Jan 082017
 
 January 8, 2017  Posted by at 9:35 am Finance Tagged with: , , , , , , , , ,  2 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


Trump: Only ‘Fools’, ‘Stupid People’, See Good Ties With Russia as Bad (BBG)
At Home and Abroad, Obama’s Trail of Disasters (BGlobe)
Russians Ridicule US Charge That Kremlin Meddled to Help Trump (NYT)
How RT Became The Star Of CIA, FBI & NSA’s Anticlimactic ‘Big Reveal’ (McD)
No One Can Afford To Stop The New Consumer Credit Crisis (G.)
China’s Foreign Exchange Reserves Fall To Lowest Since February 2011 (R.)
The Growing Threat to Global Trade: a Currency War (Forsyth)
Fed’s Powell Urges Congress to Take Another Look at Volcker Rule (BBG)
New Policies Coming To America Could Take Weight Off Fed: Powell (R.)
Economists Want to Be Members of Donald Trump’s Team (BBG)
EU Collapse ‘No Longer Unthinkable’ – German Vice Chancellor Gabriel (R.)
Greeks’ Mental Health Suffering (Kath.)

 

 

This is Trump’s Trump Card. Stop the empty rhetoric, and stop the warfare. If he can do that, he’ll go down in history as a great president.

Trump: Only ‘Fools’, ‘Stupid People’, See Good Ties With Russia as Bad (BBG)

Facing calls to strike back at Russia for what U.S. intelligence agencies have termed Moscow’s interference with the 2016 U.S. presidential election campaign, Donald Trump instead suggested warmer relations between the two countries. The president-elect took to Twitter on Saturday to discuss the potential U.S.-Russia relationship under his administration, a day after U.S. spy chiefs briefed him on the Russian measures they said were directed by President Vladimir Putin. “Having a good relationship with Russia is a good thing, not a bad thing,” Trump said in a series of three tweets. “Only ‘stupid’ people, or fools, would think it is bad! We have enough problems around the world without yet another one.” “When I am President, Russia will respect us far more than they do now,” Trump assured his 19 million Twitter followers.

On Friday, top U.S. intelligence officials met with the president-elect at Trump Tower in New York to present evidence that Putin personally ordered cyber and disinformation attacks on the U.S. campaign. Putin developed “a clear preference” for Trump to win, the agencies said in a declassified summary of their findings. The agencies said they “assess Putin and the Russian government aspired to help President-elect Trump’s election chances when possible by discrediting Secretary Clinton and publicly contrasting her unfavorably to him,” according to the report. “All three agencies agree with this judgment. CIA and FBI have high confidence in this judgment; NSA has moderate confidence,” the report said. “Moscow will apply lessons learned from its Putin-ordered campaign aimed at the U.S. presidential election to future influence efforts worldwide, including against U.S. allies and their election processes.”

On Saturday, posts from the Twitter account of the Russian Embassy in the U.K. dismissed the report, calling it “a pathetic attempt at tainting Americans’ vote by innuendo couched in Intel new-speak.” “All accusations against Russia are based on ‘confidence’ and assumptions,” Alexey Pushkov, a member of the Russian Parliament’s upper house, said on Twitter. As Trump’s transition team did in a statement in December, Pushkov drew a parallel with the U.S. intelligence finding of the early 2000s that Iraq’s Saddam Hussein had weapons of mass destruction. The report was released shortly after intelligence chiefs briefed Trump on their findings that Russia was responsible for the hacking of Democratic Party computers and the leaking of e-mails damaging to Democratic presidential nominee Hillary Clinton. Russia has repeatedly denied the accusations.

Trump said negligence by the DNC had allowed the hacking to go ahead. “Only reason the hacking of the poorly defended DNC is discussed is that the loss by the Dems was so big that they are totally embarrassed!” Trump tweeted on Saturday. By contrast, “the Republican National Committee had strong defense!” he said — although the intelligence report said that Russia had targeted both major parties.

Read more …

I guess kudo’s are due to the Boston Globe, generally in the same false news camp as the WaPo and NYT, for publishing this.

At Home and Abroad, Obama’s Trail of Disasters (BGlobe)

As he prepares to move out of the White House, Barack Obama is understandably focused on his legacy and reputation. The president will deliver a farewell address in Chicago on Tuesday; he told his supporters in an e-mail that the speech would “celebrate the ways you’ve changed this country for the better these past eight years,” and previewed his closing argument in a series of tweets hailing “the remarkable progress” for which he hopes to be remembered. Certainly Obama has his admirers. For years he has enjoyed doting coverage in the mainstream media. Those press ovations will continue, if a spate of new or forthcoming books by journalists is any indication. Moreover, Obama is going out with better-than-average approval ratings for a departing president. So his push to depict his presidency as years of “remarkable progress” is likely to resonate with his true believers.

But there are considerably fewer of those true believers than there used to be. Most Americans long ago got over their crush on Obama, as they repeatedly demonstrated at the polls. In 2010, two years after electing him president, voters trounced Obama’s party, handing Democrats the biggest midterm losses in 72 years. Obama was reelected in 2012, but by nearly 4 million fewer votes than in his first election, making him the only president ever to win a second term with shrunken margins in both the popular and electoral vote. Two years later, with Obama imploring voters, “[My] policies are on the ballot — every single one of them,” Democrats were clobbered again. And in 2016, as he campaigned hard for Hillary Clinton, Obama was increasingly adamant that his legacy was at stake. “I’m not on this ballot,” he told campaign rallies in a frequent refrain, “but everything we’ve done these last eight years is on the ballot.” The voters heard him out, and once more turned him down.

As a political leader, Obama has been a disaster for his party. Since his inauguration in 2009, roughly 1,100 elected Democrats nationwide have been ousted by Republicans. Democrats lost their majorities in the US House and Senate. They now hold just 18 of the 50 governorships, and only 31 of the nation’s 99 state legislative chambers. After eight years under Obama, the GOP is stronger than at any time since the 1920s, and the outgoing president’s party is in tatters. Obama urged Americans to cast their votes as a thumbs-up or thumbs-down on his legacy. That’s what they did. In almost every respect, Obama leaves behind a trail of failure and disappointment.

Read more …

Yes, even the NYT lets slip a line or two about the lack of evidence in the ridiculous US intelligence ‘report’. The article should have stopped at that, but continues in a sort of Macchiavellian spirit (actually uses the term too), trying to save some face.

Russians Ridicule US Charge That Kremlin Meddled to Help Trump (NYT)

Spies are usually thought of as bystanders who quietly steal secrets in the shadows. But the Russian versions, schooled in techniques used during the Cold War against the United States, have a more ambitious goal — shaping, not just snooping on, the politics of a nation that the Soviet-era K.G.B. targeted as the “main adversary.” That at least is the conclusion of a declassified report released on Friday that outlines what America’s top intelligence agencies view as an elaborate “influence campaign” ordered by President Vladimir V. Putin of Russia aimed at skewing the outcome of the 2016 presidential race. But the absence of any concrete evidence in the report of meddling by the Kremlin was met with a storm of mockery on Saturday by Russian politicians and commentators, who took to social media to ridicule the report as a potpourri of baseless conjecture.

In a message posted on Twitter, Alexey Pushkov, a member of the defense and security committee of the upper house of the Russian Parliament, ridiculed the American report as akin to C.I.A. assertions that Iraq had weapons of mass destruction: “Mountain gave birth to a mouse: all accusations against Russia are based on ‘confidence’ and assumptions. US was sure about Hussein possessing WMD in the same way.” Margarita Simonyan, the editor in chief of RT, a state-funded television network that broadcasts in English, who is cited repeatedly in the report, posted her own message on Twitter scoffing at the American intelligence community’s accusations. “Aaa, the CIA report is out! Laughter of the year! Intro to my show from 6 years ago is the main evidence of Russia’s influence at US elections. This is not a joke!” she wrote.

Even Russians who have been critical of their government voiced dismay at the United States intelligence agencies’ account of an elaborate Russian conspiracy unsupported by solid evidence. Alexey Kovalev, a Russian journalist who has followed and frequently criticized RT, said he was aghast that the report had given so much attention to the television station. “I do have a beef with RT and their chief,” Mr. Kovalev wrote on Twitter, “But they are not your nemesis, America. Please chill.”

Read more …

And Bryan McDonald finished off what the NYT started: “..it appears that we should swallow how RT succeeded where the combined might of CNN, NBC, CBS, The WaPo and the NYT and others failed in influencing the US election.”

How RT Became The Star Of CIA, FBI & NSA’s Anticlimactic ‘Big Reveal’ (McD)

The eagerly awaited Director Of National Intelligence’s (DNI) report “Assessing Russian Activities and Intentions in Recent US Elections” didn’t need such a long winded title. They could have just called it: “We Really Don’t Like RT.” Almost every major western news outlet splashed this story. But it was probably the New York Times’ report which was the most amusing. America’s “paper of record” hailed the DNI’s homework as “damning and surprisingly detailed.” Then a few paragraphs later admitted the analysis contained no actual evidence. Thus, in a few column inches, the Gray Lady went from describing the DNI’s release as something conclusive to conceding how it was all conjecture. “The declassified report contained no information about how the agencies had collected their data or had come to their conclusions,” the reporter, one David E. Sanger, told us.

He then reached further into his bag of tricks to warn how it is “bound to be attacked by skeptics.” Yes, those skeptics. Aren’t they awful? Like, imagine not accepting an intelligence document at face value? Especially when it warns that a nuclear armed military superpower is interfering in the American democratic process, but then offers not a smidgen of proof for its assertions. Not to mention how it appears to have been put together by a group of people with barely a clue about Russia. For instance, RT progams such as “Breaking The Set” and “The Truthseeker” are mentioned in a submission supposed to be about how RT supposedly cost Hillary Clinton the US Presidential Election. But both of these programmes went off air around two years ago. And, back then, Clinton wasn’t even the Democratic Party candidate for the 2016 contest.

[..] So how bad is this report? You’d have to say on a scale of 1-10, it’d be eleven. The core message appears to be that having a point of view which is out of sync with the liberal popular media is considered a hostile act by US spooks. And it’s specifically the liberal press’ worldview they are defending here. Now, it’s up to you to judge whether this support, from state actors, is justified or not. The DNI’s submission is ostensibly the work of highly qualified intelligence experts, but everything you learn about RT comes from publicly available interviews and Tweets posted by this channel’s own people. Yet, we are supposed to believe how the best Russia brains of three agencies – the CIA, FBI and NSA – laboured to produce this stuff? That said, the latter doesn’t appear to be fully on board, offering “moderate” confidence, in contrast to the other’s “high confidence.”

Approximately a third of the document centers on RT. And it appears that we should swallow how RT succeeded where the combined might of CNN, NBC, CBS, The WaPo and the NYT and others failed in influencing the US election. Not to mention the reality where 500 US media outlets endorsed Clinton and only 25 President-elect Donald Trump. It’s time to scream: “stop the lights!” [..] The DNI’s report is beyond bad. And it’s scary to think how outgoing President Obama has stirred up a nasty diplomatic battle with Russia based on intelligence so devoid of insight and quality. There is nothing here which suggests the authors have any special savvy or insight. In fact, you could argue how a group of students would’ve assembled something of similar substance by simply reading back issues of The New York Times. But the biggest takeaway is that it’s clear how the calibre of Russia expertise in America is mediocre, if not spookily sparse. And while this report might be fodder for amusement, the actual policy implications are nothing short of dangerous.

Read more …

And that’s by no means only true for Britain.

No One Can Afford To Stop The New Consumer Credit Crisis (G.)

Consumer debt has raised its ugly head again. According to the latest figures, the total has soared back to a level last seen just before the 2008 financial crash. To the untrained eye, the dramatic increase in spending using credit cards and loans might appear to prefigure a disaster of epic proportions. Excessive consumer debt played a big part in the collapse of Northern Rock, and looking back, this landmark banking disaster appears to have been the harbinger of an even bigger catastrophe when, a year later, Lehman Brothers fell over. This is not a view shared by the Bank of England, which says it need only keep a watching brief. Its complacency is born of forecasts of the ratio between household debt and GDP made by the Office for Budget Responsibility.

At the moment, the household debt to GDP ratio is around 140%, compared with almost 170% in 2008. The OBR’s latest analysis predicts that, over the next five years, the combination of consumer and mortgage debt will rise only gradually and fall well short of its pre-crisis peak. There is nothing wrong with judging household debt as a proportion of annual national income to gauge sustainability and the likelihood that borrowers can afford to pay it back. There is nothing wrong with it as long as you assume that GDP has been evenly shared out since the crash and that the people doing the borrowing have higher incomes, thanks to the higher GDP, to cope with repayments. Except that the Bank of England knows most people’s incomes have flatlined for years. It need look no further than official figures, which make it clear that the vast majority have missed out on the gains from GDP growth.

Incomes per head have barely recovered since 2008 and are only marginally ahead. Figures put together by the TUC last year from the official annual survey of hours and earnings paint an even gloomier picture. If they are only half right, the capacity of workers on low and average pay to manage debt payments is significantly diminished. It has estimated that, nationally, workers are more than £2,000 a year worse off after inflation is taken into account than they were in 2008 and more than £4,000 worse off in London. This should tell the central bank and the Treasury that a rise to £192bn in unsecured consumer debt in November – only a little short of the £208bn peak – is most definitely a cause for concern. And it therefore makes no sense to brush aside fears about rising debt levels by pointing to higher GDP. A debt-to-GDP figure is just not that relevant when the incomes of the people taking on the debt are stagnant.

Read more …

Beijing counting down the days till january 20. It still has $3 trillion left, but 90% or so of that is not available.

China’s Foreign Exchange Reserves Fall To Lowest Since February 2011 (R.)

China’s foreign exchange reserves fell for a sixth straight month in December but by less than expected to the lowest since February 2011, as authorities stepped in to support the yuan ahead of U.S. President-elect Donald Trump’s inauguration. China’s reserves shrank by $41 billion in December, slightly less than feared but the sixth straight month of declines, data showed on Saturday, after a week in which Beijing moved aggressively to punish those betting against the currency and make it harder for money to get out of the country. Analysts had forecast a drop of $51 billion. For the year as a whole, China’s reserves fell nearly $320 billion to $3.011 trillion, on top of a record drop of $513 billion in 2015. While the $3 trillion mark is not seen as a firm “line in the sand” for Beijing, concerns are swirling in global financial markets over the speed with which the country is depleting its ammunition to defend the currency and staunch capital outflows.

Some analysts estimate it needs to retain a minimum of $2.6 trillion to $2.8 trillion under the IMF’s adequacy measures. If pressure on the yuan persists, analysts suspect China will continue to tighten the screws on outflows via administrative and regulatory means, while pouncing sporadically on short sellers in forex markets to discourage them from building up excessive bets against the currency. But if it continues to burn through reserves at a rapid rate, some strategists believe China’s leaders may have little choice but to sanction another big “one-off” devaluation like that in 2015, which would likely roil global financial markets and stoke tensions with the new Trump administration. The yuan depreciated 6.6% against the surging dollar in 2016, its biggest one-year loss since 1994, and is expected to weaken further this year if the dollar’s rally has legs.

Adding to the pressure, Trump has vowed to label China a currency manipulator on his first day in office, and has threatened to slap huge tariffs on imports of Chinese goods. That has left Chinese eager to get money out of the country, creating what some researchers describe as a potentially destructive negative feedback loop, where fears of further yuan falls spur outflows that pile fresh pressure on the currency. “For 2016 as a whole we estimate total capital outflows to have been around $710 billion,” Capital Economics’ China economist Chang Liu told Reuters in an email. Capital Economics estimated net outflows in November and December alone were $76 billion and $66 billion, respectively.

Read more …

Trump will be willing to negotiate, but there’s doesn’t seem to be much, if any, room for China to move.

The Growing Threat to Global Trade: a Currency War (Forsyth)

While Trump has talked of imposing a so-called border tax on imports or tariffs, currencies are at the nexus of trade and are the quickest means to try to influence trade flows. In that regard, he has threatened to declare China a “currency manipulator” on Day One of his administration for allegedly pushing down the yuan to gain an export advantage. The risk is that this will escalate into a currency war, with both sides attempting to gain a trade advantage, and that it ultimately ends up disrupting global trade and financial markets. As with any war, this one should be avoided at all costs. But the events of the past year suggest never say never. [..] China, of course, is central to Trump’s strategy to reduce the U.S. trade deficit.

Harris writes that this includes three actions: naming China a currency manipulator; bringing trade cases against it under the WTO and U.S. rules; and using “every lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including its theft of American trade secrets.” In addition, last week the president-elect named Robert Lighthizer as U.S. trade representative, adding him to the hawkish team of Peter Navarro, director of the new National Trade Council, and Commerce Secretary-designate Wilbur Ross. While the U.S. and China may find common ground on environmental regulation in China, given the unbreathable air in Beijing and other cities, Harris thinks it’s unlikely China would concede that it is manipulating its currency.

“China is currently fighting to prevent currency weakness, selling its foreign currency reserves to offset private capital flight from the country,” he continues. China’s reserves have fallen by about $1 trillion, to just over $3 trillion as of November; the latest data, due this weekend, will be closely watched to see how much Beijing’s cache has been depleted. That said, “some academics in China are suggesting the country should respond to being declared a ‘manipulator’ by letting the currency float, triggering even more weakness,” adds Harris. Other observers see such a course as dangerous. Danielle DiMartino Booth, writing in her latest Money Strong missive, quotes Leland Miller, president of China Beige Book, a private research group, that the last thing Beijing wants is a floating yuan.

“It would hurt them much more than anyone else and be greeted with massive retribution from every corner of the world. There would be countervailing devaluations and would cause global contagion,” he contends. “It would also be a major blow to [President] Xi’s credibility during a politically sensitive year, since he’s pledged to not float the currency. And it would NOT stanch outflows; all it would do is exacerbate them.”

Read more …

The independent Fed talking politics?!

Fed’s Powell Urges Congress to Take Another Look at Volcker Rule (BBG)

Federal Reserve Governor Jerome Powell urged Congress to rewrite the Volcker Rule that restricts proprietary trading, while urging “a high degree of vigilance” against the buildup of financial risks amid improving U.S. growth. “What the current law and rule do is effectively force you to look into the mind and heart of every trader on every trade to see what the intent is,” Powell said Saturday at the American Finance Association meeting in Chicago. “Is it propriety trading or something else? If that is the test you set yourself, you are going to wind up with tremendous expense and burden.” Powell’s comments compare to Fed Chair Janet Yellen, who has supported the sweeping bank rules of the 2010 Dodd-Frank Act in the wake of the global financial crisis. President-elect Donald Trump has vowed to dismantle Dodd-Frank. The Volcker Rule restricts banks with taxpayer-backed deposits from making certain types of speculative “proprietary” trades.

“We don’t want the largest financial institutions to be seriously engaged in propriety trading,” Powell said. “We do want them to be able to hedge their positions and create markets.” Powell said that the Volcker Rule, as enacted by U.S. lawmakers, doesn’t achieve that goal. “I feel the Congress should take another look at it.” In the text of his remarks, Powell urged more monitoring of financial risks following a period of record low interest rates, citing commercial real estate as one area of concern. “More recently, with inflation under control, overheating has shown up in the form of financial excess,” Powell said. “The current extended period of very low nominal rates calls for a high degree of vigilance against the buildup of risks to the stability of the financial system.”

Read more …

Is this simply the Fed trying to pass on the blame?

New Policies Coming To America Could Take Weight Off Fed: Powell (R.)

A push by Washington for more business-friendly regulation and fiscal support for the economy could improve America’s mix of policies which in recent years have relied too much on the Federal Reserve, Fed Governor Jerome Powell said. Powell, speaking on Saturday at a conference, did not mention the incoming Trump administration by name but his comments suggest some Trump policies will be welcomed by U.S. central bankers who have been urging other institutions to do more to help the economy. “We may be moving more to a more balanced policy with what sounds like more business-friendly regulation and possibly more fiscal support,” Powell told an economics conference in Chicago. President-elect Donald Trump, who takes office on Jan. 20, has promised to double America’s pace of economic growth, “rebuild” its infrastructure and slash regulatory burdens.

About half of the Fed’s 17 policymakers factored a fiscal stimulus into their economic forecasts published in December, according to minutes from the Fed’s December policy meeting. That expected stimulus has led several policymakers to say the Fed will likely raise rates more quickly, but Powell said new policies could also ease the Fed’s burden. “Monetary policy (might be) able to hand it off and I think that’s a healthier thing,” he said. “We may be moving to a more balanced policy mix.” Following a Congress-enacted fiscal stimulus during and immediately after the 2007-09 recession, the Fed in recent years has been widely seen as the economic authority working the hardest to help the economy. But throughout 2016, Fed policymakers worried publicly that the U.S. economy was stuck in a low growth path and central banking tools could do little to fix this. Central bankers urged Congress and the U.S. president to pass laws that would help make U.S. businesses and workers more productive.

Read more …

“..it might be more of a matter of Trump not wanting many economists in his administration..”

Economists Want to Be Members of Donald Trump’s Team (BBG)

Economists aren’t shying away from joining Donald Trump’s administration and would be willing to pitch in if asked, according to former economic policy makers now in academia. “The president will be able to get any economist he asked for,” said Glenn Hubbard, who served President George W. Bush as chairman of his Council of Economic Advisers from 2001 to 2003 and is now dean of Columbia University’s Graduate School of Business. Hubbard spoke Saturday in Chicago at the American Economic Association annual conference. A delay in naming a new CEA chair and reports that the position might go to CNBC commentator Lawrence Kudlow spawned speculation that leading academic economists were reluctant to join a team headed by an avowed skeptic of free trade.

“I don’t see that,” said John Taylor, an economics professor who served in the Bush administration as under secretary of Treasury for international affairs and now teaches at Stanford University. “It’s a pretty exciting time and lots of things are going on,” said Taylor, who worked in three other administrations as well. Alan Krueger, who led the CEA in the White House of President Barack Obama from 2011 to 2013 before passing the torch to incumbent Jason Furman, suggested that it might be more of a matter of Trump not wanting many economists in his administration, rather than the other way around. “I worry more about the demand side than the supply side,” said the Princeton University professor said. The audience laughed.

Read more …

Should have thought of that earlier. Because this has been evident for a very long time: Germany is the biggest beneficiary of the European community – economically and politically.” Just look at the graph I inserted at the bottom of this article.

EU Collapse ‘No Longer Unthinkable’ – German Vice Chancellor Gabriel (R.)

Germany’s insistence on austerity in the euro zone has left Europe more divided than ever and a break-up of the European Union is no longer inconceivable, German Vice Chancellor Sigmar Gabriel told Der Spiegel magazine. Gabriel, whose Social Democrats (SPD) are junior partner to Chancellor Angela Merkel’s conservatives in her ruling grand coalition, said strenuous efforts by countries like France and Italy to reduce their fiscal deficits came with political risks. “I once asked the chancellor, what would be more costly for Germany: for France to be allowed to have half a percentage point more deficit, or for Marine Le Pen to become president?” he said, referring to the leader of the far-right National Front. “Until today, she still owes me an answer,” added Gabriel, whose SPD favors a greater focus on investment while Merkel’s conservatives put more emphasis on fiscal discipline as a foundation for economic prosperity.

The SPD is expected to choose Gabriel, their long-standing chairman who is also economy minister, to run against Merkel for chancellor in September’s federal election, senior party sources said on Thursday. Asked if he really believed he could win more votes by transferring more German money to other EU countries, Gabriel replied: “I know that this discussion is extremely unpopular. But I also know about the state of the EU. It is no longer unthinkable that it breaks apart,” he said in the interview, published on Saturday. “Should that happen, our children and grandchildren would curse us,” he added. “Because Germany is the biggest beneficiary of the European community – economically and politically.”

Read more …

Thanks, Angela.

Greeks’ Mental Health Suffering (Kath.)

More than half of Greeks complain of mental health problems, with stress, insecurity and disappointment among the issues most commonly cited, according to the results of a nationwide survey by the National School of Public Health, known by its acronym ESDY. Over half of the 2,005 adults polled (53.9%) said their mental health had not been good over the past month due to stress, depression or other emotional problems. A quarter (24.8%) of respondents, identified poor physical or mental health as causing problems in their daily lives. A total of 15% said they felt insecurity, anxiety and fear, with 14% citing anger and frustration, 9.7% complaining of depression and sadness, 8.2% of stress and 44.6% citing all these ailments.

Four in 10 (42.6%) said they only enjoyed their lives “moderately” and one in 10 said they thought their lives had little or no meaning. The findings came as official figures showed that cases of depression rose from 2.6% of the population in 2008 to 4.7% in 2015. Responding to broader questions about their health and lifestyle, 20% of those polled said their diets had been insufficient over the past month due to low finances. According to health sector experts, however, the repercussions of the economic crisis on citizens’ health are less severe than many had feared. In comments to Kathimerini, Yiannis Kyriopoulos, a professor of health economics at the ESDY, said the findings of the study “simply observe a slowdown in the improvement of health indicators.”

Read more …

Sep 052016
 
 September 5, 2016  Posted by at 9:44 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 5 2016
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


DPC Sternwheeler Mary H. Miller in Mississippi River floating dry dock, Vicksburg 1905


China, US Commit To Refrain From Currency Wars (R.)
China’s $3.9 Trillion Wealth-Management Product Boom Seen Cooling (BBG)
China Banks Play Catch Up With Capital Raising As Bad Loans Soar (BBG)
Stiglitz: “Cost Of Keeping Euro Probably Exceeds Cost Of Breaking It Up” (LSE)
Hanjin Shipping Shares Drop 30% As It Seeks Stay Orders In 43 Countries (BBG)
Japan’s Long-Term Bonds Add To Worst Rout Since 2013 (BBG)
BOJ’s Kuroda Says Room For More Easing, Including New Ideas (R.)
EU Finds Volkswagen Broke Consumer Laws In 20 Countries (R.)
The Greater Depression (Quinn)
The Ultimate 21st Century Choice: OBOR Or War (Escobar)
EU Will Not Release More Bailout Money For Greece This Month (R.)
Hungary Police Recruit ‘Border-Hunters’ To Keep Migrants Out (BBC)
Overnight Clashes At Lesvos Refugee Center (Kath.)
9,000-Year-Old Stone Houses Found On Australian Island (G.)
World’s Largest Gorillas ‘One Step From Going Extinct’ (AFP)

 

 

Sure. We believe you.

China, US Commit To Refrain From Currency Wars (R.)

China and the United States on Sunday committed anew to refrain from competitive currency devaluations, and China said it would continue an orderly transition to a market-oriented exchange rate for the yuan. A joint “fact sheet”, issued a day after U.S. President Barack Obama and his Chinese counterpart Xi Jinping held talks, also said the two countries had committed “not to unnecessarily limit or prevent commercial sales opportunities for foreign suppliers of ICT (information and communications technology) products or services”. While China and the United States cooperate closely on a range of global issues, including North Korea’s disputed nuclear program and climate change, the two countries have deep disagreements in other areas, like cyberhacking and human rights.

Both countries said they would “refrain from competitive devaluations and not target exchange rates for competitive purposes”, the fact sheet said. Meanwhile, China would “continue an orderly transition to a market-determined exchange rate, enhancing two-way flexibility. China stresses that there is no basis for a sustained depreciation of the RMB (yuan). Both sides recognize the importance of clear policy communication.” China shocked global markets by devaluing the yuan in August 2015 and allowing it to slip sharply again early this year. Though it has stepped in to temper losses in recent weeks, the currency is still hovering near six-year lows against the dollar.

Read more …

Only when Beijing can locate another bubble to blow.

China’s $3.9 Trillion Wealth-Management Product Boom Seen Cooling (BBG)

China’s multi-trillion dollar boom in wealth-management products, under scrutiny around the world because of potential threats to financial stability, is set to cool as yields fall on tighter regulation, according to China Merchants Securities analyst Ma Kunpeng. Ma cited a “significant slowdown” in the products’ growth in the first half and said that WMPs may shrink in the future, with money flowing elsewhere. Banks have started to lower yields on WMPs in preparation for requirements for funds to be held in third-party custody, the analyst said, adding that such a change may be implemented over six months to a year. Currently, lenders can use newly invested money to pay off maturing products. The Chinese government and agencies including the IMF are focused on potential risks from WMPs that rose to a record 26.3 trillion yuan ($3.9 trillion) as of June 30.

Read more …

Have investors, who are mostly domestic, buy your banks’ bad debt. This is just shifting the rotten fish from the right pocket to the left.

China Banks Play Catch Up With Capital Raising As Bad Loans Soar (BBG)

China’s banks, which dialed down fundraising efforts this year even as bad debts swelled, are making up for lost time. Both lenders and the companies set up to acquire their delinquent assets are bolstering their finances. China Citic Bank last month announced plans to raise as much as 40 billion yuan ($6 billion), while Agricultural Bank of China, Industrial Bank and China Zheshang Bank are also boosting capital. China Cinda Asset Management and China Huarong Asset Management are poised to tap investors. “Chinese banks are preemptively raising capital while pricing remains favorable in order to tackle higher loan impairments,” said Nicholas Yap at Mitsubishi UFJ Securities in Hong Kong.

“Additionally, the mid- and small-sized lenders also need to boost their capital levels as they have been growing their asset bases rapidly, largely through their investment receivables portfolios.” Chinese banks have strained their finances with the busiest first-half lending spree on record, despite having the highest amount of bad debt in 11 years. Still, completed offerings of hybrid capital declined 38% after two consecutive years of record fundraising. A rule change in April that requires lenders to make full provisions for loan rights they have transferred is also encouraging the fundraising. BNP Paribas said Chinese lenders may be assessing the right time to approach investors.

Read more …

You have to specify who’s going to pay that cost, Joe.

Stiglitz: “Cost Of Keeping Euro Probably Exceeds Cost Of Breaking It Up” (LSE)

Can the euro be saved? In an interview with Artemis Photiadou and EUROPP’s editor Stuart Brown, Nobel Prize-winning economist and bestselling author Joseph Stiglitz discusses the structural problems at the heart of the Eurozone, why an amicable divorce may be preferable to maintaining the single currency, and how European leaders should respond to the UK’s vote to leave the EU. Your new book, The Euro: And its Threat to Europe, outlines the problems at the heart of the euro and their effects on European economies. Can the euro be saved?

The fundamental thesis of the book is that it is the structure of the Eurozone itself, not the actions of individual countries, which is at the root of the problem. All countries make mistakes, but the real problem is the structure of the Eurozone. A lot of people say there were policy mistakes – and there have been a lot of policy mistakes – but even the best economic minds in the world would have been incapable of making the euro work. It’s fundamentally a structural problem with the Eurozone. So are there reforms that could make the euro work? Yes, I think there are and in my book I talk about what these reforms would be. They are not that complicated economically, after all the United States is made up of 50 diverse states and they all use the same currency so we know that you can make a currency union work. But the question is, is there political will and is there enough solidarity to make it work?

There is an argument that even if the euro was a mistake, the costs of breaking it up may be so severe that it is worth pushing for a reformed euro rather than pursuing what you call an ‘amicable divorce’. Are the benefits of a properly functioning euro worth the costs to get there? You are right. The question of whether you should form the union is different from whether you should break it up: history matters. I think it’s pretty clear now that it was a mistake to start the euro at that time, with those institutions. There will be a cost to breaking it up, but whichever way you look at it, over the last 8 years the euro has generated enormous costs for Europe. And I think that one could manage the cost of breaking it up and that under the current course, the cost of keeping the Eurozone together probably exceeds the cost of breaking it up.

Read more …

Chapter 11.

Hanjin Shipping Shares Drop 30% As It Seeks Stay Orders In 43 Countries (BBG)

South Korea’s financial regulator said Hanjin Shipping will seek stay orders in 43 countries to protect its vessels from being seized, after its court receivership filing last week roiled companies’ supply chain before the year-end shopping season. Applications in 10 countries will be made this week and the remainder soon, the Financial Supervisory Commission said in a statement Monday. Hanjin Group, owner of the shipping line, should also take more action to account for the “chaos” caused to the shipping industry, FSC Chairman Yim Jong Yong said. Vessels of Hanjin – the world’s 7th-largest container carrier with a 2.9% market share – are getting stranded at sea and ports after the box carrier sought protection, hurting the supply of LG televisions and other consumer goods ahead of the holiday season.

Hanjin Shipping shares resumed trading Monday limit down 30% and later erased losses to rally as much as 18%. Any optimism may be misplaced, said Park Moo Hyun Hana Financial Investment in Seoul. “Retail investors are hoping for the best on false hopes,” Park said. “They think that government measures to help resolve the supply-chain disruptions could mean it’s also supporting Hanjin Shipping. They don’t seem to realize that that’s the wrong conclusion.” The commission said 79 of Hanjin’s vessels, including 61 container ships, have had their operations disrupted. Hanjin Group Chairman Cho Yang Ho and Korean Air Lines, the shipping company’s largest shareholder, should take steps to ease the disruptions, Yim said.

Read more …

Keep digging!

Japan’s Long-Term Bonds Add To Worst Rout Since 2013 (BBG)

Japanese long-term bonds fell, with 30-year debt adding to its biggest weekly loss in almost 2 1/2 years, as investors prepared to bid at an auction of the securities Tuesday. The rout is being driven by speculation the Bank of Japan will reduce its bond-buying program at its next policy meeting Sept. 20-21 now that it owns a third of the nation’s government debt. BOJ Governor Haruhiko Kuroda said Monday he doesn’t share the view there’s a limit to monetary easing. PIMCO said last month the central bank has pushed monetary policy as far as it can. “Unless Governor Kuroda directly rules out scaling back bond purchases, the market will continue to hold that as a possibility,” said Shuichi Ohsaki, the chief rates strategist at Bank of America’s Merrill Lynch unit in Tokyo. “Selling of longer-dated debt is likely ahead of tomorrow’s 30-year auction.”

Read more …

The whole notion that you’re going to try out ‘New Ideas’ kills off confidence, the one thing you know is needed.

BOJ’s Kuroda Says Room For More Easing, Including New Ideas (R.)

Bank of Japan Governor Haruhiko Kuroda signaled his readiness to ease monetary policy further using existing or new tools, shrugging off growing market concerns that the bank is reaching its limits after an already massive stimulus program. He also stressed the BOJ’s comprehensive assessment of its policies later this month won’t lead to a withdrawal of easing. But Kuroda acknowledged that the BOJ’s negative interest rate policy may impair financial intermediation and hurt public confidence in Japan’s banking system, a sign the central bank is becoming more mindful of the rising cost of its stimulus.

“Even within the current framework, there is ample room for further monetary easing … and other new ideas should not be off the table,” Kuroda told a seminar on Monday. “There may be a situation where drastic measures are warranted even though they could entail costs,” he said, adding that the BOJ should “always prepare policy options.” Under its current framework that combines negative rates with hefty buying of government bonds and some riskier assets, the BOJ has gobbled up a third of Japan’s bond market and faced criticism from banks for squeezing already thin profit margins.

Read more …

Slap that wrist!

EU Finds Volkswagen Broke Consumer Laws In 20 Countries (R.)

The European Commission has found that Volkswagen broke consumer laws in 20 European Union countries by cheating on emissions tests, German daily Die Welt reported, citing Commission sources. Among them are the Consumer Sales and Guarantees Directive – which prohibits companies from touting exaggerated environmental claims in their sales pitches – and the Unfair Commercial Practises Directive, both of which apply across the EU, the paper said. The European Commission said Industry Commissioner Elzbieta Bienkowska has repeatedly invited Volkswagen to consider compensating consumers voluntarily, without an encouraging response, and that it was for national courts to determine whether consumers were legally entitled to compensation.

