Dec 132018
 
 December 13, 2018  Posted by at 10:36 am Finance Tagged with: , , , , , , , , , , , , , ,  4 Responses »


René Magritte After the water, the clouds 1926

 

‘Her Goose Is Cooked’ (G.)
Tory Resentment Of Irish Power Within EU (BBC)
Cohen Gets 3 Years, Says He Will Reveal All He Knows About Trump (Ind.)
Yellen, Fed Fear Corporate Debt Bubble, Investors Don’t (CNBC)
US Bank Stocks Spiral Down (WS)
ECB Worries Multiply Even As Money-Printing Presses Stop (R.)
ECB Caught Between Economic Risks And QE Exit (CNBC)
French Government To Face A No-Confidence Vote (CNBC)
Japan Picks The Character For ‘Disaster’ To Define 2018 (Tel.)
Wikileaks’ Assange Undergoes Medical Tests At Ecuador’s Urging (R.)
Assange Complains Of ‘More Subtle’ Silencing Than Khashoggi (RT)
Fentanyl Surpasses Heroin As Deadliest Drug In US (AFP)
Time Magazine Says The US ‘Remains A Free And Fair Press’ (CNBC)

 

 

Might as well do it this way. May survives confidence vote and can now prepare to defend the deal whose certain defeat made her delay Tuesday’s Parliament vote, a delay which led to the confidence vote in the first place. She still can’t win that one. It’s not so much May who is cooked, it’s the country.

‘Her Goose Is Cooked’ (G.)

No 10 will not be happy with today’s front pages, which are all about Theresa May’s survival in the no-confidence vote, but paint the win as less of a triumph for May than a pyrrhic victory. Let’s start with the good news for the prime minister. Two papers have come out in support of the her, with the Express featuring a picture of a smiling May and the headline: “Now just let her get on with it”.


Neil Henderson
(@hendopolis)

EXPRESS: Now just let her get on with it #tomorrowspaperstoday pic.twitter.com/jBhPRSqbAc

The Mail is similarly supportive: “Now let her get on with the job!”, saying that “despite two months of sabre-rattling by her hardline opponents, and deadlock over Brexit, almost two-thirds of Tory MPs backed her”.


Neil Henderson
(@hendopolis)

DAILY MAIL: Now let her get on with the job! #tomorrowspaperstoday pic.twitter.com/oaEihTtsOv

Others were less sympathetic. “Time to call it a May”, says the Sun, never one to miss the chance of putting a pun in a headline. The Sun says the prime minister was “left wounded last night after a battering by Tory Brexit rebels”.

The Sun
(@TheSun)

Tomorrow’s front page: Theresa May was left wounded after a battering by Tory Brexit rebels in a make-or-break confidence vote https://t.co/SZTSNZoCZq pic.twitter.com/3OO11Qrm85

The Mirror has: “It’s lame duck for Christmas”, saying May’s “goose is cooked”. The paper describes her as “wounded” and “battered” and says she only managed to survive the no-confidence vote “by promising not to fight the next election”.


Daily Mirror
(@DailyMirror)

Tomorrow’s front page: It’s lame duck for Christmas#tomorrowspaperstoday https://t.co/fFIeHwiekz pic.twitter.com/xL0ijW0Qzv

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Britain’s -Tory- elites still see Ireland as some backward place way beneath them. “The Irish really should know their place.”

Tory Resentment Of Irish Power Within EU (BBC)

A Tory grandee recently sidled up to me to express grave reservations about the Brexit process. “We simply cannot allow the Irish to treat us like this,” the former minister said about the negotiating tactics of the Taoiseach, Leo Varadkar. The Conservative MP was exasperated that the Republic of Ireland (population: 4.8m) has been able to shape the EU negotiating stance that has put such pressure on the UK (population: 66m). “This simply cannot stand,” the one-time moderniser told me. “The Irish really should know their place.” The remarks explained why Conservatives from both sides of the Brexit divide are so troubled by the negotiations. They also explain why Theresa May might find that any concessions from the EU over the Northern Ireland backstop may fall short of the demands of Tory MPs.

Over the last few months Tory MPs have asked in private how the Irish Republic can believe its relationship with the EU trumps its relationship with the UK. They cite economic reasons (the Irish Republic’s strong trading links with the UK) and the historical relationship. The MPs do of course acknowledge that left a troubled legacy. One minister familiar with Anglo-Irish relations points out that these Tories should bear in mind one date and one word to explain both the Irish and the EU’s approach. The date is 1973: when the Irish Republic joined the EEC at the same time as the UK and Denmark. That was the moment when Ireland took a giant political leap at the same time as the UK.

But it turned out to be arguably the biggest unilateral strategic move since Partition in the 1920s – a move that defined the modern Irish Republic as an independent state within Europe, with a wholly different approach to its larger neighbour.

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I’m afraid I missed something along the way. If you run for office in the US and someone tries to blackmail you, you can’t get rid of them, you need to have lawsuits, court cases etc., interfere with your campaign. Not doing so is illegal. But, as Candace Owens said today,

“Congress has a slush fund, made up of tax dollars, that is used to pay off & silence their alleged sexual assaults and affairs. To date, over 200 million dollars in 200 settlements have been paid since 1998. But tell us more about Trump’s possible campaign finance violations…”

Moreover, a US judge just sentenced Stormy Daniels to paying Trump’s legal costs. But he was still in the wrong? How is that possible?

Cohen Gets 3 Years, Says He Will Reveal All He Knows About Trump (Ind.)

Michael Cohen has warned that he has more to say about what he called the ”dirty deeds” of Donald Trump as the president’s former lawyer and fixer was sentenced to three years in prison for facilitating payments to two women who have had alleged affairs with Mr Trump. Cohen was sentenced to 36 months for tax fraud and for his role in the payment of hush money to porn star Stormy Daniels and the former Playboy model Karen McDougal. Both say they had affairs with Mr Trump before the 2016 presidential election. The judge in a district court in New York also handed Cohen an extra two months for lying to Congress about a proposed Trump Tower project in Russia.

The payments have implicated Mr Trump directly in criminal conduct according to a court filing from prosecutors last week, which said that Cohen was working in coordination with the president. Cohen’s adviser Lanny Davis, who was his attorney for the case, said after the sentencing that Cohen will disclose more information concerning Mr Trump, once Robert Mueller wraps up his investigation into Russian interference in the 2016 US presidential election and possible collusion with Trump campaign officials. “At the appropriate time, after Mr Mueller completes his investigation and issues his final report, I look forward to assisting Michael to state publicly all he knows about Mr Trump – and that includes any appropriate congressional committee interested in the search for truth and the difference between facts and lies,” Mr Davis said in a statement.

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Why is anyone still listening to Yellen?

Yellen, Fed Fear Corporate Debt Bubble, Investors Don’t (CNBC)

The corporate debt scaring policy experts like former Fed Chair Janet Yellen isn’t throwing too much of a fright into market participants. In fact, some of them are continuing to load up on lower-grade corporate debt because it’s managed to be a better performer than some of the investments considered to be safer. “Offense is the best defense,” Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch, told clients in a note pointing out that BBB-rated companies are outperforming their A-rated counterparts. BBB is the last rung before junk, and the increasing level of company bonds going to that level is causing concern.

Some investors worry that the companies whose debt is in danger of slipping into high-yield territory will have trouble meeting their obligations during the next economic downturn. But Mikkelsen thinks those concerns are misplaced. The S&P 500 Triple-B investment-grade corporate bond index is down 2.9 percent year to date, which is not good. However, the group is outperforming the broader S&P 500/MarketAxess Investment Grade Corporate Bond Index, which is off 3.5 percent in 2018. The outperformance grows when isolating for risk-adjusted excess returns and runs counter to history when credit spreads are widening. Higher-quality bonds usually outperform in those cases, Mikkelsen noted.

“This outperformance of BBBs is noteworthy as one of [the] key investor concerns this year remains the possibility that large BBB-rated capital structures get downgraded to high yield during the next downturn,” Mikkelsen wrote. “We think this outperformance reflects in part a low recession probability being priced into credit spreads, as well as the fact that most large BBBs are unlikely to get downgraded to [high-yield] anytime soon as they tend to have stable cash flows and significant financial flexibility.”

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When do we start talking bailouts?

US Bank Stocks Spiral Down (WS)

On Tuesday, the US KBW Bank index, which tracks the largest 24 US banks and serves as a benchmark for the banking sector, dropped 1.2%, the fifth day in a row of declines, to the lowest close since September 7, 2017. The index is now back where it had been on December 1, 2016. Two years of big gains gone up in smoke. [..] But no, the index doesn’t include Goldman Sachs – which is big in other ways but not as a bank, and which has skidded 35% from its all-time peak in February. The index has now dropped 22.5% since the post-financial crisis peak on January 26:

So far in Q4, the index has dropped 14%. Unless a miraculous banking-Santa-Claus rally pulls banks out of their dive by the end of the quarter, a 14% decline would make it the worst quarterly decline since Q3 2011. If tax selling kicks in, given the losses bank-stock investors have taken so far this year, it could get worse in the coming days. Not even in Q3 2015, during the oil bust, when investors were fearing that banks would take steep losses on their loans to the oil industry, did shares drop this much.

