Menu Icon

Debt Rattle September 10 2026

Sep 102026
 
 September 10, 2026  Posted by at 9:27 am Finance Tagged with: , , , , , , ,  38 Responses »


Eugène Delacroix Les femmes d’Alger 1834


• Trump Says ‘War’ To End Immediately ‘After’ Midterm Elections (ZH)
• Stacking Tariffs of 50 Percent and Import Bans Against Canadian Goods (CTH)
• Russiagate Is Finally Heading Somewhere Washington Hates: Under Oath (Manney)
• Turning Point: One Year After Charlie Kirk’s Murder (Scott Pinsker)
• Democrats Aghast at GOP Midterm Strategy to Embrace Trump (Rick Moran)
• Steve Eisman: What If OpenAI Actually Fails? (ZH)
• AI Has Over 10% Chance of Killing All Humans – Anthropic Researcher (RT)
• The AI Threat To Our Republic (Jack Hellner)
• Europe Against Israel (Rabbi Michael Barclay)
• Victor Davis Hanson on Tucker Carlson and Marjorie Taylor Greene (Bolt)
• Investors Are Totally Stoked About This New Rocket (Stephen Green)

 


 

 


 

 


 


“.. a ‘Trump dividend’ to every adult in the US of USD 5,000 if Republicans win ..”

• Trump Says ‘War’ To End Immediately ‘After’ Midterm Elections§ (ZH)

Newsquak: US President Trump said he thinks war with Iran will end immediately after the election and will do much more than a nuclear deal.


US President Trump said he will give a ‘Trump dividend’ to every adult in the US of USD 5,000 if Republicans win the Midterm elections, while he added that the dividend must be spent in the US.

 


 

New Trump remarks on Iran… Note that he called it a “war” (no less than twice in the below clip) – contradicting the White House’s own stance (Sept. 4: Trump said don’t call it a war, instead: “I call it a military conflict because it’s small potatoes for us.”:

Q: Do you expect negotiations with Iran to restart at some point? Trump: Uhhhhhh… we’re not looking for it to be honest with you. This war will end immediately after our election. And meanwhile, back to the below laughably implausible headlines…

Pakistani Ambassador says they believe that a better understanding will soon be achieved between the US and Iran, reports ISNA.

But don’t Republicans actually need the war to end before Congressional elections?

More on high prices at the pump and the question of nuclear weapons… however, the war itself has only made this a greater uncertainty, as Washington has not achieved any prime objectives – and the status of the Iranian nuclear program remains unknown…


IRGC: ’20 for 2′, Vows Disproportionate Responses
Amid the dramatic escalation which kicked off since Tuesday night, Iran is seeking to impose new conditions on the United States. While continuing to vow a ‘disproportionate response’ to any attack moving forward, Tehran is now identifying specifics.

IRGC spokesman Hossein Mohebbi states Wednesday, “The imposed war, which involved the world’s most powerful nations, has ended in certain periods, but the nature of the conflict continues. For the first time, this conflict has directly inflicted strategic damage on the United States, impacting the country’s security and economic equations.”

He issued the following list for the US to reach an end to the conflict. “If the enemy desires an end to this situation, they must”…
• completely cease the war
• refrain from further threats
• withdraw the Israeli army from Lebanon
• end the siege of Yemen
• release the $24 billion of Iranian assets that have been frozen
• cease any interference in the country’s nuclear and missile programs

This definitely marks a raised bar, to be sure, after this summer the MoU complete ceased, and negotiations vanished. There’s no way Washington complies with even half of the conditions, at this rate. Importantly, Mohebbi also said: “We have reached a point where if the enemy strikes at 2 or 3 of our targets, we will respond forcefully by striking at 20.”

Tanker Attacked in Iraq Territory Waters, After CENTCOM Insists US Warships Not Hit
After a huge Iranian ballistic missile launch on US bases in Jordan overnight, CENTCOM has yet to respond in any major way. The Pentagon has also said all US troops “are accounted for” – but this doesn’t necessarily mean there were no casualties. However, CENTCOM is at the moment denying that the Iranians hit US warships, as the IRGC has been claiming since Tuesday, in an oddly specific statement: The IRGC claims to have targeted and inflicted “significant damage” on a pair of US warships in the Gulf of Oman: DDG-119 USS Delbert D. Black and DDG-53 USS John Paul Jones, both Arleigh Burke-class destroyers.

CENTCOM responded: “No U.S. Navy warship has been struck; all IRGC attempted attacks failed.” It added on X, “Meanwhile, U.S. forces have successfully destroyed 10 Iranian tankers in just the last week. These vessels were part of a multibillion-dollar shadow network that funds the IRGC, and Iran cannot defend them.”

Meanwhile, Iran’s military is continuing to go on the offensive, seeking to maintain its leverage over the contested Strait of Hormuz. “A Panama-flagged tanker carrying 2 million barrels of Iraqi fuel oil was struck today by a drone in Iraqi territorial waters, two port officials say,” Reuters reports. “Iraqi rescue boats extinguished a fire aboard the tanker, New Andros, and there are no reports of casualties, port officials tell Reuters.”

Read more …

Canada has very favorable terms and wants more.

• Stacking Tariffs of 50 Percent and Import Bans Against Canadian Goods (CTH)

President Trump and U.S. Trade Representative Jamieson Greer waited to see if Canada was going to follow through with their retaliatory tariffs against U.S. imports. The Canadian government carried out their tariffs, so today the White House introduced 50% ‘stacking tariffs’, on top of pre-existing tariff rates, and additional import bans against several Canadian products.


It should be quickly noted that several North American corporations are already making moves to avoid the issues by shifting production lines and adding additional investment into U.S. manufacturing. As expected, getting locked out of a 32 trillion economy is not an option for survivability.

The easiest way to review the issues is not to read media reports, but rather to read the actual outcomes as announced by the White House and USTR. CTH has noticed several Canadian outlets are already making false claims.It is worth reviewing both sets of outlines as well as accompanying links to determine the exact types of Canadian products being targeted by stacking tariffs and import bans.

WHITE HOUSE – Today, to address Canada’s increased discrimination against U.S. commerce, President Trump signed five Proclamations pursuant to Section 338 of the Tariff Act of 1930 to ban certain products from Canada and modify the scope of the tariffs on certain Canadian products previously announced on July 20, 2026. President Trump is taking decisive and appropriate action to respond to Canada’s additional retaliation and continued discriminatory treatment of crucial American exports.

• After breaking off trade talks with the United States last month, today Canada imposed new retaliatory tariffs on about $20 billion of U.S. exports, including steel, dairy, and agricultural equipment.

• Because Canada maintained and in fact increased its discrimination against U.S. commerce with respect to U.S. alcoholic beverages, President Trump, under Section 338, imposed import bans on certain Canadian alcohol and other products that were subject to the 50 percent tariffs imposed under Section 338 in Proclamation 11046.

• Moreover, because Canada maintained its discrimination against U.S. commerce with respect to dairy, President Trump, under Section 338, imposed import bans on certain Canadian dairy and other products of Canada that were subject to the 50 percent tariffs imposed under Section 338 in Proclamation 11047.

• To offset the burden to U.S. commerce while better serving the public interest, President Trump is also modifying the July 20, 2026 actions by removing certain products, such as rock salt and cement, from the scope of the Section 338 tariffs and replacing those products with new ones, ranging from all-terrain vehicles (ATVs) to additional dairy products.

• These Section 338 tariffs apply to all covered goods regardless of whether a good originates under the U.S.-Mexico-Canada Agreement (USMCA) and apply in addition to tariffs imposed under Section 232 of the Trade Expansion Act of 1962.

• The import bans will take effect on September 29, 2026, and the product additions and removals will take effect on September 15, 2026.

WASHINGTON – Today, Ambassador Jamieson Greer issued a statement after President Trump exercised his authority under Section 338 of the Tariff Act of 1930 to ban certain Canadian products from entering the U.S. market and modify the scope of the July 20 actions to effectively offset the burden or disadvantage to U.S. commerce by Canada’s discriminatory measures.

“After weeks of good faith and intensive efforts between U.S. and Canadian negotiators, Canada walked away from a near-final trade deal that offered better treatment than any other trading partner, and instead Canada chose to embark on senseless retaliation against the United States,” said Ambassador Greer. “Today’s action, combining targeted import bans as authorized by Section 338 and a calibration of the underlying Section 338 tariffs, is a natural consequence of Canada’s continued discriminatory treatment of crucial American exports, ranging from alcoholic beverages to dairy products to motor vehicles. President Trump will continue to leverage the tools at his disposal to defend the interests of American workers and exporters, and restore reciprocity in our bilateral trade relationships.”

Additionally, the President has directed USTR (Office of the United States Trade Representative) and GSA (General Services Administration) to remove $50 billion dollars’ worth of Canadian-origin products from GSA’s Multiple Award Schedules.

[..]

Background:

Section 338 of the Tariff Act of 1930 (19 U.S.C. 1338) empowers the President to, among other things, impose duties of up to 50 percent on imports of a foreign country to offset the burden or disadvantage from a foreign country’s unequal imposition on or discrimination against the commerce of the United States. On July 20, 2026, finding that the public interest will be served by his actions, President Trump took three separate Section 338 actions to level the playing field for important American exports to Canada—motor vehicles, alcoholic beverages, and dairy. Section 338 further empowers the President to exclude products from importation into the United States if a foreign country maintains or increases its discriminatory practices against U.S. commerce.

Based on Canada’s continued retaliation and discrimination against U.S. commerce, President Trump has determined that it is necessary and appropriate to ban certain Canadian products from entering the U.S. market and refined the scope of the July 20 actions to target strategic Canadian sectors while removing certain non-sensitive Canadian goods from the scope of the actions. {Source}

It appears that some of the product categories would be limited by ‘stacking tariffs’, as a consequence the U.S. is simply moving to ban the products altogether.

Read more …

“Russia did interfere in the election extensively, as the bipartisan Senate Intelligence Committee documented.”

Oh really?

• Russiagate Is Finally Heading Somewhere Washington Hates: Under Oath (Manney)

Washington has spent nearly a decade arguing about Russiagate in congressional hearings, cable studios, memoirs, podcasts, and carefully lawyered statements. Now somebody is bringing subpoenas. The Justice Department has begun compelling former government officials to testify before a federal grand jury in Florida investigating whether crimes were committed during the government’s Trump-Russia investigations.


From the Associated Press: The Justice Department is demanding testimony before a Florida grand jury in an investigation aiming to establish an intelligence community conspiracy against President Donald Trump, according to multiple people familiar with the matter. New subpoenas being issued to former government officials represent an escalation in the year-long investigation as the Justice Department pursues a loosely defined theory that members of the intelligence community who scrutinized Trump over the last decade, including over Russian interference in the 2016 election, conspired against him and violated his rights.

Investigators in recent days contacted some defense lawyers for witnesses advising them of forthcoming grand jury subpoenas. It was not clear how many as of Tuesday had received a subpoena or were still waiting to receive one, and the identities of the witnesses receiving subpoenas were also not immediately clear. The people who confirmed the subpoenas spoke to The Associated Press on condition of anonymity to discuss a secretive grand jury investigation. The subpoenas mark a significant escalation from the voluntary interviews investigators previously sought.

Former CIA Director John Brennan is a target of part of the investigation. Brennan’s lawyers say he committed no wrongdoing and has cooperated with previous reviews.mNo indictment has been announced; a subpoena isn’t proof of a crime, and a grand jury investigation isn’t a conviction waiting for paperwork. Plus, as the old joke goes, a grand jury can indict a ham sandwich. But sworn testimony is different from another Sunday morning interview.

Attorney General Todd Blanche appointed former U.S. Attorney Joe diGenova in April to help oversee the investigation. Prosecutors are examining decisions surrounding the intelligence community’s handling of Russian interference in the 2016 election and the government’s subsequent investigations involving Donald Trump’s campaign. From the Associated Press:

The investigation is being run out of Florida, with the Justice Department in April bringing back into government service a top prosecutor from the Reagan administration, Joe diGenova, to serve as a counselor to the attorney general and help lead a team of agents and prosecutors. diGenova, who had previously asked then-Attorney General Pam Bondi to appoint him to the job and has openly and repeatedly claimed Trump was the victim of an intelligence community conspiracy, declined to comment Tuesday when reached by the AP.

In an indication of the wide-ranging nature of the investigation, the AP reported last month that diGenova’s team has sought interviews with law enforcement officials involved in the 2022 FBI search of Trump’s Mar-a-Lago property in Palm Beach, Florida. The search recovered a trove of classified documents that formed the basis of a since-abandoned Justice Department prosecution of Trump, who has long decried the FBI operation as an invasion of his privacy.

Brennan’s role deserves particular scrutiny because he headed the CIA when the intelligence community produced its January 2017 assessment of Russian election interference. A declassified House Intelligence Committee report released in 2025 challenged parts of the process behind that assessment. The report said Brennan pushed for the inclusion of information from the Steele dossier, despite concerns about its credibility. Brennan has disputed allegations that he manipulated intelligence or acted improperly.

Americans have heard competing versions of this history for years. Trump and his allies say intelligence and law-enforcement institutions abused their authority while pursuing a political opponent. Brennan and other former officials maintain that Russia genuinely interfered in the 2016 election and that intelligence officials acted appropriately in assessing the threat. Both propositions contain questions that deserve evidence rather than another round of television combat.

Russia did interfere in the election extensively, as the bipartisan Senate Intelligence Committee documented.

The Committee found that the Russian government engaged in an aggressive, multifaceted effort to influence, or attempt to influence, the outcome of the 2016 presidential election. Parts of this effort are outlined in the Committee’s earlier volumes on election security, social media, the Obama Administration’s response to the threat, and the January 2017 Intelligence Community Assessment (ICA). (U)

The fifth and final volume focuses on the counterintelligence threat, outlining a wide range of Russian efforts to influence the Trump Campaign and the 2016 election. In this volume the Committee lays out its findings in detail by looking at many aspects of the counterintelligence threat posed by the Russian influence operation.

For example, the Committee examined Paul Manafort’ s connections to Russian influence actors and the FBI’ s treatment of reporting produced by Christopher Steele. While the Committee does not describe the final result as a complete picture, this volume provides the most comprehensive description to date of Russia’s activities and the threat they posed.

This volume presents this information in topical sections in order to address coherently and in detail the wide variety of Russian actions. The events explained in these sections in many cases overlap, and references in each section will direct the reader to those overlapping parts of the volume. Immediately below is a summary of key findings from several sections.

But acknowledging Russian interference doesn’t settle whether every government action taken in response was justified, accurate, or lawful.

Read more …

TPUSA has grown a lot. What now?

• Turning Point: One Year After Charlie Kirk’s Murder (Scott Pinsker)

By all accounts, Charlie Kirk never considered stepping down. Not even once. And why would he?Turning Point USA was his baby. His creation. His magnum opus. He built it from the bottom up — transforming TPUSA from a teenager’s pipe dream into a political juggernaut. Every inch of it reflected his values, passions, and one-of-a-kind personality.Which is why Charlie intended to lead it ‘til his dying day: The only succession plan he ever considered was posthumous.


