Jan 122019
 
 January 12, 2019  Posted by at 10:52 am Finance Tagged with: , , , , , , , , , , , , , ,  


Pablo Picasso Landscape 1920

 

FBI Opened Inquiry Into Whether Trump Was Secretly Working For Russia (NYT)
Democratic Elites Reunite With Neocons (Greenwald)
Exasperated Democrats Try To Rein In Ocasio-Cortez (Pol.)
Fed Paid Banks $38.5 Billion in Interest on “Reserves” in 2018 (WS)
Fed Balance Sheet and Currency In Circulation (WS)
Retailers Are Slashing iPhone Prices Across China (CNBC)
Apple Plans To Launch Three New iPhones This Year (CNBC)
Unclear How Deep, Lasting Germany’s Economic Problems Are: ECB’s Nowotny (R.)
France Vows Tough Response As New ‘Yellow Vest’ Demos Loom (AFP)
Google Sued For Covering Up $90m Payout To Ex-Exec Accused Of Sexcrimes (AFP)
My Walk To Work Shows Me How Homelessness Is Transforming Britain (G.)

 

 

Trump fired Comey, and Comey’s friends opened an inquiry.

Trump called Russiagate a made-up story, and that was reason for the FBI to open an inquiry into Russiagate.

Outlets like the NYTimes look increasingly like Faust, who sold his soul to the devil for short-term gains.

FBI Opened Inquiry Into Whether Trump Was Secretly Working For Russia (NYT)

In the days after President Trump fired James B. Comey as F.B.I. director, law enforcement officials became so concerned by the president’s behavior that they began investigating whether he had been working on behalf of Russia against American interests, according to former law enforcement officials and others familiar with the investigation. The inquiry carried explosive implications. Counterintelligence investigators had to consider whether the president’s own actions constituted a possible threat to national security. Agents also sought to determine whether Mr. Trump was knowingly working for Russia or had unwittingly fallen under Moscow’s influence.

The investigation the F.B.I. opened into Mr. Trump also had a criminal aspect, which has long been publicly known: whether his firing of Mr. Comey constituted obstruction of justice. Agents and senior F.B.I. officials had grown suspicious of Mr. Trump’s ties to Russia during the 2016 campaign but held off on opening an investigation into him, the people said, in part because they were uncertain how to proceed with an inquiry of such sensitivity and magnitude. But the president’s activities before and after Mr. Comey’s firing in May 2017, particularly two instances in which Mr. Trump tied the Comey dismissal to the Russia investigation, helped prompt the counterintelligence aspect of the inquiry, the people said.

The special counsel, Robert S. Mueller III, took over the inquiry into Mr. Trump when he was appointed, days after F.B.I. officials opened it. That inquiry is part of Mr. Mueller’s broader examination of how Russian operatives interfered in the 2016 election and whether any Trump associates conspired with them. It is unclear whether Mr. Mueller is still pursuing the counterintelligence matter, and some former law enforcement officials outside the investigation have questioned whether agents overstepped in opening it.

[..] The second event that troubled investigators was an NBC News interview two days after Mr. Comey’s firing in which Mr. Trump appeared to say he had dismissed Mr. Comey because of the Russia inquiry. “I was going to fire Comey knowing there was no good time to do it,” he said. “And in fact, when I decided to just do it, I said to myself — I said, you know, this Russia thing with Trump and Russia is a made-up story. It’s an excuse by the Democrats for having lost an election that they should’ve won.”

Read more …

A remarkable turnaround. The peaceniks have turned into warmongers.

Democratic Elites Reunite With Neocons (Greenwald)

[..] what is remarkable about the new polling data on Syria is that the vast bulk of support for keeping troops there comes from Democratic Party voters, while Republicans and independents overwhelming favor their removal. The numbers are stark: Of people who voted for Clinton in 2016, only 26 percent support withdrawing troops from Syria, while 59 percent oppose it. Trump voters overwhelmingly support withdraw by 76 percent to 14 percent. A similar gap is seen among those who voted Democrat in the 2018 midterm elections (28 percent support withdrawal while 54 percent oppose it), as opposed to the widespread support for withdrawal among 2018 GOP voters: 74 percent to 18 percent.

Identical trends can be seen on the question of Trump’s announced intention to withdraw half of the U.S. troops currently in Afghanistan, where Democrats are far more supportive of keeping troops there than Republicans and independents. This case is even more stark since Obama ran in 2008 on a pledge to end the war in Afghanistan and bring all troops home. Throughout the Obama years, polling data consistently showed that huge majorities of Democrats favored a withdrawal of all troops from Afghanistan.

With Trump rather than Obama now advocating troop withdrawal from Afghanistan, all of this has changed. The new polling data shows far more support for troop withdrawal among Republicans and independents, while Democrats are now split or even opposed. Among 2016 Trump voters, there is massive support for withdrawal: 81 percent to 11 percent; Clinton voters, however, oppose the removal of troops from Afghanistan by a margin of 37 percent in favor and 47 percent opposed.

Read more …

They don’t understand AOC anymore then they understood Trump.

Exasperated Democrats Try To Rein In Ocasio-Cortez (Pol.)

Alexandria Ocasio-Cortez is already making enemies in the House Democratic Caucus — and some of its members are mounting an operation to bring the anti-establishment, democratic socialist with 2.2 million Twitter followers into the fold. The effort, described by nearly 20 lawmakers and aides, is part carrot, part stick: Some lawmakers with ties to Ocasio-Cortez are hoping to coax her into using her star power to unite Democrats and turn her fire on Republicans. Others simultaneously warn Ocasio-Cortez is destined for a lonely, ineffectual career in Congress if she continues to treat her own party as the enemy.

“I’m sure Ms. Cortez means well, but there’s almost an outstanding rule: Don’t attack your own people,” said Rep. Emanuel Cleaver (D-Mo.). “We just don’t need sniping in our Democratic Caucus.” Incumbent Democrats are most annoyed by Ocasio-Cortez’s threat to back primary opponents against members of their ranks she deems too moderate. But their frustration goes beyond that: Democratic leaders are upset that she railed against their new set of House rules on Twitter the first week of the new Congress. Rank and file are peeved that there’s a grassroots movement to try to win her a top committee post they feel she doesn’t deserve.

Even some progressives who admire AOC, as she’s nicknamed, told POLITICO that they worry she’s not using her notoriety effectively. “She needs to decide: Does she want to be an effective legislator or just continue being a Twitter star?” said one House Democrat who’s in lockstep with Ocasio Cortez’s ideology. “There’s a difference between being an activist and a lawmaker in Congress.” It’s an open question whether Ocasio-Cortez can be checked. She’s barely been in Congress a week and is better known than almost any other House member other than Nancy Pelosi and John Lewis. A media throng follows her every move, and she can command a national audience practically at will.

Read more …

Yes, we want fewer reserves, but don’t worry, we’ll just pay you more interest on what remains, so you’re fine.

Fed Paid Banks $38.5 Billion in Interest on “Reserves” in 2018 (WS)

The Fed reported its preliminary results this morning for the year 2018. The headline is that it sent $65.4 billion of its profits to the US Treasury Department in 2018, and that this amount had plunged by 18.5% from the remittances, as they’re called, in 2017, and by 44.1% from the peak of $117 billion in 2015. The Fed earns interest income on the huge pile of securities it holds. After covering operating expenses, interest expenses, and some other items, it is required to remit the rest to the Treasury Department – to the taxpayer. Therefore, the amounts in interest expense the Fed pays the banks on their “Excess Reserves” and “Required Reserves” comes out of the taxpayer’s pocket and its transferred to the banks to become bank profits, and thereby bank executive bonuses and stock holder dividends, funded by the dear taxpayers. And this amount was huge in 2018: $38.5 billion!

The $38.5 billion: This is what the Fed paid US banks and foreign banks in the US on their Excess Reserves and Required Reserves on deposit at the Fed. • Required Reserves are the amounts that banks have to keep on deposit at the Fed for liquidity purposes. This is relatively small, $192 billion at year-end, and was roughly flat in 2018. • Excess Reserves are the amounts that banks voluntarily deposit at the Fed to earn risk-free income. The amount peaked in September 2014 at $2.7 trillion and has since fallen to $1.5 trillion. Of that $1.2 trillion drop, $510 billion occurred in 2018.

The interest rate that the Fed paid on both types of reserves was 1.5% at the beginning of 2018, and was raised four times with each rate hike during the year, but less than the 1/4-point hikes of the Fed’s target range for the federal funds rate. At its December meeting, the Fed raised this rate to 2.4%. So the balances of Excess Reserves have plunged, and the interest rate the Fed pays on those reserve balances has jumped. Both factors combined caused the Fed to pay a record $38.5 billion to US banks and foreign banks in the US.

Here is the sordid history of this annual wealth transfer from taxpayers to the banks via the Fed:

Read more …

Wolf Richter has much more on this topic in the article, I just wanted to point out that, counterintuitively perhaps, the amount of US currency in circulation has surged. To the mattresses!

Fed Balance Sheet and Currency In Circulation (WS)

The Fed’s balance sheet would be “substantially smaller” after the Fed gets done with its QE unwind, Fed Chairman Jerome Powell said on Thursday. [..] “Don’t know the exact level. That would depend really on the public’s appetite for our liabilities, specifically currency. To us, that’s a liability. And the public has a large appetite for currency….” “So it will be substantially smaller than it is now,” he said. “But nowhere near what it was before, and the reason is, currency was well less than $1 trillion before quantitative easing started and now is moving up toward $2 trillion.” The line item on the Fed’s balance sheet called “currency in circulation” is composed of Federal Reserve Notes – as it says on the wrinkled and thinning wad of twenties in my pocket — and coins. In other words, hard cash.

And as Powell pointed out, this is a liability on the Fed’s balance sheet, not an asset. The Treasury Department produces the bills and coins. But the Fed manages the amounts in circulation via the banking system. Currency in circulation grows when there is a lot of demand for paper-dollar cash. There must always be enough paper-dollars in the banking system to satisfy the demand by customers for the physical dollars. And as Powell pointed out, “the public has a large appetite for currency.” This demand for dollars is on a global basis. People globally are hoarding this stuff, and some countries use it as their primary currency, or as an alternate currency alongside their own trashed currency. When the Financial Crisis set in, folks started hoarding more of it, and demand increased at a steeper rate. This chart shows currency in circulation. The amount more than doubled from $830 billion in February 2008 to $1.72 trillion now:

Read more …

$2000 for a phone. Get real. It’s a dead business model.

Retailers Are Slashing iPhone Prices Across China (CNBC)

Apple’s latest iPhone models are facing huge discounts in China as retailers try to sell the struggling devices. That comes as the top-of-the-line Apple smartphones have posted poor China sales on what experts say are too-high prices for the world’s largest smartphone market and a lack of innovative features compared to local competitors like Huawei. The technology giant itself acknowledged earlier this month that unexpectedly low sales in the Chinese market would likely lead to worse-than-anticipated first quarter revenues. One of the most recent iPhone cost cuts in the country came from Suning, a large Chinese retailer, which changed the price of the 128GB version of the iPhone XR from 6,999 yuan ($1,036) to 5,799 yuan ($858) — a 1,200 yuan ($178) discount.

Other third-party sellers on the site had the devices for even cheaper, offering flash sales to try to unload iPhones.[..] Apple’s issues in China are down to two major factors, experts and local consumers say: It got its pricing wrong, and it has failed to introduce features to excite consumers in a forward-thinking technology market. Now, analysts said, competitors have taken market share in the premium smartphone space. In a public letter released on Jan. 2, Apple CEO Tim Cook blamed the slowing Chinese economy and rising trade tensions with the U.S. as one of the key reasons for lowering first quarter sales guidance. Experts, however, told CNBC that much of the iPhone’s China problem comes down to the company setting the wrong prices.

[..] “The trade war is background noise and more of a scapegoat excuse with the real issues being iPhone XR demand and a mispriced product in a competitive Chinese market,” Daniel Ives, managing director of equity research at Wedbush Securities, told CNBC by email. “It’s time for Cook and Apple to look in the mirror, take their medicine around pricing and execution and move forward with the biggest installed base in the world to turn this ship around from this dark chapter in Cupertino,” he added.

Read more …

Of course, when your new phones don’t sell, you launch more new phones. Now with 3 cameras. Where’s Steve Jobs?

Apple Plans To Launch Three New iPhones This Year (CNBC)

Apple plans to unveil three new iPhone models this year, including a successor to the XR, The Wall Street Journal reported Friday. The tech giant’s new phones will include new camera features, the Journal reported, citing people familiar with the situation. The higher-end model will be fitted with a triple rear camera, while the lower-end models will have a double rear camera, the report said. One will feature a liquid-crystal display, the display that Apple’s lower-end iPhone XR model comes with. The XR has reportedly struggled to win over Chinese consumers. Apple recently lowered its revenue guidance for the first quarter, alarming investors, and cited lower-than-expected iPhone revenue “primarily in Greater China” as one of the main reasons behind its warning.

Read more …

Yeah, they’re not selling enough cars, i.e. they don’t create enough pollution: “What I find particularly unsettling are psychological factors. The whole diesel discussion, combined with the problems in the auto industry, increases uncertainty..”

Unclear How Deep, Lasting Germany’s Economic Problems Are: ECB’s Nowotny (R.)

It is unclear if Germany’s recent economic setbacks are a one-off or a more lasting phenomenon caused by structural problems, particularly in its car industry, European Central Bank policymaker Ewald Nowotny said in remarks published on Saturday. Struggling to adjust to new emission testing standards, Germany’s car manufacturing contracted in the third quarter, dragging overall economic growth into negative territory and raising fears that Europe’s five-year-old growth run may be coming to a premature end. The Bundesbank said in a monthly economic report last month that Germany’s dominant car industry may take longer than previously thought to recover from a slump, weighing on growth in the euro zone’s biggest economy.

“The most important economic question for Europe is whether these are one-off slowdowns or whether structural factors are behind them,” ECB’s Governing Council member Nowotny said in an interview with Austrian newspaper Der Standard, discussing the prospect of a second quarter of negative growth in Germany. “The fear is that particularly in the auto industry we have lasting changes that affect Germany especially,” said Nowotny, who is also governor of the Austrian National Bank. The Bundesbank said in its report last month that while a quick rebound in the auto sector had been forecast, fresh data was disappointing those hopes.

It added that the slump was exacerbated by an overall deterioration in sentiment as well as uncertainty over the future of diesel cars as cities contemplate bans to reduce pollution. “What I find particularly unsettling are psychological factors. The whole diesel discussion, combined with the problems in the auto industry, increases uncertainty,” Nowotny said. “If people defer the purchase of a car by just half a year, that causes a vast fall in demand. There would be lasting and dramatic consequences if there were real structural collapses in the export- and machinery-oriented economy. Germany could become vulnerable,” he said.

Read more …

Macron et al are clueless. They keep trying to separate the protesters from the ‘real French’, but they’re the same people.

France Vows Tough Response As New ‘Yellow Vest’ Demos Loom (AFP)

France braced for a fresh round of “yellow vest” protests across the country on Saturday, with the authorities vowing zero tolerance for violence after weekly scenes of rioting and vandalism in Paris and other cities over the past two months. [..] “Those who are calling to demonstrate tomorrow know there will be violence, and therefore they are in part responsible,” Interior Minister Christophe Castaner said in a Facebook interview Friday with Brut, a digital news site favoured by many yellow vests. “Those who think that, a few thousand people, can make us question our institutions, are wrong,” Castaner added later Friday.

Far-right National Rally leader Marine Le Pen, who has presented her party as the longstanding expression of many yellow vest demands, condemned the government’s reaction as “disturbing”. “To accuse all protesters of ‘complicity’ with the thugs: here is a new verbal provocation and legal ineptitude waiting to undermine our rule of law,” she wrote on Twitter. [..] Macron has called for a national debate on voters’ grievances, beginning next week, hoping to sate demands for more of a say in national law-making and tamp down the protesters’ anger. But the process risks being hobbled by record levels of distrust towards politicians and representatives of the state.

A poll by the respected Cevipof political sciences institute released Friday showed 77 percent of respondents thought politicians inspired “distrust”, “disgust” or “boredom”. And it’s uncertain if the public consultations will be enough, with many protesters calling for Macron’s resignation or an immediate referendum on his presidency. “I had some hope with this ‘great debate’, but it’s not looking good because they don’t want to talk about taxes, and they’re the ones who are deciding the subjects,” said Patrick Lerest, a 62-year-old protester in Nemours, southeast of Paris. “I want us to have a real debate,” he said.

Read more …

Damning no matter the outcome of the suit. Do no evil. Where is #MeToo?

Google Sued For Covering Up $90m Payout To Ex-Exec Accused Of Sexcrimes (AFP)

Google’s board of directors is being sued for approving a $90m (£70m) payout to a former executive and covering up allegations including that he forced a female employee to perform oral sex. The lawsuit, brought by shareholder James Martin, claims directors made the payment to stop details of the allegations becoming public. It also cites examples of alleged sexual misconduct by other former employees which Google directors kept private. Google’s founders Larry Page and Sergey Brin allowed Mr Rubin to “quietly resign” even after an internal investigation had found the allegations against him credible, the complaint filed in California alleges.

“The directors’ wrongful conduct allowed the illegal conduct to proliferate and continue,” the complaint states. “As such, members of Alphabet’s board were knowing and direct enablers of the sexual harassment and discrimination.” The lawsuit also cites allegations that while Mr Rubin was at Google he engaged in “human sex trafficking – paying hundreds of thousands of dollars to women to be, in Rubin’s own words, ‘owned’ by him”. Mr Page, Mr Brin and other top executives failed in their duty by allowing harassment to occur at their company, approving excessive severance payments and keeping details of the allegations private, the lawsuit alleges. David Drummond, the chief legal officer of Google’s parent company Alphabet, and investor Ram Shriram are named among others in the court filings.

Read more …

Why there’s Brexit.

My Walk To Work Shows Me How Homelessness Is Transforming Britain (G.)

Before Christmas, the housing secretary James Brokenshire insisted that the fact the number of people sleeping rough has more than doubled since 2010 has nothing to do with Tory policies. Rather, he said, it was due to drug addiction, family breakdown and the number of foreigners. Brokenshire has since rowed back from this palpably ludicrous claim, admitting that Tories “need to ask ourselves some very hard questions”. Anyone who has seen this for themselves – which is to say, everyone who lives in a British city – could have told him that, because what has really changed is not just the number of homeless people, but who these homeless people are.

At Shelter from the Storm, my local shelter, the co-founder Sheila Scott told me last week that, when she started a decade ago, the people who stayed were “town-square drinkers” and foreign itinerants. Now, half the inhabitants have regular jobs and three-quarters are British. Some leave every night at 2am to work at Amazon factories; some are Uber drivers who took out too many loans to buy their car to do their job. Most have been driven out of their properties by private landlords – and you have only to look at Caledonian Road to see the damage such landlords can do. Many of the shopkeepers have been driven out by what one described to me as “deliberately high rents”, their stores turned into expensive flats.

One private landlord, Andrew Panayi, owns 200 properties in the area, and even though he has been fined for renting substandard properties (one tenant called them “worse than prison cells”), he still keeps a tight grip on the street. These landlords exploit the real problem, which is a lack of social housing and the decimation of social services. Scott says councils now send people directly to her, as they have nowhere else to put them. But they will soon have to send them to a new address: Shelter from the Storm is moving, because a property developer has bought the lot they currently stand on; like so many of the people the charity helps, it is being pushed out of the area.

Read more …

May 032017
 
 May 3, 2017  Posted by at 9:31 am Finance Tagged with: , , , , , , , , , , ,  


Leonardo da Vinci A Copse of Trees 1508

 

Trump: US “Needs A Good Shutdown In September To Fix This Mess” (ZH)
Home Capital Fails to Draw Buyout Interest From Canada Banks (BBG)
Hot Air Hisses Out of US Auto Bubble (WS)
May’s Election Fighting Talk Fuels Brexit War of Words With EU (BBG)
Le Pen Wants A French National Currency Within Two Years After Election (R.)
Macron Victory Could Mark The Start Of Political Upheaval For France (CNBC)
Italy Is Europe’s Next Big Problem (BBG)
Soros At it Again – Trying to Overthrow Polish Government? (Martin Armstrong)
In Tense Encounter, Merkel Tells Putin Sanctions Must Remain (BBG)
‘It’s Very Important We Hear What Putin Has To Say’ – Oliver Stone (RT)
Adults in the Room – One Of The Greatest Political Memoirs Ever (Mason)
Greece, Creditors To Discuss Options For Debt Restructuring (CNBC)
Greece Will Avoid Default After Bailout Deal – But Faces More Austerity (G.)
Greek Poverty Deepens During Seven Years Of Austerity (AP)

 

 

September’s a long way away.

Trump: US “Needs A Good Shutdown In September To Fix This Mess” (ZH)

With Congress poised this week to approve a deal to fund the government through September, the first major bipartisan legislation of Trump’s presidency, after lengthy negotiations (which have appeared to signal numerous ‘folds’ by President Trump), apparently frustrated by the lack of tryannical powers that a simple majority grants him, President Trump has lashed out this morning at disagreeable Democrats, and in particular Senate Democrats. As a reminder, the proposed government funding deal does not include funding for Trump’s proposed wall along the U.S.-Mexico border or include language stripping federal money from so-called sanctuary cities, both of which the White House demanded at the outset of negotiations. In fact, as we reported yesterday, the bill has been seen widely as a victory for Democrats, something which has been panned by the conservative press.

While the White House also backed off a threat to withhold ObamaCare subsidy payments to insurance companies, Trump did secure increased military spending in the 2017 budget deal. According to the Hill, the comments are likely irk top Republican lawmakers, who have been frustrated by Trump’s repeated attempts to intervene in the legislative process. The businessman-turned-president, in turn, has vented frustration with the slow pace of work on Capitol Hill. “I’m disappointed that it doesn’t go quicker,” Trump told Fox News last week when asked about the Republican effort to repeal and replace ObamaCare. Commenting on Trump’s tweets, Citi asks rhetorically whether “this could be a case of cutting one’s nose to spit one’s face? – Potentially problematic when the nose in question is attached to the current administration… It seems counterintuitive that a sitting president would want a shutdown, unless he was to blame it on the opposition in order to force through reform/encourage a voter backlash.”

Bloomberg reports that “The message appeared to encourage the Republican-controlled Senate to change rules that now require 60 votes to end a filibuster of legislation. Republicans reduced the threshold to 51 votes for Supreme Court nominees this year and could do the same for legislation with a simple majority vote.” USD does not seem to have reacted to the President’s tweet (it can’t every time, after all), which may just be more political manoeuvring rather than a signal of intent. In any case, we’re not so sure there is such a thing as a “good” shutdown of the US government – and with what will be over $20 trillion in debt and a declining GDP by that time, one wonders which ratings agency will have the balls to downgrade the world’s reserve currency this time?

Read more …

“Someone will buy it for a dollar because they want to get the loan book [..] it goes for a lot less than it’s trading at today.”

Home Capital Fails to Draw Buyout Interest From Canada Banks (BBG)

Canadian banks and financial firms are so far showing little interest in buying Home Capital, vindicating short-sellers who say the embattled mortgage lender could be sold off piecemeal, driving the stock down further. “People in the industry would rather see these guys go out of business because the loans aren’t worth the risk, and they’re so leveraged,” said Marc Cohodes, a private investor and part-time chicken farmer in California who has been shorting the stock, or betting on declines, for more than two years. Home Capital’s rival Equitable joined a list of companies that have said they aren’t interested in taking over the struggling mortgage lender, which hired investment banks last week for a possible sale after the stock plunged by two-thirds amid a regulatory probe.

