Jun 262015
 June 26, 2015  Posted by at 10:14 am Finance Tagged with: , , , , , , , , , ,  5 Responses »

NPC Dr. H.W. Evans, Imperial Wizard 1925

Yield-Starved Investors Drive Asset Prices To Dangerous Levels: OECD (Reuters)
What’s Gone Wrong For Germany Inc.? (Bloomberg)
Europe: Writing Off Democracy As Merely Decorative (Habermas)
The Beatings Will Continue Until Morale Improves (Irish Independent)
Bureaucrazies Versus Democracy (Steve Keen)
The Courage Of Achilles, The Cunning Of Odysseus (Jacques Sapir)
Cash-Starved Greek State Posts Surplus (Kathimerini)
IMF Would Be Other Casualty of Greek Default (El-Erian)
Breaking Greece (Paul Krugman)
The Upstarts That Challenge The Power In Beijing (FT)
With $21 Trillion, China’s Savers Are Set to Change the World (Bloomberg)
Shadow Lending Crackdown Looms Over China Stock Market (FT)
Hedge Funds Love Consumer Stocks the Way Cows Love a Trombone (Bloomberg)
UK Developers Play Flawed Planning To Minimise Affordable Housing (Guardian)
Indebted Shale Oil Companies See Rough Ride Ahead (Fuse)
Chief Justice John Roberts’ Obamacare Decision Goes Further Than You Think (MSNBC)
French Justice Minister Says Snowden And Assange Could Be Offered Asylum (IC)
Italy Rebukes EU Leaders As ‘Time Wasters’ On Migrants Plan (Reuters)
Why Do We Ignore The Obvious? (ZenGardner)
Robots Will Conquer The World and Keep Us As Pets – Wozniak (RT)

The by far biggest issue of our times. The world will never be the same. Ever.

Yield-Starved Investors Drive Asset Prices To Dangerous Levels: OECD (Reuters)

Encouraged by years of central bank easing, investors are ploughing too much cash into unproductive and increasingly speculative investments while shunning businesses building economic growth, the OECD warned on Wednesday. In its first Business and Finance Outlook, the Organisation for Economic Cooperation and Development highlighted a growing divergence between investors rushing into ever riskier assets while companies remain too risk-averse to make investments. It urged regulators to keep a close eye on investors as they piled into leveraged hedge funds and private equity and poured cash into illiquid assets like high-yield corporate bonds.

Meanwhile, judging by stock market returns, investors were rewarding corporate managers focused on share-buybacks, dividends, mergers and acquisitions rather than those CEOS betting on long-term investment in research and development. “Stock markets in advanced economies are punishing firms that invest,” OECD secretary general Angel Gurria said in a presentation of the report. “The incentives are skewed.” According to the OECD’s research, over the 2009-2014 period buying US shares in companies with a low investment spending while selling those with high capital expenditure would have added 50% to an investor’s portfolio.

Fidelity Worldwide chief investment officer for equities Dominic Rossi begged to differ with the OECD’s pessimism on corporate investment, saying that for every dollar of depreciation companies were reporting that 1.3 was invested. “Our own analysis would point to quite healthy levels of investment,” Rossi said, adding however that it was lower in the Unites States than in other countries.

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Can’t hurt to inject some humility there.

What’s Gone Wrong For Germany Inc.? (Bloomberg)

All is not well in corporate Germany. Be it Deutsche Bank or Deutsche Lufthansa, Siemens or RWE, the missteps plaguing the country’s flagbearers have helped turn the DAX into Europe’s worst-performing benchmark index this quarter and a laggard compared with U.S. gauges. Some of the biggest companies in Europe’s economic powerhouse are in upheaval and finding themselves playing catch-up as competitors adapt more quickly to disruptive technologies and new challengers. The problem: As European peers scale back fixed-income trading and other investment-bank activities, the bank that once boasted about making it through the financial crisis without state aid has pledged to gain market share as others retreat.

The plan hasn’t quite worked out as regulatory demands to rein in risk are shaving profit margins and prompting shareholders to question the bank’s strategy. The precedent: UBS Group. Deutsche Bank has appointed John Cryan to succeed Anshu Jain as co-CEO and become sole CEO next year as the bank prepares to carry out a strategic overhaul not unlike the one Cryan undertook about six years ago as finance chief at the bank’s Swiss rival. Siemens: The problem: Europe’s largest engineering company has frequently lagged the profitability of its biggest competitors. CEO Joe Kaeser’s response has been to shed fringe businesses such as home appliances with annual sales of about €11 billion and focus on energy generation and industrial processes.

That bet has proven ill-timed, with a slump in oil prices prompting even more job cuts. The precedent: General Electric. CEO Jeff Immelt started shedding the entertainment, finance and home appliances arms four years ago as he seeks to focus the Fairfield, Connecticut-based company on its industrial business.

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That’s not just in Europe.

Europe: Writing Off Democracy As Merely Decorative (Habermas)

The latest judgment of the European Court of Justice (ECJ) casts a harsh light on the flawed construction of a currency union without a political union. In the summer of 2012 all citizens owed Mario Draghi a debt of gratitude for uttering a single sentence that saved them from the disastrous consequences of the threat of an immediate collapse of their currency. By announcing the purchase if need be of unlimited amounts of government bonds, he pulled the chestnuts out of the fire for the Eurogroup. He had to press ahead alone because the heads of government were incapable of acting in the common European interest; they remained locked into their respective national interests and frozen in a state of shock. Financial markets reacted then with relief over a single sentence with which the head of the ECB simulated a fiscal sovereignty he did not possess.

It is still the central banks of the member states, as before, which act as the lender of last resort. The ECJ has not ruled out this competence as contrary to the letter of the European Treaties; but as a consequence of its judgment the ECB can in fact, subject to a few restrictions, occupy the room for manoeuvre of just such a lender of last resort. The court signed off on a rescue action that was not entirely constitutional and the German federal constitutional court will probably follow that judgment with some additional precisions. One is tempted to say that the law of the European Treaties must not be directly bent by its protectors but it can be tweaked even so in order to iron out, on a case by case basis, the unfortunate consequences of that flawed construction of the European Monetary Union.

That flaw – as lawyers, political scientists and economists have proven again and again over the years – can only be rectified by a reform of the institutions. The case that is passed to and from between Karlsruhe and Luxembourg shines a light on a gap in the construction of the currency union which the ECB has filled by means of emergency relief. But the lack of fiscal sovereignty is just one of the many weak spots. This currency union will remain unstable as long as it is not enhanced by a banking, fiscal and economic union. But that means expanding the EMU into a Political Union if we want to avoid even strengthening the present technocratic character of the EU and overtly writing off democracy as merely decorative.

Those dramatic events of 2012 explain why Mario Draghi is swimming against the sluggish tide of a short-sighted, nay panic-stricken policy mix. With the change of government in Greece he immediately piped up: “We need a quantum leap in institutional convergence…. We must put to one side a rules-based system for national economic policy and instead hand over more sovereignty to common institutions.” Even if it’s not what one expects a former Goldman Sachs banker to say, he even wanted to couple these overdue reforms with “more democratic accountability” (Süddeutsche Zeitung, March 17, 2015).

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“What do you think happened next? Yes, you got it; the mutiny on the Bounty.”

The Beatings Will Continue Until Morale Improves (Irish Independent)

Did you know that on the same day that Greece – home of the first openly gay city, Sparta – was forced to humiliate itself again at the feet of the EU’s creditor nations, the isolated island of Pitcairn became the smallest nation to legalise same-sex marriage, despite having only 48 inhabitants and no gay couples? While reading about Pitcairn, the expression attributed to Captain Bligh of the stricken HMS Bounty, against whom the mutineers revolted, came to mind. While flogging sailors for small misdemeanours, he is said to have declared: “The beatings will continue until morale improves.” When we see the torture of Greece by its creditors, I see that the EU has taken the same approach with one of its own family. The economic beatings of Greece will continue until its political morale improves.

Have you ever seen anything so stupid? The Greek crisis has gone on for the past five or six years now. It is a brilliant example of Einstein’s observation that the definition of insanity is repeating the same thing over and over again and expecting different results. Yesterday, Greece promised to raise a fresh €8bn in taxes from the rich in order to satisfy the EU creditors. The cycle has been more or less the same, year in year out. Every year, the Greek government cuts spending and raises taxes. This is followed by the economy collapsing, and so tax revenues fall and this means more austerity is demanded – and the process is repeated. All the while, the economy shrinks. It is 25pc smaller than it was in 2009 and wages are down by 35pc. As activity and wages fall, so too does demand.

The EU response is to repeat the beatings. Every time, the EU imposes a creditors’ levy in the form of higher taxes. The people of Greece, knowing that the taxes won’t go to paying for Greek education or health but will line the pockets of rich creditors, try to find ways to avoid paying the creditors’ levy. So what does the EU do? It imposes more taxes on a problem that was in part due to the inability of the government to raise taxes on the rich in the first place. What do you think will happen now? Do you think the Greeks will give in, and say ‘take our money’? Of course they won’t. The rule of the world is the higher the personal tax, the higher the tax evasion. Did we not learn that in our tax amnesties of the 1980s and 1990s?

The Greeks will just find different ways of getting their money out of the country because they know that the money isn’t being raised for Greece, but for Germany. What would you do if you had the ability? So this latest EU solution will fail spectacularly and we will be back at square one. What then? Repeat the beatings until Greek morale improves? [..] What do you think happened next? Yes, you got it; the mutiny on the Bounty.

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Steve and I are on the same page. And we both know it too.

Bureaucrazies Versus Democracy (Steve Keen)

The most recent of the almost daily “Greek Crises” has made one thing clear: the Troika of the IMF, the EU and the ECB is out to break the government of Greece. There is no other way to interpret their refusal to accept the Greek’s latest proposal, which accepted huge government surpluses of 1% of GDP in 2015 and 2% in 2016, imposed VAT increases, and further cut pensions which are already below the poverty line for almost half of Greece’s pensioners. Instead, though the Greeks offered cuts effectively worth €8 billion, they wanted different cuts worth €11 billion. Syriza, which had been elected by the Greek people on a proposal to end austerity, is being forced to continue imposing austerity—regardless of the promises it made to its electorate.

There are many anomalies in Greece—which its creditor overlords are exploiting to the hilt in their campaign against Syriza—but these anomalies alone do not explain Greece’s predicament. If they did, then Spain would be an economic heaven, because none of those anomalies exist there. But Spain is in the same economic state as Greece, because it is suffering under the same Troika-imposed austerity program. The willingness of the Troika to point out Greece’s failures stands in marked contrast to its unwillingness to discuss its own failings too—like, for example, the IMF’s predictions in 2010 of the impact of its austerity policies on Greece. The IMF predicted, for example, that by following its program, Greece’s economy would start growing by 2012, and unemployment would peak at under 15% the same year.

Instead, unemployment has exceeded 25%, and the economy has only grown in real (read “inflation-adjusted”) terms in the last year because the fall in prices was greater than the fall in nominal GDP. That is, measured in Euros, the Greek economy is still shrinking, four years after the IMF forecast that it would return to growth. A huge part of Greece’s excessive government debt to GDP ratio is due to the collapse in GDP, for which the Troika is directly responsible. This trumpeting of Greece’s failures, and unwillingness to even discuss its own, is the hallmark of a bully. And it makes transparently obvious that the agenda underlying the EU itself is fundamentally anti-democratic. Obviously the overthrow of democracy was not the public agenda of the EU—far from it. The core political principles of the EU were always about escaping from Europe’s despotic past, of moving from its conflictual history and the horrors of Nazism towards a collective brotherhood of Europe.

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Sapir’s been writing a good series.

The Courage Of Achilles, The Cunning Of Odysseus (Jacques Sapir)

The latest adventures in the negotiations between the Greek government and its creditors shines a light against the grain of many commentators. They assume that the Greek government “can only give” or “will inevitably give way” and consider each tactical concessions made by the Greek government as “proof” of its future capitulation, or that it regrets the promises of their vows. From this point of view, there is a strange and unhealthy synergy between the most reactionary commentators and others who want to pass for “radicals” who deliberately fail to take into account the complexity of the struggle led by the Greek government. The latter fights with the courage of Achilles and the cunning of Odysseus. Let us note today that all those who had announced the “capitulation” of the Greek government were wrong. We must understand why.

In fact, although the Greek government made significant concessions from the month of February, all these concessions are conditional on a general agreement on the issue of debt. Be aware that it is the burden of repayments that is forcing the Greek government to be in the dependence of its creditors. The tragedy of Greece is that it has made considerable budgetary effort but only to the benefit of creditors. Investment, both tangible and intangible (education, health) has been sacrificed on the altar of creditors. In these circumstances it is hardly surprising that the productive apparatus of Greece is deteriorating and that she regularly loses competitiveness. It is this situation that the current government of Greece, born of the alliance between SYRIZA and ANEL, seeks to reverse. The Greek Government did not request additional money from its creditors. It asked that the money that Greece produces can be used to invest in both the private and public sectors, both in tangible and intangible investments. And on this point, it is not ready to compromise, at least until now.

The creditors of Greece, meanwhile, continue to demand a full refund – despite knowing perfectly weII that this is impossible – so as to maintain the right to take money from Greece via debt interest payments. Everyone knows that no State has repaid all its debt. From this perspective the discourses that are adorned with moral arguments are completely ridiculous. But, it is appropriate to maintain the fiction of the inviolability of debt if we want to maintain the reality of Greece’s flow of money to the creditor countries. When on June 24, Alexis Tsipras noted the failure to reach an agreement, which he summarized in a tweet into two parts, he pointed to this problem.

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But no surplus will ever be enough.

Cash-Starved Greek State Posts Surplus (Kathimerini)

The Greek economy is at its worst point since entering the bailout process over five years ago, as reflected in the data on the execution of the state budget. The result for the first five months may show a surplus, but this is misleading. The shortfall in tax revenues in the year to end-May exceeded €1.7 billion, while, apart from salaries and pensions, the state is not paying its obligations within the country, as expenditure was €2.6 billion less than that provided for in the budget. Had the government not decided to freeze all payments in a bid to secure cash for the timely payment of salaries and pensions, the primary budget balance would have shown a deficit of €1 billion, against the €1.5 billion primary surplus it showed in the January-May period, according to the official data.

However, the cash reserves have now run dry, as according to sources there will not even be enough for the payment of salaries and pensions at the end of June unless the social security funds and local authorities contribute their own reserves. The figures released on Thursday by the Finance Ministry showed that tax revenues were lagging €1.74 billion in the year to end-May, as in direct tax revenues not a single euro has yet been collected from taxpayers and companies in the form of 2015 income tax. Meanwhile, Alternate Finance Minister Nadia Valavani on Thursday issued a decision extending the deadline for the submission of income tax declarations from June 30 to July 27, with the exception of companies that have to file their statements by July 20.

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The IMF should be dismantled, along with the EU. These clubs only hurt people.

IMF Would Be Other Casualty of Greek Default (El-Erian)

All sides are working hard to prevent Greece from defaulting on its debt obligations to the IMF – and with good reason: Such an outcome would have dire consequences not only for Greece and Europe but also for the international monetary system. The IMF’s “preferred creditor status” underpins its ability to lend to countries facing great difficulties (especially when all other creditors are either frozen or looking to get out). Yet that capacity to act as lender of last resort is now under unprecedented threat. Preferred creditor status, though it isn’t a formal legal concept, has translated into a general acceptance that the IMF gets paid before almost any other lender.

And should debtors fail to meet payments, they can expect significant pressure from many of the fund’s other 187 member countries. That’s why instances of nations in arrears to the fund have been limited to fragile and failed states, particularly in Africa. The IMF has been able to act as the world’s firefighter, willing to walk into a burning building when all others run the other way. Time and again, its involvement has proved critical in stabilizing national financial crises and limiting the effects for other countries. Not long ago, it would have been improbable for the IMF to engage in large-scale lending to advanced European economies (the last time it did so before the euro crisis was in the 1970s with the U.K.). And it would have been unthinkable for the fund to worry about not getting paid back by a European borrower.

Yet both are happening in the case of Greece. Moreover, compounding the unprecedented nature of the Greek situation, other creditors (such as the European Central Bank and other European institutions) are in a position to help provide Greece with the money it needs to repay the IMF. Yet that would only happen if an agreement is reached on a policy package that is implemented in a consistent and durable fashion. If Greece defaults to the IMF, it would find its access to other funding immediately and severely impacted, including the emergency liquidity support from the ECB that is keeping its banks afloat. The resulting intensification of the country’s credit crunch would push the economy into an even deeper recession, add to an already alarming unemployment crisis, accelerate capital flight, make capital controls inevitable and, most probably, force the country to abandon Europe’s single currency.

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I know, I know, quoting Krugman. Got to get used to that yet.

Breaking Greece (Paul Krugman)

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?
This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20% below capacity. Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts.

So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others? At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

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Alibaba for president!

The Upstarts That Challenge The Power In Beijing (FT)

There is an overarching force in China with tentacles reaching deep into almost everybody’s life. That force is not the Communist party, whose influence in people’s day-to-day affairs — though all too real — has waned and can appear almost invisible to those who do not seek to buck the system. The more disruptive force to be reckoned with these days is epitomised by the three large internet groups: Baidu, Alibaba and Tencent, collectively known as BAT, which have turned much of China upside down in just a few short years. Take the example of Ant Financial. Last week, it completed fundraising that values the company at $45bn to $50bn. It operates Alipay, an online payments system that claims to handle nearly $800bn in e-transactions a year, three times more than PayPal, its US equivalent.

That system, an essential part of China’s financial and retail architecture, and one familiar to almost every Chinese urbanite, is no brainchild of the Communist party. Instead it was the creation of Jack Ma, the former English teacher who founded Alibaba. Mr Ma established the system a decade ago as the backbone for Taobao, his consumer-to-consumer business. The name literally means “digging for treasure”, something that Mr Ma, one of China’s richest people, has clearly found. Alibaba handles 80% of China’s ecommerce, according to iResearch, a Beijing-based consultancy. That is a monopolistic position that even the Communist party, with its 87m members out of a population of 1.3bn, can only dream about.

True, the Communist party still regulates where people live (in the city or the countryside), what they publish (though less what they say) and how many children they have (though the one-child policy is fast fading). China’s internet companies, on the other hand, hold ever greater sway on how people shop, invest, travel, entertain themselves and interact socially. The BAT companies, which dominate search, ecommerce and gaming/social media, together with other upstarts, such as Xiaomi, a five-year-old company that has pioneered the $50 smartphone, are upending how people live.

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Sounds cute, but will happen when Chinese stock markets crash?

With $21 Trillion, China’s Savers Are Set to Change the World (Bloomberg)

Few events will be as significant for the world in the next 15 years as China opening its capital borders, a shift that economists and regulators across the world are now starting to grapple with. With China’s leadership aiming to scale back the role of investment in the domestic economy, the nation’s surfeit of savings – deposits currently stand at $21 trillion – will increasingly need to be deployed overseas. That’s also becoming easier, as Premier Li Keqiang relaxes capital-flow regulations. The consequences ultimately could rival the transformation wrought by the Communist nation’s fusion with the global trading system, capped by its 2001 World Trade Organization entry. That stage saw goods made cheaper across the world, boosting the purchasing power of low-income families at the cost of hollowed-out industries.

Some changes are easy to envision: watch out for Mao Zedong’s visage on banknotes as the yuan makes its way into more corners of the globe. China’s giant banks will increasingly dot New York, London and Tokyo skylines, joining U.S., European and Japanese names. Property prices from California to Sydney to Southeast Asia already have seen the influence of Chinese buying. Other shifts are tougher to gauge. International investors including pension funds, which have had limited entry to China to date, will pour in, clouding how big a net money exporter China will be. Deutsche Bank is among those foreseeing mass net outflows, which could go to fund large-scale infrastructure, or stoke asset prices by depressing long-term borrowing costs.

“This era will be marked by China shifting from a large net importer of capital to one of the world’s largest exporters of capital,” Charles Li of Hong Kong Exchanges & Clearing, the city’s stock market, wrote in a blog this month. Eventually, there will be “fund outflows of historic proportions, driven by China’s needs to deploy and diversify its national wealth to the global markets,” he wrote. The continuing opening of China’s capital account will also promote the trading of commodities in yuan, and boost China’s ability to influence their prices, according to an analysis by Bloomberg Intelligence. As was the case with China’s WTO entry, where many of the hurdles had been cleared in the years leading up to 2001, policy makers in Beijing have been easing restrictions on the currency, the flow of money and interest rates for years.

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China will fall to bits if there’s a real crackdown.

Shadow Lending Crackdown Looms Over China Stock Market (FT)

China’s shadow banks, increasingly wary of lending into a slowing economy, have turned to the stock market, fueling a surge in unregulated margin lending that has driven the market’s dizzying gains over the past year. Now regulators are cracking down on shadow lending to stock investors, a campaign analysts say is partly to blame for last week’s 13% fall in the Shanghai Composite Index — the largest weekly drop since the global financial crisis in 2008. “The price of funds has increased, the flow has shrunk, and transaction structures are getting more complicated,” says a Chongqing-based shadow banker who provides grey-market loans to stock investors.

“We’re no longer in a growth period. It’s more like, feed the addiction until you die, earn fast money. No one treats this as their main career.” China officially launched margin trading by securities brokerages as a pilot project in 2010. It expanded the program in 2012 with the creation of the China Securities Finance, established by the state-backed stock exchanges specifically to provide funds for brokerages to lend to clients. Official margin lending totaled Rmb2.2 trillion ($354 billion) as of Wednesday’s close, up from Rmb403 billion a year earlier, according to stock exchange figures. Yet this officially sanctioned margin lending, which is tightly regulated and relatively transparent, is only the tip of the iceberg for Chinese leveraged stock investing.

For standardized margin lending by brokerages, only investors with cash and stock worth Rmb500,000 in their securities accounts may participate. Leverage is capped at Rmb2 in loans for every Rmb1 of the investor’s own funds, and only certain stocks are eligible for margin trading. In the murky world of grey-market margin lending, however, few rules apply. Leverage can reach 5:1 or higher, and there are no limits on which shares investors can bet on. The money for these leveraged bets comes mainly from wealth management products sold by banks and trust companies. WMPs, a form of structured deposit that banks market to customers as a higher-yielding alternative to traditional savings deposits, also spurred China’s original shadow banking boom beginning in 2010.

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Can’t go wrong with a headline t like that.

Hedge Funds Love Consumer Stocks the Way Cows Love a Trombone (Bloomberg)

There’s a mesmerizing video making the rounds on Facebook of a guy who takes a trombone out into an empty cow pasture, sits down in a lawn chair and plays the song “Royals” by the New Zealand singer Lorde. Before he even gets to the first chorus, cows begin hustling over the hill toward the sound of the music. By the end of the video, he has a whole herd crowded together in front of him and they all wag their tales and moo their approval for the trombonist. What on Earth, you may ask, does this Facebook video have to do with the stock market? Great question, thanks for asking! Returns have been a lot like these cows – individual stocks over the last few years have appeared to be moving together like a herd of cows mesmerized by the same trombonist.

Market pundits have lamented this lack of return dispersion again and again and tried to wish it away, without much success. It’s hard to know – without access to a herd of cattle, a trombone and a lot of free time – whether it’s the specific song or the moo-like sound of the instrument itself that has enthralled the cattle. Similarly, it’s not 100% obvious what’s caused the herding in the stock market – maybe it’s the sweet music of low interest rates played by the Federal Reserve that has caused fixed-income cows to march into the stocks pasture, or maybe it’s the growth in popularity of index funds that makes the whole market look like a field of grass rather than a buffet table covered with an assortment of treats.

Yet, there’s an interesting surprise lurking amid all this herding in returns: dispersion among performance of equity hedge funds is actually increasing. The spread between the top fourth and bottom fourth of long-short strategy returns in the Credit Suisse Hedge Fund Index has widened from 10% to as high as 20% over the last year. That type of contrast is usually only seen during very volatile periods, not the calm markets we’ve seen this year, according to Mark Connors, Credit Suisse’s global head of risk advisory.

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A great take on UK housing. Don Corleone would be proud.

UK Developers Play Flawed Planning To Minimise Affordable Housing (Guardian)

Golden towers emerge from a canopy of trees on a hoarding in Elephant and Castle, snaking around a nine-hectare strip of south London where soon will rise “a vibrant, established neighbourhood, where everybody loves to belong”. It is a bold claim, given that there was an established neighbourhood here before, called the Heygate Estate – home to 3,000 people in a group of 1970s concrete slab blocks that have since been crushed to hardcore and spread in mounds across the site, from which a few remaining trees still poke. Everybody might love to belong in Australian developer Lend Lease’s gilded vision for the area, but few will be able to afford it.

While the Heygate was home to 1,194 social-rented flats at the time of its demolition, the new £1.2bn Elephant Park will provide just 74 such homes among its 2,500 units. Five hundred flats will be “affordable” – ie rented out at up to 80% of London’s superheated market rate – but the bulk are for private sale, and are currently being marketed in a green-roofed sales cabin on the site. Nestling in a shipping-container village of temporary restaurants and pop-up pilates classes, the sales suite has a sense of shabby chic that belies the prices: a place in the Elephant dream costs £569,000 for a studio, or £801,000 for a two-bed flat.

None of this should come as a surprise, being the familiar aftermath of London’s regenerative steamroller, which continues to crush council estates and replace them with less and less affordable housing. But alarm bells should sound when you realise that Southwark council is a development partner in the Elephant Park project, and that its own planning policy would require 432 social-rented homes, not 74, to be provided in a scheme of this size – a fact that didn’t go unnoticed by Adrian Glasspool, a former leaseholder on the Heygate Estate.

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No ride at all.

Indebted Shale Oil Companies See Rough Ride Ahead (Fuse)

There has been a lot of speculation about how deeply and how quickly U.S. shale production would contract in the low price environment. The industry has proven resilient, with rig counts having fallen by more than half since October 2014 but actual production not exhibiting a corresponding precipitous decline. That could soon change. Shale companies drastically cut spending and drilling programs following the collapse in oil prices. For example, Continental Resources, a prominent producer in the Bakken, slashed capital expenditures for 2015 from $5.2 billion to $2.7 billion. Whiting Petroleum, another Bakken producer, gutted its capex by half. The list goes on. To be sure, exploration companies are achieving a lot of efficiency gains in their drilling operations.

After years of pursuing a drill-anywhere strategy, many are now approaching the shale patch with more forethought and cost-saving technologies. Oil field service companies are also dropping their rates, allowing for drilling costs to decline. That will allow U.S. companies to squeeze more oil out of shale while spending less. However, the improved productivity could be temporary. Much of the cost reductions have come in the form of layoffs rather than fundamental gains in the cost of operations. If drilling activity picks up in earnest, costs could rise again as workers will need to be rehired. The tumbling “breakeven” costs for producing a barrel of oil could be a bit of a mirage.

If oil prices remain relatively weak, or even drop further in the second half of the year, the problems could start to mount. Shale wells suffer from steep decline rates after an initial rush of output. That means that unless enough new wells are drilled to offset natural decline, overall output could drop precipitously. Add to that the fact that the companies are bringing in 40% less per barrel than they were last year because of lower oil prices, and falling revenues start to become a problem for weaker companies.

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Has it really been such a disaster?

Chief Justice John Roberts’ Obamacare Decision Goes Further Than You Think (MSNBC)

Chief Justice John Roberts did more than simply save Obamacare by ruling for the administration on Thursday – he etched the president’s signature policy into American law for a generation or more. And in a bitter irony for the political right, Robert’s ruling actually puts Obamacare on firmer ground than it would have been if conservatives never brought the suit in the first place. A narrow decision could have simply upheld today’s health care subsidies by accepting the Obama administration’s interpretation of the health law’s tax rules. Roberts’ decision in King v. Burwell goes further, however, in a way many policymakers and critics have yet to fully grasp.