To ensure consumers are treated fairly, a Commission spokeswoman said, Consumer Commissioner Vera Jourova had written to consumer associations across the EU to collect information. “She will meet relevant representatives in Brussels this week,” the spokeswoman wrote in an emailed response. Jourova has been working with consumer groups to pressure Volkswagen to compensate clients in Europe as it has in the United States over the diesel emissions scandal. Volkswagen has pledged billions of euros to compensate owners of VW diesel-powered cars, but has so far rejected calls for similar payments for the 8.5 million affected vehicles in Europe, where different legal rules weaken the chances of winning a pay out.

Read more …

Jim makes a good point: today’s food lines have turned digital.

The Greater Depression (Quinn)

It’s the black and white photographs of disheartened men and hungry children from the 1930’s that define the Great Depression for present day generations. Of course after years of government run social engineering disguised as education, most people couldn’t even define when or what constituted the Great Depression. These heart wrenching portraits of average Americans suffering and in despair capture the zeitgeist of the last Fourth Turning crisis. Apologists for the status quo contend the last eight years couldn’t possibly be classified as a depression. The narrative of economic recovery has been peddled by corporate media mouthpieces, feckless politicians, Too Big To Trust Wall Street bankers, Federal Reserve puppets, and government apparatchiks flogging manipulated data as proof of economic advancement. They point to the lack of soup lines as proof we couldn’t be experiencing a depression.

First of all, if there were soup lines, the corporate media would just ignore them. If they don’t report it, then it isn’t happening. Secondly, the soup lines are electronic, as the government downloads the “soup” onto EBT cards so JP Morgan can reap billions in fees to run the SNAP program. Just because there are no pictures of starving downtrodden Americans in shabby clothes waiting in soup lines, doesn’t mean the majority of Americans aren’t experiencing a depression. If the country has actually been experiencing an economic recovery for the last seven years, why would 14% to 15% of all Americans be dependent on food stamps to survive? When the economy is actually growing and employment is really below 5%, the%age of Americans on food stamps is below 8%.

If the government economic data was truthful, there would not be 43.5 million people living in 21.4 households (17% of all households) dependent on food stamps. More than 100 million Americans are now dependent on some form of federal welfare (not including Social Security or Medicare). If the economy came out of recession in the second half of 2009, why would 6 million more Americans need to go on welfare over the next two years?

Read more …

I don’t know, it’s an ambitious dream and all, but… Reading that $40 billion has been pledged for a $1.4 trillion project doesn’t help, I guess.

The Ultimate 21st Century Choice: OBOR Or War (Escobar)

The G20 meets in tech hub Hangzhou, China, at an extremely tense geopolitical juncture. China has invested immense political/economic capital to prepare this summit. The debates will revolve around the main theme of seeking solutions “towards an innovative, invigorated, interconnected and inclusive world economy.” G20 Trade Ministers have already agreed to lay down nine core principles for global investment. At the summit, China will keep pressing for emerging markets to have a bigger say in the Bretton Woods system. But most of all China will seek greater G20 backing for the New Silk Roads – or One Belt, One Road (OBOR), as they are officially known – as well as the new Asian Infrastructure Investment Bank (AIIB).

So at the heart of the G20 we will have the two projects which are competing head on to geopolitically shape the young 21st century. China has proposed OBOR; a pan-Eurasian connectivity spectacular designed to configure a hypermarket at least 10 times the size of the US market within the next two decades. The US hyperpower – not the Atlanticist West, because Europe is mired in fear and stagnation — “proposes” the current neocon/neoliberalcon status quo; the usual Divide and Rule tactics; and the primacy of fear, enshrined in the Pentagon array of “threats” that must be fought, from Russia and China to Iran. The geopolitical rumble in the background high-tech jungle is all about the “containment” of top G20 members Russia and China.

Shuttling between the West and Asia, one can glimpse, in myriad forms, the graphic contrast between paralysis and paranoia and an immensely ambitious $1.4 trillion project potentially touching 64 nations, no less than 4.4 billion people and around 40 per cent of the global economy which will, among other features, create new “innovative, invigorated, interconnected and inclusive” trade horizons and arguably install a post-geopolitics win-win era. An array of financial mechanisms is already in place. The AIIB (which will fund way beyond the initial commitment of $100 billion); the Silk Road Fund ($40 billion already committed); the BRICS’s New Development Bank (NDB), initially committing $100 billion; plus assorted players such as the China Development Bank and the Hong Kong-based China Merchants Holdings International.

Chinese state companies and funds are relentlessly buying up ports and tech companies in Western Europe – from Greece to the UK. Cargo trains are now plying the route from Zhejiang to Tehran in 14 days, through Kazakhstan and Turkmenistan; soon this will be all part of a trans-Eurasia high-speed rail network, including a high-speed Transiberian. The $46 billion China-Pakistan Economic Corridor (CPEC) has the potential to unblock vast swathes of South Asia, with Gwadar, operated by China Overseas Port Holdings, slated to become a key naval hub of the New Silk Roads. Deep-sea ports will be built in Kyaukphyu in Myanmar, Sonadia island in Bangladesh, Hambantota in Sri Lanka. Add to them the China-Belarus Industrial Park and 33 deals in Kazakhstan covering everything from mining and engineering to oil and gas.

Read more …

Greece gets punished for not inflicting more misery on its people fast enough.

EU Will Not Release More Bailout Money For Greece This Month (R.)

The euro zone will not release additional bailout money for Greece at a meeting in Bratislava this month, Germany’s Handelsblatt Global reported on Sunday, citing European Union diplomats. The online edition of the German business daily quoted the diplomats as saying that Athens had only implemented two of 15 political reforms that are conditions for the bailout money. Above all, they said, Greece had been slow to privatize state assets. Under a deal signed last year with the Troika, the ESM will provide financial assistance of up to €86 billion to Greece by 2018 in return for the agreed reforms.

The debt relief is due to be granted in tranches, including short-term measures to extend Greece’s debt, with a further reduction due after 2018 including interest deferrals and interest rate caps. Handelsblatt Global said the Eurogroup had approved a tranche of €10.3 billion for Greece in May from the overall package. An initial €7.5 billion of that sum had been transferred to Athens with the rest scheduled to arrive in the fall. The diplomats said the Eurogroup will only discuss a progress report on Greece at the Bratislava meeting. The comments came just days after the head of the euro zone’s bailout fund, the European Stability Mechanism (ESM) on Saturday said Greece could secure short-term debt relief measures “very soon” if it implements remaining reforms agreed under its bailout program.

Read more …

Civilized Europe.

Hungary Police Recruit ‘Border-Hunters’ To Keep Migrants Out (BBC)

The Hungarian police are advertising for 3,000 “border-hunters”, who will reinforce up to 10,000 police and soldiers patrolling a razor-wire fence built to keep migrants out. The new recruits, like existing officers, will carry pistols with live ammunition, and have pepper spray, batons, handcuffs and protective kit. The number of migrants reaching Hungary’s southern border with Serbia has stagnated, at fewer than 200 daily. The new guards will start work in May.\ The recruits will have six months’ training, they must be over 18, physically fit and must pass a psychological test, police officer Zsolt Pozsgai told Hungarian state television. Monthly pay will be 150,000 forint ($542) for the first two months, then 220,300 forint.

Hungary is in the grip of a massive publicity campaign, launched by Prime Minister Viktor Orban’s right-wing government ahead of a 2 October referendum. Voters will be asked to oppose a European Commission proposal to relocate 160,000 refugees more fairly across the 28-nation EU. Under the EU scheme, Hungary has been asked to take 1,300 refugees. The relocation programme is for refugees from Syria, Iraq and Eritrea. Currently 30 migrants are allowed into Hungary each day through official “transit zones”.

Read more …

Inevitable when far too many people are forced into far too few places, over prolonged periods of absolute uncertainty about their fate. Though children assaulting children is a new depth. Our friend Kostas says these things originate almost always in a lack of food. The solution is simple: EU countries should live up to their promises regarding refugee relocation.

Overnight Clashes At Lesvos Refugee Center (Kath.)

Authorities say clashes have broken out between rival ethnic groups of refugees and other migrants at a detention camp on the eastern Aegean Sea island of Lesvos. The trouble at the Moria hot spot started shortly after midnight in a wing of the camp where minors are held and then spread, authorities said, adding that child refugees from Syria had been assaulted by a group of Afghan children. An unspecified number of children were injured while about 40 of them escaped into nearby fields. Order was restored around 4 a.m. after intervention by riot police. Authorities were trying to locate the missing children. Nearly 5,000 migrants and refugees are currently sheltered on the islands of Lesvos. Local authorities are demanding immediate government action to decongest overcrowded migrant facilities.

Read more …

Australia’s ancient civilizations were way ahead of anyone else.

9,000-Year-Old Stone Houses Found On Australian Island (G.)

Archeologists working on the Dampier archipelago off Australia’s north-west coast have found evidence of stone houses dating back 9,000 years – to the end of the last ice age – building the case for the area to get a world heritage listing. Circular stone foundations were discovered in a cave floor on Rosemary Island, the outermost of 42 islands that make up the archipelago. The islands and the nearby Burrup peninsula are known as Murujuga – a word meaning “hip bones sticking out” – in the language of the Ngarluma people. Prof Jo Mcdonald, director of the Centre for Rock Art Research and Management at the University of Western Australia, said the excavations showed occupation was maintained throughout the ice age and the period of rapid sea level rise that followed.

“Around 8,000 years ago, it would have been on the coast,” McDonald told Guardian Australia. “This is the time that the islands were starting to be cut off and it’s a time when people were starting to rearrange themselves.” The sea level on Australia’s north-west coast rose 130 metres after the end of the ice age, at a rate of about a metre every five to 10 years. “In people’s lifetimes they would have seen loss of territory and would have had to renegotiate – a bit like Miami these days,” McDonald said. The placement of the stone structures indicated how that sudden space restriction was managed, she said. “The development of housing is really significant in terms of understanding how people actually divided up their space and lived in close proximity to each other in times of environmental stress.”

Read more …

“..we are wiping out some of our closest relatives..”

World’s Largest Gorillas ‘One Step From Going Extinct’ (AFP)

The world’s largest gorillas have been pushed to the brink of extinction by a surge of illegal hunting in the Democratic Republic of Congo, and are now critically endangered, officials said Sunday. With just 5,000 Eastern gorillas (Gorilla beringei) left on Earth, the majestic species now faces the risk of disappearing completely, officials said at the International Union for Conservation of Nature’s global conference in Honolulu. Four out of six of the Earth’s great apes are now critically endangered, “only one step away from going extinct,” including the Eastern Gorilla, Western Gorilla, Bornean Orangutan and Sumatran Orangutan, said the IUCN in an update to its Red List, the world’s most comprehensive inventory of plant and animal species. Chimpanzees and bonobos are listed as endangered.

“Today is a sad day because the IUCN Red List shows we are wiping out some of our closest relatives,” Inger Andersen, IUCN director general, told reporters. War, hunting and loss of land to refugees in the past 20 years have led to a “devastating population decline of more than 70%,” for the Eastern gorilla, said the IUCN’s update. One of the two subspecies of Eastern gorilla, known as Grauer’s gorilla (G. b. graueri), has drastically declined since 1994 when there were 16,900 individuals, to just 3,800 in 2015. Even though killing these apes is against the law, hunting is their greatest threat, experts said. The second subspecies of Eastern gorilla – the Mountain gorilla (G. b. beringei) – has seen a small rebound in its numbers, and totals around 880 individuals.

Read more …

Jun 292016
 
 June 29, 2016  Posted by at 8:06 am Finance Tagged with: , , , , , , , ,  1 Response »
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


Walker Evans Shoeshine stand, Southeastern US 1936


16 Reasons To Celebrate Brexit’s Win (Bandow)
Brexit, a Step in the Right Direction (OTM)
Brexit Pulls Central Bankers In Conflicting Directions (WSJ)
When Central Planning Fails (ZH)
Cameron Wins Brexit Breathing Space At Gloomy EU Summit (AFP)
Draghi Wishes for a World Order Populists Will Love to Hate (BBG)
Exposure Of Asian Economies To UK Banks Will Cause Sharp Slowdown (SCMP)
Japan Inc.’s Yen Nightmare Looms at Large Exporters (BBG)
Robot Lawyer Overturns 160,000 Parking Tickets In London And New York (G.)
Oil Is Still Heading to $10 a Barrel (A. Gary Shilling)
A Zombie Is A Terrible Thing To Behold (Jim Kunstler)
Elites, ‘You’re Fired!’ (Dmitry Orlov)
The World Is Rejecting Globalization (Bernie Sanders)
Dutch PM Rutte Wants ‘Binding’ Assurances Over EU’s Ukraine Deal (R.)

A tas less Brexit than the past few days. Since most of the ‘journalism’ is so ‘end of the world’ one-sided, let’s start with some different views.

‘Doug Bandow is a former Special Assistant to President Ronald Reagan and author of Foreign Follies: America’s New Global Empire. He is a Senior Fellow at the Cato Institute.’

16 Reasons To Celebrate Brexit’s Win (Bandow)

1. Average folks took on the commanding heights of politics, business, journalism and academia and triumphed. Obviously, the “little guy” isn’t always right, but the fact he can win demonstrates that a system whose pathways remain open to those the Bible refer to as “the least of these.” The wealthiest, best-organized and most publicized factions don’t always win.

2. Told to choose between economic bounty and self-governance, a majority of Britons chose the latter. It’s a false choice in this case, but people recognized that the sum of human existence is not material. The problem is not just the decisions previously taken away from those elected to govern the UK; it’s also the decisions that would have been taken away in the future had “Remain” won.

3. Those governed decided that they should make fundamental decisions about who would rule over them. The Eurocrats, a gaggle of politicians, bureaucrats, journalists, academics, lobbyists and businessmen were determined to achieve their ends no matter what the European people thought. A constitution rejected? Use a treaty. A treaty rejected? Vote again. A busted monetary union? Force a political union. And never, ever consult the public. No longer, said the British.

13. Schadenfreude is a terrible thing, but almost all of us glory in the misfortune of at least some others. The recriminations among the Remain camp in Britain are terrible to behold. Labour Party tribunes blame their leader Jeremy Corbyn, whose Euroskeptic past created suspicions inflamed by his criticisms of the EU while nominally praising it. His supporters blame the Scottish nationalists for not turning out their voters. Former Liberal-Democrat Party leader and deputy Prime Minister Nick Clegg trashed Cameron and Chancellor of the Exchequer George Osborne for seeking political advantage by holding the referendum. The Scots are mad at the English. Irish “republicans” in Northern Ireland also are denouncing the English, while their longtime unionist rivals are trashing the republicans. The young are blaming the old for ruining their futures. Apparently, America isn’t the only home for myopic bickering.

14. Sometimes the advocate of a lost cause triumphs. Nigel Farage has been campaigning against the EU forever, it seems. Yet every advance appeared to trigger a retreat. His United Kingdom Independence Party picked up support, but then had to shed some of those whose views really were beyond the pale. UKIP was able to break into the European Parliament, which it hated, but won only one seat at Westminster, despite receiving 3.9 million votes, or 12.6% of the total, in last year’s election. One reason was that Cameron and the Tories stole his issue, promising a referendum on the EU—in which they then opposed separation. Election night he admitted that it looked like the UK would choose to remain. Except the British people ended up taking his advice.

Read more …

From Charles’ “correspondent” Ron. Brexit as a natural phenomenon. “I believe we have entered a critical but wonderful age, the age of reemergence of decentralization and decentralized governance; may we preserve this opportunity for the gift that it is to life, liberty and property.”

Brexit, a Step in the Right Direction (OTM)

“Mankind’s fundamental quest is to survive and prosper by solving scarcity. BREXIT is simply a modern example of an old pattern of behavior that seeks to resolve scarcity, (the shrinking pie of economic opportunity and ownership), through reconfiguration of relationships to reallocate resources to enable more equitable equilibrium in supply and demand. As a prelude to BREXIT, housing in Britain, in particular, had become out of reach for those that have labored under the assumption that hard work, education, and a good job would lead to an ability to own a home, which many young Britons now find economically out of their reach; many Britons blame the government’s monetary policy of 0% interest rates for inflation and unaffordable housing.

In another sign of frustration, a few years ago a graffiti sign expressed a sentiment of the youth in Britain, one of them posted at Bell Lane near Liverpool St. Station, it read: ‘Sorry, the lifestyle you ordered is out of stock.’ The Bank of England has continued policies that have contributed to the exasperation expressed through the referendum, this along with the burdens of having an open country and economy that increased labor supply which in turn increased demand for housing and available credit to driving the asset bubble. This type of scarcity, being seen in Britain, is very common throughout history and is generally driven by the confluence of interests that connects and drives centralized, unified policies between bankers, merchants (in today’s world global corporations) and governments.

Turning back the clock a bit, I would like to include a couple of quotes by an amazingly brilliant and eloquent commentator in economics, Fredic Bastiat in his writings from 1850: 1) “I do not dispute their right to invent social combinations, to advertise them, to advocate them, and to try them upon themselves, at their own expense and risk. But I do dispute their right to impose these plans upon us by law – by force – and to compel us to pay for them with our taxes.” 2) “Self-preservation and self-development are common aspirations among all people. And if everyone enjoyed the unrestricted use of his faculties and the free disposition of the fruits of his labor, social progress would be ceaseless, uninterrupted, and unfailing. But there is also another tendency that is common among people. When they can, they wish to live and prosper at the expense of others.”

Read more …

Currency wars with an twist.

Brexit Pulls Central Bankers In Conflicting Directions (WSJ)

ECB President Mario Draghi urged central banks to better coordinate policies to confront the problem of ultralow inflation in an era of slow global growth, underscoring the conundrum he and his associates face in the wake of Britain’s vote to leave the European Union. The guardians of the global monetary system face conflicting pressures as they seek to support their economies amid new turbulence. They also run the risk that their efforts will work at odds with each other and destabilize the financial system. Central banks should examine whether their policies are “properly aligned,” Mr. Draghi said at an ECB conference in Portugal. He further warned that currency devaluations aimed at boosting national competitiveness are a “lose-lose” for the global economy.

“In a globalized world, the global policy mix matters—and will likely matter more as our economies become more integrated,” Mr. Draghi said. “The speed with which monetary policy can achieve domestic goals inevitably becomes more dependent on others.” His warning resonated as central banks try to respond to the looming Brexit. Last week’s vote sent currencies spinning, pushing up the dollar and Japanese yen and driving down the euro and the British pound. It also sent investors away from stocks and risky bond investments. Markets settled on Tuesday after two days of sharp selling of risky assets. The Bank of England faces the risk of recession paired with the threat of inflation. If it lowers interest rates to boost growth, it could put additional downward pressure on its currency which stirs inflation. If it stands still, economic growth could suffer.

Read more …

Diminishing returns on the biggest debt drive in history will diminish with a vengeance.

When Central Planning Fails (ZH)

Things have not been going according to plan for Kuroda-san and his policy-making ‘Peter-Pan’s in Japan. Since The Bank of Japan unleashed NIRP on its ‘saving’ community – which, according to the textbooks would force money to reach for riskier investments, pumping stocks up, or flush cash into inflationary consumption – stock prices have collapsed and bond prices have exploded… In fact, in six months, bonds are outperforming stocks by a central-bank-credibility-crushing 70%!!! Rate cuts…not working.

And it’s not just The BoJ that is struggling – since The Fed hiked rates, The S&P is down 3.5% and Treasuries are up 16%!!

Read more …

Behind the rhetoric, the EU is powerless to demand on the timeline. Moreover, guys like Juncker and Tusk are starting to fear for their cushy jobs.

Cameron Wins Brexit Breathing Space At Gloomy EU Summit (AFP)

EU leaders gave Britain breathing space Tuesday by accepting it needed time to absorb a shock Brexit vote before triggering a divorce but insisted the crunch move could not wait months. A humiliated Prime Minister David Cameron came face-to-face with European colleagues for the first time since last week’s vote at a Brussels summit which leaders said was “sad” but pragmatic. Trillions of dollars have been wiped off world markets since Thursday’s vote to leave the EU, while the United Kingdom’s future has been thrown into doubt after Scotland said it would push for a new independence referendum. Further shockwaves juddered through British politics as Jeremy Corbyn, leader of the main opposition Labour party, vowed to fight on despite losing a crushing no-confidence vote among his party’s lawmakers.

Thousands of people took to the streets of London, which voted overwhelmingly to stay in the EU, to protest against the referendum result, waving EU flags and placards saying: “Stop Brexit”. After hours of talks in Brussels, EU President Donald Tusk said that he understood that time was needed “for the dust to settle” in Britain before the next steps can be taken. But reflecting wider concerns of a domino effect of other states wanting to leave, EC president Jean-Claude Juncker said Britain did not have “months to meditate”. He set a clear timetable for triggering Article 50, the EU treaty clause that begins the two-year withdrawal process, after Cameron’s successor takes office in early September. Juncker said that if the new prime minister was a pro-remain figure, Article 50 should be activated “in two weeks after his appointment” – but if it was a supporter of the leave campaign, “it should be done the day after his appointment,” he added.

Read more …

Note how the term ‘populist’ is regurgitated by media like Bloomberg, and then applied to anyone ‘we’ are supposed to eye with suspicion. Beppe Grillo, Nigel Farage, Hugo Chavez, Podemos, there’s a long list by now, and all they have in common is resistance to ‘The Model’. Problem of course is, when used this way, a term loses its meaning. But for now, everyone takes for granted that anyone who’s a Euroskeptic is also per definition a populist.

Draghi Wishes for a World Order Populists Will Love to Hate (BBG)

Mario Draghi has just pushed the boundaries of central banking further into the realm of globalization, at a time when globalization is on the run. Following the work of Reserve Bank of India Raghuram Rajan and others, the ECB president on Tuesday became the most senior global central banker so far to call for more explicit policy cooperation between jurisdictions. Draghi’s aim is to mitigate the damaging cross-border side-effects brought on by the combination of monetary activism and tighter global financial links. “We have to think not just about whether our domestic monetary policies are appropriate, but whether they are properly aligned across jurisdictions,” Draghi said at the ECB’s annual policy forum in Sintra, Portugal. “In a globalized world, the global policy mix matters.”

While Draghi made no explicit reference in the speech to the U.K.’s June 23 decision to quit the EU, a powerful rejection by voters of globalization, he told European leaders just hours later that he leans toward the more pessimistic forecasts of the impact of Britain’s vote on growth in the rest of the region, according to a document obtained by Bloomberg News. [..] Policy coordination is a laudable thought as long as it’s not taken too far, said Omair Sharif at Societe Generale in New York. “What he’s getting at is simply the idea that we don’t have a great understanding of all the financial linkages and capital flows,” Sharif said. “That certainly does call for better understanding among central banks, not necessarily coordinated policies.”

Read more …

It was all borrowed growth anyway. And you can’t borrow growth.

Exposure Of Asian Economies To UK Banks Will Cause Sharp Slowdown (SCMP)

Asian economies may slow down sharply and currencies may be pushed broadly lower as the Brexit contagion hits Asia, with Hong Kong likely to fall into a recession and the Chinese yuan to decline further, according to analysts. Britain’s dramatic decision to break from the European Union has roiled financial markets and sent shockwaves across the globe. Asian economies could soon feel deeper pains through several channels, including the financial sector, trade, investor confidence, and investor psychology, according to analysts from Nomura on Tuesday. “It’s not a temporary contagion. There are going to be several waves [on Asia],” said Rob Subbaraman at Nomura in a conference call.

Subbaraman said his team had slashed GDP growth forecasts for all major economies in the region and put Asia’s aggregate growth at 5.6% in 2016, down from a previous projection of 5.9%. In the region, Hong Kong may be hit the most, with its 2016 GDP likely to shrink by 0.2%, compared with a previous estimate of 0.8% growth. In 2015, Hong Kong’s economy grew by 2.4%. Singapore’s projected growth rate for 2016 was also cut sharply to 1.1%, versus an estimate of 1.8% previously. “Hong Kong and Singapore are both financial hubs and very exposed to UK banks,” said Subbaraman. “They also have managed exchange rates, which give central banks less leeway in rate policy. There is also a risk that the HIBOR (Hong Kong Interbank Offered Rate) rates could start rising.”

In particular, the reasons that they forecast an “outright recession” for the Hong Kong economy are mainly related to a stronger Hong Kong dollar, which is rising with the US dollar amid global risk aversion. Hong Kong’s reliance on exports also leaves it exposed to Brexit risks, as the city’s merchant exports to the UK and the rest of the EU accounted for 14% of GDP in 2015, the highest in Asia, Nomura analysts said.

Read more …

More currency wars with more twist.

Japan Inc.’s Yen Nightmare Looms at Large Exporters (BBG)

For a sense of how much the surging yen will hurt Japanese earnings, look at the gap between where companies expected the currency to trade and where it actually is. On average, large manufacturers calculated their earnings forecasts assuming the yen would be about 114 per dollar, based on data from the Bank of Japan. With the yen’s latest rally, the gap with that forecast is the widest since the global financial crisis in 2008.

Read more …

Cities won’t be happy with this. Parking tickets are a large source of income.

Robot Lawyer Overturns 160,000 Parking Tickets In London And New York (G.)

An artificial-intelligence lawyer chatbot has successfully contested 160,000 parking tickets across London and New York for free, showing that chatbots can actually be useful. Dubbed as “the world’s first robot lawyer” by its 19-year-old creator, London-born second-year Stanford University student Joshua Browder, DoNotPay helps users contest parking tickets in an easy to use chat-like interface. The program first works out whether an appeal is possible through a series of simple questions, such as were there clearly visible parking signs, and then guides users through the appeals process.

The results speak for themselves. In the 21 months since the free service was launched in London and now New York, DoNotPay has taken on 250,000 cases and won 160,000, giving it a success rate of 64% appealing over $4m of parking tickets. “I think the people getting parking tickets are the most vulnerable in society. These people aren’t looking to break the law. I think they’re being exploited as a revenue source by the local government,” Browder told Venture Beat. The bot was created by the self-taught coder after receiving 30 parking tickets at the age of 18 in and around London. The process for appealing the fines is relatively formulaic and perfectly suits AI, which is able to quickly drill down and give the appropriate advice without charging lawyers fees.

Read more …

Shilling’s not had his strongest year so far, but duly noted.

Oil Is Still Heading to $10 a Barrel (A. Gary Shilling)

Back in February 2015, the price of West Texas Intermediate stood at about $52 per barrel, half of its 2014 peak. I argued then that a renewed decline was coming that could drive it below $20, a scenario regarded by oil bulls as unthinkable. But prices did fall further, dropping all the way to a low of $26 in February. Since then, crude rallied to spend several weeks flirting with $50 per barrel, a level not seen since last year. But it won’t last; I’m sticking to my call for prices to decline anew to $10 to $20 per barrel. Recent gains have little to do with the fundamentals that led to the collapse in the first place.

Wildfires in the oil-sands region in Canada, output cuts in Nigeria and Venezuela due to political unrest, and hopes that American hfracking would run out of steam are the primary causes of the recent spurt. But the world continues to be awash in crude, and American frackers have replaced the OPEC as the world’s swing producers. The once-feared oil cartel is, to my mind, pretty much finished as an effective price enforcer. Even OPEC’s leader, Saudi Arabia, is acknowledging the new reality by quashing recent attempts to freeze output, borrowing from banks and preparing to sell a stake in its Aramco oil company as it tries to find new sources of non-oil revenue.

The Saudis and their Persian Gulf allies continue to play a desperate game of chicken with other major oil producers. Cartels exist to keep prices above equilibrium, which encourages cheating as cartel members exceed their allotted output and other producers take advantage of inflated prices. So the role of the cartel leader, in this case Saudi Arabia, is to cut its own output, neutralizing the cheaters to keep prices up. But the Saudis suffered market-share losses from their previous production cuts. OPEC has effectively abandoned restraints, with total output soaring to as high as 33 million barrels per day at the end of last year:

Read more …

“..a zombie holding a bag of dog-shit is like unto the end of the world..”

A Zombie Is A Terrible Thing To Behold (Jim Kunstler)

The politics of Great Britain are now falling apart landslide-style. Since just about everybody in or near power can be blamed for the national predicament, there’s nobody to turn to, at least not yet. The Labour party just acted out The Caine Mutiny, starring Jeremy Corbyn as Captain Queeg. The Tory Cameron gave three months notice without any plausible replacement in view. Now Cameron’s people are hinting in the media that they can just drag their feet on Brexit, that is, not do anything to enable it from actually happening for a while. Of course, that’s what the monkeyshines of banking and finance have done: postponed the inevitable reckoning with the realities of our time: growing resource scarcity, population overshoot, climate change, ecological holocaust, and the diminishing returns of technology.

Britain illustrates the problem nicely: how to produce “wealth” without producing wealth. It’s called “the City,” their name for the little district of London that is their Wall Street. In the absence of producing real things, the City became the driver of the UK’s economy, a ghastly parasitical organism that functioned as the central transfer station for the world’s swindles and frauds, churning the West’s dwindling residual capital into a slurry of fees, commissions, arbitrages, rigged casino bets, and rip-offs. In the process, it enabled the ECB to run the con-job that the EU became, with the fatal distortions of credit that have put its members into a ditch and sent the private European banks off a cliff, Thelma and Louise style.

The next stage of this protean global melodrama is what happens when currencies and interest rates become completely unglued from their assigned roles as patsies in financial racketeering. Sooner or later we’ll know what’s going on in the vast shadowy gloaming of “derivatives,” especially the “innovative” arrangements that affect to be “insurance” against losses in currency and interest rate “positions” — bets made on the movements of these things. When currencies rise or fall quickly, these so-called “swaps” are “triggered,” and then some hapless institution is left holding a big bag of dog-shit. A zombie is a terrible thing to behold, but a zombie holding a bag of dog-shit is like unto the end of the world.

Read more …

Dmitry uses the same definition of fascism I did the other day. More people should, because it tells you who the real fascists are.

Elites, ‘You’re Fired!’ (Dmitry Orlov)

• Patriotism is one’s love of one’s native land and people. It is a natural, organic result of growing up in a certain place among a certain people, who have also grown up there, and who pass along a cultural and linguistic legacy that they all love and cherish. This does not imply that those not of one’s family, neighborhood or region are in any way inferior, but they are not one’s own, and one loves them less.

• Nationalism is a synthetic product generated using public education and is centered around certain hollow symbols: a flag, an anthem, some yellowed pieces of paper, a few creation myths and so on. It is supported by certain rituals (parades, speeches, handing out of medals) that comprise a civic cult. The purpose of nationalism is to support the nation-state. Where nationalism serves the needs of one’s native land and people, nationalism and patriotism become aligned; when it destroys them, nationalism becomes the enemy and patriots form partisan movements, rise up and destroy the nation-state.

• Fascism is the perfect melding of the nation-state and corporations, in the course of which the distinction between public and private interests becomes erased and corporations come to dictate public policy. An almost perfect expression of fascism is the recent transatlantic and transpacific trade agreements negotiated in secret by the Obama administration, which at the moment, to everyone’s great relief, seem to be dead in the water.

It should be obvious that fascism has to be defeated, and if we were to pick just one perfectly good reason to fire the transatlantic elites then it is to thwart this corporate power grab. But it does not stop there, because nationalism and patriotism are also in play. Patriotism is a natural, core human value without which all you have is a rootless population shifting about opportunistically. Nationalism is a relatively recent innovation (nation-states are a 17th century invention) and as such a dangerous one, but in the case of some of the older and more successful nation-states it does provide significant benefits: a cherished cultural tradition anchored to a national language and literature, the ability to keep the peace and to repel outside aggression. And then there is the EU, with its flag depicting a constellation of stars that are obviously orbiting something—something that could only be a black hole, since it is invisible.

Read more …

Bit by bit, Brexit gets defined in its real perspective. Bernie Sanders needs numbers too much to make his case, but the case is obvious.

The World Is Rejecting Globalization (Bernie Sanders)

Surprise, surprise. Workers in Britain, many of whom have seen a decline in their standard of living while the very rich in their country have become much richer, have turned their backs on the EU and a globalized economy that is failing them and their children. And it’s not just the British who are suffering. That increasingly globalized economy, established and maintained by the world’s economic elite, is failing people everywhere. Incredibly, the wealthiest 62 people on this planet own as much wealth as the bottom half of the world’s population — around 3.6 billion people. The top 1% now owns more wealth than the whole of the bottom 99%. The very, very rich enjoy unimaginable luxury while billions of people endure abject poverty, unemployment, and inadequate health care, education, housing and drinking water.

Could this rejection of the current form of the global economy happen in the United States? You bet it could. During my campaign for the Democratic presidential nomination, I’ve visited 46 states. What I saw and heard on too many occasions were painful realities that the political and media establishment fail even to recognize. In the last 15 years, nearly 60,000 factories in this country have closed, and more than 4.8 million well-paid manufacturing jobs have disappeared. Much of this is related to disastrous trade agreements that encourage corporations to move to low-wage countries. Despite major increases in productivity, the median male worker in America today is making $726 dollars less than he did in 1973, while the median female worker is making $1,154 less than she did in 2007, after adjusting for inflation.

Nearly 47 million Americans live in poverty. An estimated 28 million have no health insurance, while many others are underinsured. Millions of people are struggling with outrageous levels of student debt. For perhaps the first time in modern history, our younger generation will probably have a lower standard of living than their parents. Frighteningly, millions of poorly educated Americans will have a shorter life span than the previous generation as they succumb to despair, drugs and alcohol. Meanwhile, in our country the top one-tenth of 1% now owns almost as much wealth as the bottom 90%. 58% of all new income is going to the top 1%. Wall Street and billionaires, through their “super PACs,” are able to buy elections.

Read more …

This makes it look like Rutte plays hardball, or almost. In reality, he’s looking for ways to disregard the outcome of the Dutch referendum. Already, while the applicable law says that the outcome should be implemented by the government as soon as possible, Rutte just keeps pushing it forward. After July 1, when Holland is no longer chair of the EU, pressure will rise on both sides. But if Rutte tries to sign the Ukraine deal despite the referendum, ‘binding assurances’ or not, he should be voted out of office ASAP. The Dutch people said NO, and Rutte can‘t turn that into a YES.

Dutch PM Rutte Wants ‘Binding’ Assurances Over EU’s Ukraine Deal (R.)

Dutch Prime Minister Mark Rutte asked European Union leaders on Tuesday for “legally binding” assurances to address his country’s concerns over a trade and association deal with Ukraine and said The Hague would block it otherwise. The Netherlands is the only EU state not to have ratified the bloc’s agreement on closer political, security and trade ties with Kiev following a referendum in April in which the Dutch voted overwhelmingly to reject it. The agreement with Kiev, reached after Russia annexed Crimea from Ukraine in March 2014 and then backed rebels fighting government troops in the east of the country, is being provisionally implemented now, but its future hinges on the Netherlands.

“What we need is a legally binding solution, which will address the many worries and elements of the discussion in the Netherlands leading up to the referendum,” Rutte said after an EU leaders’ summit in Brussels to discuss the aftermath of Britain’s vote last week to leave the bloc. The debate around the referendum in the Netherlands, which showed dissatisfaction with Rutte’s government and policy-making in Brussels, zeroed in on whether the agreement with Kiev would herald EU membership for Ukraine and its 45 million people. “The exact form – I don’t know yet,” Rutte said. “It could be that we have to change the text, it could be that we can find a solution which will not involve changing the text of the association agreement. I don’t know yet.

“If I am not able to achieve that … we will not sign,” he said. “We will try to find a solution, it will be difficult, the chances are small that we will get there but I think we should try.” The whole deal could be derailed should The Hague refuse to ratify it, but a senior EU official said he hoped this could be solved by the end of the year.

