, a phrase we could be hearing a lot in coming months. It describes the idea that the US stock market, despite currently looking absurdly expensive by traditional yardsticks, could be set for one last euphoric hurrah before the inevitable crash happens. There are a couple of reasons why the “melt-up” theory may not be as wacky as it sounds. First, it comes from Jeremy Grantham, an investor who has rightly earned a reputation for knowing how to read financial bubbles. He dodged the end-of-the-century dotcom bubble and the 2007-09 blowup in the US housing market – two of the best calls anybody could have made in the past 20 years. Grantham’s default setting, as you would expect, tends to be bearish, or at least cautious. If he’s talking melt-up, that’s newsworthy.

Besides, GMO, the Boston-based fund management group he founded, manages $75bn of assets – he’s a player. A second reason is that Grantham is certainly not arguing that shares are cheap. “We can be as certain as we ever get in stock market analysis that the current price is exceptionally high,” he states. Instead, his melt-up thinking is driven by a “mish-mash of statistical and psychological factors based on previous eras”. On the statistical side, he points out that the global economy is in sync, profit margins are fat and president Trump’s corporate tax cuts could make them even fatter and “perhaps provide the oomph to keep stock prices rising”. Then there’s the fact that the current strength in the stock market is fairly broad-based. In past bubbles, the end was nigh when gains were concentrated in an increasingly small collection of “winners”.

The likes of Apple are roaring this time, but the same divergence has not occurred – yet. For “touchy-feely” evidence of excess about to appear, Grantham looks at media coverage. US newspapers and TV stations are getting interested in financial markets (with bitcoin, “a true, crazy mini-bubble of its own”, to the fore) but not yet with the wild obsession of the frenzied dotcom years. “Keep an eye on what the TVs at lunchtime eateries are showing,” he says.

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So much for OPEC cuts.

US on The Cusp of Enjoying ‘Energy Superpower’ Status (CNBC)

The U.S. is well-placed to join the likes of Saudi Arabia and Russia as one of the world’s leading energy powerhouses, an analyst said Thursday. “There is a big shift in market structure taking place and I think, so far, it really hasn’t got the attention it deserves. The U.S. is emerging as, not only a military and economic superpower, but as an energy superpower,” Martin Fraenkel, president at S&P Global Platts, told CNBC. “We are expecting that by 2020, the U.S. is going to be one of the top 10 oil exporters in the world,” he added. In recent years, America’s unprecedented oil and gas boom has been driven by one factor above all others — and that’s shale.

The so-called shale revolution could help to alleviate Washington’s reliance on foreign oil, including from turbulent Middle Eastern states, while also helping to export to more countries around the world. In November, the International Energy Agency (IEA) projected a dramatic increase in shale production could transform the U.S. into the world’s largest exporter of liquefied natural gas by the mid-2020s. The same forecast also predicted that the U.S. would likely notch another milestone a couple of years later. The Paris-based organization said that by the late-2020s, the U.S. would begin to ship more oil to foreign markets than it imports. “This is a big, big shift in the dynamics of energy markets and, in my view, will be a shift in geopolitical markets as well,” Fraenkel said.

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Not sure Germany and France are too likely to philosophize their dominance away.

A Good German Idea for 2018 (Varoufakis)

No god is necessary, no moralizing is required, to demonstrate our duty to tell the truth. Practical reasoning is all it takes: A world where everyone lies is one in which human rationality, which depends entirely on language, dies. So it is our rational duty to tell the truth, regardless of the benefits lying might bring in practice. Applied to market societies, Kant’s idea yields fascinating conclusions. Strategic reductions in price to undercut a competitor pass the test of rational duty (as long as prices do not fall below costs). After all, producing maximum quantities at minimum prices is the holy grail of any economy. But strategic reductions of wages to ever lower levels (the Uberization of society) cannot be rational, because the result would be a catastrophic collapse, owing to disappearing aggregate demand.

Turning to Europe, Kant’s principle implies important duties for governments and polities. And Germany and France would be held to be in dereliction of their duties to a functioning Europe. If Germany’s current-account surpluses, currently running at 9% of GDP, were universalized, with every member state’s government, private sector, and households net savers, the euro would shoot through the roof, destroying most of Europe’s manufacturing. Equally, universalized Greco-Latin deficits would turn Europe into a basket case.

The trick, and our rational duty, is to embrace policies and to build institutions that are consistent with balanced trade and financial flows. Put differently, authentic German rectitude cannot be achieved without a form of redistribution that is bound to clash with the interests of, say, a French or a Greek oligarchy too lazy to come to terms with its own unsustainability. A critic of this German idea for reforming Europe might credibly ask why anyone should do their rational duty, rather than remain on the time-honored path of narrow self-interest? The only sound answer is: because there is no truly rational alternative. Or, rather, the alternatives are all cant.

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We’re running out of time to block Monsanto.

Monsanto Forecasts Profit Increase as Farmers Plant More Soy (BBG)

Everything’s pointing to another year of growth for U.S. seed giant Monsanto. Pretax earnings in the fiscal year through August are expected to increase, the company said Thursday is its first-quarter earnings statement. Commodity prices have stabilized from the free-fall of recent years, with corn prices starting 2018 at the same price they began 2017. Like last year, farmers are expected to buy the most expensive, newest hybrid seeds, and companies won’t have to slash prices to keep customers. Prices “are challenging for growers, but when the environment is stable, they can figure out how to operate in that environment,” Brett Wong at Piper Jaffray & Co., said by phone. “The industry has stabilized and there’s good demand for new products.”

While the company isn’t providing detailed guidance for full-year earnings, as its $66 billion takeover by Germany’s Bayer is still pending, Monsanto will be helped by growth in its soybean business. U.S. farmers are planting the crop more than ever, devoting as many acres to the oilseed as they will to corn. Adoption of Xtend, the company’s new herbicide system for soy, is expected to double in acreage this year. South American farmers are also buying more of the company’s Intacta-branded soybean seeds, which are resistant to caterpillars, and at higher prices, Christopher Perrella, a Bloomberg Intelligence analyst, said in a note last month. Recent U.S. tax reform legislation will have a positive impact on Monsanto’s effective tax rate in fiscal 2019, the company said. Early estimates are that the rate for the current financial year shouldn’t be more than 30%, and could be lower.

Monsanto expects the Bayer deal to close in early 2018, with about half of regulatory approvals secured so far. It also said its digital agriculture platform, Climate FieldView, was on 35 million paid acres last year, and expects the total to grow to 50 million acres. Roundup, Monsanto’s blockbuster herbicide, is also making a comeback. The price of glyphosate, the active ingredient in the weedkiller, is rebounding faster than expected as Chinese producers of generic brands cut output due to environmental restrictions, Don Carson, an analyst at Susquehanna Financial Group, said in a note. The increase for gross profit in 2018 for the company’s unit that produces glyphosate will exceed $1 billion for the first time in three years, according to Carson.

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The Greek state is in a very bad position to auction off properties.

Greek State To Start Its Own E-auctions (K.)

The Greek state is planning to launch its own online auctions – to be conducted according to properties’ market value – with a legislative intervention that will bring the country in line with its commitments to international creditors. The Finance Ministry is expected to presents lawmakers with the relevant clause by the end of the month – along with dozens of other pending prior actions – so that the state’s online auctions can begin in February or early March at the latest. In any case, as of the first quarter of the new year homes, land plots, stores and corporate buildings owned by state debtors will go under the hammer at market rates, which tend to be far below the taxable ones, known as “objective values,” as dictated by the law.

Ministry officials say the state will use the same platform as the one used by banks or other private creditors, arguing that there is no reason to create a separate system. It is noted that the state did not conduct a single auction in 2017, while in 2016 there were just 11 conventional auctions – all requested by the debtors themselves so they could pay off their arrears to tax authorities. However, one ministry official expressed concerns about the impending state auctions, arguing that the state comes low in the ranking of creditors – as others take precedent – and that tax authorities have a slew of other procedures for collecting debts, such as the ongoing repayment programs and the most recent out-of-court settlement plan for debts of up to 50,000 euros.

He added that after the above clause is ratified, the government will have to decide on the policy the state will follow in the auctions. Each of its 4 million debtors will have to be judged separately and according to their property assets, as “owning a house in Kolonos is very different to having one in Kolonaki,” he said, referring to one poor and one affluent Athens neighborhood. The official also expressed reservations over the result of the state’s initiative to push for auctions where several other creditors are likely to secure more benefits by ranking higher on the creditor list.

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Playing off one group of people against the next.

Work To Improve Greek Island Centers For Refugees Moving Slowly (K.)

Efforts to improve living conditions at reception centers for migrants on the islands of the eastern Aegean are progressing slowly amid continuing resistance from locals toward expanding facilities to accommodate hundreds of new arrivals from neighboring Turkey. On Tuesday alone, 196 undocumented migrants reached Aegean islands from Turkey, being sent to reception centers that are already cramped. On Lesvos and Chios, the facilities are hosting more than double the number of people they were designed to hold: 7,520 and 2,063 respectively. Hundreds of migrants have been transferred from the island facilities to less crowded camps on the mainland but, as the pace of arrivals is faster than that of the transfers and conditions remain substandard at the island camps.

The general secretary for migration policy, Miltiades Klapas, traveled to Chios on Wednesday to inspect progress in the erection of prefabricated buildings around the island’s main reception center to host scores of asylum seekers sleeping in tents. A total of 50 structures were sent to the island before the holidays but, by Wednesday, only eight had been set up. Works to upgrade the electricity and drainage systems for the accommodation are also dragging. A key reason for the delays is the continuing objection of local authorities to the presence of thousands of undocumented migrants on the island. The municipality of Chios has appealed to the Greek justice system, seeking the evacuation of the Vial reception center.

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Ten-fold in coastal regions.

Oceanic ‘Dead Zones’ Quadruple In Volume In 50 Years (Ind.)

The volume of water in the world’s oceans that is totally devoid of oxygen has more than quadrupled over the past 50 years, according to a new study. Over the past half century, the open ocean has lost around 2% of its dissolved oxygen, vital for sustaining fish and other marine life. There has also been a ten-fold increase in low oxygen sites, known as “dead zones”, in coastal regions during this period. Oxygen saturation is a major limiting factor that affects ocean productivity, as well as the diversity of creatures living in it and its natural geochemical cycling. The new study, published in the journal Science, represents the most comprehensive view yet of ocean oxygen depletion.

Pollution and climate change both play significant roles in depleting the ocean’s oxygen levels and the authors emphasise the role humans must play in addressing these issues. “Oxygen is fundamental to life in the oceans,” said lead author Dr Denise Breitburg, a marine ecologist with the Smithsonian Environmental Research Centre. “The decline in ocean oxygen ranks among the most serious effects of human activities on the Earth’s environment.” [..] In dead zones oxygen levels tend to be so low that any animals living there suffocate and die. As a result, marine creatures avoid these areas, resulting in their habitats shrinking. Even in areas where oxygen depletion is less severe, smaller decreases in oxygen levels can impact animals in various non-lethal ways such as stunting their growth and hindering reproduction.

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Just for the headline.

Iguanas Rain From Trees As Animals Struggle With US Cold Snap (G.)

As New Englanders bundle up and hunker down to ride out the “bomb cyclone” that is currently hammering the eastern United States with freezing temperatures, heavy winds and snow, they can take comfort in one thing: at least it’s not raining iguanas. That’s the situation in Florida, where unusually cold temperatures have sent the green lizards tumbling from their perches on trees – a result of the cold-blooded creatures basically shutting down when it gets too chilly. The iguanas are likely not dead, experts say, but merely stunned and will reanimate when they warm up. Iguanas aren’t the only species struggling to cope with the cold snap. In Texas, the temperature in the waters of the Gulf of Mexico has dipped low enough to cold-stun sea turtles, causing them to float to the surface where they are vulnerable to predators.

The National Park Service had rescued 41 live but freezing turtles by midday Tuesday. Meanwhile on Massuchusetts’ Cape Cod, the Atlantic White Shark Conservancy has reported the strandings of three thresher sharks. Two of the sharks were likely suffering from “cold shock”, the group said, while the third had frozen solid. “A true sharkcicle!” the group wrote on Facebook. Even animals that seem particularly well-suited to frigid temperatures are feeling the chill. The Calgary Zoo announced Sunday that it was moving its king penguins inside amid -13F (-25C) temperatures. King penguins are native to the subantarctic islands surrounding Antarctica. And a group of snowmobilers in Canada rescued a bull moose buried in 6ft of snow.

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Jan 042018
 
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Jean-Michel Basquiat Irony of the Negro Policeman 1981

 

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Investors Should ‘Brace For Near-Term Melt-Up – Grantham (MW)
Top Bosses Earn More In 3 Days Than Average Worker In Entire Year (G.)
Security Flaws Put Virtually All Phones, Computers At Risk (R.)
The Microprocessor Security Flaw Explained (BBG)
The CEO of Wells Fargo Might Be in Big, Big Trouble (Dayen)
NYC Apartment Sales Collapse 25% In Q4 As Trump Tax Plan Takes Its Toll (ZH)
Tesla Falls Far Short On Model 3 Deliveries (CNBC)
US Auto Sales Fall for 2nd Year (WS)
UK Thinks EU is Bluffing on No Brexit Deal for Banks (BBG)
UK Opposition Party Grassroots Support Second Brexit Vote (R.)
China Communist Party Paper Bashes Bitcoin (SCMP)
China to Curb Power Supply for Some Bitcoin Miners (BBG)

 

 

Over 50% chance of melt up, with over 90% chance of subsequent melt down of 50% (or more).

Investors Should ‘Brace For Near-Term Melt-Up – Grantham (MW)

Jeremy Grantham, who is credited with calling the 2000 and 2008 downturns, warned investors Wednesday to be prepared for the possibility of a near-term “melt-up” that would likely set the stage for a burst bubble and a stock-market meltdown. In a 13-page note that he emphasized reflected “a very personal view,” the value investor and co-founder and chief investment strategist of Boston-based asset manager GMO compared the present market setup with the run-up to past bubbles, including the 2000 tech boom and the precursor to the 1929 crash. “I recognize on one hand that this is one of the highest-priced markets in U.S. history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market,” Grantham said.

He terms the current market run-up the “possible/probable bubble of 2018-19.” In the note, Grantham emphasizes that bubble calls shouldn’t necessarily rely on price alone. Instead, he puts emphasis on price acceleration, which captures “the importance of a true psychological event of momentum increasing to a frenzy.” Read the note here. Grantham favorably cited an academic paper published last year that concluded that the strongest indicator of a bubble in U.S. and almost all global markets was price acceleration. As for the S&P 500 SPX, +0.64% Grantham says that “just recently, say the last six months, we have been showing a modest acceleration, the base camp, perhaps, for a final possible assault on the peak.

