Feb 062018
 
 February 6, 2018  Posted by at 9:53 am Finance Tagged with: , , , , , , , , , , , ,  


 

Dow Jones Hit By Biggest Single-Day Points Drop Ever (Ind.)
Stocks Crumble In Vicious Sell-off As ‘Goldilocks’ Trade Unravels (R.)
Europe Joins Global Stock Selloff With Biggest Drop in 20 Months (BBG)
‘Short-Volatility Armageddon’ Craters Two Of Wall Street’s Favorite Trades (MW)
Volatility Spike Boosts US Options Hedging Activity (R.)
Traders Panic As XIV Disintegrates -90% After The Close (ZH)
Machines Had Their Fingerprints All Over a Dow Rout for the Ages (BBG)
Commodities Dragged Into Global Selloff as Oil to Copper Get Hit (BBG)
Bitcoin Tumbles Almost 20% as Crypto Backlash Accelerates (BBG)
The Fed’s Dependence On Stability (Roberts)
A Quandary (Jim Kunstler)
21st Century Plague (MarkGB)
UK Court To Rule On Lifting Assange Arrest Warrant (AFP)
Robots Will Care For 80% Of Elderly Japanese By 2020 (G.)
Berlusconi Pledges To Deport 600,000 Illegal Immigrants From Italy (G.)

 

 

4% is nothing.

Dow Jones Hit By Biggest Single-Day Points Drop Ever (Ind.)

Newfound market volatility has shattered what had been a long period of stability and mounting value. The Dow’s dive erased gains for the year so far and extended a multi-day slump that saw the Dow drop by some 600 points on Friday. In addition setting a new record for number of points dropped in a day, the Dow’s 4.6% decline in value was the most substantial since 2011. It was still less severe than declines during market-rocking events like the 2008 financial crisis, when the Dow shed 7% of its value in its worst single-day hit. Earlier in the day the Dow had plummeted by nearly 1,600 points before recovering much of that value. It has swung some 2,100 points in the last week of trading, a slide approaching 8%.

In addition to the Dow shedding value, the S&P 500 index and the Nasdaq both saw declines of around 4%. The S&P 500 declined to about 7.8% below its all-time high. With thriving markets toppling records in recent months, some analysts said the pullback was all but inevitable. After cresting to a record high in January, the Dow has retreated by 8.5% from that apex. “It’s like a kid at a child’s party who, after an afternoon of cake and ice cream, eats one more cookie and that puts them over the edge,” David Kelly, the chief global strategist for JPMorgan Asset Management, told the Associated Press.

Read more …

Worldwide.

Stocks Crumble In Vicious Sell-off As ‘Goldilocks’ Trade Unravels (R.)

A rout in global equities deepened in Asia on Tuesday as inflation worries gripped financial markets, sending U.S. stock futures sinking further into the red after Wall Street suffered its biggest decline since 2011 in a vicious sell-off. S&P mini futures fell as much as 3.0% to four-month lows in Asia, extending their losses from the record peak hit just over a week ago to 12%. MSCI’s broadest index of Asia-Pacific shares outside Japan slid 4.3%, which would be its biggest fall since the yuan devaluation shock in August 2015, turning red on the year for the first time in 2018. Japan’s Nikkei dived 6.8% to near four-month lows while Taiwan shares lost 5.5% and Hong Kong’s Hang Seng Index dropped 4.9%.

Monday’s stock market rout left two of the most popular exchange-traded products that investors use to benefit from calm rather than volatile conditions facing potential liquidation, market participants said. The ructions in markets come after investors have ridden a nearly nine-year bull run, with low global rates sparking a revival in economic growth and bright corporate earnings. That good times may be nearing at end if Wall Street is anything to go by. U.S. stocks plunged in highly volatile trading on Monday, with the Dow industrials falling nearly 1,600 points during the session, its biggest intraday decline in history, as investors grappled with rising bond yields and potentially higher inflation.

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They’ll all keep claiming that fundamentals are solid.

Europe Joins Global Stock Selloff With Biggest Drop in 20 Months (BBG)

European stocks headed for their worst drop since the aftermath of the Brexit referendum as traders in the region caught up with an overnight selloff in the U.S. and Asia. The Stoxx Europe 600 Index fell 2.6% as of 8:16 a.m. in London, with all industry groups firmly in the red. After a strong start to 2018, most European stock benchmarks have wiped out gains for the year in a rout that is extending into a seventh day for the broader regional benchmark. Sentiment has been hurt by worries over rising government bond yields and the outlook for the trajectory of interest rates. “There is a sense out there that this is, in a way, a release of some of the pent-up low volatility we’ve seen over the past year,” said Ben Kumar, an investment manager at Seven Investment Management in London, which oversees about 12 billion pounds.

“We have been sitting on quite a large cash pile for some time and at some point, we will look to invest that. There may be a bit more pain to come before we start seeing a real dip to buy.” Cyclicals including automakers, technology and basic resources were among the worst sector performers. Still, data on Monday showed economic momentum in the euro-area climbed to the fastest pace in almost 12 years, and German factory orders surged in the last month of 2017. That’s leading some fund managers and traders to bet that equities are experiencing an overdue pullback rather than a deeper correction. “Market tops have probably been set for a pretty long time now on many equity indexes,” Stephane Barbier de la Serre, a strategist at Makor Capital Markets, said by phone.

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They’ll have a hard time accepting the demise of easy money.

‘Short-Volatility Armageddon’ Craters Two Of Wall Street’s Favorite Trades (MW)

One of the most popular trades in the market, betting a period of unnatural calm would continue, may have amplified selling pressure in the stock market on Monday market participants said. At least two products tied to volatility bets were severely whacked with the hemorrhaging that could pose challenges to the exchange-traded notes. One popular product, the VelocityShares Daily Inverse VIX Short Term ETN, was down 90% in after-hours trade on Monday, following a session in which the Dow Jones Industrial plunged by 1,175 points, or 4.6%, while the S&P 500 index tumbled 4.1%—both benchmarks coughed up all of their gains for 2018.

The Cboe Volatility Index, meanwhile, skyrocketed by about 118%, marking its sharpest daily rise on record. The VIX uses bullish and bearish option bets on the S&P 500 to reflect expected volatility over the coming 30 days, and it typically rises as stocks fall. The XIV, meanwhile, was designed to allow investors to bet against a rise in volatility and such bets had been a winning proposition until recently, when equities accelerated a multisession unraveling fueled by fears that the Federal Reserve will be forced to raise borrowing costs faster than anticipated due to a potential resurgence in inflation, which had pushed Treasury yields higher. Monday’s stock-market drop may have been amplified because those making bets that volatility, as measured by the VIX, would remain relatively subdued, were caught wrong-footed.

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Ultra low volatility is purely artificial.

Volatility Spike Boosts US Options Hedging Activity (R.)

Wall Street’s “fear gauge” notched its biggest one-day jump on Monday in over two years, as U.S. stocks slumped and investors took to the options market in search of protection against a further slide in equities prices. Stocks slid in highly volatile trading on Monday, with the benchmark S&P 500 index and the Dow Jones Industrials suffering their biggest respective%age drops since August 2011 as a long-awaited pullback from record highs deepened. For the Dow, the fall at one point of nearly 1,600 points was the biggest intraday point loss in Wall Street history. The CBOE Volatility Index, better known as the VIX, is the most widely followed barometer of expected near-term volatility for the S&P 500 Index. On Monday, the index ended up 20.01 points at 37.32, its highest close since August 2015.

“The day started out fairly orderly, but somehow it took a turn for a worse, and then panic set in,” Randy Frederick, vice president of trading and derivatives for Charles Schwab. “There may have been some pretty sizeable program trades that were clicked in. It just looks like some institutional program selling,” he said. The intensity of the selloff drove traders to the options market and trading volume surged to 35.5 million contracts – the third busiest day ever and the busiest day since Aug. 21, 2015, according to options analytics firm Trade Alert. VIX call options, primarily used to protect against a spike in volatility, accounted for nine of Monday’s 10 most heavily-traded contracts. Overall VIX options volume hit 3.6 million contracts, or about three times its average daily volume.

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VIX can trigger some pretty dramatic events.

Traders Panic As XIV Disintegrates -90% After The Close (ZH)

Today’s market turmoil has left more questions than answers. “What was frightening was the speed at which the market tanked,” said Walter “Bucky” Hellwig, Birmingham, Alabama-based senior vice president at BB&T Wealth Management, who helps oversee about $17 billion. “The drop in the morning was caused by humans, but the free-fall in the afternoon was caused by the machines. It brought back the same reaction that we had in 2010, which was ‘What the heck is going on here?” Some tried to blame it on a fat-finger or ‘machines’, but in this case it was not the normal cuprits per se… “There was not a single self-help; there were no outs; there were no fat fingers that we saw,” Doug Cifu, CEO of high-speed trading firm Virtu, told CNBC. “There were no busted trades, no repricing. It was just an avalanche of orders around 3 o’clock-ish.”

But while we noted earlier that US equity futures were extending losses after the close, but the real panic action is in the volatility complex. Putting today’s VIX move in context, this is among the biggest ever… And it appears Morgan Stanley was right to bet on VIX hitting 30…

But the real action is in the super-crowded short-vol space. XIV – The Short VIX ETF – after its relentless diagonal move higher as one after another Target manager sold vol for a living… just disintegrated after-hours, down a stunning 90% to $10.00.

Which is a problem because as we explained last summer, the threshold for an XIV termination event is a -80% drop. What does this mean? Well, in previewing today’s events last July, Fasanara Capital explained precisely what is going on last July:

“Additional risks arise as ‘liquidity gates’ may be imposed, even in the absence of a spike in volatility. In 2012, for example, the price of TVIX ETN fell 60% in two days, despite relatively benign trading conditions elsewhere in the market. The reason was that the promoter of the volatility-linked note announced that it temporarily suspended further issuances of the ETN due to “internal limits” reached on the size of the ETNs. Furthermore, for some of the volatility-linked notes, the prospectus foresee the possibility of ‘termination events’: for example, for XIV ETF a termination event is triggered if the daily percentage drop exceeds 80%. Then a full wipe-out is avoided insofar as it is preceded by a game-over event.” The reaction of the investor base at play – often retail – holds the potential to create cascading effects and to send shockwaves to the market at large. This likely is a blind spot for markets.

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Algorithms rule what is left.

Machines Had Their Fingerprints All Over a Dow Rout for the Ages (BBG)

Risk parity funds. Volatility-targeting programs. Statistical arbitrage. Sometimes the U.S. stock market seems like a giant science project, one that can quickly turn hazardous for its human inhabitants. You didn’t need an engineering degree to tell something was amiss Monday. While it’s impossible to say for sure what was at work when the Dow Jones Industrial Average fell as much as 1,597 points, the worst part of the downdraft felt to many like the machines run amok. For 15 harrowing minutes just after 3 p.m. in New York a deluge of sell orders came so fast that it seemed like nothing breathing could’ve been responsible. The result was a gut check of epic proportion for investors, who before last week had been riding one of the most peaceful market advances ever seen. The S&P 500, which last week capped a record streak of never falling more than 3% from any past point, ended the day down 4.1%, bringing its loss since last Monday to 7.8%.

“We are proactively calling up our clients and discussing that a 1,600-point intraday drop is due more to algorithms and high-frequency quant trading than macro events or humans running swiftly to the nearest fire exit,” said Jon Ulin, of Ulin & Co. in an email. To be sure, not all of the rout requires inhuman agency to explain. Markets are jittery. Bond yields had been surging and stock valuations are approaching levels last seen in the internet bubble. Much of today’s selloff was perfectly rational, if harrowing – particularly coming after last week’s plunge in which the Dow fell 666 points on Friday. Observers looking for an electronic villain trained most of their attention on the roughest part of the tumble, a 15-minute stretch starting about an hour before the close. That’s when an orderly selloff snowballed, taking the Dow from down about 700 points to down a whopping 1,600. It quickly recovered.

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When commodities trade is separated from what industries actually use, and they become financial tools only, inevitable.

Commodities Dragged Into Global Selloff as Oil to Copper Get Hit (BBG)

Commodities from crude oil to metals and iron ore dropped as the global equity rout and surge in market volatility spurred investors to pare risk, cutting positions in raw materials even as banks and analysts stood by the asset class given the backdrop of solid global growth. Brent crude slid as much as 1.2% to $66.82 a barrel, heading for a third daily drop and the longest losing run since November. On the London Metal Exchange, copper sank as much as 2% to $7,025 a metric ton as zinc, lead and nickel declined. Iron ore futures fell 1.2% in Singapore. Global equity markets are in retreat after Wall Street losses that began in the final session of last week worsened on Monday, with the Dow Jones Industrial Average posting its biggest intraday point drop in history.

The selloff – triggered in part by an initial rise in bond yields and concerns about the pace at which the Federal Reserve will raise interest rates – is spilling into commodities, which rallied in late January to the highest level since 2015. Still, Citigroup said now’s the time for investors to add positions in metals. “Clearly there is a risk off tone in the markets that will weigh on the sector,” said Daniel Hynes at Australia & New Zealand Banking. “But there is no fundamental reason for this selloff to change our view of commodity markets.” Miners and energy companies fell as share benchmarks spiraled downward. In the U.S. on Monday, Exxon Mobil and Chevron were among the worst performers in the Dow. In Sydney, BHP Billiton, the world’s largest mining company, dropped 2.7% as Rio Tinto traded lower. Oil producer PetroChina lost as much as 7.3% in Hong Kong.

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6,100 as I write this.

Bitcoin Tumbles Almost 20% as Crypto Backlash Accelerates (BBG)

Bitcoin tumbled for a fifth day, dropping below $7,000 for the first time since November and leading other digital tokens lower, as a backlash by banks and government regulators against the speculative frenzy that drove cryptocurrencies to dizzying heights last year picks up steam. The biggest digital currency sank as much as 22% to $6,579, before trading at $7,054 as of 4:08 p.m. in New York. It has erased about 65% of its value from a record high $19,511 in December. Rival coins also retreated on Monday, with Ripple losing as much as 21% and Ethereum and Litecoin also weaker. “Although no fundamental change triggered this crash, the parabolic growth this market has experienced had to slow down at some point,” Lucas Nuzzi, a senior analyst at Digital Asset Research, wrote in an email. “All that it took this time was a large lot of sell orders.”

Weeks of negative news and commercial setbacks have buffeted digital tokens. Lloyds joined a growing number of big credit-card issuers have said they’re halting purchases of cryptocurrencies on their cards, including JPMorgan and Bank of America. Several cited risk aversion and a desire to protect their customers. SEC Chairman Jay Clayton said he supports efforts to bring clarity to cryptocurrency issues and that existing rules weren’t designed with such trading in mind, according to prepared remarks for a Senate Banking Committee hearing Tuesday on virtual currencies. Bitcoin’s longest run of losses since Christmas day has coincided with investors exiting risky assets across the board, with stocks retreating globally. Bitcoin so far seems to be struggling to live up to any comparison with gold as a store of value, which is an argument made by some of its supporters. Bullion edged higher as other safe havens – the yen, Swiss franc and bonds – also gained.

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Stability breeds instability. Minsky.

The Fed’s Dependence On Stability (Roberts)

Last week, I discussed how the Federal Reserve will likely be the culprits of whatever sparks the next major financial crisis. To wit: “In the U.S., the Federal Reserve has been the catalyst behind every preceding financial event since they became ‘active,’ monetarily policy-wise, in the late 70’s. As shown in the chart below, when the Fed has lifted the short-term lending rates to a level higher than the 10-year rate, bad ‘stuff’ has historically followed.” This past week, as Ms. Yellen relinquished her control over the Federal Reserve to Jerome Powell, the Fed stood by its position they intend to hike rates 3-more times in 2018.

With the entirety of the financial ecosystem now more heavily levered than ever, due to the Fed’s profligate measures of suppressing interest rates and flooding the system with excessive levels of liquidity, the “instability of stability” is now the biggest risk. The “stability/instability paradox” assumes that all players are rational and such rationality implies avoidance of complete destruction. In other words, all players will act rationally and no one will push “the big red button.” The Fed is highly dependent on this assumption. After more than 9-years of the most unprecedented monetary policy program in human history, they are now trying to extricate themselves from it. The Fed is dependent on “everyone acting rationally,” particularly as they try to reduce their balance sheet. The first attempt was seen in January. Well…sort of…but not really.

While the Fed did “reduce” their holding by $28 billion in January, it followed an increase of $21 billion in December. Which brings up several questions? Was the ramp up/run down just a test of the market’s stability? (Seems likely.) With the market throwing a “conniption fit” last week, will the Fed rethink their balance sheet reduction program? (Probably) More importantly, with the government on the verge of another “shut down” this coming week due to the expiration of the “continuing resolution” from three weeks ago, will the Fed continue its current path in the face of an event that could lead to fiscal instability? (Probably not) We will soon find out.

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There will be a second Special Counsel.

A Quandary (Jim Kunstler)

The Resistance pulled out all the stops last week in its shrieking denunciation of the Nunes Memo, and the various complaints had one thing in common: a complete lack of interest in the facts of the matter, in particular the shenanigans in the upper ranks of the FBI. Give a listen, for instance, to last Thursday’s Slate’s Political Gabfest with David Plotz, John Dickerson, and Emily Bazelon, the three honey-badgers of Resistance Radio (like the fabled honey-badgers of the veldt, they don’t give a shit about any obstacles in pursuit of their quarry: Trump). They’ve even been able to one-up Nassim Taleb’s defined category of “intellectuals-yet-idiots” to intellectuals-yet-useful-idiots.

The New York Times, with its termite-mound of casuistry artists, managed to concoct a completely inside-out “story” alleging that the disclosure in the Nunes memo of official impropriety at the FBI was in itself an “obstruction of justice,” since making the FBI look bad might impede their ability to give Trump the much wished-for bum’s rush from the White House. There was already enough dishonesty in our national life before the Left side of the political transect decided to ally itself with the worst instincts of the permanent Washington bureaucracy: the faction devoted to ass-covering. The misconduct at the FBI and DOJ around the 2016 election is really quite startling.

How is it not disturbing that Associate Deputy Attorney General Bruce Ohr brokered the Steele Dossier between the Fusion GPS psy-ops company and the FBI, when Fusion GPS was employed by the Clinton campaign, and Ohr’s wife worked for Fusion GPS? How is it okay that this janky dossier was put over on a FISA court judge to get warrants to surveil US citizens in an election campaign? How was it okay for Deputy FBI Director Andrew McCabe’s wife to accept $700,000 from the Clinton family’s long-time bag-man, Terry McAuliffe, when she ran for a Virginia State Senate seat, a few months before McCabe assumed command of the Hillary email investigation? How was it not fishy that FBI Deputy Assistant Director of the Counterintelligence Division, Peter Strock, and his workplace girlfriend, FBI lawyer (for Andrew McCabe), Lisa Page appeared to plot against Trump in their many cell-phone text exchanges?

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Deceit as the big killer.

21st Century Plague (MarkGB)

The Black Death was a medieval pandemic which swept through the ‘old world’ in the 14th Century. It arrived in Europe from Asia in the 1340s and killed an estimated 25 million people, about 50% of the population. The social and economic consequences of this were ‘permanent’: it created a labour shortage which ended the medieval institution of serfdom. In short: Increased demand for labour + reduced supply of labour + chaos = collapse of status quo. What emerged from the chaos was a rudimentary ‘free market’ in labour and goods. The age of capitalism had begun…the unforeseen consequence of a plague, borne on a creature that looked like this:

The pandemic we face in the 21st Century is a psychological phenomenon rather than a biological one, but in my view, it is equally parasitic. Its name is ‘deceit’, and our political & economic institutions are riddled with it. The majority of people I speak to know that something is badly wrong with our societies and our economies – they feel it when they pick up a newspaper, turn on the TV or engage with the internet. Some of us try to disconnect from the drama and the constant stream of claim and counterclaim, in order to try to ‘get on with normal lives’ – but we feel something is badly wrong nevertheless. Some of us gather ourselves into political parties, protest movements, and/or intellectual cliques in order to discuss how to ‘fix’ what ails us.

And every 4 or 5 years, the majority of us go out and vote for an individual or a group of people that we hope will bring change…and then…we get more of the same. We just got, for example, the 3rd president in a row who ran on a promise of peace, and then immediately went looking for war. What the majority of people have not yet realised is that the politician’s ‘promise’ is part of the deceit – it’s what keeps you coming back for more, hoping this time will be different. It never is – it’s just a new coat of paint on a crumbling wall. What the majority of people have not yet realised is that the politician’s ‘promise’ is part of the deceit – it’s what keeps you coming back for more

It matters little whether you believe an individual candidate is a ‘good’ person, or a ‘bad’ person. Once in office he or she becomes a tool for the maintenance of the status quo – evidently. Why is this? Because the system is not run for your benefit. Its primary function is the concentration of power and wealth within the system itself, to serve the vested interests of a relatively tiny group of people. These are the manifestations of the 21st-century plague – the institutions of deceit: 1) A monetary system rigged for the banks and globalised corporations. 2) A military-industrial complex that requires endless war. 3) Politicians that are controlled by 1 & 2. 4) A mainstream media that is complicit with 1 to 3.

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Expect appeal after appeal.

UK Court To Rule On Lifting Assange Arrest Warrant (AFP)

A British court is to decide Tuesday whether to lift a UK arrest warrant for Julian Assange, potentially paving the way for the WikiLeaks founder to leave the Ecuadorian embassy in London where he has spent the last five years. If the court rules in Assange’s favour, allowing him to leave the embassy in the British capital without fear of arrest, it would be the first time that he has stepped outside embassy grounds since seeking asylum there in June 2012. Assange entered the Ecuadoran embassy to dodge a European arrest warrant and extradition to Sweden over a 2010 probe in the Scandinavian country into rape and sexual assault allegations.

Sweden dropped its investigation last year, but British police are still seeking to arrest Assange for failing to surrender to a court after violating bail terms during his unsuccessful battle against extradition. Assange’s lawyer Mark Summers told a London court last week that the warrant had “lost its purpose and its function”. He said Assange had been living in conditions “akin to imprisonment” and his “psychological health” has deteriorated and was “in serious peril”. The court heard that the 46-year-old was suffering from a bad tooth, a frozen shoulder and depression. But prosecutor Aaron Watkins called Assange’s court bid “absurd”. “The proper approach is that when a discrete, standalone offence of failing to surrender occurs, it always remains open to this court to secure the arrest,” Watkins said.

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You like this future? It’s all yours. Who needs people?

Robots Will Care For 80% Of Elderly Japanese By 2020 (G.)

Japan’s elderly are being told to get used to being looked after by robots. With Japan’s ageing society facing a predicted shortfall of 370,000 caregivers by 2025, the government wants to increase community acceptance of technology that could help fill the gap in the nursing workforce. Developers have focused their efforts on producing simple robotic devices that help frail residents get out of their bed and into a wheelchair, or that can ease senior citizens into bathtubs. But the government sees a wider range of potential applications and recently revised its list of priorities to include robots that can predict when patients might need to use the toilet. Dr Hirohisa Hirukawa, director of robot innovation research at Japan’s National Institute of Advanced Industrial Science and Technology, said the aims included easing the burden on nursing staff and boosting the autonomy of people still living at home.

“Robotics cannot solve all of these issues; however, robotics will be able to make a contribution to some of these difficulties,” he said. Hirukawa said lifting robotics had so far been deployed in only about 8% of nursing homes in Japan, partly because of the cost and partly because of the “the mindset by the people on the frontline of caregiving that after all it must be human beings who provide this kind of care”. He added: “On the side of those who receive care, of course initially there will be psychological resistance.” Hirukawa’s research centre has worked on a government-backed project to help 98 manufacturers test nursing-care robotic devices over the past five years, 15 of which have been developed into commercial products.

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This is what Brussels and Berlin invite by ignoring the issue.

Berlusconi Pledges To Deport 600,000 Illegal Immigrants From Italy (G.)

Silvio Berlusconi has pledged to deport 600,000 illegal immigrants from Italy should his centre-right coalition enter government after elections on 4 March, as tensions simmer over the shooting of six Africans by a far-right extremist on Saturday. The 81-year-old rightwing former prime minister said in a TV interview that immigration was a “social bomb ready to explode in Italy” and that the shooting in Macerata posed a security problem. “Immigration has become an urgent question, because after years with a leftwing government, there are 600,000 migrants who don’t have the right to stay,” said Berlusconi. “We consider it to be an absolute priority to regain control over the situation.” Berlusconi’s Forza Italia has forged an alliance with two far-right parties, the Northern League and the smaller Brothers of Italy, for the elections.

The three-time former prime minister is banned from running for office after being convicted of tax fraud, but could still end up pulling the strings of power should the coalition gain enough of a majority to govern. “When we’re in government we will invest many resources in security,” he said. “We will boost police presence and reintroduce the ‘Safe Streets’ initiative … Our soldiers will patrol the streets alongside police officers.” Berlusconi took a swipe at the EU for failing to share the burden of Italy’s migrant arrivals, saying: “Today, Italy counts for nothing in Brussels and the world. We will make it count again.” Italy is a favoured landing point on Europe’s southern coastline for people making the perilous journey across the Mediterranean, often on board unseaworthy boats, to enter the continent. However, 2017 was a turning point for Italy: the country went from large-scale arrivals in the first six months to a sharp drop-off, thanks to a controversial agreement between the EU and Libya.

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Jan 122018
 
 January 12, 2018  Posted by at 10:29 am Finance Tagged with: , , , , , , , , , , , ,  


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

 

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Coherent.

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

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

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

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

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

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

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

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

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

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

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

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

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

Why We Have to Talk About a Bubble (BBG)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Electric Car Dreams Run Into Metal Crunch (BBG)

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

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

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

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

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

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

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

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

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Aug 312017
 
 August 31, 2017  Posted by at 8:25 am Finance Tagged with: , , , , , , , , , ,  


Prohibition sale June 24 1920

 

Hurricane Harvey the Costliest Natural Disaster in US History (H.)
“No Way To Prevent Imminent Explosion” At Texas Chemical Plant (ZH)
Texans To Be Hit With New Insurance Law (Ind.)
A Decade of G7 Central Bank Collusion – And Counting… (Nomi Prins)
It’s Time For Your Reminder That Most Commodities Are Priced In US Dollars (BI)
A Universal Basic Income Would Grow The Economy (Vox)
The Promise of Fiscal Money (Varoufakis)
America and China’s Codependency Trap (Stephen Roach)
Financial Firms Fear Turmoil Over Fraught US Debt Ceiling Talks (R.)
Weird Things Are Happening With Gold (Rickards)
‘More Europe’ Won’t Solve Europe’s Fiscal Quandary (BBG)
Victory For Assad Increasingly Likely As World Loses Interest In Syria (G.)
‘Our Society Is Broken’: Canada’s First Nations Suicide Epidemic (G.)

 

 

$160 billion and counting.

Hurricane Harvey the Costliest Natural Disaster in US History (H.)

Hurricane Harvey is predicted to be the costliest natural disaster in the history of the U.S., with a damage cost exceeding Hurricanes Sandy and Katrina. AccuWeather predicts that the damage cost will hit $160 billion. AccuWeather, a private weather firm, notes that the storm’s cost represents 0.8% of the national GDP, which is now at $19 trillion. “Business leaders and the Federal Reserve, major banks, insurance companies, etc. should begin to factor in the negative impact this catastrophe will have on business, corporate earnings and employment. The disaster is just beginning in certain areas,” AccuWeather founder Dr. Joel N. Myers said in a statement.

“Parts of Houston, the United States’ fourth largest city will be uninhabitable for weeks and possibly months due to water damage, mold, disease-ridden water and all that will follow this 1,000-year flood.” Before Harvey, the costliest hurricane to hit the U.S. was Hurricane Katrina, which caused $108 billion in damage along the Gulf Coast in 2005. The second-costliest was Hurricane Sandy, which caused $75 billion in damage in 2012. Hurricane Ike, the last storm to make landfall in Texas before Harvey, caused $37.5 billion in damage in 2008. [..] The Associated Press reports that 80% of Harvey’s victims do not have flood insurance. Thousands of families will have to take on more debt or spend much more to fix their homes. Others will sell their property to move out.

Robert Hunter, director of insurance at the Consumer Federation of America, estimated that flood damage alone cost at least $35 billion. Hunter explained to the AP that if you don’t have flood insurance, you can apply for federal disaster benefits. However, these are low interest loans that will add more debt. Homeowners insurance covers water damage caused by wind damage, but not if the water comes through the floor or walls, the AP explains. “Homeowners with water damage can get paid through their homeowners insurance but only if wind blows out a window or sends a roof aloft first, allowing the water in,” the AP notes. “If the water rushes through the floorboard or walls, you’re not covered.”

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There have been scores of chemicals released into the air already in the area.

“No Way To Prevent Imminent Explosion” At Texas Chemical Plant (ZH)

[..] in a potentially disastrous outcome from the Harvey flooding, a chemical plant in Crosby, Texas belonging to French industrial giant Arkema, has announced it is evacuating workers due to the risk of an explosion, after primary power was knocked out and flooding swamped its backup generators. The French company said the situation at the plant “has become serious” and said that it is working with the Department of Homeland Security and the State of Texas to set up a command post in a suitable location near our site. The plant, which produces explosive organic peroxides and ammonia, was hit by more than 40 inches of rain and has been heavily flooded, running without electricity since Sunday. The plant was closed since Friday but has had a skeleton staff of about a dozen in place.

Following the flood surge, the plant’s back-up generators also failed. The threat emerged once the company could no longer maintain refrigeration for chemicals located on site, which have to be stored at low temperatures. The plant lost cooling when backup generators were flooded and then workers transferred products from the warehouses into diesel-powered refrigerated containers. On Tuesday afternoon, the company released a statement which admitted that “refrigeration on some of our back-up product storage containers has been compromised due to extremely high water, which is unprecedented in the Crosby area. We are monitoring the temperature of each refrigeration container remotely.” It then warned that “while we do not believe there is any imminent danger, the potential for a chemical reaction leading to a fire and/or explosion within the site confines is real.”

One day later, and with the torrential rains finally over, has the situation at the giant peroxide chemical plant stabilized? Unfortunately, according to Reuters, the answer is no. Speaking to reporters on Wednesday afternoon, Richard Rowe, the chief executive of Arkema’s American operations said that “the company has no way of preventing chemicals from catching fire or exploding at its heavily flooded plant.” Rowe added that the company now expects chemicals on site to catch fire or explode within the next six days. Since the plant remains flooded by about six feet of water, “the company has no way to prevent” this worst-case outcome. Anticipating the worst, the company earlier evacuated all remaining workers, while Harris County ordered the evacuation of residents in a 1.5-mile radius of the plant that makes organic chemicals.

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Insult. Injury.

Texans To Be Hit With New Insurance Law (Ind.)

The embattled populations of southeastern Texas, may soon encounter a new obstacle in their quests to rebuild their lives after Harvey when a new state insurance law that makes it harder for consumers to receive full claims goes into effect Friday. The new law decreases the chances that an insurance company will be forced to pay claim delay penalties and plaintiff attorneys’ fees related to weather-involved claims — a protection that may discourage struggling households from pursuing legal action even if they think the insurance companies are offering less of a payout than they should. Under the new regulations, insurance companies will enjoy greater freedoms to push back on insurance claims, and the first wave of such claimants are likely to be coming from areas impacted by Harvey.

Residents reeling from Harvey now have until just Friday to assess the damages to their homes that may still be under water, and to notify their insurance company of nay damages if they want to avoid navigating that new law. After Friday, new legal restrictions will be in place that make things more difficult for consumers, and interest rates imposed on insurance companies to deter late payments will be cut nearly in half. “Without this law, and as the law currently is until Friday, I think insurance companies would be more responsive to claims,” Kir Pittard, a Dallas attorney, wrote on Facebook of the new law. “After Friday, there won’t be the incentive because the penalty for delays have been reduced.” To put it bluntly, a lot of residents in the impact area of Harvey may face a long battle ahead to replace the roofs torn off their homes from high winds, activists say.

“Insurance companies already had a lot of power, and the bill gives them a lot more power. As we know, too often insurance companies wrongfully withhold payments, they delay payments, they deny claims,” Ware Wendell, the executive director of consumer watchdog group Texas Watch, told The Independent. “So, we’re very concerned that people are going to have blue tarps on their homes instead of roofs.”

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Nomi sees central banks the same way I do.

A Decade of G7 Central Bank Collusion – And Counting… (Nomi Prins)

Since late 2007, the Federal Reserve has embarked on grand-scale collusion with other G-7 central banks to manufacture a massive amount of money. The scope and degree of this collusion are historically unprecedented and by admission of the perpetrators, unconventional in approach, and – depending on the speech – ineffective. Central bank efforts to provide liquidity to the private banking system have been delivered amidst a plethora of grandiose phrases like “unlimited” and “by all means necessary.” Central bankers have played a game with no defined goalposts, no clock rundown, no max scores, and no true end in sight. At the Fed’s instigation, central bankers built policy on the fly. Their science experiment morphed into something even Dr. Frankenstein couldn’t have imagined.

