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George W. Bushmeat and the Economics of Ebola

Oct 122014
 
 October 12, 2014  Posted by at 8:30 pm Finance Tagged with: , , , , , , ,  25 Responses »


Dorothea Lange 4 families, 15 children, from Texas Dust Bowl, in roadside camp, Calipatria, CA Mar 1937

Ebola was until a few weeks ago mostly a forgotten affliction in the western world. Something that flared up in the Congo or thereabouts, parts of the world we’re aware of only because of the horrors of machete attacks and other mayhem induced by our own secret services in order to keep ‘our’ access to their mind-boggling amounts of resources going, while their populations live in conditions many miles below squalor.

We have applied divide and rule in the Congo better, or more ferociously, depending on your point of view, than anywhere else, ever. Hardly a word about western cruelty seeps through to our own media. A true imperium success story.

But the present ebola epidemic is not taking place where the disease was mostly raging. It’s in western Africa now. Where immense segments of native forest have been cut down, which in turn brought long-time ebola carrying fruit bats closer to other animals, and in turn to humans long dependent on bushmeat for survival.

Somewhere in that chain of events it was probably inevitable that an epidemic would break out. Of ebola or any other of a long list of viral or bacterial diseases. It’s also inevitable that a next epidemic will follow.

Until recently, my own personal knowledge of ebola was limited to the idea that it was one of, if not the worst way for a human being to die. Intense internal bleeding will do that. Something I find sorely missing in western media coverage of the people dying by the side of the road in west Africa. How they’re dying, that is.

It’s treated in a very detached way, as if it doesn’t really concern us until it might spread our way. ‘Western’ cases get treated with experimental drugs, while 4000+ Africans so far have been left to perish by the side of dirt roads in excruciating pain.

The ones that did receive treatment were attended to by local doctors, and that has led to dozens of the best and bravest doctors in Sierra Leone and Liberia succumbing to ebola themselves, a major feat in countries where per capita access to a doctor is mostly a tenth or a hundredth of what it is where we live. Take away doctors out of that situation, and that’s not even including nurses, and you have a disaster on your hands.

I’m not an expert on ebola or infectious diseases in general by any means, but I can read, and I can think, and occasionally I manage to bo both simultaneously. And what I see so far is a sweet mix of complacency, denial, stupidity and human error.

There’s a lot of political interest in downplaying the danger ebola poses. There’s even more economic interest in doing that, but then the two are Siamese twins. As of today in America, and last week in continental Europe, that attitude has become a threat to potentially millions of people.

I saw someone comparing HIV deaths to Ebola deaths, with the intent to downplay the threat, 1 million HIV deaths, ‘only’ 4000 ebola deaths. But ebola’s just getting started, and it’s much more contagious. Which makes such comparisons as irrelevant as it makes them dangerous.

The first Ebola infection on US soil that was announced today developed in the exact same way the one in Spain last week did: a health care worker tending to a confirmed ebola case got him/herself infected. Both ‘2nd generation’ cases have no idea how they were infected. The US nurse was allegedly wearing full-body protective gear all the time, while the Spanish nurse herself said she had no clue how she could have gotten the disease.

In the US case, we know that the first deadly victim, Thomas Duncan, had been in Liberia. He was sent home by several medical services after both reporting symptoms, and stating he’d been in ebola infected territory.The very same thing happened to the Spanish nurse, who was sent away from at least 3 clinics with a Tylenol prescription, after she had said she’d been attending to an ebola patient.

The patient she had been nursing was a priest who had been flown in from Africa after exhibiting symptoms. He was, however, the second Spanish priest in that situation. The first one reportedly died in the same hospital in Madrid as long ago as August.

Madrid got a lot of flack for the infected nurse: it was accused of not having its precautions properly in place. We should now review how well the Texas Presbyterian is doing in that regard. Given the fact that the Texas nurse diagnosed, or rather confirmed, today, was allowed to lead a normal personal life, socializing, shopping etc., until (s)he started exhibiting obvious symptoms, should make us feel queasy.

There will always be plenty political voices more than willing to declare that ‘there is no need to panic’ or ‘now is not the time to panic’, but we need to realize that what politicians and media say is inevitable based on economic grounds.

It might be worth contemplating to isolate western Africa from the rest of the world, halt flights etc., and meanwhile give them all the support we can, no matter what the cost. We choose instead to do everything related to support on the ground on the cheap, bleeding WHO coffers dry while we’re at it, and we let transportation options continue, because it would cost ‘too much’ not to. Money will rule our approach to ebola, like to everything else, until it’s too late.

Ironically, it was George W. Bushmeat government’s bio-terrorist anthrax and flu paranoia in the wake of 9/11 that injected a lot of money into America’s epidemiology protection layers. If not for those paranoid billions, I kid you not, G-d help us. His epitaph will read not only that he was an accomplishes portrait painter, he may well also have saved America from a much worse epidemic than it’s yet to get. America could sure use some of that paranoia right now.

And so could Europe, where everyone to a man solemnly declares that the chances of ebola appearing in their country are slim to none. And where dozens of flights arrive daily from west Africa. To paraphrase the CDC’s Mike Osterholm: the virus moves at virus time, we move at bureaucrat time.

The nurse is Madrid is reportedly healing, she’s been given the experimental ZMapp drug. We better get a million doses of that to Liberia and Sierra Leone. But we’ll probably fight over the economics of that until we need 10 million doses.

We’ve maybe grown so accustomed to living in a casino economy that we think the world is a crap table. But some things had better not be wagered on. Remember the Spanish Flu. Or should I say: Remember the Spanish Flu? Again, we tell ourselves no major epidemic could hurt us. We understand viruses as poorly as we do the exponential function. Which happen to have lots in common.

Judging from what we’ve seen so far, our health care systems are woefully unprepared for even single cases of ebola infection occurring on our soil. What’s going to happen when there’s dozens? Are we just going to say that there’s ‘only’ a 25% chance of that, based on some computer model? Or are we going to make sure we do what we can to keep ebola away from our lands?

There’s only one way to make sure: get into western Africa now, with all we have. Good for us, and good for our karma.

Debt Rattle October 12 2014

Oct 122014
 
 October 12, 2014  Posted by at 12:09 pm Finance Tagged with: , , , , , , , , , , , ,  1 Response »


John Vachon Michigan Avenue, Chicago July 1941

• IMF: Get Bold On Economy, Ease Up On Budget Cuts (Reuters)
• Financial Storm Clouds Cast A Deep Shadow Over IMF Summit (Observer)
• Fed’s Evans: Stronger Dollar Will Hurt Growth, Inflation Fight (MarketWatch)
• Fed’s Williams: What Emerging Markets Should Fear (MarketWatch)
• Fed’s Tarullo: Banking Scandals More Than Just A Few Bad Apples (MarketWatch)
• Europe Growth Pact Floated As Euro Zone Recession Fears Mount (Reuters)
• Italy’s Beppe Grillo Prepares Referendum On Leaving The Eurozone (RT)
• Italian PM Stakes His Credibility On Passage Of Big Reforms (Economist)
• Grillo’s M5S Stages 3-Day Gathering In Rome To Protest Reform Bill (PressTV)
• Irish Voters Take To The Streets In Anti-Austerity Protests (Reuters)
• US Seeks ‘Total Cooperation’ From Swiss On Tax Dodging (Reuters)
• An ISIS/Al-Qaeda Merger Could Cripple the Civilized World (Fiscal Times)
• IMF: Price Drop Shouldn’t Disrupt Oil Producers’ Government Spending (Reuters)
• Hackers Plan $1 Billion ‘Cyber-Heist’ On Global Bank (ES)
• Banks Accept Derivatives Rule Change To End ‘Too Big To Fail’ (Reuters)
• New China Import Tariffs Mean ‘Game Is Over For Australian Coal’ (Reuters)
• One In Seven Australians Living Below The Poverty Line (Guardian)
• Fracking Firms Get Tested by Oil’s Price Drop (WSJ)
• ‘The Overnighters’ Shows Dark Side Of North Dakota Oil Boom (Reuters)
• Health Care Worker Who Treated Texas Victim Tests Positive For Ebola (BBC)
• Second Leaker In US intelligence, Says Glenn Greenwald (Guardian)

We should dissolve the IMF. They’ve become even more dangerous than they are useless.

• IMF: Get Bold On Economy, Ease Up On Budget Cuts (Reuters)

The IMF’s member countries on Saturday said bold action was needed to bolster the global economic recovery, and they urged governments to take care not to squelch growth by tightening budgets too drastically. With Japan’s economy floundering, the euro zone at risk of recession and the U.S. recovery too weak to generate a rise in incomes, the IMF’s steering committee said focusing on growth was the priority. “A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high,” the International Monetary and Financial Committee said on behalf of the Fund’s 188 member countries. The Fund this week cut its 2014 global growth forecast to 3.3% from 3.4%, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injections of cash by the world’s central banks.

The IMF has flagged Europe’s weakness as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund’s fall meetings, which wrap up on Sunday. European officials have sought to dispel the gloom, with European Central Bank President Mario Draghi on Saturday talking about a delay, not an end, to the region’s recovery. But efforts to provide more room for France to meet its European Union deficit target looked set to founder on Germany’s insistence that the agreement on fiscal rectitude was set in stone. The IMF panel urged countries to carry out politically tough reforms to labor markets and social security to free up government money to invest in infrastructure to create jobs and lift growth. It called on central banks to be careful when communicating changes in policy in order to avoid financial market shocks. While not naming any central banks, the warning appeared aimed at the U.S. Federal Reserve, which will end its quantitative easing policy this month and appears poised to begin raising interest rates around the middle of next year.

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And dissolve the World Bank, too. These institutions serve only special interests, they’re an insurance policy for a world order gone haywire.

• Financial Storm Clouds Cast A Deep Shadow Over IMF Summit (Observer)

Six years ago, finance ministers and central bank governors gathered in Washington for the annual meeting of the International Monetary Fund with the global financial system teetering on the brink. It was less than a month since the collapse of the US investment bank Lehman Brothers and in the aftermath no institution, however big and powerful, looked safe. After staring into the abyss, they put together a co-ordinated plan to rescue ailing banks. This was followed by further joint moves when the drying up of credit flows plunged the world economy into recession. A second Great Depression was averted, but only just – and at a price. Last week, the IMF and World Bank celebrated their 70th birthdays, but there was a distinct lack of party atmosphere in Washington. While not as tense as during the dark days of October 2008, the mood was distinctly sombre as the two organisations –created at the 1944 Bretton Woods conference – worked their way through a packed agenda that was dominated by six big themes.

Ever since the global economy bottomed out in the spring of 2009, the hope has been that the world would return to the robust levels of growth seen in the years leading up to the financial crash. Time and again, the optimism has proved misplaced, with the IMF repeatedly revising down its forecasts. This year was no exception. “The recovery continues but it is weak and uneven,” said the IMF’s economic counsellor, Olivier Blanchard, as he announced that at 3.3%, growth rates would be 0.4 points lower than anticipated in the spring. What concerns the IMF is that the slowdown – particularly in the advanced countries of the west – may be permanent. The phrase being bandied around in Washington was “secular stagnation”, the notion that there has been a structural decline in potential growth rates. Blanchard said it was entirely possible that developed countries would never return to their pre-crisis growth levels, and that even achieving the lower rates of expansion now expected would require interest rates to be maintained at historically low levels.

Having failed spectacularly to spot the last financial crisis coming, the IMF is now alert to the possibility that a long period of ultra-low interest rates is storing up problems for the future. José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.” This is not what the central banks intended when they cut the cost of borrowing and cranked up the electronic-money printing presses in the process known as quantitative easing. They expected cheap and plentiful money to rouse the animal spirits of entrepreneurs, encouraging them to invest. Instead, they have provided the casino chips for speculators.

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Part of a carefully planned spin.

• Fed’s Evans: Stronger Dollar Will Hurt Growth, Inflation Fight (MarketWatch)

A stronger U.S. dollar is an obstacle to the Federal Reserve’s ability to meet its inflation mandate and will impede growth, Charles Evans, the president of the Chicago Fed, said on Saturday. “It’s a headwind,” Evans told reporters after giving a speech on the sidelines of the International Monetary Fund’s annual meeting. “[A] Higher dollar is going to have an effect on our net exports, it is going to reduce it a bit. And it is also going to lead to lower import prices and likely have an effect that our inflation data will be lower,” Evans said. Earlier, in his speech, Evans said there is “more uncertainty” in the global economic outlook than the Fed had expected. Evans said he was restricting his comments to the effects of the stronger dollar on the U.S. economy and had no comment on U.S. dollar policy. Evans said that he expects the economy to growth at a 3% pace, but because housing isn’t acting as its typical engine of growth, a lot of things have to go right to get that growth rate.

