Jan 272018
 
 January 27, 2018  Posted by at 10:58 am Finance Tagged with: , , , , , , , , , , ,  10 Responses »
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Grete Stern Bertolt Brecht 1934

 

Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)
IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)
China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)
This was 1987. Start Rebalancing – David Rosenberg (ZH)
What Could Possibly Go Wrong? (Lance Roberts)
Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)
Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)
How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)
Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)
Canada Illegally Subsidized Bombardier: Embraer (R.)
More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)
Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)
Brexit Saddles EU With A Huge Budget Problem (CNBC)
Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

 

 

Not much longer.

Bankers, Policy Makers at Davos Revel in ‘Sweet Spot’ Economy (BBG)

The global elites have rediscovered their animal spirits. As the World Economic Forum drew to a close in the Swiss ski resort, the overarching mood of the executives, policy makers and investors was that their economies are in fine shape and that stock markets have every reason to extend their run. “Let’s celebrate what could go right for the moment because we are in a sweet spot,” IMF Managing Director Christine Lagarde said on the closing panel discussion. The Standard & Poor’s 500 Index has gained about a quarter since the start of 2017 and the IMF is forecasting the strongest worldwide economic growth this year since a brief post-recession bounce in 2011. Some 57% of executives polled by PricewaterhouseCoopers saw the economy improving in 2018, about double the number of a year ago.

The rise of cryptocurrencies was evident in the Swiss town both in conference sessions and on the promenade where companies rent shopfronts to promote their wares. “The greatest worry I’ve heard over the past days in Davos is that there is not enough worry,” Mary Callahan Erdoes, JPMorgan asset-management unit CEO, said on the panel. “It’s O.K. to not be worried, to celebrate how we got here.” Erdoes thanked the policy makers on the stage for working “tirelessly” and “giving all of these government jobs such fabulous prestige and something that I know all of us now perhaps aspire to do.” “Wow,” said Bank of England Governor Mark Carney. “This is fantastic.” Such sentiment led delegates to declare that it was the most upbeat Davos gathering since before the financial crisis. Yet the giddiness also gave some investors pause as they warned against turning too exuberant.

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Lagarde gets what she wants and then turns against it. Cover all your bases.

IMF Chief Warns Trump’s Tax Cuts Could Destabilise Global Economy (G.)

Donald Trump’s huge tax cuts are a threat to the stability of the global economy, the managing director of the IMF has warned. Christine Lagarde singled out Trump’s tax reforms as one of three risks that could destabilise the current economic recovery, especially given the boom in stock markets in the past year. “While the US tax reforms certainly will have positive effects in the short term, for the US and other countries around, it might also lead to serious risks,” Lagarde told the World Economic Forum in Davos. “That has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available,” she added. She was speaking shortly after the US president told Davos that his tax reforms had created “a big, beautiful waterfall” of pay rises for US workers, as American companies passed the tax cut on.

However, the IMF is concerned that cutting taxes will lead to a bigger US budget deficit, and that extra borrowing by the US Treasury will force up long-term American interest rates. As a result, it fears growth could be choked off in the longer term, making the stock market vulnerable to a sudden downward lurch. Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF’s annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, EU and Japan – are doing better. “I don’t think that we’ve completed the job,” said Lagarde, who fears that the growing economic inequality in many countries is creating “fractures”. “Having growth is good, improving productive is good, but [policymakers should] make sure that the results of that growth are properly allocated,” said the IMF chief, adding that inequality is growing in many advanced economies, and very high in emerging markets.

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An emerging market that’s stopped emerging.

China Set To Lose ‘Emerging Market’ Status As Growth Declines (F.)

China has been considered an emerging market for over 25 years due to its rapid reform process. Generally speaking, emerging markets are defined as developing countries moving toward an open market economy. Unfortunately, if one takes a close look at growth levels and reform factors, China has shed some of the key characteristics of an emerging market, due to a sharp slowdown in the reform process, an increasingly state centered economy, and lower levels of true growth. China is an upper middle income country that enjoyed gangbusters growth through the 1990s and 2000s, but that is now suffering from a major economic slowdown that has no end in sight. One major reason for slowing growth is that market forces have been quashed by a a buildup in the state sector and mounting economic and financial risks that would result in economic collapse if the reform process is restarted.

Under President Xi Jinping, China’s economic policy has shifted toward enhancing the organization and financial sources of state owned enterprises, and away from liberalizing the currency and financial sector. Strides that were made toward internationalizing the RMB and bringing about a more market-based financial system have been reversed. A simultaneous over-reliance on easy credit has created plenty of risks in the financial sector that now prevent officials from even considering making the financial sector more market-based. Slow reform of the service sector and strong state presence in service subsectors like health and education have contributed to declining growth.

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When fear is gone, all that’s left is greed. No balance.

This was 1987. Start Rebalancing – David Rosenberg (ZH)

When discussing today’s unexpectedly weak Q4 GDP print, which came in at 2.6%, far below consensus and whisper estimates in the 3%+ range, and certainly both the Atlanta and NY Fed estimates, we pointed out the silver lining: personal spending and final sales, which surged 4.6% Q/Q (vs 2.2% in Q3), although even this number had a major caveat: “as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis.” Indeed, recall the stunning Gluskin Sheff chart we presented a month ago, which showed that 13-week annualized credit card balances in the U.S. had gone “completely vertical” in the last few months of 2017 which we said “should make for some great Christmas.”

Meanwhile, even more troubling was the ongoing collapse in the US personal savings rate, which last month tumbled to the lowest level since the financial crisis as US consumers drained what little was left of their savings to splurge on holiday purchases.

And while we highlighted and qualified two trends as key contributors to the spending surge in Q4 personal spending, Gluskin Sheff’s David Rosenberg – who is once again firmly in the bearish camp – did one better and quantified the impact. Not one to mince words, the former Merrill chief economist described what is going on as “The Twilight Zone Economy” for the following reason: “how many times in the past have we seen a 2.6% savings rate coincide with a 4.1% jobless rate? How about never…huge ETF flows driving equities higher, but these metrics are screaming ‘late cycle’.” He then proceeded to give “some haunting math” from the GDP number: “The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%.”

[..] a more troubling development is that the conditions observed ahead of the Black Monday crash are becoming increasingly apparent. Here is Rosenberg’s stark assessment of where we stand: “Rising bond yields. Full employment. Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987. Start rebalancing.”

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More 1987.

What Could Possibly Go Wrong? (Lance Roberts)

What goes up, eventually comes down. That is just reality. The bull market that began in 2009, has now entered the final stage of “capitulation” as investors throw caution to the wind and charge headlong into the markets with reckless regard for the consequences.

Of course, it isn’t surprising given the massive amounts of liquidity continually injected into the financial markets and global Central Banks have now figured out that continually rising financial markets solve much of the world’s ills. Simply, with enough liquidity, you can cover up bad (credit risks) by guaranteeing holders they will never default. It’s genius. It’s a “no lose” investment scheme. Unfortunately, we have seen this repeatedly in the past. In the 1980’s it was “Portfolio Insurance” – a “no lose” investment program that eventually erupted into the crash of 1987. But not before the market went into a parabolic advance first.

In the 1990’s – it was the dot.com phenomenon which was “obviously” a “no lose” proposition. Even after Alan Greenspan spoke of “irrational exuberance,” two years later the market went parabolic once again.

Then in 2006-2007, banks invented the CDO-squared, a collateralized derivative obligation based on other collateralized derivative obligations. It was a genius way to invest with “no risk” because the real estate market had never crashed in history.

Today, it is once again an absolute “certainty” that markets will rise from here as global Central Banks have it all under control. What possibly could go wrong?

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Leverage squared.

Equity Allocations At Record Highs As Investor Cash Hits All Time Low (ZH)

While Bank of America may or may not be right in its forecast that as a result of the market meltup, buying panic and sheer euphoria to get into stocks, which just pushed the bank’s proprietary “Bull and Bear” indicator to a level which on 11 out of 11 prior occasions always presaged a ~12% selloff…

… a market correction or worse is imminent, one thing that is indisputable is the funding status of the Private Clients served by BofA’s Global Wealth and Investment Management (GWIM) team. What it shows is that investor cash allocation has just dropped to a record low of just 10%…

… while investor equity exposure is rising at fastest pace in 10 years.

… and total equity allocations are back to record highs.

In other words: ‘bear capitulation’ as everyone is now long stocks in what BofA called a “non-stop euphoric cabaret.” When will this stop, or reverse? According to BofA, keep an eye on the dollar, which as long as it keeps sliding is supporting of risk assets, however the risk is once it bounces, to wit, the “US dollar key catalyst; note US-Europe FX spat sparked ’87 crash” and “higher US$ “pain trade” = risk-off coming weeks”

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Even if cryptos don’t have a security issue, they certainly appear to have one.

Japanese Cryptocurrency Exchange Loses $535 Million To Hackers (CNBC)

Hackers stole several hundred million dollars’ worth of a lesser-known cryptocurrency from a major Japanese exchange Friday. Coincheck said that around 523 million of the exchange’s NEM coins were sent to another account around 3 a.m. local time (1 p.m. ET Thursday), according to a Google translate of a Japanese transcript of the Friday press conference from Logmi. The exchange has about 6% of yen-bitcoin trading, ranking fourth by market share on CryptoCompare. The stolen NEM coins were worth about 58 billion yen at the time of detection, or roughly $534.8 million, according to the exchange. Coincheck subsequently restricted withdrawals of all currencies, including yen, and trading of cryptocurrencies other than bitcoin. Bloomberg first reported the hack. A CNBC email sent to Coincheck’s listed address bounced back.

Cryptocurrency NEM, which intends to help businesses handle data digitally, briefly fell more than 20% Friday before recovering to trade about 10% lower near 85 cents, according to CoinMarketCap. Most other major digital currencies, including bitcoin, traded little changed on the day. Coincheck management said in the press conference that it held the NEM coins in a “hot” wallet, referring to a method of storage that is linked to the internet. In contrast, leading U.S. exchange Coinbase says on its website that 98% of its digital currency holdings are offline, or in “cold” storage. The Japanese exchange said it did not appear that hackers had stolen other digital currencies.

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There will never be a global consensus. Just a lot of poorly understood laws.

How Bitcoin Regulation Will Happen, And What It Will Mean (Ind.)

Bitcoin has been surging and falling in recent weeks. And it seems mostly to come down to one thing: regulation. The lack of regulation is, for now, a large part of bitcoin and other cryptocurrencies’ intrigue: they seem to allow people to avoid the traditional restrictions in place in money and other assets. But they’re also part of their bad reputation, with the same anonymity and decentralisation allowing them to be used for crime. Many governments have suggested they could introduce such rules. But it’s still not clear what they’d look like, or how they’d arrive; here’s an attempt to predict what might be to come in that most unpredictable of markets. In recent weeks, bitcoin has plunged after the threat of regulation in South Korea.

But it was part of a much broader trend – countries around the world have already introduced new rules, and those that haven’t are talking about it. The price has mostly levelled out in recent weeks, after regulation brought volatility and a slowly sliding price. But there might be more disruption coming, as countries look towards regulation, worried about the activity and behaviour that bitcoin could be enabling. That was obvious as world leaders arrived in Davos and were asked their opinion. The event could be a preview of far more wide-ranging controls that could be introduced in March, when the G20 governments’ financial and economic leaders meet in Argentina – a number of the countries attending have specifically said they will focus on fixing regulation of cryptocurrencies at that meeting.

They include France and Germany, which are said to be working together on bitcoin regulation. Many other countries have called for the international community to work together to bring regulation to bitcoin. Davos has been a platform for various world leaders to give their opinion on bitcoin. And they all seem to agree on one thing. “My number-one focus on cryptocurrencies, whether that be digital currencies or bitcoin or other things, is that we want to make sure that they’re not used for illicit activities,” said Steven Mnuchin, Donald Trump’s most senior financial policymaker, told the World Economic Forum in Davos, Switzerland. “We encourage fintech and we encourage innovation, but we want to make sure all of our financial markets are safe,” Mnuchin said. “We want to make sure that the rest of the world – and many of the (Group of) 20 countries are already starting on this – have the same regulations.”

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Airplane makers wars are set to intensify.

Bombardier Gets Surprise Win After U.S. Rebuffs Boeing Trade Case (BBG)

Bombardier can start shipping C Series jets to Delta Air Lines after a surprise ruling by a U.S. trade panel that said the proposed imports won’t hurt American industry. U.S. companies and workers aren’t being harmed by sales of 100- to-150-seat aircraft from Canada, the International Trade Commission said Friday. The tribunal’s unanimous vote blocks a Commerce Department decision last month to impose duties of almost 300%. Friday’s vote deals a blow to Boeing, which said Bombardier sold the C Series in the U.S. at less than fair value while benefiting from government subsidies. The ruling also opens the door for Montreal-based Bombardier to woo new American customers while potentially easing U.S. trade tensions with Canada and the U.K., where the company builds wings for the aircraft. “I’m shocked,” said Chris Murray, an analyst in Toronto. “This clears the way for the jets being to delivered to Delta,” Murray said. “It also removes any concerns about potential future orders in the U.S.”

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Bombardier goes from one lawsuit to another. Should have stuck to making skidoos.

Canada Illegally Subsidized Bombardier: Embraer (R.)

Brazilian planemaker Embraer said on Friday that the U.S. Department of Commerce has shown that the Canadian government “heavily and illegally subsidized” Bombardier and its C Series aircraft, allowing the company to survive and distorting the aviation industry. The statement came just after Bombardier won an unexpected trade victory against U.S. planemaker Boeing when a U.S. agency rejected imposing hefty duties on sales of Bombardier’s new CSeries jet to American carriers.

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Oh well, there’s plenty homeless people.

More Than Half Of New-Build Luxury London Flats Fail To Sell (G.)

Developers have 420 towers in pipeline despite up to 15,000 high-end flats still on the market. More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”. The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home. The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes.

Builders started work last year on 1,900 apartments priced at more than £1,500 per sq ft, but only 900 have sold, according to property data experts Molior London. A typical high-end three-bedroom apartment consists of around 2,000 sq ft, which works out at a sale price of £3m. There are an extra 14,000 unsold apartments on the market for between £1,000-£1,500 per sq ft. The average price per sq ft across the UK is £211. Molior says it would take at least three years to sell the glut of ultra-luxury flats if sales continue at their current rate and if no further new-builds are started. However, ambitious property developers have a further 420 residential towers (each at least 20 storeys high) in the pipeline, says New London Architecture and GL Hearn. Henry Pryor, a property buying agent, says the London luxury new-build market is “already overstuffed but we’re just building more of them”.

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Building more is the worst of all options. See above. But it’s alos the only option that lets the illusion last a bit longer.

Building More Homes Will Not Solve Britain’s Housing Crisis (Pettifor)

Everyone – from the government, to housing charities, to housebuilders – has bought into the conventional wisdom that the dysfunction that racks our housing market is a matter of demand and supply. We’re not building enough houses, so house prices have been sent rocketing, taking home-ownership out of reach for growing numbers of young people. But in reality, our housing problems are not a simple feature of supply and demand. Rather, our housing market has a bitcoin problem. What has bitcoin mania got in common with house prices, especially in the capital? For starters, both are speculative bubbles. Vast sums of money have been poured into finite supplies of bitcoins and London property. Both have consequently exploded in value, albeit over different time periods.

And so both have become financialised assets that deliver capital gains far in excess of people’s ability to earn income from work, or from investment in the real economy. And as with bitcoin, so with London property: speculators are convinced that prices will continue to rise for ever. It’s speculation in the property market that is fuelling stratospheric house price rises, not shortage of supply. When the “fuel” of private capital, mortgage credit and cash from the bank of mum and dad is supplemented by government subsidies and tax breaks, house prices rise. Moreover, wealthy global and non-resident buyers have funnelled more than £100bn into London property over recent years, making the problem even worse.

So, rather counterintuitively, building more houses is not the right prescription. House prices won’t fall until the tide of cash flowing into the market abates, for example by tightening mortgage credit, or shrinking the pool of buy-to-let investors. That may already be starting to happen as real incomes continue to fall, the Bank of England toughens up buy-to-let mortgages, and stamp duty rises are phased in for second properties. Despite this, the government pretends the real cause of unaffordable housing is a shortage of new builds. It uses this argument to provide cover for further taxpayer-funded subsidies and tax breaks that benefit its property-owning core voters, its close allies in the construction industry and property market, and its supporters in the City of London.

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Germany crony Holland wants to pay less toward Brexit because its economy is hit harder than others. It also wants the entire EU budget cut. Juncker wants to raise that budget and buy more Europe. This could blow up. Expect more heavy handedness from Brussels.

Brexit Saddles EU With A Huge Budget Problem (CNBC)

Brexit is leaving the EU with a big problem on its hands and a “very tough” negotiation ahead, European Commission Vice-President Jyrki Katainen told CNBC on Friday. The U.K. has been one of the main contributors to the European budget, but once it has left the bloc there will be a gap in the EU budget that will have to be worked out somehow, Katainen said. “It is certainly a problem and we have to address it,” he said at the World Economic Forum (WEF) in Davos, Switzerland. “If I should bet something, we need to adjust the budget to a certain extent but also we need fresh money from member states. We also have to look at how money is spent, how we could get more out of less.”

But many EU members do not want to pay more to compensate for the U.K.’s decision to leave the union. Denmark, for example, made it clear last year that it would not step up its financial commitment because of Brexit. Katainen told CNBC that one solution could be using more financial instruments, including equity investments, to finance European projects rather than direct financial contributions. “This is what we are planning or exploring at the moment… it’s going to be a very though negotiation,” he said.

The current EU budget is planned out until 2020. The European Commission is due to come up with proposals on the future of the budget in May. During a speech in September, EC President Jean-Claude Juncker said: “An important element will be the budgetary plans the commission will present in May 2018. Here again, we have a choice — either we pursue the European Union’s ambitions in the strict framework of the existing budget, or we increase the European Union’s budgetary capacity so that it might better reach its ambitions. I am for the second option.”

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Yeah, the ones they previously promised to take but never did.

Deal With France ‘Could Bring Hundreds More Child Refugees To UK’ (G.)

Charities working to bring unaccompanied refugee children to safety are optimistic that agreements signed by Theresa May and Emmanuel Macron could lead to hundreds more receiving permission to travel legally to the UK. Details emerging from last week’s summit show that officials agreed to extend an eligibility deadline so that children fleeing conflict and arriving in Europe before last Friday could be considered under the Dubs amendment, the scheme launched in 2016 under which the government agreed to offer a safe and legal route to refugee children travelling alone. Previously, refugee children had to have arrived in Europe before March 2016 to be considered for acceptance under the scheme. This deadline meant large numbers of vulnerable young people who had arrived in France, Germany and Italy more recently were not eligible.

Lord Dubs, the Labour peer who forced the government to commit to helping more young refugees in January 2016, welcomed the development. “We hope dozens more will be transferred, but it is crucial that they get a move on. In France they are sleeping under the trees in very bleak conditions.” Although the May-Macron agreement focused on France, concerns are growing for the large number of unaccompanied refugee children in Greece where there are currently 3,150 refugee children, travelling without families, and only 1,109 spaces in shelters, according to the charity Safe Passage, which has campaigned to bring more young refugees to the UK. The charity hopes that a further 250 could be brought to safety under the Dubs scheme. The government has committed to accommodating 480 refugee children under the scheme, but has so far only transferred about 220.

Campaigners hope the announcement could reduce the number of young refugees killed on roads outside Calais, after a spike in deaths in recent weeks among asylum seekers attempting to climb on to lorries in order to travel illegally to the UK. The UK government also agreed to speed up the time it spends considering applications from young refugees for transfer to the UK, committing to providing an answer in 10 days, and to transferring them within 15 days after that. George Gabriel, at Safe Passage, said: “For those who are awaiting family reunion, these changes will mean that there is a much lower incentive to make a dangerous journey to reunite with a loved one.”

Read more …

Jan 262018
 
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Horacio Coppola Avenida Díaz Vélez al 4800, Buenos Aires 1952

 

Mario Draghi Slaps Down Steve Mnuchin Over Dollar Comments (Ind.)
Mueller Almost Done With Obstruction Part of Trump Probe (BBG)
Trump Denies Trying To Fire Mueller (BBC)
Flying Blind, Part 2: The Destruction Of Honest Price Discovery (Stockman)
China Chills (Mauldin)
Dear Elon: Tesla’s Base Is Not the Model S Coalition (Klippenstein)
Tory Civil War Erupts Over Brexit (Ind.)
Seven in 10 UK Workers Are ‘Chronically Broke’ (G.)
Rough Sleeping Is Now A Routine Sight In UK (G.)
Assange to Ask UK Court to Lift Arrest Warrant (BBG)
Turkish PM Disputes Greek Sovereignty, Tsipras Cites ‘Aggressive Neighbor’ (K.)
Majority Of Refugees Stranded On Aegean Islands To Stay In Greece (K.)
1.7 Billion-Year-Old Chunk Of Canada Found Stuck To Australia (Ind.)
Human Ancestors Left Africa Far Earlier Than Previously Thought (G.)
A Third Of Coral Reefs ‘Entangled With Plastic’ (BBC)

 

 

One Goldman alumni to another. And Trump repaired it somewhat, and then this morning the dollar falls again. Trump may address this in his speech today in Davos. Mnuchin never talked about anything but short term. Storm, teacup.

Mario Draghi Slaps Down Steve Mnuchin Over Dollar Comments (Ind.)

The President of the European Central Bank, Mario Draghi, has taken a sideswipe at the US Treasury Secretary, Steve Mnuchin, for endorsing a weaker dollar, emphasising deep concerns among central bankers over the economically destabilising impact of exchange rate swings. At the ECB’s regular conference Mr Draghi referred indirectly to the surprising comments at the World Economic Forum on Wednesday by Mr Mnuchin, who said “a weaker dollar is good for us as it relates to trade and opportunities.” These comments sent the dollar, which has been trending lower since early 2017, down still further. The dollar index, which measures the traded value of the greenback against a basket of other currencies, including sterling and the euro, hit a three-year low of 88.5.

Mr Draghi complained to reporters in Frankfurt that although exchange rate movements were “a fact of nature” reflecting economic fundamentals some recent volatility was caused by “someone else” – a clear reference to Mr Mnuchin – whose “use of language…doesn’t reflect the terms of reference that have been agreed.” Mr Draghi cited an IMF communique from last year, signed by the US, which said: “We will refrain from competitive devaluations, and will not target our exchange rates for competitive purposes”. Asked directly by journalists whether the ECB Council had been concerned by the Treasury Secretary’s comments Mr Draghi answered in the affirmative. “Several members of the Council expressed concern, and this concern was also in a sense was broader than simply the exchange rate, it was about the overall status of international relations right now,” he said.

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Objection, your honor. Leading.

Mueller Almost Done With Obstruction Part of Trump Probe (BBG)

Special Counsel Robert Mueller is moving at a far faster pace than previously known and appears to be wrapping up at least one key part of his investigation – whether President Donald Trump obstructed justice, according to current and former U.S. officials. Mueller has quietly moved closer to those around Trump by interviewing Director of National Intelligence Dan Coats, National Security Agency Director Michael Rogers, Attorney General Jeff Sessions and former FBI Director James Comey in recent weeks, officials said. His team has also interviewed CIA Director Mike Pompeo, NBC News reported. Those high-level officials all have some degree of knowledge about events surrounding Trump’s decisions to fire Comey and Michael Flynn, his first national security adviser.

