May 022018
 


Brassaï The Sun King 1930

 

There’s a New Curve in Town and It’s Flashing Red (BBG)
Trump Says Kim Summit Details To Be Unveiled Within Days (AFP)
Apple Delivers Best-Ever Second Quarter Despite Sales Worries (G.)
More Evidence Emerges That Apple Is Killing iPhone X – Analyst (CNBC)
Nissan Shocks With 28% Sales Plunge (BBG)
The Biggest Player in the History of the World (Alistair Crooke)
Debt Is The Great Threat To China’s Development (Michael Hudson)
China’s Petro-Yuan Isn’t Dislodging the Dollar Yet (Barron’s)
China Weakens Its Currency Before US Trade Talks Begin (BBG)
Europeans Cast Doubt On Israel’s Claims About Iran Nuclear Breaches (G.)
Inside Theresa May’s Brexit War Cabinet, Tory Battles Rage (BBG)
UK Home Office ‘Mistakenly Deported 7,000 Foreign Students’ (Ind.)
Theresa May Vetoed Cabinet Pleas Over Visas For NHS Doctors (St.)
OECD Calls For Even Tighter Greek Fiscal Policy To Bolster Growth (K.)
Greece’s Debt Deal To Show How Europe Treats Its Less Fortunate Nations (CNBC)
Facebook’s Dating App Finally Makes Privacy Invasion Sexy (G.)
More Than 90% Of Air Pollution Deaths Occur In Poorer Countries (Ind.)

 

 

The trouble is in corporate bonds.

There’s a New Curve in Town and It’s Flashing Red (BBG)

The private sector may hold the real clues to recession risk. While the flattening U.S. yield curve – the difference between short- and longer-dated Treasuries – has been closely-watched as a potential indicator of a looming contraction, investors might do better to watch a measure of the cost of private credit, according to Charles Gave of Gavekal Capital. An inverted yield curve is thought to signal the “market rate of interest,” (shorter-term rates) exceeding the “natural rate of interest” (longer government rates), but may not be a good proxy for economic activity given that the government can always borrow, Gave said.

Instead, he suggests looking at the corporate credit market. Here, the U.S. economy’s natural rate could be represented by the yield of a longer-dated, seasoned industrial bond rated Baa by Moody’s, and the market rate by the prime lending rate charged by U.S. banks. “The private sector yield curve reading stands at zero, or right on the threshold where trouble can be expected to begin,” Gave wrote in a note published on Tuesday. “Should this spread move into negative territory, I would expect a financial accident to occur outside of the U.S., a U.S. recession, or possibly both.” Either a U.S. recession has taken place within a year of the private sector yield curve inverting, or a “financial accident” has occurred in other economies with currency links to the greenback, according to Gave’s data.

Prime rates below the natural rate of corporate credit have allowed banks to generate “artificial” money, kept “zombie” companies alive, and enabled other corporates to engage in “financial engineering” predicated on cheap borrowing costs that risk toppling over if the curve inverts, Gave said.

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Trump wants to meet in the DMZ. Reportedly, White House officials want Singapore or Mongolia.

Trump Says Kim Summit Details To Be Unveiled Within Days (AFP)

US President Donald Trump seemed pleased Tuesday by a suggestion he should get the Nobel Peace Prize for his upcoming summit with North Korean leader Kim Jong Un, promising that a time and place for the historic meeting will soon be announced. “Nobel Peace Prize? I think President Moon was very nice when he suggested it,” Trump said, referring to South Korean President Moon Jae-in. “The main thing, I want to get peace. It was a big problem and I think it’s going to work out well,” he told reporters in the Oval Office. Trump has proposed holding the summit at the truce village in the Demilitarized Zone separating the two Koreas, adding that two or three locations were under consideration.

“We’re setting up meetings right now and I think it’s probably going to be announced over the next couple of days, location and date,” Trump said. The summit, which has come together rapidly after months of tense saber-rattling over the North’s nuclear and missile programs, would be the first ever between a US president and a leader of North Korea. On Monday, Moon had demurred when asked about the prospect of winning the Nobel Peace Prize, suggesting Trump should get it instead. “President Trump can take the Nobel prize. All we need to take is peace,” he said. Trump said it was “very generous of President Moon of South Korea to make that statement and I appreciate it but the main thing is to get it done.” “I want to get it done,” he added.

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Apple has become a capital allocation venture.

Apple Delivers Best-Ever Second Quarter Despite Sales Worries (G.)

Apple on Tuesday shook off worries that its $1,000 iPhone had failed to live up to the hype – but sales of the world’s most valuable company’s most valuable product are slowing, and Apple has announced a plan to buy its way out of trouble. Releasing its latest quarterly report, Apple announced it had sold 52.2m iPhones in the quarter ending 31 March, at an average price of $728.54. Sales were up 3% compared to last year and slightly lower than analysts had expected, but numbers beat the gloomiest forecasts and were enough to deliver Apple its best second quarter ever, with revenues of over $61bn. That beat the record of $58bn set in 2015.

“We’re thrilled to report our best March quarter ever, with strong revenue growth in iPhone, services and wearables,” said Tim Cook, Apple’s chief executive officer. “We are very bullish on Apple’s future,” Cook told analysts after the news broke. Apple sold 9.11m iPads and 4.08m Macs over the quarter. Analysts had worried that the high-priced iPhone X would dent sales. The results came after Apple suppliers including AMS and Taiwan Semiconductors have reported slowing revenues in a sign seen by analysts as proof of shaky demand for iPhone X.

The company announced it would be adding $100bn to its stock buyback programme, plus a 16% increase in its quarterly dividend. Taking advantage of the Trump administration’s new tax laws, Apple is in the process of repatriating the majority of the $252bn in profits it currently holds overseas. The buyback helped Apple’s shares rise over 5% in after-hours trading. The company’s stock has risen by about 80% in the past two years, setting it on course to battle Amazon to become the first company to be valued at $1tn. But Apple’s share price has stumbled recently as fears about slowing iPhone sales took their toll.

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These reports about the ‘second tier’ just won’t stop.

More Evidence Emerges That Apple Is Killing iPhone X – Analyst (CNBC)

More earnings reports from companies linked to Apple have resulted in further evidence that the technology giant could be winding down or stopping production of the iPhone X. Nasdaq-listed Cognex is the latest company to provide clues that Apple may be going down this path. It reported first quarter earnings on Monday that were up 22% year-on-year, a slowdown from the 40% growth seen in the first quarter of 2017. On top of that, guidance for second quarter revenue of between $200 million and $210 million was below Wall Street expectations, according to Neil Campling, co-head of the global thematic group at Mirabaud Securities.

Cognex sells technology that assists factories that assemble the iPhone. Apple’s supply chain relies on this technology to get the OLED screen on the iPhone X fitted perfectly. Campling told CNBC on Tuesday that Apple accounts for about 20% of Cognex revenues, so the slowdown can be attributed to Apple killing off the iPhone X. “Cognex results provide further evidence that the smartphone cycle has turned south, the OLED overcapacity bites and Apple’s iPhone X is over,” Campling wrote in a note Tuesday. “If Apple is stepping back from the iPhone X production cycle, then Cognex is lead indicator of when that is taking place,” the analyst said in a follow-up phone call with CNBC.

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Remember Japanese cars?

Nissan Shocks With 28% Sales Plunge (BBG)

Nissan’s U.S. sales plunged last month, shocking some analysts and dragging on what was otherwise a strong April for auto demand. The Japanese automaker’s deliveries declined 28% in April, with almost every model in the Nissan and Infiniti lineups falling. Nissan shares fell as much as 1.8% in Tokyo trading Wednesday. While Ford and Fiat Chrysler beat analysts’ estimates, their shares reversed gains after Nissan’s report. “Our eyes are bugging out here,” Michelle Krebs, senior analyst for researcher Autotrader, said of the Nissan’s numbers. “They’ve been very heavy with rental-car sales and rich incentives. It looks like they’re pulling back.”

Automakers were going to have a difficult time reporting sales gains in April due to a quirk of the calendar. There were two fewer selling days – which excludes Sundays and holidays – last month than a year ago. So while almost all major carmakers posted declining deliveries, as analysts expected, the annualized sales rate accelerated to 17.1 million, according to researcher Autodata. Calculating the annualized sales pace, which topped last April’s 17 million, is becoming more difficult. General Motors announced last month that it would report U.S. sales only on a quarterly basis, complicating efforts to gauge the health of the world’s most lucrative auto market.

Sales of the Altima sedan, usually Nissan’s top car, dropped by almost half compared with a year ago. And the company’s leading sport utility vehicle, the Rogue, dropped 15%. While deliveries to both retail and fleet customers declined, the automaker expects that its results will improve when the new Kicks crossover and redesigned Altima reach dealers, spokesman Chris Keeffe said.

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Perhaps.

The Biggest Player in the History of the World (Alistair Crooke)

Xi Jinping lies at the apex of the Chinese political system. His influence now permeates at every level. He is the most powerful leader since Chairman Mao. Kevin Rudd (former PM of Australia and longtime student of China) notes, “none of this is for the faint-hearted … Xi has grown up in Chinese party politics as conducted at the highest levels. Through his father, Xi Zhongxun … he has been through a “masterclass” of not only how to survive it, but also on how to prevail within it. For these reasons, he has proven himself to be the most formidable politician of his age. He has succeeded in pre-empting, outflanking, outmanoeuvring, and then removing each of his political adversaries. The polite term for this is power consolidation. In that, he has certainly succeeded”.

And here is the rub: the world which Xi envisions is wholly incompatible with Washington’s priorities. Xi is not only more powerful than any predecessor other than Mao, he knows it, and intends to make his mark on world history. One that equates, or even surpasses, that of Mao. Lee Kuan Yew, who before his death in 2015, was the world’s premier China-watcher, had a pointed answer about China’s stunning trajectory over the past 40 years: “The size of China’s displacement of the world balance is such that the world must find a new balance. It is not possible to pretend that this is just another big player. This is the biggest player in the history of the world.”

[..] Made in China 2025 is a broad industrial policy that is receiving massive state R & D funding ($232 billion in 2016), including an explicit potential dual-use integration into military innovation. Its main aim, besides improving productivity, is to make China the world’s ‘tech leader’, and for China to become 70% self-sufficient in key materials and components. This may be well-known in theory, but perhaps the move towards self-sufficiency by both China and Russia suggests something more stark. These states are moving away from the classic liberal trade model to an economic model based on autonomy, and a state-led economy (such as advocated by economists like Friedrich List, before becoming eclipsed by the prevalence of Adam Smith-ian thinking).

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Very long essay from Hudson. Always good.

Debt Is The Great Threat To China’s Development (Michael Hudson)

Subjecting economies to austerity, economic shrinkage, emigration, shorter life spans and hence depopulation, it is at the root of the 2008 debt legacy and the fate of the Baltic states, Ireland, Greece and the rest of southern Europe, as it was earlier the financial dynamic of Third World countries in the 1960s through 1990s under IMF austerity programs. When public policy is turned over to creditors, they use their power for is asset stripping, insisting that all debts must be paid without regard for how this destroys the economy at large. China has managed to avoid this dynamic. But to the extent that it sends its students to study in U.S. and European business schools, they are taught the tactics of asset stripping instead of capital formation – how to be extractive, not productive.

They are taught that privatization is more desirable than public ownership, and that financialization creates wealth faster than it creates a debt burden. The product of such education therefore is not knowledge but ignorance and a distortion of good policy analysis. Baltic austerity is applauded as the “Baltic Miracle,” not as demographic collapse and economic shrinkage. The experience of post-Soviet economies when neoliberals were given a free hand after 1991 provides an object lesson. Much the same fate has befallen Greece, along with the rising indebtedness of other economies to foreign bondholders and to their own rentierclass operating out of capital-flight centers. Economies are obliged to suspend democratic government policy in favor of emergency creditor control.

The slow economic crash and debt deflation of these economies is depicted as a result of “market choice.” It turns out to be a “choice” for economic stagnation. All this is rationalized by the economic theory taught in Western economics departments and business schools. Such education is an indoctrination in stupidity – the kind of tunnel vision that Thorstein Veblen called the “trained incapacity” to understand how economies really work.

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“The trade in renminbi is still a minuscule part of the world currency market..”

China’s Petro-Yuan Isn’t Dislodging the Dollar Yet (Barron’s)

The timing seemed perfect. On March 26, four days after the Trump administration called for new tariffs on $50 billion worth of Chinese imports, Beijing launched an oil-futures contract denominated in yuan. The move seemed logical enough. China surpassed the U.S. as the world’s top oil importer last year, so why not start paying in its own currency? But against the backdrop of a brewing trade war, the newly born “petro-yuan” took on the aspect of a nuclear option, at least to Washington’s many ill-wishers around the globe. China’s initiative would put an end to dollar dominance of the $2 trillion annual oil trade, and thus its hegemony as a global reserve currency, so the argument ran. “Petro-Yuan to Kneecap Petro-Dollar,” crowed a headline from Russian state news service RT.

In fact, the petro-yuan is off to a slow start, and the greenback looks destined to remain almighty for a while yet. The reason is contradictions within China, which wants to play a new global role that is co-equal with the U.S. but maintain the old economic controls that got it there. Chinese exchanges have already co-opted much of the global trade in copper and other basic metals. But China is itself a leading copper producer, and volumes in the metal are one-twentieth the size of oil markets. To grab serious real estate from the petrodollar, the yuan would have to be freely convertible on the order of the greenback, euro, or yen—which it assuredly is not. “The trade in renminbi is still a minuscule part of the world currency market,” says Prakash Sharma, China research director for commodities consultant Wood Mackenzie, using an alternative name for the national coin.

“Paying for oil in Chinese currency looks nearly impossible at this stage.” Beijing authorities seemed bent on convertibility until 2015, when a stock market panic in China spurred some $700 billion in capital flight—from families pouring into Western real estate to corporations snapping up overseas acquisitions. The nation’s reserves shrank to a mere $3.3 trillion, and the yuan fell 10% against the dollar over 18 months. President Xi Jinping’s bureaucrats reacted decisively, limiting individuals to $50,000 a year in currency exchange and informally reeling in corporate globalization. “The events of 2015-16 were quite a surprise to the authorities,” says Jens Nordvig, CEO of FX consultant Exante Data. “They nearly lost control of the currency.”

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Because the US will demand it strengthen it.

China Weakens Its Currency Before US Trade Talks Begin (BBG)

China weakened its daily currency fixing by more than traders and analysts had expected before high-ranking U.S. officials arrive in the country to discuss trade issues. The People’s Bank of China cut the reference level to 6.3670 per dollar, weaker than the average estimate of 6.3610 in Bloomberg survey of 21 traders and analysts. The deviation is the biggest since Feb. 7 and continues a pattern set in April when the fixing was weaker than expected on all but one day, according to Bloomberg calculations. “The move in the fixing today is aggressive,” said Ken Cheung at Mizuho Bank in Hong Kong. “China may want to weaken the yuan pre-emptively before the trade talks with the U.S., so that they have room to strengthen the currency” if needed, Cheung said, adding that policy makers may also be keen to arrest the yuan’s advance against a basket of peers.

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Netanyahu plays games with his credibility.

Europeans Cast Doubt On Israel’s Claims About Iran Nuclear Breaches (G.)

European leaders have pushed back against Israel’s claims that it has new evidence showing that Iran is breaching the nuclear deal with the west which was signed in 2015. The US secretary of state, Mike Pompeo, hailed the Israeli claims as significant, as the 12 May deadline approached for the US president, Donald Trump, to decide whether to pull out of the deal. But Pompeo declined to say whether they represented proof that Iran was violating the deal. The overall initial view in European capitals was that the documents did reveal new material about the scale of Iran’s programme prior to 2015 but that there was nothing showing a subsequent breach of the deal.

The French foreign ministry said that the details needed to be “studied and evaluated” but that the Israeli claims reinforced the need for continuation of the deal – which entails Iran accepting nuclear inspections in return for a loosening of economic sanctions. “The pertinence of the deal is reinforced by the details presented by Israel,” a statement said. “All activity linked to the development of a nuclear weapon is permanently forbidden by the deal.” [..] In a bid to push back against Israel, the EU’s foreign affairs chief, Federica Mogherini, said Netanyahu’s allegations had “not put into question” Tehran’s compliance with the deal and that the International Atomic Energy Authority (IAEA) had produced 10 reports saying Iran had met its commitments.

“The International Atomic Energy Authority is the only impartial international organisation in charge of monitoring Iran’s nuclear commitments,” Mogherini said. “If any country has information of non compliance of any kind it should address this information to the proper legitimate and recognised mechanism.” The IAEA said a report by its director in 2015 “stated that the agency had no credible indications of activities in Iran relevant to the development of a nuclear explosive device after 2009”, and that the IAEA’s board of governors “declared that its consideration of this issue was closed”. A German government spokesman said it would analyse the Israeli documents, but added that the JCPOA had unprecedentedly strong monitoring mechanisms. The spokesman said: “It is clear that the international community had doubts that Iran was pursuing an exclusively peaceful nuclear programme. That is why the nuclear agreement was reached in 2015.”

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Britain better get rid of all these people.

Inside Theresa May’s Brexit War Cabinet, Tory Battles Rage (BBG)

The prime minister and her inner circle refer to it simply as “The SN.” To everyone else it is Theresa May’s “Brexit war cabinet,” the group of senior ministers who set the U.K.’s course out of the European Union. These eleven Cabinet members meet regularly in closely-guarded privacy to decide the detail of Brexit policies. On Wednesday afternoon, they convene once again to address an explosive question that could blow up May’s government. What to do about the Irish border and the future customs arrangements between the U.K. and the EU? Unless a satisfactory answer can be found soon, it could be enough to derail the negotiations entirely, forcing Britain out of the bloc with no meaningful deal at all.