“The bottom line is no,” Equitable Chief Executive Officer Andrew Moor said on Monday. “We have some concerns based on what we’ve read about how they underwrote their loans and their internal controls.” Other banks have indicated that they aren’t interested. Canadian Western Bank CEO Chris Fowler said his Edmonton, Alberta-based lender, which has an alternative mortgage business, would not be a buyer for all of Home Capital. He added the bank will consider “selectively” acquiring loan portfolios. A Laurentian Bank of Canada spokeswoman said that for the lender to be interested in an acquisition it needs to be financially sound and a good strategic fit. Laurentian is active in the alternative lending space.

Canada’s biggest commercial banks, meanwhile, are unlikely to be interested because Home Capital’s mortgages are with customers who wouldn’t qualify for a loan with them, said Sumit Malhotra, an analyst at Bank of Nova Scotia, in a research note. They might be interested in the loan book, he added. [,,] Other short sellers agree with Cohodes. Jerome Hass at Lightwater in Toronto, said he wonders why anybody would buy Home Capital when they could just pick up the mortgages. “It’s got all this litigation against it, it’s going to have all these liabilities against it, so why not just take their loan book off their hands?” Hass said in an interview. “Someone will buy it for a dollar because they want to get the loan book, but I don’t see it going for much, and it goes for a lot less than it’s trading at today.”

Read more …

No purchasing power.

Hot Air Hisses out of US Auto Bubble (WS)

A 4.7% drop in sales, bad as it is, wouldn’t qualify for #carmageddon. These things happen. But here’s the thing: Automakers had shelled out $3,465 in incentives per new vehicle sold, on average, according to TrueCar estimates. A record for the month of April. It beat the prior record of $3,393, set in April 2009. It amounts to about 10% of suggested retail price, similar to March. The last period when incentive spending was at this level of MSRP was in 2009 as the industry and sales were collapsing. The #carmageddon point to watch: despite the 13.4% year-over-year surge in incentive spending to nearly $5 billion, total vehicle sales fell 4.7%! When these massive incentives fail to even slow the sales decline, serious problems lurk beneath the surface. This table shows the largest automakers, their year-over-year sales performance – the sea of red ink – along with average per-unit incentive spending and total incentive spending:

GM shelled out the most incentives on average per vehicle, in total $1.23 billion. In March, it had spent about $1.3 billion. At this rate, GM is spending just under $4 billion per quarter in incentives. By comparison, in its Q1 earnings, GM reported “North America” revenue of $29.3 billion. At this rate, it is spending about 13% of its North American revenues on US incentives. But it’s just not working out. Total sales dropped nearly 5.9%, to 244,200 units, with car sales plunging 12.5% and even truck sales falling 3.2%. A gruesome detail: Silverado-C/K pickup sales plunged 20% to 40,154 units. Total retail sales (not including fleet sales) fell 4% to 191,911 vehicles. GM ended the month with 100 days’ supply, up from the nail-biter level of 98 days at the end of March.

Read more …

The UK is so divided along multiple fault lines that May has nothing, unless she’s prepared to walk away.

May’s Election Fighting Talk Fuels Brexit War of Words With EU (BBG)

U.K. Prime Minister Theresa May vowed she won’t be pushed around in Brexit talks with the European Union as her war of words with Brussels escalates before negotiations even begin. The premier said European Commission President Jean-Claude Juncker is learning she can be “bloody difficult” after leaked details of a dinner meeting between the leaders alleged he was shocked by her approach to negotiating Brexit. May won a measure of support from several European government officials, who distanced themselves from Juncker’s apparent skepticism about the chances of a Brexit deal. The row blew up after details of the allegedly disastrous meal Juncker attended at May’s London residence last week were reported by a German newspaper.

“What we’ve seen recently is that at times these negotiations are going to be tough,” May told BBC television in an interview Tuesday. “During the Conservative Party leadership campaign, I was described by one of my colleagues as a bloody difficult woman. And I said at the time the next person to find that out will be Jean-Claude Juncker.” The clash between London and the European Commission comes as May seeks re-election on June 8 in a campaign defined by Brexit, and the argument won’t necessarily hurt her chances. While EU officials are concerned about such a public dispute ahead of negotiations, it could help May’s Tories convince voters the U.K. needs what she calls her “strong and stable leadership” for the Brexit talks.

May claims her main rival for power, opposition Labour party leader Jeremy Corbyn, would be too “weak” to succeed at the negotiating table. Germany’s Frankfurter Allgemeine Sonntagszeitung newspaper said on Sunday that Juncker left a dinner on April 26 “10 times more skeptical” of reaching a Brexit deal. In her interview on the campaign trail, May told the BBC she hopes to agree an accord that works for the U.K. and the EU, saying there’s “a lot of similarity” between her proposals and the bloc’s negotiating guidelines.

Read more …

Can a national currency exist alongside a European one?

Le Pen Wants A French National Currency Within Two Years After Election (R.)

Far-right presidential challenger Marine Le Pen said capital controls could be used if she won the election and there was a run on banks as she negotiated France’s exit from the European Union, but stressed they were unlikely to be needed. In an interview with Reuters ahead of Sunday’s decisive second round, Le Pen reaffirmed she wanted to take France out of the euro and said she hoped the French people would have a national currency in their pockets within two years. Le Pen said she wanted to replace the EU single currency with another, looser type of cooperation in the form of the ECU basket of currencies that preceded the euro. That would exist alongside a national currency.

“The objective is to transform the euro ‘single currency’ into a euro ‘common currency’, going back to the ancestor of the euro, the ECU, which was an accounting unit that did not stop each country from having each its own currency,” Le Pen said. Calling the euro a deadweight on the French economy, the National Front candidate said a new national currency would better protect French people’s savings. She accused the “establishment” of wanting to “frighten” voters into thinking otherwise. “I am convinced there won’t be any banking crisis,” Le Pen said when asked if French negotiations to quit the EU could trigger a run on French banks.

Asked if she would impose capital controls if savers nevertheless did rush to take their money out of banks, she said: “If there’s a run on banks, we could very well imagine such a solution for a few days, but I’m telling you it won’t happen.” Le Pen said she would launch negotiations over reforms of the EU immediately after winning, saying this would allow France to regain national sovereignty. The talks would include ditching the euro as well as regaining control of France’s borders and being able to decide French legislation alone, she said. Those negotiations could last six to eight months, she said, after which France would hold a referendum on its EU membership.

Read more …

Whatever happens in Sunday’s 2nd round, a mess is certain.

Macron Victory Could Mark The Start Of Political Upheaval For France (CNBC)

France’s political course is likely to remain far from certain even with a win for presumed victor Emmanuel Macron, as his inability to form a parliamentary majority threatens to undermine his authority both domestically and across Europe, political analysts have suggested. Sunday’s second round runoff will mark the start of a period of tension for the country as the successful candidate waits to see if they can garner a large enough parliamentary majority in June’s legislative election to enact change, Dominique Reynié, professor of political science at the Sciences Po institute in Paris, told CNBC Tuesday. “I’m not worried about Macron’s ability to win, but the question surrounds what kind of turnout he will achieve and what his ability to gain a majority in the June election will be,” explained Reynié.

Polls are currently pitching centrist Macron to gain anywhere from a 59% to a 64% lead on his far-right opponent Marine Le Pen. However, this lead will do little to boost Macron’s authority in government, Reynié suggests. The independent will have to gain significant support from other parties if he is to form a majority when France once again heads to the polls on June 11 and June 18 to elect the 577 members of its National Assembly. “It will all depend on his margin of victory. A 55 to 45% win for Macron would be a disaster. Even 60 to 40 is not at all a triumph; a 20% margin would be very difficult. “It would be a crisis. It is not normal and would be a problem both on the streets of France and for Europe,” said Reynié.

In the first round of voting, Macron’s En Marche!, or Onwards! party, achieved a majority in 240 constituencies versus Le Pen’s 216. However, Reynié says this is simply not enough. “The smaller Macron’s majority the harder it will be for him to win the general election in June. He needs support; it is not possible to have power as President without support. “This could cause parliament to be largely fragmented like in the first round, with discussions taking place in fractured groups. Macron will have to negotiate with MPs and will be fragile and unpopular.”

Read more …

Has been for years.

Italy Is Europe’s Next Big Problem (BBG)

Emmanuel Macron looks on course to become France’s new president, ending the threat of a euroskeptic at the Elysee. Even if Macron wins, though, it’ll be too soon to celebrate a new phase of stability in the euro zone. Across the Alps, an economic and political storm is brewing – and there’s no sign anyone can stop it. Italy’s economic problems are in many ways worse than France’s. Public debt stands at nearly 133% of gross domestic product; in France, it’s 96%. The last time Italy grew faster than France was in 1995. Both countries have struggled to stay competitive internationally – but French productivity has risen by roughly 15% since 2001, whereas Italy’s has stagnated.

Meanwhile Italian politics goes from bad to worse. The Five Star Movement, a populist force that wants to hold a referendum on Italy’s membership of the euro system, is riding high in the polls and currently neck and neck with the center-left Democratic Party. The general election, scheduled for next spring, is unlikely to produce a clear winner – and there’s even a small chance it may result in a Eurosceptic government, if the Five Stars were to win enough votes and form an alliance with the fiercely anti-euro Northern League. Europhiles in Italy are busily looking for an Italian Macron – someone who could offer a liberal remedy for Italy’s economic woes while fighting off the threat of “It-exit.” Investors would like that. In the autumn, the European Central Bank looks set to slow its purchases of government debt. The prospect of political instability in Rome could spook investors, raising doubts over the sustainability of Italy’s debt.

In many ways, Matteo Renzi, Italy’s former prime minister, who resigned after a heavy defeat in December’s constitutional referendum, would be the obvious choice. At 42, he is only three years older than Macron. He too has sought to modernize the left, even though he preferred to climb through the ranks of his party, rather than set up a new one as Macron did. The trouble is that Renzi looks increasingly like a spent force. He has just obtained a fresh mandate as party leader, but many Italians doubt his promises because he reneged on a pledge to quit politics if he lost the referendum. His message has also become muddled. He claims to be pro-EU, but never misses a chance to bash Brussels – for imposing fiscal austerity, especially. Why should voters opt for Renzi’s half-hearted euroskepticism when they can have the real thing?

Read more …

“Money does not give you the right to fund revolutions to recast the world in your image.”

Soros At it Again – Trying to Overthrow Polish Government? (Martin Armstrong)

QUESTION: Mr. Armstrong, I attended your March 1999 conference in Tokyo when I worked for ___ bank. I remember you called out Soros and crew and said they were trying to manipulate the yen for fiscal year end. You warned the Japanese how to defeat the Club. If I remember, he and his crew lost $1 billion when everyone in Tokyo followed your advice. Many assumed what they did to you 6 months later was retribution. Now he is at it in Poland funneling money he made from such trading in through Norway to create political unrest. What is it with this guy? Why does he play God?

ANSWER: Oh yes. I remember that event very clearly. That’s why they started calling me Mr. Yen because it was me and our clients against the Club and the Club lost. They were trying to push the yen down for the fiscal year-end roll of March 31st and then run it up into April 1st. They had our clients lock it in and that forced the manipulators out. That was a wild day – 3 big figures in a single day in an outside-reversal was a big move back then. I know the rumor was that Soros was in on that and the Club lost $1 billion. Not sure how much they lost on that one. It was the good-old fun days of confrontations. The Polish government wants to stop the distribution of Norwegian money flowing into Poland coming from Soros’ funded Batory Foundation, which manages over 800 million euros with a target of overthrowing the Polish government by 2020.

Since 2014, the Batory Foundation has distributed some 130 million zlotys (around 31.7 million euros) to various associations and organizations within Poland to change the government. According to Bloomberg, this includes organizations for the promotion of parliamentary democracy , but only if it agrees with Soros agenda. Effectively, Soros is trying to defeat ‘Catholic values’ in Poland which are supported by the population and government. [..] Soros has publicly stated he does not believe in God. Many who worked for him said they think he believes he is a god with the right to reshape the world in his image. So have many throughout history and they are responsible for the murder of countless millions. Money does not give you the right to fund revolutions to recast the world in your image.

Read more …

Merkel knows Putin can’t give in on Ukraine. Useless rhetoric.

In Tense Encounter, Merkel Tells Putin Sanctions Must Remain (BBG)

German Chancellor Angela Merkel told President Vladimir Putin that EU sanctions will have to remain on Russia as the two leaders clashed over Ukraine, human rights and election meddling at a chilly encounter in the Black Sea city of Sochi. Addressing a joint press conference with Putin after about two hours of talks on Tuesday, Merkel raised concerns about the rights of homosexuals in Chechnya and Russia’s role in the war in Syria. She devoted much of her time to the lack of progress in resolving the three-year-old conflict in Ukraine. While Putin sought to lay the blame on the Ukrainian government, the chancellor said that a cease-fire is required as part of the “arduous” so-called Minsk process for restoring peace in eastern Ukraine and appealed to him to make it happen.

“My goal remains to get to the point where we can lift EU sanctions, but there’s a link here,” Merkel told reporters on her first visit to Russia since May 2015. The peace process is “moving very slowly, we only make progress in small steps and constantly have setbacks.” Merkel, who met with President Donald Trump at the White House in March, is visiting Putin in her capacity as holder of the presidency of the Group of 20 nations. As well as Ukraine, Merkel and Putin discussed the civil war in Syria and the G-20 summit in Hamburg in July, when the Russian and U.S. presidents are scheduled to meet for the first time. Ukraine was the main flashpoint, with Putin reiterating his stance that the Russian-backed breakaway regions in southeastern Ukraine split off because of a “coup d’etat, an unconstitutional change of power in Kiev.”

Merkel noted the two leaders’ “different opinions” about the origins of the conflict in Ukraine, which spiraled after protests over a scrapped accord with the EU triggered the downfall of the Russian-backed government in 2014. “We don’t share this view,” Merkel said in the briefing, which dispensed with the usual pleasantries or leaders’ banter. “We think that the Ukrainian government came to power through democratic means.” Although she’s among Putin’s sternest critics, Merkel has sought to keep a channel open to the Russian leader even as she holds the line on EU sanctions, which are a response to Russia’s annexation of Crimea and backing for Ukrainian separatists. Hours before Putin was scheduled to speak by phone with Trump on Tuesday, he responded again to allegations of electoral interference, saying “we never interfere in the political life of other countries.”

Read more …

There are people with less bias on Putin. Just not in US or EU politics.

‘It’s Very Important We Hear What Putin Has To Say’ – Oliver Stone (RT)

The man behind three films about American presidents, Oliver Stone, says his upcoming feature about Russian President Vladimir Putin “opens up a whole viewpoint that we as Americans haven’t heard,” and could help prevent “a dangerous situation – on the brink of war.” Academy Award-winning director and revered documentary filmmaker Stone said in interview with the Sydney Morning Herald that his new film about Putin will be released soon. “It’s not a documentary as much as a question and answer session,” he said. “Mr. Putin is one of the most important leaders in the world and in so far as the United States has declared him an enemy – a great enemy – I think it’s very important we hear what he has to say.” The film will present Putin’s viewpoint of political events since he was first elected president of Russia in March 2000.

“It opens up a whole viewpoint that we as Americans haven’t heard,” Stone told the newspaper, adding that his crew went to see the indefatigable Russian leader four times over the course of two years. “I talked to him originally about the Snowden affair, which is in the film. And out of that grew, I think, a trust that he knew that I would not edit it so much,” he said, adding that Putin “talks pretty straight.” “I think we did him the justice of putting [his comments] into a Western narrative that could explain their viewpoint in the hopes that it will prevent continued misunderstanding and a dangerous situation – on the brink of war.” The 70-year-old director also commented the accusations of Russian influence on the US presidential elections.

“That’s a path that leads nowhere to my mind. That’s an internal war of politics in the US in which the Democratic Party has taken a suicide pact or something to blow him up; in other words, to completely de-legitimize him and in so doing blow up the US essentially. “What they’re doing is destroying the trust that exists between people and government. It’s a very dangerous position to make accusations you cannot prove,” he added. Stone also said he does not believe claims circulating in the mainstream media that Moscow allegedly passed some classified documents to WikiLeaks in a bid to influence the November US elections. “I hold Assange [WikiLeaks editor Julian Assange] in high regard in many issues of state. I take very seriously his statement that he received no information from Russia or any state actors,” Stone said.

Read more …

“.. it is French and German taxpayers who will pay the price when the Greek debt is inevitably written off.”

I should get the book later this week.

Adults in the Room – One Of The Greatest Political Memoirs Ever (Mason)

Varoufakis began on the outside – both of elite politics and the Greek far left – swerved to the inside, and then abruptly abandoned it, after he was sacked by his former ally, Greek prime minister Alexis Tsipras, in July 2015. He dramatises his intent throughout the crisis with a telling anecdote. He’s in Washington for a meeting with Larry Summers, the former US treasury secretary and Obama confidant. Summers asks him point blank: do you want to be on the inside or the outside? “Outsiders prioritise their freedom to speak their version of the truth. The price is that they are ignored by the insiders, who make the important decisions,” Summers warns. Elected politicians have little power; Wall Street and a network of hedge funds, billionaires and media owners have the real power, and the art of being in politics is to recognise this as a fact of life and achieve what you can without disrupting the system.

That was the offer. Varoufakis not only rejected it – by describing it in frank detail now, he is arming us against the stupidity of the left’s occasional fantasies that the system built by neoliberalism can somehow bend or compromise to our desire for social justice. In this book, then, Varoufakis gives one of the most accurate and detailed descriptions of modern power ever written – an achievement that outweighs his desire for self-justification during the Greek crisis. He explains, with a weariness born of nights in soulless hotels and harsh-lit briefing rooms, how the modern power network is built. Aris gets a loan from Zorba’s bank; Zorba writes off the loan but Zorba’s construction company gets a contract from Aris’s ministry. Aris’s son gets a job at Zorba’s TV station, which for some reason is always bankrupt and so can never pay tax – and so on.

“The key to such power networks is exclusion and opacity,” Varoufakis writes. As sensitive information is bartered, “two-person alliances forge links with other such alliances … involving conspirators who conspire de facto without being conscious conspirators”. In the process of telling this story, Varoufakis not only spills the beans but beans of the kind the Greeks call gigantes – fat ones, full of juice. The first revelation is that not only was Greece bankrupt in 2010 when the EU bailed it out, and that the bailout was designed to save the French and German banks, but that Angela Merkel and Nicolas Sarkozy knew this; and they knew it would be a disaster.

This charge is not new – it was levelled at the financial elite at the time by leftwing activists and rightwing economists. But Varoufakis substantiates it with quotes – some gleaned from the tapes of conversations and phone calls he was, unbeknown to the participants, making at the time. Even now, two years after the last Greek election, this is of more than academic interest. Greece remains burdened by billions of euros of debt it cannot pay. Because of the actions taken in 2010-11 – saving private banks by saddling north European states with massive debts – it is French and German taxpayers who will pay the price when the Greek debt is inevitably written off.

Read more …

Not going to happen until after the German fall election.

Greece, Creditors To Discuss Options For Debt Restructuring (CNBC)

Greece and its creditors are expected to discuss ways to restructure the country’s debt ahead of a meeting of euro zone finance ministers on May 22, a European official told CNBC on Tuesday. Athens agreed on Tuesday to introduce new laws on labor, energy reforms, pension cuts, and tax rises. This paves the way for a fresh disbursement of money from creditors in mid-June, but above all it allows Greece, its European creditors, and the IMF to consider how they will restructure the country’s debt. A European official who follows the bailout talks told CNBC that there isn’t a specific date for a solution to Greece’s debt but the first discussions on this issue will start soon. “From now until the Eurogroup meeting of May 22 there will be discussions to consider options for debt relief,” the official said.

Greece has to legislate the new reforms within two weeks. However, these new laws won’t take effect until 2019 and 2020 and will be dependent on the country’s economic performance. For example, among the new measures is the promise to cut pensions in 2019 and cut the tax-free threshold in 2020 to produce savings worth 2% of GDP. But if Athens exceeds its targets, it is allowed to offset the austerity measures and reduce taxes. During the first stages of talks on debt restructuring, the European Stability Mechanism, which is the euro zone’s permanent bailout fund, will produce a new debt sustainability analysis. Current economic forecasts indicate that Greece’s public debt stood at about 180% of GDP in 2016. The IMF will also be doing its debt sustainability analysis to include the recently-agreed measures.

The Fund wants an agreement on measures to make Greece’s debt more sustainable before deciding whether it is participating with its own money in the Greek bailout program. Dimitris Tzanakopoulos, spokesperson to the Greek government told reporters last month, that the IMF will make a “small” funding contribution that will not last for more than one year, so it ends at the same time as the current European program, which runs out in August of 2018. The IMF’s participation in the third bailout program to Greece is key for many euro countries, which perceive the fund’s involvement as giving credibility to the reform process in Greece. One of these countries is Germany, but the upcoming federal election might reduce Berlin’s room to restructure Greece’s debt.

“We will get some IMF participation, but no significant number,” Johannes Mayr, head of economic research at Bayern LB ,told CNBC via email. On the debt issue, “we need a compromise between the IMF and the EU/ESM (European Stability Mechanism), he said, “and this is realistic only after the German elections.” Neil Dwane, global strategist at Allianz Global Investors, added: “National governments, like Germany, would lose popularity if they wrote off Greek debt.” “I would expect more extend and pretend from the EU and the IMF,” he said via email.

Read more …

No Greek default, but nothing else either: again, until after the German fall election. And even then.

Greece Will Avoid Default After Bailout Deal – But Faces More Austerity (G.)

The long road to Greece emerging from its worst financial crisis in modern times reached another milestone on Tuesday as the country concluded a crucial compliance review that will allow it to avert default in July. At the cost of yet more painful austerity – in the form of extra pension cuts and tax increases – international creditors agreed to disburse €7.5bn (£6.3bn) in emergency loans to enable Athens to honour maturing debt repayments. More importantly, lenders accepted to set talks in motion on making Greece’s debt mountain more manageable – vital if the country is to gain access to the capital markets from which it has been almost completely exiled since 2009. [..] The deal ends more than six months of intense wrangling over the fiscal and structural reforms that Athens must implement in exchange for loans from its third, €86bn bailout programme.

Although the programme was outlined in 2015 when Greece came closest to crashing out of the eurozone and reverting to the drachma, the conditions attached to the lifeline remained open to negotiation. Discord most recently had focused on labour reforms and pensions – two issues that Tsakalotos, a British-trained Marxist economics professor, had felt especially strongly about. Under the agreement, the leftist-led government undertook to further slash pensions by 18% as of 2019. Pension payments have now been reduced 12 times since the start of the crisis, and cut by 40% in the past six years. With poorer out-of-work families often depending on them, news of a further drop was met with fury by union leaders, who immediately announced industrial action.

The two-party coalition led by the prime minister, Alexis Tsipras, also agreed to broaden the tax-free threshold by effectively dispensing with tax breaks as of 2020. Both measures are expected to produce savings worth €3.6bn or 2% of GDP. “It will be a very hot spring,” Odysseus Trivalas, acting president of the union of public sector employees, told the Guardian. “We have yet to see the details of this agreement but what we know is that it will mean further cuts. There will be a lot of strikes and a general 24-hour lockdown when the measures are brought to parliament for vote.”

Read more …

“On a corner of Monastiraki Square full of tourists and passers-by, a group of volunteers from the soup kitchen O Allos Anthropos (The Fellow Man) cook chicken with rice. In less than 20 minutes, 230 hot meals are delivered to people who waited more than an hour to get them.”

