Jul 152017
 
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Hieronymus Bosch The Conjurer 1502

 

Big Banks Continue Winning Streak, With Street at Least (BBG)
‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)
US House Backs Massive Increase In Defense Spending (R.)
US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)
We Do These Things Because They’re Easy (CHS)
The New Silk Road Will Go Through Syria (Escobar)
One Of Worst Droughts In Decades Devastates South Europe Crops (R.)
People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)
Just 13% of Greeks Trust Their Government (K.)
World’s Large Carnivores Being Pushed Off The Map (BBC)

 

 

What happens when markets don’t function. Manipulation is the name of the game.

Big Banks Continue Winning Streak, With Street at Least (BBG)

U.S. bank earnings have kicked off without any tumult. Investors should be grateful for that increasing sense of dependability, though they appear to be looking for more. JPMorgan Chase, Wells Fargo, Citigroup and PNC Financial Services each delivered second-quarter results on Friday that topped Wall Street’s expectations. On a measure of earnings per share, each bank has improved its respective streaks of beating or meeting analysts’ estimates:Reliability Factor The U.S. banks that reported earnings on Friday lengthened their streak of surpassing or matching expectations which, to be fair, are managed by bank executives:

The business of fixed-income trading, which has been a bright spot over the past year, has received outsize attention as it has fallen from grace after a long stretch of low volatility and tepid volumes, as expected. Instead, its quarterly gyrations should be accepted by shareholders just as they withstand changes in the weather, according to JPMorgan’s chairman and CEO Jamie Dimon. He has a point – the diversity of JPMorgan combined with the size of its overall corporate and investment bank, which houses the fixed-income trading business, gives the bank a level of flexibility. That defense might not stick if JPMorgan’s other businesses weren’t performing, but they are. The bank posted quarterly net income of $7 billion in the three months ended June 30.

That was its biggest haul ever, driven in part by a significant jump in net interest income, a direct result of the Federal Reserve’s rate increases. Its efforts to bulk up asset and wealth management, where revenues have roughly doubled since 2006, have borne fruit. Net income for the business climbed 20% compared with results in the same period last year to a record $624 million. And for now, despite broad concerns about auto and credit card loans, there’s no need to worry about widespread cracks. The bank’s so-called net charge-off rate, which measures delinquencies, remains minimal. [..] Bank stocks have rallied in part because the expected growth in their respective earnings per share, or EPS, in 2018 far exceeds that of the benchmark index:

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Because you get to make record profits while others only get deeper into debt? Is that what Dimon is talking about?

‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)

JP Morgan just had the most profitable 12 months ever for a US bank – but it wasn’t enough for Jamie Dimon, the bank’s boss. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with in this country,” Dimon told journalists after the bank released its latest quarterly results on Friday. The world’s largest bank reported a profit of $7.03bn for the second quarter, 13% higher than last year. It has made $26.5bn over the past 12 months, a record profit for a US bank. But Dimon, who last year turned down Donald Trump’s offer to become treasury secretary, seemed more concerned about low rates of growth in the US and the health of the American body politic.

He blamed bad policy for “holding back and hurting the average American” and financial journalists for concentrating on the bank’s trading results when they should be focusing on policy. “Who cares about fixed-income trading in the last two weeks of June? I mean, seriously,” Dimon said after a reporter asked about the health of the bonds markets. “That is the weather,” he said of changes in the markets. “It goes up and down, this and that, and that’s 80% of what you guys focus on.” Dimon said financial journalists would be better off concentrating on the “bad policies” that are hurting average Americans. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with,” he said. “At one point, we would have to get our act together, do what we’re supposed to do to the average American.”

[..] “We need infrastructure reform,” he said. “We need corporate tax reform. We need better skills and education. If we don’t focus on these things, we are hurting average Americans every day. “The USA has to start to focus on policy which is good for all Americans, and that is regulation, tax, education, we have to get those things done. You guys [journalists] should be writing a lot more about that stuff. That is holding it back and hurting the average American citizen if we don’t do it.

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Or is Dimon embarrassed over this?

US House Backs Massive Increase In Defense Spending (R.)

The U.S. House of Representatives passed its version of a massive annual defense bill on Friday, leaving out controversial amendments on transgender troops and climate policy but backing President Donald Trump’s desire for a bigger, stronger military. The vote was 344-81 to pass the National Defense Authorization Act (NDAA), which sets military policy and authorizes up to $696 billion in spending for the Department of Defense. Underscoring bipartisan support for higher defense spending in Congress, 117 Democrats joined 227 Republicans in backing the measure. Only eight Republicans and 73 Democrats voted no. But the measure faces more hurdles before it can become law, notably because it would increase military spending beyond last year’s $619 billion bill, defying “sequestration” caps on government spending set in the 2011 Budget Control Act.

Trump wants to pay for a military spending increase by slashing nondefense spending. His fellow Republicans control majorities in both the House and Senate, but they will need support from Senate Democrats, who want to increase military spending, for Trump’s plans to go into effect. The House NDAA also increases spending on missile defense by 25%, adds thousands more active-duty troops to the Army, provides five new ships for the Navy and provides a 2.4% salary increase for U.S. troops, their largest pay raise in eight years. And it creates a new Space Corps military service, pushed by lawmakers worried about China and Russia’s activities in space, but opposed by Defense Secretary Jim Mattis.

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Oh well, money’s cheap after all.

US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)

The budget deficit for President Donald Trump’s first two years in office will be nearly $250 billion higher than initially estimated due to a shortfall in tax collections and a mistake in projecting military healthcare costs, budget chief Mick Mulvaney reported on Friday. In a mid-year update to Congress, Mulvaney, director of the Office of Management and Budget, revised the estimates supplied in late May when the Trump administration submitted its first spending plan. Since then, Mulvaney said, the deficit projected for the current fiscal year has increased by $99 billion, or 16.4%, to $702 billion. For 2018, the deficit will be $149 billion more than first expected, increasing by 33% to $589 billion.

The figures come as the administration is facing widespread doubts among economists and analysts that it can erase government deficits largely by boosting economic growth and changing laws like the Affordable Care Act. ACA reform is facing a difficult path in Congress, and the Congressional Budget Office on Thursday said the administration’s growth and deficit reduction plans were optimistic. The letter from Mulvaney said the bulk of the problem this year and next stems from lower-than-expected tax collections. Individual and corporate income taxes and other collections for this year are expected to be $116 billion less than the administration anticipated in May. Tax receipts in 2018 are expected to be $140 billion less than initially estimated.

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A reference to JFK. Our next discovery will be that debt is a harsh mistress.

We Do These Things Because They’re Easy (CHS)

We are now totally, completely dependent on expanding debt for the maintenance of our society and economy. Every sector of the economy–households, businesses and government–all borrow vast sums just to maintain the status quo for another year. Compare buying a new car with easy, low-interest credit and saving up to buy the car with cash. How easy is it to borrow $23,000 for a new $24,000 car? You go to the dealership, announce all you have to put down is a trade-in vehicle worth $1,000. The salesperson puts a mirror under your nose to make sure you’re alive, makes sure you haven’t just declared bankruptcy to stiff previous lenders, and if you pass those two tests, you qualify for a 1% rate auto loan. You sign some papers and drive off in your new car. Easy-peasy!

Scrimping and saving to pay for the new car with cash is hard. You have to save $1,000 each and every month for two years to save up the $24,000, and the only way to do that is make some extra income by working longer hours, and sacrificing numerous pleasures–being a shopaholic, going out to eat frequently, $5 coffee drinks, jetting somewhere for a long weekend, etc. The sacrifice and discipline required are hard. What’s the pay-off in avoiding debt? Not much–after all, the new auto loan payment is modest. If we take a 5-year or 7-year loan, it’s even less. By borrowing $23,000, we get to keep all our fun treats and spending pleasures, and we get the new car, too. At the corporate level, it’s the same story: borrow a billion dollars and use it to buy back shares.

Increasing the value of the corporation’s shares by increasing profit margins and actual value is hard; boosting the share price with borrowed money is easy. It’s also the same story with politicians and the government: cutting anything is politically painful, so let’s just float a bond, i.e. borrow money to pay for what was once paid out of tax revenues: maintaining parks, repaving streets, funding pensions, etc. This dependence on expanding debt for maintaining the status quo is a global trend. Debt is exploding in China in every sector, and the same is true in other nations, developed and developing alike. Borrowing more money from the future is easy, painless and requires no trade-offs, sacrifices or accountability–until the debt-addicted economy collapses under its own weight of debt service and insolvency.

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“..all those elaborate plans depend on no more war. And there’s the rub.”

The New Silk Road Will Go Through Syria (Escobar)

Amid the proverbial doom and gloom pervading all things Syria, the slings and arrows of outrageous fortune sometimes yield, well, good fortune. Take what happened this past Sunday in Beijing. The China-Arab Exchange Association and the Syrian Embassy organized a Syria Day Expo crammed with hundreds of Chinese specialists in infrastructure investment. It was a sort of mini-gathering of the Asia Infrastructure Investment Bank (AIIB), billed as “The First Project Matchmaking Fair for Syria Reconstruction”. And there will be serious follow-ups: a Syria Reconstruction Expo; the 59th Damascus International Fair next month, where around 30 Arab and foreign nations will be represented; and the China-Arab States Expo in Yinchuan, Ningxia Hui province, in September.

Qin Yong, deputy chairman of the China-Arab Exchange Association, announced that Beijing plans to invest $2 billion in an industrial park in Syria for 150 Chinese companies. Nothing would make more sense. Before the tragic Syrian proxy war, Syrian merchants were already incredibly active in the small-goods Silk Road between Yiwu and the Levant. The Chinese don’t forget that Syria controlled overland access to both Europe and Africa in ancient Silk Road times when, after the desert crossing via Palmyra, goods reached the Mediterranean on their way to Rome. After the demise of Palmyra, a secondary road followed the Euphrates upstream and then through Aleppo and Antioch. Beijing always plans years ahead. And the government in Damascus is implicated at the highest levels.

So, it’s not an accident that Syrian Ambassador to China Imad Moustapha had to come up with the clincher: China, Russia and Iran will have priority over anyone else for all infrastructure investment and reconstruction projects when the war is over. The New Silk Roads, or One Belt, One Road Initiative (Obor), will inevitably feature a Syrian hub – complete with the requisite legal support for Chinese companies involved in investment, construction and banking via a special commission created by the Syrian embassy, the China-Arab Exchange Association and the Beijing-based Shijing law firm. Few remember that before the war China had already invested tens of billions of US dollars in Syria’s oil and gas industry. Naturally the priority for Damascus, once the war is over, will be massive reconstruction of widely destroyed infrastructure.

China could be part of that via the AIIB. Then comes investment in agriculture, industry and connectivity – transportation corridors in the Levant and connecting Syria to Iraq and Iran (other two Obor hubs). What matters most of all is that Beijing has already taken the crucial step of being directly involved in the final settlement of the Syrian war – geopolitically and geo-economically. Beijing has had a special representative for Syria since last year – and has already been providing humanitarian aid. Needless to add, all those elaborate plans depend on no more war. And there’s the rub.

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Southern Europe: getting poorer and hotter.

One Of Worst Droughts In Decades Devastates South Europe Crops (R.)

Italian durum wheat and dairy farmer Attilio Tocchi saw warning signs during the winter of the dramatic drought to come at his holding a mile away from the Tuscan coast. “When it still hadn’t rained at the beginning of spring we realized it was already irreparable,” he said, adding that he had installed fans to try and cool his cows that were suffering in the heat. Drought in southern Europe threatens to reduce cereal production in Italy and parts of Spain to its lowest level in at least 20 years, and hit other regional crops including olives and almonds. Castile and Leon, the largest cereal growing region in Spain, has been particularly badly affected, with crop losses estimated at around 60 to 70%.

“This year was not bad, it was catastrophic. I can’t remember a year like this since 1992 when I was a little child,” said Joaquin Antonio Pino, a cereal farmer in Sinlabajos, Avila. Pino said many of his fields had not even been harvested, because crop revenues would not cover the wages of laborers who gathered them. While the EU is collectively a major wheat exporter, Spain and Italy both rely on imports from countries including France, Britain and Ukraine. Spanish soft wheat imports are expected to rise by more than 40% to 5.6 million tonnes in the 2017-2018 marketing year, according to Agroinfomarket. The drought has helped support EU wheat futures, which have risen around 6% since the beginning of June, although the prospect of a larger harvest in France this year should ensure adequate overall supplies in the trading bloc.

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Germans love cash.

People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)

In January 2017 the European Commission announced it was exploring the option of imposing upper limits on cash payments, with a view to implementing cross-regional measures as soon as 2018. To give the proposal a veneer of respectability and accountability the Commission launched a public consultation on the issue. Now, the answers are in, but they are not what the Commission was expecting. A staggering 95% of the respondents said they were opposed to a cash ceiling at EU level. Even more emphatic was the answer to the following question: “How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?” In the curious absence of an explicit “not at all” option, 99.18% chose to respond with “no answer.”

In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits. Granted, 37% of respondents were from Germany and 19% from Austria (56% in total), two countries that have a die-hard love for physical lucre. Even among millennials in Germany, two-thirds say they prefer paying in cash to electronic means, a much higher level than in almost any other advanced economy with the exception of Japan. Another 35% of the survey respondents were from France, a country that is not quite so enamored with cash and whose government has already imposed a maximum cash limit of €1,000. By its very nature the survey almost certainly attracted a disproportionate number of arch-defenders of physical cash.

As such, the responses it elicited are unlikely to be a perfect representation of how all Europeans would feel about the EU’s plans to introduce maximum cash limits. Nonetheless, the sheer strength of opposition should (but probably won’t) give the apparatchiks in Brussels pause for thought. The biggest cited concern for respondents was the threat the cash restrictions would pose to privacy and personal anonymity. A total of 87% of respondents viewed paying with cash as an essential personal freedom. The European Commission would beg to differ. In the small print accompanying the draft legislation it launched in January, it pointed out that privacy and anonymity do not constitute “fundamental” human rights.

Be that as it may, many Europeans still clearly have a soft spot for physical money. If the EU authorities push too hard, too fast in their war on cash, they could provoke a popular backlash. In Germany, trust in Europe’s financial institutions is already at a historic low, with only one in three Germans saying they have confidence in the ECB. The longer QE lasts, the more the number shrinks.

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When they were elected in January 2015, Syriza’s approval rating was some 75%. But when you turn your back on your promises, and then unleash more austerity….

Just 13% of Greeks Trust Their Government (K.)

Just 13% of Greeks trusted the government in 2016, according to the Organization for Economic Cooperation and Development’s (OECD) biennial Government at a Glance report, placing Greece among the four member states with the sharpest decline in confidence in their administrations. According to the report, which was published by the Paris-based organization on Thursday and shows 2016 data, Greece joins Chile, Finland and Slovenia in recording a significant loss of trust between citizens and the government, slipping to 13% in 2016 from 19% in 2014. Confidence has also declined over the past decade across the OECD’s member states, though at a rate of 3%, coming to 42% in 2016 from 45% in 2007.

In terms of specific sectors, Greeks have lost faith across the board, with the Greek health system having the trust of just 31% of citizens from 35% in the 2015 study for 2014, public education of 44% from 45% and the judicial system of 42% from 44%. A new area added in this year’s survey is the police, where confidence was high last year at 69%. Across the OECD, average confidence in the health system came to 70%, education to 67% and justice to 55%.

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You’d almost wish they would fight back.

World’s Large Carnivores Being Pushed Off The Map (BBC)

Six of the world’s large carnivores have lost more than 90% of their historic range, according to a study. The Ethiopian wolf, red wolf, tiger, lion, African wild dog and cheetah have all been squeezed out as land is lost to human settlements and farming. Reintroduction of carnivores into areas where they once roamed is vital in conservation, say scientists. This relies on human willingness to share the landscape with the likes of the wolf. The research, published in Royal Society Open Science, was carried out by Christopher Wolf and William Ripple of Oregon State University. They mapped the current range of 25 large carnivores using International Union for Conservation of Nature (IUCN) Red List data. This was compared with historic maps from 500 years ago.

The work shows that large carnivore range contractions are a global issue, said Christopher Wolf. “Of the 25 large carnivores that we studied, 60% (15 species) have lost more than half of their historic ranges,” he explained. “This means that scientifically sound reintroductions of large carnivores into areas where they have been lost is vital both to conserve the large carnivores and to promote their important ecological effects. “This is very dependent on increasing human tolerance of large carnivores – a key predictor of reintroduction success.” The researchers say re-wilding programmes will be most successful in regions with low human population density, little livestock, and limited agriculture. Additionally, regions with large networks of protected areas and favourable human attitudes toward carnivores are better suited for such schemes.

“Increasing human tolerance of large carnivores may be the best way to save these species from extinction,” said co-researcher William Ripple. “Also, more large protected areas are urgently needed for large carnivore conservation.” When policy is favourable, carnivores may naturally return to parts of their historic ranges. This has begun to happen in parts of Europe with brown bears, lynx, and grey wolves. The Eurasian lynx and grey wolf are among the carnivores that have the smallest range contractions. The dingo and several types of hyena are also doing relatively well, compared with the lion and tiger.

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May 222016
 
 May 22, 2016  Posted by at 9:29 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle May 22 2016
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Unknown Medical supply boat Planter, General Hospital wharf on the Appomattox, City Point, VA 1865

G-7 Warns on Weak Global Growth as Japan Bristles Over Yen (BBG)
Jeremy Corbyn Calls For New Economics To Tackle ‘Grotesque Inequality’ (G.)
“We Are Becoming Convinced That The System Won’t Stabilize” (Matt King)
Greece Braces for More Austerity Amid EU-IMF Quarrel About Debt (BBG)
This Time, The IMF Comes Bearing Gifts For The Greeks (G.)
Europe Should Heed The Lessons of 1913 (Horvat)
New Evidence About The Dangers Of Monsanto’s Roundup (Intercept)
Technology Is Changing Our Hands (G.)
The Worst Famine Since 1985 Looms Across Africa (G.)

The US risks forcing Japan into a position it cannot afford to be in.

G-7 Warns on Weak Global Growth as Japan Bristles Over Yen (BBG)

Finance chiefs from the world’s biggest developed economies meeting in Japan underscored concerns that global growth is flagging and reaffirmed a pledge not to deliberately weaken their currencies, even as Japan again warned on the yen’s surge. At the end of two days of talks, Group of Seven central bank governors and finance ministers highlighted risks from terrorism, refugee flows, political conflicts and the potential for a U.K. exit from the EU. While officials agreed not to target currencies to stoke growth and warned of the negative consequences from disorderly moves in exchanges rates, host Japan repeated a stance that recent trading in the yen has been one sided and speculative.

Comments on the yen’s moves by Finance Minister Taro Aso hint at a growing frustration inside Japan’s government about the impact on exporters after the currency surged 9% this year, spurring speculation that the government may intervene. Aso raised the issued in a meeting with U.S. Treasury Secretary Jacob J. Lew on Saturday. “I told him that one-sided, abrupt, and speculative moves were seen in the FX market recently, and abrupt moves in the currency market are undesirable and the stability of currencies is important,” Aso said to reporters. Tensions over the yen were evident over the course of the meetings, which were held at a hot springs resort in the country’s north. As Japan warned about the impact of disorderly trading, Lew repeated his view that the yen’s movement hasn’t been overly volatile.

“It’s a pretty high bar to have disorderly conditions,” Lew told reporters. To be sure, Japan remains a long way from its first intervention since 2011, when the G-7 sanctioned selling the yen to aid the country’s recovery after a devastating earthquake, tsunami and nuclear meltdown. A strengthening dollar amid rising bets that the Federal Reserve may lift interest rates over coming moths is helping ease pressure on Japan’s exporters. Aso also made it clear that the difference of opinion with the U.S. is manageable. “They have an election and we have an election and we both have TPP talks,” Aso said. “There are various things on our plates and we of course have to say various things as that’s our jobs.”

Still, by choosing to be so vocal on the yen, Aso is both attempting to jawbone the currency lower and put a marker down in the event the currency again starts to appreciate rapidly. “There’s no sign that Japan and the U.S. will move closer together,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center.

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Left, right, everyone wants growth. But what if that is quite literally a broken record? What if the ‘New Economics’ should be one that questions perpetual growth? After all, growth is no more than an assumption, and there are others.

Jeremy Corbyn Calls For New Economics To Tackle ‘Grotesque Inequality’ (G.)

Jeremy Corbyn said the UK needed a serious debate about wealth creation, as he called for a new style of economics to tackle Britain’s “grotesque inequality”. Closing a Labour state of the economy conference in central London on Saturday, the party’s leader said: “Wealth creation is a good thing: we all want greater prosperity. But let us have a serious debate about how wealth is created, and how that wealth should be shared.” Corbyn also said a Labour government would “chase down the tax avoiders and the tax evaders” and ensure HMRC had the resources it needed to do so. Labour needed to be ambitious and bold to win the next election, he said. In the meantime, he insisted that the party could make a difference despite the frustrations of being in opposition.

“We must continue to stand up against the Conservative six-year record of mismanagement of the economy – and stand up for the vital services on which we all depend.” George Osborne had vowed six years ago that austerity would wipe out the deficit, Corbyn said. “That’s the wonderful thing about George Osborne’s five-year plans: they’re always five years away,” he added. Shopfloor workers, entrepreneurs and technicians should be put in the driving seat, the Labour leader said. “We want to see a genuinely mixed economy of public and social enterprise, alongside a private sector with a long-term private business commitment, that will provide the decent pay, jobs, housing, schools, health and social care of the future. Labour will always seek to distribute the rewards of growth more fairly. But to deliver that growth demands real change in the way the economy is run,” Corbyn said.

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Citi’s Matt King on markets that are supposed to self-stabilize, a still popular notion. Despite the fact that, as Minsky noted quite a while ago, stability breeds instability.

“We Are Becoming Convinced That The System Won’t Stabilize” (Matt King)

Take market liquidity, for example. Despite near-record notional volumes on TRACE, and policymakers’ protestations that nothing has really changed, market participants continue to lament that bid-offer is misleading, and depth is not what it used to be. Worse, many managers have struggled to make money on the basis of traditional single-name fundamentals, and poor performance is contributing to a steady leakage of flows away from traditional benchmarked funds towards totalreturn funds, indices and ETFs. The shift is not unique to credit: in European equities, futures-to-cash ratios – one convenient measure of index trading versus single-name trading – have reached all-time highs, for example (Figure 1).

Traditional thinking would not read too much into this. A decline in active single-name trading by some market participants should lead to greater dislocations, and hence greater opportunities for others. As index, or asset class, or factor investing becomes more popular, so it should become harder to make money there, and money should return to single-name trading. The system should stabilize. We are becoming more and more convinced this is wrong. In ways that were underappreciated at the time, the pre-crisis era of unlimited leverage led to a veritable bonanza for sellside and buyside alike, in which trading begat more trading, and liquidity begat liquidity. Cyclicals vs non-cyclicals. Value vs momentum. On-the-runs vs off-the-runs. Cash vs CDS. Single names vs indices. The constant arbitraging of relative value relationships led to regular patterns of mean reversion, which in turn encouraged more investors to trade.

In the post-crisis era, this process is running in reverse. Yet what started as a simple desire by regulators to curtail excesses of leverage risks is having much more farreaching repercussions. The curtailment of the hedge fund bid means that many relationships which previously mean reverted are now failing to do so, or at a minimum are doing so much more erratically. Cyclicals vs non-cyclicals. Value vs momentum. On-the-runs vs off-the-runs. Cash vs CDS. Single names vs indices. In principle, these aberrations do constitute trading opportunities – but only for investors with sufficiently strong stomachs and long time horizons, which these days nobody has. Central bank distortions have exacerbated these movements, making investor interest more one-sided and leading one market after another to exhibit more bubble-like tendencies, rising exponentially and then falling back abruptly.

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More broken records.

Greece Braces for More Austerity Amid EU-IMF Quarrel About Debt (BBG)

Greek Prime Minister Alexis Tsipras braces for yet another vote on additional austerity measures, as European creditors remain at loggerheads with the IMF about how much debt relief the country will get for its pain. Lawmakers in Athens are scheduled to vote Sunday evening on an omnibus bill that includes measures ranging from the taxation of diamond dust and coffee to the transfer of thousands of real estate assets from the state to a new privatization fund. The debate will test the resilience of Tsipras’s three-seat parliamentary majority, as euro-area states resist calls from the IMF to set less ambitious fiscal targets and hand Greece more generous debt relief.

Approval of the measures is one of the prior actions Greece has to fulfill to unlock the next tranche of emergency loans from the European Stability Mechanism, the currency bloc’s crisis-fighting fund. The Eurogroup of 19 finance ministers will convene Tuesday to assess the country’s compliance with its latest bailout agreement struck in the summer of 2015. A positive assessment is also a condition for the Eurogroup to ease the servicing terms for over €200 billion of bailout loans handed to the country since 2010.

[..] The Washington-based IMF proposed that interest and principal payments on Greece’s European bailout loans be deferred until 2040, and that maturities on those loans will be extended to 2080, according to a document obtained by Bloomberg News. Even though European counter-proposals acknowledge that current Greek debt dynamics are unsustainable, they fall short of what the IMF wants, according to people familiar with the discussions that took place between government officials over the past week. Instead, the euro area expects Greece to maintain a budget surplus level which the IMF has said is a “far-fetched fantasy.”

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Really? Are you sure IMF and EU are not playing good cop bad cop here?

This Time, The IMF Comes Bearing Gifts For The Greeks (G.)

Another Sunday, another vote in the Greek parliament, another self-imposed punishment beating as the parliament in Athens votes through fresh austerity measures. There will be higher VAT and an increase in taxes on all the pleasures of life: coffee, booze, fags, gambling, even pay TV. And just in case Greece might need to tighten its belt by another couple of notches to meet stringent budget targets, there will be additional measures that will kick in if there is any fiscal slippage over the next couple of years. George Harrison started his song Taxman with the words: “Let me tell you how it will be/There’s one for you, nineteen for me.” The Greeks know exactly what he meant. Greece’s predicament is simple. It has debt repayments to make this summer and it doesn’t have the money to pay the bills.


David Simonds/Observer

The EU can solve this acute cashflow problem by unlocking the funds pledged to Greece under the terms of last summer’s bailout agreement, but it will only do so if Athens demonstrates that it is serious about sorting out its budget. Austerity today will lead to generosity from EU finance ministers when they meet on Tuesday. That, at least, is the hope of Alexis Tsipras, Greece’s prime minister, who is looking for a package in which he gets debt relief in return for austerity. Here’s where things get interesting. The difference between this Sunday and all the other tension-packed Sundays that have studded the Greek crisis over the past six and a half years is that, this time, the battle is not between Greece and the “troika” of the European commission, the ECB and the IMF. Instead, there is a face-off between Europe and the IMF.

The Europeans badly want the fund to be part of Greece’s bailout and to contribute money to it. But Christine Lagarde, the IMF’s managing director, says her support is conditional on two things: a credible deficit reduction plan and a decent slug of debt relief. Hardline EU governments, led by Germany, have resisted this idea, fearing the Greeks will interpret any writedown of its debts as a sign of weakness that Athens will exploit to avoid meeting its budgetary commitments.

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“Back to 1913. Isn’t it one of the most curious facts that all these historical figures [Tito, Hitler, Stalin, Trotsky, Freud and Franz Ferdinand] lived at the same time at the same place, maybe only a few hundred metres apart? Did any of them ever meet? Were they drinking coffee at the same place? Would the world history look different if Hitler had been psychoanalysed by Freud?”

Europe Should Heed The Lessons of 1913 (Horvat)

Imagine the following group of curious characters living in the same city: a worker from Croatia, one unsuccessful painter, two Russians, a guy who analyses dreams and a young Austrian soldier and trophy hunter. Tito, Hitler, Stalin, Trotsky, Freud and Franz Ferdinand might make for unusual neighbours but, as Charles Emmerson describes in his recent book, 1913: In Search of the World Before the Great War, they spent plenty of time in the same two square miles of the capital of the Austro-Hungarian empire, Vienna, in 1913. Only one year later, Franz Ferdinand would become the Archduke of the empire, and his assassination in Sarajevo would lead to the first world war. In 1917, the two Russians became the leading figures of the October revolution and, about the same time, Tito – who would soon become leader of Yugoslavia – became active in the communist movement too.

Sixteen years later, on 30 January 1933, the unsuccessful painter became German Reichskanzler – the second world war was just around the corner. And Freud? After Nazi Germany annexed Austria in 1938, the Gestapo came after him and he became a refugee in London. In short, 1913 was one in which the course of history could have altered significantly. I am in no doubt that now might be another such period. At its collapse, the Austro-Hungarian empire consisted of 15 nations and more than 50 million inhabitants. The EU consists of 28 member states – with some now threatening to exit – and a population of 500 million.

Today’s Austria is facing one of its biggest political crises with the resignation of its chancellor, Werner Faymann, a second round of presidential elections looming on 22 May – which will in all likelihood result in a turn to the right – and, at the same time, nationalist calls for a referendum on Tyrol unification. We don’t know if some future Stalin or Hitler is living in Vienna, but the whole of Europe seems to be on the verge of an abyss. Recent news about a Syrian refugee who was shot by guards on the border between Slovakia and Hungary, and Turkish forces using live bullets to drive away Syrian refugees fleeing violence in their home towns point in that direction. If countries such as Denmark and Switzerland start to seize refugees’ assets, what is left of the European project nominally based on solidarity and brotherhood (“Alle Menschen werden Brüder …”, as the official anthem of the EU claims)?

The refugee crisis wasn’t – and can’t be – solved by investing €6bn in Turkey and “outsourcing” the “redundant humans” to the periphery of Europe again. Moreover, the case of German comedian Jan Boehmermann, who was charged for allegedly insulting the Turkish president, Recep Erdogan, shows that the EU’s only foreign policy is something we might call “export-import”. First we export wars (to Libya or Syria), then we import refugees. Then we export the refugees again (to Turkey), and then we import authoritarian values from Turkey, which is now killing one of the foundations of the European project – free speech. And humour.

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And there’s more…

New Evidence About The Dangers Of Monsanto’s Roundup (Intercept)

Some European governments have already begun taking action against one {Roundup’s] co-formulants, a chemical known as polyethoxylated tallowamine, or POEA, which is used in Monsanto’s Roundup Classic and Roundup Original formulations, among other weed killers, to aid in penetrating the waxy surface of plants. Germany removed all herbicides containing POEA from the market in 2014, after a forestry worker who had been exposed to it developed toxic inflammation of the lungs. In early April, the French national health and safety agency known as ANSES took the first step toward banning products that combine glyphosate and POEA. A draft of the European Commission’s reregistration report on glyphosate proposed banning POEA.

[..] manufacturers of weed killers are required to disclose only the chemical structures of their “active” ingredients — and can hide the identity of the rest as confidential business information — for many years no one knew exactly what other chemicals were in these products, let alone how they affected health. In 2012, Robin Mesnage decided to change that. A cellular and molecular toxicologist in London, Mesnage bought nine herbicides containing glyphosate, including five different formulations of Roundup, and reverse engineered some of the other components. After studying the chemicals’ patterns using mass spectrometry, Mesnage and his colleagues came up with a list of possible molecular structures and then compared them with available chemical samples.

“It took around one year and three people (a specialist in pesticide toxicology, a specialist of chemical mixtures, and a specialist in mass spectrometry) to unravel the secrets of Monsanto’s Roundup formulations,” Mesnage explained in an email. The hard work paid off. In 2013, his team was able not only to deduce the chemical structure of additives in six of the nine formulations but also to show that each of these supposedly inert ingredients was more toxic than glyphosate alone. That breakthrough helped scientists know exactly which chemicals to study, though obtaining samples remains challenging. “We still can’t get them to make experiments,” said Nicolas Defarge, a molecular biologist based in Paris. Manufacturers of co-formulants are unwilling to “sell you anything if you are not a pesticide manufacturer, and even less if you are a scientist willing to assess their toxicity.”

So when Defarge, Mesnage, and five other scientists embarked on their most recent research, they had to be creative. They were able to buy six weed killers, including Roundup WeatherMax and Roundup Classic, at the store. But, finding pure samples of the co-formulants in them was trickier. The scientists got one from a farmer who mixes his own herbicide. For another, they went to a company that uses the chemical to make soap. “They were of course not aware that I was going to assess it for toxic and endocrine-disrupting effects,” said Defarge. András Székács, one of Defarge’s co-authors who is based in Hungary, provided samples of the other three co-formulants studied, but didn’t respond to inquiries about how he obtained them.

In February, the team published its findings, which showed that each of the five co-formulants affected the function of both the mitochondria in human placental cells and aromatase, an enzyme that affects sexual development. Not only did these chemicals, which aren’t named on herbicide labels, affect biological functions, they did so at levels far below the concentrations used in commercially available products. In fact, POEA — officially an “inert” ingredient — was between 1,200 and 2,000 times more toxic to cells than glyphosate, officially the “active” ingredient.

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Interesting thoughts. Long article. Not sure how fast our hands could change, though, and quite sure our present tech push will be interrupted.

Technology Is Changing Our Hands (G.)

The new era of the internet, the smartphone and the PC has had radical effects on who we are and how we relate to each other. The old boundaries of space and time seem collapsed thanks to the digital technology that structures everyday life. We can communicate instantly across both vast and minute distances, Skyping a relative on another continent or texting a classmate sitting at the next table. Videos and photos course through the web at the touch of a screen, and social media broadcast the minutiae of both public and private lives. On the train, the bus, in the cafe and the car, this is what people are doing, tapping and talking, browsing and clicking, scrolling and swiping.

Philosophers, social theorists, psychologists and anthropologists have all spoken of the new reality that we inhabit as a result of these changes. Relationships are arguably more shallow or more profound, more durable or more transitory, more fragile or more grounded. But what if we were to see this chapter in human history through a slightly different lens? What if, rather than focusing on the new promises or discontents of contemporary civilisation, we see today’s changes as first and foremost changes in what human beings do with their hands? The digital age may have transformed many aspects of our experience, but its most obvious yet neglected feature is that it allows people to keep their hands busy in a variety of unprecedented ways.

The owner of the Shakespeare and Company bookshop describes the way young people now try to turn pages by scrolling them, and Apple have even applied for patents for certain hand gestures. Patent application 7844915, filed in 2007, covered document scrolling and the pinch-to-zoom gesture, while the 2008 application 7479949 covered a range of multitouch gestures. Both were ruled invalid, not because gestures can’t be patented, but because they were already covered by prior patents. At the same time, doctors observe massive increases in computer- and phone-related hand problems, as the fingers and wrist are being used for new movements that nothing has prepared them for.

Changes to both the hard and soft tissues of the hand itself are predicted as a consequence of this new regime. We will, ultimately, have different hands, in the same way that the structure of the mouth has been altered, it is argued, by the introduction of cutlery, which changed the topography of the bite. The edge-to-edge bite that we used to have up to around 250 years ago became the overbite, with the top incisors hanging over the lower set, thanks to new ways of cutting up food that the table knife made possible. That the body is secondary to the technology here is echoed in the branding of today’s products: it is the pad and the phone that are capitalised in the iPad and iPhone rather than the “I” of the user.

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The world risks reaching crisis fatigue. Largely because of how the media present them.

The Worst Famine Since 1985 Looms Across Africa (G.)

Countries are just waking up to the most serious global food crisis of the last 25 years. Caused by the strongest El Niño weather event since 1982, droughts and heatwaves have ravaged much of India, Latin America and parts of south-east Asia. But the worst effects of this natural phenomenon, which begins with waters warming in the equatorial Pacific, are to be found in southern Africa. A second consecutive year without rain now threatens catastrophe for some of the poorest people in the world. The scale of the crisis unfolding in 10 or more southern African countries has shocked the United Nations. Lulled into thinking that Ethiopia in 1985 was the last of the large-scale famines affecting many millions, donor countries have been slow to pledge funds or support. More than $650m and 7.9m tonnes of food are needed immediately, says the UN. By Christmas, the situation will have become severe.

The scale of the crisis unfolding in 10 or more southern African countries has shocked the United Nations. Lulled into thinking that Ethiopia in 1985 was the last of the large-scale famines affecting many millions, donor countries have been slow to pledge funds or support. More than $650m and 7.9m tonnes of food are needed immediately, says the UN. By Christmas, the situation will have become severe. Malawi, Mozambique, Lesotho, Zimbabwe, Namibia, Madagascar, Angola and Swaziland have already declared national emergencies or disasters, as have seven of South Africa’s nine provinces. Other countries, including Botswana and the Democratic Republic of the Congo, have also been badly hit. President Robert Mugabe has appealed for $1.5bn to buy food for Zimbabwe and Malawi is expected to declare that more than 8 million people, or half the country, will need food aid by November.

More than 31 million people in the region are said by the UN to need food now, but this number is expected to rise to at least 49 million across almost all of southern Africa by Christmas. With 12 million more hungry people in Ethiopia, 7 million in Yemen, 6 million in Southern Sudan and more in the Central African Republic and Chad, a continent-scale food crisis is unfolding. “Food security across southern Africa will start deteriorating by July, reaching its peak between December 2016 and April 2017,” says the UN’s office for humanitarian affairs. The regional cereal deficit already stands at 7.9m tonnes and continues to put upward pressure on market prices, which are already showing unprecedented increases, diminishing purchasing power and thereby reducing food access. As food insecurity tightens and water scarcity increases due to the drought, there are early signs of acute malnutrition in Madagascar, Malawi, Mozambique and Zimbabwe.

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May 132016
 
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Jack Delano AT&SF Railroad locomotive shops, San Bernardino, CA 1943

Iron Ore Goes From Boom To Bust In Just Three Weeks (BBG)
With $100 Billion In Debt, Glencore Emerges As The Next Lehman (ZH)
China Bubble Set To Rock Global Markets (CNBC)
The Biggest Source Of Global Growth In 2016 Is About To Hit A Brick Wall (ZH)
Middle Class Shrinks In 9 Of 10 American Cities As Incomes Fall (AP)
Congressman X: ‘Screw The Next Generation’ (DM)
Nassim Taleb Compares Monetary Policy to Novocaine (BBG)
Yellen Says Won’t Completely Rule Out Negative Rates (R.)
Dear Homeowner, What Exactly Do You “Own”? (CH Smith)
IMF Under Pressure From Germany Over Greece (WSJ)
The German Current Account Surplus Requires Deficits Elsewhere (Harrison)
Ideas For Reducing The Debt Burden (Economist)
‘Death Awaits’: Africa Faces Worst Drought in Half a Century (Spiegel)
Europol To Send Experts To Greek Islands To ‘Identify Terrorists’ (Kath.)
EU Mission ‘Failing’ To Disrupt Mediterranean People-Smugglers (BBC)

So predictable one must wonder what Xi was/is thinking. A lot of money is being lost in China, and much of it by mom and pop. They’re not going to like it.