The key to understanding the dynamic in the room had been that half of them campaigned to stay in the EU during the 2016 referendum, while the other five voted to leave — with the premier herself having the deciding vote. All that changed this week. Until she resigned as Home Secretary on Sunday, Amber Rudd was among the loudest voices in favor of keeping close ties to the EU. She’s been replaced by Sajid Javid, who is far closer to the pro-Brexit lobby, although he did – reluctantly – campaign for Remain two years ago.

Also on the pro-EU side are Chancellor of the Exchequer Philip Hammond and Business Secretary Greg Clark — both have been keeping low profiles of late. Pro-Brexit ministers are led by Foreign Secretary Boris Johnson and Environment Secretary Michael Gove, both figureheads of the Leave campaign.

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They deported tens of thousands of students. On the basis of a questionable test.

UK Home Office ‘Mistakenly Deported 7,000 Foreign Students’ (Ind.)

The government may have mistakenly deported more than 7,000 foreign students after falsely accusing them of cheating in English language tests. Most of the students were not allowed to appeal the Home Office decision; nor were theyt able to obtain evidence against them, or given the opportunity to prove the proficiency in English Some were detained by immigration officials, lost their jobs, and were left homeless as a result, despite being in the UK legally, the Financial Times reported. The students’ treatment has been blamed on the “hostile environment” policy introduced by Theresa May during her time as home secretary.

The approach, which aims to push illegal immigrants to leave Britain by making their lives difficult, led to the Windrush scandal that forced Ms May’s successor Amber Rudd to resign. The foreign students were targeted by the Home Office after an investigation by the BBC’s Panorama in 2014 exposed systematic cheating at some colleges where candidates sat the Test of English for International Communication (TOEIC). The test is one of several that overseas students can sit to prove their English language proficiency, a visa requirement. After the Panorama broadcast, the government asked the US-based company which runs the test to analyse sound files to investigate whether studies had been enlisting proxies to sit the tests for them.

The firm, English Testing Services, identified 33,725 “invalid” tests taken by students it was confident confident had cheated. The students’ visas were revoked and they were told to leave the country. Another 22,694 test results were classed as “questionable”, meaning the students who sat them were invited for an interview before any action was taken against them.

By the end of 2016, the Home Office had revoked the visas of nearly 36,000 students who took the test. However, when ETS’s automated voice analysis was checked against human analysis, its computer programme was found to be wrong in 20% of cases, meaning that more than 7,000 students were likely to have been wrongly accused of cheating. [..] Immigration barrister Patrick Lewis, who represented several students in successfully appealing their deportation, told the Financial Times: “The highly questionable quality of the evidence upon which these accusations have been based and the lack of any effective judicial oversight have given rise to some of the greatest injustices that I have encountered in over 20 years of practice.”

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NHS is 10,000 doctors short, patients dying on trolleys in hallways.

Theresa May Vetoed Cabinet Pleas Over Visas For NHS Doctors (St.)

Theresa May faces a new immigration crisis after it emerged that she overruled Cabinet ministers pleading for more doctors from overseas to fill empty NHS posts. At least three government departments lobbied for a relaxation of visa rules to let in desperately needed doctors as well as specialist staff sought by businesses, the Evening Standard has learned. The issue erupted on Friday when several NHS trusts went public about fears that patient safety was being put at risk by doctor shortages. The crisis came as then home secretary Amber Rudd was fighting for her political life over the Windrush scandal — but No 10’s hard line meant her hands were tied.

Sources have disclosed that Downing Street was lobbied for several months before the NHS went public to allow a relaxation of the rules. Health Secretary Jeremy Hunt and Ms Rudd are understood to be among those urging No 10 to lift the quota for special cases such as NHS doctors. At the same time Business Secretary Greg Clark was pressing for more exceptions to help firms cope with specialist skills shortages. A Whitehall source said Mrs May “absolutely refused to budge” when asked to lift the cap in recent months. “I think Jeremy and Amber were on the same page on this but No 10 were in a different place entirely,” said a separate source.

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No, really, these people DO understand the effect will be the opposite of what they claim.

OECD Calls For Even Tighter Greek Fiscal Policy To Bolster Growth (K.)

Greece needs to further extend its real age of retirement and to abolish all kinds of tax exemptions, the Organization for Economic Cooperation and Development (OECD) has recommended in a report published on Monday, so that the growth rate accelerates, fiscal revenues expand and the national debt becomes sustainable. Although the report, presented in Athens on the occasion of OECD Secretary-General Angel Gurria’s visit, does speak of a return to growth, it undercuts the official forecast for a 2.3% economic expansion this year, pointing instead to a 2% increase. It adds that a series of reforms could considerably strengthen gross domestic product in the future.

According to the OECD, a four-year rise in the real age of retirement up to 2030 (instead of the already scheduled three-year rise to the age of 65 by the same year) will boost GDP by 10.4 percent points (against 7.5 points with the scheduled extension). The modernization of the public administration and the improvement of the justice system up to OECD standards by 2030 would have an even greater impact, the report says. That would signify a GDP impact of 25.6 percent points, compared to the current plans for a 14.7 percent-point increase.

The organization further recommends new reforms in the commodity markets so that they reach up to Belgium’s level by 2020, and an increase in family benefits to meet the European Union average by 2025. In total, the reforms the OECD has proposed would bolster GDP by 46.1 percent points or almost 100 billion euros per year, against 25.4 percent points projected by the currently planned reforms. Those proposed reforms would also cut the national debt to just 100% of GDP by 2060, the report projects.

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It’s about political control, not finance.

Greece’s Debt Deal To Show How Europe Treats Its Less Fortunate Nations (CNBC)

Speaking in the Bulgarian capital of Sofia last week, European Commissioner for Economic and Financial Affairs Pierre Moscovici told me the EU believes its models may be more accurate, but argued that the best way to win an IMF buy-in would be to agree on a debt repayment mechanism first proposed by his countrymen — and one of his successors as French finance minister — Bruno Le Maire. Macron’s finance chief told me separately that he hoped to win over opponents to his plan, a “growth adjustment mechanism” that would automatically link future debt repayments to Greece’s relative economic success: Athens would repay larger installments if its economy expands quickly, and reduce payments if it slows, a process that its proponents claim provides market participants with greater clarity and transparency.

Arrayed against the French plan is the desire on the part of authorities in countries like Germany, the Netherlands, Finland and Austria to maintain a degree of political control over Greece’s required repayments. This might mean the size and scope of future repayments could be assessed by national parliaments, rather than automatically calculated based on factors like GDP growth. The publicly espoused view in Berlin is that such an approach would force the Greeks to continue with their structural reforms and austerity measures that have helped transform what was a 15% budget deficit in 2009 into a recent surplus.

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“Who better to entrust with the most intimate parts of our lives than Mark Zuckerberg, the king of privacy?”

Facebook’s Dating App Finally Makes Privacy Invasion Sexy (G.)

Thank God Facebook is finally offering a dating app. Who better to entrust with the most intimate parts of our lives than Mark Zuckerberg, the king of privacy? I assume Zuck will be building it off of one of the early projects that established him as a wunderkind: FaceMash. You may remember it – it’s the one where he hacked into campus websites, collecting pictures that allowed Harvard students to rank each other by hotness. With Facebook dating, the FaceMash dream is at last becoming reality. This should make it easy for Facebook’s hottest people – if there are any left; my understanding is most hot people have migrated to Instagram – to match with equally attractive people, leaving the rest of us trolls and gnomes to mingle with each other.

And after a few months, you can bet the data will leak, offering us all an opportunity to find out, based on rigorous computer analyses, how hot we are. I’m a four at best, you’re a seven. But those numbers won’t be based just on looks. What this app has over Tinder is its existing knowledge of every facet of our lives. Romance is, of course, transactional, and Zuckerberg can finally determine a precise formula based on the value each person brings to a potential match. How much money does it take to compensate for suboptimal physical attractiveness? How often do I have to post about working out to balance out my penchant for Ben and Jerry’s? How often do you have to donate to charities to make up for the fact that you bought an alarming amount of toilet paper on Amazon last month?

Then there’s the possibility that Facebook engagement could come into play. Will active users get more profile views than those of us who have largely abandoned the site? Would that mean we’re more likely to end up on dates with the kind of person who posts constantly on Facebook? Sign me up.

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7 million per year. That’s just a start.

More Than 90% Of Air Pollution Deaths Occur In Poorer Countries (Ind.)

Air pollution is involved in the deaths of around seven million people every year, with the vast majority of fatalities taking place in poorer countries. The latest figures released by the World Health Organisation (WHO) show that nine out of 10 people are breathing air containing dangerous levels of pollutants. These results largely echo those released in another global air pollution report in April, and experts have once again pointed to the particular burden falling on the world’s most vulnerable people. “Air pollution threatens us all, but the poorest and most marginalised people bear the brunt of the burden,” said Dr Tedros Adhanom Ghebreyesus, director-general of WHO.

The new figures come as reports emerge concerning residents of Mongolia’s capital, Ulaanbaatar, drinking “oxygen cocktails” in an effort to ward off the harmful effects of air pollution. Ranked by Unicef as the most polluted capital city in the world, Ulaanbaatar is one of the many Asian and African cities highlighted as particularly susceptible to the toxic effects of air pollution by WHO. According to Dr Maria Neira, who leads public health efforts at WHO, many of the world’s megacities – such as Beijing, Delhi and Jakarta – exceed guideline levels for air quality by more than five times.

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Mar 052017
 
 March 5, 2017  Posted by at 10:40 am Finance Tagged with: , , , , , , , , ,  8 Responses »


Near The Hermitage, SaintPetersburg, Russia 1930

 

The Rich Already Have a UBI (Jacobin)
The Next Market To Break *Should* Be Stocks (MA)
America’s Miserable 21st Century (CM)
China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)
China Signals Slower Increase In Defense Spending (BBG)
The Priced-In Risk of Marine Le Pen’s Victory (BBG)
Self-Fulfilling Pessimism (Vox)
Only The Rich Are Poisoned (Taleb)
Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)
Greece, Getting Smaller (Maria Katsounaki)
Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)
America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)
Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)
Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

 

 

Time to overhaul taxation. Away from income tax. Inevitable.

The Rich Already Have a UBI (Jacobin)

The universal basic income -a cash payment made to every individual in the country- has been critiqued recently by some commentators. Among other things, these writers dislike the fact that a UBI would deliver individuals income in a way that is divorced from working. Such an income arrangement would, it is argued, lead to meaninglessness, social dysfunction, and resentment. One obvious problem with this analysis is that passive income -income divorced from work- already exists. It is called capital income. It flows out to various individuals in society in the form of interest, rents, and dividends. According to Piketty, Saez, and Zucman (PSZ), around 30% of all the income produced in the nation is paid out as capital income. If passive income is so destructive, then you would think that centuries of dedicating one-third of national income to it would have burned society to the ground by now.

In 2015, according to PSZ, the richest 1% of people in America received 20.2% of all the income in the nation. Ten points of that 20.2% came from equity income, net interest, housing rents, and the capital component of mixed income. Which is to say, 10% of all national income is paid out to the 1% as capital income. Let me reiterate: one in ten dollars of income produced in this country is paid out to the richest 1% without them having to work for it. Even if you exclude the capital component of mixed income (since it is connected to work even if the income is not from labor) and housing rents (since these are imputed to homeowners rather than paid to them as cash), that still means that, from equity income and interest alone, the top 1% receives 7.5% of the national income without having to work for it. Put another way: the average person in the top 1% receives a UBI equal to 7.5 times the average income in the country.

If passive income is so destructive, then the income situation of the 1% surely is a national emergency! Where does the 1% get its meaning with all of that free cash flowing in? The fact is that capitalist societies already dedicate a large portion of their economic outputs to paying out money to people who have not worked for it. The UBI does not invent passive income. It merely doles it out evenly to everyone in society, rather than in very concentrated amounts to the richest people in society. The idea of capturing the 30% of national income that flows passively to capital every year and handing it out to everyone in society in equal chunks has been around since at least Oskar Lange wrote about it in the early parts of the last century. This is, to me, the best way to do a UBI, both practically and ideologically. Don’t tax labor to give money out to UBI “loafers.” Instead, snag society’s capital income, which is already paid out to people without regard to whether they work, and pay it out to everyone.

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Looks scary.

The Next Market To Break *Should* Be Stocks (MA)

From an intermarket perspective – and in the wake of the major breakdown in Treasuries that manifested last summer akin to 87′, we would argue that the move in equities is likely much more mature than the echo of the record January 1987 sounding that some have recently pointed to for more bullish intermediate bearings. Their reasonings being, that although the markets may be near-term extended, like in January 1987, they still gained another 30% over the following 8 months. The old market adage applied – overbought can still become more overbought. That said, what the data mining ignores here is similar to the benevolent rotation out of bonds and into equities that supported the reflationary blowoff that began after Treasuries broke down in the Spring of 1987, stocks have been under this same strong reflationary momentum since last summer.

What’s happened this week of note, and which has helped firm our own near-term expectations, is that several Fed presidents have more than candidly implied that the March meeting is very much in play for another rate hike. And although we had recently suspected that more hawkish posturing would adversely impact precious metals over the short-term, long-term Treasuries now again look vulnerable as well, which would closer resemble the final leg lower in Treasuries in 1987 and the curtain call for equities that fall.

In 1987, the initial breakdown leg in the 30-year Treasury bond registered a decline of ~14%. After remaining in a trading range for another 3 months, bond prices fell roughly another 10%, before finding a low as the equity markets broke down. Through the end of last year, the 30-year Treasury bond had fallen ~16% from its highs last summer. Although we still believe long-term Treasuries offer good relative value to investors as the limits of the US’s mature economic expansion become increasingly visible this year, the more than 2 month trading range now appears susceptible to further near-term weakness, akin to the final leg lower in 1987.

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Nice find from Tyler.

America’s Miserable 21st Century (CM)

Yes, things are very different indeed these days in the “real America” outside the bubble. In fact, things have been going badly wrong in America since the beginning of the 21st century. It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly. The warning lights have been flashing, and the klaxons sounding, for more than a decade and a half. But our pundits and prognosticators and professors and policymakers, ensconced as they generally are deep within the bubble, were for the most part too distant from the distress of the general population to see or hear it.

[..] In some circles people still widely believe, as one recent New York Times business-section article cluelessly insisted before the inauguration, that “Mr. Trump will inherit an economy that is fundamentally solid.” But this is patent nonsense. By now it should be painfully obvious that the U.S. economy has been in the grip of deep dysfunction since the dawn of the new century. And in retrospect, it should also be apparent that America’s strange new economic maladies were almost perfectly designed to set the stage for a populist storm. Ever since 2000, basic indicators have offered oddly inconsistent readings on America’s economic performance and prospects. It is curious and highly uncharacteristic to find such measures so very far out of alignment with one another.

We are witnessing an ominous and growing divergence between three trends that should ordinarily move in tandem: wealth, output, and employment. Depending upon which of these three indicators you choose, America looks to be heading up, down, or more or less nowhere. From the standpoint of wealth creation, the 21st century is off to a roaring start. By this yardstick, it looks as if Americans have never had it so good and as if the future is full of promise. Between early 2000 and late 2016, the estimated net worth of American households and nonprofit institutions more than doubled, from $44 trillion to $90 trillion. (SEE FIGURE 1.)

Although that wealth is not evenly distributed, it is still a fantastic sum of money—an average of over a million dollars for every notional family of four. This upsurge of wealth took place despite the crash of 2008—indeed, private wealth holdings are over $20 trillion higher now than they were at their pre-crash apogee. The value of American real-estate assets is near or at all-time highs, and America’s businesses appear to be thriving. Even before the “Trump rally” of late 2016 and early 2017, U.S. equities markets were hitting new highs—and since stock prices are strongly shaped by expectations of future profits, investors evidently are counting on the continuation of the current happy days for U.S. asset holders for some time to come.

A rather less cheering picture, though, emerges if we look instead at real trends for the macro-economy. Here, performance since the start of the century might charitably be described as mediocre, and prospects today are no better than guarded. The recovery from the crash of 2008—which unleashed the worst recession since the Great Depression—has been singularly slow and weak. According to the Bureau of Economic Analysis (BEA), it took nearly four years for America’s GDP to re-attain its late 2007 level. As of late 2016, total value added to the U.S. economy was just 12% higher than in 2007. (SEE FIGURE 2.) The situation is even more sobering if we consider per capita growth. It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4% higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decade.

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It all means very little without new debt data. Are they still trying to borrow growth? You bet.

China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)

China is aiming to expand its economy by around 6.5% in 2017 as it continues to implement a proactive fiscal policy and maintain a prudent monetary policy, Premier Li Keqiang said on Sunday. Top leaders at the National People’s Congress are tolerating slightly slower economic growth this year to give them more room to push through reforms to deal with a build-up in debt. A lending binge and increased government spending last year have fueled worries about high debt levels and an overheating housing market. GDP officially grew 6.7% in 2016, the slowest in 26 years, but within the government’s target range of 6.5 to 7%. That 6.5% growth target is “needed to achieve the employment objective,” Li said in his prepared remarks.

The government announced ambitious jobs plans, including to ensure that every family has at least one breadwinner, which is key as jobs are cut in major state-owned enterprises. As the government moves away from manufacturing-led growth, Beijing is tasked with quickly finding new employment for millions of workers, or risk the possibility of social unrest as unemployment looms China says it expects 11 million new urban jobs will be created this year, but that still wont keep pace with the 15 million new workers the government estimates will enter the market, according to prepared remarks. The government will continue to focus on the coal and steel sectors, with plans in place to cut steel production capacity. But experts were skeptical of the idea that certain economic growth levels would be “needed” for employment reasons.