Greek Poverty Deepens During Seven Years Of Austerity (AP)

Over the past seven years, austerity has left visible scars in Greece’s capital. A walk around Athens reveals more homeless people than ever despite some signs of a rosier economic outlook. Thousands of shops, mostly small businesses, are shuttered here and across the country. In what used to be a busy shopping arcade, closed stores are padlocked against a backdrop of hanging Greek flags. Whole families can be seen lining up for free meals at a growing number of soup kitchens. “Every day we feed 400 to 500 people, and this number has increased even more in the past two years,” says Evangelia Konsta, organizer and sponsor of the meals offered by the Church of Greece in a run-down neighborhood in central Athens.

Yesterday, IMF and European negotiators bailout negotiators reached an agreement with Greece’s government to continue rescue funding in return for a painful new round of cuts and higher taxes over the next three years. High unemployment and a steady decline of living standards for most Greeks for seven consecutive years have had lasting effects. Greece has survived on international rescue loans since 2010, granted by the IMF and other countries using the euro currency in exchange for drastic cuts in public spending and benefits. Greece is now in its third bailout. A few steps away from the Church-run soup kitchen is a homeless shelter also run by the Church. Guests in its tiny rooms include one family with their young children and a retired nurse suffering from cancer who is still waiting to get her pension application approved.

Another shelter, the “Shelter of Love and Solidarity,” has a great view of the ancient Acropolis that’s barely noticed by the hundreds of homeless and poor who come twice a week to wash their clothes and take a hot bath. “The shelter is the best option for us because the government doesn’t really do anything for us,” says Ilias Kosmidis, 38, who has been sleeping on the street for the past two years. While waiting to wash their clothes, people at the shelter have developed friendships, and catch up on the news, including the French presidential election. Sofia Vitalaki and her husband Costas, both retired civil servants, have run the shelter since 1991. “It’s not just the food,” she says. “Most people want their dignity back and here we try to support them.”

On a corner of Monastiraki Square full of tourists and passers-by, a group of volunteers from the soup kitchen O Allos Anthropos (The Fellow Man) cook chicken with rice. In less than 20 minutes, 230 hot meals are delivered to people who waited more than an hour to get them. At the end of every month, it’s become a familiar sight outside banks: pensioners waiting in huge lines to collect their monthly checks. Few know how to use ATMs. While in line, they fret over how to make ends meet after years of cuts to their earnings, worrying about more austerity being planned. They won’t have long to wait till the next round of cuts. The government on Tuesday finalized its agreement with bailout lenders to ax pensions further, starting on January 1, 2019.

Read more …

Sep 262016
 
 September 26, 2016  Posted by at 8:50 am Finance Tagged with: , , , , , , , , ,  


NPC Fire at Thomas Somerville plant, Washington DC 1926

Asian Markets Drop As Pessimism Increases Ahead Of OPEC Meeting (MW)
Deutsche Bank Slumps to Fresh Record Low on Capital Concerns (BBG)
China’s Smaller Banks Are Funding Each Other’s Lending (BBG)
China Launches $52.5 Billion Restructuring Fund For State-Owned Firms (R.)
A Weaker Currency Is No Longer the Economic Elixir It Once Was (BBG)
US Home Prices Rose 76% Since 1999 As Real Income Grew Less Than 2% (BBG)
Justin Trudeau’s Canadian Honeymoon Is About to End (BBG)
The Know-Nothing Economists Who Created This Mess Blast Trump’s Plan (MW)
Amazon “Tweaks” Hillary Book Stats: ‘5-Star’ Reviews Double Overnight (ZH)
Cracks Showing In Germany’s Fragile Truce With The ECB (R.)
German Minister: Britain Won’t Stop EU Army (Pol.)
50% Of Guns In America Owned By Just 3% Of Population (ZH)
African Elephants ‘Suffer Worst Decline In 25 Years’ (AFP)

 

 

And Europe’s falling faster.

Asian Markets Drop As Pessimism Increases Ahead Of OPEC Meeting (MW)

Asian shares were broadly lower Monday, as relief over a delay by the U.S. Federal Reserve in raising interest rates wore off. Japan’s Nikkei was down 0.8%, while Hong Kong’s Hang Seng Index retreated 0.7%. South Korea’s Kospi slipped 0.4%. “Asia Pacific investors are bracing for a sell day after European and U.S. traders took some hard won risk off the table,” wrote Michael McCarthy, chief market strategist at CMC Markets, in a note. On Friday, the S&P 500 and Nasdaq both fell 0.6% and the Dow Jones Industrial Average shed 0.7% as energy stocks slid with oil prices Friday. Investors were also pessimistic on Monday over any breakthroughs in oil-production cuts when OPEC gathers for an informal meeting later this week.

Read more …

Merkel’s comments weigh in.

Deutsche Bank Slumps to Fresh Record Low on Capital Concerns (BBG)

Deutsche Bank shares dropped to a record low amid concerns that the lender’s capital buffers will be undermined by mounting legal charges including a settlement tied to the sale of U.S. securities The shares dropped 4.2% to €10.93 at 9:15 a.m. in Frankfurt, an all-time low. The 38-member Bloomberg Europe Banks and Financial Services Index slipped 1.5%, with Deutsche Bank the worst performer. A potential $14 billion bill to settle a U.S. probe into residential mortgage-backed securities is more than twice the €5.5 billion ($6.2 billion) Deutsche Bank has set aside for litigation. The lender also faces inquiries into legal issues including currency manipulation, precious metals trading and billions of dollars in transfers out of Russia, complicating CEO John Cryan’s efforts to bolster profitability and capital ratios.

Germany’s biggest bank would be “significantly under-capitalized” even assuming enough provisions to cover an eventual settlement with the U.S. Justice Department, Andrew Lim at Societe Generale said in a note earlier this month. A settlement range of $3 billion to $3.5 billion would leave the German lender room to settle other legal issues, while any additional $1 billion in litigation charges would erode 24 basis points in capital, JPMorgan analysts wrote. Chancellor Angela Merkel has ruled out any state assistance for Deutsche Bank in the year heading into the national election in September 2017.

Read more …

Big warning sign. Circle jerking tail eating snakes.

China’s Smaller Banks Are Funding Each Other’s Lending (BBG)

[..] China’s banking regulator told city banks last week to learn the lesson of the global financial crisis and get back to traditional businesses. CLSA estimates total debt may reach 321% of GDP in 2020 from 261% in the first half. “Contagion risks are definitely rising,” said Liao Qiang, Beijing-based senior director for financial institution ratings at S&P Global Ratings. “The pace of the development is concerning. If this isn’t stopped in time, the central bank will lose some control and flexibility of its monetary policy.” Shanghai Pudong Development Bank said in an e-mailed response on Sept. 24 it has been using appropriate financing and its regular deposits and interbank borrowing have been developing properly and in synchronization.

Total liabilities will be kept under control in the long run and all liquidity gauges meet regulatory requirements, it said. Rising short-term borrowing doesn’t mean its risks have climbed as well, the bank said. “City commercial banks should change as soon as possible the situation of allocating more funds into investing than lending, and developing their off-balance-sheet businesses too fast,” Shang Fulin, chairman of the China Banking Regulatory Commission, said. The PBOC resumed longer-term reverse repos to boost borrowing costs in August and deputy governor Yi Gang said in a television interview earlier this month that the nation’s short-term goal is to curb leverage. It gauged demand for such auctions today. The benchmark 10-year government bond yield climbed slightly, to 2.73% from a decade low of 2.64% on Aug. 15.

[..] The higher the reliance on wholesale funds and investment in illiquid assets, the greater the risk of a liquidity crunch, said Christine Kuo at Moody’s. “When banks face fund withdrawals by other financial institutions, this will in turn prompt them to call back their own funds,” she said. Banks are also buying each others’ wealth-management products and accounting for the transactions as investment receivables. A record 26.3 trillion yuan of WMPs were outstanding as of June 30, doubling over two years, official data showed. Investment receivables at 25 listed banks grew 13.4% in the first half to 11 trillion yuan.

Read more …

Doesn’t sound like real restructuring.

China Launches $52.5 Billion Restructuring Fund For State-Owned Firms (R.)

A private equity fund worth 350 billion yuan ($52.5 billion) has been launched in China to help with the restructuring of state firms, a newspaper run by Xinhua news agency reported on Monday. The China State-owned Enterprises Restructuring Fund will be managed by the State-owned Assets Supervision and Administration Commission (SASAC), according to the Economic Information Daily. The report said 10 state-owned enterprises have established the fund to help with restructuring of state firms, including M&A deals, as part of government efforts to advance supply side reform. The 10 firms have provided initial registered capital of 131 billion yuan, the newspaper said.

No detail was provided on the source of the rest of the equity fund. The 10 firms include China Mobile, China Railway Rolling Stock, China Petroleum & Chemical and China Chengtong, a restructuring platform supervised by SASAC that will lead the fund. China is embarking on a revamp of its massive but debt-ridden state sector, which has struggled under a system that requires firms to maximize economic gains while fulfilling government policy objectives. The government has vowed to create innovative and globally competitive enterprises through mergers, asset swaps and management reforms.

Read more …

Caveat: a weak currency doesn’t automatically spur more exports. But they should also ask where exports would be if the currency had remained strong. Maybe they would have plummeted. Maybe global trade is falling fast.

A Weaker Currency Is No Longer the Economic Elixir It Once Was (BBG)

A weaker currency, once the cure-all for ailing economies around the world, isn’t the panacea it once was. Just look at Japan, where the yen plunged 28% in the two years through 2014, yet net exports to America still fell by 10% in the span. Or at the U.K., where the pound’s 19% tumble in the two years through 2009 couldn’t stave off a 26% decline in shipments to the U.S. In fact, since the turn of the century, the ability of exchange-rate movements to affect trade and growth in major economies has fallen by more than half, according to Goldman Sachs. The findings suggest that weaker currencies may not provide much assistance to officials in countries like Japan and the U.K. that are relying on unprecedented easy-money policies to help boost tenuous growth and inflation.

On the flip side, the data also indicate that concerns U.S. growth will be derailed as rising interest rates drive investors into the dollar are also overblown. A shift in the structure of advanced-economy trade to less price-elastic goods and services, combined with the prolonged effects of the financial crisis, have stunted the sensitivity of trade volumes relative to global exchange rates, according to Goldman Sachs analysts led by Jari Stehn. “If you’re a central banker, yes you’re paying attention to currency levels, but the more-developed market economies aren’t reacting to currency debasing policies like they used to,” said Philippe Bonnefoy, the founder of hedge fund Eleuthera. “The impact has been diluted.”

Global central banks have cut policy rates 667 times since 2008, according to Bank of America Corp. During that period, the dollar’s 10 main peers have fallen 14%, yet Group-of-Eight economies have grown an average of just 1%. Since the late 1990s, a 10% inflation-adjusted depreciation in currencies of 23 advanced economies boosted net exports by just 0.6% of GDP, according to Goldman Sachs. That compares with 1.3% of GDP in the two decades prior. U.S. trade with all nations slipped to $3.7 trillion in 2015, from $3.9 trillion in 2014.

Read more …

“Since 1999 year-end through 2015 home prices have risen 76% while household mean real income has grown less than 2%..”

US Home Prices Rose 76% Since 1999 As Real Income Grew Less Than 2% (BBG)

U.S. home prices appear to be getting out of hand again as the gap between home price growth and household real income growth is close to where it was just before the housing collapse. It’s also notable, and worrying, that the housing market is back in a “flipping frenzy” with non-bank actors climbing aboard to fund the speculation. Since 1999 year-end through 2015 home prices have risen 76% while household mean real income has grown less than 2%; the millennium-to-date gap between the two growth rates peaked at 84% during 2005-2006 and has risen back to 74% as of 2015 year-end. Gap at year-end 2007 was 75%. This millennium through 2015 has seen average new and existing home sale prices rise 84% and 55%, respectively, despite the lack of income growth.

Existing and new home sales average prices peaked at $280.2k in June 2015 and $384k in Oct. 2014, respectively; both peaks exceeded levels seen during housing boom. Over the same period outstanding home mortgage debt has risen 14%, though it’s notable that with the end of easy mortgage credit it has fallen 11% from its June 2008 peak. Concurrent with this 11% fall, the homeownership rate (63.8% at 2015 year-end) has slid back to levels last seen in the mid-1960s. Monthly U.S. single-family home price y/y growth hit a post-crisis peak of 10.85% in Oct. 2013 and has since leveled off at ~5% each month since July 2015; this is still easily outpacing growth in real income.

The disconnect between home price growth and the lack of real income growth has led homebuilders’ to turn to the higher-end of the market and for Ginnie Mae to take the lead in mortgage lending. GNMA offers taxpayer-guaranteed loans to first-time homebuyers who have lower credit scores and smaller down payments than those who obtain loans through Fannie Mae or Freddie Mac. Whereas from 2005-2007 GNMA pct share of net MBS issuance was ~2% each year, during 2014, 2015 and 2016 YTD it is ~67%, according to BofAML data. Another severe downturn in home prices would be unlikely to play out in the agency MBS market in like manner to 2007-2008 as the Fed now holds ~33% of the outstanding universe and the U.S. taxpayer now guarantees almost all of the market with Fannie and Freddie remaining under government conservatorship.

Read more …

A big bad hornet’s nest. And that’s before the economic poisoned chalice is served.

Justin Trudeau’s Canadian Honeymoon Is About to End (BBG)

Along Canada’s evergreen-draped west coast, the fate of a multi-billion-dollar energy project and a nation’s reconciliation with its dark, colonial past hang in the balance. Beating rawhide drums and singing hymns, occupiers of Lelu Island—where Malaysia’s state oil company plans a $28 billion liquefied natural gas project—assert indigenous claims to the area where trees bear the markings of their forefathers and waters run rich with crimson salmon they fear the project will obliterate. “The blood of my ancestors is on my hands if I don’t defend this land,” says Donald Wesley, 59, a hereditary chief of the Gitwilgyoots tribe which has inhabited the area for more than 6,000 years.

That claim is about to test Justin Trudeau, the country’s telegenic 44-year-old prime minister, who swept to power a year ago vowing to be many things to many people—to tackle climate change, revive the economy, and reset Canada’s fraught relationship with its indigenous communities. Those pledges are set for collision in British Columbia—home to more First Nations communities than any other province and the crucible where a resource economy seeks to reinvent itself. Trudeau has promised to decide on the LNG project on Lelu Island by Oct. 2. He has big spending plans to spur growth in a commodities downturn, and B.C., the birthplace of Greenpeace, is where most energy projects able to support that growth are located.

Indigenous groups, essential to public support, are divided, with some seeking to preserve their habitat and traditions, and others arguing that the projects offer a path out of poverty, addiction and suicide. Facing five major energy initiatives in B.C., Trudeau will choose which constituency to abandon. He’s allowed a hydroelectric dam to proceed; pending are decisions on Enbridge’s Northern Gateway crude pipeline, Petroliam Nasional’s LNG project on Lelu Island, a pipeline expansion by Kinder Morgan, as well as a ban on crude oil tankers. He’s said to want at least one pipeline, and favor Kinder Morgan. Trudeau says regularly it’s a prime minister’s job to get the country’s resources to market, and a pipeline approval would demonstrate Canada can get major projects completed as warnings mount that the complex web of regulatory rules is spurring a flight of capital.

Read more …

“It was refreshing to hear that Trump economic adviser Stephen Moore responded to a question from Pethokoukis about all the red ink in Trump’s plan with, “Whether it’s going to pay for itself, I don’t really care.”

The Know-Nothing Economists Who Created This Mess Blast Trump’s Plan (MW)

Establishment economists ranging from austere neoliberals to spendthrift Keynesians are united in branding Donald Trump’s proposed economic policies as “disastrous.” He must be on to something. These economists are the distinguished experts, after all, who have championed the globalization that gutted American manufacturing, promoted the offshoring and outsourcing of American jobs, encouraged American companies to keep trillions (trillions!) of dollars of profit abroad, and enabled the tax inversions allowing American companies to move to the country most willing to beggar its neighbor. These are the celebrity academics who have championed the deficit-reducing, budget-balancing, tax-cutting policies that have crippled our infrastructure, degraded our schools, and cut public services from police and fire protection to garbage collection.

And now this gaggle of Washington insiders is warning us that Trump’s policies will throw the country into recession, ignite a trade war, launch the national debt into the stratosphere, and create more unemployment rather than jobs. Why, really, should anyone listen to them? There is Mark Zandi, whose title as chief economist of Moody Analytics makes this sometime adviser to Barack Obama and backer of Democratic nominee Hillary Clinton seem nonpartisan, even though he clearly is not. Not surprisingly, Zandi had his team at Moody’s produce some modeling this summer that concluded that Trump’s economic proposals would result in a less global economy, lead to larger government deficits and more debt, will largely benefit very high-income households, and will result in a weaker U.S. economy.

The implication is that these are all bad things. Those for whom Trump’s economic message resonates might consider a less global U.S. economy a good thing. To brand deficits and debts as terrible you would first have to prove that they do more harm than good.

[..] those establishment economists who through several administrations have served so ably on the president’s Council of Economic Advisers, in the Treasury Department and the Federal Reserve — the people, in short, who have delivered us into the economic morass they blithely call secular stagnation — are training their heavy artillery on poor, dumb Trump. Progressive economist Joseph Stiglitz, who chaired the CEA under President Bill Clinton, gives Trump an “F” in economics because the nominee apparently doesn’t understand the principle of comparative advantage in global trade — as if we lived in a world where currency manipulation, dumping subsidies, and substandard environmental and labor conditions don’t keep this pristine economic principle from working its magic.

And conservative analyst James Pethokoukis, a fellow at the American Enterprise Institute, labeled Trump’s economic plan “a complete and utter joke” as he took the Republican nominee to task for potentially adding $2.6 trillion to $3.9 trillion to the national debt over the next 10 years — even though the $9 trillion in debt added during the 7.5 years of the Obama administration has caused no detectable harm. It was refreshing to hear that Trump economic adviser Stephen Moore responded to a question from Pethokoukis about all the red ink in Trump’s plan with, “Whether it’s going to pay for itself, I don’t really care.” High time someone influencing policy fully appreciated the dynamic flexibility of a fiat currency in government finance. We don’t really need to care whether the plan “pays for itself” in the short term, if it does indeed produce the accelerated growth promised.

Read more …

For entertainment purposes only.

Amazon “Tweaks” Hillary Book Stats: ‘5-Star’ Reviews Double Overnight (ZH)

Two short weeks ago, we exposed the gaping difference between Amazon reader reviews of Hillary Clinton’s “Stronger Together” book (14% 5-Stars) and Donald Trump’s “Great Again” book (74% 5-Stars)… As The New York Times reported at the time, the book was a disaster. Both Mrs. Clinton and her running mate, Senator Tim Kaine, have promoted the book on the campaign trail, but the sales figure, which tallies about 80% of booksellers nationwide and does not include e-books, firmly makes the book what the publishing industry would consider a flop. [..] So, as with everything else in this ‘new normal rigged’ world, something had to be done and WaPo-owner Jeff Bezos’ Amazon reviews appear to have been ‘tweaked’ – more than doubling Hillary’s top reviews.

But, as WND.com explains, Amazon’s steps to ‘fix’ Hillary’s book rviews has resulted in 5-star ratings with scathingly negative comments… If you can’t even win when the rules are changed in your favor, things must be REALLY bad. That’s how it looks for Hillary Clinton’s new 2016 campaign book, “Stronger Together,” co-authored with running mate Tim Kaine. WND reported just days ago when the book was being savaged on Amazon.com with negative reviews, with 81% one-star ratings and an average of only 1.7. Clinton supporters lashed out at “trolls” they said were criticizing the book only because they oppose the Democrat’s presidential candidacy. WND previously reported there were more than 1,200 reviews, and the number grew to than 2,000.

But Thursday afternoon, there were only 255, with many of the most critical reviews removed by Amazon, whose CEO, Jeff Bezos, owns the Washington Post, which created an army of 20 reporters and researchers to investigate the life of Donald Trump. Victory for the Clinton book, however, remains out of grasp, with the negative, one-star responses, outnumbering positive, five-star responses nearly 2-1. The one-star ratings Thursday were 62%, to 35% for five-star ratings.

Read more …

“..the political landscape in Germany has become decidedly more toxic for the ECB over the past months.”

Cracks Showing In Germany’s Fragile Truce With The ECB (R.)

Michael Stuebgen, a conservative member of the German parliament, was speaking with the head of a local savings bank recently about the ECB’s QE program. “He told me the bond market was being emptied out,” Stuebgen recalled. “He likened it to going into a supermarket where everything has been bought up. You might find a shriveled old carrot or potato. Pretty soon you’re starving.” Stuebgen, a spokesman on European affairs for Chancellor Angela Merkel’s party in the Bundestag, credits the ECB and its President Mario Draghi with saving the euro zone from collapse four years ago. But conversations like the one with the banker have convinced him that its policies, in particular the massive bond-buying program known as QE, have gone too far. He is not alone.

[..] Instead of changing course, as Stuebgen and his colleagues want, the ECB is widely expected to announce an extension of its QE program by the end of the year. The program is due to expire in March. As early as next month, it could also announce steps to broaden the scope of what it can buy in response to a dwindling pool of available assets. The most controversial change would be abandoning the so-called “capital key”, which limits the proportion of government bonds the ECB can buy from any given member state, based on its size and economic weight. “The big challenge for Mario Draghi will be to prepare the Bundestag and German public for a further easing of monetary policy,” said Marcel Fratzscher, head of the DIW economic institute and a former senior official at the ECB.

That message is unlikely to go down well in Berlin. In addition to concerns about the distorting effects of QE on financial markets and the impact of low interest rates on German savers and insurers, the political landscape in Germany has become decidedly more toxic for the ECB over the past months.

Read more …

Better get rid of the EU before they acutally do this.

German Minister: Britain Won’t Stop EU Army (Pol.)

Ursula von der Leyen, Germany’s defense minister, does not believe the U.K. will stand in the way of deepened defense cooperation between EU member countries, she told Reuters in an interview Sunday night. Von der Leyen said she was confident Britain would “make good its promise that it will not hinder important EU reforms.” Michael Fallon, Britain’s defense secretary, said earlier this month Britain will veto measures to build an EU army for as long as it remains a member of the bloc. Von der Leyen said she told Fallon the plans were not directed against Britain, but “designed for a strong Europe” instead.

Martin Schulz, the president of the European Parliament, said during a speech in London last week that a British veto was “counterproductive and anyway not possible in this case.” EU defense ministers will discuss common military proposals on Monday and Tuesday. Federica Mogherini, the European Commission’s foreign policy chief, said earlier this month that member countries could combine their defense capabilities via a so-far unused provision in the Lisbon Treaty.

Read more …

Feel safe?

50% Of Guns In America Owned By Just 3% Of Population (ZH)

A recent Harvard study of the demographics of gun ownership in the United States yielded a fairly shocking discovery, namely the emergence of the Obama gun “Super Owner.” The study, entitled “The Stock and Flow of US Firearms: Results from the 2015 National Firearms Survey”, was conducted by the Harvard School of Public Health and found that just 14% of all gun owners, or 7.6mm adults and 3% of the total U.S. population, possessed 50% of all guns owned by civilians in the country. Moreover, with a total stock of 270mm civilian-owned guns in the U.S., that implies that these “super owners” possess an average of nearly 18 guns per person.

