Nov 122018
 
 November 12, 2018  Posted by at 10:54 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh Burning weeds 1883

 

Macron: Nationalism Is A “Betrayal Of Patriotism” (Ind.)
Putin Says Had Good Conversation With Trump In Paris (AFP)
Eastern Ukraine Elects Separatist Leaders As West Rejects Polls (AFP)
May Says Britain Open To ‘Different Relationship’ With Russia (R.)
Boris Johnson Says Britain On Verge Of ‘Total Surrender’ In Brexit Talks (R.)
May Shelves Crunch Brexit Talks With Cabinet (Ind.)
Alibaba Has Record $30.8 Billion In Sales In 24 Hours On Singles Day (CNBC)
Foreign Capital Has Propped Up China’s Currency. What If It Leaves? (CFR)
What Plunging Oil Prices Tell Us About The Stock Market And Global Economy (MW)
A Worldwide Debt Default Is A Real Possibility (Mauldin)

 

 

As Macron nears record low approval rating for a French president, he lectures the world through a game of semantics. The ‘brilliance’ is that while not many could have told you the difference between nationalism and patriotism, Macron claims to have it down. Even if it has to be translated into dozens of languages, each of which may have slightly different interpretations of the -local- meaning of the words. Macron has good speech writers, but they don’t write in all the languages involved. So it’s merely semantics. The terms mean to everyone what they want them to mean.

The take-away: according to Macron, patriotism can exist along globalism, nationalism cannot. A jibe against Trump. Which also means that because Xi Jinping touts globalism all the time, we must accept, if we follow Macron, that he is not a nationalist, but a patriot.

Macron: Nationalism Is A “Betrayal Of Patriotism” (Ind.)

Emmanuel Macron has issued a hard-hitting warning about the dangers of nationalism and of countries that put their interests before the collective good – in front of Donald Trump and Vladimir Putin. The French president denounced those who evoke nationalist sentiment to disadvantage others, calling it a “betrayal of patriotism” and moral values. The US and Russian leaders listened in silence as Mr Macron took a swipe at the rising tide of populism in the US and Europe, warning: “The old demons are rising again, ready to complete their task of chaos and of death.” During a gathering of dozens of world leaders to mark 100 years since the end of the First World War, the French president went on: “Patriotism is the exact opposite of nationalism. Nationalism is a betrayal of patriotism.

“In saying, ‘Our interests first, whatever happens to the others’, you erase the most precious thing a nation can have, that which makes it live, that which causes it to be great and that which is most important: its moral values.” [..] In a speech lasting nearly 20 minutes, Mr Macron also called on fellow leaders to fight for peace. “Ruining this hope with a fascination for withdrawal, violence or domination would be a mistake for which future generations would rightly find us responsible,” he said. The French leader also defended the European Union and the United Nations, which he said guaranteed peace and enshrined “a spirit of cooperation to defend the common property of a world whose destiny is inextricably linked”.

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Okay, is Putin a nationalist or a patriot? He seems to like globalism, but he likes Russia better. And he’s been pushed out of globalism through sanctions and tall tales.

Putin Says Had Good Conversation With Trump In Paris (AFP)

Russian President Vladimir Putin said he had a brief but good conversation with US leader Donald Trump at World War I centenary events in Paris, Russian media reported. When journalists asked Putin whether he managed to speak to Trump on Sunday, he said: “Yes,” Russian state news agency RIA Novosti reported. Asked how it went, Putin said: “Well.” He did not provide further details, but the French presidency said the pair had a wide-ranging discussion during lunch after the commemoration. Host and French President Emmanuel Macron was there and German Chancellor Angela Merkel took part in some of the exchanges, the presidency said.

Subjects discussed included the situation in the Middle East, notably Syria, Iran and Saudi Arabia, and North Korea. White House spokeswoman Sarah Sanders said Trump had sat with world leaders including Putin, Macron and Merkel at lunch and the group had held “very good and productive discussions”. “The leaders discussed a variety of issues, including the INF (nuclear treaty), Syria, trade, the situation in Saudi Arabia, sanctions, Afghanistan, China, and North Korea,” she said. Expectations have been growing for a new Trump-Putin meeting as tensions pile up over the Cold War-era Intermediate-Range Nuclear Forces Treaty (INF) and US sanctions against Moscow.

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Macron and Merkel: “These so-called elections undermine the territorial integrity and sovereignty of Ukraine..”

Wasn’t it John McCain and Vcitoria Nuland who undermined it back in 2014 on Maidan Square?

Eastern Ukraine Elects Separatist Leaders As West Rejects Polls (AFP)

People in Russian-backed areas of eastern Ukraine re-elected separatist leaders at the weekend, according to results released Monday of polls condemned as illegal by Kiev and Western countries. Elections in the Donetsk and Lugansk “People’s Republics”, controlled by separatists since breaking away from Ukraine’s pro-Western government in 2014, took place after the killing of the rebel Donetsk “president” in a bomb attack in August. Security was tight for Sunday’s vote with gun-toting, camouflage-clad guards deployed to ensure order. Denis Pushilin, the 37-year-old acting Donetsk leader, was elected with 61 percent of the vote with almost all ballots counted, the local electoral commission said. Leonid Pasechnik, the acting Lugansk leader, took 68 percent of the vote.

French President Emmanuel Macron and German Chancellor Angela Merkel branded the vote “illegal and illegitimate” following a meeting with Ukraine President Petro Poroshenko on the sidelines of World War I commemorations also attended by Russian leader Vladimir Putin on Sunday. “These so-called elections undermine the territorial integrity and sovereignty of Ukraine,” the pair said in a joint statement. Washington and Brussels had asked Russia not to allow the polls to go ahead, arguing they would further hamper efforts to end a conflict that has killed more than 10,000 people since 2014. “The people in eastern Ukraine will be better off within a unified Ukraine at peace rather than in a second-rate police state run by crooks and thugs, all subsidized by Russian taxpayers,” tweeted Kurt Volker, the US special envoy to Ukraine, on the day of the polls.

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if only they confess to the narratives Britain has spouted without evidence.

May Says Britain Open To ‘Different Relationship’ With Russia (R.)

Prime Minister Theresa May will say on Monday Britain is “open to a different relationship” with Russia if Moscow takes a new path and stops “attacks” that undermine international treaties and security. Just a year ago, May used her annual speech at the Lord Mayor’s Banquet to accuse Moscow of military aggression and of meddling in elections, some of her strongest criticism even before the poisoning of a former Russian spy in Salisbury. This year, she will tell London’s financial center that the action taken since – including the largest ever coordinated expulsion of Russian intelligence officers – has deepened her belief in a “collective response” to such threats.

“We will continue to show our willingness to act, as a community of nations, to stand up for the rules around the world,” May will say, according to excerpts of her speech. Describing evolving threats, May will say the past year, including Salisbury, has “shown that while the challenge is real, so is the collective resolve of likeminded partners to defend our values, our democracies, and our people.” “But, as I also said a year ago, this is not the relationship with Russia that we want … We remain open to a different relationship – one where Russia desists from these attacks that undermine international treaties and international security,” she will say.

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Boris still wants to be King.

Boris Johnson Says Britain On Verge Of ‘Total Surrender’ In Brexit Talks (R.)

Former British foreign minister Boris Johnson accused Prime Minister Theresa May on Sunday of forcing through a deal that would keep the country locked in the European Union’s customs union after Brexit in what he described as a “total surrender”. “I really can’t believe it but this government seems to be on the verge of total surrender,” he wrote in his weekly column in the Telegraph newspaper. “I want you to savour the full horror of this capitulation … we are on the verge of signing up for something even worse than the current constitutional position. These are the terms that might be enforced on a colony.”

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Unsolved issues.

May Shelves Crunch Brexit Talks With Cabinet (Ind.)

Theresa May has been forced to abandon plans for an emergency cabinet meeting to approve a Brexit deal, after fresh opposition at home and abroad plunged her timetable into turmoil. The prime minister shelved the meeting, pencilled in for Monday, slamming on the brakes after fierce resistance in her cabinet and in Brussels threatened to derail the path to an agreement. A government source conceded that an outline deal might not be ready by Tuesday – making it increasingly unlikely that a special EU summit to sign it off can be held in November, as hoped.

That would leave the UK having to ramp up hugely expensive no-deal preparations and in danger of being unable to pass all necessary legislation before the Brexit deadline next March. At home, Ms May faced an open challenge to her plans from Andrea Leadsom, the Commons leader, who vowed the UK “cannot be held against its will” by the backstop plan for the Irish border. Ms Leadsom became the second cabinet minister to insist on a unilateral power to escape being bound in the EU customs union – something explicitly ruled out by Brussels.

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1.35 billion packages delivered.

Alibaba Has Record $30.8 Billion In Sales In 24 Hours On Singles Day (CNBC)

Alibaba on Sunday tore through last year’s Singles Day sales record, racking up more than $30.8 billion in the 24-hour shopping event. Gross merchandise value (GMV), a figure that shows sales across the Chinese e-commerce giant’s various shopping platforms, surpassed last year’s $25.3 billion record at around 5:34 p.m. SIN/HK (4:34 a.m. ET) on Sunday, and kept marching higher through the rest of the day. In Chinese currency terms, GMV totaled 213.5 billion yuan, easily beating last year’s figure of 168.2 billion yuan and representing a nearly 27 percent year-on-year rise. That was, however, smaller than the 39 percent year-on-year growth recorded in 2017.

Alibaba’s Singles Day GMV beat last year’s figure in yuan terms earlier than it toppled the dollar record. The Chinese currency is weaker against the greenback from a year ago, which means more sales in yuan are required to get the same dollar amount. It was the 10th edition of the annual Singles Day event, which is also called the Double 11 shopping festival because it falls on Nov. 11. During the 24-hour period, Alibaba offered huge discounts across its e-commerce sites such as Tmall. Alibaba’s Singles Day sales haul easily exceeded the spending by consumers during any single U.S. shopping holiday.

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Wait! Shadows?

Foreign Capital Has Propped Up China’s Currency. What If It Leaves? (CFR)

“I think China’s manipulating their currency, absolutely,” President Trump said back in August. Yet the People’s Bank of China (PBoC) was, and has been, intervening to keep the RMB up, and not to push it down, as Trump was alleging. And we believe such interventions are about to get much larger. Here is why. Over the past two years, as our left-hand figure below shows, foreign portfolio investors have piled prodigiously into Chinese assets, helping to support the RMB. But history suggests this trend is about to reverse. While inflows have been rising, Chinese stocks have been tumbling—they are down over 20 percent from their January peak. Dreadful performance like this typically drives funds out of emerging markets. We may be seeing the beginning of such outflows in China.

Repatriation of liquid foreign capital will make it far more challenging for China to keep its currency up. Of course, China could change course and let it fall, but that risks exacerbating the foreign-debt burden of its highly leveraged corporates. It could raise interest rates, but that would further slow a slowing economy. It could, to keep capital at home, demand higher returns on its foreign lending, but that would mean sacrificing its efforts to subsidize its companies operating abroad, as well those aimed at putting dollars to the service of geostrategic objectives—like Belt and Road. n short, then, there is every reason to expect that the PBoC will boost its support for the RMB by selling dollar reserves.

This is what it did back in 2015, when a plunging stock market scared away foreign capital. So in spite of President’s Trump’s repeated charges that China is manipulating its currency for competitive advantage in trade, all evidence suggests that it will continue to do the opposite. But if China were to sell reserves at the same pace as in 2015, its reserve levels would, by mid-2020, actually fall below the safety threshold implied by the IMF’s framework for reserve adequacy—as shown in the right-hand figure above.

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Not much for now. Oil rising this morning on Saudi cuts promised.

What Plunging Oil Prices Tell Us About The Stock Market And Global Economy (MW)

What the heck happened to oil prices? But more significantly, what does it mean for the broader stock market and the global economy? That is what has some Wall Street investors scratching their noggins, as crude futures and U.S. stocks staged a tandem tumble this week, just when investors thought the worst was over following a bruising October for risk assets. Now, oil futures are unraveling, down at least 20% after putting in a 52-week high early last month. And it isn’t so much the descent into bear-market territory—as the recent slump for crude can be characterized—as it is the celerity of the selloff that has market participants unsettled.

About five weeks: That’s all it took for bulls to pivot from cavalierly pondering if $100-a-barrel oil was a genuine possibility before the end of 2018 on the back of Iranian oil export sanctions imposed by the U.S. on Nov. 4, to wondering how ugly the current implosion in black gold could get before finding a bottom. On Friday, West Texas Intermediate crude for December delivery lost 48 cents, or 0.8%, to settle at $60.19 a barrel on the New York Mercantile Exchange, for the lowest front-month contract settlement since March 8, according to FactSet data. Prices lost 4.7% for the week, tallying their fifth straight weekly drop. The 10th session decline in a row matched the longest skid since 1984.

But beyond that, the most important question is this: What does oil’s decline really mean? That is the query that Yves Lamoureux, president of macroeconomic research firm Lamoureux & Co., posed to MarketWatch via email last week as the decline in oil was gaining steam. “Very large monthly down moves in crude oil has often heralded something more ominous,” he wrote on Nov. 1. “Most market observers think there is enough damage to see a bottom in stocks. Consensus therefore looks for new record highs or a solid bounce back. We strongly disagree with this perspective.”

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No doubt there. But it’ll start somewhere.

A Worldwide Debt Default Is A Real Possibility (Mauldin)

Is debt good or bad? The answer is “Yes.” Debt is future spending pulled forward in time. It lets you buy something now for which you otherwise don’t have cash yet. Whether it’s wise or not depends on what you buy. Debt to educate yourself so you can get a better job may be a good idea. Borrowing money to finance your vacation? Probably not. The problem is that many people, businesses, and governments borrow because they can. It’s been possible in the last decade only because central banks made it so cheap. It was rational in that respect. But it is growing less so as the central banks start to tighten. Earlier this year, I wrote a series of articles predicting a debt “train wreck” and eventual liquidation. I dubbed it “The Great Reset.”

I estimated we have another year or two before the crisis becomes evident. Now I’m having second thoughts. Recent events tell me the reckoning could be closer than I thought just a few months ago. Central banks enable debt because they think it will generate economic growth. Sometimes it does. The problem is they create debt with little regard for how it will be used. That’s how we get artificial booms and subsequent busts. We are told not to worry about absolute debt levels so long as the economy is growing in line with them. That makes sense. A country with a larger GDP can carry more debt. But that is increasingly not what is happening. Let me give you two data points.

Lacy Hunt tracks data that shows debt is losing its ability to stimulate growth. In 2017, one dollar of non-financial debt generated only 40 cents of GDP in the US. It’s even less elsewhere. This is down from more than four dollars of growth for each dollar of debt 50 years ago. This has seriously worsened over the last decade. China’s debt productivity dropped 42.9% between 2007 and 2017. That was the worst among major economies, but others lost ground, too. All the developed world is pushing on the same string and hoping for results. Now, if you are used to using debt to stimulate growth, and debt loses its capacity to do so, what happens next? You guessed it: The brilliant powers-that-be add even more debt.

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Aug 142018
 
 August 14, 2018  Posted by at 7:37 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh Vincent’s House in Arles (The Yellow House) 1888

 

Turkey Will Be The Largest EM Default Of All Time (Russell Napier)
‘What Happens In Turkey Won’t Stay In Turkey’ (CNBC)
Italy Expects Financial Market Attack In August (R.)
The Price of Cheap Dollar/Euro Debts: Local Currencies Come Unglued (WS)
Indian Rupee Drops To All-Time Low Against Dollar Over Turkish Crisis (Ind.)
Close Up and Long Shot (Kunstler)
Musk: “I Am Working With Silver Lake, Goldman On Taking Tesla Private” (ZH)
The Law As Weapon (Paul Craig Roberts)
Russia-Gate One Year After VIPS Showed a Leak, Not a Hack (CN)
Greek Fishermen Accuse Turkish Boats of Opening Fire off Leros Island (GR)
Turkish FM Accuses Greece Of Escalating Tensions In Aegean (K.)
Palm Oil A New Threat To Africa’s Primates (BBC)
Scotland’s Mountain Hare Population Is At Just 1% Of 1950s Level (G.)

 

 

Napier thinks Turkey will default on $500 billion in debt by imposing capital controls.

Turkey Will Be The Largest EM Default Of All Time (Russell Napier)

Regular readers of the Fortnightly will know that The Solid Ground has long forecast a major debt default in Turkey. More specifically, the forecast remains that the country will impose capital controls enforcing a near total loss of US$500bn of credit assets held by the global financial system. That is a large financial hole in a still highly leveraged system. That scale of loss will surpass the scale of loss suffered by the creditors of Bear Stearns and while Lehman’s did have liabilities of US$619bn, it has paid more than US$100bn to its unsecured creditors alone since its bankruptcy. It is the nature of EM lending that there is little in the way of liquid assets to realize; they are predominantly denominated in a currency different from the liability, and also title has to be pursued through the local legal system.

Turkey will almost certainly be the largest EM default of all time, should it resort to capital controls as your analyst expects, but it could also be the largest bankruptcy of all time given the difficulty of its creditors in recovering any assets. So the events of last Friday represent only the end of the beginning for Turkey. The true nature of the scale of its default and the global impacts of that default are very much still to come. Strong form capital controls produce a de facto debt moratorium, and very rapidly investors realize just how little their credit assets are worth. A de jure debt moratorium at the outbreak of The Great War in 1914 bankrupted almost the entire European banking system – it was saved by mass government intervention.

While the imposition of capital controls in recent years has hit selected investors hard, in Iceland, Cyprus, Greece and key emerging markets, there has been nothing of this size and it is to be fully borne by financial institutions who believe they hold not just valuable credit assets but actually liquid credit assets! The loss of hundreds of billions of assets recently considered liquid by global financial institutions, through the de facto debt moratorium of capital controls, will be a huge shock to the global financial system.

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Turkey=corporate debt. How do you bail that out?

‘What Happens In Turkey Won’t Stay In Turkey’ (CNBC)

The markets have seen much of this movie before: a heavily indebted country finds itself in crisis, the currency plunges and talk quickly turns to contagion and, ultimately, an expensive globally financed bailout. In Turkey’s case, the plot line is a little different, however. Where the other debt crises generally involved government borrowing, Turkey’s is mostly a corporate story, making the bailout mechanics more complicated and thus raising fears that what started in a small country with only marginal systemic importance on its face could quickly escalate. “How can a country where the entire market cap of Turkish equities traded on the Istanbul Stock exchange is less than the market cap of Netflix wreak such havoc? It is all about the direct and indirect impacts,” wrote Katie Nixon, chief investment officer for wealth management at Northern Trust.

“There are certain emerging market countries with relatively weak currencies and a heavy reliance on external (predominately dollar based) financing. The fear is that what happens in Turkey won’t stay in Turkey.” Nixon said that while the crisis does not appear to have major global implications, a strong U.S. dollar coupled with weakening emerging market currencies could fuel the problem. To date, the debt emergencies in Greece, Cyprus, Italy and other euro zone countries — not to mention Argentina, Malaysia and perhaps Pakistan before long — have had limited global spillovers. Several required bailout loans from the IMF, an organization that gets 17.5 percent of its funding from the U.S.

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Low market volumes in summer make an attack easier to execute.

Italy Expects Financial Market Attack In August (R.)

Speculators will probably attack Italian financial markets this month but the country has the resources to defend itself, a senior and highly influential government official said in a newspaper interview on Sunday. Giancarlo Giorgetti, undersecretary in the prime minister’s office and a leading light in the far-right League party, said thin summer trading volumes helped fuel market assaults. “I expect an attack (in August),” Giorgetti told Libero. “The markets are populated by hungry speculative funds that choose their prey and pounce … In the summer the market volumes are small, you can lay the groundwork for aggressive initiatives against countries. Look at Turkey.”

Turkish markets slumped last week on growing concerns over the country’s economy and political leadership. Italian assets have also come under strain in recent weeks, with investors concerned that the governing coalition, made up of the League and the anti-establishment 5-Star Movement, might tear up EU fiscal rules to pay for big-spending budget plans. “If the (market) storm comes, we will open our umbrella. Italy is a big country and has the resources to react, thanks in part to its large amount of private savings,” said Giorgetti, who is seen as a moderating force within the League. Quoting a report by bankers’ federation Fabi, Italian newspapers said on Sunday household savings in Italy totaled some 4.4 trillion euros against 2.2 trillion in 1998.

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The reason for all the trouble? Cheap central bank credit.

The Price of Cheap Dollar/Euro Debts: Local Currencies Come Unglued (WS)

Turkey has its own sets of problems and isn’t even seriously trying to prop up its currency. Now global bondholders are clamoring for the IMF to step in and calm the waters around the currency crisis in Turkey that has turned into a debt crisis that is now dragging some European banks through the dirt. Those global bondholders want the IMF to lend Turkey money to bail out Turkey’s bondholders to put an end to the turmoil and torture in emerging markets bonds that were so hot just eight months ago. In return for an IMF bailout of its bondholders, Turkey would have to follow the IMF’s program, slash its expenses, including social expenses, and curtail its crazy borrowing binge. But no go.

Instead of trying to address the problem, or beg the IMF for a bailout, the Turkish government has heaped scorn on the West. In return, the Turkish lira plunged another 8% against the dollar on Monday, to 7.04 lira to the dollar. Seen the other way around, as the chart below shows, the value of 1 lira has now dropped to 14.4 US cents, from 25 cents just four months ago, which, if nothing else, tells people to go figure out how to invest in gold and silver. Monday’s drop brings the grand collapse over the past three days to 24%, and over the past four months to 43%.

After nine years of experimental monetary policies in the US, Europe, Japan, and elsewhere, the Emerging Market economies have become addicted to this debt borrowed in a hard currency that they cannot inflate away. In Turkey, this cheap debt – cheap even for junk-rated issuers such as the government of Turkey – funded a construction boom in the property sector. This construction boom has been crucial to the economy – which is why the government is trying to ride this bull all the way. Turkey’s inflation is surging. In July, annual inflation reached 16%, the highest since January 2004. Inflation is what ultimately destroys a currency. But it’s not yet 30% as in Argentina, and perhaps the government thinks it still has some leeway.

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Are you calling New Zealand an emerging market?

Indian Rupee Drops To All-Time Low Against Dollar Over Turkish Crisis (Ind.)

The Indian currency has dropped to an all-time low against the dollar, while the New Zealand dollar has slumped to two-year lows as emerging markets feel the effects of the crisis in Turkey. Investors have instead moved towards safe haven currencies such as the yen, which surged to a six-week high, and the Swiss franc, which jumped close to a one-year high against the euro. The Indian central bank reportedly intervened to prevent a sharp drop in the rupee’s value, however, it did little to stem the decline, and the currency fell to 69.62 rupees per dollar. The New Zealand dollar has also felt the effects of the Turkish crisis, dropping below $0.66 for the first time in two years over the weekend. Meanwhile, the euro fell against the dollar to $1.14, as investors try to work out how badly European banks might be affected by the problems in Turkey, with the Spanish, French, and Italian in particular all hugely exposed to Turkish debt.

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“President Trump’s tariff monkeyshines are shoving the Chinese banking system up against a wall of utterly irresolvable insolvency problems..”

Close Up and Long Shot (Kunstler)

Who cares about the currency of a second-rate player in the global economy? A lot of SIFIs (“systemically important financial institutions”) otherwise known as Too-Big-To-Fail banks. That’s who. Deutsche Bank’s stock dropped over 6 percent when the Turkish Lira tanked on Friday. Turkey’s nickname since the collapse of the Ottoman Empire in the 1920s has been “the sick man of Europe” and Deutsche Bank in the post-2008-crash era is widely regarded as the sick man of SIFI banks. One analyst wag downgraded its status a year ago to “dead bank walking.” Its balance sheet was a Cave of Winds littered with the moldering skeletons of malinvestment.

If the European Central Bank (aka Germany) has to bail out DB, all bets are off for the Euro, which was showing serious signs of distress Friday. And who is going to bail out Turkey? If the IMF is your go-to vehicle, then you mean US taxpayers. Anyway, Turkey’s Lira is only one of several Emerging Market currencies whose hands have been called at the global poker table, where the four-flushers are getting flushed out. The Russian ruble was another one, ostensibly to the delight of America’s Destroy-Russia-at-All-Costs faction. China is also having to play a round of super Three Card Monte with its currency, the yuan.

President Trump’s tariff monkeyshines are shoving the Chinese banking system up against a wall of utterly irresolvable insolvency problems and threatening the stability of Xi Jinping’s one-party government. The Chinese export trade is at the heart of the world’s current economic arrangements. If you pull it out of the globalism machine, the machine will stop. It is going to stop one way or another anyway, but the gathering crisis of autumn 2018 will hasten that. All of this is happening because the whole world can’t handle the debts it has racked up, and the whole world knows it. And knowing it, they also know that their debt-based currencies are worthless. And knowing that, they also know that absolutely everybody else is broke and unable to meet their obligations. That is some dangerous knowledge.

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Will Musk get away with not following the rules?

Musk: “I Am Working With Silver Lake, Goldman On Taking Tesla Private” (ZH)

Update 2: And here things get bizarre because according to Reuters, Silver Lake is not currently discussing participating as an investor in Elon Musk’s proposed take-private deal for Tesla, citing an unidentified person. Reuters also adds that Silver Lake is offering assistance to Musk without compensation and hasn’t been hired as financial adviser in an official capacity.

Update: in a tweet sent out on Monday evening, Musk said the he was working with Silver Lake and Goldman Sachs as financial advisors, as well as Wachtell Lipton as legal advisors, on his “proposal” to take Tesla private.

It was not immediately clear why Silver Lake, an investor, is serving as a financial advisor, nor was it clear why Musk defined the “going private” transaction as merely a proposal when he previously classified it as a firm deal, with “secured funding.” The tweet followed a blog post by Musk in which he finally offered more details on his tweet that he had “funding secured” to take Tesla Inc. private, however as Bloomberg echoed our skepticism from earlier (see below) , “it’s unlikely to get U.S. regulators off his back.” Musk’s elaboration doesn’t wash away the investor confusion he triggered a week ago by failing to provide evidence that he had financing. Without more information, investors were left guessing at how far along negotiations on a bid had progressed.

Musk’s fresh disclosure might even help the Securities and Exchange Commission show that his initial tweet was misleading, lawyers said. Bloomberg quoted Keith Higgins, a Ropes & Gray lawyer who said that “a cautious lawyer would have said you shouldn’t have said ‘funding secured’ unless you had a commitment letter,” which Musk clearly did not have, and certainly not from the Saudi Wealth Fund which as Musk admitted, needed to do more due diligence and analysis and had yet to conduct an “internal review process for obtaining approvals.” John Coffee, director of the Center on Corporate Governance at Columbia Law School, agreed. He said Monday’s post indicates Musk was being overly bullish last week, potentially increasing his vulnerability in any SEC investigation. “He clearly had not secured funding at the time of his tweet – he concedes that obliquely,” Coffee said.

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How Mueller arrived at Manafort.

The Law As Weapon (Paul Craig Roberts)

Robert Mueller is supposed to be investigating Russiagate, which has been shown to be a hoax concocted by former CIA director John Brennan, former FBI director James Comey, and current deputy Attorney General Rod Rosenstein. As Russiagate is a hoax, Mueller has not been able to produce a shred of evidence of the alleged Trump/Putin plot to hack Hillary’s emails and influence the last presidential election. With his investigation unable to produce any evidence of the alleged Russiagate, Mueller concluded that he had to direct attention away from the failed hoax by bringing some sort of case against someone, knowing that the incompetent and corrupt US media and insouciant public would assume that the case had something to do with Russiagate.

Mueller chose Paul Manafort as a target, hoping that faced with fighting false charges, Manafort would make a deal and make up some lies about Trump and Putin in exchange for the case against him being dropped. But Manafort stood his ground, forcing Mueller to go forward with a false case. Manafort’s career is involved with Republican political campaigns. He is charged with such crimes as paying for NY Yankee baseball tickets with offshore funds not declared to tax authorities and with attempting to get bank loans on the basis of misrepresentation of his financial condition. In the prosecutors’ case, Manafort doesn’t have to have succeeded in getting a loan based on financial misrepresentation, only to be guilty of trying.