Iron Ore Goes From Boom To Bust In Just Three Weeks (BBG)

Don’t say there wasn’t any warning. Iron ore’s gone from boom to bust in the space of just three weeks, fulfilling predictions for a slump in prices that were jacked up to unsustainable levels by a short-lived speculative frenzy in China. The SGX AsiaClear contract for June settlement in Singapore sank as much as 3.5% to $48.64 a metric ton in Singapore [..] It’s collapsed 12% this week, the most since December, after losing 11% the week before. In Dalian, iron ore futures plunged on Friday to the lowest since February as steel in Shanghai headed for the biggest weekly loss on record.

Iron ore and steel are buckling once again after widespread predictions that the trading frenzy in China that had propelled prices upward in April wouldn’t endure as regulators clamped down and the rallies themselves induced higher production. Iron ore stockpiles at ports in China have expanded to near 100 million tons, while mills produced more steel than ever in March. Lower steel prices erode mills’ margins, cutting their ability to restock on iron ore, according to China Merchants Futures. “As steel profits have dropped sharply recently, the desire to replenish iron ore stocks is not strong,” said Zhao Chaoyue, an analyst at China Merchants, said in a note on Friday. “Supplies of steel are recovering as demand weakens. Steel prices remain vulnerable.”

Among those that foresaw a retracement, Goldman Sachs said on April 22 that iron ore’s rally was unsustainable, and a tight steel market in China was a “temporary distraction” from fundamentals. Days later, Fitch said the surge in steel prices wouldn’t last. And at the end of last month, Brazil’s Itau Unibanco said iron would soon drop by $10, describing the speculation as a short-term issue. Spot iron ore with 62% content delivered to Qingdao fell 0.9% to $55.05 a dry ton on Thursday, according to Metal Bulletin. Prices have sunk 22% since they peaked at more than $70 last month.

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China’s commodity casino starts to spread its losses…

With $100 Billion In Debt, Glencore Emerges As The Next Lehman (ZH)

One week ago, in a valiant attempt to defend the stock price of struggling commodity trading titan Glencore, one of the company’s biggest cheerleaders, Sanford Bernstein’s analyst Paul Gait (who has a GLEN price target of 450p) appeared on CNBC in what promptly devolved into a great example of just how confused equity analysts are when it comes to analyzing highly complex debt-laden balance sheets. In the clip below, starting about 2:30 in, CNBC’s Brian Sullivan gets into a heated spat with Gait over precisely how much debt Glencore really has, with one saying $45 billion the other claiming it is a whopping $100 billion. The reason for Gait’s confusion is that he simplistically looked at the net debt reported on Glencore’s books… just as Ivan Glasenberg intended.

However, since Glencore – like Lehman – is first and foremost a trading operation, one also has to add in all the stated derivative exposure (something we did ten days ago), in addition to all the unfunded liabilities, off balance sheet debt, bank commitments and so forth, to get a true representation of just how big, or rather massive, Glencore’s true risk is to its countless counterparties. Conveniently for the likes of equity analysts such as Gait and countless others who still have GLEN stock at a “buy” rating, Bank of America has done an extensive analysis breaking down Glencore’s true gross exposure. Here is the punchline:

“We consider different approaches to Glencore’s debt. Credit agencies, such as S&P, start with “normal” net debt, i.e. gross debt less cash and then deduct some share (80% in the case of S&P of “RMIs” – Readily Marketable Inventories. These are considered to be “cash like” inventories (working capital) in the marketing business. At the last results, RMIs were about US$17.7 bn. Giving full credit for RMIs plus a pro-forma for the equity raise and interim dividend we derive a “Glencore Adjusted Net Debt” of c. US$28 bn.

On the other hand, from discussions with our banks team, we believe the banks industry (and ultimately regulators) may look at the number i.e. gross lines available (even if undrawn) + letters of credit with no credit for inventories held. On this basis, we estimate gross exposure (bonds, revolver, secured lending, letters of credit) at c. $100 bn. With bonds at around $36 bn, this would still leave $64 bn to the banks’ account (assuming they don’t own bonds).”

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Never listen to people predicting black swans.

China Bubble Set To Rock Global Markets (CNBC)

For the moment, the following is the shock NOT heard ’round the world … at least not yet. Rampant speculation in China’s commodities markets could very well be the next “black swan” event that rocks global markets and possibly the global economy. Though very little attention has been paid to this recent action, speculative excesses in China’s commodity markets have taken traders and investors on a wild ride, which may likely soon spill over to the rest of the world. Trading volumes and volatility have been so extreme they make the recent swings in Shanghai and Shenzhen’s stock markets look mild by comparison. Chinese speculators have driven up, and then down, the prices of everything from iron ore to steel, and from soybeans to egg futures.

Prices in most of these commodities have fallen back to earth after massive, but relatively brief, spikes in prices. But, that’s not to say more damage hasn’t been done to China’s already fragile market system and economy. One truly astonishing feature of this bout of speculation is that the average holding period of a commodity futures contract was just three hours in April, according to Bloomberg. That makes other speculative trading episodes look like long-term investing. It also suggests a massive appetite for risk, which in and of itself, is potentially destabilizing, both in China and, by extension, elsewhere in the world. Why do we care? Well, first of all, the recent rebound in commodity prices, here at home, and the affiliated rebound in raw materials stocks, could have been driven, at least in part, by those very speculative excesses in China.

It also means that the rebound in inflation expectations could be a false signal, which on its face, reads as an indicator of a rebound in demand for raw materials, or a sign that the global economy could be stabilizing and re-accelerating. That’s the type of false signal that could convince the Fed that inflation is accelerating, causing them to mistakenly raise rates. While that hasn’t happened yet, it is a risk that bears watching. The “fake-out breakout” also could have suggested that supply of, and demand for, raw materials is coming back into balance in a world burdened by a commodity glut. That, too, appears to be have been a diversion. There is still more cotton, more copper, more steel and more soybeans than the world demands. The market-based signaling matrix appears to be broken thanks to this bout of speculative excess.

This is the Wild Wild East of markets these days. After speculating excessively in real estate a few years ago, in stocks last year, driven by heavy margin buying and then a crash, Chinese investors and traders have quickly moved on to commodities. These rolling bubbles are making the Chinese economy more and more unstable and more susceptible to a much-feared “hard landing” in the economy. That has implications for the Mild Mild West, where growth has been hard to come by and could be upended by another deceleration in Chinese economic activity.

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Yup. China again.

The Biggest Source Of Global Growth In 2016 Is About To Hit A Brick Wall (ZH)

After issuing a record $1 trillion in combined bank and shadow loans in the first quarter which just like during the financial crisis provided a short-term boost to global growth (while sending China’s debt/GDP to all time highs), China’s dramatic debt issuance binge is about to hit a brick wall. According to MarketNews, Chinese bank loan growth is expected to slow sharply in April compared with March as the pillar of bank lending, mortgage loans, slowed as the property market cooled. Citing bank officials, the news service said that robust first-quarter lending almost depleted their resources, making it difficult to find good targets to lend to, which also hurt loan growth. It also means that suddenly the credit impulse that drove both Chinese and global growth for the past two months is about to evaporate.

How big is the drop? Sources familiar with the loan number told MNI that combined new loans in April by the Big Four state-owned banks were more than halved from March’s level. As a reminder, the Big Four banks lent out CNY402 billion in March, according to the People’s Bank of China. While there is no preview of how bit (or small) the combined TSF number will be, it is safe to assume it will be a far smaller total than the CNY2.34 trillion in total social financing that flooded the Chinese economy in March. The slowdown mainly came from moderating mortgage growth, which has been the key driving force behind loan growth so far this year. In the city of Shanghai, mortgage loans hit a record high of CNY36.1 billion in March, beating the previous record of CNY34.6 billion set in January, according to PBOC data.

The PBOC said the country’s total outstanding mortgage loan was up 25.5% y/y at the end of March, much faster than the 14.7% of average outstanding loan growth. But that mortgage strength in the first quarter failed to continue into April as property sales growth slowed sharply on government tightening measures. According to Essence Securities, new residential house sales in tier one cities, namely Beijing, Shanghai, Guangzhou and Shenzhen, fell 21.2% on month in April and only edged up 0.5% from a year ago, including a 38.6% m/m and 30.8% y/y plunge in the city of Shenzhen, which leads the current round of property rebound. But if April was bad, May was a disaster: “it appears the situation is even worse into May. Shenzhen saw house sales in the first week of May plummet another 49% when compared with the previous week, dragging year-to-date sales into a 1% drop in terms of floor space.”

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More on the Rew report. It warrants attention, lots of it. It paints the real picture of America. And that’s with Pew’s perhaps somewhat distorting definition of ‘middle class’, which includes 3-person households with incomes of up to $125,000. This may be statistically correct if you try hard enough, but an awful lot of people living on $40,000 or less will not agree.

Middle Class Shrinks In 9 Of 10 American Cities As Incomes Fall (AP)

In cities across America, the middle class is hollowing out. A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released Wednesday by the Pew Research Center. In nearly one-quarter of metro areas, middle-class adults no longer make up a majority, the Pew analysis found. That’s up from fewer than 10% of metro areas in 2000. That sharp shift reflects a broader erosion that occurred from 2000 through 2014. Over that time, the middle class shrank in nine of every 10 metro areas, Pew found. The squeezing of the middle class has animated this year’s presidential campaign, lifting the insurgent candidacies of Donald Trump and Bernie Sanders.

Many experts warn that widening income inequality may slow economic growth and make social mobility more difficult. Research has found that compared with children in more economically mixed communities, children raised in predominantly lower-income neighborhoods are less likely to reach the middle class. Pew defines the middle class as households with incomes between two-thirds of the median and twice the median, adjusted for household size and the local cost of living. The median is midway between richest and poorest. It can better capture broad trends than an average, which can be distorted by heavy concentrations at the top or bottom of the income scale.

By Pew’s definition, a three-person household was middle class in 2014 if its annual income fell between $42,000 and $125,000. Middle class adults now make up less than half the population in such cities as New York, Los Angeles, Boston and Houston. “The shrinking of the American middle class is a pervasive phenomenon,” said Rakesh Kochhar, associate research director for Pew and the lead author of the report. “It has increased the polarization in incomes.”

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‘We spend money we don’t have and blithely mortgage the future with a wink and a nod. Screw the next generation..’ [..] ‘Nobody here gives a rat’s a** about the future and who’s going to pay for all this stuff we vote for. That’s the next generation’s problem. It’s all about immediate publicity, getting credit now, lookin’ good for the upcoming election.’

Congressman X: ‘Screw The Next Generation’ (DM)

A new book threatens to blow the lid off of Congress as a federal legislator’s tell-all book lays out the worst parts of serving in the House of Representatives – saying that his main job is to raise money for re-election and that leaves little time for reading the bills he votes on. Mill City Press, a small Minnesota-based ‘vanity press’ publisher describes ‘The Confessions of Congressman X’ as ‘a devastating inside look at the dark side of Congress as revealed by one of its own.’ ‘No wonder Congressman X wants to remain anonymous for fear of retribution. His admissions are deeply disturbing.’ The 84-page exposé is due in bookstores in two weeks, and Washington is abuzz with speculation about who may be behind it.

The book, a copy of which DailyMail.com has seen, discloses that the congressman is a Democrat – but not much else. The anonymous spleen-venter has had a lot to say about his constituents, however. Robert Atkinson, a former chief of staff and press secretary for two congressional Democrats, took notes on a series of informal talks with him – whoever he is – and is now publishing them with his permission. ‘Voters claim they want substance and detailed position papers, but what they really crave are cutesy cat videos, celebrity gossip, top 10 lists, reality TV shows, tabloid tripe, and the next f***ing Twitter message,’ the congressman gripes in the book. ‘I worry about our country’s future when critical issues take a backseat to the inane utterings of illiterate athletes and celebrity twits.’

Much of what’s in the book will come as little surprise to Americans who are cynical about the political process. ‘Fundraising is so time-consuming I seldom read any bills I vote on,’ the anonymous legislator admits. ‘I don’t even know how they’ll be implemented or what they’ll cost.’ ‘My staff gives me a last-minute briefing before I go to the floor and tells me whether to vote yea or nay. How bad is that?’ And on controversial bills, he says, ‘I sometimes vote “yes” on a motion and “no” on an amendment so I can claim I’m on either side of an issue.’ ‘It’s the old shell game: if you can’t convince ’em, confuse ’em.’

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“There is no evidence that 0% is better than 3%. Show me the evidence.”

Nassim Taleb Compares Monetary Policy to Novocaine (BBG)

Nassim Taleb, distinguished scientific advisor at Universa Investments and New York University professor of risk engineering, discusses monetary policy. He speaks with Erik Schatzker from the SALT Conference in Las Vegas, Nevada on “Bloomberg Markets.”

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As Taleb says in the video above, Yellen is a very smart person but one who’s only recently found out that she’s stuck.

Yellen Says Won’t Completely Rule Out Negative Rates (R.)

Fed Chair Janet Yellen said on Thursday that while she “would not completely rule out the use of negative interest rates in some future very adverse scenario,” the tool would need a lot more study before it could be used in the United States. Yellen, in responses to written questions from U.S. Congressman Brad Sherman following her February testimony on Capitol Hill, said the Fed plans to raise interest rates gradually, given its expectations that the economy will continue to strengthen and inflation will move back up to the Fed’s 2% goal. She also said that if the economy unexpectedly takes a turn for the worse, the Fed will adjust its stance. Central banks in Europe and Japan have used negative interest rates to try to stimulate their economies, and Yellen said the Fed is attempting to learn as much as it can from their experiences. Before using negative rates at home, she said, policymakers would need to consider a number of issues, “including the potential for unintended consequences.”

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Charles revisits a theme Nicole and I talked a lot about in the past: “.. in effect, anyone “owning” a home with high property taxes is leasing the property from the local government for the “right” to gamble that a new housing bubble is underway.” As Nicole puts it: “..renting is paying somone else to carry the risk of owning..”.

Dear Homeowner, What Exactly Do You “Own”? (CH Smith)

We’re constantly told ours is an ownership society in which owning a home is the foundation of household wealth. The concept of ownership may appear straightforward, but consider these questions: 1. If the house is mortgaged, what does the homeowner “own” when the bank has the senior claim to the property? 2. If the homeowner owes local government $13,000 a year in property taxes, what does the homeowner “own” once they pay $260,000 in property taxes over 20 years? The answer to the first question: the homeowner only “owns” the homeowners’ equity, the market value of the home minus the the mortgage and closing costs. In a housing bubble, homeowners’ equity can soar as the skyrocketing value accrues to the homeowner, as the mortgage is fixed (in conventional mortgages). But when bubbles pop and housing prices return to reality-based valuations, the declines also accrue to the homeowner’s equity.

If the price declines below the mortgage due the lender, the homeowners’ equity vanishes and the property is underwater. The property may still be worth (say) $400,000, but if the mortgage(s) total $400,000, the owner owns nothing but the promise to pay the mortgage and property taxes and the right to claim a tax deduction for the mortgage interest paid. To answer the second question, let’s consider an example. In areas with high property taxes (California, New Jersey, New York, Illinois, etc.), annual bills in excess of $10,000 annually are not uncommon. If we take $13,000 annually as a typical total property tax in these areas (property taxes can include school taxes, library taxes, and a host of special assessments on top of the “official” base rate), the homeowner “owns” the obligation to pay local tax authorities $130,000 per decade for the right to “own” the house.

In states without Prop 13-type limits on how much property taxes can be raised, there is no guarantee that property taxes won’t jump higher in a decade, but for the sake of simplicity, let’s assume the rate is unchanged. In 20 years of ownership, the homeowner will pay $260,000 in property taxes.Let’s compare that with the rise in their homeowners’ equity. Since home values are high in high-tax regions, let’s assume a $400,000 purchase price with an $80,000 down payment and a conventional 4% 30 year mortgage of $320,000. In 20 years of mortgage and tax payments, the homeowners paid about $197,500 in interest to the bank (deductible from their income taxes), and about $170,000 in mortgage principle, leaving them total homeowner’s equity of the $80,000 down payment and the $170,000 in principle, or a total of $250,000. Since they paid $260,000 in property taxes in the period, have they gained anything?

If we look at the property as merely leased from the local government for the annual fee of $13,000, then was “ownership” a good deal for the local government or for the homeowner? If the homeowner subtracts the lease fee (i.e. property taxes) from their equity, they are underwater by $10,000. The real estate industry answer is that “ownership” is great because the skyrocketing appreciation accrues to the homeowner. If the house doubles in value from $400,000 to $800,000 in a decade, who cares about the $130,000 in property taxes paid? If we subtract this $130,000 lease fee, the homeowner would still pocket a hefty profit: $800,000 sales price minus the $400,000 purchase price, the $130,000 in property taxes, the costs of 10 years of maintaining the home and the selling commission and closing fees. So in effect, anyone “owning” a home with high property taxes is leasing the property from the local government for the “right” to gamble that a new housing bubble is underway.

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Greece has a major payment to the ECB coming in July. Something will be found, but it will not be advantageous to Athens.

IMF Under Pressure From Germany Over Greece (WSJ)

In Europe’s battle with the IMF over Greece, Germany has a way to win. Germany, Europe’s dominant economic power, is leaning heavily on the IMF to accept hypothetical assurances that Greece’s debt burden will be addressed in the future if needed, rather than the definite and far-reaching debt relief that the IMF wanted, according to people familiar with the talks. Berlin believes the IMF will have to accept what’s on offer, even if IMF staff are unhappy about it, these people say. The IMF is also under heavy European pressure to accept Greek austerity policies that are less specific than the cuts the IMF wanted. An accord hasn’t been reached yet, and some warn it could take several weeks. The IMF’s Achilles’ heel: Its board is controlled by Germany, other European Union countries, and the U.S., none of whom want a new crisis over Greece.

That power reality weakens the IMF’s threat to pull out of the Greek bailout if it is unsatisfied. The EU currently faces multiple challenges that threaten to unravel the 60-year-old project of European integration, including the U.K.’s referendum on leaving the bloc, the migration crisis, and the rise of EU-skeptic populist parties. Germany and other European governments have no appetite for another round of brinkmanship over Greece like in 2015, and want a deal in coming weeks that settles Greece’s future—at least for now. Any deal is nevertheless likely to include some important concessions to the IMF. German Finance Minister Wolfgang Schäuble -who until recently adopted the hard-line stance in public that Greece needs no debt relief at all- has already permitted discussions to start this week about how eurozone loans to Greece might be restructured in the future.

A deal, which many European officials are now confident of reaching in late May or early June, is expected to include a promise by Germany and other eurozone countries to keep Greece’s debt burden below a certain threshold. That promise would entail easing the terms of Greece’s loans “if necessary.” Crucially for Berlin, however, any decision to restructure the loans would be delayed until 2018—after Germany’s 2017 elections. Mr. Schäuble and his boss, Chancellor Angela Merkel, are determined to avoid, for now, any material change to Greece’s bailout plan that would force them to hold an awkward debate in Germany’s parliament, the Bundestag, according to people familiar with their thinking.

An accord on Greek debt and austerity would allow Athens to stay afloat this summer, when large bonds fall due. But it is unlikely to resolve the country’s seven-year-old debt crisis. Participants in the troubled bailout are braced for further drawn-out negotiations in coming years about Greece’s fiscal and other overhauls. The main source of this year’s re-escalation of the Greek debt saga is Germany’s insistence that it cannot release any further bailout funds unless the IMF agrees to resume its own lending to Athens. IMF lending has been in limbo since last July, when IMF staff stated that “Greece’s public debt has become highly unsustainable.”

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One day perhaps more people will start to understand this. Germany is blowing up the eurozone. And the EU. The Q1 2016 growth announced today more than doubled, and that just makes it that much worse.

The German Current Account Surplus Requires Deficits Elsewhere (Harrison)

With the periphery’s downturn came austerity and internal devaluation. And this has meant two adjustments. First, the EU as a whole has moved from a roughly balanced external position to a net creditor position as the German and Dutch export-led model is forced onto the periphery via internal devaluation used to achieve export competitiveness. Second, the Germans and Dutch have been forced to turn elsewhere to maintain their mercantilist trading stance. And they have found willing buyers in Asia and the emerging markets writ large.

The thing to realize about multilateral trade is that the imbalances do not necessarily build up as bilateral imbalances between two countries. Rather, imbalances build multilaterally, with some countries – particularly the reserve-currency holding US – taking on the net debtor position. And we see that now, with the UK showing record trade deficits at the same time Germany is sporting huge surpluses. The IMF faults Germany for the surplus. Martin Wolf faults Germany for this too. Irrespective, there is no mechanism in the current global currency system to correct these imbalances except through balance of payments crisis and the rise of protectionist populist politicians.

And so my conclusion here is that these imbalances will only shift in a crisis – like the one we experienced within the eurozone. Except next time, the crisis will be global. It would be nice to think that world leaders would understand that dangerous imbalances are building that feed a populist and violent political response. Alas, there is no indication that the Germans or any other net surplus country gets this. And while the Swiss and the Dutch are small trading nations, Germany is a global behemoth. Like China, it will attract negative attention when the economy turns down. And the Germans will get the blame when the trade barriers go up. Right now, it seems only a matter of when not if.

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In which the Economist is found short of ideas.

Ideas For Reducing The Debt Burden (Economist)

DEBT levels grew spectacularly in the rich world from 1982 to 2007. When the financial crisis broke, worries about the ability of borrowers to repay or refinance that debt caused the biggest economic downturn since the 1930s. It could have been worse. The danger was that, as private-sector borrowers scrambled to reduce their debts, the resulting contraction in credit would drive the world into depression. Fortunately, this outcome was averted. First, the governments of rich countries allowed their debts to rise, offsetting the reduction in private debt. In addition, emerging markets (notably China) continued to borrow. So there was no global deleveraging; quite the reverse. Central banks also helped, slashing interest rates to zero and below.

Although lower policy rates have not always resulted in cheaper borrowing costs (in Greece, for example), debt-servicing costs have fallen in most developed countries. Although this approach has staved off disaster, it has not got rid of the problem, as a research note from Manoj Pradhan, an economist at Morgan Stanley, makes clear. “High debt forces interest rates to stay low, which encourages yet more debt,” Mr Pradhan writes. Central banks dare not push interest rates up too quickly for fear of causing another crisis; hence the stop-start nature of the Federal Reserve’s statements on monetary policy. The developed world seems stuck with sluggish growth and low rates. In health terms, the disease is chronic, not acute.

A lurch into another global crisis, Mr Pradhan reckons, would require three ingredients. First, the assets financed by the debt build-up would need to fall sharply in price or prove uneconomic. Second, the debtors would have to be concentrated in big, globalised economies. Lastly, global investors would have to be heavily exposed to the debt in question. All this was the case in 2007-08, as debt secured by American housing turned bad, raising doubts about the health of the Western banking system. This time round the debtors are in different places. Some of them are emerging-market governments and commodity producers. But, except for China, none of these is crucial to the world economy. And China’s debts are mainly in domestic hands, rather than widely dispersed in the portfolios of international banks, pension funds and insurance companies.

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“..more than 50 million people in Africa are acutely threatened by famine..”

‘Death Awaits’: Africa Faces Worst Drought in Half a Century (Spiegel)

Herdsman Ighale Utban used to be a relatively prosperous man. Three years ago, he owned around a hundred goats. Now, though, all but five of them have died of thirst at a dried-up watering hole, victims of the worst drought seen in Ethiopia and large parts of Africa in a half-century. Utban, a wiry man of 36 years, belongs to a nomadic people known as the Afar, who spend their lives wandering through the eponymously named state in northeastern Ethiopia. “This is the worst time I’ve experienced in my life,” he says. On some days, he doesn’t know how to provide for himself and his seven-member family. “We can no longer wander,” Utban says, “because death awaits out there.” For now, he’ll have to remain in Lii, a scattered little settlement in which several families have erected their makeshift huts. Lii means “scorching hot earth.”

Since time immemorial, shepherds have wandered with their animals through the endless expanses of the Danakil desert. They live primarily off of meat and milk, and it was always a meagre existence. But with the current drought, which has lasted for over a year, their very existence is threatened. “First the livestock die, then the people,” Utban says. The American relief organization USAID estimates that in Afar alone, over a half million cattle, sheep, goats, donkeys and camels have perished. Reservoirs are empty, pastures dried up, feed reserves nearly exhausted. With no rain, grass no longer grows. Many nomads are selling their emaciated livestock, but oversupply has led to a 50% decline in prices. Currently, millions of African farmers and herders are suffering similar fates to Utban’s. The UN estimates that more than 50 million people in Africa are acutely threatened by famine.

After years of hope for increased growth and prosperity, the people are once again suffering from poverty and malnutrition. The governments of Malawi, Mozambique, Zimbabwe, Lesotho and Swaziland have already declared states of emergency, and massive crop losses have caused food prices to explode in South Africa. Particularly hard stricken are the countries in the southern part of the continent as well as around the Horn of Africa, Somalia, Djibouti, Eritrea and especially Ethiopia. Meteorologists believe the natural disaster is linked to a climate phenomenon that returns once every two to seven years known as El Niño, or the Christ child, a disruption of the normal sea and air currents that wreaks havoc on global weather patterns. The El Niño experienced in 2015-2016 has been particularly strong.

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Summing it up. Europe doesn’t send help to relieve the conditions refugees live in. They send policemen instead. 200 of them.

Europol To Send Experts To Greek Islands To ‘Identify Terrorists’ (Kath.)

Europol, the European Union’s law enforcement agency, is soon to deploy 200 officers to refugee centers on the Greek islands and mainland to help identify potential terrorists. The officers, specially trained experts in immigration and terrorism, will not be in charge of border protection but will examine individuals deemed to be suspicious. After several weeks of reduced inflows of migrants from neighboring Turkey, Thursday saw an increase in arrivals with 130 people arriving on Greek shores in one day, amid growing concerns about the fate of an agreement between Turkey and the European Union to curb migration.

The total number of migrants in Greece on Thursday stood at 54,542, according to the spokesman for the government’s coordinating committee for refugees, Giorgos Kyritsis. Of this total, nearly 10,000 are living in squalid conditions at a makeshift camp near the village of Idomeni close to the border with the Former Yugoslav Republic of Macedonia. Kyritsis said the Idomeni camp would be evacuated but did not specify when. The situation at the camp is tense and local residents are running out of patience, with the head of the Idomeni community on Wednesday lodging a legal suit against Citizens’ Protection Minister Nikos Toskas for a “complete absence of state control” at the camp.

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Oh my, what a surprise.

EU Mission ‘Failing’ To Disrupt Mediterranean People-Smugglers (BBC)

The EU naval mission to tackle people smuggling in the central Mediterranean is failing to achieve its aims, a British parliamentary committee says. In a report, the House of Lords EU Committee says Operation Sophia does not “in any meaningful way” disrupt smugglers’ boats. The destruction of wooden boats has forced the smugglers to use rubber dinghies, putting migrants at even greater risk, the document says. Operation Sophia began in 2015. It was set up in the wake of a series of disasters in which hundreds of migrants died while trying to cross from Libya to Italy. The EU authorised its vessels to board, search, seize and divert vessels suspected of being used for people smuggling.

The report states that “the arrests made to date have been of low-level targets, while the destruction of vessels has simply caused the smugglers to shift from using wooden boats to rubber dinghies, which are even more unsafe”. It says that there are also “significant limits to the intelligence that can be collected about onshore smuggling networks from the high seas. “There is therefore little prospect of Operation Sophia overturning the business model of people smuggling,” the document concludes. It adds that the mission is still operating out in international waters, and not – as originally intended – in Libyan waters.

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Mar 032016
 
 March 3, 2016  Posted by at 9:52 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Fenno Jacobs Schoolchildren staging a patriotic demonstration, Southington, CT 1942

Fresh Recession Will Cause Eurozone Collapse, Warns Credit Suisse (Telegraph)
“If Schengen Disappears, It Will Never Come Back” (BBG)
Earnings Downgrades Turning Into Deluge as First Quarter Craters (BBG)
Negotiating Debt Relief for Greece in the Shadow of the Brexirendum (Howse)
German Demand To Cap Banks’ Sovereign Debt Throws Italy Under The Bus (BBG)
Germany Is The New PiiG (BI)
Europe Without the Union (Startfor)
Death and Despair in China’s Rustbelt (BBG)
China’s Other Growth Figure Is Flashing a Warning (BBG)
George Osborne Has ‘Foot In Mouth’ Disease: Varoufakis (CNBC)
Donald Trump Embodies How Great Republics Meet Their End (Wolf)
Global Trade: Structural Shifts (FT)
In ‘Half Earth,’ E.O. Wilson Calls for a Grand Retreat (NY Times)
Syria Drought ‘Likely Worst In 900 Years’ (Guardian)
Albania’s Crucial Role In The Refugee Crisis (Venetis)
Greece Risks Being ‘Concentration Camp’ For Refugees: Varoufakis (CNBC)
Austerity-Hit Greeks Help Refugees With Food, Toys, Time (Reuters)
Greece Prepares To Help Up To 150,000 Stranded Refugees (AP)

What recovery? “The viability of the euro is contingent on the current recovery..”

Fresh Recession Will Cause Eurozone Collapse, Warns Credit Suisse (Telegraph)

A recession in Europe could lead to the collapse of the eurozone, as the single currency would buckle under the political turmoil unleashed by a fresh downturn, a leading investment bank has warned. In a research note titled “Close to the edge”, economists at Swiss bank Credit Suisse warned the fate of monetary union hangs in the balance if Europe’s policymakers are unable to ward off another global slump and quell anti-euro populism. “The viability of the euro is contingent on the current recovery,” said Peter Foley at Credit Suisse. “If the euro area were to relapse back into recession, it is not clear it would endure.” Although the bloc’s nascent recovery was likely to persist in the coming months, Credit Suisse said there were worrying signs of deterioration emanating from Europe’s economies. These include heightened credit stress in the banking sector and market volatility.

“The near-term outlook for economic activity, as well as the risks around it, has shifted materially downwards,” said the seven-page report. The eurozone’s 19 member states only managed to grow by 0.3pc in the last three months of 2015, despite asset purchases from the European Central Bank and the collapsing price of oil. Unlike the US and UK, the eurozone’s GDP still lags below its pre-financial crisis peak. Italy, the euro’s third largest economy, was stagnant at the end of last year, while Greece has slipped back into recession. Growth in Europe’s dominant economic power Germany has steadied to just 0.3pc. Insipid growth has been coupled with a fresh fall into deflation in February, raising fears the continent is stuck in a low growth trap where it is unable to tackle mounting debts.

This has put pressure on the ECB to devise more stimulatory measures to revive economic fortunes and escalated calls for governments to deploy their fiscal policy tools to support growth. But a failure to fight off recessionary forces would cause “irrevocable damage” to the eurozone six years after the onset of the financial crisis, said Mr Foley. Rising unemployment, falling asset prices, and mounting costs of debt would embolden anti-euro populist forces across the continent, “radicalising” electorates, said the report. Europe’s fragile banks – which have been in the eye of a market storm since the start of the year – could also find themselves at the heart of a new financial crisis as their profitability is squeezed and lending to the economy grounds to a halt. “The capacity for a renewed downturn to push the euro area into a destructive negative economic, political and financial feedback loop is considerable,” added Mr Foley.

The Swiss bank’s warning comes ahead of a crucial meeting of ECB policymakers next week, when they are widely expected to unleash a new round of quantitative easing and interest rate cuts. Benoit Cœuré , executive board member at the ECB, said the central bank’s policy stance could not “become a source of uncertainty” for expectant markets. “In the still fragile environment we face today, what is essential is that policy works to reduce uncertainty,” Mr Cœuré said on Wednesday. He admitted that the ECB’s move into negative interest rates could have adverse effects on the continent’s lenders, hinting policymakers would mitigate the impact of its -0.3pc deposit rate on bank profitability. “We are well aware of this issue. We are monitoring it on a regular basis and we are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel,” said Mr Cœuré .

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Schengen exists in name only anymore.

“If Schengen Disappears, It Will Never Come Back” (BBG)

The EU has no plan to even temporarily cut Greece out of its passport-free Schengen zone and any suspension of open travel means “it will never come back,” Luxembourg Foreign Minister Jean Asselborn said. With Europe likely to face increased migration from Syria and other conflict zones throughout the next decade, the 28-member bloc must immediately start giving more money, equipment and authority to its Frontex border forces, Asselborn said Wednesday during a visit to Prague. Sealing Greece’s northern borders with Former Yugoslav Republic of Macedonia (FYROM) and unilaterally reinstating border checks within the Schengen area is “not a solution,” he said. Tensions over the handling of the refugee crisis have escalated, with Austria and some eastern EU members pushing for sealing the Greek-FYROM border.

Austria began admitting only a limited number of migrants, triggering a chain reaction of closures in countries to the south that’s stoking fears that Schengen may cease functioning. Political divisions are widening ahead of an extraordinary summit of the EU leaders on March 7 called to take stock of efforts to secure the bloc’s external frontiers. German Chancellor Angela Merkel, who is defending her open-border policy in three regional elections in March, is pushing for EU states to share the burden of redistributing migrants in the face of opposition from countries who have rejected the plan. Some EU members including Slovakia, Hungary and Poland have called for a “Plan B” that would cut Greece out of the Schengen area, pointing to Greece’s inability to secure its Mediterranean shores. “There is no plan B,” Asselborn said. “If Schengen disappears, it will never come back.”

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Without earnings, it ain’t much.

Earnings Downgrades Turning Into Deluge as First Quarter Craters (BBG)

The pace at which earnings estimates are being cut is getting worse, not better. While bulls cling to predictions that profit growth will resume for S&P’s 500 Index companies in 2016, analysts just reduced income estimates for the first quarter at a rate that more than doubled the average pace of deterioration in the last five years. Forecasts plunged by 9.6 percentage points in the last three months, with profits now seen dropping the most since the global financial crisis, data compiled by Bloomberg show. Growing skepticism among analysts is another example of an economic truth, that once corporate income starts to fall across industries, it’s rarely temporary. Most of the downward revisions in projections came in January and February – a clue as to why equities staged their worst selloff to start a year since 2009 and almost $3 trillion was wiped from share prices at the worst point.

“S&P 500 is not immune from the malaise of the global economy and we’re seeing that translated into earnings figures,” said Ethan Anderson, a senior portfolio manager who helps oversee $1.5 billion at Rehmann Financial in Grand Rapids, Michigan. “With the strong dollar, it obviously makes that made-in-U.S.A. look less attractive. Couple that with the weakness that we’re seeing in the global economy, most notably China, some of these estimates had looked fairly rosy.” Once a key support that helped stocks navigate through financial and geopolitical turmoil, earnings have increasingly become a contributor to market volatility along with concerns ranging from the price of oil to the path of interest rates. The decline in corporate profits has worsened every quarter since mid 2015, coinciding with a period where the S&P 500 suffered two corrections after reaching an all-time high in May.

Forecasters see the stretch of profit contractions now lasting 15 months. In the seven times earnings have fallen at least that long since 1970, stocks slipped into a bear market in all but one instance, data compiled by Bloomberg and S&P Dow Jones Indices show. Skepticism is rising over the durability of a bull market approaching its seventh anniversary with valuations based on legendary investor Peter Lynch’s favored measure that now surpass levels seen in the previous two runs. Investors hoping for a quick bounce in earnings to ease the multiple pressure may find little comfort in analysts’ estimates.

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“..Greece is quite capable of throwing the EU into crisis, conflict and even chaos, precisely at a time when the utmost solidarity is needed to help out the campaign against Brexit.”

Negotiating Debt Relief for Greece in the Shadow of the Brexirendum (Howse)

I’ve been saying for some time now that Greek PM Alexis Tsipras is, contrary to conventional wisdom, a shrewd negotiator and tactician. These traits were clearly on display this last week, when Europe’s leaders met to broker a deal on which British Prime Minister David Cameron could base his case for staying in the EU when Brexit gets put to a vote in the UK this June. Tsipras threatened to veto the deal if Greece were not given assurance that it could remain in Schengen for the time being, despite concerns about the control of its border with Turkey during the ongoing refugee crisis. Not surprisingly, given the stakes,Tsipras won. Now let’s turn to Greece’s other crisis. The European institutions are stalling on approving further disbursements to Greece, stretching out the current review of Greece’s implementation of last summer’s bailout memorandum.

Debt relief, a key element in the deal, has also been postponed. In particular, with the complicity of the IMF, Greece has been pushed to make deep across the board cuts in public pensions. Some pensions in Greece are anomalously high, and the responsible minister, George Katrougalos, freely admits that restructuring the pension system and creating a modern, effective social welfare state in Greece is a necessity for economic recovery and good governance. But with sky-high unemployment and falling wages, for many, pensions have become a de facto safety net; whole families are living from the income of a single pensioner. In these circumstances, the kind of indiscriminate slashing that the institutions want would inflict extreme and unjustifiable human hardship. It is difficult to know what is behind the unreasonableness in dealing with Greece on this issue.

Is it just the usual Germanic pious cruelty, or is it a strategy to try to bring down the Tsipras government in the hope of being able to deal with a more pliable, conservative new regime? Recently, the IMF’s point man on Greece, Poul Thomsen, publicly defended the hard line on pensions, on the basis that this is the only way that Greece can meet its budgetary targets that are necessary for restoring debt sustainability. But Thomsen made a key admission, perhaps unwittingly: debt relief, he suggested, could have the same effect on sustainability as would slashing pensions. He thus essentially told the Greeks to their face that further hardship was being forced on them, not because of any deep economic logic, but just because the needed amount of debt relief was not forthcoming.

The current line in the mainstream financial press is that Tsipras has no real cards he can play to resist the demands of the institutions on pensions. I think that’s wrong. If the institutions won’t be reasonable and moderate their demands, he can always blow up the third programme and default on Greece’s official debt to Europe; one way to do that would be to draw up a final offer on pensions and related reforms, and put it to the people in a new referendum that if Europe doesn’t accept that offer, Greece should default. Now, you say, isn’t that exactly the “nuclear” option that Tsipras backed off from last summer, for fear of utter economic and social catastrophe in Greece, despite then winning a mandate for it by referendum? True enough, but certain things have changed since. Back then, it became painfully clear very quickly that Greece’s banking system would have collapsed had it been cut off from further support from Europe in the wake of default.

Now the banks have been recapitalized; and the problem of marginal,failing banks addressed by restructuring and consolidation. Secondly, Greece has, shrewdly, built a new friendship with Israel; Netanyahu, ever the savvy politician, sees the value of having a country in the Mediterranean amenable to Israel’s interests and point of view (and there are the mutual gains of cooperation on offshore gas as well). Israel may well have made some kind of promise to Greece to function as a lender of last resort if things get bad. But, most importantly, there is the looming referendum on Brexit (I call it Brexirendum for convenience). By defaulting but keeping the Euro, and perhaps also threatening non-cooperation on refugees, Greece is quite capable of throwing the EU into crisis, conflict and even chaos, precisely at a time when the utmost solidarity is needed to help out the campaign against Brexit.