“Gun owning respondents owned an average of 4.85 firearms (range: 1-140); the median gun owner reported owning approximately two guns. As can be seen in Figure 3, approximately half (48%) of gun owners report owning 1 or 2 guns, accounting for 14% of the total US gun stock, while those who own 10 or more guns (8% of all gun owners), own 39% of the gun stock. Put another way, one half of the gun stock (~130 million guns) is owned by approximately 86% of gun owners, while the other half is owned by 14% of gun owners (14% of gun owners equals 7.6 million adults, or 3% of the adult US population).”

Another startling discovery in the data, though “oddly” not highlighted in the report, is that the surge in gun ownership per capita seemed to coincide with the start of the Obama presidency and growing rhetoric over new gun regulations. Per the chart below, over the past 20 years, gun ownership per U.S. adult hovered around 1 from 1993 through 2007 but then surged starting in 2008 as an Obama presidency became increasingly likely. This trend is also reflected in annual guns sales which floated between 4-6mm units per year before surging in 2008.

Read more …

Tears. I still have tears left.

African Elephants ‘Suffer Worst Decline In 25 Years’ (AFP)

Africa’s elephant population has suffered its worst drop in 25 years, the International Union for Conservation of Nature (IUCN) said Sunday, blaming the plummeting numbers on poaching. Based on 275 estimates from across the continent, a report by the conservation group put Africa’s total elephant population at around 415,000, a decline of around 111,000 over the past decade. It is the first time in 25 years that the group’s African Elephant Status Report has reported a continental decline in numbers, with the IUCN attributing the losses in large part to a sharp rise in poaching. “The surge in poaching for ivory that began approximately a decade ago – the worst that Africa has experienced since the 1970s and 1980s – has been the main driver of the decline,” said IUCN in a statement.

Habitat loss is also increasingly threatening the species, the group said. IUCN chief Inger Andersen said the numbers showed “the truly alarming plight of the majestic elephant”. “It is shocking but not surprising that poaching has taken such a dramatic toll on this iconic species,” she said. The IUCN report was released at the world’s biggest conference on the international wildlife trade, taking place in Johannesburg. Thousands of conservationists and government officials are seeking to thrash out international trade regulations aimed at protecting different species. A booming illegal wildlife trade has put huge pressure on an existing treaty signed by more than 180 countries – the Convention on International Trade in Endangered Species (CITES).

Read more …

Oct 182015
 
 October 18, 2015  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , ,  


DPC Launch of battleship Georgia, Bath, Maine, Oct 1904

At Least 10 More Children And 6 Adult Refugees Drown Off Greek Islands (Kath.)
Germany Shows Signs of Strain from Mass of Refugees (Spiegel)
Why The Euro Divides Europe (Wolfgang Streeck)
The Truth Behind China’s Manipulated Economic Numbers (Telegraph)
China’s Premier Li Says Achieving Growth Of Around 7% ‘Not Easy’ (Reuters)
China ‘Officially’ Sold A Quarter Trillion Treasurys In The Past Year (ZH)
The Only Thing In China’s Trade Data That’s Growing -But Shouldn’t Be (Quartz)
Emerging Nations Trimming $5 Trillion Debt Stokes Currency Risk (Bloomberg)
Federal Reserve Inaction Could Start Currency War (The Street)
How Global Debt Has Changed Since The Financial Crisis (WEF)
Volkswagen Faces €40 Billion Lawsuit From Investors (Telegraph)
VW Made Several Defeat Devices To Cheat Emissions Tests (Reuters)
ETFs’ Rapid Growth Sparks Concern at SEC (WSJ)
JPMorgan Says Bad Corporate Loans Pose Main Risk For Brazil Banks (Reuters)
Revealed: How UK Targets Saudis For Top Contracts (Observer)
Britain Has Made ‘Visionary’ Choice To Become China’s Best Friend, Says Xi (Guardian)

No conscience. No humanity. No God.

At Least 10 More Children And 6 Adult Refugees Drown Off Greek Islands (Kath.)

As EU leaders seek to boost cooperation in tackling a major refugee crisis, there has been more tragedy in the Aegean with at least 16 migrants drowning in their attempt to get to Greece from Turkey. In one incident late on Friday, the bodies of four children – three girls, aged 5, 9 and 16, and a 2-year-old boy – were discovered by the Greek coast guard off Kalymnos. According to the accounts of 11 adult survivors, another boy was missing. On Saturday, the Turkish coast guard recovered the bodies of another 12 migrants whose boat sank off Turkey’s coast. According to sources, they were heading to the Greek island of Lesvos. Lesvos has borne the brunt of an influx of migrants. Last week alone, at least 10 people, including six children, drowned in an attempt to get the island. On a visit to Lesvos on Friday, European Migration Commissioner Dimitris Avramopoulos inaugurated Greece’s first refugee screening center, or “hotspot.”

Read more …

“The German states have reported some 409,000 new arrivals between Sept. 5 and Oct. 15..”

Germany Shows Signs of Strain from Mass of Refugees (Spiegel)

The road to the reception camp in Hesepe has become something of a refugees’ avenue. Small groups of young men wander along the sidewalk. A family from Syria schleps a clutch of shopping bags towards the gate. A Sudanese man snakes along the road on his bicycle. Most people don’t speak a word of German, just a little fragmentary English, but when they see locals, they offer a friendly wave and call out, “Hello!” The main road “is like a pedestrian shopping zone,” says one resident, “except without the stores.” Red-brick houses with pretty gardens line both sides of the street, and Kathrin and Ralf Meyer are standing outside theirs. “It’s gotten a bit too much for us,” says the 31-year-old mother of three. “Too much noise, too many refugees, too much garbage.” Now the Meyers are planning to move out in November.

They’re sick of seeing asylum-seekers sit on their garden wall or rummage through their garbage cans for anything they can use. Though “you do feel sorry for them,” says Ralf, who’s handed out some clothes that his children have grown out of. “But there are just too many of them here now.” Hesepe, a village of 2,500 that comprises one district of the small town of Bramsche in the state of Lower Saxony, is now hosting some 4,000 asylum-seekers, making it a symbol of Germany’s refugee crisis. Locals are still showing a great willingness to help, but the sheer number of refugees is testing them. The German states have reported some 409,000 new arrivals between Sept. 5 and Oct. 15 – more than ever before in a comparable time period – though it remains unclear how many of those include people who have been registered twice.

Six weeks after Chancellor Angela Merkel’s historic decision to open Germany’s borders, there is a shortage of basic supplies in many places in this prosperous nation. Cots, portable housing containers and chemical toilets are largely sold out. There is a shortage of German teachers, social workers and administrative judges. Authorities in many towns are worried about the approaching winter, because thousands of asylum-seekers are still sleeping in tents. But what Germany lacks more than anything is a plan to make Merkel’s two most-pronounced statements on the crisis – “We can do it” and “We cannot close our borders” – fit together. In the second month of what has been dubbed the country’s brand new “Welcoming Culture,” it has become clear to many that Germany will only be able to cope if the number of refugees drops.

But that is unlikely to happen anytime soon. Tens of thousands of people are making their way to Germany along the so-called Balkan route; at the same time, Merkel’s efforts to reduce the influx through diplomacy and tougher regulations remain just that.

Read more …

Impressive take-down of the many failures of Brussels.

Why The Euro Divides Europe (Wolfgang Streeck)

The ‘European idea’—or better: ideology—notwithstanding, the euro has split Europe in two. As the engine of an ever-closer union the currency’s balance sheet has been disastrous. Norway and Switzerland will not be joining the EU any time soon; Britain is actively considering leaving it altogether. Sweden and Denmark were supposed to adopt the euro at some point; that is now off the table. The Eurozone itself is split between surplus and deficit countries, North and South, Germany and the rest. At no point since the end of World War Two have its nation-states confronted each other with so much hostility; the historic achievements of European unification have never been so threatened.

No ruler today would dare to call a referendum in France, the Netherlands or Denmark on even the smallest steps towards further integration. Thanks to the single currency, hopes for a European Germany—for integration as a solution to the problems of both German identity and European hegemony—have been superseded by fears of a German Europe, not least in the FRG itself. In consequence, election campaigns in Southern Europe are being fought and won against Germany and its Chancellor; pictures of Merkel and Schäuble wearing swastikas have begun appearing, not just in Greece and Italy but even in France. That Germany finds itself increasingly faced by demands for reparations—not only from Greece but also Italy—shows how far its post-war policy of Europeanizing itself has foundered since its transition to the single currency.

Anyone wishing to understand how an institution such as the single currency can wreak such havoc needs a concept of money that goes beyond that of the liberal economic tradition and the sociological theory informed by it. The conflicts in the Eurozone can only be decoded with the aid of an economic theory that can conceive of money not merely as a system of signs that symbolize claims and contractual obligations, but also, in tune with Weber’s view, as the product of a ruling organization, and hence as a contentious and contested institution with distributive consequences full of potential for conflict.

Read more …

3% growth?! Or worse? “..His work finds that growth collapsed to a mere 0.2pc during the Asian Financial Crisis, rather than the official figure of 7.8pc.”

The Truth Behind China’s Manipulated Economic Numbers (Telegraph)

\Beijing’s massaged growth statistics have long over-estimated growth. So what do we really know about what’s going on in the world’s second largest economy? The true state of China’s economic fortunes remain a mystery to the world. Monday will see the latest round of official quarterly GDP statistics from Beijing’s National Statistics Bureau. Economists expect they will reveal another moderate slowdown in growth to around 6.8pc – the lowest rate of expansion since the depths of the financial crisis six years ago. Yet the government’s estimates have long been dismissed as an accurate barometer of what’s really going on in the Chinese economy. [..] Questions over China’s “actual” rate of growth have been thrown into sharp relief after a summer of turmoil in financial markets. Sudden anxiety over a Chinese “hard-landing” left investors dumbstruck.

Billions were wiped off global stock indices and authorities were forced to suspend trading to prop up equity prices. China data-watching has now become the main driver for global economic sentiment. In July, Chinese market ructions were sparked by weak industrial profits numbers. By August, a six-year slump in monthly manufacturing triggered the ugliest day of global trading since the depths of the financial crisis eight years ago. “China’s new export this year is fear” says Paul Gruenwald, chief Asia economist at Standard & Poor’s rating agency. “The joke with Asian analysts on China is that we don’t need to forecast the actual rate of Chinese growth, we have to forecast what the Chinese authorities will say the rate will be.” But China’s GDP figure remains totemic. This stems in large part from the Politburo’s own fixation on annualised growth.

Authorities now say they are targeting yearly expansion of “around 7pc”. Harry Wu, an economics professor at Hitotsubashi University in Tokyo, has calculated the states’ GDP numbers have long played down the effects of external shocks to the economy. His work finds that growth collapsed to a mere 0.2pc during the Asian Financial Crisis, rather than the official figure of 7.8pc. For the period from 2008-14, his readings show an average expansion of 6.1pc, rather than 8.7pc. “Would I bet the actual growth rate is 7pc? No”, says Gruenwald. “Do we have enough indicators to work out what’s going on in the economy? Yes.” “The statistics are still catching up – that’s part of the fun of being an Asia [analyst]…we get to put on our detective hats and do a little investigative economics.” This investigative turn has led to a proliferation in “proxy” indicators for Chinese growth.

The calculations range from anything from 3pc-7pc real GDP growth in 2015. This diversity means there is plenty to support the case for China bulls and China bears. One gauge that has grown in popularity in recent years is the “Li Keqiang index”, named after China’s current premier, and revealed as his preferred measure of economic activity while serving as a senior Communist party secretary in the province of Liaoning a decade ago. GDP numbers were merely a “man-made” and “unreliable” construct, Mr Li was quoted as saying in diplomatic cables published by Wikileaks in 2010. Instead, he chose to focus on a trio of real economic indicators – bank lending, rail freight volumes and electricity production. Taking their cue from the premier, economics consultancy Fathom compile the Li Index as the “true” reflection of what the Communist party’s senior officials are most worried about. It suggests the economy has come to a standstill. Growth will reach just 3pc this year, according to Fathom.

Read more …

Look: “A Reuters poll of 50 economists put expected growth at 6.8% year on year..” vs “Industrial profits fell 8.8% year on year in August..” That means that A) Reuters polls idiot economists because B) that 6.8% growth is utter nonsense.

China’s Premier Li Says Achieving Growth Of Around 7% ‘Not Easy’ (Reuters)

China’s Premier Li Keqiang said that with the global economic recovery losing steam, achieving domestic growth of around 7% is “not easy”, according to a transcript of his remarks posted on the website of the State Council, China’s cabinet. Nonetheless in his comments, made at a recent meeting with senior provincial officials, the premier said that continued strength in the labour market and services were reasons for optimism, despite the headwinds facing the manufacturing sector. “As long as employment remains adequate, the people’s income grows, and the environment continuously improves, GDP a little higher or lower than 7% is acceptable,” the premier said in the comments posted on Saturday. China is due to release its third-quarter GDP growth figures on Monday.

A Reuters poll of 50 economists put expected growth at 6.8% year on year, which would be the slowest since the financial crisis in 2009. China’s growth in the first half of 2015, at 7%, was already the slowest since that time. Policymakers had previously forecast growth of “around 7%” for 2015. Most official and private estimates show that the Chinese labour market as a whole is outperforming the steep slowdown in industry, largely due to continuing strength in the service sector. But some analysts have expressed concern that the sharp drop in industrial profits over the past year indicates deeper weakness in income growth and wages next year, which could weaken overall growth further.

Industrial profits fell 8.8% year on year in August, the steepest drop since China’s statistics agency began publishing such data in 2011. The premier cited the emergence of new industries including the Internet sector, the continued need for high infrastructure investment in western regions, and ongoing urbanization as additional reasons for optimism on China’s future growth trajectory. Nonetheless, Li also highlighted the need for further market-oriented reforms and a reduced government role in the economy in order to fully grasp new economic opportunities and maintain growth.

Read more …

And unofficially much more.

China Officially Sold A Quarter Trillion Treasurys In The Past Year (ZH)

Back in May, this website was the first to explain the “mystery” behind Belgium’s ravenous Treasury buying which in early 2015 had turned into sudden selling, and which we demonstrated was merely China transacting using offshore Euroclear-based accounts to preserve anonymity. Since then theme of Belgium as a Chinese proxy has become so popular, even CNBC gets it. Consequently, we were also the first to correctly warn that China had begun liquidating its Treasury holdings (a finding which left none other than Goldman “speechless”), which also helped us predict that China is about to announce its currency devaluation three days before it happened as the conversion of Chinese reserves from inert paper to active dollars hinted at a massive effort to stabilize the currency, and thus unprecedented capital outflows.

As a result, the only data point which mattered in yesterday’s Treasury International Capital data release was not China’s holdings, which actually “rose” $1.7 billion in the month when China actively devalued its currency and then spent hundreds of billions to prevent the devaluation from becoming an all out FX rout, but the ongoing decline in Belgium holdings. As the chart below shows, Belgium, pardon Euroclear – which is a clearing house not only for China but many other EM nations who park their reserves in Belgium – sold another $45 billion in Treasurys last month, bringing the total to a dangerously low $111 billion, down from $355 billion at the start of the year.

Lumping Belgium and China holdings into one, as we have done since May, shows that as expected, Chinese selling continued in August, and the result was another drop of $43 billion in TSY holdings in the month of August, which incidentally mirrors perfectly the previously announced decline in September Chinese FX reserves, which according to official data declined from $3.557 trillion to $3.514 trillion.

According to the chart above, while to many Quantitative Tightening is a novel concept, the reality is that China (+ Euroclear) have been dumping Treasurys and liquidating reserves since January when total holdings peaked at $1.6 trillion last summer, and have since declined to $1.38 trillion. It means that China has sold a quarter trillion dollars worth of Treasurys in the past year, in the process offsetting what would have been about 25% of the Fed’s QE3. However, the real number is likely far greater.

Read more …

China’s killing the world steel industry by dumping its surplus stock. Britain knows all about it.

The Only Thing In China’s Trade Data That’s Growing -But Shouldn’t Be (Quartz)

China’s trade data have been a reliable monthly horror show over the last year, and September was no exception. Exports fell nearly 4% from year-earlier levels, while imports dove an astonishing 20%. One thing, however, is growing quite quickly. The trade gap shown here—illustrating the value of goods China exports minus the value of goods that it imports—leapt more than 90% versus September 2014. In fact, if you discount distortions during Chinese New Year, China’s trade gap was the highest it’s ever been. Some of that gap might be due to slumping commodity prices weighing more heavily on China’s import values. Still, the boom in extra exports reflects the fact that China continues to benefit from the global economy much more than the global economy benefits from China.

This is because the People’s Republic hogs more than its due share of global demand. To get why, let’s first look at how China has engineered its yawning trade surplus. As economist Michael Pettis explained in his book The Great Rebalancing, when one country rigs its economy to produce more than it consumes, it amasses extra savings that it then foists onto its trade partners. For more than a decade, this is exactly what the Chinese government has done. By keeping interest rates and the yuan artificially cheap, it suppressed its people’s purchasing power and moved money out of the hands of Chinese consumers, shifting it instead to Chinese manufacturers at artificially low rates. Thanks to these subsidies, Chinese manufacturers cut export prices, driving global competitors out of business.

Read more …

That’s not the only risk it stokes.

Emerging Nations Trimming $5 Trillion Debt Stokes Currency Risk (Bloomberg)

Borrowers in emerging markets have started to address a $5 trillion mountain of dollar-denominated bonds and loans, reducing their obligations for the first time in seven years in a move that threatens to cut short a budding rally in currencies from Brazil to Malaysia. Companies in developing nations paid back $38 billion of dollar debt last quarter, $3 billion more than they borrowed in the period and marking the first reduction in net issuance since 2008, according to data compiled by Bloomberg. Demand for greenbacks among borrowers needing the currency to repay debt is contributing to the largest capital outflows in almost three decades.

The borrowing binge, which took off in the wake of the global financial crisis as interest rates tumbled, may now be reversing as economic growth slows, commodity prices fall and lenders demand higher yields. While developing-nation currencies are rebounding from their record lows, analysts surveyed by Bloomberg expect the depreciation trend to resume as dollar debt repayments accelerate. “This is a massive event,” said Stephen Jen, the co-founder of London-based hedge fund SLJ Macro Partners LLP and a former economist at the IMF whose bearish call on emerging markets since 2012 has proven prescient. “They want to pay down their dollar loans. We are early in the game, there’s pretty intense pressure on emerging markets.”

[..] In the $1.4 trillion corporate debt market, new bond sales dropped to a four-year low of $35 billion last quarter, from a peak of $121 billion in June 2014, data compiled by Bloomberg show. “When growth deteriorates, investment opportunities are naturally lower, therefore money leaves, either to repay debt or buy alternative investments elsewhere,” said Koon Chow, a strategist at Union Bancaire Privee in London and former head of emerging-market strategy at Barclays Capital. “There’s a good chance that the deleveraging does continue because on the commodity side, the reduction in capex is going to be long term.”

The Institute of International Finance forecast on Oct. 1 that about $540 billion will leave emerging markets this year, the first net capital outflow since 1988. The unwinding of dollar borrowings is more than a fleeting phenomenon, which will contribute to the weakening of emerging-market currencies against the U.S. currency, according to Pierre Lapointe at Pavilion Global Markets. The Fed’s broad measure of the dollar against major U.S. trading partners has rallied 16% since the middle of 2014 and reached a 12-year high last month. “We expect the theme of EM external deleveraging to remain with us for a long time,” Lapointe said in a note on Oct. 9. “Historically, this process tends to last many years. In this context, we are probably halfway throughout the current structural dollar uptrend.”

Read more …

It’s the loss of Fed credibility more than anything.

Federal Reserve Inaction Could Start Currency War (The Street)

Sometimes doing nothing is the same as doing something – at least, that’s how it is when it comes to the Federal Reserve not raising interest rates. The stock market stays high because the Fed is not going to raise short-term interest rates. The Fed is not going to raise short-term interest rates because the U.S. inflation rate remains low. The inflation rate remains low because the value of the U.S. dollar is high. The dollar is strong because world commodity prices have fallen and have “driven up the dollar and held down U.S. import prices.” According to the Financial Times, the last three items mentioned are interrelated. Furthermore, it now seems as if momentum is picking up within the Federal Reserve to postpone any increases in it policy rate for an extended period of time. That inaction may not be the best decision in terms of the relative strength of currencies.

At least the doves – those reluctant to raise interest rates – are making their voices heard on the issues. Yesterday, Daniel Tarullo, one of the Fed’s Governors, joined another Fed Governor, Lael Brainard, who argued on Monday that the Fed should not raise its target short-term interest rate any time soon. The value of the dollar fell. By early afternoon Wednesday, it cost around $1.145 to buy a Euro, the same rate as on Sept. 17, the day the Federal Open Market Committee decided that the Fed would keep its target short-term interest rate unchanged. The Governors believe that inflation is not going to return that quickly and that without data supporting the return of inflation toward a level closer to the Fed’s target rate of 2%, there should be no upward movement in the policy rate.

Certainly, the predictions of Fed officials don’t indicate any quick return of the economy to the Fed’s target. In these forecasts the expectation is for the inflation rate to pick up in 2016 and 2017, but a 2% inflation rate is not expected until 2018. That’s a long time. According to the Financial Times article, if the Fed doesn’t move interest rates for a long time, the value of the dollar will continue to fall. This should connect to a faster rise in inflation than is forecast by the Fed. With interest rates constant, the stock market should continue to rise. But if inflation begins to rise, the Fed will have a justification for raising short-term interest rates, which will cause the value of the dollar to increase. This will result in slowing down the inflation rate once again. According to this argument, the stock market should begin to fall because the Fed is raising interest rates.

Read more …

Since 2007/8: “The total stock of global debt, even excluding debts held by the financial sector, is up by more than $50 trillion. That’s an increase of more than 50%.”

How Global Debt Has Changed Since The Financial Crisis (WEF)

Debt levels have been a subject of constant news in the years since the financial crisis — from the sub-prime housing crisis in the United States, to the eurozone sovereign debt crisis, to the dramatic increases in debt evident in emerging markets now. Graphs produced by analysts at Bank of America Merrill Lynch show an astonishing acceleration in global debt levels, and demonstrate just how little de-leveraging there’s been since the 2008 financial crisis (none). They say its evidence that “the world is still in love with debt.” After 30 years of relative stability from the early 1950s to the early 1980s, something changed, and debt started ramping up:

Debt then took a rapid step up in the mid-1980s, and another in the late 1990s. Over the last 30 years or so, global debt has risen by around 100% of GDP — so it hasn’t just grown in total terms, but has massively outstripped the economic expansion over that period. In some developed economies, like the United States, the United Kingdom and Ireland, there’s been some deleveraging since the financial crisis, particularly by households. But that’s been more than offset by increases in emerging markets. The total stock of global debt, even excluding debts held by the financial sector, is up by more than $50 trillion. That’s an increase of more than 50%.

Household debt has ticked up a little, and government debt has expanded as states attempted to stimulate their economies in the aftermath of the financial crisis. But the main increase has been down to non-financial corporate debt, which has risen by 63% over the period, largely in emerging markets.

Read more …

One of many.

Volkswagen Faces €40 Billion Lawsuit From Investors (Telegraph)

Volkswagen is set to be pushed deeper into crisis after it emerged that the carmaker is facing a record-breaking €40bn (£30bn) legal attack spearheaded by one of the world’s top law firms. Quinn Emanuel, which has won almost $50bn (£32bn) for clients and represented Google, Sony and Fifa, has been retained by claim funding group Bentham to prepare a case for VW shareholders over the diesel emissions scandal, The Sunday Telegraph can reveal. Bentham has recently backed an action by Tesco shareholders over the retailer’s overstating of profits. The pair are attempting to assemble a huge class action following what they call “fundamental dishonesty” at the German auto giant, which plunged the carmaker into crisis after it admitted using “defeat devices” to cheat pollution tests.

