Jan 222017
 
 January 22, 2017  Posted by at 11:11 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Dorothea Lange Resettlement project, Bosque Farms, New Mexico 1935


The Inauguration, and the Counter-Inauguration (Atlantic)
White House Spokesman Slams Media In Bizarre First Briefing (ZH)
The Demons Have Been Unchained (HB)
How the NYT Plays with History (Robert Parry)
Any Country Leaving Euro Zone Must Settle Bill First: ECB’s Draghi (R.)
Trump Team in Talks with UK on Post-Brexit Trade Deal (BBG)
Utopian Ideas On Climate Change Will Get Us Precisely Nowhere (G.)

 

 

The Automatic Earth ‘celebrates’ its 9th birthday today! Thank you Nicole first of all, and thank all of you, so much, for reading, for commenting, being involved, for your kind donations. A true honor and pleasure.

(Someone had to point it out to me, of course I forgot.)

 

 

I’ve tried hard to understand what the women were/are protesting, and what I find is I’m still confused, since it seems they protest anything and everything. Or, as the Atlantic puts it: “the Women’s March was a protest that celebrated protest.” Looks to me like a surefire recipe for handing it to Trump on a platter.

Trump seems to be part of what’s being protested, but what exactly? His “grab the pussy” nonsense? But that was years ago and he was talking about willing women. Stupid and ugly, but it doesn’t make him a threat to all women. His abortion stance? Some of his supporters are pro-lifers for sure, but so far nothing indicates he’ll lead some big turnaround on the issue.

What I think everybody needs to recognize is that there are, and especially will be, very obvious and clearly definable topics linked to this administration that should be vigurously protested and investigated. But this protest doesn’t do any such thing.

Neither does the Democratic party, who can’t locate their own asses anymore. And most of all neither do the media, which for example covered nothing yesterday but a piece of absurd briefing theater about the number of people attending the inauguration. Once again handing the floor to Trump. It’s embarrassing.

Pointing out silly things Trump says that you know everyone in your respective echo chambers will agree with you on is easy, and Trump will keep feeding you. What it is not, though, is journalism. Or politics, for that matter. Or meaningful protest.

The role of Trump, I think, in America, must be that of a wake-up call. But nobody’s waking up.

The Inauguration, and the Counter-Inauguration (Atlantic)

In the middle of the National Mall, on the same spot that had, the day before, hosted the revelers who had come out for the inauguration of Donald Trump, a crowd of people protesting the new presidency spontaneously formed themselves into a circle. They grasped hands. They invited others in. “Join our circle!” one woman shouted, merrily, to a small group of passersby. They obliged. The expanse—a small spot of emptiness in a space otherwise teeming with people—got steadily larger, until it spanned nearly 100 feet across. If you happened to be flying directly above the Mall during the early afternoon of January 21, as the Women’s March on Washington was in full swing, you would have seen a throng of people—about half a million of them, according to the most recent estimates—punctuated, in the middle, by an ad-hoc little bullseye.

“What is this circle about?” a woman asked one of the circle-standers. “Nobody knows!” the circle-stander replied, cheerfully. The space stayed empty for a moment, as people clasped hands and looked around at each other with grins and “what-now?” expressions. And then: A woman ran through the circle, dancing, waving a sign that read “FREE MELANIA.” The crowd nodded approvingly. Another woman did the same with her sign. A group of three teenage boys danced with their “BAD HOMBRE” placards. The crowd whooped. Soon, several people were using the space as a stage. A woman dressed as a plush vulva shimmied around the circle’s perimeter. The circle-standers laughed and clapped and cheered. They held their phones in their air, taking pictures and videos. They cheered some more.

The Women’s March on Washington began in a similarly ad-hoc manner. The protest sprang to life as an errant idea posted to Facebook, right after Trump won the presidency. The notion weathered controversy to evolve into something that, on Saturday, was funereal in purpose but decidedly celebratory in tone. The march, in pretty much every way including the most literal, opposed the inaugural ceremony that had taken place the day before. On the one hand, it protested President Trump. Its participants wore not designer clothes, but jeans and sneakers and—the unofficial uniform of the event—pink knit caps with ears meant to evoke, and synonymize, cats. It had, in place of somber ritual, a festival-like atmosphere. It featured, instead of pomp and circumstance, people spontaneously breaking into dance on a spontaneously formed dance floor.

And yet in many ways, the march was also extremely similar to the inauguration whose infrastructure it had co-opted, symbolically and otherwise, for its own purposes. The Women’s March on Washington shared a setting—the Capitol, the Mall, the erstwhile inaugural parade route—with the ceremonies of January 20. And, following an election in which the victor lost the popular vote, the protest seems to have bested the inauguration itself in terms of (physical) public turnout. During a time of extreme partisanship and division—a time in which the One America the now-former president once spoke of can seem an ever-more-distant possibility—the Women’s March played out as a kind of alternate-reality inauguration: not necessarily of Hillary Clinton, but of the ideas and ideals her candidacy represented. The Women’s March was an installation ceremony of a sort—not of a new president, but of the political resistance to him.

“I DO NOT ACCEPT THIS FILTHY ROTTEN SYSTEM,” read one sign, carried by Lauren Grace, 35, of Philadelphia. She got the quote from Dorothy Day. And she intended it, Grace explained to me, to protest “a system that sort of left me out.” “We’re told that voting is a sacred right in this country,” Grace said. “But even though Hillary won the popular vote, she still lost. I feel pretty conflicted about a country where that could happen.”

The Women’s March was, to be sure, also a protest march in an extremely traditional vein: It featured leaders—celebrities, activists, celebrity activists—who gave speeches and offered performances on a stage with the Capitol in its background; its participants held signs, and chanted (“This-is-what-a-feminist-looks-like!,” “No-person-is-illegal!”), and commiserated. It was also traditional in that its participants were marching not for one specific thing, but for many related aspirations. Women’s reproductive rights. LGBTQ rights. Immigration rights. Feminism in general (“FEMALES ARE STRONG AS HELL,” one sign went, riffing off a famous feminist’s Netflix show). The environment (“CLIMATE CHANGE IS REAL,” “MAKE THE PLANET GREAT AGAIN”). Science (“Y’ALL NEED SCIENCE”). Facts (“MAKE AMERICA FACT-CHECK AGAIN”). Some signs argued for socialism. Some argued against plutocracy. Some argued for Kindness. Some pled for Peace. Some simply argued that America is Already Great.

This was a big-tent protest, in other words—a messy, joyful coalescence of many different movements. The Women’s March deftly employed, in its rhetoric, the biggest of the big-tent tautologies: The point of this protest wasn’t so much the specific things being protested as it was the very bigness of the crowds who were doing the protesting. This was another way the protest alternate-realitied the presidential inauguration: Just as the official ceremony is meant to celebrate not only the person occupying the presidency, but the presidency itself, the Women’s March was a protest that celebrated protest.

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Tyler Durden gets the essence: ..what he is seeing is that he once again is controlling the media narrative, which is focusing on a very immaterial and arbitrary issue, instead of spending time on investigative work and reporting on far more serious issues relating to Trump’s new administration.

White House Spokesman Slams Media In Bizarre First Briefing (ZH)

In a bizarre first briefing, White House press secretary Sean Spicer on Saturday unloaded a blistering attack on the media and accused it of false reporting about the otherwise irrelevant question of why Trump’s inauguration crowd was visibly smaller than that of Obama’s. Spicer used up virtually all the time in his first official appearance in the Press Briefing Room to denounce news organizations’ focus on the inaugural crowd size, saying “these attempts to lessen the enthusiasm of the inauguration are shameful and wrong.” We wouldn’t necessarily use those words: silly should suffice since if Trump really wanted to “defend” why fewer people attended his inauguration, he can simply say many more of his supporters are employed and had to be at work on Friday, than during either Obama’s 2009 or 2013 inauguration events.

However, the press secretary decided that hyperbole is the better part of valor and said “This was the largest audience to ever witness an inauguration, period, both in person and around the world” Spicer made the allegation despite photographs of the event clearly showed that the Mall was not full in the sections Spicer described, with dwindling-to-nonexistent crowds near the Smithsonian Institution Building and west toward the Washington Monument. There was also sparse attendance along the parade route from the Capitol to the White House. He alleged that some photos of the inauguration were “intentionally framed in a way” that minimized the crowd, without providing examples or evidence.

No official agency provides estimates of the size of gatherings on the Mall. But photos taken from the same vantage point at about the same time of day show that the crowds were far smaller than for President Barack Obama’s first inauguration, which Washington city officials estimated at 1.8 million people.Ultimately, the whole press briefing episode had a surreal undertone, one in which Trump, via his speaker, appears to continue to troll the press, now in the White House. As a seemingly perturbed NYU journalism professor Jay Rosen summarized it “Wow. Sean Spicer walked to the podium. Unloaded on the media for bias. Accused reporters of dishonesty. Walked off without taking questions.” The reaction among the rest of the press was similar.

Spicer took no questions from reporters and he did not say specifically how many people the White House believes attended the inauguration. He said three large sections of the Mall that each held at least 200,000 people were “full when the president took the oath of office.” Earlier on Saturday, in remarks at CIA headquarters in Langley, Trump said that from his vantage point at the podium, “it looked like a million, million and a half people. They showed a field where there were practically nobody standing there, and they said Donald Trump did not draw well.” Trump also said parts of the National Mall “all the way back to the Washington Monument” were “packed.”

Quoted by Bloomberg, former White House spokesman Ari Fleischer said on Twitter after Spicer’s remarks that “This is called a statement you’re told to make by the president. And you know the president is watching.” He is indeed, and what he is seeing is that he once again is controlling the media narrative, which is focusing on a very immaterial and arbitrary issue, instead of spending time on investigative work and reporting on far more serious issues relating to Trump’s new administration.

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The German press is just like the American one, clinging to consensus, hanging on to what is already lost: “Not only Democrats are hoping for an impeachment proceeding.”

The Demons Have Been Unchained (HB)

That was no presidential speech; that was a veritable declaration of war. Threatening in tone. Cold and calculating in logic. Change minus the hope. Donald Trump used the traditional Inauguration Day address to settle a score with the U.S. political establishment going back decades. With four ex-presidents sitting a few feet behind him, the 45th president delivered a populist manifesto. Until his victory, the nation’s political elite used days like these, he told America, to celebrate amongst themselves. Their triumph was not your triumph. Their well-being was not your well-being. But this time, power would transfer not just from one party to the other, but from Washington back to the people. In the people’s name, he will put America “first.” In their name, he will “take back” America’s factories.

In their name, he will “exterminate” Islamic terrorism, end inner-city drug gang “bloodbaths” and get NATO partners like Germany to pay more for Europe’s security. In domestic policy, the Trump agenda sounds like a blueprint for civil war; in foreign policy, it sounds like the dawn of a new ice age. Not that he’s cold-bloodedly planning either one, but he knows where his fiery rhetoric will lead him. The new president loves a good fight, not consensus. He doesn’t want to hug, but to smother, to overwhelm. Yesterday was his day, but the days that follow may belong to his opponents. There are three main opponents that could bring him down politically.

Opponent No. 1: The other America. Across the country, an anti-Trump movement is growing. While only 10,000 people came to an open-air concert in Washington celebrating his victory on the night before the inauguration, 20,000 people took to the streets in New York to protest his elevation. Their signs shouted: Not My President. The security and surveillance costs around Trump Tower on Fifth Avenue, at the corner of 56th Street, is costing taxpayers about a half million dollars – each day.

Opponent No. 2: The Media. Among publishers, producers, filmmakers and journalists, Trump has hardly any friends. CNN, The Washington Post, The New York Times and Hollywood couldn’t warm to the volcanic personality of the new president. Even an unbroken Twitter assault has no chance against such a monolithic wall of media rejection. He hates them, and they hate him right back. He pushes forward his agenda, and they push back unabashedly with theirs. Trump enters The White House with the lowest approval rating ever of an elected president.

Opponent No. 3: The Political Party System. Washington is having an allergic reaction to Trump. Democrats and even Republicans are cooperating on Capitol Hill to investigate the Trump team’s contacts to Russia in a special committee. House Speaker Paul Ryan doesn’t see himself as a Trump follower but as a Trump successor. He is the wolf in sheep’s clothing, biding his time, waiting for an opening. Put another way: Not only Democrats are hoping for an impeachment proceeding. America is now on the brink of a new period of polarization. The demons in this fraternal battle have been unchained. The greatness that Trump seeks will not be borne under these conditions. An icy wind is blowing across the land.

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Good overview by veteran Parry of late 20th century false news campaigns, Nixon vs Johnson, Reagan vs Carter and more.

How the NYT Plays with History (Robert Parry)

Whenever The New York Times or some other mainstream news outlet holds itself out as a paragon of professional journalism – by wagging a finger at some pro-Trump “fake news” or some Internet “conspiracy theory” – I cringe at the self-delusion and hypocrisy. No one hates fake news and fact-free conspiracy theories more than I do, but the sad truth is that the mainstream press has opened the door to such fantasies by losing the confidence of the American people and becoming little more than the mouthpiece for the Establishment, which spins its own self-serving narratives and tells its own lies. Rather than acting as a watchdog against these deceptions, the Times and its mainstream fellow-travelers have transformed themselves into little more than the Establishment’s apologists and propagandists.

If Iraq is the “enemy,” we are told wild tales about how Iraq’s non-existent WMD is a danger to us all. If Syria is in Washington’s crosshairs, we are given a one-sided account of what’s happening there, black hats for the “regime” and white hats for the “rebels”? If the State Department is backing a coup in Ukraine to oust an elected leader, we are regaled with tales of his corruption and how overthrowing a democratically chosen leader is somehow “democracy promotion.” Currently, we are getting uncritical stenography on every conceivable charge that the U.S. government lodges against Russia. Yet, while this crisis in American journalism has grown more severe in recent years, the pattern is not entirely new. It is reflected in how the mainstream media has missed many of the most significant news stories of modern history and has, more often than not, been an obstacle to getting at the truth.

Then, if the evidence finally becomes so overwhelming that continued denials are no longer tenable, the mainstream media tries to reclaim its tattered credibility by seizing on some new tidbit of evidence and declaring that all that went before were just rumors but now we can take the long whispered story seriously — because the Times says so.

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How long before Brussels starts begging countries to stay, offering deals and discounts?

Any Country Leaving Euro Zone Must Settle Bill First: ECB’s Draghi (R.)

Any country leaving the euro zone would need to settle its claims or debts with the bloc’s payments system before severing ties, ECB President Mario Draghi said. The comment – a rare reference by Draghi to the possibility of the currency zone losing members – came in a letter to two Italian lawmakers in the European Parliament released on Friday. It coincides with a groundswell of anti-euro sentiment in Italy and other euro zone states, fueled in part by last June’s unprecedented decision by Britain to leave the European Union. “If a country were to leave the Eurosystem, its national central bank’s claims on or liabilities to the ECB would need to be settled in full,” Draghi said in the letter.

Based on data to end-November from the Target 2 payment system, that would leave Italy with a €358.6 billion ($383.1 billion) bill. The system records flows of payments between euro zone countries. The threat of defaults on cross-border debts has often been credited as one element keeping the euro zone together throughout the financial crisis. As these payments are not generally settled, weaker economies including Italy, Spain and Greece have accumulated huge liabilities towards Target 2 while Germany stands out as the biggest creditor with net claims of €754.1 billion. Target 2 imbalances have worsened in recent months, with Harvard economist Carmen Reinhart warning of capital flight from Italy.

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Am I wrong in thinking the UK will have a very hard time signing any deal as long as it’s part of the EU? What are the odds of that even being legal in the first place?

Trump Team in Talks with UK on Post-Brexit Trade Deal (BBG)

The Trump administration this week will begin laying groundwork for a trade deal between the U.S. and the U.K. that would take effect after Britain leaves the European Union, a White House aide said. Prime Minister Theresa May last week declared Britain is “open for business” as she announced plans to pursue a clean break with the EU, paving the way for the U.K. to eventually strike new trade accords with the continent and other countries. May is to visit Washington this week. Trump officials believe their discussions with her government encouraged May to be more aggressive in exiting the union. She can use any American support to argue the U.K. will prosper outside the bloc although she risks inflaming tensions with EU leaders if they suspect her government is actively negotiating trade deals while still an EU member.

Two of President Donald Trump’s senior advisers, Steve Bannon and son-in-law Jared Kushner, met with U.K. Foreign Secretary Boris Johnson in New York on Jan. 8. The three are preparing for the future pact, the aide said, requesting anonymity because the discussions aren’t public. Bannon, Trump’s National Security Adviser Michael Flynn, and other administration officials have also met with British defense and intelligence leaders, the aide said. President Barack Obama warned in April that if the U.K. pursued Brexit, the country would go to the “back of the queue” for U.S. trade deals. U.K. voters chose to leave the EU anyway in a June referendum, and Trump now appears to be scrapping Obama’s position on the matter. Trump’s team is also considering a deal to reduce barriers between U.S. and British banks, the Sunday Telegraph reported, citing officials from both sides.

Trump has tapped Woody Johnson, the billionaire owner of the New York Jets NFL team, to serve as U.S. ambassador to the U.K., a person familiar with the matter said on Jan. 19. May and Mexican President Enrique Pena Nieto will make visits to the U.S. this month to meet with Trump, White House officials said. May will meet with Trump on Jan. 27, White House Deputy Press Secretary Sarah Huckabee said on Saturday. Pena Nieto will meet with Trump on Jan. 31, said White House Press Secretary Sean Spicer.

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The author starts out promising, then gets lost in the woods.

Utopian Ideas On Climate Change Will Get Us Precisely Nowhere (G.)

Urging people to stop consuming stuff in order to slow the rate of climate change is a gambit that is doomed to fail. It would be helpful if shoppers put off buying a suit or installing a new kitchen, but it’s not going to happen. Demonising those who fly to Barcelona for a long weekend is another tactic that will have almost no impact. It’s not for nothing that economists base many of their assumptions on populations having unlimited wants. Most people strain to acquire stuff that the rich have long taken for granted. Telling them to switch off this desire has never worked and is unlikely to do so now, even when the future of the planet is at stake. In this vein, the accession of Donald Trump to the presidential throne should not be read as a spectacular one-off reaction by a narrow, if electorally important group who missed out on GDP growth.

Consumption is how most people measure progress, and that will still be the case next year and in 10 years’ time, when Trump is long gone. Take a look at the figures for flights in and out of the UK, home of some the world’s busiest airports. City Airport, which is embarking on a £344m expansion, saw 4.3 million passengers in 2015. Heathrow, which has the government’s blessing for its own multibillion-pound development, welcomed 75 million passengers in the same year, Gatwick broke 40 million, and Stansted hit double-digit growth with 22.5 million passengers. Last year, Manchester airport boasted annual growth of 11% after it attracted 23.7 million passengers. And these figures don’t include the huge amount of imported and exported goods that flow through Britain’s airports.

If it’s true that trade is in the UK’s DNA – and the figures support this – any government, of whatever colour, will think twice before standing in the way of airport expansion. That doesn’t mean governments should not think about air travel when searching for ways to tackle climate change. Aircraft makers should be forced to make their planes more efficient, and airport owners must clean up the pollution they create. But this is an exercise in minimising the impact of flying, given that its expansion is inevitable. The same analysis should have applied to the country’s steel plants –and to its other polluting industries. Without a reduction in steel consumption, we must live with its continued production.

Read more …

Dec 092016
 
 December 9, 2016  Posted by at 9:42 am Finance Tagged with: , , , , , , , ,  4 Responses »
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Arthur Rothstein Migratory fruit pickers’ camp in Yakima, Washington Jul 1936


Trumponomics Will Collapse Under a Mountain of Debt (Stockman)
Shiller CAPE Ratio Signals ‘Overvaluation On A Very Grand Scale’ (CNBC)
The American Dream Is Fading And May Be Very Hard To Revive (WSJ)
Europe’s Comfort Blanket Is Being Pulled Away (AEP)
Albert Edwards’ ‘Most Frightening Chart’ (MW)
Australia Property Market Mirrors Tulip Bubble, Says Former Bank CEO (ND)
Top Official In Italy’s M5S Increases Call For Referendum On Euro (G.)
It Is Almost Certain There Will Be Another Euro Crisis In 2017 (McWilliams)
OPEC Deal Won’t Be Enough to Drain Oil Stockpiles (BBG)
UK Sells Majority Stock In Gas Infrastructure To China, Qatar (Ind.)
UK Village Unleashes Anger With Syrian Refugees: £600 Worth Of Jumpers (Ind.)
Relations With Ankara Sour As Turkey Disputes Greek Sovereignty (Kath.)
Electric Cars Are Only As Clean As Their Power Supply (G.)

 

 

Right back to the poisoned chalice I wrote about on the morning of election day.

Trumponomics Will Collapse Under a Mountain of Debt (Stockman)

Financial markets are heading straight into a perfect storm of central bank failure, bond market carnage, a worldwide recession and a spectacular fiscal bloodbath in Washington. Investors should be heading for the hills with all deliberate speed. What is going to stop Trumponomics cold is debt — roughly $64 trillion of it. That’s what is crushing the American economy, and until the mechanics of its relentless growth are stopped and reversed, the odds of achieving and sustaining the 3–4% real economic growth that Trump’s economics team is yapping about is somewhere between slim and none. Here’s the newsflash. The nation’s monumental debt problem wasn’t newly created by the Obama Administration or the fact that Nancy Pelosi never met a spending program she couldn’t embrace.

The last eight years have surely made the problem far worse and the Democrats are culpable without question. But quite frankly the debt problem is a thoroughly bipartisan creation that is completely immune to the fact that the White House and both sides of Capitol Hill are now under GOP control. In fact, the nation’s debt affliction actually goes back to August 1971 when Nixon closed the gold window and launched the world on the current destructive experiment with massive central bank driven credit expansion. However, it was after 1980 that the wraps really started coming off the debt monster that was spawned by the world’s unshackled central banks. In that context, Paul Volcker was the last honest central banker, and with Ronald Reagan’s acquiescence he did break the back of the virulent commodity and consumer goods inflation that had been unleashed by his immediate predecessors during the 1970s.

Yet Volcker’s great handiwork was for naught because of two other developments – the breakdown of fiscal rectitude and the final destruction of sound money by Alan Greenspan – that also occurred on the Gipper’s watch. In fact, the gigantic Reagan deficits — which nearly tripled the national debt from $930 billion to $2.7 trillion during his eight years in office — is exactly what led Greenspan to crank up the printing press at the Fed after the stock market crash in October 1987.

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What Stockman said, but now in a graph.

Shiller CAPE Ratio Signals ‘Overvaluation On A Very Grand Scale’ (CNBC)

While the S&P 500 is reaching all-time highs on optimism over Donald Trump’s economic agenda, some Wall Street strategists are increasingly worried about a widely followed valuation measure that’s reached levels that preceded most of the major market crashes of the last 100 years. “The cyclically adjusted P/E (CAPE), a valuation measure created by economist Robert Shiller now stands over 27 and has been exceeded only in the 1929 mania, the 2000 tech mania and the 2007 housing and stock bubble,” Alan Newman wrote in his Stock Market Crosscurrents letter at the end of November. Newman said even if the market’s earnings increase by 10% under Trump’s policies “we’re still dealing with the same picture,.”

The Shiller “cyclically adjusted price-to-earnings ratio” (CAPE) is calculated using price divided by the index’s average historical 10-year earnings, adjusted for inflation. Yale economics professor Robert Shiller’s research found future 10-year stock market returns were negatively correlated to high CAPE ratio readings on a relative basis. He won the Nobel Prize in economics in 2013 for his work on stock market inefficiency and valuations.

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Barely half of US 30-year-olds earn more than their parents did at that age..

The American Dream Is Fading And May Be Very Hard To Revive (WSJ)

Barely half of 30-year-olds earn more than their parents did at a similar age, a research team found, an enormous decline from the early 1970s when the incomes of nearly all offspring outpaced their parents. Even rapid economic growth won’t do much to reverse the trend. Economists and sociologists from Stanford, Harvard and the University of California set out to measure the strength of what they define as the American Dream, and found the dream was fading. They identified the income of 30-year-olds starting in 1970, using tax and census data, and compared it with the earnings of their parents when they were about the same age. In 1970, 92% of American 30-year-olds earned more than their parents did at a similar age, they found. In 2014, that number fell to 51%.

“My parents thought that one thing about America is that their kids could do better than they were able to do,” said Raj Chetty, a prominent Stanford University economist who emigrated from India at age 9 and is part of the research team. “That was important in my parents’ decision to come here.” Although there are many definitions of the American Dream—the freedom to speak your mind, for instance, or the ability to rise from poverty to wealth—the economists chose a measure that they said was possible to define precisely. The percentage of young adults earning more than their parents dropped precipitously from 1970 to about 1992, to 58%, found Mr. Chetty et al.

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Draghi says two or more completely contradictory things all in one breath. It’s what they pay him the big bucks for.

Europe’s Comfort Blanket Is Being Pulled Away (AEP)

The long-feared moment of bond tapering in the eurozone has arrived. The comfort blanket is being pulled away – gently – for the first time since the region first crashed into a debt crisis. The ECB has tried to cushion the blow with dovish rhetoric and a glacially slow exit but there is no denying that monetary policy has reached a critical turning point. “The ECB has delivered an unwelcome surprise,” said Luigi Speranza from BNP Paribas. Europe’s incipient tightening has begun just as the US Federal Reserve prepares to raise interest rate next week, probably the first of several rises over the next twelve months as the incoming Trump administration launches a fiscal boom. It comes as China takes action to choke off a property bubble and rein in shadow banking. The world’s three big monetary blocs will all be draining liquidity at the same time.

The ECB will wind down quantitative easing from €80bn to €60bn a month when the current programme expires in March. Societe Generale says that this is just the start, predicting more tapering of €10bn in June, and then further cuts of €10bn at each meeting – a truly drastic outlook. Doves at the ECB warned that it would be dangerous to start any tapering at this delicate juncture, given that there has been no flicker of life in core inflation – still stuck at 0.8pc – and given that imported monetary tightening from the US has already led to a doubling of Italian 10-year yields over the last three months. The doves were over-ruled. It is clear that a German-led bloc on the ECB’s governing council blocked efforts to roll over the existing QE structure for another six months.

Bond purchases will carry on for longer instead. The new €60bn regime will run for nine months until the end of 2017. The ultimate stock of ECB bonds will be higher. You could call it a compromise. But despite appearances – and logical inference – these are not an equivalent forms of stimulus. The stormy saga of bond tapering by the Fed shows that investors react more to the monthly “flow” of QE than they do to the “stock” of bonds held – the balance sheet syndrome that looms large in the theoretical models of central banks. [..] Mario Draghi, the ECB’s president, was at pains to insist that there is no tightening whatsoever coming next year. “The presence of the ECB on the markets will be there for a long time. The key message is that there is no tapering in sight,” he said. Nothing is on auto-pilot and the volume of QE could rise again if need be. “It can go back to €80bn,” he said.

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“..a ghoulish quest to harvest bad news with a forceful sweep of my scythe..”

Albert Edwards’ ‘Most Frightening Chart’ (MW)

Albert Edwards, a global strategist at Société Générale, has been steadily beating the doomsday drum for decades. But despite the perma-bear’s repeated warnings about an impending economic disaster, investors are still likely to take notice when he gleefully shares the “most frightening chart” he’s seen in a while — especially when the stupendous postelection rally in U.S. stocks has stoked fears that a correction might be just around the corner. “I sometimes feel like ‘The Grim Reaper,’ scouring the research savannah in a ghoulish quest to harvest bad news with a forceful sweep of my scythe. Imagine then my perverse delight when our credit team produced what is one of the scariest charts I have seen for a very long time,” writes Edwards in his report. The chart by Guy Stear, head of emerging markets and credit research at Société Générale, shows credit spreads holding steady even as political uncertainty spikes to an unprecedented level.

According to Edwards, that cognitive dissonance is all wrong. “Markets shrugged off the Brexit vote in a couple of days. They shrugged off Donald Trump’s election in a single day. They shrugged off the Italian referendum result in a couple of hours. Heck, in this mood they would shrug off an alien invasion of planet Earth,” he said. “But global political risk is now at such elevated levels that investors must surely be on another planet.” The graph is based on the economic policy uncertainty index developed by three U.S. professors — Scott Baker, Nick Bloom and Steven Davis. This is the original chart that shows the EPU index at 282, significantly above 201 in 2008 and 218 in 2011, two previous periods of panic:

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Really?: “If the economy tracks along okay, it might turn out that this thing sorts itself out.”