“Exhibit 4 (shown below) represents our quick effort at showing what level of acceleration it might take to make 2018 (and possibly 2019) look like a classic bubble,” he wrote. “A range of nine to 18 months from today and a price rise to around 3,400 to 3,700 on the S&P 500 would show the same 60% gain over 21 months as the least of the other classic bubble events.” [..] • “A melt-up or end-phase of a bubble within the next six months to two years is likely, i.e., over 50%.” • ”If there is a melt-up, then the odds of a subsequent bubble break or meltdown are very, very high, i.e., over 90%. • “If there is a market decline following a melt-up, it is quite likely to be a decline of some 50%.”

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‘Fat Cat Thursday’. Bad idea if you want a functioning economy.

Top Bosses Earn More In 3 Days Than Average Worker In Entire Year (G.)

Bosses of top British companies will have made more money by lunchtime on Thursday than the average UK worker will earn in the entire year, according to an independent analysis of the vast gap in pay between chief executives and everyone else. The chief executives of FTSE 100 companies are paid a median average of £3.45m a year, which works out at 120 times the £28,758 collected by full-time UK workers on average. On an hourly basis the bosses will have earned more in less than three working days than the average employee will pick up this year, leading campaigners to dub the day “Fat Cat Thursday”. Frances O’Grady, the TUC general secretary, said it was outrageous that bosses were picking up “salaries that look like telephone numbers” while workers were “suffering the longest pay squeeze since Napoleonic times”.

The analysis by the Chartered Institute of Personnel and Development (CIPD) and the High Pay Centre shows chief executives of FTSE 100 companies are paid an average of £898 per hour – 256 times what apprentices earn on the minimum wage. Tim Roache, the general secretary of the GMB union, said the pay gap between bosses and workers was “simply obscene”. “Does anyone really think these fat cats deserve 100 times more than the hard-working people who prop up their business empires?” he said. “Workers who have to scrimp and save to feed their families and put a roof over their head – and like most of Britain’s working population will now be feeling the pinch after the festive period?”

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And it’s not just phones and computers either.

Security Flaws Put Virtually All Phones, Computers At Risk (R.)

One of the bugs is specific to Intel but another affects laptops, desktop computers, smartphones, tablets and internet servers alike. Intel and ARM insisted that the issue was not a design flaw, but it will require users to download a patch and update their operating system to fix. “Phones, PCs, everything are going to have some impact, but it’ll vary from product to product,” Intel CEO Brian Krzanich said in an interview with CNBC Wednesday afternoon. Researchers with Alphabet Inc’s Google Project Zero, in conjunction with academic and industry researchers from several countries, discovered two flaws. The first, called Meltdown, affects Intel chips and lets hackers bypass the hardware barrier between applications run by users and the computer’s memory, potentially letting hackers read a computer’s memory and steal passwords.

The second, called Spectre, affects chips from Intel, AMD and ARM and lets hackers potentially trick otherwise error-free applications into giving up secret information. The researchers said Apple Inc and Microsoft Corp had patches ready for users for desktop computers affected by Meltdown. Microsoft declined to comment and Apple did not immediately return requests for comment. Daniel Gruss, one of the researchers at Graz University of Technology who discovered Meltdown, called it “probably one of the worst CPU bugs ever found” in an interview with Reuters. Gruss said Meltdown was the more serious problem in the short term but could be decisively stopped with software patches. Spectre, the broader bug that applies to nearly all computing devices, is harder for hackers to take advantage of but less easily patched and will be a bigger problem in the long term, he said.

Speaking on CNBC, Intel’s Krzanich said Google researchers told Intel of the flaws “a while ago” and that Intel had been testing fixes that device makers who use its chips will push out next week. Before the problems became public, Google on its blog said Intel and others planned to disclose the issues on Jan. 9. Google said it informed the affected companies about the “Spectre” flaw on June 1, 2017 and reported the “Meltdown” flaw after the first flaw but before July 28, 2017. The flaws were first reported by tech publication The Register. It also reported that the updates to fix the problems could causes Intel chips to operate 5% to 30% more slowly.

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They all use these features. They’re not actually flaws. That makes it hard to repair.

The Microprocessor Security Flaw Explained (BBG)

The weakness uncovered by Google [..] underscores the potential damage wreaked by vulnerabilities in hardware. Complex components, such as microprocessors, can be harder to fix and take longer to design from scratch if flawed. “It’s a big one and it’s a severe one. This gives an attacker capabilities that bypass the common operating system security controls that we’ve relied on for 20 years,” said Jeff Pollard, an analyst at Forrester Research. “There’s big impact on both the consumer and enterprise.” Intel’s stock remained under pressure even after its statement. “We struggle to believe that Intel won’t face some sort of financial liability,” analysts at Sanford C. Bernstein wrote in a note.

[..] Applying the operating system upgrades designed to remedy the flaw could hamper performance, security experts said. The Register reported that slowdowns could be as much as 30% – something Intel said would occur only in extremely unusual circumstances. Computer slowdowns will vary based on the task being performed and for the average user “should not be significant and will be mitigated over time,” Intel said, adding that it has begun providing software to help limit potential exploits. Intel’s efforts to play down the impact resulted in a war of words with AMD. Intel said it’s working with chipmakers including AMD and ARM Holdings, as well as operating system makers to develop an industrywide approach to resolving the issue. AMD was quick to retort, saying, “there is near-zero risk” to its processors because of differences in the way they are designed and built.

The vulnerability doesn’t just affect PCs. All modern microprocessors, including those that run smartphones, are built to essentially guess what functions they’re likely to be asked to run next. By queuing up possible executions in advance, they’re able to crunch data and run software much faster. The problem in this case is that this predictive loading of instructions allows access to data that’s normally cordoned off securely, Intel Vice President Stephen Smith said on a conference call. That means, in theory, that malicious code could find a way to access information that would otherwise be out of reach, such as passwords. “The techniques used to accelerate processors are common to the industry,” said Ian Batten at the University of Birmingham in the U.K. who specializes in computer security. The fix being proposed will definitely result in slower operating times, but reports of slowdowns of 25% to 30% are “worst-case” scenarios, he said.

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Foot meet mouth.

The CEO of Wells Fargo Might Be in Big, Big Trouble (Dayen)

Late last year, Congress scrapped Obama-era rules from the Consumer Financial Protection Bureau that would have banned forced-arbitration clauses in financial contracts. This bill, which President Trump quickly signed, was self-evidently bad for consumers at the time—and if anyone needs further proof of how ridiculous and harmful these clauses are, just look at what Wells Fargo has been up to over the past several months. The mega-bank famously issued at least 3.5 million fake accounts without consumer consent, triggering a $185 million fine to state and federal regulators. The bank aimed to demonstrate sales growth to investors and boost the stock price with bogus numbers, but millions of customers got caught up in the exchange, paying unnecessary fees and taking hits to their credit scores. Scores of defrauded customers sued Wells Fargo in a series of class-action lawsuits.

Wells Fargo then tried to defy metaphysical reality: It moved to block one class-action case in Utah by claiming that the arbitration clause in customer contracts on the real accounts they held at the bank also applied to the fake accounts. By this theory, Wells Fargo customers signed away their legal rights when it came to accounts they didn’t even sign. The Utah plaintiffs fought Wells’s motion to compel arbitration, and rejected a $142 million settlement offer from the bank. While the two sides tangled in court, Wells Fargo CEO Tim Sloan appeared before the Senate Banking Committee on October 3. And when Senator Jon Tester (D-MT) asked Sloan point-blank if Wells Fargo was using arbitration clauses from real accounts and applying them to fake accounts, Sloan said, “There were instances [of that] historically. We’re not doing that today.”

He also committed to not forcing arbitration in fake-accounts cases moving forward. When Senator Chris Van Hollen (D-MD) brought up the Utah case, where Wells Fargo had made motions to compel arbitration just two weeks earlier, Sloan said he wasn’t familiar with it. But lawyers in Utah get C-SPAN. The plaintiffs in the case immediately appealed to the judge and argued that, with his remarks before Congress, Sloan had effectively waived Wells Fargo’s right to compel arbitration. Judge Clark Waddoups promptly scheduled a two-day trial for January 22 on the question. He also allowed the plaintiffs to depose Sloan in conjunction with the trial; that deposition is scheduled for Friday.

This put Sloan in a tight spot. Steven Christensen, attorney for the plaintiffs, told me he had only one question for Sloan: Did he state to Congress that Wells Fargo would waive arbitration claims on fake accounts? If Sloan said yes, the Utah case would go forward; if he said no, Christensen would appeal to Congress to hold him in contempt for lying to the Senate Banking Committee.

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End of an era?!

NYC Apartment Sales Collapse 25% In Q4 As Trump Tax Plan Takes Its Toll (ZH)

Apparently the combination of a massive flood of excess supply in the form of new luxury developments and a Trump tax plan that penalizes people living in expensive cities by capping SALT, mortgage interest and property tax deductions was simply too much for the Manhattan real estate market to ignore in 4Q 2017. As Douglas Elliman points out in their new Q4 2017 Manhattan Market Report, both prices (-9.4%) and volumes (-25.4%) of New York City apartments collapsed sequentially in Q4 as potential buyers took a pause amid the growing uncertainty.

“Sales activity for the Manhattan housing market was at the lowest fourth quarter total in six years. The pace of the fall market noticeably cooled as market participants awaited the housing-related terms of the new federal tax bill. This translated into a decline in year over year closings for the final quarter of the year, although contract volume showed an uptick. There were 2,514 sales to close in the final quarter of the year, down 12.3% from the prior-year quarter. The decline in sales allowed listing inventory to rise after declining year over year for the past few quarters. There were 5,451 listings at the end of the quarter, up 1.1% from the same period a year ago. As a result, the absorption rate, the number of months to sell all inventory at the current rate of sales slowed, rising to 6.5 months from 5.6 months in the year-ago quarter.

Listing discount, the%age difference between the list price at the date of sale and the sales price, was 5.4% up nominally from 5.3% in the prior year quarter as sellers continued to travel farther to meet the buyer on price. Buyers continued to hold firm, forcing sellers to meet them on price. Days on market, the average number of days to sell all apartments that closed during the quarter rose 3.2% to 97 days from 94 days in than the same period last year. New development active listings and resale listings were up 0.7% and 1.2% respectively over the same period. With the nominal rise in supply, there was also a nominal decline in bidding wars, still accounting for 11.7% of all sales in the quarter, down 0.9% from the same period last year.”

 

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Musk keeps hoping people will forget the last batch of bad data when the newest comes in.

Tesla Falls Far Short On Model 3 Deliveries (CNBC)

Tesla is apparently still deep in the circles of production hell. On Wednesday, the electric car maker released delivery numbers for the fourth quarter of 2017 that fell short of many expectations on Wall Street, and once again pushed back production targets on its highly anticipated Model 3 sedan. Tesla shares fell roughly 2% in after-hours trading. “As we continue to focus on quality and efficiency rather than simply pushing for the highest possible volume in the shortest period of time, we expect to have a slightly more gradual ramp through Q1, likely ending the quarter at a weekly rate of about 2,500 Model 3 vehicles,” Tesla said in a release. “We intend to achieve the 5,000 per week milestone by the end of Q2.” In 2017, the company had said it planned to reach a production rate of 5,000 cars per week for the Model 3, but later revised back that target to the end of the first quarter.

Now, Tesla expects to reach the target by the end of the second quarter. Tesla said it made “major progress” toward addressing the “production bottlenecks” the company has blamed for falling so far short of its Model 3 targets. The company said that in the last few days of the quarter it reached a production rate that “extrapolates to over 1,000 Model 3’s per week.” CEO Elon Musk had previously said he expected weekly Model 3 production to be “in the thousands” by the end of 2017. Tesla said it delivered 29,870 vehicles in the fourth quarter of 2017, including 1,550 of its anticipated Model 3 sedan. The electric-car maker also delivered 15,200 Model S sedans, and 13,120 Model X SUVs. That represents a 27% increase over the same quarter in 2016 for both models combined, and a 9% increase over Q3 2017, Tesla’s previous best quarter, the company said.

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The US has enough cars anyway.

US Auto Sales Fall for 2nd Year (WS)

Total new-vehicle sales in the US fell 5.2% year-over-year in December to 1.6 million units. For all of 2017, sales declined by 320,000 vehicles, or 1.8%, to 17.23 million units. It was the first overall decline since the Financial Crisis. Compared to 2015, sales fell by 249,033 vehicles, or 1.4%. These sales are vehicles delivered by dealers to their customers, or delivered by automakers directly to large fleet customers, as reported by Autodata.

For the big three US automakers and some import brands it was the second year in a row of sales declines (two-year percent change from 2015):
GM -2.7%
Ford -1.1%
Fiat Chrysler (FCA) -8.6%
Toyota -2.6%
Hyundai -10.0%
Kia -5.8%
Daimler -1.4%
BMW -12.6%
Mazda -9.3%

The table below shows new-vehicle sales by automaker, sorted by total sales in 2017 (gray column). Automakers with declining sales in 2017 are marked in red. The green column shows the two-year %age change from 2015. Turns out that replacement demand for new vehicles after Hurricane Harvey was strong, but not nearly strong enough to pull out the year for total US auto sales, and what demand there has been will peter out going forward. Car sales plunged 17% year-over-year in December, 10.9% in all of 2017, and 18.1% from 2015. They’ve been left behind by consumers who’re switching to crossovers and SUVs which the industry considers trucks. So truck sales – pickups, SUVs, crossovers, and vans – rose 1.7% in December, 4.3% for the year, and 11.8% compared to 2015.

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They’re not.

UK Thinks EU is Bluffing on No Brexit Deal for Banks (BBG)

Prime Minister Theresa May believes Michel Barnier is bluffing when he says there will be no special deal for financial services, officials said, as the U.K. prepares to negotiate its post-Brexit ties with the European Union. Two senior officials familiar with the matter privately think the EU’s chief Brexit negotiator is faking a hard-line stance in ruling out a deal that would allow banks to continue operating freely across the bloc. Talks have yet to start on Britain’s future trade agreement with the EU but Barnier said last month there was no chance of a deal that replicated the easy access that U.K.-based financial services currently enjoy to the single market. The U.K. officials said the French former commissioner was simply setting out an opening position that did not have backing from the 27 other EU member countries.