“It is in that context that as I see the global uncertainties at a fairly high level it makes me a little concerned about the forecast,” he said. “It is much too soon to take on any headwinds from around the world,” he added. Experts said the U.S. government would only tolerate a stronger dollar versus the euro as long as European officials follow through with structural reforms. Evans is one of the most dovish of the regional Fed presidents, and said the Fed should wait until early 2016 to raise interest rates. He will be a voting member of the Fed policy committee next year. Evans suggested he would support altering the Fed’s guidance to give some quantitative sense that the central bank would tolerate inflation above 2% for some time, as long as projections did not show prices spiking higher.

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‘It’s not only rising rates’ …

• Fed’s Williams: What Emerging Markets Should Fear (MarketWatch)

Emerging markets face more risks than from the Federal Reserve, John Williams, the president of the San Francisco Fed, said on Saturday. Many experts, including Reserve Bank of India Governor Raghuram Rajan, have urged the Fed to be sensitive to the impact that the timing of its increase in interest rates will have on the developing world. Williams said that market volatility may stem more from the fact that major global central banks are moving in different directions. “Everyone is talking about the Federal Reserve. quite honestly, unconventional policy is going on in Japan and the European Central Bank, so to me it is really the cross currents that really, to my mind, drive the uncertainty and some of that risk out there in global markets.

It is not just what the Fed is doing, it is that fact that different central banks are moving in different directions for appropriate reasons,” Williams said at the Institute of International Finance meeting, taking place on the sideline of the International Monetary Fund’s annual meeting. Higher interest rates are expected to draw back money from riskier markets. Last year, just the suggestion by the Fed that it was thinking about ending its quantitative easing program sparked a selloff in currencies and assets in emerging markets. Andrew Colquhoun, head of Asia Pacific Sovereigns at Fitch Ratings, said recent research by his firm shows that Indonesia, India, Turkey and Brazil might be vulnerable if there were a shock to financial market conditions as a result of the Fed raising rates.

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So what are you going to do about it?

• Fed’s Tarullo: Banking Scandals More Than Just A Few Bad Apples (MarketWatch)

The plethora of banking scandals cannot be written off as just the work of a few bad actors, Federal Reserve Governor Daniel Tarullo said Saturday. In remarks to the Institute of International Finance, Tarullo said that the average U.S. citizen reading the newspaper would be understandably upset after reading stories about bank mortgage fraud, and more recent scandals involving efforts to manipulate the Libor reference rate and allegations of manipulation of foreign exchange rates. “The problem at this juncture is that there are so many problems,” Tarullo said. The institute is meeting on the sidelines of the annual meeting of the International Monetary Fund.

“You can’t just be telling yourself that there are a few apples. There is something about the structure of incentives and expectations within firms that needs to be addressed,” Tarullo said. “ I think a lot of boards, and management, know it needs to be addressed.” Tarullo is the Fed’s point man on bank regulation. In other remarks, Tarullo said it was premature to declare that the problem of too-big-to-fail banks has been solved, noting that cross-border complications remain. As the Fed puts higher liquidity and capital standards on the biggest banks, Tarullo said the central bank will be watching closely to see if any activities move into the shadow banking sector. “That is something we are all going to need to keep a watch on and make sure risk is not building up in other places in the system.”

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Could have been a headline in any of the past 8 years. The more things change …

• Europe Growth Pact Floated As Euro Zone Recession Fears Mount (Reuters)

Heeding global calls for action to shore up Europe’s sagging economy, euro zone’s top finance official proposed a new growth pact on Friday to break a policy logjam and spur reforms by rewarding countries with cheap funds and leeway on budget targets. The International Monetary Fund, which cut its global growth forecasts for the third time this year this week, flagged Europe’s weakness as the top concern, a sentiment echoed by many policymakers, economists and investors. European officials in Washington for the IMF and World Bank annual meetings sought to dispel the gloom, with European Central Bank President Mario Draghi talking about a delay, not an end, to the region’s recovery. Jeroen Dijsselbloem, the chairman of euro zone’s finance ministers, used the forum to propose a new “growth deal” for Europe offering nations embarking on ambitious economic reforms more fiscal wiggle room and low-interest EU funds.

“There is no reason for this gloominess about Europe,” Dijsselbloem told Reuters. “Those countries that have actually implemented the strategy and done the reforms, have returned to growth, in southern Europe, in the Baltics, in Ireland. Which once again proves that reforms do not hurt growth, but help recovery quite quickly.” It would take months of political negotiations for the proposed pact to take shape. In the meantime, a steady stream of poor economic data looks set to keep Europe’s partners on edge. “The biggest risk to the global economy at the moment … is the risk of the euro zone falling back into recession and into crisis,” British finance minister George Osborne told reporters.

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It’s been three years since Nicole and I went to visit Beppe. Good to see he’s still at it. Best chance Italians have.

• Italy’s Beppe Grillo Prepares Referendum On Leaving The Eurozone (RT)

The leader of an influential Italian Eurosceptic political party, the Five Star Movement (M5S), says he will collect one million signatures required to petition the Parliament to conduct a referendum on Italy leaving the Eurozone as soon as possible. The Italian government is not effective in restoring jobs and helping people, said Beppe Grillo, the leader of Italy’s anti-establishment M5S, which burst onto the political scene last year winning 25% of the vote in its first parliamentary election in 2013. “Leave the euro and defend the sovereignty of the Italian people from the European Central Bank,” Grillo told his supporters at a M5S event in Rome. “We have to leave the euro as soon as possible,” he said. “We will collect one million signatures in six months and bring them to the Parliament to ask for a referendum to express our opinion.” Grillo hopes his party’s recent success and growing support will allow them to gather enough signatures and push the idea through the Parliament by December 2015.

“This time, we have 150 parliamentarians and senators, and we have time to submit [the signatures] to the Parliament and adopt a law on the referendum,” Grillo said referring to 109 seats out of 630 in the Chamber of Deputies and 54 seats out of 315 in the Senate that his party holds. The constitution of Italy prohibits popular referendums on financial laws and ratifications of international treaties, but in any case the move will send a clear message to the government, Grillo believes. The Five Star Movement was started by Grillo in 2010 and has made a splash at local elections, receiving the third highest number of votes overall and winning the mayoral election for Parma before the success in general election. In the 2014 European election, M5S came in second place nationally, taking 17 of Italy’s seats in the European Parliament.

Beppe Grillo was a popular comedian on Italian television in 80s, but he disappeared from the screen in the 90s, with many suggesting that his harsh satire was too much to handle for Italian politicians. After that he mainly performed in theatres and staged a series of mass rallies, protesting against the criminal activities of the Italian political elite. At a time when unemployment in the Eurozone’s third largest economy is running above 12% and all-time high of 44% for Italians under the age of 25, Grillo’s belief in direct participation through forms of digital democracy might be the only way to get Italian frustration across. Although the IMF predicts Italy’s recession will break in 2015, when the growth is expected to reach 1.1%, the country is struggling to keep its budget deficit below the EU’s cap of 3% of GDP.

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Renzi resorts to sneaky methods to push his ‘reforms’ through. Never a good sign.

• Italian PM Stakes His Credibility On Passage Of Big Reforms (Economist)

THE Sala Verde (green room) in the prime minister’s official residence, Palazzo Chigi, in Rome has in the past been the scene of three-way talks between the government, the unions and employers that lasted for days. It was to this chamber that Matteo Renzi, the present prime minister, invited representatives of both sides on October 7th to discuss a revamped employment bill crucial to his government’s credibility as a liberalising administration. He gave them each 60 minutes, starting at 8am. “Only once before has [such] an absence of social dialogue been seen in Europe,” spluttered Susanna Camusso, leader of the biggest trade union federation. “With Thatcher.” But in Italy, where “face” can be as important as it is in several East Asian countries, appearances are one thing and substance another. The employment bill, which passed its first test in the Senate a day later, is far from Thatcherite. It aims to give most new employees gradually increasing job security, potentially improving the lot of young Italians who now often work only on short-term contracts.

But it leaves to enabling legislation the fate of Article 18, an emblematic provision in Italian labour law that makes it almost impossible for companies with more than 15 staff to dismiss workers on open-ended contracts (even if, in practice, most employees are willing to negotiate a settlement). It is too early to assess the likely impact of the bill. It will be heavily conditioned by further legislation, some of it not due for approval until next year. But it is nevertheless Mr Renzi’s first big structural economic reform, and as such it is a much-needed prize for the euro zone’s austerity hawks. With Italy mired yet again in recession and GDP in real terms below its level in 2000, never mind 2008 (see chart), Mr Renzi is desperate for the hawks to take a more flexible view of his budget deficit so as to sustain demand. “Either we promote growth, or the euro is finished,” he says.

This week the IMF reduced its forecast for Italian GDP growth this year to minus 0.2%, from plus 0.3% previously. Not even Italy’s innately optimistic prime minister expects it to get above 1% in 2015. His country’s public debt, already 135% of GDP, continues to grow despite relatively tight fiscal policy. One reason for the brevity of Mr Renzi’s talks with the unions and employers was that he wanted them out of the way before racing his employment bill into the Senate so as to coincide with a one-day European Union jobs summit that he was hosting in Milan on October 8th (Italy occupies the rotating EU presidency until the end of the year). To get the bill approved in the face of misgivings on the left of his Democratic Party (PD) and in other parties, Mr Renzi staked the fate of his government, turning the vote into one of confidence. The result was a tumultuous session in the upper house. No fewer than 26 PD senators put their names to a document criticising the lack of detail in the bill.

Beppe Grillo’s Five Star Movement (M5S) also objected to the government’s being given such wide powers to frame the enabling legislation. Some M5S senators threw coins at the government benches; their leader was expelled from the chamber. A lengthy break in the proceedings failed to calm the mood. At one point, a book was hurled at the speaker after he refused to postpone the vote. The bill eventually passed with 165 in favour and 111 against. The passage of this and other reforms is vital if Mr Renzi is to convince Germany and other euro-zone austerians to cut him enough budgetary slack in order to boost growth. For the time being, and unlike France’s leaders, he says he is prepared to stick to the euro zone’s deficit ceiling of 3% of GDP: “An absolute must, for reasons of credibility,” he insists. Yet Italy was originally meant to get the deficit this year down to 2.6%. It stands to lose some EU co-financing if its deficit rises above 3%.

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44% long-term youth unemployment.

• Grillo’s M5S Stages 3-Day Gathering In Rome To Protest Reform Bill (PressTV)

Italy’s opposition party, the Five Star Movement has launched a three-day gathering in Rome, attended by thousands of people from across the country. As discontent and disillusion continue to grow in the country, an increasing number of Italians are opting to line up with the Five Star Movement which has taken a hard-line on Italy’s old guard of politicians. Many hold traditional politics responsible for the country’s high level of corruption and skyrocketing unemployment rate. The 5-Star Movement is well known for its anti-establishment agenda. The movement has announced that it would use obstructionism in the parliament against all government measures after an executive’s controversial labor market reform bill recently won a confidence vote in the Senate. During the gathering, the movement leader Beppe Grillo has once again accused Italian media of staging disinformation campaigns against his movement. Also, the 5-Star Movement members of the parliament are currently not attending TV shows as a sign of protest.

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To think that Ireland was presented as an austerity poster child earlier this year…

• Irish Voters Take To The Streets In Anti-Austerity Protests (Reuters)

Tens of thousands of people rallied against new water bills in Dublin on Saturday in Ireland’s biggest anti-austerity protest for years as a candidate calling for a boycott of the charges was elected to parliament in a by-election. After years of free water services, the centre-right coalition has decided to charge households hundreds of euros from the start of next year, an unpopular move just 18 months before the next election where the government parties hope to be rewarded by voters for an economic upturn. Ireland has seen relatively few protests compared to other bailed-out euro zone members such as Greece and Portugal, but Saturday’s protesters said the water charges were a step too far. “There is absolute fury against what the government has imposed on the people,” said Martin Kelly, 50, a rail worker holding a placard calling for the government to “stop the great water heist.” “They say this is the last bit, but it’s the hardest. People can’t take any more,” he said.

Since completing an international bailout last year, Ireland has been bucking the trend in Europe’s stalled economic recovery, with the government forecasting gross domestic product to grow by 4.7% this year. The improvement has allowed the government to promise its first budget without any new austerity measures in seven years on Tuesday, but opposition groups say working people are not feeling the upturn. More than one in 10 are unemployed and more than 100,000 mortgage holders in arrears in a population of 4.6 million. Paul Murphy from the Anti-Austerity Alliance, whose campaign was dominated by a call to boycott the water charges, won the parliamentary seat in the Dublin South West constituency that was vacated by a member of the governing Fine Gael party who was elected to the European Parliament. Murphy, told supporters: “Recovery is for the rich, it’s for the 1% … it’s not for the working class people.” His supporters chanted: “No way, we won’t pay.”

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And why not?