The index is now back where it had first been a couple of years before its crazy peak in February 2007. Said peak occurred about a year before Bear Stearns toppled. During the subsequent collapse of banks stocks, it looked like the index would hit zero. After the bottom in March 2009, the Fed’s strategies to benefit the banks and those that owned them took hold, at the expense of depositors and other classes of US stake holders, such as renters or future home buyers. And it worked. But that era is now over. And the tax cut too has been baked in, and banks are left to fend for themselves:

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Those negative rates will come back to haunt Draghi. But when their damage becomes obvious, he’ll be living quietly in some splendid villa on Lake Como.

ECB Worries Multiply Even As Money-Printing Presses Stop (R.)

The European Central Bank is all but certain to formally end its lavish bond purchase scheme on Thursday but will take an increasingly dim view on growth, raising the odds that its next step in removing stimulus will be delayed. The long-flagged end of bond buys must be irreversible for the sake of credibility, but with France and Italy in political turmoil, a global trade war still looming large and growth slowing, ECB chief Mario Draghi will be keen to emphasize that other forms of support will remain. This leaves Draghi with yet another delicate balancing act: appear confident enough to justify the end of the 2.6 trillion euro ($2.95 trillion), four-year-long bond buying program, but also sound sufficiently concerned to keep investors expectations about further policy tightening relatively cool.

“Ending quantitative easing now looks more like the ammunition is running out rather than (being) based on a convincing economic outlook,” Societe Generale economist Anatoli Annenkov said. The ECB’s problem is that growth is weaker than policymakers thought even just weeks ago while the predicted rise in underlying inflation has failed to materialize, putting in doubt some of the bank’s assumptions about the broader economy. Overall inflation, the ECB’s primary objective, may be near the target now but falling oil prices suggest a dip in the months ahead and a solid rise in wages is not feeding through to prices, leaving the bank with an unexplained disconnect.

Highlighting this complication, the ECB is likely to cut growth and underlying inflation projections and may take a dimmer view on risks, all while Draghi argues that growth is merely falling back to normal after a recent run.

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What a failure Draghi has been. Same goes for all central bank heads in the past decades. They make sure banks are fine at the expense of citizens.

ECB Caught Between Economic Risks And QE Exit (CNBC)

ECB President Mario Draghi has to tread a fine line once again as he gives his latest update on euro area monetary policy on Thursday. While steering the bank out of its QE program and stressing interest rates and reinvestments going forward, Draghi is faced with an economy that may be slowing and a dreary inflation outlook. “We expect the ECB to announce at its meeting next Thursday an end to net-purchases under the APP programme,” said Natixis’ Dirk Schumacher in a note. “While there has been a clear weakening in the economic environment, the ECB will argue that the reinvestment of the stock of bond holdings will ensure a continuing accommodative policy stance justifying an end of the program,” he added.

On Thursday, the ECB also will publish its newest staff projections for economic growth and inflation for the next three years. While it is expected that the central bank will lower its outlook for growth for the next two years, the numbers are also expected to remain just punchy enough to underline the case to exit their purchase program. Another big topic for Thursday will be the design of the ECB’s reinvestments. “The ECB will likely maintain its guidance that it will fully reinvest the proceeds and thus keep its bond holdings constant ‘for an extended period of time’ and ‘for as long as necessary’ to put inflation on track towards its target,” said Florian Hense, Economist with Berenberg.

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Might work if Le Pen joins the left.

French Government To Face A No-Confidence Vote (CNBC)

Left-of-center lawmakers in France have tabled a motion of no confidence in the French government following repeated protests and scenes of violence. The “gilets jaunes” (“yellow vests”) crisis started as a demonstration against a carbon tax policy and planned fuel tax increases, but have morphed into wider discontent at the leadership of President Emmanuel Macron. Now representatives from the French Communist Party, the Socialist Party and the far-left populist movement France Unbowed (La France Insoumise) have come together to table the motion against Macron’s government.

The government of Georges Pompidou in 1962 was successfully toppled by such a motion but few believe this one will pass as Macron’s centrist La République En Marche! party enjoys a strong majority in the 577-seat house. “The French political system makes it extremely difficult to remove a President from office,” said the Deputy Director of Research at Teneo Intelligence in a note Wednesday. “The only political tool available to the opposition to expel Macron is the constitution’s impeachment procedure, which no one is currently considering,” he added.

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Seems appropriate, but what symbols are left for the much worse years to come?

Japan Picks The Character For ‘Disaster’ To Define 2018 (Tel.)

Japan has chosen the character for ‘disaster’ to symbolise 2018. The public chose the symbol following a series of natural disasters. In July, 200 people died in floods and millions were evacuated from their homes, and mere days later 65 people died in a heatwave that hospitalised more than 20,000 people. The country was also hit by an earthquake with a magnitude of 6.7 and was rocked by its strongest typhoon for 25 years. These numerous natural disasters have had an adverse effect on the Japanese economy, and the country’s GDP has gradually shrunk over the last three months, by 1.2 per cent.

The country also experienced societal problems this year, as stories of sexual harassment in the workplace and suicide rates came to light. The master of the ancient temple in Kyoto, Seihan Mori, wrote the symbol for ‘disaster’ in dark ink on traditional white washi paper to mark the vote. The competition has been run by the Kanji Aptitude Testing Foundation since 1995. In the annual poll, 21,000 of the 190,000 people who voted picked the character to summarise the years events, but the symbol for peace was a close runner-up.

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What kind of headline is this, Reuters? The UK has refused Assange medical care for years, and now you make it look like Ecuador, not Assange himself. makes it happen?

Wikileaks’ Assange Undergoes Medical Tests At Ecuador’s Urging (R.)

Wikileaks founder Julian Assange received a series of medical exams, Ecuador’s top attorney said on Wednesday, in line with a new set of rules for his asylum at the Andean country’s London embassy that prompted him to sue the government. Assange first took asylum in the embassy in 2012, but his relationship with Ecuador has grown increasingly tense, with President Lenin Moreno saying he does not like his presence in the embassy. The government in October imposed new rules requiring him to receive routine medical exams, following concerns he was not getting the medical attention he needed. The rules also ordered Assange to pay his medical and phone bills and clean up after his pet cat.

Inigo Salvador told reporters Ecuador did not have access to results of the tests, which were conducted by doctors Assange trusted, out of respect for his privacy. But he said Assange, who has sued Ecuador arguing that the new rules violate his rights, appeared coherent and lucid to him. On Wednesday, Assange appeared via videoconference in an Ecuadorean court to appeal a previous ruling that had upheld the new rules. Assange is concerned that Ecuador is seeking to end his asylum and extradite him to the United States, but Ecuador has said the United Kingdom told it he would not be extradited.

U.S. officials have acknowledged that federal prosecutors have been conducting a lengthy criminal probe into Assange and Wikileaks. Wikileaks published U.S. diplomatic and military secrets when Assange ran the operation. A lawyer for Assange said he did not know the results of the medical tests, and called on Ecuador to produce documentation proving that the UK would not extradite him to any country where his life was at risk.

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“..accused his Ecuadorean hosts of spying and feeding information to US authorities..”

Assange Complains Of ‘More Subtle’ Silencing Than Khashoggi (RT)

Julian Assange has accused his Ecuadorean hosts of spying and feeding information to US authorities, and slammed attempts to block his journalistic work as a more subtle way of silencing than the murder of Jamal Khashoggi. Suggesting there were “facts of espionage” inside the embassy, the WikiLeaks co-founder expressed concern during a hearing in Quito on Wednesday that Ecuadorean intelligence is not only spying on him, but sharing the data it has harvested with the FBI. Ecuadorean intelligence clearly spent a sizable amount of money equipping the embassy for surveillance, Assange added.

He accused Ecuadorean authorities of “comments of a threatening nature” relating to his journalistic work and compared attempts to silence him to the murder of Washington Post columnist Jamal Khashoggi, who was tortured and cut up in the Saudi embassy in Istanbul in October, but “more subtle.” The comparison elicited a harsh reaction from Ecuadorean Prosecutor General Inigo Salvador, who accused Assange of biting the hand that feeds him. Assange told the Ecuadorean court that the living conditions in the embassy were so detrimental to his health that they may put him in the hospital – and suggested that may be the point, because once he leaves the building, he’s fair game for UK and US authorities.

