Apr 102018
 
 April 10, 2018  Posted by at 8:51 am Finance Tagged with: , , , , , , , , , , , , ,  


Acme Storm over Manhattan 1950

 

Trump Blasts “Disgraceful” FBI Raid Of Lawyer’s Office (ZH)
Xi Vows To Further Open China Economy As US Trade Spat Simmers (AFP)
Global Debt Jumped to Record $237 Trillion Last Year
US Deficit to Surpass $1 Trillion Two Years Ahead of Estimates – CBO (BBG)
Global Trade Is Broken, And Trump Is Sparking The Crisis Needed (Morici)
Russian Firms And Rouble Hit Heavily By Trump Sanctions (G.)
Bitcoin, the Biggest Bubble in History, Is Popping – BofA (BBG)
Bots, Good Or Bad, Dominate Twitter Conversation (AFP)
Black Lives Matter Facebook Page With 700,000 Followers Exposed As Fake (G.)
10 New Zealanders Download App On Facebook, Expose 63,714 Friends (G.)
Your Facebook Data Is Only Worth $5.20 On The Dark Web (MW)
Jerome Is The New Janet: Same Old Keynesian Jabberwocky (Stockman)
Yulia Skripal Discharged From Hospital (G.)
No Trace Of Chemical Weapons In Douma, Photos Are Fake – Russia (RT)
“Weapons Of Mass Destruction,” And All (Kunstler)
In 2020, German Society Will Start Collapsing (GEFIRA)
Fishing Boat Caught With Illegal 18-Mile-Long Nets (Ind.)

 

 

“..the fact that the FBI likely seized privileged material between the president and his lawyer is certainly troubling.”

Or is it just a promotion campaign for Comey’s book tour?

Trump Blasts “Disgraceful” FBI Raid Of Lawyer’s Office (ZH)

Update II: As many probably suspected, Trump attorney Michael Cohen is under investigation for possible fraud and campaign finance violations, the Washington Post reported. The FBI has seized documents – including emails, tax documents and other records – related to Cohen’s $130,000 payment to adult film star Stormy Daniels. Meanwhile, President Trump has stepped up to defend his longtime personal attorney, calling the raid “a whole new level of unfairness” and going as far to say it was an “attack on our country, on what we stand for before heading into a meeting with top military leaders.” He also described the special counsel’s team as “the most conflicted group of people I’ve ever met” and said the raid was “a disgraceful situation.”

Trump added that the raid happened after Deputy AG Rod Rosenstein – who is supervising the Mueller probe – approved a referral that Mueller brought to the US Attorney for the Southern District of New York. Jeff Sessions also came under fire as the president bashed him once again for recusing himself from the Mueller probe. Trump also exclaimed that “no one is looking at the other side” referring to Clinton’s 30,000 missing emails. “I have this witch hunt constantly going on,” he said. Of course, Trump has every reason to defend Cohen. As Trump’s longtime lawyer, Cohen knows where the bodies are buried. And the fact that the FBI likely seized privileged material between the president and his lawyer is certainly troubling.

Update: Michael Cohen’s lawyer says the FBI seized privileged communications between Cohen and his clients – a group that notably includes President Trump. And thus, we have what could quite possibly be an ulterior motive for the search. While initial reports suggested the raid on Cohen’s home wasn’t related to the Mueller probe, CBS is reporting that it’s unclear whether the raid was in relation to Stormy Daniels, the Mueller probe or something else. The Wall Street Journal reported that Cohen’s office in Rockefeller Center was searched along with his home and hotel room. The search was executed by the Manhattan US Attorney’s Office which is carrying out an independent investigation in coordination with Mueller. Cohen has of course already turned over his emails to the special counsel.

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For now it’s just words. But his tone could have been different.

Xi Vows To Further Open China Economy As US Trade Spat Simmers (AFP)

Chinese President Xi Jinping pledged on Tuesday to lower car tariffs this year and take other steps to further open the world’s number two economy, indirectly addressing major complaints by the United States in a simmering trade row. Promising a “new phase of opening up”, Xi told an economic forum on the southern island of Hainan that Beijing “does not seek a trade surplus” and hopes to increase imports. He said China will take measures to liberalise automobile investment, significantly reduce tariffs on cars this year and protect intellectual property – all areas that have been high on the list of demands by Washington. “Economic globalisation is an irreversible trend of the time,” Xi told the Boao Forum for Asia.

“The door of China’s opening up will not close, it will only open wider and wider.” Xi pushed measures in areas that have been high on the list of US President Donald Trump’s ire at China. “When a car is sent to the United States from China, there is a Tariff to be paid of 2.5%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%,” Trump tweeted on Monday. “Does that sound like free or fair trade. No, it sounds like STUPID TRADE – going on for years!” Without directly responding to Trump, Xi promised China would lower import tariffs for vehicles and other products, but he gave no details or an exact date for taking the measures.

[..] Xi also pledged specific measures to address IP protection. “This year, we will reorganise the State Intellectual Property Office to strengthen law enforcement,” he told the forum, an Asian version of the World Economic Forum, which draws global leaders to its annual meeting in the Swiss ski resort of Davos. “We encourage Chinese and foreign companies to carry out normal technical exchanges and cooperation to protect the legitimate intellectual property rights of foreign-funded enterprises in China,” he said.

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This will be important: “Ireland and Italy are the only major countries where household debt as a percentage of GDP is below 50%.

Global Debt Jumped to Record $237 Trillion Last Year

Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher from a decade earlier, according to an analysis by the Institute of International Finance. Among mature markets, household debt as a percentage of GDP hit all-time highs in Belgium, Canada, France, Luxembourg, Norway, Sweden and Switzerland. That’s a worrying signal, with interest rates beginning to rise globally. Ireland and Italy are the only major countries where household debt as a percentage of GDP is below 50%. Still, the ratio of global debt-to-GDP fell for the fifth consecutive quarter as the world’s economic growth accelerated. The ratio is now around 317.8% of GDP, or 4 percentage points below the high in the third quarter of 2016, according to the IIF. Among emerging markets, household debt to GDP is approaching parity in South Korea at 94.6%.

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And the Fed wants to raise rates?!

US Deficit to Surpass $1 Trillion Two Years Ahead of Estimates – CBO (BBG)

The U.S. budget deficit will surpass $1 trillion by 2020, two years sooner than previously estimated, as tax cuts and spending increases signed by President Donald Trump do little to boost long-term economic growth, according to the Congressional Budget Office. Spending will exceed revenue by $804 billion in the fiscal year through September, jumping from a projected $563 billion shortfall forecast in June, the non-partisan arm of Congress said in a report Monday. In fiscal 2019, the deficit will reach $981 billion, compared with an earlier projection of $689 billion. The nation’s budget gap was only set to surpass the trillion-dollar level in fiscal 2022 under CBO’s report last June.

Deficits are growing as the Trump administration enacted a tax overhaul this year that will lower federal revenue and Congress approved a roughly $300 billion spending increase. The fresh CBO estimates could heighten investor worries as they weigh the potential impact that tariff threats between the U.S. and China may have on the world economy. The report includes new projections for the effects of the tax legislation – saying it will increase the deficit by almost $1.9 trillion over the next 11 years, when accounting for its macroeconomic effects and increased debt-service costs. In December, Congress’s Joint Committee on Taxation had said the tax package would reduce federal revenue by almost $1.1 trillion over a 10-year period.

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The WTO and democracy.

Global Trade Is Broken, And Trump Is Sparking The Crisis Needed (Morici)

[..] It may be time to recognize that China is not a market economy — and is not likely to become one anytime soon. Over time, the WTO membership encompassed increasingly diverse nations. For example, Saudi Arabia joined in 2005, is not a democracy and hardly has a market economy. It’s a monarchy and dependent on oil, its government seeks to rig petroleum markets through OPEC. Nondemocratic, nonmarket economies were admitted on the premise that participation in the system would encourage reforms but as Saudi Arabia demonstrates — similar to Mexico in the 1980s — political and economic progress mostly happens when autocratic regimes are threatened by financial crisis.

For the oil kingdom, it took the U.S. shale boom and prospects of oil permanently depressed at about $65 a barrel to inspire House of Saud to select a progressive crown prince. China joined the WTO in 2002 but has hardly liberalized. Beijing is perfecting Orwellian mechanisms to monitor its citizens’ activities and squash political dissent. President Xi Jinping is enhancing the role of state-owned enterprises, extending state influence over private firms and foreign subsidiaries, and compelling the latter to form joint ventures with Chinese firms and embrace Beijing’s propaganda strategies.

China’s state capitalism clearly creates unfair advantages, imposes trade deficits and job losses on other nations, and has been the target of many unfair trade complaints in the WTO, but Beijing has invested in top flight U.S. lawyers — for example, Steptoe & Johnson. And the activities of its complex mix of state-owned and state-supported private enterprise have proven difficult to discipline under WTO rules, which were written to constrain governments operating in a market context.

From 2011 to 2017, the United States was frustrated in many dispute settlement processes covering nearly 50 industries. In 2016, the administration aides cited a long list of complaints in an effort to block the reappointment of a South Korean judge to the appellate body. Since then, Mr. Trump has been criticized — as he seems to be for every principled action — for continuing this policy by blocking the appointment of other judges to compel reform. It may be time to recognize that China is not a market economy — and is not likely to become one anytime soon. And it is not likely possible to rewrite the WTO rules just to suit its peculiar system.

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Talk is better.

Russian Firms And Rouble Hit Heavily By Trump Sanctions (G.)

The Trump administration’s new sanctions on Russian oligarchs and top government officials began to bite on Monday as the rouble suffered its biggest daily fall in more than three years, the main Russian stock index slumped and investors dumped shares in businesses controlled by Oleg Deripaska. Russia’s currency briefly dipped more than 4% before recovering slightly to trade at 60.42 to the dollar on Monday evening, down 3.8%, its biggest daily percentage fall since January 2015. The value of Deripaska’s aluminium producer Rusal halved in Hong Kong and more than 40% was wiped off the value of his London-listed EN+ as investors took fright at the potential impact.

Shares in Rusal and EN+ had already fallen sharply on Friday in response to the sanctions, which were announced towards the end of trading in London. The Russian stock market also fell heavily. The main RTS index dropped 11%, affecting companies not caught by the sanctions. The price of aluminium jumped as traders worried Rusal would be excluded from supplying the market. The firm, which produces almost 6% of the world’s aluminium, said the sanctions could cause technical defaults on bank loans and some credit obligations. Both Rusal and EN+, Deripaska’s holding company, said the sanctions could be “materially adverse to the business and prospects” of the companies.

Rusal and seven other companies linked to Deripaska were the main targets when the US imposed sanctions designed to punish Vladimir Putin’s inner circle for “malign activity”, including support for Bashar al-Assad’s government in Syria and interfering with the US election in 2016. Rusal sells more than 10% of its aluminium to the US.

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Not my words. But nice graph.

Bitcoin, the Biggest Bubble in History, Is Popping – BofA (BBG)

The greatest bubble in history is popping, according to Bank of America. The cryptocurrency is tracking the downfalls of the other massive asset-price bubbles in history less than one year out from its record, analysts lead by Chief Investment Strategist Michael Hartnett wrote in a note Sunday. The cryptocurrency has fallen more than 65% since peaking in December at $19,511. Bitcoin rose 2.2% to $6,750 on Monday.

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“..accounting for two-thirds of tweets linking to popular websites..”

Bots, Good Or Bad, Dominate Twitter Conversation (AFP)

Automated accounts or “bots” play a big role in disseminating information on Twitter, accounting for two-thirds of tweets linking to popular websites, a study showed Monday. The Pew Research Center report found bots were a major source for diffusing information on news, sports, entertainment and other topics. The researchers found that of all tweeted links to popular websites, 66% were shared by accounts that appeared to be automated rather than human users. While bots have gained attention due to concerns over Russian-sponsored manipulation of social media during the 2016 political campaign and for other hot-button topics, the researchers said they made no effort to distinguish between “good” or “bad” bots.

“The study does not find evidence that automated accounts currently have a liberal or conservative ‘political bias’ in their overall link-sharing behavior,” the researchers wrote. Twitter’s policy on automated accounts, last updated in November, allows bots to operate but with limitations. The policy allows for bots to “automatically broadcast helpful information” or “run creative campaigns that auto-reply to users.” But Twitter’s rules forbid automatic posts about trending topics or using automation “to attempt to influence or manipulate trending topics.” It also bans the use of multiple accounts to generate more activity.

“These findings illustrate the extent to which bots play a prominent and pervasive role in the social media environment,” says Pew researcher Aaron Smith. “Automated accounts are far from a niche phenomenon: They share a significant portion of tweeted links to even the most prominent and mainstream publications and online outlets. Since these accounts can impact the information people see on social media, it is important to have a sense their overall prevalence on social media.”

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“.. upwards of $100,000 in donations, at least some of which was directed to bank accounts registered in Australia.”

One thing: Facebook could have known this.

Black Lives Matter Facebook Page With 700,000 Followers Exposed As Fake (G.)

A high-ranking Australian union official has been suspended amid reports he ran a fake Black Lives Matter Facebook page that solicited donations from the movement’s supporters. CNN reports that Ian MacKay – an official with the National Union of Workers – helped set up and run a Facebook page called Black Lives Matter as well as other domain names linked to black rights. The page, which was removed by Facebook after CNN’s queries, had almost 700,000 followers – more than double the official Black Lives Matter page. MacKay – who is white – did not respond to calls or emails but denied running the page when contacted by CNN. A statement given to the Guardian by the NUW’s national secretary, Tim Kennedy, said the union had launched an investigation into the claims made in the CNN report.

He said the union had suspended “the relevant officials pending the outcome of an investigation”. “The NUW is not involved in and has not authorised any activities with reference to claims made in CNN’s story,” he said. The Guardian understands MacKay and one other NUW official has been suspended. In 2015 Mackay was appointed vice president of the NUW’s general branch and the union’s public office records state that he still holds the position. The investigation quoted sources who said the page may have garnered upwards of $100,000 in donations, at least some of which was directed to bank accounts registered in Australia.

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This happened 4 years ago! And only now Facebook is “..in the process of alerting New Zealanders..”?!

10 New Zealanders Download App On Facebook, Expose 63,714 Friends (G.)

Ten New Zealanders who downloaded an app on Facebook could have exposed up to 63,714 of their compatriots to the data mining tactics of Cambridge Analytica. Facebook has told the country’s privacy commissioner that it is in the process of alerting New Zealanders who were affected by the breach, which occurred when ten users downloaded a personality quiz app. “For New Zealand, we estimate a total of 63,724 people may have been impacted – 10 are estimated to have downloaded the quiz app with 63,714 friends possibly impacted,” said Antonia Sanda, head of communications for Facebook in Australia and New Zealand.

New Zealand’s privacy commissioner, John Edwards, said he was urgently seeking further information from Facebook on how New Zealanders data was used by Cambridge Analytica, and is working closely with his counterparts in the US, UK Australia and Canada to establish the severity and ramifications of the privacy beach. “I think we have some real information deficits that I hope my colleagues in the UK and the US will uncover … I am not sure New Zealanders were ‘targeted’ but I think there is a level of complacency [in New Zealand]. And when you say we’re so far away, we’re only one click away really,” Edwards said.

Edwards deleted his own Facebook account shortly after the revelations regarding Cambridge Analytica broke, and said New Zealanders should seriously consider doing the same and then resetting their profile. “I am actually quite concerned about the drip-feed of information [from Facebook]. These events occurred four years ago. There was knowledge about Cambridge Analytica targeting tactics a good two years ago, yet we are really only seeing Facebook confront this issue now,” Edwards said.

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This, too, is Facebook. Supply and demand.

Your Facebook Data Is Only Worth $5.20 On The Dark Web (MW)

Were you impacted by Cambridge Analytica’s misuse of Facebook data? An estimated 87 million Facebook users will find out Monday whether the group improperly used their data, the social-media company said. All 2.2 billion Facebook users will get see a message on Facebook called “Protecting Your Information,” that lays out which third-party apps have access to your individual Facebook profile. Whether or not you were impacted by the Cambridge Analytica incident, there’s a depressing aspect of many recent privacy violations: The most important parts of your identity can be sold online for just a few dollars.

Consumers have to spend hours of their time — and, sometimes, their own money — when they find out their driver’s license, Facebook “likes” or Social Security number have been exposed to hackers. But those who sell them are making only petty cash. That’s according to a new report from the content marketing agency Fractl, which analyzed all the fraud-related listings on three large “dark web” marketplaces — Dream, Point and Wall Street Market — over several days last month. The “dark web” is part of the internet that people can only access by using special software. To create this report, Fractl accessed the dark web through the browser Tor.

People buy other risky or illegal substances on the dark web, including drugs, pirated content like movies or music and materials that help with scams, including credit-card “skimmers.” Facebook logins can be sold for $5.20 each because they allow criminals to have access to personal data that could potentially let them hack into more of an individual’s accounts. The credentials to a PayPal account with a relatively high balance can be sold on the dark web for $247 on average, the report found. One’s entire online identity, including personal identification numbers and hacked financial accounts, can be sold for only about $1,200 on the dark web, Fractl found. That’s because so much personal information may already available to hackers, after repeated data breaches across a range of industries.

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“..fiscally incontinent government..” Great line.

Jerome Is The New Janet: Same Old Keynesian Jabberwocky (Stockman)

The election of 2016 was supposed to be the most disruptive break with the status quo in modern history, if ever. On the single most important decision of his tenure, however, the Donald has lined-up check-by-jowl with Barry and Dubya, too. That is to say, Trump’s new Fed chairman, Jerome Powell, amounts to Janet Yellen in trousers and tie. In fact, you can make it a three-part composite by adding Bernanke with a full head of hair and Greenspan sans the mumble. The overarching point here is that the great problems plaguing American society – scarcity of good jobs, punk GDP growth, faltering productivity, raging wealth mal-distribution, massive indebtedness, egregious speculative bubbles, fiscally incontinent government – are overwhelmingly caused by our rogue central bank.

They are the fetid fruits of massive and sustained financial repression and falsification of the most import prices in all of capitalism – the prices of money, debt, equities and other financial assets. Moreover, the worst of it is that the Fed is overwhelmingly the province of an unelected politburo that rules by the lights of its own Keynesian groupthink and by the hypnotic power of its Big Lie. So powerful is the latter that American democracy has meekly seconded vast, open-ended power to dominate the financial markets, and therefore the warp and woof of the nation’s $19 trillion economy, to a tiny priesthood possessing neither of the usual instruments of rule.

That is to say, never before in history has a people so completely and abjectly surrendered to an occupying power – even though its ostensibly democratic government already possessed all the votes and all the guns. So it is no exaggeration to say, therefore, that the Fed is an alien state unto itself. That was powerfully symbolized most recently by the appointment of John Williams, a lifetime apparatchik at the San Francisco Fed, to the job of head satrap at the central bank’s Liberty Street outpost in the heart of Wall Street. In the scheme of things, the President of the New York Fed is #2 in the whole central banking apparatus, and as such is immensely more powerful than any Senate Committee Chairman or House Speaker. But Williams’ appointment was not reviewed or passed upon by a single elected official accountable to any voter anywhere in the US of A.

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Hard to tell what the next steps are.

Yulia Skripal Discharged From Hospital (G.)

