Jul 102017
 
 July 10, 2017  Posted by at 9:15 am Finance Tagged with: , , , , , , , ,  4 Responses »
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Fred Lyon Anne Lyon getting into her Riley on Nob Hill, San Francisco 1950s

 

Propaganda-ville (Robert Parry)
Trump Cannot Improve Relations With Russia (PCR)
Comey’s Leaked Trump Memos Contained Classified Information (ZH)
Tales from the FOMC Underground (PT)
Stock Market Tsunami Siren Goes Off (WS)
America Is Struggling With Economic Rot (BBG)
May Appeals To Corbyn For Help In Coming Up With New Ideas (Ind.)
US-Russian Ceasefire Deal Holding In Southwest Syria (R.)
The Lynx Could Return To UK Within Months After 1,300-Year Absence (Ind.)

 

 

When slow news becomes no news. I must have seen 100 different versions of the non-story of one of Trump’s not-so-bright sons meeting with a Russian lady, a story that’s supposed to prove what nothing else has yet proven, not even Bob Mueller, Russian meddling. Yeah, Russia spies, and it hacks, and so does everyone else. But that’s clearly not news, and you can’t make it so be endlessly repeating it. That Comey leaked classified information is apparently much less newsworthy. Only, it is not. It just serves the machine to a lesser degree. Be careful, America, or you’ll have no news sources left soon. Not a great prospect.

Propaganda-ville (Robert Parry)

As much as the U.S. mainstream media wants people to believe that it is the Guardian of Truth, it is actually lost in a wilderness of propaganda and falsehoods, a dangerous land of delusion that is putting the future of humankind at risk as tension escalate with nuclear-armed Russia. This media problem has grown over recent decades as lucrative careerism has replaced responsible professionalism. Pack journalism has always been a threat to quality reporting but now it has evolved into a self-sustaining media lifestyle in which the old motto, “there’s safety in numbers,” is borne out by the fact that being horrendously wrong, such as on Iraq’s WMD, leads to almost no accountability because so many important colleagues were wrong as well.

Similarly, there has been no accountability after many mainstream journalists and commentators falsely stated as flat-fact that “all 17 U.S. intelligence agencies” concurred that Russia did “meddle” in last November’s U.S. election. For months, this claim has been the go-to put-down whenever anyone questions the groupthink of Russian venality perverting American democracy. Even the esteemed “Politifact” deemed the assertion “true.” But it was never true. It was at best a needled distortion of a claim by President Obama’s Director of National Intelligence James Clapper when he issued a statement last Oct. 7 alleging Russian meddling. Because Clapper was the chief of the U.S. Intelligence Community, his opinion morphed into a claim that it represented the consensus of all 17 intelligence agencies, a dishonest twist that Democratic presidential candidate Hillary Clinton began touting.

However, for people who understand how the U.S. Intelligence Community works, the claim of a 17-agencies consensus has a specific meaning, some form of a National Intelligence Estimate (or NIE) that seeks out judgments and dissents from the various agencies. But there was no NIE regarding alleged Russian meddling and there apparently wasn’t even a formal assessment from a subset of the agencies at the time of Clapper’s statement. President Obama did not order a publishable assessment until December – after the election – and it was not completed until Jan. 6, when a report from Clapper’s office presented the opinions of analysts from the Central Intelligence Agency, Federal Bureau of Investigation and the National Security Agency – three agencies (or four if you count the DNI’s office), not 17.

The report also contained no hard evidence of a Russian “hack” and amounted to a one-sided circumstantial case at best. However, by then, the U.S. mainstream media had embraced the “all-17-intelligence-agencies” refrain and anyone who disagreed, including President Trump, was treated as delusional. The argument went: “How can anyone question what all 17 intelligence agencies have confirmed as true?” It wasn’t until May 8 when then-former DNI Clapper belatedly set the record straight in sworn congressional testimony in which he explained that there were only three “contributing agencies” from which analysts were “hand-picked.”

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Paul Craig Roberts lays it on. A bit much if you ask me, but then so is everything else.

Trump Cannot Improve Relations With Russia (PCR)

On the same day that President Donald Trump said “it is time to move forward in working constructively with Russia,” and the day after he said “I had a tremendous meeting yesterday with President Putin,” the ignorant, stupid, Nikki Haley, who Trump appointed as US UN Ambassador, publicly contracted her president, forcefully stating: “we can’t trust Russia and we won’t ever trust Russia.” The ignorant stupid Haley is still in office, a perfect demonstration of Trump’s powerlessness. The ignorant stupid Haley has gone far beyond Obama’s crazed UN Ambassador, neocon Smantha Power in doing everything in her power to ruin the prospect of normal relations between the two major nuclear powers. Why does Nikki Haley work in favor of a confrontation between nuclear powers that would destroy all life on earth?

What is wrong with Nikki Haley? Is she demented? Has she lost her mind, assuming she ever had one? How can President Trump normalize relations with Russia when every one of his appointees wants to worsen the relations to the point of nuclear war? How is President Trump going to improve relations with Russia when President Trump stands powerless in face of his dressing down by his UN Ambassador? Clearly, Trump is powerless, a mere cipher. Joining Nikki Haley was Trump’s Secretary of State, Rex Tillerson. Tillerson, allegedly a friend of Russia, is also working overtime to worsen relations between the two nuclear powers by publicly contradicting the President of the United States, thereby making it clear that Trump is barely even a cipher.

Tillerson, a disgrace, said that Putin’s refusal to admit that Putin elected Trump by interferring in the US election “stands as an obstacle to our ability to improve the relationship between the US and Russia and it needs to be addressed in terms of how we assure the American people that interference into our eletions will not occur by Russia or anyone else.” Trump’s incompetence is illustrated by his appointments. There is no one in “his” government that supports him. Everyone of them works to undermine him. And he sits there and Twitters. So, what is President Putin’s belief that an understanding can now be worked out with Washington worth? Not a plugged nickel. Trump has zero authority over “his” government. He can be contradicted at will by his own appointees. The President of the United States is a joke.

You can find him on Twitter, but nowhere else, not in the Oval Office making foreign or military policy. The president Twitters and thinks that that is policy. The Trump administration was destroyed when the weak Donald Trump allowed the neoconservatives to remove his National Security Advisor, General Flynn. Trump has never recovered. “His” administration is staffed with violent Russophobes. Wars can be the only outcome. We know two things about the alleged Russian inteferrance in the Trump/Hillary presidential election. One is that John Brennan, Obama’s CIA director, and Comey, Obama’s FBI director, implied repeatedly that Trump was elected by Russian interference in the election, but neither the CIA nor the FBI have provided any evidence whatsoever that any such interference occurred. Indeed, months into the case, the special prosecutor, the former FBI director, can produce no evidence.

The whole thing is a sham, but it is ongoing. There will be no end to it as it is designed to undermind President Trump with the people who elected him. The message is: “Trump is not for America. Trump is for Russia.”

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Is Muelller going to investigate Comey soon?

Comey’s Leaked Trump Memos Contained Classified Information (ZH)

Comey’s troubles started when he testified under oath last month that he considered the memos he prepared to be personal documents and that he shared at least one of them with a Columbia University lawyer friend. As Comey later disclosed, he asked that lawyer to leak information from one memo to the news media in hopes of increasing pressure to get a special prosecutor named in the Russia case after Comey was fired as FBI director. The Hill recounts that particular exchange with Senator Roy Blunt: “So you didn’t consider your memo or your sense of that conversation to be a government document?,” Sen. Roy Blunt (R-Mo.) asked Comey on June 8. “You considered it to be, somehow, your own personal document that you could share to the media as you wanted through a friend?”

“Correct,” Comey answered. “I understood this to be my recollection recorded of my conversation with the president. As a private citizen, I thought it important to get it out.” Comey insisted in his testimony he believed his personal memos were unclassified, though he hinted one or two documents he created might have been contained classified information. “I immediately prepared an unclassified memo of the conversation about Flynn and discussed the matter with FBI senior leadership,” he testified about the one memo he later leaked about former national security adviser Lt. Gen. Michael Flynn. Additionally, he added, “My view was that the content of those unclassified, memorialization of those conversations was my recollection recorded.”

That’s when the problems escalated, because according to The Hill – which for the first time disclosed that the total number of memos linked to Comey’s nine conversations with Trump – when the seven memos Comey wrote regarding his nine conversations with Trump about Russia earlier this year were shown to Congress in recent days, the FBI claimed all were, in fact, deemed to be government documents. Oops. As The Hill reveals, four, or more than half, of the seven memos had markings making clear they contained information classified at the “secret” or “confidential” level, according to officials directly familiar with the matter. This is a major problem for Comey because FBI policy forbids any agent from releasing classified information or any information from ongoing investigations or sensitive operations without prior written permission, and mandates that all records created during official duties are considered to be government property.

“Unauthorized disclosure, misuse, or negligent handling of information contained in the files, electronic or paper, of the FBI or which I may acquire as an employee of the FBI could impair national security, place human life in jeopardy, result in the denial of due process, prevent the FBI from effectively discharging its responsibilities, or violate federal law,” states the agreement all FBI agents sign. FBI policy further adds that “all information acquired by me in connection with my official duties with the FBI and all official material to which I have access remain the property of the United States of America” and that an agent “will not reveal, by any means, any information or material from or related to FBI files or any other information acquired by virtue of my official employment to any unauthorized recipient without prior official written authorization by the FBI.”

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“..Not since Herbert C. Hoover has there been a more perfect scapegoat for an economic depression of the Fed’s making.”

Tales from the FOMC Underground (PT)

“What should we do?” began Yellen. “A decade of easy monetary policies has turned financial markets into a Las Vegas casino while the economy’s lazed around like my smelly house cats. What the heck was Bernanke thinking?” “Hell, Janet,” remarked New York Fed President William Dudley. “He wasn’t thinking. He soiled his pantaloons and then he soiled them again.” “So now we must clean up his stinky pile while he promotes his revisionist courage to act shtick. The reality is we must orchestrate a take-down of financial markets, and we must do it by year’s end.” “Well, gawd damn Bill!” barked St. Louis Fed President James Bullard. “With the exception of Neel, the $700 billion dollar bailout boy, don’t you think we all know that?”

“Hey, now!” interjected Minneapolis Fed President Neel Kashkari. “Don’t blame me. I was just carrying out Hank Paulson’s will, right Bill? Saving our boys’ bacon back at Goldman so they could continue doing god’s work.” “Besides Fish, it was you all who lined up behind Bernanke and tickled the poodle with his crazy QE experiment while I was busy chopping wood at Donner Pass and getting my fanny spanked in the California Governor’s race by retread Jerry Moonbeam Brown, of all people.” “Fair enough,” continued Bullard. “The point is, taking down the stock market will cause an extreme upset to the economy’s applecart. The mobs will come after us with torches and pitchforks.” “You see, the real trick is to do the dirty deed then disappear behind a fog of confusion. That’s what Greenspan would do. How can we pull that off?”

After a moment of silent contemplation, and a licked finger held up to the cool political winds drafting across the country… “Eureka! We can pin it on President Donald J. Trump!” exclaimed Chicago Fed President Charles Evans. “Could our good fortune be any better? Not since Herbert C. Hoover has there been a more perfect scapegoat for an economic depression of the Fed’s making.” “Hear, hear!” approved Yellen. “Damn the economy,” they bellowed in harmony… minus Kashkari. “This one’s on Trump!” “Bill, one last thing,” closed Yellen. “After the meeting, remember to give the public that shake n’ bake you dreamed up about crashing unemployment. We have to give off an air of being data dependent.” “That misdirection should twist them up until NFL football starts. Shortly after that, our work will be done…” “…and by the New Year, Congress and Joe public will be begging us to rescue the economy from the Fed’s… I mean… Trump’s disastrous economic program.”

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Earnings vs S&P. Something will give.

Stock Market Tsunami Siren Goes Off (WS)

Everyone who’s watching the stock market has their own reasons for their endless optimism, their doom-and-gloom visions, their bouts of anxiety that come with trying to sit on the fence until the very last moment, or their blasé attitude that nothing can go wrong because the Fed has their back. But there are some factors that are like a tsunami siren that should send inhabitants scrambling to higher ground. Since July 2012 – so over the past five years – the trailing 12-month earnings per share of all the companies in the S&P 500 index rose just 12% in total. Or just over 2% per year on average. Or barely at the rate of inflation – nothing more. These are not earnings under the Generally Accepted Accounting Principles (GAAP) but “adjusted earnings” as reported by companies to make their earnings look better.

Not all companies report “adjusted earnings.” Some just stick to GAAP earnings and live with the consequences. But many others also report “adjusted earnings,” and that’s what Wall Street propagates. “Adjusted earnings” are earnings with the bad stuff adjusted out of them, at the will of management. They generally display earnings in the most favorable light – hence significantly higher earnings than under GAAP. This is the most optimistic earnings number. It’s the number that data provider FactSet uses for its analyses, and these adjusted earnings seen in the most favorable light grew only a little over 2% per year on average for the S&P 500 companies over the past five years, or 12% in total. Yet, over the same period, the S&P 500 Index itself soared 80%.

And these adjusted earnings are now back where they’d been on March 2014, with no growth whatsoever. Total stagnation, even for adjusted earnings. And yet, over the same three-plus years, the S&P 500 index has soared 33%. This chart shows those adjusted earnings per share for all S&P 500 companies (black line) and the S&P 500 index (blue line). I marked July 2012 and March 2014:

Given that there has been zero earnings growth over the past three years, even under the most optimistic “adjusted earnings” scenario, and only about 2% per year on average over the past five years, the S&P 500 companies are not high-growth companies. On average, they’re stagnating companies with stagnating earnings. And the price-earnings ratio for stagnating companies should be low. In 2012 it was around 15.5. Now, as of July 7, it is nearly 26. In other words, earnings didn’t expand. The only thing that expanded was the multiple of those earnings to the share prices – the P/E ratio. Such periods of multiple expansion are common. They’re part of the stock market’s boom and bust cycle. And they’re invariably followed by periods of multiple contraction. How long can this period of multiple expansion go on? That’s what everyone wants to know. Projections include “forever.” But “forever” doesn’t exist in the stock market. The next segment of the cycle is a multiple contraction.

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The incessant call far a return to normal. There’s no such thing. The economy never recovered.

America Is Struggling With Economic Rot (BBG)

The Great Recession, and the financial crisis that preceded it, were such enormous and terrible events that they occupied most of our economic thinking for a decade. But now that the smoke has cleared and the economy has returned to a semblance of normality, we’re starting to think more about long-term trends. And evidence is mounting that the Great Recession may have drawn attention away from a slow rot that has been eating the U.S. economy since the turn of the century. Some of the top macroeconomists in the business have a new paper that reaches this conclusion. In “The Disappointing Recovery of Output after 2009,” John G. Fernald, Robert E. Hall, James H. Stock and Mark W. Watson break down the declines in growth and employment into a structural, long-term component and a short-term part related to the crash.

That’s an inherently hard thing to do, since there’s no universally accepted theory of how recessions work. But Fernald et al. use two accounting methods, and find basically the same thing – although the recession hurt the economy a lot, it happened to coincide with two trends that were slowly eroding the U.S.’s fundamentals. Those two trends are slowing productivity and reduced labor-force participation. Slow productivity growth is hardly news – Bloomberg View recently ran a whole series of articles about the phenomenon. This unhappy trend appears to have begun three years before the financial crisis:

As for labor-force participation, this has been falling since the turn of the century, though the last two years have seen a small uptick:

Both of these trends might have been exacerbated by the Great Recession. That economic disaster caused businesses to stop investing, which may have deprived them of the technology needed to increase productivity. Workers thrown out of employment by the recession might have seen their skills, connections and work ethic degrade, preventing them from going back to work even after the economy recovered.

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His advise: call a snap election.

May Appeals To Corbyn For Help In Coming Up With New Ideas (Ind.)

Theresa May is to insist she has the right vision for Britain and an “unshakeable sense of purpose” to build a fairer nation as she launches a fightback after her General Election gamble backfired. The Prime Minister will acknowledge that the loss of her Commons majority means she will have to adopt a different approach to government, signalling she is prepared to “debate and discuss” ideas with her opponents. But amid rumours of unrest within Tory ranks about her position, Ms May will insist her commitment is “undimmed” almost 12 months after entering Number 10 as Prime Minister. Her comments in a speech on Tuesday will be viewed as an attempt to relaunch her premiership after the humiliation of the election result and the need to strike a deal with the Democratic Unionist Party to prop up her administration in the Commons.

Ms May will return to her core message from when she succeeded David Cameron: a “commitment to greater fairness” and tackling “injustice and vested interests” in recognition that the EU referendum result was a “profound call for change across our country”. She will say: “Though the result of last month’s General Election was not what I wanted, those defining beliefs remain, my commitment to change in Britain is undimmed; my belief in the potential of the British people and what we can achieve together as a nation remains steadfast; and the determination I have to get to grips with the challenges posed by a changing world never more sure. “I am convinced that the path that I set out in that first speech outside Number 10 and upon which we have set ourselves as a Government remains the right one.

“It will lead to the stronger, fairer Britain that we need.” The fragile nature of Ms May’s position in the Commons will not stop her being “bold”, she will insist. “I think this country needs a Government that is prepared to take the bold action necessary to secure a better future for Britain and we are determined to be that Government. “In everything we do, we will act with an unshakeable sense of purpose to build the better, fairer Britain which we all want to see.”

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Hard to believe.

US-Russian Ceasefire Deal Holding In Southwest Syria (R.)

A U.S.-Russian brokered ceasefire for southwest Syria held through the day, a monitor and rebels said on Sunday, in the first peacemaking effort of the war by the U.S. government under President Donald Trump. The United States, Russia and Jordan reached the “de-escalation agreement,” which appeared to give Trump a diplomatic achievement at his first meeting with Russian President Vladimir Putin at the G20 summit in Germany this week. The Syrian Observatory for Human Rights, a Britain-based war monitor, said “calm prevailed” in the southwest since the truce began at noon (0900 GMT) on Sunday despite minor violations. Combatants briefly exchanged fire in Deraa province and in Quneitra around midnight, but this “did not threaten the ceasefire,” said Observatory Director Rami Abdulrahman.

Major Issam al Rayes, spokesman of the Southern Front coalition of Western-backed rebel groups, said “a cautious calm” continued into the evening. “The situation is relatively calm,” Suhaib al-Ruhail, a spokesman for the Alwiyat al-Furqan faction in Quneitra, said earlier. Another rebel official, in Deraa city, said there had been no significant fighting. It was quiet on the main Manshiya front near the border with Jordan, which he said had been the site of some of the heaviest army bombing in recent weeks. “Syrian ceasefire seems to be holding … Good!” Trump tweeted on Sunday. A Syrian official indicated that Damascus approved of the ceasefire deal, describing the government’s silence over it as a “sign of satisfaction.” “We welcome any step that would cease the fire and pave the way for peaceful solutions,” the government official told Reuters.

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Majestic animal. But 1,300 years is a big gap.

The Lynx Could Return To UK Within Months After 1,300-Year Absence (Ind.)

The Eurasian lynx could be stalking through British woodlands within months after plans were submitted to reintroduce the species, absent from Britain for about 1,300 years. Campaigners have applied for a licence to import six of the wildcats, which were hunted to extinction in the UK, and release them in Northumberland’s Kielder Forest. The Lynx Trust said the animals, which can grow to 1.3m in length, “belong” in Britain and there was a “moral obligation” to bring them back. The cats’ return would also generate millions of pounds for rural communities by attracting tourists, according to the group. But the proposal has met with opposition from sheep farmers, who claim their livestock would be put at risk.

The scheme would initially involve six lynx, four females and two males, being imported from Sweden and fitted with GPS tracking collars for a five-year trial. The trust applied to Natural England for permission to release the cats after it carried out an 11-month consultation. No date has been set for the proposed reintroduction but they cats could return to the UK by the end of 2017 if the plans are approved. The trust said in a statement: “In many other countries Eurasian lynx reintroduction has proven exceptionally low-conflict and wonderfully beneficial for the local communities that live alongside them, and we do sincerely hope that these cats, which thrived here for millions of years, do have the opportunity to prove they can still fit into both our ecology, and alongside local communities like those across the Kielder region.”

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Mar 252017
 
 March 25, 2017  Posted by at 9:07 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Dorothea Lange Drought hit OK farm family on way to CA 1936

 

With Health Bill Down, Trump Can Still Unleash HHS To Bedevil Obamacare (MW)
The Heart Of The American Dream Has Stopped Beating (DiMartino Booth)
Pension Crisis Too Big for Markets to Ignore (Danielle DiMartino Booth)
The Swamp Drains Trump (Jim Kunstler)
It Was A Very Bad Earnings Season (Snider)
Flynn and Turkish Officials Discussed Kidnapping Erdogan Foe From US (WSJ)
A ‘Deaths Of Despair’ Crisis Is Gripping America (BI)
New Canadian Budget Drops Obsession With Balanced Budgets (Star)
US Debt of $20 Trillion Visualized in Stacks of Physical Cash (Demonocracy)
The Pound Is Going To Take A Huge Hit, According To Deutsche Bank (Ind.)
Leaving Euro Would Not Help France And Italy – ECB Chief Economist (Ind.)
Greece to Break Off Face-to-Face Talks With Creditors (BBG)
Where Next For Greece? (Makropolis)

 

 

Big defeat. But not a knock-out. Trump needs better advisers.

With Health Bill Down, Trump Can Still Unleash HHS To Bedevil Obamacare (MW)

In a spectacular turn of events, a shortage of support prompted Republican leadership to pull their health-care plan from a House of Representatives vote on Friday. The move means that the Affordable Care Act, also know as Obamacare, will remain in place “for the foreseeable future,” according to House Speaker Paul Ryan. Democrats, ACA supporters and opponents of the Republican American Health Care Act quickly hailed the development as a victory. But what was a legislative battle now is likely to move into the executive realm and the Department of Health and Human Services, led by longtime ACA opponent Dr. Tom Price. Experts say there is plenty that President Donald Trump’s administration can do to undermine the ACA. And any poor deterioration in the performance of the ACA could give Republicans a new opening: Trump indicated Friday that he might re-visit health care after Obamacare “explodes.”

“It’s going to be interesting to see how they balance the responsibility for ensuring the government functions with their hatred for the law,” said Spencer Perlman, director of health-care research at Veda Partners. “If they want to completely sabotage it they probably could, and call it a self-fulfilling prophecy.” The latter is all the more likely because the ACA works best with the help of administrative support and resources. Think of the ACA as a plant, one that requires light and tending-to, that gets inherited by a downright hostile owner. The best example of this occurred during enrollment for 2017 exchange plans. The months-long enrollment period began under former President Barack Obama’s administration, which passed the ACA, and ended under President Trump’s administration.

Enrollment, which had looked like it was on track to surpass previous years, dropped off following the transition, which many attributed to a dearth of marketing and promotional activity under Trump. Plus, the ACA’s problems — which may have helped elect Trump — still exist. Many insurers, including UnitedHealth, Humana and Aetna have exited the exchanges on which many participants purchase health insurance, contributing to a 25% on average increase in premiums. “The biggest thing that needs to be done is figuring out some way to attract young, healthy people” to exchange plans, Perlman said. But HHS, under Price’s leadership, seems unlikely to try to improve the law. And “purposefully sabotaging the exchanges and the ACA probably isn’t difficult,” said Perlman. And for that matter, HHS is “probably the only game in town right now” that can do it.

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“..55% of mortgages in active foreclosure were originated between 2004 and 2008..”

The Heart Of The American Dream Has Stopped Beating (DiMartino Booth)

According to ATTOM Data Solutions, the new parent company of RealtyTrac, default notices, scheduled auctions and bank repossessions slid to 933,045 last year, the lowest tally since the 717,522 reported in 2006. Is the final chapter written? Not if you live in judicial foreclosure states such as New York, New Jersey and Florida where ‘legacy’ foreclosures take years to clear. At the end of last year, 55% of mortgages in active foreclosure were originated between 2004 and 2008. Factor in what’s still in the pipeline and one in ten circa 2006 homeowners will have lost their homes before it is all said and done. That helps explain one part of the chart below which was generously shared with me by one Dr. Gates. Longtime readers of these missives will recognize the nom de plume of my inside-industry economic sleuth. His first take on this sad visual, was that, “The heart of the American Dream has stopped beating.” Did that stop your heart as it did my own?

As you can see, after a steady 40-year build, owner-occupied housing has stagnated and sits at the lowest level since 2004. This has sent the homeownership rate crashing to 63.4%, the lowest since 1967. It would be nice to think that things were looking up for would-be homeowners. But it’s difficult to be overly optimistic when the local newspaper reports that house flipping in the Dallas-Ft. Worth area rose 21% in 2016, seven times the national rate. In all, 193,000 properties nationwide were flipped for a quick inside-12-months profit last year, a 3.1 increase to a nine-year high. Moreover, the median age of a flipped home rose to a two-decade high of 37 years, about double the median age of homes flipped before the crisis hit. That translated into a median gross profit of $69,624 on a median selling price of $189,900 in 2016, a neat 49.2% margin, the highest on record. Awesome!

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Very good -and scary- from Danielle DiMartino Booth. I’ve often asked: what happened to pension funds investing in AAA paper? But there’s more: without accounting tricks dominoes would already be falling. This is not some coincidence, it’s actual policy as conducted by The American Academy of Actuaries.

Pension Crisis Too Big for Markets to Ignore (Danielle DiMartino Booth)

The question is why haven’t the headlines presaged pension implosions? As was the case with the subprime crisis, the writing appears to be on the wall. And yet calamity has yet to strike. How so? Call it the triumvirate of conspirators – the actuaries, accountants and their accomplices in office. Throw in the law of big numbers, very big numbers, and you get to a disaster in a seemingly permanent state of making. Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007. Credit rating firms have begun downgrading states and municipalities whose pensions risk overwhelming their budgets. New Jersey and the cities of Chicago, Houston and Dallas are some of the issuers in the crosshairs.

Morgan Stanley says municipal bond issuance is down this year in part because of borrowers are wary of running up new debts to effectively service pensions. Federal Reserve data show that in 1952, the average public pension had 96% of its portfolio invested in bonds and cash equivalents. Assets matched future liabilities. But a loosening of state laws in the 1980s opened the door to riskier investments. In 1992, fixed income and cash had fallen to an average of 47% of holdings. By 2016, these safe investments had declined to 27%. It’s no coincidence that pensions’ flight from safety has coincided with the drop in interest rates. That said, unlike their private peers, public pensions discount their liabilities using the rate of returns they assume their overall portfolio will generate.

In fiscal 2016, which ended June 30th, the average return for public pensions was somewhere in the neighborhood of 1.5%. Corporations’ accounting rules dictate the use of more realistic bond yields to discount their pensions’ future liabilities. Put differently, companies have been forced to set aside something closer to what it will really cost to service their obligations as opposed to the fantasy figures allowed among public pensions. So why not just flip the switch and require truth and honesty in public pension math? Too many cities and potentially states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if the prevailing yields on Treasuries were used.

That would translate into much steeper funding requirements at a time when budgets are already severely constrained. Pockets of the country would face essential public service budgets being slashed to dangerous levels. What’s a pension to do? Increasingly, the answer is swing for the fences. Forget the fact that just under half of pension assets are in the second-most overvalued stock market in history. Even as Fed officials publicly fret about commercial real estate valuations, pensions have socked away 8% of their portfolios into this less than liquid asset class. Even further out on the risk and liquidity spectrum is the 10% that pensions have allocated to private equity and limited partnerships.

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“While the nation remains entertained by all this, the Potemkin financial system will wobble, crash, and burn and the humiliation of Donald Trump will be complete.”

The Swamp Drains Trump (Jim Kunstler)

One can’t help marveling at the way the “Russian interference” motif has shifted the spotlight off the substance of what Wikileaks revealed about Clinton Foundation and DNC misdeeds onto Trump campaign officials “colluding” with Russians, supposedly to support their interference in the election. It’s true that the election is way over and the public is no longer concerned with Hillary or her foundation (which is closing shop anyway). But the switcheroo is impressive, and quite confusing, considering recently retired NSA James Clapper just two weeks ago said on NBC’s Meet the Press that there was “no evidence” of collusion Between Trump and Russia. Okay… uh, say what? On Monday, FBI Director James Comey revealed that his agency had been investigating the Trump Campaign since at least last August. Is that so…? Investigating how? Some sort of electronic surveillance?

Well, what else would they do nowadays? Send a gumshoe to a hotel room where he could press his ear on a drinking glass against the wall to eavesdrop on Paul Manafort? I don’t think so. Of course they were sifting through emails, phone calls, and every other sort of electronic communication. Trump’s big blunder was to tweet that he’d been “wiretapped.” Like the FBI patched into a bunch of cables with alligator clips in the basement of Trump Tower … or planted a “bug” in the earpiece of his bedside phone. How quaint. We also don’t have ice boxes anymore, though plenty of struggling weight-watchers across the land speak guiltily of “raiding the icebox.” But if it’s true, as Mr. Comey said, that the FBI had been investigating Trump’s campaign, the people around him, and Trump himself, since August, how could they not have captured some of Trump’s conversations?

[..] So, the long and the short of it is that the RussiaGate story is spinning out of control, and Trump’s adversaries — who go well beyond Congress into the Deep State — might be getting enough leverage to dump Trump. Either they will maneuver him and his people into some kind of perjury rap, or they will tie up the government in such a web of investigative procedural rigmarole that all the country lawyers who ever snapped their galluses will never be able to unravel it. While the nation remains entertained by all this, the Potemkin financial system will wobble, crash, and burn and the humiliation of Donald Trump will be complete. Abandoned by the Republican Party, isolated and crazed in the White House, tweeting out mad appeals to heaven, he’ll either voluntarily pass the baton to Mike Pence or he will be declared unfit to serve and removed under the 25th amendment.

The after-effects of that will be something to behold: a “lose-lose” for both old-line political parties. The Trumpists will never forgive the Republican Party, and the Democrats will have gained nothing. Don’t let the door bang you on the butt on your way out.

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What a surprise.

It Was A Very Bad Earnings Season (Snider)

With nearly all of the S&P 500 companies having reported their Q4 numbers, we can safely claim that it was a very bad earnings season. It may seem incredulous to categorize the quarter that way given that EPS growth (as reported) was +29%, but even that rate tells us something significant about how there is, actually, a relationship between economy and at least corporate profits. Keynes famously said that we should never worry about the long run for there we will all be dead, but EPS has arrived at the long run and there is still quite a lot of living to do. As late as October, analysts were projecting $29 in earnings for the S&P 500 in Q4 2016. As of the middle of the earnings reports last month, that estimate suddenly dropped to just $26.37. In the month since that time, with the almost all of the rest having now reported, the current figure is just $24.15 – a decline of over $2 in four weeks. Therefore, 29% growth is hugely disappointing because it wasn’t 55% growth as was projected when the quarter began.

It is also the timing of the downgrades that is important as it relates to both “reflation” and the economy meant to support it. All throughout last year, in the aftermath of the near-recession to start 2016, EPS estimates for Q4 (and beyond) were very stable, unusually so given the recent past. That shows us how analysts, at least, were expecting the economy to go once it got past “global turmoil.” It was the “V” shaped rebound typical for past cyclical behavior. But it wasn’t until companies actually started reporting earnings that the belief was tested and then found severely lacking. With just $24.15 for Q4, total EPS was for the calendar year less than $95, the ninth straight quarter below the $100 level. More importantly, on a trailing-twelve month basis, EPS don’t appear to be in any hurry (except in future estimates) to revisit the prior peak of $106 all the way back in Q3 2014.

 

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Like a cheap crime novel: Flynn gets paid $530,000 “on behalf of an Israeli company seeking to export natural gas to Turkey”, and ends up discussing kidnapping Erdogan’s enemy. Oh, and Biden knew about this conversation. So Obama knew too.

Flynn and Turkish Officials Discussed Kidnapping Erdogan Foe From US (WSJ)

Retired Army Lt. Gen. Mike Flynn, while serving as an adviser to the Trump campaign, met with top Turkish government ministers and discussed removing a Muslim cleric from the U.S. and taking him to Turkey, according to former Central Intelligence Agency Director James Woolsey, who attended, and others who were briefed on the meeting. The discussion late last summer involved ideas about how to get Fethullah Gulen, a cleric whom Turkey has accused of orchestrating last summer’s failed military coup, to Turkey without going through the U.S. extradition legal process, according to Mr. Woolsey and those who were briefed. Mr. Woolsey told The Wall Street Journal he arrived at the meeting in New York on Sept. 19 in the middle of the discussion and found the topic startling and the actions being discussed possibly illegal.