Two of the people testifying against him have been paid off with dropped charges. Mueller’s investigation is restricted to Russiagate. In other words, Mueller has no mandate to investigate or bring charges unrelated to Russiagate. In my opinion, Muller gets away with this only because the deputy Attorney General is in on the Russiagate plot against Trump. Mueller and Rosenstein know that they can count on the presstitutes to continue to deceive the public by presenting the Manafort trial as part of Russiagate.

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But people like Mueller still claim a hack, because otherwise they can’t involve Russia.

Russia-Gate One Year After VIPS Showed a Leak, Not a Hack (CN)

A year has passed since highly credentialed intelligence professionals produced the first hard evidence that allegations of mail theft and other crimes attributed to Russia rested on purposeful falsification and subterfuge. The initial reaction to these revelations—a firestorm of frantic denial—augured ill, and the time since has fulfilled one’s worst expectations. One year later we live within an institutionalized proscription of proven reality. Our discourse consists of a series of fence posts and taboos. By any detached measure, this lands us in deep, serious trouble. The sprawl of what we call “Russia-gate” now brings our republic and its institutions to a moment of great peril—the gravest since the McCarthy years and possibly since the Civil War. No, I do not consider this hyperbole.

Much has happened since Veteran Intelligence Professionals for Sanity published its report on intrusions into the Democratic Party’s mail servers on Consortium News on July 24 last year. Parts of the intelligence apparatus—by no means all or even most of it—have issued official “assessments” of Russian culpability. Media have produced countless multi-part “investigations,” “special reports,” and what-have-yous that amount to an orgy of faulty syllogisms. Robert Mueller’s special investigation has issued two sets of indictments that, on scrutiny, prove as wanting in evidence as the notoriously flimsy intelligence “assessment” of January 6, 2017. Indictments are not evidence and do not need to contain evidence. That is supposed to come out at trial, which is very unlikely to ever happen.

Nevertheless, the corporate media has treated the indictments as convictions. Numerous sets of sanctions against Russia, individual Russians, and Russian entities have been imposed on the basis of this great conjuring of assumption and presumption. The latest came last week, when the Trump administration announced measures in response to the alleged attempt to murder Sergei and Yulia Skripal, a former double agent and his daughter, in England last March. No evidence proving responsibility in the Skripal case has yet been produced. This amounts to our new standard. It prompted a reader with whom I am in regular contact to ask, “How far will we allow our government to escalate against others without proof of anything?” This is a very good question.

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I hinted at this in my article Sunday. Many Greek islands are off the Turkish coast, as per the 1923 Lausanne Treaty. If Erdogan wants to push nationalism -and he does-, this may be his best bet. In essence, the Treaty finally ended the Ottoman Empire, and a lot more territory was lost, but this part is what Turks will be receptive to. One other piece on the Treaty: Turkey ceded all claims to Cyprus. We know how that fared.

Greek Fishermen Accuse Turkish Boats of Opening Fire off Leros Island (GR)

Greek fishermen have reported that they were fired upon by Turkish fishing boats near Kalapodi islet, 300 meters off the coast of Leros island. Two Greek seamen, owners of fishing boats, spoke to Alpha television saying that the Turkish boats were inside Greece’s territorial waters on Sunday when their crews shot at them. They also said that, since July, Turkish fishing boats have repeatedly intruded upon Greek waters to fish in the area. The Greek fishermen said that usually they call the coast guard upon seeing the Turkish boats; the intruders are forced to exit Greek waters upon the arrival of coast guard ships. This time, however, Leros fisherman Kostas Tsiftis told Alpha, the crew of the Turkish boat fired gunshots at them. He also said that the gunfire was from an automatic weapon because some of the shots were repeated.

The Greek fishermen were forced to leave the area and called the Hellenic Coast Guard. Upon the arrival of two coast guard patrol vessels, the Turkish fishing boats moved towards international waters. The fishermen noted that even though they are used to provocative acts by Turkish fishermen, Sunday’s incident was unprecedented. “We heard six shots. The two of them, the third and the fourth, were repeated. The gun was neither a hunting rifle, nor a revolver,” said Lefteris Giannoukas, who was in one of the Greek boats. “The Turkish fishermen were about 200 meters away. This is the first time that the Turks shot at us. Of course we were afraid, we did not expect it,” Tsiftis said. The Greek fisherman noted that this is the first time the Turkish boats came this close.

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And there you go. For domestic consumption.

Turkish FM Accuses Greece Of Escalating Tensions In Aegean (K.)

Greece is responsible for escalating tension in Aegean and Mediterranean, even though Turkey has always stood by Greeks in their times of difficulty, Turkey’s foreign minister has told his country’s ambassadors. “In their difficult days, we are always at their side. But in the Aegean and the Mediterranean, they are again increasing tension. They do bizarre things, which are not acceptable. Don’t we all want the eastern Mediterranean to become a region of peace and prosperity?” Mevlut Cavusoglu told the 10th conference of Turkish ambassadors. He also called for a new process to resolve the Cyprus issue, blaming the Republic of Cyprus for the impasse. “In order to reach a solution in Cyprus, a new process must be launched. Greek Cypriots do not want to cooperate. And this we saw last year. We saw it in Geneva, we saw it in Crans-Montana,” Tsavousoglou said. And “Greece is no different,” he alleged.

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It’s devastated Borneo. Now it’s coming for Africa. Next up Amazon?

Palm Oil A New Threat To Africa’s Primates (BBC)

Endangered monkeys and apes will almost certainly face new risks if Africa becomes a big player in the palm oil industry. That is the message of a study looking at how large-scale expansion of the oil crop in Africa might affect the continent’s rich diversity of wildlife. Most areas suitable for growing palm oil are key habitats for primates, according to researchers. They say consumers can help by choosing sustainably-grown palm oil. Ultimately, this may mean paying more for food, cosmetics and cleaning products that contain the oil, or limiting their use. “If we are concerned about the environment, we have to pay for it,” said Serge Wich, professor of primate biology at Liverpool John Moores University, and leader of the study. “In the products that we buy, the cost to the environment has to be incorporated.”

[..] Many companies growing palm oil are looking to expand into Africa. This is a worry for conservationists, as potential plantation sites are in areas of rich biodiversity. They are particularly worried about Africa’s primates. Nearly 200 primate species are found in Africa, many of which are already under threat. Habitat destruction is one of the main reasons why all great apes are at the edge of extinction. The introduction of palm oil plantations to Africa is expected to accelerate the habitat loss. [..] The study found that while oil palm cultivation represents an important source of income for many tropical countries, there are few opportunities for compromise by growing palm oil in areas that are of low importance for primate conservation.

“We found that such areas of compromise are very rare throughout the continent (0.13 million hectares), and that large-scale expansion of oil palm cultivation in Africa will have unavoidable, negative effects on primates,” said the research team. To put that figure into context, 53 million hectares of land will be needed by 2050 to grow palm oil in order to meet global demand.

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An entire article without naming any numbers, only percentages. How many mountain hares are there in Scotland? 2, 20, 2 million?

Scotland’s Mountain Hare Population Is At Just 1% Of 1950s Level (G.)

The number of mountain hares on moorlands in the eastern Scottish Highlands has fallen to less than 1% of the level recorded more than 60 years ago, according to a long-term study. The Centre for Ecology & Hydrology and the RSPB teamed up to study counts of the animals over several decades on moorland managed for red grouse shooting and nearby mountain land. From 1954 to 1999, the mountain hare population on moorland sites decreased by almost 5% every year, the study found, saying the long-term decline was likely to be due to land use changes such as the loss of grouse moors to conifer forests. However, from 1999 to 2017 the scale of the “severe” moorland declines increased to over 30% every year, leading to counts last year of less than 1% of original levels in 1954, researchers said.

On higher, alpine sites, numbers of mountain hares fluctuated, but increased overall until 2007, and then declined, although not to the lows seen on the moorland sites, the study noted. The report stated: “The study found long-term declines in mountain hare densities on moorland, but not alpine, sites in the core area of UK mountain hare distribution in the eastern Highlands of Scotland. “These moorland declines were faster after 1999 at a time when hare culling by grouse moor managers with the specific aim of tick and LIV [Louping ill virus, which is spread by ticks] control has become more frequent.” Gamekeepers and estate managers claim culls limit the spread of ticks, protect trees and safeguard fragile environments, and a policy of voluntary restraint is in place. However, campaigners believe the practice is cruel and unnecessary.

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May 222018
 
 May 22, 2018  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , , , ,  


Pablo Picasso Femme au Béret et à la Robe Quadrillée (Marie-Thérèse Walter) 1937

 

‘Who Are You?’ Iran Hits Back At US Demands (AlJ)
Trumpism Folds into Netanyahu-ism, or ‘Neo-Americanism’ (Alastair Crooke)
Swedes Told To Prepare For Conflict In Cold War-Style Booklet (R.)
Baltic States Ask the US for Bigger Military Presence on Their Soil (SCF)
Italy on Verge of Inducing a Fresh European Crisis (Cudmore)
Goldman Sachs: The Fiscal Outlook For The US ‘Is Not Good’ (CNBC)
The US is Shackled by Historic Debt (GT)
US Consumer Debt Set To Reach $4 Trillion By The End Of 2018 (CNBC)
Learning from America’s Forgotten Default (PS)
You Think It’s All About Guns? (Jim Kunstler)
Human Race Just 0.01% Of All Life But Eradicated Most Other Living Things (G.)

 

 

“The era of the US making decisions for the rest of the world is over”. That’s what Russia and China think, too.

‘Who Are You?’ Iran Hits Back At US Demands (AlJ)

Iranian President Hassan Rouhani has said the world would “not accept” US unilateralism just hours after Washington laid out a series of tough demands to be included in a potential new nuclear treaty with Iran. In remarks carried by Iran’s ILNA news agency on Monday, Rouhani said the era of the United States making decisions for the rest of the world was “over”. “Countries are independent … We will continue our path with the support of our nation,” Rouhani said. “Who are you to decide for Iran and the world?”

[..] In announcing the new US strategy towards Iran, Secretary of State Mike Pompeo on Monday warned that Washington “will apply unprecedented financial pressure on the Iranian regime” unless it complied with a list of 12 conditions, which must be met before any new deal can be reached. The demands include giving the International Atomic Energy Agency (IAEA) a full account of the country’s former nuclear military programme, withdrawing its forces from Syria and ending what Pompeo described as Iran’s “threatening behaviour” towards its neighbours.

Also responding to Pompeo, Iranian Foreign Minister Mohammed Javad Zarif accused the US of a “regression to old habits”, saying Washington’s diplomatic efforts were a “sham”. “It repeats the same wrong choices and will thus reap the same ill rewards. Iran, meanwhile, is working with partners for post-US JCPOA solutions,” Zarif said in a tweet on Monday.

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Regime change always leads to chaos.

Trumpism Folds into Netanyahu-ism, or ‘Neo-Americanism’ (Alastair Crooke)

The 8 May US Presidential declaration (on exiting JCPOA) requires of us fundamentally to revise our understanding of Trumpism. At the outset to his term of office, Trumpism was widely understood to be based on three key pillars: That the costs incurred by the US in upholding the full panoply of Empire (i.e. policing the American, rules-based, global order) were just too onerous and unfair (especially in the provision of the defence umbrella) – and that others must be coerced into sharing its cost. Secondly, that American jobs had been, as it were, stolen from America, and would have to be recovered through forced changes to the terms of trade. And thirdly, that these changes would be effected, through applying the tactics of the Art of the Deal.

That seemed, at least, to be clear, (if not necessarily a wholly feasible blueprint). But mostly we thought that the Art of the Deal was about threatening, blustering, and hiking leverage on ‘whatever the counterparty’ – raising tensions to explosive levels – before, at the very eleventh hour, at the very climax of crisis, offering ‘the deal’. And that was the point (then): Yes, Trump would toss verbal grenades intended to upend conventional expectations, take actions to force an issue – but the objective (as generally understood), was to get a deal: One that would tilt towards America’s mercantile and political interests, but a deal, nonetheless.

Maybe we misread Trump’s build-up of America’s already super-sized military. It seemed that it was about potential leverage: something to be offered (in terms of an umbrella to compliant states), or withdrawn from those who would not put their hand in their pocket deeply enough. But everything changed with Trump’s 8 May statement. It was not just an American ‘exit’ that was mooted, it was full court financial war that was declared against Iran (with ‘terms of surrender’ couched in terms of regime change, and total submission to the US). But this is no longer about how to reach a ‘fairer’, better deal for the US; how to make it more money. Rather the financial system was to be leveraged to destroy another state’s currency and economy. The US military are being super-sized further, to be used: to be able to rain down ‘fire and fury’ on non-compliant states.

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Sweden is no longer an independent country.

Swedes Told To Prepare For Conflict In Cold War-Style Booklet (R.)

Sweden will send out instructions to its citizens next week on how to cope with an outbreak of war, as the country faces an assertive Russia across the Baltic Sea. The 20-page pamphlet titled “If Crisis or War Comes” gives advice on getting clean water, spotting propaganda and finding a bomb shelter, in the first public awareness campaign of its kind since the days of the Cold War. It also tells Swedes they have a duty to act if their country is threatened. “If Sweden is attacked by another country, we will never give up,” the booklet says. “All information to the effect that resistance is to cease is false.” The leaflet’s publisher, the Swedish Civil Contingencies Agency, did not spell out where an attack might come from.

“Even if Sweden is safer than most countries, threats do exist,” agency head Dan Eliasson told journalists. But Sweden and other countries in the region have been on high alert since Russia’s annexation of Ukraine’s Crimea peninsula in March, 2014. They have also accused Russia of repeated violations of their airspace – assertions that Moscow has either dismissed or not responded to. The Kremlin has in the past insisted that it does not interfere in the domestic affairs of other countries and has accused Western powers of stoking “Russophobia”. Stockholm has repeatedly cited Russian aggression as the reason for a series of security measures including the reintroduction of conscription this year and the stationing of troops on the Baltic island of Gotland.

The Swedish government decided to start increasing military spending from 2016, reversing years of declines. The booklet on its way to Sweden’s 4.8 million households warns that supplies of food, medicine and gasoline could run short during a crisis. It also lists oat milk, tins of Bolognese sauce and salmon balls as examples of food that people should store in case of an emergency along with tortillas and sardines. The publication describes what an air raid warning sounds like in the first such publication handed out since 1961. Sweden has not been at war with anyone for more than 200 years, not since its war with Norway in 1814. It was officially neutral during World War Two.

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NATO.

Baltic States Ask the US for Bigger Military Presence on Their Soil (SCF)

The foreign ministers (FMs) of the Baltic states have wound up their May 16-18 visit to Washington. They asked National Security Adviser John Bolton to reinforce the NATO battalions that have been deployed to their countries with air and naval units. They also want their air-defense capability enhanced. Lithuanian FM Linas Linkevicius emphasized that it’s not just the numbers that are important, but also training exercises, visits, the distribution of equipment, and the establishment of new military facilities. [..] NATO is ratcheting up tensions by holding an increasing number of large-scale exercises right on Russia’s borders. This greatly elevates the risk of inadvertent escalation. For instance, three major exercises are scheduled to be held in the Baltic region this summer.

On June 3-15, the Saber Strike exercise organized by the US Army Europe will encompass the three Baltic states and Poland, involving over 18,000 troops from 19 countries. About 3,000 American soldiers and over 1,500 combat vehicles will travel from Germany to Latvia and Lithuania. Public roads will be used to move heavy equipment. On June 12-13, the soldiers of the US 2nd Cavalry Regiment will construct a bridge in order to cross the Neman River in Lithuania (in the Kaunas district). Their main mission is to ensure that the forces are ready to rapidly advance, not to merely defend their positions. Eight thousand American airborne troops will land in Latvia during the Swift Response exercise, in order to train alongside Lithuanian and Polish troops.

Namejs 2018 will be held from August 20 to September 2 and will involve over 9,200 Latvian forces, including the military, police, border guards, volunteer reservists, and other state institutions. They will be joined by 650 troops from the US, Lithuania, Estonia, Poland, and the Czech Republic. All these large-scale intensive training activities will take place in the background of the planning for Trident Juncture 2018, the largest NATO exercise involving about 40,000 troops, 70 ships, and about 130 aircraft from over 30 nations, which will be deployed to central and northern Norway in October for the live portion of the event. A command post phase will be conducted in Italy. Norway does not have a shoreline in the Baltic Sea but it is a member of the Council of the Baltic Sea States.

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“..while the policy platform doesn’t explicitly state an intention to leave the euro, the new government plan, if instituted as is, makes that the inevitable end-game…”

Italy on Verge of Inducing a Fresh European Crisis (Cudmore)

It may be time to move on from rising Treasury yields and trade wars. An Italian-led euro crisis is on the verge of becoming the dominant theme for markets. It turns out that the euro break-up trade isn’t dead — it’s just been hibernating and is likely to return with a vengeance in the months ahead if the populists get their way. Their proposed economic policies make no attempt at debt sustainability. Italy already has the largest absolute debt pile in the EU and the second-largest, after Greece, as a percentage of GDP, at 132%. The coalition’s plan sends the signal that it has no intention of ever paying back its debt. Things could spiral quickly because its fiscal promises will send BTP yields much higher, adding to refinancing costs and making the budgetary situation worse.

That creates a dilemma for the EU. Either fund Italy’s largesse at the expense of every other member country, or kick Italy out of the euro. The first option isn’t sustainable. This isn’t a relatively containable problem like Greece. Italy’s economy is almost ten times the size of Greece’s and the third-largest in the euro zone. The PIIGS — Portugal, Italy, Ireland, Greece and Spain — were only ever a problem as a group because of concerns that the contagion would infect Italy. And this isn’t just a sovereign debt problem. Italy’s banks have by far the most non-performing loans in the euro zone, more than a quarter of the total. A section of the plan makes it harder for banks to repossess collateral, further deteriorating the value of those loans.

So while the policy platform doesn’t explicitly state an intention to leave the euro, the new government plan, if instituted as is, makes that the inevitable end-game. Fortunately, the Italian constitution forbids an excessive budget deficit, so may act as a limiting force. However, the concern is whether they can circumvent those restrictions by selecting favorable economic projections. The proposal already seems to be stealthily planning for euro departure with a plan to issue short-term debt contracts to pay back arrears. As my colleague Ferdinando Giugliano suggested on Friday, that’s the first step toward a parallel currency. So Italy’s prospective rulers seem to be fully aware of the end-game and are already planning for it. Investors will soon need to catch up.

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“..debt could equal GDP within a decade..”

Goldman Sachs: The Fiscal Outlook For The US ‘Is Not Good’ (CNBC)

The fiscal outlook for the United States “is not good,” according to Goldman Sachs, and could pose a threat to the country’s economic security during the next recession. According to forecasts from the bank’s chief economist, the federal deficit will increase from $825 billion (or 4.1% of GDP) to $1.25 trillion (5.5% of GDP) by 2021. And by 2028, the bank expects the number to balloon to $2.05 trillion (7% of GDP). “An expanding deficit and debt level is likely to put upward pressure on interest rates, expanding the deficit further,” Jan Hatzius — Goldman’s chief economist — wrote Sunday. “While we do not believe that the U.S. faces a risk to its ability to borrow or repay, the rising debt level could nevertheless have three consequences long before debt sustainability becomes a major obstacle.”

Legislators passed a package of corporate and individual tax cuts in December, a two-year budget deal in February and a massive spending bill in March that boosted government expenditures on both domestic and military programs. In light of the big spending and easier tax burden, the Congressional Budget Office – Capitol Hill’s nonpartisan financial scorekeeper – in April projected that debt could equal GDP within a decade if Congress extends the tax cuts, a level not seen since World War II. Economic growth should jump above 3% in 2018 thanks to the stimuli, the CBO said, but the acceleration will likely prove brief, and debt held by the public will soar to $28.7 trillion by the end of fiscal 2028.

That could create a precarious situation for Congress if the economy faces an economic downturn in the near term, Hatzius wrote, hampering legislators’ ability provide additional fiscal stimulus. “Lawmakers might hesitate to approve fiscal stimulus in the next downturn in light of the already substantial budget deficit,” the economist said. “While we would expect some additional loosening of fiscal policy during the next downturn, there is a good chance in our view that it would be less aggressive than it was in the last few recessions.”

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“Is the Federal Reserve playing politics?”

The US is Shackled by Historic Debt (GT)

Do you feel as if you’re drowning in debt? It’s worse than you think. The U.S. government reached a new milestone when our country’s debt topped $21 trillion for the first time. The national debt grows by an average of $17,000 every second – more than some people earn in an entire year. That’s only an average, and During the past eight months, the national debt grew by $52,000 per second. And the trend toward bigger and higher spending is only getting worse. The ratio of national debt to GDP is at 105%, larger than the economy as a whole. In 1981, the national debt comprised a mere 31% of GDP. We are not moving in the right direction. The Treasury Department has plans to borrow $1 trillion this year, an 84% jump from last year.

When individuals borrow, they can use the money wisely to increase their wealth. That’s what happens when people make good investments. What does the government do with all this money? While some of it may be put to good use, the National Science Foundation’s spending $856,000 on having mountain lions run on treadmills can’t be termed prudent spending. Nor can the $2 billion spent on former President Obama’s healthcare website. In 2017, Brooklyn, NY spent $2 million on a 400 square feet restroom in a public park. Flushing money down the toilet?

Why is the government raising interest rates at a time consumer prices and wages are rising only marginally? During Obama’s administration, prices rose 14.6%, and the Federal Reserve kept interest rates low. Inflation is up by a mere 2.2% since Trump took office, and interests rates keep rising. Is the Federal Reserve playing politics? While the rate of inflation was somewhat higher during the Obama years, the Federal Reserve didn’t get aggressive in handling the problem until Trump came to office. If it’s politics, what game is being played?

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“Americans owe more than 26% of their annual income to this debt.”

US Consumer Debt Set To Reach $4 Trillion By The End Of 2018 (CNBC)

Americans are in a borrowing mood, and their total tab for consumer debt could reach a record $4 trillion by the end of 2018. That’s according to LendingTree, a loan comparison website, which analyzed data from the Federal Reserve on nonmortgage debts including credit cards, and auto, personal and student loans. Americans owe more than 26% of their annual income to this debt. That’s up from 22% in 2010. It’s also higher than debt levels during the mid-2000s when credit availability soared.

Debts on auto loans and credit cards are climbing by more than 7% annually, while housing debt is rising at a little more than 2%. Consumer credit has been rising by 5% to 6% for about two years. LendingTree projects total consumer debt will top $4 trillion by the end of 2018.

That kind of growth is not surprising, according to LendingTree chief economist Tendayi Kapfidze, and is in keeping with the growth of consumer debt that has been happening since 2012. At these levels, consumers are spending about 10% of their income paying these debts each month, Kapfidze said. From 2000 to 2008, that averaged about 12% to 13%, he said. Still, credit card delinquency rates, which are at 2.4%, are low.

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We’ve seen this movie before.

Learning from America’s Forgotten Default (PS)

One of the most pervasive myths about the United States is that the federal government has never defaulted on its debts. Every time the debt ceiling is debated in Congress, politicians and journalists dust off a common trope: the US doesn’t stiff its creditors. There’s just one problem: it’s not true. There was a time, decades ago, when the US behaved more like a “banana republic” than an advanced economy, restructuring debts unilaterally and retroactively. And, while few people remember this critical period in economic history, it holds valuable lessons for leaders today.

In April 1933, in an effort to help the US escape the Great Depression, President Franklin Roosevelt announced plans to take the US off the gold standard and devalue the dollar. But this would not be as easy as FDR calculated. Most debt contracts at the time included a “gold clause,” which stated that the debtor must pay in “gold coin” or “gold equivalent.” These clauses were introduced during the Civil War as a way to protect investors against a possible inflationary surge. For FDR, however, the gold clause was an obstacle to devaluation. If the currency were devalued without addressing the contractual issue, the dollar value of debts would automatically increase to offset the weaker exchange rate, resulting in massive bankruptcies and huge increases in public debt.

To solve this problem, Congress passed a joint resolution on June 5, 1933, annulling all gold clauses in past and future contracts. The door was opened for devaluation – and for a political fight. Republicans were dismayed that the country’s reputation was being put at risk, while the Roosevelt administration argued that the resolution didn’t amount to “a repudiation of contracts.” On January 30, 1934, the dollar was officially devalued. The price of gold went from $20.67 an ounce – a price in effect since 1834 – to $35 an ounce. Not surprisingly, those holding securities protected by the gold clause claimed that the abrogation was unconstitutional. Lawsuits were filed, and four of them eventually reached the Supreme Court; in January 1935, justices heard two cases that referred to private debts, and two concerning government obligations.

The underlying question in each case was essentially the same: did Congress have the authority to alter contracts retroactively? On February 18, 1935, the Supreme Court announced its decisions. In each case, justices ruled 5-4 in favor of the government – and against investors seeking compensation. According to the majority opinion, the Roosevelt administration could invoke “necessity” as a justification for annulling contracts if it would help free the economy from the Great Depression.

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“..a bewildering clown culture wrapped in a Potemkin economy..”

You Think It’s All About Guns? (Jim Kunstler)

Is it possible that we Americans only pretend not to notice the conditions that produce an epidemic of school shootings, or is the public just too dumbed-down to connect the dots? Look at the schools themselves. We called them “facilities” because they hardly qualify as buildings: sprawling, one-story, tilt-up, flat-roofed boxes isolated among the parking lagoons out on the six-lane highway strip, disconnected from anything civic, isolated archipelagoes where inchoate teenage emotion festers and rules while the few adults on the scene are regarded as impotent clowns representing a bewildering clown culture wrapped in a Potemkin economy that has nothing to offer young people except a lifetime of debt and “bullshit jobs” — to borrow a phrase from David Graeber.

The world of teens has been exquisitely engineered to steal every opportunity for colonizing the chemical reward centers of their brains to provoke endorphin hits, especially the cell-phone realm of social media, which is almost entirely about status competition, much of which revolves around the wild hormonal promptings of teen sexual development — at the same time they are bombarded with commercial messages designed to prey on their fantasies, longings, and perceived inadequacies. All of this produces immersive and incessant melodrama along with untold grievance, envy, frustration, confusion, and rage. And, of course, where the cell-phone universe leaves off, the world of video games begins, so that boys (especially) get to act-out in “play” the extermination of their competitors and foes.

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The planet is dying.

Human Race Just 0.01% Of All Life But Eradicated Most Other Living Things (G.)

Humankind is revealed as simultaneously insignificant and utterly dominant in the grand scheme of life on Earth by a groundbreaking new assessment of all life on the planet. The world’s 7.6 billion people represent just 0.01% of all living things, according to the study. Yet since the dawn of civilisation, humanity has caused the loss of 83% of all wild mammals and half of plants, while livestock kept by humans abounds. The new work is the first comprehensive estimate of the weight of every class of living creature and overturns some long-held assumptions. Bacteria are indeed a major life form – 13% of everything – but plants overshadow everything, representing 82% of all living matter. All other creatures, from insects to fungi, to fish and animals, make up just 5% of the world’s biomass.

Another surprise is that the teeming life revealed in the oceans by the recent BBC television series Blue Planet II turns out to represent just 1% of all biomass. The vast majority of life is land-based and a large chunk – an eighth – is bacteria buried deep below the surface. “I was shocked to find there wasn’t already a comprehensive, holistic estimate of all the different components of biomass,” said Prof Ron Milo, at the Weizmann Institute of Science in Israel, who led the work, published in the Proceedings of the National Academy of Sciences. “I would hope this gives people a perspective on the very dominant role that humanity now plays on Earth,” he said, adding that he now chooses to eat less meat due to the huge environmental impact of livestock.

[..] The transformation of the planet by human activity has led scientists to the brink of declaring a new geological era – the Anthropocene. One suggested marker for this change are the bones of the domestic chicken, now ubiquitous across the globe. The new work reveals that farmed poultry today makes up 70% of all birds on the planet, with just 30% being wild. The picture is even more stark for mammals – 60% of all mammals on Earth are livestock, mostly cattle and pigs, 36% are human and just 4% are wild animals.