[..] Assange was in court appealing a strict set of rules handed down in October governing his conduct, which he has called a violation of human rights. He submitted 15 “facts of evidence” along with letters from individuals and groups barred from visiting him at the embassy. An earlier attempt to sue his hosts over the restrictive measures was ultimately dismissed by a judge last month, while Assange rejected E

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That stuff is very bad news.

Fentanyl Surpasses Heroin As Deadliest Drug In US (AFP)

The synthetic drug, fentanyl, has surpassed heroin as the deadliest drug in the United States, taking more than 18,000 lives in 2016, federal health officials said Wednesday. In 2016, the latest year for which full data is available, “29 percent of all drug overdose deaths mentioned involvement of fentanyl,” said the report from the National Center for Health Statistics, part of the US Centers for Disease Control and Prevention. Fentanyl is a powerful, synthetic narcotic that has been blamed for the deaths of rock stars including Prince and Tom Petty. It works on the brain like morphine or heroin, but is 50 to 100 times more potent, and can easily lead to overdose.

The rate of drug overdose deaths in the United States has tripled from 1999 through 2016, as the nation grapples with a persistent opioid epidemic. Fentanyl-related drug overdose deaths have doubled each year from 2013 through 2016, “from 0.6 per 100,000 in 2013 to 1.3 in 2014, 2.6 in 2015, and 5.9 in 2016,” said the report. Meanwhile, deaths from heroin and methamphetamine more than tripled from 2011 to 2016. Heroin was the top cause of drug overdose death from 2012 to 2015, said the report. The prescription painkiller Oxycodone ranked highest in 2011.

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Every word of this is broken. Time defends the MSM against Trump, but he didn’t create fake news. I like the term ‘abuse of truth’, that verges on doublespeak, as does ‘..the willingness to dismiss anything including credible news reporting as fake news”. And c’mon, free and fair press? Who believes that?

Time Magazine Says The US ‘Remains A Free And Fair Press’ (CNBC)

Despite the White House ramping up its rhetoric, the United States remains a free and fair press, Ben Goldberger the assistant managing editor of Time magazine told CNBC on Wednesday. The year 2018 has been marked by manipulation, abuse of truth, along with efforts by governments to instigate mistrust of the facts, the magazine said in an essay when it named killed and imprisoned journalists as Person of the Year for 2018 on Tuesday. “There’s no doubt that the rhetoric from the White House about the demonization of the media as ‘the enemy of the people,’ or the willingness to dismiss anything including credible news reporting as fake news, is incredibly worrisome and chilling,” Goldberger said. “But that said, I return to what I said about the United States — this remains a free and fair press.” “Journalists here enjoy legal protections that are the envy of those in virtually every other country,” he added.

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Nov 302017
 


Amedeo Modigliani Elvira Resting at a Table 1919

 

Many of you are undoubtedly familiar with Naomi Klein’s 2007 book “The Shock Doctrine: The Rise of Disaster Capitalism”, in which she describes how neoliberalism, as developed by Milton Friedman and his Chicago School, wreaks often very brutal and bloody havoc upon societies under the guise of ‘crisis as an opportunity for change’, first in Latin America and later also in Eastern Europe.

One of the most prominent actors in the book, the man behind the term ‘shock therapy’ for economies, is Jeffrey Sachs, a Harvard prodigy. In an interview at the time, Klein had this to say:

 

Q: You mention the shift from shock therapy to shock-and-awe, but there are also attempts to soften the image of neoliberalism. Jeffrey Sachs, the economist who pioneered shock therapy, wrote his latest book on The End of Poverty. Is there any more to this than a rebranding exercise?

A: A lot of people are under the impression that Jeffrey Sachs has renounced his past as a shock therapist and is doing penance now. But if you read The End of Poverty more closely he continues to defend these policies, but simply says there should be a greater cushion for the people at the bottom. The real legacy of neoliberalism is the story of the income gap. It destroyed the tools that narrowed the gap between rich and poor.

The very people who opened up this violent divide might now be saying that we have to do something for the people at the very bottom, but they still have nothing to say for the people in the middle who’ve lost everything. This is really just a charity model. Jeffrey Sachs says he defines poverty as those whose lives are at risk, the people living on a dollar a day, the same people discussed in the Millennium Development Goals. Of course that needs to be addressed, but let us be clear that we’re talking here about noblesse oblige, that’s all.

[..] Leszek Balcerowicz, the former finance minister who worked with Jeffrey Sachs to impose shock therapy in Poland in 1989, said that the ideology advances in moments of extraordinary politics. He listed these moments of extraordinary politics as ends of war and moments of extreme political transition.

Around the same time, Alexander Cockburn said in a review of the book:

 

“Shock therapy” neoliberalism really isn’t most closely associated with Milton Friedman, but rather with Jeffrey Sachs, to whom Klein does certainly give many useful pages, even though Friedman remains the dark star of her story. Sachs first introduced shock therapy in Bolivia in the early 1990s. Then he went into Poland, Russia, etc, with the same shock therapy model. Sachs’ catchy phrase then was that “you can’t leap over an abyss step-by-step,” or words to that effect. This is really where contemporary neoliberalism took shape.

I’ve thought for all these years that Jeffrey Sachs, when out there campaigning for the end of poverty and other ostensibly grandiose goals with the likes of Angeline Jolie, should have at least provided a very public and detailed apology for his past endeavors. I’ve never seen one.

Which meant I was very surprised to see his name pop up as a prominent adviser to Yanis Varoufakis during the latter’s time as Greek finance minister, as Yanis describes it in his 2017 book Adults in the Room. Even more surprising than to see Larry Summers in a similar role in the same book.

The mother of all surprises in this regard, however, was to see Varoufakis’ DiEM25 movement announce Naomi Klein as a member of its Advisory Panel yesterday, a panel which also includes the likes of Julian Assange. Because while he’s not on that panel, Jeffrey Sachs has done public presentations for DiEM25. Bien étonné de se trouver ensemble, as the French put it. Strange bedfellows. Maybe Naomi should explain.

I have said multiple times that I am a fan of Yanis, and his departure as finance minister has been a huge loss to Greece, because he was their best, and perhaps their only, chance at salvation from economic disaster, but I’m still not at all convinced about DiEM25 and its intentions (and I don’t mean to say they don’t mean well).

For one, because I think the EU is so throughly rotten to the core it cannot be reformed; its fatal flaws have been continually baked into the cake for decades. Whereas DiEM25 think they can get people elected in various countries across Europe and get Brussels to change direction and become democratic. It was never built to be democratic.

 

But all this before was merely a build-up to an article Sachs penned for Project Syndicate this week in which he claims to know precisely what Germany and Europe need. He doesn’t.

 

A New Grand Coalition for Germany – and Europe

With America AWOL and China ascendant, this is a critical time for Germany and the European Union to provide the world with vision, stability, and global leadership. And that imperative extends to Germany’s Christian Democrats.

Friends of Germany and Europe around the world have been breathing a sigh of relief at the newfound willingness of Germany’s Christian Democrats and Social Democrats (SPD) to discuss reprising their grand coalition government. The world needs a strong and forward-looking Germany in a dynamic European Union. A new grand coalition working alongside French President Emmanuel Macron’s government would make that possible.

We have all seen, in Greece, in Italy, in Libya, what leadership Germany has provided. In economics and with regards to the refugee crisis. It has been an unmitigated economic disaster everywhere but in Germany itself (and Holland). And that is no coincidence. It illustrates exactly what is so wrong with the EU. Germany has the power to squeeze the poorer and smaller countries into submission with impunity, and it does just that.

The last thing the EU needs is more such German ‘leadership’. In fact, it needs a whole lot less of that. It needs to find a way to diminish German influence. But to get there, it would require for Berlin to voluntarily step back, and that is not going to happen. Merkel can veto anything she likes, and there’s nothing anyone can do about it.

 

[..] The world and Europe need an outward-looking Germany that offers more institutional and financial innovation, so that Europe can be a true counterpart to the US and China on global affairs. I say this as someone who believes firmly in Europe’s commitment and pioneering statecraft when it comes to sustainable development, the core requirement of our time.

Not only does Sachs not understand that making Germany some superior power in Europe is the exact wrong way to go, he doesn’t understand sustainable development either. It’s as exasperating as it is predictable.

 

Economic growth that is socially inclusive and environmentally sustainable is a very European idea, one that has now been embraced globally in the United Nations’ 2030 Agenda and its 17 Sustainable Development Goals, as well as in the 2015 Paris climate agreement. Europe’s experience with social democracy and Christian democracy made this global vision possible. But now that its agenda has been adopted worldwide, Europe’s leadership in fulfilling it has become essential.

A grand coalition government in Germany must help put Europe in a position to lead. French President Emmanuel Macron has offered some important ideas: a European finance minister; Eurobonds to finance a new European investment program; more emphasis on innovation; a financial transactions tax to fund increased aid to Africa, where Europe has a strategic interest in long-term development; and tax harmonization more generally, before the US triggers a global race to the bottom on taxing corporations and the rich.