The Turkish ministers were interested in open-ended thinking on the subject, and the ideas were raised hypothetically, said the people who were briefed. The ministers in attendance included the son-in-law of Turkish President Recep Tayyip Erdogan and the country’s foreign minister, foreign-lobbying disclosure documents show. Mr. Woolsey said the idea was “a covert step in the dead of night to whisk this guy away.” The discussion, he said, didn’t include actual tactics for removing Mr. Gulen from his U.S. home. If specific plans had been discussed, Mr. Woolsey said, he would have spoken up and questioned their legality. It isn’t known who raised the idea or what Mr. Flynn concluded about it. Price Floyd, a spokesman for Mr. Flynn, who was advising the Trump campaign on national security at the time of the meeting, disputed the account, saying “at no time did Gen. Flynn discuss any illegal actions, nonjudicial physical removal or any other such activities.”

[..] On March 2, weeks after Mr. Flynn’s departure from the Trump administration, the Flynn Intel Group, his consulting firm, filed with the Justice Department as a foreign agent for the government of Turkey. Mr. Trump was unaware Mr. Flynn had been consulting on behalf of the Turkish government when he named him national security adviser, White House press secretary Sean Spicer said this month. In its filing, Mr. Flynn’s firm said its work from August to November “could be construed to have principally benefited the Republic of Turkey.” The filing said his firm’s fee, $530,000, wasn’t paid by the government but by Inovo BV, a Dutch firm owned by a Turkish businessman, Ekim Alptekin.

[..] Mr. Woolsey said he didn’t say anything during the discussion, but later cautioned some attendees that trying to remove Mr. Gulen was a bad idea that might violate U.S. law. Mr. Woolsey said he also informed the U.S. government by notifying Vice President Joe Biden through a mutual friend. [..] Inovo hired Mr. Flynn on behalf of an Israeli company seeking to export natural gas to Turkey, the filing said, and Mr. Alptekin wanted information on the U.S.-Turkey political climate to advise the gas company about its Turkish investments.

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“.. he identified three kinds of suicide: altruistic, anomic, and egoistic. Of the three, the most complicated is anomic suicide. Anomie essentially means the breakdown of social values and norms, and Durkheim closely associated anomic suicide with economic catastrophe.”

A ‘Deaths Of Despair’ Crisis Is Gripping America (BI)

[..] this isn’t the first time that social change has caused self-destructiveness on a mass scale. Indeed, 19th-century French sociologist Emile Durkheim wrote about similar problems in his time, and might refer to the plague of white middle-class mortality we see today as “a state of upheaval.” Of course, the lesson of the 2016 presidential election was that working- and middle-class whites are suffering. What Durkheim offers, though, is the argument for why the newly elected government in Washington — voted in by this very constituency — is getting the solution all wrong. The way to fix this problem is not through less government — but through more. Durkheim’s seminal work, the 1897 book “Suicide,” remains one of the most in-depth examinations of why these situations occur in society, and it is as relevant as ever. Its lessons are an indication that as a country, we are moving swiftly, carelessly in the wrong direction.

The Americans we are talking about are white and middle class. They are aged 45-55. They are losing the battle against heart disease and cancer, and they are succumbing to drugs, alcohol and suicide at rates unseen in modern history or in other developed countries. “The combined effect means that mortality rates of whites with no more than a high school degree, which were around 30% lower than mortality rates of blacks in 1999, grew to be 30% higher than blacks by 2015,” Case and Deaton wrote. The easy thing to say is that these people are suffering from economic and social anxiety and leave it at that. What’s harder to pinpoint is what exactly that means and how to fix it. Economic conditions for minorities in the same social class and in the same communities are as hard, if not harder, than they are for middle class whites. But death rates aren’t increasing for them.

This is where Durkheim comes in. He wrote his work in the midst of another state of upheaval, as industrialization was taking over the world and old economic patterns were falling away. This was the beginning of modern life as we now know it. And it was killing people. Durkheim found that the degree to which a person is integrated in society is inversely correlated to their likelihood to engage in life-threatening behaviors and suicide. In his work, he identified three kinds of suicide: altruistic, anomic, and egoistic. Of the three, the most complicated is anomic suicide. Anomie essentially means the breakdown of social values and norms, and Durkheim closely associated anomic suicide with economic catastrophe. [..] One of the big factors, then, in the increase in substance abuse and suicide among the white middle class could be a decline in the social framework as a result of the rapid economic changes seen over the last few decades.

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We’re getting into Steve Keen territory. At last.

New Canadian Budget Drops Obsession With Balanced Budgets (Star)

I’m intrigued by Modern Monetary Theory, which maintains governments can create (or ‘print’) money to fill public needs and can’t go into debt to themselves, though they should keep an eye on inflation.

Sorry, but I’m afraid I don’t agree that Wednesday’s federal budget was a non-event: “cynical,” a “placeholder,” “bafflegab and buzzwords” — as others wrote. I think this budget rocked, in one sense: it did a 180 on the stifling monomania of the last 30 years. I’m referring to the obsession with deficits. As recently as last election, the Liberals promised a balanced budget by the end of their first term. Now their projected deficits are even higher but that promise is gone and the thought process, transformed. Finance minister Bill Morneau blandly says, they’ll “be responsible every step along the way” and “show a decline in net debt to GDP,” which totally shifts the metric. He might as well have trilled, “Tra-la-la, we really don’t care.” It’s a damn earthquake.

For proof, look not at the opposition – Rona Ambrose predictably called it “spending out of control”- but at the journalists, who were left sputtering. It’s so radical they struggled for words. Peter Mansbridge began interviewing Morneau with: “How does it feel to know you’ll likely never have a balanced budget?” I wish Morneau had said, “I’m fine, but is there anything I can do to help you through this?” Mansbridge couldn’t stop, turning plaintively to his panel: “I tried to get him on the deficit … Is there a right and wrong any more?” Jennifer Ditchburn tried to soothe him with, “Deficit is a word they just don’t use any more.”

If I’m hyperventilating, it’s because I’ve led a cramped existence all these years, bowed under the weight of deficitism since I first heard the phrase, “Yeah, but how ya gonna pay for that?” during the 1988 election. No one knew where it came from or how it usurped all other political concerns, like a missive from heaven, or the Fraser Institute. Paul Martin adopted it, using it to sink the Canada we knew, and his own career. Yet, there’s apparently an ebb and flow to these things: a Nanos poll says Canadians now want Ottawa to run deficits as long as overall debt declines relative to GDP. That’s a pretty sophisticated alteration for ordinary folks to make intuitively; it makes you wonder if someone isn’t pulling strings somewhere and decided to drop a new backdrop (to public discourse) over the previous one.

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Nicely done. Like the music.

US Debt of $20 Trillion Visualized in Stacks of Physical Cash (Demonocracy)

Showing stacks of physical cash in following sequence: $100, $10,000, $1 Million, $2 Billion, $1 Trillion, $20 Trillion The faith and value of the US Dollar rests on the Government’s ability to repay its debt. “The money in the video has already been spent”

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Sounds reasonable.

The Pound Is Going To Take A Huge Hit, According To Deutsche Bank (Ind.)

When it comes to the pound, currency analysts at Deutsche Bank have for months proved to be some of the most bearish across the City, but they’ve just turned even more pessimistic in their outlook for the battered currency. In its latest special report on Brexit released this week, the German lender said the pound could fall as a low as $1.06 against the dollar by the end of 2017, or another 15%. “We do not see sterling (currently) fully pricing a hard Brexit outcome,” the bank wrote. “Combined with limited adjustment in the UK’s current account deficit and slowing growth, we see further downside, and forecast $1.06 in by year-end,” it added.

In an interview with Bloomberg in February, George Saravelos, the German lender’s global co-head of foreign exchange, hinted that the bank could cut its official forecast. He said at the time that sterling could still slip by 16% against the dollar to $1.05 cent as the “incredibly complicated” nature of Brexit becomes ever more clear. Most economists’ forecasts are still more optimistic than Deutsche Bank’s, but few expect the currency to recover from its post-referendum lows any time soon. According to poll of more than 60 banks and research institutions conducted by Reuters that was released earlier this month, forecasters on average expect the currency to trade at $1.23 against the dollar by the end of June, and drop to $1.21 in the subsequent three to six months.

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Praet is a true believer.

Leaving Euro Would Not Help France And Italy – ECB Chief Economist (Ind.)

The chief economist of the ECB has warned Italy and France that their economic problems would not be solved by breaking up the single currency. In an interview with Italy’s Il Sole 24 Ore newspaper, Peter Praet, an executive board member of the ECB, said the idea that the euro was the root cause of high unemployment and low growth in certain European countries was a populist “deception”. “What I do worry about is the populist narrative that things were better before the euro,” he said. “This is a deception. We arrived at monetary union after disastrous experiences with floating exchange rates and some unsuccessful attempts of orderly floating. “The devaluations that populists claim is a free lunch and allows to regain competitiveness by miracle proved extremely expensive.”

With specific reference to Italy, he said: “The nostalgic alternative that everything will be all right just by returning to the lira amounts to fooling the people. The cost of a regime change would be huge and the poor would be the ones that suffer the most.” Mr Praet acknowledged that the euro had lost popularity in many European countries, but said that it had been made a “scapegoat” for other economic policy failures by politicians. However, many credible economists argue that in the absence of fiscal stimulus by core countries in Europe that run current account surpluses, the monetary restrictions of the single currency are indeed driving the economic distress of the likes of France, Italy, Portugal and Greece.

Italy’s Five Star movement, currently leading in national opinion polls, has proposed a referendum on Italy’s membership of the single currency. Marine Le Pen’s Front National in France has previously called for the reinstatement of the franc, although she did not reiterate this in the national debate among presidential candidates earlier this week ahead of April’s national elections. The level of Italy’s GDP is barely higher than when the single currency was formed in 2000 and its working age unemployment rate currently stands at 12 per cent. The French unemployment rate is just below 10% and for young people it is double that.

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An outright lie: “Greece can only do that if Greece has a competitive economy. To that end, it needs to carry out reforms, and we’re giving Greece time to do that.”

Greece to Break Off Face-to-Face Talks With Creditors (BBG)

Greece and the institutions managing its bailout review will break off negotiations in Brussels without having cleared a path to conclude the deliberations that would release needed rescue funds. Finance Minister Euclid Tsakalotos, who was meeting with officials from the euro area and the IMF will return to Athens by Saturday. The two sides still have issues to work out, said the official, who asked not to be named in line with policy. Some progress was made and discussions will continue from their respective headquarters, according to a spokesman from the European Stability Mechanism, the euro-area’s bailout monitor. Greece is edging closer to a repeat of the 2015 drama that pushed Europe’s most indebted state to the edge of economic collapse, as the government in Athens and its creditors disagree over reforms to the pension system and the labor and energy markets.

Greece needs to complete the review in order to get the next portion of its aid payment before it has more than €7 billion of bonds come due in July. German Finance Minister Wolfgang Schaeuble increased the pressure on Prime Minister Alexis Tsipras to accede to creditor demands. “Greece has said it wants to stay in the euro,” Schaeuble said in an interview on Deutschlandfunk radio on Friday. “Greece can only do that if Greece has a competitive economy. To that end, it needs to carry out reforms, and we’re giving Greece time to do that.” [..] European Commission President Jean-Claude Juncker urged Greece and its creditors in an emailed statement to reach a deal that respects commitments made on all sides. In response to Tsipras’s letter, Juncker called on the Greeks not to reverse reforms and creditors “to give Greece the desired and necessary room for maneuver to build its own future.”

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Reasonable overview, but any talk of agreements that could lead Greece back to growth is nonsense. The EU would never sign such an agreement. Theie attitude to date has made that abundantly clear.

Where Next For Greece? (Makropolis)

In September last year, when Alexis Tsipras visited New York to speak at the UN Assembly, he held a meeting with some heavyweights of the international investment community. The Greek prime minister was reportedly advised by the participants that if he wanted to build trust in Greece as an attractive investment destination, he should shift focus from his main objective of debt relief towards ensuring Greece’s participation in the ECB’s QE programme. The investors apparently pointed out to the SYRIZA leader that such a development would have a wide range of benefits for Greece and provide the steadiest path towards regaining market access and the successful completion of the current programme, without the need to follow it up with a fourth memorandum of understanding (MoU).

Tsipras seemingly heeded the advice and, just as the second review was about to start, he charted a path out of the crisis. He set out his intention to close the review by December 2016, secure QE at the start of 2017 and dip his toe back into the markets with a small issue or two early this summer when Greece has to roll over the bond that it issued in 2014, when Antonis Samaras was prime minister. However, the timetable Tsipras identified last autumn has gone up in smoke.

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Jul 292016
 
 July 29, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Dorothea Lange Crossroads grocery store and filling station, Yakima, Washington, Sumac Park 1939

IMF: Disastrous Love Affair With Euro, Apologies For Immolation Of Greece (AEP)
Global Trade Is Not Growing Slower – It’s Not Growing At All (WEF)
Not Even Fiscal Stimulus Will Save Global Growth – Deutsche Bank (BBG)
Kuroda’s $26 Billion Gift to Stock Market Underwhelms Investors (BBG)
Bank of Japan Blames Brexit As It Unleashes More Monetary Stimulus (G.)
Japan Sees Weaker Consumer Spending, Manufacturing In June (AP)
Japan Should Stop Chasing A Weaker Yen – Steen Jakobsen (CNBC)
US Homeownership Rate Falls to Five-Decade Low (WSJ)
Wholesale California Gasoline Prices Plunge, Consumers Still Pay Up (R.)
Oil Glut Proves Harder To Kill Than Saudis To Goldman Predicted (BBG)
In Past 50 Years Earnings Recession This Big Always Triggered Bear Market (F.)
Barcelona Unveils ‘Shame Counter’ That Tracks Refugee Deaths (AFP)

 

 

” They had no fall-back plans on how to tackle a systemic crisis in the eurozone [..] because they had ruled out any possibility that it could happen.”

“Some staff members warned that the design of the euro was fundamentally flawed but they were overruled..”

Ambrose on Twitter: ”IMF seems to have slipped leash of political control. Even its own watchdog in dark on EMU crisis. Astonishing saga..”

IMF: Disastrous Love Affair With Euro, Apologies For Immolation Of Greece (AEP)

The IMF’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. This is the lacerating verdict of the IMF’s top watchdog on the Fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions. It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking break-down in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation. The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde.

It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way EU insiders used the Fund to rescue their own rich currency union and banking system. The three main bail-outs for Greece, Portugal, and Ireland were unprecedented in scale and character. The trio were each allowed to borrow over 2,000% of their allocated quota – more than three times the normal limit – and accounted for 80pc of all lending by the Fund between 2011 and 2014. In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive “ad-hoc task forces”. Mrs Lagarde herself is not accused of obstruction.

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff,” it said. The report said the whole approach to the eurozone was characterised by “groupthink” and intellectual capture. They had no fall-back plans on how to tackle a systemic crisis in the eurozone – or how to deal with the politics of a multinational currency union – because they had ruled out any possibility that it could happen. “Before the launch of the euro, the IMF’s public statements tended to emphasize the advantages of the common currency, “ it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.


The forecasts for Greek growth compared to what actually happened Credit: IMF

[..] While the Fund’s actions were understandable in the white heat of the crisis, the harsh truth is that the bail-out sacrificed Greece in a “holding action” to save the euro and north European banks. Greece endured the traditional IMF shock of austerity, without the offsetting IMF cure of debt relief and devaluation to restore viability. A sub-report on the Greek saga said the country was forced to go through a staggering squeeze, equal to 11pc of GDP over the first three years. This set off a self-feeding downward spiral. The worse it became, the more Greece was forced cut – what ex-finance minister Yanis Varoufakis called “fiscal water-boarding”. “The automatic stabilizers were not allowed to operate, thus aggravating the pro-cyclicality of the fiscal policy, which exacerbated the contraction,” said the report.

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Who says we need global growth?

Global Trade Is Not Growing Slower – It’s Not Growing At All (WEF)

Falling rates of global trade growth have attracted much comment by analysts and officials, giving rise to a literature on the ‘global trade slowdown’ (Hoekman 2015, Constantinescu et al. 2016). The term ‘slowdown’ gives the impression of world trade losing momentum, but growing nonetheless. The sense of the global pie getting larger has the soothing implication that one nation’s export gains don’t come at the expense of another’s. But are we right to be so sanguine? Using what is widely regarded as the best available data on global trade dynamics, namely, theWorld Trade Monitor prepared by the Netherlands Bureau of Economic Policy Analysis, the 19th Report of the Global Trade Alert, published today, evaluates global trade dynamics (Evenett and Fritz 2016).


Figure 1 World trade plateaued around the start of 2015

Our first finding that the rosy impression painted by some should be set aside. We demonstrate that: •World export volumes reached a plateau at the start of January 2015. The same finding holds if import volume or total volume data are used instead. •Both industrialised countries’ and emerging markets’ trade volumes have plateaued (Figure 1). •Except during global recessions, a plateau lasting 15 months is practically unheard of since the Berlin Wall fell. •In 2015 the best available data on world export volumes diverges markedly from that reported by the WTO, IMF, and World Bank, and probably explains why analysts at these organisations have missed this profound change in global trade dynamics (Table 1).


Table 1 Marked differences in reported global trade volume growth in 2015

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“The fight against sluggish growth rates..” Maybe we should stop that fight?

Not Even Fiscal Stimulus Will Save Global Growth – Deutsche Bank (BBG)

While monetary policy may be at — or beyond — the limits of its usefulness in stoking global growth, economists at Deutsche Bank say fiscal stimulus is unlikely to be much more effective. At least, not the kind that is politically possible. The fight against sluggish growth rates and low inflation has seen central banks from Europe to Japan buy up swaths of the bond market, and experiment with negative interest rates. Yet with growth still stubbornly slow, these efforts are seen either as ineffective or counterproductive, spurring calls for more active fiscal policy, whether it take the form of tax cuts or ‘helicopter money’ transfers to the private sector. Just this past weekend, finance ministers from the Group of Twenty meeting in China gave strong backing to this view.

“Monetary policy alone cannot lead to balanced growth,” they said. “Fiscal strategies are equally important to support our common growth objectives.” Those comments could signal a “new direction for fiscal policy,” according to Deutsche Bank economists led by Peter Hooper. Yet while they welcomed the potential dethroning of monetary policy as “the principal lever of support,” the economists expect that the boost to global growth from the most probable fiscal packages “is likely to be modest.” Europe is in greatest need of fiscal stimulus — even though the ECB has been gobbling up bonds since 2014, and has cut its deposit rate to minus 0.4% — and it’s also where fiscal stimulus would be most effective, according to the Deutsche Bank economists.

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Are Kuroda and Abe drifting apart?

Kuroda’s $26 Billion Gift to Stock Market Underwhelms Investors (BBG)

Welcome to Japan, where a central bank plan to pump $26 billion a year more into stocks and continue buying 30 times that in debt sees equities struggle to advance and bonds plunge. The Topix index slid as much as 1.4% in Tokyo after the Bank of Japan boosted its annual exchange-traded fund budget to 6 trillion yen ($58 billion), from 3.3 trillion yen. Japanese government bonds headed for their steepest slump since 2008, as policy makers retained a plan to expand the monetary base by an annual 80 trillion yen. Speculation among investors and analysts that Friday’s policy announcement might even see the adoption of so-called helicopter money, as well as a cut to the negative deposit rate, resulted in a lukewarm reception for the expanded stimulus program.

The yen surged as much as 2.4%, the most since the U.K. decision to leave the European Union, even as BOJ Governor Haruhiko Kuroda hinted more easing might still be in the pipeline. “The BOJ had a choice of about five boxes to tick today, but only chose one,” said Sean Callow, a senior FX strategist at Westpac Banking in Sydney. “Buying more ETFs was as widely expected as balloons dropping on Hillary.” [..] In an unexpected development, Kuroda has ordered an assessment of the effectiveness of BOJ policy, to be undertaken at the next meeting, which is scheduled for Sept. 20-21.

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“The BOJ won’t admit it, but it has reached the limits of quantitative easing and negative rates.”

Bank of Japan Blames Brexit As It Unleashes More Monetary Stimulus (G.)

The Bank of Japan has announced a modest expansion of its monetary easing programme, blaming Britain’s decision to leave the European Union as the biggest uncertainty facing world markets. The central bank acknowledged government pressure for more action to drive the yen lower and help Japan’s legion of exporters, but stopped short of upping its bond purchases or cutting interest rates. Instead the bank sanctioned an increase in purchases of exchange-traded funds as it attempted to accelerate inflation towards its 2% target. The moves disappointed the markets, which had expected another big influx of liquidity. The Nikkei stock average yo-yoed wildly in the aftermath of the move before falling nearly 2% in late afternoon trade.

Other stock markets in the region were also down while futures trading indicated the FTSE100 and Dow Jones would open slightly down on Friday morning. The yen rose 2% against the US dollar, which will frustrate government attempts to devalue the stubbornly high currency. [..] Some market experts said the lack of bold action suggested the bank had decided that the effectiveness of its huge monetary easing programme had reached its limits. “The BOJ did not live up to expectations … increasing ETF purchases makes no contribution to achieving 2% inflation,” said Norio Miyagawa, senior economist at Mizuho Securities. “The BOJ won’t admit it, but it has reached the limits of quantitative easing and negative rates.”

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After Abenomics has been running for 3 years, deflation continues unabated.

Japan Sees Weaker Consumer Spending, Manufacturing In June (AP)

Japan reported further signs of weakness in its economy in June, with industrial output and consumer spending falling from the year before. The data released Friday were in line with expectations the central bank may follow the government’s lead in opting for more stimulus at a policy meeting that ends Friday. Core inflation excluding volatile food prices dropped 0.5% from 0.4% in May. The Bank of Japan and government have made scant progress toward a 2% inflation goal set more than three year ago, partly due to the prolonged slump in crude oil prices.

Household spending fell 2.2% from a year earlier, while industrial output slipped 1.9% on an annual basis. Earlier this week Prime Minister Shinzo Abe announced plans to propose 28 trillion yen ($267 billion) in spending initiatives to help support the sagging economic recovery. Household incomes rose 0.3% in June, weak for a month when workers commonly receive bonuses.

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Let’s not pretend there is a way out for Japan.

Japan Should Stop Chasing A Weaker Yen – Steen Jakobsen (CNBC)

Japan has aimed a lot of firepower at keeping its currency weak, but a stronger yen might be just what the long moribund economy really needs, said Saxo Bank’s Chief Investment Officer Steen Jakobsen. “The government of Japan sort of quasi-promises to maintain a weak yen in order to support and buy time for the export companies,” Jakobsen said. “Having a focus only on the export sector takes away from [what] the focus should be: To reform the domestic economy.” Jakobsen’s comments came just as Japan appears set to level a double bazooka of easing at its sluggish economy, firepower that appears aimed, at least in part, at wiping out the recent gains in the newly resurgent yen.

The Bank of Japan was widely expected to announce another monetary easing bomb at the close of its two-day meeting on Friday, with analysts anticipating that the central bank would either cut interest rates deeper into negative territory or expand its asset purchase program or both. At the same time, fresh fiscal stimulus was expected to offer additional cross fire. News agency Jiji reported that Prime Minister Shinzo Abe had revealed a 28 trillion yen ($265 billion) injection, which Reuters estimated at 6% of Japan’s economy.

The double-barreled approach was in line with Abe’s plan to break Japan’s economy out of a decades-long deflationary spiral. That effort, dubbed Abenomics, was introduced in 2013 with a plan for three “arrows:” A first arrow of massive quantitative easing from the BOJ, followed by a second arrow of increased government spending and a third arrow of structural reforms, including immigration and labor changes. But Jakobsen noted that the latest plan for combined BOJ and fiscal easing just replayed the same strategy. “The present situation we’re talking about is just re-launching arrow one and two,” he said. “We’re still missing arrow number three, which is the reform side.”

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It didn’t take long to kill the dream.

US Homeownership Rate Falls to Five-Decade Low (WSJ)

The U.S. homeownership rate fell to the lowest level in more than 50 years in the second quarter of 2016, a reflection of the lingering effects of the housing bust, financial hurdles to buying and shifting demographics across the country. But the bigger picture also suggests more Americans are gaining the confidence to strike out on their own, albeit as renters rather than buyers. The homeownership rate, the proportion of households that are owner-occupied, fell to 62.9%, half a percentage point lower than the second quarter of 2015 and 0.6%age point lower than the first quarter 2016, the Census Bureau said on Thursday. That was the lowest figure since 1965.

There are many ways to interpret the numbers. Part of the story is the catastrophic housing market collapse, which was especially severe for Generation X—those born from 1965 to 1984. Younger households may struggle to save amid student debt, growing rents, rising home prices and limited inventories of starter homes. Indeed, the homeownership rate for 18- to 35-year-olds slipped to 34.1%, the lowest level in records dating to 1994. At 77.9%, the homeownership rate was highest for those 65 years and over.

But the broader picture suggests a degree of economic strength: Renters are spurring a steady increase in overall household formation. Renter-occupied housing units jumped by 967,000 from the same period a year earlier. Overall, household formation has been fairly steady since the early days of the expansion. A rising number of households suggests more people are optimistic enough to strike out on their own and helps further spur growth as they buy furniture, start families and move up the economic ladder. Indeed, moving into a rental unit has been entirely responsible for rising household formation since the recession began.

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“It’s probably going to take a little longer than they expected.” “Demand growth has faltered a bit.”

Oil Glut Proves Harder To Kill Than Saudis To Goldman Predicted (BBG)

The bullish spirit that gripped oil traders as industry giants from Saudi Arabia to Goldman Sachs declared the supply glut over is rapidly ebbing away. Oil is poised for a drop of 20% since early June, meeting the definition of a bear market. While excess crude production is abating, inventories around the world are brimming, especially for gasoline, and a revival in U.S. drilling threatens to swell supplies further. As the output disruptions that cleared some of the surplus earlier this year begin to be resolved, crude could again slump toward $30 a barrel, Morgan Stanley predicts. “The tables are turning on the bulls, who were prematurely constructive on oil prices on the basis the re-balancing of the oil market was a done deal,” said Harry Tchilinguirian at BNP Paribas in London.

“It’s probably going to take a little longer than they expected.” Oil almost doubled in New York between February and June as big names from Goldman and the International Energy Agency to new Saudi Energy Minister Khalid Al-Falih said declining U.S. oil production and disruptions from Nigeria to Canada were finally ending years of oversupply. Prices retreated to a three-month low near $41 a barrel this week amid a growing recognition the surplus will take time to clear. “There’s lots of crude and refined products around,” said David Fransen, Geneva-based head of Vitol SA, the biggest independent oil trader. “Demand growth has faltered a bit.”

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Don’t worry, prices will come down.

Wholesale California Gasoline Prices Plunge, Consumers Still Pay Up (R.)

Wholesale gasoline in California became the cheapest in the country this week, but that change has largely gone unseen at the pump, where consumers are still paying the highest prices in the continental United States to fill up their cars. Ample inventories along with relatively stable refinery operations and imports has driven down the spot value of gasoline in Los Angeles at the wholesale level by more than 60 cents since mid-June. However, that has not translated to similarly lower retail fuel prices for consumers because of peculiarities in California’s market. The declines in the state’s retail gasoline market over that period of time have averaged less than 14 cents, according to data from the U.S. Energy Information Administration.

On Thursday, wholesale California gasoline was trading below $1.20 a gallon. The spread between California’s wholesale and retail gasoline markets was about $1.50 a gallon the week to July 25, about 40 cents wider than a similar spread in the New York market. California is one of the most expensive places in the United States to produce gasoline because of the state’s unique blending requirements and its relative isolation from the rest of the country, which makes securing crude oil to refine pricier. Gasoline prices across the country have plunged as crude has also slumped in the past two years, pressured by a global supply glut. On the West Coast, gasoline stocks are at a five-year seasonal high of 29.6 million barrels, according to the EIA.

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Lots of reports due later today.

In Past 50 Years Earnings Recession This Big Always Triggered Bear Market (F.)

It’s earnings season once again and it looks as if, as a group, corporate America still can’t find the end of its earnings decline since profits peaked over a year ago. What’s more analysts, renowned for their Pollyannish expectations, can’t seem to find it, either. So I thought it might be interesting to look at what the stock market has done in the past during earnings recessions comparable to the current one. And it’s pretty eye-opening. Over the past half-century, we have never seen a decline in earnings of this magnitude without at least a 20% fall in stock prices, a hurdle many use to define a bear market. In other words, buying the new highs in the S&P 500 today means you believe “this time is different.” It could turn out that way but history shows that sort of thinking to be very dangerous to your financial wellbeing.

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Great idea. There should be one in Athens too.

Barcelona Unveils ‘Shame Counter’ That Tracks Refugee Deaths (AFP)

Spain’s seaside city of Barcelona on Thursday unveiled a large digital counter that will track the number of refugees who die in the Mediterranean, next to one of its popular beaches. “We are inaugurating this shame counter which will update all known victims who drowned in the Mediterranean in real time,” said Mayor Ada Colau. The monument consists of a large metal rectangular pillar that comes decked out with a digital counter above the inscription “This isn’t just a number, these are people.”

The counter kicked off with 3,034 — the number of migrants and refugees who have died trying to cross the Mediterranean to Europe in 2016, according to the International Organization for Migration (IOM). “We’re here to look the Mediterranean in the face and look at this number — 3,034 people who drowned because they were not offered a safe passage,” said Colau, as swimmers took advantage of the last rays of sunshine nearby.


Barcelona’s mayor Ada Colau poses in front a digital billboard that shows the number of refugees who died in the Mediterranean sea, named “the shame counter” (AFP Photo/Josep Lago)

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Jul 102016
 
 July 10, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »
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G.G. Bain Political museums, Union Square, New York 1909

Bank Earnings Loom Large As Stocks Near Record on Wall Street (R.)
The Epic Collapse Of The World’s Most Systemically Dangerous Bank (ZH/VC)
Bank of England Considers Curbs On Property Funds (R.)
China June Inflation Eases Further, More Policy Stimulus Anticipated (R.)
China Healthcare Costs Forcing Patients Into Crippling Debt (R.)
Gorbachev: ‘The Next War Will Be the Last’ (Sputnik)
Blair’s Deputy PM Says Iraq Invasion Broke International Law (BBC)
Families Of Soldiers Killed In Iraq Vow To Sue Blair For ‘Every Penny’ (Tel.)
Australia’s Other Great Reef Is Also Screwed (Atlantic)
10,000 Hectares Of Mangroves Die Across Northern Australia (ABC.au)
Global Insect Populations Fall 45% In Past 40 Years (e360)

 

 

Markets are now completely divorced from reality.

Bank Earnings Loom Large As Stocks Near Record on Wall Street (R.)

The focus on Wall Street will shift to corporate earnings next week after a strong June jobs report on Friday gave investors confidence that the U.S. economy was on stable footing and left the S&P 500 within a whisper of a new closing record high. Earnings next week are expected from big banks JPMorgan, Citigroup and Wells Fargo as well as other financial companies such as BlackRock and PNC Financial Services. Earnings for the sector are expected to decline 5.4%. If bank earnings come in better than expected, the S&P 500 is likely to push through its record highs set in May 2015 after several failed attempts, as Friday’s jobs number helped push the benchmark index to less than one point from its closing record high of 2,130.82.

“Banks are definitely in the spotlight,” said Tim Ghriskey, CIO of Solaris Group in Bedford Hills, New York. “There is some trepidation in the market going into this earnings season, the quarter economically was not particularly strong.” Financials have been the worst performing of the 10 major S&P sector groups this year, down nearly 6%, as they were hit by reduced expectations for a U.S. interest rate hike by the Federal Reserve and uncertainty in the wake of “Brexit.” Second-quarter earnings overall are expected to decline 4.7%, according to Thomson Reuters data, the fourth straight quarter of negative earnings, but up slightly from the 5% decline in the first quarter.

Investors will be looking for confirmation this quarter that earnings are starting to turn, with analysts anticipating a return to growth in the back half of the year, starting with expectations for a 1.8% increase in the third quarter.

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Two things still stuck in German media (Google translate for them is awful) as I write this: the chief economist for Deutsche Bank calls for a €150 billion bailout for European banks, and German top-economist Hans-Werner Sinn says Finland will be next to leave EU and first to leave eurozone.

