Mar 022018
 


Harold Steggels Essex landscape 1932

 

Trump’s Steel And Aluminum Tariffs Trigger Market Sell-Off In US, Asia (G.)
Trump’s Tariffs Throw a Wrench in the Global Trading System (BBG)
S&P 500 Breaks Below 100-Day Average Technical Inflection Point (BBG)
JFK-Trump S&P500 Analog Chart (MW)
NRA Members On Trump Gun Control Plans: ‘Every Word Of It Was A Betrayal’ (G.)
Putin On New US Nuclear Stance: If Attacked, Russia Will Use Nukes (RT)
China Bans Orwell’s Animal Farm And Letter ‘N’ Amid Anger At Xi (Ind.)
‘Cleanest In History’ Diesel Cars Still Pollute Far Above Legal Limits (Ind.)
US Breaks 47-Year-Old Monthly Oil Production Record (Robert Rapier)
Bitcoin’s Plunge in Volume Stirs Questions About Its Popularity (BBG)
Making the Business Case for Gender Equality (PS)
UK Risks Running Out Of Gas, Prices Soar (G.)
UK Food Crisis Looms Without Brexit Deal (BBG)
Pesticides Put Bees At Risk, European Watchdog Confirms (CNBC)
‘Doomsday’ Seed Vault Gets Makeover As Arctic Heats Up (AFP)

 

 

What he was elected on. Why should the US be dependent on imports for all of its steel?

Trump’s Steel And Aluminum Tariffs Trigger Market Sell-Off In US, Asia (G.)

World stock markets have tumbled after Donald Trump said the United States would impose tariffs of 25% on steel imports and 10% on imported aluminum next week. The threat of a trade war with China and higher goods prices led to a sharp sell-off in Wall Street on Thursday, causing Asian markets to take fright on Friday. The Nikkei index in Japan fell 2.4%, Hong Kong and South Korea were down 1.6%, and the ASX200 in Sydney was off 1% in early afternoon trading. Asian steelmakers bore the brunt. South Korea’s Posco fell 3% and Japan’s Nippon Steel 4%. Michael McCarthy of CMC Markets in Sydney said it was a “sharp reminder of the initial negative reaction to the election of Mr Trump ..

… An explanation may come, but the initial market interpretation of the move is rank populism. The lack of structure makes anticipating further measures and possible responses to retaliatory moves difficult to predict.” The Dow Jones Industrial Average had initially fallen more than 570 points, with heavy losses for manufacturers like Caterpillar and Boeing. The index closed down 420 points and the S&P 500 and Nasdaq both dropped on the day. Trump campaigned on the promise of protecting the US steel industry but until now has done little to make good on those promises. At a meeting with US industry officials at the White House, he vowed to rebuild American steel and aluminum industries, saying they had been treated unfairly by other countries for decades.

The move is likely to increase tensions with China, whose top trade official, Lui He, is in Washington for trade talks. “People have no idea how badly our country has been treated by other countries, by people representing us that didn’t have a clue,” Trump said at a White House press conference attended by executives from the steel and aluminum industries. “Or if they did, then they should be ashamed of themselves because they’ve destroyed the steel industry, they’ve destroyed the aluminum industry, and other industries, frankly, when you look at all the plants, the car plants, automobile plants that moved down to Mexico for no reason whatsoever, except we didn’t know what we were doing. So we’re bringing it all back.”

Read more …

Bloomberg claims that “..it looked like the global economy was running on all cylinders ..” No it didn’t.

Trump’s Tariffs Throw a Wrench in the Global Trading System (BBG)

Just when it looked like the global economy was running on all cylinders, President Donald Trump injected a degree of risk to the otherwise favorable outlook. The U.S. president announced on Thursday plans to impose 25% tariffs on imported steel and 10% tariffs on foreign aluminum, with more details to be unveiled next week. American equities cratered for a third day as fears of a trade war spread and expectations for U.S. economic growth weakened a bit. The move to protect American metals producers threatens to raise prices for consumers and businesses that buy goods made with the raw materials. That will have implications for a U.S. central bank that’s debating how fast to raise interest rates this year.

“If tariffs go up, it will, at the margin, tend to put more upward pressure on prices, and those upward pressure on prices will have to be considered by the monetary authority,” New York Fed President William Dudley said in a speech in Brazil on Thursday. The extent of any economic damage will depend on the fine-print of Trump’s new policies and the severity of countries’ retaliation. Some economists worried the move might presage a shift toward an era of more economy-inhibiting protectionism just when it looked like the growth headwinds were fading. “It is possible that a more aggressive shift in policy is under way that could undermine the pro-growth tilt of fiscal policy, harming the U.S. and global economic expansions,” JPMorgan analysts wrote in a research note after Trump’s announcement.

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Jay Powell gets a warm welcome.

S&P 500 Breaks Below 100-Day Average Technical Inflection Point (BBG)

The stock market is flirting with a technical inflection point again. The S&P 500 Index briefly broke below its 100-day moving average Thursday, sinking as much as 2% after President Donald Trump said the U.S. will impose harsh tariffs on steel and aluminum imports. The announcement added fuel to a fire that’s been smoldering since last month’s selloff, as investors continue to worry about rising inflation and interest rates. That anxiety has brought the market close to collapsing through the line of defense the moving average represents.

“You’ve broken down below the halfway point, now you’re toying below the initial high after the collapse, and you’ve gotten into all sorts of technical problems,” Jim Paulsen, chief investment strategist at Leuthold Weeden, said by phone. “Breaking some technical averages here is starting to scare people.” The S&P 500 fell 1.1% to 2,684.02 as of 3:27 p.m. in New York, after going as low as 2,659.65. The index is down about 2.5% on the week. Before February’s correction, the gauge hadn’t touched the 100-day barrier since last August. And while the market is recovering some of Thursday’s losses late in the session, it still risks closing below the line for the third time in a month.

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Causation and correlation.

JFK-Trump S&P500 Analog Chart (MW)

Last month, MarketWatch used a chart overlay to illustrate how the stock market under John F. Kennedy has closely followed its performance over the same time frame with Donald Trump in the White House. Fast forward three weeks and, as of Wednesday’s close, the S&P 500, in relative terms, sat almost exactly where it did at this point during Kennedy’s administration. If the trend persists—a HUGE if, of course—prepare for some rather steep losses in the coming weeks. Perhaps it’s already started, with the Dow Jones Industrial Average down nearly 600 points at its Thursday low.

“After 328 trading days since election day, the Trump S&P 500 sits right on top of the JFK S&P 500,” the blogger behind the Global Macro Monitor wrote. ”The index, 328 trading days after the election day of each president, is less than five basis points within one another. Rather stunning, don’t you think?”

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Trump needs Democrat support on this. Where are they?

NRA Members On Trump Gun Control Plans: ‘Every Word Of It Was A Betrayal’ (G.)

NRA members have branded Donald Trump’s plans for stricter gun control legislation “stupid” and a “betrayal” after the president suggested reforms on Wednesday. In an open meeting with congressional Democrats and Republicans, Trump embraced raising the age limit on purchasing certain weapons and suggested that law enforcement should be allowed to confiscate people’s guns before going through due process in a court. Joe Biggs, an Austin, Texas-based NRA member and chief executive of Rogue Right, a conservative news website, was among those unimpressed by the proposal. “That’s the stupidest fucking thing I’ve ever heard in my life. Hopefully he was just having a momentary brain fart, a lapse of judgment,” Biggs said.

He added: “Hopefully someone pulled him into the back and said: ‘You’ve just lost half your base by saying something that stupid.’” During the meeting Trump called for a “beautiful” bill which would expand background checks on gun purchases and restrict young people from purchasing certain weapons. But it was his suggestion that in some cases law enforcement should be allowed to “take the guns first, go through due process second” – that most alarmed gun owners on the right. “You spend your whole life on the right and you always think that Democrats are going to be the ones who take your guns,” Biggs said. “And then you hear President Trump say: ‘Oh we’re gonna take your guns and go through due process later.’” Biggs said he would vote for another candidate in the 2020 presidential election if Trump pushed through his reforms.

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Putin in his state of the union announced to his people that Russia can defend itself from any attacks, including nuclear. Western media twist his words; the Guardian claims that “Russia threatens arms race” and even Zero Hedge says :“..the era of the Western world attempting to prevent Russia’s expansion is over.”

That’s all straight from NATO’s playbook.

Putin On New US Nuclear Stance: If Attacked, Russia Will Use Nukes (RT)

The new US nuclear posture allows a nuclear strike in response to a conventional attack. President Vladimir Putin said Russia, if attacked with nuclear weapons, would not hesitate to respond in kind. The warning came during a state of the nation address delivered by the Russian president on Thursday, in which he presented a number of new advanced strategic weapon systems which, he said, would render all anti-missile capabilities that the US currently has powerless. Putin also mentioned the new American nuclear posture, which has relaxed some rules on when the US is prepared to use its nuclear weapons. “We are greatly concerned by some parts of the new nuclear posture, which reduces the benchmark for the use of nuclear weapons…

..Whatever soothing words one may try to use behind closed doors, we can read what was written. And it says that these weapons can be used in response to a conventional attack or even a cyber-threat,” he said. “Our nuclear doctrine says Russia reserves the right to use nuclear weapons only in response to a nuclear attack or an attack with other weapons of mass destruction against her or her allies, or a conventional attack against us that threatens the very existence of the state.” “It is my duty to state this: Any use of nuclear weapons against Russia or its allies, be it small-scale, medium-scale or any other scale, will be treated as a nuclear attack on our country. The response will be instant and with all the relevant consequences,” Putin warned.

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Xi as a stand up comedian.

China Bans Orwell’s Animal Farm And Letter ‘N’ Amid Anger At Xi (Ind.)

The Chinese government has banned George Orwell’s dystopian satirical novella Animal Farm and the letter ‘N’ in a wide-ranging online censorship crackdown. Experts believe the increased levels of suppression – which come just days after the Chinese Communist Party announced presidential term limits would be abolished – are a sign Xi Jinping hopes to become a dictator for life. The China Digital Times, a California-based site covering China, reports a list of terms excised from Chinese websites by government censors includes the letter ‘N’, Orwell’s novels Animal Farm and 1984, and the phrase ‘Xi Zedong’. The latter is a combination of President Xi and former chairman Mao Zedong’s names.

Search terms blocked on Sino Weibo, a microblogging site which is China’s equivalent of Twitter, include “disagree”, “personality cult”, “lifelong”, “immortality”, “emigrate”, and “shameless”. It was not immediately obvious why the ostensibly harmless letter ‘N’ had been banned, but some speculated it may either be being used or interpreted as a sign of dissent. [..] Facebook, Twitter and YouTube have long been blocked in the country and even Winnie the Pooh recently found himself subject to China’s latest internet crackdown. In July, references to the cartoon bear on Sina Weibo were removed after his image was compared to President Xi.

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Our car addiction is deeply rooted. We built our communities around them. Not around ourselves. That is a much bigger problem than what fuel a car uses to power a vehicle 10-20 times heavier than its driver, with a 10% fuel efficiency.

‘Cleanest In History’ Diesel Cars Still Pollute Far Above Legal Limits (Ind.)

Over half of diesel cars recently approved for sale in Europe are emitting pollutants far above current legal air pollution limits, despite being marketed as the “cleanest in history”. Analysis of emissions data from nearly 100 car models revealed many vehicles from the new “Euro 6” generation would not be allowed on the market if they were tested today. An investigation by Greenpeace found dozens of these high-polluting vehicles were approved for sale during a “monitoring period” in which there was no limit set on the amount of nitrogen oxide (NOx) they could emit on roads. Many of these vehicles have only gone on sale across Europe in the recent months. The news comes after a German court ruled cities can impose driving bans on certain diesel cars in an effort to deal with the country’s air pollution.

Such restrictions on diesel cars – including the clean air zones found in London and other UK cities – tend to focus on older, dirtier car models. However, Greenpeace campaigners emphasised that while newer Euro 6 models are described as “light years away from their older counterparts” many of them still have the capacity to emit high levels of pollutants. Following the so-called “dieselgate” scandal in 2015, which found VW had installed “cheat software” in its vehicles to fool lab emissions tests, there was a widespread push for tough new regulations. In the aftermath of the scandal, testing revealed diesel cars that met the latest “Euro 6” limits for NOx emissions in lab tests were massively exceeding those limits when driving on the road.

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Our old Oil Drum pal Robert. I’d be interested to see how fast and how sharp the shale numbers are expected to start falling.

US Breaks 47-Year-Old Monthly Oil Production Record (Robert Rapier)

In a recent post, I wrote that the U.S. would almost certainly set a new oil production record this year. I noted that the most recent data from the Energy Information Administration (EIA) showed that last November U.S. oil production exceeded 10 million barrels per day (BPD) for the first time since 1970. This week the EIA revised November’s oil production upward, which pushed it into the #1 spot for monthly production. The revision increased U.S. oil production in November to 10.057 million BPD, just edging out the previous record of 10.044 million BPD from November 1970. However, many new records should be set this year, as the EIA projects that oil production will reach 11 million BPD by year-end.

This would push the U.S. into first place among the world’s oil producers. But depending on how it is measured, the U.S. is already #1. The 2017 BP Statistical Review of World Energy ranks the U.S. #1 in oil production, but that’s because they include natural gas liquids (NGLs), which have surged in the U.S. along with natural gas production. The gains in U.S. oil production are being driven by production gains across tight oil plays in the Bakken and Eagle Ford, and especially the Permian Basin – where oil production is approaching a staggering 3 million BPD.

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Are they buying their own?

Bitcoin’s Plunge in Volume Stirs Questions About Its Popularity (BBG)

Earlier this year, when Bitcoin’s price fell by more than 60% from its record close, a less-noticed Bitcoin figure also plunged: the number of daily transactions. There are many explanations for the fall-off in trading, from software- to news-related. What’s less understood is why the level hasn’t recovered as Bitcoin’s price made a 50% comeback since Feb. 5. That’s left some investors wondering whether the cryptocurrency is waning in popularity. The average number of trades recorded daily has roughly dropped in half from the December highs and touched its lowest in two years last month, even as Bitcoin became a household name and roared back above $10,000.

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1) Why does it take a guy to make that case?

2) “$28 trillion would be added to the global economy by 2025” sounds like a male argument. If the only advantage of more women is that the same arguments are made by different voices, why bother?

Making the Business Case for Gender Equality (PS)

Around the world, gender bias is attracting renewed attention. Through protest marches and viral social-media campaigns, women everywhere are demanding an end to sexual harassment, abuse, femicide, and inequality. But, as successful as the #MeToo and #TimesUp movements have been in raising public awareness, the struggle for parity is far from over. Empowering women and girls is key to achieving all 17 of the United Nations Sustainable Development Goals by 2030. At the moment, however, gender bias remains a significant obstacle to global progress, and it is particularly acute in the workplace. Today, only 5% of S&P 500 companies are led by women, according to Catalyst, a non-profit CEO watchdog.

That dismal figure is all the more remarkable when one considers that 73% of global firms allegedly have equal-opportunity policies in place, according to a survey by the International Labour Organization (ILO). Moreover, while research shows a clear link between a company’s gender balance and its financial health, women occupy fewer than 20% of governing board seats in the world’s largest companies. Addressing such deficiencies is both an economic and a moral imperative. A 2015 report by the McKinsey Global Institute found that if women and men played an “identical role in labor markets,” $28 trillion would be added to the global economy by 2025. These global gains would be in addition to the benefits for individual companies.

Firms with greater gender equality are more innovative, generous, and profitable. But, at the current rate of female empowerment, it would take nearly 220 years to close the gender gap. The world cannot afford to wait that long; we need a new approach.

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The thrills of the just in time economy.

UK Risks Running Out Of Gas, Prices Soar (G.)

National Grid has warned that the UK would not have enough gas to meet public demand on Thursday, as temperatures plummeted and imports were affected by outages. But the government said households would not notice disruptions to their supply or any increase in energy bills because suppliers, including British Gas, bought energy further ahead. The energy minister Claire Perry said people should cook and use their heating as they would normally. But experts said there was a strong chance that industrial users could experience interruptions to their gas supply. Within-day wholesale gas prices soared 74% to 200p per therm after the formal deficit warning, which acts as a call to suppliers to bring forward more gas.

It is the first time such an alert has been issued since 2010. By lunchtime on Thursday the price had spiked even higher, hitting a high of 275p per therm at one point. National Grid’s forecast for the day initially showed a shortfall across the day of 49.5m cubic metres (mcm) below the country’s projected need of 395.7mcm, which would normally be around 300mcm at this time of year. The gas deficit warning aims to fill the gap, which has since narrowed to 16.5mcm. “We are in communication with industry partners and are closely monitoring the situation,” the company said.

Gas demand is now at a five-year high, according to the market watchers S&P Global Platts. Simon Wood, a gas analyst at the group, said: “There’s a strong chance you’ll see some interruptions for industrial users to balance the system.” Big energy users such as car manufacturers have supply contracts which can be interrupted in return for lower prices. The situation has been compounded by several supply outages, which can relate to very cold weather. There have been problems with a pipeline to the Netherlands, reductions in gas flows from Norway, and technical issues at facilities in the UK, including at the North Morecambe Barrow terminal.

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Gas shortage, food shortage. Self-sufficiency, anyone?

UK Food Crisis Looms Without Brexit Deal (BBG)

Brexit would lead to an unprecedented food shortage if the U.K. leaves the European Union without a deal, the CEO of the country’s second-biggest grocer said. “The impact of closing the borders for a few days to the free movement of food would result in a food crisis the likes of which we haven’t seen,” J Sainsbury CEO Mike Coupe said in an interview. “It’s inconceivable to me that there won’t be a solution found.” Tensions are simmering between London and Brussels, with U.K. Prime Minister Theresa May saying Wednesday that no one in her position could ever agree to the draft Brexit treaty published by the EU.

May is seeking to get the EU to sign on to a transition phase at a summit of leaders later this month, but Michel Barnier, the EU’s chief Brexit negotiator, warned Thursday that any such agreement could still unravel before Britain’s scheduled exit in March 2019. Almost half of the food eaten in the U.K. is imported. Trade barriers would be especially damaging to Britain’s fresh-food retailers, who rely heavily on the unencumbered movement of perishable goods throughout the EU. In 2016, the U.K. imported 22.4 billion pounds ($30.8 billion) worth of meat, fish, dairy products, fruit and vegetables, according to the Department for Environment, Food and Rural Affairs.

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Hey, don’t keep us from poisoning ourselves. It’s our god-given right.

Pesticides Put Bees At Risk, European Watchdog Confirms (CNBC)

Wild bees and honeybees are put at risk by three pesticides from a group known as neonicotinoids, Europe’s food safety watchdog said on Wednesday, confirming previous concerns that prompted an EU-wide ban on use of the chemicals. The European Food Safety Authority (EFSA) report, which covered wild bees and honeybees and included a systematic review of scientific evidence published since EFSA’s 2013 evaluation, is seen as crucial to whether the European moratorium on neonicotinoid use remains in place. The updated risk assessment found variations due to factors such as species of bee, exposure and specific pesticide, “but overall the risk to the three types of bees we have assessed is confirmed,” said Jose Tarazona, head of EFSA’s pesticides unit.

The European Union has since 2014 had a moratorium on use of neonicotinoids — made and sold by various companies including Bayer and Syngenta — after lab research pointed to potential risks for bees, which are crucial for pollinating crops. EU nations will discuss a European Commission proposal to ban three neonicotinoids next month in the Plant Animal Food and Feed Standing Committee. “This is strengthening the scientific basis for the Commission’s proposal to ban outdoor use of the three neonicotinoids,” a spokeswoman for the EU executive said.

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The whole concept is based on permafrost. Or was.

‘Doomsday’ Seed Vault Gets Makeover As Arctic Heats Up (AFP)

Designed to withstand a nuclear missile hit, the world’s biggest seed vault, nestled deep inside an Arctic mountain, is undergoing a makeover as rising temperatures melt the permafrost meant to protect it. Dubbed the “Noah’s Ark” of food crops, the Global Seed Vault is buried inside a former coal mine on Svalbard, a remote Arctic island in a Norwegian archipelago around 1,000 kilometres (650 miles) from the North Pole. Opened in 2008, the seed bank plays a key role in preserving the world’s genetic diversity: it is home to more than a million varieties of seeds, offering a safety net in case of natural catastrophe, war, climate change, disease or manmade disasters.

But warmer temperatures have disrupted the environment around the vault. In an unexpected development, the permafrost, which was meant to help keep the temperature inside the vault at a constant -18 Celsius (-0.4 Fahrenheit), melted in 2016. “The summer season was (warmer) than expected. We had water intrusions in the (access) tunnel that could be related to climate change,” Asmund Asdal, one of the seed bank’s coordinators, told AFP. The Arctic is warming twice as fast as the rest of the planet, scientific studies show. And while Europe is at the moment experiencing a subzero cold spell, the North Pole recently registered above-zero temperatures, 30 degrees higher than normal.

Scientists say warm spells like this are occurring with increasing frequency in the Arctic. Norway recently announced it would contribute 100 million kroner (10 million euros, $12.5 million) to improve the repository in a bid to protect the precious seeds. “We want to be sure that the seed vault will be cold throughout the whole year, even if the temperature continues to increase in Svalbard,” Norway’s Agriculture Minister Jon Georg Dale told AFP.

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Jan 292018
 
 January 29, 2018  Posted by at 11:10 am Finance Tagged with: , , , , , , , , , , ,  11 Responses »


Fratelli Alinari Delphi c1920

 

German Carmakers Take Another Hit With Diesel Testing on Monkeys, Humans (BBG)
The Risks Facing Global Stocks As Money Printing Comes To An End (BI)
Fire Sale By The Treasury Could Send Shock Waves Through Bond Market (CNBC)
The Donald’s Davos Delusions (David Stockman)
ECB’s Knot Says QE Must End ‘As Soon As Possible’ (BBG)
The ECB And The Euro Are The Only Glue Holding Parts Of Europe Together (CNBC)
Trump Administration Ponders Nationalizing 5G Mobile Network (CNBC)
Facebook Makes Privacy Push Ahead Of Strict EU Law (R.)
Hundreds Of Thousands Living In Squalid Rented Homes In England (G.)
UK Brexit Bill ‘Constitutionally Unacceptable’ – House of Lords (Ind.)
Australia Unveils Plan To Become One Of World’s Top 10 Arms Exporters (G.)
Greek Debt Relief Will Depend On Continued Reforms – Regling (K.)

 

 

They get together to set up a testing group, but carefully far enough removed from their structures to deny any responsibility. “We paid millions into it, but we have no idea what they do”. And they will escape any real punishment. TBTF. Testing carcinogenics on people. In the past 10 years.

German Carmakers Take Another Hit With Diesel Testing on Monkeys, Humans (BBG)

The reputation of Germany’s auto industry took a fresh hit from revelations it sponsored tests that exposed humans as well as monkeys to diesel exhaust fumes, which can cause respiratory illness and cancer. The study, supported by a little-known group founded by Volkswagen, Daimler and BMW in 2007, had 25 people breathe in diesel exhaust at a clinic used by the University of Aachen, Stuttgarter Zeitung reported Monday. The story, citing annual reports from the European Research Group on Environment and Health in the Transport Sector, or EUGT, which closed last year, followed a New York Times report earlier that the organization also conducted tests using monkeys. Germany’s auto industry, which is still reeling from Volkswagen’s diesel-cheating scandal where the company rigged emissions tests, distanced itself from the organization.

“We are appalled by the extent of the studies and their implementation,” Daimler said Monday in an emailed statement, adding it didn’t have any influence over the study and promised an investigation. “We condemn the experiments in the strongest terms.” The revelations are another bombshell undermining diesel’s image. The technology remains a key profit driver for German automakers, even as demand gradually slips in Europe, the main market for the diesel models. The reports also weaken the carmakers’ position in its efforts to counter criticism of the technology as cities mull bans and German politicians weigh more stringent upgrades to lower pollution levels. In an additional twist, the VW Beetle model used in the test with animals was among the vehicles rigged to cheat on emissions tests, the New York Times reported. Volkswagen apologized for the misconduct and lack of judgment of some individuals, calling the trials a mistake. VW on Monday again distanced itself from the activities of the group.

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That rumbling roar in the distance.

The Risks Facing Global Stocks As Money Printing Comes To An End (BI)

“Correlation does not imply causation” is a vital principle of statistics and numerical models which reminds us that just because two things correlate doesn’t mean one causes the other. For many investors, they’ll be hoping that the correlation shown in the chart below is not a sign for things to come for stock market returns. Because if this correlation holds, things could be about to get nasty. The chart, from Citi, shows the rolling annual change in central bank asset purchases overlaid against annual returns for the MSCI World Stock Market Index since the depths of the global financial crisis back in early 2009. Clearly, as asset purchase levels have changed, so too has the performance of global stocks, tending to rise when asset purchases increase and fall when asset purchases decline.

Until recently that is. As shown in the red circle on the chart, despite a recent deceleration in central bank purchases, stock market returns have actually increased recently, bucking the trend seen over much of the past nine years. “In a world where the global CB taper is well underway — and in any case largely announced — stocks are seemingly starting to decouple from the bearish implication of [the chart],” says Citi. “As we had hoped, in a strong cyclical backdrop, with earnings coming in strong, markets can focus on underlying fundamentals rather than the reduction in central bank accommodation.” Central bank asset purchases set to slow sharply over the next year, as seen in the dotted black line in the chart. If the relationship between asset purchases and stock market returns were to snap back into place, it suggests that stocks could fall by close to 50% over the next year or so. 50%!

To be clear, Citi isn’t saying that’s going to happen, but it is a reminder that we’re entering uncharted territory for financial markets. Ultra-easy monetary policy settings are slowly being reversed, and no one is really certain as to how it will all play out. Adding to the intrigue, it’s clear from this other chart from Citi that while stocks recently disconnected from central bank asset purchases, corporate credit markets have not, with spread compression in investment grade debt starting to reverse in line with lower asset purchases.

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Bond yields are already soaring. Does the Fed have any control left, or is this it?

Fire Sale By The Treasury Could Send Shock Waves Through Bond Market (CNBC)

Wells Fargo’s head of interest rate strategy is detecting a major trouble spot in the bond market. Michael Schumacher’s chief concern right now: Who’s going to buy all those extra Treasury notes? “They [people] are worried about Treasury issuance going up, up, up. You could see an increase in 2018 of 50% — maybe more versus last year. That’s got a lot of people very concerned, myself included,” he said recently on CNBC’s “Futures Now.” He anticipates the Treasury Department will likely announce within days a “pretty significant change” in the way it issues bonds. It comes just as the Fed is shrinking its balance sheet. With less demand coming from the Fed, a fire sale of sorts would increase supply and emerge as the major catalyst causing yields to jump.

“You could see a pretty significant sell-off not just in the 10-year, which people focus on quite a bit, but also on 30-year bonds. We’re very concerned about that,” Schumacher said. “Being the bond nerd that I am, I’d say the market wants to climb a wall of worry like it does in stocks.” Right now, 10-year Treasury yields are bouncing around 2.6% — up nearly 40 basis points during the past six months. Schumacher’s year-end forecast on the note is 2.95%. But he believes it’s not unreasonable to expect rates to push 3.25%. “Something around that level probably does get people pretty worked up. And, it’s such a contrast versus last year when bonds did very, very little,” he said. Yields for 30-year Treasurys, essentially flat for the past six months, appear to be waking up. They’re up about 17 basis points this year.

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Too much swamp to be drained.

The Donald’s Davos Delusions (David Stockman)

[..] above all else, the Donald has whiffed entirely on what is really killing the American economy. That is, the nation’s out-of-control central bank. Via its massive falsification of financial asset prices, the Fed has turned Wall Street into a gambling casino, the corporate C-suites into financial engineering joints and Washington into a profligate den of debt addicts. Likewise, its idiotic pursuit of more inflation (2%) through 100 straight months of ZIRP (or near zero interest rates) has savaged retirees and savers, enriched gamblers and leverage artists, eroded the purchasing power of stagnant worker paychecks and unleashed virulent speculation and malinvestment throughout the warp and woof of the financial system.

Of course, we did not really expect the Donald to take on the money printers – notwithstanding his campaign rhetoric about “one big, fat, ugly bubble”. After all, Trump has always claimed to be a “low interest man” and he did spend 40 years getting the worst financial education possible. To wit, he rode the Fed’s easy money fueled real estate bubble to a multi-billion net worth, or so he claims, and pronounced himself a business genius – mostly by virtue of piling cheap debt upon his properties and reaping the windfall gains. Stated differently, the Donald came to office wholly unacquainted with any notion of sound money and free market financial discipline. And now he has spent a year proving he is completely clueless as to why Flyover America has been shafted economically.

Rather than the top-to-bottom housecleaning that the Eccles Building desperately needed, Trump actually appointed a pedigreed Keynesian crony capitalist Washington lifer, Jerome Powell, to chair the Fed. Then and there, and whether he understood it or not (he didn’t), the Donald surrendered to the permanent rulers of the Imperial City. That’s because at the end of the day, it was the Fed’s serial financial bubbles and massive monetization of the public debt that has enabled Washington’s imperial hegemony abroad, welfare state largesse at home and the egregious inflation of financial asset prices for the rich and the bicoastal elites coupled to them.

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Knot is from Holland, an export-dependent country that suffers from a strong euro.

ECB’s Knot Says QE Must End ‘As Soon As Possible’ (BBG)

The European Central Bank has to end its quantitative easing as soon as possible, according to ECB Governing Council member Klaas Knot, who said there’s not a single reason anymore to continue with the program. “The program has done what could realistically be expected of it,” Knot, who also heads the Dutch Central Bank, said in an interview on the television talk show Buitenhof on Sunday. The ECB is inching closer to unwinding unprecedented stimulus. At their December meeting, officials held out the prospect of a change in policy language early in the year, and some governors have since expressed their favor for taking a first step in March. While President Mario Draghi said Thursday that confidence in a sustained pickup in inflation has increased, patience and persistence are still warranted as progress so far remains muted.

“The program is fixed until September,” Knot said, with Draghi’s reasoning being that the central bank doesn’t have to commit yet to what will happen after that month. “We don’t have to communicate yet that it will be over after September, but I think that’s where we’re headed.” He said there is enough proof to make that clear. [..] Knot said the lack of commitment to any communication by the ECB as to what might happen to the QE program beyond September could have a dampening affect on the euro. A 6% surge in the euro since mid-December is threatening to become a thorn in the economy’s side if it curbs exports and damps prices.

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And that’s definitely not enough.

The ECB And The Euro Are The Only Glue Holding Parts Of Europe Together (CNBC)

Many German political observers estimate that, under the best circumstances, their country is unlikely to have a new three-party coalition government before Easter — April 1. They realize that this might be an optimistic forecast given the fundamental differences separating those who want a status quo stability (two right-wing parties) and a radical change of “governing culture” (the left-wing Social Democratic Party of Germany). Expectations are so dire, and so low, that the unfolding political events in Germany could mean the end of stability in the entire EU. In spite of that, the euro was soaring last Thursday to $1.2537 during the press conference at the European Central Bank. That was the highest reading since the middle of December 2014. And that had little to do with the talking down of the dollar by a U.S. delegation having fun in the Alps.

As of last Friday, the euro was up 16% against the dollar and 5.4% in trade-weighted terms since the Trump administration came to power a year ago. That puzzling paradox of a strong currency in a politically disintegrating economic system owes mainly to the euro area’s improving cyclical growth dynamics, engineered by a supportive monetary policy, and to trading bets ignoring the convulsions of the European project. The project in question has been a difficult work-in-progress for the past 59 years, as the relentless French-German rivalry failed to define mutually acceptable terms for a fairy tale called the European economic and political union. The euro is a result of such a political struggle between the two nations: Fearful of an overwhelming power of a reunited Germany, France insisted on a monetary union to dilute the influence of its erstwhile arch-enemy across the Rhine.

Reluctantly, Germany accepted to part with the Deutsche mark while imposing a legal and institutional infrastructure that would make the euro a clone of it. And to make sure that happened, Germany dictated the rules for the ECB — a supra-national institution and the world’s only genuinely independent monetary authority. Born out of fear of German domination, the euro is, arguably, the only major achievement of a project that was supposed to make another French-German war an impossibility. Still, a war by other means did happen, and France, Italy, Spain, Portugal, Ireland and Greece – 54% of the euro area GDP – have only the ECB to thank for rescuing them from an assault of disastrous German-imposed austerity policies.

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When will we talk about making Facebook a public utility?

Trump Administration Ponders Nationalizing 5G Mobile Network (CNBC)

National security officials in the Trump administration are looking at options where the U.S. government could take over a part of the country’s mobile network as a way of guarding against China, news outlet Axios reported. Axios, citing sensitive documents it obtained, said there are two options up for consideration: First, the U.S. government could pay for and build a single, super-fast mobile network and could then rent access to national carriers. The move, according to Axios, could see an unprecedented nationalization of infrastructure that has historically been privately-owned. But, the news outlet reported, a source familiar with the matter said a newer version of the document is neutral about whether the government should build and own such a network.

