Nov 212014
 
 November 21, 2014  Posted by at 12:47 pm Finance Tagged with: , , , , , , , , , ,  1 Response »


Russell Lee Hammond Ranch general store, Chicot, Arkansas Jan 1939

Americans, With Record $3.2 Trillion Consumer Debt, Borrow More (Guardian)
How Wall Street Banks Traded Lending For Oil, Gas And Nukes (MarketWatch)
Citigroup Ejected From ECB FX Group for Rigging (Bloomberg)
China ‘Triple Bubble’ Points To Long Slide For Commodities (MarketWatch)
ECB Dips Toe Into Dead Sea Of Rebundled Debt (Reuters)
ECB’s Draghi: ‘Strong Recovery Unlikely’ (CNBC)
Draghi Says ECB Must Raise Inflation as Fast as Possible (Bloomberg)
Greece To Submit Contentious Budget For 2015 (CNBC)
Hanging Around: Why Abe’s Holding an Election in a Recession (Bloomberg)
Abe Listening to Krugman After Tokyo Limo Ride on Abenomics Fate (Bloomberg)
US Federal Reserve To Review How It Supervises Major Banks (Reuters)
Hugh Hendry: “QE ‘Worked’ By Redistributing Wealth Not Creating It” (Zero Hedge)
Britain Abandons Banker Bonus Fight After EU Court Blow (Bloomberg)
Russia Warns US Against Supplying ‘Lethal Defensive Aid’ To Ukraine (RT)
EuroMaidan Anniversary: 21 Steps From Peaceful Rally To Civil War (RT)
Dutch Government Refuses To Reveal ‘Secret Deal’ Into MH17 Crash Probe (RT)
Creativity, Companies, And The Wisdom Of Crowds (Robert Shiller)
China Starts $2 Trillion Leap Forward to Slash Pollution (Bloomberg)
The Magical Thought That’s Assumed in Climate Studies (Bloomberg)
Rhino Poaching Death Toll Reaches Record in South Africa (Bloomberg)
Growth First. Then These Other Things Can Be Dealt With (Clarke&Dawe)

This is going to end well, right?

Americans, With Record $3.2 Trillion Consumer Debt, Borrow More (Guardian)

Americans are borrowing more even as they have racked up enormous amounts of consumer debt, Federal Reserve data show. The newly released minutes of the last Federal Reserve meeting in October give a wider picture of the US economy. A weak housing market weighed on the US economy, while the fear of Ebola put some brief pressure on the stock markets, the Fed found. The interesting trend, however, is the growing indebtedness of US consumers now that banks have loosened the spigots on lending. The Federal Reserve customarily releases the minutes of its meetings, where the board of governors and staff discuss the major forces at work in the US economy, including employment, housing, borrowing and inflation. The Fed took a positive view of overall economic progress, noting a low unemployment rate, low inflation and, generally, “a continued improvement in labor market conditions”. While the minutes provide a big-picture view of the economy, there are some specific – and strange – worries that make it into the Fed’s discussions.

“Worries about a possible spread of Ebola also appeared to weigh on market sentiment somewhat at times,” the Fed said. The Fed’s meeting was shortly after the first American Ebola patients were being admitted to hospitals. Elsewhere in the economy, the Fed acknowledged that the housing market had slowed. After new home prices hit record highs in 2013, prices have been drifting downward as homeowners still struggle to get mortgages. “Housing market conditions seemed to be improving only slowly,” the central bank said, noting that new home sales were flat in September after moving up in August, and sales of existing single-family homes had not showed much progress and “moved essentially sideways” over the past several months. Banks also loosened the reins and started extending more credit to consumers, particularly through credit cards and auto loans, which some have suggested may be a bubble.

Read more …

“The three financial holding companies chose to engage in commodity-related businesses that carried potential catastrophic event risks.”

How Wall Street Banks Traded Lending For Oil, Gas And Nukes (MarketWatch)

A U.S. Senate subcommittee investigation into bank commodities trading has produced some eye-popping findings: Goldman Sachs owned a uranium business that carried the liability of a nuclear accident. J.P. Morgan operated as if it were Con Edison. It owned multiple power-generation plants, exposing it to potential accidents there. Morgan Stanley played the role of Exxon Mobil, stockpiling storage, pipelines, and other natural gas and oil infrastructure.

Together, the report found that banks not only were out of their comfort zone, but put the financial system at risk because they turbo-charged these investments with derivative contracts. They ended up with “huge commodity inventories and participating in outsized transactions,” the Senate Permanent Subcommittee for Investigations said. “The three financial holding companies chose to engage in commodity-related businesses that carried potential catastrophic event risks.” The overreaching foray into commodities underscores how bank “innovation” can take simple services for clients and create massive risk. Banks entered the commodities markets to provide hedges for providers, traders and other market participants. They ended up with huge stakes and, according to the committee, were able to corner at least parts of the market.

This is a far cry from simple brokerage services and investment banking. It is a quantum leap from deposit-taking and lending institutions that are backed by the Federal Reserve and the Federal Deposit Insurance Corp. And it all took place in a market supposedly regulated by the Commodity Futures Trading Commission, which should have at least raised red flags, even if its powers were limited by Congress. While many banks have either left, reduced or signaled they want to exit commodities, the pattern in which simple banking and brokerage products become suddenly dangerous and enormous quagmires may be the larger problem. Regulators can’t put a cop in every division and office on Wall Street, much less every power plant across the country.

Read more …

“Citigroup is the world’s biggest foreign-exchange dealer ..”

Citigroup Ejected From ECB FX Group for Rigging (Bloomberg)

The European Central Bank ejected Citigroup from its foreign-exchange market liaison group after the U.S. bank was fined for rigging the institution’s own currency benchmark, two people with knowledge of the move said. The ECB removed Citigroup from the panel, which advises the central bank on market trends, after regulators fined the lender $1 billion for rigging currency benchmarks including the ECB’s 1:15 p.m. fix, said the people, who asked not to be identified because the decision hasn’t been made public. Citigroup was one of six banks fined $4.3 billion by U.S. and U.K. regulators last week and is the only one that also sits on the ECB Foreign Exchange Contact Group. About 20 firms with large foreign-currency operations, ranging from Airbus to Deutsche Bank sit on the committee. The panel’s agenda includes how to improve currency benchmarks.

Citigroup is the world’s biggest foreign-exchange dealer, with a 16% market share, according to a survey by London-based Euromoney Institutional Investor Plc. A spokesman for the New York-based bank declined to comment. The panel isn’t involved in how the ECB’s daily fix is calculated. Currency benchmarks such as the ECB fix and the WM/Reuters rates are used by asset managers and pension funds to value their holdings, including $3.6 trillion in index tracker funds around the world. According to documents released with the settlements, senior traders at the firms shared information about their positions with each other and coordinated trading strategies to the detriment of their clients. They’d congregate in electronic chat rooms an hour or so before benchmark rates were set to discuss their orders and how to execute them to their mutual benefit.

Read more …

China’s share for some commodities is insane. And it won’t last.

China ‘Triple Bubble’ Points To Long Slide For Commodities (MarketWatch)

The “commodity super cycle” is dead. Now, it’s time to get used to the “commodity super down cycle, and China is the biggest reason why, warn strategists at Credit Suisse in a Thursday note. Commodity demand tends to be very cyclical. Commodities, however, have been underperforming cyclical indicators of growth, including industrial production and new manufacturing orders (as measured by Institute for Supply Management survey data), they say. Much of the blame is on China, the strategists argue, noting that the country remains the “most significant source” of demand for most industrial commodities. Moreover, they see China on track for a “hard landing” at some point in the next three years. The report adds to some of the recent gloom around China, where the fate of the economy remains a topic for debate.

Standard & Poor’s Ratings Services on Wednesday said its negative outlook for Chinese property developers is casting a pall on the rest of the Asia-Pacific region, though it sees prospects for the sentiment to recover next year thanks to looser government policies, particularly on mortgages. The Credit Suisse strategists, meanwhile, see a “triple bubble” in credit, real estate and investment. On credit, they highlight a private-sector to GDP ratio that is 30%age points above trend. China’s investment share of GDP is 48%, much higher than Japan or Korea at similar stages of industrialization, Credit Suisse says. Real estate, meanwhile, is in a “classic bubble.” Prices have dropped six months in a row. A drop of another 20% or more will make for a “hard landing,” they write.

Read more …

The headline tells the story.

ECB Dips Toe Into Dead Sea Of Rebundled Debt (Reuters)

The European Central Bank is set to embark this week on a scheme to buy the kind of rebundled debt that sparked the global economic crash. With sparse investor interest its efforts could fall short. Asset backed securities (ABS), reparcelled debt that mixes high-risk loans with safer credit, gained notoriety when rebundled home loans in the United States unravelled to spark financial turmoil. Seven years on, seeking to pump money into a moribund euro zone economy, the ECB believes the same type of debt may make it easier to get credit to companies. It will be safe, the ECB argues, because such European debt, whether car loans or credit cards, is typically repaid and its repackaging should be simpler to understand. The programme is one plank in a strategy which ECB chief Mario Draghi hopes will increase its balance sheet by up to €1 trillion.

If it falls short and fails to boost the economy significantly, pressure to launch full quantitative easing will reach fever pitch. Regulators and investors are sceptical and even within the ECB expectations are muted, people familiar with its thinking say. To limit its risk, the ECB will buy only the most secure part of such loans in the hope that others pile in behind it to buy riskier credit. It is a strategy with little prospect of success, says Jacques de Larosiere, the former head of the International Monetary Fund who has pushed for the repackaging and sale of loans. “While I welcome the ECB’s initiative … it cannot work if it is alone in buying the senior tranches,” he told Reuters. “That is the very area where there is no problem in finding buyers. In order to have an impact, the ECB or other buyers must also be able to buy the lower-quality riskier tranches of ABS.”

Read more …

Gee, we had no idea.

ECB’s Draghi: ‘Strong Recovery Unlikely’ (CNBC)

TThe euro zone economy is likely to remain stagnant in the short-to-medium term and the European Central Bank stands ready to act fast to combat low inflation, President Mario Draghi said on Friday. “A stronger recovery is unlikely in the coming months,” Draghi said in an opening speech at the Frankfurt European Banking Congress, referring to the latest flash euro area Purchasing Managers Index (PMI). The PMI, published on Thursday, showed that new orders in the euro zone fell this month for the first time since July 2013. The composite index read 51.4—below forecasts and below October’s final reading of 52.1.

The ECB has launched a slew of measures to ease credit conditions in the region in order to boost growth and combat dangerously low inflation. These include cutting interest rates to record lows and announcing plans to purchase covered bonds and asset-backed securities (ABS). The latest reading for headline inflation in the euro zone was 0.4%—well below the close to 2% level targeted by the ECB and down from 0.9% a year ago. “The inflation situation in the euro area has also become increasingly challenging,” said Draghi on Friday. “We see that it has been essential that the ECB has acted —and is continuing to act—to bring inflation back towards 2%.” Speculation has been rife as to if and when the ECB will start a U.S -style sovereign bond-buying program, as a further measures to ease monetary conditions.

Read more …

Mario must be needing tranquilizers by now.

Draghi Says ECB Must Raise Inflation as Fast as Possible (Bloomberg)

Mario Draghi said the European Central Bank must drive inflation higher quickly, and will broaden its asset-purchase program if needed to achieve that. “We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires,” the ECB president said at a conference in Frankfurt today. Shorter-term inflation expectations “have been declining to levels that I would deem excessively low,” he said. Any new action would follow a flurry of activity since June that has included interest-rate cuts, long-term bank loans, and covered-bond purchases, with buying of asset-backed securities due to start as soon as today.

Draghi has declined to rule out large-scale government-bond buying and said after this month’s monetary policy meeting that staff are studying further measures to boost the economy if needed. “Draghi is sending a clear signal that more stimulus is coming,” said Lena Komileva, chief economist at G Plus Economics . in London. “If the ECB’s current measures prove underwhelming and inflation expectations fail to recover, the ECB will act to expand quantitative easing.”

Read more …

When will the next bond attack start?

Greece To Submit Contentious Budget For 2015 (CNBC)

Greece’s proposed budget for 2015 has put it at loggerheads again with the “Troika” of international monitors, who are worried the plan will land it with a bigger fiscal gap than forecast. The coalition government led by Antonis Samaras has promised the budget will include no further austerity measures—on which its bailout is contingent— in an effort to combat the risk of snap national elections next year. The latest polls show that the anti-austerity left-wing opposition party SYRIZA would win an election, if it was held now. Greek Finance Minister Gikas Hardouvelis will submit the final plan for 2015 to the President of the Parliament at 10 a.m. GMT on Friday. Negotiations in Parliament on the Greek budget for 2015 will then start December 4.

The Troika—the European Commission, International Monetary Fund and European Central Bank – is worried that the budget will land Greece with a much bigger fiscal gap next year than the government says. The disagreement has already delayed the country’s review by the Troika and Greece risks missing a December 8 deadline to receive the final instalment of its bailout from Europe, which is worth 144.6 billion euros. This completion of the review would also pave the way for talks on a possible financial backstop for Greece after the European part of its bailout expires at the end of this year.”Only once a staff-level agreement has been reached for the conclusion of the review can discussions on the follow-up to the program take place. The full staff mission will return to Athens as soon as the conditions are there,” Margaritis Schinas, chief spokesperson of the European Commission told CNBC.

Read more …

Power games save faces, but not countries.

