Jan 162016
 
 January 16, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle January 16 2016


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 »


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 »


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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Nov 052015
 
 November 5, 2015  Posted by at 9:08 am Finance Tagged with: , , , , , , , ,  3 Responses »


Martha McMillan Roberts Three sisters at Cherry Blossom Festival, Washington, DC” 1941

This Is the Worst U.S. Earnings Season Since 2009 (Bloomberg)
U.S. Posts Record Deficit in Manufacturing Trade (Bloomberg)
German Factory Orders Unexpectedly Drop for Third Straight Month (Bloomberg)
America’s Labour Market Is Not Working (Martin Wolf)
Yellen Signals Solid Economy Would Spur December Rate Hike (Bloomberg)
David Stockman Explains How To Fix The World -In 7 Words- (Zero Hedge)
The Bear Case for China Sees PBOC Following Fed to Zero Rates (Bloomberg)
I’ll Eat My Hat If We Are Anywhere Near A Global Recession (AEP)
VW Could Face Billions In Car Tax Repayments Over Latest CO2 Scandal (Guardian)
VW Scandal Widens Again as India Says Vehicles Exceeded Emission Rules (BBG)
Germany Ups Pressure On VW As Scandal Takes On New Dimension (Reuters)
VW Emissions Scandal Still Obscured By A Cloud (Guardian)
Germany To Retest VW Cars As Scandal Pushes Berlin To Act (Reuters)
Basque Secessionists Follow Catalans In Push For Independence (Guardian)
US Presses Europe To Take Steps To Reduce Greece’s Debt Burden (Bloomberg)
Fannie, Freddie May Need To Tap Treasury, FHFA Director Says (MarketWatch)
Maersk Line to Cut 4,000 Jobs as Shipping Market Deteriorates (WSJ)
2015 Million Mask March: Anonymous Calls For Day Of Action In 671 Cities (RT)
Merkel Overwhelmed: Chancellor Plunges Germany Into Chaos (Sputnik)
Merkel Reasserts Control as Rebellion Over Refugees Fades (Bloomberg)
Rough Seas and Falling Temperatures Fail to Stop Flow of Refugees (NY Times)
800,000 ‘Illegal Entries’ To EU In 2015, Frontex Chief Says (AFP)

Not a freak incident, but a trend.

This Is the Worst U.S. Earnings Season Since 2009 (Bloomberg)

This U.S. earnings season is on track to be the worst since 2009 as profits from oil & gas and commodity-related companies plummet. So far, about three-quarters of the S&P 500 have reported results, with profits down 3.1% on a share-weighted basis, data compiled by Bloomberg shows. This would be the biggest quarterly drop in earnings since the third quarter 2009, and the second straight quarter of profit declines. Earnings growth turned negative for the first time in six years in the second quarter this year. The damage is the biggest in commodity-related industries, with the energy sector showing a 54% drop in quarterly earnings per share so far in the quarter, with profits in the materials sector falling 15%. The picture is brighter for the telecom services and consumer discretionary sectors, with EPS growth of 23% and 19% respectively so far this quarter.

When compared with analyst expectations, about 72% of companies have beaten profit forecasts. That’s only because the consensus has been sharply cut in the past few months, Jeanne Asseraf-Bitton, head of global cross-asset research at Lyxor Asset Management says in a telephone interview. For the year as a whole, S&P 500 earnings are expected to fall 0.5%, data compiled by Bloomberg shows. For 2016, earnings growth is now seen at 7.9%, down from 10.9% in late July. Next year’s consensus is “still very optimistic,” Asseraf-Bitton says, citing the lack of positive catalyst seen for U.S. stocks in 2016 as well as the negative impact from the sharp slowdown in the U.S. energy sector. By contrast, the euro-zone is the only region worldwide where earnings are expected to “grow significantly” in 2015, according to a note from Societe Generale Head of European Equity Strategy Roland Kaloyan.

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Lower oil prices hurt where they were ‘supposed’ to heal.

U.S. Posts Record Deficit in Manufacturing Trade (Bloomberg)

The U.S. trade deficit in manufacturing hit a record $74.7 billion in September, according to an analysis of new Census Bureau data by RealityChek, a reliable blog on manufacturing and trade. That could become fodder for debate in the presidential election, where candidates have been arguing over the plight of American factory workers. The record was spotted by Alan Tonelson, founder of RealityChek. Spotting records involves searching through historical trade data, since the Census Bureau doesn’t make comparisons in its news releases. The swelling of the manufacturing trade deficit is more evidence that while the overall U.S. economy has recovered from the 2007-09 recession, the manufacturing sector continues to lag. While overall employment is up 3% since the start of the recession, in December 2007, manufacturing employment is down 10%.

According to Tonelson, the previous high for the manufacturing trade deficit was $73 billion in August. He says the U.S. appears headed for an annual record deficit in manufacturing. The Alliance for American Manufacturing noted that U.S. imports from China hit a record of $45.7 billion in September, and President Scott Paul said the inflow is “killing America’s manufacturing recovery.” Thanks to the lowest oil imports in a decade, the overall U.S. trade deficit shrank in September to $40.8 billion from $48 billion in August, according to the Census Bureau. But the one-month dip masks a rising trend. “A weakening global economy, soaring dollar, and global petro-recession with an associated inventory overhang are hurting exports and widening the deficit despite the improvement once expected with the big drop in oil prices,” Action Economics said in a statement.

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It’s a global trend.

German Factory Orders Unexpectedly Drop for Third Straight Month (Bloomberg)

German factory orders unexpectedly extended a series of declines in September amid a slump in demand for investment goods in the euro area, highlighting increasing risks for Europe’s largest economy. Orders, adjusted for seasonal swings and inflation, fell 1.7% from August, when they dropped 1.8%, data from the Economy Ministry in Berlin showed on Thursday. That’s the third consecutive decrease and compares with a median estimate of a 1% gain in a Bloomberg survey. Orders declined 1% from a year earlier. The Bundesbank said last month that an upward trend in economic activity in Germany continued in the third quarter, albeit less dynamically. While business confidence as measured by the Ifo institute fell in October for the first time in four months in response to weakening global trade, the slowdown in China in itself should only have a modest impact on the euro-area economy, according to the European Central Bank.

“Manufacturing orders are experiencing a hard time at the moment, which relates primarily to weak demand from outside the euro area,” the ministry said in the statement. “Domestic demand and from within the euro area continue to point moderately upward and supports manufacturing. Sentiment in the industry remains good.” Factory orders dropped 2.8% in the third quarter from the previous one, according to the report. Demand from within the country increased 0.3% and was up 0.9% for the euro area. Non-euro-area orders fell 8.6% in the July-to-September period. In September, orders for investment goods from the euro area fell 12.8%, reflecting a drop in demand for big-ticket items. Excluding bulk orders, demand fell 0.4%.

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There are over 93 million Americans not in the labor force. How can you write about this issue and leave out that number? Wolf says ‘just’ 12% of US men “were neither in work nor looking for it.”

America’s Labour Market Is Not Working (Martin Wolf)

In 2014, 12% — close to one in eight — of US men between the ages of 25 and 54 were neither in work nor looking for it. This was very close to the Italian ratio and far higher than in other members of the group of seven leading high-income countries: in the UK, it was 8%; in Germany and France 7%; and in Japan a mere 4%. In the same year, the proportion of US prime-age women neither in work nor looking for it was 26%, much the same as in Japan and less only than Italy’s. US labour market performance was strikingly poor for the men and women whose responsibilities should make earning a good income vital. So what is going on? The debate in the US has focused on the post-crisis decline in participation rates for those over 16. These fell from 65.7% at the start of 2009 to 62.8% in July 2015.

According to the Council of Economic Advisers, 1.6 percentage points of this decline was due to ageing and 0.3 percentage points due to (diminishing) cyclical effects. This leaves about a percentage point unexplained. Princeton’s Alan Krueger, former chairman of the council, argues that many of the long-term unemployed have given up looking for work. In this way, prolonged cyclical unemployment causes permanent shrinkage of the labour force. Thus unemployment rates might fall for two opposite reasons: the welcome one would be that people find jobs; the unwelcome one would be that they abandon the search for them. Happily, in the US, the former has outweighed the latter since the crisis. The overall unemployment rate (on an internationally comparable basis) has fallen by 5 percentage points since its 2009 peak of 10%.

In all, the proportion of the fall in the unemployment rate because of lower participation cannot be more than a quarter. Relative US unemployment performance has also been quite good: in September 2015 the rate was much the same as the UK’s, and a little above Germany’s and Japan’s, but far below the eurozone’s 10.8%. US cyclical unemployment performance has at least been decent by the standards of its peers, then. Yet as the 2015 Economic Report of the President notes, the UK experienced no decline in labour-force participation after the Great Recession, despite similar ageing trends to those in the US. Even on a cyclical basis, the decline in participation in the US is a concern. It is, however, the longer-term trends that must be most worrying. This is particularly true for the prime-aged adults.

Back in 1991, the proportion of US prime-age men who were neither in work nor looking for it was just 7%. Thus the proportion of vanished would-be workers has risen by 5 percentage points since then. In the UK, the proportion of prime-aged men out of the labour force has risen only from 6% to 8% over this period. In France, it has gone from 5 to 7%. So supposedly sclerotic French labour markets have done a better job of keeping prime-aged males in the labour force than flexible US ones. Moreover, male participation rates have been declining in the US since shortly after the second world war.

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This nonsense keeps on going. Whoever follows it deserves what they get.

Yellen Signals Solid Economy Would Spur December Rate Hike (Bloomberg)

Fed Chair Janet Yellen said an improving economy has set the stage for a December interest-rate increase if economic reports continue to assure policy makers that inflation will accelerate over time. “At this point, I see the U.S. economy as performing well,” Yellen said on Wednesday in testimony before the House Financial Services Committee in Washington. “Domestic spending has been growing at a solid pace” and if the data continue to point to growth and firmer prices, a December rate hike would be a “live possibility,” she said in response to a question from Representative Carolyn Maloney, a New York Democrat. The Federal Open Market Committee in its October statement said it will consider raising interest rates at its “next meeting,” citing “solid” rates of household spending and business investment.

“There are pretty good odds that the Fed will hike rates in December as long as employment perks back up and the unemployment rate slips further, which is what we are looking for,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “She is trying to keep the Fed’s options open in December.” No decision has yet been made on the timing of a rate increase, Yellen cautioned. Yellen appeared before the House Financial Services Committee to testify primarily on the Fed’s supervision and regulation of financial institutions. “What the committee has been expecting is that the economy will continue to grow at a pace that’s sufficient to generate further improvements to the labor market and to return inflation to our 2% target over the medium term,” she said.

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But that wouldn’t make the 1% nearly as much money…

David Stockman Explains How To Fix The World -In 7 Words- (Zero Hedge)

While we are used to David Stockman’s detailed and lengthy “nailing” of the real state of the world, the following brief clip of an interview with Fox Business, in which David explains how to ‘fix’ so many of our problems, can be summarized perfectly in just seven short words: “Replace The Fed with the free market.” Enjoy 4 minutes of refeshing honesty… as the Fox anchor just cannot fathom who or what would “control” rates if there was no Fed…

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“He and colleagues at Fathom reckon its growth rate has slowed to about 3% a year..”

The Bear Case for China Sees PBOC Following Fed to Zero Rates (Bloomberg)

Danny Gabay “bows to nobody” in his pessimism about China’s economy. Gabay, a former Bank of England economist, says the world’s second-biggest economy is barreling toward a hard landing. He and colleagues at Fathom reckon its growth rate has slowed to about 3% a year – less than half the official estimate of 6.9% for the year to the third quarter and the 6.5% the government is aiming for over the next five years. That means desperate measures are in store, he says. The People’s Bank of China will eventually follow its western counterparts by cutting its benchmark interest rate to zero from the current 4.35% and begin buying assets. Politicians will ease fiscal policy and step in to support banks. By cutting so deeply, the PBOC’s main rate will next year fall below that of the Fed for the first time since 2001.

It has already lowered its benchmark six times in a year and devalued the yuan by 3% against the dollar in August. “They will try to do it stone by stone, step by step,” says Gabay, a director and co-founder of Fathom. The authorities also will need to let the yuan slide further, probably by between 2% and 3% a quarter for the next two years and ultimately by about 25% overall to stop it from choking the economy even more. “The rope the Chinese have is currently around their neck and they need to let it go,” said Gabay. “It’s going to hurt.” Fathom’s case conflicts with that of Ma Jun, the PBOC’s chief economist. He said on Tuesday that some market participants are “too bearish” on the economy, where a recovery in property sales alongside recent stimulus should support expansion. The PBOC has repeatedly said it won’t need to do quantitative easing.

Underpinning Gabay’s pessimistic view is his argument that China is no special case and that its policy makers are no better equipped that those elsewhere to prop up a faltering economy. Like the U.S. and U.K. before it, China needs to face life with excess debt.
China’s total government, corporate and household debt load as of mid-2014 was equal to 282% of the country’s total annual economic output, according to McKinsey. “They will be no more adept at stopping an asset price bubble from bursting than the rest of us,” said Gabay. Its banks are now on perilous ground with non-performing loans totaling more than 20% of gross domestic product, more than the level witnessed in Japan in the 1990s before its economy entered deflation, according to Gabay. “We haven’t yet had the final shoe drop,” he said. “There could be a larger further fall in Chinese activity if we’re right and the banking system implodes.”

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Ambrose notes the rise in money supply, but fully ignores that means nothing is it is not spent. A curious oversight.

I’ll Eat My Hat If We Are Anywhere Near A Global Recession (AEP)

The damp kindling wood of global economic recovery is poised to catch fire. For the first time in half a decade of stagnation, government policy has turned expansionary in the US, China and the eurozone at the same time. Fiscal austerity is largely over. The combined money supply is surging. Such optimistic claims are perhaps hazardous, given record debt ratios in most areas of the world and given that we are six-and-a-half years into an aging economic cycle that might normally be rolling over at this stage. It certainly feels lonely. Citigroup’s Willem Buiter has issued a global recession alert. Professor Nouriel Roubini from New York University joined him this week, warning that the odds of a fresh slump have doubled to 30pc. Mr Roubini’s gloom is unsettling for me.

We saw the world in almost exactly the same way in the lead-up to the Lehman crisis, when it seemed obvious to both of us that sharply rising interest rates would prick the US housing bubble and the EMU credit bubble. This time I dissent. Years of fiscal retrenchment and balance sheet deleveraging have prevented the current global economic recovery from gathering speed, and have therefore stretched the potential lifespan of the cycle. The torrid pace of worldwide money growth over recent months is simply not compatible with an imminent crisis. A combined gauge of the global money supply put together by Gabriel Stein at Oxford Economics shows that the “broad” M3 measure grew by 8.1pc in August, and by almost as much in real terms. This is the fastest rate in 25 years, excluding the final blow-off phase of the Lehman boom.

The index has since fallen back slightly as the US settles down but the pattern is clear. It bears no relation to the monetary implosion in early to mid-2008 before the collapse of Fannie Mae and Freddie Mac, the twin mortgage giants that in turn brought down the banking system. It is, of course, possible that money signals have lost their meaning in our brave new world of zero rates and secular stagnation, but the current pace of growth would typically imply a flurry of economic activity over the following year or so. “It is a very benign picture for the world. We should see above trend growth over the next year,” said Tim Congdon from International Monetary Research. Mr Congdon said the expansion of broad money in China has accelerated to an annual pace of 18.9pc over the past three months, thanks in part to equity purchases by the central bank (PBOC), a shot of adrenaline straight to the heart – otherwise known as quantitative easing with Chinese characteristics.

The eurozone is no longer hurtling into a 1930s deflationary vortex. A trifecta of cheap money, cheap oil and a cheap euro have entirely changed the landscape, and now the European Central Bank seems curiously determined to push stimulus yet further by doubling down on QE. Central banks are strange animals, pro-cyclical by nature.

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“VW has now lost €32.4bn, or 40% of its value,..”

VW Could Face Billions In Car Tax Repayments Over Latest CO2 Scandal (Guardian)

Volkswagen could have to repay billions of pounds of tax credits to European governments after finding irregularities in the levels of carbon dioxide emitted by its cars. Shares in the embattled carmaker slumped by 10% on Wednesday, wiping €5bn off the value of the company, as analysts warned that the consequences of rigging CO2 and fuel consumption tests could be worse than the initial scandal around diesel emissions tests. VW has now lost €32.4bn, or 40% of its value, since admitting in September that it installed defeat devices into 11m diesel vehicles. The scandal is dragging down sales of new VW cars, according to industry figures due to be released in Britain on Thursday. Sales data for October from the Society of Motor Manufacturers and Traders is expected to show that VW sales fell by more than 8% year-on-year, with Seat and Skoda also down.

The latest admission about CO2 tests dramatically widens the scandal that VW is facing. Germany, Britain and other countries set vehicle tax rates based on their CO2 emissions. This means that if VW artificially lowered CO2 emissions during testing then its vehicles will have contributed far less in tax than they should have. VW has said that at least 800,000 cars are affected by the CO2 discovery and estimated the economic risks at €2bn. This works out at €2,500 per car, far more than the €609 per car put aside for the cost of the 11m cars involved in the diesel emissions scandal, which was €6.7bn in total. Analysts said these costs were likely to relate to repaying tax credits in Europe rather than customer compensation. [..]

VW could also face compensation claims from motorists over the misstatement of their vehicle’s fuel economy. According to BNP Paribas, the cost of compensation to governments and customers could reach €4bn, on top of the estimated €12bn cost of rigging nitrogen oxide tests. UBS said the total costs of the scandal, including legal claims, could reach €35bn. The discovery about the irregularities in CO2 data emerged from VW’s investigation into the diesel emissions scandal. This found that figures for CO2 and fuel consumption were set too low during CO2 tests. VW is yet to confirm which models are involved or how the misstatement occurred. The majority of the cars have a diesel engine, but petrol vehicles have been dragged into the scandal for the first time.

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The whole world.

VW Scandal Widens Again as India Says Vehicles Exceeded Emission Rules (BBG)

India sought a response from Volkswagen after probes into four car models showed diesel-fuel emissions exceeding permissible limits, and variations in results between on-road tests and those done in laboratories. Investigations into the Jetta, Vento, Polo and Audi A4 marques showed significant variations and about 314,000 vehicles are potentially affected, Ambuj Sharma, an additional secretary in India’s Heavy Industries Ministry, said in an interview in Mumbai. If cars have defeat devices that cheat tests, the matter would become criminal, he said.

Emissions exceeding India’s Bharat Stage IV standards were detected, and VW has 30 days to reply to the findings, Sharma said. The notice adds to Volkswagen’s woes after the automaker admitted in September to cheating U.S. pollution tests for years with illegal software, prompting a plunge in its shares and a leadership change. India’s standards for controlling pollution from exhaust fumes lag behind those in Europe by several years. The company said yesterday it will present its results on the diesel-engine emissions issue by the end of November, and that it’s co-operating fully with the Indian government.

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Merkel is way late on this issue too.

Germany Ups Pressure On VW As Scandal Takes On New Dimension (Reuters)

German officials stepped up the pressure on Volkswagen to clean up its act on Wednesday after it revealed it had understated the fuel consumption of some vehicles, opening a new front in the crisis at Europe’s biggest carmaker. The company said late on Tuesday it had understated the level of carbon dioxide emissions in up to 800,000 cars sold in Europe, and consequently their fuel usage. This means affected vehicles are more expensive to drive than their buyers had been led to believe. The revelations add a new dimension to a crisis that had previously focused on VW cheating tests for smog-causing nitrogen oxide emissions. They are the first to threaten to make a serious dent in the firm’s car sales since the scandal erupted as they could deter cost-conscious consumers, analysts said.

