Apr 092018
 
 April 9, 2018  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , , ,  


Andreas Feininger Production B-17 heavy bomber 1942

 

Syria and Russia Accuse Israel Of Missile Attack On Syrian Regime Airbase (G.)
Stocks To Retest Correction Lows As Easy Money Disappears – Boockvar (CNBC)
Albert Edwards On The Next Recession: S&P Below 666 (ZH)
Bad Omen for Markets From First Signs of Yield Curve Inversion
Trump’s Trade War Threatens Central Bank ‘Put’ – Deutsche (BBG)
China Is Studying Yuan Devaluation as a Tool in Trade Spat (BBG)
YouTube Illegally Collects Data On Children – Child Protection Groups (G.)
Number Of UK Buy-to-Let Landlords Reaches Record High (Ind.)
Public Backs Fresh Referendum On ‘Final Say’ On Terms Of Brexit Deal (Ind.)
Murderers & Thieves Sold Out America – Gerald Celente (USAW)
Shell Predicted Dangers Of Fossil Fuels And Climate Change In 1980s (Ind.)
Indigenous People Are Being Displaced Again – By Gentrification (Latimore)
Fish Populations In Great Barrier Reef Collapse After Bleaching Events (Ind.)

 

 

I don’t want TAE to be about warfare, but this situation is getting so absurd it’s starting to feel dangerous. Don’t believe the narrative.

Syria and Russia Accuse Israel Of Missile Attack On Syrian Regime Airbase (G.)

Israeli war planes have bombed a Syrian regime airbase east of the city of Homs, the Russian and Syrian military have said. The Russian military said that two Israeli F-15 war planes carried out the strikes from Lebanese air space, and that Syrian air defence systems shot down five of eight missiles fired. Asked about the Russian statement, an Israeli military spokesman said he had no immediate comment. Syrian state TV reported loud explosions near the T-4 airfield in the desert east of Homs in the early hours of Monday. State TV initially reported that the attack was “most likely” American, a claim the Pentagon has denied.

Video footage on social media in Lebanon showed aircraft or missiles flying low over the country, apparently heading east towards Syria. At least 14 people, mostly Iranians or members of Iran-backed groups, were killed, the UK-based Syrian Observatory for Human Rights monitoring group said. Donald Trump warned on Sunday that the regime and its backers would pay a “high price” for the use of chemical weapons in the attack on rebel-held Douma that killed 42 people, but the Pentagon denied US forces were involved in Monday’s strikes. “However, we continue to closely watch the situation and support the ongoing diplomatic efforts to hold those who use chemical weapons, in Syria and otherwise, accountable,” a Pentagon spokesman said.

Separately, the White House put out an account of a telephone conversation between Trump and Emmanuel Macron, in which the US and French presidents “agreed to exchange information on the nature of the attacks and coordinate a strong, joint response”. Macron has said chemical weapons attacks in Syria would cross a “red line” for France and that French forces would strike if the regime was proven to have been involved. However, the French army denied responsibility for Monday’s attack.

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When the easy money goes, everything follows.

Stocks To Retest Correction Lows As Easy Money Disappears – Boockvar (CNBC)

He’s a Wall Street bear who sees more monster market moves coming — with the majority of them leaving stocks deep in the red. The Bleakley Advisory Group’s Peter Boockvar warns there’s more trouble brewing, because the era of easy money is ending, thanks to global central banks hiking borrowing costs. And as fears intensify over a trade war, Boockvar expects a solution to the tariff issue will eventually come at the expense of rising rates. “We could get that resumption of higher interest rates which would then concern the markets, and then retest the [S&P 500 Index] 2500-ish type lows,” the firm’s chief investment officer told CNBC’s “Futures Now” last week.

“We’re late cycle in the market. We’re late cycle in the economy, and you have an intensification in a tightening of monetary policy,” he said. Boockvar, a CNBC contributor, blamed the end of quantitative easing in the United States and Europe for increasing sell-off risks. “We’re a step closer to them wanting to take away negative interest rates. But there are still trillions of dollars of global bonds that have negative yielding rates,” he added. “So, it’s this rate environment that I think is becoming more of a headwind. That really is my main concern.” He doesn’t believe the situation will abate any time soon. Boockvar contended the 10-Year Treasury yield will push back toward 3 percent — preventing the S&P 500 from cracking above its Jan. 26 record high anytime soon.

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Barron’s interview with Albert Edwards via ZH, who add a little David Rosenberg intro:

Albert Edwards On The Next Recession: S&P Below 666 (ZH)

The Fed generally tightens rates until something breaks. David Rosenberg points out that since 1950 there have been 13 Fed tightening cycles, and 10 of them ended in recession (while the others have often ended in emerging market blow-ups, like the 1994 Mexican peso crisis). Surging delinquency and charge-off rates for smaller banks suggest the breaking point for the economy may come sooner than the Fed and bulls expect.

What happens to stocks during the next recession? The Federal Reserve managed to short-circuit this derating process. In 2011, when quantitative easing, or QE, really kicked in, equity re-engaged with bond yields and P/Es expanded. Like an artificial stimulant, QE inflated all asset prices away from fundamental value and from where they would otherwise have gone. We haven’t seen the lows in bond yields. In the next recession, bond yields in the U.S. will go negative and converge with those in Germany and Japan. The forward U.S. P/E bottomed at about 10.5 times in March 2009 on trough earnings. That was lower than the previous recession.

In the next recession, I would expect the P/E to bottom at about seven times, a lower low with earnings about 30% lower because of the recession. That would put the S&P lower than the 666 low of the previous crash, versus 2671 Thursday afternoon. If a recession unfolds, easy monetary policy won’t stop the market from collapsing. It will play itself out.

When will the recession hit: The Conference Board’s leading indicators look OK for now. What’s different is that problems in the real economy aren’t being reflected in the stock and bond markets. What we may see is the reverse: The stock market and parts of the credit markets collapse and cause problems in the real economy. If confidence collapses because the equity market collapses, then a recession unfolds.

Will the US be hit harder than Japan and Europe in the next bear market? It should be. Traditionally, if the U.S. goes down 20%, the German Dax, though it is cheaper, would tend to go down a little more. Maybe this time it won’t. Japan is the one market we do like now on a long-term basis, and one of the reasons is the buildup of U.S. corporate debt during these past few years. The big bubble is U.S. corporate debt. In contrast, Japan’s corporate debt is collapsing. Over half of its companies have more cash than debt. When the Fed buys U.S. Treasuries, it pulls down all yields. There has been demand for yield, so investors look at corporate bonds as an alternative. Companies have been very keen to issue them, and they have used the money to buy back stock or as a way to enrich management. This is the way QE has washed through the system here.

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“..rising expectations of a Fed policy mistake.. We could argue that mistake is 10 years old by now.

Bad Omen for Markets From First Signs of Yield Curve Inversion

The forward curve of a closely watched proxy for the Federal Reserve’s policy rate has slightly inverted, signaling investors are either pricing in a mistake from central bankers or end-of-cycle dynamics, according to JPMorgan Chase. The inversion of the one-month U.S. overnight indexed swap rate implies some expectation of a lower Fed policy rate after the first quarter of 2020, the bank’s strategists including Nikolaos Panigirtzoglou, wrote in a note Friday. “An inversion at the front end of the U.S. curve is a significant market development, not least because it occurs rather rarely,” they said. “It is also generally perceived as a bad omen for risky markets.”

The negative market signal comes as investors grapple with higher short term borrowing costs, which have risen in the U.S. to levels unseen since the financial crisis. While the strategists admit it is difficult to discern which of the two explanations for the curve inversion carries more weight, flow data suggests it is more likely to be rising expectations of a Fed policy mistake.

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No, Bloomberg, we know that China can’t dump Treasuries. The “end of Chimerica” sounds poetic though.

Trump’s Trade War Threatens Central Bank ‘Put’ – Deutsche (BBG)

A breakdown in the relationship between dollar weakness and Asian central bank intervention poses a risk to Treasuries, stocks and all risky assets, according to Deutsche Bank. Attempts by the Trump administration to clamp down on currency manipulation have limited the ability of central banks across the region to buy U.S. assets when the dollar weakens, and dampen the appreciation of their currencies, strategist Alan Ruskin write in a note Friday. These purchases have historically limited the greenback’s downside and acted as a “put” on Treasury market weakness, he wrote. Such central bank puts are usually associated with successive Federal Reserve chairs willing to support the wider market with loose monetary policy.

While such puts have been a continuous focus for investors, markets now risk overlooking other sources of central bank support that may be slipping as the U.S.’s “synergistic relationship with China,” comes to an end, according to Ruskin. “It is not a coincidence that in this recent period of dollar weakness, Treasury bonds were also soft,” he said. “Historically, foreign central banks of sizable current account surplus countries like China, Taiwan, Korea and Thailand would have been intervening.” According to the strategist, the “end of Chimerica” means American current account deficits are no longer financed to the same degree by Asian central bank reserve recycling of corresponding trade surpluses. That reduction in demand for Treasuries from foreign reserves is coming at a time when U.S. fiscal supply is set to increase dramatically, putting extra pressure on the country’s bond market.

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This is more likely. Risky for China though, but there must be plans to shore up domestic firms.

China Is Studying Yuan Devaluation as a Tool in Trade Spat (BBG)

China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide. Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part of the analysis looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China depreciates the yuan to offset the impact of any trade deal that curbs exports. The analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders, the people said.

The yuan erased early gains on Monday, weakening 0.1 percent to 6.3110 per dollar in onshore trading at 3:32 p.m. local time. While Trump regularly bashed China on the campaign trail for keeping its currency artificially weak, the yuan has gained about 9 percent against the greenback since he took office as China’s economic growth stabilized, the government clamped down on capital outflows and fears of a credit crisis receded. The Chinese currency touched the strongest level since August 2015 last month and has remained steady in recent weeks despite an escalation of trade tensions between the world’s two largest economies.

While a weaker yuan could help President Xi Jinping shore up China’s export industries in the event of widespread tariffs in the U.S., a devaluation comes with plenty of risks. It would make it easier for Trump to follow through on his threat to brand China a currency manipulator, make it more difficult for Chinese companies to service their mountain of offshore debt, and undermine recent efforts by the government to move toward a more market-oriented exchange rate system. It would also expose China to the risk of local financial-market volatility, something authorities have worked hard to subdue in recent years.

When China unexpectedly devalued the yuan by about 2 percent in August 2015, the move sent shock-waves through global markets. “Is it in their interest to devalue yuan? It’s probably unwise,” said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets Hong Kong Ltd. “Because if they use devaluation as a weapon, it could hurt China more than the U.S. The currency stability has helped to create a macro stability. If that’s gone, it could destabilize markets, and things would look like 2015 again.”

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No really, it’s everywhere. What they can do, they will.

YouTube Illegally Collects Data On Children – Child Protection Groups (G.)

A coalition of 23 child advocacy, consumer and privacy groups have filed a complaint with the US Federal Trade Commission alleging that Google is violating child protection laws by collecting personal data of and advertising to those aged under 13. The group, which includes the Campaign for a Commercial-Free Childhood (CCFC), the Center for Digital Democracy and 21 other organisations, alleges that despite Google claiming that YouTube is only for those aged 13 and above, it knows that children under that age use the site. The group states that Google collects personal information on children under 13 such as location, device identifiers and phone numbers and tracks them across different websites and services without first gaining parental consent as required by the US Children’s Online Privacy Protection Act (Coppa).

The coalition urges the FTC to investigate and sanction Google for its alleged violations. “For years, Google has abdicated its responsibility to kids and families by disingenuously claiming YouTube — a site rife with popular cartoons, nursery rhymes, and toy ads — is not for children under 13,” said Josh Golin, executive director of the CCFC. “Google profits immensely by delivering ads to kids and must comply with Coppa. It’s time for the FTC to hold Google accountable for its illegal data collection and advertising practices.”

The group claims that YouTube is the most popular online platform for children in the US, used by about 80% of children aged six to 12 years old. Google has a dedicated app for children called YouTube Kids that was released in 2015 and is designed to show appropriate content and ads to children. It also recently took action to hire thousands of moderators to review content on the wider YouTube after widespread criticism that it allows violent and offensive content to flourish, including disturrbing children’s content and child abuse videos.

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Bizarro housing.

Number Of UK Buy-to-Let Landlords Reaches Record High (Ind.)

The number of buy-to-let investors in the UK rose to a record high of 2.5 million in the latest tax year, new research shows. The increase of 5% on the previous year comes despite the introduction of a host of extra taxes and regulations on the sector. In recent years, the government has brought in a 3% Stamp Duty levy, new stress tests for home loans, and ended mortgage interest tax relief. The number of landlords has increased 27% in the past five years, up from 1.97 million in 2011-12, research by London-focused estate agent Ludlow Thompson found.

Landlords now own an average of 1.8 buy-to-let properties each – a figure that has risen for the fifth consecutive year. The data suggests that landlords continue to see residential property, especially in London, as a strong investment, despite signs that house price growth has stalled or even gone into reverse in some areas in the last year. Investors have seen annual returns of almost 10% since 2000, Ludlow Thompson said. Chairman Stephen Ludlow said the rising number of landlords shows the enduring appeal of investing in buy-to-let. “The long-term picture for the buy-to-let market remains strong,” he said.

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No chance of a second vote for now. But that may change yet.

Public Backs Fresh Referendum On ‘Final Say’ On Terms Of Brexit Deal (Ind.)

Support is growing for a fresh referendum on the final Brexit deal, according to a new poll showing the public back the idea for the first time. The survey found that 44% of people want a vote on the exit terms secured by Theresa May, amid continued uncertainty over the withdrawal agreement. That is a clear eight points ahead of the 36% who reject a further referendum, the research conducted for the anti-Brexit Best for Britain group showed. The group pointed to evidence that “Brexit is sharpening the British public’s minds” and called for MPs to respond to the people’s growing desire for a “final say”.

The referendum would be held on the details of the deal the prime minister must strike by the autumn – on both the planned transition period and a “framework” for a permanent trade and security relationship. Eloise Todd, Best for Britain’s chief executive, said voters should be allowed to choose between the details of the future on offer outside the EU, or staying inside the bloc. “Now there is a decisive majority in favour of a final say for the people of our country on the terms of Brexit. This poll is a turning point moment,” she said. “The only democratic way to finish this process is to make sure the people of this country – not MPs across Europe – have the final say, giving them an informed choice on the two options available to them: the deal the government brings back and our current terms.

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Celente rants are always good.

Murderers & Thieves Sold Out America – Gerald Celente (USAW)

Renowned trends researcher Gerald Celente says the trade war President Trump is starting against China must be fought for America to survive. Celente explains, “We have lost 3.5 million jobs (to China). Some 70,000 manufacturing plants have closed. Why would anybody be fighting Trump to do a reversal of us being in a merchandise trade deficit of $365 billion? Tell me any two people that would do business with each other and one side takes a huge loss and keeps taking it. . . So, why would people argue and fight and bring down the markets because Trump wants to bring back jobs and readjust a trade deficit that, by any standard, is destroying the nation?” Who’s to blame for the lopsided trade deficits destroying the middle class of America?

Look no further than the politicians and corporations buying them off. Celente charges, “They sold us out. The European companies and the American companies sold us out, and the people fighting Trump are also the big retailers because they’ve got their slave labor making their stuff over there. They bring it back here and mark up the price, and they make more money. If they have to pay our people to do that work, they have to pay them a living wage and they can’t make enough profit. That’s who is fighting us. . You go back to our top trend in 2017, and it was China was going to be the leader in AI (artificial intelligence) now and beyond, and that is exactly what happened. All the corporations have sold us out. . . .The murderers and the thieves sold out America.”

Celente thinks the odds are there will not be a financial crash in 2018 “because they are repatriating all that dough from overseas at a very low tax rate and because of the tax cuts from 35% to 21%. These are the facts. In the first three months of this year, there have been more stock buybacks and mergers and acquisitions activity than ever before in this short period of time because of all that cheap money going back into the corporations. That’s what’s keeping the markets up.”

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Shell’s political power will shield it.

Shell Predicted Dangers Of Fossil Fuels And Climate Change In 1980s (Ind.)

Oil giant Shell was aware of the consequences of climate change, and the role fossil fuels were playing in it, as far back as 1988, documents unearthed by a Dutch news organisation have revealed. They include a calculation that the oil company’s products alone were responsible for 4% of total global carbon emissions in 1984. They also predict that changes to sea levels and weather would be “larger than any that have occurred over the past 12,000 years”. As a result, the documents foresee impacts on living standards, food supplies and other major social, political and economic consequences.

In The Greenhouse Effect, a 1988 internal report by Shell scientists, the authors warned that “by the time the global warming becomes detectable it could be too late to take effective countermeasures to reduce the effects or even to stabilise the situation”. They also acknowledged that many experts predicted an increase in global temperature would be detectable by the end of the century. They went on to state that a “forward-looking approach by the energy industry is clearly desirable”, adding: “With the very long time scales involved, it would be tempting for society to wait until then before doing anything. “The potential implications for the world are, however, so large that policy options need to be considered much earlier. And the energy industry needs to consider how it should play its part.”

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Money trumps history.

Indigenous People Are Being Displaced Again – By Gentrification (Latimore)

It is symptomatic of the colonial-settler prerogative that has sought to eliminate the offensive presence of the natives from any profitable territory. In 21st-century Australia, the “dispersal” that began with European invasion continues through the gentrification of city suburbs where Indigenous identities persist. In the colonial argot of the 19th century, dispersal euphemistically described a bloody practice of massacre and forced dispossession of First Nations peoples, often performed as punishment for perceived theft, or any other form of resistance to the colonisers more generally. In the early and mid-20th century, blackfullas were forcibly coerced into government reserves most commonly known as “missions”.

The overarching intent of these “protection” policies was to ensure the dissolution of First Nations culture and traditional governance structures, pushing mob to develop from “their former primitive state to the standards of the white man”, as the Aboriginal Protection Board said in 1935. When the missions began to be disbanded after the second world war, it forced significant Indigenous migration from the bush to towns and cities, where we repopulated places like Fitzroy, Brisbane’s West End and particularly Redfern in great numbers. This 1950s policy of “assimilation” was essentially a state-sanctioned experiment to force Indigenous people to give up their beliefs and traditions as they adapted to urban life.

[..] Yet the place of blackfullas in Australia’s cities is under threat. Faced with rapid gentrification and associated rental and ownership price hikes, urban Indigenous populations continue to relocate to the outer suburbs, where cheaper housing is usually located. The trend could be viewed as a contemporary iteration of the dispersals of the past – decidedly less bloody, though equally impelled by capitalistic imperatives.

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Logic.

Fish Populations In Great Barrier Reef Collapse After Bleaching Events (Ind.)

