Dec 222015
 
 December 22, 2015  Posted by at 9:06 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 22 2015


DPC Old Absinthe House, bar, New Orleans 1906

Global Investors Are More Exposed To Interest-Rate Hikes Than Ever (BBG)
The Keynesian Recovery Meme Is About To Get Mugged, Part 1 (Stockman)
Brent Oil Hits 11-Year Low As Global Supply Balloons (Reuters)
US Gas Prices Fall Below $2 – In Some Places Under $1.60 (MarketWatch)
The Real “Death Cross” Of Oil Markets (ZH)
Risk Of Insolvency Hangs Over UK High Street Retailers (Guardian)
UK Economy Concerns As Household Debt Balloons To £40 Billion (PA)
The Bank of Japan’s $2.5 Billion Plan to Buy Non-Existent ETFs (BBG)
China ‘Suspends’ Another Unofficial PMI Data Set For A ‘Major Adjustment’ (ZH)
Zimbabwe To Make Chinese Yuan Legal Currency After Beijing Cancels Debts (AFP)
Russia, EU Trade Talks Fail, Kiev Set To Face Retaliation (Reuters)
Political Uprising In Spain Shatters Illusion Of Eurozone Recovery (AEP)
Portugal Taxpayers Face €3 Billion Loss After 2nd Bank Bailout In 2 Years (ZH)
Christmas Present (Jim Kunstler)
Et Tu, Brute? – How Empires Die (Thomas)
Do We Need The Fed? (Ron Paul)
Apple Says UK Surveillance Law Would Endanger All Customers (BBG)
Half of World’s Coal Must Go Unmined to Meet Paris Climate Target (BBG)
It’s ‘Almost Too Late’ To Stop A Global Superbug Crisis (PA)

Because the entire system is leveraged to the hilt.

Global Investors Are More Exposed To Interest-Rate Hikes Than Ever (BBG)

With any luck, the world economy will eventually be strong enough for central banks to follow the U.S. Federal Reserve in ending what has been an unprecedented period of extremely low interest rates. If and when they do, they’ll run straight into the same issue that the Fed now faces: Raising rates will precipitate unusually large losses for investors. Over the past several years, investors have gone to great lengths in their search for returns in a low-rate environment. They’ve done so in part by buying longer-maturity bonds, which tend to offer higher yields but are also more sensitive to changes in rates. One gauge of this risk is effective duration, which estimates the percentage decline in a bond’s price given a one-percentage-point increase in yield.

The measure is near all-time highs in the U.S., according to a report issued last week by the Office of Financial Research. The situation globally is no less precarious. Consider the effective duration for the BofA Merrill Lynch Global Broad Market Index, which tracks about $45 trillion in investment-grade bonds issued in major currencies – including government, corporate, mortgage and other asset-backed securities. As of last week, it stood at 6.6, meaning that a one-percentage-point increase in yield would wipe almost $3 trillion off the value of all the bonds included in the index. That’s a larger potential loss than at just about any point since the index’s inception in 1996. Here’s how that looks:

The high level of interest-rate risk illustrates a dilemma for central bankers everywhere. The power of traditional monetary stimulus depends in large part on the willingness of people and companies to borrow for new projects and purchases. But as the debt burden grows, it makes markets and the entire economy more susceptible to rate increases. It can also undermine the effect of rate cuts, as borrowers increasingly struggle under the weight of their existing obligations.

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“These academic pettifoggers are so blinded by their tinker toy macro-model that they can’t even see the flashing red lights warning of recession just ahead.”

The Keynesian Recovery Meme Is About To Get Mugged, Part 1 (Stockman)

Yellen said at least one thing of importance last week, but not in a good way. She confessed to the frightening truth that the FOMC formulates its policies and actions based on forecasts of future economic developments. My point is not simply that our monetary politburo couldn’t forecast its way out of a paper bag; that much they have proved in spades during their last few years of madcap money printing. Notwithstanding the most aggressive monetary stimulus in recorded history – 84 months of ZIRP and $3.5 trillion of bond purchases – average real GDP growth has barely amounted to 50% of the Fed’s preceding year forecast; and even that shortfall is understated owing to the BEA’s systemic suppression of the GDP deflator.

What I am getting at is that it’s inherently impossible to forecast the economic future, but that is especially true when the forecasting model is an obsolete Keynesian relic which essentially assumes a closed US economy and that balance sheets don’t matter. Actually, balance sheets now matter more than anything else. The $225 trillion of debt weighing on the world economy – up an astonishing 5.5X in the last two decades – imposes a stiff barrier to growth that our Keynesian monetary suzerains ignore entirely. Likewise, the economy is now seamlessly global, meaning that everything which counts such as labor supply and wage trends, capacity utilization and investment rates and the pace of business activity and inventory stocks is planetary in nature. By contrast, due to the narrow range of activity they capture, the BLS’ deeply flawed domestic labor statistics are nearly useless. And they are a seriously lagging indicator to boot.

Nevertheless, Yellen & Co. are obsessed with the immeasurable and largely irrelevant level of “slack” in the domestic labor market. They falsely view it as a proxy for the purported gap between potential and actual GDP. Not surprisingly, they are now under the supreme illusion that the labor slack has been largely absorbed and the output gap nearly closed. So they are raising money market rates by a smidgeon to confirm the US economy’s strength and that the Keynesian nirvana of full employment is near at hand. No it isn’t! These academic pettifoggers are so blinded by their tinker toy macro-model that they can’t even see the flashing red lights warning of recession just ahead.

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Oil went up a whiff overnight. I always look at the spread between WTI and Brent. The smaller it gets, the higher the risks. Usually, it hovers between $2-3. Right now, it’s at 50 cents.

Brent Oil Hits 11-Year Low As Global Supply Balloons (Reuters)

Brent oil cratered to its lowest price in more than 11 years on Monday, as demand for heating oil slumped on warmer-than-normal temperatures and traders tested for a bottom. U.S. crude remained above its 2009 low and settled up a penny a barrel as traders squared positions ahead of the January contract’s expiration. The February contract declined and analysts expect stockpiles to build again this week, signaling further oversupply in already glutted market. Concerns about swelling global crude supply and slow demand sparked by economic weakness in China have been recurring themes during this year’s rout. Analysts said the market was still testing for a bottom. “The key in finding the bottom of the market comes in a tightening of the supply side,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

OPEC and Russia will keep producing at high volumes, increasing pressure on U.S. producers to throttle back production, he said. “I think we’re getting ready for another round of capex cuts in North America,” he said. Heating oil futures weighed down the crude complex, hitting a new July 2004 low warmer-than-expected temperatures have hit seasonal demand. “The market is waiting for the next announcement,” said Tyche Capital Advisors senior research analyst John Macaluso. “The equity markets are waiting on crude oil, and crude oil is waiting for a bounce before shorts will come back into the market.” Crude short-sellers will be reluctant to return before U.S. crude recovers to $35.50, he said. Global oil production is running close to record highs. With more barrels poised to enter the market from nations such as Iran and Libya, the price of crude is set for its largest monthly percentage decline in seven years.

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“..1% of stations selling gas at $1.59 a gallon..”

US Gas Prices Fall Below $2 – In Some Places Under $1.60 (MarketWatch)

Christmas came early for U.S. drivers on Monday, as the national average gasoline price fell below $2 a gallon for the first time since March 2009. AAA put the average U.S. gas price at $1.998 per gallon on Monday, while fuel-price tracking service GasBuddy.com calculated the national average at $1.995 a gallon. That’s the lowest price by either measure since March 25, 2009. Unsurprisingly, drivers can credit a global glut of crude oil for the steady pressure on gas prices. Brent crude the global oil benchmark, plumbed levels last seen in 2004 on Monday, while the January contract for the U.S. benchmark CLF6, -0.20% West Texas Intermediate crude, was down 49 cents, or 1.4%, ahead of expiration at $34.24 a barrel on Nymex. The most-active February contract is down 1.3% at $35.58.

“In areas where there are no refinery bottlenecks, we’ve been able to see the falling price of crude oil translated directly into cheaper gas prices,” said Patrick DeHaan, senior petroleum analyst at GasBuddy.com, in a phone interview. Nymex reformulated gasoline futures for January delivery slumped 6.33 cents, or 5%, to $1.2114 a gallon. So how low are gas prices? In much of the country, the price is already well under $2 a gallon, AAA notes, with 1% of stations selling gas at $1.59 a gallon. On a state-by-state basis, Missouri has the lowest average price at $1.77, followed by Oklahoma and South Carolina at $1.78, and Tennessee and Kansas at $1.79.

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China. That’s all.

The Real “Death Cross” Of Oil Markets (ZH)

The ‘death cross’ of these two energy market indicators is all one needs to know about the oil market… As Bloomberg notes, total industry oil stocks reported by the International Energy Agency rose for a third month, increasing by 0.5% to the highest on record at 2.99 billion barrels. China’s Beige Book, released last week, showed further economic deterioration in one of the world’s largest commodity-consuming nations in the fourth quarter. Until these two indicators change direction, lower-er for longer-er will remain.

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Lots of last legs there.

Risk Of Insolvency Hangs Over UK High Street Retailers (Guardian)

A string of retailers could face insolvency in the new year with tough trading on the high street in the run-up to Christmas leaving businesses fighting for survival, two influential industry bodies have warned. Widespread discounting and warmer-than-average weather have cranked up the pressure on high street retailers over the festive period. In the last few years a number of high street retailers have called in administrations either just before or after Christmas, including Woolworths, HMV, Zavvi, and Jessops. Retailers generate roughly 40% of their annual profits between October and December, underlining the importance of the period. However, if a high street business struggles during the festive season then its death knell is typically the quarterly rental payment they have to make to landlords at the end of December.

Atradius, one of the world’s largest trade credit insurers, has warned that retailers face a “perfect storm” that could lead to a bleak start to 2016 and a “fresh wave of insolvencies”. The comments from Atradius are significant because if a credit insurer refuses to back a retailer then suppliers will be unable to insure their orders with the business and could decide not to provide it with products. Owen Bassett, senior risk underwriter at Atradius, said: “Those who went into the fourth quarter needing – rather than wanting – a strong performance could be looking at a troubled future. “Experience tells us that when retailers need an exceptional seasonal sales period and then hit financial difficulty, we often see failures in the first quarter. It is not unusual in this sector to be loss-making during Q1 and with the first payment of quarterly rent due in January it can be difficult to survive after a poor Q4.”

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Private debt. Should have a lot more attention. And not just in Britain.

UK Economy Concerns As Household Debt Balloons To £40 Billion (PA)

Families are expected to run up £40bn of debt this year, sparking fears about Britain’s economic recovery. Labour raised concerns that millions of households would face “serious hardship” if interest rates rise and warned the borrowing trend could harm the economy. The latest Office for Budget Responsibility (OBR) forecasts have found that households have moved from a surplus of £67bn in 2010, the year the coalition took power, to a £40bn deficit this year. Unsustainable borrowing is on course to near the levels reached in the run-up to the 2008 financial crash, according to Labour. Seema Malhotra, the shadow chief secretary to the Treasury, said: “George Osborne is relying on millions of British families going further into debt to hit his growth targets.

“This is risky behaviour from a chancellor whose policy decisions are hurting, not helping, British families. Alarm bells should be ringing. There is a real risk that millions of families will face serious hardship if interest rates start to rise. “Of course families need access to credit and the ability to borrow to invest for the future. George Osborne should be seeking to rebalance the economy away from an over-reliance on borrowing and debt. “Labour is clear about the need for a strong and sustainable economic recovery. Osborne’s short-term political decisions risk real long-term damage to the finances of millions of British families and the nation’s economy.” The former business secretary Sir Vince Cable warned Britain was returning to “old and unhappily discredited” methods of economic growth. He told the Independent: “We’re back on the treadmill of growth being sustained by personal borrowing. Much of it is against an inflating housing stock.

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Abenomics is a different way of saying anything goes.

The Bank of Japan’s $2.5 Billion Plan to Buy Non-Existent ETFs (BBG)

Haruhiko Kuroda has a new plan. He’s going to buy $2.5 billion of something that doesn’t exist. Markets were roiled Friday after the Bank of Japan unveiled measures including purchasing exchange-traded funds that track companies which are “proactively making investment in physical and human capital.” The central bank will spend 300 billion yen ($2.5 billion) a year from April buying such securities to offset the market impact as it resumes selling stocks purchased earlier from financial institutions. The only problem is such ETFs have never been made in Japan, at least not yet. Even as fund providers start hundreds of so-called “smart beta” products that choose stocks based on everything from dividends to volatility, ETFs that pick companies for how they deploy their cash are rare in global markets.

“These kinds of ETFs don’t exist now. Using capital spending as a factor in deciding what goes in an ETF is quite unusual,” said Koei Imai, who oversees $25 billion of ETFs at Nikko Asset Management Co. in Tokyo. “I think the message from the BOJ is for us to go out and make them.” The central bank is aware such products aren’t yet available and in the meantime will buy ETFs tracking the JPX-Nikkei Index 400, a government-backed equity measure started last year that chooses companies based on return on equity and operating profit. The BOJ also already purchases ETFs linked to the Nikkei 225 Stock Average and Topix index and owns roughly half of the market for ETFs in Japan.

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How to kill confidence.

China ‘Suspends’ Another Unofficial PMI Data Set For A ‘Major Adjustment’ (ZH)

For the second time in two months, an economic data series that indicate drastically weak performance in China has been “suspended.” Having seen Markit/Caixin’s flash gauge of China’s manufacturing discontinued in October (having plunged notably divergently from the government’s official data), Bloomberg reports that the publishers of the alternative China Minxin PMI will stop updating the series to make a “major adjustment.” Guess which time series was just “suspended”…

As Bloomberg details,

Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended starting this month, the Beijing-based academy said in an e-mailed statement Monday, about six hours before the latest monthly data were scheduled for release.

Minxin’s suspension is the second in recent months as policy makers in the world’s second-largest economy struggle to arrest a deceleration in growth. Another early estimate of China’s manufacturing sector, a flash gauge of a purchasing managers index compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1. Minxin’s PMI readings are based on a monthly survey covering more than 4,000 companies, about 70% of which are smaller enterprises. The private gauges have shown a more volatile picture than the official PMIs in the past year.

The manufacturing PMI declined to 42.4 in November from 43.3 in October, while the non-manufacturing reading fell to 42.9 from 44.2, according the the latest release. The factory gauge fell to a record low of 41.9 in August. China’s official PMI from the National Bureau of Statistics fell to a three-year low of 49.6 in November.

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Humor?

Zimbabwe To Make Chinese Yuan Legal Currency After Beijing Cancels Debts (AFP)

Zimbabwe has announced that it will make the Chinese yuan legal tender after Beijing confirmed it would cancel $40m in debts. “They [China] said they are cancelling our debts that are maturing this year and we are in the process of finalising the debt instruments and calculating the debts,” minister Patrick Chinamasa said in a statement. Chinamasa also announced that Zimbabwe will officially make the Chinese yuan legal tender as it seeks to increase trade with Beijing. Zimbabwe abandoned its own dollar in 2009 after hyperinflation, which had peaked at around 500bn%, rendered it unusable. It then started using a slew of foreign currencies, including the US dollar and the South African rand.

The yuan was later added to the basket of the foreign currencies, but its use had not been approved yet for public transactions in the market dominated by the greenback. Use of the yuan “will be a function of trade between China and Zimbabwe and acceptability with customers in Zimbabwe,” the minister said. Zimbabwe’s central bank chief John Mangudya was in negotiations with the People’s Bank of China “to see whether we can enhance its usage here,” said Chinamasa. China is Zimbabwe’s biggest trading partner following Zimbabwe’s isolation by its former western trading partners over Harare’s human rights record.

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Europe’s dumb struggle with Moscow continues.

Russia, EU Trade Talks Fail, Kiev Set To Face Retaliation (Reuters)

The EU failed to allay Russia’s concerns about Ukraine’s free-trade accord with the 28-nation bloc on Monday, leaving Kiev to face Russian retaliation through tighter bilateral trade rules from 2016. Closer ties between Ukraine and the EU, including the free trade deal, were at the heart of a battle for influence between Brussels and Moscow in Russia’s former satellite. When the then-Ukrainian president, Viktor Yanukovich, ditched the accord in early 2014 under pressure from Russia, protests erupted on the street of Kiev leading to a crisis in which he fled power and a pro-Europe leadership took over. The EU and Ukraine delayed implementation of their trade deal by a year out of deference to Moscow’s concerns that it could lead to a flood of European imports across its borders, damaging the competitiveness of Russian exports.

But comments by EU and Russian officials on Monday indicated that numerous meetings between the two sides to try to narrow differences and assuage Moscow’s concerns had failed. EU Trade Commissioner Cecilia Malmstrom raised doubts about the validity of the Russian concerns, saying some were “not real.” “We have been very open in listening to some of the concerns of Russia. Some of them we think are not real in economic terms. Some of them could potentially be real,” Malmstrom told a news conference following final talks in Brussels. Russian Economy Minister Alexei Ulyukayev, speaking in Brussels, said there was no deal and Moscow would scrap trade preferences dating back to 2011 for Ukraine as of 2016, when the bilateral EU-Ukraine deal will be implemented. “An agreement has not been reached. We were left with our concerns on our own and we are forced to safeguard our economic interest unilaterally,” Ulyukayev told reporters.

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A stalemate that seems to end in either a fragile left government or new elections.

Political Uprising In Spain Shatters Illusion Of Eurozone Recovery (AEP)

Spain risks months of political paralysis and a corrosive showdown with Germany over fiscal austerity after insurgent movements smashed the traditional two-party system, leaving the country almost ungovernable. The electoral earthquake over the weekend in one of the eurozone’s ‘big four’ states has echoes of the shock upsets in Greece and Portugal this year, a reminder that the delayed political fuse from years of economic depression and mass unemployment can detonate even once the worst seems to be over. Bank stocks plummeted on the Madrid bourse as startled investors awoke to the possibility of a Left-wing coalition that included the ultra-radical Podemos party, which won 20.7pc of the votes with threats to overturn the government’s bank bail-out and to restructure financial debt.

Pablo Iglesias, the pony-tailed leader of the Podemos rebellion, warned Brussels, Berlin, and Frankfurt that Spain was retaking control over its own destiny after years of kowtowing to eurozone demands. “Our message to Europe is clear. Spain will never again be the periphery of Germany. We will strive to restore the meaning of the word sovereignty to our country,” he said. The risk spread on Spanish 10-year bonds jumped eight basis points to 123 over German Bunds, though there is no imminent danger of a fresh debt crisis as long as the European Central Bank is buying Spanish bonds under quantitative easing. The IBEX index of equities slid 2.5pc, with Banco Popular and Caixabank both off 7pc. Premier Mariano Rajoy has lost his absolute majority in the Cortes.

Support for the conservative Partido Popular crashed from 44pc to 29pc, costing Mr Rajoy 5m votes as a festering corruption scandal took its toll. The electorate punished the two mainstream parties that have dominated Spanish politics since the end of the Franco dictatorship in the 1970s, and which by turns became the reluctant enforcers of eurozone austerity. The Socialists (PSOE) averted electoral collapse but have lost their hegemony over the Left and risk being outflanked and ultimately destroyed by Podemos, just as Syriza annihilated the once-dominant PASOK party in Greece. It had been widely assumed that Mr Rajoy would have enough seats to form a coalition with the free-market and anti-corruption party Ciudadanos, but this new reform movement stalled in the closing weeks of the campaign.

“There is enormous austerity fatigue and the country as a whole has clearly shifted to the Left,” said sovereign bond strategist Nicholas Spiro. Yet the Left has not won enough votes either to form a clear government. “The issue now is whether Spain is governable. All the parties are at daggers drawn and this could drag on for weeks. I don’t see any sustainable solution. We can certainly forget about reform,” he said. Mr Spiro said Spain has already seen a “dramatic deterioration” in the underlying public finances over the last eighteen months, although this has been disguised by a cyclical rebound, the stimulus of cheap oil and a weak euro, and QE from Frankfurt. “They have simply gone for growth,” he said.

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Posterchild no more.

Portugal Taxpayers Face €3 Billion Loss After 2nd Bank Bailout In 2 Years (ZH)

Back in August of 2014, Portugal had an idea. Lisbon would use some €5 billion from the country’s Resolution Fund to shore up (read: bailout) Portugal’s second largest bank by assets, Banco Espirito Santo. The idea, basically, was to sell off Novo Banco SA (the “good bank” that was spun out of BES) in relatively short order and use the proceeds to pay back the Resolution Fun. That way, the cost to taxpayers would be zero. You didn’t have to be a financial wizard or a fortune teller to predict what was likely to happen next. Unsurprisingly, the auction process didn’t go so well.

As we recounted in September, there were any number of reasons why Portugal had trouble selling Novo, not the least of which was that two potential bidders – Anbang Insurance Group and Fosun International which, you’re reminded, is run by the recently “disappeared” Chinese Warren Buffett – suddenly became far more risk-averse in the wake of the financial market turmoil in China. Talks with US PE (Apollo specifically) also went south, presumably because no one knows if this “good” bank will actually turn out to need more capital going forward given that NPLs sit at something like 20% while the H1 loss totaled €250 million thanks to higher provisioning for said NPLs. Now, the auction process has been mothballed and will restart in January. This matters because if the bank can’t be sold, the cost of the bailout ends up being tacked onto Lisbon’s budget.

The impact is substantial. In September, when the effort to sell Novo collapsed, the government restated its 2014 deficit which, after accounting for the bailout, ballooned to 7.2% of GDP from 4.5%. Portugal will tell you that this is only “temporary,” but let’s face it, if they haven’t managed to sell it by now, then one has to believe the prospects are grim – at least in terms of fetching anything that looks like a decent price. Well don’t look now, but Portugal’s seventh-largest bank, Banco Internacional do Funchal, now needs a bailout too. Banif (as it’s known) will be split into a “good” and “bad” bank, and its “healthy” assets will be sold to Banco Santander for €150 million. The government will inject up to €2.2 billion the European Commission said on Monday, to cover “future contingencies.”

Hilariously, the bailout was necessary because the bank was unable to repay a previous government cash injection. “The government injected €1.1 billion of fresh capital into the lender in January 2013 to allow it to meet minimum capital thresholds imposed by the banking regulator,” WSJ writes. For its trouble, Lisbon got a 60% stake in the bank and several hundred million worth of CoCos which the bank missed a payment on last year. “That,” WSJ goes on to note, “triggered close scrutiny by the European Commission, which opened an investigation into the legality of the state aid.” “The commission had said that Banif’s restructuring plan might not be enough to allow the bank to repay the state,” Bloomberg adds. “The Bank of Portugal said in the statement on Sunday that a ‘probable’ decision from the commission declaring the state aid illegal would create a shortage of capital at the bank.”

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“We now enter the “discovery” phase of financial collapse, where things labeled “capital” and “credit” turn out to be mere holograms.”

Christmas Present (Jim Kunstler)

Theory du jour: the new Star Wars movie is sucking in whatever meager disposable lucre remains among the economically-flayed mid-to-lower orders of America. In fact, I propose a new index showing an inverse relationship between Star Wars box office receipts and soundness of the financial commonweal. In other words, Star Wars is all that remains of the US economy outside of the obscure workings of Wall Street — and that heretofore magical realm is not looking too rosy either in this season of the Great Rate Hike after puking up 623 points of the DJIA last Thursday and Friday. Here I confess: for thirty years I have hated those stupid space movies, as much for their badly-written scripts (all mumbo-jumbo exposition of nonsensical story-lines between explosions) as for the degenerate techno-narcissism they promote in a society literally dying from the diminishing returns and unintended consequences of technology.

It adds up to an ominous Yuletide. Turns out that the vehicle the Federal Reserve’s Open Market Committee was driving in its game of “chicken” with oncoming reality was a hearse. The occupants are ghosts, but don’t know it. A lot of commentators around the web think that the Fed “pulled the trigger” on interest rates to save its credibility. Uh, wrong. They had already lost their credibility. What remains is for these ghosts to helplessly watch over the awesome workout, which has obviously been underway for quite a while in the crash of commodity prices (and whole national economies — e.g. Brazil, Canada, Australia), the janky regions of the bond markets, the related death of the shale oil industry, and the imploding hedge fund scene. As it were, all credit these days looks shopworn and threadbare, as if the capital markets had by stealth turned into a swap meet of previously-owned optimism.

Who believes in anything these days besides the allure of fraud? Capital is supposedly plentiful these days — look how much has rushed into the dollar from the nervous former go-go nations with their wobbling ziggurats of bad loans and surfeit of production capacity — but what actually constitutes that capital? Answer: the dwindling faith anyone will pay you back next Tuesday for a hamburger today. We now enter the “discovery” phase of financial collapse, where things labeled “capital” and “credit” turn out to be mere holograms. Fed Chair Janet Yellen herself had a sort of hologramatic look last Wednesday when she stepped onto her Delphic platform to reveal the long-heralded interest rate news. Perhaps Mrs. Yellen is a figment conjured by George Lucas’s Industrial Light & Magic shop (now owned by Disney). What could be more fitting in a smoke-and-mirrors culture?

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Recognizable patterns.

Et Tu, Brute? – How Empires Die (Thomas)

The state-owned Bank of China has been ordered by an American court to hand over customer information to the US. The bank has refused to comply, as to do so would violate China’s privacy law. The US court has subsequently ordered the Bank of China to pay a fine of $50,000 per day. Any guess as to how this is likely to turn out? China is a sovereign nation, halfway around the globe from the US, yet the US seems to feel that it’s somehow entitled to set the rules for China (as well as the other nations in the world). When China sees fit to develop islands in the South China Sea that it has laid claim to for centuries, it begins to hear threatening noises from the US military. A candidate for US president declares that he would buzz the islands with Air Force One, the Presidential jet, saying, “They’ll know we mean business.”

All over the world, those who live outside the US are increasingly observing that the US has become so drunk with power that they’re threatening both friend and foe with fines, trade restrictions, monetary sanctions, warfare, and invasions. And in so-observing, those of us who have studied the history of empires note that history is once again repeating itself. Time and time again, great empires build themselves up through industriousness and sound economic management only to subsequently decline into debt, complacency, and an entitlement mind-set. Over the millennia, empires as disparate as Persia, Rome, Spain, and Great Britain rose to dominate the world. Of course, we know how those empires turned out and, by extension, we might hazard an educated guess as to how the present American Empire will end.

In the final throes of empire-decline, we invariably observe the more sociopathic trends of a failing power, such as we’re seeing today from the US. First and foremost, any empire declines as a result of economic mismanagement. Decline from within (pandering to the populace with “bread and circuses”) and without (endless conquest and/or maintenance of dominance over far-flung geography) drain even the wealthiest government. Even eighteenth-century Spain, with all its billions in stolen New World gold, could not pay its ever-increasing bills and warfare-driven debt. Typically, the empire of the day enjoys the world’s greatest fighting force/armada/weapons build-up yet, when the money runs out, the war machine simply stops. Soldiers think more about their empty bellies than how much ammunition they have left.

Generals continue to issue orders, but they cease to be followed after the supply lines begin to dry up. And the leaders of a collapsing empire invariably make a fatal mistake: they assume that all the goodwill the empire gained when it was on its rise is permanent – that it will continue, even if the empire behaves like the world’s foremost bully. This is never the outcome. Invariably, as the decline nears its end, allies, without ever saying so, begin to withdraw their support. We see this today, as European leaders (America’s most essential allies) realise that the empire is becoming an arrogant liability and they begin cutting deals with the other side, as European leaders are now doing with Russia and others.

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“The only way to avoid future crashes is for the Fed to stop creating inflation and bubbles.”

Do We Need The Fed? (Ron Paul)

Stocks rose Wednesday following the Fed’s announcement of the first interest rate increase since 2006. However, stocks fell just two days later. One reason the positive reaction to the Fed’s announcement did not last long is that the Fed seems to lack confidence in the economy and is unsure what policies it should adopt in the future. At her Wednesday press conference, Fed Chair Janet Yellen acknowledged continuing “cyclical weakness” in the job market. She also suggested that future rate increases are likely to be as small, or even smaller, then Wednesday’s. However, she also expressed concerns over increasing inflation, which suggests the Fed may be open to bigger rate increases. Many investors and those who rely on interest from savings for a substantial part of their income cheered the increase.

However, others expressed concern that even this small rate increase will weaken the already fragile job market. These critics echo the claims of many economists and economic historians who blame past economic crises, including the Great Depression, on ill-timed money tightening by the Fed. While the Federal Reserve is responsible for our boom-bust economy, recessions and depressions are not caused by tight monetary policy. Instead, the real cause of economic crisis is the loose money policies that precede the Fed’s tightening. When the Fed floods the market with artificially created money, it lowers the interest rates, which are the price of money. As the price of money, interest rates send signals to businesses and investors regarding the wisdom of making certain types of investments.

When the rates are artificially lowered by the Fed instead of naturally lowered by the market, businesses and investors receive distorted signals. The result is over-investment in certain sectors of the economy, such as housing. This creates the temporary illusion of prosperity. However, since the boom is rooted in the Fed’s manipulation of the interest rates, eventually the bubble will burst and the economy will slide into recession. While the Federal Reserve may tighten the money supply before an economic downturn, the tightening is simply a futile attempt to control the inflation resulting from the Fed’s earlier increases in the money supply. After the bubble inevitably bursts, the Federal Reserve will inevitability try to revive the economy via new money creation, which starts the whole boom-bust cycle all over again. The only way to avoid future crashes is for the Fed to stop creating inflation and bubbles.

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The more they can infringe on privacy, the more they will.

Apple Says UK Surveillance Law Would Endanger All Customers (BBG)

Apple outlined its opposition to a proposed U.K. surveillance law, saying threats to national security don’t justify weakening privacy and putting the data of hundreds of millions of users at risk. The world’s most valuable company is leading a Silicon Valley challenge to the proposed U.K. law, called the Investigatory Powers bill, which attempts to strengthen the capabilities of law-enforcement agencies to investigate potential crimes or terrorist attacks. The bill would, among other things, give the government the ability to see the Internet browsing history of U.K. citizens. Apple said the U.K. government already has access to an unprecedented amount of data.

The Cupertino, California-based company is particularly concerned the bill would weaken digital privacy tools such as encryption, creating vulnerabilities that will be exploited by sophisticated hackers and government spy agencies. In response to the U.K. rules, other governments would probably adopt their own new laws, “paralyzing multinational corporations under the weight of what could be dozens or hundreds of contradictory country-specific laws,” Apple said. “The creation of backdoors and intercept capabilities would weaken the protections built into Apple products and endanger all our customers,” Apple said in an eight-page submission to the U.K. committee considering the bill. “A key left under the doormat would not just be there for the good guys. The bad guys would find it too.”

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And that will not happen.

Half of World’s Coal Must Go Unmined to Meet Paris Climate Target (BBG)

Coal, the fuel that powered the industrial revolution, is in hiding. While the world still has 890 billion tons of reserves, enough to last more than 65 years, about half must stay underground if nations are to meet environmental limits agreed to earlier this month in Paris, Bank of America Corp. said in a report. Burning less coal is the easiest way to lower emissions blamed for climate change, the bank said. The pact reached by 195 nations doesn’t target specific fuels, yet coal remains the world’s largest source of planet-warming carbon dioxide. A global oversupply of the power plant fuel has pushed producers into bankruptcy and sent prices to at least seven-year lows. The Paris agreement only further diminishes prospects for a recovery.

“The latest carbon initiatives are the nail in the coffin for global coal,” Sabine Schels, Peter Helles and Franciso Blanch, analysts at Bank of America said in the Dec. 18 report. If emissions limits take hold, “50% of the world’s current coal reserves may never be dug out.” Coal demand stopped growing in 2014 for the first time since the 1990s as China’s economy cooled, the Paris-based International Energy Agency said Dec. 18. Coal for delivery to Amsterdam, Rotterdam, and Antwerp, an Atlantic benchmark, is trading near an eight-year low. Newcastle coal, a barometer for the Asia-Pacific market, is at the cheapest in records going back to 2008, data compiled by Bloomberg show.

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Last month, the warning came from China. Now it’s England and Wales.

It’s ‘Almost Too Late’ To Stop A Global Superbug Crisis (PA)

It is “almost too late” to stop a global superbug crisis caused by the misuse of antibiotics, a leading expert has warned. Scientists have a “50-50” chance of salvaging existing antibiotics from bacteria which has become resistant to its effects, according to Dr David Brown. The director at Antibiotic Research UK, whose discoveries helped make more than £20bn ($30bn) in pharmaceutical sales, said efforts to find new antibiotics are “totally failing” despite significant investment and research. It comes after a gene was discovered which makes infectious bacteria resistant to the last line of antibiotic defence, colistin (polymyxins). The resistance to the colistin antibiotic is considered to be a “major step” towards completely untreatable infections and has been found in pigs and humans in England and Wales.

Public Health England said the risk posed to humans by the mcr-1 gene was “low” but was being monitored closely. Performing surgery, treating infections and even travelling abroad safely all rely to some extent on access to effective antibiotics. It is feared the crisis could further penetrate Europe as displaced migrants enter from a war-torn Middle East, where countries such as Syria have increasing levels of antibiotic resistance. Dr Brown told said: “It is almost too late. We needed to start research 10 years ago and we still have no global monitoring system in place. “The issue is people have tried to find new antibiotics but it is totally failing – there has been no new chemical class of drug to treat gram-negative infections for more than 40 years.

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Dec 192015
 
 December 19, 2015  Posted by at 9:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 19 2015


John Vachon Auto of migrant fruit worker at gas station, Sturgeon Bay, Wisconsin Jul 1940

Rate Rally Fizzles as Dow Loses 621 Points in 2 Days (WSJ)
Explaining Today’s “Massive Stop Loss” Quad-Witching Market Waterfall (ZH)
Hedge Funds Cut Fees To Stem Client Exodus (FT)
History of Junk Bond Meltdowns Points to Trouble (BBG)
IEA Sees ‘Peak Coal’ As Demand For Fossil Fuel Crumbles In China (AEP)
Congress Slips Controversial CISA Law In With Sure-To-Pass Budget Bill (Wired)
US-Mexico Border: Arizona’s Open Door (FT)
Bundesbank’s Weidmann: Greek Debt Relief Is Not Urgent (Kath.)
Iceland Bank Collapse Nears End as Creditors Reach Last Accord (BBG)
Ukraine Debt Default and EU Sanctions Extension Anger Russia (IT)
Merkel Defends Russian Gas Pipeline Plan (WSJ)
The Unraveling Of The European Union Has Begun (MarketWatch)
‘Cameron’s Battle Against EU Is Like Grappling With A Jellyfish’ (RT)
‘Cancer of Europe’ – Russian Duma Speaker Calls For NATO Dissolution (RT)
135 Jobs In 2.5 Years: The Plight Of Spain’s New Working Poor (Guardian)
One Of Every 122 Humans Today Has Been Forced To Flee Their Home (WaPo)

The Dow doesn’t often lose over 2% in a day. “..on pace for its first negative year since 2008.”

Rate Rally Fizzles as Dow Loses 621 Points in 2 Days (WSJ)

In the two days after the Federal Reserve gave investors exactly what they expected, the Dow Jones Industrial Average posted its steepest loss since a late-August plunge. The back-to-back selloff erased 621 points from the blue chips—sending the Dow to its lowest level in two months and wiping out a three-session winning streak logged around the Fed’s liftoff for interest rates. The fizzled rally underscores the difficult backdrop across markets as investors prepare to close out what is shaping up to be worst year for U.S. stocks since the financial crisis. Investors are going into the holidays with grim news from the energy and mining sectors, uncertainty about the stability of markets for low-rated debt and worries about slowing economies overseas.

Meanwhile, public companies have struggled to post higher profits, and investors remain wary of buying stocks that look expensive compared with historical averages. “When you buy a share of stock you’re paying for a piece of future cash flows,” said David Lebovitz, global market strategist, at J.P. Morgan Asset Management, which has about $1.7 trillion under management. “If those cash flows aren’t materializing, it doesn’t make sense.” Investors had taken heart from stronger jobs data and the Fed’s signal that the U.S. economy is strong enough to begin returning rates to a more normal level. But optimism took a back seat at the end of the week. The Dow fell 367.29, or 2.1%, to 17128.55 on Friday, leaving it with a loss of 0.8% for the week. The index is down 3.9% so far in 2015, on pace for its first negative year since 2008.

The S&P 500 fell 1.8% to 2005.55. It ended the week down 2.6% for 2015, on track for first yearly decline since 2011 and its biggest fall since 2008. Both indexes had rallied broadly over the past six years, in part fueled by record-low interest rates. Weaker stocks and crude oil prices Friday added to demand for safe havens, sending investors into Treasurys. The yield on the benchmark 10-year Treasury note fell to 2.197% late Friday from 2.236% Thursday, as investors bid up the price. Yields on the note now aren’t much above where they started the year. “Shorting Treasury bonds which are a safe haven beneficiary when the economic and geopolitical risks are rising is foolhardy,’’ said Jonathan Lewis at Samson Capital Advisors.

