Apr 072015
 
 April 7, 2015  Posted by at 8:44 am Finance Tagged with: , , , , , , , ,  5 Responses »


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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Apr 032015
 
 April 3, 2015  Posted by at 9:19 am Finance Tagged with: , , , , , , , ,  10 Responses »


G.G. Bain Pelham Park Railroad, City Island monorail, NY 1910

‘EU Has Already Collapsed’– Beppe Grillo (RT)
The Principal And Interest On Debt Myth (Steve Keen)
Greece Scraps Hospital Visit Fee, To Hire 4,500 Health Workers (Reuters)
Greek Reforms: Right Direction Or Road To Ruin? (CNBC)
Greece Draws Up Drachma Plans, Prepares To Miss IMF Payment (AEP)
Tsipras To Seek ‘Road Map’ During Russia Visit (Kathimerini)
Eurozone Officials: No Loan Tranches For Partial Greece Agreement (Kathimerini)
Euro Debate Ignites in East EU in Face of Public Skepticism (Bloomberg)
Oil Falls Nearly 4% After Tentative Nuclear Deal For Iran (Reuters)
Crude Oil Futures Retreat After Iran Nuclear Deal Reached (Bloomberg)
US to Press for Guilty Plea From Citibank in Currency Probe (Bloomberg)
Why Brazil Has A Big Appetite For Risky Pesticides (Reuters)
Turkey’s 10-Hour Blackout Shows World Power Grids Under Threat (Bloomberg)
Nestlé Called Out For Bottling, Selling California Water During Drought (Reuters)

“I am an ordinary man, a comic, who has found his niche in this world and who woke up one day with a determination to dedicate a bit of his experience, wits and money to the cause of common good.”

‘EU Has Already Collapsed’– Beppe Grillo (RT)

RT: Is the Italian population ready to abandon euro and come back to the lira?

BG: Yes, the lira. Rather, a lira. Not the lira we used to have twenty years ago. But let’s call this new currency lira, with the lira-euro rate 1 to 1. For me, leaving the Eurozone means primarily launching a currency I call lira, which is not the lira we had 20 years ago, but let’s retain the name lira all the same. When we switch to the new lira its value will automatically decline by 20-30%. It will be an immediate shock. And what will happen next? We’ll have to pay more for commodities. But we do not market commodities, what we do is process them. We buy oil and refine it, we buy soybeans and grain and process them. We refine oil to produce petrol getting back the 30% in added value, and it won’t significantly affect the final petrol price – 5-10 cents per liter at most. And we’ll get a 30% export benefit. I think we’ll become number one in Europe, since we are absolute leaders in terms of industrial production.

Our foreign debt will be reduced by 30%, our credits too. What is there to be afraid of? They do their best to scare you as soon as you start considering the option of walking out. They start shouting, “Oooooh, what a catastrophe”. It is their problem, their catastrophe, not ours, it is unrelated to intelligent, hardworking people who are intent on doing this. It’s the catastrophe for those who earn money staying at home, abusing the financial system, receiving capital gains, who don’t work for real and are not part of the real economy. Yes, considering that the financial transaction volume, as it seems, exceeds global GDP by 10-15%. Take the German Bundesbank. If you inspect its balance you’ll find there 70 thousand billion dollars in derivatives, hedge funds, financial products etc.

And you want them to invest in real economy – in small factories and that sort of thing! But mind you, Germany is also having a hard time. We should treat this issue with utmost care and attention. The problem, as I see it, largely depends on you, my friends, on how you translate this interview, which parts you’ll choose to broadcast and what your audience will eventually be able to make out of what I said here. Here’s the real problem. We don’t have facts any more, reliable truthful facts. We know nothing about the situation in Afghanistan, or about Iran. We don’t have a slightest idea of what Putin says, because everything is delivered to us in translation made by some American or Israeli language services agency. We can’t have the truth.

So first we need to imagine what this truth may be like and go search for it, even if we have to sacrifice something. I appeal to you- go and look for information. Look at me. Dig for truth and don’t believe the journalists who stick labels calling me a rightist, a leftist, a homophobe, a racist and what not. They call me all kinds of names. And, in fact, I am an ordinary man, a comic, with 40 years of professional career under belt, who has found his niche in this world and who woke up one day with a determination to dedicate a bit of his experience, wits and money to the cause of common good. This is what scares people.

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Buddy Steve takes you through it one more time.

The Principal And Interest On Debt Myth (Steve Keen)

There are many ways that you can divide the world into two groups. Men and women, for example—with the former being about 50.2% of the population and the latter 49.8%. Or those that like math and those that don’t—where there are no accurate figures, but I’d hazard a guess at a 10% to 90% split. The (almost) binary grouping that motivated this post is between those who reckon that banks, debt and money are of no real consequence in capitalism, and those who believe that the mere mechanics of banking guarantee that capitalism is doomed. The former includes the vast majority of economists, who delusionally model the macroeconomy as if banks, debt and money don’t exist. The latter includes most of the general public, who know that banks create money when they create a loan, and think that because banks insist on interest on loans, the money supply has to grow indefinitely.

I reckon the split in this binary division is about 0.1% in the “banks don’t matter” camp, and 99.9% in the “debt can’t be paid” group. But there is also a statistically insignificant handful who reckon that both groups are wrong. I’m one of that handful, and both other groups exasperate the hell out of me, and my sprinkling of like-minded colleagues—hi Stephanie, Scott, Richard [both of you] and a few others. A tweet from one the 99.9% finally pushed me over the edge on Twitter this weekend—see Figure 1—and I promised that I’d devote my next column on Forbes to debunking this myth.

The myth itself is clearly stated in Bernie King’s tweet: because banks lend principal, but insist that principal and interest be paid by the debtor, the money supply has to grow continuously to make this possible. The corollary is that since debt creates money, debt has to grow continuously too—faster than income—and that’s why capitalism has financial crises. So why is it wrong? In words, it’s because it confuses a stock (debt in dollars) with a flow (interest in dollars per year). But I’m not going to stick with mere words to try to explain this, because it’s fundamentally a mathematical proposition about accounting—that money must grow to allow interest to be paid on debt—and it’s best debunked using the maths of accounting, known as double-entry bookkeeping. So if you want to know why it’s a myth, brace yourself to do some intellectual work to follow the logic.

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As brave as it is necessary.

Greece Scraps Hospital Visit Fee, To Hire 4,500 Health Workers (Reuters)

Greek Prime Minister Alexis Tsipras said a €5 fee to access state hospitals had been scrapped and 4,500 healthcare workers would be hired, the latest move by his leftist government to ease what it calls a humanitarian crisis in the country. The move is likely to further endear Tsipras to austerity-weary Greeks but represents yet another potential outlay by the cash-strapped government at a time when its European and IMF lenders are demanding a commitment to fiscal rigour. Still, the abolition of the 5 euro fee for hospital visits would hurt the budget by less than €20 million annually and the health workers are expected to be hired without running afoul of Greece’s pledge to trim the public sector.

“We want to turn the health sector from a victim of the bailouts, a victim of austerity, into a fundamental right for every resident of this country and we commit to do so at any cost,” Tsipras said, adding he would fight “barbaric conditions” in public hospitals and corruption in the sector. His government would unify data systems as part of measures to boost transparency and save money, he said, in a nod to a longtime demand from international lenders. In a package of reforms sent to lenders on Wednesday, Greece said it planned comprehensive healthcare reform with the universal right to quality healthcare. It cited a fiscal impact of €2.1-2.7 billion without specifying if that represented outlays or potential revenues from tackling corruption.

Greece spends €11 billion a year on its public healthcare system – accounting for about 5% of its total economic output, which Tsipras said represented the lowest level of health spending among EU countries. Years of deep cuts in health spending have hurt standards of care in Greece’s state hospitals where there is often a shortage of basic supplies while fewer doctors and nurses look after more patients, an increasing number of whom are uninsured. About 2.5 million Greeks have no health insurance, Tsipras said. Health officials caution that despite the worsening conditions in the sector, most Greeks are able to access the health system without insurance. “All citizens, after this terrifying crisis, should have access to healthcare irrespective of whether they have insurance or not,” Tsipras said. “We will not tolerate the exploitation of human pain.”

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“While it has cut government spending, Greece has also suffered from falling tax revenues, which means that its deficit figures are worse than its targets..”

Greek Reforms: Right Direction Or Road To Ruin? (CNBC)

Greece may have put together an updated list of reform proposals, but as its new government finds it more difficult to secure concessions, there are still fears the country could crash out of the euro zone. The contents of the new reforms list, which has been published by the Greek press and involves raising an extra €4.7-6.1 billion in government revenues, represents “a clear step in the right direction” according to economists at Barclays Capital. This means that, in effect, the Greek government has offered some concession to European authorities on the continuing wrangles over the austerity measures imposed as part of its bailout. Since Greece elected a new government in January, led by the left-wing Syriza party, which promised to bring an end to austerity, the tone of its negotiations with international creditors has changed, raising fears that it may end up defaulting on its debt repayments and exiting the euro zone.

What is certain is that Greece still needs external financial support, particularly the €7.2 billion in bailout funds which it hopes to unlock from its international lenders. To date, Greece has received two bailouts worth a total of €240 billion. Its lenders are keeping up the pressure on Greek politicians to reach a compromise. On Wednesday, the ECB raised Greece’s emergency liquidity by a modest €700 million to €71.8 billion, which Rabobank strategists argued continues “a strategy whereby Greece’s leeway in terms of liquidity is strictly rationed.” While it has cut government spending, Greece has also suffered from falling tax revenues, which means that its deficit figures are worse than its targets, and its deficit was still rising at the end of February. The other peripheral euro zone economies which were bailed out during the credit crisis are in various stages of recovery, but Greece has lagged behind. “Greece’s budget consolidation is unravelling,” Jessica Hinds at Capital Economics wrote in a research note.

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That’s exactly what I wrote a few days ago: of course they’re preparing to leave. But that’s all you can read into this. Ambrose may count for more than me, but it’s the same message.

Greece Draws Up Drachma Plans, Prepares To Miss IMF Payment (AEP)

Greece is drawing up drastic plans to nationalise the country’s banking system and introduce a parallel currency to pay bills unless the eurozone takes steps to defuse the simmering crisis and soften its demands. Sources close to the ruling Syriza party said the government is determined to keep public services running and pay pensions as funds run critically low. It may be forced to take the unprecedented step of missing a payment to the IMF next week. Greece no longer has enough money to pay the IMF €450 million on April 9 and also to cover payments for salaries and social security on April 14, unless the eurozone agrees to disburse the next tranche of its interim bail-out deal in time “We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” said a senior official.

“We may have to go into a silent arrears process with the IMF. This will cause a furore in the markets and means that the clock will start to tick much faster,” the source told The Telegraph. Syriza’s radical-Left government would prefer to confine its dispute to EU creditors but the first payments to come due are owed to the IMF. While the party does not wish to trigger a formal IMF default, it increasingly views a slide into pre-default arrears as a necessary escalation in its showdown with Brussels and Frankfurt. The view in Athens is that the EU creditor powers have yet to grasp that the political landscape has changed dramatically since the election of Syriza in January and that they will have to make real concessions if they wish to prevent a disastrous rupture of monetary union, an outcome they have ruled out repeatedly as unthinkable.

“They want to put us through the ritual of humiliation and force us into sequestration. They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us. If that is their objective, they will have to do it without us,” the source said. Going into arrears at the IMF – even for a few days – is an extremely risky strategy. No developed country has ever defaulted to the Bretton Woods institutions. While there would be a grace period of six weeks before the IMF board declared Greece to be in technical default, the process could spin out of control at various stages. Syriza sources say are they fully aware that a tough line with creditors risks setting off an unstoppable chain-reaction. They insist that they are willing to contemplate the worst rather than abandon their electoral pledges to the Greek people.

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“Greece ‘will reassure the Russians, not the Westerners.'”

Tsipras To Seek ‘Road Map’ During Russia Visit (Kathimerini)

The aides of Greek Prime Minister Alexis Tsipras and Russian President Vladimir Putin, and the Greek and Russian embassies in Moscow and Athens, are feverishly preparing for a scheduled visit by Tsipras to the Russian capital on April 8 and 9 which the Greek government hopes will serve to significantly upgrade bilateral ties. According to a well-informed source, Tsipras is expected to seek agreement for a “road map” of initiatives on the political and economic levels. Talks are expected to touch on several topics of bilateral interest, including “commercial and financial cooperation, investments, energy, tourism and cooperation in matters of education and culture,” according to Tsipras’s office.

Other topics on the agenda include “the relationship between Russia and the European Union, as well as regional and international issues.” Tsipras is expected to emphasize Greece’s respect for its commitments as a member of the EU and NATO on the one hand while underlining his conviction that the European Union’s “security architecture” should include Russia. Amid European concerns about Greece’s position vis-a-vis EU sanctions against Russia, Greek officials have sought to offer reassurances, suggesting that Athens will not actively oppose the EU line. But sources close to Tsipras said the government will continue to express its disagreement with sanctions as a policy.

As for a likely bilateral cooperation in the energy sector, a high-ranking government source told Kathimerini that Greece “will reassure the Russians, not the Westerners.” According to sources, Energy Minister Panayiotis Lafazanis has already agreed in principle to a proposal made by the head of Russian giant Gazprom, Alexey Miller, for a new gas pipeline through Turkey to be extended through Greek territory. The plan foresees the creation of a consortium in which Greece’s Public Gas Corporation (DEPA) would play a key role along with Russian funds and possibly also European clients of Gazprom, Kathimerini understands.

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As the game continues, it inevitably becomes less transparent.

Eurozone Officials: No Loan Tranches For Partial Greece Agreement (Kathimerini)

Greece is revisiting the possibility that it might be able to get some of the €7.2 billion remaining in bailout funding in return for part of the reforms being demanded by creditors but Kathimerini understands that the eurozone does not believe this option is available. Three European officials who spoke to Kathimerini on Thursday on condition of anonymity said there is no question of Athens receiving funding unless there is first an agreement on the entirety of the reform package. “There cannot be a partial agreement,” one of the three said. The next time Greece will be discussed is at a Euro Working Group (EWG) on April 8, a day ahead of Athens having to pay €450 million to the IMF.

Unnamed eurozone officials told Reuters that Greece expressed fears during the last EWG that it would run out of money on April 9. However, this claim was immediately denied by the government. “The Finance Ministry categorically denies an anonymous report by Reuters on issues which were supposedly discussed during the Euro Working Group on April 1,” the Finance Ministry said in a statement. Eurogroup chief Jeroen Dijsselbloem said negotiations with Athens are “improving” but that there is still much ground for Greece and its lenders to cover before an agreement on reforms could be reached. “They deliver more and more proposals that are more and more detailed.

On some parts, we will definitely reach an agreement,” he said, adding that he does not expect the Eurogroup to meet next week to discuss Greek reforms. “There must be a good package which can also be realized in the four months we’re talking about,” Dijsselbloem said. “The clock continues to tick.” The Finance Ministry insisted on Thursday that Greece’s primary surplus target for this year will be 1.2 to 1.5% despite the fact that the proposals it sent to lenders, which were leaked on Wednesday, indicated a goal of 3.1 to 3.9%.

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Only fools and horses would volunteer to join the euro at this point.

Euro Debate Ignites in East EU in Face of Public Skepticism (Bloomberg)

While Greece may have one foot out the door, policy makers in the European Union’s east are reopening the debate about whether to join the euro area after years of shunning the currency during the global financial crisis. In the Czech Republic, the prime minister said on Wednesday that joining the euro soon would help the economy after the president challenged the central bank’s long-standing resistance with a vow to appoint policy makers who favor the common currency. In Poland, the main divide between the top two candidates in the May 10 presidential election is whether the region’s biggest economy should ditch the zloty. “It’s quite interesting how the sentiment has shifted — I’m slightly surprised by this,” William Jackson at Capital Economics said.

“As the story coming from the euro zone in recent years has been negative, it’s very hard to imagine how the euro case for the public would be made now.” The obstacles are many. Romania, which has set 2019 as a potential target date, and Hungary don’t meet all the economic criteria. Poland faces legal hurdles and the Czech government has said it won’t set a date during its four-year term. As a standoff between Greece and euro-area leaders threatens to push the country into insolvency and potential exit, opinion polls show most Czechs and Poles oppose a switch.

The appeal of the euro, which all European Union members save Britain and Denmark are technically obliged to join, suffered when the area had to provide emergency loans to ailing members during the economic crisis. While five ex-communist countries that joined the trading bloc in 2004 – Slovakia, Slovenia, Estonia, Latvia, and Lithuania – have acceded, the Czech Republic, Poland and Hungary don’t have road maps. The region’s three biggest economies argued that floating currencies and control over monetary policy helps shield themselves against shocks like the euro crisis even if smaller countries may benefit from lower exchange-rate volatility and reduced trade costs. Facing weakening in their korunas, zlotys, and forints, some politicians in eastern Europe are questioning that logic.

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The new US balance act make everybody wobble on their feet.

Oil Falls Nearly 4% After Tentative Nuclear Deal For Iran (Reuters)

Brent oil fell nearly 4% on Thursday after a preliminary pact between Iran and global powers on Tehran’s nuclear program, even as officials set further talks in June and analysts questioned when the OPEC member will be allowed to export more crude. Traders had been fixated on the talks held in Lausanne, Switzerland for over a week as Iran tried to agree with six world powers on concessions to its nuclear program to remove U.S.-led sanctions that have halved its oil exports. The sanctions against Iran will come off under a “future comprehensive deal” to be agreed by June 30, after it complies with nuclear-related provisions, Iranian Foreign Minister Javad Zarif told a news conference. “If nothing is going to be signed until June, something could go wrong between now and then,” said Phil Flynn, analyst at Price Futures Group in Chicago.

Bob McNally, an adviser to former U.S. president George Bush who heads energy research firm Rapidan Group, noted Iran will need much patience as the “sanctions are not likely to be lifted until late 2015 or early 2016, though we could see slippage beforehand.” North Sea Brent crude futures, the more widely-used global benchmark for oil, settled down $2.15, or 3.8%, at $54.95 a barrel, almost $1 above the session low. U.S. crude futures settled down 95 cents, or 2%, at $49.14 a barrel, after falling nearly $2 earlier. “I think the market over reacted and is now sitting back a little to think there is a lot more work to be done,” said Dominick Chirichella at the Energy Management Institute. Under the preliminary deal, Iran would shut down more than two-thirds of its centrifuges producing uranium that could be used to build a bomb, dismantle a reactor that could produce plutonium and accept intrusive verification. Iran also needs to limit enrichment of uranium for 10 years.

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“Prices pared losses on speculation no additional Iranian oil will flow into the global market in the short term.”

Crude Oil Futures Retreat After Iran Nuclear Deal Reached (Bloomberg)

Crude oil futures declined after Iran and world powers said they reached an outline accord that keeps them on track to end a decade-long nuclear dispute. Brent slid 3.8% in London, while West Texas Intermediate crude dropped 1.9% in New York. The sides now have until the end of June to bridge gaps and draft a detailed technical agreement that would ease the international sanctions imposed on Iran, including oil exports. Prices pared losses on speculation no additional Iranian oil will flow into the global market in the short term. “This is mildly bearish,” Michael Lynch at Strategic Energy & Economic Research, said by phone. “We were expecting more Iranian oil to hit the market regardless of the outcome of the talks. They are not about to dump oil on the market.”

Iran, a member of OPEC, could boost shipments by 1 million barrels a day if penalties are lifted, Oil Minister Bijan Namdar Zanganeh said March 16. Extra supplies would add to a worldwide glut that’s sent oil prices 50% lower since last year. WTI for May delivery settled down 95 cents to end at $49.14 a barrel on the New York Mercantile Exchange. The contract climbed $2.49 to $50.09 on Wednesday, the biggest gain since February. Brent for May settlement declined $2.15 to $54.95 a barrel on the ICE Futures Europe exchange. The European benchmark crude traded at a premium of $5.81 to WTI on the ICE. Both exchanges are closed April 3 for the Good Friday holiday. Sanctions against oil exports will be lifted upon the deal’s completion, Iran’s Tasnim news service reported.

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Some criminals just negotiate, knowing they don’t risk any penaties thermselves, only their firm will get wrist-slapped. “Citigroup has countered with an offer that the plea come from a subsidiary that’s smaller than the Citibank NA unit..”

US to Press for Guilty Plea From Citibank in Currency Probe (Bloomberg)

The U.S. Department of Justice is pressing for Citigroup’s main banking subsidiary to plead guilty to a felony tied to the rigging of foreign-exchange markets, according to two people briefed on the matter. Citigroup has countered with an offer that the plea come from a subsidiary that’s smaller than the Citibank NA unit, the people said, asking not to be identified discussing private negotiations. An agreement could come as soon as May and the related fine probably won’t exceed $1 billion, one of the people said. Two other people said the Justice Department is weighing all options and hasn’t decided on a particular entity. A guilty plea by its main banking unit might threaten Citigroup’s ability to operate certain types of businesses through that subsidiary, which accounted for more than 70% of the firm’s revenue last year.

The Justice Department has been investigating banks’ alleged manipulation of currency benchmarks for almost two years, and is pressing to resolve the probe with settlements that include guilty pleas, people familiar with the negotiations have told Bloomberg.
Authorities want the pleas to come from entities of greater importance within the banks, while the companies would prefer smaller units, according to two people briefed on the talks. JPMorgan, for example, would rather have its U.K.- based subsidiary plead guilty, arguing the behavior occurred there, the people said. Citibank reported $10.3 billion of net income in 2014 and at year-end it held assets of $1.36 trillion, or 74% of Citigroup’s total, according to Federal Deposit Insurance Corp. data.

The parent company books the vast majority of its derivatives trades through the unit, which typically benefits from a higher credit rating and lower funding costs. A guilty plea by the nation’s third-biggest bank would set a new bar for criminal enforcement in the U.S. financial industry. While JPMorgan and Citigroup have paid billions of dollars in fines to resolve probes into their business practices since the 2008 financial crisis, neither has been convicted of a crime in the U.S. Settlements with the two New York-based firms would come around the same time as at least three other banks, one person said, declining to identify them. Another person familiar with the matter said last month that Citigroup and JPMorgan were in settlement talks along with UBS, Barclays and RBS.

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“What’s toxic in one place is toxic everywhere, including Brazil.”