Hanging Around: Why Abe’s Holding an Election in a Recession (Bloomberg)

The economy’s in recession, his support is sliding, and he has two years left in office with a big majority. Hardly surprising Japanese voters say they don’t understand why Prime Minister Shinzo Abe has called an election. Abe dissolved the lower house of parliament today for the vote to be held in mid-December. His coalition isn’t likely to lose its majority as the opposition is in disarray. A solid win now would snuff out potential threats from within his own party in a leadership election set for next year. Abe is taking a page out of his family’s history. His great-uncle Eisaku Sato, the longest-serving prime minister since the war, twice called early elections during his eight years in office from 1964-1972 to consolidate his grip on power.

While Abe has already closed the revolving door of one-year prime ministers that began with his own resignation in 2007, he needs to be seen as keeping his pledges to revive the economy to be able to challenge Sato’s record. “Tradition is that as soon as a prime minister’s popularity goes down, you put in another guy,” said Steven Reed, professor of political science at Chuo University in Tokyo. Each of the last six prime ministers “lost popularity rapidly because they didn’t keep any promises,” he said. The risk is that Abe’s plan backfires and he loses enough seats to fuel a challenge from his own allies, who in Japanese politics are often a more formidable threat to a sitting prime minister than the opposition. 63% of respondents in a Kyodo News poll yesterday said they didn’t understand his reasons for calling an election.

Read more …

Say sayonara Nippon.

Abe Listening to Krugman After Tokyo Limo Ride on Abenomics Fate (Bloomberg)

When Japanese economist Etsuro Honda heard that Paul Krugman was planning a visit to Tokyo, he saw an opportunity to seize the advantage in Japan’s sales-tax debate. With a December deadline approaching, Prime Minister Shinzo Abe was considering whether to go ahead with a 2015 boost to the consumption levy. Evidence was mounting that the world’s third-largest economy was struggling to shake off the blow from raising the rate in April, which had triggered Japan’s deepest quarterly contraction since the global credit crisis. Honda, 59, an academic who’s known Abe, 60, for three decades and serves as an economic adviser to the prime minister, had opposed the April move and was telling him to delay the next one. Enter Krugman, the Nobel laureate who had been writing columns on why a postponement was needed.

“That nailed Abe’s decision – Krugman was Krugman, he was so powerful,” Honda said in an interview yesterday in the prime minister’s residence, where he has an office. “I call it a historic meeting.” It was in a limousine ride from the Imperial Hotel — the property near the emperor’s palace that in a previous construction was designed by Frank Lloyd Wright — that Honda told Krugman, 61, what was at stake for the meeting. The economist, who’s now heading to the City University of New York from Princeton University, had the chance to help convince the prime minister that he had to put off the 2015 increase. Confronting Honda and fellow members of Abe’s reflationist brain-trust – such as Koichi Hamada, a former Yale University economist, and Kozo Yamamoto, a senior ruling-party lawmaker — were Ministry of Finance bureaucrats.

Read more …

Timing is everything. What year is today?

US Federal Reserve To Review How It Supervises Major Banks (Reuters)

The U.S. Federal Reserve said on Thursday it has launched a review of how it oversees major banks, calling on its inspector general to help with the probe after a series of critical reports. Separate studies to be undertaken by the Fed’s Washington-based Board of Governors and its Office of Inspector General are meant to ensure that “divergent views” about the state of large banks are adequately aired. The reviews will determine whether frontline supervisors and other officials at the regional Federal Reserve banks, as well as at the board level, “receive the information needed to ensure consistent and sound supervisory decisions,” the Fed said in a press release.

That includes being made aware of “divergent views” about a bank’s operations, a reference to criticism that supervisors at the Fed’s regional banks have sometimes suppressed the views of staff members considered too critical of the banks they examine. The issue will be the focus of a Senate Banking committee hearing on Friday that features New York Fed President William Dudley as the chief witness. Several Fed regional banks are involved in supervising the country’s 15 largest financial institutions, including Citigroup and Bank of America, that generally have more than $50 billion in assets. But the New York Fed in particular has come under fire for being lax with the banks it oversees and for not reacting forcefully enough in the run-up to the 2007-2009 financial crisis.

A recent inspector general’s report said supervision at the New York Fed was hampered by the loss of key personnel and an inadequate plan for succession into important positions. Secret recordings made by former New York Fed supervisor Carmen Segarra also portrayed the bank as cozy with major institutions like Goldman Sachs. In testimony prepared for the Senate hearing but released on Thursday afternoon, Dudley said “it is undeniable that banking supervisors could have done better in their prudential oversight of the financial system” in advance of the financial crisis.

Read more …

More Hugh. He has very original insights.

Hugh Hendry: “QE ‘Worked’ By Redistributing Wealth Not Creating It” (Zero Hedge)

Hendry: This is almost unparalleled in being the most exciting moment for global macro today. And I predicate that upon making an analogy with the Central Bank coordinated policy intervention, in the foreign exchange markets, after the Plaza Accord in, I believe, 1985. There was a profound unease at the current account and particularly the trade deficit that America was running up, especially against the Japanese, which was deemed to be contentious. The real economy is composed of slow-moving prices, wages are slow and the notion of having to wait for productivity improvements and wage price negotiations to work their course, via the U.S. corporate landscape in Japan, such as those deficits would be resolved successfully and become less politically contentious. It was just too long. Politicians just don’t have that time and so they jumped into the world of macro. Macro’s all about fast-moving prices. Foreign exchange is fast. Stock markets prices are fast.

So the notion then was that the Yen and the Deutschmark would appreciate. Now for hedge funds that was amazing. This is the period of the alchemy of finance, as George Soros has celebrated in very successful financial adventures. They just run the biggest long positions. No one stopped to say “Well, the Deutschmark’s getting expensive.” It didn’t really enter into the vernacular of trading in that market. It was macro, there was a policy impulse, a sponsorship by the world’s monetary authorities and you were trending and you had to have that position. By and large it succeeded. So what I would said to you today is that the policy response can’t be found in foreign exchange markets. It’s been muted somewhat by the “Beggar thy neighbour” way that everyone can pursue the same policy. So currencies, up until very lately, haven’t really moved that much. Instead the drama is unfolding in the stock market.

Read more …

Cameron keeps on losing against the EU.

Britain Abandons Banker Bonus Fight After EU Court Blow (Bloomberg)

Britain abandoned a bid to overturn a European Union ban on banker bonuses of more than twice fixed pay after it suffered a setback in the EU’s top court. Chancellor of the Exchequer George Osborne said he wouldn’t “spend taxpayers’ money” pursuing the legal challenge any further after Britain’s arguments were rebuffed by a senior official at the EU Court of Justice yesterday. The U.K. government will instead redirect its efforts toward countering the effects of the “badly designed rules,” which include an increase in bankers’ overall pay, Osborne said in a statement. The U.K. Treasury said it may be necessary to “develop standards that ensure that non-bonus or fixed pay is put at risk,” echoing remarks this week by Bank of England Governor Mark Carney.

U.K. banks face a running battle with regulators over the EU remuneration rules, with Barclays, HSBC, Lloyds and Royal Bank of Scotland among more than 30 lenders that have tried to circumvent it by introducing so-called role-based pay. The four banks declined to comment on the court opinion. The European Banking Authority, which brings together financial watchdogs from throughout the 28-nation EU, said in October that role-based allowances violate EU rules in “most cases,” and urged regulators to ensure compliance. Osborne and Carney have criticized the EU bonus curb as counterproductive. Britain started the legal fight against the measure last year.

Read more …

“Lethal assistance “remains on the table. It’s something that we’re looking at …”

Russia Warns US Against Supplying ‘Lethal Defensive Aid’ To Ukraine (RT)

Moscow has warned Washington a potential policy shift from supplying Kiev with “non-lethal aid” to “defensive lethal weapons”, mulled as US Vice President visits Ukraine, would be a direct violation of all international agreements. A Russian Foreign Ministry spokesperson said that reports of possible deliveries of American “defensive weapons” to Ukraine would be viewed by Russia as a “very serious signal.” “We heard repeated confirmations from the [US] administration, that it only supplies non-lethal aid to Ukraine. If there is a change of this policy, then we are talking about a serious destabilizing factor which could seriously affect the balance of power in the region,” Russian Foreign Ministry spokesman Aleksandr Lukashevich cautioned.

His remarks follow US deputy National Security Advisor Tony Blinken Wednesday’s statement at a hearing before the Senate Committee for Foreign Affairs, in which he said that Biden may offer the provision of “lethal defensive weapons” as he visits Ukraine. Lethal assistance “remains on the table. It’s something that we’re looking at,” Blinken said. “We paid attention not only to such statements, but also to the trip of representatives of Ukrainian volunteer battalions to Washington, who tried to muster support of the US administration,” Lukashevich said.

Read more …

Useful timeline.

EuroMaidan Anniversary: 21 Steps From Peaceful Rally To Civil War (RT)

Protesters who went out to Kiev’s Maidan Square exactly a year ago have their goal – a deal with the EU – achieved. However, they hardly expected the protest would also trigger a bloody civil war which has already claimed 4,000 lives. RT takes a look at the milestone events of the past 365 days, which brought Ukraine – and the world – to where it is now.

1) Then-President Victor Yanukovich’s unwillingness to sign an Association Agreement with the EU led to Maidan (Independence Square) in Ukraine’s capital Kiev filling with protesters on November 21, 2013. The rally participants were holding hands, waving flags and chanting slogans like “Ukraine is Europe!”

2) The brutal dispersal of a protest camp on the morning of November 30 was a turning point in the ensuing events. It’s still unclear whose idea it was to use force against demonstrators. Yanukovich laid the blame on the city’s police chief and sacked him. But that was not enough for the Maidan protesters, who switched from demands of signing the EU deal to calls for the toppling of the government.

3) Over the course of several weeks, which followed the face of Maidan started to change – peaceful protesters were more and more giving way to masked and armed rioters, often from far-right groups. A collective of radicals called the Right Sector were among the most prominent. Peaceful protests evolved into a continuous stand-off between the rallying people and riot police.

4) The deadliest day of the Maidan protests came on February 20 when over a hundred people were killed in the center of Kiev, most of them by sniper fire. The ongoing official investigation blamed a group of elite soldiers from the Berkut riot police for the killings. But there is a lingering suspicion that the massacre was committed by somebody among the anti-government forces.

Read more …

More secrets, just what the situation needed.

Dutch Government Refuses To Reveal ‘Secret Deal’ Into MH17 Crash Probe (RT)

The Dutch government has refused to reveal details of a secret pact between members of the Joint Investigation Team examining the downed Flight MH17. If the participants, including Ukraine, don’t want information to be released, it will be kept secret. The respected Dutch publication Elsevier made a request to the Dutch Ministry of Security and Justice under the Freedom of Information Act to disclose the Joint Investigation Team (JIT) agreement, along with 16 other documents. The JIT consists of four countries – the Netherlands, Belgium, Australia and Ukraine – who are carrying out an investigation into the MH17 disaster, but not Malaysia. Malaysian Airlines, who operated the flight, has been criticized for flying through a war zone.

Part of the agreement between the four countries and the Dutch Public Prosecution Service, ensures that all these parties have the right to secrecy. This means that if any of the countries involved believe that some of the evidence may be damaging to them, they have the right to keep this secret. “Of course [it is] an incredible situation: how can Ukraine, one of the two suspected parties, ever be offered such an agreement?” Dutch citizen Jan Fluitketel wrote in the newspaper Malaysia Today. Despite the air crash taking place on July 17 in Eastern Ukraine, very little information has been released about any potential causes. However, rather than give the public a little insight into the investigation, the Dutch Ministry of Security and Justice is more worried about saving face among the members of the investigation.

“I believe that this interest [international relations] is of greater importance than making the information public, as it is a unique investigation into an extremely serious event,” the Ministry added, according to Elsevier. Other reasons given for the request being denied included protecting investigation techniques and tactics as well as naming the names of officials who are taking part in the investigation. The Ministry said it would be a breach of privacy if they were revealed. “If the information was to be released then sensitive information would be passed between states and organizations, which would perhaps mean they would be less likely to share such information in the future,” said the Ministry of Security and Justice. Dutch MP Pieter Omtzigt, who is a member of the Christian Democratic Party, has made several requests for the information to be released to the public. “We just do not know if the Netherlands has compromised justice,” he said in reaction to the ministry’s decision. The MP was surprised that this agreement was even signed, never mind kept secret.

Read more …

Shiller is a blind man: “If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity”.

Creativity, Companies, And The Wisdom Of Crowds (Robert Shiller)

Economic growth, as we learned long ago from the works of economists like MIT’s Robert M. Solow, is largely driven by learning and innovation, not just saving and the accumulation of capital. Ultimately, economic progress depends on creativity. That is why fear of “secular stagnation” in today’s advanced economies has many wondering how creativity can be spurred. One prominent argument lately has been that what is needed most is Keynesian economic stimulus – for example, deficit spending. After all, people are most creative when they are active, not when they are unemployed. Others see no connection between stimulus and renewed economic dynamism. As German Chancellor Angela Merkel recently put it, Europe needs “political courage and creativity rather than billions of euros.” In fact, we need both. If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity – particularly policies that promote solid financial institutions and social innovation.

In his 2013 book Mass Flourishing, Edmund Phelps argues that we need to promote “a culture protecting and inspiring individuality, imagination, understanding, and self-expression that drives a nation’s indigenous innovation.” He believes that creativity has been stifled by a public philosophy described as corporatism, and that only through thorough reform of our private institutions, financial and others, can individuality and dynamism be restored. Phelps stresses that corporatist thinking has had a long and enduring history, going back to Saint Paul, the author of as many as 14 books of the New Testament. Paul used the human body (corpus in Latin) as a metaphor for society, suggesting that in a healthy society, as in a healthy body, every organ must be preserved and none permitted to die. As a public-policy credo, corporatism has come to mean that the government must support all members of society, whether individuals or organizations, giving support to failing businesses and protecting existing jobs alike.

Read more …

Throw a big number out there and see if it sticks.