Read more …

May 302017
 
 May 30, 2017  Posted by at 8:50 am Finance Tagged with: , , , , , , , , , , ,  


Inge Morath Paris 1954

 

Australia Hedge Fund Returns Cash To Clients Citing Looming Calamity (SMH)
Hong Kong Throngs of Thousands Defy Bid to Cool Home Market (BBG)
Saudi Foreign Reserves Dip Below $500 Billion in April (BBG)
The Great US Energy Debt Wall (SRSRocco)
Greece, Italy Tensions Hit Euro, Asian Stocks, Lift Yen, Gold (R.)
Draghi Rules Out Including Greece in ECB QE For Now (K.)
Greece Warns Recovery Threatened If Debt Deal Is Blocked At Next Talks (G.)
Deposits And Loans At Greek Banks Continue Slide (K.)
EU Moves To Crack Down On Carmakers In Wake Of VW Emissions Scandal (G.)
Painstaking Detail Of Brexit Process Revealed In EU Documents (G.)
May Battles Against Complacency as UK Election Lead Slips Away (BBG)
Russia Expects China To Help Resolve Syrian Crisis (DS)
Putin, Macron Have ‘Open, Frank Exchange Of Opinions’ (RT)
Let’s All Agree To Lock In This Russophobia For At Least 3.5 More Years (Saker)
The So-Called Resistance (Jim Kunstler)
Germany Steps Up Attack On Trump For ‘Weakening’ The West (G.)
Greece, Germany Agree To Slow Refugee Family Reunification (F24)

 

 

After having milked the bubble for all it’s worth…

Australia Hedge Fund Returns Cash To Clients Citing Looming Calamity (SMH)

Australian asset manager Altair Asset Management has made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars back to its clients, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”. “Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday. The 30-year veteran of funds management said that he had on May 15 advised all Altair clients that he planned to “sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors”.

Mr Parker said he had “disbanded the team for time being”, including his investment committee of chief economist Steve Roberts, senior healthcare analyst Sally Warneford and independent strategist Gerard Minack. “I would like to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point,” Mr Parker’s statement said. “We think that there is too much risk in this market at the moment, we think it’s crazy,” Mr Parker said more candidly. “Valuations are stretched, property is massively overstretched and most of the companies that we follow are at our one-year rolling returns targets – and that’s after we’ve ticked them up over the past year.” “Now we are asking ‘is there any more juice in these companies valuations?’ and the answer is stridently, and with very few exceptions, ‘no there isn’t’.”

Mr Parker outlined a roll call of “the more obvious reasons to exit the riskier asset markets of shares and property”. They included: the Australian east-coast property market “bubble” and its “impending correction”; worries that issues around China’s hot property sector and escalating debt levels will blow up “later this year”; “oversized” geopolitical risks and an “unpredictable” US political environment; and the “overvalued” Aussie equity market. But it was the overheated local property market that was the clearest and most present danger, Mr Parker said. “When you speak to people candidly in the banks, they’ll tell you very specifically that they are extraordinarily worried about the over-leverage of the Australian population in general,” he said.

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More looming calamity.

Hong Kong Throngs of Thousands Defy Bid to Cool Home Market (BBG)

Snaking queues of thousands of prospective apartment buyers in Hong Kong signaled authorities have made no progress in cooling a red-hot property market, where prices are at records. People were lining up on Friday and over the weekend at Victoria Skye, a luxury project at the former airport site of Kai Tak, and at the Ocean Pride development by Cheung Kong Property and MTR. “Successive moves by the government in recent memory to cool the property market only resulted in it becoming crazier,” The Standard newspaper said in an editorial on Monday. “The result is a sea of madness.” The Hong Kong Monetary Authority has been tightening rules for lenders, including restricting levels of lending to developers, as it tries to limit financial risks and take some of the heat out of the market.

The Centaline Property Centa-City Leading Index of existing homes has advanced 23% in the past year, setting new price records week after week. At a Legislative Council meeting on Monday, HKMA Chief Executive Norman Chan said levels of demand were reminiscent of 20 years ago – before Hong Kong suffered a property bust – and he expressed concern that people with limited financial resources were buying just because they thought prices would only keep going up. [..] Developers sold 8,616 homes in the first five months of the year, already more than were sold in any first half since new purchasing rules were introduced in 2013, the Hong Kong Economic Times reported. K&K Property has offered an additional 200 units at Victoria Skye after it sold 306 flats on Saturday, Ming Pao newspaper reported. Cheung Kong will put another 346 up for grabs after selling 496 in a single day, May 26.

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Buying too many weapons. The House of Saud is nervous.

Saudi Foreign Reserves Dip Below $500 Billion in April (BBG)

Saudi Arabia’s net foreign assets dropped below $500 billion in April for the first time since 2011 even after the kingdom raised $9 billion from its first international sale of Islamic bonds. The Saudi Arabian Monetary Authority, as the central bank is known, said on Sunday its net foreign assets fell by $8.5 billion from the previous month to about $493 billion, the lowest level since 2011. That brings the decline this year to $36 billion. “Didn’t really see any major driver for such a huge drop, especially when accounting for the sukuk sale,” said Mohamed Abu Basha at EFG-Hermes, an investment bank. Even if the proceeds from the sale weren’t included, “the reserve decline remains huge,” he said.

Saudi Arabia’s foreign reserves have dropped from a peak of more than $730 billion in 2014 after the plunge in oil prices, prompting the IMF to warn that the kingdom may run out of financial assets needed to support spending within five years. Authorities have since embarked on an unprecedented plan to overhaul the economy and repair public finances. But the pace of the decline in reserves this year has puzzled economists who see little evidence of increased government spending, fueling speculation it’s triggered by capital flight and the costs of the kingdom’s war in Yemen. Finance Minister Mohammed Al-Jadaan said in April that the government didn’t withdraw from its central bank reserves during the first quarter. He said the decline could be attributed to local contractors paying overseas vendors after the government settled its arrears.

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It’s not (just) the shale companies, it’s their lenders who are in danger.

The Great US Energy Debt Wall (SRSRocco)

While the U.S. oil and gas industry struggles to stay alive as it produces energy at low prices, there’s another huge problem just waiting around the corner. Yes, it’s true… the worst is yet to come for an industry that was supposed to make the United States, energy independent. So, grab your popcorn and watch as the U.S. oil and gas industry gets ready to hit the GREAT ENERGY DEBT WALL. So, what is this “Debt Wall?” It’s the ever-increasing amount of debt that the U.S. oil and gas industry will need to pay back each year. Unfortunately, many misguided Americans thought these energy companies were making money hand over fist when the price of oil was above $100 from 2011 to the middle of 2014. They weren’t. Instead, they racked up a great deal of debt as they spent more money drilling for oil than the cash they received from operations.

As they continued to borrow more money than they made, the oil and gas companies pushed back the day of reckoning as far as they could. However, that day is approaching… and fast. According to the data by Bloomberg, the amount of bonds below investment grade the U.S. energy companies need to pay back each year will surge to approximately $70 billion in 2017, up from $30 billion in 2016. That’s just the beginning…. it gets even worse each passing year. As we can see, the outstanding debt (in bonds) will jump to $110 billion in 2018, $155 billion in 2019, and then skyrocket to $230 billion in 2020. This is extremely bad news because it takes oil profits to pay down debt. Right now, very few oil and gas companies are making decent profits or free cash flow. Those that are, have been cutting their capital expenditures substantially in order to turn negative free cash flow into positive.

Unfortunately, it still won’t be enough… not by a long-shot. If we use some simple math, we can plainly see the U.S. oil industry will never be able to pay back the majority of its debt: Shale Oil Production, Cost & Profit Estimates For 2018 • REVENUE = 5 million barrels per day shale oil production x 365 days x $50 a barrel = $91 billion. • EST. PROFIT = 5 million barrels per day shale oil production x 365 days x $10 a barrel = $18 billion. If these shale oil companies do actually produce 5 million barrels of oil per day in 2018, and were able to make a $10 profit (not likely), that would net them $18 billion. However, according to the Bloomberg data, these companies would need to pay back $110 billion in debt (bonds) in 2018. If they would use all their free cash flow profits to pay back this debt, they would still owe $92 billion.

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BILD says Greeks have mentioned defaulting on July payments.

Greece, Italy Tensions Hit Euro, Asian Stocks, Lift Yen, Gold (R.)

Concerns about a Greek bailout, early Italian elections and comments by the ECB chief about the need for continued stimulus all kept the euro under pressure on Tuesday. European geopolitical fears sapped risk appetite, weighing on Asian stocks and lifting safe havens including the yen and gold, though trading was thin with several markets closed for holidays. The euro slid 0.3% to $1.1129 in its fourth session of declines. James Woods at Rivkin Securities in Sydney attributed most of the currency’s decline on Tuesday to a German press report saying Athens may opt out of its next bailout payment if creditors cannot strike a debt relief deal. “The bailout payments are necessary to meet existing debt repayments due in July, so if Greece were to forgo this bailout payment the probability of a default would spike, reopening the discussion around a Grexit from the Euro zone,” Woods said.

However, he cautioned against reading “too much into it” without more details or confirmation, adding it was unlikely Greece would forego the bailout payment at this stage. Euro zone finance ministers failed to agree with the International Monetary Fund on Greek debt relief or to release new loans to Athens last week, but did come close enough to aim to do both at their June meeting. Comments by former Italian Prime Minister Matteo Renzi on Sunday in favour of holding an election at the same time as Germany’s in September also pulled the euro lower. So did a statement by ECB President Mario Draghi reiterating the need for “substantial” stimulus given subdued inflation.

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If he includes Greece, it becomes harder for Germany to plunder it. And they’re not done with that.

Draghi Rules Out Including Greece in ECB QE For Now (K.)

ECB chief Mario Draghi took the wind out of the government’s sails on Monday, telling the European Parliament that the ECB will not consider including Greece in its QE program before the conclusion of its bailout review and its debt is made sustainable. “First, let’s have an agreement, a full agreement, and let’s find measures that will make the debt sustainable through time,” Draghi told European lawmakers in Brussels, adding that he regretted that “a clear definition of the debt measures was not reached in the last Eurogroup.” Draghi also said that after creditors agree on what sort of debt relief measures Greece will get, the Governing Council of the ECB will carry out its own “fully independent” analysis to see if the debt would also be sustainable in adverse scenarios.

His comments came as Prime Minister Alexis Tsipras said that Greece was hoping that there will be an initiative in June for “a definitive settlement of the crisis through a clear solution of reducing the debt.” “Let there be a solution and let it come when it comes,” he said after his meeting in Athens with Estonian Prime Minister Juri Ratas, adding that the sooner the matter is solved the better. The tough road ahead for Greece was reflected in remarks yesterday by Finance Minister Euclid Tsakalotos, who said the country’s inclusion in QE is indeed “a difficult issue.” “The ECB, like our Lord, works in mysterious ways,” he told reporters. Draghi’s remarks were seen as another another blow, if not the killer, to the government’s narrative regarding the time frame it had laid out for the country to get on the road to economic recovery.

More specifically, Prime Minister Alexis Tsipras’s roadmap stipulated that after the second review of the country’s third bailout is wrapped up, creditors and the IMF would agree on how to make the country’s debt sustainable, and this would in turn allow Greece join the QE program, which would pave the way for the country’s return to international markets. But with the review all but concluded, and no definitive statements from the creditors on what sort of debt relief measures it can expect – or when – the best the government can hope for now is that the sequence of events outlined in the Tsipras roadmap will take place in the fall at the earliest, and definitely after the German national elections in September. The way things stand now, the most the government can expect from the June 15 Eurogroup is the release of the bailout tranche of more than €7 billion, but not the reassurance it wants in order to join the QE program.

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That’s exactly why these deals keep on being blocked. The EU doesn’t want a Greek recovery. Cart, horse.

Greece Warns Recovery Threatened If Debt Deal Is Blocked At Next Talks (G.)

Greece on Monday issued a panic warning that its recovery would be thrown into doubt if Brussels blocked a debt deal at the next meeting of euro area finance ministers. Fearing that Germany will insist on delays to an agreement until at least after elections in September, Athens’ finance minister hinted that the beleaguered nation could be plunged deeper into recession after seeing its economy contract by more than 25% since the start of its financial crisis. With £7.5bn in debt repayments due in July and lenders meeting on 15 June to try and reach an agreement after failing last month, Euclid Tsakalotos made an urgent appeal for clarity on Monday. “It is incumbent on all sides to find a solution,” he told foreign correspondents. “There is very little point in entering a [bailout] programme if the goal is not to leave the programme. And leaving the programme should be the responsibility not just of the debt country but the creditor country as well.”

Athens, Tsakalotos continued, had kept its side of the bargain, legislating highly unpopular reforms to produce savings of 2% of GDP, while the EU and IMF had not kept theirs. “We can’t accept a deal which is not what was on the table,” he said. “What was on the table was if Greece carried outs its reform package then creditors would ensure that there would be a clear runway through clarity for debt.” Instead, the IMF had refused to endorse the proposed solution – saying it fell far short of what was necessary to engender debt sustainability – with the result that Athens had been forced to reject it, Tsakalotos added. The Fund and Berlin – the biggest contributor of Greece’s three rescue programs – have long been in disagreement over how to reduce Greek debt.

Tsakalotos was addressing a hastily arranged press conference. Held in the dining room of the Athens’ mansion that houses the prime minister’s office, it appeared to highlight the mood of nervousness pervading the Greek government. With a debt mountain hovering around €314bn – or 180% of GDP – the Syriza-dominated coalition of Alexis Tsipras has long argued that debt relief is essential to foreign investment and economic recovery. [..] ..time, said Tsakalotos on Monday, was running out. “Our ask is … that everyone keeps their side of the bargain. The position [of creditors] is going to be very difficult to defend. What can they say? That the Greek government did everything but we will send it to the rocks.”

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Which will affect Greek banks, which will affect the state, etc etc. There never was another option.

Deposits And Loans At Greek Banks Continue Slide (K.)

Deposits in Greek banks declined by more than €2.4 billion in the first four months of the year, while credit contraction has continued in 2017 for an eighth consecutive year. Still, April was the second month of credit expansion. The sum of Greek deposits reached almost €118.9 billion at the end of last month, down from about €121.4 billion at end-December 2016, due to the uncertainty that has prevailed over the Greek economy this year. Bank of Greece data show a fresh €313.3 million drop in deposits from end-March to end-April – a result of the €665.3 million decline in the cash flow of corporations, from nearly €20.5 billion in March to almost €19.8 billion last month. In fact the picture of corporate deposits in April looks technically better than it would had it not been for the €620 million share capital increase by Fraport Greece and Sklavenitis’s €400 million bond.

The level of savings has practically reverted to what it was in 2001, when Greece was still using the drachma, and forecasts speak of a stable picture with few fluctuations expected in the rest of 2017. Senior bank officials say the next few months will be difficult despite the projections for more revenues from tourism: The tax obligations starting from July, with income tax and later Single Property Tax (ENFIA) deadlines, are expected to eat further into the savings of households and corporations’ cash flow. Meanwhile the difference between loans issued and old loans paid back has remained in negative territory in 2017, reaching a rate of -0.9% in the first four months. However, April showed a positive flow amounting to €659 million after an expansion of €307 million in March.

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Yeah, they’re going to risk bankrupting German and French carmakers, right?

EU Moves To Crack Down On Carmakers In Wake Of VW Emissions Scandal (G.)

The European Union has moved towards cracking down on carmakers who cheat emissions tests by giving the EU executive more powers to monitor testing and impose fines. The European council overcame initial objections from Germany and agreed to try to reform the system for approving vehicles in Europe in the wake of the Volkswagen emissions scandal. The draft now goes for negotiations with the European commission and the European parliament, where the car industry holds a strong influence. “Above all, the objective is building trust and credibility again in the European type-approval system,” said Chris Cardona, the economy minister of Malta, which holds the EU’s six-month rotating presidency.

The VW emissions scandal erupted in September 2015, with the carmaker admitting it had installed software defeat devices in 11m diesel cars worldwide, meaning the vehicles only cut their nitrogen oxide pollution during certification tests. The draft EU rules call for reducing the power of national authorities and empowering the European commission to test and inspect vehicles, to ensure compliance with emissions standards, and to respond to any irregularities. “This will increase the independence and quality of the EU type-approval system,” the council said in a statement. “The commission could also impose fines for infringements on manufacturers and importers of up to €30,000 [£26,000] per noncompliant vehicle.” Under the draft rules, every EU country will be required to check emissions in one in every 50,000 new vehicles based on real driving conditions.

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The EU comes prepared.

Painstaking Detail Of Brexit Process Revealed In EU Documents (G.)

Just 10 days before the general election, the EU published two documents that will affect every person living in Britain for years to come. Despite being dropped into the maelstrom of an election caused by Brexit, there was hardly a murmur. The documents were the most detailed positions yet from the EU’s chief negotiator, Michel Barnier, on the upcoming divorce talks with the UK. In two policy papers, the bloc has elaborated its stance on the Brexit bill and citizens’ rights. [..] The muted reaction can be explained partly by the fact that the texts were published with zero fanfare, when the country was still reeling from the terrorist atrocity in Manchester. Furthermore, the EU documents contain no surprises. The equivalent of dotting the Is and crossing the Ts, they are a reminder the EU has had 11 months to get ready for Brexit.

That is almost one year to assemble squadrons of specialists to pore over EU treaties and legal tomes to map the way ahead. The 10-page paper on the bill does not put a price on the divorce, but sets out in painstaking detail all EU bodies with a vested interest in the spoils – 40 agencies, eight joint projects on new technologies and a panoply of funds agreed by all countries, from aid for refugees in Turkey to supporting peace in Colombia. No detail is too small. Britain is even on the hook for funding teachers at the elite European schools that educate EU civil servants’ children. On citizens’ rights, the EU spells out in greater detail the protections it wants to secure for nearly 5 million people on the wrong side of Brexit – 3.5 million EU nationals in the UK and 1.2 million Britons on the continent.

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Fear is all they have left. Blunt lies about Corbyn.

May Battles Against Complacency as UK Election Lead Slips Away (BBG)

Theresa May began the U.K. election campaign warning that pollsters giving her a 20-point lead could be wrong. With her lead now slashed, she’s hoping they really are. A series of missteps by May and her advisers, along with a populist Labour campaign, have put the prime minister on the defensive. Activists no longer laugh when she raises the prospect of a Corbyn victory at her rallies and some have questioned the wisdom of building a campaign around her own personal brand, urging people to vote for “Theresa May and her team.” Investors have awoken to the fact that May’s promise of “strong and stable” government — never mind a landslide to match Tony Blair’s in 1997 — could be in jeopardy with the pound dipping after a specific poll showed May’s Conservative Party leading the Labour Party by just five points.

“The Tories are right to be worried if the momentum looks to be with Labour, but they can still turn it around,” Andrew Hawkins, chairman of pollsters ComRes, said in a telephone interview. With a nation still in shock over the Manchester bombing and June 8 elections round the corner, May got back to the campaign trail and reverted to her tested lines on Brexit: That Labour leader Jeremy Corbyn cannot be trusted to navigate Britain through two years of talks. “It’s important as people come closer to that vote – that’s only next week – that they focus on the choice that’s there before them,” the prime minister told activists at a rally in Twickenham, southwest London, on Monday. “If I lose just six seats my government loses its majority, that could mean in 10 days time a government in chaos with Jeremy Corbyn in Number 10.”

But gone was the confidence when she stunned Britain by calling a snap election on April 18. On the day of the announcement, an ICM/Guardian poll gave May’s Tories a lead over Labour of 21 points and surveys in the following weekend’s newspapers suggested leads of 24 and 25 points. Now, she is vulnerable to attack. Interviewer Jeremy Paxman quizzed May about her U-turns, in an interview on Sky News on Monday: “You have backed down over social care, and over national insurance. If I was in Brussels, I would think you are a blowhard who collapses at the first sign of gunfire.” Her rival on the other hand has grown more relaxed, holding his own against the same interviewer who has a reputation for being a rottweiler in his style of questioning. In one instance, Corbyn won a big round of applause when asked about whether he’d want to abolish monarchy: “Do you know what? I had a very nice chat with the Queen.”

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US room to move gets smaller fast.

Russia Expects China To Help Resolve Syrian Crisis (DS)

Moscow hopes for China’s help in solving the Syrian crisis and restoring the country, Russian Deputy Foreign Minister Igor Morgulov said Monday. “Our cooperation with China on Syria at various international venues is unprecedented. We blocked six attempts to pass anti-Syrian resolutions in the U.N. Security Council,” Morgulov said at “Russia and China: Taking on a New Quality of Bilateral Relations” international conference. The Russian deputy foreign minister added that Russia values Beijing’s position on the Syrian crisis, and hopes that, “the Chinese partners will continue their efforts to promote a political settlement.”

“Together we call for a peaceful and political-diplomatic solution to conflicts, without double standards, unilateral action or attempts at ousting regimes. Our approaches coincide, among other things, on the uncompromising fight against terrorism,” Morgulov said. Russia and China have repeatedly vetoed U.N. Security Council resolutions imposing sanctions against the Assad regime. Moscow has long-standing links to the Assad regime and is its key ally, while China has an established policy of non-intervention in other countries’ affairs.

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French interests in Russia are substantial. Macron going after RT and Sputnik is a weird way to not offend Merkel.

Putin, Macron Have ‘Open, Frank Exchange Of Opinions’ (RT)

Russian President Vladimir Putin and his French counterpart, Emmanuel Macron, had “difficult” but “frank” talks during their first meeting in Versailles. The two leaders vowed to improve relations and jointly address international problems. The first meeting of the Russian and French leaders lasted almost three hours, with Macron saying that “Franco-Russian friendship” was at the heart of the talks. The French president admitted, however, that he has “some disagreements” with his Russian counterpart, but said that the two leaders discussed them openly in a “frank exchange of views.” Putin also said that the two leaders have some differences, but said that they view many issues in a similar way, and that French-Russian relations could be “qualitatively” improved. “We sought … common ground [in dealing] with key issues of the international agenda. And I believe that we see it. We are able to … at least try to start resolving the key contemporary problems together,” Putin said.

The Russian leader went on to say that his talks with Macron helped the pair to find common points in dealing with major international problems, and the that two sides would try to further bring together their views on these issues. Putin also invited his French counterpart to Russia, saying: “I hope that he will be able to spend several weeks in Moscow.” French President Macron said that serious international problems cannot be resolved without Moscow, as he stressed the importance of the role Russia plays in the modern world. “No major problem in the world can be solved without Russia,” he told the press conference. Macron then said that France is interested in intensifying cooperation with Russia, particularly in resolving the Syrian crisis. The French leader went on to say that this issue demands “an inclusive political solution.”

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Pretty brilliant. Much more at the link.

Let’s All Agree To Lock In This Russophobia For At Least 3.5 More Years (Saker)

There I was again, flying first class on my shareholders’ dime from New York to San Francisco, when I was deeply saddened to read about the death of Zbigniew Brzezinski, National Security Adviser to Jimmy Carter. For a moment I thought: “Surely I can find some anti-Putin articles to read rather than this one?” Those always make me so happy! But then I remembered that Zbig was a man after my own heart, because he was one of the West’s greatest Russophobes. Even the New York Times talked of his “rigid hatred of the Soviet Union”. Zbig ended the détente led by Nixon as Carter, not Reagan, restarted good, old-fashioned, American Russophobia: Selling the Soviets computers with bugs for industrial sabotage, the propaganda effort of the 1980 Olympic Boycott, the US grain embargo to try and starve the Russian people, the arming of the Taliban’s forerunners to destabilize a left-wing government in Afghanistan and thus unleashing Islamic terrorism on the world, etc.

Just as American Democrats know for an undeniable fact that Jimmy Carter is our nation’s greatest living man of peace, I contend that Zbig’s anti-Russian stance makes him nearly as great a humanitarian, and certainly a model Democrat in 2017. And Zbig knew, as I and all good Democrats know, that the greatest fight of our generation is the fight against Vladimir Putin. Poverty, starvation, refugees, terrorism, climate change – everyone in America is realizing that if we can just get rid of Putin, everything else will surely fall into line. Surely! So I was pretty sad to read of Zbig’s passing, but that’s when it hit me: Just because he’s gone, it doesn’t mean we have to give up hating Russia! We’ve been hating Russia since November – more than 6 months now – and, frankly…it feels awesome! I don’t how long it takes to make a habit permanent, so let’s all agree to lock in this Russophobia for at least 3.5 more years, possibly 7.5!

It would be a fitting testament to a man whose prophetic Russophobia was misunderstood as “anti-communism”. Say it loud: It’s time for progressive Americans to unite behind hating Russians! Again! Let’s party like it’s 1979! Now, I’m as politically-correct a CEO as was ever made -my allegiance to Hillary proves that – but I can tell that some people think that I should equivocate by writing “hating the Russian government” instead of the “Russians”. Well, it’s bold, but being bold is why we CEOs deserve the big bucks and you deserve our crumbs. Not our table crumbs – those are too good for you – I mean the crumbs that fall around our fine, Italian shoes. Here’s the problem with the Russians: Putin’s approval rating is over 85%. It is a testament to the master of evil that he has duped nearly all 144 million Russian citizens. They said that 50 million Elvis fans can’t be wrong, but 124 million Putin fans clearly are. I don’t know anything about Russian domestic politics, but I don’t have to – that’s my right as an American.

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Hillary posing as the resistance says it all. They don’t even have a narrative left.

The So-Called Resistance (Jim Kunstler)

[..] what would a real resistance look like? First, it would oppose the aforementioned asset-stripping that the US economy has become, the transfer of capital in all its forms — monetary, political, cultural, social — from the dis-employed former middle classes to the tiny, select beneficiaries of financial manipulation. Note that the things being manipulated — markets, currencies, securities, and interest rates — are increasingly phantom entities that appear to maintain their value only because the high priests of financial authority say that they do. The shelf-life of that flim-flam approaches its endgame as it self-evidently immiserates the masses and their sheer faith in its recondite promises dwindles away to nothing.

A genuine resistance would begin to deconstruct this clerisy and its institutions, namely Too Big To Fail banks and the Federal Reserve. The best opportunity to accomplish that would have been the early months of Mr. Obama’s turn in the White House, the dark time of the previous financial crash when the damage was fresh and obvious. But the former president blew that under the influence of high priests Robert Rubin and Larry Summers. And the lower order clerics were allowed run their hoodoo machine flat out in the following eight years. Just look at the long chart of the Standard & Poors index. Tragically, this ever-upward arc is now taken to be the normal state of things, and when it fails the implosion will be orders of magnitude more violent than the last time.

One would think that a genuine resistance would also oppose the growing consolidation of power in the now-colossal spying apparatus of the nation — the often averred to “seventeen intel agencies” that show signs of being actively at war against other parts of the government and against citizens themselves. Hence, the non-stop murmur of allegation about “Russian interference in the election,” going back to the summer of 2016 without either any real evidence, or any clarification of what is actually alleged to have happened. Another tragic turn is that this fifth column of rogue intel agencies has recruited the major organs of the news to incessantly repeat its allegations until the public accepts the story as established fact rather than just the manufactured story it so far appears to be. Well, the lives of persons and societies founder on versions of the “reality” they fabricate for their own purposes. A genuine resistance would show foremost some fidelity to a reality beyond the spin-factories of self-delusion.

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Election coming up, perhaps?

Germany Steps Up Attack On Trump For ‘Weakening’ The West (G.)

Germany has unleashed a volley of criticism against Donald Trump, slamming his “short-sighted” policies that have “weakened the west” and hurt European interests. The sharp words from foreign minister Sigmar Gabriel came after the US president concluded his first official tour abroad taking in Saudi Arabia, Israel, Brussels and then Italy for a G7 summit. Angela Merkel warned on Sunday that the US and Britain may no longer be completely reliable partners. Germany’s exasperation was laid bare after the G7 summit, which wrapped up on Saturday with Trump refusing to affirm US support for the 2015 Paris climate accord. Days earlier, in Saudi Arabia, Trump presided over the single largest US arms deal in American history, worth $110bn over the next decade and including ships, tanks and anti-missile systems.