Why Brazil Has A Big Appetite For Risky Pesticides (Reuters)

The farmers of Brazil have become the world’s top exporters of sugar, orange juice, coffee, beef, poultry and soybeans. They’ve also earned a more dubious distinction: In 2012, Brazil passed the United States as the largest buyer of pesticides. This rapid growth has made Brazil an enticing market for pesticides banned or phased out in richer nations because of health or environmental risks. At least four major pesticide makers – U.S.-based FMC, Denmark’s Cheminova, Helm of Germany and Swiss agribusiness giant Syngenta – sell products here that are no longer allowed in their domestic markets, a Reuters review of registered pesticides found. Among the compounds widely sold in Brazil: paraquat, which was branded as “highly poisonous” by U.S. regulators. Both Syngenta and Helm are licensed to sell it here.

Brazilian regulators warn that the government hasn’t been able to ensure the safe use of agrotóxicos, as herbicides, insecticides and fungicides are known in Portuguese. In 2013, a crop duster sprayed insecticide on a school in central Brazil. The incident, which put more than 30 schoolchildren and teachers in the hospital, is still being investigated. “We can’t keep up,” says Ana Maria Vekic, chief of toxicology at Anvisa, the federal agency in charge of evaluating pesticide health risks. FMC, Cheminova and Syngenta said the products they sell are safe if used properly. A ban in one country doesn’t necessarily mean a pesticide should be prohibited everywhere, they argue, because each market has different needs based on its crops, pests, illnesses and climate.

“You can’t compare Brazil to a temperate climate,” says Eduardo Daher, executive director of Andef, a Brazilian pesticide trade association. “We have more blights, more insects, more harvests.” Public-health specialists here reject that argument. “So what if the needs of crops or soils in Brazil are different?” says Victor Pelaez, a food engineer and economist at the Federal University of Paraná, in southern Brazil. “What’s toxic in one place is toxic everywhere, including Brazil.”

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Who in the west will not think: oh, well, Turkey, isn’t that the third world?

Turkey’s 10-Hour Blackout Shows World Power Grids Under Threat (Bloomberg)

A massive power failure that crippled life in Turkey for almost 10 hours on Tuesday highlights the threats facing grids worldwide. Turkey’s most extensive power failure in 15 years, which left people stranded in elevators and traffic snarled, wasn’t the result of a lack of electricity. The prime minister said all possible causes – including a cyber-attack – were being investigated. While the source of the problem is still unknown, recent revelations that a 2008 oil pipeline explosion in Turkey was orchestrated via computer and the high-profile attack last year on Sony Pictures Entertainment demonstrate the increasing ability of hackers to penetrate systems. For power grids, technology being added to make them more reliable and productive is also giving attackers an entry point into vital infrastructure.

“Every country, including the U.S., will be looking at it to see what the vulnerabilities were and learn some lessons about protection,” said Kit Konolige, a New York-based utility analyst for Bloomberg. “An electric grid is a complex system and it’s hard to ensure that it’s defended everywhere.” Several foreign governments have hacked into U.S. energy, water and fuel distribution systems and might damage essential services, the National Security Agency said in November. A report by California-based cybersecurity company SentinelOne predicts that such attacks will disrupt American electricity in 2015.

“More and more attacks are targeting the industrial control systems that run the production networks of critical infrastructure, stealing data and causing damage,” said David Emm, a principal researcher at Moscow-based security company Kaspersky Lab Inc., which advises governments and businesses. All power use was previously measured by mechanical meters, which were inspected and read by a utility worker. Now, utilities are turning to smart meters, which communicate live data to customers and the utility company. This opens up the systems to hackers.

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“Nestlé may be bottling more than locals drink from the tap.”

Nestlé Called Out For Bottling, Selling California Water During Drought (Reuters)

Nestlé is wading into what may be the purest form of water risk. A unit of the $243 billion Swiss food and drinks giant is facing populist protests for bottling and selling perfectly good water in Canada and drought-stricken California. Nestlé Waters says it does nothing harmful in the watersheds where it operates. Its parent company also signed and strongly supports the United Nations-sponsored CEO Water Mandate, which develops corporate sustainability policies. The company is under fire in British Columbia, though, for paying only $2.25 for every million liters of water it withdraws from local sources. Yet the provincial government sets the price and until this year charged nothing. The rates are also far higher in Quebec, which charges $70, and Nova Scotia, where the price is $140.

Nonetheless, 132,000 people have signed an online petition demanding the government stop allowing Nestlé to take water on the cheap. The company’s reputation may be at even greater risk in California, whose severe drought is in its fourth year. The Courage Campaign has organized an online petition, with more than 40,000 signatures so far, that demands Nestlé Waters stop bottling H2O during the drought. There are several local protests, too. The Swiss firm drew 50 million gallons from Sacramento sources last year, less than 0.5% of the Sacramento Suburban Water District’s total production. It amounts to about 12% of residential water use, though, and is just shy of how much water flows from home faucets in the United States, according to the U.S. Environmental Protection Agency.

In other words, Nestlé may be bottling more than locals drink from the tap. Consumers can only blame themselves, of course, for buying so much bottled water. The average price for a gallon is $1.21, according to the International Bottled Water Association. For just $1.60, Californians could purchase 1,000 gallons of tap water, according to the National Resources Defense Council. Moreover, Nestlé’s water business is its smallest and least profitable, generating a trading operating profit last year of 10.3% – less than half that of its powdered and liquid beverages unit. With California imposing a 25% cut on residential water use, Nestlé Waters may want to consider turning off its own taps.

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Mar 272015
 
 March 27, 2015  Posted by at 8:09 am Finance Tagged with: , , , , , , , , ,  4 Responses »


Wyland Stanley Transparent Car, General Motors exhibit, San Francisco 1940

For Most American Families, Wealth Has Vanished (Yahoo!)
Fed Officials Say Rate Hike Plan Intact Despite Weak US Data (Reuters)
China Stocks May Be In Serious Bubble (MarketWatch)
You’re Playing Liar’s Poker at the Wall Street Casino (Paul B. Farrell)
European Central Bank QE Is Masking Eurozone Struggles (MM)
No, Greece Is NOT The Most Unhelpful Country Ever, IMF Says (MarketWatch)
Greek Bank Deposits Plunge to 10-Year Low (Bloomberg)
Charting Greece’s Draining Coffers (Bloomberg)
Bank of Japan Under Pressure As Inflation Stalls (CNBC)
Saudi Battle For Yemen Exposes Fragility Of Global Oil Supply (AEP)
Putin Plays Wildcard as Ukraine Bond Restructuring Talks Begin (Bloomberg)
Spain Urges EU to Remove Barriers to Banking Takeovers (Bloomberg)
Deutsche Bank Wins German Backing to Be More Like Goldman (Bloomberg)
Asylum Claims Up 45%, ‘Highest Level For 22 Years’ (BBC)
California’s Epic Drought: One Year of Water Left (Ellen Brown)
It’s The End Of March And 99.85% Of California Is Abnormally Dry Already (ZH)
What Is Dark Matter Made Of? Galaxy Cluster Collisions Offer Clues (CSM)
Antarctic Ice Shelf Thinning Speeds Up (BBC)

And nothing else matters one bit.

For Most American Families, Wealth Has Vanished (Yahoo!)

If you re a typical family, you re considerably poorer than you used to be. No wonder the recovery feels like a recession. A new study published by the Russell Sage foundation helps explain why many families feel like they re falling behind: They actually are. The study, which measures the average wealth of U.S. households by income level, reveals a startling decline in wealth nationwide. The median household in 2013 had a net worth of just $56,335 – 43% lower than the median wealth level right before the recession began in 2007, and 36% lower than a decade ago. There are very few signs of significant recovery from the losses in wealth suffered by American families during the Great Recession, the study concludes.

Not surprisingly, lower-income households have lost a larger portion of their wealth than those with higher incomes. Wealth generally comes from two types of assets: financial holdings and real estate. Financial assets have more than recovered ground lost during the recession, thanks largely to a stock-market rally now in its sixth year. The S&P 500 index, for instance, has hit several new record highs this year and is up more than 25% from the peak it reached in 2007. Home values, however, are still about 18% below the peak reached in 2006, according to the S&P/Case-Shiller index. Since wealthier households tend to hold more financial assets, they ve benefited the most form the stock-market recovery, which itself has been assisted by the Federal Reserve s super-easy monetary policy.

Fed policy has been intended to help typical homeowners and buyers too, by pushing long-term interest rates unusually low and, in theory, goosing demand for housing. But a housing recovery is taking much longer to play out than the reflation of financial assets. That’s part of the reason the top 10% of households have held onto more of their wealth than the other 90% during the past 10 years.

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Wall Street insists.

Fed Officials Say Rate Hike Plan Intact Despite Weak US Data (Reuters)

The Federal Reserve should remain on track to raise interest rates later this year despite the U.S. economy’s weak start to the year and a stock market sell-off this week, two Fed officials said on Thursday. In separate events in Frankfurt and Detroit, St. Louis Fed President James Bullard and Atlanta Fed President Dennis Lockhart said U.S. monetary policy might need to be adjusted in light of the economy’s steady improvement since the 2007-2009 financial crisis. “Now may be a good time to begin normalizing U.S. monetary policy so that it is set appropriately for an improving economy over the next two years,” Bullard said at a conference in the German financial hub.

The comments came amid a spate of weak U.S. economic data that prompted major analyst firms to scale down their growth this week. Fed policymakers also lowered their growth forecasts at last week’s policy-setting meeting. Investors have followed suit, sending shares on Wall Street down for four consecutive trading sessions. The challenge now, Lockhart said, is to sort out whether recent weakness in exports, manufacturing and capital investment indicate the start of an economic slowdown or other temporary factors such as the soaring value of the U.S. dollar. Lockhart said he is confident for now that the weakness is “transitory,” and still regards it as highly likely that the Fed will raise rates at either its June, July or September meetings.

“We’re still on a solid track … The economy is throwing off some mixed signals at the moment and I think that is going to be passing or transitory,” Lockhart said in an interview with CNBC from a Detroit investment conference. The conflicting signals are partly familiar – seasonal softness that often accompanies severe winter weather – and partly uncharted. The Fed, for example, now finds itself moving in a divergent direction from other major global central banks, planning a rate hike at a time when Europe and Japan are still flooding markets with liquidity, and other central banks are cutting rates. That has driven the value of the dollar steadily higher, and Lockhart said he, for one, was caught off guard by how much that currency move has apparently impacted U.S. exports and manufacturing..

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You think?

China Stocks May Be In Serious Bubble (MarketWatch)

Some say that when the average “mom-and-pop” retail investors get back into the stock market, it could be time to get out. But what about when even teenagers start buying? China has entered a new stock frenzy, like something out of America in the Roaring 20s or the dottiest days of the dot-com bubble, with trading volumes continuing to push to new record highs. On Wednesday, combined trading on the Shanghai and Shenzhen markets hit 1.24 trillion yuan ($198 billion), the seventh straight session in which turnover surpassed the 1 trillion yuan mark. By comparison, the New York Stock Exchange typically saw $40 billion-$50 billion a day in trading during the first two months of this year.

The Shanghai Composite Index is hovering near its seven-year closing high of 3,691, hit on Tuesday when the index completed a 10-session winning streak. For the year so far, the benchmark is up 13.8%, making it the best-performing major East Asian stock index of 2015 to date, though it still has a way to go to match 2014’s 53% surge. The lure of flush times on the Shanghai market is sweeping in unlikely investors by the hundreds of thousands. This week, both the China Securities Daily and the Beijing Morning Post had dueling reports about recent college graduates and, yes, teenagers buying shares.

Typically these young investors speculate with money given to them by their parents, according to a Great Wall Securities broker quoted in the Beijing Morning Post story. Yet another report, this time by the Beijing News newspaper, relates that at the Beijing trading halls of China Securities Co., “even the cleaning lady” has opened an account to play the market. The data appear to agree with the anecdotes: Within the last week alone, 1.14 million stock account were opened in China, the biggest such surge since June 2007, according to China Securities Depository & Clearing Corp.

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“..17 of the absolutely “stupidest statements” made by Wall Street’s best and brightest..

You’re Playing Liar’s Poker at the Wall Street Casino (Paul B. Farrell)

Yes, you are playing liar’s poker at the Wall Street casino. So how do know Wall Street’s lying? You need this foolproof test. My friends from the anonymous programs use this test all the time. And it really works: “How can you tell when alcoholics and addicts are lying? Their lips are moving!” Same test fits Wall Street, they’re lying when their lips are moving. We have four years of proof and 17 examples. Why’s this test important? The SEC chairwoman recently announced plans to “implement a uniform fiduciary duty for broker-dealers and investment advisers where the standard is to act in the best interest of the investors.” Something Jack Bogle, Vanguard’s founder, has been unable to get government to pass for over 50 years: a fiduciary rule to put the investor ahead of Wall Street insiders. Maybe now he’ll get his wish!

So if you remember nothing else today, here’s your big takeaway: Never trust Wall Street bulls, they’re lying to you over 93% of the time. Behavioral-science research tells us bankers, traders and other market insiders are misleading us, manipulating us the vast majority of the time in their securities reports, PR, ads, speeches, sales material, in their predictions on television, cable shows and when quoted in newspapers and magazines. “Read Bull! 144 Stupid Statements from the Market’s Fallen Prophets,” hit America’s book stores near the end of a 30-month recession a decade ago, after the market wiped out over $8 trillion of the retirement money for 95 million Main Street Americans. The Dow peaked at 11,722 in January 2000, didn’t bottom for 32 months, in October 2002 at 7,286, over 40% down.

We picked 17 of the absolutely “stupidest statements” made by Wall Street’s best and brightest to illustrate their tendency to lie, manipulate, mislead and steal from investors by hook or by crook, using hype, happy talk and all kinds of BS. And it’s guaranteed to happen again in 2015-2016, igniting another market and economic collapse like 2008, which is why the new SEC fiduciary rule would save billions for Main Street in the next round of liar’s poker. Remember, this time is never different, the names change but the BS stays the same, repeating before’ and after every market cycle, never stops, wiping out trillions of our money.

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They’re faking it. Everybody is.

European Central Bank QE Is Masking Eurozone Struggles (MM)

The ECB QE (quantitative easing) regime is officially in full swing. ECB data released last Friday indicated as much. The sovereign bond-buying program began March 9. And in less than two weeks, Eurozone central banks had already purchased €26.3 billion worth of these bonds. At the same time, economic indicators seem to point toward a recovery. Markit’s Purchasing Managers’ Index data released yesterday (Tuesday) revealed Eurozone businesses are at their most optimistic in four years. The EURO STOXX 50 Index – the leading blue-chip index for the Eurozone – is up 21% in 2015. And what’s more, it’s at nearly seven-year highs.

Even the beleaguered euro has stepped off a bit from the precipice of euro-dollar parity . This morning, it was trading at $1.0967. This is after falling to $1.0484 on March 15. This positivity in Eurozone markets all seems unwarranted. The Greek debt crisis , perhaps the biggest problem facing the Eurozone right now, doesn’t have a solution. And Eurozone QE was never built to address it. Eurozone QE is a “confidence trick,” Financial Times columnist Wolfgang Münchau wrote on Sunday. Positive economic data came as a result of falling oil prices , which provided a windfall to the Eurozone, the world’s largest net importer of oil and gas. And those benefits are easily wiped away by any surge in oil prices.

It’s hard to actually be bullish on the Eurozone even with economic data providing a thin veneer of Eurozone confidence. The situation in Greece is worse and more contentious than it has ever been. And QE, a policy aimed at bringing on a recovery, is hardly what it’s cracked up to be. The benefits of Eurozone QE are illusory. This surge in Eurozone optimism is built on a false premise that a largely impotent policy will be the saving grace for a struggling Eurozone. But a closer look at how Eurozone QE works should shatter all those illusions…

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Bloomberg made that one up.

No, Greece Is NOT The Most Unhelpful Country Ever, IMF Says (MarketWatch)

The IMF on Thursday denied a report that officials view Greece as the most unhelpful country the organization had ever dealt with in its 70-year history. “There is no basis in fact for that contention. No such remark was made,” said IMF spokesman William Murray at a news conference. Bloomberg had reported on March 18 that IMF officials had told their euro-area colleagues that Greece stands out as its worst client ever. “I wish they had checked with us before that story was published,” Murray said. IMF managing director Christine Lagarde had a “constructive” conversation Wednesday with Greece’s prime minister Alexis Tsipras, Murray said.

“They had a constructive conversation that focused on next steps in taking forward the policy discussions related to the IMF’s continued support of Greece’s reform program,” Murray said. Greece is locked in talks with the IMF and European creditors on a deal on economic reforms that would unlock €7.2 billion in aid. Greece needs the funding as it faces several major debt repayments in early April. On Wednesday, Greece’s central bank Governor Yannis Stournaras said in London that further debt relief was needed to boost economic growth. Stournaras said exiting the single currency union wasn’t an option for the Hellenic Republic.

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“..give Greece a bit of leeway to announce its reform proposals, give it some easy wins that it can implement in the next week or two.”

Greek Bank Deposits Plunge to 10-Year Low (Bloomberg)

Greek bank deposits plunged to their lowest level in 10 years in February as a political standoff between the government in Athens and the country’s creditors raised the prospect of a possible euro exit. The deposits of households and businesses fell 5% in February to €140.5 billion, their lowest level since March 2005, according to Bank of Greece data released on Thursday. Greeks have pulled about €23.8 billion from banking system in the past three months, 15% of the total deposit base. Greek lenders are depending on Emergency Liquidity Assistance controlled by the European Central Bank to stay afloat as depositors flee.

The country’s creditors have given Prime Minister Alexis Tsipras, elected in January on a platform to end austerity, a Monday deadline to present enough details of a new economic plan to convince them to release more bailout funds. “What we’re likely to see is over the course of the next few weeks is still the drip-feed of liquidity,” said Janet Henry, chief European economist at HSBC Holdings Plc in London, in a Bloomberg TV interview. “We could get more of the ELA, that’s essential to keep the banking system afloat; they could give Greece a bit of leeway to announce its reform proposals, give it some easy wins that it can implement in the next week or two.”

The ECB Governing Council on Wednesday made more than €1 billions of ELA available to Greek lenders, its latest move to defer a financial meltdown. That raised the limit to just over €71 billion. Bank of Greece governor Yannis Stournaras, who is also an ECB Governing Council member, acknowledged at a speech in London on Wednesday that the crisis has unsettled the banking system, saying that there has been “some outflow of deposits due to uncertainty.” While officials including Stournaras and Finance Minister Yanis Varoufakis said bank system deposits stabilized after a Feb. 20 agreement that extended the country’s loan accord to the end of June, outflows picked up again last week, when about 1.5 billion euros left the system.

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Getting serious.

Charting Greece’s Draining Coffers (Bloomberg)

When Dutch Finance Minister Jeroen Dijsselbloem raised the possibility that Greece might need to impose capital controls in a radio interview last week, it seemed like a crazy indiscretion. Why would a senior member of the euro establishment effectively tell people “Hey, we’re considering locking your money inside the country, so you might want to get your euros out while you still can,” and risk accelerating outflows from the country’s already enfeebled banking system? And when the European Central bank decided yesterday to grant more than €1 billion of extra funds to Greece’s banks, it was hard to divine the motivation for the altruism. Was it a carrot to incentivize the government to get serious about meeting the demands of its creditors? Or was it an emergency infusion, acknowledging that Greece is fast running out of money as well as time? The following chart, based on data just released by the Bank of Greece, hints strongly at the latter explanation:

So the Greek banking system had just a bit more than 140 billion euros at the end of February. That’s down almost 15% since the end of November, suggesting bags of capital are fleeing the country as fast as their little legs can carry them. And while extrapolation is an imperfect science, taking the trend from November and running it to the end of this month suggests there could be as little as €133 billion left at the current pace of withdrawals, which would be the lowest in more than a decade. So the reason Dijsselbloem is talking about capital controls may be because the authorities are mulling last-resort, worst-case scenarios as the banking system bleeds out. And the reason the ECB has suddenly become more accommodative might not be a gesture of friendship to Greek Finance Minister Yanis Varoufakis; it might be because its lender-of-last-resort duties are compelling it to act. Today’s figures, though, suggest Greek depositors are voting with their bank balances on the increasing risk of Grexit.

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Inevitable when you don’t understand what inflation is.

Bank of Japan Under Pressure As Inflation Stalls (CNBC)

Japan’s consumer inflation eased in February for a seventh straight month increasing expectations that the Bank of Japan (BOJ) will have to undertake further stimulus measures to achieve its price target. The consumer price index (CPI) rose 2.0% in February from the year-ago period, government data showed on Friday, compared with Reuters’ forecast for a rise of 2.1% and down from a 2.2% rise in January. Excluding the effects of the consumption sales tax hike in April, the nationwide consumer price index was flat in February after increasing 0.2% in January. That marks the first time since May 2013 that it stopped rising. “I think this will keep the pressure on the Bank of Japan to keep their foot on the accelerator,” Joe Zidle, portfolio strategist at Richard Bernstein Advisors, told CNBC.

“You’ve had this split between the BOJ and the government over quantitative and qualitative easing and I think this is going to force the to keep the spigots open.” “This is an economy thats showing data point after data point that its too weak to stand on its own,” he added. Many analysts believe the trend will continue. “The Tokyo CPI result suggests that the nationwide core CPI will probably remain flat yoy in March. However, electricity and gas charges are expected to start declining from April onwards, putting larger downward pressures on the core CPI inflation rate going forward,” it said in a note.

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“..Yemen is very difficult terrain, as the British learned in the Aden crisis..”

Saudi Battle For Yemen Exposes Fragility Of Global Oil Supply (AEP)

The long-simmering struggle between Saudi Arabia and Iran for Mid-East supremacy has escalated to a dangerous new level as the two sides fight for control of Yemen, reminding markets that the epicentre of global oil supply remains a powder keg. Brent oil prices spiked 6pc to $58 a barrel after a Saudi-led coalition of ten Sunni Muslim states mobilized 150,000 troops and launched air strikes against the Iranian-backed Houthi militias in Yemen, prompting a furious riposte from Tehran. Analysts expect crude prices to command a new “geo-political premium” as it becomes clear that Saudi Arabia has lost control over the Yemen peninsular and faces a failed state on its 1,800 km southern border, where Al Qaeda can operate with near impunity.