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They kept the S&P500 neatly just above 2000, for a reason.

Explaining Today’s “Massive Stop Loss” Quad-Witching Market Waterfall (ZH)

One week ago, and again last night, we previewed today’s main event: an immensely important quad-witching expiration, the year’s last, one which as JPM’s head quant calculated will be the “largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050.” What is most important, is that the “pin risk”, or price toward which underlying prices may gravitate if HFTs are unleashed to trigger option stop hunts, is well below current S&P levels: as JPM notes, “clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.”

What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers and various momentum strategist (which work in up markets as well as down), and since the vol surface of today’s market is well-known to everyone in advance, there is a very high probability the implied “stop loss” level will be triggered. Not helping matters will be the dramatic lack of market depth (thank you HFTs and regulators) and overall lack of liquidity, which means even small orders can snowball into dramatic market moves. “While equity volumes look robust, market depth has declined by more than 60% over the last 2 years. With market depth so low, the market does not have capacity to absorb large shocks. This was best illustrated during the August 24th crash.”

[..] the problem is that since over the past 7 years, the entire market has become one giant stop hunt, the very algos which “provide liquidity” will do everything they can to inflict the biggest pain possible to option holders – recall that for every put (or call) buyer, there is also a seller. As such, illiquid markets plus algo liquidity providers makes for an explosive cocktail at a time when the Fed is already worried whether the Fed may have engaged in “policy error.” So what does this mean in simple English? As Reuters again points out, levels to watch are the large imbalances in favor of puts in Dec SPX put contracts at 2050, 2000, 1950, 1900 strikes It further writes that “as SPX moves below these levels market makers who are short these puts would be forced to sell spot futures to hedge, which could exacerbate a market selloff.” In other words, selling which begets even more selling, which begets even more selling.

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They might as well close then.

Hedge Funds Cut Fees To Stem Client Exodus (FT)

Many hedge funds are cutting fees and negotiating with investors to trim some of their hefty costs and avert withdrawals after another mediocre year for returns. The industry has been shifting for several years away from its traditional model of charging 2% of assets and keeping 20% of profit. Some funds are already wooing customers with fees closer to 1% and 15%, people in the industry say. Now pressures are mounting on a wider range of fund managers, as a crowded sector copes with a middling year. The HFRI Fund Weighted Composite index is up 0.3% on the year and returned just under 3% in 2014, according to Hedge Fund Research. Management fees declined this year in every strategy except event driven, falling to a mean of 1.61% from 1.69%, according to JPMorgan’s Capital Introduction Group.

For performance fees, some strategies were impacted more than others, with the biggest declines in global macro, multi-strategy, commodity trading advisers and relative value. When Sir Chris Hohn founded The Children’s Investment Fund about a decade ago, he was an outlier. His $10bn fund charges management fees as low as 1%, depending on how long investors lock up their money. He recently referred to himself as “the antithesis of the classic hedge fund,” because he waived performance fees until the fund crossed a set return hurdle for the year. But others are following his lead in an effort to attract and retain clients amid tough competition.

There are now more than 10,000 hedge funds compared with 610 in 1990, HFR data show, and there are increasing benefits for the larger operators, including lower prime broker costs and better access to company management for research. The client base has also moved away from wealthy individuals, who were happy to take on significant risk in exchange for high returns. Now funds depend on institutional investors such as insurers and pension schemes, who cannot afford to miss minimum return targets and are themselves under pressure from boards that oversee investments. “Most [fund] managers prefer to haggle like rug-salesmen at a bazaar; institutional investors would rather shop at Ikea,” says Simon Ruddick, founder of consultant Albourne.

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Nothing new, but nothing learned either.

History of Junk Bond Meltdowns Points to Trouble (BBG)

The rout in junk bonds is intensifying and there’s blood in the water. After claiming some high-profile casualties – notably Third Avenue Management – the turmoil is raising fears of a larger meltdown in the markets, perhaps even a recession. In other words, is high-yield debt the canary in the credit mine? Academic work on the subject suggests that the difference in the rates for high-risk debt and rock-solid government securities – the so-called risk premium, or high-yield spread – often is a significant harbinger. A paper published in the Oxford Review of Economic Policy in 1999 concluded that the high-yield spread “outperforms other leading financial indicators,” such as the term spread and the federal funds rate. An International Monetary Fund staff paper published in 2003 offered a similar assessment, but added that “abnormally high levels of the high-yield spread have significant short-term predictive power.”

The trouble with these findings is that the pool of data is focused on very recent financial history, which makes it harder to draw broad conclusions. This limitation reflects the conventional wisdom that junk bonds are a recent invention cooked up by the likes of Michael Milken and company, and as a consequence, there are no comparable data sets before the late 1980s. But several economists at Rutgers – Peter Basile, John Landon-Lane and Hugh Rockoff – recently disputed that conclusion in an intriguing working paper that resurrected neglected data on high-yield securities from 1910 to 1955. These forerunners of today’s junk bonds initially merited Aaa or Baa ratings, but lost their appeal once they were downgraded to Ba or worse. Such speculative-grade bonds constituted, on average, approximately a quarter of the total book value of outstanding bonds before the end of World War II.

The authors of the study argue that although other kinds of spreads also have predictive power, “junk bonds may be a more sensitive indicator, perhaps a more sensitive leading indicator, of economic conditions than higher-grade bonds.” While their research opens all sorts of avenues for academic exploration – Was there a decline in lending standards in the late 1920s? Was there a liquidity trap in the late 1930s? – the most intriguing question it raises is about the predictive power of the spread between high-yield and high-quality debt. In theory, this power to predict turning points in the business cycle could manifest in two ways. The first would be a narrowing of the spread, which would mean that investors recognized the worst was over, a trough was imminent and a rebound was in offing. The second would be a spike in the spread, which means that investors anticipated that the economy had peaked and that a contraction was in the offing.

The authors found that a narrowing of the high-yield spread predicted a mere three of 10 troughs. But spikes were another matter: Exceptional bumps in the high-yield spread accurately predicted eight of 10 peaks (and the subsequent declines, most notably the downturn that began in August 1929 and turned into the Great Depression, as well as the recession that began in 1937 after the Fed prematurely hiked rates). It may be too early to read too much into these findings. But when combined with the research on the predictive capacity of the high-yield spread from the 1980s onward, this recent work suggests that the spread is a leading indicator worth watching.

And given the recent spike, something far worse than a junk bond meltdown may be brewing. How bad? In the three months before August 1929, the high-yield spread spiked by 47 basis points, and in the three months before May 1937, it shot up 85 basis points. In the past six weeks of 2015, it has spiked by about 120 basis points. That doesn’t mean we’re headed for disaster: There’s still an apples-and-oranges quality to comparisons of the two eras, despite the best efforts to create a commensurate set of data. But if the spread continues to widen, another downturn – or worse – could be ahead.

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Ambrose is blind: “Crucially, the switch is happening because the country is moving up the technology ladder and switching to a new growth model. ” No, coal use is tumbling because the Chinese economy is.

IEA Sees ‘Peak Coal’ As Demand For Fossil Fuel Crumbles In China (AEP)

China’s coal consumption has been falling for two years and may never recover as the moment of “peak coal” draws closer, the International Energy Agency (IEA) has said. The energy watchdog has slashed its 2020 forecast for global coal demand by 500m tonnes, warning that the industry risks unstoppable decline as renewable technologies and tougher climate laws shatter previous assumptions. In poignant symbolism, the peak coal report came as miners worked their final shift at Britain’s last surviving deep coal mine at Kellingley in North Yorkshire, closing the chapter on the British industrial revolution. Mines around the world are at increasing risk as prices slump to 12-year lows of $38 a tonne, and the super-cycle gives way to a pervasive glut. The IEA said the $40bn Galilee Basin project in Australia may never become operational.

There is simply not enough demand, even for cheap, open-cast coal. “The golden age of coal seems to be over,” said the IEA’s medium-term market report. “Given the dramatic fall in the cost of solar and wind generation and the stronger climate policies that are anticipated, the question is whether coal prices will ever recover.” “The coal industry is facing huge pressures, and the main reason is China,” said Fatih Birol, the agency’s director. The IEA reported that China’s coal demand fell by 2.9pc in 2014 and the slide has accelerated this year as the steel and cement bubble bursts. The country produced more cement between 2011 and 2013 than the US in the entire 20th century, according to one study. This will never happen again. Crucially, the switch is happening because the country is moving up the technology ladder and switching to a new growth model.

The link between electricity use and economic growth has completely broken down. The “energy intensity” of GDP fell by 4pc in 2014. Mr Birol said China’s coal consumption is likely to flatten out until 2020 before declining, but the definitive tipping point could happen much faster if president Xi Jinping carries out his economic reform drive with real vigour. Coal demand will drop by 9.8pc under the agency’s “peak coal scenario”. The shift is dramatic. China’s coal demand has tripled since 2000 to 3.920m tonnes – half of global consumption – and the big mining companies had assumed that it would continue. The market is now badly out of kilter. Rising demand from India under its electrification drive will not be enough to soak up excess supply or replace the lost demand from China.

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“They’ve got this bill that’s kicked around for years and had been too controversial to pass, so they’ve seen an opportunity to push it through without debate. And they’re taking that opportunity.”

Congress Slips Controversial CISA Law In With Sure-To-Pass Budget Bill (Wired)

Update 12/18/2015 12pm: The House and Senate have now passed the omnibus bill, including the new version of CISA.

Privacy advocates were aghast in October when the Senate passed the Cybersecurity Information Sharing Act by a vote of 74 to 21, leaving intact portions of the law they say make it more amenable to surveillance than actual security. Now, as CISA gets closer to the President’s desk, those privacy critics argue that Congress has quietly stripped out even more of its remaining privacy protections. In a late-night session of Congress, House Speaker Paul Ryan announced a new version of the “omnibus” bill, a massive piece of legislation that deals with much of the federal government’s funding. It now includes a version of CISA as well. Lumping CISA in with the omnibus bill further reduces any chance for debate over its surveillance-friendly provisions, or a White House veto.

And the latest version actually chips away even further at the remaining personal information protections that privacy advocates had fought for in the version of the bill that passed the Senate. “They took a bad bill, and they made it worse,” says Robyn Greene, policy counsel for the Open Technology Institute. CISA had alarmed the privacy community by giving companies the ability to share cybersecurity information with federal agencies, including the NSA, “notwithstanding any other provision of law.” That means CISA’s information-sharing channel, ostensibly created for responding quickly to hacks and breaches, could also provide a loophole in privacy laws that enabled intelligence and law enforcement surveillance without a warrant. The latest version of the bill appended to the omnibus legislation seems to exacerbate that problem.

It creates the ability for the president to set up “portals” for agencies like the FBI and the Office of the Director of National Intelligence, so that companies hand information directly to law enforcement and intelligence agencies instead of to the Department of Homeland Security. And it also changes when information shared for cybersecurity reasons can be used for law enforcement investigations. The earlier bill had only allowed that backchannel use of the data for law enforcement in cases of “imminent threats,” while the new bill requires just a “specific threat,” potentially allowing the search of the data for any specific terms regardless of timeliness. [..] Even in its earlier version, CISA had drawn the opposition of tech firms including Apple, Twitter, and Reddit, as well as the Business Software Alliance and the Computer and Communications Industry Association.

In April, a coalition of 55 civil liberties groups and security experts signed onto an open letter opposing it. In July, the Department of Homeland Security itself warned that the bill could overwhelm the agency with data of “dubious value” at the same time as it “sweep[s] away privacy protections.” That Senate CISA bill was already likely on its way to become law. The White House expressed its support for the bill in August, despite its threat to veto similar legislation in the past. But the inclusion of CISA in the omnibus package may make it even more likely to be signed into law in its current form. Any “nay” vote in the house—or President Obama’s veto—would also threaten the entire budget of the federal government. “They’re kind of pulling a Patriot Act,” says OTI’s Greene. “They’ve got this bill that’s kicked around for years and had been too controversial to pass, so they’ve seen an opportunity to push it through without debate. And they’re taking that opportunity.”

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Reality vs hubris.

US-Mexico Border: Arizona’s Open Door (FT)

Many people in the US today look towards the country’s border with Mexico and tremble. So great are the fears about illegal immigration and the possible infiltration of terrorists that Donald Trump has vaulted to the top of the Republican presidential field by vowing to build a wall between the two countries and make the Mexicans pay for it. So it may come as a surprise to learn about the economic ideas now emerging from Arizona, a solid red state — having voted Republican in 15 of the past 16 presidential elections – that sits cheek by jowl with the Mexican state of Sonora. Arizonan movers and shakers have started to think that bringing in more Mexicans is a good way to stimulate growth.

To make people from south of the border feel more welcome, county planning organisations, municipal officials and business leaders are lining up behind a proposal to transform their entire state into a “free-travel zone” for millions of better-off Mexicans with the money and wherewithal to qualify for a travel document that is widely used in the south-west, but little known elsewhere – a border-crossing card, or BCC. “Fear gets you nowhere. Chances get you somewhere,” says Dennis Smith, executive director of the Maricopa Association of Governments, planning body for the county that includes Phoenix, Arizona’s capital and biggest city. “What do we have to lose? Nothing.” BCC holders are currently allowed to go 75 miles into Arizona, which takes them as far as Tucson, the state’s second-largest city.

But Arizona officials are seeking a change in federal rules that would allow these people to roam across the state, hoping that if the visitors travel further, they will stay longer and spend more money at malls, restaurants and tourist attractions. The desired Mexicans are a far cry from the “murderers” and “rapists” of Mr Trump’s stump speeches. They can afford the $160 fee and offer the proof of employment and family ties back home that are required for a BCC, which is good for 10 years and enables Mexicans to remain in the US for up to 30 days at a time. To stay longer or travel further, they need more documentation. However, Arizona’s charm offensive illustrates the complexity of border politics as the 2016 presidential election approaches. In the US imagination, Mexico looms as both a menace and a market. People want to keep some kinds of Mexicans out — and encourage others to come in.

The impulses are often contradictory. For now, the emphasis in Arizona is shifting toward accommodation. Local planners speak excitedly of integrating the economies of Arizona and Sonora into an “Ari-Son” mega-region, in which cross-border trade will increase and more Mexicans will attend pop concerts or sports events in Phoenix, take family car trips to the Grand Canyon and ski in the state’s northern mountains. “This is vitally important to the state’s economic health,” says Glenn Hamer, chief executive of the Arizona Chamber of Commerce and a former executive director of Arizona’s Republican party. “On the business side, it is a great asset for the state to be close to a market that is growing and becoming more prosperous every single day.”

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Yes, it is.

Bundesbank’s Weidmann: Greek Debt Relief Is Not Urgent (Kath.)

Greece faces relatively low debt servicing needs in the coming years and further debt relief is not a matter of urgency, Greek financial daily Naftemporiki quoted ECB Governing Council member Jens Weidmann as saying on Thursday. “In 2014 interest payments as a percentage of GDP were lower in Greece than in Spain, Portugal and Italy,” Weidmann, head of Germany’s central bank, told the paper. “Taking into account the low refinancing needs for the next years, further debt relief does not seem to be an issue of particularly urgent interest.” Athens has been struggling to legislate reforms agreed with its eurozone partners in exchange for an €86 billion bailout, the third financial aid package to keep it afloat since its debt crisis exploded in 2010.

The government, however, wants some form of debt relief to allow for future growth. Weidmann said the most important task at hand was the full implementation of the agreed economic adjustment program of reforms. “This will not simply increase the ability to grow but also dissolve prevailing uncertainty which acts as a brake for investments,” he told the paper. Weidmann added it was up to the Greek government to decide when to lift capital controls it imposed in late June to stem a flight of deposits.

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And this is what can happen when you don’t have the EU to bully you.

Iceland Bank Collapse Nears End as Creditors Reach Last Accord (BBG)

A seven-year standoff between Iceland and the international creditors of its failed banks is nearing an end after a court approved the last remaining settlement. The agreement signed by the caretakers of LBI hf paves the way for creditor payments from the bank’s 455.6 billion kronur ($3.5 billion) estate. It follows similar deals involving Glitnir Bank hf and Kaupthing Bank hf. The three banks hold combined assets of $17.6 billion, according to their latest financial statements. The banks failed within weeks of each other in 2008 under the weight of $85 billion in debt. Iceland then resorted to capital controls to prevent a total collapse of its $15 billion economy. International creditors, among them the Davidson Kempner Capital Management, Quantum Partners and Taconic Capital Advisors hedge funds, have been unable to access the lenders’ assets.

Glitnir’s administrators said they planned to make the first payments to creditors on Friday. Theodor S. Sigurbergsson, a member of Kaupthing’s winding up committee, said in an interview this week that he expects “to start payments to creditors early next year.”
In June, the government offered creditors in Glitnir, Kaupthing and LBI the option of either paying a 39% exit tax on all their assets or making what it calls a stability contribution of as much as 500 billion kronur by the end of the year. To be eligible for the offer, creditors needed to complete settlements by Dec. 31. Parliament later extended that deadline to March 15. The island’s handling of the financial crisis has won praise from Nobel laureates and the IMF. The krona has strengthened about 8% this year and Iceland’s economy is now growing at a faster pace than the euro-zone average. With Glitnir having been granted an exemption from capital controls on Thursday, Iceland is expected to make a full return to the international financial community during the course of 2016.

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It’s a miracle Russia stays so quiet.

Ukraine Debt Default and EU Sanctions Extension Anger Russia (IT)

Ukraine and Russia are on a collision course over major trade and finance disputes, as the European Union prepares to extend sanctions against Moscow for annexing Crimea and fomenting a bloody conflict in eastern Ukraine. Kiev has refused to meet Sunday’s due date on a $3 billion loan that Moscow gave to authorities led by former Ukrainian president Viktor Yanukovich in December 2013, when they were rocked by huge street protests. Moscow has vowed to take Kiev to court over the disputed bond, which comes due just as Russia gets ready to scrap its free-trade zone with Ukraine in response to the planned January 1st launch of a landmark EU-Ukraine trade pact. “The government of Ukraine is imposing a moratorium on payment of the so-called Russian bond,” Ukrainian prime minister Arseniy Yatsenyuk said on Friday.

“I remind you that Ukraine has agreed to restructure its debt obligations with responsible creditors, who accepted the terms of the Ukrainian side. Russia has refused, despite our many efforts to sign a restructuring deal, to accept our offers.” Russian officials have threatened to launch legal action by the end of the year to reclaim the cash from Ukraine. “By announcing a moratorium on returning this sovereign debt, the Ukrainian side has, you could say, in fact admitted default,” said Kremlin press secretary Dmitry Peskov. Russia long argued that the unpaid debt should block future IMF funding for cash-strapped Ukraine, and Moscow was furious with the lender this week for changing its rules to allow aid to keep flowing to countries that are in arrears. The IMF agreed with Moscow, however, that the bond should be treated as sovereign debt, and told Kiev that it must negotiate with Russia “in good faith” to ensure continued access to a $17.5 billion aid package.

Ukraine relies on the IMF, United States and EU to prop up its ailing economy, and depends on the West to maintain diplomatic pressure on Russia. Diplomats say EU states have agreed to extend sanctions on Russia for another six months from Monday, due to its continuing failure to fulfil a deal aimed at ending an 18-month conflict in eastern Ukraine that has killed more than 9,000 people. “It was an expected decision, we heard nothing new, and it will have no effect on the economy of the Russian Federation, ” said Alexei Ulyukaev, Russia’s minister for economic development. Russia’s economy has been damaged by sanctions and above all by the plunge in the price of oil. The Kremlin has ordered the suspension of a free-trade agreement between Russia and Ukraine from January 1st, when a far-reaching trade deal is due to start between Ukraine and the EU.

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Gas is more important than Ukraine.

Merkel Defends Russian Gas Pipeline Plan (WSJ)

German Chancellor Angela Merkel found herself under pressure on Friday from other Europe Union leaders over her government’s support for a natural-gas pipeline from Russia that others fear could further undermine the economic and political stability of Ukraine. The planned expansion of PAO Gazprom’s Nord Stream pipeline, which ships Russian gas via the Baltic Sea to northern Germany, would add an extra 55 billion cubic meters of gas in capacity—about as much as the company currently transports through Ukraine. Officials in Brussels and Washington as well as Kiev have accused Moscow of using the project, dubbed Nord Stream 2, to deprive Ukraine of much of its remaining political leverage as well as much-needed revenues from transit fees. Ukrainian President Petro Poroshenko on Wednesday called Nord Stream 2 his country’s “greatest concern as of today.”

But Ms. Merkel defended the planned pipeline. “I made clear, along with others, that this is a commercial project; there are private investors,” Ms. Merkel said following talks with the other 27 EU leaders. During the discussion on Nord Stream, the chancellor’s position was attacked by Italian Prime Minister Matteo Renzi and Bulgaria’s Boyko Borisov, while she received some backing from Dutch Premier Mark Rutte. Gazprom holds a 50% stake in the Nord Stream 2 consortium. The other 50% are held in equal parts by Shell, Germany’s E.On and BASF, Austria’s OMV and France’s Engie. Despite the involvement of these private investors, several European Union and U.S. officials have questioned the commercial reasoning behind Nord Stream 2, arguing that existing transit routes from Russia, including the first Nord Stream pipeline and the Ukrainian lines aren’t used at full capacity.

In a recent interview, the U.S. special envoy for international energy affairs, Amos Hochstein, called Nord Stream 2 “an entirely politically motivated project” and warned European authorities against “rushing into” the project. Since relations with Moscow cooled over the conflict in eastern Ukraine, the EU has been working to reduce its dependence on Russian gas. Building Nord Stream 2, however, would concentrate 80% of the bloc’s gas imports from Russia onto a single route, according to the EU’s climate and energy commissioner, Miguel Arias Cañete. “In my perspective, Nord Stream does not help diversification nor would it reduce energy dependence,” said European Council President Donald Tusk, who presided over Friday’s discussions among the 28 EU leaders. He said, however, the EU must avoid politicizing this issue and check whether the pipeline would comply with EU rules, which block companies from controlling both a pipeline and its supply.

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“..the mantra of 28 states having the same ultimate objective … is officially dead.”

The Unraveling Of The European Union Has Begun (MarketWatch)

Whatever spin comes out of the Brussels summit this week, the European Union finds itself in the midst of an existential crisis after the bloc’s most challenging year since the launch of economic and monetary union in 1999. National leaders will continue to do what they do best — muddle through in a fog of obfuscation as they fail again to address the fundamental problems that have led to a string of financial, political and foreign policy crises from the Ukraine incursion through the Greek bailout to a flood of refugees. Even as British Prime Minister David Cameron tries to renegotiate his country’s terms of membership to avoid an exit from the EU, recent elections in Poland, France and Portugal reflect a shift in public opinion to question whether European integration on the current model is such a good idea after all.

Spain faces an election Sunday in which the conservative Popular Party, which has toed the Brussels line on austerity, is sure to lose its majority as voters are poised to create a new political landscape with four major parties and big questions about the future of the country. And Cameron himself is wrestling with a growing momentum in Britain favoring an exit from a Brussels regime that seems increasingly onerous or irrelevant. It is, of course, Cameron’s Conservative Party that historically has championed EU membership, and the EU itself is generally touted as a boon for business and the economy. So it is perhaps telling that recent commentary from a London-based think tank that generally mirrors the relatively conservative views of its central-banking and asset-management constituency is taking an increasingly critical view of Europe.

“There is a sense that the Union is drifting towards some form of calamity — the end of free movement of people, or the exit of Greece from the euro, or the departure of Britain from the Union itself,” John Nugée, a former Bank of England official who is a director of the Official Monetary and Financial Institutions Forum in London, wrote this week after meeting with officials in Asia, who have a pessimistic view of Europe’s situation. “The view from Asia is that the Union is struggling because it falls between two extremes of strength and weakness: It has neither a strong democratic regime nor a strong autocratic one,” Nugée writes in an OMFIF commentary. The EU is instead a “weak democracy” in this view. “The authorities have sufficient strength to try to rule without popular consent,” Nugée observes.

“But they are too weak to ignore the negative populist response such action inevitably incites and which, in turn, exacerbates their initial weakness.” The bottom line, according to this analyst, is that Europe’s leaders are simply overwhelmed. “The complexity of each individual issue seems to make the combined difficulties beyond the capacity of the political system to solve,” Nugée writes. In another OMFIF commentary this week, Antonio Armellini, a former Italian diplomat who represented his country in a number of foreign capitals and international organizations, argued that the British request for special terms “obliges everyone to recognize that the mantra of 28 states having the same ultimate objective … is officially dead.”

Read more …

“They [EU] have already made these decisions. They are not known for being democratic – [Jean-Claude] Juncker and [Donald] Tusk. There is no democracy in the EU. They pay lip service to democracy, they have decided, what is going to happen. ”

‘Cameron’s Battle Against EU Is Like Grappling With A Jellyfish’ (RT)

It’s unlikely that ‘lame duck PM’ David Cameron, would get any concessions over the UK’s EU membership, but he is still banging his head against that brick wall, says investigative journalist Tony Gosling. EU leaders have gathered in Brussels for a summit to partly determine Britain’s future within the union. Prime Minister David Cameron on Thursday pushed for changes to the terms of the country’s EU membership saying that “there is a pathway to a deal in February.” He also emphasized the importance of UK’s demand to constrain access to in-work benefits for EU migrants in Britain. RT: Would the EU be better to lose Britain altogether than sacrifice the main principles. Who’s going to win in this regard?

Tony Gosling: … You can almost pick a tramp from the streets of London – there are plenty more since Cameron came to power – and they probably would make a better job of this than David Cameron, because he first promised this referendum back in 2009, and still we’re waiting. Also we’ve got the situation back in May, when we had a general election that [François] Hollande and [Angela] Merkel made absolutely clear to Cameron – there would be no concessions, but he is still banging his head against that brick wall. No, I don’t think he is going to get these concessions. The battle is almost like he is grappling with a jellyfish, with the EU. They [EU] have already made these decisions. They are not known for being democratic – [Jean-Claude] Juncker and [Donald] Tusk. There is no democracy in the EU. They pay lip service to democracy, they have decided, what is going to happen.

Cameron’s real problem here is that he is looking for this four-year ban on benefits going to migrants coming into Britain. The problem being that four years is just not enough. Those benefits are keep going up to about 40 percent of everybody that comes into Britain’s pay packets. We’ve got a massive problem here with the working poor on benefits. He’s effectively saying that if migrants come to Britain, that they are going to be below the poverty line immediately… And of course, we can’t have that. Anybody in Britain that needs benefits is going to have to get them. We’ve already seen signs of this with things like tent cities springing up across the country…

RT: Are EU leaders growing tired of negotiating with the UK? TG: It almost seems we are the basket case of Europe, doesn’t it? And partly that is because we’ve stayed out of the euro and they wanted us in the euro. But we are in a similar position to many of the countries economically. We’ve got a massive property bubble. We’ve just heard here in Britain – it is so difficult to just to find somewhere to live. The house prices in Britain are now up to 300,000 pounds – that is $450,000 average to buy a house here in Britain. And that is what a classic bubble – massively over inflated house prices; no real market anymore.

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Just like Ron Paul does. And me.

‘Cancer of Europe’ – Russian Duma Speaker Calls For NATO Dissolution (RT)

State Duma Speaker Sergey Naryshkin has said that Russia is very concerned by continuing NATO expansion, adding that global security would benefit significantly from the dissolution of the military bloc. “My attitude to this organization is special – I see it as a cancerous tumor on the whole European continent. It would only be for the better if this organization is dissolved,” Naryshkin said during a meeting with Serbian lawmakers on Thursday. This dissolution could be conducted in several stages, the Duma speaker suggested. “First of all, the USA should be excluded from the bloc and after this it would be possible to painlessly disband the whole organization,” he said. “This would be a good step towards greater security and stability on the whole European continent.”

Naryshkin also told Serbian lawmakers that Russia was aware of the fact that large numbers of Montenegrin citizens, possibly even the majority of the country’s population, were resisting their nation’s potential entry into NATO. He noted that in late November the Russian State Duma called for the Montenegrin parliament to abandon plans to enter the military bloc, and expressed hope that Serbian politicians would offer some help in persuading Montenegro – which historically has been always close to Serbia – not to make this dangerous step. In early December NATO foreign ministers agreed to invite Montenegro to join the military alliance. In September, Montenegro’s parliament voted for a resolution to support the country’s accession to the military organization. The opposition called for a national referendum on the issue, but failed to push their initiative through the national legislature.

Moscow has promised that a response would follow if Montenegro joined NATO, but added that the details of any such steps are still under consideration. The head of the Russian Upper House Committee for Defense and Security, Viktor Ozerov, said that the step would force Russia to cut a number of joint projects with Montenegro, including military programs. In mid-December Russian Foreign Ministry spokesperson Maria Zakharova said the row over possible NATO membership had revealed deep divisions in Montenegrin society. “We think that the Montenegrin people should have their say in a referendum on this issue. This would be a manifestation of democracy that we call for,” Zakharova said.

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Election tomorrow.

135 Jobs In 2.5 Years: The Plight Of Spain’s New Working Poor (Guardian)

He has taken on stints as a stable hand, been a door-to-door salesman and set up stages for local concerts: rarely does David Pena turn down a job. “In the past two a half years, I’ve probably had about 135 contracts,” said Pena. Most of them last between one and three days. “It’s a bit tiresome not to ever have anything stable.” Tiresome is perhaps an understatement. The 33-year-old’s disjointed CV stands out as an extreme example of a growing section of Spanish society made up of those ousted from the workforce during the economic crisis and now struggling to land anything but precarious short-term contracts. On Sunday Spaniards will cast their ballots in one of the tightest races in the country’s recent history.

The result promises to offer a glimpse of the national mindset as Spain emerges from a prolonged economic downturn that sent unemployment soaring, triggered painful austerity measures and saw thousands of families evicted. The wide brush of corruption has sent Spaniards’ trust in politicians and institutions plunging in recent years, and given rise to a crop of national newcomers promising a better future. For many, however, the key issue in this campaign is jobs. Unemployment in Spain stands at 21.6% – the highest in the EU after Greece. Mariano Rajoy, the country’s current prime minister, has based his re-election campaign on the economy and its fragile recovery, pointing to more than 1m jobs created in the past two years and one of the fastest growth rates in the eurozone.

Polls suggest that his conservative People’s party (PP) will remain the largest party after Sunday’s election, even it looks likely to lose its majority. Rajoy’s critics point to the dire situation still facing many Spaniards, who, like Pena, have been forced to string together a salary from a series of low-paying contracts that offer scant benefits. Temporary workers now make up more than a quarter of the workforce in Spain. Far from just seasonal work, temporary contracts have become more common among hospital workers, teachers and other public servants. Statistics suggest that short-term work is the definitive feature of the new jobs being created, making up about 90% of the contracts signed this year so far in Spain, with about one in four lasting seven days or less.

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But arms sales are booming.

One Of Every 122 Humans Today Has Been Forced To Flee Their Home (WaPo)

The number of people who have been forced to flee their homes has reached a staggering level, with 2015 on track to break previous records, according to a United Nations report released Friday. People who have been forcibly displaced — including those who fled domestically as well as international refugees and asylum-seekers — has likely “far surpassed 60 million” for the first time, reads the U.N. High Commissioner for Refugees report. Last year, 59.5 million had been displaced. “In a global context, that means that one person in every 122 has been forced to flee their home,” the agency said in a statement. Forced displacement “is now profoundly affecting our times,” High Commissioner for Refugees António Guterres said in a statement.

“It touches the lives of millions of our fellow human beings – both those forced to flee and those who provide them with shelter and protection. Never has there been a greater need for tolerance, compassion and solidarity with people who have lost everything.” War in Syria has become the “single biggest generator worldwide of both new refugees and continuing mass internal and external displacement,” the agency said. More than 4 million Syrians are now refugees – compared t0 less than 20,000 in 2010. Following Syria, most refugees come from Afghanistan, Somalia and South Sudan. The report, which covers the first six months of 2015, found that by June, the world had 20.2 million refugees – nearly 1 million more than a year before.

An average of 4,600 people flee their homes daily, and nearly 1 million refugees and migrants have crossed the Mediterranean to get to Europe so far this year. Turkey, Pakistan and Lebanon host the most refugees. Such a massive flow of people from country to country has also put a strain on host nations, and left unmanaged, this “can increase resentment and abet politicization of refugees,” the report notes.

Read more …

Nov 192015
 
 November 19, 2015  Posted by at 11:28 am Finance Tagged with: , , , , , , , , ,  6 Responses »


Robert Capa Anti-fascist militia women at Barcelona street barricade 1936

Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.

It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.

But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.

Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light’.

Here are Brent oil prices (WTI follows the trend closely):

They happen to coincide quite strongly with the fall in Chinese imports, which perhaps makes it tempting to correlate the two one-on-one:

But this correlation doesn’t hold up. And that we can see when we look at a number everyone seems to largely overlook, at their own peril, producer prices:

About which Bloomberg had this to say:

China Deflation Pressures Persist As Producer Prices Fall 44th Month

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.

44 months is a long time. And March 2012 is a long time ago. Oil was about at its highest since right before the 2008 crisis took the bottom out. And if you look closer, you can see that producer prices started ‘losing it’ even earlier, around July 2011.

Something was happening there that should have warranted more scrutiny. That it didn’t might have a lot to do with this:

China’s debt-to-GDP ratio has risen by nearly 50% in the past four years.

The producer price index seems to indicate that trouble started over 4 years ago. China dug itself way deeper into debt since then. It already did that before as well (especially since 2008), but the additional debt apparently couldn’t be made productive anymore. And that’s an understatement.

Now, if you want to talk correlation, compare the producer price graph above with Bloomberg’s global commodities index:

World commodities markets, like the entire global economy, were propped up by China overinvestment ever since 2008. Commodities have been falling since early 2011, after rising some 60% in the wake of the crisis. And after the 2011 peak, they’ve dropped all the way down to levels not seen since 1999. And they keep on falling: steel, zinc, copper, aluminum, you name it, they’re all setting new lows almost at a daily basis.

Moreover, if we look at how fast China imports are falling, and we realize how much of those imports involve (raw material) commodities, we can’t escape the conclusion that here we’re looking at not a lagging, but a predictive indicator. What China doesn’t purchase in raw materials today, it can’t churn out as finished products tomorrow.

Not as exports, and not as products to be used domestically. Neither spell good news for the Chinese economy; indeed, the rot seems to come from both sides, inside and out. And no matter how much Beijing points to the ‘service’ economy it claims to be switching towards, with all the debt that is now deflating, and the plummeting marginal productivity of new debt, most of it looks like wishful thinking.

And that is not the whole story either. Closely linked to the sinking marginal productivity, there is overleveraged overcapacity and oversupply. It’s like the proverbial huge ocean liner that’s hard to turn around.

There are for instance lots of new coal plants in the pipeline:

China Coal Bubble: 155 Coal-Fired Power Plants To Be Added To Overcapacity

China has given the green light to more than 150 coal power plants so far this year despite falling coal consumption, flatlining production and existing overcapacity. [..] in the first nine months of 2015 China’s central and provincial governments issued environmental approvals to 155 coal-fired power plants — that’s 4 per week. The numbers associated with this prospective new fleet of plants are suitably astronomical. Should they all go ahead they would have a capacity of 123GW, more than twice Germany’s entire coal fleet; their carbon emissions would be around 560 million tonnes a year, roughly equal to the annual energy emissions of Brazil; they would produce more particle pollution than all the cars in Beijing, Shanghai, Tianjin and Chongqing put together [..]

And new car plants too:

China’s Demand For Cars Has Slowed. Overcapacity Is The New Normal.

For much of the past decade, China’s auto industry seemed to be a perpetual growth machine. Annual vehicle sales on the mainland surged to 23 million units in 2014 from about 5 million in 2004. [..] No more. Automakers in China have gone from adding extra factory shifts six years ago to running some plants at half-pace today—even as they continue to spend billions of dollars to bring online even more plants that were started during the good times.

The construction spree has added about 17 million units of annual production capacity since 2009, compared with an increase of 10.6 million units in annual sales [..] New Chinese factories are forecast to add a further 10% in capacity in 2016—despite projections that sales will continue to be challenged. [..] “The players tend to build more capacity in hopes of maintaining, or hopefully, gain market share. Overcapacity is here to stay.”