Yulia Skripal, the daughter of the former Russian spy Sergei Skripal, has been discharged from hospital, according to reports. Just over one month after she and her father were found in Salisbury in Wiltshire after being poisoned with a nerve agent, the BBC reported that Skripal had left Salisbury district hospital. Skripal, 33, flew to the UK on 3 March, the day before she and her father are believed to have been poisoned by a novichok nerve agent. She released a statement on Friday to say her strength was “growing daily”. The BBC reported on Tuesday morning that Skripal had been taken to a secure location, though a hospital spokesman declined to comment on the reports. Christine Blanshard, the hospital’s deputy chief executive, and Lorna Wilkinson, the director of nursing, are to make a statement later on Tuesday morning.

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It’s the White Helmets again.

No Trace Of Chemical Weapons In Douma, Photos Are Fake – Russia (RT)

The Russian military has found no trace of chemical weapons use after searching parts of Syria’s Douma allegedly targeted by an “attack.” Photos of victims posted by the White Helmets are fake, Russia’s Defense Ministry said. Experts in radiological, chemical and biological warfare, as well as medics, on Monday inspected the parts of the Eastern Ghouta city of Douma, where an alleged chemical attack supposedly took place on Saturday, the Russian Reconciliation Center for Syria said in a statement. The specialists “found no traces of the use of chemical agents” after searching the sites, the statement said. The center’s medical specialists also visited a local hospital but found no patients that showed signs of chemical weapons poisoning.

“All these facts show… that no chemical weapons were used in the town of Douma, as it was claimed by the White Helmets,” the statement said, referring to the controversial “civil defense” group that was among the first to report about the alleged attack. “All the accusations brought by the White Helmets, as well as their photos… allegedly showing the victims of the chemical attack, are nothing more than a yet another piece of fake news and an attempt to disrupt the ceasefire,” the Reconciliation Center said. On Saturday, some rebel-linked groups, including the White Helmets, accused the Syrian government of carrying out a chemical attack that, allegedly, affected dozens of civilians in the Eastern Ghouta town of Douma.

The reports have already provoked a wave of outrage in the West, as the US and the EU rushed to put the blame for the incident on Damascus and Moscow. US President Donald Trum hastily denounced the perceived attack as a “mindless” atrocity and a “humanitarian disaster for no reason whatsoever,” warning of a “big price” to be paid. Syria and Russia have dismissed the accusations and called the reports fake news, aimed at helping the extremists and at justifying potential strikes against Syrian forces. In the very early hours of Monday, Israeli fighter jets targeted Syria’s T-4 airbase in Homs province, the Russian Defense Ministry said. Israel has not commented on the strike. Earlier, a number of Israeli officials had called on the US to strike Syria as a response to the reported chemical attack.

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Like is the case with Russia, the Organization for the Prohibition of Chemical Weapons has declared Syria’s chemical weapons arsenal destroyed.

“Weapons Of Mass Destruction,” And All (Kunstler)

[..] a joint mission of the United Nations Human Rights Commission (UNHRC) and the Organization for the Prohibition of Chemical Weapons (OPCW) was called in to supervise the destruction of the Syrian government’s chemical weapons, and certified it as accomplished in late 2014. Yet, poison gas incidents continued – most notoriously in 2017 when President Donald Trump responded to one with a sortie of cruise missiles against a vacant Syrian government airfield. And now another incident in the Damascus suburb of Douma has provoked Mr. Trump to tweetstormed threats of retaliatory violence, just days after he proposed a swift withdrawal from that vexing corner of the world.

Surely by now the American public has developed some immunity to claims of nefarious doings in foreign lands (“weapons of mass destruction,” and all). The operative sentence in that New York Times report is “…Syrian forces hit a suburb of Damascus with bombs that rescue workers said unleashed toxic gas.” Yeah, well, how clear is it that the toxic gas was contained in the bombs, or rather that the bombs dropped by the Syrian military blew up a chemical weapon depot controlled by anti-government Jihadis? Does that hodgepodge of maniacs show any respect for the UN, or the Geneva Convention, or any other agency of international law?

As in many previous such incidents, we don’t know who was responsible — though there is plenty of reason to believe that parties within the US establishment are against Mr. Trump’s idea of getting the hell out of that place, and might cook up a convenient reason to prevent it. Lastly, how is it in Bashar al-Assad’s interests to provoke a fresh international uproar against him and his regime? I’d say it is not the least in his interest, since he is on the verge of putting an end to the awful conflict. He may not be a model of rectitude by Western standards, but he’s not a mental defective. And he has very able Russian support advising him in what has been so far a long and difficult effort to prevent his state from failing — or being failed for him.

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Germany, Japan, China.

In 2020, German Society Will Start Collapsing (GEFIRA)

The next crisis is just a couple of years away, and Germany will be its largest victim. Economies grow, driven by capital and labour. The ECB monetary policy is currently providing the German economy with enough funds, but the country is experiencing a catastrophic lack of youth, and its ageing labour force is not being replaced as a result of which workforce is already in short supply. Since the German population is declining at a staggering pace, before the end of the century there will only be 22 million indigenous Germans left. Currently the working population has already begun to shrink. This drop is still moderate compared to what will come after 2020.

The disappearing of the nation that has just begun will have catastrophic consequences. The German government recorded a large budget surplus last year, a sign that the authorities are not willing or able to invest in their own country. Germany lacks health care professionals, road construction workers and teachers, but allocating more tax money to this sector makes no sense because there are simply no people available. For that reason road construction sites have come to a standstill and road maintenance is postponed. In order to find consumers and labourers, the German industry is investing in new factories abroad.

In the past, the German economy was able to attract employees from Southern, Eastern and Central Europe, but at present the demographic situation in states such as Spain, Portugal, Italy and Poland – which have long provided Germany with workforce – has worsened, so for all practical purposes these sources of labour have all but dried out. Poland for instance has lost a large number of young people to the West European labour market and the loss has not been made good because of extremely low fertility.The financial sector depends on a growing economy, but – apart from periods of temporary increase – there is no significant growth, and banks have to unwind their positions by selling their assets and returning cash to their clients. When the ageing population tries to sell its investments – stocks, obligations or companies – after 2020 they will find a declining working age population that is willing and able to buy these assets. It is already difficult for German business owners to find successors.

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Tragic species, mankind.

Fishing Boat Caught With Illegal 18-Mile-Long Nets (Ind.)

A fishing ship carrying 600 illegal nets stretching up to 18 miles has been seized after it escaped Chinese authorities, while using the flags of eight different countries to evade capture. The vessel, STS-50, had targeted a cod species called Antarctic toothfish that plays an important role in the Southern Ocean ecosystem, according to Indonesia‘s fisheries ministry. Its hundreds of gillnets had walls of fine mesh and could expand to a distance of 18 miles. Gillnetting has been banned in Antarctic waters since 2006 and is described by Australia as posing a “huge risk to almost all marine life, including marine mammals due to [its] indiscriminate nature”.

The use of the nets also harm seabirds including endangered albatrosses, the country’s environment department said on its website in 2011. Indonesia was acting on a request from Interpol when it seized the officially stateless craft. It had eluded authorities by flying eight different flags at different times, including those of Sierra Leone, Togo, Cambodia, South Korea, Japan, Micronesia and Namibia, the ministry said in a statement. Interpol contacted Indonesia last week with a request to investigate the vessel, fisheries minister Susi Pudjiastuti said in the statement. “Navy ship Simeuleu conducted a ‘stop, investigate and detain’ operation on Friday and successfully seized the vessel,” she said.

The STS-50 had previously been detained by China, but escaped and was caught in the port of Maputo in Mozambique before fleeing again, Ms Pudjiastuti said. Prior to its capture off the Indonesian island of Weh in the northwestern province of Aceh, the vessel had also operated under several other names including Sea Breeze, Andrey Dolgov, STD No. 2 and Aida, the statement said. Shipping data in Thomson Reuters Eikon shows the 54m-long, 452-tonne vessel was built in 1985.

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Apr 032018
 


Vincent van Gogh Field with Irises near Arles 1888

 

Stocks’ Second-Quarter Start Is the Worst Since the Great Depression (BBG)
Stocks Lose Critical Buyer at Worst Time (BBG)
Rising Rates Sounding Alarm Bells for Debt-Laden US Consumers (BBG)
China’s State-Owned Banks Told To Stop Local Government Loans (SCMP)
Chinese Families Are Racking Up Debt On An Unprecedented Scale (SCMP)
Young Lose Out In Britain’s Housing Wealth Boom (Times)
Swedes Turn Against Cashlessness (G.)
Bernie Sanders Agrees With Trump: Amazon Has Too Much Power (NW)
German Prosecutors Ask Court To Extradite Carles Puigdemont To Spain (G.)
The Peril of Psychographics (New Yorker)
Erdogan ‘Has Gone Completely Crazy’ – Greek Defense Minister (K.)
Greek Confiscations Target State Debtors With Small Arrears (K.)
‘Sentinel’ Dolphins Die in Brazil Bay. Some Worry a Way of Life Has, Too (NYT)
Underwater Melting Of Antarctic Ice Far Greater Than Thought (G.)

 

 

How’s that for a headline?

Stocks’ Second-Quarter Start Is the Worst Since the Great Depression (BBG)

If you feel like the second quarter began badly, you’d be right. U.S. stocks had their worst April start since 1929, according to data compiled by Bloomberg. The S&P 500 index slumped 2.2%, a rout exceeded only by its 2.5% decline 89 years ago, a prelude to the devastating crash later that year that brought on the Great Depression. (Back then, the index only comprised 90 stocks.) China’s retaliatory trade tariffs combined with President Donald Trump’s criticism of Amazon.com Inc. to send equities into a tailspin Monday.

Shares in the online retailer tumbled, encouraging a sell-off in consumer discretionary and technology stocks. The S&P 500 closed below its 200-day moving average – a key technical support – and volatility climbed. The stock slide also looked pretty bad when compared to the beginning of other quarters. Equities lost more than on any other quarterly first day since October 2011, when stocks plummeted 2.8%, Bloomberg data show.

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Is there a buyback blackout? Or, better question: should stocks depend on buybacks to such an extent?

Stocks Lose Critical Buyer at Worst Time (BBG)

The stock market’s missing a key participant as the second quarter kicks off with a rout. Corporate America is stuck on the sidelines as the S&P 500 Index plunges to its lowest level since early February. That’s to comply with regulations under which companies refrain from discretionary stock buybacks for about five weeks before reporting earnings through the 48 hours that follow. So, with first-quarter reporting season kicking into high gear in two weeks, companies must sit on their hands while the market fizzles. The timing of discretionary buybacks has gained traction in recent years with corporate appetite dwarfing all other investors as the biggest source of demand for U.S. stocks. Strategists such as Goldman Sachs’s David Kostin have pointed out that it’s no coincidence the late-January selloff occurred during a blackout period.

S&P 500 firms have bought back almost $4 trillion of their own shares since the bull market began nine years ago, data compiled by S&P Dow Jones Indices show. That demand helped mitigate damage in early February when stocks tumbled into the first correction in two years. Goldman Sachs’ buyback desk had its busiest week ever during the rout and companies were called “basically the only buyers.” Volume in S&P 500 stocks was about 7% above the 30-day average Monday. Not everyone agrees that the buyback blackout is partly to blame for Monday’s selloff. According to Marko Kolanovic, JPMorgan’s global head of quantitative and derivative strategy, the majority of buybacks are usually done through preset programs that are not subject to blackout.

Moreover, stocks typically go up more when repurchases are announced than when the transactions actually occur. “The whole story about blackout is misconception,” Kolanovic wrote in an email. So, what could be behind the selloff? Kolanovic’s team last week attributed the recent downturn to an “irrational response” to global trade tensions. The S&P 500 is trading at below-average valuations even as earnings growth is picking up, a sign that any weakness would be worth buying, the strategists wrote in a March 27 note.

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“..an estimated $350 trillion of contracts are based on Libor..”

Rising Rates Sounding Alarm Bells for Debt-Laden US Consumers (BBG)

A healthy economy can be a dangerous thing. Americans have a history of loading up on debt in good times, then paying dearly when the bills come due. Adding to the pain: A booming economy is often accompanied by rising interest rates, which make mortgages, credit cards and other debt much more expensive. As the U.S. Federal Reserve raises rates, there are signs that consumers could be putting themselves in peril. “When consumers are confident, or over-confident, is when they get into credit-card trouble,” said Todd Christensen at Debt Reduction Services in Boise, Idaho. The nonprofit credit counseling service has seen a noticeable uptick in people looking for help with their debt, he said.

Spending on U.S. general purpose credit cards surged 9.4% last year, to $3.5 trillion, according to industry newsletter Nilson Report. Card delinquencies are also rising. U.S. household debt climbed in the fourth quarter at the fastest pace since 2007, according to the Federal Reserve. “There are warning signs out there,” said Kevin Morrison, senior analyst at the Aite Group. Especially concerning is a surge in student and auto loans over the past decade, he said. Meanwhile, the Federal Reserve is steadily hiking rates, most recently on March 21 when the federal funds rate rose a quarter point to a target range of 1.5% to 1.75%.

Libor, a benchmark rate the world’s biggest banks charge each other, is also on the rise. The 3-month Libor reached 2.3% last week, the highest since November 2008. That could be a problem for companies, especially those with lower credit ratings, looking to refinance debt. Overall, an estimated $350 trillion of contracts are based on Libor, according to its administrator, ICE.

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So the shadow banks can take over?

China’s State-Owned Banks Told To Stop Local Government Loans (SCMP)

The central Chinese government has sent a blunt message intended to dissolve the marriage between banks and local governments, the nexus in China’s debt-fuelled growth model. In a directive full of “must nots”and “shalls” posted on its website last week, China’s Ministry of Finance, under the newly appointed minister Liu Kun, told state-owned financial institutions not to provide any funding to local governments, with the exception of buying government bonds. At the first meeting of the Central Economic and Financial Commission, the supreme economic decision making body headed by Xi Jinping on Monday, the Chinese president said local governments and state-owned enterprises must cut debt further.

China’s state-owned banks were told to check the registered capital of projects sponsored by local authorities, to appraise borrowers’ real repayment capabilities and not to accept local government’s guarantees for repayment or return, according to the ministry’s directive. Banks “must not provide any form of funding directly to local governmental departments or directly via local state-owned enterprises and institutions” and “must not increase new loans to local government financing vehicles irregularly”, according to the notice. It added that banks must not lend any money to local governments to be used as capital in projects, government investment funds or public-private partnership projects, it added.

Yin Zhongqing, deputy director of the financial and economic affairs committee at the National People’s Congress, told the South China Morning Post last month that at least 20 trillion yuan of “hidden debt” had been accumulated in the past three years. The national institution of finance and development under the Chinese Academy of Social Sciences last week estimated the total liabilities of local government financing vehicles was 30 trillion yuan, while another 10 trillion yuan of debt could be buried in public-private partnerships.

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“A man with a 50,000 yuan debt is responsible; 200,000 yuan of debt is financially savvy; 1 million yuan of debt is a homeowner; 10 million yuan of debt is classy; and a 1 billion yuan debt is chairman of a listed company … if you don’t have any debt, you must be a total loser.”

Chinese Families Are Racking Up Debt On An Unprecedented Scale (SCMP)

Chinese families with their long tradition of saving money are now accumulating debt at a rate never been seen before, according to data compiled by a state-backed think tank in Beijing. But the National Institution for Finance and Development also said mounting debt was not a concern because Chinese households still had far more savings than debts. The country’s household leverage ratio – or the ratio between debt incurred by families and GDP – surged to 49% at the end of last year from 17.9% at the end of 2008, going up about 3.5 percentage points annually, the think tank said in a report released on Thursday.

So in the period from 1993, when the data became available, to 2008, the household debt ratio went from 8.3% to 17.9%, with an annual rise of 0.65 percentage points. But in 2016 and 2017, that annual increase accelerated to about 4.9 percentage points, the think tank said. The rapid accumulation of household debt was the biggest factor behind the rise in China’s overall leverage last year, as the corporate sector’s debt ratio fell and local government borrowing was reined in, at least on the surface, it said.

Liu Lei, a researcher with the think tank, said at a briefing on Thursday that real household debt could be “8 percentage points” higher if special housing funds, peer-to-peer lending programmes and private micro loans were factored in. In August, Shanghai-based brokerage Haitong Securities said in a report that while China’s actual household debt ratio was not high compared to many developed countries such as the US and UK, its rate of increase was dangerous. “It took 40 years for the household debt ratio in the US to rise from a level of 20% to about 50%, but it took only less than 10 years in China,” according to the Haitong economists led by Jiang Chao.

[..] China’s excessive money printing in the last decade and skyrocketing property prices have benefited those who maximised their leverage to buy real estate, while the country’s savers bore the brunt of monetary easing, leading to a dramatic shift in attitude on saving versus borrowing. That change in attitude can be seen in a popular saying widely circulated on Chinese social media in recent years: “A man with a 50,000 yuan debt is responsible; 200,000 yuan of debt is financially savvy; 1 million yuan of debt is a homeowner; 10 million yuan of debt is classy; and a 1 billion yuan debt is chairman of a listed company … if you don’t have any debt, you must be a total loser.”

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There’s so much wrong here, where to begin? Get out while you can.

Young Lose Out In Britain’s Housing Wealth Boom (Times)

Three quarters of housing wealth in Britain is held by the over-50s, according to research revealing the generational divide in the property market. Such homeowners hold £2.8 trillion of equity. The over-65s own 43 per cent of housing wealth, £1.6 trillion, the study by the estate agent Savills found. Lawrence Bowles, a research analyst at the company, said: “The extent to which wealth is concentrated in older hands is something we have not seen in a long time.” Owners have piled up equity by living longer, paying off their mortgages and watching as prices grew steadily in the final decades of the last century. “It is looking likely that we will see more people downsizing in order to free up that equity,” Mr Bowles said.

At the other end of the spectrum, homeowners under 35 hold just £221 billion of equity but owe £223 billion in mortgage debt. This age group holds £6 of equity in every £100 compared with £75 held by their parents. First-time buyers face prices that are 5.2 times higher than average incomes, while in London prices are about 14 times higher than average earnings. In most regions, it takes about eight years for the typical first-time buyer to save a deposit. This rises to nine years in the southeast and to nearly ten in London, where the average 20 per cent deposit is now above £80,000.

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“If Putin invades…”

Swedes Turn Against Cashlessness (G.)

It is hard to argue that you cannot trust the government when the government isn’t really all that bad. This is the problem facing the small but growing number of Swedes anxious about their country’s rush to embrace a cash-free society. Most consumers already say they manage without cash altogether, while shops and cafes increasingly refuse to accept notes and coins because of the costs and risk involved. Until recently, however, it has been hard for critics to find a hearing. “The Swedish government is a rather nice one, we have been lucky enough to have mostly nice ones for the past 100 years,” says Christian Engström, a former MEP for the Pirate Party and an early opponent of the cashless economy.

“In other countries there is much more awareness that you cannot trust the government all the time. In Sweden it is hard to get people mobilised.” There are signs this might be changing. In February, the head of Sweden’s central bank warned that Sweden could soon face a situation where all payments were controlled by private sector banks. The Riksbank governor, Stefan Ingves, called for new legislation to secure public control over the payments system, arguing that being able to make and receive payments is a “collective good” like defence, the courts, or public statistics. “Most citizens would feel uncomfortable to surrender these social functions to private companies,” he said. “It should be obvious that Sweden’s preparedness would be weakened if, in a serious crisis or war, we had not decided in advance how households and companies would pay for fuel, supplies and other necessities.”