Confidence in the Fed and the U.S. dollar (as well as in other major central banks globally) has dropped considerably, even as this exercise remains in motion, and even though central bankers have tactiltly admitted that their money creation scheme was largely a bust, though not in any one official statement. On July 31, 2017, Stanley Fischer, vice chairman of the Fed, delivered a speech in Rio de Janeiro, Brazil. There, he addressed the phenomenon of low interest rates worldwide. Fischer admitted that “the effects of quantitative easing in the United States and abroad” are suppressing rates. He also said there was “a heightened demand for safe assets affecting yields on advanced-economy government securities.” (Actually, there’s been heighted demand for junky assets, as well, which has manifested in a bi-polarity of saver vs. speculator preference.)

What Fischer meant was that investors are realizing that low rates since 2008 haven’t fueled real growth, just asset bubbles. Remember, Fischer is the Fed’s No. 2 man. He was also a professor to former Fed Chair Ben Bernanke and current European Central Bank President Mario Draghi. Both have considered him to be a major influence in their economic outlook. The “Big Three” central banks – the Fed, the European Central Bank and the Bank of Japan – have collectively held rates at a zero% on average since the global financial crisis began. For nearly a decade, central banks have been batting about tens of trillions of dollars to do so. They have fueled bubbles. They have amassed assets on their books worth nearly $14 trillion. That’s money not serving any productive, real-economy purpose – because it happens to be in lock-down.

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When the reserve currency sinks, strange things can happen.

It’s Time For Your Reminder That Most Commodities Are Priced In US Dollars (BI)

The commodity rally since June has been impressive, and it could be tied to weakness in the US dollar. Those sharp increases — ranging between 15-40% — have had Morgan Stanley strategists slightly puzzled. On one hand, bulk commodities such as iron ore and coal have benefited from steady increases in demand. “Similarly, restocking in zinc and nickel markets have helped lift prices of those trades,” the analysts said. However, they added that fundamentals alone can’t explain the rise in the prices of copper, aluminium and lead. That suggests some of the price action is being driven by an external factor: the recent weakness in the US dollar. The analysts noted that this is the second commodity rally within the last year that’s been directly connected to the US dollar.

But the first one was the other way round — commodities staged a 4-week rally in the wake of the US election last November, when the US dollar was also rising. So why the difference? According to Price and Bates, it’s because the outlook for inflation has now largely reversed. “Post-election, markets positioned for new inflation risk, on the promise of a US infra-build story,” they said. But infrastructure reform is yet to get off the ground amid political gridlock in Washington, and US inflation remains stuck below the Federal Reserve’s target rate of 2-3%. Currency markets have reacted by driving the US dollar lower throughout most of 2017. So it follows that commodities priced in US dollars have benefited from a fall in the greenback while overall commodity-demand remains unchanged.

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Try it in a smaller country first?!

A Universal Basic Income Would Grow The Economy (Vox)

A universal basic income could make the US economy trillions of dollars larger, permanently, according to a new study by the left-leaning Roosevelt Institute. Basic income, a proposal in which every American would be given a basic stipend from the government no strings attached, is often brought up as a potential solution to widespread automation reducing demand for labor in the future. But in the meantime, its critics typically allege that it is far too expensive to be practical, or else that it would spur millions of Americans to drop out of the labor force, wrecking the economy and depriving the government of a tax base for funding the plan. The Roosevelt study, written by Roosevelt research director Marshall Steinbaum, Michalis Nikiforos at Bard College’s Levy Institute, and Gennaro Zezza at the University of Cassino and Southern Lazio in Italy, comes to a dramatically different conclusion.

And it does so using some notably rosy assumptions about the effects of large-scale increases to government spending, taxes, and deficits, assumptions that other analysts would dispute vociferously. Their paper analyzes three different models for a universal basic income: • A full universal basic income, in which every adult gets $1,000 a month ($12,000 a year) • A partial basic income, in which every adult gets $500 a month ($6,000 a year) • A child allowance, in which every child gets $250 a month ($3,000 a year) They find that enacting any of these policies by growing the federal debt — that is, without raising taxes to pay for it — would substantially grow the economy. The effect fades away within eight years, but GDP is left permanently higher. The big, $12,000 per year per adult policy, they find, would permanently grow the economy by 12.56 to 13.10% — or about $2.5 trillion come 2025.

It would also, they find, increase the%age of Americans with jobs by about 2%, and expand the labor force to the tune of 4.5 to 4.7 million people. They also model the impact of the plan if it’s paid for with taxes. That amounts to large-scale income redistribution, which, the authors argue, would stimulate the economy, because lower-income people are likelier to spend their money in the near-term than rich people are. Thus, they find that a full $12,000 a year per adult basic income, paid for with progressive income taxes, would grow the economy by about 2.62% ($515 billion) and expand the labor force by about 1.1 million people.

These are extremely contentious estimates, borne of controversial assumptions about the way the economy works and the effects that a basic income would have on it. Many, if not most, economic modelers would come to very different conclusions: that a basic income discourages work, that raising taxes to pay for it could have profound negative economic impacts, and that not paying for it and exploding the deficit is a recipe for fiscal and economic ruin. But the authors argue that the economic model they’re using, run by the Bard College Levy Economics Institute, uses more realistic assumptions than alternative models, and is particularly well-suited for predicting a UBI’s impact.

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Part of Yanis’ plans for Greece. A parallel system.

The Promise of Fiscal Money (Varoufakis)

any attempt to bring treasuries and central banks back under one roof would expose politicians to accusations of trying to get their grubby hands on the levers of monetary policy. But another response to the new reality is available: Leave central banks alone, but give governments a greater say in domestic money creation – and, indeed, greater independence from the central bank – by establishing a parallel payments system based on fiscal money or, more precisely, money backed by future taxes. How would fiscal money work? For starters, it would “live” on the tax authority’s digital platform, using the existing tax file numbers of individuals and companies. Anyone with a tax file number (TFN) in some country receives a free account linked to their TFN.

Individuals and firms will then be able to add credit to their TFN-linked account by transferring money from their normal bank account, in the same way that they do today to pay their taxes. And they will do so well in advance of tax payments because the state guarantees to extinguish in, say, a year €1,080 of the tax owed for every €1,000 transferred today – an effective annual interest rate of 8% payable to those willing to pay their taxes a year early. In practice, once, say, €1,000 has been transferred to one’s TFN-linked account, a personal identification number (the familiar PIN) is issued, which can be used either to transfer the €1,000 credit to someone else’s TFN-linked account or to pay taxes in the future. These time-stamped future tax euros, or fiscal euros, can be held for a year until maturity or be used to make payments to other taxpayers.

Smartphone apps and even government-issued cards (doubling as, say, social security ID) will make the transactions easy, fast, and virtually indistinguishable from other transactions involving central bank money. In this closed payments system, as fiscal money approaches maturity, taxpayers not in possession of that vintage will fuel rising demand for it. To ensure the system’s viability, the Treasury would control the total supply of fiscal money, using the effective interest rate to guarantee that the nominal value of the total supply never exceeds a%age of national income, or of aggregate taxes, agreed by the legislature. To ensure full transparency, and thus trust, a blockchain algorithm, designed and supervised by an independent national authority, could settle transactions in fiscal money.

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Is it low savings or high debt levels?

America and China’s Codependency Trap (Stephen Roach)

Caught up in the bluster of the US accusations being leveled at China, little attention is being paid to the potential consequences of Chinese retaliation. Three economic consequences stand out. First, imposing tariffs on imports of Chinese goods and services would be the functional equivalent of a tax hike on American consumers. Chinese producers’ unit labor costs are less than one fifth those of America’s other major foreign suppliers. By diverting US demand away from Chinese trade, the costs of imported goods would undoubtedly rise sharply. The possibility of higher import prices and potential spillover effects on underlying inflation would hit middle-class US workers, who have faced more than three decades of real wage stagnation, especially hard.

Second, trade actions against China could lead to higher US interest rates. Foreigners currently own about 30% of all US Treasury securities, with the latest official data putting Chinese ownership at $1.15 trillion in June 2017 – fully 19% of total foreign holdings and slightly higher than Japan’s $1.09 trillion. In the event of new US tariffs, it seems reasonable to expect China to respond by reducing such purchases, reinforcing a strategy of asset diversification away from US dollar-based assets that has been under way for the past three years. In an era of still-large US budget deficits – likely to go even higher in the aftermath of Trump administration tax cuts and spending initiatives – the lack of demand for Treasuries by the largest foreign owner could well put upward pressure on borrowing costs.

Third, with growth in US domestic demand still depressed, American companies need to rely more on external demand. Yet the Trump administration seems all but oblivious to this component of the growth calculus. It is threatening trade sanctions not only against China – America’s third-largest and fastest-growing major export market – but also against NAFTA partners Canada and Mexico (America’s largest and second-largest export markets, respectively). As the reactive pathology of codependency would suggest, none of these countries can be expected to acquiesce to such measures without curtailing US access to their markets – a counter-response that could severely undermine the manufacturing revival that seems so central to the Trump presidency’s promise to “Make America Great Again.”

In the end, China’s economic leverage over America is largely the result of low US domestic saving. In the first quarter of 2017, the so-called net national saving rate – the combined depreciation-adjusted saving of businesses, households, and the government sector – stood at just 1.9% of national income, well below the longer-term average of 6.3% that prevailed over the final three decades of the twentieth century. Lacking in saving and wanting to consume and grow, the US must import surplus saving from abroad to close the gap, forcing it to run massive current-account and trade deficits with countries like China to attract the foreign capital.

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“..the now-notorious 2011 standoff led S&P Global Ratings to downgrade U.S. sovereign debt for the first time. The episode wiped $2.4 trillion off U.S. stocks.”

Financial Firms Fear Turmoil Over Fraught US Debt Ceiling Talks (R.)

Financial firms are sounding alarm bells and dusting off contingency plans over fears an increasingly dysfunctional U.S. Congress may fail to reach a deal to raise the country’s debt limit. Several lobbyists, representing dozens of bankers, investors and credit rating agencies, told Reuters they are worried that dynamics at play in Washington – a bitterly divided Republican party and unpredictable President Donald Trump – could rule out a deal before an October deadline. Policymakers have vowed to provide disaster relief to areas affected by Hurricane Harvey, boosting hopes the debt limit battle could be included in an agreement on a legislative package.

But the acrimonious atmosphere following Trump’s remarks about the Charlottesville protests this month, which cost him key backers in the business community and raised worries about his ability to broker a deal, still lingers. The debt ceiling is a legal cap on how much money the government can borrow to fund its budget deficits and meet debt obligations. Failure to raise it from the current $19.8 trillion could lead to default, sending shockwaves across global markets. “The stakes here are incredibly high. The economic impact associated with debt default is so immense,” said Rob Nichols, president and CEO of the American Bankers Association (ABA), one of the country’s key financial lobby groups. “We’re monitoring this extremely closely and we will mobilize as needed throughout September.”

While leading lawmakers and the administration have pledged it will get done, some corners of financial markets are already on edge. After all, Goldman Sachs estimated that failure to lift the cap would force a government spending cut equal to between 3 and 4% of U.S. gross domestic product, which would have crippling economic consequences. Moreover, previous debt limit negotiations went down to the wire, and the now-notorious 2011 standoff led S&P Global Ratings to downgrade U.S. sovereign debt for the first time. The episode wiped $2.4 trillion off U.S. stocks.

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“U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce”

Weird Things Are Happening With Gold (Rickards)

The first strange gold story involves Germany… The Deutsche Bundesbank, the central bank of Germany, announced that it had completed the repatriation of gold to Frankfurt from foreign vaults. The German story is the completion of a process that began in 2013. That’s when the Deutsche Bundesbank first requested a return of some of the German gold from vaults in Paris, in London and at the Federal Reserve Bank of New York. Those gold transfers have now been completed. This is a topic I first raised in the introduction to Currency Wars in 2011. I suggested that in extremis, the U.S. might freeze or confiscate foreign gold stored on U.S. soil using powers under the International Emergency Economic Powers Act, the Trading With the Enemy Act or the USA Patriot Act.

This then became a political issue in Europe with agitation for repatriation in the Netherlands, Germany and Austria. Europeans wanted to get gold out of the U.S. and safely back to their own national vaults. The German transfer was completed ahead of schedule; the original completion date was 2020. But the German central bank does not actually want the gold back because there is no well-developed gold-leasing market in Frankfurt and no experience leasing gold under German law. German gold in New York or London was available for leasing under New York or U.K. law as part of global price-manipulation schemes. Moving gold to Frankfurt reduces the floating supply available for leasing, making it more difficult to keep the manipulation going.

Why did Germany do it? The driving force both in 2013 (date of announcement) and 2017 (date of completion) is that both years are election years in Germany. Angela Merkel’s position as chancellor of Germany is up for a vote on Sept. 24, 2017. She may need a coalition to stay in power, and there’s a small nationalist party in Germany that agitates for gold repatriation. Merkel stage-managed this gold repatriation with the Deutsche Bundesbank both in 2013 and this week to appease that small nationalist party and keep them in the coalition. That’s why the repatriation was completed three years early. She needs the votes now.

The truly weird gold story comes from the United States… Secretary of the Treasury Steve Mnuchin and Senate Majority Leader Mitch McConnell just paid a visit to Fort Knox to see the U.S. gold supply. Mnuchin is only the third Treasury secretary in history ever to visit Fort Knox and this was the first official visit from Washington since 1974. The U.S. government likes to ignore gold and not draw attention to it. Official visits to Fort Knox give gold some monetary credence that central banks would prefer it does not have. Why an impromptu visit by Mnuchin and McConnell? Why now? The answer may lie in the fact that the Treasury is running out of cash and could be broke by Sept. 29 if Congress does not increase the debt ceiling by then. But the Treasury could get $355 billion in cash from thin air without increasing the debt simply by revaluing U.S. gold to a market price. (U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce.)

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Naked power plays.

‘More Europe’ Won’t Solve Europe’s Fiscal Quandary (BBG)

To a certain cast of people, the solution to every problem in Europe is “more Europe” – even, or especially, those problems that have been caused by Europe. The economic crisis that began a decade ago has exposed many flaws in the European economic model. The solution? Some are calling for a euro-zone budget and a euro-zone finance minister. France’s new president, Emmanuel Macron, is dedicated to the idea. Berlin has signaled conditional support. And Brussels is always happy to accrue more power. The idea makes superficial sense: Monetary union, most people now accept, doesn’t really work without fiscal union. The European Central Bank is constantly under pressure to loosen monetary policy to help the weakest euro members, and to keep it tight to help the strongest. But currency is a blunt instrument.

The “more Europe” thinking is that if the EU had a large budget, it could redistribute wealth to more directly help struggling members. (This is what happens in the U.S.) A powerful finance minister would oversee member countries to keep deficits and debts down and prevent debt crises. Except that that doesn’t make much sense: As Martin Sandbu points out, the U.S. federal budget, hovering at around 20% of GDP, isn’t enough to act as much of a macro-economic stabilizer, and nobody contemplates an EU budget of even that scale in the foreseeable future. Regardless, the so-called debt crises in the euro zone were not ultimately caused by deficits and debts as such, but by monetary phenomena. The euro made Mediterranean countries uncompetitive, leading to slow growth and debt and deficits, and the interest on those debts spiked only when the implicit euro-zone-wide guarantee on those debts was called into question by Germany.

What of Germany, which is essential to any EU reform effort? Germany historically, and Angela Merkel especially, has always been keen on more European integration – but also doesn’t want to pay for it. German Finance Minister Wolfgang Schaeuble has favored the idea of an EU budget – with a little-noticed but all-important asterisk. EU countries’ access to a European macroeconomic stabilization fund would be conditioned on “the bailout fund having more say over national debt and budgets,” he told the German Bild newspaper. In other words, Germany would be happy to pay a little something toward a macro-economic stabilization fund in exchange for having practical control over the budgets of all the euro-zone countries.

The commitment to pay into the fund is probably not daunting, because the budgetary orthodoxy rules Germany would come up with would be unattainable, and the money would probably never be spent. In other words, Macron and the “more Europe” camp are willing to hand Germany control over the euro zone’s finances, in exchange for … well, perhaps nothing. It’s an offer that Merkel can’t refuse.

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No, it’s not ideal. But at least all-out chaos like in Libya has been prevented.

Victory For Assad Increasingly Likely As World Loses Interest In Syria (G.)

In recent months, as supplies of aid, money and weapons to Syria’s opposition have dwindled, it had clung to the hope that ongoing international political support would prevent an outright victory for Bashar al-Assad and his backers. Not any more. An announcement earlier this week by Jordan – one of the opposition’s most robust supporters – that “bilateral ties with Damascus are going in the right direction” has, for many, marked a death knell for the opposition cause. Within the ranks of the political opposition, and regional allies, the statement was the opening act of something that all had dreaded: normalisation with a bitter foe. And without anything much to show for it.

Emphasising his words, Jordanian government spokesman Mohammad al-Momani said: “This is a very important message that everyone should hear.” And indeed, the about-face in Amman was quickly noted in Ankara, Doha, and Riyadh, where – after seven and a-half years of war – states that were committed to toppling the Syrian leader are now resigned to him staying. Returning from a summit in the Saudi capital last week, opposition leaders say they were told directly by the foreign minister, Adel al-Jubeir, that Riyadh was disengaging. “The Saudis don’t care about Syria anymore,” said a senior western diplomat. “It’s all Qatar for them. Syria is lost.”

In Britain too, rhetoric that had demanded Assad leave the Presidential Palace, as a first step towards peace, has been replaced by what Whitehall calls “pragmatic realism”. The foreign secretary, Boris Johnson, last week couched Assad’s departure as “not a precondition. But part of a transition.” Rex Tillerson, the US secretary of state, has openly delegated finding a solution to Syria to Russia. Donald Trump, meanwhile, has pledged to close a CIA-run programme, which had sent weapons from Jordan and Turkey to vetted Syrian rebel groups for much of the past four years. Washington has adopted a secondary role in twin, ailing, peace processes in Geneva and Astana and has focused its energies on fighting Isis, not Assad.

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How long ago is it that Justin vowed to fix this? “.. more than 100 reserves still lack housing, electricity or running water “

‘Our Society Is Broken’: Canada’s First Nations Suicide Epidemic (G.)

The suicide epidemic affecting First Nations communities across Canada has been a national crisis for decades, but it attracted international headlines after three indigenous communities were moved to declare a state of emergency in response to a series of deaths. In the spring of 2016, Attawapiskat First Nation reserve in Ontario declared a state of emergency after 11 young people tried to commit suicide in one night – adding to the estimated 100 attempts made over 10 months among this community of 2,000 people. Not long after, it was revealed that six people, including a 14-year-old girl, had killed themselves over a period of three months in the Pimicikamak Cree Nation community of northern Manitoba. In the aftermath, more than 150 youths in this remote community of 6,000 were put on suicide watch.

Then in June this year, another First Nations reserve in Ontario lost three 12-year-old girls who had reportedly agreed a suicide pact. This string of tragic events has seen media and government turn the spotlight on an issue too often ignored in Canada. Across the country, suicide and self-inflicted injury is the leading cause of death for First Nations people below the age of 44. Studies show young indigenous males are 10 times more likely to kill themselves than their non-indigenous male counterparts, while young indigenous females are 21 times more likely than young non-indigenous females. [..] The government has been criticised for its lack of support and funding for First Nations communities, which total 1.4 million people – just under 4.3% of Canada’s population. “We call that injustice,” says Roderick McCormick, an expert in indigenous health and suicide at Thompson Rivers University in Kamloops BC.

He suggests a complex web of severe poverty plus lack of education and basic necessities underpins the rise in suicides among indigenous youths. “In terms of educational opportunities, healthcare and child welfare, the government is doing an injustice by not adequately funding our communities,” McCormick says. “When these remote reserves compare themselves to other communities across Canada, there is a huge gap that has become really evident.” Recent research has found more than 100 reserves still lack housing, electricity or running water – with almost 90 of them being advised to boil their drinking water. Another study by the Canadian Centre for Policy Alternatives found that 60% of children on these reserves are living in poverty. “The communities I represent are living in abject poverty,” Wilson says. “My people are the poorest in this country, and that’s not right.”

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May 252017
 
 May 25, 2017  Posted by at 9:23 am Finance Tagged with: , , , , , , , , , ,  


Alfred Buckham Edinburgh c1920

 

Toronto Homeowners Are Suddenly in a Rush to Sell (BBG)
$100 Increase In Mortgage Payments Would Sink 75% Of Canadian Homeowners (CBC)
Average Asking Price for Homes in UK Hits Record High of £317,000 (G.)
The Great London Property Squeeze (Minton)
UK Police ‘Stop Passing Information To US’ Over Leaks Of Key Evidence (G.)
The Bubble That Could Break the World (Rickards)
A Bailout Is Coming In China, One Way Or Another (BBG)
China “National Team” Rescues Stocks As Downgrade Crushes Commodities (ZH)
China Says Credit Downgrade ‘Inappropriate’, ‘Exaggerates Difficulties’ (CNBC)
China’s Downgrade Could Lead To A Mountain Of Debt (BBG)
Chinese Banks Dominate Ranking Of World’s Biggest Public Companies (Ind.)
EU Declared Monsanto Weedkiller Safe After Intervention From EPA Official (G.)
Factory Farming Belongs In A Museum (G.)
Eurogroup Confronts Own Deficit: Governance (Pol.)
Podcast: Steve Keen’s Manifesto (OD)
No Greek Debt Relief Need If Primary Surplus Over 3% of GDP For 20 Years (R.)
Deadliest Month For Syria Civilians In US-Led Strikes (AFP)
30 Migrants, Most of Them Toddlers, Drown in Mediterranean (R.)

 

 

Getting out is getting harder. A crucial phase in any bubble.

Toronto Homeowners Are Suddenly in a Rush to Sell (BBG)

Toronto’s hot housing market has entered a new phase: jittery. After a double whammy of government intervention and the near-collapse of Home Capital Group Inc., sellers are rushing to list their homes to avoid missing out on the recent price gains. The new dynamic has buyers rethinking purchases and sellers asking why they aren’t attracting the bidding wars their neighbors saw just a few weeks ago in Canada’s largest city. “We are seeing people who paid those crazy prices over the last few months walking away from their deposits,” said Carissa Turnbull, a Royal LePage broker in the Toronto suburb of Oakville, who didn’t get a single visitor to an open house on the weekend. “They don’t want to close anymore.”

Home Capital may be achieving what so many policy measures failed to do: cool down a housing market that soared as much as 33% in March from a year earlier. The run on deposits at the Toronto-based mortgage lender has sparked concerns about contagion, and comes on top of a new Ontario tax on foreign buyers and federal government moves last year that make it harder to get a mortgage. “Definitely a perception change occurred from Home Capital,” said Shubha Dasgupta, owner of Toronto-based mortgage brokerage Capital Lending Centre. “It’s had a certain impact, but how to quantify that impact is yet to be determined.”

Early data from the Toronto Real Estate Board confirms the shift in sentiment. Listings soared 47% in the first two weeks of the month from the same period a year earlier, while unit sales dropped 16%. Full-month data will be released in early June. The average selling price was C$890,284 ($658,000) through May 14, up 17% from a year earlier, yet down 3.3% from the full month of April. The annual price gain is down from 25% in April and 33% in March. Toronto has seen yearly price growth every month since May 2009. The last time the city saw gains of less than 10% was in December 2015.

Brokers say some owners are taking their homes off the market because they were seeking the same high offers that were spreading across the region as recently as six weeks ago. “In less than one week we went from having 40 or 50 people coming to an open house to now, when you are lucky to get five people,” said Case Feenstra, an agent at Royal LePage Real Estate Services Loretta Phinney in Mississauga, Ontario. “Everyone went into hibernation.” Toronto real estate lawyer Mark Weisleder said some clients want out of transactions. “I’ve had situations where buyers are trying to try to find another buyer to take over their deal,” he said. “They are nervous whether they bought right at the top and prices may come down.”

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Tyler: “..given that the average house in Canada costs roughly $200,000 and carries a monthly mortgage payment of $1,000, that means that most Canadians couldn’t incur a $100 hike in their monthly mortgage payments “

$100 Increase In Mortgage Payments Would Sink 75% Of Canadian Homeowners (CBC)

Almost three quarters of Canadian homeowners would have difficulty paying their mortgage every month if their payments increased by as little as 10%, a new survey from Manulife Bank suggests. The bank polled 2,098 homeowners — between the ages of 20 to 69 with household incomes of $50,000 or higher — online in the first two weeks of February. Because they aren’t randomized samples, polling experts say online polls don’t have a margin of error, but the survey nonetheless highlights just how tight the budgets are for many Canadians. 14% of respondents to Manulife’s survey said they wouldn’t be able to withstand any increase in their monthly payments, while 38% of those polled said they could withstand a payment hike of between 1 and 5% before having difficulty.

An additional 20% said they could stomach a hike of between six and 10% before feeling the pinch. Add it all up, and that means 72% of homeowners polled couldn’t withstand a hike of just 10% from their current record lows. That’s a dangerous place to be with interest rates set to rise at some point. “What these people don’t realize is that we’re at record low interest rates today,” said Rick Lunny, president and CEO of Manulife Bank. If mortgage rates increase by as little as one percentage point, some borrowers could be facing a hike of 10% on their monthly bills. A bigger mortgage rate hike would bring more pain.

In the survey, 22% said they could handle a payment increase of between 11 to 30%, while the remaining 7% didn’t know or were unsure. Overall, nearly one quarter (24%) of Canadian homeowners polled said they haven’t been able to come up with enough money to pay a bill in the past year. And most are not in good shape to weather any sort of financial storm — just over half of those polled had $5,000 or less set aside to deal with a financial emergency, while one fifth of them have nothing saved for a rainy day. “When you put it into that context, they’re not really prepared for what is inevitable. Sooner or later, interest rates are going to rise,” Lunny said.

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You might have thought Brexit would have led to caution.

Average Asking Price for Homes in UK Hits Record High of £317,000 (G.)

Asking prices for UK homes hit a new record high over the past month as families in search of bigger properties brushed aside uncertainty caused by Brexit and June’s general election. Prices sought by sellers rose 1.2% in the four weeks to 13 May, pushing the average asking price to a fresh peak of £317,281, according to the property website Rightmove. Families with children under the age of 11 were twice as likely as the average person to be moving home, as they looked for bigger properties in school catchment areas. Asking prices for typical family homes – with three or four bedrooms but excluding detached properties – rose by 5.4% year-on-year over the last month, to £270,953.

Miles Shipside, a Rightmove director and housing market analyst, said such families were more willing to ignore any uncertainty caused by Brexit and the general election. “As well as that shrinking house feeling, parents with young children also have the pressures of travelling times to amenities as well as the weekday school commute. These have to be balanced against under-pressure finances, even more so when the sector with the property type that suits them best is seeing the biggest price jump. “What seems to be happening is that moving pressures are understandably taking priority over electioneering and Brexit worries. For many in this group, it seems that moving is definitely on their manifesto.”

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Bubble effects: the servant class the rich need can’t afford to live close enough to them.

An edited extract from Big Capital by Anna Minton, which will be published 1 June by Penguin.

The Great London Property Squeeze (Minton)

There is a direct link between the wealth of those at the top and the capital’s housing crisis – which affects not just those at the bottom but the majority of Londoners who struggle to buy properties, or pay extortionate rents. The 2008 financial crash created a new politics of space, in which people on low incomes are forced out of their homes by rising rent and the wealthy are encouraged to use property for profit. These trends are not limited to London. The same currents of global capital are also transforming San Francisco, New York and Vancouver, European cities from Berlin to Barcelona and towns and cities in the UK from Bristol and Manchester to Margate and Hastings. This isn’t gentrification, it’s another phenomenon entirely. Global capital is being allowed to reconfigure the country.

The major concern for the government and employers in London is that people who do not earn enough to meet extortionate rents will leave, hollowing out the city and threatening its labour market and culture. “We see this with employers saying they’re having a really hard time retaining professional level jobs, let alone cleaners. London is losing teachers – they’re commuting from Luton and they’re giving up – it’s having a massive knock-on effect,” Dilner said. The vacancy rate for nurses at London’s hospitals is 14-18%, according to a report from the King’s Fund thinktank, and the number of entrants to teacher training has fallen 16% since 2010, according to Ofsted. But it’s not just carers, nurses, teachers, artists and university lecturers who can’t afford to live in London. Fifty Thousand Homes is a business-led campaign group – including the RBS, the CBI and scores of London businesses – formed to push the housing crisis up the political agenda.

Its research shows that on current trends, customer services and sales staff at almost every level are being pushed out of the capital. Three-quarters of business owners believe that housing costs are a significant risk to London’s economic growth and 70% of Londoners aged 25 to 39 report that the cost of their rent or mortgage makes it difficult to work in the city. Vicky Spratt is a 28-year-old journalist who worked as a producer of political programmes at the BBC but left because she felt the issues affecting her generation, such as the housing crisis, were not being covered properly. “A lot of issues were dismissed by the older generation – it didn’t affect them. They all owned their own homes,” she told me. Spratt joined the digital lifestyle magazine The Debrief, aimed at twentysomething women, and began an online petition against lettings agents’ fees that gathered more than 250,000 signatures.

Spratt describes herself as a reluctant campaigner, but her circumstances pushed her into it. She currently pays £1,430 per month, not including bills, for a one-bedroom flat which she can afford because she shares with her boyfriend, but she used to live in a room “which was literally the size of a bed”. “The walls were very thin because it had originally been part of one room, which the landlord split into two. I noticed after about six weeks my mental health deteriorated. If I wasn’t in a relationship I would be looking at going back to that,” she said. Spratt earns enough to get a mortgage but, because rents are so high, not enough to save for the 20–30% deposit required. “The common thread for people my age is that we don’t own our own homes and potentially we never will. The housing crisis is older than me and it shocks me that nobody did anything about this, and I want it on the news agenda,” she said. “This is structural neglect. The buy-to-let boom and the unregulated market have a lot to answer for.”

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For some reason nobody blames the New York Times for publishing the info.

UK Police ‘Stop Passing Information To US’ Over Leaks Of Key Evidence (G.)

Police hunting the terror network behind the Manchester Arena bombing have stopped passing information to the US on the investigation as a major transatlantic row erupted over leaks of key evidence in the US, according to a report. Downing Street was not behind any decision by Greater Manchester police to stop sharing information with US intelligence, a Number 10 source said, stressing that it was important police operations were allowed to take independent decisions. “This is an operational matter for police,” a Number 10 spokesman said. The police and the Home Office refused to comment on the BBC report. The Guardian understands there is not a blanket ban on intelligence sharing between the US and the UK.

Relations between the US and UK security services, normally extremely close, have been put under strain by the scale of the leaks from US officials to the American media. Theresa May is expected to confront Donald Trump over the stream of leaks of crucial intelligence when she meets the US president at a Nato summit in Brussels on Thursday. British officials were infuriated on Wednesday when the New York Times published forensic photographs of sophisticated bomb parts that UK authorities fear could complicate the expanding investigation into the lethal blast in which six further arrests have been made in the UK and two more in Libya. It was the latest of a series of leaks to US journalists that appeared to come from inside the US intelligence community, passing on data that had been shared between the two countries as part of a long-standing security cooperation.

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“..today’s CAPE ratio is 182% of the median ratio of the past 137 years..”

The Bubble That Could Break the World (Rickards)

Before diving into the best way to play the current bubble dynamics to your advantage, let’s look at the evidence for whether a bubble exists in the first place… My preferred metric is the Shiller Cyclically Adjusted PE Ratio or CAPE. This particular PE ratio was invented by Nobel Prize-winning economist Robert Shiller of Yale University. CAPE has several design features that set it apart from the PE ratios touted on Wall Street. The first is that it uses a rolling ten-year earnings period. This smooths out fluctuations based on temporary psychological, geopolitical, and commodity-linked factors that should not bear on fundamental valuation. The second feature is that it is backward-looking only. This eliminates the rosy scenario forward-looking earnings projections favored by Wall Street.

The third feature is that that relevant data is available back to 1870, which allows for robust historical comparisons. The chart below shows the CAPE from 1870 to 2017. Two conclusions emerge immediately. The CAPE today is at the same level as in 1929 just before the crash that started the Great Depression. The second is that the CAPE is higher today than it was just before the Panic of 2008. Neither data point is definitive proof of a bubble. CAPE was much higher in 2000 when the dot.com bubble burst. Neither data point means that the market will crash tomorrow. But today’s CAPE ratio is 182% of the median ratio of the past 137 years. Given the mean-reverting nature of stock prices, the ratio is sending up storm warnings even if we cannot be sure exactly where and when the hurricane will come ashore.

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It’s starting to look like China cannot afford the bailout. It’s not just SOEs and LGFVs, it’s the entire banking system too, and Chinese banks are behemoths.