These are mere examples. Similar developments are undoubtedly taking place in many other sectors of the Chinese economy (how about construction?!). China has for example started dumping its overproduction of steel and aluminum on world markets, which makes the rest of the world, let’s say, skittish. The US is levying a 236% import tax on -some- China steel. The UK sees its remaining steel industry vanish. All US aluminum smelters are at risk of closure in 2016.

The flipside, the inevitable hangover, that China will wake up to sooner rather than later, is the debt that its real growth, and then it’s fantasy growth, has been based on. We already dealt extensively with the difference between ‘official’ and real growth numbers, let’s leave that topic alone this time around.

Though we can throw this in. Goldman Sachs recently said that even if the official Beijing growth numbers were right -which nobody believes anymore- ”Chinese credit growth is still running at roughly double the rate of GDP growth”. And even if credit growth may appear to be slowing a little, though we’d have to know the shadow banking numbers to gauge that (and we don’t), that hangover is still looming large:

China Bad Loans Estimated At 20% Or Higher vs Official 1.5%

[..] While the analysts interviewed for this story differ in their approaches to calculating likely levels of soured credit, their conclusion is the same: The official 1.5% bad-loan estimate is way too low.

Charlene Chu [..] and her colleagues at Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions. While traditional bank loans are not Chu’s prime focus – she looks at the wider picture, including shadow banking – she says her work suggests that nonperforming loans may be at 20% to 21%, or even higher.

The Bank for International Settlements cautioned in September that China’s credit to gross domestic product ratio indicates an increasing risk of a banking crisis in coming years. “A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,” said Chu. “China is confronting a massive debt problem, the scale of which the world has never seen.”

Looking at the producer price graph, we see that the downfall started at least 44 months ago, and that 52 months is just as good an assumption. And we know that debt rose 50% or more since the downfall started. That does put things in a different perspective, doesn’t it? (Probably) the majority of pundits and experts will still insist on a soft landing at worst.

But for those who don’t, please consider the overwhelming amount of deflationary forces that is being unleashed on the world as all that debt goes sour. As the part of that debt that was leveraged vanishes into thin air.

It’s ironic to see that it’s at this very point in time that the IMF (Christine Lagarde seems eager to take responsibility) seeks to include the yuan in its SDR basket. Xi Jinping’s power over the exchange rate can only be diminished by such a move, and we’re not at all sure he realizes to what extent that is true. Chinese politics are built on hubris, and that goes only so far when you free float but don’t deliver.

To summarize, do you remember what you were doing -and thinking- in mid-2011 and/or early 2012? Because that’s when this whole process started. Not this year, and not last year.

China’s producers couldn’t get the prices they wanted anymore, as early as 4 years ago, and that’s where deflationary forces came in. No matter how much extra credit/debt was injected into the money supply, the spending side started to stutter. It never recovered.

Nov 092015
 
 November 9, 2015  Posted by at 10:33 am Finance Tagged with: , , , , , , , , , ,  1 Response »


DPC Broadway from Chambers Street, NYC 1910

Dash For Debt Ahead Of US Rate Rise (FT)
Ex-GAO Head David Walker: US Debt Is Three Times More Than You Think (Hill)
Fed Proves Irrelevant in $2.6 Trillion Slice of Debt Market (Bloomberg)
Zombie Debt Is Menacing America And Mine Even Has A Name: Kathryn (Guardian)
Dollar Bulls are Vulnerable as Currency’s Strength May Cap Rates (Bloomberg)
Global GDP Worse Than Official Forecasts Show, Maersk CEO Says (Bloomberg)
China Slowdown Hits Earnings in Japan (WSJ)
China’s Trade Drop Means More Stimulus Measures Coming (Bloomberg)
China Exports Slump as Global Demand Shrinks (WSJ)
Steel Exports From Top Producer China Drop as Trade Friction Rises (Bloomberg)
China Delays Economic Liberalization (WSJ)
Greece Told To Break Bailout Deadlock By Wednesday (Kath.)
Global Coal Consumption Heads for Biggest Decline in History (Bloomberg)
Saudi Arabia Will Not Stop Pumping To Boost Oil Prices (FT)
Kuwait Sees Oil Glut of Up to Five Years (Bloomberg)
Airpocalypse Now: China Pollution Reaching Record Levels (Guardian)
The Unbearable Lightness Of Chinese Emissions Data (Reuters)
New Zealand To Reform Intelligence After Illegal Spying On Kim Dotcom (NZH)
German Disagreement Over Tighter Asylum Rules (Bloomberg)

Adding more debt! Brilliant!

Dash For Debt Ahead Of US Rate Rise (FT)

A spate of jumbo corporate debt offerings has lifted US issuance to a record high as companies seek to lock in financing to fund multibillion-dollar acquisitions before the Federal Reserve lifts rates for the first time since the financial crisis. US multinationals have raised more than $132bn in so-called jumbo-deals debt offerings above $10bn in size in 2015, more than a fourfold increase from a year earlier as companies including Microsoft, Hewlett-Packard Enterprise and UnitedHealth take advantage of low interest rates, according to data from Dealogic. The offerings have buoyed overall corporate debt deal values in the US to a record of $815bn, with more than a month and a half to go before year end. The figure surpasses the previous high set in 2014 of $746bn.

There has been strong investor appetite for the debt offerings, which have been used to fund acquisitions, buy back stock and pay for dividends, leading bond funds to balloon in size. “It’s two years of incredible issuance flows”, says Mitch Reznick at Hermes Investment Management. “It’s driven by a desire to get financing done ahead of lift-off and a lot of this is going into M&A … The issuance just continues and continues.” After a slow summer, with companies braced for a rise in interest rates that never came as they struggled with the global oil price rout, issuance has picked up. Close to $30bn of debt has been raised in each of the past two weeks. It has been a particularly big year for highly rated debt, with issuance at a record $633bn. The $182bn worth of junk bond sales trail the 2012 peak of $246bn.

Read more …

David Walker seems to have been silent for a while. But he’s back.

Ex-GAO Head David Walker: US Debt Is Three Times More Than You Think (Hill)

The former U.S. comptroller general says the real U.S. debt is closer to about $65 trillion than the oft-cited figure of $18 trillion. Dave Walker, who headed the Government Accountability Office (GAO) under Presidents Bill Clinton and George W. Bush, said when you add up all of the nation’s unfunded liabilities, the national debt is more than three times the number generally advertised. “If you end up adding to that $18.5 trillion the unfunded civilian and military pensions and retiree healthcare, the additional underfunding for Social Security, the additional underfunding for Medicare, various commitments and contingencies that the federal government has, the real number is about $65 trillion rather than $18 trillion, and it’s growing automatically absent reforms,” Walker told New York’s AM-970 in an interview airing Sunday.

The former comptroller general, who is in charge of ensuring federal spending is fiscally responsible, said a burgeoning national debt hampers the ability of government to carry out both domestic and foreign policy initiatives.“If you don’t keep your economy strong, and that means to be able to generate more jobs and opportunities, you’re not going to be strong internationally with regard to foreign policy, you’re not going to be able to invest what you need to invest in national defense and homeland security, and ultimately you’re not going to be able to provide the kind of social safety net that we need in this country,” he said.

He said Americans have “lost touch with reality” when it comes to spending. Walker called for Democrats and Republicans to put aside partisan politics to come together to fix the problem. “You can be a Democrat, you can be a Republican, you can be unaffiliated, you can be whatever you want, but your duty of loyalty needs to be to country rather than to party, and we need to solve some of the large, known, and growing problems that we have,” he said.

Read more …

Other than for gamblers, The Fed’s made itself irrelevant for quite a while now.

Fed Proves Irrelevant in $2.6 Trillion Slice of Debt Market (Bloomberg)

The blowout U.S. jobs report for October means the Federal Reserve may be weeks away from raising interest rates. For U.S. savers earning next to nothing on $2.6 trillion of money-market mutual funds, the move will barely register. The reason is that there’s an unprecedented shortfall in the safest assets, especially Treasury bills – a mainstay of money funds and traditionally the government obligations that are most sensitive to changes in Fed policy. The shortage means some key money-fund rates will probably remain near historic lows even if the central bank increases its benchmark from near zero next month. The phenomenon is a consequence of regulators’ efforts to curb risk after the financial crisis.

Money-market industry rules set to take effect in October 2016 may lead investors and fund companies to shift as much as $650 billion into short-maturity government obligations, according to JPMorgan Chase. Meanwhile, the amount of bills as a share of government debt is the lowest since at least 1996, at about 10%, and the Treasury is just beginning to ramp up issuance of the securities after slashing it amid the debt-ceiling impasse. “The demand for high-quality short-term government debt securities is insatiable and there is just not enough supply,” said Jerome Schneider at PIMCO. “Even given the increased bill sales coming as the debt-limit issue has passed, it won’t keep up with rising demand from regulatory forces. This will keep rates low.”

While the U.S. government stands to benefit as the imbalance holds down borrowing costs, it’s proving the bane of savers. Average yields for the biggest money-market funds, which buy a sizable chunk of the $1.3 trillion Treasury bills market, haven’t topped 0.1% since 2010, according to Crane Data. In 2007, they were above 5% before the Fed started slashing rates to support the economy. With returns this low, investors have less incentive to sock away cash. The Standard & Poor’s 500 index has earned 3.8% this year, including dividends.

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Debt that gets sold for pennies on the dollar from one collector to the next. American disgrace.

Zombie Debt Is Menacing America And Mine Even Has A Name: Kathryn (Guardian)

Her name is Kathryn. Every few weeks, I’ll answer the phone, and someone will want to talk to her. In fact, whoever is on the other end of the line will insist on talking to her. They assume that I am her, even when I inform her that I’m not and that I don’t know who she is. They threaten that if I don’t bring her to the phone, I’ll face “consequences”. Sometimes I’ll get two phone calls a day, every day of the week. These debt collectors want Kathryn to repay some student loans, and every time her file is sold to a new agency, my phone number is transferred along with it – and I have to begin convincing a new bunch of folks that this isn’t the way to find her. Halloween may be over, but the world of zombie debt is a year-round horror show.

Aggressive collectors buy credit card accounts from original lenders like Chase or Bank of America that have been written off as in default and impossible to collect on. Having paid only pennies for every dollar owed to acquire these accounts, the new collectors have a big financial incentive to collect the maximum they can – it’s not about recouping money but about seeing how much they can make. Getting someone to agree to pay $1 for every $10 of debt owed could mean a 100% return. Small wonder that a number of players in this space resort to abusive practices, and the Federal Trade Commission (FTC) announced last week a new nationwide initiative involving not only 47 attorneys general and many state regulatory agencies but also numerous local bodies and even a Canadian provincial regulator.

Operation Collection Protection will try to halt the industry’s worst practices – and it’s needed, says Edith Ramirez, chairwoman of the FTC. “We receive more complaints about this industry than any other,” she told a press conference last Thursday, noting that debt collectors make a billion contacts a year with consumers. “The majority [of those] are legal. Many are not.” With consumer debt climbing steadily, the problem is more likely to grow than to diminish. In 2010, Americans had total consumer debt of nearly $2.5tn, Ramirez said. Today, excluding mortgage debt, that figure is closer to $3.34tn (with mortgages added to the mix, it would be more than $11tn), and the average household has a credit card balance that stands at $7,281. When you consider the fact that many Americans don’t have credit cards or don’t carry balances, that average balance is actually much higher.

True, new rules mean that it’s harder for banks and credit card purveyors to get students to load up on debt, over and above their student loans. And more households are being more disciplined in how they use their credit cards, paying off their balance in full. But there also are some troubling signs, including the Federal Reserve’s survey results showing that of those Americans who carried a balance from one month to the next, more than half made only the minimum payment on their accounts. It’s those folks who are most at risk of ending up fielding calls from debt collectors down the road.

Read more …

Meanwhile back in the casino…

Dollar Bulls are Vulnerable as Currency’s Strength May Cap Rates (Bloomberg)

Dollar bulls have reason to be wary of the currency’s Friday rally on stronger-than-forecast U.S. labor data. The jobs report bolstered the case for a December interest-rate increase by the Federal Reserve and propelled a broad gauge of the greenback past this year’s previous high. Yet the last time the dollar was this strong, the central bank flagged it as a burden on exporters and a damper of inflation, driving the currency down by the most since 2009. The March experience is raising red flags for investors and strategists. A surging dollar may lead Fed officials to warn that currency moves will limit rate increases in 2016, even if they boost their benchmark next month from near zero, where it’s been since 2008.

“It’s going to be really hard for them to hike rates aggressively,” said Brendan Murphy, a senior portfolio manager at Standish Mellon. Once the Fed lifts rates, “you may be nearing the end of this broader move we’ve seen in the dollar.” Murphy says he’s betting on the greenback versus the euro and currencies from commodity exporting nations, but he’s trimmed positions since the start of the year. The dollar appreciated to its strongest level since April versus the euro and its highest in more than two months versus the yen after a Labor Department report showed U.S. employers added 271,000 workers in October, the most this year.

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And then still poo-poohs the downfall. Talk your book.

Global GDP Worse Than Official Forecasts Show, Maersk CEO Says (Bloomberg)

The world’s economy is growing at a slower pace than the IMF and other large forecasters are predicting. That’s according to Nils Smedegaard Andersen, CEO at A.P. Moeller-Maersk. His company, owner of the world’s biggest shipping line, is a bellwether for global trade, handling about 15% of all consumer goods transported by sea. “We believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.” The IMF on Oct. 6 lowered its 2015 global gross domestic product forecast to 3.1% from 3.3% previously, citing a slowdown in emerging markets driven by weak commodity prices. It also cut its 2016 forecast to 3.6% from 3.8%.

But even the revised forecasts may be too optimistic, according to Andersen. “We conduct a string of our own macro-economic forecasts and we see less growth – particularly in developing nations, but perhaps also in Europe – than other people expect in 2015,” Andersen said. Also for 2016, “we’re a little bit more pessimistic than most forecasters.” Maersk’s container line on Friday reported a 61% slump in third-quarter profit as demand for ships to transport goods across the world hardly grew from a year earlier. The low growth rates are proving particularly painful for an industry that’s already struggling with excess capacity.

Trade from Asia to Europe has so far suffered most as a weaker euro makes it tougher for exporters like China to stay competitive, Andersen said. Still, there are no signs yet that the global economy is heading for a slump similar to one that followed the financial crisis of 2008, he said. “We’re seeing some distortions amid this redistribution that’s taking place between commodity exporting countries and commodity importing countries,” he said. “But this shouldn’t lead to an outright crisis. At this point in time, there are no grounds for seeing that happening.”

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And everywhere else. The entire global economy was propped up by China’s Ponzi for years. No more.

China Slowdown Hits Earnings in Japan (WSJ)

Profits at major Japanese companies are on track to fall for the first time in more than a year during the third quarter, partly the result of a slowdown in China’s economy. Earnings fell a combined 3.2% from a year earlier, according to data compiled by SMBC Nikko Securities that covered 70% of companies listed on the first section of the Tokyo Stock Exchange with a financial year ending March 31. All had released quarterly earnings as of Friday. If that result holds after all companies have reported, it would be the first decline since earnings fell 7% in the second quarter of 2014, after a sales-tax increase hit Japanese consumers and set off a recession. Now external factors are playing a bigger role, analysts say. As China’s economy has cooled further, for example, its steel makers unloaded supply on the international market, driving prices lower and hurting their Japanese competitors.

Kobe Steel Ltd. saw its profit fall by more than half during the fiscal first half and cut its projection for full-year earnings by another 20%, after lowering it by half in September. Nippon Steel & Sumitomo, meanwhile, saw its shares tumble last week after it lowered its full-year net profit forecast by 31%. JFE Holdings Inc. downgraded its full-year ordinary profit outlook by 50%. “The China-related sectors performed poorly, especially Japan’s top three steel makers, who were hit hard by an oversupply of Chinese steel,” said Atsushi Watanabe at Mitsubishi UFJ Morgan Stanley. Komatsu, which makes heavy machinery, said its sales to China fell by half during the first half of the fiscal year, and reported a 16.5% drop in net profit. Demand in China showed no signs of improving in the most recent quarter after worsening in the previous quarter, said Yasuhiro Inagaki, the company’s senior executive officer and general manager for business coordination.

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But stimulus doesn’t make people spend.

China’s Trade Drop Means More Stimulus Measures Coming (Bloomberg)

China’s exports fell for a fourth straight month and imports matched a record stretch of declines, signaling that the mounting drag from slower global growth will push policy makers toward expanding stimulus. Overseas shipments dropped 6.9% in October in dollar terms, the customs administration said Sunday, a bigger decline than estimated by all 31 economists in a Bloomberg survey. Weaker demand for coal, iron and other commodities for China’s declining heavy industries helped drag imports down 18.8% in dollar terms, leaving a record trade surplus of $61.6 billion.

The report signals that policy makers may need to unleash more fiscal stimulus to support growth even after the People’s Bank of China cut the main interest rate six times in the last year to a record low and devalued the currency. The government has already relaxed borrowing rules for local authorities, and the top economic planning body has stepped up project approvals. “The October trade data keep pressure on for more domestic easing,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. “Measures are likely to continue to focused on shoring up domestic demand rather than weakening the currency. And over time the role of fiscal policy expansion should rise.”

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At least we’re all falling together.

China Exports Slump as Global Demand Shrinks (WSJ)

China’s exports fell in October for the fourth consecutive month, as a once-powerful engine of the country’s growth continued to sputter in the face of weak global demand. The world’s appetite for goods from China—the world’s second-largest economy accounts for nearly one-fifth of global factory exports—has been lower than expected this year. Meanwhile, weak domestic demand continues to reduce imports. Both are contributing to China’s growth slowdown. “The mix of the data is again not encouraging,” said Commerzbank economist Zhou Hou. “Trade momentum is unlikely to turn around in the near term.” Sunday’s results suggest the export scene is worsening. China’s General Administration of Customs said October exports fell 6.9% year-over-year in dollar terms, after a drop of 3.7% in September.

Imports in October fell by a sharper-than-expected 18.8% from a year earlier, after a 20.4% fall in September. China’s trade surplus widened in October to $61.64 billion from $60.3 billion in September. China’s Commerce Ministry said Thursday in a report that exports are likely to see little increase in 2015, while imports will likely report a “relatively big” decline as falling commodity prices continue to weigh on trade flows. China’s rising labor and land costs in recent years have weakened the competitiveness of the nation’s exporters, the Commerce Ministry said. The average wage for workers in coastal provinces, including the manufacture hub of Guangdong province, has reached $600 a month, twice the level of Southeast Asian countries.

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Yay! Protectionism! Let’s sign us another free trade deal, shall we?!

Steel Exports From Top Producer China Drop as Trade Friction Rises (Bloomberg)

The flood of steel that mills in China are pushing onto global markets eased from a record in October amid rising trade frictions and weak overseas demand, signaling that what’s been a safety valve for the world’s top producer may now be starting to close. Outbound cargoes shrank 20% to 9.02 million metric tons last month from September, according to customs data released on Sunday. That was the lowest figure since June, and below the monthly average so far this year of 9.21 million tons. “The slump in steel exports last month compared with September reflects rising trade frictions for Chinese products,” Helen Lau at Argonaut Securities said by e-mail on Sunday.

China’s mills, which account for half of global production, have exported unprecedented volumes of steel this year to try to counter contracting demand in Asia’s top economy. The surge has undermined prices and increased competition from India to Europe and the U.S., spurring complaints that the trade is unfair. While down on-month, China has still shipped 25% more steel this year than in the same period of 2014. The global steel market is being overwhelmed with metal coming from China’s state owned and state-supported producers, a collection of industry groups including the American Iron and Steel Institute said on Thursday. The next day, ArcelorMittal cut its full-year profit target, citing exceptionally low Chinese export prices.

Evidence of cases against Chinese steel imports is surfacing worldwide. Last week, the U.S. Department of Commerce said it planned duties of 236% on imports of corrosion-resistant steel from five Chinese companies. More than 20 cases have been lodged against China’s cargoes, with about seven from Southeast Asia. “Lower steel exports reflect waning demand from overseas trading partners,” Xu Huimin at Huatai Great Wall Futures said before the data. Financial markets and many businesses in China were closed Oct. 1-7, which may have also contributed to the drop in exports, Xu said.

Inbound cargoes of iron ore shrank 12% to 75.52 million tons last month from September, according to the customs figures. Purchases totaled 774.5 million tons in the first 10 months, little changed compared with the same period a year earlier, the data showed. China is the world’s largest buyer. Iron ore stockpiled at Chinese ports rose 1.5% to 86 million tons in the week to Nov. 6, according to Shanghai Steelhome Information. Ore with 62% content delivered to Qingdao was at $48.21 a dry ton on Friday, 32% lower this year, according to Metal Bulletin Ltd.

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No kidding: “President Xi Jinping was already unhappy he was taking the blame for the economic gloom that had settled over China..”

China Delays Economic Liberalization (WSJ)

The closed-door meeting of some of China’s most powerful economic mandarins this fall was getting tense. Their boss, President Xi Jinping, was already unhappy he was taking the blame for the economic gloom that had settled over China this summer, and it was their job to come up with ways to fix it. Officials from the state planning commission at the Sept. 22 meeting in a conference room at the agency’s headquarters called for the kind of big spending on airports, roads and other government projects that Beijing had relied on to rev up the economy in recent years, according to internal minutes of the meeting. Finance-ministry officials disagreed, favoring a plan to encourage Chinese consumers to buy more electronics, cars, clothes and other goods China churns out.

But most in the room agreed on one thing: It would be hard to proceed with plans to liberalize the tightly controlled economy and still hope to meet Mr. Xi’s 7% GDP-growth target for 2015. Such plans, laid out in better times, weren’t likely to deliver the shot of growth China’s economy needed. “Reform itself faces huge problems,” said an attendee at the Sept. 22 meeting, which gathered officials of the National Development and Reform Commission—the planning agency—and the finance ministry, according to the minutes, reviewed by The Wall Street Journal. “It’s doubtful that any reform dividends can be translated into economic growth in the foreseeable future.” In the weeks following, China has taken new steps to slow plans that had been meant to loosen control over the financial system, adding to similar delaying moves since summer.

Some steps have the effect of keeping industries on life support. On Oct. 23, the central bank scrapped its cap on deposit rates. But it backed away from freeing interest rates from its control, as it was previously expected to do, saying it feared that might raise funding costs for businesses and consumers. Other steps seek to hold money in the domestic economy rather than letting it flow abroad. On Oct. 30, the central bank and other agencies dialed back on plans for Shanghai’s free-trade zone, a testing ground for financial overhauls, that would have let residents more easily buy foreign assets.Many measures China’s leaders have delayed since summer are ones that economists and some Chinese leaders have long said are needed to put the world’s second-largest economy on a sustainable growth path in coming years.

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Foreclosures. Throwing people out into the streets. Make them slaves.

Greece Told To Break Bailout Deadlock By Wednesday (Kath.)

A Euro Working Group held via teleconference on Sunday failed to result in an agreement between Greece and its lenders ahead of Monday’s Eurogroup. A high-ranking European official told Kathimerini’s Brussels correspondent Eleni Varvitsiotis said it was agreed that the two sides would try to settle the outstanding issues by Wednesday so that another Euro Working Group, possibly with officials meeting in person, could be held on Friday. During Sunday’s teleconference it was made clear to the Greek participants that Athens is already three weeks behind schedule, Kathimerini understands. The key stumbling block is primary residence foreclosures. Greece has put forward stricter criteria that protects 60% of homeowners, while suggesting that this is then gradually reduced over the next years. Greek officials will continue deliberating with their eurozone colleagues over the next hours in a bid to ensure that Monday’s Eurogroup does not end in a negative manner.

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“..driven by China’s battle against pollution, economic reforms and its efforts to promote renewable energy..” No, driven by deflation. By China’s economic slump.

Global Coal Consumption Heads for Biggest Decline in History (Bloomberg)

Coal consumption is poised for its biggest decline in history, driven by China’s battle against pollution, economic reforms and its efforts to promote renewable energy. Global use of the most polluting fuel fell 2.3% to 4.6% in the first nine months of 2015 from the same period last year, according to a report released Monday by the environmental group Greenpeace. That’s a decline of as much as 180 million tons of standard coal, 40 million tons more than Japan used in the same period. The report confirms that worldwide efforts to fight global warming are having a significant impact on the coal industry, the biggest source of carbon emissions. It comes a day before the International Energy Agency is scheduled to release its annual forecast detailing the ways the planet generates and uses electricity.

“These trends show that the so-called global coal boom in the first decade of the 21st century was a mirage,” said Lauri Myllyvirta, Greenpeace’s coal and energy campaigner. The decline in coal use will help reduce greenhouse-gas emissions that are blamed for heating up the planet. To limit the rise in global temperatures to 2 degrees Celsius (3.6 degrees Fahrenheit) – the level scientists say cannot be exceeded if the world is to avoid catastrophic climate change – emissions from coal must fall 4% annually through 2040, Greenpeace said.

In China, responsible for about half of global coal demand, use in the power sector fell more than 4% in the first three quarters and imports declined 31%, according to the report. Since the end of 2013, the country’s electricity consumption growth has largely been covered by new renewable energy plants. “The coal industry likes to point to China adding a new coal-fired power plant every week as evidence that coal demand will pick up in the future, but the reality on the ground is rather different,” according to the report. “Capacity utilization of the plants has been plummeting. China is now adding one idle coal-fired power plant per week.”

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They can’t. Nobody can. Get that through to your skulls. It’s a demand issue. Deflation.

Saudi Arabia Will Not Stop Pumping To Boost Oil Prices (FT)

Saudi Arabia is determined to stick to its policy of pumping enough oil to protect its global market share, despite the financial pain inflicted on the kingdom’s economy. Officials have told the Financial Times that the world’s largest exporter will produce enough oil to meet customer demand, indicating that the kingdom is in no mood to change tack ahead of the December 4 meeting in Vienna of the producers’ cartel Opec. “The only thing to do now is to let the market do its job,” said Khalid al-Falih, chairman of the state-owned Saudi Arabian Oil Company (Saudi Aramco). “There have been no conversations here that say we should cut production now that we’ve seen the pain.”

Saudi Arabia rocked oil markets last November when Opec decided against production cuts, making clear that the kingdom was abandoning its policy of reducing supplies to stabilize the price. Since then, the oil price has collapsed from a high of $115 a barrel last year to $50 a barrel. Global oil companies, which have put hundreds of billions of dollars of investment on hold as a result of low prices, will be disappointed by the Kingdom’s stance. The effect on business sentiment has sparked domestic criticism of the market share policy engineered by Ali al-Naimi, the oil minister, and agreed by both the late King Abdullah and the current King Salman, who was crown prince last year and ascended the throne in January.

Officials in Riyadh say their policy will be vindicated in one to two years when revived demand swallows the global oil glut and prices begin to recover. They argue that in the past, Opec output cuts raised prices to levels where more expensive production, such as shale and deep-sea oil, could flourish. Moving ahead, Opec – led by Saudi Arabia – plans to pump as much as it can towards meeting global oil demand, leaving higher-cost producers to make up the remainder. For higher-cost producers, “$100 oil was perceived as a guarantee of no risk for investment”, said Mr Falih. “Now, the insurance policy that’s been provided free of charge by Saudi Arabia does not exist any more.”

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Yeah, they can really see 5 years ahead over there. It’s something in the air.

Kuwait Sees Oil Glut of Up to Five Years (Bloomberg)

Oil markets will continue to be oversupplied for as long as five years as producers in the Middle East ramp up output, according to Mohammed Al-Shatti, Kuwait’s representative to OPEC. Iraq pumped a record 4.4 million barrels a day in June, according to data compiled by Bloomberg. Libyan output, which has declined by more than half due to conflict, can return “at any moment,” Al-Shatti said in an interview Saturday in Doha. Iran has the capacity to boost exports by 500,000 barrels a day within one week of sanctions being lifted and by 1 million a day within six months, Roknoddin Javadi, managing director of state-run National Iranian Oil Co., said last month.

“Lower prices will continue until the glut in the market ends,” Al-Shatti said. “Many countries are expected to increase production. Iranian crude is expected to return and that means an increase in production.” Demand isn’t expected to absorb the extra capacity and it will take shifts in supply to affect prices, he said. Al-Shatti said geopolitical disruptions or reduced future output because of the 30% fall in capital expenditure by oil companies could cause an increase.

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And these are just guesses.

Airpocalypse Now: China Pollution Reaching Record Levels (Guardian)

Residents of north-eastern China donned gas masks and locked themselves indoors on Sunday after their homes were enveloped by some of the worst levels of smog on record. Levels of PM2.5, a tiny airborne particulate linked to cancer and heart disease, soared in Liaoning province as northern China began burning coal to heat homes at the start of the winter. In Shenyang, Liaoning’s capital, visibility levels plummeted to as little as 100 metres, the state broadcaster CCTV said. China’s official news agency, Xinhua, published an apocalyptic gallery of images showing the country’s latest smog crisis alongside the headline: “Fairyland or doomsday?” In some areas of Shenyang, PM2.5 readings reportedly surpassed 1,400 micrograms per cubic metre, which is about 56 times the levels considered safe by the World Health Organisation.

“The air stings and makes my eyes and throat feel sore when I’m outdoors,” one woman, who had ventured out to buy a face mask, was quoted as saying. “As for what exactly we should do, I don’t know,” she added. By Monday afternoon there had been a slight improvement, although air quality remained at “hazardous” levels in Shenyang, an industrial city of about 8 million inhabitants. The Associated Press said Sunday’s smog represented one of the worst episodes of air pollution recorded in China since authorities began releasing air quality data in 2013. There was indignation on social media as China confronted its latest “airpocalypse”. “The government knows how severe the smog problem is, so why haven’t they tackled it?” one critic wrote on Weibo, China’s Twitter.

“What’s the point of having an environmental protection department? The precondition for developing the economy is not damaging the environment. Our leaders are all well educated. Can’t they understand this simple truth?” Others reacted with resignation. “Other than reporting it, what can the government do?” Shenyang, a major industrial centre since the days of Mao Zedong, has been attempting to clean up its act in recent years by relocating factories and starting to use natural gas instead of coal to heat homes. But on Monday doctors in Shenyang were dealing with the consequences of the latest bout of toxic pollution to hit their city. Yang Shenjia, who works at the Liaoning Jinqiu Hospital, said there had been a sudden influx of patients suffering from breathing complaints over the past two days. “The respiratory department’s inpatient wards are full,” the doctor told Xinhua.

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Because nobody really keeps track.

The Unbearable Lightness Of Chinese Emissions Data (Reuters)

Precise data collection is a tricky business everywhere, as the Volkswagen scandal over discrepancies between the German auto company’s emissions claims and the real world performance of its engines has shown. But getting accurate emissions data is crucial for governments seeking a global climate accord in Paris this December. Negotiators say that, to succeed, any agreement must be built upon “measurable, reportable and verifiable” statistics in order to assess whether countries are on track to meet their emissions targets. And getting a better grasp of the right numbers is particularly crucial in the case of China, which is widely assumed to be the world’s largest carbon emitter. China’s energy use is so great that even minute errors in data can translate into a difference of millions of tonnes of emissions.

No one currently knows how many tonnes of carbon China emits each year. Its emissions are estimates based on how much raw energy is consumed, and calculations are derived from proxy data consisting mostly of energy consumption as well as industry, agriculture, land use changes and waste. Many outside observers view the accuracy of those figures with skepticism. “China’s contribution (to the global climate plan in Paris) is based on CO2 emissions but China doesn’t publish CO2 emissions,” said Glen Peters, senior researcher at the Center for International Climate and Environmental Research in Oslo. “You’re left in the wilderness, really.”

Demands for better data played a major role in the failure of the 2009 Copenhagen conference, when China and several developing nations balked at providing the rest of the world with detailed data, claiming it would be an intrusion on their sovereignty. The last time Beijing produced an official figure was in 2005, when it said its emissions stood at “approximately” 7.47 billion tonnes. And while it has promised that emissions will peak by 2030 at the latest, experts say the statistical uncertainty is so great that forecasts on what that peak means can vary from 11 to 20 billion tonnes a year. That margin is greater than the entire annual carbon footprint of Europe.

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Dotcom should sue to bankrupt the entire nation.

New Zealand To Reform Intelligence After Illegal Spying On Kim Dotcom (NZH)

John Key has opened up the spy agencies to public scrutiny in a way which we have never seen in New Zealand. We know more now about what they do and even how they do it. We know how the two agencies are managed, in that the GCSB and NZSIS both have top-flight lawyers in charge. There will always be those who say we don’t know enough. For those people, we now have improved oversight of the agencies. This also happened under the Prime Minister’s watch as minister in charge of the agencies. The new Inspector General of Intelligence and Security Cheryl Gwyn – another superb lawyer – has been a breath of the freshest air. Mr Key has since stepped away from directly overseeing the agencies, which is a further liberation. It seems right that the most powerful weapons of state should sit with someone whose role is to objectively challenge his Cabinet colleagues.

Now, even at a ministerial level, the SIS and GCSB answer to a lawyer, this time Attorney General Chris Finlayson. In terms of oversight and public disclosure, we are heading into an era unparalleled in our history. Citizens now have more ability to see and have explained the tasks done in their name. Again, it might not be enough but it is considerably more than we have had before. That’s where we have come to, three years after Mr Key had to admit Kim Dotcom and one of his co-accused had been illegally spied on by the GCSB. He also had to apologise – a concession which must have been galling. That single event appears to be the point at which the Prime Minister stopped taking at face value the assurances given by the intelligence agencies, and began a programme for reformation which is huge in its scale and largely behind closed doors.

For all the comparative openness, it is unlikely the public will ever know the truth about how far adrift our intelligence agencies wandered. As a broad indication, consider the fact that respected senior lawyers with strong state experience now sit at all significant levels of the intelligence community. When you’re unsure about the law, you need lawyers. But there have also been reports which paint a picture of the state of New Zealand’s intelligence services, past and present. None are individually explicit in their descriptions of how bad it was but the collective run of reports gives an impression of the intelligence community as an isolated part of government, lost to the public they were serving, changing purpose and shape under a cloak of secrecy.

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Ha ha! There’s Herr Schäuble again. Been a while. Always good for laugh. At the expense of others.

German Disagreement Over Tighter Asylum Rules (Bloomberg)

German Finance Minister Wolfgang Schaeuble and Vice Chancellor Sigmar Gabriel were at odds over stricter asylum rules for some applicants from Syria, just days after Chancellor Angela Merkel defused a rebellion in her ruling coalition against her open-door refugee policy. Speaking on German ARD public television on Sunday, Schaeuble and Gabriel disagreed over a proposal by Interior Minister Thomas de Maiziere to grant refugees from Syria who aren’t individually persecuted a limited asylum status that restricts family reunions in Germany. “Family reunions can and must be restricted for people who are granted subsidiary protection, and that’s the large majority,” Schaeuble said. “This is a necessary decision and I’m very much in favor that we find agreement on this in the coalition quickly.”

De Maiziere cast doubt on a lasting compromise in the coalition over the weekend, telling N-TV television that the government should consider granting some Syrians only temporary asylum and limiting family reunions. Merkel earlier extracted a compromise from her coalition partners to set up migrant processing centers in Germany, in which the Social Democratic Party, led by Gabriel, prevailed. “Every time we reach an agreement, shortly thereafter there’s a new proposal that wasn’t on the table before,” Gabriel said on ARD, adding his party can’t agree to a proposal that wasn’t previously discussed in the coalition. “That leads to a situation in which Germans get the impression that the left hand doesn’t know what the right hand is doing in the government.”

As many as 1 million people are expected to seek shelter in Germany from war and poverty in their homelands. Merkel, while having pledged to do everything to stem the flow, has ruled out closing borders or placing upper limits on the numbers who qualify for asylum. A European Union report last week said the influx could boost Germany’s economy by 0.1 percentage point this year and 0.4 point in 2016. Schaeuble and Gabriel agreed the EU needs to regain control over its borders and set quotas for refugees who would then be distributed among the bloc’s members. “We are close to the limit of our capabilities,” Schaeuble said. As long as there’s no coordinated distribution within Europe, “we must send the message to the countries where the refugees are coming from that they shouldn’t be misled, that not everyone can come.”