The central bank governor’s remarks are helping to bring other concerns about a cash-free society into the mainstream, says Björn Eriksson, 72, a former national police commissioner and the leader of a group called the Cash Rebellion, or Kontantupproret. Until now, Kontantupproret has been dismissed as the voice of the elderly and the technologically backward, Eriksson says. “When you have a fully digital system you have no weapon to defend yourself if someone turns it off,” he says. “If Putin invades Gotland [Sweden’s largest island] it will be enough for him to turn off the payments system. No other country would even think about taking these sorts of risks, they would demand some sort of analogue system.”

In this sense, Sweden is far from its famous concept of lagom – “just the right amount” – but instead is “100% extreme”, Eriksson says, by investing so much faith in the banks. “This is a political question. We are leaving these decisions to four major banks who form a monopoly in Sweden.”

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A few days ago Elizabeth Warren agreed with Trump on China, now Sanders agrees about Amazon. What’s happening to the world?

Bernie Sanders Agrees With Trump: Amazon Has Too Much Power (NW)

Independent Vermont senator and 2016 presidential hopeful Bernie Sanders echoed President Donald Trump in expressing concern about retail giant Amazon. Sanders said that he felt Amazon had gotten too big on CNN’s “State of the Union” Sunday, and added that Amazon’s place in society should be examined. “And I think this is, look, this is an issue that has got to be looked at. What we are seeing all over this country is the decline in retail. We’re seeing this incredibly large company getting involved in almost every area of commerce. And I think it is important to take a look at the power and influence that Amazon has,” said Sanders. The senator’s comments came on the heels of a number of tweets from Trump, who has long criticized the online retailer.

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WIll Europe start chasing elected politicians?

German Prosecutors Ask Court To Extradite Carles Puigdemont To Spain (G.)

German prosecutors have asked a court to permit the extradition of former Catalan separatist leader Carles Puigdemont to Spain. Prosecutors in the northern town of Schleswig said on Tuesday they have submitted a request to the regional court following “intensive examination” of the European arrest warrant issued by Spain. Puigdemont has been detained in Germany since 25 March. Spain accuses the 55-year-old of rebellion in organising an unauthorised referendum. The Schleswig court is likely to take several days to decide whether to extradite Puigdemont. His lawyers have urged the German government to intervene in the case, citing the “political dimension.”

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Just stop collecting the data. Problem solved.

The Peril of Psychographics (New Yorker)

In September, 2016, Alexander Nix, the C.E.O. of Cambridge Analytica, the data and messaging company that was working at the time with Donald Trump’s supposedly flagging Presidential campaign, explained his firm’s work like this: “If you know the personality of the people you’re targeting, you can nuance your messaging to resonate more effectively with those key audience groups.” The fancy term for this is psychographic targeting. A few weeks later, Trump won the Presidency, against all odds and predictions, sending political operatives and journalists scrambling for explanations. “There was a huge demand internally for people to see how we did it,” Brittany Kaiser, Cambridge Analytica’s former business-development director, told the Guardian last Friday. “Everyone wanted to know: past clients, future clients.”

Whether Cambridge Analytica’s targeting work actually swayed the outcome of the election has been a subject of debate since then—because the firm’s record is spotty, psychographic targeting in political campaigns is a relatively new concept, and it has not yet been definitely shown that C.A. successfully used these methods on behalf of Trump’s campaign. Christopher Wylie, the former C.A. employee who recently came forward to detail how the company improperly acquired personal data from fifty million Facebook users, has said that the company used that data to create a “psychological warfare mindfuck tool.”

But Aleksandr Kogan, the Cambridge University researcher who provided the company with the Facebook data, has described it as “not that accurate at the individual level.” Kogan’s conclusion tracks with research that has been done by the U.K.-based Online Privacy Foundation, whose research director, Chris Sumner, recently told me that psychographics are much more accurate for groups rather than individual people.

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The US and France are turning their backs on Turkey. Feel emboldened by that?

Erdogan ‘Has Gone Completely Crazy’ – Greek Defense Minister (K.)

Raising the incendiary rhetoric another notch, Defense Minister Panos Kammenos lashed out against Recep Tayyip Erdogan Monday, saying that the Turkish president “has gone completely crazy.” Speaking to journalists outside the Parliament in Athens about the fate of the two Greek soldiers held in Turkey and Ankara’s provocations in the Aegean, Kammenos said there are no lines of communication with Erdogan. “We’re talking about Erdogan, who goes out and publicly insults the US and [Israeli Prime Minister Benjamin] Netanyahu,” he said, adding that “Turkey has no courts while its justice system works under the orders of the sultan [Erdogan].”

The two soldiers, he said, could, under these circumstances, be held there for 15 years. “You cannot answer to a madman,” he said, referring to the Turkish leader. The two soldiers have been held for a month in Turkey without any charges being brought against them yet. Kammenos, who is also the leader of the right-wing junior coalition partner, Independent Greeks (ANEL), said Turkish authorities have so far found nothing to prosecute the two soldiers but warned of a worst-case scenario reminiscent of the film “Midnight Express,” based on the travails of an American who served time in a Turkish prison in the 1970s.

“If you watch ‘Midnight Express,’ you will see that they kept on making up charges against him,” he said, adding that “nothing works democratically there [Turkey].” He also expressed concern that an incident could occur in the Aegean. “They may want to provoke this but you must know that the Turkish military is in a dire state at this moment,” he said, adding that, for its part, Greece “is ready.” He clarified that Greece will not take the bait but noted that if Turkey violates Greek national sovereignty, then “we will respond as we should.”

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On the poorest in Greece: “..the state conducted 1.72 million confiscations of salaries, pensions and rent payments last year..”

See, the poor owe €1.2 billion. 40,000 rich individuals and companies owe €90 billion.

Greek Confiscations Target State Debtors With Small Arrears (K.)

Over 3.3 million taxpayers owe the tax authorities amounts of less than 3,000 euros each. According to figures published by the Independent Authority for Public Revenue, the state conducted 1.72 million confiscations of salaries, pensions and rent payments last year, mostly concerning small debtors. Debtors owing up to 3,000 euros account for 80.5% of all debtors, and they owe 1.2 billion euros. These debts were run up in recent years and mainly stem from failure to pay income tax and the Single Property Tax (ENFIA), whereas bigger debts to the tax authorities concern 40,000 individuals and companies and add up to 90 billion euros, originating from fines and activated guarantees. It is quite impressive that the number of state debtors has increased by some 3 million in the years of the financial crisis, climbing from 1 million in 2010 to 4.1 million today.

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“Nostalgia aside..” Nostalgia? What? Nostalgic for life? When everything’s dead, we go and be nostalgic?

‘Sentinel’ Dolphins Die in Brazil Bay. Some Worry a Way of Life Has, Too (NYT)

Something ominous was happening in the turquoise waters of Sepetiba Bay, a booming port outside Rio de Janeiro. Beginning late last year, fishermen were coming across the scarred and emaciated carcasses of dolphins, sometimes five a day, bobbing up to the surface. Since then, scientists there have discovered more than 200 dead Guiana dolphins, or Sotalia guianensis, a quarter of what was the world’s largest concentration of the species. The deaths, caused by respiratory and nervous system failures linked to a virus, have subsided, but scientists are working to unravel the mystery behind them. How, they ask, did a virus that might ordinarily have claimed a handful of dolphins end up killing scores of them?

And does part of the answer, scientists and local residents ask, lie in the bay itself, at once a testament to Brazil’s economic power and a portent of environmental risk. The dolphins are “sentinels,” said Mariana Alonso, a biologist at the Biophysics Institute at the Federal University of Rio de Janeiro, one of a number groups working to understand the epidemic. “When something is wrong with them, that indicates the whole ecosystem is fractured.” [..] Sepetiba Bay, 40 miles west of downtown Rio, became one of the principal gateways for Brazilian exports over the past generation. In 2017, 39 million tons of iron ore and other commodities shipped from there.

The wooden fishing boats that crisscross the bay now weave around massive merchant ships loaded with iron and steel. Though people still swim in its waters, four ports and a constellation of chemical, steel and manufacturing plants have risen on its shores. One of world’s most prominent iron ore producers, Vale, occupies a new terminal in an old fishing spot on nearby Guaiba Island. “When I was a child, buffalo roamed the farms around my village, and we had apples and coconuts,” said Cleyton Ferreira Figueiredo, 28, a convenience store cashier who, nostalgia aside, also sees advantages in the development. “Now everything is more urban, with schools and facilities. There are more jobs, and it takes me 15 minutes to get home when I finish.”

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A little scary.

Underwater Melting Of Antarctic Ice Far Greater Than Thought (G.)

Hidden underwater melt-off in the Antarctic is doubling every 20 years and could soon overtake Greenland to become the biggest source of sea-level rise, according to the first complete underwater map of the world’s largest body of ice. Warming waters have caused the base of ice near the ocean floor around the south pole to shrink by 1,463 square kilometres – an area the size of Greater London – between 2010 and 2016, according to . The research by the at the University of Leeds suggests climate change is affecting the Antarctic more than previously believed and is likely to prompt global projections of sea-level rise to be revised upward.

Until recently, the Antarctic was seen as relatively stable. Viewed from above, the extent of land and sea ice in the far south has not changed as dramatically as in the far north. But the new study found even a small increase in temperature has been enough to cause a loss of five metres every year from the bottom edge of the ice sheet, some of which is more than 2km underwater. “What’s happening is that Antarctica is being melted away at its base. We can’t see it, because it’s happening below the sea surface,” said Professor Andrew Shepherd, one of the authors of the paper. “The changes mean that very soon the sea-level contribution from Antarctica could outstrip that from Greenland.”

The study measures the Antarctic’s “grounding line” – the bottommost edge of the ice sheet across 16,000km of coastline. This is done by using elevation data from the European Space Agency’s CryoSat-2 and applying Archimedes’s principle of buoyancy, which relates the thickness of floating ice to the height of its surface.

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Jan 242018
 
 January 24, 2018  Posted by at 3:59 pm Finance Tagged with: , , , , , , , , , , , ,  


Rembrandt van Rijn The Storm on the Sea of Galilee 1633
On March 18, 1990, the painting was stolen by thieves disguised as police officers. They broke into the Isabella Stewart Gardener Museum in Boston, MA, and stole this painting, along with 12 other works. The paintings have never been recovered, and it is considered the biggest art theft in history. The empty frames still hang in their original location.

 

 

This is an article written by Dr. D, who last month wrote a series at the Automatic Earth entitled Bitcoin Doesn’t Exist.

It shouldn’t surprise you that bitcoin plays a cameo in his Modest -but actually quite grand- Plan as well.

 

 

Dr. D: With all the talk about the bubble market, people are once again saying Donald Trump is a fool, he should never have taken credit for a Dow that’s about to collapse. In addition, how does he think he can get away with claiming we have a great economy made greater? He said in the election the economy was terrible and the Dow was a bubble, that’s why he won.

But hold on: you have to remember, they’re politicians; they may be dishonest but they’re not stupid. Let’s try a scenario to see what they’re thinking:

We have a situation in the U.S. where 100 million people are out of the workforce, the real economy is on life-support, debt is crushing, and monetary velocity is at an all-time low. The Fed’s every effort at market-rigging, lowering rates and pumping in money, bailing out the banks and giving unearned interest for Fed deposits have run up both the housing market and the stock market, neither of which is their legal mandate. If either one goes higher, they’ll pop as workers, particularly millennials, have no income to buy houses, and stocks are levitating on just 5 insider-paid FAANG stocks.

It’s untenable. However, if either falls, the collateral that upholds the whole system will fail, margins will be called, the housing market will fall, and there will be an instant Depression… You know, more than the 100 million out of work Depression we already have. A Depression that makes Congressmen and government workers lose their profits and 401k’s instead of just turning students to open prostitution, and mass opioid death, and starving people in Oklahoma – you know, a Depression that finally hurts someone who matters.

Since this is self-evident and unsustainable, isn’t Trump just stepping in it by pushing all the same policies as Obama? Not necessarily. Look at what matters to him. A tax plan, and barely, not one he liked, but look at what he settled for: return of foreign profits abroad. Why? Large as it is – and it’s already creating long-withheld bonuses – that’s not enough to turn the dial. But that’s a card he wanted. Tax policy and a high stock market. What else?

Well, we have a crippling high debt, easily 100% even 200% of GDP. With that weight, nothing can move, no way to win. Pensions also are nearly dead, along with insurance companies; the high Dow is all that’s saving them from bankruptcy. What else? Well he was interested in health reform but was willing to let it remain for now. He wrote deferrals but not pardons for 5 banks showing he’d like to keep them functioning for the moment. He wanted to increase the military.

Certainly the only other promise was to create jobs and economies again, in a way saying the few protected industries: Finance, Health Care, and Military would have to become a smaller % of GDP, so those dollars could be returned back to Main Street. But we just said those three aren’t happening.

So. What if instead of pulling money from intractable lobbying groups he got new investment money from abroad? We saw this initially with Carrier and Ford and more recently with Japan. But it’s not enough and he knows all this; they all do. How do you solve the problem? How do you get more?

Calling all 1st year econ students: how do you attract capital to your country? With higher rates. As the US 10-year breaks out above 2.6% you’d have to think that’s attractive. Attractive investing in a bankrupt nation that’s barely moving? It does if you’re a company that must maintain legal investment ratios and you’re getting 0% in Japan, and negative rates in Europe, both with economies as bad or worse.

But aren’t rising rates bad? The Fed model raises rates to clamp down on the economy. Money will leave the stock market and go to bonds. Housing prices will fall as the monthly cost increases. Cats and Dogs living together….except it isn’t true.

 

Let’s go down the list:

 

1. Trump starts with plausible seed corn, a billboard sign: a tax cut and a few trillion overseas to start economic motion.

2. If the Fed raises rates, that will draw in trillions of world capital Trump wants, enough to turn the dial and really matter.

3. Enough money flowing into the U.S. will create demand for the US$, and the US$ will rise. This part has to work. Be flashy, attract attention. Go big or go home.

4. The US$ rising will attract foreign buyers into U.S. investment and together the stock market will counterintuitively rise.

5. The Fed will detect overheating and raise rates again and again in a reinforcing cycle, drawing capital to only the U.S. and suffocating the world.

6. The massive investment re-industrializes the U.S. to some extent while the high US$ gives some relief to Main Street.

7. Foreign buying, better jobs, and low exchange rates hold off the housing collapse, while all the mortgage bonds are also sold overseas.

8. Emerging markets are hammered by the high US$ and fail, driving ever-more capital to safe havens like the US.

9. Ultimately, the U.S. does what all reserve currencies do and fails LAST.

 

See why they think they can get away with this? The U.S. can still ravage the world, and Trump can, in fact, call it his “success.” …Just like all the Presidents since Nixon.

But this is history, and it never ends there.

 

10. The whole world, strangled by the US and its dollar have no choice but to reject the US system entirely in private contracts and move to an alternative.

11. We now have at least three alternatives: the CIPS/Yuan banking bloc, gold, and cryptocurrencies. They aren’t exclusive: the most likely outcome is a gold-backed trading note priced in Yuan on a blockchain, perhaps in the Shanghai Exchange.

12. Being entirely too high the US$ ultimately cripples the U.S. as well, but the alternative currency the world creates becomes the lifeboat to escape. Let’s be simple and say it’s Bitcoin (it won’t be): Bitcoin hits John McAfee’s $1 million. What do you call it when a currency rapidly becomes worth 1/10th, 1/100th, 1/1,000,000th of the standard? Isn’t that hyperinflation?

13. The U.S., like every nation since Adam Smith, defaults on its $20T in $ debt – and all its internal consumer, corporate, and pension debt – using “hyperinflation” of the dollar. New twist is that, instead of gold, it hyperinflates vs. cryptos or the new world exchange standard as planned in 1971 and publicized in 1988.

14. The reset occurs, no one dies (in the U.S.), supply chains are maintained, oil flows, and the economy stops being a feral, diabolical means of theft and control and returns to being a fair, voluntary exchange. For now.

 

That’s not to say they’ll succeed, but this is why they think they can go this way and win at it. What does the Trump world look like?

 

1. Stock market rose, like he said.

2. Manufacturing returns, reindustrializing a hollow nation and allowing the country to catch up to the stock prices, like he said.

3. Unemployment drops, like he said.

4. Crime is reduced and the cities are improved, like he said.

5. This helps win the black vote, snatching the rest of the Democratic base and locking them out for years, like Bannon said.

6. Economic growth normalizes the banking/medical oversize, like he wanted.

7. Free, untracked money for bribes and illegal cover end and law and order returns with fair exchange, like he said.

8. The U.S. is unwelcome overseas, and the breaking of bonds re-sets the multipolar world, where the U.S. is just one trading nation among many, like he said.

9. Without the money of empire the military returns home, like he said.

10. The world is pretty mad at us and that renewed military came in handy. That’s okay, they’ll be consoled that the economy now works and the U.S. can no longer start wars and act terribly.

 

What does the world look like after? A lot more like it was before 1945. You know, back when we were great and before we got terrible.

Again, not to say this WILL happen, but you can see that it CAN happen, and they are now in control of most of the levers required. From their rhetoric, you can see the glass darkly that this is what they find a priority, a possibility, and therefore a doorway out. In addition, downsizing and re-establishing honesty will not allow their opponents to wiggle out and reverse it.

Why wasn’t this done before? My guess is that a) previous planners thought with a little more effort they could take over the world, as seen in the Arab Spring plan that would culminate in the capture of Iran, the only remaining oilfields on the planet, and b) given the world’s first entirely fiat financial system, it was too complex and disruptive to return to a gold standard.

Without a lighting fast crypto base, banking and trade would fail and millions would die. Only when the one was burned out and the other made available could this move be attempted. Watch and see.

 

 

Dec 272017
 
 December 27, 2017  Posted by at 10:18 am Finance Tagged with: , , , , , , , , , ,  


Vincent van Gogh Landscape with snow 1888

 

World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)
The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)
Germany – A Most Dangerous And Ridiculous Nation (Bilbo)
Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)
Bitcoin’s Rally Has Taken A Pause (BBG)
Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)
China Bets on More State Control for 2018 (Balding)
Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)
From Snowden To Russia-gate – The CIA And The Media (Moon of A.)
Italy Rescues More Than 250 Migrants In Mediterranean (R.)

 

 

They won’t be able to keep doing this without facing pitchforks.

World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)

The richest people on earth became $1 trillion richer in 2017, more than four times last year’s gain, as stock markets shrugged off economic, social and political divisions to reach record highs. The 23% increase on the Bloomberg Billionaires Index, a daily ranking of the world’s 500 richest people, compares with an almost 20% increase for both the MSCI World Index and Standard & Poor’s 500 Index. Amazon.com founder Jeff Bezos added the most in 2017, a $34,2 billion gain that knocked Microsoft co-founder Bill Gates out of his spot as the world’s richest person in October. Gates, 62, had held the spot since May 2013, and has been donating much of his fortune to charity, including a $4.6 billion pledge he made to the Bill & Melinda Gates Foundation in August.