Read more …

May 212016
 
 May 21, 2016  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , ,  2 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


NPC National Service Co. front, 1610 14th Street N.W., Washington DC 1920


One-Third Of Chinese Real Estate Companies Are “Zombies” (Nikkei)
Defaults Throw Wrench in China’s $3 Trillion Company Bond Engine (BBG)
Easy Money = Overcapacity = Deflation (Rubino)
Cash-Stuffed US Balance Sheets No Match for Even Bigger Debt Loads (BBG)
US, Japan FX Row Overshadows G7 Meeting (R.)
Crude Tanker Storage Fleet Off Singapore Points To Stubborn Oil Glut (R.)
How Freddie and Fannie Are Held Captive (Morgenson)
TTIP: The Most Toxic Acronym In Europe (G.)
Monsanto Weedkiller Faces Recall From Europe After EU Fail To Agree Deal (G.)
Turkey Faces United EU Front in Row Over Visa-Free Travel (BBG)
EU Ministers Press Greece to Send More Syrians Back to Turkey (WSJ)
Syrian Refugee Wins Appeal Against Forced Return To Turkey (G.)

“..on the brink of default but still taking on more debt.”

One-Third Of Chinese Real Estate Companies Are “Zombies” (Nikkei)

As China’s economy continues to sputter, many local companies are having difficulty servicing their debts. A look at 3,000 listed Chinese businesses by French investment bank Natixis found that interest costs exceeded cash flow for 18.5% of them last year, compared with 8% in 2010. Real estate, the most debt-ridden sector, saw its leverage level reach 197% last year, nearly double the figure for 2008, according to Natixis. The investment bank estimates that almost one-third of listed companies in the sector are “zombies” – businesses that are on the brink of default but still taking on more debt.

“The share of zombies in the real estate sector literally doubles the average in [corporate] China,” said Iris Pang, senior economist for greater China at Natixis. Evergrande Real Estate, for example, saw its ratio of total liabilities to earnings before interest, taxes, depreciation and amortization – or EBITDA – leap to 15.4% at the end of 2015 from 8.5% a year earlier. The figure climbed to 28.6% from 14.9% at Greenland Holdings, 26.8% from 9.7% at Sunac China Holdings, and 58.5% from 20% at Shui On Land. A study released in May by brokerage CLSA of China’s property, mining, manufacturing, utilities, construction, and wholesale and retail sectors counted potential problem debts of 14 trillion yuan ($2.14 trillion) as of the end of 2015.

The property sector represented over half the total, at 54.1%, with industries plagued by excess capacity, such as utilities, steel and coal, accounting for much of the rest. Notably, most of the recent corporate bond defaults have come from these loss-making sectors too, including state-owned power equipment manufacturer Baoding Tianwei and Dongbei Special Steel. Worries about large-scale layoffs, especially in the steel and coal industries, have held the government back from pushing strongly on necessary capacity cutbacks. Instead, state banks have continued to extend more loans, said Francis Cheung at CLSA. Cheung estimates that the actual proportion of questionable debts on the books of China’s banks stands at 15-20%, compared with the 5.76% total reported by the central bank at the end of the first quarter for nonperforming loans and so-called special mention loans.

Read more …

Needing new debt to pay off the old. 72% of new debt is one year or less. Hmm..

Defaults Throw Wrench in China’s $3 Trillion Company Bond Engine (BBG)

Defaults and pulled sales are starting to gum up China’s bond refinancing machine. Chinese companies issued 382.7 billion yuan ($58.5 billion) of notes onshore this month, down 11% from the same period in April and 57% March, data compiled by Bloomberg show. With just eight trading days to go, fundraising may fall short of the record 547.3 billion yuan of debt due. That would mark a shift after sales were 83% more than maturities in April and almost three times higher in March. The faltering $3 trillion corporate bond market will test Premier Li Keqiang’s determination to weed out zombie companies dragging on growth in the world’s second-biggest economy. At least 10 issuers have reneged on onshore debt obligations this year, while 153 Chinese firms have pulled 175 billion yuan of domestic sales this quarter.

Shandong Iron & Steel, which canceled a 3 billion yuan bond offering on May 4, has 3 billion yuan of securities due this month and 30 billion yuan to repay this year. “Many Chinese companies are relying on new borrowings to repay their old debt,” said Liu Dongliang, a senior analyst at China Merchants Bank in Shenzhen. “If they can’t get the money they need, more will default.” Debt-laden companies are struggling to lock in stable, longer-term financing. Sales of onshore bonds maturing in one year or less accounted for 72% of issuance by Chinese coal and steel producers from May 2015 to April 2016, as many were unable to sell longer debt, according to Fitch Ratings. Most of the proceeds were used to refinance maturing notes, Fitch wrote in a May 13 report. “Only the best companies, which have strong profitability or trustworthy credit profiles, are able to sell bonds,” said Qiu Xinhong at First State Cinda Fund Management. “Confidence won’t rebound in the short term.”

Read more …

It really is that easy.

Easy Money = Overcapacity = Deflation (Rubino)

Somewhere back in the depths of time the world got the idea that easy money — that is, low interest rates and high levels of government spending — would produce sustainable growth with modest but positive inflation. And for a while it seemed to work. But that was an illusion. What actually happened was textbook, long-term, surreally-vast misallocation of capital in which individuals, companies and governments were fooled into thinking that adding new factories, stores and infrastructure at a rate several times that of population growth would somehow work out for the best.

China, as with so many other things, was the epicenter of this delusion. In response to the 2008-2009 financial crisis it borrowed more money than any other country ever, and spent most of the proceeds on infrastructure and basic industry. It’s steel-making capacity, already huge by 2008, kept growing right through the Great Recession, and now dwarfs that of any other country.

China steel produciton

The result was indeed higher prices for iron ore and finished steel up front (that is, the inflation the architects of the easy money era expected and desired). But this was soon followed by falling prices as the rest of the world’s steel makers tried to stay in the game.

Steel price

It’s the same story pretty much everywhere. Miners that produced the raw materials for the infrastructure/industrial build-out started projects based on inflated price projections and now have no choice but to keep producing to cover variable costs and avoid bankruptcy. Prices of virtually every commodity have as a result plunged. In the US, retailers built new stores at a pace that vastly exceeded population growth, apparently on the assumption that consumers would keep borrowing in order to buy ever-greater amounts of semi-useless stuff. And now bricks and mortar retailing is suffering a mass-die-off.

Retail space per capita

Read more …

Something’s got to give at some point.

Cash-Stuffed US Balance Sheets No Match for Even Bigger Debt Loads (BBG)

There’s more cash sitting on company balance sheets than ever before. For the first time since 2012, that’s not enough. Combining all of the corporate cash in the U.S. wouldn’t cover the $1.8 trillion of corporate debt that’s coming due in the next five years, according to a report by Moody’s Investors Service on Friday. That’s because U.S. companies have been borrowing more quickly than they’ve built up the record $1.68 trillion of cash on their balance sheets. And more of that debt comes due sooner. “You’re seeing more and more borrowing,” Richard Lane, a senior vice president at Moody’s, said by phone. “The increase in leverage has been notable. Cash coverage of near-term maturities hasn’t fallen below 100% since 2012, and hasn’t been as low as its current 93% since the year before that, according to Moody’s.

One reason may be that companies are making less money from merely running their businesses. Cash flow from operations declined 0.2% to $1.54 trillion in the 12 months ended in December 2015, the first time the metric declined in Moody’s data going back to 2007. To cope with sluggish global growth, companies went to the bond market to raise cash at rock-bottom rates. They issued a record $1.4 trillion of bonds last year, according to data compiled by Bloomberg. That helped lead to a 17% increase in the amount of company debt outstanding that matures in the next five years. In contrast, cash holdings only increased by 1.8% among U.S. non-financial companies at the end of 2015, according to Moody’s. The credit rater’s definition of cash includes short-term investments and liquid long-term investments.

Read more …

Was always inevitable.

US, Japan FX Row Overshadows G7 Meeting (R.)

The United States issued a fresh warning to Japan against competitive currency devaluation on Saturday, exposing a rift on exchange-rate policy that overshadowed a Group of 7 finance leaders gathering hosted by the Asian nation. Japan and the United States are at logger-heads over currency policy with Washington saying Tokyo has no justification to intervene in the market to stem yen gains, given the currency’s moves remain “orderly”. In bilateral talks ahead of the second day of G7 talks in Sendai, Japan on Saturday, U.S. Treasury Secretary Jack Lew told Japanese Finance Minister Taro Aso that it was important to refrain from competitive currency devaluation.

“Secretary Lew underscored that the commitments made by the G-20 in Shanghai to use all policy tools to promote growth – fiscal policy, monetary policy and structural reforms – and to refrain from competitive devaluation and communicate closely have helped to contribute to confidence in the global economy in recent months,” according to a statement by the Treasury Department.

“He noted the importance of countries continuing to adhere to those commitments,” the statement said. As years of aggressive money printing stretch the limits of monetary policy, the G7 policy response to anemic inflation and subdued growth has become increasingly splintered. Germany has shown no signs of responding to calls from Japan and the United States to boost fiscal spending. Washington also warned Tokyo against relying too much on monetary policy with a senior U.S. Treasury official saying structural reforms are being put in place in Japan “but slowly.”

Read more …

“..traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel..”

Crude Tanker Storage Fleet Off Singapore Points To Stubborn Oil Glut (R.)

Prices for oil futures have jumped by almost a quarter since April, lifted by severe supply disruptions caused by triggers such as Canadian wildfires, acts of sabotage in Nigeria, and civil war in Libya. Yet flying into Singapore, the oil trading hub for the world’s biggest consumer region, Asia, reveals another picture: that a global glut that pulled down prices by over 70% between 2014 and early 2016 is nowhere near over, and that financial traders betting on higher crude oil futures may be in for a surprise from the physical market. “I’ve been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers,” said a senior European oil trader a day after arriving in the city-state.


Red dots are ships at anchor or barely moving, oil tankers or cargo (ZH)

As Asia’s main physical oil trading hub, the number of parked tankers sitting off Singapore’s coast or in nearby Malaysian waters is seen by many as a gauge of the industry’s health. Judging by this, oil markets are still sickly: a fleet of 40 supertankers is currently anchored in the region’s coastal waters for use as floating storage facilities. The tankers are filled with 47.7 million barrels of oil, mostly crude, up 10% from the previous week, according to newly collected freight data in Thomson Reuters Eikon. That’s enough oil to satisfy five working days of Chinese demand, suggesting recent supply disruptions – which have mostly occurred in the Americas, Africa and Europe – have done little to tighten supply in Asia as Middle East producers keep output near record volumes in a bid to win market share.

[..] the need to store oil is so strong that traders are calling up banks to finance storage charters despite there being no profit in keeping fuel in tankers at current rates. “We are receiving unusually high amounts of queries to finance storage charters,” said a senior oil trade financier with a major bank in Asia. “These queries come from traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel,” he added.

Read more …

This story is getting very strange. The level of secrecy is off the charts.

How Freddie and Fannie Are Held Captive (Morgenson)

When Washington took over the beleaguered mortgage giants Fannie Mae and Freddie Mac during the collapse of the housing market and the financial crisis of 2008, it was with the implicit promise that they would be returned to shareholders after being nursed back to health. But now, with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury’s decision in August 2012 to divert all the companies’ profits to the Treasury Department. That move effectively maintained Fannie and Freddie’s status as wards of the state.

An email from Jim Parrott, then a top White House official on housing finance, was sent the day the so-called profit sweep was announced. It said that the change was structured to ensure that the companies couldn’t “repay their debt and escape as it were.” The documents also show Treasury moving to modify the terms of the mortgage finance giants’ $187.5 billion bailout shortly after a July 2012 meeting when the Federal Housing Finance Agency, Fannie’s and Freddie’s regulator, learned that they were about to enter “the golden years” of profitability. Since then, Fannie and Freddie have returned to the Treasury over $50 billion more than they received in the bailout. The amount they owe to the government remains outstanding.

The new materials cast further doubt on arguments made in court by government lawyers that the profit sweep came about because Fannie and Freddie were in a death spiral and taxpayers needed protection from future losses. Documents unsealed last month also served to undermine that legal stance. The trickle of documents comes years after Fannie and Freddie shareholders filed suits against the government, contending that its decision regarding the companies’ profits was illegal. Defending against an array of these suits, lawyers for the Justice Department have requested confidential treatment for thousands of pages of materials. In a case brought in Federal Claims Court, the government’s lawyers asserted presidential privilege in 45 documents.

Read more …

Falling apart pretty fast.

TTIP: The Most Toxic Acronym In Europe (G.)

David Cameron narrowly avoided the parliamentary defeat of his Queen’s speech this week – an event that, theoretically, triggers the fall of a government and hasn’t happened since 1924. That was only achieved through an embarrassing U-turn on TTIP, the Transatlantic Trade and Investment Partnership, which he ardently supports. One of the primary concerns about TTIP is that it could pave the way to further privatisation of the NHS. Yesterday, a group of MPs gave notice that they would table an amendment to the Queen’s speech, lamenting the fact that the government had not included a bill to protect the NHS from TTIP in its programme. The cross-party group was led by Peter Lilley, a long-time supporter of free trade and a former minister under Margaret Thatcher and John Major, and was supported by at least 25 Tory MPs – easily enough to overturn the government’s majority.

Though many were Brexiters, by no means all were, and some, such as Sarah Wollaston, appear to have changed their position on TTIP. Realising he faced one of the most embarrassing defeats of his premiership – one not suffered since a similar motion removed Stanley Baldwin from office in 1924 – Cameron quickly said he’d support the amendment. Make no bones about it, this is a humiliation. The prime minister has repeatedly told MPs that TTIP poses no threat to the NHS. Yet to avoid the abyss, his government has supported an amendment contrary to these assertions. We must be under no illusions that he has any intention of moving to protect the NHS in TTIP. How did it come to this? The obvious answer is the EU referendum, which has brought into the open fundamental divisions within the Tory party.

But this only provided the opportunity for parliamentary defeat. If this had gone to a vote, the vast majority of MPs opposing the government in fact support remaining in the EU, and wouldn’t take part in anything that would make Brexit more likely. The reasons go deeper – and they mirror what is happening all over the EU and US. TTIP started out as an obscure trade agreement that would create the world’s biggest “free trade zone” between the US and EU, and received little media coverage or parliamentary debate. Two years ago very few politicians or journalists had even heard of it. Yet a movement has built against this deal, one that has stunned the negotiators and forced the EU trade commissioner to call TTIP “the most toxic acronym in Europe”.

Read more …

“More than 99% of people in one recent German survey were found to have traces of the compound in their urine, 75% of them at levels five times the safe limit for water or above.”

Monsanto Weedkiller Faces Recall From Europe After EU Fail To Agree Deal (G.)

Bestselling weedkillers by Monsanto, Dow and Syngenta could be removed from shops across Europe by July, after an EU committee failed for a second time to agree on a new license for its core ingredient, glyphosate. The issue has divided EU nations, academics and the WHO itself. One WHO agency found it to be “probably carcinogenic to humans” while another ruled that glyphosate was unlikely to pose any health risk to humans, in an assessment shaded by conflict of interests allegations earlier this week. EU officials say that while there could be a voluntary grace period of six-12 months, unless a compromise can be found, the product’s license will be allowed to expire on 30 June. One told the Guardian that after its proposal to cutting the authorisation to nine years was rejected, the bloc was now in “uncharted territory” with no clear path to a deal that could reach consensus.

“Our position is clear,” he said. “If we can reach a qualified majority on a text we will go ahead. Otherwise, we have to leave the authorisation to expire and on 30 June member states will need to start withdrawing products containing glyphosate from the market.” Glyphosate is Europe’s most widely used weedkiller, and its parent RoundUp herbicide accounts for a third of Monsanto’s total earnings. The compound is routinely – but not exclusively – used on crops that have been genetically engineered to resist it. Several studies have linked blanket spraying with damage to surrounding flora, fauna and the entire food chain. But the commission moved to relicense it last November, after a crucial European food safety authority (Efsa) report declared it unlikely to cause cancer, although that paper sparked controversy.

Philip Miller, Monsanto’s vice president of global regulatory affairs, condemned the EU’s failure to reapprove glyphosate as “scientifically unwarranted” and “an unprecedented deviation from the EU’s legislative framework”. Writing in a blog post, he said: “This delay undermines the credibility of the European regulatory process and threatens to put European farmers and the European agriculture and chemical industries at a competitive disadvantage.” Richard Garnett, the head of Monsanto’s regulatory affairs unit said that the situation was “discriminatory, disproportionate and wholly unjustified”. The US agri-giant is currently the subject of a takeover bid by the German chemicals multinational, Bayer. Under bloc rules, the commission could now go to an appeals committee but this would have the same balance of countries as the standing committee that has now twice failed to take a decision.

It could also go over the heads of the EU states and independently reauthorise glyphosate as a draft measure. EU president Jean-Claude Juncker has said that he opposes doing this and officials doubt it will happen, although the procedure has been used to approve GM crops for import. A short-term license might also be possible. Glyphosate is so ubiquitous that its residues are commonly found in breads, beers and human bodies. More than 99% of people in one recent German survey were found to have traces of the compound in their urine, 75% of them at levels five times the safe limit for water or above. But the very definition of a safe limit for chemicals such as glyphosate is contested, and linked to a broader regulatory divide between the US’s risk-based approach which errs towards product approvals where doubt cannot be quantified, and the EU’s hazard-based approach, which leans towards a precautionary principle in such situations.

Read more …

“.. If not, well, then not. It’s as simple as that.”

Turkey Faces United EU Front in Row Over Visa-Free Travel (BBG)

EU governments showed Turkey a united front in the battle over visa-free travel, insisting Ankara narrow its terrorism legislation to qualify for the perk. The stance by European home-affairs ministers underscores a threat to an EU-Turkey agreement that has stemmed Europe’s biggest refugee wave since World War II and eased domestic political pressure on leaders including German Chancellor Angela Merkel. Turkey sought EU visa-free status in return for signing up to the mid-March deal, under which irregular migrants who enter the EU in Greece are sent back to Turkey and Syrian refugees in Turkish camps are resettled in Europe. The EU has said Turks can win visa-free status by mid-year as long as the Turkish government fulfills five remaining criteria – including on the terrorism law – out of a total of 72.

Turkish President Recep Tayyip Erdogan has signaled he won’t bow to the European demand over terrorism legislation, citing terror risks in Turkey that his critics say are being used as cover to jail political opponents. “We have a clear statement and a clear agreement on visa liberalization: it goes through if you meet the criteria,” Klaas Dijkhoff, migration minister of the Netherlands, current holder of the 28-nation EU’s rotating presidency, told reporters on Friday in Brussels after chairing a meeting with his counterparts from the bloc. “We will see if, over the next few weeks, the criteria are met. If so, we will go ahead. If not, well, then not. It’s as simple as that.” The standoff pits EU political principles against Turkish geopolitical power. Migrant flows into Europe via Turkey during the past year have handed Erdogan leverage over the EU, which has lambasted him for cracking down on domestic dissenters and kept Turkey’s longstanding bid for membership of the bloc largely on hold.

Along with the reintroduction of internal European border checks that shut a migratory route north from Greece, the March 18 EU agreement with Ankara has caused a slump in refugee sea crossings from the Turkish coast to nearby Greek islands. Arrivals in Greece fell to 3,650 last month from 26,971 in March and 57,066 in February, according to the UN refugee agency. On May 6, when commenting on the EU call for Turkish terrorism-rule changes, Erdogan said “we are going our way and you go yours.” He also dared the bloc to “go make a deal with whoever you can.” Erdogan’s position poses a “problem,” said Theo Francken, Belgium’s state secretary for asylum and migration. “It’s clear that all the conditions have to be fulfilled,” Francken told reporters at Friday’s EU meeting. “To get visa liberalization, it’s important that they change their terrorism law.”

Read more …

Europe speaks with forked tongue.

EU Ministers Press Greece to Send More Syrians Back to Turkey (WSJ)

European interior ministers on Friday pressured Greece to speed up asylum procedures and send more Syrians back to Turkey. Under a deal signed in March between the EU and Turkey, all migrants, including Syrian refugees are to be sent back to Turkey once they have their asylum applications assessed and rejected by Greek judges. But the first decisions—coming nearly two months after the deal went into effect—ruled mostly in favor of the Syrians applying for asylum. These early figures are raising concerns among EU officials that the intent of the plant to serve as a deterrent will be lost. Austrian minister Wolfgang Sobotka said if the trend continues, it would “at least undermine, if not annul the Turkey agreement.”

Germany, which championed the EU-Turkey deal, in particular pressed Greece for an acceleration in returning migrants to Turkey. German Interior Minister Thomas De Maiziere said that while Turkey is sticking to its part of the deal and arrivals in Greece have dropped, “on the Greek side, procedures take too long and the returns to Turkey are not happening with enough determination.” Mr. De Maiziere said he spoke to his Greek counterpart about the first appeal case won by a Syrian on Friday against a ruling to send him back to Turkey. He said “it was up to Greek authorities to establish what happened,” while insisting that Turkey is a safe country for Syrian refugees.

“Turkey has sheltered 2.5 million refugees, this is a tremendous performance. Despite all political debates that we can have and which are justified. we can’t doubt Turkey’s safe country status,” Mr. De Maiziere said, in reference to a decision Friday by Turkey’s parliament to strip lawmakers critical of the government of their immunity. Given that the Greek appeals body isn’t controlled by the government, the Greek minister asked for support from the EU to state that Turkey is a safe country where Syrian refugees can be sent back, according to one participant in the debate. “Member states today made it clear that they support Greece in considering Turkey a safe country for the return of migrants,” EU migration commissioner Dimitris Avramopoulos said.

Read more …

Can’t very well ignore your own judges. But the pressure will be relentless.

Syrian Refugee Wins Appeal Against Forced Return To Turkey (G.)

The EU-Turkey migration deal has been thrown further into chaos after an independent authority examining appeals claims in Greece ruled against sending a Syrian refugee back to Turkey, potentially creating a precedent for thousands of other similar cases. In a landmark case, the appeals committee upheld the appeal of an asylum seeker who had been one of the first Syrians listed for deportation under the terms of the EU-Turkey deal. In a document seen by the Guardian, a three-person appeals committee said Turkey would not give Syrian refugees the rights they were owed under international treaties and therefore overturned the applicant’s deportation order by a verdict of two to one. The case will now be re-assessed from scratch.

The committee’s conclusion stated: “The committee has judged that the temporary protection which could be offered by Turkey to the applicant, as a Syrian citizen, does not offer him rights equivalent to those required by the Geneva convention.” The decision undermines the legal and practical basis for the EU-Turkey deal, which European leaders had hoped would deter refugees from sailing to Europe by ensuring the swift deportation of most people landing on the Greek islands. After signing the deal on 18 March, EU officials claimed these deportations would be legally justified on the basis that Turkey respects refugee rights. But the EU’s executive has little control over Greek asylum protocols. The committee rejected the logic of the EU-Turkey deal, citing some of the EU’s own previous directives as explanations for their decision.

While nearly 400 other asylum seekers have been returned to Turkey under the terms of the deal, no one of Syrian nationality had been sent back against their will – making Friday’s decision a watershed moment. “At its very first test, the EU-Turkey deal crumbles,” said Gauri van Gulik, Amnesty International’s deputy Europe director. The Greek government, which played no part in the independent decision, admitted the judgment had created “a very difficult situation”. Greece’s deputy minister in charge of migration policy, Yannis Mouzalas, said by phone from Brussels: “I have only just learned of the decision by the appeals committee and I have to be in Greece to study it. They are, as you know, independent committees so it is very difficult for me to say anything – but if they think this way, we will have a very difficult situation.” Such a decision goes against all the directives of the UN and UNHCR, Mouzalas claimed. “Really I don’t know how they arrived at it.”

Read more …

May 032016
 
 May 3, 2016  Posted by at 9:14 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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


DPC French Market, New Orleans 1910


The EU Exists Only To Become A Superstate (Lawson)
US Dollar Falls To 1-Year Low (BBG)
Yen Under Pressure to Extend World-Beating Rally Against Dollar (BBG)
Kuroda Kollapse Kontinues As USDJPY Nears 105 Handle (ZH)
BOJ Chief Kuroda Warns Current Yen Strength Risks Harming Recovery (BBG)
China Factory Activity Contracts for 14th Straight Month In April (CNBC)
Fed’s Williams Sees Big Drop In Asset Prices As Systemic Risk (R.)
Apple’s Losing Streak Is Nearing Historic Levels (BBG)
No Alternative To Low Rates For Now, Draghi Says (R.)
ECB Report Says Investors May Be Profiting From Leaked US Data (FT)
Six Counterpoints About Australian Public Debt (Stanford)
‘Bank of Mum and Dad’ Behind 25% Of British Mortgages (G.)
Dominoes: Vanishing Arctic Ice Shifts Jet Stream, Which Melts Glaciers (WaPo)
Germany Wants To Extend Border Controls For Another 6 Months (AP)
Denmark Extends Controls On German Border (EN)
EU States Face Charge For Refusing Refugees (FT)
90,000 Unaccompanied Minors Sought Asylum In EU In 2015 (R.)

I don’t think I have much in common with Nigel Lawson -aka Lord Lawson of Blaby-, but it’s important that this ‘little fact’ be known and exposed. Even a superstate needs values if it is to survive. The EU ain’t got any left. Who wants to belong to that?

The EU Exists Only To Become A Superstate (Lawson)

For Britain, the issue in the coming European referendum is not Europe, with its great history, incomparable culture, and diverse peoples, but the European Union. To confuse the two is both geographically and historically obtuse. European civilisation existed long before the coming of the EU, and will continue long after this episode in Europe’s history is, hopefully, over. On the European mainland it has always been well understood that the whole purpose of European integration was political, and that economic integration was simply a means to a political end. In Britain, and perhaps also in the US, that has been much less well understood, particularly within the business community, who sometimes find it hard to grasp that politics can trump economics. The fact that the objective has always been political does not mean that it is in any way disreputable.

Indeed, the most compelling original objective was highly commendable. It was, bluntly, to eliminate the threat to Europe and the wider world from a recrudescence of German militarism, by placing the German tiger in a European cage. Whether or not membership of the EU has had much to do with it, that objective has been achieved: there is no longer a threat from German militarism. But in the background there has always been another political objective behind European economic integration, one which is now firmly in the foreground. That is the creation of a federal European superstate, a United States of Europe. Despite the resonance of the phrase, not one of the conditions that contributed to making a success of the United States of America exists in the case of the EU. But that is what the EU is all about. That is its sole raison d’être. And, unlike the first objective, it is profoundly misguided.

For the United Kingdom to remain in the EU would be particularly perverse, since not even our political elites wish to see this country absorbed into a United States of Europe. To be part of a political project whose objective we emphatically do not share cannot possibly make sense. It is true that our present Prime Minister argues that he has secured a British “opt-out” from the political union, but this is completely meaningless. “But,” comes the inevitable question, “what is your alternative to membership of the EU?” A more absurd question it would be hard to envisage. The alternative to being in the EU is not being in the EU. And it may come as a shock to the little Europeans that most of the world is not in the EU – and that most of these countries are doing better economically than most of the EU.

Read more …

Why don’t I see nobody accuse the US of currency manipulation?! That still the Shanghi Accord legacy?

US Dollar Falls To 1-Year Low (BBG)

The dollar fell to an 18-month low against the yen and touched its weakest since August versus the euro amid speculation that the U.S. won’t raise interest rates any time soon. The U.S. currency has lost ground versus most major peers over the past month as traders lowered expectations for a rate increase by the Federal Reserve in June to 12%. The Bloomberg Dollar Spot Index headed for the lowest close in almost a year, after a report showed manufacturing in the U.S. expanded less than forecast. Persistent weakness dragged the dollar down against the euro for a third straight month in April – its longest losing streak since 2013 – amid signs U.S. policy makers aren’t convinced the global and domestic economies can withstand higher borrowing costs.

It fell on Tuesday against Australia’s currency as Chinese equities climbed by the most in nearly three weeks. The U.S. has posted disappointing growth data as nascent signs of recovery emerge in Europe and China’s growth momentum accelerates. “The Fed is completely out of the picture now for the next few weeks – even with the June meeting, there’s got to be a lot of doubt about whether the Fed can raise rates,” said Shaun Osborne at Bank of Nova Scotia in Toronto. “The dollar has just not done particularly well over the past few weeks as the Fed has moved toward delaying rate hikes, and that’s a situation that definitely will continue, certainly for the near term.”

Read more …

Abe must be going nuts.

Yen Under Pressure to Extend World-Beating Rally Against Dollar (BBG)

The yen’s world-beating rally against the dollar looks to be gathering momentum, as central bank inaction on both sides of the Pacific Ocean leaves inflation expectations to drive the exchange rate. Japan’s currency extended its climb to an 18-month high Monday after Bank of Japan Governor Haruhiko Kuroda refrained from adding to stimulus on Thursday. That took its gain this year to 13%, the most among developed-market peers. The BOJ’s decision came just hours after Federal Reserve Chair Janet Yellen frustrated dollar bulls by reiterating she’s in no rush to cool the economy by raising interest rates. JPMorgan sees further yen gains after the U.S. put Japan on a new currency watch list.

With consumer price pressures building in the U.S. and dissipating in Japan, that narrows the gap in so-called real yields – the returns an investor can expect after accounting for inflation – supporting yen strength. If both central banks stay on the sidelines, Credit Suisse projects Japan’s currency could rapidly appreciate toward 90 per dollar. “So long as the Fed signals that they are being cautious in raising rates, real yields in the U.S. will decline, leading the dollar weaker,” said Hiromichi Shirakawa, the Swiss lender’s chief Japan economist and a former BOJ official. “The currency market is in a rather dangerous zone.” The BOJ’s benchmark for measuring progress toward its 2% target showed prices retreated at an annual 0.3% pace in March, the biggest decline since April 2013, the month that Kuroda initiated his stimulus program.

It had previously hovered near zero for more than a year. By contrast, the Fed’s preferred measure of inflation, based on the prices of goods and services consumers buy, rose 0.8% in the year through March. The so-called core measure, which strips out food and energy prices, climbed 1.6%. That’s seen a Treasury market gauge of inflation expectations over the coming decade – called the break-even rate – jump to 1.7% from as low as 1.2% in February. The equivalent measure in Japan is languishing at 0.3%. Benchmark 10-year Treasury Inflation Protected Securities yield around 0.1%, compared with about minus 0.5% for equivalent Japanese notes.

Japan met two of three criteria used to judge unfair practices in the U.S. report: a trade surplus with the U.S. above $20 billion, and a current-account surplus amounting to more than 3% of gross-domestic product. The third would be a repeated depreciation of the currency by buying foreign assets equivalent to 2% of gross domestic over a year. Meeting all three would trigger action by the U.S. president to enter discussions with the country and seek potential penalties. China, Germany, South Korea and Taiwan also made the watch list.

Read more …

“..Perhaps Jack Lew’s “currency manipulation” report was enough to stall the Japanese currency war for now?..”

Kuroda Kollapse Kontinues As USDJPY Nears 105 Handle (ZH)

Either The BoJ steps in soon and intervenes (even by just “checking levels”) or Kuroda-san is truly terrified of The G-20. USDJPY has now crashed 7 handles since last Thursday’s shock BoJ disappointment crashing to within 5 pips of a 105 handle tonight for the first time in 18 months…

 

 

Erasing the entire devaluation post-Fed, post QQE2…

 

Perhaps Jack Lew’s “currency manipulation” report was enough to stall the Japanese currency war for now? Or is China greatly rotating its Yuan devaluation pressure against another member of its basket…?

 

Charts: Bloomberg

Read more …

1) What recovery? 2) Abe and Kuroda are powerless prisoners to America’s dollar manipulation

BOJ Chief Kuroda Warns Current Yen Strength Risks Harming Recovery (BBG)

Bank of Japan Governor Haruhiko Kuroda warned that the yen’s biggest rally since Abenomics began risks harming the nation’s economic recovery. Speaking to reporters in Frankfurt Monday, Kuroda also reiterated that BOJ policy makers won’t hesitate to expand monetary stimulus in order to achieve their 2% inflation target. Japanese Prime Minister Shinzo Abe said the same day in Paris that rapid movements in exchange rates are undesirable, according to national broadcaster NHK. “There is a risk that the yen’s current appreciation brings an unwelcome impact on the economy,” Kuroda said on the sidelines of an annual gathering of finance chiefs from members of the Asian Development Bank, which he used to lead.

“We will be closely monitoring the impact of financial markets on the real economy and prices.” A weaker currency has been a linchpin of Abe’s program to stoke growth and exit deflation. Japan’s economy is at risk of sliding into its second recession in two years after contracting in the final three months of 2015, while inflation remains far from the BOJ’s target. One gauge showed consumer prices retreated at an annual 0.3% pace in March, the biggest decline since April 2013, the month that Kuroda initiated his stimulus program. The yen has climbed 13% against the dollar this year, the best performance among its developed-market peers. That has chipped away at the 36% decline over the previous four years, which was triggered by Abe’s pledge of unlimited monetary easy to correct yen strength.

Kuroda and his board left policy settings unchanged at a meeting Thursday, spurring a nearly 5%, two-day surge in the yen against the dollar. It reached an 18-month high of 106.05 per greenback on Tuesday, before trading at 106.19 as of 9:54 a.m. in Singapore. Japanese markets are closed for holidays Tuesday, Wednesday and Thursday this week.

Read more …

Beyond salvation.

China Factory Activity Contracts for 14th Straight Month In April (CNBC)

Activity in China’s manufacturing sector unexpectedly declined further in April, a private survey showed Tuesday, reviving doubts over the health of the world’s second-largest economy. The Caixin Manufacturing Purchasing Managers’ Index (PMI) fell to 49.4 in April from 49.7 in March, according to Markit, which compiles the index. A reading above 50 indicates expansion; one below indicates contraction. The Caixin PMI, which focuses on smaller and medium-sized enterprises, was last in expansionary territory in February 2015. The official PMI, which targets larger companies, printed at 50.2 in April, the second successive month of expansion, figures released over the weekend showed. The survey findings follow recent economic data that appeared to suggest that China’s economy was slowly regaining its poise after a torrid 12 months.

China’s exports rose at their fastest clip in a year in March, while industrial profits also picked up in the first quarter. A flurry of rate cuts and easing of reserve requirement have helped bolster sentiment, while the capital outflows that had unnerved sentiment at the start of the year have slowed. The Caixin survey, however, cast a more somber picture. Respondents reported stagnant new orders, while new export work fell for a fifth month running. Companies shed staff as client demand was muted. “The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn,” said He Fan at Caixin Insight Group.

Read more …

What blows up must blow down.

Fed’s Williams Sees Big Drop In Asset Prices As Systemic Risk (R.)

San Francisco Fed President John Williams reiterated Monday his view that the U.S. economy is ready for higher interest rates, but flagged the risk of broad-based declines in asset prices as a result. “It makes sense for us to be moving interest rates gradually back to more a normal level over the next couple years,” Williams said. “I actually think that’s a sign of strength for the global economy.” Speaking at a panel on systemic risk at the Milken Institute Global Conference, Williams said the biggest systemic financial risk currently is the possibility that “broad sets of assets are going to see big movements downward” as interest rates rise. “That’s an area that I think is a potential risk.” Williams did not suggest he sees another crisis brewing, adding that U.S. regulators have made “amazing” progress in shoring up banks against potential future failure.

“What I worry a lot more about is when people forget about the financial crisis, when they forget about the terrible things that happened,” he said, suggesting that may not happen for another five or ten years. The Fed raised interest rates for the first time in nearly a decade last December, but has held off raising them any further amid global stock volatility and worries over a decline in global growth. Even after the Fed resumes raising rates, Williams said, it will not be able to lift them as high as it has in the past. Most Fed officials currently think that the rate at which the economy can sustain healthy employment and steady prices has probably fallen to about 3.25% in the long run, a full %age point lower than was the case before the crisis. But there are significant downside risks to that estimate, Williams said.