Australia Property Market Mirrors Tulip Bubble, Says Former Bank CEO (ND)

Australia’s property market now mirrors one of the worst speculative manias in human history, according to a former Commonwealth Bank CEO. In a televised interview that drew little media attention, David Murray warned that the entire economy is “vulnerable” because of overvalued house prices in Sydney and Melbourne. “All the signs of a bubble are there. Many of the signs are the same as the Dutch tulips,” Mr Murray told Sky News on December 1. Starting in 1634, the Dutch bid up the price of tulip bulbs to extraordinarily high levels. Then, in 1637, the price collapsed, turning the craze into a byword for speculative insanity. Since 2009, Sydney dwelling prices have risen by 95% and Melbourne by 85%, according to CoreLogic, a prominent property analysis firm.

Mr Murray, who chaired a recent inquiry into the health of Australia’s financial sector, said we may yet avoid a Dutch-style price plunge. It is a risk, not a certainty. “If the economy tracks along okay, it might turn out that this thing sorts itself out. But when those risks are there, something needs to be done about it in a regulatory sense, and the Reserve Bank and APRA need to stay on it.” In recent years, APRA has imposed tougher lending policies on the big banks, including forcing them to hold more capital as a buffer against mortgage defaults. This was a recommendation made by Mr Murray during his financial sector review. The former bank boss has been warning of a property bubble since at least last year.

The fact that prices in Melbourne and Sydney have not corrected already is a further cause for concern, he said in his latest interview. “When we get a momentum in a market like this, when you get these self-amplifying price spirals, the fact they keep going on and on longer than expected is another sign that it’s not very healthy.” The crash, if it eventuates, would be triggered by a large number of landlords being forced to sell their investment properties all at once, thereby driving down prices, Mr Murray said. “We have more investors in the market than we’ve had historically and those investors typically, even people on lower incomes, own multiple properties and those properties are often collateralised in the system. So they’re the people who become forced sellers, and that’s the risk to the system.”

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Now President Mattarella is rumored to have asked Renzi to form a new government?!

Top Official In Italy’s M5S Increases Call For Referendum On Euro (G.)

A top official in the Italian anti-establishment Five Star Movement (M5S) is ratcheting up his party’s call for a referendum on the euro, signalling that Italy’s possible exit from the single currency could become a central issue in the next election. Alessandro Di Battista, 38, who is a prime contender to represent M5S in the next poll, said in an interview with German newspaper Die Welt that he did not support an exit from the EU but did support a referendum on the euro. “The euro and Europe are not the same thing. We only want for Italians to decide on the currency,” he said. Asked whether the party had considered the repercussions of leaving the euro, which most economists believe would carry big risks for Italy and the global markets, Di Battista said he “understood well the consequences of the introduction of the euro”.

The single currency, he said, had shrunk Italians’ buying power and earnings and caused higher unemployment and “social deprivation”. “If Europe does not want to implode you must accept that you can not go on like this,” he said. M5S’s opposition to the euro is not new, but the remarks are important in the wake of the departure of the centre-left prime minister Matteo Renzi, who submitted his resignation to Sergio Mattarella, the Italian president, on Wednesday evening. Mattarella is meeting the leaders of all the major political parties over the next few days in the hope they can agree on an interim prime minister. Renzi resigned after he was trounced in a referendum on Sunday, with nearly 60% of Italians opposing constitutional reforms he backed. Even if the parties agree on the next prime minister an early election is expected to be called in 2017.

[..] The chances of M5S winning the next election are fairly strong, according to most analysts. But its ability to hold a referendum would depend on whether the party could win strong majorities in both chambers of parliament. That rests on the fate of a controversial electoral law that is under legal review and will dictate how parliamentary seats will be allocated in the next election. Italy’s constitutional court is due to rule on the electoral law on 24 January. Even if M5S wins the next election, Italy’s exit from the euro would be complicated. Italy’s constitution sets a high threshold for the country to abandon an international treaty via a popular vote. M5S would have to pass an amendment before calling a referendum, which would then require winning two-thirds majorities in both chambers of parliament. Even if a referendum passed, the issue could come up for review by the constitutional court.

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Oh, no, not almost.

It Is Almost Certain There Will Be Another Euro Crisis In 2017 (McWilliams)

It is almost certain that there will be another euro crisis in 2017. The last time we had a euro crisis, the focus of attention was Greece; today the vortex is Italy. Italy is not Greece. Italy is the third-largest economy in the Eurozone. Italy is the second-largest manufacturing nation in the EU after Germany. Italy is the largest debtor in Europe. The third-largest Italian bank is irredeemably bankrupt. Italy has no government and the people who are likely to win the next election want to take Italy out of the euro and replace the euro with their own currency, the lira. These are the facts. Our Finance Minister has said there is no problem in the Eurozone. I really don’t know what planet he is living on. Unfortunately for the EU, if Greece was a tricky issue to deal with, Italy is — in economic terms — a massive Greece.

Unlike Greece when it was going bust, Italy can’t be patronised, isolated and vilified by the likes of Slovakia, Finland and – shamefully – our own Government. Italy is a country of close to 60 million people and unlike the British, who were always semi-detached Europeans, the Italians are founding members of the EU and original signatories of the Treaty of Rome, which is 60 years old in March. By March, it is likely that Marine Le Pen will be the frontrunner in the French presidential election. Could she win? Of course she could. And if she wins, the euro is toast. There is already a massive capital flight from Italy. This flight of money will extend to France in the months ahead. The euro is the problem and if the EU wants to save itself, it may have to abandon the euro.

Quite what that looks like is anyone’s guess, but here are the political facts: the two main Italian opposition parties, the people who won on Sunday, want Italy to hold a referendum on leaving the euro. Furthermore, Le Pen has explicitly stated that the day she wins, if she does, she will pull France out of the euro and reinstate the French franc. Le Pen currently has 40pc of the electorate. All she needs is the same type of momentum that propelled Brexit, Donald Trump, and the vote in Italy, where the government lost — not by a few%, but by a whopping 60pc to 40pc.

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Not even close.

OPEC Deal Won’t Be Enough to Drain Oil Stockpiles (BBG)

OPEC is likely to bring the oil market into balance by the middle of next year, but its production cut looks set to fall short of its stated goal of draining the stockpiles that are depressing prices. The oil market will rebalance “toward the middle of next year,” according to Nigeria’s Minister of State for Petroleum Emmanuel Kachikwu, bringing an end to more than three years when supply exceeded demand. However, Bloomberg News calculations based on OPEC data show that across the whole of 2017 there will be little overall reduction in record oil inventories – even if the group convinces non-members to join supply curbs at a meeting on Saturday. “Even with 100% compliance from both OPEC and non-OPEC producers global stocks are unlikely to fall in the first half of 2017,” said Tamas Varga at PVM Oil Associates in London. “That should keep oil prices in check.”

Crude prices could rise to $60 to $70 a barrel if the OPEC succeeds in bring inventories back to a normal level, Venezuelan Oil Minister Eulogio del Pino said last week, echoing a widely held view within the group, from Saudi Arabia to Iran. The portents for achieving this are mixed. OPEC’s track record shows the group only delivers 80% of promised cuts. While Russia has pledged to come to the party and lower output by 300,000 barrels a day in the first half of 2017, other non-OPEC producers, such as Mexico, Azerbaijan and Colombia, are likely to dress up involuntary production declines, already factored in by traders, as cuts. That scenario would leave largely unchanged the 300 million-barrel global stockpile surplus Del Pino and his colleagues are targeting.

OPEC has said its agreement will accelerate the decline of global stockpiles and an optimistic Bloomberg scenario shows the call on the group’s supply exceeding its output by 1.2 million barrels a day in third quarter. That depends on full compliance by OPEC members and for Russia to make good on its pledge, even as other non-OPEC producers make little contribution. The analysis of the market re-balancing by Bloomberg News is based on OPEC’s own estimates and projections of crude supply and demand adjusted for potential scenarios of cooperation from Russia and other non-OPEC countries. Other consultancies and agencies have different views. The International Energy Agency expects the re-balancing will happen early next year, while consultants at Rystad Energy expect a 1.26 million barrels-a-day deficit in the first quarter of next year if Russia is the only non-OPEC country to join the effort.

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You should take your government to court for this, guys. Let them prove this is beneficial to the country.

UK Sells Majority Stock In Gas Infrastructure To China, Qatar (Ind.)

National Grid has agreed to sell a majority stake in the UK’s gas pipe network to a team of investors, including the Chinese and Qatari states. The UK’s power network operator confirmed it is offloading the 61% shareholding to a consortium led by Australian investment bank Macquarie in a deal that values the unit at around £13.8bn. The division controls an important part of the country’s infrastructure, which delivers gas to 11 million homes through 82,000 miles of pipeline, and its sale will reignite concerns about the ownership of critical national assets by foreign investors. In August Theresa May said such deals would face tighter regulation as she gave the green light to the French and Chinese-funded Hinkley Point nuclear reactor.

National Grid said it would distribute a £150m voluntary payment to benefit British energy customers, while some £4bn of the proceeds will be returned to the company’s shareholders. It will keep 31% of the business but said it could potentially sell another 14% stake to the consortium under the terms of the deal. The sale, which is set to complete before the end of March next year, comes as part of a move to rebalance National Grid’s business towards higher growth areas and create extra value for shareholders. Dave Prentis, Unison union general secretary, said: “The experience of Thames Water customers when Macquarie was running the show should have been a red flag to ministers and regulators as how unsuitable this company is to be in charge of the UK’s gas supply. ”Macquarie has poor form already – in building up huge company debt, repatriating massive dividends to the southern hemisphere and charging customers more for a much poorer service.

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Lovely. And funny.

UK Village Unleashes Anger With Syrian Refugees: £600 Worth Of Jumpers (Ind.)

Last week I was in Torrington, North Devon, the village that’s been in the news because local people organised a massive collection of clothes and toys, for Syrian refugees placed in the area. Hundreds took part in the collection, and the local theatre was filled with provisions. It’s a story that would make any reasonable person look at those children’s faces and say, “What a bunch of do-gooding whining liberals, this is typical of the metropolitan elites in their cosy London boroughs such as North Devon.” North Devon obviously isn’t in Devon, because a law of modern life is that in the real neglected England that no one ever talks about, real proper people think all immigrants are thieving dogs, and they understand these matters because they’ve never seen a mango.

So it’s lucky the Daily Mail was able to report, “Fury as refugees are settled in Devon”, and another paper told us the refugees “faced anger” from the community. Because when the mayor, local theatre and hundreds of residents organised the collections, and arranged meetings to welcome the refugees, you could at first sight see this as motivated slightly by kindness. But these newspapers weren’t fooled, and understand it’s tradition in North Devon to express your anger by buying a room full of clothes and arranging them in a hall. Whatever you do when you’re in South Molton, don’t shout at a tractor driver to move out of your way, or they’ll lose their temper and collect six hundred pounds worth of jumpers and line them up in their kitchen, insisting you take the lot. Because a lifetime of working on the land makes them vicious.

Five national newspapers told the story of this rage against the refugees, all quoting one man who said: “We’re receiving 50 to 70 refugees, and 50 to 70 is a huge number in an area with restricted public transport.” There’s no doubt 50 to 70 would create a problem for local public transport, if all 50 to 70 of them were housed on one bus. The 7.15am from St Mary’s Church to Barnstaple would be a dreadful crush, so it’s no wonder this man was annoyed, and you can see why the newspapers regard him as the spokesman for the entire region, rather than the hundreds of people who provided all the clothes, who represent no one but themselves.

But it gets worse, because every newspaper covering the story told how refugee children “annoyed locals” by “relaxing playing basketball on a basketball court”. That’s just taking the piss, isn’t it? How dare children play sports in an area specially designated for that specific sport? They should reward our hospitality by playing sports in the wrong areas, such as basketball on a chess board, or skiing on a snooker table.

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Here’s an issue the EU does need to speak up about. But doesn’t.

Relations With Ankara Sour As Turkey Disputes Greek Sovereignty (Kath.)

Greek Foreign Minister Nikos Kotzias and his Turkish counterpart Mevlut Cavusoglu met Thursday on the sidelines of the annual OECD Summit in Hamburg amid escalating tensions brought on by the nationalistic rhetoric coming out of Ankara and Defense Minister Panos Kammenos’s reference to President Recep Tayyip Erdogan as a “ruthless dictator” who “at this moment is threatening our country.” “If they [Turkey] threaten our country, they will meet with our response and they will know that we shall not make concessions in the name of diplomacy on issues of national sovereignty,” Kammenos said in a radio interview Thursday, referring to recent remarks by Erdogan questioning the 1923 Treaty of Lausanne that set the borders between Greece and Turkey, as well as by other Turkish politicians who have disputed Greek sovereignty over a string of islets in the eastern Aegean.

The remarks by Kammenos, the leader of junior coalition partner Independent Greeks, followed strong statements by Turkey’s Deputy Parliament Speaker Tugrul Turkes, who described his country as the guarantor power of the whole of Cyprus, rather than just the breakaway state in the north, while a lawmaker of the opposition CHP, Tanju Ozcan, upped the ante even further, saying he would raise the Turkish flag on 18 Greek islands. “I will go to the islands and if need be I myself will raise the Turkish flag. Then I will fold the Greek one and send it to the Greek government with a courier,” he told the Turkish Parliament. The latest acrimonious rhetoric comes as tensions also simmer over the outcome of Turkey’s extradition request for eight officers who landed in Greece in July in the aftermath of a botched coup attempt in the neighboring country.

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But ‘green’ sells, and delivers votes. Still: “Charging an electric car for 100 miles of travel could use about 30kwh – roughly the same amount of energy an average US home uses in three or four days.”

Electric Cars Are Only As Clean As Their Power Supply (G.)

Electric cars have never been closer to the mainstream, the market pushed ahead by California subsidies for electric car buyers, and a wide array of new models from established car firms such as Toyota and Chevy. Tesla’s focus on luxury, high-performance vehicles has also broadened their appeal; electric cars are no longer purely an environmental statement, but a tech status symbol too. Yet the “zero emissions” claim grates on some experts, who have continued to argue over whether electric cars are really more environmentally friendly than gas guzzlers, once the manufacturing process for the vehicles and their batteries are taken into account.

Electric cars rely on regular charging from the local electricity network. The power plants providing that energy aren’t emission-free; even in California, 60% of electricity came from burning fossil fuels in 2015, while solar and wind together made up less than 14%. “I couldn’t bear to hear them say the words ‘zero emissions vehicle’ one more time,” says Joshua Graff Zivin, who advised one of California’s three main utilities, San Diego Gas & Electric, on electric cars. Graff Zivin is a professor of economics and public policy at the University of California, San Diego. [..] “All of the action is in the hourly,” says Graff Zivin. It’s not only the region that an electric vehicle plugs into that matters. The hour of the day is equally critical. “The cheapest power is not the greenest power.”

In California, the cheapest power is produced at night, mostly from natural gas, hydroelectric dams and nuclear. Night is when many people will charge their electric cars. However, the greenest power gets generated during the day, when solar power can feed the grid; solar doesn’t work in the dark, windmills stop spinning if there’s no wind and, in today’s grid, there is almost the capacity to store solar and wind-generated electricity to use later. Grid storage is slowly expanding, but most electricity has to be used as it is produced. Units of electricity also can’t be tagged according to where and how they were generated, so nobody can verify whether the electricity they use is from a sustainable source – unless they plug directly into their own solar panel or windmill.

[..] Graff Zivin, along with economics researchers Matthew Kotchen and Erin Mansur, waded into this contentious territory in a 2014 paper. Zivin concluded that a plug-in electric vehicle, such as the Nissan Leaf, always produces less carbon dioxide emissions than a hybrid electric- and gas-powered car – but only in selected regions that rely on less coal, like the western United States and Texas. Charging from the coal-dependent grid in the upper midwest of the US at night could generate more emissions than an average gasoline car. And, in some US regions, plugging in at different times of day could even double an electric car’s emissions impact. Charging an electric car for 100 miles of travel could use about 30kwh – roughly the same amount of energy an average US home uses in three or four days.

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Sep 272016
 
 September 27, 2016  Posted by at 8:32 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Arnold Genthe “Chinatown, San Francisco. The street of the gamblers at night” 1900


Why I Switched My Endorsement from Clinton to Trump (Scott Adams)
When America Was Great, Taxes Were High, Unions Strong, and Government Big (A.)
Global Debt Reaches Fresh High As Companies And Countries Keep Borrowing (Tel.)
When Small Is Evil (DQ)
Structural Growth and Dope Dealers on Speed-Dial (Hussman)
Treasury Market’s Biggest Buyers Are Selling as Never Before (BBG)
Deutsche Bank Crisis Could Take Angela Merkel Down – And The Euro (Tel.)
China’s Runaway Housing Market Poses Latest Challenge for Yuan (BBG)
Sydney Home Prices Need To Drop 25% To Help First Time Buyers (Abc)
Don’t Blame “Baby Boomers” For Not Retiring – They Can’t Afford To (Roberts)
Saudi Lobbyists Plot New Push Against 9/11 Bill As Veto Override Looms (Pol.)
Over 90% Of World Breathing Bad Air-WHO (AFP)
Canadians Are Embracing Syrian Refugees. Why Can’t We? (G.)

 

 

The most interesting and thought-provoking thing I’ve read about the election amidst a river of blubber.

Why I Switched My Endorsement from Clinton to Trump (Scott Adams)

5. Pacing and Leading: Trump always takes the extreme position on matters of safety and security for the country, even if those positions are unconstitutional, impractical, evil, or something that the military would refuse to do. Normal people see this as a dangerous situation. Trained persuaders like me see this as something called pacing and leading. Trump “paces” the public – meaning he matches them in their emotional state, and then some. He does that with his extreme responses on immigration, fighting ISIS, stop-and-frisk, etc. Once Trump has established himself as the biggest bad-ass on the topic, he is free to “lead,” which we see him do by softening his deportation stand, limiting his stop-and-frisk comment to Chicago, reversing his first answer on penalties for abortion, and so on.

If you are not trained in persuasion, Trump looks scary. If you understand pacing and leading, you might see him as the safest candidate who has ever gotten this close to the presidency. That’s how I see him. So when Clinton supporters ask me how I could support a “fascist,” the answer is that he isn’t one. Clinton’s team, with the help of Godzilla, have effectively persuaded the public to see Trump as scary. The persuasion works because Trump’s “pacing” system is not obvious to the public. They see his “first offers” as evidence of evil. They are not. They are technique. And being chummy with Putin is more likely to keep us safe, whether you find that distasteful or not. Clinton wants to insult Putin into doing what we want. That approach seems dangerous as hell to me.

6. Persuasion: Economies are driven by psychology. If you expect things to go well tomorrow, you invest today, which causes things to go well tomorrow, as long as others are doing the same. The best kind of president for managing the psychology of citizens – and therefore the economy – is a trained persuader. You can call that persuader a con man, a snake oil salesman, a carnival barker, or full of shit. It’s all persuasion. And Trump simply does it better than I have ever seen anyone do it. The battle with ISIS is also a persuasion problem. The entire purpose of military action against ISIS is to persuade them to stop, not to kill every single one of them. We need military-grade persuasion to get at the root of the problem. Trump understands persuasion, so he is likely to put more emphasis in that area.

Most of the job of president is persuasion. Presidents don’t need to understand policy minutia. They need to listen to experts and then help sell the best expert solutions to the public. Trump sells better than anyone you have ever seen, even if you haven’t personally bought into him yet. You can’t deny his persuasion talents that have gotten him this far. In summary, I don’t understand the policy details and implications of most of either Trump’s or Clinton’s proposed ideas. Neither do you. But I do understand persuasion. I also understand when the government is planning to confiscate the majority of my assets. And I can also distinguish between a deeply unhealthy person and a healthy person, even though I have no medical training. (So can you.)

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The Dream ended decades ago, it’s just a matter of picking which decade.

When America Was Great, Taxes Were High, Unions Strong, and Government Big (A.)

There is plenty about GOP hopeful Donald Trump to which potential primary voters respond. He’s successful. He’s plainspoken. At a time when politicians are historically unpopular, he’s not a politician. And he has a great slogan. That slogan resonates with his supporters, according to Republican pollster Frank Luntz, who ran a recent focus group, the results of which were written about in Time. “I used to sleep on my front porch with the door wide open, and now everyone has deadbolts,” one man told Luntz. “I believe the best days of the country are behind us.” Luntz concluded that people see Trump as a “real-deal fixer-upper,” able to make repairs that others have bungled. “We know his goal is to make America great again,” one woman astutely observed. “It’s on his hat.”

It could be on your hat too—Trump has begun selling “Make America Great Again” merchandise—if you can find one, that is. They have a tendency to sell out. As Russell Berman pointed out in The Atlantic earlier this month, many white Americans these days are pessimistic to the point of despair: “White Americans—and in particular those under 30 or nearing retirement age—have all but given up on the American Dream. More than four out of five younger whites, and more than four out of five respondents between the ages of 51 and 64 said The Dream is suffering.” No wonder Trump’s message is so powerful—it’s a sugar pill coated with nostalgia. He is not promising to make America great, he’s promising to make it great again. But to what era does he intend to take the nation back?

And what would that look like, practically speaking? The boundaries of America’s “golden age” are clear on one end and fuzzy on the other. Everyone agrees that the midcentury boom times began after Allied soldiers returned in triumph from World War II. But when did they wane? The economist Joe Stiglitz, in an article in Politico Magazine titled “The Myth Of The American Golden Age,” sets the endpoint at 1980, a year until which “the fortunes of the wealthy and the middle class rose together.” Others put the cut-off earlier, at the economic collapse of 1971 and the ensuring malaise. Regardless of when it ended, it would not be unfair to use the ’50s as shorthand for this now glamorized period of plenty, peace, and the kind of optimism only plenty and peace can produce.

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Ever more debt is the only way to keep the facade upright enough that people believe in it.

Global Debt Reaches Fresh High As Companies And Countries Keep Borrowing (Tel.)

Global debt issuance is on course to hit a record high in 2016 as figures showed sales this year topped $5 trillion (£3.9 trillion) at the end of September. Debt issuance rose to $5.02 trillion in the nine months to September 22, according to Dealogic, putting 2016 on course to beat the all-time high of $6.6 trillion recorded in 2006. Record low interest rates have encouraged countries and companies to issue debt as central banks around the world try to stimulate growth. The data also showed corporate issuance of investment-grade debt reached a record high of $1.54 trillion since the start of the year, up from $1.41 trillion in the same period a year earlier. Dealogic’s figures also highlighted the impact of the Brexit vote.

Sterling-denominated investment grade debt rose to $21.3bn in the first nine months of the year, up slightly from $20.9bn raised in the same period of 2015. Volumes in July fell to their lowest since 2000 as the referendum result slowed issuance, with just $564m issued, according to Dealogic. However, issuance is expected to pick up later this year following the Bank of England’s decision to buy £10bn of corporate debt as part of its revamped bond-buying programme. Sterling issuance in August jumped to six times the average following the Bank’s announcement. Green bonds – which raise money for environmentally friendly projects and often carry tax exemptions – are also rising in popularity.

Activity surpassed full-year 2015 levels in September as volumes reached a record high, worth $48.2bn. Mark Carney, the Governor of the Bank of England, has spoken out in favour of green finance, describing it as a “major opportunity” for investors. In a speech last week, he said long-term financing of green projects in emerging markets could help to promote financial stability. “By ensuring that capital flows finance long-term projects in countries where growth is most carbon intensive, financial stability can be promoted,” he said. More than $13 trillion of global sovereign and corporate debt trades at negative yields, highlighting the influence of central banks.

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Draghi’s comments on small banks remind me of Ken Rogoff’s war on cash.

When Small Is Evil (DQ)

There are plenty of reasons to be worried about the state of Europe these days, but if one had to choose one thing above all others, it would be the gaping disconnect between reality and senior European policy makers’ willful misperception of reality. A perfect case in point was a speech given in Frankfurt by ECB president Mario Draghi. He was addressing a conference of the European Systemic Risk Board (ERSB), an organization created in 2010 by the European Commission to warn about and mitigate systemic financial risks in Europe. During his address Draghi discussed what he saw as the biggest threats to Europe’s financial system.

Just as you’d expect from any senior central banker worth his or her salt, he did not point to the most obvious risk: the zombifying banks at the very top of the financial food chain — the same banks that coincidentally constitute the ECB’s number-one constituency and whose balance sheets are still filled to the rafters with toxic assets dating back to even before the last major crisis, in 2008. By now, virtually all of these banks are fully dependent on the never-ending and ever-growing welfare assistance provided by the ECB. Nor did Draghi mention the excessive complexity and interconnectedness of the banking system, routinely fingered as potential causes of the next global financial crisis.

Nor for that matter did he mention the destructive side effects of the ECB’s negative interest rate policy (NIRP), which – besides sacrificing millions of savers and retirees via their pension funds on the altar of rampant debt creation and completely undermining the crucial micro-economic role played by capital formation – is making it difficult for Europe’s largest banks to turn a meaningful profit. No, for Draghi, the biggest financial problem in Europe these days is that it is over-banked. “Over-capacity in some national banking sectors, and the ensuing intensity of competition, exacerbates this squeeze on margins,” he said. Put simply, there’s just too much competition from the thousands of smaller banks that are crowding out the profits for the big banks.

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“The weakness in real GDP growth is of greatest concern, because it’s largely the consequence of policies that encourage repeated cycles of bubbles and collapses..”

Structural Growth and Dope Dealers on Speed-Dial (Hussman)

In recent years, the U.S. equity market has scaled the third steepest cliff in history, eclipsed only by the 1929 and 2000 peaks, as investors rest their full confidence and weight on the protrusions of a structurally deteriorating economy, imagining that they are instead the footholds of a robust investment environment. The first of these is the current environment of low interest rates. While investors take this as quite a positive factor, it’s largely a reflection of a steep downturn in U.S. structural economic growth, magnified by reckless monetary policy. Over the past decade, the average annual nominal growth rate of GDP has dropped to just 2.9%, while real GDP growth has plunged to just 1.3%; both the lowest growth rates in history, outside of the Depression (see the chart below).

Indeed, probably the most interesting piece of information from last week’s FOMC meeting was that the Federal Reserve downgraded its estimate for the central tendency of long-run GDP growth to less than 2% annually. The weakness in real GDP growth is of greatest concern, because it’s largely the consequence of policies that encourage repeated cycles of bubbles and collapses, and chase debt-financed consumption instead of encouraging productive real investment. Indeed, growth in real U.S. gross domestic investment has collapsed since 2000 to just one-fifth of the rate it enjoyed in the preceding half-century, and has averaged zero growth over the past decade. While labor force growth has slowed, it’s really the self-inflicted collapse of U.S. productivity growth, enabled by misguided policy, that’s at the root of the problem.

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This is some investing tactic anymore. It’s about parties needing cash.

Treasury Market’s Biggest Buyers Are Selling as Never Before (BBG)

They’ve long been one of the most reliable sources of demand for U.S. government debt. But these days, foreign central banks have become yet another worry for investors in the world’s most important bond market. Holders like China and Japan have culled their stakes in Treasuries for three consecutive quarters, the most sustained pullback on record, based on the Federal Reserve’s official custodial holdings. The decline has accelerated in the past three months, coinciding with the recent backup in U.S. bond yields. For Jim Leaviss at M&G Investments in London, that’s cause for concern. A continued retreat could lead to painful losses in a market that some say is already too expensive.

But perhaps more important are the consequences for America’s finances. With the U.S. facing deficits that are poised to swell the public debt burden by $10 trillion over the next decade, foreign demand will be crucial in keeping a lid on borrowing costs, especially as the Fed continues to suggest higher interest rates are on the horizon. The selling pressure from central banks is “something you have to bear in mind,” said Leaviss, whose firm oversees about $374 billion. “This, as well as the Fed, all means we are nearer to the end of the low-yield environment.” Overseas creditors have played a key role in financing America’s debt as the U.S. borrowed heavily in the aftermath of the financial crisis to revive the economy.

Since 2008, foreigners have more than doubled their investments in Treasuries and now own about $6.25 trillion. Central banks have led the way. China, the biggest foreign holder of Treasuries, funneled hundreds of billions of dollars back into the U.S. as its export-based economy boomed. Now, that’s all starting to change. The amount of U.S. government debt held in custody at the Fed has decreased by $78 billion this quarter, following a decline of almost $100 billion over the first six months of the year. The drop is the biggest on a year-to-date basis since at least 2002 and quadruple the amount of any full year on record, Fed data show.

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“No one really knows where the losses would end up, or what the knock-on impact would be. It would almost certainly land a fatal blow to the Italian banking system, and the French and Spanish banks would be next.”