Bezos, whose net worth topped $100 billion at the end of November, currently has a net worth of $99.6 billion compared with $91.3 billion for Gates. George Soros also gave away a substantial part of his fortune, revealing in October that his family office had given $18 billion to his Open Society Foundations over the past several years, dropping the billionaire investor to No. 195 on the Bloomberg ranking, with a net worth of $8 billion. By the end of trading Tuesday, Dec. 26, the 500 billionaires controlled $5.3 trillion, up from $4.4 trillion on Dec. 27, 2016. “It’s part of the second-most robust and second-longest bull market in history,” said Mike Ryan, chief investment officer for the Americas at UBS Wealth Management, on Dec. 18. “Of all the guidance we gave people over the course of this year, the most important advice was staying invested.”

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It’s curious to see that so many people are so blind to the notion of economies and societies needing a minimum level of balance. When that balance is destroyed, a reaction must automatically and inevitably follow. The rich could have gone on enjoying their privileges for a long time, but greed got in the way.

The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)

It’s never a bad year to be rich, exactly. But 2017 turned out to be a particularly good one. Rich people are doing so well these days that their spending on luxury goods isn’t even keeping up. Luxury spending rose 5% globally in 2017, the management consulting firm Bain & Company found. But that is a fraction of the 40% rise in net worth that people in America’s top-tenth of income earners saw between 2013 and 2016, according to the Federal Reserve. “We used to see that the growth of luxury was closely correlated with the stock market,” said Milton Pedraza, chief executive officer of the Luxury Institute, a consulting firm for high-end brands. “The stock market and real estate have gone up so much that nobody wants to spend all that money. It’s impossible.”

The big increase in wealth has exacerbated a long-evolving financial split between those at the very top and those at the bottom, even as the robust economy has lifted many working people with jobs and higher wages. Here are some examples. The S&P 500 Index has risen 20% since the beginning of the year and the Dow Jones Industrial Average is up 25%, fattening portfolios and boosting dividends. To a certain extent, the benefits are shared through ownership of 401(k) accounts. But only about half of Americans participate in an employer-sponsored retirement fund, according to the Pew Research Center, and a much smaller 18.7% of Americans own stock directly. In both cases, market participation is skewed toward those with higher incomes, which means that the wealthy disproportionately benefit from Wall Street’s boom.

Home prices reached all-time highs, according to the Case-Shiller home price index. That’s especially the case in hot markets like Seattle and San Francisco, where many working people are already unable to afford ownership. Although homeownership is a source of middle class wealth, homeowners generally tend to be higher-income. According to the Census Bureau, 78.4% of families making more than the median income own homes, compared to 49.5% of those making less.

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Just another chapter in the ‘Rich Getting Richer’ files. This too will evoke a response.

Germany – A Most Dangerous And Ridiculous Nation (Bilbo)

Germany’s domination of the EMU is clear both in political and economic terms. The current political impasse within Germany will not change that. Once resolved the on-going government will continue in the same vein – running excessive fiscal surpluses and huge external surpluses. It can sustain those positions because it dominates European policy and can force the adjustment to these overall ‘unsustainable’ positions onto both its own citizens (lowering their material living standards), and, more obviously, onto citizens of other EMU nations, most noticeably Spain and Greece. If it couldn’t bully nations like Greece, Italy, Spain and even France, Germany’s dangerous domestic strategy would be less effective. If all EMU nations followed Germany’s lead – then there would be mass Depression throughout Europe. This dangerous and ridiculous nation is a blight.

Only by exiting the Eurozone and floating their currencies against the currency that Germany uses can these beleaguered EMU nations gain some respite. When the Europhile Left come to terms with that obvious conclusion things might change within Europe. The following graph (using IMF WEO data) shows the sectoral balances for Germany from 1991 to 2017 (the last year is estimated). It is an extraordinary graph really in the context of Germany’s integral role in the Economic and Monetary Union (EMU). Germany is part of a currency union and its outcomes are much more closely tied to the fortunes of its EMU partners than say a nation, such as Australia, which has its own currency and floats it on international markets. What you see are two distinct EMU periods, when Germany was in gross violation in one way or another of the Treaty rules (laws).

It is not overstating the case to say that the increased poverty and hardship for citizens within Europe is directly related to the German government’s obsession with fiscal and external surpluses and its intransigence when confronted about this. Germany has become a dangerous yet ridiculous nation. While the Financial Times article (Dec 22, 2017) – The fiscal surplus that Germany should spend – referred to “Germany’s fiscal surplus” as an: ..a chronic embarrassment of riches.. I would prefer to refer to it as an embarrassing example of policy vandalism and an illegal assault on the rules that Germany has signed up to follow. Why illegal? Because it is directly related to Germany’s violation of the Macroeconomic Imbalance Procedure, which specifies under its so-called Scoreboard Indicators that the “major source of macroeconomic imblances” includes a: “3-year backward moving average of the current account balance as% of GDP, with thresholds of +6% and -4%”.. So the upper warning threshold (for an external surplus) is 6% of GDP.

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Nicely put: “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending..”

Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)

The Christmas spending hangover means that Britons who splurged on plastic will start 2018 owing an average of more than £450 on their credit cards – with many fearful the debt will still be haunting them by next Christmas. Nearly £8.5bn has been loaded on to cards to cover the cost of gifts and entertaining, according to research by the price comparison service uSwitch, which found nearly a fifth of consumers had exceeded their Christmas budget as they grappled with rising living costs. “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending,” said Tashema Jackson, money expert at uSwitch.com which polled 4,000 consumers.

The survey found Britons had borrowed an average of £452 to cover the cost of the festivities. One annual survey found that the UK’s cheapest supermarket Christmas dinner cost 18% more than last year, as the impact of inflation and Brexit-related commodity costs made its way to the festive family table. Half of the respondents told uSwitch they were worried they would still be trying to clear the debt in December 2018. Nearly one in 10 were still paying off debts dating back to last Christmas.

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If you bought at $19,000 and used leverage, does this still feel like a pause?

Bitcoin’s Rally Has Taken A Pause (BBG)

Bitcoin’s rally took a pause Wednesday, suggesting it isn’t about to make another run at its record reached last week. The fervor that propelled the digital currency past $19,000, prompted in part by regulated U.S. derivatives exchanges starting to trade contracts based on the unit this month, has yet to return. Bitcoin traded around $15,947 as of 10:31 a.m. Tokyo time Wednesday, according to composite prices on Bloomberg, up 0.1% from late Tuesday though below that day’s high. “Nobody knows the ultimate value of this underlying asset,” Edward Stringham, president of the American Institute for Economic Research, said on Bloomberg Television. “We cannot predict whether it’s going to be zero or one million dollars or anything in between.”

For skeptics doubting whether individuals and businesses will truly start using bitcoin as a medium of exchange – as opposed to some officially backed digital currency – the short-lived rebound from the past week’s selloff portends further declines. “It’s much more likely once you’ve made a big downward movement like the one we made last week that you have a bigger and more complex correction,” Ric Spooner, a Sydney-based analyst at CMC Markets, told Bloomberg Television. “Once a market like this one locks into those patterns it becomes pretty good” to follow via chart-based analysis, he said. Spooner said it’s possible bitcoin could drop to $5,700 or $8,700 in coming months.

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“Congratulations. The Fed re-blew the housing bubble. In the misguided way in which the Fed calculates inflation, none of this is considered inflationary. Few new buyers can afford to buy.”

Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)

The Case-Shiller national home price index surged past the pre-recession high last year. The city composites lag. Steady gains continue in the Case-Shiller Home Price Indexes.

Case-Shiller Year-Over-Year Summary
• The National Home Price NSA Index reported a 6.2% annual gain in October, up from 6.1% in the previous month.
• The 10-City Composite annual increase came in at 6.0%, up from 5.7% the previous month.
• The 20-City Composite posted a 6.4% year-over-year gain, up from 6.2% the previous month.
• Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In October, Seattle led the way with a 12.7% year-over-year price increase, followed by Las Vegas with a 10.2% increase, and San Diego with an 8.1% increase.

Nine cities reported greater price increases in the year ending October 2017 versus the year ending September 2017.

Case-Shiller Month-Over-Month Summary
• Before seasonal adjustment, the National Index, 10-City and 20-City Composites all posted a month-over-month gain of 0.2% in October.
• After seasonal adjustment, the National Index, 10-City and 20-City Composites all recorded a 0.7% month-over-month increase in October.
• Eleven of 20 cities reported increases in October before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

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Xi cannot afford to even allow teh suggestion that he loses control; at the same time he needs to generate growth. He may well find the two contradict each other.

China Bets on More State Control for 2018 (Balding)

First, watch the data, not the New Year’s resolutions. While China touts deleveraging efforts, the data is mixed. The debt-to-GDP ratio in China is only up slightly from 2016 to 260%, though it is expected to top out at 327% in 2022. The moderation was due not to slowing debt growth, but a jump in commodity prices that pushed up nominal GDP. Watch debt growth in 2018: Prices are expected to fall again, raising debt-to-GDP. China still has not given up its debt habit. Second, the Federal Reserve rate hikes last year were likely to play a big role in Chinese policy. In retrospect, they did and did not. Interest rates in China are up sharply, with even interbank rates over one month up 1.5% since January 2017. Money market rates are up to 6.39% for 14-day repurchases.

Rate increases are putting pressure on Chinese corporate bonds given the overwhelmingly short-term nature of borrowing, which constantly resets rates. Oddly, even as U.S. interest rates increased, the dollar fell, with indexes down 9%. Though it is unclear why the dollar fell, if the Fed hikes four times as predicted by Goldman Sachs, this could cause the currency to reverse course. A strong dollar and rising U.S. rates will pressure China. Third, heading into the National Congress, I said watch out for Chinese politics. Though Premier Li Keqiang remains in office, Beijing clearly swept away any vestiges of market adherence. The installation of Party committees over the board of directors in foreign firms and major state-owned enterprises laid bare Beijing’s ambition. Communist Party strength would take priority over everything.

As we look into 2018, some of these themes carry forward, but with a twist. Beijing is solidifying its control over all aspects of the economy. The Party released new rules on overseas investments by firms and has enforced rules mandating that banks balance their foreign exchange transactions. After the Fed recently raised rates by 0.25%, the People’s Bank of China followed with a hike of only 0.05%, confident it can tame any potential outflows. If the Fed hikes another three times and the dollar does not drop another 10%, this would push interest rates in China for debt over six months close to an intolerable 8% and reduce foreign exchange reserves beneath the $3 trillion level.

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What a curious mistake.

Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)

Apple defrauded iPhone users by slowing devices without warning to compensate for poor battery performance, according to eight lawsuits filed in various federal courts in the week since the company opened up about the year-old software change. The tweak may have led iPhone owners to misguided attempts to resolve issues over the last year, the lawsuits contend. All the lawsuits – filed in U.S. District Courts in California, New York and Illinois – seek class-action to represent potentially millions of iPhone owners nationwide. A similar case was lodged in an Israeli court on Monday, the newspaper Haaretz reported. The company acknowledged last week for the first time in detail that operating system updates released since “last year” for the iPhone 6, iPhone 6s, iPhone SE and iPhone 7 included a feature “to smooth out” power supply from batteries that are cold, old or low on charge.

Phones without the adjustment would shut down abruptly because of a precaution designed to prevent components from getting fried, Apple said. The disclosure followed a Dec. 18 analysis by Primate Labs, which develops an iPhone performance measuring app, that identified blips in processing speed and concluded that a software change had to be behind them. One of the lawsuits, filed Thursday in San Francisco, said that “the batteries’ inability to handle the demand created by processor speeds” without the software patch was a defect. “Rather than curing the battery defect by providing a free battery replacement for all affected iPhones, Apple sought to mask the battery defect,” according to the complaint.

[..] The problem now seen is that users over the last year could have blamed an aging computer processor for app crashes and sluggish performance – and chose to buy a new phone – when the true cause may have been a weak battery that could have been replaced for a fraction of the cost, some of the lawsuits state.

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“Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public…”

From Snowden To Russia-gate – The CIA And The Media (Moon of A.)

The promotion of the alleged Russian election hacking in certain media may have grown from the successful attempts of U.S. intelligence services to limit the publication of the NSA files obtained by Edward Snowden. In May 2013 Edward Snowden fled to Hongkong and handed internal documents from the National Security Agency (NSA) to four journalists, Glenn Greenwald, Laura Poitras, and Ewen MacAskill of the Guardian and separately to Barton Gellman who worked for the Washington Post. Some of those documents were published by Glenn Greenwald in the Guardian, others by Barton Gellman in the Washington Post. Several other international news site published additional material though the mass of NSA papers that Snowden allegedly acquired never saw public daylight.

In July 2013 the Guardian was forced by the British government to destroy its copy of the Snowden archive. In August 2013 Jeff Bezos bought the Washington Post for some $250 million. In 2012 Bezos, the founder, largest share holder and CEO of Amazon, had already a cooperation with the CIA. Together they invested in a Canadian quantum computing company. In March 2013 Amazon signed a $600 million deal to provide computing services for the CIA. In October 2013 Pierre Omidyar, the owner of Ebay, founded First Look Media and hired Glenn Greenwald and Laura Poitras. The total planned investment was said to be $250 million. It took up to February 2014 until the new organization launched its first site, the Intercept. Only a few NSA stories appeared on it. The Intercept is a rather mediocre site.

Its management is said to be chaotic. It publishes few stories of interests and one might ask if it ever was meant to be a serious outlet. Omidyar has worked, together with the U.S. government, to force regime change onto Ukraine. He had strong ties with the Obama administration. Snowden had copies of some 20,000 to 58,000 NSA files. Only 1,182 have been published. Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public. The Snowden papers were practically privatized into trusted hands of Silicon Valley billionaires with ties to the various secret services and the Obama administration.

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The EU is actively assisting Libya’s slave trade. That is quite something to close off the year with.

Italy Rescues More Than 250 Migrants In Mediterranean (R.)

More than 250 migrants were rescued in the central Mediterranean during the night between Monday and Tuesday, Italy’s Coast Guard said. A statement said the migrants, in one large rubber dinghy and two small boats, were rescued in three missions by two ships, one from a non-governmental organization. Migrant arrivals to Italy have fallen by two-thirds year on year since July after officials working for the U.N.-backed government in Tripoli put pressure on people smugglers in the Libyan city of Sabratha to stop boats leaving. Italy is also bolstering the Libyan coast guard’s ability to turn back boats. Last week, the United Nations began bringing African refugees to Italy from Libya, evacuating them from detention centers whose conditions have been condemned by rights groups as inhumane.

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Nov 182017
 
 November 18, 2017  Posted by at 1:49 pm Finance Tagged with: , , , , , , , , ,  


Rembrandt van Rijn The Three Crosses 1653

 

John Rubino recently posted a graph from Bob Prechter’s Elliot Wave that points to some ominous signs. It depicts the S&P 500, combined with consumer confidence and savings rate. As the accompanying video at Elliott Wave, What “Too Confident to Save” Means for Stocks, shows, when the gap between high confidence and low savings is at its widest, a market crash -often- follows.

In 2000, the subsequent crash was 39%, in 2007 it was 54%. We are now again witnessing just such a gap, with the S&P 500 at record levels. Here’s the graph, with John’s comments:

 

Consumers Are Both Confident And Broke

Elliott Wave International recently put together a chart that illustrates a recurring theme of financial bubbles: When good times have gone on for a sufficiently long time, people forget that it can be any other way and start behaving as if they’re bulletproof. They stop saving, for instance, because they’ll always have their job and their stocks will always go up. Then comes the inevitable bust. On the following chart, this delusion and its aftermath are represented by the gap between consumer confidence (our sense of how good the next year is likely to be) and the saving rate (the portion of each paycheck we keep for a rainy day). The bigger the gap the less realistic we are and the more likely to pay dearly for our hubris.

 

 

John is mostly right. But not entirely. Not that I don’t think he knows, he simply forgets to mention it. What I mean is his suggestion that people stop saving because they’re confident, bullish. To understand where and why he slightly misses, let’s turn to Lance Roberts. Before we get to the savings, Lance explains why the difference between the Producer Price Index (PPI) and Consumer Price Index (CPI) is important to note.

Summarized, producer prices are rising, but consumer prices are not.

 

You Have Been Warned

There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week. On Tuesday, we saw the release of the Producer Price Index (PPI) which ROSE 0.4% for the month following a similar rise of 0.4% last month. This surge in prices was NOT surprising given the recent devastation from 3-hurricanes and massive wildfires in California which led to a temporary surge in demand for products and services.

 

 

Then on Wednesday, the Consumer Price Index (CPI) was released which showed only a small 0.1% increase falling sharply from the 0.5% increase last month.

 

 

Such differences have real life consequences. In Lance’s words:

 

This deflationary pressure further showed up on Thursday with a -0.3% decline in Export prices. (Exports make up about 40% of corporate profits) For all of you that continue to insist this is an “earnings-driven market,” you should pay very close attention to those three data points above. When companies have higher input costs in their production they have two choices: 1) “pass along” those price increase to their customers; or 2) absorb those costs internally.

If a company opts to “pass along” those costs then we should have seen CPI rise more strongly. Since that didn’t happen, it suggests companies are unable to “pass along” those costs which means a reduction in earnings. The other BIG report released on Wednesday tells you WHY companies have been unable to “pass along” those increased costs.

The “retail sales” report came in at just a 0.1% increase for the month. After a large jump in retail sales last month, as was expected following the hurricanes, there should have been some subsequent follow through last month. There simply wasn’t. More importantly, despite annual hopes by the National Retail Federation of surging holiday spending which is consistently over-estimated, the recent surge in consumer debt without a subsequent increase in consumer spending shows the financial distress faced by a vast majority of consumers.

 

That already hints at what I said above about savings. But it’s Lance’s next graph, versions of which he uses regularly, that makes it even more obvious. (NOTE: I think he means to say 2009, not 2000 below)

 

The first chart below shows a record gap between the standard cost of living and the debt required to finance that cost of living. Prior to 2000(?!), debt was able to support a rising standard of living, which is no longer the case currently.

 

 

The cut-off point is 2009, unless I miss something in Lance’s comment. Before that, borrowing could create the illusion of a rising standard of living. Those days are gone. And it’s very hard to see, when you take a good look, what could make them come back.

Not only are savings not down because people are too confident to save, they are down because people simply don’t have anything left to save. The American consumer is sliding ever deeper into debt. And as for the Holiday Season, we can confidently -there’s that word again- predict that spending will be disappointing, and that much of what is still spent will add to increasing Consumer Credit Per Capita, as well as the Gap Between Real Disposable Income (DPI) And Cost Of Living.

The last graph, which shows Control Purchases, i.e. what people buy most, a large part of which will be basic needs, makes this even more clear.

 

With a current shortfall of $18,176 between the standard of living and real disposable incomes, debt is only able to cover about 2/3rds of the difference with a net shortfall of $6,605. This explains the reason why “control purchases” by individuals (those items individuals buy most often) is running at levels more normally consistent with recessions rather than economic expansions.

 

 

If companies are unable to pass along rising production costs to consumers, export prices are falling and consumer demand remains weak, be warned of continued weakness in earnings reports in the months ahead. As I stated earlier this year, the recovery in earnings this year was solely a function of the recovering energy sector due to higher oil prices. With that tailwind now firmly behind us, the risk to earnings in the year ahead is dangerous to a market basing its current “overvaluation” on the “strong earnings” story.

“Prior to 2009, debt was able to support a rising standard of living..” Less than a decade later, it can’t even maintain the status quo. That’s what you call a breaking point.

To put that in numbers, there’s a current shortfall of $18,176 between the standard of living and real disposable incomes. In other words, no matter how much people are borrowing, their standard of living is in decline.