Over 3.8m barrels a day (b/d) pass through the 18-mile Bab el-Mandeb Strait off Yemen, one of the world’s key choke points for crude oil supply. While there is little likelihood of disruption to tanker traffic, Saudi Arabia is increasingly threatened by Shiite or Jihadi enemies of different kinds. Shiite Houthi rebels have already seized Yemen’s capital, Sanaa, and pose a potential contagion risk for aggrieved Shia minorities across the Saudi border in the kingdom’s Southwest pocket, never an area friendly to the ruling Wahhabi dynasty in Riyadh. The Houthis are well-armed with rocket-propelled grenades and surface-to-air missiles that were either caputured or came from Iran. They have been trained by the Lebanese Hezbollah. “I don’t think air strikes are going to do the job, and it is not clear whether Saudi Arabia is really willing to put boots on the ground,” said Alastair Newton, head of political risk at Nomura and a former intelligence planner for the first Gulf War.

“Nor do I have much confidence in the ability of the Saudis to wage a successful campaign against the Houthis, despite their massive superiority on paper. Yemen is very difficult terrain, as the British learned in the Aden crisis,” he said. The Saudis face an impossible dilemma. The harder they hit the Houthis, the greater the danger of a power vacuum that can only benefit Al Qaeda and Islamic State groupings that already control central Yemen. They are among the most lethal of the various Al Qaeda franchises. A cell from that area was responsible for the Charlie Hebdo attack in Paris. The last 120-strong contingent of US military advisers has been evacuated from the country, while Yemen’s own security apparatus is disintegrating. It is now much harder for the US to coordinate drone strikes or harass Al Qaeda strongholds.

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Nothing wild about it.

Putin Plays Wildcard as Ukraine Bond Restructuring Talks Begin (Bloomberg)

As Ukraine begins bond-restructuring talks, it finds itself face-to-face with a familiar foe: Russia. President Vladimir Putin, who the U.S. and its allies accuse of sending troops and weapons into Ukraine to back a separatist uprising, bought $3 billion of Ukrainian bonds in late 2013. The cash was meant to support an ally, then-President Yanukovych. While his government fell just two months later, Russia was left with the securities. Now, those holdings take on an added importance as Putin’s stance on the debt talks could affect the terms that all other bondholders get in the restructuring. Russia, which is Ukraine’s second-biggest bondholder, has maintained that it won’t take part in any restructuring deal. Here are the three most likely tacks – as seen by money managers and analysts – that Putin’s government could pursue.

Ukraine, after gaining a lifeline from the IMF, included Russia’s bond among the 29 securities and enterprise loans it seeks to renegotiate with creditors before June. Finance Minister Natalie Jaresko has promised not to give any creditor special treatment. The revamp will include a reduction in the coupon, an extension in maturities as well as a cut in the face value, she said. Russian Deputy Finance Minister Sergey Storchak said March 17 that the nation isn’t taking part in the debt negotiations because it’s an “official” creditor, not a private bondholder. If the Kremlin maintains this view, it would be “negative” for private bondholders as “other investors will be more tempted to hold out as well,” according to Marco Ruijer at ING. He predicts a 45% chance of a hold out, while Michael Ganske at Rogge in London says it’s 70%.

There is little precedence of sovereigns and private bondholders taking part in the same talks, given that a nation’s debt considerations include a “foreign-policy dimension,” according to Matthias Goldmann at the Max Planck Institute in Heidelberg, Germany. Ukraine and Russia may need to find an “appropriate forum,” such as the Paris Club, for separate negotiations, he said. Holding out can lead to two outcomes: Russia gets paid back in full after the notes mature in December, or Ukraine defaults. The former option is politically unacceptable in Kiev, according to Tim Ash, chief emerging-market economist at Standard Bank, while the latter would likely start litigation and delay the borrower’s return to foreign capital markets, which Jaresko expects in 2017. “Russia will be holdouts, to try and force a messy restructuring,” Ash said by e-mail on March 19.

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Worst idea ever: make Spain’s biggest bank grow bigger. Who’s going to bail them out?

Spain Urges EU to Remove Barriers to Banking Takeovers (Bloomberg)

Spain, home of the euro area’s largest bank, is pushing the EUto remove obstacles to cross-border mergers of retail lenders. The European Commission should stop national regulators using discretionary powers to hamper tie-ups that strengthen the financial links between euro member states, Alvaro Nadal, chief economic adviser to Prime Minister Mariano Rajoy, said in an interview this week. “One of the problems with monetary union is the lack of risk sharing across the system,” Nadal said. “Imagine if half of Spanish mortgages had been provided by German banks, the crisis would have been very different.” Europe’s retail banking industry should follow the path of the telecommunications industry which has seen a wave of consolidation since EU action facilitated deals, Nadal said.

That would make the currency bloc’s financial system more resilient to shocks like the real-estate collapse that forced Spain to seek a banking-system bailout in 2012. Nadal said he wants to see measures to promote cross-border bank mergers included in the plans to strengthen the euro financial system being drawn up by the so-called four presidents – the heads of the EU, the commission, the ECB and the finance ministers’ group. Spain still has to sell its majority stake in Bankia, a lender with more than €230 billion of assets, which was bailed out with European funds in 2012. Bankia has cleaned up its books selling non-performing real estate assets to Spain’s bad bank and received more than €22 billion of state aid.

While European banking rules are already harmonized in general terms, national regulators still have discretion in how they apply those rules, said Ricardo Wehrhahn, a Madrid-based managing partner at Intral Strategy Execution, a banking and business consultant.
“Within the margins of the law a regulator can make your life harder,” said Wehrhahn, who has analyzed possible targets in Spain for German lenders. “The French, German and Italian banking markets are particularly difficult to penetrate.” Banco Santander, the euro region’s largest bank by market value, has submitted one of seven non-binding offers for Portugal’s state-owned Novo Banco.

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What a great plan! Why didn’t I think of that? The more squids the merrier.

Deutsche Bank Wins German Backing to Be More Like Goldman (Bloomberg)

Deutsche Bank is winning support from German politicians for a plan to transform the country’s biggest bank into a company more like Goldman Sachs. That would be the result of an option the firm is weighing as it seeks to bolster capital levels and profitability, according to a person with knowledge of the matter, who asked to remain anonymous because the talks are confidential. Exiting retail banking to focus on global fund management and investment banking would cut fewer jobs and deliver the quickest boost to returns among three scenarios under review, said the person. Deutsche Bank co-Chief Executive Officers Anshu Jain and Juergen Fitschen are revamping their strategy after the stock fell 24% last year, the most among the top investment banks.

At stake for Germany, the world’s third-biggest exporter, is maintaining a competitive advantage by having a domestic corporate and investment bank with global reach that can offer local companies access to capital markets. “Deutsche Bank is Germany’s only global player in banking,” Michael Fuchs, the deputy parliamentary leader of Chancellor Angela Merkel’s Christian Democratic Union said by phone from Berlin. “If they decide to restructure their business, we should support them.” The lender would still shrink its investment bank, which is Europe’s largest, in all three scenarios it is considering, according to one of the people. The bank may pare its interest-rate trading business and the prime finance activities that cater to hedge funds, the person said.

The company said on Friday that it would present the results of its strategy review in the second quarter. Politicians might have an interest in Deutsche Bank’s plan because Germany is its single biggest market, making up 34% of the bank’s 31.9 billion euros ($35.1 billion) of revenue last year and accounting for 46% of its 98,138 staff at the end of December, company filings show. If Deutsche Bank has concluded that it’s “economically” better to sell its consumer unit, “we have to accept this,” said Ingrid Arndt-Brauer, chairwoman of the parliamentary finance committee and a member of Merkel’s Social Democratic Party coalition partners.

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So what are we going to do?

Asylum Claims Up 45%, ‘Highest Level For 22 Years’ (BBC)

The number of refugees seeking asylum in developed countries rose by almost half last year to the highest level for 22 years, a UN report says. The UN refugee agency said an estimated 866,000 asylum seekers lodged claims in 2014, a 45% rise on the year before and the highest figure since the start of the war in Bosnia. It said the increase had been driven by the conflicts in Syria and Iraq. Germany received the most applications at 173,000 – 30% of claims in the EU. It was followed by the US, Turkey, Sweden and Italy as the countries with the most claims. Between them, the top five receiving countries accounted for 60% of all new asylum bids among the 44 included in the report. The surge is linked to the spiralling conflicts in Syria and Iraq, which have created “the worst humanitarian crisis of our era,” UNHCR spokeswoman Melissa Fleming said.

She urged European countries to open their doors, and respond as generously to the current situation as they did during the Balkan wars in the 1990s. “We need countries to step up to the plate,” AFP news agency quoted her as saying. The UNHCR figures do not include the millions of Syrians who have been taken in by countries such as Lebanon and Jordan. Syrians accounted for the most applications for asylum in 2014 – at nearly 150,000 – more than double the 2013 figure of 56,300. More than 215,000 people are estimated to have been killed since the conflict in Syria started in 2011. Iraqis came in second with 68,700 asylum requests, up from 37,300 the year before. Afghans formed the third largest group, followed by citizens of Serbia and Kosovo, and Eritreans, the UNHCR said.

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Tom Joad just turned around in his car..

California’s Epic Drought: One Year of Water Left (Ellen Brown)

Wars over California’s limited water supply have been going on for at least a century. Water wars have been the subject of some vintage movies, including the 1958 hit The Big Country starring Gregory Peck, Clint Eastwood’s 1985 Pale Rider, 1995’s Waterworld with Kevin Costner, and the 2005 film Batman Begins. Most acclaimed was the 1975 Academy Award winner Chinatown with Jack Nicholson and Faye Dunaway, involving a plot between a corrupt Los Angeles politician and land speculators to fabricate the 1937 drought in order to force farmers to sell their land at low prices. The plot was rooted in historical fact, reflecting battles between Owens Valley farmers and Los Angeles urbanites over water rights.

Today the water wars continue, on a larger scale with new players. It’s no longer just the farmers against the ranchers or the urbanites. It’s the people against the new “water barons” – Goldman Sachs, JPMorgan Chase, Monsanto, the Bush family, and their ilk – who are buying up water all over the world at an unprecedented pace. At a news conference on March 19, 2015, California Senate President Pro Tem Kevin de Leon warned, “There is no greater crisis facing our state today than our lack of water.” Jay Famiglietti, a scientist with NASA’s Jet Propulsion Laboratory in La Cañada Flintridge, California, wrote in the Los Angeles Times on March 12th:

Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain.

Maps indicate that the areas of California hardest hit by the mega-drought are those that grow a large%age of America’s food. California supplies 50% of the nation’s food and more organic food than any other state. Western Growers estimates that last year 500,000 acres of farmland were left unplanted, an amount that could increase by 40% this year. The trade group pegs farm job losses at 17,000 last year and more in 2015. Farmers with contracts from the Central Valley Project, a large federal irrigation system, will receive no water for the second consecutive year, according to preliminary forecasts. Cities and industries will get 25% of their full contract allocation, to ensure sufficient water for human health and safety. Besides shortages, there is the problem of toxic waste dumped into water supplies by oil company fracking. Economists estimate the cost of the drought in 2014 at $2.2 billion.

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And his grave…

It’s The End Of March And 99.85% Of California Is Abnormally Dry Already (ZH)

With NASA scientists warning about California only having one year of water left, it appears The Kardashians and March Madness continue to distract Americans from the ugly looming reality of water shortages. With summer around the corner, the US Drought Minitoring service reports today that a stunning 99.85% of California is “abnormally dry,” and 98.11% of the state is in drought conditions leaving over 37 million people in harm’s way. As we concluded previously: Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain. In short, we have no paddle to navigate this crisis. Several steps need be taken right now.

First, immediate mandatory water rationing should be authorized across all of the state’s water sectors, from domestic and municipal through agricultural and industrial. The Metropolitan Water District of Southern California is already considering water rationing by the summer unless conditions improve. There is no need for the rest of the state to hesitate. The public is ready. A recent Field Poll showed that 94% of Californians surveyed believe that the drought is serious, and that one-third support mandatory rationing.

Second, the implementation of the Sustainable Groundwater Management Act of 2014 should be accelerated. The law requires the formation of numerous, regional groundwater sustainability agencies by 2017. Then each agency must adopt a plan by 2022 and “achieve sustainability” 20 years after that. At that pace, it will be nearly 30 years before we even know what is working. By then, there may be no groundwater left to sustain.

Third, the state needs a task force of thought leaders that starts, right now, brainstorming to lay the groundwork for long-term water management strategies. Although several state task forces have been formed in response to the drought, none is focused on solving the long-term needs of a drought-prone, perennially water-stressed California.

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NOT a mirror version of the visible universe.

What Is Dark Matter Made Of? Galaxy Cluster Collisions Offer Clues (CSM)

Dark matter may not be part of a “dark sector” of particles that mirrors regular matter, as some theories suggest, say scientists studying collisions of galaxy clusters. When clusters of galaxies collide, the hot gas that fills the space between the stars in those galaxies also collides and splatters in all directions with a motion akin to splashes of water. Dark matter makes up about 90% of the matter in galaxy clusters: Does it splatter like water as well? New research suggests that no, dark matter does not splatter when clusters of galaxies collide, and this finding limits the kinds of particles that can make up dark matter. Specifically, the authors of the new research say it is unlikely that dark matter is part of an entire “dark sector” — a mirror version of the visible universe.

Our galaxy contains hundreds of billions of stars, and there are hundreds of billions of galaxies in the observable universe. There’s also a lot of gas and dust between the stars and the galaxies. But all of those stars, galaxies, gas and dust make up only about 10 to 15% of the matter in the universe. The other 85 to 90% is dark matter. Scientists don’t know what dark matter is made of or where it comes from, only that it doesn’t appear to reflect or radiate light. It does, however, exert a gravitational pull on the regular matter around it. David Harvey, a postdoctoral researcher at the Swiss Federal Institute of Technology Lausanne, is one of many scientists currently trying to figure out what dark matter is made of.

There are lots of ways to go about this, and Harvey decided to see what happens when dark matter collides with itself. To do this, Harvey and his colleagues at the University of Edinburgh, where Harvey did his PhD work, looked at collisions among entire clusters of galaxies, where as much as 90% of the mass involved in the collision is dark matter, according to a statement from the Swiss Federal Institute of Technology Lausanne. “[Galaxy cluster mergers] are incredibly messy,” Harvey said. “You’ve got [the stars], the highest densities of dark matter and hot gas all swirling together.”

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“Many of Antarctica’s ice shelves are huge. The one protruding into the Ross Sea is the size of France.” “A number of these ice shelves are holding back 1m to 3m of sea level rise..”

Antarctic Ice Shelf Thinning Speeds Up (BBC)

Scientists have their best view yet of the status of Antarctica’s floating ice shelves and they find them to be thinning at an accelerating rate. Fernando Paolo and colleagues used 18 years of data from European radar satellites to compile their assessment. In the first half of that period, the total losses from these tongues of ice that jut out from the continent amounted to 25 cubic km per year. But by the second half, this had jumped to 310 cubic km per annum. “For the decade before 2003, ice-shelf volume for all Antarctica did not change much,” said Mr Paolo from the Scripps Institution of Oceanography in San Diego, US. “Since then, volume loss has been significant. The western ice shelves have been persistently thinning for two decades, and earlier gains in the eastern ice shelves ceased in the most recent decade,” he told BBC News.

The satellite research is published in Science Magazine. It is a step up from previous studies, which provided only short snapshots of behaviour. Here, the team has combined the data from three successive orbiting altimeter missions operated by the European Space Agency (Esa). The findings demonstrate the value of continuous, long-term, cross-calibrated time series of information. Many of Antarctica’s ice shelves are huge. The one protruding into the Ross Sea is the size of France. They form where glacier ice running off the continent protrudes across water. At a certain point, the ice lifts off the seabed and floats. Eventually, as these shelves continue to push outwards, their fronts will calve, forming icebergs.

If the losses to the ocean balance the gains on land though precipitation of snows, this entirely natural process contributes nothing to sea level rise. But if thinning weakens the shelves so that land ice can flow faster towards the sea, this will kick the system out of kilter. Repeat observations now show this to be the case across much of West Antarctica. “If this thinning continues at the rates we report, some of the ice shelves in West Antarctica that we’ve observed will disappear by the end of this century,” said Scripps co-author Helen Amanda Fricker. “A number of these ice shelves are holding back 1m to 3m of sea level rise in the grounded ice. And that means that ultimately this ice will be delivered into the oceans and we will see global sea-level rise on that order.”

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Feb 132015
 
 February 13, 2015  Posted by at 10:15 am Finance Tagged with: , , , , , , , ,  5 Responses »


John M. Fox Garcia Grande newsstand, New York 1946

$9 Trillion Question: How Will The World Deal With A Fed Rate Rise? (Bloomberg)
One Big Fear With A Strong Dollar: A Stock Market Bubble (MarketWatch)
Another Disappointing US Retail Sales Report (Bloomberg)
Iceland: We Jail Our Bad Bankers And You Can Too (Reuters)
Greece Is Simply ‘Too Big To Fail’ (CNBC)
European Central Bank Throws Greece Lifeline Before Eurozone Talks (Guardian)
‘Grexit’ Would Be No Easy Ride For Austerity-Weary Greeks (Reuters)
Greece Agrees To Talk To Creditors In EU Debt Progress (Reuters)
Merkel Says EU Chiefs Await Greek Plan to Break Impasse (Bloomberg)
Greece, Germany Said to Offer Compromises on Aid Terms (Bloomberg)
Greece: Hanging Tough For Better Eurozone Deal? (Guardian)
UK Sliding Towards First Bout Of Negative Inflation In 55 Years (Guardian)
Japan Gets Ready to Fight (Bloomberg)
With Eye On Japan, China Plans Big Military Parades Under Xi (Reuters)
The Upside of Waste and Environmental Degradation (Charles De Trenck)
China Official Wants To Force Couples To Have Second Child (MarketWatch)
China’s Shale Ambition: 23 Times The Output In 5 Years (MarketWatch)
As US Oil Tanks Swell At Record Rate, Traders Ask: For How Long? (Reuters)
Opera: The Economic Stimulus That Lasts for Centuries (Bloomberg)
Le Monde’s Owner Lays Bare Fragility Of Press Freedom (Guardian)
What If The Government Locked Up Your Children? (SMH)
US ‘At Risk Of Mega-Drought Future’ (BBC)

“That’s the amount owed in dollars by non-bank borrowers outside the U.S., up 50% since the financial crisis..”

$9 Trillion Question: How Will The World Deal With A Fed Rate Rise? (Bloomberg)

When Group of 20 finance ministers this week urged the Federal Reserve to “minimize negative spillovers” from potential interest-rate increases, they omitted a key figure: $9 trillion. That’s the amount owed in dollars by non-bank borrowers outside the U.S., up 50% since the financial crisis, according to the Bank for International Settlements. Should the Fed raise interest rates as anticipated this year for the first time since 2006, higher borrowing costs for companies and governments, along with a stronger greenback, may add risks to an already-weak global recovery The dollar debt is just one example of how the Fed’s tightening would ripple through the world economy.

From the housing markets in Canada and Hong Kong to capital flows into and out of China and Turkey, the question isn’t whether there will be spillovers – it’s how big they will be, and where they will hit the hardest. “Liquidity conditions globally will start to tighten,” said Paul Sheard, chief global economist at Standard & Poor’s. “Emerging markets won’t be the only game in town. You will have a U.S. economy that is growing more strongly and also offering rising interest rates and a return on capital that is starting to vie for new investment opportunities around the world.” The broad trade-weighted dollar has strengthened 12.3% since June, and it’s forecast to advance further as the Fed tightens while the ECB starts buying sovereign debt and Japan extends record stimulus.

The stronger greenback will be the main channel through which the rest of the world feels the effects of a tighter Fed policy, according to Joseph Lupton at JPMorgan. “For the developed economies like Europe and Japan, I think it’s a positive – it’s getting their currency down and it’s supporting their economies,” said Lupton, who previously worked as a Fed economist. “For the emerging markets, it’s a little bit different, because this could set off a chain of very rapid, volatile moves downward in currencies that have inflation implications which are not as desirable.”

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Can the bubble get even bigger than it already is?

One Big Fear With A Strong Dollar: A Stock Market Bubble (MarketWatch)

The concerns that have kept U.S. stocks in check since the start of the year haven’t dissipated. But that hasn’t stopped the S&P 500 from marching to within shouting distance of an all-time high. The S&P rose 0.8% to 2,085.23 on Thursday on news of a cease-fire agreement between Ukraine and Russia, and is third a percentage point away from a record close reached Dec. 29, 2014. It isn’t the fundamentals that brought the markets to these lofty levels, as fourth-quarter earnings have been less than stellar. Moreover, 2015 earnings estimates have been dialed down. But some experts believe that the climb higher, driven by the strengthening dollar, can create a bubble in U.S. stocks. The dollar rose nearly 13% in 2014, and is up 4%, so far this year.

Conventional wisdom dictates that a stronger dollar hurts corporate profits of large companies, since 46.3% of revenues from S&P 500 listed companies are derived from overseas, according to Howard Silverblatt, senior analyst with S&P Dow Jones Indices. But a beefy buck also makes assets priced in dollars more attractive to foreign investors, which could spark a run-up in stock valuations. Wall Street strategists are forecasting that markets will rise between 5% to 9% by the end of the year. Most point to favorable conditions, such as economic growth, earnings growth, low interest rates, low inflation, share buybacks, and foreign demand as big market drivers.

Channing Smith, portfolio manager at Capital Advisors, is less optimistic. “We are already at the level where stocks are simply expensive. If markets rise from this level significantly due to foreign demand or lack of alternatives – this will form a bubble,” Smith said. Ed Shill, chief investment officer of QCI, describes this situation as a ‘melt-up’. He means stocks are approaching bubble territory. “Market can rise on the back of money flows, but fundamentals will catch up. We all know that air comes out of the bubble faster than it goes in, so those who think they can ride this wave should take note,” Shill warned.

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But nothing Bloomberg couldn’t spin.

Another Disappointing US Retail Sales Report (Bloomberg)

Americans eased up on purchases at retailers from department stores to clothing outlets in January, making for a disappointing start to the year after the strongest quarter of consumer spending since 2006. Retail sales fell 0.8%, mainly reflecting a slump in service station receipts as gasoline prices dropped, Commerce Department data showed Thursday in Washington. Purchases fell twice as much as the Bloomberg survey median forecast, and followed a 0.9% retreat in December. Sales excluding gasoline were little changed. The figures, which also showed weaker results at furniture chains and auto dealers, indicate Americans aren’t rushing out to spend the windfall from cheaper fuel. Faster job growth that generates bigger paychecks will probably ensure brighter days are in store for the nation’s retailers.