A Bailout Is Coming In China, One Way Or Another (BBG)

On Tuesday night, Moody’s downgraded China’s sovereign credit rating for the first time in 28 years. In doing so, the rating agency is acknowledging the dragon in the room: China will have to pay the price for its epic debt binge, whatever policymakers do from here. [..] “The downgrade,” the agency explained, “reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.” The downgrade was slight, and China remains well within investment grade. Still, Moody’s concerns should wake up those investors who have decided, based on the apparent calm in Chinese stock and currency markets, that the country isn’t experiencing financial strain. What’s happening today may not look like the meltdowns suffered by South Korea or Indonesia in the 1990s.

But that might be only because the state retains so much more control in China. If officials hadn’t stepped in last year to curtail escalating outflows of capital, the picture would likely have looked much grimmer. This “crisis with Chinese characteristics” features all of the seeds of a much more serious downturn: still-rising debt, unrecognized bad loans and a government paying lip service to the severity of the problem. Brandon Emmerich of Granite Peak Advisory noted in a recent study that more and more new debt is being used to pay off old debt, and “a subset of zombie issuers borrowed to avoid default.” As he explains, “even as Chinese corporate bond yields have rebounded (in 2017) and issuance stalled, the proportion of bond volume issued to pay off old debt reached an all-time high – not the behavior of healthy firms taking advantage of a low-yield environment.”

Efforts to curtail credit will thus inflict serious pain on corporate China. And given that the economy remains largely dependent on debt for growth, deleveraging will also make it harder for such firms to expand and service their debt. The one-two punch could push more companies toward default, punishing bank balance sheets. What’s more, if Beijing policymakers respond by ramping up credit again, all they’ll do is delay the inevitable. Larger dollops of debt simply allow zombie companies to stay alive longer and add to the debt burden on the economy. Sooner or later, the government is going to have to bail out local governments and state-owned enterprises, and recapitalize the banks. The only question is how expensive repairing the financial sector will be for taxpayers once Chinese leaders realize the game is up. Looking at past banking crises, the tab could prove huge. South Korea’s cleanup after the 1997 crisis cost more than 30% of gross domestic product. Applying that to China suggests the cost would reach some $3.5 trillion.

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How much of China’s economy stands on its own feet?

China “National Team” Rescues Stocks As Downgrade Crushes Commodities (ZH)

Iron ore led a slump in industrial commodities after Moody’s Investor Service downgraded China’s credit rating and warned that the country’s debt position will worsen as its economic expansion slows. However, one glance at the divergence between industrial metals’ collapse and the sudden buying panic in Chinese stocks confirms what Asher Edelman noted yesterday about the US markets, China’s so-called “National Team” was clearly intervening… As Bloomberg reports, Iron ore futures on the Dalian Commodity Exchange fell as much as 5.6% to 452 yuan a metric ton, almost by the daily limit, before closing at 455.50 yuan, extending Tuesday’s 3% loss. Nickel led a broad slump among base metals, dropping as much as 2.4% to $9,125 a ton on the London Metal Exchange. Nickel stockpiles rose the most in more than a year.

In context, the overnight reversal in Chinese stocks is even more obvious… Moody’s move, downgrading China’s debt to A1 from Aa3, adds to concerns about the effects of a slowdown in the country’s economic growth, following on from downbeat manufacturing readings and weak commodity imports, Simona Gambarini, an analyst at Capital Economics, said. “We’re not particularly concerned about credit growth getting out of hand, but in regards to industrial metals, we have been negative on the outlook for some time on the basis that Chinese growth will slow.” Will The National Team be back tonight?

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They would, wouldn’t they? Isn’t it perhaps more accurate to say the downgrade is long overdue?

China Says Credit Downgrade ‘Inappropriate’, ‘Exaggerates Difficulties’ (CNBC)

China has rejected a move by Moody’s to lower its credit rating, saying the downgrade exaggerates the difficulties facing the economy and underestimates the government’s reform agenda. The country’s finance ministry claimed the credit rating agency used “inappropriate methodology” in its decision to lower long-term local and foreign currency issuer ratings from “Aa3” to “A1”. “Moody’s views that China’s non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy,” the finance ministry said in a statement Wednesday, translated by Reuters. It added that the moves are “underestimating the Chinese government’s ability to deepen supply-side structural reform and appropriately expand aggregate demand.”

Moody’s said that the downgrade reflects its expectation that China’s financial strength will “erode somewhat” over the coming years. The one-notch downgrade marks the first time Moody’s has lowered China’s credit rating in almost 30 years. It last downgraded the country in 1989. It comes as the government moves ahead with its ambitious reform agenda, which it hopes will move the country away from its traditional dependence on manufacturing and towards a services-led economy. Moody’s argues, however, that these aims will be hampered somewhat by the country’s “economy-wide debt”, which it says is set to rise as economic growth slows. Though the new rating will likely modestly increase the cost of borrowing for the Chinese government, it remains within the investment grade rating range.

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Not could, will. Actually the debt is already there.

China’s Downgrade Could Lead To A Mountain Of Debt (BBG)

China’s first credit rating downgrade by Moody’s since 1989 couldn’t have come at a worse time for the nation’s companies, which have never been more reliant on the overseas bond market for funding. While Chinese companies’ foreign-currency debt is only a fraction of the $9 trillion local bond market, China Inc. is on pace for record dollar bond sales this year after the authorities’ crackdown on financial leverage drove up borrowing costs at home. Overseas borrowing has also been part of the government’s strategy to encourage capital inflows in a bid to ease the depreciation pressure on the yuan. Airlines and shipping companies, which finance the costs of new aircraft and vessels with debt, are particularly vulnerable to higher borrowing costs, according to Corrine Png, CEO of Crucial Perspective in Singapore.

Khoon Goh, head of Asia research for Australia & New Zealand Bank, sees state-owned enterprises among firms feeling the biggest impact. Companies including State Grid and China Petroleum & Chemical raised $23 billion in bond sales in April, an increase of 141% from a year earlier. With additional $8.9 billion issuance so far in May, the sales this year totaled $69 billion, representing 71% of the record $98 billion in 2016. Moody’s lowered China’s rating to A1 from Aa3 on Wednesday, citing a worsening debt outlook. Moody’s also downgraded the ratings of 26 non-financial corporate and infrastructure government-related issuers by one level. China’s Finance Ministry blasted the move as “absolutely groundless,” saying the ratings company has underestimated the capability of the government to deepen reform and boost demand.

“The economy is dependent on policy stimulus and with that comes higher leverage,” Marie Diron, associate managing director, Moody’s Sovereign Risk Group, said. “Corporate debt is really the big part.” [..] For major Chinese airlines, every percentage-point increase in average borrowing costs can cut net profit by 5% to 9%, said Crucial Perspective’s Png. For shipping companies, cuts to net profit may reach 15% to 30%. Hainan Airlines, controlled by conglomerate HNA Group Co., plans to buy 19 Boeing aircraft, using the proceeds of a convertible bond sale of up to 15 billion yuan ($2.2 billion), according to a statement to the Shanghai Stock Exchange on May 19. HNA itself has been one of China’s most acquisitive companies, with more than $30 billion worth of announced and completed deals since 2016.

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After all of the above info on debt and bailouts, there’s this. What will save Chinese banks, does anyone think Beijing can afford to bail them out too?

Chinese Banks Dominate Ranking Of World’s Biggest Public Companies (Ind.)

Despite an explosive rise in the power and market capitalisation of technology firms over the last year, China’s banking giants have defended their dominance of Forbes magazine’s annual global ranking of the world’s biggest public companies. The list, released on Wednesday, places Industrial & Commercial Bank of China at the top for a fifth consecutive year, followed by compatriot China Construction Bank. Agricultural Bank of China and Bank of China – the other two that make up China’s “Big Four” of finance – slipped down the list but remained in the top 10, qualifying as public companies despite largely being owned by the state. Warren Buffett’s Berkshire Hathaway, which is the largest public company in the US, took third spot, followed by JPMorgan Chase in fifth.

Although Forbes in a separate list earlier this week named Apple the most valuable brand of 2017, the tech giant only managed to secure ninth spot in the overall list of the biggest public companies. Companies that made it into this year’s list faced a slew of pressures stemming from an unsteady geopolitical climate and slowing economies. But Forbes said that in aggregate the 2,000 companies analysed managed to come out stronger than last year, with increased sales, profits, assets and market values. “This list illustrates that in spite of headwinds, the world’s dominant companies remain a steady force in an unpredictable and challenging environment,” said Halah Touryalai of Forbes. She said that despite slowing GDP figures, companies in China and the US make up more than 40% of the 2017 and dominate the top ten.

Notable gainers this year included General Electric, at 14th from 68th place in 2016, Amazon, up to 83rd from 237th, Charter Communications, at 107th from 784th and Alibaba, at 140th from 174th in 2016. The US dominated the ranking with 565 companies, followed by China and Hong Kong with 263 companies, Japan with 229. The UK had 91 companies in the top 2,000. But one of the UK’s highest ranked companies last year, banking giant HSBC, fell to 48th spot from 14th in 2016, with Forbes citing “economic malaise, low interest rate, paying fines, ongoing regulatory expenses and your usual dose of political uncertainty”. Elsewhere Forbes said that low oil prices had continued to put pressure on companies in the energy sector, reflected in PetroChina falling 85 spots to 102nd place in this years’ ranking. Exxon Mobil slipped four spots to 13th while Chevron tumbled to just 359th from 28th.

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Think the EU is not corrupt?

EU Declared Monsanto Weedkiller Safe After Intervention From EPA Official (G.)

The European Food Safety Authority dismissed a study linking a Monsanto weedkiller to cancer after counsel from a US Environmental Protection Agency officer allegedly linked to the company. Jess Rowlands, the former head of the EPA’s cancer assessment review committee (CARC), who figures in more than 20 lawsuits and had previously told Monsanto he would try to block a US government inquiry into the issue, according to court documents. The core ingredient of Monsanto’s RoundUp brand is a chemical called glyphosate, for which the European commission last week proposed a new 10-year license. Doubts about its regulatory passage have been stirred by unsealed documents in an ongoing US lawsuit against Monsanto by sufferers of non-hodgkins lymphoma, who claim they contracted the illness from exposure to RoundUp.

“If I can kill this, I should get a medal,” Rowlands allegedly told a Monsanto official, Dan Jenkins, in an email about a US government inquiry into glyphosate in April 2015. In a separate internal email of that time, Jenkins, a regulatory affairs manager, said that Rowlands was about to retire and “could be useful as we move forward with [the] ongoing glyphosate defense”. Documents seen by the Guardian show that Rowlands took part in a teleconference with Efsa as an observer in September 2015. Six weeks later, Efsa adopted an argument Rowlands had used to reject a key 2001 study which found a causal link between exposure to glyphosate and increased tumour incidence in mice. Rowlands’ intervention was revealed in a letter sent by the head of Efsa’s pesticides unit, Jose Tarazona, to Peter Clausing, an industry toxicologist turned green campaigner.

In the missive, Tarazona said that “the observer from the US-EPA [Rowlands] informed participants during the teleconference about potential flaws in the Kumar (2001) study related to viral infections.” Efsa’s subsequent report said that the Kumar study “was reconsidered during the second experts’ teleconference as not acceptable due to viral infections”. Greenpeace said that news of an Efsa-Rowlands connection made a public inquiry vital. “Any meddling by Monsanto in regulatory safety assessments would be wholly unacceptable,” said spokeswoman Franziska Achterberg. “We urgently need a thorough investigation into the Efsa assessment before glyphosate can be considered for re-approval in Europe.”

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But the profits are huge.

Factory Farming Belongs In A Museum (G.)

We can feed an extra 4 billion people a year if we reject the bloated and wasteful factory farming systems that are endangering our planet’s biodiversity and wildlife, said farming campaigner Philip Lymbery on Monday night, launching a global campaign to Stop the Machine. At present, 35% of the world’s cereal harvest and most of its soya meal is fed to industrially reared animals rather than directly to humans. This is a “wasteful and inefficient practice” because the grain-fed animals contribute much less back in the form of milk, eggs and meat than they consume, according to Lymbery, the chief executive of Compassion in World Farming (CIWF). “The food industry seems to have been hijacked by the animal feed industry,” he said.

In recent years the developing world in particular has seen significant agricultural expansion. According to independent organisation Land Matrix, 40m hectares have been acquired globally for agricultural purposes in the last decade and a half, with nearly half of those acquisitions taking place in Africa. The impact of that expansion is still unclear, but meanwhile the world’s wildlife has halved in the past 40 years. “Ten thousand years ago humans and our livestock accounted for about 0.1% of the world’s large vertebrates,” said Tony Juniper, the former head of Friends of the Earth. “Now we make up about 96%. This is a timely and necessary debate, and an issue that is being debated more and more.” An exhibition at the Natural History Museum by the campaigners aims to draw explicit links between industrial farming and its impact on wildife.

The Sumatran elephant, for example, has been disastrously affected by the growing palm oil industry, with more than half of its habitat destroyed to create plantations, and elephant numbers falling rapidly. The old argument that we need factory farming if we are to feed the world doesn’t hold true, says Lymbery, who argues that ending the wasteful practice of feeding grain to animals would feed an extra 4 billion people. Putting cattle onto pasture and keeping poultry and pigs outside where they can forage, and supplementing that with waste food is far more efficient and healthy, he says. According to his calculations, based on figures from the UN’s Food and Agriculture Organisation (FAO), the total crop harvest for 2014 provided enough calories to feed more than 15 billion people (the world’s population is currently 7.5 billion), but waste and the animal feed industry means that much of that is going elsewhere.

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It confronts no such thing.

They actually argue that the Eurogroup can only function without transparency, checks and balances.

Eurogroup Confronts Own Deficit: Governance (Pol.)

For the past seven-plus years, as Greece’s debt crisis plays out in public in painful, blow-by-blow detail, the European body charged with its rescue has conducted its affairs away from prying eyes. Now there are growing calls to change the way the Eurogroup operates. Critics of the gathering of finance ministers from the 19 countries in the euro and officials from the ECB and European Commission accuse it of acting like a private club. They want greater transparency in keeping with the influence it wields over issues of vital importance to many of the eurozone’s 350 million citizens. “The euro crisis changed everything,” said Leo Hoffmann-Axthelm, an advocacy coordinator with the NGO Transparency International. “The Eurogroup should be institutionalized, with proper rules of procedure, document handling and a physical address with actual spokespeople. We can no longer be governed by an informal club.”

Although it can impose tough conditions for bailing out struggling member countries or rescuing banks, it publishes no official minutes, has no headquarters, and the people who function as its secretariat have other day jobs. Its public face is a eurozone finance minister, who works for no salary: The current president is Jeroen Dijsselbloem, a Dutch Socialist with conservative views on fiscal matters. Legally, it is governed by a single sentence in Article 137 of the EU treaty which says “arrangements for meetings between ministers of those Member States whose currency is the euro are laid down by the Protocol on the Euro Group.” Emily O’Reilly, the EU’s ombudsman, is among those calling for reform. While she credits Dijsselbloem for his efforts to peel back the curtain on Eurogroup proceedings, she said: “It is obviously difficult for Europeans to understand that the Eurogroup, whose decisions can have a significant impact on their lives, [isn’t] subject to the usual democratic checks and balances.”

Indeed, when a group of citizens from Cyprus who disagreed with the terms of the 2013 Cypriot bank bailout took their case to the European Court of Justice, the court’s response was that the Eurogroup is not “capable of producing legal effects with respect to third parties” because it is just a discussion forum. Last year, Dijsselbloem used the ECJ ruling to justify the Eurogroup avoiding standard EU transparency rules, though he did commit to individual transparency requests on an informal basis. But some of those who participate in Eurogroup meetings argue that its informality is precisely what makes it useful. The last thing they want is another bureaucratic EU institution, and if the Eurogroup were reformed out of existence, they say, a new version would pop up in its place, without the minimal accountability it currently offers in the form of meeting agendas and press conferences.

“It’s the informal nature of the Eurogroup that makes it possible to have an open exchange that you will not find in more formal bodies,” said Taneli Lahti, a former head of cabinet for European Commission Vice President Valdis Dombrovskis. “This is crucial for policymaking, negotiating, finding agreements and understanding each other.”

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Why government surpluses are the worst thing for an economy.

Podcast: Steve Keen’s Manifesto (OD)

The only times the US government ran a surplus, it was followed by the 1929 and 2008 crashes.

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First you make growth impossible be demanding surpluses till the cows come home, and then you demand growth.

No Greek Debt Relief Need If Primary Surplus Above 3% of GDP For 20 Years (R.)

Greece will not need any debt relief from euro zone governments if it keeps its primary surplus above 3% of GDP for 20 years, a confidential paper prepared by the euro zone bailout fund, the European Stability Mechanism (ESM), showed. The paper, obtained by Reuters, was prepared for euro zone finance ministers and IMF talks last Monday, which ended without an agreement due to diverging IMF and euro zone assumptions on future Greek growth and surpluses. A group of euro zone finance ministers led by Germany’s Wolfgang Schaeuble insists that the issue of whether Greece needs debt relief can only be decided when the latest bailout expires in mid-2018. The IMF says the need for a bailout is already clear now.

Under scenario A, the paper assumes no debt relief would be needed if Athens kept the primary surplus – the budget balance before debt servicing – at or above 3.5% of GDP until 2032 and above 3% until 2038. The ECB says such long periods of high surplus are not unprecedented: Finland, for example, had a primary surplus of 5.7% over 11 years in 1998-2008 and Denmark 5.3% over 26 years in 1983-2008. A second option under scenario A assumes Greece secures the maximum possible debt relief under a May 2016 agreement. Greece would then have to keep its primary surplus at 3.5% until 2022 but could then lower it to around 2% until mid-2030s and to 1.5% by 2048, giving an average of 2.2% in 2023-2060.

The paper says the maximum possible debt relief under consideration is an extension of average weighted loan maturities by 17.5 years from the current 32.5 years, with the last loans maturing in 2080. The ESM would also limit Greek loan repayments to 0.4% of Greek GDP until 2050 and cap the interest rate charged on the loans at 1% until 2050. Any interest payable in excess of that 1% would be deferred until 2050 and the deferred amount capitalized at the bailout fund’s cost of funding. The ESM would also buy back in 2019 the €13 billion that Greece owes the IMF as those loans are much more expensive than the euro zone’s. All this would keep Greece’s gross financing needs at 13% of GDP until 2060 and bring its debt-to-GDP ratio to 65.4% in 2060, from around 180% now.

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44 children.

Deadliest Month For Syria Civilians In US-Led Strikes (AFP)

US-led air strikes on Syria killed a total of 225 civilians over the past month, a monitor said on Tuesday, the highest 30-day toll since the campaign began in 2014. The Syrian Observatory for Human Rights said the civilian dead between April 23 and May 23 included 44 children and 36 women. The US-led air campaign against the Islamic State jihadist group in Syria began on September 23, 2014. “The past month of operations is the highest civilian toll since the coalition began bombing Syria,” Observatory head Rami Abdel Rahman told AFP. “There has been a very big escalation.” The previous deadliest 30-day period was between February 23 and March 23 this year, when 220 civilians were killed, Abdel Rahman said. The past month’s deaths brought the overall civilian toll from the coalition campaign to 1,481, among them 319 children, the Britain-based monitoring group said. Coalition bombing raids between April 23 and May 23 also killed 122 IS jihadists and eight fighters loyal to the Syrian government, the Observatory said.

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Well over 100 children.

30 Migrants, Most of Them Toddlers, Drown in Mediterranean (R.)

More than 30 migrants, mostly toddlers, drowned on Wednesday when about 200 people without life jackets fell from a boat into the sea off the Libyan coast before they could be hauled into waiting rescue boats. The boat was near a rescue vessel when it suddenly listed and many migrants tumbled into the Mediterranean, Italian Coast Guard commander Cosimo Nicastro told Reuters. “At least 20 dead bodies were spotted in the water,” he said. The rescue group MOAS, which also had a ship nearby, said it had already recovered more than 30 bodies. “Most are toddlers,” the group’s co-founder Chris Catrambone said on Twitter. The coast guard called in more ships to help with the rescue, saying about 1,700 people were packed into about 15 vessels in the area.

The transfer from these overloaded boats is risky because desperate migrants in them sometimes surge to the side nearest a rescue vessel and destabilise their flimsy craft, which then list dangerously or capsize. More than 1,300 people have died this year on the world’s most dangerous crossing for migrants fleeing poverty and war across Africa and the Middle East. Last Friday, more than 150 disappeared at sea, the International Organization for Migration (IOM) said on Tuesday, citing migrant testimony collected after they disembarked in Italy. In the past week, more than 7,000 migrants have been plucked from unsafe boats in international waters off the western coast of Libya, where people smugglers operate with impunity.

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Aug 162016
 
 August 16, 2016  Posted by at 9:14 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing Army surplus 1919

Mining Giant BHP Slumps To Record Loss (BBC)
Chinese Traders Are Falling Out Of Love With Commodities (BBG)
China’s Fading Animal Spirits (BBG)
Germany Amassing Huge Surpluses – And Huge Risks (MW)
Bundesbank Floats Higher Retirement Age -69- in German Pension Debate (BBG)
Top UK Firms Paid Five Times More In Dividends Than Into Pensions (G.)
Pension Funds Are Driving The Biggest Bond Bubble In History (ZH)
Hedge Funds Bet Dollar Will Lose More Ground Versus Yen (BBG)
Krugman’s Arrow Theory Misses Target by Light Years (Mish)
A Government of Scoundrels, Spies, Thieves, And Killers (JW)
Jimmy Carter: The US Is an ‘Oligarchy With Unlimited Political Bribery’ (IC)
Burning Down the House (Jim Kunstler)
Sleeping Bear Of Debt Set To Wake (Herald Sun)
One-Third Of New Zealand Children Live Below The Poverty Line (G.)

 

 

No matter what anybody does, the overbuilding, overcapacity and overconsumption in China can no longer be extended. Infrastructure investment in other countries won’t be enough to pick up the slack.

Mining Giant BHP Slumps To Record Loss (BBC)

Mining giant BHP Billiton has reported a record loss for the past year following a mining disaster in Brazil and a slump in commodity prices. The Anglo-Australian commodities firm reported an annual net loss of $6.4bn (£5bn) for the year to 30 June. The global mining sector has seen years of weak demand attributed largely to slowing growth in China. BHP results were also hit by costs after the Samarco mining disaster in Brazil, which killed 19 people. The record losses come after the company had reported a $1.9bn net profit. “While commodity prices are expected to remain low and volatile in the short to medium term, we are confident in the long-term outlook for our commodities, particularly oil and copper,” chief executive Andrew Mackenzie said in a statement.

Underlying earnings for the past year, which strip out one-off costs, came in at $1.22bn. The financial fallout from the Samarco mining tragedy is still not clear though warns James Butterfill, head of research & investment strategy at ETF Securities. “There’s a huge uncertainty overhang,” he told the BBC. “The report hasn’t been published with regard to the Samarco dam collapse and there’s currently a $48bn lawsuit. It’s unrealistic to be that amount, but this is really BHP’s Macondo well incident theoretically that BP endured.”

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As consumption and investment falls, so will prices. Commodity producers worldwide are sitting on huge overcapacity. They must shrink their operations, but the first reaction is always to produce more to make up for falling revenue.

Chinese Traders Are Falling Out Of Love With Commodities (BBG)

Chinese traders are falling out of love with commodities. Aggregate volumes across the nation’s three biggest exchanges have shrunk to the lowest level in six months, a shadow of the fevered trading in March and April when retail investors charged into markets for everything from iron ore to cotton, driving up prices and stoking fears of a bubble. Chinese authorities brought an end to the frenzy by introducing curbs on excessive speculation and trading has failed to recover since. Flush with record credit and hunting for returns, investors piled into commodities in the first half of the year, spurred by bets that China’s economic stimulus and industrial reforms would lead to shortages of raw materials. Now, there’s just not much for traders to get excited about, according to Wei Lai, an analyst with Cofco Futures.

Industrial production and fixed-asset investment slowed in July and a measure of new credit expanded the least in two years, spurring concern over growth in the world’s second-largest economy. “Investors are reluctant as there isn’t much information to play around with in the market,”’ Shanghai-based Wei said in an e-mail. High prices for some commodities may also be deterring traders, Wei said. Combined aggregate volume across the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange slid to 23 million contracts as of Aug. 12, the lowest since February and compared with a peak of more than 80 million on April 22 when a total of $261 billion changed hands. Chinese exchanges double count trading volume and turnover.

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China will become known for the biggest misallocation of investment in history.

China’s Fading Animal Spirits (BBG)

The July wobble in China’s economy – like its multi-year slowdown – has much to do with the waning “animal spirits” of Chinese businesses caused by an historic shift in housing. That’s according to Chi Lo, greater China senior economist at BNP Paribas Investment Partners in Hong Kong. A property-led pick up in the first half lost momentum in July, suggesting the market is struggling to digest an overhang in supply of apartments. “In the past, the economic players expanded supply first and created jobs so as to create demand, but that is gone now,” Lo said in a telephone interview after Friday’s disappointing data. “It has to clean out the excess capacity, which means the supply-expansion model has to change.”

Another way of putting it: China’s build-it-and-they-will-come strategy needs to shift to one where demand, not supply, is in the drivers’ seat. It’s a change companies are struggling to come to terms with, leaving private investment in the doldrums. “Little attention has been paid to the underlying structural factor that is hurting private investment incentive,” Lo wrote in a research note ahead of the data last week. “This is the weakening of the final demand for output produced by the investment or capital-intensive sector in China. The key to understand this puzzle is China’s housing market.” That’s because it accounts for about half of all investment in China once spillovers into industries like metals and machinery are thrown in.

With such pervasive impact on everything from cement to cars, China’s property market was dubbed the most important sector in the universe back in 2011 by a UBS economist. BNP’s Lo says it’s unlikely to ever recapture the glory days of old. “China’s housing demand has likely passed its high-growth phase, with housing construction growth expected to go into a secular decline soon,” according to Lo. “This means that the capital-intensive sector, which has focused on producing all this housing units through the decades, is facing a structural decline in demand for its output.”

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One might be forgiven for thinking Berlin is blowing up the eurozone on purpose. What is needed are transfer payments to southern Europe, but there is too much resistance to those.

Germany Amassing Huge Surpluses – And Huge Risks (MW)

As one of the world’s largest exporters, Germany saw an important part of the political and economic rationale of entering European economic and monetary union in 1999 as lowering risks on its international commercial interactions. Nearly two decades later, Germany, more than ever, is an export champion. It is likely to register the world’s largest trade surplus this year, according to the OECD, at $324 billion (against China’s $314 billion), and will amass a record current-account surplus of 9.2% of gross domestic product. Yet, as a result of the large imbalances within EMU that these surpluses symbolize, Germany is a long way from insulating itself against foreign-currency risks.

The Bundesbank provides the strongest indicator of this change. The quintessentially hard-money central bank provided a role model for the ECB at the heart of the euro bloc. Yet the Bundesbank now confronts on its balance sheet a range of potential hazards that the euro’s founding fathers in the 1980s and 1990s would have regarded as inimical to economic stability and, for that reason, impossible to countenance. The Bundesbank’s balance sheet rose to €1.2 trillion in July from €222 billion when monetary union started in January 1999. Underlining the Bundesbank’s pivotal role in eurozone monetary operations, the German central bank’s balance sheet has expanded faster than that of the Eurosystem (the ECB and the constituent national central banks) as a whole.

The Bundesbank’s balance sheet now encompasses around 37% of Eurosystem assets of €3.3 trillion (computed on a net basis that strips out individual central banks’ claims and liabilities against each other under the Target-2 payments system), against 32% at the inception of EMU. The acceleration stands in marked contrast to the central bank’s stated desire, when monetary union started, to slim down its balance sheet and especially to economize on foreign-exchange reserves, held mostly in dollars. These have traditionally (together with gold) made up the lion’s share of the Bundesbank’s foreign assets, but have been cut from €45 billion to €50 billion when the euro was launched to only €30 billion to €35 billion in recent years.

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You’re not going to solve the problems by tweaking the age; that merely shifts the issue into the future. Can, road.

Bundesbank Floats Higher Retirement Age -69- in German Pension Debate (BBG)

Germany’s Bundesbank said raising the legal retirement age to 69 by 2060 could ease some of the pressure on the country’s state pension system as the population ages. Recent reforms won’t protect citizens from a drop in the level of pension payments from 2050, the central bank said in its monthly report published on Monday. Citizens who don’t opt for state-supported private insurance may face shortfalls a lot sooner. Low average interest rates could further reduce available provisions. While higher premiums could theoretically keep payouts stable, they would “raise the strain on those paying the contributions, and an increasing, high burden of payments overall has negative consequences on economic development,” the Bundesbank wrote. To avoid that, “the legal retirement age ultimately needs to be adjusted.”

The Bundesbank said the government’s current plans that include raising the retirement age to 67 by 2030 and increasing contributions don’t account for the fact that the ratio of retirees to contributors is set to widen further. Increasing life expectancy means retirees will draw from pension funds for a longer period of time, and a generation of baby boomers that retires post-2030 means there will be more pensioners to take care of per working adult, while birth rates remain low, according to the report. “Amid demographic change, the parameters of a contribution-based pension system can’t all be kept stable,” the Bundesbank said. “Confidence in pension insurance could be strengthened and uncertainty about financial stability at old age could be decreased if it were made clear how the parameters of retirement age, provision levels, and contribution rates can be adjusted in the long term.”

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Short termism perfected.

Top UK Firms Paid Five Times More In Dividends Than Into Pensions (G.)

Britain’s biggest companies paid five times more in dividends than they did pension contributions last year, according to a new report that highlights the pressure on retirement schemes. FTSE 100 companies paid £13.3bn towards their defined benefit pension schemes, compared with £71.8bn in payments to shareholders, according to the consultancy firm LCP’s annual study of pensions. The report has been published after Sir Philip Green was heavily criticised by a parliamentary investigation into the collapse of BHS for leaving the retailer with a £571m pension deficit, despite his family and other investors banking more than £400m in dividends. BHS’s 164 stores are all scheduled to close by 28 August, a week later than administrators planned last month as the retailer continues to sell its remaining stock.

Green remains locked in talks with the Pensions Regulator about a rescue deal for the BHS pension scheme. He has pledged to sort out the problems facing it, but the regulator has launched an investigation into whether the billionaire tycoon should be forced to make a financial contribution to fill the black hole. Other companies with large pension deficits could face action from the regulator if they are paying dividends, LCP says in its report. The 56 FTSE 100 companies that disclosed a pension deficit at the end of their 2015 financial year had a combined deficit of £42.3bn, but the same companies paid out dividends worth £53bn, 25% more than their pension contributions.

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“..a $1BN pension that is fully funded at prevailing interest rates would be nearly $700mm underfunded if interest rates declined 300bps and all of their assets were invested in 30-year treasury bonds.”

Pension Funds Are Driving The Biggest Bond Bubble In History (ZH)

We’ve frequently discussed the many problems faced by pension funds. Public and private pension funds around the globe are massively underfunded yet they continue to pay out current claims in full despite insufficient funding to cover future liabilities…also referred to as a ponzi scheme. In fact, we recently noted that the Central States Pension Fund pays out $3.46 in pension funds for every $1 it receives from employers. The pension problem is often attributed to low returns on assets. As Bill Gross frequently points out, low interest rates are the enemy of savers and pension funds have some of the biggest savings accounts around. That said, the impact of declining interest rates on the asset side of a pension’s net funded status is dwarfed by the much more devastating impact of declining discount rates used to value future benefit obligations.

The problem is one of duration. By definition, pension liabilities represent the present value of future benefit payments owed to retirees which is a virtually perpetual cash flow stream. Obviously, the longer the duration of a cash flow stream the larger the impact of interest rate swings on the present value of that stream. We created the chart below as a simplistic illustration of the pension “duration dilemma.” The chart graphs how a pension liability grows in a declining interest rate environment versus the value of 5-year and 30-year treasury bonds. As you can see, a $1BN pension that is fully funded at prevailing interest rates would be nearly $700mm underfunded if interest rates declined 300bps and all of their assets were invested in 30-year treasury bonds. The result is obviously even worse if the fund’s assets are invested in shorter duration 5-year treasuries.

Pension Duration

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How Abenomics gets strangled.

Hedge Funds Bet Dollar Will Lose More Ground Versus Yen (BBG)

Hedge funds and other large speculators increased net bets the dollar will weaken against the yen to the highest level in a month, according to Commodity Futures Trading Commission data as of Aug. 9. Traders will focus on the meetings of the Federal Reserve and the Bank of Japan next month for direction, after disappointing stimulus announced last month by the BOJ failed to halt yen strength.

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“Krugman would do himself a favor if he threw away what he thinks he knows about economics and went back for a nice 5th grade education.”

But the saddest part of course is that belugas are kept in an aquarium and learn tricks to amuse Japanese. Who are we?

Krugman’s Arrow Theory Misses Target by Light Years (Mish)

With full employment, roads paved and repaved to nowhere, and bubble blowing beluga whales, just what the hell is Japan supposed to waste money on? Curiously, Krugman says it doesn’t matter. He once proposed a fake aliens from outer space scare as the solution to stimulate the economy. But roads and bridges and bubble blowing blowing beluga whales are surely better than fabricating space aliens or paying people to dig ditches and others to fill them up again. The problem is, it’s hard arguing with economic illiterates like Krugman. He can (and will) say “spending wasn’t enough”.

