Dec 112018
 
 December 11, 2018  Posted by at 10:44 am Finance Tagged with: , , , , , , , , , , , , ,  4 Responses »


Arnold Böcklin The Isle of the Dead III 1883

 

Jerome Powell Is Between A Rock And A Hard Place (Nomi Prins)
Macron Bows To Protesters’ Demands: “I Know I Have Hurt Some Of You” (G.)
‘Yellow Vests’ Denounce Macron Speech As ‘Charade’ (AFP)
Let’s Call The Whole Thing Off (Ind.)
Sturgeon Offers To Unite With Corbyn To Topple ‘Shambles’ Government (Ind.)
Pound Falls To Lowest In Almost Two Years Amid Brexit Uncertainty (G.)
Hedge Funds Make Big Bets Against Post-Brexit UK Economy (G.)
Mueller’s Investigation is Missing One Thing: A Crime (AC)
Jerome Corsi Sues Robert Mueller, DOJ, FBI, NSA, CIA For $350 Million (CNBC)
Not So Fast (Jim Kunstler)

 

 

I don’t know, Nomi. The whole thing just spells out to me how ridiculous things have become because of the powers the Fed has been given. The only sensible thing anyone can do, including Powell, is to retreat and let the market be reborn. Until then, any talk about ‘the market(s)’ has no meaning.

Jerome Powell Is Between A Rock And A Hard Place (Nomi Prins)

One of the major drags on the market, besides trade wars, has been uncertainty about whether the Fed will raise rates this month. Despite the verbal bravado of Federal Reserve Chairman, Jerome Powell, over how strong the U.S. economy is, he doesn’t live in a vacuum. Powell’s borne the brunt of President Trump’s recent accusations that the Fed’s hikes are what’s hurting the stock market and threatening the economy. That lead to a media debate over whether Powell would “cave” to Trump or demonstrate that the Fed is the independent body that it’s legally designed to be, and continue with planned hikes anyway. Powell’s recently indicated again that he planned to go ahead with another 0.25 rate hike when the Fed meets Dec. 19, which would be the fourth increase this year.

But on Nov. 28, he revealed something in his speech at the Economic Club of New York that I’ve been predicting. He dialed back talk about rate hikes. He said that rates were “just below” neutral. That contrasted sharply with his comments from Oct. 3rd when he said “We are a long way from neutral at this point.” In other words, he’s turned dovish. That’s a major shift in less than two months’ time. But why the change? It likely had much less to do with pressure from Trump than deteriorating economic and market conditions. Heavy market volatility was just starting to return when he his Oct. 3 comment. It’s only gotten worse since then. At some point, the wobbling in the financial markets must have gotten to him. As the Daily Reckoning’s, Brian Maher said, single-day losses of 300, 500, 700 — 800 points — seem almost commonplace now. “The stock market is a wreck of nerves these days,” he said, “like a man walking point in a dark enemy jungle.”

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After long deliberation with his spin doctors, lawyers and PR guys, Macron has decided to gamble on the protests being all about money. If handing out the billions he announced yesterday calms things down, even if it takes France out of the EU budget comfort zone, the protests were never about anything real. But if the yellow vests’ Act V next Saturday is anything like the first 4, he’s in deep doodoo.

Also: he was MIA for 10 days or so. And then his speech yesterday was pre-recorded. He still hasn’t communicated live with the French people.

Macron Bows To Protesters’ Demands: “I Know I Have Hurt Some Of You” (G.)

Emmanuel Macron has bowed to pressure from the street to announce a catalogue of emergency measures aimed at pacifying the gilets jaunes after weeks of civil unrest in France. In a long-awaited address on primetime television, the president tried to talk the protesters out of further action, promising a rise in the minimum wage and tax concessions. In a mea culpa, Macron said he had heard and understood protesters’ anger and indignation, which he said was “deep and in many ways legitimate”. He admitted he had not been able to provide solutions quickly enough since his election. “I may have given you the impression that this was not my concern, that I had other priorities. I take my share of responsibility. I know I have hurt some of you with my words,” he said.

The president began his pre-recorded 13-minute declaration saying the past few weeks of protests had “profoundly troubled the nation”, and that legitimate demands had led to “a series unacceptable violence”. He said the anger went back 40 years, but he added: “No anger justifies attacking a police officer, a gendarme, or damaging a shop or public building. When violence is unleashed, freedom ends.” Macron, elected on a centrist reforming programme 18 months ago, said he understood the anger and “distress” of those struggling to make ends meet at the end of the month who felt ignored and economically squeezed: “It is as if they have been forgotten, erased. This is 40 years of malaise that has risen to the surface. It goes back a long way, but it is here now.”

To help struggling workers, he said the government had been ordered to introduce “concrete measures” from 1 January, including increasing the minimum wage by €100 (£90) a month. Overtime would be exempt from tax and social charges, and a planned tax on pensions under €2,000 a month would be cancelled. All employers “who can” were asked to give workers a tax-free bonus at the end of the year. Macron said there would be greater public consultation on issues, but he would not go back on his wealth tax reforms. However, things would not “go back to normal … as if nothing has changed,” he said.. He concluded: “We are at a historic moment in our country. With dialogue, respect, and engagement, we will succeed. My only concern is you, my only combat is for you – our only battle is for France.”

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It may just make them madder.

‘Yellow Vests’ Denounce Macron Speech As ‘Charade’ (AFP)

Groups of “yellow vest” protesters across France responded scathingly to the “crumbs” offered by President Emmanuel Macron in a speech intended to defuse their revolt, but others acknowledged his efforts. “Nonsense,” “a charade”, “a bluff” and “a drop in the ocean,” were among the immediate reactions that greeted the head of state’s televised speech Monday evening announcing an increase in the minimum wage and a range of other financial measures. At a roundabout in the southern town of Le Boulou, some 150 “yellow vests” gathered around a loudspeaker listened carefully to the president’s words before starting to shout in chorus. “He is trying to do a pirouette to land back on his feet but we can see that he isn’t sincere, that it’s all smoke and mirrors,” said Jean-Marc, a car mechanic.

“It’s just window dressing, for the media, some trivial measures, it almost seems like a provocation,” said Thierry, 55, a bicycle mechanic who donned the yellow vest a fortnight ago. “All this is cinema, it doesn’t tackle the problems of substance,” he told AFP before taking part in blocking the Boulou turnpike on the French-Spanish border. “We’re really wound up, we’re going back to battle,” he said. Less than an hour after the presidential address, the A9 toll booth from Spain was completely paralysed, an AFP photographer said. “Maybe if Macron had made this speech three weeks ago, it would have calmed the movement, but now it’s too late,” said Gaetan, 34, one of the “Rennes Lapins Jaunes” (Yellow Rabbits of Rennes). “For us, this speech is nonsense.”

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Theresa May is as out of touch with her people as Macron is.

The main event yesterday in the Commons was a guy picking up the ceremonial mace, a 17th century piece of metal. Just to show how out of touch the politicians, and their entire nation, are.

Well, that and May annoucing she was going to flee the country. But why would the EU change its stance, or the deal May signed, just to save her career?

Let’s Call The Whole Thing Off (Ind.)

Theresa May has sparked anger across the Commons by refusing to say when MPs will vote on her Brexit deal, as she prepared to head to Brussels to plead with EU leaders for further concessions. The showdown was dramatically delayed, almost certainly until the new year, after the prime minister admitted a Tory revolt meant she was heading for a crushing defeat “by a significant margin”. But condemnation of Ms May for pulling back rose when Downing Street failed to set a new timetable for the vote, arguing it depended on when she could “get the assurances” from the EU to pass the deal. Government sources admitted a quick breakthrough was unlikely, suggesting the vote would be shelved until the new year and refusing to say it would even be held next month.

In extraordinary scenes, Labour MP Lloyd Russell-Moyle was ejected from the House of Commons for seizing the ceremonial mace in protest at the formal deferral of the vote by the government whips. Mr Russell-Moyle swung the antique symbol of parliamentary authority from its holder as Tory MPs screamed “expel him”. He was promptly asked to leave the chamber by John Bercow, the speaker. His intervention came moments after Labour leader Jeremy Corbyn secured an emergency debate on the delay on Tuesday.

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If May had had any actual opposition, this farce would have been long over.

Sturgeon Offers To Unite With Corbyn To Topple ‘Shambles’ Government (Ind.)

Nicola Sturgeon has appealed to Jeremy Corbyn “work together” to topple Theresa May’s government after a crucial vote on the prime minister’s Brexit deal was abandoned, promising the SNP will support a motion of no confidence if it is tabled by Labour. The Scottish first minister said delaying the vote was “pathetic cowardice” and vowed that her party would stand with Labour if it follows through with its plan to bring down the government with a confidence vote on Tuesday. It comes amid chaotic scenes in Westminster, where reports that the meaningful vote was being shelved broke just moments after a Downing Street spokeswoman told reporters it would go ahead.

Ms Sturgeon posted on Twitter: “So @jeremycorbyn – if Labour, as official opposition, lodges motion of no confidence in this incompetent government tomorrow, @theSNP will support & we can then work together to give people the chance to stop Brexit in another vote. “This shambles can’t go on – so how about it?” The Labour leader has not responded to her offer but the first minister’s comments will ramp up the pressure on the beleaguered prime minister, as she faces one of the biggest challenges of her premiership.

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Parity with the USD in early 2019?!

Pound Falls To Lowest In Almost Two Years Amid Brexit Uncertainty (G.)

The pound has dropped to its lowest level for almost two years amid the growing risks to the British economy from political paralysis over Brexit and on a no-deal scenario. Theresa May’s decision to delay the parliamentary vote on her Brexit plan to avoid an embarrassing defeat for the government sent sterling tumbling by more than 1.3% against the dollar and by almost 1% against the euro on the foreign exchanges. The pound slumped below $1.26 to the lowest level since April 2017 after the prime minister said her Brexit plan would have been rejected by a “significant margin” in a Commons vote pencilled in for Tuesday. Sterling was worth $1.2563 against the dollar late on Monday and €1.1062 against the euro.

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They now have a solid reason to push for a no-deal Brexit.

Hedge Funds Make Big Bets Against Post-Brexit UK Economy (G.)

A pair of hedge funds owned by prominent Brexit supporters have made significant bets against companies exposed to the British consumer including big high street names. Odey Asset Management, part-owned by Crispin Odey, and Marshall Wace, part-owned by Sir Paul Marshall, have declared short positions against consumer-exposed companies, including retailers, estate agents and banks, equivalent to £149m and £572m respectively – as rising political uncertainty threatens the economy. The retail sector is facing particular scrutiny from short sellers, who in effect wager significant sums on certain shares falling in value. Uncertainty among consumers, with the Brexit process reaching a crunch point, comes at a time when retailers are already struggling to adjust to the move from physical shops to online.

The hedge fund run by Odey, one of the most outspoken of the Brexit-backing hedge fund managers, holds a short position in Intu – the owner of shopping malls including the Trafford Centre in Greater Manchester – that represented £33m worth of shares in the company at the end of last week. He also holds a position against struggling department store Debenhams that is worth £5.3m. The firm also appears to be betting that Britons’ appetite for cars will fall, in line with surveys showing hesitation over big-ticket purchases. The firm has short positions against Lookers, a large dealership chain, and Auto Trader, the online used-car directory.

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Watergate started with a crime. Russiagate did not. It started with a dodgy dossier.

Mueller’s Investigation is Missing One Thing: A Crime (AC)

The primordial ooze for all things Russiagate is less-than-complete intelligence alleging that hackers, linked to the Russian government, stole emails from the Democratic National Committee (DNC) in 2016. The details have never been released, no U.S. law enforcement agency has ever seen the server or scene of the crime, and Mueller’s dramatic indictments of said hackers, released as Trump met with Putin in Helsinki, will never be heard of again, or challenged in court, as none of his defendants will ever leave Russia. Meanwhile, despite contemporaneous denials of the same, is it somehow now accepted knowledge that the emails (and Facebook ads!) had some unproven major effect on the election.