Deutsche Bank Crisis Could Take Angela Merkel Down – And The Euro (Tel.)

True, Merkel’s position is understandable. The politics of a Deutsche rescue are terrible. Germany, with is Chancellor taking the lead, has set itself up as the guardian of financial responsibility within the euro-zone. Two years ago, it casually let the Greek bank system go to the wall, allowing the cash machines to be closed down as a way of whipping the rebellious Syriza government back into line. This year, there has been an unfolding Italian crisis, as bad debts mount, and yet Germany has insisted on enforcing euro-zone rules that say depositors – that is, ordinary people – have to shoulder some of the losses when a bank is in trouble. For Germany to then turn around and say, actually we are bailing out our own bank, while letting everyone else’s fail, looks, to put it mildly, just a little inconsistent.

Heck, a few people might even start to wonder if there was one rule for Germany, and another one for the rest. In truth, it would become impossible to maintain a hard-line in Italy, and probably in Greece as well. And yet, if Deutsche Bank went down, and the German Government didn’t step in with a rescue, that would be a huge blow to Europe’s largest economy – and the global financial system. No one really knows where the losses would end up, or what the knock-on impact would be. It would almost certainly land a fatal blow to the Italian banking system, and the French and Spanish banks would be next. Even worse, the euro-zone economy, with France and Italy already back at zero growth, and still struggling with the impact of Brexit, is hardly in any shape to withstand a shock of that magnitude.

A rock and a hard place are hardly adequate to describe the options Merkel may soon find herself facing. The politics of a rescue are terrible, but the economics of a collapse are even worse. By ruling out a rescue, she may well have solved the immediate political problem. Yet when the crisis gets worse, as it may do at any moment, it is impossible to believe she will stick to that line. A bailout of some sort will be cobbled together – even if the damage to Merkel’s already fraying reputation for competence will be catastrophic. In fact, Merkel is playing a very dangerous game with Deutsche – and one that could easily go badly wrong. If her refusal to sanction a bail-out is responsible for a Deutsche collapse that could easily end her Chancellorship. But if she rescues it, the euro might start to unravel.

Read more …

Beijing purposely blows a giant bubble with money people don’t have.

China’s Runaway Housing Market Poses Latest Challenge for Yuan (BBG)

Here’s the latest uncertainty facing China’s currency: sky high house prices. A runaway boom in the largest cities will push investors to look for cheaper alternatives overseas, draining money out of China and putting downward pressure on the yuan in the process, according to analysis by Harrison Hu at Royal Bank of Scotland in Singapore. An “enlarged differential between domestic and foreign asset prices will lead to capital outflows and depreciation, until parity is restored,” Hu wrote in a note. He said that the 30% year-on-year price gain in Tier 1 and leading Tier 2 cities implies a 25% rise in dollar terms, which far outpaces the 5% gain in major U.S. cities. That ratio is here in red:

“It’s commonly believed that China’s policymakers will sacrifice the yuan exchange rate to avoid a sharp correction in domestic property prices, as the latter will more significantly derail China’s economy and the financial system,” Hu wrote. That’s because the importance of the property market in the world’s second largest economy far outweighs many sectors, including the stock market. Hu compares property as a percentage of economic output to the far lighter footprint of stocks. A real estate crash in China could have far reaching consequences and it would be a long time before investors regained their confidence, according to Hu.

That will put policy makers in a very difficult position. While the government has some cards in its hand, such as an ability to control land supply and enforce curbs on new home-buying, history shows that some tightening measures risk backfiring and only stoking speculative behavior such as “panic buying” like that seen in Shanghai earlier this year. Besides, the regulator’s handling of last year’s stock market turmoil did little to inspire confidence in the government’s ability to oversee the bubbly housing market. “No bubble has a happy ending,” Hu wrote.

Read more …

Someone should calculate the losses at a 25% price drop. And do 50% too. Losses for ‘owners’ and for lenders.

Sydney Home Prices Need To Drop 25% To Help First Time Buyers (Abc)

First home buyers are facing the biggest barrier in recent history to entering the housing market, with deposits at record high levels relative to incomes in the Sydney market. Research by Deutsche Bank’s chief Australian economist Adam Boyton shows it would take a 25% drop in Sydney home prices to bring the size of deposit required back to average levels over the past 20 years. Mr Boyton studied the Sydney market because it is the biggest, has seen rapid recent price growth and has the highest housing costs in the nation. In contrast to the record deposit needed – now estimated to be almost twice the typical annual earnings of a Sydney household – rising incomes over the early 2000s and falling interest rates since the global financial crisis have seen the burden of mortgage repayments remain comparatively stable relative to income.

Mr Boyton expresses this as “borrowing power”, which has broadly increased in line with Sydney home prices, albeit with prices jumping ahead somewhat during the most recent boom. At the low point in 2003, a Sydney household with a typical income could only borrow half what a typical house cost if their repayments were to be 30% of their gross incomes. At the best points for affordability, households could comfortably afford to borrow between 60-68% of the typical Sydney house price. Currently that figure is just over 50%.

Read more …

An epic clash unfolds before our eyes.

Don’t Blame “Baby Boomers” For Not Retiring – They Can’t Afford To (Roberts)

In business, the 80/20 rule states that 80% of your business will come from 20% of your customers. In an economy where more than 2/3rds of the growth rate is driven by consumption, an even bigger imbalance of the “have” and “have not’s” presents a major headwind. I have often written about the disconnect between Wall Street and Main Street. As shown in the chart below, while asset prices were inflated by continued interventions of monetary policy from the Federal Reserve, it only benefited the small portion of the population with assets invested in the market.

Cheap debt, excess liquidity and a buyback spree, led to soaring Wall Street and corporate profits, surging executive compensation and rising incomes for those in the top 10%. Unfortunately, the other 90% known as “Main Street” did not receive many benefits. This divide is clearly seen in various data and survey statistics such as the recent survey from National Institute On Retirement Security which showed the typical working-age household has only $2500 in retirement account assets. Importantly, “baby boomers” who are nearing retirement had an average of just $14,500 saved for their “golden years.”

[..] The gap between the young and elderly population has shrunk dramatically in recent years as the demographic trends have shifted. Old people are living longer and young people are delaying marriage and children. This means fewer people paying into a social welfare system, while more or taking out. Of course, the burden on the social safety net remains the 800-lb gorilla in the room no one wants to talk about. But with the insolvency of the welfare system looming in less than a decade, I am sure it will become a priority soon enough.

Of course, as we will discuss in a moment, the problem is that while the “baby boom” generation may be heading towards retirement years, there is little indication a large majority of them will be actually retiring. With a large majority of individuals being dependent on the welfare system in retirement, the burden will fall on those next in line. Welcome to the “sandwich generation” when more individuals will be “sandwiched” between supporting both parents and children in the same household. It should be no surprise multi-generational households in the U.S. are at their highest levels since the “Great Depression.”

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Obama’s fist veto override?

Saudi Lobbyists Plot New Push Against 9/11 Bill As Veto Override Looms (Pol.)

Saudi Arabia is mounting a last-ditch campaign to scuttle legislation allowing families of victims of the Sept. 11, 2001 attacks to sue the kingdom — and they’re enlisting major American companies to make an economic case against the bill. General Electric, Dow Chemical, Boeing and Chevron are among the corporate titans that have weighed in against the Justice Against Sponsors of Terrorism Act, or JASTA, which passed both chambers unanimously and was vetoed on Friday, according to people familiar with the effort. The companies are acting quietly to avoid the perception of opposing victims of terrorism, but they’re responding to Saudi arguments that their own corporate assets in the kingdom could be at risk if the law takes effect.

Meanwhile, Trent Lott, the former Senate majority leader who now co-leads Squire Patton Boggs’ lobbying group, e-mailed Senate legislative directors on Monday warning that the bill could lead other countries to withdraw their assets from the United States and retaliate with laws allowing claims against American government actions. “Many foreign entities have long-standing, intimate relations with U.S. financial institutions that they would undoubtedly unwind, to the further detriment of the U.S. economy,” reads one of the attachments, obtained by POLITICO. “American corporations with interests abroad may be at risk of retaliation, a possibility recently expressed by GE and Dow.” Still, the Saudis and their agents face a significant uphill battle, with lawmakers loath to take a vote against victims of the 9/11 attacks right before an election.

There was little public opposition to the bill as it made its way through the Capitol, and even now, efforts to tweak the bill haven’t caught much traction. Senate Majority Leader Mitch McConnell (R-Ky.) announced Monday that the Senate will vote Wednesday on a motion to override President Barack Obama’s veto, and if override advocates are successful there, the House will take the same vote Thursday or Friday, a House Republican leadership aide said. But even if Obama receives the first veto override of his presidency, the story won’t end there: the Saudis will seek a new bill to scale back the law in the lame-duck session or in the next session, after lawmakers are relieved from the heat of the campaign, people familiar with the plans said. “It’s Washington at its finest,” one of the people said.

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How to kill off your own species.

Over 90% Of World Breathing Bad Air-WHO (AFP)

Nine out of 10 people globally are breathing poor quality air, the World Health Organization said Tuesday, calling for dramatic action against pollution that is blamed for more than six million deaths a year. New data in a report from the UN’s global health body “is enough to make all of us extremely concerned,” Maria Neira, the head of the WHO’s department of public health and environment, told reporters. The problem is most acute in cities, but air in rural areas is worse than many think, WHO experts said. Poorer countries have much dirtier air than the developed world, according to the report, but pollution “affects practically all countries in the world and all parts of society”, Neira said in a statement. “It is a public health emergency,” she said.

“Fast action to tackle air pollution can’t come soon enough,” she added, urging governments to cut the number of vehicles on the road, improve waste management and promote clean cooking fuel. Tuesday’s report was based on data collected from more than 3,000 sites across the globe. It found that “92% of the world’s population lives in places where air quality levels exceed WHO limits”. The data focuses on dangerous particulate matter with a diameter of less than 2.5 micrometres, or PM2.5. PM2.5 includes toxins like sulfate and black carbon, which can penetrate deep into the lungs or cardiovascular system. Air with more than 10 microgrammes per cubic metre of PM2.5 on an annual average basis is considered substandard.

Read more …

Funny little story against a very serious backdrop.

Canadians Are Embracing Syrian Refugees. Why Can’t We? (G.)

Nobody warned the Hendawis about Canadian girls. Wadah and Raghdaa Hendawi survived the civil war in Syria, fleeing the devastation of Aleppo with their children for the relative safety of Lebanon. For three years their teenage sons missed out on an education while they worked to support the family. Then they hit the immigration jackpot – Canada. They were greeted at Halifax airport not by immigration officials or social workers, but by their sponsors – a bunch of well-meaning locals whose fundraising efforts would support the family for the next 12 months. And so the Hendawis arrived in the small fishing town of Shelburne, Nova Scotia, swaddled in new ski jackets, blinded by the winter sunshine bouncing off fresh February snow.

They were the only Syrians in the village, and had no idea what was in store for them. The Rev. Joanne McFadden knew the names and ages of the family she was helping to sponsor, but apart from that she too didn’t know what to expect. She certainly wasn’t prepared for the phone call that came three days after Saed (18), Mohamad (16) and Ahmed (15) started attending Shelburne Regional High School. I get a phone call from the principal. ‘Uhhh, Joanne, we have a problem.’ ‘What’s the problem, Mary?’ ‘Well, all the girls in the school are chasing the boys.’ This hadn’t even crossed our mind, right, that this was even a possibility. It was like, pardon me, we’ve got some things to figure out.

Read more …

Sep 102016
 
 September 10, 2016  Posted by at 9:02 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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Harris&Ewing Balancing act, John “Jammie” Reynolds, Washington DC 1917


Rate-Rise Fears Trip Up Markets (WSJ)
Surprise Fed Speech Throws Markets For A Loop (CNBC)
Stocks Sink With Bonds, Dollar Rallies as Complacency Broken (BBG)
Draghi Asset Buying Deepens the Hole in Europe’s Pension Funds (BBG)
Gundlach Puts His Finger On Bond Market Inflection Point (BBG)
VW Engineer Pleads Guilty in US Criminal Case Over Diesel Emissions (NYT)
Sweden Says No to NATO (BBG)
One “Lifelong Socialist” Norwegian’s Perspective on America (Nordmann)
Eurozone Woes Continue: German Exports Plunge, French Industry Weakens (Tel.)
Why the Eurozone Will Destruct (Mish)
EU’s Poor Nations Plot Next Move As North-South Divide Erupts (CNBC)
Greece Rejects Return Of EU’s Dublin Regulation On Reverse Migration Flow (AP)

 

 

Finally, something happened. But still: there are no markets, there’s only a faint surrogate of a market left. And that has consequences, none of which are positive.

Rate-Rise Fears Trip Up Markets (WSJ)

Major markets had one of their worst days in months, as doubts over central banks’ willingness or ability to stimulate economic growth sent stocks and bonds tumbling. The Dow Jones Industrial Average fell nearly 400 points, and sinking bond prices pushed yields on government debt to their highest levels since early summer. The yield on Germany’s 10-year bund, which had been negative almost without exception since Brexit on June 23, popped into positive territory Friday. The wave of selling shattered weeks of summer torpor and was a reminder of the extent to which long-running rallies in stocks and bonds are reliant upon continued support from central banks.

The ECB damped market sentiment on Thursday by deciding to leave its bond-buying and interest-rate policies unchanged, rather than expanding them as some investors had hoped. An official with the Federal Reserve deepened concerns by suggesting Friday that the Fed still might raise interest rates even after a week of relatively weak U.S. economic data. “A reasonable case can be made for continuing to pursue a gradual normalization of monetary policy,” Federal Reserve Bank of Boston President Eric Rosengren said in a speech. [..] Mr. Rosengren, who has tended to support keeping rates low in the past, helped push markets into a deeper rout.

The Dow industrials plunged 394.46 points, or 2.1%, to 18085.45. The S&P 500 declined 53.49 points, or 2.5%, to 2127.81. The percentage drop was the biggest for both indexes since June 24. The Nasdaq Composite Index lost 133.57 points, or 2.5%, to 5125.91. Yields on 10-year Treasury notes jumped to 1.671%, their highest level since June 23. Bond yields rise as prices fall. “Once the snowball starts rolling down the hill, everybody jumps on board,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners.

Read more …

“[Fed] Governor Lael Brainard will be delivering a previously unannounced speech Monday..”

Surprise Fed Speech Throws Markets For A Loop (CNBC)

Those figuring that the Fed still might hike rates in September are getting one more bite at the apple. As the week drew to a close and the Fed’s “quiet period” before meetings was about to settle in, investors recoiled over news that the central bank’s most dovish official, Governor Lael Brainard, will be delivering a previously unannounced speech Monday at The Chicago Council on Global Affairs. The news sent a chill through markets Friday, with major stock market averages taking a beating and short-term government bond yields and the U.S. dollar moving higher, and it set off yet another round of speculation over whether the Fed is ready to come off its historically loose monetary policy. The S&P 500 was down more than 1% Friday afternoon, on track to close with its biggest percentage move since July 8.

“When a market is quiet, it’s susceptible to rumors, whether we’re talking about a path to freeze oil production or whether the Fed is going to raise rates in September,” said Quincy Krosby at Prudential Financial. “This may be a market that has too much time on its hands right now.” Indeed, the guessing game over whether the Fed might enact its first rate rise since December and only its second tightening in more than a decade has set off a fever pitch of horse trading. At one point Friday morning, markets put the chance of a hike later this month as high as 30% before backing off. The probability had been reduced amid a week’s worth of poor economic data, including the worst services reading in six years, a contraction in manufacturing and a weaker-than-expected nonfarm payrolls report.

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You can’t keep ‘markets’ at a completely fake level forever.

Stocks Sink With Bonds, Dollar Rallies as Complacency Broken (BBG)

Tranquility that has enveloped global markets for more than two months was upended as central banks start to question the benefits of further monetary easing, sending government debt, stocks and emerging-market assets to the biggest declines since June. The dollar jumped. The S&P 500 Index, global equities and emerging-market assets tumbled at least 2% in the biggest rout since Brexit. The yield on the 10-year Treasury note jumped to the highest since June and the greenback almost erased a weekly slide as a Federal Reserve official warned waiting too long to raise rates threatened to overheat the economy. German 10-year yields rose above zero for the first time since July after the ECB downplayed the need for more stimulus.

Fed Bank of Boston President Eric Rosengren’s comments moved him firmly into the hawkish camp, sending the odds for a rate hike this year above 60%. He spoke a day after ECB President Mario Draghi played down the prospect of an increase in asset purchases, while DoubleLine Capital Chief Investment Officer Jeffrey Gundlach said it’s time to prepare for higher rates. “Dovish Fed members getting called up to bat for a hike is putting people on edge,” Yousef Abbasi, a global market strategist at JonesTrading, said by phone. “The more hawkish-leaning investors are grabbing onto that and it’s certainly one of those days where people are positioning for that September hike being back on the table.”

Calm had dominated financial markets in late summer with equity volatility and bond yields near historic lows and measures of cross-asset correlation at the highest levels since at least the financial crisis. The rise in the influence of different markets on each other has been attributed to the growing impact of central bank policy on prices, and rising concern that the era of easing may be nearing an end roiled assets from bonds to currencies and stocks on Friday.

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It will take years for people to realize what central banks and their incompetence have done to fixed income.

Draghi Asset Buying Deepens the Hole in Europe’s Pension Funds (BBG)

As he tries to jump start the economies of today, ECB President Mario Draghi is punching holes in the retirements of tomorrow. Draghi on Thursday said the ECB may continue asset buying beyond March 2017 until it sees inflation consistent with its targets. The purchases, along with low and negative interest rates from the ECB and the region’s national banks, are pushing more and more bond yields below zero, hurting European pension managers that are already struggling to fund retirement plans. “Pension funds can’t meet their future obligations if interest rates remain as low as they currently are,” said Olaf Stotz at the Frankfurt School of Finance and Management. “Some sponsors will have no choice but to add more capital” to their pension plans.

Funds that supply retirement income of millions of European workers face a growing gap between the money they have and what they must pay out. To make up the shortfalls, they may have to tap their sponsoring companies or institutions, reduce or delay payouts or try to boost returns by investing in riskier assets. That mirrors the dilemma faced by pension managers from the U.S. to Japan who are also being affected by central bank monetary policy. Low yields force funds to buy a greater variety of bonds or diversify their investments to generate a long-term income for their retirees. While some are profiting now by selling bonds purchased at lower prices in the past, they will struggle to get the same kind of returns from any new bonds they purchase.

Occupational funds in Europe currently have resources to pay only about 76% of their commitments on average, according to the European insurance and pensions regulator Eiopa. “Pension funds are more liberal in their investment decisions than insurers,” said Martin Eling at the University of St. Gallen in Switzerland. “Regulators will need to closely watch them as they are driven into higher-return assets such as corporate bonds and emerging markets investments.” EU regulations on the industry “might underestimate the risks,” Eiopa said by e-mail. It recommends measures including improved public disclosure so more beneficiaries know how their funds are investing. While pension systems and controls differ from country to country in Europe, regulators typically approve a pension plan’s design and set limits for certain investments.

They also can intervene to make sure a fund can meet its obligations.] Eiopa’s first stress test of the industry in Europe, published earlier this year, showed that occupational pension fund assets were 24% short of liabilities, a deficit of €428 billion ($484 billion) even before applying a shock scenario. Central banks in Europe and Japan are relying on stimulus packages that include negative deposit rates to fuel inflation and revive the economy. That has pushed yields in countries such as Germany and Japan below zero, bringing the global pile of bonds with negative yields to about $8.9 trillion. Pension liabilities for the 30 members of the benchmark DAX Index in Germany rose by about €65 billion this year to a record €426 billion as interest rates declined, according to consulting firm Mercer.

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“Traders have started dumping government bonds, leading to the biggest rout in Japanese debt in 13 years…”

Gundlach Puts His Finger On Bond Market Inflection Point (BBG)

DoubleLine’s Jeffrey Gundlach indicated in a webcast on Thursday that financial markets are on the brink of turmoil, saying “this is a big, big moment.” He’s right. It is. The mood has shifted suddenly. Investors are losing faith in the efficacy of monetary stimulus, and it appears that perhaps central bankers may be, too. The BOJ and ECB have refrained from committing to additional rounds of stimulus and are quickly running out of bonds to buy under their existing programs. The BOJ may run out of bonds within the next 18 months, while the ECB may run into a wall sooner than that, according to analysts cited by the WSJ and the FT.

The Federal Reserve, meanwhile, is still planning to raise benchmark interest rates despite underwhelming economic data. This is in large part because policy makers are increasingly concerned about the threats to longer-term financial stability by keeping rates so low. Meanwhile, inflation expectations are rising on bets that government officials will embark on spending plans to stimulate growth. This multifaceted dynamic is a game changer, and markets have taken note. Traders have started dumping government bonds, leading to the biggest rout in Japanese debt in 13 years. [..] “Interest rates have bottomed,” Gundlach said in the webcast. “They may not rise in the near term as I’ve talked about for years. But I think it’s the beginning of something, and you’re supposed to be defensive.”

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So VW guys will be thrown in jail but bankers will not.

VW Engineer Pleads Guilty in US Criminal Case Over Diesel Emissions (NYT)

A Volkswagen engineer pleaded guilty on Friday to conspiring to defraud regulators and car owners, in the first criminal charges stemming from the American investigation into the German carmaker’s emissions deception. The plea by the engineer, James Robert Liang, a Volkswagen veteran, suggests that the Justice Department is trying to build a larger criminal case and pursue charges against other higher-level executives at the carmaker. Mr. Liang was central in the development of software that Volkswagen used to cheat pollution tests in the United States, which the company admitted last year to installing in more than 11 million diesels vehicles worldwide. He was also part of the cover-up, lying to regulators when they started asking questions about discrepancies in emissions.

Mr. Liang’s admissions, made in the United States District Court for the Eastern District of Michigan, portray a broader conspiracy by executives, making Mr. Liang a potentially valuable resource for the developing criminal investigation. The Justice Department said Mr. Liang, who faces a maximum sentence of five years in prison, would cooperate. The Volkswagen case comes at a time when the government is trying to get tough on white-collar crime and hold more individuals responsible. After being criticized for going soft on executives, the Justice Department introduced new policies last year that emphasized the prosecution of individual employees. And the Volkswagen case provides one of the first real tests of the government’s commitment.

The Volkswagen case has escalated quickly. In June, the Justice Department and other agencies secured a record $15 billion settlement in a civil suit with the company. At the time, officials were quick to note that the settlement was just a first step, saying they would aggressively pursue a criminal case against the company and individuals. “There’s considerable pressure on the Department of Justice to see how far up the chain of management the knowledge goes,” said Daniel Riesel, a principal at the New York-based environmental law firm Sive, Paget & Riesel. One way for investigators to do that was “to indict and cut deals with lower-level people,” he added. Mr. Liang is “a high enough official who is culpable on his own right, and maybe in a position to start unraveling this chain of responsibility.”

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Good on them! Still, while they do this, they still persist in terrorizing Assange for the US.

Sweden Says No to NATO (BBG)

Sweden’s government affirmed its military neutrality even as a government-commissioned report broadly sided with those in favor of joining the North Atlantic Treaty Organization amid rising tensions with Russia. “Our non-alignment policy serves us well,” Foreign Minister Margot Wallstroem said in Stockholm Friday after receiving the report. Joining NATO “would expose Sweden to risks, both political and otherwise, and we don’t think that’s the right direction.” The country has been forging closer ties with the military alliance, taking part in joint military exercises that have angered authorities in Moscow.

A stable, geographically strategic democracy such as Sweden would be a welcome addition for NATO as it struggles to contain a more assertive Russia on its eastern flank. The review released on Friday in Stockholm refrained from making a formal recommendation. While NATO membership would “increase common conflict-deterrent capabilities,” it would also spark a political crisis with Russia and possibly lead to a regional arms race, the review concluded. And although Russian attacks on Sweden or its Baltic neighbors are considered “unlikely,” being a part of NATO would help “remove uncertainty in case of conflict.”

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Zero Hedge has an interesting ‘alternative’ view from Norway. Tyler calls it a view of Trump, but it’s definitely wider than that.

One “Lifelong Socialist” Norwegian’s Perspective on America (Nordmann)

I find it interesting that the very wealthy are suddenly vocal, vigorously opposing Donald J Trump’s presidency. Mark Cuban, Warren Buffet, Bill Gates and George Soros have all made statements against “The Donald.” Buffet, Gates, and Soros are avid supporters of Hillary Clinton. Goldman Sachs top management are not allowed to donate to Trump’s campaign. As an average seventy-something Norwegian farmer, looking at American from the outside, I find the vigorous billionaire opposition “interesting.” Moreover, this is amplified by CNN (which we get here in Norway as part of our standard cable package). CNN used to be fact based news only. Now they morphed into the Clinton News Network, attempting to shape public opinion, garnering support for globalism.

Perhaps the billionaire’s enterprises benefit from bloated government spending (this is speculation and worthy of investigation)? These Billionaires are so rich that the interest earned on their idle cash and investments amounts to tens of thousands of dollars per day. What do they have to lose either way? Why is this so important to them? Maybe it’s to their advantage that the ladder (better known as the American Dream), where people can ascend through the rungs, achieving different levels of success through hard work, is broken? Don’t Americans find it strange, despite technological advancements and increased productivity, that medical care, education, and housing costs are rising. I thought technology was supposed to make things cheaper, easier and more abundant.

Remember when people went from horse and buggy to the Ford Model T – what happened? (A middle mobile middle class was born). Based on what I read about American life, it seems like now, when there is a new technology or innovation to make life easier, things get worse. Jobs become less stable than decades earlier. People are working longer hours for less. The housing standard is now a cramped condo instead of a house with a yard. It appears a lot of people are on edge. American’s need to ask themselves, reflecting back one generation (20 years), how billionaires have made their lives better? Billionaires have substantially increased their wealth in the past 20 years, have you? American’s have a history of being rebellious, unpredictable, self-reliant and wild, rooting for the underdog. In this case, the underdog is Trump.

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Europe’s core will take this out on the periphery.

Eurozone Woes Continue: German Exports Plunge, French Industry Weakens (Tel.)

German exports fell at the fastest pace in more than a year in July as French industrial production shrank for a third straight month, fuelling fears of a wider eurozone slowdown. Exports in Germany fell 2.6pc in July compared with June, according to Destatis. This was the biggest fall since August 2015, and compares with expectations for a 0.4pc rise. The decline was driven by a drop in sales outside the EU, including China and the US, while demand from the UK also fell. June’s month-on-month rise of 0.3pc was also revised down to 0.2pc. Separate data showed French industrial production declined by 0.6pc in July on a monthly basis. Analysts had expected French production to bounce back following declines in May and June when activity was hit by strike action.

Chantana Sam, an economist at HSBC, said: “This is a bad sign for the prospects of a rebound in business investment. Recent manufacturing surveys also point to a deteriorating outlook and persistent weak demand. “All in all, this bad start to the third quarter of industrial production and puts some downside risks on our expectations for a rebound in GDP growth in the third quarter, after flat growth in the second quarter.” Wolfgang Schaeuble, the German finance minister, said Europe’s largest economy had no intention of reining in export growth. Critics, including ECB chief Mario Draghi, say the country’s current account surplus, which includes trade, has contributed to imbalances and hindered growth in the 19 nation bloc. “Even before the ECB decided its policies of unusual monetary policy, which also led to the euro exchange rate falling significantly, I said that we will increase German export surplus,” Mr Schaueble told reporters.

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Love mish, but I’ll write an article on where he goes off the rails on the issue.

Why the Eurozone Will Destruct (Mish)

No discussion of eurozone problems would be complete without a discussion of Target2, an abomination created by the eurozone founders and one of the fundamental flaws of the euro. Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe. Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.”

Monetary policy can help external balances but it cannot fix internal target2 balances. Germany will pay one way or another for the massive imbalances between the creditor and debtor Eurozone countries. Eventually Spain, Greece, or Italy will realize it is impossible for them to pay back what is owed. Once that realization sets in, some country will default on their euro-denominated liabilities. Beppe Grillo’s Five Star Movement in Italy is on board with that idea already. There are only three possible paths at this point: 1) Germany and the creditor nations forgive enough debt for Europe to grow; 2) Permanently high unemployment and slow growth in Spain, Greece, Italy, with stagnation elsewhere in Europe; 3) Breakup of the eurozone.