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“The German proposals are “pure folly,” and would amount to Italy “hitting itself over the head with a hammer..”

German Demand To Cap Banks’ Sovereign Debt Throws Italy Under The Bus (BBG)

A drive to tighten rules over how much sovereign debt banks are allowed to own has raised the alarm in the home of the euro region’s largest bond market. Italy’s prime minister, Matteo Renzi, vowed last month to veto any attempt to cap holdings, putting him at odds with Germany. Italian government securities account for 10.4% of the country’s bank assets, the most among major European economies and compared with 3.2% in Germany, the latest ECB figures show. A limit would mean “altering the balance of the Italian banking system,” said Francesco Boccia, a lawmaker from Renzi’s Democratic Party who heads the budget committee in Italy’s lower house of parliament. “Banks are already struggling to lend money to small- and medium-sized companies,” he said. “This would be the final blow.”

In essence, the euro region’s biggest debtor is on a collision course with its biggest paymaster over how to fix the failures of the past. Having financial institutions willing to finance the government is vital to most countries, but especially in Italy. The country has outstanding debt of €2.17 trillion ($2.36 trillion), more than anywhere else in Europe. It amounts to 133% of its economic output, the largest ratio except for Greece. The problem in Berlin is that it highlights Europe’s “doom loop,” the too-tight connection between sovereigns and their lenders that fueled the debt crisis and landed Germany with the biggest bill. Chancellor Angela Merkel’s government has been leading the campaign to tackle the practice of banks treating the debt as risk-free.

Germany has resisted moving toward closer financial ties, including initiatives such as a common euro-area deposit insurance system, until progress is made on reducing risk. Among Germany’s proposals was an an automatic maturity extension for bonds of nations that apply for aid from the European Stability Mechanism crisis fund. Another possibility is a 25% limit on the sovereign bonds some banks can hold risk-free as a share of eligible capital, according to two people with knowledge of the deliberations. The German proposals are “pure folly,” and would amount to Italy “hitting itself over the head with a hammer,” said Mario Baldassarri, chairman of the Economia Reale think-tank and a former head of the Italian Senate’s finance committee.

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“And when Germany falls, and it will, that’s when the panic begins to set in.”

Germany Is The New PiiG (BI)

This is as good as it gets for Germany and Europe. Previously, it was the debt of the eurozone’s peripheral countries that was of concern to the markets. But in an interview with Business Insider, Geopolitical Futures founder George Friedman proclaimed that Europe now has a much bigger problem: Germany. And at the heart of the looming issue for Germany and Europe is the Italian banking system. “[Problems in Italian banks are] going to spill over into the Netherlands, it’s going to spill over into Germany,” Friedman said. “Germany is the new PIIG. Germany depends on exports and its markets are drying up.” The PIIGS economies — Portugal, Italy, Ireland, Greece, and Spain — were the main concerns during the European debt crisis of 2011 and 2012.

And with those crises seemingly having passed and Europe moving back towards a path to economic stability, Germany has been a big winner with its economy as strong as its been since re-unification and an unemployment rate down to 4.5%. Germany has, however, been running a structural trade surplus underpinned by a weak euro with its trade surplus hitting a record $23.9 billion in June. And Friedman thinks Germany’s export well is about to run dry. Friedman believes that the problems in the Italian banking system are going to take Germany — the strongest economy in the eurozone — down with it. Data released in late-2015 showed non-performing loans at Italian banks totaled €300 billion, 17.3% of outstanding loans.

That is a massive number considering the average for the euro zone is 6.8%, and Germany’s NPL’s are at just 2.3%. According to Friedman, this is a big deal because Italy is the 4th largest economy in Europe and the 8th largest economy in the world. Italy’s home to the largest banking system in Eastern Europe and there’s a lot of inter-connectivity in play. For example, Germany’s largest bank, Deutsche Bank, has an enormous amount of exposure to Italy, and so does the rest of Europe. Ultimately Friedman thinks it will be Germany that has to save Italy. And that will cost a lot of money. “It’s not the PIIGS one should worry about,” Friedman said. “Germany hasn’t even begun falling yet. And when Germany falls, and it will, that’s when the panic begins to set in.”

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Not a big fan of Stratfor, but some things to think about here: “Perhaps the most likely scenario at this point would be for the EU to survive as a ghost of its former self, with its laws ignored..”

Europe Without the Union (Startfor)

The European project was always bound to fail. Europe is a continent riven by geographic barriers. It has spent two millennia not only indulging in massive and constant internal wars, but also keeping written records of them, informing each generation of all the times their forebears were wronged. Over the centuries, great empires have risen and fallen, leaving behind distinct groups of people with different histories, languages and cultures. Any project attempting to fuse these disparate cultures into one monolithic state over the course of just 70 years was by its very nature doomed. It would inevitably encounter insurmountable levels of nationalistic resistance, and eventually the project would stall. That is the point at which we now find ourselves.

Crises abound, and though they all have different facades, each stems from the same underlying issue: Citizens ultimately prize their national and regional identities over the supranational dream. The sovereign debt crisis and repeating Grexit scares, born of the introduction of the euro in 1999, have exposed Northern Europe’s unwillingness to subsidize the south. The Brexit referendum, scheduled for June, can trace its roots to the 2004 enlargement of the EU, and the ensuing wave of Polish migration to the United Kingdom. Meanwhile, amid the ongoing immigration crisis, national leaders are appeasing their populations by bypassing European rules and re-erecting border controls to stem the flow of refugees across their territory. In all of these situations, the same factors are at work: The driving forces within Europe are national in nature, and countries will ultimately put their own interests first.

Today’s problems were both predictable and predicted. The next step, however, is harder to foresee. Having identified a system’s inherent flaw, one can very well state that it is unsustainable, but unfortunately the flaw provides no guide as to the exact circumstances of the system’s end. There are still many different ways that the demise of the European Union’s current form could come about. For example, the project could unravel via market forces, as it nearly did in 2012 when investors tested the commitment of the core to save the periphery and found it to be (barely) willing to do so. Or a disaffected populace could elect a nationalist party such as France’s National Front, which could either lead the country out of the EU or make the bloc so unmanageable that it ceases to function. Perhaps the most likely scenario at this point would be for the EU to survive as a ghost of its former self, with its laws ignored and stripped back to the extent that it holds only a loose grip on its members.

The exact circumstances of the European project’s end are not yet clear, but there are certain fixed, underlying truths that are sure to outlast the EU’s current form. With them, a forecast can still be made of the shape of things to come. These fundamental realities stem from deeper, unchanging forces that will bring countries together according to their most basic goals; they are the same forces that limited the European project’s lifespan in the first place. By looking at these underlying factors, one can predict which countries will emerge from a weakened or collapsed EU with close ties, and which are likely to drift apart in pursuit of their own interests once they are freed from the binding force of the EU and its integrationist ideals.

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“..leaving a valley of brutal murder, protests, anger, suicide and regret.”

Death and Despair in China’s Rustbelt (BBG)

In a snow-covered valley in northeast China, an hour from the North Korean border, a street with brightly-painted apartment blocks hides a story of fear and anger as dangerous to the country as its rollercoaster stock market or sliding currency. The frozen alluvial river plain that was once at the forefront of the Communist Party’s first attempt to build a modern economy, has now fallen behind, leaving a valley of brutal murder, protests, anger, suicide and regret. This is the city of Tonghua in China’s rustbelt, where a desperate handful of steelworkers has gathered each week outside the management office of their mill in freezing temperatures to demand months of wages they say they’re owed. The answer, according to interviews with workers and residents, is always the same: there is no money.

This is the last vestige of protests that once drew thousands, and which, one fateful day nearly seven years ago, ended with a manager being beaten to death. Since then, the city’s once-vaunted state-run steel mills have slipped inexorably into decline, weighed down by slumping global markets, a changing economy, and the burden of costs and responsibilities to the people of the town they fostered. Tonghua’s story is repeated across the country, where state-owned enterprises that were the bedrock of China’s industrial development have become its biggest burdens. Typically overstaffed, inefficient and heavily indebted, they offer President Xi Jinping a stark warning of what the country could face if the millions of workers who depend on these lumbering corporations should get thrown out of work with nothing to fall back on. Uprisings have started from less in China.

The country’s leaders have vowed to reduce excess industrial capacity and labor in state enterprises even as they battle the slowest economic growth in a quarter of a century. China will eliminate up to 150 million metric tons of steel-making capacity in the next five years, the State Council said after a Jan. 22 meeting. The council, China’s cabinet, said it will achieve the target through mergers and acquisitions, relocation or converting some plants to other industries. It pledged to set up special funds to subsidize companies and laid-off workers during the change, and to help lenders write down bad debts. “The market has forced our hands,” said the official Xinhua News Agency in a Jan. 24 commentary. “Local governments and companies will bear the main responsibility, while the central government will help.”

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The real numbers: “..GDP in dollars, unadjusted for price changes, rose just 4.25% in the fourth quarter of 2015..”

China’s Other Growth Figure Is Flashing a Warning (BBG)

Obscured by the focus on the accuracy of China’s growth figures is a tumble in estimates for the economy without adjusting for inflation – a slide that gives a clearer picture of why the country’s slowdown has stoked rising concern about its debt burden. GDP in dollars, unadjusted for price changes, rose just 4.25% in the fourth quarter of 2015 compared with the same period of 2014 – a gain of $439 billion. Just two years before, China added $1.1 trillion to the global economy, expanding 13% from a year earlier. “Looked at in this way, financial markets reaction to deteriorating Chinese data is more understandable,” said Arthur Kroeber at research firm Gavekal Dragonomics in Hong Kong. Weakening nominal growth makes debt servicing harder, forming the backdrop for moves this week by Moody’s Investors Service to lower its outlook on China’s credit rating and HSBC to cut its recommendations on the country’s big banks.

With Premier Li Keqiang’s cabinet having eased a deleveraging drive last year, investors will get fresh insights into the Communist leadership’s priorities at a gathering of the national legislature starting Saturday. Along with economic targets for 2016, officials will discuss the party’s new five-year plan. While in yuan terms the slowdown is more gradual, the decline in nominal GDP gains is still dramatic – to a 6.4% pace at the end of 2015 compared with 10.1% back in 2013 and in excess of 18% in 2010 and 2011. The slide highlights the need to follow through on slashing excess industrial capacity, eliminating unprofitable enterprises and revving up new drivers of expansion.

“The biggest problem with plunging nominal GDP growth is that the cash-flow growth to the corporate sector has declined at a time when growth in its debt servicing has accelerated,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “Because debt is so much larger than the economy, debt servicing each year will still be two to three times the incremental growth of nominal GDP.” China’s debt-to-GDP ratio surged to 247% last year from 166% in 2007, propelled by a lending binge in the aftermath of the global financial crisis. Days before the National People’s Congress, the central bank this week lowered the ratio of deposits major banks must hold in reserve, letting them deploy more in lending.

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To be honest, Osborne was funny too: “Varoufakis was recruited because Chairman Mao was dead and Mickey Mouse was busy.”

George Osborne Has ‘Foot In Mouth’ Disease: Varoufakis (CNBC)

Yanis Varoufakis, the former Greek finance minister, has said that the U.K. finance minister has got a bad case of “foot in mouth disease” and is doing himself no favors by mocking him in parliament. On Wednesday, the U.K.’s Chancellor George Osborne ridiculed a report saying that Varoufakis was advising the opposition Labour party, telling the House of Commons that “Varoufakis was recruited because Chairman Mao was dead and Mickey Mouse was busy.” Responding to the slur, Yanis Varoufakis told CNBC that he was intrigued that George Osborne had “this foot in mouth disease.” “So when George Osborne comes out and pokes fun at me, obviously trying to luxuriate in the fact that I’m a defeated finance minister, yes, I am a defeated finance minister but in the hands of whom? Of an iron-clad European Union that decided to asphyxiate us using bank closures in order to impose upon us another extend and pretend bailout. The British people know that.”

“Does George Osborne really seriously believe that by mocking me he is doing himself any favors in his intellectual class?…I don’t think he is doing himself any intellectual favors.” “He seems unable to prevent own goals being scored all the time,” he added. Varoufakis said he was supporting the campaign for Britain to stay in the European Union (EU) but that he had been impressed with the “leave” arguments put forward by conservative politicians Boris Johnson and Michael Gove. They had, he said, “sounder intellectual ideas” than Osborne.

Earlier in the week it emerged that the Greek Marxist economist was going to advise the U.K.’s Labour party “in some capacity,” according to Labour leader Jeremy Corbyn. Varoufakis told CNBC that there was no formal contract and that he was “talking to everybody” including Caroline Lucas from the Green party and former Conservative Chancellor Normal Lamont. Talking to each other, he said, would help find common ground and a “common program to stop this slide into the abyss” in Europe. Asked whether he was receiving any money from the Labour party, he said: “Of course not. I have no such contract with anyone, let alone Jeremy Corbyn and the Labour party.”

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“..pluto-populism”: the marriage of plutocracy with rightwing populism..”

Donald Trump Embodies How Great Republics Meet Their End (Wolf)

What is one to make of the rise of Donald Trump? It is natural to think of comparisons with populist demagogues past and present. It is natural, too, to ask why the Republican party might choose a narcissistic bully as its candidate for president. But this is not just about a party, but about a great country. The US is the greatest republic since Rome, the bastion of democracy, the guarantor of the liberal global order. It would be a global disaster if Mr Trump were to become president. Even if he fails, he has rendered the unthinkable sayable. Mr Trump is a promoter of paranoid fantasies, a xenophobe and an ignoramus. His business consists of the erection of ugly monuments to his own vanity. He has no experience of political office. Some compare him to Latin American populists.

He might also be considered an American Silvio Berlusconi, albeit without the charm or business acumen. But Mr Berlusconi, unlike Mr Trump, never threatened to round up and expel millions of people. Mr Trump is grossly unqualified for the world’s most important political office. Yet, as Robert Kagan, a neoconservative intellectual, argues in The Washington Post, Mr Trump is also “the GOP’s Frankenstein monster”. He is, says Mr Kagan, the monstrous result of the party’s “wild obstructionism”, its demonisation of political institutions, its flirtation with bigotry and its “racially tinged derangement syndrome” over President Barack Obama. He continues: “We are supposed to believe that Trump’s legion of ‘angry’ people are angry about wage stagnation. No, they are angry about all the things Republicans have told them to be angry about these past seven-and-a-half years”.

Mr Kagan is right, but does not go far enough. This is not about the last seven-and-a-half years. These attitudes were to be seen in the 1990s, with the impeachment of President Bill Clinton. Indeed, they go back all the way to the party’s opportunistic response to the civil rights movement in the 1960s. Alas, they have become worse, not better, with time. Why has this happened? The answer is that this is how a wealthy donor class, dedicated to the aims of slashing taxes and shrinking the state, obtained the footsoldiers and voters it required. This, then, is “pluto-populism”: the marriage of plutocracy with rightwing populism. Mr Trump embodies this union. But he has done so by partially dumping the free-market, low tax, shrunken government aims of the party establishment, to which his financially dependent rivals remain wedded. That gives him an apparently insuperable advantage. Mr Trump is no conservative, elite conservatives complain. Precisely. That is also true of the party’s base.

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A curious attempt to deny there’s a crisis in the first place. No, we’re ‘transitioning to a digital economy’, or something..

Global Trade: Structural Shifts (FT)

The Port of Charleston spent most of the early 2000s enjoying double-digit growth as an accelerating wave of globalisation — fuelled by a rising China and a US consumer boom — brought robust volumes of cargo into the seaport. But those days are long gone. Jim Newsome, chief executive of the South Carolina Ports Authority, says he would be happy with 3% growth in Charleston this year, a goal he concedes may be too ambitious. In January, container traffic at the port fell 5.1% versus the same month of 2015, and the strong dollar is causing problems for US exporters. “Most of the exporters that I talk to are just not doing the same business that they were a year ago,” he says. The story is repeated and amplified far beyond Charleston.

Last year saw the biggest collapse in the value of goods traded around the world since 2009 – when the impact of the global financial crisis was at its worst. Major ports such as Hamburg and Singapore have also reported slowing growth and even declining volumes. Barring a spectacular turnround in the global economy, the subpar performance is likely to be repeated in 2016, making it the fifth straight year of lacklustre growth in global trade, a pattern not seen since the doldrums of the 1970s. “It has been a very long time since trade .. has grown this weakly”, says Robert Koopman, chief economist at the WTO. Much of this recent feeble performance is down to the economic slowdown in China and the knock-on effect that its declining appetite for commodities has had on other emerging markets.

An anaemic recovery in Europe adds to the headwinds hitting global commerce. While these factors explain part of the weakness in global trade, some say there are even bigger factors at work. A growing number of economists argue that the slowdown is not merely cyclical, but a sign that the forces that have driven globalisation for decades are beginning to shift. The first big transition is China’s attempt to rebalance from a manufacturing and export-led economy towards one focused on domestic consumption. And some economists note that the plateau in worldwide trade in goods and capital has coincided with a surge in data flows — an indicator, they say, that the digital economy of the 21st century is starting to overturn the old order.

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One of my favorite people on the planet.

In ‘Half Earth,’ E.O. Wilson Calls for a Grand Retreat (NY Times)

Why publish this book now? Because a lifetime of research has magnified my perception that we are in a crisis with reference to the living part of the environment.We now have enough measurements of extinction rates and the likely rate in the future to know that it is approaching a thousand times the baseline of what existed before humanity came along.

Reading your book, one senses you felt a great urgency to write it? The urgency was twofold. First, it’s only been within the last decade that a full picture of the crisis in biodiversity has emerged. The second factor was my age. I’m 86. I had a mild stroke a couple of years ago. I thought, “Say this now or never.” And what I say is that to save biodiversity, we need to set aside about half the earth’s surface as a natural reserve. I’m not suggesting we have one hemisphere for humans and the other for the rest of life. I’m talking about allocating up to one half of the surface of the land and the sea as a preserve for remaining flora and fauna.

In a rapidly developing world, where would such a reserve be? Large parts of nature are still intact — the Amazon region, the Congo Basin, New Guinea. There are also patches of the industrialized world where nature could be restored and strung together to create corridors for wildlife. In the oceans, we need to stop fishing in the open sea and let life there recover. The open sea is fished down to 2% of what it once was. If we halted those fisheries, marine life would increase rapidly. The oceans are part of that 50%. Now, this proposal does not mean moving anybody out. It means creating something equivalent to the U.N.’s World Heritage sites that could be regarded as the priceless assets of humanity. That’s why I’ve made so bold a step as to offer this maxim: Do no further harm to the rest of life. If we can agree on that, everything else will follow. It’s actually going to be a lot easier than people think.

Why? Because many problems of human occupancy that we once thought of as insoluble are taking care of themselves. Demographers tell us that the human population could stabilize at about 10 or 11 billion by the end of the century. High tech is producing new products and ways of living that are congenial to setting side more space for the rest of life. Instrumentation is getting smaller, using less material and energy. Moreover, the international discourse is changing. I’m very encouraged by the Paris Climate Accords. I was excited to see at the time of the Paris meeting that a consortium of influential business leaders concluded that the world should go for net zero carbon emissions. Towards that end, they recommended we protect the forests we have and restore the damaged ones. That’s consistent with the “Half Earth” idea.

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It’s not just the war.

Syria Drought ‘Likely Worst In 900 Years’ (Guardian)

The relentless flow of refugees from the Middle East into Europe continues to raise tensions across the region. This weekend, fires ignited at a refugee camp in Calais, France, and countries are beginning to tighten their borders as more than 1 million people have streamed into Europe in the past year. The 1 million refugees represent just a portion of the 4.2 million that have fled Syria in all directions. And that’s on top of the 7.6 million people internally displaced in Syria who are trapped in limbo in their home country. War has been the direct driver of the refugee flux and behind that is a complex mix of social and political factors both inside and outside the region. One fiercely studied and debated driver has been a recent dip into a series of severe droughts starting in the late 1990s.

Previous work has prescribed some of the drought — and its impact on the socioeconomic fabric in the Middle East — to climate change. New findings published in the Journal of Geophysical Research-Atmospheres put it in even starker context, showing that the drought is likely the worst to affect the region in 900 years. The Mediterranean as a whole has been subject to widespread drought at various points in the past 20 years. Climate models project that the region is likely to get drier in the future, which Ben Cook, a climate scientist at the NASA Goddard Institute for Space Studies, said drove the new line of inquiry. “These recent drought events have motivated a lot of concern that this could be an indication of climate change, with the eastern Mediterranean and Syrian droughts being the most obvious,” Cook said.

Using tree ring data that covered 900 years of drought history, Cook led a team of researchers to look at drought across different regions in the Mediterranean. Dry spells in parts of the western Mediterranean have been severe but still within the range of natural variability over that 900-year span. What stands out is the drought in the eastern Mediterranean, which includes war-torn Syria. Drought has had a firm grip on the region since 1998 and Cook’s findings show that the recent bone-dry spell is likely the driest period on record in 900 years and almost certainly the worst drought in 500 years. In either case, it’s well outside the norm of natural variability indicating that a climate change signal is likely emerging in the region.

“This is a really important study that increases our understanding of low frequency (decadal to multidecadal) natural variability over the past 900 years and provides strong evidence that the severity of the recent drying in the eastern Mediterranean/Levant is human induced,” Colin Kelley, a drought expert who authored previous research on the region, said.

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Interesting angle. Officially, Albania’s borders are shut. But they’re not.

Albania’s Crucial Role In The Refugee Crisis (Venetis)

With the border between Greece and the Former Yugoslav Republic of Macedonia (FYROM) closed, Greece appears to be isolated from the neighborhood and the European mainland. While the problems are growing, the government of Prime Minister Alexis Tsipras trying to improvise a solution and Brussels still looking, Greece seems again favored by geography. Among Greece’s long Greek borders with its Balkan neighbors, only the Greek-Albanian one cannot be controlled because it is mountainous and with a large number of accessible paths. Therefore, the government of Edi Rama may verbally express its opposition to the possibility of migration flows going through Albania but it is impossible to implement such a decision. The reasons are obvious. Nobody can stop the peaceful determination of populations to move.

Given Skopje’s policy of closed borders and the willingness of immigrants to move northwards, as well the failure of each transit country to provide them with the basics for a temporary stay, it should be viewed as certain that in the coming days and weeks, with the arrival of spring, the migrants now trapped in Greece will head towards the border with Albania. What will happen then? Albania will try to stop this flow through the Greek border stations of Krystalopigi, Mertziani and Kakavia – but in vain. No wall can be erected on uneven terrain. Parallel paths are not patrolled because they are numerous, anomalous and extensive. Therefore, the Albanian authorities will not be able to stop the flows peacefully. Albanians know this and although the prime minister has expressed his opposition, he has already ordered the construction of two reception centers for a total of 10,000 immigrants in Korce and Gjirokaster.

Such a development would essentially mean the cancellation of the Austrian refugee policy in the Balkans because immigrants will be able to access the FYROM territories and Kosovo from Albania and therefore to move northwards to Serbia, Montenegro and Bosnia. Additionally, the problem will be internationalized once more and put more pressure on Brussels to find an effective solution. Austria is expected to attempt to erect a new wall to the north, but to no avail, because the problem will be shared not only by Greece but the whole of the Balkans. The Albanian corridor can give Greece a chance to gain some time in dealing with the influx from Turkey, to relieve the Greek-FYROM border and to provide the EU with a final opportunity to prove that it is a union of friends and not enemies.

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That’s been my point all along, and it’s too late already: “..you cannot buy back the lost dignity of the European Union..”

Greece Risks Being ‘Concentration Camp’ For Refugees: Varoufakis (CNBC)

The refugee crisis is a “manifestation of the disintegration of the European Union,” Greece’s controversial former finance minister told CNBC on Thursday, as he warned against Turkey and Greece becoming a “large concentration camp for hapless refugees.” Yanis Varoufakis, who served as finance minister in 2015 under the ruling left-wing Syriza party, said Europe was “rich enough” to cope with the influx of refugees who have flooded to Europe in the wake of the turmoil in Syria. “The EU should be a proper union with borders, which we control in a humane way. When somebody knocks on your door and they’ve been shot at, they have kids that are dying or thirsty or hungry, you just open your door to them,” he told CNBC at the Global Financial Markets Forum in Abu Dhabi.

According to the UN, 131,724 refugees and migrants made the risky journey across the Mediterranean Sea during January and February. The large majority of these people, 122,637, landed in Greece. The EU, of which Greece is a member, has struggled to agree to a strategy to deal with the waves of people, particularly in the wake of terrorist attacks from the group that calls itself the “Islamic State.” However, on Wednesday, the EU launched a €700 million fund to help Greece cope with the crisis. “The fact that we are now spending some money on refugees is a good thing, but you cannot buy back the lost dignity of the European Union,” Varoufakis told CNBC.

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“I don’t have an income but I have a child,” she said before handing out another balloon, while her sister distributed milk.”

Austerity-Hit Greeks Help Refugees With Food, Toys, Time (Reuters)

Three Syrian children holding balloons follow Constantina Tsouklidou who is handing out toys and food to refugees sheltering by the hundreds in a ferry passenger terminal at the Greek port of Piraeus. “I don’t have an income but I have a child,” she said before handing out another balloon, while her sister distributed milk. Tsouklidou, 50, is one of thousands of Greeks volunteering their time to assist refugees and migrants stranded in Greece. She is also one of the legions of Greece’s unemployed. Greece, whose economy was struggling even before Europe’s migrant crisis and which has received more than 240 billion euros since its first international bailout in 2010, is in its eighth year of recession. More than a million people are unemployed, according to statistics agency ELSTAT, which put the latest jobless rate at 24.6%.

“Half of the Greek population has to a smaller or bigger extent assisted refugees. We are not like central Europe,” Tsouklidou told Reuters, referring to border closures through the Balkans. At least 25,000 people were stranded in Greece on Tuesday, their journey to wealthier central and northern European nations blocked by the failure of European nations to agree a common policy to deal with one of the worst humanitarian crises in decades. Austria and countries along the Balkans migration route have imposed restrictions on their borders, limiting the numbers able to cross. Many of the migrants hope to reach Germany. Macedonian police fired tear gas to disperse hundreds of migrants who stormed the border from Greece on Monday. “I am worried about what will happen if people keep coming in and the borders remain closed,” said Kyriakos Sarantidis, 65, who donates time cooking for refugees from a minivan parked at Pireaus port.

Greece’s migration minister said on Sunday the number of migrants trapped in Greece could reach up to 70,000 in coming weeks if the borders remain sealed, as refugees fleeing war and poverty in the Middle East and North Africa continue to arrive in Greece, mainly on small boats from Turkey. At Victoria Square, a downtrodden area of central Athens where many homeless refugees have converged, Greeks turned up in droves with bags of food, fruit and medicine after seeing images on television of families sleeping in the open, on cardboard boxes, on chilly winter nights. Eleftheria Baltatzi, a 73-year-old pensioner, was one of the many people who saw images of sick children on television and turned up at the square with medicine and food. “I made toasted cheese sandwiches,” she said. “We also have people who are hungry and need help, but these people have a bigger need.”

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No longer a transit nation.

Greece Prepares To Help Up To 150,000 Stranded Refugees (AP)

Greece conceded Wednesday it is making long-term preparations to help as many as 150,000 stranded migrants as international pressure on Balkan countries saw Macedonia open its border briefly for just a few hundred refugees. “In my opinion, we have to consider the border closed,” Greek Migration Minister Ioannis Mouzalas said. “And for as long as the border crossing is closed, and until the European relocation and resettlement system is up and running, these people will stay in our country for some time.” At the moment, some 30,000 refugees and other migrants are stranded in Greece, with 10,000 at the Idomeni border crossing to Macedonia. On Wednesday, hundreds of more people, including many families with small children, continued to arrive at two official camps by the border that are so full that thousands have set up tents in surrounding fields.

Greek police helped one man who fainted after being turned back by Macedonian authorities. Others waited stoically for rain covers, or food and other essentials in chilling temperatures [..] Mouzalas, the migration minister, met for several hours with mayors from across Greece, examining ways to ramp up shelter capacity. The ministers of health and education also held emergency talks to provide health care and basic schooling for children, who make up about a third of arrivals in Greece. Nikos Kotzias, the foreign minister, said the country could handle a capacity of up to 150,000. “No one in Europe predicted this problem would reach such a giant scale,” Kotzias told private Skai television. “But this is not a cause for panic. The problems must be addressed soberly.”

Macedonia intermittently opened the border Wednesday, letting hundreds of people in, as European Council President Donald Tusk arrived in the country as part of a tour of the region for talks on the migration crisis. Tusk, who is due to travel onto Greece and Turkey Thursday, is hoping to ease tension among European Union leaders — notably neighbors Austria and Germany — before they hold a summit on migration on Monday with Turkey. “We must urgently mobilize the EU and all member states to help address the humanitarian situation of migrants in Greece and along the western Balkan route,” he said. Greece has asked for €480 million in emergency aid from the EUto deal with the crisis. EU Humanitarian Aid Commissioner Christos Stylianides said he wants to swiftly push through a proposal to earmark €700 million in aid for the refugee crisis, with €300 million paid out this year.

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May 062015
 
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Jack Delano Foggy night in New Bedford, Massachusetts 1941

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)
US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)
3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)
One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)
California’s Drought Could Upend America’s Entire Food System (ThinkProgress)
Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)
Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)
It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)
Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)
Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)
Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)
Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)
Greece To Finalise Airports Deal ‘Immediately’ (Reuters)
Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet
China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)
CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)
Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)
Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

“..given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.”

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)

Retail appetite for risk may be drying up, if last week’s unsettling action in the sexy social-media corner of the market is any indication. Sure, Friday ended with a strong push for the major indexes, but that didn’t erase the sting of a stretch that saw 20% post-result drops for Twitter, LinkedIn and Yelp. Broad market bellwethers they ain’t, of course. That doesn’t, however, mean this double-digit blip should be shrugged off like a wayward Pacquiao punch. When the frothy names get rocked, market mood tends to change. It’s too early to draw any ghastly conclusions, but given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.

The flip side is that dip-buyers over the past few years have generally pounced when their faves wobble. This is also something to keep an eye on as the week pushes forward. A rebound, and it’s business as usual. Further weakness, and it’s beware the unravel. At this point, there’s no bounce in the making for that social-media trio ahead of the bell. And the rest of the market is poised to open in the red, with the must-watch jobs report due at the end of the week. Big-picture, those fretting about the potential for a tech bubble might want to gird against what’s about to happen to the American Dream. Again. The “smart money” is signaling trouble ahead in housing.

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Recession looming. Remind me, in what quarter was the growth 5%?

US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)

After shrinking notably in Feb, March’s US Trade deficit exploded. Against expectations of a $41.7bn deficit, the US generated a $51.4bn deficit – the worst since Oct 2008 and the biggest miss on record. Exports rose just $1.6bn while imports soared $17.1bn with the goods deficit with China soaring from $27.3bn to $37.8bn in March. Ironically, just as the “harsh winter” was found to lead to a GDP boost due to a surge in utility spending, so the West Coast port strike which was blamed for the GDP drop, was actually benefiting the US economy as it lead to a plunge in imports. In March, however, the pipeline was cleared, and US imports from China soared by over $10 billion to $38 billion. End result: prepare for upcoming Q1 GDP downgrades into negative territory, which with a Q2 GDP of 0.8% (per the Atlanta Fed) means the US is this close to a technical recession.

The increase in imports of goods mainly reflected increases in consumer goods ($9.0 billion), in capital goods ($4.0 billion), and in automotive vehicles, parts, and engines ($2.7 billion). A decrease occurred in petroleum and products ($1.1 billion). The goods deficit with China increased from $27.3 billion in February to $37.8 billion in March. From the report: The U.S. monthly international trade deficit increased in March 2015 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $35.9 billion in February (revised) to $51.4 billion in March, as imports increased more than exports. The previously published February deficit was $35.4 billion. The goods deficit increased $14.9 billion from February to $70.6 billion in March. The services surplus decreased $0.6 billion from February to $19.2 billion in March.

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And that’s just the beginning.

3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)

Growing numbers of workers expect to rely heavily on Social Security as a major source of income in retirement, but almost three-quarters of current retirees are receiving reduced benefits, according to two new reports. According to a recent Gallup survey, 36% of adults who are not yet retired expect Social Security to be a “major source” of retirement income. That figure is roughly 10 percentage points higher than a decade ago and higher than any response in the past 15 years. Of course, the best way to maximize Social Security is to delay claiming benefits until “full retirement age,” which is climbing gradually to 67, or beyond. A person due to receive a benefit of $1,000 at a full retirement age of 66 would receive only $750 at age 62 (the earliest age at which most people can claim benefits) – and $1,320 at age 70.

But that math isn’t stopping many workers from claiming benefits early. Among the 37.9 million Americans receiving Social Security retirement benefits as of December 2013, fully 73% were receiving reduced benefits “because of entitlement prior to full retirement age,” according to a new report from the Social Security Administration. Relatively more women (75.4%) than men (70.3%) received reduced benefits. The findings come at a time when the Social Security program itself is straining to meet demands and when many workers are anxious about the size of their nest eggs. Currently, the Social Security Administration is tapping the interest on the program’s trust funds to pay beneficiaries and, soon, will begin drawing down the assets themselves.

At the moment, the trust fund is scheduled to run out in 2033, after which Social Security recipients would receive about 75% of their benefits. Against that backdrop, a recent Wells Fargo/Gallup survey found that only 28% of non-retired investors are very confident they will have enough savings at the time they decide to retire. An additional 48% are somewhat confident. The latest Gallup survey concludes: “To the degree [workers’] savings are not sufficient to fund their retirement, [they] will have to make up the shortfall somehow. The guaranteed Social Security benefit is an obvious way to do that, if not by also seeking part-time work or scaling back their standard of living considerably.”

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“..disproportionately Black or Hispanic..”

One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)

One in 10 U.S. adults is invisible to much of the American economy because they have no credit report or score, a new report by the Consumer Financial Protection Bureau has found. Those 26 million adults — disproportionately Black or Hispanic — have virtually no chance to borrow money or use credit cards. And another 19 million adults have credit reports so “thin” that they are unscoreable by traditional methods, and also left behind by the credit system. Together, that means 45 million Americans — one in five adults — have no traditional credit score. “Today’s report sheds light on the millions of Americans who are credit invisible,” said CFPB Director Richard Cordray.

“A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity — to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible.” The CFPB found that 188.6 million American adults have credit records that can be scored using traditional models, or 80% of the population. Most of the Americans left behind by traditional scoring methods are young. Over 10 million of the estimated 26 million credit invisibles are younger than 25, the CFPB found.

The findings are consistent with other recent studies about the “credit invisibles.” FICO, which created the most widely-used formula for credit scoring, told The Wall Street Journal last month that 25 million Americans have no credit events on file and an additional 28 million have thin files. VantageScore, which offers an alternative to FICO scores, said last year that 30-35 million Americans don’t have a traditional credit score. Among those with thin files, the CFPB said the group was evenly split between those who have an insufficient credit history and those who lack a recent credit history.

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Much has to shift to other states.

California’s Drought Could Upend America’s Entire Food System (ThinkProgress)

On April 1, California Governor Jerry Brown stood in a field in the Sierra Nevada Mountains, beige grass stretching out across an area that should have been covered with five feet of snow. The Sierra’s snowpack — the frozen well that feeds California’s reservoirs and supplies a third of its water — was just 8% of its yearly average. That’s a historic low for a state that has become accustomed to breaking drought records. In the middle of the snowless field, Brown took an unprecedented step, mandating that urban agencies curtail their water use by 25%, a move that would save some 500 billion gallons of water by February of 2016 — a seemingly huge amount, until you consider that California’s almond industry, for example, uses more than twice that much water annually. Yet Brown’s mandatory cuts did not touch the state’s agriculture industry.

Agriculture requires water, and large-scale agriculture, like that in California, requires large amounts of water. So when Governor Brown came under fire for exempting farmers from the mandatory cuts — farmers use 80% of the state’s available water — he was unmoved. “They’re not watering their lawn or taking long showers,” he told ABC’s “The Week”. “They’re providing most of the fruits and vegetables of America to a significant part of the world.” Almonds get a lot of the attention when it comes to California’s agriculture and water, but the state is responsible for a dizzying diversity of produce. Eaten a salad recently? Odds are the lettuce, carrots, and celery came from California. Have a soft spot for stone fruit? California produces 84% of the country’s fresh peaches and 94% of the country’s fresh plums. It produces 99% of the artichokes grown in the United States, and 94% of the broccoli.

As spring begins to creep in, almost half of asparagus will come from California. “California is running through its water supply because, for complicated historical and climatological reasons, it has taken on the burden of feeding the rest of the country,” Steven Johnson wrote in Medium, pointing out that California’s water problems are actually a national problem — for better or for worse, the trillions of gallons of water California agriculture uses annually is the price we all pay for supermarket produce aisles stocked with fruits and vegetables. Up to this point, feats of engineering and underground aquifers have made the drought somewhat bearable for California’s farmers. But if dry conditions become the new normal, how much longer can — and should — California’s fields feed the country? And if they can no longer do so, what should the rest of the country do?

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MUST SEE! Brilliant exposé.

Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)

In an exclusive interview with Every Investor, Professor Steve Keen from Kingston University has warned that politicians who promote austerity economics are naïve. The economist, who was one of the few who predicted the Great Recession, warned last year that the US and UK economies wouldn’t make a sustainable recovery due to the problem of high levels of private debt – public debt being more a symptom than a cause of this economic malaise. In this interview he gives a detailed explanation as to why the austerity-heavy economic policy of the Conservatives (and the Liberal Democrats), and the austerity-lite version from Lab is naïve and will lead not to economic growth but to economic stagnation.

Indeed, while not endorsing any political party, he does acknowledge that the economic policies of the SNP and Greens make more sense. This is a video that needs to be watched. It will give you insights that most professional economists appear to lack. (Hence, their evident surprise at news that the UK and US are slowing down). It should also encourage investors to be in ‘risk-off’ mode, which seems very sensible given likely market volatility that will follow the election and the grave economic news that we can expect this year.

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Germany violates a lot of EU agreements. It could face huge fines.

Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)

Germany’s current account surplus is out of control. The European Commission’s Spring forecasts show that it will smash all previous records this year, reaching a modern-era high of 7.9pc of GDP. It will still be 7.7pc in 2016. Vague assurances that the surplus would fall over time have once again come to nothing. The country is now the biggest single violator of the eurozone stability rules. It would face punitive sanctions if EU treaty law was enforced. Brussels told Germany to do its “homework” a year ago, but recoiled from taking any action. We will see if Jean-Claude Juncker’s commission does any better this time. If not, cynics might justifiably conclude that big countries play by their own rules in Europe, and that Germany can defy all rules. The EMU punishment machinery is highly political, in any case.