Tragically, his dying day came far earlier than he deserved.As we approach the one-year anniversary of Charlie Kirk’s assassination, Turning Point itself is at a turning point: Three legacies are now in limbo. The first is Charlie’s. Complaining about click-whores, liars, cretins, and clout-chasers on social media is a waste of time. It’d be like complaining about nudity in a strip club: That’s kinda-sorta the M.O. when you enter.If you don’t wanna see naked people, don’t go inside!

But even by social media’s cesspool standards, onlookers were stunned by how quickly Charlie’s murder was exploited. Within days, some of the biggest, most influential podcasters wore Charlie’s corpse like a skin suit, repurposing his legacy for their own agenda. Instead of celebrating his life, they monetized his death. Instead of comforting his family, they tortured his widow for clicks. Instead of honoring his beliefs, they used Charlie as their personal sock puppet. And they continue to do so today.

Once upon a time, Charlie Kirk was just a man. That ended on Sept. 10, 2025. Today, he’s a symbol. And symbols have propaganda value. It’s why waving the bloody shirt is so effective. Symbols are a cheat code for emotional communication. It’s why redefining symbolism has always been a top priority for revolutionaries: It lets them capture hearts — while bypassing brains. In life, Charlie wasn’t exactly coy with his beliefs:

Note the date: If you want to know which issues were top-of-mind for Charlie Kirk just before he died, look no further. But if you really, really insist, go back four days earlier:

Yet his ex-“friends” claim otherwise:

The sad truth is, Charlie’s image has changed. The propagandists are winning. For millions of Americans, when they close their eyes and think of Charlie Kirk, their first thought isn’t conservatism, Christianity, or youth politics anymore. It’s bat[feces]-crazy conspiracy theories, antisemitism, political violence, and Candace Owens. Symbols aren’t static. They’re constantly moving, constantly changing, perpetually vulnerable to outside forces. And the more powerful the symbol, the bigger the PR payoff in its manipulation. Which means symbols must be protected. Vigilantly and aggressively.

Look, I get it: Clearly, it’s not the execs at TPUSA’s fault. They’re not the ones who associated Charlie’s image with low-life creeps like Owens and Tucker Carlson. They’re not the ones who hijacked his brand. If anything, they’re the victims. (Especially, of course, TPUSA’s current chairwoman and CEO.) But on the other hand, they also haven’t done enough to protect Charlie’s image. Their hearts are in the right place, but PR tactics determine PR success. That’s just how it goes in an outcome-based world. TPUSA would be wise to recalibrate its PR plan ASAP — because protecting Charlie’s legacy is its responsibility.

Charlie’s earthly mission ended on Sept. 10; an assassin’s bullet made sure of it. But he remains — by far — TPUSA’s most valuable symbol, brand ambassador, and emotional lightning rod. His soul rests in God’s mighty arms, yet his spirit still guides the organization he cherished.He deserves a better legacy than this.

And so does his successor, Erika Kirk. She assumed the title of chairwoman and CEO — and less than a year later, her metrics are jaw-dropping: TPUSA grew from 410 college chapters to 1,095 (including at James Madison University in Virginia, where my 19-year-old son is an active member). TPUSA exploded from 454 Club America (high school-aged) chapters to 3,102.

You kiddin’ me? Any other CEO would win awards for those kinds of year-to-year gains! She’d be showered with appreciation! The trouble, however, is that it’s unclear how much credit Erika Kirk deserves, since TPUSA’s dramatic growth was triggered by an outpouring of organic love and support after Charlie’s death. Arguably, any CEO at the helm would’ve achieved similar results.

One week after Charlie was killed, 32,000 people contacted TPUSA to join. (That’ll getcha lots of new members.) Which doesn’t negate Mrs. Kirk’s leadership or courage. She steadied the ship during the darkest, deadliest days, providing clarity, consistency, and continuity. Forged by tragedy, her authenticity spoke for itself.

And she paid a horrific price for it, too.

Read more …

What else can they do?

• Democrats Aghast at GOP Midterm Strategy to Embrace Trump (Rick Moran)

An Axios blurb reflects the thinking of Democrats regarding the Republican midterm strategy of embracing Donald Trump rather than running away from him. “Two months before Election Day, Democrats can taste the House majority, provided two conditions hold: President Trump remains unpopular, and vulnerable Republicans stay close to him,” writes Hans Nichols. It’s true. Historically, in midterm elections, the party out of power gains an average of 35 to 37 seats in the House of Representatives and roughly 3 to 5 seats in the U.S. Senate when the sitting president’s approval rating is below 50%.


In 2010, Barack Obama, with a 45% approval rating, saw the Democrats lose 63 seats. In 2018, Donald Trump, with a 41% approval rating, lost 40 seats. And in 1994, with Bill Clinton’s approval rating at 48%, Democrats lost 54 seats. The Senate is a different story, with different dynamics at play, but the sitting president’s party loses an average of three to five Senate seats overall. When the president’s approval is low, losses often range from four to eight seats.

It would seem almost suicidal for Republicans to latch on to Trump and ride out the midterms on his coattails. Ordinarily, that would be true. But this is not an ordinary midterm election, and Democrats, in my opinion, appear to be the ones committing suicide.

While most candidates would generally run away from an unpopular president, Trump may be some candidates’ only hope. Not only are Trump’s coattails fairly long, but the Republicans also have about $1 billion in cash burning holes in Trump’s, Elon Musk’s, and the RNC’s pockets. Midterm elections have never seen anything like it. And while money isn’t everything, there isn’t a candidate running on either side who believes that having less money than your opponent is an advantage.

Trump is going to give more money to GOP candidates who embrace him than to candidates who don’t. That simple calculus will give candidates little choice in backing the president. Besides, Democrats shouldn’t be smiling so broadly. The ad campaign that Trump and Musk unleashed is going to make the Democrats squirm, and the voter hesitate before marking their ballot for a Democrat.

The Republicans are gathering at the American Airlines Center in Dallas for a gigantic, two-day election commercial they’re calling a “Midterm Convention.” Trump will speak on both nights and highlight the radical left lurch of the Democrats and paint the contest as a battle between democracy and communism.

“This is not a midterm like any other, because we actually have a competition against communism now, and that’s a very serious thing. It’s going to animate voters coast to coast,” House Speaker Mike Johnson emphasized in a Fox News Digital campaign trail interview last month.

Fox News: Democrats, as they try to win back congressional majorities, were already battling a brand that public opinion polling indicates is extremely unpopular. Making matters worse, the high-profile victories this spring and summer by left-wing and socialist candidates over establishment rivals in Democratic primaries, which gave Republicans extra ammunition to portray all Democrats as extremists.

“What we’re going to highlight at that convention is the fact that this is not your father’s Democrat Party,” Johnson said. “It’s a contrast election, and people are making a contrast between common-sense solutions and candidates, and really crazy, which is represented by the other side.”

Communism is bad, and for older voters, the “Red Scare” tactics will be most effective. Voters aged 45-64 account for the largest absolute volume of ballots cast, usually making up around 35% to 40% of all midterm voters. Voters aged 65-plus make up the second-largest portion of total voters (around 30% of total voters). They consistently register the highest participation rate of any demographic, with roughly 65% to 70%+ of eligible seniors turning out during midterm elections.

At least three-quarters of midterm voters grew up in at least some part of the Cold War. That’s got to count for something at the ballot box. Meanwhile, are you ready for “Kamala is for they/them. President Trump is for you.” Part II? Elon Musk’s America PAC is unloading $120 million for a massive, never-before-seen get-out-the-vote effort, and a key part of it will be ads painting the Democrats as goofy and nuts on trans issues.

Axios: America PAC isn’t running a traditional persuasion campaign. It’s undertaking a massive get-out-the-vote operation, with targeted ads designed to get GOP voters to the polls. The PAC is betting trans issues will do just that. Driving the news: In a series of just-launched ads, America PAC goes after Democratic Senate candidates in four competitive races over transgender athletes, gender-transition care and other trans issues.

The PAC’s emphasis on trans issues is striking because that’s been a much less prominent theme in GOP Senate ads so far this election cycle, per AdImpact, which tracks political advertising.The ads, which are running online and on streaming platforms, attack Ohio’s Sherrod Brown, Iowa’s Josh Turek, Texas’ James Talarico and Alaska’s Mary Peltola. They’re among the first batch of ads from America PAC, which Musk has reportedly authorized to spend upwards of $100 million in the midterms. It worked in 2024. Why not now?

The Democrats’ toxicity is the wild card in this election. Everyone agrees they’re nuts, but are they so stinky that people won’t even hold their noses and vote for them?

Republican midterm fortunes hang on the answer to that question.

Read more …

Something/someone else will take its place?!

• Steve Eisman: What If OpenAI Actually Fails? (ZH)

Steve Eisman has spent most of the years since the financial crisis being asked, in his words, to predict the end of the world. In his latest weekly wrap – recorded Thursday night as the 10-year brushed 4.8%, he says he’s still not there on AI, but if he were – he lays out exactly how it would happen. Eisman is not predicting that OpenAI fails – but it is the weak link in a chain that runs from two money-losing labs, through hyperscaler capex, to roughly half of projected US GDP growth – and arguing that it’s “not too early to think about” what happens if the link breaks.


“I predicted the end of the world once, and believe me, it was no fun. I am in no rush to predict the end of the world again, unless I am really convinced that it’s going to happen. But I’m not going to make such a prediction just because it will get a lot of press. There is no question in my mind that the entire US economy hinges on the success of AI. The amount being spent is just so large that were it to stop, the economy would go into a recession almost immediately.”

The chain: two companies, $700 billion of capex, half of GDP growth
Eisman waves off the two “bubble” arguments echoing through the halls – and that both hyperscalers’ vanished free cash flow, and Nvidia’s circular financing – are survivable if AI pays off. The real vulnerability, he argues, sits one layer down: “So where is the Achilles heel? I think that it resides with Anthropic and OpenAI, because they are so central to the entire AI food chain. According to reports from various Wall Street firms, something like 70% of hyperscaler AI revenue comes from Anthropic and OpenAI… I can’t confirm those statistics, but they sound right given what we actually know about Oracle.”

From there it’s arithmetic: “Hyperscalers are spending about $700 billion in capex this year, and even more next year, and that spend accounts for around half of the 2% GDP growth projected for 2026. So one must conclude that the health of the US economy is extremely dependent on hyperscaler capex, and hyperscaler capex is highly dependent on the health of Anthropic and OpenAI. That’s the chain.”

OpenAI is… the weakest link
Between the two labs, Eisman says, “OpenAI is the weaker entity” – pointing to a WSJ report on the 2nd quarter. “OpenAI’s June quarter revenue reached $6.7 billion, up only 18% versus the March quarter. Compare that to Anthropic’s revenue of $11 billion-plus in the June quarter, which was up over 100%… OpenAI’s costs reached $12.3 billion, up $3 billion versus the March quarter. So, in three months, revenue increased $1 billion, but costs surged $3 billion. Things are not moving in the right direction.” (ZH Note; the $12.3 billion Eisman calls “costs” is OpenAI’s operating loss, including stock-based compensation, up from $9.3 billion in the first quarter, per WSJ. On $6.7 billion of revenue, that implies an expense line closer to $19 billion. Revenue rose $1 billion; the loss rose $3 billion.)

Then the departures. Chief revenue officer Denise Dresser left in August after roughly eight months, two days after Brad Lightcap ended an eight-year run. Eisman reads both through the lens of an IPO that keeps sliding: “Supposedly, OpenAI is getting closer to an IPO. That’s the big payday for employees, because it means that eventually they can sell some of their shares. That two such senior employees would leave now is an important data point.”

Two fairness notes: Lightcap had already been moved out of the COO role in April, so his exit was telegraphed. And Eisman doesn’t mention Fidji Simo, who stepped down in July and was arguably the bigger loss. The heart of the argument is what unprofitability does to a company’s relationship with its funders:

“When you lose billions upon billions, appearances matter a lot. OpenAI is completely dependent on the kindness of strangers funding its cash flow needs. When a company is growing and very profitable, appearances don’t matter nearly as much… But when a company is not profitable and has an insatiable need for capital, appearances matter more than anything, because if the narrative turns negative, raising capital becomes much more difficult.”

That’s why he flags last week’s “good news” – OpenAI’s ad business hitting a $1 billion annualized run rate – as bad news: earlier this year the company projected $2.4 billion of ad revenue for all of 2026, and $1 billion annualized in September doesn’t get there.

Read more …

“Evan Hubinger says the company still has no clear plan to keep superintelligence under human control..”

• AI Has Over 10% Chance of Killing All Humans – Anthropic Researcher (RT)

There is a more than 10% chance that artificial intelligence could wipe out humanity within the next ten years, a senior Anthropic researcher has warned amid mounting concerns over increasingly powerful systems slipping beyond human control.Evan Hubinger, who works on aligning advanced AI systems with human interests, made the assessment after fellow Anthropic researcher Jacob Coxon resigned over fears that leading tech companies are racing toward systems they may not be able to keep in check.


“We really do earnestly believe AI could kill all humans,” Hubinger wrote on X on Wednesday. “I personally think it is >10% within the next decade.” He added that Anthropic is “trying its best” but still does not have a plan for safely controlling superintelligence and is “not clearly on track” to find one. Hubinger noted that while current AI models pose a low risk, there is concern that future systems could begin improving themselves recursively, rapidly becoming more capable than humans before adequate safeguards are developed.

Coxon, who previously worked at OpenAI, announced his departure from Anthropic on Tuesday, accusing both companies of ignoring the “civilizational stakes” and “racing straight to self-improving superintelligence and gambling with our lives.” “The people building AI earnestly believe that it could kill us all by the end of the decade,” he wrote, insisting the warnings were “not a marketing stunt.”

Coxon told the Wall Street Journal that the most aggressive scenarios could see things become “out of control” as early as the end of 2027. He argued that even companies with strong safety programs remain trapped in a race, fearing competitors will push ahead if they slow down. Both Anthropic and OpenAI publicly say they take the risks seriously and are heavily investing in safety measures. Their leaders have also backed calls for greater government coordination and mechanisms to slow development if necessary, but have nevertheless continued to develop increasingly powerful models.

The latest warnings come amid growing reports of AI agents, such as those developed by OpenAI, Anthropic, and Meta, repeatedly breaking out of testing environments, hacking external systems and taking unauthorized actions against real people and organizations. OpenAI temporarily slowed some development last month after its model compromised the Hugging Face platform.= Britain’s AI Security Institute has also reported agents creating fake identities, writing malicious code, and attempting to manipulate people during evaluations. Researchers have meanwhile demonstrated that AI can design entire functional viral genomes, adding to concerns over how increasingly capable systems could be misused.