Gabriel said on Monday that “anyone who accelerates climate change by weakening environmental protection, who sells more weapons in conflict zones and who does not want to politically resolve religious conflicts is putting peace in Europe at risk”. “The short-sighted policies of the American government stand against the interests of the European Union,” he said, judging that “the west has become smaller, at least it has become weaker”. “We Europeans must fight for more climate protection, fewer weapons and against religious [fanaticism], otherwise the Middle East and Africa will be further destabilised,” Gabriel said. [..] The relationship between Merkel and Trump contrasts with the warm ties between herself and Barack Obama. The previous US president last week travelled to Berlin to attend a key Protestant conference. Obama’s participation in a forum with Merkel last Thursday came hours before her meeting with Trump in Brussels at the Nato summit.

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Right, election coming up. Which trumps human rights and international law.

Greece, Germany Agree To Slow Refugee Family Reunification (F24)

Greece and Germany have agreed to slow the reunification of refugee families divided between the two nations during their scramble to safety, according to a leaked letter published Monday. “Family reunification transfer to Germany will slow down as agreed,” Greek Migration Minister Yiannis Mouzalas wrote to German Interior Minister Thomas de Maiziere in a May 4 letter obtained by leftist daily Efimerida ton Syntakton. The Greek migration ministry declined to comment, but earlier this month Mouzalas said the slowdown was due to “technical difficulties.” In the letter, Mouzalas reportedly acknowledges that the move – enacted because of the sheer volume of asylum requests – will affect “more than two thousand people” while some “will have to wait for years” to reach Germany even though their requests have been approved.

Asylum seekers – mostly Syrian refugees in Greece’s case – are entitled to join family members elsewhere in the European Union within six months from the date their request is approved. In his letter, Mouzalas said Berlin and Athens had to agree on a “common line” to address “increasingly desperate and critical comments” so that Athens is not blamed for the delays. He then suggests a joint response: “We understand that asylum seekers are eager to meet with their family, but given that both Greece and Germany have very large asylum seeking populations, delays are inevitable.” Ulla Jelpke, a deputy of German far-left Party Die Linke, earlier this month said Berlin had capped the number of refugees eligible for reunification at 70 people per month. Accordingly, Efimerida ton Syntakton said there were just 70 transfers in April compared to 540 in March and 370 in February.

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May 012017
 
 May 1, 2017  Posted by at 9:29 am Finance Tagged with: , , , , , , , , , ,  


Walker Evans Air 1930s

 

40% of Americans Spend Up To Half Of Their Income Servicing Debt (MW)
Are American Debt Slaves Getting in Trouble Again? (WS)
Congress Agrees $1 Trillion Budget Deal – But No Money For Border Wall (G.)
Trump Tax Plan ‘Dead On Arrival’, Wall Street ‘Delusional’ – Stockman (CNBC)
Economics Is A Form Of Brain Damage (RWE)
Why The Reflation Trade Is About To Fizzle (ZH)
If Rates Ever Rise Above 3.5% “It Would Spark Massive Defaults” (ZH)
Toronto Is The King Of Risky Mortgage Debt (BD)
Canada’s Home Capital Distress and the Contagion Odds (BBG)
A Perspective on Electric Vehicles (Science Errors)
For A Treaty Democratizing Euro Area Governance (SE)
Macron Says EU Must Reform Or Face ‘Frexit’ (BBC)
Europe’s Youth Don’t Care To Vote—But They’re Ready To Join A Mass Revolt (Qz)
Schaeuble Says Greece Has Made Good Reform Progress (R.)

 

 

“..many consumers in the survey also said they’re spending up to 40% of their income on discretionary purchases such as entertainment, leisure, hobbies and travel. And a quarter said they are prone to “excessive” and “frivolous” spending.”

40% of Americans Spend Up To Half Of Their Income Servicing Debt (MW)

Americans are struggling to get out of the red. Some 40% of Americans with debt are spending up to half of their monthly income paying it back. And that may not even be enough to cover how much they owe. That’s according to a study on debt Thursday released by Northwestern Mutual, a life insurance and financial services company. The polling company Harris Poll surveyed more than 2,000 U.S. adults in February 2017 on behalf of Northwestern Mutual. The survey found that nearly half of Americans are carrying at least $25,000 in debt, with an average debt of $37,000, excluding mortgage payments. About one in 10 surveyed said their debt was more than $100,000. “It becomes an ongoing cycle and really hard to get out of, given that people are not prioritizing debt and saving for their future as the first part of their budget,” Rebekah Barsch at Northwestern Mutual said.

Debts that are investments in the future, including mortgages and student loans, can be beneficial in consumers’ long-term financial plans, Barsch added. But many consumers in the survey also said they’re spending up to 40% of their income on discretionary purchases such as entertainment, leisure, hobbies and travel. And a quarter said they are prone to “excessive” and “frivolous” spending. Previous studies have shown similar results. The Federal Reserve announced in early April that collective American credit-card debt had hit $1 trillion. And total household debt, including mortgages, auto loans, credit card debt and student loans, had hit nearly $12.6 trillion. Housing-related debt is down nearly $1 trillion since its 2008 peak, but auto loan balances are $367 billion higher since then and student loans are $671 billion higher, the Fed found.

Mortgages made up 67% of the debt total in 2016. As a result, about 21% of Americans aren’t saving any of their income, according to an April survey from personal finance site Bankrate.com. When asked why they aren’t saving more, 38% of people said they had too many expenses, about 16% said they simply “hadn’t gotten around to” saving, 16% said they didn’t have a good enough job and 13% said they were struggling with debt. The amount each individual or family should put toward their debt is different, Barsch said. She recommended automatically allocating the largest percentage of one’s paycheck possible to high-interest debt and putting discretionary spending at the bottom of the priority list.

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Same study, slightly different angle.

Are American Debt Slaves Getting in Trouble Again? (WS)

American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up? Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date. Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.

Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening. Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.

The US economy is fueled by credit. Americans turning themselves into debt slaves makes it tick. Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether. So it’s time to take the pulse of our American debt slaves In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves. Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt. Most of them expect to get out of debt before they die, but 14% expect to be in debt “for the rest of their lives.”

This debt adds stress. About 40% said that debt has a “substantial” or “moderate” impact on their financial security; and about as many consider debt a “high” or “moderate” source of anxiety. Given the rising defaults, this is likely to get worse. And what changes would most positively affect their financial situations? The top two: earning more money (29%) and getting rid of debt (26%). Alas, those two, for many people, are precisely the most elusive factors in the current economy. But there is a lot of irony in how Americans look at debt. The study asked them what they would do with a $2,000 windfall: 40% said they’d pay down debt. And this is the irony: they’d pay down their maxed out credit cards, but a few months later, their credit cards would be maxed out again, and thus that $2,000 would be consumed. Because the money always has to get spent.

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Just in time for recess?!

Congress Agrees $1 Trillion Budget Deal – But No Money For Border Wall (G.)

Negotiators have reached a bipartisan agreement on a spending package to keep the US federal government funded until the end of September, according to congressional aides. The House of Representatives and Senate must approve the deal before the end of Friday and send it to the president, Donald Trump, for his signature to avoid the first government shutdown since 2013. Congress is expected to vote early this week on the agreement that is likely to include increases for defense spending and border security. No money will be allocated for Trump’s pet project of a border wall with Mexico after he bowed to Democratic resistance to the plan. However, the deal will allocate an additional $1.5bn for border security, which one congressional aide described as “the most robust border security increase in roughly a decade”, and there was no language in the bill preventing Mexico from paying for the wall if it so desired.

A senior congressional aide told the Guardian that the deal increased defense spending by $12.5bn, with the possibility of $2.5bn more contingent on the White House presenting an anti-Isis plan to Congress. Trump had requested $30bn in increased defense spending. Democrats were pushing to protect funding for women’s healthcare provider Planned Parenthood and sought additional Medicaid money to help the poor in Puerto Rico get healthcare. Both of those goals were achieved. According to a senior congressional aide, the deal also protects other important Democratic priorities. The EPA’s budget is at 99% of current levels and includes increased infrastructure spending as well.

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Stockman won’t let go.

Trump Tax Plan ‘Dead On Arrival’, Wall Street ‘Delusional’ – Stockman (CNBC)

David Stockman has a stern message for investors: They’re living in a fantasy land about Trump. In a recent interview on CNBC’s “Futures Now,” the former director of the Office of Management and Budget under President Reagan said that “Wall Street is totally misreading Washington,” and President Trump’s promises of tax reform will be “dead before arrival.” The president is “essentially a 70-year old kid in a candy store who wants one of everything: More for defense, veterans, border walls, law enforcement, infrastructure and ‘phenomenal’ tax cuts, too—without the inconvenience of paying for any of it,” said Stockman. Of the proposed tax bill announced this week, he said, “It’s a wonderful fantasy…but there’s no way to pay for the $7.5 trillion cost of the main features.”

The White House announced a one-page tax reform plan on Wednesday, and some of the points Stockman highlighted include: Three tax brackets, double standard deduction and the reduction of corporate and non-corporate business taxes down to 15%. In a research note this week, Goldman Sachs pegged the cost of the tax plan to just under $5 trillion, when factoring in key changes such as repealing of the state and local tax, and a 35% top marginal rate instead of 33%. Goldman analysts expect the tax bill is “fairly likely” to become law, but warned progress could be slow. “I like [the tax plan] but you have to pay for it either with a new tax like the border adjustment tax, which is dead, or spending cuts which Trump has ruled off the table,” Stockman explained.

“What you have down there is a total fiscal calamity that is going to basically dominate Washington.” Stockman expects a “constant fiscal crisis and stalemate” in D.C., which will ultimately delay the “good stuff,” like a tax cut, from ever happening. Of Trump’s first 100 days in office, Stockman again referred to the White House as a “pop up store giving out candy before the 100th day to say they’ve accomplished something.” Adding, “this isn’t a serious plan, it can’t be done. And I think it’s only indicative of the huge trouble that’s brewing down there in the beltway.” [..] “I don’t know what the stock market is thinking but if they have faith in a giant fiscal stimulus and tax cut then it’s a delusional faith that’s going to be badly disappointed and I think fairly soon,” he added.”

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Suzuki -he’s 80 already?!- always got this.

Economics Is A Form Of Brain Damage (RWE)

Environmentalist David Suzuki hits the nail on the head. The number of ways that economic theory systematically blinds you to the realities of the world we live in is almost uncountable. When Henry George’s land tax became widely popular, economists “disappeared” land as a factor of production from economic theories, merging it illegitimately with capital. Money is made to “disappear” by using the quantity theory of money to claim that money is veil. This makes it impossible to understand how the mechanisms of creation of money ensure that the wealthy can get rich at the expense of the rest of us.

The parasitical nature of the finance industry has been covered up by the idea of “wealth creation” — when wild speculation doubles the price of stocks, financiers have created wealth, which is a socially valuable activity, instead of a fraud and deception. The ideas of cut-throat competition, survival of fittest, and social darwinism have been used to justify a large number of free market activities which harm the masses to make profits for the wealthy. There is no doubt that believing all of the textbook economic theories leads to serious brain damage, as I myself have experienced — the process of unlearning has been slow and painful. Here is the 2 minute video by David Suzuki:

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If you can’t properly define inflation, how could you possibly get this right? Inflation is a meaningless concept if you don’t take into account money velocity. And with falling money velocity because of maxed-out consumers, you will never get reflation.

Why The Reflation Trade Is About To Fizzle (ZH)

As SocGen writes in previewing tomorrow’s Headline and Core PCE deflators numbers, after spending nearly five years missing to the downside on the inflation target, the Fed finally achieved its goal as the yoy headline PCE deflator hit 2.1% in February. Unfortunately, Fed officials cannot take a victory lap, because they will be right back to missing the target again when the March figures are released. The data in hand from the PPI and CPI suggest that the headline PCE deflator likely fell by 0.164% in March, which would result in the yoy rate falling from 2.1% to 1.9% (1.885% un-rounded).

Energy prices – now virtually unchanged from a year ago – in the CPI fell by 3.2% last month, and these likely flowed through into the PCE as well. However, given the smaller weight of energy in the PCE gauge, the drop in energy prices will result in a smaller drag on the headline PCE index (almost a tenth less than in the CPI). Meanwhile, the CPI’s food index increased by 0.34% in March (that being said, the PCE food index is broader, and the food indexes in the PCE not present in the CPI have been a bit volatile of late). So aside from anniversarying the unchanged Y/Y base effect, here is what else SocGen expects from tomorrow’s anti-reflationary PCE prints: the core PCE deflator looks to have declined by 0.1% in March (-0.072% un-rounded). A reading in line with our forecast would lead the yoy core rate to fall from 1.8% in February to 1.6% in March, which would be the weakest print in nine months.

It’s not just energy however: recall that one of the biggest drivers behind the CPI miss earlier this month was the sharp drop in wireless telecom services in the CPI, which will now flow into the PCE and subtract around 0.075 percentage points (pp) from the monthly change in the core PCE (which is less than the 0.15 pp drag in the core CPI given the lower weight of this index in the core PCE). In other words, the core PCE would have been flat if not for the wireless telecom services index. Offsetting some of this drag will be a positive contribution from health care. Data from the PPI suggests that the health care index may have advanced by around 0.2% last month, marking its biggest rise in five months. Data within the Q1 GDP report suggests that the gain may be closer to 0.3% in March. In any case, core services prices in March look to have been essentially unchanged, while core goods prices may have fallen by 0.3%.

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The central banks have trapped themselves and will seek to make you pay for it. Expect a lot of “economic growth will fix it all” comments. But it won’t, we spend $10 to get $1 of growth already.

If Rates Ever Rise Above 3.5% “It Would Spark Massive Defaults” (ZH)

Earlier today in his weekly note, One River CIO Eric Peters explained that in their attempt to overturn the natural order of the global economic “ecosystem”, what central banks have done is “stunning, unprecedented… and arrogant”, and as a result it is only a matter of time before another “peak instability” moment emerges as “it stands to reason that our volatility-selling machine will break one day. We saw a glimpse of this in 2008-09. And yet, as Peters concedes in a follow up note, those same central bankers don’t have any other option but to kick the can because as the CIO notes, any attempt to break the current ultra-low rate regime would “spark massive defaults.”

Incidentally, those are the same defaults that should have happened during the “near systemic reset” of 2008/2009 but the Fed, in all its wisdom, decided to kick the can at the cost of trillions in global excess liquidity, and while it bought itself some time – in the process unleashing a global deflation wave thanks to zombie companies that should not exist yet do, and every day try to undercut each other on pricing – nearly ten years later it has discovered that it has no way out, for one simple reason: there is now too much accumulated debt. Here is Peters “modelling” out why the Fed is stuck with no way out:

“When debt expands constantly relative to GDP, there’s a limit to how high interest rates can rise without causing massive defaults,” said the Model. “There’s nothing inherently wrong with defaults, they can cleanse a system, but a rise in US defaults from today’s 2.5% to 6.0% would boost unemployment by 3%.” America’s economy is leveraged to the financial system, which includes non-capitalized liabilities; entitlements, pensions, healthcare. “US total debt/GDP is 300%, but if you include these non-capitalized liabilities, it’s more like 800%.” “These non-capitalized liabilities rise as both interest rates and economic growth decline,” continued the same Model. “Low growth produces less income, and low rates supply less investment returns on pensions. Which means companies need to set aside more money to pay the liabilities.” It’s a slow-moving economic death spiral.

“The Neo-Fisher Model posits that we can escape this trap by increasing interest rates. Which will raise investment returns, while simultaneously lifting growth. Fisher’s Model may be right, but it will never be tested in reality.” “In reality the world operates on monthly payments,” explained the same Model. “So if we tested the Fisher Model by raising interest rates meaningfully, we’d spark massive defaults.” Unemployment would jump dramatically. “Our central banking and political reaction function ensures that each rise in unemployment is followed by monetary stimulus.” In the 30yrs since Greenspan became Fed Chairman, borrowers have learned this lesson and responded by leveraging up. “And that’s why US interest rates will never rise sustainably above 3.5%.”

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Think Justin still sleeps at night? If so, he needs some wake-up lessons.

Toronto Is The King Of Risky Mortgage Debt (BD)

Canadian real estate values continue to soar, and a record number of buyers are piling into risky loans. According to the Bank of Canada (BoC), and the Ministry of Finance (MoF), high ratio mortgage borrowers are extending themselves to the limit. While we covered how concerning this trend has become in Toronto, it’s not just isolated to that city. It’s a trend that’s growing across all Canadian urban centers. People taking out high-ratio mortgages combined with incomes too low for the property value, is spreading across Canada. A high-ratio mortgage is defined as a mortgage where the buyer leaves less than a 20% downpayment. The BoC and MoF have both expressed concern when high-ratio mortgages are paired with high income-to-loan ratios. The amount of high risk buyers is increasing as markets reach dizzying heights, especially in urban areas.

Vulnerability isn’t just the buyer’s ability to keep devoting a high percentage of their income to carrying payments. Since the number of these buyers are accelerating as prices get higher, they’re at a greater risk during a correction (not even a crash). Something as small as a 5% drop in value and many of these mortgages would be underwater. If this happens it would mean already broke homeowners would have to pay to get rid of their home. Combine that with a higher interest rate at renewal, and you can imagine the mayhem that can unfold. High-ratio mortgages with low income levels is a growing trend in Canada, but Toronto and Vancouver take it to the next level. Across Canada, 18% of high risk mortgages have extremely low incomes for the homes they’re in, an increase of 38% over two years.

Despite Vancouver’s insanely high prices, Toronto still tops the risky business of subprime borrowers. Toronto takes the top spot with a 53% increase during the same period, bringing their total to 49%. Coming in second is Vancouver which had a 25% increase over the past two years, bringing their total to 39%. These two cities are moving much faster than the average for the country, and they’re getting to dangerously high levels. Although Toronto and Vancouver take the cake, this trend is also growing across Canada, albeit with a lower impact. Over the past 2 years, Calgary saw a 23% increase of high ratio mortgages with at risk-income ratios, totalling 32%. Montreal saw a 30% increase over the past two years, bringing their total to 13%. Ottawa-Gatineau saw a massive 62.5% increase, bringing their total to 13%.

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Complete delusion. Everywhere: “Canada’s financial system, deemed the world’s soundest by the World Economic Forum for eight straight years until 2016..” Over many of those years, this was already obviously happening.

Canada’s Home Capital Distress and the Contagion Odds (BBG)

The escalation of Home Capital’s distress last week has led one of its largest former investors to rethink – if only slightly – the prospects of troubles spreading through the rest of Canada. After the alternative-mortgage lender set up a C$2 billion ($1.5 billion) credit line to offset a run on deposits, Mawer Investment Management’s Jim Hall is recalculating the odds of a contagion widening across one of the world’s strongest financial systems. “The probability has gone from infinitesimal to possible — unlikely, but possible,” said Hall, CIOmoney manager, in an interview Saturday. “If depositors or bondholders start to lose faith in their banks, well then that becomes systemic.”

Mawer, which oversees more than C$40 billion in assets, sold about 2.8 million shares, or a 4.3% stake, in Home Capital in the past week, joining another money manager, QV Investors, in exiting its investment amid the imbroglio consuming the Toronto-based lender. Home Capital has been struggling since April 19, when Ontario’s securities regulator accused management of misleading investors over how the firm handled a review of mortgage brokers who falsified documents about borrowers’ income. Home Capital shares plunged 65% the following day, and the lender has since disclosed an accelerating pace of declines of its high-interest savings balances – deposits used to help fund its mortgage business.

For its part, Home Capital secured a loan to compensate for a drop in deposits and said it’s weighing a sale, hiring RBC Capital Markets and BMO Capital Markets to advise on financing and “strategic options.” Even if withdrawals continue, as expected, the new funding should mitigate it, the company said April 26. Canada’s banking regulator says it’s closely monitoring the situation and surveying other financial firms to assess their condition. “The assets look, at this point, still reasonably good,” Hall said, adding that Home Capital’s problem is a matter of confidence. “Confidence was lost in this company and the business model breaks apart. That’s the problem with banks.”

Canada’s financial system has lots of fire breaks, as Hall describes it, to prevent problems from spreading. “Even if a bank gets itself into a confidence issue, it can be effectively bailed out by another bank or by another financial institution or by ultimately the regulator,” Hall said. Bank failures in Canada’s financial system, deemed the world’s soundest by the World Economic Forum for eight straight years until 2016, are rare. Canadian banks sidestepped the worst of the 2008 financial crisis, having only a fraction of the $1.95 trillion of writedowns and losses suffered by financial firms worldwide.

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Posted by Tyler. No time stamp that I could see, but this is an eternal truth anyway.

A Perspective on Electric Vehicles (Science Errors)

An electric auto will convert 5-10% of the energy in natural gas into motion. A normal vehicle will convert 20-30% of the energy in gasoline into motion. That’s 3 or 4 times more energy recovered with an internal combustion vehicle than an electric vehicle. Electricity is a specialty product. It’s not appropriate for transportation. It looks cheap at this time, but that’s because it was designed for toasters, not transportation. Increase the amount of wiring and infrastructure by a factor of a thousand, and it’s not cheap. Electricity does not scale up properly to the transportation level due to its miniscule nature. Sure, a whole lot can be used for something, but at extraordinary expense and materials. Using electricity as an energy source requires two energy transformation steps, while using petroleum requires only one.

With electricity, the original energy, usually chemical energy, must be transformed into electrical energy; and then the electrical energy is transformed into the kinetic energy of motion. With an internal combustion engine, the only transformation step is the conversion of chemical energy to kinetic energy in the combustion chamber. The difference matters, because there is a lot of energy lost every time it is transformed or used. Electrical energy is harder to handle and loses more in handling. The use of electrical energy requires it to move into and out of the space medium (aether) through induction. Induction through the aether medium should be referred to as another form of energy, but physicists sandwich it into the category of electrical energy. Going into and out of the aether through induction loses a lot of energy.

Another problem with electricity is that it loses energy to heat production due to resistance in the wires. A short transmission line will have 20% loss built in, and a long line will have 50% loss built in. These losses are designed in, because reducing the loss by half would require twice as much metal in the wires. Wires have to be optimized for diameter and strength, which means doubling the metal would be doubling the number of transmission lines. High voltage transformers can get 90% efficiency with expensive designs, but household level voltages get 50% efficiency. Electric motors can get up to 60% efficiency, but only at optimum rpms and load. For autos, they average 25% efficiency. Gasoline engines get 25% efficiency with old-style carburetors and 30% with fuel injection, though additional loses can occur.

Applying this brilliant engineering to the problem yields this result: A natural gas electric generating turbine gets 40% efficiency. A high voltage transformer gets 90% efficiency. A household level transformer gets 50% efficiency. A short transmission line gets 20% loss, which is 80% efficiency. The total is 40% x 90% x 50% x 80% = 14.4% of the electrical energy recovered (85.6% lost) before getting to the vehicle and doing something similar to the gasoline engine in the vehicle.

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By Stéphanie Hennette, Thomas Piketty, Guillaume Sacriste and Antoine Vauchez. As I’ve said, I don’t believe the EU can be reformed, because no-one has the power to do it.

For A Treaty Democratizing Euro Area Governance (SE)

Over the last ten years of economic and financial crisis, a new centre of European power has taken shape: the ‘government’ of the Euro Area. The expression may seem badly chosen as it remains hard to identify the democratically accountable ‘institution’ which today implements European economic policies. We are indeed aiming at a moving and blurred target. Characterized by its informality and opacity, the central institution of that government, the Eurogroup of Finance Ministers of the Euro Area, operates outside the framework of the European treaties and is in no way accountable to the European Parliament, nor to national parliaments. Worse, the institutions that form the backbone of that government – from the ECB and the Commission to the Eurogroup and the European Council – operate following combinations that constantly vary from one policy to the other (Troika Memoranda, European Semester ‘budgetary recommendations’ and bank ‘evaluations’ under the Banking Union).

However scattered they may be, these different policies are truly ‘governed’, as a hard core emerged from the ever closer union of national and European economic and financial bureaucracies – French and German national treasuries, ECB executive board, senior economic officials from the European Commission. As matters stand, this is where the Euro Area is supposedly governed and where the proper political tasks of coordination, mediation and balancing among the current economic and social interests are carried out. In 2012, as he gave up reforming the Treaty on Stability, Coordination and Governance, a cornerstone of this Euro Area governance, François Hollande contributed to consolidating this new power structure. From then onwards, this European executive pole has only seen its competences expand.

Over a decade, its scope for intervention has become significant, ranging from ‘budgetary consolidation’ (austerity) policies to far-reaching coordination of national economic policies (Six Pack and Two Pack), the set-up of rescue plans for member states facing financial distress (Memorandum and Troika), the supervision of all private banks. Both mighty and elusive, the government of the Euro Area evolved in a blind spot of political controls, in some sort of democratic black hole. Who indeed controls the drafting process of Memoranda of Understanding, which impose significant structural reforms in return for the financial assistance of the European Stability Mechanism? Who scrutinizes the executive operations of the institutions making up the Troika?

Who monitors the decisions taken within the European Council of the Heads of State or Government of the Euro Area? Who knows exactly what is negotiated within the two core committees of the Eurogroup, i.e. the Economic Policy Committee and the Economic and Financial Committee? Neither national parliaments, which at best simply control their own executive, nor the European Parliament, which has carefully been sidelined from Euro Area governance. In view of its opacity and isolation, the many criticisms voiced against that Euro Area government seem well deserved, starting with Jürgen Habermas’ denunciation of a “post-democratic autocracy”.

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Pre-empting Le Pen.

Macron Says EU Must Reform Or Face ‘Frexit’ (BBC)

The front-runner in the French presidential election has told the BBC that the EU must reform or face the prospect of “Frexit”. Pro-EU centrist Emmanuel Macron made the comments as he and his far-right rival Marine Le Pen entered the last week of campaigning. French voters go to the polls on Sunday to decide between the pair. Ms Le Pen has capitalised on anti-EU feeling, and has promised a referendum on France’s membership. She won support in rural and former industrial areas by promising to retake control of France’s borders from the EU and slash immigration. “I’m a pro-European, I defended constantly during this election the European idea and European policies because I believe it’s extremely important for French people and for the place of our country in globalisation,” Mr Macron, leader of the recently created En Marche! movement, told the BBC.

“But at the same time we have to face the situation, to listen to our people, and to listen to the fact that they are extremely angry today, impatient and the dysfunction of the EU is no more sustainable. “So I do consider that my mandate, the day after, will be at the same time to reform in depth the European Union and our European project.” Mr Macron added that if he were to allow the EU to continue to function as it was would be a “betrayal”. “And I don’t want to do so,” he said. “Because the day after, we will have a Frexit or we will have [Ms Le Pen’s] National Front (FN) again.”

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What I would expect.

Europe’s Youth Don’t Care To Vote—But They’re Ready To Join A Mass Revolt (Qz)

Young Europeans are sick of the status quo in Europe. And they’re ready to take to the streets to bring about change, according to a recent survey. Around 580,000 respondents in 35 countries were asked the question: Would you actively participate in large-scale uprising against the generation in power if it happened in the next days or months? More than half of 18- to 34-year-olds said yes. The question was part of a European Union-sponsored survey, titled “Generation What?” The report went on to focus on respondents from 13 countries to better understand what young people are optimistic and frustrated about in Europe. Among these spotlighted countries, young people in Greece were particularly interested in joining a large-scale uprising against their government, with 67% answering yes to the question. Respondents in Greece were also more likely to believe politicians were corrupt and to have negative perceptions of the country’s financial sector.

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His ‘solution’ is self-defeating. More pension cuts and more taxes will cut more money velocity, hence more GDP. Which means Greece is less able to pay back anything at all.

Schaeuble Says Greece Has Made Good Reform Progress (R.)