China Starts $2 Trillion Leap Forward to Slash Pollution (Bloomberg)

China, which does nothing in small doses, is planning an environmental makeover in keeping with the political, cultural and market revolutions it has pursued over the past six decades. In his agreement last week with President Barack Obama, Chinese President Xi Jinping committed to cap carbon emissions by 2030 and turn to renewable sources for 20% of the country’s energy. His pledge would require China to produce either 67 times more nuclear energy than the country is forecast to have at the end of 2014, 30 times more solar or nine times more wind power – – more non-fossil fuel energy than almost the entire U.S. generating capacity. That means building roughly 1,000 nuclear reactors, 500,000 wind turbines or 50,000 solar farms. The cost will run to almost $2 trillion, holding out the potential of vast riches for nuclear, solar and wind companies that get in on the action.

“China is in the midst of a period of transition, and that calls for a revolution in energy production and consumption, which will to a large extent depend on new energy,” Liang Zhipeng, deputy director of the new energy and renewable energy department under the National Energy Administration, said at a conference in Wuxi outside of Shanghai this month. “Our environment is facing pressure and we must develop clean energy.” By last year, China had already become the world’s largest producer of wind and solar power. Now, with an emerging middle class increasingly outspoken about living in sooty cities reminiscent of Europe’s industrial revolution, China is looking at radical changes in how its economy operates. “China knows that their model, which has done very well up until recent times, has run its course and needs to shift, and they have been talking about this at the highest levels,” said Paul Joffe, senior foreign policy counsel at the World Resources Institute.

Read more …

Interesting concept: to meet official goals, ‘We’ll have to suck the carbon out of the air’. We won’t.

The Magical Thought That’s Assumed in Climate Studies (Bloomberg)

Here’s one way to phrase the basic climate change conundrum: There’s a huge gap between the volume of pollution emitted every year and how much scientists say we can safely send aloft. This has a weird implication for potential fixes governments may need in the future. Emission levels in 2020 could end up about 23% higher than what scientists suggest is safe, according to an annual study of the so-called “emissions gap” put out by the UN Environment Program. The carbon overshoot could grow by 2030 to 40%. “Safe” means what the UN-led climate negotiators have defined it to mean: warming of less than two degrees Celsius above global average temperatures from the beginning of the record, or around 1880. But two degrees doesn’t say much to normal people when you’re talking about the temperature of a planet. That’s why scientists have been beating their heads against walls the last several years to translate “two degrees Celsius” into something incrementally more intelligible – more intelligible even than 3.6 degrees Fahrenheit.

They’ve come up with the idea of a carbon budget, or the volume of pollution we can put into the atmosphere and still have a halfway decent chance of containing the problem. At the rate we’re going, the budget may burn up by the 2040s. Now, in finance, the notion of a budget deficit make sense. When someone overspends, he pays the money back at a later date. Ecological deficits make less sense. How do you pay the ground back in carbon minerals once they’ve been vaporized and are hanging in the atmosphere? Here’s what’s weird, what the Emissions Gap report calls out. It has to do with these “carbon deficits” that result. We’re burning through so much of the budget today that in “safe” projections of the 2070s and 2080s, greenhouse gas emissions must go negative for the climate to stay safe. Smokestacks will have to start inhaling rather than exhaling. We’ll have to suck the carbon out of the air, through reforestation or some as-yet unproven airborne-carbon removal technology.

Read more …

This is who we are. This is mankind.

Rhino Poaching Death Toll Reaches Record in South Africa (Bloomberg)

A record 1,020 rhinos have been killed by poachers for their horns in South Africa this year, more than all of 2013 and triple the number four years ago. Kruger National Park, a reserve the size of Israel, has seen 672 rhinos killed since Jan. 1. A total of 1,004 were slaughtered throughout the country in 2013, the Department of Environmental Affairs said today in a statement. The horns are more valuable than gold by weight. Prices for a kilogram of rhino horn range from $65,000 to as much as $95,000 in Asia. “The South African government recognizes that the ongoing killing of the rhino for its horns is part of a multi-billion dollar worldwide illicit wildlife trade and that addressing the scourge is not simple,” the department said. Demand for rhino horns has climbed in Asian nations including China and Vietnam because of a belief that they can cure diseases such as cancer.

South Africa has taken measures including setting up an protection zone within Kruger Park, using new technology, intelligence, and moving rhinos to safe areas within South Africa and other countries where they live. Poachers killed 333 rhinos in 2010 and 668 in 2012, Albi Modise, spokesman for the Department of Environmental Affairs, said today in a mobile-phone text message. “Government will continue to strengthen holistic and integrated interventions and explore new innovative options to ensure the long-term survival of the species,” the department said. Authorities have made a record number of arrests for poaching and related activities, according to the department. A total of 344 alleged rhino poachers, couriers and poaching syndicate members have been apprehended this year, compared with 343 in all of last year, Modise said. Most rhinos in South Africa are white rhinos, the bigger of the two types of the animal found in Africa. They can weigh more than 2 metric tons. The horns are largely made up of keratin, a substance similar to human hair.

Read more …

The world’s best economic analysts are two Australian comedians. Fitting.

Growth First. Then These Other Things Can Be Dealt With (Clarke&Dawe)

Read more …

Nov 032014
 
 November 3, 2014  Posted by at 1:11 pm Finance Tagged with: , , , , , , , , , ,  2 Responses »


DPC Masonic Temple, New Orleans 1910

Bank of Japan Bazooka To Spark Currency War (CNBC)
China Faces Trap In Currency War (MarketWatch)
Germany Ready To Accept British Exit From Europe (Daily Mail)
For Japanese, Are Higher Prices Really A Good Thing? (Reuters)
Yen’s Worst Yet to Come in Options After Kuroda Shocks (Bloomberg)
The Experiment that Will Blow Up the World (Tenebrarum)
Boj’s Desperate QE Move To Hurt Japanese Spending Power (Steen Jakobsen)
US Consumers Resisting Enticements To Increase Spending (MarketWatch)
More Than One Fifth Of UK Workers Earn Less Than Living Wage (Guardian)
ECB Skips Fireworks for Day One of New Role as Banking Supervisor (Bloomberg)
Europe’s Crazy Finance Tax (Bloomberg)
Vicious Circle of Bad Loans Ensnaring Italian Companies (Bloomberg)
Portugal Sees Chinese Do 90% of Bids at Property Auction (Bloomberg)
Gold Bulls Retreat With $1.3 Billion Pulled From Funds (Bloomberg)
Globalisation Is Turning In On Itself And It Is Each Man For Himself (Pal)
Wanted: 500,000 New Pilots In China By 2035 (Reuters)
25 Years Ago, As The Berlin Wall Fell, Checks On Capitalism Crumbled (Guardian)
Insects Could Be On Your Dinner Menu, Soon (CNBC)
Greenhouse Gas Levels At Highest Point In 800,000 Years (ABC.au)
UN Sees Irreversible Damage to Planet From Fossil Fuels (Bloomberg)

All Asian countries MUST participate.

Bank of Japan Bazooka To Spark Currency War (CNBC)

The Bank of Japan’s (BoJ) stimulus blitz raises the specter of currency wars as a rapidly weakening yen threatens the competitiveness of export-driven economies, say strategists. “Whenever you have these kinds of disruptive moves by central banks, there’s always going to be fall out effects,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management. Markets were caught off guard by the BoJ’s announcement on Friday that it would expand purchases of exchange-traded funds (ETFs) and real estate investment trusts, extend the duration of its portfolio of Japanese government bonds (JGBs), and increase the pace of monetary base expansion. The yen plunged nearly 3% against the U.S. dollar on Friday and extended its selloff on Monday, falling to a fresh 7-year low in early Asian trade. It last traded at 112.71.

“The hottest currency war today is Japan vs Korea. That’s probably the one to keep an eye on. The yen-won cross rate is very sensitive as Japan and Korea compete in a lot of key areas,” said Sean Callow, senior currency strategist at Westpac. The Japanese currency has fallen around 20% against the won since the BoJ launched its unprecedented stimulus program in April 2013. Currency strategists say the BoJ’s actions could encourage the Bank of Korea (BoK) to become more defensive against local currency strength through intervention in the foreign exchange market or a rate cut. “We see increasing risks that it may cut rates by 25 basis points to 1.75% in coming months,” Young Sun Kwon, economist at Nomura wrote in a note late Friday, highlighting that Korea’s export momentum already looks weak.

Read more …

“The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars.”

China Faces Trap In Currency War (MarketWatch)

Last Friday, the Bank of Japan effectively tossed a grenade into the region’s currency markets with its surprise announcement of a new round of quantitative easing sending the yen to fresh lows. The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars, in which countries try to steal growth from their trading partners through competitive devaluations. It also comes at a time when Beijing is already battling foes on two fronts: hot-money outflows and an economy flirting with deflation. The consensus is that the world’s largest trading nation will resist the temptation to enter the fray with a competitive devaluation or move to a market-based exchange rate. Yet Japan’s latest actions will hurt, as they hold Beijing’s feet to the fire.

The decision last Friday by the Bank of Japan to boost its bond purchases by more than a third to roughly $725 billion a year, among other actions, sent the yen tumbling to a seven-year low as the dollar rallied to above ¥112. This means the currency of the world’s second-biggest economy has now risen by roughly a third against that of the world’s third-biggest since late 2012. That’s a significant revaluation to swallow by any measure, all the more so as Japan and China are increasingly competing with each other, say analysts. According to new report by HSBC, Japan and China are already rivals in 19 manufactured product lines, and this total is growing. Panasonic has already said it is considering “on-shoring” certain production back to Japan. The other reason Japan’s escalation of QE turns up the heat on China is that it risks exposing the vulnerabilities in Beijing’s piecemeal approach to opening up its capital account.

Read more …

Major loss of face for Cameron.

Germany Ready To Accept British Exit From Europe (Daily Mail)

Germany would rather see Britain leave the EU than allow David Cameron to tear up its rules on free movement of labour, Angela Merkel has said. The Chancellor warned the Prime Minister that he is reaching a ‘point of no return’ by pushing for reform of the bloc’s sacred free movement system. The threat has forced Mr Cameron to tone down his ambitions for any deal to curb EU immigration. The pair clashed at a summit in Brussels last month, German magazine Der Spiegel said. Citing senior officials, it said Mrs Merkel told Mr Cameron he was nearing a ‘point of no return’ with plans to introduce quotas for the number of EU workers who can come to Britain.

She threatened to abandon her efforts to keep Britain in the EU unless he backed down. One government insider was quoted on Radio Bavaria saying: ‘The time for talking is close to over. ‘Mrs Merkel feels she has done all she can to placate the UK, but will not accept immigration curbs from EU member states under any circumstances. It has come to a Mexican stand-off and it is now a question of who blinks first.’ Mrs Merkel was confident of winning the battle of wills, the insider added. It came amid reports that Mr Cameron is ditching his quota plan to appease Berlin. Ministers will focus on making the existing rules work better for Britain. A source said Mr Cameron’s plans – to be outlined before Christmas – would stretch EU rules ‘to their limits’.

Read more …

Why Abenomics and Kuroda will fail: “If prices rise, people might not buy as much.” An entirely overlooked mechanism. Abe et all think that if prices rise, people will spend more, because they’re afraid they’ll rise more.

For Japanese, Are Higher Prices Really A Good Thing? (Reuters)

Bank of Japan Governor Haruhiko Kuroda does not need to convince Japanese people like Kazue Shibata that deflation brings problems, but getting them to believe that higher prices will make things better is proving to be a harder sell. Shibata, 65, who runs a small dress shop in central Tokyo, worries the BOJ’s mission to hit a 2% inflation target could end up driving business away unless people also have more money in their pockets. “If prices rise, people might not buy as much,” she said, echoing a concern of many private-sector economists. On Friday, Kuroda’s BOJ doubled down on a high-stakes bet that the central bank can shake Japan’s consumers from a defensive set of expectations hardened by a decade and a half of era of falling prices, lower incomes and stop-and-go growth. “It’s important for the BOJ to strongly commit to achieving its price target to get that price target firmly embedded in people’s mindset,” Kuroda said at a news conference on Friday, after the BOJ stunned markets with an unexpected expansion of its monetary stimulus program.

“It won’t do much good in trying to shake off the public’s deflation mindset if you just say inflation will reach 2% some day,” Kuroda said. At the core of Prime Minister Shinzo Abe’s “Abenomics” agenda is the assumption that the outlook for sustained inflation will prompt consumers to anticipate rising prices, and that consumption will rise as a result. That represents a sea change for a country used to deflation, where clinging to cash today meant greater buying power tomorrow, a set of expectations that has proven hard to shake a year-and-a-half into an unprecedented easing by the BOJ. Kaoru Sakai, 65, who runs a hair salon in Tokyo, did not raise prices even after the national sales tax was raised to 8% to 5% in April, worried the sticker shock could scare away business. “The fact is that people don’t feel confident about the future,” Sakai said. “Our society and economy has tilted people toward lower-end options. For example, it’s like people choosing to eat at fast-food places, or standing-only soba shops even when they could, realistically, eat at proper restaurants.”

Unless Japanese people see real progress in solving fundamental problems, such as lack of wage growth, a shrinking manufacturing base, and an unsustainable welfare system, many might prefer the problem they know to the one Kuroda hopes will replace it. Classical economics would argue that consumers should welcome deflation, because it increases their purchasing power, an argument some consumers echo. “Deflation reflects the underlying economy. Our population is decreasing, production is low and we’re not seeing innovation. We are losing power compared with other countries,” said Yohei Tanaka, 33, an accountant in Tokyo. “I don’t think this is the time to drive the economy to inflation. I don’t think inflation is the end solution. Deflation, in a certain way, is good.”