The coral bleaching events that have devastated the Great Barrier Reef in recent years have also taken their toll on the region’s fish population, according to a new study. While rising temperatures on the reef killed nearly all the coral in some sections, the effects on the wider marine community have been less clear. Now, scientists have begun to establish the long-term effects of bleaching events on the Great Barrier Reef’s fish population. This work is essential for researchers trying to understand what will happen to coral reef ecosystems as global warming makes mass bleaching events more frequent. “The widespread impacts of heat stress on corals have been the subject of much discussion both within and outside the research community,” said PhD student Laura Richardson of the ARC Centre of Excellence for Coral Reef Studies.

“We are learning that some corals are more sensitive to heat stress than others, but reef fishes also vary in their response to these disturbances.” Ms Richardson and her collaborators studied reefs in the northern section of the Great Barrier Reef, where around two-thirds of corals were killed in the 2016 bleaching event that followed a global heatwave. The researchers found there were “winners” and “losers” among the fish species on the reef, but overall there was a significant decline in the variety of species following bleaching. Their results were published in the journal Global Change Biology. “Prior to the 2016 mass bleaching event, we observed significant variation in the number of fish species, total fish abundance and functional diversity among different fish communities,” said co-author Dr Andrew Hoey.

“Six months after the bleaching event, however, this variation was almost entirely lost.” Predictably, the scientists noted that fish with intimate associations with corals suffered severe losses. Butterflyfish, which feed on corals, faced the steepest declines. In response to the looming threat of coral bleaching, scientists have called for “radical interventions” to save the world’s reefs. Some have suggested that more than 90% of corals could die by 2050 at the current rate of global warming.

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Aug 092016
 
 August 9, 2016  Posted by at 8:51 am Finance Tagged with: , , , , , , , ,  


Harris&Ewing Woodward & Lothrop dept. store trucks, Washington DC 1912

The Fed Is Losing Control of Global Monetary Conditions (BBG)
Are Negative Rates Backfiring? (WSJ)
Fannie And Freddie Could Need $126 Billion To Get Through A Crisis (R.)
UK Government Has Gambled Hundreds Of Millions On House Price Rises (TiM)
One In Three British Families Are A Month’s Pay From Losing Homes (G.)
Vulnerable UK Banks Still Pay Billions In Dividends To Shareholders (Ind.)
A Crisis Of Intervention (Price)
Spanish 10-Year Bond Yield Falls Below 1% for First Time (BBG)
China Leaders Head to the Beach, With Calmer Seas Ahead (BBG)
Trump Tax Cuts Would Be Costly (CNBC)
Republican Security Experts Rail Against Trump In Open Letter (BBC)
US Taxes Well Spent: Pentagon Can’t Account for $6.5 Trillion (Sputnik)
Facebook Removes Potential Evidence Of Police Brutality Too Readily (I’Cept)
More Than 60% Of Maldives’ Coral Reefs Hit By Bleaching (G.)

 

 

Libor. And by the way: The Fed never had control, just the illusion.

The Fed Is Losing Control of Global Monetary Conditions (BBG)

Libor is coming unhinged from other borrowing costs and that has real implications for the cost of money in the real world. On this basis, the U.S. has already had an interest-rate increase, according to Bloomberg View’s Mark Gilbert. While there are plenty of market participants who favor the Austrian school of economics and would welcome the removal of central banks from the rate-setting mechanism, the change in money-market conditions is something the Fed should take into account as it ponders its next move.

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They do what they’re supposed to prevent: encourage saving. Get the central banks out of the economy!

Are Negative Rates Backfiring? (WSJ)

Recent economic data show consumers are saving more in Germany and Japan, and in Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995, the year the Organization for Economic Cooperation and Development started collecting data on those countries. Companies in Europe, the Middle East, Africa and Japan also are holding on to more cash. Economists point to a variety of other possible factors confounding central-bank policy: Low inflation has left consumers with more money to sock away; aging populations are naturally more inclined to save; central banks themselves may have failed to properly explain their actions.

But there is a growing suspicion that part of problem may be negative rates themselves. Some economists and bankers contend that negative rates communicate fear over the growth outlook and the central bank’s ability to manage it. “People only borrow and spend more when they are confident about the future,” says Andrew Sheets at Morgan Stanley. “But by going negative, into uncharted territory, the policy actually undermines confidence.” Going negative was a big bet by central banks faced with a sluggish recovery from the financial crisis. Whether negative rates succeed or flop has huge implications for the global economy. Japan and Europe are already doing large volumes of bond buying to spur their economies, and their central bankers have little left in their tool kits.

The U.S. Federal Reserve’s next move is likely to raise rates, but Chairwoman Janet Yellen has said negative rates could find a place in the Fed’s armory in any future crisis. The Bank of England, shaken by June’s surprise vote to leave the European Union, cut interest rates to their lowest in its 322-year history last week but said it was reluctant to go negative. BOE Gov. Mark Carney said he is “not a fan” of a policy that has negative consequences for savers and the financial system. European banks say their profitability has been hit hard by low rates. Some central bankers say it is too early to judge negative rates. “The effect won’t be seen all at once, but it will gradually become clear,” said Bank of Japan Gov. Haruhiko Kuroda in a June news conference.

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Governments should stay out of housing markets. Their only interest is make banks make money.

Fannie And Freddie Could Need $126 Billion To Get Through A Crisis (R.)

Fannie Mae and Freddie Mac, two government-controlled housing finance agencies, would need a big cash injection to weather another financial meltdown, a government regulator said on Monday. Fannie and Freddie would need as much as $126 billion in taxpayer funds to come through a serious downturn, according to a ‘stress test’ from the Federal Housing Finance Agency. The companies, which were once owned by shareholders, have drawn $187 billion from the U.S. Treasury since they were seized by the government in September 2008 as the global financial crisis tightened. Since then, as the housing market has strengthened, they have returned roughly $250 billion to the Treasury. Lawmakers have not settled on the future of two companies. The ‘stress test’ required by the Dodd Frank reform legislation of 2010 projected the companies would have to draw at least $49 billion to $126 billion in the case of a serious economic downturn.

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People are forced to use Help to Buy: it acts as an insurance policy in case homes lose value. Then the taxpayer pays.

UK Government Has Gambled Hundreds Of Millions On House Price Rises (TiM)

Taxpayers stand to lose hundreds of millions of pounds if house prices fall, thanks to a gamble the government has been making with our cash for the past three years. Some £3.59billion has been lent to first-time buyers through the Help to Buy loan scheme to help them purchase newly-built properties they may not otherwise have been able to afford, according to the latest government statistics. The scheme was launched by the former Chancellor George Osborne in 2013, in response to a stagnating housing market. It effectively lets borrowers with small deposits top them up with a government loan, worth up to 20% of the value of a new build property.

For the 81,014 buyers who have taken advantage of the scheme so far, it has been an invaluable lifeline, the difference between making that step on to the first hallowed rung of the property ladder and continuing to rent. However, the side effect of the scheme leaves taxpayer funds extremely vulnerable to losses if house prices start to fall. This is because the size of loans is not fixed, but rather is measured as a proportion of the value of the properties bought. Take, for example a first-time buyer who uses the scheme to buy a home costing £300,000. They could borrow up to 20% of the value of the property – £60,000 – using Help to Buy, and put down just a 5% deposit themselves.

However, the size of the loan remains 20% of the value of the property – regardless of how it fluctuates. So if the house increases in value by 10% to £330,000, the value of the loan will increase by 10% as well to £66,000. The taxpayer turns a profit. But if the value of the home declines by 10% to £270,000, the value of the loan will decrease to £54,000. Taxpayers will just have to suck up the £6,000 shortfall. A total of £3.59billion has been lent out so far. If the value of the homes they helped paid for drops by just 10%, the borrowers will be off the hook for as much as £359million – a cost that will be picked up by the taxpayer.

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And this is what you get when a government blows a bubble.

One In Three British Families Are A Month’s Pay From Losing Homes (G.)

More than one in three families in England are a monthly pay packet away from losing their homes, according to research by Shelter highlighting how many households have almost no savings. The housing charity found that 37% of working families would be unable to cover their housing costs for more than a month if one partner lost their job. The findings mirror government figures, which show that there are 16.5 million working age adults in the UK with no savings. Campbell Robb, the chief executive of Shelter, said: “These figures are a stark reminder that sky-high housing costs are leaving millions of working families stretched to breaking point and barely scraping by from one paycheque to the next.

“Any one of us could hit a bump along life’s road, and at Shelter, we speak to parents every day who, after losing their job or seeing their hours cut, are terrified of losing the roof over their children’s heads too.” The charity is calling for an improved welfare safety net to prevent families where someone loses a job from “hurtling towards homelessness”. The phenomenon of the working poor, those earning a regular salary, but living from one paycheque to the next with no savings to speak of, is a widespread feature in English-speaking western economies such as the UK, Canada, the US and Australia. An annual survey by US website Bankrate found that 63% of Americans have no emergency savings for necessities such as a $1,000 (£770) emergency room visit or a $500 car repair. Most turn to credit cards when financial disaster looms.

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If they didn’t, where would their share prices be?

Vulnerable UK Banks Still Pay Billions In Dividends To Shareholders (Ind.)

Three of the UK’s biggest banks have paid out billions of pounds in dividends to investors while turning a blind eye to huge capital holes in their balance sheets, researchers argue. The findings, which come in the wake of estimates the UK banking sector has an aggregate £155bn shortfall of capital, will reinforce calls for the Bank of England to take a tougher stance on the capital adequacy of the lenders it oversees and to restrict the payment of dividends. Between 2010 and 2015 HSBC paid out £37bn in dividends, Barclays paid out £6.3bn and Lloyds paid out £2.3bn according to the calculations of Sascha Steffen of the University of Mannheim, Viral Acharya of New York University and Diane Pierret of the University of Lausanne.

If this cash had been retained by the banks it could have boosted their capital buffers by an equivalent amount. The three researchers last month produced an estimate that suggested UK banks would be massively exposed and at high risk of going bust in another serious financial crisis. They found that the majority state-owned Royal Bank of Scotland, Lloyds, Barclays and HSBC could collectively need to raise another £155bn of capital to maintain a comfortable equity safety buffer in the wake of a fresh crisis based on the market value of their equity.

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Can’t say it enough: ““There is no means of avoiding a final collapse of a boom brought about by credit expansion.”

A Crisis Of Intervention (Price)

For those that already have, Mark Carney is the gift that keeps on giving. Borrowed imprudently and struggling to make those interest payments ? Worry not; the Bank of England has your back. For those that don’t have, the Bank of England is taking away your chance of ever realistically saving anything, now that interest rates have been driven down to new historic lows of 0.25%, and may go lower yet. For the asset-rich, for the 1%, for property speculators, and for zombie companies and banks, Carney is your man. For the asset poor, or for savers, or pensioners, or insurance companies, or pension funds, the Bank of England has morphed from being anti-inflationary fireman to monetary arsonist. The economist Ludwig von Mises foresaw all this, nearly a century ago.

He called it “the crisis of interventionism”. Actions have consequences everywhere (except in Keynesian and Marxist economic theory). Interfere with the free market process and inefficiency and complexity are certain to rise. More actions and interventions are required. Pretty soon the entire system becomes a Heath Robinson contraption requiring constant amendments and ad hoc fixes and bolt-on workarounds. Welcome to the modern monetary system – the last, doomed refuge of the central planner with messianic delusions of adequacy. “The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.”

But so warped has our monetary system become after almost a decade of furious interventionism that Mark Carney’s redistributive efforts don’t even attempt to deliver to that objective. With interest rates fast approaching the theoretical lower bound of zero, Mark Carney is curbing the prospects of the poor for the benefit of the rich. He is redistributing capital from the prudent saver and gifting it to the borrower and the speculator. A crisis of too much debt is being met with ever more urgent attempts to prime the credit pump. Mises had something to say about credit expansion, too. “There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

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Right. Spain. Hasn’t had a real government in a long time now. Unemployment is sky high. So everyone wants their bonds… Not. But Draghi buys all.

Spanish 10-Year Bond Yield Falls Below 1% for First Time (BBG)

Spanish 10-year bond yields fell below 1% for the first time on record Monday, marking another milestone in the four-year rally in the nation’s securities. The drop highlights how local political risk is being offset by monetary easing by central banks across the developed world. The yield fell to as low as 0.99%, down from more than 7.75% during the euro region’s debt crisis in July 2012.

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Strange headline for an article that translates as: BUBBLE!

China Leaders Head to the Beach, With Calmer Seas Ahead (BBG)

China’s top leaders are gathering for their annual conclave at the Beidaihe beach resort having defied the doomsayers once more. Economic data in coming days are projected to confirm the stabilization in growth achieved in the first half of this year continued into July. The backdrop of calm has won China a sustained respite from the financial-market turmoil and capital outflows that accompanied the Communist leadership’s traditional beach-resort meeting last year. But the stability has come at a cost. Instead of delivering on what Premier Li Keqiang called reforms so tough they’d be like cutting “flesh,” authorities have relied on another dose of cheap credit to prop things up.

That’s added more leverage to a nation where debt is already 2.5 times the economy’s size. Behind the reluctance for a bigger economic shakeup is a desire for stability ahead of a potentially wide-ranging reshuffle of the Communist hierarchy next year, according to Credit Suisse. “Candidates will prefer to be playing it safe rather than executing substantial reforms – especially state-owned enterprise reforms,” the bank’s China analysts, led by Vincent Chan, wrote last month. State-owned enterprises offer the major lever for ramping up growth through infrastructure spending, making officials reluctant to implement wide-ranging changes.

Yet their dominance in access to capital has squeezed opportunities for the more efficient private sector, contributing to a build-up in non-performing loans. “The immediate consequences of course are a relatively becalmed economy, which seems to have some staying power,” said George Magnus, senior economic adviser to UBS. “But at what cost in the medium to longer term if there’s no change in the instability-causing policies?”

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He needs to avoid the idea that the elites will profit most. This will be thrown at him no matter if it’s true or not.

Trump Tax Cuts Would Be Costly (CNBC)

Call it a work in progress. GOP presidential candidate Donald Trump unveiled Monday the latest version of his plan to overhaul the American tax code, offering relief for everyone from parents paying for child care to the world’s largest corporations. But it remains to be seen where the money will come from to pay for those cuts. Details of the plan are still fairly sketchy, but in his speech at the Detroit Economic Club, Trump promised they would be forthcoming soon. “In the coming weeks we will be offering more detail on all of these policies,” Trump said Monday. The Trump campaign has promised that the tax plan would “benefit working families while ensuring the wealthy pay their fair share.”

But based on details of Trump’s plan released earlier in the campaign, some analysts think the biggest winners would be those at the top of the income ladder. “The proposal would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income,” according to an analysis in December by the Tax Policy Center. Trump’s campaign said Monday the tax plan would “dramatically reduce taxes for everyone and streamline deductions, presenting the biggest tax reform since [the] Reagan [administration].” But based on the details released so far, the plan would also explode the federal budget deficit, add trillions of dollars to the national debt and substantially raise the government’s interest payments, according to several independent analysts.

Trump’s tax cuts would amount to some $12 trillion over the next decade, according to the Tax Foundation. Even after accounting for stronger economic growth, the plan would leave the government more than $10 trillion short over the next 10 years. That money would have to be made up for with more borrowing, dramatically expanding the nation’s debt. Trump also promised to ease the burden on American corporations by limiting taxes to 15 percent. The campaign has also promised to “make our corporate tax globally competitive and the United States the most attractive place to invest in the world.” Based on the latest available data, that promise should be fairly easy to keep.

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Security experts? They’re neocons. Brilliant riposte: “We thank them for coming forward so everyone in the country knows who deserves the blame for making the world such a dangerous place..”

Republican Security Experts Rail Against Trump In Open Letter (BBC)

An open letter signed by 50 Republican national security experts has warned that nominee Donald Trump “would be the most reckless president” in US history. The group, which includes the former CIA director Michael Hayden, said Mr Trump “lacks the character, values and experience” to be president. Many of the signatories had declined to sign a similar note in March. In response, Mr Trump said they were part of a “failed Washington elite” looking to hold on to power. The open letter comes after a number of high-profile Republicans stepped forward to disown the property tycoon. Mr Trump has broken with years of Republican foreign policy on a number of occasions.

The Republican candidate has questioned whether the US should honour its commitments to Nato, endorsed the use of torture and suggested that South Korea and Japan should arm themselves with nuclear weapons. “He weakens US moral authority as the leader of the free world,” the letter read. “He appears to lack basic knowledge about and belief in the US Constitution, US laws, and US institutions, including religious tolerance, freedom of the press, and an independent judiciary.” “None of us will vote for Donald Trump,” the letter states. In a statement, Mr Trump said the names on the letter were “the ones the American people should look to for answers on why the world is a mess”.

“We thank them for coming forward so everyone in the country knows who deserves the blame for making the world such a dangerous place,” he continued. “They are nothing more than the failed Washington elite looking to hold on to their power and it’s time they are held accountable for their actions.” Also among those who signed the letter were John Negroponte, the first director of national intelligence and later deputy secretary of state; Robert Zoellick, who was also a former deputy secretary of state and former president of the World Bank; and two former secretaries of homeland security, Tom Ridge and Michael Chertoff.

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Surprised?

US Taxes Well Spent: Pentagon Can’t Account for $6.5 Trillion (Sputnik)

While US lawmakers are applying pressure on the Pentagon to be more transparent about how it spends money, a new report shows that the Defense Department’s substandard bookkeeping practices make that virtually impossible. Despite a 1996 law requiring all federal agencies to conduct regular spending audits, the Pentagon has so far failed to conduct a single one. While US lawmakers have pressed the DoD to comply by September of 2017, a new inspector general’s report indicates that meeting this deadline is highly unlikely.

“Army and Defense Finance and Accounting Service Indianapolis personnel did not adequately support $2.8 trillion in third quarter adjustments and $6.5 trillion in year-end adjustments made to Army General Fund (AGF) data during FY 2015 financial statement compilation,” the report reads. In common language, the Pentagon has no idea how it spent nearly $7 trillion. This is largely due to the fact that the DoD fails to provide the “journal vouchers” for its transactions, intended to provide serial numbers and dates, for bookkeeping purposes. But the report also found that many of the Pentagon’s records were missing without explanation.

“DFAS Indianapolis did not document or support why the Defense Departmental Reporting System-Budgetary, a budgetary reporting system, removed at least 16,513 of 1.3 million records during third quarter FY 2015,” the report reads. While nothing suggests foul play, a lack of proper accounting makes it impossible to determine how much money the Pentagon spends, and on what.

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There is a huge potential for this to backfire. Facebook better watch out.