Read more …

No. 1 US stock for years.

Apple’s Losing Streak Is Nearing Historic Levels (BBG)

So far in 2016, Apple is the dog of the Dow. After an underwhelming earnings report led to the shares’ worst week since January 2013, Apple stock extended its losses to kick off May, closing down 0.18% on Monday. The benchmark index’s laggard has declined by nearly 11% so far this year heading into today’s session: Bespoke Investment Group notes that Monday’s negative close marks eight straight sessions in the red for Apple—something that last happened in July 1998, and has now happened only four times in the company’s history. More than $79 billion in Apple’s market capitalization has been erased over the past eight sessions.

The company’s heavy weighting in major sector and benchmark indexes, coupled with the stock’s terrible two-week stretch, has made $4 billion in assets of exchange-traded funds evaporate over this stretch. “Smart beta” ETFs are poised to trounce their more popular peers, Bloomberg’s Eric Balchunas observes, in the event that this span of underperformance continues. There’s a possible silver lining for Apple bulls, and investors who own those market-cap-weighted ETFs: The stock tends to bounce back in earnest following these rare stretches of rotten performance. “Two of the three eight-day streaks saw the stock fall on day nine as well, but the stock has never experienced a losing streak longer than nine trading days,” Bespoke writes. “While the next day and next week returns following eight-day losing streaks lean negative, the stock has been higher over the next month all three times for a median gain of 8.01%.”

Read more …

Well, there is, but Draghi’s masters don’t want it.

No Alternative To Low Rates For Now, Draghi Says (R.)

Low interest rates are not harmless but they are only the symptom, not the cause of an underlying problem across major economies, ECB President Mario Draghi said on Monday, arguing that there was no alternative for now. “Thus the second part of the answer to raising rates of return is clear: continued expansionary policies until excess slack in the economy has been reduced and inflation dynamics are sustainably consistent again with price stability,” Draghi told a conference. “There is simply no alternative to this today.” “The only potential margin for maneuver is in the composition of the policy mix, that is, the balance of monetary and fiscal policy,” he added.

Read more …

Corruption is not a deficiency, it’s the MO.

ECB Report Says Investors May Be Profiting From Leaked US Data (FT)

US investors may be profiting from leaked economic data releases that allow them to front-run market-moving news, according to a research paper published by the ECB. Macroeconomic news announcements can move markets, as traders watch for indications about how the economy is performing. The data are released to everyone at the same time to ensure fairness but ECB researchers said they had found evidence of “informed trading” ahead of US data releases. Of the 21 market-moving announcements analysed, seven “show evidence of substantial informed trading before the official release time”, according to the paper, including two releases from the US government. The pre-release “price drift” accounts for about half of the overall price impact from the announcement.

The researchers looked at the impact on futures tracking the S&P 500 stock index and the 10-year Treasury bond for the 30 minutes preceding the announcement. The researchers also note that the price impact has become worse since 2008, and estimate that since 2008 profits in the S&P “e-mini” futures market alone amount to about $20m per year. “These results imply that some traders have private information about macroeconomic fundamentals,” said the report. “The evidence suggests that the pre-announcement drift likely comes from a combination of information leakage and superior forecasting based on proprietary data collection and reprocessing of public information.”

The paper raises questions about the safeguards used to ensure data are protected up until scheduled release time. Important economic indicators in the US are subject to the “Principle Federal Economic Indicator” guidelines, but the report notes that many distributors of the data are not subject to the same rules. “To ensure fairness, no market participant should have access to this information until the official release time,” the report added. “Yet, in this paper we find strong evidence of informed trading before several key macroeconomic news announcements.”

Read more …

Household debt is a much bigger factor is some countries than others. In Australia, it’s far bigger than government debt. But the latter is what all political talk is about. “Pumping up fear of government debt is always an essential step in preparing the public to accept cutbacks in essential public services.”

Six Counterpoints About Australian Public Debt (Stanford)

In the lead-up to today’s pre-election Commonwealth budget, much has been written about the need to quickly eliminate the government’s deficit, and reduce its accumulated debt. The standard shibboleths are invoked liberally: government must face hard truths and learn to live within its means; government must balance its budget (just like households do); debt-raters will punish us for our profligacy; and more. Pumping up fear of government debt is always an essential step in preparing the public to accept cutbacks in essential public services. And with Australians heading to the polls, the tough-love imagery serves another function: instilling fear that a change in government, at such a fragile time, would threaten the “stability” of Australia’s economy.

However, this well-worn line of rhetoric will fit uncomfortably for the Coalition government, given its indecisive and contradictory approach to fiscal policy while in office. The deficit has gotten bigger, not smaller, on their watch, despite the destructive and unnecessary cutbacks in public services imposed in their first budget. Their response to Australia’s fiscal and economic problems has consisted mostly of floating one half-formed trial balloon after another (from raising the GST to transferring income tax powers to the states to cutting corporate taxes), with no systematic analysis or framework. And their ideological desire to invoke a phony debt “crisis” as an excuse for ratcheting down spending will conflict with another, more immediate priority: throwing around new money (or at least announcements of new money), especially in marginal electorates, in hopes of buying their way back into office.

In short, the politics of debt and deficits will be both intense and complicated in the coming weeks. To help innoculate Australians against this hysteria, here are six important facts about public debt, what it is – and what it isn’t.

1. Australia’s public debt is relatively small

3. Other sectors of society borrow much more than government

Read more …

Somone should explain to these people what’s going on. Mum and Dad will lose their shirts AND their skirts. Ironically, some insist more homes must be build. Ironoc, because that would mean even steeper losses for those buying into today’s craze.

‘Bank of Mum and Dad’ Behind 25% Of British Mortgages (G.)

The “Bank of Mum and Dad” will help finance 25% of UK mortgage transactions this year, according to research. Parents are set to lend their children £5bn to help them on to the property ladder. If the lending power was of all these parents was combined, it would be a top 10 mortgage provider. Nigel Wilson, chief executive of Legal & General, which carried out the research, said the data showed a number of issues, including house prices being “out of sync with wages”. The research estimated that the Bank of Mum and Dad will provide deposits for more than 300,000 mortgages. The homes purchased will be worth £77bn and the average contribution is £17,500 or 7% of the average purchase price.

But relying on parental support might soon be unsustainable as parents could be giving away more than they can afford. Wilson said that in London the funding method was reaching “tipping point” already as parental contributions made up more than 50% of the wealth (excluding property) of the average household in the capital. He said: “The Bank of Mum and Dad plays a vital role in helping young people to take their early steps on to the housing ladder.” Not all young people have parents who can afford to help them and some who do still do not have enough to buy a place of their own, he said. He added: “We need to fix the housing market by revolutionising the supply side – if we build more houses, demand can be met at a sensible level and prices will stabilise relative to wages.”

Read more …

Positive feedback.

Dominoes: Vanishing Arctic Ice Shifts Jet Stream, Which Melts Glaciers (WaPo)

Investigating the factors affecting ice melt in Greenland — one of the most rapidly changing places on Earth — is a major priority for climate scientists. And new research is revealing that there are a more complex set of variables affecting the ice sheet than experts had imagined. A recent set of scientific papers have proposed a critical connection between sharp declines in Arctic sea ice and changes in the atmosphere, which they say are not only affecting ice melt in Greenland, but also weather patterns all over the North Atlantic. The new studies center on an atmospheric phenomenon known as “blocking” — this is when high pressure systems remain stationary in one place for long periods of time (days or even weeks), causing weather conditions to stay relatively stable for as long as the block remains in place.

They can occur when there’s a change or disturbance in the jet stream, causing the flow of air in the atmosphere to form a kind of eddy, said Jennifer Francis, a research professor and climate expert at Rutgers University. Blocking events over Greenland are particularly interesting to climate scientists because of their potential to drive temperatures up and increase melting on the ice sheet. “When they do happen, and they kind of set up in just the right spot, they bring a lot of warm, moist air from the North Atlantic up over Greenland, and that helps contribute to increased cloudiness and warming of the surface,” Francis said. “When that happens, especially in the summer, we tend to see these melt events occur.” Now, two new studies have suggested that there’s been a recent increase in the frequency of melt-triggering blocking events over Greenland — and that it’s likely been fueled by climate change-driven losses of Arctic sea ice.

A paper set to be published Monday in the International Journal of Climatology reveals an uptick in the frequency of these blocking events over Greenland since the 1980s. A team of researchers led by the University of Sheffield’s Edward Hanna used a global meteorological dataset relying on historical records to measure the frequency and strength of high pressure systems over Greenland all the way back to the year 1851. Previous analyses had only extended the record back to 1948, so the new study is able to place recent blocking events in a much larger historical context. When the researchers analyzed the data, they found that the increase in blocking frequency over the past 30 years is particularly pronounced in the summer, the time of year when blocking events are likely to have the biggest impact on ice melt.

Read more …

Clueless, rudderless, valueless.

Germany Wants To Extend Border Controls For Another 6 Months (AP)

Germany and some other EU countries are planning to ask the European Commission for an extension of border controls within the Schengen passport-free travel zone for another six months because they fear a new wave of migrants. Interior Minister Thomas de Maizere’s spokesman says a letter is being sent Monday asking for an extension of the controls on the German-Austrian border, which were implemented last year when thousands of migrants crossed into Germany daily. De Maizere has expressed concern before that an increasing number of migrants will try to reach Europe this summer by crossing the Mediterranean Sea from lawless Libya to Italy, then travel north to Austria and Germany. Germany registered nearly 1.1 million new arrivals last year and is keen to bring the numbers down in 2016.

Germany’s defense minister, meanwhile, said it was up to Italy to protect its borders but other European countries must be ready to help if needed. Ursula von der Leyen’s comments Monday touched on the potential problems Italy could have with increased arrival of migrants looking for an alternative route into the EU now that the West Balkans route is closed and Turkey has committed to taking back those arriving illegally to Greece. She said a solution must be found “together with Italy.” Austria plans to impose border controls at its main border crossing with Italy to prevent potential attempts by migrants to enter, and with Austria bordering Germany, von der Leyen’s comments indicate her country’s concern that it also may have to deal with new waves of migrants seeking entry.

Read more …

“..We have to protect ourselves against the Islamic State group..”

Denmark Extends Controls On German Border (EN)

Denmark has extended temporary controls on its border with Germany, first imposed in January to help regulate an influx of migrants. The measures have been prolonged by another month until the beginning of June. The European Commission, struggling to prevent the collapse of the Schengen agreement, has confirmed it will soon authorise more such extensions. The Danish government says it has joined several countries in writing to the Commission asking for a two-year extension. “Together with the Germans, the French, the Austrians and the Swedes I have today sent a letter to the EU commission asking for the possibility to extend the border control for the next two years,” said Inger Støjberg, Danish minister of immigration and integration.

“I have done so because we need to look out for Denmark. We have to protect ourselves against the Islamic State group, who are trying to take advantage of the situation where there are holes in borders. But also as protection against the influx of refugees coming through Europe.” The Commission could give the green light as early as Wednesday to countries within the passport-free Schengen zone wishing to extend exceptional border controls. The five countries have taken the measures because of the influx of migrants and refugees heading north via the so-called Balkans route after entering Europe via the Greek shores. Although the crisis has eased, the governments say many migrants are still camped along the route and in Greece.

Read more …

The cattle trade continues unabated. Europeans are as immoral as their leadership.

EU States Face Charge For Refusing Refugees (FT)

European countries that refuse to share the burden of high immigration will face a financial charge of about €250,000 per refugee, according to Brussels’ plans to overhaul the bloc’s asylum rules. The punitive financial pay-off clause is one of the most contentious parts of the European Commission’s proposed revision of the so-called Dublin asylum regulation, due to be revealed on Wednesday. It represents the EU’s most concerted attempt to salvage an asylum system that collapsed under the weight of a million-strong migration to Europe last year, endangering the principle of passport-free travel in the Schengen area. In recent weeks migrant flows to Greece have fallen due to tighter controls through the western Balkans and a deal with Turkey to send-back asylum seekers arriving on Greek islands.

However, the EU remains as politically divided as ever over strengthening the bloc’s asylum rules. While acknowledging these political constraints, the commission’s reforms aim to gradually shift more responsibility away from the overwhelmed frontline states, such as Greece, in future crises, primarily through an automatic system to share refugees across Europe if a country faces a sudden influx. Crucially, this is backed by a clause that allows immigration-wary countries to pay a fee — set at a deliberately high level — if they want to avoid taking relocated asylum seekers for a temporary period. According to four people familiar with the proposal, this contribution was set at €250,000 per asylum seeker in Monday’s commission draft. But those involved in the talks say it may well be adjusted in deliberations over coming days.

“The size of the contribution may change but the idea is to make it appear like a sanction,” said one official who has seen the proposal. Another diplomat said in any event the price of refusing to host a refugee would be “hundreds of thousands of euros”. Eastern European states such as Poland and Hungary would welcome alternatives to mandatory asylum quotas but will balk at the high penalties suggested. At the commission’s recommended rate, Poland would need to pay around €1.5bn to avoid its existing 6,200 quota to relocate refugees from Italy and Greece. These financial contributions are in part designed to fix incentives around migrant quotas, which have badly failed and proved almost impossible to implement even once agreed in law. The commission proposal builds on the EU’s flagship emergency scheme to relocate 160,000 refugees, which has barely redistributed 1% of its target since it was agreed last year.

Read more …

And how many did you say are unaccounted for, Europe?

90,000 Unaccompanied Minors Sought Asylum In EU In 2015 (R.)

Some 88,300 unaccompanied minors sought asylum in the EU in 2015, 13% of them children younger than 14, crossing continents without their parents to seek a place of safety, EU data showed on Monday. More than a million people fleeing war and poverty in the Middle East and Africa reached Europe last year. While that was roughly double the 2014 figure, the number of unaccompanied minors quadrupled, statistics agency Eurostat said. Minors made up about a third of the 1.26 million first-time asylum applications filed in the EU last year. EU states disagree on how to handle Europe’s worst migration crisis since World War II and anti-immigrant sentiment has grown, even in countries that traditionally have a generous approach to helping people seeking refuge.

Four in 10 unaccompanied minors applied for asylum in Sweden, where some have called for greater checks, suspicious that adults are passing themselves off as children in order to secure protection they might otherwise be denied. Eurostat’s figures refer specifically to asylum applicants “considered to be unaccompanied minors,” meaning EU states accepted the youngsters’ declared age or established it themselves through age assessment procedures. More than 90% of the minors traveling without a parent or guardian were boys and more than half of them were between 16 and 17 years old. Half were Afghans and the second largest group were Syrians, at 16% of the total. After Sweden, Germany, Hungary and Austria followed as the main destinations for unaccompanied underage asylum seekers.

Read more …

Feb 272016
 
 February 27, 2016  Posted by at 1:56 pm Finance Tagged with: , , , , , , , ,  8 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


Theodor Horydczak Lincoln Memorial 1925

There has been quite a bit of talk lately over the need for a new Plaza Accord, something several parties saw happening during this weekend’s G20 summit in Shanghai -hence the term ‘Shanghai Accord’-. (On September 22, 1985 at the Plaza Hotel in New York City, France, West Germany, Japan, the US, and the UK signed an accord to depreciate the US dollar vs the Japanese yen and German Deutschmark by intervening in currency markets).

Unless all the G20 finance ministers and central bankers gathered in China are in close and secretive cahoots, though, it doesn’t look like it is going to happen. And that seems to both make sense and not. What those advocating such an accord are calling for is a -large- devaluation of the Chinese yuan (RMB) vs the USD and yen -perhaps even the euro-, but the climate simply doesn’t look ripe for it.

Still, the problem is, if they don’t do it, they open the doors to a whole lot more volatility, unpredictability and losses in the markets. All things that those markets do not want. Because, like it or not, the yuan is overvalued, China’s fabricated trade numbers are increasingly under scrutiny, and a large devaluation could settle things at least for a while.

However, Beijing looks too full of hubris and pride -and inclusion in the IMF basket of currencies is an issue too- to do what seems natural. Lest we forget, no matter how much China seeks to obfuscate the numbers, everybody already knows that numbers like producer prices and exports, and most importantly imports, have seen steep falls, and for a long time too.

China’s oil tanks look as close to overflowing as the American ones, and without those oil imports, who knows who bad import numbers would have looked? So from a Chinese point of view, a cheaper yuan would mean much cheaper Chinese exports for global buyers, whereas the negative effect of more expensive imports would be relatively small.

But there’s the other side of the equation as well: other nations’ exports would see a potentially enormous effect of cheaper Chinese imports on their domestic manufacturing base. For countries like Germany, the US and Japan, any such devaluation may therefore be an absolute non-starter at this point.

That, however, leaves the fact that there is that large imbalance in currency (FX) markets, and that those markets, along with hedge funders like Kyle Bass, have already made it known that they will seek to exploit that imbalance to go after the yuan for profit. That finance ministers seem unable to ‘soften’ the imbalance will only make them more determined. It’s like the central bankers and finance ministers make their case for them.

A few news snippets from the past week. First, Tyler Durden’s take on BofA’s Michael Hartnett a week ago, who’s quite clear on why there should be a devaluation.

BofA: ‘Shanghai Accord’, Massive Central Bank Intervention Imminent

Any time the relative performance of global financials to US Treasuries has stumbled as far as it has, as shown in the chart below, it has meant one thing – a major central bank intervention was imminent. At least that’s the interpretation of BofA’s Michael Hartnett, who shows that in order to provide the kick for the bounce in this all too important “deflationary leading indicator”, central banks engaged in major unorthodox easing episodes, whether QE1-3, or the ECB’s QE.

Why intervene now? Here are the problems according to Hartnett:
• Problem 1: US economy in “bad Goldilocks”, i.e. US economy not hot/strong enough to lift global GDP & EPS; but not cold/bad enough to induce global coordinated response
• Problem 2: global policy-maker rhetoric in recent days shows “coordinated innocence” not stimulus, all blaming global economy for weak domestic economies (“Overseas factors are to blame”…Japan PM Abe; “drag on U.S. economy from greater-than-expected-slowdown in China & other EM economies“…FOMC minutes; “increasing concerns about the prospects for the global economy”…ECB Draghi; “the change in China’s growth rate can be attributed in part to weak performance of the global economy”…PBoC)

Problem 2 is static, meant for media propaganda and jawboning; it can easily be removed once the global economy takes the next leg lower. Which incidentally would also resolve the gating factor of Problem 1 – as we have said for months, the Fed and its central bank peers need the political cover to launch more stimulus.

And in a reflexive world, where the “economy is the market”, this means just one thing – a big leg lower in stocks is the necessary and sufficient condition to once again push stocks higher, as policy failure is internalized, and global risk reprises from square 1. This is Bank of America’s summary, warning that unless a major policy intervention is enacted, the market will then sell off to the next support level, below the 1,812 which has proven so stable since August. Stabilization of “4C’s” (China, Commodities, Credit, Consumer) allowed SPX 1800 to hold/bounce to 1950-2000; weak policy stimulus in coming weeks could end rally/risk fresh declines to induce growth-boosting policy accord.

Next up, Bloomberg:

Barclays Says Sharp Yuan Devaluation Needed

A sharp, one-off devaluation of the yuan is among options China’s central bank might consider to stem capital outflows and shift market psychology to appreciation from depreciation, according to Barclays. The risk of such a move, which Barclays says would need to be in the region of 25% to alter perceptions, is rising as China’s foreign-exchange reserves plunge, analysts Ajay Rajadhyaksha and Jian Chang wrote in a report. Based on the current pace of decline in those holdings, there’s a six- to 12-month window before they drop to uncomfortable levels and measures such as capital controls or monetary tightening may also have to be looked at to curb the exodus of money, they said. All those options carry elements of danger.

Another rapid yuan depreciation could spook investors just as concern about the state of the global economy is growing and other central banks would likely follow, countering the beneficial impact on Chinese exports, the analysts said. Strict capital controls won’t work in an export-driven economy, while a move to policy tightening could slow growth and cause credit defaults, they said. “A devaluation of this magnitude seems impossible to ‘sell’ to the rest of the world,” according to the analysts at Barclays, the world’s third-biggest currency trader.

And then this from the FT, which confirms the huge question mark over the option:

Scepticism Rife Over G20 Move To Calm FX

Scepticism is rife that the G20 gathering of finance ministers will agree to co-ordinate currency policy but there is some belief it could provide a short-term boost to risk appetite. Japan has led calls for the two-day meeting in Shanghai to bring calmness to an unstable market with a broad-based FX strategy, seen by some market commentators as a reprise of the 1985 Plaza Accord that succeeded in weakening a rampant dollar. But those hopes have been knocked back by China and the US, and market expectations have been subdued in the run-up to the G20 meeting that ends with a communique on Saturday. “A grand solution like the Plaza Accord feels far-fetched”, said Peter Rosenstrich at the online bank Swissquote.

Then, the South China Morning Post a few days back on how Beijing apparently seeks to hide capital outflows data.

Sensitive Financial Data ‘Missing’ From PBOC Report On Capital Outflows

Sensitive data is missing from a regular Chinese central bank report amid concerns about capital outflow as the economy slows and the yuan weakens. Financial analysts say the sudden lack of clear information makes it hard for markets to assess the scale of capital flows out of China as well as the central bank s foreign exchange operations in the banking system. Figures on the “position for forex purchase” are regularly published in the People’s Bank of China’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in foreign currencies was US$250 billion. But the data was missing in the central bank’s latest report. It seemed the information had been merged into the “other items” category, whose January figure was US$243.9 billion -a surge from US$20.4 billion the previous month.

Combine that with new world trade numbers as reported by the FT, and you can’t help but wonder 1) what is going on with trade (though this is in USD, and that tweeks things somewhat), and 2) how much the yuan would have to drop to make up for the difference.

World Trade Falls 13.8% In Dollar Terms (FT)

Weaker demand from emerging markets made 2015 the worst year for world trade since the aftermath of the global financial crisis, highlighting rising fears about the health of the global economy. The value of goods that crossed international borders last year fell 13.8% in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor. Much of the slump was due to a slowdown in China and other emerging economies. The new data released on Thursday represent the first snapshot of global trade for 2015.

Next, Christopher Balding, an associate professor at Peking University HSBC Business School, who does them all one better by questioning even what may be the most widely accepted idea about the Chinese economy.

China Does Not Have a Trade Surplus

Whereas Chinese Customs reports $1.68 trillion and SAFE report $1.57 in goods imports into China, banks report paying $2.55 trillion for imports. In other words, funds paid for imported goods and services was $870-980 billion or 52-62% higher than official Customs and SAFE trade data. This level of discrepancy is extreme in both absolute and relative terms and cannot simply be called a rounding error but is nothing less than systemic fraud. If we adjust the official trade in goods and services balance to reflect cash flows rather than official headline trade data as reported by both Customs and SAFE, the differences are even worse.

According to official Customs and SAFE data, China ran a goods trade surplus of $593 or $576 billion but according to bank payment and receipt data, China ran a goods trade surplus of only $128 billion. If we include service trade, the picture worsens considerably. China via SAFE trade data reports a $207 billion trade deficit in services trade. Payment data reported via SAFE actually reports about $42 billion smaller deficit of $165 billion. In other words, the supposed trade surplus of $600 billion has become a trade in goods and services deficit of $36 billion. Expand to the current, through a significant primary income deficit, and the total current account deficit is now $124 billion.

That doesn’t leave much in one piece of what we’ve been told about the China growth miracle. No wonder the PBoC is ‘airbrushing’, as the NYT says. The problem with this is that analysts are already scrutinizing the data up -very- close, and they’re not going to be easily fooled anymore. For instance, in the case of the missing capital outflows data mentioned earlier, analysts say they can find them out through other channels anyway, and they will be that much more eager to do just that. Trying to bully them is senseless.

As China’s Economic Picture Turns Uglier, Beijing Applies Airbrush

This month, Chinese banking officials omitted currency data from closely watched economic reports. Weeks earlier, Chinese regulators fined a journalist $23,000 for reposting a message that said a big securities firm had told elite clients to sell stock. Before that, officials pressed two companies to stop releasing early results from a survey of Chinese factories that often moved markets. Chinese leaders are taking increasingly bold steps to stop rising pessimism about turbulent markets and the slowing of the country’s growth. As financial and economic troubles threaten to undermine confidence in the Communist Party, Beijing is tightening the flow of economic information and even criminalizing commentary that officials believe could hurt stocks or the currency.

The effort to control the economic narrative plays into a wide-reaching strategy by President Xi Jinping to solidify support at a time when doubts are swirling about his ability to manage the tumult. The persistence of that tumult was underscored on Thursday by a 6.4% drop in Chinese stocks, which are now down more than a fifth since the beginning of this year alone. The government moved to bolster confidence on Saturday by ousting its top securities regulator, who had been widely accused of contributing to the stock market turmoil. Mr. Xi is also putting pressure on the Chinese media to focus on positive news that reflects well on the party. But the tightly scripted story makes it ever more difficult to get information needed to gauge the extent of the country’s slowdown, analysts say. “Data disappears when it becomes negative,” said Anne Stevenson-Yang, co-founder of J Capital Research, which analyzes the Chinese economy.

A bit more of that through CNBC:

Chinese Accounting Is ‘Highly Questionable’

Financial reporting in China was back in the spotlight again Friday, with one strategist claiming Chinese businesses were using “accounting trickery” to mask underlying credit problems. China looks like it’s heading towards a credit bust, Chris Watling, CEO and chief market strategist at Longview Economics told CNBC on Friday, explaining that cash borrowed by mainland firms is primarily being used to service debts. “We’ve been looking a lot at Chinese accounting recently and it is highly questionable,” he said. The corporate sector is increasing borrowing to pay interest, while instances of fraud and default are on the rise, he added in a note published Thursday. He said there were many examples where operating profit has been high, while cash flow has been negative — a “classic sign” that firms aren’t generating a profit, he added.

Watling highlighted that the balance sheets of commercial banks were particularly worrying. “In an economy which has undergone a credit boom, all of the lending is not necessarily readily apparent from the top level data,” he said. “Accounting trickery is often at work..”

A good example of where the data fit with reality is this graph from ZH, which has a strong correlation with Balding’s claim that there is no Chinese trade surplus. What there is, is a lot of fake invoices.

And that inevitably leads to this kind of Bloomberg piece. Beijing is dying to get investments flowing in from abroad, but investors have no idea what potential profits will be worth in yuan, or, given capital controls, whether or when they can take them out of the country.

Yuan Uncertainty Scares Funds Away From China Bond Market

Yield versus yuan. That’s the crux of the investment decision now facing the global funds given more access to China’s bond market. While it offers the highest yields among the world’s major economies, PIMCO and Schroder Investment say exchange-rate risk is damping global demand for Chinese assets. Barclays said this week there’s a growing chance China will announce a sharp, one-time devaluation to change sentiment toward the currency and suggested such a move would need to be in the region of 25% to be effective. “Uncertainty around currency policy remains one of the larger hurdles for foreign investors,” said Rajeev De Mello at Schroder Investment in Singapore. “This should be resolved as the year progresses and would then be a signal to increase investments in Chinese government bonds.”

Of course the Chinese claim that this particular uncertainty is just a temporary thing, and it will all be fine soon, but that doesn’t look to be true. Or at least, it will remain an issue, and probably THE issue, as long as the yuan is seen as substantially overvalued. The PBoC and politburo thus far have apparently thought they could solve this by hiding data, uttering soothing words and/or bullying, but that’s not going to work. They need to devalue, and not by a few percent either.

Barclays says a devaluation “would need to be in the region of 25% to alter perceptions”, while Kyle Bass earlier mentioned a 30% to 50% move. Central bankers and politicians can try and stand still in the Mexican standoff until they’re blue in the face, but the markets will not stand still, and only get more nervous as time passes.

It doesn’t need to be done in Shanghai over the weekend, though one may wonder what will happen in the Chinese equity markets next week if nothing is done while there are great expectations now. From whatever angle we look at the issue, the outcome seems crystal clear: better get it done soon.

The US and Germany may not like it initially, but the uncertainty will hit them too, because the anticipation of a -strong- yuan devaluation affects their export markets, bonds, equities and currencies as well.

One problem we should not overlook may be that in the 1985 Plaza Accord, the strongest party -the US- wanted to get something done and got their devaluation wish. This time around, it’s not the strongest party that needs a devaluation, and the party that does need it doesn’t want it.

It is a very different set-up.

Oct 232015
 
 October 23, 2015  Posted by at 9:27 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle October 23 2015
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


DPC Harlem River Speedway and Washington Bridge, New York 1905


ECB Rings The Bell For Pavlov’s Market Dogs (AFR)
ECB President Mario Draghi Reignites Currency War Talk (AFR)
The Great Negative Rates Experiment (Bloomberg)
Every Day’s a Crisis for Europe as Merkel Heads Back to Brussels (Bloomberg)
Oil’s Big Slump Looks Like the 1980s ‘Lost Decade’ (Bloomberg)
As China Weakens, Recession Stalks North Asia (Reuters)
Credit Suisse Exiting Bond Role Sounds Alarm for Debt Market (Bloomberg)
US Regulator Raises Red Flag on Auto Lending (WSJ)
US Junk-Bond Default Rate May Nearly Double in a Year: UBS (Bloomberg)
Valeant Slump Poses Big Threat To Small Hedge Funds (Reuters)
Revised US Swaps Rule to Spare Big Banks Billions in Collateral (Bloomberg)
The ‘Miserable’ Metal Sinks to Its 2009 Low (Bloomberg)
‘Flash Crash’ Trader’s Lawyer Calls US Extradition Request False (Guardian)
Inside Massive Injury Lawsuits, Clients Get Traded Like Commodities (BBG)
Millennials Face ‘Great Depression’ In Retirement: Blackstone COO (CNBC)
American Farmers Want Student Loans Forgiven (MarketWatch)
Inside Swiss Banks’ Tax-Cheating Machinery (WSJ)
Greece, A Unit For Measuring Catastrophe (Konstandaras)
A New Low: Czech Authorities Strip-Searched Refugees To Find Money (Quartz)
Rights Group Reports Fresh Assaults On Migrants In Aegean Sea (AFP)
Permafrost Thawing In Parts Of Alaska ‘Is Accelerating’ (BBC)

Excellent metaphor.

ECB Rings The Bell For Pavlov’s Market Dogs (AFR)

Sharemarkets around the world are as well-trained as Pavlov’s dogs. This time, it was the European Central Bank giving them good news with the pledge of more cheap money – and it didn’t take them long to start salivating again. But in the next few weeks it could just as easily be the Federal Reserve talking about taking that cheap money away, and sharemarkets may well retreat whimpering with their tail between their legs. Friday was definitely a salivating day, however, sparked by the inevitable rally in Europe and on Wall Street after the ECB said it was on alert to adjust the “size, composition and duration” of its quantitative easing policy. Each month the bank buys €60 billion of predominantly government bonds and it will keep doing this until at least September 2016.

It’s now been just over three years since Mario Draghi, the ECB’s president, said he would do whatever it takes to hold the euro together and since then the S&P 500, and a benchmark of Europe’s top 50 stocks, have increased by more than 50%. The major S&P ASX 200 index is up around 30% over that same period. But apart from the United States, economic growth in Europe and Australia has been hard to come by while earnings from companies has been very sluggish. Sharemarkets don’t rise and fall precisely in line with economic activity, they are more a forward-looking indicator and, despite lots of requests to do so, no one rings the bell or waves the white flag when the sharemarket hits the top or bottom. But for the past three years or so growth forecasts have been revised down and bond yields have tumbled, implying that all is not well, and yet there has been no break in the sharemarket’s psychology; shares are the place to be.

Read more …

The bottom will hurt.

ECB President Mario Draghi Reignites Currency War Talk (AFR)

Global currency wars are back on in earnest, with the euro tumbling after ECB boss Mario Draghi signalled the bank stood ready to boost the “size, composition and duration” of the bank’s bond-buying program. The ECB’s move to boost its monetary stimulus, which drives down eurozone bond rates and puts downward pressure on the euro, comes as US Federal Reserve board members appear deeply divided on whether to proceed with plans to raise US interest rates this year. While the Fed dithers, the market has already ruled out an interest rate cut this year, which has pushed lower both US bond yields and the greenback. But as it grapples with feeble economic activity and inflation falling into negative territory, the last thing the ECB wants is to see the euro strengthening against the US dollar.

A stronger euro will act as a drag on eurozone growth, because it will make the region’s exports more expensive in global markets. And the ECB cannot stand by idly and watch as the slight progress it has made in terms of boosting economic activity is destroyed by a strong currency. As a result, Draghi has little choice but to fire up the printing presses even more by signalling that the central bank’s €1.1 trillion bond-buying program could be “re-examined” in December, and by refusing to rule out further interest rate cuts. Speaking in Malta, Draghi said the European central bank’s “governing council recalls that the asset purchase programme provides sufficient flexibility in terms of adjusting its size, composition and duration.”

At the moment, the ECB is buying €60 billion of mostly government bonds each month, and many analysts expect this will be increased to €80 billion a month at the ECB’s December meeting. The ECB might also cut the rate charged on banks’ deposits parked at the ECB, which is minus 0.2% at present, even further. “The degree of monetary policy accommodation will need to be re-examined at our December policy meeting when the new … projections will be available,” Draghi told reporters. Not surprisingly, the euro sank against the US dollar on Draghi’s comments and bond yields, which move inversely to prices, dropped sharply. Benchmark 10-year Italian and Spanish bond yields fell to their lowest level since April, while the yield on two-year German bonds hit a record low of 0.32%.

Read more …

Why does this make me think of alchemy?

The Great Negative Rates Experiment (Bloomberg)

When the Federal Open Market Committee decided in September to leave its main policy rate where it’s been for seven years—close to zero—it included an extraordinary detail. According to the “dot plot,” the display of unattributed individual policy recommendations, one committee member believed that the rate should be below zero through 2016. That is, rates should go to a place the U.S. has never had them before. In theory, it shouldn’t be possible for a central bank to keep short-term interest rates below zero. Banks would have to pay the Fed to hold reserves. Consumers would have to pay banks to hold deposits. Banks and people can hold physical cash, which charges no interest. This is why economists see zero as the lowest possible rate. It’s just theory, though; real-world experience shows the actual lower bound is somewhere below zero.

Denmark’s key bank rate dipped below zero in 2012 and is at minus 0.75%. Economists recently surveyed by Bloomberg see negative rates in that country continuing at least into 2017. Switzerland has kept the rate at minus 0.75% since early this year, and Sweden’s is minus 0.35%. These countries have a different monetary goal from that of the Fed. Denmark and Switzerland have been working to remove incentives for foreigners to deposit money in their banks. Massive foreign inflows would drive their currencies to appreciate so much they would become seriously misaligned with the euro, the currency of their main trading partners. Sweden has been attempting to create inflation. The strategy has had some success. Denmark has been able to hold on to its peg to the euro.

Switzerland dropped its euro peg, and after an initial runup, the Swiss franc has traded within a predictable band. Sweden’s inflation has seesawed. In all three countries, banks were reluctant to pass negative rates on to their domestic customers. In Denmark deposit rates have fallen, and some banks have raised fees for their services, but “real rates for real people were actually never negative,” says Jesper Rangvid, a professor of finance at the Copenhagen Business School. The same is true for Sweden, according to a paper by the Riksbank, the central bank. In Switzerland, one bank, the Alternative Bank Schweiz, will impose an interest charge on retail deposits starting in January.

There’s no evidence of a flight to cash in any of the three countries. According to central bank data, Danish households have added 28 billion kroner ($4.3 billion) to bank deposits since rates shrank to their record low on Feb. 5. That’s because a sack of bills has to be stashed somewhere safe, and protection costs money. According to Rangvid, rates would have to drop as low as minus 10% before people start “building their own vaults.” In its paper, Sweden’s Riksbank pointed out the same possibility but declined to say how far below zero rates would have to go to trigger depositors’ exit from the banks in the largely cash-free country.