There is so much wrong in those few lines we could write a book about it. First of all, and let’s bold this once again, there is no such thing as sustainable growth. It’s a lie.

If we want to do something that can actually save our planet, we have to decouple economic growth from environmental sustainability. We can and will not grow our way out of the disaster we have created with -our blind focus on- growth. This is the most dangerous nonsense story there is out there. We have to pick one of the two, we can’t have both. It’s EITHER growth OR a livable planet. Here’s what I wrote on December 16 2016:

 

Heal the Planet for Profit

If you ever wondered what the odds are of mankind surviving, let alone ‘defeating’, climate change, look no further than the essay the Guardian published this week, written by Michael Bloomberg and Mark Carney. It proves beyond a moonlight shadow of a doubt that the odds are infinitesimally close to absolute zero (Kelvin, no Hobbes).

Yes, Bloomberg is the media tycoon and former mayor of New York (which he famously turned into a 100% clean and recyclable city). And since central bankers are as we all know without exception experts on climate change, as much as they are on full-contact crochet, it makes perfect sense that Bank of England governor Carney adds his two -trillion- cents.

Conveniently, you don’t even have to read the piece, the headline tells you all you need and then some: “How To Make A Profit From Defeating Climate Change” really nails it. The entire mindset on display in just a few words. If that’s what they went for, kudo’s are due.

That these problems originated in the same relentless quest for profit that they now claim will help us get rid of them, is likely a step too far for them; must have been a class they missed. “We destroyed it for profit” apparently does not in their eyes contradict “we’ll fix it for profit too”. Not one bit. It does, though. It’s indeed the very core of what is going wrong.

Jeffrey Sachs can now be added to the list of deluded ‘experts’ on the topic. The COP21 Paris agreement, which I re-dubbed CON21, is full of, and directed by, such people. I always think Trump was very right to withdraw from it, even if it was for all the wrong reasons.

CON21 is a CON. The recent CON23 in Bonn is too. It’s a scheme meant to get to your money under the guise of going green. If they can convince you that you can prosper of off saving the planet, you’ll give them anything, because it’ll make you feel good about yourself.

This is me from December 12 2015:

 

CON21

Protesters and other well-intended folk, from what I can see, are falling into the trap set for them: they are the frame to the picture in a political photo-op. They allow the ‘leaders’ to emanate the image that yes, there are protests and disagreements as everyone would expect, but that’s just a sign that people’s interests are properly presented, so all’s well. COP21 is not a major event, that’s only what politicians and media make of it. In reality, it’s a mere showcase in which the protesters have been co-opted.

They’re not in the director’s chair, they’re not even actors, they’re just extras. I fully agree, and more than fully sympathize, with the notion of saving this planet before it’s too late. But I wouldn’t want to rely on a bunch of sociopaths to make it happen. There are children drowning every single day in the sea between Turkey and Greece, and the very same world leaders who are gathered in Paris are letting that happen. They have for a long time, without lifting a finger. And they’ve done worse -if that is possible-.

[..] you guys are targeting a conference in Paris on climate change that features the exact same leaders that let babies drown with impunity. Drowned babies, climate change and warfare, these things all come from the same source. And you’re appealing to that very same source to stop climate change.

What on earth makes you think the leaders you appeal to would care about the climate when they can’t be bothered for a minute with people, and the conditions they live in, if they’re lucky enough to live at all? Why are you not instead protesting the preventable drownings of innocent children? Or is it that you think the climate is more important than human life? That perhaps one is a bigger issue than the other?

[..] The current economic model depends on our profligate use of energy. A new economic model, then, you say? Good luck with that. The current one has left all political power with those who profit most from it. And besides, that’s a whole other problem, and a whole other issue to protest.

If you’re serious about wanting to save the planet, and I have no doubt you are, then I think you need to refocus. COP21 is not your thing, it’s not your stage. It’s your leaders’ stage, and your leaders are not your friends. They don’t even represent you either. The decisions that you want made will not be made there.

But let’s return to Sachs and his -other- lofty goals: “..a European finance minister; Eurobonds to finance a new European investment program; more emphasis on innovation; a financial transactions tax to fund increased aid to Africa, where Europe has a strategic interest in long-term development; and tax harmonization more generally..”

We all know Europeans don’t want things that infringe even further on their country’s sovereignty. If they were offered the opportunity to vote on them they would defeat them in massive numbers. Which is precisely why they are not offered that opportunity. The only way to push through such measures is by stealth and against the will of the people.

Which already has, and will much further and worse, divide the EU. It’s not even the plans themselves, it’s the notion of the ever increasing erosion of what people have to say about their own lives. The Czech Republic, Hungary, Poland and Slovakia are flaring off bright red warning signs about sovereignty, and they are completely ignored.

If the EU insists on continuing that way, it will be the cause of chaos and violence and right wing resurgence, not the solution to all that. Europe needs to take a step back and reflect upon itself before taking even one single step forward towards more centralization. But centralization is what Brussels is all about, it’s what it was built on.

The EU will never be viable if Germany in the end calls all the important shots. So a new Grand Coalition in Berlin, and its sympathetic stance towards Macron’s grandiosity, is not ‘needed’, it’s Europe’s biggest danger. But yeah, you’re right, it fits right in with Jeffrey Sachs’ neoliberalist dreams.

And there’s more centralization, globalism, neoliberalism and ‘green growth’ where that came from:

 

Contrary to the Germans who oppose such ideas, a European finance minister and Eurobonds would not and should not lead to fiscal profligacy, but rather to a revival of investment-led green growth in Europe. China has proposed the Belt and Road Initiative to build green infrastructure linking Southeast Asia and Central Asia with Europe.

This is the time for Europe to offer the same bold vision, creating a partnership with China to renovate Eurasia’s infrastructure for a low-carbon future. If Europe plays its cards right, Europe’s (and China’s) scientific and technical excellence would flourish under such a vision. If not, we will all be driving Chinese electric vehicles charged by Chinese photovoltaic cells in the future, while Germany’s automotive industry will become a historical footnote.

We don’t need more vehicles, whatever they run on, we need less, because we need to use less energy. Of any kind. We must not drive differently, in different cars using a different energy source, we must drive less. Much less. This shouldn’t be that hard, because our cities and societies are designed to be as wasteful as possible.

What we need is not green growth, but green shrinkage. We cannot grow our way into a sustainable planet or economic system. It is a fallacy. And it is time people like Jeffrey Sachs and Mike Bloomberg and Mark Carney (and Merkel and Macron etc. etc.) stop spreading such nonsense. If even Lloyd Blankfein supports the Paris Agreement, we should be suspicious, not feel grateful or validated in our warped views.

 

A European finance minister would, moreover, finally end Europe’s self-inflicted agony in the aftermath of the 2008 financial crisis. As difficult as it is to believe, Greece’s crisis continues to this day, at Great Depression scale, ten years after the onset of the crisis. This is because Europe has been unable, and Germany unwilling, to clean up the financial mess (including Greece’s unpayable debts) in a fair and forward-looking manner (akin to the 1953 London Agreement on German External Debts, as Germany’s friends have repeatedly reminded it).

If Germany won’t help to lead on this issue, Europe as a whole will face a prolonged crisis with severe social, economic, and political repercussions. In three weeks, Macron will convene world leaders in Paris on the second anniversary of the climate accord. France should certainly take a bow here, but so should Germany. During Germany’s G20 Presidency, Merkel kept 19 of the 20 members of the G20 firmly committed to the Paris agreement, despite US President Donald Trump’s disgraceful attempt to wreck it.

Yes, the corruption of US politics (especially campaign funding by the oil and gas industry) threatened the global consensus on climate change. But Germany stood firm. The new coalition should also ensure that the country’s Energiewende (“energy transition”) delivers on the 2020 targets set by previous governments. These achievable and important commitments should not be a bargaining chip in coalition talks.

Oh, c’mon, Jeffrey. You really want anyone to believe that European politics is less corrupt than American? What do you think handed Monsanto its 5-year glyphosate extension this week? Why do you think the entire Volkswagen board is still at liberty? Thing is, all this is about money.

It’s just that Merkel thinks there’s more of it to be made supporting CON21, while Trump, who’s 180º wrong on on the entire topic, thinks otherwise. But they’re both equally focused on money, not polar bears or penguins or elephants. Trump is right for believing green growth is a load of humbug, he’s just right for all the wrong reasons. While Merkel is trying to sell you a CON. Take your pick.

 

A CDU/CSU-SPD alliance, working with France and the rest of Europe, could and should do much more on climate change. Most important, Europe needs a comprehensive energy plan to decarbonize fully by 2050. This will require a zero-carbon smart power grid that extends across the continent and taps into the wind and solar power not only of southern Europe but also of North Africa and the eastern Mediterranean.