The story of the EMU debt crisis is that the authorities persistently enforce a creditor agenda rather than macro-economic welfare (an entirely different matter). This is the fifth consecutive year that Germany’s surplus has been above 6pc of GDP. The EU’s Macroeconomic Imbalance Procedure states that the Commission should launch infringement proceedings if this occurs for three years in a row, unless there is a clear reason not to. There are few extenuating circumstances in this case. Germany’s surplus is not caused by a one-off shock. The surplus remains huge even if adjusted for lower energy import costs. It is a chronic structural abuse, rendering monetary union unworkable over time, and is surely more dangerous for eurozone unity than anything going on in Greece. “The European Commission should stop pulling its punches: Germany should be fined,” said Simon Tilford, from the Centre for European Reform.

“Their surplus should be treated in the same way as the southern deficits were treated earlier, as a comparable threat to eurozone stability. What is so worrying is that the surplus would normally be falling rapidly at this stage of the economic cycle,” he said. Germany’s jobless rate is at a post-Reunification low of 4.7pc. It should therefore be enjoying a surge of consumption. This it is not happening because the rebalancing mechanism is jammed. What this shows is the EMU remains fundamentally out of kilter, and doomed to lurch from crisis to crisis even if there is a recovery. Any rebound in southern Europe will lead to the same build-up in intra-EMU trade imbalances, and therefore in the same offsetting capital flows, vendor-debt financing, and asset bubbles that led to the EMU crisis in the first place.

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Major strikes for more pay.

It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)

European travelers have contended for weeks with the possibility that Greece’s dwindling finances might lead to empty ATMs. They should have concerned themselves instead with Germany. While cash machines in Athens are still operating without any trouble, striking couriers in Berlin this week stopped filling ATMs, leading to a crunch for those trying to make withdrawals. And the open-ended labor dispute with a local security company means there’s no end in sight. “That all depends on how the company reacts,” said Andreas Splanemann, a spokesman for the Ver.di union representing the security personnel. “There are now a lot of cash machines that are empty.” Berlin’s strike is the latest in a series of walkouts that have riled a nation more accustomed to mocking the labor strife which has so often beset neighboring France.

A strike by train drivers that began Tuesday is paralyzing travel and clogging highways throughout Germany. That action follows a March walkout by pilots at Deutsche Lufthansa AG that led to flight cancellations for 220,000 people. “It’s really annoying, especially if you’re pressed for time,” Batgerel Militz, a Berlin student, said as she unsuccessfully tried to withdraw cash at two banks. She finally got lucky at the third – just in time to catch her delayed train. “Probably because of the train strike,” she said with a laugh. Joking aside, Germany is seeking to curb the influence of smaller unions by drafting a law that would limit companies’ labor representation to one union per group of employees. The measure is currently winding its way through the Bundestag, the country’s lower house of parliament.

In the case of the passenger train strike, which is set to run through May 10, the walkout was called by the GDL union, which represents 19,000 train drivers, switch-yard engineers and conductors. The GDL is far smaller than the larger EVG, which has about 213,000 members staffing Germany’s rail network. The Lufthansa strike crippled travel because it was called by pilots. “They can strike more readily if they do so with solely their own goals in mind,” said Stefan Heinz, an academic specializing in labor politics at Berlin’s Free University. “They can get more out of it for their group.” While Germans still strike less than the French, those who’ve walked out recently in Germany often hold posts that have a wider ripple effect across society.

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“The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them..”

Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)

Greece’s government has blasted its creditors for holding back progress on bailout talks, laying the blame squarely on differences between the European Union and the International Monetary Fund. Racheting up the pressure on the two bodies, the anti-austerity Syriza government said conflicting strategies and opposing views were not only impeding negotiations but injecting “a high level of danger” into the talks at a time when the country’s finances had hit rock bottom. “Serious disagreements and contradictions between the IMF and European Union are creating obstacles in the negotiations and a high level of danger,” said a senior government source. The official added that both lenders were digging in their heels on divergent issues, effectively enforcing “red lines everywhere”.

While the IMF was refusing to compromise on labour deregulation and pension reform but was relaxed on fiscal demands, the EU was insistent that primary surplus targets be met while being much more conciliatory about structural changes. The official insisted: “In such circumstances, it is impossible to have a compromise. The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them”. Speaking exclusively to the Guardian, the Greek health minister, Panagiotis Kouroumblis, said creditors were constantly moving the goalposts. “They are not only implacable, the feeling that they give us is that they are impossible to satisfy,” he said. “They ask for 10 things to be done and then come back the next day and ask for another 10 more. As much as we would like, that’s not going to lead to compromise.”

The warnings came as the European commission slashed its forecast for Greece’s growth rate this year, predicting the economy would expand by a mere 0.5%, compared with the 2.5% it had projected barely three months ago. The downgrade was the clearest sign yet that the stalled negotiations have thrown the country, last year believed to be emerging from its worst recession on record, back into reverse. Talks aimed at unlocking desperately needed rescue funds – €7.2bn (£5.3bn) from the last bailout has been held up as both sides haggle over reforms – have been beset by problems since the far-left Syriza leader Alexis Tsipras assumed power in January. The EC said Greece’s economic recovery had been hit by the political tumult that had plagued the country in the four months since the previous government was forced to call snap polls. “In the light of the persistent uncertainty, a downward revision has been unavoidable,” said the EU’s monetary affairs commissioner, Pierre Moscovici.

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“The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met..”

Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)

Greece blamed international creditors for the failure to achieve a breakthrough in bailout talks, saying a deal won’t be possible until they agree on a common set of demands. A Greek official said that the European Commission and the IMF are confronting the country with too many red lines and need to better coordinate their message. Greek bonds and stocks tumbled on Tuesday as optimism that an interim deal was close gave way to angst that the country isn’t moving fast enough to guarantee the continued flow of bank liquidity and bailout funds. Euro region finance ministers are next scheduled to meet on May 11, with Germany’s Wolfgang Schaeuble saying earlier he’s “skeptical” that an agreement can be reached by then.

Greece’s new line of argument focuses on what it says are divisions among the international creditors. The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met, said the official, who spoke on condition of anonymity because the talks are confidential. The commission is also refusing to consider a debt write down, he said. Greece is sending mixed signals about just how much money it has left. While officials say they’re confident of making payments to the IMF this week and next, one policy maker signaled last month that the country may struggle to keep its finances afloat beyond the end of this month.

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What’s the use of threatening Greece even further?

Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)

Greece’s eurozone creditors will not discuss how to get the country’s sovereign debt back on a sustainable path until Athens agrees to a new economic reform programme that would release €7.2bn in desperately needed bailout funds, the EU’s economic chief said on Tuesday. The talks over the reform programme, which have intensified in recent days, are at the centre of a three-month stalemate between eurozone creditors and the new radical leftist Greek government. The Syriza administration in Athens has resisted many of the reforms in the existing bailout programme but needs the funding to fill its rapidly dwindling coffers.

Pierre Moscovici, the European commissioner for economic affairs, said debt issues “can only be discussed after we have agreed a reform programme”. His statement reflects resistance in eurozone capitals to any form of “haircut” on Greek sovereign debt, which is now mostly held by EU governments and institutions. Mr Moscovici’s comments come as the IMF has suggested eurozone creditors may need to write down some of their Greek bailout loans to ensure the country’s debt levels begin to decline more sharply. Officials involved in the talks said the IMF was not seeking large-scale debt relief immediately.

Instead, it was warning that any concessions to Athens that allowed the government to post lower budget surpluses — the likely trajectory of the current talks — would require debt relief to make up the difference. “Six months ago, we all concluded there was no need for debt relief,” said one senior official. “But if there’s a significant relaxation of the programme [targets], the IMF will want to see some debt relief.” Without a return to sustainable debt levels — or a larger bailout from the eurozone to ensure Athens can continue to pay its bills — the IMF may be forced under its rules to withhold its share of the current bailout tranche, which amounts to about half of the €7.2bn being negotiated.

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“..if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.”

Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)

Negotiations with lenders over the future of Greece’s €240 billion bailout have been ongoing since Greece’s leftwing government came to power. And although Greece was given a four-month extension to its bailout in February, little has been achieved in terms of reforms. As talks dragged on into April, euro zone officials began to moan openly about Greece’s stance – and Varoufakis himself as he was in charge of negotiations — and the fact it was, as the Eurogroup’s President Jeroen Djisselbloem put it “wasting time.”The lack of progress raised concerns that Greece’s might not be able to find the money for upcoming loan repayments and whether it could avoid default and a potentially very messy exit from the euro zone.

Talk also turned to whether Varoufakis could lose his job as a way for show Greece to show its European partners that it was serious about reforms – serious enough to sack its own champion finmin. Instead, he was sidelined last Tuesday, keeping his job as finance minister but taken away from the frontline during negotiations – a move that one euro zone official said had helped negotiations to progress.Getting no love from either his euro zone counterparts or his own government, Varoufakis was verbally attacked and threatened with violence by anarchists in the Exarchia area of Athens, a neighborhood popular with anti-government protesters.

Varoufakis came out uscathed from the scuffle, but whether he can survive the blows and bruises of life in Greece’s tumultuous political landscape is yet to be seen. Just this weekend , the Greek finance ministry was denying reports that Varoufakis had offered to resign. Whether the reports are true or not, if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.

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Risky for Syriza, it threatens to go against its election promises.

Greece To Finalise Airports Deal ‘Immediately’ (Reuters)

Greece will finalise “immediately” a €1.2 billion deal with Fraport to run regional airports and reopen bidding for a majority stake in Piraeus port, a senior privatisations official said on Tuesday. The asset sales had been in doubt after Prime Minister Alexis Tsipras’ leftist-led government took power in January but may be the latest concessions offered by his government to try to secure more bailout cash from international creditors. The Greek finance, shipping and economy ministries involved in the sales declined to comment. “The issue of regional airports will be concluded immediately,” the official at Greece’s privatisations agency HRADF told Reuters on condition of anonymity, noting that an announcement could be expected by May 15.

Tsipras’ government is trying to renegotiate a 240-billion-euro bailout and has said it would review the sales, though various Greek officials have offered contradictory statements on the fate of both the airports and the Piraeus deals. Fraport and Greek energy firm Copelouzos had agreed with the privatisation agency in 2014 that it would run the airports in tourist destinations including Corfu, striking one of Greece’s biggest privatisation deals since the start of the debt crisis. Under the terms of the deal, the German-Greek group was expected to spend about €330 million in the first four years to upgrade the airports, that will be leased for 40 years.

On Tuesday, the privatisations official said Athens would invite shortlisted investors to submit by July binding offers for a 51% stake in Greece’s biggest port with the option to raise their stake to 67% over five years. “We will reopen the process in the coming days,” the official said. China’s Cosco Group, which already manages two of Piraeus port’s cargo piers, is among five preferred bidders. Greek port workers are due to stage a 24-hour strike on Thursday to protest against the privatisations of Piraeus and Thessaloniki ports, saying the government has rolled back on its pre-election pledges.

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“I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet

The rollback of financial regulation is stalled. Income inequality is a campaign issue. Americans are still angry about the financial crisis. Things aren’t shaping up the way the big banks expected, and an important reason is one laser-focused senator from Massachusetts.

Let’s assume that when he woke up on the morning of Dec. 12, Michael Corbat, CEO of Citigroup, was feeling pretty good. The day before, the House of Representatives had passed a bill that would save his bank and others lots of money and headaches. The trouble was, Elizabeth Warren, the senior senator from Massachusetts, was getting ready to speak on the Senate floor. She had his bank on her mind. What Warren wanted to talk about was an item tucked into page 615 of a 1,603-page spending package: the repeal of section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Known as the swaps push-out rule, section 716 required banks to set up separate subsidiaries, not backed by the government, to trade certain derivatives.

If the rule stood, it would generate huge administrative costs for the big banks. Citi had fought hard on this. The bank’s lobbyists had worked on lawmakers and helped draft language for the repeal. Getting it into a big spending package Congress was sure to pass was a coup. In the ongoing wars between Wall Street and the forces of government regulation, this repeal was a big win for the banks. “Today I am coming to the floor not to talk about Democrats or Republicans,” Warren began her speech, “but to talk about a third group that also wields tremendous power in Washington—Citigroup.” With that, Warren turned Citi into exactly the kind of villain so many people suspect lurks in the backrooms of the Capitol.

In one particularly striking moment, she connected nine top government officials—including Treasury Secretary Jacob J. Lew—directly to the megabank. She invoked Teddy Roosevelt, her favorite trust-busting president, who took on the big corporations of his day. “There is a lot of talk coming from Citigroup about how Dodd-Frank isn’t perfect,” Warren continued. “So let me say this to anyone who is listening at Citi. I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

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Will Beijing take on all debt to the shadow system?

China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)

China’s central bank is considering lending to policy banks through a new tool so they can buy bonds issued by local governments, a person close to the regulator says. The loans would have a maturity of at least 10 years, the source said. Other details of how this would work remain unclear, but the tool will be unlike anything the bank has used before, he said. “It will be a new monetary tool the world has never seen,” the person said. “The format does not matter, and all possible means could be taken.” He said the regulator will use the new instrument to provide China Development Bank (CDB) and perhaps other policy banks with capital so they can buy bonds that local governments have issued.

The Ministry of Finance has said local governments can issue 1 trillion yuan ($160 billion) worth of bonds this year to repay their old debts — in other words allowing them to swap existing debts, which are mostly bank loans, for bonds that have longer maturities and cost less. The problem is that commercial banks are not interested in the bonds. Banks are “not at all interested” in buying such bonds because “their yields are too low and there is no liquidity,” a source from a joint-stock bank said. He said the bank he works for bought some local-government bonds only because its branches want to maintain a good relationship with local governments.

Xu Hanfei at Guotai Junan Securities said the interest rates of bank loans to local-government financing platforms — commercial vehicles that local governments used to circumvent a previous restriction that barred them from borrowing directly — are usually around 8%, and so are the yields of these platforms’ bonds. With local-government bonds, he said, the yields are usually halved. “Commercial banks do not want to buy local-government bonds … because the yields can hardly cover their capital cost,” a source from a bank’s financial-market division said. “There are many more assets that promise much better returns than local-government bonds. Why bother exchanging them for the bonds?”

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The war crazies.

CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)

Wall Street’s Council on Foreign Relations has issued a major report, alleging that China must be defeated because it threatens to become a bigger power in the world than the U.S. This report, which is titled “Revising U.S. Grand Strategy Toward China,” is introduced by Richard Haass, the CFR’s President, who affirms the report’s view that, “no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China.” Haass gives this report his personal imprimatur by saying that it “deserves to become an important part of the debate about U.S. foreign policy and the pivotal U.S.-China relationship.” He acknowledges that some people won’t agree with the views it expresses.

The report itself then opens by saying: “Since its founding, the United States has consistently pursued a grand strategy focused on acquiring and maintaining preeminent power over various rivals, first on the North American continent, then in the Western hemisphere, and finally globally.” It praises “the American victory in the Cold War.” It then lavishes praise on America’s imperialistic dominance: “The Department of Defense during the George H.W. Bush administration presciently contended that its ‘strategy must now refocus on precluding the emergence of any potential future global competitor’—thereby consciously pursuing the strategy of primacy that the United States successfully employed to outlast the Soviet Union.”

The rest of the report is likewise concerned with the international dominance of America’s aristocracy or the people who control this country’s international corporations, rather than with the welfare of the public or as the U.S. Constitution described the objective of the American Government: “the general welfare.” The Preamble, or sovereignty clause, in the Constitution, presented that goal in this broader context: “in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.” The Council on Foreign Relations, as a representative of Wall Street, is concerned only with the dominance of America’s aristocracy.

Their new report, about “Revising U.S. Grand Strategy Toward China,” is like a declaration of war by America’s aristocracy, against China’s aristocracy. This report has no relationship to the U.S. Constitution, though it advises that the U.S. Government pursue this “Grand Strategy Toward China” irrespective of whether doing that would even be consistent with the U.S. Constitution’s Preamble. The report repeats in many different contexts the basic theme, that China threatens “hegemonic” dominance in Asia. For example: “China’s sustained economic success over the past thirty-odd years has enabled it to aggregate formidable power, making it the nation most capable of dominating the Asian continent and thus undermining the traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.”

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Kiev left Eastern Ukraine alone, no cash in ATMs, no pensions payments, no benefit payments. There’s only one alternative.

Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)

As a wobbly cease-fire keeps eastern Ukraine’s warring factions apart, Russia’s ruble is conquering new territory across the breakaway republics. In Donetsk, the conflict zone’s biggest city, supermarkets have opened ruble-only checkout counters to serve the fighters in camouflage lining up along pensioners. Bus and tram tickets come with a conversion from Ukraine’s hryvnia to the Russian currency. Gas-station workers are paid in rubles because that’s what their rebel customers use to fuel their armored jeeps. “There are no problems in shops, they all accept rubles,” said Natalya, 36, a hairdresser buying groceries for her parents, who declined to give her surname for fear of reprisals. “They don’t always have small change, but they can give you chewing gum or a cigarette lighter instead.”

The ruble’s creeping advance shows how the troubled regions are slipping further from the government’s grasp, even as a peace accord brokered by Germany, France and Russia calls for the nation of more than 40 million to remain whole. Separatist officials haven’t yet made their currency plans clear. The precedent in ex-Soviet countries from Georgia to Moldova shows that similar shifts can help entrench pro-Russian insurgents. “The increasing use of the ruble is yet another sign Russia’s going to keep de facto sovereignty over the territory it and the separatists control,” said Cliff Kupchan, Eurasia Group chairman in New York. “If the sides implement the latest truce, which is unlikely, perhaps both the hryvnia and the ruble will be used. If not, it will be all ruble.”

Ukraine is the one place in the world where the ruble’s 46% plunge against the dollar in 2014 didn’t make it any less attractive, considering a 48% drop in the hryvnia, the world’s worst performer for the last two years. The Russian currency has staged a partial recovery in 2015, with April its best month on record. It advanced 0.4% on Tuesday. And the ruble has been welcomed in Donetsk, where most shops and businesses now accept it. Hryvnias are no longer available from cash machines in rebel-held territory, forcing locals to go to other parts of Ukraine to withdraw money.

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There’s not nearly enough appreciation in the west for what Russia suffered, and achieved, in WWII. Russia mourned more dead than all other countries combined.

Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

In October 1941 Hitler launched an offensive on the Russian capital codenamed Operation Typhoon. It was supposed to crush Moscow in a so-called double pincer – two simultaneous attacks from the north and south. The Soviet troops vigorously fought back, disrupting Hitler’s plans for a quick operation. The Battle of Moscow eventually lasted through January 1942 and ended in the first battlefield defeat of the Nazi army. The battle was one of the bloodiest and lethal struggles in world history and was later considered to be a decisive turning point in the fight against Nazi troops. Memories of that battle are still fresh for WW2 veteran Gennady Drozdov, 98, who was assigned to the 4th Guards Mortar Regiment at that time.

“During the Battle of Moscow, in December 1941, there was a raid on the hinterlands of the Nazi German troops. We came so close we could see the position of their troops, their machine gun, in particular, and its operators,” Drozdov told RT. “On our command the division fired a salvo, missiles flew over our heads – we completed our task and returned to the base.” The weather seemed to be on the side of the Soviet army, as autumn brought heavy rains, and then winter caught the Nazis unawares with exceptionally freezing temperatures. While the epic battle raged on, Moscow residents had to “survive all the horrors of war: hunger, cold, devastation, loss of family and the loved ones,” according to Rimma Grachyova, who was seven years old when the war broke out. “Most frightening of all was the bombing – daily bombings that continued incessantly,” the woman recalls.

“At first we would shelter in the “Park Kultury” underground station that was not far from our house. Then our family decided that if it was our fate to die we would die together and we wouldn’t run from it. There were five kids in our family.” “We helped the front as much as we could. We’d collect scrap metal from courtyards. I’d knit socks and mittens together with grown-ups, as I knew how. We wrote letters too. We also sang for the wounded in hospitals,” the 80-year-old witness said, sharing her childhood experience. Almost one million Soviet soldiers died during the defense and counter-offensive operations, which included the construction of three defensive belts in the Moscow region, as well as deployment of reserve armies. The outcome of the Battle of Moscow saw German troops pushed back nearly 200 km from the capital, becoming the first-ever blow to the Wehrmacht’s reputation as an invincible army.

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 April 23, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , , ,  12 Responses »
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Harris&Ewing Camp Meade, Maryland 1917

Half of US Fracking Companies Will Be Dead or Sold This Year (Bloomberg)
The ‘Grexit’ Issue And The Problem Of Free Trade (Stratfor)
If Greece Can Survive 2015, It’s Home Free (MarketWatch)
Greek Banks Win More Emergency Cash as Talks Loom (Bloomberg)
Greece: Of Parents And Children, Economists And Politicians (Wren-Lewis)
Greek Contagion Risks May Be Higher Than You Think (CNBC)
We’re Just Learning the True Cost of China’s Debt (Bloomberg)
‘Goldman Advising On The Economy Like Dracula On Running A Blood Bank’ (RT)
Russell Brand Eyes Cryptocurrency As Integral Part Of Global Revolution (RT)
More Than A Million Brits Have Used Food Banks In The Past Year (Guardian)
Petrobras, World’s Most Indebted Company, Gets Audited (CNBC)
Petrobras To Book Nearly $17 Billion In Charges (MarketWatch)
Most Migrants Crossing Mediterranean Will Be Sent Back (Guardian)
EU Borders Chief Says Saving Migrants’ Lives ‘No Priority’ (Guardian)
‘Maidan Snipers Trained In Poland’: Polish MP (RT)
US Accuses Russia Of ‘Ramping Up’ Ukraine Presence (BBC)
If A Clinton Were To Marry A Bush, The US Could Cancel Elections (RT)
Fed Refuses to Comply With Lawmakers’ Request For Names in Probe (WSJ)
Wolves Shot From Choppers Shows Oil Harm Beyond Pollution (Bloomberg)
What California Can Learn About Drought From ‘Chinatown’ (MarketWatch)

“It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

Half of US Fracking Companies Will Be Dead or Sold This Year (Bloomberg)

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford said. There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.

There were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Consolidation among bigger players began with Halliburton announcing plans to buy Baker Hughes in November for $34.6 billion and C&J Energy buying the pressure-pumping business of Nabors Industries Ltd. Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.

Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35% this year, according to PacWest, a unit of IHS. While many large private-equity firms are looking at fracking companies to buy, the spread between buyer and seller pricing is still too wide for now, Alex Robart, a principal at PacWest, said in an interview at CERAWeek. Fulks declined to say whether Weatherford is seeking to acquire other fracking companies or their unused equipment. “We go by and we see yards are locked up and the doors are closed,” he said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

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Not a big Stratfor fan, but smart analysis by Friedman: “The main assumption behind European integration was that a free trade zone would benefit all economies. If that assumption is not true, then the entire foundation of the EU is cast into doubt..”

The ‘Grexit’ Issue And The Problem Of Free Trade (Stratfor)

The Greek crisis is moving toward a climax. The issue is actually quite simple. The Greek government owes a great deal of money to European institutions and the International Monetary Fund. It has accumulated this debt over time, but it has become increasingly difficult for Greece to meet its payments. If Greece doesn’t meet these payments, the IMF and European institutions have said they will not extend any more loans to Greece. Greece must make a calculation. If it pays the loans on time and receives additional funding, will it be better off than not paying the loans and being cut off from more? Obviously, the question is more complex. It is not clear that if the Greeks refuse to pay, they will be cut off from further loans.

First, the other side might be bluffing, as it has in the past. Second, if they do pay the next round, and they do get the next tranche of funding, is this simply kicking the can down the road? Does it solve Greece’s underlying problem, which is that its debt structure is unsustainable? In a world that contains Argentina and American Airlines, we have learned that bankruptcy and lack of access to credit markets do not necessarily go hand in hand. To understand what might happen, we need to look at Hungary. Hungary did not join the euro, and its currency, the forint, had declined in value. Mortgages taken out by Hungarians denominated in euros, Swiss francs and yen spiraled in terms of forints, and large numbers of Hungarians faced foreclosure from European banks.

In a complex move, the Hungarian government declared that these debts would be repaid in forints. The banks by and large accepted Prime Minister Viktor Orban’s terms, and the European Union grumbled but went along. Hungary was not the only country to experience this problem, but its response was the most assertive. A strategy inspired by Budapest would have the Greeks print drachmas and announce (not offer) that the debt would be repaid in that currency. The euro could still circulate in Greece and be legal tender, but the government would pay its debts in drachmas. In considering this and other scenarios, the pervading question is whether Greece leaves or stays in the eurozone. But before that, there are still two fundamental questions.

First, in or out of the euro, how does Greece pay its debts currently without engendering social chaos? The second and far more important question is how does Greece revive its economy? Lurching from debt payment to debt payment, from German and IMF threats to German and IMF threats is amusing from a distance. It does not, however, address the real issue: Greece, and other countries, cannot exist as normal, coherent states under these circumstances, and in European history, long-term economic dysfunction tends to lead to political extremism and instability. The euro question may be interesting, but the deeper economic question is of profound importance to both the debtor and creditors.

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Won’t the Troika even give it that one year?

If Greece Can Survive 2015, It’s Home Free (MarketWatch)

For the third time in five years, Greece’s parlous financial state is shaking up global markets. In 2010 and 2012, the country was saved from default by two massive rescue packages organized by the EU, the ECB and the IMF. This time, the question is whether Greece, which owes about €320 billion to its creditors, really wants to save itself. Its government, run by radical left-wing group Syriza, says it doesn’t want to default, but it also won’t make the economic reforms creditors demand. In fact, Syriza has vowed to protect pensioners and public employees’ salaries even as debt payments come due. With nearly 20 billion euros owed to creditors over the next six months, the two sides are far apart, and the risks of a default or “Grexit” — Greece’s exit from the euro — are rising.

Still, all may not be lost. If Greece can get through 2015, it won’t have to pay creditors very much until the next decade. “People are saying this is the crunch year,” said Franklin Allen, an expert on financial crises who is executive director of the Brevan Howard Centre and professor at Imperial College London. In fact, we’re in the crunch months. Athens owes around €2.5 billion to the IMF by mid-June. It made a payment to the IMF in early April. Greece and its creditors meet again on Friday in Riga, Latvia, although few expect a deal. Both Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis have said Greece will meet its obligations, but on Monday Tsipras ordered local governments to transfer funds to the Greek central bank.

That amounts to confiscating €2 billion in reserves local governments hold in commercial banks. The money could be used to pay salaries and part of the debt to the IMF. The yield on Greece’s two-year bonds soared to near 30% on Tuesday. Yikes! The Greek government wants €7.2 billion in emergency bailout funds to get it over the hump. So far, creditors aren’t budging. IMF Managing Director Christine Lagarde last week warned against any payment delays and told Varoufakis to accelerate reforms, such as privatizations and labor-market changes. It’s a recipe for a stalemate. That’s why Allen, who also has taught finance at The Wharton School of the University of Pennsylvania, thinks “there’s about a 40% chance they’ll default on something.”

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What’s a few billion among friends?

Greek Banks Win More Emergency Cash as Talks Loom (Bloomberg)

The ECB almost doubled an increase in emergency funding to Greek banks from last week before political talks shift to Brussels and Latvia over the country’s bailout review. The European Central Bank’s Governing Council raised the cap on Emergency Liquidity Assistance by about €1.5 billion to €75.5 billion on Wednesday, people familiar with the decision said. ELA is funding provided by national central banks at their own risk and is extended against lower-quality collateral than the ECB accepts. “The ceiling increase shows that deposit outflows from Greek lenders continue,” said Andreas Koutras at In Touch Capital Markets Ltd. in London. “The question now is when will the collateral against ELA be exhausted — in other words how much time is left?”

Euro-area finance ministers will meet in Riga, Latvia, on Friday in their latest attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel are due to meet on the sidelines of a European Union immigration summit in Brussels on Thursday, according to a Greek government official. Greek stocks and bonds rose Wednesday after Finance Minister Yanis Varoufakis saw a “convergence” of views and ECB Executive Board member Benoit Coeure said progress was being made.

“In recent days, there has been tangible progress in the quality of the discussions,” Coeure said in an interview with the Athens-based newspaper Kathimerini. “Significant differences on substance remain.” There are signs Greece’s creditors are curbing demands for far-reaching reforms as part of current talks, focusing on a number of key actions instead, Medley Global Advisors said in a client report on Wednesday. The softening stance comes on condition Greece stays co-operative on fiscal targets, according to Medley.

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“..from the perspective of the Eurozone and IMF, this is all extremely small beer. You would think the key players on that side had more important things to do with their time.”

Greece: Of Parents And Children, Economists And Politicians (Wren-Lewis)

Chris Giles has a recent FT article where he describes how non-Greek policymakers (lets still call them the Troika) see themselves like parents trying to deal with the “antics” of the problem child, Syriza in Greece. He splits these parents into different types: those that want to act as if the child is grown up (though they believe they are not), those who want to be disciplinarians etc. As a description of how the Troika view themselves, and present themselves to the public, the analogy rings true. It certainly accords with the constant stream of articles in the press predicting an impending crisis because the Greeks ‘refuse to be reasonable’.

[..] We know that if Greece was not part of the Euro, but just another of a long line of countries that have borrowed too much and had to partially default, its remaining creditors would be in a weak position now that Greece has achieved primary surpluses (taxes>government spending). The reason why the Troika is not so weak is that they have additional threats that come from being the issuer of the Greek currency.

It is important to understand what the current negotiations are about. Running a primary surplus means that Greece no longer needs additional borrowing – it just needs to be able to roll over its existing debts. Part of the argument is about how large a primary surplus Greece should run. Common sense would say that further austerity should be avoided so that the economy can fully recover, when it will have much greater resources to be able to pay back loans. Instead the creditors want more austerity to achieve large primary surpluses. Of course the former course of action is better for Greece: which would be better for the creditors is unclear! The negotiations are also about imposing additional structural reforms. Greece has already undertaken many, and is prepared to go further, but the Troika wants yet more.

As Andrew Watt points out, from the perspective of the Eurozone and IMF, this is all extremely small beer. You would think the key players on that side had more important things to do with their time. The material advantages to be gained by the Troika playing tough are minimal from their perspective, but the threats hanging over the Greek economy are damaging – not just to investment, but also to the very primary surpluses that the Troika needs. So why do the Troika insist on continuing with brinkmanship? Can it be that this is really about ensuring that an elected government that challenges the dominant Eurozone political and economic ideology must be forced to fail?

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This has always been obvious no matter what Draghi or Schäuble say. They have no way of knowing, they can just wish.

Greek Contagion Risks May Be Higher Than You Think (CNBC)

A perception in financial markets that Greece exiting the euro zone would have limited knock-on effects is misguided, some analysts say. Euro zone officials meet in Latvia this week to discuss a rescue deal between Greece and its creditors amid growing talk that time is running out for Athens to avoid defaulting on its debt and being ejected from the 19-member euro zone. “UBS does not believe, as its base case that Greece, will leave the euro,” Paul Donovan, UBS global economist, said in a video published by the bank’s research team. “However, there seems to be a belief in financial markets that if Greece were to be forced from the euro area it should be regarded as an isolated incident,” he said. “This belief, seems to us, to be dangerous.”

Donovan said that the view that Greek problems were distinct from the rest of the euro zone was reflected in recent online search patterns: Searches on Google for the term “Grexit” had soared, while those for “euro crisis” or “euro collapse” had not, even though they did during the 2012 euro zone debt crisis. In the latest crisis, government bond yields in peripheral euro zone countries—in the past viewed as most vulnerable to any Greek contagion—have not followed Greek bond yields higher. Greek bond yields have risen sharply this week, reflecting the greater risk attached to holding them. Greece’s benchmark 10-year bond yielded over 13% on Tuesday, well above Spain’s 10-year yield at 1.48% and Portuguese yields at 2.12%.

Although this can partly be explained by the ECB’s massive monetary stimulus program, which is putting downward pressure on yields, it also reflects diminished contagion fears. “I don’t get the sense that there is a widespread view that if a deal is not made and Greece exits the euro zone, you would have this massive contagion effect,” Ben White, Politico’s chief economic correspondent, told CNBC on Monday. UBS’ Donovan said any contagion from a Grexit would come from the banking system. He said that if Greece did leave the euro area, any money in Greek banks would be redenominated into a new currency, which would probably plunge in value, distressing depositors.

Depositors in other countries may think their holdings are safe, since their country is not going to leave the euro zone–or they may decide to avoid any risk and withdraw their savings, Donovan said. “Why take the risk that your country probably won’t leave the euro, if it’s a relatively simple operation to withdraw your savings and hold them in cash?” Donovan asked. “A euro held as cash today is a euro tomorrow,” he said. “A euro held in a bank account today may be an entirely different currency tomorrow, if the irrevocable monetary union has been revoked. Investors are thus likely to choose cash over deposits.”

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We haven’t a clue yet.

We’re Just Learning the True Cost of China’s Debt (Bloomberg)

The true cost of the debt that China’s real estate developers peddled to eager international investors during a five-year property boom is now becoming clear. Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four – Kaisa, Fantasia, Renhe, Glorious Property – raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted. China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble.

Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years. “It was an unintended consequence of the Chinese government that property developers are selling equity and debt to offshore investors,” said Ben Sy, a Hong Kong-based managing director in JPMorgan’s private banking division. “There happened to be huge demand from international investors in the past few years driven by the intense search for yield.” Kaisa was the first to debut in the dollar note market in 2010, selling $650 million of five-year bonds that April.

The securities paid a 13.5% coupon, more than twice the 6.3% average yield for Bank of America Merrill Lynch’s U.S. Real Estate index at the time. The Shenzhen-based developer was among nine real estate companies that raised $4 billion selling offshore bonds that year, a record at the time and fourfold the previous high. Six of the nine had listed their shares on the Hong Kong stock exchange in the previous 24 months. Chinese developers’ move into the international capital markets started in earnest in 2007. From January to December, as the rest of the world slid deeper into recession, homebuilders raised $7.2 billion. Since 2008, another $11.5 billion has been raised via IPOs in Hong Kong.

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The Dracula Squid.

‘Goldman Advising On The Economy Like Dracula On Running A Blood Bank’ (RT)

Goldman Sachs’ claim that a Labour victory in the general election would impact negatively on Britain’s economy has been dismissed by leading British economists, who say the Wall Street giant’s outlook is laughable and colored by self-interest. In a research document sent to clients earlier this week, Goldman claimed a Labour-led government could spark an exodus of investors from the City of London to more business-friendly pastures. The bank’s warning adds to a growing chorus of concern emanating from the City that Ed Miliband’s party would formulate fiscal and economic policy in the interest of people rather than profit. Speaking to RT on Wednesday, British economist James Meadway insisted Goldman Sachs is not a credible voice on economic policy.

“Listening to Goldman Sachs for advice on how to run the economy is like listening to Dracula on how to run a blood bank,” he said. UK economist and anti-austerity campaigner Michael Burke added Goldman Sachs’ general election analysis amounts to “laughably bad economics.” Burke told RT Goldman’s assessment of Labour’s prospective role in government appears to “confuse the economy with the well-being of its own bankers.” He added the Wall Street banking giant’s prognosis is “blatantly political” and born of self-interest. Goldman Sachs is a powerful player in the City of London and across the European Union.

However, the investment bank has been the focus of a firestorm of criticism in recent years over allegations of insider trading, corruption, aggressive investment vehicles with profound social impacts, and its role in compounding Europe’s sovereign debt crisis. Despite the bank’s less-than-gleaming reputation, its condemnation of Labour will likely be welcomed by City financiers and Conservatives. Speaking to its clients earlier this week, the investment bank said a victory for Labour would be understood as “more problematic by the business community” than victory for the Tories. Goldman billed a coalition between Labour and the Scottish National Party (SNP) as the most toxic combination of parties that could enter government next month.

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I’m not sure I find the celebrity contest that seems to go along with this thing all that appealing. Nothing against Russell, or Max.

Russell Brand Eyes Cryptocurrency As Integral Part Of Global Revolution (RT)

In his quest for a global revolution, political activist Russell Brand is eyeing crypto currency and crowd funding as a way of negating and avoiding the capitalist system. Such combination can set the stage for a new era, believes RT’s Max Keiser. Russel Brand has long been promoting organized civil disobedience to bring about a political revolution and fair distribution of wealth unfeasible under capitalism. With his calls sometimes bordering on anarchy, Brand has emerged as a leftist political figure seeking social justice and decentralization of state control over the individual.

“I think what is important is to organize and to disobey. To be really, really disobedient. Revolution is required. It is not a revolution of radical ideas, but simply the implementation of the ideas that they say we already have,” Brand was telling his supporters as he campaigned for resistance. Now Brand has taken one of these revolutionary ideas, the cryptocurrency, and teamed up with StartJoin crowdfunding platform to help people break away from conventional monetary and financial systems. “Essentially what we need is alternative systems and models, and alternative currency is an integral part of that,” Brand told Max Kaiser, the co-guru behind the financial side of the StartCOIN project and the host of RT’s Kaiser Report.

“I’m very interested in setting up social enterprises, such as our cafe that we’ve started, replicating that model more and more,” Brand explained. “Small businesses, practical, functional things where people can come together in an entrepreneurial spirit, creatively, and work together – hopefully ultimately using an alternative currency and completely negating and avoiding the system.” “The more I deal with bureaucracy, the more I deal with consumerism, the more I think that there is really very little it can offer us,” he added. Brand’s latest project is aimed at promoting digital literacy, to further boost online activism. By raising £150,000 for at least 1,000 laptops he is planning to give away for free, Brand wants to make the voices of even the most marginalized individuals in the community heard.

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Land of shame.

More Than A Million Brits Have Used Food Banks In The Past Year (Guardian)

More than 1 million people, including rising numbers of low-paid workers, were forced to use food banks in the last 12 months, challenging claims that the dividends of Britain’s economic recovery are being equally shared. The latest figures from the Trussell Trust, which coordinates a network of food banks in the UK, show a 19% year-on-year increase in food bank users, demonstrating that hunger, debt and poverty are continuing to affect large numbers of low-income families and individuals. Nearly 1.1 million people received at least three days of emergency food from the trust’s 445 food banks in 2014-15 – up from 913,000 the previous year. Back in 2009-10, before the Liberal Democrat-Conservative coalition took power, the then little-known charity fed 41,000 people from its 56 food banks.

Chris Mould, the Trussell Trust chairman, said the figures showed many people were experiencing “catastrophic” problems as a result of low incomes, despite signs of a wider economic recovery. He said: “These needs have not diminished in the last 12 months.” Experts warned that the figures were the “tip of the iceberg” of food poverty in the UK, while doctors said the inability of families to buy enough food had become a public health issue. The Trussell Trust figures show the biggest proportion, 44%, of food bank referrals last year – marginally lower than the previous year – were triggered by people pitched into crisis because their benefit payments had been delayed, or stopped altogether as a result of the strict jobcentre sanctions regime. More than a fifth, 22%, of food bank users were referred because of low income – meaning they were unable to afford food due to a relatively small financial crisis such as a boiler breaking down or having to buy a school uniform.

