Nov 082017
 
 November 8, 2017  Posted by at 9:56 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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Henri Cartier Bresson Nehru Announces Gandhi’s Death, Birla House, Delhi, India Jan 30, 1948

 

700 Years of Data Forewarn of Rapid Reversal From Low Interest Rates (BBG)
Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge (R.)
Saudi Crackdown to Confiscate Up to $800 Billion in Assets (WSJ)
Leaked Secret Israeli Cable Confirms Israeli-Saudi Coordination In Lebanon (ZH)
Lebanon – The Next Front In The Great Gas War (Golem XIV)
UK Sales Of Bombs And Missiles To Saudi Arabia Increase By Almost 500% (Ind.)
May to Lose Second Top Minister in One Week Over Secret Israel Meetings (BBG)
Those Who Broke The Economy Cannot Fix It (Ann Pettifor)
German ‘Wise Men’ Sound Alarm Over ‘Overheating’ Economy (R.)
Bean Counters: Lost in Paradise (Ren.)
British Mainstream Media Spreading Dangerous MMT Ideas (Bilbo)
Brick-and-Mortar Meltdown Sinks Property Prices (WS)
Catalan Secessionist Parties Fail To Agree On Unity Ticket For Vote (R.)
1 in 200 British, 1 in 60 Londoners Are Homeless (G.)

 

 

Long term is always better.

700 Years of Data Forewarn of Rapid Reversal From Low Interest Rates (BBG)

Forget secular stagnation. One historian says the world is actually in its ninth “real rate depression” and 700 years of data show that – when it comes – the turnaround could be sudden. In research published on the Bank of England’s staff blog, Harvard University’s Paul Schmelzing says most work pointing to a period of permanently lower equilibrium real interest rates is too short term. Instead, he tracked the risk-free rate since 1311 by identifying the dominant asset of each period – starting with sovereign rates in the Italian city states in the 14th and 15th centuries and moving to long-term rates in Spain, then the Province of Holland, the U.K., Germany, and finally the U.S. Real rates, or the benchmark interest rates minus inflation, have averaged 4.78% while the 200-year real-rate average is 2.6%.

That makes the current market environment “severely depressed,” Schmelzing wrote. However, it’s simply following a five-century downward trend, in which there have been nine periods of secular decline followed by reversals. The current period – since the 1980s – is the second-longest recorded and its closest historical analogy is the global “Long Depression” of the 1880s and 1890s which saw low productivity growth, deflationary price dynamics, and the rise of global populism and protectionism. This spell seems to have ended without a push from policy makers. That could be good news for those struggling to find a fix for the current low-rate environment. “There is strong evidence suggesting that the last ‘secular stagnation cycle’ started fading relatively autonomously after just over two decades following the key financial shock, not requiring the aid of decisive fiscal or monetary stimulus.”

Read more …

There’ll be more.

Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge (R.)

Saudi Arabian banks have frozen more than 1,200 accounts belonging to individuals and companies in the kingdom as part of the government’s anti-corruption purge, bankers and lawyers said on Tuesday. They added that the number is continuing to rise. Dozens of royal family members, officials and business executives have been detained in the crackdown and are facing allegations of money laundering, bribery, extorting officials and taking advantage of public office for personal gain. Since Sunday, the central bank has been expanding the list of accounts it is requiring lenders to freeze on an almost hourly basis, one regional banker said, declining to be named because he was not authorised to speak to media.

The banker did not name the companies affected but said they included listed and unlisted firms across many sectors. He added that if the freezes stayed in place for long, they could start to hurt day-to-day business activities such as paying staff and creditors or making other transactions. A second banker said, however, that most of the frozen accounts belonged to individuals rather than companies, and that banks were being allowed by the regulator to continue to fund existing commitments. Among top business executives detained in the probe are billionaire Prince Alwaleed bin Talal, chairman of investment firm Kingdom Holding; Nasser bin Aqeel al-Tayyar, founder of Al Tayyar Travel; and Amr al-Dabbagh, chairman of builder Red Sea International.

The stocks of all three companies, which have issued statements saying they continue to operate as normal, plunged between 9 and 10% on Tuesday. One of the bankers speaking to Reuters said the central bank had met with some foreign banks this week to reassure them that the freezing of accounts targeted individuals, and that firms linked to those people would not be damaged.

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WSJ has gone full paywall.

Saudi Crackdown to Confiscate Up to $800 Billion in Assets (WSJ)

The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter. Several prominent businessmen are among those who have been arrested in the days since Saudi authorities launched the crackdown on Saturday, by detaining more than 60 princes, officials and other prominent Saudis, according to those people and others. The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of “persons of interest” and said the move is “in response to the Attorney General’s request pending the legal cases against them.”

The purge is the most extensive of the kingdom’s elite in recent history. Crown Prince Mohammed bin Salman, the son of King Salman, was named heir to the throne in June and has moved to consolidate power. He has said that tackling corruption at the highest level is necessary to overhaul what has long been an oil-dependent economy. The crackdown could also help replenish state coffers. The government has said that assets accumulated through corruption will become state property, and people familiar with the matter say the government estimates the value of assets it can reclaim at up to 3 trillion Saudi riyal, or $800 billion.

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Strange bedfellows.

Leaked Secret Israeli Cable Confirms Israeli-Saudi Coordination In Lebanon (ZH)

Early this morning, Israeli Channel 10 news published a leaked diplomatic cable which had been sent to all Israeli ambassadors throughout the world concerning the chaotic events that unfolded over the weekend in Lebanon and Saudi Arabia, which began with Lebanese Prime Minister Saad Hariri’s unexpected resignation after he was summoned to Riyadh by his Saudi-backers, and led to the Saudis announcing that Lebanon had “declared war” against the kingdom. The classified embassy cable, written in Hebrew, constitutes the first formal evidence proving that the Saudis and Israelis are deliberately coordinating to escalate the situation in the Middle East. The explosive classified Israeli cable reveals the following:

• On Sunday, just after Lebanese PM Hariri’s shocking resignation, Israel sent a cable to all of its embassies with the request that its diplomats do everything possible to ramp up diplomatic pressure against Hezbollah and Iran.
• The cable urged support for Saudi Arabia’s war against Iran-backed Houthis in Yemen.
• The cable stressed that Iran was engaged in “regional subversion”.
• Israeli diplomats were urged to appeal to the “highest officials” within their host countries to attempt to expel Hezbollah from Lebanese government and politics.

As is already well-known, the Saudi and Israeli common cause against perceived Iranian influence and expansion in places like Syria, Lebanon and Iraq of late has led the historic bitter enemies down a pragmatic path of unspoken cooperation as both seem to have placed the break up of the so-called “Shia crescent” as their primary policy goal in the region. For Israel, Hezbollah has long been its greatest foe, which Israeli leaders see as an extension of Iran’s territorial presence right up against the Jewish state’s northern border.

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“Having failed to liberate the Syrians, Saudi, the West, its Sunni Gulf allies and Israel will now see if they can succeed in blocking any Iranian gas ambitions by liberating the Lebanese from their own government.”

Lebanon – The Next Front In The Great Gas War (Golem XIV)

The Great Gas War has already two distinct fronts: The now relatively quiet Northern Front in Ukraine and the Southern Front in Syria in which the Western empire has been losing. It looks to me that Lebanon is being targeted as the next front, where the West hopes its loses might be recouped. Yesterday, November 6th, Reuters reported, “Saudi Arabia said on Monday that Lebanon had declared war against it because of attacks against the Kingdom by the Lebanese Shi‘ite group Hezbollah.” This comes after Israel, Saudi’s long time though largely un-offical best friend in the region, has been very publicly preparing to renew its own war with Lebanon – or more accurately with Hezbollah. As the American news journal Newsweek put it recently, “ISRAEL PREPARES FOR ANOTHER WAR WITH HEZBOLLAH AS IDF PRACTICES LEBANON INVASION.”

Why now and why Lebanon? Well the rulers of Saudi, a Sunni dominated country, will tell us that it is because Hezbollah is a Shia terrorist organisation. “Hezbollah” literally means the “Party of Allah” or “Party of God”. Saudi Gulf affairs minister Thamer al-Sabhan yesterday pointedly referred to Hezbollah as, “the Lebanese Party of the Devil”. Saudi is not alone of course, Hezbollah has also been listed as a terrorist organisation by America, Israel, the Arab League, the UK and the EU. It is also, however, part of the popular government of Lebanon having seats in its parliament. I suggest, however, a powerful reason that a new war with Hezbollah may be in the offing is because Lebanon is the next link in any gas pipeline that could potentially bring Iranian Gas to Europe.

That was the reason the West decided to “liberate” the Syrian people and it will be why they decide to enforce the same salvation upon the people of Lebanon. Having failed to liberate the Syrians, Saudi, the West, its Sunni Gulf allies and Israel will now see if they can succeed in blocking any Iranian gas ambitions by liberating the Lebanese from their own government. I would not be surprised to hear quite soon from opposition groups vocally denouncing the government or at least Hezbollah. I expect spokes people from those groups to suddenly get a global platform along-side American and regional supporters such as Saudi.

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How to spell insanity.

UK Sales Of Bombs And Missiles To Saudi Arabia Increase By Almost 500% (Ind.)