The ruling not only upholds current healthcare subsidies – the first big headline on Thursday – it also establishes an expansive precedent making it far harder for future administrations to unwind them. That is because Roberts’ opinion doesn’t simply find today’s subsidies legal. It holds that they are an integral, essentially permanent part of Obamacare. In other words, for the first time, the Supreme Court is ruling that because Congress turned on this spigot for national health care funding, only Congress can turn it off. That is bad news for potential Republican presidents, who may have hoped that down the road they might hinder Obamacare by executive action. Now their only apparent route to dialing back the policy is by controlling the White House, the House, and a 60-vote margin in the Senate.

Roberts establishes this precedent by essentially wresting power from the White House, and handing it back to Congress. While that might sound like a good thing for Republicans, who control Congress now, the case attacked the statute’s original meaning, so Roberts hands that power to the Democratic Congress that enacted Obamacare. That legal reasoning is the crucial backdrop for one of the most striking lines in the opinion, Roberts’ closing flourish that Congress passed the ACA “to improve health insurance markets, not to destroy them.”

Read more …

Still a good idea.

French Justice Minister Says Snowden And Assange Could Be Offered Asylum (IC)

French Justice Minister Christiane Taubira thinks National Security Agency whistleblower Edward Snowden and WikiLeaks founder Julian Assange might be allowed to settle in France. If France decides to offer them asylum, she would “absolutely not be surprised,” she told French news channel BFMTV on Thursday (translated from the French). She said it would be a “symbolic gesture.” Taubira was asked about the NSA’s sweeping surveillance of three French presidents, disclosed by WikiLeaks this week, and called it an “unspeakable practice.”

Her comments echoed those in an editorial in France’s leftist newspaper Libération Thursday morning, which said giving Snowden asylum would be a “single gesture” that would send “a clear and useful message to Washington,” in response to the “contempt” the U.S. showed by spying on France’s president. Snowden, who faces criminal espionage charges in the U.S., has found himself stranded in Moscow with temporary asylum as he awaits responses from two dozen countries where he’d like to live; and Assange is trapped inside the Ecuadorian Embassy in London to avoid extradition to Sweden. Taubira, the chief of France’s Ministry of Justice, holds the equivalent position of the attorney general in the United States.

She has been described in the press as a “maverick,” targeting issues such as poverty and same-sex marriage, often inspiring anger among French right-wingers. Taubira doesn’t actually have the power to offer asylum herself, however. She said in the interview that such a decision would be up to the French president, prime minister and foreign minister. And Taubira just last week threatened to quit her job unless French President François Hollande implemented her juvenile justice reforms.

Read more …

Explode that union. Get it over with. People are getting killed.

Italy Rebukes EU Leaders As ‘Time Wasters’ On Migrants Plan (Reuters)

Italian Prime Minister Matteo Renzi rebuked fellow EU leaders on Thursday for failing to agree a plan to take in 40,000 asylum-seekers from Italy and Greece, saying they were not worthy of calling themselves Europeans. EU leaders are divided over a growing migrant crisis in the Mediterranean and have largely left Italy and Greece to handle thousands of people fleeing war and poverty in Africa and the Middle East. “If you do not agree with the figure of 40,000 (asylum seekers) you do not deserve to call yourself Europeans,” Renzi told an EU summit in Brussels. “If this is your idea of Europe, you can keep it. Either there’s solidarity or don’t waste our time,” he said.

Another official described the debate as “controversial”. Much of the tension appeared to be about ensuring that the migration plan was voluntary, not mandatory as the European Commission had initially suggested. Stung by deaths this year of almost 2,000 migrants trying to reach Europe by boat, the European Union has promised an emergency response but not national quotas for taking people. According to a draft final summit communique, governments would agree to relocation over two years from Italy and Greece to other member states of 40,000 people needing protection. It said all member states will participate.

As EU leaders tackled the issue over dinner, some eastern and central European countries, which are reluctant to take refugees, sought guarantees that the system be temporary and voluntary. “We have no consensus on mandatory quotas for migrants, but … that cannot be an excuse to do nothing,” said Donald Tusk, president of the European Council who chairs summits. “Solidarity without sacrifice is pure hypocrisy.”

Read more …

It’s all in the design. No escaping that.

Why Do We Ignore The Obvious? (ZenGardner)

I have a hard time with people not being willing to recognize what’s obviously in front of their faces. It’s a voluntary mind game people play with themselves to justify whatever it is they think they want. This is massively exacerbated by an array of social engineering tactics, many of which are to create the very mind sets and desires people so adamantly defend. But that’s no excuse for a lack of simple conscious recognition and frankly makes absolutely no sense. We can’t blame these manipulators for everything. Ultimately we all have free choice. Plainly seeing what’s right in front of our noses, no matter how well sold or disguised, is our human responsibility. That people would relinquish this innate right and capability totally escapes me.

The Handwriting On the Wall Actually, it’s much more obvious than even that. Pointless wars costing millions of innocent lives, poisoned food, air and water, demolished resources, manipulated economies run by elitist bankers who nonchalantly lend money with conditions for “interest”, corporate profiteering at any cost to humanity, a medical system built on sickness instead of health, media mindmush poisoning children and adults alike, draconian clampdowns for any reason, and on and on. Why is this not obvious to people that something is seriously wrong, and clearly intended to be just the way it is? Do they really think it’s gonna iron itself out, especially with clearly psychopathic power mad corrupt maniacs in charge? That’s what they’ll tell you. “Give it time, we’re just going through a hiccup. Everything works out…” yada yada. Why? Because that’s what they want to believe. And the constructed world system is waiting with open arms to reinforce that insanity. And “Heck, if millions of others feel the same as me I can’t possibly be wrong.”

Fear of Drawing Conclusions That’s pretty much the bottom line. Acceptance for seeming security. However, if even one of these inroads of control vectors becomes clear to people then their whole world threatens to turn upside down. When two or more start appearing then the discomfort becomes quite intense, and that’s when the decision takes place. Either they keep pursuing this line of awakened thought or they shut it down. It’s all about comfort. And what a deceptive thing that is! Call it sleepwalking to oblivion or what have you, it’s endemic to today’s dumbed-down society. This is why the education system was their primary target since way back, conditioning humanity from childhood to not think analytically but to simply repeat whatever is in their carefully sculpted curriculum. But most of all do not question authority.

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And have a yearly man-eating fest?!

Robots Will Conquer The World and Keep Us As Pets – Wozniak (RT)

Apple co-founder Steve Wozniak, who used to be gloomy about a distant future dominated by artificial intelligence, now believes it would be good for humanity in the long run. Super smart robots would keep us as pets, he believes. “They’re going to be smarter than us and if they’re smarter than us then they’ll realize they need us,” Wozniak told an audience of 2,500 people at the Moody Theater in Austin, Texas, on Wednesday. The speech was part of the Freescale Technology Forum 2015. “They’ll be so smart by then that they’ll know they have to keep nature, and humans are part of nature. So I got over my fear that we’d be replaced by computers. They’re going to help us. We’re at least the gods originally,” he explained.

The timetable for humans to be reduced from the self-crowned kings of Earth to obsolete sentient life forms sustained by their own creations is measured in hundreds of years, Woz soothed the audience. And for our distant descendants life won’t really be bad. “If it turned on us, it would surprise us. But we want to be the family pet and be taken care of all the time,” he said. “I got this idea a few years ago and so I started feeding my dog filet steak and chicken every night because ‘do unto others,'” he quipped. Wozniak, who invested some $10 million into an IA firm, used to refer to artificial intelligence as “our biggest existential threat.” The concern is shared by some leading IT experts, inventors and scientists, including Elon Musk, Bill Gates and Stephen Hawking.

Read more …

Jun 262015
 June 26, 2015  Posted by at 7:38 am Finance Tagged with: , , , , , ,  4 Responses »

NPC O Street Market, Washington DC 1925

Perhaps I should apologize for writing about Greece all the time. Thing is, not only have I just arrived in Athens last night (and been duly showered in ouzo), but Greece is the proverbial early harbinger of everything that’s wrong with the world (not to worry, I know that’s a hyperbole), and of everything that could be done about it.

That places a responsibility on the shoulders of Syriza leader Alexis Tsipras and his team that maybe they don’t want, and for all I know don’t deserve either. But they’re all we have, and besides, they’re all their own people have. In that sense, this is not about everything that’s wrong with the world, other than that’s the same as everything that’s wrong with Greece.

I was struck last night, talking to people here in Athens, by how much their appreciation of Tsipras, his overall composure and the way he handles the Troika talks, has increased over the past five months. They were doubtful about him before the Syriza election win; they no longer are.

Still, the negotiations are nice and all, but they’re not going anywhere, and they never will. The Troika side of the table is interested in one thing only: to humiliate Athens and force it into ultimate submission, along the lines of those photographs we’ve come to know of Abu Graibh.

Yanis Varoufakis labeled the Troika policies vis-a-vis Greece ‘fiscal waterboarding’ when he started out as finance minister, and here’s thinking he should have stuck with that image in a much more persistent and a much louder fashion.

Yes, we know, Syriza doesn’t have the mandate to take the country out of the eurozone. A daily dose of fear tactics in the domestic and international media still have Greeks, even Syriza voters, scared stiff about going it alone.

It’s time for Tsipras to turn to his people, on national TV, and say look, whatever we can discuss with the Troika, and whatever compromise we may be able to reach, there is no option on or off the table that would allow for you, the people of Greece, to not be debt slaves for the rest of your lives.

The European Union is merely a crude modern version of a feudal society (but without the debt jubilee older versions had), that’s all the morals that Brussels and Berlin can muster. And, Tsipras should say, if that is what you want, if you want to be slaves instead of a free people, tell me so. I will draw my conclusions from that.

But this is getting painful. We have an entire team of Greece’s brightest drawing up plan after plan, most of which are never even discussed by the Troika. It all comes down to you, the people, and we, your representatives, being rudely insulted every minute of the day by people whose only interest is their own personal careers and agendas.

I, Alexis Tsipras, think I deserve better than that, and much more importantly, I think my people deserve better than that. But in these negotiations, no matter how long they last, we will never get what we deserve. The Troika seeks to humiliate us, and force us on our knees with our pants down our ankles and a hood over our faces..

This will take courage on the part of Tsipras; it may well end his political career. But such courage is exactly what the Greek people need to see. They need a leader who is willing to put it all on the line, or else why would they themselves?

The threat of Armageddon following an exit from the euro is an abstract and unknown phenomenon akin to various bogeymen used to keep children in check, akin to the threat of drowning that makes waterboarding such an inhumane experience.

But whatever may or will happen, there is nothing that says or guarantees that a euro-less Greece will be worse off than it is now. Not even from a purely financial point of view (other than for an initial short period of time).

What the Greeks are sure to gain, though, is their independence, their dignity, their pride. Why on earth would they, once they understand the predicament, vote to stay on and pay their odious debts and kowtow to the five families in Brussels and Berlin for the rest of their lives?

It makes no sense at all, and it makes no sense for Tsipras and his team to keep on negotiating for a deal that will never do anything but humiliate them, and shackle the people who voted for them. There is no other possible option on the table, and there won’t be in the future.

As I was writing this in the early Athens morning, I saw an article by my dear friend Steve Keen come in, and I’m very pleased to see Steve think along the same lines I do, at the same time.

Bureaucrazies Versus Democracy

This belief that economists know better than politicians how to run an economy was enshrined in the Maastricht Treaty itself, which limited government deficits to 3% of GDP and government debt to 60% of GDP. It was a set of rules designed to shackle political freedom, so that the economy could flourish under the incorruptible leadership of experts.

Some experts. Firstly they designed a system which would only work if capitalism never had crises. Secondly, when a crisis hit, rather than backpedalling on their flawed rules, they doubled up on them. Then, when the people had the temerity to elect a government which opposed their agenda… Well it’s obvious, isn’t it? The people must be overthrown.

I know from personal conversations with Varoufakis and his advisors, as well as from the public record, that Syriza is willing to do almost anything to stay within the Euro. As Yanis put it at the INET conference in Paris in April, the Euro is a bit like the Hotel California: you should never check into it in the first place, but if you do, you can never leave.

But the conditions the IMF, EU and ECB are insisting upon here are so extreme, and their behaviour so counter to the very concept of democracy, that maybe the Greeks would do better to show them what a democratic government can do. Maybe they should leave the Euro, and default on all their debts—especially those to the Troika. The financial stimulus from throwing off the yoke of debt may counterbalance the initial chaos from re-instituting a national currency in a seriously damaged society.

It may also teach the bureaucrazies -and no, that is not a misprint- a lesson about the limits of bureaucratic power.

You know, it’s true that maybe it’s too much for outsiders such as Steve Keen and myself to ask of Alexis Tsipras, and the people of Greece, to jump into a big unknown. But it’s also too much to bear to watch the inane piece of theater being played out by quasi elected B movie protagonists.

And no, none of us get a free pass on this one. Your voice is long overdue. Because no matter where you are or who you are, whether you’re American or European, it’s still your government, acting in your name, that supports and magnifies the craziness unloaded upon the cradle of democracy.

All the Greek people know until now is that Europe and the IMF are attempting to strangle them. Still, so many among us don’t agree with that at all. Thing is, it’s time to let that be known. To the people of Greece, and to our own ‘leaders’ who if we don’t get vocal will continue to do as they please. Just because the people you’ve elected don’t have any morals doesn’t mean you don’t have to either.

I shouldn’t forget of course: you can start showing your support for Greece and justice right now by donating to the AE for Athens fund, just go to the Paypal widget, top of the left side bar. Make sure you end the amount you donate with $.99, so I know it’s for Greece. I’ll be seeking out foodbanks and clinics momentarilly.

Jun 162015
 June 16, 2015  Posted by at 10:32 pm Finance Tagged with: , , , , , ,  6 Responses »

Jack Delano Conductor picks up message from operator on the Atchison, Topeka & Santa Fe 1943

While I’m on the Greece topic again today, I can’t help but pointing out some of the changes in tone I’ve noticed in the press recently, shifting towards outright oftentimes vicious if not ridiculous antagonism vs Greece. Remember, there is an agenda, there are pre-cooked narratives galore, and these people are not your friends.

I won’t be able to cover all the things I would like to right now, let’s start with just the one. And I’m warning you: it might get philosophical.

This is from Marc Champion for Bloomberg yesterday:

Tsipras Isn’t on the Side of Democracy

Recently, I asked whether the Greek government actually wants to strike a deal on its debt, or if its increasingly erratic approach to negotiations might reflect a determination to ensure that Greeks blame their creditors, not their government, for a coming meltdown. [..] Here’s what Tsipras said in a statement about the abortive talks and current bailout:

“One can only suspect political motives behind the fact that the institutions insist on further pension cuts, despite five years of pillaging via the memoranda. The Greek government has been negotiating with a specific plan and documented proposals. We will wait patiently till the institutions adhere to realism.

Those who consider our sincere wish for a solution as well as our efforts to bridge the gap as a sign of weakness, should have in mind the following: We are not only carrying a historical past underlined with struggles. We are carrying our people’s dignity as well as the aspirations of all Europeans. We cannot ignore this responsibility. It is not a matter of ideological stubbornness. It has to do with democracy.”

Tsipras’s proposition that he’s championing the hope of downtrodden masses across Europe is nonsense. Germans may be wrong and unfair to prefer losing the loans they made Greece to taking a haircut, but they have a democratic right to believe they’re correct.

Really, Champion? Where do I start? How about “its increasingly erratic approach to negotiations”? At the very least, that doesn’t sound like a subjective view at all. It’s also completely off, but that’s another matter.

Syriza has stuck to what it said all along: negotiations are possible, but not about everything. Not about making a desperate people even more desperate. Not only is that useless and harmful to all parties involved in the talks, it’s also immoral. Granted, ‘immoral’ may be considered a subjective view too. Then again, it shouldn’t be.

But how sticking to your convictions qualifies as ‘erratic’, I simply don’t know. I presume that’s a subjective interpretation of what the author reads in the press. Maybe he never realized there were convictions in play, maybe he figured it was all just another political barter trade, two goats for a cow. It’s not.

Then, “championing the hope of downtrodden masses across Europe” is merely a frankly pretty stupid interpretation of Tsipras’ words. Who talks about “our people’s dignity” and “the aspirations of all Europeans”. Oh, and “democracy”. Why that needs to be translated as ‘downtrodden masses’ reveals a lot about who Champion is, but nothing about Tsipras. It’s just not what he says.

The last point is more interesting, and more cantankerous at the same time. Champion contends that Germans have the right to insist on Greek haircuts before they take losses on loans they made to Greece. And the right to “believe they’re correct” about whatever it is they believe.

Is that an attempt to turn democracy into a religion, or is it just me?

First off, Germans made no such loans to Greeks, not in the way they are consistently presented. Instead, their government insisted in 2010 on bailing out their own banks and have the Greek people pay for that bailout when it was crystal clear the Greeks wouldn’t be able to, let alone should.

If that is still not obvious, here’s the thing: it’s why we are where we are. If Merkel and Sarkozy had simply told their people what was really going on, we wouldn’t be in this mess. And they might have lost their office.

Bailouts of French banks were even more costly. Costly not to the French, but to the Greeks. And I’ll repeat myself again: that is and was a political decision, not an economic one. Which is the pivotal point in the entire Greek saga.

Thing is, this was never explained to the German or French people. Their media, and their politicians, have always persisted in maintaining the less-than-honest version. That is it was wasteful Greeks who were to blame, not German and French greedy well-connected bankers and their losing wagers.

Which leads to the question: if Germans have been consistently misled about the whole Greece issue, what exactly is the value of their “democratic right to believe they’re correct”? A phrase that sounds pretty absurd to begin with, mind you, if you read it more than once.

Is it that being lied to in and of itself is a ‘democratic right’, or is this about the right to draw -inevitably faulty- opinions based on those lies? How does that work? Honest, I don’t get it.

Do Bloomberg’s mostly American readers, after reading Champion’s obvious distortions of what Tsipras said, spiced with the author’s personal ‘opinions’, then also have a democratic right to judge Greece based on those words? I’m going to have to guess so.

But let’s get real: What does any of this have to do with democracy anymore? And, more importantly, where does it leave the democratic rights of the Greek people? Do they need to be fed lies too to participate in this game?

The Greek people have had no say in how Berlin and Paris presented the bailouts of their domestic banks to their respective homebase(s). All they have a say in is how Tsipras and Syriza stand up for them. That right there defines, and limits, their democratic rights. That’s all they got -left-. They have the right to elect a government that promises to take care of their interests, better than umpteen governments before them who didn’t.

How does that compare with the Germans’ alleged right to “believe they’re correct”? When all they’ve been fed is a greatly distorted version of what actually went down?

I couldn’t tell you if I wanted to.

I think what Champion says is that people have a democratic right to be wrong. But do they then also have the right to hurt others while exercising that ‘right’?

Doesn’t this put the onus on their governments and media? Do they have a democratic right to spread distorted information? If so, what is democracy, exactly? What is left of it if all that is valid?

I suggest you and I revisit this, and in the meantime I’m curious to see what you have to say about it. How do lies, distortions and subjective opinions relate to democracy? Is lying and distorting a democratic right, for politicians and journalists?

May 142015
 May 14, 2015  Posted by at 9:58 pm Finance Tagged with: , , , , , ,  13 Responses »

Harris&Ewing Washington Monument, view from air 1919

I know I’ve talked about this before, but it just keeps coming and it keeps being crzay. Bloomberg ‘reports’ that the ‘German Finance Ministry’, let me get this right, “is supporting the idea of a vote by Greek citizens to either accept the economic reforms being sought by creditors to receive a payout from the country’s bailout program or ultimately opt to leave the euro.” And that’s it.

They ‘report’ this as if it has some sort of actual value, as if it’s a real thing. Whereas in reality, it has the exact same value as Greek Finance Minister Varoufakis suggesting a referendum in Germany. Or Washington, for that matter. Something that Bloomberg wouldn’t even dream of ‘reporting’ in any kind of serious way, though the political value would be identical.

Apparently there is some kind of consensus in the international press – Bloomberg was by no means the only ‘news service’ that ‘reported’ this – that Germany has obtained the right to meddle in the internal politics of other eurozone member nations. And let’s get this one thing very clear: it has not.

No more than the Greek government has somehow acquired the right to even vent its opinions on German domestic issues. It is a no-go area for all European Union countries. More than that, it’s no-go for all nations in the world, and certainly in cases where governments have been democratically elected.

So why do Bloomberg and Reuters and all the others disregard such simple principles? All I can think is they entirely lost track of reality, and they live in a world where reality is what they say it is.

Now, I know that Schäuble ‘merely’ said – I quote Bloomberg -: “If the Greek government thinks it should hold a referendum, it should hold a referendum.. Maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done.”

That’s admittedly not the same thing that Bloomberg makes of it, though it’s possible that the ‘reporter’ got some additional background information from the German Finance Ministry, and that that’s the reason the ministry gets mentioned, instead of just Schäuble.

But that still doesn’t make it alright by any stretch of the imagination. The EU, and the eurozone, are made up of sovereign nations. Who function in a system of equal partners, certainly from a political point of view. So the German FinMin has no business even talking about a Greek referendum, no more than the Greeks have talking about a German referendums. And Angela Merkel should be on his case for this. But she’s not. At least not in public.

Whether or not Greece has a referendum -about the euro or anything else- is up to the Greek people, and first of all to the government they elected only 3.5 months ago. It has absolutely nothing to do with whoever is in charge in Berlin, or Paris, or even in the EU headquarters in Brussels. It’s a fatal mistake to think otherwise. Bloomberg has made that fatal mistake. Schäuble has come so close Athens should file a complaint against him.

Granted, all parties involved may be influenced by what happened 4 years ago -more Bloomberg-:

Schaeuble’s stance on a Greek plebiscite is a departure from Germany’s position in 2011. Back then, Prime Minister George Papandreou dropped his plan for a referendum after Chancellor Angela Merkel and French President Nicolas Sarkozy urged him not to hold the vote.

That referendum involved a haircut on Greek debt ‘negotiated’ by the troika, which Papandreou wanted the Greek people to vote on. And Merkel and Sarkozy did much more than ‘urge’ Papandreou not to hold the vote. They were afraid it would drive Greece from the eurozone, and scared the sh*t out of him so much he withdrew the plan a few days after proposing it.

Which is just another case of Euro nations meddling in the internal affairs of a fellow member nation. Something for which there wasn’t then, and still isn’t now, any political or legal support or framework inside the EU. Still, Brussels, Berlin and Paris applied similar pressure on Italy PM Berlusconi in those days, and installed – helped install – a technocrat PM, Mario Monti. In Greece, they got Papademos. Both Papandreou and Berlusconi were gone soon after the ‘pressure’ was applied.

That’s how Europe operates. And they have no legal right to do it. But that you won’t read at Bloomberg. The whole thing is so accepted that not even Syriza tells the Germans – or Bloomberg for that matter – to shut their traps. Even though they would have a lot more right to do that than Schäuble has to comment on internal Greek affairs.

And from where I’m sitting that means that Ashoka Mody’s piece for Bruegel is too little too late. Nice try but..

Europe’s Integration Overdrive

The problems will worsen in Greece and, will inevitably, arise elsewhere. The economic and political costs of breaking the Eurozone are so horrendous that the imperfect monetary union will be held together. Instead, the cost of the ill-judged rush to the euro and mismanagement of Greece will eventually be a substantial forgiveness of Greek debt.

But this is a good moment to step back and loosen European ties. As Schuman said, “Europe will not be built according to one plan.” The task is to create a de facto solidarity—not to force a fragile embrace. A new architecture should scale back the corrosive power relationships of centralized economic surveillance. Let nations manage their affairs according to their priorities.

And put on notice private creditors that they will bear losses for reckless lending. The European fabric -held together by commercial ties- is fraying as European businesses seek faster growing markets elsewhere. That fabric could tear if political discord and economic woes persist. History and Schuman will be watching.

Things have moved way beyond where Mody thinks they are at present. The secret ingredient is simply the crisis. The way the eurozone was hastily slapped together allows only for good times. The idea was that as long as things go well, nobody would notice the cracks. But Europe has been nothing but cracks for 7 years now, and there’s no end in sight.

The Greek people can vote all they want to end the misery Europe has inflicted on them, it doesn’t matter to the major powers in the union. They simply blame it all on the same Greeks, and judging from how Bloomberg approaches the issue, they have the upper hand. They live above their means, they’re wasteful and they’re lazy. That’s the portrait painted, and that’s how 90% of the world therefore sees them.

It makes no difference whether it is true or not. It’s all just about who has more money and power and press; they get to decide what people think about other people.

Does the euro have a future? If it does, it won’t look anything like it does today. The eurozone has only ever been a mechanism to make more money flow from the south to the north. And now the north will have to come up with a measure of solidarity, of being an actual union, and they bluntly refuse.

Rich European countries are all led by politicians who want to win their next elections. And these are national elections, not European elections. Those hardly matter. Because Europe is made up of sovereign nations. And that’s why the European Union in its present shape is doomed to fail.

Brussels will always clamor for a closer union, politically, fiscally, economically. But the way Germany et al has treated Greece and Italy and Spain over the past 7 years makes abundantly clear that such a close union will never come to fruition. These are all countries that are proudly independent, that commemorate battles from hundreds of years ago where their ancestors shed the blood and gave the lives that made them independent.

They’re not going to let Germany and France and Holland call the shots in their economies and countries now. Not a chance.

Europe only has a -peaceful- future as a continent of independent nations that work together where they can. To get there, they will need to abolish the euro and completely redo the union project, from scratch, close down all offices in Brussels, and they will have to do it soon, or there will be no peace.

Meanwhile, what’s left for Greece in Brussels that is beneficial to the country? I don’t see it. It makes me think more of a Stockholm syndrome by the hour. Get out, get your own currency, negotiate a treaty with Italy and Spain, maybe France. But don’t stay in a ‘union’ with outsiders who think they can tell you, Greeks, how to run a democracy, or when to hold a referendum. That can only be a road to nowhere.

May 092015
 May 9, 2015  Posted by at 11:07 am Finance Tagged with: , , , , , , , ,  11 Responses »

Arthur Rothstein Steam shovels on flatcars, Cherokee County, Kansas 1936

Wall Street Soars On Hopes Of Fed Reprieve, Yet Sting In The Tail (AEP)
Wall Street Is One Sick Puppy (David Stockman)
Currencies’ Wild Ride to Get Wilder as US Rate Rise Beckons (Bloomberg)
Low Productivity Alarms US Policy Makers (FT)
Countdown To The Stock-Market Crash Of 2016 Is Ticking Louder (Paul B. Farrell)
‘Good’ Jobs Report? 15 Million Unemployed People Want To Work (MarketWatch)
UK Braces for Battle Over Europe After Cameron’s Victory (Bloomberg)
The $364 Billion Real Estate Threat Inside China’s Biggest Banks (Bloomberg)
Deflation Works! (Bill Bonner)
Documents Distributed by Greece’s Varoufakis ‘Baffle’ Eurozone Officials (WSJ)
Illinois Supreme Court Strikes Down Law to Rein in Public Sector Pensions (WSJ)
Democracy Is A Religion That Has Failed The Poor (Guardian)
Petrobras: The Betrayal of Brazil (Bloomberg)
The Clintons and Their Banker Friends- The Wall Street Connection (Nomi Prins)
Germany Spies, US Denies (Bloomberg)
Trans-Pacific Partnership Will Lead To A Global Race To The Bottom (Guardian)
Is There Such A Thing As A Skyscraper Curse? (Economist, March 28)
Global Crime Syndicates Are Buying Expensive Australia Real Estate (Domain)
Australian PM Adviser Exposes Cimate Change As Hoax, Shames All of Science (SBS)

“Markets keep treating weak data as “good news” (because it delays Fed tightening), but there comes a point when the macro-economic malaise does so much damage to earnings that reality catches up.”