They said banks based in London will be fine because businesses operating in the EU will need to maintain access to finance after Brexit. The fate of London’s financial district is urgent for May, who last month agreed to pay a £39 billion ($53 billion) bill to start talks on the nuts and bolts of a transition. With Britain’s departure from the bloc just 14 months away, businesses are counting on a two-year adjustment period. [..] Last month, May said U.K. financial services should be optimistic about Britain’s trade talks, which are due to start in March. She cited Polish Prime Minister Mateusz Morawiecki and Italian Prime Minister Paolo Gentiloni as evidence that other EU leaders are open to Britain carving out a custom-made trading relationship with the bloc that covers services. Yet Barnier insists the U.K. will not be offered anything more than a Canada-style deal, which keeps tariffs to a minimum on goods but does not include trade in services.

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Big 2018 story. But it can’t be spoken out loud.

UK Opposition Party Grassroots Support Second Brexit Vote (R.)

Eight out of 10 grassroots members of Britain’s opposition Labour Party want a referendum on the terms of the country’s exit from the European Union, according to a survey published on Thursday. That is at odds with Labour leader Jeremy Corbyn’s official policy which calls for parliament, not the public, to have the final say on the terms of the deal. It indicates a strong desire among the party’s rank and file members for a chance to demand a rethink on Brexit, or even overturn the outcome of the June 2016 vote to leave the EU. Eighteen months after voting 52 to 48% to withdraw from the EU, Britons remain deeply divided over leaving a bloc which has defined much of the country’s laws, trade policy and international outlook over more than four decades of membership. Theresa May’s Conservative minority government has dismissed the idea of a second referendum.

But ministers have already been forced to give parliament a greater say in the Brexit process than they initially wanted to after members of May’s own party rebelled on the issue in December. Thursday’s survey of attitudes within Britain’s main political parties showed 49% of Labour members definitely wanted a second referendum on the exit deal and a further 29% said they were more in favor of the idea than against it. The poll of more than 4,000 members of political parties was conducted shortly after last June’s national election as part of a three-year academic project by the Mile End Institute at Queen Mary University of London to discover more about people who belong to political parties. It showed even higher demand for a second vote on Brexit among members of the Liberal Democrats and the Scottish National Party. By contrast, only 14% of Conservative Party members wanted a referendum on the exit deal.

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Bitcoin is a bad fit in a super-centralized society

China Communist Party Paper Bashes Bitcoin (SCMP)

China’s ruling Communist Party mouthpiece lashed out at bitcoin on Wednesday, labelling the volatile cryptocurrency a bubble and a modern-day tulip mania. A People’s Daily commentary written under the name “Wei Liang” said it was an established fact that bitcoin was a bubble. “Irrespective of whether it is assessed on price or value, bitcoin is flooded with froth,” it said. “Its so-called advantages – scarcity, authenticity, strong liquidity, transparency and decentralisation – are only covers for speculation and cannot support its volatile price.” It said bitcoin’s bubbles were created by a combination of hype, mystery, decentralisation and possible insider trading, suggesting that a small group of bitcoin owners were speculating on its price and manipulating general investors.

The commentary compared bitcoin to the seventeenth century mania in which prices for tulip bulbs skyrocketed and then collapsed. It also said there would be more “bubble breaking” in bitcoin after governments around the world tightened regulation. The central government sees bitcoin as a source of risk. It banned domestic cryptocurrency exchanges last year after failing to regulate the fast growth of initial coin offerings, the virtual currency equivalent of an initial public offering. [..] Bitcoin investors are on alert to see whether Beijing will take further action against cryptocurrencies, such as shutting down bitcoin “mines”, the energy-hungry operations that create bitcoin by solving mathematical problems using vast banks of computers.

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Easy to trace.

China to Curb Power Supply for Some Bitcoin Miners (BBG)

China plans to limit power use by some bitcoin miners, people familiar with the matter said, a potential challenge to an industry whose energy-intensive computer networks enable transactions in the cryptocurrency. The People’s Bank of China outlined the plan Wednesday at a closed-door meeting, according to the people, who asked not to be identified because it wasn’t public. They didn’t detail how authorities plan to enact the curbs. Chinese officials are concerned that bitcoin miners have taken advantage of low power prices in some areas and affected normal electricity use in some cases, the people said. Local officials have been asked to investigate the high consumption associated with the industry, they said. The curbs will also involve other regulators such as the National Development and Reform Commission, which oversees the power supply.

While the proposed restrictions are unlikely to have a noticeable effect on transaction speeds, they highlight global concerns over the growing energy consumption of bitcoin miners. The industry now uses as much electricity as 3.4 million U.S. households, according to the Digiconomist Bitcoin Energy Consumption Index. China is home to many of the world’s largest miners, some of whom have set up around hydroelectric facilities in Sichuan and Yunnan provinces. “This may have contributed to bitcoin coming off its daily highs,” said Craig Erlam, senior market analyst at online trading firm Oanda in London. “Electricity usage certainly appears to be a significant challenge for the cryptocurrency in the years ahead.” Bitcoin, which surged 15-fold last year, pared gains on Wednesday and traded around $14,900 on Thursday.

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Jan 012018
 
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Happy New Year Bill Watterson

 

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US Dollar Refuses to Die as Top Global Reserve Currency (WS)
The Rise And Fall Of The Eurodollar (ZH)
Behind Korea, Iran & Russia Tensions: The Lurking Financial War (Crooke)
Polanyi Best Explains Trump, Brexit And The Failure Of Neoliberalism (Prime)
UK Government Relies On Rising Household Debt To Hit Targets – Labour (G.)
‘Desperate Times’ For Overcrowded British Hospitals (PA)
China’s Growth Engine Stutters As Factories Slow Down (G.)
Greece Dismisses Turkey’s Threats Over Asylum Row (GR)
Greece: Turkish Soldiers Won’t Be Extradited Regardless Of Asylum Process (K.)
UK ‘Faces Build-Up Of Plastic Waste’ (BBC)

 

 

The graphs seem to say it all: the demise of the dollar (and petrodollar, eurodollar -dollars held outside US-) has been greatly exaggerated.

US Dollar Refuses to Die as Top Global Reserve Currency (WS)

Over the decades, there have been a number of efforts to deflate the dollar’s hegemony as a global reserve currency, which it has maintained since World War II. Some of these efforts – such as the creation of the euro – have made a visible dent into the dollar’s status. Other efforts have essentially passed unnoticed. Now there’s a new contender: the Chinese yuan. On December 31, the IMF released its report on the Currency Composition of Official Foreign Exchange Reserves (COFER) for Q3 2017. So how has the US dollar fared as the top world reserve currency, now that the Chinese yuan has also been anointed as one, and that the euro has emerged from its debt crisis? First things, first. The IMF doesn’t really disclose all that much. The COFER data for the individual countries – the level of their reserve currencies and how they allocate them – is “strictly confidential,” it says.

So what we get to look at is the global allocation by currency. Total global foreign exchange reserves rose to $11.3 billion in Q3 2017, within the range of the past three years, between $10.7 trillion (Q4 2016) and $11.8 trillion (Q3, 2014). But something is happening to “allocated reserves.” Not all central banks disclose to the IMF how their foreign exchange reserves are allocated. In Q3 2017, 14.6% of the reserves hadn’t been allocated. But this number is plunging. In Q3 2014, just three years ago, it was still 41.2%. This means that more and more central banks report to the IMF their allocation of foreign exchange reserves, and the COFER is getting broader.

So of the 85.4% of the officially “allocated” reserve currencies in Q3 2017: • US dollar: 63.5% share, down from 64.6% in Q3 2014. • Euro: 20% share, down from 22.6% in Q3 2014. • Yen: 4.5% share, up from 3.6% in Q3 2014. • Pound Sterling: 4.5% share, up from 3.75% in Q3 2014. The Australian and Canadian dollars had a share of 1.8% and 2.0% respectively. • The Chinese yuan – that thin red sliver in the chart below – had a share of 1.1%, up from 1.08% in the prior three quarters, and up from zero before then. • The Swiss franc, the hair-fine black line in the chart below, has a share of 0.2%. • And a number of “other” currencies have a combined share of 2.4%.

The Chinese yuan made its entry after IMF boss Christine Lagarde and the IMF staff declared in mid-November 2015 that they were gung-ho about adding it to the IMF’s currency basket, the Special Drawing Rights (SDR), which is an important step toward becoming a major global reserve currency. At the end of November 2015, it was approved by the board. And it took effect in October 2016. Sure enough, in Q4 2016, the Chinese yuan started showing up in the COFER data as a global reserve currency with a share of 1.08%. But rather than soaring, it didn’t move at all over the first two quarters in 2017. And in Q3, it ticked up to a still minuscule 1.1%. Central banks do not appear to be overeager to hold this currency in large amounts. The chart below shows the changes since Q3 2014. The black line at the top is the US dollar – its hegemony unbroken.

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Russia experienced dollar shortages with oil prices still at $95 a barrel. It can’t do without dollars. Maybe sometime in the future, but that may well be a long time away.

The Rise And Fall Of The Eurodollar (ZH)

Gromen, who largely sat out this segment, offers a few thoughts toward the end that add to the picture of weakness defining the contemporary eurodollar system. Looking back to the summer of 2014, Gromen posits that the largest oil exporters were able to maintain current account surpluses because they’d already started settling an increasing percentage of their oil sales in dollars.

“It’s interesting, Jeff and Mark (this is Luke of course) when you look back to September – and we put this in our slide deck (which we can touch on later) – but if you look back at the actual timing of events it’s kind of interesting. And it’s, to me it hints to motive. So I’d love to get your thought on it, Jeff or Mark, of – if you go back to August of 2014, actually back even to May of ‘14, you had the Holy Grail gas and energy deal signed between China and Russia. It was rumored that that deal was going to be done in non-dollars, but no proof of that. It was later proven to be the case. In August of 2014, Putin announced that they wanted to start moving away from the dollar in oil trade, because the dollar’s monopoly in the global energy trade was damaging their economy.

And, what’s kind of interesting – and we wrote about this at the time – at this point oil is still $100 a barrel. And then, all of a sudden, by late September, with oil still $96 a barrel, $95 a barrel, Russia’s having dollar shortages. Russia was still – and they weren’t the only ones – Venezuela, Ecuador, a couple of others – you have three major oil exporters that are running still current account surpluses in the low- to mid-single digits at this point, starting to run into dollar shortages. And it was, I think, an underappreciated point at the time that, basically, if you’re an oil exporter you’re only selling in dollars, you’re running a current account surplus.

And so, if you’re only selling in dollars, in theory, there’s only two explanations for that, for those dollar shortages that began to pop up well before the price of oil crashed. Which was (#1) Russia and other places got dramatically more corrupt in the three months versus the three months before. Or they were starting to sell energy at an accelerating rate in non-dollar terms. And, as a result, you were seeing – where you were getting $100 before, now you were getting whatever, $90, $80, whatever the mix was. And at that point, then you started to see some of the devaluations etc. I guess I’d love to hear your thoughts on that.”

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Alastair Crooke also looks at the dollar demise.

Behind Korea, Iran & Russia Tensions: The Lurking Financial War (Crooke)

What have the tensions between the US and North Korea, Iran and Russia in common? Answer: It is that they are components to a wider financial war. Russia and Iran (together with China) happen to be the three key players shaping a huge (almost half the global population) alternative currency zone. The North Korean issue is important as it potentially may precipitate the US – depending on events – towards a more aggressive policy toward China (whether out of anger at Chinese hesitations over Korea, or as part and parcel of the US Administration’s desire to clip China’s trading wings). The US has embarked on a project to restore America’s economic primacy through suppressing its main trade competitors (through quasi-protectionism), and in the military context to ensure America’s continued political dominance.

The US ‘America First’ National Security Strategy made it plain: China and Russia are America’s ‘revisionist’ adversaries, and the US must and intends to win in this competition. The sub-text is that potential main rivals must be reminded of their ‘place’ in the global order. This part is clear and quite explicit, but what is left unsaid is that America is staking all on the dollar’s global, reserve currency status being maintained, for without it, President Trump’s aims are unlikely to be delivered. The dollar status is crucial – precisely because of what has occurred in the wake of the Great Financial crisis – the explosion of further debt. But here is a paradox: how is it that a Presidential Candidate who promised less military belligerence, less foreign intervention, and no western cultural-identity imposition, has, in the space of one year, become, as President, a hawk in respect to Korea and Iran.

What changed in his thinking? The course being pursued by both states was well-known, and has offered no sudden surprise (though North Korea’s progress may have proved quantitatively more rapid than, perhaps, US Intelligence was expecting: i.e. instead of 2020 – 2021, North Korea may have achieved its weapons objective in 2018 – some two years or so earlier that estimated)? But essentially Korea’s desire to be accepted as a nuclear weapon state is nothing new. It is ‘the Federal debt’, and a pending ‘debt ceiling’ that is crucial. There is little doubt that the US military is not what it used to be, and the Republican Party possesses a wing that is quite fundamentalist about limiting debt (Freedom Caucus). A serious military crisis is possibly the only way Trump is likely to get a huge ramp-up of military expenditure past Congress’ fiscal hawks.

President Trump – the Tax Bill saga tells us — is going to be a big spender as part of MAGA (Make America Great Again). The increase in proposed US defence spending alone, more or less equates to the whole annual Russian defence spending. US Federal debt is already above $20 Trillion, and accelerating fast: the borrowing requirement is ballooning and interest payments to service this additional borrowing, normally would be expected to rise. But Trump is also explicitly a low interest rate, expanding balance-sheet, sort of guy. So, how does one finance a truly ballooning budget deficit, whilst keeping interest rates low, or at zero? Well a fear-driven rush by foreigners into ‘risk free’ US Treasuries (i.e. military crisis again), historically serves to keep rates low – and dollars plentiful — as ‘overseas dollars’ return ‘home’ to Wall Street.

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No sure why economists et al have such a hard time understanding why limitless liberalization must by definition backfire.

Polanyi Best Explains Trump, Brexit And The Failure Of Neoliberalism (Prime)

It’s good to see the latest (21 December) New York Review of Books give space to a review – by Robert Kuttner of American Prospect– of a biography of “Karl Polanyi: a Life on the Left” by Gareth Dale. For as we have been arguing for a long time, it was Polanyi who better than any other historian/analyst got to the heart of the contradictions of free market globalised liberalism, and saw that it was such economic liberalism, pushed too far, that is likely to lead to authoritarian, or even fascist, outcomes. As Kuttner puts it, “Global capitalism has escaped the bounds of the postwar mixed economy that had reconciled dynamism with security through the regulation of finance, the empowerment of labor, a welfare state, and elements of public ownership”.