One can never prove him wrong. The implosion of Japan would not do it. His built-in excuse would be Japan did too little, too late. Just once I would like Krugman to address in his model what happens when the stimulus stops. He cannot and he won’t because he has no answer. The average 5th grader understands it’s absurd to pay money for something guaranteed to be useless, but the average Keynesian economist doesn’t. Krugman would do himself a favor if he threw away what he thinks he knows about economics and went back for a nice 5th grade education.

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John Whitehead does not mince words.

A Government of Scoundrels, Spies, Thieves, And Killers (JW)

“There is nothing more dangerous than a government of the many controlled by the few.”—Lawrence Lessig, Harvard law professor

The U.S. government remains the greatest threat to our freedoms. The systemic violence being perpetrated by agents of the government has done more collective harm to the American people and our liberties than any single act of terror. More than terrorism, more than domestic extremism, more than gun violence and organized crime, the U.S. government has become a greater menace to the life, liberty and property of its citizens than any of the so-called dangers from which the government claims to protect us. This is how tyranny rises and freedom falls.

As I explain in my book Battlefield America: The War on the American People, when the government views itself as superior to the citizenry, when it no longer operates for the benefit of the people, when the people are no longer able to peacefully reform their government, when government officials cease to act like public servants, when elected officials no longer represent the will of the people, when the government routinely violates the rights of the people and perpetrates more violence against the citizenry than the criminal class, when government spending is unaccountable and unaccounted for, when the judiciary act as courts of order rather than justice, and when the government is no longer bound by the laws of the Constitution, then you no longer have a government “of the people, by the people and for the people.”

What we have is a government of wolves. Worse than that, we are now being ruled by a government of scoundrels, spies, thugs, thieves, gangsters, ruffians, rapists, extortionists, bounty hunters, battle-ready warriors and cold-blooded killers who communicate using a language of force and oppression. Does the government pose a danger to you and your loved ones? The facts speak for themselves. We’re being held at gunpoint by a government of soldiers—a standing army. While Americans are being made to jump through an increasing number of hoops in order to exercise their Second Amendment right to own a gun, the government is arming its own civilian employees to the hilt with guns, ammunition and military-style equipment, authorizing them to make arrests, and training them in military tactics.

Among the agencies being supplied with night-vision equipment, body armor, hollow-point bullets, shotguns, drones, assault rifles and LP gas cannons are the Smithsonian, U.S. Mint, Health and Human Services, IRS, FDA, Small Business Administration, Social Security Administration, National Oceanic and Atmospheric Administration, Education Department, Energy Department, Bureau of Engraving and Printing and an assortment of public universities. There are now reportedly more bureaucratic (non-military) government civilians armed with high-tech, deadly weapons than U.S. Marines. That doesn’t even begin to touch on the government’s arsenal, the transformation of local police into extensions of the military, and the speed with which the nation could be locked down under martial law depending on the circumstances. Clearly, the government is preparing for war—and a civil war, at that—but who is the enemy?

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2 weeks old, but highly relevant.

Jimmy Carter: The US Is an ‘Oligarchy With Unlimited Political Bribery’ (IC)

Former president Jimmy Carter said on the nationally syndicated radio show the Thom Hartmann Program that the United States is now an “oligarchy” in which “unlimited political bribery” has created “a complete subversion of our political system as a payoff to major contributors.” Both Democrats and Republicans, Carter said, “look upon this unlimited money as a great benefit to themselves.” Carter was responding to a question from Hartmann about recent Supreme Court decisions on campaign financing like Citizens United. Transcript: HARTMANN: Our Supreme Court has now said, “unlimited money in politics.” It seems like a violation of principles of democracy. … Your thoughts on that?

CARTER: It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members. So now we’ve just seen a complete subversion of our political system as a payoff to major contributors, who want and expect and sometimes get favors for themselves after the election’s over. … The incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves. Somebody’s who’s already in Congress has a lot more to sell to an avid contributor than somebody who’s just a challenger.

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“..generate Money-Out-Of-Thin-Air (QE) for the purpose of allowing “liquidity” flows to end up in US equity and bond markets in order to paint a false picture of “recovery” so as to insure the election of Hillary Clinton.”

Burning Down the House (Jim Kunstler)

There’s a new feature to the Anything-Goes-and-Nothing-Matters economy: Nothing-Adds-Up. The magicians who pretend to measure the growth of GDP (Gross Domestic Product — the monetary value of all the finished goods and services) came up with a second quarter “adjusted” figure of 1.2 percent. That would have to be construed by anyone acquainted with basic econ stats as perfectly dismal. And yet the Bureau of Labor Statistics put out a sparkly Nonfarm Payroll Report of 255,000 for July, way above the forecast 180,000. There were so many ways to game the jobs number — between people forced to work more than one shit job and the notorious “birth/death model” used to just make up any old number for political purposes — that no one can take this information seriously.

Anyway, the GDP number was instantly forgotten and the jobs number launched the stock markets to previously uncharted record altitude. It’s that time of the year for the hedge fund boys, with their testosterone flowing, to start burning down their house rentals in the Hamptons. And it’s also the time of year for an ever more stressed financial system to go down in flames. And, of course, it’s a presidential election season. Even for one allergic to conspiracy theories, it’s not farfetched to imagine a coordinated effort by central banks — under government direction — to generate Money-Out-Of-Thin-Air (QE) for the purpose of allowing “liquidity” flows to end up in US equity and bond markets in order to paint a false picture of “recovery” so as to insure the election of Hillary Clinton.

I think that is exactly behind the recent money-printing activities by the Japanese and European Central Banks, and the Bank of England. Why would it end up in US markets? For bonds, because the Euro and Japanese bond sovereign yields are in sub-zero territory and the BOE just cut its prime rate lower than the US Federal Reserve’s prime rate; and for stocks, because the value of the other three currencies is sliding down and the dollar has been rising — so, dump your falling currency for the rising dollar and jam it into rising US stocks. It’ll work until it doesn’t.

Why do this for Hillary? Because she represents the continuity of all the current rackets being used to prop up belief in the foundering business model of western civilization. If she doesn’t get into the White House there may be no backstopping of the insolvent banks and bankrupt governments and a TILT message will appear in the sky.

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Australia is a private debt disaster. Public debt is much less important.

Sleeping Bear Of Debt Set To Wake (Herald Sun)

The great sleeping bear of Australia’s economic future – of your economic future – is the current account deficit and our foreign debt. They have completely disappeared from the front page – indeed, even from the business pages. Nobody seems to mention them. But they most certainly haven’t disappeared in reality. And in reality, they’ve never been bigger. The deficit, the CAD, in the latest March quarter was more than $20 billion. It will top $80 billion for the full 2015-16 year. The net foreign debt sits at a tad more than $1 trillion. To give you a sense of the scale, that’s more than half the size of the Australian economy; more than double the total of all federal tax revenues in a year.

The CAD is the difference between what we earn from exports and from our international investments each year and what we pay for imports and to foreign investors in Australia. That last bit includes the interest we pay on our existing foreign debt. And the deficit each year is mostly covered by borrowing more from foreigners. In recent years, the biggest borrowers have been our banks. So we have this merry-go-round. The bigger the foreign debt, the bigger the deficit tends to be because of the interest paid on the debt. Then, the bigger the deficit, the bigger the foreign debt gets. Sound familiar? Because it’s exactly the same as the merry-go-round with the Budget deficit and the national debt. The deficit increases the national debt; and the interest on the debt increases the next year’s deficit; and that deficit further increases the debt.

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“..as a society, are we really prepared to let our children grow up this way?”

One-Third Of New Zealand Children Live Below The Poverty Line (G.)

One-third of New Zealand children, or 300,000, now live below the poverty line – 45,000 more than a year ago. Unicef’s definition of child poverty in New Zealand is children living in households who earn less than 60% of the median national income – NZ$28,000 a year, or NZ$550 a week. The fact that twice as many children now live below the poverty line than did in 1984 has become New Zealand’s most shameful statistic. “We have normalised child poverty as a society – that a certain level of need in a certain part of the population is somehow OK,” said Vivien Maidaborn, executive director of Unicef New Zealand. “The empathy Kiwis are famous for has hardened. Over the last 20 years we have increasingly blamed the people needing help for the problem.

“If you can’t afford your children to have breakfast, you’re a bad budgeter. If you aren’t working you’re lazy. But our subconscious beliefs about some people ‘deserving’ poverty because of poor life choices no longer apply in today’s environment. We have to ask ourselves as a society, are we really prepared to let our children grow up this way?” For a third of New Zealand children the Kiwi dream of home ownership, stable employment and education is just that – a dream. For poor children in the developed South Pacific nation of 4.5 million illnesses associated with chronic poverty are common, including third world rates of rheumatic fever (virtually unknown by doctors in comparable countries like Canada and the UK), and respiratory illnesses.

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May 252016
 


Alfred Palmer Conversion. Beverage containers to aviation oxygen cylinders 1942

Hillary Clinton Loves To Trumpet Bill’s Budget Surplus. She Shouldn’t. (Week)
Jeff Gundlach Says US Stock Market Is ‘Dead Money’ (R.)
Eurozone Hails ‘Breakthrough’ With Greece, IMF Debt Deal (R.)
Draghi Running Out Of Options After Draining Bond Market by $800 Billion (BBG)
China Weakens Yuan Fixing to Lowest Since 2011 (BBG)
China Says It Has Conquered Commodities Trading Frenzy (BBG)
New York, London on Notice as China Targets Commodities Pricing (BBG)
Mark Carney Denies Brexit Bias And Goldman Influence (BBG)
Your Brain Does Not Process Information And It Is Not A Computer (Aeon)
NATO Struggles to Recover after Years of Budget Cuts (Spiegel)
Logging Of Europe’s Last Primeval Forest Starts Despite Protests (G.)
Turkish Journalist Jailed, Stripped Of Her Parental Rights (Al-M)
Turkey Threatens To Block EU Migration Deal Without Visa-Free Travel (G.)
Over 5,600 Refugees Rescued Off Lybia In 2 Days (R/AFP)

Very interesting, and a pity I don’t have more space here. Do read the original. Steve Keen has been saying the same thing about deficits and surpluses for a long time. A government surplus means a deficit for everyone else.

Hillary Clinton Loves To Trumpet Bill’s Budget Surplus. She Shouldn’t. (Week)

[Bill] Clinton’s budget surplus wasn’t everything it’s cracked up to be. In fact, it might have hurt the economy pretty badly. The key to understanding why rests with an underappreciated economic tool called “sectoral balances” analysis. As Eric Tymoigne — an economics professor as Lewis and Clark College in Portland — explained to The Week, it’s incredibly useful for understanding macro-economic trends. Let’s walk through how it works. A sectoral balances analysis starts with the recognition that the U.S. economy, like any national economy, is roughly comprised of three sectors.

There’s the government sector: the federal government, the Federal Reserve, and the state and local governments. There’s the private domestic sector: individuals, households, businesses, the banks, all the major industries, etc. And then there’s the foreign sector: i.e. the rest of the world, or every entity outside the U.S. national border that we trade with. Each of these three sectors are in a state of surplus or deficit at any given moment. The government is either taxing more than it spends (surplus) or spending more than it taxes (deficit). Households and businesses in the private domestic sector are either saving more than they’re spending (surplus) or vice versa (deficit). And the rest of the world is either exporting more to America than it imports (surplus), or importing from the U.S. more than it exports (deficit). (Perhaps confusingly, the foreign sector balance is the inverse of the U.S. trade balance; i.e. a surplus in the foreign sector actually means a U.S. trade deficit.)

And because of the way we calculate GDP, the sum of the deficits or surpluses of these three sectors will always be zero. So if the domestic private sector is running a surplus of 4% of GDP, for instance, then the government and foreign sectors might each run a deficit of 2%. You can see how this works in the real world in the graph below, which was provided by Scott Fullwiler, an economics professor at Wartburg College. The government sector is in red, the private domestic sector is in blue, and the foreign sector is in green:

As you can see, the government sector has almost always been in deficit since the mid-20th century while the private sector has almost always been in surplus. But what do you notice about the late 1990s? Something weird happened: The private domestic sector (the blue bars) went into deficit for the first time since 1952. Then it did it again in the second half of the 2000s. There’s no way for the spending of private households and businesses to collectively outpace saving unless its being driven by unsustainable debt. So what we’re seeing here is the stock bubble of the late ’90s, which burst in 2001, and the out-of-control mortgages and household debt of the mid-to-late ’00s, which culminated in the 2008 financial crisis. The graph also illustrates why the persistent foreign sector surplus (which, remember, means a U.S. trade deficit) that opened up in the 1990s is such a problem: It must be balanced by either a government sector deficit or a private domestic sector deficit.

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A.k.a. zombie money.

Jeff Gundlach Says US Stock Market Is ‘Dead Money’ (R.)

Jeffrey Gundlach, the chief executive officer of DoubleLine Capital, said on Tuesday that the rally in U.S. stocks, which began on Monday, feels like a short squeeze and characterized U.S. stocks as “dead money.” “The market is not incredibly healthy,” Gundlach said in a telephone interview, noting recent corporate earnings have come in weak. Gundlach, who oversees $95 billion at Los Angeles-based DoubleLine, said the S&P 500 index .SPX “has gone nowhere in the past 12 months to 18 months.” On the Federal Reserve, Gundlach said it is still 50/50 odds that the U.S. central bank will raise interest rates in June. He said many Fed officials are “dying to raise rates,” but that it is Fed chair Janet Yellen’s opinion that matters the most.

“All that matters is Yellen. She is still there. I feel like we are back in December again, where everyone thinks that there is a super secret that some Fed officials have this knowledge that the economy is really good.” Last week, New York Federal Reserve President William Dudley said the U.S. economy could be strong enough to warrant an interest rate increase in June or July, reinforcing the drum beat from within the Fed in recent days that rate increases are coming soon. A range of policymakers with normally varying views on monetary policy are now stating a rate increase is possible at the next policy meeting in June.

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They -yet again- found a way to offer debt relief without offering debt relief. Only in 2018, and only ‘if necessary’. It never will be, the numbers will be spun to make sure of that. Greece will ‘receive’ money next month that will go straight to the ECB, and for which taxes have been raised once again, a move that will shrink the economy even more. Just two days ago, the IMF called for ‘unconditional’ debt relief. That is not what this is: ‘if necessary’ is a condition.

Eurozone Hails ‘Breakthrough’ With Greece, IMF Debt Deal (R.)

The euro zone gave Greece its firmest offer yet of debt relief in what finance ministers called a breakthrough deal that won a commitment from the IMF finally to return to taking part in the bailout for Athens. After talks that lasted into the small hours of Wednesday, the Eurogroup ministers gave a nod to releasing €10.3 billion in new funds for Greece in recognition of painful fiscal reforms pushed through by Prime Minister Alexis Tsipras’s leftist-led coalition, subject to some final technical tweaks. But a bigger step forward was a deal by which the euro zone agreed to offer Athens debt relief in 2018 if that is necessary to meet agreed criteria on its payments burden. That was enough to secure an agreement from the IMF to again join the euro zone in funding the bailout of Greece.

“We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” Eurogroup President Jeroen Dijsselbloem, the Dutch finance minister, told a news conference. “This is stretching what I thought would have been possible not so long ago.” Acknowledging the “political capital” European ministers invested to reach the deal – a nod to strong German objections to debt relief – Dijsselbloem called it a “new phase” in a six-year drama to stabilise Greece’s finances that has taken the 16-year-old euro zone to the brink of break-up. Mutual trust was returning to the talks, he said, nearly a year after Tsipras’s rejection of austerity measures pushed Athens close to be pushed out of the euro.

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“Everything is on the table..” “Whenever they meet resistance, they get around it by adjusting the rules..” “They are basically building the boat in the open sea..”

Draghi Running Out Of Options After Draining Bond Market by $800 Billion (BBG)

The biggest buyer of European government bonds may have to start spreading its money around a bit more widely. The ECB expanded the size of its debt-buying program in April by a third to €80 billion a month and appears to be running out of securities eligible under its own rules. Monetary policy makers increased purchases of Irish and Portuguese bonds last month by less than it did for German debt, suggesting demand already threatens to outstrip supply from some countries. Banks say it might have to include more bonds or risk diluting the stimulus to the economy the quantitative easing is designed to inject. “Everything is on the table,” said Richard McGuire at Rabobank. “Whenever they meet resistance, they get around it by adjusting the rules, adjusting the limits or targeting new asset classes.”

Purchases at the moment are based on the size of a country’s economy and there are exclusions linked to debt restructuring. Rabobank estimates €1.13 trillion of bonds currently off limits could be eligible should the ECB change the parameters. The ECB started buying sovereign debt in March last year and has spent more than $800 billion. An ECB spokesman said on Tuesday that the bank is confident the program will continue to be implemented smoothly and it sees no shortage of eligible assets under the current rules. President Mario Draghi said a month ago that there were no plans to make any changes. The securities are acquired through each country’s central bank and broadening the remit would particularly help relieve pressure on Germany. While the country has a lower amount of outstanding debt compared with say Italy, the Bundesbank currently must buy a greater amount because its economy is the largest.

“Germany is definitely affected very much by lack of eligible bonds,” said Daniel Lenz at DZ Bank in Frankfurt. “Outstanding volumes compared to other countries are low and new bond issuances are also low.” German bonds have been the best performers among the 10 largest markets eligible in the ECB program, returning 2.2% over the 14 months of its lifespan. But at today’s pace of bond buying, Germany would exhaust the supply of sovereign bonds by September 2016 or February 2017 if the debt of German regions is included. “They are basically building the boat in the open sea,” McGuire said.

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Xi has taken the full reins again of something he does not oversee.

China Weakens Yuan Fixing to Lowest Since 2011 (BBG)

China’s central bank weakened its currency fixing to the lowest since March 2011 as the dollar strengthened. The reference rate was lowered by 0.3% to 6.5693 per dollar. A gauge of the dollar’s strength rose to a two-month high Tuesday as traders boosted wagers that U.S. interest rates will rise. The yuan weakened 0.1% to 6.5636 in a third day of losses as of 10:27 a.m. in Hong Kong. A resurgent greenback is shaking up a strategy that the People’s Bank of China pursued over the past three months –a steady rate against the dollar, combined with depreciation against other major currencies.

Traders are now pricing in a better-than-even chance of the Federal Reserve boosting borrowing costs by its July meeting, with officials lining up to indicate their willingness to support such a move, should the current strength in the economy be sustained. “It could be because the authorities want to alleviate some of the depreciation pressure before the Fed interest rate decision in June,” said Christy Tan, head of markets strategy at National Australia Bank Ltd. in Hong Kong. “If there are signs of panic dollar buying, the PBOC will step in.”

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Sometimes you get the impression they actually believe they can control world markets. They’ll find out.

China Says It Has Conquered Commodities Trading Frenzy (BBG)

China’s leading market regulator said that its clampdown on speculation in raw materials futures has successfully reined in the frenzy, and pledged to beef up oversight as the country seeks to dislodge rivals and become the global center for commodities pricing. “Recently, we experienced huge volatility and trading volumes in some commodity futures,” Fang Xinghai, vice chairman of China Securities Regulatory Commission, said at the Shanghai Futures Exchange’s annual conference in the city on Wednesday. “We supervised the exchanges to take measures, which have seen a notable effect.” Raw-material markets in Asia’s top economy were seized by a speculative frenzy in March and April that spurred a rapid run-up in prices and unprecedented volumes.

The outburst prompted a crackdown from the CSRC and exchanges, which tightened rules and raised fees to discourage the surge amid concern it was excessive and could jeopardize efforts to cut back excess industrial capacity. For China to now expand its role as a global pricing center, effective supervision is critical, according to Fang. “We’re facing a chance of a lifetime to become a global pricing center for commodities,” Fang told the audience in China’s commercial capital. “On the way to realize this goal, we’ll see very intense competition. We have the advantage of trading size and economic growth, but our legislation is still not sound and we lack enough talent.”

China is the world’s largest user of metals and energy, but its traders and companies rely on financial centers outside the country to set benchmark prices for the commodities they handle and consume. While raw materials trading in the nation remains largely off-limits to overseas investors, who also face currency restrictions, China has long pledged to open up. “We plan to use crude oil, iron ore and natural-rubber futures as the starting point in our efforts to open the domestic market to more foreign investors,” said Fang. “To become global pricing centers for commodities, we need appropriate and effective supervision measures.” He added: “According to our experience, the challenge for supervisors is not systematic financial risks from bringing in foreign participants, but rather the challenge is to prevent non-compliant trading by individuals with technical advantages.”

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Follow up to the “we can control world markets” article above.

New York, London on Notice as China Targets Commodities Pricing (BBG)

China has put the world’s traditional financial centers on notice that it wants to develop its raw material markets as hubs for setting prices, seeking to marry the country’s commercial heft with a much greater say in determining how much commodities cost. “We’re facing a chance of a lifetime to become a global pricing center for commodities,” Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said at the Shanghai Futures Exchange’s annual conference in the city on Wednesday. “On the way to realize this goal, we’ll see very intense competition. We have the advantage of trading size and economic growth, but our legislation is still not sound and we lack enough talent.”

China is the world’s largest user of metals and energy, but its traders and companies rely on financial centers outside the country – typically London and New York – to set benchmark prices for most of the commodities they handle and consume. While raw materials trading in the nation remains largely off-limits to overseas investors – who also face currency restrictions – China has long pledged to open up. Fang vowed to press on with that process, while also seeing tough challenges from rival centers as it does so. “We plan to use crude oil, iron ore and natural rubber futures as the starting point in our efforts to open the domestic market to more foreign investors,” Fang told the audience. China shouldn’t underestimate “the determination of current pricing centers to maintain their status,” he said.

Raw-material futures markets in Asia’s top economy became a focal point earlier this year after being engulfed in a speculative frenzy, with a rapid run-up in prices and unprecedented volumes in March and April. The outburst prompted a crackdown from the CSRC and exchanges, which tightened rules and raised fees. The intervention was successful, and for China to now expand its role as a global center, effective supervision is critical, according to Fang. “Recently, we experienced huge volatility and trading volumes in some commodity futures,” said Fang. “We supervised the exchanges to take measures, which have seen a notable effect.”

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If you ask me, it’s pretty out there, period, to have banks fund one side of the referendum. Who does he think he’s fooling.

Mark Carney Denies Brexit Bias And Goldman Influence (BBG)

“Wow.” That was how Bank of England Governor Mark Carney responded to a query about whether his former employer, Goldman Sachs, had encouraged him to warn on the risks of the U.K. leaving the European Union. The question came from Conservative lawmaker Steve Baker, a self-confessed critic of the central bank, who noted that Goldman, where Carney worked for 13 years until 2003, has been a contributor to the Remain campaign. “Can I just give you the opportunity to refute any suggestion that Goldman Sachs may have put pressure on you?” Baker asked during the testimony, which lasted more than two hours and was dominated by Brexit. As Carney answered, sitting beside him was another Goldman alum, BOE Deputy Governor Ben Broadbent, who shook his head.

The governor’s full response was: “I refute it categorically and I am stunned to even have it raised.” Baker’s questioning followed a lengthy grilling from pro-Brexit lawmaker Jacob Rees-Mogg, who questioned Carney’s independence from government and said he’s dishing out the “same propaganda” as the Treasury. The governor was quick to reply: “I don’t accept that at all.” These comments on the referendum implications were probably Carney’s last, as a pre-vote purdah period begins this week. While he’s due to give a big speech in June, he plans to stay away from EU-related topics. He also acknowledged he can’t win when it comes to his commentary. “All we can do is just call the economics as we see them and our words and analysis will be used by both sides. That’s fair game.”

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How little we know. Long but worth a read.

Your Brain Does Not Process Information And It Is Not A Computer (Aeon)

No matter how hard they try, brain scientists and cognitive psychologists will never find a copy of Beethoven’s 5th Symphony in the brain – or copies of words, pictures, grammatical rules or any other kinds of environmental stimuli. The human brain isn’t really empty, of course. But it does not contain most of the things people think it does – not even simple things such as ‘memories’. Our shoddy thinking about the brain has deep historical roots, but the invention of computers in the 1940s got us especially confused. For more than half a century now, psychologists, linguists, neuroscientists and other experts on human behaviour have been asserting that the human brain works like a computer. To see how vacuous this idea is, consider the brains of babies.

Thanks to evolution, human neonates, like the newborns of all other mammalian species, enter the world prepared to interact with it effectively. A baby’s vision is blurry, but it pays special attention to faces, and is quickly able to identify its mother’s. It prefers the sound of voices to non-speech sounds, and can distinguish one basic speech sound from another. We are, without doubt, built to make social connections. A healthy newborn is also equipped with more than a dozen reflexes – ready-made reactions to certain stimuli that are important for its survival. It turns its head in the direction of something that brushes its cheek and then sucks whatever enters its mouth. It holds its breath when submerged in water. It grasps things placed in its hands so strongly it can nearly support its own weight.

Perhaps most important, newborns come equipped with powerful learning mechanisms that allow them to change rapidly so they can interact increasingly effectively with their world, even if that world is unlike the one their distant ancestors faced. Senses, reflexes and learning mechanisms – this is what we start with, and it is quite a lot, when you think about it. If we lacked any of these capabilities at birth, we would probably have trouble surviving. But here is what we are not born with: information, data, rules, software, knowledge, lexicons, representations, algorithms, programs, models, memories, images, processors, subroutines, encoders, decoders, symbols, or buffers – design elements that allow digital computers to behave somewhat intelligently. Not only are we not born with such things, we also don’t develop them – ever.

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There is nothing more dangerous to us than NATO. It has to make up narratives or it will cease to exist.

NATO Struggles to Recover after Years of Budget Cuts (Spiegel)

RAND Corporation simulations aren’t for the faint of heart. The think tank in Santa Monica, California is a progeny of the Cold War and the 1960 study conducted by legendary systems theorist Herman Kahn — which examined the consequences of nuclear war – has not been forgotten. He believed the aftermath could be managed. Following a nuclear conflict, Kahn proposed, contaminated food should be reserved for the elderly since they would likely die before contracting cancer as a result of radiation. The researcher thus became one of the inspirations for Stanley Kubrick’s film satire “Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb. Several weeks ago, the California-based game theorists released another study that received a fair amount of attention.

Financed by the Pentagon, they created a series of simulations for a hypothetical Russian invasion of the two Baltic states of Estonia and Latvia. “The outcome was, bluntly, a disaster for NATO,” the RAND researchers wrote in their report. In each simulation, the Russians were able to either circumvent the outnumbered NATO units, or even worse, destroy them. Between 36 and 60 hours after the beginning of hostilities, Russian troops stood before the gates of Riga or Tallinn – or both. The RAND simulation triggered heated debate. In an article headlined “How I Learned to Stop Worrying and Love NATO’s Crushing Defeat by Russia,” American military expert Michael Kofman questioned strategic parameters used in the simulations. “No one can intelligently articulate the benefits of such potential actions for the Russians,” he wrote.

But the game theorists from Santa Monica aren’t the only ones simulating grim scenarios these days. The Russians are conducting giant military exercises to practice for a war with the West. At the same time, they are reinforcing military units stationed in the exclave of Kaliningrad, located between Poland and Lithuania. NATO in turn intends to station rotating battalions to the Baltic States as a signal to Moscow that the alliance takes its commitment to mutual assistance seriously. Security experts and generals, though, are complaining that such moves are not enough and are pushing for the stationing of larger and – especially – more permanent units on the alliance’s eastern flank.

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Money changes everything.

Logging Of Europe’s Last Primeval Forest Starts Despite Protests (G.)

Poland has started logging in the ancient Bialowieza forest, which includes some of Europe’s last primeval woodland, despite fierce protests from environmental groups battling to save the World Heritage site. “The operation began today,” national forest director Konrad Tomaszewski said of the plan to harvest wood from non-protected areas of one of the last vestiges of the immense forest that once stretched across Europe. He said the goal was “to stop forest degradation” – by combating what the environment ministry says is a spruce bark beetle infestation – and protect tourists and rangers from harm by cutting down trees that risk falling on trails.

But environmental campaigners warn that the tree chopping will destroy an ecosystem unspoiled for more than 10,000 years that is home to the continent’s largest mammal, the European bison, and to its tallest trees. “We’re calling on the European Commission to intervene before the Polish government allows for the irreversible destruction of the Bialowieza forest,” Greenpeace Poland activist Katarzyna Jagiello said in a statement. Campaigners have taken issue with the government rationale for the project, saying the beetle’s presence does not pose any threat to the forest’s ecosystem. “The minister does not understand that this insect is a frequent and natural visitor, that it has always existed and the forest has managed to survive,” Jagiello said.

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Our friends in need.

Turkish Journalist Jailed, Stripped Of Her Parental Rights (Al-M)

Turkish female journalist Arzu Yildiz was this week sentenced to 20 months in prison for her reporting on alleged Turkish arms shipments to Syria, a highly controversial issue that has riled Ankara and landed both journalists and judicial officials in jail. The court, however, did not stop there, and stripped Yildiz also of her parental rights. While the imprisonment of journalists may have become commonplace in Turkey, now ranking 151st on the World Press Freedom Index, the restriction of Yildiz’s parental rights marks a new milestone in the extent the pressure on journalists has reached, affecting even their familial ties and social standing. Yildiz is an experienced journalist who, after working for various media outlets, was left jobless a couple of years ago.

Together with other jobless colleagues, she co-founded the nonprofit Grihat news site, where her reporting on the trucks controversy led to her conviction. The story in question was related to the interception of Syria-bound trucks in the southern provinces of Hatay and Adana in January 2014. Acting on tip-offs, prosecutors had issued search warrants for the trucks. But when stopped by police and gendarmerie officers, the men in the vehicles identified themselves as members of the National Intelligence Organization (MIT) and resisted the searches. President Recep Tayyip Erdogan claimed at the time the trucks carried humanitarian supplies, but few were convinced. All judicial officials and security forces involved in the attempted search are behind bars today.

The Cumhuriyet daily’s Editor-in-Chief Can Dundar and Ankara representative Erdem Gul also found themselves behind bars for their reports on the story. Though they were released three months later, they received jail terms for revealing state secrets earlier this month. Another journalist who covered the issue, Fatih Yagmur, remains on trial. In an interview with Al-Monitor, her lawyer, Alp Deger Tanriverdi, explained what the ruling means. “Let me tell you the most significant part: The ruling strips Arzu Yildiz of her motherhood rights,” he said. “She can no longer register her kids to school, open bank accounts for them or do other similar things on their behalf. She can’t even go abroad with them.”

Asked about the grounds on which the court made the decision, the lawyer said, “The court was [actually] supposed to suspend the sentence because Yildiz had no other conviction before. That was her legal right. Yet the court arbitrarily went ahead on grounds she committed the crime willfully, which automatically brought the decision to strip her from her rights. The court could have withheld this decision as well. Such restrictions are based on the following logic: ‘You’ve committed a crime willfully, so you are guilty before society as well. Thus, you must not be allowed to have a [bad] influence on your children.’ Such is the intention of the clause, yet the court applied it to Yildiz — to humiliate her.”

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Really, Europe, this is what the EU stands for? Really? And you can’t see the warning signs?

Turkey Threatens To Block EU Migration Deal Without Visa-Free Travel (G.)

Recep Tayyip Erdogan has warned the European Union that Turkey would block laws related to the landmark deal to stem the flow of migrants to Europe if Ankara was not granted its key demand of visa-free travel within the bloc. At the close of the World Humanitarian Summit in Istanbul, Turkey’s president said: “If that is not what will happen…no decision and no law in the framework of the readmission agreement will come out of the parliament of the Turkish republic.” Germany’s chancellor Angela Merkel warned after talks with Erdogan on Monday that the target of the end of this month to agree visa-free travel for Turks was unlikely to be met. The agreement, which is already being implemented, saw Turkey pledge to work to stop migrants cross the Aegean to Europe and also re-admit migrants who crossed illegally.

EU officials have hailed the success of the deal, but Ankara has grown increasingly uneasy about the bloc’s wariness to grant it the visa-free travel to the passport-free Schengen area it was offered in return. Erdogan also complained about the EU’s wariness in handing over to Turkey a promise of €3bn followed by another €3bn to help Syrian refugees. “Turkey is not asking for favours – what we want is honesty,” Erdogan said in an angry tirade that overshadowed the end of the summit. “Turkey is supposed to fulfil criteria? What criteria are these I ask you?” EU leaders are insisting that Turkey abides by 72 conditions before the visa exemption takes place, with a demand to change counter-terror laws proving particularly contentious. The EU wants Ankara to narrow its definition of terror to stop prosecuting academics and journalists for publishing “terror propaganda”.