The admission has been hugely costly for shareholders after it wiped more than €25bn off VW’s stock market value. Recalls and fines worth tens of billions of euros more are also expected. Now Quinn Emanuel and Bentham are contacting VW’s biggest investors – which include sovereign wealth funds of Qatar and Norway – to ask them to join the claim. VW has admitted that it fitted “defeat devices” to 11m cars that allowed them to fraudulently pass pollution controls, though the company’s senior management has insisted it was unaware of the practices. Richard East, co-managing partner of Quinn Emanuel in London, said: “We estimate shareholders’ losses could be €40bn as a result of VW’s failure to provide relevant disclosure [about defeat devices] to the market and gives rise to questions about fundamental dishonesty.”

Legal action would be pursued in Germany under its Securities Trading Act, according to Quinn Emanuel, which hopes to file the first wave of actions by February. The law firm will argue that VW’s failure to reveal its use of defeat devices to shareholders constituted gross negligence by management. Mr East added that damages could be calculated from 2009 – when VW started fitting the devices to its engines – and that if investors had known about them they would not have held or traded in VW shares. “We don’t think it will be very hard to find shareholders who have suffered because of it,” he said.

Read more …

Deeply embedded. There needs to be an independent investigation.

VW Made Several Defeat Devices To Cheat Emissions Tests (Reuters)

Volkswagen made several versions of its “defeat device” software to rig diesel emissions tests, three people familiar with the matter told Reuters, potentially suggesting a complex deception by the German carmaker. During seven years of self-confessed cheating, Volkswagen altered its illegal software for four engine types, said the sources, who include a VW manager with knowledge of the matter and a U.S. official close to an investigation into the company. Spokespersons for VW in Europe and the United States declined to comment on whether it developed multiple defeat devices, citing ongoing investigations by the company and authorities in both regions. Asked about the number of people who might have known about the cheating, a spokesman at company headquarters in Wolfsburg, Germany, said: “We are working intensely to investigate who knew what and when, but it’s far too early to tell.”

Some industry experts and analysts said several versions of the defeat device raised the possibility that a range of employees were involved. Software technicians would have needed regular funding and knowledge of engine programs, they said. The number of people involved is a key issue for investors because it could affect the size of potential fines and the extent of management change at the company, said Arndt Ellinghorst, an analyst at banking advisory firm Evercore ISI. Brandon Garrett, a corporate crime expert at the University of Virginia School of Law, said federal prosecution guidelines would call for the U.S. Justice Department to seek tougher penalties if numerous senior executives were found to have been involved in the cheating. “The more higher-ups that are involved, the more the company is considered blameworthy and deserving of more serious punishment,” said Garrett.

Read more …

Paper fake wealth.

ETFs’ Rapid Growth Sparks Concern at SEC (WSJ)

The proliferation of exchange-traded funds is causing concern at the U.S. Securities and Exchange Commission, the latest sign of increased scrutiny of the popular products. Investors have piled into the funds over the past decade, attracted to the products’ low fees and issuers’ pitch that they provide exposure to a variety of asset classes while offering the chance to get in and out of positions easily. But they have been drawing scrutiny from the SEC, even before wild trading on Aug. 24 exposed problems with how the funds are set up to trade. “It seems fairly certain that the explosive growth of ETFs in recent years poses a challenge that isn’t going away—and may well become even more acute as new ETFs enter the market,” said SEC Commissioner Luis Aguilar.

The number of exchange-traded products in the U.S. has swelled by more than 60% over the past five years to 1,787 as of the end of September, according to ETFGI, a London consulting firm. And a record number of new providers launched products this year, the firm has said. Competition to list new products is ramping up. Last month, BATS Global Markets Inc. said it would start a new plan to pay ETF providers as much as $400,000 a year to list on its exchange. On Aug. 24, some funds, including ones run by the largest ETF providers, priced at steep discounts to their underlying holdings during that session. Circuit breakers halted trading more than 1,000 times of stocks and ETFs, interfering with pricing of some the funds.

“Why ETFs proved so fragile that morning raises many questions, and suggests that it may be time to re-examine the entire ETF ecosystem,” Mr. Aguilar said in his remarks. Some large ETF providers have said the tumultuous trading on Aug. 24 was partly because of market-structure issues, not the products themselves. “The events of Aug. 24 were a result of the convergence of various market structure issues, including market volatility, price uncertainty, and the use of market and stop orders,” said Vanguard Group in a statement on Friday. (Market orders are instructions to buy or sell a stock at the market price, as opposed to a specific price.) “These issues exacerbated trading difficulties with respect to some ETFs.”

Read more …

“..if 10% of the loan balances of the top 100 borrowers were lowered from non-risk to risky categories, annual bank earnings would fall between 11% and 25%.”

JPMorgan Says Bad Corporate Loans Pose Main Risk For Brazil Banks (Reuters)

A deterioration in the quality of corporate loan books poses the most obvious risk to Brazil’s largest listed banks, which are wrestling with the nation’s steepest recession in a quarter century, JPMorgan Securities said on Friday. In a report, analysts led by Saúl Martínez said the nation’s top banks are working actively with debt-laden borrowers to ease terms of their credit in order to improve loan affordability, while simultaneously asking for more guarantees. Their assessment was based on talks with industry players. Such a move comes as banks seek to mitigate the earnings impact of worsening corporate balance sheets, with the country sinking into a recession, a corruption probe at state firms and plunging confidence magnifying the current crisis. At this point, Martínez said, “a small number of loans can have a big impact” on loan-related losses at banks.

“Unexpected losses can be greater for corporate loans given that average exposures to specific borrowers are much larger,” the report said. “This is relevant as signs of financial strain in the Brazilian corporate sector are appearing.” His remarks underscore the uncertain outlook facing Brazilian banks. Brazil’s economy shrank in recent quarters and is slated to contract this year and next, the first back-to-back annual declines since the 1930s. Industrial output, retail sales and capital spending indicators have all tumbled over the past two years, with no sign of relief in the near term. According to the analysts’ estimates, if 10% of the loan balances of the top 100 borrowers were lowered from non-risk to risky categories, annual bank earnings would fall between 11% and 25%.

Read more …

Human right? Who needs them?

Revealed: How UK Targets Saudis For Top Contracts (Observer)

Government departments are intensifying efforts to win lucrative public contracts in Saudi Arabia, despite a growing human rights row that led the ministry of justice to pull out of a £6m prison contract in the kingdom last week. Documents seen by the Observer show the government identifying Saudi Arabia as a “priority market” and encouraging UK businesses to bid for contracts in health, security, defence and justice. “It’s becoming increasingly clear that ministers are bent on ever-closer ties with the world’s most notorious human rights abusers,” said Maya Foa, director of Reprieve’s death penalty team. “Ministers must urgently come clean about the true extent of our agreements with Saudi Arabia and other repressive regimes.”

The UK’s increasingly close relationship with Saudi Arabia – which observes sharia law, under which capital and corporal punishment are common – is under scrutiny because of the imminent beheading of two young Saudis. Ali al-Nimr and Dawoud al-Marhoon were both 17 when they were arrested at protests in 2012 and tortured into confessions, their lawyers say. France, Germany, the US and the UK have raised concerns about the sentences but this has not stopped Whitehall officials from quietly promoting UK interests in the kingdom – while refusing to make public the human rights concerns they have to consider before approving more controversial business deals there.

Several of the most important Saudi contracts were concluded under the obscurely named Overseas Security and Justice Assistance (OSJA) policy, which is meant to ensure that the UK’s security and justice activities are “consistent with a foreign policy based on British values, including human rights”. Foreign Office lawyers have gone to court to prevent the policy being made public. The Labour leader, Jeremy Corbyn, has written to David Cameron asking him to commit to an independent review of the use of the OSJA process. “By operating under a veil of secrecy, we risk making the OSJA process appear to be little more than a rubber-stamping exercise, enabling the UK to be complicit in gross human rights abuses,” Corbyn writes.

The UK has licensed £4bn of arms sales to the Saudis since the Conservatives came to power in 2010, according to research by Campaign Against Arms Trade. Around 240 ministry of defence civil servants and military personnel work in the UK and Saudi Arabia to support the contracts, which will next year include delivery of 22 Hawk jets in a deal worth £1.6bn. And research by the Stockholm International Peace Research Institute shows that the UK is now the kingdom’s largest arms supplier, responsible for 36% of all Saudi arms imports.

Read more …

“They will be looking for horses and people in funny hats and meeting the Queen..”

Britain Has Made ‘Visionary’ Choice To Become China’s Best Friend, Says Xi (Guardian)

Chinese president Xi Jinping praised Britain’s “visionary and strategic choice” to become Beijing’s best friend in the west as he prepared to jet off on his first state visit to the UK, taking with him billions of pounds of planned investment. The trip, Xi’s first to Britain in more than two decades, has been hailed by British and Chinese officials as the start of a “golden era” of relations which the Treasury hopes will make China Britain’s second biggest trade partner within 10 years. “The UK has stated that it will be the western country that is most open to China,” Xi told Reuters in a rare written interview published on the eve of his departure. “This is a visionary and strategic choice that fully meets Britain’s own long-term interest.”

During the four-day trip, which officially begins on Tuesday, Xi will be feted by sports and film stars, Nobel-winning scientists, members of the royal family and politicians. David Cameron and George Osborne will both accompany Xi, who Beijing describes as a football fan, to Manchester where he will visit Manchester City football club and dine at Town Hall. The Communist party leader will also address parliament. Chinese state media has predicted Britain will afford an “ultra-royal welcome” to Xi, who last set foot in the UK in 1994 when he was an official in the south-eastern city of Fuzhou. A frontpage story in the China Daily boasted that Xi’s arrival would be celebrated with a 103-gun salute – 41 in Green Park and 62 at the Tower of London.

Fraser Howie, the co-author of Red Capitalism, said Beijing would revel in the pomp and circumstance. “They will be looking for horses and people in funny hats and meeting the Queen. That plays fantastically well back in China and they make big use of that to show how important the Chinese leadership is,” he said. “It also plays to the pitch that China is now being recognised on the world stage as a great power. This is especially true in Britain’s case because it was those nasty Brits who beat them in the opium war. Now the table has turned and it is China in the ascendancy and it is Britain who is pandering to the Chinese.”

Read more …

Jul 272015
 
 July 27, 2015  Posted by at 7:06 am Finance Tagged with: , , , , , ,  


LoC Old Patent Office model room, Washington DC 1865

There’s always a great irony in anyone at all coming under pressure for doing exactly what they should be doing. Still, it happens a lot. The irony gets that much greater when the party in question is a government, and a much maligned one at that.

Of course Syriza had to look into options, possibilities, eventualities if ever the moment might come that Greece had to (were forced to) move beyond the euro. They would have been entirely in fault, and entirely remiss, if not outright criminally negligent, if they had never looked into this.

And of course this had to be done in secret. There is no other way. The proof is in the pudding: just look at the reactions to Varoufakis’ explanation to a group of investors of how he went about Tsipras’ pre-election-victory green light for exploring ‘beyond euro’ scenarios.

Just imagine what political opponents and international media would have made of it all had they known back in December. There are simply far too many ill-informed and/or sensationalist and/or political-gains-hungry voices out there to not do these things in secret.

These are the very same voices that now seek to use that very same secrecy to try and lay blame on Tsipras and Varoufakis. In a world where openness and honesty have been put out by the curb with so many other human and moral values, this is inevitable. But that cannot mean the research should never have been done.

Tsipras could not possibly have avoided -and remember this took place at least a month before his election victory, which was by no means assured- having the research done. And he could not possibly have avoided having it done in secret.

So what do all these people want now? Varoufakis implies he’s prepared for treason charges. That would be rich. It would mean treason charges for Tsipras too. And for anyone in Brussels or Berlin who’s ever had any ideas about Greece moving beyond the euro. Try Schäuble.

Hey, maybe we can indict the entire eurozone structure for not having studied, in depth, the consequences of a eurozone nation moving beyond the currency. Isn’t that precisely the kind of negligence that is the foundation of much that is going wrong vis-à-vis Greece?!

Many aspects of this latest drama should make clear not where Syriza went wrong, but where the entire eurozone structure is an abject failure for everyone involved. Let’s have an independent commission look into how on earth it is possible that a cabal of unelected movers and shakers gets full control over the entire financial structure of a democratically elected eurozone member government. By all means, let’s see the legal arguments for this.

What this episode shows us is not Tsipras et al bending the law, it shows us to what extent Brussels and Frankfurt have moved into de facto entirely lawless territory. Or rather, to what extent they have jockeyed themselves into a position where they can make up the laws as they go along.

Still, none of this means that Tsipras and Varoufakis ever wished to do things in secret, or that they ever coveted some secret revolutionary scheme that would have gone beyond the wishes of their voters.

They simply did the homework required of a party that could expect to perhaps come to power, and do so on a controversial mandate of halting the austerity seemingly inherent in the eurozone model, while not leaving the eurozone. That homework also, necessarily, meant looking at what to do with the central bank, the Mint, everything involved in the financial system.

The fact that these things were taken into consideration doesn’t mean Syriza was planning a coup of any kind at any moment in time (as is being loudly suggested), it just means they were thorough. If you want a coup, look instead at the Troika having wrestled control over Greek domestic finances. That’s a coup if you ever saw one.

There were always a number of possible outcomes, and being forced to move beyond the euro was always one of them (just as the present third bailout at gunpoint was). The Syriza team are not at fault for having explored this, they would have been at fault if they had NOT done it.

As for the details, they may look a bit on the edge, but since it’s always been clear from the outset that replacing an entire currency system with another, especially when that means a move away from a common currency, would be extremely time-consuming (perhaps a year or so), researching one form or another of an electronic or digital currency to help fill the gap makes far too much sense for the other side to try and exploit it to deride Syriza.

In the end, that’s just dumb.

We don’t know who leaked the tapes and/or transcripts to Kathimerini, and it doesn’t matter much either. It’s infinitely more important that what Varoufakis and his very small team of confidants sought to explore, A) had to be done in such stifling secrecy, and B) has not already been done -at least not out in the open- by the much larger teams available in Brussels, Frankfurt and Washington. Over the past 20 years or so, that is (talk about negligence).

That Varoufakis’ handful of confidants had to hack their own computer system in order to do what the Syriza government HAD to do, beyond any doubt, that is: try to avoid utter chaos if or when the ECB would shut down the Greek banking system, is an indictment of the entire eurozone, and the legal ‘liberties’ it has voted itself; it is by no means an indictment of Varoufakis, or Tsipras, or anyone in Syriza.

Nevertheless, that is exactly what you’re going to be reading and hearing in days to come. Greek opposition politicians, Greek media, as well as international media, will seek to grab this opportunity to hold the world upside down before your very eyes, and then convince you that what you see is the world as it really is, as it’s supposed to be.

That way, everyone involved think they can hide their own deficiencies and half-truths and (semi-)illegal acts behind the very, very rare, and very few people who do not wish to engage in any such acts. That is the world on its head.

For background, see:

Varoufakis Claims He Had Approval To Plan Parallel Banking System (Kathimerini)

Greece Rocked By Alleged Secret Plan To Raid Banks For Drachma Return (Guardian)

Varoufakis Reveals Cloak And Dagger Greece ‘Plan B’, Awaits Treason Charges (AEP)

Jan 162015
 
 January 16, 2015  Posted by at 11:36 am Finance Tagged with: , , , , , , , , ,  


Earl Theisen Walt Disney oiling scale model locomotive at home in LA Sep 1951

Swiss Mess Could Make Oil Plunge Seem Like Minor Hiccup (MarketWatch)
World Deflationary Forces Have Swept Away Switzerland’s Defences (AEP)
Switzerland Shows The Era Of Central Bank Omnipotence Is Over (Krasting)
Swiss Franc Move Cripples, Wipes Out Currency Brokers (WSJ)
Wall Street Is Bracing For Shock Waves From Swiss Franc Move (MarketWatch)
Franc’s Surge Ranks Among Largest Ever in Foreign Exchange (Bloomberg)
Swiss Bankers Are Accelerating the Euro’s Slide (Bloomberg)
In Praise Of Price Discovery – The Market Is Off Its Lithium (David Stockman)
Iran Lowers Oil Price for Budget to $40 After Collapse (Bloomberg)
BP Sees $50 Oil For Three Years (BBC)
$50 Oil Is The Ceiling For A Much Lower Trading Range (Anatole Kaletsky)
Big Oil Gets Serious With Cost Cuts on Worst Slump Since 1986 (Bloomberg)
Schlumberger Cuts 9,000 Jobs as Oil Slump Portends Uncertainty (Bloomberg)
Aberdeen, The Energy-Rich Town Counting The Cost Of The New Oil Shock (Guardian)
Greek Systemic Banks Request Emergency Liquidity Assistance (Kathimerini)
No Risk Of ‘Deflation Spiral’ In Europe: German Minister (CNBC)
UK Retailers ‘Throttled’ By Black Friday (Daily Mail)
Warning: China May Trigger Fresh Rout In Commodities (CNBC)
China Shadow Banking Surge Chills Stimulus Hopes (CNBC)
New Russian/Chinese Credit Rating Agencies To ‘Balance Big Three’ (RT)
Ukraine President Poroshenko Signs Decree To Mobilize Up To 100,000 (TASS)
‘Corporate Wolves’ Will Exploit TTIP Trade Deal, MPs Warned (Guardian)
Pope Francis Says Freedom Of Speech Has Limits (BBC)

Anything could blow now.

Swiss Mess Could Make Oil Plunge Seem Like Minor Hiccup (MarketWatch)

One day, it’s gold. The next, it’s equities. Most days, it’s crude. On Wednesday, it was copper. On Thursday it was the Swiss franc and Swiss stocks. And the move in those two makes those others look like minor-league hiccups. While you were sleeping, all hell broke loose in Switzerland, as the central bank ditched its currency cap against the euro after four years and slashed interest rates to negative 0.75%. The Swiss franc is rallying wildly, while the Swiss stock market is cratering and U.S. stock futures are mostly on the losing side as investors figure out this latest shock to the markets Meanwhile, collapsing oil is claiming its next batch of victims. Apache just became the first, and certainly not the last, big-name oil producer to cut a notable number of jobs. And Calgary is suffering through it’s worst decline in home prices in almost two years. Airlines stocks aren’t even benefiting anymore.

So where’s that cheap oil upside? Perhaps, it’s in the opportunity created in solar stocks. The best thing that can be said about oil at this point is that, hey, at least it’s not bitcoin. Or the ruble. More fallout to come if $50 does, indeed, turn out to be a ceiling and if, as Goldman Sachs says, prices fall below the bank’s $39 target.

Read more …

Ambrose gets it right: deflation.

World Deflationary Forces Have Swept Away Switzerland’s Defences (AEP)

The Swiss National Bank has lost control. It is the latest in a list of venerable central banks to be overwhelmed by deflationary forces and global economic disorder. The country is already in deflation. The Swiss franc ended Thursday 13% higher after the SNB abandoned its three-year efforts to defend a currency floor of 1.20 to the euro. “We have a free exchange rate once again,” said the SNB’s president, Thomas Jordan. Indeed, but nobody is fooled by the SNB’s attempt to spin this as benign. “This is a huge hit to their credibility,” said Deutsche Bank. The official statement claimed that the exchange floor is no longer needed and that “overvaluation has decreased as a whole since the introduction of the minimum exchange rate”. This is eyewash. “They have had to throw in the towel. They couldn’t hold the line anymore,” said David Owen, from Jefferies Fixed Income.

“This is going to cause extreme pain for parts of the Swiss economy but SNB are trapped.” The franc has been level over the past year on a trade-weighted basis. Even before Thursday morning’s events, the exchange rate was 25% above its decade-long average. It is now 40% higher. Just one month ago the SNB argued in its quarterly report that currency floor was imperative to stop Switzerland relapsing back into deflation. “In view of heightened deflation risks, the minimum exchange rate remains the key instrument for ensuring appropriate monetary conditions. A further appreciation of the Swiss franc would have a major impact on salary and price structures. Companies in Switzerland would be forced to cut costs drastically again to remain competitive.” The statement was true then. The threat is much greater now, made all too clear by the howls of protest this morning from the Swiss export sector.

Nick Hayek, head of Swatch Group, said the collapse of the floor would cause havoc. “Words fail me. Today’s SNB action is a tsunami; for the export industry and for tourism, and for the entire country,” he said. The Swiss economy has been muddling through over the past year but the output gap is still -1% of GDP, inflation is negative and the KOF index of business sentiment has been slipping lower for two years. On top of this, the country now has to grapple with the likely hangover from its own domestic credit bubble. The SNB’s Mr Jordan said the end of an exchange floor inevitably requires subterfuge. “You can only end a policy like this by surprise. It is not something you can debate for weeks,” he said. That may be true. Less justifiable is the failure to come clean after the event and explain exactly why the SNB now judges the damage of eternal currency intervention to be even more dangerous than the threat of a systemic deflationary shock. We are left guessing.

Read more …

It was always but an illusion, though.

Switzerland Shows The Era Of Central Bank Omnipotence Is Over (Krasting)

I wrote about the Swiss National Bank being forced to abandon its currency peg to the Euro on 12/3/14, 12/8/14 and 1/11/15. That said, I’m blown away that this has happened today. Thomas Jordan, the head of the SNB has repeatedly said that the Franc peg would last forever, and that he would be willing to intervene in “Unlimited Amounts” in support of the peg. Jordan has folded on his promise like a cheap suit in the rain. When push came to shove, Jordan failed to deliver. The Swiss economy will rapidly fall into recession as a result of the SNB move. The Swiss stock market has been blasted, the currency is now nearly 20% higher than it was a day before. Someone will have to fall on the sword, the arrows are pointing at Jordan.

The dust has not settled on this development as of this morning. I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That’s a huge amount of money. It comes to 20% of the Swiss GDP! If this type of loss were incurred by the US Fed it would result in a loss in excess of $2 Trillion! In the coming days and weeks there will be more fallout from the SNB disaster. There will be reports of big losses and gains from today’s events. But that is a side show to the real story. We have just witnesses the collapse of a promise by a major central bank. The Fed, Bank of Japan, ECB, SNB and other Central Banks have repeatedly made the same promises over the past half decade:

Don’t worry! We are here. We will do anything it takes to achieve the stability we desire. We are stronger than the markets. We can overwhelm all forces. We will never let go – just trust us!

I never believed in these promises, but the vast majority of those who are active in financial markets did. The entire world has signed onto the notion that Central Banks are all powerful. We now have evidence that they are not. Anyone who continues to believes in the All Powerful CB after today is a fool. Those who believed in Jordan’s promises now have red ink on their hands – lots of it! The next central bank that will come into the market’s cross hairs is the ECB. Mario Draghi has made promises that he would “Do anything – in any amount”. Like I said, you would be a fool to continue to believe in that promise as of this morning. We’ve just taken a huge leap into chaos. The linchpin of the capital markets has been the trust in the CBs. The market’s anchors have now been tossed overboard.

Read more …

“Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm…that it has entered into insolvency ..”

Swiss Franc Move Cripples, Wipes Out Currency Brokers (WSJ)

A major U.S. currency broker warned its equity was wiped out, a U.K. retail broker entered insolvency and a global foreign-exchange trading house failed after suffering big losses sparked by the Swiss central bank’s move to free up its currency. On Friday, regulators in Japan, Hong Kong, Singapore and New Zealand sought information from brokers about what happened. In Japan, the Finance Ministry was checking on trading firms after industry sources said the country’s army of mom-and-pop foreign exchange traders suffered big losses. The losses were caused when liquidity dried up and volatility spiked in the debt-driven foreign exchange market, making it impossible for brokers to execute trades as losses spiraled. Many of these brokers offer 100-to-1 leverage, meaning a 1% loss can wipe a client out.