• US Seeks ‘Total Cooperation’ From Swiss On Tax Dodging (Reuters)

The U.S. Department of Justice (DOJ) is seeking “total cooperation” from Swiss banks in a draft agreement aimed at allowing the banks to make amends for aiding tax evasion by wealthy Americans, a Swiss newspaper reported on Saturday. About 100 Swiss banks signed up to work with U.S. authorities at the end of last year in a program brokered by the Swiss government. That followed criminal investigations of roughly a dozen Swiss banks in the United States. Under the program so-called category two banks – those that have reason to believe they may have committed tax offenses – will escape prosecution if they detail their wrongdoing with U.S. clients and pay fines.

These banks have now received a draft non-prosecution agreement from the United States, which would require them to report in full to U.S. authorities any information or knowledge of activity relating to U.S. tax, the the Neue Zuercher Zeitung (NZZ) said, citing unnamed banking sources. These requirements would also apply to parent companies, subsidiaries, management, workers and external advisors, the NZZ reported. This total cooperation would, in addition, not only apply with respect to the DOJ and the Internal Revenue Service, but also to anyone, even foreign law enforcement agencies, that the DOJ is supporting in its investigations,” the NZZ reported. It said that no end date for this cooperation was given in the draft.

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One would think so.

• An ISIS/Al-Qaeda Merger Could Cripple the Civilized World (Fiscal Times)

As ISIS continues to advance on the Syrian town of Kobani and close in on Turkey’s border, experts in Islamic radical movements think the terror group may merge with its al-Qaeda mother organization soon. Together, the group would represent the greatest terror threat to the civilized world. “I think Britain, Germany and France will witness significant attacks in their territories by the Islamic State. Al-Baghdadi [the leader of the Islamic State of Iraq and Syria, otherwise known as ISIS] may reconcile with al-Zawhiri [the leader of the al-Qaeda central organization] to fight the crusader enemy. The attacks by the United States and her allies will unite the two groups,” said Hisham al-Hashimi, an Iraqi researcher who just finished writing a book about ISIS based on his unique access to the organization’s documents and years of research and advising Iraqi security forces.

“I have been monitoring al-Qaeda’s leaders’ rhetoric towards Baghdadi. They are getting softer and softer….The Islamic State, regardless of how big or small it becomes, will come back to its mother: al-Qaeda,” he added. ISIS and al-Qaeda have a long, tangled history with one another. ISIS was the al-Qaeda official branch in Iraq until last February. However, they finally split after disagreements over operations in Syria. The recent US intervention in the region along with the new US-led airstrike campaign against ISIS has actually forced the two groups to renew negotiations. For example, recent reports suggested that ISIS and al-Nusra Front are together planning the war against the US-led alliance. The al-Qaeda affiliated Khorasan group in Syria that was also targeted in the recent air attacks declared a few days ago in an audio message that it had joined ISIS. Add to that the Taliban in Pakistan who are hopping on board the ISIS train and you have a potential jihadi World War III.

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Collateral damage of US/Saudi policies.

• IMF: Price Drop Shouldn’t Disrupt Oil Producers’ Government Spending (Reuters)

The drop in global oil prices should not affect the spending plans of oil-producing countries in the Middle East in the near-term given their large financial reserves, the head of the IMF’s Middle East and Central Asia Department said on Friday. The official, Masood Ahmed, told reporters that every oil producer in the region outside of the Gulf Cooperation Council and Bahrain were running fiscal deficits, and that the drop in prices would push those budget gaps even wider. However, he said their sizable financial reserves would allow those countries to continue with their spending plans in the short-term, although the price drop has raised a longer-term issue.

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Criminals targeting criminals?!

• Hackers Plan $1 Billion ‘Cyber-Heist’ On Global Banks (ES)

Criminal gangs are plotting a $1 billion (£618 million) cyber-heist on global financial institutions, Europol has warned, as they ratchet up the pressure on banks reeling from the record-breaking hit on JPMorgan Chase. Secret listening on internet chatrooms by the European police investigative body has discovered planning by sophisticated Russian cyber-criminals aimed at pulling off one massive hit on a bank. “We have intelligence and information about planning in this direction,” Troels Oerting, pictured, head of Europol’s European Cybercrime Centre in The Hague, said. Bank insiders are being groomed, says Europol, to put in place programs that will override monitoring apparatus. These insiders will close down alarm systems designed to alert staff when large amounts are unexpectedly transferred out of a bank. “The criminals don’t want to make thousands of small thefts,” said Oerting. “Instead they want one big one on a financial institution.”

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Never trust anything the banks readily accept.

• Banks Accept Derivatives Rule Change To End ‘Too Big To Fail’ (Reuters)

The $700 trillion financial derivatives industry has agreed to a fundamental rule change from January to help regulators to wind down failed banks without destabilizing markets. The International Swaps and Derivatives Association (ISDA) and 18 major banks that dominate the market will now allow financial watchdogs to apply temporary stays to prevent a rush to close derivatives contracts if a bank runs into trouble, the ISDA said on Saturday. A delay would give regulators time to ensure that critical parts of a bank, such as customer accounts, continue smoothly while the rest is wound down or sold off in an orderly way. That would help to avoid the type of market chaos sparked by the collapse of Lehman Brothers in 2008 and also end the problem of banks being considered too big to fail. The Financial Stability Board (FSB), a regulatory task force for the Group of 20 economies (G20), had asked the ISDA to make the changes with the aim of ending the too-big-to-fail scenario in which banks are propped up with taxpayer money to avoid market disruption.

Under the new contract terms, default clauses in derivatives contracts such as interest rate or credit default swaps would be suspended for a maximum of 48 hours. “Ending too-big-to-fail is going to be an evolutionary process, but the agreement of the first wave of banks to sign the protocol is a big step forward,” ISDA Chief Executive Scott O’Malia said. The ISDA template for millions of derivatives trades will now include the possibility of stays on both new and existing contracts, with the 18 leading players—including the likes of Credit Suisse and Goldman Sachs —agreeing to change their contracts from January. Many derivatives are traded among banks. “Well over 90% of the outstanding derivatives notionally held by the G18 banks will be covered with stays, which will give regulators some time to deal with a resolution of a bank in an orderly way,” O’Malia said.

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The big one.

• New China Import Tariffs Mean ‘Game Is Over For Australian Coal’ (Reuters)

China, the world’s top coal importer, will levy import tariffs on the commodity after nearly a decade, in its latest bid to prop up ailing domestic miners who have been buffeted by rising costs and tumbling prices. The sudden move by China to levy import tariffs of between 3% and 6% from October 15 is set to hit miners in Australia and Russia – among the top coal exporters into the country. Traders said Indonesia, the second-biggest shipper of the fuel to China, will be exempt from the tariffs since a free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) means Beijing has promised the signatory nations zero import tariffs for some resources. A 3% import tariff imposed on lignite last year did not include Indonesia. “China is clearly moving to protect its local miners. Given that the tariff also covers coking coal, Australia, being the top supplier to China, is likely going to be the most affected,” said Serene Lim, an analyst at Standard Chartered.

The Ministry of Finance said in a statement on Thursday that import tariffs for anthracite coal and coking coal will return to 3%, while non-coking coal will have an import tax of 6%. Briquettes, a fuel manufactured from coal, and other coal-based fuels will see their import tariffs return to 5%. Import taxes for all coals, with the exception of coking coal, was at 6% prior to 2005 before they were scrapped in 2007. Coking coal import taxes were set at 3% before being abolished in 2005. News of the tariff lifted China’s thermal coal futures by 1.9% to 529.2 yuan ($86.33) a tonne, while China-listed shares in top miners such as Shenhua Energy and China Coal Energy also rose. Chinese traders were only willing to pay about $65 a tonne for coal with heating value of 5,500 kcal/kg (NAR) on a landed basis before the tariff was announced, against offers of about $66 a tonne by Australians, traders said. “With the latest tax, Chinese can only offer around $62, which means Australian sellers will need to cut prices by about $3.50-$4 a tonne,” said a senior trader at major international trading house. “It is game over for Australian coal.”

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The scandal that happens all over the western world, and will end up tearing it apart.

• One In Seven Australians Living Below The Poverty Line (Guardian)

Four in 10 Australians who rely on social welfare payments – and nearly half of people on the disability support pension – are living below the poverty line, according to a major new report. The research, published by the Australian Council of Social Services (Acoss), found that more than 2.5 million – or one in seven – Australians were living in poverty in 2012, a slight increase on the same survey two years earlier. Nearly 18% of children live beneath the poverty line, one-third of them in sole-parent families, Acoss found. The governor general, Peter Cosgrove, said the report revealed the problem of poverty in Australia to be “insidious and all-encompassing”. “It deprives [the poor] of their freedom and assaults their dignity. As a nation we can’t allow it to continue,” he told the launch of Anti-Poverty Week in Sydney.

The chief executive of Acoss, Dr Cassandra Goldie, said the findings were “deeply disturbing and highlight the need for a national plan to tackle the scourge of poverty which diminishes us all in one of the wealthiest countries in the world”. Single adults on less than $400 per week, and families with two children on less than $841 each week, were deemed as living below the poverty line. More than half of Australians on the Newstart Allowance, 48% of disability pensioners and 15% of aged pensioners struggle to meet basic living costs, the report says. “This finding brings into focus the sheer inadequacy of these allowance payments which fall well below the poverty line,” Goldie said. The maximum payment for a single person on Newstart is $303 per week, nearly 25% less than what is required to stay out of poverty.

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Lots of positivism from the Wall Street Journal. Must be hard to find reporters who can think for themselves.

• Fracking Firms Get Tested by Oil’s Price Drop (WSJ)

Tumbling oil prices are starting to frighten energy companies around the globe, especially drillers in North America, where crude is expensive to pump. Global oil prices have fallen about 8% in the past four weeks. The European oil benchmark closed Thursday at $90.05 a barrel, its lowest point in 29 months. The price of a barrel in the U.S. closed at $85.77, its lowest since December 2012. Weakening oil prices could put a crimp in the U.S. energy boom. At $90 a barrel and below, many hydraulic-fracturing projects start to become uneconomic, according to a recent report by Goldman Sachs Group Inc. While fracking costs run the gamut, producers often break even around $80 to $85.

Paul Sankey, an energy analyst with Wolfe Research LLC, said the first drillers to react to declining crude prices would be some in the least productive fringes of North Dakota’s Bakken Shale. “We’re not quite there yet,” he said, but a further drop of $4 or $5 a barrel will force companies to begin trimming their capital budgets. Shares of Continental Resources and Whiting Petroleum, which are focused in the Bakken, fell by more than 5% each on Thursday. Shares of major shale-oil and gas developer Chesapeake Energy fell 7%. Jim Noe, executive vice president at Hercules Offshore, a Houston-based drilling-services company with rigs in the Gulf of Mexico, the Mideast, India and West Africa, said companies such as his are monitoring weak oil prices closely. Hercules said its business was affected by a slowdown in drilling activity in the second quarter. Hercules’s stock fell 6.3%.

The fundamental problem is that the world is awash with oil, but demand for energy is growing more slowly amid tepid economic growth around the globe, especially in China. Companies are always reluctant to be the first to cut their energy output, hoping that others flinch first. And hedging can help companies weather temporary drops. The overall U.S. economy, and especially industries such as refining and air travel, would benefit from lower oil prices. Some U.S. oil fields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices.

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“Variety magazine compared it to a John Steinbeck tale from the Great Depression”.

• ‘The Overnighters’ Shows Dark Side Of North Dakota Oil Boom (Reuters)

Desperate for a fresh start, unemployed workers from all over the world have converged on North Dakota’s burgeoning oil patch, seeking six-figure salaries and the rewards of living in the fastest-growing economy in the nation. But award-winning documentary “The Overnighters,” opening in New York on Friday before expanding nationally, shows the bleak side of that American Dream and the complex efforts of one man to be a Good Samaritan. “The film does show how much harder it is to survive here than people think,” filmmaker Jesse Moss told Reuters. “The Overnighters” tracks the men, and a handful of women, whose dreams of wealth and redemption from past mistakes collide with unwelcoming residents and limited housing in Williston, the epicenter of the energy boom in North Dakota, where more than 1 million barrels of oil are produced monthly.

Lutheran pastor Jay Reinke offers down-on-their luck emigrants a place to sleep inside his church while they acclimate, labeling the newcomers as “overnighters.” About 1,000 took up his offer over a period of about two years. That decision quickly becomes unpopular with the Williston establishment and nearly tears Reinke’s church and family apart. “The people arriving on our doorsteps are gifts to us,” Reinke says in the film. “Not only are these men my neighbors, the people who don’t want them here are also my neighbors,” adds Reinke, a tall, effusive man who spent 20 years pastoring to the community in obscurity. The film won a special jury prize at the Sundance Film Festival in January and has generated widespread acclaim. Variety magazine compared it to a John Steinbeck tale from the Great Depression of the 1930s, and The Hollywood Reporter called it “a sobering illustration of the tenuousness of stability in 21st-Century America.”

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The same as happened with the Spanish nurse in Madrid. The apparent lack of precautions is scary.