German Finance Minister Wolfgang Schaeuble was quoted in a newspaper interview on Sunday saying that Greece has made strong progress towards introducing reforms that could lead to the imminent release of further financial support. “If the Greek government upholds all the agreements, European finance ministers could complete the review on May 22 and then soon after that release the next tranche,” Schaeuble told the Funke media group newspapers. Greece and its international creditors reached a preliminary agreement at a meeting of eurozone finance ministers in April to set up the next transfer of some €7 billion in aid. But the finance ministers will not release the tranche until the audit is completed.

“The longer it takes, the more uncertainty will be in the financial markets and economy,” Schaeuble added. He said the Greek government had promised to make further adjustments in pensions as well as improve tax collection. Asked why he was optimistic the aid could soon be released, Schaeuble said, “Because we negotiated in a very determined fashion and the Greek government said it would adjust the pensions more strongly to the economic situation. “That’s not easy – I know that. And it wants to improve the tax collection system so that tax revenues will rise again from 2020.”

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Oct 012016
 
 October 1, 2016  Posted by at 9:26 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle October 1 2016


Lewis Wickes Hine Drift Mouth, Sand Lick Mine, near Grafton, West Virginia 1908

Why You Should Be Skeptical Of That $5.4 Billion Deutsche Settlement (CNBC)
A Deutsche Bank Settlement Rumor Overshadows US Equities (R.)
Deutsche Bank Takes a Lashing From the German Public (WSJ)
Trump Will Win, Unless the S&P Rallies in October (BBG)
Global Trade Crashes Back To “Very Old Normal” (ZH)
Global Corporate Default Tally By Far Highest Since 2009 (Barron’s)
US, Canadian IPOs Raise Lowest Annual Total Since 1990 (BBG)
US Consumer Spending Drops, Clouds Fed Rate Hike Outlook (R.)
China’s Yuan Joins Elite Club Of IMF Reserve Currencies (R.)
State Spending Keeps China’s Industrial Sector Humming in September (WSJ)
Has Vancouver Found The Solution To A Super-Heated Housing Market? (G.)
Bundesbank President Rejects Calls for German Stimulus (WSJ)
The “Pardon Snowden” Case Just Got Stronger (Cato)
Brexit Is A ‘Once-in-a-Generation’ Chance To Save UK’s WIldlife (Ind.)
Bees Added To US Endangered Species List For The First Time (G.)
Elephants Have Learned To Avoid Poachers By Hanging Out With Rangers (Konbini)

 

 

A planted rumor. “..if the number was correct, under German capital market rules Deutsche Bank would be required to confirm the amount by now..”

Why You Should Be Skeptical Of That $5.4 Billion Deutsche Settlement (CNBC)

Shares of Deutsche Bank were leaping in New York trade Friday on a report that it was near a settlement with the U.S. Department of Justice, but there’s reason to be skeptical about the number being cited. Shares of Deutsche Bank have extended their gains, up about 14% in afternoon trading, after an AFP report that Germany’s biggest bank is close to a $5.4-billion dollar settlement with the Justice Department over mortgage bonds. […] But if the number was correct, under German capital market rules Deutsche Bank would be required to confirm the amount by now. Its failure to do so indicates the number is not correct.

Any eventual settlement, however, would almost certainly be well below the reported $14-billion opening bid by the Department of Justice in its talks with Deutsche. Deutsche Bank is not publicly commenting on the supposed $5.4-billion figure. The capital market rules say the bank would have to react almost immediately to a report on such a settlement. That’s why two weeks ago, after The Wall Street Journal reported on the initial $14-billion figure, Deutsche Bank quickly put out a release confirming the news. “The negotiations are only just beginning,” Deutsche Bank said at the time. “The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”

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Far from over: “Once they come to some resolution on the difference between what they are charged, $14 billion, and what they are going to pay, call it $5 or $6 billion, the market is going to be afraid there is a problem..”

A Deutsche Bank Settlement Rumor Overshadows US Equities (R.)

Deutsche Bank will likely cast a pall over equity markets next week as the largest German lender navigates a possible multi-billion dollar settlement with the U.S. Department of Justice over the sale of mortgage-backed bonds. Deutsche shares traded in the United States hit a record low on Thursday, falling as much as 24% since the DOJ asked the bank to pay $14 billion to settle charges related to its sale of toxic mortgage bonds before the financial crisis. But the stock had its best day in five years Friday, on record volume, after news agency AFP reported that Deutsche was nearing a much-lower $5.4 billion settlement with the DOJ. Analysts at Morgan Stanley estimated Deutsche could pay about $6 billion to settle with the DOJ. Stocks on Wall Street broadly tracked Deutsche over the past few days and will likely continue to do so, analysts say.

“While it is in the headlines, it is an overhang,” said Art Hogan at Wunderlich Securities in New York. “Once they come to some resolution on the difference between what they are charged, $14 billion, and what they are going to pay, call it $5 or $6 billion, the market is going to be afraid there is a problem,” Hogan said. Deutsche’s market capitalization of near $18 billion makes it much smaller than its U.S. peers like Bank of America, at $155 billion, or Citi, at $133 billion. However its trading relationships with the world’s largest financial institutions make a potential breakdown at Deutsche a bigger risk to the wider financial system than any other global bank, the International Monetary Fund said in June. “Its world print and eurocentric role are unrivaled, so it is going to drive the narrative next week,” said Peter Kenny at Global Markets Advisory Group in New York.

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Merkel’s room to move is shrinking.

Deutsche Bank Takes a Lashing From the German Public (WSJ)

Deutsche Bank is getting rough treatment in the market. It is also having a hard time with its own public. The lender, founded in 1870, has turned from an object of patriotic pride into what critics on both sides of the political spectrum openly deride as a national embarrassment. Multibillion-dollar losses last year, investigations into misconduct around the world, concerns about its capital cushion and rich pay have made Deutsche Bank a handy target for left-leaning critics that accuse it of short-term thinking and greed. Many on the far right, meanwhile, regard Deutsche Bank as German in name only. Three out of its past four chief executives have been foreigners, including current CEO John Cryan, helping detractors tar it as the embodiment of out-of-control stateless capitalism.

The sentiment isn’t confined to political circles. A TNS Emnid poll for news magazine Focus conducted on Wednesday and released on Friday showed that 69% of respondents opposed any kind of state aid for Deutsche Bank, with only 24% in favor. “People feel it’s simply unacceptable that banks should be exempted from business risks,” said Frank Decker, politics professor at Rheinische Friedrich-Wilhelms-University in Bonn. [..] the lack of support at home, along with strict bailout rules Germany has backed for banks in the European Union, could limit the government’s room for maneuver should Deutsche Bank end up in a position that it does need help.

Despite the trauma of the financial crisis, large institutions such as Deutsche Bank haven’t learned any lessons, said Manfred Güllner, head of the Forsa polling group, making any bailout a tougher sell than in 2008. “While the returns on savings keep falling in a bottomless pit—and now into negative territory—the banks, as always, keep conducting their risky speculative businesses,” the populist Alternative for Germany party said in a Facebook post Thursday. “Whenever they get in trouble, the politicians are always there to help with taxpayers’ money.”

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“When the stock market ends up for the three-month period, the Democrat wins. When it’s negative, the Republican wins.”

Trump Will Win, Unless the S&P Rallies in October (BBG)

October is the bad boy of the stock market. The Panic of 1907, the Crash of 1929, Black Monday in 1987. It’s notable for another reason, too. The performance of Standard & Poor’s 500-stock index from July 31 to Oct. 31 has a curious way of predicting the winner of the presidential election. As with every prediction, take it with a giant grain of salt. But the pattern is solid, as shown in this chart by Sam Stovall, equity strategist for S&P Global Market Intelligence1. When the stock market ends up for the three-month period, the Democrat wins.

When it’s negative, the Republican wins. Since this July 31, the S&P is in slightly negative territory. Two times the pattern didn’t hold were in 1968 and 1980, when influential third-party candidates were in race, including George Wallace, who took about 14% of the popular vote in ’68. The pattern also failed in 1956, which Stovall says could be attributed to geopolitical events putting the markets on edge. That was the year of the Suez Crisis and the Hungarian Uprising, he noted.

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“What if the last 30 years of exuberant world trade growth was the ‘outlier’..”

Global Trade Crashes Back To “Very Old Normal” (ZH)

“Get used to it” is the message from Goldman Sachs when it comes to the collapse in global trade… What if the last 30 years of exuberant world trade growth was the ‘outlier’ and we are now reverting to the pre-Greenspan normal? As Goldman’s Goohoon Kwon explains, a low trade beta may be normal:

“Finally, another explanation for the trade slowdown is that it simply represents a return to normal. Historical trade data show that the global trade beta was slightly higher than 1 in the early 1950s before rising gradually due to a series of extraordinary events. In the 1960s-1980s, it rose to around 1.5, boosted by multilateral efforts for trade reforms, which reduced average tariffs from 35% in 1947 to 6.4% at the start of the of the Uruguay Round (1986-94) of global trade negotiations. Thereafter, the breakup of the Soviet Union enabled global trade to expand rapidly in the 1990s, and the WTO entry of China in 2001 helped sustain the trade beta at around 2 in the 2000s. There is therefore an argument that a series of largely one-off factors drove the trade beta to unusually high levels.”

And as Goldman warns, there is limited upside to global trade from here…

“Given these structural forces, the outlook for global trade remains weak in our view, though it might rebound somewhat in the short term. Asian trade is likely to recover moderately in coming years, helped by the eventual dissipation of capacity overhangs in China and reductions in internal imbalances in the economy. And further trade liberalization, including in services, presents upside for global trade. However, the restructuring of overcapacity sectors seems to be proceeding slowly so far in Asia, as reflected in low and still-falling capacity utilization in China and Korea. Moreover, the current political backdrops in the major economies suggest that another major push for trade liberalization might be off the table, at least for now.”

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By far the worst year since 2009.

Global Corporate Default Tally By Far Highest Since 2009 (Barron’s)

Three corporate defaults in the past week, two metals companies and one telecom firm, brought the total number of defaults around the world to 130. That’s a lot more than last year. Diane Vazza, head of S&P Global Fixed Income Research says: “The default tally is 60% higher than the count at this time in 2015 and has surpassed the total number of defaults recorded in full-year 2015, 113 defaults. The last time the global tally was higher at this point in the year was in 2009, when it reached 223 during the financial crisis.” Energy and commodity-related firms make up over half of the defaults; 70% are U.S. companies. Vazza notes: “As of Aug. 31, 2016, the global speculative-grade default rate for the energy and natural resources sector was 17.9%–more than seven times higher than the default rate of all other sectors.”

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How to make a pretty awful number sound good.

US, Canadian IPOs Raise Lowest Annual Total Since 1990 (BBG)

It’s been a paltry year for initial public offerings. Fewer than 135 companies have made their debuts in U.S. and Canada, putting 2016 on pace to be the slowest for IPOs since 1990, according to data compiled by Bloomberg. With $14.4 billion raised so far, we’re also on track to witness the lowest annual total on that score since 1990. For the companies that have made it to market, the dearth of activity has helped underpin demand. That’s especially true in the case of tech IPOs, where (as my colleague Shira Ovide has written) the paucity of new issues has left investors scrambling for any new listing, driving valuations to potentially unsustainable levels.

Nutanix, a tech unicorn that priced Thursday evening, will likely continue the trend, with its shares poised for a surge when they begin trading Friday. But another crop of listings – backed by private equity – has also done well out of the chute this year, and may offer the potential for more lasting gains. On average, new issues of private-equity backed companies have rallied 34.5% this year through Thursday, topping the 28.2% average return for all U.S. and Canadian IPOs during the same period, according to data compiled by Bloomberg.

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David Stockman put it like this: “They shopped till they dropped.”

US Consumer Spending Drops, Clouds Fed Rate Hike Outlook (R.)

U.S. consumer spending fell in August for the first time in seven months while inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates. The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.1% last month after accounting for inflation. Analysts polled by Reuters had expected a 0.1% gain. “Consumers took a breather in August,” said Chris Christopher of IHS Global Insight. Fed Chair Janet Yellen said last week she expected the U.S. central bank would raise rates once later this year to keep the economy from eventually overheating.

Prices for fed funds futures suggest investors see almost no chance of a hike at the Fed’s next policy meeting in early November and roughly even odds of an increase at its mid-December meeting, according to CME Group. The dollar was little changed against a basket of currencies while U.S. stock prices were trading higher. Consumer spending, which has been robust in recent months, partially offset the drag from weak business investment and falling inventories in the second quarter when the economy expanded at a lackluster 1.4% annual rate.

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A mixed blessing.

China’s Yuan Joins Elite Club Of IMF Reserve Currencies (R.)

China’s yuan joins the IMF’s basket of reserve currencies on Saturday in a milestone for the government’s campaign for recognition as a global economic power. The yuan joins the U.S. dollar, the euro, the yen and British pound in the IMF’s special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999.The IMF is adding the yuan, also known as the renminbi, or “people’s money”, on the same day that the Communist Party celebrates the founding of the People’s Republic of China in 1949.

“The inclusion into the SDR is a milestone in the internationalization of the renminbi, and is an affirmation of the success of China’s economic development and results of the reform and opening up of the financial sector,” the People’s Bank of China said in a statement. China will use this opportunity to further deepen economic reforms and open up the sector to promote global growth, the central bank added. The IMF announced last year that it would add the yuan to the basket, so actual inclusion is not expected to impact financial markets. But it puts Beijing’s often opaque economic and foreign exchange policy in the international spotlight as some central banks add yuan assets to their official reserves.

Critics argue that the move is largely symbolic and the yuan does not fully meet IMF reserve currency criteria of being freely usable, or widely used to settle trade or widely traded in financial markets. U.S. Republican presidential nominee Donald Trump has said he will formally label China a currency manipulator if he wins November’s election. China stunned investors by devaluing the currency last year and the yuan has since weakened to near six-year lows, adding to worries about already feeble global growth. Some China watchers also fear that Beijing’s commitment to further market opening and financial sector reforms will fade after its diplomatic success, despite repeated reassurances from Beijing it will continue with the process.

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Now that China has entered the IMF basket, it’ll get much harder to keep this up: “It’s very clear that this sort of continued funding of industrial overcapacity sectors is unsustainable.”

State Spending Keeps China’s Industrial Sector Humming in September (WSJ)

Activity in China’s crucial industrial sector appeared to stabilize last month, with an official index on manufacturing holding steady, buoyed by state spending on infrastructure. China’s official manufacturing purchasing managers index was unchanged at 50.4 in September compared with August, the National Bureau of Statistics reported Saturday. The gauge has remained above 50, which separates expansion from contraction, for six out of the past seven months. The September reading matched a median forecast of 50.4 by 11 economists polled by The Wall Street Journal.

Subindexes gave mixed readings. One measured new orders weakening, while another for production showed improvement; both remained above 50. The official nonmanufacturing PMI edged up to 53.7 in September from 53.5 in August. Economists said stepped-up bank lending and spending on government projects is helping to steady an economy that got off to a wobbly start to the year and has been slowing overall in recent years. “You’re seeing a bit of a credit-fueled holding pattern,” said Angus Nicholson, an analyst with IG Markets. “The question is: when does that turn around and when are they going to cut credit? It’s very clear that this sort of continued funding of industrial overcapacity sectors is unsustainable.”

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Better question: do other cities have the guts to follow suit?

Has Vancouver Found The Solution To A Super-Heated Housing Market? (G.)

There is a city which is suffering a worse property bubble than Sydney, whose residents are more priced-out than Londoners, and where there is a greater divide between the housing haves and have-nots than even San Francisco. That city is Vancouver, and in response to these mounting challenges, the west-coast Canadian metropolis recently imposed an extraordinary new tax on foreign buyers – whose impact is now being watched closely by other cities grappling with bloated property markets. On 2 August, Vancouver introduced a tax on anyone from outside Canada wanting to buy a home in its super-heated market. In future, city authorities said, if you weren’t Canadian, you would have to pay an extra 15% on the purchase price.

The impact has, by some measures, been more startling than campaigners could have hoped for. The price of the average detached home reportedly slumped by an astonishing 16.7% in August alone to C$1.47m (£856,000), according to the Real Estate Board of Greater Vancouver. Some agents are reporting that the market has gone from red hot to stone cold in a matter of weeks. British Columbia’s premier, Christy Clark, who introduced the tax, told reporters there will be no going back on it. “The prices were going up way too fast and if we helped slow that down, that’s good,” she said. In the year before the tax, prices in the city were galloping ahead at a rate of 39% a year amid widespread concern that investors, from China in particular, were pricing out local residents.

It is a concern echoed in cities across the Pacific Rim. In June, Sydney introduced a 4% stamp duty surcharge on foreigners buying homes; the following month, Melbourne hiked stamp duty rates from 3% to 7% for foreign buyers – in both cases to deter rampant property speculation. Queensland, whose capital is Brisbane, has followed suit with an extra 3% duty surcharge that will be slapped on “foreign persons” buying residential property and land from 1 October. In Auckland, New Zealand – currently the world’s frothiest property market – property investors are, as of last month, required to put down at least 40% of the purchase price in cash.

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By ignoring Germany’s role in destroying the Greek and Italian economies, Weidmann ensures the downfall of the eurozone, and thereby of Germany itself.

Bundesbank President Rejects Calls for German Stimulus (WSJ)

It’s absurd to ask Germany’s government to spend more to bolster eurozone growth, German Central Bank President Jens Weidmann said on Thursday, rejecting growing pressure on Berlin to loosen its purse strings. Speaking in the German capital, Mr. Weidmann said a fiscal stimulus program in Germany was unnecessary given the nation’s robust economy, and would have few positive effects for other countries anyway. Earlier this month, ECB President Mario Draghi joined the chorus of voices that have criticized Germany for reining in its spending at a time of weak economic growth. “Countries that have fiscal space should use it,” Mr. Draghi said at a news conference. “Germany has fiscal space.”

But Mr. Weidmann argued that Germany’s national debt was already high, and the country’s aging population “calls for lower rather than higher debts.” Mr. Draghi tempered his remarks on Wednesday after a meeting in Berlin with German lawmakers, who grilled him over the ECB’s easy-money policies and their impact on German savers and banks. “Germany does have fiscal space [but] we need to be nuanced,” Mr. Draghi said. “I never argued for irresponsible fiscal expansion.”

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It couldn’t be more obvious.

The “Pardon Snowden” Case Just Got Stronger (Cato)

Yesterday, the Department of Justice Inspector General (DoJ IG) issued a long overdue Congressionally-mandated report on FBI compliance with the PATRIOT Act’s Section 215 “business records” provision between 2012 and 2014. It is the first such report issued that covers the initial period of Edward Snowden’s revelations about widespread domestic mass surveillance by the federal government. Since his indictment for leaking the information to the press, Snowden’s lawyers have argued that he should not be prosecuted under the WW I-era Espionage Act because his revelations served the public interest. The DoJ IG report provides the clearest evidence yet that Snowden’s lawyers are correct (p. 6):

“In June 2013, information about the NSA’s bulk telephony metadata program was publicly disclosed by Edward Snowden. These disclosures revealed, among other things, that the FISA Court had approved Section 215 orders authorizing the bulk collection of call detail records. The telephony metadata collected by the NSA included information from local and long-distance telephone calls, such as the originating and terminating telephone number and the date, time, and duration of each call. The disclosures prompted widespread public discussion about the bulk telephony metadata program and the proper scope of government surveillance, and ultimately led Congress to end bulk collection by the government in the USA Freedom Act.”

Public discussion of the controversy. Very public action by Congress to change the law, addressing at least one major abuse brought to light by Snowden. And there was more (p. 33):

“An [National Security Division] Deputy Unit Chief noted that the number of business records orders reached its peak in 2012 and has declined annually since then, and that the number of [Electronic Communication Transation] requests has declined more than other types of requests. The Deputy Unit Chief said that the Snowden revelations have played a role in this decline, both in terms of the stigma attached to use of Section 215 and increased resistance from providers. The Deputy Unit Chief stated, “I think that it’s possible that folks … have decided it’s not worth pursuing [business records orders], you know, obviously things haven’t been great with providers since Snowden either.” ”

Translation: Snowden’s actions forced companies like Verizon, Yahoo and others to grow a spine and start defending the Fourth Amendment rights of their customers. Earlier this month, a group of non-governmental organizations and individuals launched a campaign to get President Obama to pardon Snowden before he leaves office. We now have the department seeking Snowden’s prosecution offering unambigous evidence that his whistleblowing actions served the public interest. Obama should direct DoJ to drop the case or he should pardon Snowden. Either approach would be in the public interest, just as Snowden’s actions were.

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if there’s anyone left claiming to be surprised by Brexit, they must be blind.

Record Numbers Left Homeless After Eviction By Private Landlords In UK (G.)

Record numbers of families are becoming homeless after being evicted by private landlords and finding themselves unable to afford a suitable alternative place to live, government figures show. The end of an assured shorthold tenancy (AST) was cited by nearly a third of the 15,170 households in England who were classed as homeless in the three months to June – a number that was up 10% on the same period last year. The problem was particularly acute in London, accounting for 41% of all homelessness acceptances in the capital during the period, according to figures from the Department for Communities and Local Government (DCLG). The end of an AST has rapidly become the single biggest cause of homelessness in recent years, triggered by spiralling rent rises and cuts to housing benefit support.

In 2010 just 11% of homeless acceptances in England were caused by the end of an AST. The government’s statistical release states: “Affordability [of housing] is an increasingly significant issue, as more households facing the end of a private tenancy are unable to find an alternative without assistance.” Bob Blackman, a Tory backbencher who has drawn up a private member’s bill seeking to require councils to do more to help households at risk of losing their homes, said: “It is a national disgrace when we have the highest number of people in employment ever, we have a low rate of unemployment, that we still have people sleeping rough. Goodness knows what will happen if there is a recession.”

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Not if and when the present political climate perseveres.

Brexit Is A ‘Once-in-a-Generation’ Chance To Save UK’s WIldlife (Ind.)

Brexit will be a “once-in-a-generation chance” to reverse the huge decline in Britain’s wildlife, according to four of the UK’s leading environmental groups. The RSPB, WWF UK, National Trust and The Wildlife Trusts said the British countryside was “key to our identity as a nation” and farmers had the ability address the “urgent challenge of restoring nature”. They called on the Government to replace the much-criticised EU Common Agricultural Policy subsidy system with a British one that pays farmers to maintain “high environmental standards”. Earlier this month, the State of Nature 2016 report – produced by more than 50 organisations – concluded the UK was one of the “most nature-depleted countries in the world”. More than one in seven species face extinction and more than half are in decline.

However, in its response to the conservation groups’ call, the Government insisted the natural environment was “cleaner and healthier than at any time since the industrial revolution”. The National Farmers Union (NFU) said its members understood “the importance of protecting the environment” and complained that some organisations were making suggestions about agricultural policy “without speaking to those the policy most affects”. In a joint statement, called A new policy for our countryside, the four conservation groups said the UK’s departure from the EU “will be one of the most defining events for farming and our environment in living memory”. “[It] provides an unprecedented opportunity to revitalise our countryside in a way that balances the needs of everyone, for generations to come,” they said.

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We have created far too great a distance between ourselves and the world that gives us life.

Bees Added To US Endangered Species List For The First Time (G.)

Seven types of bees once found in abundance in Hawaii have become the first bees to be added to the US federal list of endangered and threatened species. The listing decision, published on Friday in the Federal Register, classifies seven varieties of yellow-faced or masked bees as endangered, due to such factors as habitat loss, wildfires and the invasion of non-native plants and insects. The bees, so named for yellow-to-white facial markings, once crowded Hawaii and Maui but recent surveys found their populations have plunged in the same fashion as other types of wild bees – and some commercial ones – elsewhere in the United States, federal wildlife managers said.

Placing yellow-faced bees under federal safeguards comes just over a week since the US Fish and Wildlife Service proposed adding the imperilled rusty patched bumble bee, a prized but vanishing pollinator once found in the upper midwest and north-eastern United States, to the endangered and threatened species list. One of several wild bee species seen declining over the past two decades, the rusty patched bumble bee is the first in the continental United States formally proposed for protections. The listing of the Hawaii species followed years of study by the conservation group Xerces Society, state government officials and independent researchers. The Xerces Society said its goal was to protect nature’s pollinators and invertebrates, which play a vital role in the health of the overall ecosystem.

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Nice, but that’s just a few of them. I think we’re going to end up sending our armies, our children and grandchildren, to Africa and far beyond, to the oceans, to try and keep alive enough of what preceded us on this planet in order to guarantee our own species can survive. But I can’t say I have high hopes.

Elephants Have Learned To Avoid Poachers By Hanging Out With Rangers (Konbini)

In an effort to protect diminishing elephant herds in the Democratic Republic of Congo’s Virunga National Park, a Kenyan conservation group fitted elephants with collars so they could monitor and track them in real time. Save the Elephants claim some of the herds they track have started changing their behavior to avoid dangerous areas, which the team believes is an adaptation to poaching. “Several elephant families [were seen] clustered around ranger posts, suggesting they had learned to distinguish the heavily armed rangers as harmless,” STE founder Iain Douglas-Hamilton said. In one rebel-afflicted area, elephants had even started hanging out at ranger checkpoints where huge trucks of charcoal and hardwood rumble through every few minutes.

“Yet somehow the elephants sensed that they were safe there and walked close to the voluble rangers.” Elephants that are able to distinguish rangers from poachers represent an incredible feat of animal ingenuity, but according to experts, it’s all quite understandable. According to My Green World, these mammals are similar to gorillas, in that they’re “smart, sensitive, loyal and aware.” But while this is great news for elephants (and bad news for outsmarted poachers), there’s still the matter of curbing the ongoing colossal hunting epidemic. Africa had 1.3 million elephants in the 1970s, but today there are only 500,000. So there is still quite a way to go before elephants can be taken off the endangered species list.

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 September 23, 2016  Posted by at 8:05 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing “Slaves reunion DC. Ages: 100, 104, 103; Rev. Simon P. Drew, born free.” 1921

World Trade Grinds Lower, Hits 2014 Levels (WS)
‘When I Think Of Central Banks, I Think Of Alchemists’: Marc Faber (CNBC)
Central Bankers Are The Arsonists That Create The Fire: Bill Fleckenstein (ZH)
Bad Debts In Chinese Banking System 10 Times Higher Than Admitted: Fitch (AEP)
The Coming Wave of Defaults Will Be Devastating (CH Smith)
Time to ‘Be Alarmed’ about Emerging Market Debt: UN (DQ)
The Ted Spread Is Dead, Baby. The Ted Spread Is Dead (WSJ)
UK Councils ‘Building Up Dangerous Levels Of Debt And Risk’ (Ind.)
You’re Not as Rich as You Think (Satyajit Das)
Deutsche Bank Woes Sparks Concern Among German Lawmakers (BBG)
Regulators Expect Monte Dei Paschi To Ask Italy For Help (R.)
How Does A 60% Increase In NYC Homelessness Constitute A Recovery? (ZH)
Pope Francis: Journalism Based On Gossip And Lies Is A Form Of Terrorism (G.)
Indigenous Australians The Oldest Living Culture; It’s In Our Dreamtime (G.)

 

 

Rising health care costs prop up US GDP. We all know that’s not a good thing.

World Trade Grinds Lower, Hits 2014 Levels (WS)

World trade in merchandise is a reflection of the global goods-producing economy. And it just can’t catch a break. The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released the preliminary data of its Merchandise World Trade Monitor for July. The index fell 1.1% from June to 113.4, the lowest since May 2015 – a level it had first reached on the way up it in September 2014. The chart shows that merchandise world trade isn’t falling off a cliff, as it had done during the financial crisis, when global supply chains suddenly froze up. But it’s on a slow volatile grind lower. And compared to the fanciful growth after the Financial Crisis, it looks outright dismal:

This time – after the big adjustment in values months ago – we have another statistical note. In this data release, the CPB shifted the base year of the series from 2005 to 2010, so the values of the entire index shifted down. Hopefully, the change made the series more representative of reality – because getting a good grip on reality these days is really hard, when entire data systems are carefully designed to conceal more than they reveal (such as the official inflation data). The decline in trade was sharper in the emerging economies than the advanced economies. That makes sense: The US, on whose demand the health of the entire world economy seems to depend, experienced falling imports in July, according to the data.