Read more …

Europe’s crises are only just starting.

Every Day’s a Crisis for Europe as Merkel Heads Back to Brussels (Bloomberg)

Welcome to Europe, where almost every problem is a crisis. If it’s not Greece’s debt threatening to topple a currency or the largest influx of refugees since World War II, it’s Russian aggression toward its neighbors. The EU’s response: hold another summit. Over the past 10 months, leaders and government finance chiefs have trudged to Brussels for 19 summits and emergency meetings – with a 20th planned for Sunday – as they wrangled over a financial lifeline for Greece, the surge of migrants and Russia’s violent inroads in Ukraine. That tally compares with eight meetings last year and nine in 2013. While summit inflation illustrates the proliferation of crises on Europe’s doorstep, it also underscores the difficulty of doing business when 28 leaders with 28 sets of domestic concerns talk through the night and then blame the EU when they fail to make progress.

“These summits are happening almost permanently because the EU is in the middle of an existentialist crisis,” said Drew Scott, a professor of EU studies at the University of Edinburgh who argues that only national leaders have the legitimacy to take on major challenges. “In a world of euro-skepticism, we’ve seen a major return to domestic politics that we haven’t seen since the sixties.” As the refugee crisis worsens, the next gathering – little over a week after the last fractious summit – will see German Chancellor Angela Merkel join leaders from eight countries in central and southeastern Europe gather in Brussels to focus on the flow of migrants through the Western Balkans. “The EU decision-making itself has become so infuriatingly complex that it becomes a source of crisis itself,” said Fredrik Erixon, director of the European Centre for International Political Economy.

European decision-making has never been straightforward, of course, and there were arguments and crises before – the lifting of the Iron Curtain posed a threat to the EU’s very rationale. The bloc’s last-minute success in preventing Greece’s euro-area exit in July and leaders’ willingness to at least discuss a common solution to the refugee crisis show the system still has enough resilience to avoid a major breakdown. With more than a million migrants set to reach the EU this year, that system faces further tests. Leaders at last week’s summit in Brussels clashed over sharing the cost of refugees from countries riven by violence in the Middle East and Africa and how to police the bloc’s borders.

Read more …

“It takes years to clear the additional capacity that a bull market generates, meaning a “long winter in commodities” lies ahead..”

Oil’s Big Slump Looks Like the 1980s ‘Lost Decade’ (Bloomberg)

Crude oil’s collapse is bringing back memories of the decade of low prices that started in 1985 when Saudi Arabia began targeting market share. Oil has dropped by almost half since last October when crude entered a bear market as the U.S. pumped near record rates and China’s economic growth slowed. Despite the longest decline in decades, some including Shell CEO Ben Van Beurden and Morgan Stanley head of Emerging Markets Ruchir Sharma think there’s more pain to come. The current downturn resembles that of 1985 and 1986, Bloomberg Intelligence analysts Peter Pulikkan and Michael Kay wrote in a report on Thursday. Just as price gains in the 1970s saw new technology open up fields in the North Sea and Alaska, Chinese-led demand in the first decade of this century helped unlock oil and gas from shale rocks in the U.S.

Now, companies such as BP Plc are predicting crude will stay “lower for longer.” “The lower-for-longer scenario will likely be even lower and even longer,” Pulikkan said. “In 1985, Saudi Arabia changed policy to raise its market share, ushering in a lost decade for oil. There’s a possibility there’s another lost decade.” [..] As prices dropped, the Saudis refused to cut production, opting to defend market share instead, Pulikkan said. Oil averaged less than $20 in the 12 years from 1987. In November last year, OPEC, led by Saudi Arabia, adopted a similar strategy and chose not to defend oil prices. A 200-year history of commodity prices shows they typically move between a decade of a bull market and two decades of a bear market, Sharma said last month. It takes years to clear the additional capacity that a bull market generates, meaning a “long winter in commodities” lies ahead, he said.

Read more …

“..new orders falling at the fastest pace since early 2009, and inventories piling up..”

As China Weakens, Recession Stalks North Asia (Reuters)

The slowdown in China’s economy, the world’s second largest, is sucking the growth out of North Asia and tilting some economies toward recession. As China undergoes a painful rebalancing of an economy that accounts for 16% of global GDP – up from below a tenth a decade ago – the IMF predicts 5.5% growth this year for a region that also includes export powerhouses Japan, South Korea, Hong Kong and Taiwan. That would be the weakest growth rate since the global financial crisis. Japan’s exports grew by 0.6% from a year earlier in September, the slowest since August last year, data showed on Wednesday, as shipments to China dropped by 3.5%.

“Without a doubt, as long as China remains in a very soft spot … it’s natural that North Asia, which is very highly oriented to China’s market, whether directly or as a conduit, also takes a knock,” said Vishnu Varathan, a senior economist at Mizuho Bank in Singapore. Japan’s weak export numbers have heightened concerns that its economy may slip into recession in the third quarter, with a weak yen not doing enough to support its overseas shipments. Singapore narrowly missed a third-quarter recession after the export-reliant economy expanded just 0.1% from the previous three months, but Taiwan still looks very close to one.

China’s rapid growth and liberalization, especially after accession to the World Trade Organisation in 2001, gave a tremendous boost to Asian trade. Supply chains spread across the region, sucking in everything from coal to fuel its factories, to electronic components for mobile phones to be shipped to markets in the West. Now, though, things are different. PMI readings are contracting across most of Asia-Pacific, with new orders falling at the fastest pace since early 2009, and inventories piling up, meaning that production may have further to fall before economies shake off spare capacity, according to HSBC.

Read more …

Only 800-pound gorillas will remain.

Credit Suisse Exiting Bond Role Sounds Alarm for Debt Market (Bloomberg)

Credit Suisse shook Europe’s bond markets by deciding to drop its role as a primary dealer across the continent, the latest signal that some the world’s biggest banks are scaling back in one of their key businesses. The move coincides with the Zurich-based bank’s overhaul of its trading and advisory services, after fixed-income revenue plunged. Credit Suisse will withdraw from the U.K market on Friday, the nation’s Debt Management Office said. It’s the first time a gilt primary dealer – which buys sovereign debt directly from the government – walked away since December 2011, when State Street’s European division withdrew. “This is a dramatic move for Credit Suisse, and a step back for bond-market liquidity,” said Christopher Wheeler, an analyst at Atlantic Equities in London.

“This is probably designed to reduce costs and capital tied to its investment bank business. I hope it’s not a shape of things to come for the bond market.” The world’s biggest banks are shrinking their bond-trading activities to comply with regulations such as higher capital requirements imposed following the financial crisis. These restrictions have curbed their ability to build inventory or warehouse risk. The result is that prices can be more volatile for money managers and private investors. The situation has worsened in the past five years. The size of U.S. Treasury market, for example, has expanded by more than 45% in five years to $12.9 trillion, according to data compiled by Bloomberg.

At the same time, the five largest primary dealers – those financial institutions that trade with the Treasury – have cut their balance sheets by about 50% from 2010, according to data from Tabb Group. Credit Suisse will remain a primary dealer for the U.S. Treasuries market, according to a London-based company spokesman, Adam Bradbery. “This is part of scaling back the macro business,” Bradbery said. “We are in the process of exiting all our European primary dealer roles.” [..] “You’re seeing pressure at every single bank,” said Harvinder Sian at Citigroup in London. “If you’re not something of a monster in terms of presence and market share, then the economics just don’t stack up.”

Read more …

Why not say this two years ago?

US Regulator Raises Red Flag on Auto Lending (WSJ)

A top financial regulator warned of risks in the fast-expanding auto-lending sector, raising the prospect of fresh regulatory pressure in an area that has been a bright spot for banks. While policy makers have generally declared the U.S. banking system recovered from the financial crisis, Comptroller of the Currency Thomas Curry raised a rare red flag, saying in a speech that some activity in auto loans “reminds me of what happened in mortgage-backed securities in the run-up to the crisis.” “We will be looking at those institutions that have a significant auto-lending operation,” he told reporters after the speech. Many mortgage-backed securities thought to be safe turned sour during the financial crisis, leading to heavy losses across Wall Street.

The comments are likely to raise concerns in particular at firms like Wells Fargo and other national banks active in auto lending that are regulated by the comptroller’s office. Mr. Curry’s vow of closer scrutiny wouldn’t affect their competitors at lenders owned by large auto manufacturers. When the comptroller in the past has raised questions about loans being risky—as it has done since 2013 with leveraged loans to heavily indebted corporations—regulators have turned up the heat to the point that banks have dialed back products, even when they were profitable. Auto lenders denied they were taking excessive risks.

Richard Hunt, president of the Consumer Bankers Association, said the lenders his group represents “are applying prudent underwriting standards in order for consumers to have access to safe and affordable transportation.” [..] This isn’t the first time regulators have cast a spotlight on auto lenders. In March, the Consumer Financial Protection Bureau raised concerns about consumers taking on too much auto debt, and some large financial firms have faced investigations regarding unfair auto-lending practices. But Mr. Curry’s concerns focused on the risks auto loans may pose to banks’ safety and soundness. Lower-level OCC officials have previously raised similar concerns.

Read more …

The edge of finance.

US Junk-Bond Default Rate May Nearly Double in a Year: UBS (Bloomberg)

U.S. junk-bond defaults could nearly double by the third quarter of next year, led by energy, metal and mining companies under pressure from depressed commodities prices, according to UBS. The high-yield default rate may climb as high as 4.8%, UBS analysts wrote in a note to clients Thursday. The default rate for speculative-grade debt in the U.S. was at 2.5% at the end of September, according to Moody’s Investors Service, up from 2.1% in the second quarter and 1.6% a year earlier. The default rate for junk-rated energy and natural-resources companies – which make up the bulk of speculative-grade debt – may increase to 15% over the next year, Zurich-based UBS said, up from the current 10% rate reported by Moody’s.

“The sector is out of whack,” UBS strategist Matthew Mish said. “Capital markets are showing much greater tiering of credit quality. It’s not just energy issuers that can’t tap the market right now.” The default rate increased as the price of oil plunged by about 60% from last year’s June high amid slowing growth in China, the world’s biggest commodity importer. The lowest-rated debt is poised for more pain, said Mish, even as what investors demand to hold debt rated CCC and below versus the broader high-yield market has risen to the highest level since the financial crisis, according to Bank of America Merrill Lynch Indexes. “Valuations there are still too tight for the underlying risk,” Mish said.

Read more …

Enron redux.

Valeant Slump Poses Big Threat To Small Hedge Funds (Reuters)

Valeant Pharmaceuticals’ market slide has hurt the returns of several large U.S. hedge funds, but for smaller players with outsized bets on the drug company the fallout could be far more painful, according to industry watchers. Among smaller hedge funds invested in Valeant, at least three had more than 20% of their assets tied up in the stock as of June 30, according to data from Symmetric.IO, a research firm that provided the data to Reuters on Thursday. They include Tiger Ratan Capital Management, Marble Arch Investments, and Brave Warrior Advisors, according to the numbers, which are based on publicly reported stock positions and may not include hedges. It is not known whether the funds have maintained their holdings into this week, but if they did, they could be looking at losses worth hundreds of millions of dollars.

“The major risk is with funds that have an unstable, short- term oriented capital base, where a poor few months of performance can lead to significant capital flight,” said Jonathan Liggett, Managing Member at JL Squared Group, an investment advisor. Smaller hedge funds can quickly collapse if investors demand their money back all at once, forcing managers to exit profitable positions to raise cash quickly. Valeant shares are down 35% this week after a short-seller’s report accused the company of improperly inflating revenues, igniting fears about federal prosecutors’ probes into its pricing and distribution. Valeant has denied the allegations and its Chief Executive Michael Pearson and other board members are due to address them in more detail in a call with investors on Monday.

The slump has trimmed billions of dollars off the ledgers of investors such as hedge fund mogul William Ackman’s Pershing Square Capital Management, activist hedge fund ValueAct Capital, and investment firm Ruane, Cunniff & Goldfarb. But the impact could be far worse at smaller funds that typically have less than $5 billion in assets and also bet on a stock that had been one of this year’s early winners. Nehal Chopra’s Tiger Ratan owned roughly 1 million shares of Valeant at the end of the second quarter, accounting for about one fifth of her $1.6 billion fund. Through August, Chopra had been one of the year’s best performers, showing a gain of 21.6% for the year. But people familiar with her numbers said heavy losses in September wiped out all gains putting the fund into the red for the year. If the firm still held that Valeant position this week its losses on that bet alone would have totaled roughly $370 million for the week.

Read more …

Because derivatives are so devoid of risk?

Revised US Swaps Rule to Spare Big Banks Billions in Collateral (Bloomberg)

Wall Street banks will escape billions of dollars in additional collateral costs after U.S. regulators softened a rule that would have made their derivatives activities much more expensive. Two agencies approved a final rule on Thursday that will govern how much money financial firms must set aside in derivatives deals. A key change from recent draft versions of the rule – and the focus of months of debate among regulators – cut in half what the companies must post in transactions between their own divisions. A version proposed last year called for both sides to post collateral when two affiliates of the same firm deal with one another, such as a U.S.-insured bank trading swaps with a U.K. brokerage. The final rule requires that only the brokerage post, cutting collateral demands by tens of billions of dollars across the banking industry.

Those costs would still be significantly higher than the collateral they currently set aside. “Establishing margin requirements for non-cleared swaps is one of the most important reforms of the Dodd-Frank Act,” Federal Deposit Insurance Corp. Chairman Martin Gruenberg said before his agency’s vote, noting that changes were made in response to objections raised by the industry. While the bank regulators’ approach is good news for Wall Street, all eyes now turn to the Commodity Futures Trading Commission, which is writing a parallel rule. Firms also would need that rule to be softened before claiming a clear victory. Like the CFTC, the Securities and Exchange Commission is also drafting a final version of similar requirements to be imposed on separate parts of banks.

Read more …

Aluminum.

The ‘Miserable’ Metal Sinks to Its 2009 Low (Bloomberg)

Dwight Anderson had a point when it came to aluminum. The price sank to the lowest level in more than six years on Friday on concern that a global glut will endure, extending a losing run after the hedge fund manager dubbed the metal as miserable. Three-month futures fell as much as 0.4% to $1,484.50 metric ton on the London Metal Exchange, the lowest level since June 2009. The metal is set for an eighth daily loss. Aluminum fell 20% this year as global supply exceeded demand, with output from top producer China surging even as economic growth slowed, spurring increased exports. Anderson, founder of hedge fund Ospraie Management, described aluminum in an interview this week as “miserable,” probably forcing closures and bankruptcies. BNP Paribas expects a surplus of 1 million tons this year.

“The fundamental outlook is weak for the metal with some miserable factors like oversupply not easing in China even as prices keep falling,” Wang Rong, an analyst at Guotai & Junan Futures Co. in Shanghai, said on Friday. Speculation about government subsidies for local producers worsened sentiment in recent days as smelters were seen continuing producing with the policy encouragement, according to Wang. Primary aluminum production in China expanded 12% in the first nine months of this year while the expansion of the country’s gross domestic product was the weakest since 2009. Shipments of unwrought aluminum and aluminum products from Asia’s top economy surged 18% between January and September.

Alcoa, the top U.S. aluminum maker, said last month it will break itself up by separating manufacturing operations from a legacy smelting and refining business that’s struggling to overcome the booming production from China. While the company forecast a global surplus this year, it sees a shift to a deficit in 2016. A total of 58% of traders and executives picked aluminum as their “favorite short” in a survey by Macquarie at this month’s London Metal Exchange’s annual gathering. It was the only LME metal seen with downside over the coming year, Macquarie said. “Aluminum is miserable and is going to stay miserable and will have to force closures and bankruptcies,” Anderson told Bloomberg. “For most industrial metals, we have a negative outlook for the near term.”

Read more …

“..because it misrepresented the way markets work..”

‘Flash Crash’ Trader’s Lawyer Calls US Extradition Request False (Guardian)

The US request to extradite London-based trader Navinder Sarao, accused of helping to spark the 2010 Wall Street “flash crash”, is “false and misleading” because it misrepresented the way markets work, his lawyer has told a court. Sarao is wanted by US authorities after being charged on 22 criminal counts including wire fraud, commodities fraud, commodity price manipulation and attempted price manipulation. The 36-year-old, who lives and worked at his parents’ modest home near Heathrow airport, is accused of using an automated trading programme to “spoof” markets by generating large sell orders that pushed down prices. He then cancelled those trades and bought contracts at lower prices, prosecutors say.

The flash crash saw the Dow Jones Industrial Average briefly plunge more than 1,000 points, temporarily wiping out nearly $1tn in market value. Sarao’s team are looking to block extradition on the grounds that the US charges would not be offences under English law, and if they are, that he should be tried in Britain. At a court hearing in London on Thursday to consider whether a US trading expert could give evidence when the case is decided next year, Sarao’s lawyer James Lewis said his testimony was needed to debunk the US extradition request because it demonstrated that there was nothing unusual in traders cancelling orders.

“Americans had to create the crime of spoofing,” Lewis told Westminster Magistrates’ court in London, citing a report by Prof Lawrence Harris from the Marshall School of Business at the University of Southern California. “The [US extradition] request is false and misleading,” he added. “It’s simply not the reality of what happens in any market. It’s arrant nonsense.” Mark Summers, representing the US authorities, said they were not suggesting cancelling trades was in itself wrong, but that Sarao had never planned to execute the orders he had posted. “His intention was to manipulate the market process by creating a false impression of liquidity. It was bogus from the outset,” Summers said, adding the US disputed the report by Prof Harris, a former chief economist at the US Securities and Exchange Commission.

Read more …

How distorted has the US justice system become?

Inside Massive Injury Lawsuits, Clients Get Traded Like Commodities (BBG)

For all the black robes and ceremony, the American legal system often operates more like a factory assembly line than a citadel of individualized justice. 95% of criminal prosecutions end in plea deals. Many defective-product claims settle in mass pacts that benefit attorneys more than putative victims. Now a legal dispute within a plaintiffs’ law firm that organizes massive torts is threatening to pull back the curtain on the mechanics of high-volume litigation. It’s not a pretty picture. Amir Shenaq, a 30-year-old financier, sued his former employer, the Houston law firm AkinMears, over $4.2 million in allegedly unpaid commissions. To earn those fees, Shenaq says he raised nearly $100 million used to purchase thousands of injury claims from other lawyers.

The suit portrays a claim-brokering marketplace that normally operates in secret, with clients recruited en masse through TV and Internet advertising who are then bundled and traded among attorneys like so many securitized mortgages. AkinMears “is not run like a traditional plaintiffs’ law office, and the firm’s lawyers do not do the types of things that regular trial lawyers do,” according to the Shenaq suit, which was filed in Texas state court in late September by another Houston firm, Oaks, Hartline & Daly. AkinMears doesn’t do “things like meet their clients, get to know their clients, file pleadings/motions, attend depositions/hearings, or, heaven forbid, try a lawsuit,” Shenaq alleges.

Rather, AkinMears “is nothing more than a glorified claims-processing center, where the numbers are huge, the clients commodities, and the paydays, when they come, stratospheric.” In court filings, AkinMears denied wrongdoing and said Shenaq had been fired last July 31 for unspecified reasons. Shenaq, a former Wells Fargo Securities leveraged-finance banker, alleges Akin fired him to avoid paying the multimillion-dollar commissions. AkinMears asked the trial judge to seal Shenaq’s suit, saying his disclosures “will cause immediate and irreparable harm to the continued nature of financial and other information belonging to AkinMears and those with whom it does business under terms of confidentiality.” Judge Randy Wilson granted the gag order earlier this month, but only after the original filing had been disseminated online.

Read more …

He’s right about the problem, but so wrong on the “solution” (forced savings supposed to yield 7-8%) it’s clear all he wants is easy access to all that ‘capital’.

Millennials Face ‘Great Depression’ In Retirement: Blackstone COO (CNBC)

Americans in their 20s and 30s are facing a retirement crisis that could plunge them back into the Great Depression, Blackstone President and Chief Operating Officer Tony James said Wednesday. “Social Security alone cannot provide enough for these people to retain their standard of living in retirement, and if we don’t do something, we’re going to have tens of millions of poor people and poverty rates not seen since the Great Depression,” he told CNBC’s “Squawk Box.” The solution is to help young people save more by mandating savings through a Guaranteed Retirement Account system, he said. Right now, young people cannot save enough on their own because they face stagnant incomes and heavy student-debt burdens.

The Guaranteed Retirement Account was proposed by labor economist Teresa Ghilarducci in 2007 as a solution to the problem of retirement shortfalls that inevitably arise when contributions are voluntary. A GSA system would require workers to make recurring retirement contributions, which would be deducted from paychecks. Employers would be mandated to match the contribution, and the federal government would administer the plan through the Social Security Administration.

Ghilarducci has proposed a mandatory 5% contribution, but James said a 3% requirement rolled into GRAs could outperform retirement savings vehicles like IRAs and 401(k)s. He noted that a 401(k) typically earns 3 to 4%, while a pension plan yields 7 to 8%. The average American pension plan has a 25% allocation to alternative investments — including real estate, private equity and hedge funds — with the remainder invested in markets, he said. “The trick is to have these accounts invested like pension plans, so the money compounds over decades at 7 to 8%, not at 3 to 4,” he said.

Read more …

We’re going to need robot farmers.

American Farmers Want Student Loans Forgiven (MarketWatch)

Are the farmers who grow the nation’s food public servants? Not according to the government — but some advocates and bipartisan legislators are trying to change that, pushing a proposal to add farming to the list of public service fields entitled to student debt forgiveness. The effort is an indication that the student debt crisis has fueled concerns about the future of one of the country’s oldest professions and, perhaps, even endangered the food supply. Advocates say that debt may be keeping young Americans from starting farms, buying land, or even considering farming to begin with, perhaps meaning there won’t be enough farmers to take over when the current generation retires.

“We’re increasingly moving toward a system where the barriers to entry in farming as a young person are too high,” said Eric Hansen, a policy analyst at the National Young Farmer’s Coalition, the advocacy group behind a push to include farming in the Public Service Loan Forgiveness Program. But some question whether characterizing for-profit farming as a public service is the right way to tackle issues facing potential farmers — and, more broadly, whether the program, meant to encourage educated workers to enter relatively low-paying professions such as social work, early childhood education and government — is in need of refinement, rater than expansion.

It’s hard to find precise statistics on the share of farmers who have student loan debt, but available data nevertheless suggests a sizable population. Nearly a quarter of principal farm operators had completed college in 2007, according to a U.S. Department of Agriculture survey, and more than 70% of bachelor’s degree recipients graduate with student debt. Just 6% of the nation’s approximately 2.1 million farmers were under 35 in 2012, according to the U.S. Department of Agriculture, down from nearly 16% 20 years earlier. Mechanization has allowed farmers to work longer, raising average ages, and farm families often struggle to convince their children to stay in the business. But student loan debt is also a large part of the problem, some say.

Read more …

MO.

Inside Swiss Banks’ Tax-Cheating Machinery (WSJ)

Some Swiss banks loaded funds onto untraceable debit cards. At another, clients who wanted to transfer cash used code phrases such as “Can you download some tunes for us?” One bank allowed a client to convert Swiss francs into gold, which was then stored in a relative’s safe-deposit box. Dozens of Swiss banks have been spilling their secrets this year as to how they encouraged U.S. clients to hide money abroad, part of a Justice Department program that lets them avoid prosecution. It is part of a broader U.S. crackdown on undeclared offshore accounts that has ensnared big Swiss banks such as UBS, but has received scant attention because it mostly involves little-known firms and relatively small fines.

A Wall Street Journal analysis of Justice Department documents from more than 40 settlements with these banks provides a rare window into foreign firms’ tax-haven techniques and their myriad methods of keeping clients’ accounts under wraps. The offenders range from international banks to small-town mortgage lenders, which together helped secrete more than 10,000 U.S-related accounts holding more than $10 billion, according to the analysis. “Helping Americans conceal assets from the IRS was a big business for many sizes and types of firms in Switzerland, and now we’re seeing how extensive it was,” said Jeffrey Neiman, who led the Justice investigation of UBS in 2009 that pierced the veil of Swiss-bank secrecy. He is now at law firm Marcus Neiman & Rashbaum LLP in Fort Lauderdale, Fla.

The firms that have admitted to the misconduct have paid a total of more than $360 million to resolve the cases and avoid criminal charges. Lawyers for U.S. account holders and Swiss banks estimate that 40 other firms in this program are in talks with the Justice Department. “Banks large and small are naming individuals and firms that helped U.S. taxpayers hide foreign accounts and evade taxes,” said acting Assistant Attorney General Caroline Ciraolo. “It is now clear that asset-management firms, investment-advisory groups, insurance companies and corporate service providers—not just banks—facilitated this criminal conduct.” More than 54,000 U.S. taxpayers with undeclared accounts have paid more than $8 billion to the Internal Revenue Service to resolve their cases and avoid criminal prosecution.

Read more …

It’s now Putin’s monologue.

Vladimir Putin Accuses US Of Backing Terrorism In Middle East (Guardian)

The Russian president, Vladimir Putin, has launched a stinging attack on US policy in the Middle East, accusing Washington of backing terrorism and playing a “double game”. In a speech on Thursday at the annual gathering of the Valdai Club, a group of Russian and international analysts and politicians, Putin said the US had attempted to use terrorist groups as “a battering ram to overthrow regimes they don’t like”. He said: “It’s always hard to play a double game – to declare a fight against terrorists but at the same time try to use some of them to move the pieces on the Middle Eastern chessboard in your own favour. There’s no need to play with words and split terrorists into moderate and not moderate. I would like to know what the difference is.”

Western capitals have accused Moscow of targeting moderate rebel groups during its bombing campaign in Syria, which Russia says is mainly aimed at targets linked to Islamic State. However, Putin’s talk of “playing with words” and other statements by government officials suggest Moscow believes all armed opposition to Bashar al-Assad is a legitimate target. Putin received Assad at the Kremlin on Tuesday, and on Thursday he underlined that he considered the Syrian president and his government to be “fully legitimate”. He said the west was guilty of shortsightedness, focusing on the figure of Assad while ignoring the much greater threat of Isis. “The so-called Islamic State [Isis] has taken control of a huge territory. How was that possible? Think about it: if Damascus or Baghdad are seized by the terrorist groups, they will be almost the official authorities, and will have a launchpad for global expansion. Is anyone thinking about this or not?”

Read more …

“Greece has become synonymous with a country that cannot meet its obligations. It has become a unit of measure. Like Richter, decibels, kilos…”

Greece, A Unit For Measuring Catastrophe (Konstandaras)

“Is Kenya Africa’s Greece?” a newspaper poster in South Africa asked a few days ago in a photo on Twitter that caused a stir in Greece. Kenya is finding it difficult to pay its state employees, raising questions about the state of its finances. A couple of days later, Paulo Tafner, an economist and authority on Brazil’s pension system, described his country’s problems to the New York Times in this way: “Think Greece but on a crazier, more colossal scale.” Greece has become synonymous with a country that cannot meet its obligations. It has become a unit of measure. Like Richter, decibels, kilos…

Our prime minister, Alexis Tsipras, boasts that his government made the Greek problem an international issue. He may believe that the resistance he put up against our creditors for several months gained the international public’s sympathy – and, up to a point, he is right – but our country’s international image is not his achievement alone. Greece became a symbol because of decades of mismanagement, waste and populism. The SYRIZA-Independent Greeks coalition inherited these problems but it differed from previous governments in that it made no effort to correct Greece’s failings; instead, it presented them as virtues that could be maintained and imposed on those who lend us money. This effort resulted in resounding defeat and has not won any admirers.

Even SYRIZA’s Spanish brethren, Podemos, are trying to persuade their compatriots that they are very different from the Greeks. It is sad and humiliating to see Greece being used as a symbol of failure. After having inherited so much, it is a heavy burden to be known chiefly for an inability to manage the present. But the very fact that our country is a unit for measuring failure reveals the only comforting fact in this sorry tale: Obviously we are not the only country to screw up so badly. The problems that we face challenge other countries, too, whether in Europe or Africa or South America, whether they are small and poor or emerging giants.

Mismanagement, waste, corruption and supporting specific groups at the expense of the general public are not exclusively Greek phenomena. Our problem here is that we allowed them to grow without any serious effort to control them. For decades. Like investors thrilled by bubbles, we were seduced. We forgot that what goes up comes down. And when we crashed and needed help we still behaved as if we did not need a radical change of mentality. It was as if we did not want to save ourselves.

Read more …

But by no means the lowest.

A New Low: Czech Authorities Strip-Searched Refugees To Find Money (Quartz)

The Czech Republic is locking up refugees and migrants in degrading conditions, according to a scathing criticism by the United Nations High Commissioner for Human Rights released Oct. 22. Not only are new arrivals kept involuntarily in detention centers, but many are being forced to pay $10 per day for it. In some cases, refugees have been strip-searched by authorities looking for the money. The required payment does not have “clear legal grounds,” said UNHCR commissioner Zeid Ra’ad Al Hussein in the release. It leaves many of the detainees destitute by the end of their stay, which in some cases can last 90 days. Children have also been detained, a violation of minors’ rights by UN standards.

“International law is quite clear that immigration detention must be strictly a measure of last resort,” emphasizes Zeid. “According to credible reports from various sources, the violations of the human rights of migrants are neither isolated nor coincidental, but systematic: they appear to be an integral part of a policy by the Czech Government designed to deter migrants and refugees from entering the country or staying there.” Zeid points out in his statement that the Czech Republic’s own Minister of Justice Robert Pelikán has described conditions in the Bìlá-Jezová detention facility as “worse than in a prison.”

Read more …

Can things get any worse? You bet.

Rights Group Reports Fresh Assaults On Migrants In Aegean Sea (AFP)

Human Rights Watch on Thursday reported fresh assaults by unidentified gunmen in the Aegean Sea endangering the lives of migrants trying to reach Europe. The rights group said witnesses had described eight incidents in which assailants “intercepted and disabled the boats carrying asylum seekers and migrants from Turkey toward the Greek islands, most recently on October 7 and 9.” A 17-year-old Afghan called Ali said a speedboat with five men armed with handguns had rammed their rubber dinghy on October 9. “At first when they approached, we thought they had come to help us,” Ali told HRW.

“But by the way they acted, we realised they hadn’t come to help. They were so aggressive. They didn’t come on board our boat, but they took our boat’s engine and then sped away,” he said. The Afghan teen said the masked men attacked three other boats in quick succession before speeding off toward the Greek coast “They spoke a language we didn’t know, but it definitely was not Turkish, as we Afghans can understand a bit of Turkish,” he said. Similar allegations had been made by migrants and rights groups during the summer. The latest attacks had occurred near the island of Lesvos, HRW said. A Greek coastguard source said the claims were under investigation but despite a search for the alleged perpetrators on land and at sea, no evidence had been found.

Read more …

One word: methane.

Permafrost Thawing In Parts Of Alaska ‘Is Accelerating’ (BBC)

One of the world’s leading experts on permafrost has told BBC News that the recent rate of warming of this frozen layer of earth is “unbelievable”. Prof Vladimir Romanovsky said that he expected permafrost in parts of Alaska would start to thaw by 2070. Researchers worry that methane frozen within the permafrost will be released, exacerbating climate change The professor said a rise in permafrost temperatures in the past four years convinced him warming was real. Permafrost is perennially frozen soil that has been below zero degrees C for at least two years. It’s found underneath about 25% of the northern hemisphere, mainly around the Arctic – but also in the Antarctic and Alpine regions.

It can range in depth from one metre under the ground all the way down to 1,500m. Scientists are concerned that in a warming world, some of this permanently frozen layer will thaw out and release methane gas contained in the icy, organic material. Methane is a powerful greenhouse gas and researchers estimate that the amount in permafrost equates to more than double the amount of carbon currently in the atmosphere. Worries over the current state of permafrost have been reinforced by Prof Romanovsky. A professor at the University of Alaska, he is also the head of the Global Terrestrial Network for Permafrost, the primary international monitoring programme.

He says that in the northern region of Alaska, the permafrost has been warming at about one-tenth of a degree Celsius per year since the mid 2000s. “When we started measurements it was -8C, but now it’s coming to almost -2.5 on the Arctic coast. It is unbelievable – that’s the temperature we should have here in central Alaska around Fairbanks but not there,” he told BBC News. In Alaska, the warming of the permafrost has been linked to trees toppling, roads buckling and the development of sinkholes. Prof Romanovsky says that the current evidence indicates that in parts of Alaska, around Prudhoe Bay on the North Slope, the permafrost will not just warm up but will thaw by about 2070-80.

Read more …

Sep 192015
 
 September 19, 2015  Posted by at 10:14 am Finance Tagged with: , , , , , , , ,  7 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


Arthur Siegel Bethlehem-Fairfield shipyards, Baltimore, MD May 1943


US Stocks Tumble As Fed Sows Fear And Confusion (MarketWatch)
The Fed Has To Deal With Its Own Zombie Apocalypse (CNBC)
A ‘Third Mandate’ For Fed As China Worries Take Hold (CNBC)
The Fed Is Trapped: The Naked Emperor’s New “Reaction Function” (Zero Hedge)
The Fed May Have Just Stoked A Currency War (CNBC)
Fed Is Riding The Tail Of A Dangerous Global Tiger (AEP)
Central Banks Fret Stimulus Efforts Are Falling Short (Reuters)
China Is Hoarding the World’s Oil (Bloomberg)
Occam’s Razor Says The Stock Market Is In A Downtrend (MarketWatch)
Three Reasons Why the US Government Should Default on Its Debt Today (Casey)
Treasury to Delay Enforcing Part of Tax Law That Curbs Offshore Tax Evasion (WSJ)
Moody’s Downgrades Credit Rating Of France (AP)
Negative Interest Rates ‘Necessary To Protect UK Economy’ – BOE (Telegraph)
The Orthodoxy Has Failed: Europe Needs A New Economic Settlement (Jeremy Corbyn)
Hungary Stops Train With 1,000 Asylum Seekers Escorted By 40 Croatian Police (RT)
We Are Double-Plus Unfree (Margaret Atwood)
Global Warming ‘Pause’ Theory Is Dead But Still Twitching (Phys Org)

As I wrote a few days ago: it’s all about credibility and confidence.

US Stocks Tumble As Fed Sows Fear And Confusion (MarketWatch)

U.S. stocks sank Friday, with the S&P 500 and the Dow Jones Industrial Average closing down for the week, as Federal Reserve’s decision to leave interest rates unchanged fueled fears about global economic growth. The central bank cited concerns about the global economy and a lack of inflation growth in its Thursday decision to leave interest rates unchanged. “Many are confused by the outcome of the recent Fed meeting,” said Kent Engelke at Capitol Securities. “Markets hate confusion and lack of clarity.” The S&P 500 skidded 32.16 points, or 1.6%, to close at 1,958.08 for a weekly loss of 0.2%. All S&P 500 sectors finished lower, led by energy shares. The Dow Jones dropped 289.95 points, or 1.7%, to close at 16,384.79 with all 30 components in the red. The blue-chip index edged down 0.3% for the week.

The Nasdaq shed 66.72 points, or 1.4% to 4,827.23. The tech-heavy index is the only one of the three major stock barometers to finish out the week higher with gains of 0.1%. Trading volume was elevated, with 5.74 billion shares changing hands on the New York Stock Exchange, due to “quadruple witching,” which means the expiration of various stock-index futures, stock-index options, stock options and single-stock futures. Friday is the second highest volume day of the year. “By not raising the rates, the Fed is now fanning global growth fears,” said Steven Wieting, global chief investment strategist, at Citi Private Bank. “The key for future market action depends largely on whether or not the Fed had any good cause to worry about international developments,” Wieting said.