“There is not now nor has there ever been any magical connection between GDP and jobs. You can have capital-intensive 6.5% GDP growth and not create enough jobs and you can have 3.5% labor-intensive GDP growth and create more than enough jobs,” said Derek Scissors, a resident scholar at the American Enterprise Institute and chief economist of the China Beige Book. “The Chinese government’s position for the past 20 years has been that the nutrition content of food doesn’t matter at all, only the number of calories.” This doesn’t make any sense economically, but it’s perfectly clearly politically,” he said, noting that China had said it needed greater GDP growth when its labor force was actually expanding, as opposed to its current contraction.

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Becoming unaffordable?

China Signals Slower Increase In Defense Spending (BBG)

China indicated a continued slowdown in defense spending growth this year, as President Xi Jinping presses ahead with a sweeping military overhaul. The defense budget will rise “about 7%,” National People’s Congress spokeswoman Fu Ying told a briefing ahead of China’s annual legislative session in Beijing. An actual spending target wasn’t expected until Sunday, when the Ministry of Finance releases its 2017 budget at the start of the 11-day legislative gathering. Last year, the country budgeted a 7.6% uptick in military spending to 954.4 billion yuan (equal to $147 billion at the time), the slowest increase since a 7.3% rise in 2010. Seven% would be the slowest expansion in more than a decade, tracking the broader trend in the country’s economy.

The increase consolidates China’s lead as the world’s second-largest military spender, accounting for more than 10% of the global arms total, said Siemon Wezeman, a senior researcher with the Stockholm International Peace Research Institute. More than two decades of expansion have helped China build a modern military capable of projecting force further from its coasts, while spurring anxious neighbors to upgrade their own defenses. Fu said China was committed to peace and described tensions in the South China Sea, where the country’s land reclamation campaign has been criticized by the U.S. and rival claimants, as “easing.” “We advocate dialogue and peaceful solutions to disputes of sovereignty and maritime rights,” said Fu, a former vice foreign minister and ex-ambassador to the U.K. “Meanwhile, we should possess the capacity to protect our sovereignty and interests.”

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Don’t count her out.

The Priced-In Risk of Marine Le Pen’s Victory (BBG)

Markets trade in the probability of certain events happening. In case an event has high risk, a “tail” is priced in. Those tail risks typically show up in certain corners of the markets. Today, tail risks are priced in for a potential unexpected outcome in the French elections. That tail risk is on the rise now that polls of the second round of voting indicate a tight race between center candidate Emmanuel Macron and the far-right candidate Marine Le Pen. Tail risks can be viewed in a linear way. For example, the German 2-year bond (“Schatze”) reached an all-time negative yield of -92 basis points when Le Pen recently gained in the polls.

As a result, the German 2-year yield became negatively correlated with the price of French bonds and stocks. A generic view is that German bonds are a reflection of the “tail risk” that Le Pen is victorious. However, there are technical reasons to explain the fall of German 2-year bonds. Those technicalities are a scarcity of German bond collateral in the repurchase market and the ECB’s purchase of German bonds yielding less than the deposit rate. This is what makes the 2-year German bond “overvalued” and therefore not as accurate a reflection of the true tail risk in France. There are other areas in markets that provide a better idea of how much of a Le Pen win is priced in.

Tail risks can be seen in currency options. The options market use a measure called “skew.” This is the difference between the implied volatility of puts and calls. A negative skew means currency markets price euro puts with higher implied volatility than the currency’s calls. In the case of negative skew, the currency market thinks the risk for depreciation of a currency is large. The skew of the euro currency has been on a steady decline since President Donald Trump was elected in November, as seen in Fig. 1. On the other hand, the French bond market has seen a surge in yields discounted to the second round of the presidential election, on May 7. Rising yields are a sign of uncertainty about the outcome of the election. Fig. 1 shows how markets are pricing a “tail risk” of an adverse election outcome. And this tail risk seems to be increasing by the day.

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I like Blanchard’s notion that “the reason unemployment is decreasing is productivity growth is so low.” But I don’t get that he overlooks, when saying “why is demand growth not stronger?”, that so many people have simply lost the means to spend. That seems to be a curious blind spot for an IMF economist. it’s not about pessimism, it’s about not having any money.

Self-Fulfilling Pessimism (Vox)

Why is it that demand growth is not stronger? In this video, Olivier Blanchard discusses his research on long-run forecasts and unexpected decreases in consumption. This video was recorded at the American Economic Association in Chicago in January 2017.

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“..one is more likely to be drinking poison in a golden cup than an ordinary one.”

Only The Rich Are Poisoned (Taleb)

When people get rich, they shed their skin-in-the game driven experiential mechanism. They lose control of their preferences, substituting constructed preferences to their own, complicating their lives unnecessarily, triggering their own misery. And these are of course the preferences of those who want to sell them something. This is a skin-in-the-game problem as the choices of the rich are dictated by others who have something to gain, and no side effects, from the sale. And given that they are rich, and their exploiters not often so, nobody would shout victim. I once had dinner in a Michelin-starred restaurant with a fellow who insisted on eating there instead of my selection of a casual Greek taverna with a friendly owner operator, his second cousin as a manager and his third cousin once removed as a receptionist.

The other customers seemed, as we say in Mediterranean languages, to have a cork plugged in their behind obstructing proper ventilation, causing the vapors to build on the inside of the gastrointestinal walls, leading to the irritable type of decorum you only notice in the educated upper classes. I note that, in addition to the plugged corks, all men wore ties. Dinner consisted in a succession of complicated small things, with microscopic ingredients and contrasting tastes that forced you to concentrate as if you were taking some type of exam. You were not eating, rather visiting some type of museum with an affected English major lecturing you on some artistic dimension you would have never considered on your own. There was so little that was familiar and so little that fit my taste buds: once something on the occasion tasted like something real, there was no chance to have more as we moved on to the next dish.

Trudging through the dishes and listening to some b***t by the sommelier about the paired wine, I was afraid of losing concentration. I costs a lot of energy to fake that I was not bored. In fact I discovered an optimization in the wrong place: the only thing I cared about, bread, was not warm. It appears that this is not a Michelin requirement. I left the place starving. Now if I had a choice I would have had some time-tested recipe (say a pizza with very fresh ingredients, or a juicy hamburger) in a lively place –for a twentieth of the price. But because the fellow dinner partner could afford the expensive restaurant, we ended up the victims of some complicated experiments by a chef judged by some Michelin bureaucrat. It would fail the Lindy effect: food does better through minute variations from Sicilian grandmother to Sicilian grandmother. It hit me that the rich people were natural targets; as the eponymous Thyestes shouts in Seneca’s tragedy, thieves do not enter impecunious homes, and one is more likely to be drinking poison in a golden cup than an ordinary one.

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The Turkish foreign minister claims the right to campaign among Turkish residents in Germany and Holland. Nobody wants that. Imagine if Mexico would take its political campaigns to US streets.

Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)

Austrian Chancellor Christian Kern on Sunday called for a European Union-wide ban on campaign appearances by Turkish politicians to avoid having individual member countries like Germany come under pressure from Ankara. Turkey said on Saturday it would defy opposition from authorities in Germany and the Netherlands and continue holding rallies in both countries to urge Turks living there to back an April 16 referendum to boost President Tayyip Erdogan’s powers. Turkish Foreign Minister Mevlut Cavusoglu criticized German and Dutch restrictions on such gatherings as undemocratic, and said Turkey would press on with them in the run-up to the vote. Kern, in an interview published in the Welt am Sonntag newspaper, said the measure would weaken the rule of law in Turkey, limit the separation of powers, and violate the values of the EU.

He also called for the EU to end discussions with Turkey about membership in the bloc and scrap or restrict €4.5 billion in aid planned for Turkey through 2020. “We should reorient relations with Turkey without the illusion of EU membership,” Kern told the newspaper. “Turkey has moved further and further away from Europe in the past few years. Human rights and democratic values are being trampled. Press freedom is a foreign word,” he said. Kern criticized Ankara’s arrest of German-Turkish journalist Deniz Yucel, a correspondent for Die Welt newspaper, and many other journalists, academics and civil servants, and called for Yucel’s immediate release. At the same time, he said, Turkey remained an important partner in issues of security, migration and economic cooperation, and said Ankara had lived up to its obligations under the migrant deal struck with the EU.

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The demise of a nation.

Greece, Getting Smaller (Maria Katsounaki)

“Instead of ‘Little Greece’ we need a serious Greece,” former Prime Minister Costas Simitis told the Delphi Economic Forum on Friday. As he spoke, Athens was suffocating again because of a mass transit strike, “unknown persons” were destroying ticket validating machines on buses, Eurostat’s figures showed that Greece is the consistent champion in unemployment, at 23% (with the next country, Spain, at 18.2% and the eurozone average at 9.6%), while a report from the Cologne Institute for Economic Research (IW) named Greece the leader in the percentage rise of poverty. The talks between the Greek government and its creditors show more differences than convergence, while Politico reported that the government has asked the World Bank for technical and financial assistance…

Each of the issues we mentioned has a past, present and future. They are not the same – some are tied to the economic crisis, other are not. One could argue that putting them together is aimed at making an impression. But let’s ask ourselves how the destruction of ticket validating machines was allowed to become a hobby. How have illegality and criminality become normal? How will unemployment and poverty be reduced when every investment crashes against denial, suspicion and compulsive behavior? When the only thing that grows is the amount of taxes and social security fees that we must pay? Let us ask ourselves this: When did the discussion that for a strike to be held “50% plus 1” of employees must agree, so as to put an end to the impunity of minorities?

Why has union leadership that is allied to political parties become “the right to strike” whereas any effort at reform serves the interests of the “economic oligarchy”? How can anyone trust a government that, while “negotiating hard” at the same time declares “the crisis is over,” while behaving as if this were a Third World country? Every day we are further gone in our illness and further from recovery. Little Greece is neither honest nor serious. It is not size that makes her lack credibility, but the ever-deeper national autism, the constant repetition of the performance “we are fighting for solutions” while caring nothing for solutions.

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Got to keep that border open.

Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)

Canada will not tighten its border to deter migrants crossing illegally from the United States in the wake of a U.S. immigration crackdown because the numbers are not big enough to cause alarm, a government minister said on Saturday. Public Safety Minister Ralph Goodale said the issue had not risen to a scale that required hindering the flow of goods and people moving across the world’s longest undefended border. Hundreds of people, mainly from Africa and the Middle East, have defied winter conditions and walked across the border, seeking asylum. They are fleeing President Donald Trump’s immigration crackdown, migrants and refugee agencies say.

It is not common to have so many asylum seekers in the United States looking for refuge in Canada over such a short period. The influx poses a political risk for Prime Minister Justin Trudeau, who faces pressure from the left, which wants more let in, and from the right, which fears an increased security risk. “We are concerned and we will deal properly with the extra hundreds (crossing illegally),” Goodale told reporters at a televised news conference in Emerson, Manitoba. “But the full border deals with 400,000 people moving in both directions every day. It also handles C$2.5 billion in trade every day. “It is critically important for us to make sure that it is strong and secure. At the same time, it needs to be efficient and expeditious.”

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Since it’s impossible to deport millions of people, clearer heads are called for.

America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)

The queue starts outside the consulate gate soon after dawn and stretches up Park View street. The visitors speak in low murmurs, exchanging the latest rumours. A dragnet in Glendale. Checkpoints in Highland Park. People deported for jaywalking. For speaking Spanish. Some visitors say they have sold their furniture to create an emergency fund. Others wonder if they should stop going to work and pull their kids from school. Overreactions? Wise precautions? No one knows. They’ve come here for answers. Inside the gate hulks a nondescript, cream-coloured office block. Lights flicker into life on a pale winter day and by 7am all is aglow: the consulate general of Mexico in Los Angeles is open for business. It is a lighthouse, of sorts, for undocumented Mexicans caught in the political maelstrom that is Hurricane Trump.

“I’m here to make a plan,” said Juana Sanchez, 53, a seamstress who has stitched and sewed in LA’s fashion district for 29 years. A plan for what? She managed a tight smile. “Deportation.” The immigration policies gusting out of the White House have chilled the US’s estimated 11 million undocumented people, half of whom are Mexican. The new president has vastly widened the numbers deemed priorities for expulsion. “As we speak tonight we are removing gang members, drug dealers that threaten our communities and prey on our very innocent citizens,” he told a joint session of Congress last week. “Bad ones are going out as I speak and as I promised throughout the campaign.”

The Mexicans who flock to the LA consulate say that in reality Immigration and Customs Enforcement (ICE) is sweeping up caretakers, students, mothers – anyone who entered the US illegally, and is thus a law-breaker. “Trump is the world’s worst terrorist. He has the Latino community terrorised,” said Rosa Palacios, a careworker with a nine-year-old granddaughter who weeps in fear at losing relatives. The hostility outdid previous anti-immigrant crackdowns, she said. “It is worse than when they thought we were infected.”

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Mexico may well come out of this a stronger country.

Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)

Mexico opened legal aid centers at its 50 consulates across the United States on Saturday to defend its citizens, the Mexican government said, amid worries of a crackdown on illegal immigration under U.S. President Donald Trump. Foreign Minister Luis Videgaray exhorted the U.S. government to respect the rights of Mexicans and called for the United States to allow a path to legality for undocumented migrants. “We are not promoting illegality,” Videgaray said, according to a video of an event at the Mexican consulate in New York provided by the foreign ministry, saying that Mexico supported following the law, but that means respecting human rights. Trump has issued orders to initiate tougher deportation procedures during his first month in office, following up on campaign vows to fight illegal immigration and to build a wall on the U.S.-Mexico border.

“Today we are facing a situation that can paradoxically represent an opportunity, when suddenly a government wants to apply the law more severely,” Videgaray said. “It is becoming more than evident that to apply the law, which is the obligation of any state, would also imply a real economic damage to this country which highlights the need for immigration reform, an immigration reform that resolves once and for all the legal status of the people,” Videgaray said. The Pew Research Center estimates there are nearly 6 million undocumented Mexicans living in the United States. Late last month, Videgaray expressed “worry and irritation” about Trump’s new policies to U.S. Secretary of State Rex Tillerson and Homeland Security chief John Kelly when they visited Mexico for talks on immigration and security.

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There is so much international law concerning the rights of refugees, written especially after wars, but none of it seems to matter much.

Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

Almost half of the refused asylum seekers who are unable to leave the UK have considered committing suicide, according to new research that criticises government rules for forcing individuals into destitution and a life in limbo. Interviews with asylum seekers refused permission to remain, in the UK but who cannot go home because they lack a passport, their nationality is disputed or there is no viable route back to their country, also found that half have considered or are applying for statelessness. The British Red Cross charity said such individuals should be allowed temporary leave to remain and work if they meet Home Office requirements, sparing people from years living in penury.

The charity said it knew of cases where women trapped in this situation had resorted to paying for a place to sleep with sex. It cited one Algerian who has been in the UK for 17 years who wassleeping on the streets and warned that those stuck in such limbo frequently suffer periods of homelessness alongside debilitating mental health issues, and that survival depended on the goodwill of friends and charities. Analysis by the Guardian last week revealed that Britain is one of the worst destinations in western Europe for people seeking asylum. Based on in-depth interviews with 15 people, the British Red Cross report found chronic stress, insomnia, anxiety and depression, with one refused asylum seeker from Sudan, a victim of torture, describing that he self-harms by banging his head against the wall.

No conclusive figures exist on the numbers of people who cannot leave the UK, although a freedom of information response from the Home Office reveals that 1,096 people lodged an application for statelessness in the UK after being refused asylum, following the introduction of new guidance in April 2013.

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Apr 052016
 


DPC Surf Avenue, Coney Island, NY 1903

Panama Bombshell Spells Demise Of Shadow Finance, And Privacy (AEP)
Tax Havens Don’t Need To Be Reformed. They Should Be Outlawed (Brooks)
Thousands Protest Demanding Icelandic PM’s Resignation (AFP)
German Banks Enmeshed In Panama Papers Leak (DW)
Data From Panama Law Firm Came From Employee, Not Hackers (Rijock)
Panama Papers Cause Guardian to Collapse into Self-Parody (OG)
China State Paper Sees ‘Powerful Force’ Behind Panama Leak (BBG)
The Forces of Globalization Are Sputtering (WSJ)
China Hard Landing Could Trigger Global Market Bloodbath: IMF (Tel.)
Lagarde Says Risks to Weak Global Recovery Are Increasing (BBG)
Subprime Housing Risks Raise Red Flags In China (WSJ)
Bond Market ‘Exhausted’ as Kuroda Stimulus Enters Fourth Year (BBG)
Sperm Whales Found Full of Car Parts and Plastics (NatGeo)
Turkey: The Business Of Refugee Smuggling & Sex Trafficking (ZH)
Italy Pleads For Greek-Style Push To Return Its Migrants (FT)
So The Greece Deportations Are Going ‘Smoothly’? Take A Closer Look (G.)

Ambrose bets on a substantial fall-out.

Panama Bombshell Spells Demise Of Shadow Finance, And Privacy (AEP)

The secret world of offshore banks and money-laundering has been under the microscope ever since the financial crisis. Now it is the turn of lawyers, registrars, and the hidden network of facilitators. The treasure trove of 11.5m documents leaked – or more precisely stolen – from the Panama law firm Mossack Fonseca lifts the lid on the extraordinary practices of the global elites, and on the alleged services of off-shore legal cabinets for terrorist organisations, drug cartels, sanctions busting, and front companies of all kinds. The files on 213,000 firms first slipped to the Suddeutsche Zeitung and then shared with the International Consortium of Investigative Journalists (ICIJ) is the biggest data leak in history. It will have long-lasting ramifications. The avalanche of allegations has barely begun.