Facebook Removes Potential Evidence Of Police Brutality Too Readily (I’Cept)

As more details emerge about last week’s killing by Baltimore County police of 23-year-old Korryn Gaines, activists have directed growing anger not only at local law enforcement but also at Facebook, the social media platform where Gaines posted parts of her five-hour standoff with police. At the request of law enforcement, Facebook deleted Gaines’ account, as well her account on Instagram, which it also owns, during her confrontation with authorities. While many of her videos remain inaccessible, in one, which was re-uploaded to YouTube, an officer can be seen pointing a gun as he peers into a living room from behind a door, while a child’s voice is heard in the background. In another video, which remains on Instagram, Gaines can be heard speaking to her five-year-old son, who’s sitting on the floor wearing red pajamas.

“Who’s outside?” she asks him. “The police,” he replies timidly. “What are they trying to do?” “They trying to kill us.” Statements made by officials in the days after the incident revealed little-known details of a “law enforcement portal” through which agencies can ask for Facebook’s collaboration in emergencies, a feature of the site that remains mostly obscure to the general public and which has been criticized following Gaines’ death. It’s not the first time Facebook has become the stage on which violent encounters between law enforcement and residents play out – and it seems likely more and more such incidents will be documented on the social media hub, given that the company’s livestreaming app, Facebook Live, is only nine months old and spreading at a time when recording police has become an instinctive reflex in some communities.

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We can see the earth disappear beneath our feet.

More Than 60% Of Maldives’ Coral Reefs Hit By Bleaching (G.)

More than 60% of coral in reefs in the Maldives has been hit by “bleaching” as the world is gripped by record temperatures in 2016, a scientific survey suggests. Bleaching happens when algae that lives in the coral is expelled due to stress caused by extreme and sustained changes in temperatures, turning the coral white and putting it at risk of dying if conditions do not return to normal. Unusually warm ocean temperatures due to climate change and a strong “El Nino” phenomenon that pushes up temperatures further have led to coral reefs worldwide being affected in a global bleaching event over the past two years. Preliminary results of a survey in May this year found all the reefs looked at in the Maldives, in the Indian Ocean, were affected by high sea surface temperatures.

Around 60% of all assessed coral colonies, and up to 90% in some areas, were bleached. The study was conducted by the Maldives Marine Research Centre and the Environmental Protection Agency, in partnership with the International Union for Conservation of Nature (IUCN). It took place on Alifu Alifu Atholhu – North Ari Atoll – chosen as a representative atoll of the Maldives. Dr Ameer Abdulla, research team leader and senior adviser to the IUCN on marine biodiversity and conservation science, said: “Bleaching events are becoming more frequent and more severe due to global climate change. “Our survey was undertaken at the height of the 2016 event and preliminary findings of the extent of the bleaching are alarming, with initial coral mortality already observed. “We are expecting this mortality to increase if bleached corals are unable to recover.”

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Jun 072016
 
 June 7, 2016  Posted by at 8:29 am Finance Tagged with: , , , , , , , , , , ,  


Esther Bubley Soldiers with their girls at the Indianapolis bus station 1943

This Job Market Slump Started In January
Yellen Sees Rates Rising Gradually But .. (BBG)
The Shadow Looming Over China (Balding)
Nation of Debt: New Zealand Sitting on Half-Trillion-Dollar Debt Bomb (NZH)
Sterling Swings Wildly As Polls Suggest UK Heading For EU Exit (G.)
S&P Downgrades Royal Bank of Canada Outlook (WSJ)
Goldman Probed Over Malaysia Fund 1MDB (WSJ)
This Fannie-Freddie Resurrection Needs To Die (WaPo ed.)
State Department Blocks Release Of Hillary Clinton’s TPP Emails (IBT)
Debt Buyers (John Oliver)
Taxes And Recession Slash Income Of Greek Households (Kath.)
Nausea Rising (Jim Kunstler)
NATO Countries Begin Largest War Game In Eastern Europe Since Cold War (G.)
Finns To Bury Nuclear Waste In World’s Costliest Tomb (AFP)
Great Barrier Reef: The Stench Of Death (G.)

And this is Yellen’s favorite index?! Makes you wonder.

This Job Market Slump Started In January

The sharp May hiring slowdown revealed in Friday’s employment report took a lot of people – including me – by surprise. It shouldn’t have. Things have actually been on the downswing for the U.S. labor market for months, according to the Federal Reserve’s Labor Market Conditions Index. The LMCI is a new measure cooked up by Federal Reserve Board economists in 2014 that consolidates 19 different labor market indicators to reflect changes in the job market. They calculated it going all the way back to 1976; the chart above shows its movements since the end of the last recession in June 2009. The May index, released Monday morning, showed a 4.8-point decline from April. As you can see from the chart, the index has now declined for five straight months — its worst performance since the recession.

The index does get revised a lot. When the January number was first reported on Feb. 8, for example, it was still modestly positive. Still, since the February number was released on March 7 the news from the LMCI has been unremittingly negative. Which probably should have told us something. Not many people were paying attention, though. Fed Chair Janet Yellen is apparently a fan of the LMCI, but I have to admit that I first learned of its existence Monday when Erica Groshen, the Commissioner of the BLS, mentioned it at a conference for BLS data users in New York. It was a good reminder, as were a lot of the other presentations at the conference, that the headline jobs numbers that get the lion’s share of attention – the monthly change in payroll employment and the unemployment rate – aren’t always the best places to look for information on the state of the jobs market.

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They should really start having her do these speeches in a cave filled with smoke and vapors.

Yellen Sees Rates Rising Gradually But .. (BBG)

Federal Reserve Chair Janet Yellen said the U.S. economy was making progress but was silent on the timing of another interest-rate increase, an omission viewed as a signal that a June move was off the table. “I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run,” Yellen said Monday during a speech in Philadelphia. Her comments were less specific than in her previous remarks in describing when she thought the Fed should raise rates again.

On May 27 at Harvard University, she said an increase would likely be appropriate in “coming months,” a phrase she didn’t repeat on Monday. Since then, the Labor Department reported U.S. employers in May added the fewest number of new jobs in almost six years, causing expectations for a rate increase to plunge. “She did not address the timing of the Fed’s next gradual move, which suggests to us that she is in no hurry,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd, arguing that her comments on the payroll report “largely rules out a move in rates next week. July is not a strong bet either.”

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Beijing has not just allowed shadow banks to grow much too big, it has used this growth to hide its actions behind. Local governments got most of their credit to build highways to nowhere from shadow banks. It’s really weird that the western press only catches on now.

The Shadow Looming Over China (Balding)

Of all the topics sure to be come up in Sino-U.S. economic talks this week – from the problem of excess capacity to currency controls – the health of China’s financial sector will no doubt feature high on the list. Especially worrying are the multiplying links between the country’s commercial and “shadow” banks – the name given to a broad range of non-bank financial institutions from peer-to-peer lending platforms to trusts and wealth management companies. All told, the latter now hold assets that exceed 80 percent of China’s gross domestic product, according to Moody’s – much of them linked to the commercial banking sector in one way or another. That poses a systemic threat, and needs to be treated as such. There’s nothing inherently wrong with shadow banks, of course.

Largely owned by the government, China’s commercial banks focus primarily on directing capital from savers to state-owned enterprises, leaving Chinese households and smaller private enterprises starved for funds. Shadow banks have grown to meet the demand. At their best, they allocate capital more efficiently than state-owned lenders and keep afloat businesses that create jobs and growth. The line between good shadow banks and dodgy ones is increasingly fuzzy, however, as is the divide between shadow and commercial banking. Traditional banks often assign their sales teams to sell shadow products. This gives an unwarranted sheen of legitimacy to schemes that are inherently risky. Buyers trust that the established bank will make them whole if their investment goes south.

Shadow banks are also selling more and more products directly to commercial banks. Wealth management products held as receivables now account for approximately 3 trillion yuan of interbank holdings, or around $500 billion — a number that’s grown sixfold in three years. According to Autonomous Research, as much as 85 percent of those products may have been resold to other shadow banks, creating a web of cross-ownership with disturbing parallels to the U.S. mortgage securities market just before the 2008 crash. In total, the big four state-owned banks hold more than $2 trillion in what’s classified as “financial investment,” much of it in trusts and wealth-management products.

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A nation of lost souls.

Nation of Debt: New Zealand Sitting on Half-Trillion-Dollar Debt Bomb (NZH)

New Zealand is sitting on a half-a-trillion-dollar debt bomb and Kiwis are increasingly treating their houses like cash machines, piling on the debt as they watch the value of their properties soar. Reserve Bank figures show household debt, excluding investment property, has risen 23% in the past five years to $163.4 billion. Incomes have risen only 11.5%. Households are now carrying a debt level that is equivalent to 162% of their annual disposable income – higher than the level reached before the global financial crisis. Including property investment the total debt households owed as of April was $232.9 billion, according to the Reserve Bank. Satish Ranchhod, a senior economist at Westpac Bank, says the main driver has been low interest rates.

“Continued low interest rates have sparked a sharp increase in household borrowing at a time when income growth has been very modest.” And it’s housing loans where the growth has mainly come from. Housing loan debt has risen 23.4% to $132.83 billion. Student loans were up 22.9% to $14.84 billion and consumer loans are up 16.6% to $15.7 billion. Ranchhod said much of the rising debt on housing was down to investors, as more people jumped into the property market on the back of rising house prices. He also believed many people were using their home loans to make consumer purchases. “We think a lot of the increase in lending on housing loans will also be an increase in spending … people feel wealthy when the value of their home goes up.”

Hannah McQueen, an Auckland financial coach and managing director of EnableMe, said she had seen three clients in the past week alone who had paid for a new car by using the equity in their home to increase their mortgage debt. “It’s definitely on the increase … People think, ‘I’m worth so much more now …'”

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Volatility just getting started.

Sterling Swings Wildly As Polls Suggest UK Heading For EU Exit (G.)

The pound swung wildly on currency markets on Monday, reaching extremes of volatility not seen since the financial crisis, as City traders reacted to polls suggesting voters were increasingly likely to send Britain out of the EU this month. The poll boost to the Vote Leave campaign sent the pound tumbling by up to 1.5 cents to below $1.44, adding to a decline of 2 cents last week and indicating the degree of pressure on the UK currency since the remain camp’s lead in the polls began to evaporate. A dovish speech by the US central bank chief, Janet Yellen, hinting that poor jobs data meant the Federal Reserve was unlikely to raise rates this month, steadied the pound – despite her comments that a vote to leave the EU could hurt the US economy.

“One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant economic repercussions,” she said. Sterling’s value has become increasingly volatile as fears of a Brexit have increased among investors. The index charting the daily swings in the pound’s value has risen to its highest level of volatility since the first quarter of 2009. It is double the level seen in April when the remain camp was ahead in the polls. Elsa Lignos, a foreign exchange expert at City firm RBC, one of many to warn that the pound would come under further pressure should the lead established by Vote Leave be consolidated, said: “Brexit is almost all that matters for the pound at the moment.”

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Hmm.. “..speculative-grade borrowers..”, “..highly indebted Canadian consumers ..”

S&P Downgrades Royal Bank of Canada Outlook (WSJ)

Standard & Poor’s is downgrading the outlook for Royal Bank of Canada, a change it says reflects the lender’s increased risk appetite and credit-risk exposure relative to other domestic banks. The credit-ratings firm said Monday it was revising its outlook on RBC, Canada’s largest bank by assets, to “negative” from “stable,” but would leave its credit ratings untouched. The move comes less than two weeks after the Toronto-based lender reported a stronger-than-expected fiscal second-quarter profit but set aside bigger provisions to cover soured loans. “The outlook revision reflects concerns over what we see as RBC’s higher risk appetite, relative to peers,” said S&P credit analyst Lidia Parfeniuk in a release.

“We see one example of this in its aggressive growth in loans and commitments in the capital markets wholesale loan book, particularly in the U.S., with an emphasis on speculative-grade borrowers, including exposure to leveraged loans,” she added. S&P also pointed to RBC’s “higher-than-peer average exposure” to highly indebted Canadian consumers and to the country’s oil- and gas-producing regions, which have been hard hit by the collapse in crude-oil prices. S&P, however, affirmed RBC’s ratings including its “AA-/A-1+” long- and short-term issuer credit ratings. “RBC is one of the strongest and highest rated banks in Canada, reflecting our strong financial profile and the success of our diversified business model,” said RBC in an emailed statement. “This outlook change will have no direct impact to RBC clients,” it later added.

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“..Goldman wired the $3 billion in proceeds to a Singapore branch of a small Swiss private bank instead of to a large global bank, as would be typical for a transfer of that size..”

Goldman Probed Over Malaysia Fund 1MDB (WSJ)

U.S. investigators are trying to determine whether Goldman Sachs broke the law when it didn’t sound an alarm about a suspicious transaction in Malaysia, people familiar with the investigation said. At issue is $3 billion Goldman raised via a bond issue for Malaysian state investment fund 1Malaysia Development Bhd., or 1MDB. Days after Goldman sent the proceeds into a Swiss bank account controlled by the fund, half of the money disappeared offshore, with some later ending up in the prime minister’s bank account, according to people familiar with the matter and bank-transfer information viewed by The Wall Street Journal. The cash was supposed to fund a major real-estate project in the nation’s capital that was intended to boost the country’s economy.

U.S. law-enforcement officials have sought to schedule interviews with Goldman executives, people familiar with the matter said. Goldman hasn’t been accused of wrongdoing. The bank says it had no way of knowing how 1MDB would use the money it raised. Investigators are focusing on whether the bank failed to comply with the U.S. Bank Secrecy Act, which requires financial institutions to report suspicious transactions to regulators. The law has been used against banks for failing to report money laundering in Mexico and ignoring red flags about the operations of Ponzi scheme operator Bernard Madoff. The investigators believe the bank may have had reason to suspect the money it raised wasn’t being used for its intended purpose, according to people familiar with the probe.

One red flag, they believe, is that Goldman wired the $3 billion in proceeds to a Singapore branch of a small Swiss private bank instead of to a large global bank, as would be typical for a transfer of that size, the people said. Another is the timing of the bond sale and why it was rushed. The deal took place in March 2013, two months after Malaysia’s prime minister, Najib Razak, approached Goldman Sachs bankers during the annual meeting of the World Economic Forum in Davos, Switzerland. And it occurred two months before voting in a tough election campaign for Mr. Najib, who used some of the cash from his personal bank account on election spending, the Journal has reported, citing bank-transfer information and people familiar with the matter.

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This being from the mouthpiece WaPo, g-d only knows what’s behind it.

This Fannie-Freddie Resurrection Needs To Die (WaPo ed.)

It’s been said that Washington is where good ideas go to die. We don’t know about that, but some bad ideas are certainly hard to get rid of. Consider the persistent non-solution to the zombie-like status of Fannie Mae and Freddie Mac known as “recap and release.” The plan is to return the two mortgage-finance giants to their pre-financial-crisis status as privately owned but “government-sponsored” enterprises. That is to say, to recreate the private-gain, public-risk conflict that helped sink them in the first place. Their income would recapitalize the entities, rather than be funneled to the treasury, as is currently the case. Then they could exit the regulatory control known as “conservatorship” that has constrained them since 2008 — and resume bundling home loans and selling them, as if it had never been necessary to bail them out to the tune of $187 billion in the first place.

Congress last year effectively barred recap and release, at least for the next two years. Coupled with the Obama administration’s firm opposition, you’d think that would put a stake through its heart. But “no” is not an acceptable answer for the handful of Wall Street hedge funds that scooped up Fannie and Freddie’s beaten-down common stock for pennies a share after the bailout — and would realize a massive windfall if the government suddenly decided to let shareholders have access to company profits again. With megabillions on the line, the hedge funds have been arguing high-mindedly that their true concerns are property rights and the rule of law; they have also made common cause with certain low-income-housing advocates who see a resurrected Fan-Fred as a potential source of funds for their programs.

Left unexplained, because it’s inexplicable, is how the hedge funds’ arguments square with the fact that there wouldn’t even be a pair of corporate carcasses to fight over but for the massive infusion of taxpayer dollars and the public risk that represented. The latest iteration of recap and release is a hedge-fund-backed bill sponsored by Rep. Mick Mulvaney (R-SC), which would set Fannie and Freddie, unreformed, loose on the marketplace again and do so under terms wildly favorable to the hedge funds. Specifically, shareholders would be charged nothing for the government backing the entities would retain, supposedly to save scarce resources for the capital cushion. But as the WSJ recently noted, capital could be “risk-weighted” so forgivingly that the actual cushion required might be considerably less than headline numbers suggest.

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Desperate move.

State Department Blocks Release Of Hillary Clinton’s TPP Emails (IBT)

Trade is a hot issue in the 2016 U.S. presidential campaign. But correspondence from Hillary Clinton and her top State Department aides about a controversial 12-nation trade deal will not be available for public review — at least not until after the election. The Obama administration abruptly blocked the release of Clinton’s State Department correspondence about the so-called Trans-Pacific Partnership (TPP), after first saying it expected to produce the emails this spring. The decision came in response to International Business Times’ open records request for correspondence between Clinton’s State Department office and the United States Trade Representative. The request, which was submitted in July 2015, specifically asked for all such correspondence that made reference to the TPP.

The State Department originally said it estimated the request would be completed by April 2016. Last week the agency said it had completed the search process for the correspondence but also said it was delaying the completion of the request until late November 2016 — weeks after the presidential election. The delay was issued in the same week the Obama administration filed a court motion to try to kill a lawsuit aimed at forcing the federal government to more quickly comply with open records requests for Clinton-era State Department documents.

Clinton’s shifting positions on the TPP have been a source of controversy during the campaign: She repeatedly promoted the deal as secretary of state but then in 2015 said, “I did not work on TPP,” even though some leaked State Department cables show that her agency was involved in diplomatic discussions about the pact. Under pressure from her Democratic primary opponent, Bernie Sanders, Clinton announced in October that she now opposes the deal — and has disputed that she ever fully backed it in the first place.

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John Oliver buys $15 million of unpaid debt for $60,000. And then forgives it. Now there’s an idea. Unless I’m very mistaken, that means $1 million could forgive $250 million in debt. $10 million, you free $2.5 billion in debt. Well, quite a bit more, actually, because now we’d be talking wholesale. People raise a millon bucks for all sorts of purposes all the time. Know what I mean?

Someone get this properly organized in a fund, and why wouldn’t they (?!), means: You donate $1 and $250 in debt goes away. Donate $100 and $25,000 goes up in air. 100 people donate $100 each, $2,500,000 in debt is gone. I’m not the person to do it, but certainly somebody can?! (Do call me on my math if I missed a digit..). It’s crazy people like Bill Gates or Mark Zuckerberg are not doing this. Or even Janet Yellen. Not all that smart after all, I guess. $1 billion can buy off $250 billion in debt. Want to fight deflation?