Read more …

Setback of easy money: “..the bottom of the ladder has gotten more crowded..”

The Fed Has To Deal With Its Own Zombie Apocalypse (CNBC)

The Federal Reserve is scared—of lots of things, some obvious, some not so much. Thursday’s Fed decision to delay yet again the long-awaited liftoff from zero rates gave rise to still more speculation about why the U.S. central bank seems so perpetually reticent to normalize monetary policy. There are all the usual suspects, such as low inflation, weak wage gains despite strong job growth and China plus the rest of the emerging global economy. One reason that hasn’t gotten much attention is the need for the Fed to keep rates low both for government debt and the corporations that now have $12.5 trillion in debt. Among the prime beneficiaries of zero interest rates have been low-rated companies that have been able to borrow money at rates often in the 5% to 6% range.

A move to higher rates, even a small one, could have outsized impacts on those bad balance sheet companies.That puts the Fed in a bit of a Faustian bargain with issuers and holders that has become hard to break. Not only has high-yield issuance exploded in the days of the central bank’s ultra-easy accommodation, but the bottom of the ladder has gotten more crowded as well. About a quarter of all debt issued now in the junk universe is held by companies rated B3 or lower, according to Moody’s. Credit standards have continued to loosen as well, with the ratings agency reporting that its covenant quality index—essentially a read on how strict the conditions are on corporate borrowers—is at record lows.

“Businesses as a whole in the U.S. are better placed now to absorb any shocks that might hit them,” Bodhi Ganguli, senior economist at Dun & Bradstreet, said in a phone interview. “However, there are pockets of greater weakness like these zombie companies. These pockets are likely to see some more turbulence than overall conditions. Some companies definitely will go out of business.” It isn’t just the zombies, though, that should worry about higher rates. Corporate America overall has been piling on the debt, which grew 8.3 percent in the second quarter, according to figures the Fed released Friday.

Read more …

Would love to see a legal challenge to this. Can the Fed create its own mandates?

A ‘Third Mandate’ For Fed As China Worries Take Hold (CNBC)

Has the U.S. Federal Reserve become the world’s economic guardian? The central bank’s decision not to lift interest rates this week because of weakening global growth and a recent surge in market volatility has sparked talk of a “third mandate.” Analysts say that explicit references by the Fed following its meeting on Thursday to the China slowdown and its impact mark a significant departure for the central bank, which is mandated to ensure job creation and price stability in the U.S. economy. “The Federal Reserve’s third mandate appears to be global financial stability,” Mark Haefele at UBS said.

“The U.S. central bank has backed away from its first rate rise in over nine years, saying that international economic and financial weakness could dampen activity in the U.S.,” he said. Economists had been split over whether the Fed would deliver a long-anticipated rate increase this week and market expectations for when rates will rise have been pushed back further following a dovish Fed statement. In fact, one reason for the scaling back of rate-hike speculation in recent weeks has been growing concern about weakness in China – the world’s second-largest economy after the U.S. – and a sharp sell-off in emerging and developed markets in August. According to Deutsche Bank, global stock markets lost $5 trillion of their value in six days in August.

“The argument that global market developments are playing second fiddle to U.S. economic developments is a tenuous one, especially if the epicentre of global economic weakness is China – which is very important to U.S. economy,” Nicholas Spiro of Spiro Sovereign Strategy told CNBC. “It’s clear that what’s happening in China, especially in recent months, is having a massive deflationary impact so it’s about time we heard the Fed was concerned about China,” he said. Beijing is targeting a full-year growth rate of around 7%, which would be the slowest rate in almost 25 years. And there are concerns that the target will be missed amid weak economic data and a rout in Chinese stock markets that threaten to undermine confidence further.

Read more …

“..the FOMC would have been tightening into a tightening..”

The Fed Is Trapped: The Naked Emperor’s New “Reaction Function” (Zero Hedge)

Despite all the ballyhooing about moving to a more market-based exchange rate, the PBoC actually did the opposite on August 11. As BNP’s Mole Hau put it “whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” Obviously, a reduced role for the market, means a greater role for the PBoC, and that of course means intervention via FX reserve drawdowns (i.e. the liquidation of US paper). Of course no one believed that China’s deval was “one and done” which meant that the pressure on the yuan increased and before you knew it, the PBoC was intervening all over the place.

By mid-September, PBoC intervention had cost some $150 billion between onshore spot interventions and offshore spot and forward meddling. The problem – as everyone began to pick up on some 10 months after we announced the death of the petrodollar – is that when EMs start liquidating their reserves, it works at cross purposes with DM QE. That is, it offsets it. Once this became suddenly apparent to everyone at the end of last month, market participants simultaneously realized – to their collective horror – that the long-running slump in commodity prices and attendant pressure on commodity currencies as well as the defense of various dollar pegs meant that, as Deutsche Bank put it, the great EM reserve accumulation had actually begun to reverse itself months ago. China’s entry into the global currency wars merely kicked it into overdrive.

What the above implies is that the Fed, were it to have hiked on Thursday, would have been tightening into a market where the liquidation of USD assets by foreign central banks was already sapping global liquidity and exerting a tightening effect of its own. In other words, the FOMC would have been tightening into a tightening. But that’s not all. When China devalued the yuan it also confirmed what the EM world had long suspected but what EM currencies, equities, and bonds had only partially priced in. Namely that China’s economy was crashing. For quite a while, the fact that Beijing hadn’t devalued even as the yuan’s dollar peg caused the RMB’s REER to appreciate by 14% in just 12 months, was viewed by some as a sign that things in China might not be all that bad.

After all, if a country with an export-driven economy can withstand a double-digit currency appreciation without a competitive devaluation even as the global currency wars are being fought all around it, then the situation can’t be too dire. Put simply, the devaluation on August 11 shattered that theory and reports that China is “secretly” targeting a much larger devaluation in order to boost export growth haven’t helped. For emerging markets, this realization was devastating. Depressed demand from China had already led to a tremendous amount of pain across emerging economies and the message the devaluation sent was that China’s economy wasn’t set to rebound any time soon, meaning global demand and trade will likely remain subdued, as will commodity prices.

Read more …

All this and that too.

The Fed May Have Just Stoked A Currency War (CNBC)

A lack of activity by the U.S. Federal Reserve on Thursday may not have been a surprise, but it’s left no doubt in analysts’ minds that other central banks will now look to ease policy further, a move that could send more shock waves across global currency markets. Valentin Marinov at Credit Agricole told CNBC Friday that he expects global “currency wars” to intensify from here. He predicts the Bank of Japan, the ECB and the People’s Bank of China (PBOC) has now effectively been pushed into unveiling more stimulus. “The Fed inaction could spur other central banks into action,” he said. “It is currency wars.” The dollar skidded to a three-week low against a basket of major currencies after Thursday’s decision.

This comes after the greenback had been appreciating significantly since the middle of last year in anticipation of higher interest rates in the U.S. A higher interest rate can mean a higher yield on assets and investors in the U.S. have been busy bringing their dollars home, and thus out of high-yielding foreign investments. A weaker dollar in the short term could now leave other global economies frustrated and dent export-focused companies that favor a weak domestic currency. Manipulating reserve levels can be one way that a country’s central bank can intervene against currency fluctuations. Other measures include altering benchmark interest rates and quantitative easing. Central banks often stress that exchange rates are not a primary policy goal and can be seen more as a positive by-product of monetary easing.

There have been discussions in the last few years that countries are purposefully debasing their own currencies – a concern that was termed “currency wars” by Brazil’s Finance Minister Guido Mantega in September 2010. Credit Agricole’s Marinov highlighted that the ECB could be the next to act by ramping up its current bond-buying program, thus weakening the single currency – even though its only mandate is to manage inflation. Analysts at BNP Paribas also stated Friday that the Fed decision had increased their conviction that the ECB would increase its quantitative easing program. Marc Ostwald, strategist at ADM ISI, said in a note Friday that the ECB and the BoJ who will now face “even bigger challenges, given that the Fed is clearly not in any hurry to live up to its part of the ‘policy divergence’ grand bargain.”

Read more …

Ambrose is lost. He claims the China crash bottomed out in April, because more debt has been added since then.

Fed Is Riding The Tail Of A Dangerous Global Tiger (AEP)

The US Federal Reserve would have been mad to raise interest rates in the middle of a panic over China and an emerging market storm, and doubly so to do it against express warnings from the IMF and the World Bank. The Fed is the world’s superpower central bank. Having flooded the international system with cheap dollar liquidity during the era of quantitative easing, it cannot lightly walk away from its global responsibilities – both as a duty to all those countries that were destabilized by dollar credit, and in its own enlightened self-interest. Dollar debt outside the jurisdiction of the US has reached $9.6 trillion, on the latest data from the Bank for International Settlements. Dollar loans to emerging markets have doubled since the Lehman crisis to $3 trillion.

The world has never been so leveraged, and therefore so acutely sensitive to any shift in monetary signals. Nor has the global financial system ever been so tightly inter-linked, and therefore so sensitive to the Fed. The BIS says total debt in the rich countries has jumped by 36%age points to 265pc of GDP since the peak of the last cycle, and by 50 points to 167pc in developing Asia, Latin America, the Middle East, Eastern Europe, and Africa. It is wishful thinking to suppose that the world can brush off a Fed rate rise on the grounds that most of the debt is in local currencies. BIS research shows that they will face a rate shock regardless. On average, a 100 point move in US rates leads to a 43 point move in local currency borrowing costs in EM and open developed economies.

Given that the Fed was forced to reverse course dramatically in 1998 when the East Asia crisis blew up – for fear it would take down the US financial system – it can hardly go ahead nonchalantly with rate rises into the teeth of the storm today when emerging markets are an order of magnitude larger and account for 50pc of global GDP. Even if you reject these arguments, Goldman Sachs says the strong dollar and the market rout in August already amount to 75 basis points of monetary tightening for the US economy itself. Headline CPI inflation in the US is just 0.2pc. Prices fell in August. East Asian is transmitting a deflationary shock to the West, and it is not yet clear whether the trade depression in the Far East is safely over.

The argument that zero rates are unhealthy and impure is to let Calvinist psychology intrude on the hard science of monetary management. The chorus of demands – and just from ‘internet-Austrians’ – that rates should be raised in order to build up reserve ammunition in case they need to be cut later, is a line of reasoning that borders on insanity. If acted on, it would risk tipping us all into the very deflationary trap that we are supposed to be protecting ourselves against, the Irving Fisher moment when a sailing boat rolls beyond the point of natural recovery, and capsizes altogether. So hats off to Janet Yellen for refusing to listen to such dangerous counsel. However, the Fed is damned if it does, and damned if it does not, for by recoiling yet again it may well be storing up a different kind of crisis next year.

Read more …

Only solution: moar?!

Central Banks Fret Stimulus Efforts Are Falling Short (Reuters)

The world’s leading central banks are facing the risk that their massive efforts to revive economic growth could be dragged down again, with some officials arguing for bold new ideas to counter the threat of slow growth for years to come. A day after the U.S. Federal Reserve kept interest rates at zero, citing risks in the global economy, the Bank of England’s chief economist said central banks had to accept that interest rates might get stuck at rock bottom. In Japan, where interest rates have been at zero for more than 20 years, policymakers are already tossing around ideas for overhauling the Bank of Japan’s huge monetary stimulus program as they worry that it will be unsustainable in the future, according to sources familiar with its thinking.

Separately a top ECB official said the ECB’s bond-buying program might need to be rethought if low inflation becomes entrenched. But he added monetary policy would not restore economic growth over the long term. More than eight years after the onset of the financial crisis, the economies of the United States and Britain are growing at a healthier pace, in contrast to those of Japan and in many euro zone countries. But the risk of a sharp slowdown in China and other emerging economies has prevented the Fed from starting to raise interest rates and is being watched closely by the Bank of England.

Investors mostly think that the Fed’s delay will be short-lived and that it could begin raising rates before the end of the year, followed a few months later by Britain’s central bank. But the BoE’s chief economist, Andy Haldane, who has long been gloomy about the chances of a sustainable recovery, said the world might in fact be sinking into a new phase of the financial crisis – this time caused by emerging markets.

Read more …

Paid for with monopoly money. Where would the oil price be without this?

China Is Hoarding the World’s Oil (Bloomberg)

Even after China’s slowing economy dragged crude to a six-year low, oil’s second-biggest consumer remains the main safeguard against a further price meltdown. While China’s surprise currency devaluation helped trigger Brent crude’s slump to about $42 a barrel last month, the nation’s stockpiling of oil can staunch further losses. In the first seven months of the year, China purchased about half a million barrels of crude in excess of its daily needs, the most for the period since 2012, according to data compiled by Bloomberg. As the country gathers bargain barrels for its strategic petroleum reserve, the demand is cushioning an oversupplied market from a further crash, according to Columbia University’s Center on Global Energy Policy.

“It throws a lifeline to the market” that safeguards against the risk of crude touching $20 a barrel, Jeff Currie at Goldman Sachs said. “That lifeline lasts through late 2016.” Other countries have emergency oil-supply buffers, and while the U.S. Strategic Petroleum Reserve has been stable at about 700 million barrels for years, China is expanding its stockpiles rapidly. The Asian nation has accumulated about 200 million barrels of crude in its reserve so far and aims to have 500 million by the end of the decade, according to the International Energy Agency. It’s currently filling a 19 million-barrel facility at Huangdao and will add oil at six sites with a combined capacity of about 132 million barrels over the next 18 months, the Paris-based adviser on energy policy estimates.

“The fact that China is stockpiling crude for public strategic storage certainly offsets the weaker sentiment on China’s oil-product demand,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. China’s demand growth is set to slow to an annual rate of 2.3% by the fourth quarter compared with 5.6% in the second quarter, a reflection of “weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output,” the IEA said in a report on Sept. 11.

Read more …

As in: you can’t taper a Ponzi scheme.

Occam’s Razor Says The Stock Market Is In A Downtrend (MarketWatch)

Investors can forget the “death cross,” “bearish divergences” and “symmetrical triangles,” and what the Federal Reserve says it will do about interest rates, and just focus on Occam’s razor: The S&P 500 abandoned its long-term uptrend in late August, meaning it is now in a downtrend. Occam’s razor is the philosophical principle that suggests, all things being equal, the simplest explanation tends to be the right one. One of the most elementary trading maxims on Wall Street is “the trend is your friend.” That’s basically what all the short-term technical patterns, economic data and earnings reports are used for, to determine which direction the longer-term trend is heading, and whether it’s about to change.

Once that trend is determined, a tenet of the century-old Dow Theory of market analysis says it is assumed to remain in effect, until it gives definite signals that it has reversed, according to the Market Technicians Associations knowledge base. In other words, the trend is your friend, until it isn’t. After cutting through all the noise, a trendline is probably the best chart pattern to determine the trend, as it is also the simplest. And the simplest way to tell if a trend has reversed, is if the trendline breaks. The S&P 500 had been riding a strong weekly uptrend, defined by the trendline connecting the bottom of the last correction in October 2011 with the bottom of the November 2012 pullback and the October 2014 low. The S&P 500 fell below that line in late August, meaning the uptrend flipped to a downtrend. Based on the Occam’s razor principle, the uptrend was the friend of investors for four years, but now it isn’t.

Read more …

And so should Greece?!

Three Reasons Why the US Government Should Default on Its Debt Today (Casey)

The overleveraging of the U.S. federal, state, and local governments, some corporations, and consumers is well known. This has long been the case, and most people are bored by the topic. If debt is a problem, it has been manageable for so long that it no longer seems like a problem. U.S. government debt has become an abstraction; it has no more meaning to the average investor than the prospect of a comet smacking into the earth in the next hundred millennia. Many financial commentators believe that debt doesn’t matter. We still hear ridiculous sound bites, like “We owe it to ourselves,” that trivialize the topic. Actually, some people owe it to other people. There will be big transfers of wealth depending on what happens.

More exactly, since Americans don’t save anymore, that dishonest phrase about how we owe it to ourselves isn’t even true in a manner of speaking; we owe most of it to the Chinese and Japanese. Another chestnut is “We’ll grow out of it.” That’s impossible unless real growth is greater than the interest on the debt, which is questionable. And at this point, government deficits are likely to balloon, not contract. Even with artificially low interest rates. One way of putting an annual deficit of, say, $700 billion into perspective is to compare it to the value of all publicly traded stocks in the U.S., which are worth roughly $20 trillion. The current U.S. government debt of $18 trillion is rapidly approaching the stock value of all public corporations – and that’s true even with stocks at bubble-like highs.

If the annual deficit continues at the $700 billion rate – in fact it is likely to accelerate – the government will borrow the equivalent of the entire equity capital base of the country, which has taken more than 200 years to accumulate, in only 29 years. You should keep all this in the context of the nature of debt; it can be insidious. The only way a society (or an individual) can grow in wealth is by producing more than it consumes; the difference is called “saving.” It creates capital, making possible future investments or future consumption. Conversely, “borrowing” involves consuming more than is produced; it’s the process of living out of capital or mortgaging future production.

Saving increases one’s future standard of living; debt reduces it. If you were to borrow a million dollars today, you could artificially enhance your standard of living for the next decade. But, when you have to repay that money, you will sustain a very real decline in your standard of living. Even worse, since the interest clock continues ticking, the decline will be greater than the earlier gain. If you don’t repay your debt, your creditor (and possibly his creditors, and theirs in turn) will suffer a similar drop. Until that moment comes, debt can look like the key to prosperity, even though it’s more commonly the forerunner of disaster.

Read more …

And why not…

Treasury to Delay Enforcing Part of Tax Law That Curbs Offshore Tax Evasion (WSJ)

The Treasury Department said Friday it would delay enforcement of one key part of a 2010 law that is aimed at curbing offshore tax evasion, in a regulatory victory for banks. The law, the Foreign Account Tax Compliance Act, or FATCA, requires foreign banks to start handing over information about U.S.-owned accounts to the Internal Revenue Service. It also would force banks and other financial institutions around the world to withhold a share of many types of payments to other banks that aren’t complying with the law. In effect, the withholding amounts to a kind of U.S. tax penalty on noncompliant financial institutions. The latest move by Treasury will push back the start of withholding for many types of transactions—such as stock trades—from 2017 until 2019.

Withholding for some other types of payments has already begun. The change will give banks more time to come into compliance with FATCA, and governments and the financial industry more time to work out some of the difficult details involved in withholding on more-complex financial transactions. The withholding provision is “the really big stick” in FATCA, said Michael Plowgian, a former Treasury official who is now at KPMG LLP. “The problem with it is that it’s really complicated…So Treasury and IRS have essentially punted” and created more time to solve some of the sticky technical issues, he added.

The Securities Industry and Financial Markets Association, a Wall Street trade group, applauded the move. Given some of the complexities involved, “the 2017 deadline didn’t seem to make sense,” added Payson Peabody, tax counsel for SIFMA. “They are giving themselves more time and giving everyone else a bit more time to comment” on some of the hard questions. Despite the delay in some withholding, experts say FATCA implementation continues to move ahead.

Read more …

First downgrade the country, then wax about how great France really is doing.

Moody’s Downgrades Credit Rating Of France (AP)

Moody’s Investors Service is downgrading the credit rating of France, saying the French economy will grow slowly for the rest of this decade while the country’s debt remains high. The firm lowered its rating to “Aa2” from “Aa1.” That means France has Moody’s third-highest possible rating. Moody’s said Friday the outlook for economic growth in France is weak, and it does not expect that to change soon. It says the high national debt burden probably will not be reduced in the next few years because of low growth and institutional and political constraints. Overall Moody’s says France’s creditworthiness is “extremely high” because of its large, wealthy, well-diversified economy, high per-capita income, good demographic trends, strong investor base and low financing costs. The outlook was raised to “stable” from “negative.”

Read more …

The only way to keep a system going that is drowning in ever more debt.

Negative Interest Rates ‘Necessary To Protect UK Economy’ – BOE (Telegraph)

The Bank of England may need to push its interest rates into negative territory to fight off the next recession, its chief economist has said. Andy Haldane, one of the Bank’s nine interest rate setters, made the case for the “radical” option of supporting the economy with negative interest rates, and even suggested that cash could have to be abolished. He said that the “the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside”. As a result, “there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target”. Speaking at the Portadown Chamber of Commerce, Mr Haldane’s support for a possible cut in rates came as the Bank as a whole has signalled that the next move in rates would be up.

But recent volatility in financial markets, prompted by China, and a decision by the US Federal Reserve to delay rate hikes, have pushed back expectations of the Bank’s first rate rise to November 2016. Traditionally policymakers have resisted cutting rates below zero because when the returns on savings fall into negative territory, it encourages people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy. It would be possible to get around the problem of hoarding by abolishing cash, Mr Haldane said, adding: “What I think is now reasonably clear is that the payment technology embodied in [digital currency] Bitcoin has real potential.” His remarks came as he made the case for raising the UK’s inflation target to 4pc from the current level of 2pc.

Mr Haldane said that a trend towards low interest rates across the globe has made it increasingly difficult to fight off recessions. In the past, central banks have helped stimulate economies by slashing interest rates. But with rates at rock bottom in many parts of the world, many have found their ammunition depleted. “Among the large advanced economies, official interest rates are effectively at zero,” Mr Haldane said. In the UK, the Bank’s interest rate has been stuck at 0.5pc for more than six years. One way to supply the Bank with more firepower would “be to revise upwards inflation targets”. The UK’s inflation target is currently 2pc, but this dates from an era when interest rates were closer to 6pc than 0.5pc. It might be necessary to double that target to 4pc, Mr Haldane argued.

Bank research has determined that slowing growth, ageing populations, weaker investment, rising inequality and a savings glut in emerging markets have all contributed to a generational decline in interest rates. Mr Haldane said: “These factors are not will-of-the-wisp. None is likely to reverse quickly. “That would mean there is materially less monetary policy room for manoeuvre than was the case a generation ago. Headroom of two%age points would potentially be insufficient.” However a hike in the inflation target to 4pc would provide extra “wiggle room”.

Read more …

The entire world does.

The Orthodoxy Has Failed: Europe Needs A New Economic Settlement (Jeremy Corbyn)

David Cameron is traversing Europe, apparently without much idea of what he wants to achieve in his much-feted renegotiation ahead of a referendum in 2016 or 2017. If the prime minister thinks he can weaken workers’ rights and expect goodwill towards Europe to keep us in the EU, he is making a great mistake. Mr Cameron’s support for a bill that would weaken the trade unions, and the cutting of tax credits this week, show that employment rights are under attack. One can imagine that the many rights we derive from European legislation, which underpins paid holidays, working time protection and improved maternity and paternity leave, are under threat too. There is a widely shared feeling that Europe is something of an exclusive club, rather than a democratic forum for social progress.

Tearing up our rights at work would strengthen that view. Labour will oppose any attempt by the Conservative government to undermine rights at work — whether in domestic or European legislation. Our shadow cabinet is also clear that the answer to any damaging changes that Mr Cameron brings back from his renegotiation is not to leave the EU but to pledge to reverse those changes with a Labour government elected in 2020. Workplace protections are vital to protect both migrant workers from being exploited and British workers from being undercut. Stronger employment rights also help good employers, who would otherwise face unfair competition from less scrupulous businesses. We will be in Europe to negotiate better protection for people and businesses, not to negotiate them away.

Too much of the referendum debate has been monopolised by xenophobes and the interests of corporate boardrooms. Left out of this debate are millions of ordinary British people who want a proper debate about our relationship with the EU. We cannot continue down this road of free-market deregulation, which seeks to privatise public services and dilute Europe’s social gains. Draft railway regulations that are now before the European Parliament could enforce the fragmented, privatised model that has so failed railways in the UK. The proposed Transatlantic Trade and Investment Partnership that is being negotiated behind closed doors between the EU and the US, against which I have campaigned, is another example of this damaging approach.

There is no future for Europe if we engage in a race to the bottom. We need to invest in our future and harness the skills of Europe’s people. The treatment of Greece has appalled many who consider themselves pro-European internationalists. The Greek debt is simply not repayable, the terms are unsustainable and the insistence that the unpayable be paid extends the humanitarian crisis in Greece and the risks to all of Europe. The current orthodoxy has failed. We need a new economic settlement.

Read more …

Adding up: shame, insult, injury.

Hungary Stops Train With 1,000 Asylum Seekers Escorted By 40 Croatian Police (RT)

An unannounced train carrying over 1,000 asylum seekers, accompanied by around 40 Croatian police officers, has been intercepted by Hungarian authorities, who accused Zagreb of breaking international laws and intentionally participating in “human smuggling.” The train carrying up to 1,000 refugees was accompanied by some 40 Croatian police officers, who were reportedly detained and then sent back. Croatian police however refuted initial reports that officers accompanying the train were detained or disarmed, explaining that 36 officers “returned” to Croatia in the evening. “There was no disarming or arrests. It is not true,” Croatian police spokeswoman Jelena Bikic told Reuters, claiming that there was “an agreement about the escort between the police officers from the two sides in advance.”

Hungarian authorities said that the incident happened due to Croatia’s failure to coordinate train’s border crossing. According to the head of the Hungarian disaster unit, Gyorgy Bakondi, the Croatian train arrived at Magyarboly without any prior notice, bringing the number of unannounced arrivals to over 4,000 on Friday alone. Croatia’s FM Vesna Pusic claimed that the two countries had agreed “to provide a corridor” for refugees, Sky News reported. However Hungarian spokesman Zoltan Kovacs rejected the claim as a “lie.” “The Croatian system for handling migrants and refugees has collapsed basically in one day,” Kovacs added. “What we see today is the failure of the Croatian state to handle migration issues. What is more we see intentional, intentional, participation in human smuggling taking the migrants to the Hungarian border.”

After Hungary blocked off their border with Serbia this week with the aid of a metal fence and riot police, migrants flooded neighboring Croatia in search for an alternative route. More than 17,000 have arrived in the country since Wednesday morning. “We cannot register and accommodate these people any longer,” Croatian Prime Minister Zoran Milanovic told a news conference. “They will get food, water and medical help, and then they can move on. The European Union must know that Croatia will not become a migrant ‘hotspot’. We have hearts, but we also have heads.”

Read more …

Driven by fear.

We Are Double-Plus Unfree (Margaret Atwood)

Governments know our desire for safety all too well, and like to play on our fears. How often have we been told that this or that new rule or law or snooping activity on the part of officialdom is to keep us “safe”? We aren’t safe, anyway: many of us die in weather events – tornados, floods, blizzards – but governments, in those cases, limit their roles to finger-pointing, blame-dodging, expressions of sympathy or a dribble of emergency aid. Many more of us die in car accidents or from slipping in the bathtub than are likely to be done in by enemy agents, but those kinds of deaths are not easy to leverage into panic. Cars and bathtubs are so recent in evolutionary terms that we’ve developed no deep mythology about them.

When coupled with human beings of ill intent they can be scary – being rammed in your car by a maniac or shot in your car by a mafioso carry a certain weight, and being slaughtered in the tub goes back to Agamemnon’s fate in Homer, with a shower-murder update courtesy of Alfred Hitchcock in his film, Psycho. But cars and tubs minus enraged wives or maniacs just sit there blankly. It’s the sudden, violent, unpredictable event we truly fear: the equivalent of an attack by a hungry tiger. Yesterday’s frightful tigerish threat was communists: in the 1950s, one lurked in every shrub, ran the message. Today, it’s terrorists. To protect us from these, all sorts of precautions must, we are told, be taken. Nor is this view without merit: such threats are real, up to a point.

Nonetheless we find ourselves asking whether the extreme remedies outweigh the disease. How much of our own freedom must we sacrifice in order to defend ourselves against the desire of others to limit that freedom by subjugating or killing us, one by one? And is that sacrifice an effective defence? Minus our freedom, we may find ourselves no safer; indeed we may be double-plus unfree, having handed the keys to those who promised to be our defenders but who have become, perforce, our jailers. A prison might be defined as any place you’ve been put into against your will and can’t get out of, and where you are entirely at the mercy of the authorities, whoever they may be. Are we turning our entire society into a prison? If so, who are the inmates and who are the guards? And who decides?

Read more …

“..there never was a hiatus, a pause or a slowdown..”

Global Warming ‘Pause’ Theory Is Dead But Still Twitching (Phys Org)

A study released Thursday is the second this year seeking to debunk a 1998-2013 “pause” in global warming, but other climate scientists insist the slowdown was real, even if not a game-changer. When evidence of the apparent hiatus first emerged, it was seized upon by sceptics as evidence that climate change was driven more by natural cycles that humans pumping carbon dioxide into the atmosphere. “Our results clearly show that … there never was a hiatus, a pause or a slowdown,” Noah Diffenbaugh, the study’s main architect and a professor at Stanford University, said in a statement. The thermal time-out, his team found, resulted from “faulty statistical methods”.

In June, experts from the US National Oceanic and Atmospheric Administration (NOAA) came to the same conclusion, chalking up the alleged slowdown to a discrepancy in measurements involving ocean buoys used to log temperatures. Their results were published in the peer-reviewed journal Science. Beyond a strident public debate fuelled as much by ideology and facts, the “pause” issue has serious real-world implications. Scientifically, a discrepancy between climate projections and observations could suggest that science has overstated Earth’s sensitivity to the radiative force of the Sun. Politically, it could weaken the sense of urgency underlying troubled UN negotiations, tasked with crafting a global pact in December to beat back climate change.

At first, scientists sounding an alarm about the threat of greenhouse gases were stumped by the data, unable to explain the drop-off in the pace of warming. Even the UN’s Intergovernmental Panel on Climate Change (IPCC)—whose most recent 1,000-plus page report is the scientific benchmark for the UN talks—made note of “the hiatus”. Searching for explanations, the IPCC speculated on possible causes: minor volcano eruptions throwing radiation-blocking dust in the atmosphere, a decrease in solar activity, aerosols, regional weather patterns in the Pacific and Atlantic Oceans. To the general relief of the climate science community, the Stanford findings—a detailed review of statistical methodology—would appear to be the final word on the subject.

Read more …

Aug 142015
 
 August 14, 2015  Posted by at 10:42 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle August 14 2015
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 Katherine Stinson, “the flying schoolgirl,” Sheepshead Bay Speedway, Brooklyn 1918


Greek Parliament Approves Bailout Deal (Guardian)
Greek Bailout On A Tightrope – Again (CNBC)
China Halts Yuan Devaluation With Slight Official Rise Against US Dollar (AFP)
The Economic Wizards Of Beijing Have Feet Of Clay After All (Guardian)
China Denies Currency War As Global Steel Industry Cries Foul (AEP)
China and the Danger Of An Open Currency War (Paul Mason)
China’s Devaluation Becomes Japan’s Problem (Pesek)
Why The Yuan May Deck Singapore Property Stocks (CNBC)
Greece Creditors Raise ‘Serious Concerns’ About Spiralling Debt (Guardian)
Greece To Get €6 Billion In Bridge Loans If No Agreement At Eurogroup (Reuters)
Greece Crisis Proves The Need For A Currency Plan B (John Butler, Cobden)
Greeks Taste Breadth Of Bailout In Loaf And Lotion Rules (Guardian)
European Union Backs IMF View Over Greece – Then Ignores It (Guardian)
Total U.S. Auto Lending Surpasses $1 Trillion for First Time (WSJ)
Surge in Global Commercial Real-Estate Prices Stirs Bubble Worries (WSJ)
Glencore: World Of Big Mining Agog At Huge Fall (Guardian)
The Junk Bond Market ‘Is Having A Coronary’: David Rosenberg (CNBC)
‘I Will Leave Politics And Return To Comedy’: Beppe Grillo (Local.it)
World without Water: The Dangerous Misuse of Our Most Valuable Resource (Spiegel)
Greece Sends Cruise Ship To Ease Kos Migrant Crisis (Guardian)
Mediterranean: Saving Lives at the World’s Most Dangerous Border (Spiegel)

Talk about a Pyrrhic victory.

Greek Parliament Approves Bailout Deal (Guardian)

After a tumultuous, often ill-tempered and at times surreal all-night debate, Greek MPs voted early on Friday to approve a new multibillion euro bailout deal aimed at keeping their debt-stricken country afloat. With his ruling leftist Syriza party apparently heading for a formal split over the €85bn package, prime minister Alexis Tsipras needed the support of the opposition to win parliament’s backing for the bill in a 9.45am vote which the government eventually won by a comfortable margin. But controversial former finance minister Yanis Varoufakis voted against the punishing terms of the deal, along with a large number of Syriza rebels angered by what they said was a sell-out of the party’s principles and a betrayal of its promises, leaving Tsipras severely weakened.

Tsipras told MPs before the vote that the rescue package was a “necessary choice” for the nation, saying it faced a battle to avert the threat of a bridge loan – which he called a return to a “crisis without end” – that Greece may be offered instead of a full-blown bailout. The draft bailout must now be approved by other eurozone member states at a meeting of finance ministers in Brussels on Friday afternoon, and ratified by national parliaments in a number of countries – including Germany, which remains sceptical – before a first tranche can be disbursed that will allowing Greece to make a crucial €3.2bn payment to the ECB due on 20 August. The Athens parliament did not start debating the 400-page text of the draft bailout plan until nearly 4am after parliamentary speaker Zoe Konstantopoulou, a Syriza hardliner, ignored Tsipras’s request to speed up proceedings and instead raised a lengthy series of procedural questions and objections.

[..] On the left, former energy minister Panayiotis Lafazanis, who leads a rebel bloc of around a quarter of Syriza’s 149 MPs, pledged to “smash the eurozone dictatorship”, while in her concluding pre-vote remarks, Konstantopoulou announced: “I am not going to support the prime minister any more.” Earlier, the government spokeswoman, Olga Gerovasili, conceded divisions within the leftist party, which swept to victory in January’s elections on a staunch anti-austerity platform, were now so deep that a formal split was probably inevitable. Tsipras could call fresh elections as early as next month.

Read more …

Time for Dijsselbloem to screw up one last time.

Greek Bailout On A Tightrope – Again (CNBC)

Greece’s third bailout is back in the hands of euro zone finance ministers, who are meeting Friday to discuss whether to go ahead with the deal – or delay it. The baton has been passed on to Brussels after the Greek government, which had debated the reforms that need to be introduced to secure the much needed funds through the night, secured enough votes to pass the bailout bill. However, further uncertainty was heaped on the bailout process with reports from Reuters that left-wing prime minister Alexis Tsipras seeking a vote of confidence from the parliament after August 20. The Eurogroup of finance ministers will be meeting in Brussels to debate the latest developments.

“It’s obvious we have to sign (a bailout deal) and we have to implement this agreement,” Kostas Chrysogonos, a Syriza member of the European parliament (MEP) told CNBC Friday following the Greek vote, saying that he hoped a deal would be completed at the Eurogroup meeting later today. A confidence vote was the last thing Greece needed right now, he added, so soon after Tsipras was elected in January. “I’m hopeful that many of the dissenters will resign their parliamentary seats…and the confidence vote will be enough to gain the confidence of the parliament for this government. It’s obvious that the last thing that we need right now is a general election, a country that stands at the edge of default cannot afford the luxury of having a second general election within eight months.”

Although the country and its international lenders and those overseeing the program have agreed technical details, a political agreement in the euro zone by member state governments is now necessary before any aid is release. But that is easier said than done with tensions running high both in Greece and Germany, Greece’s largest euro zone lender, over the bailout. This raises the possibility that the bailout deal could be delayed and Greece issued a bridging loan to tide it over. In Greece, members of parliament debated the third bailout package through the night after a long delay to the proceedings due to procedural objections saw the plenary session only get underway at 2am local time (midnight London time).