The origin story for everything else, that Trump is beholden to Putin for favors granted or via blackmail, is opposition research purchased by the Democrats and carried out by an MI6 operative with complex connections into American intelligence, the salacious Steele Dossier. The FBI, under a Democratic-controlled Justice Department, then sought warrants to spy on the nominated GOP candidate for president based on evidence paid for by his opponent. Yet the real spark was the media, inflamed by Democrats, searching for why Trump won (because it can’t be anything to do with Hillary, and “all white people and the Electoral College are racists” just doesn’t hold up).

Their position was and is that Trump must have done something wrong, and Robert Mueller, despite helping squash a Bush-era money-laundering probe, lying about the Iraq War, and flubbing the post-9/11 anthrax investigation, has been resurrected with Jedi superpowers to find it. It might be collusion with Russia or Wikileaks, or a pee tape, or taxes, packaged as hard news but reading like Game of Thrones plot speculation. None of this is journalism to be proud of, and it underlies everything Mueller is supposedly trying to achieve. [..] The core problem—at least that we know of—is that Mueller hasn’t found a crime connected with Russiagate that someone working for Trump might have committed. His investigation to date hasn’t been a search for the guilty party —Colonel Mustard in the library— so much as a search for an actual crime, some crime, any crime.

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Even if he’s legally right, what are his odds of winning?

Jerome Corsi Sues Robert Mueller, DOJ, FBI, NSA, CIA For $350 Million (CNBC)

Jerome Corsi, a conspiracy theorist and Roger Stone associate, has filed a federal lawsuit accusing special counsel Robert Mueller of illegally searching his phone records and leaking grand jury information. Corsi, an avid supporter of President Donald Trump, recently claimed he faces indictment by Mueller. Attorneys for Corsi, 72, filed the lawsuit Sunday night in U.S. District Court in Washington. In addition to Mueller, it targets the Justice Department, the National Security Agency, the FBI and the CIA. The attorneys are demanding $100 million in “general and compensatory damages” and $250 million in “punitive damages” from the agencies.

In the complaint, Corsi’s lawyers argue that their client’s Fourth Amendment right against unreasonable or unwarranted government searches and seizures was violated when “each and every one” of the defendants looked through his digital records without a warrant and probable cause. The complaint also accuses Mueller of directing his staff to leak information from his grand jury about Corsi to the media. Special counsel spokesman Peter Carr declined CNBC’s request for comment on the court filing. Mueller’s team has reportedly investigated for months whether Corsi learned in advance that WikiLeaks had received Hillary Clinton campaign chairman John Podesta’s emails, which U.S. intelligence services have concluded were stolen by Russian intelligence officers.

[..] Corsi also accuses the special counsel of trying to make him lie under oath that he was a liaison between Stone and WikiLeaks founder Julian Assange in the publication of stolen Democrats’ emails.

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Flynn’s revenge on Mueller?

Not So Fast (Jim Kunstler)

Gen. Flynn may actually have the goods on the fraud behind his own prosecution — namely, proof of exactly how he was set up by Mr. Obama, in particular his own tapes of conversations with Russian Ambassador Sergey Kislyak that would show something different than the transcripts Mr. Mueller used to entrap him on Lying-to-Federal-Prosecutors rap. That theory raises the question: why did he not use it in his own defense. The answer may simply be that he didn’t want to rack up $2.5 million in billable hours for defense attorneys and chose instead to tough it out for nearly two years until he could use the information he has. And that means he must wait until final sentencing when his case is complete.

That appears in the offing, perhaps even before Mr. Mueller releases his much panted-over final report. Of course, Mr. Mueller may have absolutely no idea what Gen. Flynn has got on him — hence the speculation about why the charging memo was so lenient. But that line of reasoning suggests that Gen. Flynn will just forget about the disgrace Mr. Mueller put him through and let bygones be bygones. That’s not how warriors roll. More likely, Gen. Flynn has something more severe in mind. For all of his horse-faced gravitas in the photos of his fleeting sightings, Mr. Mueller does not look to me like a man in a comfortable situation.

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May 042018
 


Herri met de Bles c1510-after 1555 Saint Jerome medidating

 

Fed’s QE Unwind Accelerates Sharply (WS)
The Root of It All (Batnick)
Tesla Is A Zombie Company (F.)
With No Letup In Home Prices, The California Exodus Surges (MW)
Demand For US Soybeans Remains Strong Despite China (CNBC)
US Charges VW Ex-CEO With Conspiracy And Fraud (G.)
Mueller’s Questions for Trump Show Folly of Special-Counsel Appointments (NR)
Why We Need To Be Propagandized For Our Own Good (CJ)
Neocons Form Brand New Russia-Bashing ‘Think’ Tank (RI)
UK Pushes To Strengthen Anti-Russia Alliance (G.)
Nobel Prize For Literature Postponed Amid Swedish Academy Turmoil (BBC)
Jacinda Ardern Pledges Shelter For All Homeless People Within Four Weeks (G.)

 

 

As most voices seem convinced QT would be madness.

Fed’s QE Unwind Accelerates Sharply (WS)

The QE Unwind is ramping up toward cruising speed. The Fed’s balance sheet for the week ending May 2, released this afternoon, shows a total drop of $104 billion since the beginning of the QE Unwind in October – to the lowest level since June 11, 2014. During the years and iterations of QE, the Fed acquired $3.4 trillion in Treasury securities and mortgage-backed securities. The mortgages underlying those MBS are guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The “balance sheet normalization,” as the Fed calls it, was nudged into motion last October. But the pace accelerates every quarter until it reaches up to $50 billion a month in Q4 this year.

This would trim the balance sheet by up to $420 billion this year, and by up to $600 billion in 2019 and every year going forward, until the Fed considers the balance sheet to be adequately “normalized” — or until something big breaks, whichever comes first. [..] The balance of Treasury securities fell by $17.6 billion in April. This is up 60% from March, when $11 billion “rolled off.” Since the beginning of the QE-Unwind, $70 billion in Treasuries “rolled off.” Now at $2,395 billion, the balance of Treasuries has hit the lowest level since June 18, 2014.

[..] Residential MBS are different from regular bonds. Holders receive principal payments on a regular basis as the underlying mortgages are paid down or are paid off. At maturity, the remaining principal is paid off. Over the years, to keep the MBS balance from declining, the New York Fed’s Open Market Operations (OMO) has been continually buying MBS. But settlement of those trades occurs two to three months later. The Fed books the trades on an as-settled basis. The time lag between the trade and settlement causes the large weekly fluctuations on the Fed’s balance sheet. And it also delays when MBS that “rolled off” actually disappear from the balance sheet.

[..] Total assets on the Fed’s balance sheet dropped by $30 billion in April, and by $104 billion since the beginning of the QE-Unwind, to $4,356 billion. This is the lowest since June 11, 2014. Note that total assets are now down by $160 billion from the peak in January 2015:

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“The poor stay poor, the rich get rich. That’s how it goes. Everybody knows.”

The Root of It All (Batnick)

Steven Pinker wrote, “In almost every year from 1992 through 2015, an era in which the rate of violent crime plummeted, a majority of Americans told pollsters that crime was rising. In late 2015, large majorities in eleven developed countries said that “the world is getting worse.” But crime isn’t rising, and the world is objectively getting better. And while life is improving at the macro level, at the micro level, people aren’t feeling so great. So what gives? We tend to expect the worst as a way to insulate ourselves from disappointment. Life is not about good or bad, it’s about better or worse, so if things don’t turn out as bad as we imagine, we’re pleasantly surprised. If you were asked to think about how your life could improve, a few things might come to mind.

But imagine how your life could get worse, and a barrage of negative possibilities fills your brain. The risk and reward of every day life is asymmetrical. This is why being a pessimist feels safe and being an optimist feels reckless. [..] While the news certainly isn’t doing anyone any favors, there are legitimate reasons why people don’t feel like things are getting better. For too many, they aren’t. The chart below shows the change in real income since 1980. This chart is the root of all the negative things facing our society. People in the top 20% saw their income increase by 60%. People in the bottom 20% saw their income rise by just 5% over the same time. As Leonard Cohen said, “The poor stay poor, the rich get rich. That’s how it goes. Everybody knows.”

Real income increased 38% from 1980-2016, or just 0.87% per year, and 70% of that increase went to people in the top 20%. Things are better, especially around the world, but in our country, way too many people are getting left behind. Extreme poverty is collapsing, but relative poverty is exploding, and everything in life is relative. If things don’t feel better than they were two hundred years ago, it’s because people compare themselves to their neighbors, not to their ancestors.

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As simple as that.

Tesla Is A Zombie Company (F.)

Tesla’s quarter was terrible from a financial perspective, as I had expected. The controlling figure I use, operating cash flow (operating loss plus depreciation minus capital expenditures,) was reported as -$836 million in the quarter, which very nearly approximates one quarter of 2017’s full year cash outflow of $3.4 billion. Things are not improving at Tesla from a financial perspective, and the second quarter is likely to be just as bad as the first. For the third consecutive quarter, Tesla posted negative EBITDA (-$180 million) and if this were any other company, there would be an active death watch on the Street. Tesla’s bonds have dropped sharply in today’s trading, now quoted at 87 cents on the dollar.

This is not surprising given that Tesla is not even remotely close to earning enough profit to cover its interest expense, which management estimated would be $160 million in the second quarter. Tesla added $346 million to its now $10 billion debt pile in the quarter, and the management’s weasel-worded projection of “positive net income excluding non-cash stock based compensation in Q3 and Q4” would still leave Tesla short of covering its debt service costs, by my calculations. So, from a financial perspective, Tesla is a zombie company. There is simply no justification for Tesla’s current market capitalization of $47.2 billion, and the market eventually figures these things out. It’s actually been a slow burn for Tesla shares, not a plummet, but that can be just as painful.

On September 12, 2014, Teslashares closed at $279.20 and the Nasdaq Composite closed at 4567.60. As of this writing, Tesla is trading at $279.04 and the Nasdaq is trading at 7011.00. So that’s where the value destruction Musk has wrought is evident. His shares are down slightly in a period in which his peer companies have collectively risen 53.5%.

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Housing bubbles break communities.

With No Letup In Home Prices, The California Exodus Surges (MW)

Over a million more people moved out of California from 2006 to 2016 than moved in, according to a new report, due mainly to the high cost of housing that hits lower-income people the hardest. “A strong economy can also be dysfunctional,” noted the report, a project of Next 10 and Beacon Economics. Housing costs are much higher in California than in other states, yet wages for workers in the lower income brackets aren’t. And the state attracts more highly-educated high-earners who can afford pricey homes. There are many reasons for the housing crunch, but the lack of new construction may be the most significant.

According to the report, from 2008 to 2017, an average of 24.7 new housing permits were filed for every 100 new residents in California. That’s well below the national average of 43.1 permits per 100 people. If this trend persists, the researchers argued, analysts forecast the state will be about 3 million homes short by 2025. California homeowners spend an average of 21.9% of their income on housing costs, the 49th worst in the nation, while renters spend 32.8%, the 48th worst. The median rent statewide in 2016 was $1,375, which is 40.2% higher than the national average. And the median home price was — wait for it — more than double that of the national average.

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Globally, supple has a hard time keeping up with demand. Everybody involved knows this.

Demand For US Soybeans Remains Strong Despite China (CNBC)

Demand for U.S. soybeans remains strong, regardless of worries China could target the crop in retaliation over Trump administration tariffs. China has canceled several shipments of U.S. soybeans in the last month, raising questions over whether the country is taking preemptive action against the U.S. by reducing purchases. But analysts say the reduction is a minor amount and is not that surprising from a seasonal perspective. The “U.S. accounts for 37 percent of total soybean exports throughout the world. Beyond Brazil, there’s really nobody else,” said Rich Nelson, director of research at Allendale, an agricultural market research and trading firm. “Despite the trade concerns, there’s really nobody else. You’re just simply not going to have a massive decline in U.S. soybean exports,” he said.