“Consumers are basically seeing all these positives but they’re being a little more prudent about how they spend,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “We’re not too concerned. Consumer spending is fine, it’s just not doing all that well given the very favorable fundamentals.” Stocks rose on optimism over a cease-fire agreement for Ukraine. The Standard & Poor’s 500 Index gained 1% to 2,088.48 at the close in New York. While another report showed jobless claims jumped by 25,000 to 304,000 last week, applications over the last four periods, a less-volatile measure, dropped to the lowest level since mid-November. The monthly average declined by 3,000 to 289,750 in the period ended Feb. 7, according to the Labor Department.

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It’s insane that it’s such an exception. Pitchforks’R’Us.

Iceland: We Jail Our Bad Bankers And You Can Too (Reuters)

Iceland’s Supreme Court has upheld convictions of market manipulation for four former executives of the failed Kaupthing bank in a landmark case that the country’s special prosecutor said showed it was possible to crack down on fraudulent bankers. Hreidar Mar Sigurdsson, Kaupthing’s former chief executive, former chairman Sigurdur Einarsson, former CEO of Kaupthing Luxembourg Magnus Gudmundsson, and Olafur Olafsson, the bank’s second largest shareholder at the time, were all sentenced on Thursday to between four and five and a half years. The verdict is the heaviest for financial fraud in Iceland’s history, local media said. Kaupthing collapsed under heavy debts after the 2008 financial crisis and the four former executives now live abroad.

Though they sometimes returned to Iceland to collaborate with the court investigation, none were present on Thursday. Iceland’s government appointed a special prosecutor to investigate its bankers after the world’s financial systems were rocked by the discovery of huge debts and widespread poor corporate governance. He said Thursday’s ruling was a signal to countries slow to pursue similar cases that no individual was too big to be prosecuted. “This case…sends a strong message that will wake up discussion,” special prosecutor Olafur Hauksson told Reuters. “It shows that these financial cases may be hard, but they can also produce results.”

Iceland struggled initially to appoint a special prosecutor. Hauksson, 50, a policeman from a small fishing village, was encouraged to put in for the job after the initial advertisement drew no applications. Nor have all of his prosecutions been trouble-free: two former bank executives were acquitted in one case, while sentences imposed on others have been criticized for being too light. However, Icelandic lower courts have convicted the chief executives of all three of its largest banks for their responsibility in a crisis that prosecutors said highlighted the operations of a club of wealth financiers in a country of just 320,000 people. They also convicted former chief executives of two other major banks, Glitnir and Landsbanki, for charges ranging from fraud and market manipulation.

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“Greece is too big to fail and the European Union will step in..”

Greece Is Simply ‘Too Big To Fail’ (CNBC)

Greece continues to be a sore spot for the global economy as the newly-elected government has made clear that it doesn’t plan to honor past agreements made with the European Union. Greece, France, the rest of the European Union, and a host of international banks have already agreed to write off a significant percentage of Greece’s debt as a way to stabilize the economy and keep Greece in the euro trade group. But now Greece says they want a different deal. This is obviously not a positive for Europe and does have the potential to destabilize global economics if Greece simply declines to pay their bills. Creditors will likely have to craft a revised repayment schedule tied not just to austerity, but also to growth.

Look for a new round of concessions; Greece recognizes that the appetite for more drama is very low among other member countries. Renegotiation might not be the preferred solution, but “too big to fail” lives. The politicians in Greece know that and despite the posturing by creditors, they know it as well. But here’s the important question: Will Greece and its renegotiations crash the global economy? No. It is important to recognize that the global economy and markets are pretty much under the assumption that Greece will continue to be a problem child for Europe. It is our view that there is an expectation that Greece is not going to follow through on their commitments and is likely priced into the global equity market.

Greece could make problems for the global economy and do their best to destabilize international banks. But I doubt that that intentional deed would be attempted. And, in the event it were to occur, it is likely governments would step in to provide support for impacted institutions. Perhaps governmental intervention sounds very familiar. Perhaps the recently announced quantitative easing program for €1 trillion announced by the European Central Bank sounds familiar as well. Europe is taking a page out of the United States’ playbook. Citigroup and AIG were too big to fail and the US government stepped in. Fannie Mae, Freddie Mac, GM and Chrysler were too big to fail and the US government stepped in. Like these examples, Greece is too big to fail and the European Union will step in as well.

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“Greece will not blackmail or be blackmailed.”

European Central Bank Throws Greece Lifeline Before Eurozone Talks (Guardian)

The European Central Bank has thrown Greece a lifeline to prevent Athens running out of money before crunch talks with European leaders. The extension of emergency funding to the Greek finance sector by the eurozone’s central bankers lifted the euro and gave Greece’s prime minister, Alexis Tsipras, a stronger hand before meetings with senior officials at the leaders summit in Brussels. Tsipras was scheduled to meet the German chancellor, Angela Merkel, in an attempt to hammer out a deal after he told her, following his election a little more than a fortnight ago, that he will lift draconian austerity measures, contravening the terms of the Greek bailout programme. Greece has failed so far to persuade European leaders that it needs more generous loan financing to alleviate poverty and to promote growth.

Talks earlier his week between eurozone finance ministers reached a deadlock after plans put forward by Athens for cheaper long-term loans were rejected. The ECB has come under pressure to allow Greece to access short-term lending facilities after it said the crisis-hit country no longer qualified for drawing on standard borrowing terms. Two sources familiar with the matter told Reuters that the provision of emergency liquidity assistance (ELA) by the Greek central bank would be authorised by the ECB as a temporary expedient. Arriving for his first EU summit, Tsipras said: “I’m very confident that together we can find a mutually viable solution in order to heal the wounds of austerity, to tackle the humanitarian crisis across the EU, and bring Europe back to the road of growth and social cohesion.”

But in a press conference later he added: “Greece will not blackmail or be blackmailed.” Merkel, vilified by the Greek left as Europe’s “austerity queen”, said Germany was prepared for a compromise and that finance ministers had a few more days to consider Greece’s proposals. “Europe always aims to find a compromise, and that is the success of Europe,” she said on arrival in Brussels. “Germany is ready for that. However, it must also be said that Europe’s credibility naturally depends on us respecting rules and being reliable with each other.”

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“The Greek economy was destroyed by the decision to anchor it to the euro…. It was a political decision but now it is not easy to leave..”

‘Grexit’ Would Be No Easy Ride For Austerity-Weary Greeks (Reuters)

“Grexit” would be sudden, sharp and probably conducted in the dark of night; if Greece were to quit the euro, it would also mark the beginning of a long, hard road – for some harder still than the one already traveled. The new leftist government wants to keep the country in the currency union, as do its euro zone counterparts. But if they fail to agree a deal to replace or extend a bailout program that expires on Feb. 28, Greece faces the risk of a euro exit – “Grexit” in market shorthand – forced by bankruptcy and default. Such a scenario would demand a rapid official response as remaining public confidence in the Greek economy evaporates. Capital controls would have to be imposed to stop an uncontrolled flight of cash abroad. They would come when banks and financial markets were closed.

Then the country would need a new currency, one that history suggests may initially be so weak that already cash-strapped Greeks and local businesses would lose much of their savings. This would be accompanied by a huge jump in inflation. For a while, at least, Grexit may bring worse pain to the Greeks than the austerity policies imposed by the EU and IMF, under which one in four workers is out of a job. A devaluation would make some sectors more competitive; Greek holidays, for instance, would be cheaper for foreign tourists, but life outside the euro could still be tougher. “The Greek economy was destroyed by the decision to anchor it to the euro…. It was a political decision but now it is not easy to leave, to recreate something new,” said Francois Savary, chief strategist Reyl Asset Management. “Do you think the 25% of Greeks in unemployment can find jobs in tourism? Do you think the unemployment rate will even remain at 25% (after Grexit)?”

Economists say leaving the euro would throw Greece into another deep recession, with a sharp drop in living standards and an even more severe fall in investment than now. There is no precedent for Grexit, although Iceland, Cyprus and Argentina suggest what might happen. Iceland has its own currency but imposed controls against capital flight in 2008 after the collapse of its overblown banking sector. Euro zone member Cyprus closed its banks for two weeks and also introduced capital controls during a 2013 crisis. Both countries still have some restrictions in place. Neither was planning on changing its currency, as Grexit would imply. For that, Argentina may offer some hints: after earlier defaulting, it ditched in 2002 a currency board system under which it pegged the peso to the dollar. The peso fell 70% in the next six months, while the percentage of people under the poverty line more than doubled.

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“I’m very confident that together we can find a mutually viable solution in order to heal the wounds of austerity, to tackle the humanitarian crisis across the EU..”

Greece Agrees To Talk To Creditors In EU Debt Progress (Reuters)

Greece agreed on Thursday to talk to its creditors about the way out of its hated international bailout in a political climbdown that could prevent its new leftist-led government running out of money as early as next month. Prime Minister Alexis Tsipras, attending his first European Union summit, agreed with the chairman of euro zone finance ministers, Jeroen Dijsselbloem, that Greek officials would meet representatives of the European Commission, the ECB and the IMF on Friday. “(We) agreed today to ask the institutions to engage with the Greek authorities to start work on a technical assessment of the common ground between the current program and the Greek government’s plans,” Dijsselbloem tweeted. This, he said, would pave the way for crucial talks between euro zone finance ministers next Monday.

The shift by Tsipras marked a potential first step towards resolving a crisis that has raised the risk of Greece being forced to abandon the euro, which could spark wider financial turmoil. A Greek official in Athens said it was a positive move towards a new financial arrangement with creditors. It came less than 24 hours after euro zone finance ministers failed to agree on a statement on the next procedural steps because Athens did not want any reference to the unpopular bailout or the “troika” of lenders enforcing it. Tsipras won election last month promising to scrap the €240 billion euro bailout, end cooperation with the “troika”, reverse austerity measures that have cast many Greeks into poverty and negotiate a reduction in the debt burden.

The procedural step forward came after the ECB’s Governing Council extended a cash lifeline for Greek banks for another week, authorizing an extra 5 billion euros in emergency lending assistance (ELA) by the Greek central bank. The council decided in a telephone conference to review the program on Feb. 18. Timing the review right after euro zone finance ministers meet again next week keeps Athens on a short leash. The ECB authorized the temporary funding expedient for banks last week when it stopped accepting Greek government bonds in return for liquidity. Arriving for his first European Union summit, Tsipras told reporters: “I’m very confident that together we can find a mutually viable solution in order to heal the wounds of austerity, to tackle the humanitarian crisis across the EU and bring Europe back to the road of growth and social cohesion.”

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“You make compromises when the advantages outweigh the disadvantages..”

Merkel Says EU Chiefs Await Greek Plan to Break Impasse (Bloomberg)

German Chancellor Angela Merkel said Greece will play a peripheral role in discussions at a European Union summit in Brussels Thursday, with leaders awaiting proposals on how to break a deadlock over the country’s future financing. Merkel, who arrived for the talks directly from Minsk, Belarus, where she helped negotiate a cease-fire in the Ukraine conflict, said that the deal struck between Russian President Vladimir Putin and Ukraine’s Petro Poroshenko would dominate, followed by a discussion of anti-terrorism efforts in light of the Paris attacks. Greece will play a role, “though only at the margins,” she said, adding that she looked forward to her first meeting with Greek Prime Minister Alexis Tsipras.

“All I can say is that Europe – and this is Europe’s success – is always about finding a compromise,” Merkel told reporters as she arrived for the summit. “You make compromises when the advantages outweigh the disadvantages. Germany is ready for that, but you also have to say that Europe’s credibility depends on us sticking to the rules and dealing with each other in a reliable way. We will see which proposals the Greek government will make.” The summit was a first opportunity for Merkel, the main proponent of austerity in return for international aid, to meet Tsipras after his election last month on a platform of ending the country’s bailout program.

The two were pictured shaking hands and exchanging pleasantries in English. Back in Athens, Greek bonds and stocks rose on the prospects of compromise in the standoff with the euro area even after finance ministers failed to bridge their differences in six hours of talks in Brussels that wound up early on Thursday. Finance chiefs are due to reconvene for another attempt on Monday. “We still have a few days, so today I’m just looking forward to the first meeting,” Merkel said.

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“I would like them to apply for the extension as soon as possible..”

Greece, Germany Said to Offer Compromises on Aid Terms (Bloomberg)

Greece is seeking a “new contract” with the euro area on how to continue its bailout, as talks resume and both sides signal willingness to compromise, according to government officials taking part in the talks. Greek Prime Minister Alexis Tsipras met his European Union peers at a summit for the first time Thursday and said afterwards he sees political will to agree on what happens after the current aid program expires this month. Greece’s goal remains a six-month bridge agreement that would lead to a new deal with euro-area authorities, he told reporters. German Chancellor Angela Merkel urged Greece to move swiftly with its next request, which she portrayed as a follow-on to the current bailout program. She said her first meeting with Tsipras was “very friendly” and cited ability to compromise as one of Europe’s strengths.

“I would like them to apply for the extension as soon as possible,” Merkel said at a news conference in Brussels. “And if the goal is to fulfill it by the end of February, then I’d like the intention to fulfill it to be announced soon.” Behind-the-scenes negotiations resumed in Brussels hours after euro-area finance ministers failed to reach a joint conclusion. Greek negotiators and officials from its euro-area creditors plan to meet in Brussels Friday to discuss the way ahead as they struggle to decide whether to call the arrangement an extension, a new program or a bridge deal, officials said. Germany won’t insist that all elements of Greece’s current aid program continue, said two officials in Berlin. As long as the program is prolonged, they said, Germany would be open to talking about the size of Greece’s budget-surplus requirement and conditions to sell off government assets.

Greece’s willingness to hold to more than two-thirds of its bailout promises shows that Greece is broadly prepared to stick to the program, the German officials said. Improving tax collection and fighting corruption will win German backing, and getting a deal will depend on Greece’s overall reform pledges. Greece is prepared to commit to a primary budget surplus, as long as it’s lower than the current 4% of GDP, according to Greek government officials. Tsipras’s coalition also might compromise on privatizations, one of the officials said. The officials asked not to be named because the deliberations are private and still in progress. Greece wants a “a new contract” in which “ our commitments for primary fiscal balances will be included and continuation of reforms,” Tsipras told reporters after the EU summit. “This also obviously needs to include a technical solution for a writedown on the country’s debt, so the country has fiscal room to return to growth.”

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“..the chances of both sides stumbling towards an outcome neither wants are high. And rising.”

Greece: Hanging Tough For Better Eurozone Deal? (Guardian)

It’s easy to see why Angela Merkel and François Hollande were so keen to get an agreement with Vladimir Putin over Ukraine. The eurozone is not really in good enough shape to cope with the aftershocks of one crisis let alone two. So, Germany and France wanted at least a temporary respite from the problems on Europe’s eastern borders before turning to the more pressing issue of Greece. On past form, a temporary respite is all that can be expected from Russia’s president. A failure to resolve the underlying issues in Ukraine has meant previous ceasefires have been brief. There is no reason to expect this one to be any different. Anna Stupnytska, a global economist at the fund manager Fidelity, thinks the west will eventually respond by toughening up sanctions against Moscow, and that that would lead to a full-blown economic crisis within two to three months.

Russia is potentially a much bigger threat to the EU than a Greek exit from the eurozone, she says. In the short-term though, it is Greece that commands the attention. Here, a game of chicken is taking place. The new Greek government wants its debt burden eased. It wants to be freed from its bailout programme. It wants to ditch many of the unpopular and painful policies that were forced on Athens in return for its economic bailout. Greece’s partners are prepared to offer the Syriza-led government a few concessions, but not nearly as many as required by the prime minister, Alexis Tsipras. Jens Weidmann, president of Germany’s Bundesbank, said that support would be possible only if previous agreements were kept. Germany was not alone in its opinion. Tsipras’s position has two weaknesses. Firstly, Greece’s financial position is getting worse.

Tax receipts undershot expectations in January and the banks are only being kept afloat thanks to the support of the European Central Bank. That support could be cut off at any time. Second, the eurozone is cheered by how relaxed the markets are at the prospect of Greece leaving. The Bank of England governor, Mark Carney, said on Thursday that a Grexit would affect the UK but not by nearly as much as it would have done when the euro was fighting for its life in 2012. Tsipras clearly thinks the rest of the eurozone is a lot more worried about a country leaving the single currency than it is letting on, and that Greece will get more by hanging tough. He may be right. There is still time to do a deal, and on past form, after the burning of much midnight oil, one will be done. But make no mistake, the chances of both sides stumbling towards an outcome neither wants are high. And rising.

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There’s that BS again: “..lower oil prices – which have more than halved since last summer – are expected to significantly boost consumer spending”. It would at best only shift consumer spending, it can’t possibly boost it.

UK Sliding Towards First Bout Of Negative Inflation In 55 Years (Guardian)

Britain is sliding towards its first bout of negative inflation in more than half a century, the Bank of England has said, but strong economic growth should stave off the threat of a deflationary spiral. The slump in oil prices and falling food prices is likely to push inflation to zero in the second and third quarters of 2015, probably dipping into negative territory for one or two months this spring, the Bank said in its February inflation report. But the Bank also revised up its forecasts for growth in 2016 and 2017, helping push sterling to a seven-year high against the euro, with one euro worth 73.71p. The pound also rose 1% against the dollar to $1.5388 as investors bet on a rate hike coming sooner than expected, later this year or in early 2016.

UK inflation was 0.5% in December, well below the Bank’s 2% target. Speaking as it published its latest quarterly inflation report, the Bank’s governor, Mark Carney, said: “It will likely fall further, potentially turn negative in the spring, and be close to zero for the remainder of the year.” The last time headline inflation was negative in Britain was March 1960, according to the closest comparable data from the Office for National Statistics. The Bank expects the slump in oil prices and falling food prices to keep inflation low in the short-term. However, lower oil prices – which have more than halved since last summer – are expected to significantly boost consumer spending. This in turn should fuel growth and push inflation higher over the medium term.

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Abe gets a lot of support from nationalistic fractions.

Japan Gets Ready to Fight (Bloomberg)

Japan’s shock, grief, and anger over the recent beheadings of two of its citizens by Islamic State has drawn into sharp focus the country’s ambivalence about the use of its military to protect its citizens and its interests. For decades, Japan was bound by its 1947 constitution to mobilize troops solely for self-defense. The country didn’t have the legal right to send armed troops abroad to protect its own people or back up allies who come under attack. Prime Minister Shinzo Abe is determined to change this Cold War arrangement, which was imposed by the U.S. during its postwar occupation of Japan. Today the country faces a far more complex set of threats than the Soviet invasion that it feared 70 years ago. Islamic State has pledged more attacks to punish Japan’s decision to extend $200 million in humanitarian aid to countries battling the extremists who hold sway over large sections of Syria and Iraq.

Japan has also verbally clashed with China in a territorial dispute over islands in the East China Sea. And on Feb. 7, North Korea announced it had tested an “ultraprecision” antiship rocket near Japan’s maritime border. “The world is now a pretty complicated place, and denying yourself a reasonable defense and cooperative logistics with your allies is placing yourself at greater risk,” says Lance Gatling, president of Nexial Research, an aerospace consultant in Tokyo. Abe, a defense hawk and the scion of a prominent political family, has embarked on an overhaul of national security strategy. In an historic step, his cabinet last year approved the exports of military equipment and conducted a legal review that concluded Japan had the right to deploy its military power abroad to protect its citizens and back up allies under attack.

In addition, the cabinet favored loosening limits on when Japan’s Self-Defense Forces could use deadly force during United Nations peacekeeping operations and international incidents near Japan that fall short of full-scale war. In April the Diet is expected to debate a package of bills from Abe’s coalition government that would create a legal framework for Japan’s Self-Defense Forces to project its power overseas like a normal military. Defense Minister Gen Nakatani said the country is considering expanding its air and sea patrols over the South China Sea to track Chinese vessels in the area. If the government’s efforts prevail, Japan will “contribute to regional and global security issues with less constraints on geographical limits,” says Tetsuo Kotani, a senior fellow with the Japan Institute of International Affairs.

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And China responds in kind. Scary.

With Eye On Japan, China Plans Big Military Parades Under Xi (Reuters)

Chinese troops are rehearsing for a major parade in September where the People’s Liberation Army (PLA) is expected to unveil new homegrown weapons in the first of a series of public displays of military might planned during President Xi Jinping’s tenure, sources said. China will hold up to four PLA parades in the coming years in the face of what Beijing sees as a more assertive Japan under Prime Minister Shinzo Abe, who wants to ease the fetters imposed on Tokyo’s defense policy by a post-war, pacifist constitution. The parades are also intended to show that Xi has full control over the armed forces amid a sweeping crackdown on military graft that has targeted top generals and caused some disquiet in the ranks, a source close to the Chinese leadership and a source with ties to the military told Reuters.

As military chief, Xi will review the parades and be saluted by PLA commanders during events expected to be broadcast nationwide. “Military parades will be the ‘new normal’ during Xi’s (two 5-year) terms,” the source with leadership ties said, referring to the phrase “xin changtai” coined by Xi to temper economic growth expectations in China. The frequency of the parades would be a break from recent tradition. Xi’s predecessors, Jiang Zemin and Hu Jintao, only held a military parade in 1999 and 2009 respectively to mark the founding of the People’s Republic in 1949. The military parade to be held on Sept. 3 in Beijing would mark the 70th anniversary of the end of World War Two. It would be Xi’s first since he took over as Communist Party and military chief in late 2012 and state president in early 2013.

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A long, comprehensive view of China. Very good.

The Upside of Waste and Environmental Degradation (Charles De Trenck)

Waste appeared good for China in a trickle down format. First it kept GDP growing at unprecedented long term growth rates of 8-9% (now 6-7%; even if we don’t believe these numbers fully). Second it contributed to the process of getting China from a country of 1.2bn people (1993) with some 72% living in rural areas to a country of 1.4bn people (2014) with the 53% living in urban areas we see today. Third, it contributed to China moving slowly from a “made in China” label which meant low cost items with a high component being “junk” to a “made in China” meaning middle quality products that can be quite decent at times. Today, China has also taken over many middle end products once labeled “Made in Japan” or “Made in S Korea” – and this side of industrialization has been called a victory.