Once again, Eurobonds, a green partnership with China, and unity within Europe could make all the difference. Such an alliance would also enable a new foreign policy for Europe, one that promotes peace and sustainable development, underpinned by new security arrangements that do not depend so heavily on the US.

“Decarbonize fully by 2050”. Our entire societies have been built on carbon. Every single bit of it. Sachs simply doesn’t understand the world he lives in. He envisions bigger where only smaller could possibly help. We can decarbonize, but it will mean the end of our way of life. No amount of solar panels or wind turbines can change that. That are made with and from carbon.

It’s all just snake oil. We want to save the planet, and the life upon it, but we’re not willing to pay the price and bear the consequences. So we make up a narrative that feels good and run with it.

I have a tonic here that will cure all your ills, ladies and gentlemen. Only ten dollars. I know it sounds expensive, and it’s a full month’s wages, but just you think of the benefits. Think of your children!

 

Europe, a magnet for hundreds of millions of would-be economic migrants, could, should, and I believe would regain control of its borders, allowing it to strengthen and enforce necessary limits on migration. The political terms of a new grand coalition government, it would seem, are clear. The SPD should hold out for ministerial leadership on economic and financial policy, while the CDU/CSU holds the chancellorship.

That would be a true coalition, not one that could bury the SPD politically or deny it the means to push for a truly green, inclusive, EU-wide, sustainable development agenda. With Merkel and SPD leader Martin Schulz in the lead, the German government would be in excellent, responsible, and experienced hands. Germany’s friends and admirers, and all supporters of global sustainable development, are hoping for this breakthrough.

Long story short, Jeffrey Sachs still promotes disaster.

 

 

Apr 252016
 
 April 25, 2016  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  4 Responses »


Mathew Brady Three captured Confederate soldiers, Gettysburg, PA 1863

The Revenge Of Globalisation’s Losers (Münchau)
Obama and Merkel Unite Over TTiP (FT)
China Debt Load Reaches Record High As Risk To Economy Mounts (FT)
China’s Fresh Boom Nears Peak Just As Amateurs Pile In (AEP)
Warnings Flash for China’s Red-Hot Steel Market on 47% Surge (BBG)
China’s Steel Mill Margins Surge to 7-Year High on Boom (BBG)
Draghi’s Growth and Inflation Conundrum Will Be Displayed Friday (BBG)
Stunted Growth: The Mystery Of The UK’s Productivity Crisis (G.)
The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc. (BBG)
Goldman Expects The Japanese Yen To Collapse Within 12 Months (ZH)
How Argentina Settled a Billion-Dollar Debt & Paul Singer Made 392% (NY Times)
You Don’t Own That! The Evolution of Property (Roth)
UN To Urge Media To Take More ‘Constructive’ Approach To News (G.)
World Heads For Catastrophe In Failure to Prepare For Natural Disasters (G.)

Globalization has already died, it perished with the economic system. But it may take a long time until this is recognized, since that recognition would threaten vested interests.

The Revenge Of Globalisation’s Losers (Münchau)

Globalisation is failing in advanced western countries, where a process once hailed for delivering universal benefit now faces a political backlash. Why? The establishment view, in Europe at least, is that states have neglected to forge the economic reforms necessary to make us more competitive globally. I would like to offer an alternative view. The failure of globalisation in the west is in fact down to democracies failure to cope with the economic shocks that inevitably result from globalisation — such as the stagnation of real average incomes for two decades. Another shock has been the global financial crisis — a consequence of globalisation — and its permanent impact on long-term economic growth.

In large parts of Europe, the combination of globalisation and technical advance destroyed the old working class and is now challenging the skilled jobs of the lower middle class. So voters’ insurrection is neither shocking nor irrational. Why should French voters cheer labour market reforms if it could result in the loss of their jobs, with no hope of a new one? Some reforms have worked, but ask yourself why. Germany’s acclaimed labour market reforms in 2003 succeeded in the short term because they raised the country’s cost competitiveness through lower wages relative to other advanced countries. The reforms produced a state of near full employment only because no other country did the same. If others had followed, there would have been no net gain. The reforms had a big downside.

They reduced relative prices in Germany and pushed up net exports in turn generating massive savings outflows, the deep cause of the imbalances that led to the eurozone crisis. Reforms such as these can hardly be the recipe for how advanced nations should address the problem of globalisation. Nor is there any factual evidence that countries that have reformed are performing better or are more able to cope with a populist insurrection. The US and the UK have more liberal market structures than most of continental Europe. Yet the UK may be about to exit the EU; in the US the Republicans may be about to nominate an extreme populist as their presidential candidate. Finland leads all the competitiveness rankings but the economy is a non-recovering basket case — and it has a strong populist party.

The economic impact of reforms is usually subtler than its advocates admit. And there is no straight connection between reforms and support for established political parties. My diagnosis is that globalisation has overwhelmed western societies politically and technically. There is no way we can, or should, hide from it. But we have to manage the change. This means accepting that the optimal moment for the next trade agreement, or market liberalisation, may not be right now.

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TTiP is just a leftover chicken walking a few more steps after its head is chopped off.

Obama and Merkel Unite Over TTiP (FT)

Barack Obama and Angela Merkel have called for talks over a transatlantic trade deal to be completed this year as fears mount that the opportunity to reach an agreement is slipping away. The US president used a visit to Hanover in Germany on Sunday to try to breathe new life into the Transatlantic Trade and Investment Partnership, which has been beset by political opposition in the US and Europe. “I am confident we will get this done,” Mr Obama said, talking about completing the negotiations this year. But he said time was “not on our side”, calling on all European leaders to support the deal and not “let this opportunity close”. President Obama was in Germany after a visit to Saudi Arabia and the UK where he waded into the Brexit debate, urging Britain to remain in the EU.

Speaking at a joint press conference, Mr Obama went out of his way to praise the German chancellor, who has been one of his closest confidants among international leaders but whose domestic political standing has been undermined by the migrant crisis. The German decision to allow more than 1m people to enter the country last year had put Ms Merkel “on the right side of history” despite the political backlash, he said. “She is giving voice to principles that bring people together rather than divide them. I’m very proud of her for that and I’m proud of the German people for that,” he added. In return, Ms Merkel showered her American counterpart with praise for his leadership on the Paris climate accords. “Barack, a personal thanks to you,” she said. “Without the United States of America, this would not have come to pass.”

The TTIP negotiations, which were launched in July 2013, have progressed slowly as opposition in Europe has grown and some member states have begun expressing scepticism. Ms Merkel said she wanted to speed up the negotiations, as a deal would be helpful in allowing the German and eurozone economies to grow. “We should do our bit,” she said. The chancellor added that she would canvas widely to get the deal back on track and pledged to “inject this with a new dynamism from the European side”. Mr Obama said that although he hoped the negotiations would be concluded this year, it would take longer for countries to ratify a deal.

[..] The closer the talks get to 2017, the more difficult life will become for EU trade negotiators. Chancellor Merkel faces re-election in parliamentary polls and French president François Hollande is at risk of losing in presidential elections, with National Front leader Marine Le Pen comfortably ahead in opinion polls. With TTIP divisive in both countries, officials, especially France, are unlikely to want to press ahead with the talks. Matthias Fekl, France’s trade minister, on Sunday reiterated previous threats to withdraw from the talks if there was not sufficient progress on a number of issues in the months to come. France has constantly put forward criteria, conditions, demands, Mr Fekl told the country’s i-Tele news channel. If these conditions are not fulfilled…France will withdraw.

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Tyler Durden’s comment: the real debt is not 237% of GDP, but 350%.

China Debt Load Reaches Record High As Risk To Economy Mounts (FT)

China’s total debt rose to a record 237% of GDP in the first quarter, far above emerging-market counterparts, raising the risk of a financial crisis or a prolonged slowdown in growth, economists warn. Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163 trillion ($25 trillion) at the end of March, including both domestic and foreign borrowing, according to Financial Times calculations. Such levels of debt are much higher as a proportion of national income than in other developing economies, although they are comparable to levels in the U.S. and the eurozone. While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148% of GDP at the end of 2007.

“Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth,” Ha Jiming, Goldman Sachs chief investment strategist, wrote in a report this year. The country’s present level of debt, and its increasing links to global financial markets, partly informed the International Monetary Fund’s recent warning that China poses a growing risk to advanced economies. Economists say it is difficult for any economy to deploy productively such a large amount of capital within a short period, given the limited number of profitable projects available at any given time. With returns spiralling downwards, more loans are at risk of turning sour. According to data from the Bank for International Settlements for the third quarter last year, emerging markets as a group have much lower levels of debt, at 175% of GDP.