Wall Street Soars On Hopes Of Fed Reprieve, Yet Sting In The Tail (AEP)

Pay packets have fallen across the gamut of US industry, manufacturing, and trade over the last two months, greatly reducing the likelihood of any rise in interest rates by the US Federal Reserve until later this year. The Dow Jones index of stocks soared by 260 points to 18,186 in early trading after the US non-farm payrolls report for April revealed that wage pressures remain all but dead in the American labour market. Contracts on the futures markets immediately pushed out the first rate rise for several months, pricing in a 51pc chance of ‘lift-off’ in December. The long-feared inflexion point for the global monetary cycle may have been delayed once again. Emerging market equities rallied strongly on hopes of another six-month reprieve for dollar debtors across the world.

Companies and state entities outside the US have borrowed a record $9 trillion in dollars, leaving them acutely vulnerable to a currency “margin call” triggered by Fed tightening. This dollar leverage has jumped from $2 trillion fourteen years ago. It is heavily concentrated in Brazil, Russia, South Africa, Turkey, China and the rest of emerging Asia. The US generated 223,000 jobs in April and the unemployment rate fell to a 7-year low of 5.4pc, yet the underlying trend remains disappointingly weak. Both overtime and the number of hours worked edged down. The jobs figure for March was revised down sharply to 85,000. The labour participation rate for men is still stuck at 69.4pc, six percentage points lower than it was fifteen years ago and the lowest level since modern data began after WWII.

Had it not been for a surge in pay for financial services – the spill-over from an increasingly frothy asset boom – overall weekly earnings would have dropped for a second month in a row. It is unclear how the Fed will respond this soggy data. Dennis Lockhart, head of the Atlanta Fed, remained hawkish this week, insisting that the economy would soon return to growth rates of 2.5pc to 3pc after grinding to halt in the first quarter. He warned that a rate rise in June was still “in play”, contrary to market assumptions. “I’m still of the view that the conditions will be appropriate in the middle of the year, which we are getting closer to,” he said. Yet the US economy has not yet recovered from a winter shock.

Mr Lockhart’s own advance indicator – the Atlanta Fed’s GDPNow series – suggests that growth has been running at a pace of just 0.8pc in the five weeks to early May. It is below the Fed’s stall speed gauge. China’s exports fell 6.9pc in April from a year earlier and remain shockingly weak. The eurozone’s retail sales unexpectedly slid 0.8pc in March, and Germany’s index of core industrial orders has turned negative. Markets keep treating weak data as “good news” (because it delays Fed tightening), but there comes a point when the macro-economic malaise does so much damage to earnings that reality catches up.

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“..the number of full-time jobs dropped by 252,000 in April – hardly an endorsement of the awesomeness theme.”

Wall Street Is One Sick Puppy (David Stockman)

The robo-traders – both the silicon and carbon based varieties – were raging again today in celebration of a “goldilocks” jobs report. That is, the headline number for April was purportedly strong enough to sustain the “all is awesome” meme, while the sharp downward revision for March to only 85,000 new jobs will allegedly enable the Fed to kick-the-can yet again – this time until its September meeting. As one Cool-Aid drinker put it, ‘“Probably best scenario in which the market was hoping for growth but not (so strong) that the Fed needs to hike in June,” said Ryan Larson at RBC Global Asset Management.’ Today’s knee jerk rip, of course, is the fifth one of roughly this magnitude since February 20th, but its all been for naught.

The headline based rips have not been able to levitate the S&P 500 for nearly three months now.In fact, however, the incoming data since February 20 has been uniformly bad. The chop depicted in the graph, therefore, only underscores that the market is desperately churning as it attempts to sustain an irrationally exuberant high. Indeed, today’s jobs data was not bullish in the slightest once you get below the headline. Specifically, the number of full-time jobs dropped by 252,000 in April – hardly an endorsement of the awesomeness theme. True enough, the monthly number for this important metric bounces around considerably. Yet that’s exactly why the algo fevers stirred by the incoming data headlines are just one more piece of evidence that the stock market is completely broken.

What counts is not the headline, but the trend; and when it comes to full time jobs there are still 1.1 million fewer now than at the pre-crisis peak in Q4 2007. Needless to say, a net shrinkage of full-time jobs after seven and one-half years is not exactly something that merits a 20.5X multiple on the S&P 500 or 75X on the Russell 2000. That’s the case especially when that same flat lining jobs trend has been underway for nearly a decade and one-half. To wit, since April 2000 the BLS’ full time job count has grown at only 0.35% annually. Now how in the world do you capitalize earnings at a rate which implies gangbusters growth of output and profits as far as the eye can see, when the US economy is self-evidently trapped in a deep rut that represents a drastic downshift from all prior history?

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Rollercoaster ahead.

Currencies’ Wild Ride to Get Wilder as US Rate Rise Beckons (Bloomberg)

If you thought the past week in the foreign-exchange market was wild, you haven’t seen anything yet. That’s the outlook from investors and strategists ranging from State Street Global Advisors to Cambridge Global Payments after price swings in the euro versus the dollar approached the highest level in more than three years. Volatility surged as traders unwound bets for gains in European bonds and stocks that had been funded in euros, prompting demand for the shared currency to close out what are known as carry trades. Price swings accelerated Friday after a lackluster U.S. employment report, raising more questions than answers about the timing of Federal Reserve interest-rate increases. “This unusual backdrop is going to create some turmoil,” Dan Farley at State Street.

“The next several weeks are likely to be choppy as things continue to be absorbed, bouncing off the good and the bad news.” The euro’s one-month implied volatility jumped as high as 13.2%, inching toward the 14% level where it last closed in December 2011. The common currency was unchanged on the week at $1.1199 as of 5 p.m. on Friday in New York. The Bloomberg Dollar Spot Index slid 0.7%, falling a fourth week in its longest run of declines since October 2013. The greenback weakened 0.3% to 119.76 yen. Europe’s bond rout wiped more than $400 billion from the value of the region’s debt in the past two weeks as investors questioned whether the ECB will continue its program of asset purchases through September 2016 amid signs the region’s economy is picking up.

The selloff eroded the premium Treasuries pay over bunds to the narrowest since February, lessening the attractiveness of dollar-denominated assets. “You’re going to see continued volatility driven by the bond markets,” said Karl Schamotta at Cambridge Global Payments in Toronto. “Investors are increasingly concerned that they could be caught in the exits when everyone rushes out of the theater.”

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Apparently these people find it hard to see what’s wrong.

Low Productivity Alarms US Policy Makers (FT)

US innovators claim they have never been busier, but their ideas are persistently failing to transform the country’s economic data. Labour productivity fell an annual 1.9% in the first three months of the year, while unit labour costs rose sharply, official figures showed on Wednesday. The output per hour figures came as the country’s gross domestic product barely grew during the quarter even as it added an average of nearly 200,000 jobs a month. The numbers confirm a longer-run trend of slowing productivity that is alarming policy makers and complicating Federal Reserve decision-making. “It has slowed in quite a worrying way,” said Torsten Slok, chief international economist at Deutsche Bank.

Productivity, which measures how efficiently inputs such as labour and capital are used, evolves over years and decades. This means a single quarter’s data should not be over-interpreted — especially one that was hit by one-time factors including freezing temperatures. The first quarter dive mirrors a weather-affected first quarter in 2014. But the numbers, which follow a 2.1% annual productivity drop in the fourth quarter, confirm a broader tendency that has been mirrored in a number of advanced economies and has perplexed economists. Analysis from the San Francisco Federal Reserve shows there was a surge in US productivity between 1995 and 2003, driven by the IT boom, with growth doubling from the annualised average of 1.5% set in the 1970s, 1980s and early 1990s.

The picture then reversed, however, and the US has been stuck in a lower-productivity growth trend since. Internationally comparable figures from the Conference Board show a broader slowdown among advanced economies including the UK and Japan over recent decades. Some economists say these weak numbers are jarring given the inventiveness being displayed in sectors such as software, medicine, and advanced manufacturing, and the rapid advance of robotics. “People are saying the pace of innovation has never been higher,” says Martin Neil Baily, an economist at Brookings, the think-tank.

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“2016 sounds more and more like McCain/Palin’s 2008 loss when the GOP was also deep in denial about the coming market crash..”

Countdown To The Stock-Market Crash Of 2016 Is Ticking Louder (Paul B. Farrell)

Warning bells just keep getting louder and louder as the countdown to the Crash of 2016 keeps ticking. Wall Street’s in denial, but the Washington Post warns: “U.S. economic growth slows to 0.2%, grinding nearly to a halt.” USA Today hears “Bubble Talk” at the Vegas “Davos for Geeks.” Earlier the Wall Street Journal warned, “declining population could reduce global economic growth by 40%.” Then recently the “slow-growth Fed” was blamed. Wrong, former Fed chief Ben Bernanke counterattacked: “I’m waiting for the Journal to argue for a well-structured program of public infrastructure development, which would support growth in the near term by creating jobs and in the longer term by making our economy more productive.”

But for years the Fed “has been pretty much the only game in town as far as economic policy goes.” Today “we should be looking for a better balance between monetary and other growth-promoting policies, including fiscal policy.” Fiscal policy? No, Ben, not a chance. The GOP controls economic policy. And they will never give “growth-promoting fiscal policy” victories to President Obama and Hillary Clinton before the presidential election of 2016. Never. In spite of Bernanke’s obviously rational solution to the core problems of the American economy, one that would help the American people, the GOP will never, ever agree to fiscal stimulus programs that give the Democrats bragging rights and make Obama and Clinton look good before the elections.

The GOP is hungry for power, very hungry. They lost the presidency twice to Obama. They want it back. And now their collective ego is convinced that with the $889 million backing from the Koch Empire they can beat Hillary and take absolute control of the American democracy: win the presidency, hold Congress, gain the power to issue executive orders and veto legislation, appoint more than 6,000 insiders including cabinet officers, regulatory heads, federal judges, ambassadors, staff bureaucrats, and more. Yes, the GOP knows all that power is on the line in 2016. Listen: 2016 sounds more and more like McCain/Palin’s 2008 loss when the GOP was also deep in denial about the coming market crash. Money manager Jeremy Grantham’s predictions see beyond the Big Oil-funded GOP’s gross denial, he sees that “around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse.”

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Only 15 million out of 93 million not in labor force? So 78 million bluntly refuse to work? Hard to believe.

‘Good’ Jobs Report? 15 Million Unemployed People Want To Work (MarketWatch)

There is good news in the jobs market, just not enough of it. The Bureau of Labor Statistics reported Friday that the U.S. economy continued to create jobs at a healthy pace of nearly 200,000 per month in the first four months of the year, and the unemployment rate dipped to 5.4% in April, the lowest since May 2008. But we are still far from achieving an economy that offers a job for everyone who wants one. And wages are barely growing for the 148 million who do have a job. Nearly 15 million jobless people say they want to work, but the Federal Reserve seems nearly ready to declare victory, figuring that the unemployment rate can’t go much lower without setting off a harmful inflationary spiral.

There is scant evidence that tight labor markets are putting any pressure on companies to raise their prices: Unit labor costs are up just 1.1% in the past year. Inflation — no matter how you measure it — is not a risk in the near term, or even in the medium term. There’s little evidence that workers have gotten those hefty raises that economists insisted were coming any day now. Growth in average hourly earnings is stuck in the same tight range of about 2% per year that it’s been at for the past five years. In April, average hourly earnings rose only 0.1%, bringing the change over the past year to 2.2%. And the “average” wage overstates the reality for most workers.

The average is boosted by rapid pay increases for just a few, including executives, whose “salaries” include bonuses and the receipt of shares of the company’s stock or options to buy shares. The encouraging acceleration in compensation that was reported in the employment cost index last week was largely due to sales commissions and bonuses collected by only a few. Most workers aren’t seeing that 2.2% pay increase. For the median full-time worker, usual weekly earnings are up just 1.5% in the past year, far below the 4% pay raise they got the last time that the unemployment rate was as low as 5.4%. (The “median” means that half of the workers got less than a 1.5% pay raise, and half got more.)

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“While the U.K. Independence Party, which campaigns for an EU exit, has only won one seat, the party won 13% of the popular vote..”

UK Braces for Battle Over Europe After Cameron’s Victory (Bloomberg)

David Cameron persuaded U.K. voters to give him a second term as prime minister. Now he needs to persuade them to stay in the European Union. The Conservatives’ surprise win came after a campaign that saw Cameron’s pledge of a referendum on EU membership by 2017 share almost equal billing with his record of delivering economic stability. Cameron, who has said he wants the country to stay in the EU, will first seek to renegotiate Britain’s membership terms. The Conservatives “may even try and bring things forward to stop this wrecking the next two years for them,” said Tim Bale, professor of politics at Queen Mary University in London.

“It’s a very tight majority which means he will have to make promises to people and do things to keep them on board on Europe, in particular as Cameron has a record of backing down under pressure to euro skeptics.” While the pound surged on Cameron’s victory amid optimism that an economic recovery will solidify under his administration, some investors warned that the euphoria could be short lived as a EU referendum draws closer into view. The vote is intended to settle a question that’s divided the nation since the U.K. joined Europe’s common market in 1973, and split the Conservatives for a generation. “Initial short-term cheer could be followed by a medium-term chill,” said Fabrice Montagne at Barclays.

“The referendum is likely to generate a substantial amount of uncertainty, particularly if polls fail to show more substantial support for EU membership in the coming weeks and months.” With most seats declared, the BBC forecast the Tories to take 331 of Parliament’s 650 seats to Labour’s 232 seats, a result that would allow Cameron to govern alone. While the U.K. Independence Party, which campaigns for an EU exit, has only won one seat, the party won 13% of the popular vote, according to the BBC. Last year, UKIP won the most votes in elections for the European Parliament, taking almost a third of Britain’s seats.

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That’s just China’s biggest four banks. “Property prices in 70 Chinese cities have fallen for more than a year..” “Loans backed by properties now comprise 40% of all facilities held by Fitch-rated banks..”

The $364 Billion Real Estate Threat Inside China’s Biggest Banks (Bloomberg)

Fitch Ratings has called real estate the “biggest threat” to Chinese banks as surging loans tied to properties coincide with defaults and falling sales. Corporate loans backed by buildings have grown almost fivefold since 2008 and residential mortgages have more than tripled in the period among lenders rated by Fitch, the company said Friday. That’s seen property loans held by China’s four biggest lenders soar to a total 2.26 trillion yuan ($364 billion), according to their annual reports. “Collateral is supposed to reduce bank risk – but the rise of property collateral in corporate loans may actually increase the chance of bank failure,” Fitch analysts Jack Yuan and Grace Wu said in the report.

“This is because the widespread use of such collateral has lowered the perceived risks of lending, fueling China’s credit build-up and spreading real-estate risk to other sectors of the economy.” Alarm bells sounded last month when Kaisa Group Holdings Ltd. became the first Chinese developer to default on offshore bonds, putting more scrutiny on a sector that made up a third of the nation’s economy in 2013, according to Gavekal Dragonomics. Property prices in 70 Chinese cities have fallen for more than a year, the worst losing streak in at least a decade, while sales have dropped for 11 of the past 24 months, Bloomberg-compiled data show. Loans backed by properties now comprise 40% of all facilities held by Fitch-rated banks, according to the report. Total credit to real estate could be as high as 60% if other types of financing besides direct loans are included, Fitch said.

“The property market is usually one of the main revenue contributors to the state,” said Raymond Chia, the head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. “With the weakness in the sector, especially with excess inventory overhang as well as weak earnings by developers, economic growth will be affected.” Industrial & Commercial Bank of China, the world’s biggest bank by assets, held 443.5 billion yuan of real estate loans, or 6.6% of all facilities, at the end of last year, according to its annual report. The portion for Bank of China, the nation’s second-largest, was 714.6 billion yuan of advances, or 8.4% of its credit book.

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“Today, a long depression in the US would be unbearable. The public couldn’t stand it. Six out of ten households live paycheck to paycheck. Can you imagine what would happen if those paychecks ceased?”

Deflation Works! (Bill Bonner)

As we have seen, Japan has already had a 25-year slump. The US is now in Year 8 of its slump, with fragile growth at only half the rate of the last century. They could get better… or worse. Negative rates could keep the cronies in business. The slump itself – combined with peak debt and 500 million Chinese laborers – could keep inflation in check. But the point comes when investors see that the risk of loss (because something can always go wrong) is greater than the hope of gain. That moment must be approaching in the US stock market. Prices are near record highs, even as the economy flirts with recession. One day, perhaps soon, we will see stocks falling – as much as 1,000 points in 24 hours. Jacking up the stock market has been the Fed’s singular success. Activism has been its creed.

Interventionism is its modus operandi. It will not sit tight as the market falls apart and the economy goes into recession. Instead, it will announce QE 4. It will try to enforce negative interest rates. And it will move – as will the Japanese – to “direct monetary funding” of government deficits. That is, it will dispense with the fiction of “borrowing” from its own central bank. It will simply print the money it needs. The US Fed of 1930 was not nearly as ambitious and assertive as the Fed of 2015. In the ‘30s, it watched as the economy chilled into a Great Depression. As Ben Bernanke told Milton Friedman, “We won’t do that again.” It couldn’t if it wanted to. Back in the ‘30s, consumer debt had barely been invented. Most people still lived on or near farms, where they could take care of themselves even if the economy was in a depression.

Few people had credit. Instead, they had savings. There were no food stamps. No disability. No rent assistance. No zombie industries. No student debt. No auto debt. No cash-back mortgages. And cash was real money, backed by gold. Today, a long depression in the US would be unbearable. The public couldn’t stand it. Six out of ten households live paycheck to paycheck. Can you imagine what would happen if those paychecks ceased? Supposedly, the US economy is still growing… with the stock market near record highs. Yet, one out of every five households in America has not a single wage-earner. Among inner-city black men, ages 20-24, only 4 out of 10 have jobs. Half the households in the US count on government money to make ends meet. And 50 million get food stamps. What would happen to the cities – and the suburbs – in a real depression?

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They try to act as if Yanis were stupid, but they themselves lack understanding of the matter at hand.

Documents Distributed by Greece’s Varoufakis ‘Baffle’ Eurozone Officials (WSJ)

Economic plans and growth estimates distributed by Greek Finance Minister Yanis Varoufakis to some of his eurozone counterparts have baffled officials involved in the talks over its international bailout. Officials say that the files differ greatly from what has been discussed at the technical level in Brussels in recent days and underline how Mr. Varoufakis continues to complicate progress toward a financing deal. The 36-page document, entitled “Greece’s recovery: A blueprint” and seen by The Wall Street Journal, was presented by Mr. Varoufakis to his counterparts in Paris and Rome, as well as senior officials in Brussels, while he was touring European capitals over the past week, according to four European officials.

The Greek Finance Ministry said the document was a first draft of a new plan “for the recovery and growth of the country in the [post-bailout] era,” which it said Mr. Varoufakis had discussed informally with some of his counterparts. “This is a long-term project that goes well beyond the limits of the negotiation that is currently underway in the Brussels Group,” as the group of experts representing Greece and its creditors is known, the ministry said. Greece’s leftist-led government is locked in negotiations with the European Union and the International Monetary Fund over its next slice of financial aid as part of a €245 billion rescue package. Disagreements over cuts to Greece’s pension system and changes to its labor rules that would make it easier to dismiss workers have held up a deal on further loans.

While the talks have become more constructive, differences remain wide, European officials say. The paper focuses on the Greek economy and how it can return to growth. “Perhaps it is time to visualize a recovering Greece before we unlock the present impasse,” the document says, before going into areas where the country plans overhauls. While some of the outlined measures are the same as those agreed to in the negotiations—such as the creation of an independent tax commissioner—the paper differs in other areas. One significant difference is the creation of a so-called bad bank that would house and wind down Greek lenders’ bad loans. “Conveniently, the financing of the bad bank is not treated,” an EU official said.

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Prelude to multiple bankruptcies.

Illinois Supreme Court Strikes Down Law to Rein in Public Sector Pensions (WSJ)

The Illinois Supreme Court struck down the state’s 2013 pension overhaul, unraveling an effort by lawmakers to rein in benefits for the consistently underfunded public-sector system. The current pension shortfall is estimated at $111 billion, one of the largest nationally. The high court affirmed a decision in November by a state circuit court that the legislative changes violated pension protections written into the state constitution. The decision is a victory for a consortium of public-sector unions while creating a huge challenge for new Republican Gov. Bruce Rauner, who already faces a yawning budget deficit for the coming fiscal year.

“The financial challenges facing state and local governments in Illinois are well known and significant,” said Justice Lloyd Karmeier, writing for the entire court. “It is our obligation, however, just as it is theirs, to ensure that the law is followed.” Illinois joins Oregon and Arizona as recent examples of high courts peeling back pension overhauls. Other states, including Colorado and Florida, have upheld laws cutting benefits. Mr. Rauner’s office urged a constitutional amendment to help fix the problem. Otherwise, the state will be forced to turn to tax increases, budget cuts or, as Mr. Rauner discussed earlier this year, municipal bankruptcy. Recent federal bankruptcy cases in Detroit and Stockton, Calif., have raised the question of whether pension benefits are fully protected.

After the ruling, Standard & Poor’s Ratings Services put the state’s credit ratings on watch for potential downgrade, saying Illinois faces “profound credit challenges.” The Illinois law would have reduced retirement costs by shrinking cost-of-living increases for retirees, raising retirement ages for younger workers, and capping the size of pensions. “The court’s ruling confirms that the Illinois Constitution ensures against the government’s unilateral diminishment or impairment of public pensions,” said Michael Carrigan, president of the Illinois ALF-CIO, speaking on behalf of the We Are One Illinois coalition of unions.

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It’s not democracy, it’s what is not democracy but is still called by that name.

Democracy Is A Religion That Has Failed The Poor (Guardian)

Right now I feel ashamed to be English. Ashamed to belong to a country that has clearly identified itself as insular, self-absorbed and apparently caring so little for the most vulnerable people among us. Why did a million people visiting food banks make such a minimal difference? Did we just vote for our own narrow concerns and sod the rest? Maybe that’s why the pollsters got it so badly wrong: we are not so much a nation of shy voters as of ashamed voters, people who want to present to the nice polling man as socially inclusive, but who, in the privacy of the booth, tick the box of our own self-interest. Rewind 24 hours and it felt so different. Thursday morning was lovely in London, full of the promise of spring. Even the spat I had with the man outside my polling station shouting at “fucking immigrants” didn’t disrupt an overall feeling of optimism.

Were people walking just a little bit more purposefully? Was I mistaken in detecting some calm excitement, almost an unspoken communal bonhomie? Perhaps also a feeling of empowerment, a sense that it was “the people” that could now make a difference. But by bedtime the spell had been broken. Things were going to stay the same. No real difference had been made. The utterly miserable thought strikes me that Russell Brand just might have been right. What difference did my vote make? Why indeed do people vote, and care so passionately about voting, particularly in constituencies in which voting one way or the other won’t make a blind bit of difference? And why do the poor vote when, by voting, they merely give legitimacy to a system that connives with their oppression and alienation?

The anthropologist Mukulika Banerjee suggests a fascinating answer: elections are like religious rituals, often devoid of rational purpose or efficacy for the individual participant, but full of symbolic meaning. They are the nearest thing the secular has to the sacred, presenting a moment of empowerment. But is this empowerment illusory? Is, as Banerjee asks, “the ability to vote … a necessary safety valve which allows for the airing of popular disaffection, but which nevertheless ultimately restores the status quo. In such a reading, elections require the complicity of all participants in a deliberate mis-recognition of the emptiness of its procedures and the lack of any significant changes which this ritual brings about, but are a necessary charade to mollify a restless electorate.”

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The numbers are insane and growing. This may well make the country ungovernable.

Petrobras: The Betrayal of Brazil (Bloomberg)

Since March 2014, prosecutors have accused more than 110 people of corruption, money laundering, and other financial crimes. Six construction and engineering firms have been accused of illegal enrichment in what is known as a noncriminal misconduct action. On April 22, Moro delivered the first convictions. He found Costa and Youssef guilty of money laundering, including the Land Rover purchase. Moro gave both men reduced sentences two years house arrest for Costa and three years in prison for Youssef for cooperating with prosecutors. All of that is something of a preview of the big show: Prosecutors say they may accuse some of Brazil s largest builders with running an illegal cartel.

It’s been clearly proven in this case that there was a criminal scheme inside Petrobras that involved a cartel, bid rigging, bribes to government officials and politicians, and money laundering, Moro wrote in sentencing Costa and Youssef. There will be a cartel indictment, says Carlos Lima, a lead prosecutor in the case. I do’ t like to get ahead of myself and say this will happen, but it will. It’s just a matter of time. In filings in Judge Moro’s court, prosecutors have named 16 companies that allegedly formed a cartel to fix Petrobras contracts between 2006 and 2014. The list includes some of Brazil s largest construction and engineering firms, including Camargo Correa, OAS, UTC Engenharia, and the biggest of them all, Construtora Norberto Odebrecht. All of these companies deny being part of a cartel, except Camargo Correa, which declined to comment.

Petrobras says it knew nothing about the bid rigging and is collaborating with authorities in the investigation. As to whether it was the victim of a cartel, the company is certain, Mario Jorge Silva, Petrobras’s executive manager for performance, said at an April 22 news conference. In financial filings, Petrobras says 199.6 billion reais worth of contracts were rigged by the alleged cartel. For years, a co-owner of the engineering firm UTC called members to meetings at his offices in Sao Paulo via text messages, according to testimony and documents submitted in Moro’s court. The participants were greeted by an assistant, who handed out name tags. At the meetings, executives took copious notes detailing how the alleged cartel would divvy up Petrobras contracts, at inflated prices. One builder put together a 2 1/2-page encoded guide for group members that describes contract bidding as a soccer tournament, with leagues and teams.

Another document drawn up by a group member lists the chosen winners of upcoming bidding for 14 contracts for a refinery, with the title Fluminense Final Bingo Proposal, using a nickname for the state of Rio de Janeiro. Prosecutors say the builders got away with it by paying kickbacks, usually 3%, on every contract. Petrobras estimates that the graft added up to at least 6.2 billion reais, much of which, prosecutors say, was funneled into the war chests of the parties that backed Luiz In·cio Lula da Silva, president of the country from 2003 to 2010, and his handpicked successor, Dilma Rousseff. Lula and Rousseff haven t been charged with wrongdoing, but special prosecutors have opened criminal investigations into more than 50 members of congress and other politicians implicated in the corruption scheme.

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“..in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader.”

The Clintons and Their Banker Friends- The Wall Street Connection (Nomi Prins)

The past, especially the political past, doesn’t just provide clues to the present. In the realm of the presidency and Wall Street, it provides an ongoing pathway for political-financial relationships and policies that remain a threat to the American economy going forward. When Hillary Clinton video-announced her bid for the Oval Office, she claimed she wanted to be a “champion” for the American people. Since then, she has attempted to recast herself as a populist and distance herself from some of the policies of her husband. But Bill Clinton did not become president without sharing the friendships, associations, and ideologies of the elite banking sect, nor will Hillary Clinton. Such relationships run too deep and are too longstanding.