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This should have been one of the richest entities in the world. And look at it! What came out, see below, is they say they lose $2 billion to ‘graft’. $2 billion? Try $200 billion. These guys spend $2 billion on champagne alone.

Petrobras, World’s Most Indebted Company, Gets Audited (CNBC)

Petrobras, the Brazilian oil giant, is hoping to finally release audited financial results for the fourth quarter after U.S. markets close on Wednesday, including an estimate of how much has been stripped out of the company by years of alleged fraud. The state-controlled oil company is engulfed in what’s probably the largest financial scandal in Brazil’s history—a high bar, given the country’s record of corruption. And Wednesday’s earnings report has big implications for investors and maybe even the future course of the world’s seventh-biggest economy. Markets are closely examining the results for the level of write-offs and impairments on Petrobras assets, whose values may have been inflated by the fraud. Estimates on how big those numbers may be are staggering: anywhere from $6 billion to $30 billion.

Andre Gordon of AMEC, a Brazilian shareholders’ rights group, said he’s “waiting to see the balance sheet” and expects impairments and writeoffs of between $10 billion to $15 billion. AMEC is active in lobbying for better corporate governance at Petrobras and within Brazil in general. Gordon said he hopes for a turning point for the company that will lead to less government entanglement with Petrobras, “but I am skeptical.” “Not even the opposition party talks about privatization of Petrobras—only small insignificant parties with small market share,” he said. The scandal started with the arrest early last year of a company director, who subsequently struck a deal with prosecutors in September. Since then, details have emerged almost daily of a decade-long, alleged bribery scheme involving company officials.

The executive alleged to investigators that for nearly 10 years, Petrobras contracts were routinely padded by 3%, with the extra money used for bribes and kickbacks. Much of that money was supposedly funneled to the country’s ruling political parties. Other executives have since come forward, and nearly 50 people have been arrested or charged, ranging from more than a dozen CEOs to politicians to party officials, including the treasurer of Brazilian President Dilma Rousseff’s Workers Party.

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Rousseff must step down and open the prosecutorial floodgates here, or there’ll be severe damage for decades.

Petrobras To Book Nearly $17 Billion In Charges (MarketWatch)

Brazilian state-run oil company Petróleo Brasileiro SA on Wednesday finally put a price tag on the impact of a corruption scandal that has battered the company’s shares, writing off 6.2 billion reais ($2.1 billion) of alleged bribe payments
In addition, the company booked an impairment charge of 44.6 billion reais ($14.8 billion) for 2014 after determining that assets were overvalued on its balance sheet. As a result, the company reported a net loss of 26.6 billion reais for the fourth quarter on revenue of 85.04 billion reais. Earnings before interest, taxes, depreciation and amortization stood at 20.06 billion reais, up from 15.55 billion reais a year earlier.

The disclosures were part of the first audited financial statements released by Petrobras in more than eight months. Brazilian federal prosecutors since last year have been investigating allegations that the company’s suppliers conspired to overcharge Petrobras for major projects, funneling some of the illicit profit to former Petrobras executives and politicians in the form of bribes and illegal political donations. Petrobras has portrayed itself as a victim of the graft and says it has cooperated with authorities. Still, the company struggled to calculate the scheme’s impact on its balance sheet, leading auditor PricewaterhouseCoopers to refuse to sign off on its statements since the third quarter of 2014.

“With the publication of audited 2014 results, Petrobras has cleared a significant obstacle, after a collective effort, that shows our ability to overcome challenges in an adverse environment,” Chief Executive Aldemir Bendine said in a statement. The financials come just days before an April 30 deadline in Petrobras’s bond covenants that could have allowed the holders of billions of dollars of Petrobras debt to demand early repayment.

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“Only 5,000 resettlement places across Europe are to be offered to refugees..”

Most Migrants Crossing Mediterranean Will Be Sent Back (Guardian)

Only 5,000 resettlement places across Europe are to be offered to refugees who survive the dangerous Mediterranean sea crossing under the emergency summit crisis package to be agreed by EU leaders in Brussels on Thursday. A confidential draft summit statement seen by the Guardian indicates that the vast majority of those who survive the journey and make it to Italy – 150,000 did so last year – will be sent back as irregular migrants under a new rapid-return programme co-ordinated by the EU’s border agency, Frontex. More than 36,000 boat survivors have reached Italy, Malta and Greece so far this year. The draft summit conclusions also reveal that hopes of a major expansion of search-and-rescue operations across the Mediterranean in response to the humanitarian crisis are likely to be dashed, despite widespread and growing pressure.

The summit statement merely confirms the decision by EU foreign and interior ministers on Monday to double funding in 2015 and 2016 and “reinforce the assets” of the existing Operation Triton and Operation Poseidon border-surveillance operations, which only patrol within 30 miles of the Italian coast. The European council’s conclusions said this move “should increase the search-and-rescue possibilities within the mandate of Frontex”. The head of Frontex said on Wednesday that Triton could not be a search-and-rescue operation. Instead, the EU leaders are likely to agree that immediate preparations should begin to “undertake systematic efforts to identify, capture and destroy vessels before they are used by traffickers”. The joint EU military operation is to be undertaken within international law.

The statement describes the crisis as a tragedy and says the EU will mobilise all efforts at its disposal to prevent further loss of life at sea and to tackle the root causes of the human emergency, including co-operating with the countries of origin and transit. “Our immediate priority is to prevent more people dying at sea. We have therefore decided to strengthen our presence at sea, to fight the traffickers, to prevent illegal migration flows and to reinforce internal solidarity,” it says, before adding that the EU leaders intend to support all efforts to re-establish government authority in Libya and address key “push” factors such as the situation in Syria. But the detail of the communique makes it clear that the measures to be agreed fall far short of this ambition.

In particular in terms of sharing responsibility across the EU for those who survive the journey, the draft statement suggests only “setting up a first voluntary pilot project on resettlement, offering at least 5,000 places to persons qualifying for protection”, it says. The EU leaders also make a commitment to “increasing emergency aid to frontline member states” – taken to mean Italy, Malta and Greece – “and consider options for organising emergency relocation between member states”.

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“Leggeri ruled out putting his ships anywhere near the Libyan coast, saying stepping up search-and-rescue operations would only encourage desperate migrants to risk the passage.”

EU Borders Chief Says Saving Migrants’ Lives ‘No Priority’ (Guardian)

The head of the EU border agency has said that saving migrants’ lives in the Mediterranean should not be the priority for the maritime patrols he is in charge of, despite the clamour for a more humane response from Europe following the deaths of an estimated 800 people at sea at the weekend. On the eve of an emergency EU summit on the immigration crisis, Fabrice Leggeri, the head of Frontex, flatly dismissed turning the Triton border patrol mission off the coast of Italy into a search and rescue operation. He also voiced strong doubts about new EU pledges to tackle human traffickers and their vessels in Libya.

“Triton cannot be a search-and-rescue operation. I mean, in our operational plan, we cannot have provisions for proactive search-and-rescue action. This is not in Frontex’s mandate, and this is in my understanding not in the mandate of the European Union,” Leggeri told the Guardian. The capsizing of a trawler off Libya late on Saturday sparked a public outcry. EU foreign and interior ministers held an emergency meeting on Monday and a special summit on the issue has been called for Thursday in Brussels. The ministers and the European commission agreed to bolster the current Triton mission, to increase its funding and assets, and to expand its area of operation while also calling for new military measures to “systematically capture and destroy” traffickers’ vessels.

Thursday’s summit is to finalise the EU response. Donald Tusk, the president of the European council, who called and will chair the emergency summit, said the leaders had to agree on quick and effective action. “Our overriding priority is to prevent more people from dying at sea … to agree on very practical measures, in particular by strengthening search and rescue possibilities,” he said. But Leggeri ruled out putting his ships anywhere near the Libyan coast, saying stepping up search-and-rescue operations would only encourage desperate migrants to risk the passage. He signalled that Frontex was not asking for more boats, and voiced scepticism about the new talk of military action.

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More great stuff from ‘our’ side.

‘Maidan Snipers Trained In Poland’: Polish MP (RT)

Snipers who are thought to have operated in Kiev’s Independence Square amidst events that led to a coup in February 2014 were trained in Poland and sent to Ukraine to “do a favor” for the US, a Polish Euro-MP claimed in an interview. On February 20, 2014, riot police trying to restrain anti-government demonstrators on Maidan Nezalezhnosti in Kiev suddenly retreated up the street from whence they had come. As the protesters rushed forward, gunfire suddenly broke out, with many witnesses saying it was a sniper attack. In some two hours, 46 people were killed.

A year after the tragedy that provoked a huge backlash from the Ukrainians, ultimately leading to the rapid toppling of then-President Viktor Yanukovich, the events on the square are still pending investigation. Several Berkut riot police officers have been detained, but not much progress has been made, while murky details and speculation have been emerging in the press. In a new development, Polish former presidential candidate Janusz Korwin-Mikke told Wiadomosci media outlet that the snipers had actually been trained in Poland. Korwin-Mikke, 72, a European lawmaker and leader of Poland’s conservative KORWiN party, claimed this was a CIA operation. This came as a “Yes” reply to the question whether he believed the CIA was involved.

“Yes – but it was also our operation. The snipers were trained in Poland,” Korwin-Mikke said adding this was done “to provoke riots.” Poland trained those “terrorists” to please the US, which invested heavily into Ukrainian coup, the politician alleged. “Let me say this again: we are doing a favor to Washington,” Korwin-Mikke said. Challenged about his sources, the politician said he overheard this in the European Parliament as Estonia’s Foreign Affairs Minister Urmas Paet “admitted” to the then-EU foreign affairs chief Catherine Ashton that it was “our people who opened fire on Maidan, not those of Yanukovich or Putin.” It is not clear when the conversation took place, but in March previous year a tape with a telephone conversation between the two politicians was leaked which went among the same lines.

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And we don’t need to provide no steenking proof.

US Accuses Russia Of ‘Ramping Up’ Ukraine Presence (BBC)

The US has accused Russia of deploying more air defence systems in eastern Ukraine in breach of a ceasefire deal. The state department also said Russia was involved in training separatist forces in the area and building up its forces along the border. The Kremlin has not yet responded to the claims. A truce between Ukrainian forces and pro-Russian rebels in east Ukraine was brokered by the West in Minsk in February. State department spokeswoman Marie Harf said in a statement that “combined Russian-separatist forces” were violating the terms of the Minsk deal, keeping artillery and multiple rocket launchers in prohibited areas.

“The Russian military has deployed additional air defence systems into eastern Ukraine and moved several of these nearer the front lines,” she said. ‘Complex training’ “This is the highest amount of Russian air defence equipment in eastern Ukraine since August.” Ms Harf said the “increasingly complex nature” of training of pro-Russian forces in east Ukraine “leaves no doubt that Russia is involved”. “Russia is also building up its forces along its border with Ukraine,” she said. “After maintaining a relatively steady presence along the border, Russia is sending additional units there. These forces will give Russia its largest presence on the border since October 2014.” Earlier this month, about 300 US paratroopers arrived in western Ukraine to train with Ukrainian national guard units. At the time, Kremlin spokesman Dmitry Peskov warned the move “could seriously destabilise” the situation in Ukraine.

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It’s should be mandatory. Get us royal family of lying chimps.

If A Clinton Were To Marry A Bush, The US Could Cancel Elections (RT)

With apologies to their respective spouses, if Jeb Bush’s son, George P. Bush, had married Chelsea Clinton, Americans could have spared themselves the spectacle of Election 2016 and saved billions of dollars. All that the USA needs now is for a young Clinton to pair up with a junior Bush. Should the union produce an heir, a single line of monarchy would be established. This is the reality of the USA’s broken politics in 2015. A country pretty much established in opposition to hereditary elites now has the most closed political system in the Western world. In the past, America’s strange obsession with the British Royal Family was usually explained by fact that the US has no monarchy of its own. The bad news for Queen Elizabeth’s bunch is that this is increasingly the case in name only.

Right now, Hillary Clinton is close to an even money favorite to become the next American President. The only other short-odds candidate appears to be Jeb Bush. After the former Florida governor there’s a clutch of outsiders like Rand Paul, Scott Walker and Marco Rubio filling out the field. It’s depressing on so many levels. Should Hillary, as expected, secure the White House and serve two terms it’ll mean that America will have been ruled by either a Bush or Clinton for 28 out of 36 years. The only break coming during the 8-year Obama Presidency. Of course, the former first lady served as Secretary of State for half of Obama’s reign. Despite a common misconception that the Roosevelts, Teddy and Franklin D, were close relatives, (they weren’t) keeping things in the family has not been the American way.

In fact, George Bush Senior was the first President since FDR to have been born into the politically-connected WASP elite. Instead, post-war American Presidents have tended to be outsiders, coming from left field. Think Reagan, Nixon and Carter, for instance. Even the ultimate ‘silver-spoon’ Commander-in-Chief, John F. Kennedy, was far from an insider by dint of his Catholic religion. Indeed, despite their great wealth and celebrity, the Kennedy clan never came close to establishing the kind of dynasty that the Bush family has managed. However, the Boston brood remains powerful in the world of baby kissers and it’s commonly accepted that the late Edward was pivotal in securing Obama’s nomination for the 2008 contest.

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Audit it.

Fed Refuses to Comply With Lawmakers’ Request For Names in Probe (WSJ)

The Federal Reserve has not replied to a lawmakers’ request that it identify the individuals who had contact with a private consulting firm that published a report on the central bank’s market-sensitive internal policy deliberations. In October 2012, the day before the Fed released its minutes of its September 2012 policy meeting, Medley Global Advisors, sent a report to its clients with several sensitive details that subsequently appeared in the minutes. A central bank probe found a “few” Fed staffers had contact with Medley before the report, but did not identify them. Rep. Jeb Hensarling (R., Texas), Chairman of the House Financial Services Committee, sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22.

The deadline passed without any response by the Fed, a committee spokesman said Wednesday. The Fed declined to comment. Medley did not respond to a request for comment. The central bank’s policy-making Federal Open Market Committee makes decisions on interest rates that can cause huge swings in global financial markets. Confidential information about its internal deliberations or advance information about the minutes of its meetings or possible future actions can be worth huge sums of money to traders around the world.

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We won’t rest till all wildlife is gone.

Wolves Shot From Choppers Shows Oil Harm Beyond Pollution (Bloomberg)

Here’s one aspect of Canada’s energy boom that isn’t being thwarted by the oil market crash: the wolf cull. The expansion of oil-sands mines and drilling pads has brought the caribou pictured on Canada’s 25-cent coin to the brink of extinction in Alberta and British Columbia. To arrest the population decline, the two provinces are intensifying a hunt of the caribou’s main predator, the gray wolf. Conservation groups accuse the provinces of making wolves into scapegoats for man-made damage to caribou habitats. The cull carried out in winter when the dark fur of the wolves is easier to spot against the snow has claimed more than 1,000 animals since 2005. Hunters shoot them with high-powered rifles from nimble two-seat helicopters that can hover close to a pack or lone wolf.

In Alberta, some are poisoned with big chunks of bait laced with strychnine, leading to slow and painful deaths that may be preceded by seizures and hypothermia. “It’s an unhappy necessity,” Stan Boutin, a University of Alberta biologist, said of the government-sponsored hunt. “We’ve let the development proceed so far already that now, trying to get industry out of an area, is just not going to happen.” The energy industry has delivered a death blow to caribou by turning prime habitat into production sites and by introducing linear features on the landscape that give wolves easy paths to hunt caribou, such as roads, pipelines and lines of downed trees created by oil and gas exploration.

A drop in drilling after oil prices plunged can’t reverse the damage. More than C$350 billion ($285 billion) spent by Alberta’s oil-sands producers to build an industrial complex that’s visible from space have made the province’s boreal herds of woodland caribou the most endangered in the country. Their population is falling by about half every eight years, according to a 2013 study in the Canadian Journal of Zoology. Since 2005, Alberta has auctioned the rights to develop more than 25,000 square kilometers (9,652 square miles) of land in caribou ranges to energy companies, according to the Canadian Parks and Wilderness Society, an Ottawa-based charity. That’s equivalent to about three times New York’s metropolitan area.

“When the oil industry goes in there and cuts those lines and drills and puts in pipelines, it helps the wolves,” said Chad Lenz, a hunting guide with two decades of experience based in Red Deer, Alberta. Lenz has watched caribou herds shrink as the number of wolves soar. “There’s not a place in Alberta that hasn’t been affected by industry, especially the oil industry.” Home to the world’s third-largest proven crude reserves, Alberta depends on levies from the energy industry to build new roads, schools and hospitals.

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It’s no use staying. Your kids deserve better. California is yesterday.

What California Can Learn About Drought From ‘Chinatown’ (MarketWatch)

In the 1974 film “Chinatown,” a fictional Los Angeles politician issues a warning as he lays out his case for creating an aqueduct to bring water to the city from the inland valley more than 200 miles north: “Beneath every street there is a desert, and without water the dust will rise up and cover us as if this place never existed.” For California, these words still resonate as a severe drought drags into its fourth year, prompting the first-ever mandatory restrictions on water usage and stirring questions about how the drought will be handled as the climate becomes warmer and drier. With the mood of the present-day state becoming more unsettled, “Chinatown” is perhaps more timely than ever, offering a cautionary tale and a possible roadmap for our thinking about water.

“I can’t tell you how many times people have said, ‘Forget it, Jake. It’s Chinatown,’” said Jon Christensen at UCLA, speaking of the iconic movie’s staying power. Although the film itself is a fictional work, “like all great art,” Christensen said, “it captures a great truth about water in California and in the American West.” The film, starring Jack Nicholson, Faye Dunaway and John Huston, dramatizes the California water wars of the early 1900s, accenting corruption, deception and secret dealings within Los Angeles, a city whose character would be shaped by its growing thirst for water. The film is set in the 1930s but is loosely based on the events of 1913, when Los Angeles began siphoning off water from the Owens Valley, on the eastern side of the Sierra Nevada, through an aqueduct.

As the L.A. region flourished, businessmen involved in the deal to bring water to the city profited wildly, while farmers in the Owens Valley were left to watch their land go dry and their regional economy suffer. The tension between agricultural and residential interests has been a defining conflict in California’s history, according to many experts. In March, the Golden State’s cities and towns were ordered to reduce their water usage by 25%. Farmers were exempted from these restrictions, even though agriculture amounts to 80% of water use in the state. Gov. Jerry Brown defended agriculture’s water consumption but has said water rights may need to be re-examined.

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Apr 192015
 
 April 19, 2015  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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DPC Peanut stand, New York 1900

At Global Economic Gathering, US Primacy Is Seen as Ebbing (NY Times)
IMF Credibility Faces Tipping Point Over Greece (USA Today)
‘Bernanke To Go Down As One Of The Most Vilified People Of The Century’ (CNBC)
Markets Face New Threat As US Fed Ponders Interest Rate Rise (Guardian)
Most Americans Think College Is Out of Reach (Bloomberg)
Record Drop In House Prices Suggests China Is Already In A Recession (Zero Hedge)
Germany FinMin Schaeuble Worried About China’s Debt And Shadow Banking (BIA)
Europe Ready For Grexit Contagion As Athens Gets Closer To Russian Cash (AEP)
ECB’s Draghi Says Urgent That Greece Strikes Deal With Creditors (Bloomberg)
Draghi Warns Of Uncharted Waters If Greece Crisis Deteriorates (FT)
Greece Wants EU/IMF Deal But Impasse Could Bring Referendum (Reuters)
Moscow Denies Planning Multibillion Credit To Greece (RT)
Finns Set to Topple Government as Vote Focuses on Economic Pain (Bloomberg)
How Sleepy Finland Could Tear The Euro Apart (Telegraph)
Australia, The Latest Country With Negative Interest Rates (Simon Black)
California’s New Drought Rules Would Require Cuts of Up to 36% (Bloomberg)
Pope Francis Urges EU To Do More To Help Italy With Flood Of Migrants (CT)
Australia Government In Secret Bid To Hand Back Asylum Seekers To Vietnam (SMH)
Air-Pocalypse: Breathing Poison In The World’s Most Polluted City (BBC)

But wait, didn’t Obama say the US has to set the rules for the entire world?

At Global Economic Gathering, US Primacy Is Seen as Ebbing (NY Times)

As world leaders converge [in Washington] for their semiannual trek to the capital of what is still the world’s most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most. The spring meetings of the IMF and World Bank have filled Washington with motorcades and traffic jams and loaded the schedules of President Obama and Treasury Secretary Jacob J. Lew. But they have also highlighted what some in Washington and around the world see as a United States government so bitterly divided that it is on the verge of ceding the global economic stage it built at the end of World War II and has largely directed ever since. “It’s almost handing over legitimacy to the rising powers,” Arvind Subramanian, chief economic adviser to the government of India, said of the United States.

“People can’t be too public about these things, but I would argue this is the single most important issue of these spring meetings.” Other officials attending the meetings this week, speaking on the condition of anonymity, agreed that the role of the United States around the world was at the top of their concerns. Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.

Experts say that is giving rise to a more chaotic global shift, especially toward China, which even Obama administration officials worry is extending its economic influence in Asia and elsewhere without following the higher standards for environmental protection, worker rights and business transparency that have become the norms among Western institutions. President Obama, while trying to hold the stage, clearly recognizes the challenge. Pitching his efforts to secure a major trade accord with 11 other Pacific nations, he told reporters on Friday: “The fastest-growing markets, the most populous markets, are going to be in Asia, and if we do not help to shape the rules so that our businesses and our workers can compete in those markets, then China will set up the rules that advantage Chinese workers and Chinese businesses.”

In an interview on Friday, Mr. Lew, while conceding the growing unease, hotly contested the notion of any diminution of the American position. “There is always a lot of noise in Washington; I’m not going to pretend this is an exception,” he said. “But the United States’ voice is heard quite clearly in gatherings like this.”

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All managing directors are eventually arrested.

IMF Credibility Faces Tipping Point Over Greece (USA Today)

It was perhaps inevitable that the Greek crisis would hijack the spring meeting of International Monetary Fund this week, but the damage to the international lending agency could grow much worse as the situation in Europe becomes increasingly acute. The standoff between a new Greek government seeking debt relief after five years of grinding recession and authorities at the IMF and European Union, who were unbending in their demands to follow through on further austerity measures to get more bailout money, dominated discussions at the meeting that brings economic policymakers from around the world.

The Greek imbroglio overshadowed other messages from IMF officials this week regarding new sources of financial instability in the world, the need to stimulate economies to more vigorous growth and even discussion about other financial and geopolitical hot spots, such as Ukraine. But the unwillingness of IMF Managing Director Christine Lagarde and her staff to countenance any relief for Greece stands to make the agency an accessory to the potential turmoil that could spread well beyond Greece as the chances for a reasonable, agreed solution to the crisis grow slim. A debacle in Greece would further tarnish the reputation of an agency that has already seen its credibility and influence diminished.

It was perhaps a fitting sideshow to the drama in Washington that a former IMF managing director, Rodrigo Rato, was briefly detained Thursday in Spain as part of a money-laundering investigation and may be charged in the case, even as he is being investigated for other infractions. Rato led the IMF from 2004 to 2007, and was succeeded by Dominique Strauss-Kahn, a political heavyweight who aspired to the presidency of France but who had to leave the IMF post under a cloud of scandal in 2011 over charges of sexual assault against a New York hotel maid. Lagarde, then French finance minister, was parachuted in to take his place, though she herself is involved in a long-running judicial probe over an arbitration process she approved that awarded half a billion dollars to a businessman with ties to her center-right political party.

The legal travails of a succession of IMF leaders have diminished its ability to take the moral high ground in forcing lenders to implement the difficult policy measures that are the conditions for its loans. But that is not the only problem. The neoliberal economic principles enshrined in the IMF economic prescription — which generally call for a reduction in government spending and higher taxes even in the midst of recession — are part of a so-called “Washington consensus” that is finding very little consensus in other parts of the world.

Former IMF economist Peter Doyle, a 20-year veteran who left the agency in anger in 2012 saying he was “ashamed” he had ever worked there, this week urged his fellow economists “to turn on the IMF in public.” Citing several leading economists by name, Doyle noted they had expressed support of the Greek position sotto voce. He called upon these economists to “shout, together, right now,” to be on the record against the IMF stance before the “Euro-tinder box” explodes.

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Along with Monti, Draghi, Kuroda and Yellen.

‘Bernanke To Go Down As One Of The Most Vilified People Of The Century’ (CNBC)

Former Federal Reserve Chair Ben Bernanke is heading down a well-beaten path: shuffling through the revolving door between Washington’s policy circles and Wall Street’s big money institutions. In a move announced on Thursday, he’s going from his former position at the Federal Reserve to Wall Street as a senior adviser at Citadel. The latter is what has “Fast Money” trader Guy Adami—and a number of other Street watchers—outraged. The $25 billion hedge fund, Citadel, in a statement said, “Dr. Bernanke will consult with Citadel teams on developments in monetary policy, financial markets and the global economy.” Adding a note from its founder and CEO Ken Griffin, “He has extraordinary knowledge of the global economy and his insights on monetary policy and the capital markets will be extremely valuable to our team and to our investors.”

Adami, however, said this week on Thursday’s Fast Money of Bernanke’s new role: “It’s wrong. It’s wrong on so many levels.” Bernanke “was a hero for a month, [and now] he’s going to go down as one of the most vilified people of the 21st century. Mark my words,” the trader added. In an interview with Andrew Ross Sorkin, co-anchor of CNBC’s “Squawk Box” and a columnist for the New York Times, Bernanke said he understood the concerns about going from Washington to Wall Street. He said he decided in Citadel because the hedge fund “is not regulated by the Federal Reserve and I won’t be doing lobbying of any sort.” He also said banks had approached him about jobs but he declined because “wanted to avoid the appearance of a conflict of interest” by working for an institution the Fed does regulate.

Bernanke is not the first and likely won’t be the last federal worker to jump to Wall Street. In 2008 after handing over the reins to Ben Bernanke, Alan Greenspan joined hedge fund Paulson & Co. as an adviser. And just last month, Ex-Fed Governor Jeremy Stein joined hedge fund Blue Mountain Capital Management. “He shouldn’t have been allowed to leave the Fed, number one,” Adami stated. “He should have saw [quantitative easing] through, in my opinion, and for him to go to a place that can take advantage of the information that he has privy to, it’s just wrong.” Indeed, Wall Street observers were broadly critical of Bernanke’s move into the world of big money hedge funds. The Washington Post said this week that the former Fed chief “deserves a seven figure sinecure” based on hisHerculean efforts to save the world economy from another Great Depression.

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There are no markets left, only casinos.

Markets Face New Threat As US Fed Ponders Interest Rate Rise (Guardian)

The moment US central bank chief Janet Yellen presses the button will be a massive economic event. The prospect that higher interest rates in the world’s largest economy could come this year has already sent the dollar surging against the pound and euro. It has also fuelled fears of a meltdown in countries that have borrowed heavily in the US currency. Borrowing is inherently risky, all the more so when the interest rate can change at short notice. Higher costs for those that have borrowed in dollars could cripple companies in Brazil and Turkey that were enticed by cheap credit to fund a new factory or office building, or just to pay the wages. At the IMF’s spring meeting last week, chief economist Olivier Blanchard dismissed these concerns, arguing that companies may have hedged their position, while investors and finance ministers were well prepared.

But a succession of market shocks in the last two years has convinced many in the financial community that a bigger crash is coming. There have been violent movements in currencies, bonds and commodity prices, especially crude oil and metals. A rise in US interest rates could add to this already volatile situation and drag stock markets towards another sudden crash. The IMF discussed the context in which another financial crash could occur in its latest financial stability report. It highlighted how any shock can send investors fleeing; with only sellers in the market, the price keeps plunging until someone believes it has gone far enough and starts buying. The nervous state of markets these days means there is generally either a surplus of buyers or a surplus of sellers; only rarely have we seen periods of calm with roughly equal numbers.

Last January, for instance, the Swiss franc soared an unprecedented 30% after the central bank conceded that tracking the ailing euro was no longer possible. The previous year, markets had been rocked by the first hint from the US that it would end the era of ultra-cheap credit. It happened after former Fed boss Ben Bernanke let slip that he might stop pumping funds into the US economy through quantitative easing. The “taper tantrum” – referring to the premature “tapering” of QE – sent shock waves through world markets and forced a clarification from the Fed to steady the ship. The IMF’s financial stability report discussed the potential for Taper Tantrum II. The scenario was worse, yet the warning was described by Larry Fink, boss of BlackRock, the world’s biggest private investment fund, as too optimistic.

He is concerned about the European insurance industry, which must pay returns on pensions and other products at a time when the European Central Bank has been driving interest rates in much short-term government debt below zero; in other words, rather than earning interest on government bonds, insurers are paying to park their money in such assets. How could they survive for long under this regime, he asked. The IMF posed the same question, but again expected everything to work out for the best, somehow.

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Young people can’t afford a home, can’t afford an education. What a sad country it has become. And there‘s much worse to come yet.

Most Americans Think College Is Out of Reach (Bloomberg)

Most Americans believe people who want to go to college can get in somewhere—they just don’t think they’d be able to afford it, according to a new Gallup-Lumina Foundation poll. While 61% of adults believe education beyond high school is available to anyone who needs it, only 21% agree that it’s affordable, according to the poll results, released on Thursday. Some racial groups were much more optimistic than others. 51% of Hispanic adults said higher education is still affordable, Gallup found. Just 19% of black adults and 17% of white adults agreed. The results, based on a survey of 1,533 adults who were contacted from November through December 2014, show there’s a sizable gap between the share of Americans who believe people can merely access college and those who believe people can still afford it.

“If a bachelor’s degree is one important way for today’s young adults to achieve the American dream, affordability in particular could jeopardize that dream,” the report said. Tuition at public colleges has risen more than 250% over the last 30 years, the two organizations noted. At the same time, financial aid hasn’t kept up. Students have been leaving school with record amounts of debt: In a separate study, Gallup and Purdue University found more than a third of students who graduated college from 2000 to 2014 were saddled with more than $25,000 in loans. Even if Americans believe anyone, in theory, could find their way to a college classroom, they’re not optimistic anyone could pay to stay there.

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And still many keep claiming China will be just fine.

Record Drop In House Prices Suggests China Is Already In A Recession (Zero Hedge)

Another month, and another confirmation that China’s hard landing is if not here, then likely mere months away. Overnight, the NBS reported that in March, Chinese house prices dropped in 69 of 70 cities compared to a year ago. According to Goldman’s seasonal adjustments, in March home prices dropped another 0.5% from February, the same as the prior month’s decline, suggesting that the February 28 rate cut hasn’t done much to boost housing spirits. However, it is the annual data that truly stands out, because with a drop of 6.1% this was the biggest drop in Chinese house prices in history.

To be sure, the PBOC is now scrambling to halt what, unless it is stopped, will become a full-blown hard landing in months, if it isn’t already. As a result, as shown in the chart below it has recently engaged in several easing steps, with many more to come according to the sell-side consensus. So far these have failed to stimulate the overall economy, which continues to be pressured by a deflation-importing world, but have certainly lead to a massive surge in the Chinese stock market. Incidentally, the ongoing collapse in Chinese home prices is precisely why the PBOC and the Politburo have both done everything in their power to substitute the burst housing bubble with another: that of stocks, by pushing everyone to invest as much as possible in the stock market, leading to the biggest and fastest liquidity and margin debt-driven bubble in history.

Unfortunately for China, as we have shown before, all Chinese attempts to do what every self-respecting Keynesian would do, i.e., replace one bubble with another, are doomed to fail for the simple reason that unlike in the US, where the bulk of assets are in financial form, in China 75% of all household wealth is in real estate. [..]

And this is where things get scarier, because if one compares the history of the Chinese and US housing bubbles, one observes that it was when US housing had dropped by about 6% following their all time highs in November 2005, that the US entered a recession. This is precisely where China is now: a 6.1% drop following the all time high peak in January of 2014. If the last US recession is any indication, the Chinese economy is now contracting! So much for hopes of 7% GDP growth this year. The good news, if any, is that Chinese home prices have another 12% to drop before China, which may or may not be in a recession, suffer the US equivalent of the Lehman bankruptcy.

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All you need to know: “..debt has nearly quadrupled since 2007”.

Germany FinMin Schaeuble Worried About China’s Debt And Shadow Banking (BIA)

Should we concerned about growing debt levels around the world? Wolfgang Schaeuble, Germany’s finance minister, certainly seems to thinks so, stating overnight that debt levels in the global economy continue to give cause for concern. Singling out China in particular, Schaeuble noted that debt has nearly quadrupled since 2007, adding that its growth appears to be built on debt, driven by a real estate boom and shadow banks. Certainly, according to McKinsey’s research, total outstanding debt in China increased from $US7.4 trillion in 2007 to $US28.2 trillion in 2014. That figure, expressed as a percentage of GDP, equates to 282% of total output, higher than the likes of other G20 nations such as the US, Canada, Germany, South Korea and Australia. With China slowing and expectations for further monetary and fiscal easing growing by the day, the concerns raised by Schaeuble may well amplify from here.

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“There will not be the slightest privatisation in the country, particularly of strategic sectors of the economy.”

Europe Ready For Grexit Contagion As Athens Gets Closer To Russian Cash (AEP)

The ECB has warned that a rupture of monetary union and Greek exit from the euro could have dramatic consequences, but insisted that it has enough powerful weapons to avert contagion. Mario Draghi, the ECB’s president, said it would be far better for everybody if Greece recovers within EMU but made it clear that the currency bloc is no longer vulnerable to the immediate chain-reaction seen in earlier phases of the debt crisis. This sends an implicit message to the radical-Left Syriza government that it cannot hope to secure better terms from EMU creditors by threatening to unleash mayhem. “We have enough instruments at this point of time, the OMT (bond-buying plan), QE, and so on, which though designed for other purposes could certainly be used in a crisis if needed,” said Mr Draghi, speaking after a series of tense meetings at the IMF.

“We are better equipped than we were in 2012, 2011.” In effect, the ECB now has the license to act as a full lender-of-last-resort and mop up the bond markets of Portugal, Spain, or Italy, preventing yields from rising. Yet Syriza appears to be countering such pressure with its own foreign policy gambits as events move with electrifying speed in Athens. Greek sources have told The Telegraph that Syriza may sign a deal with Russia for Gazprom’s “Turkish Stream” pipeline project as soon as next week, unlocking as much as €3bn to €5bn in advance funding. This confirms a report in Germany’s Spiegel magazine, initially denied by both the Russian and Greek governments. It is understood that the deal is being managed by Panagiotis Lafazanis, Greece’s energy minister and head of Syriza’s militant Left Platform, a figure with long-standing ties to Moscow.

Mr Lafazanis warned defiantly on Saturday that Syriza would not “betray the people’s mandate” even if this means a full-blown clash with the creditor powers. “There can’t be a deal with neo-liberal, neo-colonial powers that rule the EU and the IMF unless Greece really threatens their deep economic and geo-strategic interests. We still do not know our own strength,” he told Greek television. Mr Tsipras visited the Kremlin last month insisting he would pursue an independent foreign policy “Several of the so-called partners and certainly some in the IMF want to denigrate and humiliate our government, blackmailing us to implement measures against the working classes,” added Mr Lafazanis. “There will not be the slightest privatisation in the country, particularly of strategic sectors of the economy.”

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Draghi’s way out of his league.

ECB’s Draghi Says Urgent That Greece Strikes Deal With Creditors (Bloomberg)

European Central Bank President Mario Draghi said it is urgent that Greece strikes a deal with creditors, although its banks continue to meet the requirements for Emergency Liquidity Assistance. “ELA will continue to be given to the banks if they’re judged to be solvent and if they have adequate collateral which is the case now,” Draghi told reporters on Saturday at the International Monetary Fund’s meetings in Washington. The Frankfurt-based ECB decides on Greece’s financial lifeline on a weekly basis. The funding has so far helped defer a financial meltdown as euro-area governments hold back bailout money, complaining that Prime Minister Alexis Tsipras must do more to revamp his country’s economy.

Draghi said “much more work is needed now and it’s urgent” if Greece and its creditors are to strike a deal to release aid. He said any package of policies should produce “growth, fairness, fiscal sustainability and financial stability.” “We all want Greece to succeed,” he said. “The answer is in the hands of the Greek government.” While Europe is better equipped to deal with any fallout in financial markets if Greek negotiations fail than it was when it first fell into crisis, Draghi said the region is still in “uncharted waters.” Draghi said the euro zone economy is strengthening after the ECB began a €1.1 trillion bond-buying program last month. Still, he warned an extended period of low interest rates could prove “fertile ground” for instability in financial markets. “We should be alert to these risks,” Draghi said, adding the risk was not currently a reason to tighten monetary policy.

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And here he admits he doesn’t have a clue.

Draghi Warns Of Uncharted Waters If Greece Crisis Deteriorates (FT)

Mario Draghi said the euro area was better equipped than it had been in the past to deal with a new Greek crisis but warned of uncharted waters if the situation were to deteriorate badly. The ECB president called for the resumption of detailed discussions aimed at resolving the country’s debt woes and urged the Greek authorities to bring forward proposals that ensured fairness, growth, fiscal stability, financial stability. Asked about the risks of contagion from a new flare-up in Greece, he said: we have enough instruments at this point in time … which although they have been designed for other purposes would certainly be used at a crisis time if needed. The two tools he referred to were the ECB’s so-called outright monetary transactions, which have never been used, and Quantitative Easing, which the ECB launched in January.

He added: we are better equipped than we were in 2012, 2011 and 2010. However Mr Draghi added: Having said that, we are certainly entering into uncharted waters if the crisis were to precipitate, and it is very premature to make any speculation about it. The ECB president was speaking following meetings in Washington that have been overshadowed by renewed fears about the risk of a Greek debt default and possible exit from the euro. US Treasury secretary Jack Lew warned on Friday that a full-blown crisis in Greece would cast a new shadow of uncertainty over the European and global economies, as he put pressure on Athens to come forward urgently with detailed reforms to its economy. Mr Lew said that while financial exposures to Greece had changed significantly since the turmoil of 2012, it was impossible to know how markets would respond to a default.

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“In the back of our minds these are possibilities of finding a way out, if there is a dead end.”

Greece Wants EU/IMF Deal But Impasse Could Bring Referendum (Reuters)

Greece aims for a deal with its creditors over a reforms package but will not retreat from its red lines, the country’s deputy prime minister told the Sunday newspaper To Vima, not ruling out a referendum or early polls if talks reach an impasse. Athens is stuck in negotiations with its euro zone partners and the International Monetary Fund over economic reforms required by the lenders to unlock remaining bailout aid. Ongoing talks are not expected to produce a deal for the approval of euro zone finance ministers at their next meeting in Riga on April 24 as progress is painfully slow. “Our objective is a viable solution inside the euro,” Yanis Dragasakis told the paper. “We will not back off from the red lines we have set.”