The alternative, according to Axios, is that wireless providers in the U.S. build their own 5G networks that would compete with one another — an option the document said could be costly and more time-consuming, but would be less commercially disruptive to the industry. The reason for even considering nationalization of part of the system is that China “has achieved a dominant position in the manufacture and operation of network infrastructure” and it’s “the dominant malicious actor in the Information Domain,” the document said, according to Axios. Reuters reported that a senior administration official on Sunday said that the government wants to build a secure 5G network and it’ll have to work with the industry to figure out the best way to do it. “We want to build a network so the Chinese can’t listen to your calls,” the official told Reuters.

“We have to have a secure network that doesn’t allow bad actors to get in. We also have to ensure the Chinese don’t take over the market and put every non-5G network out of business.” The matter was being debated at a lower level, the official said to Reuters, adding that it would take between six to eight months before it reaches President Donald Trump for consideration. The fifth generation (hence the 5G name) of mobile networks aims to provide faster data speeds and more bandwidth to carry ever-growing levels of web traffic. Late last year, the first specification for 5G was completed, which was considered a huge step toward commercializing the technology. Market watchers have predicted the technology will have more than one billion users by 2023, with more than half based in China. U.S. carriers are already working on deploying 5G networks.

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Facebook gets nervous.

Facebook Makes Privacy Push Ahead Of Strict EU Law (R.)

Facebook said on Monday it was publishing its privacy principles for the first time and rolling out educational videos to help users control who has access to their information, as it prepares for the start of a tough new EU data protection law. The videos will show users how to manage the data that Facebook uses to show them ads, how to delete old posts, and what happens to the data when they delete their account, Erin Egan, chief privacy officer at Facebook, said in a blog post. Facebook, which has more than 2 billion users worldwide, said it had never before published the principles, which are its rules on how the company handles users’ information.

Monday’s announcements are a sign of its efforts to get ready before the European Union’s General Data Protection Regulation (GDPR) enters into force on May 25, marking the biggest overhaul of personal data privacy rules since the birth of the internet. Under GDPR, companies will be required to report data breaches within 72 hours, as well as to allow customers to export their data and delete it. Facebook’s privacy principles, which are separate from the user terms and conditions that are agreed when someone opens an account, range from giving users control of their privacy, to building privacy features into Facebook products from the outset, to users owning the information they share. “We recognize that people use Facebook to connect, but not everyone wants to share everything with everyone – including with us. It’s important that you have choices when it comes to how your data is used,” Egan wrote.

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No-one can be surprised by this anymore: “..Rats, mouldy walls, exposed electrical wiring, leaking roofs and broken locks ..” and “..holes in external walls, insect-infested beds, water pouring through ceilings and mould-covered kitchens ..”

Hundreds Of Thousands Living In Squalid Rented Homes In England (G.)

Rented housing so squalid it is likely to leave tenants requiring medical attention is being endured by hundreds of thousands of young adults in England, an analysis of government figures has revealed. Rats, mouldy walls, exposed electrical wiring, leaking roofs and broken locks are among problems blighting an estimated 338,000 homes rented by people under 35 that have been deemed so hazardous they are likely to cause harm. It is likely to mean that over half a million people are starting their adult lives in such conditions, amid a worsening housing shortage and rising rents, which are up 15% across the UK in the last seven years. Visits by the Guardian to properties where tenants are paying private landlords up to £1,100 a month have revealed holes in external walls, insect-infested beds, water pouring through ceilings and mould-covered kitchens.

A 30-year-old mother near Bristol said her home is so damp that her child’s cot rotted. A 34-year-old woman in Luton told of living with no heating and infestations of rats and cockroaches, while a 24-year-old mother from Kent said she lived in a damp flat with no heating and defective wiring for a year before it was condemned. “Young adults have very little option but to rent from a private landlord, so we should at least expect a decent home in return for what we pay,” said Dan Wilson Craw, director of the Generation Rent campaign group. “Relying on cash-strapped councils to enforce our rights means that too many of us are stuck with unsafe housing.” The extent of the impact on young people emerged as a cross-party bid to give tenants new powers to hit back against rogue landlords gathers strength.

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And the House of Commons passed the bill without noticing?!

UK Brexit Bill ‘Constitutionally Unacceptable’ – House of Lords (Ind.)

An influential group of peers have warned Theresa May’s flagship Brexit legislation is “constitutionally unacceptable” and will need to be substantially rewritten. The stark warning comes as peers in the upper chamber gear up to begin the lengthy process of debating the legislation – passed with a seal of approval from the Commons earlier this month. The EU (Withdrawal) Bill seeks to transpose all existing EU law onto the UK statue book in time for Britain formally leaving the bloc in March 2019. More than 180 members are already lined up to speak during the two-day debate accompanying the legislation’s second reading this Tuesday and Wednesday, and there are likely to be impassioned interventions from both prominent Leave and Remain voices.

But peers on the Lords Constitution Committee warn in a report to be released on Monday that, while the legislation is necessary to ensure legal continuity after Brexit, it has “fundamental flaws” in its current state. The committee claims that at present the bill risks “undermining the legal certainty it seeks to provide” and gives “overly broad” powers to government ministers. Baroness Taylor of Bolton, who chairs the committee, said: “We acknowledge the scale, challenge and unprecedented nature of the task of converting existing EU law into UK law, but as it stands this bill is constitutionally unacceptable. “In our two previous reports we highlighted the issues this raised and we are disappointed that the Government has not acted on a number of our recommendations.

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Words fail.

Australia Unveils Plan To Become One Of World’s Top 10 Arms Exporters (G.)

Australia is set to become one of the world’s largest arms exporters under a controversial Turnbull government plan. The prime minister, Malcolm Turnbull, has unveiled a new “defence export strategy” setting out the policy and strategy to make Australia one of the world’s top 10 weapons exporters within the next decade. Hailing it a job-creating plan for local manufacturers, the Coalition says Australia only sells about $1.5bn to $2.5bn in “defence exports” a year and it wants the value of those exports to increase significantly. It has identified a number of “priority markets”: the Middle East, the Indo-Pacific region, Europe, the United States, the United Kingdom, Canada and New Zealand. It will set up a new Defence Export Office to work hand in hand with Austrade and the Centre for Defence Industry Capability to coordinate the commonwealth’s whole-of-government export efforts and provide a focal point for more arms exports.

A $3.8bn Defence Export Facility, to be administered by the Export Finance and Insurance Corporation, will provide the finance local companies need to help them sell their defence equipment overseas. A new Australian Defence Export Advocate position, set up to support the Australian Defence Export Office, will provide industry with the constant high-level advocacy needed to promote Australian-made weapons overseas. “It is an ambitious, positive plan to boost Australian industry, increase investment, and create more jobs for Australian businesses,” Turnbull said. “A strong, exporting defence industry in Australia will provide greater certainty of investment, support high-end manufacturing jobs and support the capability of the Australian defence force.”

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Them’s fighting words. Greece needs debt relief no matter what. Blackmailing the country with it is amoral.

Greek Debt Relief Will Depend On Continued Reforms – Regling (K.)

If Greece wants to see its debt burden lightened further it must ensure that it enacts agreed-to reforms and be prepared for the supervision of its foreign creditors to continue, European Stability Mechanism (ESM) Managing Director Klaus Regling told Sunday’s Kathimerini in an interview in which he also stressed that markets would like to see the IMF join the country’s third bailout. “If Greece wants additional debt relief, which means for creditor countries to grant something extra, there is the legitimate question that creditor countries would want to make sure that agreed policies are implemented and that there is no backtracking, on promises in relation to the primary surplus for instance, on future tax policies and on privatizations, or on the reduction of non-performing loans,” Regling said.

He added that there would be no additional conditions for further debt relief but that reforms must be fully implemented, noting that greater “ownership” of the bailout program will help achieve this. “Ownership has improved,” he said, adding however that, “sometimes there are still signals that it’s not fully there the way we would like. For example, on privatizations there are different voices.” As for continued foreign supervision of Greece after its scheduled exit from the third bailout in August, Regling said this was “normal,” noting that there is “post-program surveillance” in other countries that borrowed from the ESM. He added that “markets are always happy if a country is under the surveillance of its creditors.”

As for the potential participation of the IMF in Greece’s third bailout, Regling said it was “one of the elements that could play a positive role to further strengthen the good impression that the markets have.” He added, however, that the markets will also “look for statements by the Greek government that show there is real ownership of the program.”

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Aug 242017
 
 August 24, 2017  Posted by at 9:11 am Finance Tagged with: , , , , , , , , , ,  7 Responses »


Egon Schiele Meadow, Church and Houses 1912

 

Wall Street Banks Warn Downturn Is Coming (BBG)
Big US Banks Could See Profit Jump 20% With Deregulation (BBG)
ECB Chief Draghi: QE Has Made Economies More Resilient (BBC)
Yellen’s Coming Speech Could Mark The ‘End Of An Era’ (BI)
Here’s Why New Home Sales Tanked (CNBC)
Autos Put Economic Downside Risks on Full Display (DDMB)
Merkel Aide Says Germany Has ‘Vital Interest’ in Diesel Survival (BBG)
China’s ‘Belt And Road’ Could Be Next Risk To Global Financial System (CNBC)
Being Here (Brodsky)
All The Countries The USA Has Invaded, In One Map (Indy)
America, Home of the Transactional Marriage (Atlantic)

 

 

More cycles.

Wall Street Banks Warn Downturn Is Coming (BBG)

HSBC, Citigroup and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle. Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop. “Equities have become less correlated with FX, FX has become less correlated with rates, and everything has become less sensitive to oil,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, wrote in a note published Tuesday. His bank’s model shows assets across the world are the least correlated in almost a decade, even after U.S. stocks joined high-yield credit in a selloff triggered this month by President Donald Trump’s political standoff with North Korea and racial violence in Virginia.

Just like they did in the run-up to the 2007 crisis, investors are pricing assets based on the risks specific to an individual security and industry, and shrugging off broader drivers, such as the latest release of manufacturing data, the model shows. As traders look for excuses to stay bullish, traditional relationships within and between asset classes tend to break down. “These low macro and micro correlations confirm the idea that we’re in a late-cycle environment, and it’s no accident that the last time we saw readings this low was 2005-07,” Sheets wrote. He recommends boosting allocations to U.S. stocks while reducing holdings of corporate debt, where consumer consumption and energy is more heavily represented. That dynamic is also helping to keep volatility in stocks, bonds and currencies at bay, feeding risk appetite globally, according to Morgan Stanley. Despite the turbulent past two weeks, the CBOE Volatility Index remains on track to post a third year of declines.

Oxford Economics macro strategist Gaurav Saroliya points to another red flag for U.S. equity bulls. The gross value-added of non-financial companies after inflation – a measure of the value of goods after adjusting for the costs of production – is now negative on a year-on-year basis. “The cycle of real corporate profits has turned enough to be a potential source of concern in the next four quarters,” he said in an interview. “That, along with the most expensive equity valuations among major markets, should worry investors in U.S. stocks.” The thinking goes that a classic late-cycle expansion – an economy with full employment and slowing momentum – tends to see a decline in corporate profit margins. The U.S. is in the mature stage of the cycle – 80% of completion since the last trough – based on margin patterns going back to the 1950s, according to Societe Generale.

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They warn about a downturn, but not for themselves. Their asses are covered.

Big US Banks Could See Profit Jump 20% With Deregulation (BBG)

The deregulation winds blowing through Washington could add $27 billion of gross profit at the six largest U.S. banks, lifting their annual pretax income by about 20%. JPMorgan Chase and Morgan Stanley would benefit most from changes to post-crisis banking rules proposed by Donald Trump’s administration, with pretax profit jumping 22%, according to estimates by Bloomberg based on discussions with analysts and the banks’ own disclosures. Goldman Sachs would have the smallest percentage increase, about 16%. Bloomberg’s calculations are based largely on adjustments banks could make to the mix of securities they hold and the interest they earn from such assets. The proposed changes would allow the largest lenders to take on more deposits, move a greater portion of their excess cash into higher-yielding Treasuries and municipal bonds, and issue a lower amount of debt that costs more than customer deposits.

Of the changes proposed in June by Treasury Secretary Steven Mnuchin, the one that would probably have biggest impact on profit is allowing banks to buy U.S. government bonds entirely with borrowed money. Three others could also boost income: counting municipal bonds as liquid, or easy-to-sell, assets; requiring less debt that won’t have to be paid back if a bank fails; and making it easier to comply with post-crisis rules. Regulators appointed by Trump could make these changes without congressional approval. Doing so would reverse their agencies’ efforts since 2008 to strengthen capital and liquidity requirements for U.S. banks beyond international standards. While bringing U.S. rules in line with global ones probably wouldn’t threaten bank safety, some analysts and investors worry the pendulum could swing even further.

“Since the crisis, we’ve had the luxury of excess capital buildup in the banking system and regulators reining in risky activities,” said William Hines at Standard Life Aberdeen. “If there’s too much pullback on minimum capital requirements, too much relaxation of restraints, we’re concerned there’ll be more risk-taking by banks, and the system will become vulnerable.”

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Blowing bubbles everywhere and claiming they bring strength. It’s Orwell.

ECB Chief Draghi: QE Has Made Economies More Resilient (BBC)

European Central Bank President Mario Draghi has said unconventional policies like quantitative easing (QE) have been a success both sides of the Atlantic. QE was introduced as an emergency measure during the financial crisis to pump money directly into the financial system and keep banks lending. A decade later, the stimulus policies are still in place, but he said they have “made the world more resilient”. But he also said gaps in understanding these relatively new tools remain. As the economic recovery in the eurozone gathers pace, investors are watching closely for when the ECB will ease back further on its €60bn a month bond-buying programme. Central bankers, including Mr Draghi, are meeting in Jackson Hole, Wyoming, later this week, where they are expected to discuss how to wind back QE without hurting the economy.

On Monday, a former UK Treasury official likened the stimulus to “heroin” because it has been so difficult to wean the UK, US and eurozone economies off it. In a speech in Lindau, Germany on Wednesday, Mr Draghi defended QE and the ECB’s policy of forward guidance on interest rates. “A large body of empirical research has substantiated the success of these policies in supporting the economy and inflation, both in the euro area and in the United States,” he said. The ECB buying relatively safe assets such as government bonds means that banks can lend more and improve access to credit for riskier borrowers, Mr Draghi said. He added: “Policy actions undertaken in the last 10 years in monetary policy and in regulation and supervision have made the world more resilient. But we should continue preparing for new challenges.”

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End the Fed.

Yellen’s Coming Speech Could Mark The ‘End Of An Era’ (BI)

Janet Yellen could be on her way out as chair of the Federal Reserve. On Friday, she’s set to deliver a speech on financial stability at the Fed’s annual economic symposium in Jackson Hole, Wyoming. It could be her last, following months of speculation that President Donald Trump plans to nominate a different candidate when her four-year term ends in February. And Yellen’s successor could have a very different approach to the job. Yellen’s Jackson Hole showing could be the last one, for now, under a Fed chair who takes a technocratic approach to monetary policy, according to Luke Bartholomew, an investment strategist at Aberdeen Standard Investments. “There could be an end-of-an-era feel to Jackson Hole this year,” Bartholomew told Business Insider.

The Fed chair could be replaced by someone who’s “probably not the sort of academic economist that’s been leading it through the Bernanke/Yellen period,” he said, adding that there’s “a broader feeling that under the Trump administration, the technocratic approach of the Fed is increasingly out of favor.” Yellen, 71, was a career economist and academic before President Barack Obama nominated her to replace Ben Bernanke in 2014. Trump told The Wall Street Journal last month that Gary Cohn, Yellen, and “two or three” other candidates were in the running for the job. One of those other people could be Kevin Warsh, a former Fed governor who is now a fellow at the Hoover Institution. But Cohn, the National Economic Council director and Trump’s top economic adviser, is reportedly the top contender. He’s the “archetype of Wall Street, given his job at Goldman in the past,” Bartholomew said. “He certainly brings financial acumen to the job. I’m not sure that’s what the job of Fed chairman is, but he’s a fine candidate.”

Walsh brings some years of Fed experience to the table. But he has worked for seven years in investment banking, at Morgan Stanley, and isn’t an academic policymaker like Yellen or Bernanke. That’s not the only red flag Yellen’s exit would raise. On one extreme, Yale School of Management’s Jeffrey Sonnenfeld thinks markets would crash if Cohn were to leave the White House for the Fed. Stocks dipped last week as rumors spread that he was leaving the administration following Trump’s response to the white-nationalist rally in Charlottesville, Virginia. “I don’t want to be an alarmist, but there is a lot of faith that he is going to help carry through the tax reform that people are looking for,” Sonnenfeld told CNBC last week.

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“Long term, the new home median price has been mostly 10% to 20% above the existing home median since 1990. Since 2011, however, new home prices have been at a 35% to 40% premium over resale prices..”

Here’s Why New Home Sales Tanked (CNBC)

Newly built homes are more expensive than they’ve ever been before. They are also more expensive when compared to similar existing homes than they’ve ever been before. And that is why sales are suffering, dropping an unexpected 9.4% in July compared to June, according to the U.S. Census. They are simply out of reach for too many potential buyers. You don’t have to do a lot of math to see it. The median sale price of a newly built home in July jumped more than 6% compared to July 2016, to $313,700. That marks the highest July price ever. Last December, the median price hit the highest of any month on record. In addition, the price premium for newly built homes compared to comparable existing homes has more than doubled since 2011, according to John Burns Real Estate Consulting.

“Long term, the new home median price has been mostly 10% to 20% above the existing home median since 1990. Since 2011, however, new home prices have been at a 35% to 40% premium over resale prices,” John Burns wrote in a recent note to clients. “While the exact percentages aren’t perfect due to ‘apples and oranges’ comparisons, our consultants have been confirming for years that new home sales have been slowed by larger than usual new home premiums.” The supply of existing homes for sale is still extremely low, but the supply of newly built homes moved higher in July to 5.8 months of inventory. “The scars of the housing bust are still fresh in the minds of many homebuilders, so it is not surprising that many are taking a cautious approach to ramping up production,” noted Aaron Terrazas, a senior economist at Zillow, in reaction to the July report.

Homebuilders are feeling slightly better about their business lately, but they continue to complain about the costs of land, labor, materials and regulation. They claim that is why they cannot build cheaper homes. Unfortunately, the lower end of the market is where most of the demand is and where supply is weakest. “There is still no pickup in sales for homes priced below $300,000, and this is where most of the first time households would be shopping in,” wrote Peter Boockvar, chief market analyst at The Lindsey Group in a note following the Census release on new home sales. “I repeat that the housing industry needs a moderation in home price gains in order to better compete with renting where rents increases are now moderating.”

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Auto loans are a huge part of money creation.

Autos Put Economic Downside Risks on Full Display (DDMB)

Federal Reserve data released last week on July industrial production offered little more than more of the same. Despite post-election optimism for a rebound in activity on the nation’s factory floors, the data reveal a continued throttling down in the growth rate to just over 2% compared with this time last year. The main drag on activity – the auto sector – should come as no surprise to investors. Rather than rising by 0.2% over June as projected, manufacturing production contracted by 0.1%, marking the third decline in five months. Motor vehicles and parts production fell by 3.6% on the month, taking the year-over-year slide to 5%. Evidence continues to build that a sampling error may be to blame for the surprising strength in June and July car sales.

Inventory continues to pile up, suggesting more production cuts are in the offing: As of June, the latest data on hand, auto inventories were up 7.4% over last year, leaving manufacturers choking for air. In July, General Motors alone was sitting on 104 days of supply, well above its target of 70 days. Industry-wide, the July/August average of 69 days ties the August 2008 record and sits above the historic average of 56 days of supply. In all, automakers have 3.9 million units of unsold light vehicles, up 324,600 from last August and the highest on record for the month. For context, July and August tie for the leanest stock levels of the year. The decline in July sales was already the steepest this year. Fresh loan delinquency data suggest more pain ahead.

“Deep subprime” borrowers have been a big boost at the margin, propelling back-to-back record years of sales in 2015 and 2016 as lending standards loosened sufficiently to allow millions with credit scores below 530 to access financing. Equifax, the consumer credit reporting firm, didn’t hold back in its second-quarter update, saying the performance of recent vintages of deep subprime loans was “awful.” While industry insiders are quick to point out that the overall pace of defaults across all borrowers remains in check, up just marginally over last year, there is growing concern that deep subprime delinquencies are back at 2007 levels. “The bottom line is excess auto inventories are clearly evident and the auto sector is now in recession,” said The Lindsey Group’s Peter Boockvar.

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We’re about to winess the political power of German carmakers. How many execs are being prosecuted? Right.

Merkel Aide Says Germany Has ‘Vital Interest’ in Diesel Survival (BBG)

Chancellor Angela Merkel’s chief of staff said Germany has a “vital interest” in ensuring diesel engines survive, defending the embattled technology as the industry comes under fire for cheating on emissions tests. Excessive pollution from diesel, as well as traditionally close ties between the government and auto industry, have emerged as a campaign issue in the run up to the country’s federal election in September. Merkel has been confronted by voters on the campaign trail, who accused the government of being too lenient on automakers, prompting the chancellor to question high bonuses for auto executives embroiled in Volkswagen’s cheating scandal. “We have a vital interest in preserving diesel as a technology because it emits far less CO2 than other technologies,” Peter Altmaier, Merkel’s chief of staff, said in a Bloomberg TV interview in Berlin.

“At the same time we have to make sure that all the rules are respected and all the regulations are fully implemented.” Car bosses and government officials reached a compromise deal earlier this month to lower pollution that calls for software updates on million of vehicles instead of more costly hardware fixes. Volkswagen, Daimler and BMW also agreed to a trade-in bonus for cars with outdated emissions controls. The measures have been criticized as a slap on the wrist for Germany’s biggest industry. “We have the responsibility to fight for a good deal but also to preserve the strength and the performance of the automobile industry,” Altmaier said in the interview late on Tuesday. “I’m very optimistic that we will overcome this.”Diesel software updates alone are “insufficient” for many cities to meet the legal limit for nitrogen oxides in the air, Environment Minister Barbara Hendricks told reporters on Wednesday, citing ministry tests conducted this month.

Excessive pollution impacts 70 German towns and cities, and the fixes agreed earlier this month would cut car emissions by a maximum of 6%, she said. Hendricks – a member of Merkel’s junior coalition partner, the Social Democrats – said her ministry and others will ascertain in the coming weeks whether hardware changes in diesels currently on the road are necessary to further lower emissions and will present their findings after the election. “Nobody wants to ban diesels from our cities,” she said. Merkel, who has so far largely steered clear of the debate, is hosting a meeting on Sept. 4 with representatives of the major cities, including the hometowns of BMW, Mercedes-Benz and Porsche, struggling to lower their pollution levels. A number of cities and courts continue to evaluate potential diesel driving bans as the most effective means to meet regulation quickly.

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China exports its Ponzi.

China’s ‘Belt And Road’ Could Be Next Risk To Global Financial System (CNBC)

China has pitched its mammoth, pan-Eurasian “Belt and Road” infrastructure initiative as a means of promoting economic prosperity and fostering diplomatic ties on a global scale. That rhetoric may win plaudits at a time when other global powers are voicing increasingly protectionist agendas, but it also comes with risks, and increasing levels of state-backed funding have raised concerns about just how safe of a gamble it is. Reports on Tuesday claimed that some of China’s biggest state-owned commercial banks will begin raising capital to fund investments into the initiative, also known as “One Belt, One Road,” which aims to connect more than 60 countries across Asia, Europe and Africa with physical and digital infrastructure. China Construction Bank, the country’s second-largest bank by assets, has been conducting roadshows to raise at least 100 billion yuan ($15 billion) from on- and offshore investors.

Bank of China, Industrial and Commercial Bank of China, and Agricultural Bank of China are also said to be raising tens of billions of dollars. The news highlights the risk that the state could amass hundreds of billions of dollars in nonperforming loans if the projects fail. For Xu Chenggang, professor of economics at Cheung Kong Graduate School of Business in Beijing, it was not a surprise. “It supports my concerns,” Xu told CNBC over the phone. “The impact could be damaging not just for China, but for the global financial system.” “These loans are being extended to governments in risky countries to fund risky infrastructure projects. If the projects were launched by private firms we wouldn’t have to worry because they would know they had to bear the consequences. But here we are talking about government-to-government lending and, ultimately, intergovernmental relations.”

[..] It took decades of economic reforms and loss-making firms before it succeeded in what Xu termed a process of “quiet privatization” at the turn of the 21st century. However, the process has lost momentum over the past 10 years, and the state remains burdened with issues of overcapacity and myriad “zombie firms,” especially within the metals and construction and materials sectors. Xu said that has partially been the motivation for the “Belt and Road” initiative: “Instead of solving the overcapacity problems, they are expanding the problem to projects overseas.” “They (China) are proposing lending money to foreign governments, who will then use the Chinese funds to pay the Chinese companies,” he explained.

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“.. one might say Mr. Trump represents a triumph of democracy..”

Being Here (Brodsky)

It should not surprise anyone that Western societies are becoming restless. Trump, Brexit, Charlottesville and, arguably, even radical Islamic terrorism are bi-products of global economic distortions largely created by the unwillingness of the Western political dimension to let the global factors of production naturally settle global prices and wages. (Sorry, it had to be said.) Donald Trump is a sideshow. His ascension, or someone like him, was inevitable. He may have official authority to behave like the leader of the free world (even if he is unable to do so), but so far he has only shown that virtually anyone can become president. Indeed, one might say Mr. Trump represents a triumph of democracy. Behold the robustness of America: the most powerful nation on Earth is unafraid to elect a cross between P.T. Barnum and Chauncey Gardner!

This is not to say a US president cannot raise and emphasize truly meaningful economic goals and mobilize countries around the world to help achieve them; but it is to say that this President seems to not know or be interested in what those goals might be. As discussed, the biggest challenges facing the US economy and US labor stem from a distorted global price and wage scale. Mr. Trump’s domestic fiscal, regulatory, tax and immigration goals seek only to raise US output and wages. This cannot be achieved without the participation of global commerce. There is no such thing anymore as a US business that makes US products sold only in the US without being influenced by global prices, wages and exchange rates. The romantic, patriotic “made in the USA” theme does not comport with the reality that the US also seeks to keep the dollar the world’s reserve currency and that maintaining America’s power requires the US to control the world’s shipping lanes.

Mr. Trump and his base cannot have one without the other. (Do we really have to articulate this?) Mr. Trump’s “Being There” presidency is reflecting an inconvenient truth back on a society that has, until maybe now, successfully deluded itself into believing government is functionally the glue holding society together. Though he does not mean to, Mr. Trump is single-handedly demonstrating to groups ranging from idealistic Washington elites to social media zombies to southern white supremacists that Madisonian government has become a dignified cover for the financial, commercial and national security interests that control it. We suspect those interests would rather the reach of their power be less visible.

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Two maps, actually. Click the link for fully interactive versions.

All The Countries The USA Has Invaded, In One Map (Indy)

From Montezuma to the shores of Tripoli, the US has had a military presence across the world, from almost day one of her independence. What constitutes invasion? As one map below shows, the US has a military presence in much of the world without being an occupying force (though some would dispute that definition). For instance, although the Confederacy considered the US to be a hostile invading power, indy100 are not counting the Civil War or any annexation within the continental United States as an ‘invasion’. Using data on US military interventions published by the Evergreen State College, in Olympia Washington, indy100 has created this map (below). The data was compiled by Dr Zoltan Grossman, a professor of Geography and Native Studies. The map documents a partial list of occasions, since 1890, that US forces were used in a territory outside the US.

Caveats: This includes: Deployment of the military to evacuate American citizens, Covert military actions by US intelligence, Providing military support to an internal opposition group, Providing military support in one side of a conflict (e.g. aiding Iraq during the Iran-Iraq War 1988-89), Use of the army in drug enforcement actions (e.g. Raids on the cocaine region in Bolvia in 1986 It does not include threats of nuclear weapons against a territory, such as during the Berlin Air Lift (1948-49). It also excludes any time US military personnel were deployed to a foreign country for an exclusively humanitarian purpose – e.g. sending troops to the Democratic Republic of the Congo to provide assistance to refugees fleeing the Rwandan genocide (1996-97).

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The demise of a society. Not because of marriages declining, but because of why they are.

America, Home of the Transactional Marriage (Atlantic)

Over the last several decades, the proportion of Americans who get married has greatly diminished—a development known as well to those who lament marriage’s decline as those who take issue with it as an institution. But a development that’s much newer is that the demographic now leading the shift away from tradition is Americans without college degrees—who just a few decades ago were much more likely to be married by the age of 30 than college graduates were. Today, though, just over half of women in their early 40s with a high-school degree or less education are married, compared to three-quarters of women with a bachelor’s degree; in the 1970s, there was barely a difference. The marriage gap for men has changed less over the years, but there the trend lines have flipped too: 25% of men with high-school degrees or less education have never married, compared to 23% of men with bachelor’s degrees and 14% of those with advanced degrees.

Meanwhile, divorce rates have continued to rise among the less educated, while staying more or less steady for college graduates in recent decades. The divide in the timing of childbirth is even starker. Fewer than one in 10 mothers with a bachelor’s degree are unmarried at the time of their child’s birth, compared to six out of 10 mothers with a high-school degree. The share of such births has risen dramatically in recent decades among less educated mothers, even as it has barely budged for those who finished college. (There are noticeable differences between races, but among those with less education, out-of-wedlock births have become much more common among white and nonwhite people alike.)

[..] Autor, Dorn, and Hanson found that in places where the number of factory jobs shrank, women were less likely to get married. They also tended to have fewer children, though the share of children born to unmarried parents, and living in poverty, grew. What was producing these trends, the researchers argue, was the rising number of men who could no longer provide in the ways they once did, making them less attractive as partners. Furthermore, many men in these communities became no longer available, sometimes winding up in the military or dying from alcohol or drug abuse. (It’s important to point out that this study and similar research on employment and marriage focus on opposite-sex marriages, and a different dynamic may be at work among same-sex couples, who tend to be more educated.)

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Aug 212017
 
 August 21, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  7 Responses »


Elliott Erwitt Waiting for a Streetcar in Downtown Pittsburgh 1950

 

Ron Paul: 50% Stock Market Plunge ‘Conceivable,’ But Not Trump’s Fault (CNBC)
Zombies Propped Up As China’s Debt Swaps Surpass $100 Billion (BBG)
China’s Plunge Protection Team Claims “State Meddling” Stabilizes Markets (ZH)
House Of Cards: Lending Culture Is Leaving Australians Vulnerable (Abc)
Diesel Scandal Is A Risk To German Economy, Says Ministry (R.)
Britain and EU Clash Over Brexit Timetable for Trade Deal (BBG)
NAFTA Negotiations Start in Secrecy. Lobbying Heats Up (WS)
Beware the “The Cultural Civil War” Narrative (CHS)
Rob Ford, Donald Trump and the New Direction of Political Polarization (Towhey)
When Exactly Will the Eclipse Happen? (Wolfram)

 

 

Paul’s just guessing on the numbers, but the risks are obvious. And Trump will be blamed anyway.

Ron Paul: 50% Stock Market Plunge ‘Conceivable,’ But Not Trump’s Fault (CNBC)

Ron Paul’s sell-off prediction just got more severe. The former Republican Congressman from Texas believes escalating dysfunction in Washington will create even more pain for Wall Street. “A 50% pullback is conceivable,” Paul said on “Futures Now” recently. “I don’t believe it’s ten years off. I don’t even believe it’s a year off. ” According to his calculations, it would cut the S&P 500 Index in half, to 1212, and the blue-chip Dow Jones Industrial Average would collapse to 10,837. Paul noted that there’s a lot of chaos in Washington right now, with an “unpredictable president” and those who are inclined to “tear him apart” but if the market takes that big of a tumble, he doesn’t see it as Trump’s fault.

“It’s all man-made. It’s not the fault of Donald Trump in the last week. If the market crashes tomorrow and we have a great depression, he didn’t do it in six months. It took more like six or ten years to cause all these problems that we’re facing,” he said. What’s more, it would come at the expense of businesses who are counting on reforms such as tax cuts and fewer regulations, according to Paul. Paul, who is also known for his presidential runs, originally made his case for a somewhat more benign 25% downturn on June 29 on “Futures Now.” He argued Wall Street is overestimating the strength of the economy, and the Federal Reserve kept interest rates too low for too long. He said the situation for stocks could turn ugly as soon as October. Stocks will try to bounce back on Monday from multiple losing weeks in a row. The Nasdaq just saw its fourth consecutive week of losses. Meanwhile, the Dow & S&P 500’s losing streak now sits at two weeks.

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China’s way of propping up coal and steel. Too big to fail.

Zombies Propped Up As China’s Debt Swaps Surpass $100 Billion (BBG)

Almost a year after China rolled out steps to rein in soaring corporate leverage, concerns are rising that undeserving companies are benefiting while households are getting saddled with risks. China unveiled guidelines for debt-to-equity swaps in October, part of measures to trim the world’s biggest corporate debt loads. The idea was that healthy firms would use the program to cut interest-bearing borrowings, while bloated companies would be shunned. But it hasn’t always worked out that way, even as the total value of swaps reached 776 billion yuan ($116 billion) in the second quarter when volumes jumped to a record, according to Natixis. While China’s State Council said in October that zombie firms may not take part, 55% of the swaps last quarter were in the coal and steel industries, which are plagued by overcapacity, Natixis says.