The BIS data, which is based on similar methodology to the FT, put Chinese debt at 249% of GDP, which was broadly comparable with the euro zone’s figure of 270% and the US level of 248%. Beijing is juggling spending to support short-term growth and deleveraging to ward off long-term financial risk. Recently, however, as fears of a hard landing have intensified, it has shifted decisively towards stimulus. New borrowing increased by Rmb6.2tn in the first three months of 2016, the biggest three-month surge on record and more than 50% ahead of last year’s pace. Economists widely agree that the health of the country’s economy is at risk. Where opinion is divided is on how this will play out. At one end of the spectrum is acute financial crisis — a “Lehman moment” reminiscent of the U.S. in 2008, when banks failed and paralyzed credit markets.

Other economists predict a chronic, Japan-style malaise in which growth slows for years or even decades. Jonathan Anderson, principal at Emerging Advisors Group, belongs to the first camp. He warns that banks driving the huge credit expansion since 2008 rely increasingly on volatile short-term funding through sales of high-yielding wealth management products, rather than stable deposits. As Lehman and Bear Stearns proved in 2008, this kind of funding can quickly evaporate when defaults rise and nerves fray. “At the current rate of expansion, it is only a matter of time before some banks find themselves unable to fund all their assets safely,” Mr Anderson wrote last month. “And at that point, a financial crisis is likely.”

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The greater fools are getting fleeced. “..But how much longer can Beijing go on creating debt at a breakneck pace?”

China’s Fresh Boom Nears Peak Just As Amateurs Pile In (AEP)

Elite global banks have begun to warn clients that China’s latest credit-driven boom is nearing its peak and will lose momentum by late summer, dashing hopes for a genuine cycle of fresh economic growth and commodity demand. Morgan Stanley, Nomura, and Societe Generale have all issued cautionary notes just as amateur investors belatedly turn bullish again on China and start to pile into both commodities and emerging market equities. “While the mini-recovery is likely to last another 3-4 months, our economists expect a renewed slowdown in the second half of the year, as stimulus efforts fade,” said Morgan Stanley. The US bank said record credit growth over the last quarter will keep growth humming for a little longer but the fiscal blitz is already ebbing and the government is imposing property curbs in the Eastern cities to prevent a speculative bubble.

China’s reflation drive has been explosive. New home sales jumped 64pc in March from a year earlier. House prices have risen 28pc in Beijing, 30pc in Shanghai, and 63pc in the commercial hub of Shenzhen. The rush to buy has spread to the Tier 2 cities such as Hefei – up 9pc in a single month. “The housing market is on fire,” said Wei Yao, from Societe Generale. “In the first quarter, increases in total credit exploded to 7.5 trilion yuan, up 58pc year-on-year. There is no bigger policy lever than this kind of credit injection.” “This looks like an old-styled credit-backed investment-driven recovery, which bears an uncanny resemblance to the beginning of the“four trillion stimulus” package in 2009. The consequence of that stimulus was inflation, asset bubbles and excess capacity. We still think that this recovery will not last very long,” she said.


China’s housing market is on fire

The signs of excess are visible everywhere as the Communist Party once again throws caution to the wind . Cement production jumped 24pc in March and infrastructure investment rose 19pc. Yang Zhao from Nomura said the edifice is becoming more dangerously unstable with each of these stop-go mini-booms. “Structural problems and financial imbalances are worsening. We believe this debt-fueled growth is not sustainable,” he said. Nomura said the law of diminishing returns is setting in as the economy nears credit exhaustion. The ‘incremental credit-output ratio” has deteriorated to 5.0 from 2.3 in 2008. Loans are losing traction and the quality of investment is falling. “Be careful. We are nearing the point where things are as good as they get for the first half of 2016. We recommend taking some money off the table,” said Wendy Liu and Vicky Fung, the bank’s equity strategists.

Despite the stimulus, defaults among private companies and state entities (SOEs) have jumped to 11 so far this year from 17 last year, and the defaults are getting bigger. China Railway Materials has just suspended trading on $2.6bn of debt. Michelle Lam from Lombard Street Research said Beijing has retreated from reform and resorted to pump-priming again. “This may last for one or two quarters. But how much longer can Beijing go on creating debt at a breakneck pace?” she said. Capital Economics says there has typically been a lag of six to nine months after each burst of credit, suggesting that economic growth will roll over in the late Autumn. Markets do not move in lockstep, and may anticipate this.


China’s M1 money supply is growing at the fastest pace since the post-Lehman stimulus

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Must we wait till they run out of storage space for this too?

Warnings Flash for China’s Red-Hot Steel Market on 47% Surge (BBG)

Warnings are stacking up fast after China’s eye-popping steel rally. Fitch Ratings said prices lifted in part by heightened speculation are destined to slump, while a bank in Singapore flagged the risk of a boom-bust cycle reminiscent of China’s equity market. The rapid advance isn’t sustainable as mills are expected to bring back idled capacity, raising supply, Fitch said in a report on Monday. Price gains have been driven by a seasonal recovery in activity that’s been exacerbated by increased speculation in the futures market, according to analyst Laura Zhai. Steel prices have surged in 2016, with reinforcement-bar up 47%, after policy makers in China talked up growth and added stimulus, helping to lift property prices and ignite a speculative frenzy. The gains have helped to restore mills’ profitability, boosting their incentive to increase output.

Singapore-based Oversea-Chinese Banking warned on Monday that there may be parallels between the sudden jump in steel trading and last year’s performance in equities, citing the potential for a boom-bust scenario. “The rapid increase in Chinese steel prices so far this year is not sustainable, as it is largely due to a seasonal pick-up in construction and elevated speculation in the steel futures market,” Fitch said. “With prices now surging, many of the suspended plants have resumed production.” Futures for rebar extended gains, rallying as much as 6.2% to 2,781 yuan ($427) a metric ton on the Shanghai Futures Exchange, before trading 0.2% higher on Monday. The price of the product used to strengthen concrete advanced for the 11th straight week through Friday, adding 14%. Steel output in the world’s largest supplier may see a further increase this month as more furnaces are fired up, according to Fitch.

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Pon. Zi.

China’s Steel Mill Margins Surge to 7-Year High on Boom (BBG)

China’s steel mills are making more money on each ton produced than at any time since 2009 after the government embarked on 4 trillion yuan ($615 billion) in infrastructure spending. A surprise rebound in China’s property and construction sectors has left steel buyers facing a shortage, and handed embattled mills a sudden boost to margins, according to data from Bloomberg Intelligence. The rally in steel prices is unsustainable as higher profits draw idled plants back into operation, says Fitch Ratings.

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The lack of understanding of what inflation is, and what drives it, among both central bankers and media, is baffling.

Draghi’s Growth and Inflation Conundrum Will Be Displayed Friday (BBG)

A suite of euro-area data on Friday will provide Mario Draghi with his first simultaneous dispatches from both fronts in his struggle to boost inflation – showing how he still has a fight on his hands. GDP numbers, in a newly accelerated publication just one month after the first quarter ended, will coincide with the usual end-of-the-month inflation statistics to present a snapshot of what the ECB president still has to achieve. It’s likely to show the euro area has now completed a dozen quarters of consecutive growth – though that momentum isn’t strong enough to produce faster price gains. Euro-area inflation hasn’t hit its target since 2013, when the economy was contracting. But now that it’s expanding, weak global demand, cheap commodity costs and a lack of investment are weighing down prices.

It’s a conundrum that Draghi hasn’t been able to solve, even after he’s cut interest rates to record lows, expanded bond purchases and started an additional loan program for banks. “The big story on inflation is that it’s flat, and going nowhere in the short term,” said Anatoli Annenkov, senior economist at Societe Generale in London, adding that cheap oil is behind the restraint and prices should move up later in the year. “We don’t doubt that the ECB’s measures are helping – they should have an impact on inflation and growth. The question is how big.” The region’s inflation rate probably stayed at zero in April, based on a Bloomberg survey of economists. That’s far below policy maker’s near-2% goal. By contrast, first-quarter growth probably picked up to 0.4% from 0.3% in the previous quarter.

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Mystery? Not here.

Stunted Growth: The Mystery Of The UK’s Productivity Crisis (G.)

Our economic future isn’t what it used to be. In March the Office for Budget Responsibility (OBR) revised down its growth estimates for each of the next five years. The chancellor was quick to blame a weakening world economy but the true driver lies closer to home. The problem isn’t a loud global economic crash but something much quieter: engine trouble. Productivity growth, the long-term motor of rising living standards, is slowing. The fact that this appears to be happening across the globe offers scant consolation. What’s worse is that no one is entirely sure what is causing the problem or how to fix it. And it is coming at about the worst time imaginable: global demographics are changing, with the supply of new workers set to slow and the older share of the population rising.