Something else we can glean from the graphs is that after the Great Recession (or GFC) of 2008-9, the economy never recovered. The S&P may have, and the banks are back to profitable ways and big bonuses, but that has nothing to do with real Americans in their own real economy. 2009 was a turning point and the crisis never looked back.

Are the American people actually paying for the so-called recovery? One might be inclined to say so. There is no recovery, there’s whatever the opposite of that is, terminal decline?!. It’s just, where does that consumer confidence level come from? Is that the media? Is The Conference Board pulling our leg? Is it that people think things cannot possibly get worse?

What is by now crystal clear is that Americans don’t choose to not save, they have nothing left to save. And that will have its own nasty consequences down the road. Let’s raise some rates, shall we? And see what happens?!

One consolation: Europe, Japan, China are in the same debt-driven decline that Americans are. We’re all going down together. Or rather, the question is who’s going to go first. That is the only hard call left. America’s a prime candidate.

 

 

Oct 232017
 
 October 23, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , , , ,  


Gordon Parks Place de la Concorde, Paris 1950

 

Should I Stay or Should I Go? (IceCap)
Americans Have More Debt Than Ever – And It’s Creating An Economic Trap (BI)
Crisis, What Crisis? Banks Pile Back Into China (BBG)
China’s Home Price Growth Steadies In September (R.)
Jimmy Carter Unleashed: Russians Didn’t Alter Election (DaWi)
Italy Regions Back ‘Big Bang’ Autonomy (AFP)
Noble, Once Asia’s Largest Commodity Trader, Struggles To Survive (BBG)
Washington To Back Greek Call For Debt Relief (K.)
Car Pollution Causes A Huge Salmon Die-Off (WaPo)
CO2 Rise ‘Will Affect All Sea Life’ (BBC)

 

 

“..a +0.7% increase in the US 10-Year Treasury market yield created chaos, havoc and over $1.7 Trillion in losses..”

Should I Stay or Should I Go? (IceCap)

Life was so bad – especially for bond investors, that by the time 1982 rolled around you couldn’t give a bond away. If you were an investor or working in the investment industry at the time – you were painfully aware of the bond market and you were schooled to never, ever buy a bond again. Of course, 1982 was actually the best time ever to buy a bond. With long-term rates dropping like a stone over the next 35 years, bond investors and bond managers became known as the smartest people in the room. But, that was then and this is now. There are 2 points to remember forever here: 1) What goes down, must come up 2) There’s no one around today to remind us of what life was like for bond investors when long-term rates marched relentlessly higher

Interest rates are secular. And with interest rates today already hitting the theoretical 0% level – they have started to rise. And when long-term rates begin to rise, (unlike short-term rates) it happens in a snapping, violent manner. Neither of which is good for bond investors. Of course, there’s another important point to consider, the rise in long-rates from 1962 to 1982 occurred when there wasn’t a debt crisis in the developed world. And since 99% of the industry has only worked since 1982 to today, then 99% of the industry has never experienced, lived or even dreamt of a crisis in the bond market. This of course is the primary reason why all the negative stories about the stock market are alive and well played out in the media – they simply don’t know any better. And this is wrong. Very wrong. After all, the bond bubble dwarfs the tech bubble and the housing bubble. Think about it.

To grasp why the bond market is on the verge of crisis, and why trillions of Dollars, Euros, Yen and Pounds are about to panic and run away, we ask you to understand how free-markets really work. For starters, all free markets have two sides competing and participating. There are natural buyers and there are natural sellers. The point at which they meet in the middle is the selling/purchase price and the entire process is called price discovery. Price discovery is a wonderful thing. It always results in the determination of a true price for a product or service. However, a big problem arises when there is an imbalance between the buyers and sellers, and when one of the sides isn’t a natural buyer or seller. This is what has happened in the bond market. And this is why bond prices (or yields) have become so distorted; the true price of a bond hasn’t existed now for almost 9 years.

[..] over the last year, we’ve seen the most significant market reaction in the history of the bond world, not once but twice. Yet, the talking heads, the big banks and their mutual fund commentaries, and the stock market focused world have completely missed it. Almost a year ago in November immediately after the American Election, over a span of 54 hours – the bond market blew up. To put things into perspective, Chart 2 shows what happened during those fateful days. Ignoring the why’s, the how’s and the who’s – the fact remains that this tiny, miniscule increase in long-term interest rates caused the bond market to vomit over itself. Yes, a +0.7% increase in the US 10-Year Treasury market yield created chaos, havoc and over $1.7 Trillion in losses around the world.

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“Most consumers, especially those in the bottom 80%, are tapped out..”

Americans Have More Debt Than Ever – And It’s Creating An Economic Trap (BI)

There’s a scary little statistic buried beneath the US economy’s apparent stability: Consumer debt levels are now well above those seen before the Great Recession. As of June, US households were more than half a trillion dollars deeper in debt than they were a year earlier, according to the latest figures from the Federal Reserve. Total household debt now totals $12.84 trillion — also, incidentally, around two-thirds of GDP. The proportion of overall debt that was delinquent in the second quarter was steady at 4.8%, but the New York Fed warned over transitions of credit card balances into delinquency, which “ticked up notably.” Here’s the thing: Unlike government debt, which can be rolled over continuously, consumer loans actually need to be paid back. And despite low official interest rates from the Federal Reserve, those often do not trickle down to many financial products like credit cards and small business loans.

Michael Lebowitz, co-founder of market analysis firm 720 Global, says the US economy is already dangerously close to the edge. “Most consumers, especially those in the bottom 80%, are tapped out,” he told Business Insider. “They have borrowed about as much as they can. Servicing this debt will act like a wet towel on economic growth for years to come. Until wages can grow faster than our true costs of inflation, this problem will only worsen.” The IMF devotes two chapters of its latest Global Financial Stability Report to the issue of household debt. It finds that, rather intuitively, high debt levels tend to make economic downturns deeper and more prolonged. “Increases in household debt consistently [signal] higher risks when initial debt levels are already high,” the IMF says.

Nonetheless, the results indicate that the threshold levels for household debt increases being associated with negative macro outcomes start relatively low, at about 30% of GDP. Clearly, America’s already well past that point. As households become more indebted, the Fund says, future GDP growth and consumption decline and unemployment rises relative to their average values. “Changes in household debt have a positive contemporaneous relationship to real GDP growth and a negative association with future real GDP growth,” the report says. Specifically, the Fund says a 5% increase in household debt to GDP over a three-year period leads to a 1.25% fall in real GDP growth three years into the future.

“Housing busts and recessions preceded by larger run-ups in household debt tend to be more severe and protracted,” the IMF said. Is there a solution? If things reach a tipping point, yes, says the IMF — there’s always debt forgiveness. Even creditors stand to benefit. “We find that government policies can help prevent prolonged contractions in economic activity by addressing the problem of excessive household debt,” the report said. The Fund cites “bold household debt restructuring programs such as those implemented in the United States in the 1930s and in Iceland today” as historical precedents. “Such policies can, therefore, help avert self-reinforcing cycles of household defaults, further house price declines, and additional contractions in output.”

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“.. it’s odd that banks would think China is getting debt under control even as they provide more of it.”

Crisis, What Crisis? Banks Pile Back Into China (BBG)

China has been working hard to convince the world that it’s not a financial crisis waiting to happen. Judging from the latest data on cross-border lending, banks are buying it. Foreign banks’ total exposure to China reached $750 billion in June 2017, up from $659 billion a year earlier, according to the Bank for International Settlements. That’s a big contrast to a couple of years ago, when lenders were pulling tens of billions out amid concerns that a combination of high indebtedness, excessive investment and slowing growth would precipitate a wave of defaults. Here’s how that looks:

What changed? For one, China’s economy (according to the suspiciously smooth official data, at least) has proven more resilient than expected: The pace of growth has accelerated from a mid-2016 low of 6.7%, and forecasters have raised their projections for 2018. Perhaps more important, Chinese officials have advertised their commitment to controlling debt and containing an overheated property market. That said, it’s odd that banks would think China is getting debt under control even as they provide more of it. Although the accumulation has slowed in some areas, it has boomed in households and elsewhere. By one early-warning measure – the difference between the current and long-term levels of business and household credit as a share of GDP, also known as the credit gap – China and Hong Kong are still by far the riskiest countries tracked by the BIS.

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As Beijing buys 25% of sales.

China’s Home Price Growth Steadies In September (R.)

China’s new home prices registered a second straight month of weak growth in September, with prices in the biggest markets slipping and gains in smaller cities slowing as government measures to cool a long property boom took hold. China’s housing market has been on a near two-year tear, giving the economy a major boost but stirring fears of a property bubble even as authorities work to contain risks from a rapid build-up in debt. While monthly price rises peaked in September 2016 at 2.1% nationwide, they have softened only begrudgingly since then, regaining momentum as buyers shrugged off each new wave of measures to curb speculation. Analysts say more tightening could still be expected in lower-tier cities with relatively fast price gains, as critics argue China’s ever-growing administrative control over its property market has only reaffirmed speculator views that prices will remain steady.

“China’s property prices are still rising even as sales are falling off a cliff, which suggests the market still sees property as an investment product in the belief that the government won’t let prices fall,” said Yi Xianrong, a Professor of Economics at Qingdao University. Still, signs of a more stable and less frothy housing market for now will be welcome to the country’s leaders as they attend a critical Communist Party Congress to set political and economic priorities for the next five years. President Xi Jingping opened the twice-a-decade gathering last week, stressing the need to move from high-speed to high-quality growth. Average new home prices rose 0.2% month-on-month in September, the same rate as in August when prices rose at the slowest rate in seven months, according to Reuters calculations from National Bureau of Statistics (NBS) data out on Monday.

“The curbs are in general still intensifying, which have gradually impacted property buyers’ expectations,” said Zhang Dawei, an analyst with Centaline, a property agency. New home prices rose 6.3% year-on-year in September, decelerating from August’s 8.3% increase, partly thanks to last September’s high base. Higher prices are also eating up more of home buyers’ disposable income, which could dampen future demand.

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Truth to power.

Jimmy Carter Unleashed: Russians Didn’t Alter Election (DaWi)

At 93, Jimmy Carter is cutting loose. The former president sat down with The New York Times recently and chatted about all kinds of subjects. The Times decided to play up the fact that Carter — one of the worst presidents in U.S. history — would love to go over to North Korea as an envoy. But the Times is steadily proving how out of touch it is, and how it no longer seems to actually “get” what real news is. Here are some major highlights from the interview:

1. The Russians didn’t steal the 2016 election. Carter was asked “Did the Russians purloin the election from Hillary?” “I don’t think there’s any evidence that what the Russians did changed enough votes — or any votes,” Carter said. So the hard-left former president doesn’t think the Russians stole the election? Take note, Capitol Hill Democrats.

2. We didn’t vote for Hillary. Carter and his wife, Roselyn, disagreed on the Russia question. In the interview, she “looked over archly [and said] ‘They obviously did'” purloin the election. “Rosie and I have a difference of opinion on that,” Carter said. Rosalynn then said, “The drip-drip-drip about Hillary.” Which prompted Carter to note that during the primary, they didn’t vote for Hillary Clinton. “We voted for Sanders.”

3. Obama fell far short of his promises. Barack Obama whooshed into office on pledges of delivering “hope and change” to the country, spilt by partisan politics. He didn’t. In fact, he made it worse. “He made some very wonderful statements, in my opinion, when he first got in office, and then he reneged on that,” he said about Obama’s action on the Middle East.

4. Media “harder on Trump than any president.” A recent Harvard study showed that 93% of new coverage about President Trump is negative. But here’s another shocker: Carter defended Trump. “I think the media have been harder on Trump than any other president certainly that I’ve known about,” Carter said. “I think they feel free to claim that Trump is mentally deranged and everything else without hesitation.”

5. NFL players should “stand during the American anthem.” Carter, who joined the other four living ex-presidents on Saturday for a hurricane fundraiser, put his hand on his heart when the national anthem played — and he has a strong opinion about what NFL players should do, too. “I think they ought to find a different way to object, to demonstrate,” he said. ” I would rather see all the players stand during the American anthem.”

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Expect more of this. Much more.

Italy Regions Back ‘Big Bang’ Autonomy (AFP)

Two of Italy’s wealthiest northern regions on Sunday voted overwhelmingly in favour of greater autonomy in the latest example of the powerful centrifugal forces reshaping European politics. Voters in the Veneto region that includes Venice and Lombardy, home to Milan, turned out at the high end of expectations to support the principle of more powers being devolved from Rome in votes that took place against the backdrop of the crisis created by Catalonia’s push for independence. Veneto President Luca Zaia hailed the results, which were delayed slightly by a hacker attack, as an institutional “big bang”. But he reiterated that the region’s aspirations were not comparable to the secessionist agenda that has provoked a constitutional crisis in Spain.

Turnout was projected at around 58% in Veneto, where support for autonomy is stronger, and just over 40% in Lombardy. The presidents of both regions said more than 95% of voters who had cast ballots had, as expected, done so to support greater autonomy. The votes are not binding but they will give the right-wing leaders of the two regions a strong political mandate when they embark on negotiations with the central government on the devolution of powers and tax revenues from Rome. Secessionist sentiment in Veneto and Lombardy is restricted to fringe groups but analysts see the autonomy drive as reflecting the same cocktail of issues and pressures that resulted in Scotland’s narrowly-defeated independence vote, Britain’s decision to leave the EU and the Catalan crisis.

“What this vote has shown is that there is no ‘autonomy party’ in Veneto – what there is is an entire people who back this idea,” said Zaia. “What’s won is the idea that we should be in charge of our own back yard.” Lombardy governor Roberto Maroni said he would be looking to present detailed proposals on devolution within two weeks, in a bid to ensure they are considered before national elections due by May next year. “I will go to Rome and ask for more powers and resources within a framework of national unity,” he said.

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Too much debt?!

Noble, Once Asia’s Largest Commodity Trader, Struggles To Survive (BBG)

Embattled commodity trader Noble Group warned of a more than $1 billion third-quarter net loss and agreed to sell most of its oil-liquids unit to Vitol Group at a loss, further complicating its fight for survival. The long-awaited deal to sell its prized oil business provided little relief to Hong Kong-based company, with shares falling the most in three months. Details of the sale announced on Monday failed to give much clarity on how much Noble Group would ultimately receive from Vitol, while the third-quarter results highlighted the company’s struggle to return to profitability as it offloads assets to repay debt. “They’re still fighting to survive,” Nicholas Teo, a trading strategist at KGI Securities said by phone. Noble Group’s stock slumped as much as 12% in Singapore, extending a more than 90% retreat since questions over its financial reporting emerged in early 2015.

While the company has defended its accounting, it has also written down the value of its long-term commodity contracts, ousted senior managers and put almost all of its businesses outside Asia up for sale. Noble Group’s 2020 notes are trading at about 39 cents on the dollar, with analysts at BNP Paribas and Nomura predicting that the company will eventually be forced to restructure its debt. Noble Group said that based on its end-June accounts it would have received net proceeds of $582 million from the oil unit deal after paying back borrowings under a secured credit facility. But that figure included proceeds from the earlier sale of its gas-and-power unit, the company said, and was prior to a third quarter in which the business was “adversely impacted” by “capital constraints.” Based on that number, the company would report a $525 million loss on the sale.

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As US alienates itself from Erdogan. For good reasons.

Washington To Back Greek Call For Debt Relief (K.)

US Treasury Secretary Steven Mnuchin appears set to spearhead initiatives for Greek debt relief as part of Washington’s efforts to bolster Greece as a bastion of stability in the wider region, according to Kathimerini sources. Mnuchin took part in a meeting between US President Donald Trump and Greek Prime Minister Alexis Tsipras at the White House last week that addressed ways to promote investments in Greece, strengthen defense cooperation and push Greek debt relief demands. It was, reportedly, made clear at the meeting that Trump has made a strategic decision to support Greece as a reliable ally in the Eastern Mediterranean.

As a first step, the US may ask for an informal meeting of the IMF’s Executive Board to be convened – after a government is formed in Berlin and provided the third Greek bailout review is completed – where pressure will be applied for a specific time frame with regard to Greece’s debt. Another indication that the ball is beginning to roll was the result of talks between Tsipras and IMF chief Christine Lagarde a day before the meeting with Trump. Mnuchin told Trump and Tsipras that Lagarde had contacted him saying her talks with the Greek premier went well and there will be no surprises during the negotiations to complete the review. Mnuchin added that Lagarde said the IMF will push for debt relief.

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A curious story.

Car Pollution Causes A Huge Salmon Die-Off (WaPo)

Silvery coho salmon are as much a part of Washington state as its flag. The fish has a sacred place in the diets and rituals of the state’s indigenous peoples, beckons to tourists who flock to watch its migration runs, and helps to sustain a multimillion-dollar Pacific Northwest fishing industry. So watching the species die in agony is distressing: Adult coho have been seen thrashing in shallow fresh waters, males appear disoriented as they swim, and females are often rolled on their backs, their insides still plump with tiny red eggs that will never hatch. “Coho have not done well where a lot of human activity impacts their habitat,” said Nat Scholz, a research zoologist for the National Oceanic and Atmospheric Administration. That’s to say the least.

A recent study traced a major coho salmon die-off to contaminants from roads and automobiles — brake dust, oil, fuel, chemical fluids — that hitch a ride on storm water and flow into watersheds. The contaminants are so deadly, they kill the salmon within 24 hours. “Our findings are . . . that contaminants in stormwater runoff from the regional transportation grid likely caused these mortality events. Further, it will be difficult, if not impossible, to reverse historical coho declines without addressing the toxic pollution dimension of freshwater habitats,” said the study, published Wednesday in the journal Ecological Applications. This sort of point-source pollution from antiquated sewer systems is a problem across the nation, including the Chesapeake Bay region. Rain overwhelms storm drains, commingles with human waste and surface road garbage, then flushes into ponds, creeks, streams and rivers.

In Seattle and large cities across the Pacific Northwest, those waters are stocked with salmon. The finding could be a breakthrough in a mystery that has vexed scientists for years. But it fell short of explaining another mystery: Why are coho the only one of five salmon species to be affected? Chinook, sockeye, pink and chum don’t remotely experience the same mortality. “This is the great mystery that we are working on,” Scholz said. The future for a species that experiences up to 40 percent mortality before spawning in Puget Sound is no mystery. “The population will crash,” said Jay Davis, an environmental toxicologist for the U.S. Fish and Wildlife Service who coordinated field research for the study.

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“.. an increase in acidity of about 26%…”

CO2 Rise ‘Will Affect All Sea Life’ (BBC)

All sea life will be affected because carbon dioxide emissions from modern society are making the oceans more acidic, a major new report will say. The eight-year study from more than 250 scientists finds that infant sea creatures will be especially harmed. This means the number of baby cod growing to adulthood could fall to a quarter or even a 12th of today’s numbers, the researchers suggest. The assessment comes from the BIOACID project, which is led from Germany. A brochure summarising the main outcomes will be presented to climate negotiators at their annual meeting, which this year is taking place in Bonn in November. The Biological Impacts of Ocean Acidification report authors say some creatures may benefit directly from the chemical changes – but even these could still be adversely affected indirectly by shifts in the whole food web.