The latest admission provoked some of the strongest criticism yet from the German government of Volkswagen, which is part of an auto industry that employs over 750,000 people in the country, has been a symbol of German engineering prowess and dwarfs other sectors of the economy. Transport minister Alexander Dobrindt said the latest irregularities had caused “irritation in my ministry and with me”. Chancellor Angela Merkel’s spokesman, Steffen Seibert, said the carmaker had to take steps to prevent this happening again. “VW has a duty to clear this up transparently and comprehensively,” he added. “It’s important (for VW) to create structures to avoid such cases.” The latest revelations, which led to Volkswagen adding €2 billion to its expected costs from the scandal, are also the first time gasoline cars have been drawn into the scandal.

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It’s becoming a valid question: can VW survive this?

VW Emissions Scandal Still Obscured By A Cloud (Guardian)

The surprise is that Volkswagen’s shares fell only 10% as the cheating affair deepened in several ways. First, the scandal now covers emissions of carbon dioxide, or CO2, not only nitrogen oxide. Second, some petrol engines are now involved. Third – perhaps most importantly for shareholders who hope VW can recover quickly – the company still seems incapable of giving a straightforward account of what its own investigation has uncovered. Tuesday evening’s statement contained the obligatory expressions of regret and commitment to transparency. Indeed, Matthias Müller, the executive shoved into the hot seat in the first week of the crisis, opted for pomposity overdrive. “From the very start I have pushed hard for the relentless and comprehensive clarification of events,” he declared.

“We will stop at nothing and nobody. This is a painful process, but it is our only alternative. For us, the only thing that counts is the truth.” What, though, did VW actually say beyond the confession that “based on present knowledge” 800,000 vehicles have been affected? Almost nothing. Were cheat devices attached to the vehicles, or were real CO2 emissions disguised by other means? How many petrol cars are affected? Does the phrase “present knowledge” mean most cars in VW’s fleet are in the clear, or that they haven’t yet been examined for CO2? And, since the word “irregularities” is so vague, how severely wrong is the published CO2 data? None of these issues were addressed. A little reticence is understandable while investigations continue but it is not unreasonable to expect VW to explain why it can’t answer questions that would occur to most readers of its statement.

More disgracefully from the point of view of shareholders, the company failed to explain how it derived its estimate that the latest revelations will cost “approximately €2bn”. Does that figure merely cover tax credits that now would appear to have been unfairly earned? Analysts assume so, in which case there could also be a wave of claims from consumers who were encouraged to buy VW vehicles on the basis of bogus claims about fuel efficiency. Analysts at Exane BNP Paribas, for example, added €4bn for recall and compensation costs for customers. That assumption sounds fair. The point, though, is that VW ought to be able to say what its €2bn covers and what it doesn’t.

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They should have done this two months ago, when the scandal broke.

Germany To Retest VW Cars As Scandal Pushes Berlin To Act (Reuters)

Germany is to retest all Volkswagen car models to gauge their genuine emissions levels after new revelations from the carmaker six weeks into its biggest-ever corporate scandal pushed the government to act. Expressing his “irritation” with one of Germany’s biggest employers, Transport Minister Alexander Dobrindt said on Wednesday that all current models sold under the VW, Audi, Skoda and Seat brands – with both diesel and petrol engines – would be tested for carbon dioxide and nitrogen dioxide emissions. As the crisis deepened, VW said it had told U.S. and Canadian dealers to stop selling recent models equipped with its 3.0 V6 TDI diesel engine, while the Moody’s agency downgraded the firm’s credit rating.

The German government’s announcement followed a VW statement on Tuesday that it had understated the level of carbon dioxide emissions in around 800,000 cars sold mainly in Europe, and consequently their fuel usage. This means affected vehicles are more expensive to drive than their buyers had been led to believe. The revelations added a new dimension to a crisis that had previously focused on how Europe’s biggest carmaker cheated in U.S. tests on diesel cars for emissions of nitrogen oxide, which cause smog. Previously the government had said it would review only nitrogen dioxide emissions from VW diesel cars.

“We all have an interest that everything at VW is turned over and reviewed,” Dobrindt said, adding that the government wanted to force the company to pay the extra car taxes which would be incurred by the higher CO2 emissions levels. VW is Europe’s biggest motor manufacturer, employing over 750,000 people in Germany, and has been a symbol of the nation’s engineering prowess.

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Basque independence is not that strong now, but Catalunya may change that.

Basque Secessionists Follow Catalans In Push For Independence (Guardian)

As the central government in Madrid squares off against secessionists in Catalonia, separatists in another Spanish region have begun formally laying the groundwork for their own push for independence. EH Bildu, a leftwing pro-independence party in the Basque country, has submitted a bill to the regional parliament that it hopes will pave the way for consultations to be held in the region. “The aim is to put the political, economic and social future of the Basque country in the hands of its citizens,” EH Bildu’s spokesman, Hasier Arraiz, said as he presented the legislation. The bill mirrors that passed by the Catalan parliament last year, which aimed to create legal cover for a consultation on independence in the region. Spain’s constitutional court suspended the regional law, but Catalonia pressed ahead with the consultation, rebranding it as a symbolic referendum.

The Catalan leader, Artur Mas, and two associates are under investigation for disobedience, abuse of power and obstruction of justice over their actions. Basque separatists have shied away from specifically mentioning independence, but they referred several times to Catalonia as they presented their bill. “It’s time to confront the state democratically. They are doing it in Catalonia and we want to do it in the Basque country,” Arraiz said. The Basque bill has little chance of being passed, because EH Bildu holds only 21 of the 75 seats in the Basque parliament. Its actions, however, confirmed worries in Madrid that any concessions made to secessionists in Catalonia may have to be extended to separatist movements across the country.

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Regurgitated ‘news’.

US Presses Europe To Take Steps To Reduce Greece’s Debt Burden (Bloomberg)

The US is pressing euro-area countries to agree to an overhaul of Greece’s debt to give private-sector investors confidence that the nation’s borrowing burden is sustainable, a US Treasury official said. Europe needs to take action to lower Greece’s overall debt levels, said the official, who asked not to be identified because discussions are in progress. Participation by the European Bank for Reconstruction and Development would also be helpful to restore financial stability in Greece, the official said. The EBRD, which was created to help central and eastern European countries after the Cold War, could lend staff and contribute technical expertise to help the Greek banking system get on firmer footing, according to the official.

Lowering interest rates and extending maturities can ease Greece’s debt burden, and the US and IMF have stopped short of calling for writing down the principal of the loans. Many euro-area nations have indicated that would be a “red line,” while indicating they might agree to better servicing terms. The US call to reduce Greece’s debt burden echoes the position taken by the IMF, which has said it won’t offer new money to Greece unless the euro area commits to a formal debt operation. The US is the largest shareholder in the Washington-based IMF, which lends to countries that run into balance-of-payments troubles. Germany and other creditor nations say bringing the IMF on board is an essential element of the €86 billion bailout that the currency bloc approved in August.

The bailout loans Greece has amassed over its three rescues are the focus in the debt-relief talks, since Greece’s private- sector debt was already restructured in early 2012. Greece’s borrowing outlook gained a boost over the weekend, when the European Central Bank found that capital shortfalls at the four biggest banks won’t require all of the money set aside for financial-sector assistance within the aid program. The banks need €14.4 billion, of which €10 billion is expected to come from the rescue coffers. The European Stability Mechanism said on Saturday that this means Greece won’t draw down the full bailout amount, since it doesn’t appear to need another 15 billion euros that had been earmarked for bank aid if needed. The banks are expected to raise 4.4 billion euros from private-sector sources.

Greek government officials say the EBRD, which took bank stakes in Cyprus, has indicated its willingness to take part in the Greek banks’ search for fresh capital. The EBRD is actively looking at the recapitalization plans of the Greek banks with a view to determining whether we can play a role in the process over the next few weeks, said Axel Reiserer, a spokesman for the London-based development bank. The EBRD has recently established a presence in Greece and is now building relationships and exploring options for investments, Reiserer said. The EBRD handles project finance and does not provide budget support or financial aid.

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Time warp.

Fannie, Freddie May Need To Tap Treasury, FHFA Director Says (MarketWatch)

Fannie Mae and Freddie Mac are at risk of needing an injection of Treasury capital after the latter reported its first quarterly loss in four years, the director of the Federal Housing Finance Agency said Tuesday. FHFA Director Mel Watt issued a statement following mortgage-finance company Freddie Mac’s $475 million third-quarter loss, its first quarterly loss in four years. “Volatility in interest rates coupled with a capital buffer that will decline to zero in 2018 under the terms of the senior preferred stock purchase agreements with Treasury will likely make both Enterprises increasingly susceptible to the possibility of quarterly losses that could result in draws going forward,” Watt said. Freddie Mac said its loss was driven by interest rate changes that soured the value of derivatives it holds.

Watt, in his statement, pointed out that Freddie Mac didn’t report a decline in the credit quality of credit-related losses. The status of Fannie Mae and Freddie Mac has been left in limbo since the government took them under conservatorship in 2008. Efforts to reform the companies have stalled in Congress. But Treasury Secretary Jack Lew and his deputies have pushed back against the idea of privatizing Fannie Mae and Freddie Mac. So-called recap and release could raise the possibility of another bailout, the Treasury says. Freddie Mac has paid $96.5 billion to the U.S. Treasury in dividends. It won’t make any payments to the Treasury for the third quarter, but it won’t have to draw, either, due to the $1.8 billion in reserves.

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This is big. When the supply chain of the global economy starts sputtering, look out below.

Maersk Line to Cut 4,000 Jobs as Shipping Market Deteriorates (WSJ)

The world’s biggest container-ship operator is altering course, slashing jobs and canceling or delaying orders for new vessels after years weathering a sharp downturn in the container-shipping market. Danish conglomerate A.P. Møller-Maersk A/S said Wednesday its Maersk Line container-shipping unit would cut 4,000 jobs from its land-based staff of 23,000. It is also canceling options to buy six Triple-E vessels, the world’s largest container ships, to cope with the deepest market slump in the industry since the 2009 global financial crisis. Maersk said it would also push back plans to purchase eight slightly smaller vessels. The decision to halt its fleet expansion represents a significant U-turn for the company, which had been investing heavily amid the downturn.

Counting on its market-share dominance and deep pockets, it aimed to expand as smaller competitors retrenched. But after issuing a surprise profit warning last month, Maersk signaled it, too, was no longer immune to a combination of slowing global growth and massive container ship overcapacity on many routes. The conglomerate said it would cut its annual administration costs by $250 million over the next two years and would cancel 35 scheduled voyages in the fourth quarter. That is on top of four regularly scheduled sailings it canceled earlier in the year. Maersk has already ordered 27 vessels this year, including 11 Triple-E behemoths, which can carry in excess of 19,000 containers. “Given weaker-than-expected demand, this will be enough for us to grow in line with our ambitions over the next three years or so,” said Maersk Line Chief Executive Søren Skou.

The Triple-E orders were placed at South Korean yard Daewoo Shipbuilding and included a nonbinding option to order six more ships. Maersk officials said that under the terms of the deal, the Danish company isn’t subject to any damages for canceling the option. DSME wasn’t immediately available for comment. Although such options aren’t included in the order books of shipbuilders until they become solid orders, a move like Maersk’s represents a psychological blow for the global shipbuilding industry as well. Ships like the Triple-E go for more than $150 million each, and orders for them have helped cushion the blow for dwindling orders for other ship types.

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Remember remember the 5th of November. Today Anonymous promised to ‘unveil’ 1000 American KKK members.

2015 Million Mask March: Anonymous Calls For Day Of Action In 671 Cities (RT)

Tens of thousands of activists disguised as Guy Fawkes are expected to the flood streets of over 671 cities as the Anonymous-led Million Mask March sweeps the globe. The hacktivist group and its followers will protest censorship, corruption, war and poverty. For the fourth year in a row the “Anonymous army,” as the group likes to call its activists, will rise up and take part in rallies and protests from Sydney to Los Angeles and Johannesburg to London. Hiding their faces behind stylized ‘Anonymous’ masks popularized by the “V for Vendetta” movie, they will come forward to make their voices heard. The Million Mask March is also about letting “various governments” know that “the free flow of information” will never be stopped.

“We now face a dilemma unfamiliar to any previous human civilization, we face this dilemma not simply as a community, nor a nation; rather collectively as a planet. We have something no previous generation has ever had, the internet,” Anonymous said in its 2015 promo video for the Million Mask March. Social media has been their major megaphone calling on people to unite in a global move. Just like last year, London expects one of the most massive marches on its streets. According to the demonstration’s page on Facebook, 18,000 people are going to join the Anonymous-inspired march. “The government and the 1% have played their hand, now it is time to play ours,” a Facebook statement reads. This year’s dress code for the London’s Million Mask March calls for “white judicial wigs, black robes & Anonymous masks for Order of Public Court.”

Activists will start gathering by the Ecuadorian Embassy “to free Robin Hood [Julian Assange]” at 9 am. The Metropolitan Police is bracing for 2015’s Million Mask March with thousands of extra police. Law enforcement will be on stand-by in case activists attack businesses or cause damage to property. Potential targets have been warned. The 2014 Million Mask March in London was marked by scuffles between activists and police. Meanwhile in Washington, the Million Mask March is expected to be attended by 25,000 people, according to Facebook’s number of “going” at the time of publication. Activists plan to meet by the Washington monument not far from the Capitol building and march towards the White House.

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Note how this piece is 180º different from the next one.

Merkel Overwhelmed: Chancellor Plunges Germany Into Chaos (Sputnik)

Merkel’s recent statements about the need to keep German borders open in order to prevent military conflicts in Europe is causing panic and anxiety among the German population, DWN wrote. According to the newspaper, Merkel’s actions have surprised political observers as well, some of whom say that the German Chancellor is “overwhelmed” and that her era will soon come to an end. The author argued that Merkel’s statements about the possibility of a military conflict are causing fear and panic among Germans. “A warning of a war in Europe expressed by the German Chancellor in public is irresponsible,” the article said, adding that in this context Merkel’s statements about the need to keep the borders open sound confusing and ridiculous.

“The reaction of all ordinary people to such a threatening statement would be that they would want the borders to be closed quickly,” the author wrote. The situation in the country is extremely critical. There is aggression and a tense atmosphere between various groups in refugee camps that may lead to an explosion anytime. Some refugees do not view the German authorities as an obstacle and do not take into account the local legislation when initiating violent clashes. “Will Merkel send the Bundeswehr to the camps? The police have already called the Bundeswehr during violent clashes because otherwise they would lose control,” the newspaper wrote.

According to the newspaper, the catastrophic situation has its roots in Merkel’s irresponsible policy of open doors towards all refugees and migrants. Now at a time when the influx of newcomers is still increasing and the country’s authorities are completely overwhelmed, the situation may come out of control any time. Germany and other European countries have been struggling to resolve the refugee crisis for many months, but without much success. Hundreds of thousands of undocumented migrants continue to flee their home countries in the Middle East and North Africa to escape violence and poverty.

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Her power is more important than refugees’ lives.

Merkel Reasserts Control as Rebellion Over Refugees Fades (Bloomberg)

German Chancellor Angela Merkel may have defused one of the biggest bust-ups of her third-term coalition after quelling a political revolt from her Bavarian allies over her handling of the refugee crisis. A nascent deal reached this week indicates Merkel is reasserting her control over the domestic political drift Germany has witnessed recently amid coalition sniping that put her chancellorship in question. While she has said many external factors will determine whether the flow of refugees can be stemmed – from government action in Turkey to a diplomatic solution to end the war in Syria – Merkel can also take heart from the latest polling that suggests her party’s sliding support has halted.

“There were some threats, but Merkel treated it quite calmly,” said Manfred Guellner, head of Berlin-based pollster Forsa, adding that her party’s poll numbers have probably reached the bottom. “As far as power brokers in Berlin are concerned, nobody at the moment wants to risk the coalition in any serious way.” The chancellor struck the agreement with her chief internal critic, Bavarian Premier Horst Seehofer, removing his threat of unilateral action to halt the influx of refugees. Merkel and Seehofer will meet Thursday with Sigmar Gabriel – head of junior coalition partner, the Social Democrats – to hammer out a final deal. All three have signaled in the last two days that they’re aiming to put the dispute behind them. “We will see if we can find common ground,” Merkel told reporters Wednesday in Berlin.

“If we don’t find an agreement, we have to continue negotiating. That wouldn’t be the first time, but everybody wants us to find a logical solution.” [..] Seehofer, the chairman of the Bavarian sister party of Merkel’s Christian Democrat Union, was assuaged by the chancellor’s commitment to reduce the number of refugees. Merkel said that would involve a series of measures including a political agreement with Turkey to protect that country’s border and a resolution of the civil war in Syria, rather than shutting Germany’s frontier or setting upper limits on those who can come in. “No country in the world can accommodate a limitless flow of refugees,” Seehofer said earlier this week, responding to the numbers of refugees arriving in Bavaria from Austria, issuing the biggest challenge yet to Merkel’s open-door policy.

Speaking to business leaders in Dusseldorf Wednesday evening, Merkel reiterated the need to cut the number of asylum-seekers and tackle the refugee crisis at its source in Syria, warning that a restoration of border controls within the European Union would hit the free movement of goods and people. “We probably need a European border guard, agreements with our neighbors and a fair distribution” of refugees in Europe, the chancellor said. “That means we need a change to the existing asylum system, but a change that strengthens Europe and not a change that weakens Europe.”

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“..people will keep coming as long as the smugglers tell them to come, and the smugglers will keep attempting trips as long as the people are coming..”

Rough Seas and Falling Temperatures Fail to Stop Flow of Refugees (NY Times)

The rubber dinghy rolled perilously on the waves and twisted sideways, nearly flipping, as more than three dozen passengers wrapped in orange life vests screamed, wept and cried frantically to God and the volunteers waiting on the rocky beach. Khalid Ahmed, 35, slipped over the side into the numbing waist-high water, struggled to shore and fell to his knees, bowing toward the eastern horizon and praying while tears poured into his salt-stiff beard. “I know it is almost winter,” he said. “We knew the seas would be rough. But please, you must believe me, whatever will happen to us, it will be better than what we left behind.” The great flood of humanity pouring out of Turkey from Syria, Afghanistan, Iraq and other roiling nations shows little sign of stopping, despite the plummeting temperatures, the increasingly turbulent seas and the rising number of drownings along the coast.

If anything, there has been a greater gush of people in recent weeks, driven by increased fighting in their homelands – including the arrival of Russian airstrikes in Syria — and the gnawing fear that the path into the heart of Europe will snap shut as bickering governments tighten their borders. “Coming in the winter like this is unprecedented,” said Alessandra Morelli, the director of emergency operations in Greece for the United Nations High Commissioner for Refugees. “But it makes sense if you understand the logic of ‘now or never.’ That is the logic that has taken hold among these people. They believe this opportunity will not come again, so they must risk it, despite the dangers.”