The future is of course inherently unknowable, but the reasons for longer-term pessimism on economic growth are starting to stack up. Productivity – the amount of output produced for each hour worked – rose at a fairly steady annual rate of about 2.2% in the UK for decades before the recession. Since the crisis though, that annual growth rate has collapsed to under 0.5%. The OBR has decided to revise down its future assumption on productivity from that pre-crisis 2.2% to a lower 2%. That small revision was enough to give the chancellor a large fiscal headache in his latest budget, but it still assumes a big rebound in productivity growth from its current level. What if that rebound doesn’t come? The near death of the British steel industry is a tragedy. But for all the political heat it has generated, its long-term consequences wouldn’t be as serious as the wider crisis. For while closing mills are highly visible, slipping productivity is not.

Looking at the global picture shows that while there are of course national nuances, the overall impression is grim and dates back to before the 2008 crash. Everywhere from the “dynamic” United States to “sclerotic” France, productivity growth has dropped considerably in recent years. The UK is an outlier with a bigger fall than many, but not by much. Some of this could be explained by measurement issues. To use every economist’s favourite example, it is straightforward to measure the inputs, the outputs – and hence the productivity – of a widget factory, even if no one is really sure what a widget is. It is harder to do the same with an online widget brand manager. But the mismeasurement would have to be on an unprecedented scale to explain away the problem.

What we are left with is a bewildering array of theories as to what has driven the fall but no clear answer. We know the productivity slowdown is broad based and happening across most sectors of the economy. Lower corporate and public investment than in the past almost certainly explains some of the shortfall. Weaker labour bargaining power than in previous decades might also be playing a role. Low wages are allowing low-skill, low-productivity business models to expand and deincentivising corporate spending on new kit. Why spend on expensive labour-saving technology when labour itself is cheap?

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How does this differ from China again?

The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc. (BBG)

They may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank. While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90% of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock, the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion. To critics already wary of the central bank’s outsized impact on the Japanese bond market, the BOJ’s growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance.

Proponents, meanwhile, say the purchases provide a much-needed boost to investor confidence. With the Nikkei 225 down 8.3% this year and inflation well below official targets, a majority of analysts surveyed by Bloomberg predict the BOJ will boost its ETF buying – a move that could come as soon as Thursday. “For those who want shares to go up at any cost, it’s absolutely fantastic that the BOJ is buying so much,” said Shingo Ide at NLI Research Institute in Tokyo. “But this is clearly distorting the sanity of the stock market.” Under the BOJ’s current stimulus plan, the central bank buys about 3 trillion yen ($27.2 billion) of ETFs every year.

While policy makers don’t disclose how those holdings translate into stakes of individual companies, estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The estimates reveal a presence in Japan’s top firms that’s rivaled by few others, with the BOJ ranking as a top 10 holder in more than 200 of the Nikkei gauge’s 225 companies. The central bank effectively controls about 9% of Fast Retailing, the operator of Uniqlo stores, and nearly 5% of soy sauce maker Kikkoman. It has an estimated shareholder rank of No. 3 in both Yamaha, one of the world’s largest makers of musical instruments, and Daiwa House, Japan’s biggest homebuilder.

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A state run economy has a limited lifespan, but it can be stretched beyond expectations.

Goldman Expects The Japanese Yen To Collapse Within 12 Months (ZH)

Forget the G-20 agreement on no “competitive devaluations” – the full court press on the Bank of Japan to engage in the next round of aggressive currency devaluation is on, just three months after Kuroda unveiled Japan’s first negative interest rate. Recall that it was Goldman who not only brought forward its forecast for a first rate hike from July to April and first suggested earlier this week that it is time for the Bank of Japan to forget about caution and to more than double its purchases of equities in the form of ETFs (and which the BOJ already owns a majority of all available securities) as doing either more NIRP and more QE may no longer have a favorable outcome:

… we think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn.

This pushed both the USDJPY and the S&P off their overnight lows when it was first floated in the early morning of April 20. Then, on Friday, the Yen had its biggest one day surge since the announcement of the expanded QQE in October 2014 when Bloomberg reported of the latest BOJ trial balloon whereby “the Bank of Japan may consider helping banks lend by offering a negative rate on some loans, according to people familiar with talks at the BOJ.” This happened just as the net spec short position in the USDJPY hit record short, forcing yet another massive squeeze in the currency which soared higher by nearly 300 pips in one day.

Which brings us to today, when in its latest attempt to throw everything at the wall and hope something sticks, Goldman Sachs’ FX team – whose trading recommendations in the past 6 months have been an unmitigated disaster – is predicting that the $/JPY will “move higher again in the near term and continue to forecast $/JPY at 130 a year from now.” Why does Goldman expect a collapse in the Yen by nearly 20 big figures? Because as analysts Sylvia Ardagna and Robin Brooks note, “the BoJ faces an important challenge: it needs to reaffirm that the monetary easing arrow of Abenomics is still on course, or the market will price that the central bank is backtracking from the 2% inflation goal. This could be extremely disruptive for the Japanese economy. Using markets jargon, the BoJ is already so long into ‘the reflationary trade’ that it has to continue to deliver further accommodation for the time being.”

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The vulture as the Apex predator.

How Argentina Settled a Billion-Dollar Debt & Paul Singer Made 392% (NY Times)

The Waldorf Astoria hotel in Manhattan has long been a location for secret diplomacy, but few meetings there would have seemed as unlikely as the one that took place one day in early December. In a hotel conference room, a top Argentine politician drank coffee with two hedge fund executives — a meeting that was nothing short of remarkable after more than a decade of bitter legal skirmishes between Argentina and a group of disgruntled debt holders who at one point seized an Argentine Navy ship. The previous Buenos Aires government reviled the hedge funds as “vultures.” That meeting on Dec. 7 between Luis Caputo, who days later would be sworn in as Argentina’s finance secretary, and Jonathan Pollock and Jay Newman from Elliott Management, the $27 billion hedge fund founded by Paul E. Singer, was the start of a rapprochement leading to a momentous debt deal that has now allowed Argentina to rejoin the global financial markets that it had been locked out of for 15 years.

Last week, Argentina successfully sold $16.5 billion in bonds to international investors, a record amount for any developing country. And on Friday, Elliott and the other bondholders finally received their reward in the form of billions of dollars in repayment, representing returns worth hundreds of times their original investments. “Today, we have put a definitive close to this chapter,” Alfonso Prat-Gay, Argentina’s economic minister, told an Argentine radio station on Friday. The negotiations that led to the deal were set in motion by the election in November of President Mauricio Macri, who ran on a promise to reignite Argentina’s flailing economy. Striking a deal with the country’s aggrieved bondholders was central to getting that done.

How Argentina and the hedge funds were able to break the long stalemate and reach a deal in a matter of weeks is a story of furious back-channeling and clashes that nearly derailed an agreement. Details of those negotiations have emerged from interviews with eight people who were involved in those meetings, as well as court filings and emails reviewed by The New York Times. Many of those people spoke on condition of anonymity because they were not authorized to speak publicly. There were moments when the talks nearly fell apart. Three days before a deal was signed with Elliott, Mr. Caputo, exasperated by a back-and-forth with bondholders over whether they would return government assets they had seized, emailed the court-appointed mediator: “THIS IS A JOKE; NO DEAL.”

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” The whole world’s financial machinery [..] all comes down to (the threat of) physical force.”

You Don’t Own That! The Evolution of Property (Roth)

There are a large handful of things that make humans uniquely different from animals. In many other areas — language, abstract reasoning, music-making, conceptions of self and fairness, large-scale cooperation, etc. — humans and animals vary (hugely) in degree and kind. But they still share those phenotypic behavioral traits. I’d like to explore one of those unique differences: ownership of property. Animals don’t own property. Ever. They can and do possess and control goods and territories (possession and control are importantly distinct), but they never “own” things. Ownership is a uniquely human construct. To understand this, imagine a group of tribes living around a common water source. A spring, say. There’s ample water for all the tribes, and all draw from it freely. Nobody “owns” it.

Then one day a tribe decides to take possession of the spring, take control of it. They set up camp surrounding it, and prevent other tribes from accessing it. They force the other tribes to give them goods, labor, or other concessions in return for access to water. The other tribes might object, but if the controlling tribe can enforce their claim, there’s not much the other tribes can do about it. And after some time, maybe some generations, the other tribes may come to accept that status quo as the natural order of things. By eventual consensus (however vexed), that one tribe “owns” the spring. Other tribes even come to honor and respect that ownership, and those who claim and enforce it. That consensus and agreement is what makes ownership ownership. Absent that, it’s just possession and control.

It’s not hard to see the crucial fact in this little fable: property rights are ultimately based, purely, on coercion and violence. If the controlling tribe can’t enforce its claim through violence, their “ownership” is meaningless. And those claimed rights are not just inclusionary (the one tribe can use the water). Property rights are primarily or even purely exclusionary. Owners can prevent others from doing anything with the owners’ property. Get off my lawn! When push comes to shove (literally), when brass tacks meet the rubber on the road (sorry, couldn’t resist), ownership and property rights are based purely on violence and the threat of violence. Full stop, drop the mic.