The Epic Collapse Of The World’s Most Systemically Dangerous Bank (ZH/VC)

It’s been almost 10 years in the making, but the fate of one of Europe’s most important financial institutions appears to be sealed. After a hard-hitting sequence of scandals, poor decisions, and unfortunate events,Visual Capitalist’s Jeff Desjardins notes that Frankfurt-based Deutsche Bank shares are now down -48% on the year to $12.60, which is a record-setting low. Even more stunning is the long-term view of the German institution’s downward spiral. With a modest $15.8 billion in market capitalization, shares of the 147-year-old company now trade for a paltry 8% of its peak price in May 2007.

If the deaths of Lehman Brothers and Bear Stearns were quick and painless, the coming demise of Deutsche Bank has been long, drawn out, and painful. In recent times, Deutsche Bank’s investment banking division has been among the largest in the world, comparable in size to Goldman Sachs, JP Morgan, Bank of America, and Citigroup. However, unlike those other names, Deutsche Bank has been walking wounded since the Financial Crisis, and the German bank has never been able to fully recover. It’s ironic, because in 2009, the company’s CEO Josef Ackermann boldly proclaimed that Deutsche Bank had plenty of capital, and that it was weathering the crisis better than its competitors.

It turned out, however, that the bank was actually hiding $12 billion in losses to avoid a government bailout. Meanwhile, much of the money the bank did make during this turbulent time in the markets stemmed from the manipulation of Libor rates. Those “wins” were short-lived, since the eventual fine to end the Libor probe would be a record-setting $2.5 billion. The bank finally had to admit that it actually needed more capital. In 2013, it raised €3 billion with a rights issue, claiming that no additional funds would be needed. Then in 2014 the bank head-scratchingly proceeded to raise €1.5 billion, and after that, another €8 billion. In recent years, Deutsche Bank has desperately been trying to reinvent itself.

Having gone through multiple CEOs since the Financial Crisis, the latest attempt at reinvention involves a massive overhaul of operations and staff announced by co-CEO John Cryan in October 2015. The bank is now in the process of cutting 9,000 employees and ceasing operations in 10 countries. This is where our timeline of Deutsche Bank’s most recent woes begins – and the last six months, in particular, have been fast and furious. Deutsche Bank started the year by announcing a record-setting loss in 2015 of €6.8 billion. Cryan went on an immediate PR binge, proclaiming that the bank was “rock solid”. German Finance Minister Wolfgang Schäuble even went out of his way to say he had “no concerns” about Deutsche Bank. Translation: things are in full-on crisis mode.

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Just in time delivery?!

Bank of England Considers Curbs On Property Funds (R.)

The Bank of England is considering curbs on withdrawals from property investment funds after Britain’s vote to leave the EU roiled the sector, the Sunday Telegraph newspaper said late on Saturday. The paper said it understood that the BoE was considering “enforced notice periods before redemptions, slashing the price for investors who rush to the door, or additional liquidity requirements for funds”. Andrew Bailey, the head of Britain’s Financial Conduct Authority, told a BoE news conference on Tuesday that the structure of open-ended real estate funds needed to be reviewed, as investors rushed to cash in their investments.

The BoE – where Bailey was deputy governor until he moved to the FCA this month – last year expressed concern about funds that invest in assets which can become illiquid in a crisis, but allow investors to withdraw funds without notice. On Friday the FCA issued guidance to property funds to avoid disadvantaging investors who had not sought to redeem funds. The Telegraph said regulators were considering requiring funds to ask investors to give a notice period of 30 days to six months for redemptions, or to hold more liquid assets to meet withdrawals, such as cash or shares and bonds in property-related companies. More than six British property funds suspended withdrawals last week to tackle a tide of redemptions after the June 23 vote to leave the EU unnerved investors who are worried that the uncertainty will hit demand to rent and buy commercial property.

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As I said, China’s entered deflation.

China June Inflation Eases Further, More Policy Stimulus Anticipated (R.)

China’s June consumer inflation grew at its slowest pace since January as increases in food prices eased, while producer prices extended their decline, reinforcing economists’ views that more government stimulus steps will be needed to support the economy. The consumer price index (CPI) rose 1.9% in June from a year earlier, compared with a 2.0% increase in May, the National Bureau of Statistics said on Sunday. Analysts had expected a 1.8% gain, a Reuters poll showed. Consumer inflation has remained low compared with the official target of around 3% for this year, indicating persistently weak demand in the world’s second-largest economy. Food prices were up 4.6% in June, compared with a 5.9% gain in the previous month.

Prices of China’s staple meat pork rose 30.1%, compared with a 33.6% increase in May. But recent flooding in China “is likely to push vegetable and fruit prices higher in the coming months,” ANZ economists Raymond Yeung and Louis Lam wrote in a research note. Non-food prices inched up 1.2% in June versus May’s 1.1% gain. “In our view, while China reiterates the importance of supply-side reform due to debt and overcapacity concerns, the authorities still need to stimulate demand in order to achieve its growth target,” Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore, said in a note. The People’s Bank of China last cut interest rates on Oct. 23, the seventh time since late 2014, as the government took steps to counter slowing economic growth.

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Hmmm. Which other country does this remind you of? Official data show up to 44% of families pushed into poverty were impoverished by illness. Does that sound like communism to you?

China Healthcare Costs Forcing Patients Into Crippling Debt (R.)

As China’s medical bills rise steeply, outpacing government insurance provision, patients and their families are increasingly turning to loans to pay for healthcare, adding to the country’s growing burden of consumer debt. While public health insurance reaches nearly all of China’s 1.4 billion people, its coverage is basic, leaving patients liable for about half of total healthcare spending, with the proportion rising further for serious or chronic diseases such as cancer and diabetes. That is likely to get significantly worse as the personal healthcare bill soars almost fourfold to 12.7 trillion yuan ($1.9 trillion) by 2025, according to Boston Consulting Group estimates. For many, like Li Xinjin, a construction materials trader whose son was diagnosed with leukemia in 2009, that means taking on crippling debt.

Li, from Cangzhou in Hebei province, scoured local papers and websites for small lenders to finance his son’s costly treatment at a specialist hospital in Beijing, running up debts of more than 1.7 million yuan, about 10 times his typical annual income. “At that time, borrowing money and having to make repayments, I was very stressed. Every day I worried about this,” said Li, 47, adding that he and his wife had at times slept rough on the streets near the hospital. “But I couldn’t let my son down. I had to try to save him,” he said. Li’s boy died last year. The debts will weigh him down for a few more years yet. Medical loans are just part of China’s debt mountain – consumer borrowing has tripled since 2010 to nearly 21 trillion yuan, and in eight years household debt relative to the economy has doubled to nearly 40% – but they are growing.

That is luring big companies like Ping An Insurance, as well as small loan firms and P2P platforms, as China’s traditional savings culture proves inadequate to the challenge of such heavy costs. The stress is particularly apparent in lower-tier cities and rural areas where insurance has failed to keep pace with rising costs, said Andrew Chen, Shanghai-based healthcare head for consultancy Parthenon-EY. “It’s a storm waiting to happen where patients from rural areas will have huge financial burdens they didn’t have to face before,” he said, adding people would often take second mortgages on their homes or turn to community finance schemes.

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“..In the current situation…all political, economic, diplomatic and cultural forces should be engaged to pacify the world..”

Gorbachev: ‘The Next War Will Be the Last’ (Sputnik)

Former Soviet President Mikhail Gorbachev declared in an interview with radio station Echo Moskvy that if the crisis escalates to another war, this war will be the last. NATO leaders agreed on Friday to deploy military forces to the Baltic states and eastern Poland while increasing air and sea patrols to demonstrate readiness to defend eastern members against the alleged ‘Russian aggression.’ Mikhail Gorbachev reportedly said after the summit that the decisions made at NATO summit in Warsaw should be regarded as a preparation for a hot war with Russia. On Saturday, Gorbachev told Echo Moskvy in an interview that he sticks to what he had said earlier and that he considers NATO decisions short-sighted and dangerous.

“Such steps lead to tension and disruption. Europe is splitting, the world is splitting. This is a wrong path for the global community” He said. “There are too many global and individual crises to abandon cooperation. It is essential to revive the dialogue.” According to the ex Soviet President, by irresponsibly deploying four multinational battalions to Russian borders, “within shooting distance”, the alliance draws closer another Cold War and another Arms Race. “There are still ways to…avoid military action.” Gorbachev stressed. “I would say that UN should be called upon on that matter.” He also called on Moscow not to respond to provocations but to come to the negotiating table. “In the current situation…all political, economic, diplomatic and cultural forces should be engaged to pacify the world. Mind you, the next war will be the last.”

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Closing the net on Tony.

Blair’s Deputy PM Says Iraq Invasion Broke International Law (BBC)

John Prescott, who was deputy prime minister when Britain went to war with Iraq in 2003, says the invasion by UK and US forces was “illegal”. Writing in the Sunday Mirror, he said he would live with the “catastrophic decision” for the rest of his life. Lord Prescott said he now agreed “with great sadness and anger” with former UN secretary general Kofi Annan that the war was illegal. He also praised Labour’s Jeremy Corbyn for apologising on the party’s behalf. Lord Prescott also said Prime Minister Tony Blair’s statement that “I am with you, whatever” in a message to US President George W Bush before the invasion in March 2003, was “devastating”.

“A day doesn’t go by when I don’t think of the decision we made to go to war. Of the British troops who gave their lives or suffered injuries for their country. Of the 175,000 civilians who died from the Pandora’s Box we opened by removing Saddam Hussein,” he went on. Lord Prescott said he was “pleased Jeremy Corbyn has apologised on behalf of the Labour Party to the relatives of those who died and suffered injury”. He also expressed his own “fullest apology”, especially to the families of British personnel who died. The former deputy PM said the Chilcot report had gone into great detail about what went wrong, but he wanted to identify “certain lessons we must learn”.

“My first concern was the way Tony Blair ran Cabinet. We were given too little paper documentation to make decisions,” he wrote. No documentation was provided to justify Attorney-general Lord Goldsmith’s opinion that action against Iraq was legal, he added.

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…and taking all his money too…

Families Of Soldiers Killed In Iraq Vow To Sue Blair For ‘Every Penny’ (Tel.)

Tony Blair will be pursued through the courts for “every penny” of the fortune he has earned since leaving Downing Street, the families of soldiers killed in Iraq vowed. Mr Blair faces a civil law suit over allegations he abused his power as prime minister to wage war in Iraq. The damages, according to legal sources close to the case, are unlimited. A well-placed source told The Telegraph that the Chilcot report appeared to provide grounds for the launch of a lawsuit. “It gives us a lot of threads to pursue and those threads make a powerful rope to catch him,” said the source. So far 29 families of dead soldiers have asked the law firm McCue & Partners to pursue a claim against Mr Blair. Others are expected to come on board.

The firm is looking at bringing a civil case of misfeasance in public office, which would see Mr Blair dragged through the courts for the first time over his decision to take the UK to war. Legal sources say for any case to be successful, lawyers would have to show that Mr Blair “had acted in excess of his powers” and that in doing so “harm has been caused and that the harm could have been predicted”. Sir John Chilcot, in his findings published on Wednesday, said Mr Blair should have seen the problems that resulted from the invasion in 2003 and came as he could to suggesting the military action was illegal.

Mr Blair has earned a fortune estimated at as much as £60 million since resigning as prime minister in 2007, largely through a complex network of companies that offers investment and strategic advice to private companies and international governments. Reg Keys, whose son Tom was one of six Royal Military Police killed at Majar al-Kabir in 2003, said: “Tony Blair has made a lot of money from public office which I believe he misused. He misused the powers of that office and has gone on to make a lot of money after leaving that office, a lot of it from the contacts he made while in Downing Street.”[..] “I would like to see him stripped of every penny he has got. I would like to see him dragged through the civil courts.”

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Runs along the entire south coast of the continent.

Australia’s Other Great Reef Is Also Screwed (Atlantic)

Imagine arriving at a region famed for its forests—the Pyrenees or the Rockies, perhaps—and discovering that all the trees had vanished. Where just a few years ago there were trunks and leaves, now there is only moss. That’s how Thomas Wernberg and Scott Bennett felt in 2013, when they dropped into the waters of Kalbarri, halfway up the western coast of Australia.

They last dived the area in 2010. Then, as in the previous decade, they had swum among vast forests of kelp—a tagliatelle-like seaweed whose meter-tall fronds shelter lush communities of marine life. But just three years later, the kelps had disappeared. The duo searched for days and found no traces of them. They only saw other kinds of seaweed, growing in thin, patchy, and low-lying lawns. “We thought we were in the wrong spot,” says Bennett. “It was like someone had bulldozed the reef. It was like a moonscape underwater—scungy, brown, and empty.”

The culprit—surprise, surprise—is climate change. The waters near western Australia were already among the fastest-warming regions in the oceans before being pummeled by a recent series of extreme heat waves. In the summer of 2011, temperatures rose to highs not seen in 215 years of records, highs far beyond what kelps, which prefer milder conditions, can tolerate. As a result, the kelp forests were destroyed. Before the heat wave, the kelps stretched over 800 kilometers of Australia’s western flank and cover 2,200 square kilometers. After the heat wave, Wernberg and Bennett found that 43% of these forests disappeared, including almost all the kelps from the most northerly 100 kilometers of the range. “It was just heartbreaking,” says Bennett.

“It really brought home to me the impact that climate change can have on these ecosystems, right under our noses.” “They have provided alarming and detailed evidence for one of the most dramatic climate-driven ecosystem shifts ever recorded,” adds Adriana Verges from the University of New South Wales.

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Soon, Australia will have only barren coasts left.

10,000 Hectares Of Mangroves Die Across Northern Australia (ABC.au)

Close to 10,000 hectares of mangroves have died across a stretch of coastline reaching from Queensland to the Northern Territory. International mangroves expert Dr Norm Duke said he had no doubt the “dieback” was related to climate change. “It’s a world-first in terms of the scale of mangrove that have died,” he told the ABC. Dr Duke flew 200 kilometres between the mouths of the Roper and McArthur Rivers in the Northern Territory last month to survey the extent of the dieback. He described the scene as the most “dramatic, pronounced extreme level of dieback that I’ve ever observed”.

Dr Duke is a world expert in mangrove classification and ecosystems, based at James Cook University, and in May received photographs showing vast areas of dead mangroves in the Northern Territory section of the Gulf of Carpentaria. Until that time he and other scientists had been focused on mangrove dieback around Karmuba, Queensland, at the opposite end of the Gulf. “The images were compelling. They were really dramatic, showing severe dieback of mangrove shoreline fringing — areas just extending off into infinity,” Dr Duke said. “Certainly nothing in my experience had prepared me to see images like that.”

Dr Duke said he wanted to discover if the dieback in the two states was related. “We’re talking about 700 kilometres of distance between incidences at that early time,” he said. The area the Northern Territory photos were taken in was so remote the only way to confirm the extent and timing of the mangrove dieback was with specialist satellite imagery. With careful analysis the imagery confirmed the mangrove dieback in both states had happened in the space of a month late last year, coincident with coral bleaching on the Great Barrier Reef. “We’re talking about 10,000 hectares of mangroves were lost across this whole 700 kilometre span,” Dr Duke said.

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It doesn’t get much scarier than this, without insects mankind doesn’t stand a chance: ”..out of 3,623 terrestrial invertebrate species on the International Union for Conservation of Nature [IUCN] Red List, 42% are classified as threatened with extinction.”

Global Insect Populations Fall 45% In Past 40 Years (e360)

Every spring since 1989, entomologists have set up tents in the meadows and woodlands of the Orbroicher Bruch nature reserve and 87 other areas in the western German state of North Rhine-Westphalia. The tents act as insect traps and enable the scientists to calculate how many bugs live in an area over a full summer period. Recently, researchers presented the results of their work to parliamentarians from the German Bundestag, and the findings were alarming: The average biomass of insects caught between May and October has steadily decreased from 1.6 kilograms (3.5 pounds) per trap in 1989 to just 300 grams (10.6 ounces) in 2014.


According to global monitoring data for 452 species, there has been a 45% decline in invertebrate populations over the past 40 years.

“The decline is dramatic and depressing and it affects all kinds of insects, including butterflies, wild bees, and hoverflies,” says Martin Sorg, an entomologist from the Krefeld Entomological Association involved in running the monitoring project. Another recent study has added to this concern. Scientists from the Technical University of Munich and the Senckenberg Natural History Museum in Frankfurt have determined that in a nature reserve near the Bavarian city of Regensburg, the number of recorded butterfly and Burnet moth species has declined from 117 in 1840 to 71 in 2013. “Our study reveals, through one detailed example, that even official protection status can’t really prevent dramatic species loss,” says Thomas Schmitt, director of the Senckenberg Entomological Institute.

Declines in insect populations are hardly limited to Germany. A 2014 study in Science documented a steep drop in insect and invertebrate populations worldwide. By combining data from the few comprehensive studies that exist, lead author Rodolfo Dirzo, an ecologist at Stanford University, developed a global index for invertebrate abundance that showed a 45% decline over the last four decades. Dirzo points out that out of 3,623 terrestrial invertebrate species on the International Union for Conservation of Nature [IUCN] Red List, 42% are classified as threatened with extinction.

Read more …

Apr 272016
 
 April 27, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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G. G. Bain Navy dirigible, Long Island 1915

Apple Just Wiped Out $40 Billion In Value (BI)
Rotten Apple: Stock Plunges 8% On Earnings, Revenue Miss (CNBC)
Apple China Sales Drop 26% (CNBC)
Alarm Over Corporate America’s Debt And Stalled Earnings (Authers)
Weak US Factory, Consumer Confidence Data Cloud Growth Outlook (R.)
Once Bustling Trade Ports in Asia and Europe Lose Steam (WSJ)
Exxon Mobil Downgrade Leaves Just Two AAA-Rated Companies In The US (MW)
China Ratings Downgrade Wave Seen as Next Driver of Bond Slump (BBG)
China’s Commodity Frenzy Spurs New Crackdown From Exchanges (BBG)
Eurogroup Meeting Cancelled, Tsipras To Ask For Special EU Summit (Kath.)
Greece Faces New IMF Curve Ball to Unlock Aid (BBG)
Moody’s Downgrades Canadian Province Of Alberta On Rising Debt (R.)
From Germany To The US, Authorities Want Access To Panama Papers (DW)
‘Largest Ever Airlift’ Flies 33 Circus Lions To Africa Sanctuary (AP)
How Less Stuff Could Make Us Happier – And Fix Stagnation (G.)
Europe’s Failure On Refugees Echoes The Moral Collapse Of The 1930s (G.)

A lot of people and funds are long Apple, and own sizable chunks of it.

Apple Just Wiped Out $40 Billion In Value (BI)

Apple’s disappointing earnings report on Tuesday sent the stock down more than 7% in after-hours trading. That’s a lot for any company, but particularly dramatic for Apple, which is the most valuable in the world. Before the market closed today, Apple’s market cap was $578 billion. That means a 7% drop erases more than $40 billion worth of value. But the bad news doesn’t end there. Shares of some of Apple’s suppliers are also down, with Bloomberg reporting that Cirrus Logic has lost more than 8%. By way of comparison, Alphabet’s market cap is around $485 billion. How long until it passes the leader?

Read more …

Peak Apple is now in the rearview mirror.

Rotten Apple: Stock Plunges 8% On Earnings, Revenue Miss (CNBC)

Apple reported quarterly earnings and revenue that missed analysts’ estimates on Tuesday, and its guidance for the current quarter also fell shy of expectations. The tech giant said it saw fiscal second-quarter earnings of $1.90 per diluted share on $50.56 billion in revenue. Wall Street expected Apple to report earnings of about $2 a share on $51.97 billion in revenue, according to a consensus estimate from Thomson Reuters. That revenue figure was a roughly 13% decline against $58.01 billion in the comparable year-ago period — representing the first year-over-year quarterly sales drop since 2003. Shares in the company fell more than 8% in after-hours trading, erasing more than $46 billion in market cap.

That after-hours loss is greater than the market cap of 391 of the S&P 500 companies. Importantly, the company announced a 10% dividend increase and a $50 billion increase to its capital return program. Under that new plan, Apple expects to spend a total of $250 billion of cash by the end of March 2018, it said. On the dividend, Apple said its board had declared a dividend of $.57 per share, payable on May 12, 2016 to shareholders of record as of the close of business on May 9. A key reason for the declining revenue was Apple’s year-over-year decrease in iPhone sales. Despite this, Apple CEO Tim Cook told CNBC Tuesday that the company is in “the early innings of the iPhone.”

In fact, Apple beat Wall Street’s estimates on iPhone shipments, reporting 51.19 million for the quarter. Analysts had expected 50.3 million, according to StreetAccount. Still, that iPhone unit count was a 16% decline from the 61.17 million shipped during the same period last year. For his part, however, Cook described the iPhone business as “healthy and strong” on the call. In fact, Cook said the company added more switchers from Android and other platforms in the first half of the year than in any other six month period ever.

Read more …

Tim Cook is spinning. Reality says the next great gadget is long overdue; the iPhone is a Jobs idea, the iWatch a failure, and what has Apple done for you lately?

Apple China Sales Drop 26% (CNBC)

Apple’s sales in China tumbled in the second quarter after currency headwinds hurt Hong Kong sales, the company said in Tuesday’s earnings. “The vast majority of the weakness sits in Hong Kong,” Apple CEO Tim Cook told analysts in an earnings call. “The Hong Kong dollar being pegged to the U.S. dollar, and therefore it carries the burden of strength of U.S. dollar. And that has driven tourism, trade and international shopping down significantly compared to what it was in the year ago.” The company reported quarterly earnings and revenue that missed analysts’ expectations, with revenue declining year-over-year in every region. But China saw the biggest share of declines: Greater China sales, once the tech giant’s fastest growing market, fell to $12.49 billion in the second quarter, the company said, a 26% year-over-year decline.

Excluding Hong Kong and Taiwan, mainland China saw sales decline 11% on a reported basis, and 7% on a constant currency basis, Cook said. But people need to look under the numbers, Cook said, as LTE adoption increases and more Apple stores open in the region. “When I look at the larger picture, I think China is not weak as is talked about,” Cook said. “I see China as … a lot more stable than what I think is the common view of it. We remain really optimistic about China.” Chief financial officer Luca Maestri said the business in China was “better than the numbers might suggest.” “We had significant inventory channel reductions and currency weakness which affected our reported revenue,” Maestri said in an earnings call.

“Keep in mind that we were up against an extremely difficult year-ago compare when our mainland China revenue grew 81%. We remain very optimistic about the China market over the long-term, and we are committed to investing there for the long run.” But speaking in January, Cook warned that the company had seen “some signs of economic softness” in the Greater China region. That business segment, which includes mainland China, Taiwan and Hong Kong, is a key area of growth for the U.S. tech giant, but Cook acknowledged in January that it had been something of a “turbulent environment.” China has seen its pace of economic expansion slowing in recent quarters, and its stock markets have taken investors on a roller coaster ride during that time.

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Buybacks are fizzling out. They’re too expensive an option to continue propping up shares.

Alarm Over Corporate America’s Debt And Stalled Earnings (Authers)

Corporate America is swimming in cash. There is no great news about this, and no great mystery about where it came from. Seven years of historically low interest rates will prompt companies to borrow. A new development, however, is that investors are starting to ask in more detail what companies are doing with their cash. And they are starting to revolt against signs of over-leverage. That over-leverage has grown most blatant in the last year, as earnings growth has petered out and, in many cases, turned negative. This has made the sharp increases in corporate debt in the post-crisis era look far harder to sustain. Perhaps the most alarming illustration of the problem compares annual changes in net debt with the annual change in earnings before interest, tax, depreciation and amortisation, which is a decent approximation for the operating cash flow from which they can expect to repay that debt. As the chart shows, debt has grown at almost 30% over the past year; the cash flow to pay it has fallen slightly.

According to Andrew Lapthorne of Société Générale, the reality is that “US corporates appear to be spending way too much (over 35% more than their gross operating cash flow, the biggest deficit in over 20 years of data) and are using debt issuance to make up the difference”. The decline in earnings and cash flows in the past year has accentuated the problem, and brought it to the top of investors’ consciousness. A further issue is the uses to which the debt has been put. As pointed out many times in the post-crisis years, it has generally not gone into capital expenditures, which might arguably be expected to boost the economy. It has instead been deployed to pay dividends, or to buy back stock — or to buy other companies. Shifts in these uses of cash are now affecting markets.

Cash-funded mergers and acquisitions are at a record. In the four quarters to the end of last September, according to Ned Davis Research, S&P 500 companies spent $376bn on acquisitions, 43% above the prior high in 2007, ahead of the credit crisis. Buyback activity remains intense. According to S&P Dow Jones, for each of the seven quarters up to the third quarter of last year, between 20% and 23% of S&P 500 companies bought back enough shares to reduce their total shares outstanding at a rate of 4% per year. In the last quarter of 2015, 25.8% of companies did so.

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“First-quarter GDP growth estimates are as low as a 0.3% rate.”

Weak US Factory, Consumer Confidence Data Cloud Growth Outlook (R.)

Orders for long-lasting U.S. manufactured goods rebounded far less than expected in March as demand for automobiles, computers and electrical goods slumped, suggesting the downturn in the factory sector was far from over. Tuesday’s report from the Commerce Department also implied that business spending and economic growth were weak in the first quarter. Prospects for the second quarter darkened after another report showed an ebb in consumer confidence in April. The data came as Federal Reserve officials started a two-day policy meeting. The U.S. central bank is expected to leave its benchmark overnight interest rate unchanged on Wednesday. The Fed raised rates in December for the first time in nearly a decade.

“These disappointing reports will likely add to the caution at the Fed. Given the weak performance in these two key segments of the economy, we expect the rebound in growth momentum in the second quarter to be quite weak,” said Millan Mulraine, deputy chief economist at TD Securities in New York. The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, increased 0.8% last month after declining 3.1% in February. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged after a downwardly revised 2.7% decrease in the prior month. These so-called core capital goods orders were previously reported to have decreased 2.5% in February.

Economists had forecast durable goods orders advancing 1.8% last month and core capital goods increasing 0.8%. Shipments of core capital goods – used to calculate equipment spending in the gross domestic product report – rose 0.3% after slumping 1.8% in February. Manufacturing, which accounts for 12% of the U.S. economy, is struggling with the lingering effects of the dollar’s past surge and sluggish overseas demand. [..] The durable goods report added to recent reports on retail sales, trade and industrial production in suggesting economic growth slowed further in the first quarter. The economy grew at an anemic 1.4% annualized rate in the fourth quarter. First-quarter GDP growth estimates are as low as a 0.3% rate. The government will publish its advance first-quarter GDP growth estimate on Thursday.

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It’ll take a long time for people to acknowledge that globalization, centralization, global trade, are declining and are in essence over, since they are shrinking. And shrinkage=death in our system.

Once Bustling Trade Ports in Asia and Europe Lose Steam (WSJ)

At a logistics park bordering Shanghai’s port last month, the only goods stored in a three-story warehouse were high-end jeans, T-shirts and jackets imported from the U.K. and Hong Kong, most of which had sat there for nearly two years. Business at the 108,000-square-foot floor warehouse dwindled at the end of 2015 after several Chinese wine importers pulled out, said Yang Ying, the warehouse keeper, leaving lots of empty space. The final blow came after a merchant turned away a shipment in December at the dock. “The client told the ship hands, just take the wine back to France,” Ms. Yang said. “Nobody wants it.” Pain is increasing among the world’s biggest ports—from Shanghai to Hamburg—amid weaker growth in global trade and a calamitous end to a global commodities boom.

Overall trade rose just 2.8% in 2015, according to the World Trade Organization, the fourth consecutive year below 3% growth and historically weak compared with global economic expansion. The ancient business of ship-borne trade has been whipsawed, first by a boom that demanded more and bigger vessels, and more recently by an abrupt slowing. That turnabout has roiled the container-shipping industry, which transports more than 95% of the world’s goods, from clothes and shoes to car parts, electronic and handbags. It has set off a frenzy of consolidation and costs cutting across the world’s fleets. Ashore, it is also slamming ports and port operators, the linchpin to global commerce. Nowhere is the carnage more painful than along the Europe-Asia trade route, measuring roughly 28,000 miles round trip.

A cooling Chinese economy and a high-profile crackdown by Beijing on corruption has damped demand for everything from commodities like iron ore to designer scarves and shoes. Meanwhile, Europe’s still sputtering recovery from the global economic crisis is hitting the flow of goods in the other direction. On Friday, the Hong Kong Marine Department reported throughput for its port in the first quarter was off 11% from the first three months of last year. Throughput for all of 2015 also dropped 11%. “It is the first time you see people in shipping being really scared,” said Basil Karatzas, of New York-based Karatzas Marine Advisors and Co.

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Things are not well.

Exxon Mobil Downgrade Leaves Just Two AAA-Rated Companies In The US (MW)

In a sign of deteriorating credit quality, Standard & Poor’s on Tuesday stripped oil giant Exxon Mobil of its pristine AAA rating, leaving just two U.S. non-financial companies with what is the highest possible rating on their debt. Microsoft and consumer goods giant Johnson & Johnson are now the only companies to enjoy an AAA rating, the strongest possible vote of confidence in their financial strength and discipline in meeting all of their debt obligations. As recently as 2008, there were six AAA-rated companies, but General Electric, Pfizer and Automatic Data Processing have been downgraded since then. “This shows that the corporate market is not immune from secular industry changes and deep cyclical troughs that materially impact the immediate-term credit outlook,” said Brian Gibbons at research firm CreditSights.

S&P cut Exxon’s rating by two notches to AA-plus, and said the outlook is stable, meaning it does not expect to adjust the rating in the near term. The rating agency had placed the rating on CreditWatch negative on Feb. 2, in the light of the lengthy slump in oil prices. “We believe Exxon Mobil’s credit measures will be weak for our expectations for a ‘AAA’ rating due, in part, to low commodity prices, high reinvestment requirements, and large dividend payments,” the agency wrote in a statement. Exxon has more than doubled its debt load in recent years, as it spends generously on major projects, said S&P. But the oil giant has also been rewarding its shareholders with dividend payments and share buybacks “that substantially exceeded internally generated cash flow.”

Exxon is likely to benefit from near-term production gains as some of those projects are completed, but maintaining production and replacing reserves will require more spending. “We believe the company may return cash to shareholders rather than building cash or reducing debt, limiting improvement in our projected credit measures when commodity prices improve,” said S&P. Gibbons said the two-notch downgrade is harsh, given Exxon’s status as the best-of-breed oil and gas company in the world, the strength of its balance sheet and earnings diversity through upstream and downstream businesses. “Its global reach positions it much better than any other energy peer, but it too is not immune to the depths of the cycle,” he said.

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Zombie nation.

China Ratings Downgrade Wave Seen as Next Driver of Bond Slump (BBG)

China’s slumping onshore bond market is braced for rating cuts, as companies report weaker earnings and prepare for unprecedented debt maturities. China Securities and HFT Investment Management predict downgrades will surge as a slumping economy makes financial reports due by April 30 a gloomy read. Companies in China must repay 547 billion yuan ($86 billion) of onshore notes in May, the most in any month ever, data compiled by Bloomberg show. Investors are avoiding risky debt, with the yield premium on three-year AA- rated local bonds, considered junk in China, widening 43 basis points in April, the most since 2014. “An explosion of credit risks is spreading,” said He Qian at HFT Investment Management. “The risks are spreading from privately held companies to state-owned companies, from overcapacity industries to all other industries.”

At least seven companies missed bond payment this year, up from only two in the same period of 2015 as Premier Li Keqiang tries to rid industries with overcapacity of zombie producers. Onshore agencies have cut 33 issuer ratings, almost double the 17 for the first four months of 2015, according to China Chengxin International Credit Rating Co. There have been 34 upgrades versus 37% a year ago. “We will see a wave of rating downgrades in the middle of this year,” said Wei Zhen at Bosera Asset Management. She oversees the Bosera Anfeng 18-Month Interval Bond Fund, whose 17% return in the past year was the best among fixed-income funds tracked by research firm Howbuy. “The rising credit risks may lead to a further correction in the corporate bond market.” Chinese investors have complained onshore ratings don’t fully reflect issuers’ credit risks.