The surge means that countries throughout the Balkans and Central Europe already under intense logistical and political strain will not find relief — especially Germany, the destination of choice for many of the refugees. Hopes that weather and diplomacy would ease the emergency are unfounded so far, putting more pressure on financially strapped and emotionally overwhelmed governments to quickly find more winterized shelter. The influx also underscores the European Union’s failure to reach a unified solution to the crisis, leaving places like Lesbos struggling to deal with huge numbers of desperate people and raising questions about what will happen not just this winter, but in the spring and beyond.

Early this week, the number of people who had crossed into Greece from Turkey hit 600,000, after having passed 500,000 only a few weeks earlier. Both migrants and relief workers shrug when asked how far into the winter people will try to make the treacherous crossing. “Some of the smugglers, they tell the people who call them, ‘Yes, there will be more trips, you should come,’ and so the people keep coming,” said Abu Jawad, a 28-year-old Palestinian Syrian who works as a broker for Turkish smugglers, recruiting passengers from the crowds in Izmir, Turkey, and other coastal cities. “So what I think is that people will keep coming as long as the smugglers tell them to come, and the smugglers will keep attempting trips as long as the people are coming,” he said.

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Leggeri should be fired from framing the issue this way. But he won’t, because this is Europe’s new normal, this is how politics wants is framed. Still, under international law people fleeing war zones cannot be labeled ‘illegal’.

800,000 ‘Illegal Entries’ To EU In 2015, Frontex Chief Says (AFP)

Migrants have made some 800,000 “illegal entries” to the European Union so far this year, the head of the bloc’s border agency Frontex said in an interview with German newspaper Bild published Wednesday. Warning that the influx of migrants has probably not yet “reached its peak,” Fabrice Leggeri called for European states to detain unsuccessful asylum seekers so they can be “rapidly” sent back to their countries of origin. “EU states must prepare for the fact that we still have a very difficult situation ahead of us in the coming months,” added Leggeri. Last month, Frontex said that 710,000 migrants had entered the EU in the first nine months of the year but cautioned that many people had been counted twice. The agency said on October 13 that “irregular border crossings may be attempted by the same person several times.”

“This means that a large number of the people who were counted when they arrived in Greece were again counted when entering the EU for the second time through Hungary or Croatia,” explained the agency. According to the most recent figures from the UN refugee agency, more than 744,000 people have made the perilous journey across the Mediterranean this year, the majority to Greece. On Wednesday, the first set of 30 migrants was due to leave Athens for Luxembourg under an EU plan to redistribute people throughout the 28-member bloc in order to ease pressure on countries like Greece and Italy. The bloc hopes to transfer some 160,000 people under the plan.

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Oct 162015
 
 October 16, 2015  Posted by at 8:53 am Finance Tagged with: , , , , , , , , ,  4 Responses »


Alfred Palmer White Motor Company, Cleveland 1941

Corporate America’s Epic Debt Binge Leaves $119 Billion Hangover (Bloomberg)
The Economic Doomsday Clock Is Ticking Closer To Midnight (Artemis)
Rich Nations Lose Emerging-Markets Motor (WSJ)
Be Very Afraid: “The 3 Emerging Markets Debacles” Loom, HSBC Warns (Zero Hedge)
Goldman Sachs Blames Global Market Fears For Earnings Fall (Guardian)
Debt Slump Leaves Traders Exposed as European Banks Eye Job Cuts (Bloomberg)
Markets Expect Eurozone Deposit Rate To Go Deeper Into Negative Territory (BBG)
VW Forced By Germany To Recall 8.5 Million Diesels in Europe (Bloomberg)
US Pursues Several Paths in Volkswagen Probe (WSJ)
Treasury Considers Plan to Help Puerto Rico (NY Times)
Oil Is Killing the Drillers, and the Banks Want Their Cash Back Now (Bloomberg)
Billions Are Laundered Through British Banks, Treasury Admits (Times)
UK Banks May Need $5.1 Billion of Capital for Ring-Fencing (Bloomberg)
The Drone Papers: The Assassination Complex (Intercept)
‘Drone Papers’ Revelations Mandate a Congressional Investigation (FP)
The Multitude Of False Statements In Hillary’s Snowden Answer (New Yorker)
Merkel Prepares Germans for Historic Challenge of Refugee Crisis (Bloomberg)
EU Bid to Stem Refugee Influx Stalls on How Much to Give Turkey (Bloomberg)
US Lawsuits Build Against Monsanto Over Alleged Roundup Cancer Link (Reuters)

“Agressive borrowing”. That does not sound good.

Corporate America’s Epic Debt Binge Leaves $119 Billion Hangover (Bloomberg)

The Federal Reserve’s historically low borrowing rate isn’t benefiting corporate America like it used to. It’s more expensive for even the most creditworthy companies to borrow or refinance even as the Fed has kept its benchmark at near-zero the last seven years. Companies have loaded up on debt. They owe more in interest than they ever have, while their ability to service what they owe, a metric called interest coverage, is at its lowest since 2009. The deterioration of balance-sheet health is “increasingly alarming” and will only worsen if earnings growth continues to stall amid a global economic slowdown, according to Goldman Sachs credit strategists. Since corporate credit contraction can lead to recession, high debt loads will be a drag on the economy if investors rein in lending, said Deutsche Bank AG analysts.

“The benefit of lower yields for corporate issuers is fading,” said Eric Beinstein at JPMorgan. As of the second quarter, high-grade companies tracked by JPMorgan incurred $119 billion in interest expenses over the last year, the most for data going back to 2000, according to the bank’s analysts. The amount the companies owed rose 4% in the second quarter, the analysts said. The risk of default is negligible for companies with good credit. Even so, their health isn’t likely to improve when the Fed finally raises the lending rate, and it could worsen even without a hike, said Ashish Shah at AllianceBernstein. A souring economy or a shocking event such as a prominent terrorist attack could also cause borrowing costs to spike, he said.

The fallout of more borrowing coupled with lower earnings has raised concern among the analysts who track the debt and the money managers who buy it. Yet it seems the companies themselves are acting as if it’s not happening. They’re still paying out record amounts in buybacks and dividends. In the second quarter, the most creditworthy companies posted declining earnings before interest, taxes, depreciation and amortization. Yet they returned 35% of those earnings to shareholders, according to JPMorgan. That’s kept their cash-payout ratio – how much money they give to shareholders relative to Ebitda – steady at a 15-year high. The borrowing has gotten so aggressive that for the first time in about five years, equity fund managers who said they’d prefer companies use cash flow to improve their balance sheets outnumbered those who said they’d rather have it returned to shareholders..

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“..global central banks have set up the greatest volatility trade in history.”

The Economic Doomsday Clock Is Ticking Closer To Midnight (Artemis)

Prisoner’s Dilemma describes when two purely rational entities may not cooperate even if it is in their best interests to do so, thereby replacing known risks for unknown risks. In an arms race when two superpowers possess the ability to destroy each other, the optimal solution is disarmament and peace. If the superpowers do not trust one another completely, the natural course of action is proliferation of conflict through nuclear armament despite great peril to all. This non-cooperation, selfishness, and conflict, ironically results in an equilibrium of peace, but with massive risk. Global central banks are engaged in an arms race of devaluation resulting in suboptimal outcomes for all parties and greater systemic risk.

In this year alone 49 central banks have cut rates or devalued their currencies to gain a competitive edge and since 2008 there have been over 600 rate cuts worldwide. Globally we have printed over 14 trillion dollars since the end of the financial crisis. The global economy did not de-leverage from the 2008 crash but instead doubled down as global debt has increased a staggering 40% since 2007. The pace of global growth is slowing with the World Bank lowering GDP projections from 3% to 2.5%, and emerging economies from China to Brazil are struggling. Global currency reserves outside the US have declined over $1 trillion USD from their peak in August 2014 as foreign central banks have sold dollars to offset the ill effects of capital flight and commodity declines.

The last time the world economy experienced declines in reserves of this magnitude was right before the crash of 2008. Cross-asset volatility is rising from the lowest levels in three decades yet markets remain complacent with the expectation that central banks will always support asset prices. Volatility regime change is happening now and is a bad omen for a global recession and bear market. As global central banks compete in an endless cycle of fiat devaluation an economic doomsday clock ticks closer and closer to midnight. The flames of volatility regime change and an emerging markets crisis ignited on the mere expectation of a minor increase in the US federal funds rate that never came to be. The negative global market reaction to this token removal of liquidity was remarkable.

Central banks are fearful and unwilling to normalize but artificially high valuations across asset classes cannot be sustained indefinitely absent fundamental global growth. Central banks are in a prison of their own design and we are trapped with them. The next great crash will occur when we collectively realize that the institutions that we trusted to remove risk are actually the source of it. The truth is that global central banks cannot remove extraordinary monetary accommodation without risking a complete collapse of the system, but the longer they wait the more they risk their own credibility, and the worse that inevitable collapse will be. In the Prisoner’s Dilemma, global central banks have set up the greatest volatility trade in history.

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” International banks now have $3.6 trillion of exposure to emerging economies compared $1.2 trillion a decade ago..”

Rich Nations Lose Emerging-Markets Motor (WSJ)

New weakness emerged in China’s economy, heightening concerns that the woes of developing economies are ricocheting back to advanced ones and hurting the fragile recovery. Beijing on Wednesday reported that consumer prices slowed more than expected in September, reflecting weak domestic demand, a day after it said imports fell by one-fifth that same month. And Singapore, whose export-dependent economy is a bellwether for Asia’s health, said it narrowly avoided a recession, as its central bank on Wednesday took action to spur its economy for the second time this year. For years, emerging markets propped up global growth as their developed counterparts stalled. Now, a deepening slowdown in China and other developing markets is upending that scenario.

Central bankers from the U.S. to Japan now point to the emerging world as a risk rather than a cushion. “It’s clear that the slowdown in emerging markets is having an impact on developed markets,” said Adam Slater, a senior economist at Oxford Economics in London. “Emerging markets have been a very positive force for world growth over most of the last 10 years, and now the big contribution is dropping away.” New evidence is emerging that developing countries are buying fewer capital goods and higher-end products from richer countries. In addition to China’s announcement that its consumer-price index rose just 1.6% in September from the same period a year earlier, Indonesia, Southeast Asia’s largest economy, imported 16% fewer goods for its factories in the year through August.

Such grim data is reflected in the eurozone, which on Wednesday blamed a fall in industrial output in August on large developing economies such as China; in Germany, which this month announced a surprise fall in manufacturing orders in August and the lowest exports in seven years; in Japan, whose factory output was weaker than expected in the same period; and in the U.S., where exports for that month were their smallest since 2011. Global risk has risen over the last decade as developed and emerging markets became increasingly intertwined through trade, finance and investments. International banks now have $3.6 trillion of exposure to emerging economies compared $1.2 trillion a decade ago, according to the Bank for International Settlements.

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“The growth differential between EM and DM is still narrowing, not necessarily because DM is doing well but because EM is performing miserably…”

Be Very Afraid: “The 3 Emerging Markets Debacles” Loom, HSBC Warns (Zero Hedge)

[..] this is a story about the fundamentals and the fundamentals for EM are quite simply a disaster:
• Global growth and trade have entered a new era characterized by structural, endemic sluggishness
• Thanks to loose monetary policy that has kept capital markets wide open to otherwise insolvent producers and thanks also to anemic global demand, commodity prices aren’t likely to rebound anytime soon
• Because the Fed missed its window to hike, both a hawkish and a dovish Fed are likely precipitate capital outflows

As it turns out, HSBC went looking for opportunities across EM and came to the same conclusions. First, we have the five reasons for EM malaise: These are, in brief: collapse in global trade cycle, competitiveness problems (rising manufacturing unit labour costs), faltering domestic demand, downside risks posed by China, and the slump in commodity prices. And this is leading directly to a convergence of DM and EM growth, but not because DM is performing well: “The growth differential between EM and DM is still narrowing, not necessarily because DM is doing well but because EM is performing miserably. The leading indicators do not suggest any imminent improvement, either.”

That’s not the only place we’re seeing a “convergence” between EM and DM – they are also starting to look alike in terms of leverage: “The situation becomes even more toxic when the EM leverage cycle is taken into account. Thanks to years of abundant and cheap external liquidity, EM has built up debt very rapidly, while the drivers of economic growth have shifted towards private sector (household and corporate) credit. In many ways, EM is showing similar symptoms to its DM counterparts of weak economic performance and over- reliance on credit. The outcome is what we call the three EM debacles: de-leveraging, depreciation (or devaluation even de-pegging) and downgrades of credit ratings.

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“We continue to see strong levels of activity in investment banking and growth in investment management, and looking ahead, are encouraged by the competitive positioning of our global client franchise.”

Goldman Sachs Blames Global Market Fears For Earnings Fall (Guardian)

Goldman Sachs announced quarterly earnings that fell short of expectations on Thursday, blaming “renewed concerns” about global growth for the shortfall. Revenues fell to $6.86bn from $8.39bn a year ago. The bank had been expected to announce $7.13bn in revenue. Goldman’s third-quarter net income fell to $1.43bn, or $2.90 a share, from $2.24bn, or $4.57 a share, a year earlier. “We experienced lower levels of activity and declining asset prices during the quarter, reflecting renewed concerns about global economic growth,” said Lloyd Blankfein, chairman and CEO. “We continue to see strong levels of activity in investment banking and growth in investment management, and looking ahead, are encouraged by the competitive positioning of our global client franchise.”

The bank set aside $2.35bn for compensation and benefits for the third quarter of 2015, 16% lower than the third quarter of 2014. Fixed income, currencies and commodities trading revenue fell 33% to $1.46bn for the quarter, while equities trading revenue increased 9% to $1.75bn. Goldman is the latest US giant to announce disappointing results in this earnings season. Yesterday Walmart, the world’s largest retailer, also released results that fell short of expectations. It blamed rising wage costs and online competition for the shortfall. Goldman’s results came as Citigroup too released its latest results. The bank also reported a slowdown in trading but profits jumped 50% to $4.29bn compared to the same quarter last year as its legal bills dropped sharply. Legal and associated costs for the quarter were $376m, down from $1.55bn a year ago, when the bank was preparing for an eventual $5.7bn fine for the manipulation of foreign-exchange rates.

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“Goldman Sachs on Thursday reported a 34% decrease in fixed-income trading revenue..”

Debt Slump Leaves Traders Exposed as European Banks Eye Job Cuts (Bloomberg)

For the new leaders of Deutsche Bank and Credit Suisse, a debt-trading slump in the third quarter could provide fresh incentive to shrink their bond businesses as they reshape the firms to boost profitability. “Trading floors are like morgues at present,’’ Bill Blain at Mint Partners said. “For new CEOs looking to cut and kitchen-sink costs, it’s an easy call to reduce headcount.’’ John Cryan, Deutsche Bank’s co-CEO, and Credit Suisse CEO Tidjane Thiam both took over at mid-year with mandates to rebuild investor trust after their firms’ shares trailed investment-banking peers. Both will present plans this month for overhauls to adapt to stricter capital rules and interest rates stuck at record lows. Deutsche Bank and Credit Suisse got more than 20% of their revenue from trading fixed-income products in the first half, a bigger slice than European rivals such as Barclays and UBS.

That reliance leaves them more vulnerable to a market rout that ensnared assets from junk bonds to emerging-market currencies and dented results at U.S. peers. Credit Suisse publishes third-quarter earnings on Oct. 21, and Deutsche Bank the following week. Goldman Sachs on Thursday reported a 34% decrease in fixed-income trading revenue in the quarter, exceeding the 23% slump at JPMorgan and 11% decline at Bank of America, excluding accounting gains. “September was awful,” said Christopher Wheeler, an analyst at Atlantic Equities in London. “It has to have a read-across to Europe.” Banks’ fixed-income units – most of which trade bonds and products tied to interest-rates, currencies and commodities – were rattled in the third quarter by China’s yuan devaluation, a glut in oil and questions over whether the Fed would increase U.S. interest-rates.

Investors dumped assets including high-risk, high-yield U.S. debt linked to energy companies, which tumbled 16%, according to a Bank of America Merrill Lynch index. Currencies across developing markets – including the Turkish lira and the Brazilian real – fell against the dollar. Clients’ uncertainty prompted them to avoid some fixed-income markets, hurting the revenue of banks that take commissions on every trade, said Blain at Mint Partners. That doesn’t bode well for Deutsche Bank, among the world’s biggest traders of bonds along with securities tied to interest-rates, currencies and emerging markets, according to data from Coalition Ltd. Credit Suisse, one of the biggest traders of securitized products, relied on fixed-income trading for about 21% of revenue in the first half.

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From negative to more negative. And nobody dares say the emperor is naked? At sub-zero, he’s freezing his balls off.

Markets Expect Eurozone Deposit Rate To Go Deeper Into Negative Territory (BBG)

Debt and money markets are readying for a cut to the ECB’s deposit rate, regardless of what its policy makers say in public. Traders are pricing in a possible reduction to the rate for holding overnight deposits, said UBS and Barclays. ECB officials have declared it’s too early to expand stimulus and President Mario Draghi said more than a year ago that rates have reached their nadir. Economists predict changes to its bond-buying program, or quantitative easing, would come before any adjustment to more conventional monetary tools. With inflation in the euro region once again negative, speculation has swelled that the ECB will tinker with policy, perhaps with the euro in mind. The currency’s recent appreciation has added to downside risks for growth and inflation outlooks, ECB Executive Board member Yves Mersch said.

The central bank won’t hesitate to act if the inflation outlook weakens over the medium term, Mersch said Oct. 13. “The main objective for cutting the deposit rate would be to weaken the euro,” said Nishay Patel, a London-based fixed-income strategist at UBS. “It would not be a substitute for an increase in the QE program, which is able to provide stimulus to the economy.” The deposit rate was set at minus 0.2% in September 2014, after first being cut below zero in June that year. Draghi said at the time rates had reached its “lower bound.” Yields on Germany’s two-year notes were at minus 0.27% on Thursday. The market is pricing in at least a 50% chance of a cut of 10 basis points, or 0.1 percentage point, to the deposit rate, according to UBS strategists.

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“New parts necessary to fix some vehicles will probably be ready by next September..”

VW Forced By Germany To Recall 8.5 Million Diesels in Europe (Bloomberg)

Volkswagen will embark on one of the biggest recalls in European automotive history, affecting 8.5 million diesel vehicles, after German authorities threw out the carmaker’s proposal for voluntary repairs. The Federal Motor Transport Authority, or KBA, demanded a recall of 2.4 million cars in Germany after reviewing proposals Volkswagen filed last week to fix vehicles fitted with software designed to cheat on pollution tests, German Transport Minister Alexander Dobrindt said Thursday in Berlin. The mandatory recall is the basis for callbacks throughout Europe, where diesel accounts for more than half the market. Germany’s rare public snub of its biggest carmaker came after Volkswagen circumvented diesel emissions regulations starting in 2008.

The country’s demands will speed a process that Volkswagen said will last beyond 2016, and give authorities more control. “It’s an unusual measure to be ordering a mandatory recall,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI. “It shows to me that the KBA is losing patience with VW’s slow response on what to do to fix the engines so far. Customers have been left unsettled.” The 8.5 million affected cars represent slightly less than one-third of Volkswagen’s auto deliveries in the region from 2009 through August, based on sales figures the company published for the five divisions involved. The recall is also Germany’s biggest since its current rules took effect in 1997, more than the record 1.9 million cars the entire auto industry brought back in under repair programs last year.