The Swiss franc jumped 30% against the euro in minutes on Thursday, after the Swiss National Bank stopped capping the rise their nation’s currency against the euro. The surprise move sent the Swiss franc soaring and caused big losses for traders who had bet against the currency. FXCM, the biggest retail foreign-exchange broker in the U.S. and Asia, said in a statement that because of unprecedented volatility in the euro against the Swiss franc, its losses left it with a negative equity balance of about $225 million and that it was trying to shore up its capital. FXCM was operating normally in Hong Kong on Friday with employees trying to sort out trading positions and answer questions from clients about their trading losses. “As a result of these debit balances, the company may be in breach of some regulatory capital requirements.

We are actively discussing alternatives to return our capital to levels prior to today’s events and discussing the matter with our regulators,” the company, which has a market capitalization of about $701.3 million, said in a statement. Shares of the company fell 15% in U.S. trading and tumbled another 12% after hours. In the U.K., retail broker Alpari entered insolvency after racking up losses amid the currency turmoil following the SNB’s decision. Alpari said in a statement on its website that a majority of its clients sustained losses exceeding the equity in their accounts. “Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm…that it has entered into insolvency,” the firm said.

Read more …

““We expect that few risk-management algorithms in G-20 currencies were prepared for greater than 20% moves in a currency pair ..”

Wall Street Is Bracing For Shock Waves From Swiss Franc Move (MarketWatch)

Don’t be too quick to look past the turmoil that swept global financial markets after Switzerland’s central bank unexpectedly scrapped a cap on the value of its currency versus the euro. While European and U.S. equities largely regained their footing after a panicky round of selling in the wake of the decision, dangers may still lurk in some corners of the market. Here are the potential shock waves to look out for:

Needless to say, the Swiss franc, which had long been held down by the Swiss National Bank’s controversial cap, exploded to the upside. The euro is down 15% and the U.S. dollar remains down nearly 14% versus the so-called Swissie after having plunged even further in the immediate aftermath of the move. See: Swiss stunner sends euro to 11-year low against buck. Since the Swiss National Bank had given no indication it was set to move — indeed, it had previously said it would defend the euro/Swiss franc currency floor with the “utmost determination” — investors were holding large dollar/Swiss franc and euro/Swiss franc long positions, noted George Saravelos, currency strategist at Deutsche Bank, in a note. As a result, the moves Thursday likely resulted in some big losses on investor portfolios holding those positions, he said.

“This effectively serves as a large VaR [value-at-risk] shock to the market, at a time when investors were already sensitive to poor [profit-and-loss] performance for the year,” Saravelos wrote. The Wall Street Journal reported that Goldman Sachs on Thursday closed what had previously been one of its top trade recommendations for 2015: shorting the Swiss franc versus the Swedish krona after the franc jumped as much as 14% on the day versus its Swedish counterpart. Douglas Borthwick, managing director at Chapdelaine Foreign Exchange, said forex participants are bracing for aftershocks. “We expect that few risk-management algorithms in G-20 currencies were prepared for greater than 20% moves in a currency pair, for this reason the chance of a binary outcome is significant,” he said, in a note. “Either participants gained or lost considerable amounts.”

Read more …

“It’s normal for ruble to do this kind of thing, but we’re talking about Swiss franc ..”

Franc’s Surge Ranks Among Largest Ever in Foreign Exchange (Bloomberg)

The Swiss franc’s 41% surge after the central bank unexpectedly lifted its cap against the euro is one of the biggest moves among major currencies since the collapse of the Bretton Woods system in 1971. Unlike previous foreign-exchange upheavals, today’s action occurred to one of the most-traded currencies that is considered a haven in tumultuous times, and few saw the move coming. “It’s normal for ruble to do this kind of thing, but we’re talking about Swiss franc,” Axel Merk, president and founder of Merk Investments, who has 20 years of experience in the currency market. “That’s quite extraordinary and unheard of.” A history of some of the biggest moves in the now $5.3 trillion a day market:

• Mexico Tequila Crisis, December 1994: U.S. interest-rate increases helped spark a peso devaluation and fueled capital flight across Latin America. The peso lost 53% in three months. The recession the following year, when the economy contracted 6.2%, was among the worst since the 1930s.

• Thai baht, July 1997: The currency fell 48% over the second half of the year after the central bank devalued its the baht in an attempt to revive its slumping economy, marking one of the biggest shifts in Asian currency policy since the country last devalued its currency in 1984.

• Japanese yen, October 1998: During the Asian Financial Crisis, the Japanese currency rallied as much as 7.2% in a day as hedge funds rushed to unwind carry trades by repaying the yen that they borrowed to invest in higher-yielding currencies such as the Thai baht and Russia’s ruble. The yen surged 16% that week.

• Turkish lira, 2001: A spat between then-President Ahmet Necdet Sezer and Prime Minister Bulent Ecevit led to an exodus of foreign capital, pushed up government debt and throwing more than 20 banks into bankruptcy. The currency lost 54% in value that year and inflation jumped to 69% by December.

• Argentine peso, June 2002: Argentina started struggling to finance its debt in 1999 as the one-to-one peg to a rising dollar squeezed exporters and Brazil, the country’s largest trading partner, devalued the real. Interim President Adolfo Rodriguez Saa announced to default on $95 billion debts in December 2001. Within weeks, the central bank abandoned the peg, allowing the peso to fall 74% by June 2002.

• Russian Ruble, December 2014: The currency plummeted 34% in three weeks through mid-December as plunging oil prices and international sanctions pushed Russia toward a recession. The central bank has spent $95 billion of foreign reserves over the past year to shore up the ruble and boosted interest rate five times. While the efforts helped quell volatility, the ruble remains within 5% of the record low set on Dec. 16.

Read more …

Not too crazy so far.

Swiss Bankers Are Accelerating the Euro’s Slide (Bloomberg)

The euro is shaping up as the biggest casualty of Switzerland’s decision to scrap its currency cap. Soon after the Swiss National Bank unexpectedly decided yesterday to end its three-year policy of keeping the franc from appreciating beyond 1.20 per euro, bearish bets on Europe’s common currency soared. While setting a record low versus the franc, the euro also plunged 3.5% against a basket of 10 developed-nation peers, the most since its 1999 debut. The SNB’s decision removes a key pillar of support for the euro, boosting the odds that its recent slide will accelerate. Companies from Goldman Sachs to Pimco have in recent days talked about the increasing chance the euro falls to parity with the dollar, which would represent a 14% decline from its current level.

“It adds fuel to the fire,” Atul Lele, the chief investment officer of Deltec International Group, who manages $1.9 billion, said by phone from Nassau, Bahamas. “This move out of Switzerland certainly exacerbates the trade-weighted euro weakness that we expect to see.” The difference in the cost of options to sell Europe’s common currency against the dollar, over those allowing for purchases, jumped by the most in almost two years yesterday. The euro dropped 1.3% to $1.1633 yesterday. In defending its cap on the franc, the SNB almost doubled its holdings of the 19-nation currency to 174.3 billion euros ($203 billion) since September 2011.

Speculation the European Central Bank is only days away from announcing a government-bond purchase program, or quantitative easing, at its Jan. 22 meeting had already weakened the euro against its major peers. The euro also sank below parity with the franc yesterday to an all-time low of 85.17 centimes, before recovering to 1.0096 per euro today. Deltec’s Lele said he sees it falling an additional 5% to 10%. “The euro can’t find a friend for love nor money,” said London-based Kit Juckes, a strategist at Societe Generale SA, which predicts a decline to $1.14 by year-end. When one of the biggest buyers of euros “leaves the building,” losses are inevitable, he said.

Read more …

Stockman addresses the same issue, the return of price discovery, that I did yesterday in The End Of Fed QE Didn’t Start Market Madness, It Ended It.

In Praise Of Price Discovery – The Market Is Off Its Lithium (David Stockman)

This morning’s market is more erratic than Claire Danes off her lithium. Gold is soaring, the euro’s plunging, US treasury yields are in free fall, junk bonds are faltering, copper is bouncing, oil has rolled over, the Russell 2000 momos are getting mauled, the swissie has shot the moon, the Dow is knee-jerking down, correlations are failing……and the robo traders are flat-out lost. All praise the god of price discovery! For six years financial markets have been drugged into zombiedom by maniacal central bankers who have violated every known rule of sound money and financial market honesty. In expanding their collective balance sheets from $5 trillion to $16 trillion over the past decade, for instance, they have midwifed a planet-wide fiscal fraud.

Politicians have been enabled to spend and borrow like never before because central banks have swapped trillions of public debt for electronic cash confected from nothing. Likewise, never have carry traders and gamblers been so egregiously pleasured by the state. After 73 straight months of ZIRP they are still pinching themselves, wondering if such stupendous largesse is real. They have bought anything with a yield and everything with prospect of gain, financed it for nothing and collected the arb – while being swaddled in the Fed’s guarantee that it would never surprise them or perturb their trades with unannounced money market rate changes. And so they wallowed in their windfalls, proclaiming their own genius.

Does a pompous dandy like Bill Ackman end up purchasing an absurdly priced $90 million Manhattan condo just “for fun” because markets operate on the level? Do his petulant brawls with other grand “activist” speculators like Carl Icahn mark investment genius or the machinery of honest capitalism at work? No they don’t. There is absolutely nothing honest, productive or fair about the central bank dominated casinos which have morphed out of what used to be legitimate money and capital markets. Indeed, all the requisites of stability, efficiency and honest price discovery have been destroyed by the monetary central planners. The short sellers have been eradicated. Downside insurance against a broad market swoon has become dirt cheap. Momo traders have thereby been enabled to earn unconscionable returns because their carry costs have been negligible and their hedging expenses nearly nothing.

Read more …

“Saudi Arabia, the biggest producer, is probably assuming $80 ..”

Iran Lowers Oil Price for Budget to $40 After Collapse (Bloomberg)

Iran, its oil exports curbed by sanctions, is lowering the crude price for this year’s budget to $40 a barrel as the energy slump affects governments and industry. The government is revising its draft budget to assume a base price of $40, from $72, the state-run Fars News Agency reported Finance and Economy Minister Ali Tayebnia as saying Jan. 15. The minister said some projects will have to be halted, according to Fars. Iran’s calendar year begins March 21. Prices of Brent, a benchmark for more than half the world’s oil, have dropped about 50% in the past year, forcing governments to reduce subsidies on diesel, natural gas and utilities and companies to cut billions from capital budgets. Qatar Petroleum and Shell called off plans to build a $6.5 billion petrochemical plant.

“Most Gulf countries are pricing $50 oil for 2015,” said Naeem Aslam, chief market analyst at Dublin-based Avatrade Ltd. in a phone interview from Dubai. “Creditors want to be sure they recoup their money so there could be hesitation to starting up new projects.” Iran President Hassan Rouhani presented a budget to lawmakers on Dec. 7 based on $72 oil. Since then, Brent crude has dropped about 30%. It budgeted $100 oil last year. [..] Iraq, the second-biggest member of OPEC, is using $60 in its budget. Saudi Arabia, the biggest producer, is probably assuming $80, according to John Sfakianakis, a former Saudi government economic adviser. Kuwait has propsed basing its 2015-16 budget on oil at $45.

Read more …

Makes you wonder how BP itself will survive.

BP Sees $50 Oil For Three Years (BBC)

BP’s job announcement later today, including a few hundred job losses in Aberdeen, is being made because it does not expect the oil price to bounce any time soon. The oil price has dropped around 60% since June, to $48 a barrel, and I understand that BP expects that it will stay in the range of $50 to $60 for two to three years. Although no oil company has a crystal ball, this matters – especially since it has a big impact on its investment and staffing ambitions. So plans that it had already initiated to reduce costs have taken on a new element, namely postponement of investments in new capacity that have not been started, and shelving of plans to extend the life of older fields where residual oil is more expensive to extract.

Aberdeen is an important centre for BP, and it employs around 4000 there. And it is in no sense withdrawing – it is continuing to invest in the Greater Clair and Quad 204 offshore properties. But the reduction of several hundred in the numbers it will henceforth employ in the Aberdeen area is symbolic of a city and industry that faces a severe recession. Hardest hit will be North Sea companies with stakes in older fields, where production costs are on a rising trend – and whose profitable life will be significantly shortened if the oil price does not recover soon. The reason BP expects the oil price to stay in the range of $50 to $60 for some years is for reasons you have read about here – it is persuaded that the Saudis, Emiratis and Kuwaitis are determined to recapture market share from US shale gas.

This means keeping the volume of oil production high enough such that the oil price remains low enough to wipe out the so-called froth from the shale industry – to bankrupt those high-cost frackers who have borrowed colossal sums to finance their investment. This does not simply require some US frackers to be bankrupted and put out of business, but also that enough banks and creditors are burned such that the supply of finance to the shale industry dries up. Only in that way could Saudi could be confident of reinvigorating its market power.

Read more …

The end of major parts of the industry.

$50 Oil Is The Ceiling For A Much Lower Trading Range (Anatole Kaletsky)

If one number determines the fate of the world economy, it is the price of a barrel of oil. Every global recession since 1970 has been preceded by at least a doubling of the oil price, and every time the oil price has fallen by half and stayed down for six months or so, a major acceleration of global growth has followed. Having fallen from $100 to $50, the oil price is now hovering at exactly this critical level. So should we expect $50 to be the floor or the ceiling of the new trading range for oil? Most analysts still see $50 as a floor – or even a springboard, because positioning in the futures market suggests expectations of a fairly quick rebound to $70 or $80. But economics and history suggest that today’s price should be viewed as a probable ceiling for a much lower trading range, which may stretch all the way down toward $20.

To see why, first consider the ideological irony at the heart of today’s energy economics. The oil market has always been marked by a struggle between monopoly and competition. But what most western commentators refuse to acknowledge is that the champion of competition nowadays is Saudi Arabia, while the freedom-loving oilmen of Texas are praying for OPEC to reassert its monopoly power. Now let’s turn to history – specifically, the history of inflation-adjusted oil prices since 1974, when OPEC first emerged. That history reveals two distinct pricing regimes. From 1974 to 1985, the US benchmark oil price fluctuated between $50 and $120 in today’s money. From 1986 to 2004, it ranged from $20 to $50 (apart from two brief aberrations after the 1990 invasion of Kuwait and the 1998 Russian devaluation).

Finally, from 2005 until 2014, oil again traded in the 1974-1985 range of roughly $50 to $120, apart from two very brief spikes during the 2008-09 financial crisis. In other words, the trading range of the past 10 years was similar to that of OPEC’s first decade, whereas the 19 years from 1986 to 2004 represented a totally different regime. It seems plausible that the difference between these two regimes can be explained by the breakdown of OPEC power in 1985, owing to North Sea and Alaskan oil development, causing a shift from monopolistic to competitive pricing. This period ended in 2005, when surging Chinese demand temporarily created a global oil shortage, allowing OPEC’s price “discipline” to be restored.

Read more …

Just the start.

Big Oil Gets Serious With Cost Cuts on Worst Slump Since 1986 (Bloomberg)

Major oil companies are awaking from their slumber and facing up to the magnitude of the crash in crude prices. From Shell canceling a $6.5 billion project in Qatar to Schlumberger firing about 9,000 people and Statoil giving up exploration in Greenland, the oil industry this week concluded that the slump is no blip. Top producers follow U.S. shale developers such as Continental in unraveling a boom that produced more oil and natural gas than the world is ready to buy. And there’s certainly more unwinding to come. For most of this month, crude oil has traded below $50 a barrel, a level few predicted even two months ago when OPEC signaled it wouldn’t cut production to defend prices.

If the market stays this depressed, global spending on exploration and production could fall more than 30%, the biggest drop since 1986, according to forecasts from Cowen. “Not too many people expected these levels of oil prices, not even the companies themselves,” said Dragan Trajkov, an analyst at Oriel in London. “Now they have to deal with this new situation and the first impact will be on new investments.” Shell, BP, Chevron and other top producers are preparing to present 2014 earnings to investors at the end of this month or early February and will signal plans for this year. Their chief executive officers are faced with the challenge of assuring shareholders they can see through the depression without cutting dividend payments. The direction of the oil market shows companies probably need to prepare for the worst.

Bank of America, noting the speed global oil inventories are building, forecast Thursday that Brent futures are set to fall to as low as $31 a barrel by the end of the first quarter from about $48 now. That’s even lower than the $36.30 seen during the depths of 2008’s financial crisis. Oil traded above $100 a barrel in July and analysts forecast prices would stay there for years to come. The scale and speed of the price drop has forced companies to start making significant decisions. Shell, Europe’s largest oil company, took the axe this week to a $6.5 billion petrochemicals plant it planned to build in Qatar in partnership with the state oil producer. The company, based in The Hague, said the project wasn’t economically feasible in the current price environment.

Read more …

“Energy companies are expected to cut spending in the U.S. by as much as 35% this year ..”

Schlumberger Cuts 9,000 Jobs as Oil Slump Portends Uncertainty (Bloomberg)

Schlumberger, the world’s biggest oilfield-services company, tackled the “uncertain environment” of plummeting crude prices head-on by cutting 9,000 jobs and lowering costs at a vessels unit. The 7.1% workforce cutback, along with the reduction and reassessment of its WesternGeco fleet, were among steps leading to a $1.77 billion fourth-quarter charge in anticipation of lower spending by customers in 2015, the Houston- and Paris-based company said in an earnings report Thursday. Energy companies, coping with oil worth less than half its price six months ago, are expected to cut spending in the U.S. by as much as 35% this year, according to Cowen. The number of onshore U.S. rigs could fall by as much as 750 this year, Wells Fargo said. That would be a 43% decline from the 1,744 in operation at the start of the year, according to Baker Hughes. The coming year “is looking like it’s gonna be pretty rough,” Rob Desai, an analyst at Edward Jones in St. Louis, said.

“With the potential for this to last some time, it’s in the best interest of the company to attack it aggressively.” Schlumberger, which had doubled its workforce in the past 10 years, said the one-time charges for the quarter also resulted from the devaluation of Venezuela’s currency and a lower value for production assets it owns in Texas. Net income dropped to $302 million, from $1.66 billion a year earlier. “In this uncertain environment, we continue to focus on what we can control,” Schlumberger Chief Executive Officer Paal Kibsgaard said in the earnings report. “We have already taken a number of actions to restructure and resize our organization.” Shares in oilfield-services companies, which help customers find and produce oil and natural gas, were the first to fall as crude prices declined. Service companies in the Standard & Poor’s Index dropped 20% in the quarter, more than the 18% decline for producers.

Read more …

Hit hard.

Aberdeen, The Energy-Rich Town Counting The Cost Of The New Oil Shock (Guardian)

Billy Campbell’s three-year-old is spinning around in a Peppa Pig plastic rocket in the middle of Aberdeen’s Union Square shopping mall. It is not hard to believe that the wider Aberdonian population is in a similar spin given the crisis that has struck the Granite City’s key industry: oil and gas. Ed Davey, the energy secretary, and Nicola Sturgeon, Scotland’s first minister, have both rushed to Britain’s oil capital in the last 48 hours to reassure the city that they are aware of looming problems – problems that, the Bank of England governor warned on Wednesday, will deliver a “negative shock” to Scotland’s economy. Some experts think the oil price fall will wipe £6bn off the country’s GDP and Sturgeon is setting up a task force to try to preserve energy jobs.

[..] This is a very affluent city where unemployment is only a little over 2% and incomes are well above the Scottish average. In Aberdeenshire some 38% of households have an income of more than £30,000, compared to 28% across Scotland and just 19% in Glasgow. The Union Square car park is crammed with upmarket models and four-wheel drives – a survey last year by accountants UHY Hacker Young showed that Aberdeenshire has the highest sales of 4x4s in the UK. The car park is just yards away from the massive offshore support vessels that are waiting to load in the harbour beyond. But, away from the downtown bustle of the city centre, not everyone is quite so laid back.

Certainly not those at the sprawling business park at Dyce, close to the airport, where oil firms and the industry’s service companies are congregated. It was here that BP staff were just told that 300 jobs are to be lost from the North Sea business. These are just the latest staff cuts at major oil employers in the region. Shell has taken similar steps, as has Chevron. Companies such as the Wood Group and Petrofac that provide drilling and other support services to the big oil companies have also been cutting costs. Last year Wood slashed 10% off the rates it pays to its contractors, saying operating costs in the North Sea were unsustainable. And that was before the price of oil crashed over the last six months by 60% to its lowest level in six years.

Read more …

Preparing for a bank run.

Greek Systemic Banks Request Emergency Liquidity Assistance (Kathimerini)

Two Greek systemic banks submitted the first requests to the Bank of Greece for cash via the emergency liquidity assistance (ELA) system on Thursday, sources told Kathimerini. It is thought that requests from the remaining Greek banks will follow in the next few days. The move came in response to the pressing liquidity conditions resulting from the growing outflow of deposits as well as the acquisition of treasury bills forced onto them by the state. Banks usually resort to ELA when they face a cash crunch and do not have adequate collateral to draw liquidity from the European Central Bank, their main funding tool. ELA is particularly costly as it carries an interest rate of 1.55%, against just 0.05% for ECB funding.

The requests by the two lenders will be discussed by the ECB next Wednesday. Bank officials commented that lenders are resorting to ELA earlier than expected, which reflects the deteriorating liquidity conditions in the credit sector. Besides the decline in deposits, banks were dealt another blow on Thursday with the scrapping of the euro cap on the Swiss franc. Bank estimates put the impact of the euro’s drop on the local system’s cash flow at between €1.5 and €2 billion. Deposits recorded a decline of €3 billion in December – a month when they traditionally expand – while in the first couple of weeks of January the outflow continued, although banks say it is under control.

A major blow to the system’s liquidity has come from the repeated issue of T-bills: In November the state drew €2.75 billion in this way, in December it secured €3.25 billion, and it has already tapped another €2.7 billion in January. Of the above amounts, a significant share – amounting to €3 billion according to bank estimates – was in the hands of foreign investors who are not renewing their stakes, so Greek banks have to step in to buy them. Local lenders had also resorted to ELA in 2011 to cope with the outflow of deposits and consecutive credit rating downgrades of the state (and the banks) that made Greek paper insufficient for the supply of liquidity by the Eurosystem. In June 2012, due to the uncertainty of the twin elections at the time, the ELA being drawn by local banks to handle the unprecedented outflow of deposits reached a high of €135 billion. By May 2014, Greek banks had reduced their ELA financing to zero.

Read more …

If politicians – like this guy – don’t understand what deflation is, and most have no clue, that can obviously cause trouble.

No Risk Of ‘Deflation Spiral’ In Europe: German Minister (CNBC)

Despite data showing that the euro zone has slid into deflation, Germany’s deputy finance minister brushed off concerns that the region could enter a downward spiral of falling prices and lack of demand. “This is not what economists and textbooks describe as a deflation spiral, this is a modest price development,” Steffen Kampeter told CNBC Thursday. Data released last week showed that the 19-country single currency region had entered deflation territory in December. Prices in the euro zone fell 0.2% year-on-year in December, marking the first time since 2009 that prices have dipped into negative territory. The decline in prices has been largely attributed in the cost of oil, which has slipped over 60% since June 2014. However, core inflation, which strips out volatile factors like fuel and unprocessed food prices, was stable at 0.7% in December.