The stakes are high for lenders and even individual investors, some of whom buy wealth management products repackaged from the swaps. The absence of a clear definition of “zombie” is part of the problem, according to Fitch Ratings. Views vary on whether further guidelines on the program released this month by the banking regulator will help address these issues. The program is attracting bad companies because they see debt-to-equity swaps as a way to get a bailout, said Chi Lo, Greater China senior economist at BNP Paribas Asset Management. “You can imagine the zombie companies will be just like cancer cells that eat into the system.”

The swaps generally work like this: A bank agrees to take over a company’s debt from its original lenders. The bank sets up a unit which has other shareholders that help share risk. The unit assumes the debt and conducts a transaction with the company to convert it into equity. It can then dispose of the stake. In the most recent draft guidelines released earlier this month by the China Banking Regulatory Commission, a bank is required to own no less than a 50% stake in the unit conducting the swaps. The guidelines also say that the units can sell bonds and borrow from the interbank market.

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That’s the same claim the Fed and ECB make, just in other words.

China’s Plunge Protection Team Claims “State Meddling” Stabilizes Markets (ZH)

It was two years ago, in June of 2015, when just as the Shanghai Composite was flirting with 5,000 and when literally the local banana stand guy was trading stocks, that the Chinese stock bubble burst, unleashing an unprecedented selling spree, a 40% drop in just two months, and Beijing’s nationalization of the stock market, courtesy of the domestic plunge protection team, the China Securities Regulatory Commission also known as the “National Team”. The decision by local authorities to effectively shut down price discovery had a huge confidence crushing impact on local investor confidence. As Gavekal Research put it overnight, “the lack of trust was crystallized by the decision in the summer of 2015 to “shut down” the equity markets for a while and stop trading in any stock that looked like it was heading south.

That decision confirmed foreign investors’ apprehension about China and in their eyes set back renminbi internationalization by several years, if not decades.” Understandably, with the realization that China (or any other nation for that matter), no longer has a an efficient, discounting stock market, but merely a policy tool meant to inspire confidence on the way up, and punish short sellers and “speculators” on the way down, the China Securities Regulatory Commission kept a low profile: after all why remind traders and investors that the local market only exists in the imaginations of several Beijing bureaucrats who sit down every day to decide the “fair value” of all market-traded equities. That changed last week, when for the first time in years, the Chinese Plunge Protection Team broke its silence and said that “state meddling has successfully stabilized China’s US$7 trillion stock market by curbing volatility and steering valuations to rational levels.”

For those stunned by the idiocy in the circular statement above, don’t worry it’s not just you: China indeed just said that the local market has become more efficient as a result of more manipulation. What is far more shocking, however, is that most central bankers around the world would agree with this statement.

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The banking system will fall with real estate, exposure to mortgage debt is 60%. And Australian banks own New Zealand banks.

House Of Cards: Lending Culture Is Leaving Australians Vulnerable (Abc)

A decade of housing price rises, low interest rates and relatively easy credit has left Australians carrying the second-highest level of household debt in the world. And despite efforts to tighten lending and to address problems in the lending culture, the ABC’s Four Corners program has learnt bank staff and mortgage brokers are still required to meet tough lending targets and some staff are threatened with dismissal if they do not meet the banks’ requirement to sign up more mortgages. The problems in the lending culture were acknowledged by the banks themselves earlier this year in a review conducted by the former public service chief, Stephen Sedgwick. Incentive payments and lending targets are still a primary motivator for bank staff. Internal performance expectations for Westpac bank lenders, obtained by Four Corners, include targets of six-to-nine home-finance requests a week and between two and three home-loan drawdowns a week.

Another economist who has raised the alarm is former banker Satiyajit Das. He said the 60% exposure to mortgage debt in Australia’s banks was “extremely high”. That figure “is at least 20% higher than Norway, and also higher than Canada, which is a very comparable economy to Australia”, he said. Australia’s feverish housing market has contributed but Mr Das said other countries that had experienced rapid house price rises did not have the same potentially dangerous exposure. “One of the biggest housing bubbles in the world is Hong Kong, but the Hong Kong banks have only got exposure to the housing market of around 15%,” he said. Exposure to housing debt at Australian levels, Mr Das said, would leave banks more vulnerable in the case of any housing downturn. “If there is a downturn then obviously the losses will build up quite quickly,” he said.

[..] Gerard Minack, the former head of developed market strategy at Morgan Stanley, said Australia had been led down this path by current tax arrangements and lenders who had been increasingly willing to leverage up borrowers. This, he said, had created “a massive affordability problem” that will exacerbate the pain associated with any downturn. Australia now has a household-debt-to-income ratio of 190%. “For every $1 of household income, there’s [nearly] $2 of debt,” Mr Minack said.

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Preparing Germans for a lenient attitude by their government (ahead of the Merkel re-election). Sorry guys, but carmakers are too big to fail. Can’t blame Angela…

Diesel Scandal Is A Risk To German Economy, Says Ministry (R.)

The emissions scandal ensnaring German carmakers is a risk to Europe’s largest economy, the finance ministry said on Monday. In its monthly report, the ministry named the issue, which broke out almost two years ago after Volkswagen admitted to cheating US diesel emissions tests, as a threat to Germany along with Britain’s decision to leave the European Union and protectionist trade policies by the US government. But it has said it was impossible to put a figure on the potential damage it could cause. The car industry is Germany’s biggest exporter and provides about 800,000 jobs. “Risks linked to how Brexit will shape out and future US trade policies remain,” the ministry said. “In addition, the so-called diesel crisis should be classified as a new risk to the German economy even though its effects are not possible to quantify at the moment.”

Strong household and state spending provided most of the impulse for the German economy in the second quarter when growth was measured at 0.6%. Weaker net foreign trade dampened growth, as exports grew strongly less than imports. The ministry said it expected the industrial sector to continue its upswing also in the third quarter, pointing to robust orders and strong business sentiment indicators. But the diesel crisis could cloud the German growth outlook, it said, adding: “Given the importance of the automotive industry [the diesel crisis) must be classified in the medium term as a risk to the overall economic development.” German politicians and car bosses agreed earlier in August to overhaul engine software on 5.3m diesel cars to cut pollution and try to repair the industry’s battered reputation.

EU antitrust regulators are also investigating allegations of a cartel among a group of German carmakers, a measure that could result in hefty fines for the companies. In April, Volkswagen was ordered to pay a $2.8bn criminal penalty in the United States for cheating on emissions tests. The company is also paying $1.5bn in a civil case brought by the US government and spending $11bn to buy back cars and offer other compensation. Back in Europe, German carmakers VW, Audi, Porsche, Mercedes and BMW face questions over whether they colluded to bring down the cost of components – including some used to control diesel emissions.

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How is it possible that just one party does these negotiations?

Britain and EU Clash Over Brexit Timetable for Trade Deal (BBG)

Britain and the European Union are at odds over how soon the Brexit talks can pivot towards a trade deal just a week before negotiations are set to resume. Adopting a provocative posture, U.K. Prime Minister Theresa May’s government declared at the weekend that it’s “stepping up pressure” on the bloc to shift the discussions away from the terms of separation as soon as October. The use of fighting words in the past has not budged the EU and in a sign the U.K. will be disappointed, Slovenian Prime Minister Miro Cerar told the Guardian that “the process will definitely take more time than we expected.”

Signs of fresh discord may unnerve investors after the pound last week under-performed all of its Group of 10 counterparts. By giving out more details of where it stands and spelling out its demands, the U.K. wants to change the narrative that it’s been too vague, and by doing so jolt the EU into talking trade sooner. With the clock ticking down to the U.K.’s March 2019 departure, and the two sides clashing over many key issues, Brexit Secretary David Davis seems bent on reviving a debate over whether talks should run in parallel rather than in the strict order the EU has laid out.

Such an ambition will draw short shrift from the EU. Its chief negotiator, Michel Barnier, last week reiterated that the other 27 governments won’t allow trade talks to start until “sufficient progress” has been made resolving residency rights, the U.K.’s exit bill and the border with Ireland. The original hope was to reach this milestone in October – in time for a summit of EU leaders – but that is now in doubt amid criticism within the EU of sluggish progress and a lack of detail from the British. “There are so many difficult topics on the table, difficult issues there, that one cannot expect all those issues will be solved according to the schedule made in the first place,” Slovenia’s Cerar told the Guardian. “What is important now is that the three basic issues are solved in reasonable time.”

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The NAFTA talks may well end up being as tough as the Brexit ones.

NAFTA Negotiations Start in Secrecy. Lobbying Heats Up (WS)

The first round of re-negotiating the North American Free Trade Agreement between the US, Canada, and Mexico began on Wednesday and is scheduled to last through Sunday. And the one thing we know about it is this: Despite promises in March by US Trade Representative Robert Lighthizer (USTR) that the negotiations would be transparent, the USTR now considers the documents and negotiations “classified” and they’ll be cloaked in secrecy. But corporate lobbyists have access. And they’re all over it. The Electronic Frontier Foundation put it this way: “Once again, following the failed model of the Trans-Pacific Partnership (TPP), the USTR will be keeping the negotiating texts secret, and in an actual regression from the TPP will be holding no public stakeholder events alongside the first round. This may or may not set a precedent for future rounds, that will rotate between the three countries every few weeks thereafter, with a scheduled end date of mid-2018.”

But during his confirmation hearing in March, Lighthizer had promised to make the negotiations transparent and to listen to more stakeholders and the public. The EFF reported at the time that in response to Senator Ron Wyden question – “What specific steps will you take to improve transparency and consultations with the public?” – Lighthizer replied in writing: “If confirmed, I will ensure that USTR follows the TPA [Trade Promotion Authority, aka. Fast Track] requirements related to transparency in any potential trade agreement negotiation. I will also look forward to discussing with you ways to ensure that USTR fully understands and takes into account the views of a broad cross-section of stakeholders, including labor, environmental organizations, and public health groups, during the course of any trade negotiation.

He said that “we can do more” to ensure that we “have a broad and vigorous dialogue with the full range of stakeholders in our country.” Senator Maria Cantwell tried to have Lighthizer address the skewed Trade Advisory Committees that currently advise the USTR, by asking: “Do you agree that it is problematic for a select group of primarily corporate elites to have special access to shape US trade proposals that are not generally available to American workers and those impacted by our flawed trade deals?” Lighthizer replied: “It is important that USTR’s Trade Advisory Committees represent all types of stakeholders to ensure that USTR benefits fully from a diverse set of viewpoints in considering the positions it takes in negotiations.”

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You’re being played.

Beware the “The Cultural Civil War” Narrative (CHS)

The play is as old as civilization itself: conjure up extremists (paying them when necessary), goad the formation of opposing extremists, then convince the populace that these extremists have been normalized, i.e. your friends and neighbors already belong to one or the other. This normalization then sets up the relentless demands to choose a side – the classic techniques of misdirection and false choice. Just as you’re sold a triple-bacon cheeseburger or a hybrid auto, you’re being sold a completely fabricated cultural civil war. There have always been extremists on every edge of the ideological spectrum, just as there have always been religious zealots. In a healthy society, these fringe pools of self-reinforcing fanaticism are given their proper place: they are outliers, representing self-reinforcing black holes of confirmation bias of a few.

In times of social, political and financial stress, such groups pop up like mushrooms. In times of media saturation, a relative handful can gain enormous exposure and importance because the danger they pose sells adverts and attracts eyeballs/viewers. Add a little fragmentation, virtue-signaling, demands for ideological conformity and voila, you get a deeply fragmented and deranged populace that is incapable of recognizing the dire straits it is in or recognizing the structural sources of its impoverishment and powerlessness. In other words, you get an easily mallable populace at false war with itself.

There is always common ground for those who dare to seek it. The Powers That Be are blowing up the bridges as fast as they can, whipping up fear and hatred of the Other, fanning the flames of extremism and claiming extremists are now normalized and everywhere. All of this is false. Would you buy an entirely manipulated cultural civil war if it was advertised as such? If not, then don’t buy into the false (but oh so useful to the ruling elites) narrative of an “inevitable cultural Civil War.”

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Excellent piece by G. Mark Towhey, “a key player on the team that helped elect Rob Ford as mayor of Toronto”.

Rob Ford, Donald Trump and the New Direction of Political Polarization (Towhey)

You are not a typical American. Not even close. The typical American doesn’t read lengthy articles in policy journals. The typical American gets up far too early in the morning, after too little sleep, works too hard for too long in a job that pays too little, before heading home, feeding the kids, cleaning the house, and collapsing into bed far too late. He or she has precious little time to consume news: a fleeting glimpse of pithy headlines, maybe a two-minute newscast on the radio if they drive to work or a few minutes of local TV news—mostly weather and sports scores. It is through this lens that typical Americans view the world beyond their personal experience and that of friends and family. It’s through this lens that they assess their government and judge their politicians.

These are the typical Americans who elected Donald Trump. They weren’t alone in voting for Trump, and they didn’t cast their ballots by mistake. They chose Trump because, out of the available alternatives, he best represented their view of the world. I am not a typical American, either. In fact, I’m a Canadian. I was a key player on the team that helped elect Rob Ford as mayor of Toronto—North America’s fourth largest city. I helped him craft a campaign platform that resonated with typical Torontonians and, later, helped him translate that platform into an actionable governing agenda. I helped him get things done. Three years later, Ford fired me as his chief of staff when I insisted that he go to rehab to address the personal demons that were destroying both him and his mayoralty. My experience with Ford has given me an unusual perspective on the recent presidential election, the Trump phenomenon, and the rise of a new and powerful political force that favors unorthodox candidates.

No, you and I are not typical at all. We have time to read (and, apparently, to write) long-form articles in policy journals. We can pause our breadwinning labor and child-rearing duties long enough to consider hypotheticals and to ruminate, now and then, on an idea or two. We may not recognize this as a luxury in our modern world, but we should. Amid all that rumination, however, we rarely stop to think that what motivates us does not necessarily excite typical Americans, the people who elected Donald Trump some six years after their northern cousins elected Rob Ford in Toronto. Almost by mistake, this bloc of typical citizens—overstressed, under-informed, concerned more with pragmatic quality of life issues than idealistic social goals—has become a powerful political movement. And we didn’t see them coming. Conventional political leaders seem to completely misunderstand them, and even their own champions often appear to disrespect them. They do so at their peril.

In 2010, Rob Ford was a dark horse candidate in the race to be mayor of Toronto. He later became internationally notorious for his very public battles with drug addiction and frequent appearances as a punch line in late-night television monologues. But his 2010 campaign was based on his understanding of the struggles typical residents endured and their limited time for politics. Ford boiled his campaign down to “Respect for Taxpayers” and “Stop the Gravy Train.” His message was concise and understandable. It fit on a bumper sticker. It could be passed by word of mouth from one person to the next without loss of meaning or impact. That it meant something different to everyone was not a weakness but a strength—no matter what you thought the “gravy train” was, everyone wanted it stopped.

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In case you want to know Absolutely Everything about the eclipse, here’s Stephen Wolfram.

When Exactly Will the Eclipse Happen? (Wolfram)

A total solar eclipse occurs when the Moon gets in front of the Sun from the point of view of a particular location on the Earth. And it so happens that at this point in the Earth’s history the Moon can just block the Sun because it has almost exactly the same angular diameter in the sky as the Sun (about 0.5° or 30 arc-minutes). So when does the Moon get between the Sun and the Earth? Well, basically every time there’s a new moon (i.e. once every lunar month). But we know there isn’t an eclipse every month. So how come? Well, actually, in the analogous situation of Ganymede and Jupiter, there is an eclipse every time Ganymede goes around Jupiter (which happens to be about once per week). Like the Earth, Jupiter’s orbit around the Sun lies in a particular plane (the “Plane of the Ecliptic”).

And it turns out that Ganymede’s orbit around Jupiter also lies in essentially the same plane. So every time Ganymede reaches the “new moon” position (or, in official astronomy parlance, when it’s aligned “in syzygy”—pronounced sizz-ee-gee), it’s in the right place to cast its shadow onto Jupiter, and to eclipse the Sun wherever that shadow lands. (From Jupiter, Ganymede appears about 3 times the size of the Sun.) But our moon is different. Its orbit doesn’t lie in the plane of the ecliptic. Instead, it’s inclined at about 5°. (How it got that way is unknown, but it’s presumably related to how the Moon was formed.) But that 5° is what makes eclipses so comparatively rare: they can only happen when there’s a “new moon configuration” (syzygy) right at a time when the Moon’s orbit passes through the Plane of the Ecliptic.

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Jul 162016
 
 July 16, 2016  Posted by at 9:18 am Finance Tagged with: , , , , , , , ,  2 Responses »


Jack Delano Main street intersection, Norwich, Connecticut 1940

Brexit Or Not, The Pound Will Crash (EvBB)
BOE Chief Economist Haldane Calls For Big Post-Brexit Stimulus (G.)
Philip Hammond Promises ‘Whatever Measures’ To Stabilise Economy (Ind.)
Dow Extends Record Streak as US Stocks Post Weekly Gains (WSJ)
EU Plays Catch-Up on Swaps Collateral Under US Pressure (BBG)
$35 Billion Pension Bomb Shows Who Really Has Power in Poland (BBG)
EU Commission Has Known for Years about Diesel Manipulation (Spiegel)
Economics Is For Everyone! (Chang)

 

 

“Few have lived as high on the hog as the Brits have.”

Brexit Or Not, The Pound Will Crash (EvBB)

Status quo, as our generation know it, established in 1945 has plodded along ever since. It is true that it have had near death experiences several times, especially in August 1971 when the world almost lost faith in the global reserve currency and in 2008 when the fractional reserve Ponzi nearly consumed itself. While the recent Brexit vote seem to be just another near death experience we believe it says something more fundamental about the world. When the 1945 new world order came into existence, its architects built it on a shaky foundation based on statists Keynesian principles. It was clearly unsustainable from the get-go, but as long as living standards rose, no one seemed to notice or care. The global elite managed to resurrect a dying system in the 1970s by giving its people something for nothing.

Debt accumulation collateralized by rising asset values became a substitute for productivity and wage increases. While people could no longer afford to pay for their health care, education, house or car through savings they kept on voting for the incumbents (no, there is no difference between center left and right) since friendly bankers were more than willing to make up the difference. It is clear for all to see but the Ph.Ds. that frequent elitist policy circles that the massive misallocation and consumption of capital such a perverted system enables will eventually collapse on itself. Debt used to be productive, id est. self-liquidating, but now it is used for consumption backed by future income projections based on historical experience.

However, one should not extrapolate future income streams from a historical regime when the new one is fundamentally different. The promised incomes obviously never materialized and the world reached peak debt. The credit Ponzi is dead. Consider the following chart that depicts decennial change in average real earnings for the UK worker. It shows an unprecedented development. Not since the 1860s have the UK worker experienced falling real earnings over a ten-year period. Such dramatic change obviously does something to the so-called social contract people have been tricked into. People no longer believe in a brighter future and there is nothing more detrimental to a human being than that.

No longer vested in the status quo, people opt for radical change, hence; Brexit, Trump, Le Pen, Lega Nord, M5S. Old rules does not apply anymore. Over the next couple of years, we will experience a torrent of sea change, a lot of it unpleasant, but it will come nonetheless. In the social contract, immigration is OK when jobs are plentiful and people’s houses are worth more every year. Not so much when they are unemployed and without a house or even prospects of ever owning one. Corruption in the higher echelons of society is grudgingly accepted when the elite allegedly runs a system where incomes and productivity constantly moves upwards, but will not be tolerated as blue collar jobs are moved offshore.

[..] So what does this mean for the UK specifically? Few have lived as high on the hog as the brits have. Their current account deficit at 6 per cent of GDP is reminiscent of countries heading into depressions. In the mid-1970s, the IMF had to bail them out and in the early 1990s, the infamous ERM regime collapsed as Soros made his billion. The pound got a pounding on the Brexit vote, but it was destined to fall anyways. The adjustment needed to correct this imbalance is not over and we should all expect a far weaker pound in the months and years ahead. Brexit only triggered what was already baked into the cake in the first place.

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Stuck in BAU.

BOE Chief Economist Haldane Calls For Big Post-Brexit Stimulus (G.)

The Bank of England’s chief economist has called for a big package of measures to support the UK’s post-Brexit economy, stressing the need for a prompt and robust response to the uncertainty. Andy Haldane made it clear the Bank’s monetary policy committee would do more than merely cut interest rates from their already record low of 0.5% when it meets in August. The Bank’s chief economist used a speech to warn that decisive action was required at a time when confidence had been dented by the shock referendum result. “In my personal view, this means a material easing of monetary policy is likely to be needed, as one part of a collective policy response aimed at helping protect the economy and jobs from a downturn.

“Given the scale of insurance required, a package of mutually complementary monetary policy easing measures is likely to be necessary. And this monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly I mean next month, when the precise size and extent of the necessary stimulatory measures can be determined as part of the August inflation report round.” The Bank surprised the City when it left interest rates on hold at its July meeting held this week, but the minutes of the MPC’s discussions said most of its nine members thought an easing of policy would be required in August.

The tone and content of Haldane’s speech suggest that the MPC will use public appearances to make the case for strong action in August. Options include cutting interest rates to 0.25% or lower, restarting the Bank’s £375bn quantitative easing scheme and providing cut price loans to banks under the funding for lending scheme. [..] In a reference to the prison movie The Shawshank Redemption Haldane said: “I would rather run the risk of taking a sledgehammer to crack a nut than taking a miniature rock hammer to tunnel my way out of prison – like another Andy, the one in the Shawshank Redemption. And yes I know Andy did eventually escape. But it did take him 20 years. The MPC does not have that same ‘luxury’.”

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This headline somehow seems to perfectly capture UK politics today. Whatever.

Philip Hammond Promises ‘Whatever Measures’ To Stabilise Economy (Ind.)

Philip Hammond, the UK’s newly appointed chancellor of the exchequer, said the vote to leave the EU had “rattled confidence” and that he will take “whatever measures” needed to shore up the British economy. “The number one challenge is to stabilise the economy, send signals of confidence about the future, the plans we have for the future to the markets, to business, to international investors,” Hammond said in a Sky News interview. Hammond’s comments came ahead of a meeting later on Thursday of Bank of England policy makers who will debate whether to reduce the key interest rate for the first time since 2009.

The Bank’s governor, Mark Carney, is seeking to stave off further turmoil after the pound plunged and consumer confidence dropped to a 21-year low in the wake of last month’s decision to quit the EU. The chancellor, appointed to the role late on Wednesday by new prime minister, Theresa May, will meet Carney on Thursday morning “to make an assessment of where the economy is,” he said in a BBC TV interview. He added: “I think the governor of the Bank of England is doing an excellent job.”

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It’s embarrassing to watch.

Dow Extends Record Streak as US Stocks Post Weekly Gains (WSJ)

The Dow Jones Industrial Average hit its fourth consecutive closing high on Friday, rising 10.14 points, or less than 0.1%, to 18516.55. For the week, it gained 2%. The S&P 500’s rally put the index above the mean average of year-end targets from 18 analysts tracked by Birinyi Associates. Collectively, those analysts predicted, as of July 6, that the S&P 500 would finish this year at 2153. The index closed above that level on Friday, at 2161.74, despite slipping 0.1% after four record closes in a row. Analysts revise their year-end targets throughout the year. In mid-January, the average year-end target was 2198, according to Birinyi Associates.

Markets elsewhere rallied for the week. Japan’s Nikkei Stock Average rose 9.2% over five sessions, its best performance in 6 1/2 years. The Stoxx Europe 600 rose 3.2% in the week. “The market is showing us, if nothing else, its resilience,” said Jason Browne, chief investment officer of FundX Investment Group in San Francisco. Investors began to put money back into riskier assets such as stocks, an encouraging sign to those who had worried about the stream of money leaving equity funds this year. In the seven days to July 13, investors poured a net $7.8 billion into U.S. equity funds, according to data provider Lipper. It was the first weekly inflow since late April.

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I could see Brexit having a role here.

EU Plays Catch-Up on Swaps Collateral Under US Pressure (BBG)

European Union regulators are considering ways to speed the implementation of collateral requirements for derivatives as the bloc’s failure to meet a global deadline threatens to fracture the $493 trillion market. The European Commission said last month it wouldn’t meet a Sept. 1 global deadline. In a draft letter addressed to the main EU regulators, the bloc’s executive arm is now proposing to adapt its plans to “align with the internationally agreed timelines as closely as possible.” Previously, the commission said it would finish EU technical rules on margins for non-centrally cleared over-the-counter derivatives by year-end and have them take effect before mid-2017. That prompted a backlash from regulators in Washington and Tokyo, who said they intended to impose the rules on schedule, while leaving the door open to a delay.

The regulations will apply billions of dollars in collateral demands to swaps traded by the world’s largest banks, including JPMorgan Chase, Barclays and Deutsche Bank. The financial industry has called for global regulators to enforce the requirements at the same time to avoid creating the potential for regulatory arbitrage between jurisdictions. The Basel Committee on Banking Supervision, which includes regulators from around the world, helped set the international deadlines that start taking effect for the biggest banks in September and ratchet up starting in March 2017. The over-the-counter swap market is estimated at $493 trillion by the Bank for International Settlements. In the undated draft letter seen by Bloomberg, the commission proposed that the requirements would take effect one month after the EU’s technical rules enter into force.

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The age of the strongman is upon us. This one takes pensions.

$35 Billion Pension Bomb Shows Who Really Has Power in Poland (BBG)

It took up less than a minute of a one-hour speech, but led to an unexpectedly busy weekend for the Polish Ministry of Development in Warsaw. At the governing Law & Justice Party’s congress on the first Saturday of this month, leader Jaroslaw Kaczynski spelled out his vision for the country. He mentioned briefly that Poland should do more with the money parked in its retirement funds. At Kaczynski’s ministry of choice for economic policy, senior officials swiftly rounded up colleagues to work through Sunday so that at 8:30 a.m. the next day – before financial markets opened – an overhaul of the $35 billion pension industry could be unveiled. Investment companies were incredulous and the stock market dropped, though it came as little surprise to the people close to the real power in Poland.

Kaczynski, 67, holds no office beyond his role as lawmaker – he’s not the prime minister, president and doesn’t even run a department. His drumbeat of mistrust for both Russia and western Europe, the them-and-us attacks on Poland’s post-communist elite and his courting of the Catholic church give him enough of a devoted following that he needs no title. “Politically, he’s a sort of commander in chief or a first secretary we knew from the times of communism,” said Marek Migalski at Silesian University in Katowice. A former Law & Justice lawmaker in the European Parliament, he was ostracized by the party for criticizing Kaczynski in 2010. “I’d say that for his supporters, he’s even more than Moses. It’s not just a notion that Kaczynski is doing only good things, it’s the conviction that things that are done by Kaczynski are good.”

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Anyone ever doubted this?

EU Commission Has Known for Years about Diesel Manipulation (Spiegel)

Since at least 2010, the European Commission has been in possession of concrete evidence that automobile manufacturers were cheating on emissions values of diesel vehicles, according to a number of internal documents that SPIEGEL ONLINE has obtained. The papers show that emissions cheating had been under discussion for years both within the Commission and the EU member state governments. The documents also show that the German government was informed of a 2012 meeting on the issue. The scandal first hit the headlines in 2015 when it became known that Volkswagen had manipulated the emissions of its diesel vehicles. The records provide a rough chronology of the scandal, which reaches back to the middle of the 2000s.

Back then, European Commission experts noticed an odd phenomenon: Air quality in European cities was improving much more slowly than was to be expected in light of stricter emissions regulations. The Commission charged the Joint Research Centre (JRC) – an organization that carries out studies on behalf of the Commission – with measuring emissions in real-life conditions. To do so, JRC used a portable device known as the Freeway Performance Measurement System (PeMS), which measures the temperature and chemical makeup of emissions in addition to vehicle data such as speed and acceleration. This technology, which was later used to reveal VW emissions manipulation in the United States, was largely developed by the JRC.

JRC launched their PeMS tests in 2007 and quickly discovered that nitrogen oxide emissions from diesel vehicles were much higher under road conditions than in the laboratory. The initial results were published in a journal in 2008 and they came to the attention of the Commission. On Oct. 8, 2010 – roughly three years after the JRC tests – an internal memo noted that it was “well known” that there was a discrepancy between diesel vehicle emissions during the type approval stage (when new vehicle models are approved for use on European roads) and real-world driving conditions. The document also makes the origin of this discrepancy clear: It is the product of “an extended use of certain abatement technologies in diesel vehicles.”

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Wow. A feast for the eye and the mind. Don’t miss it.

Economics Is For Everyone! (Chang)

‘Economics is for everyone’, argues legendary economist Ha-Joon Chang in our latest mind-blowing RSA Animate. This is the video economists don’t want you to see! Chang explains why every single person can and SHOULD get their head around basic economics. He pulls back the curtain on the often mystifying language of derivatives and quantitative easing, and explains how easily economic myths and assumptions become gospel. Arm yourself with some facts, and get involved in discussions about the fundamentals that underpin our day-to-day lives.

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Apr 222016
 
 April 22, 2016  Posted by at 9:31 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »


Harris&Ewing Less taxes, more jobs, US Chamber of Commerce campaign 1939

US Middle Class Flees The Stock Market (ZH)
China Markets Send Ominous Signals as Global Stocks Rally (BBG)
China Seizes Biggest Share Of Global Exports In Almost 50 Years (R.)
China Risks Global ‘Steel War’ As Tempers Flare (AEP)
Yen Falls By Most In 7 Weeks As BOJ Considers Negative-Rate Loans (BBG)
Draghi Defies German Disfavor With Claim ECB Stimulus Works (BBG)
Pension Cuts Loom For Millions of Dutch As Big Funds Struggle (DN)
Eurozone Mess Can’t Be Fixed; It Can Only Be ‘Muddled Through’ (MW)
US Regulators Line Up to Consider New Executive Compensation Proposal (WSJ)
How Goldman Sachs’ Vampire Squid Became A Flattened Slug (Tett)
Greek Talks With Lenders Fraught As Fears Grow Of Default (G.)
The Real Reason Dilma Rousseff’s Enemies Want Her Impeached (Miranda)
All Diesel Cars’ Emissions Far Higher On Road Than In Lab (G.)
Mitsubishi Scandal Deepens After US Demands Test Data (G.)
Why UK Landed Gentry Are So Desperate To Stay In The EU (G.)
Angela Merkel Faces Balancing Act On Visit To Turkey (G.)

“..no matter how hard the Fed works to prop and boost the market, nearly half of Americans no longer have any faith left in what has become clear to most is just a tool to push some crooked, crony-capitalist policy, but mostly to make the richest even richer.”

US Middle Class Flees The Stock Market (ZH)

Three recurring laments heard in the corridors of the Marriner Eccles building are why, with stocks at record highs after levitating in more or less a straight line for the past 7 years, i) has the economic recovery not been stronger, ii) has inflation not been higher, and iii) have consumer spending and sentiment never really recovered. A just released Gallup survey may have the answer. According to a poll of over 1,000 American adults, even with the Dow Jones industrial average near its record high, only slightly more than half of Americans (52%) say they currently have money in the stock market, matching the lowest ownership rate in Gallup’s 19-year trend.

The current figure is down slightly from 2014 and 2015, and continues a secular decline that started in 2007. But most troubling is that the generation which is expected to take over the stock ownership reins when the Baby Boomers start selling their equity holders, middle-class adults, especially those younger than 35, are the least likely to invest. As Gallup notes, “although Americans in all income groups are less likely to have stock investments now than before the Great Recession, middle-class Americans have been the most likely to flee the market” Gallup’s conclusion: “Fewer Americans – particularly those in middle-income families – are benefiting from the recent gains in stock values than would have been the case a decade ago.”

Which is the worst possible news for Janet Yellen, because no matter how hard the Fed works to prop and boost the market, nearly half of Americans no longer have any faith left in what has become clear to most is just a tool to push some crooked, crony-capitalist policy, but mostly to make the richest even richer.

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Wobbly.

China Markets Send Ominous Signals as Global Stocks Rally (BBG)

As equities climb around the world, Chinese traders aren’t celebrating. The Shanghai Composite Index has fallen 4.6% this week, the worst performance among 93 global benchmark gauges tracked by Bloomberg and the steepest decline since January. It’s not just the stock market. The yuan is trading around its lowest level against a basket of currencies since November 2014, while yields on corporate debt have risen for 10 of the past 12 days. Concern is mounting over rising credit defaults, while traders are also paring bets for more stimulus amid signs of stabilizing growth, according to Dai Ming at Hengsheng in Shanghai. A sudden 4.5% plunge by the benchmark equity gauge on Wednesday revived memories of January’s stomach-churning turmoil, when shares sank 23% over the course of the month. “People are still very skeptical, and with good reason,” said Hao Hong at Bocom International in Hong Kong.

International concern about the health of China’s economy has been fading from view as data showed an improving picture and volatility in its stock and currency markets waned. Wednesday’s equity tumble in Shanghai caused barely a ripple among global shares as international traders focused on surging commodity prices – spurred partly by expectations of higher Chinese demand. Questions are being asked about how long the Communist Party can keep pumping money into the economy to prop up growth. New credit topped $1 trillion in the first quarter, helping GDP to expand 6.7% – still the slowest pace in seven years. Much of that money flowed into the property market, spurring concerns of a bubble. “There’s still a lot of doubt over the sustainability of the turnaround in the Chinese macro numbers,” said Adrian Zuercher UBS’s wealth management unit. “It’s a very stimulus-driven rebound that we now see.”