Germany will not allow #1. It is unreasonable to expect #2 to last forever. The only door left open is door #3. The best move would be for Germany to leave the eurozone. Germany is in the best shape to suffer the consequences. Unfortunately, the most likely outcome is still a destructive breakup of the eurozone, starting in Italy or Greece.

Read more …

Any ‘subversive’ moves from the south will be crushed by the north.

EU’s Poor Nations Plot Next Move As North-South Divide Erupts (CNBC)

In order to tame the euro zone sovereign debt crisis over the last seven years, the richer countries of Northern Europe have called for austerity measures and budget cuts, coupled with stronger EU sanctions for countries that do not adhere to this policy. In practice, this economic recipe, led by Germany, proved economically and politically disastrous, as it fueled the recession and nourished populism. In some cases it has become increasingly difficult for political parties to pursue an economic agenda that deviates from these fiscal norms without questioning EU membership. Tspiras and his colleagues believe the current situation in southern Europe makes this a good time to address austerity issues and its effect on long-term growth throughout the region.

The stars may be aligning, considering in Italy a referendum on constitutional reform will take place between Nov. 15 and Dec. 5 and the first round of the presidential election in France next April. This may help the Greek prime minister’s cause, which is to convince its lenders that the targeted 3.5 percent primary surplus for 2018 is too high and would negatively affect crisis-stricken Greeks. Terms of the Greek bailout program assumed that tax revenues would exceed program spending, ex-interest on outstanding debt. But within the southern EU bloc, many believe this is an unrealistic target for an aching economy that for seven years has been in a recession and austerity mode. Tsipras does not want to give the impression that he does not respect the agreements with Greece’s creditors.

In an informal government meeting held on September 6, Tsipras asked his ministers to progress rapidly with the fiscal and structural measures that Greece’s lenders set as a prerequisite last June. This effort comes ahead of a mandated second review of its current international bailout, which the Greek government is expected to start in October and which includes controversial reforms. In turn, lenders have promised that the European Stability Mechanism, the EU’s bailout fund, will outline how it will offer Greece debt-relief measures. The austerity measures in southern European nations create the conditions for dividing the EU further, as the Germans and their northern allies insist on tight budgets, despite the persistent deflation in the region and weak growth.

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This is the craziest European idea yet. Merkel suspended Dublin, and now she wants to flood already severely overburdened Greece with the people she invited to Germany last year? Note: Greece is overburdened because Europe refuses to help out.

Greece Rejects Return Of EU’s Dublin Regulation On Reverse Migration Flow (AP)

The Greek government is adamantly opposing the revival of a European Union rule that would allow the forcible return to its territory of asylum-seekers who entered the bloc via Greece – a path followed by more than a million people in the past two years. Immigration is high on the agenda of a meeting Friday in Athens of southern European leaders. The group includes Italian Prime Minister Matteo Renzi, whose country, with Greece, is Europe’s main immigration gateway. Ahead of the talks, a government spokesman on immigration said Athens rejects reactivation of the so-called Dublin Regulation, which would allow other EU members to send asylum-seekers back to Greece.

“A country such as Greece which receives a large number of refugees from Turkey, and also hosts a large number of refugees – practically without any outside help – cannot be asked to receive refugees from other European countries,” Giorgos Kyritsis told The Associated Press. “That would be outrageous.” The Dublin Regulation that governs the Schengen passport-free area stipulates that people wishing to apply for asylum must do so in the first member country they arrive in. In most cases that was Greece, whose eastern islands were overwhelmed last year by migrants packed into smugglers boats from Turkey. But even before last year’s migration crisis, many of its EU partners had stopped enforcing the rule because Greece’s asylum and migrant reception systems were below standard.

Now, however, both Germany and the EU executive are pressing for the rule to be restored, with EU officials saying that Greece must meet the Dublin standards by the end of this year.

Read more …

Jul 052016
 
 July 5, 2016  Posted by at 8:06 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Jack Allison “Utopia Children’s House, Harlem, New York.” 1938


Don’t Panic. Britain’s Economy Can Survive Just Fine Outside The EU (Mody)
The UK Desperately Needs A Lower Pound (Steen Jakobsen)
Brexit Accelerates the British Pound’s 100 Years of Debasement (BBG)
Meanwhile At The Most Systemically Dangerous Bank In The World… (ZH)
Standard Life Shuts Property Fund Amid Rush Of Brexit Withdrawals (G.)
EU Authority Fraying In Reaction To Brexit Vote (R.)
Draghi Should Have Done More To Help Italian Banks In 90’S, Says PM Renzi (R.)
Did a Fear of Slave Revolts Drive American Independence? (NY Times)
The Statue Of Liberty Was Built To Welcome Immigrants (Eggers)
The Elites Hate Momentum and The Corbynites – I’ll Tell You Why (Graeber)
In New Jersey Student Loan Program, Even Death May Not Bring a Reprieve (NYT)
Sydney Home Prices Just Keep On Rising (BBG)
How Australia Is Sold Into Waging War In Ukraine (Helmer)
US Economist Galbraith Sheds Light On Varoufakis ‘Plan X’ (Kath.)
Wikileaks Publishes More Than 1,000 Hillary Clinton War Emails (Ind.)
Who The F**k Is Charlotte? (Jim Kunstler)

 

 

“Between 2000 and 2014, the share of British exports to Europe fell from 60 to 45%.”

Don’t Panic. Britain’s Economy Can Survive Just Fine Outside The EU (Mody

The European Union was not the principal reason why many felt economically and politically powerless, but its bureaucratic creep became a potent symbol of the overpowering force of globalization. The outgoing Prime Minister of Britain David Cameron, who likes to think of himself as modern-day Winston Churchill, had little understanding of these historical forces. Indeed, even Churchill had his historical blind spots. He petulantly called Gandhi a “half-naked fakir” and vehemently opposed Indian independence. But Cameron, seeking his petty political victories, was largely clueless about the larger stakes he ended up playing for. Tactical gains can lead to strategic advance only when guided by a larger vision. All Cameron wanted was greater hold over his party.

But once he let the genie out of the bottle, Cameron misjudged again by making an economic case for remaining in the European Union rather than attempting a serious political argument for Europe—one based on shared values. Perhaps there was no political argument to be made, but the effort to present an economic calculus for a political decision was bound to backfire. The economic numbers to make the case for Britain remaining in Europe were fanciful, however many economists and international organizations joined to endorse them.

Following Brexit, productive British trade with the European Union will survive just fine wherever it is based on long-lasting economic gains and social relationships. At the same time, the shift toward trade with the faster-growing United States and Asia will continue. Between 2000 and 2014, the share of British exports to Europe fell from 60 to 45%. Almost all new British trade is being created outside of Europe. The new tougher trade regime could even spur productivity growth. As the British economy inevitably disengages from Europe, empathy for European Union will decline further. A referendum five years from now will produce an even clearer decision to say out.

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“The UK’s problem remains their double deficit. The chronic budget and the current account deficits.”

The UK Desperately Needs A Lower Pound (Steen Jakobsen)

I am writing this chronicle from South Africa which is almost as far away from Europe and the constant and never ending Brexit talk as you can come. It’s hard even here to avoid the turbulence and never ending ‘need’ for investors and media to understand what comes next. The best analogy I can use is one from my extensive travels: When you arrive at an airport to check in, you have to pass security control when two options are at hand: The fast track or the slow version (economy class). Using the fast track gets you quicker to the gate and allows you pre-boarding, but what really should matter is that the actual flight time and route is the same for everyone in business and in economy. We arrive at EXACTLY the same time.

The point? What is now transpiring in an economic sense is that we have entered the fast track courtesy of Brexit, the selloff in GBP, the lowering of growth projections and in some places talk about reform and change which would have happened with or without the Leave vote. The UK’s problem remains their double deficit. The chronic budget and the current account deficits. The last time the UK ran a surplus on the current account was the year Italy won the World Cup in Spain and the top scorer was Paolo Rossi. you guessed it — 1982. The UK also has the lowest productivity of the G7 countries together with Japan.

Yes, the UK needs a lower GBP and desperately so and if the ERM crisis of 1992 is any guideline, what comes next for UK is more employment and a stronger GDP as seen in this chart from the excellent research done by Societe Generale. It would be naive to anticipate only positive changes from the increased political uncertainty but do realise that the slowdown in the UK but also Europe was happening before the surprise ‘Leave’ result.

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Loss of empire.

Brexit Accelerates the British Pound’s 100 Years of Debasement (BBG)

There have been few better ways to chart Britain’s decline from empire than its currency. Historians, economists and foreign-policy specialists point to the more-than 10% plunge since the June 23 referendum as signaling another downward leg in the U.K.’s global role and influence. “The history of the pound against the dollar over the last century is essentially a downward ladder with big permanent steps,” according to Rui Pedro Esteves, an associate professor in economics at Oxford University. The world’s oldest currency — sterling is derived from the old German “ster” for strong or stable – bought almost $5 during World War I. The day of the EU referendum, it traded at $1.50. It was at $1.3330 as of 4:33 p.m. on Monday.

HSBC analysts are among those forecasting $1.20 as a likely destination. Billionaire investor George Soros suggests $1.15, the equivalent of about a euro – about 60 cents below its average since 1971. “A country’s economic size measured in other currencies – for the U.K., measured say in dollars – is an indicator of its capacity to project power and influence internationally,” said Barry Eichengreen, a professor of economics at the University of California Berkeley. While some economists, including former BOE Governor Mervyn King, see the weaker currency as leading to more export competitiveness, others see the threat of recession and lower interest rates – combined with more insular politics and withdrawal from the world’s largest trading bloc – as undermining appetite for U.K. assets.

“If you look at the U.K. now, certainly part of what is going on is a result of the exchange rate’s adjustment to growth expectations,” said Maurice Obstfeld, chief economist at the IMF. The pound has been in steady decline, spurred on by a series of financial jolts, for most of the past century – just as Britain’s prominence on the international stage has diminished.

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Correlation AND causation.

Meanwhile At The Most Systemically Dangerous Bank In The World… (ZH)

Another day, another fresh record low in Deutsche Bank’s stock price… For comparison’s sake, Deutsche Bank is analogically equivalent to where Lehman was in August 2008… when the stock soared 16% on chatter of a Korean Development Bank bailout… which then was denied, crashing the stock and ending the party…

Shares in Lehman Brothers rose substantially Friday as investors renewed hopes that the troubled investment bank was moving closer to raising capital to buffer it against a deteriorating economic environment. Capping a volatile week, the stock soared 16% on a report that the state-run Korea Development Bank was considering buying the bank, an idea that a spokesman for the South Korean firm said was “erroneous.” Lehman’s stock closed the day up 5% at $14.41.

The spokesman for Korea Development Bank told The New York Times that the bank was in the process of being privatized and was looking at various acquisitions. But he denied that buying Lehman was an option. “We have various thoughts for our future, but we don’t have any specific institutions in mind,” said the spokesman, who declined to be named, citing company policy. Lehman’s suddenly soaring stock underscores the volatility surrounding the firm as it scrambles to assess its options in the face of an abysmal third quarter. Only days ago, its shares tumbled more than 13%.

We wait for chatter of a Deutsche Bank ‘offer’ rumor any day now. We are sure it’s nothing. How can it be a problem given that US equities are so strong? right?

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Can’t be just one fund that has these problems.

Standard Life Shuts Property Fund Amid Rush Of Brexit Withdrawals (G.)

Investors in Standard Life’s property funds have been told that they cannot withdraw their money, after the firm acted to stop a rush of withdrawals following the UK’s decision to leave the EU. The firm halted trading on its Standard Life Investments UK Real Estate Fund and associated funds at midday on Monday, citing “exceptional market circumstances” for the decision. It said the suspension would remain in place until it is “practicable” to lift it, and that it would review the decision at least every 28 days. The £2.9bn fund, which invests in commercial properties including shopping centres, warehouses and offices, is thought to be the first UK property fund to suspend trading since the 2007-2009 financial crisis, when some of the biggest names in investment management stopped withdrawals because they did not have the money to repay investors.

Standard Life’s decision is the latest in a line of moves by investment firms to stem flows out of their property funds. Standard Life last week, together with rivals Henderson, Aberdeen and M&G, reduced the amount investors cashing in holdings would get back by up to 5%. In a statement, Standard Life said the decision followed an increase in redemption requests from investors. “The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio,” the company said.

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Juncker’s days are definitely numbered. But nobody seems to either know nor agree what should be next.

EU Authority Fraying In Reaction To Brexit Vote (R.)

[..] Italian Prime Minister Matteo Renzi, who has fought to bend EU budget deficit rules and now seeks to pump billions of euros into his country’s ailing banks if needed to shore them up, said on Monday the EU was run by “a technocracy with no soul”. He also opposed sanctions against fellow southern members Spain and Portugal for violating the EU’s deficit limits last year – a step the Commission is due to consider on Tuesday in a German-backed drive to uphold the much-abused budget rules. Italy’s banks are saddled with €360 billion in bad loans and their share prices plunged after last month’s Brexit vote. Rome is in talks with the EU Commission to devise a plan to recapitalize its lenders with public money limiting losses for bank investors.

Dutch and German ministers have attacked a Commission decision that the European Parliament can approve a trade pact with Canada without referring it to national parliaments. The Dutch parliament was assured it would have a chance to weigh in on the treaty. But perhaps most worryingly for the EU, senior ministers in Germany, the bloc’s reluctant hegemon, are advocating shrinking the executive Commission, trimming its powers, and bypassing common European institutions to take more decisions by intergovernmental agreement. A call from veteran German Finance Minister Wolfgang Schaeuble, long an advocate of closer integration, to shift more policy decision-making to governments for expediency’s sake was among the most striking indicators of the mood around Europe.

“If the Commission doesn’t get involved, then we should take the matter into our own hands and solve problems between governments,” Schaeuble told Welt am Sonntag newspaper, saying now was a time for pragmatism. “This intergovernmental approach proved successful during the euro zone crisis,” he added.

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Renzi, in trying to save his career, becomes a danger to Brussels.

Draghi Should Have Done More To Help Italian Banks In 90’S, Says PM Renzi (R.)

Italian Prime Minister Matteo Renzi criticized ECB Governor Mario Draghi for not having done more to resolve Italy’s banking woes when he held a key Treasury job in Rome in the 1990s. Renzi’s rare public criticism of Draghi came on the day Italy’s third-largest lender, Banca Monte dei Paschi di Siena (BMPS.MI), said that the ECB had asked it to cut its bad debts by 40% within three years, heaping more pressure on Rome to stabilize its banking system. After taking power in 2014, Renzi’s government introduced reforms aimed at strengthening the country’s cooperative banks, but several are struggling to stay afloat and a bailout fund took control of Veneto Banca last week after the ECB said it had to raise capital or close.

“If the measures concerning the cooperatives had not been taken by us but by the centre-left government that first put them forward, but was not strong enough to enact them in 1998 … then we would not have this problem,” Renzi said. The prime minister said that Draghi was director general of the Treasury at that time, with Carlo Azeglio Ciampi serving as economy minister. “And if people had the strength and intelligence to keep politics out of the banking system a bit before we did it … we would not have had cases like Monte dei Paschi di Siena,” Renzi told a meeting of his centre-left Democratic Party (PD).

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How things are seldom what they seem. Or people, for that matter.

Did a Fear of Slave Revolts Drive American Independence? (NY Times)

For more than two centuries, we have been reading the Declaration of Independence wrong. Or rather, we’ve been celebrating the Declaration as people in the 19th and 20th centuries have told us we should, but not the Declaration as Thomas Jefferson, Benjamin Franklin and John Adams wrote it. To them, separation from Britain was as much, if not more, about racial fear and exclusion as it was about inalienable rights. The Declaration’s beautiful preamble distracts us from the heart of the document, the 27 accusations against King George III over which its authors wrangled and debated, trying to get the wording just right. The very last one — the ultimate deal-breaker — was the most important for them, and it is for us:

“He has excited domestic insurrections amongst us, and has endeavored to bring on the inhabitants of our frontiers, the merciless Indian savages, whose known rule of warfare is an undistinguished destruction of all ages, sexes and conditions.” In the context of the 18th century, “domestic insurrections” refers to rebellious slaves. “Merciless Indian savages” doesn’t need much explanation. In fact, Jefferson had originally included an extended attack on the king for forcing slavery upon unwitting colonists. Had it stood, it would have been the patriots’ most powerful critique of slavery. The Continental Congress cut out all references to slavery as “piratical warfare” and an “assemblage of horrors,” and left only the sentiment that King George was “now exciting those very people to rise in arms among us.”

The Declaration could have been what we yearn for it to be, a statement of universal rights, but it wasn’t. What became the official version was one marked by division. Upon hearing the news that the Congress had just declared American independence, a group of people gathered in the tiny village of Huntington, N.Y., to observe the occasion by creating an effigy of King George. But before torching the tyrant, the Long Islanders did something odd, at least to us. According to a report in a New York City newspaper, first they blackened his face, and then, alongside his wooden crown, they stuck his head “full of feathers” like “savages,” wrapped his body in the Union Jack, lined it with gunpowder and then set it ablaze.

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Reflecting on Lady Liberty’s right foot.

The Statue Of Liberty Was Built To Welcome Immigrants (Eggers)

Though she is the most recognisable symbol of the American experiment, there is something about the Statue of Liberty that goes largely unnoticed. And that is that she is moving. The torch in her right hand, symbolising enlightenment, cannot be ignored and is never overlooked. The book in her left hand, with 4 July carved in roman numerals, is not likely to be missed. Nor are the seven spikes of her crown, matching the world’s seven continents and seven seas. And though, if pressed, we remember that she is wearing sandals, we forget, if we ever knew, that the Statue of Liberty is on the go. Take the ferry to Liberty Island. As your boat rises and falls on the rough waters of New York Harbor, you will see, with undeniable clarity, that her right foot is striding forward.

And around her feet are chains, broken, which sculptor Frédéric Auguste Bartholdi meant to symbolise the breaking of the chains of bondage and tyranny. She is caught, forever, in the moment of becoming free. The 305ft statue is a marvel of artistry and engineering, and there are many details to admire, but none is more important than her right leg, which is stepping forward, and stepping forward not casually but with great striding purpose. This right foot, though largely unheralded, might be its most important feature. For what would it mean if the symbol of liberty were standing still? That would imply that freedom is static, that once established, it’s a settled thing. But freedom is not a settled thing.

It would imply that once the first few million immigrants arrived on American shores, fleeing religious bigotry or political violence or ethnic persecution, then the United States should or could close its gates. It would imply that the welcoming of new arrivals, the poor and tired and struggling to be free, was a temporary thing, that the welcoming of the world’s oppressed was a thing of the past. But the welcoming of the world’s oppressed is not a thing of the past. We live in a moment when shrill voices tell us that not only should immigration be stifled, but that millions of current residents should be deported, returned to their country of origin, no matter the consequences for their souls or our consciences. These fearful voices put forth a direct repudiation of the origin and elemental purpose of this country, and to the meaning of the statue that we accept as our talisman.

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The coup against Corbyn is also linked to Tony Blair’s possible indictment, and the risks that brings for those in the party who are linked to him.

The Elites Hate Momentum and The Corbynites – I’ll Tell You Why (Graeber)

As the rolling catastrophe of what’s already being called the “chicken coup” against the Labour leadership winds down, pretty much all the commentary has focused on the personal qualities, real or imagined, of the principal players. Yet such an approach misses out on almost everything that’s really at stake here. The real battle is not over the personality of one man, or even a couple of hundred politicians. If the opposition to Jeremy Corbyn for the past nine months has been so fierce, and so bitter, it is because his existence as head of a major political party is an assault on the very notion that politics should be primarily about the personal qualities of politicians. It’s an attempt to change the rules of the game, and those who object most violently to the Labour leadership are precisely those who would lose the most personal power were it to be successful: sitting politicians and political commentators.

If you talk to Corbyn’s most ardent supporters, it’s not the man himself but the project of democratising the party that really sets their eyes alight. The Labour party, they emphasise, was founded not by politicians but by a social movement. Over the past century it has gradually become like all the other political parties – personality (and of course, money) based, but the Corbyn project is first and foremost to make the party a voice for social movements once again, dedicated to popular democracy (as trades unions themselves once were). This is the immediate aim. The ultimate aim is the democratisation not just of the party but of local government, workplaces, society itself.

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In a nutshell: “..One reason for the aggressive tactics is that the state depends on Wall Street investors to finance student loans..”

In New Jersey Student Loan Program, Even Death May Not Bring a Reprieve (NYT)

New Jersey’s loans, which currently total $1.9 billion, are unlike those of any other government lending program for students in the country. They come with extraordinarily stringent rules that can easily lead to financial ruin. Repayments cannot be adjusted based on income, and borrowers who are unemployed or facing other financial hardships are given few breaks. The loans also carry higher interest rates than similar federal programs. Most significant, New Jersey’s loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.

“It’s state-sanctioned loan-sharking,” Daniel Frischberg, a bankruptcy lawyer, said. “The New Jersey program is set up so that you fail.” The authority, which boasts in brochures that its “singular focus has always been to benefit the students we serve,” has become even more aggressive in recent years. Interviews with dozens of borrowers, who were among the tens of thousands who have turned to the program, show how the loans have unraveled lives. The program’s regulations have destroyed families’ credit and forced them to forfeit their salaries. One college graduate declared bankruptcy at age 26 after struggling to repay his debt. The agency filed four simultaneous lawsuits against a 31-year-old paralegal after she fell behind on her payments.

Another borrower, Chris Gonzalez, could not keep up with his loans after he got non-Hodgkin’s lymphoma and was laid off by Goldman Sachs. While the federal government allowed him to suspend his payments because of hardship, New Jersey sued him, seeking $266,000 in payments, and seized a state tax refund he was owed. One reason for the aggressive tactics is that the state depends on Wall Street investors to finance student loans through tax-exempt bonds and needs to satisfy those investors by keeping losses to a minimum. Loan revenues also cover about half of the agency’s administrative budget.

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How to kill a city.

Sydney Home Prices Just Keep On Rising (BBG)

Sydney home prices resumed their upward march as dwindling supply outweighs tighter loan approvals by lenders. Dwelling values climbed 1.2% in June, taking gains for the second quarter to 6.8%, according to data from CoreLogic. The market is getting a leg up after a slowdown at the end of last year in Australia’s largest city, as new listings fell more than 16% from a year earlier to the lowest in five months in June, according to the data.

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How to kill a country: “..it is financed by grants from the Australian Department of Defence, the Australian Army, the Australian Federal Police, the Dutch Foreign Ministry, and the Japanese Government; plus Raytheon, Northrup Grumman, Lockheed Martin, and Boeing..

How Australia Is Sold Into Waging War In Ukraine (Helmer)

Among Turnbull’s last-minute ploys to attract votes, one was the leak last month of Australian cabinet plans for an Australian Army force to fight in eastern Ukraine, alongside Dutch and other NATO units, to destroy the Donetsk and Lugansk rebellion against the regime in Kiev. Turnbull’s leak had suggested that Tony Abbott, the prime minister Turnbull had pushed aside to take the job, dreamed up the plan of Australian war at the Russian frontier by himself. The new report by Dibb now corroborates the idea of an Australian military expedition against Russia, in exchange for improved American commitments to defend Australia from the Chinese closer to home, in the Pacific.

“How things work out in Europe,” Dibb claims, “will affect Washington’s ability to reassure allies and partners everywhere, including those in our region who must contend with increasing coercion by China.” Unless Australia does more fighting with the Americans on the Russian front, he concludes, “China will take advantage of this, and allies and partners of the US in the region -including Australia- would be subject to further uncertainty about American military commitments to Asia.” Combating “Russia’s aggressive military behaviour “is necessary because, otherwise, “both Moscow and Beijing will be seen as getting away with it.” The 40-page Dibb report is entitled “Why Russia is a threat to the international order”. Read it in full. The publisher is a think-tank headquartered in Sydney called the Australian Strategic Policy Institute (ASPI).

It says “ASPI was established, and is partially funded, by the Australian Government as an independent, non-partisan policy institute.” The institute’s financial reports reveal it is financed by grants from the Australian Department of Defence, the Australian Army, the Australian Federal Police, the Dutch Foreign Ministry, and the Japanese Government; plus Raytheon, Northrup Grumman, Lockheed Martin, and Boeing — the leading arms-exporting corporations of the US. European arms builders also funding ASPI include the European missile-maker MBDA, BAE Systems, ThyssenKrupp Marine Systems, Rheinmetall, Airbus, and Navantia, the Spanish state shipbuilder. When Australians march into the field against the Russians, these suppliers aim to provide the best kit Australian money can buy.

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Tsipras might have done well to pay some more attention.

US Economist Galbraith Sheds Light On Varoufakis ‘Plan X’ (Kath.)

The Plan B for Greece that was drafted by former Greek Finance Minister Yanis Varoufakis foresaw the declaring of a state of emergency, the immediate nationalization of the Bank of Greece, the transformation of bank deposits into a New Drachma and emergency public order measures, according to a book by American economist James Galbraith, Varoufakis’s chief coordinator for the plan. In the book, “Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe,” which has been translated into Greek, Galbraith describes in detail Varoufakis’s plan for moving Greece to a parallel banking system last year.

Those privy to the Plan B – or Plan X as Varoufakis is said to have called it – would meet in conditions of high secrecy involving secure communications and the depositing of cell phones in hotel refrigerators. According to Galbraith, during the transition phase, the ministries of Defense and the Interior would have been responsible for public order, fuel supplies would be controlled, while employees at important public institutions (schools, hospitals, police) would be mobilized. Even though there was a high-level meeting about the plan, Galbraith said the prime minister did not ask to be briefed, so work on the endeavor ended with the submission of an extensive memo in May.

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At some point, indictment or not, enough people will realize that Clinton is too much of a risk for the credibility of the entire American political system.

Wikileaks Publishes More Than 1,000 Hillary Clinton War Emails (Ind.)

WikiLeaks, the anti-secrecy website, has released more than 1,000 emails from Hillary Clinton’s private email server pertaining to the Iraq War. The website tweeted a link to 1,258 emails on Monday that Clinton sent during her time as secretary of state. According to the release, the emails were obtained from the US State Department after they issued a Freedom of Information Act request. However, it’s unclear if any of the information is classified. WikiLeaks founder Julian Assange previously claimed that his website obtained enough proof for the FBI to indict the presumptive Democratic nominee for president.

“We could proceed to an indictment, but if Loretta Lynch is the head of the DOJ in the United States, she’s not going to indict Hillary Clinton,” Assange told ITV. “That’s not possible that could happen.” The newly released information will likely only serve as political fodder for the presumptive Republican nominee Donald Trump, as Clinton met with FBI investigators over the weekend wrapping up the lengthy investigation. Sources close to the probe recently told CNN that the bureau will announce no charges against Clinton in the weeks to come.

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Ha! Funny! But I think Lynch’s involvement is far more insidious than this.

Who The F**k Is Charlotte? (Jim Kunstler)

The mighty Shakespeare in his direst night sweats could not have conjured up the Clinton family in all their sharp angles and dark corners, but we can try to reconstruct the scene last week on Loretta Lynch’s plane out on the Phoenix airport tarmac.

Former president Bill steps aboard:
• Loretta: What the fuck are you doing here?
• Bill: I just had to tell you what Charlotte did last week.
• Loretta: Who the fuck is Charlotte?
• Bill: Our grand-kid. She’s turning into a good little earner.
• Loretta: We can’t meet like this. We’re about to depose your wife.
• Bill: Charlotte gave a speech to the whole Citibank C-suite.
• Loretta: I don’t give a fuck. Get off my plane right now!
• Bill: Well, I don’t know if ‘speech’ is the right word. She gurgles nice.
• Loretta: I guess you didn’t hear me.
• Bill: She pulled in fifty grand for that. Of course it was 100% remitted to the foundation. Well, bye now. (Exits plane).

I have a theory about the Clinton family dynamic. Bill does not want Hillary to win because he doesn’t want to live in the White House again. For sure he does not want to live with The Flying Reptile, but he especially doesn’t want to be on display in that fishbowl where folks pretty much can see what you’re up to 24/7. For one thing, “The Energizer” can’t discreetly come and go. But he certainly doesn’t want to concern himself as “First Husband” or “First Gentleman” (title TBD) with deciding which fabric to choose in replacing the East Room draperies. So Bill decided to fix things for sure with that innocent visit to the US Attorney General’s airplane to talk about grand-kids.

It seems to be working. If there was any question that Loretta Lynch could just sit on her hands about Hillary’s email investigation through the November election, it went up in a vapor last week. It also left the FBI director on the hot seat because now he will have to either cough up a referral to Justice Department prosecutors, or he’ll have some ‘splainin to do in the heat of a presidential election campaign. If you thought Watergate was a ripe peach, this one is beginning to look like a stinking durian (Durio zibethinus).