The mandatory recall will be more expensive for Volkswagen because the company will need to work on the cars more quickly, Evercore’s Ellinghorst said. The manufacturer has yet to specify exactly how it will fix the cars, though it has said some will require only a software update while others will need new or rebuilt engine parts. “The KBA’s decision opens up the possibility of a common and coordinated response in all European Union states,” Volkswagen CEO Matthias Mueller wrote Dobrindt on Thursday in a letter obtained by Bloomberg. “Such a unified procedure would be in the European spirit as well as in the interests of customers.” Volkswagen must share technical details of its fix with authorities by mid-November, and the recall will begin in January.

The KBA will test vehicles to ensure the repairs were successful, Dobrindt said. New parts necessary to fix some vehicles will probably be ready by next September, he said. Throughout Europe, Dobrindt has estimated that Volkswagen will probably need to exchange or rebuild parts for about 3.6 million engines. For the sake of customers and the image of the automobile, “we will clear up what happened at Volkswagen,” Enak Ferlemann, state secretary in Germany’s Transport Ministry, said. “Germany will stay the No. 1 auto country.”

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Agressive prosecutor?!

US Pursues Several Paths in Volkswagen Probe (WSJ)

The U.S. attorney’s office in Detroit and the Justice Department’s Fraud Section joined a sweeping federal probe of Volkswagen AG over emissions-test cheating, according to people familiar with the matter, signaling the government’s intent to cast a broad net and explore numerous paths to a possible criminal case. The number of federal offices now involved in the Volkswagen case suggests an investigation could target the German auto maker and its employees for alleged offenses ranging from pollution to misleading government officials to claims made to consumers. The Federal Trade Commission, which investigates fraudulent advertising, confirmed its involvement, suggesting a focus on potentially misleading claims regarding the emissions.

The involvement of the U.S. attorney in Detroit, Barbara McQuade, signals her office may take a significant role in what is expected to be a major case. Ms. McQuade has a reputation as an aggressive prosecutor, having won a corruption case against former Detroit Mayor Kwame Kilpatrick. In sprawling investigations like the Volkswagen probe, the Justice Department has a choice of which prosecutor to assign. David Uhlmann, formerly a top environmental crimes prosecutor who is now a law professor at the University of Michigan, said the number of government offices involved suggested the case would be “of national significance,” with any settlement likely to reach into the billions of dollars.

The federal investigation now includes the Detroit office of the Federal Bureau of Investigation and the Justice Department’s Environment and Natural Resources Division, which investigated BP after the Deepwater Horizon oil spill, people familiar with the probe said. The EPA, which in September disclosed the auto maker’s cheating, could hit Volkswagen with more than $18 billion in fines based on the number of vehicles involved, though it isn’t clear whether the agency will pursue such a large penalty. [..] Europe’s largest auto maker faces not only aggressive investigations by European and U.S. authorities, but also class-action lawsuits from aggrieved customers. Prosecutors in Germany earlier this month raided Volkswagen offices and private homes as part of a criminal inquiry there.

The EPA alleged last month that Volkswagen had violated two parts of the U.S. Clean Air Act. That law exempts auto makers from criminal penalties for illegal pollution, but it does criminalize the conveying of false information to regulators. [..] Federal prosecutors have recently turned to other laws to charge auto makers with crimes. The Justice Department charged GM and Toyota with wire fraud for concealing information on safety defects. In the GM case, prosecutors also used a section of the U.S. code that can hold companies broadly accountable for misleading government officials.

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Dare they set a precedent?

Treasury Considers Plan to Help Puerto Rico (NY Times)

Officials in the Treasury Department are discussing a radical and aggressive response to the fiscal chaos engulfing Puerto Rico that could involve a broad debt exchange assisted by the federal government. The proposal calls for the federal government to help Puerto Rico collect and account for local tax revenues from the island’s businesses and residents, according to people briefed on the matter who spoke on the condition of anonymity because they were not authorized to publicly discuss the proposal. An inability to collect all the taxes owed is widely seen as contributing to Puerto Rico’s debt crisis. The tax proceeds would be placed in a “lockbox” overseen by the Treasury and eventually paid out by the Treasury to the holders of the new bonds that Puerto Rico would issue in the proposed exchange.

Since the Treasury would effectively become the paying agent for the new bonds, they would be more attractive than the bonds that creditors now hold. That would make it easier for Puerto Rico to exchange the new debt with creditors who hold bonds that have been devastated in value since the island warned this summer that it could not pay its debts. The proposal has logistical, political and legal challenges, however, and may never get off the ground. “Right now, Puerto Ricans don’t even like to pay taxes to their own government,” said one person with knowledge of the discussions. If the I.R.S. were to suddenly replace the local tax authorities and try to gather up the money for debt service, “people would say, ‘Go to hell. I’m not paying the U.S. government.’ ”

But the fact that such an unusual idea has been floated between the Treasury and top finance officials from Puerto Rico in recent months suggests a sharp shift in Washington’s approach to the island’s economic crisis. Without addressing the proposal directly, officials from the Treasury said in a statement that it had “no plans to provide a bailout to Puerto Rico.” Until now, the Treasury has provided mostly technical assistance to island officials, while the Republican leaders in Congress have expressed strong reservations about bailing out Puerto Rico. The island’s first choice appears to be a bankruptcy law amendment that would allow the island to send some of its governmental bodies into Chapter 9 municipal bankruptcy court. But bills introduced to that effect have not moved..

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“Lenders extended low interest credit to wildcatters desperate for cash, then—perhaps remembering the 1980s oil bust—wheeled the debt off their books by selling new stocks and bonds to investors, earning sizable fees along the way. ”

Oil Is Killing the Drillers, and the Banks Want Their Cash Back Now (Bloomberg)

When Whiting Petroleum needed cash earlier this year as oil prices plummeted, JPMorgan Chase, its lead lender, found investors willing to step in. The bank helped Whiting sell $3.1 billion in stocks and bonds in March. Whiting used almost all the money to repay the $2.9 billion it owed JPMorgan and its 25 other lenders. The proceeds also covered the $45 million in fees Whiting paid to get the deal done, regulatory filings show. Analysts expect Whiting, one of the largest producers in North Dakota’s Bakken shale basin, to spend almost $1 billion more than it earns from oil and gas this year. The company has sold $300 million in assets, reduced the number of rigs drilling for oil to eight from a high of 24, and announced plans to cut spending by $1 billion next year.

Eric Hagen, a Whiting spokesman, says the company has “demonstrated that it is taking appropriate steps to manage within the current oil price environment.” Whiting has said it will be in a position next year to have its capital spending of $1 billion equal its cash flows with an oil price of $50 a barrel. As for Whiting’s investors, the stock is down 36%, as of Oct. 14, since the March issue, and the new bonds are trading at 94¢ on the dollar. More than 73% of the stocks and bonds issued this year by oil and gas producers are worth less today than when they were sold. Banks’ sell-the-risk strategy underpins the shale oil boom. Lenders extended low interest credit to wildcatters desperate for cash, then—perhaps remembering the 1980s oil bust—wheeled the debt off their books by selling new stocks and bonds to investors, earning sizable fees along the way.

“Everyone in the chain was making money in the short term,” says Louis Meyer at Oscar Gruss. “And no one was thinking long term about what they’re going to do if prices fall.” North American oil and gas producers have sold $61.5 billion in equity and debt since January, paying more than $700 million in fees. Half the money was raised to repay loans or restructure debt, the data show. “Being there for our clients in all market environments, particularly the tough ones, is something we feel very strongly about,” says Brian Marchiony, a JPMorgan spokesman. “During challenging periods, companies typically look to strengthen their balance sheets and increase liquidity, and we have helped many do just that.”

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My, are we surprised.

Billions Are Laundered Through British Banks, Treasury Admits (Times)

Investigations into corrupt cash flowing through Britain barely scratch the surface of the problem, the first official report on the scale of money laundering revealed yesterday. The national risk assessment, published by the Treasury, said “hundreds of billions of pounds of international criminal money” is laundered through British banks every year. Investigations into international corruption by the National Crime Agency covered cases limited to “millions of pounds of assets in the UK . . . and financial flows that span the globe”, it added. The publication of the risk assessment forms part of the government’s anti-corruption agenda, which saw the prime minister warn this summer of the threat to the British economy and the City of London posed by “dirty money”.

Much more work was required, the report’s authors admitted, if Britain was to create a “hostile environment for illicit finance”. They wrote: “The assessment shows that the collective knowledge of UK law enforcement agencies, supervisors and the private sector of money laundering and terrorist financing risks is not yet sufficiently advanced.” The campaign group Transparency International said the report was “a clear and unambiguous recognition of the risks posed by money laundering in the UK and the weaknesses in the UK’s system for detecting illicit and corrupt money flowing into a wide range of sectors”.

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“..under Bank of England rules on the separation of retail operations from riskier investment banking.”

UK Banks May Need $5.1 Billion of Capital for Ring-Fencing (Bloomberg)

The U.K.’s largest banks may face higher capital requirements under Bank of England rules on the separation of retail operations from riskier investment banking. The BOE’s Prudential Regulation Authority estimates that so-called ring-fencing could mean an additional capital requirement of £2.2 billion pounds ($3.4 billion) to £3.3 billion pounds by 2019, when the rules kick in. The move is aimed at ensuring that financial services crucial to the U.K. economy, such as deposit-taking, payments and overdrafts, will be protected if riskier units incur losses and have to be shut down.

The additional burden is due to the protected unit being measured on a standalone basis for its capital needs. In addition, any transactions between the ring-fenced unit and other parts of the institution will be classed as third-party deals, meaning capital will have to be held against them. “The PRA recognizes that applying this approach may result in increased capital requirements for some firms,” it said in a consultation paper published in London on Thursday. The rules will probably apply to HSBC RBS, Lloyds, Barclays, Santander and Co-operative Bank.

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A second Snowden.

The Drone Papers: The Assassination Complex (Intercept)

Drones are a tool, not a policy. The policy is assassination. While every president since Gerald Ford has upheld an executive order banning assassinations by U.S. personnel, Congress has avoided legislating the issue or even defining the word “assassination.” This has allowed proponents of the drone wars to rebrand assassinations with more palatable characterizations, such as the term du jour, “targeted killings.” When the Obama administration has discussed drone strikes publicly, it has offered assurances that such operations are a more precise alternative to boots on the ground and are authorized only when an “imminent” threat is present and there is “near certainty” that the intended target will be eliminated.

Those terms, however, appear to have been bluntly redefined to bear almost no resemblance to their commonly understood meanings. The first drone strike outside of a declared war zone was conducted more than 12 years ago, yet it was not until May 2013 that the White House released a set of standards and procedures for conducting such strikes. Those guidelines offered little specificity, asserting that the U.S. would only conduct a lethal strike outside of an “area of active hostilities” if a target represents a “continuing, imminent threat to U.S. persons,” without providing any sense of the internal process used to determine whether a suspect should be killed without being indicted or tried. The implicit message on drone strikes from the Obama administration has been one of trust, but don’t verify.

The Intercept has obtained a cache of secret slides that provides a window into the inner workings of the U.S. military’s kill/capture operations at a key time in the evolution of the drone wars — between 2011 and 2013. The documents, which also outline the internal views of special operations forces on the shortcomings and flaws of the drone program, were provided by a source within the intelligence community who worked on the types of operations and programs described in the slides. The Intercept granted the source’s request for anonymity because the materials are classified and because the U.S. government has engaged in aggressive prosecution of whistleblowers. The stories in this series will refer to the source as “the source.”

The source said he decided to provide these documents to The Intercept because he believes the public has a right to understand the process by which people are placed on kill lists and ultimately assassinated on orders from the highest echelons of the U.S. government. “This outrageous explosion of watchlisting — of monitoring people and racking and stacking them on lists, assigning them numbers, assigning them ‘baseball cards,’ assigning them death sentences without notice, on a worldwide battlefield — it was, from the very first instance, wrong,” the source said.

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What goood would that do?

‘Drone Papers’ Revelations Mandate a Congressional Investigation (FP)

This morning, the reporting team at the Intercept published an impressive eight-part series on the policies and processes of U.S. drone strikes, called “The Drone Papers.” Some of the newly reported information is purportedly based upon “a cache of secret slides that provides a window into the inner workings of the U.S. military’s kill/capture operations … between 2011 and 2013.” Intercept journalist Jeremy Scahill writes that the slides “were provided by a source within the intelligence community.” [..] this reporting could awaken or reintroduce interested readers to how the U.S. national security apparatus has thought about and conducted counterterrorism operations since 9/11. The reporting is less one big “bombshell” and more of a synthesis of over a decade’s worth of reporting and analysis, bolstered by troubling new revelations about what has become routine. [..]

The Intercept series, at a minimum, reconfirms and illuminates much of what we knew, thought we knew, or suspected about drone strikes. For example, there is “not a bunch of folks in a room somewhere just making decisions,” as President Barack Obama put it in 2012, but indeed a clear chain of command that is displayed in a slide with the heading: “Step 1 — ‘Developing a target’ to ‘Authorization of a target.’” Also, it is clear that the Obama administration strongly prefers killing suspected terrorists rather than capturing them, despite claiming the opposite. Additionally, it is evident that the military and intelligence communities do not have the intelligence, surveillance, and reconnaissance platforms that they claim they need.

Finally, the documents support that military commanders have a strong bias against seemingly endless and pointless drone strikes, strongly preferring a “find, fix, finish, exploit, analyze, and disseminate” (F3EAD) approach, which allows a command staff to continuously improve its situational awareness of an environment through capturing and interrogating suspected militants and terrorists. As one secret study declares: “Kill operations significantly reduce the intelligence available from detainees and captured materials.” One military official described to me the normalcy of killing with drones in 2012, saying, “It really is like swatting flies. We can do it forever easily and you feel nothing. But how often do you really think about killing a fly?”

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Chafee: “That’s what the federal courts have said; what Snowden did showed that the American government was acting illegally for the Fourth Amendment. So I would bring him home.”

The Multitude Of False Statements In Hillary’s Snowden Answer (New Yorker)

I’ve already given my instant verdict on Tuesday night’s Democratic debate: in terms of the horse race, Hillary Clinton was the clear winner, although Bernie Sanders also did pretty well. But it was a long discussion about serious issues, and some of the exchanges bear closer inspection—including the one about Edward Snowden, the former National Security Agency contractor who is currently languishing in Russia. The exchange began with host Anderson Cooper asking Lincoln Chafee, a former governor of Rhode Island, “Governor Chafee: Edward Snowden, is he a traitor or a hero?” Chafee replied that he would bring Snowden home without forcing him to serve any jail time. “The American government was acting illegally,” he continued. “That’s what the federal courts have said; what Snowden did showed that the American government was acting illegally for the Fourth Amendment. So I would bring him home.”

Chafee was stating a truth. In May of this year, a three-judge panel at the U.S. Court of Appeals for the Second Circuit, in Manhattan, ruled that the N.S.A., in routinely collecting the phone records of millions of Americans—an intelligence program that Snowden exposed in 2013—broke the law of the land. The Patriot Act did not authorize the government to gather calling records in bulk, the judges said. “Such expansive development of government repositories of formerly private records would be an unprecedented contraction of the privacy expectations of all Americans,” the decision read. The ruling overturned one that had been handed down in December, 2013, in which a federal judge, William Pauley, said that the N.S.A.’s collection of metadata was legal. After Chafee spoke, Cooper turned to Hillary Clinton and asked, “Secretary Clinton, hero or traitor?”

Clinton, who earlier in the debate had described herself as “a progressive who likes to get things done,” replied, “He broke the laws of the United States. He could have been a whistle-blower. He could have gotten all of the protections of being a whistle-blower. He could have raised all the issues that he has raised. And I think there would have been a positive response to that.” “Should he do jail time?” Cooper asked, to which Clinton replied, “In addition—in addition, he stole very important information that has unfortunately fallen into a lot of the wrong hands. So I don’t think he should be brought home without facing the music.” From a civil-liberties perspective—and a factual perspective—Clinton’s answers were disturbing enough that they warrant parsing.

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This should have been done at least a year ago.

Merkel Prepares Germans for Historic Challenge of Refugee Crisis (Bloomberg)

German Chancellor Angela Merkel, facing growing criticism from within her own party for her handling of the refugee crisis, urged lawmakers to prepare for the long haul as asylum seekers continue to surge into Europe. “It’s not an exaggeration to describe this task as a historic test for Europe,” Merkel said in a speech to parliament in Berlin Thursday ahead of a European Union summit. “I expect from this council that everyone does his part.” The chancellor, who was lambasted at a town-hall event Wednesday by members of her party accusing her of encouraging migration and failing to control the nation’s borders, also called on fellow legislators to back proposals to provide additional funding for refugees and tighten the country’s asylum rules. “I’ve said that we need to give every person a friendly welcome. And I’m not changing my mind on that.”

With Germany expecting at least 800,000 refugees and migrants this year, including many from Syria, Merkel is bucking pressure from political allies and the public to shift her principled stance and limit the influx. After a decade in power, Europe’s biggest refugee crisis since World War II has the chancellor on the defensive as she urges other EU countries to do more to share the burden. The outbursts at a meeting of her Christian Democratic Union on Wednesday offer a snapshot of public resistance to Merkel’s open-door policy that’s eroding her poll ratings and voter support for her party. Audience members at the two-hour event in eastern Germany accused the chancellor of failing to do her job, portrayed refugees as ingrates and blamed the crush of arrivals for a housing shortage in the nearby city of Leipzig.

“This is the biggest task I’ve faced in my life as chancellor,” responded Merkel, who earlier told the audience that human dignity is universal and sought to put the refugee crisis in an international context. “I know that it’s a difficult situation. But I wouldn’t give up. Let us be confident and optimistic.” Several lawmakers in Merkel’s 311-member parliamentary group in Berlin criticized her at a closed meeting on Tuesday for failing to stem the influx, prompting her to respond that a refugee quota is impossible to set, according to two party officials who attended. Merkel said Thursday that confronting the migrant crisis will require a global approach that includes working to solve the conflict in Syria and aiding Turkey, where she will travel over the weekend, to stem the flow of refugees.

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Tusk puts things on their head: “If we are not able to find humanitarian and efficient solutions then others will find solutions which are inhuman, nationalistic and, for sure, not European..” Reality is, the EU has already created an inhuman situation simply by doing nothing.

EU Bid to Stem Refugee Influx Stalls on How Much to Give Turkey (Bloomberg)

European leaders failed to reach a final agreement on recruiting Turkey to help stem the flow of refugees from the Middle East, with some eastern member states dragging their heels over how much aid to grant their neighbor. Angela Merkel told a news conference that the European Union had a draft accord with Turkey on curtailing the flow of migrants and refugees. She said the figure of €3 billion in EU aid to Turkey was discussed at a summit in Brussels, but that the issue had yet to win full support from the 28-nation bloc. With more than a million migrants set to reach the EU in 2015 and Russian bombing raids on Syria threatening even greater flows for next year, some member states are recoiling at the sacrifices they’ll have to force on their voters.

The summit underscored the challenge facing the EU with the leaders attempting to woo Turkey, already harboring more than 2 million refugees itself, after cold-shouldering the country’s requests to join the bloc for the past decade. “If we are not able to find humanitarian and efficient solutions then others will find solutions which are inhuman, nationalistic and, for sure, not European,” EU President Donald Tusk said at a news conference after the meeting. The day that ended with a stalemate over money had begun with Merkel calling on her EU partners to pay their share of the costs of helping refugees. Afterward the chancellor described the progress made in cautious terms, saying that “outlines of cooperation” with Turkey were becoming “quite visible.”