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“..the highest share any country has enjoyed since the United States in 1968.”

China Seizes Biggest Share Of Global Exports In Almost 50 Years (R.)

Chinese exporters have found a silver lining in weak global demand by seizing market share from their competitors – good news for China but an expansion that is aggravating trade tensions. China’s proportion of global exports rose to 13.8% last year from 12.3% in 2014, data from the United Nations Conference on Trade and Employment shows, the highest share any country has enjoyed since the United States in 1968. The success belies widespread predictions rising costs for Chinese labor and a currency that has increased nearly 20% against the dollar in the last decade would cause China to lose market share to cheaper competitors. Instead, China’s manufacturing infrastructure built during the country’s industrial rise of recent decades is keeping exports humming and providing the basis for firms to produce higher-value products.

“China cannot be replaced,” said Fredrik Guitman, formerly China general manager for a Danish maker of silver products, adding that reliable delivery times were more important than price. “If they say 45 days, it will be 45 days.” Still, even as Chinese firms compete in more sophisticated product lines, they are unloading overstocked inventory from entrenched industrial overcapacity in sectors like steel, an irritant in global trading relationships. The United States and seven other countries this week called for urgent action to address a steel supply glut that many blame on China. At the same time, China’s imports from other countries fell sharply – down over 14% in 2015 – leading some economists to suggest China was deploying an “import substitution” strategy that is pushing foreign brands out of its domestic markets.

On Wednesday, Beijing rolled out fresh measures to support machinery exports, including tax rebates, and encouraged banks to lend more to exporters. Machinery and mechanical appliances make up the biggest portion of China’s exports. Such policies may not be welcomed in the United States, where Republican presidential hopeful Donald Trump has called for 45% tariffs on Chinese imports – a message that appears to resonate with American voters. The risk is that the Chinese firms successfully moving up the value chain will see their overseas profits destroyed by a trade war if Trump’s ideas find place in policy.

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Risk it? War is on.

China Risks Global ‘Steel War’ As Tempers Flare (AEP)

China is on a collision course with the world’s leading powers over excess steel output after it refused to sign up to an emergency global plan to cut capacity and eliminate subsidies. The clash comes as fresh data confirms fears that China is still cranking up production and even reopening shuttered plants supposedly due for closure, despite the massive glut on the world market. Chinese mills produced a record 70.65m tonnes in March, 51pc of global output and five times as much as the whole EU. “Just words from China are no longer good enough. It is now clear to everybody that the Chinese have no intention at all of changing the structure of their steel industry,” said Axel Eggert, head of the European steel federation Eurofer. “They refused even to accept basic principles. They don’t recognise the problem, and they are not looking for a compromise,” he said.

The world’s steel-making powers, led by the US, Japan and the EU, agreed to joint steps to tackle the crisis at special OECD summit in Brussels on Monday, but China’s name was conspicuously absent when the final document was released later. This renders the plan meaningless since China’s excesses capacity alone is 400m tonnes, greater than the entire production of Europe and North America. Officials were shocked by the tone of the encounter with the Chinese delegation. “It was eye-opening,” said one source. “The scale of the emergency in the sector means it is now life or death for many companies,” said Cecilia Malmstrom, the EU trade commissioner. Brussels has been slow to roll out anti-dumping sanctions, partly due to pressure from Britain and other states courting China for their own political reasons.

While the US has imposed penalties of 266pc on Chinese cold-rolled steel, the EU has acted more slowly and stopped at 13pc. But the mood is shifting. Mrs Malmstrom said there is no doubt that the surge in Chinese exports is the reason why steel prices have crashed by 40pc this year, insisting that it is imperative to “act quickly” before the crisis asphyxiates European industry. “The situation is putting hundreds of thousands of jobs in the EU at risk. It’s also undermining a strategic sector with importance for the wider economy,” she said. Emmanuel Macron, the French economy minister, said Europe can no longer tolerate the flood of Chinese supply. “You do not respect the rules of world trade. Your steel output is subsidised, and the excess capacity is dumped below cost. It is destroying our productive capacity, and it is unacceptable,” he said.

Anger is also rising on Capitol Hill, with mounting calls from the US Congress for a much tougher stand, a theme echoed daily on the presidential campaign trail. “The American steel industry faces the greatest import crisis in modern history,” said Tim Murphy, head of the Congressional steel caucus. “We’re at the tipping point, with US mills averaging only 70pc of capacity utilisation, a level that is simply not sustainable. We are in real danger of losing this industry and becoming dependent on foreign countries. We can’t let that happen.”

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There’s no reason other than speculation and manipulation for the yen to be where it is.

Yen Falls By Most In 7 Weeks As BOJ Considers Negative-Rate Loans (BBG)

The yen dropped the most in seven weeks after people familiar with the matter said that the Bank of Japan may consider helping financial institutions to lend by offering a negative rate on some loans. Japan’s currency slid against all except one of its 16 major counterparts after the people said a discussion on this may happen in conjunction with any decision to make a deeper cut to the current negative rate on reserves. The people asked not to be named as the matter is private. The BOJ meets April 27-28 to decide on its next policy move. “We thought they would be doing more quantitative easing but it looks like they may be doing more on the negative interest-rate front,” said Joseph Capurso at Commonwealth Bank of Australia.

That’s driving the move lower in the Japanese currency and “if delivered, you’ll get a temporary but significant spike up in dollar-yen. The yen dropped 0.8% to 110.30 per dollar as of 7:06 a.m. in London, the biggest decline since March 1. Japan’s currency weakened 0.9% to 124.68 per euro. Twenty three of 41 analysts surveyed by Bloomberg predict the BOJ will expand stimulus next week. Nineteen forecast the central bank will increase purchases of exchange-traded funds, eight expect a boost in bond buying and eight project the BOJ will lower its negative rate, the survey conducted April 15-21 shows.

Commonwealth Bank recommended buying the dollar against the yen through two-week options to take advantage of the diverging monetary policies of the Fed and the BOJ. National Australia Bank Ltd. said in a report it favors purchasing dollars at current levels before the BOJ meeting, targeting an appreciation to 113 yen. The Federal Open Market Committee meeting April 26-27 will also be closely watched for guidance on how soon U.S. policy makers will raise the benchmark rate after an increase at the end of last year. Traders have increased the odds of a Fed move by December to 63% from about 50% at the end of last week, according to data compiled by Bloomberg based on fed fund futures.

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Isn’t it time to get serious yet?

Draghi Defies German Disfavor With Claim ECB Stimulus Works (BBG)

Mario Draghi has two stubborn adversaries – low inflation everywhere, and low regard in Germany. He’s now extending his offensive on both fronts. A recovery in credit, and output proving resilient to global shocks, are buttressing the European Central Bank’s argument that the range of stimulus measures it bolstered only last month is working. On Thursday, the ECB president used that evidence to make ground against German critics who say he’s on the wrong track. After more than four years at the helm of the central bank, Draghi is still fielding persistent attacks from the ECB’s host country, where a public perception of him as a profligate Italian whose low interest rates are killing retirement savings has become part of the political furniture.

At a press conference in Frankfurt, he fumed that the more critics undermine his stimulus, the more of it he’ll have to do. “Impatience in the markets and in politics can come up like a geyser sometimes, but the ECB has to continue to be as steady as a rock,” said Torsten Slok at Deutsche Bank in New York. “The more it shows up in the data, the easier it is for them to say that their policies are working. The ECB is defending itself and making sure the arguments are solid.” The backdrop to Thursday’s policy meeting, where the Governing Council kept its interest rates on hold after cutting them to record lows in March, was colored by a row stepped up by Germany’s Wolfgang Schaeuble.

Draghi deployed a volley of arguments against the finance minister’s charge that ECB policies are contributing to the rise of anti-euro populism, and the broader assumption that savers are being penalized, adding that Schaeuble either “didn’t mean what he said or didn’t say what he meant.” “In fact real rates today are higher than they were about 20-30 years ago,” Draghi said. “But I’m aware that to explain real interest rates to savers may be difficult.” Draghi has been dogged by sniping in Germany since taking office, with the popular press often using his nationality as shorthand for a tendency to allow high inflation. In fact, he’s had the opposite problem, with price gains too far below the 2% goal for more than three years.

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ZIRP and NIRP kill pensions sytems around the planet. And Draghi claims ‘ECB Stimulus Works’.

Pension Cuts Loom For Millions of Dutch As Big Funds Struggle (DN)

The assets of the Netherlands’ four biggest pension funds have fallen again, making it more likely that millions of people will face pension cuts next year. By law, a pension fund must have a coverage ratio of 105%, meaning its assets outweigh its obligations by 5%. However, that of the massive civil service fund ABP has now gone down to 90.4%, a drop of seven%age points since the end of 2015. Health service fund Zorg & Welzijn and the two engineering funds also have a coverage ratio of around 90%. ‘Our financial position remains worrying,’ said ABP chairwoman Corien Wortmann-Kool. ‘We are heading to the danger zone and that means there is a real risk of a pension cut in 2017.’ ABP is one of the biggest pension funds in the world. The heads of the other three funds have made similar statements. If the pension funds have a coverage ratio of below 90% at the end of the year, they will have to cut pensions.

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“..a joint currency that enabled its strongest member to execute a beggar-thy-neighbor mercantilist trade policy that penalized countries without the size or drive of Germany..”

Eurozone Mess Can’t Be Fixed; It Can Only Be ‘Muddled Through’ (MW)

If you’re waiting for international policy makers to pull a rabbit out of the hat and solve the euro problem, stop holding your breath. After a generally a desultory meeting of the IMF in Washington last week, the prevailing pessimism about the future of the euro came grimly to the fore in one of the many meetings held on the sidelines of the semiannual IMF gathering. Two dozen policy makers convened by the Official Monetary and Financial Institutions Forum (OMFIF), a private London-based group, met this week to discuss the future of the European Union’s joint currency. The off-the-record discussion involved an international array of current and former government officials, central bankers, and private-sector financiers.

The verdicts ranged from “deeply pessimistic” to “not ready to give up” – perhaps the most optimistic assessment at the meeting – and the group in its assembled wisdom concluded that there are no realistic solutions and the only course of action they could see is “muddling through.” They rehearsed all the usual analysis of what went wrong – an attempted common currency without the underpinning of joint fiscal policy, a banking union, and most importantly, a political union with an institutional infrastructure for making decisions. Without this follow-through on the original plan for “an ever closer union,” the EU has stumbled along a path of “incompetence,” with individual countries acting only in their own interests.

Even the ECB, the only EU-wide institution that has shown itself capable of taking action in this environment, came in for criticism because its successive moves to ease the stress in the system left the political leaders off the hook in coming to terms with the underlying issues. And yet, participants noted, the European public seems reluctant to give up the euro. Not even Greece, which has suffered terribly in the straitjacket of a common currency with Germany, is willing to give it up. So the answer is muddling through. And muddling through is one thing Europeans excel at, even though it has brought mixed results. Europe, after all, muddled through the arms buildup in the early 20th century to World War I. It muddled through to the banking collapse of 1931 (which contributed more to the Great Depression in the U.S. than the 1929 stock market crash).

Then it muddled through into fascism and World War II. Rebuilding from the rubble of that conflict led to a relatively brief period of constructive behavior as the continent, shielded by the U.S. defense umbrella, built new democracies and an ever-widening free trade zone. As U.S. influence — and interest — waned, Europe began again to resort to muddling through as a way of coping with stress. It muddled through the crisis in Bosnia and genocidal conflict at its very doorstep, until the U.S. intervened and sorted things out. It muddled through into a joint currency that enabled its strongest member to execute a beggar-thy-neighbor mercantilist trade policy that penalized countries without the size or drive of Germany, slashing their standard of living and reducing whole swaths of the populations to penury. Then it muddled through into a refugee crisis that threatens the very fabric and identity of individual nations, giving rise to a xenophobic backlash that harkens back to the days of Depression and fascism less than a century ago.

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Oh boy, are we getting tough or what?!

US Regulators Line Up to Consider New Executive Compensation Proposal (WSJ)

Federal regulators are lining up to consider a new rule to rein in Wall Street’s executive compensation nearly a decade after the financial crisis. The National Credit Union Administration plans to meet Thursday, giving Wall Street banks, investors and others the first glimpse of the regulators’ latest effort to overhaul Wall Street pay rules for top executives. Next week, two other regulators are scheduled to consider the revised plan, according to a government notice posted Wednesday. The rule would require banks to retain much of an executive’s bonus beyond the three years already adopted by many firms, people familiar with the matter said. The board of the Federal Deposit Insurance Corp., led by Chairman Martin Gruenberg, will meet Tuesday to vet the compensation proposal.

The FDIC board also includes Comptroller of the Currency Thomas Curry. The Office of the Comptroller of the Currency will likely consider the proposal separately later the same day, according to a person familiar with the matter. On Thursday, the NCUA will release documents, including a roughly 250-page preamble to the joint rule, when the board meets at 10 a.m. EDT. It will also unveil rules specifically drafted for a handful of federally insured credit unions with $1 billion or more in assets, including the Navy Federal Credit Union and State Employees Credit Union. Six agencies have joint responsibility for rewriting the original government plan on Wall Street pay: the FDIC, the OCC, the NCUA, the Federal Reserve Board, the Securities and Exchange Commission and the Federal Housing Finance Agency.

All six are required to sign off on the draft measure before it can be released to the industry and the public for comment. Representatives from the Fed and SEC declined to comment on the timing of their meetings to consider the proposal. The FHFA plans to consider the proposal soon, according to a person familiar with the matter. The effort to complete the rule, which has been under way for five years, got a nudge from President Barack Obama last month at a White House meeting of top financial regulators. The president urged regulators to wrap up the executive compensation rule before he leaves office early next year. It is unclear whether the agencies will be able to coordinate their efforts and get the rule completed by then.

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Little bit wishful thinking, perhaps, Gillian?!

How Goldman Sachs’ Vampire Squid Became A Flattened Slug (Tett)

A decade ago, Goldman Sachs reported that its return on common shareholder equity had hit a dazzling 39.8%. It symbolised a gilded age: back in 2006, as markets boomed, the power — and profits — of big banks seemed unstoppable. How times change. This week, American banks unveiled downbeat results, with revenues for the biggest five tumbling 16% year-on-year. But Goldman was even weaker: net income was 56% lower, while return on equity, a key measure of profitability, was 6.4%, below even the sector average in 2015 of 10.3%. A bank which was once so adept at sucking out profits that it was called a “vampire squid” (by Rolling Stone magazine) is thus producing returns more commonly associated with a utility. The phrase “flattened slug” might seem appropriate.

Is this just a temporary downturn? Financiers certainly hope so. After all, they point out, this week’s results did feature some upbeat (ish) points. None of America’s banks actually blew up in the first quarter of the year, even though markets gyrated in dramatic ways; the post-crisis reforms have improved risk controls and reserves. Meanwhile, banking in America looks healthier than in Europe, where the reform process has been slower. Overall credit quality at American banks, outside the energy sector, does not seem alarming. Net interest margins are now increasing a touch, after several years of decline, because the Federal Reserve has raised rates. The last quarter’s results might have been depressed by temporary geopolitical woes, such as business uncertainty about Brexit, the American elections, oil prices and the Chinese economy.

Once this angst fades away later this year, returns may rebound; analysts expect the Goldman ROE, for example, to move towards 10% later this year. “The market feels a little fragile,” says Harvey Schwartz, its chief financial officer. “[But] it feels like that is behind us.” Perhaps. But even if this “optimism” is justified, nobody should ignore the cognitive shift. After all, a decade ago, an ROE of 10% was considered a disaster, not a relief, at Goldman Sachs. So perhaps the most important lesson from this week is this: if American regulators had hoped to make the banks look truly dull — not dazzling — in this post-crisis era, they are now succeeding better than anyone might have thought.

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“If there is a haircut on bank deposits it will be the end and, so far, that is the only measure they haven’t taken. If Greece defaults it will be impossible to find oil, impossible to find medicines. And this time round everything seems possible.”

Greek Talks With Lenders Fraught As Fears Grow Of Default (G.)

The Hilton hotel in Athens makes the perfect backdrop for high-intensity talks. Its ambience is subdued, its corridors hushed, its meeting rooms an oasis of tranquility. When Greece, in one of its many stand-offs with the international creditors keeping it afloat, finally won the right to conduct negotiations outside the confines of government offices, it seemed only natural that they should be held at the hotel. However, in recent weeks the talks have assumed an increasingly nervous edge. An economic review that should have been completed months ago has been beset by wrangling as Alexis Tsipras’s leftist-led government has argued with lenders over the terms of a bailout agreed last summer.

The €86bn rescue programme agreed in July 2015 – the debt-stricken country’s third in six years – followed months of high-octane drama that saw Athens being pushed to the brink of bankruptcy and euro exit. Now, less than a year later – and with a crucial meeting of eurozone finance ministers lined up for Friday – a sense of crisis has returned to Greece. With politicians indulging in the angry rhetoric that put Athens on a collision course with lenders last year, investors have begun to worry. Yields on government bonds have risen, protesters have taken to the streets, and “Grexit” – the catch-all word that so conjured up Greece’s battle with economic meltdown – is being murmured again.

Against a backdrop of maturing debt – the country must repay €5bn to the ECB and IMF in June and July – commentators have begun to talk in terms of fatal miscalculation. “History is made of accidents which were not the result of some secret plan, but a string of errors, human weaknesses and obsessions,” wrote Alexis Papahelas in the conservative daily Kathimerini. “Lets hope we will avoid that.” On the street, the uncertainty has not only had a deadening effect on an economy already battered by years of withering austerity; it has also created mounting anxiety among a populace that has seen per capita GDP levels drop by 28%, unemployment nudge 30%, more than one in four businesses close and poverty afflict one in three.

After defying the doomsayers, there are fears Europe’s most indebted country could now be heading towards a disorderly default. “There is no one I know who isn’t worried,” says Yannis Tsandris, a private sector retiree whose pension has been cut by almost a third. “If there is a haircut on bank deposits it will be the end and, so far, that is the only measure they haven’t taken. If Greece defaults it will be impossible to find oil, impossible to find medicines. And this time round everything seems possible.”

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How peaceful do you think those Olympics are going to be?

The Real Reason Dilma Rousseff’s Enemies Want Her Impeached (Miranda)

The story of Brazil’s political crisis, and the rapidly changing global perception of it, begins with its national media. The country’s dominant broadcast and print outlets are owned by a tiny handful of Brazil’s richest families, and are steadfastly conservative. For decades, those media outlets have been used to agitate for the Brazilian rich, ensuring that severe wealth inequality (and the political inequality that results) remains firmly in place. Indeed, most of today’s largest media outlets – that appear respectable to outsiders – supported the 1964 military coup that ushered in two decades of rightwing dictatorship and further enriched the nation’s oligarchs. This key historical event still casts a shadow over the country’s identity and politics.

Those corporations – led by the multiple media arms of the Globo organisation – heralded that coup as a noble blow against a corrupt, democratically elected liberal government. Sound familiar? For more than a year, those same media outlets have peddled a self-serving narrative: an angry citizenry, driven by fury over government corruption, rising against and demanding the overthrow of Brazil’s first female president, Dilma Rousseff, and her Workers’ party (PT). The world saw endless images of huge crowds of protesters in the streets, always an inspiring sight. But what most outside Brazil did not see was that the country’s plutocratic media had spent months inciting those protests (while pretending merely to “cover” them). The protesters were not remotely representative of Brazil’s population.

They were, instead, disproportionately white and wealthy: the very same people who have opposed the PT and its anti-poverty programmes for two decades. Slowly, the outside world has begun to see past the pleasing, two-dimensional caricature manufactured by its domestic press, and to recognise who will be empowered once Rousseff is removed. It has now become clear that corruption is not the cause of the effort to oust Brazil’s twice-elected president; rather, corruption is merely the pretext. Rousseff’s moderately leftwing party first gained the presidency in 2002, when her predecessor, Luiz Inácio Lula da Silva, won a resounding victory.

Due largely to his popularity and charisma, and bolstered by Brazil’s booming economic growth under his presidency, the PT has won four straight presidential elections – including Rousseff’s 2010 election victory and then, just 18 months ago, her re-election with 54 million votes. The country’s elite class and their media organs have failed, over and over, in their efforts to defeat the party at the ballot box. But plutocrats are not known for gently accepting defeat, nor for playing by the rules. What they have been unable to achieve democratically, they are now attempting to achieve anti-democratically: by having a bizarre mix of politicians – evangelical extremists, far-right supporters of a return to military rule, non-ideological backroom operatives – simply remove her from office.

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Why bother with cheat software?

All Diesel Cars’ Emissions Far Higher On Road Than In Lab (G.)

Diesel cars are producing many times more health-damaging pollutants than claimed by laboratory tests, with some emitting up to 12 times the EU maximum when tested on the road, according to a government investigation undertaken following the Volkswagen scandal. A Department for Transport (DfT) study of cars made by manufacturers such as Ford, Renault and Vauxhall found there was a vast difference in nitrogen oxide emissions measured in the laboratory and under normal driving conditions. Not a single car among 37 models tested against the two most recent nitrogen oxide emissions standards met the EU lab limit in real-world testing, with the average emissions being more than five times as high. However, the DfT said it had found no vehicles outside the VW group with systems in place to deliberately rig emissions figures.

Robert Goodwill, the junior transport minister, said: “Unlike the Volkswagen situation, there have been no laws broken. This has been done within the rules.” The minister denied that the findings meant the current emissions testing regime was a farce. “But certainly I am disappointed that the cars that we are driving on our roads are not as clean as we thought they might be. It’s up to manufacturers now to rise to the real-world tests and the tough standards we’re introducing,” he said. The DfT exercise was ordered after it emerged that Volkswagen had allegedly used technology to cheat emissions tests. It measured Nox, or nitrogen oxide emissions. Nitrogen oxide helps to form ozone smog that can badly affect people with chest conditions such as asthma.

The tests were carried out by a team led by Ricardo Martinez-Botas, professor of mechanical engineering at Imperial College London. Among the vehicles tested were 19 models that meet the latest Euro 6 limit of 80mg/km NOx emissions in laboratory tests. Euro 6 was introduced for all new cars sold after September last year. When driven in a real-world simulation of urban, rural and motorway travel, the average was nearer to 500mg/km, with some cars getting close to 1,100mg/km. Among the new models tested that are meant to comply with the Euro 6 standard were the Ford Focus, which had a real-world emission about eight times above the EU limit, the Renault Megane, whose emissions were more than 10 times higher, and the Vauxhall Insignia, almost 10 times higher.

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Already “The scandal has wiped around 40% off Mitsubishi’s market value..”

Mitsubishi Scandal Deepens After US Demands Test Data (G.)

The scandal engulfing Mitsubishi Motors has deepened, sending its shares to a new low after US authorities said they had requested information from the Japanese automotive group. Mitsubishi admitted this week that it manipulated test data to overstate the fuel efficiency of 625,000 cars and there are fears that more models may be involved. Government officials raided one of its offices on Thursday. The scandal has wiped around 40% off Mitsubishi’s market value, amounting to losses of $3.2bn over three days. The shares fell nearly 14% on Friday, following declines of 20% on Thursday, when they were suspended, and 15% on Wednesday. An official at the US National Highway Traffic Safety Administration told Reuters that the regulator had asked Mitsubishi for information on vehicles sold in the US.

Japanese government officials said Mitsubishi could be responsible for reimbursing consumers and the government if investigations conclude that the vehicles were not as fuel-efficient as claimed. Transport minister Keiichi Ishii told a news conference on Friday: “This is a serious problem that could lead to the loss of trust in our country’s auto industry.” He said he wanted Mitsubishi to examine the possibility of buying back affected cars. Internal affairs minister Sanae Takaichi said the government would also ask the carmaker to pay for any subsidies granted to consumers if its cars are found to fail fuel economy standards, Jiji news agency reported. Japanese media reported that Mitsubishi had submitted misleading mileage data on its i-MiEV electric car, which is also sold overseas. The previously disclosed models whose fuel economy readings Mitsubishi has admitted to manipulating are only sold in Japan – four of its mini-cars, two of which it manufactured for Nissan.

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Subsidies.

Why UK Landed Gentry Are So Desperate To Stay In The EU (G.)

The estate agent Carter Jonas established its reputation running the estates of the Marquess of Lincolnshire. “Some of the biggest property owners in the country are our loyal clients,” boasts its website. And, in a recent poll of these landowning clients, 67% of them said that Britain should stay in the EU. So why all this Euro-enthusiasm in the Tory heartlands and among the landed gentry? “Should the UK vote to leave the EU, the CAP subsidies will likely be reduced,” Tim Jones, head of Carter Jonas’s rural division, explained. Thank you, Tim, for putting it so clearly. We understand. A massive 38% of the entire 2014-20 EU budget is allocated as subsidies for European farmers. It is far and away the biggest item of euro expenditure, about €50bn a year.

If these billions were being used to prop up a heavy industry – steel, for example – then the neoliberals would be up in arms, complaining like mad that if an industry can’t cope with a free market then it should be left to die. Creative destruction, they call it. But, for some reason, when it comes to agriculture, different rules apply. Farms are not called “uneconomic” in the same way that pits and factories are. So every British household coughs up about £250 a year and hands it over to the EU, which hands it over to people like the Duke of Westminster – already worth £7bn himself. In 2011, the duke received £748,716 in EU subsidies for his various estates. So, too, Saudi Prince Bandar (he of the dodgy al-Yamamah arms deal), who pocketed £273,905 of EU money for his estate in Oxfordshire.

The common agricultural policy is socialism for the rich. It’s a mechanism to buttress the aristocracy – who own a third of the land in this country – from the chill winds of economic liberalism. So why are we hearing so little about all of this in the current debate over Europe? Because the right doesn’t want to worry its landowning friends and the left has somehow persuaded itself that the EU is a progressive force – so it suits no one’s purpose to raise this issue. Yet it’s a huge deal. For the European Union has become a huge and largely invisible way of redistributing wealth from the poor to the rich, subsidising lord so-and so’s grouse moor, while redundancies are handed out to workers at Port Talbot (whose jobs the government can’t help subsidise because of EU rules).

But even more problematic is the way our massively subsidised agricultural sector negatively affects farmers in the developing world. “Trade not aid” has been David Cameron’s repeated mantra for dealing with poverty in the developing world. But not only does the CAP subsidy to European farmers make it impossible for the unsubsidised African farmer to compete fairly in European markets, but it also creates situations where food is overproduced in Europe – remember butter mountains, milk lakes etc.

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While this crazy barter goes on, the short stick is for the refugees.

Angela Merkel Faces Balancing Act On Visit To Turkey (G.)

Angela Merkel is facing dual pressure to both raise freedom of speech issues and patch up fraying diplomatic relations with Turkey during a visit to Gaziantep province on Saturday. The issue of visa-free travel, one of the key elements of the month-old deal between the European Union and Turkey, is expected to be at the top of the agenda as the German chancellor visits the country alongside the European Council president, Donald Tusk, and European commission vice-president Frans Timmermans. On Tuesday, Turkey’s prime minister, Ahmet Davutoglu, threatened to pull out of the deal if no progress was made on the visa arrangement.

But in Germany, Merkel is under growing pressure to show more spine in her dealings with the Turkish government, after giving in to Recep Tayyip Erdogan’s request for the comedian Jan Böhmermann to be prosecuted for reading out a poem that insulted the president. In the run-up to Merkel’s Gaziantep trip, the secretary general of the Social Democrats, a junior party in the governing coalition, has called on Merkel to send out a “strong message on the issue of freedom of speech”. “Without this basic right, democracy does not work – the Turkish government too has to recognise that,” Katarina Barley told the newspaper Bild.

Coming on the anniversary of the foundation of Turkey’s parliament, and a day before many people commemorate the start of the Armenian genocide, secularists and minorities in Turkey too will hope for a signal against Turkey’s authoritarian turn from the German chancellor. The German government has so far refrained from providing details of the chancellor’s schedule during her trip. In recent days Merkel has been struggling to limit the damage caused by the Böhmermann affair. Even though the comedian is unlikely to face more than a financial penalty, the incident has taken its toll on the chancellor’s authority in the public eye, with her personal approval ratings dropping by over 10 percentage points in a recent poll.

In another poll, 66% of the German public said they disapproved of the chancellor’s decision to authorise criminal proceedings against the comedian. The justice minister Heiko Maas announced on Thursday that he would present a draft bill to abolish the law on “insulting a foreign head of state” that lies at the centre of the Böhmermann affair before the end of this week. Merkel had originally promised to abolish the law by January 2018. Were the relevant paragraph of the penal code scrapped before Böhmermann goes on trial, the chancellor would look even more exposed. Diplomatic ties between Germany and Turkey were further strained when the journalist Volker Schwenck of the public broadcaster ARD was detained at Istanbul airport on Tuesday morning and denied entry to the country. Schwenck had previously reported from rebel-held areas in northern Syria.

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Oct 222015
 
 October 22, 2015  Posted by at 11:09 am Finance Tagged with: , , , , , , , , , , , ,  7 Responses »


Jack Delano Spectators at annual barrel rolling contest, Presque Isle, ME 1940

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)
HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)
Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)
Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)
Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)
China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)
China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)
Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)
ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)
Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)
3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)
The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)
The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)
The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)
UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)
EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)
Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)
A Cultural Revolution To Save Humanity (Serge Latouche)
Why Too Much Choice Is Stressing Us Out (Guardian)

Envy of the entire world. “We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.”

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)

In a move that would make many capitalists’ head explode if it ever happened here, Iceland just sentenced their 26th banker to prison for their part in the 2008 financial collapse. In two separate Icelandic Supreme Court and Reykjavik District Court rulings, five top bankers from Landsbankinn and Kaupping — the two largest banks in the country — were found guilty of market manipulation, embezzlement, and breach of fiduciary duties. Most of those convicted have been sentenced to prison for two to five years. The maximum penalty for financial crimes in Iceland is six years, although their Supreme Court is currently hearing arguments to consider expanding sentences beyond the six year maximum.

After the crash in 2008, while congress was giving American banks a $700 billion TARP bailout courtesy of taxpayers, Iceland decided to go in a different direction and enabled their government with financial supervisory authority to take control of the banks as the chaos resulting from the crash unraveled. Back in 2001, Iceland deregulated their financial sector, following in the path of former President Bill Clinton. In less than a decade, Iceland was bogged down in so much foreign debt they couldn’t refinance it before the system crashed. Almost eight years later, the government of Iceland is still prosecuting and jailing those responsible for the market manipulation that crippled their economy. Even now, Iceland is still paying back loans to the IMF and other countries which were needed just to keep the country operating.

When Iceland’s President, Olafur Ragnar Grimmson, was asked how the country managed to recover from the global financial disaster, he famously replied, “We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.” Meanwhile, in America, not one single banking executive has been charged with a crime related to the 2008 crash and U.S. banks are raking in more than $160 billion in annual profits with little to no regulation in place to avoid another financial catastrophe.

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Sweden, Norway, New Zealand, Australia. And the rest of the emerging markets.

HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)

“Forecasters spend much of their time finessing central projections. But sometimes by focusing on the most likely outlook for growth we lose track of vulnerabilities that are accumulating,” HSBC Economist James Pomeroy writes in the latest edition of the bank’s “Macro Health Check.” And while global markets may have stabilized since the volatile days of summer, there seems to be no shortage of potential vulnerabilities worth keeping an eye on. Here are the major trends Pomeroy is watching:

• Weakness in Asia: Lower commodity prices as well as capital flight is hurting a number of Asian economies, not to mention lowering their growth prospects. In particular, HSBC says it’s newly concerned about Malaysia and Indonesia thanks to their proximity to China – both geographically and in terms of trade. As Pomeroy puts it: “The downturn in Chinese data has hit sentiment. Currencies have weakened and borrowing costs have risen, putting the sustainability of the corporate sector at risk.”

• Bubbles in developed economies: Asset prices that are historically high as well as household debt levels well above the norm is concerning, according to Pomeroy. He notes that in Sweden and Norway, high levels of household debt and rising house prices are combining with central banks that have already cut interest rates to record lows. “This leaves them vulnerable to financial stability risks that could leave the economies exposed to any downturn or, at some later stage, a rise in rates,” he says.

• Commodities continue to struggle: Energy is still a huge topic for the world and emerging markets in particular, with Saudi Arabia and the United Arab Emirates on track to see big hits to their economies, the HSBC economist noted. There are also worries over the macroeconomic backdrops in countries like Brazil, Russia, Colombia, and Chile, where 50% of exports are commodities -related, Pomeroy adds.

Based on these concerns, HSBC presents a “diagnosis” showing how a number of economies are and are not seeing impacts from these and other macro factors. New entries on the bank’s list of concerns include the previously-mentioned Malaysia, Indonesia, Sweden and Norway, while New Zealand also makes the cut thanks to its links to China, rising asset prices and tumbling milk prices. “Although low risk, New Zealand may be one to watch,” Pomeroy says.

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Losing money way before the oil price crash… “..cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010..”

Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)

“Energy Investments After The Fall: Opportunity Or Slippery Slope?” So begins the latest presentation from renowned short-seller Jim Chanos. What follows is a powerful outlining of the spirally debt dynamics now dominating the future of the oil industry. At the heart of Chanos’s thesis is the contention that years of low interest rates, cheap financing, over-eager investors and ambitious managers have helped propel the boom in U.S. shale and imbue it with near unstoppable momentum; U.S. oil production is expected to grow 6% in 2015 despite a stunning 59% drop in the U.S. rig count over the past year. The extent of the capital market’s support for energy over the past half-decade is laid bare in the financial figures.