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Meanwhile, over by the patio door…

Over 5,600 Refugees Rescued Off Lybia In 2 Days (R/AFP)

Some 3,000 migrants were saved off the Libyan coast in a single day, in 23 separate rescue missions, the Italian coastguard said in a statement. The coastguard said this meant more than 5,600 migrants had been rescued from various boats and dinghies in the southern Mediterranean in just two days. Coastguard boats, vessels from the EU’s naval operation EUNAVFOR Med and its border agency Frontex, a boat from NGO SOS Mediterranee and two tug boats from an offshore oil platform were all involved in the rescue operations. Every search and rescue asset in the area was deployed, the coastguard said.

No breakdown of the nationalities of the people rescued was immediately available. Humanitarian organisations say the sea route between Libya and Italy is now the main route for asylum seekers heading for Europe after an EU deal on migrants with Turkey dramatically slowed the flow of people reaching Greece. Officials fear the numbers trying to make the crossing to Italy will increase as weather conditions continue to improve. Earlier this month, Italy said some 31,000 migrants, mainly from Africa, had reached the country by boat, slightly down on 2015 levels. However, the number of new arrivals has picked up markedly in recent days.

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Apr 262016
 
 April 26, 2016  Posted by at 9:04 am Finance Tagged with: , , , , , , , , , ,  


Harris&Ewing Inauguration of air mail service, Washington, DC 1918

Japan Government Weighs Shopping Vouchers, Promotions To Boost Consumption (R.)
How Long Can the Bank of Japan Wait on Easing? (WSJ)
China Clamps Down On Commodities Frenzy (FT)
Goldman Says China’s Iron Speculation ‘Concerns Us the Most’ (BBG)
“China Is Hoarding Crude At The Fastest Pace On Record” (ZH)
China Expected To See $538 Billion Capital Exodus In 2016 (R.)
Obama Says TTiP Should Be Signed By The ‘End Of The Year’ (Ind.)
German Scorn Could Kill the TTiP (BBG)
ECB Pushes For Eurozone Deposit Protection, At Odds With Germany (R.)
The Euro’s Next Existential Crisis Might Arrive on Friday (BBG)
Saudi Prince Vows Thatcherite Revolution And Escape From Oil (AEP)
Saudi Arabia Puts Aramco Valuation Above $2 Trillion (BBG)
How America’s Rich Betrayed Their Fellow Citizens (Gaughan)
Syrian Food Crisis Deepens As War Chokes Farming (Reuters)
Merkel’s Refugee Strategy – A Brown Nose Becomes the Chancellor (Rose)
UK Government, Tories Vote Against Accepting 3,000 Child Refugees (G.)

And why not?! If Abenomics’ 4th arrow is shopping vouchers, will the 5th be spoon feeding?

Japan Government Weighs Shopping Vouchers, Promotions To Boost Consumption (R.)

Japan’s government might issue spending vouchers and promote national discount-sales events similar to Black Friday in the United States to boost its lackluster consumer spending and accelerate GDP growth. The government could decide the details as soon as next month as it finalizes the policies for its annual growth strategy, which could potentially help the Bank of Japan in its struggle to accelerate inflation. Authorities will also take steps to increase inbound tourism, raise the national minimum wage and encourage more IT investment, according to a draft approved on Monday by the government’s top advisory panel. The focus of this year’s growth strategy is meeting Prime Minister Shinzo Abe’s target of raising nominal GDP to 600 trillion yen ($5.40 trillion).

However, some economists have said sluggish growth in real wages and Japan’s shrinking workforce make it difficult to reach this target. At the end of 2015, nominal GDP was around 500 trillion yen. Consumer spending accounts for around 60% of Japan’s economy, and there is renewed focus on the household sector as consumption has struggled to gain momentum recently. There is also lingering speculation that Abe will cancel a nationwide sales tax increase scheduled for 2017 and focus more on fiscal spending to raise GDP and rebuild areas damaged by an earthquake in southern Japan earlier this month. Previously, Japan’s ruling Liberal Democratic Party has issued shopping vouchers, which economists say tends to only temporarily lift consumer spending and the broader economy.

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These people are lost because they have no idea what inflation is: “..that could considerably affect the mindset” of the public and rejuvenate inflation expectations..”

How Long Can the Bank of Japan Wait on Easing? (WSJ)

Officials and market participants agree that the Bank of Japan ought to do more to beat deflation, but they are split about whether it has to do so this week. Economic data offer plenty of reasons for easing at the central bank’s two-day meeting, which concludes Thursday. The economy is at risk of shrinking in second quarter because of big earthquakes that shook southern Japan recently. Inflation—including energy—is stuck near zero, while inflation expectations are by some measures the weakest in three years. Wage growth has slowed and the yen has strengthened. All of that runs counter to Bank of Japan Gov. Haruhiko Kuroda’s three-year-old campaign to deliver 2% inflation and put Japan on a steady growth path.

His latest gambit, a Jan. 29 decision to introduce negative interest rates on some commercial bank deposits at the central bank, hasn’t delivered results so far. Officials recognize the challenge. At least five of the BOJ’s nine policy-setting board members think that at the coming meeting, the bank should push back its forecast date for achieving its 2% inflation target, according to people close to the bank. The current forecast calls for 2% to be reached between April 2017 and September 2017. The target date has already been pushed back three times in the past year. “Risks to prices remain skewed to the downside,” one of the people said. The yen remains 8% higher than in late January, despite a modest pullback over the past week. That spells trouble for exporters that are already struggling with a global economic slowdown.

It also saps inflation by making imports cheaper. In an interview earlier this month with The Wall Street Journal, Mr. Kuroda said about the yen: “If excessive appreciation continues, that could affect not just actual inflation but even the trend in inflation.” Private economists’ expectations for additional easing are the strongest in months. “We expect aggressive easing from the BOJ this week,” said Morgan Stanley MUFG Securities chief Japan economist Robert Feldman. Among other steps, Mr. Feldman believes the BOJ will cut its rate on excess commercial-bank deposits to at least minus 0.2% and perhaps to minus 0.3% from minus 0.1%. Others question that timing. Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe, suggested this week in an interview that he wanted the BOJ to hold fire for now.

That is partly because global financial market turbulence has subsided, and partly because Mr. Honda hopes further BOJ easing could come as part of a coordinated action. Mr. Abe is looking into expanded government spending later this year and a possible delay in a sales-tax increase set to take effect in April 2017. “I know it’s hard to implement all three at the same time, but if we could do so with a relatively close timing…that could considerably affect the mindset” of the public and rejuvenate inflation expectations, Mr. Honda said. He said the prime minister’s Abenomics policy was in a “new phase” in which monetary policy alone was no longer sufficient to affect expectations.

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It would be bad enough if it were ‘only’ commodities. But the actual scariest part is this: “Almost half of the world’s most active commodity derivatives are now traded on Chinese exchanges.”

China Clamps Down On Commodities Frenzy (FT)

China moved to clamp down on excessive speculation in commodities on Monday after weeks of frenzied trading boosted prices and ignited fears of another bubble in its domestic markets. Activity on China’s largest commodity exchanges has surged in recent days with turnover in key steel contracts exceeding the combined volume of the Shanghai and Shenzhen stock exchanges on one day last week. Investors around the world have zeroed in on the latest trading binge as the prices of many commodities have risen sharply, with iron ore gaining almost a third in just two weeks. Cash has started to flow into raw materials in part because Chinese officials imposed curbs on equities trading last year. “China’s latest speculative spike has stunned global markets,” said Tom Price, a Morgan Stanley analyst.

Shanghai steel futures have risen more than 50% this year and more than a fifth this month. Iron ore traded on the Dalian Commodity Exchange hit its highest level since September 2014 last week. The surge led the country’s largest commodity trading venues — the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodities Exchange — to curb activity by lifting transaction costs, margins and daily trading limits on some contracts. Pricing power for the world’s most important raw materials has shifted east during a decade of economic growth that has transformed China into the largest importer of almost every major commodity. Almost half of the world’s most active commodity derivatives are now traded on Chinese exchanges.

Analysts said the trigger for increased speculative interest in commodities was a credit surge engineered by Chinese policymakers this year to prop up the economy and its currency. This led to a pick-up in construction activity and stoked investor appetite for ways to bet on the Chinese economy. Beijing imposed draconian rules on equities last year as fears of a slowing economy triggered a sell-off that threatened stability. “The Chinese speculative community seems to have decided the big credit figures that came out two weeks ago were a green light to get levered up,” Michael Coleman, co-founder of RCMA Asset Management in Singapore, “They don’t want to buy the stock market because of all the curbs that are in place and seem to have taken the view that commodities are really cheap.”

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“There have been two days in the past month where futures volumes have been greater than the total amount of iron ore that China actually imported for the whole of 2015..”

Goldman Says China’s Iron Speculation ‘Concerns Us the Most’ (BBG)

Goldman Sachs has expressed its concern about the surge in speculative trading in iron ore futures in China, saying that daily volumes are now so large that they sometimes exceed annual imports. The increase in futures trading in the world’s largest importer was among factors that have lifted prices, according to a report from analysts Matthew Ross and Jie Ma received on Tuesday. Iron ore volumes traded on the Dalian Commodity Exchange are up more than 400% from a year ago, they said. “While increased fixed-asset investment in China, a bring-forward of steel production (ahead of a government curtailment) and mining disruptions help to explain the strong rally in the iron ore price, the one driver that concerns us the most is the increased speculation in the Chinese iron ore futures market,” they wrote.

Iron ore has rallied in 2016, buttressed by the explosion in speculative trading in China’s commodity futures markets as mills boosted monthly output to a record. The spike in raw materials trading in China has stunned global markets, according to Morgan Stanley, which cited the jump in local activity in iron ore as well as steel. The increase has prompted exchange authorities in Asia’s top economy including Dalian to tighten rules on the trading of some contracts. “There have been two days in the past month where futures volumes have been greater than the total amount of iron ore that China actually imported for the whole of 2015 (950 million tons),” the Goldman analysts wrote. To slow trading activity, the Dalian exchange has announced it would be increasing margin requirements and transaction costs on iron ore futures, they said.

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How much capital flees the country in these deals?

“China Is Hoarding Crude At The Fastest Pace On Record” (ZH)

In the aftermath of China’s gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up. We now know where most of it went: soaring imports of crude oil. We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs. As Energy Aspects pointed out in a report last week, “Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports.”

And sure enough, this kind of record surge in imports should promptly lead to another tanker “parking lot” by China’s most important port. This is precisely what happened when according to reports, some 21 crude oil tankers with ~33.6 million bbls of capacity signaled from around Qingdao last Monday, according to data compiled by Bloomberg. 12 of those vessels, with about 18 million bbls, were also there 10 days earlier, data show. As Bloomberg adds, port management had met to discuss measures to ease congestion, citing an official at Qingdao port’s general office, however for now it appears to not be doing a great job. Incidentally, putting Qingdao oil traffic in context, last year the port handled 69.9 million metric tons overseas oil shipments, or ~21% of nation’s total crude imports, more than any other Chinese port.

So what caused this surge in demand? The answer is China’s “teapot” refineries. According to Oilchem.net, the operating rate at small refineries in eastern Shandong province rose to 51.84% of capacity as of the week ended Apr. 22. The utilization rates climbed as various teapot refiners completed maintenance and restarted production. How much of a boost in oil demand did teapot refineries represent? Well, the current operating run rates is averaging 50.42% this tear compared to just 37.72% a year ago, Bloomberg calculated. Notably, this may be just the beginning of China’s. As Bloomberg adds today, China, the world’s second-biggest crude consumer, may be poised for another increase in imports after the number of supertankers bound for the Asian country’s ports rose to a 16-month high amid signs it’s stockpiling.

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How about we double that number?

China Expected To See $538 Billion Capital Exodus In 2016 (R.)

Global investors are expected to pull $538 billion out of China’s slowing economy in 2016, the Institute of International Finance (IIF) estimated on Monday, although the pace of outflows has dropped. That number would be down a fifth from the $674 billion pulled out last year, the industry association said, but could accelerate again if fears re-emerge of a “disorderly” drop in the yuan, or the renminbi, as the currency is also known. Capital exodus from China can influence emerging markets more generally, partly because of its sheer size and partly because sustained outflows can trigger more exchange rate volatility, which could then feed a fresh wave of outflows. “A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets,” the IIF said in a new report.

“Moreover, a sharp depreciation of the renminbi could lead to a round of competitive devaluation in other emerging markets, particularly in those with close trade linkages to China.” For now, though, outflows are slowing. Roughly $35 billion was pulled out in March, bringing the total since the start of the year to around $175 billion, well below the pace seen in the second half of 2015. The IIF cited progress Chinese authorities had made in easing worries about the yuan’s direction. They have emphasized there is more focus on its value against a basket of currencies, rather than just the U.S. dollar. One “important unknown”, however, is the threshold of currency reserves below which Chinese authorities would start to worry. They might then either allow the yuan to fall again or markedly tighten capital controls.

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He sees failure on the horizon. Does it matter? Reality is that it won’t be ratified before the end of his term, so it’s all up for grabs no matter what.

Obama Says TTiP Should Be Signed By The ‘End Of The Year’ (Ind.)

US President Barack Obama has said that the controversial Trans-Atlantic Trade and Investment Partnership should be signed “by the end of the year”. During a visit to an industrial trade fair in Hannover on Sunday, Obama warned that TTIP must be signed before it is derailed by political events, in what was likely a reference to the US election. “We’ve now been negotiating TTIP for three years. We have made important progress. But time is not on our side,” Obama said in the speech. “If we don’t complete negotiations this year, then upcoming political transitions – in the US and Europe – could mean this agreement won’t be finished for quite some time.” TTIP is the biggest transatlantic trade deal in history. Opponents say it would give corporations the power to sue governments when they pass regulation that could hit that corporation’s profits.

UNs figures have shown that that US companies have made billions of dollars by suing other governments nearly 130 times in the past 15 years under similar free-trade agreements. Details of the cases are often secret, but notorious precedents include Philip Morris suing Australia and Uruguay for putting health warnings on cigarette packets. Obama has described national laws and protections as “regulatory and bureaucratic irritants and blockages to trade.” In Hanover, he used a speech alongside the German Chancellor Angela Merkel to make a renewed push for the treaty to be signed. “Angela and I agree that the US and EU need to keep moving forward with the Transatlantic Trade and Investment Partnership negotiations,” he said. “I don’t anticipate that we will be able to have completed ratification of a deal by the end of the year, but I do anticipate that we can have completed the agreement.”

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The Germans have turned really antagonistic.

German Scorn Could Kill the TTiP (BBG)

In Hannover on Sunday, Barack Obama sought to convince a hostile German public of the merits of a transatlantic free-trade deal. Pitching EU membership in Britain was a walk in the park by comparison. It’s hard to overstate the level of opposition to the new deal in Germany. The Transatlantic Trade and Investment Partnership, or TTIP, is more unpopular in Germany these days than President Obama in a room full of Tory euroskeptics. Ask an American what they think about investor-state dispute settlement provisions and you are likely to get a blank face. Ask a German, and there’s a good chance you’ll get an earful. That wasn’t always the case. Two years ago, when negotiations for a new transatlantic trade deal were announced (it was Germany that pushed for an agreement then, by the way), more than half of Germans favored the deal.

A survey released last week showed only one in five Germans want it now. To Germans, TTIP reflects a capitalism that is too finance-driven, dominated by large multinationals, cavalier about privacy and not as serious about product standards. A new round of negotiations – the 13th, for anyone keeping track – started in New York Monday for a pact that would liberalize trade affecting 40% of the global economy. The key to a deal, as Obama’s Hannover visit suggested, rests with Germany. That a global exporting powerhouse and Europe’s biggest economy has become such a reluctant partner ought to be at least as worrying as the prospect of losing Britain’s voice in the EU. It’s unusual even in these highly charged times for a trade agreement to receive the kind of attention that TTIP has in parts of Europe.

But TTIP isn’t a typical free-trade agreement. For one thing, it’s much bigger than anything attempted before. It would create the world’s largest free market of some 800 million people. According to U.S. chamber of commerce estimates, it would add €119 billion to Europe’s economy and €95 billion to the U.S. economy, creating thousands of jobs in the process. But the real difference is qualitative. While tariffs are already low between the two economies (they would be reduced further under TTIP), the main thrust of the agreement is the removal of non-tariff barriers in agriculture, services, procurement and other areas. It is this large-scale regulatory liberalization that many Europeans, and principally Germans, find dangerous. Americans, too, are losing their appetite for free trade agreements, but their reasons are rather more prosaic.

Among Americans opposed to the deal, half say they are worried about job losses and lower wages. Only 17% of Germans had those concerns. Germans, instead, are focused on what they see as inferior American standards (something that will strike many Americans as ironic after the Volkswagen emission scandal), concerns about privacy and also lack of transparency in the negotiations. These sentiments took American negotiators by surprise. America is the destination of over 8% of German exports; some 600,000 German jobs directly or indirectly depend on that trade, according to a 2013 study by the Cologne Institute for Economic Research. German trust for America’s business standards has been low for a while – there was near hysteria over chlorine-washed U.S. chickens, even though a German body declared them perfectly safe – but many figured France would present bigger obstacles to clinching an agreement.

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These centralization attempts are dead in the water, and it’s hard to see what it would take to get them out of there.

ECB Pushes For Eurozone Deposit Protection, At Odds With Germany (R.)

The ECB backed plans on Monday for a common means to protect savers, setting it on course for another collision with Germany over a scheme Berlin has so far blocked. After the financial crash, the ECB took charge of bank supervision across the 19 countries in the euro zone as part of wider reforms known as ‘banking union’ to make the sector safer. A parallel plan for pan-euro zone deposit protection, however, has yet to get off the ground, chiefly due to opposition from Germany, which does not want to be on the hook for bank failures elsewhere. On Monday, the ECB appealed for the introduction of common deposit protection as set out in plans from the EU’s executive European Commission. It would eventually replace the current country-by-country patchwork and help stop a repeat of the bank runs seen during the financial crisis.

In a legal opinion to European ministers signed by its President Mario Draghi, the ECB argued that “establishing a common safety net for depositors at the European level is the logical complement” to ECB supervision. “A European Deposit Insurance Scheme is the necessary third pillar to complete the Banking Union,” the letter said. The first ‘pillar’ is banking supervision and the second is resolution, a scheme for winding banks down. The call again puts the ECB at odds with Germany, where politicians including Finance Minister Wolfgang Schaeuble have stepped up criticism of its cheap money policy. Schaeuble was even reported as blaming the ECB’s stance in part for the rise of the right-wing, anti-immigration Alternative for Germany (AfD). Although influential, the ECB’s opinion is not binding and may be ignored by the ministers. Before it becomes law, such saver protection would require approval from euro zone countries, including Germany – unlikely for now.

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“Surely Portugal can’t be a kind of simultaneously dead-and-alive-Schrodingers-cat?”

The Euro’s Next Existential Crisis Might Arrive on Friday (BBG)

The euro’s future still looks far from secure. The ECB is defending its independence amid an attack on its negative interest-rate policies by Germany. European Commission President Jean-Claude Juncker admitted last week that “the European project has lost parts of its attractiveness.” Greece is still wrangling over the terms of its next bailout payment. And at the end of this week, a geeky decision in a corner of the bond market could send the bloc back into crisis mode. A credit-rating agency called Dominion Bond Rating Service is scheduled to complete its review of Portugal’s financial fitness on Friday. Moody’s, Standard & Poor’s and Fitch all view Portugal as undeserving of investment-grade status; put another way, Portugal is deemed a risky, junk-rated borrower. DBRS, though, has maintained its country classification at investment grade.

So long as at least one of the four rating agencies judges Portugal to be worthy, its government debt remains eligible to participate in the ECB’s bond-buying program. But if the country drops to sub-investment grade at all four, the ECB’s own rules forbid it from buying any more Portuguese government securities – purchases which have ballooned to almost €15 billion in the program’s one-year lifetime. So if DBRS lowers the nation’s grade – a distinct possibility, given the weakness of the Portuguese economy and the fact that the judgments of three other assayers of creditworthiness are all worse than DBRS’s – it could trigger a renewed crisis in the euro area. The ECB’s purchases are arguably responsible for keeping Portugal’s 10-year borrowing cost at an average of a bit less than 3% in the past six months.

Compare that with Greece, which doesn’t qualify for ECB assistance and has had an average yield of almost 9% since October, and it becomes clear how valuable ECB eligibility is – and how financially damaging it might be for Portugal if it was shut out after a downgrade. Surely Portugal can’t be a kind of simultaneously dead-and-alive-Schrodingers-cat? Surely it either is or isn’t investment grade, and therefore either should or shouldn’t qualify for the ECB program? Unfortunately, rating assessments are fraught with subjectivity and bias, as the world learned to its cost during the credit crisis. Where one analyst sees a life-threatening debt-to-gross-domestic-product ratio, another may see indebtedness that’s merely troubling.

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Yeah, that’ll happen. Saudi as a tourism destination. Come watch the beheadings!

Saudi Prince Vows Thatcherite Revolution And Escape From Oil (AEP)

Saudi Arabia has launched a radical ‘Thatcherite’ shake-up to an avert economic crisis and prepare the kingdom for the post-carbon world, stunning analysts with claims that it could break reliance on oil within just four years. Prince Mohammad bin Salman, the country’s de facto ruler, vowed to build a $3 trillion wealth fund and break onto the world stage as an investment superpower, the spearhead of an historic package of measures intended to bring the deformed economy kicking and screaming into the 21st Century. “We have an addiction to oil. This is dangerous. I think that by 2020 we can live without it,” he told Al Arabiya television. It is an extraordinary claim for a government that has historically relied on oil exports for 90pc of its income and has yet to achieve much success in building alternative industries.

Gulf veterans say his words should be understood as poetic licence. Prince Mohammad, a 31 year-old tornado determined to smash the status quo, has amassed immense power over the economy and defence that belies his title as deputy crown prince, filling the cabinet with modern technocrats and startling his sinecure cousins from the Al Saud family with the unfamiliar prospect of hard work. The plan known as “Vision2030” aims to slash $80bn of wasteful spending each year and impose some degree of order on the kingdom’s chaotic finances with a consumption tax and fresh levies. Water prices have already risen tenfold as subsidies are paired back, though this prompted a protest storm on Twitter and is a warning of how hard it will be to dismantle the cradle-to-grave welfare system that keeps a lid on dissent.

Petrol has jumped 50pc, but it still costs just 16 pence a litre. Female participation in the workforce will rise from 22pc to 30pc. The share of non-oil exports is to jump from 16pc to 50pc. The country is to build its own defence industry. “We have the third or fourth-largest military spending in the world, yet our army is ranked in the twenties,” he said. “When I enter a Saudi military base, the floor is tiled with marble, and the finishing is five stars. Enter a base in the US, you can see the pipes in the ceiling. It’s made of cement. It is practical,” he said.

The reform blueprint is inspired by a McKinsey study – Beyond Oil – that laid out how the country can double GDP over the next fifteen years and reinvent itself with a $4 trillion of investment across eight industries, from electrical manufacturing, to cars, healthcare, metals, steel, aluminium smelting, solar power, and most surprisingly tourism. McKinsey warned that half-hearted reform risks disaster, and bankruptcy. There is some logic to the Vision2030 plan given Saudi Arabia’s access to cheap energy. Delivery is another matter. “We have seen these sorts of transition plans before and they never come to much,” said Patrick Dennis from Oxford Economics. “I don’t think they can pull this off. The riyal peg is grossly overvalued and that makes it even harder. We think market pressures will become overwhelming if there is little evidence of real reform by 2018.”


Saudi Arabia has one of the lowest production costs in the world


But Saudi Arabia needs $100 oil to balance the budget. That is its Achilles Heel

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Pie in the sky.

Saudi Arabia Puts Aramco Valuation Above $2 Trillion (BBG)

Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman said he expects the value of Saudi Arabian Oil Co. to exceed $2 trillion as the kingdom prepares to sell part of the company in what could be the world’s largest initial public offering. The valuation of the oil producer known as Saudi Aramco hasn’t been completed, Prince Mohammed said in an interview with Saudi-owned Al Arabiya television. The government plans to turn Aramco into a holding company and will sell less than 5% of that entity, he said. Aramco units may be offered for sale at a second stage, he said. Prince Mohammed is leading the biggest economic shakeup since the founding of Saudi Arabia in 1932, with measures that represent a radical shift for a country built on petrodollars.

Saudi Aramco’s sale is a key part of the “Saudi 2030 Vision” announced Monday to overhaul the economy and reduce the kingdom’s reliance on oil, he said. It will help increase transparency, he said. “If Saudi Aramco is listed then it must announce its statements and it will do that every quarter,” he said. “It will be under the supervision of all Saudi banks, all analysts, all Saudi thinkers. Even more all international banks and research and planning centers in the world will monitor it intensively.” Aramco’s crude reserves of about 260 billion barrels are almost 10 times those of Exxon Mobil. Its daily production of more than 10 million barrels is more than the domestic output of every U.S. oil company combined.

“In 2020, I think we will be able to live without oil,” Prince Mohammed said. “We will need it but we can live without it.” Saudi Arabia has “huge” mining assets it can use to create jobs, according to the prince. The country has 6% of global uranium reserves, which is “another oil that we have not exploited,” he said. Saudi Arabia uses only 3 to 5% of its mining resources such as gold, silver and phosphate, he said.

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“Romney defended his sons by declaring that they served their country by “helping me get elected”.

How America’s Rich Betrayed Their Fellow Citizens (Gaughan)

[..] No single location encapsulates the worldview of “old money” families better than Harvard’s Memorial church, which stands in the center of Harvard Yard. The church’s walls list the Harvard students, alumni and faculty members who have perished in America’s wars since 1917. The numbers are breathtaking. During the world wars, thousands of Harvard students and alumni served in the US military. In all, about 400 died in WWI and nearly 700 in WWII. The ranks of Harvard fatalities included Quentin Roosevelt, the youngest son of Theodore Roosevelt, and Joseph Kennedy Jr, the older brother of John F Kennedy. Harvard’s military death toll is particularly staggering when one considers that in the early 20th century, Harvard’s student body was drawn primarily from America’s richest and most well-connected families.

Those families could have pulled strings to ensure their sons stayed out of combat. But they did not, as powerfully demonstrated by the list of names at Memorial church and similar memorials across the Ivy League. During the world wars, the upper classes did their part to defend the nation. Things could not be more different today. Only a small number of Harvard alumni serve in the military, and until recently, the university barred the military’s officer training programs from campus. Harvard is not unique. Military experience is rare among America’s political and economic elite. None of the current presidential candidates has served in the military, and only 18% of members of Congress are veterans, the lowest %age in generations.

As the children of elites have opted out of military service, middle-class and working-class families have taken up the slack, providing the vast majority of the nation’s service members. Mitt Romney, an immensely wealthy Harvard graduate, revealed the cavalier attitude of the rich toward military service during the 2008 presidential campaign. As the Iraq and Afghanistan wars raged, critics pointed out that none of Romney’s five sons had served in the military. In response, Romney defended his sons by declaring that they served their country by “helping me get elected”. The fact that Romney viewed working on a relative’s political campaign as the patriotic equivalent of battlefield service revealed just how tone-deaf many in America’s upper classes have become.

The military is only one example of how disconnected wealthy Americans are from their country. The extraordinarily low rate of charitable giving among the rich offers more evidence. Even though we live in a time of entrenched income inequality, poor Americans actually give a higher%age of their income to charity than the rich do. The lack of generosity among America’s upper classes shows no signs of abating. Although the overall wealth of the upper classes is growing, levels of charitable giving continue to fall among the rich.

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No, the refugee flow will not stop.

Syrian Food Crisis Deepens As War Chokes Farming (Reuters)

Syria’s war has destroyed agricultural infrastructure and fractured the state system that provides farmers with seeds and buys their crops, deepening a humanitarian crisis in a country struggling to produce enough grain to feed its people. The country’s shortage of its main staple wheat is worsening. The area of land sown with the cereal – used to make bread – and with barley has fallen again this year, the UN Food and Agriculture Organization (FAO) told Reuters. The northeast province of Hasaka, which accounts for almost half the country’s wheat production has seen heavy fighting between the Kurdish YPG militia, backed by the US-led air strikes, and Islamic State militants.

Farming infrastructure, including irrigation canals and grain depots, has been destroyed, according to the FAO. It said the storage facilities of the state seeds body across the country had also been damaged, so it had distributed just a tenth of the 450,000 tonnes of seeds that farmers needed to cultivate their land this season. Farmers are also struggling to get their produce to market so it can be sold and distributed to the population. The conflict has led to the number of state collection centers falling to 22 in 2015, from 31 the year before and about 140 before civil war broke out between government forces and rebels five years ago, according to the General Organisation for Cereal Processing and Trade (Hoboob), the state agency that runs them.

Many of those lost have been damaged or destroyed. The breakdown of the agricultural system means Syria could struggle to feed itself for many years after any end to the fighting, and need a significant level of international aid, the FAO says. It has had a major impact on plantings; the area of land sown with wheat and barley for the 2015-2016 season stood at 2.16 million hectares, down from 2.38 million hectares the previous season and 3.125 million in 2010 before the war, and only around two-thirds of the area targeted by the government, said the FAO.

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Caveat: Merkel has not ‘raised charges’ against Böhmermann. Other than that, it’s about time more people speak out against her.

Merkel’s Refugee Strategy – A Brown Nose Becomes the Chancellor (Rose)

It is a visit most Germans would like to forget – quickly. Their Chancellor Angela Merkel travelled to Turkey last Saturday, dropped in at what is termed a “sanitised” refugee camp for a well-orchestrated public relations exercise, and then held a press conference, effusing over Turkey’s exemplary treatment of refugees. It was “Brown Nose Tour The Second” to Turkey for Ms Merkel (the last in October, just before Turkish elections, in a veiled endorsement of Turkey’s dictator Recip Erdogan in return for a deal to stop the flow of refugees from Turkey to Greece). This spectacle was much more than a display of hypocrisy. Ms Merkel’s newest kowtow to Erdogan, following her recent decision to raise charges against the German satirist Jan Böhmermann for libelling Erdogan, demonstrated to the German people that they are not the generous, enlightened people they thought they were and the EU has nothing to do with Beethoven’s ode of joy, its unofficial anthem.

Still Ms Merkel hopes her brown nose may yet revive her failing political fortune. Ms Merkel has every reason to be thankful to Erdogan. Since the two completed their deal on 20 March the number of refugees crossing from Turkey has steadily declined. In the past five weeks a mere 113 refugees have purportedly been transferred from Turkey to the EU. That is not even 20 per week. Ms Merkel’s visit is however just one element in a vastly larger development. It is just eight months ago that the Germans were celebrating their Willkommenskultur, solidarity with refugees fleeing wars in Syria, Iraq and Afghanistan. At the forefront was Ms Merkel, nicking Barack Obama’s 2008 election motto “Yes we can!” (Wir schaffen das). Currently Willkommenskultur is being redefined in Germany: Bringing Arab and African dictators and war criminals out of the cold to support the EU’s anti-refugee policy.

The motivation for this generous gesture by Germany’s Chancellor and the German government is to dump Willkommenskultur I. Willkommenskultur II will furnish authoritarian leaders and warlords with cash, weapons, equipment to secure borders and other assistance to keep refugees from reaching Europe as well as repatriating those that manage to survive the journey and enter EU territory. This has become an integral aspect of Ms Merkel’s present policy of closing EU borders and deportation.

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Wow. Just wow. Voting against defenseless children. What does that say about a person (294 of them, actually)?

UK Government, Tories Vote Against Accepting 3,000 Child Refugees (G.)

A high-profile campaign for the UK to accept 3,000 child refugees stranded in Europe has failed after the government narrowly won a vote in the House of Commons rejecting the plan. MPs voted against the proposals by 294 to 276 on Monday after the Home Office persuaded most potential Tory rebels that it was doing enough to help child refugees in Syria and neighbouring countries. The amendment to the immigration bill would have forced the government to accept 3,000 unaccompanied refugee minors, mostly from Syria, who have made their way to mainland Europe. It originated in the House of Lords after being introduced by Alf Dubs, a Labour peer who was a beneficiary of the Kindertransport, the government-backed programme that took child refugees from Germany in the run-up to WWII.

Following the vote, Labour vowed to continue its efforts to make the government change its mind, tabling a new amendment in the House of Lords asking it to accept a specified number of child refugees from Europe after consultation with local councils. The Home Office successfully saw off the Dubs amendment in the Commons after arguing it would act as an incentive for refugees to make the dangerous Mediterranean crossing to Europe. James Brokenshire, a Home Office minister, said the government could not support a policy that would “inadvertently create a situation in which families see an advantage in sending children alone ahead and in the hands of traffickers, putting their lives at risk by attempting treacherous sea crossings to Europe which would be the worst of all outcomes”.

The amendment was backed by Labour, the SNP and Liberal Democrats. Keir Starmer, a shadow Home Office minister, said “history would judge” MPs for voting against the plan, saying it was the biggest refugee crisis in Europe since the second world war. “It is the challenge of our times and whether we rise to it or not will be the measure of us,” Starmer said. “We have the clear evidence of thousands of vulnerable children and we now need to act. This is the moment to do something about it, by voting with us this evening.”