“Clearly the names that are coming out now indicate that we’re into the obstruction of justice side of it,” said Stanley Twardy, a former U.S. attorney for Connecticut who’s now a white-collar criminal defense lawyer. “He’s now getting people who are closest to the president, closest to the issues.” Next, Mueller is expected to schedule an interview with Trump in coming weeks to discuss those events, according to a person familiar with the matter. “I’m looking forward to it,” Trump said of a meeting with Mueller, which he suggested may happen in about two to three weeks. He told reporters at the White House Wednesday that “I would love to do it” and “I would do it under oath” even though his Democratic rival Hillary Clinton wasn’t sworn in when she was interviewed in 2016 over her use of private emails as secretary of state.

Even if Mueller wraps up the obstruction probe, other elements of his investigation – such as whether Trump or anyone close to him helped Russia interfere in the 2016 presidential election or broke any other laws — are likely to continue for months more, said two officials who asked to remain anonymous speaking about the probe.

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New York Times based on anonymous sources as usual.

Trump Denies Trying To Fire Mueller (BBC)

US President Donald Trump has described as “fake news” a report that he ordered the firing of special counsel Robert Mueller last June, but backed down when his own lawyer threatened to resign. White House counsel Donald McGahn said the sacking would have a “catastrophic effect” on the presidency, the New York Times reported. Mr Mueller is leading an inquiry into possible Trump campaign collusion with Russia to influence the US election. Both Moscow and Mr Trump deny this. “Fake News. Typical New York Times. Fake Stories,” Mr Trump said at the World Economic Forum in the Swiss town of Davos, where he is due to give a speech later.

He has also been speaking about other issues: • Russian news agency Tass quoted Mr Trump as saying he “hoped” for more dialogue between the US and Russia • White House officials said Mr Trump was open to rejoining the Paris climate change agreement, if better terms for the US could be agreed • Mr Trump will say in his speech that he is in favour of “fair and reciprocal” free trade but will not tolerate trade abuses and intellectual property theft, according to US officials
Mr Mueller, a former FBI director, was appointed special counsel last May to look into the collusion allegations.

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Nobody acknowledges the importance of price discovery anymore. Without which there are no functioning markets. How fast people forget.

Flying Blind, Part 2: The Destruction Of Honest Price Discovery (Stockman)

[..] the real economic iniquity of central bank driven Bubble Finance is that it destroys all the pricing signals that are essential to financial discipline on both ends of the Acela Corridor. And as quaint at it may sound, discipline is the sine qua non of long-term stability and sustainable gains in productivity, living standards and real wealth. The pols of the Imperial City should be petrified, therefore, by the prospect of borrowing $1.2 trillion during the upcoming fiscal year (FY 2019) at a rate of 6.0% of GDP during month #111 through month #123 of the business expansion; and doing so at the very time the central bank is pivoting to an unprecedented spell of QT (quantitative tightening), involving the disgorgement of up to $2 trillion of its elephantine balance sheet back into the bond market.

Even as a matter of economics 101, the forthcoming $1.8 trillion of combined bond supply from the sales of the US Treasury ($1.2 trillion) and the QT-disgorgement of the Fed ($600 billion) is self-evidently enough to monkey-hammer the existing supply/demand balances, and thereby send yields soaring. But that’s barely the half of it. All the laws of economics, which are now being insouciantly ignored by the stock market revilers, are also time and place bound. That is to say, deficit finance in a muscle-bound Welfare State/Warfare State democracy like the US is always a questionable idea. After all, it is virtually guaranteed based on the budgetary doomsday forces now at work that by 2030 the public debt will approach $40 trillion compared to the $930 billion level where it stood when the Gipper took office in January 1981. In a half century, therefore, the GDP – swollen by inflation notwithstanding – will have grown by 8.5X versus a 43X eruption of the debt.

[..] At the present time, the S&P 500 is trading at the absurd multiple of 26.3X what are estimated to be reported profits for 2017. Yet the sell-side stock peddlers say not to worry because the one-year forward multiple on ex-items earnings is still only in the high teens. So what! The business cycle has not been outlawed and this one has at best a few quarters or even a year or two to go. So forward earnings are irrelevant nonsense. They are an interim place holder before the 30% to 50% hit to profits happens when the US economy finally experiences its next rendezvous with recession. The very idea that you would value the market based on a timeless forward PE multiple is complete baloney, of course. Yet that’s exactly where the Fed’s drastic financial repression and destruction of honest price discovery has led.

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That is one graph.

China Chills (Mauldin)

People have been predicting Chinese real estate crashes for years. Eventually they will be right. Is that time approaching? Here’s the lead from a January 16 Wall Street Journal story, “China’s Hot Housing Market Begins to Cool.” “BEIJING—China’s housing market has defied gravity and government restraints for two years, floating on a tide of bank loans and speculation. Until now. In Beijing and Shanghai – two of the country’s largest markets – and other megacities, sales have stalled and prices have dropped, falling slightly in some pockets and dramatically in others. Demand has dried up in these areas as a result of government measures including higher mortgage rates, higher down-payment requirements and limits on buying a second or third home. Would-be sellers are increasingly putting plans on hold in hope that prices will rebound.” That doesn’t sound good at all. WSJ backs up the gloomy language with data, though:

Some of this shake-out is happening by design as the government tries to manage growth on a sustainable path. The picture also varies greatly by city and region. Beijing and Shanghai are China’s equivalents of Washington and New York – except that they are much, much larger. What happens to them affects the whole country to some degree – and other countries, too. By some estimates, China’s property market accounts for a third of GDP growth. Falling construction activity will mean less need to import construction materials from Australia – and maybe fewer Chinese buyers in Canada. Falling demand won’t be good for housing prices in either of those places.

Then there are wild cards. President Trump has so far held back on promises to crack down on trade with China, in part because he wants Beijing’s help managing the North Korea issue. I doubt he will wait forever. He has a lot of latitude to impose tariffs, quotas, and other restrictions on China. Ironically, a peaceful resolution on the Korean Peninsula might be economically negative if it removes a barrier to trade war.

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Bunch of hipsters.

Dear Elon: Tesla’s Base Is Not the Model S Coalition (Klippenstein)

Losing the Obama coalition cost Hillary Clinton the Presidency in 2016; her base wasn’t big enough to bring success. Losing the Model S coalition could cost Elon Musk his own dreams, because his base isn’t big enough on its own, either. The Model S coalition of technophiles (techies) and progressives gave Tesla a strong tailwind when the vehicle launched. Techies formed the base, while progressives were the balance of the coalition. But while they came together for the Model S to strike a blow against Big Oil, these two groups aren’t natural allies.

We can see the rift growing in real time: while techies continue to celebrate Amazon, Uber, and Silicon Valley in general, there’s an escalating progressive backlash against labor conditions at warehouse distribution centres, more and more and more and more evidence of Uber’s culture of toxic lawlessness, and the obscene excesses of startup culture (which include a Dickensian digital class divide, possibly-endemic sexism, predatory sex parties and entitlement complexes worthy of the sons of Trump — and that’s only the stuff we know about so far).

The difference between the groups is aptly captured in the 2015 Canadian Plug-in Electric Vehicle study conducted by Simon Fraser University in Canada (webpage here, full report here, executive summary here).

Figure 23 from the SFU Canadian Plug-in Electric Vehicle Study 2015

The chart above shows the results of a study of Volt, Leaf, and Model S early adopters who were asked what images would be attributed to their vehicles. This tells us something about the buyers, because consumers purchase products whose so-called “symbolic benefits” (the brand, basically) match their own self-image, values, interests, and aspirations.

Volt and Leaf owners (yellow and green bars, respectively) are pretty similar, except when it comes to thinking their vehicle is attractive or sporty — the styling of the Leaf 1.0 is, shall we say, an acquired taste! Joking aside, this tells us that first-generation Leaf 1.0 buyers, like first-generation Prius buyers before them, really didn’t care about style. These people, and others of like mind, form the progressive coalition. The Tesla early adopters are different in two categories, and extremely different in four, suggesting that Tesla buyers have different motivations than Volt and Leaf owners. Tesla’s “tribe” wants status goods – which for automobiles means something sporty, exotic, powerful, and successful. They’re Tesla’s techie base.

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As if that is the most important thing as the ship sinks.

Tory Civil War Erupts Over Brexit (Ind.)

A fresh outbreak of Tory infighting is threatening Theresa May’s leadership after Philip Hammond vowed to keep Britain interlocked with the EU – while hard Brexit supporters staged an open revolt. The Prime Minister was accused of “losing control of the Brexit process” as the two wings of her party fought over her withdrawal policy, which Eurosceptics increasingly see as a sellout. In Davos, the Chancellor inflamed tensions with a dramatic call for only “very modest” changes to the UK’s trading rules with the EU, setting out the risks of trying to break free. He went out of his way to praise the plea by the CBI employers’ organisation for the “closest possible relationship between the EU and the UK post-Brexit” – days after it called for permanent membership of the customs union.

Britain must not agree to anything that “throws away all the benefits we have of the complete alignment of our regulatory systems, the complete integration of our economies”, Mr Hammond said. He later sought to clarify his remarks by saying “for anyone concerned” that the UK would be outside the customs union and single market “which clearly represents change”. But, in a major speech, Jacob Rees-Mogg put himself at the head of a growing Brexiteer revolt. The Government was accused of planning to leave the UK “shackled to the EU” and of putting the free-trade benefits of Brexit “at risk”. “The British people did not vote for that. They did not vote for the management of decline,” Mr Rees-Mogg told an audience in Hampshire. “They voted for hope and opportunity and politicians must now deliver it.

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Uk and US have much in common.

Seven in 10 UK Workers Are ‘Chronically Broke’ (G.)

Economic insecurity has become the “new normal” in the UK with at least 70% of the UK’s working population “chronically broke”, according to a study by the thinktank the Royal Society of Arts. Thriving, striving or just about surviving, the RSA/Populus survey of more than 2,000 workers, found that while about 30% of respondents said they lived comfortably, 40% said their finances were permanently precarious. The remaining 30% said they were not managing to get by. “Economic insecurity now stretches right throughout our labour market, including within jobs that appear safe on the surface,” said Brhmie Balaram, the author of the report and a senior researcher at the RSA.

According to the report, 32% of the UK’s workers have less than £500 in savings and 41% have less than £1,000. Almost 30% are concerned about their level of debt while 43% of workers do not have anyone in their household they could depend on to support them financially in the event of hardship. Fewer than half of employees (44%) feel they have progressed in their careers over the last five years; only 40% feel they have good opportunities to progress in future. “From retail workers to warehouse operatives, and from care workers to cleaners, we are beginning to uncover the hidden millions who are chronically broke year in, year out,” said Balaram. “The real danger for this group of workers is a childcare bill unpaid and yet another rent rise around the corner.”

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Anyone want to argue the UK is NOT a class society?

Rough Sleeping Is Now A Routine Sight In UK (G.)

Rough sleeping in the north London borough of Camden has increased by 647%, according to government figures released on Thursday. The huge rise is accounted for in part by an official underestimate of the problem last year, but no one who lives here will be surprised to see it confirmed that there has been a sharp jump in the numbers of people sleeping on the streets. Camden reported the largest increase in rough sleeping of any area in England, from 17 rough sleepers in 2016 (an optimistic estimate) to 127 counted this year. Ten years ago there were almost no rough sleepers in Camden. So what’s gone wrong? The Labour-run council says it’s clear that cuts are to blame. Councillor Nadia Shah said: “Rough sleeping in Camden is now at unprecedented levels. This is an appalling situation made worse by the politics of austerity that have led to cuts in services across the country.”

Nationally, welfare reform and cuts to benefits have increased financial insecurity, while soaring rents and reductions in the permitted housing benefit payments have left many people with an impossible gap between rent owing and income. On top of this, changes to the way housing benefit is paid have increasingly meant money no longer goes straight to the landlord but to the tenant, which has led to a sharp rise in arrears and evictions. Huge pressure on mental health services means vulnerable people are not getting the support they need. Drug and alcohol addiction services are struggling financially. Reductions to local authority budgets mean Camden’s funding from central government will have fallen by half between 2010 and 2020. In 2019-20 the council is forecast to receive £106m, down from the £241m received in 2010-11.

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How political is the British court system?

Assange to Ask UK Court to Lift Arrest Warrant (BBG)

After more than five years holed up in Ecuador’s embassy in London, WikiLeaks leader Julian Assange will ask a U.K. court to lift his arrest warrant. A one-day hearing will take place at Westminster Magistrates court and a ruling is scheduled to be issued Friday, according to a spokesman for the Crown Prosecution Service. Assange, 46, has been in the Ecuadorian embassy in London since evading deportation in a Swedish sexual assault probe. It’s “theoretically possible” that Assange could be released Friday, the CPS spokesman said. Assange and WikiLeaks have become famous over the past decade for disclosing confidential documents about the U.S. government and politics. In 2016, WikiLeaks injected itself into the middle of the U.S. presidential race by publishing hacked emails from Hillary Clinton’s campaign.

Assange is asking the court to lift the warrant about eight months after Swedish prosecutors dropped the underlying rape probe, saying that his steps to evade questioning made it impossible to pursue the case. Assange sought refuge in the Ecuadorian embassy in June 2012, after exhausting options in U.K. courts to avoid extradition over the allegations stemming from a 2010 trip to Sweden. He refused to return to the Scandinavian country, citing risks he would be extradited to the U.S. London police say that warrant is still in force unless lifted by court. “Westminster Magistrates’ Court issued a warrant for the arrest of Julian Assange following him failing to surrender to the court” in 2012, the police said in an emailed statement. “The Metropolitan Police Service is obliged to execute that warrant should he leave the embassy.”

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Last time they were on the brink of war was 1996. Never far away.

Turkish PM Disputes Greek Sovereignty, Tsipras Cites ‘Aggressive Neighbor’ (K.)

Turkish Prime Minister Binali Yildirim has again disputed Greece’s sovereignty over parts of the Aegean Sea, while accusing Athens of building up bilateral tension while Ankara is busy fighting what he described as “terrorism” in its wider region. In comments made to local media on Wednesday, Yildirim accused Athens of pursuing a repeat of the 1996 Imia crisis, when the two countries came to the brink of war over ownership of the uninhabited Aegean islets, adding that such an attempt “will not go down well” in Ankara. “In case something similar occurs, there are always means at Turkey’s disposal to defend itself. Let there be no qualms about that,” he said. Turkey disputes Greece’s territorial sovereignty over the rocky formations, known in Turkish as Kardak, on the basis of its “gray zones” theory.

Last week, a Turkish patrol boat conducting a dangerous maneuver bumped into a Hellenic Navy gunboat near Imia. No damage was reported from the contact. Meanwhile, notwithstanding Turkey’s ongoing air and ground operation in the Afrin region of northern Syria aimed at fighting Syrian Kurdish fighters and Islamic State militants, violations of Greek air space by Turkish fighter jets continue, if at a lower rate. A mock dogfight between Greek and Turkish F-16s took place northwest of Lesvos island on Wednesday at 2.35 p.m. The issue of Turkey’s provocations was raised on Wednesday by Greek Prime Minister Alexis Tsipras, who, speaking at the World Economic Forum in Davos, described Turkey as an “aggressive neighbor, sometimes unpredictable with an aggressive military activity in the Aegean.” “For somebody, it is very easy to be also aggressive if they are living in Luxembourg or Netherlands, because their neighbors are Belgium and Luxembourg, and not Turkey. But it’s not so easy for us,” he said in English.

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In a bankrupt country. Greece should demand hundreds of billions from the EU to handle this.

Majority Of Refugees Stranded On Aegean Islands To Stay In Greece (K.)

The majority of migrants and refugees who have landed on the Aegean islands since the March 2016 deal signed between the European Union and Ankara will remain in Greece as conditions for their return to Turkey are considered “not safe,” according to data from the country’s Asylum Service. According to the data, authorities have processed 25,814 applications for asylum submitted by individuals stuck at island screening centers, or hotspots. Authorities have rejected 5,437 of those claims and, under the terms of the deal, the applicants should be returned to Turkey. However, only around 1,400 of that number have been returned so far. Meanwhile, 20,337 people have received permission to move to the Greek mainland. They will move to the next stage of their asylum process, provided that they are not enlisted in a European relocation schemes. A total of 21,726 mostly Syrian refugees were relocated from Greece to other EU member-states under a program which was completed in 2017.

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Sometimes a headline is enough.

1.7 Billion-Year-Old Chunk Of Canada Found Stuck To Australia (Ind.)

A chunk of what is now Canada broke away from the rest of North America and collided with Australia around 1.7 billion years ago, according to a new study. A team of geologists examining rocks found in northern Queensland concluded some of them did not appear to have originated in Australia, and had characteristics more common among those found in Canada. They say the discovery indicates the region surrounding present-day Georgetown in northern Queensland broke apart from the continent of North America during its early formation and smashed into what is now known as Australia. “Our research shows that about 1.7 billion years ago, Georgetown rocks were deposited into a shallow sea when the region was part of North America,” said Adam Nordsvan, a PhD student at Curtin University, who led the study published in the journal Geology.

“Georgetown then broke away from North America and collided with the Mount Isa region of northern Australia around 100 million years later.” The discovery provides scientists with new evidence about the formation of the ancient supercontinent, Nuna – a land mass made up of many of the continents we know today. Over millennia, the Earth’s continents have slowly moved around, reorganising themselves into different combinations, and Mr Nordsvan and his collaborators are trying to understand some of these ancient movements. “This was a critical part of global continental reorganisation when almost all continents on Earth assembled to form the supercontinent called Nuna,” said Mr Nordsvan. Nuna existed long before the more well-known supercontinent of Pangaea, which was formed around 335 million years ago.

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We have no idea of our own history.

Human Ancestors Left Africa Far Earlier Than Previously Thought (G.)

A prehistoric jawbone discovered in a cave in Israel has prompted scientists to rethink theories of how the earliest human pioneers came to populate the planet, suggesting that our ancestors left Africa far earlier than previously thought. The fossil, dated to nearly 200,000 years ago, is almost twice as old as any previous Homo sapiens remains discovered outside Africa, where our species is thought to have originated. Until recently, several converging lines of evidence – from fossils, genetics and archaeology – suggested that modern humans first dispersed from Africa into Eurasia about 60,000 years ago, quickly supplanting other early human species, such as Neanderthals and Denisovans, that they may have encountered along the way. However, a series of recent discoveries, including a trove of 100,000 year-old human teeth found in a cave in China, have clouded this straightforward narrative.

And the latest find, at the Misliya cave site in northern Israel, has added a new and unexpected twist. “What Misliya tells us is that modern humans left Africa not 100,000 years ago, but 200,000 years ago,” said Prof Israel Hershkovitz, who led the work at Tel Aviv University. “This is a revolution in the way we understand the evolution of our own species.” The find suggests that there were multiple waves of migration across Europe and Asia and could also mean that modern humans in the Middle East were mingling, and possibly mating, with other human species for tens of thousands of years. “Misliya breaks the mould of existing scenarios for the timing of the first known Homo sapiens in these regions,” said Chris Stringer, head of human origins at the Natural History Museum in London. “It’s important in removing a long-lasting constraint on our thinking.”

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Plastic carrying disease.

A Third Of Coral Reefs ‘Entangled With Plastic’ (BBC)

Plastic is one of the biggest threats to the future of coral reefs after ocean warming, say scientists. More than 11 billion items of plastic were found on a third of coral reefs surveyed in the Asia-Pacific region. This figure is predicted to increase to more than 15 billion by 2025. Plastic raises by 20-fold the risk of disease outbreaks on coral reefs, according to research. Plastic bags, bottles and rice sacks were among the items found. “Plastic is one of the biggest threats in the ocean at the moment, I would say, apart from climate change,” said Dr Joleah Lamb of Cornell University in Ithaca, US. “It’s sad how many pieces of plastic there are in the coral reefs …if we can start targeting those big polluters of plastic, hopefully we can start reducing the amount that is going on to these reefs.”

More than 275 million people rely on coral reefs for food, coastal protection, tourism income, and cultural importance. It’s thought that plastic allows diseases that prey on the marine invertebrates that make-up coral reefs to flourish. Branching or finger-like forms of corals are most likely to get entangled in plastic debris. These are important habitats for fish and fisheries, the scientists say. “A lot of times we come across big rice sacks or draping plastic bags,” said Dr Lamb, who led the study. “What we do find is these corals with a lot of complexity like branches and finger-like corals will become eight times more likely to be entangled in these types of plastics.” In the study, published in the journal Science, international researchers surveyed more than 150 reefs from four countries in the Asia-Pacific region between 2011 and 2014.

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Jan 252018
 
 January 25, 2018  Posted by at 10:54 am Finance Tagged with: , , , , , , , , , , , ,  6 Responses »
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Grete Stern Sueño No. 27: No destiñe con el agua 1951

 

Trump to Tell Davos That ‘America First’ Is Good for Globalism (BBG)
A Weaker Dollar Is Good For The US, Treasury Secretary Mnuchin Says (CNBC)
Careless Whisper: Mnuchin Opens Door To New Era Of Currency Wars (BV)
Trump Team Unleashes Verbal Assault On The Dollar (Pol.)
IMF’s Lagarde Urges Mnuchin to Clarify Remarks on Weak Dollar (BBG)
Trump Supports Immigration Plan With Pathway To Citizenship For Dreamers (G.)
Trump ‘Looking Forward’ To Speaking Under Oath In Russia Inquiry (G.)
Ratings Firm Issues First Grades On Cryptocurrencies (CNBC)
Beppe Grillo Steps Aside From Italy’s Five Star Movement (G.)
How About Showing Us The TPP Deal We’re About To Sign? (SMH)
Trump Warns Erdogan To Avoid Clash Between U.S., Turkish Forces (R.)
We Examined Julian Assange, And He Badly Needs Care – But He Can’t Get It (G.)
Washington Post, Legacy Press Betray Assange (DisM)
Greece Pays A Heavy Price For Its Primary Surplus (K.)
Greeks Work Longest Hours in Europe (GR)
Each EU Citizen Creates 31kg Of Plastic-Waste Per Year (Stat.)

 

 

Winning bigly. Triumphant talk of the town in Davos. Jamie Dimon, Lloyd Blankfein are on board. “They’re going to invest a lot of money in this country.” How long will it last?

Trump to Tell Davos That ‘America First’ Is Good for Globalism (BBG)

President Donald Trump has a familiar message for the global elites populating the World Economic Forum in Davos, Switzerland: You were wrong. A year ago, some Davos participants predicted Trump’s protectionist rhetoric would lead to sluggish economic growth and lackluster stock market gains. It didn’t. And the president isn’t about to let that go unnoticed. Trump will arrive at the conference Thursday, joining a large delegation of U.S. officials already there, where he’s expected to boast about U.S. economic performance during his first year in office – unemployment down, the stock market up, robust growth. He’ll also seek to persuade the Davos audience in a major speech on Friday that his populist, “America First” policies can co-exist with globalism.

The president said on Twitter that he plans “to tell the world how great America is” and that “our economy is now booming and with all I am doing, will only get better.” “He wants to shatter the myth that he is only an ‘America First’ president,” said Anthony Scaramucci, the financier who was briefly Trump’s communications director and still informally advises the president. “That’s not the case. He is a globalist. He has a duality to his personality. He’s here to disrupt things, which he does a reasonably good to great job of.” The Swiss mountainside gathering of bankers, corporate chiefs and academics isn’t exactly Trump’s scene, and his administration deliberately spurned the conference prior to his inauguration last year. But now, chief executives are warming up to the president after a year in which his administration began a major deregulation effort and won passage of a law that slashes the U.S. corporate tax rate.