“I see the facts,” Kampeter said. “And the fact is that the core inflation is rising and we have a very moderate and negative price development, especially in energy and raw material.” Deflation concerns analysts because a decline in the price of goods can cause consumers to delay purchases in the hope of further price falls, putting pressure on the broader economy. The figures prompted widespread market speculation that the European Central Bank (ECB) could announce a full-scale quantitative easing program when it meets on January 22. The deputy finance minister wouldn’t comment on any forthcoming ECB action, however. As a German policymaker, Kampeter said he was tasked with looking at structural reforms in Germany and Europe as a whole, and was aiming to ensure that investment in Europe continued in order to keep the region competitive. The Germany economy – which is the largest in the euro zone – has staged something of a turnaround of late, after veering dangerously close to recession in 2014.

Read more …

Today’s episode of The Dog Ate My Homework.

UK Retailers ‘Throttled’ By Black Friday (Daily Mail)

It’s the American import that has played havoc with Christmas retail sales. Black Friday, where US shops slash their prices on the day after Thanksgiving, has joined the school prom as a stars-and-stripes tradition that has invaded our islands. For UK retailers, it has proved an unwelcome arrival. Far from boosting net sales it has proved a festive nightmare, denting Christmas trading, causing websites to crash, and sparking delivery chaos. Shoppers spent an estimated £810m on Black Friday on November 28 – making it the biggest ever day for UK online sales. But consumers more than made up for their spree by tightening their belts later on, in the run-up to Christmas.

Retailers suffered their slowest December growth in six years as Black Friday disrupted the timing and rhythm of festive sales. Several chains have lined up to blame the event for their lacklustre performance, with Argos owner Home Retail Group claiming to be the latest victim. The company, which fell short of City forecasts, accused Black Friday of fostering ‘a discount mentality’ in the run-up to Christmas, a time of year when shoppers are usually prepared to pay full price for gifts. Marks & Spencer said that it had caused systems at its Castle Donington warehouse to collapse, and Game Digital blamed it for Monday’s profit warning. Home Retail Group’s new chief executive John Walden said: ‘This year’s adoption of ‘Black Friday’ promotional events generally by the UK market significantly impacted the shape of Argos sales over its peak trading period.’

Read more …

But China can make the numbers up as it goes along.

Warning: China May Trigger Fresh Rout In Commodities (CNBC)

Commodities just can’t catch a break – and China’s GDP release on January 20 could throw another punch at the beleaguered asset class should it underperform expectations, warn analysts. “We are days from the release of China’s Q4 GDP and copper is the best barometer of growth. The rout gives me reason to believe China’s growth is not only moderating but is slowing faster than estimated,” Evan Lucas, market strategist at IG wrote in a note. “If China disappoints next Tuesday, brace for a real rout in commodities,” he said. Copper, regarded as an important indicator of economic health, joined the selloff in commodities Wednesday after the World Bank downgraded its growth outlook for the global economy. The global economy is forecast to expand by 3% this year,the Washington-based lender said in its Global Economic Prospects report released on Tuesday, a notch lower than its previous forecast of 3.4% made in June, but up from an estimated 2.6% in 2014.

The red metal suffered its biggest one-day slide in more than three years on Wednesday, with three-month copper on the London Metal Exchange falling more than 8% at one point to $5,353 a tonne before settling around $5,655 on Thursday. The World Bank expects China’s gradual pace of deceleration to continue,forecasting growth in the world’s second largest economy to slow to 7.1% this year from an estimated 7.4% last year. China plays a dominant role in the commodities market because it’s the world’s largest consumer of energy and metals, including copper. “In our view, the significant pressure on copper price lately indicates either a noticeable slow-down in demand [out of China] or troubles in the shadow banking sector, or both,” said David Cui, strategist at Bank of America Merrill Lynch.

Read more …

“.. shadow bank credit exceeded new yuan-denominated loans for the first time in 2014.”

China Shadow Banking Surge Chills Stimulus Hopes (CNBC)

Two months ago calls for broad-based stimulus in China were all the rage, but a sudden spike in shadow banking has led analysts to revise their expectations for looser monetary policy. Aggregate social financing, a measure of credit that covers bank lending and shadow banking activity, hit one-year high of 1.69 trillion yuan ($273 billion) in December, up from 1.15 trillion yuan the previous month, official data showed on Thursday. “A surge in shadow bank credit – entrusted loans, trust loans, banker’s acceptances, corporate bonds and non-financial enterprises’ domestic equity – was responsible for December’s considerably larger than expected increase in aggregate financing,” said Tim Condon, head of Asia research at ING in a note on Friday, noting that shadow bank credit exceeded new yuan-denominated loans for the first time in 2014.

China’s central bank surprised markets by cutting interest rates for the first time in two years in November, sparking expectations for further policy easing via interest rate or reserve ratio requirements (RRR) cuts. Tight funding conditions also fuelled hopes for RRR cuts late last year. The seven-day repo rate, a closely-watched measure of interbank lending costs, spiked suddenly to an over one-year high in mid-December, prompting speculation for central bank action to boost liquidity. But Thursday’s data reduce the likelihood that the People’s Bank of China will cut the RRR for lenders, Condon said: “We are reviewing our forecast of 100 basis-points of RRR cuts in the first half of the year for downward revision.” Shadow banking was fairly stable last year after Beijing introduced regulatory measures to clampdown on the sector, such as stricter financing rules for trust companies.

During the July-September period, the shadow banking sector of China’s total social financing contracted for the first time on quarter since the global financial crisis. However, those tightening measures may be the very reason for December’s surge, according to Barclays. “We suspect that borrowers including local government financing vehicles (LGFVs) could have accelerated their financing activities through shadow banking channels, since they might experience difficulties in accessing bond market for new issuance as a result of tightening regulations/declining support from provincial government on new debt,” analysts said in a note on Friday. The sudden spike in shadow banking credit leaves the central bank in a catch-22 situation, Gavin Parry at Parry International Trading said. “Here is the issue for the PBoC; it is facing rampant speculation bubbling in the economy like the stock market, while also facing weaker loan demand, local government funding needs and deflationary forces,” he said.

Read more …

Logical step.

New Russian/Chinese Credit Rating Agencies To ‘Balance Big Three’ (RT)

The creation of a joint Russian-Chinese credit rating agency will balance the global outlook and give the world an alternative view on how credit ratings should be done, Chinese international relations expert Victor Gao told RT. “Traditionally credit rating is mostly done by Western credit rating agencies. They sometimes may not fully understand the dynamics of the economics of any particular company or the sovereign borrower,” he said, adding that the agency won’t pursue a goal of replacing traditional Western credit rating agencies like S&P and Moody’s. “It will give the whole world another perspective of how risks are analyzed and how credit rating should be done,” he said. Gao believes Western rating agencies claim to be independent and professional, but in fact they turn out to be biased when it comes to issues of geopolitical importance.

“During the global financial crisis the Western rating agencies did not react as quickly as possible,” he said. “In terms of the rating of the sovereign debt of the US for example, or even for Japan, they’ve actually displayed much more flexibility in rating these countries compared with many other countries.” The announcement of a rating could actually make a situation even worse rather than help stabilize it, he added. Credit rating agencies are very much at the top of the international financial system and they’re not only active domestically in one particular country but in many cases they are active across national boundaries.

Gao said that China has its own credit rating agency Dagong which is actively operating in the country and abroad, increasingly estimating other countries’ and companies’ credit rating. The analyst believes the global economy is changing and going through an important transformation as the emerging markets are growing and their portion in the global economy is increasing despite a significant turmoil in the international financial, economic and energy sectors. Creating a joint credit rating agency of Russia and China is significant but it’s high time the world’s most important developing economies united and came up with their own credit rating agency, as in case of establishing the BRICS Development Bank, he said.

Read more …

Up to 60 years old, women up to 50.

Ukraine President Poroshenko Signs Decree To Mobilize Up To 100,000 (TASS)

Ukrainian President Petro Poroshenko has signed a decree on another mobilization. He put his signature to the document at a meeting with the heads of regional authorities. “I have handed it over to parliament, because it requires approval by the national legislature,” Poroshenko said. Under a decision by the National Security and Defense Council of December 20, 2014, a fourth mobilization wave is beginning on January 20, and two more will be held in April and June.

Some categories of reservists will be exempt from mobilization: men with poor health, university and post-graduate students, clerics, parents having three or more children, and those resident in the territories uncontrolled by the Ukrainian authorities. On January 8, Defense Minister Stepan Poltorak said that in 2015 about 104,000 men may be mobilized, if need be. Ukrainian General Staff spokesman Volodymyr Talalai said that women aged 25 through 50 might be drafted into the army, if necessary.

Read more …

There needs to be far more protest against TTIP, or it’ll be pushed through.

‘Corporate Wolves’ Will Exploit TTIP Trade Deal, MPs Warned (Guardian)

The controversial TTIP trade deal between Europe and the US could depress workers’ wages by £3,000 a year and allow “corporate wolves” to sue the government for loss of profit, MPs have heard. The claims were made in a highly-charged House of Commons debate, with many Conservative MPs defending the proposed Transatlantic Trade and Investment Partnership free trade deal and opposition MPs warning that it risks giving too much power to big US corporations. Anti-TTIP campaigners claim one million people have signed a petition against the deal, mainly because of worries that it could open the door to US health companies running parts of the NHS. This has been firmly denied by the UK government and the European commission, who have said public services are explicitly excluded. However, Labour is still worried that the proposals not do enough to protect the public interest.

Many MPs have particular concerns about the investor-state dispute settlement clauses, which would give private companies the right to sue the government in international tribunals for loss of profit arising from policy decisions. Labour MP Geraint Davies, who called the debate, urged negotiators to drop controversial clauses, insisting the judicial system in each country was sufficient protection in mature democracies. His motion called for the UK parliament to play a role in scrutinising any eventual deal, instead of it being passed exclusively by Brussels. “The harsh reality is this deal is being stitched up behind closed doors by negotiators with the influence of big corporations and the dark arts of corporate lawyers – stitching up laws that will be quite outside contract law and common law, outside the shining light of democracy, to in fact give powers to multinationals to sue governments over laws designed to protect their citizens.”

“My view is we should pull the teeth of the corporate wolves scratching at the door of TTIP by scrapping the investor-state dispute settlement rules altogether and so we can get on with the trade agreement without this threat over our shoulder.” Caroline Lucas, the former Green party leader and MP for Brighton Pavilion, said she believed TTIP amounted to a corporate takeover and cited independent research from Tuft University suggesting workers’ wages could suffer by £3,000 a year. “Countries like the Czech Republic, Slovakia and Poland who are in trade agreements which include this kind of investor-state relationship have been sued 127 times and lost the equivalent money that could have employed 300,000 nurses for a year,” she said. “The idea this isn’t a problem is patently wrong; this is about a corporate takeover and that is why it is right to oppose this particular mechanism.”

Read more …

Good man.

Pope Francis Says Freedom Of Speech Has Limits (BBC)

Pope Francis has defended freedom of expression following last week’s attack on French satirical magazine Charlie Hebdo – but also stressed its limits. The pontiff said religions had to be treated with respect, so that people’s faiths were not insulted or ridiculed. To illustrate his point, he told journalists that his assistant could expect a punch if he cursed his mother. [..] Speaking to journalists flying with him to the Philippines, Pope Francis said last week’s attacks were an “aberration”, and such horrific violence in God’s name could not be justified. He staunchly defended freedom of expression, but then he said there were limits, especially when people mocked religion. “If my good friend Doctor Gasparri [who organises the Pope’s trips] speaks badly of my mother, he can expect to get punched,” he said, throwing a pretend punch at the doctor, who was standing beside him. “You cannot provoke. You cannot insult the faith of others. You cannot make fun of the faith of others. There is a limit.”

Read more …

Apr 252014
 
 April 25, 2014  Posted by at 2:08 pm Finance Tagged with: , , ,  


Roger Sturtevant Auburn, Placer County, California March 27, 1934

Arseniy Yatsenyuk, PM in name only of certain parts of what was once Ukraine, today solemnly declared that Russia wants to start World War III. I am not kidding you. He said it this way: “The world has not yet forgotten World War II, but Russia already wants to start World War III.” An estimated 28 million Russians died in World War II, which might be more than in all other nations combined, so if there’s one country that has not forgotten it, it’s Russia. Yatsenyuk’s remark needs to be seen in that light, because he knows very well how it will be received in Russia. That’s why he says it. It’s such a dark sort of provocation that one might suspect it’s meant to start a war. It’s not that different from accusing a group of Jewish people of wanting to start a holocaust.

But Russia knows that Yatsenyuk may be a fool, but much more than that he’s a shill and a tool, and his words are scripted. As Russian FM Lavrov said a few days ago, the US runs the show in Ukraine. Which is why discontented protesters in eastern cities, who may be armed but are still Yatsenyuk’s own people and compatriots, can first be labeled terrorists, then have their own army set against them, and when that army refuses to shoot their own neighbors, see it be replaced by Special Forces, in which there can be no doubt Blackwater mercenaries play an increasingly large role. Putin said turning your army against your own people proves you’re a junta. He may have a point.

The little man inside says that Yatsenyuk is not the only scripted puppet in this wargame theater. Obama looks like he’s playing that same role. He had maintained a good working relationship with Lavrov and Vladimir Putin, which greatly helped defuse tensions in the Middle East. And now all of a sudden it seems as if America is no longer interested in defusing anything, no dialogue, no diplomacy, it’s all just words of war. Headlines in media such as Forbes have even started to talk about nuclear war. And you wonder; where is all this coming from? US Secretary of Hair John Kerry manages to outshout the foot in his mouth, and anything that comes out is takes by western reporters as gospel, damn proper journalistic standards. RT, labeled by Kerry today as a “propaganda bullhorn” (which is at least a little funny), used these words:

Kerry’s described protesters as those brandishing “the latest issue from the Russian arsenal, hiding the insignias on their brand new matching military uniforms, and speaking in dialects that every local knows comes from thousands of miles away.” Kerry again cited photographs – the most notorious of which Kiev claimed proved the involvement of Russians in Ukraine. “Some of the individual special operations personnel, who were active on Russia’s behalf in Chechnya, Georgia and Crimea have been photographed in Slavyansk, Donetsk, and [Lugansk],” he said.

The New York Times, which carried the photos and unverified claims from Kiev, published a climbdown two days later – ‘Scrutiny Over Photos Said to Tie Russia Units to Ukraine’, where it admitted failing to properly verify the Kiev photo dossier. The photographer who took and published a key photo contradicted Kiev’s claim it had been taken in Russia. While the State Department acknowledged the error, Kerry continued to refer to ‘evidence’.

Kerry cited NATO’s top military commander Gen. Philip M. Breedlove, who claims “a military operation” is being “carried out at the direction of Russia.” Contrarily EU intelligence head, Commodore Georgij Alafuzoff, assessed the so-called ‘green men’ are “mostly people who live in the region who are not satisfied with the current state of affairs.” Speaking on behalf of “the world,” Kerry “rightly judged” that Ukraine’s interim government is “working in good faith” and has implemented all the points of the Geneva agreement.

Now I don’t want to widely wax into a story about neocons, but I do wonder who got to Obama to make him do his about-face. For all of his long list of failures, he’s never before sought to draw blood in his public speeches. And if you want to figure out who’s started to overrule him, you easily, if not inevitably, end up in the far right corner of America. Some two weeks ago, I think it was Bloomberg that ran a piece saying Putin wouldn’t dare take Alaska, and I was thinking that is the craziest thing I’ve read in a while. And it doesn’t really matter that Putin last week at his press-op said Alaska was too cold to annex, it’s about the ideas US media try to plant in people’s brains. and get away with. It’s all such an insult to the few remaining American functioning neurons left, and they should not take that sitting down. I suggest you tell those blood thirsty octogenarian wankers like McCain and Brzezinski you don’t want to send your kids into another war. They won’t live to see the end of it anyway.

Besides, the US might be well advised to focus on another kind of war that picking up speed, that of global currencies. Unless all the shouting over Ukraine is merely an attempt to hide the fact that it has already conceded defeat, and all bets are now on the armed forces. The loss of value in the Chinese yuan (renminbi) is taking on “real proportions”, and that has Tyler Durden wonder what it all means:

The PBOC’s willingness to a) enter the global currency war (beggar thy neighbor), and b) ‘allow’ the Yuan to weaken and thus crush carry traders and leveraged ‘hedgers’ is about to get serious. The total size of the carry trades and hedges is hard to estimate but Deutsche believes it is around $500bn and as Morgan Stanley notes the ongoing weakness means things can get ugly fast as USDCNY crosses the crucial 6.25 level where losses from hedge products begin to surge. This is a critical level as it pre-dates Fed QE3 and BoJ QQE levels and these are pure levered derivative MtM losses – not a “well they will just rotate to US equities” loss – which means major tightening on credit conditions…

Remember, as we noted previously, these potential losses are pure levered derivative losses… not some “well we are losing so let’s greatly rotate this bet to US equities” which means it has a real tightening impact on both collateral and liquidity around the world… yet again, as we noted previously, it appears the PBOC is trying to break the world’s most profitable and easy carry trade – which has created a massive real estate bubble in their nation (and that will have consequences). [..]

In other words: Is Beijing merely trying to damage the USDCNY carry trade in an effort to diminish the role and size of the shadow banking system, or is that merely a sleight of hand behind which it – desperately – tries to regain the trade and related growth numbers it’s losing hand over fist? Durden:

The bottom line is the question of whether the PBOC’s engineering this CNY weakness is merely a strategy to increase volatility and thus deter carry-trade malevolence (in line with reform policies to tamp down bubbles) OR is it a more aggressive entry into the currency wars as China focuses on its trade (exports) and keeping the dream alive? (Or, one more thing, the former morphs into the latter as a vicious unwind ensues OR the market tests the PBOC’s willingness to break their momentum spirit). The escalation of the unwind in recent days suggests the vicious circle is beginning.

The flood of less than positive numbers emanating from China recently, despite the leadership’s attempts to play them down, tell us China is seriously hurting. And by now it’s large enough to spread that hurt around the world, if only to lessen its own pain. What Durden doesn’t mention but also plays a major role here is Japan’s troubles in exports and trade deficits. If China plays beggar thy neighbor, the closest main neighbor it has after all is Japan. And the yen is already down 20%. Which is painful for China. The Chinese government pretends it can do a controlled demolition of its credit bubble, but how many times has that been done successfully? As anyone knows who’s ever stuck needles and pins in a fully inflated air balloon, bubbles tend to pop in unexpected ways and places. Durden quotes Russell Napier:

“Mercantilist alchemy transmutes China’s external surpluses into foreign exchange reserves and renminbi. But with capital outflows from China at record highs, those surpluses are only maintained due to its citizens’ foreign-currency borrowing. Bank-reserve and M2 growth are already near historical lows and are driving tighter monetary policy. This will lead to severe credit-quality issues and force the authorities to accept a credit crunch or opt for a major devaluation of the renminbi. They will do the latter; and despite five years of QE, the world will get deflation anyway.”

I think it should be obvious that the US is not the first and foremost casualty here for now, since the Euro picks up much more of the hurt for now, late as the EU is to the currency musical chairs game (that really is a good metaphor). But when you start talking trade in general and and carry trades in particular, the USD is still the reserve currency, and even if Europe suffers the first blows and will stumble if not start falling, the American dollar has a lot more exposure. In unflattering terms not meant to hurt anyone, the US has a much bigger and therefore slower ass to put down on that chair when the music stops.

That, I would think, is a bigger risk to Washington than Ukraine war games. Unless, as I said earlier above, it has already conceded defeat. If that’s the case, a war over pipeline access may have to be seen in a whole other light.

Lance Roberts: “The housing market is driven by what happens at the margins.” Well, household formation is frozen over solid. That’s what happens.

Schadenfreude: Economists “Stunned” By Housing Fade (STA)

The housing market is driven by what happens at the margins. At any given point, there are a finite number of people wanting to “buy” a home and those that have a “for sale” sign in their yard. As with all markets, changes in the housing market are driven by the “supply/demand” equation. There is notably five important points that should be considered.

1) What is forgotten by the majority of economists and analysts is that individuals buy “payments,” not “houses.” Incremental increases in interest rates have a direct effect on a buyer’s “willingness” and “ability” to make certain monthly payments. Since, the majority of American’s are already primarily living paycheck-to-paycheck, any increase in the monthly payment may change both affordability and qualification for a loan.

2) Since individuals are “backward looking,” increases in interest rates may put a hold on activity as they “hope” that the payment, mortgage rate or home price they just missed out on will be available again soon. While individuals will eventually adjust upward, it will take some time for them to become “convinced” that a change has permanently occurred.

3) Many of the homes that have been purchased to date were by “all cash” buyers and institutions for conversions to rental properties. Now, with “price-to-rent” ratios reach levels of low profitability – the demand for that activity is decreasing. As I stated last year: “We are likely witnessing the beginning of that slowdown.” Furthermore, with institutions now moving to liquidate their rental investments either through direct sale or IPO – the increase in supply without an increasing pool of available and willing buyers could intensify downward pressure.

4) In order to continue to drive the housing recovery forward you need fresh entrants into the housing market in the form of household formations. As discussed by Walter Kurtz recently:

“The biggest issue, however, remains household formation. As of the end of last year, for example, the number of American households was not growing at all. This is likely due to record low marriage rates as well as a slew of other factors (lack of employment, wage growth, etc.). Whatever the reason, household formation needs to stabilize before we see stronger results in the US housing market.”

5) Lastly, with the Federal Reserve now tapering it ongoing stimulative activities and the government support programs either ended (cash for houses) or losing effectiveness (HAMP, HARP) the support for housing activity is fading. The chart below shows the Total Real Estate Sales Activity Index (TRESAI), which is a composite of the seasonally adjusted new and existing home sales data. For the purpose of this article, which is focusing on the actual buy and sell of homes, this is the most appropriate index.v

Read more …

Forever blowing bubbles.

How The Fed Ravaged The Main Street Housing Market, Again (David Stockman)

Now that the $5k suits are riding out of town on their John Deere lawnmowers, the “flash” boom in housing prices during the past 20 months is showing its true nature. It was the handiwork of the Fed’s free money gift to Wall Street. In less than two years more than 400,000 busted mortgages were scooped up by LBO funds on the theory that single family suburban housing had become a new “asset class”—-and that the “buy-to-rent” investment models put together by spreadsheet jockeys was the next Big Thing.

There was even going to be a new version of the Wall Street slice-and-dice machine—this time in the form of securitized rental payment streams rather than mortgage payments. That way renters in Scottsdale AZ could send their rent checks to Wall Street where they would be forwarded in pieces to the proverbial Norwegian fishing village retirement fund. But the grand scheme didn’t attain lift-off—other than to drastically and suddenly inflate housing prices in the default-ridden lower-end of the bombed-out sub-prime housing markets. In some areas, prices exploded upwards by 25-50% in less than two years, but that wasn’t evidence of healing and recovery as was so loudly brayed by Wall Street and Fed economists.

It was just fast-ignition hot money piling into another momentum trade. All the other factors which were supposed to get better according to the spreadsheet models, however, didn’t track their appointed paths. In the real world the cost of rehabbing the foreclosures purchased in bulk on the courthouse steps ended up higher; vacancy rates fell more slowly than modeled; renter churn was greater; maintenance costs were higher; rents rose more slowly; and the Norwegian fishing villages were not quite so eager to buy the latest product from Wall Street’s meth labs.