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Feb 222016
 
 February 22, 2016  Posted by at 9:54 am Finance Tagged with: , , , , , , , ,  


NPC People’s Drug Store, 11th & G streets, Washington DC 1920

NYSE Short Interest Nears Record – And We Know What Happened Last Time (ZH)
EU Chamber Urges China To Cut Excess Production (WSJ)
Biggest Banks’ Commodity Revenue Slid to Lowest in Over a Decade (BBG)
The Metals Crunch Is Forcing Miners To Reconsider Diversification (Economist)
The World’s Biggest Miner May Be About to Toast Its Oil Drillers (BBG)
New Market Storm Could Catch Eurozone Unprepared (Reuters)
Traders Would Rather Get Nothing in Bonds Than Buy Europe Stocks (BBG)
German Economy Takes a Blow From Weakening Global Demand (BBG)
Germany Isn’t Investing the Way It Used to and That’s a Problem (BBG)
China Yuan Bears Predict More Trouble Ahead (BBG)
Kyle Bass, A Sharpshooting Short-Seller (FT)
As US Shale Sinks, Pipeline Fight Sends Woes Downstream (Reuters)
Chinese Military Ambitions Fuel Asian Arms Race Amid Slowdown (WSJ)
Krugman and the Gang of 4 Need to Apologize (Bill Black)
Greek Attempt To Force Use Of Electronic Money Instead Of Cash Fails (ZH)
New Zealand Super Fund’s $200 Million Loss (NZ Herald)
Long Way To Go: 5th Anniversary of the Christchurch Earthquake (G.)
Macedonia, Serbia Close Borders To Afghan Refugees (AP)
Shadowing The Hellenic Coast Guard’s Refugee Rescues (CCTV)

We’re getting closer.

NYSE Short Interest Nears Record – And We Know What Happened Last Time (ZH)

In the last two months, NYSE Short Interest has risen 4.5%, back over 18 billion shares near the historical record highs of July 2008 (and up 7 of the last 9 months).

There are two very different perspectives on could take when looking at this data… Either a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs, or .. Just as the record short interest in July 2008 correctly predicted the biggest financial crisis in history and all those shorts covered at a huge profit, so another historic market collapse is just around the corner. The correct answer will be revealed in the coming weeks or months… but we know what happened last time…

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Ask nicely. Prety pretty please. Look, China doesn’t want millions of unemployed workers. They’ll want to smear this out over years.

EU Chamber Urges China To Cut Excess Production (WSJ)

The European Union Chamber of Commerce in China urged Beijing to do more to tackle excess industrial production, saying that failed attempts to do so have created a flood of excess goods that threatens to destabilize the global economy. The call comes as Chinese manufacturers, hit by an economic slowdown, are sending products–from tires and steel to solar panels and chemicals–overseas that they can’t sell at home. The EU Chamber, which represents more than 1,600 members across China, said Monday that excess production is plaguing industrial sectors, such as steel, cement and chemicals, but is also spilling over into the consumer economy, including consumer electronics, pharmaceuticals and even food and apparel.

The usage rate for China’s steel in 2014 dropped to 71% from 80% in 2008, the EU Chamber estimated, based on China’s official data. Production increased to 813 million metric tons from 513 million tons during that time, the industry group said. Representatives from Europe’s steel industry, reeling from competition from cheap Chinese steel, last week took to the streets in Brussels to protest alleged unfair trade practices that they claim will worsen if the EU grants market-economy status to China later this year. Such a move would make it more difficult for Europe to impose steep tariffs on Chinese goods. London-based Caparo initiated bankruptcy proceedings in October for 16 of its 20 steel businesses, which employed 1,700 people. Tata Steel of India blamed overproduction in China when it said in January that it would cut 1,050 jobs from its U.K. operations, adding to cuts announced in October.

In a briefing Monday, the EU Chamber, which released a study on China’s industrial overcapacity, said China must act immediately to restructure its economy and overhaul state-owned companies that are pumping out excess goods. It must reduce negative impacts in China, such as job losses and bad debt, and fend off a crisis that could reverberate globally, the chamber said. Chinese leaders have prioritized party reform and anticorruption, but it is time to shift that focus to the economy, said Jörg Wuttke, president of the European Chamber. “The time spent on economic reforms is way down on the priority list.” said Mr. Wuttke.” We believe they have to act now, not wait.”

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Are they betting against their own clients yet?

Biggest Banks’ Commodity Revenue Slid to Lowest in Over a Decade (BBG)

Revenue from commodities at the largest investment banks sank to the weakest in more than a decade last year, laid low by a rout in prices for everything from metals to gas. Income at Goldman Sachs, Morgan Stanley and the 10 other top banks slid by a combined 18% to $4.6 billion, according to analytics firm Coalition. That was the worst performance since the London-based company began tracking the data 11 years ago, and a slump of about two-thirds from the banks’ moneymaking peak in 2008. Revenues are unlikely to return to the heights of $14.1 billion seen at the top of the market, according to George Kuznetsov at Coalition. “The competitive landscape is very different,” Kuznetsov said by phone.

“Financial institutions are now much more regulated. We have significantly less involvement of the banks in the physical commodities market, and banks do not take as much risk as they used to in 2008-09.” The Bloomberg Commodity Index, a measure of investor returns from 22 raw materials, slumped the most in seven years in 2015, led by a plunge in energy and metals. Banks including JPMorgan, Deutsche Bank and Barclays have also been scaling back commodities activity in the past three years amid rising regulatory scrutiny. Even as oil revenues improved last year on increased activity by corporate clients, U.S. curbs on proprietary trading meant banks couldn’t fully take advantage of a 35% plunge in crude by making speculative bets, unlike trading houses and big oil companies.

Last year was one of the best years of all time for trading oil and gas, BP Chief Financial Officer Brian Gilvary said this month. Trafigura’s oil-trading earnings surged to a record last fiscal year. A gauge of industrial-metals prices fell by 24% last year, the most since 2008. Income from energy markets also returned to normal levels after gains in 2014, according to Coalition. “A normalization of the U.S. power and gas markets and weakness in metals and investor products drove the overall decline,” the company said in a report released on Monday. Declining commodities revenues helped bring down the performance for banks’ overall fixed-income divisions, according to Coalition. The analytics company tracks commodities activities including power and gas, oil, metals, coal and agriculture.

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BHP Billiton looks to be in danger.

The Metals Crunch Is Forcing Miners To Reconsider Diversification (Economist)

At the pinnacle of the mining industry sit two Anglo-Australian companies, BHP Billiton and Rio Tinto, which are to iron ore what Saudi Arabia is to oil: the ones who call the shots. Their mines in Pilbara, Western Australia, are vast cash cows; with all-in costs below $30 a tonne, they still generate substantial profits even though prices have slumped from $192 a tonne in 2011 to about $44. They have increased iron-ore production despite slowing demand from China, driving higher-cost producers to the wall—an echo of the Saudis’ strategy in the oil market. But whereas Rio Tinto has doubled down on iron ore, BHP also invested in oil and gas—in which it has nothing like the same heft—at the height of the shale boom. Their differing strategies are a good test of the merits of diversification.

The China-led commodities supercycle encouraged mission creep. Many companies looked for more ways to play the China boom, and rising prices of all raw materials gave them an excuse to cling on to even those projects that were high-cost and low-quality. Now the industry is plagued with debts and oversupply. On February 16th Anglo American, a South African firm that was once the dominant force in mining, said it would sell $3 billion of assets to help pay down debt, eventually exiting the coal and iron-ore businesses that it had spent a fortune developing. That would leave it with a core business of just copper, diamonds and platinum. The day before, Freeport-McMoRan, the world’s largest listed copper producer, was forced to sell a $1 billion stake in an Arizonan copper mine to Sumitomo of Japan, to help cut debts racked up when it expanded into oil and gas.

With Carl Icahn, an American activist investor, agitating for a shake-up, analysts say its energy assets could follow—if there are any buyers. When BHP reports half-yearly results on February 23rd its misadventure in American oil and gas will be of particular concern because it has put the world’s biggest mining firm in the shadow of Rio for the first time. Since BHP merged with Billiton in 2001, its share price has outperformed Rio’s; it made an unsuccessful bid to merge with its rival in 2007. Yet in the past year its shares have done worse. Analysts expect that next week it will cut its annual dividend for the first time since 2001, thereby breaking a promise to raise the dividend year by year. Though Rio ended a similar “progressive dividend” policy this month, it did not cut the 2015 payout.

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And this is its last desperate call.

The World’s Biggest Miner May Be About to Toast Its Oil Drillers (BBG)

BHP Billiton’s shares began tracking oil prices more closely last year as they headed into the worst energy market downturn in a generation. It may not seem like it, but that could be good news for the world’s biggest miner. Unlike its rivals, BHP has a substantial petroleum unit, valued at about $25 billion by UBS. So while iron ore and most base metal prices are forecast to languish over the remainder of the decade as growth in China slows, the Melbourne-based company’s stock stands to benefit from a projected rebound in crude oil. BHP needs an edge. Its Sydney-traded shares sunk last month to the lowest since 2005 and it’s forecast to report a 86% drop in first-half earnings on Tuesday. On top of that, the producer’s ultimate liability for the deadly Samarco dam burst in Brazil late last year remains uncertain and it’s been warned by Standard & Poor’s that it may face a second credit rating downgrade this year.

An oil rebound could deliver a reboot with Schroders saying this month prices may rally almost two-thirds to as high as $50 a barrel in a few months. BHP has flagged it’s on the lookout for petroleum assets, and is likely to study adding more conventional assets, particularly in the Gulf of Mexico, if distressed competitors are forced to sell, according to Aberdeen Asset Management. BHP “follows oil a lot more closely than iron ore these days,” Michelle Lopez, a Sydney-based investment manager at Aberdeen, which holds BHP shares among the $428 billion of assets it manages globally, said by phone. “When you look at the forward curve, iron ore still looks like it’s going to be at these levels if not a bit lower, whereas there are expectations of a correction in the oil price.”

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Some people are still talking about a recovery. Get real.

New Market Storm Could Catch Eurozone Unprepared (Reuters)

Distracted by an unresolved migration crisis and negotiations on keeping Britain in the EU, euro zone leaders could be caught unprepared by a new storm on financial markets. Global market turmoil since the start of the year has helped set warning lights flashing in euro zone sovereign bond markets. In early February, the premium that investors charge to hold Portuguese, Spanish and Italian government debt rather than German bonds hit some of the highest levels since the euro zone crisis that peaked in 2011-2012. European bank shares have been badly hit by concerns over their high stock of non-performing loans, new regulatory burdens and a squeeze on profits due to sub-zero official interest rates. New EU banking regulations that force shareholders and bondholders to take first losses if a bank needs rescuing are further spooking the market, notably in Italy.

All this comes at a time when public resistance to further austerity measures has surged all over southern Europe, producing unstable results at the ballot box. Furthermore, the storm clouds are gathering above a tenuous and slow euro zone economic recovery – growth is officially forecast to reach 1.9% this year versus around 1.6% in 2015. Southern periphery countries all face budget problems that are fuelling political tension with Brussels. Inflation is also refusing to perk up despite the ECB’s bond-buying programme and negative interest rates, making it harder for heavily indebted euro zone countries to pay down debt. Yet euro zone governments transfixed by differences over sharing out refugees, managing Europe’s porous borders and accommodating British demands for concessions on EU membership terms have a huge amount on their hands already. One French government adviser said the EU had never faced such an accumulation of crises in the last 50 years.

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Yeah, sure: “We’re still looking for some confirmations for the economic growth outlook.”

Traders Would Rather Get Nothing in Bonds Than Buy Europe Stocks (BBG)

The cash reward for owning European stocks is about seven times larger than for bonds. Investors are ditching the equities anyway. Even with the Euro Stoxx 50 Index posting its biggest weekly rally since October, managers pulled $4.2 billion from European stock funds in the period ended Feb. 17, the most in more than a year, according to a Bank of America note citing EPFR Global. The withdrawals are coming even as corporate dividends exceed yields on fixed-income assets by the most ever. Investors who leaped into stocks during a similar bond-stock valuation gap just four months ago aren’t eager to do it again: an autumn equity rally quickly evaporated come December.

A Bank of America fund-manager survey this month showed cash allocations rose to a 14-year high and expectations for global growth are the worst since 2011. If anything, the valuation discrepancy between stocks and bonds is likely to get wider, said Simon Wiersma of ING. “The gap between bond and dividend yields will continue expanding,” said Wiersma, an investment manager in Amsterdam. “Investors fear economic growth figures. We’re still looking for some confirmations for the economic growth outlook.” Dividend estimates for sectors like energy and utilities may still be too high for 2016, Wiersma says. Electricite de France and Centrica lowered their payouts last week, and Germany’s RWE suspended its for the first time in at least half a century.

Traders are betting on cuts at oil producer Repsol, which offers Spain’s highest dividend yield. With President Mario Draghi signaling in January that more ECB stimulus may be on its way, traders have been flocking to the debt market. The average yield for securities on the Bloomberg Eurozone Sovereign Bond Index fell to about 0.6%, and more than $2.2 trillion – or one-third of the bonds – offer negative yields. Shorter-maturity debt for nations including Germany, France, Spain and Belgium have touched record, sub-zero levels this month.

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And Germany makes sure to transfer that blow to the rest of the eurozone.

German Economy Takes a Blow From Weakening Global Demand (BBG)

The German economy took a hit this month from weak global demand, with a manufacturing gauge dropping to a 15-month low. Markit Economics said its factory Purchasing Managers Index fell to 50.2, barely above the key 50 level, from 52.3 in January. A services gauge improved slightly, but a composite measure declined to the lowest since July. “The German economy appears to be in the midst of a slowdown,” said Oliver Kolodseike, an economist at Markit. Manufacturing is “near stagnation,” he said. While Germany weathered global headwinds through 2015, maintaining its pace of expansion in the fourth quarter, business confidence has weakened recently.

China’s slowdown is weighing on exports while the equity selloff this year threatens a fragile recovery in the euro area, the country’s largest trading partner. The OECD cut its global growth forecast last week and said both Germany and the euro region will expand less this year than previously estimated. Markit said the slowdown in German output led to increased caution on hiring, with the rate of job creation at the weakest in almost a year. France’s composite Purchasing Managers Index slipped to 49.8 from 50.2 in January. In the 19-nation euro area, both the factory and services measures probably declined this month, according to surveys of economists. Markit will publish those numbers at 9 a.m. London time.

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Germany’s surpluses keep on bleeding its neighbors dry. That is the problem.

Germany Isn’t Investing the Way It Used to and That’s a Problem (BBG)

All the pieces appear to be in place for a surge in corporate investment in Germany – except one critical element. While low borrowing costs, robust domestic consumption and capacity strains mean companies should be itching to spend, the confidence to do so is lacking. Market turmoil, signs of a weaker global demand and Germany’s own aging population are giving bosses plenty of reason to hold back, leaving capital spending as a share of output clinging stubbornly to a five-year low. That matters both for Germany, where the IMF says more capital spending is needed to ensure future growth, and the 19-nation euro area. The strength of the region’s largest economy could be key to whether the currency bloc’s fragile recovery can be sustained.

“Every year since 2013, most pundits including ourselves have been predicting that this is going to be the year that investment really picks up in earnest,” said Timo Klein, an economist at IHS Global Insight in Frankfurt. “But every year something unfolds that clouds the picture, from Ukraine to China, and investment is postponed again. The long-term consequence of this is a reduction in growth potential.” A report on Tuesday will shed more light on the role of investment in Germany’s economic expansion in the fourth quarter. Preliminary data showed gross domestic product rose 0.3%, matching the pace of the previous three months, with government and consumer spending leading the way.

While that’s unspectacular, France and Italy fared worse. The euro zone’s second and third-largest economies cooled, with the latter barely growing, increasing the burden on Germany to be the region’s engine. Yet investment as a share of German GDP fell to less than 20% last year from about 23% at the turn of the century, a Bundesbank study in January showed. Private investment slid to 11.5% from 13.4%, according to Eurostat. In its February bulletin, the Bundesbank said investment should increase because of an “above-average level of capacity utilization.” However, it also said a “key prerequisite” is that external demand picks up.

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One safe bet.

China Yuan Bears Predict More Trouble Ahead (BBG)

Before China’s devaluation in August roiled global markets and spurred some of the hedge fund industry’s biggest names to bet against the yuan, a small cohort of researchers saw the whole thing coming. Now, some of those same forecasters are warning that there’s more turmoil in store – and it’s not just China they’re worried about. Asianomics’s Jim Walker, who predicted the yuan’s four-year advance would end a month before the currency peaked in January 2014, is forecasting a U.S. recession and says 10-year Treasury yields will plunge to all-time lows. Raoul Pal, publisher of the Global Macro Investor report and a yuan bear since 2012, says European bank shares will tumble by half. John Mauldin of Millennium Wave Advisors, who has argued since 2011 that the Chinese currency should weaken, sees the risk of heightened geopolitical instability in the Middle East as lower crude prices strain the budgets of oil-rich countries.

While all three forecasters see scope for further declines in the yuan, they’re also emphasizing risks outside the Chinese economy as the outlook for world growth dims and commodities trade near the lowest levels in more than 15 years. Their bearish stance has gained traction in global markets this year, with share prices from New York to Riyadh and Sydney sliding as investors shifted into gold and sovereign bonds. “There’s a storm of troubles coming,” Pal, a former hedge-fund manager at GLG Partners whose clients now include pension plans and sovereign wealth funds, said in a phone interview from the Cayman Islands. “The risk of a very bad outcome in 2016 and 2017 remains the highest probability.”

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“What we are witnessing is the resetting of the largest macro imbalance the world has ever seen..”

Kyle Bass, A Sharpshooting Short-Seller (FT)

I’ve been to Beijing twice, I don’t care to go back,” Kyle Bass says. “I’m OK with that.” The subprime-shorting, sniper rifle-shooting, spearfishing hedge fund manager from Dallas, Texas, does not fear the ire of the Chinese authorities. He has a decade-long record of putting his mouth where his money is, and if his latest apocalyptic call — that the Communist government does not have the resources to prevent a banking crisis and a vicious currency devaluation — puts him at the centre of the angriest debate in financial markets, well, that is just fine by him. “Anyone who is invested in China, whether you are a pension fund or sovereign wealth fund or a large US or European institution — you better be thinking about this, and not with the reverence that people give to China,” he says.

“Everyone has this embedded belief that China can pull off the ‘triple lindy’ every time they want to do it,” says the former springboard diver, “but our view is they are going to have to have a reset.” Mr Bass is hardly the only hedge fund manager betting on a renminbi devaluation; when Beijing wanted to send a shot across speculators bows last month, it was George Soros who was singled out on the front of the People’s Daily, a government mouthpiece. Yet, thanks to a 12-page dissection of China’s banks, shadow banks and central bank reserves sent to investors in his $1.7bn hedge fund Hayman Capital last week, it is Mr Bass who has given the most strident, forensic and colourful voice to those who suspect China will be forced to revalue the currency sharply lower. “What we are witnessing is the resetting of the largest macro imbalance the world has ever seen,” he wrote.

Banking system losses could be four times as big as those on subprime mortgages in the US during the financial crisis, and the central bank does not have the reserves to plug the hole and defend its currency. “China’s back is completely up against the wall today” and the country is “on the precipice of a large devaluation”. Economists and Beijing have challenged the alarming analysis; Zhou Xiaochuan, the People’s Bank of China governor, gave a rare interview to insist capital outflows were evidence of economic rebalancing rather than capital flight. This is all of a piece with previous declarations by Mr Bass. Since the Great Recession he has predicted sovereign debt crises in Ireland, Greece, Portugal, Spain, the UK, Switzerland and France.

He has compared the Japanese economy to a “Ponzi scheme”. Armageddon does not always come — he admits he was wrong on Switzerland and the UK; and Japan is notably still standing, though a devaluation of the yen meant his bet eventually made money overall there. Hayman’s returns since the financial crisis have been modest by the standards of the greatest hedge fund investors and 2015 was, by his own admission, one of his worst. But enough of Mr Bass’s predictions have come true to justify taking him seriously. One manager of a fund of hedge funds says investing with Mr Bass is like funding a “think-tank” on how to navigate the global economy.

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Creative bankruptcies.

As US Shale Sinks, Pipeline Fight Sends Woes Downstream (Reuters)

Within weeks, two low-profile legal disputes may determine whether an unprecedented wave of bankruptcies expected to hit U.S. oil and gas producers this year will imperil the $500 billion pipeline sector as well. In the two court fights, U.S. energy producers are trying to use Chapter 11 bankruptcy protection to shed long-term contracts with the pipeline operators that gather and process shale gas before it is delivered to consumer markets. The attempts to shed the contracts by Sabine Oil & Gas and Quicksilver Resources are viewed by executives and lawyers as a litmus test for deals worth billions of dollars annually for the so-called midstream sector. Pipeline operators have argued the contracts are secure, but restructuring experts say that if the two producers manage to tear up or renegotiate their deals, others will follow.

That could add a new element of risk for already hard-hit investors in midstream companies, which have plowed up to $30 billion a year into infrastructure to serve the U.S. fracking boom. “It’s a hellacious problem,” said Hugh Ray, a bankruptcy lawyer with McKool Smith in Houston. “It will end with even more bankruptcies.” A judge on New York’s influential bankruptcy court said on Feb. 2 she was inclined to allow Houston-based Sabine to end its pipeline contract, which guaranteed it would ship a minimum volume of gas through a system built by a Cheniere Energy subsidiary until 2024. Sabine’s lawyers argued they could save $35 million by ending the Cheniere contract, and then save millions more by building an entirely new system. Fort Worth, Texas-based Quicksilver’s request to shed a contract with another midstream operator, Crestwood Equity Partners, is set for Feb. 26.

[..] So far, relatively few oil and gas producers have entered bankruptcy, and most were smaller firms. But with oil prices down 70% since mid-2014 and natural gas prices in a prolonged slump, up to a third of them are at risk of bankruptcy this year, consultancy Deloitte said in a Feb. 16 report. Midstream operators have been considered relatively secure as investors and analysts focus on risks to the hundreds of billions of dollars in equity and debt of firms most directly exposed to commodity prices. That’s because firms such as Enterprise Products, Kinder Morgan and Plains All American relied upon multi-year contracts – the kind targeted in the two bankruptcies – that guarantee pipeline operators fixed fees to transport minimum volumes of oil or gas.

Now, with U.S. oil output shrinking and gas production stalling, many of the cash-strapped producers entering bankruptcy will be seeking to rid themselves of pricey agreements, particularly those with so-called minimum volume commitments that require paying for space even if it is not used. “They will be probably among the first things thrown out,” said Michael Grande, director for U.S. midstream energy and infrastructure at Moody’s.

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Volatility writ large.

Chinese Military Ambitions Fuel Asian Arms Race Amid Slowdown (WSJ)

The rapid rise in Chinese military spending and a greater assertiveness in its territorial claims is fueling an arms race in the Asia-Pacific region even though many of the countries involved have been hit by an economic slowdown, new research reports suggest. Of the 10 biggest importers of defense equipment in the past five years, six countries were in the Asia-Pacific region, the Stockholm International Peace Research Institute, or SIPRI, said in an annual report on arms transfers. India was the largest buyer of foreign equipment, with China in third position after Saudi Arabia, the think tank said. Although a country’s spending power is often tied to its economic strength, buyers in the Asia-Pacific region aren’t slashing military budgets even as their economies have come under strain from falling commodity prices and lower growth in China.

“The slight moderation in economic activity had little effect on regional military spending in 2015,” the International Institute for Strategic Studies, or IISS, said in a new report. China, Japan, South Korea, and Indonesia last year were among the countries to announce plans for higher military spending, the IISS said. Lower economic output has driven up Asian military spending as a percentage of GDP to 1.48%, the London-based research organization said, its highest level since at least 2010. China leads the way, accounting for 41% of the region’s military spending, well ahead of No. 2 India at 13.5% and Japan with 11.5%.

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William K. Black: always a pleasure.

Krugman and the Gang of 4 Need to Apologize (Bill Black)

If you depend for your news on the New York Times you have been subjected to a drumbeat of article attacking Bernie Sanders – and the conclusion of everyone “serious” that his economics are daft. In particular, you would “know” that four prior Chairs of the President’s Council of Economic Advisers (CEA) (the Gang of 4) have signed an open letter to Bernie that delivered a death blow to his proposals. Further, you would know that anyone who dared to disagree with these four illustrious economists was so deranged that he or she was acting like a Republican in denial of global climate change. The open letter set its sights on a far less famous economist, Gerald Friedman, of U. Mass at Amherst. It unleashed a personalized dismissal of his competence and integrity.

Four of the Nation’s top economists against one non-famous economists – at a school that studies heterodox economics. That sounds like a fight that the referee should stop in the first round before Friedman is pummeled to death. But why did Paul Krugman need to “tag in” to try to save the Gang of 4 from being routed? Krugman proclaimed that the Gang of 4 had crushed Friedman in a TKO. Tellingly, Krugman claimed that anyone who disagreed with the Gang of 4 must be beyond the pale (like Friedman and Bernie). Indeed, Krugman was so eager to fend off any analysis of the Group of 4’s attacks that he competed with himself rhetorically as to what inner circle of Hell any supporter of Friedman should be consigned. In the 10:44 a.m. variant, Krugman dismissed Bernie as “not ready for prime time” and decreed that it was illegitimate to critique the Gang of 4’s critique.

In Sanders’s case, I don’t think it’s ideology as much as being not ready for prime time — and also of not being willing to face up to the reality that the kind of drastic changes he’s proposing, no matter how desirable, would produce a lot of losers as well as winners. And if your response to these concerns is that they’re all corrupt, all looking for jobs with Hillary, you are very much part of the problem.

The implicit message is that four famous economists had to be correct, therefore anyone who disagreed with them must be a conspiracy theorist who is “very much part of the problem.” Paul doesn’t explain what “the problem” is, but he sure makes it sound awful. Logically, “the problem” has to be progressives supporting Bernie. Two hours later, Paul decided that his poisoned pen had not been toxic enough, he now denounced Sanders as a traitor to the progressives who was on his way “to making Donald Trump president.” To point out the problems in the Gang of 4’s attack on Friedman was to treat them “as right-wing enemies.”

Why was Krugman so fervid in its efforts to smear Friedman and prevent any critique of the Gang of 4’s smear that he revised his article within two hours and amped up his rhetoric to a shrill cry of pain? Well, the second piece admits that Gang of 4’s smear of Friedman “didn’t get into specifics” and that progressives were already rising in disgust at Paul’s arrogance and eagerness to sign onto a smear that claimed “rigor” but actually “didn’t get into specifics” while denouncing a scholar. Paul, falsely, portrayed Friedman as a Bernie supporter. Like Krugman, Friedman is actually a Hillary supporter.

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Greece is a cash country. For one thing, there are still capital controls. People cannot get more than $420 a week or so out of their ATM. That is very limiting in many ways.

Greek Attempt To Force Use Of Electronic Money Instead Of Cash Fails (ZH)

While the “developed world” is only now starting its aggressive push to slowly at first, then very fast ban the use of physical cash as the key gating factor to the global adoption of NIRP (by first eliminating high-denomination bills because they “aid terrorism and spread criminality”) one country has long been doing everything in its power to ween its population away from tax-evasive cash as a medium of payment, and into digital transactions: Greece. The problem, however, is that it has failed. According to Kathimerini, “Greek businesses are not ready for the expansion of plastic money through the compulsory use of credit and debit cards for everyday transactions.” Unlike in the rest of the world where “the stick” approach will likely to be used, in Greece the government has been more gentle by adopting a “carrot” strategy (for now) when it comes to migrating from cash to digital.

The government has told taxpayers that they will have to spend up to a certain amount of their incomes via bank and card transactions in order to qualify for an annual tax-free exemption. This appears to not be a sufficient incentive however, as a large proportion of stores still don’t have the card terminals, or PoS (Points of Sale), required for card payments, while plastic is accepted by very few doctors, plumbers, electricians, lawyers and others who tend to account for the lion’s share of tax evasion recorded in the country. Almost as if the local population realizes that what the government is trying to do is to limit at first, then ultimately ban all cash transactions in the twice recently defaulted nation as well. It also realizes that an annual tax-free exemption means still paying taxes; taxes which could be avoided if one only transacted with cash.

For the government this is bad news, as the lack of tracking of every transaction means that the local population will pay far less taxes: a recent study by the Foundation for Economic and Industrial Research (IOBE) showed that increasing the use of cards for everyday transactions could increase state revenues by anything between 700 million and 1.6 billion euros per year, and that the market’s poor preparation means that the tax burden has been passed on to lawful taxpayers. As a reminder, in Greece, the term “lawful taxpayers” is not quite the same as in most other countries. What is more surprising is that according to data seen by Kathimerini, PoS terminals in Greece amount to just 220,000, and that despite the fact these were effectively forced on enterprises with the imposition of the capital controls, an estimated half of all businesses do not have card terminals. Almost as if the Greeks would rather maintain capital controls than be forced into a digital currency by their Brussels overlords.

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Some things are just plain weird. They invest $150 million in Espirito Santo in July -when everyone already knew something was fishy, but that’s not even the gist-, and then lose it all one month later?! That’s not fish I’m smelling, it’s a rat.

New Zealand Super Fund’s $200 Million Loss (NZ Herald)

Almost $200 million of taxpayer money invested through the Kiwi Superannuation Fund has been lost after a Portuguese bank where the money was invested, supposedly as a “risk free” loan, collapsed. The Super Fund, set up with public money to cover partly the retirement costs of baby boomers, has revealed it had been caught up in last year’s collapse of Banco Espirito Santo (BES) and a US$150m (NZ$198m) investment made in July had been completely wiped out. The investment was a contribution to a Goldman Sachs-organised loan to the Portuguese bank, but only weeks after the money was injected it imploded, with president and founder Ricardo Salgado arrested as part of a criminal investigation into tax evasion.

After disclosing billions of Euros in losses, and facing a run on funds by depositors, the bank collapsed in a heap and was broken up in August. Goldman Sachs, described by Rolling Stone as “the great vampire squid” for their sharp business practices in the run-up to the global financial crisis, today said it would “pursue all appropriate legal remedies without delay” in an attempt to recover the loans to BES. The company also announced that, alongside the Super Fund, they were suing the Central Bank of Portugal over their loans being excluded from the bailout of BES. Despite this legal action, Super Fund chief executive Adrian Orr conceded today the entire investment had been written off as a “conservative” precaution. Finance Minister Bill English, the minister responsible for the Super Fund declined to comment on the spectacular loss, but Green Party MP Russel Norman said Mr English should be demanding answers.

“They have to give some sort of explanation as to why they gambled US$150m in this case, and why it’s come unstuck,” he said. The episode also illustrated what the NZSF should try to avoid, Mr Norman said. “For a fund operating on behalf of the NZ taxpayer, taking these high-risk investments is probably not appropriate,” he said. Mr Orr denied the investment was high-risk and said the NZSF had been covered in the event of BES defaulting. “It was risk-free with insurance,” he said. However, an unusual retrospective rule change in Portugal had resulted in the insurance being voided. Orr added the Super Fund had withdrawn lending to banks in Portugal until the result was overturned. The Fund said the loss amounted to only 0.7% of the firm’s total pool of $27b in assets.

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“Christchurch, home to 366,000 people, who are still shaken daily by thousands of aftershocks..” (Nicole and I were there at the first anniversary)

Long Way To Go: 5th Anniversary of the Christchurch Earthquake (G.)

It was as the clock struck 12.51pm that the last of the 185 names were read out. Then, the 1,000 people who had gathered in the city’s botanic gardens to mark the anniversary of the 2011 Christchurch earthquake fell silent for a minute to remember the moment, five years ago, that the 6.3-magnitude quake struck. Earlier, posies of flowers had been laid in road cones and taped to the safety fences that still litter the city centre half a decade after the disaster turned it largely to rubble.Once the memorial ceremony had finished, talk turned – as it usually does – to the rebuilding of this once-rich, agricultural hub – and what the new Christchurch will look like when it finally rises from the ashes. “There is still some way to go until Christchurch is truly reborn,” said the governor-general, Jerry Mateparae.

His is a sentiment widely shared in Christchurch, home to 366,000 people, who are still shaken daily by thousands of aftershocks – including a significant 5.9 rumble on Valentines day this year and a 5.0-magnitude quake that hit in nearby Blenheim on the anniversary itself. Despite years of clean-up and a recent boom in construction, Christchurch is still in a state of flux, with hundreds of people waiting for insurance payouts and widespread concern about the pace of the rebuild, especially in the heart of the city. The health of Christchurch residents has also fared poorly since the quake. Suicide and domestic violent rates have risen sharply – as has illegal drug use and the spread of sexually transmitted diseases.

Mental health problems are a persistent concern – particularly widespread are incidences of depression, anxiety and post traumatic stress disorder. Waiting lists for state-funded counselling in Christchurch are long, and last week it was reported the government would significantly cut funding to community mental health providers – from $1.6m in 2015 to $200,000 this year. Yet in tandem with the trauma of the quake’s aftermath has come a remarkable flourishing of the creative arts in the garden city. Rachael Welfare, operations director for Gap Filler, a charitable organisation filling the “gaps” of Christchurch with pop-up creative projects, said: “Before the quake, people thought of Christchurch as quite conservative, but now the opportunities have given people a blank canvas, if nothing else, and people are very open-minded about what the spaces could be.”