More than 50% of Chinese locally-rated AAA bonds issued by listed firms may have default risk consistent with what Bloomberg’s quantitative, independent default-risk model deems below-investment-grade companies. Shi Yuxin at HuaAn Fund Management said in a report on April 18 that China’s “inflated” ratings will be under pressure to have “substantial” downgrades in 2016 as local governments cut their support for troubled companies. About 14.9% of listed Chinese companies have forecast losses for 2015, compared with 12.7% in 2014, according to data compiled by China International Capital Corp. Ministry of Finance data released on Tuesday showed that profit at state-owned companies slid 13.8% in the first quarter from a year earlier. Investors are fleeing the bond market. The market value of assets held by 718 onshore bond funds dropped last week, accounting for 95.6% of all the fixed-income funds tracked by Shanghai-based research firm Howbuy.

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Beijing has lost the narrative.

China’s Commodity Frenzy Spurs New Crackdown From Exchanges (BBG)

China’s commodity exchanges stepped up efforts to curb speculation in trading in everything from steel to iron ore and coking coal after prices soared amid a credit-fueled binge. Futures slumped on Wednesday. Bourses in Dalian, Shanghai and Zhengzhou have announced further measures, including higher fees and a reduction in night hours, adding to a raft of moves this month that have made it more expensive for investors to trade. Goldman Sachs said this week it was concerned about the surge in speculative trading in iron ore, adding daily volumes were so large that they sometimes exceed annual imports. Ore prices have surged 34% this year in Dalian, while steel reinforcement bar is up 39% in Shanghai.

Morgan Stanley said the spike in speculative trading had stunned global markets, citing a jump in activity for eggs, garlic and cotton as well as iron ore and steel. The explosive growth in trading has stoked concerns that the frenzy was triggered by a credit-fueled surge in liquidity echoing the stock market bubble in 2015 and is destined for a similar bust, according to Zheng Ge at CEFC Wanda Futures. China’s investors have been honing in on raw materials amid signs of a pickup in demand after policy makers talked up growth, added stimulus and the property market rebounded. Among the latest changes, the Dalian exchange raised trading fees for iron ore, coking coal and coke, while Shanghai said it would increase margin requirements for steel reinforcement bar and hot-rolled coil, and shorten trading hours.

The Zhengzhou exchange raised trading charges and margin requirements for some commodities. Iron ore futures plunged 4.1% on Wednesday, extending their decline in the past four days to 8.9%. Steel reinforcement bar lost 3.2% and coking coal slid 4.6% as prices responded to the exchange moves. “We’re trying to clampdown firmly on the trend of excessive speculation in some commodity trading,” the Dalian bourse said in a statement. “We’ll be highly vigilant and adopt further measures if necessary.”

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Does SYRIZA have any fight left? If not, Europe is going to walk all over it.

Eurogroup Meeting Cancelled, Tsipras To Ask For Special EU Summit (Kath.)

Greece and its lenders were unable on Tuesday to reach an agreement on how to line up €3.6 billion in contingent austerity measures, leading to plans for an extra meeting of eurozone finance ministers on Thursday being dropped. A spokesman for Eurogroup President Jeroen Dijsselbloem confirmed on Tuesday night that there would be no meeting this week to rubber-stamp an agreement between Athens and the institutions and conclude the first review of the third Greek bailout program. “More time needed,” tweeted Michel Reijns. “Meeting of first review, contingency package and debt at later stage,” he added, without suggesting when eurozone finance ministers might meet to discuss Greece.

Prime Minister Alexis Tsipras is expected to call European Council President Donald Tusk today to ask for an extraordinary EU leaders’ summit to discuss the Greek program as the SYRIZA leader feels that Athens has met its bailout commitments and that the lenders’ side is standing in the way of an agreement. Greek government sources said earlier that the details of an initial €5.4 billion package of tax hikes and pension cuts had been finalized. However, the standby measures, which total 2% of GDP, proved to be a stumbling block. Athens proposed that the government should commit to adopting corrective measures if fiscal targets are missed but that these interventions should only be specified after Greece’s fiscal data has been ratified by Eurostat.

This proposal is thought to have been rejected by the IMF and some eurozone member-states, which want Greece to legislate specific measures now and have them on standby in case they are needed. Sources said that Finance Minister Euclid Tsakalotos spoke with some of his eurozone counterparts on Tuesday in order to explain the situation to them. The Greek government believes that German Finance Minister Wolfgang Schaeuble showed understanding for Greece’s position and appeared to support the Greek proposal for a permanent mechanism to reduce spending when the adjustment program is not on track. Athens is adamant that the IMF’s insistence on specific standby measures being legislated now was the only factor that prevented Greece and the institutions reaching an agreement on Tuesday.

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This battle is about contingency plans, not even actual ones, but what-ifs.

Greece Faces New IMF Curve Ball to Unlock Aid (BBG)

Greek Prime Minister Alexis Tsipras has promised voters he’ll reject even one euro cent more of budget austerity than is needed under the country’s bailout. Greece’s international creditors say the program’s requirements may include €3.5 billion in extra fiscal tightening he hadn’t bargained for. The demand by the euro area and the IMF is a potential bombshell for the government, raising the threat of renewed instability in Greece. Tsipras rode to power in January 2015 railing against austerity and nearly steered Greece out of the euro before flip-flopping last summer to secure the nation’s third bailout in six years. Since then the Greek economy has slipped back into recession, unemployment has stayed stubbornly high at around 25% and public support for the euro has weakened.

Just like last year, Tsipras needs financial aid to avoid defaulting on payments to the ECB that come due in three months time. The prime minister’s current dilemma stems from a disagreement between the euro area and the IMF. While the European creditors say the government in Athens has committed to enough austerity to reach the targeted budget surplus before interest payments of 3.5% of gross domestic product in 2018, the IMF projects current Greek measures will produce an excess of just 1.5%. With Germany insisting on continued IMF involvement in the Greek aid program, the conflicting forecasts have led the creditors as a whole to call for “contingency measures” equal to 2% of GDP. These would kick in should the government in Athens stray off its budgetary course as the IMF projects.

So Tsipras and Finance Minister Euclid Tsakalotos face the delicate task of drawing up measures that can satisfy the creditors without breaking apart their coalition with the nationalist Independent Greeks. That balancing act would be a challenge for any Greek government, let alone one with an anti-austerity base, a deep dislike of the Washington-based IMF and a three-seat majority in parliament.

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The fastest growing economy in North America for years. Gone.

Moody’s Downgrades Canadian Province Of Alberta On Rising Debt (R.)

Moody’s Investors Service stripped Alberta of its Aaa credit rating on Monday, becoming the latest ratings agency to downgrade the Canadian province after the oil price shock pushed its finances deep into the red. Citing its worsening fiscal position and resulting rapid rise in debt, Moody’s downgraded the province’s long-term rating to Aa1 from Aaa and maintained a negative outlook. The downgrade “reflects the province’s growing and unconstrained debt burden, extended timeframe back to balance, weakened liquidity, and risks surrounding the success of the province’s medium-term fiscal plan,” Moody’s Assistant Vice President Adam Hardi said in a statement. Earlier this month, Dominion Bond Rating Service also downgraded the province after the provincial government forecast a budget deficit of C$10.4 billion ($8.21 billion) this fiscal year.

Standard & Poor’s stripped Alberta of its AAA credit rating in December. Alberta’s left-leaning NDP government expects the once-booming province to be C$57.6 billion in debt by 2019, while Finance Minister Joe Ceci said Alberta could run deficits until 2024. Ceci described the latest downgrade as a “disappointment” and reiterated the government’s commitment to maintaining funding for public services and infrastructure spending in a bid to spur growth. The province is home to Canada’s vast oil sands and is the No. 1 exporter of crude to the United States but the government expects oil and gas revenues this year to be almost 90% lower than 2014. Earlier this month the Canadian Association of Petroleum Producers said capital investment in the industry has dropped C$50 billion in two years and more than 100,000 oil and gas workers have been laid off.

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In order to pre-empt ‘authorities’, what the journalists should do is reach out to Wikileaks and find a means to release the data after redacting them in a way that prevents people from getting hurt. The ICIJ does not seem to have that ability. They will come to regret that, because pressure will rise.

From Germany To The US, Authorities Want Access To Panama Papers (DW)

Germany’s federal states on Friday called for increased measures against tax havens and for media outlets to allow prosecutors to examine the contents of a cache of 11.5 million documents known as the “Panama Papers,” which had been leaked to the press. “If the data sets from the ‘Panama Papers’ are not made accessible, then we cannot draw any consequences,” said Lower Saxony’s Finance Minister Peter-Jürgen Schneider, Reuters news agency reported. However, the Munich-based newspaper Süddeutsche Zeitung’s (SZ) investigative unit on Tuesday said it would not hand over the cache nor would it publish the leak online, despite calls to do so by government officials and representatives of the whistleblowing organization WikiLeaks.

“As journalists, we have to protect our source: we can’t guarantee that there is no way for someone to find out who the source is with the data. That’s why we can’t make the data public,” the team said during an “Ask Me Anything” session on Reddit, which included journalist Bastian Obermayer, who was first contacted by the anonymous source. “You don’t harm the privacy of people, who are not in the public eye. Blacking out private data is a task that would require a lifetime of work – we have eleven million documents,” the unit added. In a letter to the International Consortium of Investigative Journalists (ICIJ) obtained by British newspaper The Guardian this week, US attorney for Manhattan Preet Bharara said the Justice Department “has opened a criminal investigation regarding matters to which the Panama Papers are relevant.”

“The office would greatly appreciate an opportunity to speak as soon as possible with any ICIJ employee or representative involved in the Panama Papers project in order to discuss this matter further,” Bharara said. ICIJ Director Gerard Ryle said on Thursday that the organization would not release unpublished data to the Justice Department or other government entities, although it welcomed the “US Attorney’s Office reviewing all of the information from the Panama Papers.” “ICIJ does not intend to play a role in that investigation. Our focus is journalism … ICIJ, and its parent organization, the Center for Public Integrity, are media organizations shielded by the First Amendment and other legal protections from becoming an arm of law enforcement,” Ryle said in a statement.

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Thank you.

‘Largest Ever Airlift’ Flies 33 Circus Lions To Africa Sanctuary (AP)

Thirty-three lions rescued from circuses in Peru and Colombia are being flown back to their homeland to live out the rest of their lives in a private sanctuary in South Africa. The largest ever airlift of lions will take place on Friday and has been organised and paid for by Animal Defenders International. The Los Angeles-based group has for years worked with lawmakers in the two South American countries to ban the use of wild animals in circuses, where they often are held in appalling conditions. The lions suffered in captivity: some were declawed, one lost an eye and many were recovered with broken or rotting teeth.

The group said the first group of nine lions would be collected in the capital, Bogota, on a McDonnell Douglas cargo plane, which would pick up 24 more in Lima before heading to Johannesburg. From there they would be transported by land to their new home at the Emoya Big Cat Sanctuary in Limpopo province, where they would enjoy large natural enclosures. “It will be hugely satisfying to see these lions walking into the African bush,” said Tom Phillips, ADI’s vice-president, as he inspected the cages that will be used to transport the lions. “It might be one of the finest rescues I’ve ever seen; it’s never happened before taking lions from circuses in South America all the way to Africa,” he added. “It’s like a fairytale.”

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Or, more likely, we’ll bash each other’s heads in. Bit too dreamy for me.

How Less Stuff Could Make Us Happier – And Fix Stagnation (G.)

Has western society reached “peak stuff”? If reports that once-insatiable shoppers are starting to cut back are true, what are the consequences for the old economic theory that more consumption equals greater happiness? That is a question a Bank of England blogger has posed, with interesting and upbeat conclusions. Writing on Bank Underground, a blog where Bank of England staff can challenge prevailing orthodoxies, Dan Nixon wondered if rather than shopping our way to satisfaction, a Buddhism-inspired trend of mindfulness has taught us that less is more. Inspired by its message to appreciate the moment, perhaps we can achieve greater happiness by seeking to simplify our desires, rather than satisfy them, wrote Nixon, who works in the Bank’s stakeholder communications and strategy division.

The result of less consumption but greater wellbeing could be “especially important for debates around secular stagnation and ecological sustainability”, he says. In other words, if secular stagnation is nigh and there is a permanent downward shift in the potential growth rates of advanced economies, increased attention will naturally turn to alternative ways to increase wellbeing. “‘Less is more’ ideas could form one part of the solution,” said Nixon. There are also interesting implications in the field of environmental economics, given human wellbeing and ecological sustainability are often assumed to be in conflict. “The neat thing about the less is more critique is that it achieves less consumption without constraining people’s decisions,” said the Bank blogger.

The repeated Black Friday sales frenzies that have spilled across the Atlantic from the US to the UK and the continuing fortunes of big online retailers such as Amazon may feel at odds with all the less is more talk. But the rise of mindfulness, in media coverage, schools and workplaces – including at the Bank of England – has coincided with signs that shopping may be losing its appeal as our national pastime. Ikea, purveyor of flatpacks and tealights, recently claimed the appetite of western consumers for home furnishings had reached its peak. The Swedish furniture giant’s UK crammed car parks and long hotdog queues may suggest otherwise but Ikea’s head of sustainability, Steve Howard, has spoken of “peak curtains”.

His views were followed weeks later by official figures showing the amount of “stuff” used in the UK – including food, fuel, metals and building materials – had fallen dramatically since 2001. The Office for National Statistics data revealed that on average people used 15 tonnes of material in 2001 compared with just over 10 tonnes in 2013.

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Fully in line with what I’ve often said. In a situation like this, you have to put people first, not politics, or you will create mayhem. This is a certainty. It’s too late already for Europe. The goodwill and moral high ground wasted over the past 18 months will take 100 years to regain, if ever.

Europe’s Failure On Refugees Echoes The Moral Collapse Of The 1930s (G.)

In 1938, representatives from 32 western states gathered in the pretty resort town of Evian, southern France. Evian is now famous for its water, but back then, the delegates had something else on their minds. They were there to discuss whether to admit a growing number of Jewish refugees, fleeing persecution in Germany and Austria. After several days of negotiations, most countries, including Britain, decided to do nothing. On Monday, I was reminded of the Evian conference when British MPs voted against welcoming just 600 child refugees a year over the next half-decade. The two moments are not exactly comparable. History doesn’t necessarily repeat itself. But it does echo, and it does remind us of the consequences of ethical failure. Looking back at their inaction at Evian, delegates could claim they were unaware of what was to come.

In 2016, we no longer have that excuse. Nevertheless, both in Britain and across Europe and America, we currently seem keen to forget the lessons of the past. In Britain, many of those MPs who voted against admitting a few thousand refugees are also campaigning to unravel a mechanism – the EU – that was created, at least in part, to heal the divisions that tore apart the continent during the first and second world wars. Across Europe, leaders recently ripped up the 1951 refugee convention – a landmark document partly inspired by the failures of people such as the Evian delegates – in order to justify deporting Syrians back to Turkey, a country where most can’t work legally, despite recent legislative changes; where some have allegedly been deported back to Syria; and still more have been shot at the border.

Emboldened by this, the Italian and German governments have since joined David Cameron in calling for refugees to be sent back to Libya, a war zone where – in a startling display of cognitive dissonance – some of the same governments are also mulling a military intervention. Where many migrants work in conditions tantamount to slavery. Where three separate governments are vying for control. And where Isis runs part of the coastline.

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Apr 082016
 
 April 8, 2016  Posted by at 9:30 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Wyland Stanley Golden Gate Bridge under construction 1935

US Braces for Worst Earnings Season Since 2009 (BBG)
Albert Edwards: Coming ‘Tidal Wave’ Will Throw The US Into Recession (BI)
Asian Shares Drop As Banks Come Under Pressure (Reuters)
KKR’s Chilling Message about the ‘End of the Credit Cycle’ (WS)
China Steel Exports Will Stay At High Levels For Years (BBG)
US Politics Is Closing The Door On Free Trade (FT)
VW Managers ‘Refuse To Forego Bonuses’ (AFP)
It’s Time To Start Worrying About The Health Of European Banks (BBG)
More Than 40% of Student Borrowers Aren’t Making Payments (WSJ)
UK’s Cameron Admits He Profited From Father’s Offshore Fund (AFP)
European Bankers Step Down as Panama Papers Pile on Pressure
Pirate Party Backed By Almost Half Of Iceland’s Voters (Ind.)
Turkey Will Ditch Migrant Deal If EU Breaks Promises: Erdogan (AFP)
Amnesty: ‘Serious Flaws’ Mar Greek Side Of EU-Turkey Migrants’ Deal (Reuters)
Questions Mount Over EU’s Role In Processing Greece Asylum Requests (IT)
Greece Ferries Second Boat Of Migrants To Turkey Under EU Pact (Reuters)
Refugees In Greece Warn Of Suicides (G.)

See under ‘Recovery’ in your dictionary.

US Braces for Worst Earnings Season Since 2009 (BBG)

U.S. corporate profits are expected to drop the most in 6 1/2 years in the first quarter, led by a wipeout in the embattled energy sector. Earnings for companies in the Standard & Poor’s 500 Index will fall 9.8% year-over-year, which would be the sharpest decline since the third quarter of 2009 and a fourth consecutive quarter of contraction, according to Bloomberg data. Results will be insufficient to justify current stock valuations, says Alex Bellefleur, head of global macro strategy and research at Pavilion Global Markets.

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“The US is in for a full-blown end to the economic cycle.”

Albert Edwards: Coming ‘Tidal Wave’ Will Throw The US Into Recession (BI)

A tidal wave is coming to the US economy, according to Albert Edwards, and when it crashes it’s going to throw the economy into recession. The Societe Generale economist, and noted perma-bear, believes that the profit recession facing American corporations is going to lead to a collapse in corporate credit. “Despite risk assets enjoying a few weeks in the sun our fail-safe recession indicator has stopped flashing amber and turned to red,” wrote Edwards in a note to clients on Thursday. He continued (emphasis added): “Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided — even more so than the ridiculously overvalued equity market — is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.

Edwards said that many economic researchers discredit profits as a measure of the business cycle, and it is one of the reasons why they are so bad at predicting recessions. Profits are on the decline for two reasons, according to Edwards. On the one hand, they are dropping because of margin pressure from rising labor costs. But this sort of decrease because of higher wages does not always signal a recession, like in 1986. Additionally, much like the mid-1980s decline, an oil-price crash is disproportionately dragging down profits. The second reason is because companies cannot pass on these increasing wage pressures to consumers through prices. In turn, they decrease spending and hiring, and the most vulnerable cannot make debt payments.

Edwards enumerated three reasons why this time around is a recessionary decrease, not a 1986-style aberration. They are:
• “When the oil price slumped in 1986 the economy was steaming ahead at a 4% pace and so withstood the downturn in business investment.”
• “In 1986 Fed Funds were cut from over 8% to less than 6% at a time when the consumer was re-leveraging, i.e. not debt averse as now.”
• “Finally, companies in 1986 were not up to their necks in debt as they currently are, and their solvency now is far more vulnerable to a profits downturn.”

So this time will not be a quick, oil-driven recovery. The US is in for a full-blown end to the economic cycle. Edwards did include some advice to investors on how to weather the coming wave, though. “And if I had to pick one asset class to avoid it would be US corporate bonds, for which sky high default rates will shock investors,” he wrote. You’ve been warned.

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This will only lead to more stimulus until and unless financial markets start applying serious pressure.

Asian Shares Drop As Banks Come Under Pressure (Reuters)

Asian shares extended losses to three-week lows on Friday, while the yen soared to a 17-month high against the dollar as investors bet Japan would be hard pressed to drive down its currency in the face of widespread foreign opposition. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, heading for a weekly drop of 1.8%. Japan’s Nikkei pared earlier losses to near-two-month lows to trade 0.6% lower, with financials under pressure. It’s on track for a decline of 3.1% for the week. China’s Shanghai Composite slid 0.9%, poised for a similar drop for the week. The CSI 300 was down 0.8%, set for a 1.2% weekly decline. Hong Kong’s Hang Seng slipped 0.7%, headed for 1.9% loss for the week.

Bank shares led losses in Europe and the U.S. markets on Thursday, amid talk of more layoffs and cutbacks planned by Europe’s major lenders as they struggle with zero rates. The U.S. S&P 500 lost 1.2%, with financial shares falling 1.9%. In Europe, the FTSE closed down 0.8%, hurt by a drop of more than 2% in financials. “When bank shares are making big falls and their CDS spreads are rising like this, obviously you would think something is afoot. If they keep falling in today’s session, that is going to be really worrying,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. U.S. stock futures slipped about 0.1% further in Asian trade after Federal Reserve Chair Janet Yellen, in a conversation with former Fed chairmen, said the U.S. economy is on a solid course and still on track to warrant further interest rate hikes.

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All vultures all the way.

KKR’s Chilling Message about the ‘End of the Credit Cycle’ (WS)

After seven years of “emergency” monetary policies that allowed companies to borrow cheaply even if they didn’t have the cash flow to service their debts, other than by borrowing even more, has created the beginnings of a tsunami of defaults. The number of corporate defaults in the fourth quarter 2015 was the fifth highest on record. Three of the other four quarters were in 2009, during the Financial Crisis. At stake? $8.2 trillion in corporate bonds outstanding, up 77% from ten years ago! On top of nearly $2 trillion in commercial and industrial loans outstanding, up over 100% from ten years ago. Debt everywhere! Of these bonds, about $1.8 trillion are junk-rated, according to JP Morgan data. Standard & Poor’s warned that the average credit rating of US corporate borrowers, at “BB,” and thus in junk territory, hit a record low, even “below the average we recorded in the aftermath of the 2008-2009 credit crisis.”

The risks? A company with a credit rating of B- has a 1-in-10 chance of defaulting within 12 months! In total, $4.1 trillion in bonds will mature over the next five years. If companies cannot get new funds at affordable rates, they might not be able to redeem their bonds. Even before then, some will run out of cash to make interest payments. A bunch of these companies are outside the energy sector. They have viable businesses that throw off plenty of cash, but not enough cash to service their mountains of debts! Among them are brick-and-mortar retailers that have been bought out by private equity firms and have since been loaded up with debt. And they include over-indebted companies like iHeart Communications, Sprint, or Univsion.

The “end of the credit cycle” has dawned upon the markets. As credit tightens, companies that can’t service their debts from operating cash flows may be denied new credit with which to service existing debts. The recipe of new creditors’ bailing out existing creditors worked like a charm for the past seven years. But it isn’t working so well anymore. What follows is a debt restructuring — either in bankruptcy court or otherwise. Money is now piling up in funds run by private equity firms, to be deployed at the right moment to profit from this. But not by playing the entire market, or to bail out existing investors. No way. This money will be deployed at the expense of existing investors. One of the biggest players is PE firm KKR, which just raised $3.35 billion to take advantage of opportunities in “distressed assets.” Existing investors, brace yourself!

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The west doesn’t stand a chance without protectionism.

China Steel Exports Will Stay At High Levels For Years (BBG)

Exports of steel from China will remain at high levels as local demand shrinks for years, according to Li Xinchuang, president of the country’s Metallurgical Planning Institute, who said mills in developed markets including the U.K. are struggling because their competitiveness is weak. While export volumes won’t increase from last year’s record, they won’t decline significantly either, Li said. Steel overcapacity is a global problem and China is already playing its part with proposals to close as much as 150 million tons that will put more than half a million people out of work, Li said, speaking in an interview and at a conference. Steel shipments from China surged in 2015 as Asia’s largest economy slowed and domestic demand shrank, with the flood of cargoes boosting global competition, hurting prices and squeezing profits. Britain faces an industry crisis after India’s Tata Steel said last week it was considering selling its unprofitable U.K. division, jeopardizing about 15,000 jobs.

Some steelmakers in the U.K. and U.S. “can’t meet local demand and they can’t compete globally,” Li said on Wednesday, rejecting claims that shipments from China are traded unfairly. “China is competitive for three reasons: good price, good service, good quality.” Tata Steel’s plan to sell its British plants has led to U.K. calls for tougher trade measures against China, which accounts for half of global output. China is prepared to defend itself at the World Trade Organization, according to Li, who’s also deputy secretary general of the China Iron & Steel Association. Fortescue CEO Nev Power sees the country becoming more competitive. “The new steel mills that are being built in China are very efficient, very energy-efficient, very productive,” he said in a Bloomberg TV interview on Thursday. “China is setting itself up to be a very competitive supplier to other emerging economies throughout Asia.”

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Sign of the times.

US Politics Is Closing The Door On Free Trade (FT)

Donald Trump wants to slap punitive tariffs on China. Hillary Clinton opposes the 12-nation Trans-Pacific Partnership she once hailed as a gold standard for a new generation of free trade deals. Republicans are embracing Democrat demands for “fair” trade. The US, the architect of the open global system, is turning inwards. The rest of the world should sit up. This is about more than the raw political emotions stirred by a US presidential race. The WTO’s failed Doha Round saw the end of the multilateral trade liberalisation that gave us the globalised economy. The failure of the TPP would read the rites over the big plurilateral deals that promised an alternative. Free trade has been a powerful source of prosperity. It has lost political legitimacy. And not only in the US: European populists of left and right share the Trumpian disposition to throw up the barricades.

Optimists hope the protectionist turn in the US is cyclical. Things will get back to normal once the cacophony of the presidential contest subsides. Freed from the primary challenge of Bernie Sanders, Mrs Clinton, the most likely successor to President Barack Obama, will find a way to change her mind again. The TPP could yet be smuggled through Congress during the lame-duck interlude after November’s elections. Such is the line from Mr Obama’s White House and from a diminishing band of Republicans true to their free trade heritage. All the evidence points the other way. Globalisation has gone out of fashion. Shrewd Washington observers have concluded that, as one puts it, “ there is not a chance in hell” of the next president or the next Congress – of whatever colour – backing the TPP.

As for the mooted, and now being negotiated, Transatlantic Trade and Investment Partnership (TTIP) designed to integrate the US and European economies, dream on. Mr Trump has struck a powerful chord among his core constituency in blaming foreigners for America’s economic ills. The backlash against free trade, though, runs deeper than cheap populism. The middle classes have seen scant evidence of the gains once promised for past deals. Republicans, fearful that they have already lost the presidency, do not want to risk handing Congress to fair-trade Democrats. Some problems are specific to the TPP. The prospective wins for the US are heavily tilted towards technology businesses on the west coast.

Manufacturing America thinks it secures little in the way of better access to Asian markets and complains that the deal leaves US companies vulnerable to currency manipulation by overseas competitors. Many more Americans than would ever gift their votes to Mr Trump question whether they get anything out of trade deals. Free trade has always created losers, but now they seem to outnumber the winners. There is nothing populist about noticing that globalisation has seen the top 1% grab an ever-larger share of national wealth.

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Time for shareholders.

VW Managers ‘Refuse To Forego Bonuses’ (AFP)

Top executives at Volkswagen are refusing to forego their bonuses this year, despite prescribing belt-tightening for the carmaker’s workforce in the wake of the massive emissions-cheating scandal, the weekly magazine Der Spiegel reported on Thursday. Without naming its sources, the magazine said that shortly before a supervisory board decision that executive board members had made it clear they were willing to “accept a cut in their bonuses, but not forego them entirely”, even though they have repeatedly told the workforce that the crisis threatens the group’s very existence. VW’s former chief executive Martin Winterkorn received a bonus of more than €3 million a year ago. A company spokesman told AFP that the board pay would be published in VW’s annual report on April 28.

“The management board is determined to set an example when it comes to the adjustment in the bonuses,” he said, dismissing the Spiegel article as “pure speculation.” Winterkorn’s successor Matthias Mueller was parachuted in last year to steer the carmaker out of its deepest-ever crisis which erupted when VW was exposed as having installed emissions-cheating software into 11 million diesel engines worldwide. At the time, Mueller told the workforce that there would have to be “belt-tightening at all levels” from management down to the workers. But according to Der Spiegel, the former finance chief Hans-Dieter Poetsch, who was appointed to the head of the supervisory board in October, pocketed nearly €10 million as “compensation” for the lower pay he would receive as a result.

The scandal is expected to cost VW still incalculable billions of euros in fines and possible legal costs. Unions are concerned that the belt-tightening needed to cope with the fallout from the engine-rigging scandal could lead to job cuts. “We have the impression that the diesel engine scandal could be used as a backdoor for job cuts that weren’t up for discussion until a couple of months ago,” the works council wrote in a letter to the management of VW’s own brand and published on the website of the powerful IG Metall labour union.

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“.. 90% of the world’s banks will have disappeared in the next 20 years..”

It’s Time To Start Worrying About The Health Of European Banks (BBG)

European banks have lost their mojo. A toxic combination of negative interest rates, comatose economies and a regulatory backdrop that might euphemistically be described as challenging is wreaking havoc with bank business models. Their collective market value has dropped by a quarter so far this year. The smoke signals emanating from the European Central Bank in recent weeks suggest regulators aren’t blind to this. Daniele Nouy, who chairs the ECB’s bank supervisory board, said earlier this week that the central bank “is aware that the low-interest-rate environment is putting pressure on the profitability of European banks.” Regulators may respond by going easier when drafting new rules.

Bank-failure rules to prescribe how banks design their balance sheets to absorb potential losses may be eased, according to a European Commission discussion paper prepared last month. Meanwhile, a global panel of regulators will hold a meeting in London this month to let banks give additional feedback on proposed rules about how much capital they must set aside to back their trading activities. This comes none too soon. The drop in industry capitalization, which reflects investor unease about future profitability, is rearranging the pecking order in European finance. Deutsche Bank, for example, was the most active manager of European bond sales in 2014 with a market share approaching 6.5%; last year it slipped to third, and so far this year it ranks fourth. At the end of 2015 the German lender was Europe’s 14th biggest bank; now it’s 20th:

Deutsche Bank Chief Executive Officer John Cryan said last month that, burdened by restructuring and legal costs, he doesn’t expect his firm to be profitable this year. It’s far from the only one struggling; on Tuesday, Barclays warned that its first-quarter investment banking income will be worse than it was last year. In Italy, officials are scrambling to create a state-backed fund to prop up an industry burdened by more than €200 billion of the €1.2 trillion of bad loans hampering the euro zone’s recovery. No wonder ECB President Mario Draghi spent much of his press conference a month ago answering questions about the damage negative interest rates are doing to banks. They have to pay for the privilege of holding cash on deposit at the central bank, but can’t pass those costs onto their own depositors.

The current structure of the banking system is “unfeasible,” and 90% of the world’s banks will have disappeared in the next 20 years, Banco Bilbao Vizcaya Argentaria SA Chairman Francisco Gonzalez said in an interview published by El Pais newspaper last week. Banks that can’t cover their cost of capital aren’t viable, making industry consolidation inevitable, he said.

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Subprime revisited. The weight will shift from borrowers to lenders.

More Than 40% of Student Borrowers Aren’t Making Payments (WSJ)

More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay. The new figures represent the fallout of a decadelong borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools. While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio. About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment.

Three million more owing roughly $66 billion were at least a month behind. Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans. The situation improved slightly from a year earlier, when the nonpayment rate was 46%, but that progress largely reflected a surge in those entering a program for distressed borrowers to lower their payments. Enrollment in those plans, which slash monthly bills by tying them to a small%age of a borrower’s income, jumped 48% over the year to 4.6 million borrowers as of Jan. 1.

Advocacy groups, some members of Congress and the federal Consumer Financial Protection Bureau fault loan servicers—companies the government hires to collect debt—for not doing enough to reach troubled borrowers to offer such payment options. “The servicers aren’t quite promoting them in the way they should be—I think some of it’s information failure,” said Rachel Goodman, a staff attorney at the American Civil Liberties Union.

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Foot. Mouth.

UK’s Cameron Admits He Profited From Father’s Offshore Fund (AFP)

British Prime Minister David Cameron admitted Thursday he had held a £30,000 stake in an offshore fund set up by his father, after days of pressure following publication of the so-called Panama Papers. Cameron sold the stake in the Bahamas-based trust in 2010, four months before he became prime minister, he said in an interview with television channel ITV. Downing Street have issued four statements on the affair this week following Sunday’s publication of the leaked Panama Papers, which showed how Panama-based law firm Mossack Fonseca had helped firms and wealthy individuals set up offshore companies. “We owned 5,000 units in Blairmore Investment Trust, which we sold in January 2010. That was worth something like £30,000,” Cameron said.