But it has also led to a situation where now over 70,000+ officials (and counting…) have been investigated for corruption by President Xi Jinping’s Central Commission for Discipline and Inspection. There are over 85 million members in China’s Communist Party and it has been widely discussed that most of the corruption comes from there. Less discussed is the legacy of waste China’s younger generations will be left with to absorb (a challenge many other countries face to varying degrees as well). Waste during the last 25 years of hyper growth has manifested itself everywhere: raw materials consumption, metals, power generation, shipbuilding, residential buildings and shopping centers construction, and so many other sectors of the economy. Growth in other words has been overstated in the sense of over-production.

One consolation is that overproduction as a percent of production is likely a lot less today than in the early 90’s. But in absolute numbers the waste must be staggering. The worst stage was probably post 2008 when global growth belched and China was left in need of its own massive domestic stimulation policies (3). And the outlet for this waste was tens of thousands of enterprising businessmen mostly from the Communist Party who took advantage of every loophole or self-created opportunity for self-enrichment. The top tricks for moving these riches became Hong Kong, with cartloads of suitcases of cash going into over-priced HK property as well as other money centers around the world.

For corporates it was many questionable letters of credit opened for putative trade overseas, which netted nice commissions for round trip fund transfers. And senior executives at shipping companies, for instance, could enjoy side deals for ship orders booked overseas, and eventually shares for IPOs of their State-sponsored companies. This is all well known. But it remains misunderstood from the perspective of waste generation, degree and extent of corruption, and commodity prices.

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Megalomania.

China Official Wants To Force Couples To Have Second Child (MarketWatch)

After more than 30 years of imposing a one-child policy, China is facing a dilemma of rapid aging and serious gender imbalances. Now one of the nation’s birth-control officials is suggesting going the opposite way and forcing couples to have a second child. Despite the relaxation of one-child policy last year, the expected baby boom failed to appear. Under the new policy, couples may have a second child if either was an only child, but only 9% of eligible families had applied to do so as of the end of 2014, according to statistics from the national birth-control authority.

While forcing people to have children could prove more difficult than forbidding them to do so, this is exactly what Mei Zhiqiang, deputy head of the birth-control bureau in Shanxi province and a Standing Committee member of the province’s political advisory body, has suggested. “For the prosperity of our nation and the happiness of us and our children, we should make a serious effort to adjust the demographic structure and make our next generation have two children through policy and system design,” Mei said, according to various media reports. The decades-old one-child policy has skewed China’s population older, as well as resulted in far more boys than girls, due to some couples seeking to make sure their only child would be male.

The aging problem is weighing on China’s pension system, while the gender imbalance has made it hard for some men to find wives. As a result, Mei said in his proposal to the provincial political advisory body earlier this year, the mere relaxation of the one-child policy isn’t enough, and two-child policy should be enforced. The remarks have triggered public uproar in China, with the Shanghai-based Guangming Daily website publishing a commentary on Friday, referring to the idea as reflecting “a horrible mindset” and inspiring feelings of “ferocious [government] control.”

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“We have the ‘Beijing cold’. People go to the hospital, but medicine is no use, so they leave Beijing and stay for a few months outside to get better. That’s the Beijing cold.”

China’s Shale Ambition: 23 Times The Output In 5 Years (MarketWatch)

China is in the early stages of a fracking revolution, attempting to copy the rise in U.S. shale-gas production in an effort to combat unhealthy levels of pollution and meet a surge in energy demand. By 2020, China—the world’s largest energy consumer—aims to produce 30 billion cubic meters of shale-gas a year, up from the current level of 1.3 billion cubic meters, Chen Weidong, renowned energy expert and research chief at China National Offshore Oil Corp., or Cnooc, said at the International Petroleum Week conference on Wednesday. That would take fracking output from just 1% of all of China’s gas production to 15% in five years. “Last year, China drilled 200 new wells [bringing the total to 400], and we’ll add a few hundred a year for sure. No problem,” he said, confirming earlier government goals of reducing heavy dependence on coal, which accounts for about two-thirds of the country’s energy consumption.

The call for spicing up China’s energy mix with cleaner fuels comes as the capital, Beijing, battles with high levels of pollution, evidenced by frequent “orange” smog alerts. In January, pollution reached a level that was 20 times the limit recommended by the World Health Organization, prompting many people to wear masks. There is even a Twitter account called BeijingAir that sends out daily reports on the smog levels—on Wednesday it was “unhealthy for sensitive groups”. “Over the last 10 years, lung cancer in Beijing has increased 45%. So everybody knows that the first challenge for energy is a sustainability issue,” Chen said. “We have the ‘Beijing cold’. People go to the hospital, but medicine is no use, so they leave Beijing and stay for a few months outside to get better. That’s the Beijing cold.”

China has been planning for the shale-gas revolution since 2012, when the government declared it would start fracking its reserves—the largest in the world—and produce 60 billion to 80 billion cubic meters a year by 2020. However, that goal proved to be too ambitious and it was scaled back to 30 billion cubic meters in 2014 as the drilling conditions turned out to be more difficult than anticipated. “China has the biggest potential, but it’s one thing having the gas, another thing is what type of rocks, fractions, reservoirs, access to water. China has a massive water shortage,” said James Henderson, senior research fellow at the Oxford Institute for Energy Fracking uses large amounts of water in the process of releasing gas from the shale formations.

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“Once it’s full, the market will puke..”

As US Oil Tanks Swell At Record Rate, Traders Ask: For How Long? (Reuters)

Oil is flooding into U.S. storage tanks at an unprecedented rate, leading traders to wonder how long the hub in Cushing, Oklahoma, can keep absorbing its share of the global supply glut. About half the surplus crude accumulating in tanks across the United States is flowing into Cushing. If the build-up continues at the same rate, some industry officials and sources said, the tanks could reach maximum capacity by early April. Others suggest the flow might continue until July before it tests the limits of the dozens of steel-hulled storage tanks clustered in mid-Oklahoma.

Traders have been scrambling to secure space at Cushing so they can store oil purchased at current low prices and sell it in a year at a profit exceeding $11 a barrel because the oil market has been in a structure known as contango. In January, crude oil arriving by pipeline and rail into Cushing, the delivery point of the U.S. crude futures contract, jumped nearly 11 million barrels to nearly 42.6 million barrels, the largest monthly build since the U.S. Energy Information Administration began tracking the data a decade ago. On Thursday, data from energy information provider Genscape showed Cushing stocks rose a further 3.2 million barrels in the four days to Feb. 10, the biggest such increase ever.

Over the past 10 weeks, some 550,000 barrels per day (bpd) of crude have flowed into oil tanks across the United States, according to the EIA. That’s approximately one-quarter of the current global surplus estimated by OPEC. Whether it happens in April or July, the implications of full storage tanks are clear: The excess oil will spill over into the wider market, further pressuring global prices that have recently stabilized following a seven-month dive. The build-up in Cushing has made demand look more robust than it actually is, artificially supporting prices, say traders. “Once it’s full, the market will puke,” said one trader.

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Start singing!

Opera: The Economic Stimulus That Lasts for Centuries (Bloomberg)

Building an opera house to stimulate an economy may be an odd idea – though not necessarily a bad one. In fact, more than 200 years after they were built, opera houses in Germany may still be helping their local economies. That’s the conclusion of a new study by economists in Germany and the U.K. that found that cultural amenities such as a place to enjoy Wagner’s Ring Cycle are an important component in decisions by high-skilled workers about where to live. Clusters of skilled workers also have positive knock-on effects on the local economy because their productivity tends to increase the output of companies, boosting the efficiency and wages of less-skilled local employees, the authors said. “Innovators can foster each other’s creative spirit, learn from each other and become overall more productive,” said the paper, published by the Center for Economic Studies and Ifo Institute.

“This implies that once a city attracts some innovative workers and companies, its economy may change in ways that make it even more attractive to other innovators”. The economists studied 36 years of wage data in Germany and zeroed in on the baroque opera houses, built before 1800, which dot the country. They found that workers with high skills were drawn to such facilities. Furthermore, they estimated a 1 percentage-point increase in the share of high-skilled workers caused their wages to rise 1.1% and those of colleagues with few skills to increase by 1.4% The findings square with a 2013 McKinsey & Co. study of Germany which found high-skilled people named “cultural offerings and an interesting cultural scene” among the top five reasons for their location out of 15 possible choices “Our results suggest that ‘music in the air’ does indeed pay off for a location,” wrote the authors of the CES-Ifo paper.

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“It wasn’t for this that I allowed them to gain their independence.”

Le Monde’s Owner Lays Bare Fragility Of Press Freedom (Guardian)

AJ Liebling’s famous aphorism – “Freedom of the press is guaranteed only to those who own one” – cannot be said often enough. I imagine there are journalists in Paris saying something like this today. But if they are working for Le Monde, they will doubtless be saying it loudly and angrily, because one of the men who owns the newspaper has reminded the journalists that they are not as independent as they might have imagined. Pierre Bergé, president of Le Monde’s supervisory board and one of the wealthy businessmen responsible for saving the paper from bankruptcy in 2010, has attacked the editorial staff for publishing the names of HSBC clients who opened Swiss accounts, which may have been used to avoid tax.

In a radio interview, he accused the paper of “informing” on the clients, asking rhetorically: “Is it the role of a newspaper to throw the names of people out there?” And then came the comment that goes to the heart of the unceasing debate about private newspaper ownership: It wasn’t for this that I allowed them gain their independence. So what was it for, Monsieur Bergé? What does independence mean if you cannot use it? In what way is your intervention a statement of independence? The journalists, in condemning Bergé’s “intrusion into editorial content”, told him to stick to commercial strategy and leave the news to them. But that’s somewhat naive. The reason that people own newspapers, especially loss-making newspapers, is all about having influence over editorial content.

And one key part of that influence is to ensure that their mates, the wealthy élite, are protected from scrutiny. Note that Bergé, 84, and a co-founder of Yves Saint Laurent couture house, was not the only shareholder to protest. He was supported by Matthieu Pigasse, head of Lazard investment bank in Paris, who referred worryingly to the danger of the paper “falling into a form of fiscal McCarthyism and informing”. Bergé, Pigasse and the telecoms magnate Xavier Niel signed an agreement in 2010 to guarantee Le Monde’s editorial independence. The paper, in company with the Guardian, has played a leading role in revealing how HSBC’s Swiss private banking arm helped clients to avoid or evade billions of pounds in taxes. The Guardian, however, is truly independent because it is owned by a trust rather than a group of wealthy men.

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Abbott will be forced out soon.

What If The Government Locked Up Your Children? (SMH)

Tony Abbott has made insensitive comments about children in immigration detention and taken cheap political shots at the Human Rights Commission. On a day he also invoked the Holocaust to attack Labor’s jobs record (then quickly withdrew it), the Prime Minister’s outbursts surely cast further doubt on his judgment. For Mr Abbott to say he felt no guilt – “none whatsoever” – about children in detention will be seen by many as lacking empathy. Perhaps he should heed the heartfelt plea Foreign Minister Julie Bishop made in relation to the Bali nine pair on death row, and apply it to innocent asylum-seeker children locked up by Australia. “I ask others to place themselves just for a moment in the shoes of these young men,” Ms Bishop said of Andrew Chan and Myuran Sukumaran.

“They told me how it was virtually impossible to be strong for each other. How could anyone be failed to be moved?” Hear hear. But how, too, could Mr Abbott fail to be moved by the stories of abuse and despair endured by children in detention centres courtesy of successive Labor and Coalition governments? HRC president Gillian Triggs has implored all Australians to read the commission’s report, The Forgotten Children. Sadly, the moral price of deterring boat people has been to turn a blind eye to the harming of children. The Herald believes one child being exposed to danger in Australia’s care is one too many. Yet Mr Abbott’s response to the report was to accuse Professor Triggs of “a blatantly partisan politicised exercise and the human rights commission ought to be ashamed of itself”.

Later, he accused the HRC of a “transparent stitch-up”. Such vitriol is unbecoming of a prime minister and belittles the importance of protecting children. Given the boat people issue has been divisive for at least 15 years, the HRC report was always going to be politically sensitive. Nonetheless, the Herald believes Professor Triggs could have been more restrained as well. Her approach and language will hardly help attempts at a bipartisan solution. The number of children in detention has dropped sharply under the Abbott government and it deserves credit for that. What’s more, the commission should have acted sooner to investigate fully Labor’s policy.

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“The study suggests events unprecedented in the last millennium may lie ahead.”

US ‘At Risk Of Mega-Drought Future’ (BBC)

The American south-west and central plains could be on course for super-droughts the like of which they have not witnessed in over a 1,000 years. Places like California are already facing very dry conditions, but these are quite gentle compared with some periods in the 12th and 13th Centuries. Scientists have now compared these earlier droughts with climate simulations for the coming decades. The study suggests events unprecedented in the last millennium may lie ahead. “These mega-droughts during the 1100s and 1200s persisted for 20, 30, 40, 50 years at a time, and they were droughts that no-one in the history of the United States has ever experienced,” said Ben Cook from Nasa’s Goddard Institute for Space Studies.

“The droughts that people do know about like the 1930s ‘dustbowl’ or the 1950s drought or even the ongoing drought in California and the Southwest today – these are all naturally occurring droughts that are expected to last only a few years or perhaps a decade. Imagine instead the current California drought going on for another 20 years.” Dr Cook’s new study is published in the journal Science Advances, and it has been discussed also at the annual meeting of the American Association for the Advancement of Science.

There is already broad agreement that the American Southwest and the Central Plains (a broad swathe of land from North Texas to the Dakotas) will dry as a consequence of increasing greenhouse gases in the atmosphere. But Dr Cook’s research has tried to focus specifically on the implications for drought. His team took reconstructions of past climate conditions based on tree ring data – the rings are wider in wetter years – and compared these with 17 climate models, together with different indices used to describe the amount of moisture held in the soils.

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Jan 242015
 
 January 24, 2015  Posted by at 12:24 pm Finance Tagged with: , , , , , , ,  6 Responses »


Unknown Goodyear service station, San Francisco Sep 14 1932

Ripped Off, Poor, Suicidal: The Greek Farmers Turning To Syriza (Channel4)
Syriza’s Rise Fueled by Professors-Turned-Politicians (WSJ)
Economist Vatikiotis: Syriza Proposals Don’t Go Far Enough for Greece (Truthout)
Tsipras Aims For Deal With Lenders By This Summer (Kathimerini)
German Finance Minister To Greece: We Support You (CNBC)
Nothing Is Going to Save the US Housing Market (A. Gary Shilling)
Central Banks Powerless To Prevent Steep Rise In Real Rates (Russell Napier)
Will ECB’s Bazooka Be A Game Changer For Emerging Markets? (CNBC)
Head West for Best Look at US Oil Drillers’ Pain (Bloomberg)
Ruble Colluding With Oil Brews Russian Toxic Loan Morass (Bloomberg)
Spain Finance Minister: We Have The ‘Good Kind’ Of Deflation (CNBC)
Italy Central Bank: We Are Lagging Behind The World (CNBC)
States Where the Middle Class Is Dying (24/7 Wall St)
Labor-Force Participation May Hold Key To Fed Moves (MarketWatch)
Billions in Lost 401(k) Savings, Abusive Brokers Under Scrutiny (Bloomberg)
RT Equated To ISIS For ‘Daring To Advocate A Point Of View’ (RT)
Brazil’s Most Populous Region Faces Worst Drought In 80 Years (BBC)
Pope Francis’s US Tour Will Set Off Economic Fireworks (Paul B. Farrell)

“They keep saying if Syriza wins we’ll be like North Korea or Venezuela. The politicians who tried that line are making a laughing stock of themselves.”

Ripped Off, Poor, Suicidal: The Greek Farmers Turning To Syriza (Channel4)

There’s pizzazz tonight at the election rally of the Greek conservatives. There is a lot of money riding on their victory. But right now it looks like the election is slipping away from Prime Minister Antonis Samaras. Two polls last night put Syriza ahead – one, by the usually authoritative Mega channel, has the far left on 32.5% against New Democracy’s 26.5%. More polls today tell the same story: a widening Syriza lead. If Greece does elect Alexis Tsipras as the first far-left prime minister in Europe since the 1930s, then the place where it’s lost and won will not be Athens. Syriza is making inroads into towns and provinces that have traditionally voted right. In the gulf of Corinth there are a whole string of mountain villages that have traditionally been known as “castles” for the two main parties – ND and the centre-left Pasok. But Pasok has collapsed, and even some conservative voters are swinging over to support the left.

In Assos, a sleepy farming village Giannis Tsogkas, a grape farmer aged 56, explains why the place has swung towards the left. “Two-thirds of the land here has been mortgaged to the banks. Now we can’t pay our debts and we’re in constant fear of repossession. These are the worst times we’ve ever seen. We’re at a point where we can’t afford anything. “We used to go to the supermarket three times a week, now we only go once every two weeks – and we count every single cent we spend. It never used be like this: we had money, we were.. We produced, we sold, we had an income.” There’ve been a string of suicides, he tells me. And not just because of austerity. Every year, he alleges, the merchants who buy their grapes refuse to pay, or go bust. The legal system is so decrepit that it cannot help them. For the farmers in Assos the problems of falling incomes and a political system they see as corrupt merge into one.

“They shoved us into austerity with the IMF. The small farmer will die, that’s it. People here keep committing suicide. So we looked for someone to protect us, and we found it in Syriza.” Ten years ago Syriza got a grand total of 121 votes in the village – just over 2%. In the June 2012 general election it came second, with 22%. Last year, in the Euro elections it topped the polls with 27% – and Mr Tsogkas believes it will win easily on Sunday. It’s anger like this that has seen poll swings to Syriza in rural areas, suburban communities, and even regions like Thessaly that were once strongly right-wing. The government, which had relied on a fear strategy to stop Syriza, seems bereft of strategy. In the local coffee shop in Assos we meet other farmers, once staunch supporters of the centrist Pasok party. “They keep saying if Syriza wins we’ll be like North Korea or Venezuela. The politicians who tried that line are making a laughing stock of themselves. I don’t care who governs us, I care about Greece,” one man says angrily.

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Greece’s best and brightest come home to save the nation.

Syriza’s Rise Fueled by Professors-Turned-Politicians (WSJ)

Wearing suit pants and a jacket, Costas Lapavitsas stood Wednesday afternoon on the floor of a steel-fabricating shop here and addressed a few dozen workers and small-business owners who smoked while sitting in plastic chairs. “I am not a career politician,” he began. Indeed. Mr. Lapavitsas’s political career is only a few weeks old. In Greece’s elections Sunday, he is a parliamentary candidate for the leftist opposition party Syriza, which leads Prime Minister Antonis Samaras ’s conservative party in the polls and could roil politics throughout Europe if it wins. For more than 20 years, the 54-year-old Mr. Lapavitsas has taught economics at the University of London’s School of Oriental and African Studies. Now, he is part of the cadre of academics-turned-politicians forging Syriza’s economic thinking. European economic orthodoxy, led by Germany, has fought Greece’s debt crisis with painful austerity—public-spending cuts and tax hikes—and other strict reforms.

Syriza’s rise is the most potent challenge yet to that orthodoxy. If Syriza wins, it could embolden left-wing parties in other countries, especially Spain, where political tensions also are boiling. It could even result in a rift with Germany that ruptures the euro. The economic plan advanced by Mr. Lapavitsas and other professors aligned with Syriza is rooted in the core principles of debt forgiveness and higher government spending, which Germany has rejected. “We need to renegotiate the logic,” says Yanis Varoufakis, a visiting professor at the University of Texas at Austin until a few days ago. He describes himself as a “libertarian Marxist” and has been recruited by Syriza to run for a seat in Greece’s parliament. A few years ago, Syriza was a fringe coalition of leftists. It jumped into the political mainstream in 2012 because of populist fervor and the party’s charismatic young leader, Alexis Tsipras. But a muddy economic message left Syriza in second place—and out of power.

It has honed its focus since then, and Mr. Lapavitsas describes the party’s platform as “a Keynesian program with redistribution attached, with some Marxist view of the world.” He adds: “We are not ashamed of that.” In the tradition of John Maynard Keynes, Syriza advocates public spending to reignite economic growth. Greece can afford to spend more if some of its debt is forgiven by other countries. Nikolaos Chountis, a Syriza candidate in Athens, ticks off the party’s spending priorities: food and electricity subsidies for impoverished households, a pension boost for the poorest retirees, a hike in the minimum wage and tax cuts for low earners. “The legislation is ready..” Since 2010, Greece’s economic policy has largely been dictated by the “troika” of technocrats appointed by Europe and the International Monetary Fund to supervise Greece’s €240 billion ($280 billion) bailout. The troika wields a memorandum that minutely details what Greece must do in return for the rescue. Section 5.1.2.6.ii. commits Greece to reviewing customs procedures for canned peaches and four other products.

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Worth perusing.

Economist Vatikiotis: Syriza Proposals Don’t Go Far Enough for Greece (Truthout)

Economist Leonidas Vatikiotis, previously a European Parliament candidate with Greece’s Antarsya political party, shares his take on the upcoming elections in Greece, the economic proposals put forth by main opposition party Syriza, and the need, in his view, for Greece to depart from the eurozone. Michael Nevradakis: We left off before the holidays in the midst of the election for a new president of the Hellenic Republic, and we are now in the new year and in the midst of a snap parliamentary election in Greece. There are many government politicians, pro-government analysts and Greek and international media outlets who keep talking about the irresponsible, as they characterize it, stance of the opposition in not voting in favor of the government’s candidate for the presidency of the republic and for not averting these snap elections. How do you view this issue?

Leonidas Vatikiotis: To characterize as irresponsible a position adopted by several political parties that are represented in parliament, simply because they exercised their constitutional right not to vote for the government’s candidate for the presidency, is an insult to even the most basic democratic ideals. Syriza, the Communist Party of Greece, and the Independent Greeks exercised their constitutional right, and if we want to get to the heart of the matter, what Greek society as well as the political parties in parliament learned from this is that the government did not wish to simply extend its term in office. We were told that the government wished, through the election of its candidate for the presidency of the republic, Stavros Dimas, to extend its hold on power and complete its full four-year term. However, what the government of Antonis Samaras and Evangelos Venizelos also wanted was, essentially, the acceptance by Greek society of a new, and more severe, memorandum agreement.