What is more, the research shows that changes through acidification will be made worse by climate change, pollution, coastal development, over-fishing and agricultural fertilisers. Ocean acidification is happening because as CO2 from fossil fuels dissolves in seawater, it produces carbonic acid and this lowers the pH of the water. Since the beginning of the Industrial Revolution, the average pH of global ocean surface waters have fallen from pH 8.2 to 8.1. This represents an increase in acidity of about 26%. The study’s lead author is Prof Ulf Riebesell from the GEOMAR Helmholtz Centre for Ocean Research in Kiel. He is a world authority on the topic and has typically communicated cautiously about the effects of acidification. He told BBC News: “Acidification affects marine life across all groups, although to different degrees.

“Warm-water corals are generally more sensitive than cold-water corals. Clams and snails are more sensitive than crustaceans. “And we found that early life stages are generally more affected than adult organisms. “But even if an organism isn’t directly harmed by acidification it may be affected indirectly through changes in its habitat or changes in the food web. “At the end of the day, these changes will affect the many services the ocean provides to us.”

Read more …

Oct 162017
 
 October 16, 2017  Posted by at 2:00 pm Finance Tagged with: , , , , , , , , ,  


Marc Riboud Zazou, painter of the EIffel Tower 1953

 

Central bankers have never done more damage to the world economy than in the past 10 years. One may argue this is because they never had the power to do that. If their predecessors had had that power, who knows? Still, the global economy has never been more interconnected than it is today, due mostly to the advance of globalism, neoliberalism and perhaps even more, technology.

Ironically, all three of these factors are unremittingly praised as forces for good. But living standards for many millions of people in the west have come down and/or are laden with uncertainty, while millions of Chinese now have higher living standards. People in the west have been told to see this as a positive development; after all, it allows them to buy products cheaper than if they had been made in domestic industries.

But along with their manufacturing jobs, their entire way of life has mostly disappeared as well. Or, rather, it is being hidden behind a veil of debt. Still, we can no longer credibly deny that some three-quarters of Americans have a hard time paying their bills, and that is very different from the 1950s and 60s. In western Europe, this is somewhat less pronounced, or perhaps it’s just lagging, but with globalism and neoliberalism still the ruling economic religions, there’s no going back.

What happened? Well, we don’t make stuff anymore. That’s what. We have to buy our stuff from others. Increasingly, we lack the skills to make stuff too. We have become dependent on nations half a planet away just to survive. Nations that are only interested in selling their stuff to us if we can pay for it. And who see their domestic wage demands go up, and will -have to- charge ever higher prices for their products.

And we have no choice but to pay. But we can only pay with what we can borrow. As nations, as companies, and as individuals. We need to borrow because as nations, as companies, and as individuals we don’t make stuff anymore. It’s a vicious circle that globalization has blessed us with. And from which, we are told, we can escape only if we achieve growth. Which we can’t, because we don’t make anything.

 

So we rely on central bankers to manage the crisis. Because we’re told they know how to manage it. They don’t. But they do pretend to know. Still, if you read between the lines, they do admit to their ignorance. Janet Yellen a few weeks ago fessed up to the fact that she has no idea why inflation is weak. Mario Draghi has said more or less the same. Why don’t they know? Because the models don’t fit. And the models are all they have.

Economic models are more important in central banking than common sense. The Fed has some 1000 PhDs under contract. But Yellen, their boss, still claims that ‘perhaps’ the models are wrong, with it comes to inflation, and to wage growth. They have no idea why wages don’t grow. Because the models say they should. Because everybody has a job. 1000 very well paid PhDs. And that’s all they have. They say the lack of wage growth is a mystery.

I say that those for whom this is a mystery are not fit for their jobs. If you export millions of jobs to Asia, take workers’ negotiating powers away and push them into crappy jobs with no benefits, only one outcome is possible. And that doesn’t include inflation or wage growth. Instead, the only possible outcome is continuing erosion of economies.

The globalist mantra says we will fill up the lost space in our economies with ‘better’ jobs, service sector, knowledge sector. But reality does not follow the mantra. Most new jobs are definitely not ‘better’. And as we wait tables or greet customers at Wal-Mart, we see robots take over what production capacity is left, and delivery services erase what’s left of our brick and mortar stores. Yes, that means even less ‘quality’ jobs.

 

Meanwhile, the Chinese who now have taken over our jobs, have only been able to do that amidst insane amounts of pollution. And as if that’s not bad enough, they have recently, just to keep their magical new production paradise running, been forced to borrow as much as we have been -and are-, at state level, at local government level, and now as individuals as well.

In China, credit functions like opioids do in America. Millions of people who had never been in touch with the stuff would have been fine if they never had, but now they are hooked. The local governments were already, which has created a shadow banking system that will threaten Beijing soon, but for the citizens it’s a relatively new phenomenon.

And if you see them saying things like: “if you don’t buy a flat today, you will never be able to afford it” and “..a person without a flat has no future in Shenzhen.”, you know they have it bad. These are people who’ve only ever seen property prices go up, and who’ve never thought of any place as a ghost city, and who have few other ways to park what money they make working the jobs imported from the US and Europe.

They undoubtedly think their wages will keep growing too, just like the ‘value’ of their flats. They’ve never seen either go down. But if we need to borrow in order to afford the products they make in order to pay off what they borrowed in order to buy their flats, everyone’s in trouble.

 

And then globalization itself is in trouble. The very beneficiaries, the owners of globalization will be. Though not before they have taken away most of the fruits of our labor. What are you going to do with your billions when the societies you knew when you grew up are eradicated by the very process that allowed you to make those billions? It stops somewhere. If those 1000 PhDs want to study a model, they should try that one.

 

Globalization causes many problems. Jobs disappearing from societies just so their citizens can buy the same products a few pennies cheaper when they come from China is a big one. But the main problem with globalization is financial: money continually vanishes from societies, who have to get ever deeper in debt just to stand still. Globalization, like any type of centralization, does that: it takes money away from the ‘periphery’.

The Wal-Mart, McDonald’s, Starbucks model has already taken away untold jobs, stores and money from our societies, but we ain’t seen nothing yet. The advent of the internet will put that model on steroids. But why would you let a bunch of Silicon Valley venture capitalists run things like Uber or Airbnb in your location, when you can do it yourself just as well, and use the profits to enhance your community instead of letting them make you poorer?

I see UK’s Jeremy Corbyn had that same thought, and good on him. Britain may become the first major victim of the dark side of centralization, by leaving the organization that enables it -the EU-, and Corbyn’s idea of a local cooperative to replace Uber is the kind of thinking it will need. Because how can you make up for all that money, and all that production capacity, leaving where you live? You can’t run fast enough, and you don’t have to.

This is the Roman Empire’s centralization conundrum all over. Though the Romans never pushed their peripheries to stop producing essentials; they instead demanded a share of them. Their problem was, towards the end of the empire, the share they demanded -forcefully- became ever larger. Until the periphery turned on them -also forcefully-.

 

The world’s central bankers’ club is set to get new leadership soon. Yellen may well be gone, so will Japan’s Kuroda and China’s Zhou; the ECB’s -and Goldman’s- Mario Draghi will go a bit later. But there is no sign that the economic religions they adhere to will be replaced, it’ll be centralization all the way, and if that fails, more centralization.

The endgame of that process is painfully obvious way in advance. Centralization feeds central forces, be they governmental, military or commercial, with the fruits of labor of local populations. That is a process that will always, inevitably, run into a wall, because too much of those fruits are taken out. Too much of it will flow to the center, be it Silicon Valley or Wall Street or Rome. Same difference.

There are things that you can safely centralize (peace negotiations), but they don’t include essentials like food, housing, transport, water, clothing. They are too costly at the local level to allow them to be centralized. Or everybody everywhere will end up paying through the nose just to survive.

It’s very easy. Maybe that’s why nobody notices.

 

 

Oct 122017
 
 October 12, 2017  Posted by at 2:26 pm Finance Tagged with: , , , , , , , ,  


Fan Ho East meets west 1963

 

For those of you who don’t know Andy Xie, he’s an MIT-educated former IMF economist and was once Morgan Stanley’s chief Asia-Pacific economist. Xie is known for a bearish view of China, and not Beijing’s favorite person. He’s now an ‘independent’ economist based in Shanghai. He gained respect for multiple bubble predictions, including the 1997 Asian crisis and the 2008 US subprime crisis.

Andy Xie posted an article in the South China Morning Post a few days ago that warrants attention. Quite a lot of it, actually. In it, he mentions some pretty stunning numbers and predictions. Perhaps most significant are:

“only China can restore stability in the global economy”

and

“The festering political tension [in the West] could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.”

Here are some highlights.

 

The bubble economy is set to burst, and US elections may well be the trigger

Central banks continue to focus on consumption inflation, not asset inflation, in their decisions. Their attitude has supported one bubble after another. These bubbles have led to rising inequality and made mass consumer inflation less likely. Since the 2008 financial crisis, asset inflation has fully recovered, and then some.

The US household net worth is 34% above the peak in 2007, versus 30% for nominal GDP. China’s property value may have surpassed the total in the rest of the world combined. The world is stuck in a vicious cycle of asset bubbles, low consumer inflation, stagnant productivity and low wage growth.

Let that sink in. If Xie is right, and I would put my money on that, despite all the housing bubbles elsewhere in the world, the Chinese, who make a lot less money than westerners, have pushed up the ‘value’ of Chinese residential real estate so massively that their homes are now ‘worth’ more than all other houses on the planet. Xie returns to this point later in the article, and says: “In tier-one cities, property costs are likely to be between 50 and 100 years of household income. At the peak of Japan’s property bubble, it was about 20 in Tokyo. “.

We’ll get back to that. But it suggests that Chinese, if they spend half their income on housing, which is probably not that crazy an assumption, must work 100 to 200 years to pay off their mortgages. Again, let that sink in.

The US Federal Reserve has indicated that it will begin to unwind its QE assets this month and raise the interest rate by another 25 basis points to 1.5%. China has been clipping the debt wings of grey rhinos and pouring cold water on property speculation. They are worried about asset bubbles. But, if recent history is any guide, when asset markets begin to tumble, they will reverse their actions and encourage debt binges again. [..] most powerful people in the world operate on flimsy assumptions.

Despite low unemployment and widespread labour shortages, wage increases and inflation in Japan have been around zero for a quarter of a century. Western central bankers assumed that the same wouldn’t happen to them, without understanding the underlying reasons. The loss of competitiveness changes how macro policy works.

The mistaken stimulus has the unintended consequences of dissipating real wealth and increasing inequality. American household net worth is at an all-time high of 5 times GDP, significantly higher than the bubble peaks of 4.1 times in 2000 and 4.7 in 2007, and far higher than the historical norm of three times GDP. On the other hand, US capital formation has stagnated for decades. The outlandish paper wealth is just the same asset at ever higher prices.

That is the very definition of a bubble: “The outlandish paper wealth is just the same asset at ever higher prices.” American household net ‘worth’ is in a huge bubble, some 66% higher than the historical average. And that’s in a time when for many their net worth is way below that average, a time when more than half live paycheck to paycheck and can’t afford medical bills and/or car repair bills without borrowing. And that is the very definition of inequality:

The inflation of paper wealth has a serious impact on inequality. The top 1% in the US owns one-third of the wealth and the top 10% owns three-quarters. Half of the people don’t even own stocks. Asset inflation will increase inequality by definition. Moreover, 90% of the income growth since 2008 has gone to the top 1%, partly due to their ability to cash out in the inflated asset market.

An economy that depends on asset inflation always disproportionately benefits the asset-rich top 1%. [..] Germany and Japan do not have significant asset bubbles. Their inequality is far less than in the Anglo-Saxon economies that have succumbed to the allure of financial speculation.

True, largely, but Japan both has major economic troubles today (deflation), and will have worse ones going forward (demographics). While Germany can unload its losses on the EU periphery (and does). Japan can’t ‘afford’ a housing bubble, its people have refused to raise spending for many years, scared as they are through stagnant wages and falling prices. While Germany doesn’t need a housing bubble to keep its economy growing: it exports whatever’s negative about it to its neighbors. China, however, DOES need bubbles, and blows them with abandon:

While Western central bankers can stop making things worse, only China can restore stability in the global economy. Consider that 800 million Chinese workers have become as productive as their Western counterparts, but are not even close in terms of consumption. This is the fundamental reason for the global imbalance.

Note: as we saw before, while the Chinese may not consume as much as Westerners when it comes to consumer products, they DO -on average- put a far higher percentage of their wages into real estate. And that is because Beijing encourages such behavior. The politburo needs the bubbles to keep things moving. And therefore creates them on purpose. Presumably with the idea that incomes will come up so much that all these homes become more affordable compared to wages. That looks like a big gamble.

Property costs of between 50 and 100 years of household income are not manageable, and rising rates and/or an outright crisis will expose that. And then on top of that, the government wants, needs, an ever bigger take of people’s incomes. Because its whole model is based on its investing in the economy, even if a large part of it is not efficient or profitable.

China’s model is to subsidise investment. The resulting overcapacity inevitably devalues whatever its workers produce. That slows down wage rises and prolongs the deflationary pull. [..] Overinvestment means destroying capital. The model can only be sustained through taxing the household sector to fill the gap.

In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises. The most important asset bubble is the property market. It redistributes about 10% of GDP to the government sector from the household sector. The levies for subsidising investment keep consumption down and make the economy more dependent on investment and export.

In order to prevent a huge real estate crash, Beijing will have to make sure wages rise, across the board, and substantially, for hundreds of millions of people. And there we get back to what Xie said above:

The government finds an ever-increasing need to raise levies and, hence, make the property bubble bigger. In tier-one cities, property costs are likely to be between 50 and 100 years of household income. At the peak of Japan’s property bubble, it was about 20 in Tokyo. China’s residential property value may have surpassed the total in the rest of the world combined.

The 800 million pound elephant here is that what Beijing pushes its citizens to put in real estate, they can no longer spend on other things. Their consumption will flatline or even fall. Unless the Party manages to raise their wages, but it would have to raise them by a lot, because it needs more and more taxes to be paid by the same wages.

And here’s where Andy Xie gets most interesting:

How is this all going to end? Rising interest rates are usually the trigger. But we know the current bubble economy tends to keep inflation low through suppressing mass consumption and increasing overcapacity. It gives central bankers the excuse to keep the printing press on.

In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius. In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools. In 2000, the dotcom bubble burst because some firms were caught making up numbers. Today, you don’t need to make up numbers. What one needs is stories.

Those are some pretty impressive insights, and they go way beyond China. Today’s fools are not yesterday’s fools. Only, today’s fools have been given the rights, and the tools, to keep blowing ever larger bubbles. The only conclusion can be that when the bubbles burst, it’ll be much much worse than the Great Depression. And this time, China will blow up along with the west. Take cover!

Hot stocks or property are sold like Hollywood stars. Rumour and innuendo will do the job. Nothing real is necessary. In 2007, structured mortgage products exposed cash-short borrowers. The defaults snowballed. But, in China, leverage is always rolled over. Default is usually considered a political act. And it never snowballs: the government makes sure of it.

Can China continue to roll over its leveraged debt when the west is in crisis, is forced to heavily cut its imports, just as Beijing needs more tax revenue to keep its miracle model alive? WIll it be able to export its over-leverage and over-capacity through the new Silk Road project? It looks very doubtful. And we shouldn’t expect the Party Congress this month to address these issues. They know better.

Xie finishes with most original predictions. Class struggle in the US. It sounds like something straight out of Karl Marx, but perhaps we are already seeing the first signs today.

In the US, the leverage is mostly in the government. It won’t default, because it can print money. The most likely cause for the bubble to burst would be the rising political tension in the West. The bubble economy keeps squeezing the middle class, with more debt and less wages. The festering political tension could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.

Maybe class struggle is something we’ll see first in Europe, both at a national and at a pan-European level. Too many countries keep their systems humming not by being productive, but by encouraging their citizens to sink deeper into debt. Low interest rates may be attractive for signing up to new loans, but the ‘trajectory’ gets shorter all the time, because those same low rates absolutely murder savings and pensions.

The only thing that can keep the whole caboodle from exploding would be absolutely stunning economic growth at least somewhere in the world, but every single somewhere is far too deep in debt for that to happen.

Take cover.

 

 

Oct 112017
 
 October 11, 2017  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  


Georgia O’Keeffe New York night 1929

 

Stock Record Ride ‘Has Reached Epic Proportions’ – Morgan Stanley (MW)
Janet Yellen Has Finally Come To Her Senses – Somewhat (Crudele)
Nobel Economist Thaler Says He’s Nervous About Stock Market (BBG)
Catalans Call Time Out on Independence Bid, Seek Spain Talks (BBG)
China Debt-for-Equity Swaps Turn Out More Like Debt-for-Debt (BBG)
Chinese Investors Keep Pouring Money Into Australian Housing (BBG)
Kobe Steel Shares Plunge As Data Fabrication Concerns Deepen (R.)
51 Eurozone Banks Vulnerable To Rate Shocks – ECB (R.)
Russian Central Bank To Ban Websites Offering Crypto-Currencies (R.)
Fukushima Court Rules Tepco, Government Liable Over 2011 Disaster (R.)
10% of New York City Public School Students Were Homeless Last Year (NYT)
The European Union Is Doomed to Fail (FEE)
How Labour Could Lead The Global Economy Out Of The 20th Century (G.)
I Will Make A Film Based On Adults in the Room (Costa Gavras)
Self-Harm, Suicide Attempts Rise In Greek Refugee Camps (Reuters)

 

 

You don’t say.

Stock Record Ride ‘Has Reached Epic Proportions’ – Morgan Stanley (MW)

Wall Street isn’t just in a bull market, it’s in an “epic” one. That is according to Morgan Stanley, which on Tuesday wrote that the equity market rally “has reached epic proportions.” “We say this not as hyperbole, but based on a quantitative perspective,” the investment bank explained. “Dispersions in valuations and growth rates are among the lowest in the last 40 years; stocks are at their most idiosyncratic since 2001; and equity hedge fund beta is at its highest since March 2008.” Simply from the perspective of price moves, the “epicness” of recent trading activity should come as no surprise to investors. The Dow DJIA, S&P 500 SPX, Nasdaq COMP, and Russell 2000 RUT have all hit repeated records this year alone, notching dozens of all-time highs. Those gains have been widespread and “perpetual,” to use Morgan Stanley’s description.

Only two of the 11 primary S&P 500 sectors are in negative territory for the year, and for broader indexes, even mild pullbacks of 3% have basically been nonexistent for months. Volatility is near record lows. Beta refers to a measure of an assets tendency to fluctuate compared against a benchmark like the S&P 500. [..] “While investors have at times appeared reluctant to embrace the recent rally, there is evidence from last month that risk appetites are increasing,” Morgan Stanley wrote. The investment bank noted that cyclical sectors, which are more closely correlated to the pace of economic growth, have been outperforming defensive ones, just as small-capitalization stocks have outperforming larger companies. “Momentum is now strongly correlated with high beta globally, and the presence of this cohort of investors could produce continued risk-seeking behavior,” wrote the team of analysts, led by Brian Hayes, an equity strategist.

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“The big question is whether Yellen was just misreading the data or whether the data she was reading were wrong.”

Janet Yellen Has Finally Come To Her Senses – Somewhat (Crudele)

I’ve been telling you for years that the employment data produced by the US government were misleading people into thinking the economy was performing better than it really was. Now Federal Reserve Chair Janet Yellen — finally! — agrees. Yellen, speaking before the National Association of Business Economics on Sept. 26, said, “My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective or even the fundamental forces driving inflation.” That’s what she said. Internet news sites picked up that statement, but none of the major newspapers did. And the story behind Yellen’s admission and its importance would be way over the heads of TV news anchors — so they ignored it as well.