“What I’m bulled up about is that policy makers are making good policy decisions in the U.S. about taxes, about proper regulatory reform,” JP Morgan Chase CEO Jamie Dimon said in Davos. “I like a lot more stuff than I don’t like,” Goldman Sachs CEO Lloyd Blankfein said in an interview with CNBC. [..] Trump will host European executives on Thursday night to argue that the U.S. is a better place for businesses as a result of the tax overhaul and deregulation, his National Economic Council director, Gary Cohn, said Tuesday at a briefing. [..] Trump told reporters late Wednesday that he decided to go to Davos “to get them to bring back a lot of money. They’re going to invest a lot of money in this country.”

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When does Beijing start to talk about currency manipulation.

A Weaker Dollar Is Good For The US, Treasury Secretary Mnuchin Says (CNBC)

Treasury Secretary Steven Mnuchin said the U.S. is open for business and welcomed a weaker dollar, saying that it would benefit the country. Speaking at a press conference at the World Economic Forum in Davos Wednesday, he made a bid for investment into the U.S., saying the government was committed to growth of 3% or higher. “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos, according to Bloomberg, adding that the currency’s short term value is “not a concern of ours at all.” “Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency,” he said.

On the eve President Donald Trump’s arrival at the event, he said that the U.S. delegation to Davos was its largest ever. “(The) size of the delegation to Davos this year is testament to the scale of Trump’s work over the past year,” Mnuchin said. “What’s happening in the U.S. (is a) reflection of programs being put in place. As we look at U.S. growth, it continues to look quite good and is a very attractive place to invest,” he added. The dollar dipped slightly after his comments and hit a session low, with the dollar index slipping 0.47% for the day. The British pound climbed to a post-Brexit vote high shortly after 8:30 a.m. London time. Mnuchin iterated that his country is “absolutely” committed to free and fair trade, according to the Associated Press. He added that strong U.S. growth was good for the economy and that there was no inconsistency with Trump’s “America First” agenda, according to the news agency.

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Calculation: others lose more than the US does short term.

Careless Whisper: Mnuchin Opens Door To New Era Of Currency Wars (BV)

Speaking one’s mind can be dangerous, especially for the U.S. Treasury secretary. Steven Mnuchin said on Wednesday that a weaker dollar was good for his country. Textbook theory certainly supports his view that a depreciating currency is good for exporters. But the remarks are a break with what his predecessors have publicly asserted since 1995. If the greenback became a trade weapon it would be to the detriment of foreign holders of U.S. debt. Treasury secretaries since Robert Rubin have repeated the mantra that a strong dollar is in U.S. interests. That meant something when Rubin articulated it in 1995 with the aim of shoring up a weak dollar. But it has been used ad nauseam since then, both when the U.S. authorities were intervening in the currency markets to buy their currency and when they were selling it.

What qualified as strong is up for grabs. Since 1995, an index of the dollar’s value against a basket of other major currencies has risen as high as 121 and then fallen more than 40% without the wording being questioned or amended. The maxim has served its purpose, though, by reassuring investors and other countries that the United States would not try to talk its currency down to win a trade advantage. Little wonder then that the dollar index, which has been on a losing streak since the year started, hit a three-year low after Mnuchin’s comments. He probably had no intention of weakening the dollar and there is no evidence that President Donald Trump’s administration is about to embark on such a policy. The remarks do, however, reveal how focused U.S. policymakers are on domestic interests. From there, actually egging on such moves is only a small step.

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There’s no way to keep the reserve currency down, and there’s no alternative either, but they’ll take what they can get today.

Trump Team Unleashes Verbal Assault On The Dollar (Pol.)

U.S. presidents and Treasury secretaries have a long tradition of declaring their allegiance to a strong dollar policy in public remarks, even if privately many welcomed a softer dollar to boost U.S. exports and reduce trade deficits. If the U.S. is publicly supporting a weak dollar while also imposing tariffs on foreign imports — as the Trump administration did this week — it could invite retaliation from other countries, potentially sparking both currency and trade wars, economists say. “It’s remarkable, really, this kind of bomb-throwing from Mnuchin on the dollar the same week they slap on tariffs,” said Ian Shepherdson of Pantheon Macroeconomics, referring to action this week by the Trump White House to impose tariffs on some imported solar panels and washing machines. “The problem with this is it just invites retaliation. This is not a friendly action.”

A weaker U.S. dollar, while potentially a boost for exports, makes many foreign consumer goods more expensive for Americans to buy. That could hit lower-income consumers the hardest, including less well-off voters in Trump’s political base. Retaliatory tariffs on U.S. exports could also hurt domestic manufacturers. The concept of a public strong-dollar policy dates back at least three administrations to when Lloyd Bentsen and Robert Rubin served as Treasury secretaries under President Bill Clinton. The general approach reflects the belief that a stronger dollar improves the value of U.S. Treasury bonds, equities and other dollar-denominated assets and gives Americans more purchasing power. It also generally reflects an improving U.S. economy.

“I have been consistent in saying, as my predecessors have said, that a strong dollar is good for the United States. If you look at the U.S. economy right now, the truth is our economy is performing quite well,” then-Treasury Secretary Jack Lew said in January 2015, echoing the regular public refrain of U.S. officials. Mnuchin did nod to this tradition in his Davos comments after remarking on the benefits of a weaker dollar. “Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency,” he said.

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She must appear impartial. But this of course is utter crap: “The dollar is of all currencies a floating currency and one where value is determined by markets..”. There are no markets. There’s only central banks.

IMF’s Lagarde Urges Mnuchin to Clarify Remarks on Weak Dollar (BBG)

IMF Managing Director Christine Lagarde suggested that U.S. Treasury Secretary Steve Mnuchin may wish to explain his comments in which he appeared to back a weak dollar, adding that U.S. tax cuts will probably cause the world’s reserve currency to rally. “I really hope that Secretary Mnuchin has a chance to clarify exactly what he said,” Lagarde said in Bloomberg TV interview with Francine Lacqua and Tom Keene in Davos, Switzerland. “The dollar is of all currencies a floating currency and one where value is determined by markets and geared by the fundamentals of U.S. policy.” The dollar slid to the lowest since December 2014 on Thursday, a day after Mnuchin’s endorsement of a weaker greenback at the WEF. The euro also climbed to its strongest against the dollar since 2014. “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos.

The currency’s short term value is “not a concern of ours at all.” Losses for the greenback have mounted since U.S. President Donald Trump’s inauguration a year ago, with the currency weakening against every Group-of-10 peer. Lagarde reiterated the IMF’s view, presented in its World Economic Outlook this week, that the U.S. tax reform is likely to lead to dollar’s strengthening in the medium term. For many market analysts, Mnuchin’s comments represent a stark break from previous U.S. administrations and could provoke pushback from other regions before too long. “This is a further break away from the ‘strong USD’ mantra launched in the mid-1990s by Clinton’s Treasury Secretary Rubin and adhered to by subsequent Treasury leaders,” wrote Credit Agricole CIB strategists led by Valentin Marinov in a note to clients. “Inevitably, the Administration’s vocal preference for a weak dollar is likely to raise the risk of global currency wars.”

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A carrot for the Democrats. They’ll take it.

Trump Supports Immigration Plan With Pathway To Citizenship For Dreamers (G.)

Donald Trump on Wednesday said he would support a plan that offered a pathway to citizenship for so-called Dreamers, young undocumented immigrants who were brought to the US as children, as part of a broader immigration package that the White House is expected to unveil next week. Trump made the comments to a group of reporters assembled for a briefing on the president’s immigration plan before he departs to Davos, Switzerland, for the World Economic Forum. According to the Associated Press, Trump said he would be open to allowing certain immigrants to become citizens after “10 or 12 years”. Trump told reporters he would allow the Dreamers to “morph into” citizens over a period of time.

“Whatever they’re doing, if they do a great job, I think it’s a nice thing to have the incentive, of after a period of years, being able to become a citizen.” Lindsey Graham, one of the Republican Senators deeply involved in the negotiations over immigration, called Trump’s statement “a major breakthrough”. “I truly appreciate President Trump making it clear that he supports a path to citizenship for Daca recipients,” he said. “This will greatly help the Senate efforts to craft a proposal which President Trump can sign into law.” Trump had previously rejected the idea of citizenship for the young immigrants as “amnesty”. According to the AP, a senior White House official immediately clarified the remarks, telling reporters that a pathway to citizenship for Dreamers was only a “discussion point” in the plan that the White House would preview to Congress on Monday.

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He’s not bluffing.

Trump ‘Looking Forward’ To Speaking Under Oath In Russia Inquiry (G.)

Donald Trump said late Wednesday that he would be willing to speak to the special counsel office’s under oath, adding that he was “looking forward” to talking with Robert Mueller, who is investigating Russian interference in the 2016 election, including alleged contacts with the Trump campaign. Speaking with reporters at the White House before he set out for the World Economic Forum in Davos, Switzerland, Trump was asked about a potential interview with Mueller. “I’m looking forward to it,” he answered. “I would love to do it.” He added that the interview could occur in “two or three weeks”. Trump’s statement would seem to end months of speculation about whether the special counsel would interview the president, though he also said he would testify under oath last year. The president’s attorneys have met with their counterparts in the special counsel’s office.

Mueller’s team is tasked with investigating Russian meddling in the election, including hacks of Democratic party emails and contacts between members of Trump’s campaign and Russians. The special counsel’s office has charged Trump’s former campaign manager Paul Manafort with money laundering and conspiracy, and his former national security adviser Michael Flynn and one of his former foreign policy advisers, George Papadopoulos, have each pleaded guilty to lying to the FBI about their contacts with Russians. The special counsel’s office is also investigating potential obstruction of justice, and has questioned the attorney general, Jeff Sessions, in part to discuss the president’s decision to fire James Comey as FBI director. Also on Wednesday, Trump rejected criticism of his attacks on the Russia inquiry. “You fight back, oh, it’s obstruction,” Trump said. He added: “We’re going to find out” if he gets a fair shake from Robert Mueller. “There’s been no collusion whatsoever,” Trump said. “There’s no obstruction whatsoever.”

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For what it’s worth.

Ratings Firm Issues First Grades On Cryptocurrencies (CNBC)

Weiss Ratings, which claims to offer the first “ratings” on cryptocurrencies, has judged ethereum to be better than bitcoin. The securities ratings agency announced Wednesday that it gave ethereum a B rating because it “benefits from more readily upgradable technology and better speed, despite some bottlenecks.” Bitcoin received a “fair” C+ rating because the digital currency is “encountering major network bottlenecks, causing delays and high transactions costs,” according to a release. “Despite intense ongoing efforts that are achieving some initial success, Bitcoin has no immediate mechanism for promptly upgrading its software code.” None of the 74 cryptocurrencies the agency covers received an “excellent” A rating. B-rated ethereum and digital currency EOS have the highest ratings.

That tough take is apparently a trademark of the 47-year-old independent financial ratings agency. Reports from Barron’s and The New York Times from 2002 and 1992, respectively, note Weiss’ lack of A ratings in coverage of insurance stocks, mutual funds and other securities. The Florida-based company usually flies under the radar in comparison to better-known agencies such as Standard & Poor’s and Moody’s. Weiss says it does not accept compensation from the companies it rates for issuing the rating. Foreign cryptocurrency investors were apparently very worried that Weiss would issue negative ratings on digital currencies. The agency said in a release Wednesday that “staff was up all night last night fending off denial of service attacks from Korea” and cited Korean social media posts calling others to bring down the ratings agency’s website. The hackers then broke into the website, took information from it and are distorting it on social media, the company said.

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No, Beppe is not ‘gaffe-prone’. He built a formidable force, and he’s the first to recognize he’s too old to take the next step. M5S was always going to be movement by and for the young. Because they’re not yet corrupt.

Beppe Grillo Steps Aside From Italy’s Five Star Movement (G.)

Beppe Grillo, the bombastic comedian who co-founded Italy’s anti-establishment Five Star Movement, has stepped aside in what some speculate could be a move to bolster the party’s chances before the general election on 4 March. Grillo, who has been instrumental in turning the movement into Italy’s most popular party, roared on to the political scene in 2009 after joining forces with the late web strategist Gianroberto Casaleggio to launch a blog that railed against political corruption. The blog struck a chord among an electorate weighed down by the economic crisis and fed up with the traditional political class, and became the driving force behind the movement’s phenomenal success in the 2013 elections, when it snatched the second-largest share of the votes.

But the blog has now removed most references to the party. The 69-year-old has started a new blog, which he said will focus on technology and visions for the future as part of an “extraordinary liberating adventure”. He added that while he “likes to have points of view” he is “fed up with opinions”. Quite what that means has left commentators guessing, but Grillo has been distancing himself from the party for some time. In 2015, just a year after the party made gains in the European elections, he announced that he was leaving politics and returning to comedy. As he toured comedy clubs, the gaffe-prone Grillo was thrust back into the spotlight a year later after taking a swipe at Sadiq Khan, saying the Muslim mayor of London would “blow himself up in front of Westminster”.

After that Grillo took more of a back seat, gradually grooming 31-year-old Luigi di Maio for the party’s leadership. Di Maio, who was elected leader in September and is the party’s candidate for prime minister, said on Tuesday night that the split did not mean “patricide” or “reneging on the past”. “The party is now moving forward on its own legs and getting stronger,” he said. The Five Star Movement is leading in opinion polls, ahead of the centre-left Democratic party, Silvio Berlusconi’s Forza Italia and the far-right Northern League. Roberto d’Alimonte, a political science professor at Rome’s Luiss University, said: “Maybe [Grillo] wants to guarantee its survival and see how it will fly in his absence.”

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“..we won’t see it until after it’s signed, in Chile on March 8. Really. That’s the way things normally work.”

How About Showing Us The TPP Deal We’re About To Sign? (SMH)

What’s in the revised Trans-Pacific Partnership deal for Australia? There’s no way to tell until we’ve seen the text, and we won’t see it until after it’s signed, in Chile on March 8. Really. That’s the way things normally work. After that, there’s still time to back out if we don’t want to ratify it, and there’s a precedent. All 12 would-be members signed up to the original Trans-Pacific Partnership in February 2016. Barack Obama found himself unable to get it through Congress and Donald Trump didn’t try. As best as we can tell, the new deal, TPP-11, is the old one with fewer bad bits. Twenty of the most contentious provisions included at the insistence of the US have been “suspended” until the US decides to join. They include enforced protections for the owners of pharmaceutical patents and extensions to copyright law.

There’s no guarantee they would come back if the US did decide to join. Each of the 11 other members would have to agree. Still in the agreement, although somewhat weakened, are the investor-state dispute settlement provisions insisted on by the US and Korea. They will allow private companies to sue national governments in extraterritorial tribunals, as Philip Morris did over Australia’s tobacco plain-packaging laws using the terms of an obscure Hong Kong investment agreement. John Howard successfully resisted having them in the US-Australia agreement and the Abbott government managed to avoid them in the Australia-Japan agreement, but we have apparently agreed to them now, for Japan, Korea and eight other nations. The upside is that our companies will also be able to sue governments.

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It’s time for Putin to tell Erdogan to back off.

Trump Warns Erdogan To Avoid Clash Between U.S., Turkish Forces (R.)

U.S. President Donald Trump urged Turkey on Wednesday to curtail its military operation in Syria and warned it not to bring U.S. and Turkish forces into conflict, but a Turkish source said a White House readout did not accurately reflect the conversation. Turkey’s air and ground operation in Syria’s Afrin region, now in its fifth day, targets U.S.-backed Kurdish YPG fighters, which Ankara sees as allies of Kurdish insurgents who have fought in southeastern Turkey for decades. Turkish President Tayyip Erdogan said he would extend the operation to Manbij, a separate Kurdish-held enclave some 100 km (60 miles) east of Afrin, possibly putting U.S. forces there at risk and threatening U.S. plans to stabilize a swath of Syria.

Speaking with Erdogan by telephone, Trump became the latest U.S. official to try to rein in the offensive and to pointedly flag the risk of the two allies’ forces coming into conflict. “He urged Turkey to deescalate, limit its military actions, and avoid civilian casualties,” a White House statement said. “He urged Turkey to exercise caution and to avoid any actions that might risk conflict between Turkish and American forces.” The United States has around 2,000 troops in Syria. However, a Turkish source said the White House statement did not accurately reflect the content of their phone call. “President Trump did not share any ‘concerns about escalating violence’ with regard to the ongoing military operation in Afrin,” the source said, referring to one comment in the White House summary of their conversation.

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Get him out of there, to a safe place. Get him treatment. A society that persecutes its smartest and bravest cannot succeed.

We Examined Julian Assange, And He Badly Needs Care – But He Can’t Get It (G.)

Julian Assange, the founder of WikiLeaks, has not stepped outside the heavily surveilled confines of the Ecuadorian embassy in London since he entered the building almost six years ago. Naturally, much of the media attention has focused on his international legal drama and threats to his safety, including arrest and possible extradition to the US. In contrast, ongoing violations of his human rights, including his fundamental right to healthcare in the context of his unusual confinement, have received less coverage. As clinicians with a combined experience of four decades caring for and about refugees and other traumatised populations, we recently spent 20 hours, over three days, performing a comprehensive physical and psychological evaluation of Mr Assange.

While the results of the evaluation are protected by doctor-patient confidentiality, it is our professional opinion that his continued confinement is dangerous physically and mentally to him, and a clear infringement of his human right to healthcare. Packing a stethoscope and blood pressure cuff, and after being conspicuously photographed entering the embassy, we performed our examinations in a poorly ventilated conference room. The reason for examining Mr Assange in these conditions is that he has no access to proper medical facilities. Although it is possible for clinicians to visit him in the embassy, most doctors are reluctant to do so. Even for those who will see him, their capacity to provide care is limited. At the embassy, there are none of the diagnostic tests, treatments and procedures that we have concluded he needs urgently.

As clinicians, it is our ethical duty to advocate for the health and human rights of all people as promised under international law, and to call on our colleagues to hold our professional societies, institutions and governments accountable. In 2012, Ecuador, in accordance with its right as a sovereign state, formally determined that Mr Assange meets the requirements enshrined by the 1951 convention and 1967 protocol relating to the status of refugees. Regardless of the allegations against Mr Assange, he remains a citizen of Australia and a refugee, and, as the Guardian reported last week, he is now also a citizen of Ecuador.

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Trump should support Assange vs their common enemy.

Washington Post, Legacy Press Betray Assange (DisM)

At this juncture, it bears reminding that Jeff Bezos, the current owner of the Washington Post, has a $600 million contract with the CIA in relation to his monolithic company Amazon. The Nation wrote in 2013: “Amazon, under the Post’s new owner, Jeff Bezos, recently secured a $600 million contract from the CIA. That’s at least twice what Bezos paid for the Post this year. Bezos recently disclosed that the company’s Web-services business is building a “private cloud” for the CIA to use for its data needs. Critics charge that, at a minimum, the Post needs to disclose its CIA link whenever it reports on the agency. Over 15,000 have signed the petition this week hosted by RootsAction.” The Nation’s coverage of the CIA’s contract with Amazon has since been removed from their web page for unknown reasons, but is available through archive services.

When discussing The Washington Post’s exercise in gaslighting, it is important to keep the outlet’s well-documented financial connection with the CIA through Bezos in mind. In so doing, it is also pertinent to note that the CIA has made its hatred for Assange very clear, especially over the course of the last year. CIA Director Mike Pompeo put the agency’s hatred for Wikileaks were on full display as recently as yesterday, when the CIA Director lambasted the journalistic organization as a threat on par with Al Qaeda. Pompeo said of Al Qaeda and Wikileaks: “They don’t have a flag at the UN, but they represent real threats to the United States of America.” That a group who publishes information that is inconvenient for the CIA would be likened to a terrorist network speaks to the threat which Wikileaks represents not to the safety of the American public, but to the plutocratic class and the American deep state.

Pompeo is well known for his previous reference to Wikileaks as a “non-state hostile intelligence service.” The Hill wrote of the incident: “In his first major public appearance since taking the top intelligence post in the Trump administration, Pompeo took aim at WikiLeaks founder Julian Assange and former National Security Agency (NSA) contractor Edward Snowden…” The Hill also cited Pompeo’s characterization of Assange as a: “fraud, a coward hiding behind a screen.” Pompeo’s vitriolic characterization of Wikileaks is helpful, because it demonstrates that the CIA’s response to Wikileaks is on par with the force with which terrorist organizations like Al Qaeda are pursued. In that light, the magnitude of the threat faced by Assange and Wikileaks associates cannot be over-estimated. Pompeo’s words are not only absurd in light of Wikileaks being an extremely accurate journalistic organization, but also depict the real impetus behind Assange having been trapped in the Ecuadorian embassy for years.

The CIA Director’s statements, even taken at face value, completely undercut the manipulative coverage of Wikileaks and Assange by outlets like the Washington Post. That providing evidence of corruption is considered an existential threat by the establishment is indicative of the value of Wikileaks to the public. The publisher is only a threat to those whose lies are exposed by their publications. The same plutocracy that has aggressively targeted Assange and Wikileaks has progressively strangled free press and freedom of thought in the United States and the world for decades.

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The zenith of EU cruelty: starve a gutted economy of investment. It’s how you guarantee it can’t ever recover.

Greece Pays A Heavy Price For Its Primary Surplus (K.)

Greece ended 2017 with a revenue shortfall of 719 million euros that was covered by the failure to implement budgeted investments of 1.57 billion euros, leading to a primary surplus of 1.94 billion euros. At the same time Greek taxpayers piled up more arrears to the state, with December witnessing an increase in the creation of new debts. The definitive data of the budget’s execution last year, issued on Wednesday by the Finance Ministry, showed that the primary surplus was far above the target, exceeding it by some 877 million euros. Public Investments Program spending was 800 million euros below target, depriving the economy of much-needed cash just as it is trying to recover.

The shortfall was particularly evident on the program’s EU co-funded side, which missed the target by 1.127 billion euros, while the national part of the program showed a 327-million-euro increase in investment. It is therefore no surprise that the economy is now seen to have grown by an even smaller rate than the revised estimate included in the 2018 budget. The 1.941-billion-euro primary surplus, if confirmed by Eurostat in April, will be added to the so-called cash buffer to be created ahead of the conclusion of the bailout program. The non-execution of public investments co-funded by the EU also had an impact on budget revenues, as inflows from Brussels were 1.213 billion euros short of the target.

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Those that have jobs, that is.

Greeks Work Longest Hours in Europe (GR)

Greeks work the longest hours in Europe, while Germans clock the least hours, new data by the OECD reveal. The OECD includes 35 developed countries and some developing nations. The data were presented during the World Economic Forum in Davos, Switzerland. Mexicans are shown to be the hardest workers in the world, as the average Mexican spends 2,255 hours working per year, the equivalent of around 43 hours per week. In Europe, Greeks work the longest hours, averaging 2,035 hours per year. Germans, on the other hand, work the least in Europe and the world, averaging only 1,363 hours per year. The differences between countries has to do with differences in work cultures, the OECD says.