• Health Care Worker Who Treated Texas Victim Tests Positive For Ebola (BBC)

A Texas health care worker who treated US Ebola victim Thomas Duncan before his death has tested positive for the virus, officials say. “We knew a second case could be a reality, and we’ve been preparing for this possibility,” said Dr David Lakey, commissioner of the Texas Department of State Health Services. Mr Duncan, who caught the virus in his native Liberia, died at a Dallas hospital on Wednesday. The health worker has not been named.

Mr Duncan tested positive in Dallas on 30 September, 10 days after arriving on a flight from Monrovia via Brussels. He became ill a few days after arriving in the US, but after going to hospital and telling medical staff he had been in Liberia, he was sent home with antibiotics. He was later put into an isolation unit at Texas Health Presbyterian Hospital in Dallas but died despite being given an experimental drug. It is not clear at which point the health worker, who has tested positive in a preliminary test, came into contact with Mr Duncan.

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1.2 million people are on the US government’s watchlist of people under surveillance as a potential threat or as a suspect.

• Second Leaker In US intelligence, Says Glenn Greenwald (Guardian)

The investigative journalist Glenn Greenwald has found a second leaker inside the US intelligence agencies, according to a new documentary about Edward Snowden that premiered in New York on Friday night. Towards the end of filmmaker Laura Poitras’s portrait of Snowden – titled Citizenfour, the label he used when he first contacted her – Greenwald is seen telling Snowden about a second source. Snowden, at a meeting with Greenwald in Moscow, expresses surprise at the level of information apparently coming from this new source. Greenwald, fearing he will be overheard, writes the details on scraps of paper.

The specific information relates to the number of the people on the US government’s watchlist of people under surveillance as a potential threat or as a suspect. The figure is an astonishing 1.2 million. The scene comes after speculation in August by government officials, reported by CNN, that there was a second leaker. The assessment was made on the basis that Snowden was not identified as usual as the source and because at least one piece of information only became available after he ceased to be an NSA contractor and went on the run.

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Debt Rattle October 11 2014

Oct 112014
 
 October 11, 2014  Posted by at 11:14 am Finance Tagged with: , , , , , , , ,  5 Responses »


DPC Sinking last tubular section, Michigan Central R.R. tunnel, Detroit River 1910

• More S&P 500 Pain Seen as 10% Losses Spread (Bloomberg)
• Volatility Keeps Rising; VIX Hits New 52-Week High (Barron’s)
• US Stocks Close Out Worst Week Since May 2012 (AP)
• Wall Street Goes Short Bonds at Bad Time as Debt Rallies (Bloomberg)
• Dam Breaks In Europe As Deflation Fears Wash Over ECB Rhetoric (AEP)
• Dennis Gartman Says The Euro ‘Is Doomed To Failure’ (CNBC)
• Why Oil Is Plunging: The “Secret Deal” Between The US And Saudi Arabia (ZH)
• Here’s Why Shale Oil Stocks Are Tanking (CNBC)
• ECB Weighing First Step to Buying Yuan for Foreign Reserves (Bloomberg)
• Deutsche Bank Latest ‘Untouchable’ Target for Munich Prosecutor (Bloomberg)
• S&P: Negative Outlook For France’s Risky Reform (CNBC)
• S&P Downgrades Finland To AA+ from AAA (CNBC)
• Six Years After Lehman, US And UK Play Financial Crisis War Game (Guardian)
• 30-Year Mortgages Back Below 4%, But For How Long? (MarketWatch)
• Ebola Screening at JFK Focusing on a Few Among Masses (Bloomberg)
• China Pollution Levels Hit 20 Times Safe Limit (Guardian)

Some still see a very long bull market dead.

• More S&P 500 Pain Seen as 10% Losses Spread (Bloomberg)

For most American stocks, the correction has arrived. While gauges such as the Standard & Poor’s 500 cling to gains for the year, declines that exceed the 10% are spreading in the broader market. In the Russell 3000 Index (RAY), for example, 79% of companies are down that much from their highs, according to data compiled by Bloomberg. That’s a bad sign to Doug Ramsey, the chief investment officer of Leuthold Group who correctly predicted in July 2013 that the U.S. bull market had months more to go. He said that when losses multiply in stocks away from benchmark indexes, it usually means the bigger companies are next. “We’re not expecting a bear market, but we are expecting a significant additional correction,” Ramsey, who helps oversee $1.7 billion at Minneapolis-based Leuthold, said by phone. “We’re seeing very classic late-cycle action where the Dow and S&P 500 are painting a very false picture of what’s going on underneath.”

Concern the rate of global growth is slowing and the Federal Reserve is preparing to raise interest rates has pushed the S&P 500 down 5.2% from its September record. The 1,700-stock Value Line Arithmetic index, which strips out weightings related to market value to show how the average U.S. stock has fared, is down 10% since July. An average of 7.9 billion shares a day changed hands on U.S. exchanges this week, the most since November 2011, as the Dow Jones Industrial Average erased its 2014 gain. The Chicago Board Options Exchange Volatility Index jumped 46% to 21.24, the highest since February. Three weeks of declines have broken the almost unprecedented calm that had enveloped markets for most of 2014. Eight trading days into October, the S&P 500 has posted six single-day moves exceeding 1%. The market went without any swings of that size for 62 days in May, June and July, the longest stretch since 1995.

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Markets need volatility simply to make money.

• Volatility Keeps Rising; VIX Hits New 52-Week High (Barron’s)

Fear is rising. The CBOE Volatility Index (VIX) continued its upward climb today, rising 9% to 20.45 after earlier rising above 22 on the heels of eye-popping gains yesterday. UBS Strategist Julian Emanuel argues that volatility could keep rising. In a note published today, he wrote:

When considering the numerous geopolitical hot spots, public health concerns, the end of the Fed’s QE due on 10/29 and the unknown of elections in Brazil and Ukraine (10/26) and the US Midterm election on 11/4, we expect volatility to remain elevated, gravitating toward the long term mean of 20, with the potential to spike higher should 20142 s growth scare more closely resemble 20112 s (S&P 500 decline of 17.9%) rather than 20132 s (S&P 500 decline of 5.8%). Putting it into context, a VIX of 20 implies an average daily move in the S&P 500 of around 24 points and in the Dow Jones Industrial Average, 210 points. Expect more volatility!


The VIX, known as Wall Street’s fear gauge, has been rising since mid-June, when it fell below the 11 mark, the lowest levels since 2007. The index is inversely correlated with the S&P 500 and many view it as an indicator of market peaks. Today’s intraday high of 22.06 is also a 52-week high for the index. The bulls and bears are battling valiantly. Yesterday, the grizzlies won, with the Dow suffering a more than 300-point drop and continuing to fall today.

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More to come.

• US Stocks Close Out Worst Week Since May 2012 (AP)

U.S. stocks are closing out a turbulent week with another loss, giving the market its worst week since May 2012. Technology shares were especially hard hit. Semiconductor makers slumped after Microchip Technology cut its sales forecast for the quarter and warned investors to expect bad news from others in the sector. The Dow Jones industrial average lost 115 points, or 0.7%, to 16,544 Friday. The Standard and Poor’s 500 fell 22 points, or 1.2%, to 1,906. The technology-heavy Nasdaq fell 102 points, or 2.3%, to 4,276. The stock market has been swinging sharply this week. The Dow had its biggest decline of the year Thursday, a day after its biggest gain. Bond prices rose. The yield on the 10-year Treasury note fell to 2.29%.

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That sounds terrible unwise.

• Wall Street Goes Short Bonds at Bad Time as Debt Rallies (Bloomberg)

It’s been a painful week for Wall Street’s biggest bond brokers. Primary dealers had the biggest short position on benchmark government notes at the beginning of the month since last year’s taper tantrum. It was the wrong bet: The debt has gained 1.5% in October as 10-year Treasury yields plunged to the lowest since June 2013. The surprise rally has even the most experienced bond traders struggling to figure out how to maneuver in this market. On one hand, the Federal Reserve is slowing its unprecedented stimulus, suggesting that yields are poised to rise. On the other, central banks elsewhere across the globe are accelerating their easy-money policies to suppress borrowing costs and avoid deflation.

“Over the last year, what’s sort of been the market’s focus is everyone is bearish,” preparing for rates to rise, said David Ader, head of interest-rate strategy at CRT Capital Group LLC. Given banks’ unwillingness to take on risk in the face of new regulations, even a modest short position on a historical basis shows a meaningful bet, he said. The 22 primary dealers that trade with the U.S. central bank had a net $20.7 billion wager against notes maturing in the seven-to-eleven year range during the week ended Oct. 1, Fed data show. That’s the biggest short position on the notes since June 2013. It makes sense that Wall Street would bet against benchmark bonds given economists predict that 10-year Treasury yields will rise to 2.71% by year-end from 2.3% now, according to a Bloomberg survey. Of course, instead of rising this year, yields have fallen from 3% on Dec. 31.

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The Keynes camp knows the solution, as always. Always the same solution too.

• Dam Breaks In Europe As Deflation Fears Wash Over ECB Rhetoric (AEP)

A key gauge of deflation risk in Europe is flashing red, dropping to record lows on fears of fresh recession and lack of decisive action by the European Central Bank. The sudden lurch downwards came as Bank of America warned that France’s debt ratio could rocket to 120pc of GDP within five years, unless the EU authorities take radical steps to reflate the region’s economy. Italy’s debt could threaten 150pc even earlier. The 5-year/5-year forward swap rate monitored closely by traders plummeted beneath 1.77pc on Friday morning as a global growth scare drove European stock markets to a 12-month low. “This rate is the most important market signal on the planet right now. Everybody is watching the chart, and it has just gone off a cliff,” said Andrew Roberts, credit chief at RBS. Bond markets echoed the refrain, with yields on 10-year German Bunds falling to an all-time low of 0.88pc on flight to safety, though the bond rally can also be seen as a bet by traders that the ECB will soon be forced to launch full-blown quantitative easing.

Mario Draghi, the ECB’s president, has adopted the 5Y/5Y rate as the bank’s policy lodestar, used to distill expectations of future inflation. Any fall below 2pc is deemed a risk that expectations are becoming “unhinged” and could lead to a Japanese-style deflation trap. Mr Roberts said the ECB’s plan for asset purchases – or “QE-lite” – does not yet add up to a coherent strategy. “We don’t think they can boost their balance sheet by more than €165bn over the next two years by buying asset-backed securities (ABS) and covered bonds together, given the haircut effects. The sums are trivial,” he said. RBS estimates that the inflation rate has already dropped to below 0.1pc in the eurozone if one-off tax rises and fees are stripped out, and this measure may turn negative in October. “Deflation is already knocking on the door. We think it could happen as soon as next month given the latest fall in food prices,” said Mr Roberts. “We are reaching the end game in Europe. If they don’t launch real QE and start reflation by the end of the year or soon after, the consequences are too awful to contemplate,” he said.

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Gartman’s right. Question is how much damage it can still do before it’s over.

• Dennis Gartman Says The Euro ‘Is Doomed To Failure’ (CNBC)

Conflicting economic priorities in Europe likely will spell the end for the region’s common currency, widely followed investor Dennis Gartman said. The author of The Gartman Letter attributes much of the global market tumult this week to weakness in the European Union, and specifically remarks Thursday from European Central Bank President Mario Draghi. Speaking in Washington, Draghi, who famously promised two years ago to do “whatever it takes” to keep the EU together, emphasized that central banks can’t by themselves save the world and need cooperation from fiscal policy. It’s hardly the first time that message has been sent—former Federal Reserve Chairman Ben Bernanke often pleaded with Washington for fiscal policy coordination—but Gartman, writing in his daily missive, said global markets needed to hear more:

As the world awaited a hoped-for clear and precise statement that the ECB was prepared to actually take action on monetary policy and become expansionary, it instead heard a lecture explaining that he and the others on the ECB’s monetary policy committee had done all that they could do to try to strengthen the economy there and that the real battle had to be waged by the political authorities to reform the sclerotic nature of the economies there.

The result, he said, is a bifurcated Europe. On one side there are the “GAFs,” or Germany, Austria and Finland, who oppose U.S.-style quantitative easing, or asset purchases aimed at goosing financial markets. On the other side are the “FIGs,” or France, Italy and Greece, whose economies are struggling and need liquidity measures. So far, he said, the GAFs have won, and this is what is roiling markets that have come to depend on central bank largess since the financial crisis.

The (euro), we fear, is doomed to failure at this point. The political anger that has been evidenced in the battles over (European Commission president-elect) Mr. (Jean-Claude) Juncker’s proposed Cabinet … shall erupt in full flower in the days ahead. The FIG countries cannot abide further austerity; austerity in the face of 20+% unemployment is economic nonsense. On the other hand the GAFs, with sub 6% unemployment, really don’t need an expansionary monetary policy, can abide fiscal conservatism and will fight for both.