The number of British-made bombs and missiles sold to Saudi Arabia since the start of its bloody campaign in Yemen has risen by almost 500%, The Independent can reveal. More than £4.6bn of arms were sold in the first two years of bombings, with the Government grant increasing numbers of export licences despite mounting evidence of war crimes and massacres at hospitals, schools and weddings. The United Nations says air strikes by the Saudi-led coalition are the main cause of almost 5,295 civilian deaths and 8,873 casualties confirmed so far, warning that the real figure is “likely to be far higher”. It has condemned the “entirely man-made catastrophe” leaving millions more on the brink of famine and sparking the world’s worst cholera epidemic, while blacklisting Saudi Arabia for killing and maiming children.

There is also fresh concern over the Kingdom’s attempt to shut all air, land and sea ports into Yemen, which it said was to stop the flow of weapons but will also halt aid imports. British-made bombs have been found at the scene of bombings deemed to violate international law but the UK has continued its political and material support for Riyadh’s campaign. Figures from the Department for International Trade (DIT) show that in the two years leading up to the Yemen war, £33m of ML4 licences covering bombs, missiles and countermeasures were approved. But in the two years since the start of Saudi bombing in March 2015, the figure increased by 457% to £1.9bn, according to calculations by Campaign Against the Arms Trade (CAAT). Licences covering aircraft including Eurofighter jets have also risen by 70% to £2.6bn in the same period.

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Secret meetings as the Middle East is imploding. And arms sales are exploding.

May to Lose Second Top Minister in One Week Over Secret Israel Meetings (BBG)

Prime Minister Theresa May is weighing whether to fire a member of her cabinet only seven days after her defense secretary quit in a sexual harassment scandal, as the U.K. government faces fresh turmoil in the midst of Brexit talks. May is likely to dismiss her International Development Secretary Priti Patel in a row over a succession of unauthorized meetings she held with Israeli officials behind the prime minister’s back, according to reports from the BBC and The Sun Tuesday, which the U.K. government declined to deny. The premier has not yet had the chance to speak to Patel – who is on an official trip to Africa – about the latest revelations. A conversation would be expected before a decision is made about the minister’s future. If she is forced out, Patel will be the second minister to depart May’s cabinet in one week, after Michael Fallon resigned from the defense ministry amid allegations over his past behavior toward women.

For some, May’s latest headache is yet another demonstration of her weakness, which draws repeated questions over how her government can last long enough to see Brexit to the finish line. If more dominoes drop – in the shape of senior ministers – the last one to fall could ultimately be the prime minister herself. “The destabilizing effect on an already weak administration has prompted another burst of speculation that May could soon be forced to resign,” Mujtaba Rahman of Eurasia Group said in a note to clients. He thought one likely scenario is for May to be toppled if she fails to get a grip on the latest crisis and is ousted because her MPs judge that the government cannot go on like this – and is incapable of recovering the authority a prime minister needs.

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The British economy is being bled dry….

Those Who Broke The Economy Cannot Fix It (Ann Pettifor)

Make no mistake, last week’s increase in interest rates was a big deal. Painful as it might be for a good share of the population, the real point is that the Bank is signalling the end of a particular phase of monetary policy. Since 2010 the counterpart to self-defeating austerity policies has been expansionary monetary policies. These have inflated assets – enriching the already-rich, while failing to stimulate wider economic recovery. Yesterday the Bank of England’s Monetary Policy Committee signalled an end of this dangerous game. But this technocratic realignment makes no difference to the fact that ‘the Guardians of the nation’s finances’ – Bank and Treasury economists – have failed absolutely to revive the economy.

You need look no further than the (ongoing) decline in real wages, to continuing low levels of private investment, and to the dangers of rising household debt. A small interest rate rise is hardly likely to improve these conditions. Bank and Treasury economists (aided and abetted by the OBR) are guilty of defeatism. They argue that despite their powers, THERE IS NOTHING TO BE DONE. It is assumed that somehow ‘the invisible hand’ or ‘the markets’ will, without intervention by the authorities, correct the weakness, insecurity and failures of the British economy. The prolonged and painfully weak recovery is regularly blamed on something defined as “productivity”. By shifting responsibility for economic failure on to productivity, the Bank, Treasury and OBR economists are saying that somehow economic failure is inherent to the economy – to businesses and especially to workers.

“Nothing to do with us, guv” they mutter. They add that the situation has been exacerbated by the vote to leave the EU. This is a handy way of denying that the ongoing economic failure of the British economy (and the Brexit vote) can be explained by austerity policies, and the failures of the financial system. By taking this approach, economists at the Bank have – conveniently – set the scene for endorsing further inaction by the Chancellor later this month. Yesterday the Governor of the Bank was flanked by Ben Broadbent and Dave Ramsden. Ben Broadbent, as a Goldman Sachs economist, was among the earliest to call for austerity policies. Dave Ramsden (who did not vote for the rate rise) implemented these policies as top economist at the Treasury.

But both Broadbent and Ramsden were senior figures in economic policy-making throughout the debt inflation that preceded the crisis, and (we presume) supporters of financial globalisation. It is obvious to anyone with an ounce of common sense that austerity policies have hurt the most vulnerable, and damaged Britain’s economic potential, by forcing a brutal adjustment to lower quality and lower paid work. Labour has been forced to bear the brunt of the Global Financial Crisis. The weakness in productivity is just the outcome of these policies, not the cause.

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… while Germany’s needs diverge ever more from those of southern Europe.

German ‘Wise Men’ Sound Alarm Over ‘Overheating’ Economy (R.)

The German economy is at risk of overheating, according to a leaked advisory council report that follows pressure from the Bundesbank for a swifter end to the ECB’s expansive monetary policy. In their annual report, seen by Handelsblatt newspaper, the five “wise men” who advise the German government on economic policy said the economy, which they expected to expand strongly this year and next, was moving gradually into a “boom phase”. “There are clear signs that economic capacity is over-utilised,” read the report, which is due to be published on Wednesday. Germans have been among the foremost critics of the ECB’s bond-buying program, which was introduced three years ago to depress borrowing costs and reignite growth in the euro zone’s heavily indebted southern periphery.

The wise men expected Germany’s economy to expand by 2% this year and by 2.2% in 2018, Handelsblatt said. With unemployment at its lowest level since the early 1990s, Germany’s circumstances are very different from Italy’s or Spain‘s, straining the ECB’s ‘one-size-fits-all’ monetary policy. ECB President Mario Draghi last month announced a halving n the size of its 2 trillion euro bond-buying program, but this is far from the return to conventional monetary policy many Germans, including Bundesbank president Jens Weidmann, demand. Without an intervention to cool the economy, Germany’s hawks fear the buoyant economy could tip over into an inflationary cycle. Last week, a senior official from Chancellor Angela Merkel’s conservatives warned that German savers would not tolerate continued low interest rates for much longer.

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Accountants and auditors are not doing their jobs.

Bean Counters: Lost in Paradise (Ren.)

“The phrase ‘Set a thief to catch a thief’ is common parlance,” says Professor Atul K. Shah. “‘Set a global brand of professional accountants to rob society and pilfer its taxes, bleeding governments’, is not, but it should be.’ Professor Bill Black says internal controls are absolutely critical in reducing fraud by insiders in particular, but not just insiders, as the Paradise Papers have repeatedly demonstrated. Emile Woolf says there is no way to remove control fraud and dodgy accounting practices from the economy without first prosecuting the culprits. “The devils that committed this criminal negligence – with the exception of the Royal Bank of Scotland (RBS) – have never been fined or prosecuted” he said. “What you can then do is create a ring fenced fund inside those institutions, earmarked to save them from going under. But the company has to recognise it has to be paid back.

“RBS is incapable of paying back the billions of fines it still owes for misconduct,” he says. “Where does that money come from and where does it go? Without the fines RBS would have made £100 million profit this year, but because of the reserve for fines in the USA and UK, all those fines are far too great to allow for payment of a dividend.” Of course calculating a true profit figure is difficult when a significant portion of that profit is fraudulent, because it doesn’t take into account the result of the inequities of ten years ago. “The worrying thing for all of us is if it happens again,” he says. “My hope is that three years from now, banks will be forced to recognise their loans that will never be repaid. But my worry is that this is going to be after the next financial crisis, because it’s happening again. There is no redeeming features in the present. The only difference is the next crisis is going to be bigger.”

Joel Benjamin told Renegade Inc that accounting is as much about *what* you count or don’t count as it is *how* you count it. “This is evidenced through the practice of ‘base erosion and profit shifting’ – shifting profits to offshore low or no tax jurisdictions, ” he said. In the space of 50 years, Britain’s economy has transformed from an industrial power house, to that of a finance-led extractive parasite, where the cash starved productive economy receives less than 10% of bank credit. “Until the Big Four accountancy firms are accurately viewed as enablers of corporate offshore dealing, regulatory arbitrage and ardent defenders of the neoliberal order, not the ‘reputable’ objective independent arbiters of the public interest as they claim, society will continue to be taken for a ride, and public services and social cohesion will continue their long decline,” he said.

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Bill Mitchell in a long talk with his alter ego.

British Mainstream Media Spreading Dangerous MMT Ideas (Bilbo)

Mitchell tried to tell me that governments do not spend by ‘printing money’ but rather just adjust bank accounts with numbers. But I know as anyone in the street knows that they just want to print more and more. That is at the core of MMT – they want the government to go on a spending spree and just ignore the inflationary consequences. They hide that by saying that “public spending cannot be unlimited and must be commensurate to the capacity of the economy” which is just a smokescreen that I can see through. And everybody will see through it. It is code for spend like a drunken’ sailor – throw money at lazy people who cannot be bothered finding a job. Throw money at public schools that teach socialist doctrines – you know about inequality and stuff like that.