Read more …

“AI pushing a Democrat agenda is the real threat to the Republic…”

• The AI Threat To Our Republic (Jack Hellner)

The United States has gone through massive job and technological changes over the last 250 years and has always survived and prospered. Over thirty years ago, I heard a presentation by e(conomist Brian Wesbury, who is still working, talking about major job changes over the years. He gave three examples: Number 1: In the 1800s, over 70% of jobs were related to agriculture. Today, that number is around 2% because oil-powered machines greatly increased efficiency and reduced reliance on manual labor. I would assume most people would say these are good changes.


Number 2: In the 1950s, Berghoff’s restaurant in Chicago employed twenty dishwashers. By the 1970s, they were down to one because of machines. Number 3: In the 1960s, there were 600,000, mostly women, working as telephone operators. He said people worried about what women would do if technology took those jobs. My guess is most women are very happy not to be working in those tedious jobs. A huge number of jobs have been displaced or replaced over the years by mass production and computers, and we have greatly prospered. We also have more choices of what to buy.

Many of the people fighting AI and data centers willfully watched as manufacturing jobs and the supply chain moved to China and other countries over decades. Now they are willing to watch as China takes the lead in current technology advancements Democrats are campaigning on destroying hundreds of thousands of direct and indirect jobs related to private health insurance as they push for Medicare for all.

They are also actively campaigning to destroy millions of direct and indirect jobs with their radical green agenda to destroy the oil, natural gas, and coal industries. They clearly don’t care that crude oil is used in over 6,000 products and that those products have greatly improved our quality of life and life expectancy. I am much more worried about the further dumbing down of children when a high percentage already can’t read or do math at grade level. They will rely on AI to do problems, write papers, and do research instead of learning to do it themselves.

They will most likely believe it when ChatGPT puts out a fictional piece of propaganda that is essentially Democrat talking points comparing Trump to Hitler. They will assume it is intelligent instead of garbage.

The main point was that Trump challenged the 2020 election and encouraged the violent protest at the capitol. ChatGPT, like most media, left out that Trump encouraged people to march peacefully and patriotically to the Capitol. They failed to mention that Democrats challenged elections in 2000, 2004, and 2016. They failed to mention that Democrats protested violently after the 2016 election and called Trump an illegitimate President for four years.

Let’s look at who is a greater threat to our Republic:
• Democrats want to get rid of the Electoral College, not Trump.
• Democrats want to get rid of the Senate, not Trump.
• Democrats want to stack the Supreme Court, not Trump.
• Democrats refuse to enforce immigration laws and flood America with illegals, not Trump.
• Democrats don’t want people to show proof of identity or citizenship to vote, not Trump.
• Democrats don’t want the federal government to see who is on voter rolls for federal elections, not Trump.

All of those actions are a much greater threat to our survival as a Constitutional Republic than challenging an election, requiring ID’s to vote, and reducing voting by mail, which clearly makes it easier to cheat. Let’s look at a few of Hitler’s policies and compare them to Democrats and Trump.

This is what Gemini said Hitler’s policies were:
• Banning Private Primary Institutions.
• Eliminating Dissent: The regime sought a monopoly on the minds of the youth.
• Outlawing Homeschooling: Alongside targeting private schools, the Nazi regime outlawed homeschooling to prevent families from shielding children from state propaganda.

These policies are very similar to Democrat policies, not Trump’s. Trump wants children to have school choice. Hitler was a Totalitarian. He did not believe in small government or individual liberties. He built a totalitarian state where the government controlled public and private life.

Democrats believe in a big, powerful government, not Trump. Trump is trying to reduce regulations and the number of government agencies and employees. He is trying to let people and businesses keep more of the money they earn to have more freedom. He is the opposite of a dictator like Hitler, no matter how often the media, AI, and other Democrats repeat that lie.

AI is a tremendous source for quick data gathering, but if asked for an opinion on Trump, Climate Change, or other subjects, it appears to largely push the Democrat agenda because that is what it has been programmed to do. That’s a real threat.

Read more …

The more islam Europe gets, the more it’s against Israel.

• Europe Against Israel (Rabbi Michael Barclay)

Tuesday brought about sanctions and retaliation, not regarding the U.S./Iran conflict, but from the antisemites in Europe: politicians who seek to affect the upcoming Israeli elections, as well as get votes from Jew-haters in their own country. Claiming that “there is ethnic cleansing of Palestinians in the West Bank,” the foreign ministers of Britain and France led the countries of Canada, Denmark, Finland, Iceland, Ireland, Norway, Poland, Portugal, Spain, and Sweden in issuing a joint statement against Israel, announcing they plan to impose restrictions on trade with “settlements defined as illegal under international law.”


Despite this being Israeli land, despite the reality that there has never even been such a thing as “a nation of Palestine or Palestinians historically, despite the simple truth that the Palestinian cause was created in 1964, and despite the actualities of “international law” that clearly define Judea-Samaria as part of Israel, these 12 countries are attacking the economy of Israel for purely political reasons. The foreign ministry of Qatar speedily made its own announcement of support for the sanctions against Israel, another reminder that Qatar is not a friend of Israel nor the U.S. The response from Israel was quick, clear, and unified.

Israel’s Cabinet Secretary Yossi Fuchs stated that “the territories of Judea and Samaria are the cradle of the history of the people of Israel, long before the English became a people.” He added: “The purpose of the British struggle to stop construction in E1 in the area connecting Jerusalem to Ma’ale Adummim is to establish a Palestinian state, which the vast majority of Israeli citizens have opposed since October 7.” According to Israeli Minister Gideon Sa’ar, “the Labor government’s move is particularly absurd given that more than 100 years ago, the Balfour Declaration officially recognized the historical right of the Jewish people to establish their home in the Land of Israel, including in Judea and Samaria. This was included in the British Mandate. The decision constitutes interference in the electoral system of a sovereign state.”

Sa’ar went on to announce retaliatory measures against Britain following its decision to impose sanctions on Judea-Samaria settlements, including closing the British Consulate in Jerusalem; expelling British representatives from the Gaza coordination headquarters in Kiryat Gat; halting British training of Palestinian Authority forces in Ramallah; and preventing entry into Israel of 12 British public officials involved in antisemitic and anti-Israel activity. Sa’ar added that Israel will take retaliatory measures against other countries as well.

Reuters is reporting that as of Wednesday morning, British representatives were told by Israel that within 30 days they must leave and close the British consulate in Jerusalem, which has operated for over 125 years.

Israel’s primary leverage to combat these sanctions lies in licensed dual-use and defense technology already embedded in European military inventories, including electro-optical and infrared sensors, ISR and targeting pods, counter-drone systems, electronic warfare equipment, missile-defense software and spare parts. Britain’s Sky Sabre air-defense command software is built on Rafael architecture, Challenger 3 tanks use Rafael’s Trophy protection system, and Elbit supplies night-vision and surveillance equipment. Finland, which joined Tuesday’s statement, is also a David’s Sling customer. Restrictions in these areas would therefore represent a more consequential form of Israeli retaliation than diplomatic measures alone.

Tuesday and Wednesday also found Iran attacking the U.S. multiple times, and the U.S. retaliating by destroying Iranian tankers. Both sides are making contradictory claims about their success, but what is clear is that we are again in that pattern of daily small attacks. Secretary of State Marco Rubio said while visiting Colombia that “every time Iran tries to attack U.S. Navy ships, it will lose tankers.”

Both Christianity and Judaism have prophecies that the world will turn against Israel as part of the “birth pangs of the Messiah.” Whether we believe in those types of prophecies or not, we can all believe in the eternal promise of God to protect His people and the land. May we all have the faith and courage to pray for a lasting peace and safety for Israel, her people, and her land, and to believe fully in the power of those prayers.

Chazak u’Baruch

Read more …

Not Maga.

• Victor Davis Hanson on Tucker Carlson and Marjorie Taylor Greene (Bolt)

Victor Davis Hanson, a military classicist, historian, and fellow at the Hoover Institution, offered some insight into why Tucker Carlson, Marjorie Taylor Greene, and others, who initially appeared to be allies of the MAGA movement, so quickly became saboteurs.


According to Hanson, it may simply be that when these commentators and politicians spoke with President Trump, they believed themselves capable of guiding the MAGA movement more broadly. In other words, like most people who get a taste for power, they believed they could single-handedly commandeer the movement for their own ends. When the president made clear that wasn’t going to happen, they showed their true colors.

“I think they felt that because they had been very intimate with [Trump] — in the sense that they had been at Mar-a-Lago, or they were on Air Force One — that they insidiously began to think that they could tell him things, and they forgot that he is the president of the United States, and that they represent maybe one-one thousandth of the people he contacts,” Hanson told Miranda Divine of “Pod Force One.”“This is a man who’s talking to the most powerful people in the world, and we’re not that important, but [Greene and Carlson] felt — I don’t know how else to explain why Tucker said he called him and said, ‘Don’t do this with Iran,’ or ‘Don’t do this,’ or ‘Don’t do that,’” he added.

“Why would a president listen to somebody just because he was on Air Force One, and why would Tucker, who’s a very intelligent person, think that he had that entree to affect a policy that would change decades just because he had been on Air Force One or had known Trump?” “I think they misinterpret informality and magnanimity as sort of an allowance for them to have a greater role than they otherwise should or would,” Hanson argued.

“And when they start to exit that role, then they get a snap back from him, and then they get very angry, as if, ‘Well, wait a minute, I was at Mar-a-Lago, I was on Air Force One, I talk’ – and they don’t understand he’s the president of the United States, and that’s the difference.”

“He calls people and he asks how you are and what can he do for you, but you can’t mistake that genuine interest, intimacy and niceness and kindness with the fact that he’s not president of the United States,” he explained. “So, you don’t go to the next step and say, ‘Hey, Mr. President,’ you don’t say, ‘Hey, Don,’ or ‘Hey, this,’ and you wouldn’t assume that you had control.”

The larger question is whether those same forces can be kept in check once President Trump leaves office. MAGA is already looking toward its next generation of leaders, and not all of the possible heirs see the movement, or figures such as Tucker Carlson, the same way. Vice President JD Vance, for example, has said Carlson remains a close friend despite their political disagreements, including Carlson’s criticism of President Trump.


Trump has held together a broad coalition without letting every commentator, donor, or elected official grab the steering wheel. He kept the tent big, but he also kept its loudest would-be saboteurs from ripping it apart. The danger is that, once he is gone, those internal fractures could widen into the kind of open civil war now consuming the Democrat Party as DSA-backed candidates challenge its establishment wing. Whether anyone can preserve MAGA’s coalition with Trump’s same authority may be the movement’s defining test after Trump.

Read more …
Victor Davis Hanson: When Will the Iranian People Overthrow the Regime?


A rocket without Elon Musk. I have my doubts.

• Investors Are Totally Stoked About This New Rocket (Stephen Green)

Investors are so stoked about this fully reusable rocket that they just ponied up another billion dollars to help get Stoke Space’s Nova Pathfinder Block 2 off the ground. More seriously, Stoke Space was founded in 2020 by former Blue Origin and SpaceX employees, and has yet to get a single rocket into orbit. But investors like what they’ve seen so far, investing a total of $2.3 billion or so in the company’s efforts to design and build a rival to SpaceX’s workhorse Falcon 9 medium lift rocket.


So you might wonder what’s the big deal, since there’s already a Falcon 9 flying about 150 times last year alone. We actually discussed this issue back in August, looking at reports of satellite operators are “in panic” over a gap in available launch capacity as SpaceX retires Falcon 9 over the next few years to focus its efforts on Starship and building out orbital data centers.

Blue Origin’s New Glenn can compete with Falcon 9 on price, but only for larger payloads. And while the booster is designed for reuse, it isn’t designed for rapid reuse, limiting its launch cadence. ULA’s Vulcan Centaur is tailored mostly to pricy national security launches. Both New Glenn and Vulcan Centaur still have teething issues. Other would-be competitors aren’t yet ready for primetime.

“I think it’s fair to say there’s more than a bit of a panic about the availability of launch,” Stoke’s Devon Papandrew told Ars Technica last month. “Even if the four medium-lift new entrants all achieve their goals in terms of flight success and cadence, it’s actually not going to make that much of a difference in demand right away. I’ve been saying for a while that I think 2028 is when this problem becomes really acute.”

Stoke hopes to have its reusable Nova Pathfinder fully operational by then, but there are serious limitations. Falcon 9 can put 17,500 kg (38,600 lb) into Low Earth Orbit (LEO) and still land the booster on a drone ship, but Pathfinder can’t keep up. Although the rocket has a fully reusable mode, that’s good for just 3,000 kg (about 6,614 lb) to LEO, or 7,000 kg (about 15,432 lb) on missions that expend the second stage.

That’s where Pathfinder Block 2 comes in, hopefully sometime in 2029 — and that has investors eagerly writing checks to Stoke. “We have already started development on a larger vehicle, and we felt like now is the time to pour gas on that fire and really start full-force development of the larger vehicle, and so that’s the reason for the timing,” Stoke co-founder and CEO Andy Lapsa said on Tuesday, talking about the ONE BILLION DOLLARS the company just raised.

Block 2 is supposed to nearly match Falcon 9’s lift to LEO at 15,000 kg (33,069 lb), but with a kick. Block 2 will lift that much while recovering the booster and the second stage — something Falcon 9 can’t do at all. If customers are willing to pay a little more to expend the second stage, Block 2’s lift increases to 23,000 kg (51,000 lb). Can Stoke actually get that done before 2030?

It would certainly be an impressive feat, and more impressive still if Pathfinder Block 2 could match cadence with demand for launch capacity that’s going nowhere but up. SpaceNews reported on Tuesday that “the Pentagon has more than doubled the number of national security launch services it expects to procure, from 151 in its 2022 baseline to 337” between now and 2032.

That’s an additional $17 billion on the table just in national security launches over the next five years, which is just one reason investors keep pulling out their checkbooks for companies like Stoke.

Read more …

 

 

 

 

 

 

 

 

Support the Automatic Earth in wartime with Paypal, Bitcoin and Patreon.

 

 

 

 

 

Debt Rattle May 26 2018

May 262018
 
 May 26, 2018  Posted by at 9:25 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »


Louise Dahl-Wolfe Looking at Matisse, Museum of Modern Art 1939

 

• S&P 500 Companies Return $1 Trillion To Shareholders In Tax-Cut Surge (R.)
• The 2020s Might Be The Worst Decade In US History (Mauldin)
• Moody’s Warns Of ‘Particularly Large’ Wave Of Junk Bond Defaults Ahead (CNBC)
• Moody’s Puts Italy On Downgrade Review, Junk Rating Possible (ZH)
• UK Economy Posts Worst Quarterly GDP Figures For Five Years (G.)
• Prospects of US-North Korea Summit Brighten (R.)
• The Real ‘Constitutional Crisis’ (Strassel)
• A Mendacious Exercise In Manufacturing Paranoia (Jim Kunstler)
• Tesla Seeks To Dismiss Securities Fraud Lawsuit (R.)
• Madrid Takes Its Car Ban to the Next Level (CityLab)

 

 

Oh, that’s what the tax cuts are for?!