The vote on the bailout deal finally started at 7.30 London time with the government securing enough votes – 222 votes to 64 – to get the bailout approved. Tensions were running high in the Greek parliament, with high profile members of the ruling Syriza party, including former finance minister Yanis Varoufakis and parliamentary speaker Zoe Konstantopoulou, opposing the deal which involves more austerity, spending cuts and reforms. After the bailout was voted through the Greek parliament, Reuters, quoting a government official, said that Tsipras will seek a confidence vote in the Greek parliament after the August 20 deadline for payment to the ECB. A government spokesman told CNBC that he could not confirm the Reuters report but was expecting a statement shortly.

Read more …

Wait till Monday.

China Halts Yuan Devaluation With Slight Official Rise Against US Dollar (AFP)

China’s central bank has raised the value of the yuan against the US dollar by 0.05%, ending three days of falls in a surprise series of devaluations. The daily reference rate was set at 6.3975 yuan to $1.0, from 6.4010 the previous day, the China Foreign Exchange Trade System said. That was also slightly stronger than Thursday’s close of 6.3982 yuan. The higher fixing for the yuan came after the People’s Bank of China (PBoC) sought to reassure financial markets by pledging to seek a stable currency after a shock devaluation of nearly 2% on Tuesday.

The cut, and two subsequent reductions, rattled global financial markets – raising questions over the health of the world’s second-largest economy and sparking fears of a possible currency war. Beijing said the move was the result of switching to a more market-oriented method of calculating the daily reference rate which sets the value of the yuan, also known as the renminbi (RMB). Previously authorities based the rate on a poll of market-makers, but will now also take into account the previous day’s close, foreign exchange supply and demand and the rates of major currencies. The yuan is still only allowed to fluctuate up or down 2% on either side of the reference rate.

“Currently there is no basis for the renminbi exchange rate to continue to depreciate,” PBoC assistant governor Zhang Xiaohui said on Thursday. “The central bank has the ability to keep the renminbi basically stable at a reasonable and balanced level,” she said. Speaking earlier this week another PBoC official said the central bank could directly intervene in the market, after reports it bought yuan on Wednesday to prop up the unit. “The central bank, if necessary, is fully capable of stabilising the exchange rate through direct intervention in the foreign exchange market,” PBoC economist Ma Jun said.

Read more …

“..the deputy governor of its central bank was forced to hold a press conference at which he insisted this was all part of a grand plan.”

The Economic Wizards Of Beijing Have Feet Of Clay After All (Guardian)

The economic wizards of Beijing have feet of clay after all. That’s the growing sense after China’s currency fell for a third day and the deputy governor of its central bank was forced to hold a press conference at which he insisted this was all part of a grand plan. Zhang Xiaohui didn’t quite say “devaluation, what devaluation?” just as Jim Callaghan never quite said “crisis, what crisis?” during the Winter of Discontent. Both men were intent on showing that their governments were fully in control even though they were not. For UK politicians in the 1970s this was a familiar sensation; for China’s mandarins it is an entirely new experience. Over the past 30 years, the technocrats in Beijing have attained an almost mythical status.

Decade after decade of rapid growth has transformed China into the world’s second biggest economy, slashing poverty at the same time. There was much admiration – and not a little envy – in the west for the way in which communist party officials quickly lifted China out of recession following the financial crisis of 2008. The fact that policymaking was so opaque added to the mystique. But those golden days are now over. Beijing wanted to rebalance the Chinese economy, to make growth less focused on exports and more reliant on consumer spending. It wanted slower but more sustainable growth that gradually took the heat out of overvalued property and share prices.

This is proving difficult. Official figures understate the speed at which the economy is slowing. As fears of a hard landing have increased, policymakers have started to panic. Beijing botched attempts at shoring up the stock market, a move that was unnecessary given that the fall of 30% had been preceded by a rise of 150%. Now the attempts to reduce the value of the yuan are being conducted in an equally ham-fisted fashion. It won’t really wash that the events of this week are a carefully thought-out liberalisation plan that will persuade the IMF to include the yuan in its reserve assets known as special drawing rights.

Read more …

“China’s share of global steel output has rocketed from 10pc to 50pc over the last decade.” American and European steel industries can say goodbye.

China Denies Currency War As Global Steel Industry Cries Foul (AEP)

Chinese steelmakers are preparing to flood the global market with cut-price exports as they take advantage of this week’s shock devaluation of the yuan, setting off furious protests from struggling competitors in Europe and the US. It is the first warning sign of a deflationary wave of cheap products from China after the central bank, the People’s Bank of China, abandoned its exchange rate regime, letting the currency fall in the steepest three-day drop since the country emerged as an economic powerhouse. The yuan has fallen 3.3pc against the dollar. Steel mills in the Chinese industrial hub of Hebei have already begun to trim prices of rebar mesh-wires used for building by between roughly $5 and $10 to $295, citing the devaluation as a fresh chance to offload excess stocks of steel.

Europe’s steel lobby Eurofer warned that there would be “very real competitiveness impacts” for European steel firms, already battling for their lives with wafer-thin margins. America’s United Steelworkers accused China of predatory practices.”It is time for China to live by the rules or face the consequences,” said the union’s international president, Leo Gerard. The US steel group Nucor called the devaluation the “latest attempt to support Chinese industry at the expense of producers in the rest of the world who have to earn their cost of capital to survive.” Indian tyre-makers have issued their own warnings, fearing a fresh rush of cheap imports from China. They are already grappling with a 100pc surge in shipments over the last year as the recession in China’s car industry displaces excess supply.

The anger is a foretaste of what China may face if this week’s devaluation is the start of a concerted effort to gain market share in a depressed global economy. Yet it is far from clear whether Beijing really has such an intention. The People’s Bank of China insisted on Thursday that the drop in the yuan was a one-off effect as the country shifts to a more market-friendly exchange regime, essentially a managed float. It described the sudden drop as “irrational” and said reports of a plot to drive down the yuan by 10pc were “nonsense”. China’s share of global steel output has rocketed from 10pc to 50pc over the last decade. It has installed capacity of 1.1bn tonnes a year that it cannot possibly absorb as the Chinese economy shifts away from heavy industry.

It now has 340m tonnes of excess capacity, which has driven down global steel prices by 40pc since early 2014. “This overcapacity alone is more than double the EU’s steel demand, and China is now exporting record quantities to Europe as a result,” said Eurofer.

Read more …

“..another way of looking at QE is as an undeclared currency war – which is exactly how China sees it.”

China and the Danger Of An Open Currency War (Paul Mason)

China has stunned the world by devaluing its currency twice in two days. Or rather it has stunned that naive part of the world that believed China’s economy was okay, that its Communist Party was en route to being some kind of team player in the global economy, and that the words “currency war” were just scaremongering. Here’s what’s happened, and why it matters. China’s economy, which grew at 9% and above per year in the period of rapid industrialisation in the 2000s, has slowed to 7%. Because the entire control system of the conomy is based on one bureaucrat lying to/competing with another, nobody really knows whether the Chinese growth figures are correct – but there’s been a clear slowdown.

That, in turn, caused a stock market slump last month – after more than a year of ordinary Chinese people pouring money into shares. So the government tried to contain by ordering state owned stockbrokers to buy RMB 120bn worth of shares, setting a stock market “target level” reminiscent of the old Soviet grain targets. Now, with growth continuing to falter, the Chinese government has devalued its own currency again in a bid to boost exports. At the same time – as a concession to its trade rivals – it has promised to “take more notice of the markets” when setting interest rates in future. Since it re-entered the global economy, China has pegged its currency, the renminbi, against the dollar – refusing to let it trade freely and to find a market rate.

Under pressure from America and Japan, which say China’s currency is too cheap and gives it an unfair trade advantage, China allowed the RMB gradually to rise against other currencies. This was seen as a first step towards the RMB becoming convertible, and ultimately emerging as a rival global currency to the dollar. Now that policy has been reversed. The context is, first, the tit-for-tat stimulus measures that the world’s major economies have been taking. Europe has launched a massive programme of quantitative easing; Britain’s QE programme remains in place and Japan is reliant on more and more dollops of printed money to buy state debt and keep the economy going. When states or currency unions print money on this scale the side effect is to weaken the value of their currency and boost exports. So another way of looking at QE is as an undeclared currency war – which is exactly how China sees it.

Read more …

Abenomics can still get uglier than it already was.

China’s Devaluation Becomes Japan’s Problem (Pesek)

Among the clearest casualties of China’s devaluation is the Bank of Japan. The chances were never high that Governor Haruhiko Kuroda was going to be able to unwind his institution’s aggressive monetary experiment anytime soon. But the odds are now lower than even skeptics would have previously believed. The real question, though, is what China’s move means more broadly for Abenomics. A sharply devalued yen, after all, is the core of Prime Minister Shinzo Abe’s gambit to end Japan’s 25-year funk. Abenomics is said to have three parts, but monetary easing has really been the only one. Fiscal-expansion was neutered by last year’s sales-tax hike, while structural reform has arrived only in a brief flurry, not the avalanche needed to enliven aging Japan and get companies to raise wages.

China’s devaluation tosses two immediate problems Japan’s way. The first is reduced exports. As Beijing guides its currency even lower, as surely it will, the yen will rise on a trade-weighted basis. And Bloomberg’s Japan economist Yuki Masujima points out that trade with China now contributes 13% more to Japanese GDP than the U.S., traditionally Tokyo’s main customer. “Given China’s rise to prominence, the yen-yuan exchange rate now has far greater influence on Japan than the yen-dollar rate,” Masujima says. The other problem is psychological. Japanese households have long lamented their rising reliance on China, a developing nation run by a government they widely view as hostile.

But the BOJ was glad to evoke China’s 7% growth – and the millions of Chinese tourists filling shopping malls across the Japanese archipelago – to convince Japanese consumers and executives that their own economy was in good shape. Now, the perception of China as a growth engine is fizzling, exacerbating the exchange-rate effect. “To the extent that the depreciation reflects weakness in China, then that weakness – rather than the depreciation per se – is a problem for Japan,” says Richard Katz, who publishes the New York-based Oriental Economist Report. It’s also a problem for Abe, whose approval ratings are now in the low 30s thanks to his unpopular efforts to “reinterpret” the pacifist constitution to deploy troops overseas. The prospect that Abe will enrage Japan’s neighbors by watering down past World War II apologies at ceremonies this weekend marking the 70th anniversary of the end of the wary is further damping support at home.

The worsening economy, which voters hoped Abe would have sorted out by now, doesn’t help. Inflation-adjusted wages dropped 2.9% in June, a sign Monday’s second-quarter gross domestic product report for the may be truly ugly. It’s an open question whether such an unpopular leader can push painful, but necessary, structural changes through parliament. “Already,” Katz says, “Abe has backpedaled on many issues to avoid further drops.” After 961 days, all Abenomics has really achieved is a sharply weaker yen, modest steps to tighten corporate governance and marketing slogans asking companies to hire more women.

Read more …

Think leverage, shadow banking, and fill in the blanks.

Why The Yuan May Deck Singapore Property Stocks (CNBC)

Singapore’s property shares, already on the back foot from expectations of rising interest rates, have taken a beating since China devalued its currency on Tuesday and more pain may be on the cards. “Given that the majority of property stocks with China exposure do not hedge the currency exposures of their incomes and balance sheets, a weaker renminbi suggests that both asset values and earnings/dividends would be negatively affected,” analysts at JPMorgan said in a note Wednesday. “Book values and dividend per unit (DPU) would be affected.” Singapore real-estate investment trusts (S-REITs) are also likely to take a hit as the moves Tuesday and Wednesday by the People’s Bank of China to push down the Chinese currency also caused the Singapore dollar to weaken.

“The weakening Singapore dollar would result in upward pressure on interest rates,” it said, estimating that every 100 basis point rise in interest rates pushes S-REITs’ DPU down by 2.7% because of increased costs. Singapore property shares with China exposure based on earnings and assets under management include CapitaLand Retail Trust China, Global Logistic Properties, CapitaLand and City Developments, JPMorgan noted. Those shares are down 1.2-5.5% so far this week, after a bit of a recovery Thursday. Singapore may not be alone in feeling property pain from China. In Hong Kong, Wharf, Cheung Kong Property and Hang Lung all have significant China exposure, noted Patrick Wong at BNP Paribas.

Read more …

The spiralling debt is a direct consequence of the conditions those same creditors force upon Greece.

Greece Creditors Raise ‘Serious Concerns’ About Spiralling Debt (Guardian)

Greece’s European creditors have underlined the temporary nature of the country’s surprise return to growth by warning that they have “serious concerns” about the spiralling debts of the eurozone’s weakest member. The economic news came as Greece’s parliament met in emergency session on Thursday to ratify a new bailout deal, although it was unclear whether the multibillion-euro agreement had the vital backing of Germany. The three European institutions negotiating a third bailout package with the government in Athens said that the Greek economy had plunged into a deep recession from which it would not emerge until 2017. According to an analysis completed by the EC, the ECB and the eurozone bailout fund, Greece’s debts will peak at 201% of GDP in 2016.

The study says that Greece’s debt burden can be made more bearable by waiving payments until the economy has recovered and then giving Athens longer to pay. However, it opposes the idea of a so-called “haircut” – or reducing the size of the debt. It is a course of action the International Monetary Fund, which joined the three European institutions in negotiating the latest bailout, thinks may be necessary for Greece’s debts to become sustainable.

“The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece’s public debt,” said the analysis, adding that far-reaching reforms were needed to address the worries. It forecasts that the Greek economy will contract by 2.3% this year and a further 1.3% in 2016 before returning to 2.7% growth in 2017. Greece’s debt to GDP ratio will peak next year but will still be 175% in 2020 and 160% in 2022. The IMF views a debt to GDP ratio above 120% as unsustainable.

Read more …

Greece doesn’t want a bridge loan.

Greece To Get €6 Billion In Bridge Loans If No Agreement At Eurogroup (Reuters)

Greece could get €6.04 billion in bridge financing if euro zone finance ministers cannot agree on the planned third bailout for Athens when they meet on Friday, according to German newspaper Bild, citing a European Commission proposal for the meeting. That proposal says the bridge loans should run for a maximum of three months, Bild said in an advance copy of an article due to be published on Friday. Eurozone finance ministers are due to meet in Brussels on Friday to discuss a third financial rescue that Greece has negotiated with its creditors.

Greek Finance Minister Euclid Tsakalotos expressed his opposition on Thursday to Greece taking another temporary loan to meet its immediate debt repayments, calling on lawmakers to approve a new, three-year bailout deal. “I think whatever everyone’s stance on the euro and on whether this is a good or bad accord, there must be no one who is working towards a bridge loan,” he told a parliamentary committee. Athens must make a €3.2 billion debt payment to the ECB on Aug. 20.

Read more …

Cobden Partners was proposed to Varoufakis right after the January election as an advisor. Syriza opted for Lazard instead.

Greece Crisis Proves The Need For A Currency Plan B (John Butler, Cobden)

The recent Greek capitulation under pressure from other euro member countries, led by Germany, demonstrates that euro members have de facto ceded sovereignty over fiscal policy to the EU. While this arrangement may be acceptable to some countries, perhaps even Greece, it will be resisted by others. However, as the Greek failure also demonstrates, any eurozone country wishing to restore fiscal sovereignty, or restructure some of their debt, or implement any policy or set of policies that runs afoul of the preferences of certain Eurogroup finance ministers will have near-zero negotiating leverage if they fail to plan, credibly and in advance, for the introduction of a viable alternative currency.

Without this critical card to play, the country in question will be held hostage by the now politicised ECB. Its domestic banking system and financial markets will be shut down, the economy will grind to a halt and the government will face either a humiliating retreat or full capitulation. Former Greek finance minister Yanis Varoufakis has now revealed much of the detail of the recent negotiations, capitulation and attempts to vilify him personally for acting insubordinately or even in a treasonous manner at the 11th hour. However, it is entirely understandable that, once Varoufakis became aware of the degree to which his country’s banks and national finances had been taken hostage by the ECB and EU institutions, he sought some flexibility in order to strengthen Greece’s negotiating position.

Alas, this was much too little, and way too late. In retrospect, it is now obvious that Varoufakis and his colleagues should have set about developing a credible alternative currency plan prior to entering into any negotiations around either debt reduction or fiscal reforms. Had they done so, when the ECB suspended further increases in the ELA, forcing the banks and financial markets to close, Greece would have been able to roll out a temporary plan which, in the event that subsequent negotiations were indeed to fail, could easily have become permanent. Moreover, the very existence of such a plan would have greatly strengthened Greece’s hand to the point where negotiations may well have succeeded.

Read more …

Summary: Foreign corporations will take over everything.

Greeks Taste Breadth Of Bailout In Loaf And Lotion Rules (Guardian)

Vouldis, 33, whose bakery was founded 22 years ago by his parents in the southern Athens suburb of Kallithea, and is one of 15,000 local bakeries in Greece, said: “If a supermarket can call itself a bakery and present frozen loaves as fresh, that’s cheating customers . And if we sell by the kilo – which we’ve been supposed to be doing since Easter, actually, but no one does – customers will end up spending more on their bread. Bakers will have far more opportunity to play around with their prices. “Neighbourhood bakeries are the heart of a community; it’s wrong to make things harder for them than they already are. And it’s unacceptable to have international institutions saying, you’re stupid, you don’t know how to run your business, here’s how you must do it.”

Stefanidi meanwhile was concerned at the bailout powers’ insistence that anyone should be allowed to own a pharmacy: at present, Greek law limits their ownership to pharmacists. The way the OECD and the international creditors saw it, far too many laws protected Greece’s 11,000 pharmacies – a quantity, per head of the population, about double that for France or Spain, and more than 15 times Denmark’s total. Many of the rules were scrapped last year despite a European court upholding Greece’s view that it was perfectly entitled to legislate on the matter since its supreme court had ruled that pharmacies were not pure commercial enterprises but also fulfilled a vital social function.

The rule that no district can have more than one pharmacy per 1,000 people will stay. But the regulation stipulating that over-the-counter medicines may only be sold at licensed pharmacies is soon to be scrapped; and the ownership restriction could be gone next week if the bailout package is approved. “It’s crazy,” said Konstantinos Lourantos, president of the Panhellenic Pharmaceutical Association, in his pharmacy in the Athens suburb of Nea Smyrni. “Anyone will be able to open a pharmacy now. Anyone. In all Europe, only in Slovenia and Hungary is this allowed. Even in Germany, a licensed pharmacist must own at least 51% of a pharmacy.”

Read more …

There will be no real debt relief, not if Germany has its way. It’ll just be toying with margins, unacceptable for the IMF.

European Union Backs IMF View Over Greece – Then Ignores It (Guardian)

The good news for the IMF, which has been saying for ages that Greece’s debts are unsustainable, is that European lenders now seem to agree. There are “serious concerns” about the sustainability of the country’s debts, the three European institutions negotiating the latest bailout said on Thursday. They think Greece’s debts will peak at 201% of GDP in 2016, which is roughly what the IMF said a month ago when it projected a high “close to 200% of GDP in the next two years”. So what should be done? Unfortunately, that is where unanimity seems to break down.

The IMF’s view of the options in July was blunt. First, there could be “deep upfront haircuts” – in other words, a portion of Greece’s debts to eurozone lenders would be written off, which, reading between the lines, seemed to be the IMF’s first preference. Second, there was the politically-impossible policy of eurozone partners making explicit transfers to Greece every year. Or, third, Greece could be given longer to repay, an approach likely to be more palatable to European leaders. But this option came with a heavy qualification from the IMF: “If Europe prefers to again provide debt relief through maturity extension, there would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt, including new assistance.”

Is Europe ready to be “very dramatic,” as the IMF defined it? Almost certainly not – at least not in Germany. Thursday’s European report spoke about extending repayment schedules but it seems highly unlikely that 30 years would be acceptable in Berlin. If that’s correct, the IMF’s willingness to cough up its €15bn-€20bn contribution to the latest €85bn rescue package must be in serious doubt. The fund’s guidelines say loans can only be advanced when there is a clear path back to debt sustainability, usually defined as borrowings being less than 120% of GDP. On Thursday’s European analysis, Greece would still be at 160% even in 2022.

Read more …

Subprime is all America has left.

Total U.S. Auto Lending Surpasses $1 Trillion for First Time (WSJ)

With the recession now six years behind in the nation’s rearview mirror, lending for automobiles has sharply accelerated: Around $119 billion in auto loans were originated in the second quarter of this year, a 10-year high, according to figures from the Federal Reserve Bank of New York released Thursday. Auto lending has climbed steadily during the past four years, helping sales of U.S. autos and light trucks completely recover their losses from the recession. In May, consumers purchased vehicles at an annual pace of 17.6 million, the highest since June 2005. Americans have now racked up more than $1 trillion in both auto-loan debt and student-loan debt, which surpassed $1 trillion for the first time in 2013.

The overall indebtedness of U.S. borrowers remains lower than before the recession, owing to declines in home-loan and credit-card balances. But with low gas prices, a growing number of jobs, and an aging automotive fleet, many people have found it an opportune time to get a new vehicle. “A lot of the gain we’ve seen is from light trucks, SUVs, cross-overs, minivans and pickup trucks,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio. “Because gasoline prices have come down, it makes it less expensive to run the vehicles that use more fuel” and frees up consumers’ budgets to put toward more cars or higher car loan payments. Auto lending and credit-card lending used to trade spaces as the second- and third-largest categories of U.S. household debt, after mortgages.

Both were surpassed by student loans in 2010. Since 2011, auto loans have rapidly outgrown credit cards. Today, household credit-card balances stand at $703 billion, about the same as four years ago. Auto lending and mortgages offered a study in contrast over the past five years. Both types of debt fell in the recession; from 2008 to 2010 the total stock of auto loans declined by more than $100 billion. Mortgage balances dropped by more than $800 billion. “There was some tightening in auto-loan standards after the financial crisis, but by many measures it’s returned basically to where it was pre-recession,” said Wilbert van der Klauw, a New York Fed economist. “That’s quite a contrast to mortgage underwriting, which remains significantly tighter than before the recession.”

Read more …

Spot the zombie.

Surge in Global Commercial Real-Estate Prices Stirs Bubble Worries (WSJ)

Investors are pushing commercial real-estate prices to record levels in cities around the world, fueling concerns that the global property market is overheating. The valuations of office buildings sold in London, Hong Kong, Osaka and Chicago hit record highs in the second quarter of this year, on a price per square foot basis, and reached post-2009 highs in New York, Los Angeles, Berlin and Sydney, according to industry tracker Real Capital Analytics. Deal activity is soaring as well. The value of U.S. commercial real-estate transactions in the first half of 2015 jumped 36% from a year earlier to $225.1 billion, ahead of the pace set in 2006, according to Real Capital. In Europe, transaction values shot up 37% to €135 billion ($148 billion), the strongest start to a year since 2007.

Low interest rates and a flood of cash being pumped into economies by central banks have made commercial real estate look attractive compared with bonds and other assets. Big U.S. investors have bulked up their real-estate holdings, just as buyers from Asia and the Middle East have become more regular fixtures in the market. The surging demand for commercial property has drawn comparisons to the delirious boom of the mid-2000s, which ended in busts that sunk developers from Florida to Ireland. The recovery, which started in 2010, has gained considerable strength in the past year, with growth accelerating at a potentially worrisome rate, analysts said. “We’re calling it a late-cycle market now,” said Jacques Gordon at LaSalle Investment.

While it isn’t time to panic, Mr. Gordon said, “if too much capital comes into any asset class, generally not-so-good things tend to follow.” Regulators are watching the market closely. In its semiannual report to Congress last month, the Federal Reserve pointed out that “valuation pressures in commercial real estate are rising as commercial property prices continue to increase rapidly.” Historically low interest rates have buoyed the appeal of commercial real estate, especially in major cities where economies are growing strongly. A 10-year Treasury note is yielding about 2.2%. By contrast, New York commercial real estate has an average capitalization rate—a measure of yield—of 5.7%, according to Real Capital.

By keeping interest rates low, central banks around the world have nudged income-minded investors into a broad range of riskier assets, from high-yield or “junk” bonds to dividend-paying stocks and real estate. Lately money has been pouring into commercial property from all directions. U.S. pension funds, which got clobbered in the aftermath of the crash, now have 7.7% of their assets invested in property, up from 6.3% in 2011, according to alternative-assets tracker Preqin. Foreign investors also have been stepping on the gas. China’s Anbang Insurance in February paid $1.95 billion for New York’s Waldorf-Astoria, a record price for a U.S. hotel. Another Chinese insurer, Sunshine Insurance in May purchased New York’s glitzy Baccarat Hotel for more than $230 million, or a record $2 million per room.

Read more …

Big Mining is in for a Big Surprise.

Glencore: World Of Big Mining Agog At Huge Fall (Guardian)

How do you make a £2bn fortune from commodities? Answer: start with a £6bn fortune. Ivan Glasenberg, chief executive of Glencore, won’t be laughing. Those numbers are the value of his shareholding in the mining and commodity-trading company at flotation in 2011 and now. Yes, Glencore’s share price really has fallen by two-thirds, from 530p to 180p, since it came to market with a fanfare. Among London’s big miners, only Anglo-American has done worse. This week alone the fall has been 10% as the China-inspired rout has run through commodity markets and mining stocks. Glencore is being whacked harder than the likes of BHP Billiton and Rio Tinto for a simple reason – relative to earnings, it has a lot more debt.

Analysts predict borrowings will stand at about $48bn when the company reports half-year numbers next week, which is a hell of a sum even for a business making top-line (before interest and tax) earnings of $10bn-$12bn. Bold borrowings aren’t quite what they seem, it should be said, because Glencore’s marketing division holds a stockpile of commodities as inventories that can be turned into cash. Viewed that way, net debt might be nearer $30.5bn at year-end, estimates JP Morgan Cazenove.

But here’s the rub: Glencore might have to go ahead and turn some of that stock into cash if its wants to save its BBB credit rating. “At spot commodity prices, we calculate net debt needs to fall $16bn by year-end 2016 to safeguard Glencore’s BBB credit rating,” says JP Morgan. Preservation of BBB is a financial priority, Glencore said in March, for the sound reason that a healthy rating is vital to keep funding costs low in the trading-cum-marketing division. It’s a financial challenge caused by the plunge in prices that is undermining profits on the other side of Glencore – the mining operation concentrated on the old Xstrata assets, which are skewed towards copper and coal.

Read more …

All ‘markets’ are about to have one of those.

The Junk Bond Market ‘Is Having A Coronary’: David Rosenberg (CNBC)

The biggest trouble sign for stocks may be bonds. High-yield bonds, specifically, often are seen as an effective proxy for movements in the equity market. If that’s the case, trends in junk are pointing to a rocky road ahead. Average yields for low-rated companies have jumped to 7.3% and spreads between such debt and comparable duration Treasurys have widened dramatically, according to David Rosenberg at Gluskin Sheff. History suggests that fallout in stocks is not far behind. “If you think the equity market is heading for a spot of trouble here, the high-yield bond market is having a coronary,” Rosenberg said in his daily market analysis Thursday.

Rosenberg points out that the average yield is the highest since mid-December and has risen 120 basis points—1.2 percentage points—just since June. Spreads are at 580 basis points, a level hit only twice in the last three years. His caution on junk reflects sentiment heard from a number of other market analysts who believe the troubles in the high-yield market, which has led fixed income performance with 7% annualized returns over the past 10 years, are a bad sign. Since the most recent lows in June, spreads have widened a full percentage point. “In other words, this move in high-yield spreads is on par with what we have seen when we have previously had a 9% correction in equities or what would be about the same as the S&P 500 now correcting to 1,910,” he said.

Read more …

“I am going to withdraw from the movement because I’m very old and I have a large family.”

‘I Will Leave Politics And Return To Comedy’: Beppe Grillo (Local.it)

Beppe Grillo, the leader of Italy’s anti-establishment Five Star Movement (M5S), said he plans to leave politics and return to his old job as a comedian. In a TV interview with La7 on Tuesday afternoon, Grillo said: “I am going to withdraw from the movement because I’m very old and I have a large family.” Grillo has distanced himself from the party recently, with some of its members seen as rising political stars. Luigi Di Maio, who at 29 is the youngest deputy president of the lower house in Italian history, is quickly becoming the new face of the Five Star Movement. While Grillo said that he’s “here for now” and that “the movement is my life”, he hinted that the party perhaps no longer needed to use his personality as a springboard for media coverage.

“Once people understand that I am not the undisputed leader of M5S, that I am not in charge and that they are not voting for Grillo but for an idea that I have been part of – then I can return to my job, which is making people laugh and showing them things they don’t know,” he said. The Five Star Movement’s leader has not yet given any clear indications as to when he will be stepping down. His spokesperson told The Local that the leader has not resigned. The comedian is working on a new show that he hopes to launch at the end of this year, after delaying it because of political commitments. A return to TV might also be on the cards. Reports last week suggested he could return to Italy’s national broadcaster Rai, but Grillo was uncertain. “I don’t know, I’m open to anything,” he said.

Read more …

Drill baby drill 2.0.

World without Water: The Dangerous Misuse of Our Most Valuable Resource (Spiegel)

California’s rivers and lakes are running dry, but its deep aquifers are also rapidly disappearing. The majority of the 40 million Californians are already drawing on this last reserve of water, and they are doing so with such intensity and without restriction that sometimes the ground sinks beneath their feet. The underground reservoir collapses. This in turn destabilizes bridges and damages irrigation canals and roads. This groundwater is thousands of years old, and it is not replenishing itself. Those who hope to win the race for the last water reserves are forced to drill deeper and deeper into the ground. The Earth may be a blue planet when seen from space, but only 2.5% of its water is fresh. That water is wasted, polluted and poisoned and its distribution is appallingly unfair.

The world’s population has almost tripled since 1950, but water consumption has increased six-fold. To make matters worse, mankind is changing the Earth’s climate with greenhouse gas emissions, which only exacerbates the injustices. When we talk about water becoming scarce, we are first and foremost referring to people who are suffering from thirst. Close to a billion people are forced to drink contaminated water, while another 2.3 billion suffer from a shortage of water. How will we manage to feed more and more people with less and less water? But people in developing countries are no longer the only ones affected by the problem. Droughts facilitate the massive wildfires in California, and they adversely affect farms in Spain.

Water has become the business of global corporations and it is being wasted on a gigantic scale to turn a profit and operate farms in areas where they don’t belong. “Water is the primary principle of all things,” the philosopher Thales of Miletus wrote in the 6th century BC. More than two-and-a-half thousand years later, on July 28, 2010, the United Nations felt it was necessary to define access to water as a human right. It was an act of desperation. The UN has not fallen so clearly short of any of its other millennium goals than the goal of cutting the number of people without this access in half by 2015. The question is whether water is public property and a human right. Or is it ultimately a commodity, a consumer good and a financial investment?

Read more …

They should send it to an English port.

Greece Sends Cruise Ship To Ease Kos Migrant Crisis (Guardian)

The Greek government has chartered a cruise ship to help deal with the refugee crisis on Kos, a day after more than 2,000 mainly Syrian refugees were locked inside a stadium on the island for more than a day with limited access to water. The vessel, which can fit up to 2,500 people, will function as a floating registration centre. Officials hope its presence will speed up the processing of about 7,000 refugees who are stranded on Kos after making the short boat journey from Turkey, and to whom the authorities have been previously unable to provide paperwork or housing. The move follows a disastrous attempt to register refugees inside an old stadium on Tuesday and Wednesday, which led to up to 2,500 mainly Syrian migrants trapped in the stadium grounds.

For more than 12 hours, much of it in temperatures of about 35C, migrants were without access to water or toilets. This led some to faint at a rate of one every 15 minutes, according to Médecins Sans Frontières, an aid agency providing medical support outside the stadium. By dawn on Thursday, the last migrants were finally released in calm circumstances witnessed by the Guardian, but some were literally bruised by the experience after clashes broke out on Wednesday between confused refugees and panicking police officers. Youssef, a 29-year-old Syrian banker, criticised the undignified nature of the process after being released early on Thursday morning. “I have a bachelor’s degree in accounting and an MBA,” he said. “It’s a shame to treat us like this.”

Registered migrants like Youssef are still stuck on Kos, with up to 5,000 others yet to be processed. The situation has led the Greek government to send a cruise liner, the Eleftherios Venizelos, to mitigate the fallout – as hundreds more refugees arrive every day. Kos’s mayor, Giorgos Kyritsis, who made the decision to use the stadium, denied that the ship would simply be yet another place of limbo for refugees. Kyritis said: “It’s not going to be used as a camp. As soon as it is filled with migrants, the ship with depart and another ship will come.”

Read more …

Médecins Sans Frontières is forced to do what Europe should be doing.

Mediterranean: Saving Lives at the World’s Most Dangerous Border (Spiegel)

The Mediterranean has become a crisis region, one where more than 2,000 people have died this year already – more than have lost their lives in attacks in Afghanistan. But of course that figure is misleading. It reflects only the number of recorded deaths. Who knows how many people have drowned without a trace? Nevertheless, no aid agencies are active in the region. They all wait on shore for the survivors to arrive. The business of saving lives is left to those who are the least prepared: navies and merchant vessels. Meanwhile, more and more refugees are embarking on the perilous journey across the Mediterranean – 188,000 so far this year. It’s hard to believe that a crisis area of this magnitude is empty of aid workers – unthinkable, Doctors Without Borders, or Médecins Sans Frontières, thought.

It is the biggest, best organized medical relief organization in the world. An army of survival. They are professionals for natural catastrophes and civil wars, and they are engaged in the fight against HIV, Ebola and measles. With a budget of €1.066 billion in 2014, MSF’s 2,769 international employees and 31,000 local helpers undertook some 8.3 million treatments. They calculate the need for help based on mortality rates – a cold, precise measurement. An emergency situation is considered acute when there is one death per day for every 10,000 people. Last year, at least 3,500 refugees died in the Mediterranean while 219,000 made it to Europe. That’s a mortality rate of around 10 per day, or one in 63. MSF, until now a land-based operation, has decided to set sail.

Never has the organization’s name been more fitting than right now, as it carries out its mission in a vast sea that has developed into the world’s deadliest border. Three boats have been in action since early summer. The Dignity 1, the Bourbon Argos and MY Phoenix, the smallest of the fleet. Together they have room for 1,400 refugees. It is the only real private rescue mission in the Mediterranean, and it is almost entirely funded by donations. Operating costs have already topped €10 million this year. Of that, Phoenix, jointly funded by MOAS, has cost €1.6 million thus far this year. MSF has rescued more than 10,000 people so far. By mid-2015, the mortality rate in the Mediterranean was one in 76. A small victory, but a victory nonetheless.

An estimated 15 to 20 boats carrying around 3,000 people set sail from Libya’s beaches every day. After a few hours, they call a contact person in Italy or they get in touch with the Maritime Rescue Coordination Centre (MRCC) in Rome directly. That’s if a navy vessel or a cargo ship doesn’t stumble across them first. Whoever is close by is obligated to come to the rescue. But what if no one is nearby to save them?