The outcome is extreme inequality and instability. However, as Kuttner reminds, “We have been here before. During the period between the two world wars, free-market liberals governing Britain, France, and the US tried to restore the pre–World War I laissez-faire system. They resurrected the gold standard and put war debts and reparations ahead of economic recovery. It was an era of free trade and rampant speculation, with no controls on private capital. The result was a decade of economic insecurity ending in depression, a weakening of parliamentary democracy, and fascist backlash. Right up until the German election of July 1932, when the Nazis became the largest party in the Reichstag, the pre-Hitler governing coalition was practicing the economic austerity commended by Germany’s creditors.”

It was these extremist policies of free market liberalism that Polanyi dissected in his most famous work, “The Great Transformation”, published in 1944. The worst consequences were in Germany and other continental European states, but declining imperial Britain was still the heart of ultra-liberal ideology. I am currently reading David Kynaston’s rambling History of the Bank of England, which sets out the disgraceful pressure that Governor Montagu Norman and the City of London put on elected governments to return to the Gold Standard (at the pre-war rate) and impose harsh austerity, with terrible economic consequences. [..] “[T]he simple proposition that all factors of production must have free markets implies in practice that the whole of society must be subordinated to the needs of the market system.” We see Polanyi’s key insight – in the essays and in the later book – as encapsulated in these passages:

“The real nature of the dangers thus become apparent which are inseparable from the market-utopia. For the sake of society the market mechanism must be restricted. But this cannot be done without grave peril to economic life and therefore to society as a whole. We are caught up on the horns of a dilemma: – either to continue on the paths of a utopia bound for destruction, or to halt on this path and risk the throwing out of gear of this marvellous but extremely artificial system.” “A self-regulating market-system is a utopia. No society could stand its devastating effects once it got really going. Hardly had laissez-faire started when the State and voluntary organizations intervened to protect society through factory laws, Trade Union and Church action from the mechanism of the market.”

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All western countries do. It’s why interest rates are so low.

UK Government Relies On Rising Household Debt To Hit Targets – Labour (G.)

John McDonnell has accused the government of relying on millions of British families going further into debt in order to meet Treasury targets. The shadow chancellor said families were set to borrow £445bn by the end of the parliament. He also highlighted official figures showing the ratio between household debt and income had reached a five-year high, with forecasts suggesting it will hit 150% by 2022. That means families will have amassed debts worth a year and a half’s income – which Labour warned could result in people falling into financial difficulties. McDonnell is planning for the Labour party to focus heavily on the question of household debt as part of its new year strategy. “The alarming increase in household debt at a time when wages are not keeping up with prices is creating the perfect storm for our economy,” McDonnell told the Guardian.

“There needs to be more done to protect working households from extortionate rates of interest, and also ensure that their earnings are not being squeezed just so Philip Hammond can pretend to meet his own targets, which he has so far failed to meet.” The Labour frontbencher said his party had already promised to cap interest on insecure lending, but would be unveiling a string of further interventions in 2018 about how to protect households from burgeoning debt. He has described the situation as a “personal debt crisis” with levels of unsecured borrowing predicted to hit a record of £19,000 per household by the end of this parliament. Analysis from Labour shows unsecured debt is on course to exceed £15,000 per household next year and could go on to exceed £19,000 per household by 2022 if it follows the current trajectory.

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They had an excellent health care service. Those days are gone. The poor have become expendable.

‘Desperate Times’ For Overcrowded British Hospitals (PA)

Pressures on the NHS have “escalated rapidly” over the festive period, with hospitals experiencing significant bed shortages, a leading doctor has warned. Dr Nick Scriven, president of the Society for Acute Medicine (SAM), said many hospitals reported more than 99% capacity in the week before Christmas. He said services are being placed under significant strain as they enter the new year and called for non-urgent operations to be postponed until at least the end of January. Doctors have described corridors overflowing with patients and used social media in a bid to find extra staff to cope with demand. Portsmouth hospitals NHS trust, in Hampshire, tweeted on Sunday: “The hospital is extremely busy at the moment and we are asking any medical or nursing staff available for a shift tonight or tomorrow to make contact.”

Epsom and St Helier University hospitals trust, in London, also appealed for staff to work on New Year’s Eve “due to sickness and high volumes of patients”. Dr Richard Fawcett, from the Royal Stoke University hospital, wrote on Saturday that it had run out corridor space in A&E after ambulances were diverted from County hospital, Stafford. NHS England said hospitals were “generally coping”, with overall bed occupancy levels down from 95% in the lead-up to Christmas to about 93%. Scriven said: “Since the bank holiday, things have escalated rapidly and we are on the cusp of a major issue at least as bad as last year when it was described by the Red Cross as a humanitarian crisis. “There is an awful lot of respiratory illness causing a lot of severe symptoms in the old and young and 10- to 12-hour delays in emergency departments are now not uncommon – along with patients being placed on inappropriate wards.”

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Good story for 2018.

China’s Growth Engine Stutters As Factories Slow Down (G.)

Growth in China’s manufacturing sector slowed in December as a punishing crackdown on air pollution and a cooling property market start to weigh on the world’s second-largest economy. The data supports the view that the Chinese economy is beginning to gradually lose steam after growing by a forecast-beating 6.9% in the first nine months of the year. However, signs of a sharper slowdown – a major fear among global investors – have yet to materialise. The official Purchasing Managers’ Index (PMI) released on Sunday dipped to 51.6 in December, down from 51.8 in November and in line with forecasts from economists in a Reuters poll. The 50-point level divides growth from contraction on a monthly basis. The figures showed that China’s full-year 2017 economic growth would be at about 6.9% and 6.5% for 2018, according to the China Federation of Logistics and Purchasing, which compiles the data.

Boosted by hefty government infrastructure spending, a resilient property market and unexpected strength in exports, China’s manufacturing and industrial firms have driven solid economic growth this year, with their strong appetite for raw materials boosting global commodity prices. However, a slowdown has started to take hold in the last few months due to a wide-ranging combination of government measures, from a crackdown on smog in some heavily industrialised provinces to continued curbs on the housing market, which are weighing on property investment. Chinese steelmakers in 28 cities have been ordered to curb output between mid-November and mid-March, while a campaign to promote cleaner energy by converting coal to natural gas has also hampered manufacturing activity in some cities, leading to shortages and price rises.

Read more …

Any politician seen as giving in to Turkish strong-arming faces a huge problem at home. Long history and all that.

Greece Dismisses Turkey’s Threats Over Asylum Row (GR)

Greece dismissed Turkish angry threats on Sunday over its decision to grant asylum to a soldier who Ankara accuses of involvement in the abortive coup against President Tayyip Erdogan in July 2016. Turkey said on Saturday the decision by a Greek asylum board undermined relations between the two countries. The soldier was one of eight who fled after the July 15 coup attempt. It also accused Athens of harbouring “coup plotters”, a charge Greece denies. Turkey also threatened that the incident would affect bilateral relations over a host of issues from ethnically split Cyprus to sovereignty over airspace. The asylum board rejected the applications by the other seven soldiers, and the Greek government has appealed the decision to grant the soldier asylum and sought its annulment.

The government announcement that it will appeal the decision has caused a minor political storm, with opposition parties accusing the PM of hypocrisy and of bowing to Turkish threats. the row began when the government added to its appeal release that the country’s judiciary is independent. “Our faith in democratic principles and practices is not a weakness, but a source of strength,” the Greek foreign ministry said in a statement on Sunday. “Democracies do not threaten, or can be threatened,” the foreign ministry said. “On the contrary, they work responsibly and methodically to promote understanding and entrench stability and good neighbourly relations. Greece will continue this path and hopes its neighbours will do the same.” The eight soldiers had flown by helicopter to Greece in the early hours of July 16, 2016, as the attempted coup against Erdogan crumbled. They have denied any involvement in the attempt.

Read more …

Erdogan is not going to like this one.

Greece: Turkish Soldiers Won’t Be Extradited Regardless Of Asylum Process (K.)

Greek government spokesman Dimitris Tzanakopoulos has said the eight Turkish soldiers wanted by Ankara in connection with a failed coup attempt in 2016 “will not be extradited regardless of the outcome of their asylum applications.” In a message posted on social media late Sunday, Tzanakopoulos said the asylum claims submitted by the soldiers concerns their granting of refugee status. “This is a completely different from their non-extradition,” he said. Turkey said on Saturday the decision by a Greek asylum board to grant asylum to one of the eight soldiers undermined relations between the two countries. It also accused Athens of harboring “coup plotters.”

On Sunday, Tzanakopoulos said it was up to the Greek justice system to decide if the suspect in question is entitled to refugee protection, “in light of the enormous political significance of the issue which directly impacts on relations with the neighboring country.” “The political position of the Greek government is nevertheless clear,” Tzanakopoulos said. “Those suspected of being involved in Turkey’s coup are not welcome.”

Read more …

It’s not as if this is a British issue. Just refuse to use all the packaging etc.

UK ‘Faces Build-Up Of Plastic Waste’ (BBC)

The UK’s recycling industry says it doesn’t know how to cope with a Chinese ban on imports of plastic waste. Britain has been shipping up to 500,000 tonnes of plastic for recycling in China every year, but now the trade has been stopped. At the moment the UK cannot deal with much of that waste, says the UK Recycling Association. Its chief executive, Simon Ellin, told the BBC he had no idea how the problem would be solved in the short term. “It’s a huge blow for us… a game-changer for our industry,” he said. “We’ve relied on China so long for our waste… 55% of paper, 25% plus of plastics. “We simply don’t have the markets in the UK. It’s going to mean big changes in our industry.”

China has introduced the ban from this month on “foreign garbage” as part of a move to upgrade its industries. Other Asian nations will take some of the plastic, but there will still be a lot left. Environment Secretary Michael Gove has admitted that he was slow to spot the problem coming. The UK organisation Recoup, which recycles plastics, said the imports ban would lead to stock-piling of plastic waste and a move towards incineration and landfill. Peter Fleming, from the Local Government Association, told the BBC: “Clearly there’s a part to play for incineration but not all parts of the country have incinerators.

Read more …

Dec 292017
 
 December 29, 2017  Posted by at 10:16 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Vincent van Gogh Snowy landscape with Arles in the background 1888

 

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Natural Time Cycles: A Dow Forecast For 2018-2020 (Freeze)
Trump Says Russia Inquiry Makes US ‘Look Very Bad’ (NYT)
Russiagate Is Devolving Into an Effort to Stigmatize Dissent (Carden)
US Fiscal Path Will Rattle the Rafters of the Casino – Stockman (SG)
China May Be A Bigger Worry For 2018 (CNBC)
China’s Leaders Fret Over Debts Lurking In Shadow Banking System (R.)
China Temporarily Waives Taxes To Get Foreign Firms To Stay (AFP)
How Far the Scams & Stupidities around “Blockchain Stocks” are Going (WS)
IRS Guidance on Property Taxes Has the US Confused (BBG)
Turns out, Uber Shareholders Are Eager to Sell at 30% Discount (WS)
UK Holds Back Historic Files on EU as It Prepares for Brexit (BBG)
Greek Migration Ministry Responds To Criticism Over Island Camps (K.)

 

 

Gann is all the vogue these days. Why has it taken so long? Lots of graphs here.

Natural Time Cycles: A Dow Forecast For 2018-2020 (Freeze)

The analysis and forecasts presented in this article are based on the analytical framework of W.D. Gann. Gann is an investing legend, labeled as genius by many financial historians. He reportedly accumulated $50 million in profits during his trading career. His superior track record and those of others using his methods argues that, regardless of our opinion of his methodology, we should heed the advice of his work. A more detailed explanation of his analytical framework is included in the last section of this article.

Forecast: 2018-2020

The Dow Jones Industrial Average forecast, in the graph above, is based upon the natural 20-year cycle that Gann identified. The lines in the graph show the projected monthly cumulative percentage returns from the peak level. The yellow line is the average scenario and the aqua line is the pessimistic scenario. The graph provides monthly estimates for 2018. The last data point represents June 2020, which covers the entire 30-month period from December 2017. My average scenario forecasts a -15.29% price return for 2018. The cumulative price return is forecast to bottom in June 2020 at -20.39%, at which time an extended rally should ensue. My pessimistic scenario forecasts a -32.90% price return for 2018. The cumulative price return is forecast to be little-changed in June 2020 at -31.23%, at which time an extended rally in should ensue.

Read more …

The New York Times feels obliged to cede the stage to the one person they’ve sought to discredit for the past 2 years. Must be humiliating.

Trump Says Russia Inquiry Makes US ‘Look Very Bad’ (NYT)

President Trump said Thursday that he believes Robert S. Mueller III, the special counsel in the Russia investigation, will treat him fairly, contradicting some members of his party who have waged a weekslong campaign to try to discredit Mr. Mueller and the continuing inquiry. During an impromptu 30-minute interview with The New York Times at his golf club in West Palm Beach, the president did not demand an end to the Russia investigations swirling around his administration, but insisted 16 times that there has been “no collusion” discovered by the inquiry. “It makes the country look very bad, and it puts the country in a very bad position,” Mr. Trump said of the investigation. “So the sooner it’s worked out, the better it is for the country.”

Asked whether he would order the Justice Department to reopen the investigation into Hillary Clinton’s emails, Mr. Trump appeared to remain focused on the Russia investigation. “I have absolute right to do what I want to do with the Justice Department,” he said, echoing claims by his supporters that as president he has the power to open or end an investigation. “But for purposes of hopefully thinking I’m going to be treated fairly, I’ve stayed uninvolved with this particular matter.” Hours after he accused the Chinese of secretly shipping oil to North Korea, Mr. Trump explicitly said for the first time that he has “been soft” on China on trade in the hopes that its leaders will pressure North Korea to abandon its nuclear weapons program. He hinted that his patience may soon end, however, signaling his frustration with the reported oil shipments.

[..] Mr. Mueller’s investigation appears to be moving ahead despite predictions by Mr. Trump’s lawyers this year that it would be over by Thanksgiving. Mr. Trump said that he was not bothered by the fact that he does not know when it will be completed because he has nothing to hide. Mr. Trump repeated his assertion that Democrats invented the Russia allegations “as a hoax, as a ruse, as an excuse for losing an election.” He said that “everybody knows” his associates did not collude with the Russians, even as he insisted that the “real stories” are about Democrats who worked with Russians during the 2016 campaign. “There’s been no collusion. But I think he’s going to be fair,” Mr. Trump said of Mr. Mueller.