• S&P 500 Companies Return $1 Trillion To Shareholders In Tax-Cut Surge (R.)

S&P 500 companies have returned a record $1 trillion to shareholders over the past year, helped by a recent surge in dividends and stock buybacks following sweeping corporate tax cuts introduced by Republicans, a report on Friday showed. In the 12 months through March, S&P 500 companies paid out $428 billion in dividends and bought up $573 billion of their own shares, according to S&P Dow Jones Indices analyst Howard Silverblatt. That compares to combined dividends and buybacks worth $939 billion during the year through March 2017, Silverblatt said in a research note. Earnings per share of S&P 500 companies surged 26 percent in the March quarter, boosted by the Tax Cuts and Jobs Act passed by Republican lawmakers in December.

Companies have been returning much of that profit windfall to shareholders via share buybacks and increased dividends at never before seen amounts, highlighted by Apple’s record $23.5 billion worth of shares repurchased in the first quarter. S&P 500 companies have also plowed some of the windfall from lower taxes into investments toward growth or becoming more efficient. First-quarter capital expenditures totaled at least $159 billion, up more than 21 percent from the year before, according to S&P Dow Jones Indices. The biggest overhaul of the U.S. tax code in over 30 years, the new law slashes the corporate income tax rate to 21 percent from 35 percent, and charges multinationals a one-time tax on profits held overseas.

Read more …

Mauldin turns dark side.

• The 2020s Might Be The Worst Decade In US History (Mauldin)

I recently wrote about a looming credit crisis that’s stemming from high-yield junk bonds. The crisis itself will have massive consequences for investors. But that’s not the worst part. The crisis will create a domino effect and trigger global financial contagion, which I usually refer to as “The Great Reset.” The collapse of high-yield bonds will hit stocks and bonds. Rising defaults will force banks to reduce their lending exposure, drying up capital for previously creditworthy businesses. This will put pressure on earnings and reduce economic activity. A recession will follow. This will not be just a U.S. headache, either. It will surely spill over into Europe (and may even start there) and then into the rest of the world.

The U.S. and/or European recession will become a global recession, as happened in 2008. Europe has its own set of economic woes and multiple potential triggers. It is quite possible Europe will be in recession before the ECB finishes this tightening cycle. As always, a U.S. recession will spark higher federal spending and reduce tax revenue. So I expect the on-budget deficit to quickly reach $2 trillion or more. Within four years of the recession’s onset, total government debt will be at least $30 trillion. This will further constrain the private capital markets and likely raise tax burdens for everyone—not just the rich.

Meanwhile, job automation will intensify, with businesses desperate to cut costs. The effect we already see on labor markets will double or triple. Worse, it will start reaching deep into the service sector. The technology is improving fast. The working-class population will not like this and it has the power to vote. “Safety net” programs and unemployment benefit expenditures will skyrocket. Studies show that the ratio of workers covered by unemployment insurance is at its lowest level in 45 years. What happens when millions of freelancers lose their incomes?

Read more …

We’re talking trillions. Poof!

• Moody’s Warns Of ‘Particularly Large’ Wave Of Junk Bond Defaults Ahead (CNBC)

With corporate debt hitting its highest levels since before the financial crisis, Moody’s is warning that substantial trouble is ahead for junk bonds when the next downturn hits. The ratings agency said low interest rates and investor appetite for yield has pushed companies into issuing mounds of debt that offer comparatively low levels of protection for investors. While the near-term outlook for credit is “benign,” that won’t be the case when economic conditions worsen. The “prolonged environment of low growth and low interest rates has been a catalyst for striking changes in nonfinancial corporate credit quality,” Mariarosa Verde, Moody’s senior credit officer, said in a report.

“The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventually arrives.” Though the current default rate is just 3 percent for speculative-grade credit, that has been predicated on favorable conditions that may not last. Since 2009, the level of global nonfinancial companies rated as speculative, or junk, has surged by 58 percent, to the highest ever, with 40 percent rated B1 or lower, the point that Moody’s considers “highly speculative,” as opposed to “non-investment grade speculative.” In dollar terms, that translates to $3.7 trillion in total junk debt outstanding, $2 trillion of which is in the B1 or lower category.

“Strong investor demand for higher yields continues to allow all but the weakest issuers to avoid default by refinancing maturing debt,” Verde wrote. “A number of very weak issuers are living on borrowed time while benign conditions last.” The level of speculative-grade issuance peaked in the U.S. in 2013, at $334.5 billion, according to the Securities Industry and Financial Markets Association. American companies have $8.8 trillion in total outstanding debt, a 49 percent increase since the Great Recession ended in 2009.

Read more …

President Mattarella has refused to accept the nominee for finance minister, Savona. He’s a euroskeptic.

Meanwhile, if Italian bonds are downgraded further, Europe has a massive problem.

• Moody’s Puts Italy On Downgrade Review, Junk Rating Possible (ZH)

In a quite direct ‘threat’ to the newly formed Italian coalition, Moody’s warned that Italy will face a downgrade from its current Baa2 rating (potentially more than one notch to junk status) due to the lack of fiscal restraint in the new “contract” and the potential for delays to Italy’s structural reforms. While Italy’s current rating is Baa2, and a downgrade would leave it at Baa3 (still investment grade), one look at Italian debt markets this week and one can be forgiven for thinking it is pricing in a multiple-notch downgrade to junk… and thus potentially making things awkward for its ECB bond-buying-benefactor and its banking system’s massive holdings of sovereign bonds.

Full Moody’s Report: Moody’s Investors Service has today placed the Government of Italy’s ratings on review for possible downgrade. Ratings placed under review are the Baa2 long-term issuer and senior unsecured bond ratings as well as the (P) Baa2 medium-term MTN programme, the (P)Baa2 senior unsecured shelf, the Commercial Paper and other short-term ratings of Prime-2/(P) Prime-2 respectively. The key drivers for today’s initiation of the review for downgrade are as follows: 1. The significant risk of a material weakening in Italy’s fiscal strength, given the fiscal plans of the new coalition government; and 2. The risk that the structural reform effort stalls, and that past reforms such as the pension reforms implemented in 2011 are reversed.

Moody’s will use the review period to assess the impact of the fiscal and economic policy platform of the new government on Italy’s credit profile, with a particular focus on the effect on the deficit and debt trajectories in the coming years. The review will also allow Moody’s to assess further whether the new government intends to continue to pursue growth-enhancing structural reforms, or conversely to reverse earlier reforms, such as the 2011 pension reform, as well as other economic policy initiatives in the coming months that may have an incidence on the country’s growth potential over the coming years.

Read more …

What do you mean we can’t blame the weather?

• UK Economy Posts Worst Quarterly GDP Figures For Five Years (G.)

The weakest household spending for three years and falling levels of business investment dragged the economy to the worst quarter for five years, official statisticians have said. The Office for National Statistics confirmed its previous estimate that GDP growth slumped to 0.1% in the first quarter, while sticking to its view that the “beast from the east” had little impact. The latest figures will further stoke concerns over the strength of the UK economy, amid increasing signals for deteriorating growth as Britain prepares to leave the EU next year. Some economists, including officials at the Bank of England, thought the growth rate would be revised higher as more data became available.

Threadneedle Street delayed raising interest rates earlier this month after the weak first GDP estimate, despite arguing that the negative hit to the economy from heavy snowfall in late February and early March had probably been overblown. Instead the ONS said it had seen a longer-term pattern of slowing growth in the first three months of the year. Rob Kent-Smith of the ONS said: “Overall, the economy performed poorly in the first quarter, with manufacturing growth slowing and weak consumer-facing services.” While admitting bad weather will have had some impact, particularly for firms in the construction industry and some areas of the retail business, statisticians said the overall effect was limited, with increased online sales and heightened energy production during the cold snap.

The figures show the services industries contributed the most to GDP growth, with an increase of 0.3% in the first quarter, while household spending grew at a meagre 0.2%. The construction industry declined by 2.7% and business investment fell by 0.2%.

Read more …

“..an advance team of 30 White House and State Department officials was preparing to leave for Singapore later this weekend..”

• Prospects of US-North Korea Summit Brighten (R.)

Prospects that the United States and North Korea would hold a summit brightened after U.S. President Donald Trump said late on Friday Washington was having “productive talks” with Pyongyang about reinstating the June 12 meeting in Singapore. Politico magazine reported that an advance team of 30 White House and State Department officials was preparing to leave for Singapore later this weekend. Reuters reported earlier this week the team was scheduled to discuss the agenda and logistics for the summit with North Korean officials. The delegation was to include White House Deputy Chief of Staff Joseph Hagin and deputy national security adviser Mira Ricardel, U.S. officials said, speaking on condition of anonymity.

Trump said in a Twitter post late on Friday: “We are having very productive talks about reinstating the Summit which, if it does happen, will likely remain in Singapore on the same date, June 12th., and, if necessary, will be extended beyond that date.” Trump had earlier indicated the summit could be salvaged after welcoming a conciliatory statement from North Korea saying it remained open to talks. “It was a very nice statement they put out,” Trump told reporters at the White House. “We’ll see what happens – it could even be the 12th.” “We’re talking to them now. They very much want to do it. We’d like to do it,” he said.

Read more …

Through Kimberley Strassel, the Wall Street Journal distances itself ever more from the MSM.

• The Real ‘Constitutional Crisis’ (Strassel)

Democrats and their media allies are again shouting “constitutional crisis,” this time claiming President Trump has waded too far into the Russia investigation. The howls are a diversion from the actual crisis: the Justice Department’s unprecedented contempt for duly elected representatives, and the lasting harm it is doing to law enforcement and to the department’s relationship with Congress. The conceit of those claiming Mr. Trump has crossed some line in ordering the Justice Department to comply with oversight is that “investigators” are beyond question. We are meant to take them at their word that they did everything appropriately. Never mind that the revelations of warrants and spies and dirty dossiers and biased text messages already show otherwise.

We are told that Mr. Trump cannot be allowed to have any say over the Justice Department’s actions, since this might make him privy to sensitive details about an investigation into himself. We are also told that Congress – a separate branch of government, a primary duty of which is oversight – cannot be allowed to access Justice Department material. House Intelligence Committee Chairman Devin Nunes can’t be trusted to view classified information – something every intelligence chairman has done – since he might blow a source or method, or tip off the president. That’s a political judgment, but it holds no authority. The Constitution set up Congress to act as a check on the executive branch—and it’s got more than enough cause to do some checking here.

Yet the Justice Department and Federal Bureau of Investigation have spent a year disrespecting Congress—flouting subpoenas, ignoring requests, hiding witnesses, blacking out information, and leaking accusations. Senate Judiciary Chairman Chuck Grassley has not been allowed to question a single current or former Justice or FBI official involved in this affair. Not one. He’s also more than a year into his demand for the transcript of former national security adviser Mike Flynn’s infamous call with the Russian ambassador, as well as reports from the FBI agents who interviewed Mr. Flynn. And still nothing.

[..] Mr. Trump has an even quicker way to bring the hostility to an end. He can – and should – declassify everything possible, letting Congress and the public see the truth. That would put an end to the daily spin and conspiracy theories. It would puncture Democratic arguments that the administration is seeking to gain this information only for itself, to “undermine” an investigation. And it would end the Justice Department’s campaign of secrecy, which has done such harm to its reputation with the public and with Congress.

Read more …

“..a malevolent secret police operation..”

• A Mendacious Exercise In Manufacturing Paranoia (Jim Kunstler)

After many months, the gaslight is losing its mojo and a clearer picture has emerged of just what happened during and after the 2016 election: the FBI, CIA, and the Obama White House colluded and meddled to tilt the outcome and, having failed spectacularly, then labored frantically to cover up their misdeeds with further misdeeds. The real election year crimes for which there is actual evidence point to American officials not Russian gremlins. Having attempted to incriminate Trump at all costs, these tragic figures now scramble to keep their asses out of jail.

I say “tragic” because they — McCabe, Comey, Rosenstein, Strzok, Page, Ohr, et al — probably think they were acting heroically and patriotically to save the country from a monster, and I predict that is exactly how they will throw themselves to the mercy of the jury when they are called to answer for these activities in a court of law. Of course, they have stained the institutional honor of the FBI and its parent Department of Justice, but it is probably a healthier thing for the US public to maintain an extremely skeptical attitude about what has evolved into a malevolent secret police operation.

The more pressing question is how all this huggermugger gets adjudicated in a timely manner. Congress has the right to impeach agency executives like Rod Rosenstein and remove them from office. That would take a lot of time and ceremony. They can also charge them with contempt-of-congress and jail them until they comply with committee requests for documents. Mr. Trump is entitled to fire the whole lot of the ones who remain. But, finally, all this has to be sorted out in federal court, with referrals made to the very Department of Justice that has been a main actor in this tale.

The most mysterious figure in the cast is the MIA Attorney General, Jeff Sessions, who has become the amazing invisible man. It’s hard to see how his recusal in the Russia matter prevents him from acting in any way whatsoever to clean the DOJ house and restore something like operational norms — e.g. complying with congressional oversight — especially as the Russia matter itself resolves as a completely fabricated dodge. The story is moving very fast now. The Pequod is whirling around in the maelstrom, awaiting the final blow from the white whale’s mighty flukes.

Read more …

Gullible?

• Tesla Seeks To Dismiss Securities Fraud Lawsuit (R.)

Tesla Inc on Friday asked a court to dismiss a securities fraud lawsuit by shareholders who said the electric vehicle maker gave false public statements about the progress of producing its new Model 3 sedan. In a filing in federal court in San Francisco, Tesla said that its statements about the challenges the company faced with Model 3 were “frank and in plain language,” including repeated disclosures by Chief Executive Elon Musk of “production hell.” Tesla did not seek to hide the truth, its motion to dismiss said. The company says its Model 3 has experienced numerous “bottlenecks” from problems with Tesla’s battery module process at its Nevada Gigafactory to general assembly at its Fremont plant.

Tesla is under pressure to deliver the Model 3 to reap revenue and stem massive spending that has put Tesla’s finances in the red. The ramp of the Model 3, Tesla said in the court filing, was “the first of its kind,” with difficulties likely to crop up after it got underway. The lawsuit filed last October seeks class action status for shareholders who bought Tesla stock between May 4, 2016 through October 6, 2017, inclusive. It said shareholders bought “artificially inflated” shares because Musk and other executives misled them with their statements. Tesla made such statements during the lead-up to, and early production of, its Model 3 sedan and failed to disclose that the company was “woefully unprepared” for the vehicle’s production, the lawsuit said.

Read more …

Good on ’em! Cars don’t belong in cities.

• Madrid Takes Its Car Ban to the Next Level (CityLab)

The days when cars could drive unhindered through central Madrid are coming to a close. Following an announcement this week, the Spanish capital confirmed that, starting in November, all non-resident vehicles will be barred from a zone that covers the entirety of Madrid’s center. The only vehicles that will be allowed in this zone are cars that belong to residents who live there, zero-emissions delivery vehicles, taxis, and public transit. Even on a continent where many cities are scaling back car access, the plan is drastic. While much of central Madrid consists of narrow streets that were never suitable to motor vehicles in the first place, this central zone also includes broad avenues such as Gran Via, and wide squares that have been islands in a sea of surging traffic for decades.