Debt Buyers (John Oliver)

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How to make sure an economy and society cannot recover.

Taxes And Recession Slash Income Of Greek Households (Kath.)

The avalanche of new taxes that began this month will deal a devastating blow to household incomes, consumption and the prospects of the Greek economy in general. As the dozens of new measures are implemented, the market will also be forced to deal with the higher charges that will strengthen the lure of tax evasion. All this is expected to extend the recession and deter investment, while leading to more business shutdowns. Crucially, the disposable income of households will shrink anew due to the increase in taxation and the hikes in almost all indirect taxes and social security contributions.

Hundreds of thousands of families are cutting down on their basic expenses while many have run into debt over various obligations: For example, unpaid Public Power Corporation bills now total €2.7 billion. All that has resulted in major drop in retail spending. A consumer confidence survey carried out by Nielsen for the first quarter of the year shows that eight out of 10 Greeks are constantly attempting to reduce their household expenditure. Their main targets for cuts are going out for entertainment and food delivery, while they are buying cheaper and fewer groceries.

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JHK: “As you may know, Kunstler.com is currently under an aggressive Denial of Service (DoS) attack. My web and server technicians are working to get the website and blog back up and live soon (though it’s going to cost a pretty penny). In the meantime, here is today’s blog. Please share this with any of your friends so they don’t miss out.”

Nausea Rising (Jim Kunstler)

The people of the United States have real grievances with the way this country is being run. Last Friday’s job’s report was a humdinger: only 38,000 new jobs created in a country of over 300 million, with a whole new crop of job-seeking college grads just churned out of the diploma mills. I guess the national shortage of waiters and bartenders has finally come to an end. What’s required, of course, is a pretty stout restructuring of the US economy. And that should be understood to be a matter of national survival. We need to step way back on every kind of giantism currently afflicting us: giant agri-biz, giant commerce (Wal Mart etc.), giant banking, giant war-making, and giant government — this last item being so larded with incompetence on top of institutional entropy that it is literally a menace to American society.

The trend on future resources and capital availability is manifestly downward, and the obvious conclusion is the need to make this economy smaller and finer. The finer part of the deal means many more distributed tasks among the population, especially in farming and commerce operations that must be done at a local level. This means more Americans working on smaller farms and more Americans working in reconstructed Main Street business, both wholesale and retail. This would also necessarily lead to a shift out of the suburban clusterfuck and the rebuilding of ten thousand forsaken American towns and smaller cities.

For the moment, many demoralized Americans may feel more comfortable playing video games, eating on SNAP cards, and watching Trump fulminate on TV, but the horizon on that is limited too. Sooner or later they will have to become un-demoralized and do something else with their lives. The main reason I am so against the Hillary and Trump, and so ambivalent on Bernie is their inability to comprehend the scope of action actually required to avoid sheer cultural collapse.

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Completely crazy. Is Trump really the only person who can stop this? For the first time since the Nazi invasion of Soviet-occupied Poland began on 22 June 1941, German tanks will cross the country from west to east.

NATO Countries Begin Largest War Game In Eastern Europe Since Cold War (G.)

The largest war game in eastern Europe since the end of the cold war has started in Poland, as Nato and partner countries seek to mount a display of strength as a response to concerns about Russia’s assertiveness and actions. The 10-day military exercise, involving 31,000 troops and thousands of vehicles from 24 countries, has been welcomed among Nato’s allies in the region, though defence experts warn that any mishap could prompt an offensive reaction from Moscow. A defence attache at a European embassy in Warsaw said the “nightmare scenario” of the exercise, named Anaconda-2016, would be “a mishap, a miscalculation which the Russians construe, or choose to construe, as an offensive action”. Russian jets routinely breach Nordic countries’ airspace and in April they spectacularly “buzzed” the USS Donald Cook in the Baltic Sea.

The exercise, which US and Polish officials formally launched near Warsaw, is billed as a test of cooperation between allied commands and troops in responding to military, chemical and cyber threats. It represents the biggest movement of foreign allied troops in Poland in peace time. For the first time since the Nazi invasion of Soviet-occupied Poland began on 22 June 1941, German tanks will cross the country from west to east. Managed by Poland’s Lt Gen Marek Tomaszycki, the exercise includes 14,000 US troops, 12,000 Polish troops, 800 from Britain and others from non-Nato countries. Anaconda-2016 is a prelude to Nato’s summit in Warsaw on 8-9 July, which is expected to agree to position significant numbers of troops and equipment in Poland and the Baltic states.

It comes within weeks of the US switching on a powerful ballistic missile shield at Deveselu in Romania, as part of a “defence umbrella” that Washington says will stretch from Greenland to the Azores. Last month, building work began on a similar missile interception base at Redzikowo, a village in northern Poland. The exercise comes at a sensitive time for Poland’s military, following the sacking or forced retirement of a quarter of the country’s generals since the nationalist Law and Justice government came to power in October last year. So harsh have the cuts to the top brass been that the Polish armed forces recently found themselves unable to provide a general for Nato’s multinational command centre at Szczecin.

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Tell me, do I feel safe now? 100,000 years is a long time. No fault lines? Volcanic activity?

Finns To Bury Nuclear Waste In World’s Costliest Tomb (AFP)

Deep underground on a lush green island, Finland is preparing to bury its highly-radioactive nuclear waste for 100,000 years — sealing it up and maybe even throwing away the key. Tiny Olkiluoto, off Finland’s west coast, will become home to the world’s costliest and longest-lasting burial ground, a network of tunnels called Onkalo – Finnish for “The Hollow”. Countries have been wrestling with what to do with nuclear power’s dangerous by-products since the first plants were built in the 1950s. Most nations keep the waste above ground in temporary storage facilities but Onkalo is the first attempt to bury it for good. Starting in 2020, Finland plans to stow around 5,500 tons of nuclear waste in the tunnels, more than 420 metres (1,380 feet) below the Earth’s surface.

Already home to one of Finland’s two nuclear power plants, Olkiluoto is now the site of a tunnelling project set to cost up to €3.5 billion until the 2120s, when the vaults will be sealed for good. “This has required all sorts of new know-how,” said Ismo Aaltonen, chief geologist at nuclear waste manager Posiva, which got the green light to develop the site last year. The project began in 2004 with the establishment of a research facility to study the suitability of the bedrock. At the end of last year, the government issued a construction license for the encapsulation plant, effectively giving its final approval for the burial project to go ahead. At present, Onkalo consists of a twisting five-kilometre (three-mile) tunnel with three shafts for staff and ventilation. Eventually the nuclear warren will stretch 42 kilometres (26 miles).

[..] The waste is expected to have lost most of its radioactivity after a few hundred years, but engineers are planning for 100,000, just to be on the safe side. Spent nuclear rods will be placed in iron casts, then sealed into thick copper canisters and lowered into the tunnels. Each capsule will be surrounded with a buffer made of bentonite, a type of clay that will protect them from any shuddering in the surrounding rock and help stop water from seeping in. Clay blocks and more bentonite will fill the tunnels before they are sealed up.

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Long piece on bleaching by the Guardian. Depressing.

Great Barrier Reef: The Stench Of Death (G.)

It was the smell that really got to diver Richard Vevers. The smell of death on the reef. “I can’t even tell you how bad I smelt after the dive – the smell of millions of rotting animals.” Vevers is a former advertising executive and is now the chief executive of the Ocean Agency, a not-for-profit company he founded to raise awareness of environmental problems. After diving for 30 years in his spare time, he was compelled to combine his work and hobby when he was struck by the calamities faced by oceans around the world. Chief among them was coral bleaching, caused by climate change. His job these days is rather morbid. He travels the world documenting dead and dying coral reefs, sometimes gathering photographs just ahead of their death, too.

With the world now in the midst of the longest and probably worst global coral bleaching event in history, it’s boom time for Vevers. Even with all that experience, he’d never seen anything like the devastation he saw last month around Lizard Island in the northern third of Australia’s spectacular Great Barrier Reef. As part of a project documenting the global bleaching event, he had surveyed Lizard Island, which sits about 90km north of Cooktown in far north Queensland, when it was in full glorious health; then just as it started bleaching this year; then finally a few weeks after the bleaching began. “It was one of the most disgusting sights I’ve ever seen,” he says. “The hard corals were dead and covered in algae, looking like they’ve been dead for years. The soft corals were still dying and the flesh of the animals was decomposing and dripping off the reef structure.”

[..] When the coral dies, the entire ecosystem around it transforms. Fish that feed on the coral, use it as shelter, or nibble on the algae that grows among it die or move away. The bigger fish that feed on those fish disappear too. But the cascading effects don’t stop there. Birds that eat fish lose their energy source, and island plants that thrive on bird droppings can be depleted. And, of course, people who rely on reefs for food, income or shelter from waves – some half a billion people worldwide – lose their vital resource.

[..] What’s at stake here is the largest living structure in the world, and by far the largest coral reef system. The oft-repeated cliche is that it can be seen from space, which is not surprising given it stretches more than 2,300km in length and, between its almost 3,000 individual reefs, covers an area about the size of Germany. It is an underwater world of unimaginable scale. But it is up close that the Great Barrier Reef truly astounds. Among its waters live a dizzying array of colourful plants and animals. With 1,600 species of fish, 130 types of sharks and rays, and more than 30 species of whales and dolphins, it is one of the most complex ecosystems on the planet.


Coral off Lizard Island, bleached in March, and then dead and covered in seaweed in May. Photo: the Ocean Agency

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May 302016
 
 May 30, 2016  Posted by at 7:59 am Finance Tagged with: , , , , , , , , , ,  


Jack Delano Foggy night in New Bedford, Massachusetts 1941

The Mystery of Weak US Productivity (Luce)
China Default Chain Reaction Threatens Products Worth 35% of GDP (BBG)
China’s Veiled Loans May Prove Lethal (BBG)
How Many Bad Loans Might China Have? (BBG)
Easy Money = Overcapacity = Trade Wars = Deflation (Rubino)
Negative Rates Fail to Spur Investment for Corporate Europe (BBG)
Saudi Arabia’s Petrodollar Reserves Fall to 4-Year Low (BBG)
CEO of No. 1 Asian Commodity Trader Noble Group Resigns In Surprise Move (R.)
Japan Must Delay Sales-Tax Rise to Recover, Abe Aide Says (BBG)
The Butterfly Effect: Cheap Oil Means Fewer Nose Jobs (BBG)
The Source of Failure: We Optimize What We Measure (CH Smith)
30.4% Of Americans Were Obese In 2015 (Forbes)
Tory Turmoil Escalates With Open Call For Cameron To Quit (G.)
Half Of Central, Northern Great Barrier Reef Corals Are Dead (SMH)

“This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative..”

“Unless we become smarter at how we work, growth will start to exhaust itself too.” Er, no, that has already happened.

“For the first time the next generation of US workers will be less educated than the previous..”

The Mystery of Weak US Productivity (Luce)

Look around you. From your drone home delivery to that oncoming driverless car, change seems to be accelerating. Warren Buffett, the great investor, promises that our children’s generation will be the “luckiest crop in history”. Everywhere the world is speeding up except, that is, in the productivity numbers. This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative following a decade of sharp slowdown. Yet our Fitbits seem to be telling us otherwise. Which should we trust — the economic statistics or our own lying eyes? A lot hinges on the answer. Productivity is the ultimate test of our ability to create wealth. In the short term you can boost growth by working longer hours, for example, or importing more people.

Or you could lift the retirement age. After a while these options lose steam. Unless we become smarter at how we work, growth will start to exhaust itself too. Other measures bear out the pessimists. At just over 2%, US trend growth is barely half the level it was a generation ago. As Paul Krugman put it: “Productivity isn’t everything, but in the long run it is almost everything.” It is possible we are simply mismeasuring things. Some economists believe the statistics fail to capture the utility of setting up a Facebook profile, for example, or downloading free information from Wikipedia. The gig economy has yet to be properly valued. Yet this argument cuts both ways. Productivity is calculated by dividing the value of what we produce by how many hours we work — data provided by employers.

But recent studies — and common sense — say our iPhones chain us to our employers even when we are at leisure. We may thus be exaggerating productivity growth by undercounting how much we work. The latter certainly fits with the experience of most of the US labour force. It is no coincidence that since 2004 a majority of Americans began to tell pollsters they expected their children to be worse off — the same year in which the internet-fuelled productivity leaps of the 1990s started to vanish. Most Americans have suffered from indifferent or declining wages in the past 15 years or so. A college graduate’s starting salary today is in real terms well below where it was in 2000. For the first time the next generation of US workers will be less educated than the previous, according to the OECD, which means worse is probably yet to come. Last week’s US productivity report bears that out.

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“All the risks are accumulating in an overcrowded financial system.”

China Default Chain Reaction Threatens Products Worth 35% of GDP (BBG)

The risk of a default chain reaction is looming over the $3.6 trillion market for wealth management products in China. WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month. The trend has China watchers worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets.

In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable – a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis. Those concerns have become more pressing this year after at least 10 Chinese companies defaulted on onshore bonds, the Shanghai Composite Index sank 20% and China’s economy showed few signs of recovery from the weakest expansion in a quarter century. “There’s abundant liquidity in the financial system, but a scarcity of high-yielding assets to invest in,” said Harrison Hu, the chief Greater China economist at RBS in Singapore. “All the risks are accumulating in an overcrowded financial system.”

Issuance of WMPs, which are sold by banks but often reside off their balance sheets, exploded over the past three years as lenders competed for funds and fees while savers sought returns above those offered on deposits. The products, which offer varying levels of explicit guarantees, are regarded by many as having the implicit backing of banks or local governments. The outstanding value of WMPs rose to 23.5 trillion yuan, or 35% of China’s gross domestic product, at the end of 2015 from 7.1 trillion yuan three years earlier, according to China Central Depository & Clearing Co. An average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank and China Everbright Bank, especially dependent on the products for funding.

Interbank holdings of WMPs swelled to 3 trillion yuan as of December from 496 billion yuan a year earlier, according to figures released by the clearing agency last month. As much as 85% of those products may have been bought by other WMPs, according to Autonomous Research, which based its estimate on lenders’ public disclosures and data on interbank transactions. The firm speculates that in some cases the products are being “churned” to generate fees for banks. “We’re starting to see layers of liabilities built upon the same underlying assets, much like we did with subprime asset-backed securities, collateralized debt obligations, and CDOs-squared in the U.S.,” Charlene Chu, a partner at Autonomous who rose to prominence in her former role at Fitch Ratings by warning of the risks of bad debt in China, said in an interview on May 17.

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“The unconsolidated structured entities managed by the Group consist primarily of collective investment vehicles (“WMP Vehicles”) formed to issue and distribute wealth management products (“WMPs”), which are not subject to any guarantee by the Group of the principal invested or interest to be paid.”

China’s Veiled Loans May Prove Lethal (BBG)

Credit is a risky business, but loans that dare not speak their name? They are possibly even more dangerous, as China is about to find out.As many as 15 publicly traded Chinese lenders, large and small, report roughly $500 billion of such debt between them, which they hold not as loans but as receivables from shadow banking products. While the traditional credit business of these banks is 16 times bigger, receivables have jumped sixfold in three years. Explosive growth of this type usually ends badly. It’s hard to see why it’ll be different for the People’s Republic. Before they can brace themselves – or embrace the risk, if they think the rewards are worth it – equity investors need to know where to look. Flitting from one explanatory note to another in dense annual reports isn’t everybody’s idea of a day well spent.

But the effort may be worth it. For instance, page 184 of Agricultural Bank’s 2015 annual report informs us that the bank has 557 billion yuan ($85 billion) worth of assets tied in “debt instruments classified as receivables.” On page 245, we further learn that most of this is old hat, and the only fast-growing portion is an 18.7 billion yuan chunk helpfully titled as “Others.” A footnote adds that the category primarily consists of “unconsolidated structured entities managed by the group.” Give up? Then you miss the big reveal that occurs 34 pages later: “The unconsolidated structured entities managed by the Group consist primarily of collective investment vehicles (“WMP Vehicles”) formed to issue and distribute wealth management products (“WMPs”), which are not subject to any guarantee by the Group of the principal invested or interest to be paid.” That’s broadly how Chinese lenders disclose their cryptic linkages with shadow banks.

The names keep changing, from “investment management products under trust scheme” and “investment management products managed by securities companies” to “trust beneficiary rights” and “wealth management products.” The latter have swelled to the equivalent of 35% of GDP, and account for 3 trillion yuan of interbank holdings. The common thread to these products is that they’re all exposed to corporate credit and designed to get around lenders’ minimum capital requirements and maximum loan-to-deposit norms, with scant loss provisioning in case things go wrong.There’s plenty that could. The reported nonperforming loan ratio of 1.75% is a joke. CLSA says bad loans have already snowballed to 15 to 19% of the loan book; Autonomous Research partner Charlene Chu estimates the figure will reach 22% by the end of this year. A 20% loss on a $500 billion portfolio of loans masquerading as receivables would wipe out 58% of annual profit of the 15 banks under our scanner.

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” In the basic resources sector, 46% of loans are with firms without enough income to cover interest payments. ”

How Many Bad Loans Might China Have? (BBG)

How many of China’s loans could turn bad? The official data show a non-performing loan ratio of 1.75%, but that’s widely believed to reflect optimistic accounting. Bloomberg Intelligence Economics has estimated the %age of “at risk” loans – those where the borrower doesn’t have sufficient earnings to cover interest payments. The results show 14% of corporate borrowing at risk of default, up from a low of 5% in 2010. By sector, the basic resources, retail and industrial sectors are among the highest risk. In the basic resources sector, 46% of loans are with firms without enough income to cover interest payments.

Telecommunications, utilities, and travel and leisure sectors look more secure, reflecting stronger earnings and lower debt. The methodology is based on an approach used by the IMF. For a universe of 2,865 Chinese listed firms (excluding financial companies), we screened for firms with interest costs higher than their EBITDA. We then calculated total debt of those firms as a %age of total debt of all listed firms. We assume that the ratio of “at risk” loans for the corporate sector as a whole is the same as for listed companies.

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“..over-investment produces slow growth and falling prices while ever-more-aggressive monetary policy distorts markets beyond recognition and encourages new over-investment in different sectors, which then proceed to follow oil and steel into the deflationary abyss.”

Easy Money = Overcapacity = Trade Wars = Deflation (Rubino)

So what happens to all that Chinese steel that was on its way to the US and EU before slamming into those prohibitively high tariffs? One of three things: Either it’s sold elsewhere, probably at even steeper discounts, thus pricing US and EU steel exports out of those markets. Or it’s stockpiled in China for future use, thus lowering future demand for new steel production and, other things being equal, depressing tomorrow’s prices. Or many of China’s newly-built steel mills will close, and China will eat the losses related to this malinvestment. Each scenario results in lower prices and financial losses somewhere. Put another way, as far as steel is concerned, the world’s fiat currencies are rising in value, which is the common definition of deflation.