To grasp the dangers that the Big Six banks (JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley) presently pose to the financial stability of our nation and the world, you need to understand their history in Washington, starting with the Clinton years of the 1990s. Alliances established then (not exclusively with Democrats, since bankers are bipartisan by nature) enabled these firms to become as politically powerful as they are today and to exert that power over an unprecedented amount of capital. Rest assured of one thing: their past and present CEOs will prove as critical in backing a Hillary Clinton presidency as they were in enabling her husband’s years in office.

In return, today’s titans of finance and their hordes of lobbyists, more than half of whom held prior positions in the government, exact certain requirements from Washington. They need to know that a safety net or bailout will always be available in times of emergency and that the regulatory road will be open to whatever practices they deem most profitable. Whatever her populist pitch may be in the 2016 campaign – and she will have one – note that, in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader. Though she may, in the heat of that campaign, raise the bad-apples or bad-situation explanation for Wall Street’s role in the financial crisis of 2007-2008, rest assured that she will not point fingers at her friends.

She will not chastise the people that pay her hundreds of thousands of dollars a pop to speak or the ones that have long shared the social circles in which she and her husband move. She is an undeniable component of the Clinton political-financial legacy that came to national fruition more than 23 years ago, which is why looking back at the history of the first Clinton presidency is likely to tell you so much about the shape and character of the possible second one.

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Germany Spies, US Denies (Bloomberg)

Reports of German spying on European corporate targets at the behest of the U.S. have led to calls that Chancellor Angela Merkel was hypocritical for complaining about U.S. spying on Germany. Well, yes — but the hypocrisy of politicians hardly comes as a shock. What’s more striking about the recent revelations is their targets – and what they say about U.S. government claims that it doesn’t spy on behalf of private U.S. corporations. Start with a rather obvious question: Why would the U.S. government rely on Germany to spy on European corporations? Why not just do the spying directly? It’s not as if the U.S. lacks the intelligence capacity to do it. After all, the U.S. spied directly on Merkel in the episode that made her object so strongly and publicly and hypocritically.

It’s hard to know for sure, and the answer may conceivably lie in complex interstate agreements that aren’t public. But there’s a highly plausible alternative answer, one connected to the recent history of U.S. efforts to vilify Chinese government’s industrial espionage. The U.S. may be using Germany to do industrial spying because it wants to claim that, unlike other countries, the U.S. doesn’t do spying on behalf of its corporations. In August 2013, a National Security Agency spokesman told the Washington Post in an e-mail that the Department of Defense “does ***not*** engage in economic espionage in any domain, including cyber.” In case you’re wondering, the six asterisks appeared in the original e-mail. Notice that the NSA statement didn’t say that other agencies avoid economic espionage, just those that are part of the Department of Defense.

Notice, too, that the statement didn’t say that no one shares stolen information with the U.S. The next month, after a fresh round of Edward Snowden revelations, the director of national intelligence, James Clapper, issued a further statement. He acknowledged that “the Intelligence Community” (his capitalization) “collects information about economic and financial matters.” But he insisted that: “What we do not do … is use our foreign intelligence capabilities to steal the trade secrets of foreign companies on behalf of – or give intelligence we collect to – U.S. companies to enhance their international competitiveness or increase their bottom line.” A close, retrospective reading of this statement reveals it to be completely consistent with the U.S. relying on foreign intelligence organizations, such as the Germans, to spy on private targets – and then share the proceeds with American companies for whatever reason.

Read more …

All globalization does.

Trans-Pacific Partnership Will Lead To A Global Race To The Bottom (Guardian)

At a time when economic inequality around the globe continues to widen, the Trans-Pacific Partnership (TPP) will only make things worse. Unlike what President Obama claims, the agreement will only encourage a race to the bottom, in which a small percentage of people get ridiculously rich while most workers around the globe stay miserably poor. We can’t let that happen. Today, President Obama is visiting Nike’s headquarters in Beaverton, Oregon to garner support for the trade deal, which would be signed by the US and 11 Pacific Rim countries. That’s an apt place for Obama to beat the free-trade drum – Nike, like the TPP, is associated with offshoring American jobs, widening the income inequality gap, and increasing the number of people making slave wages overseas.

Since the passage of NAFTA in 1993, we’ve seen the loss of nearly five million US manufacturing jobs, the closure of more than 57,000 factories, and stagnant wages. This deal won’t be any different. In November, Zachary Senn, a college student reporter at the Modesto Bee, spent three weeks in Indonesia living with and interviewing workers who make goods for Nike, Adidas, Puma and Converse. When you hear Obama talking about those “high-quality jobs,” think of RM, a 32-year-old mother who told Senn that she works 55 hours, six days a week and makes just $184 a month after 12 years at the PT Nikomas factory, a Nike subcontractor that employs 25,000 people. That’s 83 cents an hour or $2,208 a year. RM works in the sewing department and is expected to process 100 shoes an hour.

“If we don’t meet our quotas, we get yelled at”, she told Senn. “And then the quotas are piled into the next day”. Eating lunch is difficult because the food “smells bad,” and worse yet, RM said there is only one restroom, with 15 stalls, for 850 women. RM told Senn that she doesn’t want Nike to leave Indonesia; she wants an end to verbal abuse and a 50% raise, which would allow her to better provide for her family. Is $368 a month too much to ask from a multinational corporation that posted $27.8 billion in revenue and spent $3 billion on advertising and promotions in fiscal 2014? Nike CEO Mark Parker was paid $14.7 million in compensation last year. That’s $7,656 an hour. Wages in Vietnam, a key TPP partner, are even lower than Indonesia. Nike’s largest production center is in Vietnam where 330,000 mostly young women workers with no legal rights earn just 48 to 69 cents an hour.

Read more …

6 weeks old, but too good to leave behind.

Is There Such A Thing As A Skyscraper Curse? (Economist, March 28)

The world is in the middle of a skyscraper boom. Last year nearly 100 buildings over 200 metres tall were built—more than ever before. This year China’s business capital will welcome the Shanghai Tower, which will be the world’s second-tallest building. Saudi Arabia is building Kingdom Tower, which will be the world’s tallest (and twice the height of One World Trade Centre in New York, the tallest building in the Americas). Does this frenzy of building augur badly for the world economy? Various academics and pundits, many of them cited by The Economist, have long argued as much, but new research casts doubt on it.

In 1999 Andrew Lawrence, then of Dresdner Kleinwort Benson, an investment bank, identified what came to be known as the “skyscraper curse”.* Mr Lawrence noticed a curious correlation between the construction of the world’s tallest buildings and economic crises. The unveiling of the Singer Building and the Metropolitan Life Tower in New York, in 1908 and 1909 respectively, roughly coincided with the financial panic of 1907 and subsequent recession. The Empire State Building opened its doors in 1931, as the Great Depression was getting going (it was soon dubbed the “Empty State Building”). Malaysia’s Petronas Towers became the world’s tallest building in 1996, just before the Asian financial crisis. Dubai’s Burj Khalifa, currently the world’s tallest building, opened in 2010 in the middle of a local and global crash.

Skyscrapers can be hugely profitable, since by building upwards developers can rent out more floor space on a given plot of land. But at some point extra storeys are no longer a good deal, since marginal costs—for more lifts and extra steel to stop the building from swaying in the wind, for example—increase faster than marginal revenues (rents or sales). William Clark and John Kingston, an economist and an architect writing in 1930, found that the profit-maximising height for a skyscraper in midtown New York in the 1920s was no more than 63 storeys. (The ideal height is probably not much different today.) Record-breaking skyscrapers could therefore be seen as an indication that gung-ho investors are overestimating the probable future returns from new construction.

Indeed, developers may be building record-breaking towers even though they know they are economically inefficient. There is, after all, a certain cachet to having a very tall building with your name on it. In 1998 Donald Trump, a magnate, presented a plan to build the world’s tallest residential building in New York as the righting of a historical wrong, not a shrewd business move. “I’ve always thought that New York should have the tallest building in the world,” he proclaimed. If such vanity projects can secure funding, the theory goes, financial markets must be out of control and will soon suffer a sharp correction. Mr Trump’s tower opened just as the dotcom bubble was bursting.

Read more …

And London, New York etc. Real estate is a great way to launder cash.

Global Crime Syndicates Are Buying Expensive Australia Real Estate (Domain)

Some of Australia’s most expensive real estate is being bought by global crime syndicates, one of the country’s top crime-fighting bodies says. So worried are they about the influx of dirty money that the Australian Crime Commission has launched an investigation looking at money laundering and terrorism financing through property. Concerns that criminals may be targeting real estate were raised within the commission about six months ago, according to an ACC spokeswoman. The Targeting Criminal Wealth Special Investigation is expected to run until June next year. “Taskforce investigations have uncovered information about organised crime entities investing in high-value commodities, such as real estate, to help launder illicit funds into the legitimate economy,” said ACC chief executive Chris Dawson, APM.

“The Australian real estate sector is perceived as stable and at low risk of significant depreciation in the short term, and potential for growth in the long term. It is likely that organised crime are exploiting these conditions to invest in the Australian real estate market to launder the proceeds of illicit activity including drug profits.” The ACC declined to specify countries of concern because the investigation is ongoing. Parliamentary secretary to the Treasurer Kelly O’Dwyer said the federal government was being forced to play catch-up on the issue because there had been no co-ordinated data matching scheme on property records to date. The recently announced data-matching scheme set to start from December 1 as part of the federal government’s crackdown on foreign investment would be a big help to agencies like the ACC in these investigations, Ms O’Dwyer said.

Read more …


Australian PM Adviser Exposes Cimate Change As Hoax, Shames All of Science (SBS)

Business Adviser Maurice Newman has been praised today for his stellar work uncovering that climate change was a hoax perpetrated by the United Nations and the vast majority of the entire scientific community from all around the world. Newman, who also managed to expose the New World Order as something that actually exists and isn’t just made up by conspiracy theorising weirdos, has been widely praised for his efforts in bringing down what is thought to be the most elaborate conspiracy of all time. “Of course he will be in consideration for the Nobel Prize,” said one science observer. “To completely humiliate the vast majority of the scientific community like this on such a huge issue is almost unprecedented.

“In years to come we’ll say Maurice Newman in the same breath as we say Albert Einstein and Isaac Newton. To think, thousands of scientists and millions upon millions of dollars of resources couldn’t uncover this conspiracy but one guy with no expertise managed to bring it all down on a lark.” The world’s scientists have reacted with abject shame at being found out after all this time. “I always knew we’d be found out,” said one scientist. “It’s only so long you can keep something like this up when you have to independently incorporate every person studying climate, sea levels, soil, and thousands of other aspects. The paper trail alone was incredibly obvious. Not to mention our connection with the United Nations meaning we had to have every nation on board with tricking Australia for some reason.

Read more …

May 082015

Jack Delano Long stairway in mill district of Pittsburgh, Pennsylvania 1940

We at the Automatic Earth always try to steer clear of elections as much as possible, because there are no functioning democracies left in the west -no more than there are functioning markets-, and no journalists reporting on them either. Interesting question, by the way: how can a journalist report on a democracy that isn’t there? And where in that setting does news turn to mere opinion, and where does opinion then become news ?

Still, of course we caught some bits of the UK elections along the way regardless. The decisive moment for us must have been when Jeremy Paxman interviewed David Cameron at the BBC, and asked him if he knew how many foodbanks had been added in Britain since he took office 5 years ago.

Cameron, well duh obviously, had no idea, and instead of answering the question he started a flowery discourse praising the many volunteers who work in the foodbanks he didn’t know existed. Paxman cut him short and said there were 66 when Cameron came to power, and 421 now. Apparently in Britain, volunteers are needed to take care of the needy, they’re not going to pay people to do that. You would think that takes care of Cameron’s candidacy, but you couldn’t be more wrong.

At least Paxman seemed to try, but interviews like his should take place on the eve of an election, not 6 weeks before them like this one. That leaves far too much time for spin doctors to repair damage done by their candidate’s ignorance and gullibility. It’s crazy enough that party leaders can refuse to discuss each other, let alone the public, in public. Then again, that too would only be significant if there would be an actual democracy in Britain.

As things are, they might as well have put the royal baby in charge as soon as she was born, or for that matter the newborn macaque in Japan that ‘stole’ her name (at least there was an honest public ballot for that). Or perhaps the adorable little monkey can take over polling in the UK, since we can’t imagine any British pollsters still being employed tomorrow morning, not with the degrees to which they missed any and all election outcomes today.

A whole bunch of ‘leaders’ will leave too, but there’s plenty of shades of dull grey humanoids waiting in the wings to replace them. Besides, though Nigel Farage has often been dead on in describing, in the European Parliament, the inherent failures of Brussels, at home he’s never been more than a sad lost clown. I had to think hard about LibDem Clegg’s first name, even needed to look it up -it’s Nick- , and that sort of says it all: he would do well to change his name to Bland.

And perhaps Ed Milibland should do the same. Can anyone ever really have believed that this lady’s underwear salesman could have won this election? Or did they all just fudge the numbers so they had material to print? Ed Milibland never stood a chance. And Russell Bland can now go lick his wounds from supporting the guy, and no, Russell, saying now that you’re just a comedian won’t do the trick. You’ve been tainted. If it’s any consolation, you screwed up the same way Springsteen did when he played Obama’s support act. No surrender, no excuses.

Milibland, by the way, had one last no-no to offer in stepping down. He tweeted: “I am grateful to the people who worked on our campaign and for the campaign they ran. The responsibility for the result is mine alone.” Sorry, boyo, but that just ain’t so. The responsibility lies at least as much with the people who put you in the leader’s chair that doesn’t fit you, and with those who kept you in that chair throughout the campaign.

All Brits should feel blessed that they’re not in America, where these campaigns, which are equally hollow and devoid of democratic principles, last ten times as long. If your blessings are few, do count them.

But then, we all get what we deserve. If the Brits want to be governed and gutted by the same people who raised the number of foodbanks the way they have, by a factor of seven in five years, and who fabricated the pretense of a functioning economy by blowing the biggest bubble in British history in selling off London town to monopoly money printing Chinese, Russian expat oligarchs and other such impeccable and blameless world citizens, if that’s what the Brits want, then let them have it.

One things’s for sure: Cameron and his ilk, now that they have a majority, will let them have it. And then some. In reality, though, even if they deserve what they get, there’s no vox populi here: the people have not spoken, the people have done what the press told them to do. Like in so many countries, there effectively is no press anymore in Britain, at least not in the sense that we used to knowl; the press no longer asks questions. Which begs yet another question: what is first to go, the media or the democratic values?

Peter Yukes wrote this for Politico just before the election:

The British Press Has Lost It

For months polls have put Conservatives and Labour close with about third of the vote each, and smaller parties destined to hold some balance of power. But there has been no balance in the papers. Tracked by Election Unspun, the coverage has been unremittingly hostile to Ed Miliband, the Labour challenger, with national newspapers backing the Conservative incumbent, David Cameron over Labour by a ratio of five to one.

Veteran US campaign manager David Axelrod finds this politicization of the print media one of the most salient differences with the US. “I’ve worked in aggressive media environments before,” he told POLITICO, “but not this partisan.” Axelrod may have ax to grind as he advises the Labour Party, but even a conservative commentator and long-serving lieutenant of Rupert Murdoch has been shocked. “Tomorrow’s front pages show British press at partisan worst,” Andrew Neil, former editor of the Sunday Times rued. “All pretense of separation between news and opinion gone, even in ‘qualities.’”

Excuse me, but how is ‘this politicization of the print media one of the most salient differences with the US’? Which US paper has not long been grossly politicized? It’s a shame Yukes devalues his article with such statements.

And that’s the difference. The whole newspaper industry seems to be affected by the tabloid tendentiousness trade-marked by Murdoch’s best-selling the Sun when it roared, in 1992, “It’s the Sun Wot Won It.” The Daily Mail specializes in political character assassination and the ‘Red Ed’ tag was predictable. But when the paper went on from attacking Miliband’s dead father to a hit-job on his wife’s appearance, the politics of personal destruction sank from gutter to sewer.

In this precipitous race to the bottom, perhaps the Daily Telegraph had the steepest fall. Known as a bastion of the Tory thinking, it had long been respected for separating fact from comment. During this election cycle is was caught sourcing its front pages direct from Conservative Campaign HQ, seeming to confirm the parting words of its senior political commentator, Peter Oborne, that it was intent on committing “a fraud on its readership.”

Well, at least it’s no surprise that the Telegraph does what it’s always done. Nobody expects them to be impartial.

The paper of record, The Times, fared a little better, in that there has been two vaguely positive front pages about Miliband — compared to 18 for Cameron.Meanwhile, the publication that arose in rebellion to Murdoch’s acquisition of the Times in the 80s, The Independent, shocked most its staff and readership by backing a continued Lib Dem/Tory Coalition. Reports said the endorsement was a ‘diktat’ from the wealthy Russian-born owner, Evgeny Lebedev, causing many to mock its original ad slogan “The Independent: It’s Not. Are You?” or renaming it ‘The Dependent’.

Even the sober, tight-lipped Financial Times, which once supported Blair and endorsed Obama, lost credibility. The paper said it backed another Conservative-led coalition because Ed Miliband was too “preoccupied with inequality.” But that magisterial tone was undermined when it emerged the leader writer, Jonathan Ford, was pictured in the notorious 1987 photo of Oxford’s elite hard drinking Bullingdon Club next to the Tory mayor Boris Johnson and just below David Cameron.

A bigger problem would seem to be that Milibland can’t have been far from that club; he attended much of the same educational institutions the other ‘leader elites’ did. Yukes is on to something, but he’s missing the point.

Therein lies the problem, and an indication the newspaper world is a microcosm of a wider malaise. The Conservative politician John Biffen once said “whenever you find a senior politician and a powerful media owner in private conclave, you can be certain that the aims of healthy, plural democracy are not being well-served.” This election that conclave looks like an exclusive club.

Rarely have the economic interests of the handful of wealthy men who own most the press (nine men own 90% of all national and regional titles) appeared so brutally transparent. Most of the conservatives among them don’t like Cameron’s modernizing project, or the fact he looks set to fail to get a majority for a second time. But they fear Miliband with a passion because he threatens their power in several ways.

They fear(ed) Milibland? I don’t believe that for a second. I think it’s much more likely that they’ve all intentionally exaggerated Milibland’s poll numbers to make it look like there was an actual race going on. That they were only too happy to have a guy run against theirs that everybody could see from miles away would never be a contender (maybe if his first name would have been Marlon? or Stanley?)

Plus they have the outdated and somewhat inane electoral system, in which for instance the Green Party got – roughly – one million votes and 1 seat, while the Conservatives accumulated 10 million votes and 331 seats. If you can work that system in your favor, you’re half way home. Moreover, if and when you hire the cream of the crop American spin doctors, as the Cons have certainly done, who love purchasing media, you’re way past halfway.

The system can certainly be given some sort of name, but a functioning democracy it’s not. If anything, a democracy is “A system of government in which power is vested in the people”. Makes us wonder how many clients of the 421 foodbanks and counting have voted Con. and figured they were proudly doing their democratic duty.

May 032015
 May 3, 2015  Posted by at 1:21 pm Finance Tagged with: , , , , ,  5 Responses »

Jack Delano Near Shawboro, North Carolina, Florida migrants on way to Cranberry, NJ 1940

With US GDP growth ‘officially’ back where it belongs, in the Arctic zone close to freezing on the surface but much worse in real life, for reasons both Albert Edwards and Ambrose Evans-Pritchard (not exactly a pair of Siamese twins) remarked this week; that is, excluding the “biggest inventory build in history, the economy contracted sharply”, it’s time for everyone to at long last change the angle from which they view the world, if not the color of their glasses.

But ‘everyone’ will resist, refuse and refute that change, leaving precious few people with an accurate picture of the – economic – world. Still, for you it’s beneficial to acknowledge that very little of what you read holds much, if any, truth or value. This is true when it comes to politics, geopolitics and economics. That is, the US is not a democracy, it is not the supreme leader of the world, and the American economy is not in recovery.

Declining business investment, a record inventory build and extreme borrowing to hold share prices above water through buybacks, it all together paints a picture of a very unhealthy if not outright dying economy, and certainly not one in which anything at all is recovering. But how are you supposed to know?

The entire financial media should change its angle of view, away from the recovery meme (or myth), but the media won’t because the absurd one-dimensional focus on that perpetuated myth is the only thing that makes the present mess somewhat bearable, palatable and, more importantly, marketable, to the general public.

This has the added simultaneous benefit of keeping that same general public from understanding how sinister the myth really is; it can only be upheld by greatly increasing the debt levels which burden their shoulders, in hidden ways. If the media can no longer keep the consequences of the debt increases hidden, the game is up.

And there are undoubtedly many people who find it more important right now to profit from the whole scale distortion by central banks of what were once the financial markets, than they find it to know the truth and understand the system they owe their gains to. But that may no be all that smart; they risk losing their gains again overnight. You can’t rely on what you don’t understand. So here are a notes:

1 – There are no markets anymore (and therefore no investors either).

There are ways to make money, but that’s not the same thing. Markets must of necessity reflect – the performance of – underlying economies, and to even pretend today’s markets do that is preposterous. Financial markets these days exclusively reflect central banks’ pumping money into their respective bankrupt banking systems, a practice poetically known as QE. Markets need to be functional in order to be called markets and if they don’t we should find another term to label them with.

Or, in other words, present day western economies – and their former markets – are being artificially propped up by either making already poor people poorer today, making them poorer tomorrow, or both. It’s the only way left to make things look passable. And those who still desire in these non-markets to call themselves ‘investors’ are merely little piglets sucking spoilt milk oozing from the teats of their mother sow’s long-dead bloated corpse.

2 – You have no idea what anything is truly worth.

Central bank stimulus across the globe has fully demolished price discovery. And whether you like it or not, financial markets can not and do not function without it. Lots of people try to make us believe that central bank announcements have momentarily taken the place of price discovery, but that is nonsense. And if you don’t know what any asset is really worth, how can you be sure you want to own it other than for myopic short-term reasons?

3- There is no recovery now, and there’s not one around the corner.

The weight of our debt, just to name one thing, has kept us from turning that corner for 7-8 years now, and the weight is getting more forbidding, not less. Publishing falling unemployment numbers while out-of-labor-force data rise (to a record 93 million working age Americans today) is an insult to everyone’s intelligence, not a sign of economic health. Whatever is seen as recovery or expansion is a testament to the power of illusion and propaganda, not the power of the economy. If you choose to look at the world from a point of view that focuses only on recovery, you’re not going to understand what is happening, because there is no recovery anywhere in sight.

4- You can’t trust anything your government and media say.

The entire apparatus is geared towards selling you a doctored image of the world you live in, instead of presenting you with reality. Not because as Jack Nicholson said “You can’t handle the truth”, but because you knowing the truth is not in the interest of those who run governments, nations and supranational organizations. You’re caught in a trap somewhere between Goebbels and Orwell, and it takes a lot of energy to escape it, energy you will be inclined and tempted to instead use to improve your position inside the trap. Just like everyone else does. We are social animals, we are disposed to do as those around us do.

As I said above, you can’t trust anything you hear or read about politics, geopolitics and economics:

• The US is not a democracy. You can’t have a democracy and SuperPacs at the same moment. For the hundredth time: if you allow money into your political system, it will end up buying the entire system. And if you allow endless amounts of money to enter it, that process is greatly accelerated.

• The US is not the supreme leader of the world. Today’s world doesn’t allow for a supreme leader. Neither does it need one. Countries like Russia and China will not tolerate American supremacy to dictate what they do. Not economically, and not militarily. This is very hard to stomach for parts of American society, but they’re going to have to get used to it. Going to war over these issues is pointless. Unfortunately, it increasingly looks like the entire globe will have to find that out the hard way. The very hard way.

• The American economy is not in recovery. I already mentioned the creative jobs numbers accounting. Also, without Fed intervention, asset prices (bonds, stocks, real estate..) would be much lower. This would have been a lot healthier for everyone, except for banks and their shareholders. But once QE is unleashed, there is no smooth exit possible. It will need to continue until it self-implodes.

At present, Japan is leading the way to economic self-immolation, but the US and Europe must inevitably follow. The only thing that helps is what the banks most resist: restructuring, cutting the leverage from the debt. But all we get is fantasy stories about how the crisis was left behind. Stories that of course all 42 million or so Americans on foodstamps and tens of millions of otherwise underpaid can confirm. Why am I even trying to show that, and why, there is no recovery?

We need to start thinking from the perspective of what we can and must do if and when that elusive and illusionary recovery is not going to happen. Decisions made from that point of view will substantially differ from those taken in order to ‘produce’ the recovery, which is the only perspective that exists in politics, media and indeed the minds of 99% of the population today.

We need to think about how we’re going to lay a foundation, as solid as we can, under our societies now, with the means we still possess to achieve that, knowing there will be times when those means will be increasingly less available. We’re not doing that, because we focus only on a world that does manage to attain a recovery. We truly think the world is one-dimensional.

Which is why, among other things, we strive to make individuals richer, and fail to see that this makes communities and societies poorer. Everything seems fine as long as we deny the bigger picture, and because we like things to look fine, we stick to that one dimension of our world that is ourself. And ignore each other.

May 022015
 May 2, 2015  Posted by at 10:36 am Finance Tagged with: , , , , , , , , ,  11 Responses »

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

Grantham Says Fed “Bound And Determined” To Engineer “Full-Fledged Bubble” (ZH)
Our Banking System is a Giant House of Cards (Lynn Parramore)
For China To Start All Over, The Dinosaurs Will Have To Change (Satyajit Das)
Your No. 1 End-Of-The-World Investing Strategy (Paul B. Farrell)
How Ben Bernanke Let Down America (MarketWatch)
Quick Breakthrough At Brussels Group Looks Unlikely (Kathimerini)
The Coming Defaults Of Greece (Vox.eu)
FastTrack TPP: The Death of Sovereignty, Separation of Powers and Democracy (JF)
Iceland Pirate Party Popularity Rivals Government Coalition (RT)
Angela Merkel’s NSA Nightmare Just Got A Lot Worse (Don Quijones)
Rioters In Milan Smash Shopfronts, Throw Smoke Bombs As Expo Opens (CNBC)
Russia Preparing Offensive In Ukraine, NATO General Imagines (Zero Hedge)
Kiev Is Making No ‘Tangible Steps’ To Investigate Year-Old Odessa Massacre (RT)
Kim Dotcom Awarded Millions For Legal Bills And Living Expenses (TF)

I think people should stop calling this a ‘market’.

Grantham Says Fed “Bound And Determined” To Engineer “Full-Fledged Bubble” (ZH)

Back in November, we highlighted the accuracy of Jeremy Grantham’s predictions about the trajectory of the central bank liquidity-fueled equity rally. In terms of how far the market can run before reality and gravity finally reassert themselves, bursting the centrally planned bubble and prompting a 2008-style “correction”, Grantham defined a “full-fledged” bubble as S&P 2250 and warned that a retracement of some 50% was possible depending on how assertive the Fed’s response to its real favorite economic indicator (stocks) turns out to be.

In GMO’s latest quarterly letter, Grantham is out reiterating his view that although US stocks may not have reached their peak in what he accurately calls a “strange, manipulated world” (we prefer “new paranormal”), he’s sticking with the idea that “bubble territory” is likely just around the corner as the Yellen Fed is “bound and determined” to facilitate an inexorable rise in asset prices. He also notes that the Yellen seems no more inclined than her predecessor to take Jeremy Stein’s advice on being careful not to adopt an “implicit policy of inaction” when it comes to bubbles. Here’s more:

The key point here is that in our strange, manipulated world, as long as the Fed is on the side of a strong market there is considerable hope for the bulls. In the Greenspan/Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006. Both of these were in fact stunning three-sigma events, by far the biggest equity bubble and housing bubble in U.S. history.