Data point after data point document that the goods-based economy in the US is in trouble – manufacturing, wholesale, retail… nothing is firing on all or even most cylinders. But the service-based economy is not doing all that badly. Its biggest sector – and the biggest sector overall in the US – healthcare, is doing quite well, actually. Among the health-care companies in the S&P 500, revenues rose 5.2% in the second quarter, year over year, when revenues for all S&P 500 companies fell 3.1%. Revenues rose not because people are getting more health care; they rose because health care has been getting more expensive at a breath-taking pace for many years as the industry has been consolidating into oligopolies and as outrageous prices increases on pharmaceutical products regularly grace the headlines.

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“They were trying to mix all kinds of powders and chemicals to produce essentially gold. And they all failed..”

‘When I Think Of Central Banks, I Think Of Alchemists’: Marc Faber (CNBC)

Central bankers trying to spur growth are like alchemists trying to make gold and they’re just as likely to fail, said Marc Faber, the publisher of the Gloom, Boom & Doom report. “When I think of central banks, I think of alchemists,” Faber, also known as Dr. Doom for his pessimistic views, told CNBC’s “Squawk Box” on Thursday. “They were trying to mix all kinds of powders and chemicals to produce essentially gold. And they all failed,” he said, although he noted that some alchemists did produce other useful chemicals during their ill-fated search for the precious metal. “But the central banks are just mixing water, in other words, paper money, and the results cannot be a favourable outcome in the long run.”

Faber noted that from the 1970s to the mid-1980s, people believed inflation was “forever,” but now the same central banks that were fighting inflation were now fighting deflation. This fight was a mistake, he said, claiming that across Asia, price rises were exceeding income gains. “It’s possible that suddenly inflationary pressures will be there, that central banks should then act but they cannot because the system is so overleveraged,” he said. At the same time, Faber noted that the low and negative interest rates globally were hurting pension funds. “Pension funds, even in these beautiful years of returns, 2009 to today, they have become less funded, they have become more underfunded,” he said. “With interest rates at zero and this low, their portion that’s in bonds is never going to meet the expected returns of 7.5%. It’s physically not possible.”

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Alchemists and arsonists.

Central Bankers Are The Arsonists That Create The Fire: Bill Fleckenstein (ZH)

Having been invited on to CNBC to discuss his views of the market, famous short-seller Bill Fleckenstein explained rather eloquently that QE4 is coming and people will wake up to the fact that central bankers “are the arsonists that create the fire, not the firemen that put it out.” This non-mainstream view was treated with disdain by CNBC host Tim Seymour who slammed Fleckenstein for “missing out” on the “artificial market’s” (because even CNBC now admits that’s what it is) gains. The response was epic. “Don’t be such a jerk… I don’t ask to come on this show, you invited me… and don’t get in my face because I won’t join your party…”

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A $2 trillion black hole.

Bad Debts In Chinese Banking System 10 Times Higher Than Admitted: Fitch (AEP)

Bad debts in the Chinese banking system are ten times higher than officially admitted, and rescue costs could reach a third of GDP within two years if the authorities let the crisis fester, Fitch Ratings has warned. The agency said the rate of non-performing loans (NPLs) has reached between 15pc and 21pc and is rising fast as the country delays serious reform, relying instead on a fresh burst of credit to put off the day of reckoning. It would cost up to $2.1 trillion to clean up this toxic legacy even if the state acted today, and much of this would inevitably land in the lap of the government. “There are already signs of stress that point to NPLs being much higher than official estimates (1.8pc), most obviously the increased frequency with which the banks are writing off or offloading loans,” it said.

The banks have been shuffling losses off their balance sheets through wealth management vehicles or by classifying them as interbank credit, seemingly with the collusion of the regulators. Loans are past 90 days overdue are not always deemed bad debts. “The longer debt grows, the greater the risk of asset quality and liquidity shocks to the banking system,” said Fitch. Capital shortfalls are currently 11pc to 20pc of GDP, but this threatens to hit 33pc in a worst case scenario by the end of 2018. “Defaults in China could lead to mutual credit guarantees in the background pulling other firms into distress. A large increase in real defaults risks triggering a chain of bankruptcies that magnifies the potential for financial instability,” it said.

“Mid-tier banks have the weakest buffers, and are the most vulnerable to funding stress,” said the report, by Jonathan Cornish and Grace Wu. The damage eclipses losses during the global financial crisis in Britain and the US, where the direct costs of bank rescues were roughly 8pc of GDP. It would be closer to the trauma suffered by Ireland, Greece, and Cyprus when their banking systems collapsed, but on a vastly greater scale. The Chinese state has deep pockets but strains are mounting. Public debt has reached 55pc of GDP following the bail-out of local governments. This is now higher than among ‘A’ rated peers, mostly in the developing world. “Pressure on China’s sovereign rating could emerge if general government indebtedness were to rise significantly,” said the Fitch report.

China let rip with a fresh burst of credit growth from the middle of last year after a series of policy errors triggered a recession – with ‘Chinese characteristics’ – in early 2015. It ditched any serious effort to reform the economy and opted for stimulus as usual, cutting interest rates and the reserve requirement ratio. Credit reached 243pc of GDP by the end on last year, double the level in 2008. Banking system assets have grown by $21 trillion over that time, 1.3 times greater than the entire US commercial banking nexus.

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“Defaults mean loans and bonds won’t be paid back. The owners of the bonds and debt (mortgages, auto loans, etc.) will have to absorb massive losses.”

The Coming Wave of Defaults Will Be Devastating (CH Smith)

In an economy based on borrowing, i.e. credit a.k.a. debt, loan defaults and deleveraging (reducing leverage and debt loads) matter. Consider this chart of total credit in the U.S. Note that the relatively tiny decline in total credit in 2008 caused by subprime mortgage defaults (a.k.a. deleveraging) very nearly collapsed not just the U.S. financial system but the entire global financial system. Every credit boom is followed by a credit bust, as uncreditworthy borrowers and highly leveraged speculators inevitably default. Homeowners with 3% down payment mortgages default when one wage earner loses their job, companies that are sliding into bankruptcy default on their bonds, and so on. This is the normal healthy credit cycle.

Bad debt is like dead wood piling up in the forest. Eventually it starts choking off new growth, and Nature’s solution is a conflagration–a raging forest fire that turns all the dead wood into ash. The fire of defaults and deleveraging is the only way to open up new areas for future growth. Unfortunately, central banks have attempted to outlaw the healthy credit cycle. In effect, central banks have piled up dead wood (debt that will never be paid back) to the tops of the trees, and this is one fundamental reason why global growth is stagnant. The central banks put out the default/deleveraging forest fire in 2008 with a tsunami of cheap new credit. Central banks created trillions of dollars, euros, yen and yuan and flooded the major economies with this cheap credit.

They also lowered yields on savings to zero so banks could pocket profits rather than pay depositors interest. This enabled the banks to rebuild their cash and balance sheets – at the expense of everyone with cash, of course. Having unleashed tens of trillions of dollars in new credit since 2008, the central banks have simply increased the likelihood and scale of the coming default conflagration. Now the amount of deadwood that’s piled up is many times greater than it was in 2008. Very few observers explore what happens after defaults start cascading through the system. Defaults mean loans and bonds won’t be paid back. The owners of the bonds and debt (mortgages, auto loans, etc.) will have to absorb massive losses.

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We’ve been alarmed about it for years.

Time to ‘Be Alarmed’ about Emerging Market Debt: UN (DQ)

[..] It was the peak of the emerging market bubble, when the amount of debt that low-income developing economies could have sold to eager investors seemed almost limitless. The main reason for this unprecedented surge in appetite for EM debt was the huge monetary expansion unleashed in many of the world’s major economies, led by the Fed’s QE program. The result was the now-all-too-familiar reality of anemic (at best) yield opportunities in developed markets, prompting investors to seek out much riskier emerging market assets. The moment the Fed turned off the spigot, in mid-2014, the flow of funds began to reverse, according to the report, creating ripe conditions for a “prolonged commodity price shock, steep currency depreciations and worsening growth prospects,” which have “quickly driven up borrowing costs and debt-to-GDP ratios.”

For the first time since the Latin American debt crisis in the second half of the 1980s, aggregate net capital flows entered negative territory. Aggregate outflows reached $656 billion in 2015 and $185 billion in the first quarter of 2016. The capital flight was particularly pronounced in China and other parts of Asia. Note how capital flight heated up in 2014 toward the end of the Fed’s “QE Infinity”.

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More consequences of unbridled manipulation of financial markets.

The Ted Spread Is Dead, Baby. The Ted Spread Is Dead (WSJ)

A measure of stress in financial markets, whose alarm bells heralded the 2008 financial crisis, just hit its highest level in over seven years. But don’t worry. It turns out the so-called Ted Spread might be dead, an unlikely casualty of the recent changes in U.S. money-market regulation. This spread charts the difference between the London interbank offered rate and the yield on three-month U.S. Treasury bills. Libor is a dollar-denominated global gauge of private-sector credit strength, particularly that of banks, and three-month bills measure an ultrasafe bet—the U.S. government’s creditworthiness. Ted stands for Treasury-Eurodollar rate, the Eurodollar being the greenback denominated lending reflected in the Libor rate.

If the difference, or spread, between what banks charge each other increases compared with yields on safe government debt, that reflects an elevated risk of defaults in the private sector that the banking sector lends to. For the past year and a half the spread has been creeping higher, rising from 0.2 of a percentage point at the turn of 2015, to 0.653 of a percentage point on Wednesday. That is the highest it has been since May 2009, in the aftermath of the global financial crisis, surpassing other moments of extreme stress, like the euro sovereign-debt crisis around 2011. But there is a problem with that. Looming U.S. regulation of money-market funds has driven Libor higher, meaning that it isn’t quite the indicator that it once was.

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Blair and Cameron’s scorched earth.

UK Councils ‘Building Up Dangerous Levels Of Debt And Risk’ (Ind.)

Cash-strapped local councils are building up dangerous levels of risk and debt as they turn to commercial ventures in a bid to raise funds, credit agencies and campaigners have warned. Moody’s, the credit agency, warned that a series of ambitious plans to boost revenue by setting up businesses could put council tax payers at risk should they run into difficulties. The warning, in a report into local government finance, comes amid mounting evidence that local authorities are increasingly turning to borrowing after a run of tough settlements with central Government. Roshana Arasaratnam, a senior credit officer at Moody’s, said in the wake of the report’s publication:

“Borrowing to invest in commercial projects exposes local authorities to additional credit risk, as the revenues that flow from these projects are inherently uncertain. “Those adopting this strategy also face increased project execution risk, and greater competition from the private sector.” Ms Arasaratnam said such borrowing contrasted sharply with local authorities’ traditional investments in schools, housing and transport which are underpinned by government grants and do not depend on generating revenues from commercial activities. The report highlights a series of business ventures set up by councils, some of which are now on negative credit watch. They include Warrington Borough Council, which in 2015 issued £150m of bonds to support an economic development plan aimed at increasing business rate revenues.

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Paper wealth is not wealth.

You’re Not as Rich as You Think (Satyajit Das)

The idea that the world is awash in savings – one factor driving the theory of secular stagnation – is, on the surface, a persuasive one. Too bad it may not be true. Yes, the postwar generation is wealthier than any before it. But the ultimate value of any investment depends upon being able to convert it into cash and thus generate purchasing power. In fact, the world’s accumulated wealth – around $250 trillion, according to Credit Suisse’s Global Wealth Report – is almost certainly incapable of realization at its paper value. The headline number thus vastly overstates the supposed savings glut. Most of these savings are held in two forms: real estate, primarily principal residences, and retirement portfolios that are invested in stocks and bonds.

Both are rising in value. A combination of population growth, higher incomes, increased access to credit, lower rates and, in some cases, limited housing stock have driven up home prices; those who got in early have done especially well. Meanwhile, increased earnings and dividends, driven by economic growth and inflation, have boosted equity values. So have loose monetary policies designed to counteract the Great Recession since 2009. Yet the appreciating value of one’s own home doesn’t automatically translate into purchasing power. A primary residence produces no income. Indeed, maintenance costs, utility bills and property taxes – which often rise along with home prices – mean that houses are cash-flow negative.

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As soon as they understand the magnitude of the numbers, they’ll look the other way.

Deutsche Bank Woes Sparks Concern Among German Lawmakers (BBG)

Deutsche Bank’s finances, weakened by low profitability and mounting legal costs, are raising concern among German politicians after the U.S. sought $14 billion to settle claims related to the sale of mortgage-backed securities. At a closed session of Social Democratic finance lawmakers this week, Deutsche Bank’s woes came up alongside a debate over Basel financial rules, according to two people familiar with the matter. Participants discussed the U.S. fine and the financial reserves at Deutsche Bank’s disposal if it had to cover the full amount, according to the people, who asked not to be identified because the meeting on Tuesday was private. While the participants – members of the junior party in Angela Merkel’s government – didn’t reach any conclusions on the likely outcome, the discussion signals that the risks have the attention of Germany’s political establishment.

The German Finance Ministry last week called on the U.S. to ensure a “fair outcome” for Deutsche Bank, citing cases against other banks where the government settled for reduced fines. Pressure on Germany’s biggest lender has increased since German Finance Minister Wolfgang Schaeuble told Bloomberg Television on Feb. 9 that he has “no concerns about Deutsche Bank.” Germany’s biggest bank was already ranked among the worst-capitalized lenders in European stress tests before U.S. authorities demanded $14 billion during initial talks to settle a probe into how it handled mortgage securities during the 2008 financial crisis. The announcement led Deutsche Bank’s riskiest bonds to plunge.

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Never ending story. Because it can’t end well.

Regulators Expect Monte Dei Paschi To Ask Italy For Help (R.)

European regulators expect Italian bank Monte dei Paschi di Siena will have to turn to the government for support, three euro zone officials with knowledge of the matter said, although Rome would strongly resist such a move if bondholders suffered losses. Less than two months after the Tuscan lender announced an emergency plan to raise €5 billion of fresh capital, having come last in a health check of 51 European banks, there is growing concern among European regulators that the cash bid will fall short. While the bank is determined to see through the capital raising, if it were to disappoint, it would be left with a capital hole. Now euro zone authorities are considering whether state support would have to be tapped after what bankers have described as slack interest in the bank’s share offer.

“There is clearly an execution risk to the capital raising,” said one official with knowledge of the rescue attempt, adding that the bank’s value, about one ninth the size of the planned €5 billion cash call, would be a turn-off for investors. That person said a “precautionary recapitalization by the Italian state” could be used to make up any shortfall once attempts to raise fresh cash from investors had concluded in the coming months. [..] Monte dei Paschi faces a considerable challenge in convincing investors to back its third recapitalisation in as many years. Further complicating the picture, a constitutional referendum, expected to be held by early December that could decide the future of Renzi, is likely to push the bank’s fund-raising into next year, the officials say. The bank’s fragile state poses a threat to confidence in other Italian lenders and even to heavily-indebted Italy, the euro zone’s third-largest economy.

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There’s 24/7 propaganda and then there’s reality. It’s about air time more than anything else.

How Does A 60% Increase In NYC Homelessness Constitute A Recovery? (ZH)

[..] ..courtesy of data from the New York City Department of Homeless Services, we have a couple of additional charts to add to the list like the one below that shows a ~60% increase in the number of NYC families living in homeless shelters over the past five years. Aside from an increse during the “great recession”, the number of New York City families living in homeless shelter remained fairly constant at around 8,000 from July 2008 through July 2011. That said, over the following 5 years beginning in August 2011 through today, NYC has experienced a nearly 60% increase in the number of families living in homeless shelters to nearly 13,000. Ironically, the increase in homelessness experienced during the “great recession” was just a blip on the radar compared to the past five years as residential rental rates in NYC have soared.

Alternatively, we offer up the following statistics from Mayor Bill De Blasio’s Fiscal 2016 “Mayor’s Management Report” highlighting a 42% increase in applications for “Emergency Rent Assistance” from New York City families at risk of losing their housing. If this is what a “recovery” looks like to Obama we would certainly like to better understand how he would define a recession.

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“..journalism should not be used as a “weapon of destruction against persons and even entire peoples..“

Pope Francis: Journalism Based On Gossip And Lies Is A Form Of Terrorism (G.)

Journalism based on gossip or rumours is a form of “terrorism” and media that stereotype entire populations or foment fear of migrants are acting destructively, Pope Francis has said . The pope, who made his comments in an address to leaders of Italy’s national journalists’ guild, said reporters had to go the extra mile to seek the truth, particularly in an age of round-the-clock news coverage. Spreading rumours is an example of “terrorism, of how you can kill a person with your tongue“, he said. “This is even more true for journalists because their voice can reach everyone and this is a very powerful weapon.“ In Italy, a number of newspapers are highly politicised and are regularly used to discredit those with differing political views, sometimes reporting unsubstantiated rumours about their private lives.

In 2009 several media outlets owned by the family of then-prime minister Silvio Berlusconi came under fire from the journalists’ guild over stories questioning the trustworthiness of a magistrate who had ruled against a company owned by the Berlusconi family. The stories were filled with insinuations about the way he dressed, including the colour of his socks, and the way he took walks in the park. The pope, who has often strongly defended the rights of refugees and migrants, said journalism should not be used as a “weapon of destruction against persons and even entire peoples“. “Neither should it foment fear before events like forced migration from war or from hunger,” he added.

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A highly developed culture 10s of 1000s of years before anywhere else on the planet. Ignored as such by Europe and North American bias.

Indigenous Australians The Oldest Living Culture; It’s In Our Dreamtime (G.)

Australia’s Aboriginal people have already been using the tag of “world’s oldest living culture” before given scientific confirmation in a recent study of the DNA of Australia’s Indigenous people. One likely response to the finding from the subjects of the research is a satisfied, “I told you so”. Scientific research often reaffirms what is in an oral history. This has been particularly so in Australia where cultural stories – often referred to as Dreamtime stories – that describe land movements and floods fit in with what later becomes known about seismic and glacial shifts from the geological record. For example, Associate Professor Nick Reid and Professor Patrick D. Nunn have analysed stories from Indigenous coastal communities and have seen a thread of discussions about the rise of tidal waters that occurred between 6,000 and 7,000 years ago.

And these are the newer stories. Other stories collected from around Cairns showed that stories recalled a time when the land covered the area that is now the Great Barrier Reef and stories from the Yorke Peninsula reference a time when there was no Spencer Gulf (it is now 50m below sea level). Reid and Nunn hypothesise that this could make these stories over 12,000 years old. So oral history and observation can reinforce what the science says. Or science can confirm what we’ve been saying all along. For many older Indigenous people, the cultural stories will seem the more trustworthy. There are historic reasons why Indigenous people remain suspicious of science practiced by Europeans, who have not yet countered the legacy of their obsessions with head measuring and blood quantum.

Aboriginal culture and traditions have been often viewed through a Eurocentric gaze that has failed to see the wisdom contained within its values and teachings. Cultural stories were often illustrated for children without looking for deeper meanings and codes. These stories didn’t just tell a tale of how the echidna got its spikes, they contained – like parables in the bible – a set of messages about the importance of sharing resources in a hunter-gatherer society and the consequences of selfishness.

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Sep 152016
 
 September 15, 2016  Posted by at 8:59 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 15 2016


Jack Delano Jewish stores in Colchester, Connecticut 1940

Bond Yields Are Surging Despite Deflation, And That Is Dangerous (AEP)
Wall Street ‘Fear Gauge’ Suggests Stock Market Is About To Get Wild (MW)
‘There’s Only So Much You Can Squeeze Out Of A Debt Cycle’: Ray Dalio (CNBC)
China Debt Default Looms As Growth Options Run Out: Nomura (VW)
PBOC Yuan Positions Drop to Lowest Since 2011 (BBG)
The Closing of the World Economy (Satyajit Das)
Wall Street’s Newest Money-Making Scheme Targets Your Home (MW)
Ford Shifting All US Small-Car Production To Mexico (DFP)
Vancouver Tax on Empty Homes to Target Near-Zero Rental Supply (BBG)
US Confidence In Media Hits Fresh Low (AFP)
US Rooftop Solar Boom Is Grinding To A Halt (BBG)
Latest Estimate Pegs US Cost of Wars at Nearly $5 Trillion (I’Cept)
Juncker Denies Alcohol Problem In Interview, Drinks 4 Glasses Of Champagne
Helping Homeless People Starts With Giving Them Homes (G.)

 

 

The Great Disconnect.

Bond Yields Are Surging Despite Deflation, And That Is Dangerous (AEP)

The growth rate of nominal GDP in the US has fallen to 2.4pc, the lowest level outside recession since the Second World War. It has been sliding relentlessly for almost two years, a warning signal that underlying deflationary forces may be tightening their grip on the US economy. Given this extraordinary backdrop, the violent spike in US and global bonds yields over the last four trading days is extremely odd. It is rare for AAA-rated safe-haven debt to fall out of favour at the same time as stock markets, and few explanations on offer make sense. We can all agree that oxygen is thinning as we enter the final phase of the economic cycle after 86 months of expansion. The MSCI world index of global equities has risen to a forward price-to-earnings ratio of 17, significantly higher than on the cusp of the Lehman crisis.

“We think that too much complacency has crept in,” says Mislav Matejka, equity strategist for JP Morgan. “After seven years of having a structural overweight stance on global equities, we believe the regime has fundamentally changed. We think that one should not be buying the dips any more, but use any rallies as selling opportunities,” he said. The correlation between bonds and equities has reached unprecedented levels, and that has the coiled the spring. The slightest rise in yields now has a potent magnifying effect across the spectrum of assets. Hence the angst over what is happening to US Treasuries. Yields on 10-year Treasuries – the benchmark borrowing cost for international finance – have jumped 19 basis points to 1.72pc since the middle of last week.

The amount of global government debt trading at rates below zero has suddenly fallen from $10 trillion to $8.3 trillion, with parallel effects for corporate bonds. You would have thought that inflation was picking up in the US and that the Fed was about to slam on the brakes, but that is not the case. The markets are pricing in a mere 15pc chance of a rate rise next week, and the figure has been falling.  If anything, the US inflation scare has subsided. There were grounds for worrying earlier this year that Fed would have to act. In February, core CPI inflation was steaming ahead at a rate of 2.9pc on a three-month annualized basis. This has since dropped back to 1.8pc. Other core measures are lower.

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Probably not going to calm down before next year.

Wall Street VIX ‘Fear Gauge’ Suggests Stock Market Is About To Get Wild (MW)

So much for the those calm markets. Wall Street’s “fear gauge” is rearing higher as U.S. equities logged a second sharp selloff in the past three sessions, as hand-wringing over central-bank monetary policy contributes to a renaissance of volatility. The CBOE Volatility Index often used as a measure of fear in the market, rose 18% on Tuesday at 17.85—its highest level since June 28 and implying that investors are starting to dial up bets that stocks could suffer further near-term swings turbulent. The VIX has hovered around 12 since mid-July. That level usually signals quiescence, while a reading of 20 or above indicates that investors are bracing for moves sharply south

The rise in the VIX comes as the Dow Jones Industrial Average and the S&P 500 index and the Nasdaq Composite relinquished all of the sharp gains racked up 24 hours ago. Monday’s rally followed another tumble on Friday that saw the VIX jump 40%—the largest daily move since Brexit on June 23. On Tuesday, volume in an exchange-traded fund that tracks the VIX, Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures exceeded that of stocks on the S&P 500 for the first time ever, as Bloomberg highlights:

On Wednesday, the VIX ticked higher as the Dow and S&P 500 lost momentum to trade lower late in the session. Three straight days of swings of at least 1% for stocks, marks the first time since 1963 that the S&P 500 followed an extended period of calm—43 days—with a trio of such choppy trading days, according to Dow Jones data. That was the two-day period before and immediately following the assassination of President John F. Kennedy in November 1963, Dow Jones data show. “The pickup in volatility is notable, and typically characterizes pullbacks,” said Katie Stockton, chief market technician at BTIG.

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“We are to various degrees close to pushing on a string..”

‘There’s Only So Much You Can Squeeze Out Of A Debt Cycle’: Ray Dalio (CNBC)

The debt market is in a “dangerous situation” as central banks around the world lose their ability to stimulate growth, hedge fund giant Ray Dalio said Tuesday. As the world faces more than $11 trillion in negative-yielding debt, Dalio said central banks like the Fed, the ECB and the BOJ are facing a dilemma. “There’s only so much you can squeeze out of the debt cycle, and we’re there globally,” the head of Bridgewater Associates said at the Delivering Alpha conference presented by CNBC and Institutional Investor. “You can’t lower interest rates more.” Dalio spoke as Fed officials contemplate a rate hike at some point this year. Market-implied probability indicates that the Fed won’t hike until at least December. Its September meeting is next week. While monetary policy has been used as a fuel for growth and asset price appreciation, Dalio said its effectiveness is waning. “We are to various degrees close to pushing on a string,” he said.

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“..there is essentially only one practical way to reduce the stock of outstanding debts: defaults.”

China Debt Default Looms As Growth Options Run Out: Nomura (VW)

To alleviate its debt problem, China should adopt appropriate macro-economic policies encompassing currency depreciation and cutting interest rates to an ultra-low-level within two to three years, believe Nomura analysts. Yang Zhao and team said in their September 14 research piece titled “China: Solving the debt problem” that they believe RMB depreciation will continue and forecast USD/CNH at 7.1 at the end of 2017. Zhao and team highlight that debt-to-GDP ratio can be lowered either through reducing the numerator or increasing the denominator.

They believe that to contain or even reduce the debt-to-GDP ratio, the gap between debt growth and nominal GDP growth must shrink or turn negative. They believe lowering the ratio has to be premised on the acceptance of a slower rate of GDP growth: The Nomura analysts argue that default is the only practical way to trim the stock of outstanding debts. Instead of an outright default, per se, they suggest other approaches such as renegotiating terms, lowering interest rates, and tenure extension.

“Since increasing the denominator is unfeasible, policymakers must therefore look to lower the numerator. The only practical measures that can be taken to reduce the debt ratio are those aimed at reducing the growth of debt to below that of nominal GDP growth. “The outstanding stock of debt can only be reduced through either repayment or indeed default. One argument is that China’s corporate sector and/or local governments can, or should, simply repay their debts by selling the huge amount of assets that they have accumulated, but again, this is not a feasible solution.

The key reason behind the low level of corporate leverage despite the huge amount of debt is that asset prices have not collapsed. If the corporate sector or local governments repaid their debts by selling their assets – which are predominantly in real estate – their leverage will almost certainly spike higher due to the subsequent decline in the value of their remaining asset base. Hence, there is essentially only one practical way to reduce the stock of outstanding debts: defaults.”

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Selling USD to prepare for SDR basket?!

PBOC Yuan Positions Drop to Lowest Since 2011 (BBG)

The Chinese central bank’s yuan positions – which reflect the amount of foreign currency held on its balance sheet – fell to the lowest since 2011 in August, a sign that it sold dollars to support the yuan. The People’s Bank of China has been seen intervening in the market to stem the currency’s slide, with Bank of East Asia and Natixis saying that policy makers will prevent the exchange rate from slipping past 6.7 per dollar before its admission into the IMF’s basket of reserves on Oct. 1.

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The only thing left of globalization is a vague idea.

The Closing of the World Economy (Satyajit Das)

Pundits and policymakers everywhere are bemoaning the rise of a new, inward-looking populism. Led by the likes of Donald Trump and Nigel Farage, those who’ve felt only globalization’s ill effects, not its benefits, have mounted a fierce counterattack. Border-hopping elites fret that the whole process of opening up and knitting together the world through trade, capital flows and immigration may soon go into reverse. They’re missing the point. Support for freer trade and greater openness had in fact begun to falter well before economic nationalists like Trump and Farage took center stage. The same governments that count themselves among globalization’s greatest champions have been rolling it back steadily since the global financial crisis.