And since steel is just one of many basic industries burdened with massive overcapacity, it’s safe to assume that the process which began with oil and recently spread to steel will continue to metastasize throughout the developed and developing worlds. Next up: real estate. “Modern” monetary policy, designed to achieve exactly the opposite outcome (that is, rising prices for real things), will in response be ratcheted up to ever-more-extreme levels — which in this analytical framework is like trying to douse a fire with gasoline. The result is a world in which past over-investment produces slow growth and falling prices while ever-more-aggressive monetary policy distorts markets beyond recognition and encourages new over-investment in different sectors, which then proceed to follow oil and steel into the deflationary abyss. And so on, until the system collapses under the weight of its own absurdity.

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Because they are deflationary.

Negative Rates Fail to Spur Investment for Corporate Europe (BBG)

A prolonged period of negative interest rates is failing to revive investment at Europe’s companies, with the vast majority of businesses in the region saying the stimulus measures have had no affect at all on their growth plans. Some 84% of the 9,440 companies surveyed by Swedish debt collector Intrum Justitia AB for its European Payment Report 2016 say low interest rates haven’t affected their willingness to invest. And perhaps more alarmingly, the number is up from 73% last year. “Creating economic growth requires stability and optimism,” Intrum Justitia Chief Executive Officer Mikael Ericson said in the report. “Evidently, the strategy of keeping interest rates record low for more than a year has not created the much sought-after stability.”

Signs of stalling investment mark a blow to central banks hoping to revive growth across Europe through negative rates and quantitative easing. Europe needs its businesses to invest more if it’s to create the jobs needed to spur growth. In the euro area, where interest rates have been negative since mid-2014, gross domestic product will slow to 1.6% this year, compared with 2.3% in the U.S., the European Commission estimates. “A calculation of an investment includes assumptions of the future,” Intrum said. “To get the calculation to go together those assumptions need to include a belief in stability and prosperity in that future. Perhaps the negative interest rates do not signal that stability at all – rather that we are still in an extraordinary situation?”

The survey also identified another threat to growth, namely late payments. Some 33% of survey participants said they regard not being paid on time as a threat to overall survival while 25% said they are likely to cut jobs if clients pay late or not at all. That problem is more pronounced among Europe’s 20 million small and medium-sized companies, with many reporting that bigger firms are forcing them to accept late payments. “It is a market failure that costs job opportunities for millions of Europeans that big corporations deliberately force SMEs to finance their cash flow,” Ericson said. “As much as two out of five SMEs say late payments prohibit growth of the company. That large corporations use their much smaller sub-suppliers to act as financier of their own cash-management processes is not only wrong, it also creates an imbalance in society.”

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Might as well devalue now.

Saudi Arabia’s Petrodollar Reserves Fall to 4-Year Low (BBG)

Saudi Arabia’s net foreign assets fell for a 15th month in April, as the kingdom announced its “vision” for a post-oil future. The Saudi Arabian Monetary Agency said on Sunday net foreign assets declined 1.1% to $572 billion, the lowest level in four years. The slump in crude prices has forced the government to sell bonds and draw on its currency reserves, still among the world’s largest. Net foreign assets fell by $115 billion last year, when the kingdom ran a budget deficit of nearly $100 billion.

The fiscal crunch has pushed Saudi Arabia’s rulers to look beyond oil, consider new taxes, and plan an initial public offering of state giant Saudi Arabian Oil Co. Deputy Crown Prince Mohammed bin Salman sketched out the planned changes dubbed Saudi Vision 2030 on April 25. The strain on reserves has also fueled speculation that the kingdom will adjust its decades-old riyal peg to the dollar. New central bank Governor Ahmed Alkholifey told Al-Arabiya on Thursday that Saudi Arabia doesn’t plan to change its exchange rate policy.

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Firesale. Given what’s happened in commodities the past year, not surprising.

CEO of No. 1 Asian Commodity Trader Noble Group Resigns In Surprise Move (R.)

Embattled commodity trader Noble Group announced the surprise resignation of CEO Yusuf Alireza on Monday and said it planned to sell a U.S. unit to bolster its balance sheet as it seeks to regain investor confidence. Alireza, a former Goldman Sachs banker had steered Asia’s biggest commodity trader to sell assets, cut business lines and take big writedowns as it battled weak commodity markets and the fallout from an accounting dispute. “With this transformation process now largely complete, Mr. Alireza considered that the time was right for him to move on,” Noble said in a statement. It appointed senior executives William Randall and Jeff Frase as co-chief executive officers and said it would begin a sale process for Noble Americas Energy Solutions, “expected to generate both significant cash proceeds and profits to substantially enhance the balance sheet.”

Noble came under the spotlight in February last year when it was accused by Iceberg Research of overstating its assets by billions of dollars, claims which Noble rejected. Its shares have since plunged by about 75% and its debt costs have risen as the company has been hit hard by credit rating downgrades and weak investor confidence. “The first task is to stabilize the situation and convey stability and continuity,” said Nirgunan Tiruchelvam at Religare Capital Markets. “That would be the immediate task of somebody in this business which has volatility,” he said. Noble won the backing of banks earlier this month to refinance its debt. In February, Noble reported its first annual loss since 1998, battered by a $1.2 billion writedown for weak coal prices. The company’s shares slumped 65% last year, knocking it out of the benchmark Straits Times index.

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So a delay in the tax hike would trigger elections. And Abe counts on the Japanese to be blind enough to re-elect him.

Japan Must Delay Sales-Tax Rise to Recover, Abe Aide Says (BBG)

Japan needs to delay increasing its sales tax until late 2019 to sustain its economic recovery, an aide to Prime Minister Shinzo Abe said Sunday. There is a possibility that such a move could trigger a general election. The government will probably hold off raising the tax because it needs to give priority to economic growth, Abe aide Hakubun Shimomura said on Fuji television. Japan’s lower house of parliament would need to be dissolved for a general election if the planned increase is delayed again, Finance Minister Taro Aso was cited by Kyodo News as saying on Sunday at a meeting of the ruling party’s members. Abe has said he’ll make a decision before an upper-house election this summer on whether to go ahead with a planned increase in the levy next April to 10%, from 8% at present.

He had previously said the matter would be decided at an appropriate time and that it would be postponed only if there was a shock on the scale of a major earthquake or a corporate collapse like that of Lehman Brothers. An increase in the levy in 2014 pushed Japan into a recession. “We have no other options but to postpone the sales-tax increase,” Shimomura said. “If the increase means a decline in tax revenue for the government, that would threaten the achievement of the goals under Abenomics.” The prime minister told Finance Minister Taro Aso and LDP’s Secretary General Sadakazu Tanigaki on Saturday to delay the sales-tax increase to October 2019, NHK reported.

Aso advised the prime minister to be cautious about the idea, NHK said. “If the tax increase is delayed, a general election is needed to put the plan to the public,” Aso was quoted by Kyodo News as saying on Sunday. Kyodo reported later that Abe doesn’t plan to call snap elections on the same day as the Upper House vote. If Abe fails to go ahead with his plan of raising the tax in April, it means his economic policies have failed and he and his cabinet members should resign to take responsibility, Tetsuro Fukuyama, vice secretary general of the opposition Democratic Party of Japan, said in a program aired by public broadcaster NHK on Sunday.

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Unexpected advantages.

The Butterfly Effect: Cheap Oil Means Fewer Nose Jobs (BBG)

Oil slumps. Middle Eastern patients cancel treatments abroad. Thai hospital stocks slide. It’s the butterfly effect in action. Weak growth outlooks in the Gulf states are prompting greater competition from local clinics, stemming the flow of visitors to the world’s top medical tourism destination. That’s clouding the outlook for Thailand’s health-care shares, which surged more than 800% over the past seven years, as valuations start to look stretched amid the falling demand. Bangkok’s Bumrungrad Hospital, known as the grandaddy of international clinics, has slumped 16% since early March after patient volumes from the United Arab Emirates, its second-biggest source of overseas visitors, fell 20% in the first quarter.

Thailand attracted as many as 1.8 million international patients in 2015, many of whom stayed on afterward for a beach holiday. More than one in three foreigners treated at Bumrungrad are from the Gulf states and Kasikorn Securities says declining growth in the region and a rise in competition from clinics in the U.A.E., where the government is encouraging its citizens to stay home for medical care, are curbing demand. “In the short term, the economic slowdown in the the Middle East will weaken some investors’ confidence on earnings growth for domestic hospital operators,” said Jintana Mekintharanggur at Manulife Asset Management. “We are still bullish on the sector” in the long term as it will benefit from growth in countries like Myanmar and Vietnam that have less-developed health systems, she said.

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Hey, look, we are born as liars. And we will lie to ourselves about that, too.

The Source of Failure: We Optimize What We Measure (CH Smith)

The problems we face cannot be fixed with policy tweaks and minor reforms. Yet policy tweaks and minor reforms are all we can manage when the pie is shrinking and every vested interest is fighting to maintain their share of the pie. Our failure stems from a much deeper problem: we optimize what we measure. If we measure the wrong things, and focus on measuring process rather than outcome, we end up with precisely what we have now: a set of perverse incentives that encourage self-destructive behaviors and policies. The process of selecting which data is measured and recorded carries implicit assumptions with far-reaching consequences. If we measure “growth” in terms of GDP but not well-being, we lock in perverse incentives to boost ‘growth” even at the cost of what really matters, i.e. well-being.

If we reward management with stock options, management has a perverse incentive to borrow money for stock buy-backs that push the share price higher, even if doing so is detrimental to the long-term health of the company. Humans naturally optimize what is being measured and identified as important. If students’ grades are based on attendance, attendance will be high. If doctors are told cholesterol levels are critical and the threshold of increased risk is 200, they will strive to lower their patients’ cholesterol level below 200. If we accept that growth as measured by GDP is the measure of prosperity, politicians will pursue the goal of GDP expansion.

If rising consumption is the key component of GDP, we will be encouraged to go buy a new truck when the economy weakens, whether we need a new truck or not. If profits are identified as the key driver of managers’ bonuses, managers will endeavor to increase net profits by whatever means are available. The problem with choosing what to measure is that the selection can generate counterproductive or even destructive incentives. This is the result of humanity’s highly refined skill in assessing risk and return. All creatures have been selected over the eons to recognize the potential for a windfall that doesn’t require much work to reap.

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Can’t leave out the ones that are diabetic without knowing it. Oh, and: “..these obesity rates are calculated from self-reported heights and weights.”

30.4% Of Americans Were Obese In 2015 (Forbes)

If recent headlines are to be believed, we are rapidly approaching the future depicted in Wall-E, with a morbidly obese population that can get from place to place only with the help of a hover-scooter. “Americans are fatter than ever, CDC finds,” trumpets CNN. “This Many Americans Need To Go On A Diet ASAP, According To New CDC Report,” content farm Elite Daily smugly proclaims. But is it really that cut-and-dried? The report both articles refer to is succinctly titled “Early Release of Selected Estimates Based on Data from the National Health Interview Survey, 2015.” It was released on Tuesday, and it provides an early look at annual data from the titular survey on 15 different points, from health insurance and flu shots to smoking rates and, yes, obesity.

The publication says 30.4% of Americans were obese in 2015, with a 95% confidence interval (so somewhere between 29.62% and 31.27%). That’s compared to 19.4% in 1997. Obesity rates were higher among middle-aged people (ages 40 to 59), with the rate for that group hitting 34.6%. Ages 20 to 39, perhaps predictably, were the least obese, with 26.5% of that population having a BMI of 30 or more. Obesity was highest for black women (45%), followed by black men (35.1%), Latina women (32.6%), Latino men (32%), white men (30.2%) and white women (27.2%). The data in the release didn’t provide any information on other ethnic or racial groups, nor did it break obesity rates down by household income.

In concert with rising obesity rates, Americans are getting more diabetic. In 1997, 5.1% of U.S. adults had been diagnosed with diabetes. By 2015, that number had nearly doubled, to 9.5%. Although, again, the data here don’t break everything down to my satisfaction–there are no numbers for each specific type of diabetes, for instance–it’s safe to say that these correlations are the consequence of rising obesity, as 95% of people diagnosed with diabetes have type 2.

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Managed to monopolize the entire Brexit debate, but they can’t leave well enough alone…

Tory Turmoil Escalates With Open Call For Cameron To Quit (G.)

David Cameron’s hopes of being able to avoid terminal damage to Conservative party unity after the EU referendum campaign were dented on Sunday when two rebel MPs openly called for a new leader and a general election before Christmas. The attacks came from Andrew Bridgen and Nadine Dorries – both Brexiters, and longstanding, publicity-hungry opponents of the prime minister – and their claim that even winning the EU referendum won’t stop Cameron facing a leadership challenge in the summer was dismissed by fellow Tories. But their comments coincided with the ministers in charge of the leave campaign launching some of their strongest personal attacks yet on Cameron, prompting Labour’s Alan Johnson to say that the Tory infighting was getting “very ugly indeed”.

Bridgen told the BBC’s 5 Live that Cameron had been making “outrageous” claims in his bid to persuade voters to back remain and that, as a consequence, he had effectively lost his parliamentary majority. “The party is fairly fractured, straight down the middle and I don’t know which character could possibly pull it back together going forward for an effective government. I honestly think we probably need to go for a general election before Christmas and get a new mandate from the people,” he said. Bridgen said at least 50 Tory MPs – the number needed to call a confidence vote – felt the same way about Cameron and that a vote on the prime minister’s future was “probably highly likely” after the referendum.

Dorries told ITV’s Peston on Sunday she had already submitted her letter to the chairman of the Tory backbench 1922 committee expressing no confidence in the prime minister. “[Cameron] has lied profoundly, and I think that is actually really at the heart of why Conservative MPs have been so angered. To say that Turkey is not going to join the European Union as far as 30 years is a lie.”

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Australia will keep debating this while the last bits die off.

Half Of Central, Northern Great Barrier Reef Corals Are Dead (SMH)

More than one-third of the coral reefs of the central and northern regions of the Great Barrier Reef have died in the huge bleaching event earlier this year, Queensland researchers said. Corals to the north of Cairns – covering about two-thirds of the Great Barrier Reef – were found to have an average mortality rate of 35%, rising to more than half in areas around Cooktown. The study, of 84 reefs along the reef, found corals south of Cairns had escaped the worst of the bleaching and were now largely recovering any colour that had been lost. Professor Terry Hughes, director of the ARC Centre of Excellence for Coral Reef Studies at James Cook University, said he was “gobsmacked” by the scale of the coral bleaching which far exceeded the two previous events in 1998 and 2002.

“It is fair to say we were all caught by surprise,” Professor Hughes said. “It’s a huge wake up call because we all thought that coral bleaching was something that happened in the Pacific or the Caribbean which are closer to the epicentre of El Nino events.” The El Nino of 2015-16 was among the three strongest on record but the starting point was about 0.5 degrees warmer than the previous monster of 1997-98 as rising greenhouse gas emissions lifted background temperatures. Reefs in many regions, such as Fiji and the Maldives, have also been hit hard. Bleaching occurs when abnormal conditions, such as warm seas, cause corals to expel tiny photosynthetic algae, called zooxanthellae. Corals turn white without these algae and may die if the zooxanthellae do not recolonise them.

The northern end of the Great Barrier Reef was home to many 50- to 100-year-old corals that had died and may struggle to rebuild before future El Ninos push tolerance beyond thresholds. “How likely is it that they will fully recover before we get a fourth or a fifth bleaching event?” Professor Hughes said. The health of the reef has been a contentious political issue, with Environment Minister Greg Hunt pledging more funds in the May budget to improve water quality – one aspect affecting coral health. But Mr Hunt has also had to explain why his department instructed the UN to cut out a section on Australia from a report that dealt with the threat of climate change to World Heritage sites including the Great Barrier Reef and Kakadu.

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Apr 202016
 
 April 20, 2016  Posted by at 9:43 am Finance Tagged with: , , , , , , , , ,  


Esther Bubley Passengers on Memphis-Chattanooga Greyhound bus 1943

Shanghai Stocks Slide 3.6% As China Markets Tumble (MW)
China’s Rapid Development Under Communist Party May Be Coming To An End (BBG)
1.3 Million Redundant Chinese Coal Workers To Be Relocated (PD)
As Global Steel Crisis Grips, China Says March Output Was A Record (Reuters)
Goldman Posts Weakest Results In 4 Years, Revenue Tumbles 40% (Reuters)
Saudi $10 Billion Financial District Is Missing One Thing: Banks (BBG)
Iran Struggles To Find Enough Ships For Oil Exports (Reuters)
Deflation Is A Master From Germany – And The ECB Is Its Victim (Flassbeck)
German Producer Prices Post Sharp Annual Drop (WSJ)
EU Has Lost Favour With Citizens, EC President Juncker Warns
How American Neocons Destroyed Mankind’s Hopes For Peace (PCR)
A New Dark Age Looms (Gail)
Coral Bleaching Hits 93% Of Great Barrier Reef (AFP)
Turkish Border Guards Kill 8 Syrians Including Women And Children (DM)

“.. the market acted like it hit an air pocket.”

Shanghai Stocks Slide 3.6% As China Markets Tumble (MW)

Chinese stocks plunged in trading, with more than 1,000 stocks in Shanghai retreating into negative territory. The Shanghai Composite Index was last down 3.6%, meaning it was headed for its biggest daily percentage drop since Feb 25., when the benchmark fell 6.4%. China’s smaller Shenzhen Composite Index plunged 4.9%, while the Nasdaq-style ChiNext benchmark dropped 5.6%. Chinese shares had mostly been trending higher since January, so Wednesday’s plunge was a jolt for traders. Overall, the Shanghai benchmark is down about 17% for the year. “What’s most scary is that everyone is guessing about what’s the negative news,” says Deng Wenyuan, analyst at Soochow Securities, “And this magnifies irrational panic mood.”

Bill Bowler, equities trader at Forsyth Barr Asia Ltd. said that once the Shanghai benchmark dipped below the 3,000 level, “the market acted like it hit an air pocket.” The benchmark was last at 2,928.25. Elsewhere in the region, stock markets were mixed. Japan’s Nikkei was up 0.1%, Hong Kong’s Hang Seng was down 1.4%, and Australia’s S&P/ASX was last up 0.4% In China, traders and analysts cited a number of possible reasons for selling, from short-term liquidity pressures to worries about less-than-stellar figures as first-quarter earnings results roll in. A lack of confidence in the recent recovery of the market hasn’t helped, they said. A total of 72 companies have been approved to go public so far this year, stoking expectation for fresh shares on the market. Analysts also expect more Chinese firms currently listed in the U.S. to return to the mainland. Both developments would put further pressure on existing shares.