The red-hot dossier on US citizens has not even been released. Yet the scandal has already triggered a string of criminal investigations around the world, kicking off in Australia and New Zealand within hours. Germany’s vice-chancellor Sigmar Gabriel said the files go far beyond issues of tax evasion, touching on vital national interests and the rule of law. “It is about organized crime, evasion of UN sanctions, and terrorist finance,” he said. “This shadow economy is a risk for global security. We must ban the anonymous letterbox companies. The international community must ostracize any country that allows these dirty dealings,” said Mr Gabriel. Mossack Fonseca’s clients include 23 people under sanctions for helping North Korea, Russia, Iran, Syria, and Zimbabwe. The Israeli newspaper Haaretz reports that 33 of those named are on the US black list for terrorism.

Panama has cornered the trade in anonymous shell companies that allow owners to disguise their identity and carry out global operations secretly. While this may be a legitimate for those in the limelight trying to protect their privacy or to safeguard sensitive corporate dealings, many use it to avoid detection for money-laundering, tax avoidance, or predatory behaviour. The country has pushed through reforms in a bid to clear its name and to get off the OECD’s ‘grey list’ of uncooperative tax havens, but has clearly not yet done enough. “Panama has an extremely aggressive and obstructive attitude. Dialogue has broken down,” said Pascal Saint-Amans, the OECD’s tax chief. “It is the last financial centre that has refused to implement global standards of fiscal transparency. There has been very strong pressure from the law firms on the Panamanian government.”

Mr Saint-Amans said offshore secrecy in on the wane in most of the world, but becoming more concentrated in Panama. “The majority of undeclared clients are coming clean in other locations, but those who don’t are going to Panama,” he said.

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Thing is, that’s been obvious for ages.

Tax Havens Don’t Need To Be Reformed. They Should Be Outlawed (Brooks)

The Panama Papers are not really about a central American state. They are a glimpse through a Panamanian keyhole of an orgy of tax evasion, money laundering and kleptocracy – amid the legitimate financial planning – hosted by the world’s tax havens. Seven years after world leaders came together at a post-financial crisis G20 summit in London and committed to end tax haven abuse, it is clear from these papers that no such end is in sight. The good intentions have translated into a blizzard of international agreements on sharing information, amnesties through which tax evaders can come clean, and prosecution drives of variable quality to nail the cheats. All are demonstrably inadequate. Information will not, and cannot, be exchanged to any meaningful extent by countries and territories whose “offer” is that they don’t ask for it or will turn a blind eye to being deceived.

Amnesties teach rich tax evaders that, even if they are caught, they will get off far more lightly than somebody overclaiming a few pounds in social security benefits. Criminal pursuit of offenders, certainly in the UK, is little more than a joke. One prosecution from 1,000 tax evaders using HSBC’s Swiss accounts is the now infamously poor punchline. Here, the Panama Papers lay bare another national disgrace: Britain’s longstanding role at the centre of the offshore web. More than half of the 200,000 secret companies set up by the Panama lawyers Mossack Fonseca were registered in the British Virgin Islands, where details of company ownership don’t have to be filed with the authorities, never mind be made public. While this week’s leak is on an unprecedented scale, it exposes a historic as well as current failing.

As the British empire faded away after the second world war and territories such as the British Virgin Islands drifted into the constitutional limbo of semi-independence, they were encouraged to develop financial services as a way of sustaining precarious economies. If this meant a few of the world’s wealthier people paid a little less tax, thought successive British governments, it was a price worth paying for not having to support the territories. Late 20th-century financial liberalisation turned this already complacent calculation into something more lethal. With fortunes sloshing freely across borders, tax havens became voracious parasites on the world economy, most seriously sucking the life out of some of its poorer parts. All the great national robbers of recent decades, such as Nigeria’s Sani Abacha, have used tax haven companies, including British Virgin Islands ones, as the getaway cars.

Despite this long trail of evidence, leading economies refuse to address the problem at its source. The UK has great leverage over its 17 overseas territories and crown dependencies, all of which depend on the mother country for security and happily trade off its legal system. At a stroke our government could shut down the British Virgin Islands corporate system, for example. But under influence from a banking system that thrives on the legal benefits of offshore centres such as the British Virgin Islands and the Cayman Islands, it takes a more relaxed view. Asked recently about whether Britain’s overseas territories should publish registers of beneficial owners of their companies, foreign office minister James Duddridge replied that these were a “direction, rather than an ultimate destination”. The Panama Papers should expose this indifference for the great scandal that it is.

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Gone tomorrow.

Thousands Protest Demanding Icelandic PM’s Resignation (AFP)

Thousands of Icelanders took to the streets late Monday calling for their prime minister’s resignation after leaked tax documents dubbed the “Panama Papers” prompted allegations that he and his wife used an offshore firm to hide million-dollar investments. Protesters filled the square outside Iceland’s parliament in Reykjavik, footage on public television RUV showed, answering a call from opposition parties to demonstrate against Prime Minister Sigmundur David Gunnlaugsson. Police provided no estimate of the size of the crowd, but said the demonstrators outnumbered the thousands who in 2009 brought down the right-wing government over its responsibility in Iceland’s 2008 banking collapse.

“Take responsibility” and “Where is the new constitution?” read some of the signs carried by demonstrators on Monday, referring to the country’s new charter drawn up after the 2009 political crisis and which has since been held up in parliament. Financial records published by the International Consortium of Investigative Journalists showed that Gunnlaugsson, 41, and his wife Anna Sigurlaug Palsdottir bought the offshore company Wintris Inc. in the British Virgin Islands in December 2007. The company was intended to manage Palsdottir’s inheritance from her wealthy businessman father, the amount of which has not been disclosed. Gunnlaugsson transferred his 50% stake to his wife at the end of 2009, for the symbolic sum of one dollar.

But when he was elected a member of parliament for the first time in April 2009 as a member of the centre-right Progressive Party, he neglected to mention the stake in his declaration of shareholdings, as required by law. Gunnlaugsson has meanwhile denied any wrongdoing or tax evasion and insisted Monday he would not step down. He said he never hid any money abroad and that his wife paid all her taxes on the company in Iceland. A motion of no-confidence was presented to parliament by the opposition, and will be submitted to a vote at an as yet undetermined date. Almost 28,000 Icelanders, in a country of just 320,000 inhabitants, have also signed a petition demanding his resignation.

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All global banks are involved.

German Banks Enmeshed In Panama Papers Leak (DW)

The two German financial institutions specifically mentioned in media reports as having helped high-ranking politicians, celebrities and sports stars hide their money abroad were Deutsche Bank, Germany’s largest lender, and the Hamburg-based Berenberg bank. The allegations were part of the so-called Panama Papers, a massive trove of leaked emails, PDFs and other records that expose a world of letterbox companies and business arrangements that until recently had been largely hidden from public view. The Panama Papers were first obtained by reporters at the German daily “Süddeutsche Zeitung,” and on Sunday, the head of the paper’s investigative unit suggested to a German TV host that every bank in Germany was somehow implicated.

“If you were to ask me which German bank hadn’t helped its customers go to Mossack Fonseca, I would have to think long and hard to see if a single one came to mind,” said Georg Mascolo, referring to the Panama-based law firm that is at the center of the leaks because it’s where the documents originated. Mascolo proceeded to single out Deutsche Bank and Berenberg bank, the latter of which he said had “especially distinguished itself.” Both institutions promptly denied any wrongdoing. Speaking to the news agency DPA, a spokesman for Berenberg’s Swiss subsidiary insisted there was nothing inherently illegal about dealing with offshore companies. “This is, of course, done in line with legal regulations, but it does require greater due diligence on the part of the banks,” he said, noting that such accounts were “permanently monitored.”

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Sort of funny. Note that this story had been playing out for a few years already.

Data From Panama Law Firm Came From Employee, Not Hackers (Rijock)

Now it’s Panama Leaks: massive amounts of customer data stored on the computers of the country’s principal provider of corporations, Mossack Fonseca, have been stolen and delivered to foreign journalists, who reportedly are planning on releasing it as early as Monday. The data is believed to contain information on Panama companies, and bank accounts, held by foreign government officials, other politically exposed persons (PEPs) and organized crime syndicates. The public release of this information could result in widespread criminal charges against corrupt heads of state and other officials who have banked the proceeds of illegal bribes and kickbacks they have received.

There will be special attention paid to individuals who accepted money from American and British firms to allow them to participate in lucrative business arrangements, as the US and UK both strictly enforce their foreign corruption laws. Mossack Fonseca, already reeling being implicated in a major corruption case in Brazil, in which present or former government officials at the highest level are under criminal investigation, has also been in the news lately due to allegations that senior officials in Malta hold secret banks accounts in Panama, facilitated by the Mossack firm. Investigative reporters are allegedly already to publish the names, and sordid details, of a large number of corrupt PEPs. Some television media are reportedly planning on running stories early this week.

Panama insiders have said that the source of the information was not, as Mossack is reporting, an intrusion by hackers, but an inside job. A former female employee, with access to the data, was allegedly involved in an intimate relationship with a Mossack name partner. The relationship ended badly some time ago, and the employee exacted her revenge by going public with Mossack client lists and related data. The impact of this leak cannot be underestimated; it will seriously undermine global confidence in the ability of Panamanian financial service providers to assist corrupt government officials, and career criminals in hiding their ill-gotten gains, which is the major segment of the client base in such firms. It is too early to know whether dirty money will now seek a different opaque haven to be hidden.

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To further illustrate the point I made yesterday.

Panama Papers Cause Guardian to Collapse into Self-Parody (OG)

You’d be forgiven for thinking, given the above picture, that the Panama Papers had something to do with Vladimir Putin. Maybe he was a kingpin of the whole thing. Maybe he was, at least, among the 12 world leaders implicated in various shady financial practices – along with Petro Poroshenko, the saviour of Ukrainian democracy, and the King of Saudi Arabia (dad of the recent Légion d’Honneur winner). Luke Harding, a bastion of ethical journalism (and not at all a paranoid lunatic), has churned out 2 articles totaling over 5000 words, each using the word “Putin”, almost as often as they use the phrases “allegedly”, “speculation suggests”, “has been described as” and “may have been”.

Neither of his articles mentions by name any of the 12 world leaders, past and present, actually identified in the documents, nor do they mention David Cameron’s dad, who is also in there. No, they focus on a cellist friend of Putin’s, talk about his daughter’s marriage, and include an awful lot of diagrams with big arrows that point at pictures of…Vladimir Putin. This is, apparently, all evidence of…something …I’m not sure what, but it will probably be discussed at length in the “book” Luke Harding is probably planning to publish in a couple of weeks. That’s if the NSA don’t delete it all while he’s typing. The only important, or even true, phrase Harding uses appears at the very top of this article:

…the president’s name does not appear in any of the records…

That’s a minor detail of course, I mean, they have a video: “How to hide $1 billion”. The title screen is, you guessed it, a photo of Putin. Presumably because he is SO GOOD at hiding his billions that, unlike Petro Poroshenko and David Cameron’s dad:

…the president’s name does not appear in any of the records…

So there you go. The Guardian falls into self parody, pasting up a massive picture, a misleading headline and 5000 words (that Harding presumably copied from someone else), at the merest suggestion of a tenuous connection to the Russian president. It’s a bit odd, really.

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While scrambling to delete any and all references. But still, they do have a point. It’s not as if something financed by Soros is even remotely neutral.

China State Paper Sees ‘Powerful Force’ Behind Panama Leak (BBG)

A “powerful force is behind” the leak of more than 11 million documents detailing the offshore accounts of some of the world’s wealthiest people, and the U.S. government stands to gain the most from the revelations, a state-run Chinese newspaper said. An editorial published by the Global Times newspaper Tuesday provided China’s first official reaction to investigations by more than 100 news organizations, detailing overseas holdings of about 140 politicians, public officials and family members, including President Xi Jinping’s brother-in-law. The editorial, which focused on Russian President Vladimir Putin and didn’t mention any of the Chinese examples, assessed the “eye-catching” revelations as a salvo in an East-West ideological struggle, echoing the Kremlin’s response.

“The Western media has taken control of the interpretation each time there has been such a document dump, and Washington has demonstrated particular influence in it,” said the Global Times, which is published by the Communist Party’s flagship People’s Daily. “Information that is negative to the U.S. can always be minimized, while exposure of non-Western leaders, such as Putin, can get extra spin.” The release of the so-called Panama Papers come at an embarrassing time for Xi, who’s requiring party members to give authorities more information about their family wealth to institutionalize his more than three-year-old war on graft. Mentions of the documents were widely scrubbed from China’s heavily censored Internet and news outlets, which have come under increased pressure from Xi to toe the party line.

Links shared on Tencent Holdings’s WeChat messaging service said the “page could not be found.” Attempts to search “Panama Papers” on Baidu’s Google-like search engine returned only a one-line warning that “search results may not comply with relevant laws or regulations.” The Global Times editorial was published only in English.

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Those forces are waiting for TTP and TTiP to be ratified.

The Forces of Globalization Are Sputtering (WSJ)

On the campaign trail, presidential candidates in both parties depict an America under siege from cheap imports, job-stealing globalization or waves of illegal immigration. The reality since the global recession is far more complicated. Across a range of measures, the forces that once pointed to an inexorable internationalization of the world’s economy have slowed, stuttered or swung into reverse. The slowdown points to deeper economic challenges far different from the political alarms. Much of the world is struggling with a sluggishness that is clouding the U.S. outlook, driven by aging demographics, slumping labor productivity and policy makers lacking the tools or the will to pump more life into the global economy. Whatever the causes, signs abound that the forces of globalization have slowed.

Manufacturing jobs in the U.S. declined every year from 1998 to 2009, regardless of whether the overall economy was expanding or in recession. But over the past six years, manufacturing employment has edged up. It’s hardly a renaissance—the U.S. has regained about 1 million manufacturing jobs after losing 8 million since the late 1970s—but it’s a halt to the decline. The U.S. share of global exports fell sharply, especially from 1998 to 2004, but has held steady over the past 12 years at roughly 8.5%. There’s even evidence the trend of illegal immigration in the 1990s and 2000s, when millions of Mexicans crossed the border for the U.S., has stalled or gone into reverse, despite frequent alarms raised by Republican front-runner Donald Trump. The Pew Research Center estimates that since 2007, the flow of illegal immigrants returning to Mexico has been larger than the number entering the U.S.

“The globalization process, which was firing on all cylinders during the 2000s, has stalled over the past six or seven years,” said Benjamin Mandel, global strategist at J.P. Morgan Asset Management and a former New York Fed economist. The trend isn’t specific to the U.S. Globalization has sputtered around the world. From 1992 to 2008, trade climbed to about 30% of total world economic output, from 20%. That climb has halted, and remains at about 30% of GDP in the latest World Bank estimates. If the historical trend between trade growth and GDP growth had continued, global trade would be $1.8 trillion larger, according to estimates from Eric Lascelles, chief U.S. economist of RBC Asset Management. That’s equivalent to an economy the size of Canada or Russia disappearing from global output.

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From the IMF research department.

China Hard Landing Could Trigger Global Market Bloodbath: IMF (Tel.)

Jitters over the health of the Chinese economy could trigger a bloodbath on financial markets if a hard landing materialises, the IMF has warned. The IMF said policy choices in the world’s second largest economy would also have “increasing implications for global financial stability” in the coming years as the country opens up its bond and equity markets. The fund said emerging market economies such as China, India, Brazil and Russia had driven more than half of global growth over the past 15 years. Stronger trade ties and financial linkages meant spillovers from these countries had become “the norm, not the exception”, increasing the risk that future shocks could send powerful reverberations around the globe. The IMF calculated that emerging market spillovers now accounted for a third of the fluctuations seen in equity and currency markets in advanced nations.

Highlighting last summer’s massive stock market sell-off after China devalued its currency, the IMF noted that Chinese growth had an “increasing” and “significant” impact on global equity prices. “The impact of shocks to China’s fundamentals on global financial markets is expected to grow stronger and wider over time,” the Fund said in a pre-released chapter of its Financial Stability report. “Clear and timely communication of its policy decisions, transparency about its policy goals, and strategies consistent with achieving them will, therefore, be essential to ensure against volatile market reactions, which may have broader repercussions.” The IMF also urged policymakers to do more to rein in corporate debt, which it has previously said could see a wave of defaults as the US hikes interest rates.

“Fire sales” of assets by money managers could also amplify emerging market spillovers in a downturn, if mutual funds rushed to sell illiquid assets, the IMF warned. Financial “spillbacks” triggered by policy actions in advanced economies such as tighter monetary policy in the US underscored “the importance of enhanced international macroeconomic and macroprudential policy co-operation”, the IMF said. The Fund issued a separate warning on the $24 trillion life insurance sector. It said herding behaviour created systemic risks that could make firms “too many to fail”. The IMF said the low interest rate environment had encouraged many firms to increase risk taking in order to “resurrect their fortunes”, particularly among smaller and less capitalised firms. “Jointly firms can propagate shocks, if they act similarly,” the IMF said. “They may be ‘too many to fail’,” it warned.

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From the other IMF orifice. She has absolutely nothing. Zilch. Not a word she utters has any meaning.

Lagarde Says Risks to Weak Global Recovery Are Increasing (BBG)

The global recovery is facing growing risks, and frustration with inequality is increasing the lure of protectionism, IMF Managing Director Christine Lagarde said. The world economy’s outlook has dimmed over the last six months, exacerbated by China’s slowdown, lower commodity prices and the risk of financial tightening in many countries, Lagarde said Tuesday in the prepared text of a speech in Frankfurt. The expected passing of the “growth baton” from emerging markets to advanced economies hasn’t occurred, she added. Lagarde, fresh from winning a new five-year term at the fund’s helm, used the opportunity to caution against being drawn to the kinds of forces that have fueled the populism-driven candidacies of Bernie Sanders and Donald Trump in the U.S. presidential election.