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Jun 292016
 
 June 29, 2016  Posted by at 8:06 am Finance Tagged with: , , , , , , , ,  1 Response »
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Walker Evans Shoeshine stand, Southeastern US 1936


16 Reasons To Celebrate Brexit’s Win (Bandow)
Brexit, a Step in the Right Direction (OTM)
Brexit Pulls Central Bankers In Conflicting Directions (WSJ)
When Central Planning Fails (ZH)
Cameron Wins Brexit Breathing Space At Gloomy EU Summit (AFP)
Draghi Wishes for a World Order Populists Will Love to Hate (BBG)
Exposure Of Asian Economies To UK Banks Will Cause Sharp Slowdown (SCMP)
Japan Inc.’s Yen Nightmare Looms at Large Exporters (BBG)
Robot Lawyer Overturns 160,000 Parking Tickets In London And New York (G.)
Oil Is Still Heading to $10 a Barrel (A. Gary Shilling)
A Zombie Is A Terrible Thing To Behold (Jim Kunstler)
Elites, ‘You’re Fired!’ (Dmitry Orlov)
The World Is Rejecting Globalization (Bernie Sanders)
Dutch PM Rutte Wants ‘Binding’ Assurances Over EU’s Ukraine Deal (R.)

A tas less Brexit than the past few days. Since most of the ‘journalism’ is so ‘end of the world’ one-sided, let’s start with some different views.

‘Doug Bandow is a former Special Assistant to President Ronald Reagan and author of Foreign Follies: America’s New Global Empire. He is a Senior Fellow at the Cato Institute.’

16 Reasons To Celebrate Brexit’s Win (Bandow)

1. Average folks took on the commanding heights of politics, business, journalism and academia and triumphed. Obviously, the “little guy” isn’t always right, but the fact he can win demonstrates that a system whose pathways remain open to those the Bible refer to as “the least of these.” The wealthiest, best-organized and most publicized factions don’t always win.

2. Told to choose between economic bounty and self-governance, a majority of Britons chose the latter. It’s a false choice in this case, but people recognized that the sum of human existence is not material. The problem is not just the decisions previously taken away from those elected to govern the UK; it’s also the decisions that would have been taken away in the future had “Remain” won.

3. Those governed decided that they should make fundamental decisions about who would rule over them. The Eurocrats, a gaggle of politicians, bureaucrats, journalists, academics, lobbyists and businessmen were determined to achieve their ends no matter what the European people thought. A constitution rejected? Use a treaty. A treaty rejected? Vote again. A busted monetary union? Force a political union. And never, ever consult the public. No longer, said the British.

13. Schadenfreude is a terrible thing, but almost all of us glory in the misfortune of at least some others. The recriminations among the Remain camp in Britain are terrible to behold. Labour Party tribunes blame their leader Jeremy Corbyn, whose Euroskeptic past created suspicions inflamed by his criticisms of the EU while nominally praising it. His supporters blame the Scottish nationalists for not turning out their voters. Former Liberal-Democrat Party leader and deputy Prime Minister Nick Clegg trashed Cameron and Chancellor of the Exchequer George Osborne for seeking political advantage by holding the referendum. The Scots are mad at the English. Irish “republicans” in Northern Ireland also are denouncing the English, while their longtime unionist rivals are trashing the republicans. The young are blaming the old for ruining their futures. Apparently, America isn’t the only home for myopic bickering.

14. Sometimes the advocate of a lost cause triumphs. Nigel Farage has been campaigning against the EU forever, it seems. Yet every advance appeared to trigger a retreat. His United Kingdom Independence Party picked up support, but then had to shed some of those whose views really were beyond the pale. UKIP was able to break into the European Parliament, which it hated, but won only one seat at Westminster, despite receiving 3.9 million votes, or 12.6% of the total, in last year’s election. One reason was that Cameron and the Tories stole his issue, promising a referendum on the EU—in which they then opposed separation. Election night he admitted that it looked like the UK would choose to remain. Except the British people ended up taking his advice.

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From Charles’ “correspondent” Ron. Brexit as a natural phenomenon. “I believe we have entered a critical but wonderful age, the age of reemergence of decentralization and decentralized governance; may we preserve this opportunity for the gift that it is to life, liberty and property.”

Brexit, a Step in the Right Direction (OTM)

“Mankind’s fundamental quest is to survive and prosper by solving scarcity. BREXIT is simply a modern example of an old pattern of behavior that seeks to resolve scarcity, (the shrinking pie of economic opportunity and ownership), through reconfiguration of relationships to reallocate resources to enable more equitable equilibrium in supply and demand. As a prelude to BREXIT, housing in Britain, in particular, had become out of reach for those that have labored under the assumption that hard work, education, and a good job would lead to an ability to own a home, which many young Britons now find economically out of their reach; many Britons blame the government’s monetary policy of 0% interest rates for inflation and unaffordable housing.

In another sign of frustration, a few years ago a graffiti sign expressed a sentiment of the youth in Britain, one of them posted at Bell Lane near Liverpool St. Station, it read: ‘Sorry, the lifestyle you ordered is out of stock.’ The Bank of England has continued policies that have contributed to the exasperation expressed through the referendum, this along with the burdens of having an open country and economy that increased labor supply which in turn increased demand for housing and available credit to driving the asset bubble. This type of scarcity, being seen in Britain, is very common throughout history and is generally driven by the confluence of interests that connects and drives centralized, unified policies between bankers, merchants (in today’s world global corporations) and governments.

Turning back the clock a bit, I would like to include a couple of quotes by an amazingly brilliant and eloquent commentator in economics, Fredic Bastiat in his writings from 1850: 1) “I do not dispute their right to invent social combinations, to advertise them, to advocate them, and to try them upon themselves, at their own expense and risk. But I do dispute their right to impose these plans upon us by law – by force – and to compel us to pay for them with our taxes.” 2) “Self-preservation and self-development are common aspirations among all people. And if everyone enjoyed the unrestricted use of his faculties and the free disposition of the fruits of his labor, social progress would be ceaseless, uninterrupted, and unfailing. But there is also another tendency that is common among people. When they can, they wish to live and prosper at the expense of others.”

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Currency wars with an twist.

Brexit Pulls Central Bankers In Conflicting Directions (WSJ)

ECB President Mario Draghi urged central banks to better coordinate policies to confront the problem of ultralow inflation in an era of slow global growth, underscoring the conundrum he and his associates face in the wake of Britain’s vote to leave the European Union. The guardians of the global monetary system face conflicting pressures as they seek to support their economies amid new turbulence. They also run the risk that their efforts will work at odds with each other and destabilize the financial system. Central banks should examine whether their policies are “properly aligned,” Mr. Draghi said at an ECB conference in Portugal. He further warned that currency devaluations aimed at boosting national competitiveness are a “lose-lose” for the global economy.

“In a globalized world, the global policy mix matters—and will likely matter more as our economies become more integrated,” Mr. Draghi said. “The speed with which monetary policy can achieve domestic goals inevitably becomes more dependent on others.” His warning resonated as central banks try to respond to the looming Brexit. Last week’s vote sent currencies spinning, pushing up the dollar and Japanese yen and driving down the euro and the British pound. It also sent investors away from stocks and risky bond investments. Markets settled on Tuesday after two days of sharp selling of risky assets. The Bank of England faces the risk of recession paired with the threat of inflation. If it lowers interest rates to boost growth, it could put additional downward pressure on its currency which stirs inflation. If it stands still, economic growth could suffer.

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Diminishing returns on the biggest debt drive in history will diminish with a vengeance.

When Central Planning Fails (ZH)

Things have not been going according to plan for Kuroda-san and his policy-making ‘Peter-Pan’s in Japan. Since The Bank of Japan unleashed NIRP on its ‘saving’ community – which, according to the textbooks would force money to reach for riskier investments, pumping stocks up, or flush cash into inflationary consumption – stock prices have collapsed and bond prices have exploded… In fact, in six months, bonds are outperforming stocks by a central-bank-credibility-crushing 70%!!! Rate cuts…not working.

And it’s not just The BoJ that is struggling – since The Fed hiked rates, The S&P is down 3.5% and Treasuries are up 16%!!

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Behind the rhetoric, the EU is powerless to demand on the timeline. Moreover, guys like Juncker and Tusk are starting to fear for their cushy jobs.

Cameron Wins Brexit Breathing Space At Gloomy EU Summit (AFP)

EU leaders gave Britain breathing space Tuesday by accepting it needed time to absorb a shock Brexit vote before triggering a divorce but insisted the crunch move could not wait months. A humiliated Prime Minister David Cameron came face-to-face with European colleagues for the first time since last week’s vote at a Brussels summit which leaders said was “sad” but pragmatic. Trillions of dollars have been wiped off world markets since Thursday’s vote to leave the EU, while the United Kingdom’s future has been thrown into doubt after Scotland said it would push for a new independence referendum. Further shockwaves juddered through British politics as Jeremy Corbyn, leader of the main opposition Labour party, vowed to fight on despite losing a crushing no-confidence vote among his party’s lawmakers.

Thousands of people took to the streets of London, which voted overwhelmingly to stay in the EU, to protest against the referendum result, waving EU flags and placards saying: “Stop Brexit”. After hours of talks in Brussels, EU President Donald Tusk said that he understood that time was needed “for the dust to settle” in Britain before the next steps can be taken. But reflecting wider concerns of a domino effect of other states wanting to leave, EC president Jean-Claude Juncker said Britain did not have “months to meditate”. He set a clear timetable for triggering Article 50, the EU treaty clause that begins the two-year withdrawal process, after Cameron’s successor takes office in early September. Juncker said that if the new prime minister was a pro-remain figure, Article 50 should be activated “in two weeks after his appointment” – but if it was a supporter of the leave campaign, “it should be done the day after his appointment,” he added.

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Note how the term ‘populist’ is regurgitated by media like Bloomberg, and then applied to anyone ‘we’ are supposed to eye with suspicion. Beppe Grillo, Nigel Farage, Hugo Chavez, Podemos, there’s a long list by now, and all they have in common is resistance to ‘The Model’. Problem of course is, when used this way, a term loses its meaning. But for now, everyone takes for granted that anyone who’s a Euroskeptic is also per definition a populist.

Draghi Wishes for a World Order Populists Will Love to Hate (BBG)

Mario Draghi has just pushed the boundaries of central banking further into the realm of globalization, at a time when globalization is on the run. Following the work of Reserve Bank of India Raghuram Rajan and others, the ECB president on Tuesday became the most senior global central banker so far to call for more explicit policy cooperation between jurisdictions. Draghi’s aim is to mitigate the damaging cross-border side-effects brought on by the combination of monetary activism and tighter global financial links. “We have to think not just about whether our domestic monetary policies are appropriate, but whether they are properly aligned across jurisdictions,” Draghi said at the ECB’s annual policy forum in Sintra, Portugal. “In a globalized world, the global policy mix matters.”

While Draghi made no explicit reference in the speech to the U.K.’s June 23 decision to quit the EU, a powerful rejection by voters of globalization, he told European leaders just hours later that he leans toward the more pessimistic forecasts of the impact of Britain’s vote on growth in the rest of the region, according to a document obtained by Bloomberg News. [..] Policy coordination is a laudable thought as long as it’s not taken too far, said Omair Sharif at Societe Generale in New York. “What he’s getting at is simply the idea that we don’t have a great understanding of all the financial linkages and capital flows,” Sharif said. “That certainly does call for better understanding among central banks, not necessarily coordinated policies.”

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It was all borrowed growth anyway. And you can’t borrow growth.

Exposure Of Asian Economies To UK Banks Will Cause Sharp Slowdown (SCMP)

Asian economies may slow down sharply and currencies may be pushed broadly lower as the Brexit contagion hits Asia, with Hong Kong likely to fall into a recession and the Chinese yuan to decline further, according to analysts. Britain’s dramatic decision to break from the European Union has roiled financial markets and sent shockwaves across the globe. Asian economies could soon feel deeper pains through several channels, including the financial sector, trade, investor confidence, and investor psychology, according to analysts from Nomura on Tuesday. “It’s not a temporary contagion. There are going to be several waves [on Asia],” said Rob Subbaraman at Nomura in a conference call.

Subbaraman said his team had slashed GDP growth forecasts for all major economies in the region and put Asia’s aggregate growth at 5.6% in 2016, down from a previous projection of 5.9%. In the region, Hong Kong may be hit the most, with its 2016 GDP likely to shrink by 0.2%, compared with a previous estimate of 0.8% growth. In 2015, Hong Kong’s economy grew by 2.4%. Singapore’s projected growth rate for 2016 was also cut sharply to 1.1%, versus an estimate of 1.8% previously. “Hong Kong and Singapore are both financial hubs and very exposed to UK banks,” said Subbaraman. “They also have managed exchange rates, which give central banks less leeway in rate policy. There is also a risk that the HIBOR (Hong Kong Interbank Offered Rate) rates could start rising.”

In particular, the reasons that they forecast an “outright recession” for the Hong Kong economy are mainly related to a stronger Hong Kong dollar, which is rising with the US dollar amid global risk aversion. Hong Kong’s reliance on exports also leaves it exposed to Brexit risks, as the city’s merchant exports to the UK and the rest of the EU accounted for 14% of GDP in 2015, the highest in Asia, Nomura analysts said.

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More currency wars with more twist.

Japan Inc.’s Yen Nightmare Looms at Large Exporters (BBG)

For a sense of how much the surging yen will hurt Japanese earnings, look at the gap between where companies expected the currency to trade and where it actually is. On average, large manufacturers calculated their earnings forecasts assuming the yen would be about 114 per dollar, based on data from the Bank of Japan. With the yen’s latest rally, the gap with that forecast is the widest since the global financial crisis in 2008.

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Cities won’t be happy with this. Parking tickets are a large source of income.

Robot Lawyer Overturns 160,000 Parking Tickets In London And New York (G.)

An artificial-intelligence lawyer chatbot has successfully contested 160,000 parking tickets across London and New York for free, showing that chatbots can actually be useful. Dubbed as “the world’s first robot lawyer” by its 19-year-old creator, London-born second-year Stanford University student Joshua Browder, DoNotPay helps users contest parking tickets in an easy to use chat-like interface. The program first works out whether an appeal is possible through a series of simple questions, such as were there clearly visible parking signs, and then guides users through the appeals process.

The results speak for themselves. In the 21 months since the free service was launched in London and now New York, DoNotPay has taken on 250,000 cases and won 160,000, giving it a success rate of 64% appealing over $4m of parking tickets. “I think the people getting parking tickets are the most vulnerable in society. These people aren’t looking to break the law. I think they’re being exploited as a revenue source by the local government,” Browder told Venture Beat. The bot was created by the self-taught coder after receiving 30 parking tickets at the age of 18 in and around London. The process for appealing the fines is relatively formulaic and perfectly suits AI, which is able to quickly drill down and give the appropriate advice without charging lawyers fees.

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Shilling’s not had his strongest year so far, but duly noted.

Oil Is Still Heading to $10 a Barrel (A. Gary Shilling)

Back in February 2015, the price of West Texas Intermediate stood at about $52 per barrel, half of its 2014 peak. I argued then that a renewed decline was coming that could drive it below $20, a scenario regarded by oil bulls as unthinkable. But prices did fall further, dropping all the way to a low of $26 in February. Since then, crude rallied to spend several weeks flirting with $50 per barrel, a level not seen since last year. But it won’t last; I’m sticking to my call for prices to decline anew to $10 to $20 per barrel. Recent gains have little to do with the fundamentals that led to the collapse in the first place.

Wildfires in the oil-sands region in Canada, output cuts in Nigeria and Venezuela due to political unrest, and hopes that American hfracking would run out of steam are the primary causes of the recent spurt. But the world continues to be awash in crude, and American frackers have replaced the OPEC as the world’s swing producers. The once-feared oil cartel is, to my mind, pretty much finished as an effective price enforcer. Even OPEC’s leader, Saudi Arabia, is acknowledging the new reality by quashing recent attempts to freeze output, borrowing from banks and preparing to sell a stake in its Aramco oil company as it tries to find new sources of non-oil revenue.

The Saudis and their Persian Gulf allies continue to play a desperate game of chicken with other major oil producers. Cartels exist to keep prices above equilibrium, which encourages cheating as cartel members exceed their allotted output and other producers take advantage of inflated prices. So the role of the cartel leader, in this case Saudi Arabia, is to cut its own output, neutralizing the cheaters to keep prices up. But the Saudis suffered market-share losses from their previous production cuts. OPEC has effectively abandoned restraints, with total output soaring to as high as 33 million barrels per day at the end of last year:

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“..a zombie holding a bag of dog-shit is like unto the end of the world..”

A Zombie Is A Terrible Thing To Behold (Jim Kunstler)

The politics of Great Britain are now falling apart landslide-style. Since just about everybody in or near power can be blamed for the national predicament, there’s nobody to turn to, at least not yet. The Labour party just acted out The Caine Mutiny, starring Jeremy Corbyn as Captain Queeg. The Tory Cameron gave three months notice without any plausible replacement in view. Now Cameron’s people are hinting in the media that they can just drag their feet on Brexit, that is, not do anything to enable it from actually happening for a while. Of course, that’s what the monkeyshines of banking and finance have done: postponed the inevitable reckoning with the realities of our time: growing resource scarcity, population overshoot, climate change, ecological holocaust, and the diminishing returns of technology.

Britain illustrates the problem nicely: how to produce “wealth” without producing wealth. It’s called “the City,” their name for the little district of London that is their Wall Street. In the absence of producing real things, the City became the driver of the UK’s economy, a ghastly parasitical organism that functioned as the central transfer station for the world’s swindles and frauds, churning the West’s dwindling residual capital into a slurry of fees, commissions, arbitrages, rigged casino bets, and rip-offs. In the process, it enabled the ECB to run the con-job that the EU became, with the fatal distortions of credit that have put its members into a ditch and sent the private European banks off a cliff, Thelma and Louise style.

The next stage of this protean global melodrama is what happens when currencies and interest rates become completely unglued from their assigned roles as patsies in financial racketeering. Sooner or later we’ll know what’s going on in the vast shadowy gloaming of “derivatives,” especially the “innovative” arrangements that affect to be “insurance” against losses in currency and interest rate “positions” — bets made on the movements of these things. When currencies rise or fall quickly, these so-called “swaps” are “triggered,” and then some hapless institution is left holding a big bag of dog-shit. A zombie is a terrible thing to behold, but a zombie holding a bag of dog-shit is like unto the end of the world.

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Dmitry uses the same definition of fascism I did the other day. More people should, because it tells you who the real fascists are.

Elites, ‘You’re Fired!’ (Dmitry Orlov)

• Patriotism is one’s love of one’s native land and people. It is a natural, organic result of growing up in a certain place among a certain people, who have also grown up there, and who pass along a cultural and linguistic legacy that they all love and cherish. This does not imply that those not of one’s family, neighborhood or region are in any way inferior, but they are not one’s own, and one loves them less.

• Nationalism is a synthetic product generated using public education and is centered around certain hollow symbols: a flag, an anthem, some yellowed pieces of paper, a few creation myths and so on. It is supported by certain rituals (parades, speeches, handing out of medals) that comprise a civic cult. The purpose of nationalism is to support the nation-state. Where nationalism serves the needs of one’s native land and people, nationalism and patriotism become aligned; when it destroys them, nationalism becomes the enemy and patriots form partisan movements, rise up and destroy the nation-state.

• Fascism is the perfect melding of the nation-state and corporations, in the course of which the distinction between public and private interests becomes erased and corporations come to dictate public policy. An almost perfect expression of fascism is the recent transatlantic and transpacific trade agreements negotiated in secret by the Obama administration, which at the moment, to everyone’s great relief, seem to be dead in the water.

It should be obvious that fascism has to be defeated, and if we were to pick just one perfectly good reason to fire the transatlantic elites then it is to thwart this corporate power grab. But it does not stop there, because nationalism and patriotism are also in play. Patriotism is a natural, core human value without which all you have is a rootless population shifting about opportunistically. Nationalism is a relatively recent innovation (nation-states are a 17th century invention) and as such a dangerous one, but in the case of some of the older and more successful nation-states it does provide significant benefits: a cherished cultural tradition anchored to a national language and literature, the ability to keep the peace and to repel outside aggression. And then there is the EU, with its flag depicting a constellation of stars that are obviously orbiting something—something that could only be a black hole, since it is invisible.

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Bit by bit, Brexit gets defined in its real perspective. Bernie Sanders needs numbers too much to make his case, but the case is obvious.

The World Is Rejecting Globalization (Bernie Sanders)

Surprise, surprise. Workers in Britain, many of whom have seen a decline in their standard of living while the very rich in their country have become much richer, have turned their backs on the EU and a globalized economy that is failing them and their children. And it’s not just the British who are suffering. That increasingly globalized economy, established and maintained by the world’s economic elite, is failing people everywhere. Incredibly, the wealthiest 62 people on this planet own as much wealth as the bottom half of the world’s population — around 3.6 billion people. The top 1% now owns more wealth than the whole of the bottom 99%. The very, very rich enjoy unimaginable luxury while billions of people endure abject poverty, unemployment, and inadequate health care, education, housing and drinking water.

Could this rejection of the current form of the global economy happen in the United States? You bet it could. During my campaign for the Democratic presidential nomination, I’ve visited 46 states. What I saw and heard on too many occasions were painful realities that the political and media establishment fail even to recognize. In the last 15 years, nearly 60,000 factories in this country have closed, and more than 4.8 million well-paid manufacturing jobs have disappeared. Much of this is related to disastrous trade agreements that encourage corporations to move to low-wage countries. Despite major increases in productivity, the median male worker in America today is making $726 dollars less than he did in 1973, while the median female worker is making $1,154 less than she did in 2007, after adjusting for inflation.

Nearly 47 million Americans live in poverty. An estimated 28 million have no health insurance, while many others are underinsured. Millions of people are struggling with outrageous levels of student debt. For perhaps the first time in modern history, our younger generation will probably have a lower standard of living than their parents. Frighteningly, millions of poorly educated Americans will have a shorter life span than the previous generation as they succumb to despair, drugs and alcohol. Meanwhile, in our country the top one-tenth of 1% now owns almost as much wealth as the bottom 90%. 58% of all new income is going to the top 1%. Wall Street and billionaires, through their “super PACs,” are able to buy elections.

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This makes it look like Rutte plays hardball, or almost. In reality, he’s looking for ways to disregard the outcome of the Dutch referendum. Already, while the applicable law says that the outcome should be implemented by the government as soon as possible, Rutte just keeps pushing it forward. After July 1, when Holland is no longer chair of the EU, pressure will rise on both sides. But if Rutte tries to sign the Ukraine deal despite the referendum, ‘binding assurances’ or not, he should be voted out of office ASAP. The Dutch people said NO, and Rutte can‘t turn that into a YES.

Dutch PM Rutte Wants ‘Binding’ Assurances Over EU’s Ukraine Deal (R.)

Dutch Prime Minister Mark Rutte asked European Union leaders on Tuesday for “legally binding” assurances to address his country’s concerns over a trade and association deal with Ukraine and said The Hague would block it otherwise. The Netherlands is the only EU state not to have ratified the bloc’s agreement on closer political, security and trade ties with Kiev following a referendum in April in which the Dutch voted overwhelmingly to reject it. The agreement with Kiev, reached after Russia annexed Crimea from Ukraine in March 2014 and then backed rebels fighting government troops in the east of the country, is being provisionally implemented now, but its future hinges on the Netherlands.

“What we need is a legally binding solution, which will address the many worries and elements of the discussion in the Netherlands leading up to the referendum,” Rutte said after an EU leaders’ summit in Brussels to discuss the aftermath of Britain’s vote last week to leave the bloc. The debate around the referendum in the Netherlands, which showed dissatisfaction with Rutte’s government and policy-making in Brussels, zeroed in on whether the agreement with Kiev would herald EU membership for Ukraine and its 45 million people. “The exact form – I don’t know yet,” Rutte said. “It could be that we have to change the text, it could be that we can find a solution which will not involve changing the text of the association agreement. I don’t know yet.

“If I am not able to achieve that … we will not sign,” he said. “We will try to find a solution, it will be difficult, the chances are small that we will get there but I think we should try.” The whole deal could be derailed should The Hague refuse to ratify it, but a senior EU official said he hoped this could be solved by the end of the year.

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Jun 092016
 
 June 9, 2016  Posted by at 8:33 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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G. G. Bain Temporary footpath, Manhattan Bridge 1908


Everything’s a Buy as Central Banks Keep on Greasing Markets (BBG)
Draghi Starts Buying Junk Bonds, “Means Business” (BBG)
FinMin: Greece In ECB’s QE Program By This Fall (Kath.)
Europe Junk Borrowers Rush to Refinance Before Brexit Vote (BBG)
China’s Factory-Gate Deflation Eases Somewhat (BBG)
Chinese Trade Data Lies Exposed -Again- (ZH)
Cheap Oil Will Weigh On Global Economy, Says World Bank (G.)
Gulf Nations Must Cut Deficits to Keep Currency Pegs, IMF Says (BBG)
Hedge Funds’ Fast Money Not Welcome as Iceland Bolsters Defenses (BBG)
Britain’s Defiant Judges Fight Back Against Europe’s Imperial Court (AEP)
Greek Asylum Service Starts Process Of Recording Applications (Kath.)
Erdogan’s Draconian New Law Demolishes Turkey’s EU Ambitions (G.)

As per the apt title of my article yesterday, ‘the only thing that grows is debt’. Markets need price discovery to function, but right now it’s everyone’s biggest fear. “Oil at 8-month high!”

Everything’s a Buy as Central Banks Keep on Greasing Markets (BBG)

Misery is making strange bedfellows in global markets. At a time when risky assets including stocks, commodities, junk bonds and emerging-market currencies are rallying to multi-month highs, so are the havens, from gold, government bonds to the Swiss franc and the Japanese yen. No matter that the U.S. labor market is deteriorating and the World Bank has just cut its estimates for global economic growth. Investors either don’t believe the news is bad enough to kill a global recovery that’s already long in the tooth, or they’re betting that sluggishness in some of the biggest economies means central banks will stay more accommodative for longer.

“Everything is being driven by high liquidity that ultimately is being provided by central banks,” Simon Quijano-Evans at Commerzbank, Germany’s second-largest lender, said in London. “It’s an unusual situation that’s a spill over from the 2008-09 crisis. Fund managers just have cash to put to work.” For much of the time since the financial meltdown eight years ago, investors have been in the mindset that bad economic data is good news for markets. The near-zero interest-rate policies by major central banks – and negative borrowing costs in Japan and some European nations – have pushed traders to grab anything that offers yield. And every indication that the liquidity punch bowl will stay in place is greeted by markets with a cheer.

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Paraphrasing Springsteen: “Someday we’ll look back on this and it will all seem not one bit funny.”

Draghi Starts Buying Junk Bonds, “Means Business” (BBG)

Since a surprise interest-rate cut at his first meeting as ECB President, Mario Draghi has shown a penchant for pushing the envelope. The bank’s entry into the corporate bond market on Wednesday was no exception: buying bonds with junk ratings. Purchases on the first day included notes from Telecom Italia, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. The company’s bonds only qualifies for the central bank’s purchase program because Fitch Ratings ranks it at investment grade.

By casting his net as wide as the program allows, Draghi ensured that the first day of corporate bond purchases made an impact. While the ECB has said it would buy bonds from companies with a single investment-grade rating, investors expected the central bank to start with the region’s highest-rated securities. “It’s been an aggressive start to the program,” said Jeroen van den Broek at ING Groep in Amsterdam. “The wide-reaching nature of the purchases shows Draghi means business.” [..] Telecom Italia’s bonds are in Bank of America Merrill Lynch’s Euro High Yield Index and credit-default swaps insuring the notes against losses are part of the Markit iTraxx Crossover Index linked to companies with mostly junk ratings.

Moody’s and S&P have ranked Telecom Italia one level below investment grade, at Ba1 and an equivalent BB+ respectively, since 2013. Fitch puts the company at the lowest investment-grade rating and only revised its outlook on that level to stable from negative in November. “This dispels any doubts investors may have had about the commitment of the ECB and the central banks to tackle lower-rated names,” said Alex Eventon at Oddo Meriten Asset Management. “Telecom Italia is firmly at the weak end of the spectrum the ECB can buy.”

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I’ll have to see it to believe it. Draghi buys everything not bolted down, but not Greece.

FinMin: Greece In ECB’s QE Program By This Fall (Kath.)