According to Chanos, cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010, meaning the firms have consistently outspent their income. That trend is present even at the larger “big oil” firms such as Exxon, Chevron and Royal Dutch Shell, Chanos claims, with cash flow following distributions to shareholders also firmly in the red. The question hovering over the energy sector now is whether the continuous flow of capital investment that has propped up shale firms for so long continues. There are signs that it might not. Spreads on the bonds issued by energy companies are currently 480 basis points wider than average yield on the debt of junk-rated companies, meaning investors are (finally) demanding extra return to compensate them for the added risk of E&P.

Many oil companies have large revolving credit facilities from which they could draw financing to help replace the hole left by suddenly skittish investors – an argument that has been picked up by energy bulls and managers with some aplomb. However, Chanos says that even the most reliable E&P firms will be reluctant to tap such revolvers, given the negative publicity around such a move. And while banks have so far largely continued to renew and extend credit lines to energy firms (opting perhaps to keep such companies afloat rather than cut them off and suffer the consequences on their own balance sheets) those renewals have been accompanied by a tightening of terms. It’s a reversal of an historic trend that has seen the balance of power firmly in favor of energy firms as the sheer amount of investors and bankers willing to lend to exploratory shale has meant the vast majority of debt and loans sold and issued in recent years came with far fewer protections for lenders, known as “covenants.”

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Trouble brewing. A very imbalanced society.

Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)

Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the IMF said, underscoring the need of measures to shore up public finances amid the drop in oil prices. The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said. Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit.

Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain. But the IMF said measures being considered by oil exporters “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” the IMF said. “Under current policies, countries would run out of buffers in less than five years because of large fiscal deficits.” Saudi Arabia accumulated hundreds of billions of dollars in the past decade to help the economy absorb the shock of falling prices. The kingdom’s debt as a percentage of GDP fell to less than 2% in 2014, the lowest in the world.

The recent decline in the price of crude, which accounts for about 80% of Saudi’s revenue, is prompting the government to delay projects and sell bonds for the first time since 2007. Net foreign assets fell to the lowest level in more than two years in August, with the kingdom fighting a war in Yemen and avoiding economic policies that could trigger social or political unrest. The IMF expects Saudi’s budget deficit to rise to more than 20% of gross domestic product this year after King Salman announced one-time bonuses for public-sector workers following his accession to the throne in January. The deficit is expected to be 19.4% in 2016.

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Pension funds, mom and pop.

Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)

Banks, when reporting earnings, are saying a few choice things about their oil-and-gas loans, which boil down to this: it’s bloody out there in the oil patch, but we made our money and rolled off the risks to others who’re now eating most of the losses. On Monday, it was Zions Bancorp. Its oil-and-gas loans deteriorated further, it reported. More were non-performing and were charged-off. There’d be even more credit downgrades. By the end of September, 15.7% of them were considered “classified loans,” with clear signs of stress, up from 11.3% in the prior quarter. These classified energy loans pushed the total classified loans to $1.32 billion. But energy loans fell by $86 million in the quarter and “further attrition in this portfolio is likely over the next several quarters,” Zions reported.

Since the oil bust got going, Zions, like other banks, has been trying to unload its oil-and-gas exposure. Wells Fargo announced that it set aside more cash to absorb defaults from the “deterioration in the energy sector.” Bank of America figured it would have to set aside an additional 15% of its energy portfolio, which makes up only a small portion of its total loan book. JPMorgan added $160 million – a minuscule amount for a giant bank – to its loan-loss reserves last quarter, based on the now standard expectation that “oil prices will remain low for longer.” Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

Once a borrower reached the limit of the revolving line of credit, the bank pushed the company to issue bonds to pay off the line of credit. The company could then draw again on its line of credit. When it reached the limit, it would issue more bonds and pay off its line of credit…. Banks made money coming and going. They made money from interest income and fees, including underwriting fees for the bond offerings. It performed miracles for years. It funded the permanently cash-flow negative shale revolution. It loaded up oil-and-gas companies with debt. While bank loans were secured, many of the bonds were unsecured. Thus, banks elegantly rolled off the risks to bondholders, and made money doing so. And when it all blew up, the shrapnel slashed bondholders to the bone.

Banks are only getting scratched. Then late last year and early this year, the hottest energy trade of the century took off. Hedge funds and private equity firms raised new money and started buying junk-rated energy bonds for cents on the dollar and they lent new money at higher rates to desperate companies that were staring bankruptcy in the face. It became a multi-billion-dollar frenzy. They hoped that the price of oil would recover by early summer and that these cheap bonds would make the “smart money” a fortune and confirm once and for all that it was truly the “smart money.” Then oil re-crashed.

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Coming from a steel man, this can only mean it’ll be much worse.

China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)

China’s steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country’s second-biggest mill by output, which raised the prospect that nationwide production may shrink 20%. Losses for the industry totaled 18 billion yuan ($2.8 billion) in the first eight months of the year compared with a profit of 14 billion yuan in the same period a year earlier, Shanghai Baosteel Group Corp. Chairman Xu Lejiang said on Wednesday. Output may eventually contract by a fifth, matching the experience seen in the U.S. and elsewhere, he said. After decades of expansion, China’s steel industry has been thrown into reverse as local demand contracts for the first time in a generation amid slowing economic growth and a property downturn.

The slowdown has pummeled steel and iron ore prices and prompted Chinese mills to seek increased overseas sales, boosting trade tensions. The country is the linchpin of the global industry, accounting for half of worldwide production. “If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20%,” Xu told reporters at a forum in Shanghai. “China will eventually get there as well, regardless how long it takes.” Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase was emblematic of the country’s emergence as Asia’s largest economy. Output probably peaked last year at 823 million metric tons, according to the China Iron & Steel Association.

The country produced 608.9 million tons in the first nine months, 2.1% less than the same period last year, the statistics bureau said on Monday. “The whole steel sector is struggling and no one can be insulated,” Xu said. “The sector is facing increasing pressure on funding as banks have been tightening lending to the sector – both loans and the financing provided for steel and raw material stockpiles.” Losses in China’s steel industry are unprecedented, Macquarie Group Ltd. said in a report on Monday that summarized deteriorating sentiment in the industry. While small mills have already cut production significantly, big mills are still holding out, the bank said, forecasting further cuts.

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When you can’t afford empire anymore.

China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)

The slowdown in the world’s second-largest economy has seen Chinese cross-border investment in Africa plunge. Beijing has invested just $568 million in greenfield projects and expansion of existing projects in the first 6 months of 2015, down from $3.54 billion the previous year. That investment has been focused on China’s primary interest in Africa, namely its raw materials, writes Adrienne Klasa for The Financial Times. While overall investment plunged, investment in extractive industries almost doubled from $141.4 million to $288.9 million over the period. Chinese investment in Africa has at times been controversial, but has played a major role in regional growth. The African growth story has been complicated by global headwinds such as low prices of oil and other commodities.

Many African states rely on raw materials for large parts of their revenues. Although foreign direct investment has fallen, China has been Africa’s main trade partner since 2009. In 2013 there was more than $170 billion in trade between China and sub-Saharan Africa, compared to less than $10 billion in 2002. “FDI has dipped across the board from emerging markets into other emerging markets, and into Africa in particular,” says Vera Songwe, the IFC’s director for West and Central Africa. FDI reflects changing patterns of investment. There are some concerns that a bursting Chinese real estate bubble could see demand for African raw materials reduce even further. This could have a knock-on effect on investment in the sector, and in Africa in general.

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“..if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks..”

Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)

The delayed fuse on the eurozone’s debt-deflation policies has finally detonated in a second country. Portugal has joined the revolt against austerity. The rickety scaffolding of fiscal discipline and economic surveillance imposed on southern Europe by Germany is falling apart on its most vulnerable front. Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF ‘Troika’. Against all assumptions, he has suspended his party’s historic feud with Portugal’s Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament.

The verdict from the markets has been swift. “We would be very reluctant to invest in Portuguese debt,” said Rabobank, describing the turn of events as a political shock. The country’s president has the constitutional power to reappoint the old guard – and may in fact do so over coming days – but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh. “The majority of the Portuguese people did not vote for the incumbent coalition. They want a change,” said Miriam Costa from Lisbon University. Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.

Mr Costa’s hard-Left allies both favour a return to the escudo. Each concluded that Greece’s tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency. The Communist leader, Jeronimo de Sousa, has called for a “dissolution of monetary union” for the good of everybody before it does any more damage to the productive base of the European economy. His party is demanding a 50pc write-off of Portugal’s public debt and a 75pc cut in interest payments, and aims to tear up the EU’s Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the “commanding heights of the economy”.

Catarina Martins, the Left Bloc’s chief, is more nuanced but says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks,” she said. She is surely right about that. The lesson of the Greek drama is that the ECB is the political enforcer of monetary union, willing to bring rebels to their knees by pulling the plug on a nation’s banking system.

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Any real action will send the message that there are problems.

ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)

Mario Draghi’s challenge on Thursday is to show that he’s readier than ever to step up stimulus, without panicking investors over the euro area’s health. In the run-up to the European Central Bank’s meeting in Malta, the institution’s president and most of his Governing Council said it’s too early to decide whether to expand their €1.1 trillion bond-buying program. Yet with economists seeing the need for a fresh boost before year-end, he’ll probably be pressured to provide reassurance that the penultimate monetary-policy session of 2015 won’t leave the ECB behind the curve. Officials sitting down to talk will have to deal with a complex scenario of mixed domestic economic signals, an uncertain global outlook, and divergent opinions on what’s needed to combat feeble inflation.

The paradox for Draghi is that when he holds his regular press conference, he may find himself addressing the risks to the recovery without yet committing to action. “The ECB seems more worried about the economy yet less inclined to act; markets are more confident in the economy yet expect something will be done,” said Francesco Papadia, chairman of Prime Collaterised Securities and a former director general of market operations at the ECB. “For Draghi, it’ll be difficult to even hint that something was discussed because it would send two messages: ‘Good, they’re doing something, and wait, the situation is worse than we thought.’

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Full insanity.

Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)

A modern diesel car pumps out more toxic pollution than a bus or heavy truck, according to new data, a situation described as a “disgrace” by one MEP. The revelation shows that effective technology to cut nitrogen oxides (NOx) pollution exists, but that car manufacturers are not implementing it in realistic driving conditions. Diesel cars tested in Norway produced quadruple the NOx emissions of large buses and lorries in city driving conditions, according to a report from the Norwegian Centre for Transport Research. A separate study for Transport for London showed that a small car in the “supermini” class emitted several times more NOx than most HGVs and the same amount as a 40-tonne vehicle.

“It is crackers,” said emissions expert James Tate from the University of Leeds. His own research, which uses roadside equipment to measure passing traffic, also shows the latest diesel models cars produce at least as much NOx as far heavier buses and trucks. The issue of NOx pollution, thought to kill 23,500 people a year in the UK alone, gained prominence when VW diesels were discovered to be cheating official US emissions tests. The scandal also led to revelations that the diesels of many car manufacturers produce far more NOx on the road than in EU lab tests, though not via illegal means. The UK government say the failure to keep NOx from vehicles low in the real world means road transport is “by far the largest contributor” to the illegal levels of NOx in many parts of the country.

“It is disgraceful that car manufacturers have failed to reduce deadly emissions when the technology to do so is affordable and readily available,” said Catherine Bearder, a Liberal Democrat MEP and a lead negotiator in the European parliament on the EU’s new air quality law. “The dramatic reduction in NOx emissions from heavier vehicles is a result of far stricter EU tests, in place since 2011, that reflect real-world driving conditions. If buses and trucks can comply with these limits, there’s no reason cars can’t as well.”

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VW is set to shrink a lot.

3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)

Volkswagen will need hardware fixes for about 3 million cars in Europe affected by the diesel-emission manipulations as the region’s largest automaker scrambles to meet demands from regulators. Cars featuring a 1.6-liter engine require technical tweaks, while software updates are sufficient to make the other affected engines compliant, a VW spokesman said by phone. VW said last week it will recall about 8.5 million cars across Europe through 2016 and acknowledged efforts to fix all cars might drag on until 2017. VW has also stated the fallout from the scandal will cost more than the €6.5 billion already set aside.

Worldwide some 11 million cars with diesel engines are affected by the wide-ranging emissions rigging that was uncovered by U.S. regulators and triggered the resignation of Chief Executive Officer Martin Winterkorn. Moody’s Investors Service said Wednesday that uncertainties about the potential impact on VW’s reputation, earnings and cash flows could weigh on the manufacturer’s credit profile into 2017. New CEO Matthias Mueller said last week protecting the company’s credit rating is a top priority. The manufacturer can recover from the scandal in two-to-three years if the right decisions are made now to make VW more efficient, agile and cost competitive, he said.

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“The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.”

The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)

One of the planet’s exemplars in preventing climate change, the EU has instituted tough emissions rules and strong support for renewable energy. Yet this doesn’t necessarily mean more solar panels or wind turbines dotting Europe’s skyline. Nope, the EU’s biggest source of renewable energy is old-school: burning wood. There’s just one problem with this. Torching wood has the potential to warm the atmosphere faster than burning coal does. So why does Europe get nearly half of its renewable energy that way? As Climate Central argues in this three-part piece, a legal loophole in the EU’s climate rules means it turns a blind eye to tens of millions of CO2 emissions that it pumps into the atmosphere each year. Worse, this policy means European governments issue hundreds of millions of dollars in incentives to encourage power plants to burn even more wood.

The core issue lies in how to count the CO2 pollution released when wood is burned for electricity and heat. Because trees grow back, EU law deems wood a “renewable energy” just like solar or wind (a source of fuel, in other words, that can be used to meet its fairly tough climate action target of sourcing 20% of its final energy consumption to come from renewable energy by 2020). But in many ways, wood is more like coal or oil—it must be burned to generate power. This process releases a lot of CO2, which traps heat in the atmosphere, warming the planet. But since trees also absorb CO2, they act as what’s been described as a “brake” on the rate of global warming. The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.

This makes complete sense—provided the wood you’re burning comes from already-dead wood that would release its carbon as it decomposed anyway. This includes dust and chips from sawmills, for example. And since the energy created when that wood is burned isn’t coming from fossil fuels, it’s ultimately a net positive for the atmosphere, as the CarbonBrief explains. However, that equation changes once you start clear-cutting forests for the sole purpose of fueling power plants. Wood tends to emit more carbon than fossil fuels to generate the same amount of energy, according to the Natural Resources Defense Council (pdf). Eventually, trees grow back and absorb this carbon. However, a growing body of peer-reviewed research suggests it can take decades—or even centuries—before a forest grows back enough to balance out the atmospheric CO2 created when its trees were burned.

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Like the Bloomberg title.

The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)

It has choked Singapore with smoke, triggered Pacific typhoons and left Vietnamese coffee growers staring nervously at dwindling reservoirs. In Africa, cocoa farmers are blaming it for bad harvests, and in the Americas, it has Argentines bracing for lower milk production and Californians believing that rain is finally, mercifully on the way. El Nino is back and in a big way. Its effects are just beginning in much of the world – for the most part, it hasn’t really reached North America – and yet it’s already shaping up potentially as one of the three strongest El Nino patterns since record-keeping began in 1950. It will dominate weather’s many twists and turns through the end of this year and well into next. And it’s causing gyrations in everything from the price of Colombian coffee to the fate of cold-water fish.

Expect “major disruptions, widespread droughts and floods,” Kevin Trenberth, distinguished senior scientist at the National Center for Atmospheric Research in Boulder, Colorado. In principle, with advance warning, El Nino can be managed and prepared for, “but without that knowledge, all kinds of mayhem will let loose.” In the simplest terms, an El Nino pattern is a warming of the equatorial Pacific caused by a weakening of the trade winds that normally push sun-warmed waters to the west. This triggers a reaction from the atmosphere above. Its name traces back hundreds of years to the coast of Peru, where fishermen noticed the Pacific Ocean sometimes warmed in late December, around Christmas, and coincided with changes in fish populations. They named it El Nino after the infant Jesus Christ. Today meteorologists call it the El Nino Southern Oscillation.

The last time there was an El Nino of similar magnitude to the current one, the record-setting event of 1997-1998, floods, fires, droughts and other calamities killed at least 30,000 people and caused $100 billion in damage, Trenberth estimates. Another powerful El Nino, in 1918-19, sank India into a brutal drought and probably contributed to the global flu pandemic, according to a study by the Climate Program Office of the National Oceanic and Atmospheric Administration. As the Peruvian fishermen recognized in the 1600s, El Nino events tend to peak as summer comes to the Southern Hemisphere. The impact can be broken down into several categories. Coastal regions from Alaska to the Pacific Northwest in the U.S., as well as Japan, Korea and China may all have warmer winters. The southern U.S., parts of east Africa and western South America can get more rain, while drier conditions prevail across much of the western Pacific and parts of Brazil.

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Strong graphs. More El Niño.

The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)

If there is one chart that might finally put to rest debate of a pause or “hiatus” in global warming, this chart created by the US National Oceanic and Atmospheric Administration has just supplied it. For years, climate change sceptics relied on a spike in global temperatures that occurred during the monster 1997-98 El Nino to say the world had stopped warming because later years struggled to set a higher mark even as greenhouse gas emissions continued to rise. Never mind that US government scientists found the hiatus was an illusion because the oceans had absorbed most of the extra heat that satellites could tell the Earth was trapping. Nor that 2005, 2010 and 2014 all set subsequent records for annual heat.

Those record years were too incrementally warmer compared with the 1997 mark to satisfy those who wanted to believe climate change was a hoax. But it is 2015, which is packing an El Nino that is on track to match the record 1997-98, that looks set to blow away previous years of abnormal warmth. “This one could end the hiatus,” said Wenju Cai, a principal research scientist specialising in El Nino modelling at the CSIRO. “Whether it beats [the 1997-98 El Nino] will be academic – it’s already very big.” NOAA data released overnight backs up how exceptional this year is in terms of warming, with September alone a full quarter of a degree above the corresponding month in 1997. As the chart above shows, for the first nine months, 2015 has easily been the hottest year on record, with sunlight second.

[..] El Ninos typically add 0.1-0.2 degrees to the background global warming. US climate expert John Abraham has estimated how year-to-date temperatures are adding another step-up to temperatures, as seen in this chart published by Think Progress. Climate change sceptics will probably not concede in their battle to avoid action to curb emissions. Satellite or meteorological data must have been manipulated, the oceans might be producing chemical compounds never detected before that counter carbon dioxide, or perhaps the sun is about to burn a lot less brightly. Still, they now have one more inconvenient chart they have to find a reason to ignore.

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114 people. That’s the whole story. But the UK won’t have none of it.

UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)

The UN refugee agency, the UNHCR, has said that the UK is legally obliged to resettle more than a hundred Syrian refugees who arrived by boat at a British military base in Cyprus, contradicting claims from the Ministry of Defence (MoD) that they were a Cypriot responsibility. Two overloaded wooden boats carrying 114 refugees from Syria, including 28 children, have been transferred to a temporary reception area in the sovereign base at Akrotiri on the southern coast of the Mediterranean island. According to the Cypriot coastguard, the refugees were abandoned offshore by people smugglers and left to fend for themselves.

The arrival on British territory of asylum seekers fleeing the Syrian conflict intensifies the scrutiny on the UK’s response to Europe’s worst refugee crisis since the second world war. David Cameron has offered to take in 20,000 Syrian refugees over five years – significantly less than most other western European countries, though the government has pointed out it gives more aid for refugee camps along Syria’s borders. Reacting to the arrivals at Akrotiri, the MoD said: “At the moment our key priority is ensuring everybody on board is safe and well. We have had an agreement in place with the Republic of Cyprus since 2003 to ensure that the Cypriot authorities take responsibility in circumstances like this.”

Asked whether the refugees would be able to claim asylum in Britain, an MoD official said: “That’s not our understanding.” A spokeswoman for the Home Office also stated: “The resettlement of refugees landing on the southern bases in Cyprus is not the responsibility of the United Kingdom.” But the UNHCR said in a statement that the 2003 UK-Cyprus memorandum made it clear that “asylum seekers arriving directly on to the SBA [Sovereign Base Area] are the responsibility of the UK but they would be granted access to services in the republic at the cost of the SBA.”

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They’ll throw -promises of- more money around. And that’ll be it, again.

EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)

The EU has called a mini summit with Balkan countries on the migrant crisis as Slovenia became the latest state to buckle under a surge of refugees desperate to reach northern Europe before winter. The leaders of Austria, Bulgaria, Croatia, Germany, Greece, Hungary, Romania and Slovenia will meet in Brussels on Sunday with their counterparts from non-EU states Macedonia and Serbia, the office of EC president Jean-Claude Juncker said. “In view of the unfolding emergency in the countries along the western Balkans migratory route, there is a need for much greater cooperation, more extensive consultation and immediate operational action,” a statement said. The continent has been struggling to find a unified response on how to tackle its biggest migration crisis since 1945.

More than 600,000 migrants and refugees, mainly fleeing violence in Syria, Iraq and Afghanistan, have braved the dangerous journey to Europe so far this year, the UN said. Of these, more than 3,000 have drowned or gone missing as they set off from Turkey in inflatable boats seeking to reach Greece, the starting point for the migrants’ long trek north. With the crisis showing no sign of abating, France’s interior minister Bernard Cazeneuve reinforced security in the port city of Calais from where migrants and refugees try to cross to Britain. He also announced that women and children would be given heated tents, as arrivals in a makeshift camp face a dip in temperature.

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EU police? Don’t think that exists. So, German and French cops patrolling in Slovenia? Really?

Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)

Slovenia has asked the European Union for police to help regulate the inflow of migrants from Croatia, Interior Minister Vesna Gyorkos Znidar told TV Slovenia. Over the past 24 hours, more than 10,000 migrants, many fleeing violence in Syria, have arrived in Slovenia, the smallest country on the Balkan migration route, on their way to Austria. “Slovenia has already asked other EU member states for police units,” Znidar said late on Wednesday. European Commissioner for Migration and Home Affairs Dimitris Avramopoulos on Thursday will visit Slovenia to discuss the migrant crisis, while Commission President Jean-Claude Juncker called an extraordinary meeting of several European leaders for Sunday.

Juncker invited the leaders of Austria, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia. Slovenia’s parliament has given more power to the army which is helping police control the border, while the country also plans to rehire retired police to help. Huge number of migrants started coming to Slovenia on Saturday after Hungary on Friday sealed its border with Croatia with a bottleneck building up through the Balkans.

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I’m all for it, but not for the We Must.. It will take a lot more than that.

A Cultural Revolution To Save Humanity (Serge Latouche)

We’ve reached a point that means we can no longer go on as we are doing! Everyone’s talking about crisis and it’s slightly paradoxical because I’ve always been hearing about a crisis ever since 1968 when there was a cultural crisis, then in 1972, with the publication of the work by The Club of Rome, there was talk of an ecological crisis, then there was the neoliberal counter-revolution and the social crisis with Margaret Thatcher and Reagan, and now there’s the financial crisis and the economic crisis after the collapse of Lehmann Brothers. Finally, all these crises are getting mixed up and we re seeing a crisis of civilisation, an anthropological crisis. At this point, the system can no longer be reformed – we have to exit from this paradigm – and what is it? It s the paradigm of a growth society.

Our society has been slowly absorbed by an economy based on growth, not growth to satisfy needs – and that would be a good thing – but growth for the sake of growth and this naturally leads to the destruction of the planet because infinite growth is incompatible with a finite planet. We need a real reflection when we talk about an anthropological crisis. We need to take this seriously because we need a decolonisation of the imagination. Our imagination has been colonised by the economy. Everything has become economics. This is specific to the West and it’s fairly new in our history. It was in the seventeenth century when there was a great ethical switch with the theory expounded by Bernard Mandeville. Before, people said that altruism was good and then: “no, we have to be egoists, we have to make as much profit as possible; greed is good . Yes – to destroy our “oikos (our home) more quickly. And we have actually got to that point.

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“Monstromart’s slogan was “where shopping is a baffling ordeal”.

Why Too Much Choice Is Stressing Us Out (Guardian)

Once upon a time in Springfield, the Simpson family visited a new supermarket. Monstromart’s slogan was “where shopping is a baffling ordeal”. Product choice was unlimited, shelving reached the ceiling, nutmeg came in 12lb boxes and the express checkout had a sign reading, “1,000 items or less”. In the end the Simpsons returned to Apu’s Kwik-E-Mart. In doing so, the Simpsons were making a choice to reduce their choice. It wasn’t quite a rational choice, but it made sense. In the parlance of economic theory, they were not rational utility maximisers but, in Herbert Simon’s term, “satisficers” – opting for what was good enough, rather than becoming confused to the point of inertia in front of Monstromart’s ranges of products.

This comes to mind because Tesco chief executive Dave Lewis seems bent on making shopping in his stores less baffling than it used to be. Earlier this year, he decided to scrap 30,000 of the 90,000 products from Tesco’s shelves. This was, in part, a response to the growing market shares of Aldi and Lidl, which only offer between 2,000 and 3,000 lines. For instance, Tesco used to offer 28 tomato ketchups while in Aldi there is just one in one size; Tesco offered 224 kinds of air freshener, Aldi only 12 – which, to my mind, is still at least 11 too many. Now Lewis is doing something else to make shopping less of an ordeal and thereby, he hopes, reducing Tesco’s calamitous losses. He has introduced a trial in 50 stores to make it easier and quicker to shop for the ingredients for meals.

Basmati rice next to Indian sauces, tinned tomatoes next to pasta. What Lewis is doing to Tesco is revolutionary. Not just because he recognises that customers are time constrained, but because he realises that increased choice can be bad for you and, worse, result in losses that upset his shareholders. But the idea that choice is bad for us flies in the face of what we’ve been told for decades. The standard line is that choice is good for us, that it confers on us freedom, personal responsibility, self-determination, autonomy and lots of other things that don’t help when you’re standing before a towering aisle of water bottles, paralysed and increasingly dehydrated, unable to choose.

That wasn’t how endless choice was supposed to work, argues American psychologist and professor of social theory Barry Schwartz in his book The Paradox of Choice. “If we’re rational, [social scientists] tell us, added options can only make us better off as a society. This view is logically compelling, but empirically it isn’t true.”

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Oct 132015
 
 October 13, 2015  Posted by at 8:45 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »


Russell Lee Columbia Gardens outdoor amusement resort, Butte, Montana 1942

US Debt Markets Shaken Amid More Corporate Downgrades And Defaults (WSJ)
Why US Banks Soon Will Be Singing The Blues (CNBC)
China Imports Slump 20% Amid Falling Commodity Prices, Weak Demand (Guardian)
China Trade Data Unsettle Asian Bourses (FT)
China’s Stock Rally-to-Rout Is About to Repeat (Bloomberg)
KKR Warns About Renewed Commodity, Emerging-Market Rout on China (Bloomberg)
Pimco’s Bear Case Only Gets Stronger as Emerging Currencies Jump (Bloomberg)
Switzerland to Impose 5% Leverage Ratio on Biggest Banks (Bloomberg)
Europeans Move To Undercut Global Bank Capital Rules (FT)
The Failure to Learn From Boom-Bust Cycles (WSJ)
Higher Interest Rates Would Throw Bank Profits a Lifeline (Bloomberg)
China’s Great Game: A New Silk Road To A New Empire (FT)
Angus Deaton Showed We’re Helping the Wrong People (Bloomberg)
US Annual Oil Output to Drop for First Time Since 2008 (WSJ)
Oil Sands Boom Dries Up in Alberta, Taking Thousands of Jobs With it (NY Times)
German Brand Dealt ‘Hammer Blow’ By VW Scandal And Weakening Economy (Telegraph)
Emissions Test Changes Could Make Diesels ‘Unaffordable’ (BBC)
Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks (Bloomberg)
TTIP Deal Would Remove People’s Rights To Access Basic Human Needs (Ind.)
Merkel Seeks Turkey’s Aid on Borders to Stem Refugee Flow to EU
Athens Rules Out Joint Sea Patrols With Turkey (Kath.)
Marine Food Chains At Risk Of Collapse (Guardian)
Antarctic Ice Melts So Fast Whole Continent May Be At Risk By 2100 (Guardian)

“Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis..”

US Debt Markets Shaken Amid More Corporate Downgrades And Defaults (WSJ)

Falling profits and increased borrowing at U.S. companies are rattling debt markets, a sign the six-year-long economic recovery could be under threat. Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising. Analysts expect profits at large companies to decline for a second straight quarter for the first time since 2009. The market for riskier debt has become snarled, raising fears that companies could have trouble repaying their obligations following several years of record debt issuance, low corporate defaults and persistently low interest rates. Reflecting those concerns, investors are now demanding more yield to own corporate bonds relative to benchmark U.S. Treasury securities.

The softening U.S. corporate fundamentals have been largely overlooked as investors focused on sharp declines in the shares, bonds and currencies of many emerging-markets nations. Many analysts say the health of China remains the largest source of uncertainty in the global economy. But rising downgrades and an increase in U.S. corporate defaults indicate “some cracks on the surface” of the domestic-growth outlook, said Jody Lurie, corporate credit analyst at financial-services firm Janney Montgomery Scott LLC. Many investors closely monitor debt-market trends as an indicator of U.S. economic health. In August and September, Moody’s Investors Service issued 108 credit-rating downgrades for U.S. nonfinancial companies, compared with just 40 upgrades.

That’s the most downgrades in a two-month period since May and June 2009, the tail end of the last U.S. recession. Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades. Meanwhile, the trailing 12-month default rate on lower-rated U.S. corporate bonds was 2.5% in September, up from 1.4% in July of last year, according to S&P. About a third of the downgrades targeted oil and gas companies or firms in other commodity-linked industries, following a plunge in oil prices in the second half of 2014, said Diane Vazza, head of global fixed-income research at S&P.

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“S&P 500 financials are expected to show a 3.8% annualized growth in profits [..] As recently as July analysts had been forecasting 9.9% growth..”

Why US Banks Soon Will Be Singing The Blues (CNBC)

With Wall Street banks about to report on how much money they’ve been making, estimates are moving in the wrong direction. Coming off a quarter in which the industry collectively reported $43 billion in profits, analysts had been hoping a rising rate environment and increasing demand would keep things moving for the $15.1 trillion sector. However, fading hopes for a rate hike in 2015 and other factors are making analysts nervous about just how the quarterly profit reports will shape up. JPMorgan Chase gets things started for the Big Four on Tuesday, with Bank of America and Wells Fargo on tap Wednesday and Citigroup due Thursday. Goldman Sachs reports Thursday as well and PNC will report Wednesday.

As a sector, S&P 500 financials are expected to show a 3.8% annualized growth in profits, according to S&P Capital IQ. While that’s better than the 5.1% decline projected for the entire index, it’s a big comedown from initial projections. Revenue is expected to grow 4.4%. As recently as July analysts had been forecasting 9.9% growth, and a year ago that expectation was a gaudy 27%. So even if results come in better than expected, they likely will remain well below the initially lofty hopes for financials, which were supposed to be 2015’s best-performing sector. Individual companies have seen substantial revisions in recent days.

Analysts have cut MetLife estimates from 88 cents a share to 77 cents, Goldman Sachs from $3.46 to $3.20 and Morgan Stanley from 68 cents to 63 cents, according to FactSet. Earnings expectations have been reduced for 53 of the 88 companies in the S&P 500’s financial sector. The weakness comes as loan growth has held fairly steady thanks to a robust climate in commercial real estate. The sector jumped 9.7% in the third quarter, its best of the year after rising 6.7% in 2014, according to Federal Reserve data. Investment banking also has been fairly solid throughout the year. While global revenue is down 10% year over year, it’s been flat at $28 billion in the U.S., thanks to a record $9.7 billion haul in mergers and acquisition revenue, according to Dealogic.

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Imports down 17.7% in yuan, over 20% in USD. Different numbers reflect the difference between calculations in yuan and in dollars.

China Imports Slump 20% Amid Falling Commodity Prices, Weak Demand (Guardian)

China’s imports fell heavily in September, official figures said, keeping pressure on policymakers to do more to stave off a sharper economic slowdown. Although exports fell less than expected by 3.7% from the same period last year, the value of imports tumbled more than 20% to register the 11th straight month of falls. Imports plunged 20.4% in September from a year earlier to $145.2bn, customs officials said, due to weak commodity prices and soft domestic demand. These factors will complicate Beijing’s efforts to stave off deflation, one of the headwinds threatening the world’s second biggest economy. Highlighting persistent weakness in demand at home and abroad, China’s combined exports and imports fell 8.1% in the first nine months of the year from the same period in 2014, well below the full-year official target of 6% growth.

“In general, there are no green shoots in this set of data,” said Zhou Hao, senior economist at Commerzbank in Singapore. “The growth of [trade] volume still remains low.” However, monthly figures were much more rosy. Exports to every major market except Taiwan rose from August, as did imports. Julian Evans-Pritchard of Capital Economics said monthly trends showed a steady rise to most major export markets in the US and Europe over the summer. “Basically, exports have been doing better since the second quarter, but that recovery trend has been masked on a year-on-year basis because the second half of 2014 was so strong.” Evans-Pritchard also said that import data had become unreliable given massive swings in prices due to the commodity downturn and a divergence between prices and trading volumes.