Read more …

‘Albert Edwards said the next shoe to drop in world the economy is a systematic attempt by China to export its deflation to any other sucker willing to accept it… ‘

Is China Exporting Deflation Worldwide By Driving Down Yuan? (AEP)

The Chinese Yuan weakened yet again this morning, punching through the key line of 6.25 against the dollar. It is almost back to where it was two years ago. This is the biggest story in the global currency markets. Yuan devaluation has reached 3.1% this year. The longer this goes on, the harder it is to accept Beijing’s story that it is one-off measure to teach speculators a lesson and curb hot money inflows. The US Treasury clearly suspects that the Chinese authorities have reverted to their mercantilist tricks, driving down the exchange rate to keep struggling exporters afloat. Officials briefed journalists in Washington two weeks ago in very belligerent language.

The Treasury’s currency report this month accused China of trying to “impede” the market by boosting foreign reserves by $510bn last year to $3.8 trillion – “excessive by any measure”. It gave a strong hint that China is disguising its reserve accumulation. You don’t have to dig hard. Simon Derrick from BNY Mellon said a recent buying spree of US Treasuries and agency debt by Belgium of all places looks like a Chinese front.

Holdings by entities in Belgium have jumped to $341bn from $169bn last August. This would appear to explain how China’s FX reserves have kept rising to $3.95 trillion even as its custody holdings in the US itself have been falling. If so, China is playing dirty pool. Hans Redeker from Morgan Stanley says China seems to have adopted a “beggar thy neighbour policy” to counter the slowdown at home and soak up excess manufacturing capacity. Albert Edwards from Societe Generale said in a note today that China is “sliding inexorably towards deflation”. Factory gate prices have been falling for 25 months in a row. [..]

Mr Edwards said the next shoe to drop in world the economy (leaving aside the Donbass) is a systematic attempt by China to export its deflation to any other sucker willing to accept it by driving down the yuan. Those countries that have failed to build adequate defences by keeping inflation safely above 1% could face a nasty shock when this happens. The eurozone looks like the sucker of last resort. A Chinese deflationary tide would push Southern Europe over the edge. Perhaps that is why the ECB’s Mario Draghi sounded ever more alarmed today in his efforts to talk down the euro today.

Read more …

‘About to get serious’.

The “Real Pain” Is About To Begin As Yuan Slumps To 19-Month Low (Zero Hedge)

The PBOC’s willingness to a) enter the global currency war (beggar thy neighbor), and b) ‘allow’ the Yuan to weaken and thus crush carry traders and leveraged ‘hedgers’ is about to get serious. The total size of the carry trades and hedges is hard to estimate but Deutsche believes it is around $500bn and as Morgan Stanley notes the ongoing weakness means things can get ugly fast as USDCNY crosses the crucial 6.25 level where losses from hedge products begin to surge. This is a critical level as it pre-dates Fed QE3 and BoJ QQE levels and these are pure levered derivative MtM losses – not a “well they will just rotate to US equities” loss – which means major tightening on credit conditions… [..]

Remember, as we noted previously, these potential losses are pure levered derivative losses… not some “well we are losing so let’s greatly rotate this bet to US equities” which means it has a real tightening impact on both collateral and liquidity around the world… yet again, as we noted previously, it appears the PBOC is trying to break the world’s most profitable and easy carry trade – which has created a massive real estate bubble in their nation (and that will have consequences). [..]

The bottom line is the question of whether the PBOC’s engineering this CNY weakness is merely a strategy to increase volatility and thus deter carry-trade malevolence (in line with reform policies to tamp down bubbles) OR is it a more aggressive entry into the currency wars as China focuses on its trade (exports) and keeping the dream alive? (Or, one more thing, the former morphs into the latter as a vicious unwind ensues OR the market tests the PBOC’s willingness to break their momentum spirit). The escalation of the unwind in recent days suggests the vicious circle is beginning. Finally, putting aside speculative trader P&L losses, many of which are said to be of Japanese origin and thus will hardly enjoy much or any PBOC sympathies, here is CLSA’s Russel Napier on what the long-tern fate of the Renminbi will be:

“Mercantilist alchemy transmutes China’s external surpluses into foreign exchange reserves and renminbi. But with capital outflows from China at record highs, those surpluses are only maintained due to its citizens’ foreign-currency borrowing. Bank-reserve and M2 growth are already near historical lows and are driving tighter monetary policy. This will lead to severe credit-quality issues and force the authorities to accept a credit crunch or opt for a major devaluation of the renminbi. They will do the latter; and despite five years of QE, the world will get deflation anyway.”

Read more …

Might be.

Might Be Time to Short the Euro (A. Gary Shilling)

In parts 1 and 2 of this series, I explored looming deflation in Europe and why central banks fret over it. The European Central Bank is gearing up to depress the euro, which it blames for much of the deflation threat in the euro area, or at least the portion it can influence. The ECB reduced its overnight reference interest rate from 0.5% to 0.25% in November. If it cut the rate again, the ECB would join the Federal Reserve and the Bank of Japan with rates of essentially zero. With all the central-bank-created liquidity sloshing around the world, these rates are largely symbolic. Yet another ECB reduction could make foreign investment in the euro area less attractive, to the detriment of the euro.

Currently, ECB member banks are paid nothing on their deposits. A negative rate – charging banks to leave their money at the central bank – would encourage them to lend and invest elsewhere. That would push down returns in the euro area and discourage foreign investors, also to the detriment of the euro. Austrian central banker Ewald Nowotny backs this approach. Bundesbank President Jens Weidmann and Bank of Finland Governor Erkki Liikanen, like Nowotny members of the ECB’s governing council, have expressed interest. Denmark introduced negative rates on deposits in 2012, but no major central bank has followed so far.

The Fed, the Bank of England and the Bank of Japan have bought government securities extensively, but such quantitative easing would be difficult in the euro area. One reason is that corporate and other types of financing are concentrated in the banks and not in the bond markets, as in the U.S., where QE works its way into the economy rapidly. QE would also be harder because there are 18 euro-area countries and, therefore, 18 bond markets for the ECB to consider. Still, the ECB could purchase securities backed by mortgages, auto and small-business loans, corporate debt, and packages of bank loans, as well as government debt. ECB President Mario Draghi and governing council members Liikanen, Weidmann, Jozef Makuch of Slovakia and Benoit Coeure of France have all expressed interest.

Read more …

US banks can do whatever they want. Too big to fail.

US Banks Return To Lax Standards And Subprime Loans (Guardian)

Where are the profits of yesteryear? Hard to find, it seems. Certainly, the glee with which Jamie Dimon, CEO of JP Morgan Chase, and his fellow top bankers welcomed the government-assisted recovery in banking (and banking profits) in 2009 has dwindled and faded. Indeed, most of the tailwinds helping banks have become headwinds holding them back. Homeowners aren’t refinancing any more, and new home sales hit their lowest levels in eight months in March. The result? Double digit dips in mortgage lending, already buffeted by an uptick in long-term interest rates. Fixed-income trading is in the doldrums, too. That leaves new mortgage lending at a 14-year low.

Bond trading is in no better shape, as risk aversion keeps market participants sitting grumpily on the sidelines. Commodities trading has been profitable, but has attracted far too much regulatory scrutiny – and legal bills – to make it worthwhile. (Deutsche Bank and JP Morgan Chase are just two to have walked away from those businesses.) “Revenue growth in banking this decade for the banks is on pace to be worst since the Great Depression,” says Mike Mayo, an analyst with CLSA Americas LLC, who has tracked the banking industry for about a quarter of a century. Just to make matters worse, a recent source of extra profits – the release of loan loss reserves, once set aside to provide a cushion against bad loans – is running low. It’s going to get tougher for the banks to make their earnings look better than they really are.

If all these falling profits are the banks’ problem, their solution to the problem could end up being worse.That’s because whenever growth falters, profit-hungry banks have a history of taking on more risk: risk they can’t afford, that they don’t understand or that they can’t manage. They relax lending standards (remember no-doc loans and the subprime lending debacle?) or underwriting standards (the junk bond and leveraged buyout boom of the late 1980s; and during the dot.com bubble). Allegations of mis-selling of products, ranging from annuities to complex derivatives, multiply like rabbits left unattended.

Read more …

Part of the Russia sanctions.

S&P Cuts Russia to Step Above Junk (Bloomberg)

Russia’s sovereign rating was cut to the lowest investment level at Standard & Poor’s and may face further downgrades if growth deteriorates and the U.S. and Europe apply wider sanctions over the conflict in Ukraine. S&P cut Russia’s rating to BBB- from BBB after lowering its outlook to negative in March, according to a statement today. S&P last downgraded Russia in December 2008. “The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said in the statement.

The U.S. and its allies have an additional list of sanctions ready and will act on it if there is no progress de-escalating the crisis in Ukraine, where security forces are moving against pro-Russia separatists in the country’s east, U.S. President Barack Obama said yesterday in Tokyo. Russia was placed on review for a downgrade by Moody’s Investors Service on March 28 and Fitch Ratings cut its outlook to negative. “The decision is partially expected — Russia is almost in recession, even without sanctions,” Dmitry Dorofeev, a money manager at BCS Financial group, said by phone.

Read more …

Corporations are just slushing zombie money around, nothing productive for miles. These days, that’s called the global financial system.

Merger Boom Tarnishes Ratings as Borrowing Soars (Bloomberg)

Corporate dealmaking that helped propel the Standard & Poor’s 500 stocks index to a record is playing out differently for debt investors, who must contend with the biggest threat to credit grades since 2009. With borrowings to fund mergers and acquisitions accelerating amid an improving economy, the number of credit-ratings cuts linked to such deals is exceeding increases by the most since the fourth quarter of 2009, according to data from Moody’s Analytics. The firm’s credit-assessment unit lowered 96 ratings during the year ended March, while raising the rankings on 78.

The damage to balance sheets is coming amid a growing chorus of concerns that a sixth year of record-low interest rates engineered by the Federal Reserve has left bond prices overvalued and allowed borrowers to get away with financings that they wouldn’t be able to do in normal times. Valeant Pharmaceuticals International Inc. is pursuing Allergan Inc. in a takeover that may drop the Botox maker to junk status. “Perhaps we’re being far too complacent about the outlook for credit,” John Lonski, chief financial markets economist at the Moody’s unit in New York, said by telephone April 9. “We might be shocked to find out that by 2016, we have more problems on the credit front than we currently anticipate in part because companies are now and over the near-term using leverage a little bit too aggressively.”

Read more …

Think anyone will do time for this?

GM Confirms Multiple Investigations Under Way (WSJ)

General Motors confirmed in a government filing that it is under investigation by federal prosecutors, the Securities and Exchange Commission, a state attorney general, Congress and the National Highway Traffic Safety Administration for its handling of a recent rash of recalls, including those involving 2.6 million cars with faulty ignition switches. GM formally confirmed the existence of a federal criminal probe of the recall by the U.S. Attorney for the Southern District of New York, in its quarterly report to the SEC filed today. GM had earlier reported an 82% drop in first quarter earnings, largely because of a $1.3 billion charge related to the ignition switch and other recalls.

GM said it believes it is “cooperating fully” with requests for information from the various investigating agencies, although it is paying fines to NHTSA for missing an April 3 deadline to respond fully to questions from the auto-safety regulator. It isn’t clear from GM’s filing what aspects of the ignition-switch recall matter the SEC or the unidentified state attorney general are investigating. The company says in the filing it isn’t currently able to estimate the potential costs of lawsuits or investigations tied to the ignition recall, but adds resolving the probes could have a “material adverse impact” on the company’s finances.

Read more …

They should go for $130 billion. And criminal trials. But they won’t. BofA is too big to fail.

US To Seek More Than $13 Billion From BofA Over RMBS (Bloomberg)

U.S. prosecutors are seeking more than $13 billion from Bank of America Corp. to resolve federal and state investigations of the lender’s sale of bonds backed by home loans in the run-up to the 2008 financial crisis, according to people familiar with the matter. The settlement would come on top of the $9.5 billion the bank agreed last month to pay to resolve Federal Housing Finance Agency claims, said two people who asked not to be named because the negotiations are private. A deal could come within the next two months, the people said.

If the Justice Department gets its way, the case against Bank of America will eclipse JPMorgan Chase’s record $13 billion global settlement over similar issues in November. That settlement, which included a $4 billion agreement with the FHFA, encompassed loans JPMorgan took over with its purchases of Washington Mutual and Bear Stearns. Bank of America, the second-biggest U.S. lender, is among at least eight banks under investigation by the Justice Department and state attorneys general for misleading investors about the quality of bonds backed by mortgages amid a drop in housing prices. Many of the loans in question were inherited by Bank of America when it purchased subprime lender Countrywide and Merrill Lynch, the people said.

Read more …

First, Help to Buy blows a giant bubble. When it starts deflating, tougher lending rules are introduced. These guys got some nerve.

Horse, Barn: Tougher Mortgage Rules For UK Homebuyers (Guardian)

Homebuyers and remortgagors will face tougher checks before being granted a mortgage under new rules for lenders that come into force on 26 April. The changes, which follow the City regulator’s mortgage market review (MMR), will see would-be borrowers asked to give more detail about their spending when they apply for a home loan. Borrowing will be based on how much they have left after regular expenditure, rather than on their income, and lenders will have to check that people can still afford repayments if interest rates rise.

Lloyds Banking Group, which is the country’s biggest mortgage lender and offers mortgages through Halifax, Lloyds Bank and Bank of Scotland, said the changes meant interviews with new customers could take around 15 minutes longer, taking the average length up to around two hours. It said the additional questions would be focused on imminent changes to their lives that can be backed up with evidence. For example, this could relate to someone planning to cut back on their working hours or take out a loan. The regulator behind the new rules, the Financial Conduct Authority (FCA), said they would “hardwire common sense into the mortgage market”, and prevent a return to irresponsible lending that took place in the runup to the credit crisis.

Read more …

It’s time for Steve Keen.

BOE Chief Economist-To-Be: “It’s Time To Rethink Everything” (Zero Hedge)

Andrew Haldane, who is well known among readers as being one of the most outspoken and truthy central bankers in the world, will become Bank of England’s Chief Economist in June. That fact is what makes his comments – however factually honest – extremely uncomfortable for the Keynesian status quo DSGE modelers alive and well in every central bank in the world. To summarize his thoughts in the following letter – the models are useless and it’s time to rethink everything… Via Andrew Haldane,

• In the light of the financial crisis, those [macro and micro model] foundations no longer look so secure. Unbridled competition, in the financial sector and elsewhere, was shown not to have served wider society well. Greed, taken to excess, was found to have been bad. The Invisible Hand could, if pushed too far, prove malign and malevolent, contributing to the biggest loss of global incomes and output since the 1930s. The pursuit of self-interest, by individual firms and by individuals within these firms, has left society poorer.

• The crisis has also laid bare the latent inadequacies of economic models with unique stationary equilibria and rational expectations. These models have failed to make sense of the sorts of extreme macro-economic events, such as crises, recessions and depressions, which matter most to society. The expectations of agents, when push came to shove, proved to be anything but rational, instead driven by the fear of the herd or the unknown.

• The economy in crisis behaved more like slime descending a warehouse wall than Newton’s pendulum, its motion more organic than harmonic.

• … we are a co-operative species every bit as much as a competitive one. This is hardly a surprising conclusion for sociologists and anthropologists. But for economists it turns the world on its head.

• In this light, it is time to rethink some of the basic building blocks of economics.

Read more …

Bit of a hype perhaps?

How A 700-Page Economics Book Surged To No. 1 On Amazon (CBS)

“Capital in the Twenty-First Century,” at first glance, seems an unlikely candidate to become a best-seller in the U.S. After all, it’s 700 pages long, translated from French, and analyzes centuries of data on wealth and economic growth. But the book, from economist Thomas Piketty, is now No. 1 on Amazon.com’s best-seller list, thanks to rave reviews and positive word of mouth. Beyond that, however, the book has something else going for it: “Capital” has hit a nerve with Americans with its message about income inequality.

An economics book becoming a best-seller is “unusual, and it speaks to the fact that Piketty is addressing a really fundamental issue,” said Lawrence Mishel, president of the Economic Policy Institute. “He has his finger on a great dynamic, and is changing the terms of our discussion. Rather than asking why low-wage workers are not doing well, it focuses on the wealthy and the role of capital.” The main thrust of the book is that, in the jargon of economists, the rate of return on capital has far outstripped the rate of economic growth. The book also portrays the post-World War II period of economic progress across all classes as an anomaly, not the norm.

The result: mounting income inequality, as the wealthiest Americans gain a growing share of the nation’s economic spoils – and political power. “When the rate of return of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which which democratic societies are based,” Piketty writes.

Read more …

‘Bitcoin Better Than Any Form Of Money That Has Ever Existed Before’ (RT)

Bitcoin is shaping up to be the currency of the future, enabling people to send and receive money anywhere in the world free of charge in a currency that govts are unable to control, Roger Ver, bitcoin investor and the CEO of Memory Dealers told to RT.

RT: Why do you think this Moscow Bitcoin conference is important?
Roger Ver: Bitcoin is a global phenomenon. It’s important to everybody on the entire planet. Anybody who uses money, bitcoin is important to them.

RT: Russia isn’t banning bitcoin but when it comes to Russia’s central bank and prosecutor’s office, they are against it; does that suggest bitcoin is not welcome, is that going to change do you think?
RV: I don’t have a direct insight into what goes on inside of Russia but one guy at the conference just a moment ago when I asked that same question, he said nobody cares, so that may be the attitude of the people within Russia. And at the end of the day nobody can block or stop or prevent anyone using bitcoin if they want to, it’s just a protocol and it just works.

RT: If you had to name three reasons why bitcoin is better than traditional money what would they be?
RV: Bitcoin is the first time anyone can send and receive any amount of money with anyone anywhere on the planet. So that’s one reason. You can now send and receive that money without having to pay any fees to Western Union or a bank or anybody like that, so there’s a second. And it’s impossible to have your account frozen or seized, that’s just three out of many. I can go on for hours and hours. But bitcoin is so much better than any form of money that’s ever existed before in the history of the world.

RT: What other reasons are there?
RV: No counterfeiting, right? When you or I counterfeit money, we go to jail for counterfeiting, when central banks do it, they call it fancy names like quantative easing or economic stimulus. With bitcoin that can’t happen. There’s a fixed supply of bitcoins, there will never be more than 21 million bitcoins and that’s a fantastic benefit that bitcoin has over traditional government issue currencies. Another issue is that there are no charge backs, once you’ve been paid with bitcoin you know the money is yours and you don’t have to worry about it being taken away from you months later like you do with a credit card or other forms.

Read more …

This is a huge development in Europe. The Netherlands have for decades lived grandly off the sales of their giant gas field. Now the rest of Europe is going to need Putin even more.

Netherlands To Become Net Gas Importer In 10 Years – IEA (RT)

Europe’s second largest gas producer, the Netherlands, could shift from exporter to importer within a decade, says the International Energy Agency (IEA). The study suggests seeking alternative energy sources in nuclear, unconventional fuels or renewables. Declining production at the large Groningen gas field will turn the Netherlands into a net importer of natural gas, the IEA report says. The IEA sees opportunities for developing indigenous resources, as well as re-assessing its energy security and looking at different cost-effective paths. Since 2005 the Netherland’s consumption of renewable energy has increased from 2.3% to 4.5% in 2013 and is expected to reach 14% by 2020 and 16% by 2023, the IEA says.

“Promoting lower-carbon energy use, especially in industry and transport, makes economic sense and can improve both sustainability and competitiveness,” said Maria Van der Hoeven, IEA Executive Director. She says the Netherlands can benefit from cooperating with its neighbors in competitive electricity markets, particularly for combining reserves to meet demand peaks at the regional level.

“Integrating the electricity systems across borders with new interconnections ensures resource efficiency. Europe’s energy markets need to be efficient and make renewable energy an integral part,” Van der Hoeven said. Meanwhile the Netherlands remains one of the most fossil-fuel-intensive economies among IEA members. The share of fossil fuels in the Netherlands energy mix is above 90%. The IEA says the country needs to develop a longer term energy policy up to 2030, which would involve huge investment into, and the promotion of, green projects like energy efficient buildings.

Read more …

Not surprising, but good that David put it into hard data: the EIA contradicts its own numbers.

The EIA Is Seriously Exaggerating Shale Gas Production (David Hughes)

“Natural gas output from US’ Marcellus edges closer to 15 Bcf/d: EIA” declared the headline in Platts that attracted my attention, since the latest data on the Marcellus shale gas play of PA and WV indicated production was less than 12 bcf/d. This headline was based on the latest issue of the EIA’s new monthly Drilling Productivity Report published April 14. Reading further, the article claimed that the Haynesville shale play “peaked at about 10 Bcf/d in 2012”, when in fact it had peaked at closer to 7 bcf/d in 2011. These errors are serious exaggerations of reality and bear further investigation, as the EIA Drilling Productivity Report is widely read and quoted in the media.

Fortunately the EIA also publishes independent production data by shale play in its Natural Gas Weekly Update. A check of production data for the Marcellus revealed that it was at 11.8 bcf/d in February and that the Haynesville had indeed peaked at 7.2 bcf/d in November 2011. These figures are also corroborated by Drillinginfo, a commercial database which is used by the EIA. There are four shale plays in common between the two EIA reports: the Marcellus, Haynesville, Bakken, and Eagle Ford.

Read more …

Let’s go!

Family Awarded $3 Million In First US Fracking Trial (RT)

After three years of legal wrangling, a Texas family has won its case against a company engaged in hydraulic fracturing near their home. The family, which suffered tangible health deterioration after the fracking began, was awarded $3 million. A Dallas jury ruled Tuesday in favor of the Parr family, which sued Aruba Petroleum in 2011 after each member of the family noticed a decline in health that, their attorneys argued in court, was the result of dozens of gas wells surrounding their home in Wise County, Texas. The family was awarded nearly $3 million in what is believed to be the first fracking trial in US history.

“They’re vindicated,” the family’s attorney David Matthews wrote in a blog post. “I’m really proud of the family that went through what they went through and said, ‘I’m not going to take it anymore’. It takes guts to say, ‘I’m going to stand here and protect my family from an invasion of our right to enjoy our property.’ “It’s not easy to go through a lawsuit and have your personal life uncovered and exposed to the extent this family went through.” Aruba Petroleum will appeal the jury’s decision, according to MSNBC. The company argues that there are dozens of gas-drilling operations in the area, thus it is difficult to tell who is responsible for the family’s degenerative health. Other companies that own wells around the Parr’s home settled with the family, EcoWatch reported.

Read more …

This is from research done by UK grocery giant Asda. Kudos for taking the initiative.

95% Of Fresh Produce Already At Risk From Climate Change (Guardian)

Some 95% of the entire fresh produce range sold by Asda is already at risk from climate change, according to a groundbreaking study by the supermarket giant. The report, which will be published in June, is the first attempt by a food retailer to put hard figures against the impacts global warming will have on the food it buys from across the world. Asda, which is owned by Walmart, brought in consultants PwC to map its entire global fresh produce supply chain against the models being used by the Intergovernmental Panel on Climate Change.

Chris Brown, Asda’s senior director for sustainable business, said the study shows the impacts are already being felt and will get progressively worse as time goes on. The results have already gone to the highest levels of management and Brown said some of the results were surprising. “It did highlight things which we did not expect to see as well as quantifying the impacts.” “Quite a lot of the debate is illuminated by opinions, this provides some much-needed data.” The only produce that would remain unaffected by a rise in temperatures would be those with easily moved production, like fresh herbs.

Brown said the results show that it is imperative that supermarkets start to think strategically about how to cope with the impacts of rising emissions. Tackling views that the UK food supply might benefit from a warmer climate, Brown said: “If we do nothing, we will leave a rubbish legacy for our children and the future would go one of two ways. One is that rich western economies can try to buy their way out of trouble although that is morally not acceptable, and emerging economies such as China will equally be able to use their economic power to secure access to food.

Read more …