Turkey has spent more than €7 billion euros on refugees in the last three or four years, Merkel noted, so the EU helping out was “burden-sharing.” She said there was “a general sense” among leaders that it was right “to shelter refugees closer to their home rather than financing them here in our own countries.” While the member states agreed to send hundreds more border guards to help Frontex and other joint agencies patrolling the bloc’s borders, leaders made little progress on how to redesign the system of distributing immigrants, forming an EU border guard corps or on how to ensure arrivals are properly processed. “These are all divisive issues and the goal today was to have the first serious exchange,” Tusk said.

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Mass tort.

US Lawsuits Build Against Monsanto Over Alleged Roundup Cancer Link (Reuters)

Personal injury law firms around the United States are lining up plaintiffs for what they say could be “mass tort” actions against agrichemical giant Monsanto that claim the company’s Roundup herbicide has caused cancer in farm workers and others exposed to the chemical. The latest lawsuit was filed Wednesday in Delaware Superior Court by three law firms representing three plaintiffs. The lawsuit is similar to others filed last month in New York and California accusing Monsanto of long knowing that the main ingredient in Roundup, glyphosate, was hazardous to human health. Monsanto “led a prolonged campaign of misinformation to convince government agencies, farmers and the general population that Roundup was safe,” the lawsuit states.

The litigation follows the World Health Organization’s declaration in March that there was sufficient evidence to classify glyphosate as “probably carcinogenic to humans.” “We can prove that Monsanto knew about the dangers of glyphosate,” said Michael McDivitt, whose Colorado-based law firm is putting together cases for 50 individuals. “There are a lot of studies showing glyphosate causes these cancers.” The firm held town hall gatherings in August in Kansas, Missouri, Iowa and Nebraska seeking clients. Monsanto said the WHO classification is wrong and that glyphosate is among the safest pesticides on the planet. “Glyphosate is not a carcinogen,” company spokeswoman Charla Lord said.

“The most extensive worldwide human health databases ever compiled on an agricultural product contradict the claims in the suits.” Roundup is used by farmers, homeowners and others around the globe and brought Monsanto $4.8 billion in revenue in its fiscal 2015. But questions about Roundup’s safety have dogged the company for years. Attorneys who have filed or are eying litigation cited strong evidence that links glyphosate to non-Hodgkin lymphoma (NHL). They said claims will likely be pursued collaboratively as mass tort actions. To find plaintiffs, the Baltimore firm of Saiontz & Kirk advertises a “free Roundup lawsuit evaluation” on its website. The Washington, D.C. firm Schmidt & Clark is doing the same, as are other firms in Texas, Colorado and California.

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Oct 142015
 
 October 14, 2015  Posted by at 8:43 am Finance Tagged with: , , , , , , , , ,  6 Responses »


NPC Ford Motor Co. coal truck, Washington, DC 1925

China Producer Prices Down -5.9%, 43rd Straight Month of Declines (Reuters)
The Next China Default Could Be Days Away as Steel Firms Suffer (Bloomberg)
CLSA Just Stumbled On The Bad Debt Neutron Bomb In China’s Banking System (ZH)
Denominated In USD, The World Is Already In A Recession: HSBC (Zero Hedge)
Citi’s Buiter: World Faces Recession Next Year (CNBC)
JPMorgan’s Earnings Miss May Signal Gloomy Quarter for Banks (The Street)
JPMorgan Misses Across The Board On Disappointing Earnings, Outlook (ZH)
Goldman: This Is The Third Wave Of The Financial Crisis (CNBC)
How Troubles in the Bond Market Could Impact Stocks: UBS (Bloomberg)
Russia Abandons Hope Of Oil Price Recovery And Turns To The Plough (AEP)
Oil Price Slide Means ‘Almost Everything’ Is For Sale (Bloomberg)
Oil Unlikely To Ever Be Fully Exploited Because Of Climate Concerns (Guardian)
Vladimir Putin Condemns US For Refusing To Share Syria Terror Targets (AEP)
I Didn’t Think TTIP Could Get Any Scarier, But Then.. (John Hilary)
Greek Corporate Profits Fell 86% In Five Years (Kath.)
Goldman Entangled in Scandal at Malaysia Fund 1MDB (WSJ)
#DeutscheBank Full Of Holes (Beppe Grillo)
Solid Growth Is Harder Than Blowing Bubbles (Martin Wolf)
15 Reminders That China Is Completely Unpredictable (Michael Johnston)
A German Manifesto Against Austerity (NewEurope)
Rupert Murdoch Is Deviant Scum (Matt Taibbi)
Half Of World’s Wealth Now In Hands Of 1% Of Population (Guardian)

China’s main export is now deflation. This comes on top of the deflation the west ‘produces’ on its own.

China Producer Prices Down -5.9%, 43rd Straight Month of Declines (Reuters)

Consumer inflation in China cooled more than expected in September while producer prices extended their slide to a 43rd straight month, adding to concerns about deflationary pressures in the world’s second-largest economy. The consumer price index (CPI) rose 1.6% in September from a year earlier, the National Bureau of Statistics (NBS) said on Wednesday, lower than expectations of 1.8% and down from August’s 2.0%. In a sign of sluggish demand, the non-food CPI was even milder with an annual growth rate of 1.0% in September, the NBS data showed. The easing CPI was mainly due to a high comparison base last year, Yu Qiumei, a senior NBS statistician, said in a statement accompanying the data. CPI rose 0.5% month-on-month in September 2014, compared to a 0.1% growth last month.

Reflecting growing strains on Chinese companies from persistently weak demand and overcapacity, manufacturers continued to cut selling prices to win business. The producer price index (PPI) fell 5.9% from a year ago, in line with the expectations and the same rate of decline as in August, which was the biggest drop since the depths of the global financial crisis in 2009. “Overall, the still weak PPI highlights the severe overcapacity problem and sluggish domestic investment demand,” said economists at Nomura. “Given the lacklustre growth outlook, we continue to expect moderate fiscal stimulus from the central government and continued monetary easing.”

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How to sum up Chinese economy: Overinvested in overcapacity.

The Next China Default Could Be Days Away as Steel Firms Suffer (Bloomberg)

Another week, another Chinese debt guessing game. This time it’s the steel industry’s turn, as investors wonder if a potential bond default by Sinosteel Co. is an omen of things to come amid slowing demand for the metal used in everything from cars to construction. The state-owned steel trader, whose parent warned of financial stress last year, may have to honor 2 billion yuan ($315 million) of principal next Tuesday when bondholders can exercise an option forcing the notes’ redemption two years before they mature. If that should happen, China Merchants Securities thinks the firm will struggle to repay. A default would be the first by a Chinese steel company in the local bond market, which has had five missed payments this year, according to China International Capital Corp. Premier Li Keqiang is allowing more defaults to weed out the weakest firms as he seeks to rebalance a slowing economy.

Steel issuers’ revenue fell about 20% in the first half from a year earlier and over half of the firms suffered losses, according to China Investment Securities Co. “Sinosteel’s default risks are very high,” said Sun Binbin, a bond analyst at China Merchants Securities in Shanghai. “If there is no external help, its own financials won’t allow them to repay the bonds if investors exercise the option to sell.” China’s demand for steel will probably shrink 3.5% this year and another 2% in 2016 after consumption peaked in 2013, the World Steel Association said this week. That followed an Oct. 8 report from Xinhua saying that Haixin Iron & Steel Group, the largest private steel firm in north China, plans to restructure after filing for bankruptcy. “Given the serious overcapacity problem and fluctuations in commodity prices, more steel companies may have losses,” said Zhang Chao at China Investment Securities in Shenzhen. “More steel companies, including state-owned companies, may default.”

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10% of Chinese bank loans are non-performing, i.e. need to be written down/off.

CLSA Just Stumbled On The Bad Debt Neutron Bomb In China’s Banking System (ZH)

Over the weekend, Hong-Kong based CLSA decided to take this micro-level data and look at it from the top-down. What it found was stunning. According to CLSA estimates, Chinese banks’ bad debts ratio could be as high 8.1% a whopping 6 times higher than the official 1.5% NPL level reported by China’s banking regulator! As Reuters reports, the estimate is based on analysis of outstanding debts for more than 2700 A-share companies (ex-financials) and their ability to repay loans. Or in other words, if one backs into the true bad debt, not the number given for window dressing purposes by Chinese “regulators”, based on collapsing cash flows, what one gets is a NPL that is nearly 10% of all outstanding Chinese debt.

[..] If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 8% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $1 trillion. In other words, while China has been injecting incremental liquidity into the system and stubbornly getting no results for it leading experts everywhere to wonder just where all this money is going, the real reason for the lack of a credit impulse is that banks have been quietly soaking up the funds not to lend them out, but to plug a gargantuan, $1 trillion, solvency shortfall which amounts to 10% of China’s GDP!

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What really counts: “Global trade is also declining at an alarming pace.”

Denominated In USD, The World Is Already In A Recession: HSBC (Zero Hedge)

One of the things you might have noticed if you follow trends in global growth and trade, is that the entire world seems to be decelerating in tandem with China’s hard landing (which most recently manifested itself in another negative imports print). For evidence of this, one might look to the WTO, whose chief economist Robert Koopman recently opined that “it’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing.” And then there’s the OECD, which recently slashed its global growth forecasts. The ADB joined the party as well, citing China, soft commodity prices, and a strong dollar on the way to cutting its regional outlook. Even Citi has jumped on the bandwagon with Willem Buiter calling for better than even odds of a worldwide downturn.

Indeed, virtually anyone you talk to will tell you that the world looks to have entered a new era post-crisis that’s defined by a less robust global economy. Those paying attention will also tell you that this dynamic may well end up being structural and endemic rather than transitory. Earlier today, we noted that Credit Suisse’s latest global wealth outlook shows that dollar strength led to the first decline in total global wealth (which fell by $12.4 trillion to $250.1 trillion) since 2007-2008. Interestingly, a new chart from HSBC shows that when you combine the concepts outlined above, you learn that when denominated in USD, the world is already in an output recession.

Some color from HSBC: “We are already in a global USD recession. Global trade is also declining at an alarming pace. According to the latest data available in June the year on year change is -8.4%. To find periods of equivalent declines we only really find recessionary periods. This is an interesting point. On one metric we are already in a recession. [..] global GDP expressed in US dollars is already negative to the tune of USD1,37trn or -3.4%. That is, we are already in a dollar recession. We arrived at these numbers by converting global GDP into USD terms and then looking at the change in GDP. True, this highlights to a large extent the impact of a stronger dollar – which may be unfair, but the US dollar is still the world’s reference currency. However, it highlights that from a US perspective the global growth outlook is rather challenging. It also highlights how damaging a very strong dollar can be for global growth.

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It already is.

Citi’s Buiter: World Faces Recession Next Year (CNBC)

The global economy faces a period of contraction and declining trade next year as emerging nations struggle with tightening monetary policy, according to Citigroup’s Chief Economist Willem Buiter. Buiter reiterated his gloomy prediction at the Milken Institute London Summit on Tuesday, telling CNBC that China, Brazil and Russia are edging towards an economic downturn. “(The slowdown) is not confined to China by any means,” he said. “The policy arsenal in the advanced economies is unfortunately very depleted, debt is still higher in the non-financial sector than it was in 2007. So we are really sitting in the sea watching the tide go out and not really able to respond effectively to the way we should.”

Buiter predicts that global growth, at the market exchange rate, will fall below 2% and will lead to rising unemployment in many of the emerging markets, as well as a number of the advanced economies. He added that countries like the U.S. and the U.K. might not feel the full effects of a recession but said that global growth would be “well below trend” with a “widening output gap.” He said there would a whole range of other “dysfunctionalities” that have been building up since the global financial crash of 2008. Global markets were roiled in September after a devaluation of the yuan by Chinese authorities led to heavy bouts of volatility for mainland Chinese shares. Investors worldwide are growing increasingly concerned about slowing growth in the world’s second largest economy and question how a rate hike by the Fed could affect the international flow of capital.

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Running out of gimmicks: “..the earnings expectations have been taken down so greatly that if you miss, you are going to be punished – particularly on the revenue numbers..”

JPMorgan’s Earnings Miss May Signal Gloomy Quarter for Banks (The Street)

JPMorgan Chase posted lower profit than analysts estimated after revenue in both consumer and commercial banking businesses declined in the three months through September. The New York bank’s third-quarter profit of $1.32 a share lagged behind the $1.37 average estimate from analysts, while sales of $23.5 billion came in under an estimate of $23.7 billion. For finance companies, “the earnings expectations have been taken down so greatly that if you miss, you are going to be punished – particularly on the revenue numbers,” JJ Kinahan, chief market strategist with TD Ameritrade, said before the bank released its results.

Net revenue in the community banking unit dropped 4% to $10.9 billion, as sales declined in consumer banking and income dropped 6% in the card, commerce solutions and auto segment, the bank said in a statement. In commercial banking, revenue fell 3% to $1.6 billion amid tighter yields on loans and deposits and a decline in investment banking sales. JPMorgan was the first of the universal banks to report third-quarter earnings, and its performance may be an indication of how the others will perform, particularly in trading businesses. The bank’s equity-trading revenue climbed 9% while revenue from fixed income, currencies, and commodities trading declined 11% from a year earlier. The net result was a 6% drop in trading revenue for the quarter.

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“Perhaps the US does not need NIRP: it appears banks like JPM are simply saying NO to deposits.”

JPMorgan Misses Across The Board On Disappointing Earnings, Outlook (ZH)

Maybe we now know why JPM decided to release results after market close instead of, as it always does, before the open: simply said, the results were lousy top to bottom, the company resorted to its old income-generating “gimmicks”, it charged off far less in risk loans than many expected it would, and its outlook while hardly as bad as it was a quarter ago, was once again dour. First, the summary results, in which JPM saw $23.5 billion in non-GAAP net revenues, because yes, JPM has a pre-GAAP “reported revenue” item which was even lower at $22.8 billion… missing consensus by $500 million, down $1 billion or 6.4% from a year ago. While the Net Income at first sight seemed to be a beat, printing at $1.68, this was entirely due to addbacks and tax benefits, which amounts to a 31 cent boost to the bottom line, while for the first time, JPM decided to admit that reserve releases are nothing but a gimmick, and broke out the contribution to EPS, which added another $0.05 to the bottom line.

There were two surprises here: first, JPM’s legal headaches continue, and the firm spent another $1.3 billion on legal fees during the quarter – one assumes to put the finishing touches on the currency rigging settlement. Also, as noted above, instead of taking a credit charge, i.e., increasing reserve releases, JPM resorted to this age-old gimmick, and boosted its book “profit” by $450 million thanks to loan loss reserve releases, the most yet in 2015; ironically this comes as a time when JPM competitors such as Jefferies are taking huge charge offs on existing debt. It appears JPM is merely doing what Jefferies did for quarters, and is hoping the market rebounds enough for it to not have to mark its trading book to market.

While the release of reserves helped JPM in this quarter, unless the economy picks up substantially next quarter, JPM’s EPS will be hammered not only from the top line, but also from the long-overdue rebuilding of its reserves which will have to come sooner or later. Completing the big picture, was something rather troubling we first noticed last quarter: JPM’s aggressive push to deleverage its balance sheet, by unwinding billions in deposits. Indeed, as the bank admits, it has now shrunk its balance sheet by a whopping $156 billion in 2015, driven by a massive reduction in “non-operating deposits” of over $150 billion. Perhaps the US does not need NIRP: it appears banks like JPM are simply saying NO to deposits.

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They’re right, but not for the right reasons.

Goldman: This Is The Third Wave Of The Financial Crisis (CNBC)

Emerging markets aren’t just suffering through another market route, it’s a third wave of the global financial crisis, Goldman Sachs said. “Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher U.S. interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis,” Goldman said in a note dated last week. The emerging market wave, coinciding with the collapse in commodity prices, follows the U.S. stage, which marked the fallout from the housing crash, and the European stage, when the U.S. crisis spread to the continent’s sovereign debt, the bank said.

Concerns that the U.S. Federal Reserve would raise interest rates for the first time in nine years spurred a massive outflow of funds from emerging markets, including Asia’s, recently. But the Fed meeting on September 16-17 surprised markets by leaving rates unchanged and many analysts moved their forecasts for the next hike back into next year. That’s helped to stabilize hard-hit markets and currencies, but some analysts expect that’s just a temporary reprieve. One of the reasons Goldman is concerned about emerging markets is that lower interest rates globally have fueled credit growth and a debt buildup, especially in China, and that’s likely to impede future economic growth.

Goldman noted that downgrades for emerging market economic and earnings outlooks have spurred fears of a “secular stagnation” of permanently low interest rates and fading equity returns. But it added that those fears are overdone. “Much of the weakness in emerging markets and China is likely to reflect rebalancing of economic growth, rather than structural impairment,” it said. “While the adjustment is likely to take time (as it did in the U.S. and European Waves), it should lead to an unwinding of economic imbalances in time, providing the platform for ‘normalization’ in economic activity, profits and interest rates.” But when it comes to equity returns, Goldman doesn’t necessarily expect emerging markets will regain all their lost luster. “The fundamental shift in relative performance away from emerging-market to developed-market equity markets, and from producers (and capex beneficiaries) to consumers is likely to continue,” it said.

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All down to liquidity. And deflation.

How Troubles in the Bond Market Could Impact Stocks: UBS (Bloomberg)

Sell what you can, not what you want, goes the old markets adage. Analysts at UBS appear to have taken that strategy to heart with a new note detailing the stocks that could come under pressure in the event of a big squeeze in junk-rated bonds issued by companies with weaker balance sheets. The idea here is that the hybrid mutual funds carrying big portfolios of both debt and equities could be hard hit in the event of a long-awaited liquidity crunch that sparks turmoil in the corporate bond market. In that scenario, such funds might find themselves having to meet redemption requests by selling more liquid assets from their portfolios, such as stocks and U.S. Treasuries, as opposed to harder-to-trade corporate bonds.

In February we highlighted the risk that mutual funds were likely to be one means by which contagion from a sell-off in U.S. high yield would spread to other asset classes … Unlike the other two credit-equity links, which are a higher cost of capital for junk-rated heavily levered small caps and a general reduction in risk appetite, it turns out that the mutual fund link directly affects large-cap highly-rated equity. Here we go deeper into the question of exactly which equities are likely to be affected if the US high yield credit market suffers a liquidity crunch. Analysts Ramin Nakisa, Stephen Caprio and Matthew Mish point out that hybrid mutual funds and exchange-traded funds, “whose investors have no allegiance to asset class” now hold a sizable chunk of both bonds and equities. In fact, the breakdown of assets in this mercenary mutual funds looks something like this:

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Russia can ‘rethink’ its economy. Saudi Arabia can not. Nor can North Dakota, or Alberta.

Russia Abandons Hope Of Oil Price Recovery And Turns To The Plough (AEP)

Russia has abandoned hopes for a lasting recovery in oil prices, bracing for a new era of abundant crude as US shale production transforms the global energy market. The Kremlin has launched a radical shift in strategy, rationing funds for the once-sacrosanct oil and gas industry and relying instead on a revival of manufacturing and farming, driven by a much more competitive rouble. “We have to have prudent forecasts. Our budget is based very conservative assumptions of oil at around $50 a barrel,” said Vladimir Putin, the Russian president. “It is no secret that if the price goes down, investment peters out and disappears,” he told a group of investors at VTB Capital’s ‘Russia Calling!’ forum in Moscow.