For instance, Mexicans work the most hours because they have a fear of unemployment, while lax labor rules allow employers to break a 48-hour-week law. However, although South Koreans come third in hours worked per year, employees there aim to boost economic growth. The Japanese, who are stereotyped as working very long hours, in fact put in only 1,713 hours per year, below the OECD average. An important factor regarding hours of work is the level of productivity. According to the study, Germans work the least hours but manage to maintain high productivity levels. The average German worker is reported to be 27% more productive than their British counterparts who work 1,676 hours per year. The Dutch, French and Danes also work fewer than 1,500 hours per year on average, while Americans average 1,783 work hours per year.

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The easiest problem to solve, isn’t. So what hope is there then? If you must have plastic, and you rarely do really, make it compostable, edible. By next year, not 20-30 years from now.

Each EU Citizen Creates 31kg Of Plastic-Waste Per Year (Stat.)

Plastic packaging waste is a huge problem around the world. Despite efforts in some European countries such as plastic bottle deposit schemes or having to pay for plastic bags in the supermarket, Statista’s Martin Armstrong notes that the average EU citizen creates 31kg of plastic waste per year. Eurostat figures show that the UK lies above this average, with its citizens responsible for 35kg of waste. The worst country by a long way though is Ireland. 61kg of packaging is thrown away by the average Irish person, 9kg more than the second most prolific country, Luxembourg. The least is created in Bulgaria where a more acceptable 14kg is disposed of over the year.

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Jan 202018
 
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Vincent van Gogh Lane near Arles 1888

 

US Government Shutdown Begins As Spending Bill Fails In Senate (R.)
Trump To Tout US Economy, Urge Fair Trade At Elite Davos Forum (R.)
What Will Rising Mortgage Rates Do to Housing Bubble 2? (WS)
Fever Pitch (Jim Kunstler)
NSA Deleted Surveillance Data Court Had Ordered It To Preserve (Pol.)
Russia Accuses US Of “Carving Out Alternative Government” In Syria (ZH)
Europe Must Wake Up To Drastic Consequences Of A Hard Brexit (Joris Luyendijk)
UK Banks Turn Off Lending Taps To Households (G.)
The Carillion Whitewash (Coppola)
Hundreds Of UK MPs Call On Supermarkets To Scrap Plastic Packaging (G.)
The Untreatable: The Centenary of Spanish Flu (LRB)

 

 

Maybe it’s better this way: expose the failing systems. Bring out your dead.

US Government Shutdown Begins As Spending Bill Fails In Senate (R.)

The U.S. government shut down at midnight on Friday after Democrats and Republicans failed to reach a last-minute deal to fund its operations, divided in a bitter dispute over immigration and border security. In a dramatic late-night session, senators blocked a bill to extend government funding through Feb. 16. The bill needed 60 votes in the 100-member Senate but fell short, with only 50 supporting it. Most Democrats opposed the bill because their efforts to include protections for hundreds of thousands of mostly young immigrants known as Dreamers failed. Huddled negotiations by Senate Majority Leader Mitch McConnell and Senate Democratic leader Chuck Schumer in the last minutes before midnight were unsuccessful, and the U.S. government technically ran out of money at midnight.

The shutdown formally began on Saturday, the first anniversary of President Donald Trump’s inauguration. Trump immediately sought to blame Democrats. “Tonight, they put politics above our national security, military families, vulnerable children, and our country’s ability to serve all Americans,” the White House said in a statement. It also said it would not discuss immigration until the government is up and running again. “We will not negotiate the status of unlawful immigrants while Democrats hold our lawful citizens hostage over their reckless demands. This is the behavior of obstructionist losers, not legislators.” In return, Schumer pointed the finger directly at Trump. “It’s almost as if you were rooting for a shutdown and now we’ll have one and the blame should crash entirely on President Trump’s shoulders,” he said.

Until a funding deal is worked out, scores of federal agencies across the country will be unable to operate, and hundreds of thousands of “non-essential” federal workers will be put on temporary unpaid leave. The Republican-controlled House of Representatives passed a stopgap funding measure on Thursday. But Republicans then needed the support of at least 10 Democrats to pass the bill in the Senate. While five Democrats ended up voting for the measure, five Republicans voted against it. Democratic leaders demanded that the measure include protections from deportation for about 700,000 undocumented immigrants known as Dreamers who arrived in the United States as children.

Despite bipartisan negotiations, Republican leaders refused to include those protections, and neither side was willing to back down. McConnell and Schumer insisted they were still committed to finding an agreement that restores government funding as soon as possible. Trump, who had made strict measures on immigration a cornerstone of his presidential campaign, last week rejected a bipartisan proposal, saying he wanted to include any deal for Dreamers in a bigger legislative package that also boosts funding for a border wall and tighter security at the U.S. border with Mexico.

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A lion’s den indeed.

Trump To Tout US Economy, Urge Fair Trade At Elite Davos Forum (R.)

U.S. President Donald Trump will be entering something of a lion’s den when he visits the elitist enclave of Davos next week, rubbing shoulders with the same “globalists” that he campaigned against in winning the 2016 election. Aides said some of Trump’s advisers had argued against him attending the World Economic Forum in order to steer clear of the event, which brings together political leaders, CEOs and top bankers. But in the end, they said, Trump, the first sitting U.S. president to attend the forum since Bill Clinton in 2000, wanted to go to call attention to growth in the U.S. economy and the soaring stock market. A senior administration official said Trump is expected to take a double-edged message to the forum in Switzerland, where he is to deliver a speech and meet some world leaders.

In his speech, Trump is expected to urge the world to invest in the United States to take advantage of his deregulatory and tax cut policies, stress his “America First” agenda and call for fairer, more reciprocal trade, the official said. During his 2016 election campaign, Trump blamed globalization for ravaging American manufacturing jobs as companies sought to reduce labor costs by relocating to Mexico and elsewhere. “Globalization has made the financial elite who donate to politicians very wealthy. But it has left millions of our workers with nothing but poverty and heartache,” he said on June 28, 2016, in Pennsylvania. Trump retains the same anti-globalist beliefs but has struggled to rewrite trade deals that he sees as benefiting other countries.

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This is going to hurt.

What Will Rising Mortgage Rates Do to Housing Bubble 2? (WS)

The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008. In the chart, note the determined spike of 79 basis points since September 8, 2017. That was the month when the Fed announced the highly telegraphed details of its QE Unwind. September as month of the QE-Unwind announcement keeps cropping up. All kinds of things began to happen, at first quietly, without drawing much attention. But then the trajectory just kept going.

The three-year yield, which had gone nowhere for the first eight months of 2017, rose to 2.20% on Friday, the highest since October 1, 2008. It has spiked 82 basis points since September 8:

The ten-year yield – the benchmark for financial markets that most influences US mortgage rates – jumped to 2.66% late Friday. This is particularly interesting because the 10-year yield had declined from March 2017 into August despite the Fed’s three rate hikes last year, and rising short-term yields. At 2.66%, the 10-year yield has reached its highest level since April 2014, when the “Taper Tantrum” was winding down. That Taper Tantrum was the bond market’s way of saying “we’re shocked and appalled,” when Chairman Bernanke dropped hints the Fed might eventually begin tapering what the market had called “QE Infinity.” The 10-year yield has now doubled since the historic intraday low on July 7, 2016 of 1.32% (it closed that day at 1.37%, a historic closing low):

Friday capped four weeks of pain in the Treasury market. But it has not impacted yet the corporate bond market, and the spread in yields between Treasuries and corporate bonds, and particularly junk bonds, has further narrowed. And it has not yet impacted the stock market, and there has been no adjustment in the market’s risk pricing yet. But it has impacted the mortgage market. On Friday, the average 30-year fixed-rate mortgage with conforming loan balances ($417,000 or less) for top-tier borrowers, according to Mortgage News Daily, ended at 4.23%, the highest in nine months. But historically, 4.25% is still very low. And likely just the beginning of a long, uneven climb higher. And the impact on mortgage payments can be sizable. When rates rise for example from 3.5% to 4.5%, the payment for a $250,000 mortgage jumps by $144 to $1,267 a month. This can move the payment out of reach for households that have trouble making ends meet.

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Rising markets and fever as flu symptoms.

Fever Pitch (Jim Kunstler)

In case you’re worked up about the looming federal government shut-down, this is exactly how we’re supposed to roll in the long emergency: everything organized at the gigantic scale is going to wobble and fail. It’s nature’s way of saying, “get smaller, get realer, scale down, and get local.” The catch is, we probably won’t listen to nature. Instead, we’ll just behave like bystanders and do nothing until the full force of failure is upon us, just as we’re doing with climate change — the tragedy of the commons at planetary scale. The failure of national party politics is deep and systemic, as you would expect from activities nurtured in a shit-hole called Washington, corruption being the manifestation of sepsis. The lethal vector of this illness is money.

There’s the money flowing into the “campaign funds” (so-called) of congressmen and senators, of course, but there’s also the “money” that is flowing in and out of the leviathan government — a whole lot of it is not really there. It’s a figment of promises to pay back loans on top of a monumental heap of past promises that will never be kept. The threatened government shutdown is just a symptom of the illness: a society doing things out of scale, trying to run its excessive activities by check-kiting and accounting fraud. What could go wrong? Not the stock and bond markets, I’m sure. Though… wait a minute… that hockey-stick surge in equities looks a little bit like the action of a thermometer measuring the rising body temperature of a very sick patient.

From 25,000 to 26,000 on the Dow — in what? seven days? — is kind of like the flu victim going from 98.6 to 105 after onset. And we know what happens to humans up around the 105 Fahrenheit body temperature level: the brain starts to sputter and smoke. Soon, it’s lights out and don’t let your karma smack you on the butt going through the exit.

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State within the state. F*ck the courts.

NSA Deleted Surveillance Data Court Had Ordered It To Preserve (Pol.)

The National Security Agency destroyed surveillance data it pledged to preserve in connection with pending lawsuits and apparently never took some of the steps it told a federal court it had taken to make sure the information wasn’t destroyed, according to recent court filings. Word of the NSA’s foul-up is emerging just as Congress has extended for six years the legal authority the agency uses for much of its surveillance work conducted through U.S. internet providers and tech firms. President Donald Trump signed that measure into law Friday. Since 2007, the NSA has been under court orders to preserve data about certain of its surveillance efforts that came under legal attack following disclosures that President George W. Bush ordered warrantless wiretapping of international communications after the 2001 terrorist attacks on the U.S.

In addition, the agency has made a series of representations in court over the years about how it is complying with its duties. However, the NSA told U.S. District Court Judge Jeffrey White in a filing on Thursday night and another little-noticed submission last year that the agency did not preserve the content of internet communications intercepted between 2001 and 2007 under the program Bush ordered. To make matters worse, backup tapes that might have mitigated the failure were erased in 2009, 2011 and 2016, the NSA said. “The NSA sincerely regrets its failure to prevent the deletion of this data,” NSA’s deputy director of capabilities, identified publicly as “Elizabeth B.,” wrote in a declaration filed in October. “NSA senior management is fully aware of this failure, and the Agency is committed to taking swift action to respond to the loss of this data.”

In the update Thursday, another NSA official said the data were deleted during a broad, housecleaning effort aimed at making space for incoming information. “The NSA’s review to date reveals that this [Presidential Surveillance Program] Internet content data was not specifically targeted for deletion,” wrote the official, identified as “Dr. Mark O,” “but rather the PSP Internet content data matched criteria that were broadly used to delete data of a certain type … in response to mission requirements to free-up space and improve performance of the [redacted] back-up system. The NSA is still investigating how these deletions came about given the preservation obligations extant at the time. The NSA, however, has no reason to believe at this time that PSP Internet content data was specifically targeted for deletion.”

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With Turkey starting an extensive bombing campaign, Syria could explode once again.

Russia Accuses US Of “Carving Out Alternative Government” In Syria (ZH)

Russia’s Foreign Minister Sergey Lavrov has accused the United States of working to carve out “an alternative government” on Syrian soil in statements made at a UN press briefing related to the recent Turkish military build-up poised to assault Syrian Kurdish areas of Northern Syria. Lavrov’s words come after Secretary of State Rex Tillerson pledged in a speech on Wednesday that US military forces would remain in Syria indefinitely until various objectives are met, which include Syrian government transition and the curtailing of Iran’s influence. Lavrov said “It’s a fact that US forces are seriously involved in creating alternative government bodies on vast part of the Syrian territory. And this, of course, absolutely contradicts their own obligations, which they committed to on numerous occasions, including at the UN Security Council, on maintaining the sovereignty and the territorial integrity on Syria.”

The Russian FM further accused the US of contradicting its previous claim that US troops – which number at least 2,000 according to recent Pentagon statements – were only in Syria to fight the Islamic State and not wage a proxy war against the Syrian government and its allies. The prior US policy of regime change in Syria, which began under the Obama administration and intensified under a CIA program, was something many analysts perceived that President Trump had abandoned – consistent with earlier campaign promises. In the summer of last year Trump shut down the CIA program – widely reported to be the agency’s largest covert program – even while boosting support for the Pentagon program to arm and train the predominately Kurdish Syrian Democratic Forces (SDF).

“Rex Tillerson told me many times that the only reason for their presence there [in Syria] is defeating Islamic State (IS, formerly ISIS/ISL). Now they have some much more long-standing plans,” Lavrov said further of the inconsistency in US policy. “We will have to take this into account and look for solutions that won’t allow the destruction of Syrian sovereignty.”

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Bit late, perhaps?

Europe Must Wake Up To Drastic Consequences Of A Hard Brexit (Joris Luyendijk)

Because it is such a riveting clown show with new crazy episodes almost every day, Europeans can be forgiven for ignoring the fact that Brexit is going to hurt them too. But as the date of Britain’s departure comes closer and Theresa May’s government continues its kamikaze policy of demanding the politically unthinkable from the EU, it is time for Europeans to wake and begin preparing for the worst. On Thursday the Dutch government published a report drawn up by the consultancy firm KPMG analysing the consequences of a “no-deal” Brexit in which the UK leaves the EU without an agreement on 29 March 2019.

Here are the practical implications and cold numbers behind the hot-headed rhetoric about no deal with the EU being “better than a bad deal” for Britain: should the UK “crash” out of the EU by late March 2019 the Dutch companies trading with the UK will have to secure a total of no less than 4.2m exporting and 750,000 importing licences. If by this time both states have a functioning customs system in place – a big if for this consistently incompetent UK government – costs for companies are between €80 and €130. That is per licence. The price tag for all this new red tape is €600m for the Dutch side alone. This excludes the costs of new export and import tariffs, VAT and other new “sector-specific” barriers for trading with the UK.

The 35,000 small and medium-sized businesses unused to trading with non-EU countries also face an estimated cost of €20,000-€50,000 to adapt their IT systems. Added to this, warns the report, must be the likely effects of the inevitable economic slowdown, or worse, in Britain. When the country leaves without a deal it must “fall back” on the minimal WTO rules for trade. But financial services and aviation fall outside the WTO regime, meaning that after a British no-deal departure both sectors must stop trading with the EU overnight. Between Amsterdam Schiphol airport and London alone there are currently 60 flights a day – one every 15 minutes.

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“The richest 10% spent more on wine per week (£9.40) than the poorest 10% spent on water..”

UK Banks Turn Off Lending Taps To Households (G.)

There is little for the average household to cheer these days as inflation crushes paltry earnings increases. Inflation is running at 3% while wage rises can manage no more than 2.5%. Worse for the average household, the banks are beginning to turn off the lending taps that have allowed them to boost their incomes with cheap debt. Things were better in the year to April 2017, according to the number crunchers at the Office for National Statistics, who have lifted the lid on Britain’s spending habits in their annual family spending report. It shows that average weekly household spending clawed its way back from the depths of the 2009 recession to exceed the pre-crisis level for the first time.

This slice of good news, albeit five or six years later than many economists thought it would happen, disguises how the better off have thrived compared to those on the bottom rung of the income ladder. For instance the richest 10% spent more on wine per week (£9.40) than the poorest 10% spent on water (£7.30). In the same vein, the richest 10% spent £59.40 on “furniture and furnishings, carpets and other floor coverings” to almost match how much the poorest 10% spent on rent (£62.70). Challenging the idea that the poorest waste their money on booze and cigarettes, the survey found that the richest 10% devote twice as much of the weekly shop (£17.50) to “alcoholic drinks, tobacco and narcotics” as the poorest. But it is the new rich, the 65- to 74-year-olds that really catch the eye.

Their spending might not match that of the top 10%, yet it significantly powers ahead of anything the average 20-something can muster on areas like entertainment and recreation. The figures show that people in the 10 years from their 65th birthday go on a spending binge that means devoting nearly a fifth of their total expenditure on recreation and culture, double the 10% spent by the under-30s. This is the final salary pension bonanza that can only be described as a once in a generation spending boost. The same applies to those of all ages on below average incomes. They increased their spending by a startling 7% on the previous year, far more than the 1% increase across the richest half of households. Unfortunately they managed this largely by running down savings and taking on extra debt.

As banks, under instruction from the financial regulator, rein in their lending, debt-fuelled spending should be considered a one-off boon, just like the final salary payout. However, that seems unlikely. Banks remain dependent for profit on lending.

Read more …

Another bunch of lies that will go unpunished.

The Carillion Whitewash (Coppola)

The Carillion whitewash has begun. Carillion’s interim CEO, Keith Cochrane, is spinning the line that had banks not pulled funding, its collapse could have been averted. And the Financial Times has released details of a letter Carillion sent to the Government at the beginning of January, in which it asked for short-term advances to tide it over while it underwent restructuring. Labour MP Pat McFadden has written to the Treasury Secretary asking whether it would have been more cost-effective for the U.K. Government to support Carillion, rather than allowing it to collapse. This looks to me like a campaign to deflect blame from Carillion’s management to its lenders and customers. We are being led to believe that it wasn’t insolvent, it was just illiquid, and depriving it of short-term funds caused a completely unnecessary collapse.

Deliciously, the bank Cochrane principally accuses of precipitating Carillion’s collapse by depriving it of funds is RBS, which was rescued at taxpayer expense in the 2008 financial crisis. Something tells me Cochrane’s fingering of RBS is no accident. For a bailed-out bank to refuse to provide a major Government contractor with short-term funds looks at best ungrateful and at worst insulting. Of course, RBS is itself a past master at playing the “we’re not insolvent, we are just illiquid” game. On the day that RBS failed, in September 2008, RBS’s CEO, Fred Goodwin, insisted that the bank was solvent. “We don’t have a capital problem,” he said. “We have a liquidity problem. All we need is short-term cash”.* But in fact, RBS was deeply insolvent. Rescuing it cost the U.K. Government £45bn, and RBS has lost a further £58bn since. Nearly ten years after the crisis, it is still in majority public ownership.

The similarity to RBS’s collapse is striking. Less than a week after Carillion’s failure, we now know that it is deeply insolvent. A couple of days after it filed for compulsory liquidation, Carillion’s unsecured bonds were trading at only 2.4% of par: This is an extraordinary writedown. It implies that bondholders expect to get back almost none of their investment. And this is senior unsecured debt, not subordinated debt or equity. The holders of anything more junior have already been wiped.

Read more …

All of a sudden everyone wakes up at the same time. But why have supermarkets and Coca Cola never done anything about it? And what are the odds they will once the atttention dies down?

Hundreds Of UK MPs Call On Supermarkets To Scrap Plastic Packaging (G.)

Two hundred cross-party MPs are calling on heads of the major supermarkets to eliminate plastic packaging from their products by 2023. The MPs, who are from seven political parties, have written to Tesco, Sainsbury’s, Morrisons, Asda, Waitrose, Aldi, Lidl, Budgens and Marks & Spencer urging them to scrap plastic packaging. They wrote after the Guardian revealed this week the major supermarkets in the UK create more than 800,000 tonnes of plastic packaging waste – well over half the household plastic waste – each year. Six of the major supermarkets refused to reveal the amount of plastic packaging they put on to the market, saying the information was commercially sensitive. Analysis by Eunomia environmental consultants used figures provided by Aldi and the Co-op – the only chains to release public figures on their plastic tonnage – and the market share of each supermarket to estimate how much plastic packaging the chains produce each year.

This week, Iceland announced it would stop plastic packaging on its own brand products by 2023. Catherine West, Labour MP for Hornsey and Wood Green, who is behind the letter, said: “Vast amounts of plastic are ‘used’ for merely a few seconds before being discarded. “We have a moral duty to tackle this disposable culture. As such, I welcome the recent announcement from Iceland supermarkets … and I’m delighted that MPs from all parties are supporting my call for other retailers to follow suit.” Waitrose announced on Friday it would no longer use black plastic for its meat, fish, fruit and vegetables by the end of this year, and that all Waitrose products would be free of black plastic by the end of 2019. Black plastic cannot be recycled under current UK systems.

Each year it is estimated that more than 300m tonnes of plastic are produced globally. The Guardian revealed recently that plastic production is set to soar over the next 10 years. On Friday Coca-Cola announced a new goal to collect and recycle the equivalent of 100% of the packaging it sells globally by 2030. Coca-Cola said: “Given the size and scope of this challenge, we expect to invest in new packaging innovations and local collection and recycling systems, as well as consumer education and awareness programs.”

Read more …

Good to know your history. Society would be at least as helpless now as 100 years ago, Better medicine, but also 100 times more mobility. And that’s what kills.

The Untreatable: The Centenary of Spanish Flu (LRB)

This year marks the centenary of Spanish flu, the most deadly pandemic in human history. It is estimated that five hundred million people contracted it – a third of the global population in 1918 – and that between fifty and a hundred million of them died. Asians were thirty times more likely to die than Europeans. The pandemic had some influence on the lives of everyone alive today. Donald Trump’s grandfather Friedrich died from it in New York City. He was 49. His early death meant that his fortune passed to his son Fred, who used it to start a New York property empire. My wife’s great-grandmother died from it in Verona; her grandfather, aged eight, had to leave school and find work to support the family. Emilio died in 2011 aged 101.

When I told a friend, the writer Andrew Greig, that I was writing this piece, he told me that his father, born in 1899, came down with Spanish flu while on leave from the war in France. ‘His convalescence delayed his return to the front, where his battalion was all but wiped out,’ Andrew said. ‘He always insisted Spanish flu saved his life, and without it, I suppose I wouldn’t be alive either.’ Laura Spinney’s book attempts to collate what is known about the pandemic, and takes a stab at examining its legacy: ‘The flu resculpted human populations more radically than anything since the Black Death,’ she writes. ‘It influenced the course of the First World War and, arguably, contributed to the second. It pushed India closer to independence, South Africa closer to apartheid, and Switzerland to the brink of civil war. It ushered in universal healthcare and alternative medicine, our love of fresh air and our passion for sport.’

The majority of deaths came in the three months between September and December 1918. The war probably didn’t spawn it, but certainly helped it spread: the US lost more soldiers to flu than to the war in part because so many of them spent weeks coughing together in barracks and transports on their way to Europe. Britain and Italy suffered between two and three times more deaths from the war than from the flu, while Germany’s war deaths outnumbered flu deaths six to one. Spinney quotes historians who claim that flu struck Germany harder than Britain or France; Erich Ludendorff was convinced it had robbed Germany of victory. The spread of Spanish flu was quickened by the railway and steamer lines that girdled the planet, starkly illuminating global inequalities in security, nutrition and access to medical care.