Read more …

The yen will be reduced to something resembling a penny stock.

Yen’s Worst Yet to Come in Options After Kuroda Shocks (Bloomberg)

The worst is yet to come for the yen after Japan’s two-pronged attack on deflation sent the currency tumbling to its weakest level in almost seven years. Option prices show traders see a 6%chance the yen, which has already slumped 6.8% this year, will drop an additional 1.8% to 115 per dollar in the next three months, according to data compiled by Bloomberg. That’s up from 18% on Oct. 30, the day before authorities surprised investors by saying the government pension fund will invest more of its money overseas and Bank of Japan Governor Haruhiko Kuroda will expand currency depreciating stimulus.

“The BOJ has dropped another stimulus bombshell,” Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said by phone on Oct. 31. “It’s quite possible the yen will drop to 112 or 113 per dollar by the end of the year, or even 115.” That level – last reached in November 2007 – is already starting to become the consensus. Companies from Nomura Holdings Inc., Japan’s biggest brokerage, to JPMorgan Chase & Co. cut their year-end forecast to 115 per dollar on Friday, while Goldman Sachs said the day’s announcements made its estimate for the yen to reach that level in 12 months suddenly seem “conservative.”

Read more …

“… the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”.

The Experiment that Will Blow Up the World (Tenebrarum)

In order to explain why the pursuit of Kuroda’s policy is edging ever closer to a catastrophic outcome, we have to delve a bit into the details of Japan’s monetary data. In spite of the BoJ’s “QE” reaching record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private credit growth so far. Commercial banks in Japan continue to shrink the stock of fiduciary media – this is to say, they are reducing outstanding credit, which makes more and more unbacked deposit money disappear. Hence, Japan’s money supply growth has recently decline to a mere 4.3% year-on-year, as the rate of contraction in outstanding fiduciary media (i.e., uncovered money substitutes) has accelerated to 9.4% annualized in spite of the BoJ’s pumping. The reason is a technical one: contrary to the Fed, the BoJ buys most of the securities it acquires in terms of its “QE” operations directly from banks – this creates new bank reserves at the BoJ, but no new deposit money.

By contrast, the Fed buys only from primary dealers, which are legally non-banks (even though most of them belong to banks). This creates both bank reserves and deposit money concurrently. The BoJ’s actions can only directly inflate the money supply to the extent it buys securities from non-banks, e.g. when it buys stocks in REITs to prop up the Nikkei. In short, the effectiveness of the BoJ’s pumping depends on the extent to which commercial banks are prepared to employ additional bank reserves to pyramid new credit atop them and thereby create additional fiduciary media. Japan’s banks are doing the exact opposite, mainly because there simply isn’t sufficient demand for credit. Why would anyone borrow more money, given Japan’s demographic situation?

However, one result of this is that an ever larger portion of Japan’s money supply actually consists of covered money substitutes – deposit money that is “backed” by standard money. Covered money substitutes have grown by more than 77% over the past year. Bank reserves can be transformed into currency when customers withdraw cash from their deposits, hence to the extent that deposit money is “backed” by bank reserves, it ceases to be a form of circulation credit. The narrow money supply in total now amounts to roughly 595 trillion yen; of this, roughly 139 trillion yen consist covered money substitutes and 83.4 trillion yen consist of currency (outstanding banknotes in circulation). Thus the stock of fiduciary media has shrunk to 372.6 trillion yen. It is well known that Japan has a very high public-debt-to GDP ratio. Even with the recent economic upswing, its budget deficit for the current year is projected to clock in at more than 7% of GDP – the latest in a string of huge annual deficits. What is less well known is the ratio of public debt to tax revenues, which is actually the more relevant datum.

We conclude from this that the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”. On the surface, this monetarist wizardry suggests that one can indeed “get something for nothing” – but that just isn’t true. Deep down, market participants know that it isn’t true – so even though they are celebrating the promise of more liquidity by sending Japanese stocks soaring, they are also creating a fault line – and that fault line is the external value of the yen.

Read more …

” … central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions”

Boj’s Desperate QE Move To Hurt Japanese Spending Power (Steen Jakobsen)

The Bank of Japan has increased the targeted monetary base from JPY 60-70 trillion to JPY 80 trillion an increase of 25-35% and an almost desperate move to keep the Abenomics’ wheels going. The decision is quite controversial as the vote was a narrow 5/4. This is extremely unusual as big decisions like these are generally only done with full consensus, but it clearly shows Abenomics is running out of time and room as core-inflation, excluding tax, was at 1.1% vs. the 2.0% target. The International Monetary Fund has been critical of Abenomics recently telling Japan that is falling short of helping the economy. From a market perspective the move [Friday] was almost perfectly timed coming on the heels of a Federal Open Market Committee meeting which ended quantitative easing and expose the big difference on future monetary paths between the BoJ and the Fed.

There is, however, a dark side to this big move. Prime Minister Shinzo Abe needs and needs to decide soon on whether to increase sales tax, VAT, again or disappoint on his third arrow. Abenomics has not deserved its name as a new approach. it has been all about printing money and making the state take a bigger and bigger role. It is hardly a new policy but more a reflection on an inability to change a conservative society with poor demographics. Tactical and trading wise, the USDJPY has reached a new high and it’s hard to fade a central so desperate is very likely as US dollar strength the name of the game through Mid-November. The easier monetary policy will force USDJPY and NIKKEI higher as it’s a one-way street, but it will more importantly force Japanese banks to lend out and overseas. I see/hear desperate Japanese bankers trolling the world to find things to finance and it seems they are in desperate need of US dollar funding (I.e: they have not hedged proportionally).

This could make USDJPY test 125/135 over coming months but the “risk” remains China, which even prior to this action was upset at the ‘beggar thy neighbour’ policy of Japan. Overall, tactically, it confirms the world is again moving towards lower yields in G10. A new low remains my only and main call and furthermore as big a move as this is, it also tells a story of how central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions. Personally I see this as the final round – Japan was ALWAYS going to give it one more shot – now it happened.

Read more …

They have no money left to spend. And you want to tell me your economy is doing well?

US Consumers Resisting Enticements To Increase Spending (MarketWatch)

The U.S. is adding jobs at the fastest rate since the end of the Great Recession and another strong month of hiring is expected in October, but Americans still aren’t spending like good times are here to stay. The lackluster pace of consumer spending — outlays fell in September for the first time in eight months — largely explains why the U.S. is only growing at a post-recession annual average of 2.2%. Yet most economists think that could change in the near future. The reason: wages finally appear to be moving higher as the unemployment rate falls and companies find it harder to attracted talented workers. Employment costs jump for second straight quarter.

Even more jobs and higher pay for the average worker, however, might not be enough to get consumers to sharply boost spending, other economists say. Despite rising consumer confidence, they point out, many Americans still aren’t sharing in the spoils of a healing economy. And many bear psychological scars from the Great Recession that impel them to save more than they used to in order to protect themselves against another downturn. The U.S. savings rate, for example, rose to 5.6% in September to match a two-year peak, putting it twice as high as it was in the last year before the recession. “The economy is doing well for some people but very poorly for many others,” said Joshua Shapiro, chief economist at MFR Inc. in New York. “People understand that things are improving slowly, but until they see it in their paychecks it’s hard to truly believe that.”

Read more …

Three-quarters of young people make less than a living wage. And you want to tell me your economy is doing well?

More Than One Fifth Of UK Workers Earn Less Than Living Wage (Guardian)

More than a fifth of UK workers earn less than the living wage, with bar staff and shop assistants among the most likely to live “hand to mouth” because of low pay, a report warns on Monday. Published to mark living wage week, the research also finds that younger workers, women and part-timers are more likely to be paid less than the living wage, a voluntary threshold calculated to provide a basic but decent standard of living. New living wage rates will be announced on Monday, with the current rate at £8.80 per hour in London and £7.65 elsewhere. The report by consultancy firm KPMG adds to evidence of low pay remaining prevalent in Britain, despite the economic recovery. The proportion of employees on less than the living wage is now 22%, up from 21% last year, the study found. In real terms, that was a rise of 147,000 people to 5.28 million.

The Trades Union Congress (TUC) urged more employers to adopt the pay benchmark, following news that more than 1,000 companies representing around 60,000 employees are now committed to the wage and will adopt the new rate on Monday. Frances O’Grady, the TUC general secretary, said: “Low pay is blighting the lives of millions of families. And it’s adding to the deficit because it means more spent on tax credits and less collected in tax. We have the wrong kind of recovery with the wrong kind of jobs – we need to create far more living wage jobs, with decent hours and permanent contracts.” Alan Milburn, the government’s social mobility tsar, said both employers and government must do more to make Britain a living wage country. “This research is further proof that more workers are getting stuck in low paid work with little opportunity for progression,” said the former Labour cabinet minister, now chair of the government’s Commission on Social Mobility.

“It is welcome that the number of accredited living wage firms has increased. But far more needs to be done to help millions of people move from low pay to living pay.” The research, conducted by Markit for KPMG, shows 43% of part-time workers earn less than the living wage, compared with 13% of full-time employees. It found 72% of 18-21 year olds were earning less than the living wage, compared with just 15% of those aged 30-39. One in four women earn less than the benchmark, compared to 16% of men. “Far too many UK employees are stuck in the spiral of low pay,” said Mike Kelly, head of living wage at KPMG. “With the cost of living still high, the squeeze on household finances remains acute, meaning that the reality for many is that they are forced to live hand to mouth,” added Kelly, also chair of the Living Wage Foundation.

Read more …

All the wrong people do a job the ECB should never have been assigned. They can only make things worse.

ECB Skips Fireworks for Day One of New Role as Banking Supervisor (Bloomberg)

The European Central Bank is about to achieve its biggest expansion of powers since the start of the euro. No celebrations are planned. As the Single Supervisory Mechanism takes charge of the euro area’s 120 biggest institutions tomorrow, officials aren’t in the mood for fanfare. Instead, staff at the ECB’s new overseer are preparing to monitor capital issuance by banks, and processing the results of a year-long asset review that revealed a stash of soured loans in the bloc now amounts to almost €900 billion ($1.1 trillion). Led by France’s Daniele Nouy, the SSM in Frankfurt will immediately set about trying to blend 18 sets of national supervisory habits into pan-European consistency, and prod banks to take more precautions against crises. While the ECB will have the status of a new heavyweight among global regulators, that role carries with it the burden of restoring confidence in a battered banking system vulnerable to renewed economic shocks. “They have an awful lot on their plate from day one,” said Guntram Wolff, Director of the Bruegel institute in Brussels.

“There’s a very big pile of bad loans, profitability in this environment is going to be difficult, and the banking system itself probably needs to be restructured. The question is how the new supervisor can address that.” [..] While the ECB found an overall shortfall of €9.47 billion euros, that becomes €6.35 billion when discounting five failing lenders that have agreed restructuring plans or are in resolution. The outstanding sum “doesn’t seem insurmountable,” Mathias Dewatripont, a Belgian member of the new SSM board, said last week in Berlin. “I would still be happier if we had more capital in the system.” Soon to be in charge of that system is a new corps of almost 1,000 bank supervisors drawn from all over Europe, including existing authorities and the private sector. Notables among senior management include Stefan Walter, a former official of the Federal Reserve Bank of New York who will lead oversight of the biggest lenders including Deutsche Bank, and Finland’s Jukka Vesala, who oversaw the Comprehensive Assessment.

They inherit a banking industry loaded with unpaid debt. While the ECB says credit standards eased for a second quarter in the three months through September, an extra €136 billion in bad loans identified by the Comprehensive Assessment could hamper a return to growth. The path towards managing that legacy will be trodden by both the ECB’s new cadres and 5,000 national supervisors who remain in charge of the thousands of smaller banks in the euro region. The Frankfurt hub will make its presence felt by having its say on everything from bank licensing to merger approval, imposing fines and influencing international regulation.

Read more …

is it really that crazy to tax what cost us all those trillions? Bloomberg’s ed. staff is not its brightest segment.

Europe’s Crazy Finance Tax (Bloomberg)

Wrangling among the 11 euro-region nations planning to tax financial transactions is further evidence, if any were needed, that the levy is a bad idea that should be abandoned. The European Commission acknowledges that the latest version of its planned financial transactions tax (or Tobin tax, or Robin Hood tax, if you prefer) isn’t the best option. That, it says, would be a globally coordinated toll on trading – which is laughably unlikely. The narrower the tax’s coverage, the less sense it makes. That’s why Europe’s proposed transactions tax isn’t even second-best: An earlier effort to apply it across all 27 European Union members failed. In its current diluted form, the tax would charge 0.1% for nonderivative securities such as government bonds or company shares, and 0.01% on the notional value of derivatives trades. Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, Spain are the willing 11 countries; but they can’t agree on how to divvy up the proceeds.

They’re struggling to meet a self-imposed deadline for an agreement by the end of the year, with the duty scheduled to be imposed by the end of 2015. The most fundamental question about the tax still hasn’t been answered – what’s it for? If the aim is to reduce volatility and speculation in the securities markets, it’s far from clear that the tax would work, according to a study by the consulting firm PricewaterhouseCoopers. If the idea is to strengthen the economy, the tax is a failure at the planning stage. Depending on how the proceeds were spent, the commission itself estimates the transactions tax would raise the cost of capital and could cut as much as 0.28% from gross domestic product — a little more than it would raise in extra revenue. With the bloc threatening to slide back into recession, you’d think any policy that risked hurting growth would be rejected out of hand. The chief motivation for the tax is populist politics: It’s mostly about vengeance for the financial crisis. Bashing bankers, regardless of the collateral damage, remains popular with European politicians.

Read more …

Get out of the EU!