Chinese cancellations of U.S. soybean orders for the week ended April 26 resulted in a decline of 133,700 metric tons in net sales to China, USDA Foreign Agricultural Service data showed Thursday. But 66,000 metric tons of those soybeans were sent to Vietnam instead, the data showed. Meanwhile, the U.S. sold 82,700 metric tons of soybeans in new sales to Mexico, 68,800 to Taiwan, 60,000 to Argentina and 52,600 to the Netherlands. Although Argentina is the third-largest exporter of soybeans, a severe drought has reduced production by 7 million tons to 40 million, according to USDA estimates. “That just goes to show we’re not dependent on China for soybean exports,” said Michael Stumo, head of Coalition for a Prosperous America, a nonprofit representing the interests of those in manufacturing, agriculture and labor unions.

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Germany doesn’t extradite its citizens.

US Charges VW Ex-CEO With Conspiracy And Fraud (G.)

US authorities have charged Volkswagen’s former chief executive officer Martin Winterkorn with conspiracy and wire fraud in relation to the car company’s efforts to cheat on US diesel emissions tests. Winterkorn, who resigned in 2015 as the scandal was revealed, conspired to defraud the US and violate the Clean Air Act, federal laws designed to control air pollution, according to an indictment unsealed on Thursday in a Michigan federal court. Five other VW executives were also charged in the indictment. He becomes the highest-ranking executive to be charged over “dieselgate” – a scheme where VW used software to trick government emissions testers.

“The indictment unsealed today alleges that Volkswagen’s scheme to cheat its legal requirements went all the way to the top of the company,” said US attorney general Jeff Sessions. “These are serious allegations and we’ll prosecute this case to the full extent of the law.” When news of the scheme broke Winterkorn said he was “stunned that misconduct on such a scale was possible in the Volkswagen Group”. He denied any knowledge of the scandal – which was used to evade pollution limits on nearly 600,000 diesel vehicles. Last December, Oliver Schmidt, a senior Volkswagen executive, was jailed for seven years and fined $400,000 for his part in the scheme. Schmidt, who had returned to Germany, was arrested while on holiday in Florida. VW pleaded guilty as a corporation in March, agreeing to pay a record $4.3bn in fines.

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“If Bob Mueller wants that kind of control over the executive branch, he should run for president. Otherwise, he is an inferior executive official who has been given a limited license — ultimately, by the chief executive — to investigate crime. If he doesn’t have an obvious crime, he has no business inventing one, much less probing his superior’s judgment. He should stand down.”

Mueller’s Questions for Trump Show Folly of Special-Counsel Appointments (NR)

I am assuming the authenticity of the questions that Special Counsel Robert Mueller reportedly wants to ask President Trump. The questions indicate that, after a year of his own investigation and two years of FBI investigation, the prosecutor lacks evidence of a crime. Yet he seeks to probe the chief executive’s motives and thought processes regarding exercises of presidential power that were lawful, regardless of one’s view of their wisdom. If Bob Mueller wants that kind of control over the executive branch, he should run for president. Otherwise, he is an inferior executive official who has been given a limited license — ultimately, by the chief executive — to investigate crime. If he doesn’t have an obvious crime, he has no business inventing one, much less probing his superior’s judgment. He should stand down.

The questions, reported by the New York Times, underscore that the special counsel is a pernicious institution. Trump should decline the interview. More to the point, the Justice Department should not permit Mueller to seek to interrogate the president on so paltry and presumptuous a showing.

When should a president be subject to criminal investigation? It is a bedrock principle that no one is above the law. The Framers made clear that this includes the president. But, like everything else, bedrock principles do not exist in a vacuum. They vie with other principles. Two competing considerations are especially significant here. First, our law-enforcement system is based on prosecutorial discretion. Under this principle, the desirability of prosecuting even a palpable violation of law must be balanced against other societal needs and desires. We trust prosecutors to perform this cost-benefit analysis with modesty about their mission and sensitivity to the disruption their investigations cause.

Second, the president is the most essential official in the world’s most consequential government. That government’s effectiveness is necessarily compromised if the president is under the cloud of an investigation. Not only are the president’s personal credibility and capability diminished; such an investigation discourages talented people from serving in an administration, further undermining good governance. The country is inexorably harmed because a suspect administration’s capacity to execute the laws and pursue the interests of the United States is undermined.

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Caitlin Johnstone on the Atlantic Council.

Why We Need To Be Propagandized For Our Own Good (CJ)

I sometimes try to get establishment loyalists to explain to me exactly why we’re all meant to be terrified of this “Russian propaganda” thing they keep carrying on about. What is the threat, specifically? That it makes the public less willing to go to war with Russia and its allies? That it makes us less trusting of lying, torturing, coup-staging intelligence agencies? Does accidentally catching a glimpse of that green RT logo turn you to stone like Medusa, or melt your face like in Raiders of the Lost Ark? “Well, it makes us lose trust in our institutions,” is the most common reply. Okay. So? Where’s the threat there? We know for a fact that we’ve been lied to by those institutions. Iraq isn’t just something we imagined. We should be skeptical of claims made by western governments, intelligence agencies and mass media. How specifically is that skepticism dangerous?

Trying to get answers to such questions from rank-and-file empire loyalists is like pulling teeth, and they are equally lacking in the mass media who are constantly sounding the alarm about Russian propaganda. All I see are stories about Russia funding environmentalists (the horror!), giving a voice to civil rights activists (oh noes!), and retweeting articles supportive of Jeremy Corbyn (think of the children!). At its very most dramatic, this horrifying, dangerous epidemic of Russian propaganda is telling westerners to be skeptical of what they’re being told about the Skripal poisoning and the alleged Douma gas attack, both of which do happen to have some very significant causes for skepticism.

When you try to get down to the brass tacks of the actual argument being made and demand specific details about the specific threats we’re meant to be worried about, there aren’t any to be found. Nobody’s been able to tell me what specifically is so dangerous about westerners being exposed to the Russian side of international debates, or of Russians giving a platform to one or both sides of an American domestic debate. Even if every single one of the allegations about Russian bots and disinformation are true (and they aren’t), where is the actual clear and present danger? No one can say. No one, that is, except the Atlantic Council.

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The entire MSM can’t get the job done?!

Neocons Form Brand New Russia-Bashing ‘Think’ Tank (RI)

A group of neocon heartthrobs have banded together with an eclectic array of Russiagaters to form a visionary organization committed to protecting Western democracy. You can also pre-order their book, according to their website. Chaired by pompous chess wizard turned Kremlinologist Garry Kasparov, the brand-new Renew Democracy Initiative (RDI) is the latest three-letter-initialism non-profit devoted to “the defense of democratic freedom and prosperity.” The trailblazing think tank has already sent shockwaves through Washington, DC and every European capital. Celebrated war cheerleader Max Boot, who serves on RDI’s board of directors, announced the creation of this highly original organization in a Washington Post op-ed.

Interestingly, the unveiling started with a laundry list of 10 other groups that are already “protesting Trump and championing democracy.” So why does the world need RDI, then? Because RDI is different – some might even say “special.” Unlike the dozens of other well-financed bastions of status-quo thinking, RDI aims to “unite both the center-left and center-right” by promoting “liberty, democracy and sanity in an age of discord.” And where will this much-needed sanity come from? From RDI’s all-star team of important intellectuals and free thinkers, of course – some of whom just happen to be really tight with the other 10 groups mentioned in Boot’s WaPo piece. Dear Mr. Boot: does fighting Putin with the Committee to Investigate Russia allow enough spare time to fight Putin with the Renew Democracy Initiative? Curious minds want to know.

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It’s contagious.

UK Pushes To Strengthen Anti-Russia Alliance (G.)

The UK will use a series of international summits this year to call for a comprehensive strategy to combat Russian disinformation and urge a rethink over traditional diplomatic dialogue with Moscow, following the Kremlin’s aggressive campaign of denials over the use of chemical weapons in the UK and Syria. British diplomats plan to use four major summits this year – the G7, the G20, Nato and the European Union – to try to deepen the alliance against Russia hastily built by the Foreign Office after the poisoning of the former Russian double agent Sergei Skripal in Salisbury in March. “The foreign secretary regards Russia’s response to Douma and Salisbury as a turning point and thinks there is international support to do more,” a Whitehall official said.

“The areas the UK are most likely to pursue are countering Russian disinformation and finding a mechanism to enforce accountability for the use of chemical weapons.” Former Foreign Office officials admit that an institutional reluctance to call out Russia once permeated British diplomatic thinking, but say that after the poisoning of Skripal and his daughter, Yulia, that attitude is evaporating. A cross-party alliance in parliament has developed which sees the question of Russian corruption no longer through the prism of finance, but instead as a security and foreign policy threat, requiring fresh sanctions even if this causes short-term economic damage to the UK.

[..] For some old hands in the Foreign Office with deep experience of Russia, however, demonising Russia is a disastrous strategy. Sir Anthony Brenton, the British ambassador to Russia between 2004 and 2008, insists a fruitful common agenda with Moscow on issues such as nuclear disarmament, Islamist terrorism and cyberwarfare is still possible. “What on earth was her majesty’s foreign secretary doing comparing the Russian World Cup with Hitler’s 1936 Olympics?” he asked. “If you are looking for a single statement really calculated to infuriate the Russians there it is, or indeed the defence secretary telling Russia to shut up. Elementary diplomacy goes a long way with the Russians and we need to get back to that.

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Still feels like a weird story.

Nobel Prize For Literature Postponed Amid Swedish Academy Turmoil (BBC)

The organisation that decides the Nobel Prize for Literature has said it will not announce an award this year, after it was engulfed in a scandal over sexual assault allegations. The Swedish Academy has been in crisis over its handling of allegations against the husband of a member. She has since quit, as have the academy’s head and four other members. The academy says it will now announce the 2018 winner along with the 2019 winner next year.

The scandal is the biggest to hit the prize since it was first awarded in 1901. The academy said the decision had been made due to a lack of public confidence. Some academy members had argued that the prize should proceed to protect the tradition, but others said the institution was in no state to present the award. Apart from six years during the world wars, there has been only one year when the prize was not awarded. No worthy winner was found in 1935.

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You go girl. The only right thing to do.

Jacinda Ardern Pledges Shelter For All Homeless People Within Four Weeks (G.)

The New Zealand government has promised to get the country’s homeless population off the streets and into shelter in time for winter. In a joint announcement on Friday, housing minister Phil Twyford and prime minister Jacinda Ardern announced a NZ$100m emergency housing package to tackle the ballooning problem. An estimated 40,000 people live in cars, tents and garages amid a chronic housing shortage in the nation of 4.7 million people. “We’re pulling out all the stops to support people in need and urgently increase housing supply this winter,” said housing minister Phil Twyford. “Our government will make sure everyone is helped to find warm, dry housing this winter.”

With winter starting on 1 June in the southern hemisphere, less than four weeks away, the government has put out an urgent call for anyone with additional accommodation that may be suitable to house homeless people. Seasonal worker accommodation such as shearers quarters, private rental properties, motor camps and maraes (Maori meeting houses) would all be considered. New Zealand has the highest rates of homelessness in the OECD, with more than 40,000 people living on the streets, in emergency housing or in substandard conditions. Per capita New Zealand’s homeless population is almost twice as bad as Australia, which is placed third on the list. More than half of New Zealand’s homeless population live in Auckland but it is also growing in smaller cities such as Rotorua, Tauranga, Queenstown and Wellington.

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Aug 152017
 
 August 15, 2017  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


Stanley Kubrick Walking the streets of New York 1946

 

Prepare For Negative Interest Rates In The Next Recession – Rogoff (Tel.)
We’re Still Not Ready for the Next Banking Crisis (BBG)
World’s Biggest Banks Face £264 Billion Bill For Poor Conduct (G.)
US Stock Buybacks Are Plunging (BBG)
Consumer Spending Expectations Down Again (Mish)
Dow 30,000, Not If Demographics Have Anything To Say (SA)
Ten Years After The Crash, There’s Barely Suppressed Civil War In Britain (G.)
Broadening Internal Dispersion (Hussman)
Trump Orders Probe Of China’s Intellectual Property Practices (R.)
China Imposes Ban on Imports From North Korea, Yields to Trump’s Calls (Sp.)
North Korea Leader Holds Off On Guam Plan (R.)
Australia’s Central Bank Renews Alert on Mounting Household Debt (G.)
Australia Says New Zealand Opposition Trying To Bring Down Government (G.)
Greek Population Set To Shrink Up To 18% By 2050 (K.)
Sharp Fall In Number Of Refugees, Migrants Arriving In Italy (AFP)

 

 

Feels like we’re being prepared, or maybe set up is a better way to put it. They’re going to take over everything, criminalize anything they can’t control. All for your own good. Rogoff is one scary dude.