While inequality has been declining on a global scale, the perception remains that “the cards are stacked against the common man – and woman – in favor of elites,” said Lagarde, 60. “To some, the answer is to look inward, to somehow unwind these linkages, to close borders and retreat into protectionism,” she said, without naming any politicians. “As history has told us – time and again – this would be a tragic course.” Lagarde’s comments on the global economy add to signs that the IMF will downgrade its growth forecast when it releases its updated World Economic Outlook on April 12. Finance ministers and central bankers from the fund’s 188 member nations will gather later that week in Washington for the IMF’s spring meetings. “The good news is that the recovery continues; we have growth; we are not in a crisis,” Lagarde said. “The not-so-good news is that the recovery remains too slow, too fragile, and risks to its durability are increasing.”

Lagarde said U.S. growth is flat due partly to the strong dollar, while low investment and high unemployment are weighing on growth in the euro zone. Growth and inflation in Japan have been weaker than expected, she added. China’s transition to a more sustainable economic model involves slower growth, Lagarde said, adding that downturns in Brazil and Russia have been worse than expected and Middle Eastern nations have been hit hard by the decline in oil prices. “Certainly, we have made much progress since the great financial crisis,” Lagarde said. “But because growth has been too low for too long, too many people are simply not feeling it.” The persistent low growth can be “self-reinforcing,” because of negative effects on potential output that can be hard to reverse, she said.

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Beijing is deliberately creating an ever bigger housing bubble. Scary.

Subprime Housing Risks Raise Red Flags In China (WSJ)

China’s efforts to tackle a glut of vacant housing by spurring home lending have triggered a bigger problem: A surge in risky subprime-style loans that is generating alarm among regulators. Home buyers in China normally put down a third of the cost of a new property upfront. But a rapid rise in buyers borrowing for their down payments – an echo of the easy credit that cratered the U.S. housing market and sparked the financial crisis – has prompted authorities to clamp down. Peer-to-peer lenders, who raise money from investors and then lend it out at higher interest rates, made 924 million yuan ($143 million) in down-payment loans in January, more than three times the amount made in July, according to Shanghai-based consultancy Yingcan.

A senior banking executive at one of China’s top four state-owned banks said down-payment loans directly contributed to a recent run-up in housing prices in big cities. “It’s a risky practice that should be contained,” he said. Officials at various levels of government are now stepping on the brakes. The central bank and the housing ministry last month started to crack down on loans enticing home-buyers with “zero-down-payment” slogans. [..] Beijing began easing credit in late 2014 to help cities fill empty apartments — a legacy of a housing-construction boom fueled by a decade of urban population growth and cheap credit. As companies and local governments sag under crippling debt, authorities have seen room for more borrowing among households and have tried to widen the pool of home buyers.

But despite a rise in down-payment loans and lower mortgage barriers for groups such as rural migrant workers, it has proven hard to unleash buying in the right places. Instead, the easing measures and new incentives fed a property frenzy in China’s megacities, with buyers driven by fear of being left behind in a market increasingly out of reach. Shenzhen, where housing prices have soared 57% since last year, according to official data, has tightened down-payment requirements. So has Shanghai, where housing loans more than tripled in January compared with a year earlier. Data on loans used to finance down payments is sketchy, as such financing is a relatively new business. In addition, developers sometimes offer such loans, and banks offer mortgage applicants loans for renovations, taxes or travel that can be channeled toward the down payment, according to property agents. Depending on the housing market, agents say, these loans can attract annual interest rates of up to 24%.

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Until there’s nothing left.

Bond Market ‘Exhausted’ as Kuroda Stimulus Enters Fourth Year (BBG)

Three years since Bank of Japan Governor Haruhiko Kuroda embarked on an unprecedented monetary experiment, yields continue to test new lows even as concern grows that his policies will cripple the world’s second-biggest bond market. Yields have tumbled below zero on maturities up to a decade following the central bank’s surprise decision this year to implement negative interest rates, after unleashing two rounds of quantitative easing since April 4, 2013. As the BOJ’s bond holdings have swelled to one-third of total debt outstanding, the market has begun to seize up amid a dearth of liquidity, causing volatility to soar. Even so, inflation – and inflationary expectations – remain far from Kuroda’s 2% target.

That’s why an overwhelming majority of analysts predict the BOJ will expand stimulus again by July, even while some warn that the technical limits to the asset-purchase program are rapidly approaching. In the BOJ’s latest survey of bond market participants, 41% rated market functioning as “low.” Kuroda said Tuesday the central bank can lower the deposit rate from the current minus 0.1% if needed, and he doesn’t think negative rates will make asset purchases difficult. “The bond market is becoming increasingly exhausted, and increasingly volatile,” said Shuichi Ohsaki at Bank of America Merrill Lynch in Tokyo. “It’s not a properly functioning market anymore. This stimulus can’t go on indefinitely.”

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The achievements of the ‘intelligent’ human species.

Sperm Whales Found Full of Car Parts and Plastics (NatGeo)

Fishing gear and an engine cover are just some of the startling contents found inside the stomachs of sperm whales that recently beached themselves on Germany’s North Sea coast. The 13 sperm whales washed up near the German state of Schleswig-Holstein earlier this year, the latest in a series of whale strandings around the North Sea. So far, more than 30 sperm whales have been found beached since the start of the year in the U.K., the Netherlands, France, Denmark, and Germany. After a necropsy of the whales in Germany, researchers found that four of the giant marine animals had large amounts of plastic waste in their stomachs. The garbage included a nearly 43-foot-long shrimp fishing net, a plastic car engine cover, and the remains of a plastic bucket, according to a press release from Wadden Sea National Park in Schleswig-Holstein.

However, “the marine litter did not directly cause the stranding,” says Ursula Siebert at the University of Veterinary Medicine Hannover, whose team examined the sperm whales. Instead, the researchers suspect that the whales died because the animals accidentally ventured into shallow seas. Male sperm whales normally migrate from their tropical or subtropical breeding grounds to colder waters at higher latitudes. The species is one of the deepest diving animals in the cetacean family, known to plummet as far as 3,280 feet (1,000 meters) in search of squid, its favorite food. The beached whales were all young males between the ages of 10 and 15, and the necropsies revealed that they died of heart failure. The team believes this particular group mistakenly swam into the North Sea, a shallower zone in between the U.K. and Norway. There the whales could not support their own body weights, and their internal organs collapsed.

“It is thought that the sperm whales may have got lost and entered the North Sea (possibly chasing squid), where the sea floor is not deep enough, causing the whales to become disorientated and die,” Danny Groves, a spokesperson for the nonprofit Whale and Dolphin Conservation (WDC), wrote in an email. According to the WDC, whales and dolphins may strand for many reasons, such as excessive noise pollution from ships and drilling surveys or even subtle shifts in Earth’s magnetic field. In addition, pilot whales that beached off the coast of Scotland three years ago showed high levels of toxins from ocean pollution, which scientists linked to stress on their brains that may have caused disorientation.

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The EU-Turket deal is a disgrace on more levels than we can count.

Turkey: The Business Of Refugee Smuggling & Sex Trafficking (ZH)

A detailed report on Syrian women refugees, asylum seekers, and immigrants in Turkey, issued as far back as 2014 by the Association for Human Rights and Solidarity with the Oppressed (known in Turkish as Mazlumder), tells of early and forced marriages, polygamy, sexual harassment, human trafficking, prostitution, and rape that criminals inflicted upon Syrians in Turkey. According to the Mazlumder report, Syrians are sexually exploited by those who take advantage of their destitution. Children, especially girls, suffer most. Evidence, both witnessed and forensic, indicates that in every city where Syrian refugees have settled, prostitution has drastically increased. Young women between the ages of 15 and 20 are most commonly prostituted, but girls as young as thirteen are also exploited.

Secil Erpolat, a lawyer with the Women’s Rights Commission of the Bar Association in the Turkish province of Batman, said that many young Syrian girls are offered between 20 and 50 Turkish liras ($7-$18). Sometimes their clients pay them with food or other goods for which they are desperate. Women who have crossed the border illegally and arrive with no passport are at high risk of being kidnapped and sold as prostitutes or sex slaves. Criminal gangs bring refugees to towns along the border or into the local bus terminals where “refugee smuggling” has become a major source of income. Professional criminals convince parents that their daughters are going to a better life in Turkey. The parents are given 2000-5000 Turkish liras ($700-$1700) as a “bride price” – an enormous sum for a poor Syrian family – to smuggle their daughters across the border.

“Many men in Turkey practice polygamy with Syrian girls or women, even though polygamy is illegal in Turkey,” the lawyer Abdulhalim Yilmaz, head of Mazlumder’s Refugee Commission, told Gatestone Institute. “Some men in Turkey take second or third Syrian wives without even officially registering them. These girls therefore have no legal status in Turkey. Economic deprivation is a major factor in this suffering, but it is also a religious and cultural phenomenon, as early marriage is allowed in the religion.” Syrian women and children in Turkey also experience sexual harassment at work. Those who are able to get jobs earn little – perhaps enough to eat, but they work long and hard for that little. They are also subjected to whatever others choose to do to them as they work those long hours.

[..] The organization End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (ECPAT) has produced a detailed report on the “Status of action against commercial sexual exploitation of children: Turkey.” ECPAT’s report cites, from the 2014 Global Slavery Index, estimates that the incidence of slavery in Turkey is the highest in Europe, due in no small measure to the prevalence of trafficking for sexual exploitation and early marriage.

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The problem merely shifts.

Italy Pleads For Greek-Style Push To Return Its Migrants (FT)

Italy is pleading for EU help to ramp up the deportation of migrants arriving on its southern shores, warning that the bloc’s immigration system is at risk of collapse without a more aggressive policy on so-called returns. In an interview with the FT, Angelino Alfano, Italy’s interior minister, says the EU should move to secure deals with African nations, which are the source of the vast majority of migrants arriving in Italy, offering economic aid in exchange for taking back their citizens and preventing new flows. His comments come as the EU enacts a scheme with Turkey in which thousands of Middle Eastern refugees will be sent back across the Aegean Sea from Greece in exchange for up to €6bn in EU aid for Ankara. A first group of 135 were returned to Turkey on Monday.

“Europe was able to find the resources when it was urgent – I am referring to Turkey. It’s a matter of political leadership,” Mr Alfano said. “If returns don’t work, the whole Juncker migration agenda will fail,” he said. Mr Alfano’s request reflects renewed nervousness in Rome about the migration crisis following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015. If that increase holds through the warmer spring and summer months, it would smash the record 170,000 migrants who arrived in Italy in 2014, straining resources and creating a political problem for the centre-left government led by Matteo Renzi. As the Greece plan goes into action, there are worries in Rome that it may compound problems by encouraging Middle Eastern migrants to switch routes and attempt to enter the EU through Italy, boosting the numbers even further.

“If Syrians don’t want to stay in Turkey but want to try the trip to Europe, they will go around and try to get here from Libya,” Mr Alfano said. “We still don’t have any evidence that this is happening, but we are monitoring.” Italy has held talks with Albania about containing a possible surge in flows through the Balkan nation. Mr Alfano also expressed hope that the recent, if wobbly, establishment of a national unity government in Libya could lead to a crackdown against migrant smugglers there. For those who do arrive, Italian officials are hoping that an EU plan to relocate thousands of refugees across its 28 member states will relieve some pressure. So far, only about 500 migrants have been moved from Italy under the plan – “apartment building numbers” – says Mr Alfano, derisively.

Italy last year deported 15,000 people, or about 10 per cent of all arrivals. Officials believe higher figures are essential to alleviate the country’s burden, even if mass returns could trigger concerns about possible violations of human rights and international law. “Irregular [migrants] have to be kept in closed camps from where they cannot escape. So how many tens of thousands of people can you keep, year after year? Without returns, either you organise real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

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Yesterday’s deportations will prove to be mainly symbolic. From here on in the problems start.

So The Greece Deportations Are Going ‘Smoothly’? Take A Closer Look (G.)

Today had been declared the first day that migrants and refugees would be deported from Greece within the framework of the EU-Turkey deal, and European authorities seemed determined not to miss the date. So as of Sunday, Greek police, along with the EU border agency Frontex, organised a large-scale operation to ensure the smooth handling of today’s returns from the islands of Chios and Lesbos. The operation was initially deemed a success, with reports being limited to the boats and their occupants, which offered some digestible photo ops. There is plenty of evidence, though, that suggests that it has been no more than a media-savvy gesture on behalf of the European commission.

Officials from Frontex clarified that the boats carried mostly Pakistanis, Bangladeshis, Afghans and Moroccans who were going to be deported to Turkey prior to the deal or didn’t request asylum. There were only two Syrians among them who appear not to have requested international protection. Indeed authorities appear to have rushed to identify such people so they could be available for today’s return. Termed “easy cases” by Frontex spokeswoman Eva Moncure, they are perfect material for today’s photo op. As it turns out, more than 90% of people arriving in Greek islands since 20 March – when the EU-Turkey deal was enacted – have opted for asylum, thus complicating their return under the arrangement. It is no surprise then that no further dates have been announced for future deportations.

The first day of deportations has been met with affirmative statements by credible international organisations, including the UN High Commissioner for Refugees (UNHCR), who confirmed that all procedures were regular and rights of deportees were observed. Everything is smooth and tidy, it seems. But this is one version of the story only. There is a second where things have gone less smoothly. Activist lawyers’ accounts and journalist reports from the islands raise the question of whether refugees have been given sufficient time and access to asylum procedures. It appears that many of them do not yet understand the content of the deal or why they have been restricted, and there has been a last-minute rush for asylum claims among the people who are possible deportees. It is also unclear how Turkey plans to handle returnees, how they will be received, and whether they will be able to receive the protection that was previously offered to them there.

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 February 3, 2016  Posted by at 11:19 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle February 3 2016


DPC Jai alai hall, Havana, Cuba 1904

Recession Risks Warn Of ‘Severe’ Drop In The Stock Market (MW)
Exxon Faces First Downgrade in 86 Years (BBG)
Iraq Sells Oil At $22, Fiscal Cliff Looms (BI)
Goldman Sachs Questions Capitalism (BBG)
Eurozone Manufacturing & Service Industries Cut Prices (BBG)
Plan To Increase The Yuan’s Trading Flexibility Gains Momentum (BBG)
Spring Festival Travel A One-Way Journey For Many Chinese (CNBC)
Buying A Home Is Overrated (MW)
The Bank of Japan Is Selling Out Its People (Gefira)
Hedge Funds, Wall Street not Happy with the New Spain (Don Quijones)
Thousands Of Greek Firms Flee To Bulgaria (Kath.)
Australian Asylum Ruling Paves Way For Deportation Of Infants (Reuters)
Greek Military To Oversee Response To Refugee Crisis (Kath.)
More Than 62,000 Migrant Arrivals In Greece Last Month (Reuters)
UN Says One-Third Of Refugees Sailing To Europe Are Children (Guardian)
Nine Migrants, Including Two Babies, Drown En Route To Greece (Reuters)

That graph feels so scary it gives me the shivers. And Deutsche sees ‘healthy’ growth return later this year? Who are they kidding?

Recession Risks Warn Of ‘Severe’ Drop In The Stock Market (MW)

Another brokerage firm has used the “R” word on Tuesday, warning investors to wake up to the idea that rising risks of a recession could send the stock market over a steep cliff. Based on current valuations, the prices of most stocks don’t appear to have factored in a recession scenario, “hence the downside should we see a recession could be rather severe,” RBC Capital Markets’ global equity team wrote in a research note to clients. Applying a stress test to their coverage universe, using worst-case, price-to-earnings valuations seen during the 2008-to-2009 recession, RBC analysts said they believe the shares of most companies could still fall another 50% or more from current levels. The concern for RBC analysts stems from the recently volatility in the stock market, caused by macro weakness, softness in China and commodity market challenges.

On Monday, Deutsche Bank strategist David Bianco said the second-half of 2015 was “clearly a profit recession” for S&P 500 companies, and suggested it probably won’t be until the second half of this year that “healthy” growth returns. Nearly half of S&P 500 companies have now reported fourth-quarter results through Tuesday morning, and earnings-per-share is headed for a 5.8% decline on the year, according to FactSet, compared with an estimated 5.7% decline as of Friday. That’s the data provider’s blended growth rate, which combines those companies that have reported with the estimates for the rest. That would be the third-straight quarter of an EPS decline, the longest such streak since the Great Recession. Among Tuesday’s culprits for the earnings decline, Exxon Mobil reported a 58% profit plunge and Pfizer reported a 50% earnings drop. Royal Caribbean Cruises reported earnings that nearly doubled, but the stock plunged 16% after the company provided a weak first-quarter outlook.

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We write history.

Exxon Faces First Downgrade in 86 Years (BBG)

Exxon Mobil, one of three U.S. companies with Standard & Poor’s highest rating, is facing its first downgrade in 86 years as the worst crude-market collapse in a generation strangles oil producers of cash. For Exxon, that would be a historic event: the global explorer that traces its roots to the 19th century and John D. Rockefeller’s Standard Oil Trust has been rated AAA by S&P since 1930. The oil giant was placed on credit watch with negative implications because its credit measures probably will remain weak through 2018, S&P said Tuesday.

“We get value from our AAA credit rating in our business,” Exxon’s Vice President of Investor Relations Jeffrey Woodbury said during a conference call with analysts before the credit review was announced. “Whether it be access to financial markets or access to resources, there is a benefit that we get from it, and we see it as being important.” The world’s five largest oil explorers had their credit ratings cut or threatened with downgrade as the market crash undermines their ability to pay debts, dividends and rig leases. For most of the oil industry, slashing drilling budgets and other cost-cutting “are insufficient to stem the meaningful deterioration expected in credit measures over the next few years,” S&P said.