Throw money at public hospitals so that people can receive unlimited health care without having to pay for it – that is the quickest way to encourage waste and bad behaviour. People know that they can just get sick and no matter what their income is they will get some care. Where is the incentive to stay healthy in that sort of system. The article also shows how stupid Mitchell is when it says he: “… debunks the idea that governments borrow money from international markets and with it the notion that they are hostage to the market.” Well where the hell else do they get the cash from? Does he really think we are that stupid? How come China has all those US government debt bonds or whatever they are called and the US government is spending the Chinese cash? How does he explain that obvious point?

Well he tried to claim the Chinese doesn’t issue US dollars and that only the US government issues US dollars so that it cannot possibly be funded by the Chinese. I don’t buy that, not that I understood anything he said about this – all this talk about trade surpluses accumulating financial claims in the currency that the deficit country issues, and then allowing the surplus nation to use those claims (say, US dollars in the first instance) to purchase US dollar financial assets etc ad nauseum. As if that tells us anything. How come the Chinese can loan the US government money that is what I want to know? Mitchell told the journalist that Jeremy Corbyn should not worry about international capital markets because Britain could impose capital controls if it wanted to. That gets to the nub of my worries – socialist governments stealing hard-earned cash from investors who actually have some get up and go.

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Malls don’t look like good investments.

Brick-and-Mortar Meltdown Sinks Property Prices (WS)

Commercial real estate prices soared relentlessly for years after the Financial Crisis, to such a degree that the Fed has been publicly fretting about them. Why? Because US financial institutions hold nearly $4 trillion of commercial real estate loans. But the boom in most CRE sectors is over. The Green Street Property Price Index – which measures values across five major property sectors – had soared 107% from May 2009 to the plateau that began late last year, and 27% from the peak of the totally crazy prior bubble that ended with such spectacular fireworks. But it has now turned around, dragged down by a plunge in prices for retail space. The CPPI by Green Street Advisors dropped 1.1% in October from September. In terms of points, the 1.4-point decline was the largest monthly decline since March 2009. The index is now below where it had been in June 2016:

This phenomenal bubble, as depicted by the chart above, has even worried the Fed because US financial institutions hold nearly $4 trillion of CRE loans, according to Boston Fed governor Eric Rosengren earlier this year. Of them, $1.2 trillion are held by smaller banks (less than $50 billion in assets). These smaller banks tends to have a loan book that is heavily concentrated on CRE loans, and these banks are less able to withstand shocks to collateral values. Rosengren found that among the root causes of the Financial Crisis “was a significant decline in collateral values of residential and commercial real estate.” But the CRE bubble isn’t unraveling as gently as the chart suggests. Some sectors are still surging, while others are plunging. According to the report, the index, which captures the prices at which CRE transactions are currently being negotiated and contracted, “was pushed down by falling mall valuations.”

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Puidgemont predicted to get 14-15 out of 135 seats. He won’t be the leader.

Catalan Secessionist Parties Fail To Agree On Unity Ticket For Vote (R.)

Catalan secessionist parties on Tuesday failed to agree on a united ticket to contest a December snap regional election, making it more difficult to rule the region after the vote and press ahead with their collective bid to split from Spain. Catalonia’s secessionist push has plunged Spain into its worst political crisis in four decades, triggered a business exodus, forced Madrid to cut its economic forecast and reopened old wounds from Spain’s civil war in the 1930s. Pro-independence groups have called for a general strike in the restive region on Wednesday. Catalan political parties had until midnight on Tuesday to register coalitions ahead of the Dec. 21 vote, but the two main forces which formed an alliance to rule the region for the last two years did not manage to agree on a new pact in time.

While they could still find an agreement after the vote, political analysts say the lack of a deal on a joint campaign may also trigger a leadership fight at the top of the movement. This is because center-right PdeCat (Catalan Democratic Party) of sacked Catalan president Carles Puigdemont is expected to be overtaken by leftist Esquerra Republicana de Catalunya (ERC) of former regional vice president Oriol Junqueras. Puigdemont and Junqueras are the two main leaders behind the current secession bid that last month led to a unilateral declaration of independence which Spain thwarted by imposing direct rule on the region. Junqueras is currently in custody pending a potential trial on charges of sedition, rebellion and misuse of public funds. Puigdemont, who faces the same charges, is currently in self-imposed exile in Belgium and has said he would oppose extradition.

An opinion poll released on Sunday by Barcelona-based newspaper La Vanguardia showed Junqueras’ ERC could garner between 45 and 46 seats in the 135-strong regional assembly while Puigdemont’s PdeCat would win between 14 and 15 seats. In order to reach the 68-seat threshold for a majority, they would then have to form a parliamentary alliance with anti-capitalist CUP, which is expected to get seven or eight seats. Such an alliance previously existed between 2015 and 2017.

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Down the drain.

1 in 200 British, 1 in 60 Londoners Are Homeless (G.)

More than 300,000 people in Britain – equivalent to one in every 200 – are officially recorded as homeless or living in inadequate homes, according to figures released by the charity Shelter. Using official government data and freedom of information returns from local authorities, it estimates that 307,000 people are sleeping rough, or accommodated in temporary housing, bed and breakfast rooms, or hostels – an increase of 13,000 over the past year. Shelter said the figures were an underestimate as they did not include people trapped in so-called “hidden homelessness”, who have nowhere to live but are not recorded as needing housing assistance, and end up “sofa surfing”. London, where one in every 59 people are homeless, remains Britain’s homelessness centre. Of the top 50 local authority homelessness “hotspots”, 18 were in Greater London, with Newham, where one in 27 residents are homeless, worst hit.

However, while London’s homeless rates have remained largely stable over the past year, the figures show the problem is becoming worse in leafier commuter areas bordering the capital, such as Broxbourne, Luton, and Chelmsford. Big regional cities have also seen substantial year-on-year increases in the rate of homelessness. In Manchester, one in 154 people are homeless (compared with one in 266 in 2016); in Birmingham one in 88 are homeless (119); in Bristol one in 170 are affected (199). Polly Neate, chief executive of Shelter, said: “It’s shocking to think that today, more than 300,000 people in Britain are waking up homeless. Some will have spent the night shivering on a cold pavement, others crammed into a dingy hostel room with their children. And what is worse, many are simply unaccounted for.

Read more …

Nov 012017
 
 November 1, 2017  Posted by at 9:37 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Pablo Picasso Blue nude 1902

 

Americans Are Officially Freaking Out (BBG)
Mueller Mugs America: The Case Of Baby George Papadopoulos (Stockman)
Some Of The Scariest Charts In Finance To Celebrate Halloween (BV)
Most Of UK Fruit And Veg Is From Other EU Nations, Brexit To Be Dramatic (G.)
Corbyn Has a Plan to Get May’s Tories to Give Up 58 Brexit Secrets (BBG)
Australia’s Housing Boom Is ‘Officially Over’ – UBS (BBG)
Government Raids On Catalonia Police Spark Fears Of Wider Crackdown (Ind.)
Puigdemont Says Can’t Return To Catalonia, Spain Intent On ‘Vengeance’ (Ind.)
New Jersey Sues OxyContin Maker, Links Marketing To Opioid Crisis (R.)
Germany Forced To Pay Consumers To Use More Electricity
Greece Plans An Unprecedented €30 Billion Debt Swap (BBG)
Greek PM Under Fire Over Migrants, Refugees (K.)

 

 

Major point in this: the media freaks out the people.

Americans Are Officially Freaking Out (BBG)

For those lying awake at night worried about health care, the economy, and an overall feeling of divide between you and your neighbors, there’s at least one source of comfort: Your neighbors might very well be lying awake, too. Almost two-thirds of Americans, or 63%, report being stressed about the future of the nation, according to the American Psychological Association’s Eleventh Stress in America survey, conducted in August and released on Wednesday. This worry about the fate of the union tops longstanding stressors such as money (62%) and work (61%) and also cuts across political proclivities. However, a significantly larger proportion of Democrats (73%) reported feeling stress than independents (59%) and Republicans (56%).

The “current social divisiveness” in America was reported by 59% of those surveyed as a cause of their own malaise. When the APA surveyed Americans a year ago, 52% said they were stressed by the presidential campaign. Since then, anxieties have only grown. A majority of the more than 3,400 Americans polled, 59%, said “they consider this to to be the lowest point in our nation’s history that they can remember.” That sentiment spanned generations, including those that lived through World War II, the Vietnam War, and the terrorist attacks of Sept. 11. (Some 30% of people polled cited terrorism as a source of concern, a number that’s likely to rise given the alleged terrorist attack in New York City on Tuesday.)

“We have a picture that says people are concerned,” said Arthur Evans, APA’s chief executive officer. “Any one data point may not not be so important, but taken together, it starts to paint a picture.” The survey didn’t ask respondents specifically about the administration of President Donald Trump, Evans said. He points to the “acrimony in the public discourse” and “the general feeling that we are divided as a country” as being more important than any particular person or political party. [..] And keeping up with the latest developments is a source of worry all its own. Most Americans—56%—said they want to stay informed, but the news causes them stress. (Yet even more, 72%, said “the media blows things out of proportion.”)