Prepare For Negative Interest Rates In The Next Recession – Rogoff (Tel.)

Negative interest rates will be needed in the next major recession or financial crisis, and central banks should do more to prepare the ground for such policies, according to leading economist Kenneth Rogoff. Quantitative easing is not as effective a tonic as cutting rates to below zero, he believes. Central banks around the world turned to money creation in the credit crunch to stimulate the economy when interest rates were already at rock bottom. In a new paper published in the Journal of Economic Perspectives the professor of economics at Harvard University argues that central banks should start preparing now to find ways to cut rates to below zero so they are not caught out when the next recession strikes. Traditionally economists have assumed that cutting rates into negative territory would risk pushing savers to take their money out of banks and stuff the cash – metaphorically or possibly literally – under their mattress.

As electronic transfers become the standard way of paying for purchases, Mr Rogoff believes this is a diminishing risk. “It makes sense not to wait until the next financial crisis to develop plans and, in any event, it is time for economists to stop pretending that implementing effective negative rates is as difficult today as it seemed in Keynes time”, he said. The growth of electronic payment systems and the increasing marginalisation of cash in legal transactions creates a much smoother path to negative rate policy today than even two decades ago. Countries can scrap larger denomination notes to reduce the likelihood of cash being held in substantial quantities, he suggests. This is also a potentially practical idea because cash tends now to be used largely for only small transactions. Law enforcement officials may also back the idea to cut down on money laundering and tax evasion.

The key consequence from an economic point of view is that forcing savers to keep cash in an electronic format would make it easier to levy a negative interest rate. “With today’s ultra-low policy interest rates – inching up in the United States and still slightly negative in the eurozone and Japan – it is sobering to ask what major central banks will do should another major prolonged global recession come any time soon,” he said, noting that the Fed cut rates by an average of 5.5 percentage points in the nine recessions since the mid-1950s, something which is impossible at the current low rate of interest, unless negative rates become an option. That would be substantially better than trying to use QE or forward guidance as central bankers have attempted in recent years.

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If we don’t take away political power from banks and central banks, we’re doomed.

We’re Still Not Ready for the Next Banking Crisis (BBG)

The 10th anniversary of the financial crisis has prompted a lot of analysis about what we’ve learned and whether we’re ready for the next one. Pretty much everything you need to know, though, can be found in one chart: the capital ratios of the largest U.S. banks. Capital, also known as equity, is the money that banks get from shareholders and retained earnings. Unlike debt, it has the advantage of absorbing losses, a feature that makes individual banks and the whole system more resilient. Bank executives typically prefer to use less equity and more debt – that is, more leverage – because this magnifies returns in good times. Hence, capital levels can serve as an indicator of the balance of power between bankers and regulators concerned about financial stability. Here’s a chart showing tangible common equity, as a percentage of tangible assets, at the six largest U.S. banks from December 2001 to June 2017:

The downward slope in the first several years demonstrates the extent to which leverage got out of hand before the crisis. As late as 2008, when the financial sector was already in distress, the Federal Reserve was still allowing banks to pay out capital in the form of dividends, even though some had equity of less than 3% of assets. That proved to be a fatal miscalculation: By 2009, forecasts of total losses on loans and securities reached 10% of assets. A crippled banking system tanked the economy and had to be rescued at taxpayer expense. After the crisis, regulators pushed banks to get stronger. The biggest U.S. institutions more than doubled their tangible common equity ratios – to an average of about 8% of assets (or, by international accounting standards, closer to 6% of assets). That’s an achievement, and better than in Europe, but the starting point was so low that they still fall short of what’s needed. Researchers at the Minneapolis Fed, for example, estimate that capital would have to more than double again to bring the risk of bailouts down to an acceptable level.

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How crime got re-defined. Poor conduct. Orwell.

World’s Biggest Banks Face £264 Billion Bill For Poor Conduct (G.)

Fines, legal bills and the cost of compensating mistreated customers reached £264bn for 20 of the world’s biggest banks over the five years to 2016, according to new research that raises doubts about efforts by the major financial services players to restore trust in the sector. This figure is higher than in the previous five-year period – when the costs amounted to £252bn – and is up 32% on the period 2008-12, the first time the data was collated by the CCP Research Foundation, one of the few bodies that analyses the “conduct costs” of banks. The report said the data showed that 10 years on from the onset of the financial crisis, the consequences of misconduct continue to hang over the banking sector. The latest analysis shows that in 2016 the total amount put aside by the banks surveyed rose to more than £28.6bn – higher than in the previous year when there had been a fall from a peak of £63bn in 2014.

Chris Stears, research director of the foundation, writes in the latest report: “Trust in, and the trustworthiness of, the banks must surely correlate to, and be conditional on, banks’ conduct costs. And persistent level of conduct cost provisioning is worrying. “It remains to be seen whether or not the provisions will crystallise in 2017 [or later] and what effect this will have on the aggregated level of conduct costs.” Two UK high street banks – Royal Bank of Scotland and Lloyds Banking Group – are in the top five of banks with the biggest conduct costs. RBS set aside extra provisions for fines and legal costs largely related to a forthcoming penalty from the US Department of Justice for mis-selling toxic bonds in the run-up to the financial crisis. That residential mortgage bond securitisation mis-selling scandal is responsible for £66bn of the costs incurred during the five-year period and the single largest factor, according to the foundation.

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The only thing that propped up stocks is vaporizing.

US Stock Buybacks Are Plunging (BBG)

U.S. stocks have been able to hit fresh highs this year despite a dearth of demand from a key source of buying. Share repurchases by American companies this year are down 20% from this time a year ago, according to Societe Generale global head of quantitative strategy Andrew Lapthorne. Ultra-low borrowing costs had encouraged large firms to issue debt to buy back their own stock, thereby providing a tailwind to earnings-per-share growth. “Perhaps over-leveraged U.S. companies have finally reached a limit on being able to borrow simply to support their own shares,” writes Lapthorne. Repurchase programs account for the lion’s share of net inflows into U.S. equities during this bull market. Heading into 2017, equity strategists anticipated that the buyback bonanza would continue in earnest, fueled in part by an expected tax reform plan that would provide companies with repatriated cash to invest.

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Deflation.

Consumer Spending Expectations Down Again (Mish)

Fed Chair Janet Yellen keeps citing consumer confidence and jobs as reasons consumer spending and inflation will pick up. Curiously, the New York Fed Survey on Consumer Spending Expectations keeps trending lower and lower, despite survey-high expectations for wage growth. The report for July 2017 was released today. I downloaded the survey results and produced the following charts.

Household Spending Projections

 

Household Income Projections

 

Income projections are volatile but at least they are trending higher across the board. Spending projections are less volatile and trending lower at every level. At the 25th%ile level, a group that no doubt spends every cent they make, spending expectations are zero. Those projections were in negative territory in April. Fed Chair Janet Yellen does not believe the Fed’s own reports. Instead, she relies on consumer confidence numbers that tend to track the stock market or gasoline prices more than anything else. Perhaps New York Fed President William Dudley does believe in the report.

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If you weren’t scared yet…

Dow 30,000, Not If Demographics Have Anything To Say (SA)

Nowadays, it is easy to get caught up in the day to day of markets with main stream media pumping the hot stock or warning of market crashes that rarely come. Focusing on the longer term cycles is how you stay with the trend, reduce portfolio churn and costs. I am not advocating for a purely passive strategy as I think the current state of passive investing is contributing to over-valuation and a lack of pricing discovery, which is another topic I won’t get into in this piece. Longer term cycles are largely influenced by demographics. Boomers were entering the workforce in the 1970s and started having children (Millennials) in the early 1980s. The surge in home purchases, appliances, and the multitude of things you buy for kids helped drive the economy for 30 years. The giant buildup in credit that I have covered in a previous article is another reason for a 35-year bull market.

The potential problem now is Boomers are hitting retirement, and roughly 10,000 Boomers retire each day. The above chart is the age distribution of the U.S. population by age. You can see the cliff of Boomers that are turning 70 this year. There are a couple ramifications of Boomers retiring. First is the moment they quit their job or sell their business, they are on a finite budget from there on out. Second, fewer people will be available for work down the road leaving less tax payers contributing to already stressed government budgets. Lastly, Boomers are incentivized to retire at 70.5 due to social security rules and will also start drawing on pensions. What makes matters worse is the majority of Boomers have less than $200k saved for retirement and a large portion have less than $50k saved per PWC’s Annual survey. This means that Boomers are heavily relying on Social Security or they have to work longer, which is currently evidenced by the following chart from the BLS.

Boomers have essentially garnered the majority of wage gains and now are working longer either out of necessity or preference. You might be thinking the surge in Millennials entering the work force will save the day, but due to the above facts, younger generations have to wait longer to move up the corporate ladder or have to attain levels of higher education to receive an adequate salary. As a result, student debt has risen exponentially in the U.S. jeopardizing the future of many starting their professional lives.

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“Debt racked up through the greed of financiers being dumped on the poor, the young and people with disabilities in what must rank as the biggest bait and switch in postwar Britain.”

Ten Years After The Crash, There’s Barely Suppressed Civil War In Britain (G.)

All history now, isn’t it? The credit crisis that began in August 2007, the ensuing banking crash and global recession. One bumper episode from the long-ago past, when the iPhone was a newborn and Amy Winehouse still made records. Now done, dusted, reformed and resolved. Or so one assumes, from the official self-congratulation. The European commission marks the 10th anniversary of the credit crisis by trumpeting: “Back to recovery thanks to decisive EU action.” Yes, the same clapped-out European establishment that has spent the last decade kicking a can down the road. The head of the derivatives industry body, ISDA, admits: “We sometimes forget to articulate the social value of what we do.” Indeed so: before the crash, bankers emailed each other about how the derivatives that they were paid so much to flog were “crap” and “vomit”.

Everyone knows history is written by the victors, but this is something else: bullshit recounted by the bullshitters. Even the banks are back to bragging how many billions they generously chip in to Her Majesty’s Exchequer, presumably hoping no one will point out that they took £1.3tn from taxpayers in just a few months in 2008. Let’s get three things straight. First, it was working- and middle-class Britons who paid for the mess, who are still paying for it now and who will keep paying for it decades from now. Second, the crash has prompted almost no fundamental reckoning or reform. And, most importantly, the combination of those first two factors means the crash that began in 2007 cannot be consigned to the past. Today’s politics – from Brexit to Trump and the collapse of centrism – is just one of its products.

For politicians and financiers to treat the crash as history brings to mind Stephen Dedalus in Ulysses: “History is a nightmare from which I am trying to awake.” Here’s the stuff of historical bad dreams: at the height of the banking crisis in 2008, every man, woman and child in Britain handed over £19,721 each to bankers. The economy tanked, Gordon Brown got booted out – and David Cameron pretended a private banking catastrophe was a crisis of a supposedly profligate public sector. You know what happened next: first the kids’ Sure Start centre closed, then the library; your mum waited ages to get her hip replacement; the working poor had their social security stolen, and the local comp began sending begging letters. Debt racked up through the greed of financiers being dumped on the poor, the young and people with disabilities in what must rank as the biggest bait and switch in postwar Britain.

I say that, but we have only had seven years of austerity. If Philip Hammond stays in No 11 and sticks to plan (one must hope he does neither), the cuts will continue until the middle of the next decade. After 2025, who knows what will remain of our councils, our welfare state and our public realm. One truism of this era is that the average British worker earns less after inflation than they did when RBS nearly died. Most of us have seen not a recovery, but a ripping up of our social contract – so that over 7 million Britons are now in precarious employment. But the highest earners are way ahead of where they were in 2008. Finance-sector bonuses are as generous as they were during the boom, while a bad year for the average FTSE boss is one in which he or she pulls in a mere £4.53m.