“The troika leaked to the press that Greece still needed to ratify over 1,000 measures which it had agreed to with the troika but which had not yet been passed legislatively through the Greek parliament.” We should note where the negotiations between the Greek government and its lenders left off, at the Eurogroup meeting on December 8. At that time, the eurozone refused to continue negotiations to complete its review of the Greek economy, pending the election of a new government in Greece. On December 8, the negotiation cycle, which began during the summer of 2014, came to a close, and this was a period during which the government and the prime minister himself, Antonis Samaras, proclaimed that Greece had emerged from the crisis, that the memorandum agreements were a thing of the past, and that better days were ahead, that troika oversight of the Greek economy, which had been in place since May of 2010, would cease.

The intentions of Greece’s lenders, however, were quite different: The troika leaked to the press that Greece still needed to ratify over 1,000 measures which it had agreed to with the troika but which had not yet been passed legislatively through the Greek parliament. This was the point where the Samaras-Venizelos government did not continue its negotiations, knowing that there was no way that it could fulfill the demands of the troika and pass these measures through parliament.

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Nice detail: “..he suggested that he would negotiate with representatives of European Union institutions, rather than troika officials.”

Tsipras Aims For Deal With Lenders By This Summer (Kathimerini)

SYRIZA leader Alexis Tsipras will aim to conclude an agreement with Greece’s international lenders by the summer if his party is able to form a government after Sunday’s elections. In a televised news conference Friday, Tsipras sketched out his plans for government and revealed that he had no specific plans for meeting German Chancellor Angela Merkel if he becomes prime minister. The SYRIZA chief suggested that his government would enter negotiations with Greece’s eurozone partners after being elected and would aim to wrap up talks on the way forward in the relationship between the two sides by July or August, when Greece has a series of debt obligations to meet.

Tsipras said that he is aiming to achieve a “sustainable, mutually acceptable solution for Greece and for Europe.” However, he suggested that he would negotiate with representatives of European Union institutions, rather than troika officials. “Austerity is not enshrined in European treaties,” said Tsipras, adding that his government would recognize Greece’s “institutional obligations” toward the EU but not the “political commitments”» made by the outgoing government. When asked where he would make his first official trip to if elected prime minister, Tsipras said it would be Cyprus. He added that he would not seek direct talks with Merkel. “I do not recognize Mrs Merkel as being any different from the other leaders,” he said. “She is one of 28 so I will not rush to meet her.”

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The Greeks know what that is worth. Germany keeps saying: ‘Better do what we tell you to do’.

German Finance Minister To Greece: We Support You (CNBC)

Germany’s finance minister Wolfgang Schaueble denied that the country has started preparations for a Greece exit from the euro zone, ahead of a key election in the turbulent Mediterranean country on Sunday. “We did whatever could be done to support Greece in difficult times, again and again,” Schaueble told a CNBC panel at the World Economic Forum in Davos, Switzerland. “We had to convince the IMF to make very extraordinary conditions so that we could support this,” he said of the frantic discussions between International Monetary fund and European Union authorities around the $147 billion bailout of Greece in 2010. “There were endless discussions.”

Now, talk among commentators and politicians in Germany suggests the government is more open to the idea of a Greek exit from the single currency region – even though Chancellor Angela Merkel and other senior politicians still want it to stay. “We don’t need any problems,” Schaueble said. “We will wait on the elections in Greece.” The possibility of a Greek exit from the euro zone, if left-wing Syriza, which campaigns on an anti-austerity platform, gains power next week, is only one of many potential political events which could cause turmoil in markets this year. “Most of the disturbing things today that can go wrong are political,” legendary investor George Soros warned in Davos.

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How many Americans do you think see this Shilling’s way?

Nothing Is Going to Save the US Housing Market (A. Gary Shilling)

U.S. housing activity remains weak despite six years of federal government aid, strong interest from overseas buyers, rock-bottom interest rates and massive purchases of mortgage bonds by the Federal Reserve. Does this mean housing may never spring back to its pre-recession levels? Many signs point to yes. Don’t blame the Chinese, who are showing an abundance of interest. Their share of foreign purchases leaped to 16% in the year ending March 2014, from 5% in 2007. They paid a median price of $523,148, higher than any other nationality and more than double the $199,575 median price of all houses sold. The value of home sales to all foreigners rose 35% last year to $92 billion, up more than 50% since 2007 and accounting for 7% of all existing home sales. Foreigners view U.S. homes as safe investments and U.S. schools as good places to teach their children English.

But such robust foreign purchases can’t overcome what ails the U.S. housing market. Activity is weak even now that banks are no longer tightening mortgage-lending standards, according to a Fed survey. Banks are searching for new lines of business since the Dodd-Frank reform law and regulations are depriving them of revenue from proprietary trading, derivative origination and investing and off-balance sheet activities. The end of the mortgage refinancing surge has added to the pressure on banks. By necessity, banks remain selective about the mortgages they’ll underwrite, having paid huge penalties for originating and selling bad mortgages pre-crisis. Banks are also being careful to avoid the high cost of mortgage defaults now that they must repurchase loans with underwriting defects. The result can be seen in foreclosure data: In the third quarter, banks began foreclosure proceedings on only 0.4% of mortgages, far below the 1.4% level in the peak of the financial crisis.

Fed Chair Janet Yellen worries about the negative effects of tight credit standards on housing. While she admits that lenders should have raised their standards earlier, “any borrower without a pretty positive credit rating finds it awfully hard to get a mortgage,” she said in July. Even Ben Bernanke, her predecessor, was turned down when he tried to refinance his mortgage. With the federal funds rate at essentially zero and the Fed having ended its purchases of mortgage securities, the central bank can’t do much to help housing now. The Barack Obama Administration, however, is reversing some of the government post-crisis tightening of lending standards. Fannie Mae and Freddie Mac, which remain under government control and now guarantee about 90% of all new mortgages, have reduced the underwriting standards on packages of mortgages they guarantee, including allowing loans with as little as 3% down payments.

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“..central bankers cannot fix very much..”

Central Banks Powerless To Prevent Steep Rise In Real Rates (Russell Napier)

The Swiss National Bank (SNB) failed to ‘fix’ the exchange rate between the Swiss Franc and the Euro. The simple lesson which investors must learn from this is – central bankers cannot fix very much. The inability of the Swiss National Bank to ‘fix’ the exchange rate will come to be seen as the end of the bull market in the omnipotence of central bankers. Think for just a moment of all the key variables which you believe are ‘fixed’ (made firm), fixed (repaired) , fixed (circumvention of the laws of supply and demand) or fixed (dosed with monetary narcotics) by central bankers. These various fixes by central bankers across the world can also fail. That process of failure began in Bern and Zurich early one morning on January 15th 2015.

As the OED entries for the word ‘fix’ make clear, the failure of the SNB to fix the exchange rate was on many levels. It failed to ‘ fix’ the exchange rate in terms of making the Swiss Franc ‘firm’ to the Euro and hence ‘deprive it of volatility or fluidity’. It failed to ‘fix’ the exchange rate as the ‘laws‘ of supply and demand were ultimately not circumvented. For many, particularly Swiss exporters, the material appreciation of the Swiss Franc on the international exchanges will not ‘fix’ the currency in terms of making it ‘ready for use’. Finally, the adjustment in the exchange rate removes, rather than administers, the dose of monetary ‘narcotic’ in the form of excess growth in Swiss Franc liquidity and cheap funding for speculators in Euro. The monetary ‘fix’, which was the by-product of fixing the exchange rate, has ceased to be and the price of equities has collapsed.

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“..the weaker euro reduces the purchasing power of the Europeans and therefore their ability to import from Asia..”

Will ECB’s Bazooka Be A Game Changer For Emerging Markets? (CNBC)

The ECB bold bond-buying scheme is set to provide a temporary boost to Asian equities but is no game changer for the region’s markets, say analysts. After months of speculation, the ECB on Thursday pledged to buy €60 billion ($70 billion) worth of private and public bonds each month until September 2016 in a program that could amount to €1.1 trillion. This was more aggressive than the €50 billion in monthly asset purchases analysts expected. Investors applauded the move, sending European and U.S. equities higher overnight.The positive sentiment carried over into the Asian trading session on Wednesday, with South Korea’s KOSPI rising 0.8% and Indonesia’s Jakarta Composite up 1%. But, analysts expect the lift will be short-lived.”I doubt the increased liquidity will be driving a lot of fund inflows into Asia [over the medium-term],” Stephen Sheung at SHK Private told CNBC.

“A lot of that amount of money will likely be stuck in European banking system rather than flowing out,” he said.Funds that do flow out are likely to go into the U.S. or U.S. dollar assets instead of Asian stocks, Sheung said, citing deteriorating growth in the region.”We have growth problems here in Asia, U.S. economic conditions are on a much more stable footing, and there are prospects for further U.S. dollar appreciation,” he said. Nicholas Ferres, investment director at Eastspring Investments points out that the ECB’s action may have negative implications for European demand for Asian goods, due to the weakening euro. This does not bode well for Asian exporters. “[On the negative side], the weaker euro reduces the purchasing power of the Europeans and therefore their ability to import from Asia,” Ferres said.

The euro sank to a more than 11-year low against the dollar and a three-month low against the yen on Thursday following the ECB’s announcement.”On the positive side, it will likely improve risk perceptions and risk appetite and that might help cheap cyclical stocks rally,” he said.More than liquidity finding its way into Asia markets, Sheung says the ECB action is likely to drive Asian intuitional investors and large corporations to make investments in Europe.”With liquidly abundant and the euro cheaper, it makes investments more attractive,” he said.”Asian investors won’t necessarily look at equities or debt but more at direct investments in projects or infrastructure. This has been a hot topic for the past two to three quarters.”

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“Within the past four weeks, drillers idled half of their rigs in the state..”

Head West for Best Look at U.S. Oil Drillers’ Pain (Bloomberg)

Little is going right for California’s oil industry. Turns out the state’s shale formation holds less promise than producers expected. Aging conventional wells are drying up. And a rebound in output that cost drillers as much as $3 billion annually to create has been overshadowed by shale oil gushing from wells in North Dakota and Texas. Then, of course, came the collapse in oil prices – a seven-month, 57% drop that was exacerbated by OPEC’s refusal to cut output in order to squeeze the U.S. shale drillers. No state is feeling that pressure more than California. Drillers there have idled more rigs – on a proportional basis – than those in any other part of the country.

“We spent a lot of money to go out and drill and use new technologies just to stop production from depleting in our mature fields,” Rock Zierman, chief executive officer of trade group California Independent Petroleum Association, said by phone. “It took us a lot of capital to basically run in place and now we’re looking at crude prices under $40 a barrel.” While U.S. benchmark West Texas Intermediate oil has fallen by more than half since June, California’s heavy Kern River crude has lost 65% of its value. The spot price of that oil slid to $34.87 a barrel on Jan. 22, below Gulf Coast crudes, below Bakken in North Dakota and under Alaska North Slope oil.

Falling prices haven’t been all bad for California. Governor Jerry Brown said in an interview with Bloomberg News Jan. 15 that while the decline in California’s oil drilling is “of concern,” drivers are benefiting. Gasoline is under $2.50 a gallon for the first time since 2009 in a state that’s usually home to some of the most expensive fuel in the country. Relief at the pump will save the average California household $675 this year, said Patrick DeHaan, a Chicago-based senior petroleum analyst at GasBuddy Organization Inc. “The oil price decline goes right into consumer spending,” Brown said at his Oakland office. “So there will be trade-offs.” Within the past four weeks, drillers idled half of their rigs in the state, dragging the total down to the lowest since 2009. Oil output, which had been creeping up since 2011, is now little changed and a slide will probably follow.

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Messy.

Ruble Colluding With Oil Brews Russian Toxic Loan Morass (Bloomberg)

An increasingly toxic mixture of high interest rates, spiraling inflation and plunging oil means Russian banks will probably need a lot more than the $18 billion set aside last year to protect against bad loans. Russia is facing an “extremely widespread” banking crisis in 2015, and lenders may need to boost provisions for souring debts to $50 billion should oil stay in the mid-$40s, according to Herman Gref, the head of the nation’s biggest lender, Sberbank. That’s after banks increased reserves by 42% last year, compared with 27% in Turkey and 7.5% in Poland in the first 11 months, official figures show. Seven of Russia’s 10 worst-performing bonds this year are from banks as policy makers raised rates by the most since 1998 to shore up the ruble, whose 47% slide over the past 12 months deepened the burden of loan payments for consumers and businesses.

With the economy foundering after crude’s decline and sanctions over Ukraine, the ratio of bad debt will double from the third quarter of 2014 to as much as 13% by year-end, according to Liza Ermolenko at Capital Economics in London. “Bad loans will continue to pile up,” Yulia Safarbakova, an analyst at BCS Financial Group, said by phone. “Companies can’t refinance because of the rate increase and the ruble devaluation has hit them hard.” Lenders are on the front line of Russia’s economic crisis, bearing the brunt of oil’s slump and sanctions over President Vladimir Putin’s annexation of Crimea from Ukraine in March. The turmoil that followed forced the central bank to raise interest rates six times to shore up the ruble, choking loan growth to an almost four-year low, while retail deposits declined and bank profits tumbled 41%. The currency’s slide helped drive inflation to a five-year high of 11.4% in December, curtailing the central bank’s ability to reduce borrowing costs even as executives of the biggest Russian banks warn of the strain they are under.

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Certified idiot.

Spain Finance Minister: We Have The ‘Good Kind’ Of Deflation (CNBC)

The specter of growth-sapping deflation may have finally arrived in the euro zone but you won’t find policymakers in Spain panicking anytime soon. The country has made some “bold reforms” in the last three years, Luis de Guindos, the country’s finance minister told CNBC on Friday, shrugging off the weak consumer price data and blaming it on the dramatic fall in the price of oil. “This is positive, this is a positive sign. In Spain, oil prices are reducing the inflation rate. And it’s not because we have deflation. It’s totally different, inflation is like cholesterol. There are two kinds of deflation. The bad one and the good one. In Spain, you know, we have the good kind,” Luis de Guindos, told CNBC at the World Economic Forum in Davos.

This is the deflation that is filling the pockets of the households, he added, and has been fueled by the reforms Spain has taken in the energy markets and the cheaper price of oil at the pump, he said. Prices in the euro zone fell 0.2% year-on-year in December, marking the first time since 2009 that prices have dipped into negative territory. But the statistics for Europe showed that energy was indeed weighing massively on prices with an annual fall of 6.3%. In Spain, annual consumer prices fell around 1% in December. As well as energy reforms, de Guindos boasted that Spain’s new policies were the perfect example of the reforms that the euro zone is looking for.. “We were on the brink three years ago…we have started to reap the rewards of those policies,” he said.

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Couldn’t possibly be even partly his fault, could it?

Italy Central Bank: We Are Lagging Behind The World (CNBC)

The governor of the central bank of Italy has said slowness to reform and political uncertainty in Italy has left it “lagging behind” other nations, partly due to the political instability the country has faced in recent years. Speaking from the World Economic Forum in Davos, Switzerland, Bank of Italy Governor Ignazio Visco said during his time in office at the central bank, he has seen five separate finance ministers come and go, which has dented foreign investment in the country. “While (German finance minister) Mr. Schauble has been in office (in Germany) for the three years I have been governor of the Bank of Italy, I have had 5 finance ministers. This is a major problem – we need certainty for investment,” he told CNBC. “We are lagging behind a number of sectors, areas in innovation and technological change. We have had enormous change at the global levels in the last 20 years and we should really cut the distance.

This is why you need stability in a number of areas, among them price stability and this is what we are trying to deliver,” he said. Visco also dismissed concerns that the euro could slide below the U.S. dollar, adding that euro dollar exchange rate, which has seen the euro fall to 11-year lows against the greenback after European Central Bank President Mario Draghi unveiled a new stimulus package on Thursday, was not a level central bankers monitored.. “Parity is a figure of imagination really. I have been the chief economist at the OECD when the euro was introduced, we were foreseeing that from $1.19 it should go to £1.30, it went to $0.80, so it’s better not to talk about what is the target,” he said. “We do not target the euro, there is no question. This is a channel of transmission of monetary policy, we are doing monetary policy the old fashioned way, we are simply supplying money to the economy,” Visco added.

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“..a decoupling of productivity and wages..”

States Where the Middle Class Is Dying (24/7 Wall St)

The American economy is by many measures well on the road to full recovery. The national unemployment rate was 6.2% in 2013, down from 9.3% in 2009; U.S. gross domestic product grew 5% in the third quarter of 2014; and the S&P 500 recently reached its all time high. And yet the middle class, which historically was the driver of economic growth, is falling behind. The average income among middle class families shrank by 4.3% between 2009 and 2013, while incomes among the wealthiest 20% of American households grew by 0.4%. Based on average pre-tax income earned by the third quintile, or the middle 20% of earners in each state, middle class incomes in California declined the most in the country. Incomes among middle class Californian households fell by nearly 7% between 2009 and 2013, while income among the state’s fifth quintile, or the top 20% of state earners, grew by 1.3%. [..]

According to Joe Valenti, director of asset building at the Center for American Progress, the American middle class is essential for economic growth because middle income families are spending relatively large shares of their incomes on goods and services. “An additional dollar in the hands of a middle income earner is going to drive a lot more spending than an additional dollar in the hands of someone in that top quintile,” Valenti said. While households in the top quintile are able to spend enormous sums of money, “at some point there’s only so much that an individual can spend, even on all different kinds of luxury goods.” While the middle class is the most important cohort in terms of spending and has in the past been essential for economic growth, middle income families have been the victims of wage stagnation. Valenti argued that as early as the 1970s, American companies started becoming much more productive.

However, because of “a decoupling of productivity and wages,” wages among many workers have remained stagnant, and many in the middle class “have not been able to reap the benefits of higher productivity,” Valenti explained. Instead, returns from higher productivity have gone to owners and investors and not to the workers, he said. Many of the beneficiaries of these returns are likely part of the wealthiest 20% of households, whose incomes have grown in recent years. Much of the income growth among the highest earning households is likely due to stock market gains. As Thomas Piketty argues in “Capital in the 21st Century,” income inequality results from a higher return on capital — money used to make more money in the stock market or other revenue-generating assets — than wage and GDP growth. With the rich holding a disproportionate share of money in the stock market, their incomes have recovered much faster than those of middle class workers.

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Not very strong, Barry.

Labor-Force Participation May Hold Key To Fed Moves (MarketWatch)

Economic historian Barry Eichengreen has spent a lifetime looking at mistakes that economic policymakers have made, especially in his best known work about the Great Depression. In an interview with MarketWatch, Eichengreen, an economics professor at the University of California, Berkeley, discussed some of the challenges facing the Fed, and a recent example of a policy mistake by the Swiss National Bank. He also warns that Washington’s tepid response to the financial crisis makes another, even bigger crisis, a possibility.

MarketWatch: Do you think the Fed will be able to lift interest rates this year?

Eichengreen: I have been skeptical for a while about the market consensus that the Fed is likely to move in June. I’ve been wondering whether the labor force participation rate may begin to rise again, in which case inflationary pressures will remain subdued and the unemployment rate will not continue to fall. And that rise in the labor force participation rate could indeed happen, we simply don’t know. I think the Fed will wait and see before it moves. Now we have in addition a strong dollar that may grow even stronger. That’s going to create headwinds for economic growth in the U.S. and I think it is quite conceivable that it could lead the Fed to wait longer. Finally there is volatility. There is the Swiss National Bank, kind of reminding us that volatility happens. It’s important to recall that the SNB is a small central bank of a small country in the grand scheme of things. If [the SNB] making a surprise move can wrong foot the market so dramatically, imagine what could happen if a big central bank pulled a surprise. So it’s quite possible, in my view, there is more volatility coming, and the Fed will have to deal with that too.

MarketWatch: What are the lessons for the Fed from the Swiss National Bank decision? The Fed has to be cautious and certain before it moves?

Eichengreen: I think the silver lining here is that at the cost of a recession in Switzerland and deflation in Switzerland, the SNB having made a serious mistake, it has reminded us that financial markets are not as liquid as they have been in the past, and there can be very big market moves as a result of a central bank surprise. So people will be looking more closely at the shadow banking system then they have been in the last relatively complacent year. We can thank the SNB for that if nothing else. And secondly, I think central banks have had a reminder about the importance of good communications policy, which we did not have coming out of Switzerland last week. The Yellen Fed has been very focused on the importance of communications and they will be even more focused as a result of last week, which can only be a good thing.

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“The current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.”

Billions in Lost 401(k) Savings, Abusive Brokers Under Scrutiny (Bloomberg)

One of President Barack Obama’s top economic advisers said abusive trading practices are costing workers billions of dollars in retirement savings each year and called for stricter rules on Wall Street brokers. Jason Furman, chairman of Obama’s Council of Economic Advisers, drafted a Jan. 13 memo citing research that says some broker practices, such as boosting commissions with excessive trading, cost investors $8 billion to $17 billion a year. The document was circulated to senior aides and indicates the White House may support tighter oversight of brokers who handle retirement accounts. The memo, obtained by Bloomberg News, makes the case for a Labor Department regulation that would impose a fiduciary duty on brokers handling retirement accounts, requiring them to act in their clients’ best interest.

Under current rules, brokers are held to a ‘suitability’ standard, meaning they must reasonably believe their recommendation is right for a customer. “Consumer protections for investment advice in the retail and small-plan markets are inadequate,” Furman wrote in the memo, also signed by Betsey Stevenson, another member of the economic council. “The current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.” Wall Street has spent more than four years lobbying against the Labor rule. Led by firms like Morgan Stanley and Bank of America, the industry has argued that costlier regulations would take away options for smaller investors, who would lose access to advice as well as investment choices.

A White House official said the document, titled “Draft Conflict of Interest Rule For Retirement Savings,” shouldn’t be seen as a new turn in the Labor Department’s rulemaking. That process, the official said, would include a comment period if the administration moves forward. The Labor Department last year indicated that its proposal could come as soon as this month. A fiduciary duty on brokers would provide “meaningful protections” to investors, according to the memo.

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Anything goes in America these days.