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Who brought in Baby George? Haven’t seen anyone dig into his contacts. His story doesn’t seem to add up. Been pushing Russia on Trump far too much. A Trojan Horse?

Mueller Mugs America: The Case Of Baby George Papadopoulos (Stockman)

This is how the Deep State crushes disobedience by the unwashed American public. It indicts not only ham sandwiches but, apparently, political infants in diapers too, if that’s what it takes. Hence the sudden notoriety of Baby George Papadopoulos, who pled guilty to “lying” about an essentially immaterial date to the FBI. Oh, and by all signs and signals that plea came after this 30 year-old novice had been wearing a wire for several months. So here’s how this noxious act of bullying by Robert Mueller’s Federally-deputized thugs came down. It seems that during the early months of 2016, when Trump was winning primary after primary against all mainstream media expectations, the Donald’s establishment betters began attacking his foreign policy credentials with special malice aforethought.

That was mainly owing to his sensible suggestion that it would be better to seek rapprochement with Russia rather than pursue Hillary’s Cold War 2.0 and that 25 years after the disappearance of the Soviet Union from the pages of history that NATO was obsolete. Since this totally plausible (and correct) viewpoint was deeply offensive to the Imperial City’s group think and threatened the Warfare State’s existential need for a fearsome enemy, Trump’s ruminations about making a deal with Putin were belittled. They were, in fact, attributed not to a fresh look at the realities abroad or the possibility that homeland security does not require a global empire, but to the candidate’s lack of any pedigreed foreign policy advisors. Indeed, when it came to the Republican-oriented foreign policy establishment-nearly all of which had joined the Never Trump cause-the Donald added insult to injury.

That is, by suggesting he got his foreign policy views watching TV (like most of Washington) and that he could do a better job against terrorism than the Pentagon generals (not hard). At length, however, the “who are your foreign policy advisors” meme got so relentless that the Donald relented. On March 21, 2016 he announced a group of five advisors that exactly no one who was anyone in the Imperial City had ever heard of, and for good reason. Trump apparently rarely even met with the Five and no one running the campaign paid much attention to them. Still, Baby George’s carelessness about the exact dates and sequences of utterly irrelevant and inconsequential events is enough to get him time in one of Uncle Sam’s hospitality suites.

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“..ECB QE is currently 7 times bigger than net issuance. So is it any wonder why yields have fallen, and what happens when the ECB tries to turn off the easy money tap?”

Some Of The Scariest Charts In Finance To Celebrate Halloween (BV)

Investment markets have been remarkably resilient over the course of 2017. Sure, the geopolitical environment has thrown up a few frightening days which saw markets sell-off but on the whole volatility has been muted and most asset classes have generated solid total returns. That said, any horror movie fan will tell you that the scariest part of a horror film happens when things are relatively calm. With that in mind, here are a few charts that shine a light on a number of threats that are lurking just below the surface of the global economy.


ECB quantitative easing has propped up government bond markets

The strength of the European economy, and signs of labour market healing across the euro area, has been the surprise story of 2017. It is undeniable that the ECB, and its quantitative easing programme, has played a huge part in the economic success seen to date. Many point to the fall in yields on peripheral area debt as a sign that the euro sovereign debt crisis is well and truly over. The question is, do falling yields signify increasing confidence in the ability of euro area nations to repay their debt, or do they simply reflect the asset purchases that the ECB has conducted since the QE programme started? The above chart, published in the most recent IMF Global Financial Stability Report, shows that official purchases of euro area debt has eclipsed net issuance since May 2015. Indeed, ECB QE is currently 7 times bigger than net issuance. So is it any wonder why yields have fallen, and what happens when the ECB tries to turn off the easy money tap?


Debt is a beast that cannot be tamed

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The EU forces food transports across the Union. Damn transport costs, including pollution. The result: “the system is very fragile”. Don’t depend for your essentials on people living 1000 miles away. It’s not that hard.

Most Of UK Fruit And Veg Is From Other EU Nations, Brexit To Be Dramatic (G.)

The UK faces serious health implications if the government fails to agree a Brexit deal, finds a report that says of 35 portions of fruit and vegetables, a figure relating to the five-a-day recommendation for individuals, just one “portion” is grown in the UK and picked by British or non-EU workers. The report, to mark the launch of a new RSA commission examining the impact of Brexit on food and farming, found that the five-a-day health target – which adds up to the 35 portions of fruit and vegetables a week – was overwhelmingly met by food grown in the EU or harvested by EU workers in the UK. Sue Pritchard, director of the RSA Food, Farming and Countryside Commission, said Brexit offered a great opportunity to reshape farming and food, but warned that no deal over the exit from the union would have a dramatic and immediate effect.

“What would be available on the shelves would change dramatically. There will be delays at ports and all along the food supply system – the impact will be felt very, very quickly,” she said. The study found that of the average 28 portions consumed by Britons of the recommended weekly intake of 35 portions of fruit and vegetables, the equivalent of 11 portions came from the EU, seven from the rest of the world and nine arose from the UK and were harvested by workers from other EU countries. The equivalent of just one portion was grown in the UK and harvested by British or non-EU workers. Pritchard added: “If there is no deal the system is very fragile and the impact in the UK food supply is likely to be dramatic.” The majority of farmers backed Brexit, but the National Farmers’ Union has since suggested that crops will “rot in the fields” and that Britain will be unable to produce the food if the government cannot secure a deal that allows tens of thousands of EU workers to continue to work on UK farms.

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Fitting. The entire country is back in Victorian times.

Corbyn Has a Plan to Get May’s Tories to Give Up 58 Brexit Secrets (BBG)

The main U.K. opposition party wants to deploy a parliamentary tool hardly used since the 19th century to get Theresa May’s Conservatives to spill Brexit secrets. The political prize? The release of 58 studies on how leaving the European Union will affect industries that make up 88 percent of the economy. Brexit Secretary David Davis said he didn’t want to publish the studies because it would compromise the U.K.’s negotiating position. On Monday, he listed the sectors in a letter but stopped short of revealing more. Jeremy Corbyn’s Labour wants to use an obscure legislative device to force the hand of Tories, who have been coy about what the economic fallout might be when the country leaves the 28-nation bloc.

On Wednesday, Labour will argue that lawmakers should have the right to see the studies, and will ask Parliament to vote to make “an humble address” to Queen Elizabeth II, asking her to order her ministers to release the assessments to the House of Commons Brexit Committee. This means-to-an-end hasn’t been used much since Victorian times. “Ministers cannot keep withholding vital information from Parliament about the impact of Brexit on jobs and the economy,” Labour Brexit spokesman Keir Starmer said in an emailed statement.

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Panic in Canberra.

Australia’s Housing Boom Is ‘Officially Over’ – UBS (BBG)

The housing boom that has seen Australian home prices more than double since the turn of the century is “officially over,” after data showed prices now flatlining, UBS said. National house prices were unchanged in October from September, while annual growth has slowed to 7% from more than 10% as recently as July, CoreLogic data released Wednesday showed. “There is now a persistent and sharp slowdown unfolding,” UBS economists led by George Tharenou said in a report. “This suggests a tightening of financial conditions is unfolding, which we expect to weigh on consumption growth via a fading household-wealth effect.”

An end to Australia’s property boom will be welcome news for first-time buyers, who have struggled to break into the market after surging prices propelled Sydney past London and New York to be the second-most expensive housing market. Less impressed may be property investors, already squeezed by regulatory lending curbs that drove up mortgage rates. The cooling housing market may encourage the Reserve Bank to keep interest rates at a record low. A rate hike would be undesirable as it would put further downward pressure on dwelling prices, said Diana Mousina, senior economist at AMP Capital Investors.

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Once they start locking up people, will Catalans still be non-violent?

Government Raids On Catalonia Police Spark Fears Of Wider Crackdown (Ind.)

The acrimony and recriminations which followed Catalonia’s declaration of independence shows little sign of defusing following the fleeing of president Carles Puigdemont to Brussels. Spain’s civil guard raided the headquarters of the regional police, Mossos d’Esquadra, today drawing accusations of starting a crackdown. Computers and documents were taken away from the building in Sabadell as well as seven other offices. “We are carrying out inspections related to the Mossos d’Esquadra’s communications on the day of the illegal referendum,” said a civil guard spokesman. “This is something we are entitled to do.” The Mossos had been ordered by Madrid to stop the vote taking place, but they had refused, pointing out that this would have led to clashes with activists who had been protecting the polling stations. The national police, who were sent in, seized ballot boxes sparking violence.

The raids were viewed by some as the beginning of a punitive drive which will continue against separatists. As the news of the raids came in the afternoon, a group of activists approached police in Plaza de Colon in Barcelona city centre, the scene of huge demonstrations in recent weeks, offering sympathy and solidarity. The officers, whose chief Josep Lluis Trapero was sacked by Madrid at the weekend, were cautious in their response. “We are waiting to hear more details,” said one. “We don’t know any more than you do.” For Adreia Carbonell, a 23-year-old student and supporter of independence, the civil guard action was an ominous pointer for the future. “It is a form of counter-revolution,” she said. “The Spanish can now do what they like. There will be more raids, more arrests soon, you will see. They are intimidating our police who protect us and of course our government has gone.”

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Double-sided. He’s gotten much weaker by leaving. But probably avoided a long jail term.

Puigdemont Says Can’t Return To Catalonia, Spain Intent On ‘Vengeance’ (Ind.)