In India 6% of the population died; in Fiji 5%; in Tonga 10%. In Western Samoa, for reasons that aren’t entirely clear, more than 20% of the population died. Even harder hit were the Alaskan Inuit, with a death rate between 25 and 50%: in some small Alaskan communities everybody died. Koreans and Japanese were infected at the same rate, but the Koreans, subject to chronic malnutrition, were twice as likely to die. In the US, Italian immigrants died at twice the background rate (the Italian neighbourhoods of New York had a density of five hundred per acre, ten to a room), while black populations were the least affected. ‘As far as the “Flu” is concerned the whites have the whole big show to themselves,’ J. Franklin Johnson wrote to the Baltimore Afro-American.

Read more …

Jan 212017
 
 January 21, 2017  Posted by at 4:59 pm Finance Tagged with: , , , , , , , ,  17 Responses »
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Workmen next to the screws of the RMS Titanic at Belfast shipyard, 1911

 

The people at Conflicts Forum, which is directed by former British diplomat and MI6 ‘ranking figure’ Alastair Crooke, sent me an unpublished article by Alastair and asked if the Automatic Earth would publish it. Since I like his work and I (re-)published two of his articles last year already, ‘End of Growth’ Sparks Wide Discontent in October 2016 and Obstacles to Trump’s ‘Growth’ Plans in November 2016, I’m happy to.

His arguments here are very close to much of what the Automatic Earth has been advocating for years, both when it comes to our financial crisis and to our energy crisis. Our Primers section is full of articles on these issues written through the years. It’s a good thing other people pick up too on topics like EROEI, and understand you can’t run our modern, complex society on ‘net energy’ as low as what we get from any of our ‘new’ energy sources. It’s just not going to happen.

Here’s Alastair:

 

 

Alastair Crooke: We have an economic crisis – centred on the persistent elusiveness of real growth, rather than just monetised debt masquerading as ‘growth’ – and a political crisis, in which even ‘Davos man’, it seems, according to their own World Economic Forum polls,is anxious; losing his faith in ‘the system’ itself, and casting around for an explanation for what is occurring, or what exactly to do about it. Klaus Schwab, the founder of the WEF at Davos remarked  before this year’s session, “People have become very emotionalized, this silent fear of what the new world will bring, we have populists here and we want to listen …”.

Dmitry Orlov, a Russian who was taken by his parents to the US at an early age, but who has returned regularly to his birthplace, draws on the Russian experience for his book, The Five Stages of Collapse. Orlov suggests that we not just entering a transient moment of multiple political discontents, but rather that we are already in the early stages of something rather more profound. From his perspective that fuses his American experience with that of post Cold War Russia, he argues, that the five stages would tend to play out in sequence based on the breaching of particular boundaries of consensual faith and trust that groups of human beings vest in the institutions and systems they depend on for daily life. These boundaries run from the least personal (e.g. trust in banks and governments) to the most personal (faith in your local community, neighbours, and kin). It would be hard to avoid the thought – so evident at Davos – that even the elites now accept that Orlov’s first boundary has been breached.

But what is it? What is the deeper economic root to this malaise? The general thrust of Davos was that it was prosperity spread too unfairly that is at the core of the problem. Of course, causality is seldom unitary, or so simple. And no one answer suffices. In earlier Commentaries, I have suggested that global growth is so maddeningly elusive for the elites because the debt-driven ‘growth’ model (if it deserves the name ‘growth’) simply is not working.  Not only is monetary expansion not working, it is actually aggravating the situation: Printing money simply has diluted down the stock of general purchasing power – through the creation of additional new, ‘empty’ money – with the latter being intermediated (i.e. whisked away) into the financial sector, to pump up asset values.

It is time to put away the Keynesian presumed ‘wealth effect’ of high asset prices. It belonged to an earlier era. In fact, high asset prices do trickle down. It is just that they trickle down into into higher cost of living expenditures (through return on capital dictates) for the majority of the population. A population which has seen no increase in their real incomes since 2005 – but which has witnessed higher rents, higher transport costs, higher education costs, higher medical costs; in short, higher prices for everything that has a capital overhead component. QE is eating into peoples’ discretionary income by inflating asset balloons, and is thus depressing growth – not raising it. And zero, and negative interest rates, may be keeping the huge avalanche overhang of debt on ‘life support’, but it is eviscerating savings income, and will do the same to pensions, unless concluded sharpish.

But beyond the spent force of monetary policy, we have noted that developed economies face separate, but equally formidable ‘headwinds’, of a (non-policy and secular) nature, impeding growth – from aging populations in China and the OECD, the winding down of China’s industrial revolution,  and from technical innovation turning job-destructive, rather than job creative as a whole. Connected with this is shrinking world trade.

But why is the economy failing to generate prosperity as in earlier decades?  Is it mainly down to Greenspan and Bernanke’s monetary excesses?  Certainly, the latter has contributed to our contemporary stagnation, but perhaps if we look a little deeper, we might find an additional explanation. As I noted in a Comment of 6 January 2017, the golden era of US economic expansion was the ‘50s and ‘60s – but that era had begun to unravel somewhat, already, with the economic turbulence of the 70s. However, it was not so much Reagan’s fiscal or monetary policies that rescued a deteriorating situation in that earlier moment, but rather, it was plain old good fortune. The last giant oil fields with greater than 30-to-one, ‘energy-return’ on ‘energy-cost’ of exploitation, came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. Those events allowed the USA and the West generally to extend their growth another twenty years.

And, as that bounty tapered down around the year 2000, the system wobbled again, “and the viziers of the Fed ramped up their magical operations, led by the Grand Vizier (or “Maestro”) Alan Greenspan.”  Some other key things happened though, at this point: firstly the cost of crude, which had been remarkably stable, in real terms, over many years, suddenly started its inexorable real-terms ascent.  And from 2001, in the wake of the dot.com ‘bust’, government and other debt began to soar in a sharp trajectory upwards (now reaching $20 trillion). Also, around this time the US abandoned the gold standard, and the petro-dollar was born.

 


Source: Get It. Got It. Good, by Grant Williams

 

Well, the Hill’s Group, who are seasoned US oil industry engineers, led by B.W. Hill, tell us – following their last two years, or so, of research – that for purely thermodynamic reasons net energy delivered to the globalised industrial world (GIW) per barrel, by the oil industry (the IOCs) is rapidly trending to zero. Note that we are talking energy-cost of exploration, extraction and transport for the energy-return at final destination. We are not speaking of dollar costs, and we are speaking in aggregate. So why should this be important at all; and what has this to do with spiraling debt creation by the western Central Banks from around 2001?

The importance? Though we sometimes forget it, for we now are so habituated to it, is that energy is the economy.  All of modernity, from industrial output and transportation, to how we live, derives from energy – and oil remains a key element to it.  What we (the globalized industrial world) experienced in that golden era until the 70s, was economic growth fueled by an unprecedented 321% increase in net energy/head.  The peak of 18GJ/head in around 1973 was actually of the order of some 40GJ/head for those who actually has access to oil at the time, which is to say, the industrialised fraction of the global population. The Hill’s Group research  can be summarized visually as below (recall that these are costs expressed in energy, rather than dollars):

 


Source: http://cassandralegacy.blogspot.it/2016/07/some-reflections-on-twilight-of-oil-age.html 

 

But as Steve St Angelo in the SRSrocco Reports states, the important thing to understand from these energy return on energy cost ratios or EROI, is that a minimum ratio value for a modern society is 20:1 (i.e. the net energy surplus available for GDP growth should be twenty times its cost of extraction). For citizens of an advanced society to enjoy a prosperous living, the EROI of energy needs to be much higher, closer to the 30:1 ratio. Well, if we look at the chart below, the U.S. oil and gas industry EROI fell below 30:1 some 46 years ago (after 1970):

 


Source: https://srsroccoreport.com/the-coming-breakdown-of-u-s-global-markets-explained-what-most-analysts-missed/ 

 

“You will notice two important trends in the chart above. When the U.S. EROI ratio was higher than 30:1, prior to 1970, U.S. public debt did not increase all that much.  However, this changed after 1970, as the EROI continued to decline, public debt increased in an exponential fashion”. (St Angelo).

In short, the question begged by the Hill’s Group research is whether the reason for the explosion of government debt since 1970 is that central bankers (unconsciously), were trying to compensate for the lack of GDP stimulus deriving from the earlier net energy surplus.  In effect, they switched from flagging energy-driven growth, to the new debt-driven growth model.

From a peak net surplus of around 40 GJ  (in 1973), by 2012, the IOCs were beginning to consume more energy per barrel, in their own processes (from oil exploration to transport fuel deliveries at the petrol stations), than that which the barrel would deliver net to the globalized industrial world, in aggregate.  We are now down below 4GJ per head, and dropping fast. (The Hill’s Group)

Is this analysis by the Hill’s Group too reductionist in attributing so much of the era of earlier western material prosperity to the big discoveries of ‘cheap’ oil, and the subsequent elusiveness of growth to the decline in net energy per barrel available for GDP growth?  Are we in deep trouble now that the IOCs use more energy in their own processes, than they are able to deliver net to industrialised world? Maybe so. It is a controversial view, but we can see – in plain dollar terms – some tangible evidence fo rthe Hill’s Groups’ assertions:  

 


Source: https://srsroccoreport.com/wp-content/uploads/2016/08/Top-3-U.S.-Oil-Companies-Free-Cash-Flow-Minus-Dividends.png 

(The top three U.S. oil companies, ExxonMobil, Chevron andConocoPhillips: Cash from operations less Capex and dividends)

 

 
Briefly, what does this all mean? Well, the business model for the big three US IOCs does not look that great: Energy costs of course, are financial costs, too.  In 2016, according to Yahoo Finance, the U.S. Energy Sector paid 86% of their operating income just to service the interest on the debt (i.e. to pay for those extraction costs). We have not run out of oil. This is not what the Hill’s Group is saying. Quite the reverse. What they are saying is the surplus energy (at a ratio of now less than 10:1) that derives from the oil that we have been using (after the energy-costs expended in retrieving it) – is now at a point that it can barely support our energy-driven ‘modernity’.  Implicit in this analysis, is that our era of plenty was a one time, once off, event.

They are also saying that this implies that as modernity enters on a more severe energy ‘diet’, less surplus calories for their dollars – barely enough to keep the growth engine idling – then global demand for oil will decline, and the price will fall (quite the opposite of mainstream analysis which sees demand for oil growing. It is a vicious circle. If Hills are correct, a key balance has tipped. We may soon be spending more energy on getting the energy that is required to keep the cogs and wheels of modernity turning, than that same energy delivers in terms of calorie-equivalence.  There is not much that either Mr Trump or the Europeans can do about this – other than seize the entire Persian Gulf.  Transiting to renewables now, is perhaps too little, too late.

And America and Europe, no longer have the balance sheet ‘room’, for much further fiscal or monetary stimulus; and, in any event, the efficacy of such measures as drivers of ‘real economy’ growth, is open to question. It may mitigate the problem, but not solve it. No, the headwinds of net energy per barrel trending to zero, plus the other ‘secular’ dynamics mentioned above (demography, China slowing and technology turning job-destructive), form a formidable impediment – and therefore a huge political time bomb.

Back to Davos, and the question of ‘what to do’. Jamie Dimon, the CEO of  JPMorgan Chase, warned  that Europe needs to address disagreements spurring the rise of nationalist leaders. Dimon said he hoped European Union leaders would examine what caused the U.K. to vote to leave and then make changes. That hasn’t happened, and if nationalist politicians including France’s Marine Le Pen rise to power in elections across the region, “the euro zone may not survive”. “The bottom line is the region must become more competitive, Dimon said, which in simple economic terms means accept even lower wages. It also means major political overhauls: “I say this out of respect for the European people, but they’re going to have to change,” he said. “They may be forced by politics, they may be forced by new leadership.”

A race to the bottom in pay levels?  Italy should undercut Romanian salaries?  Maybe Chinese pay scales, too? This is politically naïve, and the globalist Establishment has only itself to blame for their conviction that there are no real options – save to divert more of the diminished prosperity towards the middle classes (Christine Lagarde), and to impose further austerity (Dimon). As we have tried to show, the era of prosperity for all, began to waver in the 70s in America, and started its more serious stall from 2001 onwards. The Establishment approach to this faltering of growth has been to kick the can down the road: ‘extend and pretend’ – monetised debt, zero, or negative, interest rates and the unceasing refrain that ‘recovery’ is around the corner.

It is precisely their ‘kicking the can’ of inflated asset values, reaching into every corner of life, hiking the cost of living, that has contributed to making Europe the leveraged, ‘high cost’, uncompetitive environment, that it now is.  There is no practical way for Italians, for example, to compete with ‘low cost’ East Europe, or  Asia, through a devaluation of the internal Italian price level without provoking major political push-back.  This is the price of ‘extend and pretend’.

It has been claimed at Davos that the much derided ‘populists’ provide no real solutions. But, crucially, they do offer, firstly, the hope for ‘regime change’ – and, who knows, enough Europeans may be willing to take a punt on leaving the Euro, and accepting the consequences, whatever they may be. Would they be worse off? No one really knows. But at least the ‘populists’ can claim, secondly, that such a dramatic act would serve to escape from the suffocation of the status quo. ‘Davos man’ and woman disdain this particular appeal of ‘the populists’ at their peril.
 

 

 

Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.

 

 

Jan 222015
 
 January 22, 2015  Posted by at 11:59 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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DPC Steamer Tashmoo leaving wharf in Detroit 1901

Today is The Automatic Earth’s 7th anniversary!

China’s Millions Of Government Workers To Get Huge 60% Pay Raise (Caixin)
Oil Interests Clash Over Price Collapse (Reuters)
Davos Oil Barons Eye $150 Oil As Investment Slump Incubates Future Crunch (AEP)
OPEC Secretary General: Oil To Remain At Low Levels For A Month (CNBC)
BP Boss Bob Dudley: Oil Prices ‘Low For Up To 3 Years’ (BBC)
An Oilfield Turf War for Market Share Is Brewing (Bloomberg)
ECB to Inject Up to €1.1 Trillion Into Economy in Deflation Fight (Bloomberg)
Lagarde On European QE: It’s Already Working (CNBC)
Mario Draghi May Need To Get A Bigger (QE) Boat (CNBC)
Watch Europe Fumble QE (Bloomberg)
German Opt-Out Could Fatally Weaken Eurozone QE (MarketWatch)
Market Will Be Disappointed By Draghi: Dennis Gartman (CNBC)
The Eurozone Can’t Afford A Greek Exit (Guardian)
Populist Parties: Kryptonite For Europe’s Leaders? (CNBC)
Revenge of Disaffected Europe Risks Crisis Sparked in Greece (Bloomberg)
As Central Banks Surprise, Fed May Have To Throw In The Towel (MarketWatch)
Is Canada’s Rate Cut A Race For The Bottom? (CNBC)
Manager ‘Truly Sorry’ For Blowing Up $100 Million Hedge Fund (CNBC)
The Davos Oligarchs Are Right To Fear The World They’ve Made (Guardian)
‘Safer GMOs’ Made By US Scientists (BBC)

Incredible.

China’s Millions Of Government Workers To Get Huge 60% Pay Raise (Caixin)

China’s 39 million civil servants and public workers will get a pay raise of at least 60% of their base salaries as part of pension plan overhaul. Hu Xiaoyi, a vice minister of human resources and social security, said at a press conference Tuesday that government agencies and public institutions have been notified of detailed plans for the salary increase. The pay raise “will make sure that the overall incomes for most of these workers will not decrease after the reform, and some of them could actually earn a bit more,” he said. Hu did not provide details of the plan, which will cover civil servants and public workers, such as teachers and doctors. Copies of documents obtained by Caixin show that top civil servants, including President Xi Jinping and Premier Li Keqiang, will see their monthly base salaries rise to 11,385 yuan from 7,020 yuan (to $1,833 from $1,130), starting in October.

The base salaries of the lowest civil servants would more than double to 1,320 yuan. It is unclear if the plans Caixin saw are final. Data from the State Administration of Civil Service show that China had nearly 7.2 million civil servants and more than 31.5 million public-sector workers employed by institutions such as schools and hospitals at the end of 2013. Those workers do not contribute to their pension fund, meaning taxpayers fund their retirements. A reform announced on Jan. 14 by the State Council, China’s cabinet, will see civil servants and public workers start to contribute to the pension program in October. They will make contributions similar to those private-sectors workers, who have been paying in since the late 1990s. Government agencies and public institutions will pay 20% of their workers’ base salaries to the pension fund on behalf of their employees. The employees will contribute 8% of their salary.

The reform plan says government agencies and public institutions should also introduce an income annuity program for employees. That change will see employers contribute 8% of their employees’ salaries to an annuity fund, while employees pay 4%. The annuity program will provide retirees with another monthly payment. Hu Jiye, a professor in Beijing, said the annuity program and pension scheme will ensure government employees and public workers enjoy the same level of benefits after the reform. That assurance will help the reform make smooth progress, Hu said. Data from the China Statistical Yearbook show that in 2011 the average government pension paid 2,175 yuan a month per retiree. A private-sector pension paid 1,508 per month.

Read more …

Forecasts are all over the place.

Oil Interests Clash Over Price Collapse (Reuters)

OPEC defended on Wednesday its decision not to intervene to halt the oil price collapse, shrugging off warnings by top energy firms that the cartel’s policy could lead to a huge supply shortage as investments dry up. The strain the halving of oil prices since June is putting on producers was laid bare when non-member Oman voiced its first direct, public criticism of the Organization of the Petroleum Exporting Countries’ November decision not to cut production but instead to focus on market share. Oil prices have collapsed to below $50 a barrel as a result of a large supply glut, due mostly to a sharp rise in U.S. shale production as well as weaker global demand. The rapid decline has left several smaller oil producing countries reeling and has forced oil companies to slash budgets.

Speaking at the World Economic Forum in Davos, Switzerland, the heads of two of the world’s largest oil firms warned that the decline in investments in future production could lead to a supply shortage and a dramatic price increase. Claudio Descalzi, the head of Italian energy company Eni Spa, said that unless OPEC acts to restore stability in oil prices, these could overshoot to $200 per barrel several years down the line. “What we need is stability… OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way,” Descalzi told Reuters Television. He expected prices to stay low for 12-18 months but then start a gradual recovery as U.S. shale oil production began falling. But both OPEC and Saudi Arabia, the group’s largest producer, stuck to their guns.

“If we had cut in November we would have to cut again and again as non-OPEC would be increasing production,” OPEC Secretary General Abdullah al-Badri said in Davos. “Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs? Let’s produce the lower cost oil first and then produce the higher cost,” Badri said. “Prices will rebound. I saw this 3-4 times in my life.” Al-Badri said the policy was not directed at Russia, Iran or the United States.

Read more …

Talking one’s book.

Davos Oil Barons Eye $150 Oil As Investment Slump Incubates Future Crunch (AEP)

Rampant speculation by hedge funds and a rare confluence of short-term shocks have driven the price of oil far below its natural clearing level, coiling the springs for a fresh spike this year that may catch markets badly off-guard once again. “The price will rebound and we will go back to normal very soon,” said Abdullah Al-Badri, OPEC’s veteran secretary-general. “Yes, there is an over-supply, but fundamentals don’t justify this 50pc fall in price.” xperts from across the world – from both the West and the petro-powers – said the slump in fresh investment in 2015 is setting the stage for a much tighter balance of supply and demand, and possibly a fresh oil crunch. Mr Al-Badri said he had been through price swings before but recovery may be swifter today than in past cyclical troughs. “This time we have to be very careful to handle this crisis right. We must keep investing, and not lay off experienced people as we did last time,” he told the World Economic Forum in Davos.

Claudio Descalzi, chief executive of Italy’s oil giant ENI, said the last phase of the price crash from $75 a barrel to around $45 was driven by wild moves on the derivatives markets. Traders with “long” positions effectively capitulated once it became clear that OPEC was not going to cut output to shore up prices. This led to abrupt switch to massive “short” positions instead. “These contracts are 15 or 20 times the physical market,” he said. Mr Descalzi said the roller coaster move in prices is destructive for the oil industry and is leading to investment cuts that may store up serious trouble for the future. “What we need is stability: a central bank for oil. Prices could jump to $150 or even $200 over the next four or five years,” he said. Khalid Al Falih, president of Saudi Aramco, the world’s biggest oil producer, said the mix of financial leverage and the end of quantitative easing had “accelerated” the collapse in prices but the slide has lost touch with reality.

“We’re going to see higher demand this year. Investors are shaken and will now be more careful about committing money to mega-projects in the oil and gas industry,” he said. Fatih Birol, the chief economist for the International Energy Agency, said the dramatic crash since June has been caused by a unique set of events. Supply surged by 2m barrels a day (b/d) last year – the highest in 30 years – at exactly the same moment that China slowed sharply, Japan fell back into recession and Europe’s recovery stalled. “Oil at $45 is a temporary phenomenon, so don’t get too relaxed. We see upward pressures on prices by the end of this year. Oil investments are going to fall by 15pc or about $100bn dollars this year,” he said.

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Sure.

OPEC Secretary General: Oil To Remain At Low Levels For A Month (CNBC)

The secretary general of OPEC told CNBC on Wednesday that oil prices were likely to remain around their current levels for around a month before rebounding. Speaking at the World Economic Forum in Davos, Abdullah al-Badri said it was hard to predict oil price movements given the ongoing fluctuations. “It will stay for another month at this low price, but I’m sure the price will rebound,” he told CNBC. Brent crude oil prices have dropped almost 50% since last year in the biggest annual fall since 2008, amid weakening demand and a refusal by OPEC to cut production in November. But al-Badri insisted that the group, which provides about a third of the world’s supply, “knew what it was doing.” “We know that there is over-supply in the market, that there is a lower demand—and we decided to keep production as it is,” he said.

If OPEC was going to reduce supply, it had to be alongside production cuts by non-OPEC members, such as U.S. shale producers, al-Badri said. If OPEC was going to reduce supply, it had to be alongside production cuts by non-OPEC members, such as U.S. shale producers, al-Badri said. He insisted that the group was not playing a “game of chicken” with its rivals, as some analysts have claimed, over who can absorb the dip in prices and not cut back on production. “This is a collective decision. It is agreed by all the ministers. … There is a pure economic decision. It is not targeted at anybody. … Whatever you hear is nonsense,” he said. “We are more united than ever. … We are a very strong group.”

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“Companies like us, at BP, we’re going to need to rebase the company based on no guarantees at all that the price will come back up..”

BP Boss Bob Dudley: Oil Prices ‘Low For Up To 3 Years’ (BBC)

The boss of oil giant BP Bob Dudley has said that oil prices could remain low for up to three years. He added that could send UK petrol prices below £1 per litre. He told BBC Business editor Kamal Ahmed in Davos BP was planning for low oil prices for years to come. That is expected to lead to job losses and falling investment in the North Sea oil industry and elsewhere, curbing supply and eventually forcing the price back up. Italian oil group Eni has said the next spike could be around $200 a barrel. Eni’s chief executive, Claudio Descalzi, said the oil industry would cut capital spending by 10-13% this year because of slumping prices. He said that would create longer-term shortages and sharp price rises in four to five years’ time, if the OPEC cartel fails to cut supplies.

Mr Dudley said historically world oil prices have fluctuated, and sometimes have remained low for a number of years. He expects to see current low prices for at least a year, and that BP has to plan for that. “Companies like us, at BP, we’re going to need to rebase the company based on no guarantees at all that the price will come back up,” he said. “We have go to plan on this [price] being down, and we don’t know exactly what level, but certainly a year, I think probably two and maybe three years.” From 2010 until mid-2014, oil prices around the world were fairly stable, at around $110 a barrel. However, since June prices have more than halved. Brent crude oil is around $48 a barrel, and US crude is around $47 a barrel. Mr Dudley said lower oil prices could mean UK petrol could fall below £1 per litre. This kind of petrol price was “not far off”, despite taxation forming a part of the fuel price. “If prices keep going down, I’m sure you will [see £1 per litre],” he added.