RT Equated To ISIS For ‘Daring To Advocate A Point Of View’ (RT)

Following comments from the US overseas broadcasting chief listing RT as a challenge alongside the Islamic State and Boko Haram, critics said the outlet was singled out for “daring to advocate a point of view,” as well as for “competing for viewership.” On Wednesday, the new chief of the US Broadcasting Board of Governors (BBG), Andrew Lack, told the New York Times that RT posed a significant challenge – putting the broadcaster in a list alongside the Islamic State and Boko Haram terror groups. The comments have since been denounced on social networks and across the media spectrum. Speaking to RT, legal analyst and media commentator Lionel said the channel was being outrageously singled out and equated to the Islamic State for “daring to advocate a point of view.” “In the history of incoherent statements, this might be the granddaddy of them all.

In reading this, he alleges that Russia Today pushes… ‘a point of view,’” he told RT’s Ameera David. Georgetown University journalism professor Chris Chambers added that Lack’s words were “supremely silly and careless,” especially considering his media background. Lack previously worked for NBC, Bloomberg, and Sony Music. “This is a guy who has some media savvy, supposedly, even though he’s moved around a lot – maybe this is one reason he’s moved around,” Chambers told RT. “But this was a very careless and silly thing to say considering the prevalence of corporate media here in the United States, and the purpose of BBG’s constitutes like Voice of America, who are supposed to put out all kinds of views.” While Lack’s comments were roundly criticized, Steven Ellis of the International Press Institute said he was right in one way. “Mr. Lack could have phrased his comments more carefully: RT does indeed pose a challenge to US international broadcasting in terms of competing for viewership,” he said.

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“Brazil is supposed to be in the middle of its rainy season but there has been scant rainfall in the south-east and the drought shows no sign of abating.”

Brazil’s Most Populous Region Faces Worst Drought In 80 Years (BBC)

Brazil’s Environment Minister Izabella Teixeira has said the country’s three most populous states are experiencing their worst drought since 1930. The states of Sao Paulo, Rio de Janeiro and Minas Gerais must save water, she said after an emergency meeting in the capital, Brasilia. Ms Teixeira described the water crisis as “delicate” and “worrying”. Industry and agriculture are expected to be affected, further damaging Brazil’s troubled economy. The drought is also having an impact on energy supplies, with reduced generation from hydroelectric dams. The BBC’s Julia Carneiro in Rio de Janeiro says Brazil is supposed to be in the middle of its rainy season but there has been scant rainfall in the south-east and the drought shows no sign of abating. The crisis comes at a time of high demand for energy, with soaring temperatures in the summer months.

“Since records for Brazil’s south-eastern region began 84 years ago we have never seen such a delicate and worrying situation,” said Ms Teixeira. Her comments came at the end of a meeting with five other ministers at the presidential palace in Brasilia to discuss the drought. The crisis began in Sao Paulo, where hundreds of thousands of residents have been affected by frequent cuts in water supplies, our correspondent says. Sao Paulo state suffered similar serious drought problems last year. Governor Geraldo Alckmin has taken several measures, such as raising charges for high consumption levels, offering discounts to those who reduce use, and limiting the amounts captured by industries and agriculture from rivers. But critics blame poor planning and politics for the worsening situation. The opposition says the state authorities failed to respond quickly enough to the crisis because Mr Alckmin did not want to alarm people as he was seeking re-election in October 2014, allegations he disputes.

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Should be fun.

Pope Francis’s US Tour Will Set Off Economic Fireworks (Paul B. Farrell)

Pope Francis headlines are hard-hitting, targeted, staccato twitters, you get the whole truth in a series of blastings. First, starting with: “Pope Francis Has Declared War on Climate Deniers,” New Republic. Then, at the Week we read: “Republican Party’s war with Pope Francis has finally started,” Yes, 2015 is now a war zone: GOP conservatives at war with the Vatican. Then the Federalist, a conservative website, waves a red flag warning: “Don’t Pick Political Fights With Pope Francis.” Why? “Conservatives have everything to lose and nothing to gain from getting mad at Pope Francis for his public comments on homosexuality, global warming, free speech, and more.” Yes, conservatives warning Republicans: Don’t go to war with Pope Francis, you will lose.

He’s got an army of 1.2 billion faithful worldwide including 78 million American Catholics. Francis will win. A huge army. More important, Francis has a direct link to a heavenly power source. As the 266th descendent of the first leader of Christians, St. Peter, the pontiff will be touring America this fall. First stop, Philadelphia. Ring the Liberty Bell. Yes, Francis is actually on a campaign tour, selling his new economic mandate. And watch out. Behind that sweet smile and happy demeanor, this former boxer is attacking everything conservatives, capitalists, Big Oil, energy billionaires and Republicans love, cherish and believe as gospel. And they can’t defend their agenda nor counterpunch him directly.

From Philly, the pontiff’s campaign march heads for New York City where he’ll address the United Nations General Assembly, pushing his anticapitalist, anti-inequality, anti-the-superrich, anti-global warming, pro-climate-change, pro-the poor, pro-do-the-right-thing moral agenda. Then Francis will jet to Washington and our nation’s capitol, where a grumbling John Boehner and stoic Mitch McConnell have no choice but to invite Pope Francis to address a joint session of Congress. They may wish Pope Francis would quietly disappear. But that just isn’t going to happen, not after six million just attended his mass in the Philippines. He’s a seasoned campaigner, selling a powerful new economic agenda.

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Dec 172014
 
 December 17, 2014  Posted by at 12:30 pm Finance Tagged with: , , , , , , ,  11 Responses »


Russell Lee Proprietor of small store in market square, Waco, Texas Nov 1939

Oil Plunge Sets Stage for Energy Defaults (Bloomberg)
Crude Collapse Prompts Great Rotation Into Cash (CNBC)
U.S. Talking Oil Exports Just When World Needs It Least
The Impact of Oil On US Growth (John Mauldin)
Airlines Poised for $12 Billion Global Windfall on Oil Collapse (Bloomberg)
Eight Things I Wish for Wall Street (Michael Lewis)
Regional Banks Key To Wall Street Win On Derivatives (Reuters)
Outspooking Lehman: Could A Russian Default Be In The Cards? (Zero Hedge)
Western Banks Curtail Flow of Cash to Russian Entities (WSJ)
Investors Take Cover From Russia Crisis, Oil Slide (Reuters)
Raiffeisen, SocGen Plummet as Ruble Slide Triggers Bank Worries (Bloomberg)
Plunging Ruble Unsettles Russians, Poses Test for Putin (WSJ)
Feast Turns To Famine For China Trusts (FT)
Giant China Mall Developer Prepares For The End Of Urbanization (Reuters)
Asia Isn’t Ready for a China Crash (Bloomberg)
Europe May Have A Big, Fat Greek Problem (MarketWatch)
Samaras Seeks Greek Parliament’s Backing to Stop Syriza (Bloomberg)
Brussels: Austerity Is For The Little People (RT)
UK Bank Stress Tests: RBS And Lloyds Struggle While Co-Op Fails (Independent)
Philanthropy’s Not Just Charity From The Rich: It’s Self-Serving (Satyajit Das)
California’s Water Woes Quantified (BBC)

No kidding!

Oil Plunge Sets Stage for Energy Defaults (Bloomberg)

Bond investors, already stung by the biggest losses from U.S. energy company debt in six years, are facing more pain as the plunge in oil leads analysts to predict defaults may more than double. While bond prices suggest traders see defaults rising to 5% to 6%, UBS AG said it may actually end up being as high 10% if prices of West Texas Intermediate crude approach $50 a barrel and stay there. Debt research firm CreditSights predicts a jump to 8% from 4%. A borrowing binge by energy companies in recent years to finance new sources of oil has pushed a measure of leverage among the lowest-rated firms above its 2009 peak, according to CreditSights.

The $203 billion of bonds outstanding have lost 14% this quarter and are poised for their worst performance since the end of 2008, Bank of America Merrill Lynch index data show. More than $40 billion of value already has been wiped out, Bloomberg index data show. “The bid for yield caused a lack of discrimination across credits and sectors and people were buying whatever was available,” UBS AG credit strategist Matthew Mish said in a telephone interview from New York. “When you transform from a low-default regime to high default, the re-pricing of risk can be pretty aggressive.” Energy-sector bonds have delivered 14% losses to investors this quarter and are on track for the worst performance since the three months ended December 2008, Bank of America Merrill Lynch index data show.

The decline in the debt, which makes up 15% of the U.S. high-yield bond market, has pushed yields among all junk issues to 7.4%, up from a June low of 5.69% and the most in more than two years, the data show. The yield premium investors demand to hold energy company debt rather than government securities has surged to 10.5 percentage points on average, past the 10-point limit considered distressed, according to data compiled by Bloomberg. About $300 billion of securities linked to 512 bonds across all industries trade as distressed, compared with about 150 six months ago.

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And not a word on their losses?

Crude Collapse Prompts Great Rotation Into Cash (CNBC)

Despite the volatile swings in global equities, fund managers are still confident in stocks but the falling oil price is pushing them to add to their cash holdings, a leading industry survey has found. Cash now makes up 5% of fund manager portfolios on average, according to fund managers polled by the Bank of America Merrill Lynch. Almost a third of those surveyed have hiked their cash positions and are now overweight relative to their benchmarks, as they close out commodity positions. Some 36% of the 214 panelists surveyed for the bank’s monthly fund manager poll, who are collectively running $604 billion, now view oil as undervalued following its recent price crash.

This reading is up over 20 percentage points since October and reflects oil’s lowest level since 2009. Meanwhile, investors have bolstered their positions in European equities. “We are seeing capitulation out of energy and materials to the benefit of the dollar, cash, euro zone stocks and global tech and discretionary stocks,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research. “The prospect of European Central Bank (ECB) quantitative easing (QE) has brought growing consensus on European equities, but the weakening business cycle and falling commodity prices are working against true earnings recovery,” said European equity and quantitative strategist at the bank, Manish Kabra.

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I say let the US subsidize exports and make the mess complete.

U.S. Talking Oil Exports Just When World Needs It Least

The U.S. Congress is talking about allowing unfettered oil exports for the first time in almost four decades. Its timing couldn’t be worse. There’s space in the global market for 1 million to 1.5 million barrels a day of U.S. crude if the ban vanishes, Energy Information Administration chief Adam Sieminski told a congressional subcommittee at a Dec. 11 hearing. That would be less than 2% of worldwide demand. With prices sliding amid a glut, the figure is bound to be even smaller, according to consultants including Wood Mackenzie. As members of Congress promise more hearings on repealing the restrictions on oil exports, the world is awash in the stuff. Global prices have fallen by almost half since June to the lowest in five years amid slower demand growth and rising supply.

What’s more, the kind of crude flowing in record volumes from U.S. shale plays is already abundant in the market. “If they dropped the export ban today, how much crude would get exported?” Harold York at WoodMacKenzie said. “Today? I say none. At these prices, why would a barrel leave?” Global crude prices have fallen 48% to below $60 for the first time since 2009. Producers say the U.S. shale boom may falter if they can’t reach overseas markets, while refiners fight to keep the limits, which have reduced domestic costs and allowed them to export record amounts of gasoline and diesel. [..] Congress will hold more discussions on repealing the law in 2015, Representative Ed Whitfield, a Republican and chairman of the House Energy and Power Subcommittee, said at the Dec. 11 hearing in Washington.

Sieminski said his export estimates, which come to about 15% of U.S. production at most, were based on demand at foreign refineries for light oil. About 15% of global refining capacity is designed for light oil, compared with about 30% of production, York and his colleague Michael Wojciechowski said by e-mail. During the meeting, Sieminski described the amount of potential shipments abroad as being “more to the lower end than to the upper end” of the range. “The kind of oil we have in surplus here is a light, sweet crude, and the market for that is not unlimited,” he said. “So the question is, how much of that could you put out on the global market” before it’s saturated, he said.

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“Given present supply and demand characteristics, oil in the $40 range is entirely plausible.”

The Impact of Oil On US Growth (John Mauldin)

Texas has been home to 40% of all new jobs created since June 2009. In 2013, the city of Houston had more housing starts than all of California. Much, though not all, of that growth is due directly to oil. Estimates are that 35–40% of total capital expenditure growth is related to energy. But it’s no secret that not only will energy-related capital expenditures not grow next year, they are likely to drop significantly. The news is full of stories about companies slashing their production budgets. This means lower employment, with all of the knock-on effects. [..] This is a movie we’ve seen before, and we know how it ends. Texas Gov. Rick Perry has remarkable timing, slipping out the door to let new governor Greg Abbott to take over just in time to oversee rising unemployment in Texas. The good news for the rest of the country is that in prior Texas recessions the rest of the country has not been dragged down. [..]

With all that as a backdrop, let us return to our original task, which was to think about what will impact the US and global economies in 2015. I’ve been talking to friends and contacts who are serious players in the energy-production sector. This is my takeaway. The oil-rig count is already dropping, and it will continue to drop as long as oil stays below $60. That said, however, there is the real possibility that oil production in the United States will actually rise in 2015 because of projects already in the works. If you have already spent (or committed to spend) 30 or 40% of the cost of a well, you’re probably going to go ahead and finish that well. There’s enough work in the pipeline (pardon the pun) that drilling and production are not going to fall off a cliff next quarter. But by the close of 2015 we will see a significant reduction in drilling.

Given present supply and demand characteristics, oil in the $40 range is entirely plausible. It may not stay down there for all that long (in the grand scheme of things), but it will reduce the likelihood that loans of the nature and size that were extended the last few years will be made in the future. Which is entirely the purpose of the Saudis’ refusing to reduce their own production. A side benefit to them (and the rest of the world) is that they also hurt Russia and Iran. Employment associated with energy production is going to fall over the course of next year.

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Brave talk, but those long term contracts and hedges may end up costing a lot of money.

Airlines Poised for $12 Billion Global Windfall on Oil Collapse (Bloomberg)

Airlines around the world are poised for a $12 billion windfall as the global oil crash cuts bills for jet fuel, the biggest expense in an industry that was battered by surging commodity prices last decade. The savings promise to produce fatter profits and, in the U.S., rewards for shareholders through sweetened dividends or stock buybacks. Missing out so far are consumers, because many carriers are still filling seats without having to resort to discounts. Unlike 2008 and 2009, when sagging travel demand damped the boost from fuel plunging 51% from its peak, crude’s collapse to a five-year low is providing a tailwind for airlines posting record earnings. Profits in 2015 will swell 25% to $25 billion, according to the International Air Transport Association, the trade group for the world’s major airlines.

“They’re dancing in the aisles of their planes,” said George Hobica, president of ticket-price website Airfarewatchdog.com. “All the production in the United States, shale oil and the fact that OPEC has not increased production — maybe high oil was an aberration.” Investors are welcoming a respite from Brent crude that averaged more than $100 a barrel in 2012 and 2013. Led by China Eastern and Air China, the Bloomberg World Airlines Index has soared 25% this quarter while Brent tumbled 37%. “The price slump could hardly have come at a better time for Southeast Asian airlines,” said Peter Harbison, executive chairman of CAPA Centre for Aviation in Sydney. “They have got themselves to a stage where they can be profitable with $100 oil, so for the time being, they will be net beneficiaries.”

U.S. carriers strengthened by mergers since 2008 are also poised to take advantage of the new era. American Airlines, which doesn’t hedge its fuel purchases, said it may save more than $2 billion next year. Even with losses because of fuel contracts pegged to higher prices, Delta said it expects to pay about $1.7 billion less for jet kerosene in 2015 while Southwest forecast savings of $1 billion. “Falling oil prices are a fantastic thing,” Southwest Chief Executive Officer Gary Kelly said last week in an interview.

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Glorious piece by Michael Lewis. Don’t miss.

Eight Things I Wish for Wall Street (Michael Lewis)

It’s a wonderful life on Wall Street, yet here is a holiday wish list to make it even better.

1. The financial sector rids itself of anyone with even the faintest reason to believe that he or she is unusually clever.

All those who have scored highly on standardized tests, or been invited to join Mensa, or finished in the top quartile of any graduating class will be banned. Most of our recent financial calamities — collateralized debt obligations, credit default swaps on subprime mortgage bonds, trading algorithms that prey on ordinary investors, the gaming of rating companies’ models, the rigging of the Greek government’s books so the country might disguise its true indebtedness — required a great deal of ingenuity. Lesser minds would have been incapable of causing so much damage.

Of course, it’s not easy to prevent clever people from working in finance, or from doing anything else they want to do. Perhaps now more than ever, clever people are habituated to being paid to ignore the spirit of any rule — which is one reason they have become such a problem on Wall Street. Upon seeing a new rule they do not think, “What social purpose does this serve, and how can I help it to do the job?” They think, “How can I game it?” If it pays to disguise their intellects, clever people will do it better than anyone else. Without further regulation, our entire society would soon be operating in the spirit of the Philadelphia 76ers: Kids tanking the SAT, parents choosing high schools that guarantee failure, intellectual prodigies scheming to gain entry to Chico State. No single rule, by itself, is capable of protecting the rest of us from their intellects. We’ll need more rules.

2. No person under the age of 35 will be allowed to work on Wall Street.

Upon leaving school, young people, no matter how persuasively dimwitted, will be required to earn their living in the so-called real economy. Any job will do: fracker, street performer, chief of marketing for a medical marijuana dispensary. If and when Americans turn 35, and still wish to work in finance, they will carry with them memories of ordinary market forces, and perhaps be grateful to our society for having created an industry that is not subjected to them. At the very least, they will know that some huge number of people — their former fellow street performers, say — will be seriously pissed off at them if they do risky things on Wall Street to undermine the real economy. No one wants a bunch of pissed-off street performers coming after them. To that end …

3. Women will henceforth make all Wall Street trading decisions.

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It was a thoroughly planned strategy.

Regional Banks Key To Wall Street Win On Derivatives (Reuters)

A top Democrat in the U.S. House of Representatives on Tuesday said unpopular Wall Street banks got a long-sought rollback to Dodd-Frank reforms through Congress last week partly by leveraging the influence of smaller banks that hold greater sway with lawmakers. “They have been working for a long time, trying different strategies on it,” California Representative Maxine Waters said in an interview. “The big banks are in trouble with most legislators… so they put the regional banks in front of them in order to gain more support.” Citigroup and JPMorgan wanted to turn back a provision in the Dodd-Frank law that would have forced banks to push derivatives trading into separate units. The “push out” rule would have boosted banks’ trading costs. The rollback was included in the $1.1 trillion spending package passed by Congress that funds most government agencies through September 2015. Wall Street banks launched a full-court press this year to get the provision into that bill, lawmakers and congressional aides said.

Banks wanted a vehicle most lawmakers would feel compelled to vote for before the rule took effect in July 2015. “They knew this was a must-pass bill,” Waters said. The derivatives rider, first offered by Kansas Republican Representative Kevin Yoder, was agreed on by a bipartisan team negotiating the omnibus spending package. Many Democrats criticized it as going easy on Wall Street. Appropriators said they fought off worse changes to the law and won higher funding for two key regulators. Jamie Dimon, chief executive of JPMorgan, personally called lawmakers before they voted on the package. President Barack Obama dispatched a top deputy Thursday to encourage House Democrats to vote for the compromise. But in interviews after the bill passed, bank lobbyists and Hill staffers said the words “Wall Street” were anathema to most lawmakers. They said banks such as SunTrust and Fifth Third, which had ties to local lawmakers, actually got the changes across the finish line.

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“Hope is not a strategy when it comes to Russia at present.”

Outspooking Lehman: Could A Russian Default Be In The Cards? (Zero Hedge)

(Via Mint – Blain’s Extra Porridge, “Nazhmite Lyubuyu Stavku…“) Extra Comment – this might be getting serious. Russia’s markets have been spanked hard despite last night’s hike. 19% currency crash and 13% down stocks in a session. Ouch! Cumulatively, over the past few weeks stocks, oil and the Ruble are off 50% plus, and bonds off 40%. This morning felt like free-fall. Expect more action from the Russians to stave off economic catastrophe… imminent capital controls are rumoured, but markets are demonstrating a massive loss of confidence. Lots of old market hands are talking about how its similar to the Russia default and crash of ‘98 all over again.. Actually.. its worse. Much worse.

The scale and speed of the current collapse is a magnitude greater, and the effects are accelerated and magnified by the utter absence of liquidity, and by the political stakes at play. Lots of comments about how a Russian crisis might play out and what cornered Putin may do – or be forced into. Let’s not speculate, but it seems pretty clear that any Western support to calm the crisis and stabilise markets would come at a very high personal cost to Putin. That would be a good point to get selectively involved.

It’s too early. We’ve seen a few cautious buyers get wallpapered with Russian and Ukraine paper – and done decent amount of business, but generally none of the main distressed players feel it’s yet time to get involved. “Don’t expect a V-Shaped recovery – its different and aint going to happen..” said one manager. Hope is not a strategy when it comes to Russia at present. The big risk is whether the Russian meltdown can be contained within the borders of the Rodina. All kinds of no-see-ems suggest themselves. What are potential knock-ons into other markets? Perhaps Russians having to unwind London Property, (we understand Russians have been very big buyers in recent weeks prefiguring potential exchange controls), or further ructions in Europe? We’re already concerned European sovereign debt is poised on a knife-edge between brutal reality and over-inflated hopes for QE. A strong nudge from a conflagurating Russia and bang goes Italy?

Or will it come from safe-haven flight triggering sell-offs across every asset class in a replay of 2008? Could a Russia default that will outspook the Lehman apocalypse be on the cards? So much for dull Christmas markets…

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This is why Russia started trading in gold.

Western Banks Curtail Flow of Cash to Russian Entities (WSJ)

Global banks are curtailing the flow of cash to Russian entities, a response to the ruble’s sharpest selloff since the 1998 financial crisis. Such banks as Goldman Sachs Group Inc. this week started rejecting requests from institutional clients to engage in certain ruble-denominated repurchase agreements and other transactions designed to raise cash, according to people familiar with the matter. Bankers and traders say the moves to restrict some ruble transactions have become increasingly widespread among major Western financial institutions this week, even as the same institutions continue to try to profit from the ruble’s wild swings. The moves, which the banks are deploying to protect themselves against further swings in the currency, have the potential to add to the strain on Russia’s financial system. Goldman in recent days largely stopped doing longer-term ruble-denominated repurchase agreements, or repos, in which securities or other assets are swapped in exchange for cash, said a person familiar with the matter.