Hot, last-minute and chaotic, ousted Catalan leader Carles Puigdemont’s first press conference since fleeing Barcelona for Brussels was a fitting tribute to the political crisis that has gripped Spain. Amid speculation that he and members of his former cabinet would seek political asylum, fuelled by the comments of a Belgian minister, the disputed Catalan president instead recommitted himself to the independence cause. It is believed that Mr Puigdemont and his colleagues drove across the border into France before flying to Brussels on Monday, after Spain took over control of the Catalan region’s government and agencies. Mr Puigdemont said he could not return to Spain unless given clear assurances that he will be protected, accusing Madrid of being intent on “vengeance”.

He and his colleagues would stay in Belgium as long as their safety was not assured in Spain and would “continue our work despite the limits imposed on us.” Insisting he remained the rightful leader of Catalonia, Mr Puigdemont said his centre-right PDeCAT party would nonetheless accept the challenge of regional elections called for 21 December “with all our strength” and vowed that Catalan separatists would come out to vote. Spain wants Catalonia “to abandon our political project, and they won’t achieve it,” he said. As the news emerged on Monday that Mr Puigdemont’s contingent had fled the country, there was a distinct sense of deflation among those of his allies who remained in Barcelona to carry out a planned campaign of civil disobedience.

And as he entered the building in Brussels, he walked past protesters holding Spanish national flags and a sign that read “Estado de Derecho” – “Rule Of Law”. Other anti-independence demonstrators waving Catalan and Spanish flags chanted “viva Espana, viva Cataluña!” amid a heavy presence from Belgian police.

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Horses and barns.

New Jersey Sues OxyContin Maker, Links Marketing To Opioid Crisis (R.)

New Jersey on Tuesday sued Purdue Pharma LP, accusing the maker of the chronic pain medication OxyContin of fueling the state’s opioid crisis through deceptive marketing to doctors and patients, including the elderly and the “opioid-naive.” The state’s attorney general, Christopher Porrino, faulted what he called Purdue’s “almost inconceivable callousness and irresponsibility” in a decade-long campaign of downplaying the risks and exaggerating the benefits of opioids in the pursuit of profit. “We vigorously deny these allegations and look forward to the opportunity to present our defense,” Purdue said in a statement. “We are deeply troubled by the opioid crisis and we are dedicated to being part of the solution.” At least 11 U.S. states have sued Purdue over opioids, including a complaint filed by Alaska on Monday.

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The grid’s a harsh mistress.

Germany Forced To Pay Consumers To Use More Electricity

A stormy weekend led to free electricity in Germany, as Bloomberg reports wind generation reached a record, forcing power producers to pay customers the most since Christmas 2012 to use electricity. Power prices turned negative as wind output reached 39,409 megawatts on Saturday, equivalent to the output of about 40 nuclear reactors. To keep the grid supply and demand in balance, negative prices encourage producers to either shut power stations or else pay consumers to take the extra electricity off the network.

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We get the intent, but what does this solve?

Greece Plans An Unprecedented €30 Billion Debt Swap (BBG)

The Greek government is planning an unprecedented debt swap worth 29.7 billion euros ($34.5 billion) aimed at boosting the liquidity of its paper and easing the sale of new bonds in the future. Under a project that could be launched in mid November, the government plans to swap 20 bonds issued after a restructuring of Greek debt held by private investors in 2012 with as many as five new fixed-coupon bonds, according to two senior bankers with knowledge of the swap plan. The bank officials requested anonymity as the plan has yet to be made public. The maturities of the new bonds may be the same as for the existing notes, which range from 2023 to 2042. “The move aims to address the current illiquidity of the Greek bond market, ” according to analysts at Pantelakis Securities SA in Athens.

It will also “establish a decent yield curve, thus facilitating the country’s return to public debt markets.” The move comes as Greece prepares for life after the end of its current bailout program in August 2018. The debt swap is a step toward the country’s full return to markets required to avoid a new bailout program. The government plans to tap the bond market in 2018 to raise at least 6 billion euros to create an adequate buffer to honor debt obligations, according to a government official. The government has yet to decide on the exact timing of the swap, the Greek official said on condition of anonymity. One of the bank officials said that transaction could start on Nov. 13 and the settlement could happen a week later. The goal is to conclude the swap before the next mission of the country’s creditors, which is scheduled for the last week of November.

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Maybe SYRIZA is the only force that can stop this.

Greek PM Under Fire Over Migrants, Refugees (K.)

Prime Minister Alexis Tsipras and his migration minister came under a hail of fire Monday from a radical faction within SYRIZA over the plight of the thousands of refugees and migrants stranded in Greece. The criticism was launched during a meeting of the party’s political secretariat at which Tsipras had hoped to showcase his government’s success in steering the country toward a post-bailout era. But instead, the government and Migration Policy Minister Yiannis Mouzalas were slammed by members of the political secretariat that represent the Group of 53 faction – seen as a custodian of party purity – within SYRIZA, over the consistent violation of migrants and refugees’ human rights. More specifically, they blamed the leftist-led coalition government and Mouzalas for delays in providing migrants and refugees with appropriate accommodation as winter approaches.

Moreover, they slammed Tsipras for failing to absorb funds from the European Union and other international organizations intended to aid migrants and refugees. The government was also chided by the Group of 53 for giving its full support to last year’s agreement between the European Union and Turkey to stem the flow of migrants into Europe, while EU countries were not doing the same. “If you think I’m doing everything wrong, then I’ll resign,” Mouzalas told his critics at the meeting. However, members of the faction shot back, calling Mouzalas a hypocrite as they said he is planning to leave the ministry anyway as his name has been put forward for a seat on the Council of Europe.

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Mar 252016
 
 March 25, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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DPC Shoppers on Sixth Avenue, New York City 1903

Bubbles Spread Like a Zombie Virus (BBG)
Junk Territory: US Corporate Debt Ratings Near 15-Year Low (CNN)
Earnings Growth Based On Debt And Buybacks? Totally Unsustainable (SA)
Everyone Is Worried That A Third China Bubble Is About To Pop (BI)
Coming to the Oil Patch: Bad Loans to Outnumber the Good (WSJ)
Traders Are Betting Heavily That The Pound Will Drop To 1980s Lows (BBG)
Yuan Weakens For 6th Straight Day – Longest Losing Streak In 2 Years (ZH)
Sweden Cuts Maximum Mortgage Term To 105 Years -The Average Is 140 (Tel.)
Shenzhen is Home To The Planet’s Fastest Rising House Prices (Guardian)
Hedge Funds Control Greek NPLs Anyway (Kath.)
Who Will Speak For The American White Working Class? (Guardian)
China ‘Detains 20 Over Xi Resignation Letter’ (BBC)
Facing Life Sentence, Turkish Journalist Vows To Expose State Crimes (Reuters)
Mass Extinctions and Climate Change (C.)
Has James Hansen Foretold The ‘Loss Of All Coastal Cities’? (G.)
Greece Pledges To Provide Shelters For 50,000 Refugees Within 20 Days (Kath.)

Bubbles are so prevalent people tend not to see them anymore.

Bubbles Spread Like a Zombie Virus (BBG)

The leading academic theory of asset bubbles is that they don’t really exist. When asset prices skyrocket, say mainstream theorists, it might mean that some piece of news makes rational investors realize that fundamental values like corporate earnings are going to be a lot higher than anyone had expected. Or perhaps some condition in the economy might make investors suddenly become much more tolerant of risk. But according to mainstream theory, bubbles are not driven by speculative mania, greed, stupidity, herd behavior or any other sort of psychological or irrational phenomenon. Inflating asset values are the normal, healthy functioning of an efficient market. Naturally, this view has convinced many people in finance that mainstream theorists are quite out of their minds. The problem is, mainstream theory has proven devilishly hard to disprove.

We can’t really observe how investors in the financial markets form their beliefs. So we can’t tell if their views are right or wrong, or whether they’re investing based on expectations or because of changing risk tolerance. Basically, because we can usually only look at the overall market, we can’t get into the nuts and bolts of how people decide what prices to pay. But what about the housing market? Housing is different from stocks and bonds in at least two big ways. First, because house purchases are not anonymous, we can observe who buys what. Second, housing markets are local, so we can see what is happening around them, and thus have some sort of idea what information they are receiving. These unique features allow us to know much more about the decision-making process of each buyer than we know about investors in the anonymous national financial markets.

In a new paper, economists Patrick Bayer, Kyle Mangum and James Roberts make great use of these features to study the mid-2000s U.S. housing boom. Their landmark results ought to have a major effect on the debate over asset bubbles. Bayer et al. find that as the market overheated, the frenzy spread like a virus from block to block. They look at the greater Los Angeles area – a hotbed of bubble activity – from 1989 through 2012. Since they want to focus on people buying houses as investments (rather than to live in), the authors looked only at people who bought multiple properties, and they tried to exclude primary residences from the sample. They found, unsurprisingly, that the peak years of 2004-2006 saw a huge spike in the number of new investors entering the market. Here is the graph from their paper:

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It’s like when you start with a basket with a few bad apples: in the end, everything turns to junk.

Junk Territory: US Corporate Debt Ratings Near 15-Year Low (CNN)

Red flags are rising on Corporate America’s debt. The average rating on U.S. corporate debt has hit nearly a 15-year low, according to a new report by Standard & Poor’s. “We believe corporate default rates could increase over the next few years,” according to S&P credit analysts Jacob Crooks and David Tesher. The average rating on companies that issue debt has fallen to ‘BB,’ or junk status. That is even below the average S&P rating for U.S. corporate debt during and in the aftermath of the financial crisis in 2008 and 2009. There are already concerns about energy companies defaulting on loans due to low oil prices. But new tech firms like Solera and media companies like iHeart too have had their credit rating downgraded this year, according to S&P. Since 2012, there’s been a surge in low-rated companies seeking cash.