Asked whether the government had thought of calling a referendum or even going to the polls if talks become deadlocked, Dragasakis said this could be a possibility, although the government’s goal was to reach an agreement. “In the back of our minds these are possibilities of finding a way out, if there is a dead end. The aim is (to reach) an agreement.” Greece is quickly running out of cash and in the next few weeks may face a choice of either paying salaries and pensions or paying back loans from the International Monetary Fund. Shut out of bond markets, Athens could get more loans from both the IMF and euro zone governments, but it would first have to implement reforms, agreed with the creditors, to make its finances sustainable and its economy more competitive. The leftist-led government does not want to implement measures including cuts in pensions as it won elections in late January on pledges to end austerity.

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A credit is not the same as an advance payment.

Moscow Denies Planning Multibillion Credit To Greece (RT)

Russia denied media reports that it is going to give Greece a loan of up to $5 billion as advance payment for future transit profits from a future gas pipeline. The sum was mooted by the German magazine Spiegel. Greece is expected to shortly join a joint Russian-Turkish pipeline project that will pump Russian gas to Europe via Turkey. The magazine cited a senior source in the Greek government as saying that the country would get from $3 billion to $5 billion in credit as part of the deal. It was reportedly agreed during Greek Prime Minister Alexis Tsipras’ visit to Moscow last week. But on Saturday, the Russian president’s spokesman Dmitry Peskov said no such loan is planned.

“[Russian President Vladimir] Putin said himself during the media conference that nobody asked for our help. Naturally energy cooperation was discussed. Naturally, the parties of the high level talks agreed to work out all details of these issues at an expert level. Russia didn’t offer financial help because it was not asked,” the spokesman told the Russian radio station Business FM. Earlier Greek and Russian officials said an energy deal that would have Greece join the Turkish stream project would be inked in a matter of days, but no exact date or particular terms were given. If Russia did loan money to Greece, it would help it deal with a looming national default. The new Greek government is in difficult negotiations with Germany and the IMF to secure further loans to help its economy.

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Anti-euro gets a foot in the door.

Finns Set to Topple Government as Vote Focuses on Economic Pain (Bloomberg)

Finns look set to vote out a government marred by political infighting and elect a party led by a self-made millionaire promising a business-driven recovery. After three years of economic decline, Finland’s next government will need to fix chronic budget deficits, a debt load that’s set to breach European Union limits, rising unemployment and economic growth that’s about half the average of the euro zone. Juha Sipila, who leads the opposition Center Party, has promised business-friendly policies he says will create 200,000 private-sector jobs. His party is polling about 6% ahead of the next-biggest groups, according to newspaper Helsingin Sanomat. If he wins Sunday’s vote, Sipila will probably try to form a majority coalition that’s likely to include the euro-skeptic The Finns party.

“Putting together a new, workable government that can turn around Finland’s public finances is the most important economic policy step,” Anssi Rantala, chief economist at Aktia Bank Oyj, said by phone. “The government has to take seriously the gigantic deficits we have in state and municipal budgets, and it has to change the way it implements austerity: most has been through tax increases.” Austerity isn’t what splits Finland’s political parties. All major groups have pledged some combination of belt-tightening and growth policies. The Finance Ministry estimates €6 billion euros of austerity measures are needed by 2019 to prevent debt reaching 70% of gross domestic product. It also says there’s no scope to raise taxes without stifling economic growth.

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Lovely prospect.

How Sleepy Finland Could Tear The Euro Apart (Telegraph)

Finland is the unlikely stage for the latest turn in Greece’s interminable eurozone drama this weekend. With events having decamped temporarily to Washington DC, Athens will be keeping half an eye on developments in Helsinki, where the Nordic state of just 5.4m people heads for the polls on Sunday. In the five years since Greece’s financial woes were revealed to the world, it has been sleepy Finland which has emerged as the most trenchant critic of EU largesse to the indebted Mediterranean. The outcome of the country’s general election could now determine Greece’s future in the monetary union. In a leaked memo seen last month, it was revealed that the Finns had already drawn up contingency plans for a Greek exit from the euro.

Although ostensibly a sensible measure for any finance ministry to contemplate, the document confirmed the Finns’ position as the most uncompromising of the EU’s creditor nations. The reputation is well-deserved. At the height of Greece’s bail-out drama in 2011, Helsinki negotiated an unprecedented bilateral agreement with Athens, receiving €1bn in collateral in return for supporting a rescue deal. A year later, the Finns were prime candidates to become the first dissenters to voluntarily break the sanctity of the monetary union. “We have to be prepared,” the country’s then foreign minister told the Telegraph three years ago. Greece’s current impasse is also partly a result of Finnish obstinacy.

Helsinki was one of the main obstacles to securing a long-term extension to Greece’s bail-out programme under the previous Athens government late last year. The eventual compromise of a three-month, rather than six-month reprieve, has seen the new Leftist regime scramble desperately for cash since February. With the situation in Athens deteriorating by the day, both Finland’s prime minsiter and central bank governor have eschewed high-minded rhetoric about European unity, to insist creditors should be ready to pull the plug on Greece. But unlike its fellow creditor giant Germany, Finland is more economic laggard than European powerhouse. Having been mired in a three-year recession, the country heads to the polls with economic output still 5pc below its pre-crisis levels.

Finland has suffered an economic downturn of almost Greek proportions. The boon from falling oil prices and launch of eurozone QE will still only see the economy expand at a paltry 0.8pc this year, worse only to Italy and Cyprus. Stagnating growth saw Finland stripped of its much coveted Triple-A sovereign debt rating last year. The IMF now recommends a cocktail of structural reforms and fiscal consolidation that would make officials in Athens bristle. “There is no sympathy for Greece any more, especially because our own economy is struggling,” says Jan von Gerich, strategist at Nordea bank in Helsinki.

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“Everyone believed that it would all work out OK. Then one day it didn’t.”

Australia, The Latest Country With Negative Interest Rates (Simon Black)

Let’s talk about idiots. Somewhere out there, some absurdly well-paid banker just placed his investors’ capital in yet another financial instrument which is guaranteed to lose money: Australian government debt. 47 investors participated in the Australian government’s $200 million bond tender; the participants typically bid the amount they’re willing to pay, and the highest bids win the auction. In this case, and for the first time in Australia, every single one of the 47 bidders offered a price so high that it implies a negative interest rate. Even the lowest bid in the auction, for example, implied a net loss… or an effective yield of NEGATIVE 0.015%. The highest price implied a yield of negative 0.085%. What’s really bizarre is that this particular issue was for ‘inflation-linked’ bonds.

Which means that if the government’s official monkey math shows that inflation is falling, the yield could actually become even MORE NEGATIVE. Insane? Of course. But here’s the thing. These bankers aren’t investing their own money. It’s not like some guy is taking his million dollar bonus and saying, “Hey I think I’ll go buy some government debt that guarantees I’ll lose money.” No. He buys a Maserati. Then he picks up this garbage debt with his customers’ money. Not only is this idiotic, it’s borderline criminal. At a minimum it’s seriously unethical. Banks and other money managers have a solemn obligation… a fiduciary responsibility that comes with the sacred charge of safeguarding other people’s money. Just like the golden rule, this obligation is very simple: take care for other people’s money even more than you care for their own.

But that went out the window a long time ago. Back in the 1500s, Renaissance-era merchant bankers risked their own capital alongside their customers, doing meaningful deals that financed exploration and the expansion of world trade. Now it’s all about commissions, obtuse regulations, and following the latest banking fad. This is officially now the latest banking fad—buying government bonds at negative yields. You’ll remember a few years ago when the latest banking fad was handing out no-money-down mortgages to dead people and unemployed bus drivers… or buying “AAA-rated” bonds which pooled these subprime loans together. That didn’t exactly work out so well. Neither will this. In fact there are plenty of similarities between today’s negative interest rates and the early 2000s housing bubble.

Back then, banks were essentially paying people to borrow money. They offered the least creditworthy borrowers absurd amounts of money which sometimes even exceeded the purchase price of the home they were buying. 102% loans were not uncommon back then, which financed the entire purchase along with the extra closing costs. We even saw 105% loans which allowed a little bit extra to make home improvements. It doesn’t take a rocket scientist to figure out that it’s criminally stupid to pay someone to borrow money. Yet that’s exactly what’s happening now. Instead of people, though, it’s governments who are effectively being paid to borrow. We all remember last time how much this impacted the global financial system. Everyone believed that it would all work out OK. Then one day it didn’t. Lehman Brothers went bust, and the entire banking system started to collapse.

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High time to pack up and go.

California’s New Drought Rules Would Require Cuts of Up to 36% (Bloomberg)

California issued proposed rules calling for mandatory reductions in water use by municipal agencies as a historic drought drags into a fourth year. The state’s 411 urban water suppliers would have to cut use by as much as 36%, with those that conserved less facing tougher restrictions and a daily penalty of as much as $500 for not complying, the California State Water Resources Control Board said in the proposed rules released Saturday. The board will meet May 5 and 6 to finalize the rules, which would take effect by June 1. “Some of these communities have achieved remarkable results with residential water use now hovering around the statewide target for indoor water use, while others are using many times more,” the Sacramento-based agency said in its proposal.

The emergency rules would be in effect for 270 days. The regulations are based on an executive order Governor Jerry Brown, a 77-year-old Democrat, issued April 1 calling for a mandatory 25% reduction in water use compared with 2013 levels and requiring 50 million square feet of lawns to be replaced by drought-tolerant landscaping. California, the most-populous U.S. state, and its $43 billion agriculture industry are experiencing the worst of the arid conditions moving across the western U.S., with 67% of the state in an extreme drought, according to the U.S. Drought Monitor.

The agency this week released nearly 300 comment letters from the public, businesses, water agencies and cities on an initial proposal. The planned 35% reduction in water use for Beverly Hills would “place a significant burden on our small permanent customer base” of 42,157 residents, Mahdi Aluzri, interim city manager, said in the letter. Beverly Hills’ daytime population, including commuters who work in the city, shoppers and visitors, can rise to more than 250,000 water users, Aluzri said. California’s residents in February reduced water use by 2.8% below 2013 levels, the worst monthly performance since June, the water board said.

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For this alone, the EU should be dismantled. “A new policy will be presented in May”. May? You should be out there on the water! Another boat with 650 people just capsized as I’m writing this.

Pope Francis Urges EU To Do More To Help Italy With Flood Of Migrants (CT)

Pope Francis on Saturday joined Italy in pressing the European Union to do more to help the country cope with rapidly mounting numbers of desperate people rescued in the Mediterranean during journeys on smugglers’ boats to flee war, persecution or poverty. While hundreds of migrants took their first steps on land in Sicilian ports, dozens more were rescued at sea. Sicilian towns were running out of places to shelter the arrivals, including more than 10,000 this week. The Coast Guard said 74 migrants were saved from a sailboat shortly before it sank Saturday about 100 miles east of the coast of Calabria in southern Italy. A Coast Guard plane and a Dutch aircraft, part of an EU patrol mission, spotted the boat. Passengers included 10 children and three pregnant women.

With his wide popularity and deep concern for social issues, the pope’s moral authority gives Italy a boost in its lobbying for Brussels and northern EU countries to do more. Since the start of 2014, nearly 200,000 people have been rescued at sea by Italy. “I express my gratitude for the commitment that Italy is making to welcome the many migrants who, risking their life, ask to be taken in,” said Francis, flanked by Italian President Sergio Mattarella. “It’s evident that the proportions of the phenomenon require much broader involvement.” “We must never tire of appealing for a more extensive commitment on the European and international level,” Francis said.

Italy says it will continue rescuing migrants but demands that the European Union increase assistance to shelter and rescue them. Since most of the migrants want to reach family or other members of their community in northern Europe, Italian governments have pushed for those countries to do more, particularly by taking in the migrants while their requests for asylum or refugee status are examined. “For some time, Italy has called on the EU for decisive intervention to stop this continuous loss of human life in the Mediterranean, the cradle of our civilization,” Mattarella said. The EU’s commissioner for migration, Dmitris Avramopoulos, says a new policy will be presented in May. Meanwhile, he has also called for member states to help.

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But it can get worse, believe it or not. The Abbott government quite literally has no shame. They send people back to countries they’re fleeing.

Australia Government In Secret Bid To Hand Back Asylum Seekers To Vietnam (SMH)

Vietnamese Australians and human rights activists have blasted the Abbott Government over a secret Navy-led mission to return a group of asylum seekers back to the Communist government of Vietnam. In a new milestone for the Coalition’s hard-line border policy, an Australian Navy ship was entering Vietnamese waters on Friday after what is believed to be a week-long journey to prevent boats reaching Australia. HMAS Choules was close to the the southern port city of Vung Tau, south of Ho Chi Minh City, Defence sources confirmed to Fairfax Media. The vessel was expected to hand over detainees to the Communist government some time after arriving late Friday or in the early hours of Saturday.

The vessel is carrying asylum seekers intercepted by customs and navy vessels earlier this month, north of Australia, the West Australian newspaper reported on Friday. Immigration Minister Peter Dutton’s office said no comment would be made on “operational matters” but human rights activists lashed the Coalition for another on-water action cloaked in secrecy. Daniel Webb, director of the Human Rights Law Centre, said: “Australia should never return a refugee to persecution. All governments – whatever their policy position – should respect democracy and should respect the rule of law. Continually operating behind a veil of secrecy is a deliberate subversion of both. “If the government truly believed its actions were humane, justified and legal, it wouldn’t go to such extraordinary lengths to hide them from view.” [..]

The Vietnamese community, many of whom arrived in Australia by boat after the fall of Saigon in 1975 as the Communist regime of Hanoi took control of the country, expressed horror at asylum seekers being handed back. Thang Ha, president of the Vietnamese Community in Australia, NSW Chapter, said the government should be aware it could be “throwing people back into hell”. He said returnees would likely be left alone initially but would be followed by party operatives and eventually harassed and likely jailed. “Human rights activists, democracy activists, Christians, Buddhists, artists and singers, they have all been harassed. Some people have been hunted down, their family members have been harassed. Some have been thrown in jail and never heard from again,” he said. “They are throwing them back into hell.”

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Yes, we are a smart animal.

Air-Pocalypse: Breathing Poison In The World’s Most Polluted City (BBC)

Saharan dust, traffic fumes and smog from Europe may be clogging up London’s air at present – and causing alarm in the newspapers – but in the world’s most polluted city London’s air would be considered unusually refreshing. That city is Delhi, the Indian capital, where air quality reports now make essential reading for anxious residents. In London last week, the most dangerous particles – PM 2.5 – hit a high of 57; that’s nearly six times recommended limits. Here in Delhi, we can only dream of such clean air. Our reading for these minute, carcinogenic particles, which penetrate the lungs, entering straight into the blood stream – is a staggering 215 – 21 times recommended limits. And that’s better than it’s been all winter. Until a few weeks ago, PM 2.5 levels rarely dipped below 300, which some here have described as an “air-pocalypse”.

Like the rest of the world, those of us in Delhi believed for years that Beijing was the world’s most polluted city. But last May, the World Health Organization announced that our own air is nearly twice as toxic. The result, we’re told, is permanent lung damage, and 1.3 million deaths annually. That makes air pollution, after heart disease, India’s second biggest killer. And yet, it’s only in the past two months as India’s newspapers and television stations have begun to report the situation in detail that we’ve been gripped, like many others, with a sense of acute panic. It’s a little bit like being told you’re living next to an active volcano that might erupt at any moment. At first, we simply shut all our doors and windows and sealed up numerous gaps. No more seductively cool Delhi breezes could be allowed in.

We began checking the air quality index obsessively. Then, we rushed out to buy pollution masks, riding around in our car looking like highway robbers. But our three-year-old wouldn’t allow one anywhere near her face. Our son only wore his for a day, and only because I told him he looked like Spider-Man. Despite our alarm, many Delhi-ites reacted with disdain. “It’s just dust from the desert,” some insisted. “Nothing a little homeopathy can’t solve,” others said. But we weren’t convinced. When we heard that certain potted plants improve indoor air quality, we rushed to the nursery to snap up areca palms, and a rather ugly, spiky plant with the unappealing moniker, mother-in-law’s tongue. But on arrival, the bemused proprietor informed us that the American embassy had already purchased every last one. In any case, we calculated that to make a difference, we needed a minimum of 50 plants. “We could get rid of the sofa to make room for them,” my husband offered.

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Apr 182015
 
 April 18, 2015  Posted by at 10:06 am Finance Tagged with: , , , , , , , ,  7 Responses »
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George N. Barnard Atlanta, Georgia. View on Marietta Street 1864

US Is ‘World Leader’ In Child Poverty (Alternet)
‘This Is Far From Over’, ‘We’re All Frogs In Boiling Water’ (Zero Hedge)
US Should Write Laws Of Global Economy, Not China – Obama (RT)
Greece’s Main Creditors Said to Be Unwilling to Allow Euro Exit (Bloomberg)
Let’s Face Reality, Greece Is Bankrupt: Marc Faber (CNBC)
Greek Crisis Comparable to Great Depression: Blanchflower (Bloomberg)
IMF’s Lagarde To Greece: Pay Us Or Else (Forbes)
Quarantine For Greek Bank Subsidiaries In Neighboring Countries (Kathimerini)
Obama Calls For Flexibility In Brief Exchange With Varoufakis (Kathimerini)
IMF Urges EU To Slim Down Its Demands On Greece (Guardian)
ECB Examines Possible Greek IOU Currency In Case Of Default (Reuters)
Greece’s Binary Outlook Gives Markets a Headache (WSJ)
New Zealanders Make More On Their Homes Than They Earn At Work (NZ Herald)
Rock-Star Economy Loiters At Rocky Road To Recession (NZ Herald)
NATO Activity Near Russian Borders Increased By 80% in 2014 (RT)
Hillary Clinton’s Fake Populism Is a Hit (Matt Taibbi)
Ben Bernanke Isn’t the Problem, the System Is (Atlantic)
EU -Under TTIP Pressure- Clears Path For 17 New GMO Foods (Guardian)
Dry Wells Plague California as Drought Has Water Tables Plunging (Bloomberg)
Global Temperature Records Just Got Crushed Again (Bloomberg)

Well done, America.

US Is ‘World Leader’ In Child Poverty (Alternet)

America’s wealth grew by 60% in the past six years, by over $30 trillion. In approximately the same time, the number of homeless children has also grown by 60%. Financier and CEO Peter Schiff said, “People don’t go hungry in a capitalist economy.” The 16 million kids on food stamps know what it’s like to go hungry. Perhaps, some in Congress would say, those children should be working. “There is no such thing as a free lunch,” insisted Georgia Representative Jack Kingston, even for schoolkids, who should be required to “sweep the floor of the cafeteria” (as they actually do at a charter school in Texas). The callousness of U.S. political and business leaders is disturbing, shocking. Hunger is just one of the problems of our children. Teacher Sonya Romero-Smith told about the two little homeless girls she adopted: “Getting rid of bedbugs, that took us a while. Night terrors, that took a little while. Hoarding food..”

America is a ‘Leader’ in Child Poverty The U.S. has one of the highest relative child poverty rates in the developed world. As UNICEF reports, “[Children’s] material well-being is highest in the Netherlands and in the four Nordic countries and lowest in Latvia, Lithuania, Romania and the United States.” Over half of public school students are poor enough to qualify for lunch subsidies, and almost half of black children under the age of six are living in poverty.

$5 a Day for Food, But Congress Thought it was Too Much. Nearly half of all food stamp recipients are children, and they averaged about $5 a day for their meals before the 2014 farm bill cut $8.6 billion (over the next ten years) from the food stamp program. In 2007 about 12 of every 100 kids were on food stamps. Today it’s 20 of every 100.

For Every 2 Homeless Children in 2006, There Are Now 3 On a typical frigid night in January, 138,000 children, according to the U.S. Department of Housing, were without a place to call home. That’s about the same number of households that have each increased their wealth by $10 million per year since the recession.

The US: Near the Bottom in Education, and Sinking The U.S. ranks near the bottom of the developed world in the percentage of 4-year-olds in early childhood education. Early education should be a primary goal for the future, as numerous studies have shown that pre-school helps all children to achieve more and earn more through adulthood, with the most disadvantaged benefiting the most. But we’re going in the opposite direction. Head Start was recently hit with the worst cutbacks in its history.

Children’s Rights? Not in the U.S. It’s hard to comprehend the thinking of people who cut funding for homeless and hungry children. It may be delusion about trickle-down, it may be indifference to poverty, it may be resentment toward people unable to “make it on their own.” The indifference and resentment and disdain for society reach around the globe. Only two nations still refuse to ratify the UN Convention on the Rights of the Child: South Sudan and the United States. When President Obama said, “I believe America is exceptional,” he was close to the truth, in a way he and his wealthy friends would never admit.

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Hunt’s a smart dude.

‘This Is Far From Over’, ‘We’re All Frogs In Boiling Water’ (Zero Hedge)

Global debt has expanded by $35 trillion since the credit crisis and as Lacy Hunt exclaims, “that’s a net negative, debt is an increase in current consumption in exchange for a decline in future spending and we are not going to solve this problem by taking on more and more debt.” Santelli notes that debt will actually keep growth “squashed down” and points out the low rates in Europe questioning the ability of The ECB’s actions to save the economy which Hunt confirms as “longer-term rates are excellent economic indicators” and that is not a good sign for Europe. “This process is far from over,” Hunt concludes, “rates will move irregularly lower and will remain depressed for several years.” Santelli sums up perfectly, “we’re all frogs in boiling water,” as we await the consequences of central planning.

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“The laws of the global economy should be written by the United States and not by the likes of China..”

US Should Write Laws Of Global Economy, Not China – Obama (RT)

The laws of the global economy should be written by the United States and not by the likes of China according to President Obama, as concern over China’s influence is growing. Washington hopes a Pacific free trade pact will curb Beijing’s investment bank. “When 95% of our potential customers live abroad, we must be sure that we are writing the rules for the global economy, not a country like China,” Obama said in his special message to Congress on Thursday, RIA reports. The statement comes after an agreement by US lawmakers to fast-track international trade bills earlier on Thursday. The White House is now looking forward to completing the Trans-Pacific Partnership agreement this year to remove trade barriers between the participating nations which account for 40% of the global economy and more than a third of global trade.

“Our exports support more than eleven million jobs, and we know that exporting companies pay higher wages than others. Today we have the opportunity to open even more new markets to goods and services backed by three proud words: Made in America,” Obama added. Meanwhile, the US and Japan are the largest economies in the 12 Pacific nations bloc and view it as a strategic economic partnership. The two countries have been voicing concerns over China’s increasing influence in Asia and did not join the Chinese Investment bank (AIIB). The AIIB is expected to challenge the Washington-based World Bank and rival Japan’s Asian Development Bank. It currently has 57 countries from 5 continents as founding members including the biggest European nations. International trade and investment institutions are the latest contest issues between Beijing and the Washington-Tokyo alliance for influence in Asia.

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They want to keep them aboard as feudal servants?!

Greece’s Main Creditors Said to Be Unwilling to Allow Euro Exit (Bloomberg)

Greece’s major creditors are not ready to let the country drop out of the euro as long as Prime Minister Alexis Tsipras shows willingness to meet at least some key demands, according to two people familiar with the discussions. Chancellor Angela Merkel will go a long way to prevent a Greek exit from the single currency, though only so far, one of the people said. Every possibility is being considered in Berlin to pull Greece back from the brink and keep it in the 19-nation euro, the person said. For all the foot-dragging in Athens, some creditors are willing to show Greece more flexibility in negotiations over its finances to prevent a euro exit, the second person said. The red line is that the Syriza-led government shows readiness to commit to at least some economic reform measures, said both people, who asked not to be named discussing strategy.

“Our view is that Greece is not going to exit the euro,” Stephen Macklow-Smith at JPMorgan Asset Management in London, said in a Bloomberg Television interview on Friday. While both sides have “very entrenched positions” in the negotiations, “if you look at the way the euro-zone crisis has developed, in every case what you’ve seen is in return for firm action you get concessions.” The brinkmanship has sent Greek government bonds heading toward their worst week since Tsipras’s election in January at the head of an anti-austerity coalition. While the public rhetoric has escalated amid a standoff over releasing the last tranche of aid, creditors are willing to cut Greece some slack, the second person said.

Euro-area finance ministers are next due to discuss progress on Greece at their meeting on April 24 in the Latvian capital, Riga. Greece’s government remains confident an interim agreement with its creditors allowing disbursement of bailout funds can be reached by the end of April, a Greek official told reporters in Athens on Friday. “We’re of the view that Greece will hold to the commitments it made to the institutions,” Georg Streiter, Merkel’s deputy spokesman, said when asked about the chancellor’s stance. A deal won’t be ready by April 24 and could come together in the following weeks, Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem told reporters in Washington. “I don’t believe in this game-of-chicken rubbish,” Dijsselbloem said. “We don’t know what the risks are.”

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“If they don’t want to pay what are you going to do, invade and hang them all up?”

Let’s Face Reality, Greece Is Bankrupt: Marc Faber (CNBC)

Greece is bankrupt and should default, well-known investor Marc Faber told CNBC Friday, arguing that a “geopolitical game of chess” was being played out in the region. The comments by Faber, the editor of the “Gloom, Boom & Doom Report,” came at a time of heightened tensions between Greece and its international creditors. The organizations overseeing the country’s two international bailouts – worth a combined €240 billion – have said the country will not receive a last tranche of aid, worth 7.2 billion euros, until it makes far-reaching reforms. But Faber, a bearish investor known as “Dr. Doom,” said the country’s fiscal situation was unsalvageable. “Even if Greece grows at 10%per annum for the next ten years, it will not be able to pay its debts back,” he told CNBC.

“It’s bankrupt. We better face the reality and not kick the can the can down the road. Greece should default.” Faber said that while Greece could leave the euro zone and adopt a parallel currency, there that geopolitics were coming in to play and there was no appetite in Europe to let the country exit from the single currency bloc. “I personally think it’s not so much of an economic issue as a political issue,” he told CNBC Europe’s “Squawk Box.” “Europe, and in particular NATO and the U.S. do not want Greece to leave (the euro zone) because if they do, other people are going to knock on Greece’s door – like the Russians or the Chinese maybe. It’s very much a geopolitical game of chess that’s being played.” Greece and its creditors disagree on which reforms should be implemented, however, and as such the much-needed aid remains under lock and key.

T his has prompted speculation that the country could soon run out of money and default on its forthcoming debt repayments to the IMF and ECB, which could, in turn, result in the country leaving the euro zone. Greece denies this is the case and ECB President Mario Draghi said earlier this week that he has not even considered a default. On Friday, Greek Finance Minister Yanis Varoufakis will meet Draghi and IMF officials in Washington. The ECB stands to lose a lot if Greece does default, Faber argued, and thus Greece was in strong position to negotiate better terms for its bailout program and debt repayments. “I think that the ECB and European banks will have to take huge losses on their loans to Greece and bond purchases they have made (if it defaults),” he said. “I think Greece is in a very strong negotiating position. If they don’t want to pay what are you going to do, invade and hang them all up?”

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Blanchflower can’t stop laughing about the whole thing.

Greek Crisis Comparable to Great Depression: Blanchflower (Bloomberg)

Dartmouth College’s Danny Blanchflower discusses the Greek debt crisis with Bloomberg’s Pimm Fox on “Taking Stock.”

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“We’re not actually in a rules based world here, we’re in a politically determined one. If the other eurozone members think that keeping Greece solvent , in the euro and functioning is sufficiently important then they will do that.”

IMF’s Lagarde To Greece: Pay Us Or Else (Forbes)

It’s long been true that welshing on debts to the IMF is just something that a civilised country just doesn t do. Thus there’s little surprise when Christine Lagarde, the head of the IMF, points out to Greece that there’s really no mileage in that country thinking about not paying the IMF back the money it s owed. Because, you know, that s just not something that civilised countries do. There is however a sting in the tail here. For there’s no formal method of dunning a country that does fail to repay the IMF on time. It takes at least a month after the payment doesn t appear for the IMF to go through its own internal reporting processes and then another couple of weeks for it to declare actual default.

And there’s politics in there as well: they can, quite happily, say that, well, they re trying to pay, they ve paid a bit perhaps, so we ll not actually say that they are in default. The point being that the rules aren’t hard and fast. What really matters is what other people think of a skipped IMF payment and here it’s the ECB that is most important. Here’s Lagarde:

IMF Managing Director Christine Lagarde warned that she wouldn’t let Greece skip a debt payment to the lender, shutting down a potential avenue to buy the Greek government some financial leeway. We never had an advanced economy actually asking for that kind of thing, delayed payment, Lagarde said in an interview Thursday in Washington with Bloomberg Television. And I very much hope that this is not the case with Greece. I would certainly, for myself, not support it.

It’s almost ritualistic, her saying that of course. But that it has been said does bind in a way future actions. Having gone public with said statement then the IMF can’t really turn around and say Well, it doesn’t matter if Greece is late with a payment.

Christine Lagarde, the head of the International Monetary Fund, said the IMF is worried about the liquidity situation in Greece but made it clear that the institution would not give the country any leeway on ¨ 1bn of debt repayments coming due in early May.

This is almost like the Kremlinology of old of course, looking for the runes in such remarks, but by the standards of these things it’s a fairly firm statement. But it’s really the ECB that matters here. Assume that Greece did delay the IMF payment (as one minister has said they would, if faced with a choice of paying the bank or paying the country s pensions). Not a great deal would happen immediately as a direct result. What would actually matter is what the ECB did:

With Greek sovereign yields blowing wider on Thursday (and pretty much staying there), it s worth revisiting what exactly might happen if, say, May 1 arrives and Greece fails to pay the €200m due to the IMF that day. Received wisdom has it that the ECB will withdraw the ELA emergency liquidity assistance currently propping up the Greek banking system, which will promptly collapse; Tsipras and Co would then be forced to bring back the Drachma (or similar) and Greece would exit the eurozone. But what do the rules here say?

Well, actually, the rules are written in such a flaccid manner that the ECB could do anything it liked. They could conclude that it’s temporary, no biggie, and keep supporting the Greek banks. Or they could conclude that it’s not, it is a biggie, and close them down and thus force default and Grexit. But the point is that a putative default to the IMF doesn’t really change that situation. Because the rules are sufficiently flaccid that pretty much anything can be interpreted as being a reason to withdraw EULA support: or nothing. We’re not actually in a rules based world here, we re in a politically determined one. If the other eurozone members think that keeping Greece solvent , in the euro and functioning is sufficiently important then they will do that. If they don’t they won’t: there’s really no rules here that can insist that they go either way.

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“This quarantine was deemed necessary after the aggressive rhetoric of the new Greek government..”

Quarantine For Greek Bank Subsidiaries In Neighboring Countries (Kathimerini)

Neighboring countries have effectively quarantined Greece in a bid to minimize the consequences on their credit systems in case of a Greek “accident.” Kathimerini understands that the central banks of Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia have all forced the subsidiaries of Greek banks operating in those countries to bring their exposure to Greek risk (bonds, treasury bills, deposits to Greek banks, loans etc.) down to zero in order to shield themselves and minimize the danger of contagion in case the negotiations between the Greek government and the eurozone do not bear fruit. This quarantine was deemed necessary after the aggressive rhetoric of the new Greek government – particularly in the first few weeks after the election – regarding a debt restructuring, the non-completion of the creditors’ assessment and so on.

Special care was taken for the subsidiaries of Greek lenders, which have a major presence in neighboring states, to make sure that they would not proceed to new positions in Greek bonds, T-bills, deposits in Greek banks or interbank funding. The Greek government recently put press pressure on banks to think how they could get around the ECB’s ban on the acquisition of more T-bills. Another concern for local bank groups is the threat of a reduction in the Greek element of their subsidiaries in neighboring countries in case of turmoil in Greece. Don’t forget that the Cypriot-owned bank branches in Greece changed hands virtually overnight in March 2013 during the Cyprus bank bail-in process.

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“But we are not going to end up ‘being’ compromised. This not what we were elected for.”

Obama Calls For Flexibility In Brief Exchange With Varoufakis (Kathimerini)

US President Barack Obama spoke with Greek Finance Minister Yanis Varoufakis on the sidelines of an event at the White House honoring Greece’s Independence Day with the former stressing the need for flexibility from all sides in ongoing reform negotiations between Greece and its creditors, according to sources. The conversation between Obama and Varoufakis lasted for around 12 minutes, according to sources who said Varoufakis asked Obama to keep pressing European leaders so that a solution is found to Greece’s problem. Varoufakis agreed with Obama that all sides need to show flexibility and also highlighted the need to remain focused on the goal and on the process that Greece is involved in with its creditors. The event at the White House was also attended by US Vice President Joe Biden and Greek Archbishop Demetrios.

Varoufakis is to meet on Friday with US Treasury Secretary Jack Lew at 10.30 p.m. Greek time following a scheduled meeting at 6 p.m. with European Central Bank President Mario Draghi. On Thursday, in a speech at the Brookings Institution, Varoufakis underlined the difficulties in Greek negotiations with its creditors but said Greece was more keen than anyone for a deal to be reached. Nevertheless, Greece will not approve more austerity, he said. “We will not sign up to targets we know our economy cannot meet by means of policies that our partners should not wish to impose,” he said. “We will compromise, we will compromise and we will compromise in order to come to a speedy agreement. But we are not going to end up ‘being’ compromised. This not what we were elected for.”

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“..the reforms being demanded from Athens in exchange for a vital €7.2bn in rescue funds should be simplified and slimmed down.”

IMF Urges EU To Slim Down Its Demands On Greece (Guardian)

The IMF has urged EU negotiators to slim down their list of demands in debt talks with Greece amid fears that time is running out to reach a deal. The intervention by one of the country’s three main lenders came as the UK chancellor, George Osborne, said the impasse posed the biggest immediate threat to the global economy. Poul Thomsen, head of the IMF’s European department, said the reforms being demanded from Athens in exchange for a vital €7.2bn (£5.2bn) in rescue funds should be simplified and slimmed down. European finance ministers and senior officials have warned that Greece is running out of time to secure the payment and avert a disorderly exit from the eurozone. Osborne said the situation in Greece was “the most worrying for the global economy”.

Speaking at the IMF’s spring meeting in Washington,he said discussions about Greece had “pervaded every meeting” and that “the mood is notably more gloomy than at the last international gathering”. He added: “It’s clear now to me that a misstep or a miscalculation on either side could easily return European economies to the kind of perilous situation we saw three to four years ago.” Osborne’s German counterpart, Wolfgang Schäuble, repeated his criticism of the radical left Syriza government’s negotiating tactics and warned that it was harming the economy. He said Greece was in a “very difficult situation” after Syriza demanded a new deal with its creditors – the IMF, the EU and the ECB – which had delayed reforms and hit the country’s already struggling economy.

Schäuble said it was unlikely that next week’s deadline for Athens to submit reform proposals would be met. The reforms are scheduled to be discussed at a meeting of eurozone finance ministers in Riga, Latvia next Friday, followed by a further gathering in Brussels on 11 May that is being seen as the crunch point for Athens. Greece is scheduled to make a €747m repayment to the IMF on 12 May and there are fears that Athens will be unable to meet the deadline as cash runs out of state and domestic bank coffers.

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“..the so-called adverse scenarios group.”

ECB Examines Possible Greek IOU Currency In Case Of Default (Reuters)

The ECB has analysed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, creating a virtual second currency within the euro bloc, people with knowledge of the exercise told Reuters. Greece is close to having to repay the IMF about €1 billion in May and officials at the ECB are growing concerned. Although the Greek government has repeatedly said that it wants to honour its debts, officials at the ECB are considering the possibility that it may not, in work undertaken by the so-called adverse scenarios group. Any default by Greece would force the ECB to act and possibly restrict Greek banks’ crucial access to emergency liquidity funding.

Officials fear however that such action could push cash-strapped Athens into paying civil servants in IOUs in order to avoid using up scarce euros. “The fact is we are not seeing any progress… So we have to look at these scenarios,” said one person with knowledge of the matter. A spokesman for the ECB said it “does not engage in speculation about how specific scenarios regarding Greece could unfold.” One Greek government official, who declined to be named, said there was no need to examine such a scenario because Athens was optimistic it would reach a deal with its international lenders by the end of the month. Greece has dismissed a recent report suggesting it would need to tap all its remaining cash reserves across the public sector, a total of €2 billion, to pay civil service wages and pensions at the end of the month.

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“But if Greece leaves, all bets are off.”

Greece’s Binary Outlook Gives Markets a Headache (WSJ)

The conundrum that Greece presents for most investors is simple, but troubling. It is either mostly irrelevant, or one of the biggest threats to markets this year. The war of words over Greece and its attempts to strike a deal with its partners in recent days has deepened. German Finance Minister Wolfgang Schäuble warned that time was “running out” for Greece to strike an accord over its bailout program. European Commission Vice President Valdis Dombrovskis said talks were nowhere near the point where money could be disbursed. And IMF Managing Director Christine Lagarde on Thursday advised Greece to “get on” with fixing the economy. Greece has so far kept up with debt service, and retained access to very short-term market funding. But some very chunky payments come due in the summer months.

Standard & Poor’s this week cut Greece’s rating to triple-C-plus, warning that without deep reforms or further relief, Greece’s obligations would become unsustainable. Fears of a eurozone exit are building again. Financial markets are beginning to feel the jitters. Thursday, Greek bonds fell sharply, with two-year yields rising above 26%. Yields on Italian, Spanish and Portuguese bonds rose, widening the gap with Northern Europe. German bond yields fell to record lows, partly due to the European Central Bank’s bond-buying program, but partly due to nerves about Greece. As long as Greece stays in the eurozone, most investors can afford to pay it little attention. It accounts for just 1.8% of the currency bloc’s economic output.

The lowly rating on Greece’s bonds means they are off-limits for most funds; the volatility of Greek stocks will have deterred others from dipping into the market. The bigger factors affecting markets have been the ECB’s actions, the pickup in eurozone economic data, and the moves in currency markets. But if Greece leaves, all bets are off. The initial impact is probably containable, again due to Greece’s relatively small size economically. The ECB’s bond-purchase program should help stem financial-market contagion. But the second-round effects and political fallout are unknowable. UBS’s economists, for instance, warn that the apparent lack of bond-market concern over Greece is an unreliable indicator of calm; they argue that the real risk would come from bank runs in other highly-indebted countries. Undoubtedly, the remaining members of the eurozone would seek to circle the wagons and declare Greece unique once more, but the credibility of that effort might fall short.

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How to destroy an economy. “God help New Zealand.”

New Zealanders Make More On Their Homes Than They Earn At Work (NZ Herald)

A three-bedroom North Shore “do-up” has earned its owner nearly $1000 a day – just shy of the salary of a High Court judge – in Auckland’s red-hot property market. A Weekend Herald investigation into soaring house prices comes amid warnings from the Reserve Bank about the housing market and calls for immediate action by the country’s chief human rights watchdog. Stuart Duncan sold his 1982 fibre-cement home at 116 Oaktree Ave in Browns Bay in November 2013 for $751,000. Now the new owners have on-sold for $1,205,000 – despite doing little work on the property – giving them a 16-month profit of $454,000 – about $940 a day. “I’m still in shock,” Mr Duncan said after learning how much his old property fetched. “It’s just disbelief. “It was an 80s house, three-bedroom do-up. Where is the market going? God help New Zealand.”