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Nov 042015
 
 November 4, 2015  Posted by at 10:51 am Finance Tagged with: , , , , , , , , , , ,  1 Response »


Lesvos town hall mourns the dead Nov 4 2015

China’s Slump Might Be Much Worse Than We Thought (Bloomberg)
China Burns Much More Coal Than Reported (NY Times)
Investors Are Way More Scared of China Than of Janet Yellen (Bloomberg)
Corporate Debt in China: Above Cruising Altitude (CEW)
A 127-Year-Old US Industry Collapses Under China’s Weight (Bloomberg)
Xi Says China Needs at Least 6.5% Growth in Next Five Years (Bloomberg)
China’s Xi Says 6.5% Annual Growth Enough To Meet Goals: Xinhua (AFP)
China’s Money Exodus (Bloomberg)
Standard Chartered’s Bad Loans Reveal Cracks in Asian Economies (Bloomberg)
VW Admission Suggests Cheats Went Much Further Than Diesel Emissions (Guardian)
VW Emissions Issues Spread to Gasoline Cars (Bloomberg)
VW Says Fuel Usage Understated On Some Models; Porsche Warns (Reuters)
Hugh Hendry: “Today We Would Advise You That You Don’t Panic!” (Zero Hedge)
Hugh Hendry Says “Don’t Panic”; Paul Singer Says You May Want To (Zero Hedge)
Europe’s Biggest Banks Are Cutting 30,000 Jobs, More To Come (Bloomberg)
Wall Street/Washington Revolving Door More Dangerous Than Ever: Prins (Yahoo)
Gathering Financial Storm Just One Effect Of Corporate Power Unbound (Monbiot)
Merkel Warns Of Balkans Military Conflicts Amid Migrant Influx (AFP)
European Union States Have Relocated Just 116 Refugees Out Of 160,000 (Guardian)
Greek Coast Guard Says 5 Refugees Die In Boat Accident Tuesday Night (AP)

As I’ve said a thousand times now.

China’s Slump Might Be Much Worse Than We Thought (Bloomberg)

The unreliability of Chinese official economic data has become almost a cliche. A few years before he became China’s premier, Li Keqiang said that the country’s numbers were “man-made” and “for reference only.” If the top economic policy maker of a country says that the numbers aren’t reliable … well, you believe him. But how unreliable? [..] Economic number-fudging is a cheap way to prevent jittery investors from making a stampede for the exits. Of course, knowing this, a number of people have tried to estimate China’s true growth rate. Tom Orlik, Bloomberg’s chief Asia economist, recently rounded up a number of independent figures, and collected them in the following chart:

The numbers range from Lombard Street’s pessimistic figure of a bit more than 3% to Bloomberg Intelligence’s optimistic number of just under 7%. In other words, there is a wide band of uncertainty here. But I would like to suggest a scenario even more pessimistic than the lowest of the numbers above. After reading reports by Peking University professor Chris Balding on the state of China’s financial sector, I think there’s a possibility that China’s growth is lower even than 3%. Chinese electricity usage is growing at more like 1%. Rail freight traffic, though volatile, has suffered some dizzying drops in recent months. These are traditional proxies for heavy industry output. That they are barely growing, if at all, implies that much of Chinese industry has ground to a halt.

China bulls, of course, will argue that the country is merely in the middle of a transition from industry to services, and from wasteful power usage to greater efficiency. That is probably true. But the speed of the transition would have to be incredible to make up for the precipitate drop in industrial activity. Why would China’s service sector and energy efficiency suddenly skyrocket immediately following the bursting of a major stock bubble? One reason is government spending. A stealth stimulus is underway. But another big part of the equation is the financial sector, which has logged stunning growth in recent months despite the stock crash. Why are Chinese financial services growing? Loan growth alone will not do the trick – banks need to be paid in order to log revenue. Or do they? Chris Balding reports:

“[S]ome Chinese researchers…compared the loan payments made by firms to the amount owed to banks…[Their findings imply] that Chinese firms are paying only half the financial costs they should be paying…The amount of revenue that banks are recording from loans is nearly four times the cost firms are associating with those loans…[B]ank revenue [has been] outpacing firm financial cost growth by a factor of almost four.” In other words, the amount of loan payments Chinese banks say they are receiving is a whole lot more than the amount Chinese borrowers say they are paying. If Balding’s numbers are to be believed – and of course, they are only one glimpse into a murky financial system – a large portion of the recent growth surge of China’s financial services sector may simply be fake.

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Rounding error: “.. the new figures add about 600 million tons to China’s coal consumption in 2012 — an amount equivalent to more than 70% of the total coal used annually by the United States.”

China Burns Much More Coal Than Reported (NY Times)

China, the world’s leading emitter of greenhouse gases from coal, is burning far more annually than previously thought, according to new government data. The finding could vastly complicate the already difficult efforts to limit global warming. Even for a country of China’s size and opacity, the scale of the correction is immense. China has been consuming as much as 17% more coal each year than reported, according to the new government figures. By some initial estimates, that could translate to almost a billion more tons of carbon dioxide released into the atmosphere annually in recent years, more than all of Germany emits from fossil fuels. Officials from around the world will have to come to grips with the new figures when they gather in Paris this month to negotiate an international framework for curtailing greenhouse-gas pollution.

The data also pose a challenge for scientists who are trying to reduce China’s smog, which often bathes whole regions in acrid, unhealthy haze. The Chinese government has promised to halt the growth of its emissions of carbon dioxide, the main greenhouse pollutant from coal and other fossil fuels, by 2030. The new data suggest that the task of meeting that deadline by reducing China’s dependence on coal will be more daunting and urgent than expected, said Yang Fuqiang, a former energy official in China who now advises the Natural Resources Defense Council. “This will have a big impact, because China has been burning so much more coal than we believed,” Mr. Yang said. “It turns out that it was an even bigger emitter than we imagined.

This helps to explain why China’s air quality is so poor, and that will make it easier to get national leaders to take this seriously.” The adjusted data, which appeared recently in an energy statistics yearbook published without fanfare by China’s statistical agency, show that coal consumption has been underestimated since 2000, and particularly in recent years. The revisions were based on a census of the economy in 2013 that exposed gaps in data collection, especially from small companies and factories. Illustrating the scale of the revision, the new figures add about 600 million tons to China’s coal consumption in 2012 — an amount equivalent to more than 70% of the total coal used annually by the United States.

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“..concern over growth in China and the rest of the developing world coincided with a rise in the share of investors who think deflation is a larger risk to the markets than inflation.”

Investors Are Way More Scared of China Than of Janet Yellen (Bloomberg)

China—not the prospect of the first rate hike from the Federal Reserve in almost a decade—is what keeps investors up at night. Barclays surveyed 651 of its clients around the world to glean their biggest fears, as well as their thoughts on commodities, yields, currencies, and other questions about the market outlook. “Only 7% sees Fed normalization as the main risk for markets over the next 12 months, compared with 36% whose main worry is China,” said Guillermo Felices, head of European asset allocation. The share of investors who judged softness in China and other developing economies to be the biggest risk to markets spiked in the third quarter, the period in which Beijing unexpectedly moved to devalue the yuan. The elevation in concern over growth in China and the rest of the developing world coincided with a rise in the share of investors who think deflation is a larger risk to the markets than inflation.

China’s devaluation sparked similar moves from other nations that had pegged their currencies to the greenback. All else being equal, this process engenders a stronger U.S. dollar and weaker commodity prices, thereby exerting downward pressure on headline inflation rates. As such, investors’ reactions to the Fed’s Oct. 28 statement, which resulted in an increase in the implied odds of a December rate hike, may not fully be reflected in its results. Nonetheless, roughly 40% of those surveyed indicated that they expected the Fed to initiate its tightening phase before the year was out. A plurality of respondents think liftoff will be a negative for risk assets, though only for a short period. “Indeed, the risk of Fed policy withdrawal is at a two-year low, suggesting complacency about the threat of higher rates,” warned Felices.

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Pon Zi.

Corporate Debt in China: Above Cruising Altitude (CEW)

By far the most worrying debt in China is held by the corporate sector. Total borrowing by the nonfinancial sector shows that the total debt-to-GDP ratio has reached 240% of GDP as of the first quarter of 2015. The corporate debt-to-GDP ratio was 160% of GDP, or $16.7 trillion as of the first quarter of 2015, and total corporate liabilities up to 200% of GDP when including corporate debt securities (bonds). For some perspective, the corporate debt-to-GDP ratio in the United States is 70%, less than half that of China’s. China’s economy has seen some cyclical scares this year (think stock market and currency), but high corporate debt is a structural issue, potentially leading to a period of slower expansion of credit in an effort to reduce the debt-to-GDP ratio weighing on rapid growth.

Corporate debt has risen faster than expected. As noted in an earlier blog post, in 2013, Standard & Poor’s predicted that China’s corporate debt would be between 136 and 150% of GDP by 2017. This year Standard & Poor’s said China’s corporate debt has already reached 160% of GDP, a figure in line with data from the Bank of International Settlements. Yu Yongding, a senior fellow at the Chinese Academy of Social Sciences (CASS), has calculated that without any fundamental change in the current situation, the corporate debt-to-GDP ratio will reach 200% by 2020. Increased borrowing by state-owned enterprises (SOEs) has contributed significantly to this rise, and SOEs account for around half of all the corporate debt in China. But problematically, SOEs have a much lower return on assets than private firms, as low as one-third.

Which begs the question: If a large SOE is unable to pay its interest payments, what will the government do? Will it take control of the debt, and will the debt therefore be counted as government rather than corporate debt? This would do nothing to the overall credit-to-GDP ratio but may cause moral hazard. Besides corporate debt from bank loans, China has seen dramatic growth of the corporate bond market. Overall this growth is seen as a positive move, as it means the firms are either refinancing old loans with bonds at lower yields or simply expanding their balance sheets using the bond market rather than bank loans. Also helpful is that the majority of corporate bonds in China are in renminbi, protecting them from foreign exchange fluctuations. The IMF reports that total bond issuance in China in 2014 was over $600 billion.

Real estate, construction, mining, and energy production have been leading the increase in leverage. These cyclical sectors loaded up on credit after the 2008 financial crisis and have some of the most highly leveraged firms in China. The rise in corporate debt in China is one of the most pressing issues for future growth. A drop in corporate revenue could prompt a number of defaults, lowering overall economic growth and reducing revenue further—a vicious cycle. Potential headwinds include normalizing interest rates in the United States, decreasing capital efficiency, disinflation, or a property market slowdown. Moreover, banks lend about half of their loans to corporations, so a rise in corporate defaults could have broader banking implications, including liquidity concerns and nonperforming loans.

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“If prices don’t recover, the researcher predicts almost all U.S. smelting plants will close by next year..”

A 127-Year-Old US Industry Collapses Under China’s Weight (Bloomberg)

Alcoa’s latest aluminum-making cutback is signaling the end of the iconic American industry. For 127 years, the New York-based company has been churning out the lightweight metal used in everything from beverage cans to airplanes, once making it a symbol of U.S. industrial might. Now, with prices languishing near six-year lows, it’s wiping out almost a third of domestic operating capacity, Harbor Intelligence estimates. If prices don’t recover, the researcher predicts almost all U.S. smelting plants will close by next year. While that’s a big deal for the U.S. industry and the people it employs, it doesn’t mean much for global supplies. Alcoa’s decision to eliminate 503,000 metric tons of smelting capacity accounts for about 31% of the U.S. total for primary aluminum, but less than 1% of the global total, according to Harbor.

For more than a decade, output has been moving to where it’s cheaper to produce: Russia, the Middle East and China. A global glut has driven prices down by 27% in the past year, rendering American operations unprofitable and accelerating the pace of the industry’s demise. “You’ve seen a fair clip of closures in the U.S., that is just unfortunate, but a development that’s very difficult to change,” Michael Widmer at Bank of America said. “It means you’ll just have to purchase from somewhere else.” That’s exactly what Jay Armstrong, the president of Trialco is doing. The company, which turns aluminum into finished manufactured products, now buys about 80% of the supplies it turns into car wheels from overseas. That’s up from 40% five years ago, he said. “It’s not the kind of business where we’re going to pay more and buy all American,” Armstrong said in a telephone interview. “It’s too competitive a business to do that.”

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Not.Going.To.Happen. So what then?

Xi Says China Needs at Least 6.5% Growth in Next Five Years (Bloomberg)

China’s president signaled policy makers will accept slower growth, but not much slower, as details of a blueprint set to define his term as leader were released Tuesday. Annual growth should be no less than 6.5% in the next five years to realize the goal to double 2010 gross domestic product and per capita income by 2020, President Xi Jinping said Tuesday, according to the official Xinhua News Agency. The 13th five-year plan, details of which were announced Tuesday, is the first to confront an era of sub-7% economic growth since Deng Xiaoping opened the nation to the outside world in the late 1970s. “Policy makers still want to maintain a high growth pace, while the policy expectation is tuned slightly lower,” said Tao Dong at Credit Suisse in Hong Kong.

“The stance of policy makers is to gradually transform to a ’new normal.’ But to maintain the peoples’ confidence, the bar is set relatively high.” China will seek to increase the yuan’s convertibility in an orderly manner by 2020 and change the way it manages currency policy, according to the Communist Party’s plan. Authorities will opt for a “negative list” foreign-exchange system – an approach that lets companies do anything that’s not specifically banned – and open the finance industry as it promotes the yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights basket, Xinhua reported. The proposals coincide with heightened anxiety over China’s economic outlook following a stock market slump and a surprise yuan devaluation in August that roiled global markets.

China will target medium- to high-speed growth during the period, and officials pledged to reduce the income gap, further open up to overseas investment and boost consumption, according to the draft. Officials said they will accelerate financial system reform and promote transparent and healthy capital markets while also overhauling stock and bond sales. They’ll continue reforms of the fiscal and tax systems and transfer some state capital to pension funds. [..] Xi’s growth baseline matches guidance provided by Premier Li Keqiang, who said Sunday that China needs average growth of more than 6.5% in the next five years to meet the goal of achieving a “moderately prosperous” society by 2020. Xi and Li are managing the priorities of both reforming the economy and keeping short-term growth fast enough so that structural changes don’t cause a hard landing.

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“..Xinhua cited Xi as saying that annual growth should be no less than 6.5% in the next five years to achieve the Communist Party’s aim of doubling GDP per capita from 2010 by the end of the decade..”

China’s Xi Says 6.5% Annual Growth Enough To Meet Goals: Xinhua (AFP)

Growth of only 6.5% a year in 2016-2020 will be enough for China to meet its wealth goals, President Xi Jinping said on Tuesday according to the official news agency Xinhua. The report came as the ruling Communist party issued guidelines for the next five-year plan for the world’s second-largest economy, whose slowing growth has alarmed investors worldwide. The first documents released by the leadership conclave did not include a numerical growth target. But Xinhua cited Xi as saying that annual growth should be no less than 6.5% in the next five years to achieve the Communist Party’s aim of doubling GDP per capita from 2010 by the end of the decade. It said he made the remarks in a speech, without giving direct quotes. The doubling target is part of achieving what China’s ruling party calls a “moderately prosperous society” in time for the 100th anniversary of its foundation.

The comments are the clearest indication yet that Beijing will reduce its target growth rate from the current “around 7%”, after expansion slowed last quarter to its lowest in six years. Some economists say that the current figure is unattainable going forwards, and that trying to do so risks derailing painful but necessary markets reforms. The country has faced economic turbulence in recent months as it attempts to transition its economy from years of super-charged growth to a more modest pace it has dubbed the “new normal”. Botched stock market interventions and a sudden currency devaluation have rattled confidence in the country’s leadership, which has staked its legitimacy on maintaining an aura of economic infallibility.

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“..during the three weeks in August after China devalued its currency, Goldman Sachs calculated that another $200 billion may have left.”

China’s Money Exodus (Bloomberg)

The ranks of China’s wealthy continue to surge. As their economy shows signs of weakness at home, they’re sending money overseas at unprecedented levels to seek safer investments — often in violation of currency controls meant to keep money inside China. This flood of cash is being felt around the world, driving up real estate prices in Sydney, New York, Hong Kong and Vancouver. The Chinese spent almost $30 billion on U.S. homes in the year ending last March, making them the biggest foreign buyers of real estate. Their average purchase price: about $832,000. Same trend in Sydney, where Chinese investors snap up a quarter of new homes and are forecast to double their spending by the end of the decade. In Vancouver, the Chinese have helped real estate prices double in the past 10 years.

In Hong Kong, housing prices are up 60% since 2010. In total, UBS Group estimated that $324 billion moved out last year. While this year’s numbers aren’t yet in, during the three weeks in August after China devalued its currency, Goldman Sachs calculated that another $200 billion may have left. So how do these volumes of cash get out when Chinese are limited by rules that allow them to convert only $50,000 per person a year? The methods include China’s underground banks, transfers using Hong Kong money changers, carrying cash over borders and pooling the quotas of family and friends – a practice known as “smurfing.” The transfers exist in a gray area of cross-border legality: What’s perfectly legitimate in another country can contravene the law in China.

“It’s not legal for people to use secret channels to move money abroad, because this is smuggling,” says Xi Junyang, a finance professor at Shanghai University of Finance & Economics. “But the government has kept a laissez-faire attitude until recently.” Now, policy makers are starting to take the outflow seriously. While it’s not about to run out of money, China has intensified a crackdown on underground banks that illegally channel cash abroad. It’s also trying to capture officials suspected of fleeing overseas with government funds. Longer term, China has pledged to remove its currency controls and make the yuan fully convertible by 2020.

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There’s so much more of this in the pipeline.

Standard Chartered’s Bad Loans Reveal Cracks in Asian Economies (Bloomberg)

As China’s growth sputters, the troubles at Standard Chartered are another bad omen for what were once Asian economic darlings. The bank, which generates most of its income in the region, had gambled on success in emerging markets such as India, which instead saddled the lender with delinquent loans. As a result, the company which opened its offices in Mumbai under Queen Victoria is now axing 15,000 jobs and is asking investors for $5.1 billion. “Standard Chartered are Asian specialists and are in all the main markets in the region, so in looking at them you can get a good sense for credit direction and lending appetite,” said Mark Holman at TwentyFour Asset Management. For now, Asia still has fewer corporate debt defaults than other developing countries, but rising leverage from India to Indonesia point to the risk of further nonpayments.

More stringent conditions from banks like Standard Chartered are slowing loan growth in the region, exposing more fissures in the corporate credit market. “The picture that emerges is that Asian credit cycles are far more advanced than those in Europe and loan losses and impairment charges are mounting,” Holman said. Like other developing nations, Asian companies took advantage of low interest rates overseas to go on a borrowing binge. The move is backfiring as slower economic growth makes it more difficult to pay back the obligations. Fitch Ratings warned on Nov. 2 that 11% of India’s loans will fall into the category of “stressed assets” in the fiscal year ending in March 2016 and only improve “marginally” the next year. In China, Sinosteel, a state-owned steelmaker, missed an interest payment last month, becoming the latest firm that teeters on the verge of default.

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It’s still only about money: “VW said it estimated the “economic risks” of the latest discovery at €2 billion..”

VW Admission Suggests Cheats Went Much Further Than Diesel Emissions (Guardian)

The crisis at Volkswagen has deepened after the carmaker found “irregularities” in the carbon dioxide levels emitted by 800,000 of its cars. An internal investigation into the diesel emissions scandal has discovered that CO2 and fuel consumption were also “set too low during the CO2 certification process”, the company admitted on Tuesday night. The dramatic admission raises the prospect that VW not only cheated on diesel emissions tests but CO2 and fuel consumption too. VW said it estimated the “economic risks” of the latest discovery at €2bn (£1.42bn). The company said the “majority” of cars involved have a diesel engine, which implies that petrol cars are involved in the scandal for the first time.

Matthias Müller, chief executive of VW, said: “From the very start I have pushed hard for the relentless and comprehensive clarification of events. We will stop at nothing and nobody. This is a painful process, but it is our only alternative. For us, the only thing that counts is the truth. That is the basis for the fundamental realignment that Volkswagen needs.” VW said it will now work with the authorities to clarify what took place during the CO2 tests and “ensure the correct CO2 classification for the vehicles affected”. Müller added: “The board of management of Volkswagen AG deeply regrets this situation and wishes to underscore its determination to systematically continue along the present path of clarification and transparency.”

VW has already admitted fitting a defeat device to 11m vehicles worldwide that allowed them to cheat tests for emissions of nitrogen oxides. The carmaker has put aside €6.7bn to meet the cost of recalling the 11m vehicles, but also faces the threat of fines and legal action from shareholders and customers. The company has hired the accountancy firm Deloitte and the law firm Jones Day to investigate who fitted the device into its vehicles. It is understood that the carmaker believes a group of between 10 and 20 employees were at the heart of the scandal.

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“VW is leaving us all speechless..”

VW Emissions Issues Spread to Gasoline Cars (Bloomberg)

Volkswagen said it found faulty emissions readings for the first time in gasoline-powered vehicles, widening a scandal that so far had centered on diesel engines. Separately, the company’s Porsche unit said it’s halting North American sales of a model criticized by U.S. regulators. Volkswagen said an internal probe showed 800,000 cars had “unexplained inconsistencies” concerning their carbon-dioxide output. Previously, the automaker estimated it would need to recall 11 million vehicles worldwide — more than Volkswagen sold last year. It was unclear how much overlap there was between the two tallies. The company said the new finding could add at least €2 billion to the €6.7 billion already set aside for fixes to the affected vehicles but not litigation, fines or customer compensation.

The crisis that emerged after Volkswagen admitted in September to cheating U.S. pollution tests for years with illegal software has shaved more than one-third of the company’s stock price and led to a leadership change. Today’s revelation adds to the pressure on Volkswagen’s new chief executive officer, Matthias Mueller, who replaced Martin Winterkorn and was previously head of Porsche. Volkswagen’s supervisory board said it will meet soon to discuss further measures and consequences. “VW is leaving us all speechless,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI. [..] The 3.0-liter diesel motors targeted on Monday by a U.S. Environmental Protect Agency probe aren’t part of the latest finding. The company rejected allegations that its cheating on diesel-emissions tests included Porsche and other high-end vehicles.

The EPA said its new investigation centers on the Porsche Cayenne and VW Touareg sport utility vehicles and as well as larger sedans and the Q5 SUV from Audi. But then late Tuesday, Porsche’s North American division said it would voluntarily discontinue sales of diesel-powered Cayennes from model years 2014 to 2016 until further notice. The Atlanta-based unit’s statement reiterated that the EPA notice was unexpected and that owners can operate their vehicles normally. “We are working intensively to resolve this matter as soon as possible,” Porsche said in the statement.

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Porsche is worried about ‘its results’. It should rethink that one.

VW Says Fuel Usage Understated On Some Models; Porsche Warns (Reuters)

Volkswagen on Tuesday said it had understated the fuel consumption of 800,000 cars sold in Europe, while majority stakeholder Porsche Automobil Holding warned that VW’s latest findings could further weigh on its results. The latest revelation about fuel economy and carbon dioxide emissions, which Germany’s largest automaker said represented a roughly €2 billion economic risk, deepened the crisis at VW. The scandal initially centered on software on up to 11 million diesel vehicles worldwide that VW admitted vastly understated their actual emissions of smog-causing pollutant nitrogen oxide. U.S. environmental regulators said on Monday that similar “defeat devices” were installed on larger 3.0 liter engines used in luxury sport utility vehicles from Porsche and Audi, although VW has denied those allegations.

Porsche’s North American unit said it was discontinuing sales of Porsche Cayenne diesel sport utility vehicles until further notice, citing the allegations. The latest findings that VW understated fuel consumption and carbon dioxide emissions, areas which U.S. regulators have yet to address, were disclosed as VW continues a broad review of its handling of all pollution-related issues. While the findings mostly apply to smaller diesel engines, one gasoline-powered engine is also affected. “VW is leaving us all speechless,” said Arndt Ellinghorst of banking advisory firm Evercore ISI. “It seems to us that this is another issue triggered by VW’s internal investigation and potentially related to Europe.” The carmaker said it would immediately start talking to “responsible authorities” about what to do about the latest findings.

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Will Hugh be the greater fool?

Hugh Hendry: “Today We Would Advise You That You Don’t Panic!” (Zero Hedge)

In his latest letter, he valiantly trudges on down the path of bullish abandon and tries to convince if not so much others as himself why continuing his desertion of the bearish camp he did two years ago is the right thing to do, and how in the aftermath of the VIX explosion in August, he “learned to stop worrying and love the bomb.” Key highlights:

… it is ironic that we are perhaps best known for advising “that you panic”. However, if you are anxious at the wrong time it can prove very painful. Today, we would advise that you don’t panic!

… by withdrawing the “Greenspan put” and using their asset purchase schemes to eviscerate any notion of value, the authorities have paradoxically created a safer yet more paranoid market.

… first it was Europe, then the high yield credit space with the vulnerabilities of the shale oil issuers, and then it was back to Greece and then the mother of them all, China, with its falling property and stock prices seemingly knocking economic growth and making a sizeable devaluation inevitable. And yet nada… the weeping prophets have failed to force a crisis after one hell of a go.

… perhaps we are being premature and the cards are about to fall. Or perhaps there simply are no dead bodies in the system and the global economy has proven itself much more resilient to shocks. We certainly believe that if we had been forewarned two years ago that the dollar would rise versus selected EM currencies by 50% and that important commodities such as oil and iron ore would fall by 50% we would never have been able to predict just how orderly things have turned out at both the company and sovereign level. The turmoil it seems has remained contained within financial markets in a very curious way.

… perhaps it’s time to stop worrying and love the bomb?

Actually at last check, practically all the “bears” predicted exactly what happened: trapped by their own policies, central banks would have no choice than to unleash another onslaught of easing. This is precisely what happened when first the ECB previewed its QE2, then the PBOC cut rates, then Sweden boosted QE, then the BOJ said it would “not hesitate” to act (and would have done so had other central banks not pushed the Yen lower thanks to its carry trade status). The real question, Hugh, is how much time did the latest doubling down by the world’s central banks buy? We should know the answer in 2-4 months.

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“What policymakers will do, in all likelihood, is hope and pray, and when that fails, they will likely double down on monetary extremism. ”

Hugh Hendry Says “Don’t Panic”; Paul Singer Says You May Want To (Zero Hedge)

Businesspeople in today’s world are either concerned, actively sweating or oblivious to the rumblings and dangers around them. We recommend that both investors and businesspeople be highly alert to the implications of populism, the increasing concentration of power into the hands of unaccountable elites and the dissipation of the rule-of-law protections of liberty. It is very odd and dangerous that governments, satisfied with policies which, by raising asset prices (stocks, bonds, real estate, high-end art), are seemingly designed to make the rich richer, nevertheless simultaneously excoriate inequality as the cause of slow growth and societal disquiet. It is also strange that policymakers are not concerned by the obvious failure of monetary extremism to achieve the predicted levels of growth, or by the risks that may exist either in the continuation of the monetary experiment or in its ultimate unwinding.

Policymakers who are sticking with the failed policy mix have invented creative explanations for why growth has been so bad for such a long a period of time. The most prevalent (and tautological) of these explanations is “secular stagnation,” a theory that the developed world simply cannot grow faster due to ageing populations, growth-destructive technologies and competition from cheap labor around the world. We disagree with this theory, and assert that it can be examined for validity only after a full range of first-line “fiscal” policies (as we have defined them) has been put firmly and comprehensively in place. In contrast to the “secular stagnationistas,” we believe that there is a great deal of low-hanging fruit (that is, far higher rates of growth in incomes, jobs and national wealth) to be had from simple changes in leadership and policies.

The question of the day is: What will be the policy response of the developed world toward the currently deteriorating (at least in EMs and China) conditions, and the policy response if the deterioration spreads to Europe and the U.S.? If we know anything about the policy decision-making landscape in developed countries, it is that policymakers are all on super-keen-alert for signs of deflation (which they basically equate with credit collapse — a false and misleading connection, but that is a topic for another day). They will not remain passive in the face of a renewed global recession and/or financial crisis. So what will they do next, and how will it affect global markets? We can be reasonably certain that policymakers will not leap into action on the fiscal measures that we have described as the front-line policies needed to meaningfully quicken economic growth. Try to imagine more flexible and business-friendly tax, regulatory and labor policies being enacted by current political leadership in the U.S., Europe and Japan.

Sorry, our imaginations — never inert — just can’t get there. What policymakers will do, in all likelihood, is hope and pray, and when that fails, they will likely double down on monetary extremism. This landscape is essentially baked, unless you think that sometime in the near future the global economy will turn higher, either on its own or in anticipation of such policy measures in the future. To many policymakers today, jawboning seems like a magic button, since markets often create the desired result in anticipation of possible future actions. Consequently, governments may be able to get a particular outcome without requiring the central bankers to actually take any action.

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This is nothing yet. Wait till next year’s pring cleaning.

Europe’s Biggest Banks Are Cutting 30,000 Jobs, More To Come (Bloomberg)

Standard Chartered became the third European bank in less than two weeks to announce sweeping job cuts, bringing the total planned reductions to more than 30,000, or almost one in seven positions. The London-based firm said Tuesday it will eliminate 15,000 jobs, or 17% of its workforce, as soaring bad loans in emerging markets hurt earnings. Deutsche Bank last week announced plans for 11,000 job cuts, while Credit Suisse said it would trim as many as 5,600 employees. The three firms, which all named new chief executive officers this year, are undertaking the deepest overhauls since the financial crisis as stricter capital rules erode profitability. Standard Chartered and Credit Suisse will tap shareholders for funds, while Deutsche Bank scrapped its dividend for this year and next to conserve capital.

“It’s just further evidence that Europe’s banks didn’t adapt quickly enough to the post-crisis world and are now playing catch up,” said Christopher Wheeler at Atlantic Equities in London. More bloodletting may be on the way. UniCredit is considering as many as 12,000 job cuts as it seeks to improve profit and capital levels, people with knowledge of the discussions said last week. The numbers, which are still under review, increased from 10,000 a month ago and may change depending on the outcome of asset sales. The largest Italian bank reports earnings next week. Including jobs lost through asset sales, John Cryan, Deutsche Bank’s co-CEO since July, intends to eliminate 26,000 employees, or a quarter of the workforce, by 2018. Tidjane Thiam, Credit Suisse’s new CEO, will shed jobs in the U.S., U.K. and Switzerland.

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“..the big six banks in this country control 97% of all trading assets in the U.S. and 93% of all derivatives.”

Wall Street/Washington Revolving Door More Dangerous Than Ever: Prins (Yahoo)

What are the consequences of regulators leaving government work to join the financial services industry, and vice versa? Nomi Prins, a Senior Fellow at Demos, chronicles the problems of the revolving door between Washington and Wall Street in her latest book “All the Presidents’ Bankers.” “The difference is that now people know each other less in their personal lives before they make those transitions,” she says. “Now it’s a little more like ‘I know you from the industry of Wall Street and Washington’ as opposed to ‘We hung out and our dads smoked cigars together.’ Prins notes that there was more personal accountability in the relationships between Wall Street and Washington during the mid-20th century.

She points out that before the crash of 1929, the Morgan bank (predecessor of J.P. Morgan) had strong connections with Presidents Coolidge and Hoover. Yet, a shift in the relationships occurred during the Great Depression. “There was this accountability moment where the bankers that ascended to run these banks, to run Chase, to run Citibank & they wanted economic stability throughout the country,” she says. “They actually thought [stability] was important for confidence in the banking system & people would actually keep their money there and trust that they had a future with this bank, so the relationships with individuals and corporations and countries all mattered.” Prins says that the modern-day deterioration of the bank-customer relationship is a direct result of the growing size and risk profiles of bank behemoths.

“The banks are so big right now [and] they have access to so much of apercentage of the deposits of individuals, she says. “The leverage is so much higher on the back of those deposits, the bailouts that have happened for numerous reasons in the past 25 years have all been an indication that is okay to take more reckless bets.” And while the idea of banks being “too big to fail” caused widespread Main Street anger towards Wall Street, Prins believes the policy of government bailouts will continue post-Financial Crisis as banking has become more concentrated. She noted that the big six banks (J.P. Morgan, Citi, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo) in this country control 97% of all trading assets in the U.S. and 93% of all derivatives.

Prins also added that the anti-banking rhetoric of many U.S. Presidents (remember President Obama’s Wall Street “fat cats”?) has a long history, but one that is at odds with actual policy. It goes all the way back to Woodrow Wilson and the creation of the Federal Reserve, she said. “In practice Woodrow Wilson was behind the creation of the Fed, which we know now has substantiated a lot of Wall Street losses, has a $4.5 trillion book. It’s the largest hedge fund in the world right now…But [Dodd Frank] hasn’t fundamentally changed the concentration of power. The revolving door…influences the risk inherent to what’s going on on Wall Street. It hasn’t made the economy more stable with respect to the banking industry, which is an industry that infiltrates every aspect of our individual and political lives.

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“..to force nations to accept new financial products and services, to approve the privatisation of public services and to reduce the standards of care and provision.”

Gathering Financial Storm Just One Effect Of Corporate Power Unbound (Monbiot)

What have governments learned from the financial crisis? I could write a column spelling it out. Or I could do the same job with one word: nothing. Actually, that’s too generous. The lessons learned are counter-lessons, anti-knowledge, new policies that could scarcely be better designed to ensure the crisis recurs, this time with added momentum and fewer remedies. And the financial crisis is just one of the multiple crises – in tax collection, public spending, public health and, above all, ecology – that the same counter-lessons accelerate. Step back a pace and you see that all these crises arise from the same cause. Players with huge power and global reach are released from democratic restraint. This happens because of a fundamental corruption at the core of politics.

In almost every nation the interests of economic elites tend to weigh more heavily with governments than do those of the electorate. Banks, corporations and landowners wield an unaccountable power, which works with a nod and a wink within the political class. Global governance is beginning to look like a never-ending Bilderberg meeting. As a paper by the law professor Joel Bakan in the Cornell International Law Journal argues, two dire shifts have been happening simultaneously. On one hand governments have been removing laws that restrict banks and corporations, arguing that globalisation makes states weak and effective legislation impossible. Instead, they say, we should trust those who wield economic power to regulate themselves.

On the other hand, the same governments devise draconian new laws to reinforce elite power. Corporations are given the rights of legal persons. Their property rights are enhanced. Those who protest against them are subject to policing and surveillance – the kind that’s more appropriate to dictatorships than democracies. Oh, state power still exists all right – when it’s wanted. Many of you will have heard of the Trans-Pacific Partnership and the proposed Transatlantic Trade and Investment Partnership (TTIP). These are supposed to be trade treaties, but they have little to do with trade, and much to do with power. Theyenhance the power of corporations while reducing the power of parliaments and the rule of law. They could scarcely be better designed to exacerbate and universalise our multiple crises – financial, social and environmental.

But something even worse is coming, the result of negotiations conducted, once more, in secret: a Trade in Services Agreement (TiSA), covering North America, the EU, Japan, Australia and many other nations. Only through WikiLeaks do we have any idea of what is being planned. It could be used to force nations to accept new financial products and services, to approve the privatisation of public services and to reduce the standards of care and provision. It looks like the greatest international assault on democracy devised in the past two decades. Which is saying quite a lot.

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Damn right. Damn late too.

Merkel Warns Of Balkans Military Conflicts Amid Migrant Influx (AFP)

German Chancellor Angela Merkel warned that fighting could break out in the Balkans, along the main route of migrants trying to reach Europe, if Germany closed its border with Austria, in remarks published Tuesday. Amid ever-louder calls for Merkel to undertake drastic action to stem the tide of people entering her country, she again rejected the appeals, noting that tensions were already running high between the Western Balkans countries. With an eye to deep rifts exposed after Hungary closed its frontier with Serbia and Croatia, Merkel said blocking the border with Austria to refugees and migrants would be reckless. “It will lead to a backlash,” Merkel was quoted in media reports as saying late Monday in an address to members of her conservative Christian Democratic Union (CDU) in the western city of Darmstadt.

“I do not want military conflicts to become necessary there again,” Merkel added, referring to the Balkans. She said disputes in a region already ravaged by war in the 1990s could quickly escalate, touching off a cycle of violence “no one wants.” Germany has become the main destination for people fleeing war and poverty in the Middle East, Africa and Asia via the Balkans, with up to one million people expected this year. The EU vowed last month to help set up 100,000 places in reception centres in Greece and along the migrant route through the Balkans as part of a 17-point action plan devised with the countries most affected by the crisis. But just as Merkel attempts to convince European partners to share out the burden more fairly, she has faced a revolt from within her own conservative alliance against the welcome she has extended to people escaping violence and persecution.

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Must take this out of the hands of the EU. All it is is a facade for sociopaths to hide behind.

European Union States Have Relocated Just 116 Refugees Out Of 160,000 (Guardian)

EU member states have so far relocated only 116 refugees of the 160,000 they are committed to relocating over the next two years, according to new figures. EU members states agreed in September to relocate 160,000 people in “clear need of international protection” through a scheme set up to relocate Syrian, Eritrean, and Iraqi refugees from the most affected EU states – such as Italy and Greece – to other EU member states. So far 116 people have been relocated, and only 1,418 places have been made available by 14 member states, according to data released on Tuesday by the European Commission. A total of 86 asylum seekers have been relocated from Italy, and 30 asylum seekers will travel from Athens to Luxembourg on Wednesday.