Yet Yellen’s statement is important as heck. It means that the Fed has been screwing up in thinking that the US economy was, as Yellen has often said, near full employment. But here’s the kicker — Yellen has been overestimating the strength of the job market and underestimating the amount of inflation in the economy. The big question is whether Yellen was just misreading the data or whether the data she was reading were wrong. There will need to be years of investigation to determine that, but I’ll give you a clue now. Anyone who lives in the real world knows that the unemployment rate is far higher than the 4.2% that the Labor Department reports. And that the job growth each year — as I’ve been harping on — is mostly driven by guesstimates and adjustments made by government statisticians who apparently don’t live in the real world.

And, of course, the economy has been creating crappy-paying, benefit-lacking jobs that don’t come close to replacing the higher-quality employment that went bye-bye after the last recession. Last Friday, Labor said the jobless rate dipped in September to 4.2% from 4.4% in August — and its number crunchers also reported that 33,000 jobs were lost last month. It blamed the hurricanes. The experts were expecting the US economy to have added 100,000 new jobs despite the storms. Labor also announced that it revised August’s figures lower — from growth of 189,000 jobs to just 138,000. So instead of being reasonably good, August was blah, with nary a hurricane to blame.

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An award for not understanding?! If you ask me, the very fact that someone gets an award for ‘finding out’ that human behavior affects economies, says all you need to know about economics.

Nobel Economist Thaler Says He’s Nervous About Stock Market (BBG)

A buoyant and complacent stock market is worrying Richard H. Thaler, the University of Chicago professor who this week won the Nobel Prize in economics. “We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said, speaking by phone on Bloomberg TV. “I admit to not understanding it.” The S&P 500 index has been reaching repeated records since President Donald Trump’s election last November amid steady growth in the U.S. economy and labor market, as well as expectations for lower taxes, though policy action in Washington has been limited. Thaler, who has made a career of studying irrational and temptation-driven actions among economic actors and won the Nobel for such contributions to behavioral economics, expressed misgivings about the low volatility and continued optimism among investors.

“I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,” Thaler said, “Nothing seems to spook the market” and if the gains are based on tax-reform expectations, “surely investors should have lost confidence that that was going to happen.” The economist said that he didn’t know “where anyone would get confidence” that tax reform is going to happen. “The Republican leadership does not seem to be interested in anything remotely bipartisan, and they need unanimity within their caucus, which they don’t have,” Thaler said. “And the president’s strategy of systematically insulting the votes he needs doesn’t seem to be optimizing anything I can think of, but maybe he’s a deeper thinker than me.”

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Schrödinger’s State. On Wikipedia, someone last night put Catalonia at no. 1 on the List of Shortest-Lived States. At 8 seconds, which is how long the applause lasted when Puigdemont said he had the mandate, only to say right after that he would hold off on executing the mandate. Wikipedia took it down.

Catalans Call Time Out on Independence Bid, Seek Spain Talks (BBG)

Catalan President Carles Puigdemont said that he’ll seek talks with the government in Madrid over the future of his region in Spain, rowing back from an immediate declaration of independence that threatened to turn a constitutional crisis into an economic one. Addressing the regional parliament in Barcelona on Tuesday evening after days of tension in Catalonia, Puigdemont said the result of an Oct. 1 referendum had given him the mandate to pursue independence, but he would hold off for “weeks” for dialogue on the way forward with Prime Minister Mariano Rajoy’s administration. Rajoy convened an extraordinary meeting of his cabinet in Madrid on Wednesday at 9 a.m. to discuss his next move, and is due to address the Spanish Parliament on the crisis in Catalonia later in the day.

“Today Mr. Puigdemont has plunged Catalonia into the highest level of uncertainty,” Spain’s Deputy Prime Minister Soraya Saenz de Santamaria told reporters in Madrid late on Tuesday. “Neither Mr. Puigdemont nor anyone else can draw conclusions from a law that doesn’t exist, from a referendum that hasn’t taken place and from the wishes of the Catalan people which it’s trying to take over.” Pressure has piled on Puigdemont as the Spanish government and Catalan business leaders demand that he desist from pitching the region further down a path to independence that they warn would wreck the economy and tear apart Spain’s social fabric. Rajoy has consistently ruled out talks until the Catalans drop the threat of a declaration of independence that is illegal under Spanish law.

“Today I assume the mandate for Catalonia to become an independent state in the form of a republic,” Puigdemont said to cheers from the packed assembly, with Catalan police deployed around the parliament perimeter. “We propose the suspension of the effects of the declaration of independence for a few weeks, to open a period of dialogue.”

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When equity is debt.

China Debt-for-Equity Swaps Turn Out More Like Debt-for-Debt (BBG)

A key Chinese initiative to rein in the world’s largest corporate-debt load has been a program swapping some loans into equity stakes. As the initiative gets going, however, it’s becoming clear the debt isn’t really going away. In a late-summer notice, central government officials said that new bonds should be used to finance the swaps, effectively moving the debt off the balance sheets of the original lenders onto those buying the new debt. The first such deal came last month, according to China Lianhe Credit Rating Co., a domestic rating firm. Shaanxi Coal and Chemical Industry Group Co., a troubled old-line industrial company, was targeted for a debt-for-equity swap. Then the Shaanxi provincial government in northwest China set up an asset-management company to raise new debt to pay off the existing lending that was designated to be swapped for an equity stake.

One criticism of the debt-for-equity initiative, which was launched a year ago, is that it keeps afloat struggling enterprises, leaving excess capacity intact and pulling down productivity. The Shaanxi example shows a further weakness: while the company won’t need to service debt any more, the new asset-management unit will – without any new source of revenue having been generated. “If the funding comes from debt, it’s really not solving the issue here because the capital is not permanent capital,” Christopher Lee, managing director of corporate ratings at S&P Global Ratings in Hong Kong. “In fact, you are adding more debt just to refinance the debt that was going to be swapped.”

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Australia lives off its bubble. It’s all that’s left.

Chinese Investors Keep Pouring Money Into Australian Housing (BBG)

Property-hungry Chinese investors have shrugged off the impact of tighter capital controls and continue to pour money into Australian housing. Foreign buyers are acquiring about a quarter of new housing supply in New South Wales, and China accounts for about 90% of that demand, according to Credit Suisse analysis of tax office data. Foreigners are buying 17% of new housing in Victoria, and 8% in Queensland, Credit Suisse said. While local property agents say higher state taxes on foreigners are deterring buyers, Credit Suisse isn’t so sure they will have a big impact on prices.

They point to even-higher taxes in other global cities, the relative cheapness of Australian property compared to Chinese cities, and the growing stock of wealth in China. “Local incomes are becoming less relevant in determining the outlook for house prices and regional wealth is becoming more relevant,’’ Credit Suisse analysts Hasan Tevfik and Peter Liu said in the report. “We see no evidence of a slowdown in foreign demand because of the stronger capital controls introduced by Chinese authorities.” That’s not good news for locals already struggling to break into the booming housing market.

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WHy would anyone still want to buy a car or plane made with Kobe metals? Imagine the lawsuits if accidents happen.

Kobe Steel Shares Plunge As Data Fabrication Concerns Deepen (R.)

Kobe Steel shares tumbled a further 16% on Wednesday after it admitted it may have fabricated data on iron powder products and media reported the possible sale of its real estate business. The latest disclosure comes after Japan’s No.3 steelmaker said on the weekend it had falsified data to show that its aluminum and copper products had met customer specifications, and suggests the problems could be widespread. Japanese manufacturers were thrown into turmoil by the revelation, with implications for materials used in cars, aircraft and possibly a space rocket and defense equipment.

Shares in Kobe Steel were down 15.73% at 900 yen as of 0114 GMT on Wednesday, underperforming the broader market which was steady. They fell 22% the previous day. A Kobe Steel spokesman confirmed a report on Wednesday in the Yomiuri newspaper saying the firm may have fabricated data on iron powder products used in components such as automotive gears. He said the company was investigating the issue. The Nikkei business daily meanwhile reported that Kobe Steel intended to put its real estate business on the block in an effort to shore up already shaky finances now threatened by the data falsification scandal.

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And that’s after all those trillions in support.

51 Eurozone Banks Vulnerable To Rate Shocks – ECB (R.)

Fifty-one large euro zone banks are leaving themselves exposed to a sudden change in interest rates and may need to aside more capital against that risk, the European Central Bank said on Monday. The ECB is preparing to start dialing back its monetary stimulus after years of ultra-low interest rates and massive bond purchases, paving the ground for rate hikes further down the line. After simulating scenarios ranging from a sudden monetary tightening to the kind of lending freeze that followed Lehman Brothers’ collapse, the ECB found that most of the 111 euro zone banks it tested are well prepared for interest rates shocks. But it cautioned it needed “intense discussions” with 51 of them after finding they may be making themselves vulnerable via large bets on derivative instruments and overly aggressive models for calculating risk.

A hike in interest rates could mean the banks suddenly need more capital. “What we need to do is have intense discussions and check with the banks if they’re aware of the… risk and if they have enough capital if things go wrong,” Korbinian Ibel, a senior supervisor at the ECB, said. Results of the test, which started in February, are incorporated into the ECB’s guidance on how much capital each lender on its watch should hold. Ibel said the 51 banks may, in principle, see their capital demands rise by up to 25 basis points, although any decision would depend on the individual circumstances of each firm. Similarly, the remaining 60 banks could see their guidance reduced by the same amount.

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Crypto makes it too easy for money to leave a country.

Russian Central Bank To Ban Websites Offering Crypto-Currencies (R.)

Russia will block access to websites of exchanges that offer crypto-currencies such as Bitcoin, Russian Central Bank First Deputy Governor Sergei Shvetsov said on Tuesday. He called them “dubious”. Russian financial authorities initially treated any sort of money issued by non-state approved institutions as illegal, saying they could be used to launder money. Later the authorities accepted the globally booming market of crypto-currencies but want to either control the turnover or to limit access to the market “We cannot stand apart. We cannot give direct and easy access to such dubious instruments for retail (investors),” Shvetsov said, referring to households.

Speaking at a conference on financial market derivatives, Shvetsov said the central bank sees rising interest in crypto-currencies because of high returns from buying into such instruments. He warned, however, that crypto-currencies gradually transform into high-yielding assets from being a mean of payment. “We think that for our citizens, for businesses the usage of such crypto-currencies as an investment object carries unreasonably high risks,” he said. Russian authorities said earlier this year they would like to regulate the use of crypto-currencies by Russian citizens and companies.

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$4 million? That’s the damage?

Fukushima Court Rules Tepco, Government Liable Over 2011 Disaster (R.)

A district court in Fukushima prefecture on Tuesday ruled that Tokyo Electric Power and the Japanese government were liable for damages totaling about 500 million yen ($4.44 million) in the largest class action lawsuit brought over the 2011 nuclear disaster, Kyodo news agency said. A group of about 3,800 people, mostly in Fukushima prefecture, filed the class action suit, marking the biggest number of plaintiffs out of about 30 similar class action lawsuits filed across the nation. This is the second court ruling that fixed the government’s responsibility after a Maebashi district court decision in March.

All the three district court decisions so far have ordered Tepco to pay damages. Only the Chiba court decision last month did not find the government liable for compensation. The plaintiffs in Fukushima case have called on defendants for reinstating the levels of radioactivity at their homes before the disaster, but the court rejected the request, Kyodo said. Tepco has long been criticized for ignoring the threat posed by natural disasters to the Fukushima plant and the company and the government were lambasted for their handling of the crisis.

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Incredible. You’d expect to see this in Bombay perhaps, or Lagos.

10% of New York City Public School Students Were Homeless Last Year (NYT)

The number of homeless students in the New York City public school system rose again last year, according to state data released on Tuesday. The increase pushed the city over a sober milestone: One in every 10 public school students was homeless at some point during the 2016-17 school year. More than 111,500 students in New York City schools were homeless during the last academic year, a 6% increase over the year before and enough people to populate a small city. Of the overall figure, 104,000 students attended regular district public schools, while the rest were in charter schools. Statewide, 148,000 students were homeless, or about 5% of the state’s public school population.

The data was released by the New York State Technical and Education Assistance Center for Homeless Students, a project of Advocates for Children of New York funded by the state Education Department. The plight of homeless students is part of the entrenched and growing problem of homelessness confronting New York City and Mayor Bill de Blasio, who is pushing a controversial plan to expand the city’s shelter system. After rising steadily for about five years, the number of homeless students reported to the state shot up in the 2015-16 school year, reaching nearly 100,000 children, and in the last school year the numbers crossed that threshold. The count this year is the highest since the state began keeping records.

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Not great title for interesting article.

The European Union Is Doomed to Fail (FEE)

Have you ever heard of Deutsch Jahrndorf? No? I don’t blame you. The tiny Austrian village, which is situated four miles from the Danube, is utterly unremarkable, except for the fact that it sits on the border of three countries. To the east is Slovakia. To the south lies Hungary. As such, within shouting distance of one another, live three peoples speaking completely unintelligible languages. Austria belongs to the West Germanic language group, Hungary to Finno-Ugric and Slovakia to West Slavic. I thought about the exquisitely rich tapestry of European languages, cultures, customs, and nationalities as I watched the sad spectacle of Spanish riot police and Catalan separatists confronting one another on the streets of Barcelona. How on earth can the European Union unite that which history forced asunder?

The European Union, French President Emmanuel Macron has recently declared to almost universal acclaim, needs more unity, including the creation of “a eurozone budget managed by a eurozone parliament and a eurozone finance minister”. The need for the centralization of power in Brussels is, apparently, the lesson that the EU establishment has learned from the outcome of the British referendum on EU membership. Meanwhile, in Catalonia, millions of people have set their sights on independence from Spain. Foremost among their complaints is that the Catalan budget is influenced by Madrid. Independence, the Catalans feel, will rectify a grave injustice occasioned by the French capture of Barcelona in 1714. The conqueror, Duke of Anjou, became the first Bourbon king of Spain under the name of Philip V. His descendant, Philip VI, is on the throne today. In Europe, ancient lineages last as long as ancient resentments.

Therein lies the conundrum of European unification. On the one hand, people throughout much of Europe desire greater autonomy. Madrid has the vexing problem of the Basque Country to worry about as well as Catalonia. In Italy, Padania and South Tyrol in the North don’t feel like they have very much in common with the Mezzogiorno in the South. Corsica does not want to be French and Britain has only recently revisited a territorial arrangement that dates back to 1707. On the other hand, every separatist movement in Europe declares its support for the project of European unification. But, how likely is it that people annoyed by Madrid, Rome, Paris, and London will be happy to have their affairs decided upon in Brussels? Will the Catalans, resentful of subsidizing farmers in Andalusia, quietly have no problem with subsidizing Polish peasants in Lower Silesia?

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Monbiot has some nice ideas, but underestimates the degree to which our societies profit from carbon. And why bring in Labour?

How Labour Could Lead The Global Economy Out Of The 20th Century (G.)

We are still living in the long 20th century. We are stuck with its redundant technologies: the internal combustion engine, thermal power plants, factory farms. We are stuck with its redundant politics: unfair electoral systems, their capture by funders and lobbyists, the failure to temper representation with real participation. And we are stuck with its redundant economics: neoliberalism, and the Keynesianism still proposed by its opponents. While the latter system worked very well for 30 years or more, it is hard to see how it can take us through this century, not least because the growth it seeks to sustain smacks headlong into the environmental crisis. Sustained economic growth on a planet that is not growing means crashing through environmental limits: this is what we are witnessing, worldwide, today.

A recent paper in Nature puts our current chances of keeping global heating to less than 1.5C at just 1%, and less than 2C at only 5%. Why? Because while the carbon intensity of economic activity is expected to decline by 1.9% a year, global per capita GDP is expected to grow by 1.8%. Almost all investment in renewables and efficiency is cancelled out. The index that was supposed to measure our prosperity, instead measures our progress towards ruin. But the great rupture that began in 2008 offers a chance to change all this. The challenge now is to ensure that the new political movements threatening established power in Britain and elsewhere create the space not for old ideas (such as 20th-century Keynesianism) but for a new politics, built on new economic and social foundations.

There may be a case for one last hurrah for the old model: a technological shift that resembles the second world war’s military Keynesianism. In 1941 the US turned the entire civilian economy around on a dime: within months, car manufacturers were producing planes, tanks and ammunition. A determined government could do something similar in response to climate breakdown: a sudden transformation, replacing our fossil economy. But having effected such a conversion, it should, I believe, then begin the switch to a different economic model.

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Featuring Dwayne Johnson? All we need then is a ferret to play Dijsselbloem.

I Will Make A Film Based On Adults in the Room (Costa Gavras)

When the crisis began, the tragedy that the Greek people are still living through, I began to gather material and information in an attempt to make sense of the reasons and the people – published, filmic and oral. However, what I was missing were the goings on behind the closed doors, where the representatives of the European Union and the Greek people met. On 16th July 2015, just after his resignation, I sent a text message to Yanis Varoufakis, whom I did not know personally. In that message I wrote: “Reading your interview in the New Statesman, I believe I found what I have been looking for a long time: the subject for a film, a piece of fiction, about a Europe governed by a group of cynical people disconnected from human, political and cultural concerns – obsessed with numbers and them alone.”

Soon, the arrangements were made and Michele, my wife, and I visited Yanis and Danae in Greece a few weeks later. Meanwhile I read two of his books, The Global Minotaur (London: Zed Books, 2011,2015) and the manuscript of a book he was completing at that time entitled And The Weak Suffer What They Must? (London: The Bodley Head, 2016). I was impressed by the quality and originality of their content, as well as the prose. When we met we had long conversations, in the context of which he let me know that he was about to begin writing his own account of his tenure as Greece’s finance minister, a tale of being an outsider in politics, of the negotiations in the Eurogroup – that illegitimate but ultra powerful EU body. I asked to read the manuscript. He agreed and began sending it to me chapter by chapter, as the book was being written.

Immediately I was convinced by the text’s seriousness and the accuracy of the description of the behaviour of each of the tragedy’s protagonists. Reading it saddened me, and I found myself often angered, indeed enraged, by the violence and the indifference of Eurogroup members, especially the German side, to the drama and unsustainable situation in which the people of Greece lived, and live. I decided to make a film out of this tragedy. Yanis Varoufakis gave me the rights to his book and absolute freedom to adapt it.

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Words fail.

Self-Harm, Suicide Attempts Rise In Greek Refugee Camps (Reuters)

A mental health emergency is unfolding in migrant camps on Greece’s islands, fueled by poor living conditions, neglect and violence, Doctors Without Borders (MSF) said Tuesday. Medical staff have seen a sharp increase in people trying to get help after attempting suicide, harming themselves or suffering psychotic episodes, the humanitarian organization said in a report. More than 13,000 migrants and refugees, mostly Syrians and Iraqis fleeing years of war, are living in five camps on Greek islands close to Turkey, government figures show. Four of those camps are holding two to three times as many people as they were designed for. “Every day our teams treat patients who tell us that they would prefer to have died in their country than be trapped here,” said Jayne Grimes, manager of MSF’s mental health activities on Samos.