The plan is thus not just about making busy central streets more pleasant, but about creating a situation where people simply no longer think of bringing their cars downtown. This might come as a shock to some drivers, but the wind has been blowing this way for more than a decade. Madrid set up the first of what it calls Residential Priority Zones in 2005, in the historic, densely packed Las Letras neighborhood. Since then, a modest checkerboard of three other similar zones have been installed across central Madrid. The new area will be a sort of all-encompassing zone that abolishes once and for all the role of downtown streets as through-routes across the city.

To get people used to the idea, implementation of the non-local car ban will be staggered. In November, manual controls by police around the zone’s edge will begin. Cars that are breaching the new rules will be warned of the fine they face in the future—€90 per occurrence—without actually being charged then. In January, a fully automated system with cameras will be put in place, and from February, the €90 will be actively enforced against any cars found breaking the rules.

Read more …

Debt Rattle February 19 2018

Feb 192018
 
 February 19, 2018  Posted by at 10:56 am Finance Tagged with: , , , , , , , , , ,  5 Responses »


Frank Larson Broadway Billboard Seven Year Itch 1955

 

• Global Dividends Hit Record Of $1.25 Trillion In 2017, More To Come (R.)
• Jittery US Bond Market Braces For Supply Wave (R.)
• How Did America Go Bankrupt? Slowly At First, Then All At Once (CH)
• London’s Housing Boom Is Over, Rightmove Says (BBG)
• Average Price Of Newly Marketed UK Home Rises Above £300,000 Again (G.)
• Ex-CIA Director Thinks US Hypocrisy About Election Meddling Is Hilarious (CJ)
• German Carmakers In A Spin Ahead Of Diesel Ban Ruling (R.)
• Sweden Is Getting Worried About Its Cashless Society (BBG)
• Europe Is A Collection Of Filter Bubbles (BBG)

 

 

As is the case with buybacks, this is all money that execs decide NOT to invest in a company (productivity, modernization, maintenance), but in its stock value.

• Global Dividends Hit Record Of $1.25 Trillion In 2017, More To Come (R.)

Global dividends rose 7.7% to an all-time high of $1.25 trillion (1 trillion euros) last year boosted by a buoyant world economy and rising corporate confidence, Janus Henderson said on Monday, predicting another record year ahead. The surge – the strongest since 2014 – was driven by increases in every region and almost every industry with record showings in 11 countries including the United States, Japan, Switzerland, Hong Kong, Taiwan and the Netherlands, the investment manager added. For 2018 Janus Henderson expects dividends to keep the same 7.7% growth rate to reach around $1.35 trillion, as corporate and economic growth remains strong even in more volatile financial markets. “Companies are seeing rising profits and healthy cash flows, and that’s enabling them to fund generous dividends.

The record payout last year was almost three-quarters higher than in 2009, and there is more to come,” Ben Lofthouse, Director of Global Equity Income at Janus Henderson, said. “The next few months are set fair, and we expect global dividends to break new records in 2018.” Adjusting for movements in exchange rates, special one-off dividends and other factors, global dividends rose 6.8% last year and are expected to rise another 6.1% in 2018. Janus said 2017’s dividend growth showed less regional divergence than in previous years, reflecting the broadly based global economic recovery, though Europe lagged behind. European dividends rose just 1.9% to $227 billion, weighed down by cuts from a handful of large companies in France and Spain, lower special dividends and a weak euro during the second quarter, when most dividends are paid, it said.

Read more …

How can more debt not be good?

• Jittery US Bond Market Braces For Supply Wave (R.)

Bond investors, who have been on edge over signs of growing inflation and a possibly more aggressive Federal Reserve, will have their work cut out for them as the U.S. government seeks to sell $258 billion worth of debt this coming week. The Treasury Department began ramping up its debt issuance earlier this month to fund the expected growth in borrowing tied to the biggest tax overhaul in 30 years and a two-year federal spending package. Last year’s tax reform is expected to add as much as $1.5 trillion to the federal debt load, while the budget agreement would increase government spending by almost $300 billion over the next two years. Analysts worry the combination of a rising budget deficit, faster inflation and more Fed rate increases have ratcheted up the risk of owning Treasuries. Those concerns pushed benchmark 10-year Treasury yields up to 2.944%, a four-year peak last week.

Treasury bill and two-year yields have reached their highest level in more than nine years. The five-year Treasury yield is hovering at its highest levels in nearly eight years, while seven-year yield climbed to levels not seen since April 2011. The increase in U.S. yields may entice investors seeking steady income in the wake of the rollercoaster sessions on Wall Street and other stock markets this month, analysts said. [..] The heavy Treasury supply will kick off on Tuesday with $151 billion worth of bills including record amounts of three-month and six-month T-bills. The rest of the debt sales will spread over a holiday-shortened week with $28 billion of two-year fixed rate notes on Tuesday; $35 billion in five-year debt on Wednesday and $29 billion in seven-year notes on Thursday. The Treasury Department also plans to add $15 billion to an older two-year floating-rate issue.

Read more …

Everything is debt. Imagine what would happen if it wasn’t there. Or soon won’t be.

• How Did America Go Bankrupt? Slowly At First, Then All At Once (CH)

Clearly, debt has surged since 2000 and particularly since 2008 versus decelerating net full time jobs growth. The number of full time employees is economically critical as, generally speaking, only these jobs offer the means to be a home buyer or build savings and wealth in a consumer driven economy. Part time employment generally offers only subsistence level earnings. But if we look at the change over those periods highlighted, we get a clear picture. Full time jobs are being added at a rapidly declining rate while federal debt is surging in the absence of the growth of full time employees.

And if we look at the federal debt added per full time job added (chart below)…broken arrow…broken arrow!!! That is $1.92 million dollars in new federal debt per net new full time employee since 2008. Compare that to the $30 thousand per net new full time employee from ’70 to ’80…or $140 thousand from ’80 to ’90…and nearly quadruples the $460 thousand per from ’00 to ’08. Despite a far larger total population and after ten years of “recovery” since ’08, this is likely as good as it gets. We are likely at or very near the top of this economic cycle. This pattern is likely to carry forward over the next decade and economic cycle…likely with disastrous results.

[..] US population growth has been decelerating since 1790 and debt to GDP rising (chart below). Originally, the combination of a relatively small population, high immigration, and high birth rates meant annual population growth in excess of 3% and relatively low debt to GDP. Over time, as the population grew, immigration slowed, and birth rates collapsed; US population growth tumbled. Since 1950 total annual population growth (black line in chart below) has decelerated almost 75% (from 2% to 0.6%) but more critically the annual population growth among the under 65 year old population has essentially ceased (as the yellow line in the chart shows) and more debt has been the resounding “solution”. Massive interest rate cuts to incent debt creation have been substituted for the decelerating organic growth.

Read more …

About time.

• London’s Housing Boom Is Over, Rightmove Says (BBG)

London’s property market has moved out of its boom phase and home sellers need to be more realistic about their price demands, according to Rightmove. The February report from the home-listing website shows that asking prices were down 1% from a year earlier, a sixth consecutive fall. They rose 4.4% on the month, reflecting the usual jump at the start of the spring season. While multiple reports point to a cooling in London housing, the damage is being limited by cautious sellers, who aren’t flooding the market in a panic to dump property. That means the long-running supply-demand imbalance in the city is providing some support to prices. “End-of-the-boom prices normally readjust more quickly if there is an over supply,” Miles Shipside, Rightmove director, said in the report. However, “some would-be sellers are holding back, preventing a glut of competition from forcing prices downward,” he said.

The capital’s housing market was the worst performing in the U.K. in 2017 and there’s little to suggest any upturn is in store. Brexit uncertainty has damped demand, while years of rampant inflation has pushed ownership out of reach for many. The mean asking price in London this month was almost 630,000 pounds ($885,000), more than 20 times average U.K. earnings. For those who need a fast sale, Shipside’s advice is to “sacrifice some of the substantial price gains of the last few years.” The average time to sell a property in London is now 83 days, up from 73 days a year ago. Nationally, asking prices increased 0.8% in February from January, though that was below the 10-year average for the time of year. The average price of 300,000 pounds is up 1.5% year-on-year. That compares with gains of about 6% seen less than two years ago.

Read more …

But wait, this quotes Rightmove as well…

• Average Price Of Newly Marketed UK Home Rises Above £300,000 Again (G.)

The average price of a UK property coming on to the market has risen by more than £2,400 in a month to just over £300,000 amid evidence of “record” levels of house-hunting activity, according to Rightmove. The website, which tracks 90% of the UK property market, said the national average asking price for a home had increased by 0.8% during the past month, following the 0.7% rise it reported in mid-January. However, some sellers may be over-pricing their properties: the average time to sell has risen once again and is now 72 days, compared with 67 days a month ago and 55 during the summer of 2017. In London, the average has climbed to 83 days. Rightmove said that while it was the norm for new sellers’ asking prices to be buoyant at the start of a new year, “this first complete month in 2018 is seeing more pricing optimism than the comparable period in 2017”.

In general, however, sellers were not being over-ambitious or setting too high a price, it added. The website, which claims to display a stock of more than one million properties to buy or rent, said the average asking price now stood at £300,001, compared with £297,587 a month ago. It described January as its “busiest month ever”, with a record 141m website visits. In all the UK regions it tracks, the typical price of a newly-marketed property rose during the past month, with the exception of south-west England, where the figure slipped back slightly. Scotland saw the biggest monthly increase, at 5.1%, while the north-east and Wales managed 3.6% and 3.5%. However, on a national basis, the annual rate of price growth “remains subdued” at 1.5%, said the website.

Read more …

Isn’t it?

• Ex-CIA Director Thinks US Hypocrisy About Election Meddling Is Hilarious (CJ)

Take off the terrorist’s mask, and it’s the CIA. Take off the revolutionary’s mask, and it’s the CIA. Take off the Hollywood producer’s mask, and it’s the CIA. Take off the billionaire tech plutocrat’s mask, and it’s the CIA. Take off the news man’s mask, and guess what? It’s the motherfucking CIA. CIA influence is everywhere. Anywhere anything is happening which could potentially interfere with the interests of America’s unelected power establishment, whether inside the US or outside, the depraved, lying, torturing, propagandizing, drug trafficking, coup-staging, warmongering CIA has its fingers in it. Which is why its former director made a cutesy wisecrack and burst out laughing when asked if the US is currently interfering in other democracies.

Fox’s Laura Ingraham unsurprisingly introduced former CIA Director James Woolsey as “an old friend” in a recent interview about Special Prosecutor Robert Mueller’s indictment of 13 alleged members of a Russian troll farm, in which Woolsey unsurprisingly talked about how dangerous Russian “disinformation” is and Ingraham unsurprisingly said that everyone should really be afraid of China. What was surprising, though, was what happened at the end of the interview. “Have we ever tried to meddle in other countries’ elections?” Ingraham asked in response to Woolsey’s Russia remarks. “Oh, probably,” Woolsey said with a grin. “But it was for the good of the system in order to avoid the communists from taking over. For example, in Europe, in ’47, ’48, ’49, the Greeks and the Italians we CIA-”

“We don’t do that anymore though?” Ingraham interrupted. “We don’t mess around in other people’s elections, Jim?” Woolsey smiled and said said “Well…”, followed by a joking incoherent mumble, adding, “Only for a very good cause.” And then they both laughed. They laughed about this. They thought it was funny and cute. They thought it was funny and cute that the very allegation being used to manufacture support for world-threatening new cold war escalations against a nuclear superpower was something they both knew the United States does constantly, usually through Woolsey’s own CIA. The US government’s own data shows that it has deliberately meddled in the elections of 81 foreign governments between 1946 and 2000, including Russia in the nineties. That isn’t even counting the coups and regime changes it facilitated, including right here in my home Australia in the seventies.

The US meddles constantly in other democracies, not “for a good cause” as Woolsey claims, but to advance the agendas of the loosely allied plutocrats, intelligence and defense agencies which comprise America’s permanent government. It does this not to improve or protect the lives of ordinary Americans, but to make the rich richer and the powerful more powerful, usually at the expense of the money, resources, homes, governments, livelihoods and lives of people in other countries. It does this with impunity and without hesitation.

Read more …

Carmakers rule the country.

• German Carmakers In A Spin Ahead Of Diesel Ban Ruling (R.)

A court will decide on Thursday whether German cities can ban heavily polluting cars, potentially wiping hundreds of millions of euros off the value of diesel cars on the country’s roads. Environmental group DUH has sued Stuttgart in Germany’s carmaking heartland, and Duesseldorf over levels of particulate matter exceeding EU limits after Volkswagen’s 2015 admission to cheating diesel exhaust tests. The scandal led politicians across the world to scrutinize diesel emissions, which contain the matter and nitrogen oxide (NOx) and are known to cause respiratory disease. There are around 15 million diesel vehicles on German streets and environmental groups say levels of particulates exceed the EU threshold in at least 90 German towns and cities.

Local courts ordered them to bar diesel cars which did not conform to the latest standards on days when pollution is heavy, startling German carmakers because an outright ban could trigger a fall in vehicle resale prices, and a rise in the cost of leasing contracts, which are priced on assumed residual values. The German states concerned, where the carmakers and their suppliers have a strong influence, appealed against the decisions, leaving Germany’s federal administrative court – the court of last resort for such matters – to rule on whether such bans can legally be imposed at local level.

“The key question is whether bans can already be considered to be legal instruments,” said Remo Klinger, a lawyer for DUH. “It’s a completely open question of law.” Paris, Madrid, Mexico City and Athens have said they plan to ban diesel vehicles from city centers by 2025, while the mayor of Copenhagen wants to ban new diesel cars from entering the city as soon as next year. France and Britain will ban new petrol and diesel cars by 2040 in a shift to electric vehicles.

Read more …

Big Brother is not worried.

• Sweden Is Getting Worried About Its Cashless Society (BBG)

‘“No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile. But the pace at which cash is vanishing has authorities worried. A broad review of central bank legislation that’s underway is now taking a special look at the situation, with an interim report due as early as the summer. “If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review. He declined to get into more details on what types of proposals could be included in the report. Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments.

But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society. “One may get into a negative spiral which can threaten the cash infrastructure,” Dillen said. “It’s those types of issues we are looking more closely at.” Last year, the amount of cash in circulation dropped to the lowest level since 1990 and is more than 40 percent below its 2007 peak. The declines in 2016 and 2017 were the biggest on record. An annual survey by Insight Intelligence released last month found only 25 percent of Swedes last year paid in cash at least once a week, down from 63 percent just four years ago. A full 36 percent never use cash, or just pay with it once or twice a year.

Read more …

There is no such thing as one Europe. And the more the EU promotes the narrative, the more that will become obvious.