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This is what I’ve mentioned a few times already: using the price of oil to get at Russia. However, there’s much more to it than just changing Putin’s position on Syria, as the article claims. The US wants to break Putin, period, and gain control over Russian resources. Still, messing with Syria is messing with Russia’s only Middle East link, which is just too dangerous for Putin, and therefore a very risky approach. The Saudis may be overestimating their own savvy. Or they may just be getting very desperate.

• Why Oil Is Plunging: The “Secret Deal” Between The US And Saudi Arabia (ZH)

Two weeks ago, we revealed one part of the “Secret Deal” between the US and Saudi Arabia: namely what the US ‘brought to the table’ as part of its grand alliance strategy in the middle east, which proudly revealed Saudi Arabia to be “aligned” with the US against ISIS, when in reality John Kerry was merely doing Saudi Arabia’s will when the WSJ reported that “the process gave the Saudis leverage to extract a fresh U.S. commitment to beef up training for rebels fighting Mr. Assad, whose demise the Saudis still see as a top priority.”

What was not clear is what was the other part: what did the Saudis bring to the table, or said otherwise, how exactly it was that Saudi Arabia would compensate the US for bombing the Assad infrastructure until the hated Syrian leader was toppled, creating a power vacuum in his wake that would allow Syria, Qatar, Jordan and/or Turkey to divide the spoils of war as they saw fit. A glimpse of the answer was provided earlier in the article “The Oil Weapon: A New Way To Wage War“, because at the end of the day it is always about oil, and leverage. The full answer comes courtesy of Anadolu Agency, which explains not only the big picture involving Saudi Arabia and its biggest asset, oil, but also the latest fracturing of OPEC at the behest of Saudi Arabia…

… which however is merely using “the oil weapon” to target the old slash new Cold War foe #1: Vladimir Putin. To wit:

Saudi Arabia to pressure Russia, Iran with price of oil

Saudi Arabia will force the price of oil down, in an effort to put political pressure on Iran and Russia, according to the President of Saudi Arabia Oil Policies and Strategic Expectations Center. Saudi Arabia plans to sell oil cheap for political reasons, one analyst says.  To pressure Iran to limit its nuclear program, and to change Russia’s position on Syria, Riyadh will sell oil below the average spot price at $50 to $60 per barrel in the Asian markets and North America, says Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center. The marked decrease in the price of oil in the last three months, to $92 from $115 per barrel, was caused by Saudi Arabia, according to Abanmy. 

With oil demand declining, the ostensible reason for the price drop is to attract new clients, Abanmy said, but the real reason is political. Saudi Arabia wants to get Iran to limit its nuclear energy expansion, and to make Russia change its position of support for the Assad Regime in Syria. Both countries depend heavily on petroleum exports for revenue, and a lower oil price means less money coming in, Abanmy pointed out. The Gulf states will be less affected by the price drop, he added. The Organization of the Petroleum Exporting Countries, which is the technical arbiter of the price of oil for Saudi Arabia and the 11 other countries that make up the group, won’t be able to affect Saudi Arabia’s decision, Abanmy maintained. The organization’s decisions are only recommendations and are not binding for the member oil producing countries, he explained.

Today’s Brent closing price: $90. Russia’s oil price budget for the period 2015-2017? $100. Which means much more “forced Brent liquidation” is in the cards in the coming weeks as America’s suddenly once again very strategic ally, Saudi Arabia, does everything in its power to break Putin.

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Because they’re worthless?

• Here’s Why Shale Oil Stocks Are Tanking (CNBC)

Why are shale plays getting hit so hard? The short answer is, because oil is dropping. West Texas Intermediate has gone from $105 to $85 in three months. But a large part of the problem has to do with the way shale drilling is financed. Let’s say you own a shale company and you want to finance drilling a well in, say, the Bakken. You need $10 million (I am just using $10 million as an example). You have a demonstrated reserve value from the well of, say, $20 million. Here’s how you might finance the $10 million deal. First, get a line of credit from a bank based on the value of the reserves. In turn, the lender becomes a secured creditor. Let’s say that based on a value of $20 million, a secured lender is willing to put up $5 million. You can fund another $2 million from your own cash flow. Now you have $7 million. For the remaining $3 million, you go to the high-yield debt market, which of course is an unsecured creditor. Here’s what the deal looks like:

Secured creditor: $5 million
Cash flow: $2 million
Unsecured creditor: $3 million (high yield)
Total: $10 million

This is simplified, but you get the point. Now, let’s look at what happens when oil starts to drop fast, which is exactly our scenario. That secured creditor with the line of credit? He’s getting nervous, because now instead of reserves worth $20 million for your project, those reserves are now worth only, say, $16 million. That’s a problem. The line of credit you will be able to get will drop because as the price of oil drops banks don’t want to lend as much So, instead of $5 million, your secured creditor will only lend $4 million, and at a higher rate. Now you need $6 million more. Another problem: because the price of oil is down, you can’t contribute as much from your cash flow, so instead of $2 million that you contribute, you can only contribute $1 million. That’s $5 million total. You still need another $5 million, and now you have to go to the high-yield market. Except the high-yield market is aware of your problems, and they want a higher interest rate too. So here’s what this new deal looks like:

Secured creditor: $4 million
Cash flow: $1 million
Unsecured creditor: $5 million
Total: $10 million

This is a problem, because you are: 1) making less money from selling oil, and 2) shelling out a lot more money in interest to your creditors. As oil drops, you now run an increased risk of cash flow problems, and there is default risk in the debt. So you are making less money, and your one cheap source of financing (the line of credit) is shrinking, forcing you to go to high yield. You are in a debt spiral. Get it? So, at what point does all this start to get problematic? That’s not easy to answer, because every company is different. There are different yields from different wells, and some have more gas than oil. But there’s no doubt that things get a bit difficult for some producers when oil is in the low $80’s, which is where it is heading now. And rather than differentiate between companies…which is what analysts are paid to do…there is a lot of indiscriminate selling. Oil vs. gas, doesn’t matter. Sell and ask questions later.

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Could be a big booost for the yuan. Ironically, that’s the last thing China needs.

• ECB Weighing First Step to Buying Yuan for Foreign Reserves (Bloomberg)

The European Central Bank will discuss next week whether to begin laying the groundwork to add the Chinese yuan to its foreign-currency reserves, according to two people with knowledge of the matter. Governing Council members gathering in Frankfurt for their Oct. 15 mid-month meeting will consider the move, said the people, who asked not to be named because the discussions aren’t public. Should officials eventually decide to buy the currency, initial purchases would be small and might start in a year at the earliest, one of them said Such a measure by the ECB would mark a major step in the internationalization of China’s currency, also known as the renminbi. While China is the world’s second-largest national economy, the yuan isn’t ranked among the most-held foreign reserve assets, according to data from the International Monetary Fund. The U.S. dollar leads at 61% of holdings. The agenda of the Governing Council is confidential, an ECB spokesman said, declining to comment further on the matter.

Speaking in Washington yesterday, former Bundesbank President Axel Weber predicted a greater international role for the yuan. “The emergence of the renminbi will be a big factor,” he said. “You will have an appreciation of the renminbi.” The ECB’s push comes against a backdrop of global central bank diplomacy to ease the way for China’s currency, after a series of swap agreements on emergency liquidity. Officials will review the IMF’s basket of so-called Special Drawing Rights, which doesn’t currently include the yuan, by 2015, according to the fund’s web site. China hopes its currency can join, Li Bo, head of the People’s Bank of China’s second monetary policy department, said in Hong Kong in March. The basket currently includes the dollar, euro, pound and yen.

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If the Americans won’t do it, German prosecutors are welcome to take over where they can.

• Deutsche Bank Latest ‘Untouchable’ Target for Munich Prosecutor (Bloomberg)

Manfred Noetzel has a message for Deutsche Bank: Don’t mess with Bavarian justice. A day after his Munich Prosecutors Office sealed a $100 million settlement with Formula One’s Bernie Ecclestone in August, Noetzel’s team slapped criminal charges on five current and former executives at Germany’s largest bank. Noetzel, 64, is taking his fight on crime to the heart of the country’s financial industry as he reaches the pinnacle of a career that spans more than three decades and blazes a trail through the boardrooms of companies from Siemens to MAN and now Deutsche Bank. “Today, there’s no company that could say: ‘We’re untouchable, no one can get us,’” Noetzel, chief of the Munich Prosecutors Office, said in an interview. “Those times are over.”

The bank officials, including Co-Chief Executive Officer Juergen Fitschen and former CEOs Josef Ackermann and Rolf Breuer, were charged with attempted fraud for allegedly misleading a Munich appeals court in a lawsuit by the late media magnate Leo Kirch. His office has been investigating the Deutsche Bank cases since 2011 when the Munich appeals court said at a hearing that Ackermann, Breuer and two other managers lied to judges hearing a €2 billion ($2.5 billion) dispute between the lender and Kirch, who passed away in 2011. “To have yourself taken for a ride by deliberately wrong statements, aimed at subverting a clearly justified civil claim – no one puts up with that,” Noetzel said. “Neither does the Bavarian judiciary.

The integrity and impartiality of the administration of justice must be protected.” Deutsche Bank’s resolution of the more than 10-year-old civil dispute with Kirch’s heirs didn’t dissuade Noetzel from pursuing the case that may likely be the major one in the last year of his career in public service. The Frankfurt-based lender in February paid €925 million to the heirs of Kirch to end the litigation over the collapse of his media empire. Instead, a month later prosecutors added in-house lawyers and outside attorneys to the list of suspects, searched the bank for a third time and raided the offices of law firms that worked on the case. “The whole case is a declaration of war against Deutsche Bank,” said Martin Buecher, a defense lawyer in Cologne, who isn’t involved in the matter. “It’s also a demonstration of power.”

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Think maybe earlier experiences scared S&P away from expressing too harsh judgments on France?

• S&P: Negative Outlook For France’s Risky Reform (CNBC)

Ratings agency S&P cut its outlook for France to negative from stable on Friday, amid growing concerns about the strength of the country’s economic recovery. Still, S&P affirmed France’s AA/A-1+ rating. France has been dubbed the “sick man” of the euro zone over recent months, after economic data which have continued to surprise on the downside. GDP failed to expand during the second quarter of this year after stalling in the first, and is expected to have grown only slightly—by 0.2%—in the third quarter, according to the Bank of France. “In our view, the French government’s budgetary position is deteriorating in light of France’s constrained nominal and real economic growth prospects,” S&P wrote in its research update on the country released Friday. S&P last downgraded France in November 2013, when it cut its sovereign credit rating to AA. Last month, rival credit agency Moody’s said it was keeping its Aa1 rating (the agency’s second highest) on French government debt, but maintained its negative outlook.

S&P pointed to France’s high per capita income and skilled workforce in explaining the affirmation of an AA rating. But the outlook revision “reflects our view of receding fiscal space for the French government in light of the economy’s constrained real and nominal growth prospects against the background of policy implementation risk,” S&P wrote. France’s finance minister, Michel Sapin, told CNBC as the S&P announcement came out that the change of outlook does not represent an issue with France, but is actually about the euro zone. “Of course it is about France,” Moritz Kraemer, who heads sovereign ratings for S&P, told CNBC in response to Sapin’s comments. “We indeed think that the risks are increasingly tilted towards the downside, which has to do with a number of things. Some of them are home-made, others of them are indeed sort of a pan-European phenomenon.” Kraemer said S&P is “now quite doubtful” that France can hit its 3% 2017 deficit target.

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With Germany on the cusp of recession, nothing in Europe is sacred anymore.

• S&P Downgrades Finland To AA+ from AAA (CNBC)

Standard & Poor’s downgraded Finland’s sovereign debt rating to AA+ from AAA on Friday, citing economic weak development. It also revised the country’s outlook to “stable” from “negative.” The ratings agency said Finland could experience “protracted stagnation” due to its aging population, shrinking workforce and weakening external demand. In addition, S&P cited the country’s dwindling market share in the global IT industry and its relatively rigid labor market as contributing factors. Finland, which has an economy of about $256 billion, has struggled to consolidate its public finances and reduce public debt, the agency said. It expects the country’s deficit to widen to 2.7% of its gross domestic product in 2014.

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Fully confident they’ll get it right this time.

• Six Years After Lehman, US And UK Play Financial Crisis War Game (Guardian)

The top financial brass from the Treasuries and central banks of Britain and the US are to take part in a war game, behind closed doors in Washington on Monday, to test how they would handle another Lehman Brothers-style banking crisis. Six years after the financial earthquake that led to the multibillion-pound taxpayer bailouts of Royal Bank of Scotland and Lloyds Banking Group, the most senior policymakers from both sides of the Atlantic will try to find out whether they are now any better prepared for the collapse of a bank deemed too big to fail. The chancellor, George Osborne, and Mark Carney, the governor of the Bank of England, will stay on at the end of the annual meetings of the International Monetary Fund and World Bank to head the UK team in the exercise, which is to be held at the offices of the Federal Deposit Insurance Commission – the organisation that guarantees US bank deposits.