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Who told them to do this and say damn the Geneva conventions?

Macedonia, Serbia Close Borders To Afghan Refugees (AP)

Former Yugoslav Republic of Macedonia (FYROM) closed its border to Afghan migrants early Sunday, Greek police said, slowing the admission of refugees to a trickle and leaving a growing bottleneck of people stuck at their shared border. A FYROM police spokeswoman denied there was any new prohibition regarding Afghans, blaming the problem on Serbia, the next nation along the Balkans migration route into Western Europe. By early afternoon, about 1,000 migrants were waiting at the Greek border camp in Idomeni – and at a gas station only 17 kilometers (11 miles) away, 80 buses with 4,000 more migrants were waiting to take them to the border. Greek police said FYROM refused to let Afghans through because Serbia made the same decision and officials feared the migrants would get stuck in FYROM.

“The authorities of the Former Yugoslav Republic of Macedonia informed us that, beginning at dawn Sunday, they no longer accept Afghan refugees because the same problem exists at their border with Serbia,” Petros Tanos, spokesman for Greek police’s Central Macedonia division, told The Associated Press. Despite the reports, about 500 migrants of all nationalities made the trek on foot from the gas station to the border Sunday. “I can no longer wait,” said 17-year-old Ali Nowroz, one of the trekkers from the Afghan city of Jaghori Zeba. “We have spent three nights in the cold, we are hungry. They told me that the borders have been closed to us. However, when I started from Afghanistan I knew borders were open for us. I am going to the Idomeni border crossing to find out and ask why they have closed it.”

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Every single day. Numbers are rising as borders are closing. Greece can’t be far away from becoming a failed state

Shadowing The Hellenic Coast Guard’s Refugee Rescues (CCTV)

As Europe tries to deal with the biggest refugee crisis since World War II, improving weather means the pace of migrants and refugees reaching Greece from Turkey will pick up again. On Feb 15., over 4,500 people were rescued across the Aegean Sea in Greece. Since last year, the Hellenic Coast Guard has rescued almost 150,000. CCTV’s Filio Kontrafouri went on patrol with the Hellenic Coast Guard off the Greek island of Lesvos and witnessed what happens after those dinghies, usually loaded with women and children, enter the Greek waters. “For us, all these people are like they are condemned to death,” said Sub-lieutenant Kyriakos Papadopoulos of the Hellenic Coast Guard. “You’ll see when we get to that boat, about which some other colleagues in the area have informed us, even with everyone on board, there is panic. People could move from one side to the other, these boats are not suitable for travel at sea, their life jackets are not suitable and at any moment their life is in danger.”

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Feb 202016
 
 February 20, 2016  Posted by at 9:18 am Finance Tagged with: , , , , , , , , ,  


Russell Lee “Yreka, California. Magazine stand” 1942

Commodities’ $3.6 Trillion Black Hole (BBG)
‘It’s Going To Be Much Worse Than 2008’ (FS)
Has The Market Crash Only Just Begun? (ZH)
The US Economy Has Not Recovered and Will Not Recover (PCR)
Worldwide M&A Activity Falls 23% (Reuters)
US Shale Faces March Madness With $1.2 Billion in Interest Due (BBG)
Moody’s Tallies 28 Downgrades In The Energy Sector Since December (MW)
Why Oil Rout Is Hurting The Global Economy Instead Of Helping (MW)
China’s Foreign Exchange Reserves Dwindling Rapidly (NY Times)
China ‘Removes’ Top Securities Regulator (Reuters)
Fannie Mae At Risk Of Needing A Bailout (FT)
Independent Modelling May Show Way Out Of Oz Housing Bubble (SMH)
Brexit!? France And Germany Can Not Wait (Gefira)
Tsipras, Merkel, Hollande Agree On Open Borders Until March 6 Summit (Kath.)
EU Summit On Refugee Crisis Ends In Disarray (FT)
Two Children Drown Every Day On Average Trying To Reach Europe (UNHCR)

” If the remaining $1.5 trillion is indeed on the balance sheets of financial institutions, that would represent about 1.5% of the total assets of all the world’s publicly traded banks. [..] U.S. subprime mortgages represented less than 1% of listed banks’ assets at the end of 2007.

Commodities’ $3.6 Trillion Black Hole (BBG)

Markets rallied this week after it became clear that some of the world’s biggest oil producers were going to curb production to stop prices from dropping any further. The news also buoyed other commodities, from coal to iron ore. Then everything dropped on Thursday with oil. Before the global financial crisis, a rise in raw-materials prices used to be bad news for the economy and stocks in general. Since central bank easy-money policies took off, that’s become a thing of the past:

One possible explanation is the level of exposure that banks and investors have to the industry. The 5,000 biggest publicly traded companies tracked by Bloomberg in the iron and steel, metals and mining, and energy sectors have a combined $3.6 trillion in debt, according to their most recent financial reports, double what they had at the end of 2008. Much of the increase is due to money that was borrowed to dig mines and wells whose output, at previous prices, would have easily repaid most maturing bonds and loans. But as commodity prices have tumbled, so has the ability of companies to meet their obligations. The Bloomberg Commodity Index is still only 3.9% higher than a 25-year low hit on Jan. 20. Five years ago, those companies tracked by Bloomberg had more operating income than debt, on average. Now, it would take them more than eight years’ worth of current earnings, without provisioning for interest, taxes, depreciation or amortization, to clear their combined net obligations.

Yield-hungry bond investors sucked up a lot of the debt that was issued and now hold about $2.1 trillion of outstanding notes. They’ll be first to feel the pain considering Standard & Poor’s has already downgraded securities equivalent to 47% of that amount and made some 400 negative-ratings moves in the basic materials and energy sectors over the past 12 months alone. Such scale and depth is reminiscent of the way banks were slaughtered by ratings companies during the 2008 financial crisis. It’s unclear where the other portion of the $3.6 trillion in liabilities lies but probably, most of it is owed to banks. If the remaining $1.5 trillion is indeed on the balance sheets of financial institutions, that would represent about 1.5% of the total assets of all the world’s publicly traded banks. That doesn’t seem very significant, or any cause for concern. But to put it in some context, U.S. subprime mortgages represented less than 1% of listed banks’ assets at the end of 2007.

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“You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one.” (h/t Stockman)

‘It’s Going To Be Much Worse Than 2008’ (FS)

Bert Dohmen, founder of Dohmen Capital Research, is uber-bearish and believes that it is time for investors to panic (before everyone else does) given a potential collapse of the stock market greater than what we saw in 2008. Here’s what he had to say on Thursday’s podcast: “Over a year ago we said that we are now in a transition year from a bull market to a bear market and from a growing economy to a recession—and this could be a very deep recession… now we see that we are finally there and more and more people are starting to realize it. But I raise the question here, ‘Is it too late to panic?’ Because…the advice given by so many analysts is ‘Don’t panic, don’t sell, don’t panic.’ And I say, ‘Yes, panic!’ And it’s not too late to panic. Panicking at the right time can save you a lot of money…

I predict in this bear market you will see the majority of stocks—majority meaning over 50% of the stocks—selling at $5 or less. Okay, just put that into your portfolio and see if you should be selling some stocks… We here other analysts say, ‘Oh, this is nothing like 2008’ and I agree with that, but I say that because I think it’s going to be much worse. 2008 was really a crisis triggered by the subprime mortgage market and the confetti that the Wall Street firms distributed around the world. They took those subprime mortgages, put them into pools, they sold participations in these pools, in these CDOs…they got a triple-AAA rating on all this garbage and sold it around the world and then they started defaulting. That caused ripples throughout the financial system and a global financial crisis, okay; but it was basically a mortgage crisis—that’s how it started.

Now, look at what we have currently. We have every major economic zone in the world in financial trouble. You have Japan with a debt-to-GDP ratio of 280%. You have China at 300% debt-to-GDP. China has over $34 trillion of debt and the banking system is flooded with bad loans. The best estimate—and this was two years ago I wrote a book called The Coming China Crisis—and I said the best estimate is that they have $11 trillion of bad loans in the banking system. $11 trillion is the annual GDP of China—this is huge! You have Europe, you have Latin America in trouble, you have Russia in big trouble, you have Saudi Arabia even thinking about doing an IPO on their big oil company in order to make up for the shortfall of oil revenues. You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one.”

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“..it can’t be done in a non-messy way.”

Has The Market Crash Only Just Begun? (ZH)

Having successfully called the market’s retreat in the fall of 2015, Universa’s Mark Spitznagel is not taking a victory lap as he warns Bloomberg TV that “the crash has only just begun.” Investors are facing the most binary “let’s make a deal” market in history in Spitznagel’s view: choose Door #1 to bet on Keynesianism, central planners, and monetary interventionism; or Door #2 to bet on free markets and natural price discovery. “There is massive cognitive dissonance here,” Spitznagel explains as history teaches us that door #2 is the right choice… but it’s not possible to do that today as investors have been coerced to choose door #1, but when door #1 is slammed open “we will see that dreaded black swan monster.” That is what is going on right now:

“Investors want to go with The Fed when it’s working – like David Zervos… the problem is, when do you know that it is not working?” “At some point this stops working…” “the market is going through a resolution process, transitioning from the cognitive dissonance of Door #1 to the harsh reality of Door #2… if everyone were to change doors at the same time, that is a market crash… it can’t be done in a non-messy way.”

Must watch reality check behind the smoke and mirrors we call markets… (we note Mark’s excellent analogy starting at around 3:10)

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Amen Paul Craig Roberts.

The US Economy Has Not Recovered and Will Not Recover (PCR)

The US economy died when middle class jobs were offshored and when the financial system was deregulated. Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits. However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits. Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low interest rate policy made possible.

Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it. The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized. Under Fed chairman Bernanke the economy was kept going with Quantitative Easing, a massive increase in the money supply in order to bail out the “banks too big to fail.” Liquidity supplied by the Federal Reserve found its way into stock and bond prices and made those invested in these financial instruments richer.

Corporate executives helped to boost the stock market by using the companies’ profits and by taking out loans in order to buy back the companies’ stocks, thus further expanding debt. Those few benefitting from inflated financial asset prices produced by Quantitative Easing and buy-backs are a much smaller%age of the population than was affected by the Greenspan consumer credit expansion. A relatively few rich people are an insufficient number to drive the economy. The Federal Reserve’s zero interest rate policy was designed to support the balance sheets of the mega-banks and denied Americans interest income on their savings. This policy decreased the incomes of retirees and forced the elderly to reduce their consumption and/or draw down their savings more rapidly, leaving no safety net for heirs.

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As trade plummets, so does M&A. So how are they going to pump up stock prices now? All buybacks all the time?

Worldwide M&A Activity Falls 23% (Reuters)

Worldwide mergers and acquisitions deals have fallen 23% to $336 billion so far this year compared with last year, but cross-border activity by amount targeting U.S.-based companies reached a record high, Thomson Reuters data shows. After hitting a record high by deals value in 2015, worldwide M&A activity has been hurt this year by falling oil prices, worries about slowing growth in China and the health of the financial sector. A trio of deals for U.S. companies topped the list of M&A announced this week, including Chinese company Tianjin Tianhai’s $6.3 billion offer for U.S.-based Ingram Micro, bringing year-to-date China outbound M&A targeting the U.S. to $23.3 billion. China, Ireland and Canada account for 88% of cross-border acquirers in the U.S. so far this year. European M&A activity, which lagged the U.S. in 2015, has hit $92 billion so far this year, up 4% compared with a year ago, after state-owned ChemChina announced it would buy Swiss seeds and pesticides group Syngenta for $43 billion in February.

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$9.8 billion for the year. With hedges disappearing.

US Shale Faces March Madness With $1.2 Billion in Interest Due (BBG)

The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts. Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge announced that it didn’t make a $21.7 million interest payment. “You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due,” said Jason Wangler at Wunderlich in Houston.

Energy XXI may not be able to meet its commitments in the next 12 months, raising “substantial doubt regarding the Company’s ability to continue as a going concern,” according to a company filing with the U.S. Securities and Exchange Commission. A company representative didn’t return a phone call and e-mail seeking comment. SandRidge “has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders,” the company said in a statement released Wednesday. “Today’s actions will preserve liquidity and flexibility as we continue to engage in constructive dialogue with our stakeholders,” James Bennett, SandRidge president and chief executive officer, said in the statement.

Oil has tumbled about 70% since a June 2014 peak of $107 a barrel. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt. That debt has become increasingly burdensome as prices collapse. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion, according to law firm Haynes & Boone. Deloitte said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession.

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And with hedges gone, borrowing gets much more expensive at the same time.

Moody’s Tallies 28 Downgrades In The Energy Sector Since December (MW)

Moody’s Investors Service said Friday it has downgraded a total of 28 energy companies since December, as it continues a global review of the troubled sector. The agency surprised investors in January when it placed the credit ratings of 120 energy companies and 55 mining companies from around the world on review for a possible downgrade. The move came after a deep slump in the price of oil and other commodities, hurt by oversupply and the slowdown in China, a major consumer of natural resources. Today’s tally includes issuers that had already been placed on review in December and surprised some in the market. “Moody’s drops another hammer,” is how analysts at credit research firm CreditSights described the move Friday.

“Over the past several weeks, it has become increasingly clear in our discussions with clients and in hearing from company managements that the agency was taking a very Draconian view of the sector,” they wrote in a note. Moody’s said it downgraded two energy companies by five notches each, sending them deep into speculative-grade, or “junk” territory. Denbury Resources was cut to Caa2 from Ba3, and Whiting Petroleum was cut to Caa1 from Ba2. The agency downgraded seven energy companies by four notches, nine companies by three notches and five companies by two notches. The agency affirmed ratings on another nine companies. It continues to review a total of 137 global issuers for a possible downgrade.

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Oil is everywhere in society. And lots of places rely on mostly high, but certainly somewhat stable, prices.

Why Oil Rout Is Hurting The Global Economy Instead Of Helping (MW)

Saudi Arabia saw Standard & Poor’s cut its credit rating cut two notches this week to A-minus—an unsurprising move that nevertheless helps illustrate why collapsing oil prices haven’t seemed to be the economic boon many had anticipated. In a Thursday note, Carl Weinberg, chief economist at High Frequency Economics, used the downgrade—along with cuts in ratings for Bahrain, Oman and Kazakhstan—to remind clients of his explanation of how falling commodity prices can weigh on global growth. Weinberg has calculated that a $100 drop in the price of a barrel of crude would reduce global income from extraction alone by $3.2 trillion, or about 4.5% of world gross domestic product. That’s to say nothing of the impact on global economic activity from oil sales, transportation and exploration.

The U.S. benchmark settled below $31 a barrel on Thursday, or about $76 below its mid-2014 high after settling as low as $26.21 earlier this month. Brent crude, the global benchmark, ended Thursday at $34.28. It traded around $115 a barrel in mid-2014. It isn’t wrong to assume that those losses would rebound to the benefit of oil consumers, Weinberg says. But the rub lies in the fact that consumers in oil-importing countries may be more likely to stash those savings away while workers in oil-exporting countries would have been more likely to spend that lost income. That means it can take “years or decades” before that savings is translated into spending. He writes:

If purchasing power is transferred from one country to another, and if the countries receiving the windfall have a higher marginal propensity to save than the countries that are paying the transfer, then world GDP will be reduced. So if oil-importing countries tend to have higher incomes and higher savings rates, then world GDP will be reduced. In other words, halving the weekly income of an oil field worker in Nigeria earning near-subsistence wages will likely affect his or her consumption more than reducing the monthly auto fuel bill of a dentist in Belgium by the equivalent amount.

Needless to say, the oil market carnage has translated into real fiscal problems for oil-producing nations. It feeds into ideas that this week’s talk of a production freeze that would include OPEC members and Russia—seemingly shot down by Saudi Arabia after Iran refused to comply—was a sign of desperation. While freezing output at record levels wasn’t seen as likely to do much to alleviate a global glut, oil futures have rallied on the idea that producers are at least talking to each other is an important step. Helima Croft, global head of commodities at RBC Capital Markets, said this week’s talks were “one of the first clear acknowledgments by the oil heavyweights that all isn’t entirely well in the current price environment.”

It might even lay the groundwork for a “more proactive” approach later in the year after OPEC has had a chance to gauge the impact of Iran’s post-sanctions return to the global oil market as well as the trajectory of non-OPEC production, Croft said in a Tuesday note. ”Recently, some leading Saudi experts have suggested that by the June meeting, those variables will be known, and with the supply-and-demand balance expected to be tighter by then, it will be easier for cartel to pull additional barrels if needed in order to accelerate a price recovery,” she wrote.

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“Beijing has also instructed bank branches in Hong Kong to limit their lending of renminbi to make it harder for traders and investors to place bets against the Chinese currency in financial markets.”

China’s Foreign Exchange Reserves Dwindling Rapidly (NY Times)

During China’s biggest boom years, its currency could have risen in value as huge sums in dollars, euros and yen flowed into the country. Instead, Beijing tightly controlled the value of the renminbi, buying up much of the inflows and putting them into its reserves instead. That brought angry accusations from the United States and Europe that it was manipulating its currency to help keep Chinese exports inexpensive and competitive in foreign countries. Now that the renminbi faces pressure to fall, China is spending its reserves in an effort to prop up the currency. But many American lawmakers and presidential candidates still accuse China of keeping its currency artificially weak. The reserves are still considerable, more than double Japan’s, which has the world’s second-largest amount.

The central bank chief, Mr. Zhou, and others have questioned whether the reserves are too big and the money could be better invested if left in the private sector. Mr. Zhou led a move over the last two years to make it easier for Chinese companies and families to invest their own money overseas, only to find in recent months that the outflows have been disconcertingly fast at times. China has taken steps to stem further flows out of the country. This winter the Chinese authorities arrested the leaders of underground banks that were converting billions of renminbi into dollars and euros. They also made it harder for Chinese citizens to use their renminbi to buy insurance policies in dollars. More quietly, Beijing bank regulators have halted sales within China of investment funds known as wealth management products that are denominated in dollars.

Beijing has also instructed bank branches in Hong Kong to limit their lending of renminbi to make it harder for traders and investors to place bets against the Chinese currency in financial markets. “We did receive notice from Beijing in the earlier part of January to be more stringent in approving renminbi-denominated loans,” said a Hong Kong-based China bank executive, who insisted on anonymity for fear of employer retaliation. “It is no fun being caught in the middle, with marketing officers wanting to do more business and the higher-ups telling you to be tougher when reviewing credit proposals.” The erosion of reserves is also politically awkward, given public perception, and Beijing has taken steps aimed directly at shoring them up.

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Big deal. He offered to step down last month. Beijing should understand that heavy-handedness does not boost confidence. What does this say about how Chinese securities have been regulated until today? Not much good.

China ‘Removes’ Top Securities Regulator (Reuters)

China has removed the head of its securities regulator following a turbulent period in the country’s stock markets, appointing a top state banking executive as his replacement, as leaders move to restore confidence in the economy. The announcement on the official Xinhua news agency on Saturday follows a string of assurances from senior leaders following the Lunar New Year holiday that China will underpin its slowing economy and steady its wobbly currency. Xinhua said Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC) since 2013, had been succeeded by Liu Shiyu, chairman of the Agricultural Bank of China Ltd. (AgBank) and a former deputy governor of the central bank. “Xiao’s departure is not a surprise following the recent stock disaster. This is a role vulnerable to public criticism because most Chinese retail investors are destined to lose money in such a market,” said Zhang Kaihua, a fund manager of Nanjing-based hedge fund Huyang Investment.

Xiao and the CSRC came under fire as China’s Shanghai and Shenzhen stock markets slumped as much as 40% in just a few months last summer. In a further blow, a stock index “circuit breaker” introduced in January to limit stock market losses was deactivated after four days of use because it was blamed for exacerbating a sharp selloff. Online media nicknamed Xiao “Mr. Circuit Breaker.” Reuters reported in January that Xiao, 57, had offered to resign following the “circuit-breaker” failure. The CSRC said at the time the information did not conform to the facts. The gyrations in China’s stock markets, an unexpected devaluation of the yuan in August and sharp falls in currency reserves rattled global markets, raising concerns about the health of the economy and Beijing’s ability to steer the country through both a protracted slowdown in growth and a shift away from manufacturing towards services.

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They do it on purpose. Set it up so poorly losses are inevitable, and meanwhile use it to keep housing prices propped up. The taxpayer can fork over the difference.

Fannie Mae At Risk Of Needing A Bailout (FT)

Fannie Mae, the state-sponsored U.S. mortgage backer, is at risk of needing a government bailout that could shake confidence in the housing finance market, senior officials have warned. Fannie Mae’s chief executive and its regulator are sounding the alarm on a decline in the institution’s capital cushion, which is on course to vanish in 2018, when it would have to ask the US Treasury for emergency funds. Their warnings highlight Washington’s inaction on housing policy and its failure to reform the institution, which guarantees nearly $3 trillion of securities and enables 30-year fixed rate loans, following the last financial crisis. Since 2008 Fannie Mae has been in the post-crisis limbo of state-sponsored “conservatorship,” neither fully nationalized nor private, following several unsuccessful attempts by Congress to overhaul it.

Because the government does not let Fannie Mae retain profits, Tim Mayopoulos, its chief executive, told the Financial Times on Friday that its capital buffer, which has dwindled from $30 billion before the crisis to $1.2 billion today, was on track to disappear by January 2018. At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership. So far investors who own Fannie Mae’s mortgage-backed securities have not been spooked, Mr. Mayopoulos said, but he added: “We are a major source of liquidity to the mortgage markets and it would be better to avoid testing the market as to what the breaking point is well in advance of us getting to that point.” His comments came the day after Mel Watt, Fannie Mae’s top regulator, thrust the issue into the spotlight.

Addressing both Fannie Mae and its counterpart Freddie Mac, Mr Watt, director of the Federal Housing Finance Agency, said: “The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital.” “If investor confidence in enterprise securities went down and liquidity declined as a result, this could have real ramifications on the availability and cost of credit for borrowers,” he said in a speech. Fannie Mae’s inability to retain profits, which must instead be swept into government coffers, also makes it almost impossible for the institution to exit federal control.

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Refusing to kill the golden goose.

Independent Modelling May Show Way Out Of Oz Housing Bubble (SMH)

Independent modelling has dented the Turnbull government’s attack on Labor’s negative gearing policy, finding it will generate billions for the Commonwealth with the vast bulk of revenue coming from just the top 10% of households who negatively gear their properties. The report’s author says the policy would likely slow the pace of house-price growth and boost new housing construction, making it “potentially the biggest housing affordability policy the country has seen.” Prime Minister Malcolm Turnbull launched a scathing attack on Labor’s negative gearing policy on Friday, saying home owners across the country would see the value of the family home “smashed” by the “very blunt, very crude” idea.

In a clear sign his government is preparing to launch a massive scare campaign in the lead-up to the 2016 election over Labor’s proposal, which is designed to save $32 billion over a decade, Mr Turnbull warned the policy was “calculated” to reduce the value of all homes. n”The Labor Party’s negative gearing policy and its wind-back on the capital gains discount – its increase in tax on capital gains – is a very dangerous one. It’s been very, very poorly thought out,” Mr Turnbull said on Friday. “The consequence of it will be a decline in property prices, every home owner in Australia has a lot to fear from Bill Shorten.”

But independent modelling shows there will be “significant” long-term savings from Labor’s proposal to quarantine negative gearing to new housing investments from July 2017, eventually raising between $3.5 to $3.9 billion a year. It also shows Labor’s proposal to cut the capital gains tax discount from 50% to 25% would raise about $2 billion a year in the long term. It shows the vast majority of savings would be at the expense of the top 10% of earners who negatively gear their properties. It also estimates that by restricting negative gearing to new housing, the policy would “increase the share of investment housing devoted to newly built housing” by 10 to 20%. It does not say house prices would drop. “Our modelling shows that negative gearing benefits high-income families with 52.6% of the benefit going to the top 20% of incomes,” the paper says.

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EU must turn into EMU. Which nobody wants outside of Brussels and EU capitals. Anyway, the coming economic downturn will turn the EMU into a crumbling ruin.

Brexit!? France And Germany Can Not Wait (Gefira)

If London decides to leave the European Union nobody in Europe will even notice. Great Britain is an entirely separate country, isolated from the European Union and does not participate in the Euro or Schengen Agreement. The EU as a political platform is disintegrating and becoming more and more irrelevant and will be displaced by the European Monetary Union (EMU). The center of power in Europe has shifted from the EU to the EMU and London politicians are fully aware of it. A Brexit will accelerate the process of political integration of the EMU members and make the EU politically less significant.

Over the past decade we saw:
• Countries can enter the European Union;
• The very core values of the European Union can be set aside as we saw happening in Turkey just before the European Commission announced to restart Turkey’s accession negotiations;
• Trade relations with Great Britain can be suspended without any upheaval, as we saw it concerning non-EU member Russia;
• Borders can be opened and closed as is the case in south-east Europe due to the refugee crisis;
• The Dublin Regulation can be dissolved overnight in the face of the fact that more than a million refugees have entered Europe since the summer of 2015;

All these events hardly changed the life of the Europeans. Being a member of the European Monetary Union is of another magnitude. The Greek euro crisis changed the lives of millions of Greeks. During the tense days in July 2015, when the future of Greece, the EMU and indirect the future of Europe was at stake, Chancellor Merkel and President Hollande held 24 hours emergency meetings as did the Eurogroup. Great Britain and the European Parliament did not play any role whatsoever in these decisive moments for the future of Europe. Cameron was not even invited to share his opinion.

The European Monetary Union is doomed for further political integration; the euro members have no other option but to create a fiscal union and a banking union. Without these two pillars, the whole Euro will fall apart dragging with it the complete Western financial system. A fiscal and banking union means that these countries have to integrate far beyond the European Union framework. Prime Minister Cameron is an annoyance for the already struggling EMU. The European Monetary Union faces extreme difficulties, as on one hand further integration of the Euro countries is inevitable and on the other hand, the widespread support for this integration is eroding. In 2011, French President Sarkozy told Cameron:”We’re sick of you criticizing us and telling us what to do. You say you hate the euro, you didn’t want to join, and now you want to interfere in our meetings”.

The EMU countries face a big political problem that is to be solved. Germany and France will never let countries outside the EMU have a say in their affairs as Cameron proposed. The diplomatic words from French Prime Minister Manuel Valls make it all clear to London as he said; “a Brexit is a shock for Europe but still members can not pick and choose rules that suit them”. The UK leaving the EU will make life easier for Paris and Berlin as Figaro writes: “Brexit? An opportunity for Europe, for France and for Paris”. When the UK is outside the EU Frankfurt and Paris will have more opportunities to crush London as a financial center. London could not miss Merkel’s warning against gains for British banks under ‘Brexit’. If the UK decides to leave, Berlin and Paris will do definitely more than prevent London banks from making any gain; they will do everything to establish Paris or Frankfurt as the financial center of the EMU at London’s expense.

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Expect refugee numbers to soar over next 2 weeks.

Tsipras, Merkel, Hollande Agree On Open Borders Until March 6 Summit (Kath.)

Greek Prime Minister Alexis Tsipras met with German Chancellor Angela Merkel and French President Francois Hollande on the sidelines of a European Union summit in Brussels on Friday. At the meeting, which reportedly lasted for an hour, the three leaders discussed the refugee crisis and the Greek bailout. According to a close Tsipras aide, the Greek premier reiterated that Greece would not accept any action against its interests. The three leaders agreed that the key with regard to decreasing the migration flow was Turkey and that NATO’s involvement was a positive development. Tsipras reportedly received assurances from Germany and France that assistance would be provided if necessary.

A pivotal point in the discussion was that the three leaders stressed that there would be no change in the European borders’ status quo until March 6, when a new summit on the refugee crisis is scheduled to take place, after Turkish PM Ahmet Davutoglu canceled his trip to Brussels following a bomb attack in Ankara which claimed the lives of 28 people on Wednesday. The leaders also agreed that representatives of the institutions should return to Athens as soon as possible in order to complete the review.

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Because Brexit allows convenient alternate story line. Much more important than human misery.

EU Summit On Refugee Crisis Ends In Disarray (FT)

Chancellor Angela Merkel hoped this week’s EU summit on migration would provide at least a show of European unity in the refugee crisis. Instead, it ended in disarray. An Austrian plan to cap the entry of asylum-seekers at just 80 a day left the German leader isolated, Greece threatening to scupper any deal on Brexit in response, and leaders more divided than ever over the EU’s biggest challenge in decades. European leaders, from Berlin to Vienna to Athens, are now improvising and pursuing often contradictory policies. Ms Merkel took even her own officials by surprise when she demanded another summit on the refugee crisis on March 6, just before three key German regional elections on March 13 and before the onset of spring boosts the numbers crossing the Aegean.

Refugee arrivals have picked up, with more than 4,800 arriving in Greece from Turkey on Thursday a rate not far off the autumn peak, when an average of 7,000 people a day were arriving. A backlog is building up along the western Balkans route, where fractious states have had to pull together to cope with the arrival of more than 1m people since the start of 2015. In private, previously optimistic officials are starting to despair, with worries shifting to a potential humanitarian disaster on the bloc s south eastern border. An EU leader said: “It’s a serious situation”. Ms Merkel is still banking on a deal with Ankara to secure the vulnerable Greek-Turkish frontier. As the chancellor said in the early hours on Friday: “It is an absolute given that we must urgently move faster”.

But bad luck waylaid even this plan: Turkish prime minister Ahmet Davutoglu cancelled a planned trip to Brussels to discuss migration following a car-bomb attack in Ankara. After the stormy summit debate, a tired looking Ms Merkel put a brave face on events at the 2.30am press conference, pointing to the efforts made in recent weeks to engage with Turkish president Recep Tayyip Erdogan and boost Greece’s sea defences by deploying Nato ships. Meanwhile, Vienna has been accused of trampling on international law, including the Geneva Convention on refugees, throwing already barely enforced rules on asylum into further doubt. “Conventions are like fairies; if you stop believing in them, they die”, said Elizabeth Collett, a director at the Migration Policy Institute.

However, the Austrian public backs its chancellor Werner Faymann’s migrant cap, with Der Standard newspaper on Friday defending him, saying that Brussels had scored “an own goal” by criticising Vienna. Ms Merkel, who rarely criticises EU partners in public, said that she had been “surprised” by Mr Faymann. Privately, German officials are furious that an old ally has broken ranks. Brussels had desperately attempted to force member states to abide by the rules, with little success. Despite EU member states agreeing to share out 160,000 refugees from Italy and Greece among themselves, fewer than 600 have actually been moved. While some leaders such as Viktor Orban, Hungary’s prime minister, have noisily disagreed, others — such as Madrid and Paris — have simply dragged their feet.

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Here’s warning you once again, Brussels, you’re not going to survive this, somone will have your head on a platter for it, and it ain’t going to be silver. Even this UNHCR piece tries to blame the smugglers, but Europe could have provided safe passage all along.

Two Children Drown Every Day On Average Trying To Reach Europe (UNHCR)

Two children have drowned every day on average since September 2015 trying to cross the eastern Mediterranean to find safety with their families in Europe, UNHCR, the UN Refugee Agency, said today. In a joint statement, issued in Geneva, UNHCR, UNICEF and the IOM warned that the number of child deaths was on the increase and called for more measures to increase safety for those escaping conflict and despair. Since last September, when the tragic death of toddler Aylan Kurdi captured the world’s attention, more than 340 children, many of them babies and toddlers, have drowned in the eastern Mediterranean. The total number of children who have died may be even greater, the sister organisations said, with their bodies lost at sea and never recovered.

One of those statistics was seven-year-old Houda from Afghanistan who went missing in a shipwreck off the Greek island of Kos at the end of January. Her mother, father, two sisters and one of her brothers had left Kabul for Istanbul earlier that month after her father, a middle-ranking police officer, received death threats. In Turkey, the family made a deal with a smuggler who promised them an “extra-safe trip in a spacious large boat” to Greece. To pay for the trip, Houda’s father had sold his house and borrowed money from family and friends. At night in a dark bay as they prepared to leave, they saw the boat was little more than a sailing coffin. It was small, old and massively overcrowded with around 80 passengers covering a few metres of deck. They tried to step back, but were forced by the smuggler to board the boat with no questions.

Smugglers allow no last-minute change of mind. Houda’s sister Aisha and her brother Aziz survived that deadly trip, along with 26 others, but her mother, father and an older sister perished. Their bodies were recovered. Houda’s was never found. Aisha and Aziz, 16 and 15 respectively, had learned to swim in school and that saved them. The stretch of the Aegean Sea between Turkey and Greece is now among the deadliest routes in the world for refugees and migrants. “These tragic deaths in the Mediterranean are unbearable and must stop,” said UN High Commissioner for Refugees Filippo Grandi. “Clearly, more efforts are needed to combat smuggling and trafficking. Also, as many of the children and adults who have died were trying to join relatives in Europe, organising ways for people to travel legally and safely, through resettlement and family reunion programmes for example, should be an absolute priority if we want to reduce the death toll,” he added.