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Oil service companies are also expanding.

An Oilfield Turf War for Market Share Is Brewing (Bloomberg)

An oilfield brawl is taking shape between Halliburton and Schlumberger as the world’s two biggest energy service companies vie to grab more market share during a prolonged industry slump. Both companies have chosen to expand operations with an eye toward emerging from the downturn bigger and stronger than before. Schlumberger agreed Tuesday to pay $1.7 billion for a stake in a Russian drilling business, and Halliburton reaffirmed its commitment to buying rival Baker Hughes Inc. for $34.6 billion. The combined companies will be about half the size of Schlumberger. “There’s going to be some market share battles between the two of them,” James West, an analyst at Evercore ISI, said in a phone interview. “Both will attempt to take market share from companies that can’t provide very high efficiency, very high technology products and services.”

A backlog of work provided Halliburton, Baker Hughes and Schlumberger with one last growth spurt in the fourth quarter as the companies turned the corner into a year where they’re expected to have to cut prices for their work by as much as 20%. Amid tens of thousands of industry job cuts, some oil producers have already slashed budgets by as much as 30%, Dave Lesar, chief executive officer at Halliburton, said on a conference call with analysts. The three oilfield service giants are taking their own steps to conserve cash as they brace to weather one of the deepest industry slumps since the 1980s oil bust. U.S. Crude prices have collapsed more than 55% since last year’s high of $107.26 in June.

Fourth-quarter earnings, excluding certain items, exceeded analysts’ expectations for each of the big three service companies. Schlumberger, excluding a $1.77 billion one-time charge that included severance costs, reported a profit of $1.94 billion. Halliburton boosted profit 14% to $901 million, while Baker Hughes more than doubled earnings to $663 million. Schlumberger is buying a stake in Eurasia Drilling, with an option to purchase the rest of the Russian rig contractor’s shares three years after the deal closes. The world’s largest oilfield contractor is betting that economic sanctions in the country will be lifted “sooner or later” in order to gain from a growing Russian oil services market, Alexander Kornilov, an analyst at Alfa Bank, said in an e-mail.

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We’ll see later today.

ECB to Inject Up to €1.1 Trillion Into Economy in Deflation Fight (Bloomberg)

Mario Draghi called on the European Central Bank to make its biggest push yet to fend off deflation and revive the economy by unleashing a debt-buying spree of €1.1 trillion ($1.3 trillion). The ECB president and his Executive Board proposed spending €50 billion a month through December 2016, two euro-area central-bank officials said. The plan still faces a tense debate in the Governing Council and may change before the final decision on Thursday, the people said, asking not to be identified as the talks are private. An ECB spokesman declined to comment. By urging Fed-style quantitative easing, Draghi is remodeling the ECB as an aggressive central bank that will take risks even against the wishes of Germany, the region’s biggest economy.

Bundesbank President Jens Weidmann and Executive Board member Sabine Lautenschlaeger have argued QE isn’t needed and reduces the incentive of governments to make structural reforms. The proposal “looks larger than implied by the ECB’s previous comments about the size of its balance sheet,” said Riccardo Barbieri Hermitte, chief European economist at Mizuho in London. “A lot will depend on the risk-sharing features of the program.” Draghi’s intention is to expand the ECB’s balance sheet to the level seen in early 2012, or about €3 trillion. While the central bank has assets of about €2.2 trillion currently, that may shrink as €200 billion of outstanding long-term loans mature in coming weeks.

The ECB chief is scheduled to hold a press conference at 2:30 p.m. in Frankfurt on Thursday to announce the Governing Council’s decision. The council’s debate will be complicated by arguments over whether the risks incurred in the new bond-buying plan should be shared across the region’s 19 central banks or kept within national boundaries. Dutch central-bank Governor Klaas Knot has said any decision to mutualize risk should be taken by elected politicians, not unelected central bankers. The tension over that issue surfaced this week at a conference in Dublin. Irish Finance Minister Michael Noonan said having national central banks buy government bonds would be “ineffective” – drawing a response from ECB Executive Board member Benoit Coeure.

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As goal-seeked as you can get.

Lagarde On European QE: It’s Already Working (CNBC)

The World Economic Forum in Davos has many different topics on the agenda but this year it coincides with an hotly anticipated announcement by Mario Draghi, the president of the EC). As part of the ECB’s attempts to stimulate the deflation-hit euro zone, Draghi’s press conference at 13:30 GMT, with a rate decision due at 12:45 GMT, is widely expected to be the moment the Governing Council launches some form of government bond-buying. And with the some of the most powerful people on the planet all meeting in a conference center in Switzerland, QE was the hottest topic of the week Christine Lagarde, managing director of the International Monetary Fund (IMF), said on Wednesday that expectations of a bond-buying program in Europe had already had an effect.

“To a point you can say that it has already worked,” Lagarde said on a panel in Davos. “If you look at currency variation and where the euro is at the moment, you can’t deny that there is expectations there that QE is about to come and is announced and will be significant.” European laggard economies were poised to benefit from the higher inflation expectations which would come with quantitative easing, Lagarde added. Official figures released earlier this month revealed that the euro zone slipped into deflation in December for the first time since 2009. “If there is some re-anchoring of inflation in the euro area, those emerging European markets, which are pegged to the euro, will have the benefit of that,” she said.

“Those that are at the moment, importing the inflation so to speak from the euro area will also benefit from that. If there is more growth, more jobs in the euro area, the emerging markets in Europe will benefit from that, because half of their trade actually goes to the euro area.” Speaking on the same panel as Lagarde, Larry Summers, the former U.S. Treasury Secretary, added: “I am all for European QE.”

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The big issue is whether Draghi can find enough bonds to purchase – by no means a given – and what their emptying the market of available bonds will do to bond markets.

Mario Draghi May Need To Get A Bigger (QE) Boat (CNBC)

If Mario Draghi wants to have a significant market impact after Thursday’s European Central Bank meeting, he better not think small. The financial world’s collective gaze will be focused on the ECB president after the session, during which policymakers are expected to launch a U.S.-style quantitative easing program aimed at injecting liquidity into the sputtering euro zone economy, and goosing asset prices in the process. History, at least that generated by the Federal Reserve’s historically ambitious three rounds of QE, would suggest that the initiative would boost stocks, commodities and bond yields and, hopefully, generate some real economic growth.

However, that’s likely dependent upon how aggressive Draghi wants to get with the ECB’s version of QE, and specifically whether it can shock a market that already is well aware of the plan. “Our view is that the extent to which the ECB will surprise markets depends on size (well above market expectation of €500 billion) and the extent to which markets will perceive QE as being open-ended,” Gilles Moec, European economist at Bank of America Merrill Lynch, wrote in a report for clients. “ECB communication will be the key.” The latter part of the remark refers to the post-meeting news conference Draghi will hold.

Indications from him that the ECB continues to plan a “whatever it takes” approach to easing could spark markets, while anything less would be a disappointment. Moec figures the program will entail government bond buying of between €500 billion and €700 billion ($580 billion and $810 billion) over the span of 18 months, a close-to-consensus expectation that likely already is priced in. When headlines leaked of what the ECB was considering, the euro briefly sold, then rebounded and eventually settled slightly higher against the dollar. The trading action was an indication of “how baked-in expectations are to current market prices,” said Christopher Vecchio, currency analyst at DailyFX.

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“..investors’ willingness to buy government debt without expecting any profit is indicative of how little they trust corporate lenders.”

Watch Europe Fumble QE (Bloomberg)

Tomorrow, the European Central Bank is almost certainly going to start a quantitative easing program, buying up government debt to provide money to banks so they plow it into European economies and thus boost demand and growth. So the theory goes, but the practice of European QE will probably prove it wrong. ECB President Mario Draghi has no other option after months of political pressure fueled by the panicky fear of deflation. In a way, the ECB painted itself into a corner by targeting headline inflation, not core inflation, which excludes food and energy. When the oil price halved in the last months of 2014, there was no way for the ECB to fulfill its mandate of keeping price growth close to 2% a year. My Bloomberg View colleague Mark Gilbert has pointed out that deflation hasn’t undermined consumer confidence in Europe as economists warned it would, and people haven’t really been delaying purchases. Yet, according to Jacob Funk Kirkegaard of the Peterson Institute for International Economics, a different danger still exists:

In general, falling prices of specific goods or services do not deter economic activity. The prospect of lower prices of computers does not, for example, keep consumers from purchasing them now. A greater risk to economic growth is that euro area employers, suspecting that deflation will boost real wages, may insist on minimum or even zero nominal wage increases in upcoming negotiations, reducing their purchasing power and dampening growth prospects.

The question is whether the injection of freshly minted euros from the ECB’s government-debt purchases will somehow make employers more amenable to raising wages and stimulating demand. For that to happen, the new euros first need to filter down to businesses. There are two ways that can happen: through the capital markets and through banks. The first path depends on driving down interest rates on sovereign debt so that lenders become more interested in other types of bonds, generated by businesses, and borrowing costs fall. Sovereign debt, however, already yields next to nothing. Germany today sold €4 billion ($4.7 billion) of zero% five-year bonds. Unless the QE drives yields on European sovereign debt deep into negative territory, it’s hard to see how the relative attractiveness of corporate bonds could increase by much. In fact, investors’ willingness to buy government debt without expecting any profit is indicative of how little they trust corporate lenders.

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“The ability of Jens Weidmann, the Bundesbank president, to promote his well-known concerns about risk-sharing into powerful conditions for a sovereign-bond program will astonish many who believed Mario Draghi could push through full-scale QE..”

German Opt-Out Could Fatally Weaken Eurozone QE (MarketWatch)

In the shadowy world of European Central Bank decision-making, all central banks are equal — but some are more equal than others. Important concessions have been offered to the German Bundesbank to facilitate an announcement on sovereign-debt purchases after the ECB’s meeting on Thursday. But those concessions could open further divisions within the 19-member economic and monetary union, without guaranteeing the effectiveness of the attempt to overcome the eurozone’s low inflation and rebuild political cohesiveness. The QE program that ensues looks set to fall well short of the across-the-board quantitative easing that many financial-markets practitioners had been expecting. A significant additional factor in the complex ECB discussions on full-scale quantitative easing is last week’s Swiss National Bank decision to end its unilateral peg, in force since September 2011, between the Swiss franc and the euro.

That decision led to a sharp revaluation of the Swiss currency. The revoking of the earlier Swiss pledge to buy unlimited amounts of foreign currency to depress the Swiss franc has lowered the general credibility of central-bank statements on exchange rates and removed a major source of euro support. It exposes the SNB to heavy currency write-downs on its end-2014 foreign-exchange holdings of more than 475 billion francs, built up through unprecedented intervention to hold down the franc. Switzerland’s official reserves, up 10-fold since 2008, are now among the highest in the world. However, they will almost certainly be a major loss-maker for the Swiss state in 2015, with big political repercussions in Switzerland that will have an influence in Germany too. Further, the Swiss climb-down revealed the full extent of euro-bloc strains.

The mechanism of the single currency has depressed the real (inflation-adjusted) value of the “German euro” by at least 20%, compared with its theoretical level outside EMU. Whatever happens on Thursday, the fragility, hesitancy and politicization of the ECB’s decision-making are likely to drive the euro still weaker, without necessarily helping equity markets. The ability of Jens Weidmann, the Bundesbank president, to promote his well-known concerns about risk-sharing into powerful conditions for a sovereign-bond program will astonish many who believed Mario Draghi, the ECB president, could push through full-scale QE without accepting German strictures. The effective German opt-out from comprehensive support for other EMU countries rekindles memories of the Bundesbank’s surprise revelation in September 1992, when it said it would no longer intervene to shore up the Italian lira in the exchange-rate mechanism of the European Monetary System, the EMU’s forerunner.

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“..at least let’s say he’ll give it a good college try..”

Market Will Be Disappointed By Draghi: Dennis Gartman (CNBC)

The market will likely be a bit disappointed by whatever economic stimulus European Central Bank President Mario Draghi announces Thursday, noted investor Dennis Gartman told CNBC on Wednesday. The ECB is expected to start a quantitative easing program it hopes will provide a boost to the European economy. “We’re going to end up seeing that Mr. Draghi will not be able to do what the market really wants him to do. He needs to get the balance sheet of the ECB back to $3 trillion, where it was several years ago. The problem that he has is that he doesn’t have the ammunition or he doesn’t have the capability to get it there,” the editor and publisher of The Gartman Letter said in an interview with “Closing Bell.”

While the U.S. has broad federal debt securities, the ECB has 19 different treasury securities from which to buy. “He would like to get it done. Size counts. Size matters. But I’m not sure he can get the size accomplished. So it will probably be a bit of a disappointment but at least let’s say he’ll give it a good college try,” Gartman said. The markets are anticipating about 500 billion euros ($580 billion) in bond purchases, but some economists think it could be higher. On Wednesday, sources confirmed to CNBC that the central bank is planning to announce it will purchase 50 billion euros of bonds a month. The Wall Street Journal first reported that figure.

“Let’s give him credit for being able to accomplish anything. This is a very tendentious group of people, of countries, that he has to try to get together,” Gartman said. Whatever Draghi can get done will help the European economy, he said, and will also put downward pressure upon the euro two to three weeks from now. “But you’re likely to get a small bounce. Any bounce that you get on the euro predicated upon disappointment … in tomorrow’s action … should be sold into,” Gartman added.

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“Europe can’t afford a Greek exit.”

The Eurozone Can’t Afford A Greek Exit (Guardian)

Eurozone officials have spent the last four years building a financial buffer big enough to cope with a Greek exit. Ever since 2010 when Athens found itself unable to refinance its foreign loans and asked for a €120bn bailout, Brussels has sought to prevent another collapse and repeat of the crisis that swamped all ideas of recovery. Today a Grexit would weaken German and French banks, and cost the German government up to €77bn and the International Monetary Fund a slug of its loans, but would be unlikely to frighten global markets or undermine the 14-year-old currency bloc. In the last few weeks eurozone government bonds, which reflect the stability of a country’s finances, have remained steady while the leftist Syriza party’s polling has jumped.

In part, analysts say the €440bn European Financial Stability Facility (EFSF) amassed by Brussels is a big enough buffer. They have also scrutinised Syriza’s stance and reasoned that leader, Alex Tsipras, has given himself enough wriggle room to soften his previously hardline stance. Still, there are fears that the binding that holds the eurozone together will be loosened, especially if Greece is allowed to default while remaining inside the zone. The Bruegel Institute in Brussels is not the only thinktank to believe the estimated €250bn cost of a Grexit, while covered by the bailout funds, would cripple the eurozone and delay recovery for a decade. Zsolt Darvas, one of the institute’s economists said: “I am convinced that Greece will need new funding from European partners, but its volume should be a few dozen billion euros, say €20bn-€30bn.

“Compare the inconveniences of these additional funds to the losses on the existing approximate €250bn share of official lenders in Greek public debt (Greek Loan Facility, EFSF loans, IMF loans, money owed to the ECB and national central bank holdings of Greek bonds) and on various kinds of European Central Bank claims on Greece in the case of a Grexit.” Darvas said Greek loans can be extended to help Athens delay payments and use the money for reconstruction. Joachim Poss, the German Social Democratic party’s deputy finance spokesman in the German parliament, said earlier this month the total was unaffordable. “Europe as a whole would pick up a very, very large bill and Germany the biggest part – let there be no mistake,” he said, concluding: “Europe can’t afford a Greek exit.”

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“Syriza could embolden other anti-establishment parties challenging the mainstream political elite and their policies.”

Populist Parties: Kryptonite For Europe’s Leaders? (CNBC)

Elections in Greece this weekend could prove a test bed for anti-establishment, populist parties throughout Europe which continue to make their plague mainstream parties in the opinion polls, general elections and on the streets. If Greek opinion polls are anything to go by, the Sunday’s snap election could be a nasty shock for Europe as the anti-establishment, anti-bailout party Syriza looks poised to win. Apart from concerns that Syriza would try to renegotiate Greece’s bailout terms with international lenders, reverse austerity measures and seek debt forgiveness – reasons enough to destabilize markets within the euro zone’s fragile, inter-connected economy – Syriza could embolden other anti-establishment parties challenging the mainstream political elite and their policies.

Among those that could stand to gain the most is Spain’s anti-establishment party “Podemos” (We Can). Despite being set up only one year ago, Podemos is leading opinion polls ahead of Prime Minister Mariano Rajoy’s People’s Party. Crucially, a general elections are due in Spain later this year — giving Podemos a real shot at power. “The rise of Syriza to power will represent an important test for the ability of an anti-establishment party to secure a better deal from Greece’s international creditors that will be closely watched by similar political movements, like Podemos,” Wolfango Piccoli, managing director of risk consultancy Teneo Intelligence told CNBC.

Anti-establishment movements such as the U.K. Independence Party (UKIP) and the Alternative for Germany (AfD) have spread throughout Europe over the last few years, accompanying a period of economic stress and unpopular austerity programs that have led voters to seek an alternative to the old political elite. “Behind the success of anti-establishment parties across Europe these days is the economic vulnerability in a growing subset of national electorates. From Syriza to UKIP, populist forces try to cash in on this insider-outsider politics, but each in their own national contexts,” Piccoli added.

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“Our homeland unfortunately is taking us backwards – paltry wages, miserable pensions – and we’re looking for something better.”

Revenge of Disaffected Europe Risks Crisis Sparked in Greece (Bloomberg)

They speak different languages, they come from different backgrounds, yet all have the same message of frustration that’s threatening to redraw the European political map over the next year. Starting with elections this Sunday in Greece and heading west to Ireland via Britain and Spain, polls show Europeans will vent their anger over issues from widening income disparities and record unemployment to unprecedented immigration. For Athens pensioner Irini Smyrni, the moment she’d had enough was when her younger daughter lost her job with the government last year. For Dublin florist Nicola Johns, it was when her business fell behind on rent. “We pay, we pay, we pay,” said Smyrni, 73. “Our homeland unfortunately is taking us backwards – paltry wages, miserable pensions – and we’re looking for something better.”

English electrical technician David Liddle wants someone to stick up for people like him rather than immigrants and “scroungers.” Virginia Sanchez, an unpaid university researcher in Madrid, said she just grew tired of being failed by the usual politicians unable to improve her prospects. “I keep going because there’s nothing else to do,” said Sanchez, 23, who graduated in biology last year. Disaffection with what is seen as a ruling elite and a sense of being left behind in an increasingly globalized world are complaints heard across Europe on varying points of the political spectrum as the continent struggles to recover from successive waves of financial and economic crises.

European Central Bank President Mario Draghi today is expected to announce the latest efforts by his monetary policy makers to foster economic growth in the euro region by injecting money into the financial system. It’s unlikely to make enough of a difference to deter people from protesting at the ballot box. “Political elites have lost track of their citizens, who feel insecure amid all the economic and social pressures,” said Daniela Schwarzer, director of the German Marshall Fund’s Europe program in Berlin. “There’s a growing questioning of the political establishment across Europe.” The result is that people are abandoning parties used to being in government, those deemed safe to lead by creditors, investors and European bureaucrats.

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My bet is still they won’t.

As Central Banks Surprise, Fed May Have To Throw In The Towel (MarketWatch)

The surprises coming out of the Swiss National Bank, the European Central Bank, the Bank of England and the Bank of Canada spell tectonic shifts occurring in the global economy that inevitably will hit these shores. The Swiss of course unearthed the biggest surprise last week, by ending their policy of buying up euros, but on Wednesday there were at least three further surprises as well. The surprises started as Bank of England minutes revealed that two hawks no longer supported rate hikes. That’s particularly newsworthy as the U.K. economy, along with the U.S., has been one of the strongest performers of industrialized nations. Then came news leaks on the European Central Bank’s quantitative easing plans.

That the ECB is about to start buying bonds is not a surprise, but the reports that they’ll do so each month is. While some in the market may be disappointed the headline size of 50 billion euros per month is not blockbuster, an open-ended campaign makes it easier for the ECB to continue the purchases and ramp them up. The Bank of Canada then shocked the market with a quarter-point rate cut, to 0.75%. The Bank of Canada is concerned that the sharp drop in oil prices will not just mute inflation but dampen growth in the export-intensive economy. The central bank even reported concerns that the oil-price collapse will have on foreign demand, exports, investment and jobs growth. With this backdrop, it seems almost ludicrous that the Fed will just stick to the plan it had in the fall, to start a rate-hike campaign in the middle of 2015.

In order for the Fed to do so, the U.S. economy will not only have to be resilient to some of the overseas pain, and its own domestic energy sector, but the inflows into government bonds and the dollar will have to slow. St. Louis Fed President James Bullard says the reason yields on U.S. Treasurys are so low is due to overseas investment and not fears over weak domestic growth. But even if right, that’s almost irrelevant. If the Fed starts hiking in this turbulent global environment, it will only accelerate overseas investment here — further dampening already-muted inflationary pressure and making life difficult for exporters, and possibly furthering risky behavior that some on the Fed want to clamp.

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Why the question mark?

Is Canada’s Rate Cut A Race For The Bottom? (CNBC)

Commodity currencies may face a race to the bottom as the Bank of Canada’s surprise rate cut sent the Canadian dollar to five-year lows and could pressure Australia’s central bank to follow suit. “The reason [the Bank of Canada] cut rates is largely weaker oil prices. Australia is also a commodity exporter. The market could be excused for anticipating the RBA (Reserve Bank of Australia) would adopt a similar viewpoint,” said Greg Gibbs, senior foreign-exchange strategist at RBS. Discussions among market participants of whether successive rounds of central bank easing are making for a “tacit currency war” are increasing, he said.

On Wednesday, the Bank of Canada (BOC) cut its benchmark rate to 0.75% from 1%, its first rate change since late 2010, and cut its inflation and growth forecasts, citing the more than 50% decline in oil prices since mid-2014. The Canadian dollar, also known as the loonie, tanked, shedding as much as 4% against the dollar compared with Tuesday’s levels. The U.S. dollar was fetching levels not seen since 2009, during the Global Financial Crisis. Other central banks have also moved to weaken their currencies, with the Bank of Japan’s quantitative easing partly aiming for a weaker yen and Australia’s central bank trying to talk down its dollar.

The ECB’s likely move to announce plans Thursday to start buying assets set to further dent the euro, already at its weakest against the U.S. dollar since 2003. “Every central bank is trying to get rates down to zero, if not lower than zero,” Kumar Palghat at bond manager Kapstream told CNBC. “The only question is, you take rates down to zero, you depreciate your currency, you buy as much bonds as you want, if it doesn’t work, then what else are they going to do?” Energy and commodity exporters have particularly felt the heat. “Oil extraction now comprises roughly 3% of Canadian gross domestic product (GDP) and crude oil about 14% of Canadian exports,” Wells Fargo Securities said in a note Wednesday.

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“My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors..”

Manager ‘Truly Sorry’ For Blowing Up $100 Million Hedge Fund (CNBC)

A hedge fund manager told clients he is “truly sorry” for losing virtually all their money. Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm’s capital—down from the roughly it ran as of late March. “I take responsibility for this terrible outcome,” Li wrote in a letter to investors, which was obtained by CNBC.com. “My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors. But even so, I acted overzealously, causing you devastating losses for which there is no excuse,” he added.