Yellen, like both of her predecessors, has bragged about the Fed’s role in pushing up asset prices in order to get a wealth effect. Thus far, she seems to also share their view on feeling no responsibility to interfere with any asset bubble that may form. For me, recognizing the power of the Fed to move assets (although desperately limited power to boost the economy), it seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble. And we are not there yet.

Read more …

“We are failing to take simple steps and at the same time undertaking extremely costly steps with doubtful benefits.”

Our Banking System is a Giant House of Cards (Lynn Parramore)

Anat Admati teaches finance and economics at the Stanford Graduate School of Business and is co-author of The Bankers’ New Clothes, a classic account of the problem of Too Big to Fail banks. Admati warns that we are not doing nearly enough to confront a bloated, inefficient, and dangerous financial system. The system can’t fix itself. Here’s what you need to know.

Lynn Parramore: How would you describe the problem of Too Big to Fail banks. Whey does it matter to an ordinary person?

Anat Admati: Too Big to Fail is a license for recklessness. These institutions defy notions of fairness, accountability, and responsibility. They are the largest, most complex, and most indebted corporations in the entire economy. We all have to be really alarmed by the fact that not only do we still have such institutions, but many of them are ever-larger and more complex and at least as dangerous, if not more so, than they were before the financial crisis. They are too big to manage and control. They take enormous risks that endanger everybody. They benefit from the upside and expose the rest of us to the downside of their decisions. These banks are too powerful politically as well. As they seek profits, they can make wasteful and inefficient loans that harm ordinary people, and at the same time they might refuse to make certain business loans that can help the economy.

They can even break the laws and regulations without the people responsible being held accountable. Effectively we’re hostages because their failure would be so harmful. They’re likely to be bailed out if their risks don’t turn out well. Ordinary people continue to suffer from a recession that was greatly exacerbated or even caused by recklessness in the financial system and failed regulation. But the largest institutions, especially their leaders — even in the failed ones — have suffered the least. They’re thriving again and arguably benefitting the most from efforts to stimulate the economy. So there’s something wrong with this picture. And there’s also increasing recognition that bloated banks and a bloated financial system – these huge institutions—are a drag on the economy.

LP: Have we made any progress in dealing with the problem?

AA: The progress has been totally unfocused and insufficient. Dodd-Frank claims to have solved the problem and it gives plenty of tools to regulators to do what needs to be done (many of these tools they actually already had before). But this law is really complex and the implementation of it is very messy. The lobbying by the financial industry is a large part of the reason that the law has been implemented so poorly and inefficiently with so much difficulty. We are failing to take simple steps and at the same time undertaking extremely costly steps with doubtful benefits. So we’ve had far from enough progress. We are told things are better but they are nowhere near what we should expect and demand. Much more can be done right now.

LP: Banks, compared to other businesses, finance an enormous portion of their assets with borrowed money, or debt – as much as 95%. Yet bankers often claim that this is perfectly fine, and if we make them depend less on debt they will be forced to lend less. What is your view? Would asking banks to rely more on unborrowed money, or equity, somehow hurt the economy?

AA: Sometimes when I don’t have time to unpack everything I use a quote from a book called Payoff: Why Wall Street Always Wins by Jeff Connaughton. He relates something Paul Volcker once said to Senator Ted Kaufman: “You know, just about whatever anyone proposes, no matter what it is, the banks will come out and claim that it will restrict credit and harm the economy…It’s all bullshit.” Here’s one obvious reason such claims are, in Volcker’s vocabulary, bullshit: Lending suffered most when banks didn’t have enough equity to absorb their losses in the crisis — and then we had to bail them out. The loss they suffered on the subprime fiasco was relatively small by comparison to losses to investors when the Internet bubble burst, but there was so much debt throughout the system, and indeed in the housing markets, and so much interconnection that the entire financial system almost collapsed. That’s when lending suffered. So lending and growth suffers when the banks have too little equity, not too much.

Now, banks naturally have some debt, like deposits. But they don’t feel indebted even when they rely on 95% debt to finance their assets. No other healthy company lives like that, and nobody, even banks, needs to live like that — that’s the key. Normally, the market would not allow this to go on; those who are as heavily indebted feel the burden in many ways. The terms of the debt become too burdensome for corporations, and reflect the inefficient investment decisions made by heavily indebted companies. But banks have much nicer creditors, like depositors, and with many explicit and implicit guarantees, banks don’t face trouble or harsh terms. They only have to convince the regulators to let them get away with it. And they do. So the abnormality of this incredible indebtedness is that they get away with it. There’s nothing good about it for society. If they had more equity then they could do everything that they do better —more consistently, more reliably, in a less distorted fashion.

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This will not happen, because the leaders themselves are the biggest dinosaurs. And they’re not about to give up their grip on power.

For China To Start All Over, The Dinosaurs Will Have To Change (Satyajit Das)

Central to China’s agenda of driving growth through economic reform is a shift from debt-driven investment to consumption. Since the 1980s, investment has risen from 35% of GDP to 45 to 50%. China’s annual infrastructure spend is far greater than that of the US and Europe but also of other emerging markets. It is double that of India and around four times that of Latin America. The country’s investment levels are also running at 10 to 15% of GDP – higher than in comparable countries such as Japan and South Korea at the equivalent stages of their development. In recent years, Beijing has sought to rebalance the share of GDP contributed by consumption and investment, but the task is difficult.

First, as the analyst Michael Pettis has repeatedly stated, the level of consumption growth needed to rebalance China is formidable. That rate has not been static, running at around 8% a year over the past decade. But growth in consumer spending has been slower than that in the overall economy and the increase in gross fixed investment – an average annual growth of more than 13%, which resulted in the share of private consumption in GDP falling to 35% from 45 to 50%. If China grows at 8% a year, consumption needs to expand by around 11% (3% above growth) to increase the share of consumption from 35% to 36% of GDP in a year. Assuming a growth rate of 8% and consumption increases of 11%, it would take about five years to increase consumption to 40% of GDP. If growth slows, the difficulty of the task increases.

Second, legacy issues of rapid expansion and excessive investment will need to be managed. Many projects have dubious economics and will not generate sufficient revenues to repay the borrowings used to finance them, resulting in potential losses to lenders.

Third, boosting consumption will reduce savings, affecting the deposit base and cost of funding at Chinese banks, which will reduce their flexibility in managing rising losses on bad loans. It will also require a significant boost in household income, and this will affect the profitability of Chinese companies, which already operate on thin margins.

Fourth, the rebalancing will result in slower growth, at least during the period of transition. A move away from investment-driven growth also requires reform of China’s state-owned enterprises (SOEs). China has around 150,000 SOEs, which control around 50% of industrial assets and employ around 20% of the workforce.

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Farrell misses out on the no. 1: people and communities.

Your No. 1 End-Of-The-World Investing Strategy (Paul B. Farrell)

Quarterly reports are hot news today. Listen: “While the end-of-the-world scenario will be rife with unimaginable horrors,” predicts the CEO of a major Wall Street bank at a shareholders meeting, “we believe that the pre-end period will be filled with unprecedented opportunities for profit.” That message comes from one of Robert Mankoff’s popular New Yorker cartoons, and it accurately captures the winning strategy used by most successful Wall Street bankers. But the real successful strategists have both, balancing the two: short-term opportunities for profit plus a vision of the future, the long-term megatrends that impact returns today as well as tomorrow. Here’s an example of this strategy, hedging long risks while playing a winning short game.

Here’s one strategy based on the 12 megatrends in Jared Diamond’s book “Collapse: How Societies Chose to Fail Or Succeed.” So you’d be building a portfolio that balances short-term opportunities within Diamond’s megatrends structure, picking stocks that fit near-term the best investment parameters for success in a society that’s risking a collapse:

1. Water
Diamond warns: “Most of the world’s freshwater in rivers and lakes is already being used for irrigation, domestic and industrial water,” transportation, dams, fisheries and recreation. Water problems destroyed many earlier civilizations: “Today over a billion people lack access to reliable safe drinking water.” By 2015 two-thirds of the world will live in water-stressed countries. Water will trade like oil futures today. More and more wars will be fought over water and other basic resources concluded a 2003 Pentagon report predicting that “warfare will define human life by 2020.

2. Food
The United Nations says the global food crisis is a “silent tsunami.” Two billion people, mostly poor, depend on fish and other wild foods for protein. Their supplies have “collapsed or are in steep decline,” forcing use of costly animal proteins. The rise in food prices is making it worse for billions living below poverty levels. In “The End of Plenty,” National Geographic warns “synthetic fertilizers, pesticides, and irrigation, supercharged by genetically engineered seeds” is failing. A joint World Bank/UN study “concluded that the immense production increases brought about by science and technology the past 30 years have failed to improve food access for many of the world’s poor.” Time warns that our “addiction to meat” has led to farming that’s “destructive of the soil, the environment and us.”

3. Farmland
Crop soils are “being carried away by water and wind erosion at rates between 10 to 40 times the rates of soil formation.” With forests, the soil-erosion rate is “between 500 and 10,000 times” the replacement rate, a trend accelerated by today’s new age of the 100,000-acre megafires. Ceres and Chess are hedge funds that own many small farms.

4. Forests
We are destroying natural habitats and rain forests at an accelerating rate. Half the world’s original forests have been converted to urban developments. A quarter of what remains will be converted in the next 50 years.

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How America lets down Americans.

How Ben Bernanke Let Down America (MarketWatch)

Don’t say Ben Bernanke didn’t do anything for unemployment. After all, the former Federal Reserve chairman now has three jobs. On Wednesday, Pacific Investment Management Co., or Pimco, announced — via Twitter, of course — that Bernanke had signed on as a senior adviser to the fund company known for its bond investing. Pimco joins the hedge fund Citadel and the Brookings Institution as Bernanke’s post-Fed effort to put food on the table. While Bernanke has sought to underplay or, more accurately, not disclose how much he’s being paid by these firms, it’s highly unlikely he will have to ask for public assistance. Speaking of which, just how good is that unemployment office near the Fed and Treasury Department?

We’re just teasing, of course. Bernanke, like any other public servant, has a right to work after he leaves government. And since the Fed is a quasi-governmental institution and has been accused of serving Wall Street’s interests, is this as much of a radical transition as it may appear at first glance? On the other hand, isn’t this endless pattern, known as the “revolving door” where senior regulators leave to join the firms they regulated only a few months or weeks ago, getting a little tired? Timothy Geithner, a regulator cozy with Wall Street, goes to head the Treasury Department where he’s criticized for bailing out Wall Street and almost no one else, and then leaves public service for a private equity firm, Warburg Pincus, with deep ties to banks.

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Get out, you Greeks!

Quick Breakthrough At Brussels Group Looks Unlikely (Kathimerini)

Greece’s hopes of an emergency Eurogroup being called as early as Monday to confirm the progress in Brussels Group talks, and thereby possibly prompting the European Central Bank to allow Athens to issue more treasury bills to relieve its liquidity problem, appear to be misplaced. Several European Union officials have told Kathimerini that it is unlikely eurozone finance ministers will be in a position to discuss the state of negotiations at the beginning of the week. Greece’s lenders insist that there must be a staff-level agreement on the range of measures being demanded in return for €7.2 billion in bailout funding before the matter can be referred to the Eurogroup.

Athens, though, hopes that there can be an initial agreement on a bare minimum of reforms that would prompt the ECB to increase its €15 billion ceiling on the level of Greek T-bills that can be issued and allow local banks to increase their exposure to this form of debt. The first two days of the Brussels Group deliberations, which began on Thursday, confirmed that there is a substantial distance separating Greece and its lenders. For instance, they differ on macroeconomic projections. Athens still believes growth this year can reach 1.2 to 1.4% and that this would lead to a primary surplus of 1.2%. Creditors see these projections as extremely optimistic.

Also, Athens is willing to go ahead with some but not all of the privatizations planned for this year, bringing in projected revenues of €1.5 billion, which the institutions also see as being overestimated. The target for revenues from sell-offs this year had been €2.2 billion The government looks set to keep the single property tax (ENFIA) this year despite its election pledge to scrap the highly unpopular levy, but there is still a disagreement over the value-added tax increase being demanded by creditors. The institutions believe that between €2 and €3 billion of new fiscal measures will be needed this year for Greece to hit its targets.

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“In the longer run, however, a much-depreciated drachma could lift the Greek economy and, of course, the country might appreciate monetary independence..”

The Coming Defaults Of Greece (Vox.eu)

When thinking about Greece’s dilemma, two facts from Reinhart and Rogoff (2009) research are highly relevant:
• Defaults on public debts are pretty mundane events; and
• Greece is historically the world’s leading serious defaulter.

What makes the coming event interesting is that it will be the first time that a default occurs within a monetary union. The crucial observation is that there is no automatic link between a default and monetary-union membership. As we know from previous experiments of government default within the dollar monetary union – the defaults of Orange County in California and Detroit in Michigan – a sub-central government can default and keep the currency. The unique characteristics of such events are that: 1) an exchange-rate depreciation cannot help shift expenditure to the defaulting region’s production; and 2) there is no local central bank to provide liquidity to both the government and commercial banks during the hard phase of the default. The Greek government might be tempted to recover its own currency but the short-run costs are likely to far exceed the short-run benefits.

An idea of what would await Greece is provided by Levy Yeyati (2011) in his description of how Argentina gave up its currency board link to the US dollar, an easier case given that the national currency was already in place. The Argentinian example should warn the Greek authorities of the political turmoil that could follow a default. In the longer run, however, a much-depreciated drachma could lift the Greek economy and, of course, the country might appreciate monetary independence following its wrenching experience inside the Eurozone. Basically, the trade-off is a major shock and one more year of misery versus the removal of Eurozone membership shackles forever. The balance of benefits is difficult to evaluate since it depends very much on institutional issues that are not clear now.

The key questions are:
• Will Greece be able to finally establish on its own fiscal discipline and will its central bank deliver high-quality monetary policy?
• Will the Eurozone draw all the lessons from a Grexit and amend its policies and governance?

In the short run, after a first default, even a partial one, the Greek government will have to balance its books because no one will lend anything any more. ‘Balancing the books’ can mean different things, however.

• One option is to run an overall balanced budget, thus continuing to service the debt after the initial wave of defaults.

The latest European Commission forecasts for 2015 are for a surplus of 1.1% of GDP, after a deficit of 2.5% last year. This might be optimistic as tax receipts seem to have slowed down. Another option is to balance the primary budget, which means no servicing of the debt.

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“..the death of National Sovereignty, State Sovereignty, Separation of Powers, and Democracy..”

FastTrack TPP: The Death of Sovereignty, Separation of Powers and Democracy (JF)

Ellen Brown has called the TPP “the death of the Republic.” It certainly is that. But, I think I’ve shown that it is the death of National Sovereignty, State Sovereignty, Separation of Powers, and Democracy, as well. These impacts on governance and politics are even more important, I believe, than its economic ones, since it from these that our benefits, both economic and non-economic flow. The elevation of the principle of “expectation of profits” above all other principles including the principles of “public purpose,” “consent of the governed,” “the general welfare,” and “separation of powers,” is tantamount to the overthrow of democracy, preserving its form in national level elections, but emptying its elections of meaningful content in mandating change and in conferring legitimacy on national authorities.

I’ve said previously that the rule of the TPP, even if passed over the mushrooming opposition from all segments of American society except the uncritical globalists, will never be viewed as legitimate in the United States and will also always be viewed as tyranny for as long as we live under it. This problem will become increasingly severe the larger, more frequent, and more outrageous ISDS awards defending the “expectations of profits” of multinational become. That makes those who want to pass the TPP guilty of conspiracy to create tyrannical rule of the international few over the people of the United States and other TPP member nations. Eventually, I believe that a vote for the TPP will be viewed as vote to betray the Constitution and a violation of the oath of office of any who vote that way.

How can there be any other outcome when an action taken in office destroys National Sovereignty, State Sovereignty, Separation of Powers, and Democracy with a single vote.

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A sudden surge.

Iceland Pirate Party Popularity Rivals Government Coalition (RT)

The Pirate Party of Iceland, which has the smallest faction in the national parliament after the 2013 election, is now almost as popular as the two ruling coalition parties combined, the latest opinion poll showed. The party would score 30.1% of votes in Iceland if a general election was held now, the Icelandic National Broadcasting Service (RUV) reports citing a Gallup poll. Iceland’s two ruling parties – the Independent Party and the Progressive Party – have 22.9% and 10.1% support respectively, scoring less than 3% points ahead of the Pirates. The Pirate Party experienced an astounding surge of popularity in Iceland. In 2013, polls indicated it would barely score 5% of votes needed to win parliamentary seats. The party’s approval rating in January was roughly the same.

An early March Gallup poll showed its popularity had grown to over 15%, beating the Bright Future party. In less than two months the Pirate Party doubled its rating. “People are starting to realize that the whole system is corrupt, not just a few politicians,” Helgi Hrafn Gunnarsson, Pirate Party’s chair and one of its three MPs told Vísir news website in March. “They don‘t trust it at all. I think they appreciate it when someone points this out.” Responding to the latest poll, Gunnarsson said he was glad to see such a result but expected it to rebound somewhat in the weeks to come. He added there is still some time to go to the next election in Iceland, which is scheduled for 2017. The same opinion poll showed a 32% approval of the government by Icelanders, compared to 37% in March. Among the latest big decisions of the government is the March withdrawal of its bid to join the European Union.

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“The phrase “shameless hypocrisy” comes to mind.”

Angela Merkel’s NSA Nightmare Just Got A Lot Worse (Don Quijones)

Angela Merkel, Germany’s most successful and popular politician, could be in serious trouble, after revelations that Germany’s national intelligence agency, the BND, has been spying on key European assets on behalf of US intelligence. Those “assets” include top French officials, the EU’s headquarters, the European defense corporation EADS, the helicopter manufacturer Eurocopter and even German companies. To wit, from Der Spiegel:

In 2008, at the latest, it became apparent that NSA selectors were not only limited to terrorist and weapons smugglers… But it was only after the revelations made by whistleblower Edward Snowden that the BND decided to investigate the issue. In October 2013, an investigation came to the conclusion that at least 2,000 of these selectors were aimed at Western European or even German interests.

Today, the German foreign intelligence agency is accused of processing over 40,000 spy requests from the NSA, many of which represent a clear violation of the Memorandum of Agreement that the US and Germany signed in 2002. Washington and Berlin agreed at the time that neither Germans nor Americans — neither people nor companies or organizations — would be among the surveillance targets. The scandal could be particularly damaging for the Minister of Interior Thomas de Maiziere, whose ministry is accused of misleading parliament after claiming, as recently as April 14, to have no knowledge of alleged US economic spying in Europe, and of Germany’s alleged involvement.

For Merkel, it is a dizzying reversal of roles and fortunes. In 2013 she was arguably the most high-profile victim of NSA surveillance when it was revealed that the NSA had targeted her cellphone. When confronted with Edward Snowden’s allegations of US National Security Agency mass surveillance of European citizens, Merkel famously said that “spying on friends is just not on.” According to official accounts, she even placed a “strongly worded phone call” to US President Barack Obama. At the time the scandal was a political boon for Merkel, with 62% of Germans approving of her “harsh reaction”, according to a survey by polling institute YouGov. Now the tables have turned. If Merkel’s government is found to have had prior knowledge of the BND’s spying on the French government, citizens, and companies, its behavior in the wake of the phone-tapping revelations will be cast in a starkly different light. The phrase “shameless hypocrisy” comes to mind.

While the BNS is taking most of the flak, with some pundits even questioning whose interests it serves, questions are being raised about just how much Merkel’s government knew about the surveillance program. “At least since the Snowden revelations in 2013, all those involved at all levels, including the Chancellery, should have been suspicious of the cooperation with the NSA,” Konstantin von Notz, the senior Green Party member on the NSA investigative committee, told Der Spiegel.

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Italy hates the Milan Expo. For good reason.

Rioters In Milan Smash Shopfronts, Throw Smoke Bombs As Expo Opens (CNBC)

Milan has been waiting since 2008 for this day and now it has finally come—but takeoff for the World Expo 2015 looks to be overshadowed by violent protests. The turnstiles and doors officially opened on Friday in Italy’s commercial and fashion capital. But opening day excitement for the six-month-long commercial event wasn’t necessarily present among the crowds on Friday. The wet weather may have dampened the number of visitors to the event on its first day—with noticeably empty entrances and security checkpoints. Meanwhile, thousands of protesters marched through the streets of Milan behind a banner reading “No Expo, Eat the Rich,” according to Reuters. The No-Expo movement has been critical of the amount of money the government has poured into the event, when there are fears of austerity and cuts to public services.

A large anti-expo march through the center of Milan was overtaken by anarchists groups that smashed shopfronts and clashed with police. There were several banks with smashed-in doors and windows and the streets were strewed with detritus. Teargas was used by riot police to try and disperse parts of the crowd. Although most of the march was peaceful, around 200 demonstrators threw rocks, in addition to setting off flare and smoke bombs. A large six-story building was torched, as well as the ground floor of a two-story building. At least six cars were burnt and fire crews were deployed at multiple spots across the city. AP television footage appeared to show police using water cannons on protesters.

Friday is Labor Day, also known as May Day, and is a traditional occasion for anti-capitalist protests. The Expo is bringing together 145 countries from around the world with the theme “Feeding the Planet, Energy for Life.” The organizers are expecting up to 20 million visitors during the length of the Expo and as many as 250,000 on a particularly busy day. However, estimates for attendee numbers on Friday were only in the tens of thousands. Italy is hoping for a big economic boost because of the Expo, which is held every five years in different world location and is designed to showcase innovation. Some say the Milan Expo could generate up to $10 billion. But the event has come under criticism, particularly for skyrocketing costs and a number of corruption scandals.

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“Note that Breedlove has managed to pull off what we thought was a linguistic impossibility: his statement is contradictory, vague, and definitive all at once.”

Russia Preparing Offensive In Ukraine, NATO General Imagines (Zero Hedge)

Just a day after the US Navy said it was prepared to escort US-flagged cargo ships through the Strait of Hormuz as a precautionary measure after Iran supposedly fired on and subsequently seized a ship flying the Marshall Islands flag, we get still more sabre rattling in what has become a global staring match between the US on one side and Russia, Iran, and China on the other, with points of contention ranging from territorial sovereignty in Eastern Europe, to man-made islands in the South China Sea, to nuclear energy, to cyber warfare. This time it’s U.S. Air Force General and NATO supreme allied commander Philip Breedlove ratcheting up the rhetoric (and perhaps suggesting that the Kremlin is correct in its assessment of US foreign policy) by suggesting to the Senate that Russia is planning to shatter what remains of the fragile ceasefire in Ukraine by launching an imminent offensive. Via Reuters:

Russia’s military may be taking advantage of a recent lull in fighting in eastern Ukraine to lay the groundwork for a new military offensive, NATO’s top commander told the U.S. Congress on Thursday. U.S. Air Force General Philip Breedlove, the NATO supreme allied commander, said Russian forces had been seeking to “reset and reposition” while protecting battlefield gains, despite a fragile ceasefire agreed in February.

And while the general had trouble explaining exactly how he came to this conclusion based on the evidence he had observed, he did come prepared with plenty of vague soundbites which, although largely devoid of any real meaning, sounded scary enough to get the attention of the media and will probably play well with the 348 members of the House who not long ago voted to provide lethal aid to Kiev. Here are some excerpts from the DoD press release:

“Many [Russian] actions are consistent with preparations for another offensive,” he added. Russia is aggressive in all elements of national power – diplomatic, informational, economic, and its military, the general said. “It would not make sense to unnecessarily take any of our own tools off the table,” he said about the U.S. possibility of supplying defensive weapons to Ukraine. Russia’s aggression also is destabilizing neighboring states and the region, and its illegal actions are pushing instability closer to NATO’s boundaries, Breedlove told the senators. “We cannot be fully certain what Russia will do next, and we cannot fully grasp [Putin‘s] intent,” Breedlove he said. “What we can do is learn from his actions, and what we see suggests growing Russian capabilities, significant military modernization and an ambitious strategic intent.”

Got it. So summarizing, we cannot be certain about Putin’s intent, but based on his actions, we can be certain that his intent is both ambitious and strategic. Note that Breedlove has managed to pull off what we thought was a linguistic impossibility: his statement is contradictory, vague, and definitive all at once.

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Kiev and the west are determined that no-one ever finds out what happened in Odessa, on Maidan Square, with MH-17 etc etc.

Kiev Is Making No ‘Tangible Steps’ To Investigate Year-Old Odessa Massacre (RT)

Moscow has called on the international community to put pressure on Ukrainian authorities, which are not making any ‘tangible steps’ towards an independent and impartial investigation of last year’s Odessa massacre, Russia’s Foreign Ministry said. “With a deep concern we have to state that one year [since the tragedy], the Ukrainian justice system did not take any tangible steps toward an objective, independent and impartial investigation of this horrific crime in order to bring the perpetrators to justice,” the statement by the Russian Foreign Ministry said, as cited by Sputnik news agency. On May 2 last year, the Ukrainian radicals set fire to the Trade Union House in Odessa, killing 48 and injuring over 200 anti-Kiev activists inside.

“As a result of these barbaric acts of intimidation, several dozen people, whose only fault was that they openly expressed their civic stance against the anti-constitutional coup in February 2014 and outburst of radical ultranationalists, were killed,” the Foreign Ministry’s statement reads. Moscow urged the international community, including human rights NGOs, to “decisively and honestly” demand Kiev stage a fair investigation into the Odessa massacre and correct the “glaring flaws” in Ukrainian judicial system. The ministry stressed that Kiev’s “carelessness” and passiveness in investigating the May 2 events is backed by the stance of its Western backers and some major global media outlets.

The little attention given to the Odessa massacre in European and American news is “yet another manifestation of information warfare and manipulation of the media,” the statement said. Meanwhile, the US also addressed Kiev with an appeal not to delay the investigation of deadly fire. “We reiterate the need for a thorough and transparent investigation so those responsible can ultimately be held accountable. We continue to urge the Ukrainian government to investigate and bring charges against those culpable for the events in Odessa and to do so as quickly as possible,” Marie Harf, US State Department spokeswoman, said on Thursday.

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Little bit crazy perhaps? My guess is if this comes out, he’s going to lose a lot of sympathy. Kiwi’s are sort of done with him anyway.

Kim Dotcom Awarded Millions For Legal Bills And Living Expenses (TF)

Kim Dotcom has succeeded in getting more of his seized funds released by the courts in New Zealand. In addition to millions for legal expenses, the entrepreneur will receive $128K per month including $60K to pay mansion rent, $25,600 to cover staff and security, plus $11,300 for grocery and other expenses.

How much does it cost to enjoy a reasonable standard of living in the modern world? A couple of thousand dollars a month? Three thousand? Four? For Megaupload founder Kim Dotcom, none of these amounts scratch the surface, a problematic situation considering all of his assets were previously seized by the U.S. and New Zealand governments. In February a “broke” and “destitute” Dotcom appeared before Justice Patricia Courtney, asking for living expenses and a massive cash injection to pay historical and current legal fees. Dotcom was previously granted around US$15,000 per month to live on but high costs had left him “penniless”. Following the hearing Justice Courtney’s ruling is largely good news for Dotcom, with the Judge taking into consideration claims by authorities that the entrepreneur has funds in a trust that could help pay his expenses.