The Weekend Herald has analysed annual house sale figures and compared them to wages earned in the country’s 12 regional council areas to calculate whether people’s homes are earning them more than they get from working. In Auckland, the average house earned nearly $230 a day in the past year – about twice the average worker’s pay. That’s about the same as an entry-level doctor or high school head of department with responsibility for 10 teaching staff. The one-bathroom Browns Bay property has a CV of just $800,000 and comes with a garage and carport. It sits on 1043sq m freehold and is zoned for Rangitoto College. Barfoot & Thompson agent Eve Huang said though the vendors had done little work on the property, they had obtained resource consent for the large section to be subdivided into two lots, which increased its value.

Mr Duncan said he couldn’t believe how the market had taken off, and blamed foreign buyers with deep pockets for what was fast becoming a housing crisis. “Every auction you go to, if they want it they just don’t give up. It’s a bottomless pit. It just doesn’t seem right. We’re going to end up with a generation that don’t own property.”

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An economy on the verge of implosion. How can these people not have learned from the US et al? They do have TV and papers here after all. Oh, wait, that is the very problem..

Rock-Star Economy Loiters At Rocky Road To Recession (NZ Herald)

A much-anticipated return to surplus somehow metamorphoses into yet another unwelcome deficit; dairy prices slump ever lower; the New Zealand dollar keeps rising ever higher; the overheated Auckland property market makes the South Sea Bubble of the 1700s look like an exercise in financial probity. Is this the so-called rock-star economy? Or the rocky road to recession? It is not raining on John Key and his colleagues. It is pouring. Still smarting at the mass defection of erstwhile supporters which the party took for granted in the Northland byelection, National is currently exhibiting the self-absorbed demeanour of someone who cannot quite work out what is happening to himself or herself and is not sure what to do about it.

Not that National can do much anyway to halt the rise in the currency or stimulate the international milk market. In the past week the Prime Minister and his Finance Minister have also appeared to accept they will fail to meet their long-established target date this year for a resumption of Budget surpluses. As for Auckland house prices, well, the warning from the Reserve Bank on Wednesday of a potential downward, disruptive correction in prices could not have been blunter. The Reserve Bank’s worry is that the trading banks, which have 60% of their lending in residential mortgages, could find themselves in dire straits such that credit dries up with the result that the economy goes into a severe downturn.

Key’s response was literally “crisis, what crisis?” But that hellish scenario ought to chill Key and Bill English to the bone. But the Reserve Bank has not stopped there. It is strongly urging the Government to give “fresh consideration” to ways and means of shutting property speculators attracted by untaxed capital gains out of the Auckland market. Key’s difficulty is that he has long ruled out a capital gains tax. His one consolation is that Labour leader Andrew Little has effectively done likewise. But Little is not in Government. Key is.

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We need to stop our own war mongerers, not someone else’s.

NATO Activity Near Russian Borders Increased By 80% in 2014 (RT)

There was a sharp increase the intensity of the training of NATO troops near the borders of Russia last year, Russian General Staff said. “In 2014, the intensity of NATO’s operational and combat training activities has grown by 80%,” Lieutenant General Andrey Kartapolov, head of the Main Operation Directorate of General Staff. The leadership of NATO made no effort to hide the clear anti-Russian orientation of these activities, he added. “During this period, NATO created a grouping of its member states’ forces in the Baltic States, consisting of over 10,000 troops, about 1,500 armored vehicles, 80 planes and helicopters and 50 warships,” Kartapolov said during the IV Moscow Conference on International Security.

According to the Lieutenant General, strategic bombers from the US Air Force were used to perform strategic tasks during those exercises. He also said that the US plans to supply its Eastern European allies with JASSM-ER long-range aviation cruise missiles, which will enable NATO warplanes to hit targets 1,300 kilometers inside the Russian territory. “In the case of a military conflict, critical facilities on the territory of almost the entire European part of Russia will be vulnerable to NATO’s air attack, with the flight time of the missiles reduced by half,” Kartapolov warned.

The General Staff official also spoke about increased intelligence activity by NATO in the Black Sea. He said that US Global Hawk drones were spotted in Ukrainian air space in March, with the UAVs increasing “the depth of reconnaissance on the territory of Russia by 250-300 kilometers.” Since Russia’s reunion with Crimea and the start of the military conflict in eastern Ukraine last spring, NATO forces have stepped up military exercises along the Russian border – in the Baltic States and Eastern Europe.

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I know, I said no more Hillary, but I’ll make an exception for Taibbi.

Hillary Clinton’s Fake Populism Is a Hit (Matt Taibbi)

Hillary Clinton ran onto the playing field this week, Rock and Roll Part 2 blaring in the background, and started lying within minutes of announcing her entry into the presidential election campaign. “There’s something wrong,” she told a crowd of Iowans, “when hedge fund managers pay lower taxes than nurses or the truckers I saw on I-80 when I was driving here over the last two days.” Oh, right, that. The infamous carried interest tax break, the one that allows private equity vampires like Mitt Romney and Stephen Schwartzman to pay a top tax rate of 15% while all of the rest of us (including the truckers Hillary “saw” – note she didn’t say “hung out with Bill and me over chilled shrimp at the Water Club”) pay income taxes.

The carried interest loophole is an absurd, completely unjustifiable handout to the not merely well-off but filthy rich, and it’s been law in this country for about three decades. Raise your hand if you really think that Hillary Clinton is going to repeal the carried interest tax break. We’ll come back to that in a minute. In the meantime, the reaction to Hillary’s campaign announcement went exactly according to script. Newspapers and news sites ever-so-slightly raised figurative eyebrows at the tone of Hillary’s announcement, remarking upon its “populist” flair. This is no plutocrat who plans to ride to the White House upon a historically massive assload of corporate money, the papers declared, this is a candidate of the people!

“Hillary’s Return: Her Folksy, Populist Re-Entry,” proclaimed Politico. “Populist Theme, Convivial In Tone!” headlined the Los Angeles Times. “Hillary Lifts Populist Spirits,” commented The Hill, hook visibly protruding from its reportorial fish-mouth. Having watched this campaign-reporting process from both the inside and the outside for a long time now, I knew what was coming after the initial wave of “Hillary the Populist!” stories. In presidential politics, every time a candidate on either the left or the right veers in a populist direction – usually with immediate success, since the American populace is ready to run through a wall for anyone who makes the obvious observation that they’re being screwed by someone up above – it takes about two or three days before the “Let’s let cooler heads prevail!” editorials start trickling in.

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As I said this week, they want the Bernank not for what he knows, but who he knows: “..it’s fairly clear that what Citadel wants is inside information..”

Ben Bernanke Isn’t the Problem, the System Is (Atlantic)

So Ben Bernanke wants to make a buck. Who can blame him? The guy is one of the most esteemed economists of his generation. He served his country admirably; his term as chairman of the Federal Reserve was probably the single most stressful term in that role in history. He resigned from his tenured professorship at Princeton when he joined the Fed board. What else is the guy going to do? This is, of course, how systemic problems work—few individual cases are obviously unacceptable, but the whole is horrifying. In this case, it’s the “revolving door” of movement between government positions and the financial sector—that is to say, from modestly paying positions in the public sector, overseeing financial firms, to higher-paying jobs in the private sector.

Bernanke is going to work for Citadel, a $25 billion hedge fund that is one of the country’s largest. While Bernanke is a talented economist, he has also never worked in the industry, so it’s fairly clear that what Citadel wants is inside information—either things he knows because he remains close with people in positions of authority, or his insight into ongoing negotiations. That’s why he’s been in high demand by financial-industry powers ever since stepping down last February. For example, The New York Times noted that he analyzed the Fed’s true feelings about inflation at a dinner with hedge funders in Las Vegas—allowing several to make profitable moves. Another lamented that he didn’t pay closer attention: “He gave this stuff out, but I didn’t realize what he was saying at the time, so I didn’t do a great trade.”

Quantifying the revolving door is difficult—it involves a series of subjective choices about what constitutes the revolving door, what level of employees should be counted, and so on. (One study from Notre Dame found a double-digit increase between 2001 and 2013.) But there’s ample anecdotal evidence. In fact, Bernanke isn’t even the first Federal Reserve alum to jump to a hedge fund in the last month. Jeremy Stein, a former governor, was hired by BlueMountain Capital Management in late March. And as Rob Copeland notes, this is just the latest in a stream of prominent government officials: Former Federal Reserve chairman Alan Greenspan and ex-Reagan economic adviser Martin Feldstein accepted paid roles on a now-disbanded economic advisory board at John Paulson’s hedge-fund firm that started in 2008.

More recently, former Obama administration chief of staff William Daley joined Swiss hedge fund Argentiere Capital, while former Treasury Secretary Timothy Geithner and former CIA chief David Petraeus took posts at private-equity firms Warburg Pincus and KKR, respectively. And just this week, former Massachusetts governor Deval Patrick was introduced as a new managing director at Bain Capital. That doesn’t even include non-hedge-fund and private-equity moves. Peter Orszag, who led President Obama’s Office of Management and Budget, took a job with Citigroup when he left. The Obama administration had been closely involved with Citi in the aftermath of the financial collapse, and the bank received nearly $500 billion in bailouts.

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Nobody wants GMO, nobody wants the TTIP. So what do we get? And have we forgotten how long DDT was considered safe? Declaring GMO safe is not science. Wait a hundred years.

EU -Under TTIP Pressure- Clears Path For 17 New GMO Foods (Guardian)

Seventeen new genetically modified food products will be authorised for import to Europe before the end of May in a significant acceleration of biotech trade, the Guardian has learned. An announcement could be made as early as next week, sources said, when a meeting of EU commissioners has been pencilled in to review adoption of new rules for approving GM imports. Europe currently imports around 58 GM products from abroad, mostly US maize, cotton, soy bean and sugar beet. But Greenpeace said that the US has raised the issue of a large logjam in biotech authorisations in talks over a free trade deal known as TTIP. “With transatlantic trade talks ongoing, pressure has been mounting from the biotech industry and the US government to break open the EU market to GM imports and to speed up authorisation procedures,” Marco Contiero, Greenpeace EU’s agriculture director, told the Guardian.

“The possible authorisation of 17 GM crops by the commission in the next few days is a likely result of this pressure.” “The timing is still being discussed but it is just a question of internal procedure now,” a source familiar with the discussions told the Guardian. “It is clear that the 17 strains will be authorised at the same time as the review meeting or just after. I would say it will happen before the end of May for sure.” Under proposed new GM import rules seen by the Guardian, future authorisations would automatically follow approval of new strains by the European Food and Safety Agency (Efsa). Individual countries would be given a similar opt-out to the one agreed for GM cultivation in a law passed earlier this year.

“It will be up to each member state wanting to make use of this ‘opt-out’ to develop this justification on a case-by-case basis, taking into account the GMO [genetically-modified organism] in question, the type of measure envisaged and the specific circumstances at national or regional level that can justify such an opt-out,” the draft said. Opposition from some EU states to draft GM authorisations is “usually not based on science but on other considerations reflecting the societal debate existing in the country,” the commission argues. So opt-outs will not be granted to EU states who seek it on health or environmental grounds, after Efsa has deemed a product safe. “The scope for the exceptions [opt-outs] will probably be less than in the cultivation proposal because we are talking about the internal market here,” an informed source said. “You will have to have a really solid reason. Otherwise it would be attacked as a disruption to the market.”

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“When you’re 400 yards from the lake and you have no water, you’re in trouble..”

Dry Wells Plague California as Drought Has Water Tables Plunging (Bloomberg)

Near California’s Success Lake, more than 1,000 water wells have failed. Farmers are spending $750,000 to drill 1,800 feet down to keep fields from going fallow. Makeshift showers have sprouted near the church parking lot. “The conditions are like a third-world country,” said Andrew Lockman, a manager at the Office of Emergency Services in Tulare County, in the heart of the state’s agricultural Central Valley about 175 miles north of Los Angeles. As California enters the fourth year of a record drought, its residents and $43 billion agriculture industry have drawn groundwater so low that it’s beyond the reach of existing wells. That’s left thousands with dry taps and pushed farmers to dig deeper as Governor Jerry Brown vorders the first mandatory water rationing in state history.

“The demand we’re placing on the aquifer and the deep bedrock drilling, which is going on at an alarmingly fast pace, is really scary,” said Tricia Blattler, executive director of the Tulare County Farm Bureau. “Folks are really concerned we’re not going to be able to find water in the groundwater system much longer. We are tapping it way too quickly.” Nowhere has lack of rain been felt more than in Tulare County, in a valley dotted with dairy farms and walnut orchards at the foot of the Sierra Nevada mountains. With 458,000 residents, it’s home to 1,013 dry wells, accounting for more than half of those that have failed in the state since January 2014.

Outside Porterville, in a dusty, unincorporated hamlet populated by many Latino citrus-farm workers, some residents use donated bottled water to drink and cook. About 40 people a day wash in the 26 showers set up in trailers next to the parking lot of Iglesia Emmanuel church. They lug nonpotable water home from county tanks for their toilets. Annette Clonts began bathing at friends’ homes or sneaking middle-of-the-night showers at Lake Success’s recreation area after the well near her trailer ran low two years ago. When the lake showers started sputtering in November, she turned to those at the church. “When you’re 400 yards from the lake and you have no water, you’re in trouble,” said Clonts, a 57-year-old retired cook.

[..] “We’ve got to find a way to survive, to hold on,” said Gallegos, who lives with her husband and two daughters. “Right now, we don’t have the money to drill a deeper well. You’re talking about $15,000.” That’s the starting price for residential wells, which range from 30 to 150 feet (9 to 46 meters) and can cost as much as $45,000, said Blattler, the official with the county’s farm bureau. Agricultural wells, which are about 1,000 to 1,800 feet, run $250,000 to $750,000, she said. There are so many customers, they’ll have to wait as long as two years.

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With an El Nino yet to come.

Global Temperature Records Just Got Crushed Again (Bloomberg)

It just keeps getting hotter. March was the hottest month on record, and the past three months were the warmest start to a year on record, according to new data released by the National Oceanic and Atmospheric Administration. It’s a continuation of trends that made 2014 the most blistering year for the surface of the planet, in to records going back to 1880. Thirteen of the 14 hottest years are in the 21st century, and 2015 is on track to break the heat record again. Results from the world’s top monitoring agencies vary slightly. NOAA and the Japan Meteorological Agency both had March as the hottest month on record. NASA had it as the third-hottest. All three agencies agree that the past three months have been the hottest start to a year.

The heat was experienced differently across the world. People in the U.S. and Canadian Northeast had an unusually cool March. But vast swaths of unusually warm weather covered much of the globe, and records were broken from California to Australia. The sweltering start to 2015 may be just the beginning. The National Weather Services predicts that a pattern of unusually warm waters in the Pacific Ocean, known as El Nino, will most likely persist well into the second half of the year. And this El Nino could be a big one. El Nino conditions transfer heat that’s been building in the ocean into the atmosphere, affecting weather around the world. A strong El Nino could possibly bring relief to California’s unprecedented drought in the form of heavy rains, but would likely add yet another year to a pile of broken temperature records.

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 April 11, 2015  Posted by at 7:08 pm Finance Tagged with: , , , , , ,  2 Responses »
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G. G. Bain Goose Creek, houses on the water, Jamaica Bay, Long Island 1910

Euro’s Reserve Status Jeopardized As Central Banks Dump Holdings (Blooomberg)
Why The Euro Could Fall Even Further (CNBC)
Putin’s New Problem Is The Strong Ruble (Bloomberg)
Greece: The Next Deadline Approaches (CNBC)
Greek Finance Minister Steers Debt Talk His Way (NY Times)
100,000 Italians Sign Petition For Eurozone Exit Referendum (RT)
PetroChina Overtakes Exxon Mobil To Become World’s Biggest Energy Company (RT)
China Bears on Wrong End of $4 Trillion Rally Refuse to Go Away (Bloomberg)
WWII Reparations: Rare Footage From Greece’s Occupation By The Nazis (KTG)
EU Leaders Snub Moscow World War II Commemorations (Spiegel)
Obama Says ‘Days Of Meddling’ In Latin America Are Past (BBC)
Sneak Peek At Pope’s Crusade (Paul B. Farrell)
Agriculture Poses Immense Threat To Environment (EurActiv)
California’s New Era of Heat Destroys All Previous Records (Bloomberg)

“As a reserve currency, the euro is falling apart..”

Euro’s Reserve Status Jeopardized As Central Banks Dump Holdings (Blooomberg)

Quantitative easing may be helping Europe achieve its economic targets, but it’s also undermining the long-term viability of the euro by tarnishing its allure as a global reserve currency. Central banks cut their euro holdings by the most on record last year in anticipation of losses tied to unprecedented stimulus. The euro now accounts for just 22% of worldwide reserves, down from 28% before the region’s debt crisis five years ago, while dollar and yen holdings have both climbed, the latest data from the IMF show. “As a reserve currency, the euro is falling apart,” said Daniel Fermon, a strategist at SocGen. “As long as you have full quantitative easing, there’s no need to invest. The problem for the moment is we don’t see a floor for the currency. Money’s flowing out.”

ECB President Mario Draghi has in the past welcomed the drop-off in reserve managers’ holdings because a weaker exchange rate makes the continent more competitive. Yet firms including Mizuho Bank Ltd. warn the currency’s waning popularity reflects a more lasting loss of confidence in an economy that shrank in two of the past three years. “Global reserve managers may be thinking the euro is going to sink economically if it continues this way,” said Daisuke Karakama, the Tokyo-based chief market economist at Mizuho and a former European Commission official. With yen allocations rising, “they may be expecting Japan’s positive economic growth to continue as a result of” that nation’s record stimulus, Karakama said.

The decline in euro reserves suggests other central banks consider the ECB’s €1.1 trillion of QE bond purchases, which started a month ago, to be the biggest threat to the currency’s global status since its 1999 debut. Greece’s debt woes aren’t helping, either. The ECB ramped up the emergency funding available to Greek banks Thursday to alleviate the country’s worsening liquidity issues amid drawn- out negotiations over its bailout. All this is prompting banks from Citigroup, the world’s biggest foreign-exchange trader, to Goldman Sachs to predict the euro will fall below parity with the dollar this year, from a 12-year low of $1.0458 last month and $1.0617 Friday.

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Plenty reasons.

Why The Euro Could Fall Even Further (CNBC)

It’s been a one-way euro trip lower. The common currency has fallen every day this week, and is now near the lowest levels in 12 years. Now, currency traders are keenly watching American economic data, as better news about the economy could lead the euro drop to intensify. It all comes down to expectations about the Federal Reserve’s next move. Most market participants believe the Fed will raise short-term rate targets this year. That should help the U.S. dollar and hurt the euro, as it means that holding dollars will produce greater returns than holding euros, increasing demand for the greenback.

Expectations about a June Fed move have been tamped down due to a bevy of soft economic readings, most conspicuously the March jobs number. But this week, the Fed minutes and hawkish words from William Dudley have told investors that a June hike is still on the table, according to Boris Schlossberg of BK Asset Management. Dudley, the generally dovish New York Fed president, told Reuters on Wednesday that depending on how the data develops, a June move could be “still in play.” In the week ahead, Schlossberg says the biggest data point he will watch is Tuesday’s retail sales report. If it indicates that “the U.S. consumer finally started to spend, then dollar bulls run wild, and we may see 1.0500 break” on the euro, which is currently a bit below 1.0600 per dollar.

That’s because better data could serve to convince traders that the much-awaited Fed move will come sooner than previously anticipated. However, some traders say the move is overdone. “This short-term move is technical, so I expect to see the euro bounce and the dollar pull back off of the recent move,” said David Seaburg at Cowen.

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Not that big a problem. It allows for the interest rate to come down further.

Putin’s New Problem Is The Strong Ruble (Bloomberg)

Vladimir Putin is facing a problem few could have anticipated: The ruble is becoming too strong. Last year’s worst-performing major currency is this year’s best and while that’s buoying the nation’s bonds, driving yields to the lowest in four months, it’s also crimping Russia’s export revenue. Even though oil is little changed in dollars this year, the price when converted to rubles has plunged to the lowest since 2011. The currency rout in 2014 helped Russia to keep its budget deficit within 1% of GDP as the ruble weakened in lockstep with a 50% slump in oil. Now, with the cease-fire in Ukraine and the allure of higher-yielding assets attracting investors to ruble debt, the government is seeing the opposite effect.

“The current ruble level is already uncomfortable for the budget considering the oil price in rubles is already low,” Vladimir Bragin, head of research at Alfa Capital in Moscow, said by phone on Thursday. “In order to reach macroeconomic stability, Russia needs to limit its budget deficit and a weaker ruble is an easy way to do that.” The ruble’s 14% gain this month is making it easier for central bank Governor Elvira Nabiullina to push ahead with rate cuts this year after she hoisted the benchmark to 17% in December to stem the currency’s slide. Nabiullina lowered the rate by 3 percentage points so far in 2015.

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“The prospect of a negotiated exit within a month is now close to 40%..”

Greece: The Next Deadline Approaches (CNBC)

Greece repaid one of its key loans on Thursday, but with the country’s coffers still close to empty, the government may merely have earned short-term respite. As the holiday of the Orthodox Easter Weekend approaches, newly minted Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis are unlikely to be unwinding for the long weekend. Greece has been given six working days by the euro zone technical staff of the Euro Working Group to come up with proposals for a reform agenda—on which further financial aid is conditional—ahead of a key meeting of euro zone finance ministers on April 24 in Riga, Latvia. The struggling Greek economy still needs financial support. It faces two redemptions of bills for a total of €2.4 billion as soon as April 14 and 17.

“Euro area finance ministers are probably at the end of their tether, after ten weeks of the new government’s foot-dragging and game-playing, and any sympathy for the Greek position has long disappeared,” the economic research team at Daiwa wrote in a research note. Tsipras is barely off the plane from a trip to Russia, which seemed on the surface to have achieved little in terms of concrete promises from Russia to assist Greece in the event of it defaulting on its debt repayments, leaving the euro or losing financial support from its creditors.

Economists are now increasingly taking the possibility of a “Grexit”, deemed incredibly unlikely by many just a couple of years ago. The risk of Greece defaulting on its debt repayments is now 50-50%, according to UBS, although its analysts argue that default does not necessarily mean euro zone exit. The prospect of a negotiated exit within a month is now close to 40%, according to Gabriel Sterne, head of global macro research at Oxford Economics. And capital controls – limits on the amount of money that can be taken out of the country—usually a sign of severe economic distress—are just “one more turn of the financial screw away” he added.

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“After five years of austerity imposed by creditors, “the word ‘reform’ resonates in Greece like the word ‘democracy’ in Iraq,” he said. “It’s a dirty word.”

Greek Finance Minister Steers Debt Talk His Way (NY Times)

You would never know from his demeanor that Yanis Varoufakis, the celebrity Greek finance minister, was carrying the weight of a nation on his shoulders. In fact, you could be forgiven for thinking that it was his country’s uncompromising creditors who were on the defensive. On Thursday, at a conference of economic luminaries, Mr. Varoufakis was working hard to divert the discussion from Greece’s shrinking financial freedom and fears that it might default. (He had a bit of wind at his back with news that Greece on this same day had just met its deadline for repaying a €460 million, or $491 million, loan installment to the IMF. Rather than concede any Greek missteps, Mr. Varoufakis wanted to assess the flaws of the eurozone that he said had been revealed by the 2008 global meltdown and its aftermath.

“There is no doubt that if we had a federal republic, if we had a United States of Europe, we would not be here discussing the Greek crisis, the eurozone crisis, banking union or anything of the sort,” he said in an onstage conversation with the Nobel laureate Joseph E. Stiglitz, at a conference of the Institute for New Economic Thinking. “Unfortunately,” he added, “the way we designed the eurozone, it was crying out for a crisis.” Mr. Varoufakis, as is now well known, became finance minister in January as part of the Syriza-led leftist government of Prime Minister Alexis Tsipras, which came to power promising voters to renegotiate the €240 billion international bailout, whose terms Athens blames for sending the economy into a tailspin and leaving more than 50% of Greek youth jobless.

When Mr. Stiglitz asked him how Greece’s creditors could have repeatedly overestimated the country’s ability to grow under the terms of the bailout, Mr. Varoufakis replied, “I think it’s the politics of denial.” Even making Thursday’s payment to the I.M.F. required scraping together money from the government’s dwindling resources. It staved off a default for now, but did nothing to solve the bigger problem: that the government is running out of cash to meet obligations like paying pensions and the wages of public employees. To obtain another tranche of desperately needed bailout funds, Greece still has to persuade its highly skeptical creditors — which also include the ECB and the European Commission — that Athens has a credible economic overhaul plan. [..]

Mr. Varoufakis, 54, comes across as a sort of debonair Mr. Spock, a financial Vulcan of the eurozone. Dressed in a dark jacket with his trademark casual, open-collared shirt, he speaks clearly about the currency bloc’s awkward truths, avoiding the jargon and evasiveness that normally characterizes the region’s dreary politics. Appearing on a separate panel with Mr. Varoufakis on Thursday, the Irish central bank chief, Patrick Honohan, referred to the “glass being half full” after Ireland’s bailout and tentative recovery. “I don’t like the metaphor,” Mr. Varoufakis said. “In the case of my country, the glass is broken.”

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“..Italy’s debt increased dramatically after the introduction of the euro..”

100,000 Italians Sign Petition For Eurozone Exit Referendum (RT)

Italy’s Five Star Movement (M5S) party has collected more than 100,000 signatures on a petition calling for a law that would allow a referendum on withdrawal from the eurozone. M5S MP Carlo Sibila says he expects a referendum to take place at the start of next year. Though the petition has already surpassed the required amount of signatures needed for the initiative, Sibila said that he hopes it will gather another 50,000 by early May in order to highlight the issue. “Who wants to stay in euro? This is the main question,” Sibila told RT. “But we don’t want to get out just like this – we want a program and a discussion, and then let the citizens decide. It’s really necessary today as the situation in Italy is going from bad to worse where jobs and economy are concerned.” The Italian constitution, however, does not provide for the cancellation of international agreements through referenda.

According to Sibila, Italy’s debt increased dramatically after the introduction of the euro. He also noted that Italy’s unemployment rate hovers around 12.7%, the sixth highest in the EU. “We can’t have our own fiscal policy, but without the euro it is possible in Italy,” Sibila said. The Five Star Movement, formed in 2009 by comedian and activist Beppe Grillo, finished second in the 2014 European Parliament election with 21% of the vote. Sibila stressed that M5S does not seek to leave the European Union, but merely to leave the currency union. “Italian citizens need to have the right to decide if they want to stay inside or outside the monetary union,” Sibila told RT. “We are not questioning the EU, it is only the monetary union.” Italy joined the Eurozone in 1999, and the currency was introduced into circulation three years later.

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“..the Chinese company’s Class-A shares have gained 61% since last April..”

PetroChina Overtakes Exxon Mobil To Become World’s Biggest Energy Company (RT)

The capitalization of China’s biggest oil producer PetroChina reached $352.8 billion during Thursday trading in Shanghai, surpassing ExxonMobil as the world’s most valuable energy company for the first time since 2010. The market cap of America’s Exxon reached $352.6 billion in Shanghai Thursday trading, Bloomberg reports. PetroChina’s market cap has gone up 13.81% in the last 12 months while Exxon’s market value has fallen by 14%, following the slump in oil prices. Moreover, the Chinese company’s Class-A shares have gained 61% since last April. The last time PetroChina was more valuable than Exxon was at the close of trading on June 25, 2010, according to Bloomberg.

“PetroChina has multiple positives at the moment: it’s got a reform story, it’s also listed in Hong Kong, and China has more freedom for mainland fund managers in the works,” said Mark Matthews head of Asia research at Bank Julius Baer & Co. in Singapore. “China is also planning to transfer stakes in state-owned enterprises away from their regulator, which will on the whole be positive for SOEs,” he added. Oil companies across the world have been facing difficult times since crude prices started to plunge last summer. ExxonMobil’s adjusted net income of $6.3 billion in the fourth quarter was the lowest since a loss in the final three months of 2009, according to Bloomberg data. PetroChina’s net profit was $1.8 billion in the same period.

The Shanghai Composite closed at its highest level in seven years on Thursday gaining about 88% over the past year as the best performer among major indexes. Meanwhile, the Chinese yuan has declined 0.1% versus the dollar in the past year. PetroChina is the listed arm of state-owned China National Petroleum Corporation (CNPC), with almost all of its operating profit coming from the exploration and production sector along with a small contribution from its natural gas and pipeline unit.

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Some bubbles these days take on grotesque proportions.

China Bears on Wrong End of $4 Trillion Rally Refuse to Go Away (Bloomberg)

Bull markets are always tough on short sellers. This one in China right now, though, is proving downright brutal. Bearish wagers on the Shanghai Stock Exchange have climbed threefold in the past nine months and reached a record 6.09 billion yuan ($981 million) on Wednesday, a period in which the benchmark equity index jumped 94%. Across the border in Hong Kong, where the Hang Seng Composite Index has surged 7.6% in just the past two days, the gauge’s 20 most-shorted stocks surged 18% on average. The gains show the dangers of betting against a Chinese market where new investors are flocking to stocks at a record pace and traders have taken out an unprecedented 1.06 trillion yuan of debt in Shanghai to amplify their buying power.

While technical indicators show shares in both the mainland and Hong Kong are more vulnerable to a reversal than any other market, Marco Polo Pure Asset Management says bears may be setting themselves up for more losses if China’s stimulus efforts produce an economic recovery later this year. “It’s not a market you want to bet against,” said Aaron Boesky, who oversees about $125 million as the chief executive officer of Marco Polo in Hong Kong. The firm’s Pure China fund was the top performer in the second half of 2014 among China-focused hedge funds tracked by AsiaHedge Intelligence. “I can respect people who might want to stay out of it, because it is a very volatile market, even for local Chinese,” he said. “Staying out is respectable. Shorting it could be suicidal.”

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“Greece lost 13% of its population during WWII..”

WWII Reparations: Rare Footage From Greece’s Occupation By The Nazis (KTG)

Greek Defense Ministry has published a video with rare footage from the occupation of Greece by the Nazis during the World War II. Among others, the footage shows children suffering from malnutrition and emaciated adults, victims of the Great Famine during the Nazi occupation. The video should be seen in the context of the Greek claim of €278.7 billion in WWII reparations from Germany. According to the video voice-over, the Enforced Loan by the Nazis was to blame for the mass starvation of estimated 300,000 people in Athens alone. “The agreement of 14 March 1942 foresaw that Greece paid to its occupiers 1.5 billion drachmas per month, a total of 3.5 billion USD, according to the Dollar value of 1938.

The current value of the enforced loan is 54 billion euro without the interest. The agreement had to be implemented retrospectively as of 1.1. 1942. The agreement was signed by Germany and Italy and Greece was notified later. Two agreement modifications were added on 2. December 1942, with the effect that Germany had to start repaying the loan by April 1943. Germany paid back two installments only. In the Peace Paris Treaties (1947) Greece claimed 14 billion USD in war reparations, but the allies reduced the Greek claim down to 7.1 billion USD.” According to the video “Greece lost 13% of its population during the WWII. One part was lost in the battlefield, but the largest part due to Famine and the Nazis’ atrocities.”

The Great Famine, the period of mass starvation during the occupation of Greece by the powers of Axis – the fascist Italy and the Nazi Germany – hit especially the urban areas and some islands. The Great Famine was initiated by a large scale plunder by the Axis forces and as soon as the German army entered Athens 0n 27. April 1941. The Nazis confiscated fuel and all means of transportation, including fishing boats, preventing any transfer of food and other supplies and seized strategic industries. They proceeded with the wholesale and food looting , unemployment and hyperinflation skyrocketed, the black market flourished. The price of bread was increased 89-fold from April 1941 to June 1942.

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“Since it was declared an official holiday in 1965, May 9, with its spontaneous gatherings of veterans in the streets, public festivals and gun salutes in the evening, has in fact become Russia’s most moving holiday..”

EU Leaders Snub Moscow World War II Commemorations (Spiegel)

This Monday, Russia President Vladimir Putin visited the cemetery in the village of Marfino, not far from the old western Russian city of Staraya Russa, where he placed a bouquet of red roses. Then he met with veterans of the “Great Patriotic War,” the term Russians use to describe their battle against Hitler. It would be hard to find another part of Russia that is as saturated with the blood of that war than the earth around Staraya Russa. Officially, 850,000 soldiers died there during the two-and-a-half-year German occupation. The real figure is probably higher, because the Red Army long attempted, albeit unsuccessfully, to fend off repeated attacks by the enemy along the northwestern front.

The encounter near Marfino was one of the events with which the Russian president is preparing his country for May 9, which marks the anniversary of the end of the war with Hitler’s Germany. It is “our country’s most important and most honest holiday,” Putin said in Staraya Russa. “It is the day of the great victory.” The end of the war will be commemorated in Russia for the 70th time this year. Since it was declared an official holiday in 1965, May 9, with its spontaneous gatherings of veterans in the streets, public festivals and gun salutes in the evening, has in fact become Russia’s most moving holiday — and perhaps the only one that has truly united the people. The victory over Hitler happened three generations ago.

Still, during Putin’s visit to Staraya Russa, the veterans reminded him of the words of military commander Alexander Suvorov, who said that a war is not over “until the last soldier has been buried.” Last year, search teams recovered the remains of 12,900 fallen soldiers from swamps near Novgorod, the forests of Smolensk and the region around St. Petersburg.

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Right. Sure.

Obama Says ‘Days Of Meddling’ In Latin America Are Past (BBC)

US President Barack Obama has told Latin American leaders that the days when his country could freely interfere in regional affairs are past. He was speaking just before the seventh Summit of the Americas was due to kick off in Panama City. Mr Obama and Cuban leader Raul Castro will meet face-to-face for the first time since a December detente. But their much-anticipated meeting could be overshadowed by tensions between the US and Venezuela. Mr Obama told a forum of civil society leaders in Panama City that “the days in which our agenda in this hemisphere presumed that the United States could meddle with impunity, those days are past”.

At past Summits of the Americas, which bring together the leaders of North, Central and South America, the US has come in for criticism for its embargo against Cuba and its objection to having Cuba participate in the gatherings. This seventh summit is the first which Cuba will attend and much of the attention will be focussed on the body language between the former foes. The meeting will the be first formal encounter between the leaders of the US and Communist-run Cuba in more than five decades. Mr Obama stressed that he hoped the thaw in relations would improve the lives of the Cuban people. “Not because it’s imposed by us, the United States, but through the talent and ingenuity and aspiration and the conversation among Cubans, among all walks of life. So they can decide what is the best course of prosperity.”

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“If we destroy Creation … Creation will destroy us..”

Sneak Peek At Pope’s Crusade (Paul B. Farrell)

Here’s a sneak peak of Pope Francis’s historic “Climate Change Encyclical,” soon to be released, complete with talking points for his upcoming address to the joint session of Congress. We’ll analyze them: The encyclical’s likely headline: “Safeguard Creation … We are the custodians of Creation … If we destroy Creation … Creation will destroy us,” a public warning often repeated by the pontiff this past year, a message certain to intensify the anger of GOP climate-science deniers, Big Oil, Koch Bros, Exxon Mobil and most fossil-fuel firms, as well as their banks, investors owning their stocks and capitalists everywhere. Here’s why: Pope Francis’s much-anticipated encyclical will be broadcast worldwide to billions, including 5,000 bishops, 400,000 priests and 1.2 billion members of the Roman Catholic Church.

He will be encouraging his army of the faithful to take strong action, fight climate change and global warming threats to the environment. The encyclical will also be translated into hundreds of languages and broadcast worldwide. At the same time, Pope Francis will be lobbying heads of state and religious leaders, and inspiring billions of people worldwide, encouraging them to join this revolution. This historic encyclical will also set the stage for everything else Pope Francis has planned in 2015. He’s a man with a mission to save the world from the accelerating threats to the planet’s natural resources. More immediate, the encyclical will serve as major talking points for his address to the joint session of Congress in September, his address to the United Nations General Assembly in New York and his December message to the historic UN Climate Conference in Paris. Many of his points on the environment are already well known.

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“.. instead of realising initial plans to stop and reverse the trend of species loss by 2010, more and more species are disappearing from the agrarian landscape..”

Agriculture Poses Immense Threat To Environment (EurActiv)

Conventional agriculture is causing enormous environmental damage in Germany, warns a study by the country’s Federal Environment Agency, saying a transition to organic farming and stricter regulation is urgently needed. EurActiv Germany reports. Spanning over 50% of the country, agriculture takes up by far the biggest amount of land in the country, and is one of its most important economic sectors. But intensive farming still harms the environment to an alarming extent, according to a study conducted by the Federal Environment Agency (UBA). The use of pesticides and fertilisers as well as intensive animal husbandry, have a negative impact on humans and nature, the 40-page document indicates. “Over the last 30 years, innovation and technical progress in most sectors has led to great successes in reducing the amount of substance that reaches the environment.

But agriculture emissions show only marginal improvements,” the study’s authors write. One of the most controversial issues concerns greenhouse gas emissions. According to the researchers, the use of moors and clear-cutting for agriculture, as well as fertilisers, soil cultivation and animal husbandry produce a high level of emissions that impact the climate. In 2012, agriculture-related emissions were around 70 million tonnes of CO2 equivalent – about 7.5% of the year’s total greenhouse gas emissions. This means that after industry, which made up 84%, agriculture was the second largest emitter in Germany. Biodiversity is also threatened by intensive farming. Agriculture burdens the environment with nitrogen, phosphorus and heavy metals. Broad-spectrum pesticides not only wipe out parasites, but also kill other beneficial insects.

As a result, this has adverse effects on birds and other mammals, who lose their food resources. The unfortunate result is that instead of realising initial plans to stop and reverse the trend of species loss by 2010, more and more species are disappearing from the agrarian landscape. The authors write that excessive nitrogen emissions are still alarmingly high, with 60% of nitrogen emissions originating from agriculture. Still, the country’s nitrogen surplus has been stagnating at a high level for years. At an average of 97 kg per hectare, it exceeds the German government’s target value within the sustainability strategy by almost 20 kg per hectare. As a result, agriculture, with a share of 57%, is the nation’s largest source of nitrogen emissions into the environment.

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A lot more serious than people seem to think.