• Europe Is A Collection Of Filter Bubbles (BBG)

The EU can act in unison at times – for example, on Russia sanctions or, at least so far, on Brexit. But as French President Emmanuel Macron and German Chancellor Angela Merkel try for a closer union in the next few years, they will need to be mindful of the fact that there is no single narrative among the publics in different European countries on matters of economic importance. A recent paper for Bruegel, a Brussels-based think tank, vividly shows this by analyzing coverage of Europe’s recent financial crisis by four important centrist newspapers: Germany’s Sueddeutsche Zeitung, France’s Le Monde, Italy’s La Stampa and Spain’s El Pais. The total data set encompassed 51,714 news stories. The researchers fed them to a content analysis algorithm and then analyzed the results to construct generalized narratives. Their focus was on how blame for the crisis was attributed.

They found that only El Pais consistently attributed blame to Spain itself for its financial troubles during the euro crisis. “In Spain, the connection between the global financial crisis, the local housing bubble and the mismanagement of a previous period of impressive growth was more visible,” Porcaro explained to me. As one might expect, Sueddeutsche Zeitung blames the crisis on a departure from the traditional German social market economic model. Everyone except Germany seems to have contributed, according to the Munich paper — from greedy financial market players to financially imprudent Greeks to the ECB with its loose monetary policy. Le Monde, too, blamed the banks and speculators, but also German intransigence in handling the indebted southern Europeans.

And La Stampa focused on Italy’s role as a victim of circumstance, namely globalization and German-imposed austerity. Banks and financiers didn’t get much attention as culprits from the Italian newspaper, but the Italian political system and government did get some blame, as in Spain. Le Monde and La Stampa, according to the Bruegel paper, both “embrace a sense of desperation that goes far beyond purely economic considerations but calls into question the entire political system and social fabric.” It’s as if the euro area’s four biggest economies didn’t share a reality. The four quality dailies resemble the blind men in the Indian parable, feeling different parts of an elephant’s body, declaring the whole animal should look like a tree or a snake, then coming to blows when they can’t agree.

Read more …

Debt Rattle September 25 2016

Sep 252016
 
 September 25, 2016  Posted by at 8:50 am Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle September 25 2016


Harris&Ewing Boy Scout farm 1917

• The Market Is In Line With History. The History Of Crashes (Stockman)
• How to Suffocate Your Economy: Drown it in Massive Private Debt (Vague)
• Vancouver Property Sales To Foreigners Crash 96% (ZH)
• Merkel Rules out State Assistance for Deutsche Bank (BBG)
• EU Must Turn Off the Dividend Spigot at Under-Capitalized Banks (PS)
• China Continues to Battle Massive Capital Flight Problem (Brink)
• Naked Shorts Can’t Stay Naked Forever (Dayen)
• Whistleblower Describes Years Of Fraudulent, Criminal Culture At Wells Fargo (BB)
• Former Employees File Class Action Against Wells Fargo (R.)
• Clinton Server Tech Told FBI Of Colleagues’ Worries About System (R.)
• America’s War On Its Own Children (G.)
• Death Toll In Migrant Shipwreck Off Egypt Rises To 300 (G.)

 

 

The level of high grade corporate debt is more than 2X its pre-crisis peak. As Capex is down 10%, and net fixed business investment is 20% below 2000 levels. Corporations are burning and bleeding cash left right and center. Question: what has the debt been used for?

• The Market Is In Line With History. The History Of Crashes (Stockman)

By punting again [this week], our dithering money printers at the Fed are continuing to fuel a monumental orgy of corporate bond issuance. It only enables companies to speculate in their own stocks with borrowed money, while heaping windfall gains on the fast money traders who hound corporate boards into strip-mining their own balance sheets. The level of high grade corporate debt outstanding has gone nearly parabolic in the last few years and now stands at more than 2X its pre-crisis peak. Yet even Yellen admitted during yesterday’s mindlessly meandering presser that business capital expenditure (CapEx) has been extraordinarily weak. In fact, non-defense CapEx orders excluding aircraft peaked in mid-2104 and are now down by 10%.

Even more to the point, real net fixed business investment after depreciation is still 20% below the level it reached way back in early 2000. That is, two bubbles ago. Perhaps the question about where all this hand-over-fist corporate borrowing is going might have occurred to at least one of the geniuses who voted to stand pat. But apparently it didn’t because once again Yellen insisted that “valuations are largely in line with their historical trends.” What in the world is our clueless school marm talking about? At the closing price yesterday, the S&P 500 traded at 25X the $87 per share reported for the last twelve month (LTM) period ending in June. And that was in the face of earnings that have plunged 19% since peaking in the September 2014 LTM period.

Yellen is right about the historical trends, of course. But not at all in a good way. In fact, on the eve of the last crash when the market peaked in October 2007 at about 1550, S&P 500 earnings during the most recent LTM period had posted at $79 per share. That means the peak pre-crash multiple was substantially lower than today at 19.7X. Even when S&P earnings peaked at $54 per share in September 2000, the multiple was only a tad higher than today at 26.5X. So, yes, the market is in line with history. That is, the history of crashes! The truth is, the Fed is inherently, relentlessly and radically in the financial bubble business. But the Keynesian school marm who runs it wouldn’t know a bubble if one transported her to the moon and back.

Read more …

The role of debt has been growing for a long time.

• How to Suffocate Your Economy: Drown it in Massive Private Debt (Vague)

[..] if a country’s private debt to GDP ratio is low, let’s say 50%, then the households and businesses in that country generally have low loan-to-income ratios and are well positioned to power growth through increased leverage. And if a country’s private debt to GDP ratio is high, let’s say 200%, then the households and businesses in that country are generally overleveraged, with, on average, very high debt ratios. They are much less likely to be able to boost growth through more borrowing.

Chart 2 showed that private debt to GDP in major economies has been growing rapidly since World War II. However, it has been growing in size relative to GDP for a lot longer than that. It’s part of a process often described by economists as “financialization” or “financial deepening,” an increase in the size of a country’s debt and equity markets usually explained as simply the maturation of a market. But as we have seen, when it comes to debt, it is much more than that—it is the path from low leverage to overleverage for the participants in that economy. The benefit of increasing leverage from low levels has played a central role in the miraculous gains in incomes over the 200-plus years since the Industrial Revolution.

You can see this clearly in Chart 3. I have made a concerted effort to reconstruct more than 200 years of private debt history for the six countries in this chart—China, Japan, Germany, Britain, France, and the United States—because collectively, they have accounted for roughly 50% or more of global GDP since the Industrial Revolution. So studying the data of these six countries during this period gives us a fairly solid proxy for the world during the most important era of economic history. (This chart is a work-in-progress which will be augmented and refined in preparation for an upcoming book on this same subject.)

Read more …

Auckland, Sydney, London etc. should do the same.

• Vancouver Property Sales To Foreigners Crash 96% (ZH)

China’s favorite offshore money laundering hub is officially no longer accepting its money. According to data released by British Columbia’s Ministry of Finance on Thursday, foreign investors officially disappeared from Vancouver’s property market last month after the local government imposed a 15% surcharge to curb a record-shattering surge in home prices. Overseas buyers accounted for a paltry 0.7% of the C$6.5 billion of residential real estate purchases in August in Metro Vancouver; this represents a 96% plunge from the seven weeks prior, when foreigners were responsible for 16.5% of transactions by value. According to the latest data overseas buyers snapped up C$2.3 billion of homes in the seven weeks before the tax was imposed, and less than C$50 million in the next four weeks.

[..] As Bloomberg notes, the plunge in foreign participation joins other signs of a slowdown in Canada’s most expensive property market. The silver lining is that while transactions may have ground to a halt, the government did pick up some extra tax revenues: British Columbia has raised C$2.5 million in revenue from the new levy since it took effect. Budget forecasts released last week indicated that the Pacific coast province expects foreign investors to scoop up about C$4.5 billion of real estate through March 2019. That may prove optimistic, because as reported two weeks ago as Chinese buyers wave goodbye to Vancouver, they have set their sights on another Canadian city: Toronto. According to the Star, sales of $1-million-plus Toronto-area single-family homes rose 83% year over year in July and August. That’s 3,026 homes, with 55% of them inside Toronto’s borders.

[..] if they are looking in Canada, we believe Toronto will be the most logical place for people to consider. Montreal and Calgary will probably also get a look-see,” Henderson said. Or maybe not. As CBC reported earlier this week, economist Benjamin Tal of CIBC said that Ontario will have little choice but to copy Vancouver and implement a tax on foreign house buyers. In a recent note to clients, the economist said the biggest problem facing policymakers with regard to hot housing markets in Toronto and Vancouver is a limit on the supply of new homes. “The main reason behind higher prices in the [Greater Toronto Area] is a policy-driven lack of land supply,” Tal said. “And with no change on that front, policymakers have to use demand tools to deal with what is essentially a supply problem.”

Read more …

I’m going to have my doubts here.

• Merkel Rules out State Assistance for Deutsche Bank (BBG)

Chancellor Angela Merkel has ruled out any state assistance for Deutsche Bank in the year heading into the national election in September 2017, Focus magazine reported, citing unidentified government officials. The German leader also declined to step into the bank’s legal imbroglio with the U.S. Justice Department, which may seek as much as $14 billion in sanctions against Deutsche Bank’s mortgage-backed securities business, the magazine said. The finances of Germany’s biggest lender, which has lost almost half of its market value this year, are raising concern among German politicians.

At a closed session of Social Democratic finance lawmakers this week, Deutsche Bank’s woes came up alongside a debate over Basel financial rules, according to two people familiar with the matter. Germany’s government expects a “fair outcome” in the U.S. probe, the Finance Ministry said on Sept. 16. Deutsche Bank has said it’s unwilling to pay the maximum amount sought by U.S. authorities as investors fret about the bank’s capital. Chief Executive Officer John Cryan, 55, has struggled to boost profitability by selling riskier assets and eliminating jobs as unresolved legal probes and claims add to concerns that the lender will be forced to raise capital.

Read more …

Cut off dividends and share prices will fall through the floor.

• EU Must Turn Off the Dividend Spigot at Under-Capitalized Banks (PS)

Dividend payments made by under-capitalized banks amount to a substantial wealth transfer from subordinated bondholders to shareholders, because it is bondholders who will suffer the losses in a crisis. Moreover, it is potentially a wealth transfer from taxpayers to private shareholders, because under new banking rules government bailouts are possible after bondholders have covered (bailed in) 8% of a bank’s equity and liabilities. By contrast, undercapitalized banks in the US are forced to halt all forms of capital distribution if they fail a stress test. Fortunately, following the 2016 round of stress tests, the EBA is now also considering this type of regulatory sanction. Thus, “competent authorities may also consider requesting changes to the institutions’ capital plan,” which “may take a number of forms such as potential restrictions on dividends required for a bank to maintain the agreed trajectory of its capital planning in the adverse scenario.”

We estimate that if European regulators had adopted this approach and forced banks to stop paying dividends in 2010 – the start of the sovereign debt crisis in Europe – the retained equity could have paid for more than 50% of the 2016 capital shortfalls. The figure above shows our calculated capital shortfalls, using the EBA stress test’s “adverse scenario” losses and the cumulative dividends these banks have distributed since 2010. Dividends paid out by some banks, such as BNP Paribas and Barclays, actually exceed the current capital shortfalls, while at others – such as Deutsche Bank, Commerzbank, and Société Générale – capital shortfalls far exceed dividends that would have been retained. The latter banks would still require substantial capital issuances on top of dividend restrictions to make up the difference. Nonetheless, our findings suggest a simple first step toward preventing bank capital erosion: stop banks with capital shortfalls from paying dividends (including internal dividends such as employee bonuses).

Read more …

Not everyone believes the omnipotency tale Beijing likes to spread.

• China Continues to Battle Massive Capital Flight Problem (Brink)

Last summer, China’s stock market collapse and unexpected devaluation deepened its capital outflow problem and accelerated the fall of reserves, which had started in mid-2014. Since February, reserves have started to stabilize. While the situation is clearly better, China continues to struggle in terms of stabilizing its massive capital outflows. Within that context, foreign reserves seem to have become a policy target. Although capital outflows are still large, it’s not enough for reserves to start falling again. In 2015, the largest net outflows stemmed from the repayment of bank loans (close to $500 billion in “other investment” outflows), followed by unrecorded outflows of residents amounting to nearly $200 billion.

Portfolio flows (equity and bond) were also negative, but smaller. The situation has hardly improved in 2016, based on first quarter data. In fact, all types of capital recorded outflows, even net foreign direct investment (FDI), which was not the case in 2015. It’s important to note that Chinese residents have been driving capital outflows for years. The difference in 2015 is that non-residents stopped investing in China and started to move their capital out. Still, the bulk of the outflow was made by residents. These are unrecorded outflows and also include the investment of Chinese companies, as well as the loans of Chinese banks abroad (increasingly in the emerging world).

Read more …

SEC? FBI? Who can be trusted to investigate?

• Naked Shorts Can’t Stay Naked Forever (Dayen)

A few years into his personal quest to understand how he had lost a million dollars on a penny stock, Chris DiIorio developed a sweeping hypothesis involving Knight Capital, the mammoth brokerage company that frequently traded in them. Knight earned $333 million in pre-tax profits in 2008, and another $232 million in 2009. But DiIorio didn’t think Knight was making that kind of money simply from executing transactions for clients. As a market maker, Knight was in the rare position of being able to legally sell a stock it didn’t have (the principle being that it will get that stock soon, so no worries). That’s called naked shorting. It’s illegal when regular people do it. DiIorio suspected that Knight, either on its own behalf or on behalf of clients, made a practice of artificially increasing the number of shares available in a stock through naked shorting, thereby depressing the price.

His suspicion grew when he noticed that Knight often traded in securities that were red-flagged on the Depository Trust Company’s “chill list.” The DTC is an obscure financial industry-owned company that manages the custody of more than $1 quadrillion in securities annually, recording the transfers with journal entries and guaranteeing the trade. The company makes it easy for people to buy and sell securities without needing to exchange paper stock But when the DTC senses trouble, it will stop clearing trades on a stock temporarily. A chilled stock can still trade — as long as the market participants handle the physical certificates themselves. But it can be a sign that something is gravely wrong. The DTC states on its website that it chills stocks “when there are questions about an issuer’s compliance with applicable law.” That doesn’t stop Knight from buying and selling them, though.

Its chief legal officer, Thomas Merritt, acknowledged at a 2011 Securities and Exchange Commission roundtable that the company actively traded chilled stocks, saying that as long as the security still trades, “we are going to be involved in that business.” And DiIorio found numerous examples of Knight trading chilled penny stocks. “I didn’t know they did that,” said Jim Angel, a Georgetown University business school professor. “I’m kind of shocked to think that Knight would be working with paper stock certificates.” He suggested that Knight might simply want to accommodate customers trying to get out of chilled stocks. “Or maybe they feel there’s enough interest in a security that they can trade profitably, even if they have to shuffle the certificates.” Because most other market makers flee chilled stocks, however, this means Knight can assume even more control over the stock price.