The Russian finance minister, Anton Siluanov, said over-reliance on oil and gas over the last decade had been a fundamental error, leading to an overvalued currency and the slow death of other industries in a textbook case of the Dutch Disease. “We should stop caring so much about the oil industry and leave more space for others. We have to take very tough decisions and redistribute our resources,” he said. The new $50 benchmark for oil is even lower than the Russian central bank’s “extreme scenario” of $60 first prepared last year. The new realism has forced the Kremlin to ditch a raft of budget commitments and to stop topping up the pension reserve fund. Oil and gas taxes make up half the state’s revenue, and almost 70pc of Russia’s exports.

Igor Sechin, chairman of Russia’s oil giant Rosneft, accused the government of turning its back on the energy industry, lamenting that his company is being throttled by high taxes. He warned that the Russia oil sector will slowly shrivel unless there is a change of policy. Mr Sechin said Russia’s oil companies are already facing “negative free cash flow”. They face an erosion in output of up to 6pc over the next three years as the Soviet-era fields in Western Siberia go into decline. “You have to maintain investment,” he said Rosneft, the world’s biggest traded oil company, is facing taxes and export duties that amount to a marginal rate of 82pc on revenues. “This is enormous, it’s unbelievable. The attractiveness of the oil industry is all about tax rates,” he said. He stated caustically that the government cannot seem to make up its mind how to tackle the economic crisis, openly attacking ministers sitting next to him at the VTB Capital forum. “We have lots of models but unfortunately we are failing to see any actual growth,” he said.

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2016 will see a lot of defaults.

Oil Price Slide Means ‘Almost Everything’ Is For Sale (Bloomberg)

More than $200 billion worth of oil and natural gas assets are for sale globally as companies come under renewed financial pressure from the prolonged commodity price rout, according to IHS Inc. There are about 400 buying opportunities as of September, IHS Chief Upstream Strategist Bob Fryklund said in an interview. Deals will accelerate later this year and into 2016 as companies sell assets to meet debt requirements, he said. West Texas Intermediate crude has averaged about $51 a barrel this year, more than 40% below the five-year mean. Low prices have slashed profits and as of the second quarter about one-sixth of North American major independent crude and gas producers faced debt payments that are more than 20% of their revenue.

Companies have announced $181.1 billion of oil and gas acquisitions this year, the most in more than a decade, compared with $167.1 billion the same period in 2014, data compiled by Bloomberg show. “Basically almost everything is for sale,” Fryklund said Oct. 8 in Tokyo. “Low cycles are when a lot of these companies can rebalance their portfolios. In theory, this is when you upgrade your existing portfolio.” Companies with strong balance sheets are seeking buying opportunities, said Fryklund, citing Perth, Australia-based Woodside Petroleum Ltd.’s $8 billion offer for explorer Oil Search and Suncor’s $3.3 billion bid for Canadian Oil Sands. Both targets rejected initial offers.

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We’ll blab again when push comes to shove. We’ll burn anything just to keep warm.

Oil Unlikely To Ever Be Fully Exploited Because Of Climate Concerns (Guardian)

The world’s oil resources are unlikely to ever be fully exploited, BP has admitted, due to international concern about climate change. The statement, by the group’s chief economist, is the clearest acknowledgement yet by a major fossil fuel company that some coal, oil and gas will have to remain in the ground if dangerous global warming is to be avoided. “Oil is not likely to be exhausted,” said Spencer Dale in a speech in London. Dale, who chief economist at the Bank of England until 2014, said: “What has changed in recent years is the growing recognition [of] concerns about carbon emissions and climate change.” Scientists have warned that most existing fossil fuel reserves must stay in the ground to avoid catastrophic global warming and Dale accepted this explicitly.

“Existing reserves of fossil fuels – i.e. oil, gas and coal – if used in their entirety would generate somewhere in excess of 2.8trn tonnes of CO2, well in excess of the 1trn tonnes or so the scientific community consider is consistent with limiting the rise in global mean temperatures to no more than 2C,” he said. “And this takes no account of the new discoveries which are being made all the time or of the vast resources of fossil fuels not yet booked as reserves.” Dale said the rise of shale oil in the US, along with climate change concerns, meant a “new economics of oil” was needed. “Importantly, it suggests that there is no longer a strong reason to expect the relative price of oil to increase over time,” he said. The low oil price over the last year has led to billions of dollars of investment being cancelled.

The concept of ‘unburnable’ fossil fuels is closely linked to the idea of stranded fossil fuel assets – that reserves owned by companies will become worthless if the world’s nations act to tackle climate change. Analysis of these issues was pioneered by the Carbon Tracker Initiative (CTI), which warned in 2014 that $1trn was being gambled on high-cost oil projects that might never see a return. “As BP now recognises, there is a substantial risk in the system of ‘peak [oil] demand’,” said Anthony Hobley CEO of CTI. “This arises from a perfect storm of factors including ever cheaper clean energy, ever more efficient use of energy, rising fossil fuel costs and climate policy. These are key factors the industry has repeatedly underestimated.””

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US and EU have no idea what to say or do. Oatmeal for brains.

Vladimir Putin Condemns US For Refusing To Share Syria Terror Targets (AEP)

Russian leader Vladimir Putin has issued a caustic defence of his country’s bombing raids in Syria, accusing the West of stonewalling requests for help on terrorist targets and failing to grasp the basic facts on the ground. “We asked them to give us the information on the targets that they believe to be 100% terrorists and they refused to do that,” he said. “We then asked to please tell us which targets are not terrorists, and there was no answer, so what are we supposed to do. I am not making this up,” he told a VTB Capital forum of bankers and investors in Moscow. The US has accused the Kremlin of hitting enclaves of the Western-backed Free Syrian Army, and that its chief motive is to prop up a client regime in Damascus rather fighting the Jihadi extremists of Isil and al-Nusra.

Russia’s defence ministry said on Tuesday that its air force had struck 86 “terrorist” targets in Syria over the past 24 hours, the most intensive bombing since the campaign began two weeks ago. Mr Putin said there is no such thing as a secular resistance to president Bashar al-Assad in Syria, claiming that the US intelligence services and the Pentagon have wasted $500bn dollars on a largely fictious force. “Where is the free Syrian army,” he asked mockingly, alleging that munitions drops from the sky were falling into the hands of Isil, whatever the original intentions. “I think some of our partners simply have mush for brains. They do not have a clear understanding of what is really happening in the country and what goals they are seeking to achieve,” he said.

Mr Putin claimed the legal high ground, insisting that Russia is acting on the invitation of the Syrian authorities. “All our actions fully comply with the UN charter, contrary to the actions of our colleagues from the so-called US-led international coalition,” he said. Despite his pugnacious tone, Mr Putin appeared keen to play up the idea of a grand coalition of Russia and the West to defeat Isil. “I believe we have a common interest but so far co-operation has been military only,” he said. Mr Putin said Russian and US pilots are exchanging “friend\foe” signals to avoid dangerous incidents in the combat theatre. “It is a sign of mutual trust, but it is not enough,” he said, adding that he has offered to send a high-level mission to Washington led by premier Dmitry Medvedev to deepen ties – again receiving no answer.

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“I do not take my mandate from the European people.”

I Didn’t Think TTIP Could Get Any Scarier, But Then.. (John Hilary)

I was recently granted a rare glimpse behind the official façade of the EU when I met with its Trade Commissioner in her Brussels office. I was there to discuss the Transatlantic Trade and Investment Partnership (TTIP), the controversial treaty currently under negotiation between the EU and the USA. As Trade Commissioner, Cecilia Malmström occupies a powerful position in the apparatus of the EU. She heads up the trade directorate of the European Commission, the post previously given to Peter Mandelson when he was forced to quit front line politics in the UK. This puts her in charge of trade and investment policy for all 28 EU member states, and it is her officials that are currently trying to finalise the TTIP deal with the USA.

In our meeting, I challenged Malmström over the huge opposition to TTIP across Europe. In the last year, a record three and a quarter million European citizens have signed the petition against it. Thousands of meetings and protests have been held across all 28 EU member states, including a spectacular 250,000-strong demonstration in Berlin this weekend. When put to her, Malmström acknowledged that a trade deal has never inspired such passionate and widespread opposition. Yet when I asked the trade commissioner how she could continue her persistent promotion of the deal in the face of such massive public opposition, her response came back icy cold: “I do not take my mandate from the European people.”

So who does Cecilia Malmström take her mandate from? Officially, EU commissioners are supposed to follow the elected governments of Europe. Yet the European Commission is carrying on the TTIP negotiations behind closed doors without the proper involvement European governments, let alone MPs or members of the public. British civil servants have admitted to us that they have been kept in the dark throughout the TTIP talks, and that this makes their job impossible. In reality, as a new report from War on Want has just revealed, Malmström receives her orders directly from the corporate lobbyists that swarm around Brussels. The European Commission makes no secret of the fact that it takes its steer from industry lobbies such as BusinessEurope and the European Services Forum, much as a secretary takes down dictation.

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Imagine that in the US, Germany, Japan, China. EU scorched earth tactics.

Greek Corporate Profits Fell 86% In Five Years (Kath.)

Greek companies’ pretax profits have posted a dramatic 86% decline over the last five years, according to a survey of 4,997 firms by Grant Thornton. The profit slide for those companies added up to €5.3 billion in the period from 2009 to 2014, while their work forces shrank by 19% and their taxpaying capacity declined by 60%. The results of the survey were presented on Tuesday at Grant Thornton’s annual international conference, which was hosted in Athens for the first time, in the presence of Grant Thornton International head Edward Nusbaum.

The analysis of the survey’s findings showed a major drop in the operating profits of the sampled companies by 32% or €4.8 billion, in their net assets by €2.6 billion, and in their net borrowing by €7.5 billion: Total borrowing declined from €44.7 billion in 2009 to €37.3 billion last year. This drop is due to pressure from the credit sector for the repayment of loan obligations, which has resulted in a fall in the realization of new investments. The sectors with the highest debt burden are tourism, entertainment and information, fish farming, vehicle imports, food service etc.

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FBI or Goldman. Who’s stronger?

Goldman Entangled in Scandal at Malaysia Fund 1MDB (WSJ)

Goldman Sachs’s role as adviser to a politically connected Malaysia development fund resulted in years of lucrative business. It also brought exposure to an expanding scandal. As part of a broad probe into allegations of money laundering and corruption, investigators at the Federal Bureau of Investigation and the Justice Department have begun examining Goldman Sachs’s role in a series of transactions at 1Malaysia Development Bhd., people familiar with the matter said. The inquiries are at the information-gathering stage, and there is no suggestion of wrongdoing by the bank, the people said. Investigators “have yet to determine if the matter will become a focus of any investigations into the 1MDB scandal,” a spokeswoman for the FBI said.

The widening scandal—investigators in five countries are now looking into 1MDB—highlights the sometimes risky path that Goldman has cut in emerging markets in search of faster growth. A few years before the Malaysia deals, Goldman did a series of controversial transactions with the Libyan Investment Authority that also brought unwelcome attention. The Libyan sovereign-wealth fund claimed in a lawsuit filed in 2014 in London that the bank took advantage of its unsophisticated executives to sell them complicated and ultimately money-losing investments. Goldman has said the claims are without merit. A trial in the suit is scheduled to begin next year.

The bank earned $350 million for executing nine trades for Libya, according to the investment authority. It earned far more from the Malaysian fund. The bank was consulted during 1MDB’s inception, advised it on three acquisitions and arranged the sale of $6.5 billion in bonds that alone brought in close to $600 million in fees, according to people close to the bank. 1MDB is now entangled in accusations of billions of dollars of missing money, putting it at the center of a political crisis for Malaysian Prime Minister Najib Razak, who oversees the fund. Malaysian government investigators earlier this year traced $700 million into Mr. Najib’s alleged bank accounts through agencies, banks and companies linked to 1MDB..

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Remember, Beppe’s a trained accountant.

#DeutscheBank Full Of Holes (Beppe Grillo)

“Two days ago, Deutsche Bank, a bank with assets worth more than Italy’s GDP, has declared the need to adjust the results for the third quarter of 2015 to reflect losses of almost €6 billion.

$70 thousand billion in derivatives Details of the reasons for these losses are not yet available but it is well known that the bank has an anomalous concentration of derivatives in its portfolio: $75 thousand billion (about €65 thousand billion!), equivalent to 20 times Germany’s GDP. It seems that Deutsche Bank has really not learned much from the 2008 crisis, even though America’s Securities Exchange Commission (SEC) in May of this year, penalised its structured finance dating back to the time of Lehman Brothers, with a fine of $55 million.

And yet Deutsche Bank passed the European Banking Authority’s stress tests without any particular censuring. However, the US stress tests carried out by the Federal Reserve before the summer, definitely found the German bank to have done badly and classed it among those that would not survive another financial crisis. So perhaps those that said the European stress tests put too much emphasis on the spread of the yield of government bonds among the various member countries, were not wrong. It’s a phenomenon that has become dangerously familiar to us, to such an extent that now, very few are aiming to tackle the root causes of the problems.

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“High-income countries are already at or close to the zero lower bound on short-term interest rates. Their ability, or at least willingness, to act effectively in response to a large negative shock to demand is very much in question. ”

Solid Growth Is Harder Than Blowing Bubbles (Martin Wolf)

It used to be said that when the US sneezed, the world economy caught a cold. This is still true. But now the world economy also catches a cold when China sneezes. It has lost its last significant credit-fuelled engine of demand. The result is almost certain to be a further boost to the global “savings glut” or, as Lawrence Summers calls it, “secular stagnation” – the tendency for demand to be weak relative to potential supply. This has big implications for global economic risks. In its latest World Economic Outlook , the IMFd strikes not so much a gloomy note as a cautious one. The world economy is forecast to grow by 3.1% this year (at purchasing power parity) and 3.6% in 2016. The high-income economies are forecast to grow by 2% this year, with growth at 1.5% even in the eurozone.

Emerging economies are forecast to grow 4% this year. This would be well below the 5% in 2013 or 4.6% in 2014. While China’s economy is forecast to grow by 6.8% and India’s by 7.3, Latin America’s is forecast to shrink by 0.3% and Brazil’s by 3%. So think of the world as a single economy. If it grows as forecast, it will probably be expanding at best in line with potential. But if a few of the things on the list were to go wrong, it would suffer rising excess capacity and disinflationary pressure. Even if nothing worse happened (and it easily could), it would still be a concern because room for policy manoeuvre is now quite limited.

Commodity-exporting and debt-burdened emerging countries will now have to retrench, just as crisis-hit eurozone countries had to a few years ago. Just as was the case in the eurozone, these economies look for external demand to pick them up. They may wait in vain. High-income countries are already at or close to the zero lower bound on short-term interest rates. Their ability, or at least willingness, to act effectively in response to a large negative shock to demand is very much in question. The same might even prove true of China.

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Bit of humor.

15 Reminders That China Is Completely Unpredictable (Michael Johnston)

The Communist Party does not hesitate to implement bizarre rules and restrictions. Though opinions have become more divided in recent months, the general assumption among investors is that China maintains tremendous economic potential, and will become increasingly dominant in coming decades. There are plenty of good reasons for such an optimistic assumption, including numerous demographic tailwinds. But many investors fail to at least consider one obstacle facing the Chinese economy: the fact that it exists within a Communist State. Below are 15 reminders of just how unpredictable, illogical, and counterproductive a Communist government can be.

Reincarnation: In 2007, China banned Buddhist monks from reincarnating without government permission. According to State Religious Affairs Bureau Order N0. 5, applications must be filed by Buddhist temples before they can recognize individuals as reincarnated tulkus. This law deemed to be “an important move to institutionalize management of reincarnation.” In reality, it was widely seen as an attempt to limit the influence of the Dalai Lama, the exiled spiritual leader of Tibet. Buddhist monks living outside China are prohibited from seeking reincarnation, which effectively allows China to choose the next Dalai Lama. (The spiritual leader is believed to be able to control his own rebirth.)

Outside of China: About 44 million Americans believe that Bigfoot exists, and 16 million believe that Paul McCartney died in 1966 (and was secretly replaced by a lookalike). No permits or approvals are required for any of these beliefs.

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Heathens!

A German Manifesto Against Austerity (NewEurope)

The Foundation for European Progressive Studies has published the manifesto of fourteen high profile German economists, academics, policy advisors, leaders, and leaders signed a manifesto calling for a “European Europe” as opposed to a “German Europe.” Among them the Vice President of the World Health Organization, Detlev Ganten, Gustav Horn, of the German Institute of Economic Research (DIW), Heidemarie Wieczorek-Zeul, the former German minister for foreign aid, Dieter Spöri, the former Deputy Prime Minister and Minister of Economic Affairs of the State of Baden-Württemberg. Hailing from the social democratic family, they point to the Euro crisis and the danger of Brexit to call for the defense of the European Project. This is not the first critical voice in Germany against austerity politics.

However, this carries the weight of German economists that are very much part of the policy elite in Germany and the EU. What adds to their credibility is their attack on both Chancellor Angela Merkel, as well as the government’s junior partner, namely the SPD. They point towards a widening social cleavage, as the primary trigger of a rise in right Eurosceptic parties across Europe, including Germany. More profoundly, they point towards a German hegemonic project of austerity that is threatening to destroy Europe. In response to this challenge, they sign a 12 point manifesto. The manifesto is in many respects a personal attack on Chancellor Merkel, held responsible for the imposition of an austerity regime across Europe and accused of honing — along with Finance Minister Wolfgang Schäuble — a narrative of German domination reminiscent of the past century.

But, the manifesto is also an attack on the lack of a principled stand by the SPD. The economists accuse the Chancellor of a policy aimed at saving German and French banks, imposing the burden on the Greek population. The economists underscore that the austerity plan that has been imposed on Greece since 2010 is devoid of any theoretical or practical substance. They point towards a (German) policy impasse, calling for an investment-driven rather than austerity-driven strategy to avoid the final breakdown of the Greek economy. The SPD is being accused of tolerating if not conniving with “neoliberal” policies that they would have condemned had they been in opposition, including “pension cuts, unjust VAT increases, privatisation, the undermining of trade unions and free collective bargaining and an altogether reduction of the Greek demand, without which the country cannot get to its feet.”

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“But in the end, Fox tells us, Obama will always be unable to control the envious, Christian-fearing, success-hating African Marxist Terrorist in control of his subconscious…”

Rupert Murdoch Is Deviant Scum (Matt Taibbi)

It all comes back to Rupert Murdoch. As multiple recent news stories have proven, the 2016 presidential race is fast becoming a referendum on the News Corp CEO and reigning media gorgon. The two top candidates in the Republican field are a Fox News contributor (Ben Carson opened his Fox career two years ago comparing Obama to Lenin) and a onetime Fox favorite who is fast becoming the network’s archenemy: Donald Trump is the fallen angel in the Fox story, a traitor who’s trying to tempt away Murdoch’s lovingly nurtured stable of idiot viewers by denouncing their favorite “news” network as a false conservative God. The fact that Trump is succeeding with this message on some level has to be a source of terrible stress to Murdoch. He must be petrified at the prospect of losing his hard-won viewership at the end of his life.