[..] Mr. Trump said he believes members of the news media will eventually cover him more favorably because they are profiting from the interest in his presidency and thus will want him re-elected. “Another reason that I’m going to win another four years is because newspapers, television, all forms of media will tank if I’m not there because without me, their ratings are going down the tubes,” Mr. Trump said, then invoked one of his preferred insults. “Without me, The New York Times will indeed be not the failing New York Times, but the failed New York Times.” He added: “So they basically have to let me win. And eventually, probably six months before the election, they’ll be loving me because they’re saying, ‘Please, please, don’t lose Donald Trump.’ O.K.”

Read more …

Russiagate has turned into a huge embarrassment.

Russiagate Is Devolving Into an Effort to Stigmatize Dissent (Carden)

Of all the various twists and turns of the year-and-a-half-long national drama known as #Russiagate, the effort to marginalize and stigmatize dissent from the consensus Russia-Trump narrative, particularly by former intelligence and national-security officials and operatives, is among the more alarming. An invasion-of-privacy lawsuit, filed in July 2017 by a former DNC official and two Democratic donors, alleges that they suffered “significant distress and anxiety and will require lifelong vigilance and expense” because their personal information was exposed as a result of the e-mail hack of the DNC, which, the suit claims, was part of a conspiracy between Roger Stone and the Trump campaign.

According to a report in The New York Times published at the time of the suit’s filing, “Mr. Trump and his political advisers, including Mr. Stone, have repeatedly denied colluding with Russia, and the 44-page complaint, filed on Wednesday in the Federal District Court for the District of Columbia, does not contain any hard evidence that his campaign did.” (Emphasis added.) In a new development, in early December, 14 former high-ranking US intelligence and national-security officials, including former deputy secretary of state William Burns; former CIA director John Brennan; former director of national intelligence James Clapper; and former ambassador to Russia Michael McFaul (a longtime proponent of democracy promotion, which presumably includes free speech), filed an amicus brief as part of the lawsuit.

The amicus brief purports to explain to the court how Russia deploys “active measures” that seek “to undermine confidence in democratic leaders and institutions; sow discord between the United States and its allies; discredit candidates for office perceived as hostile to the Kremlin; influence public opinion against U.S. military, economic and political programs; and create distrust or confusion over sources of information.” The former officials portray the amicus brief as an offering of neutral (“Amici submit this brief on behalf of neither party”) expertise (“to offer the Court their broad perspective, informed by careers spent working inside the U.S. government”).

The brief claims that Putin’s Russia has not only “actively spread disinformation online in order to exploit racial, cultural and political divisions across the country” but also “conducted cyber espionage operations…to undermine faith in the U.S. democratic process and, in the general election, influence the results against Secretary Hillary Clinton.”

Read more …

“The Fed will sell more bonds in the next 3-4 years than had been accumulated by all of the central banks of the world in all of recorded history as of 1995!”

US Fiscal Path Will Rattle the Rafters of the Casino – Stockman (SG)

[..] the US government is spending money like a drunken sailor. But nobody really seems to care. Since Nov. 8, the US national debt has risen $1 trillion. Meanwhile, the Russell 2000 (a small-cap stock market index) has risen by 30%. Former Reagan budget director David Stockman said this makes no sense in a rational world, and he thinks the FY 2019 is going to sink the casino. In a rational world operating with honest financial markets those two results would not be found in even remotely the same zip code; and especially not in month #102 of a tired economic expansion and at the inception of an epochal pivot by the Fed to QT (quantitative tightening) on a scale never before imagined.” Stockman is referring to economic tightening recently launched by the Federal Reserve. It’s not only the increasing interest rates.

By next April the Fed will be shrinking its balance sheet at an annual rate of $360 billion and by $600 billion per year as of next October. By the end of 2020, the Fed will have dumped $2 trillion of bonds from its books. Stockman puts this into perspective. So the net of it is this: The Fed will sell more bonds in the next 3-4 years than had been accumulated by all of the central banks of the world in all of recorded history as of 1995!” Now pause for just a moment and think about this. The GOP just passed a tax plan that will add another $1.5 trillion to the deficit. And word is Trump’s next big push will be to pass an infrastructure bill – even more spending and debt. Meanwhile, during a time of rising debt, the Fed will be flooding the market with bonds. And what do governments have to do to finance debt? That’s right. They sell bonds.

There is literally a fiscal red ink eruption heading straight at the Fed’s balance sheet shrinkage campaign that will rattle the rafters in the casino … Uncle Sam’s borrowing requirements are likely to hit $1.25 trillion or more than 6% of GDP in FY 2019 owing to the fact that the tax bill is so heavily front-loaded and the GOP’s wild spending spree for defense, disasters and much else.”

Read more …

It’s starting to feel like Xi is seriously stuck. Let zombies default, and accept the lost jobs and mom and pop investments, or keep propping them up.

China May Be A Bigger Worry For 2018 (CNBC)

For a market dependent on synchronized global growth, investors may be betting too much that China will not rock the boat next year. Part of the S&P 500’s rally to record highs this year comes on the back of better economic growth around the world. A major contributor to that growth was stability in China as leaders prepared for a key 19th Communist Party Congress this fall. Now that the congress is over and Beijing looks set to take action on its growing debt problems, worries about a sharper-than-expected slowdown in the world’s second-largest economy could hurt U.S. stocks. “With the 19th Party Congress now behind us, the risk is that the peak growth in China is also behind us,” David Woo, head of global rates, FX and EM FI strategy & econ research at Bank of America, said in an outlook report.

“Curiously, the market has been ignoring the string of negative Chinese data surprises in recent weeks. It is possible that the market views them as temporary.” “We are concerned that China could be vulnerable to US tax reform getting done,” Woo said, noting that a resulting increase in U.S. rates and the U.S. dollar would likely cause capital flight from China to accelerate and weaken the Chinese yuan. If that happens, China’s central bank would be likely “to tighten liquidity, which in turn would raise further concerns about the growth outlook,” he said. Fears of negative spillover from a rapid slowdown in China’s economy hit global markets in August 2015 after a surprise yuan devaluation. Further weakness in the currency in the first few weeks of 2016 contributed to the worst start to a year on record for both the Dow and S&P 500.

Since then, Chinese authorities have proven they are still able to control their economy. But stability has come at the cost of ever-increasing debt levels. The IMF warned in October that China’s banking sector assets have risen steadily to 310% of GDP from 240% of GDP at the end of 2012. S&P Global Ratings downgraded China’s long-term sovereign credit rating in September, following a similar downgrade by Moody’s in May. “If clusters of credit defaults start to form, concerns about contagion into the wider economy could take hold if fears of default in wealth management products arise,” UBS Wealth Management’s chief investment office said in its 2018 outlook. “Should this happen, the Chinese government, in our view, would likely have sufficient resources to prevent widespread contagion.”

Read more …

Xi made the conscious choice to rise on the shadow’s coat tails. Now he has to keep riding or else.

China’s Leaders Fret Over Debts Lurking In Shadow Banking System (R.)

Before the 2008 financial crisis, there was very little shadow banking in China. In the aftermath of that shock, Chinese authorities launched a massive effort to stimulate the economy, mostly through a huge increase in lending. This led to a boom in property and infrastructure spending that continues today. Demand for credit increased sharply, especially from local and municipal government-owned companies. To meet this demand, banks began selling wealth management products offering higher interest rates than normal deposits. Many investors believed these products were implicitly guaranteed by the issuer, even if it was not expressly stated in the contract. Banks also borrowed cash from other banks and companies. For banks, these funds can then be lent to borrowers prepared to pay higher rates.

But the banks want to sidestep rules designed to restrict lending to overheated sectors including property, mining and other resources. So, people in the shadow banking industry say, these loans are often disguised by directing them through a complex chain of intermediaries, including trusts, securities companies, other banks and asset managers. To earn interest on these loans, a bank will buy a financial product from one of the intermediaries, which directs earnings back to the bank. That allows the bank to describe what is really a loan as an investment on its books. This type of lending can be more profitable because banks can set aside much less capital than they are required to hold for regular loans as a safeguard against defaults. By the end of 2015, shadow lending was growing faster than traditional bank lending, and was equivalent to 57% of total bank loans, according to a 2016 report from investment bank CLSA.

This dramatically accelerated the speed at which overall debt expanded in China’s financial system. Moody’s said in a November report that China’s shadow banking assets grew more than 20% in 2016 to 64 trillion yuan ($9.8 trillion), equivalent to 86.5% of GDP. [..] At the center of shadow banking are the 12 nationally licensed joint stock banks and many of the more than 100 city commercial lenders which hold about a third of China’s commercial banking assets. From 2010, these mid-tier banks and regional lenders set about competing with the country’s so-called Big Five lenders, the state-controlled behemoths that dominate the economy. The key to the upstarts’ growth is selling wealth management products and borrowing from other banks, allowing them to create loans wrapped in financial instruments to give the appearance of investments.

Read more …

Translation: foreign reserves are fleeing. Blame the Trump tax plan.

China Temporarily Waives Taxes To Get Foreign Firms To Stay (AFP)

China will temporarily waive income taxes for foreign companies on profits they reinvest in the country as Beijing battles to retain foreign firms and investment. The finance ministry announced Thursday the new tax policy, which will apply retroactively from January so businesses will be able to take advantage of the exemption for this year’s taxes. The new incentives for foreign business to keep their earnings in China follow the passing last week of a corporate tax overhaul in the United States. The US reform will lower the tax rate for most corporations to 21%. Businesses in China pay 25%. The temporary exemption “will create a better investment environment for foreign investors and encourage foreign investors to sustain their investments in China,” a spokesman for the ministry of commerce said.

The policy announcement also comes as China has struggled with capital flight and tightened capital controls this year to stem the outflow of money. But foreign companies have long complained of the onerous bureaucracy they must navigate, barriers to market access, and policies that favour local firms. The new tax incentives aim to make China more attractive but come with a slew of restrictions. To be eligible, the profits must be invested in industries and activities where the Chinese government encourages foreign investment: manufacturing, services, research and development. Locations in the west of the country are also prioritised for development. Companies have three years to apply for the exemptions after paying tax.

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“This can happen only during the very late stage of a bubble.”

How Far the Scams & Stupidities around “Blockchain Stocks” are Going (WS)

It just doesn’t let up. UBI Blockchain Internet, a Hong Kong outfit whose shares trade in the US [UBIA], filed with the SEC to sell an additional 72.3 million shares owned by its executives. In other words, it isn’t selling the shares to raise money for corporate purposes, but to allow its executives, including CEO Tony Liu, to bail out. This is happening after the company – which sports zero revenues and a disconnected phone number in its SEC filings – managed to get its shares to spike briefly by over 1,100%, pushing its market capitalization to $8 billion. UBI Blockchain didn’t do an IPO. Instead, in October 2016, it acquired a publicly traded shell company registered in Las Vegas, called “JA Energy.” It then changed the name and ticker symbol to what they’re now.

Over the six trading days starting on December 11, 2017, its shares soared over 1,100%, from $7.20 to $87 on December 18, as the word “blockchain” in its name and sufficient hype and speculator-idiocy took hold. By December 21, shares had plunged 67% to $29. They closed on Wednesday at $38.50. At this price, it still has a ludicrous market cap of $3.64 billion. In its prospectus for the share sale, filed with the SEC on December 26, UBI explains the overcooked spaghetti of its dreamed-up activities: UBI Blockchain Internet Ltd. business encompasses the research and application of blockchain technology with a focus on the Internet of things covering areas of food, drugs and healthcare. Management plans to focus its business in the integrated wellness industry, by providing procedures for safety and effectiveness in food and drugs, but also preventing counterfeit or fake food and drugs.

With the advancement of the blockchain technology, the Company plans to trace a food or drug product from its original source within the context of the Internet of Things to the final consumer. It explains that “management is uncertain that the Company can generate sufficient revenues in the next 12-months to sustain our operations. We shall need to seek additional funding to continue our operations and implement our plan of operations.” It added that “due to the uncertainty of our ability to meet our financial obligations and to pay our liabilities as they become due,” the auditors in the financial statement for the year ended August 31, 2017, questioned “our ability to continue as a going concern.” For the year, UBI had an operating loss of $1.83 million on zero revenues. It had $15,406 in cash, and: “In order to keep the company operational and fully reporting, management anticipates a burn rate of approximately $220,000 per month, pre and post-offering.”

Read more …

Overtime for accountants.

IRS Guidance on Property Taxes Has the US Confused (BBG)

New guidance from the Internal Revenue Service that limits taxpayers’ ability to deduct prepaid property levies on their 2017 tax returns is causing confusion nationwide as people rush to pay in advance without knowing whether they’re wasting their time and money. The IRS said Wednesday that taxpayers can deduct prepaid state and local property taxes for 2018 on 2017 returns only if the taxes were assessed before 2018. The brief guidance – which doesn’t define the term “assessed” – had local tax officials scratching their heads. Some see the issue as an early signal of far wider confusion that’s coming soon – the predictable result of passing a bill that rewrites the tax code just two weeks before many of the changes take hold.

“This is the tip of the iceberg as state and local governments try to figure this out – and by the way, they’re trying to figure it out with one week before the changes take effect,” said Richard Auxier, a researcher with the Urban-Brookings Tax Policy Center, a Washington public policy group. “And that week happens to be the week between Christmas and New Year’s.” The IRS guidance comes after many state and local officials – including New York Governor Andrew Cuomo and New Jersey Governor Chris Christie – have taken pains to clear the way for their residents to accelerate property-tax payments. The nationwide flurry came ahead of the new tax law that will cap property tax deductions – along with those for state and local income taxes or sales taxes – at an overall total of $10,000.

Read more …

Uber just lost a third of its valuation.

Turns out, Uber Shareholders Are Eager to Sell at 30% Discount (WS)

Softbank, an acquisitive junk-rated Japanese holding company that also owns about 80% of Sprint, has been preparing for months to buy a large stake in Uber. At the end of November, it launched a tender offer to buy enough shares from investors and employees to give it a 14% stake. It dangled out a price of $33 a share, which valued Uber at $48 billion – a 30% discount from Uber’s “valuation” of $69 billion, which had been established behind closed doors during the last fund-raising round. The offer at a $48-billion valuation is even lower than Uber’s valuation back in June 2015 of $51 billion. When the tender offer was started, there was uncertainty if enough sellers would be willing to dump their shares at this discount. The other option for them would be to hold out until the IPO, in the hopes for a better deal. The tender offer expired today at noon Pacific Time.