And so we remain reliant on debt – aptly termed “the raw material for bubbles and crashes” by Daniel Mügge at the University of Amsterdam. According to the Bank for International Settlements, the UK is far deeper in the red now than it was when Northern Rock collapsed. Government debt has shot up under the Conservatives, but so too has household borrowing. Were the UK to crash again, its government no longer has the political capital nor the fiscal headroom to save the financial system.

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“The deterioration and widening dispersion in market internals is no longer subtle.”

Broadening Internal Dispersion (Hussman)

It’s important to observe that if short-term interest rates were still at zero and market internals were favorable, even the most extreme overvalued, overbought, overbullish syndromes we identify would not be enough to push us to a hard-negative market outlook. That, in a nutshell, is the central lesson from quantitative easing, and is one that could alone have dramatically altered our own challenging experience in the recent speculative half-cycle. At present, however, we observe not only the most obscene level of valuation in history aside from the single week of the March 24, 2000 market peak; not only the most extreme median valuations across individual S&P 500 component stocks in history; not only the most extreme overvalued, overbought, overbullish syndromes we define; but also interest rates that are off the zero-bound, and a key feature that has historically been the hinge between overvalued markets that continue higher and overvalued markets that collapse: widening divergences in internal market action across a broad range of stocks and security types, signaling growing risk-aversion among investors, at valuation levels that provide no cushion against severe losses.

[..] Again, the principal lesson of the recent half-cycle was that in the face of zero interest rates, even the most extreme “overvalued, overbought, overbullish” syndromes were not enough to anticipate steep market losses (as they typically were in prior market cycles). Instead, investors were driven to believe that they had no other alternative but to continue their yield-seeking speculation. In the face of zero interest rates, one had to wait for market internals to deteriorate before adopting a hard negative market outlook. At present, we observe neither zero interest rates, nor uniformly favorable market internals. In the current environment, we expect that obscene valuations and severe “overvalued, overbought, overbullish” syndromes are likely to be followed by the same outcomes that have attended similar conditions across history. The chart below shows the percentage of U.S. stocks above their respective 200-day moving averages, along with the S&P 500 Index. The deterioration and widening dispersion in market internals is no longer subtle.

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It’s about Apple and Google.

Trump Orders Probe Of China’s Intellectual Property Practices (R.)

President Donald Trump on Monday authorized an inquiry into China’s alleged theft of intellectual property in the first direct trade measure by his administration against Beijing, but one that is unlikely to prompt near-term change. Trump broke from his 17-day vacation in New Jersey to sign the memo in the White House at a time of heightened tensions between Washington and Beijing over North Korea’s nuclear ambitions. The investigation is likely to cast a shadow over relations with China, the largest U.S. trading partner, just as Trump is asking Beijing to step up pressure against Pyongyang. U.S. Trade Representative Robert Lighthizer will have a year to look into whether to launch a formal investigation of China’s trade policies on intellectual property, which the White House and U.S. industry lobby groups say are harming U.S. businesses and jobs.

Trump called the inquiry “a very big move.” Trump administration officials have estimated that theft of intellectual property by China could be as high as $600 billion. Experts on China trade policy said the long lead time could allow Beijing to discuss some of the issues raised by Washington without being seen to cave to pressure under the threat of reprisals. Although Trump repeatedly criticized China’s trade practices on the campaign trail, his administration has not taken any significant action. Despite threats to do so, it has declined to name China a currency manipulator and delayed broader national security probes into imports of foreign steel and aluminum that could indirectly affect China.

[..] The Information Technology Industry Council, the main trade group for U.S. technology giants, such as Microsoft, Apple and Google, said it hoped China would take the administration’s announcement seriously. “Both the United States and China should use the coming months to address the issues causing friction in the bilateral trade relationship before Presidents Trump and Xi have their anticipated meeting ahead of the November APEC leaders meeting,” ITI President Dean Garfield said in a statement.

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“On August 15, a full ban on imports of coal, iron, iron ore, lead, lead ore, seafood from North Korea is introduced..”

China Imposes Ban on Imports From North Korea, Yields to Trump’s Calls (Sp.)

China is introducing a ban on imports of some goods from North Korea in line with a UN Security Council resolution, the Chinese Commerce Ministry said Monday. US President Donald Trump has repeatedly called on Beijing to increase economic pressure on North Korea as China is Pyongyang’s biggest trade partner. “On August 15, a full ban on imports of coal, iron, iron ore, lead, lead ore, seafood from North Korea is introduced,” the ministry said in a statement. According to the statement, North Korean products arrived at Chinese ports before the ban would be allowed to enter the country. Import applications of products from North Korea will be halted from September 5. Meanwhile, Chinese companies are still allowed to import coal from third countries via the North Korean port of Rason. However, Chinese importers need to apply for approval from a UN committee set up under the UN Security Council resolution 1718.

Interestingly, Beijing’s move came amid media speculations that Trump is mulling a trade crackdown on China. China is by far the largest trading partner of North Korea. In April, the Chinese General Administration of Customs said trade between the two countries in the first quarter increased 37.4% year-over-year, even despite the UN sanctions on North Korean supplies of coal, the country’s top export earner. The tensions around North Korea have been high over the recent months and they have escalated further after the tightening of economic sanctions against North Korea by the United Nations Security Council (UNSC) last week in response to July’s launches of ballistic missiles by Pyongyang. On August 5, new UNSC sanctions against North Korea could cut the nation’s annual export revenue by $1 billion.

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Saving face.

Kim Jong-un Holds Off On Guam Plan (R.)

North Korea’s leader received a report from his army on its plans to fire missiles toward Guam and said he will watch the actions of the United States for a while longer before making a decision, the North’s official news agency said on Tuesday. North Korea said last week it was finalizing plans to launch four missiles into the waters near the U.S. Pacific territory of Guam, and its army would report the strike plan to leader Kim Jong Un and wait for his order. Kim, who inspected the command of the North’s army on Monday, examined the plan for a long time and discussed it with army officers, the official KCNA said in a report. “He said that if the Yankees persist in their extremely dangerous reckless actions on the Korean peninsula and in its vicinity, testing the self-restraint of the DPRK, the latter will make an important decision as it already declared,” the report said.

The DPRK stands for North Korea’s official name, the Democratic People’s Republic of Korea. Pyongyang’s detailed plans for the strike near Guam prompted a surge in tensions in the region last week, with U.S. President Donald Trump warning he would unleash “fire and fury” on North Korea if it threatened the Unite States. South Korean and U.S. officials have since sought to play down the risks of an imminent conflict, helping soothe global concerns somewhat on Monday. Kim said the United States should make the right choice “in order to defuse the tensions and prevent the dangerous military conflict on the Korean peninsula,” the KCNA report said.

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Oh, get real: “..poised to benefit from the tailwind of a much improved global backdrop.”

Australia’s Central Bank Renews Alert on Mounting Household Debt (G.)

Australia’s central bank renewed its focus on mounting household debt, even as the outlook for the nation’s economy improved, according to the minutes of this month’s policy decision where interest rates were left unchanged. RBA noted “need to balance the risks associated with high household debt in a low-inflation environment” in its decision to stand pat on policy. Better hiring this year meant “forecasts for the labor market were starting from a stronger position”. The bank reiterated GDP growth was expected to rise to around 3% in 2018 and 2019, supported by low rates; faster growth in non-mining business investment is expected. The main change is one of emphasis after the Reserve Bank of Australia removed the labor market and added household balance sheets – where debt is currently at a record 190% of income – to its key areas of concern alongside the residential property market.

But the minutes convey rising confidence that Australia’s economy will strengthen and is poised to benefit from the tailwind of a much improved global backdrop. Yet areas of substantial uncertainty remain: how China manages the trade-off between growth and the build-up of leverage; the fact the forecasts for the domestic economy are based on no change in the exchange rate in the period through 2019; and whether better employment would lead to higher household income and increased consumption, or whether ongoing weak wage growth and high household debt would cut into consumption.

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Neither country seems to know how one gets a passport down under. Curious.

Australia Says New Zealand Opposition Trying To Bring Down Government (G.)

Australia and New Zealand have become embroiled in an extraordinary diplomatic spat over claims the New Zealand opposition colluded with the Australian Labor party (ALP) in an attempt “to try and bring down the government”. During a febrile day of politics in both countries, Australia’s foreign affairs minister, Julie Bishop, said New Zealand’s opposition party was threatening the stability of a usually robust partnership between the two nations. She said she would find it “very hard to build trust” if New Zealand’s opposition Labour party were to win the general election in September. Her comments came only 24 hours after it was revealed that Australia’s deputy prime minister, Barnaby Joyce, held New Zealand citizenship and may be ineligible to sit in parliament under the Australian constitution, which disqualifies dual nationals.

Malcolm Turnbull’s government currently commands a majority of one seat in the House of Representatives. But Australia’s ruling coalition has now accused the opposition Labor party of planting a question in the New Zealand parliament in order to extract the information about Joyce’s nationality. Australian government minister Christopher Pyne accused the ALP of being part of a conspiracy to bring down the government. “Clearly the Labor party are involved in a conspiracy using a foreign government, in this case New Zealand, to try and bring down the Australian government,” he said. “How many other foreign governments, or foreign political parties in other countries, has the Labor party been colluding with to try to undermine the Australian government? “Has he been talking to the people in Indonesia, or China, or the Labour party in the UK?”

Joyce made the admission after media inquiries on the subject, but it subsequently also emerged that on 9 August the New Zealand Labour MP Chris Hipkins submitted two written questions to the internal affairs minister, Peter Dunne, in parliament, both of an unusual nature. “Are children born in Australia to parents who are New Zealand citizens automatically citizens of New Zealand; if not, what process do they need to follow in order to become New Zealand citizens?” Hipkins asked. He also asked: “Would a child born in Australia to a New Zealand father automatically have New Zealand citizenship?”

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What austerity also does.

Greek Population Set To Shrink Up To 18% By 2050 (K.)

A new study released by the Berlin Institute for Population and Development suggests that Greece is set to lose up to 18% of its population by the middle of the century. The deep economic crisis – which has hit young people especially hard and is identified as a key reason behind the country now having one of the lowest birth rates in the world – is cited as the primary cause of this decline, which has accelerated in recent years. According to the study, Greece had already lost nearly 3% of its population between 2011 and 2016. In 2016, Greece’s population stood at 10.8 million. That is expected to drop to 9.9 million by 2030 and 8.9 million by 2050. That is a nearly 18% decline in the country’s population over the next 33 years. Greece also has a rapidly aging population, with 21% already over the age of 65 and fewer than 100,000 babies being born each year. This percentage is currently the second highest in Europe, after Italy. Greece will have the highest ratio of pensioners to workers in Europe by 2050.

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They’re stuck in hell.

Sharp Fall In Number Of Refugees, Migrants Arriving In Italy (AFP)

Italy has seen a sharp fall in the number of migrants arriving on its shores, a decline that has left experts scrambling for an explanation. Summer is traditionally the peak season for migrants attempting the hazardous crossing of the Mediterranean from North Africa to Europe. But, to much surprise, only 13,500 have arrived in Italy since July 1, compared to 30,500 over the same period in 2016 – a year-on-year fall of more than 55%. Many migrants are from poor sub-Saharan Africa, fleeing violence in their home country or desperate for a better life in prosperous Europe. “It’s still too early to talk of a real trend,” cautions Barbara Molinario, a spokeswoman for the UN High Commissioner for Refugees (UNHCR).

One mooted reason for the fall is tougher action by the Libyan coastguard. The force which has been strengthened by help from the European Union (EU), which trained about 100 personnel over the winter, while Italy has provided patrol vessels, recently supported by Italian warships in Libyan waters. But according to figures from UN’s International Office of Migration (IOM), the Libyan coastguard have intercepted fewer than 2,000 migrants since early July, compared to more than 4,000 in May. Another reason put forward to explain the decline is tougher action by NGOs who have been accused by critics of colluding with smugglers to pick up migrants at sea to prevent them from drowning. But these organisations have been involved in only a fraction of migrant rescues – and three NGO vessels are still operating in the hope of picking up those in need.

[..] Since 2014, 600,000 migrants have landed in Italy, but more than 14,000 have died. Italian newspapers which, just a few weeks ago, were accusing NGOs of abetting an influx that seemed uncontrollable have now switched to reports on the terrifying conditions faced by migrants in Libya. “Sending them back to Libya right now means sending than back to Hell,” the deputy foreign minister, Mario Giro, said earlier this month.