“I sold them all in 2010, because if I was going to become prime minister I didn’t want anyone to say you have other agendas, vested interests.” He insisted he had paid income tax on the dividends from the sale of the units, which he bought in 1997. Downing Street first dismissed the story as a private matter on Monday before saying Cameron had no offshore funds, then saying he and his wife and children did not benefit from any offshore funds. It later added that Cameron would not benefit from such funds in the future. The row is the latest headache for Cameron, who faces a tight race to ensure Britain stays in the European Union in a referendum due to be held on June 23.

The prime minister has been under intense pressure from the main opposition Labour party and media this week to come clean over his financial arrangements past and present. Labour’s deputy leader Tom Watson told Sky News that, while it was too early to say whether Cameron should quit, “he may have to resign over this but we need to know a lot more about what his financial arrangements have been”.

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A wave of lost jobs.

European Bankers Step Down as Panama Papers Pile on Pressure

European regulators pressed the region’s banks for details of their offshore business dealings, as two senior bankers resigned over allegations arising from the Panama document leak. Britain’s financial watchdog sent out letters asking banks and other financial companies to disclose any ties to Panama law firm Mossack Fonseca, said a person with knowledge of the situation. Swiss regulator Finma said it would also investigate “suspicious” connections unearthed by the Panama Papers. “The leaked database from Panama is just the latest proof of how money flows like water through multiple jurisdictions, sometimes for legitimate purposes, sometimes not,” Finma director Mark Branson told reporters in Bern on Thursday.

Media reports this week based on millions of documents leaked from Mossack Fonseca revealed how its lawyers, including a Geneva team, worked with Credit Suisse, UBS and other banks to create offshore shell companies for world leaders, athletes and other rich clients. On Thursday, ABN Amro announced the resignation of supervisory board member Bert Meerstadt after his name appeared in the leaked records. He said in a statement that he had already planned to leave but was now resigning immediately “to prevent any detrimental effects to the bank.” Meerstadt was a shareholder of a British Virgin Island-based entity in March 2001, Dutch newspaper Het Financieele Dagblad reported Thursday. ABN Amro CEO Gerrit Zalm said he had never heard of Mossack Fonseca before the leak and that he doesn’t know the facts of the case but considers it a private matter. In Austria, the chief executive officer of Vorarlberger Landes- und Hypothekenbank, resigned after the province-owned bank was mentioned in reports about offshore companies.

Michael Grahammer cited “biased” local media reports about offshore accounts linked to Gennady Timchenko, a Russian billionaire targeted by U.S. sanctions since 2014. “I’m still 100 percent convinced that the bank has at no time violated laws or sanctions,” Grahammer said. “At the end of the day, the media bias against Hypo Vorarlberg and myself that showed in the last few days was the main reason for me to take this step.” In its letters, the U.K. Financial Conduct Authority gave firms an April 15 deadline to disclose any connections to Mossack Fonseca. In Sweden, the government will consider tightening laws against money laundering and tax evasion. Financial Markets Minister Per Bolund said. He said authorities are investigating allegations that Nordea Bank, the biggest bank in Scandinavia, helped clients evade tax through shell companies in low-tax countries.

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More signs of the times.

Pirate Party Backed By Almost Half Of Iceland’s Voters (Ind.)

The Pirate Party would receive nearly half of voters’ support if Iceland held a general election now, new statistics have revealed. The anti-establishment party received 43% of the vote according to research by Icelandic media organisations Frettabladid, Stod 2 and Visir. The Progressive Party, currently in a coalition with the Independence Party, would only receive 7.9% support, Iceland Monitor reports. The rising popularity of the Pirate Party, which campaigns in favour of transparency and direct democracy, among people in Iceland is in response to the leak of the Panama Papers. The documents from Panamanian law firm Mossack Fonseca reportedly revealed that Sigmundur David Gunnlaugsson, who stood aside as Prime Minister for an unspecified amount of time earlier this week, owned an offshore company in the British Virgin Islands with his wife.

Mr Gunnlaugsson did not declare Wintris, which held millions in the bonds of failed Icelandic banks, when he entered parliament, according to the International Consortium of Journalists. He has denied any wrongdoing and says he sold his shares in the company to his wife. But MPs in the opposition have said it is a conflict of interest with his duties. The government has named Fisheries Minister Sigurdur Ingi Johannsson as Prime Minister and he is due to meet Iceland’s president Olafur Ragnar Grimsson on Thursday. However the opposition in planning on pursuing a vote of no confidence in the government in parliament. Earlier, Pirate Party member Helgi Hrafn Gunnarsson said: We will still push forward for a proposal to dissolve parliament and hold earlier elections. Elections have now been brought forward to autumn.

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The EU will cause the deaths of many more people.

Turkey Will Ditch Migrant Deal If EU Breaks Promises: Erdogan (AFP)

Turkish President Recep Tayyip Erdogan on Thursday warned the European Union that Ankara would not implement a key deal on reducing the flow of migrants if Brussels failed to fulfil its side of the bargain. Erdogan’s typically combative comments indicated that Ankara would not sit still if the EU fell short on a number of promises in the deal, including visa-free travel to Europe for Turks by this summer. Meanwhile, the Vatican confirmed that the pope would next week make a brief, unprecedented trip to the Greek island of Lesbos where thousands of migrants are facing potential deportation to Turkey under the deal. “There are precise conditions. If the European Union does not take the necessary steps, then Turkey will not implement the agreement,” Erdogan said in a speech at his presidential palace in Ankara.

The March 18 accord sets out measures for reducing Europe’s worst migration crisis since World War II, including stepped-up checks by Turkey and the shipping back to Turkish territory of migrants who land on the Greek islands. In return, Turkey is slated to receive benefits including visa-free travel for its citizens to Europe, promised “at the latest” by June 2016. Turkey is also to receive a total of €6 billion in financial aid up to the end of 2018 for the 2.7 million Syrian refugees it is hosting. Marc Pierini, visiting scholar at Carnegie Europe, described the visa-free regime as one of the “biggest benefits for Turkey” in the migrant deal. He told AFP that Turkey still has to fulfil 72 conditions on its side to gain visa-free travel to Europe’s passport-free Schengen zone and that the move would also have to be approved by EU interior ministers.

“We shall see if that is a realistic prospect,” he said. Turkey’s long-stalled accession process to join the EU is also supposed to be re-energised under the deal. But Pierini said there were many conditions still to be fulfilled here. “The worst reading of the EU-Turkey deal would be to imagine that Turkey is about to get a ‘discount’ on EU membership conditions just because of the refugees,” he said. Erdogan argued Turkey deserved something in return for its commitment to Syrian refugees, on whom it has spent some $10 billion since the Syrian conflict began in 2011. “Some three million people are being fed on our budget,” the president said. “There have been promises but nothing has come for the moment,” he added.

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Europe’s true character is being revealed.

Amnesty: ‘Serious Flaws’ Mar Greek Side Of EU-Turkey Migrants’ Deal (Reuters)

Migrants held on the Greek islands Lesbos and Chios live in “appalling” conditions with little access to legal aid or information about their fate under a European Union agreement that will send some back to Turkey, Amnesty International said on Thursday. Under a deal between the EU and Ankara in place since March 20, undocumented migrants who cross to Greek islands will be kept in holding centers until their asylum claims are processed. Those who do not qualify will be returned to Turkey. The first group of 202 migrants to be returned, most of them from Pakistan and Afghanistan, were sent back to Turkey on Monday.

“People detained on Lesbos and Chios have virtually no access to legal aid, limited access to services and support, and hardly any information about their current status or possible fate,” said Amnesty Deputy Director for Europe Gauri van Gulik. “The fear and desperation are palpable,” she said. In a report published Thursday, Amnesty said among those held in the centers are a small baby with complications after an attack in Syria, heavily pregnant women, people unable to walk, and a young girl with a developmental disability. Many refugees spoke about the lack of access to doctors or medical staff. Legal aid is scarce and inaccessible to the vast majority, and asylum procedures are expected to be rushed, it said. Refugees told Amnesty that they did not get enough information about what the asylum process will entail. Many have received no or incomplete documentation of their registration.

“It is likely that thousands of asylum seekers will be returned to Turkey despite it being manifestly unsafe for them,” Amnesty wrote. Monitors visited the islands this week. One Syrian woman told Amnesty she and her family signed several documents despite not having an interpreter present, and were not provided with copies. “I don’t need food, I need to know what is happening,” the woman was quoted as saying. “Serious and immediate steps must be taken to address the glaring gaps we’ve documented in Lesbos and Chios,” Amnesty’s van Gulik said. “They show that in addition to Turkey not being safe for refugees at the moment, there are also serious flaws on the Greek side of the EU-Turkey deal. Until both are fully resolved, no further returns should take place.”

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Chaos is the MO.

Questions Mount Over EU’s Role In Processing Greece Asylum Requests (IT)

Four days after the deportation by the EU border agency Frontex of the first group of migrants from Greece to Turkey following the signing of the EU-Ankara deal, questions are mounting as to the EU’s role in processing asylum applications from the thousands of people who have arrived on Greece’s islands since March 20th, when the agreement came into force. While no more deportations have taken place since Monday, almost 5,500 people are now in detention on four Greek islands, 3,100 of them in the Moria hotspot on Lesbos alone, including women, children and other vulnerable groups. According to Boris Cheshirkov of the UN’s refugee agency, the UNHCR, “close to everyone” in Moria has submitted an asylum application.

Under the new regime created by the EU-Turkey agreement, asylum applications from island detainees must be processed within two weeks, in a fast-tracked time frame that includes the appeal process. Previously, the Greek asylum service took an average of three months to adjudicate on each application. A key aspect sees the European Asylum Support Office (Easo), another EU agency, advise overburdened Greek asylum officials on the “admissibility” of each asylum seeker at the initial stage of processing. Easo spokesman Jean Pierre Schembri told the BBC: “This is a relatively short process involving our experts … accessing every applicant on his or her own merits. We then issue an opinion and the Greek authorities then issue the final decision.”

But human rights organisations fear the outcome of this truncated, two-step process, where Greek officials will essentially sign off on Easo recommendations, is predetermined to result in most applicants being returned to Turkey, a “safe third country” according to the agreement. Referring to Syrians, Schembri said Turkey “for one may be safe, but for the other it might not be”. Groups such as Amnesty International say that far too many questions remain about how Easo will make its recommendations. “You can’t have confusion or doubt around these procedures before you kick it off,” said Gauri van Gulik, Amnesty’s deputy director for Europe.

“The biggest question for us is what information and which criteria will be used to decide whether someone is or isn’t at risk in Turkey . . . In some cases, it is quite random how some people are targeted, so it’s not about the individual’s experience or how long they’ve lived in Turkey, alone. It’s also about Afghans not getting any status legally in Turkey if they go back. “The bottom line is that here is no permanent protection for anyone [in Turkey]. There’s only temporary protection status for Syrians and then there’s the practice of certain groups being tolerated for a certain while, which is very different to having protection, access to work and access to social services.”

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After saying yesterday nothing would happen for 2 weeks…

Greece Ferries Second Boat Of Migrants To Turkey Under EU Pact (Reuters)

A ferry carrying 45 migrants left the Greek island of Lesbos for Turkey on Friday, the second such journey carried out under a controversial EU deal to stem mass irregular migration to Europe. A second boat carrying a larger group was scheduled to leave the island later in the morning, state TV reported. Those who left early on Friday were from Pakistan, it said. The first group of 202 migrants to be returned, most of them from Pakistan and Afghanistan, were sent back to Turkey on Monday. At the port of Mytilene, at least two activists jumped into the water close to the small ferry, dangling from the heavy chain of the anchor and flashing the ‘v’ sign for victory. They were hoisted out of the water by the Greek coastguard.

The first group of 202 migrants to be returned, most of them from Pakistan and Afghanistan, were sent back to Turkey on Monday. Under the EU-Turkey deal, Ankara will take back all migrants and refugees, including Syrians, who enter Greece through irregular routes in return for the EU taking in thousands of Syrian refugees directly from Turkey and rewarding it with more money, early visa-free travel and progress in its EU membership negotiations.

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No decency, no mercy, no nothing.

Refugees In Greece Warn Of Suicides (G.)

Syrians and Afghans threatened with deportation from the Greek islands of Lesbos and Chios have said they would rather take their own lives than be expelled from the EU under its migration deal with Turkey. On Monday, 202 migrants were forcibly returned from Lesbos and Chios to the Turkish coast under the landmark deal aimed at halting “irregular” migration to Europe. But Souaob Nouri from Kabul, who is held in the high-security camp in Chios, said: “If they deport us, we will kill ourselves. We will not go back.” A man next to him warned of “terrible scenes” if Greek authorities insisted on pursuing policies that have already caused alarm among human rights groups.

“We are not terrorists,” said the man, who gave his name as Akimi. “We are refugees. The conditions here are very bad. There is no water. They hit pregnant women. Why do they treat us like this? All we want is asylum.” Similar threats of self harm were echoed on Lesbos this week. In a letter passed to the Guardian by aid volunteers on the island, inmates held in the Moria detention centre wrote that they would rather “accept death” than be deported to Turkey. “We will accept death but not return back,” the letter said, adding: “We will all commit suicide if they deport us.” The expulsions have been fraught with controversy.

Thirteen of the 66 deportees who were sent back across the Aegean Sea from Chios under armed guard are believed to have “expressed intent” to apply for asylum – enough, say UN officials, to have kept them in Greece until their requests were examined. “Between 20 March when the deal came into effect and 1 April when it was voted into legislation [by Greek MPs] we have seen limits in the ability of authorities to process claims,” said Katerina Kitidi with the UN refugee agency on Chios, an east Aegean island south of Lesbos. “There has been a definite lack of clarity.” The uncertainty has quickly fuelled tensions on the island. More than 800 inmates broke out of the vastly overcrowded detention facility last week in violent scenes that ultimately saw men, women and children march into Chios town.

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Mar 062016
 
 March 6, 2016  Posted by at 9:55 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Harris&Ewing War-bond rally on Penn. Avenue, Washington DC 1918

China Picks Growth Over Reform At Annual Congress (AFR)
Hard Landing Fallacy “No Way” In China: Regulator (Xinhua)
China Says Cuts In Overcapacity Won’t Cause Massive Layoffs (Reuters)
China PM Predicts ‘Battle’ For Growth (BBC)
US Weekly Earnings Drop Most On Record (ZH)
Sunshine, Lollipops and… (Bill Gross)
Sweden Begins 5 Year Countdown Until It Eliminates Cash (ZH)
Confused By The Economic Modelling? That’s The Whole Idea (SMH)
Mutations, DNA Damage Seen In Fukushima Forests (AFP)
Zaman Newspaper: Defiant Last Edition As Turkey Police Raid (BBC)
“EU ’Must’ Hand Turkey €7 Billion Per Year To Keep Out Refugees” (Reuters)
Merkel Pressures Greece to Step Up Refugee Aid (BBG)
Open Letter To Vienna From Austrian Expatriates In Greece (Observer)
EU Refugee Crisis Leaves 10,000 Children Missing, Europol Says (BBG)

But wasn’t reform supposed to be crucial to growth itself? Pretty sure it still is. They should be careful not to start contradicting themselves.

China Picks Growth Over Reform At Annual Congress (AFR)

China will put development above structural reform over the next five years, as it outlined an ambitious economic growth target higher than economists and international agencies are forecasting. While announcing only modest tax cuts and a smaller than expected increase in fiscal spending, the government indicated it stands ready to roll out out other stimulus measures to meet targeted growth of 6.5% between 2016 and 2020. “We must remain committed to economic development as our central task … and respond effectively to challenges so as to ensure that China’s economy, like a gigantic ship, breaks the waves and goes the distance,” said Premier Li Keqiang during his opening address to the National People’s Congress on Saturday.

In outlining the three main priorities for its 13th Five Year Plan, Mr Li said development ranked ahead of structural reform and efforts to recalibrate China’s economy to be more reliant on consumption rather than investment. “Development is of primary importance to China and is the key to solving every problem we face,” he said. Mr Li’s determination for China to grow its way out of trouble will see a budgeted fiscal deficit of 3% of GDP in 2016, up from 2.3% last year. While this was lower than many had expected, it does not account for off-budget items, which are likely to see China post an actual fiscal deficit of 3.5% in 2015 and could see that figure top 4% this year. “The majority of the increase in the fiscal deficit will be used for a cut in taxes and charges in order to reduce the burden on enterprises,” Mr Li said.

This will result in 500 billion yuan ($103 billion) of tax cuts this year, as China replaces sales tax with a Value Added Tax. China set an economic growth target of between 6.5% and 7% for 2016. While this is well down on the double-digit growth rates of last decade, Mr Li put it in context by saying each 1 percentage point of growth today was the same as 2.5 percentage points 10 years ago, as the economy was now significantly larger. He also said each 1 percentage point of growth created 1.9 million new jobs. However, he conceded the country would face “more and tougher challenges” for economic development this year and must be prepared to “fight a battle” as international trade was weak and geopolitical risks were rising. But he said the economy was resilient and there was ample room for growth.

[..] On structural reform, Mr Li said the issue of so called “zombie enterprises” – companies that are effectively bankrupt but still operating – would be addressed “proactively yet prudently”. Beijing has outlined plans for 1.8 million steel and coal workers to lose their jobs over the next five years and has set up a 100 billion yuan ($20 billion) fund for compensating employees and restructuring companies. However, Mr Li outlined few details on how this would be achieved, suggesting it would be more gentle than the brutal restructure of State Owned Enterprises in the late 1990s, which saw an estimated 25 million workers lose their jobs.

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“China accounted for a quarter of the world’s economic growth in 2014, Xy said..” Tyler Durden wryly observes: “And accounted for 40% of all global new debt issuance since 2008..”

Hard Landing Fallacy “No Way” In China: Regulator (Xinhua)

The hard landing fallacy on China’s economy will “no way” occur in China, a senior economic official said Sunday. The Chinese economy is so resilient with relatively strong abilities to resist risks, Xu Shaoshi, who heads the National Development and Reform Commission, said on the sidelines of the annual parliamentary session. “We are capable of keeping economic growth at rates within a reasonable range,” Xu said. “We are confident of achieving that end.” China set the growth target at a range of 6.5% to 7% this year, and an average annual growth of above 6.5% for the next five years.

It had seen, for a quarter of a century, the slowest expansion of 6.9% in 2015, amid its structural adjustment and a fragile global recovery. China’s economic growth remains relatively fast among world major economies. The 6.9% growth was hard won given the sluggish global recovery, Xu said. China accounted for a quarter of the world’s economic growth in 2014, Xu said, citing data from the World Bank and China’s National Bureau of Statistics.

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We respectfully disagree.

China Says Cuts In Overcapacity Won’t Cause Massive Layoffs (Reuters)

China’s plans to reduce industrial overcapacity are unlikely to result in large-scale layoffs, the country’s top economic planner said on Sunday. Xu Shaoshi, head of the National Development and Reform Commission (NDRC), told reporters at a briefing that economic growth will create more jobs and help offset the impact of capacity cuts. China aims to keep its economy growing by at least 6.5% over the next five years while pushing hard to create more jobs and restructure inefficient industries, Premier Li Keqiang said on Saturday.

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“There was plenty of talk about “painful rebalancing”, the need to reform inefficient state owned enterprises and to cut overcapacity – but for many, this speech will look a lot like business as usual: a commitment to growth at all costs..”

China PM Predicts ‘Battle’ For Growth (BBC)

China’s National People’s Congress has set the country’s growth target for 2016 at a lower range of 6.5%-7%. Premier Li Keqiang made the announcement in his opening speech, warning of a “difficult battle” ahead. The annual meeting in Beijing sets out to determine both the economic and political agenda for the country. It comes at a time when China struggles with slowing economic growth and a shift away from overreliance on manufacturing and heavy industry. The congress is also expected to approve a new five-year plan, a legacy of the communist command economy. “China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle,” Mr Li told delegates on Saturday.

Last year, China’s goal was “about 7%”. The economy actually grew by 6.9% – the lowest expansion in 25 years. Mr Li also said that China was targeting consumer inflation at “around 3%” and unemployment “within 4.5%”. Meanwhile, the country’s defence spending will be raised by 7.6%, the state-run Xinhua news agency reports, citing a budget report. China’s congress is a highly choreographed, largely rubber stamp affair, but Premier Li’s opening address can at least be gleaned for clues about the overall direction of policy, the BBC’s John Sudworth in Beijing reports. There was plenty of talk about “painful rebalancing”, the need to reform inefficient state owned enterprises and to cut overcapacity – but for many, this speech will look a lot like business as usual: a commitment to growth at all costs, our correspondent adds.

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Ugly.

US Weekly Earnings Drop Most On Record (ZH)

The headline jobs number was certainly good, beating expectations and well higher than last month’s disappointing (and upward revised) 182K print. However, a quick look below the headline reveals an amazing statistic: while we already noted that average hourly earnings posted only their first decline since December 2014, and just the 6th in the past decade, declining by -0.1%, what is the real surprise is that average weekly hours worked also dropped substantially by 0.2 from 34.6 to 34.4. This, naturally, is the denominator in the average hourly earnings calculation, and for it drop drop with the average also sliding, means that weekly earnings must have dropped.

And drop they did: as the chart below clearly shows, based on the data which showed a whopping tumble in average weekly earnings from 878.15 to just 872.04, at -0.7%, this was the biggest monthly drop in the entire series history!

The drop confirms that the jump in earnings observed in January, and which led many to prematurely conclude that wage growth has finally arrived, was nothing but a headfake driven by the increase in minimum wages across various states, which has now been fully digested, and as a result wage growth is once again what it was before: non-existent. Finally, it goes without saying that in the middle of a ‘recovery’ this is not really supposed to happen.

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Long article by Gross, worth a read.

Sunshine, Lollipops and… (Bill Gross)

Our Sun – a rather tiny star in the galaxial scheme of things – seems inexhaustible. But 5 billion years from now, it will swallow, instead of nurture the Earth as it burns itself out – first contracting, then expanding like a flaming candle turned firecracker. Not to worry though. We won’t be around. It’s not that we are beyond worrying; it’s that our lives are much shorter and we needn’t think much about it. In the nearer term, there is global warming/climate change, and other such down to Earth problems as paying the bills and getting kids into the right colleges. Still – there are presumably inexhaustible things that deserve our attention in the here and now. One of them is finance-based capitalism and our assumption that the risk/ reward historically inherent in it will be sufficient to drive economic growth forward.

Unlike the Sun, whose fate and lifespan can be scientifically determined, there is little evidence that anything could ever change what has been until now a flawed, yet the best economic system conceivable. Capitalistic initiative married to an ever expanding supply of available credit has facilitated economic prosperity much like the Sun has been the supply center for energy/ food and life’s sustenance. But now with quantitative easing and negative interest rates, the concept of nurturing credit seems to have morphed into something destructive as opposed to growth enhancing. Our global, credit based economic system appears to be in the process of devolving from a production oriented model to one which recycles finance for the benefit of financiers. Making money on money seems to be the system’s flickering objective.

Our global financed-based economy is becoming increasingly dormant, not because people don’t want to work or technology isn’t producing better things, but because finance itself is burning out like our future Sun. What readers should know is that the global economy has been powered by credit – its expansion in the U.S. alone since the early 1970’s has been 58 fold – that is, we now have $58 trillion of official credit outstanding whereas in 1970 we only had $1 trillion. Staggering, is it not? But now, this expansion appears to be reaching an ending of sorts, at least in its current form. Private sector savers are growing leery of debt piled upon debt and government regulators have begun to build fences against further rampant creation.

In addition, the return offered on savings/investment whether it be on deposit at a bank, in Treasuries/Bunds, or at extremely low equity risk premiums, is inadequate relative to historical as well as mathematically defined durational risk. The negative interest rates dominating 40% of the Euroland bond market and now migrating to Japan like a Zika like contagion, are an enigma to almost all global investors. Why would someone lend money to a borrower with the certainty of getting less money back at a future date? Several years ago even the most Einsteinian-like economists would not have imagined such a state but now it seems an everyday occurrence, as central banks plumb deeper and deeper depths like drilling rigs expecting to strike oil, if only yields could be lowered another 10, 20, 50 basis points.

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Some kind of currency will appear. Maybe the Swedes will start using dollars.

Sweden Begins 5 Year Countdown Until It Eliminates Cash (ZH)

How much louder can the “ban cash” calls get? Recall it was just last year when we catalogued the growing cacophony of crazies for whom banning physical currency is the only way to ensure that depositors can’t simply reassert their economic autonomy under a low or zero rate regime.. Put simply, if interest rates get too low, depositors will simply take their money out the bank and put it in the mattress or the safe where, to quote WSJ from last week, “interest rates are always low no matter what central bankers do. Most recently, Larry Summers called for the abolition of the $100 bill in the US and in Europe the €500 note is to go the way of the dinosaurs. Perhaps the most telling sign that citizens are starting to panic is that in Japan, they’re selling out of safes. Literally.

“It shows a vague sense of unease,” one Japanese lawmaker who brought up the soaring safe sales in parliament on Monday remarked. Now, the excuse given for banning big bills is that it combats crime. And maybe it does. But in the end the rationale is simple: if there are no more physical banknotes, people have no economic autonomy. Let’s say consumer spending is stagnating. No problem, take rates to -20%. We bet they’ll start spending then – either that or see their deposits haircut by 20%. In short, no cash means no effective lower bound and with no lower bound, the economy can be completely centrally planned – for all intents and purposes. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending.

So with Citi, Harvard, Denmark and Peter Bofinger, member of the German Council Of Economic Experts, all onboard, we’re surprised to hear that Sweden (already one of the leaders in the cashless society movement) is looking to phase out a series of new bank notes it just introduced last year and moved ever closer to the cashless utopia. “Last year Sweden introduced a series of new banknotes replacing its old kronor notes. But figures suggest these too could be gone from circulation in half a decade if the development towards a cashless society continues,” The Local reports,” continuing that “cash transactions today represent no more than 2% of the value of all payments made in Sweden, [and that estimate] will drop to below 0.5% within the next five years. Some welcome the trend – credit card providers, for instances – others have reservations.

“It is happening at a furious rate. And it’s important to many older people to be able to use cash. I mean, today it is legal tender and you have to be able to use it until parliament decides otherwise,” Christina Tallberg, chairwoman of Swedish pensioners’ organization PRO, told Swedish Radio on Friday. Well, until parliament or perhaps more appropriately, until The Riksbank and Stefan Ingves decides it. Because at -0.55, it’s a “how much lower can you go type scenario.” Well, if you go kronor-less, that question ceases to make sense. The “problem” simply goes away. “Sometimes you have to learn new things. It’s a little awkward for a transitional period, but I think it’s going to be so simple that you pretty soon realize that this is a lot easier and better than having cash,” said working environment ombudsman Krister Colde of the Commercial Employees’ Union (Handels). Famous last words Krister.

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Fun in Oz.

Confused By The Economic Modelling? That’s The Whole Idea (SMH)

Politics is about trust. Prime Minister Malcolm Turnbull has been claiming for weeks that Labor’s plans for negative gearing would smash house prices. “The 70% of Australians who own houses will see the value of their single most important asset smashed to fulfil an ideological crusade,” he told parliament. His Attorney-General George Brandis has made it sound even worse. “There is one thing we know about the negative-gearing debate,” he told us. “If the Labor Party were to implement its policy, the value of most Australians’ homes would collapse”. His assistant treasurer Kelly O’Dwyer briefly said the opposite. Labor’s policy would “increase the cost of housing for all Australians; for those people who currently own a home and for those people who would like to get into the housing market”.

And then his treasurer Scott Morrison latched on to a “credible report” that said Labor’s policy would have “a significant impact on property values”. He latched on too quickly. The report, by BIS Shrapnel, said no such thing. Prices would continue to rise in all but two of the next 10 years under the scenario it modelled, just as they would if negative gearing was maintained. After a decade, they would have climbed 15%. That’s less than with full negative gearing, but its still an increase. The report explained that house prices are typically “sticky in a downwards direction,” unable to fall lower than the cost of construction plus a markup. When new attempts at negative gearing were temporarily suspended between 1985 and 1987 real estate prices continued to climb.

While new investors would be less keen to buy if Labor’s policy stopped them negatively gearing, existing investors would be also less keen to sell, because they could only continue to negative gear if they hung on to the properties they had. Prices wouldn’t be smashed. It’s all there in the report Morrison lauded as credible (because it said rents would rise), but appeared not to properly read. Certainly his eyes appeared to glaze over the howling error on page one. The report said Australia’s national income would average $190 billion over the next ten years when it meant $1.9 trillion. And they appeared not to be troubled by its suggestion that a measure that raised around $2 billion per year would shrink the economy by $19 billion per year.

That’s $9 of economic damage for every $1 collected, a sum so big as to be way out of the ballpark of anything his department has ever modelled. When Treasury modelled a range of taxes for its tax discussion paper, it found the worst of them, stamp duty, did 70 cents of economic damage for each dollar collected. Yet first thing Thursday morning on AM Morrison described as “credible” a report that found removing negative gearing would create multiples of the biggest damage his department could find The Grattan Institute’s John Daley says the finding doesn’t even pass the giggle test. Try it for yourself. Attempt to say: “a tax that raises $2 billion will shrink the economy by $19 billion” without laughing.

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5 years later.

Mutations, DNA Damage Seen In Fukushima Forests (AFP)

Conservation group Greenpeace warned on Friday that the environmental impact of the Fukushima nuclear crisis five years ago on nearby forests is just beginning to be seen and will remain a source of contamination for years to come. The March 11, 2011 magnitude 9.0 undersea earthquake off Japan’s northeastern coast sparked a massive tsunami that swamped cooling systems and triggered reactor meltdowns at the Fukushima Daiichi nuclear plant. Radiation spread over a wide area and forced tens of thousands of people from their homes – many of whom will likely never return – in the worst nuclear accident since Chernobyl in 1986. As the fifth anniversary of the disaster approaches, Greenpeace said signs of mutations in trees and DNA-damaged worms were beginning to appear, while “vast stocks of radiation” mean that forests cannot be decontaminated.

In a report, Greenpeace cited “apparent increases in growth mutations of fir trees… heritable mutations in pale blue grass butterfly populations” as well as “DNA-damaged worms in highly contaminated areas”, it said. The report came as the government intends to lift many evacuation orders in villages around the Fukushima plant by March 2017, if its massive decontamination effort progresses as it hopes. For now, only residential areas are being cleaned in the short-term, and the worst-hit parts of the countryside are being omitted, a recommendation made by the International Atomic Energy Agency. But such selective efforts will confine returnees to a relatively small area of their old hometowns, while the strategy could lead to re-contamination as woodlands will act as a radiation reservoir, with pollutants washed out by rains, Greenpeace warned.

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Shame on Europe and the US.

Zaman Newspaper: Defiant Last Edition As Turkey Police Raid (BBC)

Turkey’s biggest newspaper, Zaman, has condemned its takeover by the authorities in a defiant last edition published just before police raided it. Saturday’s edition said Turkey’s press had experienced “one of the darkest days in its history”.
Police raided Zaman’s Istanbul offices hours after a court ruling placed it under state control, but managers were still able to get the edition to print. Police later fired tear gas to disperse Zaman supporters. Water cannon was also used as about 500 people gathered in front of Zaman’s headquarters on Saturday. They chanted “Free press cannot be silenced!” A number of the journalists returned to work, but some of them tweeted that:
• they had lost access to internal servers and were not able to file articles
• they were not able to access their email accounts
• the newspaper’s editor-in-chief Abdulhamit Bilici and a leading columnist had been fired

One reporter, Abdullah Bozturk, said attempts were also under way to wipe the newspaper’s entire online archive. The European Union’s response has been to issue weak statements of concern, the BBC’s Mark Lowen says. It is accused of acting softly on Turkey as it needs the country’s support in managing the refugee crisis. The paper is closely linked to the Hizmet movement of influential US-based cleric Fethullah Gulen, which Turkey says is a “terrorist” group aiming to overthrow President Recep Tayyip Erdogan’s government. Mr Gulen was once an ally of Mr Erdogan but the two fell out. Many Hizmet supporters have been arrested.

The court ruled on Friday that Zaman, which has a circulation of some 650,000, should now be run by administrators. No explanation was given. Turkish Prime Minister Ahmet Davutoglu said the move was “legal, not political”. “It is out of the question for neither me nor any of my colleagues to interfere in this process,” he said in a television interview. The government in Ankara has come under increasing international criticism over its treatment of journalists. The EU’s diplomatic service said that Turkey “needs to respect and promote high democratic standards and practices, including freedom of the media”, while the US described the move as “troubling”.