“For the major commodities like oil, copper, etc. we’re actually seeing a pretty healthy trend in import volumes.” Import volumes are a leading indicator for exports in China, given a large share of materials and parts re-exported as finished goods. “September’s import figure does not bode well for industrial production and fixed asset investment,” wrote ANZ economists in a research note reacting to the figures. “Overall growth momentum last month remained weak and third quarter GDP growth to be released [on 19 October] will likely have edged down to 6.4%, compared with 7% in the first half.” China posted trade surplus of $60.34bn for the month, the general administration of Customs said on Tuesday, higher than forecasts for $46.8 billion.

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China has a record surplus. Sounds good. Exports down ‘only’ 1.1% (still curious if you want to grow GDP by 7%). Imports down 17.7%. That will be largely raw materials. So what will they be able to produce for export next year?

China Trade Data Unsettle Asian Bourses (FT)

Chinese trade data rattled Asian markets as a bigger-than-expected fall in imports offset the cheer afforded by a record mainland trade surplus and slower pace of decline in exports. The Shanghai Composite was down 0.4% and the tech-focused Shenzhen Composite was up 0.3% after data showed China posted its biggest-ever trade surplus, in renminbi terms, of Rmb376.2 in September, up from Rmb368bn in August and comfortably ahead of economists’ expectations of Rmb292.4bn. That was underpinned by exports declining by 1.1% last month from a year earlier, an improvement from August’s 6.1% pace of decline. Economists expected exports to drop by 7.4%.

Imports fell 17.7% in September from a year ago, a bigger-than-forecast drop and larger than August’s 14.3% decline – less than encouraging in the context of China’s goal to shift its growth model from export-driven to consumption-based. Ahead of the trade data release, economists at ANZ said: “China’s exports have likely contracted in September, but its strong trade surplus should ease the pressure of capital outflows.” They reckon economic activity on the mainland remained sluggish in September, leading to their forecast of 6.4% economic growth in the third quarter. China’s official gross domestic product data are due on October 19, and analysts are increasingly bearish, tipping real growth at 6.7%, according to a Bloomberg survey of 25 economists, lower than the official full-year target of “around 7%”. Among other equities benchmarks, Hong Kong’s Hang Seng was down 0.3% and Australia’s S&P/ASX 200 was down 0.9%. Japan’s Nikkei, reopening after a long weekend, was down 0.9%.

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“As oil starts to move and materials follow, investors will by default feel more positive about China,” he said. “This is a bear market rally.”

China’s Stock Rally-to-Rout Is About to Repeat (Bloomberg)

In August, Thomas Schroeder correctly predicted a rebound in Chinese stocks wouldn’t last. Now, he says, the benchmark equity gauge will plumb new lows as a bear-market rally fails. The Shanghai Composite Index will climb to 4,100 in the next three months before slumping as much as 41% to 2,400 in early 2016, Schroeder, founder and managing director of Chart Partners, said. The benchmark index added 3.3% to close at 3,287.66 on Monday. Schroeder, a former Asian technical analysis chief at UBS, cited triangle and wedge patterns in making his call. The Shanghai Composite tumbled 29% in the third quarter, the biggest slump among benchmark global gauges, as a stock boom turned to bust amid concern about the slowdown in China’s economy and a crackdown on using borrowed money to buy equities.

The bottoming of oil prices and a rebound in emerging market currencies will help bolster a rally in the nation’s equities in the next two months, which will reverse as the Federal Reserve starts raising interest rates, Schroeder said. “As oil starts to move and materials follow, investors will by default feel more positive about China,” he said. “This is a bear market rally.” Schroeder predicted in August that the Chinese equity rout will worsen, with the Shanghai Composite likely sliding below 3,100 within two months. The measure fell to as low as 2,927.29 on Aug. 26. Technical analysts use past patterns to try to predict future movements. [..] “We haven’t seen a major low for the emerging markets,” said Schroeder, whose Chart Partners Group is a provider of trading strategies linked to technical analysis. “There’s likely to be more pain next year as the U.S. starts lifting rates.”

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Squeeze.

KKR Warns About Renewed Commodity, Emerging-Market Rout on China (Bloomberg)

There are few reasons to get excited about the recent rebound in commodities and emerging-market assets, according to KKR which correctly forecast the stock selloff in developing countries five months ago. China will continue to rein in credit growth, reducing the investments in factories and machinery that have been among the key drivers for the commodity boom in recent years, Henry McVey, global head of macro and asset allocation at KKR, one of the world’s largest private equity firms, wrote in a note posted on its website. “Many hard commodity prices are likely to suffer another leg down,” McVey and Frances Lim, who visited Asia recently, said in the note. “We would view any recovery as a bounce, not a sustained re-acceleration in the Chinese economy, as the structural headwinds remain significant.”

The MSCI Emerging Markets Index rose Monday to a two-month high, while commodities are trading around 6% above a 16-year low set in August, on speculation that China will take steps to shore up its faltering economy. The emerging-market stock gauge has still lost about 10% this year, heading for its third annual decline, as lower raw-material prices and the Chinese economic slowdown undermines exports in countries from Brazil to Malaysia. While some “targeted stimulus” in housing and infrastructure in recent months may help stabilize China’s economy, it won’t alter a slowing trajectory because the government needs to reduce debt and production overcapacity, McVey said. KKR,which manages $102 billion in assets, expects growth in China to slow to 6% in 2018, from 6.8% this year, which would be the least since 1990.

McVey, who previously worked as chief investment strategist at Morgan Stanley and a managing director at Fortress Investment, told investors in May to stay away from most of the publicly traded emerging-market companies. He said a buildup in debt and weakening currencies in emerging countries will lead to underperformance in stocks, a call foreshadowing an over 20% decline in the MSCI benchmark gauge over the next four months. McVey said growth in China’s fixed-asset investments, the biggest driver in the country’s rise over the past decade, will decline to as little as 5% a year, from 11% in August, and down from a peak of 34% in 2009.

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Dead cats bouncing all over the place.

Pimco’s Bear Case Only Gets Stronger as Emerging Currencies Jump (Bloomberg)

Pacific Investment Management Co. is sticking with its pessimistic outlook on emerging-market currencies, saying the biggest rally in 17 years has only bolstered the case for making bearish wagers. “These currencies look more interesting to be underweight from here than they were a week ago,” Luke Spajic, an emerging markets money manager at Pimco, whose developing-nation currency fund has outperformed 97% of peers during the past five years, said in a phone interview on Monday. Pimco, which oversees $1.52 trillion, said in an Oct. 1 report that it had short positions in currencies such as Malaysia’s ringgit, the Thai baht and the South Korean won. Emerging-market currencies surged last week, recording the biggest rally since 1998 as traders pushed back expectations for when the U.S. Federal Reserve will start raising interest rates.

While Spajic said he doesn’t know how long the rebound will last, he sees a “wave of deflationary pressure” across Asia that will eventually weigh on currencies as exports and economic growth projections decline. Pimco’s concerns echo those of the IMF, which cut its 2015 outlook for the global economic expansion to 3.1% on Oct. 6 from a July forecast of 3.3%. The fund cited a slowdown in emerging markets, saying the following day that high debt levels at banks and other companies have left developing economies susceptible to financial stress and capital outflows.

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Switzerland does as US does.

Switzerland to Impose 5% Leverage Ratio on Biggest Banks (Bloomberg)

Switzerland’s finance ministry will require the country’s biggest banks to have capital equal to about 5% of total assets after UBS Group AG and Credit Suisse Group AG sought to win easier terms, according to people briefed on the deliberations. The decision would mimic the U.S. leverage ratio for its biggest banks, which exceeds the 3% minimum set in a global agreement by the Basel Committee on Banking Supervision, according to the people, who asked not to be identified because the talks aren’t public. The Swiss government will also align its calculation of the ratio with the method employed in the U.S., resulting in fewer types of debt counting toward capital, one of the people said. The measure of financial strength has gained importance since the 2008 financial crisis as a means of making big banks less prone to collapse.

A government-appointed expert panel recommended in December that Switzerland follow the lead of the U.S., which in recent years has introduced some of the world’s toughest capital requirements. Zurich-based UBS and Credit Suisse reported Basel III leverage ratios of 3.6% and 3.7% at the end of the second quarter, indicating they would be more than 1%age point short of the new target. “Higher requirements mean that the banks will have fewer funds to return to shareholders,” said Andreas Brun at Zuercher Kantonalbank. “For UBS, whose investment case is based on rising dividend expectations, this is a big issue. For Credit Suisse, whose capital situation is worse, this means a higher dilution because of a bigger requirement of a capital increase.”

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Meanwhile in the EU, banks are still holier than thou.

Europeans Move To Undercut Global Bank Capital Rules (FT)

Several European countries are taking action to water down new global capital rules for their top financial institutions, causing concern among investors and EU officials. France is set to become the latest country to introduce legislation that would save its leading banks from having to issue tens of billions of euros of new bonds to meet the rules agreed by global regulators a fortnight ago, people familiar with the situation said. Brussels officials are so worried with the divergence in policies that they have started talks with EU countries on a more co-ordinated stance, two EU officials said. Market insiders said that investors were frustrated and that all banks could end up paying more when they issue debt.

The rules on “total loss absorbing capital” (TLAC) agreed on September 25 by the Financial Stability Board are one of the final pieces of a wave of post-crisis regulation designed to ensure there is never a repeat of the bank bailouts of recent times. The rules apply only to the world’s largest banks but have wider reach, according to Laurent Frings, analyst at Aberdeen Asset Management. “The view from investors to a large degree is that local regulators will force domestically important banks to work to the sale rules,” said Mr Frings. In the UK and Switzerland, banks such as UBS, Credit Suisse and Barclays are building up their “loss absorbing capital” by issuing new debt from bank holding companies that can be “bailed in” in a crisis. The banks will have to issue tens of billions of the new bonds to meet their TLAC requirements.

In Germany and Italy, however, legislators are passing laws to make traditional senior debt easier to bail in. This frees their banks of the obligation to issue new debt for TLAC. Several people close to the situation said that France would also propose a solution to help its banks. “Being a European authority we would always argue that it’s a good idea to put in place a European solution, and not try to come up with 19 or 28 solutions on that,” said Elke Koenig, president of the Single Resolution Board, the new EU-wide resolution authority for failing banks. “We’ve clearly given our support to the basic idea [of the German bank law] at the same time saying it would be preferential longer term to have a European solution.”

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Or the failure to see that this is not a boom-bust cycle?

The Failure to Learn From Boom-Bust Cycles (WSJ)

The plunge in commodity prices is thumping oil exporters around the globe. The scale of the beating rests largely on whether governments heeded the lessons from prior boom-bust cycles. Norway and Saudi Arabia built up sizable rainy-day funds and managed their windfalls from high prices conservatively. Now they’ve got considerable buffers against a downturn. Nigeria and Venezuela splurged and made few economic overhauls as prices surged. They’re now suffering as growth skids. The commodity bust is weighing heavily on resource-rich countries that represent 20% of the world’s economic output. The oil-price decline is supporting some of the largest consumers, such as the U.S. and Europe, that are key to keeping the global economy out of recession.

But it is providing less of an overall global boost than predicted just a year ago, while forcing more vulnerable economies to scramble in an uncertain environment. “The oil price drop came as a surprise,” said Angolan finance minister Armando Manuel. “It captured my country in a state in which we were not sufficiently diversified.” The commodity collapse and its effect on emerging economies drew wide attention in Lima, where the world’s finance ministers and central bankers gathered for the IMF’s annual meeting, which ended Sunday, against a backdrop of dimming global growth. The problem isn’t isolated to oil, fueling a much broader slump in major emerging markets from Brazil to South Africa.

Metal prices are in a long-term funk, hitting exporters of iron, copper and similar industrial commodities. Oil exporters are showing what may be in store for other major commodity exporters. Nigeria, which got nearly 65% of its government revenue from crude exports before the price plunge, has seen its projected 2015 growth slashed to less than 4% from more than 6% a year ago, according to the IMF. Kazakhstan’s growth rate has tumbled to 1.5% this year from 6% before the petroleum collapse. In Venezuela, where the state gets half its revenue from oil sales, the economy is shriveling by 10%.

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That’s the number 1 reason the Fed would love to hike rates.

Higher Interest Rates Would Throw Bank Profits a Lifeline (Bloomberg)

Having bailed them out and then helped to repair their balance sheets with record-low interest rates and bond-buying, policy makers may assist the financial industry once more when the U.S. Federal Reserve begins tightening monetary policy. That’s according to two recently published reports by the Bank for International Settlements and McKinsey & Co., both of which have highlighted the downsides of ultra-easy borrowing costs in the past. Based on seven years of data from 109 large international banks in 14 countries, the BIS confirmed a relationship between short-term rates and the slope of the curve for bond yields with bank profitability.

The conclusion drawn by Claudio Borio, the head of the monetary and economic department at the BIS, and colleagues is that the positive impact of being able to earn income by lending money out for higher rates over time is bigger than the hit of defaults and income that doesn’t carry interest. Even better news for the banks is that the effect is strongest when rates are lower and the yield curve isn’t that steep, as is now the case. That provides another reason for the BIS’s economists to again decry the unintended side-effects of accommodative monetary policy. They reckon that between 2011 and 2014, the average bank of those studied lost one year of profits as a result of low rates. “All this suggests that over time, unusually low interest rates and an unusually flat term structure erode bank profitability,” said Borio et al in the report, which was published on Oct. 1.

Return on equity at 500 global lenders was unchanged in 2014 at 9.5%, about the average of the last 35 years, according to the Sept. 30 study by McKinsey. Profit margins also continued a steady decline, dropping by 185 basis points in 2014, in part because of lower rates. It reckons tighter policy would boost return on equity by about 2 %age points. “Many in the industry are waiting for an interest rate rise or some other structural lift to profits,” McKinsey said. There is a sting in the tail. It warned that even if rates do rise, profit margins may still not return to their pre-crisis highs. “Much of the benefit will get competed away, and risk-costs will likely increase, especially in economies where the recovery is still fragile,” McKinsey said.

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China doesn’t, and won’t, have sufficient growth to execute these plans.

China’s Great Game: A New Silk Road To A New Empire (FT)

The granaries in all the towns are brimming with reserves, and the coffers are full with treasures and gold, worth trillions, wrote Sima Qian, a Chinese historian living in the 1st century BC. “There is so much money that the ropes used to string coins together rot and break, an innumerable amount. The granaries in the capital overflow and the grain goes bad and cannot be eaten”. He was describing the legendary surpluses of the Han dynasty, an age characterised by the first Chinese expansion to the west and south, and the establishment of trade routes later known as the Silk Road, which stretched from the old capital Xi an as far as ancient Rome.

Fast forward a millennia or two, and the same talk of expansion comes as China’s surpluses grow again. There are no ropes to hold its $4tn in foreign currency reserves -the world’s largest- and in addition to overflowing granaries China has massive surpluses of real estate, cement and steel. After two decades of rapid growth, Beijing is again looking beyond its borders for investment opportunities and trade, and to do that it is reaching back to its former imperial greatness for the familiar Silk Road metaphor. Creating a modern version of the ancient trade route has emerged as China’s signature foreign policy initiative under President Xi Jinping.

“It is one of the few terms that people remember from history classes that does not involve hard power …and it s precisely those positive associations that the Chinese want to emphasise”, says Valerie Hansen, professor of Chinese history at Yale University. If the sum total of China s commitments are taken at face value, the new Silk Road is set to become the largest programme of economic diplomacy since the US-led Marshall Plan for postwar reconstruction in Europe, covering dozens of countries with a total population of over 3bn people. The scale demonstrates huge ambition. But against the backdrop of a faltering economy and the rising strength of its military, the project has taken on huge significance as a way of defining China’s place in the world and its relations -sometimes tense- with its neighbours.

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Winner of the Fauxbel. Yawn.

Angus Deaton Showed We’re Helping the Wrong People (Bloomberg)

Presidential candidates from both parties are focusing, as usual, on the middle class. But what’s that? And why, exactly, does it deserve such attention? Princeton’s Angus Deaton, who on Monday was announced as the latest winner of the Nobel Memorial Prize for economics, has offered some intriguing answers. The most important is this: If you care about how people actually experience their lives, you should be concerned about people who earn less than $75,000 per year. Above that amount, Deaton’s evidence suggests that more money may not particularly matter. To understand why, we need to distinguish between two very different measures of human well-being. Researchers have traditionally proceeded by asking people to evaluate their overall life-satisfaction (say, on a scale of 1 to 10).

More recently, researchers have tried to capture people’s actual experiences in a more refined way, for example by asking them about their levels of stress, sadness, happiness and enjoyment during the day (again on a scale of 1 to 10). A key question: Does money buy happiness? Deaton, along with his coauthor Daniel Kahneman (a Nobel Prize winner in 2002), found that in the United States, the answer depends on which question you use. If people are asked about their overall life-satisfaction, money definitely matters. As people’s annual earnings go up, their self-reported life-satisfaction increases as well. But the same is not true for actual experiences. More income is definitely associated with less sadness and more happiness up to $75,000, but above that level people’s experienced happiness is the same regardless of income.

In terms of stress, another important indicator of people’s well-being, it’s a lot worse to earn $20,000 than $60,000 – but above $60,000, stress levels are not reduced by more money. What’s going on here? Deaton and Kahneman don’t exactly know, but they speculate that above a certain threshold, increases in income do not much affect people’s ability to engage in activities that matter most – which include spending time with friends, enjoying good health and taking time off from work. They also suggest that beyond that threshold, more money might have some negative effects, such as a reduced ability to enjoy small pleasures. But below the $75,000 threshold, many of life’s misfortunes have a much bigger negative impact. For the poor, getting divorced, having asthma, and being alone have far more severe effects. Even the benefits of the weekend turn out to be lower.

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Let’s see how much banks have buried away in shale loans.

US Annual Oil Output to Drop for First Time Since 2008 (WSJ)

U.S. oil output will decline in 2016 for the first time in eight years as producers slash spending, OPEC said Monday, while the producer group continues pumping at high levels. In its closely watched monthly oil market report, OPEC slashed its U.S. oil production forecast by 280,000 barrels a day next year, to 13.538 million barrels a day, a number that includes natural gas liquids. That would be about 60,000 barrels a day less than in 2015, the first decline since 2008. The finding is consistent with what the U.S. Energy Information Administration said last week, predicting that U.S. crude production would average about 8.9 million barrels a day in 2016, down from 9.2 million barrels a day in 2015.

OPEC said lower oil prices were forcing U.S. oil producers to cut spending and causing their wells to deplete faster than expected. OPEC producers continued to pump at high rates, the report said, with Saudi Arabia at 10.226 million barrels a day—slightly down from last month—and Iraq producing a near-record 4.143 million barrels a day. Overall the producer group was pumping 31.571 million barrels a day, the highest reported level since April 2012. The increasing levels of OPEC production—and the forecast declines in the U.S.–are part of a new order for the world’s petroleum industry since crude prices collapsed from over $100 a barrel last year to less than $50 this year.

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“We see kind of a lot of volatility over the next four or five years..”

Oil Sands Boom Dries Up in Alberta, Taking Thousands of Jobs With it (NY Times)

FORT McMURRAY, Alberta — At a camp for oil workers here, a collection of 16 three-story buildings that once housed 2,000 workers sits empty. A parking lot at a neighboring camp is now dotted with abandoned cars. With oil prices falling precipitously, capital-intensive projects rooted in the heavy crude mined from Alberta’s oil sands are losing money, contributing to the loss of about 35,000 energy industry jobs across the province. Yet Alberta Highway 63, the major artery connecting Northern Alberta’s oil sands with the rest of the country, still buzzes with traffic. Tractor-trailers hauling loads that resemble rolling petrochemical plants parade past fleets of buses used to shuttle workers.

Most vehicles carry “buggy whips” — bright orange pennants attached to tall spring-loaded wands — to help prevent them from being run over by the 1.6-million-pound dump trucks used in the oil sands mines. Despite a severe economic downturn in a region whose growth once seemed limitless, many energy companies have too much invested in the oil sands to slow down or turn off the taps. In addition to the continued operation of existing plants, construction persists on projects that began before the price fell, largely because billions of dollars have already been spent on them. Oil sands projects are based on 40-year investment time frames, so their owners are being forced to wait out slumps.

“It really is tough right now,” said Greg Stringham, the vice president for markets and oil sands at the Canadian Association of Petroleum Producers, a trade group that generally speaks for the industry in Alberta. “We see kind of a lot of volatility over the next four or five years.” After an extraordinary boom that attracted many of the world’s largest energy companies and about $200 billion worth of investments to oil sands development over the last 15 years, the industry is in a state of financial stasis, and navigating the decline has proved challenging. Pipeline plans that would create new export markets, including Keystone XL, have been hampered by environmental concerns and political opposition.

The hazy outlook is creating turmoil in a province and a country that has become dependent on the energy business. Canada is now dealing with the economic fallout, having slipped into a mild recession earlier this year. And Alberta, which relies most heavily on oil royalties, now expects to post a deficit of 6 billion Canadian dollars, or about $4.5 billion. The political landscape has also shifted. Last spring, a left-of-center government ended four decades of Conservative rule in Alberta. Federally, polls suggest that the Conservative party — which championed Keystone XL and repeatedly resisted calls for stricter greenhouse gas emission controls in the oil sands — is struggling to get re-elected in October.

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Merkel will find it harder to impose her will.

German Brand Dealt ‘Hammer Blow’ By VW Scandal And Weakening Economy (Telegraph)

The VW emissions scandal has dealt a “hammer blow” not just to Volkswagen’s reputation but potentially to the entire German national brand, according to a consultancy that calculates brand worth. The revelations that as many as 11 million diesel vehicles have been fitted with software designed to deceive emissions testers has damaged the German repuation of efficiency and reliability, said the report from Brand Finance. As a result, the value of the ‘Made in Germany’ brand has fallen 4pc – or $191bn – to $4.2 trn this year. The report added the scandal threatens to undo decades of accumulated goodwill and cast doubt over the efficiency and reliability of German industry.

However, the authors said Germany has attracted worldwide admiration for its sympathetic stance to migrants escaping Syria and other war-torn countries, which is boosting the country’s positive image. Not only has the county benefited from goodwill perceptions, but the migrants will also boost the economy, said the report. The country’s birth rate has been flagging and the influx of generally young people and families will boost Germany’s labour force, encouraging investment in Europe’s largest economy. Germany’s birth rate has collapsed to the lowest level in the world. A study by the World Economy Institute in Hamburg earlier this year said the country’s workforce will start plunging at a faster rate than Japan’s by the early 2020s due to the declining birth rate, seriously threatening the long-term viability of Europe’s leading economy.

Data last week showed German exports suffered their worst month since the global recession, as global demand slowed. Exports in Europe’s largest economy collapsed by 5.2pc in August – their largest drop since January 2009, according to figures from the country’s Federal Statistics Office. Overall the US remains the world’s most valuable national brand, having benefited from a large, wealthy market wanting to “buy American”. The country is worth $19.7 trn, when combining its strength as a brand with GDP data. Fast-growing superpower China, which has previously threatened to knock the US off the top spot, has instead been rocked by the recent stock market turbulence and slowing economic growth. Its brand worth slipped 1pc to $6.3 trn, when compared to the previous year. The UK comes in at fourth place, worth $3bn, a rise of 6pc from last year.

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Diesel is dead for luxury cars. French carmakers will be hit very hard, if only because Paris MUST scrap its huge diesel subsidies.

Emissions Test Changes Could Make Diesels ‘Unaffordable’ (BBC)

Making European emissions tests more stringent could make some diesel vehicles “effectively unaffordable”, a trade body has warned. The European Commission is trying to get vehicle makers to agree to bigger cuts in emissions from diesel engines. The pressure comes in the wake of the Volkswagen emissions scandal. The European Automobile Manufacturers’ Association (ACEA) said car companies needed enough time to implement changes to emissions testing. Diesel vehicles have been encouraged in many European markets because they can produce less carbon dioxide – a major greenhouse gas – than those with petrol engines.

The trade body said diesel was an important part of meeting future CO2 targets and it was important for the Commission to let manufacturers plan and implement necessary changes. The VW scandal, in which saw the German car maker admit rigging emissions tests, has put significant pressure on diesel vehicle manufacturers. Diesel engines emit higher levels of nitrogen oxide and dioxide (NOx) that are harmful to human health. European government officials have set out plans to introduce real-world measurements of NOx emissions rather than rely on laboratory tests. The new testing regime is due to start early next year, with the results coming into effect in 2017.

However, talks between officials in Brussels last week to discuss the plans are reported to have stalled. The ACEA said it would continue “to stress the need for a timeline and testing conditions that take into account the technical and economic realities of today’s markets”. The trade body added: “Without realistic timeframes and conditions, some diesel models could effectively become unaffordable, forcing manufacturers to withdraw them from sale.” Such a move would hit both consumers and jobs in the automotive sector, it said.

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They’ve denied the bubble for so long now, why not do it a while longer?

Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks (Bloomberg)

Sydney home prices soared 44% in the three years ended September, enticing speculators who’ve been partly inspired by home renovation shows on how to spruce up and sell homes for quick profits. The frenzy surrounding Sydney’s property boom, reminiscent of the exuberance in U.S. real estate before the 2008 financial crisis, has prompted regulators and Goldman Sachs to warn the market is overheated, while Bank of America Merrill Lynch on Monday said it expects prices to fall. Since September 2013, more than 1,500 houses and 800 apartments have been resold in less than a year in Sydney, for about 20% more on average, according to online property listing firm Domain Group. That compares with about about 530 houses and almost 400 apartments in the previous two years.

People need to be careful because “house prices aren’t going to continue to rise much more quickly than income; debt levels can’t keep rising faster than income,” Reserve Bank of Australia Deputy Governor Philip Lowe said at a conference in Sydney Tuesday. “Ideally, we’ll now go through a period of quite modest house price growth. I think that would de-risk household balance sheets a little and would probably be good for the economy.” Rushing to buy and sell homes is underscoring a build-up of mortgage risks as households take on record debt, lured by home-loan costs at the lowest in five decades. The housing debt to income ratio touched a record high of 132.8% in the three months ended June 30 up from 119.4% three years earlier, according to government data.

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That is the ultimate danger.

TTIP Deal Would Remove People’s Rights To Access Basic Human Needs (Ind.)

People’s access to basic rights such as water and energy could be at the mercy of multinational corporations, according to a new report into two controversial EU free trade deals. The report claims that the agreements could allow all public services to be locked into commercial deals that would place profit above the rights of individuals to access basic services – regardless of any possible consequences for welfare. According to the report, Public Services Under Attack, such deals would be “effectively irreversible.” They would allow multinational corporations to sue governments that try to regulate the cost of public services if it could be proved companies’ profits would be harmed.

The two trade agreements, the CETA (Comprehensive Economic and Trade Agreement) with Canada and the TTIP (Transatlantic Trade and Investment Partnership) with the US, are currently being negotiated. In their current state, it is claimed, all public services including health, education and energy could be at risk of privatisation. Under current WTO agreements, access to water is regarded as a basic human right. The new trade agreements would effectively undermine this, according to John Hilary, the executive director of War on Want, one of the campaign groups behind the report . He claims that in a worst-case scenario, if individuals were unable to pay their water bill, they would be denied access to it.

“Suddenly, instead of water being considered a human right, it would be treated as a commodity and people could be cut off if they can’t afford it,” Mr Hilary told The Independent. Previously, the UK Government has insisted that public services such as education and the NHS would be protected from such action. In November last year, the UK Government published a document on the deal, Separating Myth from Fact, in which it states: “TTIP will not change the way that the NHS, or other public services, is run. “The European Commission is following our approach that it must always be for the UK to decide for itself whether or not to open up our public services to competition.”

But Mr Hilary believes the public should be sceptical of such assurances. He said: “There is no truth in the government’s claim that public services are safe in TTIP. “Corporate lobbyists have made sure that key services such as health, education, post, rail and water are to be opened up to the private sector, and treaties such as TTIP will lock in that privatisation for ever. “As a result of the lobbying by these special interest groups in the services sector, it’s quite clear that public services are in the frame and any claim to the contrary is bogus.”

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Children are stil drowning, Angela. That should be your priority, not borders or camps.

Merkel Seeks Turkey’s Aid on Borders to Stem Refugee Flow to EU

German Chancellor Angela Merkel said Turkey needs to help stem the flow of Syrian refugees to Europe, setting the tone for her talks with Turkish leaders this week. “It’s necessary to look not just at the European dimension, but also to talk with Turkey about sensible border controls,” Merkel said Monday in a speech to party members in Stade near Hamburg. “We have to start getting more involved internationally. That’s why I will go to Turkey on Sunday.” With a record 800,000 or more refugees and migrants expected to arrive in Germany this year, Merkel is under pressure to offer solutions to an increasingly skeptical public as her approval ratings decline and she says Germany can’t stop the stream on its own. “We don’t know how many there will be,” she said.

In her speech to members of her Christian Democratic Union, Merkel said for the first time that her government is considering screening at Germany’s borders. This way, “we could possibly decide immediately” which people are economic migrants who wouldn’t qualify to stay in Germany as asylum seekers, Merkel said. While saying that all 28 European Union countries need to help stem the continent’s biggest refugee crisis since World War II, Merkel singled out Turkey as part of the solution. After EU leaders discuss the crisis at a summit in Brussels on Thursday, Merkel plans to travel to Ankara on Oct. 18 for talks with Turkish President Recep Tayyip Erdogan and Prime Minister Ahmet Davutoglu, her first official trip to Turkey since February 2013.

In Turkey, control over the border with EU member Greece “was given up at some point” because Turkey felt overwhelmed and its economy “isn’t doing so well anymore,” leaving Greece and the EU’s border patrol mission to deal with the refugee flow, Merkel said. “Naturally, we need to talk to Turkey about that.”

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And the ideas won’t fly anyway. Next. Bring in the German navy?!

Athens Rules Out Joint Sea Patrols With Turkey (Kath.)

Diplomatic sources in Athens Monday ruled out the prospect of Greek and Turkish naval forces conducting joint patrols in the eastern Aegean in a bid to curb a dramatic influx of migrants and refugees. Speaking to Kathimerini, the same sources from the Greek Foreign Ministry stated that no official European documents raise the issue of joint sea patrols – which was first reported in the German press ahead of the draft action plan signed last week between the European Union and Turkey on the support of refugees and migration management.

According to the plan, Turkey will “strengthen the interception capacity of the Turkish Coast Guard, notably by upgrading its surveillance equipment, increasing its patrolling activity and search and rescue capacity, and stepping up its cooperation with the Hellenic Coast Guard.” In an interview with Germany’s Bild newspaper published Monday, Chancellor Angela Merkel heralded closer cooperation between Greece, Turkey and EU border agency Frontex. “In the Aegean Sea, between Greece and Turkey, both NATO members, traffickers do whatever they want,” she told the paper. Diplomatic circles in Athens suggest that Ankara is tempted to use the refugee crisis as a tool for prompting additional EU aid, concessions on the issue of EU visas, or the creation of a buffer zone behind the Syrian border.

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Acidification.

Marine Food Chains At Risk Of Collapse (Guardian)

The food chains of the world’s oceans are at risk of collapse due to the release of greenhouse gases, overfishing and localised pollution, a stark new analysis shows. A study of 632 published experiments of the world’s oceans, from tropical to arctic waters, spanning coral reefs and the open seas, found that climate change is whittling away the diversity and abundance of marine species. The paper, published in the Proceedings of the National Academy of Sciences, found there was “limited scope” for animals to deal with warming waters and acidification, with very few species escaping the negative impact of increasing carbon dioxide dissolution in the oceans. The world’s oceans absorb about a third of all the carbon dioxide emitted by the burning of fossil fuels.

The ocean has warmed by about 1C since pre-industrial times, and the water increased to be 30% more acidic. The acidification of the ocean, where the pH of water drops as it absorbs carbon dioxide, will make it hard for creatures such as coral, oysters and mussels to form the shells and structures that sustain them. Meanwhile, warming waters are changing the behaviour and habitat range of fish. The overarching analysis of these changes, led by the University of Adelaide, found that the amount of plankton will increase with warming water but this abundance of food will not translate to improved results higher up the food chain.

“There is more food for small herbivores, such as fish, sea snails and shrimps, but because the warming has driven up metabolism rates the growth rate of these animals is decreasing,” said associate professor Ivan Nagelkerken of Adelaide University. “As there is less prey available, that means fewer opportunities for carnivores. There’s a cascading effect up the food chain. “Overall, we found there’s a decrease in species diversity and abundance irrespective of what ecosystem we are looking at. These are broad scale impacts, made worse when you combine the effect of warming with acidification. “We are seeing an increase in hypoxia, which decreases the oxygen content in water, and also added stressors such as overfishing and direct pollution. These added pressures are taking away the opportunity for species to adapt to climate change.”

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Run away.

Antarctic Ice Melts So Fast Whole Continent May Be At Risk By 2100 (Guardian)

Antarctic ice is melting so fast that the stability of the whole continent could be at risk by 2100, scientists have warned. Widespread collapse of Antarctic ice shelves – floating extensions of land ice projecting into the sea – could pave the way for dramatic rises in sea level. The new research predicts a doubling of surface melting of the ice shelves by 2050. By the end of the century, the melting rate could surpass the point associated with ice shelf collapse, it is claimed. If that happened a natural barrier to the flow of ice from glaciers and land-covering ice sheets into the oceans would be removed. Lead scientist, Dr Luke Trusel, Woods Hole Oceanographic Institution in Massachusetts, US, said: “Our results illustrate just how rapidly melting in Antarctica can intensify in a warming climate.”