Their excuses are innocent-sounding and several: to protect national industries and iconic businesses; to secure export markets and competitive advantage; and above all, to prop up employment and incomes. Despite oft-repeated warnings about avoiding the beggar-thy-neighbor policies of the 1930s, these governments allowed global trade talks – the so-called Doha Round – to stall as early as 2008. Nations including the U.S. have instead pursued narrower bilateral and regional deals where they don’t have to satisfy so many different negotiating partners and can continue to protect key sectors. If these pacts are better than nothing, they more or less foreclose the possibility of a more ambitious multilateralism.

Meanwhile, between 2009 and 2015, three times as many discriminatory trade measures were introduced as liberalizing ones. In the first 10 months of 2015 alone, the latest Global Trade Alert database recorded 539 such initiatives adopted by governments worldwide that harmed foreign traders, investors, workers or owners of intellectual property – a record. Efforts to control trade flows have grown increasingly sophisticated. Most governments no longer impose tariffs or other crude roadblocks that would violate WTO rules. Instead countries from the U.S. – with the auto bailouts – to the U.K., China, Brazil, Canada and several EU members have funneled aid to domestic industries. State procurement rules – which in China, say, forbid buying strategic and defense technology from abroad – favor domestic suppliers, as do “buy local” campaigns like the ones launched since 2009 in the U.S., U.K. and Australia.

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Innovation!?

Wall Street’s Newest Money-Making Scheme Targets Your Home (MW)

Do you want Wall Street to get a piece of your house? On Tuesday, the noted venture capitalist Marc Andreesen announced that he’d invested in a startup called Point. Point casts itself as a solution to an intrinsic problem with home ownership: Most Americans have most of their wealth tied up in their home. There are mechanisms for “taking out” some of the equity built up as a mortgage is paid down, such as home-equity lines of credit or home-equity loans. But they require paying interest – not to mention having good credit. They also don’t help homeowners diversify their investments. Diversification was the driver behind an earlier version of what Point offers. Allan Weiss, who helped create the S&P/Case-Shiller price indexes, created a platform he calls “indexed fractional ownership.”

His idea came in part from a conversation with a neighbor who said he was looking forward to “cashing out” of an expensive home he’d owned for a long time – just before the housing market crashed. If you own a home and offer some of the equity to an investor like Point, the idea goes, you could take that money and invest it in a different asset class, like stocks. And what does Point get? If the house appreciates before it is sold, Point benefits. If the house depreciates, according to Andreessen Horowitz’s website, “Point gets paid back after the bank, but before the homeowner, in the event of a sale.” A blog post on Point’s site notes that, in addition to an initial appraisal, Point may require a “risk adjustment” that “offsets the chance that the home will depreciate before the end of the term.”

Yet Weiss and Andreessen Horowitz both envision their products gaining the critical mass to move beyond one-off agreements between investors and individual homeowners into what the latter calls a “broad basket” of homes. “It’s rethinking the fundamentals of residential real estate ownership – making single-family residential real estate a liquid, tradeable asset class,” the venture capitalists wrote.

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By now, this is crazy.

Ford Shifting All US Small-Car Production To Mexico (DFP)

Ford is shifting all North American small-car production from the U.S. to Mexico, CEO Mark Fields told investors today in Dearborn. “Over the next two to three years, we will have migrated all of our small-car production to Mexico and out of the United States,” Fields said. The industry has known for decades that domestic manufacturers struggle to make a profit on small cars. Shifting their assembly to Mexico can reduce costs to a point. But some of these cars are over-engineered. For example, Field said the current Ford Focus can be ordered in 300 different configurations of options and colors. Ford wants to reduce that to 30, which will make the production process simpler and less expensive.

But Americans prefer larger vehicles, especially pickups and higher-riding SUVs and crossover vehicles for their personal use. The future of smaller cars in the U.S. may depend on the ability to electrify their powertrains and introduce them to ride-sharing fleets where they can generate revenue from fares paid by multiple riders. Along those lines, Fields and other Ford executives Wednesday outlined an aggressive plan to invest $4.5 billion over the next four years. These will include new models in segments such as commercial vehicles, trucks, SUVs and performance vehicles. Ford also reiterated its commitment to developing an autonomous vehicle by 2021. The company believes that autonomous vehicles could account for up to 20% of vehicle sales by 2030.

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Smart. But it may make prices fall even faster.

Vancouver Tax on Empty Homes to Target Near-Zero Rental Supply (BBG)

Vancouver, suffering from a near-zero supply of homes available for rent, plans to slap investors sitting on vacant properties with a new tax in an effort to make housing more accessible in Canada’s most-expensive property market. The levy, which would start in January, may be as high as 2% of the property’s assessed value, Kathleen Llewellyn-Thomas, the city’s general manager of community services, told reporters Wednesday. That would mean a minimum C$20,000 ($15,000) annual payment for the typical C$1 million-plus detached home in Vancouver based on July 2015 assessment data, the most recent available. “Vancouver is in a rental housing crisis,” said Mayor Gregor Robertson, whose announcement follows a separate measure by the province in July to impose a 15% tax on foreign buyers.

“Dangerously low vacancy rates across the city are near zero.” While the city, ranked the world’s third-most-livable, has drawn attention for its sky-high purchase prices fomented by global money flows, the rental market has been just as contentious locally. Vacancies can get scooped up within hours, while bidding wars drive up the cost of leases. Public scrutiny has focused on absentee landlords, particularly from overseas, who are accused of sitting on investment properties where windows remain dark throughout the year. Robertson estimated that more than 10,000 homes are empty and an additional 10,000 are “under-utilized.” The tax aims to get those properties into the rental supply so that the vacancy rate rises to about 3 to 5% from near zero today, he said. The city expects to raise about C$2 million from the tax in the first year.

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People do recognize propaganda to an extent.

US Confidence In Media Hits Fresh Low (AFP)

Americans’ trust in the media has sunk to a new low, and a bitter presidential race may be to blame, a Gallup survey showed Wednesday. The poll asking whether the media report the news “fully, accurately and fairly” found just 32% of Americans have a great deal or fair amount of trust, the lowest level in Gallup polling history and 8 percentage points below last year. Gallup began asking the question in 1972, and has polled Americans on a yearly basis since 1997. Trust and confidence in the media hit its highest point in 1976, at 72% following the investigative journalism coverage of the Vietnam and the Watergate scandal, according to the research group. But confidence has been below 50% since 2007.

“While it is clear Americans’ trust in the media has been eroding over time, the election campaign may be the reason that it has fallen so sharply this year,” Gallup said in its report. “With many Republican leaders and conservative pundits saying (Democratic presidential nominee) Hillary Clinton has received overly positive media attention, while (Republican nominee) Donald Trump has been receiving unfair or negative attention, this may be the prime reason their relatively low trust in the media has evaporated even more.” Gallup said Trump’s sharp criticism of the press may also have had an impact on public opinion.

Just 14% of Republicans said they trust the media, down sharply from 32% a year ago and the lowest level of confidence among Republicans in 20 years, according to Gallup. Among Democrats, 51% expressed confidence in the media, down from 55% a year ago, while the number of independents trusting news organizations fell to 30% from 33%. Trust was also low among younger adults: just 26% of those between the ages of 18 and 49 said they felt confidence in the media compared with 38% of those 50 and older.

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Bubble.

US Rooftop Solar Boom Is Grinding To A Halt (BBG)

Rooftop solar, which has surged more than 1,000% since 2010, will barely grow at all next year. Residential installations are expected to increase by 21% this year, but in 2017 the figure will inch upward by about 0.3%. The change comes as utilities push back against mandates to buy the electricity and shifting tax policies curb demand. Throw in sliding electricity rates and it’s clear the economic benefits of rooftop panels are no longer so obvious to consumers. That’s forcing rooftop developers including Vivint Solar, Sunrun and Elon Musk-backed SolarCity to focus on profitability instead of growth.

“Much like PC manufacturers in the 1990s, solar installers need to realize substantial new customer sales each year just to tread water in terms of annual revenue,” Hugh Bromley at Bloomberg New Energy Finance said. Residential installations are already slowing from the 79% expansion in 2015. Developers are expected to add 2.76 gigawatts this year and that will inch upward to 2.77 gigawatts in 2017 as investment slips 6.4% to $6.8 billion, according to estimates from Bloomberg New Energy Finance. “After growing as much as it has, sustaining high double-digit growth rate forever is not realistic,” said Pavel Molchanov at Raymond James Financial.

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US can’t afford to go to war anymore.

Latest Estimate Pegs US Cost of Wars at Nearly $5 Trillion (I’Cept)

The total US budgetary cost of war since 2001 is $4.79 trillion, according to a report released this week from Brown University’s Watson Institute. That’s the highest estimate yet. Neta Crawford of Boston University, the author of the report, included interest on borrowing, future veterans needs, and the cost of homeland security in her calculations. The amount of $4.79 trillion, “so large as to be almost incomprehensible,” she writes, adds up like this:

• The wars in Iraq, Afghanistan, Pakistan, Syria, and other overseas operations already cost $1.7 trillion between 2001 and August 2016 with $103 billion more requested for 2017 • Homeland Security terrorism prevention costs from 2001 to 2016 were $548 billion. • The estimated DOD base budget was $733 billion and veterans spending was $213 billion. • Interest incurred on borrowing for wars was $453 billion. • Estimated future costs for veterans’ medical needs until the year 2053 is $1 trillion.

Crawford carried out a similar study in June 2014 that estimated the cost of war at $4.4 trillion. Her methodology mirrors that of the 2008 book The Three Trillion Dollar War: The True Costs of the Iraq Conflict by Linda Bilmes and Joseph Stiglitz. There are even more costs of war that Crawford does not include, she writes. For instance, “I have not included here state and local government expenses related to medical care of veterans and homeland security. Nor do I calculate the macro economic costs of war for the U.S. economy.” She also notes that she does not add the cost of war for other countries, nor try to put a dollar figures on the cost in human lives.

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How did he land that job again?

Juncker Denies Alcohol Problem In Interview, Drinks 4 Glasses Of Champagne

The controversial head of the European Commission has denied that he has a problem with alcohol during an interview in which he drank four glasses of champagne. Allegations have circulated around Brussels in recent years about Jean-Claude Juncker’s drinking and one senior diplomatic source has said he “has cognac for breakfast”. In an interview with a French newspaper he defended his record as he consumed numerous classes of champagne. In 2014 it emerged that Mr Juncker’s drinking habits had been discussed at the highest levels by European leaders who privately have concerns over his lifestyle. A week before the UK referendum vote a video emerged of an apparently-drunk Mr Juncker taken at a May 2015 EU summit welcoming Viktor Orban, the hardline Hungarian PM, as “the dictator” before giving him a playful slap on the cheek.

“The dictator is coming,” Mr Juncker is heard to say, before locking a shocked Mr Orban in a clumsy embrace while Donald Tusk, the president of the European Council looked on, visibly embarrassed. Defending himself in an interview with the Liberation, he said: “Orban, I always call dictator, I am like this. As soon as someone breaks the mould they are obviously crazy or an alcoholic. “You think I’d still be in office if I was having cognac for breakfast? It really makes me sad and it has even led my wife to question if I lie to her, as I do not drink when I’m home.” He also went on to blame his unsteady walking on problems with his leg after a serious car accident.

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Basic. Better. Cheaper.

Helping Homeless People Starts With Giving Them Homes (G.)

Finland is the only European country where homelessness has decreased in recent years. At the end of 2015 the number of single homeless people was for the first time under 7,000 and this number includes people living temporarily with friends and relatives, who constitute 80% of all homeless people. This development is mainly due to a national programme to reduce long-term homelessness. The main explanation for this success is quite simple: when the national programme started housing first was adopted as a mainstream national homelessness policy. This common framework made it possible to establish a wide partnership of state authorities, local communities and non-governmental organisations. Cooperation and targeted measures in the implementation of the programme led to the aforementioned results, which were backed up by independent international evaluations.

Implementing housing first is not reasonable without proper housing options. It should go without saying that you can’t offer homeless people homes if the homes do not exist. It is this scarcity of homes that engenders the system in Britain, with demand outstripping supply, and people in crisis forced to jump through hoops to avoid sleeping on the street. In Finland, housing options included the use of social housing, buying flats from the private market to be used as rental apartments for homeless people, and building new housing blocks for supported housing. An important part of the programme was the extensive conversion of shelters and dormitory-type hostels into supported housing, to address the huge need for accommodation that offered help to tenants.

The last big hostel for homeless people in Helsinki with 250 bed places was run by the Salvation Army. A couple of years ago this hostel was renovated and now consists of 80 independent apartments with on-site staff. The disappearance of temporary solutions like hostels has completely changed the landscape of Finnish homelessness policy in a very positive way, for vulnerable individuals and in combatting antisocial behaviour. All this costs money, but there is ample evidence from many countries that shows it is always more cost-effective to aim to end homelessness instead of simply trying to manage it. Investment in ending homelessness always pays back, to say nothing of the human and ethical reasons.

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Jun 172016
 
 June 17, 2016  Posted by at 8:58 am Finance Tagged with: , , , , , , , , ,  


Unknown Dutch Gap, Virginia. Bomb-proof quarters of Major Strong 1864

Stocks, Sterling Surge After British MP’s Death (ZH)
’I’d Risk Life And Limb For My Babies’: Jo Cox (G.)
There’s A New Kind Of Housing Crisis in America (MW)
US Housing Bubble 2.0: Shadow Demand vs Shelter-Buyer Fundamentals (Hanson)
America’s Dying Shopping Malls Have Billions in Debt Coming Due (BBG)
Sell The Stocks, Sell The Bonds, Get Out Of The Casino: Stockman (Fox)
Default Cycle: ‘It’s Only A Matter Of Time Before Many Of Them Blow Up’ (ZH)
China’s Debt Is 250% of GDP And ‘Could Be Fatal’, Says Government Expert (G.)
The Fed Has Brought Back ‘Taxation Without Representation’ (Black)
Forget Brexit, It’s Italy’s Turn (Stelter)
Austerity Kills! Greeks’ Health Deteriorating, Life Expectancy Shrinks (KTG)
Antarctic CO2 Hits 400ppm For First Time In 4 Million Years (G.)

The world drowns in cynicism.

Stocks, Sterling Surge After British MP’s Death (ZH)

The devastating news that British MP Jo Cox has died following the shooting incident earlier today by a mentally unstable man…

“U.K. Labour Party lawmaker Jo Cox died after being attacked as she met constituents in her electoral district in West Yorkshire in the north of England. Campaigning ahead of next week’s referendum on Britain’s membership of the European Union was suspended for the rest of Thursday by both sides after the attack, which happened just before 1 p.m. Jo was attacked by a man who inflicted serious and, sadly, ultimately fatal injuries,” West Yorkshire Police Temporary Chief Constable Dee Collins said in a televised press conference in Wakefield.

…has sparked a bullish buying binge in stocks as Sterling rallies on the market’s “hope” that the Brexit vote will be delayed. This evening’s major speech at Mansion House by Bank of England Governor Carney has been cancelled due to her death…

Bank of England says Governor Mark Carney will no longer deliver planned speech in London. BOE cites “dreadful attack today on Jo Cox MP” Governor will attend event and deliver a “short speech reflecting on today’s events”

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No further comment. Perhaps complete silence would be the most appropriate answer, but all we’ll hear all day and then some is comments and opinions. Spin doctors and conspiracies work overtime.

’I’d Risk Life And Limb For My Babies’: Jo Cox (G.)

Labour MP Jo Cox, who died on Thursday after being attacked in her constituency of Batley and Spen in West Yorkshire by an armed man, makes a speech in parliament about the need for the UK to help child migrants stranded unaccompanied in Europe. The speech was part of a debate on the issue which took place in April 2016.

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Unaffordability. Known to pop many a bubble.

There’s A New Kind Of Housing Crisis in America (MW)

America has a housing crisis, and most Americans want policy action to address it. That’s the conclusion of an annual survey released Thursday by the MacArthur Foundation. The “crisis” is no longer defined by the layers of distress left behind after the subprime bubble burst, but about access to stable, affordable housing. A vast majority of respondents – 81% – said housing affordability is a problem, and one-third said they or someone they know has been evicted, foreclosed on, or lost their housing in the past five years. Over half the respondents, 53%, said they’d had to make sacrifices over the past three years to be able to pay their mortgage or rent. Yet most respondents believe the housing problem is solvable, and want policymakers to address it.

Nearly two-thirds of survey respondents from both parties say housing hasn’t received enough attention in the 2016 campaign. Most people supported a range of proposed policies to support affordable housing, both rentals and purchase. But people increasingly believe that owning a home is a “an excellent long-term investment.” Some 60% agreed with that statement, up from 56% a year ago and 50% in 2014. Access to stable, affordable housing – whether to rent or buy – is “about more than shelter,” the MacArthur Foundation noted in a release. “It is at the core of strong, vibrant, and healthy families and communities.”

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“If 2006 was a known bubble with housing prices at “X”, affordability never better, easy availability of credit, unemployment in the 4%’s, total workforce at record highs, and growing wages, then what do you call today with house prices at X+ 5% to 20%, worse affordability and credit, higher unemployment, weakening total workforce, and shrinking wages? Whatever you call it, it’s a greater thing than “X”.

US Housing Bubble 2.0: Shadow Demand vs Shelter-Buyer Fundamentals (Hanson)

[..] if everybody always had to purchase owner-occupied properties using the same down payment amount and a market rate, fixed-rate mortgage then house prices would always reflect the employment, income, and macro-economic conditions of the surrounding area. But, when ‘Shadow Demand’ cohorts enter the market using cheap and easy credit and liquidity prices can detach from local-area economics, especially if the Shadow Demand continues to gain market share. Heck, in the greater Phoenix region, over 50% of all households can’t afford the going rate on a two-bedroom apartment, yet house prices are some of the strongest in the nation. Obviously, this isn’t due to strong end-user, shelter-buyer fundamentals.

As Shadow Demand continues to gain share over end-user buyers, they settle for lower respective returns on their housing investments and prices continue to rise. Then, when appraisers use properties purchased by Shadow buyers — for unconventional purposes with cheap and easy credit and liquidity — as comparable sales, all property values rise. Sure, there are end-user, shelter-buyers who will be able to chase the market all the way up. But, the larger the bubble blows the more the end-user, shelter-buyer demand will get crowded out and/or turn into increased supply as they liquidate. We are seeing this happen all over the nation.

In Bubble 1.0, Shadow Demand continued to gain market share until it blew up. And we know that beginning in 2011 the four pillars of unorthodox, Shadow Demand — beginning with the distressed market — controlled housing demand and still does. The implosion of the mortgage securitization market in 2007 didn’t crash housing. Rather, when the Shadow Demand – reliant on cheap and easy credit and liquidity largely driven by securitization — left the market, housing “reset to end-user, shelter-buyer fundamentals”. In other words, the pendulum swung back to the fundamental, end-user, shelter-buyer with 20% down and a market-rate 30-year fixed mortgage, which was 30% lower. Again, this isn’t a housing crash per se, rather a demand-shift and a reset, or reattachment, to real fundamentals.

Bottom line: History will repeat because the drivers are identical. Bubble 2.0 will end with house prices once again “resetting to end-user fundamentals”, or to what the end-user shelter buyer can afford with a typical down payment and 30-year fixed rate mortgage. And it doesn’t have to be an MBS market blowing up to cause house prices to reattach to end-user fundamentals. It could be anything that swings this pendulum from being driven by Shadow Demand, which is where we are today.

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Erosion.

America’s Dying Shopping Malls Have Billions in Debt Coming Due (BBG)

Suburban Detroit’s Lakeside Mall, with mid-range stores such as Sears, Bath & Body Works and Kay Jewelers, is one of the hundreds of retail centers across the U.S. being buffeted by the rise of e-commerce. After a $144 million loan on the property came due this month, owner General Growth Properties Inc. didn’t make the payment. The default by the second-biggest U.S. mall owner may be a harbinger of trouble nationwide as a wave of debt from the last decade’s borrowing binge comes due for shopping centers. About $47.5 billion of loans backed by retail properties are set to mature over the next 18 months, data from BofAML show. That’s coinciding with a tighter market for commercial-mortgage backed securities, where many such properties are financed.

For some mall owners, negotiating loan extensions or refinancing may be difficult. Lenders are tightening their purse strings as unease surrounding the future of shopping centers grows, with bleak earnings forecasts from retailers including Macy’s and Nordstrom, and bankruptcy filings by chains such as Aeropostale and Sports Authority. Older malls in small cities and towns are being hit hardest, squeezed by competition from both the Internet and newer, glitzier malls that draw wealthy shoppers. “For many years, people thought the retail business in the U.S. was a bit overbuilt,” said Tad Philipp at Moody’s. “The advent of online shopping is kind of accelerating the separation of winners and losers.” Landlords that can’t refinance debt may either walk away from the property or negotiate for an extension of the due date. It can be hard to save a failing mall, leading to high losses for lenders on soured loans, Philipp said.

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“.. (low) interest rates are the mothers milk of speculation..”

Sell The Stocks, Sell The Bonds, Get Out Of The Casino: Stockman (Fox)

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“..central banks in their infinite wisdom have made the cost of money so cheap that it has created an environment that forces a complete misallocation of capital in the market ..”

Default Cycle: ‘It’s Only A Matter Of Time Before Many Of Them Blow Up’ (ZH)

It’s been a tough year for traders and bankers alike, as layoffs have gripped firms due to difficult trading environments and an overall sluggish economy. However, there is one area that is starting to actually pick up. As the number of bankruptcies begin to increase, firms are expanding their turnaround teams in order to handle all of the work headed their way – bankers with experience in turnarounds and restructuring are now in high demand. “Firms are hungry for experienced restructuring professionals, who are increasingly in short supply. You need to reach deep into your Rolodex to find people you know who are capable, and you need to move fast.” said Richard Shinder, hired by Piper Jaffray in March to help build out its restructuring team.

Both the number of bankruptcies and the amount of liabilities associated with them have picked up significantly, as Bloomberg points out. With the amount of companies in distress, firms such as Lazard, Guggenheim, Perella Weinberg and Alix are all hiring in anticipation of even more bankruptcies. “Cycles come and go, but when a wave hits, you want to make sure you are in the right seat with the right group of people. We are putting the band back together.” said Ronen Bojmel, who is helping to build the restructuring team at Guggenheim. Moody’s is forecasting high default rates in sectors that are largely expected given commodity prices, such as Metals & Mining and Oil & Gas, however trouble looks to be spilling over into other sectors such as Construction, Media, Durable Consumer Goods, and even Retail.

As we have discussed for quite some time, central banks in their infinite wisdom have made the cost of money so cheap that it has created an environment that forces a complete misallocation of capital in the market as the search for yield continues down every rabbit hole it can find. This will (and already is) inevitably catch up to the economy in the form of defaults and bankruptcies. “The wave is already here. Many risky debt deals have been done as people chased yield, and it’s a matter of time before many of them blow up.” said Tim Coleman, head of PJT Partners.

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Local governments = shadow banks. Would like to see someone dig into who owns them.

China’s Debt Is 250% of GDP And ‘Could Be Fatal’, Says Government Expert (G.)

China’s total debt was more than double its GDP in 2015, a government economist has said, warning that debt linkages between the state and industry could be “fatal” for the world’s second largest economy. The country’s debt has ballooned to almost 250% of GDP thanks to Beijing’s repeated use of cheap credit to stimulate slowing growth, unleashing a massive, debt-fuelled spending binge. While the stimulus may help the country post better growth numbers in the near term, analysts say the rebound might be short-lived. China’s borrowings hit 168.48 trillion yuan ($25.6 trillion) at the end of last year, equivalent to 249% of economic output, Li Yang, a senior researcher with the leading government think-tank the China Academy of Social Sciences (CASS), has told reporters.

But the huge number, which includes government, corporate and household borrowings, was lower than some non-government estimates. The consulting firm McKinsey Group said earlier this year that the country’s total debt had quadrupled since 2007 and was likely as high as $28 trillion by mid-2014. The debt-to-GDP ratio is not the highest in the world. The US has a ratio of 331%, for example, much of which is accounted for by federal debt. But part of the concern about China’s massive debt binge is that the most worrying risks lie in the non-financial corporate sector, where the debt-to-GDP ratio was estimated at 156%. This sector includes the liabilities of local government financing vehicles, Li said.

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Interesting observation.

The Fed Has Brought Back ‘Taxation Without Representation’ (Black)

In February 1768, a revolutionary article entitled “No taxation without representation” was published London Magazine. The article was a re-print of an impassioned speech made by Lord Camden arguing in parliament against Britain’s oppressive tax policies in the American colonies. Britain had been milking the colonists like medieval serfs. And the idea of ‘no taxation without representation’ was revolutionary, of course, because it became a rallying cry for the American Revolution. The idea was simple: colonists had no elected officials representing their interests in the British government, therefore they were being taxed without their consent. To the colonists, this was tantamount to robbery.

Thomas Jefferson even included “imposing taxes without our consent” on the long list of grievances claimed against Great Britain in the Declaration of Independence. It was enough of a reason to go to war. These days we’re taught in our government-controlled schools that taxation without representation is a thing of the past, because, of course, we can vote for (or against) the politicians who create tax policy.

But this is a complete charade. Here’s an example: Just yesterday, the Federal Reserve announced that it would keep interest rates at 0.25%. Now, this is all part of a ridiculous monetary system in which unelected Fed officials raise and lower rates to induce people to adjust their spending habits. If they want us little people to spend more money, they cut rates. If they want us to spend less, they raise rates. It’s incredibly offensive when you think about it– the entire financial system is underpinned by a belief that a committee of bureaucrats knows better than us about what we should be doing with our own money.

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It’s too late to even try bridging the gaps.

Forget Brexit, It’s Italy’s Turn (Stelter)

If the Germans really want to avoid a Brexit or the exit of other countries from the Eurozone, they will have to change their policies. Unfortunately, German politicians and economists prefer to criticize the other countries instead of doing their homework. They oppose spending more money at home, they oppose a debt restructuring, they oppose debt monetization by the ECB, they oppose exits from the eurozone. In doing so, they increase the pressure in the system as Europe remains locked in recession. Irrespective of how the British vote next week, the problems of Europe keep on growing. It is only a question of when, not if, a euroskeptic party gets into power in one of the largest EU economies, promising to solve all problems by exiting the Euro and the EU.

I continue to see Italy as the prime candidate for such a move. The country suffers under a recession which has by now lasted longer than the recession of the 1930s. It still has not managed to get back to 2008 GDP levels. Unemployment is high, government debt is out of control. Closing the competitive gap to Germany by lowering wages by 30% is a ridiculous idea and an impossible task. The alternative is to leave the eurozone. Italy could then devalue the new lira and regain competitiveness overnight. An Italian uscita (exit) – or “Uscitaly” in the latest clever term of art – is the true risk for the eurozone. And it would be too late when Der Spiegel comes up with a new cover: “Mon dio, Italia. Si prega di non uscire!”

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This is the EU Britain must vote for or against. This is what it does. It turns member states into third world nations. Greece had a great health care system. But nobody can afford it anymore.

Austerity Kills! Greeks’ Health Deteriorating, Life Expectancy Shrinks (KTG)

The economic crisis and the strict austerity bound to the loan agreement kill. They kill Greeks. The Bank of Greece may not write it in such a melodramatic way on its Monetary Policy Report 2015-2016. However, the conclusions in the chapter about “Reforms in health, economic crisis and impact on the health of population” are shocking and confirm what we have been hearing and reading around from relatives and friends in the last years: that the physical and mental health of Greeks has been deteriorating – partly due to economic insecurity, high unemployment, job insecurity, income decrease and constant exposure to stress. Partly also due to economic problems that have patients cut their treatment, partly due to the incredible cuts and shortages in the public health system. The Report notes that “while it takes longer to record the exact effect, trends show a deterioration of the health of Greeks in the years of loan agreements and austerity cuts.”