Greece will enter the ECB’s quantitative easing (QE) program “soon,” Finance Minister Euclid Tsakalotos told Bloomberg in an interview on Wednesday. However, the Greek government’s optimism is not shared by banking sources and analysts, who estimate that Greece’s inclusion in ECB Governor Mario Draghi’s bond-buying program will be tied to the successful completion of the second bailout review in the fall, as well as the progress in talks on settling the problem of the Greek national debt.

In his interview Tsakalotos went as far as to say that Greece will join the QE program by September, stressing that such a development would open the way for the lifting of the capital controls and the gradual restoration of investor trust. He also said that the ECB will start accepting Greek bonds as collateral for loans after Athens completes the July debt repayments to Frankfurt. “I feel confident the Greek bonds will be eligible” by September, he predicted. He also forecast that once Greece enters the QE program, depending also on the decisions on the country’s debt, “you can take Grexit off the table,” referring to the possibility of a Greek exit from the eurozone. “Then you have a straight runway for investors,” he added in the same optimistic spirit.

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Draghi’s got your back, guys.

Europe Junk Borrowers Rush to Refinance Before Brexit Vote (BBG)

Junk-rated companies in Europe are hurrying to refinance debt, locking in borrowing costs at one-year lows amid concerns that a U.K. referendum on EU membership will paralyze markets. Leveraged-loan borrowers are poised to raise more money in euros this week for refinancing than in the whole of May, according to data compiled by Bloomberg. The amount amassed for repaying old debt from selling high-yield bonds is on track to be equal to about two-thirds of comparable sales last month. Companies including Altice and Verisure Holding have entered the market as the start of corporate-bond purchases by the ECB on Wednesday has driven down borrowing costs across the continent.

The window may prove short-lived as banks including Goldman Sachs have said a June 23 vote in favor of a Brexit could roil European markets and endanger economic growth. “It’s possible that uncertainty will rise as we approach the Brexit referendum,” said Colm D’Rosario at Pioneer Investment Management. “Issuers won’t want to wait until then.” Companies may sell about €2.5 billion of leveraged loans and at least €2.6 billion of high-yield bonds for refinancing this week, the Bloomberg data show.

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The new reality: “..raw-material producer prices fell 7.2%, less than the prior month’s 7.7% decline..” And what does BBG call this? Yes, that’s right: “Firmer producer prices..”

China’s Factory-Gate Deflation Eases Somewhat (BBG)

Deflationary pressures in China’s industries eased further in May, while consumer price gains continued to be subdued enough to offer the central bank scope for more easing if needed. Amid a drive by the Communist Party leadership to cut excess capacity, producer prices fell 2.8%, the least since late 2014 and less than the 3.2% decline economists had estimated in a Bloomberg survey. The consumer price index rose 2% from a year earlier, less than the median forecast of 2.2%. Easing factory-gate deflation is the latest signal of stabilization after more than four years of falling producer prices. Tepid consumer price gains may allow the People’s Bank of China, which has kept interest rates at a record low since October, room to add further stimulus in the short term to help prop up growth.

“The deflationary threat has substantially diminished,” said Raymond Yeung at Australia & New Zealand Banking Group in Hong Kong. “Domestic demand has stabilized so we don’t see a strong upward pressure either. We still think the PBOC will remain moderately accommodative.” [..] Mining and raw-materials producer prices slumped less in May than the previous month, though still recorded the biggest declines. Mining producer goods fell 9.6% last month, versus a 13% drop in April, while raw-material producer prices fell 7.2%, less than the prior month’s 7.7% decline, the statistics bureau reported.

“Firmer producer prices reflect a combination of factors,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. “Commodity prices are a big part of the picture, with oil and iron ore both down less sharply than in 2015. So, too, is slightly more resilient domestic demand. Capacity utilization remains extremely low in historical comparison, but has ticked up over the last few months.”

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Different version of the graph I posted yesterday with the comment: “Where would China’s imports be without the fake invoices?”

Chinese Trade Data Lies Exposed -Again- (ZH)

If March’s 116.5% surge in China imports from Hong Kong didn’t raise eyebrows as the veracity of the trade data, then perhaps following last night’s data drop, this month’s 242.6% explosion year-over in China imports from Hong Kong must at minimum deserve a second glance. As Bloomberg’s Tom Orlik previously noted, the implausible 242.6% YoY surge screams that China is clearly disguising capital flows… Trade mis-invoicing as a way to hide capital flows remains a factor. In the past, over-invoicing for exports was used as a way to hide capital inflows. The latest data show the reverse phenomenon, with over-invoicing of imports as a way of hiding capital outflows. Does this look “real”?

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Yes, that’s right. Cheap oil is now bad, all of a sudden. Who could have thought? Oh wait, me.

Cheap Oil Will Weigh On Global Economy, Says World Bank (G.)

Global growth will slow this year as oil exporters in the developing world struggle to cope with lower energy prices, the World Bank has said in its half-yearly economic health check. The benefit of cheaper oil prices for Europe, Japan and other oil importing nations, which has sustained their growth through 2015 and 2016, has failed to offset a slowdown in parts of Africa, Asia and South America that depend on selling energy to sustain their incomes. In one of the gloomiest predictions by an international forecaster, the bank said the effect of the collapse in oil income on developing countries would restrict global growth to 2.4% this year, well down on its January forecast of 2.9%.

In the UK the growth rate will be restricted to 2% this year and 2.1% in 2017 and in 2018. The US will also stabilise at about 2% annually for the next couple of years, while the eurozone will expand at a more modest 1.6% in 2016 and in 2017 before slipping to 1.5% in 2018. The tumbling price of metals and food on world markets last year hit emerging and developing economies without triggering a significant rise in spending by richer countries. The Washington-based bank, which lends more than £25bn a year to developing countries, said weaker global trade, a downturn in private and public investment and a slump in manufacturing added to the woes of economies that have become dependent on high oil prices to bolster growth.

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They all pray for growing demand. There won’t be any.

Gulf Nations Must Cut Deficits to Keep Currency Pegs, IMF Says (BBG)

Gulf oil exporters must cut spending and narrow their budget shortfalls to keep their currencies pegged to the dollar, the IMF said. While substantial foreign assets have allowed the six members of the Gulf Cooperation Council to fix the value of their currencies to the greenback, keeping the status quo comes at a price as lower crude prices strain public finances, the lender said in a report titled “Learning to Live with Cheaper Oil.” “When a country faces prolonged fiscal and external deficits, policy adjustment must come from fiscal consolidation measures,” the IMF said in the report authored by Martin Sommer, deputy chief of its regional studies division. Maintaining the currency pegs “will require sustained fiscal consolidation through direct expenditure cutbacks and non-oil revenue increases,” it said.

As investors increased bets that currency fixes may become too expensive to maintain, the United Arab Emirates and Saudi Arabia renewed their commitment to their pegs – with the latter also said to ban betting against its currency. Gulf oil producers’ budgets swung from surplus to deficit as Brent crude fell by as much as 75% from June 2014 to January this year, before a partial recovery in recent months. Even after cutting spending, the combined budget gap in the GCC region – which also includes Kuwait, Qatar, Bahrain and Oman – as well as Algeria is expected to reach $900 billion for the period 2016-2021, and represent 7% of their gross domestic product in the final year, the IMF said. Their debt-to-GDP ratio is expected to rise to 45% in 2021 from 13% last year as governments issue debt to plug their budget gaps.

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Iceland’s learned a lesson or two.

Hedge Funds’ Fast Money Not Welcome as Iceland Bolsters Defenses (BBG)

Iceland has gone its own way since its three largest lenders collapsed in 2008 under a mountain of debt almost eight times the size of its economy. The steps included capital controls that locked in hedge funds, mortgage writedowns and throwing bankers in jail. With the recovery well under way, the island nation – once a hedge fund paradise – is continuing on its isolated path. Lawmakers have effectively outlawed the kind of trade that inflated the bubble a decade ago, protecting against a repeat. Surrounded by sub-zero interest rates, Iceland’s benchmark gauge of 5.75%, the highest in the developed world, is luring cash from abroad. That’s unlikely to change any time soon.

“The problem is the ability to have an independent monetary policy and an independent monetary policy means the ability to have a different interest rate than the rest of the world,” central bank Governor Mar Gudmundsson said on Monday. “If that’s not possible, then you can’t have an independent monetary policy. And the problem of very significant interest rate differential – interest rates in Iceland are higher than the rest of the world – will not disappear overnight.” Both geographically and financially Iceland is a small island in vast, turbulent waters. Under the law enacted last week, the central bank over the weekend set rules that will force investors in Icelandic bonds to keep 40% of their investments in a 0% account for a year. That will limit the profit to be made from investing in Iceland, where government bonds offer yields of more than 6%.

Those type of returns are tempting in a world of near zero and even negative key rates. As evidence, the Icelandic krona has strengthened this year even as the central bank has been selling the currency to build up foreign holdings as it prepares to lift the capital controls that have been in place since 2008. But the country may have seen nothing yet, according to the governor. The new rules are a “precautionary” measure to stifle any major flows after the controls are lifted, he said. “There have been certain inflows in the last few months,” he said. “We thought there was a possibility of much greater inflows going forward, especially if the auction goes well and we take further steps to liberalize the capital account and the economy is booming and interest rates are high.”

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As I’ve said many times, the EU is made up of sovereign countries, and they’re not going to give up their sovereignty, not a single one of them.

Britain’s Defiant Judges Fight Back Against Europe’s Imperial Court (AEP)

The British judiciary has begun to draw its sword. For the first time since the European Court asserted supremacy and launched its long campaign of teleological conquest, our own judges are fighting back. It is the first stirring of sovereign resistance against an imperial ECJ that acquired sweeping powers under the Lisbon Treaty, and has since levered its gains to claim jurisdiction over almost everything. What has emerged is an EU supreme court that knows no restraint and has been captured by judicial activists – much like the US Supreme Court in the 1970s, but without two centuries of authority and a ratified constitution to back it up. This is what the Brexit referendum ought to be about, for this thrusting ECJ is in elemental conflict with the supremacy of Parliament. The two cannot co-exist. One or the other must give.

It is the core issue that has been allowed to fester and should have been addressed when David Cameron went to Brussels in February to state Britain’s grievances. It was instead brushed under the carpet. The explosive importance of Lisbon is not just that it enlarged the ECJ’s domain from commercial matters (pillar I), to broad areas of defence, foreign affairs, immigration, justice and home affairs, nor that this great leap forward was rammed through without a referenda – after the French and the Dutch had already rejected it in its original guise as the European Constitution. Lisbon also made the Charter of Fundamental Rights legally-binding. As we have since discovered, that puts our entire commercial, social, and criminal system at the mercy of the ECJ.

The Rubicon was crossed in Åklagaren v Fransson, a VAT tax evasion case in non-euro Sweden. The dispute had nothing to do with the EU. The Charter should come into force only when a country is specifically applying EU law. The ECJ muscled into the case on the grounds that since VAT stems from an EU directive, Sweden was therefore operating “within the scope of EU law”. This can mean anything, and that is the point. To general consternation, it ruled that Sweden had violated the double-jeopardy principle of Article 50 of the Charter. Almost nothing is safe when faced with a court like this, neither the City of London, nor our tax policies or labour laws, nor even our fiscal and monetary self-government. The ECJ can strike down almost any law it wants, with no possibility of appeal.

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The EU slowly but surely forces Greece to take in 10s of 1000s of refugees on a -much more- permanent basis. But Erdogan can send a million more.

Greek Asylum Service Starts Process Of Recording Applications (Kath.)

Greece’s asylum service on Wednesday launched a new scheme for processing registrations from migrants who want to apply for asylum in the country, a process that could take up to a year for many of the applicants, according to sources. The “recognition documents” issued to migrants to date will have their validity extended to cover a year. Many of the documents held by migrants in camps across the country have expired as they apply for six months for Syrians and just one month for all other nationalities.

Once the migrants have been registered, they will be issued with a yellow bracelet bearing their name and other personal details. The registration document and bracelet will grant each migrant the right to legal residence in Greece and access to free healthcare but will not give them permission to work in Greece which must be sought separately. The applicants will be informed by SMS about their interview, according to an official of Greece’s asylum service who said the interview could take place several months after their application “due to the large population of refugees in the country.”

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Got the feeling he’s just getting started.

Erdogan’s Draconian New Law Demolishes Turkey’s EU Ambitions (G.)

Any chance Turkey could join the EU by 2020, as Brexit campaigners have asserted, went up in smoke on Wednesday after the country’s president, Recep Tayyip Erdogan, signed a draconian new law that in effect demolishes any notion that his country is a fully functioning, western-style democracy. EU rules dating to 1993, known as the Copenhagen criteria, insist all applicant states must adhere to a system of democratic governance and uphold other basic principles, such as the rule of law, human rights, freedom of speech, and protection of minorities. Turkey is struggling to meet these standards. The new measures make EU membership even more of a chimera.

They are expected to eviscerate parliamentary opposition to Erdog an’s ruling neo-Islamist Justice and Development party (AKP) by allowing politically inspired, criminal prosecutions of anti-government MPs. The main target is the pro-Kurdish Peoples’ Democratic party (HDP), which Erdog an accuses of complicity in terrorism, although other opposition parties are also affected. By signing the new law, Erdog an, who has dubbed the EU a “Christian club”, has signalled the end of any realistic chance of Turkey joining the union for the foreseeable future. Critics say he may also have sounded the death knell for Turkey’s secular democracy and set the stage for intensified armed conflict with Kurdish groups. Erdogan’s move comes against a backdrop of heightened violence between Turkey’s security forces and militants belonging to the outlawed Kurdistan Workers’ party (PKK) and its radical offshoots.

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Jun 082016
 
 June 8, 2016  Posted by at 8:43 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Harris&Ewing Washington Monument, view from air 1919


Bank of Japan’s Sovereign Debt Endgame Is The Naked Emperor (FP)
Japan’s Biggest Bank To Quit As JGB Primary Dealer (ZH)
Draghi Fires Starting Gun on Corporate Bond Purchases in Europe (BBG)
Public Support For The EU Plunges Across Europe (R.)
France Shuns Europe As Brexit Revolt Spreads (AEP)
Billions Of Pounds Taken Out Of Britain Amid Fears Of Brexit (Ind.)
China’s Exports Weaken, Signaling More Headwinds For Growth (BBG)
China Central Bank Holds Line On Growth Forecast, Sees More Pain To Come (R.)
US-China Talks Limited by Disagreements (WSJ)
Millions Around The World Are Fleeing Neoliberal Policy (RNN)
Only 10 Countries In The World Are Not At War (Ind.)
Arctic Sea Ice Hit A Stunning New Low In May (WaPo)
Greek Legal Rulings Back 35 Refugees Appealing Deportation (Kath.)
EU Considers Linking African Aid to Curbs on Migrant Flows (WSJ)

“The workability of the institution breaks down when a different set of rules are seen to apply to governments versus those that apply to everyone else.”

Bank of Japan’s Sovereign Debt Endgame Is The Naked Emperor (FP)

Last week, Bloomberg reported in depth on Japan’s miraculous diminishing debt load. Turns out, despite a steady rise in government borrowing, the burden of repayment is diminished because the buyer of 90% of that debt is the Bank of Japan. This has serious implications for Canadian investors, yet the full significance has not yet been thoroughly unpacked by media. My bet is most analysts and economists are aghast at this admission by a G7 government that debt could just be summarily forgiven. It suggests the notion of liability in credit does not apply to government, or its associated (yet private, to varying degree) central banks. But it’s really quite simple. The single most important rule upon which our global debt-driven economic growth equation is dependent is that debt is repaid.

If it isn’t, assets are confiscated. Just like if you don’t keep up with the mortgage payments on your house, you lose it. But what happens when the biggest creditor is also the debtor? The entire debtor/creditor relationship is rendered nonsensical. The size of the debt any one nation can undertake is directly related to its ability to repay any proposed amount over time. Its ability to repay its debt, in turn, is derived from the consensus of markets that demand a higher rate of interest the closer a debtor gets to defaulting. The debt limit is reached when no one will lend, because even at the highest rate of interest, the chance of default is greater. Or when the debtor misses a payment. This works well in a world ostensibly governed by free markets, and when the rules are universally applied. The workability of the institution breaks down when a different set of rules are seen to apply to governments versus those that apply to everyone else.

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BoJ buys everything. Banks have to deal with a monopoly, no profit in that.

Japan’s Biggest Bank To Quit As JGB Primary Dealer (ZH)

Ever since the launch of Japan’s QE, and worsening in the aftermath of January’s shocking NIRP announcement, Japan’s bond market, which moments ago slid to new record lows yields across the curve, has had its share of near-death experiences: between repeated VaR shocks, to days in which not a single bond was traded, to trillions in bonds with negative yields, it has seemed that the Japanese Government Bond is on life support. That support may be ending. According to Nikkei, and confirmed by Bloomberg, Japan’s biggest bank, Bank of Tokyo-Mitsubishi UFJ, is preparing to quit its role as a primary dealer of Japanese government bonds as negative interest rates turn the instruments into larger risks, a fallout from massive monetary easing measures by the Bank of Japan.

While the role of a Primary Dealer comes with solid perks such as meetings with the Finance Ministry over bond issuance and generally being privy to inside information and effectively free money under POMO, dealers also are required to bid on at least 4% of a planned JGB issuance, which as the Nikkei reports has become an increasingly heavy burden for BTMU. In other words, one of the key links that provides liquidity and lubricates the Japanese government bond market has just decided to exit the market due to, among other thinks, lack of liquidity entirely due to the policy failure of Abenomics in general, and Kuroda’s disastrous monetary policies in particular.

One could, of course, ask just how does BTMU plan on also exiting the Japanese economy itself, if and when the country’s $8 trillion bond market implodes, but we doubt the bank will ever be able to answer that. The ministry is expected to let the bank resign. Japan has 22 primary dealers including megabanks and major brokerages. Several foreign brokerages had pulled out before as part of restructuring efforts at home or for other reasons, but BTMU will be the first Japanese institution to quit. In a revolutionary shift, one created by the Bank of Japan itself, banks, once the biggest buyers of JGBs, see little appeal in sovereign debt today. The bonds have very low yields, and a rise in interest rates could leave banks with vast unrealized losses.

Private-sector banks held just over 229 trillion yen ($2.13 trillion) in JGBs at the end of 2015, nearly 30% less than at the end of March 2013, before the BOJ launched massive quantitative and qualitative easing measures. Negative rates introduced this year by the BOJ reinforced the trend. The highest bid yield on benchmark 10-year JGBs sank to a record low of negative 0.092% on Thursday. BTMU was the fifth-largest buyer of Japanese government bonds among the 22 primary dealers until spring 2015, but ranked 10th or lower between October 2015 and March 2016 as shareholders turned up their nose on government debt.

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One day we’ll understand just how insane this is. One massive debt orgasm.

Draghi Fires Starting Gun on Corporate Bond Purchases in Europe (BBG)

Investors will be watching Mario Draghi’s first corporate bond purchases on Wednesday for an indication of whether they were right to snap up the notes before the ECB. The ECB is adding investment-grade corporate notes to its €80 billion monthly purchase program, which already includes covered bonds, asset-backed securities and government debt, as part of efforts to encourage growth. The challenge will be buying enough bonds in increasingly illiquid markets, investors and analysts say. “There is a fair amount riding on this in terms of the ECB’s credibility,” said Victoria Whitehead at BNP Paribas Investment Partners. “The perception is that if they can’t buy at least €5 billion of bonds a month, the program will be seen as unsuccessful.” Investors have piled into investment-grade corporate bonds on the promise of central bank purchases, driving up prices and cutting borrowing costs.

The average yield for euro notes tumbled to 1.002% on Monday, the lowest in more than a year, according to BofAML index data. Companies responded to the surge in demand by selling more than €50 billion of bonds in the single currency in May, the second-busiest month on record. While purchases of more than €5 billion of bonds may boost the market, investors may be disappointed if the ECB bought less than €3 billion a month, CreditSights analysts wrote in a June 5 report. Commerzbank and Morgan Stanley don’t expect the monthly purchases to surpass €5 billion. “We’re worried that they won’t be able to buy quite as much as they want to,” said Tim Winstone at Henderson Global Investors. “If the buying underwhelms and reported volumes are less than most people expect, there is a risk of a selloff.”

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Dissolve the monster peacefully while you still can. Or else.

Public Support For The EU Plunges Across Europe (R.)

Public support for the European Union has fallen sharply in its biggest member states over the past year, a survey showed on Tuesday, weeks before Britons vote on whether to leave the 28-nation bloc. The survey of 10 large EU states by the Washington-based Pew Research Center showed strong support for Britain to stay in the EU, with 89% of Swedes, 75% of Dutch and 74% of Germans viewing a so-called Brexit as a bad thing. But most striking was a plunge in the percentage of Europeans who view the EU favorably, a development which appears linked to the bloc’s handling of the refugee crisis and the economy. The fall was most pronounced in France, where only 38% of respondents said they had a favorable view of the EU, down 17 points from last year.

Favorability ratings also fell by 16 points in Spain to 47%, by eight points in Germany to 50%, and by seven points in Britain to 44%. Public support for the EU was strongest in Poland and Hungary, countries which ironically have two of the most EU-sceptical governments in the entire bloc. The Pew survey showed that 72% of Poles and 61% of Hungarians view the EU favorably. “The British are not the only ones with doubts about the European Union,” Pew said. “Much of the disaffection with the EU among Europeans can be attributed to Brussels’ handling of the refugee issue. In every country surveyed, overwhelming majorities disapprove of how Brussels has dealt with the problem.”

This was especially true in Greece, which has been overwhelmed by migrants crossing the Aegean Sea from Turkey. Some 94% of Greeks believe the EU has mishandled the refugee crisis. In Sweden it was 88%, in Italy 77% and in Spain 75%. At 92%, Greeks were also the most disapproving of the EU’s handling of the economy, followed by the Italians at 68% and French at 66%. Roughly two-thirds of Greeks and Britons said powers should be returned to national governments from Brussels, far higher than in the other surveyed countries.

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Close to what I’ve written before: “They may have to dissolve the EU as it is and try to reinvent it, both in order to bring the Brits back and because they fear that the whole political order will be swept away unless they do..”

France Shuns Europe As Brexit Revolt Spreads (AEP)

France has turned even more viscerally eurosceptic than Britain over recent months, profoundly altering the political geography of Europe and making it impossible to judge how Paris might respond to Brexit. An intractable economic crisis has been eating away at the legitimacy of the French governing elites for much of this decade. This has now combined with a collapse in the credibility of the government, and mounting anger over immigration. A pan-European survey by the Pew Research Center released today found that 61pc of French voters have an “unfavourable” view, compared to 48pc in the UK. A clear majority is opposed to “ever closer union” and wants powers returned to the French parliament, a finding that sits badly with the insistence by President Francois Hollande that “more Europe” is the answer to the EU’s woes.

“It is a protest against the elites,” said Professor Brigitte Granville, a French economist at Queen Mary University of London. “There are 5000 people in charge of everything in France. They are all linked by school and marriage, and they are tight.” Prof Granville said the mechanisms of monetary union have upset the Franco-German strategic marriage, wounding the French psyche. “The EU was sold to the French people as a `partnership’ of equals with Germany. But it has been very clear since 2010 that this is not the case. Everybody could see that Germany decided everything in Greece,” she said. The death of the Monnet dream in the EU’s anchor state poses an existential threat to the European project and is running in parallel to what is happening in Britain.

The Front National’s Marine Le Pen is leading the polls for the presidential elections in 2017 with vows to restore the French franc and smash the EU edifice. While it has long been assumed that she could never win an outright majority, nobody is quite so sure after the anti-incumbent upset in Austria last month. “The Front National is making hay from the Brexit debate,” said Giles Merritt, head of the Friends of Europe think tank in Brussels. “The EU policy elites are in panic. If the British vote to leave the shock will be so ghastly that they will finally wake up and realize that they can no longer ignore demands for democratic reform,” he said.

“They may have to dissolve the EU as it is and try to reinvent it, both in order to bring the Brits back and because they fear that the whole political order will be swept away unless they do,” he said. Mr Merritt said it is an error to suppose that the EU would carry on as a monolithic bloc able to dictate terms after a Brexit vote. “The British would have pricked the bubble. The Germans are deeply alarmed at how suddenly the mood is shifting everywhere,” he said.

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It’s going to be so much fun, the next two weeks. Can the footballers save England at the Euro Cup?

Billions Of Pounds Taken Out Of Britain Amid Fears Of Brexit (Ind.)

Investors are moving billions of pounds in assets out of British currency and assets ahead of the EU referendum, new figures suggest. An analysis by Sky News found £65bn left the UK or was converted into other currencies in March and April, the largest amount since the economic crash. In the six months to the end of April, £77bn was pulled out of British pounds, compared to just £2bn in the six months to the end of last October. The figures, published by the Bank of England, are consistent with investors worrying that the pound is due for a sharp fall should Brexit to occur. Because financial markets are prone to collective panic, investors’ views are the main factor in determining whether the pound will actually fall. Any perception that a fall was about to take place could end up becoming a self-fulfilling prophecy.

In February, HSBC warned that 20% could be wiped off the value of sterling were Britain to leave the EU. In May this figure was corroborated by the National Institute for Economic and Social Research. The pound plunged to a three-week low yesterday, probably partly in response to polls showing the Leave campaigning ahead. It hit a seven-year low against the dollar the day after the former Mayor of London, Boris Johnson, announced he was backing Brexit, and also suffered the biggest one-day fall since David Cameron become Prime Minister. The collapse of the pound at the end of June would mean Britons going abroad during the summer would have their spending power reduced. Imported goods such as electronics would also likely become significantly more expensive.

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That is one damning graph. Where would China’s imports be without the fake invoices?

China’s Exports Weaken, Signaling More Headwinds For Growth (BBG)

China’s exports stabilized in May, with a weakening currency giving some support to growth in the world’s biggest trading nation. Overseas shipments fell 4.1% in dollar terms from a year earlier, the customs administration said Wednesday. Imports slipped 0.4% – the smallest drop since late 2014 – to leave a trade surplus of $50 billion. Reflecting a weaker currency, both exports and imports fared better when measured in local currency terms. The Shanghai Composite Index pared losses and the Australian dollar rallied. “The worst time for Chinese exports has passed,” said Harrison Hu at Royal Bank of Scotland in Singapore, adding that the dollar-denominated export growth is slightly misleading due to the price changes.

“The quantity of exports actually showed a subdued increase. The yuan also depreciated against a basket of currencies, which supports exports.” Still, that support remains restrained. The World Bank on Tuesday cut its global growth estimate to 2.4% for this year, which would be the same as 2015, from the 2.9% projected in January. Ma Jun, chief economist of the People’s Bank of China’s research bureau, lowered his forecast for China’s exports this year to a 1% decline, versus a 3.1% increase seen previously, according to a work paper published Wednesday. “The weakening momentum of global growth is our main reason to lower the forecast,” he wrote. “A 10-percentage point decline in exports can drag GDP growth down by about 1%.”

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“China’s trade shrank 8% last year, compared with the government’s goal for 6% growth..”

China Central Bank Holds Line On Growth Forecast, Sees More Pain To Come (R.)

China’s central bank slashed its forecast for exports on Wednesday, predicting a second straight annual fall in shipments, but said the economy will still grow 6.8% this year. The People’s Bank of China also warned in its mid-year work report that the government’s push to reduce debt levels and overcapacity could increase bond default risks and make it more difficult for companies to raise funds. And ahead of a meeting of the U.S. Federal Reserve’s policymaking board next week, it said the pace of U.S interest rate rises would affect global capital flows and emerging market currencies, but it did not mention the yuan. “Since the beginning of this year, the global and domestic economic environment has experienced a number of changes,” the PBOC said in the report.

“Reflecting these recent developments, we revised our China macroeconomic forecasts for 2016. Compared with our published forecasts in December last year, we maintain our baseline projection of 2016 real GDP growth at 6.8%.” The report was released shortly after monthly data showed China’s exports fell an annual 4.1% in May, more than expected and the 10th decline in the past 12 months. Imports were more encouraging, however, declining only marginally and much less than expected, pointing to improving domestic demand and adding to views that the economy may be slowly stabilizing. Preliminary commodity trade data showed sharp rises in imports of copper and iron ores.

[..] Despite cutting its forecast for exports to minus 1% from growth of 3.1%, the PBOC saw a domestic recovery remaining on track. It upgraded its forecast for fixed-asset investment growth to 11%, an increase of 0.2 percentage points from estimates it made late last year. A government spending spree on major infrastructure projects and a continuing recovery in the housing market have boosted demand for materials from cement to steel. China’s trade shrank 8% last year, compared with the government’s goal for 6% growth , in the worst performance since the global financial crisis.