Denmark, Ireland and the UK have an opt-out from the scheme, but Britain is the only member state that has said it will not contribute to the relocation. The EU’s emergency relocation mechanism is only one facet of the broader refugee crisis. Syria, Iraq and Eritrea account for the majority of those crossing the Mediterranean. According to the UNHCR, more than one in two are fleeing from Syria. While 6% of those arriving via the Mediterranean are originally from Iraq, and 5% from Eritrea. Not all those seeking asylum remain or travel via Italy or Greece. About 770,000 asylum applications were lodged across the EU in the first nine months of 2015, compared to 625,920 in all of 2014 and 431,090 in 2013. This has contributed to a backlog of applications.

At the end of last year there were just under 490,000 pending applications across EU member states. In July of this year, the figure stood at 632,000. The backlog is not showing signs of receding any time soon: for every asylum decision made there are 1.8 new applications. Approximately 240,000 applications were processed between January and June this year. Over the same six months, 432,345 applications were filed. However, the European Commission data also reveals that beyond the logistical challenges, a “large number of member states has yet to meet financial commitments” and “too few member states” have responded to calls to help Serbia, Slovenia and Croatia; among the most used routes by asylum seekers, with essential resources such as beds and blankets.

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What happened to numb the rich west the way it did?

Greek Coast Guard Says 5 Refugees Die In Boat Accident Tuesday Night (AP)

Greece’s coast guard says the total number of people rescued from a boat carrying people from Turkey to the nearby Greek island of Lesvos has increased to 65, while a total of five bodies were recovered from the water. The coast guard said Wednesday that the bodies were those of three children and two men. There were no further missing people reported. The migrant boat ran into trouble north of Lesvos Tuesday night. The coast guard says a total of 457 people were rescued between Tuesday morning and Wednesday morning in 13 separate incidents. More than 600,000 people have arrived in Greece so far this year, with most arriving on Lesbos. From there, they make their way to the Greek mainland on ferries and then head overland to more prosperous EU countries in the north. Thousands of migrants are stranded on Lesvos due to a ferry strike that began Monday.

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Sep 282015
 
 September 28, 2015  Posted by at 8:21 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


John Vachon Koolmotor, Cleveland, Ohio May 1938

Cash Beats Stocks And Bonds For First Time In 25 Years (MarketWatch)
US Bonds Flash Warning Sign (WSJ)
Waiting for Collapse: USA Debt Bombs Bursting (Edstrom)
China August Industrial Profits Fall 8.8% From A Year Earlier (Reuters)
Chinese Mining Group Longmay To Cut 100,000 Coal Jobs (China Daily)
VW Proves That Global Business Has Become A Law Unto Itself (Guardian)
Seven Reasons Volkswagen Is Worse Than Enron (FT)
German Transport Authority Demands VW Car Clean-Up Plan By October 7 (Bloomberg)
VW Scandal to Hurt Its Financing Arm (WSJ)
VW Staff, Supplier Warned Of Emissions Test Cheating Years Ago (Reuters)
VW’s New CEO Is Moving Forward With a Strategy Shift (Bloomberg)
Catalan Separatists Claim Election Win As Yes Vote For Breakaway (Guardian)
Sweden’s Negative Interest Rates Have Turned Economics On Its Head (Telegraph)
Zero Inflation Looms Again for ECB as Oil Drop Counters Stimulus (Bloomberg)
Tory Welfare Cuts Will Destroy Benefit Of UK’s New Living Wage (Guardian)
Corbyn Recruits Top Global Economists to Boost Economic Credentials (Bloomberg)
Swiss Watchdog Says Opens Precious Metal Manipulation Probe (Reuters)
Rousseff Worried About Brazilian Companies With Dollar Debt (Bloomberg)
Shell Halts Alaska Oil Drilling After Disappointing Well Result (Bloomberg)
Banksy’s Dismaland To Be Taken Down And Sent To Calais To Build Shelters (PA)
500 Migrants Rescued In Mediterranean This Weekend: Italian Coastguard (AFP)

Brought to you by QE.

Cash Beats Stocks And Bonds For First Time In 25 Years (MarketWatch)

Cash is on track this year to outperform both stocks and bonds, something that hasn’t happened since 1990, according to Bank of America Merrill Lynch. And it might all be down to the notion that central bank-fueled liquidity has peaked. Year-to-date annualized returns are negative 6% for global stocks and negative 2.9% for global government bonds, according to analysts led by Michael Hartnett in a Friday note. The dollar is up 6% and commodities are down 17%, while cash is flat. Here’s what this has to do with the liquidity story:

[Quantitative easing] & zero rates reflated financial assets significantly. The only assets that QE did not reflate were cash, volatility, the US dollar and banks. Cash, volatility, the US dollar are all outperforming big-time in 2015, which tells you markets have been forced to discount peak of global liquidity/higher Fed funds. Frequent flash [crashes] (oil, UST, CHF, bunds, SPX) tell the same story. Peak in liquidity = peak of excess returns = trough in volatility.

The note speaks to what has become a very important theme for investors. While the Bank of Japan and the ECB continue to provide quantitative easing, the Fed has stopped its asset purchases and is moving toward lifting rates from near zero, as is the Bank of England. The notion that liquidity has peaked and that financial markets must now adjust to that new dynamic. Indeed, billionaire hedge-fund investor David Tepper earlier this month argued that as China and other emerging-market central banks shed foreign reserves, liquidity is no longer flowing one direction, making for more volatile conditions.

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“Clearly, the fact that spreads have been widening since the middle of 2014 is a very worrisome trend..” “We continue to scratch our heads as to the driver of that.”

US Bonds Flash Warning Sign (WSJ)

The U.S. corporate-bond market is starting to flash caution signals about the broader economy. The difference in yield, called the “spread,” between bonds from America’s strongest companies and ultrasafe U.S. Treasury securities has been steadily increasing, a trend that in the past has foreshadowed economic problems. Wider spreads mean that investors want more yield relative to Treasurys to own bonds from U.S. companies. It can signal that investors are less confident about companies’ business prospects and financial health, though other factors likely also are at play. Spreads in investment-grade corporate bonds—debt from companies rated triple-B-minus or higher—are on track to increase for the second year in a row, according to Barclays data.

That would be the first time since the financial crisis in 2007 and 2008 that spreads widened in two consecutive years. The previous times were in 1997 and 1998, as a financial crisis roiled Asian countries, and a few years before the dot-com bubble burst in the U.S. Investors and analysts say they are closely watching the action to determine whether trouble is brewing once again. Concerns are growing about companies’ ability to pay back the massive debt load taken on in recent years, as ultralow interest rates spurred corporate finance chiefs to sell record amounts of bonds. There is also anxiety that economic weakness overseas could ultimately spill over into the U.S., a worry highlighted on Thursday when Caterpillar said it could cut more than 10,000 jobs amid a slowdown in construction-equipment sales in China.

“We could see the economy accelerate; we could see this global weakness pass,” said Brian Rehling at Wells Fargo Investment Institute. “But you could also see things go the other way, where the global economy continues to weaken.” [..] As investors grow more skittish, companies looking to sell new debt are being forced to pay up. Altice NV on Friday reduced the size of a junk-bond deal backing its purchase of Cablevision from $6.3 billion to $4.8 billion and paid higher yields than initially expected, according to S&P Capital IQ LCD. The company also increased the size of a term loan to help finance the $10 billion acquisition. “Clearly, the fact that spreads have been widening since the middle of 2014 is a very worrisome trend,” said Krishna Memani at OppenheimerFunds, which oversees some $220 billion. “We continue to scratch our heads as to the driver of that.”

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A very extensive overview of what locations in the US are due to default first, and second. Pick your local flavor.

Waiting for Collapse: USA Debt Bombs Bursting (Edstrom)

) It’s been so easy the past 15 years for local governments in the USA, state governments, government authorities, corporations, banks, hedge funds and the US Federal government to simply say how many millions, billions or trillions of dollars they wanted, pay some high priced call accountants to fill out some paperwork with fine print and voila, millions, billions and trillions of dollars in borrowed money simply appeared. It has been that easy! Now, the government in the USA owes $46 trillion, US corporations owe $15 trillion, US individuals owe $13 trillion plus there are $315 trillion in outstanding Wall Street derivatives. (Few Americans know what a derivative is, but we as a nation are on the hook for up to $315 trillion in additional debt because of these derivatives.)

These debt figures continue to escalate with each passing month. Detroit and Puerto Rico have only just begun the debt bombs bursting in the USA, the USA’s slow motion economic collapse. Who’s next? I’m going to tell you about some US local and state governments that have too much debt and are ripe for debt collapse along with a few US government authorities and corporations that borrowed too much money and are also ripe for debt collapse. Mr. Dudley of the New York Federal Reserve Bank recently warned of a wave of US municipal debt collapses coming soon. The problem is bigger than solely US municipalities as Mr. Dudley no doubt is aware.

Chicago or LA, which one is more likely to collapse first? Chicago. Kanakee County IL or Perry County KY? Kanakee County is more likely to go belly up first. Atlantic City (AC) or Yonkers? AC is more likely to bite the dust first. 1 out of 25 states are ready to collapse within months, as are 1 out of 20 US cities, 1 out of 15 US government authorities and 1 out of 7 US corporations. Within a few years, many US cities, counties, authorities, states and corporations will have debt collapsed, before the USA as a nation debt collapses. A tsunami of debt collapses is hitting the USA. The causes are government officials and corporate executives who borrowed too much easy money plus Wall Street bankers and hedge fund vultures who lent too much easy money.

Besides city, county and state collapses, there will also be school debt collapses, hospital debt collapses, government authority debt collapses, individual bankruptcies, corporate debt collapses and finally the nationwide debt collapse of the USA. If change cannot be brought about fast – like increasing revenue (e.g. raising taxes on the rich) or cutting spending (e.g. ending endless war, cutting military/intel spending) or both – then, the best way forward may be to evacuate. Get away from the places about to collapse as quickly as you can. If you find your home is burning to the ground, as I discovered one Sunday evening in New York City in the Summer of 2011, what are you going to do? Evacuate.

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TEXT

China August Industrial Profits Fall 8.8% From A Year Earlier (Reuters)

Profits earned by Chinese industrial companies declined 8.8% in August from a year earlier due to rising costs and persistent falling prices, official data showed on Monday, adding to signs of weakness in the world’s second largest economy. Also hurting firms was the stock market slump, which pushed down their investment returns while yuan fluctuation increased companies’ financial costs in August, the National Bureau of Statistics (NBS) said. During August, profits of industrial companies suffered the biggest annual fall since the NBS began monitoring such data in 2011. For the first eight months of this year, profits were down 1.9% from the year-earlier period, according to the NBS. The bureau said firms were squeezed by rising costs and falling prices with profits falling more quickly in August than in July.

In total, August profits were down 156.6 billion yuan ($24.59 billion) from a year earlier. The NBS said investment returns for industrial companies from a year earlier increased by 4.12 billion yuan in August, compared with a 11.04 billion yuan gain in July. Financial payments of industrial firms’ increased by 23.9% in August from a year earlier, compared to a 3% year-on-year drop in July. A plunge in China’s stock market over the summer and a surprise devaluation in the yuan have roiled global markets, and raised doubts inside and outside China over Beijing’s ability to manage its economy. Among 41 industrial sectors, 31 sectors had year-on-year growth of profit in the first eight months of this year, while 10 recorded drops, the NBS said.

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Beijing will spin this as some clean air initiative.

Chinese Mining Group Longmay To Cut 100,000 Coal Jobs (China Daily)

The largest coal mining group in Northeast China is cutting 100,000 jobs within the next three months to reduce its losses – one of the biggest mass layoffs in recent years. Heilongjiang Longmay Mining Holding Group Co Ltd, which has a 240,000 workforce, said a special center would be created to help those losing their jobs to either relocate or start their own businesses. Chairman of the group Wang Zhikui said the job losses were a way of helping the company “stop bleeding”. It also plans to sell its non-coal related businesses to help pay off its debts, said Wang. The State-owned mining group has subsidiaries in Jixi, Hegang, Shuangyashan and Qitaihe in Heilongjiang province, which account for about half the region’s coal production.

China’s coal mining industry has been struggling with overcapacity and falling coal prices since 2012. Last year, Longmay launched a management restructuring and cut thousands of jobs to stay profitable, amid the overall industry decline. However, the company still reported around 5 billion yuan ($815 million) in losses. It has been a dramatic fall from grace for the company, which in 2011 reported 800 million yuan in profit with annual production exceeding 50 million metric tons.

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Entire political systems in their pockets.

VW Proves That Global Business Has Become A Law Unto Itself (Guardian)

A well-functioning capitalism has, and will always need, multiple and powerfully embedded checks and balances – not just on its conduct but on how it defines its purpose. Sometimes those checks are strong, uncompromised unions; sometimes tough regulation; sometimes rigorous external shareholders; sometimes independent non-executive directors and sometimes demanding, empowered consumers. Or a combination of all of the above. CEOs, company boards and their cheerleaders in a culture which so uncritically wants to be pro-business do not welcome any of this: checks and balances get in the way of “wealth generation”. They are dismissed as the work of liberal interferers and apostles of the nanny state. Germany’s economy has been a good example of how checks and balances work well.

But the existential crisis at Volkswagen following its systematic cheating of US regulators over dangerous diesel exhaust emissions shows that any society or company forgets the truth at its peril. Volkswagen abused the system of which it was part. It became an autocratic fiefdom in which environmental sustainability took second place to production – an approach apparently backed by the majority family shareholder, with no independent scrutiny by other shareholders, regulators, directors or consumers. Even its unions became co-opted to the cause. Worse, the insiders at the top paid themselves, ever more disproportionately, in bonuses linked to metrics that advanced the fiefdom’s interests. But they never had to answer tough questions about whether the fiefdom was on the right track.

The capacity to ignore views other than your own, no external sanction and the temptation for boundless self-enrichment can emerge in any capitalism – and when they do the result is toxic. VW, facing astounding fines and costs, may pay with its very existence. So why did a company with a great brand, passionate belief in engineering excellence and commitment to building great cars knowingly game the American regulatory system, to suppress measured emissions of nitrogen dioxide to a phenomenal degree? Plainly, there were commercial and production benefits. It could thus sell the diesel engines it manufactured for Europe in the much tougher regulatory environment – at least for diesel – of the US and challenge Toyota as the world’s largest car manufacturer. Directors, with their bonuses geared to growth, employment and profits, could become very rich indeed.

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Bailout?!

Seven Reasons Volkswagen Is Worse Than Enron (FT)

It has only been a week since the stunning revelation that the Volkswagen group equipped millions of diesel-powered cars with software designed to fool anybody testing their emissions, and just days since the company’s chief executive, Martin Winterkorn, resigned. And yet there are reasons to believe that the fallout from this scandal will be as big as Enron, or even bigger. Most corporate scandals stem from negligence or the failure to come clean about corporate wrongdoing. Far fewer involve deliberate fraud and criminal intent. Enron’s accounting manipulation is often held up as a prime example of the latter and cases featuring the US energy company’s massive financial fraud are therefore taught in business schools around the world. Here are seven reasons why the Volkswagen scandal is worse and could have far greater consequences.

First, whereas Enron’s fraud wiped out the life savings of thousands, Volkswagen’s has endangered the health of millions. The high levels of nitrogen oxides and fine particulates that the cars’ on-board software hid from regulators are hazardous and detrimental to health, particularly of children and those suffering from respiratory disease. Second, led by Volkswagen, Europe’s car manufacturers lobbied hard for governments to promote the adoption of diesel engines as a way to reduce carbon emissions. Whereas diesel engines power fewer than 5% of passenger cars in the US, where regulators uncovered the fraud, they constitute more than 50% of the market in Europe thanks in large part to generous government incentives.

It was bad enough that Enron’s chief executive urged employees to buy the company’s stock. This, however, is the equivalent of the US government offering tax breaks at Enron’s behest to get half of US households to buy stock propped up by fraudulent accounting. Third, the fines and lawsuits facing Volkswagen are likely to surpass Enron in both scale and scope. Volkswagen’s potential liability to Environmental Protection Agency fines is $18bn. Add to this fines in most or all of the 50 US states and class action lawsuits by buyers and car dealers who have seen the value of their cars and franchises diminish overnight and you have a massive legal bill.

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Presumably, if you lower performance enough, it might be doable. But that makes it a toss-up between NOx and CO2.

German Transport Authority Demands VW Car Clean-Up Plan By October 7 (Bloomberg)

Germany’s car regulators have asked Volkswagen to provide a plan by Oct. 7 for if and when its vehicles will meet national emissions requirements, after the company admitted cheating on U.S. air-pollution tests. The Federal Motor Transport Authority sent a letter to VW requesting a “binding” program and schedule for a technical solution, Transport Minister Alexander Dobrindt said Sunday in an e-mailed statement. Volkswagen will present a plan in the coming days for how it will fix its affected vehicles and will notify customers and relevant authorities, Peter Thul, a company spokesman, said by phone. Bild reported earlier about the letter.

VW may have known for years about the implications of software at the center of the test-cheating scandal, newspapers reported. Robert Bosch GmbH warned VW in 2007 that its planned use of the software is illegal, according to Bild. A Volkswagen employee did the same in 2011, Frankfurter Allgemeine Zeitung reported. Volkswagen is investigating and will present its findings as soon as they’re available, Thul said, declining to elaborate.

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When it rains…

VW Scandal to Hurt Its Financing Arm (WSJ)

Volkswagen’s giant U.S. and European financing operations often act as lenders for car buyers and dealers for any of the brands in the company’s stable, from the namesake VW to Bentley, Lamborghini, Audi, Porsche and others. It bundles banking activities, including deposit taking and consumer lending to spur car sales, as well as leasing and insurance operations. The unit’s lending and leasing contracts are backed by cars. If the value of the car drops, the financial services unit may have to book a write-down. Volkswagen Financial Services AG, as it is formally known, is now evaluating whether it has to book charges on the collateral value of cars affected by a recall, a spokesman said. “We’re in talks with Volkswagen to evaluate the potential impact” and aim to produce results next week, he said.

With more than 11,000 employees and assets of around €114 billion, the Financial Services unit contributed €781 million or nearly 14% to the group’s overall net profit of €5.66 billion in the first half, according to an analyst presentation. The entire unit had 12.6 million contracts, 15% of which are in North America and 70% in Europe. The ECB late last week temporarily excluded asset- backed securities originated by Volkswagen AG from its bond buying program to review recent developments, according to a person familiar with the matter. The ECB hopes to complete its review soon, the person said. VW bonds fell last week.

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And nothing happened at all..

VW Staff, Supplier Warned Of Emissions Test Cheating Years Ago (Reuters)

Volkswagen’s own staff and one of its suppliers warned years ago about software designed to thwart emissions tests, two German newspapers reported on Sunday, as the automaker tries to uncover how long its executives knew about the cheating. The world’s biggest automaker is adding up the cost to its business and reputation of the biggest scandal in its 78-year history, having acknowledged installing software in diesel engines designed to hide their emissions of toxic gasses. Countries around the world have launched their own investigations after the company was caught cheating on tests in the United States. Volkswagen says the software affected engines in 11 million cars, most of which were sold in Europe. The company’s internal investigation is likely to focus on how far up the chain of command were executives who were responsible for the cheating, and how long were they aware of it.

The Frankfurter Allgemeine Sonntagszeitung, citing a source on VW’s supervisory board, said the board had received an internal report at its meeting on Friday showing VW technicians had warned about illegal emissions practices in 2011. No explanation was given as to why the matter was not addressed then. Separately, Bild am Sonntag newspaper said VW’s internal probe had turned up a letter from parts supplier Bosch written in 2007 that also warned against the possible illegal use of Bosch-supplied software technology. The paper did not cite a source for its report. Volkswagen declined to comment on the details of either newspaper report. “There are serious investigations underway and the focus is now also on technical solutions” for customers and dealers, a Volkswagen spokesman said. “As soon as we have reliable facts we will be able to give answers.”

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All the smoke and mirrors they can get their hands on.

VW’s New CEO Is Moving Forward With a Strategy Shift (Bloomberg)

Matthias Mueller pressed the Volkswagen board to move ahead with a reorganization he helped devise before the carmaker was caught up in an emissions-cheating scandal, as the new leader seeks to put his stamp on the company. The former Porsche boss wanted the new strategy to remain on the agenda of the Friday meeting in Wolfsburg, Germany, according to a person familiar with Mueller’s thinking, who asked not to be identified because the discussions were private. Volkswagen had intended to hold off on a reorganization aimed at streamlining decision-making to give the new boss a chance to settle in. But Mueller, who had assisted his predecessor Martin Winterkorn with devising the plan, didn’t want to wait to start making the changes.

Volkswagen said Friday that more authority will be given to individual brands and regions, a departure from the centralized structures that kept key decisions in Wolfsburg and the chief executive officer’s inner circle. The announcement capped a tumultuous week after the company admitted it rigged some diesel engines to cheat on emissions tests. Friday’s meeting, which took place in a newly constructed office building within Volkswagen’s main plant, started before noon and stretched into the evening amid wrangling over who knew what and when. Documents from four years ago that flagged the illegal software was evidently never sent up the chain of command, underscoring the need for external investigators, said another person familiar with the meeting.

When the 20-member panel finally dispersed and presented VW’s new CEO, Mueller was flanked by Volkswagen’s power players: Wolfgang Porsche, the head of the family that controls a majority of the company’s voting shares; Bernd Osterloh, the chief representative of Volkswagen’s 600,000 workers; the prime minister of Lower Saxony, Stephan Weil, whose state owns 20% of Volkswagen; and Interim Chairman Berthold Huber. Mueller vowed to do what it takes to fix the company and its tattered reputation. His mission statement was echoed by Osterloh, who said the company needs a new corporate culture that’s more inclusive and avoids a climate in which problems are hidden. Huber called the crisis a “political and moral catastrophe.”

Still, Mueller’s authority isn’t absolute. Winterkorn remains CEO of Porsche Automobil Holding SE, Volkswagen’s dominant shareholder. His continued role is a contentious issue especially for labor leaders, said a person familiar with the issue. The investment vehicle of the Porsche family moved on Saturday to tighten its control of the automaker by buying shares held by Suzuki Motor. The purchase takes the family’s holding in VW to 52.2% from 50.7%.

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A test of European democracy bigger than Greece. When the laws of the land you want to secede from won’t allow you to secede…

Catalan Separatists Claim Election Win As Yes Vote For Breakaway (Guardian)

Separatists took control of Catalonia’s regional government in an election result that could plunge Spain into one of its deepest political crises of recent years, by forcing Madrid to confront an openly secessionist government at the helm of one of its wealthiest regions. A record-breaking number of Catalans cast their vote in Sunday’s election, billed as a de facto referendum on independence. With more than 98% of the votes counted, the nationalist coalition Junts pel Sí (Together for Yes) were projected to win 62 seats, while far-left pro-independence Popular Unity Candidacy, known in Spain as CUP, were set to gain 10 seats, meaning an alliance of the two parties could give secessionists an absolute majority in the region’s 135-seat parliament. “We won,” said Catalan leaderArtur Mas i Gavarró, as a jubilant crowd waved estelada flags at a rally in Barcelona.

“Today was a double victory – the yes side won, as did democracy.” After attempts by Catalan leaders to hold a referendum on independence were blocked by the central government in Madrid, Mas sought to turn the elections into a de facto referendum, pledging to begin the process of breaking away from Spain if Junts pel Sí won a majority of seats. His party fell six seats short of a majority on Sunday. But Mas vowed to push forward with independence. “We ask that the world recognise the victory of Catalonia and the victory of the yes,” he said. “We have won and that gives us an enormous strength to push this project forward.” Junts pel Sí, representing parties from the left and right, as well as grassroots independence activists, captured 39.7% of the vote, while CUP received 8.2%.

The result leaves the separatists with 47.9% of the vote, shy of the 50%, plus one seat, that they would have needed if Sunday’s vote had been a real referendum. It’s a result that will leave the movement struggling to gain legitimacy on the world stage, said political analyst Josep Ramoneda, while setting Madrid and Barcelona on course for a collision. “The government in Catalonia will try to move forward with independence, but this result won’t allow them to take irreversible steps,” he said, pointing to a declaration of independence as an example. “I mean, nobody will recognise that.” Instead, Catalonia will be left to face Madrid alone, who will seek to stymie any attempts to move forward with independence. The Spanish prime minister, Mariano Rajoy, has vowed to use the full power of the country’s judiciary to block any move towards independence.

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The war on cash intensifies.

Sweden’s Negative Interest Rates Have Turned Economics On Its Head (Telegraph)

It has long been believed that when it comes to interest rates, zero is as low as you can go. Who would choose to keep their money in the bank if they had to pay for the privilege? But for the people who control the world’s money, this idea has recently been thrown out of the window. Many central banks have pushed their rates into negative territory and yet the financial system has still to come to an abrupt end. It is a discovery that flips on its head the conventional idea of how authorities could respond to future economic crises; and for central bankers, this has come as a relief. Central bank policymakers had believed they had run out of room to support their respective economies, with their interest rates held close to the floor. Traditionally, it was thought that if you wanted to boost the economy, the central bank would reduce its interest rates.

Normally, the rates offered on savings accounts would follow, and people would choose to spend more, and save less. But there’s a limit, what economists called the “zero lower bound”. Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy. What is happening now should not – according to conventional thinking – be possible. As central bank rates have turned negative, the rates offered on bank deposits have followed. Yet rather than stuffing cash under mattresses, people have left their money in the bank or spent it. Nowhere is the experiment with negative rates more obvious than among Nordic central banks.

Sweden – the first to dabble with negative rates – is perhaps the prime candidate for such experimentation. The country already has high savings rates, the third highest in the developed world according to the OECD and, despite growing at healthy rates, there appears to be plenty of slack left in the economy to prevent an overheat. Unemployment is unusually high for an advanced economy at more than 7pc, still well above its pre-crisis levels of sub-6pc. Crucially, the Riksbank’s mandate suggests that such a radical experiment is necessary. Policymakers have battled with deflation since late 2012, and with inflation at minus 0.2pc in August, it remains well below the central bank’s 2pc target.

To a great extent, the Riksbank’s hand has been forced by the plight of the eurozone. A tepid recovery in the currency union has required the ECB to bring in ever-looser policy. As the ECB’s actions have weakened the euro against Sweden’s krona, the cost of importing goods into Sweden has fallen, and weighed down on inflation. The Riksbank has had to cut its own rates in response in an attempt to avoid deep deflation. Sweden’s flexible approach to monetary policy has won it the plaudits of leading credit ratings agency. Standard and Poor’s recently reaffirmed the country’s triple AAA sovereign rating, remarking on the benefits it derives from “ample monetary policy flexibility”. Noting that the Riksbank had introduced both negative interest rates and quantitative easing, S&P said that “should inflation rates stay low or the krona appreciate materially, the central bank could lower the repo rate further”.

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It’s bewildering to see people describe QE as a success. But they get away with it.

Zero Inflation Looms Again for ECB as Oil Drop Counters Stimulus (Bloomberg)

If the euro area is about to run out of inflation – again – it won’t shock Mario Draghi. The ECB said more than three weeks ago that the inflation rate could turn negative this year because of the renewed decline in oil prices. The 19-nation region is set to take a step in that direction on Wednesday, when data will show consumer prices stagnated in September for the first time in five months, according to a Bloomberg survey of economists. Stalled prices would mark a setback for policy makers who have been trying to steer inflation back toward 2% for the better part of two years, and may spark a new debate about deflation risks. Yet while officials have repeatedly stressed that they’re prepared to add stimulus if needed, they’ve also said they want more evidence before making a decision.

“The figures this month are unlikely to prompt any action from the ECB,” said Ben May, an economist at Oxford Economics Ltd. in London. “Quantitative easing has prevented the emergence of second-round effects from the new decline in oil prices and the pickup in core inflation in recent months is a cause for comfort. Some people may be concerned by this new fall in inflation, but the ECB has tried to distance itself from these concerns.” The EU’s statistics office will publish September inflation data on Wednesday. Estimates in the Bloomberg survey range from 0.3% to minus 0.2%. Eurostat will release unemployment data for August at the same time, and the European Commission will issue its latest report on economic confidence on Tuesday.

Oil prices have fallen more than 23% since the end of June, and a barrel of crude now costs about half what it did a year ago. The decline has boosted disposable income, underpinned consumer confidence that is already benefiting from slowly receding unemployment, and turned domestic demand into a key driver of the region’s economic recovery. At the same time, it has made the ECB’s job more complicated.

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Basic income is a much better approach than living wage. Huge boost to an economy.

Tory Welfare Cuts Will Destroy Benefit Of UK’s New Living Wage (Guardian)

A record 6.5 million people – almost a quarter of UK workers – will remain trapped on poverty pay next year, despite George Osborne’s 50p-an-hour increase in the national minimum wage, according to research by the Resolution Foundation thinktank. Adam Corlett, Resolution’s economic analyst, said: “While the chancellor’s new wage floor will give a welcome boost to millions of Britain’s lowest-paid staff, it cannot guarantee a basic standard of living or compensate for the £12bn of welfare cuts that were announced alongside it.” The chancellor announced the introduction of a “national living wage” in his July budget. It was an eyecatching bid for the votes of Britain’s workers and will see the statutory minimum pay rate for over-25s increase from £6.70 an hour to £7.20 next April – and to about £9 an hour by 2020.

But the new national minimum will still fall short of an actual “living wage”, calculated on the basis of the cost of basic essentials, including housing, food and transport, that has been the centrepiece of a long-running public campaign. Supermarket giant Lidl recently became the latest high-profile company to promise its staff this higher rate, which stands at £7.85 outside London and £9.15 in the capital. In its annual Low Pay Britain report, to be published next week, the Resolution Foundation will suggest that the living wage will have to be higher – £8.25 an hour outside the capital in 2016 – in part to compensate for the reductions in tax credits and benefits also announced in the budget. Households that receive less in welfare payments will need higher wages to make ends meet.

Resolution forecasts that, despite Osborne’s announcement, the number of people struggling to survive on less than the living wage will continue to rise, hitting 6.5 million people, or 24.4% of employees, in 2016 – up from 5 million, or less than 20% of workers, in 2012. Frances O’Grady, general secretary of the TUC, said: “This analysis provides a sobering reality check. While any increase in the minimum wage is to be welcomed, the new supplement will not cure in-work poverty on its own.” She urged ministers to continue encouraging firms to adopt the living wage – a cause backed in the past by many senior Conservatives, including David Cameron and Boris Johnson.

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Quite a panel. Steve Keen’s missing though.

Corbyn Recruits Top Global Economists to Boost Economic Credentials (Bloomberg)

U.K. Labour leader Jeremy Corbyn recruited Nobel Prize-winning economist Joseph Stiglitz and wealth and inequality expert Thomas Piketty to advise his party as he seeks to regain credibility for policies attacked by many academics as potentially disastrous. His finance spokesman, John McDonnell, will outline the opposition’s “new economics” in a speech Monday that will cover his deficit-reduction plans and a goal to “change the economic discourse.” McDonnell’s office would say only that his plans involve a “radical review” of the Bank of England. Appointing Stiglitz – a well-known opponent of western governments’ austerity policies – and Piketty, whose book, “Capital in the 21st Century,” became a best-seller in 2013, mark Corbyn’s effort to restore trust among the business and academic community.

They will serve on a panel that will also include David Blanchflower, a former member of the BOE’s Monetary Policy Committee and labor-market economist who’s been vocal in his criticism of British central-bank policy and the U.K.’s Conservative government. “There is now a brilliant opportunity for the Labour Party to construct a fresh and new political economy which will expose austerity for the failure it has been in the U.K. and Europe,” Piketty said in an e-mailed statement. They’ll be joined on Labour’s Economic Advisory Committee by Mariana Mazzucato of Sussex University and Anastasia Nesvetailova and Ann Pettifor of City University in London, the main opposition party said in an e-mailed statement Sunday as it began its annual conference in Brighton, on England’s south coast.

“Corbynomics” has been the subject of much debate since the anti-austerity lawmaker become frontrunner in the party’s leadership race over the summer. His campaign leaflet “The Economy in 2020,” citing analysis by tax expert Richard Murphy, said the government is missing out on £120 billion ($180 billion) in uncollected revenue a year – enough to give every person in Britain £2,000. Corbyn also suggested creating a National Investment Bank, with the power to issue bonds that would then be acquired by the Bank of England. Corbyn’s form of quantitative easing would be used specifically to kick-start infrastructure projects – for instance building schools and hospitals. Murphy estimated this could generate £50 billion a year.

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The Swiss will need US, UK cooperation.

Swiss Watchdog Says Opens Precious Metal Manipulation Probe (Reuters)

The Swiss competition regulator said on Monday it had opened an investigation into possible manipulation of the precious metals market by several major banks. Switzerland’s WEKO watchdog said its investigation, the result of a preliminary probe, was looking at possible collusion of bid/ask spreads in the market by UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui. A WEKO spokesman said the investigation would likely conclude in either 2016 or 2017.

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She’s still there? Right to be worried, though. Not worried enough, I’d say.

Rousseff Worried About Brazilian Companies With Dollar Debt (Bloomberg)

Brazil is “extremely concerned” about companies that have debt in dollars, President Dilma Rousseff told reporters in New York, after volatility in the country’s foreign exchange market last week reached the highest level in almost four years. “Brazil today has sufficient reserves to avoid any problems in relation to disruptions because of the real,” Rousseff said. “The government will take a very clear and firm position, as did the central bank at the end of last week.” Brazil’s currency fell to a historic low last week amid concern about the president’s ability to push budget cuts and tax hikes through Congress. Rousseff has said Brazil is better prepared to recover from this year’s recession, compared to past crises, because it has $370 billion in international reserves.

Rousseff arrived Friday in New York for the United Nations General Assembly after a week of negotiations with political allies over cabinet changes intended to consolidate her fragile ruling coalition and reduce government expenses. Political uncertainty has aggravated what is expected to be Brazil’s longest recession since the 1930s, and was cited by Standard & Poor’s as part of their decision to downgrade Latin America’s largest economy to junk status. Speaking after a meeting with heads of state from Germany, Japan and India, Rousseff repeated Brazil’s demands for reform of the UN Security Council to make it more representative of all member states. She said global challenges such as conflict in the Middle East and Europe’s refugee crisis could be better solved by more collective action.

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$3 billion spent on no oil at all.

Shell Halts Alaska Oil Drilling After Disappointing Well Result (Bloomberg)

Royal Dutch Shell will stop further oil and gas exploration offshore Alaska, citing high costs and “challenging” regulation for drilling in the region. Shell forecast it will take related financial charges, according to a company statement on Monday. The balance sheet carrying value of its Alaska position is about $3 billion, with additional future contractual commitments of about $1.1 billion, The Hague, Netherlands-based energy explorer said. The company will abandon the Burger J well in Alaska’s Chukchi Sea, saying indications of oil and gas weren’t sufficient to warrant further exploration. The company holds a 100% working interest in 275 Outer Continental Shelf blocks in the sea, according to the statement. “Shell will now cease further exploration activity in offshore Alaska for the foreseeable future,” the company said. “This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.”

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“The exhibition sold out every day of its five-week run, attracting about 4,000 people a day – a total of 150,000 visitors. ”

Banksy’s Dismaland To Be Taken Down And Sent To Calais To Build Shelters (PA)

Britain’s most disappointing tourist attraction is to be dismantled and sent to Calais to be shelter for migrants, creator Banksy has revealed. Work to take down Dismaland begins on Monday and the elusive street artist said all the timber and fixtures from the ‘bemusement park’ would be sent to the Jungle camp. An estimated 5,000 people displaced from countries including Syria, Libya and Eritrea are believed to be camped in and around the French port. On the Dismaland website, Banksy posted a picture of the migrant camp in Calais and had superimposed onto it his fire-ravaged fairytale Cinderella Castle. In a message accompanying the picture, he wrote: “Coming soon … Dismaland Calais.

“All the timber and fixtures from Dismaland are being sent to the Jungle refugee camp near Calais to build shelters. No online tickets will be available.” The theme park opened at a derelict seaside lido at Weston-super-Mare in Somerset and even though Banksy said it was ‘crap’, thousands of people visited. The controversial attraction featured migrant boats, Jimmy Savile and an anarchist training camp, and there were long queues as visitors waited to get inside when it first opened on 22 August. The exhibition sold out every day of its five-week run, attracting about 4,000 people a day – a total of 150,000 visitors.

North Somerset council, which has described the site as the centre of the contemporary art universe, said it would bring £7m to the local economy, while local business leaders have estimated that the economic benefit to the seaside town could top £20m. Banksy described the park as a festival of art, amusements and entry-level anarchism, adding: “This is an art show for the 99% who’d rather be at Alton Towers.” The Bristol-based artist later told the Sunday Times: “This is not a street art show. It’s modelled on those failed Christmas parks that pop up every December – where they stick some antlers on an Alsatian dog and spray fake snow on a skip. “It’s ambitious, but it’s also crap. I think there’s something very poetic and British about all that.”