Turns out, there are plenty of eager sellers – despite any dreams of a blistering IPO: The tendered shares amount to about 20% of the company’s equity, “people familiar with the matter” told the Wall Street Journal. But SoftBank will likely acquire only a 15% stake, “the people said.” Other members of the consortium SoftBank is leading – including Dragoneer Investment Group and Tencent Holdings – are likely to buy some but not all of the remaining tendered shares. This deal will not raise money for Uber itself but will allow employees and early investors to cash out some of their holdings – at a steep discount. But to maintain the illusion of the previous “valuation” of $69 billion – which is critical for a properly hyped future IPO – SoftBank will also make a $1-billion direct investment into Uber at the $69-billion “valuation,” as part of the deal.

Since startup “valuations” are based on the price paid during fund-raising, this $1-billion deal forms Uber’s new “valuation,” the same as the prior one. So the “valuation” illusion remains intact. [..] SoftBank already owns major stakes in other rideshare startups, including Didi Chuxing, the largest rideshare company in China; Grab, a major rideshare company in Southeast Asia; Ola, the largest rideshare company in India, slightly ahead of Uber; and 99, the largest rideshare company in Brazil. So SoftBank is serious about getting into this business on a global scale. But all rideshare companies are competing with each other, with taxis, rental cars, mass transit, and other modes of transportation on service and low fares, and they’re competing with each other to rope in drivers by offering them incentives.

The plan is to dominate the markets. And all of them are losing money hand over fist. The chart below shows what quarterly “adjusted” losses look like for Uber. Actual losses under GAAP would be much larger since the costs of employee stock compensation, interest, taxes, depreciation, and amortization have been stripped out of the figures that Uber shows the media:

Read more …

It’s hard to keep track of all the Monty Python moves at Downing Street 10.

UK Holds Back Historic Files on EU as It Prepares for Brexit (BBG)

As Prime Minister Theresa May prepares for the next round of Brexit negotiations, her government has held back publication of secret files relating to the creation of the European Union. The documents from 1992 were due to be released Friday at the National Archives under British rules that allow government papers to enter the public domain. Out of 495 files from the prime minister’s office that year, a total of 114 were held back. Of those, 12 related to European policy. The main opposition party was quick to pounce. Jon Trickett, a high-ranking Labour politician described it as “profoundly shocking, particularly given the current state of the national debate.”

May’s government has had a series of problems with information around Brexit. Last week, after months of ministers trying to keep them secret, the government published an assessments of how different segments of the economy will cope with leaving the EU. Lawmakers commented that the documents contained little that couldn’t be found on Wikipedia. The Cabinet Office, which supports May in running the government, said in an email that “there is no question that any files are deliberately ‘withheld’ from the media.” A further 26 files covering the EU were sent to the archives too late for journalists to read them before publication.

It explained that “we have to ensure all files are properly reviewed and prepared before they are transferred, so that they do not harm national security or our relations with other countries or disclose the sensitive personal data of living individuals.” The files that were released reveal the extent to which Britain’s 1992 expulsion from the Exchange Rate Mechanism turned Conservatives against Europe. That year, Sept. 16 was christened “Black Wednesday” after the government’s failed attempt to keep the pound within the system by pushing interest rates up to 15%.

Read more …

Everybody accuses everybody else, because assigning the blame is more important than helping the refugees.

Greek Migration Ministry Responds To Criticism Over Island Camps (K.)

The Migration Ministry has blamed local authorities for the grim conditions inside island migrant camps in the wake of criticism from a senior European Union official. In an interview with news website New Europe on Sunday, the EU’s special envoy on migration, Maarten Verwey, said the European Commission had made funding available to ensure appropriate accommodation for all. “However, the Commission cannot order the creation or expansion of reception capacity against the opposition of the competent authorities,” he added. Speaking to Kathimerini on Thursday, sources inside the ministry did not deny the existence of EU funds, adding however that Verwey had omitted any mention of the difficulties “although he has personal experience.”

Authorities on Lesvos and Chios have opposed government plans to expand screening centers for refugees. Meanwhile, only a small amount of the available funds have been absorbed. Of the 540 million euros earmarked until 2020, Greece has received just 97 million euros, according to the Economy Ministry. The same sources referred to recent remarks by Migration Minister Yiannis Mouzalas, who accused EU governments of “hypocrisy” for failing to shoulder their fair share of the refugee burden.

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Dec 272017
 
 December 27, 2017  Posted by at 10:18 am Finance Tagged with: , , , , , , , , , ,  11 Responses »
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Vincent van Gogh Landscape with snow 1888

 

World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)
The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)
Germany – A Most Dangerous And Ridiculous Nation (Bilbo)
Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)
Bitcoin’s Rally Has Taken A Pause (BBG)
Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)
China Bets on More State Control for 2018 (Balding)
Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)
From Snowden To Russia-gate – The CIA And The Media (Moon of A.)
Italy Rescues More Than 250 Migrants In Mediterranean (R.)

 

 

They won’t be able to keep doing this without facing pitchforks.

World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)

The richest people on earth became $1 trillion richer in 2017, more than four times last year’s gain, as stock markets shrugged off economic, social and political divisions to reach record highs. The 23% increase on the Bloomberg Billionaires Index, a daily ranking of the world’s 500 richest people, compares with an almost 20% increase for both the MSCI World Index and Standard & Poor’s 500 Index. Amazon.com founder Jeff Bezos added the most in 2017, a $34,2 billion gain that knocked Microsoft co-founder Bill Gates out of his spot as the world’s richest person in October. Gates, 62, had held the spot since May 2013, and has been donating much of his fortune to charity, including a $4.6 billion pledge he made to the Bill & Melinda Gates Foundation in August.

Bezos, whose net worth topped $100 billion at the end of November, currently has a net worth of $99.6 billion compared with $91.3 billion for Gates. George Soros also gave away a substantial part of his fortune, revealing in October that his family office had given $18 billion to his Open Society Foundations over the past several years, dropping the billionaire investor to No. 195 on the Bloomberg ranking, with a net worth of $8 billion. By the end of trading Tuesday, Dec. 26, the 500 billionaires controlled $5.3 trillion, up from $4.4 trillion on Dec. 27, 2016. “It’s part of the second-most robust and second-longest bull market in history,” said Mike Ryan, chief investment officer for the Americas at UBS Wealth Management, on Dec. 18. “Of all the guidance we gave people over the course of this year, the most important advice was staying invested.”

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It’s curious to see that so many people are so blind to the notion of economies and societies needing a minimum level of balance. When that balance is destroyed, a reaction must automatically and inevitably follow. The rich could have gone on enjoying their privileges for a long time, but greed got in the way.

The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)

It’s never a bad year to be rich, exactly. But 2017 turned out to be a particularly good one. Rich people are doing so well these days that their spending on luxury goods isn’t even keeping up. Luxury spending rose 5% globally in 2017, the management consulting firm Bain & Company found. But that is a fraction of the 40% rise in net worth that people in America’s top-tenth of income earners saw between 2013 and 2016, according to the Federal Reserve. “We used to see that the growth of luxury was closely correlated with the stock market,” said Milton Pedraza, chief executive officer of the Luxury Institute, a consulting firm for high-end brands. “The stock market and real estate have gone up so much that nobody wants to spend all that money. It’s impossible.”

The big increase in wealth has exacerbated a long-evolving financial split between those at the very top and those at the bottom, even as the robust economy has lifted many working people with jobs and higher wages. Here are some examples. The S&P 500 Index has risen 20% since the beginning of the year and the Dow Jones Industrial Average is up 25%, fattening portfolios and boosting dividends. To a certain extent, the benefits are shared through ownership of 401(k) accounts. But only about half of Americans participate in an employer-sponsored retirement fund, according to the Pew Research Center, and a much smaller 18.7% of Americans own stock directly. In both cases, market participation is skewed toward those with higher incomes, which means that the wealthy disproportionately benefit from Wall Street’s boom.

Home prices reached all-time highs, according to the Case-Shiller home price index. That’s especially the case in hot markets like Seattle and San Francisco, where many working people are already unable to afford ownership. Although homeownership is a source of middle class wealth, homeowners generally tend to be higher-income. According to the Census Bureau, 78.4% of families making more than the median income own homes, compared to 49.5% of those making less.

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Just another chapter in the ‘Rich Getting Richer’ files. This too will evoke a response.

Germany – A Most Dangerous And Ridiculous Nation (Bilbo)

Germany’s domination of the EMU is clear both in political and economic terms. The current political impasse within Germany will not change that. Once resolved the on-going government will continue in the same vein – running excessive fiscal surpluses and huge external surpluses. It can sustain those positions because it dominates European policy and can force the adjustment to these overall ‘unsustainable’ positions onto both its own citizens (lowering their material living standards), and, more obviously, onto citizens of other EMU nations, most noticeably Spain and Greece. If it couldn’t bully nations like Greece, Italy, Spain and even France, Germany’s dangerous domestic strategy would be less effective. If all EMU nations followed Germany’s lead – then there would be mass Depression throughout Europe. This dangerous and ridiculous nation is a blight.

Only by exiting the Eurozone and floating their currencies against the currency that Germany uses can these beleaguered EMU nations gain some respite. When the Europhile Left come to terms with that obvious conclusion things might change within Europe. The following graph (using IMF WEO data) shows the sectoral balances for Germany from 1991 to 2017 (the last year is estimated). It is an extraordinary graph really in the context of Germany’s integral role in the Economic and Monetary Union (EMU). Germany is part of a currency union and its outcomes are much more closely tied to the fortunes of its EMU partners than say a nation, such as Australia, which has its own currency and floats it on international markets. What you see are two distinct EMU periods, when Germany was in gross violation in one way or another of the Treaty rules (laws).

It is not overstating the case to say that the increased poverty and hardship for citizens within Europe is directly related to the German government’s obsession with fiscal and external surpluses and its intransigence when confronted about this. Germany has become a dangerous yet ridiculous nation. While the Financial Times article (Dec 22, 2017) – The fiscal surplus that Germany should spend – referred to “Germany’s fiscal surplus” as an: ..a chronic embarrassment of riches.. I would prefer to refer to it as an embarrassing example of policy vandalism and an illegal assault on the rules that Germany has signed up to follow. Why illegal? Because it is directly related to Germany’s violation of the Macroeconomic Imbalance Procedure, which specifies under its so-called Scoreboard Indicators that the “major source of macroeconomic imblances” includes a: “3-year backward moving average of the current account balance as% of GDP, with thresholds of +6% and -4%”.. So the upper warning threshold (for an external surplus) is 6% of GDP.

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Nicely put: “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending..”

Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)

The Christmas spending hangover means that Britons who splurged on plastic will start 2018 owing an average of more than £450 on their credit cards – with many fearful the debt will still be haunting them by next Christmas. Nearly £8.5bn has been loaded on to cards to cover the cost of gifts and entertaining, according to research by the price comparison service uSwitch, which found nearly a fifth of consumers had exceeded their Christmas budget as they grappled with rising living costs. “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending,” said Tashema Jackson, money expert at uSwitch.com which polled 4,000 consumers.

The survey found Britons had borrowed an average of £452 to cover the cost of the festivities. One annual survey found that the UK’s cheapest supermarket Christmas dinner cost 18% more than last year, as the impact of inflation and Brexit-related commodity costs made its way to the festive family table. Half of the respondents told uSwitch they were worried they would still be trying to clear the debt in December 2018. Nearly one in 10 were still paying off debts dating back to last Christmas.

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If you bought at $19,000 and used leverage, does this still feel like a pause?

Bitcoin’s Rally Has Taken A Pause (BBG)

Bitcoin’s rally took a pause Wednesday, suggesting it isn’t about to make another run at its record reached last week. The fervor that propelled the digital currency past $19,000, prompted in part by regulated U.S. derivatives exchanges starting to trade contracts based on the unit this month, has yet to return. Bitcoin traded around $15,947 as of 10:31 a.m. Tokyo time Wednesday, according to composite prices on Bloomberg, up 0.1% from late Tuesday though below that day’s high. “Nobody knows the ultimate value of this underlying asset,” Edward Stringham, president of the American Institute for Economic Research, said on Bloomberg Television. “We cannot predict whether it’s going to be zero or one million dollars or anything in between.”

For skeptics doubting whether individuals and businesses will truly start using bitcoin as a medium of exchange – as opposed to some officially backed digital currency – the short-lived rebound from the past week’s selloff portends further declines. “It’s much more likely once you’ve made a big downward movement like the one we made last week that you have a bigger and more complex correction,” Ric Spooner, a Sydney-based analyst at CMC Markets, told Bloomberg Television. “Once a market like this one locks into those patterns it becomes pretty good” to follow via chart-based analysis, he said. Spooner said it’s possible bitcoin could drop to $5,700 or $8,700 in coming months.

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“Congratulations. The Fed re-blew the housing bubble. In the misguided way in which the Fed calculates inflation, none of this is considered inflationary. Few new buyers can afford to buy.”

Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)

The Case-Shiller national home price index surged past the pre-recession high last year. The city composites lag. Steady gains continue in the Case-Shiller Home Price Indexes.

Case-Shiller Year-Over-Year Summary
• The National Home Price NSA Index reported a 6.2% annual gain in October, up from 6.1% in the previous month.
• The 10-City Composite annual increase came in at 6.0%, up from 5.7% the previous month.
• The 20-City Composite posted a 6.4% year-over-year gain, up from 6.2% the previous month.
• Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In October, Seattle led the way with a 12.7% year-over-year price increase, followed by Las Vegas with a 10.2% increase, and San Diego with an 8.1% increase.

Nine cities reported greater price increases in the year ending October 2017 versus the year ending September 2017.

Case-Shiller Month-Over-Month Summary
• Before seasonal adjustment, the National Index, 10-City and 20-City Composites all posted a month-over-month gain of 0.2% in October.
• After seasonal adjustment, the National Index, 10-City and 20-City Composites all recorded a 0.7% month-over-month increase in October.
• Eleven of 20 cities reported increases in October before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

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Xi cannot afford to even allow teh suggestion that he loses control; at the same time he needs to generate growth. He may well find the two contradict each other.

China Bets on More State Control for 2018 (Balding)

First, watch the data, not the New Year’s resolutions. While China touts deleveraging efforts, the data is mixed. The debt-to-GDP ratio in China is only up slightly from 2016 to 260%, though it is expected to top out at 327% in 2022. The moderation was due not to slowing debt growth, but a jump in commodity prices that pushed up nominal GDP. Watch debt growth in 2018: Prices are expected to fall again, raising debt-to-GDP. China still has not given up its debt habit. Second, the Federal Reserve rate hikes last year were likely to play a big role in Chinese policy. In retrospect, they did and did not. Interest rates in China are up sharply, with even interbank rates over one month up 1.5% since January 2017. Money market rates are up to 6.39% for 14-day repurchases.