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And those are here to stay. Sharply conflicting interests.

US-China Talks Limited by Disagreements (WSJ)

The U.S. and China made little progress on a series of disagreements during two days of high-level economic and security talks, as both countries prepare for leadership change and further economic uncertainty. Statements by officials from both sides on Tuesday suggested mostly incremental results from the dialogue. U.S. Treasury Secretary Jacob Lew said Chinese officials reaffirmed a commitment not to devalue an already weakening yuan for competitive purposes and pledged not to “target” an expansion of the steel industry, whose surging production he previously called market-distorting. Beijing widened access to its tightly regulated financial markets, offering U.S. investors a quota of 250 billion yuan ($38.1 billion) to buy Chinese stocks and bonds.

The two governments agreed to designate clearing banks in the U.S. for settling yuan transactions, a move that would promote greater use of the Chinese currency. Mr. Lew said it was too early to say which U.S. financial institution might be chosen but said the U.S. will have the second-largest quota after Hong Kong. On the more contentious issues in the relationship, the senior officials appeared to restate positions and, in some cases, outright disagree. A new Chinese law that grants police the authority to monitor foreign nonprofits provoked sharp differences. This year’s meeting of the Strategic and Economic Dialogue is the last for the Obama administration, with the U.S. presidential election approaching. China soon will face its own important leadership transition.

In 2017, five of the seven members of the Politburo Standing Committee, China’s top decision-making body, are due to step down. The timing of the meetings, combined with tensions over the South China Sea—where the U.S. is challenging Beijing’s assertion of sovereignty over islands, reefs and surrounding waters claimed by other countries—limited prospects for breakthroughs on issues such as trade and investment barriers and China’s currency policy.

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Millions Around The World Are Fleeing Neoliberal Policy (RNN)

What it tells is almost identical to what has already been narrated for Russia and Greece. And what’s responsible for the increasing death rates is actually neoliberal economic policy, neoliberal trade policy, and the polarization and impoverishment of a large part of society. After the Soviet Union broke up in 1991, death rates soared, lifespans shortened, health standards decreased all throughout the Yeltsin administration, until finally President Putin came in and stabilized matters. Putin said that the destruction caused by neoliberal economic policies had killed more Russians than all of whom died in World War II, the 22 million people. That’s the devastation that polarization caused there.

Same thing in Greece. In the last five years, Greek lifespans have shortened. They’re getting sicker, they’re dying faster, they’re not healthy. Almost all of the British economists of the late 18th century said when you have poverty, when you have a transfer of wealth to the rich, you’re going to have shorter lifespans, and you’re also going to have immigration. The countries that have a hard money policy, a creditor policy, people are going to emigrate. Now, at that time that was why England was gaining immigrants. It was gaining skilled labor. It was gaining people to work in its industry because other countries were still in the post-feudal system and were driving them out. Russia had a huge emigration of skilled labor, largely to Germany and to the United States, especially in information technology. Greece has a heavy outflow of labor.

The Baltic states have had almost a 10% decline in their population in the last decade as a result of their neoliberal policies. Also, health problems are rising. Now, the question is, in America, now that you’re having as a result of this polarization shorter lifespans, worse health, worse diets, where are the Americans going to emigrate’ Nobody can figure that one out yet. There’s no, seems nowhere for them to go, because they don’t speak a foreign language. The Russians, the Greeks, most Europeans all somehow have to learn English in school. They’re able to get by in other countries. They’re not sure where on earth can the Americans come from’ Nobody can really figure this out.

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Curious ‘thingy’ from the Independent: somewhere in the article it says Iceland is the world’s most peaceful country, even though it’s not in that list of 10.

Only 10 Countries In The World Are Not At War (Ind.)

The world is becoming a more dangerous place and there are now just 10 countries which can be considered completely free from conflict, according to authors of the 10th annual Global Peace Index. The worsening conflict in the Middle East, the lack of a solution to the refugee crisis and an increase in deaths from major terrorist incidents have all contributed to the world being less peaceful in 2016 than it was in 2015. And there are now fewer countries in the world which can be considered truly at peace – in other words, not engaged in any conflicts either internally or externally – than there were in 2014. According to the Institute for Economics and Peace, a think-tank which has produced the index for the past 10 years, only Botswana, Chile, Costa Rica, Japan, Mauritius, Panama, Qatar, Switzerland, Uruguay, and Vietnam are free from conflict.

Brazil is the country that has dropped out of the list, and as one of the worst performing countries year-on-year represents a serious concern ahead of the Rio Olympics, the IEP’s founder Steve Killelea told The Independent. But perhaps the most remarkable result from this year’s peace index, he said, was the extent to which the situation in the Middle East drags down the rest of the world when it comes to peacefulness. “If we look at the world overall, it has become slightly less peaceful in the last 12 months,” Mr Killelea said. “But if we took the Middle East out of the index over the last decade – and last year – the world would have become more peaceful,” he said. “It really highlights the impact the Middle East is having on the world.”

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Man was here.

Arctic Sea Ice Hit A Stunning New Low In May (WaPo)

The 2016 race downward in Arctic sea ice continued in May with a dramatic new record. The average area of sea ice atop the Arctic Ocean last month was just 12 million square kilometers (4.63 million square miles), according to the National Snow and Ice Data Center (NSIDC). That beats the prior May record (from 2004) by more than half a million square kilometers, and is well over a million square kilometers, or 500,000 square miles, below the average for the month. Another way to put it is this: The Arctic Ocean this May had more than three Californias less sea ice cover than it did during an average May between 1981 and 2010. And it broke the prior record low for May by a region larger than California, although not quite as large as Texas.

This matters because 2016 could be marching toward a new record for the lowest amount of ice ever observed on top of the world at the height of melt season — September. The previous record September low was set in 2012. But here’s what the National Snow and Ice Data Center has to say about that: Daily extents in May were also two to four weeks ahead of levels seen in 2012, which had the lowest September extent in the satellite record. The monthly average extent for May 2016 is more than one million square kilometers (386,000 square miles) below that observed in May 2012. In other words, for Arctic sea ice, May 2016 was more like June 2012 — the record-breaking year. Going into the truly warm months of the year, then, the ice is in a uniquely weak state.

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The whole thing is turning into such a mess you would think this is happening on purpose.

Greek Legal Rulings Back 35 Refugees Appealing Deportation (Kath.)

Fears are rising about the possible breakdown of a deal between the European Union and Turkey for the return of migrants after legal committees in Greece upheld dozens of appeals by refugees against their deportation. By late Monday, Greek appeals committees had ruled in favor of 35 refugees, ruling that Turkey is “an unsafe country.” Only two rulings overturned appeals by refugees against their deportation. On Tuesday a crowd of refugees blocked the container terminal at the port of Thessaoniki to protest the slow pace at which asylum applications are being processed. Hundreds of applications are pending and there are fears that they too will result in rulings in favor of refugees, undercutting a deal signed between Ankara and Brussels in March to return migrants to Turkey.

Meanwhile there are also concerns about a pickup in arrivals from neighboring Turkey. For several weeks, a crackdown by Turkish authorities on smugglers had all but stopped the migrant influx. Now that ties between Turkey and the EU are strained over the former’s refusal to reform terrorism laws and its insistence that Turks be granted visa-free access to the bloc, more migrants have started arriving in Greece from Turkey. The total number of refugees in Greece is 57,458, according to government figures made public on Tuesday. The figure includes 5,700 people in rented accommodation arranged by the United Nations refugee agency, UNHCR. The remainder of the migrants are living in makeshift camps or state-run facilities on the Aegean islands or mainland Greece.

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When in a hole, keep digging. One deal with a madman is not enough.

EU Considers Linking African Aid to Curbs on Migrant Flows (WSJ)

The European Union’s executive body on Tuesday presented plans linking trade and investment perks for African countries to their efforts in reducing migration to Europe, a controversial idea that still needs the backing of EU governments. While the bloc has managed to stem the influx of Syrian refugees and other migrants after striking a deal with Turkey in March, an increasing number of mostly African migrants are attempting to make the perilous journey via Libya across the Mediterranean Sea to Italy. Nearly 50,000 people were rescued and brought to Italy this year and over 2,000 are feared dead after several boats capsized off the Libyan coast, according the United Nations’ refugee agency.

“We must do in the southern Mediterranean what we’ve done in the Aegean,” European Commission Vice-President Frans Timmermans said Tuesday in the European Parliament in Strasbourg. Under the proposed measures from the European Commission, which still need the approval of EU governments and the European Parliament, EU development funding and trade incentives would be linked to the countries’ level of cooperation on migration. “We propose a mix of positive and negative incentives, to reward those countries willing to cooperate effectively with us and to ensure there are consequences for those who do not. This includes using our development and trade policies to create leverage,” Mr. Timmermans said.

EU diplomats in Brussels expect “quite heated discussions” on the idea of linking development aid and trade policies to cooperation on migration, as governments have different views on whether it is ethical to make aid conditional on countries taking people back or preventing them from leaving. EU interior ministers meeting in Luxembourg on Friday will have a first exchange of views on the topic.

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Jun 012016
 
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Arthur Rothstein Steam shovels on flatcars, Cherokee County, Kansas 1936


China’s Debt Bubble Bigger Than Subprime Bubble (MW)
Yuan Tumbles As China PMI Miraculously Hugs Flatline (ZH)
Double Blow for China Banks as Fed Worry Meets June Cash Crunch (BBG)
Hong Kong April Retail Sales Fall 7.5%, 14th Straight Month (R.)
Abenomics “Death Cross” Strikes As Japan PMI Plunges To 40-Month Lows (ZH)
Pension Funds Pile on Risk Just to Get a Reasonable Return (WSJ)
Germany: Draghi v the Banks (FT)
The Most Powerful Man in Banking (WSJ)
Central Banks As Pawnbrokers Of Last Resort (M. Wolf)
Germany Considers Easing of Russia Sanctions (Spiegel)
Elephants In Tanzania Reserve Could Be Wiped Out By 2022 (AFP)
Mediterranean Death Toll Soars In First 5 Months Of 2016 (UNHCR)
Frontex Denies, Prevents Help To Refugees: Witnesses (MEE)

“The problem is that the banking sector in China has been pushing out new lending aggressively, but with slowing economic growth many loans have not gone to create more factories and jobs but to financial assets that have been leveraged to boost returns..”

China’s Debt Bubble Bigger Than Subprime Bubble (MW)

Unproductive debt in China—that is, debt that’s used to drive up asset prices—swelled in 2015, eclipsing the level seen in the U.S. in the run-up to the Great Financial Crisis, said Torsten Slok, chief international economist at Deutsche Bank, in a note to clients published Tuesday. Slok’s findings are illustrated in the chart below, where he compares the level of credit growth required in the U.S. and China to generate 1percentage point of GDP growth. (He notes that the red bar for 2015 also grew, suggesting more credit growth is now required in the U.S. to produce onepercentage point of GDP growth).

Chinese officials are partly responsible for the expansion of credit last year, analysts say, as the People’s Bank of China lessened requirements regarding the collateral lenders put up to borrow funds from the central bank, among other stimulus measures. The move was meant to spur economic growth, the pace of which slowed last year, stoking fears that it could precipitate a sharp global downturn. The world’s second-largest economy saw growth slow to 6.8% in 2015—missing the government’s target for 7% growth by a hair. In the first quarter of 2016, the country’s economy grew at an annual rate of 6.7%, its slowest pace since 2009.

It’s important to note, however, that many economists believe Chinese data overstates the strength of its economy. Over the past year, Chinese stocks, and more recently commodities like iron ore and steel rebar traded in China, have seen a series of dizzying rallies and frightening crashes as investors, emboldened by easy credit engage in speculation. “The problem is that the banking sector in China has been pushing out new lending aggressively, but with slowing economic growth many loans have not gone to create more factories and jobs but to financial assets that have been leveraged to boost returns,” Slok said.

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Everyone, US, Japan and EU too, needs that services PMI to flourish, but…

Yuan Tumbles As China PMI Miraculously Hugs Flatline (ZH)

Since May 2012, China Manufacturing PMI has miraculously stayed within a 1 point range of the knife-edge 50 level between contraction and expansion. May 2015 just printed 50.1, the same as April with New Orders weaker and business activity expectations (hope) tumbling to 4 month lows. The Steel Industry PMI collapsed from 57.3 to 50.9 with New Steel Orders collapsing from 65.6 to 52.7 – the biggest monthly drop in record. And while non-manufacturing PMI remained in ‘expansion territory at 53.1, it fell back from a brief bounce in April with employment and business expectations both weaker. For now, equity markets are unreactive but offshore Yuan is tumbling on the news, not helped by a sizable devaluation in the official fix. The magic of manufacturing data… as non-manufacturing slowly catches down…

Disappointment triggering more offshore Yuan selling… Not helped by yet another devaluation by PBOC…
*CHINA SETS YUAN FIXING AT 6.5889 VS 6.5790 DAY EARLIER
*PBOC CUTS YUAN FIXING TO LOWEST LEVEL SINCE 2011 FOR THIRD DAY

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Refinancing is becoming a major problem.

Double Blow for China Banks as Fed Worry Meets June Cash Crunch (BBG)

Shanghai’s money market is braced for higher borrowing costs as a credit-fueled economic recovery coincides with the prospect of higher U.S. interest rates in June, a month that has historically seen funding crunches in China. The overnight interbank lending rate averaged 1.99% in May, up from 1.18% a year ago, as Federal Reserve tightening weakened the yuan, spurring capital outflow pressures. That borrowing cost has climbed every June since 2011, as lenders hoard deposits ahead of quarter-end regulatory checks. The cost of fixing rates in the swap market is surging as data showed property leading a rebound in investment in the world’s second-biggest economy.

“The internal and external factors combined will certainly add pressure to the money market in June, driving interest rates higher,” said Liu Dongliang at China Merchants Bank, the nation’s sixth-largest lender. “We’re not optimistic about the bond market in the short term.” Any cash crunch would aggravate a rout in bonds that led to 190.6 billion yuan ($28.9 billion) in canceled sales this quarter, making it harder for issuers to refinance a record amount of maturing debt. The overnight money rate has been moving in tandem with the weakening currency in the past year after touching a six-year low, as estimated outflows reached $1 trillion in the past year, according to a gauge compiled by Bloomberg.

The yuan declined 1.5% in May as Federal Reserve Chair Janet Yellen said that evidence of strength in the U.S. economy means there could be an increase in borrowing costs in the coming months. The probability of Fed action in June has surged to 24% from 12% at the end of April, while the premium for China’s one-year sovereign yield over U.S. Treasuries has narrowed to a seven-week low. The People’s Bank of China has an incentive to keep monetary conditions relatively tight as it looks to control the yuan’s decline, rein in excessive lending by banks and keep a lid on inflation. The authority will create a neutral and appropriate monetary environment, it said in an article published in China Business News last week. The comments came after data showed the nation’s consumer price index maintained a 2.3% acceleration for the third month in April, a pace not seen since mid-2014.

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Mainland Chinese fail to appear.

Hong Kong April Retail Sales Fall 7.5%, 14th Straight Month (R.)

Hong Kong’s retail sales fell for the 14th successive month in April, as a drop in tourists and weak local consumption deepened the pain for retailers in the city. Retail sales in April slid 7.5% from a year earlier to HK$35.2 billion ($4.5 billion) in value terms, less than a 9.8% slump in March. In volume terms, April sales dropped 7.6%, government data showed on Tuesday. “Many types of retail outlet still recorded notable falls in sales, reflecting the continued drag from the slowdown in inbound tourism as well as the more cautious local consumer sentiment amid subpar economic conditions,” the government said in a statement.

Hong Kong is struggling with mounting economic challenges from the prospect of rising U.S. interest rates, which has stepped up capital outflows, and from China’s economic slowdown. Mainland tourists are avoiding the city amid political tensions with China and growing calls from radical activists for greater autonomy from Beijing. “The near-term outlook for retail sales will continue to depend on the performance of inbound tourism,” the government added.

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“Output tumbled at the fastest pace in 25 months and new orders are the worst since Jan 2013. This is the death cross for Abenomics..”

Abenomics “Death Cross” Strikes As Japan PMI Plunges To 40-Month Lows (ZH)

Since Abenomics was unleashed on the world (with QQE starting in April 2013), things have not worked out as the smartest men in the Japanese rooms predicted. In fact, with April’s final manufacturing PMI printing at 47.7, operating conditions in Japan worsened at the sharpest pace in 40 months… since Abe began his three arrows. Output tumbled at the fastest pace in 25 months and new orders are the worst since Jan 2013. This is the death cross for Abenomics… The weakest Japanese manufacturing PMI since the start of Abenomics…

Commenting on the Japanese Manufacturing PMI survey data, Amy Brownbill, economist at Markit, which compiles the survey, said: “The aftermaths of the earthquakes in one of Japan’s key manufacturing regions continued to weigh heavily on the manufacturing sector. Both production and new orders declined sharply midway through the second quarter of 2016. A marked fall in international demand also contributed to the drop in total new orders, as exports declined at the fastest rate since January 2013.” Flashing the “death cross” of Abenomics three arrows… As it is now clear that the massive expansion of the Bank of Japan balance sheet has done nothing… in fact worse than nothing… for the Japanese economy.

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Talk about a death cross…

Pension Funds Pile on Risk Just to Get a Reasonable Return (WSJ)

What it means to be a successful investor in 2016 can be summed up in four words: bigger gambles, lower returns. Thanks to rock-bottom interest rates in the U.S., negative rates in other parts of the world, and lackluster growth, investors are becoming increasingly creative—and embracing increasing risk—to bolster their performances. To even come close these days to what is considered a reasonably strong return of 7.5%, pension funds and other large endowments are reaching ever further into riskier investments: adding big dollops of global stocks, real estate and private-equity investments to the once-standard investment of high-grade bonds. Two decades ago, it was possible to make that kind of return just by buying and holding investment-grade bonds, according to new research.

In 1995, a portfolio made up wholly of bonds would return 7.5% a year with a likelihood that returns could vary by about 6%, according to research by Callan Associates, which advises large investors. To make a 7.5% return in 2015, Callan found, investors needed to spread money across risky assets, shrinking bonds to just 12% of the portfolio. Private equity and stocks needed to take up some three-quarters of the entire investment pool. But with the added risk, returns could vary by more than 17%. Nominal returns were used for the projections, but substituting in assumptions about real returns, adjusted for inflation, would have produced similar findings, said Jay Kloepfer, Callan’s head of capital markets research.

The amplified bets carry potential pitfalls and heftier management fees. Global stocks and private equity represent among the riskiest bets investors can make today, Mr. Kloepfer said. “Stocks are just ownership, and they can go to zero. Private equity can also go to zero,” said Mr. Kloepfer, noting bonds will almost always pay back what was borrowed, plus a coupon. “The perverse result is you need more of that to get the extra oomph.”

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How to destroy the euro from within.

Germany: Draghi v the Banks (FT)

In Dillingen an der Donau, a small town in rural Bavaria, the local Sparkasse savings bank is providing an unusual service. For customers who live a long way from a branch, it is giving out free bus tickets. And for those who cannot get to the bank at all — the old or sick, for example — it offers to send a member of staff directly to their homes to deliver small sums of cash. The Sparkasse came up with the idea to compensate for the fact that it was closing several branches as revenues dwindled due to interest rates being at a record low and customers visiting less frequently. “If your revenues are shrinking, then you have to do something about your costs,” says an official at the bank. “You have to economise.” The pressure on Germany’s army of savings banks is just one example of the increasing strains on the country’s financial system caused by the ultra-loose monetary policy of the Frankfurt-based ECB.

In a bid to jolt the eurozone’s lacklustre economy back to life , the central bank has, over the past five years, slashed interest rates to record lows and even pushed its deposit rate into negative territory. On top of this, it has launched a €1.7tn asset purchase programme, which has driven down bond yields across the continent. The measures have bought time for reform in the battered economies of southern Europe. Yet in Germany, they have met a blizzard of opposition. The country’s hawkish monetary policy establishment has always nurtured a degree of scepticism about the institution that succeeded the Bundesbank as the custodian of Germany’s monetary stability. But as savers, banks and insurers have been increasingly hurt by low interest rates — nominal yields on 10-year German bonds have fallen from about 4% in 2008 to less than 0.2% today — the criticism of the ECB has intensified.

The media has accused the central bank of fuelling a “social disaster”, while one bank has claimed that low interest rates will have deprived German households of €200bn between 2010 and the end of this year. Germany’s financial watchdog, BaFin, branded low rates a “seeping poison” for the country’s financial system. The most dramatic intervention, however, came from Wolfgang Schäuble, the hawkish finance minister, who blamed ECB president Mario Draghi for “half” the rise in support for Alternative for Germany, the rightwing, anti-immigration, anti-euro party. Mr Draghi hit back, archly noting that the ECB has a mandate “to pursue price stability for the whole of the eurozone, not only for Germany”, and argued that low borrowing costs were symptomatic of a glut in global savings for which Germany was partly to blame.

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“He’s judge and jury and everything else..”

The Most Powerful Man in Banking (WSJ)

The most important person in the banking business isn’t a banker. To most Wall Street executives, that title goes to Federal Reserve governor Daniel Tarullo, a brusque, white-haired former law professor who has come to personify Washington’s postcrisis influence over how banks do business. Mr. Tarullo heads the Fed’s Committee on Bank Supervision. On paper—and in practice for most of the previous decades—the post isn’t a hugely powerful one. But the 63-year-old took office at the Fed in 2009 at a moment of broad public support for a more aggressive tack and has pressed that advantage ever since. Financiers privately call Mr. Tarullo “the Wizard of Oz” for his behind-the-scenes sway over everything from corporate strategy to how many billions of dollars banks must maintain in capital.

Through the stress tests he championed to evaluate how banks might fare in another market shock, the Fed wields control over whether banks can raise the dividends they pay to shareholders. For a big bank in 2016, getting a stamp of approval from Mr. Tarullo is an effort consuming thousands of employees. The industry’s lawyers pore over transcripts of Mr. Tarullo’s dense speeches to grasp the meaning of every word. When Citigroup and Bank of America stumbled on the stress tests in recent years, each bank said it spent at least $100 million to correct the problems the Fed had called out. Peter Conti-Brown, a historian and author of “The Power and Independence of the Federal Reserve,” called Mr. Tarullo’s influence extraordinary. One former bank executive put a finer point on it: “He’s judge and jury and everything else,” he said.

Mr. Tarullo in an interview attributed his power to his longevity at the Fed and consensus with other regulators. And, he said, the full impact of the regulatory changes made on his watch have yet to be felt. “I think it likely that firms are going to have to change in some cases their size, in some cases their business model, and in some cases their organization,” he said. Mr. Tarullo’s influence illustrates the outsize role that government regulation now plays for banks. For most of the modern era, regulators took a more hands-off approach, monitoring the industry for abuses but stopping short of injecting themselves into bank operations. But the near collapse of the financial system in 2008 brought widespread criticism of regulators for not being more vigilant and changed the equation.

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“..governments try to make finance safer and finance exploits the support to make itself riskier.”

Central Banks As Pawnbrokers Of Last Resort (M. Wolf)

Will there be another huge financial crisis? As Hamlet said of the fall of a sparrow: “If it be now, ’tis not to come. If it be not to come, it will be now. If it be not now, yet it will come – the readiness is all.” So it is with banks. They are designed to fall. So fall they surely will. A recent book explores not only this reality but also a radical and original solution. What makes attention to this suggestion even more justified is that its author was at the heart of the monetary establishment before and during the crisis. He is Lord Mervyn King, former governor of the Bank of England. His book is called The End of Alchemy . The title is appropriate: alchemy lies at the heart of the financial system; moreover, banking was, like alchemy, a medieval idea, but one we have not as yet discarded. We must, argues Lord King, now do so.

As Lord King remarks, the alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”. This is a confidence trick in two senses: it works if, and only if, confidence is strong; and it is fraudulent. Financial institutions make promises that, in likely states of the world, they cannot keep. In good times, this is a lucrative business. In bad times, the authorities have to come to the rescue. It is little wonder, then, that financial institutions have become so large and pay so well. Consider any large bank. It will have a wide range of long-term and risky assets on its books, mortgages and corporate loans prominent among them. It will finance these with deposits (supposedly redeemable on demand), short-term loans and longer-term loans. Perhaps 5% will be financed by equity.

What happens if lenders decide banks might not be solvent? If they are depositors or short-term lenders, they can demand their money back immediately. Without aid from the central bank, the only institution able to create money without limit, banks will fail to meet that demand. Since a generalised collapse would be economically devastating, needed support is forthcoming. Over time, this reality has created a “Red Queen’s race”: governments try to make finance safer and finance exploits the support to make itself riskier. Broadly speaking, two radical solutions are on offer. One is to force banks to fund themselves with far more equity. The other is to make banks match liquid liabilities with liquid and safe assets. The 100% reserve requirements of the “Chicago plan”, proposed during the Great Depression, is such a scheme.

If liquid, safe liabilities finance liquid, safe assets — and risk-bearing, illiquid liabilities finance illiquid, unsafe assets — alchemy disappears. Finance would be safe. Unfortunately, the end of alchemy would also end much risk-taking in the system. Lord King offers a novel alternative. Central banks would still act as lenders of last resort. But they would no longer be forced to lend against virtually any asset, since that very possibility must create moral hazard. Instead, they would agree the terms on which they would lend against assets in a crisis, including relevant haircuts, in advance. The size of these haircuts would be a “tax on alchemy”. They would be set at tough levels and could not be altered in a crisis. The central bank would have become a “pawnbroker for all seasons”.

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The US will need to pressure a lot harder to keep the sanctions going.

Germany Considers Easing of Russia Sanctions (Spiegel)

As expected, G-7 leaders reiterated their hardline approach to Moscow in the Japan summit’s closing statement. Chancellor Angela Merkel complained last Thursday that there still isn’t a stable cease-fire in Ukraine and the law pertaining to local elections in eastern Ukraine, as called for by the Minsk Protocol, still hasn’t been passed. That, she said, is why “it is not to be expected” that the West will change its approach to Russia. What Merkel didn’t say, though, is that behind the scenes, her government has long since developed concrete plans for a step-by-step easing of the sanctions against Russia and that the process could begin as early as this year. Thus far, the message has been that the trade and travel restrictions will only be lifted once all the provisions foreseen by the Minsk Protocol have been fulfilled. 100% in return for 100%.

Now, however, Berlin is prepared to make concessions to Moscow – on the condition that progress is made on the Minsk process. “My approach has always been that sanctions are not an end in themselves. When progress is made on the implementation of the Minsk Protocol, we can also then talk about easing sanctions,” says Foreign Minister Frank-Walter Steinmeier. The Chancellery also supports the new approach. Thus far, it was the Social Democrats that were particularly vocal about rapprochement with Russia. Led by Economics Minister Gabriel, the SPD is Merkel’s junior coalition partner. While Steinmeier, also a senior SPD member, has never explicitly demanded the easing of sanctions, he has long supported Russia’s return to the G-7. Merkel, by contrast, had always maintained a hard line. Now, though, the Chancellery also appears to be changing course.

[..] more and more EU member states have begun questioning the strict penalty regime, particularly given that it hasn’t always been the Russians who have blocked the Minsk process. Despite Tusk’s apparent optimism, indications are mounting that getting all 28 EU members to approve the extension of the sanctions at the end of June might not be quite so simple. Berlin has received calls from concerned government officials whose governments have become increasingly skeptical of the penalties against Russia but have thus far declined to take a public stance against them. Members of some governments, though, have very clearly indicated that they are not interested in extending the sanctions in their current stringent form. Austrian Vice Chancellor Reinhold Mitterlehner is among the skeptics as is French Economics Minister Emmanuel Macron. So too are officials from Italy, Spain, Greece and Portugal.

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Time for the death penalty?! Time to put our armies to good use?

Elephants In Tanzania Reserve Could Be Wiped Out By 2022 (AFP)

Elephants in Tanzania’s sprawling Selous Game Reserve could be wiped out within six years if poaching continues at current levels, the World Wildlife Fund warned. Tanzania’s largest nature reserve was in the 1970s home to 110,000 elephants, but today only 15,000 remain and they are threatened by “industrial-scale poaching”. The Selous “could see its elephant population decimated by 2022 if urgent measures are not taken,” the WWF said. More than 30,000 African elephants are killed by poachers every year to supply an illegal trade controlled by criminal gangs that feeds demand in the Far East. Tanzania is among the worst-affected countries with a recent census saying the country’s elephant population fell by 60% in the five years to 2014.