California’s New Era of Heat Destroys All Previous Records (Bloomberg)

The California heat of the past 12 months is like nothing ever seen in records going back to 1895. The 12 months before that were similarly without precedent. And the 12 months before that? A freakishly hot year, too. What’s happening in California right now is shattering modern temperature measurements—as well as tree-ring records that stretch back more than 1,000 years. It’s no longer just a record-hot month or a record-hot year that California faces. It’s a stack of broken records leading to the worst drought that’s ever beset the Golden State. The last 12 months were a full 4.5 degrees Fahrenheit (2.5 Celsius) above the 20th century average. Doesn’t sound like much? When measuring average temperatures, day and night, over extended periods of time, it’s extraordinary.

On a planetary scale, just 2.2 degrees Fahrenheit is what separates the hottest year ever recorded (2014) from the coldest (1911). California’s drought has already withered pastures and forced farmers to uproot orchards and fallow farmland. It’s costing the state billions each year that it goes on. Governor Jerry Brown issued an executive order this month for the first mandatory statewide water restrictions in U.S. history, with $10,000-a-day penalties against water agencies that fail to reduce water use by 25%. California has seen droughts before with less rainfall, but it’s the heat that sets this one apart. Higher temperatures increase evaporation from the soil and help deplete reservoirs and groundwater. The reservoirs are already almost half empty this year, and gone is the snowpack that would normally replenish lakes and farmlands well into June.

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Apr 072015
 
 April 7, 2015  Posted by at 8:44 am Finance Tagged with: , , , , , , , ,  5 Responses »
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NPC Shad fishing on the Potomac 1920

Oil Slump Pushes S&P Toward First Profit Decline Since 2009 (Bloomberg)
How America Became an Oligarchy (Ellen Brown)
Fidelity’s Wolf Says Zero Rate Inescapable in Oil-Shocked Canada (Bloomberg)
Greece Offers 5 Key Points For Consensus With Creditors (RT)
Greece Puts Figure Of €278.7 Billion On Claim For German Reparations (Guardian)
Varoufakis Extends DC Charm Offensive After Talks With Lagarde (Guardian)
Frustrated EU Officials Want Greek Premier To Ditch Syriza Far Left (FT)
Alexis Tsipras’s Soft Fruit Ploy With Moscow Set To Antagonise EU (FT)
Why Hugh Hendry Went From China’s Biggest Bear To Its Biggest Bull (Zero Hedge)
How Rich and Poor Spend -and Earn- Their Money (WSJ)
Jobs Shocker May Show That US Economy Is In Real Trouble (CNBC)
The Global South Has Free Trade To Thank For Obesity And Diabetes (Guardian)
The School of Globalism (Jim Kunstler)
Russia Says Ukraine Should Seek Direct Debt-Restructuring Talks (Bloomberg)
Canadian Orchestra Drops Ukraine-Born Pianist Over Anti-Kiev Twitter Posts (RT)
Four-Bedroom House In Spain ‘Sold’ In €10 Raffle (Guardian)
New Zealand Dairy Giant Fonterra’s China Sales Fall 61% (NZ Herald)
Italians Rescue 1,500 Migrants In 24 Hours In Mediterranean (BBC)
Mapping America’s Exceptional Drought Conditions (Reuters)

There’s a limit to what QE can buy.

Oil Slump Pushes S&P Toward First Profit Decline Since 2009 (Bloomberg)

Tumbling oil prices and a stronger dollar are pushing down U.S. corporate profits for the first time in more than five years, hurting companies from Exxon Mobil to Wal-Mart. First-quarter earnings per share for companies in the S&P 500 may have fallen about 5.8%, according to estimates compiled by Bloomberg, in the first year-over-year decline since 2009’s third quarter. As earnings season gets its unofficial start this week with Alcoa, the biggest drag will come from a 63% profit decline at energy companies. Oil prices have fallen by about half from a year ago as companies pumped their way into a global glut, and the dollar’s climb of about 25% against a basket of currencies since last summer has chipped away at revenue for companies such as United Technologies.

“There are all these cross currents going on right now heading into earnings season,” said Todd Lowenstein at HighMark Capital. “You’re going to have at least on paper a technical earnings recession, meaning two consecutive quarters of negative growth, in the first and second quarters.” The effects ripple across industries. US Steel last month announced plans to shut an Illinois mill partly on falling demand from the energy companies. The dollar’s surge helped make steel imports cheaper, hurting producers such as Nucor. At Dow Chemical profit is poised to drop as plastics prices decline with oil and farmers buy fewer chemicals because their crops are selling for less. United Technologies has said it expects foreign exchange to cut $100 million from first-quarter profit on sales of its jet engines, elevators and air conditioners. “That still remains the biggest watch item for me,” CFO Akhil Johri told investors on March 12.

The slowdown is showing in some U.S. economic reports. The Labor Department reported Friday that employers added 126,000 jobs in March, the fewest since December 2013. The S&P 500 fell 0.3% at 9:38 a.m. Monday in New York, the first trading day after the report. Once energy companies are pulled out of the picture, S&P earnings look a bit better, with a projected rise of 1.9%. Alcoa is poised to report a higher profit in part because of rising aluminum demand from automakers and airlines – – two industries that are both benefiting from lower oil prices. Profits at auto manufacturers and their suppliers may jump 42%, the estimates show. “People know that energy prices are down, they know the dollar’s up,” said Jim Paulsen at Wells Capital. “What is less known here is what does the earnings performance look like outside the energy industry.”

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“Can we justify sending troops into other countries to spread a political system we cannot maintain at home?”

How America Became an Oligarchy (Ellen Brown)

According to a new study from Princeton University, American democracy no longer exists. Using data from over 1,800 policy initiatives from 1981 to 2002, researchers Martin Gilens and Benjamin Page concluded that rich, well-connected individuals on the political scene now steer the direction of the country, regardless of – or even against – the will of the majority of voters. America’s political system has transformed from a democracy into an oligarchy, where power is wielded by wealthy elites. “Making the world safe for democracy” was President Woodrow Wilson’s rationale for World War I, and it has been used to justify American military intervention ever since. Can we justify sending troops into other countries to spread a political system we cannot maintain at home?

The Magna Carta, considered the first Bill of Rights in the Western world, established the rights of nobles as against the king. But the doctrine that “all men are created equal” – that all people have “certain inalienable rights,” including “life, liberty and the pursuit of happiness” – is an American original. And those rights, supposedly insured by the Bill of Rights, have the right to vote at their core. We have the right to vote but the voters’ collective will no longer prevails. In Greece, the left-wing populist Syriza Party came out of nowhere to take the presidential election by storm; and in Spain, the populist Podemos Party appears poised to do the same. But for over a century, no third-party candidate has had any chance of winning a US presidential election. We have a two-party winner-take-all system, in which our choice is between two candidates, both of whom necessarily cater to big money. It takes big money just to put on the mass media campaigns required to win an election involving 240 million people of voting age.

In state and local elections, third party candidates have sometimes won. In a modest-sized city, candidates can actually influence the vote by going door to door, passing out flyers and bumper stickers, giving local presentations, and getting on local radio and TV. But in a national election, those efforts are easily trumped by the mass media. And local governments too are beholden to big money. When governments of any size need to borrow money, the megabanks in a position to supply it can generally dictate the terms. Even in Greece, where the populist Syriza Party managed to prevail in January, the anti-austerity platform of the new government is being throttled by the moneylenders who have the government in a chokehold. How did we lose our democracy? Were the Founding Fathers remiss in leaving something out of the Constitution? Or have we simply gotten too big to be governed by majority vote?

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Join the club.

Fidelity’s Wolf Says Zero Rate Inescapable in Oil-Shocked Canada (Bloomberg)

Canada’s central bank will eventually join global peers by cutting interest rates to zero to revive flagging output, said Fidelity Investments’ David Wolf. The world’s 11th-largest economy is hobbled by weak oil prices, indebted consumers and a currency that remains too strong to draw new business investment, Wolf, a former Bank of Canada adviser under Mark Carney, said Monday from Toronto. Stephen Poloz, Carney’s successor, already cut rates once in January to 0.75% as “insurance” against plummeting crude prices. Swaps trading shows investors are betting on just one more rate cut this year. That probably won’t be enough for Canada to avoid becoming mired in weak global demand like other major economies have, Wolf said.

“There’s a reason why rates are zero just about everywhere else in the developed world,” Wolf, who co-manages the C$7.4 billion Canadian Asset Allocation Fund, said. In Canada, zero rates are “what eventually will happen” as well, he said. The Bank of Canada makes its next interest-rate decision on April 15. Carney cut the benchmark overnight lending rate to 0.25% in April 2009, saying it was effectively zero, and laid out principles for potential quantitative easing. Canada never joined the U.S., Europe and Japan in using that unconventional policy of asset purchases.

Given the unprecedented experience global central banks have had with QE since the financial crisis, and with pushing policy rates to zero or even lower, Canada would need to revisit its 2009 guidelines if policy makers decided to pursue extraordinary stimulus, Wolf said. “No doubt the bank would take a fresh look at what options would be appropriate,” he said. Canada’s dollar is at “roughly fair value” today, Wolf said, and needs to weaken further before companies are encouraged to make new investments to expand locally. The currency traded at C$1.2463 against its U.S. counterpart at 2:02 p.m. in Toronto, and is down about 6.8% this year. “Just going from overvalued to fair valued historically hasn’t been enough to prompt those changes and I don’t think will be in this case either,” he said.

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First time I see a Greece bad bank being discussed.

Greece Offers 5 Key Points For Consensus With Creditors (RT)

Greek Finance Minister Yanis Varoufakis has unveiled his plan on reviving the Greek economy by both meeting the IMF requirements and circuiting the austerity measures. A preliminary agreement over proposal is expected on April 24. “Negotiations [with international lenders – Ed.] will be completed when we come to a decent agreement that will give a real prospect of stabilization and further substantial growth to the Greek economy,”Varoufakis said in an interview to Naftemporiki newspaper published Monday. The minister also noted that his Cabinet won’t agree to carry out measures leading to a recession. Greece requires a new agreement with Europe to make its €324-billion debt sustainable, as now it accounts for 178% of GDP, said Varoufakis pointing out five terms on which the plan is expected to work out.

First, it is a reasonable level of primary budget surplus about 1.5% of GDP instead of 4.5% agreed by the previous government which has led to a severe recession. Secondly, it is a reasonable debt restructuring that will link payments with the growth rate of nominal GDP. In addition, Greece needs an investment package from the European Investment Bank and the European Investment Fund, which should be placed mainly in the private sector in accordance with the new, non-bureaucratic procedures. Fourth, Greece should pass on effective restructuring of troubled loans by allocating them to a ‘Bad Bank’ unlike other resources of the Fund for financial stability. The fifth thing is significant reforms that will give support to creative people and businesses that produce tradable goods, with export prospects, he added.

Greece expects to reach a preliminary agreement with creditor countries on financing the economy and the external debt at a meeting of eurozone finance ministers on April 24, Varoufakis said. “Preliminary results will be achieved at the meeting of the Eurogroup on April 24,” he said adding that Greece expects to negotiate the unblocking of the last tranche of €7.2 billion from the EU loan program, and to negotiate restructuring of external debt by June.

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And 25 cents.

Greece Puts Figure Of €278.7 Billion On Claim For German Reparations (Gaurdian)

Greece’s deputy finance minister has said that Germany owes it nearly €279bn (£205bn) in reparations for the Nazi occupation of the country. Greek governments and private citizens have pushed for war damages from Germany for decades but the Greek government has never officially quantified its reparation claims. A parliamentary panel set up by Alexis Tsipras’s government started work last week, seeking to claim German debts, including war reparations, the repayment of a so-called occupation loan that Nazi Germany forced the Bank of Greece to make and the return of stolen archaeological treasures.

Speaking at a parliamentary committee on Monday, the deputy finance minister, Dimitris Mardas, said Berlin owed Athens €278.7bn, according to calculations by the country’s general accounting office. The occupation loan amounts to €10.3bn. The campaign for compensation has gained momentum in the past few years as the Greeks have suffered hardship under austerity measures imposed by the EU and IMF in exchange for bailouts totalling €240bn to save Greece from bankruptcy. Tsipras has frequently blamed Germany for the hardship stemming from the imposition of austerity. The Greek prime minister has angered Berlin by threatening to push for reparations in the middle of talks to unlock aid for Greece. Germany has repeatedly rejected the country’s claims and says it has honoured its obligations, including a 115m deutschmark payment to Greece in 1960.

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Consider me amused. Looks more like Shakespeare than Greek drama, though.

Varoufakis Extends DC Charm Offensive After Talks With Lagarde (Guardian)

Varoufakis’ surprise trip to Washington was reportedly instigated by Lagarde after ministers began suggesting the government would prefer to pay pensions and salaries than the IMF loan – in keeping with its philosophy to support those hardest hit by the crisis. Failure to meet bondholder obligations could spark a dangerous chain reaction for a country saddled with €320bn in debt – the highest debt-to-GDP ratio in Europe. As such, Lagarde was quick to say she welcomed the news that Athens would honour the loan repayment. Reports indicated the IMF chief had also pressed Varoufakis to agree to pension cuts and raise VAT. Both are anathema to a government that has refused outright to adopt any more “recessionary” measures.

Varoufakis, who has repeatedly said a euro exit would be catastrophic for Greece, promised to break the deadlock by improving the efficacy of negotiations with creditors. “There will be topics established in order to reach deals faster and to reach better quality deals,” he told reporters. “Our government is a reformist government, we are intent upon reforming Greece deeply. This is our promise to the Greek people so having an opportunity to discuss the reform programme here at the IMF with the managing director is an excellent step towards that direction.” Yet such reforms – including the sale of state assets – will not be easy. Internal dissent within Syriza, the governing party, has peaked in recent days with far-left militants, led by the energy minister Panagiotis Lafazanis, robustly rejecting any suggestion of rolling back on pre-election pledges.

Lafazanis, a Marxist who openly supports improving ties with Moscow, controls around a third of Syriza’s MPs and could easily bring down the government by voting against reforms when they are brought before the 300-member house. With the young premier clearly at odds over how to deal with the hardliners, there is growing speculation, not least among eurozone officials, that a new bailout accord to keep the country afloat can only be achieved if Tsipras agrees to dismember his own party and join up with centrist forces to form a new coalition. That would require him also cutting links with his rapidly anti-austerity rightwing junior partner Anel.

“Either Tsipras makes the policy U-turns being demanded of him, or Greece crashes,” said Dimitris Keridis, political science professor at Panteion University. “In that sense this government cannot survive in its current form.” Piling on the pressure, the Greek parliament late on Monday began debating the need to form a committee to investigate how Greece ended up being “stripped of its sovereignty” under its bailout agreement and placed under the surveillance of the EU and IMF. Analysts believe the move will almost certainly inflame relations with Athens’ creditors further.

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Brussels is always willing to help out a democracy.

Frustrated EU Officials Want Greek Premier To Ditch Syriza Far Left (FT)

Eurozone authorities frustration with Greece has grown so intense that a change in the current Athens government s make-up, however far-fetched, has become a frequent topic of conversation on the sidelines of bailout talks. Many officials up to and including some eurozone finance ministers have suggested privately that only a decision by Alexis Tsipras, Greek prime minister, to jettison the far left of his governing Syriza party can make a bailout agreement possible. More The idea would be for Mr Tsipras to forge a new coalition with Greece s traditional centre-left party, the beleaguered Pasok, and To Potami (The River), a new centre-left party that fought its first general election in January. Tsipras has to decide whether he wants to be prime minister or the leader of Syriza, said one European official.

A senior official in a eurozone finance ministry added: ‘This government cannot survive’. Members of Syriza’s moderate wing admit there is a problem with the Left Platform, the official internal opposition that represents about a third of the party and controls enough MPs to bring down the government if it were to rebel in a parliamentary vote. We used to be more debating society than political party … so it is hard to get a system of party discipline up and running, said one Syriza official. But you have to remember we’ve been in power less than 100 days. Under the leadership of Panayotis Lafazanis, almost as popular a figure in the party as the prime minister, Left Platform members say they will veto structural reforms that are being pushed hard by Greece’s creditors in the current round of bailout talks.

Yet even though Mr Tsipras had adopted a more moderate stance in his dealings with Brussels and Berlin, it is too soon to expect him to risk an open clash with his left wing, according to observers in Athens. To win the support of Pasok and To Potami, Mr Tsipras would also have to dump his right-of-centre coalition partner, the nationalist Independent Greeks. It would be desirable to move to a more coherent pro-European centre-left coalition compared with this unseemly union of the radical left with the populist right, said George Pagoulatos, a professor of political economy at Athens business university. But it is premature for the moment. Eurozone officials insist they are not trying to force a change in the government sensitive to accusations the EU was complicit in ending the tenure of George Papandreou, Greece’s prime minister at the start of the eurozone crisis, and Silvio Berlusconi, the Italian premier until late 2011.

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Some pretty vicious anti-Putin stuff af FT today. Münchau wrote one I won’t even bother to post here. I’m surprised Tsipras didn’t go see Putin way before.

Alexis Tsipras’s Soft Fruit Ploy With Moscow Set To Antagonise EU (FT)

When Alexis Tsipras visits Vladimir Putin’s Kremlin on Wednesday there is a chance the Greek premier’s eastern manoeuvre will immediately bear fruit: kiwis, peaches and strawberries to be precise. Athens is hopeful that Moscow will lift a retaliatory ban on Greek soft fruits to demonstrate the abiding strength of Russo-Greek relations, just as both leaders feel a diplomatic chill with Europe over the Ukraine crisis and Athens’ bailout saga respectively. But what worries European diplomats is that the Putin-Tsipras gladhanding amounts to something more significant than fruit trade. The big fear, in the words of one suspicious senior official, is a “Trojan horse” plot, where Russia extends billions in rescue loans in exchange for a Greek veto on sanctions — a move that would kill western unity over Ukraine.

No such shock is expected this week. But as Athens nears the brink of insolvency there is growing alarm that Mr Tsipras’s radical left government might turn to Moscow in desperation. It would set off the biggest panic over Greece’s strategic alignment since the 1947 US Marshall Plan, initiated to save the country from communist fighters that Mr Tsipras’ Syriza party lionise to this day. Others argue that Mr Tsipras’ Russia card is but a ploy in bailout talks with Germany and the eurozone. In spite of historic cultural ties and Syriza’s Soviet romanticism, analysts think Greece is too tied to the west – through EU and Nato membership – and too deep in debt for sanctions-damaged Russia to buy it off as a reliable ally.

“The Greeks are using Russia as a way to piss off Berlin, to frighten them. Tsipras wants to show he has other options,” said Theocharis Grigoriadis, a Greece-Russia relations expert at the Free University of Berlin. “But he has no intention of making Greece a Russian satellite. The Russians know that. The Germans know that. It is pure theatre, a Greek game, and I’m afraid it looks like a poodle trying to scare a lion.” From his first day in office Mr Tsipras’ administration has stoked Russian paranoia in western capitals. During his debut at an EU foreign ministers meeting, Greece’s Nikos Kotzias angrily waved a rolled-up Russian sanctions proposal in his hand as he condemned the measures. “We argue and squabble but it is like a family, we’re supposed to share the same world view,” said one official present. “That meeting was something else — it felt like the UN Security Council.”

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Central Bank Omnipotence, Hugh?

Why Hugh Hendry Went From China’s Biggest Bear To Its Biggest Bull (Zero Hedge)

Back in the day, Chinese stocks had no greater nemesis than Hugh Hendry, whose “China Short” fund soared by 52% in 2011. The (anti) investment thesis was simple: the Chinese economy is bogged down by unprecedented overcapacity. Well, it still is, but Hugh Hendry sensed which way the wind was blowing for the last central bank left to unleash QE, and some time ago, ahead of a gargantuan, liquidity and margin-debt driven Shanghai Composite rally, the Scotsman warned, so far presciently that “To Bet Against China Is To Bet Against Central Bank Omnipotence.”

Considering that Chinese equities are the best performing market in USD terms (second only, oddly enough, to Russia) in 2015, one can see why after a disappointing 2012 and 2013, and modest 2014, Hendry has hit 2015 out of the park with a bang, generating a 10.6% return in the first two months of the year. So is Hendry still bullish on China’s stock market prospects? Why yes, and then some. But is he is contrarian just for the sake of being contrarian? Does he see something in China that nobody else does? Or is he simply right… or wrong, as the case may be? We will let readers decide. Here is his full “managers’ commentary” from his most recent letter to investors dedicated entirely to China.

So much is written about China, and of late very little has been bullish. The notion of impending renminbi devaluation has taken root as traders worry that the dollar rally has pulled its reluctant Chinese counterpart higher, especially against the euro and the yen. Indeed, it seems that shorting the renminbi has become the new equivalent to the JGB short in macro circles. But having shared these doomsday prophecies back in 2010, when the consensus was less negative, I have recently become less concerned about China. Here’s why. First China has recalibrated its growth model. Between 2001 and 2011, China had a very comparable decade to the US economy during the 1920s. Both boomed on surging productivity, high returns on capital, massive gross fixed capital formation and a fervent desire by the rest of the world to participate.

We know that both economies should have boomed; indeed they did. However I would contend that they should have boomed even more. That they didn’t was because of hawkish macro policy. In the 1920s, the Fed refused to allow the high powered money entering its economy via the gold standard to boost credit further. The Chinese discriminated against their household sector: the currency was never allowed to appreciate as much as the boom justified; wages never fully captured the dramatic gains in productivity; and real interest rates were consistently negative. Together, these measures robbed the household of anything between 5% and 7% of GDP per annum, statistically depressing income’s share of GDP and hence boosting involuntary saving. No one really complained, everyone felt better off, but they could have done even better.

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What money?

How Rich and Poor Spend -and Earn- Their Money (WSJ)

For many Americans, the rise in food and housing prices is a tough squeeze. That’s because—even in an era with low overall inflation—low-income Americans spend a disproportionate share of their money on food and housing. New data from the Labor Department show the extent of the discrepancy. The bottom 10% of Americans, by income, devote 42% of their spending to housing and an additional 17% to food–nearly 60% of their total spending, according to the Consumer Expenditures Survey. By contrast, the wealthiest 10% of Americans dedicate only 31% of their spending to housing and 11% to food–closer to 40% of total spending. This underscores one reason that inflation feels different household to household: People spend their money in such different ways. A parent with children in college or daycare might scoff at the notion that inflation has been low for the last five years.

Conversely, someone with no car payment and no mortgage but who does a lot of driving may be feeling flush from the plunge in gas prices. This year, the expenditure survey added new data breaking down Americans into tenths. Approximately 12.5 million consumer units are in each tenth. In the bottom three brackets are individuals earning around $20,000 a year or less, and spending more than they bring in. The survey breaks out their sources of income. The poorest 10% receive more public assistance than any other group. The second 10% receive more than half their income from Social Security and retirement programs. The third and fourth 10% also receive large shares of their income from retirement programs, suggesting that retirees make up a large share of the lower-middle part of the income distribution.

The top half of Americans receive at least three-quarters of their income from wages and salaries. (The complete definition of the income sources is available here. The chart above combines “regular contributions for support” with “public assistance, supplemental security income and food stamps.”) The sixth through ninth decile in this survey earn between $51,000 and $112,000 a year. The top 10% earn an average of $220,000. Even among this group, the vast majority of annual income comes from wages, although they also receive 10% of their income from other sources, primarily self-employment. As consumers become wealthier, their spending patterns change, sometimes dramatically.

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“Investors are going to freak out if earnings turn negative..”

Jobs Shocker May Show That US Economy Is In Real Trouble (CNBC)

In the wake of March’s tepid jobs creation, it may be time to take a harder look at this soft patch. Even ahead of Friday’s employment report, concerns were mounting about a growing pile of weak data. JPMorgan’s economic research team cut their first quarter GDP growth forecast to a mere 0.6% on Thursday, citing poor consumer spending data. Recent manufacturing data have also looked especially bad, with the ISM manufacturing index’s March reading showing the slowest growth since May 2013. Separately, housing market indicators have been mixed, perhaps due to the harsh winter weather. Amid all of the concerns, many economists have held out hope because of the string of strong employment reports, which have indicated that growth remains strong where it matters most.

Now, that story changed after the Bureau of Labor Statistics reported that a mere 126,000 jobs were created in March, compared to broad expectations of another 200,00-plus report. “While the jobs report was disappointing, in some ways it confirms what we already know,” commented Marc Chandler, global head of currency strategy with Brown Brothers Harriman. “The U.S. economy slowed markedly in Q1 2015.” In the 45 minutes of futures trading that followed the report (which was released on a day when the stock market was closed for the Good Friday holiday) S&P 500 futures fell by 1%, while bond futures marched higher. In the currency market, the U.S. dollar fell sharply across the board.

While the jobs number may have somewhat shifted expectations about when the Federal Reserve will raise short-term interest rates, these moves are all consonant with shifting perceptions of the American economy—and not with shifting expectations about the Fed. After all, with all else being equal, a more dovish Fed would be good rather than bad for stocks. For Brian Stutland of Equity Armor Investments, the jobs disappointment couldn’t come at a worse time. Earnings season is around the corner, and analysts are already predicting an earnings decline. “You have to worry about whether valuations are correct if earnings are flat to down,” Stutland said. “Investors are going to freak out if earnings turn negative, and you could see a snowball effect.”

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And Warren Buffett.

The Global South Has Free Trade To Thank For Obesity And Diabetes (Guardian)

The North America Free Trade Agreement, signed in 1993, triggered an immediate surge of direct investment from the US into Mexico’s food processing industry. Between 1999 and 2004, three-quarters of the country’s foreign investment went into the production of processed foods. At the same time, sales of processed foods went up by 5-10% per year. Mexico is now one of the ten biggest producers of processed food in the world, with total sales reaching $124bn in 2012. The corporations running this business – such as PepsiCo, Nestlé, Unilever and Danone – made $28bn in profits from these sales, $9bn more than they made in Brazil, Latin America’s largest economy. Mexico is now one of the ten biggest producers of processed food in the world, with total sales reaching $124bn in 2012.

The corporations running this business – such as PepsiCo, Nestlé, Unilever and Danone – made $28bn in profits from these sales, $9bn more than they made in Brazil, Latin America’s largest economy. Mexico offers the global food industry not only low operation costs, but a network of trade agreements that provide access to big markets such as the European Union and the US. At the same time, these corporations are investing heavily in taking over local distribution. The number of supermarkets, discount chains and convenience stores exploded: in 1997, their numbers went from 700 to 3,850; there were 5,730 such stores in 2004. Today, Oxxo, a convenience store chain owned by a unit of Coca-Cola Mexico, is opening an average of three stores a day, and aims to inaugurate its 14,000th store in Mexico this year.

One of the main effects of all this has been a radical change in people’s diets and a disproportionate increase in malnutrition, obesity and diabetes. Mexico’s National Institute for Public Health reports that, between 1988 and 2012, the proportion of overweight women between the ages of 20 and 49 increased from 25% to 35.5%; the number of obese women in that age group increased from 9.5% to 37.5%. A staggering 29% of Mexican children between the ages of five and 11 were found to be overweight, as were 35% of the youngsters between 11 and 19, while one in 10 school age children suffers from anaemia.

The level of diabetes is equally troubling. The Mexican Diabetes Federation says there are up to 10 million people who suffer from diabetes in Mexico; around two million of them are unaware that they have the disease. This means that more than 7% of the Mexican population has diabetes. The incidence rises to 21% for people between the ages of 65 and 74. In 2012, Mexico ranked sixth in the world for diabetes deaths and specialists predict that there will be 11.9 million Mexicans with diabetes by 2025. Obesity and diabetes function together, interacting so strongly that a new term has emerged: “diabesity”. Who can we thank for this? The transnational food industry supported by governments that share their interests.

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Larry Summers redux.

The School of Globalism (Jim Kunstler)

One might say the main effect of the 50-year-long Friedman globalism orgy was the schooling of other nations in American-style financial fraud. Surely China has now surpassed the USA, considering the structural perversities of their banking and government relations. They really don’t have to account to anybody, including themselves, and the numbers they publish must be even more fantastical than the junk statistics produced by the US BLS. Europe has been a star pupil and only a few months ago announced a Quantitative Easing (fake capital creation) program as ambitious as America’s have been. Japan, of course, is just marking time until it quietly slips away and goes medieval.

Global disintegration has advanced furthest, not surprisingly, in the fragile band of regions most strung out on the primary commodity: oil. The Middle East/North Africa/Central Asia war zone is steadily combusting, and there is no sign of resolution across the whole of it, only the promise that conflict will get worse. Saudi Arabia was the cornerstone of that district, and the senile Saudi leadership finds itself in peril as its military pretends to support splintering Yemen. The other Arabian princes of other non-Saud clans must be watching the spectacle with wonder and nausea. When Arabia blows up, that will truly be the beginning of the end. The foregoing leads to that other original question: what is that “capital” we’re counting on? I’d propose that it doesn’t exist. It is a figment engraved on the hard drives of the world, a ghost that haunts the people still in charge of that disintegrating global economy. There is still wealth in the world, but a lot less than people such as Larry Summers say there is.

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Ukraine needs regime change. Who has experience with that?

Russia Says Ukraine Should Seek Direct Debt-Restructuring Talks (Bloomberg)

Russia said only direct talks with Ukrainian authorities may change its refusal to join debt restructuring negotiations. No official contacts have taken place with Ukraine’s Finance Ministry about renegotiating $3 billion of Eurobond debt, Russian Deputy Finance Minister Sergey Storchak said in an April 3 interview in Moscow. Russia expects to be paid on time and in full when the debt matures in December, he said. “We are not going to join any offer that they are getting ready,” Storchak said. “Only one thing can influence our position — some direct contact with the debtor.” Ukraine wants to restructure all external sovereign debt incurred before March 2014 in negotiations to save $15.3 billion in public sector financing under its bailout agreement with the IMF, the Finance Ministry in Kiev said on Saturday.

Russia, the second-largest bondholder after Franklin Templeton, refuses to join restructuring talks, saying the debt it holds was official aid to Ukraine’s struggling economy under former President Viktor Yanukovych. Russia purchased $3 billion of bonds in December 2013 after Yanukovych rejected an association agreement with the European Union in favor of closer ties with the government in Moscow. He was ousted in February last year and fled Ukraine after violent clashes between police and protesters who supported the trade pact with the EU. Ukraine’s Finance Ministry “publicly invited all bondholders” through the clearing system to take part in debt negotiations, including those holding bonds issued in December 2013, the ministry said in e-mailed comments on April 6. “To date, the Ministry has not received any response through the designated website to its invitation from the holders of such bonds.”

Finance Minister Natalie Jaresko said in March that all loans and bonds should be treated the same. The debt Russia holds should be considered “official” state aid, Russian Finance Minister Anton Siluanov said on March 27. The only concession it was willing to make was not to enforce a clause providing for early repayment once Ukraine’s public debt surpassed 60% of gross domestic product, he said. Holders of Ukraine’s bonds have suffered losses of more than 40% since the beginning of 2014, the worst performance among countries in the Bloomberg USD Emerging Market Sovereign Bond Index. The bonds handed investors a 25.7% loss this year, while the index gave a return of 2.64%.

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Strange story.

Canadian Orchestra Drops Ukraine-Born Pianist Over Anti-Kiev Twitter Posts (RT)

A Ukrainian-born pianist was barred from playing at Canada’s Toronto Symphony Orchestra (TSO) for expressing views on the situation in Ukraine via Twitter, according to the soloist herself. The move led to a social media storm tagged #LetValentinaPlay. The orchestra has officially announced its decision to drop pianist Valentina Lisitsa from its Rachmaninoff Concerto #2 program earlier this week. TSO President and CEO Jeff Melanson cited “ongoing accusations of deeply offensive language by Ukrainian media outlets,” adding that Lisitsa’s “provocative comments” had allegedly “overshadowed past performances.” In the statement, Melanson seems to be referring to Lisitsa’s Twitter posts, in which she expresses her views on the situation in Ukraine.

Lisitsa turned to Facebook on Monday with a plea, asking her fans for support to “tell Toronto Symphony that music can’t be silenced.” “Someone in the orchestra top management, likely after the pressure from a small but aggressive lobby claiming to represent Ukrainian community, has made a decision that I should not be allowed to play,” she wrote, referring to her TSO performances on Wednesday and Thursday. “I don’t even know who my accusers are, I am kept in the dark about it.” After expressing her views, Lisitsa claimed to have received numerous death threats. The last straw was the decision to drop her performance: “My haters didn’t stop there. Trying, in their own words, to teach me a lesson, they have now attempted to silence me as a musician.”

Lisitsa revealed that TSO offered to cover her entire fee for the canceled program, if she chose to stay silent about the reason behind the decision. “They even threatened me against saying anything about the cause of the cancellation … If they do it once, they will do it again and again, until the musicians, artists are intimidated into voluntary censorship,” she wrote. The reaction on Twitter was massive, with the hashtag #LetValentinaPlay surging in popularity and thousands of supporters speaking out. International concert violinist and recording artist Hannah Woolmer tweeted: “To me, this IS a VITAL campaign pls can all my followers retweet if they agree that @TorontoSymphony should #letvalentinaplay.”

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Who’s next to try this??

Four-Bedroom House In Spain ‘Sold’ In €10 Raffle (Guardian)

A stone’s throw from a former palace and vestiges of a medieval wall, this four-bedroom house in rural Valencia boasts a prime location, 20 miles from the beach and 50 miles from the nearest ski hill. And it is a steal – given that its newest owner paid just €10 (£7.35) for it in a raffle. When the previous owners, the Bolumar family, first wanted to sell the house they had inherited two years ago in Segorbe, a town of 9,300, they tried to do it the traditional way, listing it for €90,000. But the struggling Spanish housing market yielded few potential buyers. “It was really complicated,” said Pepe Bolumar, 35. The family began considering other ways to sell.

Most ideas were dismissed quickly, save one. “Raffling it off seemed interesting – people would have the chance to acquire a home for a low cost and we would still end up covering the cost,” Bolumar said. From there began a year-long project, with the family wrestling their way through seemingly endless amounts of red tape to obtain authorisation from the country’s tax authorities to be the first in Spain to raffle off a house. The €10 tickets, sold from a kiosk in Valencia as well as online, offered the chance to win the 141 sq metre home, no strings attached. As news of the raffle spread through Facebook and Twitter, 32,000 tickets were sold, the majority of them in Spain but also as far away as Australia and Canada. Those in Florida, he said, seemed to be particularly taken with the idea.

“Lots of people from Florida called us, also from England,” said Bolumar. Some of the calls that came in were heartbreaking, he said, from families who had been evicted from their homes or who had fallen on tough times and were desperately hoping to win the house. As the family prepared to gather together with a notary to watch the numbered balls drop from a borrowed lottery machine, Bolumar was confident that the family had recouped the original sale price of the house, estimating it would walk away with further €10,000. “It’s less than what it appears. We didn’t receive €320,000, because we have to cover our costs of the past year,” he said, pointing to publicity as well as the cost of servers and maintenance for the website.

The family will also cover any taxes incurred by the winner from the transfer of the house. “The winner doesn’t have to pay a thing more.” Throughout the process, Bolumar said the family regularly received phone calls from others interesting in raffling off their own houses. It now plans on keeping its website open to offer guidance to others looking to do the same. “It was a huge amount of effort. It took up a whole year and became a second job for me,” said Bolumar, who manages a small business in Valencia. But it proved to be an effective way to beat the tumbling Spanish property market, he said. “If you’re trying to sell your home and its not working, this might be the solution for you.”

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“So when might Chinese demand return to normal?” You’re looking at it.

New Zealand Dairy Giant Fonterra’s China Sales Fall 61% (NZ Herald)

Fonterra’s half-year result – which revealed a 16% profit drop and a cut to the forecast dividend – was a disappointment for farmers and investors in the co-operative’s listed shareholders’ fund. But an aspect of the interim financials that didn’t get much attention last week was the precipitous decline in Chinese revenue the company experienced in the six months to January 31. Sales in Fonterra’s largest market slumped to $1.2 billion from $3.1 billion in the same period a year earlier. That’s a whopping 61% decline, well ahead of the next biggest geographical revenue fall of 29% in Europe. It underlines the extreme volatility Fonterra has been dealing with in China and the ongoing challenges it faces there.

Aggressive Chinese buying during the latter part of 2013, into early 2014, helped to inflate global dairy prices and resulted in a massive build-up of inventory in China. To put it in perspective, the $3.1 billion Chinese revenue Fonterra posted for the six months to the end of January 2014 was a 138% increase on the $1.3 billion it reported for the half-year up to January 2013. But the spike in demand wasn’t to last. High inventory levels had put the brakes on Chinese buying by the middle of last year. That drop in demand has been a factor in the dairy price downturn New Zealand farmers are now facing.

Speaking to the Business Herald last week, Fonterra chief financial officer Lukas Paravicini attributed the half-year slump in Chinese revenue to a combination of lower dairy prices, which were a negative for the co-op’s ingredients business, and weak demand. It appears the latter factor was the biggest contributor to the decline. Fonterra’s half-year revenue across the rest of Asia fell only 5%, to $2.6 billion, despite falling dairy prices. So when might Chinese demand return to normal? Paravicini expressed some optimism, saying Fonterra’s core ingredients business in China had experienced “a bit” of a recovery. “We’re still in a supply-rich and demand-weak environment and that includes China,” he said.

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Europe’s shame continues. Anybody seen a task force announced? Neither have I.

Italians Rescue 1,500 Migrants In 24 Hours In Mediterranean (BBC)

Some 1,500 migrants have been rescued from boats trying to cross to Italy in the space of 24 hours, the Italian coastguard has said. The navy and coastguard despatched vessels to rescue the migrants from five different boats. The UNHCR says almost 3,500 people died and more than 200,000 were rescued trying to cross the Mediterranean Sea to reach Europe last year. The chaotic political situation in Libya has added to the crisis. The coastguard despatched four vessels and the navy another after receiving satellite telephone distress calls from three migrant boats. Two more boats were found to be in trouble when the rescuers arrived. The migrants were transferred to Lampedusa island and the ports of Augusta and Porto Empedocle in Sicily. Last year, Italy dealt with 170,000 migrants who entered the EU by sea. Officials say the numbers for the first two months of this year are up 43% on January and February in 2014.

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“..more than half of the U.S. is affected by water shortages..”

Mapping America’s Exceptional Drought Conditions (Reuters)

As government websites go, the U.S. Drought Portal sounds full of promise. Fun even. But alas, recent news from the site’s weekly reports on things like U.S. drought conditions and wildfire risks, has been anything but fun.

As this Reuters graphic shows, more than half of the U.S. is affected by water shortages, and the problem is growing worse. The number of people affected by extreme or exceptional drought conditions is approaching 40 million, many of those in California, where Gov. Jerry Brown last week ordered a 25% cut in domestic water use for the first time in state history.

According to the U.S. Geological Survey, California’s 2014 Water Year was the third driest in 119 years and the warmest on record, so perpetual wildfire season looks like the new normal. And there’s little relief on the horizon: The National Weather Service’s seasonal drought outlook predicts developing, persisting or intensifying drought conditions for most of the American West through at least the end of June.

DroughtConditions040615-620

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