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I’d say it already has.

China’s Rapid Development Under Communist Party May Be Coming To An End (BBG)

China’s decades of rapid development under tight Communist Party control may be coming to an end, according to Roy Smith, the New York University academic who as a banker in 1990 anticipated Japan’s decline. “China has now arrived at an existential moment after nearly 40 years of extraordinary economic progress,” said Smith, who also warned about budding Japan-like financial strains ahead of the Chinese stock rout in 2015. The country’s “increasingly complex and troubled economic and social system with all its scarcities” will make it tougher for Communist cadres to manage, he said. While President Xi Jinping committed in 2013 to giving markets a “decisive” role in steering the economy, much of the financial system remains dominated by state-owned lenders directing credit toward the leadership’s preferred borrowers.

Restrictive social policies limiting services available to some urban residents who migrated from rural areas have seen little change as yet under Xi. Changes to rural property ownership rules have also been limited. And foreign companies are vocal in criticizing the lack of western-style rule of law in a country where the judicial system is under the Communist Party. Authorities need to “move much further to adopt reforms that allow the country meaningfully to be shaped by market forces in the future,” said Smith, who specializes in international banking and finance at NYU’s Stern School of Business. Xi “has fortified his personal power base to be able to do so, but in the end, his may be a test of whether a ‘red state’ superpower, with all its vulnerabilities, can be made to succeed and endure.”

Rising debt adds to the imperative for reform, as do demands from citizens for higher-quality and more expensive health care, improved education and pensions provision. Smith continues to see parallels with Japan’s build-up of bad loans that ended up hobbling the economy. To be sure, there are plenty of differences too. China is at a much lower stage of development compared with Japan in 1990 and, on a per-capita basis, China’s GDP in 2013 was still just half of where Japan was in 1960, according to World Bank data.

Yet overall debt has grown to almost 2.5 times the economy’s size and is showing few signs of slowing down. A fresh surge in borrowing was needed for policy makers to generate a first-quarter annual growth rate of 6.7%, keeping the pace within the government’s 2016 target of 6.5% to 7%. In Japan’s case, the economy stagnated as banks became impaired by losses in the wake of a property-bubble collapse and manufacturers shifted production overseas. It’s a tale of caution for China, according to the former Goldman Sachs Group Inc. banker. “China has followed Japan’s economic development model, and may now too be facing a financial crisis like Japan’s that it may not be able to control, and that could diminish its ability to become the next Asian superpower,” said Smith.

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Add that to the 1.8 million (?!) steel workers and before you know it you have a bit of a problem.

1.3 Million Redundant Chinese Coal Workers To Be Relocated (PD)

China aims to cut coal output by as much as 500 million tons in the next three to five years, the State Council said at the start of 2016. Meanwhile, China also plans to consolidate its remaining coal industry, meaning that fewer miners will be employed. Due to the cuts, 1.3 million employees have to be relocated. The central government has earmarked 100 billion yuan to support those relocation efforts. In spite of the government’s financial support, many coal miners have to give much thoughts about a relocation plan. An anonymous employee said that it forces young people to start over again, even if it isn’t so difficult to find a new job in another industry. As for employees who have already spent many years in the coal industry, they are less competitive in the job market as they have developed no other specialized skills.

In response to the current situation, China’s Ministry of Human Resources and Social Security released new guidelines for the relocation of redundant employees in China’s coal and steel industries. Local authorities and organizations are encouraged to provide the laid-off workers with free training and career guidance, and they should give workers training subsidies, the guidelines stated. Authorities have also been asked to enhance trans-regional cooperation in order to help workers relocate to regions with better employment opportunities. In addition, public welfare job opportunities will be offered to older people for whom it is more difficult to find new jobs, as well as to families suddenly lacking a primary breadwinner.

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This is turning into a full-blown trade war that nobody dares call by its name.

As Global Steel Crisis Grips, China Says March Output Was A Record (Reuters)

Under pressure to curb steel output and relieve a global glut, China said on Tuesday its production actually hit a record high last month as rising prices, and profits, encouraged mills that had been shut or suspended to resume production. The China Iron & Steel Association (CISA) said March steel production hit 70.65 million tonnes, amounting to 834 million tonnes on an annualized basis. Traders and analysts predicted more increases in April and May. The data comes as major steel producing countries failed to agree measures to tackle an industry crisis, with differing views over the causes of overcapacity. A meeting of ministers and trade officials from over 30 countries, hosted by Belgium and the OECD on Monday, concluded only that overcapacity had to be dealt with in a swift and structural way.

Washington pointed the finger at China, saying Beijing needed to cut overcapacity or face possible trade action from other countries. “Unless China starts to take timely and concrete actions to reduce its excess production and capacity … the fundamental structural problems in the industry will remain and affected governments – including the United States – will have no alternatives other than trade action to avoid harm to their domestic industries and workers,” U.S. Secretary of Commerce Penny Pritzker and U.S. Trade Representative Michael Froman said in a statement. Asked what steps the Chinese government would take following the unsuccessful talks, Commerce Ministry spokesman Shen Danyang told reporters on Tuesday: “China has already done more than enough. What more do you want us to do?”

“Steel is the food of industry, the food of economic development. At present, the major problem is that countries that need food have a poor appetite so it looks like there’s too much food.” In a monthly report, the CISA said a recent rally in steel prices in China – up 42% so far this year – was unsustainable given the rising production, and it warned that increased protectionism in Southeast Asia and Europe would make steel exports more difficult. “The big rise in steel prices has led to a rapid reopening of capacity that had been shut or suspended … a large rise in output will not be good for the gap between market demand and supply,” the CISA said.

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When TBTF starts to fail.

Goldman Posts Weakest Results In 4 Years, Revenue Tumbles 40% (Reuters)

Goldman Sachs reported the worst quarterly results in more than four years on Tuesday as volatile markets kept clients from trading, investing or issuing new securities. Goldman’s report wrapped up a dismal quarter for big U.S. banks. The previous day, its most comparable rival, Morgan Stanley, also said its profit fell by more than one-half due to tough markets. Goldman’s first-quarter revenues tumbled 40%, hit by sliding commodity prices, worries about the Chinese economy and uncertainty about U.S. interest rates. Profit fell even more sharply, emphasizing Goldman’s reliance on the capital markets business, particularly bond trading which can be volatile. Analysts peppered CFO Harvey Schwartz with questions about Goldman’s commitment to bond trading as well as its unusually low returns during the quarter, and his outlook for the rest of the year.

“I certainly would not sit here and tell you we were happy about this quarter,” he said. “But we will do what it takes over time to make sure that we deliver for our clients and maximize the returns for shareholders.” Goldman executives have repeatedly said they believe difficulties in trading are short term and that the business will come back. But as Wall Street approaches its sixth year of weak volumes and unexpected price swings that are hurting results, some investors are wondering how long the pain will last. Overall, Goldman’s profit fell by more than one-half from a year ago and quarterly revenue was the weakest in over four years. Highlighting the challenges, return on average common equity (ROE) – a measure of how well it uses shareholder money to generate profit – was 6.4% in the quarter, down from 14.7% a year earlier.

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Hubris rules before the fall.

Saudi $10 Billion Financial District Is Missing One Thing: Banks (BBG)

Saudi Arabia’s $10 billion financial hub in Riyadh will have gleaming towers connected by sky bridges, cutting-edge climate technology and a monorail that can circle the whole area in 11 minutes. What it doesn’t have yet are banks. Not a single financial institution has agreed to take space in the 73 buildings the state is constructing at the King Abdullah Financial District, according to Waleed Aleisa, chief executive officer and project manager of the district at developer Al Ra’idah. The one lender on the 1.6 million square-meter (17.2 million square-foot) site north of the city center is Samba Financial Group, which bought a plot of land and is building its own tower. “Saudi banks want to own their own buildings and want to pay as little as possible,” Aliesa said in an interview.

“They don’t appreciate the brand as much as we see in the West, where banks will pay a premium to be in financial hubs.” As Saudi Arabia prepares for a post-oil future by boosting other industries, its plan to strengthen Riyadh’s position as a financial center is plagued with delays, cost overruns and a failure to understand the needs of local banks, according to Aliesa. Attracting financial clients now will be challenging given that the work, about 70% finished, has largely ground to a halt and the developer is considering replacing the main contractor. “There will be demand without a doubt, but it is still uncertain as to when the construction will be concluded,” Ramzi Darwish, a consultant with Cluttons LLC, said in an interview. “Once completed, there may be some challenges in filling all of the space because of the huge amount of offices being built.”

The government is looking at ways to lure banks with incentives that could include tax breaks lasting a decade or more as well as separate regulation that makes it easier to hire and issue work visas, Aliesa said. Al Ra’idah, which is developing the district for the Saudi Public Pension Agency, will look for another developer to take over from Saudi Bin Laden Group – which has about half of the project’s contracts by value – if the builder can’t restart construction within about two months, he said Tuesday. “What has been impacting the project progress is the project owner’s non-fulfillment of agreed contractual terms, especially those related to timely payments of our entitlements,” Saudi Bin Laden Group said by e-mail. “Our contractual position is robust and supported with the necessary evidence and documents.”

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If there’s money to be made, the ships will be there.

Iran Struggles To Find Enough Ships For Oil Exports (Reuters)

Iran faces a struggle to increase oil exports because many of its tankers are tied up storing crude, some are not seaworthy, and foreign shipowners remain reluctant to carry its cargoes. Tehran is seeking to make up for lost trade to Europe following the lifting of EU sanctions imposed in 2011 and 2012, which deprived it of a market that accounted for over a third of its exports and left it relying completely on Asian buyers. Iran has 55-60 oil tankers in its fleet, a senior Iranian government official told Reuters. He declined to say how many were being used to store unsold cargoes, but industry sources said 25-27 tankers were parked in sea lanes close to terminals including Assaluyeh and Kharg Island for this purpose.

Asked how many tankers were not seaworthy and needed to go to dry docks for refits to meet international shipping standards, the senior official said: “Around 20 large tankers … need to be modernised.” A further 11 Iranian tankers from the fleet were carrying oil to Asian buyers on Tuesday, according to Reuters shipping data and a source who tracks tanker movements. That was broadly in line with the number consistently committed to Asian runs since sanctions were lifted in January, putting more strain on the remaining available fleet. This means foreign ships are needed for Iran’s plans for a big export push to Europe and elsewhere, to meet its target of reaching pre-sanctions sales levels this year. But many owners, who are not short of business in a booming tanker market, are unwilling to take Iranian cargoes.

The main reason is that some U.S. restrictions on Tehran remain in place and prohibit any trade in dollars or the involvement of U.S. firms including banks – a major hurdle for the oil and tanker trades, which are priced in dollars. Eight foreign tankers, carrying a total of around 8 million barrels of oil, have shipped Iranian crude to European destinations since sanctions were lifted in January, according to data from the tanker-tracking source and ship brokers. That equates to only around 10 days’ worth of sales at the levels of pre-2012, when European buyers were purchasing as much as 800,000 bpd from the OPEC producer. So far no Iranian tankers have made deliveries to Europe, according to data from the tanker-tracking source.

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Nice try, and Germany does a lot wrong, but German Christian parties did not cause deflation, which is not a European issue either, but a global one. Moreover, one can argue that German-induced austerity causes deflation, but just as well that it’s QE that causes deflation, which Germany is against.

Deflation Is A Master From Germany – And The ECB Is Its Victim (Flassbeck)

These days, we are witnessing a tragedy of historic proportions in Europe. A country called Germany stubbornly and almost unanimously refuses to come to terms with the economic consequences of its own mistakes. It blames all the others but never accepts its own responsibility for what is happening. In particular, the Christian parties, who persuaded the German people for decades that independence of the central bank is one of the main achievements and pillars of democracy, show with their rabid attacks on the ECB and its current interest rate policy that they know no principles and that laws do not count for them when it comes to their primitive party interests. The intellectual level of these attacks is very low. The lack of intelligence and insight is being outweighed by far by their political brutality, which has recently been increasing on an almost daily basis.

The personal attacks are more and more directed towards ECB president, Mario Draghi. Where does European deflation, which makes up the core of the whole problem comes from? It is mainly because of increasing deflation that the ECB decided to lower the interest rate to zero. Did deflation fall out of the sky? Did the ECB cause it? Are other European countries responsible for it? Such simple questions should be asked in the critical media in Germany every day. Anyone who is intellectually even halfway honest can answer them immediately. Instead, the majority of the German media continue spreading platitudes, giving the impression that there is still some reason behind the madness (Der Spiegel’s long history in this is a sad case in point).


Evolution of price levels in France (green line: labour units costs; black line: the ECB inflation target; red line: prices of goods for exports; blue line: economy in total) (2).

Figures 1 and 2 show the evolution in Germany and in France. They tell you who is responsible for the deflation and the low interest rates. There is no doubt about it that it is Germany. European deflation has its origins in Germany and nowhere else.


Evolution of price levels in Germany (green line: labour units costs; black line: the ECB inflation target; red line: prices of goods for exports; blue line: economy in total) (2).

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Deflation is here to stay no matter what.

German Producer Prices Post Sharp Annual Drop (WSJ)

The prices of goods leaving Germany’s factory gates in March registered their sharpest annual drop in over six years, pulled lower by energy prices, the Federal Statistical Office said Wednesday. Producer prices in March were unchanged from February, but fell 3.1% from March last year, the sharpest annual fall since January 2010. By comparison, economists polled by the WSJ forecast a monthly rise of 0.1%, but an annual decline of 2.9%. The data indicate there is only limited upward pressure on German consumer prices from the production side. Energy prices once again had the largest effect on producer prices, Destatis said. Excluding energy prices, which can be volatile, producer prices in Europe’s largest economy slipped 0.1% from February and declined 0.9% from March last year.

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How is this not his cue to step down?!

EU Has Lost Favour With Citizens, EC President Juncker Warns

Europe’s citizens are increasingly abandoning the European project because the EU has interfered too much with their lives, the commission president has warned. Jean-Claude Juncker told a meeting of the Council of Europe – not an EU body – in Strasbourg that people were “stepping away” from the EU, which he said had “lost a part of its attractiveness”. Juncker said one of the reasons EU citizens were losing faith in the union was because “we are interfering in too many areas of their private lives, and in too many areas where member states are better placed to act”. European commissions had been “wrong to over-regulate and interfere too much in the lives of our citizens”, he said, stressing that the EU’s current executive was trying to cut new legislation to a minimum.

The comments were Juncker’s sharpest since his inaugural state of the union speech in September last year, when he warned the EU was “not in a good place” and that it needed to move far beyond business as usual to address the daunting political challenges facing the bloc. He told the Council of Europe on Tuesday that EU officials were not very popular at home when they pleaded the European cause, and “no longer respected” when they said the EU had to be given priority. Juncker warned that a slowing birthrate and shrinking economic potential meant Europe faced losing respect on the world stage. Europe made up 20% of the world population a century ago, but by the end of this century will account for barely 4%, he said. “We are losing economic clout in a very visible way,” the commission president said, adding that the combination of long-term decline and more immediate crises such as the refugee crisis and Islamist terror attacks left the EU facing “very tough times”.

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Vintage Paul Craig Roberts.

How American Neocons Destroyed Mankind’s Hopes For Peace (PCR)

When Ronald Reagan turned his back on the neoconservatives, fired them, and had some of them prosecuted, his administration was free of their evil influence, and President Reagan negotiated the end of the Cold War with Soviet President Gorbachev. The military/security complex, the CIA, and the neocons were very much against ending the Cold War as their budgets, power, and ideology were threatened by the prospect of peace between the two nuclear superpowers. I know about this, because I was part of it. I helped Reagan create the economic base for bringing the threat of a new arms race to a failing Soviet economy in order to pressure the Soviets into agreement to end the Cold War, and I was appointed to a secret presidential committee with subpeona power over the CIA. The secret committee was authorized by President Reagan to evaluate the CIA’s claim that the Soviets would prevail in an arms race.

The secret committee concluded that this was the CIA’s way of perpetuting the Cold War and the CIA’s importance. The George H. W. Bush administration and its Secretary of State James Baker kept Reagan’s promises to Gorbachev and achieved the reunification of Germany with promises that NATO would not move one inch to the East. The corrupt Clintons, for whom the accumulation of riches seems to be their main purpose in life, violated the assurances given by the United States that had ended the Cold War. The two puppet presidents – George W. Bush and Obama – who followed the Clintons lost control of the US government to the neocons, who promptly restarted the Cold War, believing in their hubris and arrogance that History has chosen the US to exercise hegemony over the world.

Thus was mankind’s chance for peace lost along with America’s leadership of the world. Under neocon influence, the United States government threw away its soft power and its ability to lead the world into a harmonious existance over which American influence would have prevailed. Instead the neocons threatened the world with coercion and violence, attacking eight countries and fomenting “color revolutions” in former Soviet republics. The consequence of this crazed insanity was to create an economic and military strategic alliance between Russia and China. Without the neocons’ arrogant policy, this alliance would not exist. It was a decade ago that I began writing about the strategic alliance between Russia and China that is a response to the neocon claim of US world hegemony.

The strategic alliance between Russia and China is militarily and economically too strong for Washington. China controls the production of the products of many of America’s leading corporations, such as Apple. China has the largest foreign exchange reserves in the world. China can, if the government wishes, cause a massive increase in the American money supply by dumping its trillions of dollars of US financial assets. To prevent a collapse of US Treasury prices, the Federal Reserve would have to create trillions of new dollars in order to purchase the dumped financial instruments. The rest of the world would see another expansion of dollars without an expansion of real US output and become skeptical of the US dollar. If the world abandoned the US dollar, the US government could no longer pay its bills.

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Very interesting angle: “..as Earth warms, our historical understanding will turn obsolete faster than we can replace it with new knowledge..”

A New Dark Age Looms (Gail)

Imagine a future in which humanity’s accumulated wisdom about Earth – our vast experience with weather trends, fish spawning and migration patterns, plant pollination and much more – turns increasingly obsolete. As each decade passes, knowledge of Earth’s past becomes progressively less effective as a guide to the future. Civilization enters a dark age in its practical understanding of our planet. To comprehend how this could occur, picture yourself in our grandchildren’s time, a century hence. Significant global warming has occurred, as scientists predicted. Nature’s longstanding, repeatable patterns – relied on for millenniums by humanity to plan everything from infrastructure to agriculture – are no longer so reliable. Cycles that have been largely unwavering during modern human history are disrupted by substantial changes in temperature and precipitation.