Rate increases are putting pressure on Chinese corporate bonds given the overwhelmingly short-term nature of borrowing, which constantly resets rates. Oddly, even as U.S. interest rates increased, the dollar fell, with indexes down 9%. Though it is unclear why the dollar fell, if the Fed hikes four times as predicted by Goldman Sachs, this could cause the currency to reverse course. A strong dollar and rising U.S. rates will pressure China. Third, heading into the National Congress, I said watch out for Chinese politics. Though Premier Li Keqiang remains in office, Beijing clearly swept away any vestiges of market adherence. The installation of Party committees over the board of directors in foreign firms and major state-owned enterprises laid bare Beijing’s ambition. Communist Party strength would take priority over everything.

As we look into 2018, some of these themes carry forward, but with a twist. Beijing is solidifying its control over all aspects of the economy. The Party released new rules on overseas investments by firms and has enforced rules mandating that banks balance their foreign exchange transactions. After the Fed recently raised rates by 0.25%, the People’s Bank of China followed with a hike of only 0.05%, confident it can tame any potential outflows. If the Fed hikes another three times and the dollar does not drop another 10%, this would push interest rates in China for debt over six months close to an intolerable 8% and reduce foreign exchange reserves beneath the $3 trillion level.

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What a curious mistake.

Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)

Apple defrauded iPhone users by slowing devices without warning to compensate for poor battery performance, according to eight lawsuits filed in various federal courts in the week since the company opened up about the year-old software change. The tweak may have led iPhone owners to misguided attempts to resolve issues over the last year, the lawsuits contend. All the lawsuits – filed in U.S. District Courts in California, New York and Illinois – seek class-action to represent potentially millions of iPhone owners nationwide. A similar case was lodged in an Israeli court on Monday, the newspaper Haaretz reported. The company acknowledged last week for the first time in detail that operating system updates released since “last year” for the iPhone 6, iPhone 6s, iPhone SE and iPhone 7 included a feature “to smooth out” power supply from batteries that are cold, old or low on charge.

Phones without the adjustment would shut down abruptly because of a precaution designed to prevent components from getting fried, Apple said. The disclosure followed a Dec. 18 analysis by Primate Labs, which develops an iPhone performance measuring app, that identified blips in processing speed and concluded that a software change had to be behind them. One of the lawsuits, filed Thursday in San Francisco, said that “the batteries’ inability to handle the demand created by processor speeds” without the software patch was a defect. “Rather than curing the battery defect by providing a free battery replacement for all affected iPhones, Apple sought to mask the battery defect,” according to the complaint.

[..] The problem now seen is that users over the last year could have blamed an aging computer processor for app crashes and sluggish performance – and chose to buy a new phone – when the true cause may have been a weak battery that could have been replaced for a fraction of the cost, some of the lawsuits state.

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“Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public…”

From Snowden To Russia-gate – The CIA And The Media (Moon of A.)

The promotion of the alleged Russian election hacking in certain media may have grown from the successful attempts of U.S. intelligence services to limit the publication of the NSA files obtained by Edward Snowden. In May 2013 Edward Snowden fled to Hongkong and handed internal documents from the National Security Agency (NSA) to four journalists, Glenn Greenwald, Laura Poitras, and Ewen MacAskill of the Guardian and separately to Barton Gellman who worked for the Washington Post. Some of those documents were published by Glenn Greenwald in the Guardian, others by Barton Gellman in the Washington Post. Several other international news site published additional material though the mass of NSA papers that Snowden allegedly acquired never saw public daylight.

In July 2013 the Guardian was forced by the British government to destroy its copy of the Snowden archive. In August 2013 Jeff Bezos bought the Washington Post for some $250 million. In 2012 Bezos, the founder, largest share holder and CEO of Amazon, had already a cooperation with the CIA. Together they invested in a Canadian quantum computing company. In March 2013 Amazon signed a $600 million deal to provide computing services for the CIA. In October 2013 Pierre Omidyar, the owner of Ebay, founded First Look Media and hired Glenn Greenwald and Laura Poitras. The total planned investment was said to be $250 million. It took up to February 2014 until the new organization launched its first site, the Intercept. Only a few NSA stories appeared on it. The Intercept is a rather mediocre site.

Its management is said to be chaotic. It publishes few stories of interests and one might ask if it ever was meant to be a serious outlet. Omidyar has worked, together with the U.S. government, to force regime change onto Ukraine. He had strong ties with the Obama administration. Snowden had copies of some 20,000 to 58,000 NSA files. Only 1,182 have been published. Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public. The Snowden papers were practically privatized into trusted hands of Silicon Valley billionaires with ties to the various secret services and the Obama administration.

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The EU is actively assisting Libya’s slave trade. That is quite something to close off the year with.

Italy Rescues More Than 250 Migrants In Mediterranean (R.)

More than 250 migrants were rescued in the central Mediterranean during the night between Monday and Tuesday, Italy’s Coast Guard said. A statement said the migrants, in one large rubber dinghy and two small boats, were rescued in three missions by two ships, one from a non-governmental organization. Migrant arrivals to Italy have fallen by two-thirds year on year since July after officials working for the U.N.-backed government in Tripoli put pressure on people smugglers in the Libyan city of Sabratha to stop boats leaving. Italy is also bolstering the Libyan coast guard’s ability to turn back boats. Last week, the United Nations began bringing African refugees to Italy from Libya, evacuating them from detention centers whose conditions have been condemned by rights groups as inhumane.

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Dec 222017
 
 December 22, 2017  Posted by at 8:56 am Finance Tagged with: , , , , , , , , , , ,  11 Responses »
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Bill Watterson is God

 

He Died For Our Debts, Not Our Sins – Michael Hudson (Ren.)
Bitcoin Tumbles Below $13,000, Down Almost 40% From Record Peak (BBG)
Crypto Carnage Continues, Bitcoin Falls Back To $13,000 Handle (ZH)
Gold Only Safe Asset Left – David Stockman (USAW)
What Will the Tax Law Do to Over-Indebted Corporate America? (WS)
Subprime Auto Defaults Are Soaring, and Private Equity Has No Way Out (BBG)
The Ghost of Gann: Another Crash is Coming (Ren.)
Catalan Separatists Win Election In Rebuke To Spain and EU (R.)
China’s Creditor Imperialism (PS)
China Uses Cheap Debt To ‘Bend Other Countries To Its Will’ (CNBC)
Fannie And Freddie Are Here To Stay – There Is No Alternative (ZH)
UK’s Secret Brexit Studies Reveal That Airbus Makes Planes (BBG)
Eco-Terrorists Threaten To Inject Acid In Greek Supermarket Products (WaPo)
New Zealand Gives Mount Taranaki Same Legal Rights As A Person (G.)

 

 

Got to love this angle.

He Died For Our Debts, Not Our Sins – Michael Hudson (Ren.)

As many people turn towards their Christian and Jewish faiths this Christmas and Hanukkah in an attempt to make sense of the year that was, at least one economist says we have been reading the bible in an anachronistic way. In fact he has written an entire book on the topic. In ‘…And Forgive them their Debts: Credit and Redemption’ (available this spring on Amazon), Professor Michael Hudson makes the argument that far from being about sex, the bible is actually about economics, and debt in particular. “The Christianity we know today is not the Christianity of Jesus,” says Professor Hudson. Indeed the Judaism that we know today is not the Judaism of Jesus either. The economist told Renegade the Lord’s Prayer, ‘forgive us our sins even as we forgive all who are indebted to us’, refers specifically to debt.

“Most religious leaders say that Christianity is all about sin, not debt,” he says. “But actually, the word for sin and debt is the same in almost every language.” “‘Schuld’, in German, means ‘debt’ as well as ‘offense’ or, ‘sin’. It’s ‘devoir’ in French. It had the same duality in meaning in the Babylonian language of Akkadian.” Professor Michael Hudson has achieved near complete consensus with the assyriologists & biblical scholars that the Bible is preoccupied with debt, not sin. The idea harks back to the concept of ‘wergeld’, which existed in parts of Europe and Babylonia, and set the value of a human life based on their rank, paid as compensation to the family of someone who has been injured or killed. “The payment – the Schuld or obligation – expiates you of the injury caused by the offense,” Dr Hudson said.

People tend to think of the Commandment ‘do not covet your neighbour’s wife’ in purely sexual terms but actually, the economist says it refers specifically to creditors who would force the wives and daughters of debtors into sex slavery as collateral for unpaid debt. “This goes all the way back to Sumer in the third millennium,” he said. Similarly, the Commandment ‘thou shalt not steal’ refers to usury and exploitation by threat for debts owing. The economist says Jesus was crucified for his views on debt. Crucifixion being a punishment reserved especially for political dissidents. “To understand the crucifixion of Jesus is to understand it was his punishment for his economic views,” says Professor Hudson. “He was a threat to the creditors.”

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That’s still some serious losses.

Bitcoin Tumbles Below $13,000, Down Almost 40% From Record Peak (BBG)

Bitcoin sank as much as 21% on Friday, extending its loss from its intraday high this month toward 40%. The digital currency dropped to as low as $12,191.80 before trading at $12,601.75 as of 3:29 p.m. in Hong Kong. Bitcoin, which is down 38% from its peak of $19,511, is still up more than 1,100% this year. Investors are having a “reality check,” said Stephen Innes, head of trading for Asia Pacific at Oanda. “At the heart of the matter was a frenzied demand for coins with limited supply has now led to unsophisticated investors holding the bag at the top.” Bitcoin’s drop comes amid concern that an offshoot is becoming a stronger rival to the more well-known cryptocurrency. Bitcoin cash, which emerged earlier this year amid a split between factions over proposed software upgrades, was added to Coinbase offerings this week.


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Zero Hedge overnight. It’s hard to keep up.

Crypto Carnage Continues, Bitcoin Falls Back To $13,000 Handle (ZH)

The carnage across cyrptocurrencies has escalated with Bitcoin back to a $13K handle, Ethereum back below $700, and Bitcoin Cash below $2,600… Bitcoin is now almost $6,000 off its record high…

ETH and BCH in trouble too…

The question is – which happens first – Bitcoin $10,000 or Gold $1,300?

[..] renowned analyst Peter Schiff issued a foreboding warning to investors buying Bitcoin at current prices. Even with a shaky week, Bitcoin is hovering around the $15,000 mark, after a two-month bull run that saw the price rise by more than 200%. Schiff says those trying to ride the bubble are too late: “People who got it years ago, even people who got it at the beginning of the year have the opportunity to cash out and make a lot of money. But people who are buying it at these prices or higher prices are going to lose practically everything.” The old adage, “buy on the rumor and sell on the news,” seems to be the perfect way to sum up Schiff’s sentiments: “These currencies are going to trade to zero or pretty close to it when the bubble pops. Right now, the only reason why people are buying Bitcoin is because the price is going up. When it turns around, they are not going to sell it for the same reason.”

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Fed flying blind.

Gold Only Safe Asset Left – David Stockman (USAW)

Record high stock and bond prices are flashing danger signs to former Reagan White House Budget Director David Stockman. Stockman contends, “I don’t think we are going to have a liquidity crisis. I think it’s going to be a value reset. I think there is going to be a jarring downward price adjustment both in the stock market and in the bond market. This phantom or phony wealth that has been created since the last crisis is going to basically evaporate.” So, what asset is safe? Stockman says gold and goes onto explain, “I think the time to buy (gold and silver) is ideal. Gold is the ultimate and only real money. Gold is the only safe asset when push comes to shove. They tell you to buy the government bond, that’s a safe asset. It’s not a safe asset at its current price. I am not saying the federal government is going to default in the next two or three years.

I am saying the yield on a 10-year bond of 2.4% is way below of where it’s going to end up. So, the only safe asset left is gold. This crazy Bitcoin mania has drained off what would otherwise be a demand for gold. . . . When Bitcoin collapses, spectacularly, which it will because it’s sheer mania in the markets right now. When it collapses, I think a lot of that demand will come back into gold, as well as people fleeing the standard stock and bond markets for the first time in 9 or 10 years.” What about the so-called Trump tax cuts? Stockman predicts, “I think it’s going to be a fiscal calamity of Biblical proportions. I want to be clear. I am always for tax cuts and shrinking the size of government, but you have to earn it. You have to cut spending and entitlements and this massive defense budget. Obviously, they didn’t do that.

If you look at honest accounting . . this bill will add $2.5 trillion to the public debt which, and this is a key point, is already going to rise by $10 trillion over the next decade based on the current law and taxes that is still in.” “More importantly,” Stockman says, “The central banks realize they cannot keep printing money at these crazy rates, and by that I mean the bond buying. Now, they are going to begin to normalize and shrink their balance sheet . . By the fall (of 2018), they (the Federal Reserve) will be shrinking their balance sheet by $600 billion a year. What that means in plain simple English is that they (the Fed) are dumping $600 billion a year of existing bonds into the market just as Uncle Sam will be attempting to borrow $1.25 trillion more. Now, if you don’t think that is a financial collision waiting to happen, then I am not sure what would be.

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The tax bill is not one-dimensional.

What Will the Tax Law Do to Over-Indebted Corporate America? (WS)

The new tax law is larded with goodies for Corporate America, but there is one shift – a much needed shift – in this debt-obsessed world that will punish over-indebted companies, discourage companies from taking on too much leverage, and perhaps, just maybe, make these companies less risky: The new law sharply limits the deductibility of corporate interest expense. Starting in 2018, a company can only deduct interest expense of up to 30% of its Ebitda (earnings before interest, taxes, depreciation, and amortization). Any amount in interest expense beyond it will no longer be deductible. This will tighten further in 2022, when the deductibility of corporate debt will be capped at 30% of earnings before interest and taxes but after depreciation and amortization expenses.

This is a much smaller number than Ebitda. And interest expense deduction is capped at 30% of that much smaller amount. This will raise the tax bill further. Most impacted will be highly indebted companies, which often have a junk credit rating. And due to this junk credit rating, they also pay higher interest rates. This made the interest expense deduction very valuable. But now it is getting partially gutted. Businesses have long been incentivized to borrow, not only by the extraordinarily low interest rates even for junk-rated companies, but also by the full deductibility of interest expense. And thus encouraged by the tax code, corporate debt has surged. Mergers & acquisitions, share buybacks, leveraged buyouts, and dividends have often been funded at least partially with debt. And over the years, companies have piled on an enormous amount of debt.

According to estimates by the Congressional Joint Committee on Taxation, cited by The Wall Street Journal, the first phase of curtailing interest-expense deductibility – the phase that kicks in next year – would raise $171 billion in tax revenues over 10 years. The second phase that commences in 2022 would raise $307 billion over 10 years. This would be the billions of dollars that highly indebted companies would pay more in taxes because they’re losing the deductible of some of their debts. It will be a significant hit to their after-tax income. It won’t kill them, but it will lower the incentive to borrow.