In a sweeping review that also included many of the top U.S. shale drillers, Chevron had its rating cut by S&P, to AA- from AA, for the first time in almost 30 years, a day after Shell’s rating was reduced to the lowest since S&P began coverage in 1990. Exxon, Totaland BP may be next, the rating company said. S&P said it’ll decide whether to downgrade Irving, Texas-based Exxon within 90 days. If it does cut the rating, it’ll probably only be by a single notch, S&P said. Shell’s long-term credit rating was reduced on Monday by one level to A+, the fifth-highest investment grade, from AA-, and was placed on watch for another possible reduction, the ratings company said Tuesday. S&P also assigned negative outlooks to BP, Eni, Repsol, Statoil and Total.

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Bail out.

Iraq Sells Oil At $22, Fiscal Cliff Looms (BI)

The plunge in oil prices is already having far-reaching effects on countries whose economies are dependent on oil exports. But in Iraq, the stakes of cheap oil are even higher than in Saudi Arabia, which is instituting unprecedented taxation and austerity, or in Nigeria, which is now asking for an $11 billion World Bank loan. What little remains of Iraq’s government and social order might collapse if oil remains in its current price trough — with dire consequences. According to a Monday AFP report, Iraq is now selling oil at half of the country’s apparent fiscal break-even price. Right now, Iraq is selling its oil at around $22 a barrel, half of what it would need to fetch for the country to be able to fund the upcoming year of government budgetary obligations, the report said.

But Iraq’s situation is actually even worse. As recently as the 2014 fiscal year, Iraq was formulating its national budget on the assumption that oil would remain at around $90 a barrel and that the country’s oil exports would continue to climb (which they have). Iraqi government revenue experienced dramatic annual increases between 2009 and 2013, almost entirely because of oil. That’s all over, now that oil is expected to stay under $40 a barrel through the end of the year. Though Iraqi oil is comparatively cheap to extract, it also contains unusually high levels of sulfur, meaning that it typically sells for around 10% less than Brent crude, the global price benchmark.

The Iraqi government is still making money pumping oil — just not nearly enough to fund the country’s anticipated national budget. Such a daunting fiscal cliff would be challenging for a stable or politically coherent country. But it’s potentially disastrous in a place like Iraq, where the majority of territory is split between the terrorist group ISIS and the Kurdistan Regional Government. Even the areas still under some semblance of federal control are fought over by a constellation of militia groups with ties to recognized political parties.

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Shouldn’t they question the Fed instead?

Goldman Sachs Questions Capitalism (BBG)

One of the most heated debates among investors is the question of whether corporate profit margins can maintain their elevated level, or whether they will inevitably mean revert. Here’s a quick look at S&P 500 profit margins, for example, going back over 25 years. They remain high by by historical standards.

A new note from Goldman Sachs analysts led by Sumana Manohar looks at the bull and bear arguments for the profit margins debate. Manohar argues that profit margins have expanded thanks to three key trends: strong commodities prices, emerging market cost arbitrage (companies making things more cheaply in emerging markets), demand growth from emerging markets, and improved corporate efficiency driven by the use of new technology. Continuing one of its major analytical themes of recent months, Goldman also notes that the market has rewarded companies that have undertaken mergers and share buybacks, compared to companies that have invested internally, further bolstering margins. So will profit margins inevitably roll over?

Goldman goes through both sides of the argument. On the bull side, the bank says that ongoing consolidation in industries, cost deflation, and tighter purse strings help keep a floor under margins. Ultimately though, it thinks that the above trends, coupled with weak demand and general industrial overcapacity, mean that margins are likely to come down. But what if margins stay elevated? That too is possible, and the implications could be unsettling. Goldman writes: “We are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism.”

In other words, profit margins should naturally mean-revert and oscillate. The existence of fat margins should encourage new competitors and pricing cycles that cause those margins to erode while conversely, at the bottom of the cycle, low margins should lead to weaker players exiting the business and giving stronger companies more breathing space. If that cycle doesn’t continue, then something strange is taking place. Needless to say, it’s not every day you see a major investment bank say they might have to start asking broader questions about capitalism itself.

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Deflation’s in the driver’s seat, and there’s nothing anyone can do. Cutting prices is just one step in the process.

Eurozone Manufacturing & Service Industries Cut Prices (BBG)

The euro area’s manufacturing and services industries cut prices at the fastest pace in almost a year in January, underlining concerns about weak inflation in the region. Markit Economics said its composite Purchasing Managers Index for January was “disappointing” and raises the prospect that the ECB will once again pump up its stimulus program. The PMI declined to 53.6 – a 4-month low – from 54.3 in December, and the measure of output prices dropped to the lowest since March. “Most worrying of all from a policy maker’s perspective is the intensification of deflationary pressures.,” said Chris Williamson, chief economist at Markit in London. “This raises the question of whether existing stimulus has simply been insufficient, or whether monetary policy is proving ineffective.”

ECB President Mario Draghi has said the Governing Council will review its stimulus in March amid signs that falling oil prices will push the euro region’s inflation rate back to zero. The Bank of Japan has already responded to the deteriorating outlook with negative interest rates and investors see a slower pace of tightening by the Federal Reserve. In the euro area, Markit said the PMI had some “mildly positive signs,” with rising levels of employment and backlogs of work. The headline composite number was also marginally better than the initial estimate, and it remains above the key 50 level that divides expansion from contraction. The services index slipped to 53.6 from 54.2, matching the preliminary reading. The composite report continued to point to divergences in the 19-nation economy, with Spain and Germany leading growth. France offered a disappointing reading, with the index at just 50.2, lower than the 50.5 initial estimate.

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They sent them a what? “The PBOC didn’t immediately reply to a fax seeking comment.”

Plan To Increase The Yuan’s Trading Flexibility Gains Momentum (BBG)

A proposal to fix the yuan’s quandary is gaining momentum among some economists. The plan, put forward by at least three analysts, calls for China to let the yuan fluctuate freely against a basket of currencies within a trading band. Outside the range – which would be as narrow as 4% or as wide as 15% under different versions of the proposal – the central bank will intervene in the market. Similar to what Singapore has adopted, the plan could be China’s get-out-of-jail card after a slew of changes in its opaque currency policy since August whipsawed investors and cost the central bank more than $500 billion in reserves, said the economists, including a former central bank adviser and a visiting scholar from the IMF.

Under the current system, the yuan is allowed to trade 2% above or below a reference rate versus the dollar set by the People’s Bank of China. Critics say that the regime fixates investors’ attention on the dollar-yuan exchange rate, even as the authorities aim to break its tie to the strengthening U.S. currency. The lack of transparency on how it sets the reference rate, or fixing, keeps investors guessing about the intentions of policy makers. “They are sort of stuck, I don’t think the market knows what exactly the policy is,” Tamim Bayoumi, a senior fellow at Peterson Institute for International Economics and an economist at the IMF since 1988, said from Washington. “The proposal is one way out of that,” said Bayoumi, who pitched the idea in a blog in December, favoring a 4% trading band.

By targeting a broader range of currencies and a wider band, the proposed system attempts to give market forces more sway in determining the exchange rates, save foreign reserves while shifting investors’ focus away from the dollar and provide clarity on policy. The PBOC didn’t immediately reply to a fax seeking comment. Chinese policy makers have been struggling to restore calm in the yuan since August when it revamped its currency system to make it more flexible. While the authorities have repeatedly said they aim to keep the exchange rate stable against a basket of currencies even if it falls versus the dollar, they have had little success convincing investors. The onshore yuan’s 5.6% slide versus the dollar over the past six months fueled expectations for a further depreciation and boosted capital outflows.

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I see a lot of unhappy people in our future.

Spring Festival Travel A One-Way Journey For Many Chinese (CNBC)

A giant annual human migration is underway in China, and it’s a bonanza for some but a painful process for others. Some 2.9 billion trips are expected to be undertaken between the start of China’s annual travel season on January 24 and the end on March 3, according to China’s transport ministry, with this week leading up to Spring Festival or Lunar New Year, which starts on February 8, being the busiest. [..] According to a real-time travel map by Chinese internet giant Baidu, the Beijing-to-Shanghai route on Wednesday afternoon in Asia was the most heavily traveled across all forms of transport, followed by Xian to Beijing and Shenyang to Beijing. For many migrant workers, however, this year’s journey home may be their final one, as slowing growth puts paid to their city dreams.

China’s factory activity skidded to a three-year low point in January, adding to gloom about the state of the world’s second-largest economy. Although growth in the service sector held above the key 50 expansionary level, the January official non-manufacturing purchasing manager’s index slowed to 53.5 from 54.4 in December. Restaurant workers Du Lijuan and Song Yaoguo told CNBC that they would not be among the crush of travelers this week. Both are waiting in Beijing for unpaid salaries of about $1,000 each before heading back home to the countryside, after losing their at a restaurant when it ran into financial difficulties in September. “We have no money to buy tickets, to buy gifts for our family or children,” Du said. “Normally, we spend $650 every Lunar New Year. I am not coming back [to Beijing].”

For years, migrant workers have been the backbone of China’s economic growth, by working in factories and constructing buildings, but many are considering new lives in the countryside after this Spring Festival, because they fear being unable to find jobs if they return to the cities. The migrant population fell by 5.7 million to 247 million in 2015, its first drop in about three decades.

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It’s the debt, stupid!

Buying A Home Is Overrated (MW)

Is buying a house instead of renting really the best financial decision? It’s a question that’s frequently debated, with traditional thinking being that renting is akin to throwing money out the window. But there are some good reasons to believe that buying a home instead of renting isn’t as great of an investment as Americans once thought. “Housing is overrated as a financial investment,” according to economist Alex Tabarrok, an economics professor at George Mason University and a research fellow at the university’s Mercatus Center, which conducts research on financial markets. He addressed the question of what economists think about buying compared to renting on Marginal Revolution, a blog he runs with fellow economist and George Mason professor Tyler Cowen.

“First, it’s not good to have a significant share of your wealth locked into a single asset,” he wrote. “Diversification is better and it’s easier to diversify with stocks. Second, unless you are renting the basement, houses don’t pay dividends. Stocks do. You can hope that your house will accumulate in value but don’t count on it. Indeed, you should expect that as an investment your house will appreciate less than does the stock market.” Owning a home makes it harder for many people to change locations for new job opportunities, leading to homeowners holding onto homes even while prices fall, Tabarrok said. Still, Americans don’t seem to be giving up on homeownership yet. Sales of existing homes rose 14.7% in December, the biggest monthly increase ever recorded, after depressed sales in November. Sales in 2015 were the best since 2006, at 5.26 million.

Americans are also buying homes that are larger and pricier; average home size was 2,720 square feet in 2015, up from 2,660 square feet in 2014. And the average price of new homes for sale in 2015 was $351,000, up from $100,000 in 2009. (Still, this doesn’t necessarily reflect the housing market’s strength, as new construction has mostly happened in the high-end market.) Of course, there are some benefits to homeownership, and they aren’t just avoiding unexpected rent hikes and unpredictable landlords. Many people simply enjoy interior decorating and entertaining, Tabarrok added. And perhaps more importantly, home ownership is often tied to access to better public schools. The U.S. tax code also subsidizes houses. Still, he cautioned against the seduction of a large home. “Behavioral economics tells us that we quickly get used to big houses, but we never get used to commuting,” he wrote. “So when you have a choice, go for the smaller house closer to work.”

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h/t ZH

The Bank of Japan Is Selling Out Its People (Gefira)

The Bank of Japan’s unexpected rate cuts to negative are a desperate attempt to help out the FED and to support the dollar at the expense of the aging Japanese population. The negative market reaction to the FED’s rate hike of December shows that investors do not believe an economic recovery in the US is underway. Two reasons make central banks start to raise interest rates. The first is that economy is doing well, and central banks have to prevent an overheated economy. But it is also a signal to investors everything is going well. In this situation, the first reaction of investors will be the opposite as central bankers planned they will and increase their investments and markets will go up. The second reason central banks raise interest rates is the defensive one; the moment the economy is out of control, investors are beginning to abandon the sinking ship.

The continually increasing interest rate has the task of keeping the investors aboard. Central banks in less developed economies raise rates to defend the national currency, thus preventing investors from fleeing. An increase in the interest rate can add fuel to the fire and in many cases has the opposite effect. Investors start smelling angst of the authorities and start abandoning the sinking ship. In such a situation stock markets are coming crashing down because investors withdraw from them. We saw this last pattern happening in the US economy after the December FED’s rate hike. As a result, the dollar-yen exchange rate is starting to decline, with the value of the dollar falling off as Japanese investors start panicking and fleeing the US market. Surely, Japanese investors know that a rate hike without an accompanying economic growth will erode every existing investment.

There is a general misconception according to which countries drive their currency down to generate growth. People adhere to the simplistic belief that a weak currency drives exports and helps the nation to prosper. The fact is that a cheap currency creates growth by giving away real goods in exchange for IOU (I Owe Yous) or paper debt obligations that will never be repaid. The US is the beneficiary or the receiving end of the weak yen policy. Because the US continues to maintain its world hegemony, it needs a strong dollar. A strong dollar makes everything the US empire buys in the world cheap. A strong dollar causes the world to be willing to exchange real goods for printed paper dollars that have no intrinsic value, and that are issued by a country that does not have the industrial capacity to ever repay what it owes its debtors.

The endless trade deficit the US has with Japan shows how the Japanese are prepared to provide the US with real goods without demanding tangible goods in return. Because the international press publishes trade data in dollars, the trade balance deficit seems to have been shrinking over the last years. The actual situation becomes apparent if we look at the trade deficit in yens. The US trade deficit with Japan is growing bigger and bigger year after year, as Japanese producers are giving away a big chunk of their production to US consumers in return for more and more US paper debt. By manipulating the yen, Japanese authorities are giving away a real part of their GDP that they take from their people to the US empire.

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Very good. Do read the whole thing. The socialists have been asked to form a government.

Hedge Funds, Wall Street not Happy with the New Spain (Don Quijones)

Plunging shares, shrinking profits, and a spate of new regulations and court cases that could end up setting it back billions of euros – that’s what the Spanish banking sector is facing. But now, banks are also grappling with the complete absence of a friendly central government to insulate them from the cruel vagaries of the global economic downturn. And the strain is beginning to show. “The political parties must reach an agreement as soon as possible and form a government that is stable,” pleaded Francisco González, president of Spain’s second biggest bank, BBVA. Such a government must not “think about utopias, which only serve to create frustration,” must be “realistic” and (most important of all) must “continue with the policies of the last three of four years.”

González cautioned that foreign investors “are phoning less often” than before. Those “investors” probably include firms like Blackstone and Goldman Sachs, which made a fortune in the immediate aftermath of Spain’s real estate collapse and EU-funded bailout, by picking up publicly subsidized housing on the cheap and either flipping them or renting them at much higher rates. In those days, the city council was led by Ana Botella, the then Mayor and wife of Spain’s former President José María Aznar. One of the main brokers in the deals struck between the city council’s two housing agencies and international funds like Goldman and Blackstone was José María Aznar Botella – their son!

Despite his lack of investment banking experience, Aznar Botella served as an advisor and go-between at the Madrid-based real estate firm Gesnova Gestión Inmobiliaria Integral, which enjoyed close ties with firms like Blackstone subsidiary Fidere, Lone Star, Apollo, KKR, Goldman’s Madrid-based subsidiary Azora, and U.S. private equity firm Cerberus Capital Management LP, whom Aznar-Botella also serves as an advisor. Here’s how the scheme worked: in the aftermath of Spain’s real estate bust, the Rajoy government set up a bad bank by the name of Sareb, a public-private venture responsible for managing distressed assets transferred from the four nationalized financial institutions BFA-Bankia, Catalunya Banc, NGC Banco-Banco Gallego, and Banco de Valencia.

As soon as the bad bank was operational, global investment firms began flocking to Madrid to pick up the juiciest pieces at the best prices, part-subsidized by Spanish taxpayers. To get their hands on the really good stuff, however, investors needed someone on the inside, which is presumably where the Aznar-Botello mother & son partnership came in. But it’s one thing to sell tranches of unoccupied or foreclosed properties to foreign investors to help put a floor under Spain’s property market; it’s quite another when you start selling huge batches of social housing at a ridiculous discount to some of the biggest financial firms on the planet, in a country that has one of the smallest stocks of social housing in Europe. It didn’t take long before rents began soaring and the police began knocking doors down.

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The Troika making sure Greece will never recover.

Thousands Of Greek Firms Flee To Bulgaria (Kath.)

According to the president of the Hellenic Confederation of Professionals, Craftsmen and Merchants (GSEVEE), some 6,000 Greek enterprises have emigrated to Bulgaria in the last couple of years alone. At the same time, the GSEVEE chief says, Greeks are behind about 60,000 new tax registrations and bank accounts in the neighboring country. Giorgos Kavathas on Tuesday cited the above figures from an ongoing survey by GSEVEE, adding that the interventions planned for the social security system can only be expected to lead to more Greek firms emigrating. The survey will be presented in the next few days, he noted.

He was speaking at a press conference held jointly by GSEVEE and the Hellenic Confederation of Commerce and Enterprises (ESEE) regarding their participation in tomorrow’s general strike against the government’s planned pension reforms. The two unions warned that manufacturers and merchants will not stop at this strike, and will escalate their industrial action further. “The social security matter is a major national issue and we agree there has to be a reform, although no actuarial study would lead to safe conclusions given the existence of 1.5 million jobless,” argued the president of ESEE, Vassilis Korkidis.

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Trying to rival the EU in inhumanity.

Australian Asylum Ruling Paves Way For Deportation Of Infants (Reuters)

Australia’s High Court threw out a challenge to offshore immigration detention camps on Wednesday, clearing the way for the deportation of dozens of infants born in Australia to detained asylum seekers. The court rejected a legal test case brought by an unidentified Bangladeshi woman that challenged Australia’s right to deport detained asylum seekers to the tiny South Pacific island nation of Nauru. The detention centre on Nauru houses about 500 people and has been widely criticised by the United Nations and human rights agencies for harsh conditions and reports of systemic child abuse. The Bangladeshi woman was on a boat intercepted by Australian authorities in October 2013. She was detained on Australia’s remote Christmas Island and later sent to Nauru.