“The trust’s major asset is its shareholding in Mega Ltd, said to be worth more than $30m (US$22.6m). In evidence Mr Dotcom said that there were difficulties in selling Mega shares because they were blocked from being sold until the planned listing of Mega, which is now scheduled for late May 2015 (though it is possible that this date will be pushed back). There was no evidence to the contrary,” the Judge’s ruling reads. “I have concluded that Mr Dotcom does not have the ability to meet his legal and reasonable living expenses from trust assets because, on the evidence, those assets are not sufficiently liquid.” Noting that he still owes former lawyers around US$1.5m, the Judge said that Dotcom’s estimate for financing his legal battle against extradition is between US$1.5m and US$3m.

This amount will be released from currently restrained government bonds. Next up was the Dotcom family’s accommodation costs. Rent on the now-famous mansion amounts to US$754,000 per annum under a lease Dotcom signed in February 2013 and which expires in the same month 2016. The Judge decided that terminating that lease would result in additional costs. “If [Dotcom] were to terminate the lease in order to find a more modest home, he would immediately be exposed to a significant contractual liability for the existing rental in addition to the costs of any new accommodation,” the Judge writes.

“Little would be saved by requiring Mr Dotcom to move into more modest accommodation pending the expiry of the lease; it is more likely that the total amount required to house Mr Dotcom and his children and meet his lease commitment would actually prove greater than simply remaining where he is. “I therefore accept that, in the particular circumstances of this case, a figure of $80,000 (US$60,300) per month is reasonable for accommodation.”

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Aug 082014
 August 8, 2014  Posted by at 1:26 pm Finance Tagged with: , , , , ,  10 Responses »

Dorothea Lange Family of 4 from Taos Junction, resettled at Bosque Farms, NM Dec 1935

The Nikkei lost 2.98% overnight, European exchanges continue their fall, hundreds of trucks carrying European produce are turned back at the Russian border, and high yield bond funds saw record high outflows in the past week. And in that world, China reports it highest trade balance surplus ever, a ‘fact’ that’s duly parroted by ‘news’ services around the globe.

Meanwhile, the WHO declares the Ebola outbreak an ‘international public health emergency’ and Barack Obama goes on national TV to announce he’s ordered targeted airstrikes in Iraq, ostensibly to prevent a massacre. Is this the US trying to clean up some of the mess and the vacuum it’s left behind?

Don’t bet on it, creating messes, vacuums and chaos is an integral part of American foreign policy. Perhaps seeing ISIS militants take over Iraq’s biggest hydroelectric dam earlier in the week was the proverbial straw. There’s a Pentagon report that says “a failure at the dam could send a 65-foot wave across parts of northern Iraq.”

Talking about Obama, journalist Greg Palast, who knows a thing or two about vulture funds, writes one of the most damning articles about the president that I’ve seen in a while. Palast contends that it would be very easy for Obama to halt Argentina’s default – and the credit event it would result in – by simply invoking one single clause from the US Constitution.

In fact, George W. did just that, and used it against the very same hedge fund that now threatens Argentina. Moreover, the very same judge who rules over the present case was warned over the “Separation of Powers” clause 30 years ago. But Obama hasn’t moved an inch.

How Barack Obama Could End Argentina Debt Crisis

The “vulture” financier now threatening to devour Argentina can be stopped dead by a simple note to the courts from Barack Obama. But the president, while officially supporting Argentina, has not done this one thing that could save Buenos Aires from default. Obama could prevent vulture hedge-fund billionaire Paul Singer from collecting a single penny from Argentina by invoking the long-established authority granted presidents by the US constitution’s “Separation of Powers” clause.

Under the principle known as “comity”, Obama only need inform US federal judge Thomas Griesa that Singer’s suit interferes with the president’s sole authority to conduct foreign policy. Case dismissed. Indeed, President George W Bush invoked this power against the very same hedge fund now threatening Argentina. Bush blocked Singer’s seizure of Congo-Brazzaville’s US property, despite the fact that the hedge fund chief is one of the largest, and most influential, contributors to Republican candidates.

Notably, an appeals court warned this very judge, 30 years ago, to heed the directive of a president invoking his foreign policy powers. In the Singer case, the US state department did inform Judge Griesa that the Obama administration agreed with Argentina’s legal arguments; but the president never invoked the magical, vulture-stopping clause. Obama’s devastating hesitation is no surprise. It repeats the president’s capitulation to Singer the last time they went mano a mano.

It was 2009. Singer, through a brilliantly complex financial manoeuvre, took control of Delphi Automotive, the sole supplier of most of the auto parts needed by General Motors and Chrysler. Both auto firms were already in bankruptcy. Singer and co-investors demanded the US Treasury pay them billions, including $350m (£200m) in cash immediately, or – as the Singer consortium threatened – “we’ll shut you down”. They would cut off GM’s parts. Literally.

GM and Chrysler, with no more than a couple of days’ worth of parts to hand, would have shut down, permanently; forced into liquidation. Obama’s negotiator, Treasury deputy Steven Rattner, called the vulture funds’ demand “extortion” – a characterisation of Singer repeated last week by Argentina President Cristina Fernández de Kirchner. But while Fernández declared “I cannot as president submit the country to such extortion,” Obama submitted within days. Ultimately, the US Treasury quietly paid the Singer consortium a cool $12.9 billion in cash and subsidies from the US Treasury’s auto bailout fund.

I recommend you read the rest of Palast’s piece as well, there are still people in the world who know how to do investigative journalism. Here’s one more paragraph:

In the case of Argentina, Obama certainly has reason to act. The US State Department warned the judge that adopting Singer’s legal theories would imperil sovereign bailout agreements worldwide. Indeed, it is reported that, in 2012, Singer joined fellow billionaire vulture investor Kenneth Dart in shaking down the Greek government for a huge payout during the euro crisis by threatening to create a mass default of banks across Europe.

Best remember who your friends are. Argentina has filed a complaint against the US with the International Court Of Justice, but it may be of little use, since the US doesn’t recognize its jurisdiction (it’s too afraid some former Washington hotshots would be called to stand trial for, among other things, war crimes).

Mario Draghi yesterday reiterated his intention to prepare for launching QE, but that may not just be impossible, it may be too late as well, since even Germany is rumored to be near a recession. What global central banks have pulled out of their hats so far has already resulted in such a distorted marketplace that German and Dutch 10-year bonds yield 1% or less, and the German 2-year even briefly went negative yesterday. Draghi QE would only exacerbate the very situation that has led to this distortion, and we must hope at least some heads are clear enough to recognize that.

But don’t bet on that either. Draghi may have to save his native country first, and urgently:

The ECBs Next Problem: Saving Italy

Since Matteo Renzi grabbed the Italian premiership in February, Rome has fallen off the radar of most crisis watchers. Renzi’s promise to institute sweeping reforms to business and labour markets appeared to be more than hot air following the appointment of Pier Carol Padoan as finance minister. The heavy-hitting former chief economist of the OECD appeared to give the youthful Renzi the intellectual ballast and political clout needed to push through an ambitious agenda.

This narrative was allied to figures showing Italy was already close to achieving a balanced budget and its banks were in better shape than many of France’s famous names. Maybe it is too soon to judge, but figures showing the country has fallen back into recession will dent the new government’s plans along with its image.

Fathom Consulting, run by former Bank of England economist Danny Gabay, warns that Rome may rank as another of Europe’s Black Swans. It has flirted with disaster before and always pulled back. Without an ECB rescue, in the form of large-scale quantitative easing, maybe a full-blown run on its debt is inevitable, possibly next year.

But Mario thinks it’s a good idea to chastise his fellow countrymen, especially new PM Renzi, first. Perhaps his dreams of one day becoming Prime Minister himself have something to do with that.

Draghi Takes Aim at Italy as Recession Scars Euro Area

Mario Draghi says Italy can only blame itself for its third recession since 2008. The day after data showed the euro-area’s third-biggest economy unexpectedly contracted last quarter, the European Central Bank president singled out his country’s lack of structural reform and the disincentive for investment it engenders. [..] “I keep on saying the same thing, really – I mean, of reforms in the labor market, in the product markets, in the competition, in the judiciary, and so on and so forth [..] “These would be the reforms which actually have shown to have a short-term benefit.”

The ECB president’s comments on his homeland are blunter than normal, adding to the contrast with countries such as Spain that have engaged in more structural adjustments. “Draghi made a strong call for structural reforms, noting that there is now ample evidence to suggest that countries that have reformed their economies are showing a stronger economic performance than the rest of the euro zone,” said Riccardo Barbieri [at Mizuho]. “This sounds like a strong rebuttal of the approach taken by Italy’s new prime minister.”

Still, as Wolf Richter states, things are not as easy as an IMF style reform or two here and there. Italy has a hidden pile of debt to suppliers it would rather see go bankrupt.

Italy’s Unrecovery: GDP Negative In 11 Of Last 12 Quarters

In the second quarter, Italy’s economy contracted 0.2% from the first quarter, which surprised economists who’d expected, somehow, more growth now that the Italian economy – in parallel with the grander Eurozone economy – is recovering so nicely. However, reality is not playing along. Crummy exports and a refusal by businesses to pile on inventories were blamed.

Not blamed, of course, was the Italian government, which refuses to pay its suppliers. The arrears, according to the most recent data by the Bank of Italy, amounted to €75 billion ($102 billion). Italy could just issue more bonds to fund what it owes, but that would show to the rest of the world that its debt is actually much higher than the current pretenses. So no way.

Successive politicians have promised for years to pay it, only to push the date when payment would be considered seriously out further and further. So far, no one has forced the government to pay its bills, and so they don’t get paid. The past dues have been sucked out of the working capital of businesses. They strangle the private sector, lead to layoffs, and wreak general havoc in an already very fragile economy. Based on the government’s failure to comply with Europe’s Late Payments Directive, which requires governments to cut payment delays to a maximum of 60 days, the European Commission commenced an infringement procedure against Italy. But that too may just be decoration. The way it looks, it may never be paid.

The (in)famous Martin Armstrong, in his own unique style, takes things a step further:

Italy’s Recession Means ‘The End Of Democracy’

Italy has entered that phase of zero-point growth. Italy’s people have been beaten by Europe and no longer expect recovery. But then, yesterday, the Statistical Office of the economic data for the second quarter of 2014 released economic numbers that froze a dumb look even on the faces of the hardcore pessimists. For the second time this year, Italy experienced a slump of its GDP by 0.3% year on year. The economic data is so bad, not seen for 14 years, that everyone no matter what side of the political fence is whispering or shouting the same world – “Recession!”

The advantage of Italy and its legendary corruption has been its equally inefficient government that has allowed the people to just ignore it and get along with life in the real world of the underground economy. When you look at the numbers at the gross level, one cannot imagine how Italy has functioned economically. However, looking closer one sees the vibrant underground economy that has allowed the people to make their own living and still prices, taxes and debt per capita are much lower than everywhere else in Europe[..] The solution for Italy? The politician’s dream. Brussels wants to take away the right of the Italian people to vote on anything meaningful.

The Senate in Italy was rather unique. All legislation had to go through the Senate which was elected by the people and had the power to dismiss the government. This was actually a very good idea. However, it prevents tyranny from Brussels and this is the real problem. Renzi has succeeded against the resistance of the deputies. The Senate, the second chamber of Parliament, today or at the latest on Friday will decide to self-disempowerment. [..]

Italy is where the Republic was born in 509 BC that sparked a contagion that spread with the overthrow of monarchy giving birth to Democracy in Athens in 508 BC. The land that had inspired the American Revolution against monarchy is now itself surrendering the last vestige of democratic process yield to the growing tyranny of Brussels under the pretense of saving the Euro.

I’ve said it often: the only thing that would actually benefit Italy is for it to leave the Eurozone. But with people like Draghi, Monti and Renzi, plus the very extensive cabal that has held the reins for ages, that will not happen. The country will have to default, and see extensive rioting in the streets, before something fundamental will change. Until then, an ongoing parade of technocrats and bureaucrats will be elected to rule the ruins of the dramatically tragic, and dramatically beautiful, nation.

Whether the old style Senate was as great as Armstrong makes it out to be, I’m not so sure, there’s too many pictures on my retina of 95 year old life long senators soaked in ties to much less than squeaky clean segments of Italian society. Italy needs a truly fresh start, and while it’s hard to see how it will get there, it won’t get it inside the eurozone. As for democracy, Beppe Grillo’s M5S was the single largest party in the last general elections, and the system still manages to ignore him.

As for American democracy, you tell me. Who amongst ordinary Americans is happy with what the US does in Ukraine? The only voice I’ve seen consistently make sense on the topic is Ron Paul. That’s not much. Who wants to see the US go back into Iraq, as Obama has decided it will?

And who’s happy to see the President not use the powers very evidently at his disposition, to call a halt to an attack on yet another sovereign nation, this one from behind desks and courtrooms in New York and Washington? Shouldn’t the President be the one to decide on foreign policy, and is President Obama still the one making those decisions? Is he the one who went looking for a new cold war?

Democracy in America, you tell me. A few last words from Greg Palast:

Singer has certainly earned his vulture feathers. His attack on Congo-Brazzaville in effect snatched the value of the debt relief paid for by US and British taxpayers and, says Oxfam, undermined the nation’s ability to fight a cholera epidemic.

[..] since taking on Argentina, Singer has unlocked his billion-dollar bank account, becoming the biggest donor to New York Republican causes. He is a founder of Restore Our Future, a billionaire boys club, channeling the funds of Bill Koch and other Richie Rich-kid Republicans into a fearsome war-chest dedicated to vicious political attack ads. And Singer recently gave $1 million to Karl Rove’s Crossroads operation, another political attack machine.

In other words, there’s a price for crossing Singer. And, unlike the president of Argentina, Obama appears unwilling to pay it.

How Obama Could End Argentina Debt Crisis, And Why He Doesn’t (Greg Palast)

The “vulture” financier now threatening to devour Argentina can be stopped dead by a simple note to the courts from Barack Obama. But the president, while officially supporting Argentina, has not done this one thing that could save Buenos Aires from default. Obama could prevent vulture hedge-fund billionaire Paul Singer from collecting a single penny from Argentina by invoking the long-established authority granted presidents by the US constitution’s “Separation of Powers” clause. Under the principle known as “comity”, Obama only need inform US federal judge Thomas Griesa that Singer’s suit interferes with the president’s sole authority to conduct foreign policy. Case dismissed. Indeed, President George W Bush invoked this power against the very same hedge fund now threatening Argentina. Bush blocked Singer’s seizure of Congo-Brazzaville’s US property, despite the fact that the hedge fund chief is one of the largest, and most influential, contributors to Republican candidates.

Notably, an appeals court warned this very judge, 30 years ago, to heed the directive of a president invoking his foreign policy powers. In the Singer case, the US state department did inform Judge Griesa that the Obama administration agreed with Argentina’s legal arguments; but the president never invoked the magical, vulture-stopping clause. Obama’s devastating hesitation is no surprise. It repeats the president’s capitulation to Singer the last time they went mano a mano. It was 2009. Singer, through a brilliantly complex financial manoeuvre, took control of Delphi Automotive, the sole supplier of most of the auto parts needed by General Motors and Chrysler. Both auto firms were already in bankruptcy. Singer and co-investors demanded the US Treasury pay them billions, including $350m (£200m) in cash immediately, or – as the Singer consortium threatened – “we’ll shut you down”. They would cut off GM’s parts. Literally.

GM and Chrysler, with no more than a couple of days’ worth of parts to hand, would have shut down, permanently;forced into liquidation. Obama’s negotiator, Treasury deputy Steven Rattner, called the vulture funds’ demand “extortion” – a characterisation of Singer repeated last week by Argentina President Cristina Fernández de Kirchner. But while Fernández declared “I cannot as president submit the country to such extortion,” Obama submitted within days. Ultimately, the US Treasury quietly paid the Singer consortium a cool $12.9bn in cash and subsidies from the US Treasury’s auto bailout fund.

Read more …

Argentina Files Legal Action Against US Over Debt Default (Reuters)

Argentina has asked the International Court Of Justice (ICJ) in The Hague to take action against the United States over an alleged breach of its sovereignty as it defaulted on its debt. Argentina defaulted last week after losing a long legal battle with hedge funds that rejected the terms of debt restructurings in 2005 and 2010. A statement issued by the ICJ, the United Nation’s highest court for disputes between nations, said Argentina’s request had been sent to the US government. It added that no action will be taken in the proceedings “unless and until” Washington accepts the court’s jurisdiction.

The US has recognised the court’s jurisdiction in the past, but it was not immediately clear if it would do so in Argentina’s case. The default came after Argentina failed last week to strike a deal with the main holdouts among investors, hedge funds NML Capital and Aurelius Capital Management. Buenos Aires maintains it has not defaulted because it made a required interest payment on one of its bonds due in 2033, but a judge in the US district court in Manhattan blocked that deposit in June, saying it violated an earlier ruling. Argentina said in its application to the court that the United States had “committed violations of Argentinian sovereignty and immunities and other related violations as a result of judicial decisions adopted by US tribunals.”

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Any questions?

Checkers Vs Chess: Why Europe Implodes On ‘Russian’ Sanctions (Zero Hedge)

The West’s leaders are full of lawyers, Putin is ex-KGB. If ever there was an example of him playing chess while the West plays checkers, the following chart is it. Despite Western protestations that its sanctions will hurt Russia more than Europe this morning, one look at Europe’s huge net trade balance with Russia for food and it’s clear who is really going to feel the pain. As Martin Armstrong noted previously, “Putin has responded to [Western] sanctions as any really smart chess-player would – you get the supporters of your adversary to jump-ship.” What better way to crack the ‘stop-Putin’ alliance than to force Europe into trade deficits and squeeze their economies (especially Germany)?

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Ban? What ban?

Russia’s Import Ban Means Big Business For Latin America (RT)

Russia’s 1-year ban on food products from the EU, US, Canada, and Norway will force Russia to increase food imports from Latin America, specifically Ecuador, Brazil, Chile, and Argentina. Russia will ban meat, dairy, fruit, and vegetable imports from countries that have imposed sanctions on Russia over the Ukraine conflict, which opens the door to Russia’s partners on the other side of the world.

Russia will have to fill an 8% gap in its total agricultural imports that it sources from the EU, USA, Canada, Australia, and Norway. The Netherlands, Germany and Poland are currently Russia’s biggest food suppliers in the EU. Meat and dairy products from Ecuador, Chile and Uruguay may appear on Russian supermarket shelves as early as September, said Julia Trofimova, a at Rosselkhoznadzor, Russia’s consumer watchdog. On Wednesday the three countries confirmed they are ready to start supplying Russia with agricultural goods and Moscow will soon hold meetings with ambassadors from Brazil and Argentina.

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“NML Capital, a subsidiary of the hedge fund Elliot Management, headed by Paul Singer, spent $48m on bonds in 2008; thanks to Griesa’s ruling, NML Capital should now receive $832m – a return of more than 1,600%.”

Argentina Default? Griesafault Is Much More Accurate (Stiglitz/Guzman)

On 30 July Argentina’s creditors did not receive their semi-annual payment on the bonds that were restructured after the country’s last default in 2001. Argentina had deposited $539m (£320m) in the Bank of New York Mellon a few days before. But the bank could not transfer the funds to the creditors: US federal judge Thomas Griesa had ordered that Argentina could not pay the creditors who had accepted its restructuring until it fully paid – including past interest – those who had rejected it. It was the first time in history that a country was willing and able to pay its creditors, but was blocked by a judge from doing so. The media called it a default by Argentina, but the Twitter hashtag #Griesafault was much more accurate. Argentina has fulfilled its obligations to its citizens and to the creditors who accepted its restructuring. Griesa’s ruling, however, encourages usurious behaviour, threatens the functioning of international financial markets, and defies a basic tenet of modern capitalism: insolvent debtors need a fresh start.

Sovereign defaults are common events with many causes. For Argentina, the path to its 2001 default started with the ballooning of its sovereign debt in the 1990s, which occurred alongside neoliberal “Washington Consensus” economic reforms that creditors believed would enrich the country. The experiment failed, and the country suffered a deep economic and social crisis, with a recession that lasted from 1998 to 2002. By the end, a record-high 57.5% of Argentinians were in poverty, and the unemployment rate skyrocketed to 20.8%. Argentina restructured its debt in two rounds of negotiations, in 2005 and 2010. More than 92% of creditors accepted the new deal, and received exchanged bonds and GDP-indexed bonds. It worked out well for both Argentina and those who accepted the restructuring. The economy soared, so the GDP-indexed bonds paid off handsomely.

But so-called vulture investors saw an opportunity to make even larger profits. The vultures were neither long-term investors in Argentina nor the optimists who believed that Washington Consensus policies would work. They were simply speculators who swooped in after the 2001 default and bought up bonds for a fraction of their face value from panicky investors. They then sued Argentina to obtain 100% of that value. NML Capital, a subsidiary of the hedge fund Elliot Management, headed by Paul Singer, spent $48m on bonds in 2008; thanks to Griesa’s ruling, NML Capital should now receive $832m – a return of more than 1,600%.

Read more …


US High Yield Bond Funds See Shocking, Record $7.1B Cash Outflow

Retail-cash outflows from high-yield funds ballooned to a shocking, record $7.07 billion in the week ended Aug. 6, with ETFs representing just 18% of the sum, or roughly $1.28 billion, according to Lipper. The huge redemption blows out past the prior record outflow of $4.63 billion in June 2013. With four straight weeks of outflows from the asset class totaling $12.6 billion, the four-week trailing average expands to negative $3.15 billion per week, from $1.4 billion last week. This reading is also a record, eclipsing a prior record at $2.8 billion, also in June 2013.

The full-year reading is now deeply in the red, at $5.9 billion, with 43% of the withdrawal tied to ETFs. One year ago at this time outflows were $3.9 billion, with 15% linked to the ETF segment. In addition to the huge outflow, the change due to market conditions was negative $1.24 billion, also the greatest negative move dating to June 2013. The change this past week is nearly negative 1% against total assets, which stood at $176.3 billion at the end of the observation period, with 19% tied to ETFs, or $34.1 billion. Total assets are up $6.5 billion in the year to date, reflecting a gain of roughly 4% this year.

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ECB Ready To Pump Cash Into Eurozone As Fears Rise Over Recovery (Guardian)

The European Central Bank is accelerating plans to unleash fresh growth-boosting measures as the eurozone’s recovery loses steam and the risk increases of a geopolitical shock from the Ukraine crisis. Mario Draghi, president of the ECB, said that the Bank had “intensified preparatory work” on quantitative easing as a potential new weapon in its battle against deflation and economic stagnation. He revealed that the eurozone’s policymakers were closer to using QE – which would inject cash into the eurozone by acquiring assets such as bonds from financial institutions – amid worrying signs that weak growth in the 18-member currency bloc is slowing further still. “The recovery remains weak, fragile and uneven. In recent weeks, the data shows growth momentum is slowing down. It is quite clear that if geopolitical risks materialise, the next two quarters will show lower growth.”

Recovery in the region is barely established, with GDP increasing by only 0.2% in the first quarter of the year. Speaking at a press conference in Frankfurt, Draghi said sanctions and counter sanctions between the west and Russia were among the biggest risks facing the eurozone economy, with the potential to drive energy prices higher and depress exports. He stressed it was too early to say what the precise impact sanctions would have on the region. “We are just at the beginning. We are still assessing what impact sanctions might have on the economy. “Geopolitical risks are heightened. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they … have on other parts of the world.” Earlier, the ECB’s governing council left rates on hold at its July policy meeting, as expected.

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Germany Close To Recession As ECB Admits Recovery Is Weak (AEP)

German bonds yields plunged to a historic low and two-year rates briefly fell below zero on Thursday on fears of widening recession in the eurozone, and a flight to safety as Russian troops massed on the Ukrainian border. Yields on 10-year Bunds dropped to 1.06% after a blizzard of fresh data showed that recovery has stalled across most of the currency bloc, with even Germany now uncomfortably close to recession. Commerzbank warned that the German economy may have contracted by 0.2% in the second quarter and is far too weak to pull southern Europe out of the doldrums. Industrial output fell 1.5% over the three months. The DAX index of equities in Frankfurt has dropped 10% over the past month and is threatening to break through the psychological floor of 9,000.

Mario Draghi, head of the ECB, said the recovery remained “weak, fragile and uneven”, with a marked slowdown in recent weeks on escalating geopolitical worries over Russia and the Middle East. He said the ECB, which on Thursday held benchmark interest rates at 0.15%, “stands ready” to inject money through purchases of asset-backed securities and quantitative easing if needed, but would not take further action yet even though inflation had fallen to 0.4%. The debt markets are pricing in 0.5% inflation in Germany and Italy over the next five years through so-called “break-even” rates, evidence that investors think the ECB is falling far behind the curve. Mr Draghi insisted that a string of measures unveiled in June were starting to work and should be enough to stave off deflation.

The ECB ignored pleas from leading economists for pre-emptive action to bolster the eurozone’s defences before an external shock hit and before the US Federal Reserve tightened monetary policy, an inflection point that risks sending tremors through the global system, according to a paper by the Chicago Fed. Hopes for a swift rebound in Germany are fading. The economics ministry said new orders in manufacturing fell 3.2% in June, with orders from the rest of the eurozone collapsing by 10.4%. “What this shows is that Europe is nowhere close to recovery. Monetary policy has run out of traction,” said Steen Jakobsen from Saxo Bank.

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Draghi Takes Aim at Italy as Recession Scars Euro Area (Bloomberg)

Mario Draghi says Italy can only blame itself for its third recession since 2008. The day after data showed the euro-area’s third-biggest economy unexpectedly contracted last quarter, the European Central Bank president singled out his country’s lack of structural reform and the disincentive for investment it engenders. That followed an opening statement that lamented the region’s “uneven” recovery. “I keep on saying the same thing, really – I mean, of reforms in the labor market, in the product markets, in the competition, in the judiciary, and so on and so forth,” Draghi, the former Bank of Italy governor, said in Frankfurt yesterday after keeping ECB interest rates unchanged at record lows. “These would be the reforms which actually have and have shown to have a short-term benefit.”

The comments may increase pressure on Italian Prime Minister Matteo Renzi to turn around an economy with youth unemployment above 40% and a recession that threatens the 18-nation currency bloc’s nascent revival. The ECB president’s comments on his homeland are blunter than normal, adding to the contrast with countries such as Spain that have engaged in more structural adjustments. “Draghi made a strong call for structural reforms, noting that there is now ample evidence to suggest that countries that have reformed their economies are showing a stronger economic performance than the rest of the euro zone,” said Riccardo Barbieri, the London-based chief European economist at Mizuho International Plc. “This sounds like a strong rebuttal of the approach taken by Italy’s new prime minister.”

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Without ECB Rescue, ‘Full-Blown Run On Italian Debt Is Inevitable’ (Guardian)

Since Matteo Renzi grabbed the Italian premiership in February, Rome has fallen off the radar of most crisis watchers. Renzi’s promise to institute sweeping reforms to business and labour markets appeared to be more than hot air following the appointment of Pier Carol Padoan as finance minister. The heavy-hitting former chief economist of the Organisation of Economic Co-operation and Development (OECD) appeared to give the youthful Renzi the intellectual ballast and political clout needed to push through an ambitious agenda. This narrative was allied to figures showing Italy was already close to achieving a balanced budget and its banks were in better shape than many of France’s famous names. Maybe it is too soon to judge, but figures showing the country has fallen back into recession will dent the new government’s plans along with its image.