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Apr 102015
 
 April 10, 2015  Posted by at 10:49 am Finance Tagged with: , , , , , , , , , , ,  9 Responses »


G. G. Bain Navy dirigible, Long Island 1915

It’s A Crime To Be Poor In America (MarketWatch)
US States Are Not Prepared for the Next Fiscal Shock (Bloomberg)
Why Your Wages Could Be Depressed for a Lot Longer Than You Think (Bloomberg)
The Fed’s Calamitous Corruption Of Corporate Finance (David Stockman)
U.S. Consumers Will Open Their Wallets Soon Enough (Bloomberg)
We Traveled Across China and Returned Terrified for the Economy (Bloomberg)
Lagarde Warns of ‘Bumpy Ride’ as Fed Prepares for Rates Liftoff (Bloomberg)
Wall Street Fees Wipe Out $2.5 Billion in New York City Pension Gains (NY Times)
China Seeks Dominance in Athens Harbor (Spiegel)
Varoufakis: The Three Critical Elements of a Good Deal for Greece (Bloomberg)
Varoufakis Says Greece Not Looking to Russia to Fix Debt Crisis (Bloomberg)
Greece Met Its Latest Debt Payment, But Where Did The Money Come From? (Ind.)
The Changes To Russia’s Business Environment That Flew Below The Radar (Forbes)
Here’s How Iran Could Prevent A Rebound In Oil Prices (MarketWatch)
Shell Shareholders Less Than Impressed With $70 Billion Bid For BG (Ind.)
Ukraine Creditor Group Has Plan to Avoid Writedown in Debt Talks (Bloomberg)
Homeowners In Auckland’s Fringe Saving Up To $50,000 A Year (NZ Herald)
New Zealand Unlikely to Deliver on 2015 Budget Surplus Promise (Bloomberg)
Japan To Pledge 20% CO2 Cut (Guardian)
Dying at Europe’s Doorstep (Bloomberg)

“In many states, offenders are expected to finance the justice system, including court costs, room and board while incarcerated, probation supervision and drug-treatment programs.”

It’s A Crime To Be Poor In America (MarketWatch)

In America, you’re presumed innocent until proven guilty. Unless you’re poor, that is. Increasingly, it’s a crime to be poor, and the punishment is often further impoverishment. Fifty years ago, Chuck Berry sang about a brown-eyed handsome man who was “arrested for the crime of unemployment.” Little has changed since then. For poor people, even minor scrapes with the law can have major consequences, including prison time, probation, endless debt and permanent joblessness. For people of means, those same legal problems are a nuisance, but they aren’t life-changing events. More cities and states have realized that poverty can be a profit center.

Not for poor people, of course, but for government treasuries and for private companies hired to handle the influx into the criminal justice system of people whose only crime was the inability to pay a traffic ticket or a misdemeanor fine. Cash-strapped cities like Ferguson, Mo., count on fines and court-imposed fees to balance their budgets, and that reliance on the revenue from petty violations was cited by the Justice Department as a contributing factor in Ferguson’s high rates of traffic stops and arrests for minor crimes and misdemeanors. In many states, offenders are expected to finance the justice system, including court costs, room and board while incarcerated, probation supervision and drug-treatment programs.

For anyone living paycheck to paycheck, even a $100 fine can be a challenge, and paying off the debt to the court and to the privatized probation company can be impossible, especially if the arrest has led to the loss of a job or a driver’s license. Just being arrested can be devastating: Half a million people are languishing in jail awaiting trial because they can’t afford to pay the bail. People who are let out of prison are often said to have “paid their debt to society.” But in most cases, they haven’t paid their debt for the costs of their imprisonment and probation. More than 80% of people let out of prison leave owing money, according to an investigation by NPR and the Brennan Center for Justice. Those of us who live sheltered middle-class lives often wonder why anyone would run away from the police or resist arrest.

Running away can cost you your life, as what happened to Walter Scott. Why would he risk being shot in the back by a police officer? Perhaps he feared that an arrest for a minor traffic violation (the tail light on his car was out) would lead to a downward spiral of fines, jail time and permanent joblessness, as it has for others. According to relatives, Scott was behind on his child-support payments, and he may have feared that he’d be jailed for his failure to pay. Which, of course, would have cost him his job and any chance he and his family had of a future. So he ran, and he died.

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Hanging on by their fingernails.

US States Are Not Prepared for the Next Fiscal Shock (Bloomberg)

U.S. states, still grappling with the lingering effects of the longest recession since the 1930s, are even more vulnerable to another fiscal shock. The governments have a little more than half the reserves they’d stashed away before the 18-month recession that ended in June 2009, according to a report last month by Pew Charitable Trusts. New Jersey, Pennsylvania, Illinois and Arkansas have saved the least. Skimpier rainy-day funds have implications for the national economy, which is in its sixth year of expansion. States would have to cut spending or raise revenue by a combined $21 billion in the event of a recession, exacerbating economic weakness, Moody’s found in a stress test of state finances. Reserves take on added importance for governments balancing obligatory pension and health-care costs with swings in tax collections, said Daniel White at Moody’s.

“What the Great Recession has shown is that things have fundamentally changed in terms of the way that state fiscal conditions are determined,” White said. “They need to be much more prepared for very volatile fiscal conditions than they had been in the past.” Investors are monitoring states’ fiscal balances after seeing how reserves helped some governments weather the recession, said John Donaldson at Haverford Trust. California won credit upgrades and saw borrowing costs shrink after voters in November agreed to bolster rainy-day funds. With Fitch Ratings lifting California to A+ in February, its fifth-highest level, the state has its highest marks from the three biggest rating companies since at least 2009.

Bond buyers demand about 0.3 percentage point of extra yield to own 10-year California munis instead of benchmark debt, close to the lowest spread since 2007, data compiled by Bloomberg show. “We’re looking for stability and credit quality,” said Richard Ciccarone at Merritt Research. “A rainy-day fund is a symbol of conservative financial management.” States were unprepared for the last recession. In 2009, budget gaps totaled $117 billion, about twice the level of reserves, according to Pew, a research group. With more of a cushion, they would’ve cut fewer jobs, White said. The governments employ about 5.1 million nonfarm workers, about 140,000 fewer than the 2008 peak, Bureau of Labor Statistics data show.

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Because the whole shebang is imploding.

Why Your Wages Could Be Depressed for a Lot Longer Than You Think (Bloomberg)

As if watching your paycheck stagnate for the last couple years hasn’t been bad enough, Federal Reserve researchers are out with more (potentially) bad news: Unless we get some big shifts in global economic forces, your wages could be weak for a while. Longer-term changes including soft productivity growth and labor’s declining share of income are at the heart of the problem, Filippo Occhino and Timothy Stehulak at the Cleveland Fed find. These two macroeconomic shifts, which result from broad themes such as globalization and technology, are felt all the way down to the U.S. worker. Productivity is important because it fosters faster economic growth without generating higher inflation. Companies can pay their workers more while still seeing their earnings increase.

Labor productivity — measured as the amount of goods or services produced by an employee in one hour — has averaged 1.5% growth in the 10 years ended 2014. That compares with 3.6% from the second quarter of 1997 to the end of 2003 — the salad days of American productivity. Gains in productivity have been slow to come by as companies hold off on investing in new capital equipment. Some economists such as Robert Gordon have argued that the U.S. is doomed to stagnant growth, with the low-hanging fruit of big technological innovations, such as the steam engine, all picked.

Another factor keeping wage growth depressed is labor’s declining share of income, the Fed authors note. While it’s been on the downtrend for years, “the evolution of the technology used to produce goods and services, increased globalization and trade openness, and developments in labor market institutions and policies” have exacerbated it since 2000, likely holding down wage growth, they wrote. The faster decrease since then has shaved 0.4 percentage point each year from average real wage growth, compared to the period before 2000.

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“..only savings from current production and income generate additional primary capital that can foster future wealth.”

The Fed’s Calamitous Corruption Of Corporate Finance (David Stockman)

Central bank financial repression results in the systematic and severe mispricing of financial assets. And that has sweeping consequences far beyond the munificent windfalls it bestows on the thin slice of mankind that frequents the casinos of Wall Street, London, Tokyo and Shanghai. The fact is, the prices of money, debt, equity, traded commodities and all their derivatives comprise a vast and instantaneous signaling system that cascades through every nook and cranny of the real economy. When these signals are systematically falsified by a few dozen central bankers they cause hundreds of millions of ordinary businessmen, workers, investors and entrepreneurs to alter their economic calculus. And not in a good way. False signals lead to mistakes, excesses, losses and waste.

They ultimately reduce economic efficiency and productivity and lower the rate of economic growth and real wealth gains. Since the Greenspan age of financial repression incepted in the late 1980s, for example, the returns to savings have been obliterated while the rewards for speculation have soared. That’s important because only savings from current production and income generate additional primary capital that can foster future wealth. By contrast, leveraged speculation merely causes existing financial assets to be re-priced and a temporary redistribution of paper wealth from the cautious to the gamblers. In an honest free market, in fact, there is no excess return to leveraged speculation at all.

Natural market makers arbitrage out the spread between the costs of carry and the returns to carried assets such as long-dated futures contracts, term debt and various and sundry forms of equity and other risk assets. A relative handful of market makers can make a decent living arbing an honest market, but the mass of investors can not speculate their way to wealth. The latter can happen only when the central bank has its big fat thumb on the financial scales, pressing the cost of carry – that is, leveraged financial gambling – toward the zero bound.

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Dumbest piece so far this year? Then again, competition is fierce.

U.S. Consumers Will Open Their Wallets Soon Enough (Bloomberg)

People are constantly exhorted to save, but as soon as they do, economists pop up to complain they aren’t spending enough to keep the economy growing. A new blogger named Ben Bernanke wrote on April 1 that there’s still a “global savings glut.” Two days later the Bureau of Labor Statistics announced the weakest job growth since 2013, which economists quickly attributed to soft consumer spending. The U.S. personal savings rate—5.8% in February—is the highest since 2012. “After years of spending as if there were no tomorrow, consumers are now saving like there is a tomorrow,” Richard Moody, chief economist at Regions Financial, wrote to clients in March. Saving too much really can be a problem when spending is weak.

There are only two things you can do with a dollar, after all: spend it or save it. If you spend it, great—that’s money in someone else’s pocket. If you save it, the financial system is supposed to recycle your dollar into productive investment with loans for new houses, factories, software, and research and development. But if no one’s in the mood to invest more and interest rates are already as low as they can go (as they are in much of the world), the compulsion to save can sap demand and throw people out of work. For the U.S. economy, the good news is that the jump in the personal savings rate is probably no more than a blip. Three economists from Deutsche Bank Securities in New York explained why in a March 25 report called U.S. Consumers: Still Shopping, Not Dropping.

While noting a “deceleration” in consumer spending, they wrote, “we think that concerns about the outlook for the consumer are overstated.” Their model of the U.S. economy predicts the savings rate will fall to 3% to 3.5% by 2017. Other economists have also concluded that the spending dropoff is temporary, which is why the slowdown in job growth, to just 126,000 in March, didn’t set off many alarm bells. “Consumer spending is starting to look more and more like a coiled spring,” says Guy Berger, U.S. economist at RBS Securities. One sign that consumers aren’t retrenching: On April 7 the Federal Reserve reported that consumer credit rose $15.5 billion in February, in line with the recent past.

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And yet, still persisting in that 7% growth prediction?

We Traveled Across China and Returned Terrified for the Economy (Bloomberg)

China’s steel and metals markets, a barometer of the world’s second-biggest economy, are “a lot worse than you think,” according to a Bloomberg Intelligence analyst who just completed a tour of the country. What he saw: idle cranes, empty construction sites and half-finished, abandoned buildings in several cities. Conversations with executives reinforced the “gloomy” outlook. “China’s metals demand is plummeting,” wrote Kenneth Hoffman, the metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”

The China Steel Profitability Index compiled by Bloomberg Intelligence barely rose in March, a time after the annual Lunar New Year when demand would usually surge, and so far this month has resumed its decline. Steel use this year is down 3.4%, after slumping as much as 4% in 2014, according to BI. It had steadily risen for more than a decade. Prices for commodities from iron ore to coal are sinking as China’s leadership tries to steer the economy away from debt-fueled property investment and smokestack industries, embracing services and domestic-led consumption. At the same time, President Xi Jinping is stepping up efforts to combat pollution, further squeezing industry. Deteriorating economic data has led traders and analysts to speculate that China’s central bank will act to revive growth.