Vicious Circle of Bad Loans Ensnaring Italian Companies (Bloomberg)

Italian borrowers are becoming trapped in a vicious circle. As bank loans turn sour at the rate of about €2 billion ($2.5 billion) a month, corporate lending is dwindling to the least in more than a decade. Lenders are sitting on a total €174 billion of non-performing loans, an increase of 62% from three years ago, according to the latest data from Bank of Italy. New corporate lending dropped in August to €21 billion, the lowest since at least 2003, the data show. With public debt of more than €2 trillion, Italy is battling the longest economic slump since World War II that has thrown millions of people out of work. The scarcity of lending is spurring the European Central Bank’s asset purchase program with President Mario Draghi seeking to boost economic growth by freeing up bank balance sheets.

“Banks’ failure to deal with the soured loans is partly to blame for Italy’s worsening recession,” said Riccardo Serrini, chief executive officer at Prelios Credit Servicing, a Milan-based adviser for debt sales. “Without the debt burden, they could be helping to boost the economy.” Unlike lenders from Spain to the U.K., Italian banks are proving unable, or unwilling, to offload bad debts and free up their balance sheets. About €11 billion of loans where borrowers have fallen behind on payments were sold by Italian institutions since 2011, compared with €189 billion for all European lenders, according to PricewaterhouseCoopers.

Read more …

Our world today: China prints $25 trillion and buys up Europe’s oldest civilizations with it.

Portugal Sees Chinese Do 90% of Bids at Property Auction (Bloomberg)

As bargain-hunters waited in a packed room at a property auction in Lisbon last month, one language dominated their chat: Mandarin. About 90% of the bidders for the government-owned apartments and stores on offer were Chinese, according to Jorge Oliveira, the official overseeing the asset sale. They ended up acquiring more than two-thirds of the 45 properties, he said. “A Portuguese investor bought a store to start a bakery and coffee shop, but most of the properties went to the Chinese,” Oliveira said in an interview after the sale.

Portugal is the latest target for Chinese investors who have been acquiring buildings around the world as China allows freer movement of funds in and out of the country. The Chinese accounted for almost one in five foreign property purchases in Portugal during the first nine months, according to the Lisbon-based Portuguese Real Estate Professionals and Brokers Association. Bing Wong, a 52-year-old store-owner from Shanghai who attended the Oct. 24 auction, has been buying properties in Lisbon to create a network of outlets to serve the biggest concentration of Chinese residents in Portugal. “Lisbon is cheap if you compare it with other cities,” he said. “The economy is improving and there are some good deals to be done here.”

Read more …

Expect major swings. Like everywhere else.

Gold Bulls Retreat With $1.3 Billion Pulled From Funds (Bloomberg)

Speculators cut their bullish gold bets before prices tumbled to the lowest since 2010 as demand for a hedge against inflation diminished. The net-long position in New York futures and options declined for the first time in three weeks, U.S. government data show. Gains for the American economy have eroded the appeal of bullion as a haven and helped boost the dollar to a four-year high. The Federal Reserve said last week it saw enough improvement to end its bond-buying stimulus program. More than $1.3 billion was pulled from U.S. exchange-traded products tracking precious metals in October, the biggest monthly decline this year, data compiled by Bloomberg show.

Societe Generale’s Michael Haigh, the analyst who correctly predicted gold’s slump into a bear market last year, said the crash in oil prices underscores why inflation is unlikely to accelerate and adds “ammunition” to the pressure on bullion. “We are betting on lower gold prices and telling our clients that they should have zero allocation in gold,” Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Deltec International Group, said Oct. 31. “The dollar will continue to strengthen as other nations are printing money at a time when the U.S. has taken stimulus off the table. U.S. growth is another reason why people will stay away from gold.” [..] Gold climbed 70% from December 2008 to June 2011 as the U.S. central bank bought debt and held borrowing costs near 0% in a bid to shore up growth. Prices slumped 28% last year, the most in three decades. The Fed’s $4 trillion of bond purchases since 2008 have yet to generate the runaway inflation that some gold buyers expected.

Read more …

That’s the very essence of globalization.

Globalisation Is Turning In On Itself And It Is Each Man For Himself (Pal)

A few things are also appearing on my radar screen – future visions if you like – that I want to share with you. These are not conclusive, but rather a stream of unfiltered thoughts, which will develop over time. I virtually never use geopolitics to assess asset markets. I have learned the hard way over time that it is the way to the poor house. Economies run financial markets, not wars. But I do note that at the margin, the world’s geopolitics is changing. Gone are the fluffy days of Putin shaking hands with George Bush agreeing to keep the world supplied with oil, gone are the days of China helping US firms make profits using their cheap labour, gone are open-for-business days of Europe, gone is the Japanese military neutrality, gone are the Saudis as an unshakeable ally, gone is Israel also a steadfast ally, etc. What is happening is something deeply concerning. Globalisation is turning in on itself and it is each man for himself. This was always going to be the outcome of an imbalanced, debt-drowning world.

Everyone wants a cheap currency and since that doesn’t work then everyone wants to find some way to get the upper hand on their own terms. I have had recent conversations with a long-term strategy group within the Pentagon about economic threats to the US and the risk of global collapse, and the potential for it to turn into a military outcome. It seems that the Department of Defence’s deep thinkers are mulling over the kinds of issues we all are – is the inevitable outcome a military one? They don’t know either but they give it a probability and thus need to understand it and plan for it. My issue has been for a long time that the true threat to the world is not the Muslim nations we so like to beat as a scapegoat (gotta have an enemy, right?) but China. The Pentagon’s think-tank also agrees. If China has an economic collapse, which again is a high probability event, then what are the odds of massive civil unrest?

And would a military conflict put the people back on the side of the government (i.e. how the Nazis came to power)? I agree. I think this is the risk somewhere down the road. I also, along with this defence strategy group, think that there is a risk that the Western powers meddling in the time of bad economic crisis will form strong alliances between let’s say Russia and China. In direct opposition to the government, many people inside the Pentagon are saying, “Please don’t fuck with Russia, they are not threatening us militarily but securing their own borders, we cannot control the outcomes, and most of them are bad, probably not militarily but economically, and economic instability causes outcomes we can’t forecast – even seizing the assets of powerful Russians has unintended consequences”. Here, here. The law of unintended circumstances is a bitch.

Read more …

That’s great news!

Wanted: 500,000 New Pilots In China By 2035 (Reuters)

China’s national civil aviation authority says the country will need to train about half a million civilian pilots by 2035, up from just a few thousand now, as wannabe flyers chase dreams of landing lucrative jobs at new air service operators. The aviation boom comes as China allows private planes to fly below 1,000 meters from next year without military approval, seeking to boost its transport infrastructure. Commercial airlines aren’t affected, but more than 200 new firms have applied for general aviation operating licences, while China’s high-rollers are also eager for permits to fly their own planes.

The civil aviation authority’s own training unit can only handle up to 100 students a year. With the rest of China’s 12 or so existing pilot schools bursting at the seams, foreign players are joining local firms in laying the groundwork for new courses that can run to hundreds of thousands of dollars per trainee. “The first batch of students we enrolled in 2010 were mostly business owners interested in getting a private license,” said Sun Fengwei, deputy chief of the Civil Aviation Administration of China’s (CAAC) pilot school. “But now more and more young people also want to learn flying so that they can get a job at general aviation companies.”

Read more …

Reasonable historic view.

25 Years Ago, As The Berlin Wall Fell, Checks On Capitalism Crumbled (Guardian)

It was 25 years ago this month that communism ceased to be a threat to the west and to the free market. When sledgehammers started to dismantle the Berlin Wall in November 1989, an experiment with the command economy begun in St Petersburg more than 70 years before was in effect over, even before the Soviet Union fell apart. The immediate cause for the collapse of communism was that Moscow could not keep pace with Washington in the arms race of the 1980s. Higher defence spending put pressure on an ossifying Soviet economy. Consumer goods were scarce. Living standards suffered. But the problems went deeper. The Soviet Union came to grief because of a lack of trust. The economy delivered only for a small, privileged elite who had access to imported western goods. What started with the best of intentions in 1917 ended tarnished by corruption. The Soviet Union was eaten away from within. As it turned out, the end of the cold war was not unbridled good news for the citizens of the west.

For a large part of the postwar era, the Soviet Union was seen as a real threat and even in the 1980s there was little inkling that it would disappear so quickly. A powerful country with a rival ideology and a strong military acted as a restraint on the west. The fear that workers could “go red” meant they had to be kept happy. The proceeds of growth were shared. Welfare benefits were generous. Investment in public infrastructure was high. There was no need to be so generous once the Soviet Union was no more. What was known as neoliberal economics was born in the 1970s, but it was not until the 1990s that market forces reigned supreme. The free market spread to poorer parts of the world where it had previously been off limits, expanding the global workforce. That meant cheaper goods but it also put downward pressure on wages. What’s more, there was no longer any need to be inhibited. Those running companies could take a bigger slice of profits because there was nowhere else for workers to go. If citizens did not like “reform” of welfare states, they just had to lump it.

And, despite some grumbles, that’s pretty much what they did until the global financial crisis of 2008. This was a blow to the prevailing free-market orthodoxy for three reasons. First, it was the crash that should never have happened. Economists had constructed models that showed markets were always rational and self-correcting. It was quite a shock to find that they weren’t. Second, the financial crash made countries poorer. Deep recessions have been followed by historically weak recoveries characterised by falling real wages and cuts in benefits. Finally, the crisis and its aftermath have revealed the dark side of the post-cold war model. Instead of trickle down, there has been trickle up. Instead of the triumph of democracy, there has been the triumph of the elites.

Read more …

A local supermarket had them on the menu just last week.

Insects Could Be On Your Dinner Menu, Soon (CNBC)

Feeding the world’s growing population is a major issue for global policy makers, and Euromonitor thinks it has the answer: insects. The thought of eating insects may turn the stomachs in the western world, but an estimated 2 billion people worldwide eat insects, Euromonitor said in a report. Eating insects for their taste and nutritional value is popular in many developing regions of central and South America, Africa and Asia. Insects contain high levels of protein, minerals and vitamins, and are considered a healthier alternative to meat. Insects could therefore provide a viable solution to food shortages and the increasing demand for meat, the Euromonitor report said. Consumer expenditure on meat will rise by 87.9% in emerging and developing countries in 2014-2030, more than three times higher than the equivalent 25.3% growth in developed economies, according to Euromonitor’s forecasts.

At the same time, global food supply issues have become a more prominent concern. Extreme weather cycles have played havoc with harvests and crops leading to extreme spikes in food prices, protectionist policies and crop hoarding. In the past three years, Australia, Canada, China, Russia and the U.S. have all suffered huge harvest losses from floods and droughts, Reuters reported. Earlier this year, the United Nations Food and Agriculture Organization warned that global food production needed to increase by 60% by mid-century or risk food shortages that could bring social unrest and civil wars. “The most obvious challenge to insects becoming a viable food source for the future is that negative attitudes in Western cultures towards insects as food need to change,” said Media Eghbal, head of countries’ analysis at Euromonitor. Eghbal pointed out that as a result of the western world’s more squeamish palate, a more realistic solution could be using more insects in animal feed, demand for which is bound to increase as global demand for meat rises.

The report also highlighted other benefits of using insects as a source of food. Farming insects is better for the environment than traditional livestock farming as the process requires less land and water, it said, and produces less greenhouse gas emissions. It’s also cheaper. Consumers would pay less for these food products, which could help reduce poverty and boost economic growth. Insects are a popular source of food in countries including Thailand, Vietnam, Cambodia, China, Africa, Mexico, Columbia and New Guinea. The most popular delicacies include crickets, grasshoppers, ants, scorpions, tarantulas and various species of caterpillar, according to www.insectsarefood.com.

Read more …

In human history, that’s a very long time.

Greenhouse Gas Levels At Highest Point In 800,000 Years (ABC.au)

The world’s top scientists have given their clearest warning yet of the severe and irreversible impacts of climate change. The United Nations Intergovernmental Panel on Climate Change (IPCC) has released its synthesis report, a summary of its last three reports. It warns greenhouse gas levels are at their highest they have been in 800,000 years, with recent increases mostly due to the burning of fossil fuels. “Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems,” the report said. “Limiting climate change would require substantial and sustained reductions in greenhouse gas emissions which, together with adaptation, can limit climate change risks.”

IPCC chairman Rajendra Pachauri said the comprehensive report brings together “all the pieces of the puzzle” in climate research and predictions. “It’s not discrete, and [highlights] distinct elements of climate change that people have to deal with, but [also] how you might be able to deal with this problem on a comprehensive basis by understanding how these pieces of the puzzle actually come together,” Dr Pachauri said. The report reiterates that the planet is unequivocally warming, that burning fossil fuels is significantly increasing greenhouse gas emissions and the effects of climate change – like sea level rises – are already being felt.It also said most of the world’s electricity should be produced from low carbon sources by 2050 and that fossil fuel burning for power should be virtually stopped by the end of the century.

Read more …

” … it doesn’t mean we have to sacrifice economic growth”. What if it did? Why does an Institute for Climate Impact Research have a chief economist in the first place?

UN Sees Irreversible Damage to Planet From Fossil Fuels (Bloomberg)

Humans are causing irreversible damage to the planet from burning fossil fuels, the biggest ever study of the available science concluded in a report designed to spur the fight against climate change. There’s a high risk of widespread harm from rising global temperatures, including floods, drought, extinction of species and ocean acidification, if the trend for increasing carbon emissions continues, a panel convened by a United Nations body said today in Copenhagen. Humans can avoid the worst if they significantly cut emissions and do so swiftly, it said. “We must act quickly and decisively if we want to avoid increasingly disruptive outcomes,” UN Secretary-General Ban Ki-moon told reporters in Copenhagen. “If we continue business-as-usual, our opportunity to keep temperature rises below” the internationally agreed target of 2 degrees Celsius, “will slip away within the next decades,” he said.