This, in turn, might explain last week. Otherwise: what was Rupert Murdoch doing tweeting? Murdoch owns or controls print, cable and film outlets in so many places that his cultural and political views are fast becoming a feature of global geography. The sun never sets on his broadcast empire, a giant hovering Death Star that’s been firing laser cannons of “Rupert Murdoch’s Many Repellent Thoughts About Stuff” at planet Earth for decades now. Yet Murdoch apparently still doesn’t feel like he’s getting his point across. At 8:59 p.m. last Wednesday night, the 84 year-old scandal-sheet merchant had to turn to Twitter to offer his personal opinion on Ben Carson and the American presidential race. To recap: “Ben and Candy Carson terrific. What about a real black President who can properly address the racial divide?”

Forget for a minute what Murdoch said. Think about the why. Murdoch’s networks have already spent the last eight years hammering home this message to the whole world. Fox News has constantly presented Barack Obama as a mongrel, a kind of Manchurian President, raised in madrassas and weaned on socialism, who hates white people and yearns to euthanize them. The network spent years exhaustively building and tweaking Obama’s supervillain persona, almost always employing this Two-Face theme. The president in Fox lore is superficially a polite, intelligent, “articulate” American politician who sounds on the level. But in the end, Fox tells us, Obama will always be unable to control the envious, Christian-fearing, success-hating African Marxist Terrorist in control of his subconscious.

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“..global wealth has fallen by $12.4tn in 2015 to $250tn..”

Half Of World’s Wealth Now In Hands Of 1% Of Population (Guardian)

Global inequality is growing, with half the world’s wealth in the hands of just 1% of the world’s population, according to a new report which pointed to a rising discrepancy in prosperity in the UK. The report by Credit Suisse also found that there was a slowdown in the pace of growth of wealth of the middle classes compared with that of the very richest. “This has reversed the pre-crisis trend which saw the share of middle-class wealth remaining fairly stable over time,” said Tidjane Thiam, chief executive of the Swiss bank. A person needs only $3,210 (£2,100) to be in the wealthiest 50% of world citizens, $68,800 (£45,000) to be in the top 10% and $759,900 (£500,000) to earn a place in top 1%. Some 3.4 billion people – 71% of all adults in the world – have wealth below $10,000 in 2015.

A further 1 billion – 21% of the global population – fall in the $10,000-$100,000 (£6,560-£65,600) range. Each of the remaining 383 million adults – 8% of the population – has wealth of more than $100,000, including 34 million US dollar millionaires, who comprise less than 1% of the world’s adult population. Some 123,800 individuals within this group are worth more than $50m, and 44,900 have more than $100m. The UK has the third-highest number of these so-called ultra-high net worth individuals. The report concludes that global wealth has fallen by $12.4tn in 2015 to $250tn – the first fall since the 2008 banking crisis. This is largely a result of the impact of the strength of the dollar, the currency which is used as the basis for Credit Suisse’s calculations.

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Jan 132015
 
 January 13, 2015  Posted by at 10:01 pm Finance Tagged with: , , , , ,  11 Responses »


Unknown George Daniels Pontiac, Van Ness Avenue, San Francisco 1948

I was thinking about something along the lines of The Center Cannot Hold and Something’s Got To Give earlier, but then I thought there’s no way I haven’t used those titles before. And then it occurred to me that The Automatic Earth started 7 years ago this month. Just looked it up, it was January 22, 2008. Party next week!

Of course Nicole and I had been writing before that on the Oil Drum, who then didn’t want us to write about finance. They claimed we didn’t have the – academic, they were big on academic – credentials, as if that would ever stop me. Economists, the only people with the ‘proper’ credentials, are the last ones anyone should listen to, they engage in goal-seeked analysis only (no worries, Steve, you’re still no. 1 in our blogroll).

So we started The Automatic Earth, where we could write about what we wanted and thought needed to be addressed. In 2005 it may not have seemed important to the energy crowd, but they’ve all since seen that what we insisted on talking about back then was indeed a big event. 2007 brought Bear Stearns, and 2008 gave us Lehman. Not a minor trifle to write about in 2005. Plus, that means we’ve been doing this for 10 years already. No minor trifle either.

Meanwhile, peak oil has moved way back in the line of pressing events, the Oil Drum went so far south it’s out of sight and shale oil has just about everyone believing the peak oil theory was wrong all along. It wasn’t, not for conventional oil, which was all it addressed to begin with, but so things go. The financial casino trumped energy. But now those days seem over.

In January 2012, we were forced to move again, away from the Blogger platform, where the hacking and heckling and spamming had taken on absurd forms, from which Google refused to offer us protection. We made the mistake to move to Joomla, and it took a while to change – again – to WordPress, where we are now.

That last move cost us a lot of readers and – subscription – donors, something we’re still recuperating from today. It makes the work a lot harder, as Nicole’s long absences are testimony to. But that won’t end The Automatic Earth, and at the same time, that’s enough history. In the end, there’s nothing but forward. Best rock ‘n roll line ever, hands down: I Don’t Care About History, ‘Cause That’s Not Where I Wanna Be.

I was thinking today about Yeats’ The Center Cannot Hold when I saw European stock exchanges vs oil prices, and I wondered; are you sure about this, guys? France’s CAC40 and Germany’s DAX were up about 1.5% today, Greece even over 3%. While Europe’s Brent oil standard fell twice as fast as America’s West Texas Intermediate, diminishing the ‘normal’ $5 gap between the two to 50 cents or so. And stocks rise?

There is no way one can keep falling while the other rises. The Center Cannot Hold. I see stories about Texas homebuilders getting hit by the oil price drop, and it’s still very early innings. Sure, the price of oil will go up again at some point, but it’s the very reason it will that we should fear most, whatever it turns out to be.

It could be a war, proxy or not, it could be large scale lay-offs and defaults in the US shale patch, it could be severe civil unrest in one or more OPEC nations. None bode well for us, for the west, for its citizens. And if none of these things happen over the next year, oil prices won’t perform a Lazarus act. Or a phoenix.

That shouldn’t be all that much of a surprise. We’ve been living in cloud cuckoo land ever since the financial crisis we said back in 2005 would come, materialized. We live in a world of spin and propaganda and embellished numbers , and we’ve come to see them as a new normal. It’s the 55% drop of price of oil that is the first sign that central banks don’t control the universe, or the world, or even our own lives.

But, judging by those European exchanges, we’re still not listening, or keeping an eye out. We see signals, but we don’t recognize them, we don’t know what they mean. Like this little tidbit from CNBC:

Here’s Why Oil Is Such A Problem For Corporate Earnings

On December 1st, analysts anticipated that Energy earnings for Q1 2015 would decline 13.8% compared to Q1 2014, according to S&P Capital IQ. As of Monday, analysts expected Energy earnings for Q1 2015 to decline 41.0%. Think about that: in 5 weeks, earnings expectations for the entire Energy group have gone from down 13.8% to down 41.0%.

Q1 earnings for the Energy sector were cut by $7.7 billion from December 1 through today. The S&P 500 as a whole saw a cut of $9.1 billion during the same period. So Energy is $7.7 billion/$9.1 billion = 84% of the decline in the dollar value of the earnings decline we have seen in the past five weeks. See why the market is so focused on oil for the moment?

Methinks the market is not focused nearly enough on oil. Yet. Though numbers like that should be cause for pause. Especially combined with the knowledge that most other numbers, GDP, jobs, you name them, are nothing but shrewd spin jobs. And, lest we forget, that the Fed no longer supplies free lunch. That the Fed has a plan. A plan that will benefit its owner/member banks, not you and me.

In all likelihood, the oil mayhem will start blowing up in proxy territory, perhaps Turkmenistan, perceived as a possible wound to Putin, perhaps Bahrain, where the Saudis have been interfering militarily for quite some time.

Thing is, that whole line about how lower oil prices were going to be a boost for our economies was ignorant from the start. And there’s still plenty people believing just that. That may explain those EU stock exchange gains. That sort of thing all comes from people who don’t understand to what extent oil is pivotal to our societies.

That we would be lost without it. And that dropping its price by 55% and counting will make the machine run a lot less efficiently. Think of what you pay for oil and gas as the grease that keeps the machine running. Not the product itself, but what you pay for it. We just took away a lot of grease. And you know what that does to a machine. When oil drops, so do many people’s wages, and jobs. And then businesses start to close. And we enter deflation. And more businesses close. And more jobs are lost, and more wages squeezed. Ergo: more deflation.

It’s not yet too late, but ask yourself: can the machine run for, like, another year with this diminished amount of grease? Or with even less, what if oil falls to $40, or even $30? Bad for Texas, devastating for Alaska and North Dakota, and terrible for many Middle Eastern nations that have so far been our friends and allies (even if they don’t exactly espouse the ‘values’ we so proudly proclaimed at the #JeSuisCharlie promo events). What if they turn on us? The way ISIS did?

But that’s not our biggest, or most immediate, concern. We’re not in 2008 anymore, when an oil price drop actually helped us crawl out of a tight spot. We’re $50 trillion down the road, and there won’t be another $50 trillion, or another road. For all intents and purposes, we are the center today, and we cannot hold this way.

Nov 092014
 


DPC League Island Navy Yard, Philadelphia. USS Brooklyn spar deck 1898

Fed to Markets: Brace for Volatility (WSJ)
Central Banks Warn of Possible Bumpy Ride for Markets (Bloomberg)
US Earnings Outlook Might Be Less Rosy Than Investors Think (Reuters)
Gorbachev Warns US, Allies Put World On ‘The Brink Of A New Cold War’ (FT)
Hungary Under ‘Great Pressure’ From US Over Its Energy Deals With Russia (RT)
Kuroda Sprang Easing Surprise To Head Off Damaging Inflation Forecast (Reuters)
It’s a Bad Time to Be a Saver in Europe (Bloomberg)
We Can Control Risks Facing The Economy, Says China’s Xi Jinping (Reuters)
Sweden Grapples With Massive Household Debt As Rates Hit Zero (Reuters)
UK Condemned Over Arms Sales To Repressive States (Observer)
It’s Official: Spain is Unraveling (Don Quijones)
Catalans Prepare to Open the Polls in Defiance of Spain (Bloomberg)
The Albanian World Cup Gambler Who Robbed The National Vault (Reuters)
Prepare For An Invasion From The North: “Polar Vortex, The Sequel” (CBS)
Harsh Winter Outlook Made More Dire by Siberia Snow (Bloomberg)
Bird Decline Poses Loss Not Just For Environment, But Human Soul (Guardian)

As rate hikes come.

Fed to Markets: Brace for Volatility (WSJ)

Federal Reserve officials are warning investors and foreign central bankers to brace for market turbulence as the Fed prepares to raise short-term interest rates next year. In a speech to central bankers Friday in Paris, Fed Chairwoman Janet Yellen said rate increases, when they materialize in advanced economies, “could lead to some heightened financial volatility.” New York Fed President William Dudley, at the same conference, issued a more detailed alert. “This shift in policy will undoubtedly be accompanied by some degree of market turbulence,” he said of future rate increases in the U.S. “Moreover, it could create significant challenges for those emerging market economies that have been the beneficiaries of large capital inflows in recent years.”

They offered their warnings as the Labor Department released new data showing the U.S. job market is improving faster than the Fed expects. The unemployment rate, at 5.8% in October, was below the 6.3% to 6.6% range the Fed projected last December for the end of 2014. In September, the Fed revised that projection to 5.9%-6.0%, still higher than the October rate. Other metrics being watched closely by the Fed showed continued gains. For instance, the percentage of the U.S. population that is employed rose to 59.2%, its highest level since July 2009. This employment-to-population ratio increased one percentage point from a year earlier, its largest one-year gain since March 1995. The Fed is eyeing rate increases as unemployment declines and slack in the economy slowly diminishes. Higher rates will be aimed at preventing the economy from overheating.

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“Normalization could lead to some heightened financial volatility .. ”

Central Banks Warn of Possible Bumpy Ride for Markets (Bloomberg)

Global central bankers said financial markets could suffer a bout of turbulence – again – when they begin to withdraw monetary stimulus. Janet Yellen and William Dudley of the Fed, Mexico’s Agustin Carstens and Bank of England Governor Mark Carney were among those to use a Paris conference of policy makers yesterday to talk about potential fallout from the eventual shift from record-low interest rates used to revive growth since the global financial crisis in 2008. “Normalization could lead to some heightened financial volatility,” Yellen told the gathering convened by the Bank of France. Carney said “the transition could be bumpy.” The comments suggest central bankers are trying to prepare better for the global effects of any withdrawal than in 2013, when then-Chairman Ben S. Bernanke unexpectedly signaled the Fed could soon start reducing bond purchases. That pushed up yields and rattled investors worldwide in the so-called taper tantrum.

Fed Chair Yellen and Dudley, president of the Fed Bank of New York, recognized the importance of U.S. officials being clear in their plans. “The Federal Reserve will strive to clearly and transparently communicate its monetary policy strategy in order to minimize the likelihood of surprises that could disrupt financial markets,” Yellen said. [..] Given a likely increase in U.S. rates next year will “undoubtedly be accompanied by some degree of market turbulence,” Dudley said the central bank has an obligation to provide global stability. “It is clear in retrospect that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants,” Dudley said. With that episode in mind, Carstens said there is a “potential for financial market disruption” amid the unwinding of unconventional monetary policy.

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They’re hot air.

US Earnings Outlook Might Be Less Rosy Than Investors Think (Reuters)

With the U.S. Q3 earnings season almost at an end, many investors are breathing a sigh of relief as more companies surpassed profit expectations than in any quarter since 2010. But some analysts say investors may be brushing off their worries about corporate profits a little too soon. While most S&P 500 companies beat analysts’ expectations for third-quarter earnings, many just barely topped estimates, said Pankaj Patel at Evercore ISI in New York. Of the S&P 500 companies that had reported results as of early this week, 66% exceeded expectations, according to Evercore’s data analysis. But that figure falls to just 43% after stripping away companies that beat expectations by 5% or less, Patel’s research shows. The figure excluding beats of 5% or less is also well below the%age of beats according to data based on Thomson Reuters polls of analysts. On that data, 74% of S&P 500 companies so far have exceeded analysts’ expectations, which is the highest for any quarter since the second quarter of 2010.

Results have come in from 88% of the S&P 500. The results could mean that an increasing number of companies are trying to “manage their beat rate,” possibly to mask profit weakness, Patel said, noting that companies that exceed expectations by 5% or less typically see their share prices decline in the three days following results. “The beat rate is artificially high, but people still watch that %,” Patel said. “They keep buying and the market goes higher.” The S&P 500 has risen more than 3% since Oct. 8, roughly when this earnings season began. The index is up 9.1% from its Oct. 15 low. In addition, analysts’ keep trimming their profit forecasts. Estimates for fourth-quarter earnings are down from the start of the quarter, along with estimates for the first part of 2015. Earnings growth for the fourth quarter now is estimated at 7.6% compared with an Oct. 1 forecast for 11.1% growth, Thomson Reuters data showed. For the 2015 first quarter, profit growth is seen at 8.8%, down from an Oct. 1 forecast for 11.5% growth.

Moreover, the magnitude by which Q4 estimates are falling has increased compared with the previous quarter, said Nick Raich, chief executive officer of The Earnings Scout, a research firm specializing in earnings trends. In outlooks given by companies themselves – done by only a minority of companies – the news is not good. Negative outlooks outnumber positive ones for Q4 so far by a ratio of 3.9 to 1, up from the third quarter’s ratio of 3.3 to 1, Thomson Reuters data showed. “That’s a worsening trend,” Raich said. “The outlooks have gotten a little bit worse this quarter.” Outlooks could become even dimmer if lackluster demand overseas translates into weak results for the fourth quarter. “The United States clearly is the bright spot in the world,” said Uri Landesman, president of Platinum Partners in New York. “The rest of the world isn’t nearly as strong, so demand coming from certain places is weaker, and the currency is going to have an enormous impact going forward.”

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How many western officials have you seen trying to address Gorby’s accusations?

Gorbachev Warns US, Allies Put World On ‘The Brink Of A New Cold War’ (FT)

Former Soviet Union leader Mikhail Gorbachev warned on Saturday that the Ukraine crisis had brought the world to “the brink of a new Cold War”. “The world is on the brink of a new Cold War. Some say it has already begun, ” said the 83-year-old former Kremlin chief in a sombre speech delivered in Berlin at an event to mark the 25th anniversary of the fall of the Berlin Wall this weekend. He was speaking as reports from eastern Ukraine suggested that Kiev’s troops and the Russia-backed rebels may be preparing for renewed fighting. Agency reporters in eastern Ukraine said they saw more than 80 unmarked military vehicles on the move on Saturday in rebel-controlled areas of eastern Ukraine. The apparent escalation threatens the fragile ceasefire agreed in Minsk in early September and increases the danger of further pressure on east-west relations.

Speaking at a conference within a few metres of the iconic Brandenburg Gate, Mr Gorbachev accused the west, led by the US, of “triumphalism” after the fall of the Berlin Wall ended Soviet dominance in eastern Europe. Trust between Russia and the west had “collapsed” in the last few months, he said, highlighting the damage done by the Ukraine crisis. He called for new initiatives to restore trust, including a lifting of personal sanctions imposed by the US and the EU on top Russian officials in response to Moscow’s actions in Ukraine. Mr Gorbachev clearly sees the west as the culprit in the crisis, having given his unequivocal backing to Mr Putin last week. He said, before arriving in Germany, that he was “absolutely convinced that Putin protects Russia’s interests better than anyone else.”

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Hungary PM Orban is an interesting man. The country is doing quite well, relatively.

Hungary Under ‘Great Pressure’ From US Over Its Energy Deals With Russia (RT)

Washington is exerting heavy pressure on Hungary over the country’s decision to give a green light for the construction of the South Stream gas pipeline and expedite the construction by allowing companies without licenses to participate in the project. “The US is putting Hungary under great pressure fearing Moscow’s rapprochement with Budapest,”Hungarian media cited Prime Minister Viktor Orban saying in Munich, Germany after a meeting with Bavarian state premier Horst Seehofer. Orban said that Hungary’s relations with Russia have become “entangled in geopolitical and military and security policy issues,” AFP reports. The PM said that US is retaliating for Budapest’s willingness to endorse the South Stream gas pipeline development as well as a deal that would see Russia’s Rosatom expand Hungary’s nuclear power.

Under a deal worth up to €10 billion Rosatom will build a 2,000 megawatt addition to Hungary’s state-owned nuclear power plant MVM Paksi Atomeromu. Russia is Hungary’s largest trade partner outside of the EU, with exports worth $3.4 billion in 2013. Also it is highly dependent on Russian energy. “We don’t want to get close to anyone, and we don’t intend to move away from anybody,” Orban said.“We are not pursuing a pro-Russian policy but a pro-Hungarian policy,” as expansion of the nuclear plant was the “only possible means” to lower dependence on external energy resources. The PM remained firm that “cheap energy is key in strengthening Hungary’s competitiveness” as he also defended the law which gave a green light for the construction of the South Stream pipeline that would bypass Ukraine as a transit nation in EU gas supply chain. It “ensures Hungary gas supplies by eliminating risks posed by situation in Ukraine,” Orban said.“Even if South Stream does not diversify gas sources, it diversifies delivery routes.”

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A forecast based on slumping oil prices.