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They should find other allies, this is nuts. Erdogan is (mass-)murdering Kurds and closing down the press. And we’re helping him do it?!

“EU ’Must’ Hand Turkey €7 Billion Per Year To Keep Out Refugees” (Reuters)

The EU may need to more than double financial aid already pledged to Turkey to help it keep millions of Syrian refugees on its soil, Germany’s EU Commissioner Guenther Oettinger was quoted as saying on Saturday. The European Commission on Friday announced the first payouts from a €3 billion ($3.3 billion) fund to help Turkey pay for the needs of some 2.5 million refugees. “Europe should hold out the prospect of further financial support to Turkey also beyond 2017,” Oettinger told German magazine Der Spiegel. “Taking over full costs of the services that Turkey is providing by accommodating and caring for the refugees, the bill could easily add up to six or seven billion euros per year,” said Oettinger, a senior member of Chancellor Angela Merkel’s center-right party Christian Democratic Union (CDU).

Austrian Chancellor Werner Faymann proposed a new EU fund to finance the additional costs. “In the migrant crisis, we need joint European solutions,” Faymann told the magazine. “Therefore I suggest a fund in which each EU member state pays in, similar to the bank bailout. The money should be used to cover the costs of providing for the asylum seekers.” European Council President Donald Tusk, who on Friday held talks with Turkish President Tayyip Erdogan, will chair an emergency EU summit with Turkey on Monday aimed at strengthening cooperation to stem the flow of migrants to Europe.

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Emptier words were never spoken.

Merkel Pressures Greece to Step Up Refugee Aid (BBG)

German Chancellor Angela Merkel boosted pressure on the Greek government to step up its capacity for sheltering refugees, pledging that the European Union will assist the country with the task. Greece fell short of its aim of setting up shelter for 50,000 asylum seekers fleeing Syria and the Middle East by the end of 2015, Merkel said in an interview with Bild am Sonntag. “The backlog needs to be made up posthaste,” Merkel told the German newspaper. “I know from my talks with Greek Prime Minister Alexis Tsipras that he wants that too, but that that he needs our help to do it.”

Thousands of refugees are stranded in Greece. Merkel in the Bild interview blamed the humanitarian crisis on other European states that tightened their borders against the influx, blocking passage north, where most asylum seekers have sought shelter in more accommodating countries such as Germany. The chancellor has said the blocked borders endanger Europe’s system of passport-free travel, known as Schengen. “Today we have a different situation, because Austria and the Balkan nations made unilateral decisions at their national borders that have unfortunately placed a burden on our partner and Schengen member Greece,” Merkel told Bild. The EU’s 28 leaders and the Turkish government will discuss the refugee crisis in Brussels on Monday.

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Well put.

Open Letter To Vienna From Austrian Expatriates In Greece (Observer)

This is the full text of a letter written by prominent émigrés to ministers in protest over the country’s role in border closures against refugees

Open letter to the Austrian government Austrians living and working in Greece, who feel deeply connected with this country, appeal to the Austrian government to take a more responsible position in dealing with the refugee crisis. Instead of putting on blinkers, pretending that by closing the borders the problem will go away, the situation has to be tackled head-on at a European level. The Austrian government needs to understand that individual, national approaches fail to produce results, also because solitary advances contradict the basic tenets of the European programme, which is meant to serve as the foundation for a new generation. Despite the temporary ceasefire, the war in Syria continues unabated, forcing the frightened civilian population, trapped between the fighting fronts, to keep seeking refuge by fleeing their country.

While the neighbours of Syria bear the brunt of the pressure, the callous reaction of the Austrian government, one of the richest countries in the world (ranked 11), puts us to shame. Austrian politicians have claimed that our country has accepted more refugees than most others. But a glance at the facts from Europe’s south proves this statement to be fatally wrong, misrepresenting the data. Pushing solutions to the refugee crisis that rely on increasing the pressure on Greece is counterproductive, unrealistic and irresponsible. The Austrian Minister of the Interior maintains that “that will put an end to perilous journeys across the Mediterranean.” No, Mrs Minister, it won’t!

Dozens of boats continue to arrive on Greece’s shores on a daily basis, often carrying over three thousand desperate people a day. The unspeakable horror of the war, hopelessness in the adjacent countries and the desire to reunite with family members are a strong motivation for those who have nothing to lose to risk the journey towards European destinations. What could stop them? Coast guards? Warships? Walls? Barbed wire fences? None of these measures will have any effect, unless the acts of war are put to an end. Otherwise, traumatised, terrorised people will continue to do anything to escape their misery.

The Europeans, who cannot see eye to eye among each other and do not even seem to share the most basic values, are busying themselves reinforcing their ominous fortress. As much as they try, it is not going to prevent war refugees from attempting to save their lives. Many more will come, hoping to make it somehow, at all cost, as hope dies last. Europe has no choice but to face the catastrophic situation in the war-torn countries of the near and Middle East responsibly and make every effort to help these people rebuild their lives. This will require foresight, wisdom and the will to convince the doubters (and the constituencies). Otherwise, we will be faced with a generation growing up in war-torn nations in who cannot but feel deepest frustration and animosity towards Europe and its “values”.

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Nobody cares. All they care about is that refugees stop coming.

EU Refugee Crisis Leaves 10,000 Children Missing, Europol Says (BBG)

More than 10,000 child refugees have disappeared after arriving in Europe, according to crime-fighting agency Europol, as the region faces its worst migrant crisis since World War II. “This is something European police services and governments should be worried about,” Europol Chief Rob Wainwright said in an interview Saturday with French newspaper Le Figaro. “Not all are exploited for criminal purposes – illegal labor or sexual slavery. Some have left shelters to reunite with their families, but we have no proof of that.” Of the 1.2 million refugees who arrived in the European Union last year, a quarter were minors, and 85,000 were unaccompanied by an adult, Wainwright said.

More than 135,000 asylum seekers have made their way to Europe this year, compared with about 376,000 in October and November, according to UNHCR, the United Nations refugee agency. European leaders are struggling to develop an alternative for the patchwork of unilateral border controls imposed by national governments to stem the flow of migrants fleeing war and poverty. The European Commission, the EU’s executive arm, proposed on Friday to lift internal border border checks and restore passport-free travel by the end of the year.

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Jan 162016
 
 January 16, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle January 16 2016
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DPC Union Station, Worcester, Massachusetts 1906

US Stocks Post Worst 10-Day Start To A Year In History (MW)
What Goes Up, Comes Down Considerably Faster (ZH)
Wall Street Hemorrhages As Oil Tumbles And China Fears Deepen (Reuters)
Weak US Data Deluge Points To Sharply Slower Growth (Reuters)
A Recession Worse Than 2008 Is Coming (Michael Pento)
Looming Recession Shifts Fed Support From Equities To Dollar, Banks (Brodsky)
Global Earnings Downgrades Haven’t Been This Bad in Seven Years (BBG)
Retail Sales in U.S. Decrease to End Weakest Year Since 2009 (BBG)
Wal-Mart to Shut Hundreds of Stores (BBG)
A New Year Of Turmoil For China (WaPo)
Currency War Revival Seen After Yen, Euro Rally (BBG)
One Year On, ‘Franckenschock’ Still Hurts Swiss (CNBC)
America’s Student-Debt Crisis Is Only Getting Worse (MW)
MH-17’s Unnecessary Mystery (Robert Parry)
Toxic Chemicals In Scottish Waters Wiping Out Killer Whales (Scotsman)
Baby Found Dead On Greece Migrant Boat (AP)

History being written.

US Stocks Post Worst 10-Day Start To A Year In History (MW)

U.S. stocks closed sharply lower Friday, locking in the worst 10-day start to a calendar year ever, as oil prices plunged and investors worried about slowing growth in the U.S. During the course of the session, the S&P 500 broke below its Aug. 24 low—which several market strategists said would be tantamount to a major sell signal—to trade at its lowest level since October 2014. The Dow Jones Industrial Average was briefly down as much as 537 points. Oil appeared to be the main driver of concern. Both the U.S. and global benchmarks settled below $30 a barrel, as investors feared that supplies will continue to rise as Iran prepares to enter the market ad Russia continues pumping oil to help support its flagging economy.

”There’s not a lot of people willing to take their foot off the gas and prices are adjusting accordingly,” said David Meier, portfolio manager at Motley Fool Asset Management. “As a result of that you’re seeing fear just creep in.” The Dow slumped 390.97 points, or 2.4%, to 15,988.08, while the S&P 500 slid 44.85 points, or 2.3%, to 1,876.99, led lower by the financial, technology and energy sectors. The Nasdaq Composite tumbled 126.59 points, or 2.7%, to 4,488.42. All Dow components ended in negative territory, as were all 10 sectors on the S&P 500. Selling began in China after official data showed that new bank loans were lower than expected in December as lenders sharply curtailed activity amid worries about slowing growth and bad debt.

In a bid to boost liquidity, China’s central bank said it pumped $15 billion of funds into the market via a medium-term lending facility on Friday. The Shanghai Composite dropped 3.5% and is down 20% from a Dec. 22 high, which by one definition puts it in a bear market. All of this was exacerbated as options stopped trading ahead of their expiration on Saturday. Dave Lutz, head of ETFs at JonesTrading, said because of how the market was positioned, options dealers needed to sell more futures to hedge their positions as stocks fell.

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Yeah, those are real losses. Transitory is no longer a valid term.

What Goes Up, Comes Down Considerably Faster (ZH)

What goes up, comes down considerably faster. For global stocks, Bloomberg notes, the way down ($15 trillion lost in 7 months) has been much easier than the climb up ($30 trillion added in 4 years).

With markets from Asia to Europe entering bear markets this month, stocks worldwide have lost more than $14 trillion, or 20%, in value from a record last June amid worries over global growth and deepening oil declines. The pace of the drop has been so fast that it has already unraveled about half of the rally since a low in 2011. And here is a bonus chart from Bank of America, which looks at the S&P on an equal weighted basis, to avoid such aberrations as the collapsing market breadth phenomenon, also known as FANG. Spot the symmetry.

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“Initially when oil was down, the convenient line was ‘Well, it’s good for the other nine sectors’.. [..] Now, it’s contagion to Main Street and Wall Street.”

Wall Street Hemorrhages As Oil Tumbles And China Fears Deepen (Reuters)

Wall Street bled on Friday, with the S&P 500 sinking to its lowest since October 2014 as oil prices sank below $30 per barrel and fears grew about economic trouble in China. Pain was dealt widely, with the day’s trading volume unusually high and more than a fifth of S&P 500 stocks touching 52-week lows. The major S&P sectors all ended sharply lower. The Russell 2000 small-cap index dropped as much as 3.5% to its lowest since July 2013. The energy sector dropped 2.87% as oil prices fell 6.5%, in part due to fears of slow economic growth in China, where major stock indexes also slumped overnight. The energy sector has lost nearly half its value after hitting record highs in late 2014. “Initially when oil was down, the convenient line was ‘Well, it’s good for the other nine sectors’,” said Jake Dollarhide, CEO of Longbow Asset Management.

“That tune has changed. Now, it’s a contagion to the other nine sectors. It’s a contagion to Main Street and Wall Street.” The technology sector was the day’s biggest loser, sliding 3.15% as weak quarterly results from chipmaker Intel weighed heavily on chip stocks. The S&P 500 has fallen about 12% from its high in May, pushing it into what is generally considered “correction territory.” China’s major stock indexes shed over 3%, raising questions about Beijing’s ability to halt a sell-off that has now reached 18% since the start of the year. The Dow Jones industrial average dropped 2.39% to end at 15,988.08 and the S&P 500 fell 2.16% to 1,880.33. The Nasdaq Composite lost 2.74% to 4,488.42. For the week, the Dow fell 2.2%, the S&P 500 lost 2.2% and the Nasdaq dropped 3.3%. U.S. stock exchanges will be closed on Monday in observance of Martin Luther King Jr. Day, while China’s equity markets will be open.

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And this is news to whom, exactly?

Weak US Data Deluge Points To Sharply Slower Growth (Reuters)

U.S. retail sales fell in December as unseasonably warm weather undercut purchases of winter apparel and cheaper gasoline weighed on receipts at service stations, the latest indication that economic growth braked sharply in the fourth quarter. The growth picture was further darkened by other data on Friday showing industrial production fell in December, dragged down by cutbacks in utilities and mining output. Business inventories were also weak, posting their biggest drop in just over four years in November. Signs the economy has hit a soft patch – together with weak inflation, a stock market sell-off and faltering global growth – raises doubts on whether the Federal Reserve will raise interest rates again in March. The Fed lifted its benchmark overnight interest rate from near zero last month, the first rate hike in nearly a decade.

“The economy got hit from all sides in December. If these weak data keep going into 2016, the outlook is going to grow even dimmer given the recent financial market turbulence and the fears over what a slowdown in China means for the rest of the world,” said Chris Rupkey, chief economist at MUFG Union Bank in New York. The Commerce Department said retail sales slipped 0.1% after increasing 0.4% in November. For all of 2015, retail sales rose just 2.1%, the weakest reading since 2009, after advancing 3.9% in 2014. Retail sales excluding automobiles, gasoline, building materials and food services fell 0.3% after a 0.5% gain the prior month. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Though another report from the University of Michigan showed its consumer sentiment index rose to 93.3 early this month from a reading of 92.6 in December, households were less upbeat about current conditions, reflecting the recent equity market turmoil. Friday’s reports joined weak data on construction, manufacturing and export growth in suggesting that growth slowed abruptly in the final three months of 2015. They could raise fears that the malaise from manufacturing and export-oriented sectors was filtering to the rest of the economy.

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“Now that this debt bubble is unwinding, growth in China is going offline”

A Recession Worse Than 2008 Is Coming (Michael Pento)

The S&P 500 has begun 2016 with its worst performance ever. This has prompted Wall Street apologists to come out in full force and try to explain why the chaos in global currencies and equities will not be a repeat of 2008. Nor do they want investors to believe this environment is commensurate with the dot-com bubble bursting. They claim the current turmoil in China is not even comparable to the 1997 Asian debt crisis. Indeed, the unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don’t expect them to warn of the impending global recession and market mayhem. But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue.

Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37%. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety. But this one will be worse. A major contributor for this imminent recession is the fallout from a faltering Chinese economy. The megalomaniac communist government has increased debt 28 times since the year 2000. Taking that total north of 300% of GDP in a very short period of time for the primary purpose of building a massive unproductive fixed asset bubble that adds little to GDP. Now that this debt bubble is unwinding, growth in China is going offline.

The renminbi’s falling value, cascading Shanghai equity prices (down 40% since June 2014) and plummeting rail freight volumes (down 10.5% year over year), all clearly illustrate that China is not growing at the promulgated 7%, but rather isn’t growing at all. The problem is that China accounted for 34% of global growth, and the nation’s multiplier effect on emerging markets takes that number to over 50%. Therefore, expect more stress on multinational corporate earnings as global growth continues to slow. But the debt debacle in China is not the primary catalyst for the next recession in the United States. It is the fact that equity prices and real estate values can no longer be supported by incomes and GDP. And now that the Federal Reserve’s quantitative easing and zero interest-rate policy have ended, these asset prices are succumbing to the gravitational forces of deflation. The median home price to income ratio is currently 4.1; whereas the average ratio is just 2.6.

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An inevitable development that we’ve long predicted.

Looming Recession Shifts Fed Support From Equities To Dollar, Banks (Brodsky)

Investors are blaming Fed rate hikes, and hence a strong dollar, for weakening global output, commodity prices, and global equity prices so far in 2016. The Fed knows exactly what it’s doing. Equity returns are certainly dismal thus far in 2016. Through January 14 at 14:00PM EST, the MSCI World Index had declined by 8.6%. Accordingly, “the markets” had begun to doubt the Fed’s resolve to hike rates four times in 2016. Fed funds futures implied the December Fed Funds rate at 0.70%, up only 34 basis points from the current rate (0.36%). This implies the market is betting the Fed will hike once or twice more. Clearly, investors see the equity markets as the leading indicator of Fed policy. We disagree.

The Fed no longer works implicitly for equity investors (i.e., “the Fed Put”); it is primarily working for the U.S. banking system by stabilizing and increasing its deposit base, and for the state by providing an incentive across the world to invest in Treasury debt. By raising rates, it increases the exchange value of the U.S. dollar. We have argued that global output growth would have to naturally decline given the extraordinary leverage already built into the global economy, leaving observers to acknowledge in 2016 that recession is near. We have argued further that the Fed is very aware of an imminent global slowdown, and that a logical strategy in such an environment would be for it to import global capital by keeping the dollar un-challenged as a store of value.

We would like to reiterate and refine our view: despite increasing discomfort among equity investors, we think the Fed will remain resolute in its effort to maintain or increase the interest rate differential between U.S. and foreign sovereign rates. The one thing that would change the Fed’s current policy would be if global growth shows signs of increasing – not decreasing. If the world economy were to strengthen then the Fed’s incentive to keep the dollar strong would fade. Investors should consider this meaningful shift in policy when deciding how to allocate across asset classes. As we noted in The Pain Trade last year, falling long-term Treasury yields are the last thing speculative (i.e., levered) investors expect. Following this week’s auctions, it may be time for them to cover shorts.

“Global equity markets are suffering so far in 2016 because the Fed’s primary policy has shifted from protecting asset prices to protecting the exchange value of the dollar. Buy USDs and Treasuries”

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Bubbles have limited lifespans.

Global Earnings Downgrades Haven’t Been This Bad in Seven Years (BBG)

Stocks are losing their last line of defense. Amid a selloff that erased more than two years of gains – about $14 trillion – from global stocks now on the brink of a bear market, at least earnings stood as a potential bright spot. Those hopes are fading: analyst profit downgrades outnumbered upgrades by the most since 2009 last week, according to monthly data from a Citigroup index that tracks such changes. Declines in oil and and other commodities, the withdrawal of Federal Reserve support, Europe’s fragile recovery and China slowdown fears are combining to jeopardize one of the few remaining stock catalysts after a global rally of as much as 156% since 2009. And profit growth estimates are still too high for this year and 2017, says Bankhaus Lampe’s Ralf Zimmermann.

“The momentum in the global economy is slowing down to such an extent that people are seriously talking about recession,” said Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf. “This is not just China, it’s far more widespread. There are few places to hide. Even defensives will feel the pain.” Economists’ projections for worldwide expansion in 2016 have dropped steadily in the past months to just 3.3%, with estimates for China and the U.S. falling since the summer. The biggest bears are getting more bearish – DoubleLine Capital’s Jeffrey Gundlach sees global growth slowing to just 1.9% in 2016, making it the worst year since the aftermath of the financial crisis in 2009.

This earnings season may not provide much reassurance, say strategists at JPMorgan. Analysts project a 6.7% contraction in fourth-quarter profits for Standard & Poor’s 500 Index members. For peers in Europe, estimates call for growth of just 2.7% for all of 2015, about half the pace predicted four months ago. Investors are also running for the door – they pulled about $12 billion from global stock funds last week.

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No, no, no ‘socking away’, they’re paying off debt: “Americans probably preferred to sock away the savings from cheaper fuel..”

Retail Sales in U.S. Decrease to End Weakest Year Since 2009 (BBG)

Sales at U.S. retailers declined in December to wrap the weakest year since 2009, raising concern about the momentum in consumer spending heading into 2016. The 0.1% drop matched the median forecast of 84 economists surveyed by Bloomberg and followed a 0.4% gain in November, Commerce Department figures showed Friday in Washington. For all of 2015, purchases climbed 2.1%, the smallest advance of the current economic expansion.

The slowdown, including electronics stores, clothing merchants and grocers, indicates Americans probably preferred to sock away the savings from cheaper fuel instead of splurging during the holiday season. While hiring has been robust in recent months, faster wage gains remain elusive, one reason household spending may have a tougher time accelerating as the new year gets under way. “There isn’t anything encouraging in this report,” said Thomas Simons at Jefferies in New York. “It’s very disappointing. The labor market is in good shape, which suggests the outlook is probably better than this.”

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“I think they need to exit some markets totally and close a lot more than they are closing.”

Wal-Mart to Shut Hundreds of Stores (BBG)

Wal-Mart plans to shutter 269 stores, the most in at least two decades, as it abandons its experimental small-format Express outlets and looks to streamline the chain. The move by the largest private employer in the U.S. will affect about 10,000 jobs domestically at 154 locations, according to a statement Friday. Overseas, the effort will eliminate 6,000 jobs and includes the closing of 60 money-losing stores in Brazil, a country where Wal-Mart has struggled. The plan will affect less than 1% of its total square footage and revenue, the company said. CEO Doug McMillon took the step after reviewing the chain’s 11,600 stores, evaluating their financial performance and fit with its broader strategy.

The move also marks the end of its pilot Wal-Mart Express program, a bid to create a network of small corner stores to compete with dollar-store chains and drugstores. Wal-Mart will continue its larger-size Neighborhood Markets effort, though 23 poor-performing stores in that chain also will be closed. The company is still expanding its footprint in the U.S., adding 69 new stores and 6,000 jobs in January alone. “We invested considerable time assessing our stores and clubs and don’t take this lightly,” McMillon said. “We are supporting those impacted with extra pay and support, and we will take all appropriate steps to ensure they are treated well.”

Wal-Mart shares fell 1.8% to $61.93 in New York as the broader market tumbled. They have lost 29% of their value over the past 12 months, dragged down by slow growth and profit declines. Some investors may be disappointed that the cuts aren’t deeper, said Brian Yarbrough, an analyst with Edward Jones. “I don’t think this is enough to move the needle,” he said. “I think they need to exit some markets totally and close a lot more than they are closing.”

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“The endgame of Chinese communist rule has now begun.”

A New Year Of Turmoil For China (WaPo)

A year ago, Chinese President Xi Jinping appeared to be living what he called the “Chinese Dream.” China’s economy seemed strong, its military power was growing and Xi was aggressively consolidating domestic political power. But Xi is off to a bad new year. The Chinese economy is slowing sharply, with actual gross domestic product growth last year now estimated by U.S. analysts at several points below the official rate of 6.5%. The Chinese stock market has fallen 15% this year, and the value of its currency has slipped. Capital flight continues, probably at the $1 trillion annual rate estimated for the second half of last year. But China’s economic woes are manageable compared with its domestic political difficulties. Xi’s anti-corruption drive has accelerated into a full-blown purge.

The campaign has rocked the Chinese intelligence service, toppled some senior military commanders and frightened Communist Party leaders around the country. Jittery party officials are lying low, avoiding decisions that might get them in trouble; the resulting paralysis makes other problems worse. “Xi is in an unprecedentedly powerful position. But because he has dismantled the tools of collective leadership that had been built up over decades, he owns this crisis,” said Kurt Campbell, who was the Obama administration’s top Asia expert until 2013. He worries that Xi will “double down” on his nationalistic push for greater power in Asia, which is one of the few themes that can unite the country. “To scale back shows weakness, which Xi can ill afford now,” Campbell said.

Chinese sometimes use historical parables to explain current domestic political issues. The talk recently among some members of the Chinese elite has been a comparison between Xi’s tenure and that of Yongzheng, the emperor who ruled China from 1722 to 1735. Yongzheng waged a harsh campaign against bribery, but he came to be seen by many Chinese as a despot who had gained power illegitimately. “A lot of historical events of that period are repeating in China today, from power conspiracy to corruption, from a deteriorating economy to an external hostility threat,” one Chinese observer said in an email. Xi’s political troubles illustrate the difficulty of trying to reform a one-party system from within.

Much as Mikhail Gorbachev hoped in the 1980s that reforms could revitalize a decaying Soviet Communist Party, Xi began his presidency in 2013 by attacking Chinese party barons who had grown rich and comfortable on the spoils of China’s economic boom. Many of Xi’s rivals were proteges of former President Jiang Zemin, which meant that Xi made some powerful enemies. David Shambaugh, a China scholar at George Washington University, was an outlier when he argued in March that Xi’s reform campaign would backfire. “Despite appearances, China’s political system is badly broken, and nobody knows it better than the Communist Party itself,” he wrote in the Wall Street Journal. “The endgame of Chinese communist rule has now begun.”

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The USD is the only possible winner.

Currency War Revival Seen After Yen, Euro Rally (BBG)

A flare-up in the global currency war is looming, as a resurgent yen and euro threaten to give policy makers in Japan and Europe an incentive to add monetary stimulus. Japan’s currency advanced versus the dollar for the third time in four weeks, while the euro climbed versus most of its peers. Hedge funds lifted bets on yen strength to the highest in more than three years, and pared wagers against the European common currency. The greenback suffered as sentiment cooled for further currency-supportive interest-rate increases in the U.S. amid sustained market volatility and weaker-than-forecast domestic economic data.

A growing divergence in U.S. growth and monetary policy versus the rest of the world has stalled amid signs the American economy can’t wholly escape a slowdown in China and a patchy recovery elsewhere. That’s weighing on the dollar, while stymieing the economic goals of the Bank of Japan and ECB, which benefit when their currencies depreciate. Further monetary easing is on the cards if the yen strengthens beyond 115 per dollar and the euro gains toward $1.15, according to Lee Ferridge, head of macro strategy for North America at State Street Global Markets. “The currency war is still alive and well,” Ferridge said. “If the dollar starts to suffer, then the ECB or the BOJ come back into play.”

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$23 billion lost in 2015. How much worse could not acting have been?

One Year On, ‘Franckenschock’ Still Hurts Swiss (CNBC)

The Swiss National Bank’s (SNB) decision to scrap its cap on the franc against the euro a year ago today shocked markets and sent the country’s currency rocketing 30%. One year on, the franc is still high, 10% up against the euro, and export-focused Switzerland is still feeling the pain. Looking back at the SNB’s shock move James Watson, MD for UK and Europe at ADS Securities, told CNBC “a lot of people were caught in the headlights.” Hashtags such as #Francogeddon and #Franckenschock were soon trending on Twitter. The decision to impose a maximum value on the franc – the cap had been in place at 1.20 franc per euro since 2011 when investors seeking a safe haven amid the turmoil created by the euro zone debt crisis pushed the franc higher – was made to help Swiss exporters compete.

Switzerland’s goods exports grew by 3.5% in 2014, exceeding the record set in 2008. After the cap was lifted, Swiss exports weakened in the first 11 months of 2015, down 3% according to Swiss Customs Office data, although they picked up to growth of 1% in November. Swiss watch sales – the country exports iconic luxury brands such as Hublot and LVMH’s Tag Heuer – remain depressed and recorded their worst November in five years. “I don’t think the SNB really thought about what the effect would be of what they did,” Watson said. The SNB argued that recent falls in the currency meant that maintaining the peg was no longer justifiable. Analysts have also argued the SNB removed the peg for political reasons. The expected introduction of quantitative easing by the ECB at the time also meant that defending the level against an even weaker euro would have required yet more intervention.

Watson believes the central bank took the approach of stimulating the economy, but “maybe they didn’t give it as much thought as they could have”. While it has been painful for exporters, the strong franc has also made imports cheaper. Inflation for 2015 is forecast at –1.1%. Domestic demand looks set to remain robust, according to the bank, which expects growth of approximately 1.5% this year. For 2015, the SNB anticipates growth of just under 1% in Switzerland. Unemployment stood at 4.9% in the third quarter of 2015, according to the ILO, still well below the 6.3% recorded in November in neighbor Germany. The central bank has also indicated that it is prepared to take measures to curb the strength of the franc. The currency, which has weakened in recent months to trade at about 1.09 euros, is still “considerably” overvalued according to the SNB. Vice chairman Fritz Zurbrügg said in speech earlier this week “business as usual is still a long way off”.

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Servitude.

America’s Student-Debt Crisis Is Only Getting Worse (MW)

It’s getting harder and harder to graduate college without taking on student loans. Nearly 70% of bachelor’s degree recipients leave school with debt, according to the White House, and that could have major consequences for the economy. Research indicates that the $1.2 trillion in student loan debt may be preventing Americans,from making the kinds of big purchases that drive economic growth, like house and cars, and reaching other milestones, such as having the ability to save for retirement or move out of mom and dad’s basement. This student debt crisis has become so huge it’s even captured the attention of presidential candidates who are searching for ways to make college more affordable amid an environment of dwindling state funding for higher education and rising college costs. But meanwhile, the approximately 40 million Americans with student debt have to find ways to manage it.

[..] A few numbers to consider (and some that bear repeating):
• The total outstanding student loan debt in the U.S. is $1.2 trillion, that’s the second-highest level of consumer debt behind only mortgages. Most of that is loans held by the federal government.
• About 40 million Americans hold student loans and about 70% of bachelor’s degree recipients graduate with debt.
• The class of 2015 graduated with $35,051 in student debt on average, according to Edvisors, a financial aid website, the most in history.
• One in four student loan borrowers are either in delinquency or default on their student loans, according the Consumer Financial Protection Bureau.

Over the past few decades a variety of factors coalesced to make student debt an almost-universal American experience. For one, state investment in higher education dwindled and colleges made up the difference by raising tuition. At the same time, financial aid hasn’t kept up with tuition growth. In the 1980s, the maximum Pell Grant — the money the federal money gives to low-income students to attend college — covered more than half the cost of a four-year public school, according to The Institute for College Access and Success, a think tank focused on college affordability. Now, it covers less than one-third the cost.

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18 months after MH-17 was shot down, it has become a full-tard propaganda tool for the west. There’s zero respect for the victims and their families.

MH-17’s Unnecessary Mystery (Robert Parry)

[..] despite the flimsiness of the “blame-Russia-for-MH-17” case in July 2014, the Obama administration’s rush to judgment proved critical in whipping up the European press to demonize President Vladimir Putin, who became the Continent’s bete noire accused of killing 298 innocent people. That set the stage for the EU to accede to U.S. demands for economic sanctions on Russia. The MH-17 case was deployed like a classic piece of “strategic communication” or “Stratcom,” mixing propaganda with psychological operations to put an adversary at a disadvantage. Apparently satisfied with that result, the Obama administration stopped talking publicly, leaving the impression of Russian guilt to corrode Moscow’s image in the public mind.

But the intelligence source who spoke to me several times after he received additional briefings about advances in the investigation said that as the U.S. analysts gained more insights into the MH-17 shoot-down from technical and other sources, they came to believe the attack was carried out by a rogue element of the Ukrainian military with ties to a hard-line Ukrainian oligarch. But that conclusion – if made public – would have dealt another blow to America’s already shaky credibility, which has never recovered from the false Iraq-WMD claims in 2002-03. A reversal also would embarrass Kerry, other senior U.S. officials and major Western news outlets, which had bought into the Russia-did-it narrative. Plus, the EU might reconsider its decision to sanction Russia, a key part of U.S. policy in support of the Kiev regime.

Still, as the MH-17 mystery dragged on into 2015, I inquired about the possibility of an update from the DNI’s office. But a spokeswoman told me that no update would be provided because the U.S. government did not want to say anything to prejudice the ongoing investigation. In response, I noted that Kerry and the DNI had already done that by immediately pointing the inquiry in the direction of blaming Russia and the rebels. But there was another purpose in staying mum. By refusing to say anything to contradict the initial rush to judgment, the Obama administration could let Western mainstream journalists and “citizen investigators” on the Internet keep Russia pinned down with more speculation about its guilt in the MH-17 shoot-down. So, silence became the better part of candor. After all, pretty much everyone in the West had judged Russia and Putin guilty. So, why shake that up?

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PCBs ware phased out decades ago.

Toxic Chemicals In Scottish Waters Wiping Out Killer Whales (Scotsman)

Killer whales could vanish from Scottish waters as a result of the lingering effects of toxic chemicals banned more than 30 years ago, according to new international research. Scientists say European seas are a global hotspot of contamination from man-made polychlorinated biphenyls (PCBs), which weaken the immune systems of whales and dolphins and seriously affect their reproduction. The seas around the Hebrides are home to the UK’s only known resident killer whales, known as the West Coast Community. Only eight are left in the pod, after a female died earlier this month. But experts at the international conservation charity, the Zoological Society of London (ZSL), say the group will go extinct in the future as no young have been recorded in more than 20 years.

And other killer whale and dolphin populations around Europe face the same fate. The researchers suggest a failure to breed could be down to high levels of man-made PCBs building up in the animals body fat. “The long life-expectancy and position as apex or top marine predators make species like killer whales and bottlenose dolphins particularly vulnerable to the accumulation of PCBs through marine food webs”, said Dr Paul Jepson, a wildlife vet at ZSL and lead author of the study. “Few coastal orca populations remain in western European waters. Those that do persist are very small and suffering low or zero rates of reproduction. The risk of extinction therefore appears high for these discrete and highly contaminated populations.”