The organization said six or seven new patients had visited its clinic on the nearby island of Lesvos each week over the summer following suicide attempts, self-harm or psychotic episodes, 50% more than the previous three months. Violence which many experienced on the journey or in Greece was one factor aggravating mental distress, MSF said. “I know I need to find hope, but when the night falls and I see where I am, I feel like I’m going crazy,” it quoted a Syrian man as saying. The 25-year-old said he was haunted by the images of people dying of hunger in front of him in the long-besieged town of Madaya. “I still remember the taste of the leaves and the smell of death,” he said. On Samos, more than 3,000 people are crammed into facilities designed to hold 700, and about 400 live in the woods. In one Lesvos camp, about 1,500 people are in makeshift shelters or tents without flooring or heating, the UN refugee agency says.

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Sep 282017
 
 September 28, 2017  Posted by at 8:38 am Finance Tagged with: , , , , , , , , ,  


Juan Gris Man in the café 1912

 

The Illusion of Prosperity (Lebowitz)
Trump Tax Plan Economic Outcomes Likely Disappointing (Roberts)
The Top 1% Of Americans Now Control 38% Of The Wealth (CNBC)
This Chart Defines the 21st Century Economy (CHS)
China’s Traders Have an Excuse to Take the Rest of Year Off
China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)
Debt Boom In India And China Threatens New Financial Crisis – WEF (Tel.)
Japan Downgrade Risk Seen Rising as Default Swaps Climb (BBG)
JPMorgan Ordered To Pay Over $4 Billion To Widow And Family (ZH)
The Courage to Normalize Monetary Policy (Stephen Roach)
German Finance Minister Wolfgang Schäuble To Be Bundestag Speaker (G.)

 

 

The future wants its future back.

The Illusion of Prosperity (Lebowitz)

For the last 50 years, the consumer, that means you and me, have been the most powerful force driving the U.S. economy. Household spending now accounts for almost 70% of economic growth, about 10% more than it did in 1971. Household spending in the U.S. is also approximately 10-15% higher than most other developed nations. Currently, U.S. economic growth is anemic and still suffering from the after-shocks of the financial crisis. Importantly, much of that weakness is the result of growing stress on consumers. Using the compelling graph below and the data behind it, we can illustrate why the U.S. economy and consumers are struggling.

The blue line on the graph above marks the difference between median disposable income (income less taxes) and the median cost of living. A positive number indicates people at the median made more than their costs of living. In other words, their income exceeds the costs of things like food, housing, and insurance and they have money left over to spend or save. This is often referred to as “having disposable income.” If the number in the above calculation is negative, income is not enough to cover essential expenses. From at least 1959 to 1971, the blue line above was positive and trending higher. The consumer was in great shape. In 1971 the trend reversed in part due to President Nixon’s actions to remove the U.S. dollar from the gold standard.

Unbeknownst to many at the time, that decision allowed the U.S. government to run consistent trade and fiscal deficits while its citizens were able to take on more debt. Other than rampant inflation, there were no immediate consequences. In 1971, following this historic action, the blue line began to trend lower. By 1990, the median U.S. citizen had less disposable income than the median cost of living; i.e., the blue line turned negative. This trend lower has continued ever since. The 2008 financial crisis proved to be a tipping point where the burden of debt was too much for many consumers to handle. Since 2008 the negative trend in the blue line has further steepened. You might be thinking, if incomes were less than our standard of living, why did it feel like our standard of living remained stable? One word – DEBT.

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Lance has a lot of detail in his assessment. Worth a read.

Trump Tax Plan Economic Outcomes Likely Disappointing (Roberts)

Do not misunderstand me. Tax rates CAN make a difference in the short run particularly when coming out of a recession as it frees up capital for productive investment at a time when recovering economic growth and pent-up demand require it. However, in the long run, it is the direction and trend of economic growth that drives employment. The reason I say “direction and trend” is because, as you will see by the vertical blue dashed line, beginning in 1980, both the direction and trend of economic growth in the United States changed for the worse. Furthermore, as I noted previously, Reagan’s tax cuts were timely due to the economic, fiscal, and valuation backdrop which is diametrically opposed to the situation today.

“Importantly, as has been stated, the proposed tax cut by President-elect Trump will be the largest since Ronald Reagan. However, in order to make valid assumptions on the potential impact of the tax cut on the economy, earnings and the markets, we need to review the differences between the Reagan and Trump eras.

[..] Of course, as noted, rising debt levels is the real impediment to longer-term increases in economic growth. When 75% of your current Federal Budget goes to entitlements and debt service, there is little left over for the expansion of the economic growth. The tailwinds enjoyed by Reagan are now headwinds for Trump as the economic “boom” of the 80’s and 90’s was really not much more than a debt-driven illusion that has now come home to roost. Senator Pat Toomey, a Pennsylvania Republican who sits on the finance committee, said he was confident that a growing economy would pay for the tax cuts and that the plan was fiscally responsible. “This tax plan will be deficit reducing,”

The belief that tax cuts will eventually become revenue neutral due to expanded economic growth is a fallacy. As the CRFB noted: “Given today’s record-high levels of national debt, the country cannot afford a deficit-financed tax cut. Tax reform that adds to the debt is likely to slow, rather than improve, long-term economic growth.” The problem with the claims that tax cuts reduce the deficit is that there is NO evidence to support the claim. The increases in deficit spending to supplant weaker economic growth has been apparent with larger deficits leading to further weakness in economic growth. In fact, ever since Reagan first lowered taxes in the ’80’s both GDP growth and the deficit have only headed in one direction – lower.

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The economy lost its balance. It will tip over.

The Top 1% Of Americans Now Control 38% Of The Wealth (CNBC)

America’s top 1% now control 38.6% of the nation’s wealth, a historic high, according to a new Federal Reserve Report. The Federal Reserve’s Surveys of Consumer Finance shows that Americans throughout the income and wealth ladder posted gains between 2013 and 2016. But the wealthy gained the most, driven largely by gains in the stock market and asset values. The top 1% saw their share of wealth rise to 38.6% in 2016 from 36.3% in 2013. The next highest nine% of families fell slightly, and the share of wealth held by the bottom 90% of Americans has been falling steadily for 25 years, hitting 22.8% in 2016 from 33.2% in 1989. The top income earners also saw the biggest gains. The top 1% saw their share of income rise to a new high of 23.8% from 20.3% in 2013. The income shares of the bottom 90% fell to 49.7% in 2016.

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I smell danger.

This Chart Defines the 21st Century Economy (CHS)

One chart defines the 21st century economy and thus its socio-political system: the chart of soaring wealth/income inequality. This chart doesn’t show a modest widening in the gap between the super-wealthy (top 1/10th of 1%) and everyone else: there is a veritable Grand Canyon between the super-wealthy and everyone else, a gap that is recent in origin. Notice that the majority of all income growth now accrues to the the very apex of the wealth-power pyramid. This is not mere chance, it is the only possible output of our financial system. This is stunning indictment of our socio-political system, for this sort of fast-increasing concentration of income, wealth and power in the hands of the very few at the top can only occur in a financial-political system which is optimized to concentrate income, wealth and power at the top of the apex.

[..] the elephant in the room few are willing to mention much less discuss is financialization, the siphoning off of most of the economy’s gains by those few with the power to borrow and leverage vast sums of capital to buy income streams–a dynamic that greatly enriches the rentier class which has unique access to central bank and private-sector bank credit and leverage. Apologists seek to explain away this soaring concentration of wealth as the inevitable result of some secular trend that we’re powerless to rein in, as if the process that drives this concentration of wealth and power wasn’t political and financial. There is nothing inevitable about such vast, fast-rising income-wealth inequality; it is the only possible output of our financial and pay-to-play political system.

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China just took two giant steps back from being a functioning economy.

China’s Traders Have an Excuse to Take the Rest of Year Off

Financial markets in the world’s second-largest economy are set to turn listless in the fourth quarter as party officials keep a lid on volatility around a seminal Communist Party gathering. That’s the finding of Bloomberg surveys of market participants. The benchmark Shanghai Composite Index is projected to end the year 0.3% higher than Wednesday’s close. The yuan will be at 6.64 per dollar, unchanged from the current level, while the 10-year sovereign bond yield is expected to slip to 3.59% from 3.63%. “I don’t expect any big swings,” said Ken Chen, Shanghai-based analyst with KGI Securities Co. “Regulators would want to ensure the markets are stable for the 19th Party Congress.”

Authorities have stressed the need for stability in the lead-up to what will be China’s most important political event in years. The twice-a-decade party congress, which starts on Oct. 18, is expected to replace about half of China’s top leadership and shape President Xi Jinping’s influence into the next decade. The China Securities Regulatory Commission has ordered local brokerages to mitigate risks and ensure stable markets before and during the event, people familiar with the matter have said. The CSRC has also banned brokerage bosses from taking holidays or leaving the country from Oct. 11 until the congress ends, according to the people.

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Why that forced low volatility is so dangerous. No price discovery.

China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)

Young Chinese like Eli Mai, a sales manager in Guangzhou, and Wendy Wang, an executive in Shenzhen, are borrowing as much money as possible to buy boomtown flats even though they cannot afford the repayments. Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s. Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years. City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.

“Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said. “Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.” The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means. The build-up of household and other debt in China has also sparked widespread concern about the health of the world’s second largest economy.

[..] Mai and Wang have been playing it fast and loose to deal with their debts. Mai has lent 600,000 of the 800,000 yuan he got from a bank after using his first flat as collateral to a money shark promising an annualised return of 20 per cent. Wang gave the bank fake documents showing her monthly income was 18,000 yuan – about 1.6 times her actual salary. It did not ask any questions. Neither see any problem, because the value of their underlying assets, the flats, have risen. The value of Mai’s two flats rose from 3.8 million yuan last year to 6.4 million yuan last month, while the value of Wang’s unit is now 2.93 million yuan, up from 2.6 million yuan. “I think I made a smart and successful decision to leverage debt,” Mai said.

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Watch India.

Debt Boom In India And China Threatens New Financial Crisis – WEF (Tel.)

Banks across the world are more vulnerable to a crisis now than they were in the build up to the credit crunch, the World Economic Forum has warned. Bad loans in India have more than doubled in the past two years, while in China’s financial system “business credit is building up similarly to the United States pre-crisis, and could be a new source of vulnerability.” China’s credit boom has been the subject of several warnings from global finance groups and regulators in recent months. Last week the Bank of International Settlements warned that higher interest rates in the US could have a knock on effect in the world’s second-largest economy, forcing rates higher in China, making the debt mountain more expensive to maintain and hitting the economy hard.

Britain, the US and other developed economies have taken major steps to shore up their banking systems as they were at the heart of the financial crisis, but the global financial system as a whole faces new and growing risks. Other parts of the financial system are taking risks instead, such as fund managers in the so-called shadow banking sector. The eurozone banks have still not fully recovered from the crash either. “In general, there is still too much debt in parts of the private sector, and top global banks are still ‘too big to fail’,” the WEF’s Global Competitiveness Report said. “The largest 30 banks hold almost $43 trillion in assets, compared to less than $30 trillion in 2006, and concentration is continuing to increase in the US, China, and some European countries. “In Europe, banks are still grappling with the consequences of 10 years of low growth and the enduring non-performance of loans in many countries.”

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Abe’s power gamble.

Japan Downgrade Risk Seen Rising as Default Swaps Climb (BBG)

Japan’s credit rating could be in the cross hairs after Prime Minister Shinzo Abe indicated the nation may abandon its goal of covering key expenditures through taxes. The cost of insuring Japan’s government debt against default rose to a 15-month high on Tuesday, with policy uncertainty adding to concerns about tensions with North Korea. On Monday, Abe said he would dissolve parliament later this week and he’d pay for economic measures with funds from a consumption-tax increase originally intended to rein in the nation’s swollen debt. Japanese government bonds extended declines Wednesday after S&P Global Ratings said it expects “material” fiscal deficits to continue through 2020.

S&P’s ratings assume fiscal improvements will be gradual over the next few years, sovereign analyst Craig Michaels said. “The prospect for extra revenue to be spent rather than being used to pay down Japan’s debt is a factor of higher bond yields,” said Shuichi Ohsaki, chief rates strategist for Japan at Bank of America Merrill Lynch. “There also appears to be some speculation that such a policy move will lead to a sovereign downgrade.” Yield on Japan’s five-year note added 2.5 basis points to minus 0.090% Wednesday, which would be the steepest increase since March 9. The benchmark 10-year yield climbed 2.5 basis points to 0.055%, a level unseen since early August.

The challenges in meeting the long-standing objective of achieving a primary balance surplus, add to concerns about Japan’s debt load, which is the world’s heaviest. Getting to that goal would allow the government to pay for programs including social security and public works projects from tax revenue, rather than through new debt financing. Abe is betting he can crush a weak opposition in next month’s election, which he has framed in part as a vote on his plans to use revenue from the upcoming consumption-tax hike to fund an $18 billion economic package aimed at tackling the challenges of an aging society.

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It’s the mob. One question. Who’s going to end up paying?

JPMorgan Ordered To Pay Over $4 Billion To Widow And Family (ZH)

A Dallas jury ordered JPMorgan Chase to pay more than $4 billion in damages for mishandling the estate of a former American Airlines executive. Jo Hopper and two stepchildren won a probate court verdict over claims that JPMorgan mismanaged the administration of the estate of Max Hopper, who was described as an airline technology innovator by the family’s law firm. The bank, which was hired by the family in 2010 to independently administer the estate of Hopper, was found in breach of its fiduciary duties and contract. In total, JP Morgan Chase was ordered to pay at least $4 billion in punitive damages, approximately $4.7 million in actual damages, and $5 million in attorney fees.

The six-person jury, which deliberated a little more than four hours starting Monday night and returned its verdict at approximately 12:15 a.m. Tuesday, found that the bank committed fraud, breached its fiduciary duty and broke a fee agreement, according to court papers. “The nation’s largest bank horribly mistreated me and this verdict provides protection to others from being mistreated by banks that think they’re too powerful to be held accountable,” said Hopper in a statement. “The country’s largest bank, people we are supposed to trust with our livelihood, abused my family and me out of sheer ineptitude and greed. I’m blessed that I have the resources to hold JP Morgan accountable so other widows who don’t have the same resources will be better protected in the future.” “Surviving stage 4 lymphoma cancer was easier than dealing with this bank and its estate administration,” Mrs. Hopper added.

Max Hopper, who pioneered the SABRE reservation system for the airline, died in 2010 with assets of more than $19 million but without a will and testament, according to the statement. JPMorgan was hired as an administrator to divvy up the assets among family members. “Instead of independently and impartially collecting and dividing the estate’s assets, the bank took years to release basic interests in art, home furnishings, jewelry, and notably, Mr. Hopper’s collection of 6,700 golf putters and 900 bottles of wine,” the family’s lawyers said in the statement. “Some of the interests in the assets were not released for more than five years.”

The bank’s incompetence caused more than just unacceptably long timelines; bank representatives failed to meet financial deadlines for the assets under their control. In at least one instance, stock options were allowed to expire. In others, Mrs. Hopper’s wishes to sell certain stock were ignored. The resulting losses, the jury found, resulted in actual damages and mental anguish suffered by Mrs. Hopper. With respect to Mr. Hopper’s adult children, the jury found that they lost potential inheritance in excess of $3 million when the Bank chose to pay its lawyers’ legal fees out of the estate account to defend claims against the Bank for violating its fiduciary duty.

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“A world in recovery”, Stephen?

The Courage to Normalize Monetary Policy (Stephen Roach)

Central banks’ unconventional monetary policies – namely, zero interest rates and massive asset purchases – were put in place in the depths of the 2008-2009 financial crisis. It was an emergency operation, to say the least. With their traditional policy tools all but exhausted, the authorities had to be exceptionally creative in confronting the collapse in financial markets and a looming implosion of the real economy. Central banks, it seemed, had no choice but to opt for the massive liquidity injections known as “quantitative easing.” This strategy did arrest the free-fall in markets. But it did little to spur meaningful economic recovery. The G7 economies (the United States, Japan, Canada, Germany, the United Kingdom, France, and Italy) have collectively grown at just a 1.8% average annual rate over the 2010-2017 post-crisis period.

That is far short of the 3.2% average rebound recorded over comparable eight-year intervals during the two recoveries of the 1980s and the 1990s. Unfortunately, central bankers misread the efficacy of their post-2008 policy actions. They acted as if the strategy that helped end the crisis could achieve the same traction in fostering a cyclical rebound in the real economy. In fact, they doubled down on the cocktail of zero policy rates and balance-sheet expansion. And what a bet it was. According to the Bank for International Settlements, central banks’ combined asset holdings in the major advanced economies (the US, the eurozone, and Japan) expanded by $8.3 trillion over the past nine years, from $4.6 trillion in 2008 to $12.9 trillion in early 2017. Yet this massive balance-sheet expansion has had little to show for it.

Over the same nine-year period, nominal GDP in these economies increased by just $2.1 trillion. That implies a $6.2 trillion injection of excess liquidity – the difference between the growth in central bank assets and nominal GDP – that was not absorbed by the real economy and has, instead been sloshing around in global financial markets, distorting asset prices across the risk spectrum. Normalization is all about a long-overdue unwinding of those distortions. Fully ten years after the onset of the Great Financial Crisis, it seems more than appropriate to move the levers of monetary policy off their emergency settings. A world in recovery – no matter how anemic that recovery may be – does not require a crisis-like approach to monetary policy. Monetary authorities have only grudgingly accepted this. Today’s generation of central bankers is almost religious in its commitment to inflation targeting – even in today’s inflationless world. While the pendulum has swung from squeezing out excess inflation to avoiding deflation, price stability remains the sine qua non in central banking circles.

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Chaos looms in Germany. Merkel will be forced to accept a FinMin she doesn’t want. Greece will be squeezed even more. And Italy, Spain etc.

German Finance Minister Wolfgang Schäuble To Be Bundestag Speaker (G.)

Wolfgang Schäuble, a man revered and reviled in equal measure for his tenacious austerity economics, is to relinquish his powerful role as Germany’s finance minister and instead become the speaker of the parliament, his party has announced. Schäuble, 75, was asked to take on the role by the chancellor, Angela Merkel, who is keen on someone with authority and experience to steer future debate in the Bundestag after the success in Sunday’s election of the rightwing radical Alternative für Deutschland (AfD). The AfD is due to take up 94 seats in the house, having secured 12.6% of the vote, and its leadership has pledged to shake up the debating culture in the Bundestag, making it considerably rowdier than the calm and consensus-based mood that has characterised it in the past.

The role of speaker has been empty since Norbert Lammert, a veteran CDU MP, recently announced he would retire at the end of the last parliamentary term. In terms of protocol it ranks second only to that of federal president, and ahead of the chancellor, but in reality it is considerably less powerful than his current post. Schäuble, a lawyer by training, is the longest-serving MP in the Bundestag, having been elected in 1972. Once one of Merkel’s staunchest rivals, he has since become one of her closest confidantes as well as the most experienced and high-profile minister in her cabinet. He has been finance minister since 2009 and is held in high regard in Germany, particularly by the conservative base, who revere him for acting in Germany’s interests as the dogged protector of austerity economics in the eurozone.

He is also admired at home for his insistence – some would say obsession – with a balanced budget or the “black zero”. Germany today has a record budget surplus. But elsewhere he is a hugely controversial figure, particularly in Greece and in Ireland, where he has often faced criticism for his handling of the euro crisis that has dominated almost his entire time as finance minister. Schäuble has yet to respond to the reports of his new appointment, but it was confirmed on Wednesday afternoon by Volker Kauder, the chairman of the CDU parliamentary bloc.

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