Kuroda Sprang Easing Surprise To Head Off Damaging Inflation Forecast (Reuters)

The Bank of Japan Governor not only surprised the markets with his latest splurge of monetary easing. He sprang it on his own board members just two days earlier, jolted into action to stop them making a low-ball forecast that might have sunk his flagship inflation target. To achieve maximum effect for the shock decision, Haruhiko Kuroda and right-hand man Masayoshi Amamiya kept only a handful of elite central bank bureaucrats in the loop as they laid the ground for the expansion of their quantitative and qualitative easing (QQE) program. They didn’t even give the usual forewarning to senior bureaucrats at the Ministry of Finance, according to interviews with nearly a dozen insiders and government sources with knowledge of the bank’s deliberations.

No leaks reached the media, and the announcement at the Oct. 31 policy meeting pushed the Nikkei stock average to seven-year highs and the yen to seven-year lows against the dollar. The market reaction will have been welcome news to Kuroda, but the impact he wanted above all was to alter inflation expectations in a country that has struggled with crippling deflation for two decades. Timing was critical – and not of his choosing. At the policy meeting the board would also issue a new consumer inflation forecast for the next fiscal year, based on the median estimate from the nine members. But two days before publication, the preliminary estimate was only around 1.5%, three of the sources said. That was well below the 1.9% forecast made in July, and if published could have been fatal to his key goal of hitting 2% from April next year.

Since price expectations play a key role in the consumer behaviours that ultimately determine prices, doubts about the target could be self-fulfilling. There were other triggers for action, including October’s plunge in oil prices and the fact that an easing burst would have more market impact in the week the U.S. Federal Reserve decided to turn its own liquidity taps off. But it was the inflation forecast that convinced Kuroda and his aides to go for another burst of stimulus, three sources said. Board members would then have to revisit their estimates in light of the new action.

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“If you’re a central bank, it’s not a good sign when institutions actively seek to deter customers from owning your currency.”

It’s a Bad Time to Be a Saver in Europe (Bloomberg)

In the post-crisis economic environment, with record-low interest rates in many countries, it’s better to be a borrower than a lender, despite Shakespeare’s admonition to be neither. These days, however, it’s even worse to be a saver. Since the European Central Bank in June sought to prod banks to lend more – by imposing negative interest rates on banks’ ECB deposits – savers are discovering that banks aren’t the only ones paying for the privilege of having cash on hand. At least three banks – State Street Corp., Bank of New York Mellon, and Deutsche Skatbank – have introduced negative rates for large euro deposits. It makes financial sense for the banks: If the ECB is charging them 0.2% for holding their cash, banks have a fiduciary duty to try to recoup that cost.

The result is that depositors suffer the consequences of the ECB’s interest-rate tyranny. They would do better to stash their money in mattresses. The ECB addressed the implications of its monetary-policy shift on its website after it cut its deposit rate below zero. It asked the question: “Do I now have to pay my bank to keep my savings for me? What is the effect of this negative deposit rate on my savings?” And then it answered itself:

There will be no direct impact on your savings. Only banks that deposit money in certain accounts at the ECB have to pay. Commercial banks may of course choose to lower interest rates for savers. The ECB’s interest rate decisions will in fact benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.

So the first sentence turned out to be incorrect. And the final sentence provides scant comfort to a depositor whose hard-earned cash is dribbling away and is too pessimistic about the future of the European economy to find more productive uses for the money, such as spending it or investing it. We’ve been here before, including in 2012 when depositors fled the euro and piled into other currencies. Credit Suisse imposed negative rates on Swiss franc cash balances, for example, and said it would “invite our customers to keep cash balances as low as possible to avoid negative credit charges.” State Street also imposed negative rates on Danish kroner deposits. If you’re a central bank, it’s not a good sign when institutions actively seek to deter customers from owning your currency.

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Sure.

We Can Control Risks Facing The Economy, Says China’s Xi Jinping (Reuters)

The risks faced by China’s economy are “not so scary” and the government is confident it can head off the dangers, president Xi Jinping told global business leaders on Sunday to dispel worries about the world’s second-largest economy. In a speech to chief executives at the Asia Pacific Economic Cooperation (Apec) CEO summit, Xi said even if China’s economy were to grow 7%, that would still rank it at the forefront of the world’s economies. China’s economy, the world’s second-largest, has had a rocky year. Growth slid to a low not seen since the 2008/09 global financial crisis in the third quarter dragged by a housing slowdown, softening domestic demand and unsteady exports. “Some people worry that China’s economic growth will fall further, can it climb over the ridge?” Xi said. “There are indeed risks, but it’s not so scary.

“Even at growth of around 7%, regardless of speed or volume, (we) are among the best in the world,” he said, noting that China’s economy remained “stable”. The remarks from Xi came a day after data showed annual growth in Chinese exports and imports cooled in October, in another sign of fragility in the economy that could prompt policymakers to take further action to stoke growth. To shore up activity, policymakers have loosened monetary and fiscal policies since April to ensure that the economy can grow by around 7.5% this year. A marked slowdown in growth would hit countries all over the world, but especially commodity producers such as Australia, Indonesia and Brazil that have benefited from strong Chinese demand.

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This will not end well. There are limits.

Sweden Grapples With Massive Household Debt As Rates Hit Zero (Reuters)

Sweden’s new center-left government and its financial authorities are under huge pressure when they meet on Tuesday to tackle a mountain of household debt that is casting a long shadow over one of Europe’s few economic bright spots. Having slashed rates to zero to fight the risk of deflation, top Swedish officials are now in a quandary over how to rein in borrowing and house price rises without sending the real estate market into a downward spiral. The country’s AAA-rated economy is still one of Europe’s strongest, with low public debt, sound state finances and banks among the best capitalized and most profitable in Europe. But consumers, barely touched by the financial crisis, have loaded up on cheap mortgages and caused Swedish property prices to triple over the last 20 years, prompting a warning from the IMF that the market is 20% overvalued. Adding to the problem: Sweden has built too few houses for the last 20 years and its capital Stockholm is one of Europe’s fastest growing cities.

Critics say the former center-right government added fuel to the fire by slashing real estate taxes and leaving 30% mortgage tax relief untouched. Meanwhile, Sweden’s household debt-to-income ratio has risen to above 170% – among Europe’s highest. The worry is that private consumption, nearly half of GDP, would suffer if rates rose or property prices fell. “The longer we wait, the bigger the imbalances are,” said Bengt Hansson, analyst at the Swedish National Board of Housing Planning and Building. “We already have a bubble, but we will avoid an even bigger bubble.” It will be hard to dissuade bullish Swedish consumers. In Stockholm’s frenzied housing market, buyers make multi-million crown offers to snap up flats they may only have seen in photographs. And cranes and scaffolding are common sights in suburbia as householders take advantage of generous tax breaks for home improvements.

“We don’t think it will crash badly,” said Peter, a 47 year-old investment advisor, who with his wife Maria has just bought a house in Stockholm for around 12 million Swedish crowns ($1.62 million). “It might stop going up for a while, but over the longer term we expect it to go up,” he added, suggesting the lack of housing and population growth in Stockholm would support prices. Attempts by regulators so far to slow credit growth – squeezing banks by making them put aside more capital and draw up voluntary mortgage pay-down plans – have not worked because interest rates have continued to fall. Last week the central bank cut rates to zero in an attempt to answer criticism that it is not doing enough to tackle another economic risk – deflation – even while it acknowledged the problem that would create in containing household debt. “There is a fairly large consensus that household debt is a concern,” Swedish central bank chairman Stefan Ingves said after the cut. “If households continue to borrow, we could end up with very big problems later on, and this is what we want to avoid.”

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They all do it. We have no morals left.

UK Condemned Over Arms Sales To Repressive States (Observer)

The government has been accused of dishonesty over arms sales as new figures reveal that the value of British weapons sales to “countries of concern” has already hit £60m this year. Former Tory defence minister Sir John Stanley, who chairs the Commons committees on arms export controls, says ministers failed to come clean on a “significant change in policy” that makes it easier to export arms to countries with a poor human rights record. He said in a recent parliamentary debate that the government has not acknowledged that such a change has taken place, and it “should consider most carefully whether they should now offer an apology to the committees”.

The government used to reject arms export licences where there was concern they might be used for “internal repression”, but now a licence will be refused only if there is a “clear risk” that military equipment might be used in violation of international law. Former Foreign Office minister Peter Hain, who established the strict criteria on arms sales, last night demanded that the government be transparent about the change and called for parliament to be allowed a vote. He said: “The present government has run a coach and horses through our arms export controls, circumventing the legislation we put in place by putting a particular spin on it. It has enabled them to sell arms to countries and for purposes that should not be allowed under the legislation.

“There is a clear policy in the legislation that arms should only be sold to countries for defensive purposes and not for internal suppression or external aggression. In the case of Gaza over the summer, that has clearly been flouted. Bahrain is another example.” Data from the Department for Business, Innovation and Skills reveals that in the first six months of 2014 the UK granted licences worth £63.2m of arms sales to 18 of the 28 states on its official blacklist, countries about which the Foreign Office has the “most serious wide-ranging human rights concerns”. Israel, Saudi Arabia, the Central African Republic, Sri Lanka and Russia were among the countries that Britain approved military equipment for.

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How much corruption can one government shake off?

It’s Official: Spain is Unraveling (Don Quijones)

Since taking office in late 2011, Rajoy’s government has been embroiled in one sordid political scandal after another. In the latest episode, the Punica Affair, more than 100 politicians have been arrested and charged with varying acts of white collar crime, including taking kick backs from private sector companies. Payment often came in the form of cash-stuffed envelopes although, as El Confidencial reports, it could also include completely free-of-charge construction work on a politicians’ property, luxury holidays, hunting trips and even an intimate evening or two with a high-class prostitute. Most of the politicians involved in the scandal are – or at least were – members of the governing Popular Party. The rest belong – or at least belonged – to the other partner in Spain’s (until now) two-party system, the not-really-socialist-at-all party, the PSOE.

The good news is that some of Spain’s corrupt politicians and business figures are finally seeing the sharp (or at least not entirely blunt) end of the law. Scores have been arrested and some are even going down. The bad news is that Rajoy’s scandal-tarnished government of self.serving mediocrities still stands, albeit more precariously than ever. In El Pais‘ latest poll of voters’ intentions in next year’s general election, the Popular Party (PP) was, for the first time in decades, relegated to third place. Indeed, the two incumbent parties – the PP and PSOE – were unable to muster 50% of the vote between them. The most popular party in the poll was Podemos, a stridently left-wing political movement founded just at the beginning of this year. In May’s European elections the party picked up five seats; now, six months later, it is apparently the hottest contender for the spoils in next year’s general election, picking up 27% of the votes polled – 6%% more than PP and one more than PSOE.

Lead by Pablo Iglesias, a firebrand (or as the right-wing media like to call him “demagogic”) 35-year-old professor of political science, Podemos has masterfully exploited the general public’s disaffection with a political establishment that serves no one’s interests but its own – and, of course, those of the country’s biggest businesses and banks. The political establishment is quite rightly blamed for stoking and feeding the country’s biggest ever real estate bubble. Thanks to a change in the property laws enacted in 1997 by the Aznar government, local and regional administrations were encouraged to part-finance themselves through granting authorization for ever larger public and private construction projects, many of which turned out to be white elephants (empty toll roads, high-speed train stations planted slap bang in the middle of nowhere, ghost airports…).

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That same corrupt government demands the moral high road when it comes to Catalunya.

Catalans Prepare to Open the Polls in Defiance of Spain (Bloomberg)

In more than 900 towns across Catalonia, an army of volunteers is preparing to open polling stations today and offer compatriots a vote on independence in defiance of Spain’s central government and its highest court. The informal ballot, stripped of legal validity by a Constitutional Court ruling in September, poses two questions: Do you want Catalonia to be a state? And should that state be independent? Separatists led by regional president Artur Mas aim to win a majority in favor of breaking up Spain and use that mandate to force Prime Minister Mariano Rajoy to negotiate. The runup to the vote has been marked by legal salvos: Rajoy’s government reminded public officials in Catalonia of their obligation to respect the Constitutional Court ban as Mas had an appeal to that ruling thrown out by the Supreme Court.

The Catalan government talked of filing a lawsuit against Spain in an international court while an activist group in Madrid responded with its own suit to state prosecutors demanding police halt the balloting. “The Spanish government is being really short-sighted,” said Alex Quiroga, a lecturer in Spanish history at Newcastle University in England. “Continually saying ‘no’ and appealing to the Constitutional Court doesn’t help. It’s clear that only through negotiation can they solve the problem.” Spain’s prosecutor’s office in Catalonia asked regional police to report on any public-sector premises such as schools being used for the vote and to gather information about the persons responsible for allowing their use, according to an e-mailed statement from the prosecutor. It also requested Catalonia’s Education Department to explain whether it asked principals to allow the schools to be used for the vote.

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Great story. “All three keys needed to access the vault were kept in his personal safe.”

The Albanian World Cup Gambler Who Robbed The National Vault (Reuters)

In the end, it wasn’t the security cameras or the audit inspections in the vault of Albania’s central bank that brought down Ardian Bitraj. It was the high blood pressure and lack of sleep, the burden of a multi-million-dollar secret. Sitting down with his boss this July, Bitraj confessed his deception: over a four-year period he had stolen the equivalent of $6.5 million from the vault, covering his tracks by stuffing the empty cash boxes with books and balls of string. The revelation brought down the central bank governor, led to the arrest of 18 employees and tarnished the reputation of an institution once lauded for its professionalism. And all for the sake of a gambling habit that led to massive losses, culminating in a series of fatal bets on the soccer World Cup.

The full story of the Balkan bank heist is only just emerging, gleaned by Reuters in interviews with bankers, investigators and others involved, and from legal documents including a transcript of Bitraj’s confession. It started in May 2010, when Bitraj, who had risen to become head of the cash processing department at the bank, first opened the metal and plastic clasps to the wooden boxes that hold its cash reserves in the cryptically named X Building on the outskirts of the capital Tirana. Bitraj, 45, had a penchant for placing bets on soccer matches, so roughly once a month he would wait for his co-workers to leave the room and swipe up to 2 million leks, roughly $18,000, according to the confession.

Choosing carefully how he returned the boxes, Bitraj would make sure those he had tampered with were not in line for delivery to Albania’s commercial banks, nor likely to be picked on in the regular random audit of the vault. As the thefts mounted, he would stuff the boxes with packaging, balls of string and books to replace the weight of the cash. All three keys needed to access the vault were kept in his personal safe. In statements to police, bank employees said they had not received any directive on how or where to store the keys. Bitraj says auditors checked only 2% of the cash boxes in the vault. Fired governor Ardian Fullani says it was 5%, maintaining that checks in the former communist country were comparable with other central banks in Europe.

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Beware the US economy, or rather the reports and excuses that will be written on the cold.

Prepare For An Invasion From The North: “Polar Vortex, The Sequel” (CBS)

Prepare yourself for an invasion from the north. A blast of polar air is about to send temperatures plunging in the heart of America. It’s the return of the polar vortex that brought misery a year ago. A mass of whirling cold air will dip southward this weekend, sending the mercury plunging. As the cold air moves south and east, it has the potential to affect as many as 243 million people with wind chills in the single digits in some places and snow. It’s all triggered by a Super Typhoon named Nuri. Images from the European Space Station show that Nuri is a growing meteorological bomb blanketing the Bering Sea. The 50-foot waves and 100 mile-an-hour winds will make conditions similar to those we had two years ago, and could make Nuri the biggest storm of the year.

But it would be wrong to think that it will affect only Alaska’s far-flung Aleutian Islands or those famous fishermen who work in the North Pacific. WBBM’s meteorologist Megan Glaros in Chicago explains. “The remnants of Super Typhoon Nuri will create a big buckle in the jet stream,” Glaros says. “And in several days time, it’s going to mean a big dip in the jet which will connect us with a big mass of Arctic air – taking temperatures east of the Rockies down to 10 to 30 degrees below average.” Say “a big mass of arctic air” to anyone who lives in the Midwest and it conjures painful memories of the dreaded polar vortex that hit the region last winter.

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“A rapid advance of Eurasian snow cover during the month of October favors that the upcoming winter will be cold across the Northern Hemisphere …”

Harsh Winter Outlook Made More Dire by Siberia Snow (Bloomberg)

Remember how evidence was mounting last month that early snowfall was accumulating across Siberia? And remember how there’s a theory that says this snowfall signals a cold winter? So in the two and a half weeks since, the news for the winter-haters has, unfortunately, only gotten worse. About 14.1 million square kilometers of snow blanketed Siberia at the end of October, the second most in records going back to 1967, according to Rutgers University’s Global Snow Lab. The record was in 1976, which broke a streak of mild winters in the eastern U.S. In addition, the speed at which snow has covered the region is the fastest since at least 1998. Taken together they signal greater chances for frigid air to spill out of the Arctic into more temperate regions of North America, Europe and Asia, said Judah Cohen, director of seasonal forecasting at Atmospheric and Environmental Research in Lexington, Massachusetts, who developed the theory linking Siberian snow with winter weather.

“A rapid advance of Eurasian snow cover during the month of October favors that the upcoming winter will be cold across the Northern Hemisphere,” Cohen said in an interview yesterday. “This past October the signal was quite robust.” There are a few steps to get from the snows of Siberia to the chills in New York City. Cold air builds over the expanse of snow, strengthening the pressure system known as a Siberian high. The high weakens the winds that circle the North Pole, allowing the cold air to leak into the lower latitudes. The term Polar Vortex actually refers to those winds, not the frigid weather.

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The connection between our souls and our living world was lost in our heads long ago. 147 million fewer sparrows, a drop of 62% of their total population, since 1980; starling numbers have fallen by 45 million or 53%; skylarks are down by 37 million (46%).

Bird Decline Poses Loss Not Just For Environment, But Human Soul (Guardian)

‘That’s a buzzard!” says Richard Gregory, gesturing at a tall birch tree stump 50 metres or so away, from which a flapping streak of brown and white has just disappeared. “That was a buzzard. That’s one of the ones I was telling you about. It’s back.” When Gregory was a young child, toddling around the green bits of Cheshire with a monocular, a glimpse of a buzzard made for a thrilling day out – though he was mad about birds by the age of four, he was in his teens before he ticked the large raptor off his list. Now, though, thanks to reintroduction projects and legal protections, its number and that of several other birds of prey is on the up in Britain.

We glimpse another one, as it happens, a few minutes later, and while I suppose there is just a possibility it was the same bird on a second swoop, I’m counting that as a double sighting. The recovery in recent decades of Britain’s raptor population is welcome for a number of reasons. Firstly, it means I was right after all that time I spotted a red kite while driving up the A1 and everyone else in the car said I was talking rubbish. Secondly, it’s a snatch of good news in what could otherwise seem an unrelentingly grim picture. These are bad days to be a bird. A study released this week found that the most common birds in Europe are declining at an alarming rate, and that is not an idle term.

By studying 30 years of data across 25 countries, conservationists estimated that there are now a brain-boggling 421 million fewer birds flapping across the continent’s skies than were around in 1980. House sparrows alone account for a third of that decline, with 147 million fewer birds, a drop of 62% of their total population; starling numbers have fallen by 45 million or 53%; skylarks are down by 37 million (46%). Yes, the marsh harrier has recovered a bit, and feral pigeons and ring necked parakeets are doing well in cities, but overall, concluded the report, “global biodiversity is undergoing unprecedented decline”, and some of the species taking the hardest hit are birds which were once, not so long ago, abundant in our skies.

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