The BoG states:
• Suicides increased. “The risk of suicidal behavior increases when there are so-called primary risk factors (psychiatric-medical conditions), while the secondary factors (economic situation) and tertiary factors (age, gender) affects the risk of suicide, but only if primary risk factors pre-exist.
• Infant mortality increased by nearly 50%, mainly due to increase of deaths of infants younger than one year, and the decline of births by 22,1%. Infant mortality increase: 2.65% in 2008 and 3.75% in 2014
• Increase of parts of population with mental illness, especially with depression. Increase: 3.,3% in 2008 to 6.8% in 2009, to 8.2% in 2011 and to 12.3% in 2013. In 2014, a 4.7% of the population above 15 years old declared it suffered form depression – that was 2.6% in 2009.
• Chronic diseases increased by approximately 24%.

The BoG notes that “the large cuts in public expenditure have not been accompanied by changes and improvement of the health system in order to limit the consequences for the weakest citizens and vulnerable groups of the society.” [..] Citing OECD data of 2013, the BoG underlines that 79% of the population in Greece was not covered with insurance and therefore without medical and medicine due to long-term unemployment, while self-employed could not afford to pay their social contributions.

[..] One of the neighborhood pharmacists has been telling me on and off about the dramatic number of patients who cannot afford the self-participation in prescription medicine. Many of his clients cut their treatment into half – like 1 tablet for cholesterol not daily but every other day basis – and that some have given up the whole treatment. “For some people the choice is: either have treatment or food.” And this has been going on since 2012, when then Greek Health Minister adopted the German model of “self-participation in prescription medicine, laboratory tests” and cut some primary health services but forgot to adopt also that aspect of the German model that provides that patients would not spend more than 2% of their income for medical services and medication.

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4 million years ago is well before anything closely resembling man appeared. That makes this so dangerous for us. It creates an environment that we did not evolve in. As more and more of what was there when we did evolve will also disappear.

Antarctic CO2 Hits 400ppm For First Time In 4 Million Years (G.)

We’re officially living in a new world. Carbon dioxide has been steadily rising since the start of the Industrial Revolution, setting a new high year after year. There’s a notable new entry to the record books. The last station on Earth without a 400 parts per million (ppm) reading has reached it. A little 400 ppm history. Three years ago, the world’s gold standard carbon dioxide observatory passed the symbolic threshold of 400 ppm. Other observing stations have steadily reached that threshold as carbon dioxide spreads across the planet’s atmosphere at various points since then. Collectively, the world passed the threshold for a month last year.

In the remote reaches of Antarctica, the South Pole Observatory carbon dioxide observing station cleared 400 ppm on May 23, according to an announcement from the National Oceanic and Atmospheric Administration on Wednesday. That’s the first time it’s passed that level in 4 million years (no, that’s not a typo). There’s a lag in how carbon dioxide moves around the atmosphere. Most carbon pollution originates in the northern hemisphere because that’s where most of the world’s population lives. That’s in part why carbon dioxide in the atmosphere hit the 400 ppm milestone earlier in the northern reaches of the world.

But the most remote continent on earth has caught up with its more populated counterparts. “The increase of carbon dioxide is everywhere, even as far away as you can get from civilization,” Pieter Tans, a carbon-monitoring scientist at the Environmental Science Research Laboratory, said. “If you emit carbon dioxide in New York, some fraction of it will be in the South Pole next year.”

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May 302016
 
 May 30, 2016  Posted by at 7:59 am Finance Tagged with: , , , , , , , , , ,  


Jack Delano Foggy night in New Bedford, Massachusetts 1941

The Mystery of Weak US Productivity (Luce)
China Default Chain Reaction Threatens Products Worth 35% of GDP (BBG)
China’s Veiled Loans May Prove Lethal (BBG)
How Many Bad Loans Might China Have? (BBG)
Easy Money = Overcapacity = Trade Wars = Deflation (Rubino)
Negative Rates Fail to Spur Investment for Corporate Europe (BBG)
Saudi Arabia’s Petrodollar Reserves Fall to 4-Year Low (BBG)
CEO of No. 1 Asian Commodity Trader Noble Group Resigns In Surprise Move (R.)
Japan Must Delay Sales-Tax Rise to Recover, Abe Aide Says (BBG)
The Butterfly Effect: Cheap Oil Means Fewer Nose Jobs (BBG)
The Source of Failure: We Optimize What We Measure (CH Smith)
30.4% Of Americans Were Obese In 2015 (Forbes)
Tory Turmoil Escalates With Open Call For Cameron To Quit (G.)
Half Of Central, Northern Great Barrier Reef Corals Are Dead (SMH)

“This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative..”

“Unless we become smarter at how we work, growth will start to exhaust itself too.” Er, no, that has already happened.

“For the first time the next generation of US workers will be less educated than the previous..”

The Mystery of Weak US Productivity (Luce)

Look around you. From your drone home delivery to that oncoming driverless car, change seems to be accelerating. Warren Buffett, the great investor, promises that our children’s generation will be the “luckiest crop in history”. Everywhere the world is speeding up except, that is, in the productivity numbers. This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative following a decade of sharp slowdown. Yet our Fitbits seem to be telling us otherwise. Which should we trust — the economic statistics or our own lying eyes? A lot hinges on the answer. Productivity is the ultimate test of our ability to create wealth. In the short term you can boost growth by working longer hours, for example, or importing more people.

Or you could lift the retirement age. After a while these options lose steam. Unless we become smarter at how we work, growth will start to exhaust itself too. Other measures bear out the pessimists. At just over 2%, US trend growth is barely half the level it was a generation ago. As Paul Krugman put it: “Productivity isn’t everything, but in the long run it is almost everything.” It is possible we are simply mismeasuring things. Some economists believe the statistics fail to capture the utility of setting up a Facebook profile, for example, or downloading free information from Wikipedia. The gig economy has yet to be properly valued. Yet this argument cuts both ways. Productivity is calculated by dividing the value of what we produce by how many hours we work — data provided by employers.

But recent studies — and common sense — say our iPhones chain us to our employers even when we are at leisure. We may thus be exaggerating productivity growth by undercounting how much we work. The latter certainly fits with the experience of most of the US labour force. It is no coincidence that since 2004 a majority of Americans began to tell pollsters they expected their children to be worse off — the same year in which the internet-fuelled productivity leaps of the 1990s started to vanish. Most Americans have suffered from indifferent or declining wages in the past 15 years or so. A college graduate’s starting salary today is in real terms well below where it was in 2000. For the first time the next generation of US workers will be less educated than the previous, according to the OECD, which means worse is probably yet to come. Last week’s US productivity report bears that out.

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“All the risks are accumulating in an overcrowded financial system.”

China Default Chain Reaction Threatens Products Worth 35% of GDP (BBG)

The risk of a default chain reaction is looming over the $3.6 trillion market for wealth management products in China. WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month. The trend has China watchers worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets.

In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable – a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis. Those concerns have become more pressing this year after at least 10 Chinese companies defaulted on onshore bonds, the Shanghai Composite Index sank 20% and China’s economy showed few signs of recovery from the weakest expansion in a quarter century. “There’s abundant liquidity in the financial system, but a scarcity of high-yielding assets to invest in,” said Harrison Hu, the chief Greater China economist at RBS in Singapore. “All the risks are accumulating in an overcrowded financial system.”

Issuance of WMPs, which are sold by banks but often reside off their balance sheets, exploded over the past three years as lenders competed for funds and fees while savers sought returns above those offered on deposits. The products, which offer varying levels of explicit guarantees, are regarded by many as having the implicit backing of banks or local governments. The outstanding value of WMPs rose to 23.5 trillion yuan, or 35% of China’s gross domestic product, at the end of 2015 from 7.1 trillion yuan three years earlier, according to China Central Depository & Clearing Co. An average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank and China Everbright Bank, especially dependent on the products for funding.

Interbank holdings of WMPs swelled to 3 trillion yuan as of December from 496 billion yuan a year earlier, according to figures released by the clearing agency last month. As much as 85% of those products may have been bought by other WMPs, according to Autonomous Research, which based its estimate on lenders’ public disclosures and data on interbank transactions. The firm speculates that in some cases the products are being “churned” to generate fees for banks. “We’re starting to see layers of liabilities built upon the same underlying assets, much like we did with subprime asset-backed securities, collateralized debt obligations, and CDOs-squared in the U.S.,” Charlene Chu, a partner at Autonomous who rose to prominence in her former role at Fitch Ratings by warning of the risks of bad debt in China, said in an interview on May 17.

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“The unconsolidated structured entities managed by the Group consist primarily of collective investment vehicles (“WMP Vehicles”) formed to issue and distribute wealth management products (“WMPs”), which are not subject to any guarantee by the Group of the principal invested or interest to be paid.”

China’s Veiled Loans May Prove Lethal (BBG)

Credit is a risky business, but loans that dare not speak their name? They are possibly even more dangerous, as China is about to find out.As many as 15 publicly traded Chinese lenders, large and small, report roughly $500 billion of such debt between them, which they hold not as loans but as receivables from shadow banking products. While the traditional credit business of these banks is 16 times bigger, receivables have jumped sixfold in three years. Explosive growth of this type usually ends badly. It’s hard to see why it’ll be different for the People’s Republic. Before they can brace themselves – or embrace the risk, if they think the rewards are worth it – equity investors need to know where to look. Flitting from one explanatory note to another in dense annual reports isn’t everybody’s idea of a day well spent.

But the effort may be worth it. For instance, page 184 of Agricultural Bank’s 2015 annual report informs us that the bank has 557 billion yuan ($85 billion) worth of assets tied in “debt instruments classified as receivables.” On page 245, we further learn that most of this is old hat, and the only fast-growing portion is an 18.7 billion yuan chunk helpfully titled as “Others.” A footnote adds that the category primarily consists of “unconsolidated structured entities managed by the group.” Give up? Then you miss the big reveal that occurs 34 pages later: “The unconsolidated structured entities managed by the Group consist primarily of collective investment vehicles (“WMP Vehicles”) formed to issue and distribute wealth management products (“WMPs”), which are not subject to any guarantee by the Group of the principal invested or interest to be paid.” That’s broadly how Chinese lenders disclose their cryptic linkages with shadow banks.

The names keep changing, from “investment management products under trust scheme” and “investment management products managed by securities companies” to “trust beneficiary rights” and “wealth management products.” The latter have swelled to the equivalent of 35% of GDP, and account for 3 trillion yuan of interbank holdings. The common thread to these products is that they’re all exposed to corporate credit and designed to get around lenders’ minimum capital requirements and maximum loan-to-deposit norms, with scant loss provisioning in case things go wrong.There’s plenty that could. The reported nonperforming loan ratio of 1.75% is a joke. CLSA says bad loans have already snowballed to 15 to 19% of the loan book; Autonomous Research partner Charlene Chu estimates the figure will reach 22% by the end of this year. A 20% loss on a $500 billion portfolio of loans masquerading as receivables would wipe out 58% of annual profit of the 15 banks under our scanner.

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” In the basic resources sector, 46% of loans are with firms without enough income to cover interest payments. ”

How Many Bad Loans Might China Have? (BBG)

How many of China’s loans could turn bad? The official data show a non-performing loan ratio of 1.75%, but that’s widely believed to reflect optimistic accounting. Bloomberg Intelligence Economics has estimated the %age of “at risk” loans – those where the borrower doesn’t have sufficient earnings to cover interest payments. The results show 14% of corporate borrowing at risk of default, up from a low of 5% in 2010. By sector, the basic resources, retail and industrial sectors are among the highest risk. In the basic resources sector, 46% of loans are with firms without enough income to cover interest payments.

Telecommunications, utilities, and travel and leisure sectors look more secure, reflecting stronger earnings and lower debt. The methodology is based on an approach used by the IMF. For a universe of 2,865 Chinese listed firms (excluding financial companies), we screened for firms with interest costs higher than their EBITDA. We then calculated total debt of those firms as a %age of total debt of all listed firms. We assume that the ratio of “at risk” loans for the corporate sector as a whole is the same as for listed companies.

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“..over-investment produces slow growth and falling prices while ever-more-aggressive monetary policy distorts markets beyond recognition and encourages new over-investment in different sectors, which then proceed to follow oil and steel into the deflationary abyss.”

Easy Money = Overcapacity = Trade Wars = Deflation (Rubino)

So what happens to all that Chinese steel that was on its way to the US and EU before slamming into those prohibitively high tariffs? One of three things: Either it’s sold elsewhere, probably at even steeper discounts, thus pricing US and EU steel exports out of those markets. Or it’s stockpiled in China for future use, thus lowering future demand for new steel production and, other things being equal, depressing tomorrow’s prices. Or many of China’s newly-built steel mills will close, and China will eat the losses related to this malinvestment. Each scenario results in lower prices and financial losses somewhere. Put another way, as far as steel is concerned, the world’s fiat currencies are rising in value, which is the common definition of deflation.

And since steel is just one of many basic industries burdened with massive overcapacity, it’s safe to assume that the process which began with oil and recently spread to steel will continue to metastasize throughout the developed and developing worlds. Next up: real estate. “Modern” monetary policy, designed to achieve exactly the opposite outcome (that is, rising prices for real things), will in response be ratcheted up to ever-more-extreme levels — which in this analytical framework is like trying to douse a fire with gasoline. The result is a world in which past over-investment produces slow growth and falling prices while ever-more-aggressive monetary policy distorts markets beyond recognition and encourages new over-investment in different sectors, which then proceed to follow oil and steel into the deflationary abyss. And so on, until the system collapses under the weight of its own absurdity.

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Because they are deflationary.

Negative Rates Fail to Spur Investment for Corporate Europe (BBG)

A prolonged period of negative interest rates is failing to revive investment at Europe’s companies, with the vast majority of businesses in the region saying the stimulus measures have had no affect at all on their growth plans. Some 84% of the 9,440 companies surveyed by Swedish debt collector Intrum Justitia AB for its European Payment Report 2016 say low interest rates haven’t affected their willingness to invest. And perhaps more alarmingly, the number is up from 73% last year. “Creating economic growth requires stability and optimism,” Intrum Justitia Chief Executive Officer Mikael Ericson said in the report. “Evidently, the strategy of keeping interest rates record low for more than a year has not created the much sought-after stability.”

Signs of stalling investment mark a blow to central banks hoping to revive growth across Europe through negative rates and quantitative easing. Europe needs its businesses to invest more if it’s to create the jobs needed to spur growth. In the euro area, where interest rates have been negative since mid-2014, gross domestic product will slow to 1.6% this year, compared with 2.3% in the U.S., the European Commission estimates. “A calculation of an investment includes assumptions of the future,” Intrum said. “To get the calculation to go together those assumptions need to include a belief in stability and prosperity in that future. Perhaps the negative interest rates do not signal that stability at all – rather that we are still in an extraordinary situation?”

The survey also identified another threat to growth, namely late payments. Some 33% of survey participants said they regard not being paid on time as a threat to overall survival while 25% said they are likely to cut jobs if clients pay late or not at all. That problem is more pronounced among Europe’s 20 million small and medium-sized companies, with many reporting that bigger firms are forcing them to accept late payments. “It is a market failure that costs job opportunities for millions of Europeans that big corporations deliberately force SMEs to finance their cash flow,” Ericson said. “As much as two out of five SMEs say late payments prohibit growth of the company. That large corporations use their much smaller sub-suppliers to act as financier of their own cash-management processes is not only wrong, it also creates an imbalance in society.”

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Might as well devalue now.

Saudi Arabia’s Petrodollar Reserves Fall to 4-Year Low (BBG)

Saudi Arabia’s net foreign assets fell for a 15th month in April, as the kingdom announced its “vision” for a post-oil future. The Saudi Arabian Monetary Agency said on Sunday net foreign assets declined 1.1% to $572 billion, the lowest level in four years. The slump in crude prices has forced the government to sell bonds and draw on its currency reserves, still among the world’s largest. Net foreign assets fell by $115 billion last year, when the kingdom ran a budget deficit of nearly $100 billion.

The fiscal crunch has pushed Saudi Arabia’s rulers to look beyond oil, consider new taxes, and plan an initial public offering of state giant Saudi Arabian Oil Co. Deputy Crown Prince Mohammed bin Salman sketched out the planned changes dubbed Saudi Vision 2030 on April 25. The strain on reserves has also fueled speculation that the kingdom will adjust its decades-old riyal peg to the dollar. New central bank Governor Ahmed Alkholifey told Al-Arabiya on Thursday that Saudi Arabia doesn’t plan to change its exchange rate policy.

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Firesale. Given what’s happened in commodities the past year, not surprising.

CEO of No. 1 Asian Commodity Trader Noble Group Resigns In Surprise Move (R.)

Embattled commodity trader Noble Group announced the surprise resignation of CEO Yusuf Alireza on Monday and said it planned to sell a U.S. unit to bolster its balance sheet as it seeks to regain investor confidence. Alireza, a former Goldman Sachs banker had steered Asia’s biggest commodity trader to sell assets, cut business lines and take big writedowns as it battled weak commodity markets and the fallout from an accounting dispute. “With this transformation process now largely complete, Mr. Alireza considered that the time was right for him to move on,” Noble said in a statement. It appointed senior executives William Randall and Jeff Frase as co-chief executive officers and said it would begin a sale process for Noble Americas Energy Solutions, “expected to generate both significant cash proceeds and profits to substantially enhance the balance sheet.”

Noble came under the spotlight in February last year when it was accused by Iceberg Research of overstating its assets by billions of dollars, claims which Noble rejected. Its shares have since plunged by about 75% and its debt costs have risen as the company has been hit hard by credit rating downgrades and weak investor confidence. “The first task is to stabilize the situation and convey stability and continuity,” said Nirgunan Tiruchelvam at Religare Capital Markets. “That would be the immediate task of somebody in this business which has volatility,” he said. Noble won the backing of banks earlier this month to refinance its debt. In February, Noble reported its first annual loss since 1998, battered by a $1.2 billion writedown for weak coal prices. The company’s shares slumped 65% last year, knocking it out of the benchmark Straits Times index.

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So a delay in the tax hike would trigger elections. And Abe counts on the Japanese to be blind enough to re-elect him.

Japan Must Delay Sales-Tax Rise to Recover, Abe Aide Says (BBG)

Japan needs to delay increasing its sales tax until late 2019 to sustain its economic recovery, an aide to Prime Minister Shinzo Abe said Sunday. There is a possibility that such a move could trigger a general election. The government will probably hold off raising the tax because it needs to give priority to economic growth, Abe aide Hakubun Shimomura said on Fuji television. Japan’s lower house of parliament would need to be dissolved for a general election if the planned increase is delayed again, Finance Minister Taro Aso was cited by Kyodo News as saying on Sunday at a meeting of the ruling party’s members. Abe has said he’ll make a decision before an upper-house election this summer on whether to go ahead with a planned increase in the levy next April to 10%, from 8% at present.

He had previously said the matter would be decided at an appropriate time and that it would be postponed only if there was a shock on the scale of a major earthquake or a corporate collapse like that of Lehman Brothers. An increase in the levy in 2014 pushed Japan into a recession. “We have no other options but to postpone the sales-tax increase,” Shimomura said. “If the increase means a decline in tax revenue for the government, that would threaten the achievement of the goals under Abenomics.” The prime minister told Finance Minister Taro Aso and LDP’s Secretary General Sadakazu Tanigaki on Saturday to delay the sales-tax increase to October 2019, NHK reported.

Aso advised the prime minister to be cautious about the idea, NHK said. “If the tax increase is delayed, a general election is needed to put the plan to the public,” Aso was quoted by Kyodo News as saying on Sunday. Kyodo reported later that Abe doesn’t plan to call snap elections on the same day as the Upper House vote. If Abe fails to go ahead with his plan of raising the tax in April, it means his economic policies have failed and he and his cabinet members should resign to take responsibility, Tetsuro Fukuyama, vice secretary general of the opposition Democratic Party of Japan, said in a program aired by public broadcaster NHK on Sunday.

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Unexpected advantages.

The Butterfly Effect: Cheap Oil Means Fewer Nose Jobs (BBG)

Oil slumps. Middle Eastern patients cancel treatments abroad. Thai hospital stocks slide. It’s the butterfly effect in action. Weak growth outlooks in the Gulf states are prompting greater competition from local clinics, stemming the flow of visitors to the world’s top medical tourism destination. That’s clouding the outlook for Thailand’s health-care shares, which surged more than 800% over the past seven years, as valuations start to look stretched amid the falling demand. Bangkok’s Bumrungrad Hospital, known as the grandaddy of international clinics, has slumped 16% since early March after patient volumes from the United Arab Emirates, its second-biggest source of overseas visitors, fell 20% in the first quarter.

Thailand attracted as many as 1.8 million international patients in 2015, many of whom stayed on afterward for a beach holiday. More than one in three foreigners treated at Bumrungrad are from the Gulf states and Kasikorn Securities says declining growth in the region and a rise in competition from clinics in the U.A.E., where the government is encouraging its citizens to stay home for medical care, are curbing demand. “In the short term, the economic slowdown in the the Middle East will weaken some investors’ confidence on earnings growth for domestic hospital operators,” said Jintana Mekintharanggur at Manulife Asset Management. “We are still bullish on the sector” in the long term as it will benefit from growth in countries like Myanmar and Vietnam that have less-developed health systems, she said.

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Hey, look, we are born as liars. And we will lie to ourselves about that, too.

The Source of Failure: We Optimize What We Measure (CH Smith)

The problems we face cannot be fixed with policy tweaks and minor reforms. Yet policy tweaks and minor reforms are all we can manage when the pie is shrinking and every vested interest is fighting to maintain their share of the pie. Our failure stems from a much deeper problem: we optimize what we measure. If we measure the wrong things, and focus on measuring process rather than outcome, we end up with precisely what we have now: a set of perverse incentives that encourage self-destructive behaviors and policies. The process of selecting which data is measured and recorded carries implicit assumptions with far-reaching consequences. If we measure “growth” in terms of GDP but not well-being, we lock in perverse incentives to boost ‘growth” even at the cost of what really matters, i.e. well-being.

If we reward management with stock options, management has a perverse incentive to borrow money for stock buy-backs that push the share price higher, even if doing so is detrimental to the long-term health of the company. Humans naturally optimize what is being measured and identified as important. If students’ grades are based on attendance, attendance will be high. If doctors are told cholesterol levels are critical and the threshold of increased risk is 200, they will strive to lower their patients’ cholesterol level below 200. If we accept that growth as measured by GDP is the measure of prosperity, politicians will pursue the goal of GDP expansion.

If rising consumption is the key component of GDP, we will be encouraged to go buy a new truck when the economy weakens, whether we need a new truck or not. If profits are identified as the key driver of managers’ bonuses, managers will endeavor to increase net profits by whatever means are available. The problem with choosing what to measure is that the selection can generate counterproductive or even destructive incentives. This is the result of humanity’s highly refined skill in assessing risk and return. All creatures have been selected over the eons to recognize the potential for a windfall that doesn’t require much work to reap.

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Can’t leave out the ones that are diabetic without knowing it. Oh, and: “..these obesity rates are calculated from self-reported heights and weights.”

30.4% Of Americans Were Obese In 2015 (Forbes)

If recent headlines are to be believed, we are rapidly approaching the future depicted in Wall-E, with a morbidly obese population that can get from place to place only with the help of a hover-scooter. “Americans are fatter than ever, CDC finds,” trumpets CNN. “This Many Americans Need To Go On A Diet ASAP, According To New CDC Report,” content farm Elite Daily smugly proclaims. But is it really that cut-and-dried? The report both articles refer to is succinctly titled “Early Release of Selected Estimates Based on Data from the National Health Interview Survey, 2015.” It was released on Tuesday, and it provides an early look at annual data from the titular survey on 15 different points, from health insurance and flu shots to smoking rates and, yes, obesity.

The publication says 30.4% of Americans were obese in 2015, with a 95% confidence interval (so somewhere between 29.62% and 31.27%). That’s compared to 19.4% in 1997. Obesity rates were higher among middle-aged people (ages 40 to 59), with the rate for that group hitting 34.6%. Ages 20 to 39, perhaps predictably, were the least obese, with 26.5% of that population having a BMI of 30 or more. Obesity was highest for black women (45%), followed by black men (35.1%), Latina women (32.6%), Latino men (32%), white men (30.2%) and white women (27.2%). The data in the release didn’t provide any information on other ethnic or racial groups, nor did it break obesity rates down by household income.

In concert with rising obesity rates, Americans are getting more diabetic. In 1997, 5.1% of U.S. adults had been diagnosed with diabetes. By 2015, that number had nearly doubled, to 9.5%. Although, again, the data here don’t break everything down to my satisfaction–there are no numbers for each specific type of diabetes, for instance–it’s safe to say that these correlations are the consequence of rising obesity, as 95% of people diagnosed with diabetes have type 2.

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Managed to monopolize the entire Brexit debate, but they can’t leave well enough alone…

Tory Turmoil Escalates With Open Call For Cameron To Quit (G.)

David Cameron’s hopes of being able to avoid terminal damage to Conservative party unity after the EU referendum campaign were dented on Sunday when two rebel MPs openly called for a new leader and a general election before Christmas. The attacks came from Andrew Bridgen and Nadine Dorries – both Brexiters, and longstanding, publicity-hungry opponents of the prime minister – and their claim that even winning the EU referendum won’t stop Cameron facing a leadership challenge in the summer was dismissed by fellow Tories. But their comments coincided with the ministers in charge of the leave campaign launching some of their strongest personal attacks yet on Cameron, prompting Labour’s Alan Johnson to say that the Tory infighting was getting “very ugly indeed”.

Bridgen told the BBC’s 5 Live that Cameron had been making “outrageous” claims in his bid to persuade voters to back remain and that, as a consequence, he had effectively lost his parliamentary majority. “The party is fairly fractured, straight down the middle and I don’t know which character could possibly pull it back together going forward for an effective government. I honestly think we probably need to go for a general election before Christmas and get a new mandate from the people,” he said. Bridgen said at least 50 Tory MPs – the number needed to call a confidence vote – felt the same way about Cameron and that a vote on the prime minister’s future was “probably highly likely” after the referendum.

Dorries told ITV’s Peston on Sunday she had already submitted her letter to the chairman of the Tory backbench 1922 committee expressing no confidence in the prime minister. “[Cameron] has lied profoundly, and I think that is actually really at the heart of why Conservative MPs have been so angered. To say that Turkey is not going to join the European Union as far as 30 years is a lie.”

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Australia will keep debating this while the last bits die off.

Half Of Central, Northern Great Barrier Reef Corals Are Dead (SMH)

More than one-third of the coral reefs of the central and northern regions of the Great Barrier Reef have died in the huge bleaching event earlier this year, Queensland researchers said. Corals to the north of Cairns – covering about two-thirds of the Great Barrier Reef – were found to have an average mortality rate of 35%, rising to more than half in areas around Cooktown. The study, of 84 reefs along the reef, found corals south of Cairns had escaped the worst of the bleaching and were now largely recovering any colour that had been lost. Professor Terry Hughes, director of the ARC Centre of Excellence for Coral Reef Studies at James Cook University, said he was “gobsmacked” by the scale of the coral bleaching which far exceeded the two previous events in 1998 and 2002.

“It is fair to say we were all caught by surprise,” Professor Hughes said. “It’s a huge wake up call because we all thought that coral bleaching was something that happened in the Pacific or the Caribbean which are closer to the epicentre of El Nino events.” The El Nino of 2015-16 was among the three strongest on record but the starting point was about 0.5 degrees warmer than the previous monster of 1997-98 as rising greenhouse gas emissions lifted background temperatures. Reefs in many regions, such as Fiji and the Maldives, have also been hit hard. Bleaching occurs when abnormal conditions, such as warm seas, cause corals to expel tiny photosynthetic algae, called zooxanthellae. Corals turn white without these algae and may die if the zooxanthellae do not recolonise them.

The northern end of the Great Barrier Reef was home to many 50- to 100-year-old corals that had died and may struggle to rebuild before future El Ninos push tolerance beyond thresholds. “How likely is it that they will fully recover before we get a fourth or a fifth bleaching event?” Professor Hughes said. The health of the reef has been a contentious political issue, with Environment Minister Greg Hunt pledging more funds in the May budget to improve water quality – one aspect affecting coral health. But Mr Hunt has also had to explain why his department instructed the UN to cut out a section on Australia from a report that dealt with the threat of climate change to World Heritage sites including the Great Barrier Reef and Kakadu.

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