They will be joined by 11 others, including the chairman of the Federal Reserve, Janet Yellen, the US treasury secretary, Jack Lew, and regulators from Britain and America, for a test of how the authorities would respond to two possible scenarios – the collapse of an American bank with UK operations and the failure of a British bank with operations in the US. Although the war game will not be based on any specific institution, UK banks with operations in the US include Barclays and HSBC, while US investment banks such as Goldman Sachs and Bank of America have a big presence in the City. Osborne said it was the first time a war game had been conducted at such a senior level. “We will work through how we would respond to the failure of a cross-border firm. We are going to make sure we could handle an institution previously regarded as too big to fail,” he said.

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Still sucking in the dupes.

• 30-Year Mortgages Back Below 4%, But For How Long? (MarketWatch)

Borrowers who thought they’d seen the last of 30-year fixed mortgages with interest rates below 4% got a pleasant surprise this week, as stock market selloffs, fears of another world-wide economic slowdown, and perhaps an Ebola scare helped drive down mortgage rates to their lowest levels in more than a year. Interest rates on the 10-year Treasury note have fallen to 2.55%, down from 2.61% a week ago, leading to some 30-year fixed mortgages dipping below 3.99% for the first time since June 2013, according to Bankrate.com. “We have seen a flurry of activity in the last 24 to 48 hours,” said Mark Livingstone, a mortgage broker at Cornerstone First Financial in Washington, D.C., who said the sharp fall in Treasurys has potential borrowers heading back into the market. “Everything has come down and we’re expecting it to come down a little bit more,” he said.

The drop in interest rates has corresponded with an increase in mortgage loan application volume, the Mortgage Bankers Association said Oct. 8, with its Market Composite Index increasing 3.8% for the week ending Oct. 3, from a week earlier. MBA’s Refinance Index rose 5% from the previous week. It was the first increase in three weeks, MBA said. The average contract rate for a conforming loan ($417,000 or less) on a 30-year fixed mortgage for the week ending Oct. 3 was 4.3%, down from 4.33% a week earlier, MBA said. For contracts greater than $417,000, or most jumbo loans, the rate decreased to 4.21% for the week ending Oct. 3, down from 4.28% a week earlier, MBA said. FHA loans through Oct. 3 dropped to 4%, down from 4.07% a week earlier. The MBA’s survey covers about three-quarters of all U.S. retail residential mortgage applications. A “parade of horribles” has driven down Treasury yields amid an equity market selloff, says Mike Fratantoni, chief economist with the Mortgage Bankers Association. “It’s a very strong flight to quality,” he said.

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A little cold? You can now be quarantined.

• Ebola Screening at JFK Focusing on a Few Among Masses (Bloomberg)

John F. Kennedy International Airport begins added screening for arriving passengers today to help stem the spread of Ebola, the virus that’s killed more than 4,000 people this year in three African nations. While all international passengers will be sent through Customs and Border Protection’s primary inspection booth at the New York airport, inspectors will use special procedures for people listed on airlines’ manifests as having traveled from Liberia, Sierra Leone or Guinea. Anyone showing symptoms of the disease will be sent immediately to a Centers for Disease Control quarantine center inside the airport, Steve Sapp, a Customs spokesman, said in an e-mail. Others from the at-risk regions will be sent for a secondary examination to take their temperature, complete a health questionnaire and provide contact information. Travelers will be given health pamphlets with information on Ebola symptoms and contacts for medical professionals, according to a fact sheet from the CDC and Department of Homeland Security.

Anyone with a temperature over 101.5 degrees Fahrenheit (38.6 degrees Celsius) will be taken to the quarantine center, Sapp said. “Our hope is that the screening will improve vigilance and increase awareness about the Ebola disease for those individuals traveling from the affected areas,” said Jason McDonald, a CDC spokesman. Of the 275,000 daily airport customers, about 150 – or less than 0.1%- come to the U.S. from at-risk regions in Africa. About half the people who came to the U.S. from those three countries in the 12 months ending July 2014 arrived through JFK, according to Thomas Frieden, director of the CDC. 94% of passengers from the affected region to the U.S. fly through Kennedy and Washington Dulles, Newark Liberty, Chicago O’Hare and Atlanta Hartsfield airports. Those other four airports will get the enhanced entry screenings next week.

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China is so polluted we don’t know the half of it.

• China Pollution Levels Hit 20 Times Safe Limit (Guardian)

Days of heavy smog shrouding swathes of northern China pushed pollution to more than 20 times safe levels on Friday, despite government promises to tackle environmental blight. Visibility dropped dramatically as measures of small pollutant particles known as PM2.5, which can embed themselves deep in the lungs, reached more than 500 micrograms per cubic metre in parts of Hebei, a province bordering Beijing. The World Health Organization’s guideline for maximum healthy exposure is 25. In the capital, buildings were obscured by a thick haze, with PM2.5 levels in the city staying above 300 micrograms per cubic metre since Wednesday afternoon and authorities issuing an “orange” alert. “It’s very worrying, the main worry is my health,” said a 28-year-old marketing worker surnamed Hu, carrying an anti-smog mask decorated with a pink pig’s nose as she walked in central Beijing. China has for years been hit by heavy air pollution, caused by enormous use of coal to generate electricity to power a booming economy, and more vehicles on the roads.

But public discontent about the environment has grown, leading the government to declare a “war on pollution” and vow to cut coal use in some areas. Nonetheless poor air quality has persisted with officials continuing to focus on economic growth, and lax enforcement of environmental regulations remains rife. In a sign of growing environmental activism, Greenpeace East Asia projected the message “Blue Sky Now!” on to a facade of the Drum Tower, a historic building north of the Forbidden City. The pollution – which also hit areas hundreds of kilometres from Beijing – comes as the city hosts a high-profile cycling tournament, the Tour of Beijing, and a Brazil-Argentina football friendly. Global heads of state from the US, Russia and Asia are set to gather in the capital for a key summit next month. City authorities said Thursday that they would place tighter restrictions on vehicle use during the APEC Economic Leaders’ Meeting in November, while requesting neighbouring areas to shut down polluting facilities.

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Debt Rattle October 10 2014

Oct 102014
 
 October 10, 2014  Posted by at 12:17 pm Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle October 10 2014


NPC Berberich shoe store window, Seventh Street, Washington, DC June 1920

• Buckle-Up: Global Stocks In For Long Roller Coaster Ride (CNBC)
• Fed Aim Off Target as Inflation Descends Near Danger Zone (Bloomberg)
• Why The Strong Dollar May Sink Junk Bonds (CNBC)
• Iran Matches Saudi Oil Discounts in Bear Market for Crude (Bloomberg)
• OPEC: Milder Winter To Pressure Oil Price Further (CNBC)
• US Shale Drillers Hugely Overestimate Reserves Before Investors (Bloomberg)
• US Firms Could Make Billions From UK Via Secret TTIP Tribunals (Independent)
• Draghi Clashes With Germany’s Schaeuble Over Steps for Europe (Bloomberg)
• Is China’s Bubble the Next Financial Crisis? (Bloomberg)
• Health Of Global Economy Is Worrying: Stiglitz (CNBC)
• Bad Loans At Italy Banks Up 20% In August To Record High (Reuters)
• Barcelona Stirs as Spain Warns of Separatist Tinderbox (Bloomberg)
• UKIP: From ‘Clowns’ To Contenders (CNBC)
• Dark Money Groups Set Record in 2014 US Midterm Elections (Bloomberg)
• MH-17 Report False Flag Exposed (Zero Hedge)
• The Amish Farmers Reinventing Organic Agriculture (Atlantic)
• The Ominous Math Of The Ebola Epidemic (WaPo)
• Ebola Is ‘Entrenched And Accelerating’ In West Africa (BBC)

“Overnight the mindlessly bullish JBTD (Just Buy the Dip) crowd felt the cold steel of Edward Scissorhands.”

• Buckle-Up: Global Stocks In For Long Roller Coaster Ride (CNBC)

Whipsawing global markets scream fears about global growth conditions and unless data from the world’s major economies improve, a deeper correction is on the cards, say strategists. Asian markets tumbled on Friday, extending the sharp selloff in U.S. and European equities overnight as intensifying concerns over the health of the euro zone economy hit risk appetite. Australia’s benchmark S&P/ASX 200 index led losses, falling 1.8% in the morning session, while Japan’s Nikkei 225 and South Korea’s KOSPI were both off 1.2%. “There are a lot of questions at the moment and not a lot of answers in regards to Europe’s economy, the stability of China’s housing market and the timing of the Fed’s first rate hike,” Chris Weston, chief market strategist at IG told CNBC.

“The hallmarks are in place for a stock market correction – Brent crude prices are falling, long-end U.S. bonds are telling the story that markets are starting to look at low growth and low inflation for a long period of time,” he said. In order to arrest the volatile downtrend in stocks, there needs to be a good run of economic data out the world’s leading economies, Weston said. Nicholas Ferres, investment director, global asset allocation, Eastspring Investments say the bearish price action suggests a market correction is already underway. “Overnight the mindlessly bullish JBTD (Just Buy the Dip) crowd felt the cold steel of Edward Scissorhands. Failure of the market to extend the rebound from the prior day probably suggests that a deeper correction is likely underway,” he said. “From my perch, this reflects a genuine growth scare, evident in the macro news flow from Europe, China and Japan, rather than a direct fear of U.S. policy normalization,” he said.

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People are not spending. They’re broke. How can you raise inflation in those conditions?

• Fed Aim Off Target as Inflation Descends Near Danger Zone (Bloomberg)

Federal Reserve officials are hunting for new tactics to raise price increases to their target as slowing global growth, cheaper commodities and flat wages sound warnings that inflation is descending toward the danger zone. The Fed needs a clear strategy for getting the inflation rate higher after falling short of its 2% target for 28 consecutive months. Now, as longer-run inflation expectations erode in financial markets, the Federal Open Market Committee is shifting its focus toward prices after putting its main emphasis on jobs for months. Several officials worried that “inflation might persist below” the committee’s target for “quite some time,” minutes from the Sept. 16-17 meeting said. Too-low inflation “is getting to be a real issue again,” said former Fed Governor Laurence Meyer. With inflation at 1.5% according to the Fed’s preferred index, Meyer said FOMC policy makers aren’t likely to raise interest rates, even if the economy approaches full employment, defined as a jobless rate of 5.2% to 5.5%.

Unemployment was 5.9% last month. “The timing of the first rate hike is all about inflation,” said Meyer, now a senior managing director at Macroeconomic Advisers LLC in Washington. Policy makers including regional Fed Presidents William Dudley of New York, Charles Evans of Chicago and Narayana Kocherlakota of Minneapolis have in recent days all mentioned below-target inflation as a risk that weighs against raising interest rates too soon. An inflation rate approaching zero is bad for the economy because of its impact on behavior by businesses and consumers. Companies’ inability to raise prices hurts profits, and they rarely compensate by cutting wages, so they fire workers instead. Consumers anticipating falling prices may postpone discretionary purchases. This can combine to create a vicious circle of less spending and further downward pressure on prices.

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Not just junk bonds.

• Why The Strong Dollar May Sink Junk Bonds (CNBC)

A simmering mix of a strong U.S. dollar and weak commodity prices may be brewing up trouble for junk bond exchange-traded funds (ETFs) with a hefty weighting in materials companies. “If the U.S. dollar stays strong, that will exacerbate the impact of the weaker commodity prices” on miners’ cash flow and the ability to meet debt payments, said May Zhong, a credit analyst at Standard & Poor’s. Coal companies, especially U.S.-based ones competing in the export market, are a particular concern, she said. Faced with oversupply, thermal coal prices have fallen to near five-year lows, while the U.S. dollar index has risen as much as 8.3% so far this year. But Australian miners may also take a hit, she said. “The Australian dollar hasn’t fallen to the same extent as major commodity prices. It’s still relatively strong compared to the U.S. dollar,” she said.

“You do need a weak local currency to help those [B-rated] miners or shield them from weaker commodity prices,” Zhong said. That may have a knock-on effect on the high-yield bond ETFs, which in turn may weigh the entire junk-bond segment. Around 14.7% of the holdings of the iShares iBoxx high-yield ETF, which tracks the Markit iBoxx index, are in the oil and gas industries, while another 6.5% are in basic materials. The ETF has around $13.3 billion in net assets. While that’s a drop in the bucket compared with a total bond market estimated at around $38 trillion, some analysts consider bond ETFs a market risk as they are more susceptible to hot money flows, potentially affecting the trading liquidity of underlying bonds. Around 37% of U.S. corporate credit is held by households and funds, according to RBS data from August.

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Everything must go.

• Iran Matches Saudi Oil Discounts in Bear Market for Crude (Bloomberg)

Iran will sell its oil to Asia in November at the biggest discount in almost six years, matching cuts by Saudi Arabia as global crude benchmarks slide deeper into a bear market. State-run National Iranian Oil Co. cut official selling prices of its crude to buyers in Asia for November, two people with knowledge of the pricing decision said yesterday. The decrease came a week after Saudi Arabia, the world’s largest oil exporter, reduced the price of Arab Light crude for Asia to the lowest since December 2008. Brent crude, the international benchmark, fell to the lowest in almost four years today. “The timing of Iran’s price cuts makes the price war more and more probable,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by phone yesterday. “Iran is fully aware of the direction of and the mood in the market. Given that we’ve seen consecutive cuts, this would seem to be some kind of action and reaction.”