In the past four years, S&P has assigned a single-B rating to 75% of companies accessing the debt markets for the first time. That rating is just one notch up from triple-C, a rating given to companies with a high probability of default. Companies with a single-B rating include PF Chang’s, Toys R US and Men’s Wearhouse (MW). That doesn’t mean they’re going to default: They’re just dangerously close to the territory where companies tend to default. The “rapid rise” in companies with low credit ratings accessing the bond markets can be traced to the easy availability of cash in recent years. How did this happen?

Here are a few key dominoes.
1. The Fed created a super low interest rate environment when it put rates next to zero in 2008.
2. Investors looking for more yield move away from safe assets like U.S. Treasury bonds and into higher-risk assets like bonds issued by lower-rated companies.
3. That makes it easier for low-rated companies to get cash at low rates from the capital markets.
Now, however, the tables are turning. The Fed is slowly starting to increase rates and investors’ appetite – and the cash available – for low-rated companies is on the decline. Add to that the gloomy outlook for the global economy and low commodity prices, and some companies may struggle to pay back what they borrowed.

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History rhymes.

Earnings Growth Based On Debt And Buybacks? Totally Unsustainable (SA)

My grandfather was never rich. He did have some money in the 1920s, but he lost most of it at the tail end of the decade. Some of it disappeared in the stock market crash in October of 1929. The rest of his deposits fell victim to the collapse of New York’s Bank of the United States in December of 1931. I wish I could say that my grandfather recovered from the wrath of the stock market disaster and subsequent bank failures. For the most part, however, living above the poverty line was about the best that he could do financially, as he buckled down to raise two children in Queens. There was one financial feature of my grandfather’s life that provided him with greater self-worth. Specifically, he refused to take on significant debt because he remained skeptical of credit. And with good reason.

The siren’s song of “you-can-pay-me-Tuesday-for-a-hamburger-today” only created an illusion of wealth in the Roaring Twenties; in fact, unchecked access to favorable borrowing terms as well as speculative excess in the use of debt contributed mightily to the country’s eventual descent into the Great Depression. G-Pops wanted no part of the next debt-fueled crisis. Here’s something few people know about the past: Consumer debt more than doubled during the ten year-period of the Roaring 1920s (1/1/1920-12/31/1929). And while you may often hear the debt apologist explain how the only thing that matters about debt is the ability to service it, the reckless dismissal ignores the reality of virtually all financial catastrophes.

During the Asian Currency Crisis and the bailout of Long-Term Capital Management (1997-1998), fast-growing emerging economies (e.g., South Korea, Malaysia, Thailand, etc.) experienced extraordinary capital inflows. Most of the inflows? Speculative borrowed dollars. When those economies showed signs of strain, “hot money” quickly shifted to outflows, depreciating local currencies and leaving over-leveraged hedge funds on the wrong side of currency trades. The Fed-orchestrated bailout of Long-Term Capital coupled with rate cutting activity prevented the 19% S&P 500 declines and 35% NASDAQ depreciation from charting a full-fledged stock bear. Did we see similar debt-fueled excess leading into the 2000-2002 S&P 500 bear (50%-plus)? Absolutely. How long could margin debt extremes prosper in the so-called New-Economy?

How many dot-com day-traders would find themselves destitute toward the end of the tech bubble? Bring it forward to 2007-2009 when housing prices began to plummet in earnest. How many “no-doc” loans and “negative am” mortgages came with a promise of real estate riches? Instead, subprime credit abuse brought down the households that lied to get their loans, destroyed the financial institutions that had these “toxic assets” on their books, and overwhelmed the government’s ability to manage the inevitable reversal of fortune in stocks and the overall economy. Just like 1929-1932. Just like 1997-1998. Just like 2000-2002.

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Housing, stocks and now credit.

Everyone Is Worried That A Third China Bubble Is About To Pop (BI)

First, China’s property bubble popped. Then, China’s stock market bubble burst over the summer, and investors lost a ton of money before the government took control of the system. Now the concern floating around the world of markets is that the third in China’s “triple bubble” is about to burst. That bubble is credit, especially corporate bonds, which have absolutely exploded over the past year as refugees from the other bubble bursts searched for yield. This one is going to be for a very straightforward reason, too — supply. Simply put, there are about to be too many bonds in China, and that could ultimately harm the weakest part of the Chinese economy, the debt-loaded zombie companies that helped form the property bubble and are now unable to turn a healthy profit.

Here’s how all of this happened. When the Chinese stock market went careening downward last summer, a ton of the money that was invested in the market ran into the credit market, specifically corporate bonds. “In our view, China is in the midst of a triple bubble, with the third-biggest credit bubble of all time, the largest investment bubble (proxied by the investment share of GDP) and the second-biggest real-estate bubble,” Credit Suisse analyst Andrew Garthwaite wrote in a note back in July. This was great for China’s debt-laden corporates. They could keep running on easy credit because demand was so high. Corporate-bond issuance increased 21% from 2014 to 2015, and by the end of last year their total stock made up 21.6% of GDP, as opposed 18.4% the year before, according to Societe Generale.

Chinese Treasury-bond supply is set to increase too, from 936 billion yuan in 2015 to 1.4 trillion yuan in 2016. At the same time, the government has been getting a move on an important project it has been working on for some time — turning local-government debt from the country’s infrastructure boom into a real municipal-bond market. We’re talking a lot of money here. In March alone the government allowed 1 trillion yuan ($160 billion) of local-government debt to be converted into local-government bonds (LGB). In 2016 analysts expect the government to issue another 6 trillion yuan in LGBs. That’s a lot of bonds.

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Denial continues.

Coming to the Oil Patch: Bad Loans to Outnumber the Good (WSJ)

Bad loans are likely to outnumber good ones soon in the U.S. oil patch, an indication of the pressure on energy companies and their lenders from the crash in prices. The number of energy loans labeled as “classified,” or in danger of default, is on course to extend above 50% this year at several major banks, including Wells Fargo and Comerica, according to bankers and others in the industry. In response, several major banks are reducing their exposure to the energy sector by attempting to sell off souring loans, declining to renew them or clamping down on the ability of oil and gas companies to tap credit lines for cash, according to more than a dozen bankers, lawyers and others familiar with the plans.

The pullback is curtailing the flow of money to companies struggling to survive a prolonged stretch of low prices, likely quickening the path to bankruptcy for some firms. 51 North American oil-and-gas producers have already filed for bankruptcy since the start of 2015, cases totaling $17.4 billion in cumulative debt, according to law firm Haynes and Boone. That trails the number from September 2008 to December 2009 during the global financial crisis, when there were 62 filings, but is expected to grow: About 175 companies are at high risk of not being able to meet loan covenants, according to Deloitte. “This has the makings of a gigantic funding crisis” for energy companies, said William Snyder, head of Deloitte’s U.S. restructuring unit. If oil prices, which closed at $39.79 a barrel Wednesday, remain at around $40 a barrel this year, “that’s fairly catastrophic.”

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Against the USD is a safe bet if the term is long enough.

Traders Are Betting Heavily That The Pound Will Drop To 1980s Lows (BBG)

As Britain ponders its future in the EU, investors are betting an amount almost the size of Iceland’s economy on the pound falling to levels last seen in the 1980s. At least 11 billion pounds ($16 billion) has been wagered this year on options that would profit if sterling fell to or below $1.3502, a 4.5% drop from current levels, after the June 23 referendum. More than half of the positions were placed since the date of the vote was set on Feb. 20. The figures give an indication of what’s at stake as investors weigh the possibility of the U.K. quitting the world’s largest single market, which accounts for about half its imports and exports. Even with opinion polls showing no clear lead for either side, the prospect of a “Brexit” has seen the pound fall more than any other major currency versus the dollar this year.

“There is a risk premium in sterling, both in terms of the spot rate and in terms of the volatility market, but this is one of those events where you have no way of calibrating how big it should be,” said Paul Meggyesi at JPMorgan Chase in London. “Few investors believe that sterling has fallen to levels where the risk-reward favors buying.” While tumbling to $1.3502 would barely exceed the pound’s decline so far this year, it would take the U.K. currency to the lowest level since 1985. Traders assign 54% odds to sterling reaching that level by the day of the referendum, according to Bloomberg’s options calculator. Meggyesi sees the pound falling to $1.38 by mid-year, from $1.4145 as of 4:45 p.m. London time on Thursday. Even forecasts of a drop to these levels may be optimistic if the U.K. actually ends up leaving the EU.

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In the shadows, China keeps devaluing.

Yuan Weakens For 6th Straight Day – Longest Losing Streak In 2 Years (ZH)

PBOC fixed the Yuan at its weakest in 3 weeks, pushing the devaluation streak to its longest since early January. However, Offshore Yuan has now dropped over 1.1% against the USD, extending losses for the 6th straight day to 3-week lows. This is the longest streak of weakness in the offshore Yuan since April 2014.

 

It appears EUR and JPY took enough pain so the basket is reverting to the USD again…


What’s the opposite of passive-aggressive as a clear message is being sent to The Fed – tighten and we unleash the Yuan-weakness-driven turmoil…

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Now that’s a housing bubble.