Read more …

Aug 112015
 
 August 11, 2015  Posted by at 9:23 am Finance Tagged with: , , , , , , , , ,  1 Response »
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


Howard Hollem Assembly and Repairs Department Naval Air Base, Corpus Christi 1942


China Slashes Yuan Reference Rate by Record 1.9% (Bloomberg)
How To Anger Asia And The Fed In One Go: Devalue The Yuan (CNBC)
Emerging Stocks Head for Two-Year Low After China Devalues Yuan (Bloomberg)
China Joins The Global Devaluation Party (Coppola)
Chinese Spurn Unprecedented 30% Car Discounts Amid Slowdown (Bloomberg)
U.S. Consumers Rein in Spending Growth Plans, New York Fed Says (Bloomberg)
Greece And Lenders Reach Deal On Third Bailout (Kathimerini)
Germans And Slovaks Stand Ready To Scupper Greek Deal (Telegraph)
Germany Gained €100 Billion From Greece Crisis, Study Finds (AFP)
Greek Military: Armed and Financially Dangerous (Zeit)
Deflation Stalks the Euro Zone (Bloomberg)
Bank of Russia Gets Putin’s Praise as Ruble Rebounds With Crude (Bloomberg)
Impeaching Rousseff Would Set Brazil On Fire: Senate Chief (Reuters)
UK Farming Unions Call For ‘Seismic Change’ In Way Food Is Sold (Guardian)
New Zealand A ‘Virtual Economic Trade Prisoner Of China’ (Nz Herald)
EU To Provide $3.6 Billion Funding For Migrant Crisis Over 6 Years (Reuters)
French Police Say Time To ‘Bring In British Army’ To Calais (RT)
History In Motion (Pantelis Boukalas)
Japan Restarts Sendai Nuclear Reactor Despite Public Opposition (Fairfax)
A Good Week For Neutrinos (Butterworth)

I haven’t seen anyone in the US whine about currency manipulators yet. Da Donald?

China Slashes Yuan Reference Rate by Record 1.9% (Bloomberg)

China devalued the yuan by the most in two decades, ending a de facto peg to the dollar that’s been in place since March and battered exports. The People’s Bank of China cut its daily reference rate for the currency by a record 1.9%, triggering the yuan’s biggest one-day loss since China unified official and market exchange rates in January 1994. The change was a one-time adjustment, the central bank said in a statement, adding that it plans to keep the yuan stable at a “reasonable” level and will strengthen the market’s role in determining the fixing. “It looks like this is the end of the fixing as we know it,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group. “The one-off devaluation of the fix and allowing more market-based determination takes us into a new currency regime.”

The PBOC had been supporting the yuan to deter capital outflows and encourage greater global usage as China pushes for official reserve status at the IMF. The intervention contributed to a $300 billion slide in the nation’s foreign-exchange reserves over the last four quarters and made the yuan the best performer in emerging markets, eroding the competitiveness of Chinese exports. [..] The currency’s closing levels in Shanghai were restricted to 6.2096 or 6.2097 versus the dollar for more than a week through Monday and daily moves has been a maximum 0.01% for a month. The devaluation triggered declines of at least 0.9% in the Australian dollar, South Korea’s won and the Singapore dollar, while Hong Kong’s Hang Seng Index of shares rose 0.7%.

China has to balance the need to boost exports with the risk of a cash exodus, Tom Orlik, chief Asia economist at Bloomberg Intelligence, wrote in a research note. He estimates a 1% depreciation in the real effective exchange rate boosts export growth by 1 percentage point with a lag of three months. At the same time, a 1% drop against the dollar triggers about $40 billion in capital outflows, he wrote. “The risk is that depreciation triggers capital flight, dealing a blow to the stability of China’s financial system,” Orlik wrote. The calculation from China’s leaders is that with their $3.69 trillion of currency reserves “they can manage any risks from capital flight,” he said.

Read more …

The Fed must have been expecting this.

How To Anger Asia And The Fed In One Go: Devalue The Yuan (CNBC)

A new Asian currency war and a delayed Federal Reserve rate hike; these are the potential market-shaking implications of Beijing’s decision to devalue the yuan, strategists told CNBC. “If they are true to their word today and this is a new regime for the fixed mechanism, we might think about using the word ‘floating’ associated with the Chinese exchange rate—that’s a massive change,” noted Richard Yetsenga, head of global markets research at ANZ, referring to Tuesday’s announcement by the People’s Bank of China to allow the yuan to depreciate as much as 2% against the U.S. dollar.

The move took global traders by surprise, with many pointing to weak July trade data, the recent stock market rout’s spillover impact on consumption, and aspirations for inclusion into the IMF’s Special Drawing Rights basket as factors motivating Beijing. “It’s an interesting move which means several things: when the People’s Bank of China first started lowering interest rates and reserve requirements, that freed up bank lending, which likely went to stocks. Now this yuan re-engineering will help companies that represent the greater economy, i.e. exporters, not just companies heavily weighted in stock markets,” explained Nicholas Teo, market analyst at CMC Markets.

China may be focused on becoming more market-oriented, but Tuesday’s announcement is the latest in a series of competitive devaluations in Asia and other emerging markets, traders said. “Clearly, this is a shock to the rest of Asia. If you look at China’s top trading partners—Korea, Japan, the U.S. and Germany—this is a competitive hit to the exports of those countries. China is exporting disinflation to countries who receive Chinese exports. This is especially negative for Asia currencies,” noted Callum Henderson, global head of FX Research at Standard Chartered.

Read more …

There never was another option.

Emerging Stocks Head for Two-Year Low After China Devalues Yuan (Bloomberg)

Emerging-market stocks headed for a two-year low and currencies sank after China devalued the yuan amid a deepening slowdown in its economy. China Southern Airlines and Air China sank at least 12% in Hong Kong on concern a weaker yuan will boost the value of their dollar-denominated debt. Indonesian stocks fell to a 17-month low. China’s currency slid the most in two decades versus the dollar. South Korea’s won fell 1.3% and Malaysia’s ringgit extended declines to a 1998 low. Russia’s ruble lost 0.6%. The MSCI Emerging Markets Index slid 0.4% to 884.02 at 3:28 p.m. in Hong Kong. China’s central bank cut its reference rate by 1.9%, triggering the yuan’s biggest one-day loss since the nation unified official and market exchange rates in 1994.

Data on Tuesday showed China’s broadest measure of new credit missed economists’ forecasts last month. “This is another effort by China to boost economic growth as a weaker currency could increase exports,” said Rafael Palma Gil, a trader at Rizal Commercial Banking Corp., which has $1.8 billion in trust assets. Investors should favor companies that earn dollars over those with large dollar-denominated debts, he said. MSCI’s developing-nation stock index has fallen 7.3% this year and trades at 11.2 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has added 3.3% and is valued at a multiple of 16.4.

Eight out of 10 industry groups fell, led by industrial shares. China Southern Airlines tumbled 17% and Air China was poised for the biggest drop since April 2009. Hong Kong’s Hang Seng China Enterprises Index fell 0.6%, erasing earlier gains. The Shanghai Composite Index was little changed. Indonesia’s Jakarta Composite Index tumbled 2% on concern the yuan devaluation may weaken exports from Southeast Asia’s largest economy. Shipments to China, Indonesia’s third-largest trading partner, had already dropped 26% in the first half of 2015, according to government data.

Read more …

Beggar thy neighbor to the bottom of the barrel.

China Joins The Global Devaluation Party (Coppola)

As Chinese economic performance has worsened in recent months there has been a growing divergence between RMB “central parity” (the unofficial official exchange rate) and the RMB’s market rate. This increased sharply when the most recent statistics were released. Maintaining a higher parity than the market wants is costly, as Russia could tell you: China has been unloading its foreign reserves at a rate of knots to support its currency. Maintaining too high a parity is costly in other ways too. China’s precious export-led growth strategy is at risk from the rising dollar. The “macroeconomic and financial data” referred to by the PBOC includes sharply falling exports, particularly to the EU and Japan. July’s export figures were dismal, and the trade surplus was well below forecast.

Add to this the massive over-leverage of the Chinese economy – overtly engineered by the government – and recent stock market volatility, and devaluation was inevitable. The only surprise is that the PBOC has not acted sooner. Indeed, why hasn’t it acted sooner? After all, the Fed has been passively tightening monetary policy for a year now, ending QE and repeatedly signalling that rate hikes are on the horizon. This is principally why the yuan REER has been rising. Furthermore, both the ECB and the Bank of Japan are doing QE, depressing the Euro and the yen and forcing smaller countries to defend their currencies. Emerging market economies are particularly badly affected, but we shouldn’t forget about Switzerland, which is still trying to prevent its currency appreciating as capital flows in from the troubled Eurozone. Capital inflows can be every bit as damaging as capital outflows. Reuters has an explanation for the PBOC’s reluctance to join the devaluation party:

Analysts say Beijing has been keeping its yuan strong to wean its economy off low-end export manufacturing. A strong yuan policy also supports domestic buying power, helps Chinese firms to borrow and invest abroad, and encourages foreign firms and governments to increase their use of the currency.

This brings us back to the liberalization of the Chinese financial economy. China needs the yuan to be widely accepted OUTSIDE China if it is to have any chance of becoming one of the IMF’s SDR basket currencies – the essential prelude to becoming a global reserve currency. Hence PBOC’s reluctance to devalue. So now, having been forced to devalue because of bad economic news, the PBOC is making a virtue out of necessity. Devaluing the yuan is presented as part of its liberalization strategy. Not that the PBOC has any intention of moving to a free float any time soon, though its statement does signal that it might widen the band.

Read more …

Might as well give them away. Next year’s models are on the way.

Chinese Spurn Unprecedented 30% Car Discounts Amid Slowdown (Bloomberg)

Bill Shen wants to upgrade his 8-year-old Citroen to something fancier, maybe an Audi or a BMW. But the Shanghai resident is in no hurry. Cars keep getting cheaper. Facing the slowest growth in new car sales in four years, dealerships in China have chipped away at retail prices in the past several months. Now discounts of at least 30% are being offered in major cities on hundreds of models. Audi’s top-of-the-range A8L luxury sedan, originally listed for 1.97 million yuan ($317,000), is now going for 1.28 million yuan, according to Autohome, a popular car-pricing portal. “Prices are getting lower all the time, even as cars are getting better,” said Shen, 37, who works for an auto parts company. “If it’s not urgent, one can wait.”

Consumers like Shen represent the biggest threat to China’s new-vehicle market, which overtook the U.S. in 2009 to become the world’s biggest. With the Chinese economy flagging, and government curbs on car registrations and stock market volatility deterring would-be car buyers, the auto industry is pulling out unprecedented offers to drum up sales. Their success may be reflected in industry sales figures for July slated for release on Tuesday by both the Passenger Car Association and China Association of Automobile Manufacturers. “This round of price cuts is the worst in China’s auto industry history in terms of the number of models involved and the depth of the cuts,” said Su Hui, a deputy division head at the state-backed China Automobile Dealers Association and a 26-year veteran of the trade.

“Nobody saw it coming, not the government, not the automakers, not the dealers.” Besides discounting prices, carmakers and dealers are offering incentives such as subsidized insurance, zero down-payments, interest-free financing and boosting trade-in prices, according to brokerage Sanford C. Bernstein. Peugeot Citroen and Mazda. have warned of a looming price war that will damage profit margins. BMW said this month that slowing sales in China may force it to revise this year’s profitability goals.

Read more …

They’re broke just like the Chinese?!

U.S. Consumers Rein in Spending Growth Plans, New York Fed Says (Bloomberg)

U.S. consumers last month envisioned the slowest rate of growth in their planned spending in at least two years, according to a survey by the Federal Reserve Bank of New York released on Monday. The New York Fed’s July Survey of Consumer Expectations found that households expect to increase spending by 3.5% over the next year, down from the 4.3% gain seen in June, according to the median response. It was the lowest reading since the survey started in 2013. Median expected inflation over the next year was unchanged at 3%. The monthly New York Fed survey comes ahead of the release of a Commerce Department report on Thursday that is forecast to show U.S. retail sales rose 0.6% in July after falling 0.3% in June.

The Fed is looking for signs that the labor market and inflation have returned to normal before beginning to raise its benchmark federal funds rate. Most economists expect policy makers will act at their next meeting on Sept. 16-17. The Fed has kept rates near zero since 2008 to combat the worst economic crisis since the Great Depression. Spending data are important because the consumer underpins the Fed’s optimism that economic growth will accelerate. “That’s really fundamental to our improved outlook,” Chicago Fed President Charles Evans said during a breakfast with reporters last month. “We are really counting on the consumer playing a strong role.”

Read more …

Tentatively for now.

Greece And Lenders Reach Deal On Third Bailout (Kathimerini)

Greece and its lenders have reached an agreement on the terms of a third bailout, government sources said early on Monday. The deal appears to have been concluded shortly after 8 a.m. local time following a marathon last session of talks that began on Monday morning. Emerging from the Hilton hotel, where the negotiations were taking place, Finance Minister Euclid Tsakalotos suggested a deal is in place. “We are very close,” he told reporters. “There are a couple of very small details remaining on prior actions.”

Kathimerini understands that the agreement involves the government having to immediately implement 35 prior actions. The measures demanded include changes to tonnage tax for shipping firms, reducing the prices of generic drugs, a review of the social welfare system, strengthening of the Financial Crimes Squad (SDOE), phasing out of early retirement, scrapping tax breaks for islands by the end of 2016, implementation of the product market reforms proposed by the OECD, deregulating the energy market and proceeding with the privatization program already in place.

Should the agreement be finalized, it is likely to be voted on in Greek Parliament on Thursday. This would be followed on Friday by a Eurogroup and the process of other eurozone parliaments approving the deal. The European Stability Mechanism would then be in a position to disburse new loans to Athens before August 20, when Greece has to pay €3.2 billion to the ECB. Greece is aiming to receive €25 billion in the first tranche, allowing it to pay off international lenders, reduce government arrears and have €10 billion left for bank recapitalization.

Read more …

Good. We wouldn’t want anything to run smoothly, would we? Where’s the fun in that?

Germans And Slovaks Stand Ready To Scupper Greek Deal (Telegraph)

Eurozone creditor governments raised fresh concerns about the viability of a new Greek rescue package on Monday despite hopes from Athens that an agreement to unlock vital rescue funds was inching ever closer. Greeca and its creditor partners reportedly agreed on fiscal targets the country will need to hit over the next two years, on Monday evening. They would amount to a baseline of 0pc in 2015, followed by a primary surplus of 0.5pc the following year, and 1pc in 2017, according to an official quoted by Reuters. The targets would represent significant easing of the initial austerity measures demanded from Athens Leftist government, and reflect the severity of the damage that has been wrought to the economy by capital controls.

Creditors projections assume Greece will contract by another 0.5 pc in 2016, before returning to a 2.3% growth in 2017, the official added. However, in a sign of continued dissent among the ranks of Europe’s creditor nations, both Germany and Slovakia stood firm on the tough conditions Athens must accept as its price to stay in the eurozone. Sloviakian prime minister Robert Fico, who represents one of the most hardened member states against further eurozone largesse to Greece, insisted his government would not stump up a “single cent” in debt write-offs on Greece’s €330bn debt mountain. Without debt relief, the IMF has said it will pull out of talks with Athens until there is an “explicit and concrete agreement”, jeopardising the entire basis of a new three-year rescue package.

But Mr Fico said Slovakia would reject any attempt to cut the value of Greece’s debt and was “nervous” about the current status of talks between the Syriza government and its creditors. “Slovakia will not adopt a single cent on Greek sovereign debt, as long as I am prime minister”, he told Austria’s Der Standard. “There are other options: You can drag redemption dates but this also has limits: We can not wait 100 years until Greece repays its debts.” The IMF has recommended a maturity extension of another 30 years on Greece’s debt mountain; the country will already be paying back its creditors in 2057. Mr Fico added that he “wholeheartedly” supported German finance minister Wolfgang Schaeuble’s proposal for a “temporary” eurozone exit for Greece during eleventh hour summit talks in July.

“There are no rules in the EU over a euro exit…But that does not mean however, that you can not create the rules. The proposal with a fixed-term euro exit has advantages. I support the agreement reached for Greece, but we will be watching very closely what is happening now. We are nervous.”

Read more …

Meanwhile, in the real world..

Germany Gained €100 Billion From Greece Crisis, Study Finds (AFP)

Germany, which has taken a tough line on Greece, has profited from the country’s crisis to the tune of €100 billion, according to a new study Monday. The sum represents money Germany saved through lower interest payments on funds the government borrowed amid investor “flights to safety”, the study said. “These savings exceed the costs of the crisis – even if Greece were to default on its entire debt,” said the private, non-profit Leibniz Institute of Economic Research in its paper. “Germany has clearly benefited from the Greek crisis.” When investors are faced with turmoil, they typically seek a safe haven for their money, and export champion Germany “disproportionately benefited” from that during the debt crisis, it said.

“Every time financial markets faced negative news on Greece in recent years, interest rates on German government bonds fell, and every time there was good news, they rose.” Germany, the eurozones effective paymaster, has demanded fiscal discipline and tough economic reforms in Greece in return for consenting to new aid from international creditors. Finance Minister Wolfgang Schaeuble has opposed a Greek debt write-down while pointing to his own government’s balanced budget. The institute, however, argued that the balanced budget was possible in large part only because of Germany’s interest savings amid the Greek debt crisis.

The estimated €100 billion euros Germany had saved since 2010 accounted for over 3% of GDP, said the institute based in the eastern city of Halle. The bonds of other countries – including the United States, France and the Netherlands – had also benefited, but “to a much smaller extent”. Germany’s share of the international rescue packages for Greece, including a new loan being negotiated now, came to around €90 billion, said the institute. “Even if Greece doesn’t pay back a single cent, the German public purse has benefited financially from the crisis,” said the paper.

Read more …

And on top of the €100 billion German profit from Greece, there are the secret side deals with German arms industry. That the Troika will refuse for Syriza to cut.

Greek Military: Armed and Financially Dangerous (Zeit)

The Bonn International Center for Conversion has listed Greece among the most militarized countries since 1990. It was ranked ninth in 2014, ahead of all other NATO members – despite Greece’s financial crisis. “Athens’ high arms expenditures and extensive weapons purchases over the past years have contributed to the desolate budget situation,” according to BICC. The figures show that Greece invested nearly €6 billion in its military in 2000. Eight years later, the figure was €8.6 billion. In 2009, Europe’s NATO member countries spent an average of 1.7% of their GDPs on defense – Greece was at 3.1%. The country was among the world’s five biggest arms importers between 2005 and 2009, according to the Stockholm International Peace Research Institute.

Athens’ high arms expenditures and extensive weapons purchases over the past years have contributed to the desolate budget situation. In May 2010, Greece had to be saved from financial ruin, and eventually received a loan package of hundreds of billions of euros. The government used some of this money to buy more weapons. Now, even more cash is on the table. The Greek government, led by Alexis Tsipras, has accepted a number of conditions connected to the deal. Greece must save money. The value-added tax has been increased, pension payments are to decrease, state-owned companies are to be privatized, and corruption weeded out. But only marginal consideration has been given to the country’s huge military expenditures. The army remains sacrosanct.

Politicians and others in Germany have often harshly criticized Mr. Tsipras. But the critics seem to forget that debt-ridden Greece until recently was ordering armaments worth billions of euros from Germany. Between 2001 and 2010, Greece was the most important customer for the German defense industry. During this period, Greece bought 15% of all of Germany’s exports, SIPRI estimates. Greece’s armed forces have nearly 1,000 German-developed model Leopard 1 and 2 combat tanks. Including models from other countries, Greece has 1,622 tanks. The German military has 240 Leopard tanks in service. (That number is to increase by around 90 because of the crisis in Ukraine.) While the German armed forces have been shrinking and phasing out military equipment for years, Greece has gone the other way. No other E.U. country has more combat tanks today.

Read more …

A very flawed article that presents predictions by Bloomberg Survey economists as fact.

Deflation Stalks the Euro Zone (Bloomberg)

The euro zone is poised to record its ninth quarter of economic growth, with economists predicting that gross domestic product figures scheduled for release Friday will show the economy expanded by 0.4% in the second three months of the year. Unfortunately for the ECB, that revival isn’t dispelling the risk that disinflation will worsen into deflation. For reasons that future historians of economic policy may struggle to unravel, modern central bankers have decided that the Goldilocks rate of acceleration for consumer prices to run not too hot, not too cold, is 2%. And while forecasts compiled by Bloomberg suggest that economists expect the U.S. to achieve that state of inflationary nirvana in the first three months of next year, prices in the euro region are seen languishing at 1.5% in the first quarter of 2016 and then decelerating.

That outlook helps to explain why almost a quarter of the market for euro-zone government bonds has negative yields, meaning investors are paying for the privilege of keeping their money in $1.5 trillion of securities, according to data compiled by Bloomberg reporters Lukanyo Mnyanda and David Goodman. It has been almost a year, for example, since German two-year notes paid more than zero. The disparity in the inflation outlooks for the euro region and the U.S. is also driving a divergence in borrowing costs. As Bloomberg strategist Simon Ballard points out, investment-grade borrowers are paying more to borrow dollars than euros, and the gap has reached its widest level since at least December 2009.

Read more …

I said it before: Elvira Nabiullina is a smart cookie. Moreover, Russian debt levels are very low compared to western nations. The demise of Putin is greatly exaggerated in the western press.

Bank of Russia Gets Putin’s Praise as Ruble Rebounds With Crude (Bloomberg)

Russian President Vladimir Putin commended the central bank for its efforts to keep the ruble stable after policy makers called for calm as the currency bounced back from a six-month low. “The central bank is doing a lot to strengthen the national currency or in any case to ensure its stability and the stability of the financial system as a whole,” Putin said at a meeting with Governor Elvira Nabiullina. “I see how persistent you are in going down that path.” The Bank of Russia said on Monday that corporate debt payments in 2015 won’t overwhelm the foreign-exchange market with “excessive demand” after redemptions last year helped spark the worst currency crisis since 1998.

Companies and lenders have to repay as much as $35 billion out of the $61 billion that falls due from September to December, the central bank said on its website. The rest may be rolled over or refinanced because some of it is owed to affiliated companies, it said. [..] Policy makers are short on instruments as they try to avert another ruble collapse after a rushed switch to a freely floating currency in November. While the central bank has faced questions about its commitment to allow the market to set the ruble’s exchange rate, the Russian leadership has been more unabashed in acknowledging a measure of control over the currency market as the economy succumbs to a recession. Putin said in June that a weaker ruble was helping Russian companies weather the economic crisis.

The central bank last month halted foreign-currency purchases, started in mid-May to boost reserves, after a renewed slide in commodity prices triggered further ruble declines. It defended the operations as compatible with its free float and has pledged to avoid interventions unless the ruble’s swings threatened financial stability. With its statement on Monday, the central bank is conducting “verbal intervention aimed at stabilizing market sentiment regarding the ruble,” Dmitry Dolgin, an economist at Alfa Bank in Moscow, said by e-mail. “There are concerns on the market that the looming repayment of external debt will exert significant pressure on the balance of currency demand and supply on the domestic market, especially under the conditions of falling oil prices.”

Read more …

Her popularity rate is at 8%.

Impeaching Rousseff Would Set Brazil On Fire: Senate Chief (Reuters)

The president of Brazil’s Senate said on Monday that attempting to impeach President Dilma Rousseff was not a priority and warned that seeking her removal in Congress would “set the country on fire.” Renan Calheiros, who is often critical of the administration, struck a more positive tone amid a deepening political crisis after seven months into Rousseff’s second term. Many of the president’s opponents in Congress have called for her impeachment for allegedly breaking the law by doctoring fiscal accounts to allow her government to spend more in the run-up to her re-election in October. Calheiros, a leader of the country’s biggest party, the PMDB, spoke to reporters after meeting with Finance Minister Joaquim Levy to discuss the government’s fiscal austerity plan.

He promised to bring to a vote this week a bill that rolls back payroll tax breaks, which would save the government nearly 13 billion reais ($3.78 billion) a year. The rollback is the last key bill to be approved in an austerity package aimed at preserving the country’s investment-grade rating. The Brazilian real, buffeted by political uncertainty in recent weeks, added some gains after Calheiros’ comments. The lower chamber of Congress, whose speaker recently defected to the opposition, decides whether to start an impeachment process, which then goes to the Senate for a final ruling. Rousseff would be suspended as soon as the lower chamber agrees to impeach her, which requires two-thirds of the votes.

Rousseff’s support in Congress is rapidly fading as the economy heads toward a painful recession and a widening corruption scandal at state oil company Petrobras rattles the country’s political and business elite. Her popularity is at record lows and opponents plan a nationwide anti-government protest on Sunday. Congress has resisted Rousseff’s austerity efforts by watering down measures to cut expenditure and raise taxes, while passing bills that raise public spending.

Read more …

But.. but.. that’s protectionism…!

UK Farming Unions Call For ‘Seismic Change’ In Way Food Is Sold (Guardian)

Farming is in a “state of emergency” and a “seismic change” is needed to the way food is sold in Britain, agriculture leaders have warned after a crisis summit on falling milk prices. Leading farming unions called on the government to introduce long-term contracts between farmers, distributors and supermarkets and to force retailers to clearly label whether their products are British or imported. The emergency summit in London followed days of protests from farmers over the sharp fall in the prices they are being paid for milk. Asda and Morrisons distribution centres have been blockaded, farmers have removed cartons of milk from supermarkets and cows were paraded through the aisles of an Asda store in Stafford.

Figures from AHDB Dairy, the trade body, show that the average UK farmgate price for milk – the price that farmers are paid – has fallen by 25% over the last year, to 23.66p per litre. Industry experts claim it costs farmers 30p per litre to produce milk, meaning farms have been thrown into chaos by the drop in prices. Farmers have blamed the fall in prices on a supermarket price war but retailers claim the drop reflects declining commodity prices and an oversupply of milk, partly caused by Russia’s block on western imports. Farmers For Action, the campaign group behind the milk protests, is scheduled to meet representatives from Morrisons on Tuesday to discuss the crisis.

The farming unions warned of “dire consequences for the farming industry and rural economy” if the way in which food is sold does not change in the near future. The presidents of the NFU, NFU Scotland, NFU Cymru, Ulster Farmers Union and four other unions, said: “We would urge farm ministers across the UK to meet urgently. They need to admit that something has gone fundamentally wrong in the supply chain and take remedial action. “In general, voluntary codes are not delivering their intended purpose. Government needs to take action to ensure that contracts to all farmers are longer-term and fairer in apportioning risk and reward. “Government also needs to urgently ensure that rules are put in place regarding labelling so that it is clear and obvious which products are imported and which are British.”

Read more …

Sold their soul.

New Zealand A ‘Virtual Economic Trade Prisoner Of China’ (Nz Herald)

No one doubts the benefits of extending our trade opportunities – but many are alarmed at a dangerous naivety in what passes for our trade policy. That policy reflects our unfortunate dependence on a single commodity; our anxiety to maximise our one trading advantage by currying favour with powerful trading partners has led us into some treacherous waters. We have, for example, rapidly built up a Chinese market for our dairy produce with the result that – without any assurance that that market will remain open to us – we are now virtually economic prisoners, forced to meet almost any Chinese demand in order to retain a market that has become our life blood.

We have chosen, for example, to avert our gaze from the obvious effects of Chinese intervention in the Auckland property market for fear of offending Chinese opinion. More importantly, we have apparently not recognised that the Chinese interest goes beyond merely buying our products in a normal trading relationship, but extends to obtaining control of the productive capacity itself. Dairy farms themselves, processing plants, manufacturing capacity, expertise of various sorts are now owned by Chinese operators; their production increasingly by-passes New Zealand economic entities and suppliers and is marketed by Chinese companies directly to the Chinese consumer.

There are of course many instances of Chinese capital being deployed across the globe in pursuit of assets and capacity. This is not a cause for criticism – the Chinese are entitled like anyone else to pursue their own interests. It is simply a statement of fact. We, however, seem unaware of what is happening. It is no accident that this direct supply to the Chinese market has accompanied a fall in the proportion of New Zealand dairy production handled by Fonterra. While the proportion of our dairy production under Chinese control is still quite small, there can be little doubt that it will grow.

Low dairy prices will force the sale of a number of farms to foreign owners. As the Chinese increasingly control their own sources of supply, their reduced requirements for dairy produce on international markets will inevitably mean downward pressure on prices. Nor is it just the ownership of the physical product that has passed into foreign and often Chinese hands. The decision to allow non-farmer ownership of “units” (or, in other words, shares) in Fonterra has meant that we must now face the prospect of a significant part of the income stream from our most important industry to pass into private and often foreign hands.

Read more …

Over 6 years?! How about right now, and handle the issue properly?

EU To Provide $3.6 Billion Funding For Migrant Crisis Over 6 Years (Reuters)

The European Commission on Monday approved €2.4 billion of aid over six years for countries including Greece and Italy that have struggled to cope with a surge in numbers of immigrants. Italy is to receive the most aid – nearly €560 million, while Greece will receive €473 million. Tensions have escalated this year as thousands of migrants from the Middle East and Africa try to gain asylum in the European Union. In Calais, a bottleneck for migrants attempting to enter Britain illegally through the Eurotunnel from France, has seen several migrant deaths this month.

Britain has already received its €27 million from the commission in emergency aid funding, which it applied for in March. France will receive its €20 million later this month. Neither country has requested additional aid for security in Calais and will not receive funds from the latest aid program. “We are now able to disburse the funding for the French national program and the UK has already received the first disbursement of its funding,” Natasha Berthaud, a European Commission spokeswoman, said. . “Both of these programs will, amongst other things, also deal with the situation in Calais.” The Commission plans to approve an additional 13 programs later this year, which will then be implemented by EU member states.

Read more …

The only answer Europe ever seems to have.

French Police Say Time To ‘Bring In British Army’ To Calais (RT)

Police in Calais, from where thousands of illegal immigrants from Africa and the Middle East risk their lives trying to cross the English Channel to make it to the UK, have suggested bringing in the British army to curb the crisis. The head of the Alliance union for police deployed to the French port and Eurotunnel site, Bruno Noel, has warned that the situation could soon get out of control if additional help is not provided. He complained that his unit is “doing Britain’s dirty work.” “We have only 15 permanent French border police at the Eurotunnel site,” the Daily Telegraph quoted him as saying. “Can you imagine how derisory this is given the situation? “So I say, why not bring in the British Army, and let them work together with the French?” Mr Noel added.

According to different estimates, between 2,000 and 10,000 migrants in Calais are trying to cross the English Channel. Many have attempted to reach Britain by boarding trains through the tunnel or on lorries bound for UK destinations. Twelve people have died this year attempting to reach the UK. The numbers of migrants in the Calais camp, known as The Jungle, have soared over the past few months from 1,000 in April to nearly 5,000 by August. The first call to use British troops was made by Kevin Hurley (former Head of Counter Terrorism for City of London Police, an ex-Paratrooper and an expert on international security), who is currently Police and Crime Commissioner for Surrey. He said the problems stemming from the crowds of migrants trying to enter the UK from Calais through the Channel Tunnel could be dealt with efficiently by Gurkha regiments, based close by in Hythe, a small British coastal market town on the south coast of Kent.

The 700-strong 2nd Battalion of the Royal Gurkha Rifles has been based in the Shorncliffe and Risborough barracks just outside Hythe since 2000, according to Office of the Police and Crime Commissioner for Surrey. “I am increasingly frustrated by the huge numbers of illegal migrants who jump out of the backs of lorries at the first truck stop – Cobham Services in Surrey – and disappear into our countryside. There were 100 in the last month alone,” Mr Hurley said late last month. “But, while the UK and French governments decide their next prevention strategy we, the British police, have to deal with the immediate problem. The Gurkhas are a highly respected and competent force, and are just around the corner. They could help to ensure that our border is not breached,” he added.

Read more …

Mass migrations cannot be stopped.

History In Motion (Pantelis Boukalas)

Throughout the history of mankind the walls protecting cities under siege were never able to keep a determined enemy away forever – a first wave would be followed by a second, and so on. But when that enemy conquered those cities, the waves would stop. However, the overwhelming waves of migrating people that are reaching our shores today, mobilized by the desperate need for survival as opposed to the desire to conquer, will simply keep coming. These desperate people are trying to escape Middle Eastern, Asian and African countries where poverty, war and a lack of freedom threaten their very existence. What has been set in motion now is not the persecution of certain populations, but history itself.

This process cannot be halted, no matter how many fences are erected, no matter how many high walls are put up, such as the ones under construction by Hungary at its border with Serbia, or those envisioned by controversial mogul Donald Trump, a candidate for the Republicans’ presidential ticket, at the US-Mexico border. As for the Channel Tunnel, do the British truly believe that 50,000 – instead of 5,000 – determined refugees in Calais could be prevented from crossing at the mere sight of police officers and weapons? A recent editorial in The New York Times was poignant: “Residents on the island of Lesbos – where many refugees from the Middle East land because of its proximity to Turkey – have responded generously, providing meals, blankets and dry clothing.

Their response should shame others in Europe, particularly the British government, which is panicking over the prospect that a mere 3,000 migrants in Calais, France, might make it across the English Channel.” So far, despite officials’ meetings, the positions of Central and Northern Europe with regard to the refugee issue leaves a lot to be desired. As if Italy’s southern borders and Greece’s eastern borders were not the European Union’s own borders.

Read more …

“..only two of 85 medical institutes and 15 of 159 nursing and other care facilities within a 30-kilometre radius of the Sendai plant had proper evacuation plans.”

Japan Restarts Sendai Nuclear Reactor Despite Public Opposition (Fairfax)

Japan has restarted its first nuclear reactor since new safety rules were ordered in the wake of the 2011 Fukushima disaster, despite vocal public opposition and anxiety. After months of debate about safety, the No 1 reactor at the 30-year-old Sendai nuclear power plant, on the southwest island of Kyushu, became the first to be brought back to life on Tuesday morning. The reactor, one of 25 which have applied to restart, will begin generating power by Friday and reach full capacity next month. Prime Minister Shinzo Abe has made the restart of the country’s nuclear energy industry a priority of his administration, with the hiatus sending electricity bills soaring, providing a drag on his so-called Abenomics reforms, and serving to highlight Japan’s dependence on energy imports.

But with the scars of Fukushima yet to fade, newspaper polls have shown a majority of Japanese oppose the restart. Mr Abe’s personal approval ratings have also plumbed new depths, having also come under fire for pushing through a controversial new national security bill that will see Japanese troops fight overseas for the first time since World War II. “I would like Kyushu Electric to put safety first and take utmost precautions for the restart,” he said. Yoshihide Suga, the chief cabinet secretary, said “it is important for our energy policy to push forward restarts of reactors that are deemed safe”.

But local residents said they are worried about potential dangers from active volcanoes in the region, and there was no clarity around the evacuation plans for nearby hospitals and schools. An Asahi Shimbun newspaper survey found only two of 85 medical institutes and 15 of 159 nursing and other care facilities within a 30-kilometre radius of the Sendai plant had proper evacuation plans. About 220,000 people live within a 30-kilometre radius – the size of the Fukushima no-go zone – of the Sendai plant. “You will need to change where you evacuate to depending on the direction of the wind. The current evacuation plan is nonsense,” Shouhei Nomura, a 79-year-old former worker at a nuclear plant equipment maker, who now opposes atomic energy and is living in a protest camp near the plant told Reuters.

Read more …

A little physics fascination.

A Good Week For Neutrinos (Butterworth)

Neutrinos are made by firing protons into a target. This produces lots of mess, including charged particles called pions (made of a quark and an antiquark), which travel a while and can be focussed into a beam. They eventually decay to neutrinos, which remain in a collimated beam and, mostly, just carry on without interacting with anything. Crucially though, a few of them will, by random luck (maybe bad luck from the neutrinos point of view) collide with normal matter, some of it (by good luck from the physicists point of view) the matter inside the NOvA far detector, which can measure what kind of neutrinos they were.

The vast majority of neutrinos produced when a pion decays are so-called “muon neutrinos”. This means when they interact they should produce muons (a heavier version of the electron). If the neutrinos did nothing odd during their 800 km journey to NOvA, about 200 of them should have been seen by now. However, only 33 turned up. Also, six electron neutrinos turned up, when only about one would be expected.

This is evidence that the neutrinos transmogrify, or “oscillate”, during their journey. That is, they change types. This behaviour is already known; it is how we know neutrinos have mass (in the original version of the Standard Model of particle physics they were massless), and it may be connected with mysterious fact that there is so much matter around and so little antimatter. Studying this kind of mystery is what Nova was built for, and this confirmation of neutrino oscillations is just the start.

Read more …