In the modern world we’ve largely outsourced the execution of that violence, the monopoly on violence, to government. If a family sets up a picnic on “your” lawn, you can call the police and they’ll remove that family — by force if necessary. And we’ve multiplied the institutional and legal mechanics and machinery of ownership a zillionfold. The whole world’s financial machinery — the immensely complex web of claims, claims on claims, and claims on claims on claims, endlessly and densely iterated and interwoven — all comes down to (the threat of) physical force.

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Newspeak goes global.

UN To Urge Media To Take More ‘Constructive’ Approach To News (G.)

The United Nations is to call for the world’s media to take a more “constructive” and “solutions-focused” approach to news to combat “apathy and indifference”. UN director general Michael Møller is to meet broadcast, print and online journalists in London on Wednesday to to discuss how new ways of covering the world with the help of the UN and the Constructive Voices programme run by the National Council for Voluntary Organisations. Constructive Voices incorporates an online resource designed to help journalists find case studies that provide practical solutions to problems. The UN has separately launched GAVDATA, an online portal providing access to a huge store of information from the the UN and other international organisations and NGOs. Speaking ahead of the event, director general Michael Møller said many people feel “disempowered” by the news and unable to influence decisions.

He said: “The choices we make are determined by the information we are given. These are fundamental to how we shape a better world together.” “In a world of 7 billion people, with a cacophony of voices that are often ill-informed and based on narrow agendas, we need responsible media that educate, engage and empower people and serve as a counterpoint to power. We need them to offer constructive alternatives in the current stream of news and we need to see solutions that inspire us to action. Constructive journalism offers a way to do that.” “It’s vital too that we have data and different points of view.” The UN and the NCVO also claims that the public are turned off by overwhelmingly negative news, and are more likely to share stories that offer solutions to problems, providing a commercial incentive for media organisations to include more positive stories.

NCVO chair Sir Martyn Lewis, a former BBC News presenter in the 80s and 90s who covered the death of Princess Diana, said the organisations were not asking the media to abandon its traditional approach, but to supplement it with journalism that helps solve problems. “It’s 23 years almost to the day that I first spoke out about the need for more balanced news agenda. I have been misunderstood in the past, with people believing I just wanted fluffy, feelgood news at the expense of covering real news,” said Lewis. “This is not the case at all. I’d like to see the media engage in solutions-driven journalism which not only reports problems but explores potential solutions to those problems as well.” “I would stress that this approach absolutely does not mean giving up the traditional approach to journalism, but is complementary to it and, interestingly, there is growing evidence that it makes a lot of commercial sense as well.”

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How the human brain is designed.

World Heads For Catastrophe In Failure to Prepare For Natural Disasters (G.)

The world’s failure to prepare for natural disasters will have “inconceivably bad” consequences as climate change fuels a huge increase in catastrophic droughts and floods and the humanitarian crises that follow, the UN’s head of disaster planning has warned. Last year, earthquakes, floods, heatwaves and landslides left 22,773 people dead, affected 98.6 million others and caused $66.5bn of economic damage. Yet the international community spends less than half of one per cent of the global aid budget on mitigating the risks posed by such hazards. Robert Glasser, the special representative of the secretary general for disaster risk reduction, said that with the world already “falling short” in its response to humanitarian emergencies, things would only get worse as climate change adds to the pressure.

He said: “If you see that we’re already spending huge amounts of money and are unable to meet the humanitarian need – and then you overlay that with not just population growth … [but] you put climate change on top of that, where we’re seeing an increase in the frequency and severity of natural disasters, and the knock-on effects with respect to food security and conflict and new viruses like the Zika virus or whatever – you realise that the only way we’re going to be able to deal with these trends is by getting out ahead of them and focusing on reducing disaster risk.” Failure to plan properly by factoring in the effects of climate change, he added, would result in a steep rise in the vulnerability of those people already most exposed to natural hazards. He also predicted a rise in the number of simultaneous disasters.

“As the odds of any one event go up, the odds of two happening at the same time are more likely. We’ll see many more examples of cascading crises, where one event triggers another event, which triggers another event.” Glasser pointed to Syria, where years of protracted drought led to a massive migration of people from rural areas to cities in the run-up to the country’s civil war. While he stressed that the drought was by no means the only driver of the conflict, he said droughts around the world could have similarly destabilising effects – especially when it came to conflicts in Africa. “It’s inconceivably bad, actually, if we don’t get a handle on it, and there’s a huge sense of urgency to get this right,” he said. “I think country leaders will become more receptive to this agenda simply because the disasters are going to make that obvious. The real question in my mind is: can we act before that’s obvious and before the costs have gone up so tremendously? And that’s the challenge.”

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 August 31, 2015  Posted by at 8:48 am Finance Tagged with: , , , , , , , , , ,  10 Responses »


Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

Perhaps Angela Merkel thought we didn’t yet know how full of it she is. Perhaps that’s why she said yesterday with regards to Europe’s refugee crisis that “Everything must move quickly,” only to call an EU meeting a full two weeks later. That announcement show one thing: Merkel doesn’t see this as a crisis. If she did, she would have called for such a meeting a long time ago, and not some point far into the future.

With the death toll approaching 20,000, not counting those who died entirely anonymously, we can now try to calculate and predict how many more will perish in those two weeks before that meeting will be held, as well as afterwards, because it will bring no solution. Millions of euros will be promised which will take time to be doled out, and further meetings will be announced.

But the essence remains that Europe doesn’t want a real solution to the crisis. That’s why Merkel refuses to acknowledge it as one. The only solution Europe wants is for the refugees to miraculously stop arriving on its shores. If more people have to drown to make that happen, Berlin and Brussels and London and Paris are fine with that.

If those who make it must be humiliated by not making basic needs available, by letting them walk dozens if not hundreds of miles in searing heat, then the so-called leaders are fine with that too.

Europe needs leadership but it has none. Zero. At the exact moment that it is time for all alleged leaders to stop talking about money, and start talking about human lives. It’s matter of priorities, and everything Europe has done so far points to nobody in charge having theirs straight.

That goes for Greece too: Tsipras, Varoufakis, all of them, need to stop campaigning on money issues, and direct their attention towards lives lost. That may well lead to a Grexit not on financial grounds, but on humanitarian ones. And those are much better grounds on which to leave Europe. Get your priorities straight.

Europe needs to, first, meet tomorrow morning and engage in immediate action to facilitate humane treatment of all refugees. And then it needs to call subsequent meetings at the highest levels to look at the future of this crisis. Not doing this guarantees an upcoming disaster the scope of which nobody can even imagine today.

The media focus on a truck in Austria where 70 human beings died, and on a handful of children somewhere who were more dead than alive when discovered. These reports take away from the larger issue, that there are dozens such cases which remain unreported, where there are no camera’s present and no human interest angle to be promoted that a news outlet thinks it can score with.

Brussels and Berlin must throw their energy and their efforts at ameliorating the circumstances in the countries the refugees are fleeing. They need to acknowledge the role they have played in the destruction of these countries. But the chances of any such thing happening are slim to none. Therefore countries like Greece and Italy must draw their conclusions and get out, or they too will be sucked down into the anti-humanitarian vortex that the EU has become.

Europe needs to look at the future of this crisis in very different ways than it is doing now. Or it will face far bigger problems than it does now.

Italy’s Corriere della Sera lifted part of the veil when it said last week (Google translation):

The desperation of millions of human beings, manipulated by traffickers and by terrorist groups is also an instrument of disintegration of the countries of origin and of destabilization of the host countries.

It is estimated that sub-Saharan Africa will have 900 million more inhabitants in the next twenty years. Of these, at least 200 million are young people looking for work. The chaos of their countries of origin will push them further north.

That is the future. It will no more go away by itself, and by ignoring it, than the present crisis, which, devastating as it may be, pales in comparison. Europe risks being overrun in the next two decades. And as things stand, it has no plans whatsoever to deal with this, other than the military, and police dogs, barbed wire, tear gas, fences and stun grenades.

This lack of realism on both the political and the humane level will backfire on Europe and turn it into a very unpleasant place to be, both for Europeans and for refugees. Most likely it will turn the entire continent into a warzone.

The only solution available is to rebuild the places in Syria and Libya et al that the refugees originate from, and allow them to live decent lives in their homelands. If Brussels, and Washington, fail to realize this, things will get real ugly. We haven’t seen anything yet.

At present, it is as impossible for Greece and Italy to define their own policies on the refugee issue as it is on their economic policy. They will be drawn down with the rest of the continent if they allow the EU to take charge of either issue, but the most important one today is the refugee crisis.

Stop talking about money, start talking about people. Or you will desperately regret it in the years to come. Consider yourselves warned.