With children now accounting for 36% of those on the move, the chance of them drowning on the Aegean Sea crossing from Turkey to Greece has grown proportionately. During the first six weeks of 2016, 410 people drowned out of the 80,000 people crossing the eastern Mediterranean. This amounts to a 35-fold increase year-on-year from 2015. Aisha and Aziz are now accommodated at a transit facility UNHCR runs with a national NGO offering specialized services to unaccompanied refugee children in Greece until they are assigned to a permanent facility. They wish to reunite as soon as possible with what remains of their family. They have a brother in Germany and hope one day to be able to join him there.

“These children expressed incredible dignity and courage throughout the many challenges they faced after the shipwreck. After already identifying the corpses of his own family members at the Coast Guard, Aziz insisted on seeing more pictures in order to recognize fellow travellers and help in their identification so that their families could also find out what had happened to them. They repeatedly expressed their gratitude towards me and other colleagues for the help we provided,” said Georgios Papadimitriou, a senior protection officer with UNHCR.

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Jan 252016
 
 January 25, 2016  Posted by at 10:48 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing “Pennsylvania Avenue with snow, Washington, DC” 1918

Oil Falls 4% On Swelling Oversupply
Commodities Stocks Sink As Oil Resumes Downward Slide (FT)
Oil Price Crash Is Completely Changing The Industry’s Landscape (BIA)
US Short Sellers Target China’s Alibaba (BBG)
China Pledges Steel, Coal Capacity Cuts in Supply-Side Reforms (BBG)
China’s Migrants Go Home – And Stay There (BBG)
China’s Central Bank Prioritizes Strong Yuan (WSJ)
The East Knows The West Is Bankrupt (Holter)
Don’t Forget the Irish When Looking at New Risks in Euro Region (BBG)
There’s a Giant Elephant at the Bank of England (BBG)
The End Of Economic Growth (Robert Gordon)
One Year On, Syriza Has Sold Its Soul For Power (Lapavitsas)
Greece On The Brink Of ‘Education Tragedy’ (EurActiv)
We Produced Enough Plastics Since WWII To Cover The Entire Earth (Guardian)
Racism ‘Is At The Heart Of The Australian Dream’ (Guardian)
Merkel’s Party, Sliding In Polls, Weighs German ‘Border Centres’ (Reuters)
Greek Islanders To Be Nominated For Nobel Peace Prize (Observer)
Sealing Greek Sea Border Is Impossible (AP)

Recovery, anyone? The new slump has smoothed a bit as of now.

Oil Falls 4% On Swelling Oversupply

Oil prices fell 4% on Monday as Iraq announced record-high oil production feeding into a heavily oversupplied market, wiping out much of the gain made in one of the biggest-ever daily rallies last week. Brent crude, the global benchmark, was down $1.35 at $30.83 a barrel at 0851 GMT, losing more than 4% from Friday’s closing price, when Brent surged 10%. U.S. crude traded $1.15 lower at $31.04 a barrel, regaining its unusual premium to Brent prices. Iraq’s oil ministry told Reuters on Monday oil output had reached a record high in December. Its fields in the central and southern region produced as much as 4.13 million barrels a day, the government said.

“The news that Iraq has probably hit another record builds on the oversupply sentiment,” said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam. “The oversupply will keep markets depressed and prices low, and on the other hand short positions are in excessive territory,” he said. Indonesia’s OPEC governor said that support among OPEC for taking steps to prop up crude prices is slim, with only one OPEC country supporting an emergency meeting over the matter.

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Bad Hair Groundhog Day.

Commodities Stocks Sink As Oil Resumes Downward Slide (FT)

Oil prices are sinking again, fast, and miners and commodities stocks are once again finding themselves in that all-too familiar position at the bottom of the FTSE 100. As fastFT reported earlier, oil prices are once again heading south after a short-lived rally last week. Brent crude is falling 3.7% at publication time to $30.99 a barrel while WTI, the US benchmark, is down 3.91% at $30.93 a barrel. There had been hopes that the worst may be over for oil prices but clearly the market didn’t get the memo today. Miners and commodities stocks are once again having another bad today.

At publication time:
Anglo American is 3.4% lower at 219p
BHP Billiton is down 2.6% at 632.1p
Rio Tinto is losing 2.6% to £16.10
Copper miner Antofagasta is off 2.4% at 362.5p.
BP is dropping 2.4% to 344.2p.

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A worldwide event.

Oil Price Crash Is Completely Changing The Industry’s Landscape (BIA)

The crash in oil, which has seen the price of crude fall by more than 75% in the last 18 months, is fundamentally changing the landscape of the resources industry in the UK as big numbers of oil firms go into insolvency, or look to take advantage of rivals’ weaknesses and increase their M&A activity. A survey released by accountancy firm Moore Stephens this week showed that the number of UK-based oil and gas companies folding jumped by more than 55% in 2015, with 28 firms entering insolvency, compared to 18 over the course of 2014. In its report, Moore Stephens called the rise in failing oil and gas firms “an almost inevitable result” of the crash in the price of oil, and said that upwards of £140 billion ($200 billion) worth of projects are likely to have been cancelled thanks to the crash.

Moore Stephens’ head of restructuring and insolvency, Jeremy Willmont said: “Oil and gas service companies expanded their businesses over the last decade based on an oil price well above the current one.” “The pain caused by the oil price fall has translated into a rising tide of financial distress across the sector,” he added. The contrast between 2015, and 2010, when oil was on its way up from its last crash in 2008, is pretty stark. According to the research, just four oil and gas companies went under that year. Essentially, the number of oil companies going bust has increased by 600% in just five years. A separate survey, released by law firm Pinsent Mason, said that 90% of those who responded expect the number of M&A deals to rise in 2016, while 30% think that there’ll be a “major surge” and around two thirds believe that Britain’s oil and gas sector is a good area for acquisitions.

In the last year or so, the number of new oil projects has slowed significantly as fewer and fewer can be profitable thanks to the rock bottom price of the commodity. This is particularly true in Britain, where producing a barrel of oil now costs more than double its market price. 2015 was a record breaking year for mergers and acquisitions, with more than $5 trillion worth of deals taking place last year, largely driven by big healthcare deals, like the join up of pharma firms Pfizer and Allergan. One of the most prominent deals, which is set to be completed pretty soon, is the merger between BG Group and Shell, both FTSE100 listed oil and gas giants.

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A very strong indicator of just how badly China is doing. Alibaba was supposed to be bigger than Apple, Amazon.

US Short Sellers Target China’s Alibaba (BBG)

U.S. short sellers have pushed bets against Alibaba to the highest in more than 14 months on concern that China’s deepest economic slowdown since 1990 will only get worse. Short interest in China’s biggest online retailer surged to 7.5% of shares outstanding on Jan. 21, the highest since November 2014, according to data compiled by Markit and Bloomberg. That is more than double from a Dec. 1 low. Bearish bets on rival JD.com have hovered around 2% since last month. Pessimists are once again taking aim at Alibaba – a bellwether for U.S. investor sentiment on China – as mainland stocks entered a bear market last week. Those wagers are already starting to pay off as a selloff since the start of the year sent the American depositary receipts of Alibaba down more than 13%.

Investors see Alibaba as a stock that reflects the state of the Chinese economy, said Henry Guo at Summit Research, who has a buy rating on the stock. “With China’s economic outlook worsening, that’s just an easy way for people to have short China exposure,”
China’s top leadership has signaled it may accommodate more economic slackness as officials tackle delicate tasks such as reducing excess capacity. The world’s second-largest economy will slow to 6.5% this year and 6.3% next year, according to the median of economist estimates. At a corporate level, counterfeit products and accounting frauds of Alibaba are also on the mind of investors since the company’s record 2014 debut on the New York Stock Exchange. Kynikos Associates LP founder Jim Chanoswarned against the stock in November, according to a CNBC report. In December, Russian billionaire Alisher Usmanov said he has started to sell his stake in the e-commerce giant.

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How to make trouble sound like ‘I meant to do that’.

China Pledges Steel, Coal Capacity Cuts in Supply-Side Reforms (BBG)

China is targeting further cuts in crude steel production capacity by as much as 150 million tons and “large scale” reductions in coal output as part of supply-side measures aimed at curbing overcapacity and excess labor in state-owned industries. The country has lowered steel production by about 90 million tons “in recent years” and will push to cut a further 100 million to 150 million tons, while “strictly controlling” steel capacity increases and halting new coal mine approvals, according to a Sunday statement on the Chinese government’s website, citing a State Council meeting on Jan. 22 chaired by Premier Li Keqiang. No time line was mentioned.

China has vowed in the past to curb capacity in industries such as coal and steel as the world’s second-largest economy slows amid a shift towards consumer-led growth. Still, it has struggled to meet stated coal capacity limits spelled out in the 12th Five-Year plan that ended last year, according to Bloomberg Intelligence. Coal demand in the country is also declining with the government keen to curb pollution. The government plans to set up a fund to help coal miners and steelmakers reduce their workforce and dispose of bad assets, Li said during a meeting in Shanxi province, according to a Jan. 7 China Central Television report. The financial help is dependent on the companies cutting capacity, he said.

As part of re-balancing the economy towards domestic consumption, the country’s cabinet also pledged to ease conditions for rural-to-urban migration and expand “new urbanization” trials to more regions, the government said in Sunday’s statement. China will “more aggressively develop” small- and medium-sized cities and give more administrative authority to areas with populations of more than 100,000, the government said. China will also expand shantytown development in major cities, while reducing the barriers to entry to attract private capital investment in transportation, underground pipe networks and other forms of construction, according to the statement.

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Manufacturing jobs are going going gone.

China’s Migrants Go Home – And Stay There (BBG)

Every year, tens of millions of China’s 246 million migrants return home to celebrate the Chinese New Year. It’s the world’s biggest annual migration, and it typically goes off smoothly. This year, however, something’s amiss. Although the holiday doesn’t start until Feb. 8, millions of workers – especially in the construction and electrical-appliance industries – have already returned home due to the country’s slowing economy. For local governments across China, this is raising a tough question: What happens if these laborers don’t go back to work after the holiday? The concern isn’t a new one. In early 2009, 20 million unemployed migrants returned home for the holidays in the wake of the global financial crisis, raising fears of social unrest. Labor riots did, in fact, take place.

But most of the unemployed appear to have gotten back to work when China’s monster stimulus kicked in later that year. This time is notably different. Prospects for a 2009-style stimulus are slim. More important, China is on the cusp of a long-term trend of reverse migration back to the countryside. This week, the National Bureau of Statistics reported that the migrant population dropped by 5.68 million in 2015 – its first decline in about three decades. Some of that decline is simple demographics, and parallels China’s rapidly shrinking labor force. But much of it is attributable to a slump in the labor-intensive manufacturing sector, and a steady improvement in rural economies.

These trends haven’t caught authorities completely off-guard: Despite a long-term commitment to urbanization (in 1980, China was 19.6% urbanized; today the figure is more than 50%), the government has recently directed more attention and money to rural development projects, ranging from infrastructure improvement to credit support for the country’s hundreds of millions of farmers. This year, rural per-capita income is expected to exceed 10,000 yuan for the first time, surpassing urban income growth for the fifth straight year. But just as economics were never the sole reason for moving to the city, many migrants also have non-economic motives for moving back home, including a desire to care for aging parents left behind and a hunger for uncontaminated food.

“The migrant workers are rooted in the countryside,” said Yang Tuan, a prominent sociologist at the China Academy of Social Science, in a September interview. “They have feelings for the land.” She predicted that reverse migration might peak in the next five to 10 years.

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It makes no difference what Beijing wants.

China’s Central Bank Prioritizes Strong Yuan (WSJ)

China’s central bank faces a tough balancing act, trying to ease credit in the financial system without adding to pressures weakening the Chinese currency. Concerns about the yuan and the annual cash crunch ahead of next month’s Lunar New Year holiday dominated a meeting held by the People’s Bank of China on Tuesday, according to minutes of the meeting reviewed by the WSJ and to accounts from banking executives close to the PBOC. Central bank officials delayed using a traditional credit-easing tool for fear that it could add more downward pressure on the yuan, according to the minutes and the executives. Instead, to meet the rising cash needs from banks, the central bank turned to short-term and medium-term loan facilities to pump about 1.6 trillion yuan ($243 billion) of temporary liquidity into the banking system in the past week.

The decision highlights the bank’s deepening dilemma in helping to cushion the slowing Chinese economy. Just a year ago, the PBOC addressed preholiday cash demands by resorting to a more typical method—cutting the amount banks are required to keep in reserve. Since then, the economic slowdown and volatility in the stock markets have led to a flood of capital leaving China, as Chinese investors seek better returns abroad. The yuan, also known as the renminbi, has been battered harder than the central bank would like, even as it faces calls to keep easing credit and rekindle growth. “Currently, we need to put a high emphasis on maintaining the renminbi’s stability when managing liquidity,” Zhang Xiaohui, an assistant governor at the central bank, said at the Tuesday meeting, according to the minutes.

Ms. Zhang said cutting the reserve requirement would send “too strong an easing signal,” so the bank should turn to other tools. A reduction in so-called reserve-requirement ratio frees up funds for banks to lend on a permanent basis, while injecting liquidity through short-term and medium-term tools means the money can be taken back by the central bank when those loans expire. Ms. Zhang told officials at the meeting that the combination of cuts to interest rates and reserve requirements made by the central bank in late October contributed to the pressure on the yuan. “Because of the double reductions, there was too much liquidity and depreciation pressure on the renminbi,” she said.

Ahead of Tuesday’s meeting, China’s big banks called on the central bank to cut the reserve requirement in the lead-up to the holiday. But the central bank balked at doing that because of worries over the stability of the yuan, the banking executives close to the PBOC said. “They decided to put off the reserve-requirement cut until later,” one of the executives said. The executive said the central bank would have to make the cut “at some point” because the surge in money leaving China, as well as the PBOC’s efforts to buy yuan to prop up its value, are squeezing liquidity.

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The west knows the east is bankrupt, too.

The East Knows The West Is Bankrupt (Holter)

[..] what would the world look like the day following a “truth bomb” dropped by Mr. Putin and the Chinese. Would Americans even notice if he documented several false flags or frauds embedded in U.S. finance such as outright monetization of U.S Treasuries? No, most certainly not. Americans would however notice if financial markets collapsed or were shut down. Russia and China know full well the situation in the West. It is a bankruptcy waiting to happen as everything is fractional reserve and running on maximum margin while the underlying system is shrinking and no longer supplying enough liquidity. The way I see it, the stage is truly set for a financial attack on anything and everything American. Is it implausible for the Saudis to announce they will sell oil in yuan to China?

Or Iran to withdraw their funds from U.S. institutions and then bid for gold with these funds? If the East does in fact have jamming or hacking capability of Western technology, is it far fetched for them to show it very publicly in one or several situations? How would the “bookies” react if they saw a prize fighter enter one of the later rounds with his hands tied behind his back? You can laugh at the above speculation if you choose but it is all quite plausible and actually probable if you look at where things are and what posturing has already been done leading up to this. Western markets, ALL markets are a fraud. Our Treasury market is one where the biggest buyer is “our self” …the Fed and the ESF.

We have already seen $1 trillion of foreign reserves offloaded with no effect on yield nor the dollar itself and NO ACCOUNTING ANYWHERE as to “who” bought these offloaded central bank reserves. Accounting fraud and no rule of law here, nothing to see …please move along! You can laugh if you want and say Saudi Arabia will never move toward the East … Saudi Arabia is now in very dire straits financially, who do you think they will side with when Western markets melt down? Do you really believe they will go down trying to support our dollar?

The stage has already been set. The East knows the West has bankrupted. They know we have no gold left because they have it! They can see the finances of the various cities, states and federal government. They know the situation in derivatives is one giant mountain of dynamite waiting for a spark. They know our rule of law is gone and bail ins of depositor funds is next. We are monetizing their sales of Treasury securities. “We” are fooling no one except ourselves. And by “ourselves” I am talking about the vast majority of the population who have grown to rely on the government for everything. Everyone knows we are broke, yet ask anyone and the odds highly favor you will hear “the government will never let it happen”. Even if you are silly enough to believe this you must ask yourself, what are the ramifications when markets become “make believe”?

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They’ll be picking them off one by one again. Bye, Draghi.

Don’t Forget the Irish When Looking at New Risks in Euro Region (BBG)

Ireland gets to decide on its next government as early as next month, and if elections in other countries once at the heart of the European debt crisis are anything to go by, investors should be wary. Portugal’s vote on Oct. 4 produced an inconclusive result, leading to weeks of brokering before Socialist leader Antonio Costatook power with promises to put the brakes on austerity measures. Bond yields have jumped to the highest in six months since then. In Spain, Prime Minister Mariano Rajoy lost his majority last month after years of belt-tightening and the country still doesn’t have a new government.

Ireland is another European electorate jaded by budget cuts. Polls indicate that Prime Minister Enda Kenny’s ruling coalition will struggle to win a majority, though there’s no clear alternative. The country, European Central Bank President Mario Draghi’s model for economic recovery, saw its 10-year bond yields sink below 1% this month. But banks and brokers are already sounding warnings. “The ballot is the most important potential flash-point of the year,” said Dermot O’Leary, economist at Goodbody Stockbrokers in Dublin. “Investors got caught out by the inconclusive result in Spain, and so there is more focus now on Ireland.”

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EU.

There’s a Giant Elephant at the Bank of England (BBG)

It’s a new year and Bank of England officials have been sharing their views on the outlook for the U.K. and the risks. Well, some of the risks. So far in January, policy makers have spouted more than 20,000 words in three speeches and the minutes of their monthly meeting. They’ve cited a global slowdown, weak wage growth and a slump in oil as key issues for 2016. However, their official communications offer no guidance on what economists say is the top risk facing the U.K.: the forthcoming referendum on its membership in the European Union. Lawmakers could try to change that Tuesday – Governor Mark Carney appears in Parliament to talk about financial-stability risks, and they may well ask him about the elephant in the room.

“It’s such a hot issue, I’d be surprised if it didn’t come up,” said Chris Hare at Investec in London. “Carney would probably try to continue to tread a fine line on potential implications of “Brexit.” You might think they’d want to put some kind of downside skew in to their forecast, but if they really pile into those debates, they’d be criticized. They’ll probably try and stay coy.” It’s certainly on the mind of U.K. economists. They cited the buildup to the vote on EU membership and the potential for Britain to exit as the biggest risks in 2016, according to a Bloomberg News survey. Prime Minister David Cameron has yet to call a date, but it could happen as soon as June.

The absence of “Brexit” analysis from the BOE is getting conspicuous. Last October, Carney skirted the tense political battle with a speech that addressed the U.K.’s relationship with Europe, but offered no final conclusion on its merits. His remarks were accompanied by a 100-page report that assessed the issue but offered no judgment on the impact on the U.K. economy of a British exit. Carney went a step further last week, insisting that not only has he said nothing on “Brexit,” he’s not planning to, either. He told the Wall Street Journal: “We have said all we are going to say about that. We deal with the facts on the ground and the facts on the ground are the status quo. Our job is to make the status quo work as effectively as possible.”

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Recommended read.

The End Of Economic Growth (Robert Gordon)

The idea that a single 100-year period, the “special century,” was more important to economic progress than any other so far, goes against the theory of economic growth as it has evolved over the last 60 years. Growth theory features an economy operating in a “steady state” in which a continuing inflow of new ideas and technologies creates opportunities for investment. But this model does not apply to most of human history. According to Angus Maddison, the great historian of economic growth, the annual rate of growth in the western world from AD 1 to AD 1820 was a mere 0.06% per year, or 6%%ury.

Or, as summed up by the economic commentator Steven Landsburg: “Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture—but none of that stuff had much effect on the quality of people’s lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level… Then—just a couple of hundred years ago—people started getting richer. And richer and richer still.” The designation of a “special century” applies only to the US, which has carved out the technological frontier for developed nations since the Civil War. However, other countries have also made stupendous progress.

Western Europe and Japan largely caught up to the US in the second half of the 20th century, and China and other emerging nations are well on their way. Progress did not suddenly begin in 1870, but the US Civil War (1861-65) provides a sharp historical marker. The first Census of Manufacturing was carried out in 1869; coincidentally, that year brought the nation together in a real sense, when the transcontinental railroad was joined at Promontory Summit in Utah.

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Lapavitsas is one of the guys who left Syrixa, for the left.

One Year On, Syriza Has Sold Its Soul For Power (Lapavitsas)

Today marks a year since a radical left government was elected in Greece; its dynamic young prime minster, Alexis Tsipras, promising a decisive blow against austerity. Yanis Varoufakis, his unconventional finance minister, arrived in London soon after and caused a media sensation. Here was a government that disregarded stuffy bourgeois conventions and was spoiling for a fight. Expectations were high. A year on, the Syriza party is faithfully implementing the austerity policies that it once decried. It has been purged of its left wing and Tsipras has jettisoned his radicalism to stay in power at all costs. Greece is despondent. Why did it end like this? An urban myth propagated in some media circles suggests that the radicals were stopped by a coup engineered by conservative politicians and EU officials, determined to eliminate any risk of contagion.

Syriza was overcome by the monsters of neoliberalism and privilege. Still, it fought the good fight, perhaps even sowed the seeds of rebellion. The reality is very different. A year ago the Syriza leadership was convinced that if it rejected a new bailout, European lenders would buckle in the face of generalised financial and political unrest. The risks to the eurozone were, they presumed, greater than the risks to Greece. If Syriza negotiated hard, it would be offered an “honourable compromise” relaxing austerity and lightening the national debt. The mastermind of this strategy was Varoufakis, but it was avidly adopted by Tsipras and most of Syriza’s leadership.

Well-meaning critics repeatedly pointed out that the euro had a rigid set of institutions with their own internal logic that would simply reject demands to abandon austerity and write off debt. Moreover, the European Central Bank stood ready to restrict the provision of liquidity to the Greek banks, throttling the economy – and the Syriza government with it. Greece could not negotiate effectively without an alternative plan, including the possibility of exiting the monetary union, since creating its own liquidity was the only way to avoid the headlock of the ECB. That would be far from easy, of course, but at least it would have offered the option of standing up to the catastrophic bailout strategies of the lenders. Unfortunately, the Syriza leadership would have none of it.

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Dijsselbloem and Schäuble making sure Greece will never recover as long as it’s in the EU.

Greece On The Brink Of ‘Education Tragedy’ (EurActiv)

The economic crisis has dramatically impacted the already struggling Greek education system, according to a trade union report published last week (19 January). EurActiv Greece reports. The report by the General Confederation of Labour in the area of Education and Lifelong learning ( KANEP-GSEE), examined the state of the Greek primary and secondary education system in the 2002-2014 period. “We are on the brink of an unprecedented education tragedy in recent decades,” the authors of the report warn, underlining that the issue is mainly “political”. “The image of the Greek primary and secondary education, compared to the European mainstream, causes deep concerns for the future of younger generations and for the future of Greece itself.”

The alarming report warned that Athens was a champion in underfunding and inequalities in its education system, as well as a laggard in innovation and learning results at the EU level. The report stressed that actual expenses did not reflect the amount of money earmarked in the annual budget of Greece. Eurostat, the EU’s statistics office, said that public expenditure on education accounted for 4.5% of GDP in 2013. However, it was just 3.2% of GDP, according to official statistics by the State General Accounting Office. “A 1.3% difference is excessively high […] and it cannot be accepted,” the report reads. The underfunding, in combination with the “ineffective study programmes”, resulted in low educational performance. Greek students are amongst the worst performers in basic subjects (mathematics, language, natural sciences).

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And production is soaring.

We Produced Enough Plastics Since WWII To Cover The Entire Earth (Guardian)

Humans have made enough plastic since the second world war to coat the Earth entirely in clingfilm, an international study has revealed. This ability to plaster the planet in plastic is alarming, say scientists – for it confirms that human activities are now having a pernicious impact on our world. The research, published in the journal Anthropocene, shows that no part of the planet is free of the scourge of plastic waste. Everywhere is polluted with the remains of water containers, supermarket bags, polystyrene lumps, compact discs, cigarette filter tips, nylons and other plastics. Some are in the form of microscopic grains, others in lumps. The impact is often highly damaging. “The results came as a real surprise,” said the study’s lead author, Professor Jan Zalasiewicz, of Leicester University.

“We were aware that humans have been making increasing amounts of different kinds of plastic – from Bakelite to polyethylene bags to PVC – over the last 70 years, but we had no idea how far it had travelled round the planet. It turns out not just to have floated across the oceans, but has sunk to the deepest parts of the sea floor. This is not a sign that our planet is in a healthy condition either.” The crucial point about the study’s findings is that the appearance of plastic should now be considered as a marker for a new epoch. Zalasiewicz is the chairman of a group of geologists assessing whether or not humanity’s activities have tipped the planet into a new geological epoch, called the Anthropocene, which ended the Holocene that began around 12,000 years ago.

Most members of Zalasiewicz’s committee believe the Anthropocene has begun and this month published a paper in Science in which they argued that several postwar human activities show our species is altering geology. In particular, radioactive isotopes released by atom bombs left a powerful signal in the ground that will tell future civilisations that something strange was going on. In addition, increasing carbon dioxide in the oceans, the massive manufacture of concrete and the widespread use of aluminium were also highlighted as factors that indicate the birth of the Anthropocene. Lesser environmental impacts, including the rising use of plastics, were also mentioned in passing.

But Zalasiewicz argues that the humble plastic bag and plastic drink container play a far greater role in changing the planet than has been realised. “Just consider the fish in the sea,” he said. “A vast proportion of them now have plastic in them. They think it is food and eat it, just as seabirds feed plastic to their chicks. Then some of it is released as excrement and ends up sinking on to the seabed. The planet is slowly being covered in plastic.”

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“An Indigenous child is more likely to be locked up in prison than they are to finish high school.”

Racism ‘Is At The Heart Of The Australian Dream’ (Guardian)

The veteran journalist and Wiradjuri man, Stan Grant, has told a Sydney audience that racism is “at the heart of the Australian dream,” as he delivered a sobering speech about the impact of colonisation and discrimination on Indigenous people and their ancestors. It has provoked a powerful reaction from Australians, going viral on Facebook with 850,000 views and 28,000 shares, and had been watched more than 50,000 times on YouTube by Sunday night. As part of the IQ2 debate series held by the Ethics Centre, Grant joined immigration lawyer Pallavi Sinha, Herald Sun columnist Rita Panahi and Australian actor Jack Thompson to argue for or against the topic “Racism is destroying the Australian dream”. The event was held last year, but the Ethics Centre only released the video online on Friday.

In his opening address, Grant, who is also Guardian Australia’s Indigenous affairs editor, argued that racism was at “the foundation of the Australian dream”. “The Australian dream,” Grant said. “We sing of it and we recite it in verse; ‘Australians all let us rejoice for we are young and free’. “My people die young in this country. We die 10 years younger than the average Australian, and we are far from free. We are fewer than 3% of the Australian population and yet we are 25% – one quarter – of those Australians locked up in our prisons. And if you’re a juvenile it is worse, it is 50%. An Indigenous child is more likely to be locked up in prison than they are to finish high school.”

He spoke of his Indigenous ancestors, including his grandmother and great-grandmother, who were among those institutionalised in missions, where Indigenous people were forced into unpaid labour and abused. He referenced the “war of extermination” against his ancestors. “I love a sunburned country, a land of sweeping plains, of rugged mountain ranges,” Grant said, referencing the famous poem, My Country, by the Australian writer Dorothea Mackellar. “It reminds me that my people were killed on those plains. We were shot on those plains, diseases ravaged us on those plains.

“Our rights were extinguished because we were not here according to British law, and when British people looked at us, they saw something subhuman. We were fly-blown, Stone-Age savages, and that was the language that was used. Captain Arthur Phillip, a man of enlightenment … was sending out raiding parties with the instruction; ‘bring back the severed heads of the black trouble-makers’.

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What does this make me think of? Just because they don’t call them camps….

Merkel’s Party, Sliding In Polls, Weighs German ‘Border Centres’ (Reuters)

A senior figure in Chancellor Angela Merkel’s conservative party has proposed setting up “border centres” along the frontier with Austria to speed up the repatriation of those asylum seekers deemed unqualified to stay. Julia Kloeckner, leader of Merkel’s Christian Democrats in the western state of Rhineland-Palatinate, was careful to style her proposal as a “Plan A2” rather than a “Plan B”, adding that the chancellor’s push for a European solution to a large influx of asylum seekers into the continent was still right. “We want to complement it,” she wrote in a paper setting out her position, a copy of which Reuters obtained. In the paper, Kloeckner proposed that: “On the German-Austrian border, border centres will be set up.”

The proposal, endorsed by the Christian Democrats’ (CDU) secretary general, highlights the frustration in Merkel’s party with the slow progress in achieving a European Union-wide solution to the refugee crisis, which is straining the infrastructure of many German municipalities. Germany attracted 1.1 million asylum seekers last year, leading to calls from across the political spectrum for a change in its handling of the number of refugees coming to Europe to escape war and poverty in Syria, Afghanistan and elsewhere. Growing concern about Germany’s ability to cope with the influx and worries about crime and security after assaults on women at New Year in Cologne are weighing on support for the CDU and its Bavarian sister party, the Christian Social Union (CSU). An Emnid poll for the newspaper Bild am Sonntag showed support for the CDU/CSU bloc down 2%age points at 36% from the previous week. The right-wing Alternative for Germany (AfD) gained 1 point to 10%. Merkel’s coalition partners, the Social Democrats (SPD), gained a point to 25%.

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Should you really want an award that you share with Obama and Kissinger?

Greek Islanders To Be Nominated For Nobel Peace Prize (Observer)

Greek islanders who have been on the frontline of the refugee crisis are to be nominated for the Nobel peace prize with the support of their national government. Of the 900,000 refugees who entered Europe last year most were received –scared, soaked and travelling in rickety boats – by those who live on the Greek islands in the Aegean Sea. The islanders, including fishermen who gave up their work to rescue people from the sea, are in line to be honoured with one of the world’s most esteemed awards. Eminent academics from the universities of Oxford, Princeton, Harvard, Cornell and Copenhagen are drafting a submission in favour of awarding the prize to the people of Lesbos, Kos, Chíos, Samos, Rhodes and Leros.

The nomination deadline is 1 February, but those behind the plan have already met the Greek minister for migration, Yiannis Mouzalas, who they say has offered his government’s full support. A petition on the website of the grassroots campaign group, Avaaz, in favour of the nomination has amassed 280,000 signatures. According to the petition: “On remote Greek islands, grandmothers have sung terrified little babies to sleep, while teachers, pensioners and students have spent months offering food, shelter, clothing and comfort to refugees who have risked their lives to flee war and terror.”

While the official nomination letter is yet to be finalised, it is understood the academics, whose identities will be revealed in the coming days, will implore the Nobel committee members to accept their nomination. They will say that it must be noted that a people of a country already dealing with its own economic crisis responded to the unfolding tragedy of the refugee crisis with “empathy and self-sacrifice”, opening their homes to the dispossessed, risking their lives to save others and taking care of the sick and injured. [..] One of the organisers of the Solidarity Networks, Matina Katsiveli, 61, a retired judge who lives on Leros, welcomed the move but said there was “reward enough in the smiles of the people we help”.

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That was not clear?

Sealing Greek Sea Border Is Impossible (AP)

Hour after hour, by night and by day, Greek coast guard patrols and lifeboats, reinforced by vessels from the European Union’s border agency Frontex, ply the waters of the eastern Aegean Sea along the frontier with Turkey. They are on the lookout for people being smuggled onto the shores of Greek islands – the front line of Europe’s massive refugee crisis. Although smugglers are often arrested, the task is mainly a search-and-rescue role. Hours spent on patrol shows the near-impossibility of sealing Europe’s sea borders as some have demanded of Greece, whose islands so near to Turkey are the most popular gateway into Europe. Some European countries – notably Hungary and Slovakia – have blasted Greece for being unable to secure its border, which also forms part of the external limits of Europe’s borderless Schengen area.

“We have been saying all along that if the Greeks are unable to protect the borders of their country, we should jointly go down south and protect them,” Hungarian Prime Minister Viktor Orban said in November, with his Slovak counterpart Robert Fico echoing the thought. But such calls ignore the realities at sea. No matter how many patrol boats are out in Greek waters, attempting to force a vessel of asylum-seekers back into Turkish waters is both illegal and dangerous, even in calm seas. So unless a Turkish patrol stops a migrant boat and returns it to Turkey, there is little Greek or Frontex patrols can do once it has entered Greek territorial waters but arrest the smugglers and pick up the passengers or escort the vessel safely to land.

“Greece is guarding the national and European borders,” Greek Alternate Foreign Minister Nikos Xydakis said in a statement Sunday. “What it cannot do and will not do … is to sink boats and drown women and children, because international and European treaties and the values of our culture forbid it.”

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