The bank has said it will keep an “appropriate balance between loosening and tightening” of interest rates. It has cut interest rates twice since November and lowered lenders’ reserve-requirement ratios once. Economists are forecasting 7% growth in China for this year, in line with government targets and down from 7.4% in 2014, according to the median of 59 estimates compiled by Bloomberg. That’s about half the last decade’s peak rate of 14.2% in 2007. The slowing steel and metals activity suggests the outlook could be grimmer. “There is a big fear this is going to get worse before it gets better,” Hoffman said in an interview. “It’s as bad as the data looks, if not worse.”

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She sounds like The Automatic Earth: “..liquidity can evaporate quickly if everyone rushes for the exit at the same time..”

Lagarde Warns of ‘Bumpy Ride’ as Fed Prepares for Rates Liftoff (Bloomberg)

IMF Managing Director Christine Lagarde says the world could be in for a “bumpy ride” when the Federal Reserve starts raising interest rates, with overpriced markets and emerging economies likely to take the biggest hits. While risks to the global economy have decreased over the last six months, threats to the world’s financial system have actually risen, Lagarde said on Thursday ahead of next week’s spring meetings of the IMF and World Bank in Washington. A long period of low interest rates in the U.S. and other advanced economies has fostered a higher risk tolerance among investors, “which can lead to overpricing” and could pose “solvency challenges” for life insurers and defined-benefit pension fund, she said.

Lagarde, 59, warned that “liquidity can evaporate quickly if everyone rushes for the exit at the same time – which could, for example, make for a bumpy ride when the Federal Reserve begins to raise short-term rates,” she said the text of a speech at the Atlantic Council in Washington. The turbulence could be especially rough for commodity-exporting emerging economies, which may find themselves caught between falling prices for their goods and a stronger dollar, which increases the burden of dollar-dominated debt, she said. Lagarde’s warning comes as Fed policy makers led by Chair Janet Yellen consider when to raise their benchmark lending rate amid a strengthening labor market, which has pushed U.S. unemployment to the lowest level since May 2008.

The dollar has appreciated 19% over the last year as the U.S. economy has strengthened. The risk is that a surging greenback and higher interest rates will make it harder to service U.S.-denominated debt held outside the country by non-bank borrowers. This debt is estimated at $9 trillion by the Bank for International Settlements. Lagarde urged policy makers to take steps to ensure that markets have enough liquidity, improve prudential policies for non-banks, and follow through on regulatory reforms such as shielding “too-big-to-fail” institutions.

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This is repeated all across the nation, if not the entire world.

Wall Street Fees Wipe Out $2.5 Billion in New York City Pension Gains (NY Times)

The Lenape tribe got a better deal on the sale of Manhattan island than New York City’s pension funds have been getting from Wall Street, according to a new analysis by the city comptroller’s office. The analysis concluded that, over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return, Comptroller Scott M. Stringer said in an interview on Wednesday. “We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Mr. Stringer said. “The answer, based on this 10-year analysis, is no.” Until now, Mr. Stringer said, the pension funds have reported the performance of many of their investments before taking the fees paid to money managers into account.

After factoring in those fees, his staff found that they had dragged the overall returns $2.5 billion below expectations over the last 10 years. “When you do the math on what we pay Wall Street to actively manage our funds, it’s shocking to realize that fees have not only wiped out any benefit to the funds, but have in fact cost taxpayers billions of dollars in lost returns,” Mr. Stringer said. Why the trustees of the funds — Mr. Stringer included — would not have performed those calculations in the past is not clear. Mr. Stringer, who was a trustee of one of the funds when he was Manhattan borough president before being elected comptroller, said the returns on investments in publicly traded assets, mostly stocks and bonds, have traditionally been reported without taking fees into account.

The fees have been disclosed only in footnotes to the funds’ quarterly statements, he said. The stakes in this arena are huge. The city’s pension system is the fourth largest in the country, with total assets of nearly $160 billion. It holds retirement funds for about 715,000 city employees, including teachers, police officers and firefighters. Most of the funds’ money – more than 80% – is invested in plain vanilla assets like domestic and foreign stocks and bonds. The managers of those “public asset classes” are usually paid based on the amount of money they manage, not the returns they achieve. Over the last 10 years, the return on those “public asset classes” has surpassed expectations by more than $2 billion, according to the comptroller’s analysis. But nearly all of that extra gain — about 97% — has been eaten up by management fees, leaving just $40 million for the retirees, it found.

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Solid read.

China Seeks Dominance in Athens Harbor (Spiegel)

One could argue that China’s long path to Piraeus, Greece, began on April 27, 1961. It’s the day Mao Zedong founded the communist state’s first freight company, the China Ocean Shipping Company (COSCO). The Great Leap Forward, Mao’s plan for industrialization, had proven to be a disaster at the time, leaving millions dead or starving. With Cosco, China had its eyes on overseas markets. Almost 54 years later, the company is steering toward a major prize in Greece. After lengthy wavering, the Greek government – comprised of Prime Minister Alexis Tsipras, his far-left Syriza party and the right-wing populist Independent Greeks – has announced it will be selling the majority of its share in Athens’ Piraeus Port Authority. So far, Cosco is the most promising bidder.

Throughout, Fu Cheng Qui, or “Captain Fu,” as the chief executive of Cosco’s Piraeus subsidiary is called by those who know him, will be closely monitoring the bidding process. Fu has already been in Piraeus for a long time with the company, and he is determined to stay. He has placed the bid on behalf of his company and has little doubt it will be accepted. In his position, 65-year-old Fu is the guardian of China’s gateway to Europe. He may soon control the container piers, cruise-ship terminals and ferry quays of Greece’s biggest port. “The government has changed four times since I have been in Greece,” Fu says. “They all always talk a lot. But what counts? Actions count. Actions! Only actions!”

On the way to the cargo port, a small sign indicates a fork in the road – with one route leading to OLP and the other to PCT. Each to a different world. Pier I belongs to the primarily Greek state-owned OLP port authority. These days, though, most trucks take the other route, to PCT, to pier II and pier III, which is run by Piraeus Container Terminal, a subsidiary of Cosco. “Just look,” Fu says as he steps up to the window. Then the show begins. On Pier II, 11 container gantry cranes are in constant, powerful movement. All are new and made in China. Trucks move across the ground at an interval of only minutes.

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“.. we are prepared to make all sorts of compromises, we are not prepared to be compromised.”

Varoufakis: The Three Critical Elements of a Good Deal for Greece (Bloomberg)

In an interview with Bloomberg TV at the Institute for New Economic Thinking earlier today, Greek Finance Minister Yanis Varoufakis said he is confident that an agreement will be reached later this month. He identified three pre-conditions for such a deal.

• “Prioritize deep reforms that will deal with the malignancy of the Greek social economy, of the Greek state.”

• “Deal with the ill effects of a five-year catastrophic recession.”

• “A resolution of long term, sustainable fiscal plan that involves three elements. One has to do with appropriate primary surpluses, so we need primary surplus. We never are going to fall back into primary deficits again, but at the same time this should not be excessive because it will crush the private sector. We need a sensible policy for crowding in private investment and that must involve a package of public investment..from some kind of European authority or institution that will help with the process of crowding in private investment..and a rationalization on the different slices of the Greek debt without any haircuts for anyone but in a way that maximizes the amount of value that our creditors will get back from the Greek state.”

He ended the interview by saying that compromises are to be expected, but he is not ready to be compromised. “We wouldn’t be fit for the purpose if we were not prepared to take the political costs which are necessary to stabilize Greece and lead it to growth, but let me be very precise on this, we are prepared to make all sorts of compromises, we are not prepared to be compromised.”

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“We should be very clear: our bailout fallout needs to be dealt with in the European family..”

Varoufakis Says Greece Not Looking to Russia to Fix Debt Crisis (Bloomberg)

Greek Finance Minister Yanis Varoufakis said his country isn’t looking outside Europe to resolve its financial crisis, adding that he’s confident of reaching an agreement with European partners this month. Asked about a meeting between Prime Minster Alexis Tsipras and Russian President Vladimir Putin Wednesday, Varoufakis denied any links with talks Greece is holding with euro-area governments that are the country’s creditors. “We should be very clear: our bailout fallout needs to be dealt with in the European family,” Varoufakis said in an interview with Bloomberg Television in Paris. “This government is not seeking an extra-European solution to a European problem.”

Greece, Europe’s most-indebted state, is negotiating with euro-area countries and the IMF on the terms of its €240 billion rescue. The standoff, which has left Greece dependent upon ECB loans, risks leading to a default within weeks and the country’s potential exit from the euro area. The ECB approved a €1.2 billion increase in the emergency funds available to Greek lenders Thursday, a person familiar with the decision said. The Governing Council raised the cap on Emergency Liquidity Assistance provided by the Bank of Greece to €73.2 billion in a telephone conference, said the person who asked not to be named because the decision is confidential.

Greek officials said this week they are targeting an April 24 meeting of euro-area finance ministers as a deadline for approving new money. A looming cash crunch in the summer, when the ECB needs to be repaid, means a new bailout deal will be needed before then.
“I am very confident,” Varoufakis said, when asked about the talks. “The negotiations are proceeding quite well. It is in our mutual interest to strike a deal by the 24th and I’m sure we will.”

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With all the next payments coming up, it’s more interesting to wonder where the money WILL come from.

Greece Met Its Latest Debt Payment, But Where Did The Money Come From? (Ind.)

Greece met a loan payment of €459 million to the IMF on Thursday, according to reports, as the EU discusses whether the country has reformed enough to merit a further cash injection. “The payment order has been given,” a finance ministry source told AFP. But no one is quite sure where the money came from – a consequence of the opaque Greek finance system. There are few trained accountants in the country and they do not adhere to international accounting standards, so records are thin and many citizens do not pay tax. Poor accounting standards are blamed by some for the uncertain numbers that have come out of Greece regarding the country’s debt.

Athens is aware of the tax problem. It promised to hire tourists and cleaners as part time tax inspectors in a recent round of reforms drawn up to meet EU criteria for further cash. The latest IMF payment was ordered at the same time as Greek Prime Minister Alex Tsipras met Putin in Moscow to discuss co-operation between the two orthodox Catholic nations. While both parties denied that Greece had financial aid had been requested, the two sides are said to have talked about extending a Turkish natural gas pipeline through Greece and relief from Russian sanctions on European food produce. Russian investment in key Greek infrastructure, including the port of Thessaloniki, is also in discussion.

Greek finance minister Yanis Varoufakis said during a visit to Washington this week that Greece would meet the April 9 payment and every other until the debts are cleared. He still has some way to go – next month, Athens owes a further €950 million to the IMF. Over €2 billion euros in six- and three-month treasury bills are also due to mature on April 14 and 17 – though they should roll on to the next maturity without incurring further cost. This week Athens raised another €1.14 billion in six-month Treasury bills and announced a further sale of €625 million next week. The country is dependent on such short terms bonds to raise cash, but the takers are mostly domestic investors because Greece is shut out of international debt markets.

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Bit dull perhaps, but potentially powerful.