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Will this ever stop? How many children must drown?

500 Migrants Rescued In Mediterranean This Weekend: Italian Coastguard (AFP)

Some 500 migrants were rescued in seven operations launched over the weekend in the Mediterranean, the Italian coastguard said. A spokesman told AFP on Sunday that four of the rescue operations had already wound up but the others were ongoing. “Saturday was quiet on the whole but now there is further movement,” he said. “We have had several interventions – one by a ship belonging to (medical charity) MSF, two coastguard units as well as an Italian naval ship and a ship belonging to EU Navfor Med,” he said. The EU Navfor Med is a military operation launched at the end of June to identify, capture and dispose of vessels and rescue migrants undertaking risky journeys in a desperate bid to try and get to Europe from war-ravaged Syria and other trouble spots.

The mission is equipped with four ships, including an Italian aircraft carrier, and four planes. It is manned by 1,318 troops from 22 European countries. A German frigate named Werra and an MSF (Doctors Without Borders) ship rescued 140 people from a giant dinghy on Saturday afternoon, according to an AFP photographer. The migrants mainly came from the west African countries of Nigeria, Ghana, Senegal and Sierra Leone and left Libya three days earlier. They were rescued about 80 kilometres off the Libyan coast. EU leaders have agreed to boost aid for Syria’s neighbours, including one billion dollars through UN agencies, in a bid to mitigate the refugee influx into Europe.

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Aug 012015
 
 August 1, 2015  Posted by at 11:22 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 1 2015


Harris&Ewing “Congressional baseball game. President and Mrs. Wilson.” 1917

Coal Mine Worth $624 Million Three Years Ago Sold for $1 (Bloomberg)
Carlyle Fund Walloped in Commodities Rout (WSJ)
Raoul Pal, Who Called Dollar Rally, Sees -German- Catastrophe Ahead (CNBC)
Why 99% Of Trading, Worth $32 Trillion, Is Pointless (MarketWatch)
OPEC Shale War Leaves Big Oil Companies as Surprise Victims (Bloomberg)
Who Really Benefits From Bailouts? (Ritholtz)
The Euro, Like The Gold Standard, Is Doomed To Fail (Ann Pettifor)
Tsipras Survives for Now as Party Rebels Blast Greece Rescue (Bloomberg)
Greek PM Defends Varoufakis and Controversial ‘Plan B’ (Reuters)
Alexis Tsipras: I Ordered Varoufakis To ‘Defend Greece’ (Telegraph)
Greek Stock Market To Reopen Monday, With Restrictions (CNN)
Greek Bailout Is Far From Being A Done Deal (Andrew Lilico)
Unaccompanied Refugee Minors Find A Home Away From Home in Athens (Kath.)
Prosecutor Summons Ex-PM Samaras’ Aide Over €5.5million HSCB Bank Account (KTG)
Italian Youth Unemployment Rises to its Highest Level Ever (Bloomberg)
People Smuggling: How It Works, Who Benefits, How It Can Be Stopped (Guardian)
David Cameron To Send Dogs And Fences To Quell Calais Migrant Crisis (Guardian)
We Can’t Stop The Flow Of Migrants To Europe, Only Rehouse Them (Guardian)
As World Mourned Cecil The Lion, 5 Endangered Elephants Slain in Kenya (WaPo)
Climate Models Are Even More Accurate Than You Thought (Guardian)

“Alpha Natural Resources Inc., the biggest U.S. producer, plans to file for bankruptcy protection in Virginia as soon as Monday [..] It was valued at $7.3 billion in 2008.”

Coal Mine Worth $624 Million Three Years Ago Sold for $1 (Bloomberg)

The destructive force of a collapse in world coal prices has been underscored by the sale of a mine valued at A$860 million ($631 million) three years ago for just a dollar. Brazilian miner Vale and Japan’s Sumitomo sold the Isaac Plains coking-coal mine in Australia to Stanmore Coal Ltd., the Brisbane-based company said Thursday in a statement. Sumitomo bought a half stake for A$430 million in 2012. A slump in the price of coking coal, used to make steel, to a decade low is forcing mines to close across the world and bankrupting some producers. Alpha Natural Resources Inc., the biggest U.S. producer, plans to file for bankruptcy protection in Virginia as soon as Monday, said three people with direct knowledge of the matter. It was valued at $7.3 billion in 2008.

Isaac Plains in Queensland “was one of the most exciting coal projects in Australia,” Investec Plc analysts said in a note to investors on Friday. The site has a resource of 30 million metric tons, according to Stanmore. “The outlook for coal is still very difficult,” Roger Downey, Vale’s executive director for fertilizers and coal, said on Thursday after Stanmore announced the sale. “We see even in Australia mines that are still in the red and at some point that has to change. We have quite adverse and challenging markets.” Coal’s demise is just part of a broader slump in commodity prices, which fell to the lowest in 13 years this month. The benchmark price for coking coal exported from Australia has slumped 24% this year to $85.40 a ton on Friday, according to prices from Steel Business Briefing. The quarterly benchmark price peaked at $330 a ton in 2011.

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More Poof! Now you see it….

Carlyle Fund Walloped in Commodities Rout (WSJ)

Three years after private-equity giant Carlyle Group touted its purchase of a hedge-fund firm, a rout in raw materials has helped drive down holdings in its flagship fund from about $2 billion to less than $50 million, according to people familiar with the matter. The firm, Vermillion Asset Management, suffered steep losses and a wave of client redemptions in its commodity fund after a string of bad bets, including one tied to the price of shipping of dry goods, such as iron ore, coal or grains. At one point, two of Carlyle’s co-founders, David Rubenstein and William Conway, put tens of millions of dollars of their own money in the fund and left it in amid the losses and redemptions, according to people familiar with the matter.

Vermillion is in the midst of a restructuring, its co-founders left at the end of June, and it is pulling back from trading in several markets. A collapsing market for raw materials is spreading pain well beyond commodities specialists to some of the heaviest hitters on Wall Street. This week alone, commodity-trading firms Armajaro Asset Management and Black River Asset Managemen, a unit of agricultural conglomerate Cargill, said they are closing funds. Several other firms that managed billions of dollars already have closed their doors, including London-based Clive Capital and BlueGold Capital Management. Large money managers including Brevan Howard Asset Management and Fortress Investment Group have wound down commodity strategies.

Assets under management at commodity hedge funds have fallen 15%, to $24.1 billion, since their peak in 2012, and nearly 30 firms out of 250 have shut down since that year, according to industry consultant HFR Inc. Commodity firms lost money for three years in a row before 2014, HFR said. Commodities are one of the most challenging markets to invest in, because of their complexities and penchant for volatility. Some of the biggest hedge-fund blowups have involved commodity trading, such as the 2006 collapse of Amaranth Advisors after sustaining more than $5 billion in losses on natural-gas trades.

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As the US economy weakens, the USD will come home, leaving the rest of the world a lot poorer.

Raoul Pal, Who Called Dollar Rally, Sees -German- Catastrophe Ahead (CNBC)

Former hedge fund manager and Goldman Sachs alumnus Raoul Pal isn’t one to shy away from making bold predictions. Back in November 2014, Pal, who is currently the publisher of the Global Macro Investor newsletter and the founder of Real Vision TV, said the U.S. dollar index was poised to make a move the likes of which hadn’t been seen in “many, many years.” Now, after the dollar index surged 10%, Pal is out with a new prediction, and it could spell trouble for global equities. “I think the dollar will go up for another few years from here, so I’m expecting to see, by the end of this year, the dollar up maybe 20%,” said Pal on CNBC’s “Fast Money” this week. “So we’ve got another 10-12% or so to go this year alone, and then next year something similar,” he added.

If true, those predictions could have dire consequences for the global market. According to Pal, a rapidly accelerating bull market for the dollar could lead oil prices to “come back down into the 20s” in the not-so-distant future. “As the dollar gets stronger, global growth is falling and global export growth is falling, and that means generally that commodity prices should fall as well,” he explained. Pal said the slowdown in global growth, spurred by an ever-strengthening dollar, could have deleterious effects on one country in particular. “Germany is the big exporting nation of Europe, and I see them slowing down,” he said. Pal explained that a weaker U.S. economy will bleed into Europe and further impact German growth.

“The first half of this year is the weakest first half since the recession” for the United States, he said. “Europe lags the U.S, so I think that won’t help Germany at all because obviously the U.S. is buying less goods from Germany.” By Pal’s logic, a slowdown in Germany could eventually put all of Europe in harm’s way. “I think Germany is at risk of leading Europe into a recession, which is against everybody else’s opinion.”

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Circle jerk keeps brokers alive.

Why 99% Of Trading, Worth $32 Trillion, Is Pointless (MarketWatch)

An astonishing $32 trillion in securities changes hands every year with no net positive impact for investors, charges Vanguard Group Founder John Bogle. Meanwhile, corporate finance — the reason Wall Street exists — is just a tiny slice of the total business. The nation’s big investment banks probably could work for less than a week and take the rest of the year off with no real effect on the economy. “The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings,” Bogle told Time in an interview. “What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.”

It’s a lot of money, $32 trillion. Nearly double the entire U.S. economy moving from one pocket to another, with a toll-taker in the middle. Most people refer to them as “stock brokers,” but let’s call them what they are — toll-takers and rent-seekers. Rent-seeking as an occupation is as old as the hills. In exchange for working to build up credentials and relative fluency in the arcane rules of an industry, one gets to stand back from actual work and just collect money. Ostensibly, the job of a financial adviser is to provide advice. Do you actually get that from your broker? It is worth anything? Research shows, over and over, that stock brokers can’t do much of anything demonstrably valuable. They don’t know which stocks will go up or down and when.

They don’t know which asset classes will outperform this year or next. Nobody knows. That’s the point. If you’re among that small cadre of extremely high-level traders who can throw loads of cash at a short-term fluke, fantastic. If you have a mind for numbers like Warren Buffett that allows you to buy companies on the cheap and hold them forever, excellent. If you’re a normal retirement investor trying to get from A to B and retire on time, well, you have a really big problem to face: The toll-taker wants your money.

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Surprise? Really?

OPEC Shale War Leaves Big Oil Companies as Surprise Victims (Bloomberg)

When OPEC started a price war last November, driving oil down to its current $65 a barrel, U.S. shale drillers looked doomed. Six months later, it’s the world’s largest oil companies that are emerging as the unexpected casualties. The reason: the multibillion-dollar projects at the heart of the oil majors’ strategy need prices closer to $100 to make them economically feasible. “Big Oil is today squeezed by two low-cost producers: OPEC and U.S. shale,” said Michele Della Vigna at Goldman Sachs. “Big Oil needs to re-invent itself.” The new period of cheap oil and ample supplies raises a prospect unthinkable as recently as a few months ago – that the world no longer needs all the big, expensive projects planned by companies such as Shell, Chevron. and Total.

Rising supplies from Saudi Arabia, Iraq and perhaps Iran combined with a more efficient shale industry could deliver the bulk of new production. Big Oil will continue to play a significant role, particularly as field developments sanctioned in the era of $100 a barrel come to fruition – but new projects will suffer. Only six months ago, the industry’s thinking was very different. The view then was that shale firms could only survive with $100 oil. The expected wave of bankruptcies never came about, however, and shale output has continued growing as drillers cut costs in response to low prices. Ryan Lance, CEO of ConocoPhillips, said in Vienna on Wednesday that the industry now accepted that the U.S. shale drillers were far more resilient than expected. “They are reducing the cost and restoring the margins that we enjoy at $80 to $90 to get those at $60 to $70,” Lance said in an interview. “That is how resilient the opportunity set is.”

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“Our moral compass informs us that bailouts shouldn’t work to the benefit of the reckless and irresponsible. Reality teaches us a very different lesson.”

Who Really Benefits From Bailouts? (Ritholtz)

I always find it amusing whenever someone expresses surprise that the financial bailouts for Greece haven’t benefitted Greek citizens. “Bailout Money Goes to Greece, Only to Flow Out Again” in the New York Times is just the latest example. “The cash exodus is a small piece of a bigger puzzle over why – despite two major international bailouts — the Greek economy is in worse shape and more deeply in debt.” Unfortunately, this is a feature of bailout, not a bug. A plethora of financial rescues during the past decades has proven quite convincingly that this isn’t an aberration. Follow the money instead of following the headlines. That’s how you learn who profits from a bailout.

Look around the world – Japan, Sweden, Brazil, Mexico, Ireland, the U.S. and now Greece to learn who is and isn’t helped by these enormous government-backed bailouts. No, it isn’t the Greek people, nor even their banks. They never were the intended beneficiaries of the bailouts, nor were Irish citizens in that bailout. Indeed, homeowners in the U.S. were little more that incidental recipients of aid as a%age of total rescue spending. You probably learned the phrase “moral hazard” during the financial crisis. In short, what it means is that the bailouts rescued leveraged, reckless speculators from the results of their unwise professional folly and gave them an incentive to do it all over again. They were and the intended rescuees.

Do you think I am exaggerating? Consider the U.S. bailout in its manifold forms, from TARP to ZIRP to QE. How many bondholders suffered losses from their poor investment decisions? With the exception of holders of Lehman Brothers’ debt and a handful of banks that weren’t deemed too big to fail, just about every other bondholder was made whole, 100 cents on the dollar. Thanks to rescue plans such as the Trouble Asset Relief Program, holders of bonds from a diverse assortment of failed and failing companies suffered literally no losses. AIG? Zero losses. Fannie Mae and Freddie Mac? Zero losses. Citigroup and Bank of America? Zero losses. Morgan Stanley, Merrill Lynch, Goldman Sachs, Bear Stearns? Zero losses.

History teaches us that when companies fail, they file either a reorganization or liquidation in a bankruptcy court. The exceptions are when well-placed executives are friendly with Congress (Chrysler 1980) or members of the Joint Chiefs of Staff (Lockheed 1972) or Treasury secretaries (all of Wall Street except Dick Fuld in 2008-09). Having well-connected corporate executives on your board or in senior management sure comes in handy during an emergency.

[..] In the case of Greece, the money flows in large part from European governments and the IMF through Greece, and then to various private-sector lenders. We all call it a Greek bailout, because if it were called the “Rescue of German bankers from the results of their Athenian lending folly,” who would support it? Our moral compass informs us that bailouts shouldn’t work to the benefit of the reckless and irresponsible. Reality teaches us a very different lesson.

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A fetish.

The Euro, Like The Gold Standard, Is Doomed To Fail (Ann Pettifor)

Pierre Werner was appointed by the EU Council of Ministers on 6 March 1970, to chair a committee of experts to design a monetary system for the EU. The key elements of his committee’s recommendations was to be developed subsequently by the Delors Committee of twelve central bankers, which reported in 1989. Both sets of proposals – the Werner Report and the Delors Report – replicated the financial architecture of the nineteenth century gold standard. The parallels between the two systems include the abandonment by governments of control over exchange rates; the loss of a central bank accountable to the state; the initial euphoria as an over-valued exchanged rate cheapens imports & capital mobility encourages reckless lending; subsequent deflationary pressures; the absence of a co-ordinating body to check imbalances across the zone, and finally growing political resistance to the monetary system.

However it is important to note also just how much the two systems differ. The genius of those who designed the European Monetary Union (EMU) was this: unlike the architects of the gold standard, which attempted to remove central bank and state control over the exchange rate – Delors’s bankers simply abolished all European currencies, and replaced them with a new, shared currency, the euro – well beyond the reach of any state. That currency – the euro – not only acts as a store of value and facilitates financial transactions across borders – it also acts as a powerful symbol of European unity.

So in addition to serving the interests of Luxembourg bankers and European financiers – the euro was in part created, and heavily sold to citizens, as a perceived way and a symbol for bringing Europe and Europeans together. Like gold under the gold standard, the currency acquired the status of a fetish for many, both amongst the European elites in Brussels and Frankfurt, but also amongst those in periphery countries.

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Tsipras needs the discord. Apparently that is hard to fathom.

Tsipras Survives for Now as Party Rebels Blast Greece Rescue (Bloomberg)

Greek Prime Minister Alexis Tsipras staved off an immediate challenge to his premiership, though failure to appease his party’s hard-left fringe brought early elections into view. After 12 hours of talks, the central committee of the anti-austerity Syriza party decided in the early hours of Friday to hold an emergency congress in September, in which Tsipras’ move to accept a strings-attached rescue program from international creditors will be put to the vote. Leaders of the party’s Left Platform protested that will be too late to stop the bailout, but failed in their bid to force a party congress this weekend. “We opted for a difficult compromise and a recessionary program, we admit it”

With the government vulnerable, Finance Minister Euclid Tsakalotos meets representatives from international creditors on Friday to discuss the austerity measures his party has long opposed. The quarrel within Syriza, in power since January, means that Tsipras will have to rely on opposition parties’ support to approve measures attached to Greece’s emergency loans, a situation he has said isn’t sustainable. “Tsipras might call an early election as a way to reinforce his mandate,” Roubini analysts wrote in a note to clients. “It cannot yet be known if a new government – or Tsipras’s second mandate – would lead to stronger compliance with the creditors’ terms or would merely be a sign of Tsipras’s intention to push for better terms, including debt reduction.”

Former Energy Minister Panagiotis Lafazanis, who leads the Left Platform, opposed the September confidence vote, arguing the government will have signed a new bailout with creditors by then, and it will be all but impossible to annul bilateral agreements ratified by parliament. Lafazanis led a revolt of more than 30 Syriza lawmakers this month against the upfront actions demanded by European states and the IMF, effectively stripping Tsipras of his parliamentary majority. The central committee’s decision to hold a congress in September, approving a motion by Tsipras, “is a parody,” the Platform said in a statement. In a separate statement posted on the website of government-affiliated Avgi newspaper, 17 members of the central committee said they are resigning from the body, protesting the “transformation” of Syriza into a pro-austerity party.

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“If our partners and lenders had prepared a Grexit plan, shouldn’t we as a government have prepared our defense?”

Greek PM Defends Varoufakis and Controversial ‘Plan B’ (Reuters)

Prime Minister Alexis Tsipras acknowledged on Friday that his government had made covert contingency plans in case Greece was forced out of the euro, but rejected accusations that he had plotted a return to the drachma. Tsipras was forced to respond to the issue in parliament after former finance minister Yanis Varoufakis this week revealed efforts to hack into citizens’ tax codes to create a parallel payment system, prompting shock and outrage in Greece. The disclosure heaped new pressure on Tsipras, who is also battling a rebellion within his Syriza party and starting tough talks with the European Union and International Monetary Fund to seal a third bailout program in less than three weeks.

“We didn’t design or have a plan to pull the country out of the euro, but we did have emergency plans,” Tsipras told parliament. “If our partners and lenders had prepared a Grexit plan, shouldn’t we as a government have prepared our defense?” He compared the plan to a country preparing its defenses ahead of war, saying it was the obligation of a responsible government to have contingency arrangements in place. He did not directly refer to Varoufakis’ disclosure of plans to hack into his ministry’s software to obtain tax codes. But Tspiras said the idea of a database giving Greeks passwords to make payments to settle arrears was hardly “a covert and satanic plan to take the country out of the euro”.

Tsipras also defended his embattled former finance minister, who has continued to create headaches for the government since being ousted earlier this month. “Mr. Varoufakis might have made mistakes, as all of us have … You can blame him as much as you want for his political plan, his statements, for his taste in shirts, for vacations in Aegina,” Tsipras said. “But you cannot accuse him of stealing the money of Greek people or having a covert plan to take Greece to the precipice.”

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What about this is not clear?

Alexis Tsipras: I Ordered Varoufakis To ‘Defend Greece’ (Telegraph)

Greek prime minister Alexis Tsipras launched a staunch defence of his embattled former finance minister on Friday, as he spoke for the first time about the secret “Plan B” he ordered from Yanis Varoufakis. Following almost a week of silence, Mr Tsipras told his parliament he had authorised preparations for a system of “parallel liquidity” should the ECB pull the plug on the Greek banking system. “I personally gave the order to prepare a team to prepare a defence plan in case of emergency,” said Mr Tsipras, who compared Greece’s situation with being on a war footing. “If our creditors were preparing a Grexit plan, should we not have prepared our defences?” But the prime minister said he “did not have, and never prepared, plans to take the country out of the euro”.

Since the airing of the “Plan B” talks, in a recorded conversation between Mr Varoufakis and city investors, two private lawsuits have been brought against the divisive politician, raising the prospect of a criminal prosecution over charges relating to treason. Opposition parties in Greece have also called for the former Essex University economist to have his parliamentary immunity from criminal charges revoked over his role in the clandestine plans. However, the prime minister rejected accusations from some that the blueprint amounted to a “coup d’etat” against his government. “You can blame him as much as you want for his political plan, his statements, for his taste in shirts, for vacations in Aegina.” “But you cannot accuse him of stealing the money of Greek people or having a covert plan to take Greece to the precipice”, said Mr Tsipras.

The four main heads of Greece’s creditor powers met with current finance minister Euclid Tskalatos on Friday, as both sides race to secure an agreement by the second week of August. Greece’s institutions are said to be demanding the government scrap a “solidarity tax” of 8pc on incomes of more than €500,000, a levy which only affects 350 people but which lenders want to abolish to deter tax evasion. They also want Athens’ Leftist government to scrap fuel subsidies and liberalise professions such as ship-building before an agreement for a new €86bn bail-out can proceed. Progress on securing a third international bail-out for Greece hit the rocks on Wednesday night after the IMF said it was unwilling to consider providing any more money until the reforms were agreed and Europe finally granted a programme of debt relief to Greece.

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Casino.

Greek Stock Market To Reopen Monday, With Restrictions (CNN)

The Athens stock exchange will reopen Monday, more than a month after Greece’s financial crisis forced the authorities to suspend all trading. But there will be some restrictions for local investors, the Greek finance ministry said, to prevent more money flooding out of the banking system. They will only be allowed to buy shares with existing holdings of cash, and won’t be able to draw on their Greek bank accounts. Greece’s banks were bleeding cash at a furious pace on fears the country’s debt crisis would force it to abandon the euro. Capital controls were introduced on June 29, including the closure of banks and financial markets. ATM withdrawals were limited to €60 per day.

The banks reopened on July 20, after Europe agreed in principle to a new bailout, but withdrawals remain limited to €420 a week. Some capital controls have been relaxed, so Greek companies could make payments abroad. Shares in the biggest Greek banks were tanking before the market closure – Piraeus Bank lost 57% this year, while Alpha Bank is down 29%. The benchmark Athens index has dropped 32% over the last 12 months. The European Central Bank has approved the reopening of the exchange. The ECB doesn’t control the stock market, but its opinion is crucial because it is keeping the Greek banking system afloat with regular injections of cash.

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Getting more undone by the minute.

Greek Bailout Is Far From Being A Done Deal (Andrew Lilico)

Yesterday everyone learned what those who had been watching closely had realised for some time: the IMF won’t (at least for now) be offering a third loan to Greece. The IMF believes that Greece has not sufficiently stuck to the conditions of previous loans and that its debts after a third bailout would be unsustainably high. That means an IMF loan would not enable Greece to return to financial markets to fund itself (a normal requirement for an IMF loan). It might be added that the IMF would not be confident, either, that Greece could obtain further financing from alternative sources – ie its Eurozone partners, whose patience is clearly spent.

Given that Greece defaulted on an IMF payment only a few weeks ago – an action which placed it in a not-so-elite group of international pariah states that had ever done so – the IMF not wanting to lend to it again should hardly be a surprise. Many commentators appear to assume the Eurozone will simply shrug off IMF non-involvement and cover the difference themselves. After all, back in 2009/2010 when the first Greek bailout was initially mooted, many EU Member States and institutions would have preferred the IMF not to be involved. But the country that was most adamant the IMF had to be in was Germany. And again for the current discussions about a third bailout to be given authority to proceed, the German government promised the Bundestag that the IMF would be in.

So now we have the following stand-off. The Germans insist the IMF must be part of a third bailout; the IMF says it cannot be in unless Greece’s debts are forgiven on a scale that would make them sustainable; the Germans refuse even to contemplate debt forgiveness whilst Greece remains in the euro. Could this derail the whole deal? Yes. Indeed I would assume that this scenario was so obviously likely that some parties to the mid-July talks probably only ever agreed to what they did because they expected it to fall apart in just this way.

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Bless you: “The center is a response to intolerance, to the “migrants go home” attitude..”

Unaccompanied Refugee Minors Find A Home Away From Home in Athens (Kath.)

Next-door neighbor Katerina comes over to the house almost every day to have a coffee in the garden and bring a “little something for the kids.” The Hospitality Center for Unaccompanied Minors in the Athenian neighborhood of Ano Petralona, which went into operation in late May, is currently home to 18 children aged 13-17, and is a hub of social activity. The hostel for young migrants who crossed Greek borders without a guardian is run by the nongovernmental organization Praksis, which took on the responsibility of housing dozens of young refugees from countries including Syria, Afghanistan and Pakistan who were being held at migrant detention centers such as Amygdaleza, north of Athens.

The detention centers were closed down by the then new government as one of its first orders of business, citing “inhuman” living conditions. However, one of the first issues then to rise was what was to happen to the minors. The government was short of cash, prompting Alternate Minister for Immigration Policy Tasia Christodoulopoulou to reach out to the Latsis Foundation for help. “Surprisingly fast for a public organization,” says Latsis Foundation Executive Board secretary Dimitris Afendoulis, the ministry and the foundation created the hostel, which can take in 24 guests at a time, in a house in Ano Petralona within just a few months. There are currently 99 minors still waiting to be placed in similar facilities, while authorities estimate that some 2,500 children make their way through Greece alone every year.

“This center may provide just a small amount of relief for the thousands of children waiting to find shelter in this country but on a symbolic level it is an amazing initiative, particularly as it happened thanks to funding from a private foundation,” says Christodoulopoulou. “We have a funding gap as far as European Union funds are concerned and such initiatives contribute to social solidarity and awareness.” “Caring for and protecting unaccompanied minors brings together all those people who have the capability to contribute,” says Afendoulis, adding that the foundation has also undertaken to cover the hostel’s operating costs until EU funding becomes available.

The center is a response to intolerance, to the “migrants go home” attitude, says Antypas Tzanetos, president of the Praksis board. “It is a response with actions, not words,” he adds.

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Lagarde list years later.

Prosecutor Summons Ex-PM Samaras’ Aide Over €5.5 Million HSCB Bank Account (KTG)

“I wish we had ten Papastavrou!” It was former Prime Minister Antonis Samaras who had praised the morals of his close aide Stavros Papastravou, a lawyer consultant at the Prime Ministry, during a speech in the Greek Parliament. Now, one of the ‘ten’ the real Stavros Papastavrou has been summoned by an Athens financial crimes prosecutor to give explanation about €5.5 million in his accounts at the HSBC Geneva branch. Papastavrou’s name was one of more than 2,000 Greek names on the so-called Lagarde list of wealthy Greek depositors with accounts at HSBC Geneva branch that was ‘stolen’ by former bank employee Herve Falciani in 2009. The Lagarde-List has been in the hands of the Greek authorities since 2010.

“Prosecutor Yiannis Dragatsis called lawyer Stavros Papastavrou to answer questions regarding his suspected involvement in tax evasion and money laundering through an account containing 5.5 million euros that was among hundreds on a list submitted to the Greek authorities in 2010 by then-French Finance Minister Christine Lagarde, currently managing director of the IMF. Papastavrou’s legal counsel requested an extension so that the former prime minister’s adviser can prepare his defense. A new date will be set for his deposition after the August 15th break.” (ekathimerini)

According to several Greek media, Papastavrou claims that the money does not belong to him but to Israeli businessman Sabi Mioni. Papastavrou is reportedly co-holder of the account together with his mother and his father who deceased some years ago. Papastavrou had alleged that he was just managing the bank account. The former aide has to prove through documents that he is telling the truth, but also Mioni has to testify in the case. In his testimony in 2013, Mioni had claimed that he had given access to one of his corporate bank accounts to Papastavrou.

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Recovery.

Italian Youth Unemployment Rises to its Highest Level Ever (Bloomberg)

Italy’s jobless rate unexpectedly rose in June as businesses continue to dimiss workers amid concerns that the country’s exit from recession may not be sustainable. Youth unemployment jumped to a record-high 44.2%. Unemployment increased to 12.7% from a revised 12.5% in May, statistics agency Istat said in a preliminary report in Rome on Friday. The median estimate in a survey of nine analysts called for a rate of 12.3%. Youth unemployment in June rose to the highest rate since the series began in 2004, from 42.4% in May. Employment dropped for a second month in a row, with about 22,000 jobs lost in June alone, according to the report.

Joblessness in the euro area’s third-largest economy has been at 12% or above for more than two years as the record slump deepened before GDP started to rise again at the end of 2014. On Monday, the IMF said in a report that “without a significant pick-up in growth,” it would take Italy “nearly 20 years to reduce the unemployment rate to pre-crisis” levels of about half the current one. Prime Minister Matteo Renzi’s changes to Italy’s labor code showed early results as the number of open-ended contracts taking effect in the first half increased, the government said. Still, executives’ confidence declined this month amid doubts on the outlook for economic recovery and employment.

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Bad idea to focus on smuggling. The refugees need the attention.

People Smuggling: How It Works, Who Benefits, How It Can Be Stopped (Guardian)

One of the most distressing elements of the worldwide migrant crisis is that people who have risked all for a better life should be held to ransom by smugglers. The lines between migration and human trafficking all too easily converge. While migration implies a level of individual choice, migrants are sometimes detained and even tortured by the people they pay to lead them across borders. Following the cash across borders – through a network of kingpins, spotters, drivers and enforcers – is central to understanding how this opaque and complex business works. Everyone agrees there is not enough data. No one knows how many migrants are smuggled. However, enough is known about the money paid – by Eritreans, Syrians, Rohingya, and Afghans, among others – to demonstrate it is a multimillion-dollar business.

As Europe debates measures ranging from military attacks to destroying smugglers’ boats to increasing asylum places, what more can be done to prosecute those profiting at the crossroads of dreams and despair? How much do migrants pay? The cost varies depending on the distance, destination, level of difficulty, method of transport (air travel is dearer and requires fake documents) and whether the migrant has personal links to the smugglers, or decides to work for them. The UN Office on Drugs and Crime (UNODC) says journeys in Asia can cost from a few hundred dollars up to $10,000 (£6,422) or more. For Mexicans wanting to enter the US, fees can run to $3,500, while Africans trying to cross the Mediterranean can pay up to $1,000, and Syrians up to $2,500.

Abu Hamada, 62, a Syrian-Palestinian refugee, reckons he has earned about £1.5m ($2.3m) over six months by smuggling people across the Mediterranean from Egypt. A place on a boat from Turkey to Greece costs between €1,000 and €1,200(£700 and £840), say migrants. Afghans pay between €10,000 and €11,000 to get to Hungary, which includes help from smugglers. The UNODC says smugglers operating from Africa to Europe earn about $150m annually, while those from Latin America to North America are believed to earn roughly $6.6bn a year. Money is often paid in instalments as a migrant moves from one group of smugglers to the next. For example, migrants from Afghanistan often use informal remittance systems, such as hawala. Funds are deposited with a hawaladar in Afghanistan, and on each stage of the journey the migrant will contact that person to release money to other hawaladars in transit countries.

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Morons.

David Cameron To Send Dogs And Fences To Quell Calais Migrant Crisis (Guardian)

Extra sniffer dogs and fencing will be sent to France to help deal with the Calais migrant crisis, and Ministry of Defence land will be used to ease congestion on the UK side of the Channel tunnel, David Cameron has said. Speaking in Downing Street after chairing a meeting of the Cobra emergency committee, the prime minister said the situation was “unacceptable” and that he would be speaking to the French president, François Hollande, later on Friday. Cameron said: “This is going to be a difficult issue right across the summer. “I will have a team of senior ministers who will be working to deal with it, and we rule nothing out in taking action to deal with this very serious problem. “We are absolutely on it. We know it needs more work.”

The Cobra meeting came after another night during which police in France blocked people from reaching the Channel tunnel. About 3,000 people from countries including Syria and Eritrea are camping out in Calais and trying to cross into Britain illegally by climbing on board lorries and trains. France bolstered its police presence. The tunnel was temporarily closed on Friday morning while officials carried out an inspection after more migrants attempted to enter overnight at the entrance in Coquelles. French police attempted to form a ring of steel around the tunnel on Thursday night, prompting an evening of scuffles and standoffs with migrants attempting to breach the terminal in Calais. Up to a hundred migrants attempted to overrun police lines at a petrol station near the Eurostar terminal but were held back by baton-wielding gendarmes and riot vans.

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It’ll take a long time and a lot of deaths before people accept this.

We Can’t Stop The Flow Of Migrants To Europe, Only Rehouse Them (Guardian)

Rarely since 1558, when Queen Mary lost the town to the French, can Calais have ruffled as many British feathers as it has this July. British lorry-drivers, British holidaymakers, and British booze-runners – they’ve all had their journeys wrecked by a recent rise in refugees attempting to break into the Calais end of the Channel tunnel. Without wanting to entirely dismiss their experiences, it is nevertheless useful to remember that the Calais crisis is just a tiny part of a wider one. Of the nearly 200,000 refugees and migrants who have reached Europe via the Mediterranean this year, only 3,000 have made their way to Calais. This means that the migrants at Calais constitute between 1% and 2% of the total number of arrivals in Italy and Greece in 2015.

Far from the UK being a primary target for refugees, the country is much less sought-after than several of its northern European neighbours, notably Sweden and Germany. And while the chaos at Calais may seem unique, many more migrants arrive every week on the shores of Italy and Greece than will reach northern France all year. Debunking this Anglo-centrism is not an academic exercise. It is crucial to understanding how the Calais crisis can be better managed. Britain’s responses to the phenomenon are based on the assumption that it is a local problem. They include building more fences (Theresa May’s proposed recourse), sending in the army (Nigel Farage’s), or clearing the camp entirely (the default reaction in years gone by).

Such solutions presuppose that the crisis is a one-off event peculiar to the British-French border, and that these migrants – once cordoned-off and forgotten about – won’t come back and try again. But such short-termism ignores a vital fact: the migrants at Calais are merely the crest of the biggest global wave of mass migration since the second world war. Others will keep coming in their wake, whether we like it or not. Previous camp clearances over the past decade have ultimately not stopped the flow at Calais. Why would they work now?

[..] For many, the implications of this will be hard to swallow. But the reality is clear: the only logical, long-term response to the Calais crisis is to create a legal means for vast numbers of refugees to reach Europe in safety. This may sound counter-intuitive. But at the current rate, whether we like it or not, 1 million refugees will arrive on European shores within the next four or five years. Whether they set up camps at Calais depends on how orderly we make that process of resettlement.

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Time to act?!

As World Mourned Cecil The Lion, 5 Endangered Elephants Slain in Kenya (WaPo)

While the world mourned Cecil, the 13-year-old lion that was allegedly shot by an American hunter in Zimbabwe, an even more devastating poaching incident was quietly carried out in Kenya. Poachers killed five elephants in Tsavo West National Park on Monday night. The carcasses were recovered by rangers on Tuesday morning — what appeared to be an adult female and her four offspring, their tusks hacked off. While the killing of the lion in Zimbabwe has attracted the world’s attention, the death of the five elephants has received almost no coverage, even though elephants are under a far greater threat from poachers than lions. Their tusks can be sold in Asia for more than $1,000 per pound.

“It’s just devastating,” said Paul Gathitu, a spokesman for Kenya Wildlife Service. “It took us completely by surprise.” Kenyan investigators say the poachers crossed the border from neighboring Tanzania, slaughtered the elephants and then quickly returned to their base, making them difficult to track. Tsavo stretches along the border for more than 50 miles. Rangers heard gunshots ring out on Monday evening. They searched all night through the vast park and discovered the carnage the next morning. There was blood and loose skin where the tusks were cut off. Kenyan authorities say the poachers escaped on motorcycles, carrying their loot.

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“..sea surface temperatures haven’t been warming fast as marine air temperatures, so this comparison introduces a bias that makes the observations look cooler than the model simulations.”

Climate Models Are Even More Accurate Than You Thought (Guardian)

Global climate models aren’t given nearly enough credit for their accurate global temperature change projections. As the 2014 IPCC report showed, observed global surface temperature changes have been within the range of climate model simulations. Now a new study shows that the models were even more accurate than previously thought. In previous evaluations like the one done by the IPCC, climate model simulations of global surface air temperature were compared to global surface temperature observational records like HadCRUT4. However, over the oceans, HadCRUT4 uses sea surface temperatures rather than air temperatures. Thus looking at modeled air temperatures and HadCRUT4 observations isn’t quite an apples-to-apples comparison for the oceans.