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It’ll get messier than subprime housing.

Subprime Auto Defaults Are Soaring, and Private Equity Has No Way Out (BBG)

Private-equity firms that plunged headlong into subprime auto lending are discovering just how hard it might be to get out. A Perella Weinberg Partners fund has been sitting on an IPO of Flagship Credit Acceptance for two years as bad loan write-offs push it into the red. Blackstone has struggled to make Exeter Finance profitable, despite sinking almost a half-billion dollars into the lender since 2011 and shaking up the C-suite multiple times. And Wall Street bankers in private say others would love to cash out too, but there’s currently no market for such exits. In the years after the financial crisis, buyout firms poured billions into auto finance, angling for the big profits that come with offering high-interest loans to buyers with the weakest credit.

At rates of 11% or more, there was plenty to be made as sales boomed. But now, with new car demand waning, they’ve found the intense competition – and the lax underwriting standards it fostered – are taking a toll on profits. Delinquencies on subprime loans made by non-bank lenders are soaring toward crisis levels. Fresh investment has dried up and some of the big banks, long seen as potential suitors, have pulled back from the auto lending business. To top it off, state regulators are circling the industry, asking whether it preyed on borrowers and put them in cars they couldn’t afford. “The PE guys sailed into this thing with stars in their eyes. Some of the businesses have done fine and some haven’t,” said Chris Gillock at Colonnade Advisors, a boutique investment bank. But right now, “it’s about as out-of-favor a sector as I can think of.”

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Two more years to go? I don’t know about that. But then, I didn’t predict the ’29 crash either.

The Ghost of Gann: Another Crash is Coming (Ren.)

While the metrics noted above can accurately indicate the peak of an equities bubbles several months in advance, they cannot tell us anything years ahead of time. For this, we must turn to the research of the original wizard of Wall Street, W.D. Gann. He was a finance trader who developed technical analysis tools and forecasting methods based on geometry, astronomy, astrology and ancient mathematics. He was a successful and wealthy speculator, spending decades investigating patterns in equities markets. He concluded that equities exhibited a cyclical trend over decades and thus prices could be predicted long in advance. In 1908, Gann constructed his financial timetable, which tabulated the booms and busts, peaks and troughs of the US equities market.

Just like the Geoist land market cycle, there is a repeating 18-year average between every major cycle. Gann managed to predict the crash of 1929 years in advance. He realised that the timetable would have to be recalibrated on the 25th December 1989. The updated timetable is amazingly accurate from that date onward, predicting the Dot-Com bubble peak in 2000 and its collapse. The GFC peak was off by one year; 2007 instead of one year earlier in 2006. The trough was in 2009, followed by a minor panic in 2015, when the S&P500 dipped but has since boomed. According to the timetable, 2020 will be the peak of the equities bubble, followed by a major crash similar to that of the Dot-Com bubble.

To the economists we’ve spoken to, the peak could range between 2019M09 to 2020M03. Given how large the S&P500 bubble has become, it is worth treading very carefully during this period for those exposed to US equities. Gann is famous for saying: “Every movement in the market is the result of a natural law and of a Cause which exists long before the effect takes place and can be determined years in advance. The future is but a repetition of the past, as the Bible plainly states…”

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How hard will they come down on Catalunya this time? Neither Rajoy nor Brussels can afford to lose face.

Catalan Separatists Win Election In Rebuke To Spain and EU (R.)

Catalonia’s separatists look set to regain power in the wealthy Spanish region after local elections on Thursday, deepening the nation’s political crisis in a sharp rebuke to Prime Minister Mariano Rajoy and European Union leaders who backed him. With nearly all votes counted, separatist parties won a slim majority in Catalan parliament, a result that promises to prolong political tensions which have damaged Spain’s economy and prompted a business exodus from the region. Rajoy, who called the elections after sacking the previous secessionist government, had hoped Catalonia’s “silent majority” would deal separatism a decisive blow in what was a de facto independence referendum, but his hard line backfired.

The unexpected result sets the stage for the return to power of deposed Catalan president Carles Puigdemont who campaigned from self-exile in Brussels. State prosecutors accuse him of sedition, and he faces arrest if he were to return home. “Either Rajoy changes his recipe or we change the country,” Puigdemont, said in a televised speech. He was flanked by four former cabinet members that fled with him. At jubilant pro-independence rallies around Barcelona, supporters chanted “President Puigdemont” and unfurled giant red-and-yellow Catalan flags as the results came in. Puigdemont’s spokesman told Reuters in a text message: “We are the comeback kids.” The result unnerved global markets, contributing to a softer euro and subdued sentiment in stock markets.

Opinion polls had predicted secessionists to fall short of a majority. More than 3,100 firms have moved their legal headquarters outside Catalonia, concerned that the indebted region, which accounts for a fifth of the national economy, could split from Spain and tumble out of the EU and the euro zone by default. Spain has trimmed its growth forecasts for next year, and official data shows foreign direct investment in Catalonia fell 75% in the third quarter from a year earlier, dragging down national investment. The EU’s major powers, Germany and France, have backed Rajoy’s stance despite some criticism of his methods at times.

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China exports Ponzi and overcapacity.

China’s Creditor Imperialism (PS)

Just as European imperial powers employed gunboat diplomacy, China is using sovereign debt to bend other states to its will. As Sri Lanka’s handover of the strategic Hambantota port shows, states caught in debt bondage to the new imperial giant risk losing both natural assets and their very sovereignty. This month, Sri Lanka, unable to pay the onerous debt to China it has accumulated, formally handed over its strategically located Hambantota port to the Asian giant. It was a major acquisition for China’s Belt and Road Initiative (BRI) – which President Xi Jinping calls the “project of the century” – and proof of just how effective China’s debt-trap diplomacy can be.

Unlike International Monetary Fund and World Bank lending, Chinese loans are collateralized by strategically important natural assets with high long-term value (even if they lack short-term commercial viability). Hambantota, for example, straddles Indian Ocean trade routes linking Europe, Africa, and the Middle East to Asia. In exchange for financing and building the infrastructure that poorer countries need, China demands favorable access to their natural assets, from mineral resources to ports. Moreover, as Sri Lanka’s experience starkly illustrates, Chinese financing can shackle its “partner” countries. Rather than offering grants or concessionary loans, China provides huge project-related loans at market-based rates, without transparency, much less environmental- or social-impact assessments.

As US Secretary of State Rex Tillerson put it recently, with the BRI, China is aiming to define “its own rules and norms.” To strengthen its position further, China has encouraged its companies to bid for outright purchase of strategic ports, where possible. The Mediterranean port of Piraeus, which a Chinese firm acquired for $436 million from cash-strapped Greece last year, will serve as the BRI’s “dragon head” in Europe. By wielding its financial clout in this manner, China seeks to kill two birds with one stone. First, it wants to address overcapacity at home by boosting exports. And, second, it hopes to advance its strategic interests, including expanding its diplomatic influence, securing natural resources, promoting the international use of its currency, and gaining a relative advantage over other powers.

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Same story. I’ve said a thousand times that China is buying the world with Monopoly money. It is.

China Uses Cheap Debt To ‘Bend Other Countries To Its Will’ (CNBC)

China’s continents-spanning Belt and Road network threatens to “shackle” partner countries and deprive them of valuable natural assets, according to one critic. Beijing is financing and executing massive infrastructure projects across the 68 nations participating in the ambitious scheme, which snakes along Europe, the Middle East and Asia. These recipient countries, many of them emerging economies in dire need of investment, obtain funding in various forms such as sovereign loans from Chinese President Xi Jinping’s administration and credit from Chinese state-owned banks. But concerns of developing countries taking on unrealistic financial obligations have sparked allegations of what’s being called ‘dept-trap diplomacy.’

Earlier this year, Indian Prime Minister Narendra Modi’s administration released a statement warning of unsustainable debt burdens being created by Belt and Road. “Just as European imperial powers employed gunboat diplomacy, China is using sovereign debt to bend other states to its will,” according to Brahma Chellaney, professor of strategic studies at the New Delhi-based Center for Policy Research, who described Beijing’s policies as “creditor imperialism.” In a stinging editorial published on Project Syndicate, Chellaney — a former adviser to India’s National Security Council — pointed to Sri Lanka as an example. The South Asian state, unable to pay back onerous bills to China, recently handed over its Hambantota port to state owned China Merchants Port Holdings in a $1.1 billion deal that was widely viewed as an erosion of sovereignty.

“As Hambantota shows, China is now establishing its own Hong Kong-style neocolonial arrangements,” Chellaney said. “Like the opium the British exported to China, the easy loans China offers are addictive. And, because China chooses its projects according to their long-term strategic value, they may yield short-term returns that are insufficient for countries to repay their debts,” he explained. As a result, the world’s second-largest economy holds political leverage over governments and can “force borrowers to swap debt for equity, thereby expanding China’s global footprint by trapping a growing number of countries in debt servitude.”

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The government in charge of the bubble.

Fannie And Freddie Are Here To Stay – There Is No Alternative (ZH)

Since the US government nationalized the two GSEs in 2008 in a $187 billion bailout of the mortgage giants, there have been consistent calls for them to be wound down and for the private sector to fill the void. As we discussed, this view is, or was, shared by new Fed Chairman, Jay Powell. Mr. Powell has called on Congress to overhaul the housing finance system, saying he’d like to see the country’s two large mortgage-finance firms, Fannie Mae and Freddie Mac, move out from under government conservatorship. More private capital in those firms would reduce the risk of a taxpayer-funded bailout in the event of a downturn, he said in a speech in July. Although the Fed isn’t responsible for housing finance, it supervises some of the country’s largest lenders who frequently sell their loan to the two agencies. “No single housing finance institution should be too big to fail,” he said.

In August this year, Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), published the results of its latest annual stress tests on the two GSE’s. The FHFA outlined a “severely adverse” scenario in which US real GDP decline 6.5%, the unemployment rate rises to 10.0%, equity prices decline almost 50%, home prices decline 25% and commercial real estate prices by 35%. Under these conditions, it estimates Fannie and Freddie would need a bailout of up to $100 billion in the form of a draw on the Treasury (depending on how they treat assets to offset tax). Sadly, after almost a decade of federal ownership, the hope that Fannie and Freddie could be wound down has evaporated. Senators on both sides of the political divide have concluded that they are too big and too risky to replace. Proposed legislation in 2018 will see them retained at the centre of the US mortgage industry, rather than replacing them as a previous senate proposal tried and failed four years ago.


Mortgages guaranteed by Fannie and Freddie amount to about $4 trillion and account for about 40% of the total US market.

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The incompetence is painful.

UK’s Secret Brexit Studies Reveal That Airbus Makes Planes (BBG)

For months, journalists tried to get their hands on government papers setting out how leaving the European Union will affect different parts of the British economy. They contained, according to Brexit Secretary David Davis, “excruciating detail.” But despite boasting about their contents, ministers were reluctant to let anyone else see the documents. In November, after being forced to give way by a vote in Parliament, the government allowed lawmakers to read them under controlled conditions. Their phones were confiscated, and they were only permitted to make notes with pen and paper, lest too much information leak into the public domain. “These documents in aggregate represent the most comprehensive picture of our economy on this issue to date,” Davis wrote this month, explaining why he was being cautious about publication.

On Thursday, the documents were released online. There was detail, as promised. “The parts of an aircraft can be simplistically split into three areas,” began the first, on aerospace. It was explained what the industry makes: “structures which include the nose, fuselage, wings, engine nacelles (which encase the engines) and tail; propulsion system which includes engines and propellers, or fan blades; and systems which include the electronics used in the flight system.” It went on to reveal that there are two companies in the world that make large passenger aircraft. Now that the documents are public, these firms can be named as Boeing and Airbus. The paper covering the insurance and pensions sector, which employs one in every 100 British workers, is 2,732 words long. “Insurance business operates by firms writing insurance policies for clients, intermediated by brokers,” it reveals.

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You sure that you want to victimize the victims?

Eco-Terrorists Threaten To Inject Acid In Greek Supermarket Products (WaPo)

Greek supermarkets were forced to withdraw several food and beverage products from their shelves this week, after a group threatened to contaminate them with acid as part of an environmentally influenced protest of Christmas consumerism. Authorities urged residents in Athens and the city of Thessaloniki not to buy or consume certain types of Coca-Cola, a Greek milk brand and packages of meat. Thessaloniki and Athens combined have about 1 million residents who were affected by the precautionary measures. The “Blackgreen Arsonists” — whose name suggests an eco-anarchist outlook — threatened to inject the products with hydrochloric acid, a powerful, colorless corrosive used in research and industry.

They said it was because the thousands of people doing their Christmas shopping meant “the sacrifice of millions of living creatures, slaughtered and drained to the last drop to satisfy consumers’ needs.” To protest this need every year for people to fill their empty lives with “consumer garbage with beautiful and glittering wrappings,” the sabotaged products would be placed on supermarket shelves in the run-up to Christmas. Authorities said they have no information on the identities of the group members. Similar threats have emerged in the past and nothing has happened, though in this case the group included photos of its members injecting something into the products as part of their online threat.

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Real values.

New Zealand Gives Mount Taranaki Same Legal Rights As A Person (G.)

Mount Taranaki in New Zealand is to be granted the same legal rights as a person, becoming the third geographic feature in the country to be granted a “legal personality”. Eight local Maori tribes and the government will share guardianship of the sacred mountain on the east coast of the North Island, in a long-awaited acknowledgement of the indigenous people’s relationship to the mountain, who view it as an ancestor and whanau, or family member. The new status of the mountain means if someone abuses or harms it, it is the same legally as harming the tribe. In the record of understanding signed this week, Mount Taranaki will become “a legal personality, in its own right”, said the minister for treaty negotiations, Andrew Little, gaining similar rights to the Whanganui river, which was granted legal personhood earlier this year.

Little said the agreement offered the best possible protection for the landmark, which is becoming an increasingly popular tourist attraction after Lonely Planet named the Taranaki region the second best place to visit in the world last year. “As a New Plymouth local I grew up under the gaze of the maunga [mountain] so I’m particularly pleased with the respect accorded to local tangata whenua [local people] and the legal protection and personality given to the mountain,” Little said. “Today’s agreements are a major milestone in acknowledging the grievances and hurt from the past as the Taranaki iwi experienced some of the worst examples of Crown behaviour in the 19th century.” As part of the agreement the New Zealand government will apologise to local Maori for historical breaches of the Treaty of Waitangi against the mountain, although local tribes will receive no financial or commercial redress.

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