The Wall Street bank is still doing short-duration ruble repos, those that mature in less than a year, this person said. Online foreign-exchange broker FXCM said Tuesday that, due to the ruble’s volatility, it will stop trading services for the ruble against the dollar as of Wednesday. In a statement, FXCM said it was halting the services in part because “most Western banks have stopped pricing USD/RUB.” Other banks, including Bank of America and Citigroup, haven’t changed their trading with Russia or in rubles, according to people familiar with those banks. The volatility in the ruble exchange rate, which reached a record level above 80 rubles to the dollar before retreating to about 71, is starting to take a toll on the currency markets’ infrastructure. Traders said Tuesday that liquidity in the market had largely evaporated, as speculators refrained from trading. In one sign of the banking industry’s hasty retreat, the London-based manager of an emerging-markets hedge fund said Tuesday that he couldn’t get any banks to trade Russian government bonds with him.

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Oil and Yellen.

Investors Take Cover From Russia Crisis, Oil Slide (Reuters)

An uneasy hush settled over Asian markets on Wednesday as a brewing financial crisis in Russia and the rout in oil prices sent investors scurrying for the cover of top-rated bonds. Yields on British, German and Japan sovereign debt had all hit record lows while long-dated U.S. and Australian yields reached their lowest since 2012. Asian share markets were mixed with Japan’s Nikkei recouping a sliver of its recent hefty losses. MSCI’s index of Asia-Pacific shares outside Japan slipped 0.6% to a nine-month trough. In Europe, the FTSE is seen opening down 0.9%, the DAX 1.2% and the CAC 1.6%. The stakes were all the greater as the U.S. Federal Reserve’s last policy meeting of the year could well see it drop a commitment to keeping rates low for a “considerable period”.

That would be taken as a step toward raising interest rates, even as growth in the rest of the world sputters and falling commodity prices add to the danger of disinflation. A new wrinkle was the risk of financial contagion spreading from Russia where an emergency hike in interest rates failed to stop the ruble’s descent to new lows. It was quoted around 68.00 to the dollar, having been as far as 80.00 at one stage on Tuesday as speculation mounted that Moscow will have to tighten further or perhaps impose capital controls. The urge to close leveraged positions caused collateral damage to the dollar as investors had been very long of the currency in anticipation of further gains, and helped the euro up to $1.2510.

The rush from risk tended to benefit the safe haven yen, with the dollar back at 116.79 having been atop 118.00 on Tuesday. The commodity linked Australian dollar also took a dive to a five-year trough of $0.8157. A year-end dearth of liquidity was leading to wild moves in even the most staid of assets. The oil-exposed Norwegian crown for instance, hit an all time low by one measure on Tuesday after carving out the widest daily trading range since the global financial crisis. “The combination of the rouble crisis and poor liquidity broadly resulted in a period of total dysfunction across global FX and rate markets,” reported analysts at Citi.

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Exposure to Russia is huge for European banks, when compared to US banks. Europe may well turn on the US over sanctions.

Raiffeisen, SocGen Plummet as Ruble Slide Triggers Bank Worries (Bloomberg)

Raiffeisen Bank and Societe Generale, the European banks with most at stake in Russia, led European lenders lower as the ruble continued its slide today, defying a surprise rate increase. Raiffeisen fell as much as 10.3% to 11.40 euros in Vienna, the lowest level since it went public in 2005. Societe Generale dropped as much as 7.3% to €31.85, hitting the lowest intraday level since August 2013. The STOXX 600 Banks index was 1.4% lower at 2:25 p.m. in London. “More fundamental concerns are building over the outlook for Russia’s economy and the likely policy response,” Neil Shearing, an economist at Capital Economics in London, wrote in a note to clients.

“There remains a huge amount of uncertainty at this juncture, but the key point is that there are no benign scenarios. Even if the ruble does stabilize over the coming weeks, the economic crisis facing Russia has much further to run.” Societe Generale is the bank that has the biggest absolute exposure to Russia, at €25 billion ($31 billion), according to Citigroup analysts. That’s equivalent to 62% of the Paris-based bank’s tangible equity. Raiffeisen has €15 billion at risk in Russia, almost twice its tangible equity, and it also has the biggest exposure to Ukraine, with €4.9 billion, according to Citigroup. UniCredit, the third European bank strongly invested in the former Soviet Union, has €18 billion at stake in Russia, or 40% of its tangible book value, Citigroup said.

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Obvious.

Plunging Ruble Unsettles Russians, Poses Test for Putin (WSJ)

As Russian President Vladimir Putin has ratcheted up the conflict with the West for most of the year, the economic fallout on ordinary Russians has been limited. Suddenly, though, the plunging ruble is reawakening fears of rising prices and the kind of financial crisis Mr. Putin has sought to put behind his country. As the ruble hit a record low, falling as much as 20% against the dollar Tuesday, Moscow residents rushed to buy electronics and other big-ticket items and drained rubles from ATMs to swap them for dollars and euros – signaling a new feeling of vulnerability among Russians and a fresh challenge to their leader. From St. Petersburg to Siberia, money changers ran out of foreign currency and were raising exchange rates. Sberbank , Russia’s state savings bank, and Alfa Bank, Russia’s largest private lender, said they were experiencing a rush for dollars and euros. “

The demand is enormous. People are bringing piles, huge piles of cash. It is madness,” said Kamila Asmalova, a manager at Sberbank. The branch ran out of foreign currency by 2 p.m., she said. Lanta Bank, a midsize Moscow lender, said its foreign counterparts would be unable to send foreign currency Wednesday as aircraft that typically transport cash are full. Apple said it halted online sales in the country because of the ruble’s volatility, and IKEA announced it would raise prices there. The ruble’s continued fall despite the Russian central bank’s move to raise interest rates to 17% rippled across global markets Tuesday, fueling a selloff in emerging market currencies and stocks. [..] economists say the Russian central bank’s rate gambit is certain to push the country’s faltering economy into recession by raising borrowing costs. Even before the rate increase, the central bank estimated the economy could contract as much as 4.7% next year if oil remains around $60 a barrel.

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And those trusts were very important in developing the country.

Feast Turns To Famine For China Trusts (FT)

China’s once high-flying trust industry has seen its fortunes reverse this year as a slowing economy and competition for investor funds curb growth. Trust loans outstanding increased for 33 straight months through June this year, helping China’s trust sector surpass the insurance industry as the largest category of financial institution by assets, behind commercial banks. But figures released on Friday showed trust loans falling for a fifth straight month, the longest run of declines since 2010. Overall trust assets, which include loans, publicly traded securities and private equity-style investments, rose at their slowest pace in over two years in the third quarter, figures from the China Trustee Association show.

“The economy has cooled down,” said Deng Jugong, a senior trust industry executive who asked that his employer not be named. “Companies’ demand for finance isn’t very intense.” Just a year ago, trust companies were riding a wave of growth. In 2010, as regulators tried to rein in the explosion in bank credit resulting from the country’s 4 trillion yuan ($645 billion) economic stimulus plan, banks turned to trusts to help them comply with lending controls. Trust companies bought loans from banks and packaged them into high-yielding wealth management products, which they marketed to bank clients as a higher yielding substitute for traditional savings deposits. Trust assets surged to 10.3 trillion yuan at the end of 2013, from just 2.9 trillion yuan in 2011.

Now, however, the central bank has cut interest rates and is urging banks to lend more in a bid to temper an investment slowdown in real estate and manufacturing. “We can’t even push our own loans out the door,” said a banker in Shanghai. “Where are we going to find projects to make trust loans?” At the same time, trust companies are facing increased competition from upstart firms offering savers new forms of high-yielding investment products. Ironically, trust companies — which were often accused of regulatory arbitrage for performing bank-like functions free from the regulatory limits on traditional banks — are warning about the risks of even more lightly regulated peer-to-peer lenders. “As long as there’s profit to be made, people will swarm towards it like wasps,” said Mr Deng. “This P2P market looks very chaotic. But we trust companies have to get approval from the bank regulator.”

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That would be something. The numbers are wild: “The number of people moving to cities has slowed to 17 or 18 million annually, down from 20 million at the peak ..” Try that 10 years in a row.

Giant China Mall Developer Prepares For The End Of Urbanization (Reuters)

The billionaire behind shopping mall developer Dalian Wanda says China’s era of rapid urbanization will end within a decade, so he is speeding up his company’s shift toward tourism and entertainment after a $3.7 billion initial public offering. Wang Jianlin became China’s fourth-richest man in part by following the migration of 300 million people into cities. His Dalian Wanda Commercial Properties, which debuts on the Hong Kong stock exchange on Dec. 23, owns 159 Wanda Plaza shopping centers across 109 Chinese cities, including 88 projects under construction. “The industry has to seize the last 10 years to transform,” Wang told a business summit in Beijing on Saturday. “Once the urbanization rate hits around 70%, urbanization will be basically completed. Then there may be no more chances.” About 54% of China’s 1.4 billion people now live in cities, and Beijing has set a target of 60% by 2020.

City dwellers earn and spend more, which is critical as China shifts to consumption-led growth instead of manufacturing. Wang’s view is more bearish than some of his property industry peers who see the benefits of urbanization lasting longer. Yu Liang, president of China’s biggest residential developer,China Vanke, said in May that the “golden era” was over although migration to cities would boost the industry for another 15 years. The number of people moving to cities has slowed to 17 or 18 million annually, down from 20 million at the peak, said Tang Wang, a China economist at UBS in Hong Kong. A big obstacle for workers wanting to move to cities from the countryside is that the government restricts the number of people who can obtain “hukou” residency benefits such as affordable housing and schooling in metropolitan areas. “It’s not really about people going to the city but people staying in the city,” Tang said.

In the boom years, Dalian Wanda opened malls primarily in fast-growing provincial cities instead of focusing on Shanghai and Beijing. Close ties with local governments helped Wang obtain cheap land for malls, and he expanded quickly. Dubbed “Nouveau Riche Plaza” by netizens, Wanda Plazas – which typically house a cinema, children’s arcade, karaoke bar and hypermarket – are dominated by premium local and mid-tier international fashion brands. A 27% drop in first-half 2014 revenue illustrates why Dalian Wanda is keen to change course now. The company blamed fewer project completions and lower selling prices, a symptom of China’s weakening property market. “This path (of rapid expansion) cannot be sustained,” Wang said. “China’s land resources, China’s fiscal resources and China’s markets won’t be able to support it.”

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The world as a whole isn’t.

Asia Isn’t Ready for a China Crash (Bloomberg)

As China’s first full year of rebalancing draws to close, how has President Xi Jinping done? Reasonably well, it seems. Growth appears to be moderating gently, stocks continue to soar and most economists still foresee a soft landing rather than market-shaking meltdown for the world’s second-largest economy. Next year, however, Xi’s team will have to get to the hard stuff: taming an opaque, unwieldy financial system. My question isn’t so much whether China will or won’t crash. It’s whether the rest of Asia is ready for the possibility of 5% or even 4% Chinese growth, as predicted by pundits like Larry Summers and Marc Faber. It’s almost certainly not. Historically, hedge funds betting against China haven’t done very well. This week, in fact, the government is expected to revise 2013 GDP figures upward by as much as $275 billion, which on paper should help meet its target of 7.5% growth for the year.

For anyone who thinks China is operating even close to that number, though, I have two words: iron ore. Even more than the precipitous drop in oil, the halving of prices for these pivotal rocks and minerals as well as a 44% plunge in oil and tumble in coal and other commodities suggests that China may be braking rapidly. It’s important to remember that however large, China’s economy is no more developed than South Korea’s was when it imploded in 1997. The Chinese financial system is less evolved than that of the Philippines and less open than Indonesia’s. Beijing’s $3.9 trillion of currency reserves are useful when market turmoil hits, as has happened in emerging markets this week. But that stash is dwarfed by the $19 trillion in credit extended by the banking system since the 2008 Lehman crisis, according to Charlene Chu of Autonomous Research Asia. And remember: China’s vast and opaque shadow-banking system obscures Beijing’s true liabilities.

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We have hope.

Europe May Have A Big, Fat Greek Problem (MarketWatch)

Greece is back in the epicenter of a political drama, with fears that the latest development could spread to the rest of the eurozone. After the Greek government decided to push forward the date of a presidential vote, now scheduled for Wednesday, investors have been forced to consider the implications of a deadlock in parliament, which could end up leading to snap elections in January. The biggest fear is that far-left party Syriza could win an early-2015 election, fueling fresh concerns about Greece’s bailout program and whether the country will stay in the eurozone. “Recent developments in Greece are worrisome to investors. Many fear that the political challenges in Greece could lead to its ultimate exit from the monetary union and default,” analysts at Brown Brothers Harriman said in a research note earlier this week. Just how worrisome these developments are to investors is illustrated in the chart below.

Traders in Europe first got a chance to react to the news on Tuesday morning last week and the initial reaction was run. In that one day, Greece’s Athex Composite index tanked 13%, marking the worst day ever for the benchmark, according to FactSet data. It also dragged down the pan-European Stoxx Europe 600 index, which took a 2.3% dive. For the full week, the Greek index plunged 20%, making it the worst performer in Europe. The wider market rout in Europe was also partly due to the continued slump in oil prices.

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Anything to stay in power.

Samaras Seeks Greek Parliament’s Backing to Stop Syriza (Bloomberg)

Greek Prime Minister Antonis Samaras faces the first real test of sentiment among lawmakers today as he begins the process of trying to elect a new head of state. Lawmakers will hold the first of three possible votes at about 7 p.m. in Athens, with Samaras needing the support of 200 members in the 300-seat chamber to confirm his nominee, Stavros Dimas. The prime minister, whose governing coalition controls 155 votes in the parliament, needs to secure the appointment to avoid a snap election and will have his best chance of success on Dec. 29 when he’ll need the backing of just 180 lawmakers. “Most of them will be keeping their cards close to their chest,” Costas Panagopoulos, chief executive officer at Alco, an Athens-based polling company, said. “

If Dimas gets below 160 votes then things are really difficult. But essentially we’re talking about 30 or so that we’re not sure about, and they won’t reveal their intentions on the first vote.” Samaras triggered a selloff in the country’s stocks and bonds last week when he decided to bring forward the vote on a new president. Opinion polls indicate that the opposition party Syriza, which wants to roll back many of the budget cuts Samaras pushed through to obtain international aid, would start favorite. The yield on benchmark Greek 10-year bonds rose to 9.06% yesterday. Still, that was eclipsed by three-year notes yielding 10.83%, a sign that investors are concerned the government may default.

The Athens Stock Exchange index, which dropped 20% last week, fell 0.3%. A tally of more than 170 votes for Samaras’s candidate would be positive for markets, according to Athanasios Vamvakidis, head of G-10 foreign-exchange strategy at Bank of America Merrill Lynch in London. “What could improve the government’s chances is if they promise early elections in September,” he said. “That could give some independents and smaller parties an excuse to argue they just want to address the negative market reaction.”

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“Exploiting the democratic deficit means turning a rubber stamp into a genuine bludgeon to impoverish society.”

Brussels: Austerity Is For The Little People (RT)

With remarkable timing as nations look at belt tightening, the EU decides to expand its contentious budget once again… Exploiting the democratic deficit means turning a rubber stamp into a genuine bludgeon to impoverish society. Nowhere is this more apparent than in that most detached of anti-democratic institutions – the EU – where the political class are locked in a consistently pointless “something must be done” spiral, creating endless edicts, red tape, and spending which almost, but not quite, entirely fails to sustainably help anybody or anything. When it comes to absurdly mismanaged institutions, the EU is a perfect storm of incompetence colliding with the defiantly ill-conceived zeitgeist of a swaggeringly arrogant caste who believe they can better spend other people’s money than the overtaxed citizens themselves.

This train crash of fiscal mismanagement on a broad European canvas has resulted in the EU racking up unpaid bills of 23.4 billion euros ($29 billion). Even as recently as 2010, the EU only owed five billion euros! To be clear, this isn’t borrowing. That is the mega-curse of spendthrift national governments after decades of indulging in unsustainable spending programs. Rather, this is just unpaid bills – you know, for multiple presidents and their motorcades or private jets – not to mention subsidizing nebulous projects across the EU and indeed beyond (half a billion on puppet theaters and agitprop in Ukraine in recent years, for instance). Oddly enough, the EU’s own auditors remain spectacularly unimpressed by the lack of sound financial controls. They have to date failed to sign off any EU accounts for the past 19 years (out of 19 audits…at least Brussels is somehow consistent).

The whole issue underpins not merely the sheer fecklessness of the dysfunctional EU apparatus, but this rampant incompetence clearly sews the seeds for the pompous “union’s” upcoming demise. After months of wrangling and demands by national government leaders that the EU budget must be clipped to reflect the straitened times, European politicians have just reached an agreement on a new budget for 2015 which neatly demonstrates the remoteness of the Brussels bubble from the reality of life stranded in Europe’s lost decade amongst the continent’s unemployed millions. The blob wins again – and in true EU fashion, the MEPs will rubber stamp the deal next week when the EuroParliament spends another wasteful week in Strasbourg.

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The UK has placed an insane bet on being the no. 1 finance center. The degree of insanity shows in state-backed banks barely passing a moderate stress test.

UK Bank Stress Tests: RBS And Lloyds Struggle While Co-Op Fails (Independent)

Lloyds and Royal Bank of Scotland have barely managed to pass stress tests by the Bank of England examining their resilience in a doomsday scenario of plunging house prices and rising rates. Meanwhile, the Co-op Bank, which had warned that it was likely to fail, was the only one of eight lenders involved to slip up, RBS secured what amounted to a pass only by taking measures to update its capital plan while the tests were held in April. Co-op is working on a new set-up, but it is not expected to have to raise fresh funds even though the tests found its capital would be all but exhausted in the Bank’s stress scenario. Threadneedle Street does not like to talk in terms of pass and fail, but the wafer-thin margins by which the two state-backed banks got through raised concerns in the City over how long it will take for them to start paying dividends again. Both will have to secure permission from the Prudential Regulation Authority, which will make the decision at board level.

Critics said the tests demonstrated that the taxpayer will still ultimately have to act as back-stop in a repeat of the financial crisis of 2007-08. The tests gauged banks’ ability to withstand a 35% fall in house prices and a spike in inflation leading to a rise in interest rates to 4.2%. They were significantly tougher than those imposed by Europe last year. RBS, Lloyds and Co-op were always going to find them difficult because they are more exposed to the housing market than other British banks and are still rebuilding their capital. The trio said they are stronger than they were at the start of the process. Bank of England governor Mark Carney described the exercise as “a demanding test”. He added: “The results show that the core of the banking system is significantly more resilient, that it has the strength to continue to serve the real economy even in a severe stress, and that the growing confidence in the system is merited.”

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“Philanthropy points to weaknesses in the taxation system in redistributing wealth and financing social projects.”

Philanthropy’s Not Just Charity From The Rich: It’s Self-Serving (Satyajit Das)

In an environment of concern about growing inequality, plutocrats, the top 1% or perhaps 0.1% of the population, argue that philanthropy can address the issue of income and wealth distribution, financing initiatives in a variety of social and cultural areas. In reality, it is an exercise in damage control against any backlash by the less well-off. Its perspectives are self-serving, promoting views beneficial to the business and financial interests of the wealthy. The paradox of philanthropy is that enrichment by various means paves the way for conspicuous generosity. A blogger put it more bluntly: “The uber-rich try to do good once they have done their damage… I admire [Bill] Gates and [Warren] Buffett for their generosity… but loathe the system that put them at the top of the food chain.” It is trickle-down economics.

As the humourist Will Rogers joked during the Great Depression: “Money was all appropriated for the top in hopes that it would trickle down to the needy.” Few individuals or corporations “give away” their money. It is placed in tax-efficient trusts or foundations, with the donor retaining substantial control. Contributions are generally tax deductible or protect wealth from the ravages of death, inheritance or estate duties. The trust or foundation also provides employment and status for the donor, his or her family and associates. Donations and good works ensure business advantages and a post-retirement role. Many legally reduce their tax liabilities. Increasingly, sophisticated international tax planning allows profits to be shifted from high-tax to low-tax jurisdictions, using licensing of registered patents, copyrights or trademarks, or intra-group financing arrangements.

Stateless and virtual internet-based firms have become masters of tax as well as information technology. They claim that they are not “doing evil”, rather engaging in “self-taxation”, substituting philanthropic contributions for taxes. This allows them to target areas of specific interest to their owners and managers. In effect, private interests, rather than elected governments, determine how our taxes should be spent. Philanthropy points to weaknesses in the taxation system in redistributing wealth and financing social projects. It undermines government policy, allowing private interests to determine priorities. Donors are free to channel funds to their chosen causes, some noble, some hubristic and some just plain odd. The investment banker Ace Greenberg donated $1m to a hospital so that homeless men could get free Viagra.

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Time to start a camel import business.

California’s Water Woes Quantified (BBC)

Scientists have assessed the scale of the epic California drought and say it will require more than 40 cubic km of water to return the US state to normal. The figure was worked out by weighing the land from space. The American West Coast has been hit by big storms in recent days, but this rainfall is only expected to make a small dent in California’s problems. Researchers described their research at the American Geophysical Union’s Fall Meeting in San Francisco. The US space agency (Nasa) used its Gravity Recovery and Climate Experiment (Grace) satellites in orbit to help make the calculations. These spacecraft measure the very subtle variations in Earth’s gravity as they fly around the globe. This shifting tug results from changes in mass, and this is influenced by the rise and fall in the volume of water held in the land.

Figures quoted by Nasa on Tuesday are for California’s Sacramento and San Joaquin river basins – the state’s “water workhorses”. Grace data indicates total water storage in these basins – that is all snow, surface water, soil moisture and ground water combined – has plummeted by roughly 15 cubic km a year. This number is not far short of all the water that runs through the great Colorado River (nearly 20 cubic km), which is one of the primary sources for import into the state. Jay Famiglietti from Nasa’s Jet Propulsion Laboratory (JPL) in Pasadena, California said: “We’ve shown that it’s now possible to explicitly quantify previously elusive drought indictors like the beginning of the drought or the end of the drought, and importantly the severity of the drought in any point in time.

“That is, we can now begin to answer the question: how much water will it take to end the drought? “We show for the current drought this quantity peaked in 2014 at 42 cubic km of water. That’s 11 trillion gallons, or about one-and-a-half times the volume of Lake Mead. “So, no – the recent rains have not put an end to the current drought at all, but they are certainly welcome.” Rather worryingly, a lot of the deficit – two-thirds – is accounted for by reductions in ground water, which constitutes an unsustainable level of extraction. “Ground water is a strategic reserve in times of drought and we need to be very careful how we manage it,” Dr Famiglietti told BBC News.

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