As it turns out, sea surface temperatures haven’t been warming fast as marine air temperatures, so this comparison introduces a bias that makes the observations look cooler than the model simulations. In reality, the comparisons weren’t quite correct. As lead author Kevin Cowtan told me,

“We have highlighted the fact that the planet does not warm uniformly. Air temperatures warm faster than the oceans, air temperatures over land warm faster than global air temperatures. When you put a number on global warming, that number always depends on what you are measuring. And when you do a comparison, you need to ensure you are comparing the same things.

The model projections have generally reported global air temperatures. That’s quite helpful, because we generally live in the air rather than the water. The observations, by mixing air and water temperatures, are expected to slightly underestimate the warming of the atmosphere.

The new study addresses this problem by instead blending the modeled air temperatures over land with the modeled sea surface temperatures to allow for an apples-to-apples comparison. The authors also identified another challenging issue for these model-data comparisons in the Arctic. Over sea ice, surface air temperature measurements are used, but for open ocean, sea surface temperatures are used. As co-author Michael Mann notes, as Arctic sea ice continues to melt away, this is another factor that accurate model-data comparisons must account for.

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Apr 022015
 
 April 2, 2015  Posted by at 9:39 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »


Marion Post Wolcott Negro woman carrying laundry between Durham and Mebane, NC 1939

The Committee To Destroy The World (Michael Lewitt)
Our Current Illusion Of Prosperity (Mises Inst.)
Economic Inequality: It’s Far Worse Than You Think (Scientific American)
Burning Down The House: Land, Water & Food (Eastwood)
The Warren Effect: Here Is A Bluff That Needs To Be Called (Esquire)
Companies Go All-In Before Rate Hike, Issue Record Debt In Q1 (Zero Hedge)
Shanghai Traders Make Trillion-Yuan Stock Bet With Borrowed Cash (Bloomberg)
Greek Defiance Mounts As Alexis Tsipras Turns To Russia And China (AEP)
Greece Threatens Default As Fresh Reform Bid Falters (Telegraph)
China’s Fuel Demand to Peak Sooner Than Oil Giants Expect (Bloomberg)
The Saudis Are Losing Their Lock on Asian Oil Sales (Bloomberg)
Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (Bloomberg)
Appalachia Miners Wiped Out by Coal Glut That They Can’t Reverse (Bloomberg)
World Dairy Prices Slide 10.8% On Supply Concerns (NZ Herald)
CFTC Charges Kraft, Mondelez With Manipulating Wheat Futures (MarketWatch)
Brazil’s Richest Man May Reap $5.6 Billion in Kraft-Heinz Merger
The Cuban Money Crisis (Bloomberg)
California Orders Mandatory Water Cuts Of 25% Amid Record Drought (WSJ)

Absolute must read. And then a second time.

The Committee To Destroy The World (Michael Lewitt)

Last month, the world mourned the death of beloved actor Leonard Nimoy. Mr. Nimoy, of course, was renowned for his portrayal of the iconic character Mr. Spock on the 1960s television series Star Trek. One of the most memorable Star Trek inventions was the transporter that allowed human beings to be beamed through space and time like light and energy. Investors expecting central bankers to solve the world’s economic problems might as well believe that Janet Yellen is capable of beaming them straight into the Marriner S. Eccles Building in Washington, D.C. Their failure to acknowledge that the Fed is failing to generate sustainable economic growth while contributing to income inequality and crushing debt burdens is inexplicable.

Central banks that purport to be promoting financial stability are actually undermining it – with the able assistance of regulators who have drained liquidity from the world’s most important markets. Negative interest rates on $3 trillion of European debt are an obvious sign of policy failure, yet the policy elite stands mute. Actually that’s not correct – the cognoscenti is cheering on Mario Draghi as he destroys the European bond markets just as they celebrated Janet Yellen’s demolition of the Treasury market. Negative interest rates are not some curiosity; they represent a symptom of policy failure and a violation of the very tenets of capitalist economics. The same is true of persistent near-zero interest rates in the United States and Japan.

Zero gravity renders it impossible for fiduciaries to generate positive returns for their clients, insurance companies to issue policies, and savers to entrust their money to banks. They are a byproduct of failed economic policies, not some clever device to defeat deflation and stimulate economic growth. They are mathematically doomed to fail regardless of what economists, who are merely failed monetary philosophers practicing a soft social science, purport to tell us. The fact that European and American central banks are following the path of Japan with virtually no objection represents one of the most profound intellectual failures in the history of economic policy history.[..]

Christopher Whalen, one of the best bank analysts on Wall Street, argued that global banks face trillions of bad off-balance sheet debts that must eventually be resolved (i.e. written off) and are dragging on economic growth. These debts include everything from loans by German banks to Greece to home equity loans in the U.S. for homes that are underwater on their first mortgage. Banks and governments refuse to restructure (i.e. write off) these bad debts because doing so would trigger capital losses for banks and governments. As Mr. Whalen explains, “the Fed and ECB have decided to address the issue of debt by slowly confiscating value from investors via negative rates, this because the fiscal authorities in the respective industrial nations cannot or will not address the problem directly.”

But in addition to avoiding the bad debt problem, these policies are causing further economic damage by depressing growth and starving savers. Per Mr. Whalen: “ZIRP and QE as practiced by the Fed and ECB are not boosting, but instead depressing, private sector economic activity. By using bank reserves to acquire government and agency securities, the FOMC has actually been retarding private economic growth, even while pushing up the prices of financial assets around the world.”

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“Massive layoffs in the energy sector are now a certainty. Few realize that most of the gains in employment in the US since 2008 have been in shale states. Yet the carnage is not over.”

Our Current Illusion Of Prosperity (Mises Inst.)

President Obama and Fed Chair Janet Yellen have been crowing about improving economic conditions in the US. Unemployment is down to 5.5% and growth in 2014 hit 2.2%. Journalists and economists point to this improvement as proof that quantitative easing was effective. Unfortunately, this latest boom is artificial and has been built by adding debt on top of debt. Total household debt increased 2.5% in 2014 — the highest level since 2010. Mortgage loans increased 1.5%, student loans 6.6% while auto loans increased a hefty 9.6%. The improving auto sales are built mostly on a bubble of sub-prime borrowers. Auto sales have been brisk because of a surge in loans to individuals with credit scores below 620. Since 2010, such loans have increased over 100% and have gone from 20% of originations in 2009 to 27% in 2013.

Yet, auto loans to individuals with strong credit scores, above 760, have barely budged over the last year. Subprime consumer borrowing climbed $189 billion in the first eleven months of 2014. Excluding home mortgages, this accounted for 41% of total consumer lending. This is exactly the kind of lending that got us into trouble less than a decade ago, and for many consumers, this will only end in tears. But we need to ask ourselves: is the current boom built on sound foundations? In other words, do we have sharp increases in productivity or real wage growth? Productivity increased less than 1% on average in the last three years and real wages have flat lined or declined for decades. From mid-2007 to mid-2014, real wages declined 4.9% for workers with a high school degree, dropped 2.5% for workers with a college degree and rose just 0.2% for workers with an advanced degree.

Is the boom being built on broad base investment in plant and equipment? The current average age of working plants and equipment in the US is one of the oldest on record. Meanwhile, it is now clear that the shale boom was an illusion of prosperity. Oil prices have dipped below $50 with some analysts calling for $20 oil by the end of the year. This is a drop from over $100 from last year. Many shale outfits need oil above $65 just to break even. Massive layoffs in the energy sector are now a certainty. Few realize that most of the gains in employment in the US since 2008 have been in shale states. Yet the carnage is not over. Induced by low interest, investment banks loaned over $1 trillion to the energy industry. The impact on the financial sector is still to be felt.

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Do read.

Economic Inequality: It’s Far Worse Than You Think (Scientific American)

In a candid conversation with Frank Rich last fall, Chris Rock said, “Oh, people don’t even know. If poor people knew how rich rich people are, there would be riots in the streets.” The findings of three studies, published over the last several years in Perspectives on Psychological Science, suggest that Rock is right. We have no idea how unequal our society has become. In their 2011 paper, Michael Norton and Dan Ariely analyzed beliefs about wealth inequality. They asked more than 5,000 Americans to guess the%age of wealth (i.e., savings, property, stocks, etc., minus debts) owned by each fifth of the population. Next, they asked people to construct their ideal distributions. Imagine a pizza of all the wealth in the United States. What%age of that pizza belongs to the top 20% of Americans?

How big of a slice does the bottom 40% have? In an ideal world, how much should they have? The average American believes that the richest fifth own 59% of the wealth and that the bottom 40% own 9%. The reality is strikingly different. The top 20% of US households own more than 84% of the wealth, and the bottom 40% combine for a paltry 0.3%. The Walton family, for example, has more wealth than 42% of American families combined. We don’t want to live like this. In our ideal distribution, the top quintile owns 32% and the bottom two quintiles own 25%. As the journalist Chrystia Freeland put it, “Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz.” Norton and Ariely found a surprising level of consensus: everyone — even Republicans and the wealthy—wants a more equal distribution of wealth than the status quo.

This all might ring a bell. An infographic video of the study went viral and has been watched more than 16 million times. In a study published last year, Norton and Sorapop Kiatpongsan used a similar approach to assess perceptions of income inequality. They asked about 55,000 people from 40 countries to estimate how much corporate CEOs and unskilled workers earned. Then they asked people how much CEOs and workers should earn. The median American estimated that the CEO-to-worker pay-ratio was 30-to-1, and that ideally, it’d be 7-to-1. The reality? 354-to-1. Fifty years ago, it was 20-to-1. Again, the patterns were the same for all subgroups, regardless of age, education, political affiliation, or opinion on inequality and pay. “In sum,” the researchers concluded, “respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.”

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Can man stop himself?

Burning Down The House: Land, Water & Food (Eastwood)

I’m sure when Talking Heads wrote “Burning Down The House” that they didn’t exactly have financial collapse and environmental degradation in mind. Although with a verse like “Hold tight wait till the party’s over. Hold tight we’re in for nasty weather. There has got to be a way. Burning down the house” it’s hard not to see that song as strangely prophetic. What we are now doing to the planet and to human society is exactly that – burning down the house while we are still living in it. Everyone needs fuel, especially during a bitter winter, but only a mad man starts deconstructing the house in order to burn bits of it in the stove or fireplace. Almost as mad as that is stealing bits of other people’s houses to burn, but that at least is not soiling your own doorstep – well not at first.

In a world of limited resources and limited space we’ve now reached the point where raiding our neighbours’ houses is the same thing as raiding our own house, because the net effect is the same – disaster on an unprecedented level. Of course it’s easier to live in denial and keep on cannibalising the world’s vital resources at an ever-increasing rate and pretend that it’s business as usual, but in reality it is anything but that. The alarm bells from commentators from all sectors: science, economics, religion etc. are getting louder and more frequent, better argued and with the raw data to back it up, but we are still not listening. Of course, the alarm bell was being rung fifty or more years ago by people such as Admiral Hyman Rickover in 1957, the now retiring Lester Brown and the late Rachel Carson (author of Silent Spring).

Nobody really listened that well back then, although governments paid lip-service to these troublesome do-gooders. Now we know that what they said was entirely true, that we are headed for disaster and yet will still only get the tired old lip-service, as before or Koch Brother inspired denial. The evidence is clearly there that we are depleting all of our resources far too quickly, especially the land we use to produce food and draw raw materials from. In part a consequence of this, the fresh water supplies that are even more vital are also being depleted way too fast. Devastation of the land, especially deforestation exacerbates water loss and soil erosion. Couple this with increased damming of rivers, pollutant run-off into rivers, fracking and mining and you’ve a recipe for a water crisis, which will, in turn, lead to a food crisis.

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Amen.

The Warren Effect: Here Is A Bluff That Needs To Be Called (Esquire)

Let us be quite definite about this. Any Democratic politician who thinks this is a bad situation – or, worse, will not stand by a Democratic colleague in this situation – is not worth the hankie to blow Joe Lieberman’s nose.

Representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America, have met to discuss ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone toward Wall Street, sources familiar with the discussions said this week. Bank officials said the idea of withholding donations was not discussed at a meeting of the four banks in Washington but it has been raised in one-on-one conversations between representatives of some of them. However, there was no agreement on coordinating any action, and each bank is making its own decision, they said.

My god, what a prodigious bluff. Also, my god, what towering arrogance? These guys own half the world and have enough money to buy the other half, and they’re threatening the party still most likely to control the White House because they don’t like the Senator Professor’s tone? Her tone? Sherrod Brown’s tone? These are guys who should be worried about the tone of the guard who’s calling them down to breakfast at Danbury and they’re concerned about the tenderness of their Savile Row’d fee-fees? Honkies, please.

The tensions are a sign that the aftermath of the 2008 financial crisis – the bank bailouts and the fights over financial reforms to rein in Wall Street – are still a factor in the 2016 elections. Citigroup has decided to withhold donations for now to the Democratic Senatorial Campaign Committee over concerns that Senate Democrats could give Warren and lawmakers who share her views more power, sources inside the bank told Reuters.

Tensions? These are the guys who should have spent the last six years going door to door apologizing to every American for blowing up the world economy and then buying up the splinters. That is, they should have been going door-to-door to apologize to all those Americans who still have doors they can call their own. Call this. Do it now. Tell them their money is no good here any more. Give these brigands the 86 the way any respectable saloonkeeper gives the heave to a chronic deadbeat who’s run up an unpayable tab. Show the country in simple (and not necessarily civil) words what these people really are.

Demonstrate, speech by speech, that they have no loyalty to the political entity that is the United States of America, that they are stateless gombeen bastards who would sell this country’s democracy off like a subprime mortgage to put another ten bucks into their pockets. They are threatening the people whom they still should be thanking for saving them from themselves. And Senator Professor Warren is only their most conspicuous target. Don’t kid yourselves, this is a message they’re sending to every politician, up and down the line, national and local. Don’t cross us. We own you. There is only one response for a democratic people to make to this ongoing gross obscenity. Bring it, motherfkers. Bring your lunch. And your lawyers.

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What could possibly go wrong?

Companies Go All-In Before Rate Hike, Issue Record Debt In Q1 (Zero Hedge)

It should come as no surprise that Q1 was a banner quarter for corporate debt issuance as struggling oil producers tapped HY markets to stay afloat, companies scrambled to max out the stock-buyback-via-balance-sheet re-leveraging play before a certain “diminutive” superwoman in the Eccles Building decides to do the unthinkable and actually hike rates, and there was M&A. As we discussed last week, rising stock prices have tipped investors’ asset allocation towards equities even as money continues to flow into bonds, meaning that yet more money must be funneled into fixed income for rebalancing purposes, which ironically drives demand for the very same debt that US corporates are using to fund the very same buy backs that are driving equity outperformance in the first place. Put more simply: the bubble machine is in hyperdrive. Not only did Q1 mark a record quarter for issuance, March supply also hit a record at $143 billion, tying the total put up in May of 2008. Here’s more from BofAML:

1Q set records for both supply and trading volumes in high grade, as new issue supply volumes reached $348bn, up from the previous record of $310bn in 1Q- 2014, whereas trading volumes averaged 15.6bn per day, up from the previous record of $14.3bn during the same quarter last year… Issuance in March totaled $143bn and it tied with May 2008 and September of 2013 for the highest monthly supply on record going back to at least 1998. September of 2013 was the month when the record $49bn VZ deal was priced… Supply in March was supported by low interest rates (encouraging opportunistic issuance on the supply side and supporting investor demand by diminishing interest rate risk concerns) and a busy M&A-related calendar. Some of these trends will continue in April, although investors are becoming more concerned about the Fed hiking cycle…

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The China casino.

Shanghai Traders Make Trillion-Yuan Stock Bet With Borrowed Cash (Bloomberg)

Shanghai traders now have more than 1 trillion yuan ($161 billion) of borrowed cash riding on the world’s highest-flying stock market. The outstanding balance of margin debt on the Shanghai Stock Exchange surpassed the trillion-yuan mark for the first time on Wednesday, a nearly fourfold jump from just 12 months ago. The city’s benchmark index has surged 86% during that time, more than any of the world’s major stock gauges. While the extra buying power that comes from leverage has fueled the Shanghai Composite Index’s rally, it’s also sending equity volatility to five-year highs and may accelerate losses if a market reversal forces traders to sell.

Margin debt has increased even after regulators suspended three of the nation’s biggest brokers from adding new accounts in January and said securities firms shouldn’t lend to investors with less than 500,000 yuan. “It’s like a two-edged sword,” said Wu Kan, a money manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “When the market starts a correction or falls, it will increase the magnitude of declines.” In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a brokerage. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.

Chinese investors have been piling into the stock market after the central bank cut interest rates twice since November and authorities from the China Securities Regulatory Commission to central bank Governor Zhou Xiaochuan endorsed the flow of funds into equities. Traders have opened 2.8 million new stock accounts in just the past two weeks, almost on par with Chicago’s entire population. The outstanding balance of the margin debt on China’s smaller exchange in Shenzhen was 493.8 billion yuan on March 31. That puts the combined figure for China’s two main bourses at the equivalent of about $241 billion. In the U.S., which has a stock market almost four times the size of China’s, margin debt on the New York Stock Exchange was about $465 billion at the end of February.

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Strong effort by Ambrose. He manages to look behind the obvious veil: “When Warren Buffett suggests that Europe might emerge stronger after a salutary purge of its weak link in Greece, he confirms his own rule that you should never dabble in matters beyond your ken.”

Greek Defiance Mounts As Alexis Tsipras Turns To Russia And China (AEP)

Two months of EU bluster and reproof have failed to cow Greece. It is becoming clear that Europe’s creditor powers have misjudged the nature of the Greek crisis and can no longer avoid facing the Morton’s Fork in front of them. Any deal that goes far enough to assuage Greece’s justly-aggrieved people must automatically blow apart the austerity settlement already fraying in the rest of southern Europe. The necessary concessions would embolden populist defiance in Spain, Portugal and Italy, and bring German euroscepticism to the boil. Emotional consent for monetary union is ebbing dangerously in Bavaria and most of eastern Germany, even if formulaic surveys do not fully catch the strength of the undercurrents. This week’s resignation of Bavarian MP Peter Gauweiler over Greece’s bail-out extension can, of course, be over-played. He has long been a foe of EMU.

But his protest is unquestionably a warning shot for Angela Merkel’s political family. Mr Gauweiler was made vice-chairman of Bavaria’s Social Christians (CSU) in 2013 for the express purpose of shoring up the party’s eurosceptic wing and heading off threats from the anti-euro Alternative fur Deutschland (AfD). Yet if the EMU powers persist mechanically with their stale demands – even reverting to terms that the previous pro-EMU government in Athens rejected in December – they risk setting off a political chain-reaction that can only eviscerate the EU Project as a motivating ideology in Europe. Jean-Claude Juncker, the European Commission’s chief, understands the risk perfectly, warning anybody who will listen that Grexit would lead to an “irreparable loss of global prestige for the whole EU” and crystallize Europe’s final fall from grace.

When Warren Buffett suggests that Europe might emerge stronger after a salutary purge of its weak link in Greece, he confirms his own rule that you should never dabble in matters beyond your ken. Alexis Tsipras leads the first radical-Leftist government elected in Europe since the Second World War. His Syriza movement is, in a sense, totemic for the European Left, even if sympathisers despair over its chaotic twists and turns. As such, it is a litmus test of whether progressives can pursue anything resembling an autonomous economic policy within EMU. There are faint echoes of what happened to the elected government of Jacobo Arbenz in Guatemala, a litmus test for the Latin American Left in its day. His experiment in land reform was famously snuffed out by a CIA coup in 1954, with lasting consequences. It was the moment of epiphany for Che Guevara, then working as a volunteer doctor in the country.

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Believe it or not, this thing will have to reach a conclusion soon.

Greece Threatens Default As Fresh Reform Bid Falters (Telegraph)

The Greek government has threatened to default on its loans to the International Monetary Fund, as Athens continued its battle to convince creditors for a fresh injection of bail-out cash. Greece’s interior minister told Germany’s Spiegel magazine, his country would not respect a looming €450m loan repayment to the fund on April 9, without a release of much-needed bail-out funds. “If no money is flowing on April 9, we will first determine the salaries and pensions paid here in Greece and then ask our partners abroad to achieve consensus that we will not pay €450 million to the IMF on time,” said Nikos Voutzis. The cash-strapped government has struggled to keep up with its wage and pensions obligations having agreed a bail-out extension on February 20.

Athens insists it has enough money to last it until the middle of April, but a final agreement on any deal is unlikely to be secured before the end of the month. A Greek government spokesperson later denied the reports of a deliberate default, saying the country still hoped for a “positive outcome” to its debt negotiations. The comments came as the eurozone’s working group discussed a new 26-page plan of reforms from Athens on Wednesday. Aiming to generate an estimated €6bn in 2015, Athens has pledged a range of revenue-raising measures including cracking down on tax evasion, carrying out an audit on overseas bank transfers, and introducing a “luxury tax”. The document also warned brinkmanship on the part of the eurozone meant the “viability” of the currency union was now “in question.”

“It is necessary now, without further delay to turn a corner on the mistakes of the past and to forge a new relationship between member states, a relationship based on solidarity, resolve, mutual respect,” said the proposal. The Leftist government has continually fallen short of creditor demands, who hold the purse strings on €7.2bn in bail-out cash the government requires over the next three months. However, the latest blueprint is unlikely to satisfy lenders as it lacks details on labour market liberalisation or pensions reforms. Previous privatisations of the country’s assets were also described as a “spectacular” failure, generating far less in revenues for the state than first envisaged..

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Wrong on purpose?

China’s Fuel Demand to Peak Sooner Than Oil Giants Expect (Bloomberg)

China’s biggest oil refiner is signaling the nation is headed to its peak in diesel and gasoline consumption far sooner than most Western energy companies and analysts are forecasting. If correct, the projections by China Petroleum & Chemical, or Sinopec, a state-controlled enterprise with public shareholders in Hong Kong, pose a big challenge to the world’s largest oil companies. They’re counting on demand from China and other developing countries to keep their businesses growing as energy consumption falls in more advanced economies. “Plenty of people are talking about the peak in Chinese coal, but not many are talking about the peak in Chinese diesel demand, or Chinese oil generally,” said Mark C. Lewis at Kepler Cheuvreux. “It is shocking.”

Sinopec has offered a view of the country that should serve as a reality check to any oil bull. For diesel, the fuel that most closely tracks economic growth, the peak in China’s demand is just two years away, in 2017, according to Sinopec Chairman Fu Chengyu, who gave his outlook on a little reported March 23 conference call. The high point in gasoline sales is likely to come in about a decade, he said, and the company is already preparing for the day when selling fuel is what he called a “non-core” activity. That forecast, from a company whose 30,000 gas stations and 23,000 convenience stores arguably give it a better view on the market than anyone else, runs counter to the narrative heard regularly from oil drillers from the U.S. and Europe that Chinese demand for their product will increase for decades to come.

“From 2010 to 2040, transportation energy needs in OECD32 countries are projected to fall about 10% while in the rest of the world these needs are expected to double,” Exxon Mobil said in a December report on its view of the future. “China and India will together account for about half of the global increase.” Exxon expects most of that growth to be driven by commercial transportation for heavy-duty vehicles, specifically ships, trucks, planes and trains that run on diesel and similar fuels. BP’s latest public projection for China, released in February, sounds a similar note. “Energy consumed in transport grows by 98%. Oil remains the dominant fuel but loses market share, dropping from 90% to 83% in 2035.”

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“Asian-Pacific refiners are forecast to add 5.4 million barrels a day of capacity in the next five years..”

The Saudis Are Losing Their Lock on Asian Oil Sales (Bloomberg)

Ships carrying oil from Mexico docked in South Korea this year for the first time in more than two decades as the global fight for market share intensifies. Latin American producers are providing increasing amounts of heavy crude to bargain-hungry Asian refiners in a challenge to Saudi Arabia, the world’s largest exporter and the region’s dominant supplier. “By diversifying, more Asian refiners will be able to reduce the clout that Saudi Arabia has on the market,” said Suresh Sivanandam, a refining and chemical analyst with Wood Mackenzie Ltd. in Singapore. “They will be getting more bargaining power for sure.”

The U.S., enjoying a surge of light oil from shale formations, has raised imports of heavy grades from Canada, displacing crude from nations such as Mexico and Venezuela. That’s boosting South American deliveries to Asia even after Saudi Arabia cut prices for March oil sales to the region, its largest market, to the lowest in at least 14 years. The shale boom also has transformed the flow of oil to Asia. South Korea received its first shipment of Alaskan crude in at least eight years as output from Texas and North Dakota displaces oil that fed U.S. refineries for years. The country was one of the first to receive a cargo of the ultralight U.S. crude known as condensate after export rules were eased.

Petrobras and partner operators are also shipping to Asia and were scheduled to load nine tankers bound for the region in March, according to Energy Aspects, as Latin American oil’s discount to Middle East benchmark Dubai widens to almost double the average of the past year. Asian-Pacific refiners are forecast to add 5.4 million barrels a day of capacity in the next five years, according to Gaffney, Cline & Associates, a petroleum consultant.

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“April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral.” Calculations until now are stil based on $90 oil.

Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (Bloomberg)

Lenders are preparing to cut the credit lines to a group of junk-rated shale oil companies by as much as 30% in the coming days, dealing another blow as they struggle with a slump in crude prices, according to people familiar with the matter.
Sabine Oil & Gas became one of the first companies to warn investors that it faces a cash shortage from a reduced credit line, saying Tuesday that it raises “substantial doubt” about the company’s ability to continue as a going concern. About 10 firms are having trouble finding backup financing, said the people familiar with the matter, who asked not to be named because the information hasn’t been announced. April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral.

With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend. And that will only squeeze companies’ ability to produce more oil. “If they can’t drill, they can’t make money,” said Kristen Campana at Bracewell & Giuliani LLP’s finance and financial restructuring groups. “It’s a downward spiral.” Sabine, the Houston-based exploration and production company that merged with Forest Oil Corp. last year, told investors Tuesday that it’s at risk of defaulting on $2 billion of loans and other debt if its banks don’t grant a waiver. Publicly traded firms are required to disclose such news to investors within four business days, under U.S. Securities and Exchange Commission rules.

Some of the companies facing liquidity shortfalls will also disclose that they have fully drawn down their revolving credit lines like Sabine, according to one of the people. The credit discussions are ongoing and a number of banks may opt to be more lenient, giving companies more time to prepare for bigger cuts later in the year, the people said. Credit lines for some of the companies may be reduced by as little as 10%, they said. The companies are among speculative-grade energy producers that were able to load up on cheap debt as crude prices climbed above $100 a barrel. The borrowing limits are tied to reserves, the amount of oil and gas a company has in the ground that can profitably be extracted based on its land holdings. With oil prices plunging below $50 from last year’s peak of $107 in June, some are now fighting to survive.

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Commodities have been overvalued for a long time, due to crazy expectations for China growth.

Appalachia Miners Wiped Out by Coal Glut That They Can’t Reverse (Bloomberg)

Douglas Blackburn has been crawling in and out of the coal mines of Central Appalachia since he was a boy accompanying his father and grandfather some 50 years ago. The only time that Blackburn, now a coal industry consultant, remembers things being this bad was in the 1990s. Back then, he estimates, almost 40% of the region’s mines went bankrupt. “It’s a similar situation,” said Blackburn, who owns Blackacre, a Richmond, Va consulting firm. Now, like then, the principal problem is sinking coal prices. They’ve dropped 33% over the past four years to levels that have made most mining companies across the Appalachia mountain region unprofitable. To make matters worse, there’s little chance of a quick rebound in prices. That’s because idling a mine to cut output and stem losses isn’t an option for many companies.

The cost of doing so – even on a temporary basis – has become so prohibitive that it can put a miner out of business fast, Blackburn and other industry analysts say. So companies keep pulling coal out of the ground, opting to take a small, steady loss rather than one big writedown, in the hope that prices will bounce back. That, of course, is only adding to the supply glut in the U.S., the world’s second-biggest producer, and driving prices down further. It’s become, in essence, a trap for miners. “You have this really perverse situation where they keep producing,” James Stevenson at IHS said in a telephone interview. “You’re just shoveling coal into this market that’s oversupplied.” Companies will dig up at least 17 million tons more coal than power plants need this year, Morgan Stanley estimates. Coal is burned at the plants to generate electricity. That’s creating the latest fossil fuel glut in the U.S., joining oil and natural gas.

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I was just sent this. Don’t know enough about it, I must admit. The article suggests that prices are still 11% higher than 3 months ago. That would seem to mean they rose 20% or so in 2015. It doesn’t make much sense to me right now.

World Dairy Prices Slide 10.8% On Supply Concerns (NZ Herald)

International dairy prices continued to reverse gains made early this year at this morning’s GlobalDairyTrade (GDT) auction, putting downward pressure on Fonterra’s $4.70 a kg farmgate milk price forecast and raising concerns about next season’s likely payout. The GDT price index fell by 10.8% compared with the last sale a fortnight ago, when prices dropped by 8.8%. Big falls were recorded for the key products of wholemilk powder – down 13.3% to US$2,538 a tonne, skim milk powder – down 9.9% to US$2,467/tonne. Wholemilk prices are now just 11% higher than than they were by the end of 2014. ANZ rural economist Con Williams said that with milk powder making up the bulk of New Zealand’s product mix, the GDT result suggested a payout of $4.50-4.70 a kg this year.

The largest price falls at the auction were generally seen in the longer-dated contracts, up to 6 months out – into the new season. “While these prices remain higher than those for the end of this season, the curve has flattened, suggesting less price recovery is now anticipated – not boding well for next year’s payout,” Williams said. The fall comes as the New Zealand season enters its final phase, with about 80% of production now out of the way. Most of the price weakness was put down to better-than-expected supply, with the effects of this year’s drought being offset by rain in many parts of the country.

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Warren!

CFTC Charges Kraft, Mondelez With Manipulating Wheat Futures (MarketWatch)

The Commodity Futures Trading Commission on Wednesday charged Kraft Foods and Mondelez Global with manipulating wheat futures and cash wheat prices. The CFTC says that, in response to high cash wheat prices in summer 2011, the two companies developed and executed in early December 2011 a strategy to buy $90 million of wheat futures they didn’t intend on receiving. The companies expected the market would react to their “enormous” long position in futures by lowering cash prices, the CFTC said. They later earned more than $5.4 million in profits, according to the CFTC’s complaint. The agency says litigation is continuing against the companies and it is seeking disgorgement and civil monetary penalties.

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“3G, co-founded by Lemann, eliminated more than 7,000 Heinz jobs in 20 months..”

Brazil’s Richest Man May Reap $5.6 Billion in Kraft-Heinz Merger

Brazil’s richest man Jorge Paulo Lemann may add more than $5 billion to his personal fortune after ketchup maker H.J. Heinz merges with Kraft Foods. Heinz, controlled by Lemann’s 3G Capital and Warren Buffett’s Berkshire Hathaway, agreed last week to buy the macaroni-and-cheese maker Kraft in a cash-and-stock deal. Heinz’s 51% of the combined company will be worth about $45 billion, valuing Lemann’s stake at about $9.6 billion, said Kevin Dreyer, a portfolio manager at Gabelli Equity. Lemann has invested about $4 billion through 3G Capital, according to data compiled by Bloomberg.

“A combination of synergies from the deal and the sprinkling of the magic 3G dust is giving Kraft a higher valuation than it would otherwise have,” Dreyer said in a phone interview from New York. “3G has a track record of drastically expanding margins. There’s an expectation they’ll achieve the number they put in and then some.” 3G, co-founded by Lemann, eliminated more than 7,000 Heinz jobs in 20 months after taking the company over with Berkshire Hathaway. Buffett defended the job reductions his partners at 3G have taken when they buy businesses during a March 31 interview on CNBC.

The share price of Kraft, which surged 36% the day of the deal, can be used to estimate the future value of closely held Heinz, Dreyer said. His calculation takes into account the ketchup maker’s special dividend payment and assumes a market capitalization of about $87 billion for the new company. 3G owns 48% of Heinz, co-founder Alex Behring told reporters March 25. The buyout firm contributed $4.25 billion to Heinz in 2013 and another $4.8 billion in the Kraft deal. Lemann hasn’t disclosed his personal stake in Heinz. His investments in publicly traded companies show he tends to have a larger stake than Brazilian 3G partners Marcel Telles and Carlos Alberto Sicupira..

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Multiple currencies. Looks inevitable for Greece too.

The Cuban Money Crisis (Bloomberg)

The currency crisis starts about 75 feet into Cuba. I land in the late afternoon and, after clearing customs, step into the busy arrivals hall of Havana’s airport looking for help. I ask a woman in a gray, military-like uniform where I can change money. Follow me, she says. But she doesn’t turn left, toward the airport’s exchange kiosk. Called cadecas, these government-run currency shops are the only legal way, along with banks, to swap your foreign money for Cuba s tourist tender, the CUC. Instead, my guide turns right and only comes clean when we reach a quiet area at the top of an escalator. The official rate is 87 for a hundred, she whispers, meaning CUCs to dollars. I’m giving you 90. So it’s a good deal for you.

I want to convert $500, and she doesn’t blink an eye. Go in the men’s room and count your money out, she instructs. I’ll do the same in the ladies room. The bathroom is crowded, with not one but two staff and the usual traffic of an airport in the evening. There s no toilet paper. In an unlit stall I try counting to 25 while laying $20 bills on my knees. There’s an urgent knock, and under the door I see high heels. I’m still counting, I say. She’s back two minutes later and pushes her way into my stall. We trade stacks, count, and the tryst is over. For my $500, I get 450 CUCs, the currency that’s been required for the purchase of almost anything important in Cuba since 1994. CUCs aren’t paid to Cubans; islanders receive their wages in a different currency, the grubby national peso that features Che Guevara’s face, among others, but is worth just 1/25th as much as a CUC.

Issued in shades of citrus and berry, the CUC dollarized, tourist-friendly money has for 21 years been the key to a better life in Cuba, as well as a stinging reminder of the difference between the haves and the have-nots. But that’s about to change: Cuba is going to kill the CUC. Described as a matter of fairness by President Raul Castro, the end of the two-currency system is also the key to overhauling the uniquely incompetent and centrally planned chaos machine that is the Cuban economy.

Even in Cuba there are markets, and the effects of Castro’s October announcement of a five-step plan for phasing out the CUC are already rippling out to every wallet in the country. The government has issued notifications and price conversion charts, and introduced new, larger bills to supplement the low-value national peso. Over the next year, the CUC will be invalidated what Cuban economists call Day Zero and then, in steps four and five, the regular Cuban peso will become exchangeable and be floated against a basket of five currencies: the yuan, the euro, the U.S. dollar, and two others to be named later.

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But still in complete denial: “..the governor’s action won’t mean mandatory rationing for households.”

California Orders Mandatory Water Cuts Of 25% Amid Record Drought (WSJ)

California Gov. Jerry Brown ordered unprecedented mandatory water cuts across the Golden State after the latest measurements show the state’s mountain snowpack – which accounts for roughly a third of California’s water supply – has shrunk to a record low of 5% of normal for this time of year. The Democratic governor took the action on Wednesday after accompanying state surveyors into the Sierra Nevada mountains to manually verify electronic readings that show an average snow water equivalent of 1.4 inches, the lowest ever recorded on April 1. “Today we are standing on dry grass where there should be five feet of snow,” the governor said. “This historic drought demands unprecedented action.”

Gov. Brown directed the State Water Resources Control Board to implement mandatory water reductions of 25%. Details on how the cuts would be implemented weren’t immediately released, although the governor said in his order that reductions would fall hardest in water districts that haven’t adequately followed his voluntary calls for conservation last year. According to monthly surveys of water use, conservation levels have varied widely around the state. In general, reductions have been lower in Southern California than the rest of the state, in part because of the region’s concentration of estate-sized lots homes and golf courses. A spokesman for the state water control board, which has already ordered limits in outdoor lawn watering, said the governor’s action won’t mean mandatory rationing for households.