The report is designed to guide policy makers around the world in writing laws and regulations that will curb greenhouse gases and protect nations most at risk from climate change. It will also feed into talks among 195 nations working on an international agreement to rein in emissions that envoys aim to reach in Paris in December 2015. “We need to get to zero emissions by the end of this century” to keep global warming below dangerous levels, Ottmar Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research, outside Berlin, and a co-author of the report, said in a telephone interview. “This requires a huge transformation, but it doesn’t mean we have to sacrifice economic growth.”

Read more …

Oct 232014
 
 October 23, 2014  Posted by at 10:38 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »


DPC Bromfield Street in Boston 1908

Bond Funds Stock Up On Treasuries In Prep For Market Shock (Reuters)
Investors Pull Shale Money, Put Brakes on Wall Street-Funded Boom (Bloomberg)
Solid Majority In US Says Country ‘Out Of Control’ (CNBC)
It Will Take 398,879,561 Years To Pay Off The US Government Debt (Black)
Don’t Be Distracted by the Pass Rate in ECB’s Bank Exams (Bloomberg)
Why It’s Now Too Late For Germany To Rescue The Eurozone Alone (Telegraph)
Why ‘Italy Doesn’t Need Germany’s Help’ (CNBC)
Europe Can Learn From US And Make Each State Liable For Its Own Debt (Sinn)
‘Poets and Alchemists’: Berlin and Paris Undermine Euro Stability (Spiegel)
S&P Warns Crisis Not Over As France Output Tumbles (CNBC)
Central Banker Admits QE Leads To Wealth Inequality (Zero Hedge)
French Envoy To US Says ‘Poker Player’ Putin Bluffed and Won (Bloomberg)
Canada’s Biggest Banks Say Worst to Come for Loonie (Bloomberg)
The Financialization of Life (Real News Network)
Oil Slump Leaves Russia Even Weaker Than Decaying Soviet Union (AEP)
Big Tobacco Puts Countries On Trial As Concerns Over TTIP Mount (Independent)
Tesco’s Profits Black Hole Bigger Than Expected (Guardian)
EU Braces for Battle to Set Energy, CO2 Goals for Next Decade (Bloomberg)
Several Factors Conspire To Increase Fossil Fuel Use (FT)
Water Crisis Seen Worsening as Sao Paulo Nears ‘Collapse’ (Bloomberg)
Some US Hospitals Weigh Withholding Care To Ebola Patients (Reuters)

Too many kinds of bonds carry too much risk going forward.

Bond Funds Stock Up On Treasuries In Prep For Market Shock (Reuters)

U.S. corporate bond funds this year are adding Treasuries to their holdings at more than twice the rate of corporate debt amid concern that the struggling European economy and potential changes in Federal Reserve policy will drag down profits at U.S. corporations. Through September, corporate bond portfolios boosted their holdings of U.S. government debt by 15%, compared with a 6.5% increase in corporate bonds during the same period, according to Lipper Inc data. The funds now hold about $13 billion in Treasuries, 15% more than the $11.3 billion they held at the end of 2013. Corporate bond funds typically invest in a range of debt that includes mortgage-backed securities, U.S. Treasuries and bonds backed by student loans, credit cards and auto loans. Some corporate junk bond funds have guidelines that allow them to buy individual stocks. The move to buy Treasuries, which are more easily traded than most corporate bonds, show that managers anticipate market turmoil that could lead to redemption demands from investors.

Matt Toms, head of fixed income at New York-based Voya Investment Management, said he has cut exposure to corporate bonds in favor of mortgage-backed securities, for example. In particular, he has reduced corporate debt issued by U.S. financial companies because of their exposure to the weak European economy. He sees mortgage-backed bonds as more U.S.-centric because they are backed by the ability of American homeowners to make good on their monthly mortgage payments. “The volatility in Europe could translate more quickly through the corporate debt issued by U.S. banks,” Toms said. A year ago, the Voya Intermediate Bond Fund’s top 10 holdings included debt issued by Morgan Stanley, JPMorgan and Goldman Sachs. But more recently, none of those banks’ debt cracked the top 10 holdings of the fund, disclosures show. Toms, who runs the $1.9 billion Voya Intermediate Bond Fund, said nearly two-thirds of the portfolio’s assets are in government bonds or government-related securities. “That’s a highly liquid pool,” he said.

Read more …

“The drop wiped $158.6 billion off the market value of 75 shale producers since the end of August.” Most of it borrowed money. That’s a lot of mullah.

Investors Pull Shale Money, Put Brakes on Wall Street-Funded Boom (Bloomberg)

Falling oil prices are testing investors’ commitment to the Wall Street-funded shale boom. Energy stocks led the plunge earlier this month in U.S. equities and the cost of borrowing rose. The Energy Select Sector Index is down 14% since the end of August, compared with 3.8% for the Standard & Poor’s 500 Index. The yield for 190 bonds issued by U.S. shale companies increased by an average of 1.16 percentage points. Investors’ sentiment toward the oil and gas industry has “certainly changed in the last 30 days,” said Ron Ormand, managing director of investment banking for New York-based MLV & Co. with more than 30 years of experience in energy. “I don’t think the boom is over but I do think we’re in a period now where people are going to start evaluating their budgets.” What distinguishes this U.S. energy boom from the way the industry operated in the past is the involvement of outside investors. In 1994, drillers funded 42% of their own capital spending, according to an Independent Petroleum Association of America member survey.

Today, shale companies are outspending their cash flow by 50% thanks to borrowed money, according to the IPAA. They’re selling more than twice as much equity to the public as they did 10 years ago, according to Tudor Pickering Holt, a Houston investment bank. “After the tech bubble and then the real estate bubble, Wall Street had to put its money somewhere, and it looks like they put a lot of it into domestic onshore oil and gas production,” said Michael Webber, the deputy director of the Energy Institute at the University of Texas at Austin, who advises private investors. West Texas Intermediate, the benchmark U.S. oil price, has fallen 25% since its recent peak on June 20. Between the S&P 500’s record high on Sept. 18 and its five-month low on Oct. 15, energy companies led the index down 14%, more than any other industry, data compiled by Bloomberg show. When the market rebounded on Oct. 16, energy again took the lead, gaining 1.7%. The drop wiped $158.6 billion off the market value of 75 shale producers since the end of August.

Read more …

“Such an environment would tend to favor Republicans, but their advantage is limited by the fact that people don’t like them, either.”

Solid Majority In US Says Country ‘Out Of Control’ (CNBC)

With just two weeks to go until Election Day, a clear picture of the American electorate is emerging, and it is not pretty, for either party. The country is anxious about the economy, Ebola and Islamic extremists, and does not really feel Republicans or Democrats have solutions to any of these vexing problems. The latest Politico Battleground Poll of likely voters in key House and Senate races finds that 50% say the nation is “off on the wrong track” while just 20% say things are “generally headed in the right direction.” A remarkable 64% say things in the U.S. are “out of control” while just 36% say the U.S. is in “good position to meet its economic and national security challenges.” The economy continues to dominant the issue landscape with 40% rating it the top issue, to 20% for national security. President Barack Obama remains mired in negative territory, with 47% approving of his job performance and 53% disapproving.

Such an environment would tend to favor Republicans, but their advantage is limited by the fact that people don’t like them, either. In total, 38% approve of Democrats in Congress, while just 30% approve of Republicans. On the generic ballot questions, Democrats enjoy 41% support (including the independent Senate candidate in Kansas) while Republicans get 36%. That’s hardly the backdrop for a massive GOP wave, though the polls suggest Republicans are still significant favorites to pick up the six seats they need to control the Senate next year. The Ebola outbreak has clearly helped shape the final weeks in several Senate races, emerging as a significant wild card issue. In the Politico poll, only 22% of respondents said they had “a lot of confidence” that the federal government is doing all it can to contain the deadly disease. And the poll finished on Oct. 11, before the hospitalization of a second Dallas nurse.

Read more …

Work-years, that is. Not a bad concept.

It Will Take 398,879,561 Years To Pay Off The US Government Debt (Black)

The US government’s debt is getting close to reaching another round number – $18 trillion. It currently stands at more than $17.9 trillion. But what does that really mean? It’s such an abstract number that it’s hard to imagine it. Can you genuinely understand it beyond just being a ridiculously large number? Just like humans find it really hard to comprehend the vastness of the universe. We know it’s huge, but what does that mean? It’s so many times greater than anything we know or have experienced. German astronomer and mathematician Friedrich Bessel managed to successfully measure the distance from Earth to a star other than our sun in the 19th century. But he realized that his measurements meant nothing to people as they were. They were too abstract. So he came up with the idea of a “light-year” to help people get a better understanding of just how far it really is. And rather than using a measurement of distance, he chose to use one of time.

The idea was that since we—or at least scientists—know what the speed of light is, by representing the distance in terms of how long it would take for light to travel that distance, we might be able to comprehend that distance. Ultimately using a metric we are familiar with to understand one with which we aren’t. Why don’t we try to do the same with another thing in the universe that’s incomprehensibly large today—the debt of the US government? Even more incredible than the debt owed right now is what’s owed down the line from all the promises politicians have been making decade after decade. These unfunded liabilities come to an astonishing $116.2 trillion. These numbers are so big in fact, I think we might need to follow Bessel’s lead and come up with an entire new measurement to grasp them. Like light-years, we could try to understand these amounts in terms of how long it would take to pay them off. We can even call them “work-years”.

So let’s see—the Social Security Administration just released data for the average yearly salary in the US in fiscal year that just ended. It stands at $44,888.16. The current debt level of over $17.9 trillion would thus take more than 398 million years of working at the average wage to pay off. This means that even if every man, woman and child in the United States would work for one year just to help pay off the debt the government has piled on in their name, it still wouldn’t be enough. Mind you that this means contributing everything you earn, without taking anything for your basic needs—which equates to slavery.

Read more …

The numbers get scary.

Don’t Be Distracted by the Pass Rate in ECB’s Bank Exams (Bloomberg)

For investors, the European Central Bank’s yearlong evaluation of the region’s banks isn’t just about who passes and who fails. The bigger question will be how much the ECB marks down lenders’ capital during its balance sheet inspection known as the asset quality review. The central bank and national regulators will publish their findings on Oct. 26. “The focus will be on how the asset quality review influences the development of capital ratios and non-performing loans,” said Michael Huenseler at Assenagon Asset Management SA in Munich. The largest impact may be on Italian lenders led by Banca Monte dei Paschi di Siena, Unione di Banche Italiane and Banco Popolare, according to a report last month from Mediobanca analysts. They foresee a gap of more than 3 percentage points between the capital ratios published by the companies and the results of the ECB’s asset quality review. Deutsche Bankmay see its capital fall by €6.7 billion, cutting its ratio by 1.9 percentage points, the analysts said.

The biggest lenders may see their combined capital eroded by about €85 billion in the asset quality review because of extra provisioning requirements, according to the Mediobanca analysts, led by Antonio Guglielmi. That’s equivalent to a reduction of 1.05 percentage points in their average common equity Tier 1 ratio, the capital measure the ECB is using to gauge the health of the banks under study, the analysts said. The AQR evaluates lenders’ health by scrutinizing the value of their loan books, provisioning and collateral, using standardized definitions set by European regulators. To pass, a bank must have capital amounting to at least 8% of its assets, when weighted by risk. The bigger the hit to their capital, the more likely lenders will need to take steps to increase it. Banks the ECB will supervise directly already bolstered their balance sheets by almost €203 billion since mid-2013, ECB President Mario Draghi said this month, by selling stock, holding onto earnings, disposing of assets, and issuing bonds that turn into equity when capital falls too low, among other measures.

Read more …

It was always just a mirage.

Why It’s Now Too Late For Germany To Rescue The Eurozone Alone (Telegraph)

The eurozone is yet again in a nasty state. As it suffers from low growth and low inflation, the two combine to make a nasty cocktail. Without much of either, unemployment remains stuck at an eye wateringly high 11.5pc, and government debt burdens are likely to feel increasingly heavy. The European Central Bank (ECB) has announced a variety of acronyms – CBPP3, TLTROs, and an ABS purchase scheme – all stimulus measures designed to combat the euro area’s low inflation crisis. Yet so far, they’ve been insufficient to raise expectations of future inflation, implying that the firepower just isn’t strong enough. Economists are hoping that the ECB will deploy outright quantitative easing, and start buying up the sovereign bonds of eurozone governments. Without it, analysts have warned that both the eurozone as a whole, and even Germany – its former powerhouse economy – could now enter their third technical recession since 2008. Yet hopes of a monetary bazooka have so far been quashed by political concerns.

Some corners are hoping for Germany to launch its own form of stimulus. But a new report from ratings agency Standard & Poor’s suggests that such a move would be too little, too late, and “alone would have little effect on the rest of the eurozone”. “On the fiscal side … the margin for manoeuvre available to most eurozone members is still very limited”, the report states. “This is why the focus has unavoidably turned to Germany, the only large eurozone country with both a current surplus and a balanced budget”. According to S&P’s analysis, a stimulus package worth as much as 1pc of German GDP would provide just a 0.3pc boost to eurozone GDP, while creating 210,000 new jobs. The report states that the numbers: “put Germany’s potential contribution to higher growth in the eurozone into perspective, with the conclusion being that a stimulus package in that country alone would have a modest effect on its neighbours”.

Read more …

In any case, it shouldn’t. But Italy’s debt is so high (133% of GDP) that the only way out leads out of the EU.

