Aug 152017
 
 August 15, 2017  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

“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.

Read more …

“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.

Read more …

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.

Read more …

“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.

Read more …

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.

Read more …

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.

Read more …

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?”

Read more …

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.

Read more …

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.

Read more …

Apr 102015
 
 April 10, 2015  Posted by at 10:49 am Finance Tagged with: , , , , , , , , , , ,  9 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


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.

Read more …

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.

Read more …

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.

Read more …

“..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.

Read more …

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.

Read more …

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.”

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

“.. 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.”

Read more …

“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.”

Read more …

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.

Read more …

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.

Read more …

“.. 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.

Read more …

“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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.

Read more …

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.”

Read more …