Middle Eastern oil producers are facing greater competition in Asia, their largest market. Cargoes from the U.S., Russia and Latin America are finding buyers there amid a surplus on international markets. The pace of demand growth is lower in the region as the economy slows in China, the world’s second-largest oil consumer. Futures for Brent and West Texas Intermediate, the U.S. benchmark, have both fallen more than 20% from their June peaks, meeting the common definition of a bear market. Front-month Brent traded as low as $88.11 a barrel today on the ICE Futures Europe exchange in London, the lowest since December 1, 2010. WTI dropped as low as $83.33 a barrel on the New York Mercantile Exchange, the lowest since July 3, 2012.

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WTI is looking at $80 today. $84 now.

• OPEC: Milder Winter To Pressure Oil Price Further (CNBC)

The oil price could face further downward pressure as a warmer winter is expected to hit demand further, the supplier of about 40% of the world’s oil warned. Official forecasts expect heating degree days in the U.S. to be 12% lower than last winter, implying lower demand, the Organization of Petroleum Exporting Countries (OPEC) said in its monthly oil market report as Brent traded close to a four-year low. At the same time, OPEC said the weather has been less of a factor determining U.S. fuel consumption, as heating oil now contributes below 20% of the demand for “middle distillates” or medium weight refined oil products in the country.

Brent crude fell below $90 on Friday, as supply rises and markets digested more grim economic news, with analysts now slashing their oil price forecasts. The free fall in the oil price has increased pressure on OPEC members to take action to cut supply, which analysts said is unlikely before its meeting at the end of November. But Saudi Arabia has shown reluctance to cut production at the risk of losing market share to other countries.

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This is just too crazy. This is what business in America has come to.

• US Shale Drillers Hugely Overestimate Reserves Before Investors (Bloomberg)

Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was potentially sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage. That number was 5.5 times higher than the proved reserves Marathon reported to federal regulators. Such discrepancies are rife in the U.S. shale industry. Drillers use bigger forecasts to sell the hydraulic fracturing boom to investors and to persuade lawmakers to lift the 39-year-old ban on crude exports. Sixty-two of 73 U.S. shale drillers reported one estimate in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg. Pioneer’s estimate was 13 times higher. Goodrich’s was 19 times. For Rice Energy, it was almost 27-fold. “They’re running a great risk of litigation when they don’t end up producing anything like that,” said John Lee, a University of Houston petroleum engineering professor who helped write the SEC rules and has taught reserves evaluation to a generation of engineers.

“If I were an ambulance-chasing lawyer, I’d get into this.” Experienced investors know the difference between the two numbers, Scott Sheffield, chairman and CEO of Irving, Texas-based Pioneer, said in an interview. “Shareholders understand,” Sheffield said. “We’re owned 95% by institutions. Now the American public is going into the mutual funds, so they’re trusting what those institutions are doing in their homework.” Investors poured $16.3 billion in the first seven months of the year into mutual funds and exchange-traded funds focused on energy companies, including drillers that create fractures in rocks by injecting fluid into cracks to enable more oil and gas to flow out of the formation. That’s almost twice as much as in the same period last year, bringing total assets to $128.2 billion, according to New York-based Strategic Insight.

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The TTIP is a malignant tumor growing secretly underneath our skins.

• US Firms Could Make Billions From UK Via Secret TTIP Tribunals (Independent)

Britain faces a real risk of being ordered to pay vast sums to US multinationals under the controversial TTIP trade deal being negotiated between Washington and the EU, an analysis of similar agreements has revealed. The Government has repeatedly played down concerns that secret tribunals established by TTIP will lead to large numbers of American corporations suing the UK in trade disputes. But United Nations figures uncovered by The Independent show that US companies have made billions of dollars by suing other governments nearly 130 times in the past 15 years under similar free-trade agreements. In one case alone the US oil company Occidental Petroleum successfully sued the government of Ecuador for $1.8bn. A separate case claiming $6bn has also be filed. The tribunals are used to rule on disputes between nation states and aggrieved companies.

Details of these cases are often kept secret, but notorious precedents include the tobacco giant Philip Morris suing Australia and Uruguay for restricting advertising and putting health warnings on packets. TTIP has provoked storms of protest from European campaign groups and largely left-leaning politicians. On Saturday, protesters will stage a “day of action” against the proposed deal in hundreds of cities across the UK and Europe. Critics say the tribunals, held under the so-called Investor-State Dispute Settlement (ISDS) system, subvert democratic justice, giving power over foreign citizens to big companies. Hearings are held in private, in international courts at the World Bank in Washington DC, bypassing the legal system of the country being sued, meaning details are often impossible to uncover. In some cases the very existence of the case is not made public.

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Draghi, Larry Summers, everyone has a go at Germany. Which is really bad timing gicen recent economic data coming from Berlin.

• Draghi Clashes With Germany’s Schaeuble Over Steps for Europe (Bloomberg)

European Central Bank President Mario Draghi and German Finance Minister Wolfgang Schaeuble differed over what further steps to take if the euro-area economy keeps weakening as the region came under renewed foreign pressure to revive growth. As the International Monetary Fund’s annual meeting in Washington began, Draghi pledged anew to loosen monetary policy more if needed and called on those governments with the room to ease fiscal policy to do so. By contrast, Schaeuble warned against U.S.-style quantitative easing and urged continued budgetary discipline. The differences demonstrate the lack of a common front in euro-area policy making as its economy continues to deteriorate and the IMF estimates there is as much as a 40% risk of a third recession since 2008. Finance ministers and central bankers from the Group of 20 economies meet today, and Europe’s economic performance will be among the issues discussed, officials said.

“There is a concern about a deflationary spiral, we aren’t predicting it, but we want to preclude it,” Canadian Finance Minister Joe Oliver told reporters. “No one is saying it’s a piece of cake, far from it.” The euro-area has re-emerged as the main concern of officials worldwide after its economy stalled in the second quarter and inflation slowed to the weakest in almost five years. The IMF this week cut its euro-area growth forecasts to 0.8% for 2014 and 1.3% next year and said the ECB should consider buying government debt. “More, we hope, will be done,” IMF Managing Director Christine Lagarde told reporters. Speaking in Washington yesterday, Draghi reiterated his call on governments to overhaul their economies now and repeated the ECB is “ready to alter the size and/or the composition of our unconventional interventions, and therefore of our balance sheet, as required.”

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China is a danger first and foremost to itself, internal strife will rule the day. Its impact on the world will come after.

• Is China’s Bubble the Next Financial Crisis? (Bloomberg)

Will China be the source of the next global financial disaster? The evidence increasingly offers reason for concern, though the nature of any calamity could be very different from what the world endured in 2008. At a time when consumers and governments in the U.S. and Europe have been trying – with limited success – to pare down or at least stabilize their debt burdens, China has been doing the opposite. Over the past five years, it has pumped more than $13 trillion of credit into its economy, in an effort to keep its growth rate up amid a weak global recovery. The Chinese credit boom has rapidly turned the country into one of the developing world’s most indebted, according to a new report from London’s Centre for Economic Policy Research. As of 2013, total private and government debt, excluding that of financial institutions, stood at 217% of gross domestic product, up from only 147% in 2008.

That’s more than in any major developing nation other than Hungary, though still significantly less than in advanced nations such as the U.S. or Japan. Such credit-fueled growth can’t be sustained for long without causing major distortions and setting the country up for a fall. The stimulus is already running into diminishing returns. Over the five years through 2013, government and private debt grew by about 3 yuan for each added yuan of economic activity, a level of credit intensity that the U.S. exceeded only in the years leading up to the 2008 crisis. As in the U.S., much of the money is going to borrowers with questionable ability to pay, fueling overbuilding and excess capacity.

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Nobel=clueless.

• Health Of Global Economy Is Worrying: Stiglitz (CNBC)

The euro zone is “very much” at risk of a recession and U.S. continues to struggle with a mediocre recovery, said Nobel Prize-winning economist Joseph Stiglitz, sounding the alarm on the deteriorating global economy. If Europe were to enter a recession it would likely be “relatively minor,” but persistent stagnation puts the single-currency bloc “on target for a lost decade,” he said. “To me, the problem is not whether [euro zone countries] are growing a little positive or negative, the real point is they are not back to where they should be,” Stiglitz, a professor of economics at Columbia University, told CNBC on Friday. Austerity is the wrong prescription for repairing the euro zone economy and underlies economic stagnation, he said.

“European leaders have consistently overestimated where the economy was going. Unfortunately, the leaders of Europe, in particular Germany, don’t seem to recognize that austerity is one of the reasons Europe is doing so poorly,” Stiglitz said. There is a lot of slack in the U.S. economy, Stiglitz said. “The U.S. has been moving along in this very mediocre way. What’s remarkable is how low the growth is in spite of the fact that… we have some very strong positives,” he said, referring to the country’s huge discoveries of natural gas and thriving high-tech sector. Furthermore, a stronger U.S. dollar may prove to be a bane for the economy, putting the country’s exporters at a competitive disadvantage, he said. Asked whether the world’s largest economy will be strong enough to justify an interest rate hike by mid-2015, he said “almost surely no.”

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Get out of the EU, amici.

• Bad Loans At Italy Banks Up 20% In August To Record High (Reuters)

The Bank of Italy said on Thursday bad loans in the country rose 20% year-on-year in August reaching a new record high as the third-largest economy in the euro zone struggles to recover from recession. The loans that are least likely to be repaid were worth €173.9 billion ($222 billion) in August, the highest level since the start of the current statistical series in 1998, central bank data showed. In July, non-performing loans rose 20.5% to €172.4 billion. At the same time, lending to companies and families continued to contract, with loans to households down 0.8% in August after falling 0.7% a month earlier. Credit to non-financial companies fell 3.8% after a contraction of 3.9% in July.

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There’d better be no blood flowing in Catalunya, or the world’s Hemingways may once again descend on Spain.

• Barcelona Stirs as Spain Warns of Separatist Tinderbox (Bloomberg)

Tensions are rising in Barcelona. As Catalan President Artur Mas goads the Spanish courts, threatening to defy their suspension of a Nov. 9 vote on independence, Prime Minister Mariano Rajoy is preparing measures to ensure he can retain control of the police in Catalonia. Politicians and civic leaders in the region who want to remain part of Spain say they have been threatened by separatists. “There’s been a cat let out of the bag,” said James Amelang, a professor of Spanish history at the Autonomous University of Madrid. “I really think the politicians might have lost their capacity to put it back.” Mas’s independence drive has been propelled by a surge of support on the streets, with hundreds of thousands attending peaceful rallies in Barcelona last month. As the date of the proposed vote approaches, officials in Madrid are preparing for when the force of Catalan separatism crashes into the immovable object of the Spanish constitution.

Spanish Foreign Minister Jose Manuel Garcia-Margallo warned last week that events in Catalonia could be moving too fast for the regional leader to control. Mas “may see the political process shift away from the institutions, and particularly the regional government, and move onto the streets, which is extremely dangerous,’ Garcia-Margallo told state radio broadcaster RTVE. ‘‘When institutions lose control, we head down an unknown path.’’ Spain’s national police force put more officers on the streets of the Catalan capital this month to beef up security at government buildings, a government press officer said on Oct. 1. Europa Press reported reinforcements total about 300 policemen. The central government has also drafted a law that would give officers from the regional police, the Mossos d’Esquadra controlled by Mas’s government, the chance to transfer to the national police force commanded by Madrid.

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Ho much longer will Britain stay in the EU?

• UKIP: From ‘Clowns’ To Contenders (CNBC)

Just last year, Conservative Party grandee Kenneth Clarke described them as a “collection of clowns” – yet now they represent the greatest electoral challenge to the three main U.K. political parties for decades. The U.K. Independence Party (UKIP) – the closest the U.K. has to the U.S. tea party – has emerged from the fringes to the limelight, winning its first seat in the U.K. parliament in a by-election on Thursday. UKIP candidate Douglas Carswell won a by-election in Clacton, south east England by a majority of 12,404 to become the party’s first member of parliament. The election was triggered by incumbent member of Parliament (MP) Douglas Carswell’s defection from the Conservative Party to UKIP. The party briefly had one MP in 2008, when then-Conservative MP Bob Spink defected. Clacton – with its working class, elderly, white and economically left-behind population – was already identified as one of the constituencies most likely to vote UKIP in May’s general election by Matthew Goodwin and Rob Ford, authors of “Revolt on the Right” and experts on the party.