She gave birth to a daughter after she was transferred to Australia for medical treatment in 2014 and has remained there with her child. Other families with children born in Australia in similar circumstances are now in line to be returned to the camps. Lawyers from the Human Rights Law Centre (HRLC) acting for the Bangladeshi woman had argued it was illegal for Australia to operate and pay for offshore detention in a third country. “I hope that the immigration minister and the prime minister, just like other decent Australians, can see that there is simply no excuse to take 37 babies, to rip children from their classrooms, and warehouse them on a tiny island,” HRLC Director of Legal Advocacy Daniel Webb told reporters. “Now, the legality may be complex. The politics may be complex. But the morality is simple. It is fundamentally wrong.”

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It’s all aimed at streamlining the process to move refugees north. But that’s not what Europe wants.

Greek Military To Oversee Response To Refugee Crisis (Kath.)

Defense Minister Panos Kammenos on Tuesday heralded the creation of a central body to oversee and improve Greece’s response to the migration and refugee crisis and ensure the country safeguards its position in the Schengen passport-free area, noting that the new body will be led by a senior military official. Greece’s military is to have the oversight of the “Central Coordinating Body for the Management of Migration” until the Migration Ministry and the Hellenic Police gain the necessary know-how and experience to tackle the problem independently, Kammenos indicated at Tuesday’s press conference.

The center, which is to be operational by February 15, is to be based at the Defense Ministry headquarters and coordinate with the Hellenic Police, Coast Guard, Migration Ministry and nongovernmental organizations working with migrants and refugees. The aim is to increase the efficiency of transferring migrants from the islands to the mainland, to improve the provision of food as well as medical and healthcare to migrants, and to monitor the creation of five screening centers, or hot spots, for migrants on the eastern Aegean islands of Lesvos, Chios, Samos, Kos and Leros. Referring to the growing pressure on the islands of the eastern Aegean that receive thousands of migrants daily from neighboring Turkey, Kammenos explained that the new plan aims to spread the burden.

The five hot spots to be set up on the islands are to accommodate migrants for only 24 hours while two relocation centers, on the outskirts of Athens and Thessaloniki, will host new arrivals for up to 72 hours. The screening and relocation centers are to operate in a similar way to the central body, under a local military official who is to coordinate with police and coast guard officers. As the European Union increases the pressure on Greece to manage its borders more effectively, French Interior Minister Bernard Cazeneuve is due in Athens on Thursday and Friday for talks expected to focus on the migration crisis.

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Wow! Imagine what spring will bring.

More Than 62,000 Migrant Arrivals In Greece Last Month (Reuters)

The total number of migrants and refugees arriving in Greece in January topped 62,000, the International Organization for Migration said on Tuesday. “(It) is many, many times what we saw a year ago in the previous January,” IOM spokesman Joel Millman said. He added that there were more than 360 deaths among migrants in the waters off Greece, Turkey and Italy during the month.

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When are we going to get real about this?

UN Says One-Third Of Refugees Sailing To Europe Are Children (Guardian)

Children now make up over a third of the people making the perilous sea crossing from Turkey to Greece, the UN has said, as two more babies drowned off Europe’s shores. For the first time since the start of the migration crisis in Europe, there are also now more women and children crossing the border from Greece to Macedonia than adult males, according to UN children’s agency Unicef. The figures emerged as Europe struggles with its biggest movement of people crisis since the second world war, with more than a million people fleeing war, violence and poverty risking life and limb to reach its shores last year. “Children currently account for 36% of those risking the treacherous sea crossing between Greece and Turkey,” the Unicef spokeswoman Sarah Crowe said.

“Children and women on the move now make up nearly 60%” of those entering from Macedonia, she added. The figures mark a significant shift since June, when 73% of refugees were adult males and only one in 10 were under the age of 18. Marie Pierre Poirier, Unicef’s special coordinator for the refugee and migrant crisis in Europe, said women and children were even more vulnerable to the dangers of trying to travel to Europe. “The implication of this surge in the proportion of children and women on the move are enormous,” she said in a statement. “It means more are at risk at sea, especially now in the winter, and more need protection on land.” Underlining her point, the International Organisation for Migration (IOM) said on Tuesday that one in every five who drowned last month while trying to sail from Turkey to Greece was a child, with minors accounting for 60 of the 272 deaths.

Including January, a total of 330 children have died in those waters over the last five months, many of them just metres from shore, the organisation said. The drownings continue a grim trend that accelerated last year when nearly 4,000 people died trying to reach Europe by sea. The plight of children was brought home last year when the body of Syrian toddler Alan Kurdi was found washed up on the shore close to Bodrum, Turkey, horrifying the international community. The bodies of two more babies were recovered by the Turkish coastguard in the Izmir province on Tuesday along with seven dead adults, just days after another 37 people drowned off another part of the coast.

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Europe will not be pardoned for this.

Nine Migrants, Including Two Babies, Drown En Route To Greece (Reuters)

The bodies of nine people, including two babies, were found drowned off the coast of western Turkey on Tuesday, after a boat carrying refugees and migrants to Greece partly capsized, the Turkish coast guard said in a statement. The fiberglass vessel partially capsized at 0535 local time (0335 GMT) off the coast of Seferihisar in Izmir province, close to the Greek Island of Samos. Two people were rescued swimming to the shore, the coast guard said. A crackdown on illegal crossing and the dangerous winter conditions has failed to deter tens of thousands from boarding flimsy boats and attempting to cross the Mediterranean waves in the first few weeks of the year.

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Dec 252015
 
 December 25, 2015  Posted by at 9:44 am Finance Tagged with: , , , , , ,  Comments Off on Debt Rattle Christmas Day 2015


Jack Delano Brockton, Mass., Enterprise newspaper office on Christmas Eve 1940

Switzerland To Vote On Banning Banks From Creating Money (Telegraph)
US Retailers At Risk Of Missing Even Modest Holiday Sales Goals (Reuters)
High Street Christmas Shopping Figures Grim Reading For Retailers (Guardian)
Lower Jobless Claims Don’t Point to Robust US Labor Market (WSJ)
African Firms Hit by Dollar Shortages (WSJ)
Why The Fed Will Never Succeed (Macleod)
The Perils of Fed Gradualism (Stephen Roach)
The Political Consequences of Financial Crises (Davies)
Yanis Varoufakis Talks Again, Insults Everybody (Politico)
2015 Year In Review – Scenic vistas from Mount Stupid (Collum)
Black Lives Matter Protests Roil Cities Across The US (LA Times)
US Plans Mass Deportation of Illegal Central American Migrants (WSJ)
In The Bleakness Of The Calais Migrant Camp, A Light Shines Out (Guardian)
Refugee NGOs On Greek Islands To Be Coordinated (Kath.)

Well, we can hope…

Switzerland To Vote On Banning Banks From Creating Money (Telegraph)

Switzerland will hold a referendum to decide whether to ban commercial banks from creating money. The Swiss federal government confirmed on Thursday that it would hold the plebiscite, after more than 110,000 people signed a petition calling for the central bank to be given sole power to create money in the financial system. The campaign – led by the Swiss Sovereign Money movement and known as the Vollgeld initiative – is designed to limit financial speculation by requiring private banks to hold 100pc reserves against their deposits. “Banks won’t be able to create money for themselves any more, they’ll only be able to lend money that they have from savers or other banks,” said the campaign group. Under Switzerland’s direct democracy, a referendum can be held if a motion gains 100,000 signatures within 18 months of launching.

If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, “while the decision concerning how new money is introduced into the economy would reside with the government,” says Vollgeld. The idea of limiting all money creation to central banks was first touted in the 1930s and supported by renowned US economist Irving Fischer as a way of preventing asset bubbles and curbing reckless lending. In modern market economies, central banks control the creation of banknotes and coins but not the creation of all money, which occurs when a commercial bank offers a line of credit. Central banks aim to influence the money supply with monetary policy and regulatory tools. The SNB was established in 1891, with exclusive power to mint coins and issue Swiss banknotes.

But over 90pc of money in circulation in Switzerland now exists in the form “electronic” cash created by private banks, rather than the central bank. Members of the initiative committee for Monetary Reform (Vollgeld-Initiative) hand over boxes with more than 120.000 signatures at the Federal Chancellery in Bern, Switzerland “Due to the emergence of electronic payment transactions, banks have regained the opportunity to create their own money,” said the Swiss Sovereign Money campaign. “The decision taken by the people in 1891 has fallen into oblivion.”

Referenda on monetary matters are not new in Switzerland. Last year, the country voted by more than 78pc to reject a law calling for the central bank to increase its gold reserves from 7pc to 20pc. Unlike the gold vote – which was seen as a precursor to re-introducing the Gold Standard in Switzerland – economists have been more supportive of the idea of “sovereign money” as a way to stabilise the economy and prevent excess credit growth. Iceland – which saw its bloated banking system collapse in spectacular fashion in 2008 – has also touted an abolition of private money creation and an end to fractional reserve banking. A date for the Swiss referendum has not been set.

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Translation: it’s a lousy shopping season.

US Retailers At Risk Of Missing Even Modest Holiday Sales Goals (Reuters)

Retailers are struggling to meet even modest forecasts for the holiday shopping season this year after the “Super Saturday” before Christmas failed to live up to its nickname, industry research groups said. The last Saturday before Christmas often sets the annual record for retail sales, vying with Thanksgiving weekend’s Black Friday. In recent years, last-minute shopping has determined the success of the season, and a relatively weak final weekend bodes poorly for retailers. This year Super Saturday weekend sales in stores and online rose 4% to $55 billion, after a 2.5% gain last year, according to retail consultancy and private-equity fund Customer Growth Partners. That puts overall store and online sales from the start of November through Dec. 22 on track to rise 3.1%, below the 3.2% pace the firm forecast and down from 4.1% growth in the same period last year.

“Sales have been sluggish so far this year as most consumers are still buying close to need,” said Craig Johnson, president of Customer Growth Partners. “What’s worse is the marked deceleration from a year ago,” he said. Last year, last-minute sales gained in the final 10 days of the holiday season, driven by savings from lower gasoline prices. If sales, spurred by gift card redemptions, hold up in the week after Christmas this year, retailers could move closer to meeting performance forecasts, consultants and retail experts said. The National Retail Federation, the leading industry body, has forecast a 3.7% rise in store and online sales this year. Discounts across categories have been deeper than last year, in the range of 20% to 50%, said Traci Gregorski at analytics firm Market Track.

But consultants said the discounting still had not been enough to boost store traffic materially. Promotions earlier in November took a toll on in-store sales during the Thanksgiving weekend, when total spending was the same as last year, according to the NRF.

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Lousy shopping in Britain too.

High Street Christmas Shopping Figures Grim Reading For Retailers (Guardian)

High streets are continuing to suffer as shoppers saved on gifts and splashed their spare cash in restaurants and pubs in the days before Christmas. The number of shoppers visiting UK stores slid 9% year on year on Monday and Tuesday, dashing hopes of a late rush to stores, according to analysts at Springboard. Diane Wehrle, insights director at Springboard, said about 2% of the decline in shopper numbers was likely to be linked to the timing of Christmas Day, which is one day later in the week than last year. The changing of shopping habits towards buying online and unseasonably balmy temperatures have also meant there is little demand for new coats, boots and knitwear. The Black Friday discount day in late November may also have eaten up sales.

“There is a downward movement in footfall anyway but we are seeing greater drops in the run-up to Christmas this year,” Wehrle said. “It’s partly because we have now got Black Friday and that has fed the habit to shop online. Retailers have gone hell for leather with with bargains but a lot of those will have been bought online for click & collect later.” The poor shopper numbers will make grim reading for retailers who have been banking on a late rush this year. Bonmarché and Game Digital have already issued profit warnings as demand has failed to materialise this year and analysts expect more will follow. Shares in Marks & Spencer slid earlier this week after analysts at Nomura predicted sales of clothing and homewares at established stores would slump 5.5% over the three months to the end of the year.

The retailer has been offering 30% off knitwear, one of its key seasonal ranges, since 10 December, as chains including Debenhams, Bhs, Dorothy Perkins, H&M and Gap have all got out their sale banners. Veteran analyst Richard Hyman has predicted a shake-out in the new year, as shops count the cost of a lacklustre Christmas. “There’s a lot of zombie-looking, ailing retailers that are not long for this world,” he said. High street stores are particularly suffering as shoppers switch to the internet. In-store spending slid 2.3% in the first 10 days of December according to Barclaycard, while online spending rose 9.4%, leaving overall spending virtually flat year on year.

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“The greatest concern in the labor market now aren’t those who recently lost their jobs, but the persistently large number out of work for months or years, and those stuck in low-paying and part-time jobs.“

Lower Jobless Claims Don’t Point to Robust US Labor Market (WSJ)

The fewest Americans since 1973 will seek new unemployment benefits this year, but that doesn’t mean the labor market is back to full health. In total, less than 15 million American will make first-time requests for government assistance this year–about half as many claims as were made in 2009–and far fewer than the number filed during the 1980s and 90s when the economy was expanding at a stronger clip. The greatest concern in the labor market now aren’t those who recently lost their jobs, but the persistently large number out of work for months or years, and those stuck in low-paying and part-time jobs. At the same time, a larger portion of those newly laid off isn’t seeking benefits.

Initial claims are seen as a proxy for layoffs, but other separation measures show that layoffs have plateaued, or even increased this year. The Labor Department recorded 17.4 million layoffs and discharges during the first 10 months of the year, nearly unchanged from the same period in 2014. Outplacement consultants Challenger, Gray & Christmas report the number of layoffs announced by typically large companies through November was 28% higher than through the first 11 months of last year, partly reflecting cutbacks in the energy industry. Economists usually expect hiring to strengthen when new claims decline. But that hasn’t happened this year. Through November, employers added a monthly average of 210,000 jobs to payrolls.

For all of last year, the average was 260,000. The average level of weekly claims was about 10% higher in 2014. Claims readings could be distorted because a smaller share of those laid off are applying for benefits. The share of laid off workers seeking benefits has fallen this year to just above 50%, according to the National Employment Law Project, a group that advocates for the unemployed. The rate is down from record high of almost 80% just after the recession ended.

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Seen from miles away.

African Firms Hit by Dollar Shortages (WSJ)

Valentine Ozigbo is struggling to obtain a key construction ingredient as he refurbishes and builds hotels in Nigeria: the U.S. dollar. Some of Africa’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, are restricting access to the greenback to protect dwindling reserves. That is causing problems for businesses from Mr. Ozigbo’s Transcorp Hotels to international giants like General Electric and Coca-Cola, all of which are struggling to get the dollars they need for imports or to send profits back home. The shortage comes as the inflow of dollars from resource exports, from oil to cotton, has plummeted with the prices of these commodities. The commodity rout also is putting pressure on local currencies, which some central banks are trying to support with their dwindling supply of dollars.

This dollar squeeze is frustrating investors, increasing costs and delaying projects. It may hamper future investment in countries reeling from the fall in commodity prices. “It’s been a rough ride for a lot of companies in Nigeria, if not all the companies,” said Mr. Ozigbo, chief executive of Transcorp Hotels. Nigeria gets more than 90% of its foreign-currency reserves from oil exports. Since June 20, 2014, when the U.S. oil price was at $107.26, the U.S. oil price has declined 66% through Tuesday’s close of $36.14, amid oversupply and weak growth in demand. Oil’s decline sent the value of the naira, Nigeria’s currency, sharply lower at the start of the year. In March, the Central Bank of Nigeria fixed its exchange rate at around 199 naira to the dollar. By this month, its currency reserves were down 18% to $29.5 billion from the same month last year.

In the summer, the central bank introduced a list of 41 items, from meat to concrete, that it won’t release dollars for. But no matter what a buyer wants their dollars for, their request has to be vetted against this list, slowing down any attempt to buy the currency. Angola now lists industries—including the oil and food sectors—that have priority for the country’s dollar reserves, In Mozambique, the government requires companies to convert half of any dollar revenues into the local currency, as it looks to shore up its reserves. “It’s obviously not like it used to be, where you would go to the bank and get your dollars,” said Jay Ireland, the Africa chief executive officer for GE. “Now it’s a process that they require and it takes longer,” he said, talking about Nigeria and Angola.

Mr. Ireland said GE remains committed to long-term projects in Africa, but the dollar shortage means that it now takes local clients longer to buy GE products priced in dollars. Coca-Cola has been in Africa for almost a century and can obtain dollars from across its businesses. Still, the beverage giant is concerned that its suppliers will start to feel the pinch as they struggle to fund imports that they need. “If there are no changes in monetary policy it might become a bigger challenge and that is a space we are watching very closely,” said Adeola Adetunji, Coca-Cola’s managing director in Nigeria. “Business is not as usual.”

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“The fundamental question is actually far broader than whether or not the Fed should be raising rates: rather, should the Fed be managing interest rates at all?” No, of course not.

Why The Fed Will Never Succeed (Macleod)

The Fed will never succeed in its attempt to manage inflation and unemployment by varying interest rates. This is because it and its economists do not accept the relationship between, on one side, the money it creates and the bank credit its commercial banks issue out of thin air, and on the other the disruption unsound money causes in the economy. This has been going on since the Fed was created, which makes the question as to whether the Fed was right to raise interest rates recently irrelevant. Furthermore, it’s not just the American people who are affected by the Fed’s monetary management, because the Fed’s actions affect nearly everyone on the planet. The Fed does not even admit to having this wider responsibility, except to the extent that it might have an impact on the US economy.