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Mar 242015
 
 March 24, 2015  Posted by at 7:27 am Finance Tagged with: , , , , , , ,  4 Responses »


DPC Surf Avenue, Coney Island, NY 1903

The World’s Next Credit Crunch Could Make 2008 Look Like A Hiccup (Telegraph)
No Risk Too Big as Bond Traders Plot Escape From Negative Yields (Bloomberg)
Fed’s Fischer Says Rate Rise Probably Warranted by End-2015 (Bloomberg)
Shadow Banking System Shows Signs of Stabilizing After Collapse (Bloomberg)
The Unbearable Exuberance of China’s Markets (Pesek)
Oil Majors Pile On Record Debt To Plug Cash Shortfalls (FT)
Pension Funds Shun Bonds Just as Southeast Asia Needs Them Most (Bloomberg)
Hedge Funds Are Boosting Tech Valuations to Dangerous Heights (Bloomberg)
IMF, World Bank Throw Weight Behind China-Led Bank (CNBC)
Tsipras Raises Nazi War Reparations Claim At Berlin Press Conference (Guardian)
Why Greek Default Looms (BBC)
Draghi Rejects Accusation That ECB Is Blackmailing Greece (Bloomberg)
Merkel Points Tsipras Toward Deal With Greece’s Creditors (Bloomberg)
Barroso: Greece Should Blame Itself (CNBC)
Andalusia Election Increases Pressure on Spain’s Rajoy (Bloomberg)
‘The Fourth Reich’: What Some Europeans See When They Look at Germany (Spiegel)
Beijing to Close All Major Coal Power Plants to Curb Pollution (Bloomberg)

Or 1937.

The World’s Next Credit Crunch Could Make 2008 Look Like A Hiccup (Telegraph)

In 1937 the US was, economically speaking, an island, entire of itself; today, thanks to globalisation, the power of the dollar and a long period of ultra-loose monetary policy, it is a part of the main. Christine Lagarde, the head of the IMF, recently raised concerns in India about the ripple effect of Fed tightening on countries that have borrowed heavily in dollars and whose still-recovering economies remain vulnerable to a rate rise. And in 1937 the equity markets were the financial be-all and end-all; today they are dwarfed by the debt markets, which are, in turn, dwarfed by the derivatives markets. The total value of all global equities was around $70 trillion in June last year, according to the World Federation of Exchanges; meanwhile, the notional value of all outstanding derivatives contracts was more than $690 trillion.

It is worth noting that the vast majority (around four-fifths) of all existing derivatives contracts are based on interest rates. The derivatives market is the not the vast roulette table of popular perception. These financial instruments are essentially insurance policies – they are designed to protect the holder from adverse price movements. If you are worried about (to pick some unlikely examples) a strong euro, or expensive oil, or rising interest rates, you can buy a contract that pays out if your fears are realised. Managed well, the gain from the derivative should offset the loss from the underlying price movement. Nevertheless, the arguments employed by the derivatives industry sometimes sound similar to those employed by the pro-gun lobby: derivatives aren’t dangerous, it’s the people using them that you need to worry about. That’s not hugely reassuring.

What could go wrong? Let’s say that US interest rates do rise sooner and faster than the market expects. That means bond prices, which always move in the opposite direction to yields, will plummet. US Treasury bonds are like a mountain guide to which most other global securities are roped – if they fall, they take everything else with them. Who will get hurt? Everyone. But it’ll likely be the world’s banks, where even little mistakes can create big problems, that suffer the most pain. The European Banking Authority estimates that the average large European lender still has 27 times more assets than it does equity. This means that if the stuff on their balance sheets (including bonds and other securities priced off Treasury yields) turns out to be worth just 3.7pc less than was assumed, it will be time to order in the pizzas for late night discussions about bail-outs.

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Casino.

No Risk Too Big as Bond Traders Plot Escape From Negative Yields (Bloomberg)

In the negative-yield vortex that is the European bond market, investors are discovering just what lengths they’re willing to go to generate returns. Norway’s $870 billion sovereign wealth fund said this month that it added Nigeria and lifted its share of lower-rated company debt to the highest since at least 2006. Allianz SE, Europe’s biggest insurer, is shifting from German bunds to bulk up on mortgages. JPMorganis buying speculative-grade corporate debt to boost returns. With the ECB’s fight against deflation pushing yields on almost a third of the euro area’s $6.26 trillion of government bonds below zero, even the most risk-averse investors are taking chances on assets and regions that few would have considered just months ago.

That’s exposing more clients to the inevitable trade-off that comes with the lure of higher returns: the likelihood of deeper losses. “We are wandering into uncharted territory that’s subject to uncertainty and mistakes,” said Erik Weisman at MFS Investment Management. He’s buying debt with longer maturities and increasing his allocation of top-quality government holdings to Australia and New Zealand, which have some of the highest yields in the developed world. The shift is a consequence of how topsy-turvy the bond market has become as falling consumer prices and stubbornly high unemployment prompted the ECB to step up its quantitative easing with government debt purchases.

About €1.44 trillion sovereign debt, valued at about $1.9 trillion as of their issue dates, from Germany to Finland and even Slovakia, carry negative yields. That means the bonds guarantee losses for buyers who hold them to maturity. In effect, investors are betting the securities will appreciate in price before then, allowing them to sell at a profit before they come due. [..] The bond market worldwide is more vulnerable to losses than at any time on record, based a metric known as duration, index data compiled by Bank of America show. The risk has ballooned as issuers worldwide took advantage of the decline in borrowing costs to sell more and more longer-term bonds. This probably means we end up seeing all these reverse in a very unpleasant fashion,” Weisman said.

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The multi-voiced good cop bad cop narrative continues.

Fed’s Fischer Says Rate Rise Probably Warranted by End-2015 (Bloomberg)

Federal Reserve Vice Chairman Stanley Fischer said raising interest rates from near zero “likely will be warranted before the end of the year” and subsequent increases probably won’t be uniform or predictable. “A smooth path upward in the federal funds rate will almost certainly not be realized” as the economy encounters shocks such as the surprise plunge in oil prices, Fischer, said on Monday in remarks to the Economic Club of New York. Officials last week opened the door to a rate increase as soon as June, while also indicating in their forecasts they will go slow once they get started. Fischer’s comments are the first from Fed leadership since Chair Janet Yellen’s press conference after the Federal Open Market Committee meeting on Wednesday.

The Fed wants to be “reasonably confident” inflation is rising toward its 2% goal before moving. A stronger dollar could interfere by holding down import prices. Fisher, however, was unfazed by the strength of the dollar, which has advanced almost 5% this year on the Bloomberg Dollar Spot index. He argued that its rise reflected the performance of the U.S. economy and central bank bond buying in Europe and Japan, which will also benefit U.S. growth. “What is not acceptable is manipulating exchange rates – purely exchange rates – trying to use that as the sole means of generating growth,” Fischer told the audience. “That has not happened as far as we can tell in our partner countries.”

The dollar dropped against all its 16 major peers except the pound on Fischer’s comments on rate-increase timing, which he left vague and stressed would be data-dependent. “Whether it’s going to be June or September, or some later date, or some date in between, will depend on the data,” said Fischer, although he said labor market readings would be an important guide. The March payrolls report is due on April 3. “We’ve got two very positive numbers for the first quarter of 2015 and we’re waiting for another one,” said Fischer, 71, the former Bank of Israel governor who joined the Fed in May. U.S. employers added 534,000 new jobs in the first two months of 2015 and the jobless rate fell to 5.5% in February.

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Make it sound like a good thing, why don’t you?

Shadow Banking System Shows Signs of Stabilizing After Collapse (Bloomberg)

The financing markets that help ease most U.S. debt trading are showing signs of stabilizing after shrinking by almost 50% since the financial crisis. The amount, known as shadow banking, was $4.124 trillion in February and averaged $4.139 trillion over the past three months, according to data compiled by the Center for Financial Stability, a nonpartisan research group. The measure, which includes money-market funds, repurchase agreements and commercial paper, all adjusted for inflation, peaked at $7.61 trillion in March 2008. “The flicker of good news is that we are starting to see a bottom form and hopefully we will start to see a recovery,” Lawrence Goodman at the Center for Financial Stability.

“The damage is done and we still have a long ways to go for there to be re-engagement of market finance in the economy. The economy has been growing substantially below potential, in part because market finance has failed to provide the fuel to the economy.”
Federal Reserve officials last week cut their economic growth estimate for the fourth quarter from a year earlier to 2.3% to 2.7%, down from as much as 3% in December. Inflation will range from 0.6% to 0.8% at the end of this year, policy makers forecast, down from a range of 1% to 1.6% projected in December.

Global regulators have focused on reducing the footprint of shadow banking, which was viewed as a catalyst for the collapse of Lehman Brothers Holdings Inc. in 2008 that shook markets worldwide. In the process, market finance contracted to a degree that starved financial markets of liquidity and was detrimental to growth, according to the CFS. Repo agreements are a source of short-term finance for banks, allowing them to use securities as collateral for short-term loans from investors such as other banks or money-market mutual funds. The amount of securities financed through a part of the market known as tri-party repo averaged $1.62 trillion as of Feb. 10, compared with $1.58 trillion in January and down from $1.96 trillion in December 2012, according to data compiled by the Fed.

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The term ‘bubble’ doesn’t begin to describe it.

The Unbearable Exuberance of China’s Markets (Pesek)

Chinese investors are acting as giddy as Americans were on Dec. 5, 1996, the day Alan Greenspan made his infamous “irrational exuberance” dig at markets. Don’t take my word for it. Here’s what the country’s securities regulator said Friday, the day the Shanghai Composite Index rallied to its highest close since May 2008: “Investors should be cautious about market risks,” the China Securities Regulatory Commission said on its microblog. “We shouldn’t be thinking if we don’t buy now, we will miss it.” Not much ambiguity there, and yet Shanghai stocks rallied Monday, heading to their longest streak of gains since 2007. What gives? Beijing is making the same mistake Washington did 18-plus years ago by not clamping down on a stock-market boom that’s based more on leverage than reality.

Then-Federal Reserve Chairman’s Greenspan’s swipe at Wall Street froth was a halfhearted one – so cryptic, in fact, that many seasoned Fed reporters missed it. It came in the middle of a mind-numbingly boring speech about Japan’s 1980s bubble. For a couple of days, markets quaked at the prospect that the Fed might cut short the ongoing rally, which had assigned astronomical valuations to the dodgiest startups. But then Greenspan blew the endgame. Lawmakers were apoplectic over the Fed targeting stocks. Rather than stand his ground, Greenspan shut up and moved on. If the Fed had clamped down more assertively in the late 1990s – say, with stringent margin requirements – a Nasdaq crash might’ve been averted. Chastened investors might’ve been less inclined to overleverage in the decade that followed.

In Beijing, central bank governor Zhou Xiaochuan can’t afford to make the same mistake. Economic fundamentals aren’t driving this rally – political expedience is. Chinese growth is slowing – an early indicator of factory activity hit an 11-month low in March – Beijing is clamping down on credit and a property market that once seemed unstoppable is reeling. That leaves one place for Chinese to satisfy their urge to get rich quick: equities. And recent policy tweaks are helping them. In September, China reduced fees by more than half for individuals and institutions to open share accounts. At the same time, the futures exchange cut margin requirements for equity-index contracts. Last month, it trimmed the amount of cash banks must hold back from lending by 50 basis points to 19.5%.

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Everyone piles on debt. There’s nothing else left.

Oil Majors Pile On Record Debt To Plug Cash Shortfalls (FT)

The world’s biggest energy groups have sold record amounts of debt this year, taking advantage of historically low interest rates to plug cash shortfalls with borrowing, after a 50% plunge in oil prices. The total debt raised in the first two months of 2015 by large US and European oil and gas companies has jumped by more than 60% from the final three months of 2014. It outstrips the previous quarterly record set six years ago after the last price collapse, Morgan Stanley research shows. Sales by half a dozen of these companies, which include multibillion dollar bond offerings from ExxonMobil, Chevron, Total and BP, reached $31bn in January and February, accounting for almost half the $63bn raised by oil and gas groups globally.

The dominance of the majors also reflects the increasing difficulties faced by the smaller oil explorers, whose borrowing costs are rising. Gulf Keystone recently put itself up for sale and EnQuest had to renegotiate its banking covenants. Martijn Rats, analyst at the US bank, says some of the so-called oil “majors” could be preparing the ground for acquisitions, borrowing now to be able to act quickly should smaller, weakened groups become vulnerable to take over. Mr Rats said that mergers and acquisitions could pick up as early as the second half of this year: “As a result, it would seem reasonable for integrated oil companies to lock in extremely competitive rates of financing,” he said. Another reason for the high levels of issuance is that debt remains a relatively cheap way to cover spending on big projects and fund dividends as cash flow dwindles due to lower prices.

Apart from Italy’s Eni, which has said it will cut its dividend this year, most of the big groups have vowed to protect payouts to investors. They are also pressing suppliers to cut costs, delaying projects and selling assets. “If you see a protracted period of lower oil prices ahead, you will probably think that it takes a while for cost deflation to come through and restore cash flow, so the first thing you can do is use the balance sheet to borrow money to plug that gap,” said Mr Rats. The majors have made up a much larger share of overall oil and gas debt issuance, accounting for 48% of such fundraising this year, up from 30% in the last three months of 2014. By contrast, the share of state-owned oil companies has fallen to just 22% from 35% in the first quarter of last year.

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No more road building.

Pension Funds Shun Bonds Just as Southeast Asia Needs Them Most (Bloomberg)

The biggest state pension funds in Thailand and the Philippines are shifting money from bonds to stocks, which could push up the cost of government stimulus programs. The Social Security Office and Government Service Insurance System said they’re increasing holdings of shares, while the head of Indonesia’s BPJS Ketenagakerjaan said he sees the nation’s stock index rising 14% by year-end. Rupiah, baht and peso notes have lost money since the end of January, after handing investors respective returns of 13%, 9.9% and 6.6% last year, Bloomberg indexes show. “There has been frustration among domestic institutional investors about the falling returns on bonds,” Win Phromphaet, who manages 1.2 trillion baht ($37 billion) as Social Security Office’s head of investment in Bangkok, said.

“Large investors including SSO must quickly expand our investments in other riskier assets.” Appetite for sovereign debt is cooling just as Southeast Asian governments speed up construction plans in response to slowing growth in China and stuttering recoveries in Europe and Japan. Indonesian President Joko Widodo has added 100 trillion rupiah ($7.7 billion) of spending on projects including ports and power plants in his 2015 budget, Thailand’s military rulers are accelerating outlays on rail and roads and Philippine President Benigno Aquino is relying on new infrastructure to increase growth to 8% in his last two years in office.

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“Some of the valuations are mind-boggling..”

Hedge Funds Are Boosting Tech Valuations to Dangerous Heights (Bloomberg)

A flood of money from unconventional sources has sent valuations of late-stage technology startups, including Uber Technologies Inc. and Snapchat Inc., to levels that haven’t been seen since before the dot-com crash. Hedge funds and mutual funds that once shunned venture-style deals are flocking to the market’s hottest corner, paying 15 to 18 times projected sales for the year ahead in recent private-funding rounds, according to three people with knowledge of the matter. That compares with 10 to 12 times five years ago for the priciest companies, one said. While some of the startups may become profitable, others are consuming cash and could fail.

The torrid action is spurring talk that 15 years after the collapse of the Internet bubble, the market may be setting itself up for another bruising fall. “Some of the valuations are mind-boggling,” said Sven Weber, investment manager of the Menlo Park, California-based SharesPost 100 Fund, which backs late-stage tech startups. Companies now valued at 16 times future revenue could easily lose a third of their value in a market pullback that Weber and others say may occur in the next three years. The other people asked not to be named because they didn’t want to be seen criticizing competitors’ deals. Such worries have done little to cool the market. Investors’ appetites have been stoked by jackpots won in initial public offerings.

Among the biggest: an almost fourfold $3.2 billion paper profit earned by Silver Lake in Chinese e-commerce giant Alibaba’s record-breaking, $21.8 billion September IPO. It was a quick kill for Silver Lake, coming three years after the private-equity firm’s investment in the company. Private values also are soaring. Online scrapbooking startup Pinterest Inc. raised $367 million this month, valuing the company at $11 billion. Snapchat, the mobile application for sending disappearing photos, is valued at $15 billion, based on a planned investment by Alibaba, according to people with knowledge of the deal. Uber’s valuation climbed more than 10-fold since the middle of 2013, reaching $40 billion in December.

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“The frustration with the U.S. is palpable.”

IMF, World Bank Throw Weight Behind China-Led Bank (CNBC)

Global institutions, including the IMF and the World Bank, have endorsed a China-led international bank, despite opposition from the U.S. “We are comfortable with the idea of a bank that puts together finance for infrastructure, because our view is that there is a huge need for infrastructure in emerging markets countries,” David Lipton, the first deputy managing director of the IMF, told CNBC early on Monday. The $50-billion Asian Infrastructure Investment Bank (AIIB) is being established to meet the need for greater infrastructure investment in lower- and middle-income Asian countries. It comes amid complaints by China and other major emerging economies that they lack influence in institutions such as the IMF, the Asian Development Bank and the World Bank.

Support for the AIIB has gathered speed in Europe this month, with the U.K. the first country to sign up, followed by Germany, France and Italy and then Luxembourg and Switzerland. However, Washington has expressed misgivings, officially because of concerns about standards of governance and environmental and societal safeguards. Unofficially, the country’s is thought to be worried about sacrificing its clout in Asia to China, as well as piqued by criticism of slow reforms in the IMF and World Bank. “While this is seen as a diplomatic setback for the Obama administration, the underlying (blame) may lie with Congress,” said strategists led by Marc Chandler at Brown Brothers Harriman in a research note on Monday.

“It has blocked IMF funding which is the precondition for reforming the voting (quotas), which would give China and other developing countries a greater voice. In contrast, the Obama Administration seems to recognize that if China (and others) do not get a larger voice in the existing institutions, it will create parallel institutions.” He added: “The frustration with the U.S. is palpable.” “China is now the leader of the world,” Sri Mulyani Indrawati, managing director of the World Bank, told CNBC on Sunday in Beijing. “They (Chinese leaders) try to show that they have sound principles in not only presenting a development solution, but also in establishing this new institution and that is why many of the countries now are becoming members of this institution.”

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Timing is everything.

Tsipras Raises Nazi War Reparations Claim At Berlin Press Conference (Guardian)

Greece’s leftwing prime minister Alexis Tsipras stood beside German leader Angela Merkel and demanded war reparations over Nazi atrocities in Greece on Monday night, even as the two leaders sought to bury the hatchet following weeks of worsening friction and mud-slinging. “It’s not a material matter, it’s a moral issue,” said Tsipras, unusually insisting on raising the “shadows of the past” at the heart of German power in the gleaming new chancellery in Berlin. It was believed to be the first time a foreign leader had gone to the capital of the reunified Germany to make such a demand. Merkel was uncompromising, while appearing uncomfortable and irritated. “In the view of the German government, the issue of reparations is politically and legally closed,” she said.

While the two leaders clashed over the second world war, there was no sign of any meeting of minds on the substance of their dispute over Greece’s bailout and what Tsipras has to deliver to secure fresh funding and avoid state insolvency within weeks. Two months after winning the election by promising to abolish “Merkelism” – the harsh austerity ordained by the eurozone and other creditors in return for €240bn in bailout loans over the past five years – Tsipras held to the view that Greece’s crisis was not of his making. He delivered a lengthy diagnosis of what had gone wrong in the last five years, but had next to nothing to say about his own policies except vague references to fighting corruption.

And when he raised the corruption issue, he singled out a German company, Siemens, because of its alleged activities in Greece. A stony-faced Merkel reiterated what she had said in Brussels on Friday after a late-night session with Tsipras – that a 20 February agreement with the eurozone extending Greece’s bailout until the end of June remained the yardstick. That agreement obliges Tsipras to deliver a persuasive menu of detailed fiscal and structural reforms which need to be vetted by the eurozone before any further bailout funding can be released. Asked if she had reached any agreements with Tsipras, Merkel avoided the question and stressed she was only one of 19 eurozone national leaders.

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“.. the punishment of Greek people for the feckless borrowing of their government and the feckless lending of German banks has surely gone well beyond what is necessary to instruct Greece in the merits of fiscal rectitude..”

Why Greek Default Looms (BBC)

I have used the metaphor before of Greece and Germany being a feuding married couple, not really wanting a divorce but so unable ever to understand the other’s point of view that terminal rupture remains a significant probability. So for the Greek prime minister, Alexis Tsipras, it must have been personally humiliating to send his “please-send-cash-soon” letter to Angela Merkel, the German chancellor (the letter has been obtained by the FT). He complains that there is no sign, in the conduct of eurozone officials working on the new financial rescue plan, of wanting to make the promised new start in the fraught relationship. Mr Tsipras accuses them of trying to hold the country to a reform and reconstruction programme that his Syriza government has rejected, and which he thought had been dropped, too, by eurozone leaders.

Which broadly points to the biggest flaw in the entente reached in February between Greece and eurozone – namely that the agreement they approved disguised a continuing and profound emotional and ideological gulf. Both sides in essence want the other to admit they were wrong in the past and have turned over a new leaf: neither shows the inclination to do that. The clearest manifestation of mutual misunderstanding being a long way off was last week’s blog by the finance minister, Yanis Varoufakis. He makes a point that is both true and incendiary (in the present circumstances): namely that the eurozone’s and IMF’s original €240bn bailout was, in practice, a bailout of the feckless banks and investors who had lent to Greece, rather than of Greece itself. [..]

There is a high probability, most economists would say, of history vindicating Mr Varoufakis’s critique: the punishment of Greek people for the feckless borrowing of their government and the feckless lending of German banks has surely gone well beyond what is necessary to instruct Greece in the merits of fiscal rectitude. But whether it is altogether wise and diplomatic to tell the Germans they were selfish and wrong, at this juncture, is moot. There is no sign of the two sides forgiving each other and moving on.

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I did not have financial realationships with that country.

Draghi Rejects Accusation That ECB Is Blackmailing Greece (Bloomberg)

Mario Draghi pushed back against an accusation that the European Central Bank is blackmailing Greece and compounding the pressure on the country. “Let me disagree with you about everything you said,” Draghi told Portuguese lawmaker Marisa Matias during his regular hearing at the European Parliament in Brussels. He was responding to a question about the withdrawal of a waiver that allowed the ECB to accept the country’s junk-rated debt as collateral. “It’s bit rich when you look at our exposure to Greece” which totals €104 billion, Draghi says. “What sort of blackmail is this? We haven’t created any rule for Greece, rules were in place and they’ve been applied. The exchange came amid signs that Greece could run out of money by early next month.

Prime Minister Alexis Tsipras is meeting today with German Chancellor Angela Merkel to discuss reform commitments that could unlock stalled aid money. Draghi said the ECB will reintroduce the waiver at some point, ‘‘but several conditions have to be satisfied.’’ Shut out from ECB funding, Greek banks currently rely on emergency liquidity from their national central bank. The ECB reviews the allowance on a weekly basis to make sure it doesn’t run against a ban on state financing. Draghi said Greek lenders are solvent ‘‘at present,’’ even though ‘‘the liquidity situation has been deteriorating.’’ In his opening statement to the parliament in Brussels, Draghi pushed aside concerns that the ECB’s quantitative-easing plan will be hampered by a shortage of bonds available to buy.

‘‘We see no signs that there will not be enough bonds for us to purchase,’’ he said. ‘‘Feedback from market participants so far suggests that implementation has been very smooth and that market liquidity remains ample.’’ The central bank started buying government debt this month to revive inflation. While the region’s recovery is being helped by cheap oil and a weak euro, Draghi is faced with a resumption of the crisis in Greece, with the country on the verge of a default that would shake the foundations of the single currency. The ECB plans to buy €60 billion a month of public-sector debt under its latest stimulus program, which is slated to last until September 2016, or until inflation is back on track toward the central bank’s goal of just under 2%. In the first two weeks of the program, €26.3 billion of public sector purchases were settled.

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Concerted effort to make Merkel look good.

Merkel Points Tsipras Toward Deal With Greece’s Creditors (Bloomberg)

German Chancellor Angela Merkel encouraged Prime Minister Alexis Tsipras to follow the path set out by Greece’s creditors, saying his country belongs in Europe and she wants its economy to succeed. Merkel gave Tsipras a red-carpet reception at the Chancellery in Berlin on Monday without giving any signal that the emergency aid the Greek government is urgently seeking would be unlocked. Instead, she talked at their joint briefing of how she wanted to build trust with her Greek counterpart. “We want Greece to be economically strong, we want Greece to have growth,” Merkel said. “And I think we share the view that this requires structural reforms, solid finances and a functioning administration.”

Meeting the chancellor for the second time in five days in an effort to build bridges between their governments after weeks of sniping, Tsipras echoed her tone, while resisting the embrace of the policy prescriptions that she has shaped for the past five years. “The Greek bailout program was an unprecedented adjustment effort but in our view it wasn’t a success story,” he said. “We’re trying to find common ground to reach an agreement soon on the reforms that the Greek economy needs and for the disbursement of the funds that it also needs.” The two countries have often been at loggerheads since Tsipras’s January election victory as the Greek leader tries to shape an alternative to the austerity program set out in the country’s bailout agreement. Merkel insists Greece must stick to the broad terms of that deal, though holding out the prospect of some flexibility.

With Greece’s financial predicament becoming ever more parlous, Tsipras was greeted by a group of supporters demonstrating outside the Chancellery who could be heard chanting during the ceremonial reception. His government needs to persuade its creditors to sign off on a package of economic measures to free up long-withheld aid payments that will keep the country afloat. Finance ministry officials may submit their latest plans as soon as this week, a Greek official said earlier. Hinting at the prickly relationship between their respective finance ministers, Tsipras said that he wants to avoid widening splits in the euro area and urged Germans and Greeks to avoid stereotyping each other, saying Germany isn’t to blame for all of Greece’s problems. “We have to understand each other better,” he said.

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Who’s he again?

Barroso: Greece Should Blame Itself (CNBC)

Greece’s problems can be laid at its own door and the country needs to provide a clear commitment to reform to reach an agreement with its creditors, Jose Manuel Barroso, the former president of the European Commission, told investors in Hong Kong. “The Greek people went through extremely difficult moments, hardship. But these difficulties of Greece were not provoked by Europe,” Barroso said in an address at the Credit Suisse Asian Investment Conference in Hong Kong. “It was provoked by the irresponsible behavior of the Greek government.” “The situation of Greece is the result of unsustainable debt that was created by the Greek government, mismanagement of their public finances, huge problems with tax evasion and tax fraud [and] problems of the administration,” he said, noting that the country had also misled the European Union by filing false figures on its economy. [..]

Barroso was generally unsympathetic to the Greek stance. “There is nothing that condemns Greece to be in a difficult situation. There are reforms they can make and they are as able as any other country to do,” he said. “There is an ideological difficulty that exists in the Greek government to understand that the way for Greece to recover the confidence of the markets is in fact for to go on with structural reforms that Greece has committed to.”

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Podemos did not do well.

Andalusia Election Increases Pressure on Spain’s Rajoy (Bloomberg)

Spanish Prime Minister Mariano Rajoy’s People’s Party scored its worst election result in 25 years in Spain’s most populous region, adding to pressure on the party leadership before general elections. Rajoy’s PP got 26.8% in Andalusia, compared with 40.7% in the last regional vote in 2012, according to the regional government data. That’s the lowest level of support since 1990, when the PP got 22.2%. Andalusia’s ballot marks the start of a Spanish electoral marathon to choose another 14 regional presidents, more than 8,000 mayors, and a new national government in the next 10 months. Rajoy struggled to mobilize his voters even as the fourth largest economy in the euro region is growing at the fastest pace since 2007. No date has been set for the national election which must be held by January 2016.

“Alternative leadership to Rajoy should be an urgent first point of discussion for the party based on public opinion criteria,” said Lluis Orriols, a political scientist at Carlos III University in Madrid. “Still, sometimes internal party power dynamics and public opinion follow different patterns.” Rajoy is scheduled to chair a meeting of his party’s executive committee in Madrid on Monday. The Spanish leader attended five political events in Andalusia during the two-week electoral campaign in the southern region, compared with two visited by his Socialist counterpart, Pedro Sanchez. Andalusia’s President Susana Diaz won the regional vote, paving the way for the Spanish Socialist Party, PSOE, to run the country’s most-populous area for the 10th term in a row.

Andalusia, located in southern Spain, is the nation’s largest and most populous region. It struggles with unemployment of about 35%, compared with 26% in Greece, the European Union state with the highest jobless rate. Farming and tourism comprise two of the largest sources of revenue and the region’s 16,843 euro ($18,330) gross domestic product per capita is the second lowest in the country after Extremadura. Sunday’s election also tested the advance of Podemos, allied to Greece’s Syriza party that won power in January in Athens after promising to raise public spending in defiance of its bailout agreement. The anti-austerity Podemos won 15 seats.

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“German capital dominates Europe and it profits from the misery in Greece,” Glezos says. “But we don’t need your money.”

‘The Fourth Reich’: What Some Europeans See When They Look at Germany (Spiegel)

May 30, 1941 was the day when Manolis Glezos made a fool of Adolf Hitler. He and a friend snuck up to a flag pole on the Acropolis in Athens on which a gigantic swastika flag was flying. The Germans had raised the banner four weeks earlier when they occupied the country, but Glezos took down the hated flag and ripped it up. The deed turned both him and his friend into heroes. Back then, Glezos was a resistance fighter. Today, the soon-to-be 93-year-old is a member of the European Parliament for the Greek governing party Syriza. Sitting in his Brussels office on the third floor of the Willy Brandt Building, he is telling the story of his fight against the Nazis of old and about his current fight against the Germans of today.

Glezos’ white hair is wild and unkempt, making him look like an aging Che Guevara; his wrinkled face carries the traces of a European century. Initially, he fought against the Italian fascists, later he took up arms against the German Wehrmacht, as the country’s Nazi-era military was known. He then did battle against the Greek military dictatorship. He was sent to prison frequently, spending a total of almost 12 years behind bars, time he spent writing poetry. When he was let out, he would rejoin the fight. “That era is still very alive in me,” he says. Glezos knows what it can mean when Germans strive for predominance in Europe and says that’s what is happening again now. This time, though, it isn’t soldiers who have a chokehold on Greece, he says, but business leaders and politicians.

“German capital dominates Europe and it profits from the misery in Greece,” Glezos says. “But we don’t need your money.” In his eyes, the German present is directly connected to its horrible past, though he emphasizes that he doesn’t mean the German people but the country’s ruling classes. Germany for him is once again an aggressor today: “Its relationship with Greece is comparable to that between a tyrant and his slaves.” Glezos says that he is reminded of a text written by Joseph Goebbels in which the Nazi propaganda minister reflects about a future Europe under German leadership. It’s called “The Year 2000.” “Goebbels was only wrong by 10 years,” Glezos says, adding that in 2010, in the financial crisis, German dominance began.

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Let’s see them try.

Beijing to Close All Major Coal Power Plants to Curb Pollution (Bloomberg)

Beijing, where pollution averaged more than twice China’s national standard last year, will close the last of its four major coal-fired power plants next year. China’s capital city will close China Huaneng’s 845 megawatt power plant next year, after last week closing plants owned by Guohua Electric and Beijing Energy Investment, according to a statement Monday on the website of the city’s economic planning agency. A fourth major power plant, owned by China Datang, was shut last year. The plants will be replaced by four gas-fired stations with capacity to supply 2.6 times more electricity than the coal plants. Once complete, the city’s power and its central heating will be entirely generated by clean energy, according to the Municipal Commission of Development and Reform.

Air pollution has attracted more public attention in the past few years as heavy smog envelops swathes of the nation including Beijing and Shanghai. About 90% of the 161 cities whose air quality was monitored in 2014 failed to meet official standards, according to a report by China’s National Bureau of Statistics earlier this month. The level of PM2.5, the small particles that pose the greatest risk to human health, averaged 85.9 micrograms per cubic meter last year in the capital, compared with the national standard of 35. Beijing plans to cut annual coal consumption by 13 million metric tons by 2017 from the 2012 level in a bid to slash the concentration of pollutants. The city also aims to take other measures such as closing polluted companies and cutting cement production capacity to clear the air this year, according to the Municipal Environmental Protection Bureau.

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 November 11, 2014  Posted by at 7:24 pm Finance Tagged with: , , , , ,  12 Responses »


Marjory Collins Window of Jewish religious shop on Broome Street, New York Aug 1942

There are things in this world which simply look plain stupid, and then there are those that at closer examination prove to be way beyond stupid. How about this one:

1) G20 taxpayers (you, me) subsidize the fossil fuel industry. That in itself is crazy enough, and it should stop as per last week; industry participants must be able to fend for themselves, or fold. That they don’t, speaks to a very unhealthy level of power in and over our political systems. Subsidizing coal and oil is as insane as bailing out Wall Street banks. It’s money that defies gravity, by flowing from the bottom to the top, from the poor to the rich.

2) Then there’s the huge amount of the subsidies: $88 billion a year. That could solve a lot of misery for a lot of people. It adds up to well over $1 trillion in this century alone. Next time you feel good about prices at the pump, please add that number, it should set you straight.

3) But that’s just the start. Those $88 billion go towards exploration for new oil, gas and coal resources which, according to the UN’s IPCC climate panel, can never even be ‘consumed’ lest we go way beyond our – minimum – goals for CO2 concentrations and a global 2ºC warming limit.

4) And it keeps getting better. For who do you think pays for the research conducted for the IPCC reports? That’s right, the same G20 taxpayer. As in: you and me. We pay for both ends of the divine tragedy. We got it al covered. We pay for exploratory drilling in the Arctic, the Gulf of Mexico and all other ever harder to find, riskier and more polluting resources.

If this were not about us, we’d undoubtedly declare ourselves stark raving mad. Since it does directly involve us, though, we of course favor a more nuanced approach. Like sticking our heads in the sand.

I got that $88 billion a year number from a new report by British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International, The Fossil Fuel Bailout: G20 Subsidies For Oil, Gas And Coal Exploration. The Guardian has a few more juicy tidbits:

Rich Countries Subsidising Oil, Gas And Coal Companies By $88 Billion A Year

Rich countries are subsidising oil, gas and coal companies by about $88bn (£55.4bn) a year to explore for new reserves, despite evidence that most fossil fuels must be left in the ground if the world is to avoid dangerous climate change.

The most detailed breakdown yet of global fossil fuel subsidies has found that the US government provided companies with $5.2bn for fossil fuel exploration in 2013, Australia spent $3.5bn, Russia $2.4bn and the UK $1.2bn. Most of the support was in the form of tax breaks for exploration in deep offshore fields.

The public money went to major multinationals as well as smaller ones who specialise in exploratory work, according to British thinktank the Overseas Development Institute (ODI) and Washington-based analysts Oil Change International.

Britain, says their report, proved to be one of the most generous countries. In the five year period to 2014 it gave tax breaks totalling over $4.5bn to French, US, Middle Eastern and north American companies to explore the North Sea for fast-declining oil and gas reserves. A breakdown of that figure showed over $1.2bn of British money went to two French companies, GDF-Suez and Total, $450m went to five US companies including Chevron, and $992m to five British companies.

Britain also spent public funds for foreign companies to explore in Azerbaijan, Brazil, Ghana, Guinea, India and Indonesia, as well as Russia, Uganda and Qatar, according to the report’s data, which is drawn from the OECD, government documents, company reports and institutions.

The figures, published ahead of this week’s G20 summit in Brisbane, Australia, contains the first detailed breakdown of global fossil fuel exploration subsidies. It shows an extraordinary “merry-go-round” of countries supporting each others’ companies. The US spends $1.4bn a year for exploration in Columbia, Nigeria and Russia, while Russia is subsidising exploration in Venezuela and China, which in turn supports companies exploring Canada, Brazil and Mexico.

“The evidence points to a publicly financed bail-out for carbon-intensive companies, and support for uneconomic investments that could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2C,” say the report’s authors.

“This is real money which could be put into schools or hospitals. It is simply not economic to invest like this. This is the insanity of the situation. They are diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power and they are undermining the prospects for an ambitious UN climate deal in 2015,” said Kevin Watkins, director of the ODI.

“The IPCC [UN climate science panel] is quite clear about the need to leave the vast majority of already proven reserves in the ground, if we are to meet the 2C goal. The fact that despite this science, governments are spending billions of tax dollars each year to find more fossil fuels that we cannot ever afford to burn, reveals the extent of climate denial still ongoing within the G20,” said Oil Change International director Steve Kretzman.

The report further criticises the G20 countries for providing over $520m a year of indirect exploration subsidies via the World Bank group and other multilateral development banks (MDBs) to which they contribute funds.

That’s right, as you see in the graph we pay more towards Big Oil’s future profits then the companies do themselves. Without getting shares in those companies, mind you. We pay Big Oil and coal to produce more fossil fuels, and at the same time we pay the UN to publish reports demanding they produce less of them. Feel crazy yet?

Did you have any idea that your government sponsors oil companies with your money, which they don’t need, and certainly shouldn’t? Aren’t we supposed to at least take a serious look at alternative energy sources, and more importantly, use less energy, whether it’s coal or solar? If only to show we do indeed understand the 2nd law of thermodynamics?!

Big Oil, like Wall Street banks, should be, and can, take care of themselves, and very well. May I suggest you try and find out who in your respective government has given the thumbs up to these crazy handouts, and when you do, make sure they’re fired.