The Selous reserve is a tourist draw contributing an estimated $6 million (5 million euros) a year to Tanzania’s economy, according to a study commissioned by WWF and carried out by advisory firm Dalberg. It is named after Frederick Selous, a British explorer, hunter and real-life inspiration for the H. Rider Haggard character Allan Quatermain in King Solomon’s Mines. “By early 2022 we could see the last of Selous’ elephants gunned down by heavily armed and well trained criminal networks,” the report said. The 55,000-square kilometre (21,000-square mile) reserve in southern Tanzania was named a World Heritage Site by UNESCO in 1982. But it was put on a watch list in 2014 as poaching spiked, with six elephants killed every day and industrial activities including oil and gas exploration, as well as mining, threatening the delicate environment.

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The sadness just intensifies.

Mediterranean Death Toll Soars In First 5 Months Of 2016 (UNHCR)

At least 880 people are believed to have drowned last week in a spate of shipwrecks and boat capsizings on the Mediterranean, the UN Refugee Agency said today. “For so many deaths to have occurred just in a matter of days and months is shocking and shows just how truly perilous these journeys are,” said UN High Commissioner for Refugees Filippo Grandi. UNHCR told a press briefing in Geneva that the latest figures were arrived at following new information received through interviews with survivors brought ashore in Italy.

“As well as three shipwrecks that were known to us as of Sunday, we have received information from people who landed in Augusta over the weekend that 47 people were missing after a raft carrying 125 people from Libya deflated,” UNHCR spokesperson William Spindler detailed. He added that eight others were reported separately to have been lost overboard from another boat, and four deaths were reported after fire on board another. “Thus far 2016 is proving to be particularly deadly. Some 2,510 lives have been lost so far compared to 1,855 in the same period in 2015 and 57 in the first five months of 2014,” Spindler added.

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“Everything started after the EU agreement,” he said. “These people are no longer refugees to them [the authorities]. They are prisoners and are being detained. But they have left the humanitarian aspect out of the story.”

Frontex Denies, Prevents Help To Refugees: Witnesses (MEE)

Frontex denied aid to refugees including a baby and kept them floating in the sea off Greece for nearly two hours, according to aid workers. Eyewitnesses told MEE that Frontex officers prevented aid workers helping 50 people as they landed on the northern shore of the Greek island of Lesbos early on Monday. Their tactic was to take them directly into detention “without any aid, even the injured,” one aid worker said. Witnesses also told MEE that officers from the Maltese branch of the European border control police prevented a doctor tending to a baby that was “unresponsive”. In a written statement to MEE, Frontex said the crew on the Maltese ship had followed a Hellenic Coast Guard officer’s instructions and that none of the volunteers identified themselves as a doctor.

The reports come as the UN says that more than 2,500 people have died trying to make the perilous journey across the Mediterranean to Europe so far in 2016, a sharp jump from the same period last year. In the past week alone, at least 880 people are believed to have died in a series of shipwrecks – but thousands of people have also been rescued in the last seven days, with some 90 rescue operations launched. Frontex, supported by a series of national fleets and coast guards as well as several NGOs and some private volunteers, is charged with carrying out rescue operations in the Mediterranean. However, witnesses told MEE that the boat crammed with refugees was made to float out at sea until Frontex ground units came to take the passengers away in buses, after the Greek coastguard granted permission for the landing at the fishing hamlet of Skala Skiaminias on Lesbos’s north coast.

Esther Camps, from Spanish NGO Proactiva, which provides aid and rescue operations at sea, was at the scene. She said the incident took place at around 01:00 on Monday morning – the arrivals, she said, included around 10 children, as well as women who were crying out for help. “We were told to do nothing and to ‘stay away’,” she told MEE. “As they [the refugees and migrants] were disembarking, we saw there was a baby that was not making any noise. One of the officers said the baby was ‘fine’ and kept us away. We said, ‘how do you know it is OK? You are not doctors.'” Camps, who has been working with Proactiva since December, said that babies normally cry when they are brought ashore, but that in this case the child was not making any noise. MEE understands that a doctor from the aid organisation Waha was also at the scene but was denied access.


Handout photo released as courtesy by German humanitarian NGO Sea-Watch shows a crew member holding a drowned baby as dead bodies were recovered after a wooden boat transporting migrants capsized off the Libyan coast on 27 May, 2016 (AFP)

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Apr 162016
 
 April 16, 2016  Posted by at 9:24 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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NPC Pennsylvania Avenue storefront view, Washington DC 1921


ECB Sees No Evidence Of Asset Bubbles: Draghi (Reuters)
China Buys ‘Recovery’ With A Record Amount Of New Debt (ZH)
Flood of Chinese Cotton Exports Sends Global Prices Tumbling (BBG)
Greek Banks’ EFSF Notes Eligible For ECB’s QE Purchases (Reuters)
Startup Investors Hit the Brakes (WSJ)
Goodrich Petroleum Files For Chapter 11 Bankruptcy Protection (WSJ)
Saudi Prince Reiterates Oil Freeze Depends on Others Joining (BBG)
Neoliberalism – The Ideology At The Root Of All Our Problems (Monbiot)
Erdogan and the Satirist: Inside Merkel’s Comedy Conundrum (Spiegel)
March Global Temperature Smashes 100-Year Record (G.)
Pope Francis Flies To Lesbos To Highlight Humanitarian Crisis In Europe (G.)
Pope Francis Visits Lesbos, Frontline Of Europe’s Refugee Crisis (Reuters)
Lesbos Refugee Detention Centre Whitewashed For Pope’s Visit (Ind.)

Apparently not at all worried about credibility, then.

ECB Sees No Evidence Of Asset Bubbles: Draghi (Reuters)

The ECB will continue to do what is necessary to boost inflation and has not seen evidence so far that exceptionally loose monetary policies are creating asset bubbles, ECB President Mario Draghi said on Friday. Draghi added that the economic outlook for the euro zone faces uncertainty due to risks to growth prospects in emerging market economies, a clouded outlook for oil prices and geopolitical risks. “While accommodative monetary policies over an extended horizon may have unintended consequences for certain sectors in the form of excessive risk-taking and misaligned asset prices, we do not currently see any broad-based evidence of excesses in the behavior of banks and other financial institutions and valuations of euro area asset prices,” Draghi said in a statement. Draghi also repeated the ECB’s forward guidance that the key policy rates will remain at the current or lower levels for an extended period of time, well past the horizon of the net asset purchases.

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Over $1 trillion in just one quarter. My comment yesterday: “This is such a contradiction in terms it’s crazy the WSJ prints it: “China’s economy may have stabilized for now, thanks to gobs of new debt..”

China Buys ‘Recovery’ With A Record Amount Of New Debt (ZH)

When China reported its economic data dump last night which was modestly better than expected (one has to marvel at China’s phenomenal ability to calculate its GDP just two weeks after the quarter ended – not even the Bureau of Economic Analysis is that fast), the investing community could finally exhale: after all, the biggest source of “global” instability for the Fed appears to have been neutralized. But what was the reason for this seeming halt to China’s incipient hard landing? The answer was in the secondary data that was reported alongside the primary economic numbers: the March new loan and Total Social Financing report.

As the PBOC reported last night, Chinese banks made 1.37 trillion yuan ($211.23 billion) in new local-currency loans in March, well above analyst expectations, as the central bank scrambled to keep the economy engorged with new loans “to keep policy accomodative to underpin the slowing economy” as Reuters put it. This was up from February’s 726.6 billion yuan but off a record of 2.51 trillion yuan extended in January. Outstanding yuan loans grew 14.7% by month-end on an annual basis, versus expectations of 14.5%. But it wasn’t the total loan tally that is the key figure tracking China’s credit largesse: for that one has to look at the total social financing, which in just the month of March rose to 2.34 trillion yuan, the equivalent of more than a third of a trillion in dollars!

And there is your answer, because if one adds up the Total Social Financing injected in the first quarter, one gets a stunning $1 trillion dollars in new credit, or $1,001,000,000,000 to be precise, shoved down China’s economic throat. As shown on the chart below, this was an all time high in dollar terms, and puts to rest any naive suggestion that China may be pursuing “debt reform.” Quite the contrary, China has once again resorted to the old “growth” model where GDP is to be saved at any cost, even if it means flooding the economy with record amount of debt.

And to put it all together, the PBOC also reported that the broad M2 money supply measure grew 13.4% in March from a year earlier, or precisely double the rate of growth of GDP. This means that it took two dollars in new loans to create one dollar of GDP growth. With China’s debt/GDP already estimate at 350%, how much longer can China sustain this stunning debt (and by definition, deposit) growth continue?

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China has too much steel, too much cotton, and too much of lots of other things.

Flood of Chinese Cotton Exports Sends Global Prices Tumbling (BBG)

China is about to open the floodgates on its huge supplies of cotton, sparking a rout in prices. The country plans to auction about 2 million metric tons from May through August, a government statement showed Friday. That’s almost equal to total shipments expected this season from American growers, the world’s top exporters. The auction sales would represent about 14% of the 13.9-million tons that the U.S Department of Agriculture estimates that China has in its stockpiles. Cotton futures fell the most in six weeks. The price slid more than 7% in the past year in part because the large Chinese inventories curbed overseas purchases from the Asian nation, the biggest consumer of the fiber.

“We knew this was coming, but it’s probably a bit more than what people were expecting” and reduces the country’s import outlook in the near term, Keith Brown, president of brokerage Keith Brown & Co. in Moultrie, Georgia, said in a telephone interview. Adding to the outlook for bigger supplies is favorable growing weather in U.S. cotton areas. Rains in the next few days will boost soil moisture in Texas, the country’s top producer, according to MDA Weather Services in Gaithersburg, Maryland. Drier conditions will aid planting in the U.S. Southeast, the forecaster said. American farmers are expected to increase plantings in the season that starts in August as low prices for competing crops leave farmers with few options, the USDA projects.

“Any increase in production, as well as any volume pushed out of Chinese reserves, will be added to globally available supply in the coming crop year,” industry researcher Cotton Inc. said in a report this week. “High levels of available supply can be expected to keep downward pressure on prices.” Still, the auction sales come as China’s crop is set to shrink this year to the lowest in more than a decade, USDA data show. That’s reducing global output by more than 16%, the biggest annual slide since at least 1961. As the Asian country depletes inventories, in the “long-run it’s positive,” for prices because it means that there will be less supply further down the road, boosting the outlook for eventual imports, Brown said.

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Draghi buys anything now.

Greek Banks’ EFSF Notes Eligible For ECB’s QE Purchases (Reuters)

The ECB has included European Financial Stability Facility (EFSF) notes in its list of eligible securities for purchasing under its so-called quantitative easing program, an ECB spokesperson said on Friday. “Up to 50% of the outstanding amount can be purchased as this is the limit applicable to securities issued by eligible international organizations,” the spokesperson told Reuters. With holdings of more than €30 billion of such notes after rounds of recapitalization, Greek banks stand to make gains on the securities.

Bank shares were rebounding 16.2% on Friday after losses in the previous sessions. “The market jumped on this one-off positive piece of news after days of negativity,” said Eurobank analyst Nick Koskoletos. Banks had not been not allowed to sell the EFSF notes in the market but they repoed them with the ECB to obtain cheap funding. Apart from capital gains, selling a portion of their EFSF notes to the ECB could reduce the amount Greek banks borrow from it.

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The focus on startups and unicorns smells of despair, a last ditch attempt to deny the demise of the economy.

Startup Investors Hit the Brakes (WSJ)

Venture-capital investors hit the brakes on investing in the first quarter, following a funding bonanza the past two years that pushed valuations of once-hot technology startups to soaring heights. Funding for U.S. startups fell 25% from the fourth quarter to $13.9 billion, the largest quarterly decline on record since the dot-com bust, according to data from Dow Jones VentureSource. The numbers of deals also hit a four-year low of 884. The drop threatens to hasten a slump rippling through Silicon Valley that is pushing startups to slash marketing budgets, lay off staff and dial back lofty ambitions. Investors such as mutual funds and big banks that pumped money into startups on the promise of big returns have since retrenched, as a punishing market for initial public offerings has spoiled the runaway optimism.

The sky-high valuations of last year have retreated as a result. In the first quarter, the median value of U.S. startups plummeted to $18.5 million after hitting a peak of $61.5 million in last year’s third quarter. “I think investors are nervous, sitting on the sidelines waiting to see what happens,” said Brian Mulvey at PeakSpan Capital, which recently raised a venture fund of $150 million. Investors caution the first-quarter data spans a relatively small period and that capital tends to fluctuate widely throughout the year. VentureSource counts funding rounds for U.S.-based companies with at least one venture-capital firm as an investor. It doesn’t include startups only backed by individuals or majority-owned by corporations or private-equity firms. Several other data providers with varying methodologies show less of a decline.

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Commodities break on plunging demand.

Goodrich Petroleum Files For Chapter 11 Bankruptcy Protection (WSJ)

Goodrich Petroleum filed for chapter 11 bankruptcy Friday with investment firms slated to pick up the pieces, as yet another company sought court protection amid the shakeout in the oil and gas industry. Houston-based Goodrich, an oil and gas producer which struggled to cut its debt as crude prices tumbled, has a deal in place that would erase $400 million in debt from its books through a swap with a group of investors that own bonds the company issued last year. The Goodrich bondholders, who include Franklin Advisors, Penn Capital Management and Jefferies, have agreed to forgive $175 million in debt in exchange for ownership of the company. The deal is part of a larger bankruptcy-exit plan that would pay off or carry over $40 million of higher-ranking senior bank debt and wipe out $224 million in unsecured bonds.

Goodrich’s bankruptcy deal mirrors those proposed recently by other struggling oil producers as the energy slump transforms a U.S. industry once dominated by Texas oil men into one controlled by financial firms from across the nation. Falling oil prices have roiled the industry since the summer of 2014. Since that time, about 60 North American oil and gas companies have filed for bankruptcy, involving nearly $20 billion in debt, according to the law firm Haynes & Boone. On Thursday, Houston’s Energy XXI filed for bankruptcy to complete a debt-for-equity swap with a group of bondholders that includes Oaktree Capital Management.

Denver-based Venoco filed for bankruptcy last month after striking a deal with Apollo Global Management and MAST Capital Management that will erase nearly $1 billion in debt. Energy & Exploration Partners, Magnum Hunter Resources and New Gulf Resourcesare among other energy companies that have brokered similar deals. The rising number of debt-for-equity swaps is due to lenders’ unwillingness to accept the fire-sale prices that potential buyers are offering for oil assets, according to Ian Peck, head of Haynes & Boone’s bankruptcy practice.

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Orchestrated theater. Too many producers can’t afford a freeze.

Saudi Prince Reiterates Oil Freeze Depends on Others Joining (BBG)

Saudi Arabia won’t restrain its oil production unless other producers, including Iran, agree to freeze output at a meeting this weekend in Doha, the kingdom’s deputy crown prince said. The world’s biggest crude exporter would cap its market share at about 10.3 million to 10.4 million barrels a day, if producers agree to the freeze, Prince Mohammed bin Salman said during an interview on Thursday at King Salman’s private farm in Diriyah, the original home of the Al Saud royal family. “If all major producers don’t freeze production, we will not freeze production,” said Prince Mohammed, 30, who has emerged as Saudi Arabia’s leading economic force. “If we don’t freeze, then we will sell at any opportunity we get.”

At least 15 nations including Saudi Arabia and Russia, the world’s two largest crude oil producers, will gather in Doha on April 17 to discuss freezing output to stabilize an oversupplied market. Prince Mohammed has said Saudi Arabia’s commitment to a production cap would depend on Iran’s participation. Iran’s oil minister has dismissed the prospect of joining the deal as “ridiculous” for now. A Russian official said it was possible to reach a deal in Doha to freeze oil output, regardless of Iran whose crude shipments have risen by more than 600,000 barrels a day this month. That increase has added to the pressure on producer nations to reach an agreement to prop up prices as economies from Venezuela to Nigeria reel from the market rout. The meeting in Doha is only relevant if no deal is reached, prompting a sharp selloff in the markets, according to Ed Morse at Citigroup.

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Promising, but incomplete.

Neoliberalism – The Ideology At The Root Of All Our Problems (Monbiot)

[..] It may seem strange that a doctrine promising choice and freedom should have been promoted with the slogan “there is no alternative”. But, as Hayek remarked on a visit to Pinochet’s Chile – one of the first nations in which the programme was comprehensively applied – “my personal preference leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism”. The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows. Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments.

Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty. As Naomi Klein documents in The Shock Doctrine, neoliberal theorists advocated the use of crises to impose unpopular policies while people were distracted: for example, in the aftermath of Pinochet’s coup, the Iraq war and Hurricane Katrina, which Friedman described as “an opportunity to radically reform the educational system” in New Orleans. Where neoliberal policies cannot be imposed domestically, they are imposed internationally, through trade treaties incorporating “investor-state dispute settlement”: offshore tribunals in which corporations can press for the removal of social and environmental protections. When parliaments have voted to restrict sales of cigarettes, protect water supplies from mining companies, freeze energy bills or prevent pharmaceutical firms from ripping off the state, corporations have sued, often successfully. Democracy is reduced to theatre.

Another paradox of neoliberalism is that universal competition relies upon universal quantification and comparison. The result is that workers, job-seekers and public services of every kind are subject to a pettifogging, stifling regime of assessment and monitoring, designed to identify the winners and punish the losers. The doctrine that Von Mises proposed would free us from the bureaucratic nightmare of central planning has instead created one. Neoliberalism was not conceived as a self-serving racket, but it rapidly became one. Economic growth has been markedly slower in the neoliberal era (since 1980 in Britain and the US) than it was in the preceding decades; but not for the very rich. Inequality in the distribution of both income and wealth, after 60 years of decline, rose rapidly in this era, due to the smashing of trade unions, tax reductions, rising rents, privatisation and deregulation.

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Lots of criticism of Merkel for this, not sure that’s justified. She must be careful when it comes to trumping the law. Let the courts decide. It’s not as if they’ll lock the guy up. Many EU nations have similar antiquated ‘insult to foreign leaders’ laws, by the way.

Erdogan and the Satirist: Inside Merkel’s Comedy Conundrum (Spiegel)

Jan Böhmermann has disappeared. He’s not giving interviews; he’s not answering his phone. Since Monday, he has also gone silent on Twitter, where he is normally extremely active. He has hardly left his home in Cologne in the last few days and he is also now under police protection. He had his Thursday show on the German public broadcaster ZDF cancelled and his Sunday radio show on RBB will likewise not be broadcast this week. It was cancelled last Sunday as well. Böhmermann was already in his home studio ready to record when he realized that he was in no mood to be funny. So he called it off. Friends and acquaintances who have had contact with him in the last few days are worried that he won’t be able to withstand the pressure.

The ZDF satirist is a sensitive person, even if that hasn’t always been part of his public persona. The scandal surrounding the disparaging poem he wrote about Turkish President Recep Tayyip Erdogan has affected him more deeply than many have realized. Perhaps one has to be vulnerable to emotional pain in order to know how to inflict such pain on others. Two weeks ago, when he was still active on social media, he tweeted out the Beatles hit “The Fool on the Hill.” The song is about a simpleton sitting alone on a hill with a silly grin on his face – and everyone can see that he is a half-wit. It is essentially how people see Böhmermann, and it is how he wanted to be seen: The misunderstood fool. The tweet went out two days after his insulting Erdogan poem was broadcast on his ZDF show “Neo Magazin Royale” and one day after the broadcaster deleted the show from its video hub and distanced itself from Böhmermann’s verses.

And that was just the beginning. Prior to the scandal, Böhmermann had led a niche existence in Germany’s media landscape, but now everybody in the country knows who he is. The 35-year-old has triggered an affair of state, one which has served to demonstrate just how limited Chancellor Angela Merkel’s power really is. And how absurd German law can be. If Böhmermann intended to show just how powerful satire can be, he has been incredibly successful. The Böhmermann scandal is now entering its third week, and only now is it becoming clear just what the five-minute clip has set in motion. It didn’t just shine the spotlight on the Turkish president’s sensitivity and the limits of chancellor’s steadfastness, it has also unsettled all of Germany – a country which normally doesn’t spend much time thinking about satire and art and the freedoms associated with them.

On Friday, the need for doing so became even more apparent. Chancellor Merkel announced that the federal government had granted permission for criminal proceedings to go ahead against Jan Böhmermann under the controversial Paragraph 103 of the German Criminal Code. The law makes it illegal to insult the representatives of foreign countries. The federal government must approve the initiation of Paragraph 103 proceedings.

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These things take much longer to sink in then they do to happen.

March Global Temperature Smashes 100-Year Record (G.)

The global temperature in March has shattered a century-long record and by the greatest margin yet seen for any month. February was far above the long-term average globally, driven largely by climate change, and was described by scientists as a “shocker” and signalling “a kind of climate emergency”. But data released by the Japan Meteorological Agency (JMA) shows that March was even hotter. Compared with the 20th-century average, March was 1.07C hotter across the globe, according to the JMA figures, while February was 1.04C higher. The JMA measurements go back to 1891 and show that every one of the past 11 months has been the hottest ever recorded for that month.

Data released released later on Friday by Nasa confirmed last month was the hottest March on record, but the US agency’s data indicated February had seen the biggest margin. The Nasa data recorded March as 1.65C above the average from 1951-1980, while February was 1.71C higher. The World Meteorological Organisation, the UN body for climate and weather, said the March data had “smashed” previous records.

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Let’s see if this is more than just a show.

Pope Francis Flies To Lesbos To Highlight Humanitarian Crisis In Europe (G.)

Pope Francis, widely regarded as one of the world’s greatest defender of refugees, flies into Lesbos on Saturday to highlight the humanitarian crisis unfolding in Europe. The Roman Catholic leader will spend five hours on the island with the Ecumenical head of world Orthodoxy, Patriarch Bartholomew I, and Archbishop of Athens and All Greece, Ieronymos II. Imbued with added urgency on the frontline of the EU’s migrant emergency, the meeting is also being seen as a further warming of ties between the western and eastern branches of Christianity, almost 10 centuries after their bitter split in 1054. The pontiff, who has publicly criticised Europe’s “anaesthetised conscience” on refugees, will go straight to the menacing detention centre above the hilltop village of Moria where more than 3,000 men, women and children are held.

On Friday, just hours before Francis’ scheduled visit, detainees chanted “freedom, freedom” as demonstrators denounced their incarceration. Standing under the razor wire-topped fence, Sham Jutt, a young Pakistani, spoke of the refugees’ plight, saying he hoped the pope could intervene. “We expected a life of hope and now he is our only hope,” said the 21-year-old, adding that he had seen the camp change from being a registration centre to a prison following the controversial pact the EU signed with Turkey to stem the flows. “Now, with this agreement, we are very afraid they will deport us.” Greece’s leftist-led government described Saturday’s visit of religious leaders as “extremely significant”. Lesbos has borne the brunt of the refugee influx with over 850,000 of the 1.1 million Syrians, Afghans and Iraqis who streamed into Europe last year, coming through the island.

Prime minister Alexis Tsipras, also due to fly in, was expected to underline Greece’s increasingly fragile situation in talks with Francis. More than 50,000 migrants and refugees have been trapped in the country since Macedonia and other Balkan states cut off the migrant trail by closing borders. Greece has been struggling to house refugees in makeshift facilities even if arrivals have dropped dramatically since the deal came into effect on 20 March. For detainees who have arrived since then, conditions have deteriorated dramatically. Human rights organisations have withdrawn from Moria and other detention centres for fear of being associated with mass expulsions.

Before the church leaders’ visit, authorities had gone out of their way to clean up the camp, whitewashing graffiti-splattered walls, replacing tents with containers, installing air conditioning and taking families out of the overcrowded facility to an open-air holding centre nearby. “In every sense of the word, they have given it a whitewash,” said Jakob Mamzzak, a volunteer from California. “Today we even heard they had given [inmates] clean clothes, let them have their first shower in 25 days and brought them good food when the truth is conditions are inhumane.”

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Taking 10 refugees with him on his way back.

Pope Francis Visits Lesbos, Frontline Of Europe’s Refugee Crisis (Reuters)

Pope Francis arrived on the Greek island of Lesbos on Saturday, turning the world’s attention to the frontline of Europe’s migrant crisis which has claimed hundreds of lives in the past year. Francis, leader of the world’s 1.2 billion Roman Catholics, was scheduled to spend about six hours on the small Aegean island. Based on his schedule, he was to meet 250 refugees and have lunch with eight of them. Hundreds of people have died making the short but precarious crossing from Turkey to the Lesbos shores in inflatable dinghies in the past year, and the island is full of unmarked graves. “This is a trip that is a bit different than the others … this is a trip marked by sadness,” Francis told reporters on the airplane taking him to Lesbos.

“We are going to encounter the greatest humanitarian catastrophe since World War Two. We will see many people who are suffering, who don’t know where to go, who had to flee. We are also going to a cemetery, the sea. So many people died there … this is what is in my heart as I make this trip.” With Ecumenical Patriarch Bartholomew, leader of the world’s Orthodox Christians, and Greek Prime Minister Alexis Tsipras, Francis will visit Moria, a sprawling, fenced complex holding more than 3,000 refugees. “This is an island which has lifted all the weight of Europe upon its shoulders,” Tsipras told Francis at Lesbos airport, where a red carpet was rolled out for the pontiff’s arrival. Greek state TV reported Francis was planning to take ten refugees back with him to the Vatican, eight of them Syrians.

Aid organizations have described conditions at Moria, a disused army camp, as appalling. Journalists have no access to the facility on a hillside just outside Lesbos’s main town of Mytiline, but aid workers said walls were whitewashed, a sewer system fixed and several dozen migrants at the overcrowded facility were transferred to another camp, which the pope will not visit. . Aid organizations say queues for food are long, and people often wait for an hour or more. Saturday’s encounter with refugees would be ‘no frills’ and the religious leaders would eat the same food as everyone else at the camp, an official at the camp told Reuters.

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The Pope should speak out a lot louder and clearer. Meeting a few preselected refugees won’t cut it.

Lesbos Refugee Detention Centre Whitewashed For Pope’s Visit (Ind.)

A detention centre for asylum seekers in Greece is being urgently spruced up ahead of a visit by the Pope as thousands of people remain trapped inside, waiting to find out if they will be sent back to Turkey. Workers were dispatched to whitewash the wall surrounding Moria, a former refugee camp on the island of Lesbos, while others painted fences, cleared litter and moved stray tents. The last-minute efforts on Friday came ahead of Pope Francis’ arrival tomorrow with a delegation of Catholic and Orthodox leaders. Sacha Myers, who is working inside Moria with Save the Children, told The Independent that the now “very white” wall was not a priority for the families living inside Moria. “We hope the improvements continue but they don’t change the fact that we have still got thousands of people locked inside this detention centre with no idea how long they will be here,” she said.

“The camp was built to hold 2,000 people and now there are 2,900. Families are living on top of each other, there is absolutely no privacy. “We’re seeing a real deterioration in conditions.” Ms Myers, a communications and media manager for the charity, said she had met Iraqi and Syrian mothers whose babies were ill with diarrhoea and fever amid declining hygiene. “Some people are aware of the Pope’s visit,” she added. “They really want him to help them and understand their issues.” Save the Children is warning that child refugees are being held in appalling conditions at the centre, where they report illness, fights and theft. Charity workers described dirty rooms without enough beds, where children are denied legal services and basic support despite concerns for their mental and physical wellbeing.

High-profile visits by Angelina Jolie, Greek Prime Minister Alexis Tsipras and Labour MP Yvette Cooper, among others, have done little to improve the situation in Moris. It was set up last year as one of two refugee camps in Lesbos, but on 20 March the gates were locked as it was turned into a detention centre as part of the controversial EU-Turkey deal. The Pope will be joined by leaders of the Catholic and Orthodox churches as he tours Lesbos, which has seen the highest number of refugees arrive out of any island in Europe. After visiting Moria, they will have lunch with refugee representatives and make a joint declaration, before heading to the island’s capital for a prayer service in memory of the many asylum seekers who have drowned attempting to reach Europe.

The Vatican said the five-hour visit to Lesbos was purely humanitarian and religious in nature, not political, and wasn’t meant as a criticism of the deportation programme seeing some asylum seekers sent back to Turkey. Pope Francis said he intended “to express closeness and solidarity both to the refugees and to the Lesbos citizens and all the Greek people who are so generous in welcoming (refugees)”. The pontiff has been outspoken in calls for greater compassion and international co-operation in the refugee crisis, denouncing the “globalisation of indifference” during a trip to Lampedusa – another migrant hotspot.

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