“This has already occurred in places like the Antarctic Peninsula where we’ve observed warming and abrupt ice shelf collapses in the last few decades. “Our model projections show that similar levels of melt may occur across coastal Antarctica near the end of this century, raising concerns about future ice shelf stability.” The study, published in the journal Nature Geoscience, was based on satellite observations of ice surface melting and climate simulations up to the year 2100. It showed that if greenhouse gas emissions continued at their present rate, the Antarctic ice shelves would be in danger of collapse by the century’s end..

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Oct 092015
 
 October 9, 2015  Posted by at 9:21 am Finance Tagged with: , , , , , , , , , ,  5 Responses »


DPC H.A. Testard Bicycles & Automobiles, New Orleans 1910

September Liquidity Crisis Forced Fed Into Massive Reverse Repo Operation (IRD)
Bank Of England Warns Financial Institutions Over Commodities Exposure (Guardian)
If You Thought China’s Equity Bubble Was Scary, Check Out Bonds (Bloomberg)
CEO: Deutsche Isn’t Worth What It Once Was And Can’t Pay What It Used To (BBG)
Day After Deutsche Says Not All’s Well, Credit Suisse Also Admits Trouble (ZH)
Bruised Germany Is Canary in Coal Mine for Europe Economic Woes (Bloomberg)
Saudi Arabia Orders Deep Spending Curbs Amid Oil Price Slump (Bloomberg)
Former IMF Chief Economist Blanchard Backs ‘People’s QE’ (Reuters)
Hong Kong High Street Shop Rents Fall Up To 43% From Their Peaks (SCMP)
Bill Gross Sues Pimco For At Least $200 Million (NY Times)
Ponzi Suspect’s 17 Accounts Raise Questions Over Bank Safeguards (Bloomberg)
Why This Feels Like A Depression For Most People (Jim Quinn)
VW Exec Blames ‘A Couple Of’ Rogue Engineers For Emissions Scandal (LA Times)
VW Facilities, Worker Homes Raided in Diesel Investigation (Bloomberg)
US House Slams Regulators For Not Catching VW For Years (Reuters)
Four More Carmakers Join ‘Dieselgate’ Emissions Row (Guardian)
Merkel Slams Eastern Europeans On Migration (Politico)
542 People Rescued In 24 Hours Off Greece (AP)
Baby Dies After Migrant Boat Breaks Down Off Greek Island Lesbos (Reuters)

Behind the curtain.

September Liquidity Crisis Forced Fed Into Massive Reverse Repo Operation (IRD)

Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate. However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008. You can also see from this graph that the size of the “spike” occurrences in reverse repo operations has significantly increased since 2014 relative to the spike up in 2008. In fact, the latest two-week spike is by far the largest reverse repo operation on record.

Besides using repos to manage term banking reserves in order to target the Fed funds rate, reverse repos put Treasury collateral on to bank balance sheets. We know that in 2008 there was a derivatives counter-party default melt-down. This required the Fed to “inject” Treasury collateral into the banking system which could be used as margin collateral by banks or hedge funds/financial firms holding losing derivatives positions OR to “patch up” counter-party defaults (see AIG/Goldman).

What’s eerie about the pattern in the graph above is that since 2014, the “spike” occurrences have occurred more frequently and are much larger in size than the one in 2008. This would suggest that whatever is imploding behind the scenes is far worse than what occurred in 2008. What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period. You’ll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.

The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out of sight in the general liquidity functions of the global banking system. Without a doubt, the graphs above are telling us that something “broke” in the banking system which necessitated the biggest injection of Treasury collateral in history into the global banking system by the Fed.

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BoA says $100 billion exposure to Glencore alone, and Bernstein says 6 UK traders have only $6 billion? Hard to believe.

Bank Of England Warns Financial Institutions Over Commodities Exposure (Guardian)

The Bank of England has told major banks to check the impact of falling commodity prices on their lending positions. Threadneedle Street has been asking for information from the major players in light of the rout in the shares in Glencore, the commodity trading and mining firm. Glencore’s shares plunged by 29% a week ago on Monday to 68.62p. Although they have subsequently recovered to 120p, the shares are trading far below their 2011 flotation price of 530p. The fall in Glencore stock came amid concerns about its debt position and fears that the Chinese economy was on the cusp of a hard landing that would further reduce already softening global demand for commodities.

The demand for information by the Bank of England has emerged at a time when banking analysts have been questioning the exposure of banks to the the fallout in the commodity sector. In a research note entitled The $100bn Gorilla in the Room, Bank of America analysts said: “The banking industry may have significantly more exposure to Glencore than is generally appreciated in the market.” Analysts at Bernstein, the broking firm, have conducted a wider analysis of UK banks’ exposure to six commodity trading houses, including Glencore, and concluded about $6bn (£3.9bn) worth of loans are outstanding. Standard Chartered, the Asian-focused London-based bank, was given the highest exposure of $1.9bn.

The move by the Bank to ask financial institutions to check their exposure to commodities follows similar health checks during the Greek crisis and amid Chinese stock market volatility in the summer. The requests are made through the Prudential Regulation Authority, the Bank of England’s regulatory arm. The Bank of England is launching stress tests on the major lenders and has said China is among the factors that will be included in the financial health check. The results are expected to be published in December.

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Bubble after bubble, until there’s none left.

If You Thought China’s Equity Bubble Was Scary, Check Out Bonds (Bloomberg)

As a rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another. So says Commerzbank, which puts the chance of a crash by year-end at 20%, up from almost zero in June. Industrial Securities and Huachuang Securities are warning of an unsustainable rally after bond prices climbed to six-year highs and issuance jumped to a record. The boom contrasts with caution elsewhere. A selloff in global corporate notes has pushed yields to a 21-month high, and credit-derivatives traders are demanding near the most in two years to insure against losses on Chinese government securities.

While an imminent collapse isn’t yet the base-case scenario for most forecasters, China’s 42.1 trillion yuan ($6.6 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago: stretched valuations, a surge in investor leverage and shrinking corporate profits. A reversal would add to challenges facing China’s ruling Communist Party, which has struggled to contain volatility in financial markets amid the deepest economic slowdown since 1990. “The Chinese government is caught between a rock and hard place,” said Zhou Hao, a senior economist in Singapore at Commerzbank, Germany’s second-largest lender. “If it doesn’t intervene, the bond market will actually become a bubble. And if it does, the market could crash the way the equity market did due to fast de-leveraging.”

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Deutsche equals tens of trillions in derivatives exposure. Why is it getting scared, and why now?

CEO: Deutsche Isn’t Worth What It Once Was And Can’t Pay What It Used To (BBG)

Deutsche Bank’s new boss delivered a harsh message to shareholders and employees: Europe’s biggest investment bank isn’t worth what it once was and can’t pay them what they’re used to. Co-CEO John Cryan decided to mark down the value of the securities unit because of rules that will force the company to hold more capital, Deutsche Bank said in a statement late Wednesday. Higher equity requirements have hurt profitability. Cryan is preparing to shrink the trading empire built by his predecessor, Anshu Jain, to lower costs, lift capital levels and raise Deutsche Bank from its position as the worst-valued stock among global banks. That could mean giving up the aspiration to remain a top global investment bank and rolling back parts of the expansion it pursued over the last two-and-a-half decades.

“This perhaps is the beginning of the new chief executive taking a close look and saying, ‘actually, are we better off being the German champion bank, or do we want to maintain this ambition of being a global player?”’ Robert Smithson at THS Partners said. Deutsche Bank said it wrote down goodwill, a measure of the value a company expects to extract from acquisitions, to zero at both its investment- and consumer-banking units. The charge at the securities business relates in part to the $9 billion purchase of Bankers Trust in 1998, Cryan said in a memo to staff. That deal was a major step in the company’s transformation into a global investment bank because it expanded access to the U.S., home to the world’s biggest capital markets. Paul Achleitner, Deutsche Bank’s supervisory board chairman, advised the bank on the purchase while at Goldman Sachs.

The writedown at the securities unit, as well as charges at the company’s retail-banking division and legal costs, will probably cause a third-quarter net loss of €6.2 billion, Deutsche Bank said. The bank may cut or eliminate this year’s dividend, and employees, by way of compensation, will have to share the pain with investors, Cryan said. The stock fell 1.8% to €25.03. Cryan isn’t alone in writing down the value of acquisitions that failed to deliver anticipated returns. UniCredit, Italy’s biggest bank, posted a record loss for the fourth-quarter of 2013 after taking more than 9 billion euros of impairments, including those on the goodwill of units in Italy, central and eastern Europe and Austria. Investors were already valuing Deutsche Bank at less than it says its assets are worth. The company trades at about 0.6 times book value, the lowest ratio among its global peers.

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Deutsche, Credit Suisse and UniCredit. Dominoes starting to drop.

Day After Deutsche Says Not All’s Well, Credit Suisse Also Admits Trouble (ZH)

Not everything is “fine” in the land of European banks, in fact quite the opposite. One day after Deutsche Bank warned of a massive $7 billion loss and the potential elimination of the bank’s dividend which had been a German staple since reunification, a move which many said was a “kitchen sinking” of the bank’s problems (but not Goldman, which said it was “not a kitchen sinking, but a sign of the magnitude of the challenge” adding that “this development confirms our view that the task facing new management is very demanding. Litigation issues do not end with this mark down – we expect them to persist for a multi-year period. We do not see this as a “clean up” but rather an indication of what the “fixing” of Deutsche Bank will entail over the 2015-18 period), it was the turn of Switzerland’s second biggest bank after UBS, Credit Suisse, to admit it too needs more cash when moments ago the FT reported that the bank is “preparing to launch a substantial capital raising” when the new CEO Thiam unveils his strategic plan for the bank in two weeks’ time.

FT adds that “while not specifying an amount, they pointed to a poll published last week by analysts at Goldman Sachs concluding that 91% of investors expect the Swiss bank to raise more than SFr5bn in new equity.” The stock price did not like it, although just like with DB, we expect the “story” to quickly become that the Swiss bank is putting all its dirty laundry to rest, so an equity dilution is actually quite positive. Incidentally, with DB stock green on the day following a dividend cut, perhaps it would go limit up if Deutsche Bank had announced a negative dividend? The official narrative is well-known: the bank does not need the funds, it is simply a precaution ahead of new, more stringent capital requirements:

The capital is likely to be used to absorb losses triggered by a faster restructuring of the Swiss group, the people said. But Credit Suisse will also need higher capital ratios to comply with toughening demands from regulators. The Swiss authorities are expected to announce an increase of minimum capital ratios over the coming months, which could prove more challenging for the bank than its better capitalised local rival, UBS. Credit Suisse’s common equity tier one capital ratio of 10.3% compares with UBS’s 13.5%..

The real reason, of course, has nothing to do with this, and everything to do with the collapse of manipulation cartels involving Liebor, FX, commodities, bonds, equities, gold, and so on, because when banks can no longer collude with each other to push markets in any given direction, that’s when they start losing money. That and, of course, the fact that central bank intervention in capital markets has made it virtually impossible to trade any more. Or as they call it, “miss capital ratios.” Expect many more such announcements in the coming weeks.

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While Brussels insists there is a cyclical recovery…

Bruised Germany Is Canary in Coal Mine for Europe Economic Woes (Bloomberg)

The euro area’s pillar of economic strength is starting to show cracks. Germany’s manufacturing industry is taking a hit from cooling demand in emerging markets. Two of its icons – Deutsche Bank and Volkswagen – are in turmoil. And refugees are flooding across its borders at a rate of 10,000 a week. The strains are putting the resilience of Europe’s economic powerhouse to the test after exports in August fell the most since the height of the 2009 recession, and factory orders and industrial output unexpectedly declined. The flood of bad news is all the more troubling as the 19-nation euro area strives to sustain an economic revival that remains fragile. “Germany is the canary in the mine for Europe,” said Pau Morilla-Giner at London & Capital Asset Management in London.

“It is the most exposed country to what happens outside of the continent.” German exports slumped 5.2% in August from the previous month, the Federal Statistics Office in Wiesbaden said on Thursday. That’s the most since the recession of 2009. Imports slid 3.1%, shrinking the trade surplus to €15.3 billion from €25 billion. Weakening trade with China and Russia prompted Hamburger Hafen und Logistik, which handles about three in four containers at the city port, to cut its 2015 earnings forecast on declining container volume. Germany’s gateway to Asia serves as a major transfer hub for containers carried by deep-sea ships from the Pacific region and then reloaded onto smaller feeder vessels destined for Baltic Sea ports, including the Russian harbor of St. Petersburg.

BASF, whose dominance in the global chemical industry makes it a barometer for the German economy, is curbing spending and scrapped its 2020 profit and sales target on Sept. 28 after becoming more pessimistic on economic growth and chemical production. The risks for Germany’s steel producers “have increased significantly, especially in the area of foreign trade, in recent weeks and months,” the Wirtschaftsvereinigung Stahl industry group said on Thursday in a report showing crude steel production fell almost 4% in September. “One of the biggest pressure points for the euro zone’s fragile economic recovery is German export orders,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “News that they fell sharply throws the China-driven weakness in the global economy into sharp relief.”

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Problems mount for the House of Saud. Only option left is to increase pumping.

Saudi Arabia Orders Deep Spending Curbs Amid Oil Price Slump (Bloomberg)

Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people with knowledge of the matter. The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned the buying of vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said. With oil accounting for about 90% of revenue in the Arab world’s largest economy, a drop of more than 40% in crude prices in the past 12 months has combined with wars in Yemen and Syria to pressure Saudi Arabia’s finances.

While public debt is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2% in 2014, that may rise to 33% in 2020, according to estimates from the IMF. “In order to demonstrate a bit of fiscal discipline the government needed to take some measures in 4Q to moderate spending,” John Sfakianakis, Middle East director at Ashmore Group, said. “Going forward Saudi Arabia will have to implement spending cuts and efficiencies in order to avoid a runaway fiscal deficit in 2016.” To help shore up its finances, authorities plan to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year, people with knowledge of the matter said in August. The kingdom’s net foreign assets fell for a seventh month to $654.5 billion in August, the lowest level in more than two years.

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Maybe someone should define PQE. Would seem handy for future discussion.

Former IMF Chief Economist Blanchard Backs ‘People’s QE’ (Reuters)

“People’s QE” could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the IMF, said on Wednesday. Quantitative easing, where central banks buy assets such as government bonds from banks in exchange for newly created money, has been used in the euro zone, the United States and Britain to increase financial market liquidity and stimulate growth. But the verdict is still out on whether central banks should be buying assets, as they do now, or instead tie up with governments to spend it on ‘real’ goods, known as “people’s QE”, as a way of stimulating the economy, Blanchard said during a lecture at the Cass Business School.

“There is clearly something else you can do if you get to zero (inflation) and still want to increase spending. You can buy goods.” “Which one should you choose? We haven’t asked the question in the crisis but we should,” he said. Blanchard said that this does not mean central banks would buy goods directly. Rather, governments can increase their fiscal deficits by spending on infrastructure projects. Central banks can then buy this debt with newly created money. He also stressed that these fiscal deficits should be “a certain size and not more”. People’s QE was a prominent part of the leadership election campaign for British Labour Party leader Jeremy Corbyn.

QE has come under popular criticism because banks, which were supposed to lend out the new money into the wider economy to stimulate growth, have not necessarily done so. Blanchard argues that buying goods rather than assets can get the money out into the economy another way. People’s QE has also been criticised because it may compromise central bank independence. Bank of England chief economist Andy Haldane said in September people should be “very cautious” about encroaching on the separation between fiscal and monetary policy.

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Any questions?

Hong Kong High Street Shop Rents Fall Up To 43% From Their Peaks (SCMP)

Hong Kong’s high street shop rents have fallen as much as 43% when compared with the peak levels in the fourth quarter of 2013, according to international property consultant DTZ/Cushman & Wakefield. Plagued by smaller growth in tourist arrivals and a decrease in sales of luxury products, retailers have been facing a challenging business environment and find the rents they are paying in prime street shops as too expensive. Some retailers requested landlords to cut rents while others opted to relocate. As a result, the retail high street rents in Causeway Bay, Tsim Sha Tsui, Central and Mongkok had gone down by 26-43% as of the third quarter from their respective peak levels in the fourth quarter of 2013, or during lease renewal compared to the last rent a few years ago, said Kevin Lam, DTZ/Cushman & Wakefield’s Head of Business Space, Hong Kong.

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It was all El-Erian after all.

Bill Gross Sues Pimco For At Least $200 Million (NY Times)

The man known as the bond king, William H. Gross, is suing the company that he built into one of the largest asset managers in the world, providing his own colorful version of an ugly feud that led to his departure last year. The lawsuit, filed on Thursday, represents a bold effort by Mr. Gross to repair the damage that was done to his reputation in the year before and after he was fired from Pimco. News media reports have portrayed Mr. Gross’s departure as a product of his erratic and domineering behavior at the firm he helped found in 1971. Mr. Gross is seeking “in no event less than $200 million” from Pimco for breach of covenant of good faith and fair dealing, among other causes of action.

But to underscore the degree to which the suit is motivated by Mr. Gross’s desire to correct the public record, he has promised to donate any money he recovers to charity, his lawyer, Patricia L. Glaser, said. The lawsuit presents a picture of Pimco — an asset manager based in California that is responsible for billions of dollars in retirement savings — as a den of intrigue riven by back stabbing and competing egos. The first sentence of the suit says that Mr. Gross was pushed out by a “cabal” of Pimco managing directors who were “driven by a lust for power, greed, and a desire to improve their own financial position.” “Their improper, dishonest, and unethical behavior must now be exposed,” the opening paragraph concludes.

The suit takes aim at the man who was once in line to succeed Mr. Gross, Mohamed El-Erian, and at the man who has succeeded Mr. Gross as Pimco’s group chief investment officer, Daniel J. Ivascyn. Mr. El-Erian is now the chief economic advisor at Allianz, Pimco’s parent company. Both men, the suit says, were eager to take Pimco away from its traditional focus on bond funds and into riskier investment strategies that would earn it higher fees and lead to bigger bonuses for top executives. Mr. Gross, on the other hand, is said in the suit to have consistently advocated for keeping the firm focused on lower-fee investment products.

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“If the banks had just Googled this guy, they would have known enough to stay away..”

Ponzi Suspect’s 17 Accounts Raise Questions Over Bank Safeguards (Bloomberg)

The U.S. requires banks to know their customers. Looks like several big ones, including Citigroup, JPMorgan and Wells Fargo, may have missed getting acquainted with Daniel Fernandes Rojo Filho. Filho, a 48-year-old Brazilian self-proclaimed billionaire living in Orlando, Florida, came under U.S. investigation in 2009 related to an alleged conspiracy involving drug trafficking, money laundering and a Ponzi scheme. Around then, he and others under the federal probe forfeited tens of millions of dollars worth of Lamborghinis, gold bars and other assets, according to court documents. He agreed in 2013 to forfeit another $25 million in accounts registered to his children and businesses. That was all a matter of public record in mid-2014, when Filho started opening new bank accounts.

He set up at least 17 of them in the name of his company – DFRF Enterprises, derived from his initials – and signed his own name. Filho’s banking flurry is detailed in several fresh cases against him, including an August criminal indictment alleging he used some of these accounts in a scheme that promised investors income from nonexistent gold-mining operations. Filho faces similar allegations in separate lawsuits filed this year by the Securities and Exchange Commission and by a group of investors. “If the banks had just Googled this guy, they would have known enough to stay away,” said Evans Carter, a Framingham, Massachusetts-based attorney who brought the investors’ class-action suit early this year. Filho, who was arrested in July, awaits a hearing today in Boston connected to the criminal charges against him.

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“Today, there are 46 million Americans in an electronic soup kitchen line..”

Why This Feels Like A Depression For Most People (Jim Quinn)

Everyone has seen the pictures of the unemployed waiting in soup lines during the Great Depression. When you try to tell a propaganda believing, willfully ignorant, mainstream media watching, math challenged consumer we are in the midst of a Greater Depression, they act as if you’ve lost your mind. They will immediately bluster about the 5.1% unemployment rate, record corporate profits, and stock market near all-time highs. The cognitive dissonance of these people is only exceeded by their inability to understand basic mathematical concepts. The reason you don’t see huge lines of people waiting in soup lines during this Greater Depression is because the government has figured out how to disguise suffering through modern technology. During the height of the Great Depression in 1933, there were 12.8 million Americans unemployed.

These were the men pictured in the soup lines. Today, there are 46 million Americans in an electronic soup kitchen line, as their food is distributed through EBT cards (with that angel of mercy JP Morgan reaping billions in profits by processing the transactions). These 46 million people represent 14% of the U.S. population. There are 23 million households on food stamps in a nation of 123 million households. Therefore, 19% of all households in the U.S. are so poor, they require food assistance to survive. In 1933 there were approximately 126 million Americans living in 30 million households. The government didn’t keep official unemployment records until 1940, but the Department of Labor estimated 12.8 million people were unemployed during the worst year of the Great Depression or 24.9% of the labor force.

By 1937 it had fallen to 14.3% or approximately 8 million people. The number of people unemployed during the 1930’s is an excellent representation of the number of households on government assistance during the Great Depression because 79% of all households were occupied by married couples with 4 people per household versus 48% married couple households today with 2.5 people per household. The unemployment rate averaged 19% during the heart of the Great Depression. Therefore, approximately 19% of all the households in the U.S. needed government assistance to feed themselves. That happens to be the exact %age of households currently needing food stamps to feed themselves.

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Do they really think this’ll fly? “..it sure does cause you to scratch your head that we have this software that just happens to be in 11 million cars and no one in the whole company noticed it.”

VW Exec Blames ‘A Couple Of’ Rogue Engineers For Emissions Scandal (LA Times)

A top Volkswagen executive on Thursday blamed a handful of rogue software engineers for the company’s emissions-test cheating scandal and told outraged lawmakers that it would take years to fix most of the nearly half million vehicles affected in the U.S. “This was a couple of software engineers who put this in for whatever reason,” Michael Horn, VW’s U.S. chief executive, told a House subcommittee hearing. “To my understanding, this was not a corporate decision. This was something individuals did.” Horn, chief executive of Volkswagen Group of America, revealed that three VW employees had been suspended in connection with software that detects and fools emissions testing equipment in the company’s diesel vehicles. The automaker said that the so-called defeat device is loaded onto as many as 11 million vehicles worldwide.

Horn’s testimony before the House Energy and Commerce Committee’s oversight and investigations panel coincided with a raid Thursday by German investigators at Volkswagen’s Wolfsburg headquarters. The exact number of engineers the company blames remained unclear. Horn said both “couple” and three, then said under questioning that he did not yet know the exact number. Regardless, the claim that such a small number of people could have pulled off such a massive fraud brought immediate skepticism from lawmakers and industry experts. “I cannot accept VW’s portrayal of this as something by a couple of rogue software engineers,” said Rep. Chris Collins (R-N.Y.). “Suspending three folks — it goes way, way higher than that.”

Auto industry veterans agreed. “There are not rogue engineers who unilaterally decide to initiate the greatest vehicle emission fraud in history. They don’t act unilaterally,” said Joan Claybrook, former administrator of the National Highway Traffic Safety Administration. “They have teams that put these vehicles together. They have a review process for the design, testing and development of the vehicles.” James Womack, an expert on the international auto industry, also expressed doubts. “It might not be reviewed and discussed leaving an email or voicemail trail,” Womack said, “but it sure does cause you to scratch your head that we have this software that just happens to be in 11 million cars and no one in the whole company noticed it.”

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The bosses knew. But will that come out?

VW Facilities, Worker Homes Raided in Diesel Investigation (Bloomberg)

Police and prosecutors swooped in on Volkswagen facilities and private homes on Thursday in a dawn raid to gather evidence about who was behind the carmaker’s decision to cheat on diesel emissions tests. Three prosecutors and some 50 state criminal investigators searched the carmaker’s factories and employees’ homes starting in the early morning and continuing through the afternoon in Wolfsburg, its headquarters city, and elsewhere, said Birgit Seel, a senior prosecutor in the German state of Lower Saxony. Investigators took documents and electronic media, and it may take several weeks to review the material, Seel said. She didn’t identify employees whose homes were searched.

“We will fully support the prosecutor’s office with its investigation into the facts of the case and into the people responsible to swiftly and completely get to the bottom of the matter,” Volkswagen said in an e-mailed statement. The company filed its own criminal complaint on Sept. 23. The raids come as pressure on Volkswagen intensifies. The company’s U.S. chief, Michael Horn, will face U.S. lawmakers Thursday in the first public hearing on the scandal. In Europe alone, Volkswagen will probably need to exchange or rebuild parts for about 3.6 million engines equipped with illegal software that turned on full pollution controls only during tests, German Transport Minister Alexander Dobrindt said. Volkswagen told German regulators the parts for 1.6-liter engines that need the fix won’t be available until September 2016, Dobrindt said.

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“.. I think the American people ought to ask that we fire you and hire West Virginia University to do our work.”

US House Slams Regulators For Not Catching VW For Years (Reuters)

Volkswagen US chief executive blamed “individuals” for using software to cheat on diesel emissions at a House hearing on Thursday as lawmakers attacked federal environmental regulators for failing to catch the fraud for years. Michael Horn, head of Volkswagen Americas, testified before a House of Representatives oversight and investigations panel about the emissions scandal that has chopped more than a third of the company’s market value and sent tremors through the global auto industry. Volkswagen’s use of defeat devices, software that evaded U.S. tests for emissions harmful to human health, was not a corporate decision, but something a few employees engineered, Horn said under oath. “This was a couple of software engineers who put this in for whatever reason,” Horn said about the software code inserted into diesel cars since 2009.

Volkswagen used different defeat devices in Europe and the United States, Horn said, as emissions standards are different in the two regions. “Some people have made the wrong decisions in order to get away with something,” Horn said when asked by lawmakers if Volkswagen cheated with defeat devices because it was cheaper than using special injection systems to cut emissions. Lawmakers slammed an Environmental Protection Agency official who testified after Horn for not catching Volkswagen. Representative Michael Burgess, a Texas Republican, questioned the size of EPA’s annual budget, noting that the cheating was uncovered by a West Virginia University study that had a budget of less than $70,000.

“I’m not going to blame our budget for the fact that we missed this cheating,” replied the EPA’s Christopher Grundler, who said his transportation and air quality office has an annual budget of roughly $100 million. “I do think we do a very good job of setting priorities.” Burgess replied: “With all due respect, just looking at the situation, I think the American people ought to ask that we fire you and hire West Virginia University to do our work.”

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“What we are seeing here is a dieselgate that covers many brands and many different car models..”

Four More Carmakers Join ‘Dieselgate’ Emissions Row (Guardian)

Mercedes-Benz, Honda, Mazda and Mitsubishi have joined the growing list of manufacturers whose diesel cars are known to emit significantly more pollution on the road than in regulatory tests, according to data obtained by the Guardian. In more realistic on-road tests, some Honda models emitted six times the regulatory limit of NOx pollution while some unnamed 4×4 models had 20 times the NOx limit coming out of their exhaust pipes. “The issue is a systemic one” across the industry, said Nick Molden, whose company Emissions Analytics tested the cars. The Guardian revealed last week that diesel cars from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and Jeep all pumped out significantly more NOx in more realistic driving conditions.

NOx pollution is at illegal levels in many parts of the UK and is believed to have caused many thousands of premature deaths and billions of pounds in health costs. All the diesel cars passed the EU’s official lab-based regulatory test (called NEDC), but the test has failed to cut air pollution as governments intended because carmakers designed vehicles that perform better in the lab than on the road. There is no evidence of illegal activity, such as the “defeat devices” used by Volkswagen. The new data is from Emissions Analytics’ on-the-road testing programme, which is carefully controlled and closely matches the real-world test the European commission wants to introduce. The company tested both Euro 6 models, the newest and strictest standard, and earlier Euro 5 models.

[..] “These new test results [from Emissions Analytics] prove that the Volkswagen scandal is just the tip of the iceberg. What we are seeing here is a dieselgate that covers many brands and many different car models,” said Greg Archer, an emissions expert at Transport & Environment. “The only solution is a strict new test that takes place on the road and verified by an authority not paid by the car industry.”

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“The eastern Europeans — and I’m counting myself as an eastern European — we have experienced that isolation doesn’t help..”

Merkel Slams Eastern Europeans On Migration (Politico)

German Chancellor Angela Merkel harshly criticized eastern European governments for not having learned from their own history in their responses to the migration crisis. “The eastern Europeans — and I’m counting myself as an eastern European — we have experienced that isolation doesn’t help,” she told members of the center-right European People’s Party Wednesday in a closed-door meeting, according to a recording of the session obtained by POLITICO. “It makes me a bit sad that precisely those who can consider themselves lucky that they have lived to see the end of the Cold War, now think that one can completely stay out of certain developments of globalization,” Merkel said, referring to the reluctance of some EU countries to accept refugees.

“It just strikes me as somehow very weird. And that’s why we have to keep talking about that, as friends,” Merkel said, speaking German, as she responded to a question from a Czech MEP on the refugee crisis. “A rejection [of taking refugees in] as a matter of principle, that is — excuse me for being that blunt — that’s a danger for Europe,” Merkel said.

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This just keeps going on as the EU discusses ‘fighting’ the smugglers.

542 People Rescued In 24 Hours Off Greece (AP)

The latest developments as hundreds of thousands of people seeking safety make an epic trek through Europe. All times local.

9:40 a.m. – Greece’s coast guard says it has rescued 542 people in 12 search and rescue incidents from Thursday morning to Friday morning. The rescues occurred off the coasts of the eastern Aegean islands of Lesbos, Chios, Samos, Agathonissi and Farmakonissi, the coast guard said. Hundreds of thousands of people fleeing war and poverty in their homelands have reached Greece so far this year, the vast majority on rickety boats or cheap inflatable dinghies from the nearby Turkish coast. Although a short sea journey, it can be fatal as the unseaworthy and overloaded boats sometimes sink.

9:30 a.m. – Greece’s coast guard says a wooden boat carrying a large number of refugees or other migrants has run aground on the small eastern Aegean island of Leros, while an infant died after the inflatable dinghy he was in partially sank off the coast of Lesbos island. The wooden boat, carrying about 100 people, ran aground Friday on the northeast coast of Leros, the coast guard said. Those on board were being taken to shore by coast guard and private vessels that arrived to help. In the Lesbos incident, the coast guard rescued 56 people from the sea Thursday night after the rear part of their dinghy burst, partially sinking the boat. A 1-year-old boy was recovered unconscious and transported to a hospital, but rescuers were unable to revive him.

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And so does this. No humanity, no shame, no decency.

Baby Dies After Migrant Boat Breaks Down Off Greek Island Lesbos (Reuters)

A baby died after the rubber boat carrying him and another 56 migrants broke down and was left adrift off the Greek island of Lesbos, the Greek coastguard said on Friday. The 1-year-old boy, whose nationality was not made known, was found unconscious on a rubber dinghy which had broken down and went adrift late on Thursday. The boy was taken to a hospital where he was pronounced dead. The coastguard rescued the rest of the migrants, some of whom were in the sea. The baby was one of thousands of refugees – mostly fleeing war-torn Syria, Afghanistan and Iraq – who attempt the short but perilous crossing from the Turkish coast to Greek islands by boat, often in rough seas.

Almost 400,000 people have arrived in Greece this year, the U.N. refugee agency UNHCR has said, overwhelming the crisis-stricken government’s ability to cope. Most have rapidly headed north towards Germany. The coastguard has rescued a total of 542 migrants and refugees off the Aegean islands of Lesbos, Chios, Samos, Farmakonisi and Agathonisi since early on Thursday. Europe’s migration commissioner, Dimitris Avramopoulos, and Luxembourg Foreign Affairs Minister Jean Asselborn are expected in Athens on Friday and will give a joint news conference on the refugee crisis on Saturday.

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Oct 012015
 
 October 1, 2015  Posted by at 8:41 am Finance Tagged with: , , , , , , , , , , ,  1 Response »


John Vachon Beer signs on truck, Little Falls, Minnesota Oct 1940

2015 Is Turning Out to Be a Terrible Year for Investors (Bloomberg)
End Of World’s Biggest Ever Credit Boom Means More “Glencores” Ahead (Howell)
Traders Start Pricing Glencore Bonds Like Junk (FT)
Why Dow’s Three-Quarter Losing Streak Is A Big Deal (MarketWatch)
October 1 2015: China Factory Activity Picks Up To Beat Expectations (BBC)
Futures Soar After Chinese Composite PMI Drops To Lowest On Record (Zero Hedge)
China Cuts Minimum Home Down Payment for First-Time Buyers (Bloomberg)
Oil Suffers A Loss Of 24% For The Quarter (MarketWatch)
Market Moves That Aren’t Supposed to Happen Keep Happening (Tracy Alloway)
Wide Range Of Cars Emit More Pollution In Realistic Driving Conditions (Guardian)
VW Emissions Scandal: 1.2 Million UK Cars Affected (Guardian)
VW Board Considering Steps To Prop Up Credit Rating (Reuters)
Eurozone Inflation Turns Negative, Putting ECB In Corner (Reuters)
Tsipras Finds ‘Open Ears’ In US To Greek Appeal For Debt Relief (Kath.)
Greek Regulator Bans Short-Selling Of Bank Shares (Reuters)
How Greece Could Collapse The Eurozone (Satyajit Das)
Greek Shipowners Prepare to Weigh Anchor on Prospect of Higher Taxes (WSJ)
Iceland’s Next Collapse Is “Unavoidable,” Employers Union Warns (Bloomberg)
Obama Hands $1 Billion In Military Aid To Goverments Using Child Soldiers (CNN)
Millions Of Illegal Immigrants Will Overrun Trump’s ‘Beautiful Wall’ (Farrell)
Farmers Driven From Homes ‘Like Pests’ As Asia Plans 500 Dams (Bloomberg)

Debt. Deflation.