As Earth’s warming stabilizes, new patterns begin to appear. At first, they are confusing and hard to identify. Scientists note similarities to Earth’s emergence from the last ice age. These new patterns need many years — sometimes decades or more — to reveal themselves fully, even when monitored with our sophisticated observing systems. Until then, farmers will struggle to reliably predict new seasonal patterns and regularly plant the wrong crops. Early signs of major drought will go unrecognized, so costly irrigation will be built in the wrong places. Disruptive societal impacts will be widespread. Such a dark age is a growing possibility. In a recent report, the National Academies of Sciences, Engineering and Medicine concluded that human-caused global warming was already altering patterns of some extreme weather events.

But the report did not address the broader implication — that disrupting nature’s patterns could extend well beyond extreme weather, with far more pervasive impacts. Our foundation of Earth knowledge, largely derived from historically observed patterns, has been central to society’s progress. Early cultures kept track of nature’s ebb and flow, passing improved knowledge about hunting and agriculture to each new generation. Science has accelerated this learning process through advanced observation methods and pattern discovery techniques. These allow us to anticipate the future with a consistency unimaginable to our ancestors. But as Earth warms, our historical understanding will turn obsolete faster than we can replace it with new knowledge. Some patterns will change significantly; others will be largely unaffected, though it will be difficult to say what will change, by how much, and when.

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“..the big question is how many of these events can it handle? And I think the answer is not many more.”

Coral Bleaching Hits 93% Of Great Barrier Reef (AFP)

Australia’s Great Barrier Reef is suffering its worst coral bleaching in recorded history with 93% of the World Heritage site affected, scientists said Wednesday as they revealed the phenomenon is also hitting the other side of the country. After extensive aerial and underwater surveys, researchers at James Cook University said only seven% of the site had escaped the whitening triggered by warmer water temperatures. “We’ve never seen anything like this scale of bleaching before,” said Terry Hughes, convenor of the National Coral Bleaching Taskforce. The damage ranges from minor in the southern areas – which are expected to soon recover – to very severe in the northern and most pristine reaches of the site which stretches along 2,300 kilometres of the east coast.

Hughes said of the 911 individual reefs surveyed, only 68 (or 7%) had escaped the massive bleaching event which has also spread south to Sydney and across the country to Western Australia. Researcher Verena Schoepf, from the University of Western Australia, said coral was already dying at a site she had recently visited off the western state’s north coast. “Some of the sites that I work at had really very severe bleaching, up to 80 to 90% of the coral bleached,” she told AFP. “So it’s pretty bad out there.” While Western Australia’s Ningaloo Marine Park appeared to have escaped damage, areas north of Broome were suffering, she said, just one day after scientists revealed coral bleaching had been detected in Sydney Harbour for the first time.

Andrew Baird, from James Cook University’s centre for coral reef studies, said the bleaching was a sign of a global problem. “It’s much bigger than just Australia,” he said, adding that there were reports of bleaching throughout Indonesia and indications it was beginning in the Maldives. But he said he had been surprised by the scale and severity of the event on the Great Barrier Reef, a major tourist drawcard which is teeming with marine life. “We’ve been expecting a really big event for a while I suppose and here it is,” he told AFP. Baird said because the bleaching was far less serious in the southern reaches “lots of the reef will still be in good shape”. “But the reef that’s been badly affected – which is a third to a half of it – is going to take a while to recover”. “And again the big question is how many of these events can it handle? And I think the answer is not many more.”

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As Europe looks away…

Turkish Border Guards Kill 8 Syrians Including Women And Children (DM)

Eight Syrians including women and young children have been shot dead by Turkish border guards while trying to flee their war-torn homeland, it has emerged. The group of refugees were trying to cross into Turkey via a mountain smuggling group when they were gunned down by Turkish forces patrolling the border. As well as those killed, many others are said to have been injured in the firefight including one man who was shot in both of his legs while carrying his young son and another who was shot in the arm. Abdmunem Kashkash, a lawyer from Aleppo who was with the group but managed to cross into Turkey unharmed, said Turkish border guards are ‘killing unarmed people’ every day.

‘There was one little girl who was shot and we could not do more for her for four hours, until nightfall,’ he said. ‘An old man and woman are missing – they have probably been killed too.’ Those who have been injured while desperately trying to flee Syria have been taken to a hospital in Azaz – a rebel-held town next to the Turkish border where 10,000 displaced people are sheltering. The deaths appear to confirm claims made by the Human Rights Watch last week that Turkish guards of opening fire on civilians as they approached the country’s border wall with Syria.

Gerry Simpson, senior refugee researcher at Human Rights Watch, said: ‘As civilians flee ISIS fighters, Turkey is responding with live ammunition instead of compassion. ‘The whole world is talking about fighting ISIS, and yet those most at risk of becoming victims of its horrific abuses are trapped on the wrong side of a concrete wall.’ The Turkish Government has insisted that it is maintaining the same open-door policy at the frontier that it has since 2011, with free access for all Syrians whose lives are in imminent danger. However, a senior official told The Times that ‘certain restrictions may apply due to special circumstances’.

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Oct 082015
 
 October 8, 2015  Posted by at 9:49 am Finance Tagged with: , , , , , , , , , , ,  


Ben Shahn L.F. Kitts general store in Maynardville, Tennessee Oct 1935

IMF: Next Financial Crash Inevitable, With Same Flaws As Last Time (Guardian)
IMF Warns Emerging Market Companies Have Overborrowed $3 Trillion (Reuters)
Banks’ Exposure To Glencore Is a $100 Billion ‘Gorilla’: BofA (Bloomberg)
Deutsche Bank Sees $7 Billion In Q3 Losses, Writedowns (NY Times)
Germany’s Exports Plunge 5.2% In August, Most Since January 2009 (Bloomberg)
Once the Biggest Buyer, China Starts Dumping U.S. Government Debt (WSJ)
Powerful Democratic Senator Launches Inquiry Into Bank Misconduct (WSJ)
Four Ways the Oil Price Crash Is Hurting the Global Economy (Bloomberg)
For Volkswagen, New Questions Arise on US Injury Reporting (Bloomberg)
Apple’s Real Cash Pile Is 99% Smaller Than You Think (MarketWatch)
Brazil President Dilma Rousseff Loses Legal Battle, Faces Impeachment (Guardian)
The World’s Silliest Empire (Dmitry Orlov)
EU Court Dismisses Investors’ Claims Against ECB Over Greek Debt (Reuters)
40% EU Budget For Greece Migration Goes To Security, Border Control (Fotiadis)
Merkel Rules Out Freeze On Refugee Intake (DW)
Monsanto To Cut 2600 Jobs, Lose $500 Million, Shares Down 24% In 2015 (Forbes)
St. Louis Girds For Catastrophe As 5-Year Underground Fire Nears Nuke Waste (AP)
World’s Oceans Facing Biggest Coral Die-Off In History (Guardian)
Coral Reefs Worth Four Times As Much As UK Economy: Earth Index (Guardian)

Lagarde forgot to set her alarm sometime in 2010.

IMF: Next Financial Crash Inevitable, With Same Flaws As Last Time (Guardian)

The next financial crisis is coming, it’s a just a matter of time – and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one. That is the message from the IMF’s latest Global Financial Stability report, which will make sobering reading for the finance ministers and central bankers gathered in Lima, Peru, for its annual meeting. Massive monetary policy stimulus has rekindled growth in developed economies since the deep recession that followed the collapse of Lehman Brothers in 2008; but what the IMF calls the “handover” to a more sustainable recovery – without the extra prop of ultra-low borrowing costs – has so far failed to materialise.

Meanwhile, the cheap money created to rescue the developed economies has flooded out into emerging markets, inflating asset bubbles, and encouraging companies and governments to take advantage of unusually low borrowing costs and load up on debt. “Balance sheets have become stretched thinner in many emerging market companies and banks. These firms have become more susceptible to financial stress,” the IMF says. Meanwhile, the failure to patch up the international financial system after the last crash, by ensuring that banks in emerging markets hold enough capital, and constraining risky borrowing, for example, means that a new Lehman Brothers-type shock could spark another global panic.

“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the IMF says, warning that some markets appear to be “brittle”. So as the US Federal Reserve lays the groundwork for a return to peacetime interest rates, from the emergency levels of the past seven years, financial markets face what the IMF calls an “unprecedented adjustment”; and the world looks woefully underprepared.

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Total’s much higher than that.

IMF Warns Emerging Market Companies Have Overborrowed $3 Trillion (Reuters)

Emerging market companies have an estimated $3 trillion in overextended loans that threaten to trigger a sharp credit crunch and capital outflows in economies that have already been hit hard by low commodity prices, the IMF said on Wednesday. The IMF warned that a messy withdrawal of stimulus measures in advanced economies could start a “vicious cycle of fire sales, redemptions, and more volatility.” The U.S. Federal Reserve has said it is on track to raise rates for the first time in almost a decade by the end of this year. Overborrowing in emerging market economies likely adds up to an average of 15% of their gross domestic product, and 25% of China’s GDP, the IMF said.

Emerging markets where companies tapped easy credit to soften the impacts of the global financial crisis are now on the verge of a credit downturn, the IMF said. Many of the borrowers are state-owned enterprises and the lenders are often local banks. “Corporate and bank balance sheets are currently stretched,” it said in its Global Financial Stability Report. “Immediate prudential attention is needed.” China’s exposure to credit risks as it transitions to a more market-based economy is especially worrisome, the Fund said. China’s August stock market crash and sudden devaluation in August rattled global markets. “Direct financial spillovers include a possibly adverse impact on the asset quality of at least $800 billion of cross-border bank exposures,” the Fund said. The IMF said China should improve access to it equity market to provide companies an alternative to bank financing.

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Lehman redux.

Banks’ Exposure To Glencore Is a $100 Billion ‘Gorilla’: BofA (Bloomberg)

Global financial firms’ estimated $100 billion or more exposure to Glencore Plc may draw more scrutiny as regulatory stress tests approach after the commodity giant’s stock plunge this year, according to Bank of America. Bank shareholders and regulators may be concerned that Glencore’s debt and trade finance deals, of which a “significant majority” are unsecured, will reveal higher-than-expected risk and require more capital once the lenders are put through U.S. and U.K. stress tests, BofA analysts said Wednesday. Adding an estimated $50 billion of committed lines to the company’s own reported gross debt, the analysts say financial firms’ exposure may be three times larger than Glencore’s reported adjusted net debt of less than $30 billion.

“The banking industry may have significantly more exposure to Glencore than is generally appreciated in the market,” analysts including Alastair Ryan and Michael Helsby said in a note titled “The $100 Billion Gorilla In the Room.” The commodity-price bust and “stress in Glencore’s share price and debt spreads may spur a review by investors, supervisors and bank management,” while “bank shareholders may pressure managements to reduce exposures,” they said. Loans to the industry have come under scrutiny as the price of oil, copper and other commodities fell to the lowest in 16 years amid weakening demand from China. Glencore, the Swiss producer and trader of commodities led by billionaire Ivan Glasenberg, has pledged to cut debt by $10 billion and revealed more detail about its financing to mollify investors. On Dec. 1, the Bank of England releases its second round of stress tests, in which it has pledged to examine U.K. banks’ commodities exposure.

[..]Glencore has $35 billion in bonds, $9 billion in bank borrowings, $8 billion in available drawings and $1 billion in secured borrowings, in addition to $50 billion in committed credit lines, against which it draws letters of credit to finance trading, according to BofA. That compares with more than $90 billion in property, plant, equipment and inventories.

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Losing $2+ billion each month. That should end well.

Deutsche Bank Sees $7 Billion In Q3 Losses, Writedowns (NY Times)

Deutsche Bank, the giant German bank that has a big presence on Wall Street and is facing much regulatory scrutiny in the United States, on Wednesday warned that it expects to post a hefty loss in the third quarter. The bank, Germany’s largest, forecast a net loss of €6.2 billion for the quarter. It comes just months into the tenure of Deutsche Bank’s new co-chief executive, John Cryan, who is trying to overhaul the institution. Along with the scandal and upheaval at Volkswagen, Deutsche’s struggles point to some of the weaknesses of Germany’s corporate culture. “The news is not good, and I expect a number of you will be very disappointed by it,” Mr. Cryan said in a memo to employees. “We expect to report a sizable loss for the third quarter.”

Deutsche also said that it would recommend reducing or eliminating its dividend for the rest of 2015. A dividend cut is a jarring move for any bank. It often suggests that a bank is trying to conserve its capital, the financial foundation of a bank that can protect it from shocks and losses. On some measures, Deutsche has less capital than some of its better-performing peers. The net loss is driven by a combined $8.5 billion in financial hits. New chief executives often take “kitchen sink” financial charges to clean up problems or complete unfinished tasks left by the former leaders — and this may be what’s happening at Deutsche. But at troubled companies, the first set of charges is often not the last.

Still, shareholders of Deutsche might take heart from the fact that the third-quarter loss stemmed mostly from a $6.5 billion write down of so-called intangible assets. These can be assets that reflect past paper gains, so reducing their value is not thought to be as serious as slashing the value of, say, financial assets like bonds or loans. Still, the write-downs of intangible assets appeared to be prompted by higher capital requirements by regulators. Since many regulatory capital changes have been known for a while, it is not clear why Deutsche would be taking the charge now. Cutting the value of intangible assets may not have much of an impact on an important regulatory capital measurement, something that Deutsche noted in its news release.

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Pre-VW. Expectation was 0.9% drop.

Germany’s Exports Plunge 5.2% In August, Most Since January 2009 (Bloomberg)

German exports slumped the most since the height of the 2009 recession in a sign that Europe’s largest economy is vulnerable to risks from weakening global trade. Foreign sales declined 5.2% in August from the previous month, the Federal Statistics Office in Wiesbaden said on Thursday. That’s the steepest since January 2009. Economists predicted a drop of 0.9%. Imports fell 3.1%. The trade surplus shrank to €15.3 billion from €25 billion in July, according to the report. Germany is grappling with a slowdown in China and other emerging markets, which have been key destinations for its exports.

With factory orders from countries outside the 19-nation euro region down more than 13% in July and August combined, the focus is shifting to strengthening domestic spending fueled by pent-up investment demand and consumption. The decline is the latest sign that prospects for the economy are deteriorating. Germany’s leading economic institutes are set to lower their growth forecast for 2015 to about 1.8% from a previous estimate of 2.1%, Reuters reported on Wednesday. The ECB will publish an account of its Sept. 2-3 monetary-policy meeting later on Thursday. Investors are looking for signs that policy makers are getting closer to increasing stimulus.

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The Treasury game is over.

Once the Biggest Buyer, China Starts Dumping U.S. Government Debt (WSJ)

Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis. Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt. While central banks have been selling, a large swath of other buyers has stepped in, including U.S. and foreign firms. That buying, driven in large part by worries about the world’s economic outlook, has helped keep bond yields at low levels from a historical standpoint. But many investors say the reversal in central-bank Treasury purchases stands to increase price swings in the long run.

It could also pave the way for higher yields when the global economy is on firmer footing, they say. Central-bank purchases over the past decade are widely perceived to have “helped depress the long-term Treasury bond yields,” said Stephen Jen, managing partner at SLJ Macro Partners and a former economist at the IMF. “Now, we have sort of a reverse situation.” Foreign official net sales of U.S. Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July, said Torsten Slok, chief international economist at Deutsche Bank Securities, citing Treasury Department data. It was the biggest decline since data started to be collected in 1978. A year earlier, foreign central banks purchased $27 billion of U.S. notes and bonds.

In the past decade, large trade surpluses or commodity revenues permitted many emerging-market countries to accumulate large foreign-exchange reserves. Many purchased U.S. debt because the Treasury market is the most liquid and the U.S. dollar is the world’s reserve currency. Foreign official purchases rose as high as a net $230 billion in the year ended in January 2013, the Deutsche Bank data show. But as global economic growth weakened, commodity prices slumped and the dollar rose in anticipation of expected Federal Reserve interest-rate increases, capital flowed out of emerging economies, forcing some central banks to raise cash to buy their local currencies. In recent months, China’s central bank in particular has stepped up its selling of Treasurys.

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Don’t hold your breath.

Powerful Democratic Senator Launches Inquiry Into Bank Misconduct (WSJ)

A powerful Democratic senator has launched an inquiry into bank misconduct, asking top financial institutions to turn over information about the settlements they have entered into with federal agencies over the past decade. Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee, asked banks in a letter dated Sept. 30 to provide details of any “legally enforceable judgment, agreement, settlement, decree or order dated January 1, 2005 to the present,” involving 15 federal agencies including the Department of Justice, the Federal Reserve, the Securities and Exchange Commission, and several Treasury Department units. The inquiry could add fuel to growing criticism by lawmakers and others that such settlements have failed to deter repeated bank misbehavior.

The letter asks for the impact of the settlements, including sanctions paid, personnel or board changes or other compliance fixes that followed, whether any individuals were punished, and whether the bank had sought any waivers from any disqualifications that followed such settlements. The questions touch on issues that recent settlements have raised, including whether certain penalties were largely offset by corresponding tax benefits, or whether the SEC has too readily provided waivers to the disqualifications that banks face when hit with criminal penalties. Federal prosecutors have also described how banks predicted catastrophic consequences to potential criminal charges, even though such consequences never materialized.

Many of the largest U.S. and foreign banks with large U.S. operations received the letter, including JPMorgan, Wells Fargo, Deutsche Bank, Citigroup and HSBC, according to people familiar with the letters. Representatives of several of the banks have discussed the letters with each other and are strategizing how to respond, some of the people said. Mr. Brown’s letter was not signed by Sen. Richard Shelby (R. Ala.), the chairman of the banking committee. It set an Oct. 28 deadline for response, and said Mr. Brown was acting as the committee’s top minority member under authority granted to him by the rules of the Senate. Mr. Shelby questioned Mr. Brown’s interpretation of those rules. “I’m not sure he has the authority to do that..” He said Mr. Brown couldn’t send the letter on the committee’s behalf, but “if he sends a letter personally, he can do that.”

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As we said when prices first started falling: oil is simply too big a part of the entire economy for lower prices to be beneficial.

Four Ways the Oil Price Crash Is Hurting the Global Economy (Bloomberg)

Lower oil prices were roundly celebrated as a tailwind for global growth. In theory, the movement of wealth from commodity producers, which often stow away oil revenue in sovereign wealth funds, to consumers, which spend a far larger portion of their income, is a positive for economic activity. But strategists at Credit Suisse believe that so far, the global economy has seen only the storm from lower crude, not the rainbow that follows. “The fall in the oil price was considered by many investors, and ourselves, to be a significant positive for global GDP growth,” a team led by global equity strategist Andrew Garthwaite admitted. The net effect of this development, according to their calculations, has turned out to be a 0.2% hit to the global economy.