Read more …

Upper management should be dragged before a public committe.

• Whistleblower Describes Years Of Fraudulent, Criminal Culture At Wells Fargo (BB)

Beth Jacobson was a Wells Fargo loan officer who blew the whistle on the bank’s predatory, racist loan-fraud in the runup to the 2008 financial crisis, which tanked the world’s economy and nearly wiped out Wells Fargo (they were rescued with a $36B taxpayer-funded bailout). Eight years later, Wells Fargo has fired 5,300 employees for participating in a scam that involved opening 2,000,000 fake accounts in its customers’ names, stealing their money and crashing their credit-ratings – the exec who oversaw this a $125M taxpayer-subsidized bonus, and CEO John Stumpf, who took home $200M in bonuses based on profits from the fraud, will keep the money and his job, but the whistleblowers who reported the fraud starting in 2011 were all illegally fired.

Jacobson describes how Stumpf – now CEO, then a top exec – was complicit in the fraud that helped precipitate the crash and the worst recession since the Great Depression. She pins blame for the loan-fraud on the bank’s aggressive sales targets – the same thing that caused the current fraud, suggesting that the bank hasn’t learned a fucking thing since 2008, except that it can get away with crime, every time. “One means of falsifying loan applications that I learned of involved cutting and pasting credit reports from one applicant to another. I was aware of A reps who would ‘cut and paste’ the credit report of a borrower who had already qualified for a loan into the file of an applicant who would not have qualified for a Wells Fargo subprime loan because of his or her credit history.

I was also aware of subprime loan officers who would cut and paste W-2 forms. IDs deception by the subprime loan officer would artificially increase the creditworthiness of the applicant so that Wells Fargo’s underwriters would approve the loan. I reported this conduct to management and was not aware of any action that was taken to correct the problem. “High-ranking Wells Fargo managers knew that this practice was going on, because after about a year of these standby explanations being given, underwriters in the underwriting department were told to call the customers directly rather than contact the loan officer who was working with the customer. The loan officers quickly figured out how to work around this by warning customers that underwriters might call them and then coaching the customers about what to say.

Read more …

CEO gone.

• Former Employees File Class Action Against Wells Fargo (R.)

Two former Wells Fargo employees have filed a class action in California seeking $2.6 billion or more for workers who tried to meet aggressive sales quotas without engaging in fraud and were later demoted, forced to resign or fired. The lawsuit on behalf of people who worked for Wells Fargo in California over the past 10 years, including current employees, focuses on those who followed the rules and were penalized for not meeting sales quotas. “Wells Fargo fired or demoted employees who failed to meet unrealistic quotas while at the same time providing promotions to employees who met these quotas by opening fraudulent accounts,” the lawsuit filed on Thursday in California Superior Court in Los Angeles County said.

Wells Fargo has fired some 5,300 employees for opening as many as 2 million accounts in customers’ names without their authorization. On Sept. 8, a federal regulator and Los Angeles prosecutor announced a $190 million settlement with Wells. The revelations are a severe hit to Wells Fargo’s reputation. During the financial crisis, the bank trumpeted being a conservative bank in contrast with its rivals. The lawsuit accuses Wells Fargo of wrongful termination, unlawful business practices and failure to pay wages, overtime, and penalties under California law. Former employees Alexander Polonsky and Brian Zaghi allege Wells Fargo managers pressed workers to meet quotas of 10 accounts per day, required progress reports several times daily and reprimanded workers who fell short.

Polonsky and Zaghi filed applications matching customer requests and were counseled, demoted and later terminated, the lawsuit said. While executives at the top benefited from the activity, the blame landed on thousands of $12-per-hour employees who tried to meet the quotas and were often required to work off the clock to do so, the lawsuit said.

Read more …

It’s time to scrutinize the FBI’s role in the whole ‘affair’. That the Hillary people have not been fully honest is now so obvious one wonders why Comey et al have granted many immunity and let them off the hook in general.

• Clinton Server Tech Told FBI Of Colleagues’ Worries About System (R.)

A technician hired by Hillary Clinton to run the private email system she used while U.S. secretary of state told investigators he tried to pass on colleagues’ concerns that the system might not comply with records laws, FBI interview summaries show. Bryan Pagliano, the technician Clinton hired when she joined the State Department in 2009, told federal investigators he relayed the concerns to Cheryl Mills, then Clinton’s chief of staff. Mills has previously testified under oath she could not recall anyone alerting her to potential problems with Clinton’s email arrangement.

The episode had not been disclosed until the Federal Bureau of Investigation released on Friday night nearly 200 pages of additional records from its year-long investigation into the handling of classified government documents by Clinton and her staff via an unauthorized email server in the basement of her New York home. Clinton has said the decision to use a private email system was a mistake, but the controversy has dogged her campaign as the Democratic candidate for the presidency and raised public doubts about her trustworthiness, public opinion polls show. Republicans have criticized her for putting national security at risk. The FBI closed the year-long investigation in July, recommending no charges, although FBI Director James Comey said Clinton and her staff had been “extremely careless” in handling classified government secrets.

Pagliano has declined to answer questions by Republican lawmakers about his work on Clinton’s server, but spoke to federal investigators after securing a form of immunity from prosecution. He told investigators two colleagues from the technology office approached him with concerns during Clinton’s first year after learning about the email system. One said it could lead to a “federal records retention issue,” Pagliano told investigators, and urged him to raise the concern with Clinton’s “inner circle.” A colleague also warned Pagliano “he wouldn’t be surprised” if classified information was being sent through Clinton’s unsecure system, Pagliano told the FBI.

Read more …

“Every day, on average, seven children and teens are killed by guns in America.”

• America’s War On Its Own Children (G.)

It was just another day in America. And as befits an unremarkable Saturday, 10 children and teens were killed by gunfire. They died in altercations at gas stations, accidents in bedrooms, standing on stairwells and walking down the street, in gangland hits and by mistaken identity. Like the weather, none of them would make the national news because, like the weather, their deaths did not disturb the accepted order of things. Every day, on average, seven children and teens are killed by guns in America. Firearms are the leading cause of death among black children under 19, and the second greatest cause of death for all children of the same age, after car accidents. I picked this day at random, and spent two years trying to find out who these children were.

I searched for their parents, pastors, baseball coaches, and scoured their Facebook and Twitter feeds. The youngest child was nine, the oldest 19. Four years ago, for a moment, there was considerable interest in the fact that large numbers of Americans were being fatally shot. On 14 December 2012, 20-year-old Adam Lanza shot his mother, then drove to Sandy Hook Elementary School and shot 20 small children and six staff dead. Mass shootings comprise a small proportion of gun violence, but they disturb America’s self-image in a way that the daily torrent of gun deaths does not. “Seeing the massacre of so many innocent children … it’s changed America,” said the Democrat senator Joe Manchin, who championed a tepid gun-control bill. “We’ve never seen this happen.”

Read more …

“At the current rate, the death toll for 2016 is expected to easily surpass the figure for 2015 of 3,771..”

• Death Toll In Migrant Shipwreck Off Egypt Rises To 300 (G.)

A record number of migrants is expected to drown in the Mediterranean in 2016, after the estimated death toll in this week’s latest shipwreck rose to about 300 on Friday. Egyptian officials have rescued about 160 survivors from Wednesday’s shipwreck off the country’s north coast, leaving about 150 people still unaccounted for, according to the International Organisation for Migration (IOM). Those confirmed dead include 10 women and a baby, taking the estimated number of migrants to die in the Mediterranean so far this year to more than 3,500. At the current rate, the death toll for 2016 is expected to easily surpass the figure for 2015 of 3,771, which was the highest ever recorded. By this stage in 2015, 2,887 people had drowned.

The number of people trying to reach Europe has fallen significantly since last year’s record levels, as a result of the deal struck between the EU and Turkey and the closure of a humanitarian corridor between Greece and Germany. The flow of migrants from the three main departure points – Libya, Turkey and Egypt – stands at roughly the same level as 2014.

Read more …

Debt Rattle August 17 2016

Aug 172016
 
 August 17, 2016  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , ,  1 Response »


Harris&Ewing Buying Army surplus food sold at fish market 1919

• Global Central Banks Dump US Debt At Record Pace (CNN)
• The $6 Trillion US Public Pension Sinkhole (MW)
• UK Dividends at Risk as Pension Holes Deepen (BBG)
• Japan Official Threatens Action If Yen Rises Too Sharply (WSJ)
• Bank Of Japan Buying Sends Nikkei 225 To Highest In 18 Years (ZH)
• The “Housing Crisis” in San Francisco Strangles Demand (WS)
• Chinese Investors Are Largest International Buyers Of US Real Estate (Forbes)
• Australia Central Bank Governor In Complete Bubble Denial (BI)
• “Racketeering Is Ruining Us” (Kunstler)
• Iceland Prepares To End Currency Controls (Tel.)
• ‘I Want You Back,’ Cries East Europe as Emigrant Tide Erodes GDP (BBG)
• Tsipras Revives Greek Bid To Seek Wartime Reparations From Berlin (Kath.)
• Turkey To Free 38,000 From Prisons To Make Space For Alleged Coup Plotters (AP)
• German Officials Say Erdogan Supports Militants (DW)

 

 

Concerted effort to relieve the USD?

• Global Central Banks Dump US Debt At Record Pace (CNN)

Global central banks are unloading America’s debt. In the first six months of this year, foreign central banks sold a net $192 billion of U.S. Treasury bonds, more than double the pace in the same period last year, when they sold $83 billion. China, Japan, France, Brazil and Colombia led the pack of countries dumping U.S. debt. It’s the largest selloff of U.S. debt since at least 1978, according to Treasury Department data. “Net selling of U.S. notes and bonds year to date thru June is historic,” says Peter Boockvar, chief market analyst at the Lindsey Group, an investing firm in Virginia. U.S. Treasurys are considered one of the safest assets in the world. A lot of countries keep their cash holdings in U.S. government bonds.

Many countries have been selling their holdings of U.S. Treasuries so they can get cash to help prop up their currencies if they’re losing value. The selloff is a sign of pockets of weakness in the global economy. Low oil prices, China’s economic slowdown and currencies losing value are all weighing down global growth, which the IMF described as “fragile” earlier in the year. Despite all the selling by these countries, private demand for the bonds has sky rocketed. Demand is so high that the U.S. can afford to pay historically low interest rates. The 10-year U.S. Treasury hit a record low of 1.34% earlier this year, before bouncing back to about 1.58%, currently.

Read more …

Nice try, but I’m not so sure a different way of accounting would make the hole itself any smaller.

• The $6 Trillion US Public Pension Sinkhole (MW)

U.S. state and local employee pension plans are in trouble — and much of it is because of flaws in the actuarial science used to manage their finances. Making it worse, standard actuarial practice masks the true extent of the problem by ignoring the best financial science — which shows the plans are even more underfunded than taxpayers and plan beneficiaries have been told. The bad news is we are facing a gap of $6 trillion in benefits already earned and not yet paid for, several times more than the official tally. Pension actuaries estimate the cost, accumulating liabilities and required funding for pension plans based on longevity and numerous other factors that will affect benefit payments owed decades into the future.

But today’s actuarial model for calculating what a pension plan owes its current and future pensioners is ignoring the long-term market risk of investments (such as stocks, junk bonds, hedge funds and private equity). Rather, it counts “expected” (hoped for) returns on risky assets before they are earned and before their risk has been borne. Since market risk has a price — one that investors must pay to avoid and are paid to accept — failure to include it means official public pension liabilities and costs are understated. The current approach calculates liabilities by discounting pension funds cash flows using expected returns on risky plan assets. But Finance 101 says that liability discounting should be based on the riskiness of the liabilities, not on the riskiness of the assets.

With pension promises intended to be paid in full, the science calls for discounting at default-free rates, such as those offered by Treasurys. Here’s the problem: 10-year and 30-year Treasurys now yield 1.5% and 2.25%, respectively. Pension funds on average assume a 7.5% return on their investments – and that’s not just for stocks. To do that, they have to take on a lot more risk – and risk falling short. Much debate focuses on whether 7.5% is too optimistic and should be replaced by a lower estimate of returns on risky assets, such as 6%. This amounts to arguing about how accurate is the measuring stick. But financial economists widely agree that the riskiness of most public pension plans liabilities requires a different measuring stick, and that is default-free rates.

Read more …

“It’s happening to pension schemes but will feel like it’s happening to the whole company.”

If these companies cut dividends, investors will sell their shares. But they also will if and when true pensions deficits become public. Can’t win.

• UK Dividends at Risk as Pension Holes Deepen (BBG)

Workers have long fretted about funding gaps in U.K. companies’ retirement plans. Now investors are starting to join them. Since the U.K.’s June 23 vote to leave the European Union, pension deficits have swelled as record-low U.K. government bond yields have reduced returns on fund investments. That has added to pressure on companies facing gaps in their retirement funding, including telecommunications provider BT, grocer Tesco and military contractor BAE. With little prospect of higher returns after the Bank of England cut interest rates this month, companies may have to reduce dividend payments to raise pension contributions and close funding gaps. That means investors, who have been insulated from the U.K.’s pension crisis, could feel the effects.

“There is no doubt that shareholders of companies with major pension deficits will be concerned,” said Raj Mody, who heads PricewaterhouseCoopers’ pension consulting group. “It’s happening to pension schemes but will feel like it’s happening to the whole company.” Companies in the FTSE 100 paid around five times as much in dividends as they provided in contributions to defined-benefit pension plans last year, a report published Tuesday by consultant Lane Clark & Peacock showed. Through July 31 the FTSE 100 companies’ combined pension deficits – the amount by which liabilities outstrip assets – increased to £46 billion ($59.7 billion) from £25 billion a year earlier, Lane Clark said. Total pension liabilities of the 350 largest U.K. companies as a percentage of market capitalization rose to 40% in June, the highest level in the last 10 years except during the global financial crisis, according to Citigroup.

Read more …

Like what? QE?

• Japan Official Threatens Action If Yen Rises Too Sharply (WSJ)

Japan’s top currency bureaucrat issued a fresh warning Wednesday over the soaring yen, saying the government would have to act should it rise too sharply. “If there are excessively sharp movements, we will have to take action,” Vice Finance Minister for International Affairs Masatsugu Asakawa told reporters at the ministry’s headquarters. The comment was likely a veiled threat of direct intervention in the currency market to force lower the yen — a step increasingly seen as undesirable manipulation among wealthy economies. The remark followed the yen’s surge Tuesday beyond the 100 mark against the dollar. A higher yen reduces Japanese manufacturers’ repatriated profits and undermines a positive growth cycle sought by Prime Minister Shinzo Abe. The dollar rose against the yen following Asakawa’s remark. Japan last intervened to undercut the yen in 2011.

Read more …

Abe and Kuroda are a success story.