“Without further measures, these chemicals will continue to suppress populations of orcas and other dolphin species for many decades to come.” Dr Jepson’s team will analyse samples taken from the West Coast killer whale known as Lulu, who died recently after entanglement in fishing gear. “This Scottish population feeds on seals, so PCB exposure through diet will be much higher than for killer whales that only eat fish”, he said. “I think the group will, very regrettably, become extinct. Like any animal population, once you stop reproducing you will eventually die out.” But killer whales are very long-lived animals -at least one adult female has lived to over 100 years old in the wild- so local extinction can still take a long time to play out.

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Why the EU must be disbanded.

Baby Found Dead On Greece Migrant Boat (AP)

Greek authorities say a baby has been found dead after a boat full of migrants reached the small eastern Aegean Sea island of Farmakonissi, while 63 people were picked up alive. The incident raises to four the number of deaths that Greek authorities recorded Friday, as migrants continue to make the short but dangerous sea crossing from nearby Turkey to Greeces Aegean islands despite the winter weather. Earlier, three children drowned and 20 people were rescued when another boat carrying migrants foundered off the islet of Agathonissi.

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Jan 142016
 
 January 14, 2016  Posted by at 9:34 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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DPC Oyster luggers along Mississippi, New Orleans 1906

Asia Stocks Extend Losses, Japan’s Nikkei Falls 3.67% (CNBC)
Oil and US Stocks Tumble Over Fears For Global Economy (Guardian)
China Bear Market Looms as PBOC Fails to Stop Flight to Safety (BBG)
Q4 Will Be Worst US Earnings Season Since Third Quarter Of 2009 (ZH)
The Real Price of Oil Is Far Lower Than You Realize (BBG)
Crude At $10 Is Already A Reality For Canadian Oil-Sands Miners (BBG)
Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes (ZH)
Currency Swings Sap US Corporate Profits by Most in Four Years (BBG)
African Exports To China Fell By 40% In 2015 (BBC)
Money Leaving Emerging Markets Faster Than Ever Amid China Slump (BBG)
China Bond Yield Sinks To Record Low As Central Bank Injects $24 Billion (BBG)
China’s Better-Than-Expected Trade Numbers Raise Questions (WSJ)
Surging China-Hong Kong Trade Raises Doubts Over Recovery (BBG)
The Quiet Side of China’s Market Intervention (WSJ)
As China Dumps Treasuries, Other Buyers Expected To Step In (BBG)
Reporting Rule Adds $3 Trillion Of Leases To Balance Sheets Globally (FT)
EU Scientists In Bitter Row Over Safety Of Monsanto’s Round-Up (Guardian)
Thousands Of Farmer Suicides Prompt India Crop Insurance Scheme (Guardian)
Greece Said To Propose Return Trips For Illegal Migrants (AP)
Tighter Border Checks Leave Migrants Trapped In Greece (AP)
Refugee Influx To Greece Continues Unabated Through Winter (Reuters)
Europe Sees No Let Up in Refugee Crisis as January Arrivals Soar (BBG)

“In Japan, core machinery orders in November fell 14.4%..”

Asia Stocks Extend Losses, Japan’s Nikkei Falls 3.67% (CNBC)

[..] major Asian stock markets continued their downward slide, following a massive sell-off on Wall Street overnight, pressured by concerns over a global economic slowdown and low oil prices. After a late sell-off Wednesday afternoon, the Chinese markets opened in negative territory before trimming losses, with the Shanghai composite down some 1.05%, while the Shenzhen composite was flat. At market open, Shanghai was down 2.73% and Shenzhen saw losses of 3.37%. Hong Kong’s Hang Seng index was down 1.51%. Offering some sign of stability in a generally volatile market, the People’s Bank of China (PBOC) set Thursday’s yuan mid-point rate at 6.5616, compared with Wednesday’s fix of 6.5630. The dollar-yuan pair was nearly flat at 6.5777.

Japan’s Nikkei 225 erased all of Wednesday’s 2.88% gain and plunged 3.95%, weighed by commodities and machinery sectors, which were all down between 3 and 4%. Earlier, it fell as low as 4% before paring back some of the losses. South Korea’s Kospi traded down 1.45%. Down Under, the ASX 200 dropped 1.61%, with energy and financials sectors sharply down. All sectors were in the red except for gold, which saw an uptick of 3.71%. In Japan, core machinery orders in November fell 14.4% from the previous month, according to official data, down for the first time in three months. The data is regarded as an indicator of capital spending and fell more than market expectations for a 7.9% decline.

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Or is it just price discovery?

Oil and US Stocks Tumble Over Fears For Global Economy (Guardian)

US stocks fell heavily on Wednesday, with the Standard & Poor’s 500 falling 2.5% to take the index below 1,900 points for the first time since September, due to growing concerns about the falling oil price, which dipped below $30 a barrel for the first time in nearly 12 years. The S&P 500, which closed at 1,890 points, suffered its worst day since September and has fallen by 10% since its November peak taking it into “correction” territory, something that has not happened since August 2014. The Dow Jones industrial average dropped by 364 points, or 2.2%, to 16,151, and the Nasdaq composite dropped 159 points, or 3.4%, to 4,526. This deepened the New York stock exchange’s already worst start to a year on record.

Wednesday’s stock market declines were triggered by new figures showing US gasoline stockpiles had increased to record high, which caused Brent crude prices to fall as low as $29.96, their lowest level since April 2004, before settling at $30.31, a 1.8% fall. The oil price has fallen by 73% since a peak of $115 reached in the summer of 2014. Industry data showed that US gasoline inventories soared by 8.4m barrels and stocks of diesel and heating oil increased by more than 6m barrels – confirming the forecasts of many analysts that a huge oversupply of oil could keep prices low during most of 2016. Analysts said that growing fears of a weakening outlook for the global economy, made worse by falling oil prices, was behind the steep falls. Some oil analysts this week predicted that the price could fall as low as $10.

In recent days several analysts have warned that the global economy could suffer a repeat of the 2008 crash if the knock-on effects of a contraction in Chinese output pushes down commodity prices further and sparks panic selling on stock and bond markets. [..] Earlier in the day China’s stock market fell more than 2% after officials played down the significance of better-than-expected trade figures for December, saying exports could sink further before they find a floor.

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Looms?!

China Bear Market Looms as PBOC Fails to Stop Flight to Safety (BBG)

Chinese stocks headed for a bear market while government bond yields fell to a record as central bank cash injections and a stable yuan fixing failed to shore up confidence in the world’s second-largest economy. The Shanghai Composite Index sank as much as 2.8%, falling more than 20% from its December high and sinking below its closing low during the depths of a $5 trillion rout in August. Investors poured money into government bonds after the People’s Bank of China added the most cash through open-market operations since February 2015, sending the yield on 10-year notes down to 2.7%. While the central bank kept its yuan reference rate little changed for a fifth day, the currency dropped 0.5% in offshore trading and Hong Kong’s dollar declined to the weakest since March 2015.

The selloff is a setback for Chinese authorities, who have been intervening to support both stocks and the yuan after the worst start to a year for mainland markets in at least two decades. As policy makers in Beijing fight to prevent a vicious cycle of capital outflows and a weakening currency, the resulting financial-market volatility has undermined confidence in their ability to manage the deepest economic slowdown since 1990 “You can’t really find buyers in this environment,” said Ken Peng, a strategist at Citigroup Inc. in Hong Kong. “It’s a very, very fragile status quo China is trying to maintain.” The government faces a dilemma with the yuan, according to Samuel Chan at GF International.

On one hand, a weakening exchange rate would help boost exports and is arguably justified given declines in other emerging-market currencies against the dollar in recent months. The downside is that a depreciating yuan encourages capital outflows and makes it harder to keep domestic interest rates low. The monetary authority “doesn’t want the yuan to depreciate fast because it will push funds to leave China very quickly,” Chan said. The country saw capital outflows for 10 straight months through November, totaling $843 billion, according to an estimate from Bloomberg Intelligence. Foreign-exchange reserves, meanwhile, sank by a record $513 billion last year to $3.33 trillion, according to the central bank.

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Still sinking after all these years.

Q4 Will Be Worst US Earnings Season Since Third Quarter Of 2009 (ZH)

Couple of things: first of all, any discussion whether the US market is in a profit (or revenue) recession must stop: the US entered a profit recession in Q3 when it posted two consecutive quarters of earnings declines. This was one quarter after the top-line of the S&P dropped for two consecutive quarters, and as of this moment the US is poised to have 4 consecutive quarters with declining revenues as of the end of 2015. Furthermore, as we showed on September 21, when Q4 was still expected to be a far stronger quarter than it ended up being, in the very best case, the US would go for 7 whole quarters without absolute earnings growth (and even longer without top-line growth).

Then, as always happens, optimism about the current quarter was crushed as we entered the current quarter, and whereas on September 30, 2015, Q4 earnings growth was supposed to be just a fraction negative, or -0.6%, as we have crossed the quarter, the full abyss has revealed itself and according to the latest Factset consensus data as of January 8, the current Q4 EPS drop is now expected to be a whopping -5%. And just to shut up the “it’s all energy” crowd, of the 10 industries in the S&P, only 4 are now expected to post earnings growth and even their growth is rapidly sliding and could well go negative over the next few weeks. It gets even worse. According to Bloomberg, on a share-weighted basis, S&P 500 profits are expected to have dropped by 7.2% in 4Q, while revenues are expected to fall by 3.1%.

This would represent the worst U.S. earnings season since 3Q 2009, and a third straight quarter of negative profit growth. It’s no longer simply a recession: as noted above, the Q4 EPS drop follows declines of 3.1% in Q3 and 1.7% in Q2. it is… whatever comes next. As Bloomberg adds, the main driving forces behind drop in U.S. earnings are the rise in the dollar index (thanks Fed) and the drop in average WTI oil prices. However, since more than half of all industries are about to see an EPS decline, one can’t blame either one or the other. So while we know what to expect from Q4, a better question may be what is coming next, and according to the penguin brigade, this time will be different, and the hockey stick which was expected originally to take place in Q4 2015 and then Q1 2016 has been pushed back to Q4 2016, when by some miracle, EPS is now expected to grow by just about 15%.

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WTI/Brent prices are just a story.

The Real Price of Oil Is Far Lower Than You Realize (BBG)

While oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is even deeper. West Texas Intermediate futures, the U.S. benchmark, sank below $30 a barrel on Tuesday for the first time since 2003. Actual barrels of Saudi Arabian crude shipped to Asia are even cheaper, at $26 – the lowest since early 2002 once inflation is factored in and near levels seen before the turn of the millennium. Slumping oil prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said. The nation’s economic expansion faltered last year to the slowest pace in a quarter of a century. “You see a big destruction in the income of the oil and commodity producers,” Turner said. “That is having a major effect on their expenditure across the world.” The benefit for consumers from historically low oil prices is being blunted by changes in fuel taxation and a reduction in subsidies, according to Paul Horsnell at Standard Chartered in London. “But it certainly shows that current prices are very low by any description,” he said.

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“..$8.35 on Tuesday, down from as much as $80 less than two years ago.”

Crude At $10 Is Already A Reality For Canadian Oil-Sands Miners (BBG)

Think oil in the $20s is bad? In Canada they’d be happy to sell it for $10. Canadian oil sands producers are feeling pain as bitumen – the thick, sticky substance at the center of the heated debate over TransCanada’s Keystone XL pipeline – hit a low of $8.35 on Tuesday, down from as much as $80 less than two years ago. Producers are all losing money at current prices, First Energy Capital’s Martin King said Tuesday at a conference in Calgary. Which doesn’t mean they’ll stop. Since most of the spending for bitumen extraction comes upfront, and thus is a sunk cost, production will continue and grow. Canada will need more pipeline capacity to transport bitumen out of Alberta by 2019, King said.

Bitumen is another victim of a global glut of petroleum, which has sunk U.S. benchmark prices into the $20s from more than $100 only 18 months ago. It’s cheaper than most other types of crude, because it has to be diluted with more-expensive lighter petroleum, and then transported thousands of miles from Alberta to refineries in the U.S. For much of the past decade, oil companies fought environmentalists to get the pipeline approved so they could blend more of the tar-like petroleum and feed it to an oil-starved world. TransCanada is mounting a $15 billion appeal against President Barack Obama’s rejection of Keystone XL crossing into the U.S. – while simultaneously planning natural gas pipelines from Alberta to Canada’s east coast to carry diluted bitumen. Environmentalists are hoping oil economics finish off what their pipeline protests started.

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Inventories are overflowing. How predictable.

Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes (ZH)

If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up ‘cheap’ oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China’s record crude imports have ceased). In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago…

China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. China’s crude imports last month was equivalent to 7.85 million barrels a day, 6% higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher. But given the crash in tanker rates – and implicitly demand – that “boom” appears to be over.

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What neighbors can the US beggar?

Currency Swings Sap US Corporate Profits by Most in Four Years (BBG)

Volatility in the $5.3-trillion-a-day foreign exchange market is dragging down U.S. corporate earnings by the most since 2011, according to a report from FiREapps. Currency fluctuations eroded earnings for the average North American company by 12 cents per share in the third quarter, according to the Scottsdale, Arizona-based firm, which advises businesses and makes software to help reduce the effect of foreign-exchange swings. That’s the most in data going back at least four years, and is up from an average 3 cents per share in the second quarter. “This is the worst I’ve seen it,” FiREapps chief executive officer Wolfgang Koestersaid in a telephone interview. “Investors and analysts are taking a very close look at corporate results impacted by foreign exchange and recognize how material they are.”

A JPMorgan measure of currency volatility averaged 10.1 % during the third quarter, up from 6.3 % 12 months earlier. Last year, some of the biggest price swings came from unscheduled events, such as China’s August devaluation of the yuan, Switzerland’s decision to scrap its currency cap and plummeting commodity prices. Companies in North America lost at least $19.3 billion to foreign-exchange headwinds in the third quarter of 2015, FiREapps data showed. The losses grew by about 14 % from the second quarter. Of the 850 North American corporations that Fireapps analyzed, 353 cited the negative impact of currencies in their earnings, more than double the previous quarter. “That is the largest number of companies talking about currency impact that we’ve ever seen,” Koester said.

China’s yuan is garnering more attention from corporations amid concern that growth in the world’s second-largest economy is slowing, according to FiREapps. Yet North American firms remain most concerned about the effects of the euro, Brazilian real and Canadian dollar on their results. The currencies have fallen 8.3 %, 34 % and 16 % against the greenback over the past 12 months. The stronger U.S. dollar means higher, less-competitive prices for U.S. businesses seeking to sell their products overseas. Companies also take a hit when they account for revenue denominated in weaker overseas currencies, unless they hedged their exposure.

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That is a very big number.

African Exports To China Fell By 40% In 2015 (BBC)

African exports to China fell by almost 40% in 2015, China’s customs office says. China is Africa’s biggest single trading partner and its demand for African commodities has fuelled the continent’s recent economic growth. The decline in exports reflects the recent slowdown in China’s economy. This has, in turn, put African economies under pressure and in part accounts for the falling value of many African currencies. Presenting China’s trade figures for last year, customs spokesman Huang Songping told journalists that African exports to China totalled $67bn (£46.3bn), which was 38% down on the figure for 2014.

BBC Africa Business Report editor Matthew Davies says that as China’s economy heads for what many analysts say will be a hard landing, its need for African oil, metals and minerals has fallen rapidly, taking commodity prices lower. There is also less money coming from China to Africa, with direct investment from China into the continent falling by 40% in the first six months of 2015, he says. Meanwhile, Africa’s demand for Chinese goods is rising. In 2015 China sent $102bn worth of goods to the continent, an increase of 3.6%. Last year, South Africa hosted a China-Africa summit during which President Xi Jinping announced $60bn of aid and loans, symbolising the country’s growing role on the continent.

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And for now that’s still largely due to China.

Money Leaving Emerging Markets Faster Than Ever Amid China Slump (BBG)

Investors pulled more money from emerging markets in the three months through December than ever before as investors dumped riskier assets in China amid concern the country’s currency will weaken further, according to Capital Economics. Capital outflows from developing nations reached $270 billion last quarter, exceeding withdrawals during the financial crisis of 2008, led by an exodus from China as investors pulled a record $159 billion from the country just in December, Capital Economics’ economist William Jackson said in a report. Excluding outflows from the world’s second-largest economy, emerging markets would have seen inflows in the quarter, he said.

“This appears to reflect a growing skepticism in the markets that the People’s Bank can keep the renminbi steady,” Jackson said in the note, which was published Wednesday. “Given the fresh sell-off in EM financial markets and growing concerns about the level of the renminbi, it seems highly likely that total capital outflows will have increased” in January, he said. Investor skepticism increased last year as a surprise devaluation of China’s yuan roiled global markets and triggered a $5 trillion rout in the nation’s equity markets, casting doubt on the government’s ability to contain the selloff and support growth.

Chinese leaders have since then stepped up efforts to restrict capital outflows and prop up share prices despite pledges to give markets greater sway and allow money to flow freely across the nation’s borders within five years. The yuan traded in the mainland market declined 4.4% in 2015, the most since 1994. Outflows from emerging markets rose to a record $113 billion in December, Capital Economics said. Over 2015, investors pulled $770 billion from developing nations, compared with $230 billion a year earlier.

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“For local investors, there’s nothing to buy..”

China Bond Yield Sinks To Record Low As Central Bank Injects $24 Billion (BBG)

China’s government bonds advanced, pushing the 10-year yield to a record low, as the central bank stepped up cash injections and volatile stock and currency markets drove demand for safety. The offshore yuan traded in Hong Kong declined for the first time in six days on speculation a narrowing gap with the Shanghai rate will dissuade the People’s Bank of China from stepping into the market, while Chinese equities slid below the lowest levels of last year’s market selloff. “For local investors, there’s nothing to buy,” said Li Liuyang at Bank of Tokyo-Mitsubishi. “Equities are not performing well, so bonds become the natural investment target. The PBOC increased reverse repo offerings partly because it may be taking some preemptive measures before next month’s Lunar New Year holidays.”

The yield on debt due October 2025 fell as much as three basis points to 2.70%, the least for a benchmark 10-year note in ChinaBond data going back to September 2007. The previous low was 2.72% in January 2009, during the global financial crisis. The PBOC conducted 160 billion yuan ($24 billion) of seven-day reverse-repo agreements in its open-market operations on Thursday, up from 70 billion yuan a week ago. That’s the biggest one-day reverse repo offerings since February 2015, data compiled by Bloomberg show. The PBOC injected a net 40 billion yuan this week, taking its total additions to 230 billion yuan so far this month. “The PBOC wants to keep liquidity abundant onshore to bolster the economy,” said Nathan Chow at DBS Group. “It’s also trying to calm the currency market as the yuan declined significantly last week and caused high volatility. But in the long run, the yuan will depreciate as the fundamentals are still weak.”

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Fake invoices. It’s as simple as that.

China’s Better-Than-Expected Trade Numbers Raise Questions (WSJ)

China’s better-than-expected trade figures in December have sparked questions over whether trade flows have been inflated by investors evading capital controls and the extent of incentives being offered by government agencies to prop up exports. China reported Wednesday that exports in December declined 1.4% year on year. This was much better than the 8% drop expected by economists in a WSJ survey and compared with a 6.8% decline in November, allowing Beijing to end the trading year on a stronger note. Imports fell by 7.6% last month, better than the expected 11% decline, compared with an 8.7% drop in November. The December trade figures also were helped by favorable comparisons with year-earlier figures, economists said.

Of particular note was a 64.5% jump in China’s imports from Hong Kong, the strongest pace in three years, analysts said. This compared with a 6.2% decline for the January-November period. ”It really looks like capital flight,” said Oliver Barron with investment bank North Square Blue Oak. “This has artificially inflated the total import data.” China in recent months has struggled to adjust to massive capital outflows as Chinese investors seek better returns overseas. China saw its foreign exchange hoard drop 13.3% in 2015, or by $500 billion, to $3.3 trillion by the end of December. Under Beijing’s strict capital controls, consumers are only allowed to purchase $50,000 worth of U.S. dollars each calendar year. But manipulated foreign trade deals offer a way around tightening restrictions, say economists.

In an effort to stem the outflow, Beijing’s foreign exchange regulator announced stricter supervision starting January 1 to screen suspicious individual accounts and crack down on organized capital flight, according to an online statement. Bank customers also have reported more difficulty recently exchanging yuan into dollars, with some forced to wait four days to complete a transaction that normally takes one. And China has cracked down on illegal foreign-exchange networks, including a bust announced in November in Jinhua, a city of five million people in eastern Zhejiang province, allegedly involving eight gangs operating from over two dozen “criminal dens” that reportedly handled up to $64 billion in unauthorized transactions, according to state media and a detailed police report.

The official People’s Daily newspaper said 69 people had been criminally charged and another 203 people had been given administrative sanctions. ”Regulators have been trying really hard to close the loopholes,” said Steve Wang with Reorient Financial, adding that the market seems skeptical of Wednesday’s trade figures. The Shanghai Composite Index fell 2.4%. “I don’t think Hong Kong has been buying or selling any more from China. The December data is a huge question mark,” he added. An example of how a Chinese company might move capital abroad using trade deals would be to import 1 million widgets at $2 apiece from a Hong Kong partner or subsidiary company, paying the $2 million, analysts said. It then exports the same widgets at $1 apiece, receiving $1 million from the Hong Kong entity. The goods are back where they started, but $1 million has now moved offshore.

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“..the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency restrictions.”

Surging China-Hong Kong Trade Raises Doubts Over Recovery (BBG)

China exports to Hong Kong rose 10.8% from a year earlier for the biggest gain in more than a year, making the city the biggest destination for shipments last month and spurring renewed skepticism over data reliability and the broader recovery in the nation’s outbound trade. Exports to Hong Kong rose to $46 billion last month, according to General Administration of Customs data released Wednesday. That was the highest value in almost three years and the biggest amount for any December period in the last 10 years, customs data show. Imports from Hong Kong surged 65%, the most in three years, to $2.16 billion. Economists said the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency restrictions.

China’s government said in 2013 some data on trade with Hong Kong were inflated by arbitrage transactions intended to avoid rules, an acknowledgment that export and import figures were overstated. The increase in exports to Hong Kong and China’s imports from the city probably indicate “fake invoicing,” said Iris Pang at Natixis in Hong Kong. Invoicing of China trade should be larger in December because of the wider gap between the onshore yuan and the offshore yuan traded in Hong Kong, she said. China’s exports to the Special Administrative Region of more than 7 million people eclipsed the $35 billion tallies last month for both the U.S. and the EU, the data show. Exports to Brazil, Canada, Malaysia, Russia all dropped more than 10%.

The imports gain “points to potential renewed fake trade activities,” said Larry Hu at Macquarie. When the yuan rose in 2013, exports to Hong Kong were inflated artificially, he said, and “now it’s just the opposite.” China’s total exports rose 2.3% in yuan terms from a year earlier, the customs said, after a 3.7% drop in November. Imports extended declines to 14 months. The recovery in exports in December may prove to be a temporary one due to a seasonal increase at the end of the year, and it doesn’t represent a trend, a spokesman for customs said after the Wednesday briefing. A weak yuan will help exports, but that effect will gradually fade, the spokesman told reporters in Beijing. Morgan Stanley economists led by Zhang Yin in Hong Kong also said in a note Wednesday that the higher-than-expected trade growth may have been affected by currency arbitrage. Overall external demand remained weak, as shown by anemic export data reported by South Korea and Taiwan, he said.

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State firms buying/holding lousy paper.

The Quiet Side of China’s Market Intervention (WSJ)

As Chinese markets tanked last week, China Inc. appeared to be rallying to their support. At least 75 Chinese companies issued statements during the past week and a half, saying their biggest shareholders would be holding on to their stakes in order to protect investor interests. Officially, the companies were acting spontaneously. But privately, people close to Chinese regulators as well as some of the companies themselves said they were prompted to release the statements by exchange officials, who had called and asked them to issue expressions of support. In many cases, the statements contained similar or nearly identical language. The behind-the-scenes activity reflects the secretive, unofficial side to Chinese regulators’ attempts to bolster the country’s sagging stock markets.

The regulators’ varied arsenal includes tactics such as phone calls from exchange officials to big holders of shares, urging them not to sell, as well as pumping hundreds of billions of yuan into the markets through government-affiliated funds. The hand of the regulators was most apparent over the summer, when a 43% plunge in the Shanghai Composite Index over slightly more than two months was accompanied by dozens of declarations by brokerages and fund managers abjuring stock sales, as well as huge purchases of shares in bellwether Chinese stocks by a shadowy group of firms known as the “national team.” Brokers, company executives and people close to Chinese regulators say tactics have become more subtle during the current market downturn: The national team hasn’t been making the high-profile buys of half a year ago, and regulators have been less overt in their requests for cooperation.

An executive at one environmental technology firm listed on the Shenzhen exchange said that in July, the bourse sent a letter demanding the company release a statement saying its controlling shareholders wouldn’t unload stock. Last week, the exchange was more low key, he said, phoning up and urging the company to release another statement to set an example for other firms. But the flurry of companies declaring their support for the market in recent days shows that Chinese regulators still haven’t given up on behind-the-scenes efforts to guide the direction of stocks. “We issued the statement because the [Shenzhen] exchange encouraged listed firms to maintain shareholdings,” said an executive at LED device-maker Shenzhen Jufei who requested anonymity. “You can think of this as a concerted effort by listed firms to voluntarily stabilize the market.”

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The popularity of T-Bills is guaranteed.

As China Dumps Treasuries, Other Buyers Expected To Step In (BBG)

It might be easy to conclude China’s unprecedented retreat from Treasuries is bad news for America. After all, as the biggest overseas creditor to the U.S., China has bankrolled hundreds of billions of dollars in deficit spending, particularly since the financial crisis. And that voracious appetite for Treasuries in recent years has been key in keeping America’s funding costs in check, even as the market for U.S. government debt ballooned to a record $13.2 trillion. Yet for many debt investors, there’s little reason for alarm. While there’s no denying that China’s selling may dent demand for Treasuries in the near term, the fact the nation is raising hundreds of billions of dollars to support its flagging economy and stem capital flight is raising deeper questions about whether global growth itself is at risk.

That’s likely to bolster the haven appeal of U.S. debt over the long haul, State Street Corp. and BlackRock Inc. say. Any let up in Chinese demand is being met with record buying by domestic mutual funds, which has helped to contain U.S. borrowing costs. “You have China running down reserves and Treasuries are a big portion of reserves, but even with that we still think the weight of support” will boost demand for U.S. debt, said Lee Ferridge, the head of macro strategy for North America at State Street, which oversees $2.4 trillion. The question is “if China slows, where does growth come from. That’s what’s been worrying a lot of people coming into 2016.”

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And then the TBTFs will need rescue again?!

Reporting Rule Adds $3 Trillion Of Leases To Balance Sheets Globally (FT)

Companies around the world will be forced to add close to $3tn of leasing commitments to their balance sheets under new rules from US and international regulators — significantly increasing the debt that must be reported by airlines and retailers. A new financial reporting standard — the culmination of decades of debate over “off-balance sheet” financing — will affect more than one in two public companies globally. Worst hit will be retail, hotel and airline companies that lease property and planes over long periods but, under current accounting standards, do not have to include them in yearly reports of assets and liabilities. In these sectors, future payments of off-balance sheet leases equate to almost 30% of total assets on average, according to the International Accounting Standards Board, which collaborated with the US Financial Accounting Standards Board on the new rule.

Hans Hoogervorst, IASB chairman, said: “The new Standard will provide much-needed transparency on companies’ lease assets and liabilities, meaning that off-balance-sheet lease financing is no longer lurking in the shadows”. As a result of the accounting change, net debt reported by UK supermarket chain Tesco would increase from £8.6bn at the end of August to £17.6bn, estimated Richard Clarke, an analyst from Bernstein. However, while the new standard would make Tesco look more indebted, Mr Clarke added that the assets associated with the leases would also come on to the company’s balance sheet, so “the net effect would be neutral.” Investors warned that the new standards could affect some groups’ banking covenants and debt-based agreements with lenders, but said they would make it easier to compare companies that uses leases with those that prefer to borrow and buy.

Vincent Papa, director financial reporting policy at the Chartered Financial Analysts Institute, which has been pushing for these changes since the 1970s, said: “Putting obligations on balance sheets enables better risk assessment. It is a big improvement to financial reporting.” For some airlines, the value of off-balance- sheet leases can be more than the value of assets on the balance sheets, the IASB noted. It also pointed out that a number of retailers that had gone into liquidation had lease commitments that were many times their reported balance sheet debt. [..] In 2005, the SEC calculated that US companies had about $1.25 trillion of leasing commitments that were not included in assets or liabilities on balance sheets. Six years later, the Equipment Leasing and Finance Foundation in the US said that “Capitalising operating leases will add an estimated $2 trillion and 11% more reported debt to the balance sheets of US-based corporations…and could result in a permanent reduction of $96bn in equity of US companies. ”

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“..used so widely that its residues are commonly found in British bread.”

EU Scientists In Bitter Row Over Safety Of Monsanto’s Round-Up (Guardian)

A bitter row has broken out over the allegedly carcinogenic qualities of a widely-used weedkiller, ahead of an EU decision on whether to continue to allow its use. At issue is a call by the European Food and Safety Authority (Efsa) to disregard an opinion by the WHO’s International Agency for Research on Cancer (IARC) on the health effects of Glyphosate. Glyphosate was developed by Monsanto for use with its GM crops. The herbicide makes the company $5bn (£3.5bn) a year, and is used so widely that its residues are commonly found in British bread. But while an analysis by the IARC last year found it is probably carcinogenic to humans, Efsa decided last month that it probably was not. That paves the way for the herbicide to be relicensed by an EU working group later this year, potentially in the next few weeks.

Within days of Efsa’s announcement, 96 prominent scientists – including most of the IARC team – had fired off a letter to the EU health commissioner, Vytenis Andriukaitis, warning that the basis of Efsa’s research was “not credible because it is not supported by the evidence”. “Accordingly, we urge you and the European commission to disregard the flawed Efsa finding,” the scientists said. In a reply last month, which the Guardian has seen, Andriukaitis told the scientists that he found their diverging opinions on glyphosate “disconcerting”. But the European Parliament and EU ministers had agreed to give Efsa a pivotal role in assessing pesticide substances, he noted. “These are legal obligations,” the commissioner said. “I am not able to accommodate your request to simply disregard the Efsa conclusion.”

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What’s Monsanto’s role in this?

Thousands Of Farmer Suicides Prompt India Crop Insurance Scheme (Guardian)

India’s government has approved a $1.3bn insurance scheme for farmers to protect against crop failures, saying it was intended to put a halt to a spate of suicides. Two successive years of drought have battered the country’s already struggling rural heartland, with farmer suicides in rural areas regularly hitting the headlines. More than 300,000 farmers have killed themselves in India since 1995. Under the new scheme, farmers will pay premiums of as little as 1.5% of the value of their crops, allowing them to reclaim their full value in case of natural damage, the government said. “The scheme will be a protection shield against instances of farmer suicides because of crop failures or damage because of nature,” home minister Rajnath Singh said on Wednesday after the cabinet approved the scheme.

The Prime Minister Crop Insurance Scheme is also an attempt by Narendra Modi’s government to woo the country’s powerful farming community after being beaten in two recent state elections. “This scheme not just retains the best features of past policies but also rectifies all previous shortcomings… This is a historic day,” Modi said in a tweet. Previous crop insurance schemes have been criticised by the agricultural community as being too complex or for having caps that prevented them from recouping the full commercial value in the case of damage. Take-up of existing schemes by farmers is as low as 23%, the agriculture minister Radha Mohan Singh said, adding that he hoped to increase coverage to 50%. The heavily subsidised scheme will come into effect in April, a major crop-sowing season.

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Priorities.

Greece Said To Propose Return Trips For Illegal Migrants (AP)

A senior Greek official has said the government will ask Europe’s border protection agency Frontex to help set up a sea deportation route to send migrants who reach the country illegally back to Turkey. The official told AP the plan would involve chartering boats on Lesvos and other Greek islands to send back migrants who were not considered eligible for asylum in the EU. The official spoke on condition of anonymity because Athens hasn’t yet formally raised the issue with other European governments. More than 850,000 migrants and refugees reached Greece in 2015 on their route through the Balkans to central Europe. But the EU is seeking to toughen and better organize procedures for asylum placements, while Balkan countries outside the EU have also imposed stricter transit policies.