The negative effects of lower oil—namely the large-scale cuts to capital expenditures—are having a large and immediate impact on global gross domestic product. “The problem is that commodity-related capex accounts for circa 30% of global capex (with oil capex down 13% and mining capex down 31% in the past 12 months),” wrote the strategists, “and thus the fall in U.S. and global commodity capex and opex has taken at least circa 0.8% off U.S. GDP growth in the first half 2015 and circa 1% off global GDP growth over the last year.” Garthwaite and his group highlight three other channels through which soft oil prices have adversely affected the American economy: employment, wages, and dividend income.

Employment in oil and oil-related industries has declined by roughly 8% since October 2014, with initial jobless claims in North Dakota, a prime beneficiary of the shale revolution, at extremely elevated levels. During this period, average hourly wages for those employed in oil and gas extraction shrank nearly 10% after growing at a robust clip in the previous two years. And the payouts to investors who own oil stocks have also been cut, which Credit Suisse deems to be a modest negative for household income. “A fall in capex brings with it a fall in direct employment and earnings (total payroll income in the U.S. energy sector is down by 18% since November last year, for example), as well as second-round effects on other industries servicing the capex process, from machinery producers to catering and hotels,” the team wrote.

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“They are also significantly below the reporting of automakers that have already been cited for non-compliance.”

For Volkswagen, New Questions Arise on US Injury Reporting (Bloomberg)

Volkswagen reported death and injury claims at the lowest rate of any major automaker in the U.S. over the last decade. The numbers are so good that some industry experts wonder if they add up. The average reporting rate of the 11 biggest automakers was nine times higher than Volkswagen’s, according to an analysis of government data completed last week by financial advisory firm Stout Risius Ross at the request of Bloomberg News. This year, two of Volkswagen’s competitors, Honda and Fiat Chrysler’s U.S. unit, have said they underreported claims to the U.S. government, and Honda paid a fine. Volkswagen’s rate is lower than Honda and Chrysler’s underreported numbers, the data show. To ensure fair comparisons among carmakers of different sizes, the rates were calculated per million vehicles on the road.

“The data demonstrates that even on a fleet-adjusted basis, the number of reported incidents by Volkswagen is significantly below what one would expect based on those reported by other automakers,” said Neil Steinkamp, a Stout Risius managing director. “They are also significantly below the reporting of automakers that have already been cited for non-compliance.” The reporting of death and injury claims is part of the National Highway Traffic Safety Administration’s so-called early-warning system to spot vehicle-defect trends in an attempt to reduce fatalities. [..] NHTSA is focused on improving the system of reporting potential defects, both through monitoring automaker reports and making its analysis of the data more effective, spokesman Gordon Trowbridge said in an e-mail.

The agency is implementing recommendations of an audit by the Transportation Department’s inspector general, including more actively following up on fatality reports and lawsuits, he said. He had no comment on specific automakers’ compliance. Clarence Ditlow, executive director of the Washington-based watchdog Center for Auto Safety, said that Volkswagen’s numbers are so low that he questions how they were compiled. “NHTSA doesn’t have the resources to police all of this, but now they’re asking the automakers to tell them whether they’re in compliance,” Ditlow said. “For the automakers, it’s a time of reckoning.”

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“That spare cash is mostly an illusion, even a shell game, as a new report has just confirmed..”

Apple’s Real Cash Pile Is 99% Smaller Than You Think (MarketWatch)

You’re one of millions of loyal Apple stockholders. And if there’s anything you love more than your new iPhone 6s, it’s the huge $203 billion in spare cash that the company says is sitting in its bank accounts. That’s the number widely reported in the media. It’s the number that appears on Page 8 of the company’s most recent quarterly financial report. It’s a record cash pile for any American company. It’s a $50 billion increase in the past 12 months alone. And it’s equal to $36 per share, a juicy amount for shares you can buy for around $110. There’s just one problem: That spare cash is mostly an illusion, even a shell game, as a new report has just confirmed. In reality, the amount of spare cash that Apple has on its balance sheet is a tiny fraction of that. Actually, it’s about the same as the estimated net worth of its CEO, Tim Cook.

First, Apple’s nominal cash hoard includes an astonishing $181.1 billion held offshore in tax shelters to avoid paying Uncle Sam, as Citizens for Tax Justice, a think tank, points out in new report published on Tuesday. It’s easy to say, “Oh, that’s just a claim by some liberal think tank.” But the real source of the number is Apple itself, which reports the same figure on Page 31 of its most recent quarterly report. Citizens for Tax Justice is taking aim at tax avoidance by U.S. corporations across the board, not merely targeting Apple, and its report will be discussed most keenly by all those interested in politics or economics. But it also has deep implications for those interested in finance, and especially those with stock in Apple.

As the CTJ report observes, Apple would have to pay about $59.2 billion in U.S. taxes if it tried to repatriate that money. So if it ever tried to return the cash to investors, through dividends or stock buybacks, it would lose a third of the money in taxes first. OK, the company says it has no plans to bring the money back to the U.S. But so long as the stock is beyond the reach of U.S. tax authorities, it is also beyond the reach of investors. And that makes it much less valuable, and significant, for stockholders. And that’s not the only bad news. Apple’s balance sheet also reveals that it owes $147.5 billion in debts, accounts payable and other liabilities, plus another $31.5 billion in “off-balance-sheet” liabilities such as leases and purchasing commitments. When you add it all up, Apple’s spare cash is a tiny, tiny fraction of the $203 billion reported.

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Cats in a sack thrown into the sea off Copacabana.

Brazil President Dilma Rousseff Loses Legal Battle, Faces Impeachment (Guardian)

Brazil’s besieged president, Dilma Rousseff, has lost a major battle after the federal audit court rejected her government’s accounts from 2014, paving the way for her opponents to try to impeach her. In a unanimous vote the federal accounts court, known as the TCU, ruled Rousseff’s government manipulated its accounts in 2014 to disguise a widening fiscal deficit as she campaigned for re-election. The ruling, the TCU’s first against a Brazilian president in nearly 80 years, is not legally binding but will be used by opposition lawmakers to argue for impeachment proceedings against the unpopular leftist leader in an increasingly hostile congress. Opposition leaders hugged and cheered when the ruling was announced in Congress, though it was not clear how quickly they would move or whether they have enough support to impeach the president.

“This establishes that they doctored fiscal accounts, which is an administrative crime and President Rousseff should face an impeachment vote,” said Carlos Sampaio, leader of the opposition PSDB party in the lower house. “It’s the end for the Rousseff government,” said Rubens Bueno, a congressman from the PPS party. He said the opposition has the votes to start proceedings in the lower house though perhaps not the two-thirds majority needed for an impeachment trial in the senate. In a last-ditch bid to win time, the government had asked the supreme court to delay Wednesday’s ruling, but it refused.

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“How can you even now fail to understand what a mess you have made?”

The World’s Silliest Empire (Dmitry Orlov)

I couldn’t help but notice that over the past few weeks the Empire has become extremely silly so silly that I believe it deserves the title of the World’s Silliest Empire. One could claim that it has been silly before, but recent developments seem to signal a quantum leap in its silliness level. The first bit of extreme silliness surfaced when Gen. Lloyd J. Austin III, the head of the United States Central Command, told a Senate panel that only a very small number of Syrian fighters trained by the United States remained in the fight perhaps as few as five. The tab for training and equipping them was $500 million. That’s $100 million per fighter, but that’s OK, because it’s all good as long as the military contractors are getting paid.

Things got even sillier when it later turned out that even these few fighters got car-jacked by ISIS/al Qaeda in Syria (whatever they are currently calling themselves) and got their vehicles and weapons taken away from them. General Austin’s previous role as as Lt. General Casey in Tim Burton’s film Mars Attacks! It was already a very silly role, but his current role is a definite career advancement, both in terms of rank and in terms of silliness level. The next silly moment arrived at the UN General Assembly meeting in New York, where Obama, who went on for 30 minutes instead of the allotted 15 (does Mr. Silly President know how to read a clock?) managed to use up all of this time and say absolutely nothing that made any sense to anyone.

But it was Putin’s speech that laid out the Empire’s silliness for all to see when he scolded the US for making a bloody mess of the Middle East with its ham-handed interventions. The oft-repeated quote is “Do you understand what you have done?” but that’s not quite right. The Russian can be more accurately translated as “How can you even now fail to understand what a mess you have made?” Words matter: this is not how one talks to a superpower before an assembly of the world’s leaders; this is how one scolds a stupid and wayward child. In the eyes of the whole world, this made the Empire look rather silly.

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Second highest court. To be continued.

EU Court Dismisses Investors’ Claims Against ECB Over Greek Debt (Reuters)

An EU court on Wednesday dismissed claims by more than 200 Italian investors against the ECB over Greek debt restructuring in 2012, saying their losses were part of normal financial market risk. More than 200 Italian investors were seeking to sue the ECB for damages of more than €12 million. They argued that the ECB negotiated a secret swap agreement with Greece early in 2012, receiving new better-structured bonds and so granting itself preferred creditor status to the detriment of others. Other Greek bond holders received new securities with a substantially lower nominal value and a longer maturity period. The General Court of the European Union, the second highest EU court, said in its ruling that the ECB had exclusively acted with the objective of stabilizing markets.

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They should do all they can to prevent more children from drowning. But that’s not a European priority.

40% EU Budget For Greece Migration Goes To Security, Border Control (Fotiadis)

Despite the Internal Security Fund (ISF) will be a key factor in shaping population and border control mechanisms during the next six years throughout the EU, its importance and scope is still very often underestimated by the public as well as organisations directly affected by it. The complete picture of the European Commission’s investment in security and surveillance equipment in the next six years, facilitated in a great extent through ISF, can provide a good base for reflection regarding the security environment within immigration policy will evolve. National ISF budget proposals are not made publicly accessible by the Commission and many of the procurements budgeted on them are considered classified by national authorities.

The Greek National ISF Programme was leaked last month by the British Whistler-blower Statewatch. It was submitted mid July to the EC including extensive proposals for projects on the VISA and BORDER CONTROL fields. Though the program is named “National” it is striking that the national priorities expressed in the document match entirely the EC’s policy priorities on surveillance, data processing systems and various aspects of the security apparatus the EU is promoting on its external borders. Among other Greece is asking funding for upgrading and completing development of the VISA Information System as well as to facilitate upgrades necessary for entry-exit system (Smart Borders package) – €4.269.000.

In the frame of developing its EUROSUR capacities the country will get €67.500.000. This money goes…

– for the extension of the automated surveillance system on the rest of river Evros (partly established since 2011-12)
– for development of an Integrated Maritime Surveillance System (HCG) by mid 2021
– for supporting the implementation of Integrated Border Management, Greece will expand and develop further its Automated Identification System (AIS)
– for development + relocation of the National Coordination Center

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She’s smart enough to see she can’t.

Merkel Rules Out Freeze On Refugee Intake (DW)

Angela Merkel has ruled out any freeze on migrants entering Germany, claiming that it would be impractical. In a television interview, the chancellor said she was “convinced” that the country would cope. Asked in a television interview with German public broadcaster ARD, the chancellor said the introduction of a migrant limit would not be practical. “How should that work?” Merkel told talk show host Anne Will. “You cannot just close the borders.” “There is no sense in my promising something that I cannot deliver,” she stated, repeating an earlier assertion that German was able to deal with the crisis. “We will manage,” said Merkel. “I am quite strongly convinced of that.” The chancellor said that her duty was “to do everything possible and have optimism and inner certainty that this problem can be solved.”

Merkel responded to criticism from Bavarian state premier Horst Seehofer, leader of Merkel’s conservative coalition partner the CSU, that Berlin had no plan. “Yes, I have a plan,” she stressed. Seehofer warned on Wednesday that he might introduce “emergency measures” if the government did not limit the influx. He warned that Bavaria might send refugees straight on to other states, and set up transit zones. Earlier in the day, Merkel had told the European Parliament that Europe needed to rewrite its rules on immigration. “Let’s be frank. The Dublin process, in its current form, is obsolete,” Merkel told the assembly in Strasbourg, referring to the Dublin rules under which refugees must apply for asylum in the first EU country that they enter. The chancellor was delivering a joint appeal alongside French President Francois Hollande. Merkel appealed for a new procedure to redistribute asylum seekers “fairly” throughout the 28-nation bloc.

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I like.

Monsanto To Cut 2600 Jobs, Lose $500 Million, Shares Down 24% In 2015 (Forbes)

Agricultural giant Monsanto didn’t have a lot of great news to share with investors when it reported its fourth quarter earnings on Wednesday. Shares dropped 1% before turning positive in morning trading as investors digested the info. Here are six highlights from the report:

1. The company is losing more money. Monsanto reported a net loss of $495 million, or $1.06 per share, in the quarter. This was much steeper than the net loss of $156 million, or 31 cents per share, a year ago.

2. It did even worse than analysts expected. Monsanto disappointed on both its top and bottom line. The company reported an adjusted per-share loss of 19 cents in the quarter, a far cry from the two cent loss analysts were expecting. Net sales of $2.35 billion also missed analyst estimates of $2.76 billion.

3. Corn sales fell again. Monsanto is selling less and less corn, with corn seed sales dropping 5% to $598 million. This is still Monsanto’s biggest-selling product, but has been on the decline as farmers plant fewer acres of the vegetable.

4. The future doesn’t look so bright. ”There is no doubt 2016 will be a tough year for the industry,” said chief financial officer Pierre Courduroux on a call with investors. Due to headwinds relating to falling commodity prices and unfavorable currency exchange rates, Monsanto is now forecasting per-share earnings for its new fiscal year in the range of $5.10 to $5.60, which is well below analyst forecasts of $6.19.

5. It’s cutting thousands of jobs. Monsanto announced plans to get rid of 2,600 jobs in the next two years as part of an effort to cut costs. It’s also exiting the sugarcane business as it slims down and streamlines its operations. Restructuring is expected to yield cost-savings of up to $300 million a year starting in fiscal 2017.

6. It’s returning money to shareholders. Monsanto announced a new $3 billion accelerated share repurchase program. It had suspended share buybacks during its pursuit of Syngenta , a months-long effort it has now given up on, and will now be able to buy back its stock at multi-year lows.

Shares are down 24% this year and fell another 1% before turning positive on Wednesday morning.

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“Republic Services is spending millions of dollars to ease or eliminate the smell..”

St. Louis Girds For Catastrophe As 5-Year Underground Fire Nears Nuke Waste (AP)

Beneath the surface of a St. Louis-area landfill lurk two things that should never meet: a slow-burning fire and a cache of Cold War-era nuclear waste, separated by no more than 1,200 feet. Government officials have quietly adopted an emergency plan in case the smoldering embers ever reach the waste, a potentially “catastrophic event” that could send up a plume of radioactive smoke over a densely populated area near the city’s main airport. Although the fire at Bridgeton Landfill has been burning since at least 2010, the plan for a worst-case scenario was developed only a year ago and never publicized until this week, when St. Louis radio station KMOX first obtained a copy. County Executive Steve Stenger cautioned that the plan “is not an indication of any imminent danger.”

“It is county government’s responsibility to protect the health, safety and well-being of all St. Louis County residents,” he said in a statement. Landfill operator Republic Services downplayed any risk. Interceptor wells — underground structures that capture below-surface gasses — and other safeguards are in place to keep the fire and the nuclear waste separate. “County officials and emergency managers have an obligation to plan for various scenarios, even very remote ones,” landfill spokesman Russ Knocke said in a statement. The landfill “is safe and intensively monitored.” The cause of the fire is unknown. For years, the most immediate concern has been an odor created by the smoldering. Republic Services is spending millions of dollars to ease or eliminate the smell by removing concrete pipes that allowed the odor to escape and installing plastic caps over parts of the landfill.

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Nor a surprise.

World’s Oceans Facing Biggest Coral Die-Off In History (Guardian)

Scientists have confirmed the third-ever global bleaching of coral reefs is under way and warned it could see the biggest coral die-off in history. Since 2014, a massive underwater heatwave, driven by climate change, has caused corals to lose their brilliance and die in every ocean. By the end of this year 38% of the world’s reefs will have been affected. About 5% will have died forever. But with a very strong El Niño driving record global temperatures and a huge patch of hot water, known as “the Blob”, hanging obstinately in the north-western Pacific, things look far worse again for 2016. For coral scientists such as Dr Mark Eakin, the coordinator of the US National Oceanic and Atmospheric Administration Coral Reef Watch programme, this is the cataclysm that has been feared since the first global bleaching occurred in 1998 .

“The fact that 2016’s bleaching will be added on top of the bleaching that has occurred since June 2014 makes me really worried about what the cumulative impact may be. It very well may be the worst period of coral bleaching we’ve seen,” he told the Guardian. The only two previous such global events were in 1998 and 2010, when every major ocean basin experienced bleaching. Professor Ove Hoegh-Guldberg, director of the Global Change Institute at the University of Queensland, Australia, said the ocean was now primed for “the worst coral bleaching event in history”. “The development of conditions in the Pacific looks exactly like what happened in 1997. And of course following 1997 we had this extremely warm year, with damage occurring in 50 countries at least and 16% of corals dying by the end of it,” he said. “Many of us think this will exceed the damage that was done in 1998.”

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Yes, but we want profit today.

Coral Reefs Worth Four Times As Much As UK Economy: Earth Index (Guardian)

Coral reefs are worth £6tn a year in services they provide for people – almost four times as much as the UK economy – an assessment of the value of natural assets has found. The ‘Earth Index’ drawn up for BBC Earth also found bees contributed £106bn to the world economy in pollinating crops, and that vultures were worth £1.6bn for clearing up animal carcasses and preventing human health hazards. Vultures are an example of the price of losing nature, with the birds suffering severe declines across the Indian subcontinent due to a veterinary drug which is lethal to them. The declines led to an increase in feral dogs which spread rabies, causing an estimated 50,000 more deaths, and significant clean-up costs.

The assessment even puts a price on the value of freshwater of almost £46tn a year, the equivalent of the entire world economy as without freshwater the economy would not exist. Coral reefs were worth £6.2tn in protection from storms, providing fish, tourism and storing carbon emissions, compared with the £1.7tn value of the UK economy and almost three times the annual price-tag of oil at just under £2.2tn. The Earth Index is being published in the financial sections of newspapers around the world to put nature on the stock exchange.

Neil Nightingale, creative director of BBC Earth said: “When you see the figures in black and white it’s illuminating to see that the annual revenues of the world’s most successful companies – Apple, General Motors, Nestle, Bank of China – all pale in comparison to the financial return to our economy from natural assets.” Fish are worth £171bn and tiny plankton, which form the basis of food webs in the world’s oceans, have a value of £139bn a year for their role in storing carbon alone. The index is based on a study of existing data, and aims to pilot a model for reporting the financial contribution nature makes to the global economy. Canada’s polar bears are worth £6.3bn, while in the UK, the value of nature has been estimated at 1.5tn, with soils generating £5.3bn a year and bees generating £651m.

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