Li is a former trader at Raj Rajaratnam’s Galleon Group, which collapsed amid insider trading charges. Rajaratnam is now in prison for the illegal activity, but Li was never accused of wrongdoing. Li’s lieutenant at Canarsie is Ken deRegt, who joined in 2013 after retiring as the global head of fixed income sales and trading at Morgan Stanley. His son Eric deRegt also worked at Canarsie, according to filings with the SEC as of March 2014. Li said in the letter that he made a series of “aggressive transactions” over the last three weeks to make up for poor returns in December. He said he bet on stock price options, predicated on the broader market rising. But stock indexes fell, causing the huge losses along with several undisclosed direct investments, according to the note.

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“Just 80 individuals now have the same net wealth as 3.5 billion people – half the entire global population.”

The Davos Oligarchs Are Right To Fear The World They’ve Made (Guardian)

The billionaires and corporate oligarchs meeting in Davos this week are getting worried about inequality. It might be hard to stomach that the overlords of a system that has delivered the widest global economic gulf in human history should be handwringing about the consequences of their own actions. But even the architects of the crisis-ridden international economic order are starting to see the dangers. It’s not just the maverick hedge-funder George Soros, who likes to describe himself as a class traitor. Paul Polman, Unilever chief executive, frets about the “capitalist threat to capitalism”. Christine Lagarde, the IMF managing director, fears capitalism might indeed carry Marx’s “seeds of its own destruction” and warns that something needs to be done. The scale of the crisis has been laid out for them by the charity Oxfam.

Just 80 individuals now have the same net wealth as 3.5 billion people – half the entire global population. Last year, the best-off 1% owned 48% of the world’s wealth, up from 44% five years ago. On current trends, the richest 1% will have pocketed more than the other 99% put together next year. The 0.1% have been doing even better, quadrupling their share of US income since the 1980s. This is a wealth grab on a grotesque scale. For 30 years, under the rule of what Mark Carney, the Bank of England governor, calls “market fundamentalism”, inequality in income and wealth has ballooned, both between and within the large majority of countries. In Africa, the absolute number living on less than $2 a day has doubled since 1981 as the rollcall of billionaires has swelled.

In most of the world, labour’s share of national income has fallen continuously and wages have stagnated under this regime of privatisation, deregulation and low taxes on the rich. At the same time finance has sucked wealth from the public realm into the hands of a small minority, even as it has laid waste the rest of the economy. Now the evidence has piled up that not only is such appropriation of wealth a moral and social outrage, but it is fuelling social and climate conflict, wars, mass migration and political corruption, stunting health and life chances, increasing poverty, and widening gender and ethnic divides. Escalating inequality has also been a crucial factor in the economic crisis of the past seven years, squeezing demand and fuelling the credit boom.

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It would still mean Monsanto et al own the rights and patents on our food, and that is as wrong as it can be.

‘Safer GMOs’ Made By US Scientists (BBC)

US scientists say they have taken the first step towards making “safer” GMOs that cannot spread in the wild, using synthetic biology. They have re-written the genetic code of bacteria to use only synthetic chemicals to grow. The GM bacteria would die if they escaped into nature. The research, published in Nature, is proof of concept for a new generation of GMOs, including plants, say Harvard and Yale university experts. Genetically engineered micro-organisms are used in Europe, the US and China to produce drugs or fuels under contained industrial conditions. Scientists want to build in safety measures so that their spread could be controlled if they were ever used in the outside world, perhaps to mop up oil spills or to improve human health.

“What we’ve done is engineered organisms so that they require synthetic amino acids for survival or for life,” Prof Farren Isaacs of Yale University, who led one of two studies, told BBC News. He said the future challenge was to re-engineer the code of other lifeforms. “What we’re seeing here is an important proof of concept that re-coding genomes and engineering dependence on synthetic amino acids is technically feasible in not just E coli but other micro-organisms and multicellular organisms such as plants.” GMOs have a number of potential practical uses, including the production of drugs and fuels, and removing pollutants from contaminated areas. However, strict containment measures would be needed to use them in open spaces to stop them spreading in the wild.

The US researchers describe their research, published in Nature journal, as a “milestone” in synthetic biology. Prof George Church of Harvard Medical School, who led the other study, said in order to protect natural ecosystems and address public concern the scientific community needed to develop robust biocontainment mechanisms for GMOs. “This work provides a foundation for safer GMOs that are isolated from natural ecosystems by a reliance on synthetic metabolites.”

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Jan 212015
 
 January 21, 2015  Posted by at 11:28 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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DPC Cab stand at Madison Square, NY 1900

All Empires Die By Deflation – Not Inflation (Martin Armstrong)
Global Dollar Economy Hits ‘Deflationary Vortex’ (Zero Hedge)
Albert Edwards: ‘Markets Will Riot’ On Deflation (Huebscher)
QE Warfare Pushing World Financial System Out Of Control (AEP)
Fed Officials on Track to Raise Short-Term Rates Later in the Year (WSJ)
Central Bankers Lurch From ‘Whatever It Takes’ To ‘Whatever Next’ (Reuters)
Storm Clouds Gather Over US Economy: Can The Miracle Last? (CNBC)
Davos Is About More Control And Banksterism, Not Solutions: Lew Rockwell (RT)
Brokers Reveal Details Of Damage From Swiss Chaos (Independent)
Iran Oil Minister Sees ‘No Threat’ From $25 Oil (MarketWatch)
BHP Billiton Cuts US Shale Oil Rigs By 40% Amid Sliding Price (AFP)
Chinese Stocks’ Booms and Busts Getting Bigger on Margin Debt (Bloomberg)
The Era Of 7% Growth Is Over For China (CNBC)
Defiant Obama Pushes ‘Middle-Class Economics’ (Reuters)
Credit Rater S&P to Be Banned for Year From Commercial-Bond Market (Bloomberg)
If Money Speaks Louder Than Words, Is It Speech? (Reuters)
No Clear Majority Yet In EU For TTIP Trade Deal (Reuters)
Ukraine Crisis ‘Turning Point’ Close: Russian Deputy PM (CNBC)
If Christine Lagarde And Her EU Pals Are Our Friends, Who Needs Enemies? (IM)
Pope Francis: Failing to Care for Environment Is a Betrayal of God (Slate)

“This is the death-spiral of empires. They consume all wealth until none is left.”

All Empires Die By Deflation – Not Inflation (Martin Armstrong)

A lot of people have asked what to do because property taxes keep rising and they can see they are unable to retire under such circumstances. The politicians are wiping out the elderly diminishing their savings and exploiting them in every way. There are no exceptions for taxation when you sell your home as there are in Britain. You pay no tax on the profits from a primary residence there. In the USA, you are taxed until you die. and then they want what is left. Property taxes are the worst of all taxes for they prevent you from really owning your home. Can’t pay the tax – they take it and sell it for pennies on the dollar. You have to pay taxes as if you were still working so all you can do is sell and move south and then pay taxes on your gains. New Jersey even put in an exit tax on the people it has been forcing to leave.

California has been hunting former residents who moved demanding taxes on pensions claiming they earned it when living in that state. It is a wonder why we do not yet have a sea of grey hair people with guns and pitchforks storming Washington yet. This is how empires die. Taxes in Rome kept rising. Its population peaked about 180AD and as corruption began to rise, people began to leave. The higher the taxes, the more people left town. Eventually, people could not afford the taxes and were forced to just abandon their homes. This is the death-spiral of empires. They consume all wealth until none is left. Indeed, Ben Franklin got it right – our fate is always doomed by death and taxes. By the Middle Ages, the Roman Forum, was the grazing grounds for animals. Edward Gibbon wrote the best epitaph:

“Her primeval state, such as she -might–appear in a remote age, when Evander entertained the stranger of Troy, has been delineated by the fancy of Virgil. This Tarpeian rock was then a savage and solitary thicket; in the time of the poet, it was crowned with the golden roofs of a temple, the temple is overthrown, the gold has been pillaged, the wheel of Fortune has accomplished her revolution, and the sacred ground is again disfigured with thorns and brambles. The hill of the Capitol, on which we sit, was formerly the head of the Roman Empire, the citadel of the earth, the terror of kings; illustrated by the footsteps of so many triumphs, enriched with the spoils and tributes of so many nations. This spectacle of the world, how is it fallen! how changed! how defaced!

The path of victory is obliterated by vines, and the benches of the senators are concealed by a dunghill. Cast your eyes on the Palatine hill, and seek among the shapeless and enormous fragments the marble theatre, the obelisks, the colossal statues, the porticos of Nero’s palace: survey the other hills of the city, the vacant space is interrupted only by ruins and gardens. The forum of the Roman people where they assembled to enact their laws and elect their magistrates, is now enclosed for the cultivation of pot-herbs, or thrown open for the reception of swine and buffaloes. The public and private edifices that were founded for eternity lie prostrate, naked, and broken, like the limbs of a mighty giant, and the ruin is the more visible from the stupendous relics that have survived the injuries of time and fortune.”

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“..if the trade weighted dollar is appreciating, then this exerts downward pressure on the dollar economy on a near one-to-one basis.”

Global Dollar Economy Hits ‘Deflationary Vortex’ (Zero Hedge)

One of the macroeconomic observations that has gotten absolutely no mention in recent months is the curious fact that while global economic growth has not imploded in recent quarters, it is because GDP has been represented, as is customary, in local currency terms. Of course, this comes as a time when local currencies (at least those which are not the USD) have been plunging against the greenback on the back of the expectations that the Fed will hike rates some time in the summer or later in 2015. Which also means that in “dollar economy” terms, i.e., converted in USD, things are not nearly as good.

In fact, as the chart below shows, the global dollar economy is not only shrinking fast, but it is doing so at the fastest pace since the Lehman collapse, having shrunk by $4 trillion, or a whopping 5%, in just the last 6 months! By way of comparison the dollar economy lost $7 trillion, or a 10% contraction, during the Lehman crisis. Should the USD continue to appreciate, the global dollar economy collapse may surpass the plunge observed just as the great financial crisis struck. SocGen calls it “a deflationary vortex”; CNBC would call it a “global recovery.” Here is SocGen on this largely undiscussed topic with “The deflationary vortex of a shrinking dollar economy”:

As the ECB prepares to race faster in a bid to export deflation, the risk is that the dollar economy (world GDP measured in US dollars) will shrink further. The dollar economy is down by just over 5% since July, marking a loss of just over $4tn in nominal terms. The last sharp contraction of the dollar economy took place in 2008. Back then the economy shrank by just over $7tn, marking a loss in excess of 10%. The foreign trade mix of the US fairly closely mirrors the composition of world GDP. As such, if the trade weighted dollar is appreciating, then this exerts downward pressure on the dollar economy on a near one-to-one basis.

Any offset then comes from nominal GDP growth in local currency terms. Since July, the trade weighted dollar has gained just over 10%. Viewing the global economy from the vantage point of the dollar economy, it is hardly surprising that when the trade weighted dollar appreciates, commodity demand is eroded as economies with depreciating currencies lose purchasing power. To the extent that central banks actively seek currency depreciation, this could see further shrinkage of the dollar economy and add further downward pressure to commodity prices.

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“This is the year the markets really panic about deflation. You haven’t had that panic yet.”

Albert Edwards: ‘Markets Will Riot’ On Deflation (Huebscher)

Albert Edwards admits that his “uber bear” reputation is well deserved, at least with respect to equities, an asset class he has dismissed for the last 10 years. His bearishness has not abated, and for the coming year, he fears that “deflation will overwhelm the west.” Markets, he said, will riot. Edwards is the chief global strategist for Societe Generale and he spoke at that firm’s annual global strategy conference in London on January 13. Global markets face three risks, according to Edwards: bearishness in the U.S. government bond market, a flawed confidence that the U.S. is in a self-sustaining recovery and undue faith in the relationship between quantitative easing (QE) and the equity markets. Deflation is the main threat, though, according to Edwards. “This is the year the markets really panic about deflation. You haven’t had that panic yet.”

Edwards said that U.S. equities are “stuck in a secular-valuation bear market” and have been inflated by QE. Though he did not predict a recession, he said stocks would react very negatively if one were to happen. “The market embraces a recession by going to a new lower low on valuations,” he said. He offset that pessimism with a bullish view on the U.S. bond market. He said the 10-year yield could go below 1% and “converge on what is happening in Japan.” “Markets move on extreme surprises,” Edwards said, “and when expectations are so firmly held and they are shown not to be the case, you get these extreme moves.”

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“QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies and they get their money from banks, not from the bond market..”

QE Warfare Pushing World Financial System Out Of Control (AEP)

The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world’s financial system going into 2015. Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West. “We are in a world that is dangerously unanchored,” said William White, the Swiss-based chairman of the OECD’s Review Committee. “We’re seeing true currency wars and everybody is doing it, and I have no idea where this is going to end.” Mr White is a former chief economist to the Bank for International Settlements – the bank of central banks – and currently an advisor to German Chancellor Angela Merkel. He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession.

The excesses have reached almost every corner of the globe, and combined public/private debt is 20% of GDP higher today. “We are holding a tiger by the tail,” he said. He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. “Sovereign bond yields haven’t been so low since the ‘Black Plague’: how much more bang can you get for your buck?” he told The Telegraph before the World Economic Forum in Davos. “QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market,” he said. “Even after the stress tests the banks are still in ‘hunkering down mode’. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up,” he said.

The warnings come just as the ECBprepares a blitz of bond purchases at a crucial meeting on Thursday. Most ECB-watchers expect QE of around €500bn now that the eurozone is already in deflation. Even the Bundesbank is struggling to come with fresh reasons to oppose it. The psychological potency of this largesse will depend on whether the ECB opts for shock-and-awe concentration or trickles out the stimulus slowly. It also depends on the exact mechanism used to conduct QE, a loose term at best. ECB president Mario Draghi hopes that bond purchases will push money out into the broader economy through a “wealth effect”, but critics fear this will be worse than useless if it leads to an asset bubble without gaining traction on the real economy. Classic moneratists say the ECB may end up spinning its wheels should it merely try to expand the money base. Mr White said QE is a disguised form of competitive devaluation. “The Japanese are now doing it as well but nobody can complain because the US started it,” he said.

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Jon Hilsenrath is the unofficial Fed bullhorn. So pay attention.

Fed Officials on Track to Raise Short-Term Rates Later in the Year (WSJ)

Federal Reserve officials are staying on track to start raising short-term interest rates later this year, even though long-term rates are going in the other direction amid new investor worries about weak global growth, falling oil prices and slowing consumer price inflation. The Fed’s stance, as it prepares for a policy meeting later this month, is striking because European Central Bank officials are poised to take the opposite approach later this week. The ECB is nearing a decision on whether to launch a controversial stimulus program known as quantitative easing on Thursday. It is widely expected to announce it will buy hundreds of billions or more of euro-denominated government bonds in an effort to beat back Japan-style deflation.

The world hasn’t seen an economic divergence like this since the mid-1990s, when growth in the U.S., Japan and Europe went in different directions. Back then, Japan was mired in a post-real-estate bubble downturn, Europe was grappling with the consequences of the collapse of the Soviet Union and the U.S. was enjoying a burgeoning technology boom. The looming moves have important implications for markets and growth. Investors have already been driving up the value of the U.S. dollar in anticipation of the moves and driving down long-term interest rates across the globe. “I think it is important to get started and to start normalizing policy,” St. Louis Fed President James Bullard said in an interview with The Wall Street Journal on Monday. “Even once we start to normalize, interest rates would be extraordinarily low.” [..]

“The level of inflation is not so low that it can alone justify a policy rate of zero,” Mr. Bullard said in a speech Friday. He wants the Fed to start raising rates by March, earlier than most other officials. San Francisco Fed President John Williams said in a speech Friday the middle of the year may still be the best time for the U.S. central bank to increase rates. Given the health of the broader economy, “what I’m really watching for is underlying inflation—wage growth, prices [..] My forecast is once we get through this slow path in inflation it will start moving back,” he said, adding, “I’m not expecting inflation to be 2% when we raise interest rates.I don’t need to be at the goal when we raise the rates.”

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“Monetary methadone..”

Central Bankers Lurch From ‘Whatever It Takes’ To ‘Whatever Next’ (Reuters)

The Swiss currency shock has raised an awkward question many investors have been fearful of asking – what if central banks become as unpredictable and fallible as they are powerful? The Swiss National Bank’s sudden decision to abandon its three-year-old cap on the franc – the “cornerstone” of its monetary policy just three days before – led to the biggest one-day move in major exchange rates in the post-1973 floating rates era. To some it was a warning sign of other U-turns, mishaps and possible failures by central banks still ahead, outcomes not fully appreciated by long-becalmed markets. For decades the power of currency printing presses has held markets in thrall. “Don’t fight the Fed” and all its international variations has been a devout belief among financial traders.

Even after the failure of Alan Greenspan’s Federal Reserve to spot and headoff one of the biggest credit booms and busts in history, the ability of the Fed, Bank of England, Bank of Japan, European Central Bank and others to flood their money supply to ease the fallout helped anaesthetise fractious markets. The subsequent waves of cheap credit, currency fixes and “quantitative easing” drove down borrowing rates and erased volatility. The demonstrations of central bank might culminated in ECB chief Mario Draghi’s declaration in 2012 that he would do “whatever it takes” to save the euro. In the face of the power of the money printing press, speculation became pointless. So much so that one of the biggest conundrums of recent years became the persistently low implied volatility in markets even in the face of outsized economic, political and policy risks.

Not everyone was pleased by the complacency. “Monetary methadone was the best of no choice but we have become addicted to cheap money everywhere and, somehow, that central bankers are prophetic,” Nigel Wilson, chief executive of UK insurer Legal & General told Reuters. The first cracks appeared last summer, when it became clear the Fed was turning off the printing presses even as counterparts in Europe and Japan were still cranking up theirs. The idea the world’s largest economy was about to suck dollars back out of the world just as others were pumping in euros and yen sent once-steady exchange rates lurching. The power of the central banks was as daunting as ever, but no longer such a reassuring and calming influence.

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No.

Storm Clouds Gather Over US Economy: Can The Miracle Last? (CNBC)

The world just got a bit scarier for risk assets. On Thursday morning, the Swiss National Bank shocked the world by removing its cap on the Swiss franc against the euro, causing its currency to soar and the euro to plunge—and creating fears about more sudden central bank moves. Meanwhile, global growth concerns continue to drive industrial commodities like copper and crude oil to multi-year lows. With the U.S. serving as one of the world’s few bastions of security and growth, the dollar continues to soar and Treasury yields are plummeting in a bid for safe havens. The question now: How long can America continue to shine in an increasingly uncertain and slow-growing world? A key clue could come in the week ahead, as a slate of major companies report their fourth-quarter results and release forward guidance.

Most closely watched will be energy companies like Halliburton and Baker Hughes, consumer discretionary names like Starbucks and McDonald’s, and industrial giants like GE. The overarching questions will be whether the soaring dollar and plunging energy prices are helping or hurting—and just how much the weakening global environment is a concern for corporate managers. “What I’m going to be watching for is some clarity from the companies in terms of the decline in the price of oil, and the decline of interest rates and the rise of the dollar,” said John Conlon, chief investment officer at People’s United Bank. “I’m going to see if there’s some consensus developing in terms of the price of oil and interest rates.”

Thus far, the “blended” estimate for fourth quarter earnings growth (which combines reported earnings with analyst estimates for yet-to-be-reported earnings) stands at a meager 0.6%, according to FactSet. That’s down from 1.7% on December 31st, mostly due to misses from Citigroup, Bank of America and JPMorgan. It’s worth noting that since more companies beat than miss, actual earnings growth tends to be prettier than the estimates. But if the growth rate does stand at 0.6% after the dust has settled, that would mark the slowest earnings growth since the third quarter of 2012, when S&P 500 companies reported an earnings decline of 1%.

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“..what they actually are doing is plotting even more wars, interventions, more economic controls, more ‘banksterism’, more benefits to the power elite versus the people”

Davos Is About More Control And Banksterism, Not Solutions: Lew Rockwell (RT)

The Davos meeting is not looking for world crisis solutions but plotting more controls, ‘banksterism’ and power elite benefits, says economic journalist Lew Rockwell. They are going to tax and rip off their own people to even greater extent, he added.

RT: The main theme of the Davos forum in the past has largely been finding solutions for world economic problems. How about today? Is it still about that?

Lew Rockwell: No, it is actually about control. I think it has always been about control for the US Empire, for the oligarchs associated with it. They may talk about wanting to solve problems, or make people’s lives better, [but] what they actually are doing is plotting even more wars, interventions, more economic controls, more ‘banksterism’, more benefits to the power elite versus the people. We don’t know what is going on there. I’d like to put chest cams on all of them so we can see what they are doing, what they are talking about. It is not good for the cause of freedom, for the cause of prosperity, not good for the cause of human rights what goes on in Davos.

RT: Let’s talk about numbers. For example, this year companies have to pay $20,000 per executive for a ticket. A simple dinner in an average restaurant was $40 last year. A night in a mid-range hotel has gone from roughly $600 to $700. Do the Forum’s participants need all these special arrangements to make an effective decision?

LR: It is a meeting of the very rich and it’s a meeting of the politicians that they own. They all live very well; they are not staying in the middle range hotels and are not eating at the regular restaurants. They are having the times of their lives; they lived the life of riley at the expense of everybody else. I don’t think we need to worry about cost to them. They are happy to spend the money. It is not theirs after all; they are taking it from the rest of us.

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“The aftermath is like a black hole that can suck massive amounts of credit from currency trading as we have known it.”

Brokers Reveal Details Of Damage From Swiss Chaos (Independent)

The UK’s biggest spread-betting firm, IG Group, said yesterday that it would “learn lessons” from last week’s stunning reversal by the Swiss National Bank (SNB), which cost it £30m. IG is nursing £18m in client losses from the SNB’s shock scrapping of the franc’s cap against the euro, as well as £12m in market exposure. IG honoured the loss limits of clients but was unable to close its hedging positions on bets because of the extreme volatility, which saw the euro tumble 30% against the “Swissie” at one stage. The company intends to maintain the dividend at last year’s level. “Although this was because of an unprecedented and unforeseeable degree of movement in a major global currency, and only a few hundred clients were affected, we will seek to learn lessons from this incident which we can incorporate into our risk-management approach,” the company said.

The Swiss blow took the gloss off strong results from the company, which has seen 1,700 clients sign up to a new stockbroking account. IG generated its highest monthly revenue in October, when global markets sank on growth fears, helping half-year profits up 2.8% to £101.4m. Another victim of the SNB’s currency earthquake, the US broker FXCM, also revealed the punishing terms of a $300m (£198m) rescue loan from investment firm Leucadia National, owner of a wide range of companies that includes broker Jefferies. FXCM will pay an eye-watering 10% annual interest on the loan, with the rate increasing by 1.5% a quarter up to a maximum of 17%, to encourage a sale of the business within three years. Leucadia will get half the proceeds on a sale of FXCM after the loan is repaid, although it will claim an even bigger share on a sale above $500m.