• Bank Of Japan Buying Sends Nikkei 225 To Highest In 18 Years (ZH)

Having noted the farcical share ownership of The Bank of Japan (biggest shareholder in 55 companies) as Kuroda's ETF-buying goes to '11', we thought it interesting that the distortion caused by these "pick a winner" purchases has sent Japan's Nikkei 225 to its richest relative to Japan's Topix index in 17 years. As Bloomberg notes, Japan’s two major equity benchmarks have moved mostly together over the years. That changed this month following the latest meeting by the Bank of Japan, which boosted its purchases of exchange-traded funds as part of its easing program.

The BOJ’s heavier allocation to ETFs tracking the Nikkei 225 has helped push the gauge to its highest level versus the Topix index in 18 years.

 

Which – as we noted previously – leaves one big question… just how will the BOJ ever unwind its unprecedented holdings of not only bonds, which are now roughly 100% of Japan's GDP, but also of stocks, without crashing both the bond and the stock market. And then we remember, that the BOJ will simply never unwind any of its "emergency" opertions just because nobody actually thought that far, plus the whole point of the exercise is hyperinflation or bust, as the sheer lunacy of Japan's authorities is exposed for the entire world to see, leading to the terminal collapse of faith in the local currency. With every passing day, we get that much closer to said terminal moment.

Read more …

Time for a hole new approach to housing. It should be a basic right, not some financial bet.

• The “Housing Crisis” in San Francisco Strangles Demand (WS)

Here’s the other side of central-bank engineered asset price inflation, or “healing the housing market,” as it’s called in a more politically correct manner: San Francisco Unified school district, which employs about 3,300 teachers, has been hobbled by a teacher shortage. Despite intense efforts this year – including a signing bonus – to bring in 619 new teachers to fill the gaps left behind by those who’d retired or resigned, the district is short 38 teachers as of Monday, when the school year started. Others school districts in the Bay Area have similar problems. For teachers, the math doesn’t work out. Average teacher pay for the 2014-15 school year was $65,000. And less after taxes. But the median annual rent was $42,000 for something close to a one-bedroom apartment.

After taxes and utilities, there’s hardly any money left for anything else. A teacher who has lived in the same rent-controlled apartment for umpteen years may still be OK. But teachers who need to find a place, such as new teachers or those who’ve been subject of a no-fault eviction, are having trouble finding anything they can afford in the city. So they pack up and leave in the middle of the school year, leaving classes without teachers. It has gotten so bad that the Board of Supervisors decided in April to ban no-fault evictions of teachers during the school year. Yet renting, as expensive as it is in San Francisco, is the cheaper option. Teachers trying to buy a home in San Francisco are in even more trouble at current prices. And it’s not just teachers!

This aspect of Ben Bernanke’s and now Janet Yellen’s asset price inflation – and consumer price inflation for those who have to pay for housing – is what everyone here calls “The Housing Crisis.” As if to drive home the point, so to speak, the California Association of Realtors just released its Housing Affordability Index (HAI) for the second quarter. It is based on the median house price (only houses, not condos), prevailing mortgage interest rate, household income, and a 20% down payment. In San Francisco, the median house price – half sell for more, half sell for less – is $1.37 million. According to Paragon Real Estate, if condos were included, the median price would drop to $1.2 million.

Read more …

Wonder what Trump thinks about this.

• Chinese Investors Are Largest International Buyers Of US Real Estate (Forbes)

Over the past five years, Chinese buyers spent about $17 billion on U.S. commercial real estate while spending roughly $93 billion on homes in the U.S. over the same period. Last year they paid about $832,000 per U.S. home in high profile cities like New York, Chicago, Miami, Los Angeles, Las Vegas and San Francisco. The Society indicated that Chinese purchase of residential property is primarily motivated by a desire for second homes; primary residences for those moving to the U.S. on EB-5 investor visas or as rental or resale investments. Concerns about the stability of the renminbi exchange rate have accelerated the pace of Chinese commercial investment abroad since the middle of 2015.

Motivations aside, China’s interest in investing in the U.S. has legs that carry implications for our enterprises and communities alike. When coupled with the 100 million mainland Chinese travelers expected to visit the U.S. annually by 2020 it’s clear the U.S. travel and hospitality industry and business community at large need to prepare for a changing landscape. For the travel and hospitality industry, it won’t be long before we see mainland Chinese hoteliers exporting their national lodging brands to the U.S. and other countries to complement the high-profile global brands in which they’ve invested. As their countrymen increasingly travel the world, just like generations of Americans and Europeans before them, they will want to stay in hotels with which they’re familiar back home.

Soon, it will be commonplace to find hotel brands developed by hoteliers like Jinling Hotels & Resorts or Jin Jiang International Holdings sitting side by side U.S. brands like Hilton, Sheraton, Hyatt or Marriott in cities throughout the U.S. Across the country, already more than 100,000 Americans get their weekly paychecks from a company based in China. That number will grow exponentially in coming years. As mainland Chinese investors continue to buy U.S. companies and brands and establish their own enterprises here, they will be eager to become members and leaders of the local chamber of commerce, to join the neighborhood PTA, represent their companies on area social and charitable boards and so on—just as our nationals who work and live abroad do in the countries in which they reside.

Read more …

And so is the author of this piece. Stunning. The heading is mine.

• Australia Central Bank Governor In Complete Bubble Denial (BI)

The surge in property prices, especially in Sydney and Melbourne has made home owners extremely wealthy but cruelled the prospect of home ownership for many who aren’t already in the market. That’s especially true for younger Australians. That is causing some intergenerational issues in housing, which is a bigger question than “is there a housing bubble or not” according to RBA governor Glenn Stevens in the full transcript of his interview with the Australian and Wall Street Journal. Stevens acknowledged “it’s always been hard to be that cohort that’s trying to enter the market. There’s always been a hurdle. It may be getting worse, though part of this is – I mean, there’s a lot of things happening here”.

One of things that’s happening, Stevens believes, is that a chunk of the wealth home owners think they are sitting on in their house will prove ephemeral. That’s because if they want their children to own a home then they are going to have to give them some of that cash to do so. Here’s Stevens: “I think that a lot of people of my generation are actually going to find themselves, if they haven’t already, helping their children into the housing market because that may be almost the only way that their children can enter the Sydney market, anyway, and be not too far from mum and dad. And I suspect that will happen a lot, and that, of course, means that for people of my age, that the wealth we think we have in our house, actually, we don’t have quite as much as we thought because we’re going to have to give some of it to the next generation.”

He acknowledged that for renters locked out of the property market this could mean the issue perpetuates into the next generation. But his point about the shared wealth of families is also an important one for the future. It suggests for many children of those with property, who feel locked out of the market, the problem of home ownership can be self-curing. That’s because, as Stevens notes, older Australians can share their wealth now. [..] With the nuclear family shrinking, and the number of children and grandchildren on average reduced from a generation or two ago, there is likely to be a large number of younger Australians coming into some serious wealth when their parents or grandparents pass on. It could take a decade or two, but ultimately younger Australians could end up the longest living and richest generation in the nation’s history.

Read more …

“..oil priced at over $75 a barrel in today’s dollars tends to crush economies, and oil priced under $75 a barrel in today’s dollars tends to crush oil companies.”

• “Racketeering Is Ruining Us” (Kunstler)

The disorders in politics that we’re seeing now are really expressions of the larger disorders in our economic life and our financial life. That just happens to be the avenue that the expression is coming out of. Another point I’d like to make is that the reason that people are against Hillary or dumping on Hillary or don’t like her, is because she’s a poster child for racketeering. I encourage people who are talking about our circumstances and people who are interested in the news and election, to use the word racketeering to describe what’s going on in this country. You really need the right vocabulary to understand exactly what’s going on.

Racketeering is just pervasive in all of our activities. Not just in politics but in things even like medicine and education. Obviously the college loan scheme is an example of racketeering. Anybody who has to go to an emergency room with a child whose broken their finger or something, is going to end up with a bill for $20,000. You know why? Because of medical racketeering. And so, these are really efforts to money-grub by any means necessary, often in ways that are unethical and probably illegal. Let’s use that word racketeering to describe our national situation. And let’s remember by the way, the activities of the central banks is just another form of racketeering. Using debt issuance and attempting to control interest rates in order to conceal our inability to generate the kind of real wealth that we need to continue as a techno-industrial society.

Societies have a really hard time understanding what they’re doing, articulating the problems that they face and coming up with a coherent consensus about what’s happening, and coming up with a coherent consensus about what to do about it. Combine that with another quandary, the relationships between energy and the dead racket for concealing real capital formation. I like to reduce it to one particular formula that is pretty easy for people to understand. It’s a classic quandary: that oil priced at over $75 a barrel in today’s dollars tends to crush economies, and oil priced under $75 a barrel in today’s dollars tends to crush oil companies. There is no real sweet spot between those two places. We’re ratcheting between them and each one of them entails a lot of destruction. That’s a terrible quandary that we’re in and it’s being expressed in banking and finance…and the people in charge of those things don’t really know what else to do except continue the deformation of institutions and instruments.

Read more …

Strong.

• Iceland Prepares To End Currency Controls (Tel.)

Iceland plans to significantly ease capital controls for individuals and companies, marking the end of a regime that was described as the crutch for the Icelandic economy following the 2008 crisis. The Finance Ministry plans to put forward legislation on Wednesday to pave the way for the removal of capital controls for Icelanders who have been living with the restriction for eight years. The recommendations will mean that outward foreign direct investment will be unrestricted, but still subject to confirmation by the central bank.

Investment in foreign currency financial instruments will also be allowed and individuals will be authorised to buy one piece of property abroad each calendar year, irrespective of purchase price. Requirements, under penalty of law, to repatriate any foreign currency obtained abroad will also be eased and individual households will be given authorisation to buy foreign currency for travel. Iceland’s finance ministry said that next January the current ceiling on foreign investments will be raised. It is estimated that the changes in the bill will lead to a reduction of about 50-65pc in the number of requests for exemptions from the Foreign Exchange Act, which will speed up the processing time.

Read more …

The flipside of Soros.

• ‘I Want You Back,’ Cries East Europe as Emigrant Tide Erodes GDP (BBG)

Eastern Europe is borrowing a line from the Jackson 5 as it bids to turn a tide of emigration that’s eroding its economic prospects and compounding an already-gloomy demographic outlook. “I want you back” is the slogan Latvia has chosen to lure home citizens who’ve upped sticks to Europe’s west in search of more job opportunities and higher salaries. Poland’s Return program offers tips on jobs, housing and health care, while Romania is teaming up with private business, offering scholarships and hosting employment fairs to tempt back talented citizens. The campaigns have gained fresh impetus after the Brexit vote threw into doubt the future status of foreign workers in the U.K.

“The diaspora living abroad represent a huge untapped potential for their countries of origin,” said Rokas Grajauskas, an economist at Danske Bank who’s based in the Lithuanian capital of Vilnius. Stints abroad can be beneficial, instilling new skills and ways of thinking, he said. The hunt for greener pastures isn’t new. The Soviet collapse prompted an unprecedented outflow of eastern Europeans to the wealthier west, with EU membership and the 2008 financial crisis triggering further waves. The Baltic region suffered most over the past decade, the latest Eurostat data show. Making matters worse, much of the continent is grappling with low birth rates and aging populations.

Losing workers to other countries has already cost 21 central and eastern Europe nations an average of about 7 percentage points of GDP, according to the IMF, which predicts a hit of as much as 9 percentage points over the next 14 years should current trends continue. It recommends the EU maintain funding to ease migration pressures, and that countries improve labor-market conditions and engage with their diaspora abroad. As governments belatedly heed that last piece of advice, they may well recall other lines from the Jackson 5’s 1969 hit song. “I was blind to let you go,” the group sang. “I need one more chance.”

Read more …

Report due in 3 weeks.

• Tsipras Revives Greek Bid To Seek Wartime Reparations From Berlin (Kath.)

Greece’s leftwing Prime Minister Alexis Tsipras on Tuesday revived the country’s bid to seek war reparations over Nazi atrocities in Greece. “We will go all the way, first diplomatically and then legally, if necessary,” Tsipras said during events marking the World War II massacre in the village of Kommeno, in Arta, northwestern Greece. More than 300 people were executed on August 16, 1943 at the village which was then torched by German forces. The findings of an intra-party committee which was set up to look into Greek claims for German war reparations are expected to be submitted to Parliament in early September. The committee wrapped up its probe on July 27.

Read more …

I bet you there are coup plotters among those 38,000.

• Turkey To Free 38,000 From Prisons To Make Space For Alleged Coup Plotters (AP)

Turkey has issued a decree paving the way for the conditional release of 38,000 prisoners in an apparent move to make jail space for thousands of people who have been arrested after last month’s failed coup. The decree allows the release of inmates who have two years or less to serve of their prison terms and makes convicts who have served half of their term eligible for parole. Some prisoners are excluded: people convicted of murder, domestic violence, sexual abuse or terrorism and other crimes against the state. The measures would not apply for crimes committed after 1 July.

The justice minister, Bekir Bozdag, said the move would lead to the release of 38,000 people, adding it was not a pardon or an amnesty but a conditional release of prisoners. The government says the coup attempt on 15 July, which led to at least 270 deaths, was carried out by followers of the movement led by the US-based Muslim cleric Fethullah Gülen who have infiltrated the military and other state institutions. Gülen has denied any prior knowledge or involvement in the coup but Turkey is demanding that the US extradite him.

Read more …

Greece lives in fear. Because Merkel can’t give Turkey visa-free travel amid reports like this.

• German Officials Say Erdogan Supports Militants (DW)

Citing a classified document from the Interior Ministry to representatives of the Left party on Tuesday the German public broadcaster ARD reported, that members of the government consider Turkey’s regime a supporter of militant groups in the Middle East. German officials appear to have publicly acknowledged, if in a classified document, President Recep Tayyip Erdogan’s weapons support for militants fighting the regime of Bashar al-Assad in Syria, which Turkish journalists have reported in the past. “Especially since the year 2011 as a result of its incrementally Islamized internal and foreign policy, Turkey has become a central platform for action for Islamist groups in the Middle East,” the German officials said, according to ARD.

German security officials also said Erdogan had an “ideological affinity” with Egypt’s Muslim Brotherhood, ARD reported. Suppressed under Hosni Mubarak’s dictatorship, the movement went on to produce Egypt’s first democratically elected president, Mohammed Morsi. Despite the “affinity,” Erdogan has been publicly at odds with the Muslim Brotherhood in the past though he has since also criticized current Egyptian President Abdel-Fattah el-Sissi, who overthrew Morsi in a 2013 coup. Neither the United States nor the EU considers the Muslim Brotherhood a terror organization. The German officials also said Erdogan supported Hamas, the democratically elected governing party in the Gaza Strip.

Turkey’s president has said as much in the past, having told the US news host Charlie Rose, that “I don’t see Hamas as a terror organization.” Though the United States and EU do list Hamas as a prohibited group, nations such as Norway, Switzerland and Brazil do not. “It is a resistance movement trying to protect its country under occupation,” Erdogan added in the 2011 interview, referring to the Israeli state, with which Turkey also enjoys diplomatic ties.

Read more …