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NIMBY.

Tighter Border Checks Leave Migrants Trapped In Greece (AP)

As twilight falls outside the Hellenikon shelter – a former Olympic field hockey venue currently housing about 280 people – Iranian men play volleyball, a red line on the ground serving as a notional net. Inside, migrants are coming to terms with their bleak future. “I can’t go back to Somalia,” said English teacher Ali Heydar Aki, who hoped to settle in Europe and then bring his family. “I have sold half my house” to fund the trip. While it’s unclear exactly how many are stuck in Greece, a comparison of arrivals there and in FYROM since late November leaves about 38,000 people unaccounted for. Greek immigration minister Ioannis Mouzalas’ best guess is “a few thousand.” “But (that’s) a calculation based on experience, not something else,” he said.

Syed Mohammad Jamil, head of the Pakistani-Hellenic Cultural Society, says about 4,000 Pakistanis could be stuck in Greece, mostly still on the islands, and about as many Bangladeshis. “Every day we get … phone calls from people in tears asking for help,” he said. “We can’t help – send them where? Germany, Spain, Italy, England? We can’t.” All now face two legal options: To seek asylum in Greece – which has 25% unemployment and a crumbling welfare system – or volunteer for repatriation. Greek authorities have recorded an increase in both since FYROM tightened controls. Karim Benazza, a Moroccan hotel worker in his 20s, has signed up to go home on Jan. 18.

“This is all I do now, smoke and smoke, but no money, no food,” he said, lighting a cigarette outside the International Organization for Migration building. “There is nothing for us in Greece, and the Macedonian border is closed.” Daniel Esdras, IOM office head in Greece, sees a steep increase in voluntary repatriations, which the IOM organizes. About 800 people registered in December and 260 have been sent home. “It’s one thing to return in handcuffs … and quite another to go as a normal passenger with some money in your pocket, because we give them each €400,” Esdras said.

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5,700 children in 12 days.

Refugee Influx To Greece Continues Unabated Through Winter (Reuters)

More than 1,000 migrants and refugees arrived at Greece’s biggest port of Piraeus near Athens on Wednesday as the influx of people fleeing conflict zones for Europe continued unabated into the winter months. More than 1 million refugees and migrants braved the seas in 2015 seeking sanctuary in Europe, nearly five times more than in the previous year, according to the United Nations’ refugee agency. Most entered through Greece’s outlying islands. So far this year, 31% of arrivals to Europe have been children, said medical aid group Medecins Sans Frontieres, which has been treating arrivals to the Greek islands. About 5,700 children crossed the narrow but dangerous sea passage between Greece and Turkey in just 12 days aboard rickety, overcrowded boats, it said.

“I leave my home, my country [because] there was violence, it was not safe,” said 18-year-old Idris, who left his home and family behind in Afghanistan three months ago, traveling alone through Turkey and hoping to reach Germany to study. As others disembarked from the ferry on Wednesday, volunteers passed out hot tea and fruit to help them get through the next leg of their journey, an eight-hour bus ride from Athens to Greece’s northern border with Former Yugoslav Republic of Macedonia [FYROM]. The ferry picked up a total of 1,238 migrants and refugees from the Eastern Aegean islands of Lesvos and Chios. Among those was 25-year-old Salam, from the Syrian city of Homs, who said he had lived in a number of different cities before the fighting led him and his friends to flee. “[They killed] women and children and men,” said Salam, who also hopes to reach Germany. [It was] very very very bad in Syria.”

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How blind is this? “Work must also step up on “returning those who have no right to international protection.” There are people who have no right to protection? Who gets to decide?

Europe Sees No Let Up in Refugee Crisis as January Arrivals Soar (BBG)

The number of refugees entering Europe in the first 10 days of 2016 is already three times the level in all of January 2015, signaling no let up in the pressure facing the region’s leaders amid the biggest wave of migration since World War II. The number of migrants crossing the Mediterranean Sea to the European Union from Turkey, the Middle East and North Africa reached 18,384 through Jan. 10, according to the United Nations Refugee Agency. That compares with 5,550 in January last year. “This year, these weeks, the coming months must be dedicated to delivering clear results in terms of regaining controls of flows and of our borders,” EC Vice President Frans Timmermans told reporters in Brussels on Wednesday after discussing the latest situation with EU commissioners.

Turmoil in Syria and across the Arab world triggered an influx of more than 1 million people arriving in the EU last year. Faced with migration in such unprecedented numbers, governments have reintroduced internal border checks, tried – and failed – to share refugees between one another and have been forced to defend their policies amid anger at violence allegedly perpetrated by the recent arrivals.

The number of refugees entering the EU increased month-on-month from January 2015 until hitting a peak of 221,374 in October, according to the agency. The level fell back to 118,445 last month as bad weather deterred people from making the journey. Almost a third of those arriving are children. So far this year 49 people have either died or are missing having attempted to cross into Europe. EU countries need to work together to tackle the “root causes” of the refugee influx, Timmermans said. Work must also step up on “returning those who have no right to international protection.”

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Jan 032016
 
 January 3, 2016  Posted by at 10:32 am Finance Tagged with: , , , , , , ,  2 Responses »
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Russell Lee Bike rack in Idaho Falls, Idaho 1942

“This Is The Worst Global Dollar GDP Recession In 50 Years” (ZH)
New Year’s Hangover For Wall Street: Earnings Season Misery (MarketWatch)
China’s Factories In The Grip Of Longest Contraction In Six Years (Ind.)
How a Turbulent Year Derailed China’s Reform (WSJ)
Chinese State-Owned Finance Firm Goes Global To Raise Funds (SCMP)
2015: Peak Cognitive Dissonance (Noland)
Bank of Greece Governor Warns on Measures as Tsipras Defiant on Pensions (BBG)
UK Homeowners Count The Cost As Floods Force Prices To Plummet (Observer)
US Midwest Calls In National Guard As Flood Disaster Unfolds
Iran’s Leader Vows ‘Divine Vengeance’ Over Cleric’s Execution In Saudi (R/AFP)
Expect More Weasel Words Over Saudi Arabia’s Grotesque Butchery (Robert Fisk)
Cuba Santeria Priests See Explosive Migration, Social Unrest In 2016 (Reuters)
Refugees At UK Military Base In Cyprus Trapped In Asylum ‘Limbo’ (Guardian)
Drowned Toddler Becomes Europe’s First Refugee Casualty Of 2016 (AFP)

Burning down the house.

“This Is The Worst Global Dollar GDP Recession In 50 Years” (ZH)

The following brief summary of the global economic situation should, once and for all, end all debate about whether the world is “recovering” or is now mired deep in a recession. From DB’s 2016 Credit Outlook:

“Debt has continued to climb since the crisis with Global Debt/GDP still on the rise, with no obvious sign of when this rise stops for many major countries. Indeed much of the post GFC increase in debt has been raised on the back of the commodity super-cycle which is currently unraveling in EM and the US HY market. Outside of this, the US overall has de-levered to some degree but even there debt levels remain very high relative to all of history excluding the GFC period. With limited tolerance from the authorities to see defaults erode the huge debt burden, the best hope for a more normal financial system is for activity levels to increase so we can slowly grow the economy into the debt burden. However this requires strong nominal GDP growth and we continue to see the opposite.

The left hand graph of Figure 6 looks at a global weighted average of Nominal GDP growth in the G7. On this measure we are still seeing historically weak activity. In dollar terms the situation is even worse. The right hand chart of Figure 6 shows a much more volatile global NGDP series which converts the size of each economy in dollar terms and then looks at the growth rate YoY. With the recent strength in the USD we are seeing a huge global dollar nominal GDP recession – the worst since the 1960s. Whilst this might not be a series that is followed, it does show the sharp contraction of dollar activity levels in the global economy over the last year or so which has to have ramifications given it’s the most important global financial market currency.”

What DB did not point out but is obvious, is that the synthetic dollar squeeze of the past year has made the global collapse now even worse than what was experienced during the great financial crisis, and it is getting worse by the day. And so, with the world trapped in the worst USD-based GDP recession in 50 years, here is the question for Yellen: with every other central bank easing and the Fed tightening, what happens to i) the USD in the future and ii) to future world growth in USD.

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“..of the 25 consumer discretionary companies that have issued earnings outlooks for the fourth quarter, none of them met or exceeded the Wall Street consensus at the time.”

New Year’s Hangover For Wall Street: Earnings Season Misery (MarketWatch)

Investors didn’t have a lot to celebrate on New Year’s Eve, but that doesn’t mean Wall Street’s start to 2016 won’t suffer a hangover thanks to the upcoming earnings season. U.S. stocks finished last year on a somber note with both the Dow Jones and the S&P 500 snapping multiyear winning streaks. Only the Nasdaq escaped the year unscathed, turning in a 5.7% gain on the year. After a dreary 2015 for stocks, it appears the upcoming earnings season is only going to prolong that misery. Once again weighed down by the energy and materials sectors, the S&P 500 is expected to see a decline in earnings of 4.7% from the year-ago period, according to John Butters at FactSet.

The only sectors expected to see any gain in fourth-quarter earnings are telecom, financials, consumer discretionary and health care. That expected decline in S&P 500 earnings looks to eat into gains made in the previous year’s fourth quarter. In 2014, fourth-quarter earnings rose just less than 4% from the year-ago period, according to FactSet. Quarterly earnings per share for the S&P 500 peaked at $30.33 in the fourth quarter of 2014. Now, that’s expected to drop to $29.38 a share for the fourth quarter of 2015. Additionally, of the 25 consumer discretionary companies that have issued earnings outlooks for the fourth quarter, none of them met or exceeded the Wall Street consensus at the time.

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What jobs? “Beijing instructed state-owned business to offer jobs to around 300,000 soldiers that it is making redundant..”

China’s Factories In The Grip Of Longest Contraction In Six Years (Ind.)

China gave global investors a miserable welcome to 2016 when the world’s second-largest economy revealed yesterday that its industrial output contracted yet again in December – marking the longest losing streak for Chinese factories since 2009. The official purchasing managers’ index (PMI) survey of Chinese manufacturers came in at 49.7, up slightly on the previous month. But any reading below 50 signals contraction and this was the fifth month in a row of decline for China’s factories. Fears about the rapid slowing in the Chinese economy, the main motor for international GDP growth since the global financial crisis, dragged down global stock markets in 2015. And China’s waning demand for commodity imports hammered emerging market economies from Brazil to South Africa.

But analysts said continued industrial production contraction would prompt more stimulus from the Beijing authorities to avert a “hard landing”. “Monetary policy will stay accommodative and the fiscal policy will be more proactive,” argued Zhou Hao of Commerzbank in Singapore. The Chinese central bank has already cut interest rates six times since November 2014 to support growth. It has also reduced banks’ reserve requirements, freeing them up to lend more to businesses. Analysts at Nomura said there was a “medium to high” likelihood of more monetary easing later this month. The PMI index of industrial employment fell slightly in December, and Liu Liu, an economist at China International Capital Corporation, said concerns over jobs would force the hand of the authorities: “As steel, coal and other over-capacity industries close more factories, the employment situation will likely remain grim, calling for a greater role of fiscal policy.”

Earlier this week Beijing instructed state-owned business to offer jobs to around 300,000 soldiers that it is making redundant as part of its restructuring of the People’s Liberation Army. Industrial export orders shrank for the 15th month in a row, with the index in December coming in at 47.5. Exports have made a negligible contribution to China’s GDP growth since the financial crisis, with almost all the expansion being driven by investment spending and household consumption. But some interpreted Beijing’s slight loosening of the yuan’s peg with the dollar last year as an attempt to bolster Chinese exports.

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Reform has become just a word. Xi will not let go. Before you know it we’ll be looking at Xibenomics.

How a Turbulent Year Derailed China’s Reform (WSJ)

China had one of the best-performing stock markets in the world in 2015. Yet it was a dismal year for Chinese markets. Chinese stocks suffered an unprecedented summer crash that wiped out 43%, or $5 trillion, of their value at one point. That was followed by an abrupt 2% currency devaluation in August that sent shock waves through global markets. Bold reforms seen as crucial to Beijing’s efforts to turn around a slowing economy, such as a modern stock-listing system and lighter capital controls, stalled as the market turmoil unnerved authorities. The episodes demonstrate the stresses China is experiencing as it tries to shift its economy from one fed by debt and heavy industry into one driven by consumption.

For investors, the events of 2015 jolted their faith in China’s capacity to continue driving global growth. Authorities have backtracked on financial liberalization and roiled the country’s finance industry with investigations into brokers, traders and regulators in an effort to apportion blame for the stock market’s sharp pullback. “Recent volatility in the stock market and currency markets has eroded political support for market-oriented reforms and shaken confidence in the leadership’s economic-management skills,” said Eswar Prasad, a Cornell University professor and former China head of the IMF. The year doesn’t look so bad when measured from beginning to end: The Shanghai Composite Index was up 9.4% in 2015. The small-cap Shenzhen market was up more than 63%.

But the middle of the year was a mess. China’s top leaders began 2015 with high hopes for reform and for the stock market, which was then rallying, fueled by margin lending and monetary easing from the central bank. Now, Beijing enters the new year in a cautious mood, making it harder to carry out the overhauls that the government and analysts believe are necessary to keep the Chinese economy growing. “Without bold reforms, the economy will slow further, capital flight will intensify and the yuan will weaken more, which will erode confidence further,” said Chaoping Zhu, economist at UOB-Kay Hian Holdings, a Singapore-based brokerage.

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Beijing needs cash.

Chinese State-Owned Finance Firm Goes Global To Raise Funds (SCMP)

One of China’s state-owned finance firms is looking global amid the country’s economic slowdown, planning to raise funds abroad and engage foreign partners as it improves corporate governance and beefs up risk control. Changchun Urban Development Investment Holding (Group) was given a BBA1 rating by Moody’s and a BBB+ by Fitch Ratings. Both credit rating agencies saw the company as having a stable outlook. The company was set up by combining state assets in Changchun, capital city of northeastern Jilin province. Changchun Urban Development is one of thousands of local-government-backed financing vehicles – state-owned entities that raise funds for local governments to finance costly infrastructure and public facility works.

While the firm will be China’s fourth such vehicle to issue debt overseas – after the Qingdao City Construction Investment Group, Beijing Infrastructure Investment and Zhuhai Da Hengqin Investment – it will be the first in the northeast region to do so. “Changchun Urban Development will extend business coverage overseas. We are prepared against the impact of the United States Federal Reserve’s interest rate hike, while we don’t rule out the possibility of issuing foreign debt in the short term,” its CEO Gao Feng said. Chinese companies tend to choose Hong Kong, Singapore and Europe as their destinations in issuing debt, but Changchun Urban Development said markets in South Korea and Japan were also options as both countries were keen to invest in China’s northeast region.

Being rated by foreign credit rating agencies was one way to improve corporate governance, the company said. It has opened investment companies in Changchun and Beijing and is setting up a brokerage unit in Hong Kong. The Hong Kong unit was preparing a roadshow to promote its debt issue plans, Gao said. “We will make big moves in both the domestic and overseas markets to lower costs and will launch an initial public offering to optimise corporate governance,” Gao said. “We’re not short of money, but we lack good partners. We need to know investors and they need to have qualified resources in overseas markets, which would help the company go abroad and participate in China’s ‘One Belt, One Road’ initiative.”

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Bullishness prevails based on perceived continuing central bank largesse.

2015: Peak Cognitive Dissonance (Noland)

The year 2015 was extraordinary. Incredibly, despite powerful confirmation of the bursting global Bubble thesis, market optimism remained deeply entrenched. All leading strategists surveyed in December by Barron’s remained bullish – some were borderline crazy optimistic. Optimism withstood a commodity price collapse. Crude, the world’s most important commodity, crashed almost 35% to an eleven-year low, much to the peril of scores of highly leveraged companies and countries. The Bloomberg Commodities Index dropped 25%, its fifth straight year of declines. Copper fell 24%, with platinum and palladium down about 30%. In agriculture commodities, wheat fell 20%, with soybeans and corn down about 10%. Coffee sank 25%.

Bullishness persevered through deepening EM turmoil and a crisis of confidence. The Brazilian real dropped about a third (worst year since 2002), and Brazil’s sovereign debt suffered major losses. Brazil’s corporate debt market was pummeled (Petrobras, Vale, BTG, Samarco, etc.) while confidence in the nation’s major banks and government waned. Russia and Turkey showed further deterioration. Fragility surfaced in EM linchpin Mexico. Currencies suffered generally throughout EM – Latin America, Asia, the Middle East, Eastern Europe, etc. Collapsing currency peg regimes saw almost 50% devaluations for the Azerbaijani manat and Kazakh tenge. Argentina devalued the peso 30% versus the dollar. Throughout EM, dollar-denominated debt became a market concern.

Optimism survived the major financial tumult that unfolded in China. Early 2015 stimulus efforts stoked “Terminal Phase” excess in Chinese equities, a Bubble that came crashing down in a 40% summer drubbing. An August yuan devaluation destabilized markets across the globe. Aggressive (invasive) monetary, fiscal and regulatory measures somewhat stabilized equities and the yuan, at the heavy cost of extending “Terminal Phase” excess throughout the Credit system (i.e. corporate debt and “shadow banking”). The yuan posted a 4.5% 2015 decline against the dollar, the worst performance since 1994. The “offshore yuan” trading in Hong Kong dropped 5.3%.

Bullishness endured despite the August global market “flash crash.” And while the summer market dislocation provided important confirmation of mounting fragilities throughout the markets on a global basis, the bulls interpreted the event as further validating their view of unwavering central bank support and liquidity backstops. The Fed’s September flip-flop emboldened speculative excess, with U.S. equities back within striking distance of record highs by early-November.

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Tensions between Stournaras and Tsipras have never abated.

Bank of Greece Governor Warns on Measures as Tsipras Defiant on Pensions (BBG)

Bank of Greece governor Yannis Stournaras gave a stark warning about the risk of Greece failing to reach an agreement with its creditors on a set of measures attached to the country’s bailout as Prime Minister Alexis Tsipras reiterated his government won’t succumb to “unreasonable” demands for additional pension cuts. The EU is now much less prepared to deal with another Greek crisis, Stournaras wrote in an article published in Kathimerini newspaper, in an unusually strong public intervention, as Europe’s most indebted state braces for negotiations with creditor institutions on a set of tough economic steps, including pension and income tax reform. A repeat of the 2015 standoff which pushed Greece to the verge of leaving the euro area would entail risks that the country’s economy may not be able to withstand, the central banker said.

After months of brinkmanship which resulted in the imposition of capital controls last summer, the government of Alexis Tsipras signed a new bailout agreement with the euro area committing Greece to economic overhauls and additional belt-tightening in exchange for emergency loans of as much as €86 billion. Greece will implement the agreement, Tsipras said in an interview with Real News newspaper published Saturday, adding though, that creditors should be aware that the country “won’t succumb to unreasonable and unfair demands” for more pension cuts. Greece will reform its pension system, which is on the “brink of collapse” through “equivalent” measures targeting proceeds equal to 1% of the country’s GDP in 2016, Tsipras said.

The proposals include raising mandatory employer contributions, according to the country’s Labor Minister, George Katrougalos. Creditors oppose an increase in compulsory contributions, as they argue these create a disincentive for hiring workers and declaring incomes.
Negotiations with the troika will be “tough,” and the government is redoubling its efforts to find “diplomatic” support, Katrougalos said in an interview with To Ethnos newspaper, also published Saturday.

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Expect no help.

UK Homeowners Count The Cost As Floods Force Prices To Plummet (Observer)

People trying to sell their properties in flood-hit parts of north-west England have begun dramatically dropping their prices amid fears that houses in some roads have become virtually unsellable. Large homes in and around the Warwick Road area of Carlisle, which in December 2015 experienced its second major flooding episode in a decade, have started to appear on the market for only 60% of their November values – leaving some people wondering whether they will ever be able to move house. After serious flooding elsewhere, house prices have generally recovered within a few years, according to estate agents in affected areas. This is particularly the case in national parks or other locations where there is strong demand for second and holiday homes. Tewkesbury in Gloucestershire was hit by severe floods in 2007 but while prices took an initial dip, average property values in the town soon returned.

It was a similar story in Cockermouth, Cumbria, which was devastated by floods in November 2009. The deluge brought by Storm Desmond flooded 5,000 homes in Cumbria and Lancashire – but this time the effect on house prices could be much longer lasting, say some agents. Simon Brown, a valuer at one of Carlisle’s oldest estate agents, Tiffen & Co, said he did not expect any houses in the affected roads to sell soon unless they were offered at a large discount. “It had been a decade since the last big floods and prices had pretty much recovered. I’m not saying people had been hoodwinked, but they believed the flood defence work had been carried out and that the properties were safe. Now that it has happened again, I can’t see people being keen to buy in these roads again for a good long time, if ever,” he said.

Brown described how a large Victorian house that would have sold for more than £270,000 a month ago had just been put on the market for £170,000 in its flood-damaged state by an owner who could not face going through the drying for a second time. “Most outsiders to the city would be amazed at the resilience that the residents have shown, and the way that the community has rallied round to help each other,” he said. “However, the people in the worst affected roads look completely snookered. You can always sell a home if the price is cheap enough, but there must be a growing fear that those in the affected streets will never see their pre-flood values ever again.”

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“It’s almost as if you’re living on some other planet..”

US Midwest Calls In National Guard As Flood Disaster Unfolds

Floods have submerged towns, roads, casinos and shopping malls around the south and midwest for more than three days, prompting governors in Illinois and Iowa to call in the national guard. Sixteen states issued flood warnings covering some eight million people. By Saturday floodwaters had begun to subside in many areas, reopening several important highways, after topping levees in the region late on Friday. But swollen rivers have yet to crest in southern states, alarming governors in Tennessee, Louisiana and Mississippi. At Dardanelle, Arkansas, the National Weather Service recorded the Arkansas river at 41ft, nine feet above flood stage.

Missouri governor Jay Nixon said the overflow off the Mississippi would overtake the records set by “the great flood of 1993”, which killed 50 people, broke hundreds of levees and caused thousands to flee their homes. Nixon visited Eureka and Cape Girardeau in eastern Missouri, where floodwaters caused widespread damage, and announced the federal government had approved his request to declare an emergency to help with the massive cleanup and recovery operation. The governor described the scale of the flood damage as other worldly. “It’s almost as if you’re living on some other planet,” he said, standing near a growing pile of debris in a park in Eureka, about an hour’s drive west of St Louis on the banks of the Meramec river, which flows into the Mississippi. “This is just a tiny fraction of the trail of destruction,” the governor told reporters.


Missouri Flood 2016 – Cape Girardeau – Jan 1st – Aerial Drone 4K Footage

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Saudis are trying to provoke warfare, attempting to draw in Iran and Russia.

Iran’s Leader Vows ‘Divine Vengeance’ Over Cleric’s Execution In Saudi (R/AFP)

Iran’s supreme leader, Ayatollah Ali Khamenei, has renewed his attack on Saudi Arabia over its execution of a leading Shia cleric, saying that politicians in the Sunni kingdom would face divine retribution for his death. “The unjustly spilled blood of this oppressed martyr will no doubt soon show its effect and divine vengeance will befall Saudi politicians,” state TV reported Khamenei as saying on Sunday. It said he described the execution of Sheikh Nimr al-Nimr as a “political error”. “God will not forgive… it will haunt the politicians of this regime,” he said. Saudi Arabia executed Nimr and three other Shia alongside dozens of alleged al-Qaida members on Saturday, signalling it would not tolerate attacks by either Sunni jihadists or members of the Shia minority seeking equality.

Khamenei added: “This oppressed cleric did not encourage people to join an armed movement, nor did he engage in secret plotting, and he only voiced public criticism … based on religious fervour.” In an apparent swipe at Saudi Arabia’s western allies, Khamenei criticised “the silence of the supposed backers of freedom, democracy and human rights” over the execution. “Why are those who claim to support human rights quiet? Why do those who claim to back freedom and democracy support this (Saudi) government?” Khamenei was quoted as saying. The executions sparked protests around the region with a mob storming the Saudi embassy in Tehran and setting fire to part of the building before they were dospersed by the police. In Bahrain, police tear gas to control a crowd of protesters and there were also demonstrations in India and in London. More protests are expected in Iran and Lebanon on Sunday.

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“..Iran’s own clerics have already claimed that the beheading will cause the overthrow of the Saudi royal family.”

Expect More Weasel Words Over Saudi Arabia’s Grotesque Butchery (Robert Fisk)

Saudi Arabia’s binge of head-choppings – 47 in all, including the learned Shia cleric Sheikh Nimr Baqr al-Nimr, followed by a Koranic justification for the executions – was worthy of Isis. Perhaps that was the point. For this extraordinary bloodbath in the land of the Sunni Muslim al-Saud monarchy – clearly intended to infuriate the Iranians and the entire Shia world – re-sectarianised a religious conflict which Isis has itself done so much to promote. All that was missing was the video of the decapitations – although the Kingdom’s 158 beheadings last year were perfectly in tune with the Wahabi teachings of the ‘Islamic State’. Macbeth’s ‘blood will have blood’ certainly applies to the Saudis, whose ‘war on terror’, it seems, now justifies any amount of blood, both Sunni and Shia.

But how often do the angels of God the Most Merciful appear to the present Saudi interior minister, Crown Prince Mohamed bin Nayef? For Sheikh Nimr was not just any old divine. He spent years as a scholar in Tehran and Syria, was a revered Shia leader of Friday prayers in the Saudi Eastern Province, and a man who stayed clear of political parties but demanded free elections, and was regularly detained and tortured – by his own account – for opposing the Sunni Wahabi Saudi government. Sheikh Nimr said that words were more powerful than violence. The authorities’ whimsical suggestion that there was nothing sectarian about this most recent bloodbath – on the grounds that they beheaded Sunnis as well as Shias – was classic Isis rhetoric. After all, Isis cuts the heads of Sunni ‘apostates’ and Sunni Syrian and Iraqi soldiers just as readily as it slaughters Shias.

Sheikh Nimr would have got precisely the same treatment from the thugs of the ‘Islamic State’ as he got from the Saudis – though without the mockery of a pseudo-legal trial which Sheikh Nimr was afforded and of which Amnesty complained. But the killings represent far more than just Saudi hatred for a cleric who rejoiced at the death of the former Saudi interior minister – Mohamed bin Nayef’s father, Crown Prince Nayef Abdul-Aziz al-Saud – with the hope that he would be “eaten by worms and will suffer the torments of hell in his grave”. Nimr’s execution will reinvigorate the Houthi rebellion in Yemen, which the Saudis invaded and bombed this year in an attempt to destroy Shia power there. It has enraged the Shia majority in Sunni-rules Bahrain. And Iran’s own clerics have already claimed that the beheading will cause the overthrow of the Saudi royal family.

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What will America do if millions want to move?

Cuba Santeria Priests See Explosive Migration, Social Unrest In 2016 (Reuters)

Priests offering New Year’s prophecies from Cuba’s Afro-Cuban religion forecast an explosion in migration and social unrest worldwide in 2016. Many on the Caribbean island eagerly wait for guidance from the Santeria religion’s annual forecast. Santeria, with roots in West African tradition brought to Cuba by slaves, is practiced by millions of Cubans. This year, the island’s official association of priests, known as babalawos, predicted an “explosion” of migration and “social unrest provoked by desperation.” The yearly reading is for Cuba and the world at large, but the babalawos did not state which predictions, if any, apply to Cuba specifically.

“The predictions of Ifa (divination system) warn world leaders that if no action is taken, we may lead our people to a massive migration provoked by different things, desperation among them,” priest Lazaro Cuesta told a news conference in Havana. The flow of migrants from the Communist-ruled island jumped by about 80 percent last year as the process of detente between Washington and Havana, announced in December 2014, stirred fears that preferential U.S. asylum rights for Cubans may soon end. Cuesta said war, economic hardship, political conflict and terrorism are sparking worldwide migration. He did not give specifics about the priests’ social unrest prediction, but offered a metaphor: “When you are in your room and it’s really hot, desperation makes you run out of the room. If we give you an air conditioner, you stay put.”

“I can be living in a hot room and I don’t leave running because it’s my room,” Cuesta said. “I’m living alongside everyone else in Cuba, and I’m not leaving.” Based on this year’s forecast, the babalawos recommend “establishing favorable accords with respect to migration policy,” and “reaching a balance between salaries and the high cost of basic necessities.” Earlier this week, Cuban President Raul Castro told the National Assembly, the country’s single-chamber parliament, that an economic slowdown is expected in 2016. Food prices have increased more than 50 percent on the island over the last four years, according to official media. The average salary throughout the island is less than $30 a month. “A person who economically considers himself incapable of living in the place where he is is going to look for a better future somewhere else,” said Cuesta.

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More shame on Britain.

Refugees At UK Military Base In Cyprus Trapped In Asylum ‘Limbo’ (Guardian)

The British government has been accused of being “deceitful” and dodging its legal responsibilities to a group of refugees whose failing boats washed ashore in a British military zone on Cyprus late last year. The Ministry of Defence has stated that the 114 people who came ashore are the responsibility of Cyprus and, according to the refugees, has said they will be sent to Lebanon, from where their boats set sail, if they do not seek asylum with Cypriot authorities. However, human rights groups say Britain is shirking its legal responsibilities – fearful that the route could be seen as a “back door” to Britain – and coercing people into staying put while paying Cyprus to house and feed them. The Office of the UN High Commissioner for Refugees said a 2003 UK-Cyprus memorandum made it clear that “asylum seekers arriving directly on to the SBA [sovereign base area] are the responsibility of the UK”.

Ibrahim Maarouf, a Palestinian English teacher who fled first from Syria and then from a refugee camp in Lebanon with his wife and two children, said he felt utter despair about his future. “We are being fed and we have a room with a common toilet we share with 15 families,” he told the Observer. “It’s very humiliating to be stuck here and the days are passing and no one will say anything to us. We are without hope. We had had enough of suffering, we wanted to go to Greece, and my aim was to go to Belgium to find work and a new life, but the boat couldn’t handle this trip, so we landed here by mistake. “Cyprus is a poor country, with no work already for people here. We are told we have to apply for asylum here or be sent back. One sick woman was told she could see a doctor, but only if she first agreed that she would seek asylum in Cyprus.

“If I had died under Isis bombs, that was my fate. If I had died in Lebanon, that was my fate. But I would like a chance to have a life. I would ask David Cameron, ‘Don’t make a lesson of me’.” The foreign secretary, Philip Hammond, said in November that the situation had been resolved, as Cyprus had agreed to take the refugees, but that has been denied by lawyers working for the families. Tessa Gregory of the firm Leigh Day, who is acting for several of the families and individuals involved, said there was a “clear breach” of British obligations towards the migrants, who had made land on what was technically British soil, and it was wrong to delegate their fate to Cyprus.

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The year starts off with the same indescribable sadness that the previous one ended with. Europe will NOT be able to shake this off or live it down.

Drowned Toddler Becomes Europe’s First Refugee Casualty Of 2016 (AFP)

A drowned two-year-old boy has became the first known refugee casualty of the year after the crowded dinghy he was travelling in slammed into rocks off Greece’s Agathonisi island. The other 39 passengers, including a woman who had fallen overboard, were rescued after local fishermen raised the alarm. Ten of the survivors were taken to hospital to be treated for hypothermia. The rubber vessel had set off from Turkey in the early morning in windy weather. The charity Migrant Offshore Aid Station (MOAS), which helps save migrants and refugees at sea, deployed its fast-rescue Responder boat to help bring the stranded passengers to safety in a joint operation with the Hellenic coastguard. The toddler’s body was pulled out of the water by fishermen, according to the coastguard.

The refugees, including the child’s mother, were taken to the port of Pythagorio on Samos, the nearest island, which is 50km away. There was no immediate information about their nationalities. “Nothing can prepare you for the horrific reality of what is going on. Today we came face to face with one of the youngest victims of this ongoing refugee crisis. It is a tragic reminder of the thousands of people who have died trying to reach safety in miserable conditions,” said MOAS founder Christopher Catrambone in a statement. Despite the cold and choppy winter waters, large numbers of migrants and refugees are still setting sail from Turkey to make the hazardous journey across the Aegean in the hope of reaching Greece.

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