Danish investment bank and broker Saxo said it would incur losses from the SNB move but that its capital position was not in peril. The firm gave its clients less leverage to bet on the currency last year, reducing its exposure. Analysts said that the full impact of the scrapping of the Swiss franc-euro ceiling by the Swiss central bank won’t be known for months. “[It is] closer to a nuclear explosion than a 1,000-kilogram conventional bomb” said Javier Paz, senior analyst in wealth management at Aite Group. “The aftermath is like a black hole that can suck massive amounts of credit from currency trading as we have known it.”

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“If the oil prices drop to $25 a barrel, there will yet again be no threat posed to Iran’s oil industry..”

Iran Oil Minister Sees ‘No Threat’ From $25 Oil (MarketWatch)

Do I hear $25-a-barrel oil? Iran’s oil Minister Bijan Namdar Zanganeh hinted at even lower prices for crude as he declared his well positioned for plunging crude oil prices. “If the oil prices drop to $25 a barrel, there will yet again be no threat posed to Iran’s oil industry,” said Zanganeh at a conference in Tehran on Monday. That means the country should be sitting pretty as the OPEC sticks to its guns on production cuts. But Zanganeh also predicted that OPEC and non-OPEC countries will eventually “cooperate to restore balance to the oil market.” Wishful thinking perhaps in a situation where the market only reads: too much supply, not enough demand. On Sunday, his Iraq counterpart, Adel Abdul-Mehdi, said his country pumped out a record four million barrels per day of oil in December

Recently, billionaire Saudi businessman Prince Alwaleed bin Talal, said the market can kiss $100-a-barrel oil goodbye forever. “I said a year ago [that] the price of oil above $100 is artificial,” Alwaleed said. “It’s not correct.” Over at Project Syndicate last week, Anatole Kaletsky, a former Times of London columnist said $50 oil should really be the ceiling for a much lower price range, which could drop all the way down to $20 a barrel. “As it happens, estimates of shale-oil production costs are mostly around $50, while marginal conventional oilfields generally break even at around $20. Thus, the trading range in the brave new world of competitive oil should be roughly $20 to $50,” said Kaletsky, chief economist and co-chairman of Gavekal Dragonomics.

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“The announcement that BHP will reduce the number of US onshore oil rigs it operates by the end of this financial year is a pointer to the industry-wide supply response yet to come..”

BHP Billiton Cuts US Shale Oil Rigs By 40% Amid Sliding Price (AFP)

The world’s biggest miner BHP Billiton is cutting back its operating US shale oil rigs by 40% amid slumping prices. BHP said on Wednesday it would reduce the number of rigs from 26 to 16 by the end of the June in response to weaker oil prices. However, shale volumes were still forecast to grow by approximately 50% during the period. “In petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in our onshore US business by approximately 40% by the end of this financial year,” chief executive Andrew Mackenzie said. “The revised drilling programme will benefit from significant improvements in drilling and completions efficiency.” Mackenzie said while the firm’s drilling operations would focus on its Black Hawk field in Texas, “we will keep this activity under review and make further changes if we believe deferring development will create more value than near-term production”.

Oil prices slid again Tuesday after the International Monetary Fund slashed its forecast for world economic growth and revived concerns about the strength of crude demand. US benchmark West Texas Intermediate for February sank US$2.30, or 4.7%, to US$46.39 a barrel, not far from its lowest level since March 2009. “The announcement that BHP will reduce the number of US onshore oil rigs it operates by the end of this financial year is a pointer to the industry-wide supply response on lower oil prices that is yet to come,” CMC Markets’ chief market analyst Ric Spooner said in a note. BHP added that its iron ore output had risen by 16% for the three months to December compared to a year earlier, hitting 56.4m tonnes. Prices in iron ore, one of BHP’s core commodities, slumped 47% in 2014 amid a global supply glut and softening demand from China.

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“When the tide turns, it’s going to be very ugly, because you will have a forced exit from the market.”

Chinese Stocks’ Booms and Busts Getting Bigger on Margin Debt (Bloomberg)

The one thing China’s bulls and bears can agree on is that swings in the world’s most-volatile major stock market are only going to get bigger after equity traders took on record amounts of debt. Both Bank of America strategist David Cui, who predicts Chinese shares will fall, and JPMorgans Adrian Mowat, who has an overweight rating, say the surge in margin lending to all-time highs is amplifying price fluctuations in the $4.9 trillion market. Volatility in the benchmark Shanghai Composite Index reached the highest level since 2009 this week after rising more than fourfold since July. While the flood of borrowed money into Chinese stocks added fuel to a 59% rally in the Shanghai Composite during the past 12 months through yesterday, the gauge’s 7.7% tumble on Monday illustrates how leverage can also accelerate declines.

Margin traders unloaded shares at the fastest pace in 19 months during the rout, which was sparked by regulatory efforts to cool the growth of margin debt in a market where individuals drive 80% of equity volumes. “Margin trading will add more up-and-down to the market and increase volatility,” Xie Weiyu at Shenyin & Wanguo in Shanghai, said. “If a correction starts, the magnitude will be bigger than the past few years.” In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a brokerage. The loans are backed by the investors’ equity holdings, meaning they may be forced to sell when prices fall to repay their debt.

The Shanghai Composite sank the most in six years on Monday after the China Securities Regulatory Commission suspended the nation’s two biggest brokerages from lending money to new equity-trading clients and said securities firms shouldn’t lend to investors with assets below 500,000 yuan ($80,467). Outstanding margin loans on both the Shanghai and Shenzhen exchanges surged more than tenfold in the past two years to a record 1.1 trillion yuan as of Jan. 16, or about 3.5% of the nation’s market value. On the New York Stock Exchange, margin debt amounts to about 2.1% of market cap on the NYSE Composite Index. Margin lending is a “new phenomenon in China,” said Cui, who anticipates the Shanghai Composite will fall about 5% by year-end. “When the tide turns, it’s going to be very ugly, because you will have a forced exit from the market.”

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Again: China is doing far worse than it pretends.

The Era Of 7% Growth Is Over For China (CNBC)

Brace for growth numbers starting with “6” from China this year, economists say, after data showed the world’s second largest economy expanded at its slowest pace in over two decades in 2014. China’s GDP release on Tuesday showed the economy grew 7.3% in the fourth quarter from the year-ago period, bringing growth in the full year to 7.4% – the weakest performance since 1990. “The challenges facing China’s economy remain as large or even larger compared to a year prior,” Brian Jackson, chief economist at IHS Global Insight wrote in a note, citing the cooling property sector, industrial overcapacity and high debt levels as persistent headwinds for the economy.

IHS predicts growth will moderate to 6.5% in 2015, far short of a 7% official target the government is expected to announce in March, as the government prioritizes economic reform over stimulus While December monthly indicators, including industrial production and retail sales also released Tuesday, pointed to some upward momentum in the economy, economists say this will proved short-lived. “Brief spells of accelerating Chinese growth are taking place within a larger narrative of China’s secular slowdown, a trend which bouts of mini-stimulus and lower commodity prices cannot fully reverse,” Jackson said.

For example, the pickup in industrial output growth to 7.9% on year in December, from 7.2% in November, is a result of the re-opening of factories following a temporary shutdown during the time of the Asia-Pacific Economic Cooperation (APEC) conference, according to Nomura. Of all the headwinds facing the economy, analysts expect the property sector will be the top drag for the economy in the first half of 2015. Real estate is an important pillar of the economy, accounting for approximately 15% of GDP and directly affecting dozens of other sectors from steel to construction. “Chinese growth will continue to face downward pressure because of the slowdown in property investment,” said Tommy Xie, economist at OCBC Bank, who sees growth dipping below 7% in the first-half.

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Empty.

Defiant Obama Pushes ‘Middle-Class Economics’ (Reuters)

President Barack Obama struck a defiant tone for his dealings with the new Republican-led Congress on Tuesday, calling on his opponents to raise taxes on the rich and threatening to veto legislation that would challenge his key decisions. Dogged by an ailing economy since the start of his presidency six years ago, Obama appeared before a joint session of Congress for his State of the Union speech in a confident mood, buoyed by an economic revival that has trimmed the jobless rate to 5.6% and eager to use this as a mandate. It is now time, he told lawmakers and millions watching on television, to “turn the page” from recession and war and work together to boost those middle-class Americans who have been left behind.

But by calling for higher taxes that Republicans are unlikely to approve and chiding those who suggest climate change is not real, Obama set a confrontational tone for his final two years in office. He vowed to veto any Republican effort to roll back his signature healthcare law and his unilateral loosening of immigration policy. Any attempt to increase sanctions on Iran while negotiations with Tehran over its nuclear program are still under way would also be rejected, he said. In sum, Obama appeared liberated: no longer having to face American voters again after his election victories in 2008 and 2012, a point that he reminded Republicans about. “I have no more campaigns to run,” Obama said. When a smattering of applause rose from Republicans at that prospect, he added with a tight smile: “I know because I won both of them.”

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Costly.

Credit Rater S&P to Be Banned for Year From Commercial-Bond Market (Bloomberg)

Standard & Poor’s will be suspended for a year from rating bonds in one of its most lucrative businesses in a $60 million settlement with the U.S. Securities and Exchange Commission, according to a person with knowledge of the matter. The deal, which the person said may be announced as soon as tomorrow, is the agency’s toughest action yet in an industry blamed for fueling the 2008 financial crisis by assigning inflated grades to risky mortgage debt. Instead of securities created during that period, though, the SEC’s investigation has looked at whether S&P bent its criteria to win business on commercial-mortgage bonds issued in 2011.

The suspension will ban S&P from rating debt in the biggest portion of that market, those that bundle multiple loans tied to anything from shopping malls to skyscrapers, into securities that are sold to bond investors, according to the person, who asked not to be identified because the discussions are private. In addition to the SEC fine, the unit of McGraw Hill is also facing a penalty to settle probes of the same ratings by Attorneys General in New York and Massachusetts, said the person and a second with knowledge of the talks. The CMBS probe is separate from a lawsuit by the Justice Department tied to subprime home loans that S&P rated before the credit crisis. S&P is expected to settle that matter as soon as this quarter for about $1 billion in penalties, people familiar with the matter said this month.

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” One has a right, for example, to procreative liberty — yet no right to buy a baby. Money would help some people exercise these rights, too. But we don’t treat laws restricting baby selling as if they were restricting procreative liberty.”

If Money Speaks Louder Than Words, Is It Speech? (Reuters)

Citizens United may have been just what the United States needed — a decision by the U.S. Supreme Court so dramatically wrongheaded that people across the country paid attention to it and said, “Hold on, something is wrong here.” Though the actual ruling simply extended the flawed approach to campaign-finance laws that the court had been following for decades, Citizens United shined a light on the justices’ reasoning and demonstrated its shortcomings by taking that rationale to its logical — if absurd — conclusion. The Supreme Court treats restrictions on both giving and spending money on elections as restrictions on “speech” under the First Amendment. While the case law has been dotted with victories for both advocates and opponents of campaign-finance restrictions over the past 40 years, it is vital to step back and look at the bigger picture.

In the seminal 1976 campaign-finance case, Buckley v. Valeo, the court laid out the line of reasoning relied on ever since. Buckley said that restrictions on giving and spending money in politics should be treated as if they are restrictions on speech. This approach was not obvious or uncontroversial. Campaign-finance laws do not “prohibit” speech — using the word in its ordinary way. Rather, they restrict giving and spending money used on political speech. The decision to treat campaign-finance laws as restrictions on speech was based on the argument that money facilitates speech. “[V]irtually every means of communicating ideas in today’s society requires the expenditure of money,” the court argued. Though that may be somewhat less true today — given the Internet — it is still largely correct.

What this rationale misses is that money facilitates speech not because there is any special connection between the two, but because money is useful stuff. It facilitates the exercise of many other constitutionally protected rights, as well as the fulfillment of many goals and interests. Yet, and here’s the important part, no one — and especially not this Supreme Court — is likely to conclude that restrictions on spending money in connection with the exercise of all other rights would violate these rights. One has a right, for example, to procreative liberty — yet no right to buy a baby. Money would help some people exercise these rights, too. But we don’t treat laws restricting baby selling as if they were restricting procreative liberty.

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Here’s how you spell democracy in Europe today: “The EU has said the final wording would, however, remain confidential until an agreement was reached..”

No Clear Majority Yet In EU For TTIP Trade Deal (Reuters)

No clear majority has so far emerged among EU states for a free-trade agreement between the European Union and the United States and both sides need to explain the benefits of such a deal, the EU’s health chief said. Chancellor Angela Merkel has urged the 28-nation EU to speed up negotiations with the United States on what would be the world’s biggest trade deal. But there is public opposition in Europe based on fears of weaker food and environmental standards. “We have to take people’s concerns seriously,” Vytenis Andriukaitis, European commissioner for health and food safety, told German daily Tagesspiegel, adding that the trade agreement ultimately needed to be ratified by all national parliaments.

“At the moment, I don’t see a safe majority for this yet,” he said in an interview published on Monday, adding the EU Commission had published some negotiating papers to improve transparency. The EU has said the final wording would, however, remain confidential until an agreement was reached on the Transatlantic Trade and Investment Partnership (TTIP). Negotiations for the TTIP were launched in July 2013 and officials are seeking a deal that goes well beyond trade to remove barriers to businesses. There is concern in Europe that U.S. multinationals would use a proposed investment protection clause to bypass national laws in EU countries. In Berlin, more than 25,000 people joined a rally against the TTIP and genetically modified food over the weekend.

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Went to Diplomat School: “Russia is interested in stabilizing the situation globally and in Ukraine in particular..”

Ukraine Crisis ‘Turning Point’ Close: Russian Deputy PM (CNBC)

The conflict over Ukraine’s borders with Russia, which has soured Moscow’s relationship with the West and stirred up new concerns about global unrest, may be close to a “turning point”, according to Arkady Dvorkovich, Russia’s deputy Prime Minister. “Russia is interested in stabilizing the situation globally and in Ukraine in particular,” Dvorkovich told CNBC at the World Economic Forum in Davos, where he is one of Russia’s most senior representatives after both President Vladimir Putin and Prime Minister Dmitry Medvedev declined to make the trip. He extended the possibility of reducing the price of gas to Ukraine, after Russia hiked it earlier in the conflict. This week, military activity in Donetsk and Luhansk, the disputed parts of eastern Ukraine where Russian-backed militants are battling the Ukrainian army, had escalated after falling back over Christmas and New Year.

Petro Poroshenko, the Ukrainian President, who came to power last year, has acknowledged this week that a military solution to the fighting, which has claimed nearly 5,000 lives so far, does not exist. Economic sanctions enacted by Western countries against Russia, following the outbreak of conflict, combined with the falling price of oil and gas, its biggest export, and a tumbling ruble, have helped send the country into economic turmoil. Nonetheless, Dvorkovich argued that thanks to the country’s currency reserves “we have the resources to keep the economy in a relatively normal stance.” “We have resources, we have an anti-crisis plan.” There has also been a lack of external investment in Russia, as Western companies are concerned that they may fall foul of current or future sanctions. But Dvorkovich dismissed this, arguing “CEOs of foreign companies are all saying that they will continue investments in Russia, with the ruble at this low level.”

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“Christine Lagarde must be smiling to herself and thinking we are thick Paddies alright.”

If Christine Lagarde And Her EU Pals Are Our Friends, Who Needs Enemies? (IM)

There is nothing worse than a posh bird arriving into town and insulting the intelligence of the natives. That’s exactly what IMF chief Christine Lagarde did yesterday. She and her friends in Europe robbed around €10,000 a year out of the pocket of every Irish citizen to save the rich on the continent and to ensure no French or German bank would collapse for lending to the bankrupt Irish banks. And then she has the cheek to tell us we are the real heroes of the recovery. What’s even worse, our Taoiseach Enda Kenny stood there applauding her as she praised the victims of brutal austerity. If Lagarde and her cohorts from Europe can be classed as friends, who needs enemies? This country is sick to death of being the best boys and girls in the class in the EU. Let’s tell the truth Brussels couldn’t give a damn about us and never will. They will protect the euro at any cost and we as a nation paid a horrendous price. We have been landed with debt that will take generations to clear, if ever.

The whole crisis set this country back 20 years. Not one treacherous banker has gone to jail. Not one politician or civil servant has been held to account for horrendous decisions taken on the night of the bank guarantee. Europe has been a failure for the Republic of Ireland, they hung this country out to dry. So lets start having the debate about it. There is also no recovery here yet – very few people have any spare cash. The country is taxed to the hilt and the working man and woman is surviving by the skin of the teeth. That’s why the water charge was a tax too far and the people took to the streets. Our politicians are still living in a Leinster House bubble. They may mean well but the majority of them haven’t a clue what’s going on in the real world. They have no vision where Ireland is going it is all a game of retaining power. Christine Lagarde must be smiling to herself and thinking we are thick Paddies alright.

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“Respect for the environment means more than simply using cleaner products or recycling what we use.”

Pope Francis: Failing to Care for Environment Is a Betrayal of God (Slate)

Pope Francis has been wading into environmental issues during his week-long Asian tour, but he issued the strongest words on Sunday, when he said that man was betraying God’s calling by destroying nature. Or at least that’s what he was supposed to say at a rally with young people at a university in Manila. But the pope ended up being moved by the story of an abandoned girl so he improvised a speech. Still, the Vatican has said that when the pope decides to improvise, the prepared text is official, notes Reuters. “As stewards of God’s creation, we are called to make the earth a beautiful garden for the human family,” the pope said in the prepared text. “When we destroy our forests, ravage our soil and pollute our seas, we betray that noble calling.” The pope also pointed out that youth in the Philippines should feel a special obligation to care for the environment.

“This is not only because this country, more than many others, is likely to be seriously affected by climate change,” he said in the prepared text. “You are called to care for creation not only as responsible citizens, but also as followers of Christ!” He also appeared to chastise those who think that simply by buying environmentally friendly products and recycling they are doing enough for the cause. “Respect for the environment means more than simply using cleaner products or recycling what we use. These are important aspects, but not enough,” he said. God “created the world as a beautiful garden and asked us to care for it,” Francis said. “Through sin, man has disfigured that natural beauty. Through sin, man has also destroyed the unity and beauty of our human family, creating social structures that perpetuate poverty, ignorance and corruption.”

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Jan 202015
 
 January 20, 2015  Posted by at 11:08 pm Finance Tagged with: , , , , , ,  20 Responses »
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Unknown Charleston, SC, after bombardment. Ruins of Cathedral of St John and St Finbar 1865

After 6+ (BIG +) years of deepening poverty and rising stock markets, of creative accounting, of QE and ultralow interest rates, of extend and pretend and outright propaganda and of what have you, all of which have led us to where we are today, facing yet more rounds of stumbling from crisis into multiple crises, it would seem clear that the model, if not the mold, is broken. In order to fix it, let alone replace it altogether, we need to understand to what extent it is broken. And to do that, we first need to know what exactly the model is.

Now, it would be tempting, even seem logical, to consult with the people who designed and built the model. Who, after all, not only claim to be the only ones capable of fixing the broken mold, but who also have occupied all positions of power that have any say in the process. But that’s less obvious than it may seem. Because, mind you, the model is broken. They built a flawed model. Or rather, they built one that works for them, for some, but not for the rest of us.

There are gatherings and festivities ongoing in Davos. Only some are invited: the rich, the powerful and their court jesters. Those who profited most from the broken model. They’re least likely to fix it, they won’t even admit to it being broken. It works just fine for them. The people in Davos believe in one model only, the one of ever increasing centralization and globalization, because that’s the model that got them where they are.

That means that what’s in their interest is 180º removed from what’s in your interest. And it means that whatever these people propose you do, you should probably do the exact opposite.

The more our economic activities become part of the global economy, the more the rich can skim off. That ‘principle’ got them where they are. They all, to name one thing, keep talking about the need for more reforms, in order to make economies more competitive. Even sounds reasonable at first glance; but only because we haven’t thought it over. It’s mere propaganda.

When it comes to basic necessities, to food, water and shelter, we shouldn’t strive to compete with other economies. That is not good for us, or for our peers in those other economies; it’s good only for those who skim off the top. The larger and more globalized the top, the more there is to skim off. All the ‘reform’ is geared towards making our economies ever more dependent on the global economy. And that is not in our best interest.

It’s not all just even about money, it’s about our security, and independence. Everybody likes the idea of being independent, but at the same time few realize that globalization is the exact opposite of independence. Global trade is fine, as long as it’s limited to things we don’t need to survive, but it’s not fine if and when it takes away the ability of a community or a society to provide for itself.

Protectionism has acquired a really bad reputation, as if it’s inherently evil to try and protect your community from being gutted by economic ideas and systems it has no defense against, or to make sure it can generate and provide for its own basics at all times. But that’s just propaganda too.

If our societies are not designed and constructed to provide for themselves, they’ll end up with no choice but to go to war with each other. Along the same lines, if our societies don’t have strict laws in place that guarantee we can’t and won’t destroy the natural resources of the land we live on comes with, we’ll also end up going to war with each other.

We’re not going to solve the Gordian knot of the entire global economy and all the hubris and propaganda the present leading politicians, businessmen and ‘reporters’ bring to the table. And we probably shouldn’t want to. Our brains did not develop to do things on a global scale. The clowns will blow themselves up sooner or later. We should focus on what we can do, meanwhile, in our immediate surroundings.

And it’s pretty easy from there, really. The economic problems we have are mostly artificial. They have been induced by the broken economic model the Davos crowd, the central bankers and you know who else would have us believe is the one and only, and that they are busy fixing for our sake and greater glory. But they care only about their own glory.

The IMF lowered its global GDP forecast yet again. But who cares? Who has any faith in the IMF? Those numbers are released for consumption by the masses, and duly reported by the media six ways to Sunday. China says its economy grew 7.4% in 2014. But there is no more reason to believe China than there is the IMF. If China’s economy had really grown 7.4% in 2014, oil would not be below $50.

Trying, and desiring, to be part of this global economy idea the clowns propagate, or even a new world order, which can only lead to misery and mayhem for billions of people just because of the way it was set up, is the worst thing we can do now. We owe it to our people, and our children, to leave them with something better than that.

It’s fine to compete with others when it comes to technology and fashion and gadgets and whatever luxury items you can or cannot yet imagine. But it’s not fine to compete with them for the food and water your own children will need to survive. But still, that is the path we’re on. The path the Davos crowd has set us on. Because they get richer as we compete for food and water. Divide and rule stems from Roman times, if not before. And ‘we’ – or they, if you like that better – have perfected it. To the extent that we are now so divided amongst ourselves that a small minority can see its wealth grow at ever increasing speed at our cost.

The Davos crowd are not the important people, it’s just propaganda that makes you see them in that light. There’s no glory in wealth. The important people are your neighbors, your families, and most of all your children. And the answer to their insidious schemes is really simple; its that very simplicity which may well be the reason you never saw it.

You see, a dollar spent on locally made products goes much further than one spent on products that are shipped in. About 4 times further. Because if you buy local products, you support local jobs, which in turn support the community you live in through taxes that pay for strengthening the community, and so forth. Ergo: if something produced locally costs twice as much as what’s available from 1000 miles away, you’d still be better off. Even if it’s three times more expensive, you’ll still end up richer.

The only setback is, you’ll have to work to make it work. You’ll have to get people around you to understand why buying what their neighbors make at double or triple the price of what they pay for what comes from China will make them richer and better people. Sounds stupid and naive and easy to dismiss and unrealistic at first bite, I know. But I don’t mind, because I’m none of those things.

And, moreover, this is the only road out of Davos. All you need to do is wean yourself off the clowns. And I know you can’t do it alone, but then, why should you want to?