That the Fed thinks it is only responsible to the American people for its actions when they affect all nations is an abrogation of its duty as issuer of the reserve currency to the rest of the world, and it is therefore not surprising that the new kids on the block, such as China, Russia and their Asian friends, are laying plans to gain independence from the dollar-dominated system. The absence of comment from other central banks in the advanced nations on this important subject should also worry us, because they appear to be acting as mute supporters for the Fed’s group-think. This is the context in which we need to clarify the effects of the Fed’s monetary policy. The fundamental question is actually far broader than whether or not the Fed should be raising rates: rather, should the Fed be managing interest rates at all? Before we can answer this question, we have to understand the relationship between credit and the business cycle.

There are two types of economic activity, one that correctly anticipates consumer demand and is successful, and one that fails to do so. In free markets the failures are closed down quickly, and the scarce economic resources tied up in them are redeployed towards more successful activities. A sound-money economy quickly eliminates business errors, so this self-cleansing action ensures there is no build-up of malinvestments and the associated debt that goes with it. When there is stimulus from monetary inflation, it is inevitable that the strict discipline of genuine profitability that should guide all commercial enterprises takes a back seat. Easy money and interest rates lowered to stimulate demand distort perceptions of risk, over-values financial assets, and encourages businesses to take on projects that are not genuinely profitable. Furthermore, the owners of failing businesses find it possible to run up more debts, rather than face commercial reality. The result is a growing accumulation of malinvestments whose liquidation is deferred into the future.

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“..the excess liquidity spawned by gradual normalization leaves financial markets predisposed to excesses and accidents.”

The Perils of Fed Gradualism (Stephen Roach)

The Fed had, in effect, become beholden to the monster it had created. The corollary was that it had also become steadfast in protecting the financial-market-based underpinnings of the US economy. Largely for that reason, and fearful of “Japan Syndrome” in the aftermath of the collapse of the US equity bubble, the Fed remained overly accommodative during the 2003-2006 period. The federal funds rate was held at a 46-year low of 1% through June 2004, before being raised 17 times in small increments of 25 basis points per move over the two-year period from mid-2004 to mid-2006. Yet it was precisely during this period of gradual normalization and prolonged accommodation that unbridled risk-taking sowed the seeds of the Great Crisis that was soon to come.

Over time, the Fed’s dilemma has become increasingly intractable. The crisis and recession of 2008-2009 was far worse than its predecessors, and the aftershocks were far more wrenching. Yet, because the US central bank had repeatedly upped the ante in providing support to the Asset Economy, taking its policy rate to zero, it had run out of traditional ammunition. And so the Fed, under Ben Bernanke’s leadership, turned to the liquidity injections of quantitative easing, making it even more of a creature of financial markets. With the interest-rate transmission mechanism of monetary policy no longer operative at the zero bound, asset markets became more essential than ever in supporting the economy.

Exceptionally low inflation was the icing on the cake – providing the inflation-targeting Fed with plenty of leeway to experiment with unconventional policies while avoiding adverse interest-rate consequences in the inflation-sensitive bond market. Today’s Fed inherits the deeply entrenched moral hazard of the Asset Economy. In carefully crafted, highly conditional language, it is signaling much greater gradualism relative to its normalization strategy of a decade ago. The debate in the markets is whether there will be two or three rate hikes of 25 basis points per year – suggesting that it could take as long as four years to return the federal funds rate to a 3% norm.

But, as the experience of 2004-2007 revealed, the excess liquidity spawned by gradual normalization leaves financial markets predisposed to excesses and accidents. With prospects for a much longer normalization, those risks are all the more worrisome. Early warning signs of troubles in high-yield markets, emerging-market debt, and eurozone interest-rate derivatives markets are particularly worrisome in this regard.

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Swing to the right.

The Political Consequences of Financial Crises (Davies)

Three German economists, Manuel Funke, Moritz Schularik, and Christoph Trebesch, have just produced a fascinating assessment based on more than 800 elections in Western countries over the last 150 years, the results of which they mapped against 100 financial crises. Their headline conclusion is stark: “politics takes a hard right turn following financial crises. On average, far-right votes increase by about a third in the five years following systemic banking distress.” The Great Depression of the 1930s, which followed the Wall Street crash of 1929, is the most obvious and worrying example that comes to mind, but the trend can be observed even in the Scandinavian countries, following banking crises there in the early 1990s.

So seeking to explain, say, the rise of the National Front in France in terms of President François Hollande’s personal and political unpopularity is not sensible. There are greater forces at work than his exotic private life and inability to connect with voters. The second major conclusion that Funke, Schularik, and Trebesch draw is that governing becomes harder after financial crises, for two reasons. The rise of the far right lies alongside a political landscape that is typically fragmented, with more parties, and a lower share of the vote going to the governing party, whether of the left or the right. So decisive legislative action becomes more challenging. At the same time, a surge of extra-parliamentary mobilization occurs: more and longer strikes and more and larger demonstrations.

Control of the streets by government is not as secure. The average number of anti-government demonstrations triples, the frequency of violent riots doubles, and general strikes increase by at least a third. Greece has boosted those numbers recently. The only comforting conclusion that the three economists reach is that these effects gradually peter out. The data tell us that after five years, the worst is over. That does not seem to be the way things are moving now in Europe, if we look at France’s recent election scare, not to mention Finland and Poland, where right-wing populists have now come to power. Maybe the answer is that the clock starts ticking on the five years when the crisis is fully over, which is not yet true in Europe.

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Politico.eu doesn’t seem to like Yanis much.

Yanis Varoufakis Talks Again, Insults Everybody (Politico)

In an interview published in Thursday’s edition of the Dutch newspaper De Volkskrant, Varoufakis took dozens of hard swings at those who have vilified him and his negotiation tactics. Among the greatest hits were Varoufakis claiming the Eurogroup is a place fit only for psychopaths, calling German Finance Minister Wolfgang Schäuble a puppet master and bashing Eurogroup President Jeroen Dijsselbloem as an ineffectual tool of the Germans. Here are the highlights:

1. It was one big coup d’état – European partners came to an agreement with Tsipras’s left-wing government on a third bailout after a hot summer of tense negotiations and slow progress. Many still blame the Varoufakis for the disastrous turn of events. Does Varoufakis agree? “No! I won’t do that. It was nothing but a coup, one big coup d’état. And it succeeded,” he said. “I’m not taking any responsibility for that,” he said. “My speeches were moderate, my plans measured, my advisors were not left-wing lunatics. There was another reason that the other side poured poison and lies over me, and portrayed me as a dangerous radical while I was the most right wing minister in the cabinet. If I was a crazy left-wing lunatic, they wouldn’t have been afraid of me.” “No, they wanted to get rid of me because I knew what I was talking about.”

Jeroen Dijsselbloem, the president of the Eurogroup of finance ministers, confirmed to the Dutch broadcaster NOS that he pushed Tsipras to pull out his finance minister. The Dutchman said he didn’t think Varoufakis had a mandate to negotiate, and thus “I went to do this with the prime minister instead,” he said in an interview to be broadcasted next Monday.

2. Dijsselbloem is a puppet, Schaüble his master – Varoufakis clashed repeatedly with his fellow finance ministers in the Eurogroup. Soothing the egos of politicians and power brokers was not his strong suit. When asked who dominated the meetings, he said: “(German Finance Minister) Wolfgang Schäuble. He’s the puppet master who pulls all the strings. All the other ministers are marionettes. Schäuble is the grandmaster of the Eurogroup. He decides who becomes the president, he determines the agenda, he controls everything.” The Greek ex-minister is especially hard for Dijsselbloem. “[He] has no real power. Dijsselbloem has no authority; he is a soldier, a puppet … He can’t make any decisions without calling Schäuble.”

“Dijsselbloem is a cog in a machine that he doesn’t understand himself,” he said later in the interview. “There was absolutely no reason for me to speak with Jeroen because he was neither willing nor able to have a real discussion, let alone interested.” But one leader gets praise from the Greek economist: the European Central Bank’s President Mario Draghi: “A formidable economist,” Varoufakis called him, adding that “Draghi is very frustrated by the suffocating limitations of his ECB mandate.”

3. Eurogroup is the place to be — if you’re a psychopath – “Anyone who speaks about blissful moments in the Eurogroup should be locked up immediately for being a dangerous lunatic,” the ex-minister said laughingly. “The Eurogroup is a very unpleasant place, including for Schäuble, Dijsselbloem and the ECB president Draghi. Centers of power are stressful by definition, with big egos and continuous conflict.” “If you’re a psychopath and you thrive on conflict, then the Eurogroup is the place to be.” Asked whether it was a place for power-hungry politicians, he said: “Ultimately, almost no one has any power … [Individuals] power is undermined by opposing power, everyone cancels each other out. I’ve seen a lot of frustration in the Eurogroup.”

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Dave’s annual endless litany.

2015 Year In Review – Scenic vistas from Mount Stupid (Collum)

I am penning my seventh “Year in Review.” These summaries began exclusively for myself, evolved into a sort of holiday cheer for a couple hundred e-quaintances with whom I had been affiliating since my earliest days as a market bear in the late ’90s, and metastasized into the Tower of Babble—longer than a Ken Burns miniseries—summarizing the human follies that capture my attention each year. Jim Rickards kindly called it “a perfect combination of Mel Brooks, Erwin Schrodinger & Howard Beale.” I wade through the year’s most extreme lunacies as well as a few special topics while trying to find the overarching themes. I love conspiracy theories and detest detractors who belittle those trying to sort out fact from fiction in a propaganda-rich world.

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“..the most wonderful time of the year and a winter of discontent..”

Black Lives Matter Protests Roil Cities Across The US (LA Times)

It’s the most wonderful time of the year and a winter of discontent, a season of police bullhorns and Christmas lights. Demonstrators protesting police shootings of black men confronted last-minute holiday shoppers and travelers in California and the Midwest this week, seeing the crowds as an opportunity to draw attention to their cause. In Chicago on Thursday, more than 100 demonstrators marched down North Michigan Avenue, the city’s premier shopping corridor, and laid down on the street for a “die-in.” They also blocked access to some stores where Christmas Eve shoppers were hoping to wrap up their tardy gift-buying. The demonstrators were again protesting the October 2014 police shooting of Laquan McDonald, a black 17-year-old carrying a knife who was killed when a Chicago police officer shot him 16 times.

The officer, Jason Van Dyke, has been charged with first-degree murder. Footage released last month appeared to show McDonald walking away from Van Dyke, sparking protests that have yet to fully die down, much as the Black Lives Matter movement has remained in national headlines since last year’s protests in Ferguson, Mo. “When one part of Chicago is affected, all of Chicago is affected,” one of the demonstrators, Alex Thiedmann, said of the “Black Christmas” demonstration on North Michigan Avenue. “If I remain silent, I become an oppressor.” Onlookers affected by the protest had a mixed response. Emily Grossman, 36, was kept from getting an iPhone at the Apple Store. “I hate to put myself first, but this is BS,” she said.

Rabiah Muhammad came downtown for a doctor’s appointment but stopped to watch the protests. “I was walking down the street and I saw all these beautiful people of all ages and colors,” she said. “I think it’s a bigger problem than the city of Chicago. It’s an American problem. This kind of brutality? That’s not what our country is supposed to be.” [..] “On one of the busiest travel days of the year, Black Lives Matter is calling for a halt on Christmas as usual in memorial of all of the loved ones we have lost and continue to lose this year to law enforcement violence without justice or recourse,” a statement from Black Lives Matter organizers said.

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“It is time that the administration acknowledged once and for all that these mothers and children are refugees just like Syrians.”

US Plans Mass Deportation of Illegal Central American Migrants (WSJ)

To staunch the flow of illegal migrants to the U.S., the Department of Homeland Security has been preparing a national operation to deport Central American families who have evaded removal orders, according to a government official. Starting early next month, U.S. Immigration and Customs Enforcement, a DHS unit, plans to start rounding up hundreds of families that entered the U.S. illegally and who have ignored a final order to leave the country, said the official. Such an order is issued by a judge in immigration court. The number of families showing up at the southwest border has spiked in recent months as gang-related violence grips El Salvador and Honduras. The region also has been plagued by drought.

Typically, the migrants, many of them women and children, turn themselves in at the border and make asylum claims. U.S. authorities then release them, often to live with relatives here, while their cases are adjudicated. DHS Secretary Jeh Johnson in recent months has warned that those whose claims are denied in immigration court could be removed from the country. A spokeswoman for Immigration and Customs Enforcement didn’t dispute an operation has been planned to pursue Central Americans with removal orders. In a statement, the spokeswoman said the agency “focuses on individuals who pose a threat to national security, public safety and border security.” “As Secretary Johnson has consistently said, our border is not open to illegal immigration, and if individuals come here illegally, do not qualify for asylum or other relief, they will be sent back consistent with our laws and our values,” the statement said.

The operation, which was first reported by the Washington Post, has caused controversy in Mr. Johnson’s agency, the official said, with some within DHS opposed to targeting people who have fled violence in their countries of origin. The official said that the operation’s goal is twofold: It aims to send the message to would-be crossers that they won’t be allowed to remain in the U.S. It also seeks to address safety concerns involved as adults entrust their lives and those of their children to human smugglers. “Jeh Johnson wants to send a message to Central Americans: Don’t come north. But Washington hasn’t solved the underlying problem of massive violence in their home countries that is causing them to come north in the first place,” said Margaret Stock, an immigration attorney in Anchorage, Alaska.

[..] The possible roundup for deportation of families caught immigrant advocates by surprise. “This is the last thing we expected from the administration at this point, given the court decision,” said Marielena Hincapie, executive director of the National Immigration Law Center, an advocacy organization in Los Angeles. “It is time that the administration acknowledged once and for all that these mothers and children are refugees just like Syrians.”

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Bit too focused on the Noble Brit, but cool.

In The Bleakness Of The Calais Migrant Camp, A Light Shines Out (Guardian)

If this had been a conventional disaster, the United Nations would have come in and then the big aid agencies would have got busy. But this is Europe, which is meant to be beyond the need of such help. So the UN and UNHCR are not in Calais, while there’s little sign of Oxfam, Save the Children or the Red Cross. That’s not because they don’t care: aid workers tell visiting politicians they feel they have no mandate to operate in Europe (though Médecins Sans Frontières is there, its first such operation on French soil). As for the French and British governments, their only presence comes in the form of uniformed security personnel policing the barbed wire perimeter, watching – but not helping – the people within, tasked with preventing them breaking out and heading for the tunnel or sea that might take them to England.

The camp has been left instead to the volunteers. That big warehouse – with its kitchen, its clothes-sorting operation and its workshop where carpenters, some professional, some amateur, churn out timber frames for shelters as fast as they can construct them – has been set up by a small, Calais charity, L’Auberge des Migrants. It has grown tenfold in three months, helped by the ad hoc efforts of assorted British groups. The result is that, for the outsider, the atmosphere can seem to be part refugee camp, part Glastonbury. Threading their way around the muddy paths and dirt tracks are countless young Brits, dreadlocked and nose-studded, friendly and eager. Some are there to teach English in the pop-up classroom. Some are helping out at the library (announced by the sign that says “Jungle Books”).

Some are on hand in the large, domed tent set up by two young British playwrights that serves as a kind of arts centre. Musicians from Syria, Iraq or Afghanistan sit in a circle and play songs from the old country. On the walls are drawings or photographs made by refugees. One shows a tree-fringed lake, covered in morning mist. The caption says, “Sometimes I come here and stand for a few minutes, imagining that this is what England looks like.” Judged by the usual standards of policy, this is awful. Both the French and UK governments are guilty of an appalling abdication of responsibility, insisting that the Calais camp is not their problem and so turning their backs on it. They won’t supply it with the basics necessary for human existence, lest they be seen to legitimise or entrench it. This is a shameful response, putting politics before fundamental human decency.

And yet fury cannot be the only response to the camp. Admiration is the right reaction too. First for the migrants and refugees themselves, for their resilience and dignity – for the ingenuity that has seen them build a high street full of chipboard restaurants and plywood cafes, as well as mosques and at least one church. But it’s impossible not to admire the volunteers too. For no pay, they have given up comfortable lives to build or cook or teach, to provide for people they have never met because they know that, if they don’t, no one else will. Some are young or retired, with time on their hands. Others have put busy jobs or careers on hold. But none of them had to trade comfortable lives for working in the mud and squalor of the Jungle. No one forced them to rent a van, fill it with tarpaulins or bulk packs of rice and take it across the Channel.

They did it simply because they were moved by the sight of their fellow human beings in distress. And this is what sets them apart from the governments that claim to represent them. The volunteers saw in the faces of those refugees not a problem to be addressed – or, more accurately, avoided – but people just like them. The same is true of all those who have given, and are still giving, to the Guardian’s unprecedentedly successful Christmas appeal. Within a few hours of the Paris attacks, someone tweeted the advice they’d learned from Fred Rogers, the long-serving face of American children’s television. Don’t look at the killers. Look for the helpers. In what has often been a harsh, dark year, this ragtag, impromptu army of volunteers has been a point of light. They are the very best of us.

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This will not go well. It will lead to the biggest NGOs ordering around the rest of them. And to EU border forces to step in.

Refugee NGOs On Greek Islands To Be Coordinated (Kath.)

A special committee will be formed under the General Secretariat for the Aegean to coordinate dozens of nongovernmental organizations on the Greek islands receiving the biggest inflows of refugees and migrants, Kathimerini has learned. Alternate Minister for Immigration Yiannis Mouzalas visited Lesvos on Wednesday, where he met with authorities and inspected progress on the construction of a registration center. Mouzalas also met with Susan Sarandon, who is on the island helping with rescue efforts. The US actress reportedly said that she plans to make a documentary on her experiences. Arrivals from the Turkish coast on Greece’s islands remain steady at around 3,500-4,000 people a day, coast guard officials said, adding that they have rescued roughly 100,000 people this year. Hundreds of migrants have not been so lucky on the crossing. On Wednesday, seven children, four men and two women drowned as they tried to reach Farmakonisi.

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