Sweden Cuts Maximum Mortgage Term To 105 Years -The Average Is 140 (Tel.)

Think there’s a housing affordability crisis in Britain, with low mortgage rates likely to drive house prices even higher? Take a look at Sweden where lending policies have been more generous, and where house price inflation has been (at least recently) more extreme. A number of banks and analysts have warned that Sweden’s housing market is overheating, with HSBC in January saying: “The pace of acceleration in the housing market points to a bubble.” House prices across the country were up 18pc last year. This compares to Britain’s house price rises in 2015 of between 5pc and 10pc, depending on which index is used. Now Sweden is dealing with its overheated housing market by reining in mortgage availability.

Regulators introduced restrictions which will mean mortgage terms – the time homebuyers have to clear the debt – will be drastically reduced to just… 105 years. The move comes because historically there has been no time limit on mortgage duration. So as prices rose and affordability became tougher, Swedish banks’ response was to extend terms, as had been the case in other high-cost property markets including Japan in the Eighties. The average term is reported to be 140 years. This meant many people who inherited property but who could not afford to take on the mortgage debt had to sell up. Swedish banks were quoted in the local press as opposing the move.

“It isn’t good for the finances of households as it will make mortgages more expensive and the terms not as good. And it isn’t good for financial stability,” the head of Swedish Bankers’ Association was reported to say. In Britain, there has been a move by some lenders to increase mortgage terms but only for younger borrowers. Even then, the maximum term tends to be 35 years, although some lenders – including Halifax and Nationwide – go up to 40, brokers say. The Mortgage Market Review introduced by British regulators in 2013 made it difficult for lenders to arrange loans which went into borrowers’ likely retirement.

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And here’s another one. How desperate must Xi be to let this happen?!

Shenzhen is Home To The Planet’s Fastest Rising House Prices (Guardian)

House prices in Shenzhen, the city which is a hub for technology hardware and known as China’s Silicon Valley, soared by almost 50% last year – the fastest growth in residential property prices worldwide. A new survey puts two Chinese cities – Shenzhen and Shanghai – in the top five fastest-growing property markets despite the Chinese stock market tumbling in 2015. The research, by the estate agents Knight Frank (pdf), also shows the impact of last year’s debt crisis in Greece. House prices in the two biggest Greek cities – Thessaloniki and Athens – were both ranked among the worst six in the survey of 165 cities, falling 5.9% and 4.8% respectively. There were also significant drops in some Italian cities, including Rome, Trieste and Genoa. Nicosia and Larnaca in Cyprus were also among the worst performers.

The Global Residential Cities Index showed that house prices in cities worldwide went up 4.4%. Behind Shenzhen, Auckland was the second fastest growing market with rises of 25.4%, followed by Istanbul (25%) and Sydney (19.9%). Shenzhen has become a hub for the production of hardware used in electronics and has a permanent population of 10 million, rising to 15 million in the summer – autumn electronics season. Their average age is 30. The city bordering Hong Kong did not exist 30 years ago, sporting just a few fishing villages. In 1979, it was declared China’s first special economic zone and surrounded by an 85-mile long, barbed wire fence. Investment and migrant workers flooded the area and factories and housing were built from scratch. By the mid-90s, the population had climbed to 3 million.

In 2004, the first metro station opened and a decade later the network had grown to 131 stations. Two Turkish cities featured in the top 10 – Istanbul and Izmir – while Budapest recorded the biggest rise among European Union cities, with prices up 16.3%. Budapest is also the strongest performing capital city in the index, with demand fuelled by an investment immigration bond for Chinese nationals. Cities traditionally associated with high prices failed to feature prominently. London was ranked at 16 (11.4% growth) with New York at 89th (3.3%). The fast rising prices of Sydney, the fourth fastest rising market, has resulted in high rents and the same sort of concerns about the effects on the young population in the city as in London. In the US, Portland in Oregon and San Francisco were the highest risers, both with increases over the year of 10%. The fastest growing North American city was Vancouver, with prices up nearly 12% on an annual basis.

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Greece is ruled by the global finance squid.

Hedge Funds Control Greek NPLs Anyway (Kath.)

Despite all the government talk about the nonperforming loans secured by borrowers’ homes being protected from falling into the hands of hedge funds, the latest recapitalization process has resulted in the entire credit sector now being controlled by foreign investors – hedge funds no less. Those foreign firms, the majority of which control high-risk portfolios, hold stakes of more than 50% in all of Greece’s systemic lenders, and in some cases far above that. Therefore, by extension, they control a loan portfolio which exceeds 200 billion euros and includes performing loans amounting to some 100 billion and bad loans that also add up to around 100 billion, and there is currently a negotiations battle under way for them not to be sold on to others.

It makes no difference to borrowers who owns their loans; it is the general legal framework and the legal moves they can make in case they are unable to fulfill their obligations that matter. The banks’ planning does not provide for the sale of bad loans, and there are strong indications that the existing stock of NPLs includes many strategic defaulters who have taken advantage of the crisis to avoid fulfilling their obligations. The Bank of Greece estimates that they account for 20% of all bad loans.

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“..an economic version of the Hunger Games.”

Who Will Speak For The American White Working Class? (Guardian)

The National Review, a conservative magazine for the Republican elite, recently unleashed an attack on the “white working class”, who they see as the core of Trump’s support. The first essay, Father Führer, was written by the National Review’s Kevin Williamson, who used his past reporting from places such as Appalachia and the Rust Belt to dissect what he calls “downscale communities”. He describes them as filled with welfare dependency, drug and alcohol addiction, and family anarchy – and then proclaims: “Nothing happened to them. There wasn’t some awful disaster, There wasn’t a war or a famine or a plague or a foreign occupation. … The truth about these dysfunctional, downscale communities is that they deserve to die. Economically, they are negative assets. Morally, they are indefensible. The white American underclass is in thrall to a vicious, selfish culture whose main products are misery and used heroin needles.”

A few days later, another columnist, David French, added: “Simply put, [white working class] Americans are killing themselves and destroying their families at an alarming rate. No one is making them do it. The economy isn’t putting a bottle in their hand. Immigrants aren’t making them cheat on their wives or snort OxyContin.” Both suggested the answer to their problems is they need to move. “They need real opportunity, which means that they need real change, which means that they need U-Haul.” Downscale communities are everywhere in America, not just limited to Appalachia and the Rust Belt – it’s where I have spent much of the past five years documenting poverty and addiction. To say that “nothing happened to them” is stunningly wrong. Over the past 35 years the working class has been devalued, the result of an economic version of the Hunger Games.

It has pitted everyone against each other, regardless of where they started. Some contestants, such as business owners, were equipped with the fanciest weapons. The working class only had their hands. They lost and have been left to deal on their own. The consequences can be seen in nearly every town and rural county and aren’t confined to the industrial north or the hills of Kentucky either. My home town in Florida, a small town built around two orange juice factories, lost its first factory in 1985 and its last in 2005. [..] Over the past 35 years, except for the very wealthy, incomes have stagnated, with more people looking for fewer jobs. Jobs for those who work with their hands, manufacturing employment, has been the hardest hit, falling from 18m in the late 1980s to 12m now.

The economic devaluation has been made more painful by the fraying of the social safety net, and more visceral by the vast increase at the top. It is one thing to be spinning your wheels stuck in the mud, but it is even more demeaning to watch as others zoom by on well-paved roads, none offering help. It is not just about economic issues and jobs. Culturally, we are witnessing a tale of two Americas that are growing more distinct by the day.

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Crackdowns deflate economic confidence.

China ‘Detains 20 Over Xi Resignation Letter’ (BBC)

A total of 20 people have been detained in China following the publication of a letter calling on President Xi Jinping to resign, the BBC has learned. The letter was posted earlier this month on a state-backed website Wujie News. Although quickly deleted by the authorities, a cached version can still be found online. In most countries the contents of the letter would be run-of-the-mill political polemic. “Dear Comrade Xi Jinping, we are loyal Communist Party members,” it begins, and then cuts to the chase. “We write this letter asking you to resign from all party and state leadership positions.” But in China, of course, and in particular on a website with official links, this kind of thing is unheard of and there have already been signs of a stern response by the authorities. The detention of a prominent columnist, Jia Jia, was widely reported to be in connection with the letter.

Friends say he simply called the editor of Wujie to enquire about it after seeing it on line. But now the BBC has spoken to a staff member at Wujie who has asked to remain anonymous and who has told us that in addition to Jia Jia another 16 people have been “taken away”. The source said they included six colleagues who work directly for the website, including a senior manager and a senior editor, and another 10 people who work for a related technology company. And a well-know Chinese dissident living in the US said three members of his family, living in China’s Guangdong Province, had also been detained in connection with the letter. Wen Yunchao said he believed his parents and his brother had been detained because authorities were trying to pressure him to reveal information. But he told the BBC that he knew nothing about the letter.

The letter focuses its anger on what it says is President Xi’s “gathering of all power” in his own hands, and it accuses him of major economic and diplomatic miscalculations, as well as “stunning the country” by placing further restrictions on freedom of speech. The latter is a reference to Mr Xi’s high profile visit last month to state-run TV and newspaper offices, where he told journalists that their primary duty was to obey the Communist Party. The letter first appeared on an overseas-based Chinese language website, well outside the realm of Communist Party censors, but the big question is how it then made its way onto Wujie. The idea that any Chinese editor of sane mind would knowingly publish such a document seems so unlikely that there has been speculation amongst some Chinese journalists, in private, that Wujie was either hacked, or had perhaps been using some kind of automatic trawling and publishing software.