Why ‘Italy Doesn’t Need Germany’s Help’ (CNBC)

Despite Italy slipping back into recession amid a stagnant economic environment, the president of one of the country’s richest regions said the country doesn’t need Germany — or anybody else’s — help to recover. “I don’t want to be helped by the Germans or by anybody else, I want to be strong enough to grow and to sort my own problems. Can we do this as Italians? Yes, we can. We just have to work harder and do the right things,” Roberto Maroni, the President of the Lombardy region in northern Italy, told CNBC on Tuesday. “In Italy, it’s more difficult than elsewhere in the world because we are Italians. It’s a good thing to be Italian but it’s more difficult to do the same thing in Italy than in Germany or in France. But I think that we will have to do it.” Maroni’s comments come at a time of economic woe for Italy. The country slipped back into recession in the second quarter of 2014, according to data released by Italy’s statistics agency ISTAT, in August.

In an attempt to boost growth, Prime Minister Matteo Renzi unveiled a budget-busting program of tax cuts and additional borrowing in order to resuscitate the economy. He has also proposed sweeping reforms to the labor market to encourage hiring as the unemployment rate topped 12.3% in August. The 2015 budget has put Italy on a collision course with Europe, however, as it pushes the country’s public deficit right up to the 3% limit set by the European Commission. Maroni, a senior member and former leader of the opposition right-wing party Northern League, said the proposals were not enough on their own. “I think that he is doing maybe the right things but in the wrong way. He wants to reform the labor market but…it only works if you have economic growth. That is the way you can create new jobs, not simply changing the laws.” “We’re in a moment when economic growth is far away from coming to Italy,” he added. “Before making these reforms you need to boost economic growth and that’s not what Matteo Renzi is doing now.”

Read more …

Perhaps true, but certainly too late.

Europe Can Learn From US And Make Each State Liable For Its Own Debt (Sinn)

The French prime minister, Manuel Valls, and his Italian counterpart, Matteo Renzi, have declared – or at least insinuated – that they will not comply with the fiscal compact to which all of the eurozone’s member countries agreed in 2012; instead, they intend to run up fresh debts. Their stance highlights a fundamental flaw in the structure of the European Monetary Union – one that Europe’s leaders must recognise and address before it is too late. The fiscal compact – formally the Treaty on Stability, Coordination, and Governance in the Economic and Monetary Union [PDF] – was the quid pro quo for Germany to approve the European Stability Mechanism (ESM), which was essentially a collective bailout package. The compact sets a strict ceiling for a country’s structural budget deficit and stipulates that public-debt ratios in excess of 60% of GDP must be reduced yearly by one-twentieth of the difference between the current ratio and the target.

Yet France’s debt/GDP ratio will rise to 96% by the end of this year, from 91% in 2012, while Italy’s will reach 135%, up from 127% in 2012. The effective renunciation of the fiscal compact by Valls and Renzi suggests that these ratios will rise even further in the coming years. In this context, eurozone leaders must ask themselves tough questions about the sustainability of the current system for managing debt in the EMU. They should begin by considering the two possible models for ensuring stability and debt sustainability in a monetary union: the mutualization model and the liability model.

Europe has so far stuck to the mutualisation model, in which individual states’ debts are underwritten by a common central bank or fiscal bailout system, ensuring security for investors and largely eliminating interest-rate spreads among countries, regardless of their level of indebtedness. In order to prevent the artificial reduction of interest rates from encouraging countries to borrow excessively, political debt brakes are instituted. In the eurozone, mutualisation was realised through generous ESM bailouts and €1tn ($1.27tn) worth of TARGET2 credit from national printing presses for the crisis-stricken countries. Moreover, the European Central Bank pledged to protect these countries from default free of charge through its “outright monetary transactions” (OMT) scheme – that is, by promising to purchase their sovereign debt on secondary markets – which functions roughly as Eurobonds would. The supposed hardening of the debt ceiling in 2012 adhered to this model.

Read more …

” … as German Chancellor Angela Merkel herself has told confidants, the real test will come when a major member state is forced to submit to the EU corset. That time is now.”

‘Poets and Alchemists’: Berlin and Paris Undermine Euro Stability (Spiegel)

Market uncertainty over the future of the euro has returned, but that hasn’t stopped France from flouting European Union deficit rules. Berlin is already busy hashing out a dubious compromise. Following three hours of questioning at European Parliament, a visibly exhausted Pierre Moscovici switched to German in a final effort to assuage skepticism from certain members of European Parliament. “As commisioner, I will fully respect the pact,” he said. Moscovici was French finance minister from 2012 until this April and will become European commissioner for economic and financial affairs when the new Commission takes office next month. But can he be taken at his word? There is room for doubt. In response to the unprecedented euro-zone debt crisis, the European Union agreed to strengthen its Stability and Growth Pact in recent years. Member states gave the European Commission in Brussels greater leeway to monitor national budgets and also bestowed it with rights to levy stiffer fines for countries that violate those rules.

Smaller member states have already been forced to comply. Still, as German Chancellor Angela Merkel herself has told confidants, the real test will come when a major member state is forced to submit to the EU corset. That time is now. And the big EU member state in question is France. The development is creating a dilemma for Merkel. The issue is far greater than a few tenths of a percentage point in the French budget deficit. At stake are France’s national pride and sovereignty — and the question as to whether the lessons of the crisis can actually be applied in practice. Also at stake is the euro-zone’s trustworthiness, and whether member states will once again fritter away global faith in the common currency by not abiding by their own internal rules. “The markets are watching us,” says one member of the German government — and he doesn’t sound particularly confident that the world will be impressed.

The markets are indeed jittery. The German economy is growing more sluggishly than expected and is no longer strong enough to buoy the rest of the euro zone. Interest rates for Greek government bonds have suddenly surged, likely because of domestic political instability, rising close to the levels that threatened to push the country into bankruptcy in early 2010. Meanwhile, the European Central Bank has already used up a good deal of the instruments it might have used to combat a new crisis.

Read more …

What, did anyone suggest the crisis was over?

S&P Warns Crisis Not Over As France Output Tumbles (CNBC)

Ratings agency Standard & Poor’s warned on Thursday that the euro zone crisis was entering a “stubborn phase of subdued growth” in what it says is a new stage in the region’s economic crisis. The warning comes as new data showed a deepening downturn in France’s private sector economy during October. Markit’s Flash Composite Output Index (PMI) for France slipped to 48.0, from 48.4 in September. That was its lowest reading since February. A reading below 50 marks a contraction in private sector activity. “We believe that the euro zone’s problems are still unresolved,” said Standard & Poor’s credit analyst Moritz Kraemer in a statement. Further data released by Markit showed the private sector in Germany grew, offering some hope after a series of disappointing data for the euro zone’s largest economy. The flash composite PMI for October climbed to 54.3 from 54.1 last month.

Read more …

Well, obviously. That’s the whole idea.

Central Banker Admits QE Leads To Wealth Inequality (Zero Hedge)

Six years after QE started, and just about the time when we for the first time said that the primary consequence of QE would be unprecedented wealth and class inequality (in addition to fiat collapse, even if that particular bridge has not yet been crossed), even the central banks themselves – the very institutions that unleashed QE – are now admitting that the record wealth disparity in the world – surpassing that of the Great Depression and even pre-French revolution France – is caused by “monetary policy”, i.e., QE. Case in point, during the Keynote speech by Yves Mersch, ECB executive board member, in Zurich on 17 October 2014 titled “Monetary policy and economic inequality” he said:

More generally, inequality is of interest to central banking discussions because monetary policy itself has distributional consequences which in turn influence the monetary transmission mechanism. For example, the impact of changes in interest rates on the consumer spending of an individual household depend crucially on that household’s overall financial position – whether it is a net debtor or a net creditor; and whether the interest rates on its assets and liabilities are fixed or variable.

Such differences have macroeconomic implications, as the economy’s overall response to policy changes will depend on the distribution of assets, debt and income across households – especially in times of crisis, when economic shocks are large and unevenly distributed. For example, by boosting – first – aggregate demand and – second – employment, monetary easing could reduce economic disparities; at the same time, if low interest rates boost the prices of financial assets while punishing savings deposits, they could lead to widening inequality.

Alas, in the past 6 years, low interest rates have not only boosted financial asset prices but have resulted in the biggest artificial asset bubble ever conceived. As for reducing unemployment, don’t ask Europe – and its unprecedented record unemployment, especially among the youth – how that is going. As for the US where unemployment is “dropping”, ask the 93.5 million Americans who have dropped out of the labor force, those whose real wages haven’t risen in the past 20 years, or the soaring part-time workers just how effective monetary policy has been in the US.

Read more …

Weird ideas some people have. But I’m sure they go down well at a Bloomberg Government breakfast in Washington.

French Envoy To US Says ‘Poker Player’ Putin Bluffed and Won (Bloomberg)

Vladimir Putin has outmaneuvered his opponents and humiliated Ukraine by continuing to back pro-Russian separatists and flouting a cease-fire, making it crucial that sanctions on Russia remain firm, France’s ambassador to the U.S. said. The Russian president “has won because we were not ready to die for Ukraine, while apparently he was,” Ambassador Gerard Araud said yesterday at a Bloomberg Government breakfast in Washington, in remarks he said represented his personal opinion. Echoing the view of other European envoys in Washington, Araud expressed concern that the Ukraine conflict has hit an impasse, leaving Putin the winner by default.

While many observers have called Putin a geopolitical chess player, he said, the Russian leader is more a “poker player really, putting all the money on the table, saying, ‘Do the same,’ and of course we blink. We don’t do the same.” The economic sanctions against Russia must stay in place to prevent Putin from going further, said Araud, who moved to Washington in September after serving as the French ambassador to the United Nations. “The question is there on the table: When is Putin going to stop?” Araud said. “That’s the reason that we need to keep the sanctions” because, “let’s be frank, it’s more or less the only weapon that we have. We are not going to send our soldiers in Ukraine. It does not make sense to send weapons to the Ukrainians, because the Ukrainians would be defeated real easily, so it will only prolong the war” and lead to a “still bigger Russian victory.”

Read more …

And for them. And for Canadians.

Canada’s Biggest Banks Say Worst to Come for Loonie (Bloomberg)

The oil boom that powered Canada’s recovery from its 2009 recession is turning into a bust for the nation’s dollar. Canada’s currency tumbled this month to a five-year low of C$1.1385 per U.S. dollar as the price of oil, the country’s biggest export, fell 30% from a June peak. Without a sustained increase in crude, the local dollar will weaken at least another 4% to C$1.18, according to Toronto-Dominion Bank and Royal Bank of Canada, the nation’s two biggest lenders. “The risk is, a sustained push lower in oil prices cuts Canadian growth,” Shaun Osborne, the chief currency strategist at Toronto-Dominion, Canada’s largest bank, said by phone on Oct. 15. “Any sort of setback for growth and investment in the energy sector is likely to have a fairly significant knock-on effect for the rest of the economy.”

The slide in oil, caused by a combination of oversupply and falling global demand, is a setback for Canada. Since the recession, most new business investment and jobs have come from the oil-rich province of Alberta. The nation’s trade surplus turned into a deficit in August, and economic growth stalled the previous month. Money managers are boosting bets the Canadian dollar will keep weakening. Hedge funds and other large speculators pushed net-bearish wagers on the currency to 16,167 contracts in the week ending Oct. 17, the most since June, according to the Commodity Futures Trading Commission in Washington. Investors held net-long positions as recently as Sept. 26.

Read more …

Interesting view.

The Financialization of Life (Real News Network)

Costas Lapavitsas, Economics Professor, Univ. of London: I will present to you some ideas that I have dealt with in my new book, Profiting without Producing, which has just come out, which discuss finance and the rise of finance. I can’t tell you very much about Baltimore because I don’t know about it, but I will tell you quite a few things about what I call the financialization of capitalism, which impacts on Baltimore and on many other places. So, getting on with it, and very quickly because time is short, I think it’s fair to say and all of us would agree that finance has an extraordinary presence in contemporary mature economies. It’s very clear in the case of the U.S., but equally clear in the case of the United Kingdom, where I live, Japan, about which I know quite a bit, Germany, and so on. There’s no question at all about it.

Finance is a sector of the economy in mature countries which has grown enormously in terms of size relative to the rest of the economy, in terms of penetration into everyday lives of ordinary people, but also small and medium businesses and just about everybody. And in terms of policy influence, finance clearly influences economic policy on a national level in country after country. The interests of finance are paramount in forming economic policy. So that is clear. Finance has become extraordinarily powerful. And that, in a sense, is the first immediate way in which we can understand financialization. Something has happened there, and modern mature capitalism appears to have financialized. Now, what is this financialization? The best I can do right now is to give you the gist of this argument of mine in my book. And I will come clean immediately and tell you that I think financialization is basically a profound historical transformation of modern capitalism.

Read more …

Ambrose has it in for Russia.

Oil Slump Leaves Russia Even Weaker Than Decaying Soviet Union (AEP)

It took two years for crumbling oil prices to bring the Soviet Union to its knees in the mid-1980s, and another two years of stagnation to break the Bolshevik empire altogether. Russian ex-premier Yegor Gaidar famously dated the moment to September 1985, when Saudi Arabia stopped trying to defend the crude market, cranking up output instead. “The Soviet Union lost $20bn per year, money without which the country simply could not survive,” he wrote. The Soviet economy had run out of cash for food imports. Unwilling to impose war-time rationing, its leaders sold gold, down to the pre-1917 imperial bars in the vaults. They then had to beg for “political credits” from the West. That made it unthinkable for Moscow to hold down eastern Europe’s captive nations by force, and the Poles, Czechs and Hungarians knew it. “The collapse of the USSR should serve as a lesson to those who construct policy based on the assumption that oil prices will remain perpetually high. A seemingly stable superpower disintegrated in only a few short years,” he wrote.