Fathom Consulting, run by former Bank of England economist Danny Gabay, warns that Rome may rank as another of Europe’s Black Swans. It has flirted with disaster before and always pulled back. Without a European Central Bank (ECB) rescue, in the form of large-scale quantitative easing, maybe a full-blown run on its debt is inevitable, possibly next year. Mario Draghi, the ECB president, is expected to tell his audience today that he is waiting to see how his previous attempts at offering cheap credit are faring before considering QE. Interest rates will be kept on hold alongside further monetary easing. The view from Draghi’s Frankfurt base is that Italy is one of Europe’s children and must be parented with an iron rod. Any hand-outs or relaxation in tough fiscal constraints will be spent by Rome on the equivalent of sweets and sugary drinks, is his view. And he is not alone. The Germans, Dutch and Brussels elite think the same way.

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Italy’s Unrecovery: GDP Negative In 11 Of Last 12 Quarters (WolfStreet)

In the second quarter, Italy’s economy contracted 0.2% from the first quarter, which surprised economists who’d expected, somehow, more growth now that the Italian economy – in parallel with the grander Eurozone economy – is recovering so nicely. However, reality is not playing along. Crummy exports and a refusal by businesses to pile on inventories were blamed. Not blamed, of course, was the Italian government, which refuses to pay its suppliers. The arrears, according to the most recent data by the Bank of Italy, amounted to €75 billion ($102 billion). Italy could just issue more bonds to fund what it owes, but that would show to the rest of the world that its debt is actually much higher than the current pretenses. So no way.

Successive politicians have promised for years to pay it, only to push the date when payment would be considered seriously out further and further. So far, no one has forced the government to pay its bills, and so they don’t get paid. The past dues have been sucked out of the working capital of businesses. They strangle the private sector, lead to layoffs, and wreak general havoc in an already very fragile economy. Based on the government’s failure to comply with Europe’s Late Payments Directive, which requires governments to cut payment delays to a maximum of 60 days, the European Commission commenced an infringement procedure against Italy. But that too may just be decoration. The way it looks, it may never be paid. Meanwhile, businesses are suffocating. And it shows: over the last 12 quarters, 11 quarters were contractions, with the sole errant quarter being Q1 2014, when the economy booked a tiny growth of 0.1% from the prior quarter and gave rise to an avalanche of hope, now obviated by events.

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Italy’s Recession Means ‘The End Of Democracy’ (Martin Armstrong)

Italy has entered that phase of zero-point growth. Italy’s people have been beaten by Europe and no longer expect recovery. But then, yesterday, the Statistical Office of the economic data for the second quarter of 2014 released economic numbers that froze a dumb look even on the faces of the hardcore pessimists. For the second time this year, Italy experienced a slump of its gross domestic product by 0.3% year on year. The economic data is so bad, to the point it has not been seen for 14 years, that everyone no matter what side of the political fence is whispering or shouting the same world – “Recession!”

The advantage of Italy and its legendary corruption has been its equally inefficient government that has allowed the people to just ignore it and get along with life in the real world of the underground economy. When you look at the numbers at the gross level, one cannot imagine how Italy has functioned economically. However, looking closer one sees the vibrant underground economy that has allowed the people to make their own living and still prices, taxes and debt per capita are much lower than everywhere else in Europe, Italy’s real problem – it joined the Euro which did not benefit the Italians and only increased their national debt in “real terms” as the Euro rallied to excessively high levels in this wave of deflation. The solution for Italy? The politician’s dream. Brussels wants to take away the right of the Italian people to vote on anything meaningful. Prime Minister Matteo Renzi had hoped to celebrate his “epochal success” in the parliamentary reform in practice.

The Senate in Italy was rather unique. All legislation had to go through the Senate which was elected by the people and had the power to dismiss the government. This was actually a very good idea. However, it prevents tyranny from Brussels and this is the real problem. Renzi has succeeded against the resistance of the deputies. The Senate, the second chamber of Parliament, today or at the latest on Friday will decide to self-disempowerment. [..] Italy is where the Republic was born in 509BC that sparked a contagion that spread with the overthrow of monarchy giving birth to Democracy in Athens in 508BC. The land that had inspired the American Revolution against monarchy is now itself surrendering the last vestige of democratic process yield to the growing tyranny of Brussels under the pretense of saving the Euro.

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And that’s just the Fed polling.

Fed Survey Finds 4 in 10 Americans in Financial Stress in 2013 (Bloomberg)

Almost four in 10 Americans were suffering financial stress in September 2013 and more than a third said they were worse off than they were five years earlier, a new Federal Reserve report on U.S. household finances showed today. One-fourth of respondents reported they were “just getting by” financially and another 13% said they were struggling to do so, the Fed said. Thirty-four% were worse off financially than in 2008, 34% were about the same, and 30% were better off, according to the report. “The survey found that many households were faring well, but that sizable fractions of the population were at the same time displaying signs of financial stress,” researchers wrote. “For some, perceived credit availability remains low.”

One-third of those who applied for credit were denied or given less credit than they requested, the survey showed. Twenty-four% reported having education debt of some kind, with an average unpaid balance of $27,840. The central bank said its Report on the Economic Well-Being of U.S. Households is a snapshot of financial and economic well-being of U.S. households to help monitor their recovery from the recession and “identify perceived risks to their financial stability.” It aimed to gather household data not readily available from other sources.

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HELOCs will make a big comeback in the news.

Default Risk Rises on 20% of Boom-Era Home-Equity Loans (Bloomberg)

As much as 20% of home equity lines of credit worth $79 billion are at increased risk of default as their payments jump a decade after the loans were made during the U.S. housing boom, according to TransUnion Corp. Borrowers face rate shocks as payments on the credit lines, known as HELOCs, switch from interest-only to include principal, causing monthly bills to surge more than 50%, according to a report today by the Chicago-based credit information company. The 20% of borrowers most in danger of default are property owners with low credit scores, high debt-to-income ratios and limited home equity, said Ezra Becker, TransUnion’s vice president of research.

Maturing home equity lines, which allow borrowers to use the value of their home as collateral on loans for personal spending, are the last wave of resetting debt from the era of high property values and easy credit before the 2008 financial crisis. The three biggest home equity lenders – Bank of America, Wells Fargo, JPMorgan Chase – held 36% of the $691.5 billion debt as of the first quarter, according to Federal Reserve data. [..] About $23 billion in HELOCs will have payment increases this year as the interest-only phase ends, rising to a projected peak of $56 billion in 2017, according to a June report by the Treasury Department’s Office of the Comptroller of the Currency.

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China Trade Balance At Highest Ever – EVER! (Zero Hedge)

Filed in the “are you kidding us” folder… Chinese exports rose an astounding 14.5% YoY in July (the biggest surge since April 2013 and double the 7.0% YoY expectations). Chinese imports plunged 1.6% to 4-month lows, dramatically missing expectations of a 2.6% YoY gain. These miracles of goalseek.xls and fake trade invoicing left the Chinese Trade Balance for July at $47.3 Billion – its highest ever (ever) and almost double the $27.4bn expectations. In the midst of collapsing European economies, plunging Russia, and stumbling ‘hard’ US macro data, the Chinese government would have us believe the world (net) bought the most stuff ever from them in July… Yes, your eyes are not deceiving you…

It would appear – as we noted previously, that China is up to its old tricks… China’s exports have been overstated by Chinese data…

We cannot show just how crazy this data is because US and more importantly Hong Kong imports from China data is not updated to end July yet… but it is noteworthy that the hub of fake invoicing – Hong Kong – saw a 13.3% YoY jump – its most in 16 months… after being totally flat for 4 months

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“One figure stands out: the $343 billion these nonbank lenders owe in interest and principal repayments this quarter alone.”

China’s $343 Billion Q3 Payments Due in the Shadows (Bloomberg)

China’s “trust companies” are a growth industry, notable not for imparting stability to the $9.2 trillion economy, but for the red flags they raise. One figure stands out: the $343 billion these nonbank lenders owe in interest and principal repayments this quarter alone. This topic may not sound very exciting to those far removed from the mechanics of China Inc. and President Xi Jinping’s efforts to rein in credit and investment bubbles. But these nonbank lenders are at the core of the shadow-banking industry that makes China’s financial system both opaque and fragile. The greater the repayment requirements, the greater the risk of a miss and the turmoil that might follow. That’s why the latest report from Hu Yifan of Haitong International Securities, titled “Day of Reckoning for China Trusts,” is so troubling. From now through 2015, Hu says, such repayments will be at elevated levels.

The odds of missed payments and headline-making credit events is increasing as data suggest government stimulus measures are gaining less traction than in years past. “The brisk development of trust funds is leading to a dead-end,” Hu says. The “uncertainties surrounding their regulatory requirements have led to an accumulation and concentration of risk in this sector.” And even as Chinese regulators try to curb trust-company indebtedness, they find new ways to expand. This “liquidity binge,” Hu says, is fueling excessive leverage and risk in real estate, infrastructure and mining. “Current payment difficulties of trust fund companies are only the tip of the iceberg,” he warns. Here, the reference is to the part of the problem we can see. What’s worrying outside observers, including the IMF, is what we can’t. At the top of any wish list for economists in Washington is discerning China’s true debt profile – national, local and financial.

Until we know for sure, if we even can, the IMF can do little more than urge China to address its “web of vulnerabilities” inherent in its credit-and-investment-fueled growth. Hu’s iceberg comment has me thinking back to Bill Gross’s oft-quoted China analogy about “mystery meat.” “Nobody knows what’s there and there’s a little bit of bologna,” the bond-fund manager said in a Feb. 4 Bloomberg Television interview. “So we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.” Make that next year, too. The lack of transparency that pervades Beijing makes it harder to know which of Xi’s planned reforms are being carried out and which aren’t. China’s grow-fast-at-any-cost ethos, rampant corruption and the lack of a free press conspire to make second-biggest economy more of a black box than investors like Gross and policy makers at the IMF would prefer.

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23 months inventory …

China Home Glut Worsens as Developers Won’t Sell at Lower Prices (Bloomberg)

The biggest immediate risk facing China’s economy is about to get worse. A reluctance among some developers to sell units at prices lower than they could fetch just months ago threatens to cause a swelling in unsold properties. The worsening glut would extend a slide in construction that’s already put a drag on the world’s second-largest economy, and counter policy makers’ efforts to stimulate the real-estate industry with loosened rules. In Nanjing, eastern China, nine housing projects originally planned for sale in the first half of 2014 were held for later this year, consulting firm Everyday Network Co. says. The number of homes added to the market in July in 21 major cities dropped 25% from June, according to Centaline Group, parent of China’s biggest real-estate brokerage.

“The completed apartments will be in the marketplace sooner or later, and potential buyers will continue to expect prices to fall,” said Hua Changchun, China economist at Nomura Holdings Inc. in Hong Kong. “The property-market weakness hasn’t changed, despite the policy adjustments.” July economic data due over the next week, starting with tomorrow’s trade numbers, will give a sense of how well growth is holding up after accelerating to 7.5% in the second quarter from a year earlier. The statistics bureau releases inflation figures Aug. 9, followed by industrial production, fixed-asset investment and retail sales on Aug. 13. The central bank reports lending and money-supply figures by the middle of August.

China’s broadest measure of new credit rose in June to the highest level for the month since 2009, underscoring the role of debt in supporting expansion. Home-price data for cities are due from the statistics bureau on Aug. 18, after June prices fell from the previous month in 55 of 70 cities tracked by the government. China’s home sales slumped 9.2% in the first half of this year from a year earlier, following a full-year 26.6% increase in 2013, while new-property construction plunged 16.4%. Developers are responding with sales delays and discounts as well as incentives including no-down-payment purchases and buyback guarantees. Developers’ sales delays in the first half were “very widespread” because prospects were poor given weak demand and tight credit conditions, said Donald Yu, a Shenzhen-based analyst at Guotai Junan Securities Co. “Will the increased supply lead to declines in prices in the second half? That for sure will happen.”

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But we’ll do it anyway.

Mining the Bottom of the Ocean Is as Destructive as it Sounds (Vice)

Have you ever wondered how much the ocean floor is worth? The answer is in the trillions. Metals and materials are the foundation of our life, but with seven billion people occupying the earth, supplies are rapidly dwindling. So mining industries have set their sights miles deep under the sea. It’s estimated there are billions of tonnes worth of valuable metals and minerals on the seabed. However, marine biologists and researchers have raised concerns that those doing deep sea mining don’t appreciate the delicate and fragile ecosystem of the deep-ocean, and how their actions could affect it. Andrew Thurber, a researcher at the College of Earth, Ocean and Atmospheric Sciences at Oregon State University, talked to me about the issue. Thurber’s review on the deep sea’s relationship to us on land and our duty to protect it was recently published in Biogeosciences, a journal of the European Geosciences Union.

In their report, Thurber and his colleagues pointed out the many important uses of the deep sea. The deep sea is used as a dumping ground to absorb waste; it contains many life forms, some of which are being looked at for new medicines; and it serves as an environment for fish to breed. I asked Thurber about the implications of deep sea mining. “It’s really not different from clear-cutting a forest of redwoods, except instead of majestic trees there are many small organisms that, together and en masse, gain their importance to the planet,” he said. “We also know that many of the services that are provided by this habitat are connected.”

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What else would you expect?

Massive Toxic Tailings Pond Spill Floods Canadian Waterways (eNews)

A middle-of-the-night breach of the tailings pond for an open-pit copper and gold mine in British Columbia sent a massive volume of toxic waste into several nearby waterways on Monday, leading authorities to issue a water-use ban. Slurry from Mount Polley Mine near Likely, B.C. breached the earthen dam around 3:45 am on Monday, with hundreds of millions of gallons — equivalent to 2,000 Olympic-sized swimming pools, according to Canada’s Global News — gushing into Quesnel Lake, Cariboo Creek, Hazeltine Creek and Polley Lake. An estimated 300 homes, plus visitors and campers, are affected by the ban on drinking and bathing in the area’s water.

Chief Anne Louie of the Williams Lake Indian band told the National Post the breach was a “massive environmental disaster.” With salmon runs currently making their way to their spawning grounds, “Our people are at the river side wondering if their vital food source is safe to eat,” said Garry John, aboriginal activist and member of the board of directors of the Council of Canadians, in a press release.

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Not the last word on this.

WHO Declares Ebola Outbreak ‘International Public Health Emergency’ (DW)

The World Health Organization says the Ebola epidemic in West Africa constitutes a public health emergency of international proportions. More than 900 people have died since the virus broke out earlier this year. In a press conference on Friday, the WHO said the Ebola epidemic required an extraordinary response to stop its spread. “Countries affected to date simply do not have the capacity to manage an outbreak of this size and complexity on their own,” said WHO Director General Dr. Margaret Chan. She called on the international community to provide urgent support to countries affected by the crippling virus. The WHO previously declared similar emergencies for polio in May, and for the swine flu pandemic in 2009. The agency had convened an expert committee this week for an emergency session to assess the severity of the ongoing Ebola epidemic in West Africa. The virus was first identified in Guinea in March, before it spread to Sierra Leone and Liberia. All three countries have already implemented states of emergency.

The WHO has described the current outbreak as unprecedented. So far, it has killed 932 people and infected more than 1,700, with the death rate hovering around 50%. Medical charity Doctors Without Borders has warned that the virus is “out of control,” while US health authorities acknowledges on Thursday that the pathogen’s spread outside Africa was inevitable. The first European Ebola victim, Spanish Roman Catholic priest, Miguel Pajares, was flown out of Liberia on Thursday. Authorities said the 75-year-old’s condition was stable. Meanwhile two Americans who are being treated in Atlanta, Georgia, after being infected in Liberia are showing signs of improvement. Ebola was first discovered in 1976 in what is now the Democratic Republic of Congo. The virus causes severe fever, headaches, vomiting and bleeding, and is spread via bodily fluids.

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May 192014
 May 19, 2014  Posted by at 7:11 pm Finance Tagged with: , , , ,  4 Responses »

Jack Delano Young Negro farm laborer, Stem, North Carolina May 1940

There are two elections coming up this week that have the potential to shake up a lot of things, not least of all the global financial markets, both in their own way and for their own reasons. First of all, the May 22-25 European parliament elections, which as far as I’m concerned should simply be declared illegal in at least a few of the 28 EU member countries they’re held in. I find it unbelievable, and I even tend to find it scary, that not one respected member of the respected press has paid any attention to the story that emerged during the course of last week and that I described this way on Friday:

Europe Imitates The Fall Of The Roman Empire

First, there was a passage from Tim Geithner’s new book. Then, there was a 3-part series ‘How The Euro Was Saved’ by Peter Spiegel for the Financial Times. Together, they deliver the following storyline: EU leaders refused to let Greece have a referendum on its bail-out, and toppled PM Papandreou to kill it. Then, afraid that Italian PM Berlusconi would make good on his threat to return to the lira if they stuck to their bail-out conditions, they toppled him. What this means to Europeans is that if they elect a government for their country, and it subsequently falls out of favor with Brussels, they can expect to see it overthrown, and likely have it replaced by a technocrat handpicked by the EU leadership (as happened in Greece and Italy). Ergo: Europe is not a democracy, and pretending otherwise is foolish. Democratic elections in member states are merely empty lip service exercises, because on important topics governments of member states have no say.

In fact, the only journalist who did pick up on it was Ambrose Evans-Pritchard, also on Friday, and while I understand people’s reservations concerning Ambrose, please don’t forget this: as it became known that the EU leadership has no scruples when it comes to bringing down elected governments of member states, AEP was the only one writing for the mainstream media who brought this ultimate betrayal of European democracy, and hence of all European voters, to light.

EU Officials Plotted IMF Attack To Bring Rebellious Italy To Its Knees (AEP)

The revelations about EMU skulduggery are coming thick and fast. Tim Geithner recounts in his book Stress Test: Reflections on Financial Crises just how far the EU elites are willing to go to save the euro, even if it means toppling elected leaders and eviscerating Europe’s sovereign parliaments. The former US Treasury Secretary says that EU officials approached him in the white heat of the EMU crisis in November 2011 with a plan to overthrow Silvio Berlusconi, Italy’s elected leader. “They wanted us to refuse to back IMF loans to Italy as long as he refused to go,” he writes. Geithner told them this was unthinkable. The US could not misuse the machinery of the IMF to settle political disputes in this way. “We can’t have his blood on our hands”.

This concurs with what we knew at the time about the backroom manoeuvres, and the action in the bond markets. It is a constitutional scandal of the first order. These officials decided for themselves that the sanctity of monetary union entitled them to overrule the parliamentary process, that means justify the end. It is the definition of a monetary dictatorship. Mr Berlusconi has demanded a parliamentary inquiry. “It’s a clear violation of democratic rules and an assault on the sovereignty of our country. The plot is an extremely serious news which confirms what I’ve been saying for a long time,” he said.

This is no trifle matter, even though one may get that idea because of the deafening silence we’ve been blinded with so far on this topic. As I write, it scares me anew. In three days, elections begin for a region that holds 500 million people. But there is a tiny group, largely unelected, in Europe’s capital Brussels, that find they have the moral right to handpick their favorites and topple non-favorites who were elected in democratic elections. If it reminds me of one thing, it’s how Salvador Allende lost the power his people voted him into, and lost his life, in Chile in 1972, because the CIA and Milton Friedman’s Chicago Schoolboys wanted someone else, who would serve THEIR purpose, not that of the people. That is what happened in both Greece and Italy, and we can now prove it.

And no, there were no bombs and machine gun heli’s involved this time around, but that’s not where we should put the dividing line. A coup is a coup. And any coup in an ostensibly democratic nation is a crime that the perpetrators need to be dragged in front of a judge and jury for, if not court-martialed. Yeah, well, that sounds lovely, but not a word was said or written. I looked earlier today, and there was only one reference I could find, in the English edition of Greek paper Ekathimerini in which Evangelos Venizelos, finance minister under Papandreou, the Greek PM who was ousted under EU auspices because he wanted the Greek people to decide in a referendum whether they wanted Troika austerity or not, an event in which Venizelos did not play a clean role at all, that same Venizelos who is now leader of PASOK, the party that held power for decades but is presently scraping the voters barrel in polls for this week elections, said:

Barroso did not choose PM, says PASOK chief

“Mr Barroso did not have the main role in the discussion and the process,” said the PASOK chief. “Whoever says this does not have an understanding of the international balance of power and of the roles that EU figures have.” Venizelos also said that Papademos had not been first choice to become interim prime minister. Before he was sworn in on November 11, Parliament Speaker Filippos Petsalnikos and PASOK veteran Apostolos Kaklamanis had been suggested for the role, Venizelos claimed. However, Venizelos defended the decision not to proceed with a referendum, which eurozone leaders insisted should only be on whether Greece should remain in the euro. The PASOK leader suggested that proceeding with the vote would have led to a flight of deposits. “Did anyone want the banks to collapse the next day and the country to default?” he said.

Hmm, Evangelos. That’s how we decide these matters, is it? Maybe the question should be: did anyone want democracy? Because if they did, that was no longer an option, was it? How on earth can someone who’s the leader of a party that’s part of a democratic system, and who apparently hopes to be elected as the leader of a democratic nation, defend the toppling of his former boss in such a way? What the f**k is wrong with you? And what the f**k is wrong with all the journalists who have undoubtedly read the accounts of both the Berlusconi and the Papandreou coups, and decided not to write one single word about them while there are elections in just 3 days in which voters are fooled into thinking their vote counts for something?

Parties that are critical of the EU, if not downright against it, may win large victories in France, Holland, the UK, Finland, Norway, Italy and perhaps more countries. We’ll know by Sunday. But what will that mean? The entire mainstream storyline is HOW are we going to do Europe, not IF we’re going to do it. How fast are we going to hand over ever more powers to a cabal of career “civil servants” who have shown they are more than willing to sweep aside any actually elected politician from any of the 28 EU nations who dare stand in their way, and in the way of their dreams of what Europe should be, damn the people, and damn the democratic process?! Maybe this will give everyone a pause for thought:

Greek Selloff Shows Rush for Exit Recalling Crisis

Bondholders in Europe just got a wakeup call. After a four-month rally in euro-region debt, yields on Italian and Spanish bonds had their biggest one-day jump in almost a year last week as a selloff that started in Greece spread. With bids evaporating and prices sliding, traders poured into derivatives as they rushed to protect against losses. Italy’s and Spain’s bonds extended that slump today. [..]

The risk is that speculative traders, who bought debt on the assumption the European Central Bank would support the market, may try to flee at the same time if the outlook darkens. “You only know how wide the door to the exit is when there are a few of you trying to push through at the same time,” Michael Riddell, fund manager at M&G Group, which oversees $417 billion, said on May 16. “I don’t think liquidity has been that great in peripherals at any stage.”

Prices plunged in the wake of opinion polls suggesting the nation’s governing coalition was losing support before local-government votes and European Parliament elections on May 25. Prime Minister Antonis Samaras’s coalition partner Pasok, which dominated Greece’s politics for three decades, was ranked sixth in a poll with 5.5% as voters blamed the party for the country’s economic meltdown. The first round of local and regional elections in Greece ended yesterday with no single party winning enough support to declare a decisive victory. In Italy, Prime Minister Matteo Renzi’s party is facing its first elections since coming to power three months ago, risking a voter backlash amid a sluggish economy and a corruption scandal in Milan.

How much irony is there in thinking that the financial markets are the only hope left for European voters? Democracy is Europe is roadkill until those responsible for toppling Papandreou and Berlusconi have been thrown out, the system has been restructured to ensure no such things can happen again, and the appropriate courts have passed judgment on the guilty parties. None of those things are going to happen, the same old clique that executed the coups will start divvying up the cushy jobs come Sunday night if they haven’t already, and that can only mean one thing: the old continent is morally going going gone. And it’s not just the politicians, or whatever the proper term is for Brussels career wankers, it’s just as much an indictment of the entire world press.

I was going to cover the Ukraine elections this weekend too, but I’ll do that later in the week, Europe’s “monetary dictators” got me riled up plenty for now. And that goes for the entire press corps too. What a bunch of useless parakeets.

Over-Heating Stock Markets Raise Crash Fears (Telegraph)

Global equity markets are over-heating, the UK’s top professional investors’ body has warned, raising fears that “vulnerable” stocks are poised for a crash. The number of investors who think the world’s leading stock markets such as the S&P 500 and the FTSE 100 are overvalued has reached its highest level yet, according to a survey of professional money managers completed by the CFA Society of the UK. The survey offers a rare insight into the thinking of the investment community, which manages billions of pounds on behalf of pension funds and households. It revealed that 49pc of the 530 stocks experts now believe that developed equity markets are overvalued – signalling rising fears of a correction – up from 39pc just three months earlier.

The number of money managers that felt there were further gains to be made in stock markets fell to its lowest level reported, at just 16pc, down from 50pc at the start of last year. “With both the FTSE and S&P indices hovering around record highs, our data suggests that investors should perhaps be cautious about reaching for yield in developed market equities when investment professionals view that yield premium as vulnerable,” said Will Goodhart, CFA Society chief executive. The UK’s blue chip index soared to a 14-year high last week and markets in the US have gone into uncharted territory.

Goldman Sachs expects the S&P 500 to fall during the next three months from highs of 1,877.9 at the end of last week. “The return potential for the US market is dampened by limited room for valuation and margin expansion given the strong recovery we have seen already,” said the investment bank’s portfolio strategy team. Investors are driving share prices higher in the belief that companies listed in developed markets will benefit as the US and UK economies return to growth, said Dr Stephen Barber, political economist from London South Bank University. “Markets are discounting mechanisms and they are pricing a fairly optimistic view of growth in the both the US and the UK,” he said. “However, the markets can’t price in the fact that these views could be wrong.”

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Nasdaq, Russell 2000, all’s tumbling but Dow and S&P. Mom and Pop, check your six.

Wall of Worry Rebuilt as Nasdaq Rout Sends Cash to 2-Year High (Bloomberg)

Investors are losing their nerve in the stock market amid selling that has sent some industries down the most since 2008. In the past, that’s been a signal to buy. Global money managers raised cash holdings to a two-year high this month and say America is the worst place to invest, a Bank of America Corp. survey published last week shows. Investors have pulled about $10 billion from funds that buy U.S. equity this month, set for the biggest outflows since August, according to data compiled by Bloomberg and the Investment Company Institute.

After embracing stocks last year for the first time since the bull market began, individuals are showing signs of reverting to the skepticism that led them to pull more than $400 billion from mutual funds from 2009 through 2012. While hedge fund manager David Tepper says caution is appropriate now, others consider the lack of exuberance a healthy sign that sets the stage for more gains. “Walls of worry are everywhere,” Robert Doll, who helps oversee $118 billion as chief equity strategist at Nuveen Asset Management in Chicago, told Tom Keene and Michael McKee on Bloomberg Radio’s “Surveillance” on May 14. “This is the least believed bull market that I’ve ever seen. From here it’s earnings, it’s fundamentals, it’s can the economy grow? And my guess is the answer to that question is yes.”

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Ouch! Didn’t see this one coming, did you?

Highway Trust Fund: The Next Big American Economic Crisis (BI)

On Wednesday, President Barack Obama gave his first formal warning about this impending self-inflicted disaster — the Highway Trust Fund, a transportation and infrastructure fund financed by gasoline taxes, is set to run out by the end of the summer. Thus far, Congress has not come up with a solution, and both sides are beginning to dig in. By July, thousands of projects and contracts could be put on hold amid the uncertainty — right in the middle of summer construction season. In one economic analysis released last week, the Obama administration warned 700,000 jobs tied to the fund and its uncertain future are at stake. “Right now, there are more than 100,000 active projects paving roads and rebuilding bridges, modernizing our transit systems,” Obama said Wednesday in remarks near the Tappan Zee Bridge in Tarrytown, New York, where a $3.9 billion effort to replace the current aging structure is underway.