The Changes To Russia’s Business Environment That Flew Below The Radar (Forbes)

Companies doing business in Russia have been on a roller coaster ride for the last year. The combination of Western sanctions, a weakened currency and continued geopolitical uncertainty have threatened even the most robust of balance sheets. Yet amid these headline-grabbing harbingers of new challenges in Russia’s business environment, one seems to have gone largely overlooked: last September, Russian lawmakers passed unprecedented changes to their country’s corporate legislation. The aim was to update business legal frameworks and to extend additional protections to minority corporate stakeholders, but it remains uncertain whether the law will have the desired effect. The sweeping changes generally affect the rules for how companies and their stakeholders interact. They also overhaul the different classes of legal entities that are permitted to do business. Some highlights:

• All Russian legal entities are reclassified. Previously, entities were conceptually seen as either for-profit and “commercial” or “non-commercial,” today all organizations are split between the “unitary” and “corporate” categories. A “unitary” organization’s founder does not directly participate in the business’s affairs or ownership, while the founder of a “corporate” entity retains the right to remain a shareholder or manager.
• The rules for joint stock companies have changed. Companies were previously classified as open or closed, according to whether new shareholders could legally enter the company’s ownership structure. Now they are classified as public or non-public. The option to publicly trade their securities or shares distinguishes the former, who must accordingly include the word “public” in their name. All other corporation types, including the non-trading joint stock companies, are non-public by default and face no need to alter their names. Notably, the obsolescent open and closed joint stock companies do not have to reclassify themselves by the new guidelines until they have to alter their charter documents, but must comply with the new rules regardless.

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“.. Iran would be able to grow production and exports by 300,000 to 400,000 barrels a day within weeks of a final deal.”

Here’s How Iran Could Prevent A Rebound In Oil Prices (MarketWatch)

Investors looking for a bottom in oil prices argue that a deal to curb Iran’s nuclear program and ease sanctions against the country won’t flood the market with more unwanted crude. But one analyst thinks Iran’s return to the market would continue to keep a lid on prices. Oil futures plunged Wednesday as U.S. crude inventories rose yet again. But oil had rallied earlier this week on ideas that fears Iran would soon be able to dump more supply on the market had been overdone. After all, a final deal isn’t due until June 30—and that deadline could easily slip. Moreover, Iran’s degraded infrastructure is likely to keep a lid on production even if a deal is struck, analysts said.

Of course, the likelihood of a deal remains up for debate. Iran’s supreme leader declared Thursday that there was no guarantee of a final agreement, saying world powers couldn’t be trusted to negotiate in good faith. Vikas Dwivedi, a Houston-based oil and gas strategist at Macquarie Capital, sounds far from convinced that a return to the market by Iran would be taken in stride. Making a pun on a 1982 New Wave hit, Dwivedi wrote a note this week entitled “Iran Not So Far Away, Dwivedi argues that Iran would be able to ramp up production significantly in the weeks after the final approval of a deal. But the real pressure, he says, might come from how Arab Gulf producers respond.

Dwivedi says Iran would be able to grow production and exports by 300,000 to 400,000 barrels a day within weeks of a final deal, but that the need for substantial capital upgrades to Iran’s reservoirs means it would take another six to nine months to ramp up production by the 1 million barrels a day needed to recapture the level of output seen before the sanctions.. Meanwhile, Arab Gulf members of OPEC would probably prove themselves unwilling to cede market share to accommodate rising Iranian output, Dwivedi writes. That means OPEC 2015 production could reach 32 million barrels a day or higher versus a previous call of 28.2 million, Dwivedi said. OPEC supply rose to 30.63 million barrels a day in March, according to a Reuters survey.

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“To make it pay, Shell really needs the oil price to move up to $90, and quickly.”

Shell Shareholders Less Than Impressed With $70 Billion Bid For BG (Ind.)

The City is slathering with excitement at Shell’s £47bn bid for BG group. Its shareholders are less than impressed. The problem for them is that the price represents a 50 per cent premium to where BG shares languished prior to the deal’s announcement. To make it pay, Shell really needs the oil price to move up to $90, and quickly. The question its investors have to ask themselves is whether Shell could pick up something like BG’s portfolio, the opportunity it represents and the earnings stream it generates, with its existing assets and resources. Even if they think it can, and such an outcome won’t be quick, they still have to ask if they’d be happy for someone else to have BG, the profits of which will at least help to power the generous dividend Shell pays them. A dividend that represents a welter burden to their company.

What is certain is that this will not be the last mega-deal to be done in the energy sector, as its giants seek cheaper alternatives to risking cash they’re not earning on exploration. It likely won’t be the biggest either. BG’s most likely suitor was long rumoured to be Exxon, the American giant, which represents the most likely threat to this deal’s completion. But Exxon may have it’s eyes cast in the direction of an even bigger B in the form of BP. BG’s drift had become sufficiently aimless that its board felt the need to risk shareholders ire by offering an appalling £25m with nary a condition attached to lure Helge Lund from Norway’s Statoil. He’s now going to sail off into the sunset in a boat filled with cash.

BP’s board might wish it had only that to worry about. For the US lawyers ranged against it, the Deepwater Horizon disaster is the gift that keeps on giving. The company is more than half owned by Americans, it is run by one (Bob Dudley), and it has substantial operations in the country. But they still insist on referring to it as “British” Petroleum across the Atlantic. The logic of putting it formally into American hands via the mega-deal to end all mega-deals with Exxon is that it could take an awful lot of feet from off its neck.

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Let me guess: what’s that plan? Make the people pay?

Ukraine Creditor Group Has Plan to Avoid Writedown in Debt Talks (Bloomberg)

Five creditors that own about $10 billion of Ukraine’s bonds are working on a debt-restructuring deal that won’t involve a reduction to their principal holdings as the government seeks to change the terms of its external debt. The committee is working on a plan that “provides Ukraine with the necessary financial liquidity support,” the group said in a statement released by Blackstone. Franklin Templeton, Ukraine’s biggest bondholder with about $7 billion of the nation’s debt, hired Blackstone to represent the creditor group in mid-March, according to Blackstone. Ukraine needs to reach an agreement with creditors by the end of May to save $15.3 billion over four years as a condition for receiving the next tranche of a $17.5 billion IMF loan.

“For sure, the creditors will try to achieve” a deal with no principal reduction, “but realistically it is not viable,” Michael Ganske at Rogge in London, said. “Ukraine’s debt-to-GDP is much too high and the economy is shrinking.” Public-sector debt is set to rise to 94% of gross domestic product this year, according to the IMF, after a yearlong conflict with pro-Russian separatists in the nation’s east crippled its economy. Output shrank 7 to 10% in the first quarter, Finance Minister Natalie Jaresko said on March 24. The country is seeking to restructure at least $21.7 billion, data compiled by Bloomberg News. A price of about 40 cents signals creditors will face writedowns to their principal holdings of about 20%, Bank of America said in March.

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Think I’ll keep my New Zealand theme going for a bit.

Homeowners In Auckland’s Fringe Saving Up To $50,000 A Year (NZ Herald)

Buying a house on the city’s outskirts can save Aucklanders up to $50,000 each year in mortgage repayments, despite the added commuting costs, new figures reveal. The research, carried out by real estate firm Bayleys, factored in the cost of mortgage repayments as well as the cost of travel from the respective areas. Lower house prices in outlying suburbs – like Papakura, New Lynn, Sunnyvale and Manukau – meant even with transport costs homeowners were still paying significantly less than those in city-fringe suburbs. Bayleys calculated the first-year mortgage repayment costs for different suburbs based on median house prices from the Real Estate Institute of New Zealand (REINZ) and the ANZ variable rate of 6.74%.

It found the annual cost of servicing a mortgage for a median priced Orakei or Remuera home ($1.35 million) was $84,060 in the first year. In Pukekohe, where the median price of a home is $500,000, the annual mortgage repayment in the first year would be $31,128. Even factoring in the $4032 annual cost of commuting from Pukekohe to the CBD by train on the At Hop card system – as well as the $768 public transport cost from Orakei to the city – living in the southern suburb was about $50,000 cheaper. Bayleys Research manager Ian Little said even if a Pukekohe resident commuted by car and chose to park in the central city, it was still cheaper.

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Elected on a promise, and then back out with feeble excuses? Tar and feathers!

New Zealand Unlikely to Deliver on 2015 Budget Surplus Promise (Bloomberg)

New Zealand’s government is unlikely to return its budget to surplus this year as it promised ahead of an election in 2014, Finance Minister Bill English said. “Lower inflation, while good for consumers, is making it less likely that the final accounts in October will show a surplus for the whole year,” English said in a statement Friday. The budget showed a NZ$269 million ($203 million) deficit in the eight months ended Feb. 28, the Treasury Department said earlier Friday. Prime Minister John Key won a third term last year, campaigning on his economic management and pledging to post the nation’s first budget surplus in seven years in the 12 months ending June 30, 2015.

In May last year, English projected a surplus of NZ$372 million for 2014-15. The Treasury in December said low inflation, which curbs nominal economic growth and tax revenue, suggested the budget would remain in deficit. English, who delivers his next annual budget May 21, previously said that the Treasury forecasts may be proved wrong by the time the full-year financial statements are prepared in October. Consumer prices rose 0.8% in the fourth quarter from a year earlier and were down 0.2% from the prior three-month period – the first quarterly decline in three years. The central bank last month forecast annual inflation would fall to zero in the first quarter.

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Only possible with more nukes.

Japan To Pledge 20% CO2 Cut (Guardian)

Japan will promise to cut its greenhouse gas emissions by 20% from 2013 levels ahead of a global summit on climate change this year, a report said Thursday, despite uncertainty over post-Fukushima energy policy. The government will likely announce the new target at the G7 summit in June in Germany, the leading business daily Nikkei reported, citing unnamed government sources. In a separate report, Kyodo News said Tokyo will set a target of cutting gas emissions “by at least 20% by 2030, from 2005 levels.” Japan is one of the few leading polluters that has not yet declared a target on emission cuts, as the world works towards a new framework for combating climate change, to be finalised at December’s COP 21 gathering in Paris.

A total of 33 countries – including the no.2 emitter the United States, the no.3 emitter the European Union, and Russia, ranked fifth – submitted their reduction goals to the UN secretariat by the end of last month. The US has pledged to reduce greenhouse gas emissions by 26-28% over 2005 levels within the next decade, while the EU said it will cut its pollution by 40% by 2030 from 1990 levels. Russia said it could drive down emissions by up to 30% compared to 1990 levels, subject to conditions. In earlier rounds of climate talks, Tokyo pledged it would reduce its greenhouse gas output by 25% by 2020 from 1990 levels. But that target was slashed to a 3.8% cut from 2005 levels in the aftermath of the 2011 Fukushima nuclear disaster, which led to idling of the country’s entire nuclear stable.

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Finally US media are catching up to this story?

Dying at Europe’s Doorstep (Bloomberg)

For people who court danger in foreign lands, Chris Catrambone is a good guy to know. Originally from Louisiana, he made his first $10 million before age 30 investigating insurance claims and lining up medical care for injured workers in some of the world’s most violent places, especially contractors of U.S.-owned companies operating in Iraq and Afghanistan. In 2008, at 27, he moved his two-year-old multinational company, the Tangiers Group, to Malta, the island nation in the central Mediterranean that’s been vital to various empires for more than two millennia, and where moorings are as common as parking spots. Tangiers Group’s portfolio includes travel insurance, up-to-date CIA World Factbook-type reports on emerging markets, and hospitalization and evacuations for expats.

In the summer of 2013, with his wife, Regina, and stepdaughter, Maria Luisa, Catrambone chartered a yacht for a trip to the coast of Tunisia with a stop on the Italian island of Lampedusa, a popular vacation spot. It’s also a landing point used by migrants trying to enter Europe illegally. As the Catrambones left the harbor, Regina spotted a parka floating on the waves. It struck her as incongruous—a winter coat being carried by the warm tide—and she asked their captain about it. He replied that it had almost certainly belonged to one of the thousands who’ve attempted a water crossing to Lampedusa from Libya in inflatable dinghies—one who didn’t make it. “Lampedusa has a beach called Rabbit Beach, and every year it’s rated as one of the top beaches in the world, so of course we wanted to visit it,” Chris says.

“But then we learned that there are bodies of refugees literally washing ashore on this most beautiful beach. So what, you’re going to have a nice swim in the same water where these people are dying? Is that right?” That afternoon, and well into the night, he and Regina discussed what Pope Francis, on his first visit outside the Vatican, had described as “the globalization of indifference” to the plight of refugees at sea. “Papa Francesco said that everyone that could help, should do it, [and] with his own skills,” says Regina, who speaks English as well as her native Italian. “So we start to think, what are our capabilities? We have a good background in helping people in trouble.”

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