2015 Is Turning Out to Be a Terrible Year for Investors (Bloomberg)

For investors around the world, 2015 is turning into a year to forget. Stocks, commodities and currency funds are all in the red, and even the measly gains in bonds are being wiped out by what little inflation there is in the global economy. Rounding out its steepest quarterly descent in four years, the MSCI All Country World Index of shares is down 6.6% in 2015 including dividends. The Bloomberg Commodity Index has slumped 16%, while a Parker Global Strategies index of currency funds dropped 1.8%. Fixed income has failed to offer much of a haven: Bank of America’s global debt index gained just 1%, less than the 2.5% increase in world consumer prices shown in an IMF index. After three years in a virtuous cycle of rising share prices and unprecedented monetary easing, markets are now sinking as emerging economies from China to Brazil weaken and corporate profits slump.

Analysts have cut their global growth estimates for 2015 to 3% from 3.5% at the start of the year, and the turmoil has added pressure on central banks to prolong their stimulus programs, with traders scaling back forecasts for a Federal Reserve interest-rate increase by year-end. “There was an element of people believing they had found some sort of holy grail to investing, then this breakdown occurs and it breaks down in a way that’s remarkable,” said Tobias Levkovich, Citigroup’s chief U.S. equity strategist. “What seemed to trigger this all was China. It sent us on a wave of downward fears.” Investors suffered the brunt of this year’s losses in the third quarter. MSCI’s global equity index sank about 10% in the period, while the Bloomberg commodity index lost 14% in its biggest slump since the global financial crisis seven years ago.

The average level of Bank of America’s Market Risk index, a measure of price swings in equities, rates, currencies and raw materials, was the most this quarter since the end of 2011. The Chicago Board Options Exchange Volatility Index, a gauge of turbulence known as the VIX, reached the highest since 2011 in August. China has been the biggest source of anxiety for investors, after turmoil in the nation’s financial markets fueled concern that the country’s worst economic slowdown since 1990 was deepening. The Shanghai Composite Index fell 29% in the third quarter, the most worldwide, and the yuan weakened 2.4% after authorities devalued the currency in August. That sent a shudder around the world.

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And all over the world too.

End Of World’s Biggest Ever Credit Boom Means More “Glencores” Ahead (Howell)

It’s the great unwind show. Admittedly, Glencore’s latest problems may run deeper and look more specific, but together with Vale and Rio, the other great international mining houses plus their suppliers, like America’s Caterpillar, all are suffering the fall-out from the end of the world’s biggest ever credit boom. Oil is testing recent lows and commodity prices almost across the board are skidding. Alongside, emerging market currencies are being trashed and some even fear that this turmoil will spill-over into a recession by next year. It will. Your white-knuckle ride is far from over. So how did we get here? The answer comes in three parts.

Firstly, the fragile global financial system that disintegrated spectacularly in 2008 has simply been taped back together and not fundamentally rebuilt, so leaving it vulnerable to a renewed bust of funding problems. Secondly, debt problems have not been tackled. By demanding “austerity”, many governments have simply reshuffled debts from their balance sheets on to more fragile private sector ones. Debt burdens across emerging markets, for example, have jumped since 2007. Lastly, the biggest factor is China. China is only just starting to adjust to its huge credit boom. Since the year 2000, the size of its asset economy has jumped an eye-watering 12-fold.

This includes the construction of new cities, thousands of miles of motorway, several airports and, as the brochures once advertised, a new skyscraper every 14-days, pushing up her credit markets to a bloated $25 trillion. History teaches us that there are four stages to every credit cycle: (1) 20-30% rates of new loan growth; (2) asset price bubbles in real estate, commodities, equities and often art; (3) banking problems, corruption and state intervention, and (4) currency collapse. China already ticks the first three boxes, and a pen is hovering over the fourth. The decision to weaken the renminbi in August may have less to do with exchange rate politics, as some have suggested, and more to do with a plain shortage of US dollars.

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“..trading in the $36bn of bonds outstanding has moved to a cash basis, where prices are quoted in terms of cents on the dollar of face value.”

Traders Start Pricing Glencore Bonds Like Junk (FT)

Traders have started to quote prices for Glencore debt in a manner normally associated with lower-quality paper, commonly known as junk bonds. The shift in pricing dynamics in the private over-the-counter markets this week came as shares in Glencore swung wildly as investors worry about the ability of the miner and trading house to manage its debt pile in a commodity downturn. The group retains an investment grade credit rating according to rating agencies and its $36bn of outstanding bonds have up to now been bought and sold on the basis of their yield, which moves inversely to price. But this week, dealers and investors say trading in the $36bn of bonds outstanding has moved to a cash basis, where prices are quoted in terms of cents on the dollar of face value. This form of pricing is generally used for junk bonds, which have a higher risk of default.

Pressure on the company’s debt and equity has intensified as analysts debate the effect of falling raw materials prices and rising debt costs. One investment bank warned on Monday that the group’s equity might be worthless if commodity prices did not recover swiftly. The company said it retained “strong lines of credit and access to funding”. Unsecured senior Glencore debt maturing in May 2016 traded below 93 cents on the dollar on Tuesday, with some trades occurring below 90 cents, according to investors. A buyer of the debt should receive a 0.85 cent coupon in November, and a dollar of principal back in eight months’ time. The return available from doing so is equivalent to around a 13% yield on an annual basis. Prices for longer-term debt fell even further as investors began to assess the potential recovery values for Glencore debt, most of which is unsecured. “Everything beyond five years is trading around or below 70 cents on the dollar,” Zoso Davies at Barclays said.

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The history of three-quarter losing streaks is not pretty.

Why Dow’s Three-Quarter Losing Streak Is A Big Deal (MarketWatch)

The Dow Jones Industrial Average has suffered a third-straight quarterly decline for the first time since the Great Recession. This marks just the third time in nearly 40 years that a quarterly losing streak for the blue-chips benchmark stretched at least that long. The Dow surged 236 points on Wednesday, but has lost 1,335 points, or 7.6%, since the end of June. The Dow had lost 156.61 points, or 0.9%, over the second quarter and 46.95 points, or 0.3%, over the first quarter. The last time the Dow had a three-quarter losing streak was the six-quarter stretch ending the first quarter of 2009. Before that, there was a five-quarter losing streak ending with the first quarter of 1978, according to FactSet data.

In the Dow’s 119-year history, there have now been 20 quarterly losing streaks that stretched at least three quarters. The longest losing streak is six quarters, suffered twice, through the first quarter of 2009 and through the second quarter of 1970. There have been 12 quarterly losing streaks that have lasted longer than three quarters. If the current quarterly losing streak were to be snapped in the fourth quarter, the total three-quarter loss of 8.6% would be the smallest of all the other three-quarter losing streaks.

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What a difference a week makes, and/or a survey…

October 1 2015: China Factory Activity Picks Up To Beat Expectations (BBC)

Factory activity in China picked up in September, beating expectations, according to the government’s official manufacturing survey. The manufacturing purchasing managers’ index (PMI) was up to 49.8 from 49.7 in August, but the sector did shrink for the second consecutive month.

23 September 2015: China Factory Activity Contraction Worsens (BBC)

China’s factory activity contracted at the fastest pace for six and a half years in September, according to a preliminary survey of the vast sector. The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 47 in September, below forecasts of 47.5 and down from 47.3 in August.

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More of that discrepancy in China numbers.

Futures Soar After Chinese Composite PMI Drops To Lowest On Record (Zero Hedge)

Chinese markets may be closed for the next week due to a national holiday but China’s goalseeked manufacturing survey(s), which were the most anticipated data points of the evening, came right on schedule (or rather, were leaked just ahead of schedule). And they certainly did not disappoint in their disappointment. First, it was the official NBS September PMI, which at 49.8 was the smallest possible fraction above both the previous and expected, both of which were 49.7. The number was leaked about 6 minutes before the official statement, and while the leaked print which all humans were aware of well before the official release time at 9pm Eastern, had no impact on markets, it was the flashing red headline which confirmed the leak and which was read by machine-reading algos everywhere, that sent the E-mini spasming higher.

But while the official “data” was bad, and confirmed the economy remains in contraction, the Caixin – aka the new HSBC – Markit PMIs were absolutely atrocious. We bring you… the HSBC Manufacturing print, which dropped from 47.3 to 47.2, and which according to Caixin was the lowest print since March 2009. From the report:

A key factor weighing on the headline index was a sharper contraction of manufacturing output in September. According to panellists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September. Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.

Reflective of lower workloads, manufacturing companies cut their staff numbers again in September. Moreover, the latest reduction in employment was the fastest seen in 80 months. Meanwhile, reduced production capacity led to an increased amount of unfinished work, though the pace of backlog accumulation was only slight.

Manufacturing companies noted a further steep decline in average cost burdens during September. Furthermore, the rate of deflation was the sharpest seen since April. Reports from panellists mentioned that lower raw material prices, particularly for oil-related products, had cut overall input costs. Increased competition for new work led manufacturing companies to generally pass on their savings to clients, as highlighted by a solid decline in output charges.

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“It’s one policy that’s part of a grand strategy to revive property investment and the whole national economy.”

China Cuts Minimum Home Down Payment for First-Time Buyers (Bloomberg)

China’s central bank cut the minimum home down payment required of first-time buyers for the first time in five years, stepping up support for the property market after five interest-rate reductions since November failed to reverse an economic slowdown. The People’s Bank of China cut the minimum down payment for buyers in cities without purchase restrictions to 25% from 30%, according to a statement released on its website Wednesday. The previous requirement had been in place since 2010, when the government boosted the ratio from 20% to help curb property speculation.

The move extends a year of loosening in the property market as Premier Li Keqiang seeks to boost demand in the world’s second-largest economy after fiscal and monetary stimulus produced few signs of a rebound. Growth will slow to 6.8% this year, according to the median of economist estimates compiled by Bloomberg. That’s below the government’s target for an expansion of about 7%. “Amid China’s economic slowdown, property’s role as a growth pillar has become even more important, and the government clearly sees it,” said Shen Jianguang at Mizuho in Hong Kong. “It’s one policy that’s part of a grand strategy to revive property investment and the whole national economy.”

While property investment has remained weak, home sales have recovered after mortgage policy easing and removal of purchase restrictions helped support demand. New-home prices rose in 35 of 70 cities in August, up from 31 in July and just two cities in February. UBS Group has estimated the real-estate industry accounts for more than a quarter of final demand in the economy when including property-related goods including electric machinery and instruments, chemicals and metals. The government also has urged some cities to allow citizens to borrow more from housing funds to help buyers, and encouraged cities to securitize more of those loans, according to a statement on the housing ministry’s website.

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In Q4, a lot of ‘reserves’ must be marked to much more realistic levels. That’s going to hurt.

Oil Suffers A Loss Of 24% For The Quarter (MarketWatch)

Oil futures tallied a loss of 24% for the third quarter, after ending Wednesday lower on the back of a report revealing the first U.S. crude-supply increase in three weeks. The report also showed a modest decline in domestic production, helping prices limit losses for the session. November West Texas Intermediate crude settled at $45.09 a barrel, down 14 cents, or 0.3%, on the New York Mercantile Exchange, trading between a high of $45.85 and a low of $44.68, according to FactSet data. WTI prices, based the front-month contracts, lost 8.4% for the month and were 24% lower for the quarter. Year to date, they’re down by more than 15%. November Brent crude on London’s ICE Futures exchange tacked on 14 cents, or 0.3%, to $48.37 a barrel.

Year to date, prices have fallen more than 15%. The U.S. Energy Information Administration reported Wednesday an increase of four million barrels in crude supplies for the week ended Sept. 25. That was the first climb in three weeks. Analysts polled by Platts expected supplies to be unchanged, while the American Petroleum Institute Tuesday said supplies jumped 4.6 million barrels. Part of the reason for the increase in crude supplies was less demand from refineries, where activity decreased with maintenance season in effect. Refinery utilization fell to 89.8% last week from 90.9%.

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Volatility. Way outside Fed control.

Market Moves That Aren’t Supposed to Happen Keep Happening (Tracy Alloway)

A counterpoint to Bill Dudley’s Wednesday speech on bond market liquidity comes courtesy of TD Securities. While the New York Fed president argued that there’s little evidence so far that new financial regulation has cut into the ease of trading U.S. Treasuries, TD analysts Priya Misra and Gennadiy Goldberg think otherwise. They point to daily, wild swings in the bond market as evidence of diminished liquidity.

Our findings show that daily changes in 10-year Treasury yields exceeded one standard deviation (√) 58% of the time so far in 2015, considerably higher than the 49% observed last year. The 58% measure is the highest reading going back to 1975, suggesting that recent volatility in Treasury markets is unprecedented. As if a record number of “choppy days” were not enough, 10-year yield movements also exceeded 3√ in as many as 9% of trading days this year. This is higher than the average of 6% of days since 1975.

It’s a point that’s been brought up before, notably by Bank of America Merrill Lynch’s Barnaby Martin. These observers argue that the number of assets registering large moves four or more standard deviations away from their normal trading range has been growing in recent months. Moves greater than one standard deviation should (based on a normal distribution of probabilities) happen about 32% of the time. Instead as the TD analysts point out, they are happening 58% of the time in U.S. Treasuries. Moves greater than three standard deviations should be happening about 1% of the time, not 9%.

While Dudley finds little evidence of average bond market liquidity having deteriorated, TD reckons the problem lies in so-called “tail events,” in which increased regulation and changes to market structure exacerbate the potential for extreme moves. Looking at average liquidity conditions won’t show much evidence of a problem, therefore. That might go some way toward explaining why all those market moves that are supposed to not happen very often keep occurring with some regularity.

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If everybody does it, who are you going to punish?

Wide Range Of Cars Emit More Pollution In Realistic Driving Conditions (Guardian)

New diesel cars from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and other manufacturers have all been found to emit substantially higher levels of pollution when tested in more realistic driving conditions, according to new data seen by the Guardian. Research compiled by Adac, Europe’s largest motoring organisation, shows that some of the diesel cars it examined released over 10 times more NOx than revealed by existing EU tests, using an alternative standard due to be introduced later this decade. Adac put the diesel cars through the EU’s existing lab-based regulatory test (NEDC) and then compared the results with a second, UN-developed test (WLTC) which, while still lab-based, is longer and is believed to better represent real driving conditions. The WLTC is currently due to be introduced by the EU in 2017.

[..] Emissions experts have warned for some time that there were problems with official lab-based NOx tests, meaning there was a failure to limit on-the-road emissions. “Gaming and optimising the test is ubiquitous across the industry,” said Greg Archer, an emissions expert at Transport & Environment. A recent T&E round-up of evidence found this affected nine out of 10 new diesel cars, which were on average seven times more polluting in the real world. But the Adac data are the first detailed list of specific makes and models affected. Adac also measured a Volvo S60 D4 producing NOx emissions over 14 times the official test level [..]

T&E argues that the Adac WLTC tests are minimum estimates of actual on-the-road emissions. Archer said the EU must back up the WLTC with on-the-road tests and end the practice of carmakers paying for the tests at their preferred test centres. “It is more realistic but it still isn’t entirely representative,” said Archer. “We still think there is a gap of about 25% between the WLTC test and typical average new car driving.”

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“The admission means that the UK is one of the countries worst affected by the scandal..”

VW Emissions Scandal: 1.2 Million UK Cars Affected (Guardian)

Volkswagen has revealed that almost 1.2m vehicles in the UK are involved in the diesel emissions scandal that has rocked the carmaker, meaning more than one in 10 diesel cars on the country’s roads are affected. VW said the diesel vehicles include 508,276 Volkswagen cars, 393,450 Audis, 76,773 Seats, 131,569 Skodas and 79,838 Volkswagen commercial vehicles. The total number of vehicles affected is 1,189,906. This is the first time VW has admitted how many of the 11m vehicles fitted with a defeat device to cheat emissions tests are in the UK.

The admission means that the UK is one of the countries worst affected by the scandal and will increase the pressure on the government to launch a full investigation. Figures from the Department for Transport show that there were 10.7m diesel cars on Britain s roads at the end of 2014 and that an estimated 5.3m of the petrol and diesel cars are Volkswagens or one of the groups sister brands. Patrick McLoughlin, the transport secretary, said: The government s priority is to protect the public and I understand VW are contacting all UK customers affected. I have made clear to the managing director this needs to happen as soon as possible. “The government expects VW to set out quickly the next steps it will take to correct the problem and support owners of these vehicles already purchased in the UK.”

VW said 2.8m vehicles in Germany are involved, while 482,000 cars have been recalled in the US. The company intends to set up a self-serve process that will allow UK motorists to find out if their vehicle is affected. Dealers will also be sent the vehicle identification numbers of those involved. Affected customers will be contacted about visiting a mechanic to have their cars refitted. The cars fitted with a defeat device have EA 189 EU5 engines. However, VW is yet to reveal the full details of the recall plan, which will need to be approved by regulators. The carmaker said: “In the meantime, all vehicles are technically safe and roadworthy. Volkswagen Group UK is committed to supporting its customers and its retailers through the coming weeks.”

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Buyback!

VW Board Considering Steps To Prop Up Credit Rating (Reuters)

Members of Volkswagen’s supervisory board are concerned about the carmaker’s credit rating and are considering steps to prop it up but have no plans to sell off assets, two sources close to the board said. Volkswagen declined to comment on the sources, who spoke to Reuters late on Wednesday evening. They said that following recent actions from credit rating agencies Fitch and Moody’s, there were worries that a downgrade could inflict higher borrowing costs on the company, hampering its ability to win back the trust of investors. As a result, the board is considering cost cuts and revenue-generating measures. However no discussions on selling off VW assets or brands have taken place, the sources said. The Wolfsburg-based company has been hammered by the revelations that it manipulated diesel emissions tests.

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An endless supply of stupidity. Or is it perfidiousness?

Eurozone Inflation Turns Negative, Putting ECB In Corner (Reuters)

Eurozone inflation turned negative again in September as oil prices tumbled, raising pressure on the European Central Bank to beef up its asset purchases to kick start anaemic price growth. Prices fell by 0.1% on an annual basis, the first time since March that inflation has dipped below zero, missing analysts’ expectations for a zero reading after August’s 0.1% increase. The negative reading is a headache for the ECB, which is buying €60 billion of assets a month to boost prices. It has already said it may have to increase or extend the QE scheme because inflation may fall short of its target of almost 2% even in 2017.

Long term inflation expectations have dropped to their lowest since February, before the ECB’s asset purchases started, as China’s economic slowdown, the commodity rout and paltry euro zone lending growth reinforce pessimistic predictions. Even Finnish central bank chief Erkki Liikanen, normally considered an inflation hawk, has warned that euro zone growth is at risk from the slowdown in emerging markets and that inflation could fall short of already modest expectations. “We believe the ECB will extend its QE programme beyond September 2016, most likely until mid-2018, and that it could reach €2.4 trillion – more than twice the original €1.1 trillion commitment,” credit ratings agency Standard & Poor’s said on Wednesday.

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Let’s see it first.

Tsipras Finds ‘Open Ears’ In US To Greek Appeal For Debt Relief (Kath.)

Prime Minister Alexis Tsipras on Wednesday indicated that Greece’s appeal for debt relief had been received far better in New York than in Brussels, continuing his US visit which included talks with Secretary of State John Kerry. “The Greek government has found far more open ears [here] than in Brussels for the need for there to be a fair resolution of the crisis and a necessary reduction of the unbearable and unsustainable public debt that has accumulated all those years,” Tsipras told reporters. He was speaking on the fifth day of an official visit to the US and following meetings with representatives of the Greek-American community in New York who he described as “the best ambassadors for Hellenism in the US, a country which plays the most significant role globally in all the crucial decisions that relate to our country’s future.”

Tsipras said Greeks have been “the victim of choices that led to the gradual erosion of the country’s national sovereignty and to the need for borrowing which resulted in the enforcement of measures which have… weakened the production base and the economy.” The comments came just a few days before representatives of Greece’s international creditors are to return to Athens for negotiations on the prior actions that Greek authorities must legislate to secure crucial rescue loans.

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Yeah, that’ll do the trick…

Greek Regulator Bans Short-Selling Of Bank Shares (Reuters)

The Greek securities regulator said on Wednesday it had banned short-selling of Greek bank shares to avoid pressure on prices ahead of the recapitalization of the sector. “The decision will come into effect starting Oct. 1 and will last until Nov. 9,” the Capital Markets Commission said in a statement. It affects the shares of the country’s four largest banks – National Bank, Alpha Bank, Eurobank and Piraeus Bank – and also the smaller Attica Bank.

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“At a deeper level, the EU’s actions are promoting political radicalization on both the political right and left with unknown consequences.”

How Greece Could Collapse The Eurozone (Satyajit Das)

The Greek debt affair has also harmed the European Project, potentially irreparably. The problem is not that the eurozone found itself facing serious economic challenges. The issue is its failure to anticipate the risk of such a crisis ever happening, the lack of contingency planning, and the eurozone’s inability to deal with the problem on a timely basis. The Greek crisis is now over five years old, with no signs of a permanent solution. There are only unpalatable choices. Some concessions will not solve the problem. Other eurozone members will have to continue to provide additional financing to Greece, further increasing their risk. Favorable treatment for the Greek government risks opening a Pandora’s Box of demands from other countries to relax austerity measures.

Demands for relaxation of budget deficit and debt level targets are likely from Spain, Portugal, Ireland, Italy, and France. A write-down of debt would crystallize losses. It might threaten the governments of Spain, Portugal, Italy, Finland, the Netherlands, and Germany. If Greece leaves the euro, then the consequences for the eurozone are unclear. Should Greece prosper outside the single currency, it reduces the attraction of the eurozone for weaker members. Given the absence of painless solutions, it seems for the moment that neither Greece nor its creditors have any objectives other than avoiding having their fingerprints on the instrument that triggers default, the world’s largest sovereign debt restructuring or a breakup of the euro.

The approach of the EU has also undermined the European project. Major countries such as Germany have reacted to the inability to resolve the crisis by resorting to economic and political repression, entailing less, not more, flexibility, with tougher rules and stricter enforcement, including tighter supervision of national budgets. [..] The EU fails to recognize that its actions may destabilize Europe in unexpected ways. Greece has the potential to undermine Western security, creating a large corridor of vulnerability through the Balkans, the Levant, the Middle East, and Caucasus. While a member of the EU, Greece can veto sanctions reducing European power. Its actions or lack thereof can aggravate the serious refugee crisis confronting Europe. An embittered Greece, hostile to European partners and NATO, has caused alarm in the US. At a deeper level, the EU’s actions are promoting political radicalization on both the political right and left with unknown consequences.

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Age old threat.

Greek Shipowners Prepare to Weigh Anchor on Prospect of Higher Taxes (WSJ)

Many of Greece’s world-leading shipowners are actively exploring options to leave their home country, reacting to the prospect of sharply higher shipping taxes in the debt-ridden nation. Dominated by some 800 largely family-run companies that control almost a fifth of the global shipping fleet from their base at the main Greek port of Piraeus, the industry has long been a source of national pride. But at the behest of Greece’s international creditors, the newly re-elected Syriza-led government has reluctantly agreed to raise taxes on the long-protected sector. While Greek owners have agreed to voluntarily double until 2017 the amount they pay in tonnage tax-a fixed annual rate based on the size of each vessel-they are adamant on keeping their tax-free status on ship profits and money generated from ship sales.

Yet Greece’s creditors want taxes gradually to be applied on all shipping operations and are pushing for a permanent increase in the tonnage tax. Senior Greek government officials, who asked not to be named, said the finance ministry is trying to find alternative sources of income to avoid saddling owners with more taxes, but one said that “the exercise is proving very difficult.” Final decisions on the matter are expected by the end of October. Income-based shipping taxes, levied in countries such as the U.S., China and Japan, can raise much more revenue than tonnage taxes, levied in most European countries. An owner of a midsize vessel in Greece would pay a flat tonnage tax of $50,000 a year at the temporary double rate.

A comparable U.S. owner, depending on daily freight rates, might pay about $3.7 million in annual taxes, and a Japanese owner could pay $7 million. However, while European owners have to pay the tonnage tax every year regardless of profitability, U.S. and Japanese owners get substantial tax refunds if their vessels lose money. Many in the Greek shipping world say any increase in taxes on shipping operations would prompt a mass exodus of the country’s shipowners. Relatively low-tax global shipping centers such as Cyprus, London, Singapore and Vancouver are positioning themselves to benefit.

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Rising wages.

Iceland’s Next Collapse Is “Unavoidable,” Employers Union Warns (Bloomberg)

The head of Iceland’s main employers’ group says the nation is displaying some worrying signs. Wages are soaring much too fast and will ruin the economy if they continue unchecked, according to Thorsteinn Viglundsson, managing director of Business Iceland. “Another economic collapse is unavoidable, if we’re going to keep going down this path,” Viglundsson said in a phone interview in Reykjavik. Pay is set to rise about 30% through 2019 in many industries. Unions wanted increases as high as 50%, to compensate for years of moderate pay growth, but some were forced to settle for less after the government put the matter to an arbitration court. Icelanders, who work longer hours than their Nordic peers according to the OECD, are demanding a bigger share of the island’s economic recovery after eight years of belt-tightening.

Pay growth has barely kept pace with inflation, with real wages rising little more than 3% in the six years through 2014, statistics office figures show. Over the same period, real gross domestic product grew 29%. Viglundsson says wage growth above 25% through 2019 will have “very serious economic consequences.” “It will mean a surge in inflation, to which the central bank will respond by raising rates considerably,” he said. Iceland’s main policy rate is already above 6%, a developed-world record. “It will mean that, in the end, the krona will lose its value, like it has always done in the past under similar circumstances,” Viglundsson said.

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To bring democracy. And protect our freedom.

Obama Hands $1 Billion In Military Aid To Goverments Using Child Soldiers (CNN)

When the extremist group the Islamic State of Iraq and Syria (ISIS) abducts boys from Friday prayers at mosques or indoctrinates children as young as 10 to become fighters or suicide bombers, there is little the United States can do. But when recipients of U.S. military aid recruit children into their forces as soldiers, the United States has a lot of leverage. It is disappointing that the Obama administration has been reluctant to use it. This week, U.S. President Barack Obama is expected to make his annual announcement about the issue, on whether he will waive sanctions on military foreign aid under U.S. law for any of the eight governments currently on the State Department’s list for using child soldiers.

In 14 countries around the world, according to the United Nations, children are recruited and used in armed conflicts as informants, guards, porters, cooks, and often, as front-line armed combatants. In some, only non-state armed groups are responsible for the practice, but in others, the perpetrators are rebel forces and governments alike. In South Sudan, child recruitment spiked sharply last year, with estimates that 12,000 children were fighting with both government and non-state armed groups. In Yemen, where UNICEF has estimated that one-third of all fighters are under 18, all sides to the ongoing conflict, including the government, use child soldiers. Yet both governments have received millions of dollars in U.S. military assistance.

In 2008, Congress enacted a law based on two simple ideas: first, that U.S. tax dollars should not support the use of child soldiers, and second, that suspending U.S. military assistance could be a powerful incentive to prompt governments to end this reprehensible practice. The law, the Child Soldiers Prevention Act, took effect in 2010, restricting U.S. military support to governments using children in their armed forces. But the Obama administration’s implementation of the law has fallen far short of the law’s goals. Our analysis found that during the five years the law has been in effect, President Obama has invoked “national interest” waivers to authorize nearly $1 billion in military assistance and arms sales for countries that are still using child soldiers. In contrast, we found that only $35 million in military assistance and arms sales – a mere 4% of what was sanctionable under the law – was actually withheld from these abusive governments.

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Farrell may be on to something.

Millions Of Illegal Immigrants Will Overrun Trump’s ‘Beautiful Wall’ (Farrell)

Warning to the next president, to all future U.S. presidents: They’re coming. More illegal immigrants. More refugees. Millions more than conservatives fear are here already. Millions more coming, like Syrian refugees storming Europe. This warning is targeted specifically for a future President Donald Trump. You cannot stop them. Nobody can. They will overrun America, add trillions more debt. Brag all you want, this is one deal you will never, never negotiate successfully. Never win. Worse, you lose, we lose big.

Can’t win? No, not even if you’re bankrolled with unlimited funds, a blank-check from a GOP-controlled Congress and Treasury … not even if you win carte blanche clearance to build your “classy, beautiful” dream wall to your specs … build it extra high… superthick … not even if you staff it with thousands of well-armed special-ops soldiers … add new guard towers … patrolled by thousands of drones, sonar ships, nuclear subs … all to stop every illegal coming by aircraft, by boats, using battering rams, secretly entering through an ever-increasing vast underground network built by drug cartels … a near impenetrable system operating as an integrated high-tech network designed by our best minds to keep out the new flood of illegal immigrants that you so fear … it still won’t stop them.

Give it up you guys: Nobody can stop the coming tidal wave rising dead ahead. Not you, Mr. Next President, not Congress, nor any combination of our Armed Forces, FBI, ATF, CIA will ever stop the coming flood, a tsunami of illegals and refugees. Why? Because they’re escaping dying lands, doing what is natural, fighting, desperate, in survival mode, for themselves, their families, future generations, escaping climate-caused natural disasters, droughts, water and food shortages, starvation, genocide, pandemics, dust bowls, and so many more dark consequences of global warming climate change. Yes, all this is so obvious, so predictable. In the next few decades the same conditions that created the Syrian civil war between President Bashar al-Assad and his people will overwhelm the American southwest.

As climate change puts increasing pressure on the 160 million people in Mexico and Central America, millions of refugees and illegal immigrants will escape north into the United States, overrunning us by the end of this century. Of course, this human tsunami will not be understood by the clueless mind of America’s climate-science-denying GOP Congress held captive by Big Oil. Nor by the candidates in the GOP presidential debates. Worse, this would be a total fantasy to a GOP President Trump who’s sole obsession is a slogan “Make America Great Again” by building a “beautiful” wall to keep out illegal refugees. Except they’re all just making matters worse, delaying the inevitable collapse of America.

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Clean energy.

Farmers Driven From Homes ‘Like Pests’ As Asia Plans 500 Dams (Bloomberg)

Developing nations are in the middle of the biggest dam construction program in history to generate power, irrigate fields, store water and regulate flooding. Yet governments are finding it harder to move people, who have become less trusting of officials and more connected to information about the effects of the dams. Corruption and wrangles over payments have stalled projects from Indonesia to India for decades and frustrated governments are increasingly turning to the ultimate threat: Move, or we will flood you out. Jatigede is the latest example, and it is unlikely to be the last. Indonesia plans to build 65 dams in the next 4 years, 16 of which are under construction. India aims to erect about 230.

China is in the middle of a program to add at least 130 on rivers in the mountainous southwest and Tibetan plateau, including barriers across major rivers like the Mekong and Brahmaputra that flow into other countries. It is reported to have relocated people before inundating land. Like Jatigede, many are financed by Chinese banks and led by the nation s biggest dam builder, Sinohydro Corp. China is involved in constructing some 330 dams in 74 different countries, according to environmental lobbying group International Rivers, based in Berkeley, California. “Sending rising waters to flood out people like pests is barbaric”, said Professor Michael Cernea at the Brookings Institution. “Indonesia has the resources and know-how to resettle these people decently”.

“The relocation program is the responsibility of the government”, Sinohydro President Liang Jun said in an interview on Aug. 31 at the Jatigede dam. West Java governor Ahmad Heryawan said the dam will irrigate 90,000 hectares of land and provide water to Cirebon, a city of about 300,000 people on the northern coast of Java. At a ceremony on top of the dam on Aug. 31 to begin filling the reservoir, he acknowledged that not everyone had received compensation and that thousands remained in their homes. Those being relocated were “heroes of development, not victims”, he said. “We don t want them to suffer, we want to improve their welfare”. [..] Protests against dams have multiplied across Asia as activists mobilize residents and media against large projects and question their long-term benefits.

Indian Prime Minister Narendra Modi plans about 200 hydropower projects on the mountainous rivers in northeast India, as well as a program of 30 large dams that would help link major rivers across the country. “We are considering approvals for about 20 to 30 hydro and about 15 irrigation dam projects at the moment,” said Ashwinkumar Pandya, chairman of India’s Central Water Commission, which gives technical and economic clearances for dams. “Dams are an important aspect of planning and they ensure that water and power requirements for the nation are met.” “There is not a single dam – not a single one – for which India has done proper rehabilitation of people,” said Himanshu Thakkar at South Asia Network on Dams, Rivers and People. “And typically, all of them have seen costs escalate and delays in building.”

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