“States might have to choose which ones to put the brake on. Some states are already starting to slow down work because they’re worried Congress won’t untangle the gridlock on time. And that’s something you should remember every time you see a story about a construction project stopped, or machines idled, or workers laid off their jobs.” The fundamental problem is that gasoline taxes alone are no longer enough to finance the Highway Trust Fund, due to declining fuel use across the U.S. However, neither the White House nor Congress wants to raise those taxes, and there is a disagreement about how to fill the fund without them. Simply put, spending on transportation and infrastructure now exceeds gas taxes taken in. During recent testimony before the Senate Finance Committee, Joseph Kile, the assistant director for microeconomic studies at the congressional budget office, laid out two politically painful potential solutions — either cut spending in the fund’s two accounts by 30% and 65%, or raise the gas tax by 10 to 15 cents per gallon.

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Good research project. Pity the NYT reports on it.

House of Debt: The Case Against the Financial Rescue (NY Times)

Atif Mian and Amir Sufi are convinced that the Great Recession could have been just another ordinary, lowercase recession if the federal government had acted more aggressively to help homeowners by reducing mortgage debts. The two men — economics professors who are part of a new generation of scholars whose work relies on enormous data sets — argue in a new book, “House of Debt,” out this month, that the government misunderstood the deepest recession since the 1930s. They are particularly critical of Timothy Geithner, the former Treasury secretary, and Ben Bernanke, the former Federal Reserve chairman, for focusing on preserving the financial system without addressing what the authors regard as the underlying and more important problem of excessive household debt. They say the recovery remains painfully sluggish as a result.

At stake in their debate with Mr. Geithner, whose own account of the crisis was published last week – in a book called “Stress Test” – is not just the judgment of history but also the question of how best to prevent crises. “Our point is very simple,” said Mr. Mian, a professor at Princeton. “Bernanke won. We did save the banks. And yet the United States and Europe both went through terrible downturns.” The focus on preserving banks, he said, “was an insufficient mantra.”Mr. Sufi, at the University of Chicago, said in a separate interview that he was baffled by claims that the government’s efforts were successful. “If you actually look at the argument that people like Mr. Geithner make, they almost always point to financial metrics like risk spreads and interest rates,” he said. “But if you look at the real economy, it just tends to come out in our favor.” Millions of Americans remain unemployed almost five years after the formal end of the recession.

Christina Romer, who led President Obama’s Council of Economic Advisers during the recession, said the research by Mr. Mian and Mr. Sufi had convinced her that she and other administration officials underestimated the importance of helping homeowners. But she said Mr. Mian and Mr. Sufi, in turn, had underestimated both the economic impact of the financial crisis and the effectiveness of the government’s response.

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“123% of almost nothing isn’t much. ”

And They Call This A Recovery? (Lee Adler)

By now you have heard about Friday’s blockbuster housing starts numbers that blew out conomists’ expectations. Here’s the actual, not seasonally adjusted data. Total starts in April came in at 94,900. That was the strongest April performance since the top of the housing bubble. April starts have risen 123% from the April 2009 low. That sounds impressive, but 123% of almost nothing isn’t much. Percentages don’t mean much in this market. The whole numbers are more illustrative. Total starts have soared by that percentage because an abominable total of only 42,500 units were built in April 2009. Compare that with the nearly 185,000 units built in April 2005 at the peak of the housing bubble. The current level of starts is just over half that number.

The gain in single family starts was less robust, hitting 60,100. That was 8.7% better than last April’s 55,300 units and it’s up a booming 72% from the 2009 low. But that’s only an increase of 25,000 from the tiny number of starts in April 2009, 35,000. Compare the current number with April 2006 when 135,000 units were started. So is the housing market really booming? It’s all a matter of perspective. Total starts are still down 49% from the April 2005 level. Single family starts are still down a whopping 60% from the extremes of the bubble in April 2005 (when I put my house up for auction and successfully sold it in 2 weeks). And the “recovery,” such as it is, may be about to run into real trouble. It’s about supply and demand. They have been growing in tandem, but not this month. In March single family sales fell, but starts rose sharply in both March and April. The divergence creates a record oversupply in the single family market.

The last time sales fell while starts were still rising was in 1986, at the onset of a six year housing recession that few recall because the more recent one was so much worse. But those of us who were working in the housing industry then certainly remember it. It was a disaster. Homebuilders were dropping like flies as sales dried up and prices fell. Maybe the March sales downtick was an aberration due to the weather, as many have claimed. [..] If the March decline was not an aberration and sales do not rebound, the housing industry could be ready to tank again. Not that it ever recovered. New home sales and starts are still approximately 30% below where they were at the bottom of the 1986-92 housing recession. And they call this recovery?

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America’s Homeless: The Rise Of Tent City, USA (CNN)

Homeless encampments known as “tent cities” are popping up across the country. Formed as an alternative to shelters and street-living, these makeshift communities are often set up off of highways, under bridges and in the woods. Some have “mayors” who determine the rules of the camp and who can and can’t join, others are a free-for-all. Some are overflowing with trash, old food, human waste and drug paraphernalia, others are relatively clean and drug-free. The National Law Center on Homelessness & Poverty documented media accounts of tent cities between 2008 and 2013, and estimated that there are more than 100 tent communities in the United States – and it says the encampments are on the rise.

“[T]here have been increasing reports of homeless encampments emerging in communities across the country, primarily in urban and suburban areas and spanning states as diverse as Hawaii, Alaska, California, and Connecticut,” the organization’s study states. Tent cities are most common in areas where shelter space is scarce or housing unaffordable. Yet, many people say they choose to live in a tent even when shelter is an option. And they do so for one big reason: freedom. Shelters typically have strict rules: many require guests to check in and out at certain times that can conflict with work schedules and they often don’t allow couples to stay together. Drug and alcohol use is also prohibited, and some people don’t qualify for the subsidies they need to stay in a shelter because of a prior jail time (for certain crimes), or other reasons. “Shelter is one step away from jail,” said Dave, who lived in a tent city in Camden, N.J., that CNNMoney visited.

The NLCHP found that of the more than 100 camps, only eight were actually considered legal. Ten tent cities weren’t officially recognized, but the city or county wasn’t doing anything to get rid of them. The vast majority of encampments, however, have been shut down and occupants have been evicted. One of the most recent evictions took place in Camden, N.J., this week, when the state, county and city joined forces to shut down multiple tent cities and kick out the residents. While the county worked with the occupants to find them somewhere to go, Camden’s shelters were already full and many people ended up on the streets Instead of evicting people from tent cities, the NLCHP says the root of the issue – unaffordable housing – needs to be addressed.

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The bad loan percentage must be beyond comprehension.

Nomura Warns Of Chinese Post-Bubble Bad Loans (MarketWatch)

Nomura argues — in a new report — there are now many similarities between China’s property market today and Japan’s two decades ago. The obvious parallel is the scale of the property boom. Both Japan and China let property lending race ahead of GDP growth and experienced overheating economic activity, coupled with aggressive bank lending. But perhaps the most important similarity between these two property markets is behavioral: an institutional failure to publicly face up to an ugly bad-loan situation as the market reversed. In Japan’s case, a weak regulatory regime and lax accounting meant there was an unwillingness to impose discipline, and no financial institutions were forced into bankruptcy.

Although direct lending to real estate at the time was less than 20% of the nation’s total loan portfolio, over the next decade Japan’s banks eventually wrote off a cumulative 25% of all outstanding loans, according to Nomura estimates. This period gave rise to Japan’s “zombie banks,” which took much of the blame for the country’s infamous “lost decade” of growth. Likewise in China today, there is widespread skepticism that Chinese banks are revealing anything close to a true picture of their non-performing loans. Between loans regularly rolled over, murky lending to well-connected state-owned entities and the explosion in shadow banking, it all contributes to a similarly opaque environment. Recognizing bad debts effectively becomes a political compromise. Nomura estimates half of Chinese banks’ loans books include some sort of property collateral.

Another similarity they highlight is the levels of hubris. Back then, Japan was the “next big thing” in the global economy — the world’s largest creditor nation, collecting accolades for everything from its economic performance to its corporate management ethos. China meanwhile has been told it is only a matter of time before it overtakes the U.S. to become the world’s largest economy, and it could even one day see the yuan usurp the greenback as the world’s reserve currency. Perhaps then, we shouldn’t worry about ghost cities of uninhabited investment properties, since they will eventually fill up, and all those problematic loans will take care of themselves. The worst Beijing appears to countenance is that GDP growth will slow to 7%.

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Tick tick tick goes da bomb.

China Home Price Growth Slows In More Cities Even As Curbs Ease (Bloomberg)

China’s new-home prices rose in April in the fewest cities in a year and a half as developers offered discounts and the economy slowed, prompting the easing of property curbs in some places. Prices last month climbed in 44 of the 70 cities tracked by the government compared with 56 in March. That was the fewest metropolitan areas with price gains since October 2012 when increases were recorded in only 35 on a monthly basis. After four years of government restrictions to cool the housing market, home sales and property construction are sliding and have become a drag on the country’s economy, which recorded its slowest growth in six quarters in the first three months of the year. The central bank on May 13 called on the biggest lenders to accelerate the granting of mortgages as developers including China Vanke Co. and Greentown China Holdings Ltd. cut property prices to lure homebuyers.

“China’s property market is on a very dangerous brink,” Xu Gao, Beijing-based chief economist at Everbright Securities Co., who formerly worked at the World Bank, said in a phone interview yesterday. “Concerns about the slowing market led to weakening prices and sales, which turned into a vicious circle.” Home-price growth moderated both in first-tier and less affluent cities. Prices in Beijing rose 0.1% from March, the National Bureau of Statistics said in a statement yesterday, the slowest since September 2012, while Shanghai prices increased 0.3%, the smallest gain since November 2012. The eastern city of Hangzhou had the largest decline in April among cities tracked, with prices falling 0.7% from a month earlier.

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Hmm. China has no strategic reserve. So-so story by Ambrose.

China Steps Up Speed Of Oil Stockpiling As Tensions Mount In Asia (AEP)

China is stockpiling oil for its strategic petroleum reserve at a record pace, intervening on a scale large enough to send a powerful pulse through the world crude market. The move comes as tensions mount in the South China Sea, and the West prepares possible oil sanctions against Russia over the crisis in Eastern Ukraine. Analysts believe China is quietly building up buffers against a possible spike in oil prices or disruptions in supply. The International Energy Agency (IEA) said in its latest monthly report that China imported 6.81m barrels a day in April, an all-time high. This is raising eyebrows since China’s economy has been slowing for months, with slump conditions in the steel industry and a sharp downturn in new construction.

The agency estimates that 1.4m b/d was funnelled into China’s fast-expanding network of storage facilities, deeming it “an unprecedented build”. Shipments were heavily concentrated at Chinese ports nearest the new reserve basins at Tianjin and Huangdao. “We think this is a big deal,” said one official. China accounts for 40% of all growth in world oil demand, so any serious boost to its strategic reserves tightens the global supply almost instantly and pushes up the spot price. Michael Lewis, head of commodities at Deutsche Bank, said Chinese officials at Beijing’s Strategic Reserve Bureau are playing the oil market tactically, or “buying the dips” in trader parlance. They add to stocks whenever Brent crude prices fall to key support lines, as occurred earlier this Spring. This is currently around $105.

“It’s is very similar to what they have been doing with copper. Whenever it drops below $7,000 (a tonne), they see it as a buying opportunity. They do the same with agricultural commodities,” he said. China is putting a floor of sorts underneath the global oil market, calling into question predictions by the big oil trading banks that prices will deflate this year as more crude comes on stream from Libya, Iraq, and Iran, and as the US keeps adding supply shale. The strategic buying could go on for a long time since China is rapidly expanding its reserve capacity from 160m barrels to 500m by 2020, with sites scattered across the country. [..] China has stocks to cover 46 days of imports compared to 209 for the US, based on estimates from last year. India is acutely vulnerable to any disruption with just 12 days cover. The minimum safe threshold for OECD states is deemed to be 90 days.

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The pipeline’s not there yet. Who’ll fork over the $30 billion or so?

Gazprom To Sign Monumental Gas Deal With China (RT)

Gazprom, Russia’s largest natural gas producer, and China National Petroleum Corporation (CNPC) are set to sign a gas deal that will send 38 billion cubic meters of natural gas a year eastward to China s burgeoning economy, starting in 2018. The timing is almost flawless as Russia is looking to shield itself from Western sanctions by pivoting towards Asia, and China desperately needs to switch from dirty coal to more environmentally friendly natural gas. The arrangements on export of Russian natural gas to China have nearly been finalized. Their implementation will help Russia to diversify pipeline routes for natural gas supply, and our Chinese partners to alleviate the concerns related to energy deficit and environmental security through the use of clean fuel, President Vladimir Putin said.

The deal has been on the table for over 10 years, as Moscow and Beijing have negotiated back and forth over price, the gas pipeline route, and possible Chinese stakes in Russian projects. The gas price is expected to be agreed at between $350-400 per thousand cubic meters. Of course Russia wants to sell gas and resources at the highest possible prices. But because of the sanctions from European partners, we need to find a partner that can buy our gas long-term, which is why at the moment China looks very attractive to us, Aleksandr Prosviryakov, a partner at Lakeshore International, a Moscow-based asset management firm, told RT at a Confederation of Asia Pacific Chambers of Commerce and Industry (CACCI) in Moscow ahead of the big meeting on Tuesday.

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Nervous friends.

Russia-China Ties At Highest Level In History – Putin (RT)

Transcript of Vladimir Putin’s interview with Chinese Central Television, Xinhua news agency, China News Service, The People’s Daily, China Radio International, and Phoenix Television.

Q: China is consistently making progress towards the “Chinese dream”, i.e. a great national rebirth. Russia has also set a goal of restoring a powerful state. How, in your opinion, could our countries interact and help each other in fulfilling these tasks? What areas can be prioritised in this regard?

VP: Promotion of friendly and good-neighbourly partnership relations is fully consistent with the interests of both Russia and China. We do not have any political issues left which could impede the enhancement of our comprehensive cooperation. Through joint efforts, we have established a truly exemplary collaboration, which should become a model for major world powers. It is based on respect for the fundamental interests of each other and efficient work for the benefit of the peoples of our two countries. Russia and China successfully cooperate in the international arena and closely coordinate their steps to address international challenges and crises. Our positions on the main global and regional issues are similar or even identical.

It is encouraging that both sides are willing to further deepen their cooperation. Both Moscow and Beijing are well aware that our countries have not exhausted their potentials. We have a way to go. The priority areas of collaboration at the current stage include the expansion of economic ties and cooperation in science and high-technology sector. Such pooling of capacities is very helpful in fulfilling the tasks of domestic development of our countries.

Q: Cooperation between China and Russia has been steadily increasing, but uncertainties in global economy persist. The emerging markets are faced with new challenges and slowdown of economic growth. How can our two countries help each other to counter these challenges? How can we ensure steady increase of mutual trade and reciprocal investments?

VP: In the context of turbulent global economy, the strengthening of mutually beneficial trade and economic ties, as well as the increase of investment flows between Russia and China are of paramount importance. This is not just a crucial element of socioeconomic development of our countries, but a contribution to the efforts aimed at stabilising the entire global market. Today, Russia firmly places China at the top of its foreign trade partners. In 2013, the volume of bilateral trade was close to $90 billion, which is far from being the limit. We will try to increase trade turnover to $100 billion by 2015 and up to $200 billion by 2020.

Our countries successfully cooperate in the energy sector. We steadily move towards the establishment of a strategic energy alliance. A large scale project worth over $60 billion is underway to supply China with crude oil via the Skovorodino-Mohe pipeline. The arrangements on export of Russian natural gas to China have been nearly finalised. Their implementation will help Russia to diversify pipeline routes for natural gas supply, and our Chinese partners to alleviate the concerns related to energy deficit and environmental security through the use of “clean” fuel.

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This was clear 10 years ago.

‘F-35 Joint Strike Fighter A $400 Billion Boondoggle’ (Telegraph)

Britain’s long-delayed £70 million stealth fighter may need to be cancelled because of its poor performance, according to an analysis by a senior American air force officer. The F-35 Joint Strike Fighter being built for British and US forces is based on outdated ideas of air warfare, it is claimed. The aircraft could be unable to evade enemy radar and be too expensive for long campaigns. The critique in the US Air Force’s own journal concludes that the new fighter may even have “substantially less performance” than some existing aircraft. Britain is preparing to buy at least 48 of the Lockheed Martin aircraft to replace its scrapped Harrier jump jets; the US military is expected to order more than 2,400. The £235 billion programme is the most expensive weapons system in history at a time when defence budgets on both sides of the Atlantic are being cut.

The analysis in the Air and Space Power Journal states: “Even if funding were unlimited, reasons might still exist for terminating the F-35. “Specifically, its performance has not met initial requirements, its payload is low, its range is short, and espionage efforts by the People’s Republic of China may have compromised the aircraft long in advance of its introduction.” Advances in Russian and Chinese radar defences mean it is not clear the stealth technology will still work, the analysis warns. “These facts make the risk calculation involved with prioritizing stealth over performance, range, and weapons load out inherently suspect – and the F-35 might well be the first modern fighter to have substantially less performance than its predecessors.” The author, Col Michael Pietrucha, suggests the F-35 programme should be put on hold and the US Air Force should instead look at a mix of fighters for the future.

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“A breakdown suggested fears of a nation-wide housing bubble are misplaced … “ Geez kiddo’s, really?

Average UK House Prices Jump $15,000 In Five Weeks (Telegraph)

The price of an average home increased by nearly £10,000 between April and May, the biggest month-on-month cash increase ever recorded. Figures from Rightmove, the property website, showed house prices jumped by nine% over the past year, pushing up the value of an average home to record levels. The news came as the Bank of England said that people could be stopped taking out mortgages worth many times their salary to buy new homes to cool the market. Asking prices for homes in England and Wales increased by 3.6% or £9,409 – outstripping the previous record of £8,310 in October 2012 – between April 6 and May 10. The increase – the biggest since Rightmove started to collect house price information in 2001 – in the figures means that this month the average property is on sale at a new record high of £272,003.

A breakdown suggested fears of a nation-wide housing bubble are misplaced, with London leading the way with a 16.3% year-on-year increase, compared with a more modest 4.9% in the rest of the country. The average asking price in the city is up by nearly £80,000 so far in 2014, or £4,405 a week, compared with £1,521 a week for the rest of the country. The figures emerged after Mark Carney, the Bank of England’s Governor, said he was considering capping the size of mortgage ratios to salaries to control the market. The Bank was also watching to see if the Government’s Help to Buy scheme – in which the Government gives people taxpayers’ money to cover deposits on homes worth up to £600,000 – was fuelling the increase.

In March the Bank warned that mortgages larger than four times borrowers’ incomes accounted for the highest share of new home since 2005. Mr Carney suggested that the Bank could impose a new “affordability test” for borrowers as well as reining in Help to Buy. He told Sky News’ Murnaghan programme: “We could do more, we could take steps around affordability to test whether or not individuals can test mortgages at much higher interest rates. “We could limit amounts of certain types of mortgages that banks could undertake, we could provide advice – the Chancellor has asked us if we would provide advice on changing the terms of Help to Buy – all those things are possibilities and we will consider them all.”

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Now you know where QE is going. Not you.

10 Biggest Banks’ Commodities Revenue Rises 26% (Bloomberg)

Commodities revenue at the 10 largest investment banks rose to a two-year high in the first quarter even as companies from JPMorgan to Barclays shrank operations, according to analytics company Coalition Ltd. Raw-materials revenue at Goldman Sachs, Morgan Stanley (and the other companies making up the top 10 banks jumped 26% to $1.8 billion, the highest since the first three months of 2012, Coalition said in a report today. Only commodities showed growth as revenues in other areas from rates to emerging markets declined, the report showed. “The cold winter in North America created volatility and had a positive impact on U.S. power and gas revenues,” London-based Coalition said. “Additionally, investor product performance recovered from a very low base as client activity levels showed some improvement.”

The banks’ employees in commodities declined 9% from last year to 2,098 people, Coalition estimated. Barclays said last month it plans to withdraw from most of its global raw-materials activities, and Deutsche Bank and Bank of America are pulling back as well. JPMorgan and Morgan Stanley are selling units. Goldman Sachs said last month its revenues from commodities were “significantly higher” in the first quarter and Morgan Stanley reported a “strong” performance. Natural gas futures traded in New York touched a five-year high in February amid freezing weather in the U.S. [..] Commodities revenue at the 10 largest banks fell 18% last year amid reduced volatility, Coalition said in February. The Standard & Poor’s GSCI gauge of 24 raw materials had its first drop in five years in 2013 as gold fell the most since 1981 and corn, arabica coffee and wheat slid at least 20%. The GSCI index rose 3.4% so far this year.

Politicians and regulators have pressed banks to cut back their commodities activities. The Federal Reserve has said it’s considering new limits on trading and warehousing of physical commodities. Policy makers are seeking comment on ways to restrict ownership and trading of commodities such as oil, gas and aluminum by deposit-taking banks. New global capital rules also increased the cost to banks of holding commodities. Morgan Stanley still expects to complete the sale of a physical oil business to OAO Rosneft amid U.S. sanctions of Russian leaders, Porat said April 17. JPMorgan agreed in March to sell its physical commodities business to Mercuria Energy Group Ltd. for $3.5 billion. Deutsche Bank is cutting about 200 raw-materials jobs after deciding last year to exit dedicated energy, agriculture, dry-bulk and industrial-metals trading. Bank of America said in January it would dispose of its European power and gas inventory as opportunities shrink and increasing regulation curbs trading.

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EU’s Voters Will Do Little To End The Crisis (Guardian)

Europe goes to the polls this week and the mood is sour. It is sour among voters and it is sour in the markets, where the sell-off at the end of last week was prompted by fears that the election results would open a new chapter in the eurozone crisis. That looks all too likely. Despite all the bullish talk in recent months, the problems of the eurozone have not gone away. The single currency’s weaker members, such as Greece, Spain and Italy, found it easier for a while to sell their bonds at lower interest rates. But that was largely due to the generosity of the Federal Reserve, which flooded the global economy with dollars through its quantitative easing programme.

The QE injection was a godsend to the eurozone, which has so far – but perhaps not for much longer – scorned the idea of turning on the electronic printing presses. US dollars found their way through the global financial system into European bond markets, and this allowed Mario Draghi, the president of the European Central Bank (ECB), to say he would do whatever it took to save the euro, without actually having to back his words with action. This new version of the postwar Marshall plan bought the eurozone some time. What it didn’t do, however, was change the core economic problem of the eurozone’s weak periphery. They are not growing nearly fast enough to prevent their debts becoming more onerous. Generalised austerity has made matters worse, as has the ECB’s lack of sufficient offsetting action.

Unemployment is high and voters are sick of austerity. It would be a mistake though to imagine that much, or indeed anything, will change as a result of the elections to the European parliament. There will be a lot of talk about how Europe needs to deliver for its people, and that will be it. Mainstream parties with their mainstream thinking will still be in charge and life will go on as before. As a result, Europe will condemn itself to an even longer period of economic stagnation, mass unemployment and austerity. Extremism will flourish. There is an alternative to this depressing scenario. Admit that it was a mistake of historic proportions to use the euro as a way of advancing the cause of ever closer union. Accept that and it is possible to avoid Europe becoming the new Japan.

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Greek Government At Risk From EU Elections (Ekathimerini)

Prime Minister Antonis Samaras has convinced investors to buy the story of Greece’s recovery. Now he has to persuade voters. The premier heads into elections for the European Parliament on May 25 on the back of the Greece’s first bond auction in four years and with the economy poised to return to growth later this year. With more than half the country’s youth still without work, polls suggest voters aren’t ready to credit Samaras for the changes just yet. “The euro crisis seems to be over but its causes have not withered away,” said former Prime Minister Costas Simitis of PASOK, the socialist party that dominated Greek politics for three decades. “High unemployment and uncertainty fuel euro-skepticism, while member-states become increasingly reluctant to cede more power to European institutions,” he added, in a written response to questions.

Four years and three prime ministers after Greece’s then premier, George Papandreou, requested an international bailout in return for budget cuts and an economic overhaul that cost him his job, political instability still haunts Greece. That threatens to undo the coalition led by Samaras’s New Democracy and unravel the fragile progress toward stability he has achieved. While New Democracy trails SYRIZA, the opposition group that rejected the terms of the bailout packages, the bigger threat to the government may be the collapse in support for Samaras’s coalition partner PASOK. Papandreou’s PASOK, which dominated Greek politics for three decades, plunged to sixth place with just 5.5 percent of the vote in a recent poll as voters blame the party for the country’s economic meltdown.

Samaras’s governing coalition has 152 lawmakers in the country’s 300-seat legislature. The prospect of the 27 PASOK lawmakers withdrawing their support could deter the foreign investors helping to fuel the recovery, according to Megan Greene, chief economist at Maverick Intelligence and a columnist with Bloomberg View. “If there were snap elections and investors were spooked by the prospect of SYRIZA being the negotiator for Greece, it could really hurt the Greek recovery because it’s so fragile,” she said in a telephone interview.

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The ones who already make more than $25 voted it down for the rest. It’s called democracy.

Swiss Reject World’s Highest Minimum Wage of $25 Per Hour (Bloomberg)

Swiss voters rejected the world’s highest national minimum wage, striking down a proposal for an hourly rate of 22 francs ($25). The initiative was opposed by 76.3% of voters, the government in Bern said yesterday. Polls, including one by gfs.bern, forecast that outcome. “It’s a strong sign to Switzerland as a center of employment,” Economy Minister Johann Schneider-Ammann said at a news conference in Bern. “Accepting the initiative would have led to job cuts in economically weak, rural areas.” With income inequality growing among developed economies, minimum wages are on the table in other countries as well.

In the U.K., Prime Minister David Cameron has increased it to £6.5 ($10.9) per hour, while in the U.S., President Barack Obama is pushing for an increase in the $7.25-an-hour federal minimum to $10.1. In Germany, Chancellor Angela Merkel’s cabinet backed a national minimum of €8.50. Rejection of the Swiss measure, which called for a full-time worker to be paid at least 4,000 francs a month, breaks with a series of plebiscites — including ones on excessive executive compensation and immigration — that companies said make Switzerland a less desirable place to do business. “People are again saying they don’t want the state to meddle,” Swiss trade association director Hans-Ulrich Bigler said. “It’s a vote of confidence by the people in the economy.”

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Higher and higher.

Record High Radiation In Seawater Off Fukushima Plant (Japan Times)

Radiation has spiked to all-time highs at five monitoring points in waters adjacent to the crippled Fukushima No. 1 power station, plant operator Tokyo Electric Power Co. said Friday. The measurements follow similar highs detected in groundwater at the plant. Officials of Tepco, as the utility is known, said the cause of the seawater spike is unknown.Three of the monitoring sites are inside the wrecked plant’s adjacent port, which ships once used to supply it. At one sampling point in the port, between the water intakes for the No. 2 and No. 3 reactors, 1,900 becquerels per liter of tritium was detected Monday, up from a previous high of 1,400 becquerels measured on April 14, Tepco said.

Nearby, also within the port, tritium levels were found to have spiked to 1,400 becquerels, from a previous high of 1,200 becquerels. And at a point between the water intakes for the No. 1 and No. 2 reactors, seawater sampled Thursday was found to contain 840 becquerels of strontium-90, which causes bone cancer, and other beta ray-emitting isotopes, up from a previous record of 540 becquerels. At two monitoring sites outside the port, seawater was found Monday to contain 8.7 becquerels and 4.3 becquerels of tritium. The second site was about 3 km away.

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