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The backdrop of the refugee deal. Yes, we have no decency.

Facing Life Sentence, Turkish Journalist Vows To Expose State Crimes (Reuters)

One of two prominent Turkish journalists facing life in prison on charges of espionage vowed to make the trial, which begins on Friday, a prosecution of official wrongdoing. Can Dundar, editor-in-chief of Cumhuriyet, told Reuters he would use his trial, which has drawn international condemnation, to refocus attention on the story that landed him in the dock. Dundar, 54, and Erdem Gul, 49, Cumhuriyet’s Ankara bureau chief, stand accused of trying to topple the government over the publication last May of video purporting to show Turkey’s state intelligence agency helping to truck weapons to Syria in 2014. “We are not defendants, we are witnesses,” Dundar said in an interview at his office, promising to show the footage in court despite a ban and at the risk that judges may order the hearings to be held behind closed doors.

“We will lay out all of the illegalities and make this a political prosecution … The state was caught in a criminal act, and it is doing all that it can to cover it up.” Dundar and Gul spent 92 days in jail, almost half of it in solitary confinement, before the constitutional court ruled last month that pre-trial detention was unfounded because the charges stemmed from their journalism. Both were subsequently released pending trial, although President Tayyip Erdogan said he did not respect the ruling. Erdogan has acknowledged that the trucks, which were stopped by gendarmerie and police officers en route to the Syrian border, belonged to the MIT intelligence agency and said they were carrying aid to Turkmens in Syria. Turkmen fighters are battling both President Bashar al-Assad’s forces and Islamic State.

Erdogan has said prosecutors had no authority to order the trucks be searched and that they acted as part of a plot to discredit the government, allegations the prosecutors denied. Erdogan has cast the newspaper’s coverage as part of an attempt to undermine Turkey’s global standing and has vowed Dundar would “pay a heavy price.” The trial comes as Turkey deflects criticism from the European Union and rights groups that it is bridling a once vibrant press. “We were arrested for two reasons: to punish us and to frighten others. And we see the intimidation has been effective. Fear dominates,” Dundar said.

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800,000 years and counting.

Mass Extinctions and Climate Change (C.)

We now know that greenhouse gases are rising faster than at any time since the demise of dinosaurs, and possibly even earlier. According to research published in Nature Geoscience this week, carbon dioxide (CO2 ) is being added to the atmosphere at least ten times faster than during a major warming event about 50 million years ago. We have emitted almost 600 billion tonnes of carbon since the beginning of the Industrial Revolution, and atmospheric COC concentrations are now increasing at a rate of 3 parts per million (ppm) per year. With increasing CO2 levels, temperatures and ocean acidification also rise, and it is an open question how ecosystems are going to cope under such rapid change. Coral reefs, our canary in the coal mine, suggest that the present rate of climate change is too fast for many species to adapt: the next widespread extinction event might have already started.

In the past, rapid increases in greenhouse gases have been associated with mass extinctions. It is therefore important to understand how unusual the current rate of atmospheric CO2 increase is with respect to past climate variability. There is no doubt that atmospheric COC concentrations and global temperatures have changed in the past. Ice sheets, for example, are reliable book-keepers of ancient climate and can give us an insight into climate conditions long before the thermometer was invented. By drilling holes into ice sheets we can retrieve ice cores and analyse the accumulation of ancient snow, layer upon layer. These ice cores not only record atmospheric temperatures through time, they also contain frozen bubbles that provide us with small samples of ancient air. Our longest ice core extends more than 800,000 years into the past.

During this time, the Earth oscillated between cold ice ages and warm interglacials . To move from an ice age to an interglacial, you need to increase COC by roughly 100 ppm. This increase repeatedly melted several kilometre-thick ice sheets that covered the locations of modern cities like Toronto, Boston, Chicago or Montreal. With increasing COC levels at the end of the last ice age, temperatures increased too. Some ecosystems could not keep up with the rate of change, resulting in several megafaunal extinctions, although human impacts were almost certainly part of the story. Nevertheless, the rate of change in COC over the past million years was tame when compared to today. The highest recorded rate of change before the Industrial Revolution is less than 0.15 ppm per year, just one-twentieth of what we are experiencing today.

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“All hell will break loose in the North Atlantic and neighbouring lands..”

Has James Hansen Foretold The ‘Loss Of All Coastal Cities’? (G.)

James Hansen’s name looms large over any history that will likely be written about climate change. Whether you look at the hard science, the perils of political interference or modern day activism, Dr Hansen is there as a central character. In a 1988 US Senate hearing, Hansen famously declared that the “greenhouse effect has been detected and is changing our climate now”. Towards the end of his time as the director of NASA’s Goddard Institute for Space Studies, Hansen described how government officials had on other occasions changed his testimony, filtered scientific findings and controlled what scientists could and couldn’t say to the media – all to underplay the impact of fossil fuel emissions on the climate. In recent years, the so-called “grandfather of climate science” has added to his CV the roles of author and twice-arrested climate activist and anti-coal campaigner. He still holds a position at Columbia University.

So when Hansen’s latest piece of blockbuster climate research was finalized and released earlier this week, there was understandable global interest, not least because it mapped a potential path to the “loss of all coastal cities” from rising sea levels and the onset of “super storms” previously unseen in the modern era. So what is Hansen claiming? Well, the first thing to understand is that Hansen’s paper, written with 18 other co-authors, many of them highly-reputable names in climate science in their own right, is far from conventional. Most scientific papers only take up four or five pages in a journal. Hansen’s paper – in the journal Atmospheric Chemistry and Physics – grabs 52 pages (although it’s hard to quibble over space when you’re laying out a possible path to widespread global disruption and the complete reshaping of coastlines).

Nor was the paper published in a conventional way. If you’re getting a faint sense of déjà vu about Hansen’s findings, then that could be down to how a draft version of the study was published and widely covered in July last year. The journal runs an unconventional interactive system of peer review where comments and criticisms from other scientists are published for everyone to see, as are the responses from Hansen and his colleagues. This is arguably a more transparent way of conducting the scientific process of peer review – something usually carried out privately and anonymously. None of this should really detract from Hansen and his co-author’s central claims. Firstly, Hansen says they may have uncovered a mechanism in the Earth’s climate system not previously understood that could point to a much more rapid rise in sea levels. When the Earth’s ice sheets melt, they place a freshwater lens over neighboring oceans.

This lens, argues Hansen, causes the ocean to retain extra heat, which then goes to melting the underside of large ice sheets that fringe the ocean, causing them to add more freshwater to the lens (this is what’s known as a “positive feedback” and is not to be confused with the sort of positive feedback you may have got at school for that cracking fifth grade science assignment). Secondly, according to the paper, all this added water could first slow and then shut down two key ocean currents – and Hansen points to two unusually cold blobs of ocean water off Greenland and off Antarctica as evidence that this process may already be starting. If these ocean conveyors were to be impacted, this could create much greater temperature differences between the tropics and the north Atlantic, driving “super storms stronger than any in modern times”, he argues. “All hell will break loose in the North Atlantic and neighbouring lands,” he says in a video summary.

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Europe is waiting for unrest in Greece to break out. Then it can send in it own police and military forces. or so it thinks.

Greece Pledges To Provide Shelters For 50,000 Refugees Within 20 Days (Kath.)

The government said Thursday it will fast-track procedures to create new centers to accommodate 30,000 people within the next 20 days as it finds itself in a race against time to meet an obligation to provide shelter to more than 50,000 asylum seekers stranded in the country, and to prevent an imminent humanitarian disaster. The current capacity of shelters is 38,000. The decision came after a meeting of the government’s council of ministers, chaired by Prime Minister Alexis Tsipras, amid a growing sense of urgency surrounding camps around the country and the increasing realization that the existing infrastructure simply cannot cope with the huge refugee numbers. It also follows the worsening toll on migrants’ health after the withdrawal on Wednesday of aid agencies from camps in Greece to protest the recent EU-Turkey deal – which was activated last Sunday – to stem refugee inflows to Europe, which, they say, contravenes international law.

At the same time, the spokesman of the coordinating committee for refugees, Giorgos Kyritsis, said legislation facilitating the implementation of the EU deal will be tabled in Parliament on Wednesday. The government also said it will further empower the Immigration Policy Ministry to deal with increased obligations implicit in the deal, while temporary staff will also be enlisted. Kyritsis also announced the creation of a monitoring mechanism under the general secretary of the Defense Ministry, Yiannis Tafyllis. The government’s immediate priority, Kyritsis said, will be to provide relief to the sprawling and overcrowded border camp of Idomeni in northern Greece. He added that transport means will be made available over the next few days to transfer refugees to other centers affording more humane conditions.

The mayor of the nearby town of Paionia, Christos Goudenoudis, is calling for the camp’s immediate evacuation as the local community, he said, is feeling increasingly insecure as crime in the area has proliferated. Meanwhile the latest figures suggest a marked decrease in refugee flows into the country over the last few days, while none arrived Thursday – for the first time since the deal between the European Union and Turkey was struck. Authorities, however, have attributed this mostly to bad weather. On Tuesday, inflows were limited to 260 – a significant decrease from the several thousand a couple of weeks ago.

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