Lest we engage in false historicism, it is worth remembering just how strong the USSR still seemed. It knew how to make things. It had an industrial core, with formidable scientists and engineers. Vladimir Putin’s Russia is a weaker animal in key respects, a remarkable indictment of his 15-year reign. He presides over a rentier economy, addicted to oil, gas and metals, a textbook case of the Dutch Disease. The IMF says the real effective exchange rate (REER) rose 130pc from 2000 to 2013 during the commodity super-cycle, smothering everything else. Non-oil exports fell from 21pc to 8pc of GDP. “Russia is already in a perfect storm,” said Lubomir Mitov, Moscow chief for the Institute of International Finance. “Rich Russians are converting as many roubles as they can into foreign currencies and storing the money in vaults. There is chronic capital flight of 4pc to 5pc of GDP each year but this is no longer covered by the current account surplus, and now sanctions have caused foreign capital to turn negative, too.”

“The financing gap has reached 3pc of GDP, and they have to repay $150bn in principal to foreign creditors over the next 12 months. It will be very dangerous if reserves fall below $330bn,” he said. “The benign outcome is a return to the stagnation of the Brezhnev era in the early 1980s, without a financial collapse. The bad outcome could be a lot worse,” he said. Mr Mitov said Russia is fundamentally crippled. “They have outsourced their brains and lost their technology. The best Russian engineers go to work for Boeing. The Russian railways are run on German technology. It looked as if Russia was strong during the oil boom but it was an illusion and now they are in an even worse position than the Soviet Union,” he said.

Read more …

The TTIP is a real evil, that’s why it’s being discussed in secret.

Big Tobacco Puts Countries On Trial As Concerns Over TTIP Mount (Independent)

Tiny Uruguay may not seem a likely front line in the war of the quit smoking brigade against Big Tobacco. But the Latin American country has unwittingly found itself not just in the thick of that battle, but in the middle of an even bigger fight – that of the rising opposition to international free trade deals. Philip Morris is suing Uruguay for increasing the size of the health warnings on cigarette packs, and for clamping down on tobacco companies’ use of sub-brands like Malboro Red, Gold, Blue or Green which could give the impression some cigarettes are safe to smoke. The tobacco behemoth is taking its legal action under the terms of a bilateral trade agreement between Switzerland – where it relatively recently moved from the US – and Uruguay. The trade deal has at its heart a provision allowing Swiss multinationals the right to sue the Uruguayan people if they bring in legislation that will damage their profits.

The litigation is allowed to be done in tribunals known as international-state dispute settlements (ISDS), ruled upon by lawyers under the auspices of the World Trade Organisation. Such an ISDS agreement is also core to the EU’s planned Transatlantic Trade and Investment Partnership (TTIP) treaty being negotiated with the US. The critics of TTIP fear the tribunals will see US multinationals sue European governments in such areas as regulating tobacco, health and safety, and quality controls. In the UK, critics have been particularly vocal about fears US healthcare companies now running parts of the NHS might use ISDS tribunals to sue future British governments wanting to reverse the accelerating privatisation of parts of the health service. The British Government argues that such worries are “misguided” and says TTIP will create jobs and be good for the economy. ISDS agreements are necessary to give companies the confidence to invest, it says, particularly in more politically unstable countries.

Read more …

Getting worse all the time.

Tesco’s Profits Black Hole Bigger Than Expected (Guardian)

Tesco has revealed that the hole in its first half profits is bigger than previously thought and runs back into previous financial years, plunging the embattled supermarket into fresh turmoil. Confidence in what was once one of the most respected companies in the FTSE 100 was also dealt a fresh blow by the admission that it was unable to provide any guidance on full-year profits because of a number of uncertainties, sending its shares down 6% to 170p.25p when the stock market opened. The company’s shares have almost halved in value since the start of this year. It also revealed that its under fire chairman Sir Richard Broadbent is to be replaced, after a disastrous three year tenure. Tesco said the month-long investigation by forensic accountants from Deloitte had established that its first half profits had been artificially inflated by £263m rather than the £250m the company had originally estimated.

The problem relates to when the retailer books payments received from suppliers who pay the big grocery chains to run in-store promotions on their behalf. Deloitte said £118m of the figure related to the first six months of the current financial year but that £145m related to previous years. Chief executive Dave Lewis said the Deloitte report would be passed to the FCA and that from the company’s perspective this “drew a line” under the issue. With that out of the way he outlined three immediate priorities: to restore the competitiveness of the core UK business, to protect and strengthen its balance sheet and to begin “the long journey of rebuilding trust and transparency in the business and the brand”. The investigation, prompted by information from a whistleblower, has resulted in the suspension of eight senior executives, including Chris Bush, the head of the UK food business.

Read more …

The costs of cleaner energy, or the cost of political incompetence?

EU Braces for Battle to Set Energy, CO2 Goals for Next Decade (Bloomberg)

European Union leaders face heated negotiations today on a deal to toughen emission-reduction policies in the next decade and boost the security of energy supplies amid a natural-gas dispute between Russia and Ukraine. The main challenge for the 28 heads of government will be to iron out differences on a strategy that ensures cheaper and safer energy while stepping up climate-protection measures. The agenda of the two-day Brussels summit, the final one to be chaired by EU President Herman Van Rompuy, also features a debate on the European economy and on measures to prevent the spread of the Ebola virus. Countries including Poland, Portugal, Spain, France and the U.K. have signaled that the outstanding issues that leaders will need to resolve at the gathering include sharing the burden of carbon cuts, the nature of energy targets and plans for power and gas interconnectors.

“It will not be easy to reach an accord, many countries have energy problems, and some have re-opened coal mines,” French energy minister Segolene Royale told lawmakers in Paris yesterday. “But I think we will have the wisdom, the strength, and the sense of responsibility to reach an accord.” EU leaders plan to back a binding target to cut greenhouse gases by 40% by 2030 from 1990 levels, accelerating the pace of reduction from 20% set for 2020, according to draft conclusions for the meeting obtained by Bloomberg News. An agreement would ensure the bloc remains the leader in the fight against global warming before a United Nations climate summit in Lima in December and a worldwide deal expected to be clinched in 2015 in Paris, according to the European Commission, the EU’s executive arm. While differences among member states on the carbon target are narrowing down, leaders still need to resolve issues including emissions burden-sharing, which pits richer countries in western Europe against mostly ex-communist east and central European nations led by Poland.

Read more …

“Coal is at a crossroads in Europe. For some, the fuel is too polluting to keep burning in such high quantities. But for others, it is too cheap, too abundant and too politically strategic to abandon.” Germany invests heavily in brown coal.

Several Factors Conspire To Increase Fossil Fuel Use (FT)

Under slate-grey skies one chilly October morning in Warsaw, Ewa Kopacz, Poland’s new prime minister, saw first-hand the front line in Europe’s high-stakes battle over the future of coal. Outside parliament, where she was to make her maiden speech as the country’s leader, hundreds of helmeted miners sounded foghorns, chanted slogans and waved banners in a protest calling for action to save their industry. Coal is at a crossroads in Europe. For some, the fuel is too polluting to keep burning in such high quantities. But for others, it is too cheap, too abundant and too politically strategic to abandon. The midterm future of Europe’s energy mix, and that of coal, may well be decided in Poland, the EU’s second-largest producer and consumer of the black stuff. Coal is the dirtiest of all fossil fuels. Historically, its use in environmentally aware Europe has been falling. But consumption has ticked up since the US shale gas boom sent coal prices tumbling, and countries such as Poland are resisting calls to switch to lower-emission alternatives.

“It will be extremely difficult politically and economically for us just to end our dependence on coal,” says Oktawian Zajac, head of the coal practice at Boston Consulting Group in Warsaw. “In the medium term, the top priority is not to switch away from coal, but to produce coal that is economically justifiable.” That is not the view in Brussels, where diplomats are trying to hammer out an EU deal to curb the bloc’s carbon emissions by 2030. That deal is likely to revolve around whether countries are willing to pay for the environmental benefits of reducing their fossil fuel usage given the costlier alternatives. The biggest impediment to agreement is coal-hungry Poland, and the angry miners who won support in Ms Kopacz’s speech. “I realise how important environmental concerns are … but my government will not accept increases in the costs of energy in Poland and the impact on the economy,” the prime minister said, adding that the fuel was of strategic national importance.

Read more …

Sao Paulois sinking into disaster.

Water Crisis Seen Worsening as Sao Paulo Nears ‘Collapse’ (Bloomberg)

Sao Paulo residents were warned by a top government regulator today to brace for more severe water shortages as President Dilma Rousseff makes the crisis a key campaign issue ahead of this weekend’s runoff vote. “If the drought continues, residents will face more dramatic water shortages in the short term,” Vicente Andreu, president of Brazil’s National Water Agency and a member of Rousseff’s Workers’ Party, told reporters in Sao Paulo. “If it doesn’t rain, we run the risk that the region will have a collapse like we’ve never seen before,” he later told state lawmakers. The worst drought in eight decades is threatening drinking supplies in South America’s biggest metropolis, with 60% of respondents in a Datafolha poll published yesterday saying their water supplies were restricted at least once in the past 30 days. Three-quarters of those people said the cut lasted at least six hours.

Rousseff, who is seeking re-election in the Oct. 26 election against opposition candidate Aecio Neves, is stepping up her attacks of Sao Paulo state’s handling of the water crisis, saying in a radio campaign ad yesterday that Governor Geraldo Alckmin was offered federal support and refused. Neves, who polls show is statistically tied with Rousseff, and Alckmin are both members of the Social Democracy Party, known as PSDB. Neves said yesterday on his website that ANA is being used by the PT for it’s own purposes. “The agency could have been a much better partner to Governor Alckmin,” he said.

Read more …

How about some solid policies?

Some US Hospitals Weigh Withholding Care To Ebola Patients (Reuters)

The Ebola crisis is forcing the American healthcare system to consider the previously unthinkable: withholding some medical interventions because they are too dangerous to doctors and nurses and unlikely to help a patient. U.S. hospitals have over the years come under criticism for undertaking measures that prolong dying rather than improve patients’ quality of life. But the care of the first Ebola patient diagnosed in the United States, who received dialysis and intubation and infected two nurses caring for him, is spurring hospitals and medical associations to develop the first guidelines for what can reasonably be done and what should be withheld. Officials from at least three hospital systems interviewed by Reuters said they were considering whether to withhold individual procedures or leave it up to individual doctors to determine whether an intervention would be performed. Ethics experts say they are also fielding more calls from doctors asking what their professional obligations are to patients if healthcare workers could be at risk.

U.S. health officials meanwhile are trying to establish a network of about 20 hospitals nationwide that would be fully equipped to handle all aspects of Ebola care. Their concern is that poorly trained or poorly equipped hospitals that perform invasive procedures will expose staff to bodily fluids of a patient when they are most infectious. The U.S. Centers for Disease Control and Prevention is working with kidney specialists on clinical guidelines for delivering dialysis to Ebola patients. The recommendations could come as early as this week. The possibility of withholding care represents a departure from the “do everything” philosophy in most American hospitals and a return to a view that held sway a century ago, when doctors were at greater risk of becoming infected by treating dying patients. “This is another example of how this 21st century viral threat has pulled us back into the 19th century,” said medical historian Dr. Howard Markel of the University of Michigan.

Read more …

May 072014
 
 May 7, 2014  Posted by at 7:54 am Finance Tagged with:  16 Responses »


Gottscho-Schleisner New York City view from Central Park February 12, 1933

This just in from, of all sources, CBS. It’s quite a milestone we’ve passed here. Time for some contemplation perhaps. Time to wonder if enough people will care enough soon enough. Doesn’t look like it. Looks like we’re too busy drilling in the ever scarcer remaining pristine locations we haven’t yet exploited, and too busy preparing to go to war over access to the very resources that lifted us all the way up over 400ppm in what’s really no more than the blink of an eye in the 800,000 year timeframe. We’ll all just get into our cars again this morning and tell ourselves we’re looking out for number one. Maybe we need to be reminded what number one really is.

First time in 800,000 years: April’s CO2 levels above 400 ppm (CBS)

Less than a year after scientists first warned that the amount of carbon dioxide in the atmosphere could rise above 400 parts per million and stay there, it has finally happened. For the first time in recorded history, the average level of CO2 has topped 400 ppm for an entire month. The high levels of carbon dioxide is largely considered by scientists a key factor in global warming, according to the National Oceanic and Atmospheric Administration’s (NOAA) Earth System Research Lab. The Scripps Institution of Oceanography, a part of the University of California, San Diego, reported that April’s average amount of CO2 was 401.33 ppm, with each day reading above 400 ppm.


Scientists, using the Keeling Curve, show the increase of CO2 levels over the course of 800,000 years. Scripps Institution Of Oceanography

According to the Institute, CO2 levels have not surpassed 300 ppm in 800,000 years. It is estimated that during Earth’s ice ages, the C02 levels were around 200 ppm, with warmer periods — as well as prior to the Industrial Revolution — having carbon dioxide levels of 280 ppm. Past levels of CO2 are found in old air samples preserved as bubbles in the Atlantic ice sheet, according to Scripps. Throughout the year, there are changes in CO2 levels that occur naturally from the growth of plants and trees. Carbon dioxide levels often peak in the spring due to plant growth, and decrease in the fall when plants die, according to NOAA. However, human CO2 production has exacerbated the effects, causing global warming and climate change.

Scientists have been measuring the levels of carbon dioxide over the past fifty years. Since 1958, the Keeling Curve – named after developer Charles Keeling – has been used to monitor the levels of greenhouse gasses atop Hawaii’s Mauna Loa. When Keeling first started monitoring CO2 levels, the amount of carbon dioxide present in the atmosphere was 313 ppm. After Keeling’s death in 2005, his son Ralph, a professor of geochemistry and director of the Scripps CO2 Program, continued the measurements. In a statement last year, he warned that CO2 levels would “hit 450-ppm within a few decades.”