A by-election further north may actually be more concerning for the main political parties. In Heywood and Middleton, a safe Labour seat to date, the death of the local MP has triggered a vote. Labour candidate Liz McInnes won the vote by a margin of 617 — a far cry from a 5,971 majority at the 2010 general election. The results suggest that UKIP has made significant inroads there and gone beyond attracting only right-wing Conservatives, but also left-wing voters, who feel threatened by cheap labor from immigrants. “UKIP supporters are very pessimistic on the economy,” John Curtice, professor of politics at the University of Strathclyde, told CNBC. “The improvement in the economy hasn’t trickled down to the older working-class, and that’s UKIP’s constituency.”

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The new way to spell democracy.

• Dark Money Groups Set Record in 2014 US Midterm Elections (Bloomberg)

The Internal Revenue Service calls them “social welfare” groups – they don’t disclose their donors and so far this cycle they’ve spent $100 million trying to influence elections. Never before have these types of organizations spent so much, so soon in Congressional races, according to a new analysis by the Center for Responsive Politics. If the past is precedent, that means roughly $200 million in dark money will go toward influencing the 2014 elections, CRP estimates. The trend means it’s harder than ever to know who the big spenders are or which interest is taking which side in an election. The social welfare groups, organized under section 501(c)(4) of the tax code, raise and spend unlimited amounts of money. Their cousins, super PACs, also raise and spend unlimited cash, but must disclose contributors. Some of the election cycle’s mega-groups toggle between using dark money groups and super-PACs depending on need and donor preference.

The David and Charles Koch-backed political network stopped using their dark money group for TV ads in the final 60 days of the cycle, and are now funding election spots with their new super PAC. Generally, the nonprofits spend in multiple races — but there are a few examples this year of 501(c)(4)s dedicated to one candidate. The highest profile is the Kentucky Opportunity Coalition, a nonprofit that started running commercials this summer to support Senate Minority Leader Mitch McConnell. One hint as to who’s behind the group: The treasurer is listed as Caleb Crosby. He’s also the treasurer for Karl Rove’s American Crossroads – which just started running ads in Kentucky against McConnell’s Democratic opponent, Alison Lundergan Grimes. Democrats don’t tend to use dark money groups as much. They favor super PACs, and so far this year their super PACs are better funded than the Republicans’.

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It’s being reported as an unfortunate incident, but it says much more. The report by the Russian Union of Engineers has been totally silenced in the west.

• MH-17 Report False Flag Exposed (Zero Hedge)

When exactly a month ago the supposedly objective, impartial Netherlands released its official, 34-page preliminary report of the MH-17 crash over Ukraine, presumably based on black box data, air traffic control records, and other “authentic, verified” information, there were precisely zero mentions of “oxygen”, “mask” or “oxygen mask.” Which is odd, because in what should become the biggest Freudian slip scandal in false-flag history, certainly since the Gulf of Tonkin, yesterday Dutch Foreign Minister Frans Timmermans accidentally revealed for the very first time ever, that one of the Australian passengers aboard the doomed airplane “appears to have donned an oxygen mask before the fatal crash, suggesting some on board might have been aware of their impending deaths, a Dutch official disclosed.”

Clearly a crucial aspect of the crash, as it points at the severity of the alleged explosion, yet one which was not noted until yesterday and which completely skipped the purvey of the official crash report for reasons unknown. Needless to say, this makes a complete mockery of the story that the plane had exploded upon impact with the “Russian” missile, and is why there was supposedly no trace of any impact on the flight’s black box recorder. Whether or not it also means that the alternative theory that a Ukraine jet had purposefully downed the Malaysian aircraft to serve as a pretext to implicate Russia, is unclear. But it also means that yet another conspiracy theory becomes fact: namely that whoever were the western powers who doctored and manipulated the “official” crash report of MH-17 to implicate Putin, not only lied but fabricated evidence.

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What happens when you don’t throw out in 1 generation the knowledge acquired in 1000.

• The Amish Farmers Reinventing Organic Agriculture (Atlantic)

“In the Second World War,” Samuel Zook began, “my ancestors were conscientious objectors because we don’t believe in combat.” The Amish farmer paused a moment to inspect a mottled leaf on one of his tomato plants before continuing. “If you really stop and think about it, though, when we go out spraying our crops with pesticides, that’s really what we’re doing. It’s chemical warfare, bottom line.” Eight years ago, it was a war that Zook appeared to be losing. The crops on his 66-acre farm were riddled with funguses and pests that chemical treatments did little to reduce. The now-39-year-old talked haltingly about the despair he felt at the prospect of losing a homestead passed down through five generations of his family. Disillusioned by standard agriculture methods, Zook searched fervently for an alternative. He found what he was looking for in the writings of an 18-year-old Amish farmer from Ohio, a man named John Kempf. Kempf is the unlikely founder of Advancing Eco Agriculture, a consulting firm established in 2006 to promote science-intensive organic agriculture.

The entrepreneur’s story is almost identical to Zook’s. A series of crop failures on his own farm drove the 8th grade-educated Kempf to school himself in the sciences. For two years, he pored over research in biology, chemistry, and agronomy in pursuit of a way to save his fields. The breakthrough came from the study of plant immune systems which, in healthy plants, produce an array of compounds that are toxic to intruders. “The immune response in plants is dependent on well-balanced nutrition,” Kempf concluded, “in much the same way as our own immune system.” Modern agriculture uses fertilizer specifically to increase yields, he added, with little awareness of the nutritional needs of other organic functions. Through plant sap analysis, Kempf has been able to discover deficiencies in important trace minerals which he can then introduce into the soil. With plants able to defend themselves, pesticides can be avoided, allowing the natural predators of pests to flourish.

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Yes, the numbers keep getting worse.

• The Ominous Math Of The Ebola Epidemic (WaPo)

When the experts describe the Ebola disaster, they do so with numbers. The statistics include not just the obvious ones, such as caseloads, deaths and the rate of infection, but also the ones that describe the speed of the global response. Right now, the math still favors the virus. Global health officials are looking closely at the “reproduction number,” which estimates how many people, on average, will catch the virus from each person stricken with Ebola. The epidemic will begin to decline when that number falls below one. A recent analysis estimated the number at 1.5 to 2. The number of Ebola cases in West Africa has been doubling about every three weeks. There is little evidence so far that the epidemic is losing momentum. “The speed at which things are moving on the ground, it’s hard for people to get their minds around. People don’t understand the concept of exponential growth,” said Tom Frieden, director of the U.S. Centers for Disease Control and Prevention.

“Exponential growth in the context of three weeks means: ‘If I know that X needs to be done, and I work my butt off and get it done in three weeks, it’s now half as good as it needs to be?’ Frieden warned Thursday that without immediate, concerted, bold action, the Ebola virus could become a global calamity on the scale of HIV. He spoke at a gathering of global health officials and government leaders at the World Bank headquarters in Washington. The president of Guinea was at the table, and the presidents of Liberia and Sierra Leone joined by video link. Amid much bureaucratic talk and table-thumping was an emerging theme: The virus is still outpacing the efforts to contain it. “The situation is worse than it was 12 days ago. It’s entrenched in the capitals. Seventy% of the people [who become infected] are definitely dying from this disease, and it is accelerating in almost all settings,” Bruce Aylward, assistant director general of the World Health Organization, told the group.

Aylward had come from West Africa only hours earlier. He offered three numbers: 70, 70 and 60. To bring the epidemic under control, officials should ensure that at least 70% of Ebola-victim burials are conducted safely, and that at least 70 percent of infected people are in treatment, within 60 days, he said. More numbers came from Ernest Bai Koroma, president of Sierra Leone: The country desperately needs 750 doctors, 3,000 nurses, 1,500 hygienists, counselors and nutritionists. The numbers in this crisis are notoriously squishy, however. Epidemiological data is sketchy at best. No one really knows exactly how big the epidemic is, in part because there are areas in Liberia, Sierra Leone and Guinea where disease detectives cannot venture because of safety concerns. The current assumption is that for every four known Ebola cases, about six more go unreported.

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There is very little out there that doesn’t signal a gross incompetence, lack of urgency and lack of understanding.

• Ebola Is ‘Entrenched And Accelerating’ In West Africa (BBC)

The World Health Organization (WHO) has warned that Ebola is now entrenched in the capital cities of all three worst-affected countries and is accelerating in almost all settings. WHO deputy head Bruce Aylward warned that the world’s response was not keeping up with the disease in Guinea, Liberia and Sierra Leone. The three countries have appealed for more aid to help fight the disease. The outbreak has killed more than 3,860 people, mainly in West Africa. More than 200 health workers are among the victims. Speaking on Thursday, Mr Aylward said the situation was worse than it was 12 days ago. “The disease is entrenched in the capitals, 70% of the people affected are definitely dying from this disease, and it is accelerating in almost all of the settings,” he said. Meanwhile in Spain, seven more people are being monitored in hospital for Ebola. They include two hairdressers who came into contact with Teresa Romero, a Madrid nurse looked after an Ebola patient who had been repatriated from West Africa. She is now very ill and reported to be at serious risk of dying.

Elsewhere: The UK is investigating reports a Briton suspected of having the disease has died in Macedonia, though Macedonia’s health ministry says there are “high chances” this is not a case of the disease Britain is to begin enhanced screening for Ebola in people travelling from affected countries, the government announces. The US is introducing new security measures to screen passengers arriving from Ebola-affected countries in West Africa at five major US airports. In Texas, a county sheriff deputy was quarantined after visiting the home of the first person diagnosed with Ebola on US soil, who later died from the virus. The medical charity Medecins Sans Frontieres reported a sharp increase of Ebola cases in the Guinean capital, Conakry, dashing hopes that the disease was being stabilised there.

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Debt Rattle October 9 2014

Oct 092014
 
 October 9, 2014  Posted by at 11:03 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »


DPC R.H. Macy & Co, Herald Square, Broadway at 34th Street, NYC 1908

• The IMF’s $3.8 Trillion Warning To The Fed (MarketWatch)
• IMF Warns Ultra-Low Interest Rates Pose Fresh Crisis Threat (Guardian)
• US Home Prices Headed For A Triple Dip (CNBC)
• Can Saudis Beat North Dakota In An Oil Price War? (MarketWatch)
• The Keystone Killer the Enviros Didn’t See Coming (Bloomberg)
• Will China Spark a Currency War? (Bloomberg)
• German Model Is Ruinous For Germany, And Deadly For Europe (AEP)
• German Exports Plunge 5.8%, Most Since 2009, as Economy Stumbles (Bloomberg)
• Hollande Falls Into Line as Merkel Fends Off EU Spending (Bloomberg)
• Draghi Policies Blunted in Berlin as German Protests Grow (Bloomberg)
• Where Did The German ‘Strongman’ Go? (CNBC)
• ‘Bad Choices’ Have Put French Economy Under Pressure, Says EDF Boss (TiM)
• ‘France Is Doing Badly, But German Energy Sector Is A Disaster’ (Telegraph)
• Europe In Danger Of Another ‘Lost Decade’: Ifo’s Sinn (CNBC)
• Samaras ‘Fully Comfortable’ Seeking Early Exit for Greece (Bloomberg)
• Banks in Sweden Beat Regulator With Plan to Cut Record Debt Load (Bloomberg)
• Brussels Backs New UK Nuclear Plant As Cost Forecasts Soar (FT)
• Japan Solar Boom Fizzling as Utilities Limit Grid Access (Bloomberg)
• U.S. to Check Temperatures of West Africa Passengers at Five Airports (WSJ)
• Kondratieff Winter: The Consequences of the Economic Peace (Grant Williams)

They could have given any other number, and it would have been just as believable and relevant. How does $5.6 trillion sound? Bit heavy, let’s do $3.8 trillion. Adjust your models accordingly. And then let’s play a round of golf.

• The IMF’s $3.8 Trillion Warning To The Fed (MarketWatch)

A rocky exit from low interest rates by the Federal Reserve risks $3.8 trillion of losses to global bond portfolios, the International Monetary Fund warned Wednesday in its latest global financial stability report. The IMF was at pains to emphasize that it’s not forecasting such losses, but it did point out that tightening in the past has been a key trigger for declines in fixed-income markets. The IMF came up with the $3.8 trillion figure by assuming a rapid adjustment that causes term premiums to go back to historic norms and credit risk premiums to normalize, with moves of 100 basis points each. That would trigger losses by more than 8%, which could “trigger significant disruption in global markets.”

The IMF also pointed to the low volatility term structure for the S&P 500, suggesting equities also may be underpricing the risk of higher volatility in the future. It’s these concerns that have led the Federal Reserve to increase their communication to the public, through quarterly press conferences as well as interest-rate and economic forecasts. Observers both inside and outside the Fed expect the first rate hike to occur in the middle of 2015. But there remains considerable debate over the pace of subsequent hikes. Meanwhile, while the IMF warned about the Fed lifting interest rates, they also note the risks of the Fed and other central banks keeping rates low for so long. The IMF pointed out that asset price appreciation, spread compression and record low volatility have occurred simultaneously across broad asset classes and countries.

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Put ’em up, Calamity Janet.

• IMF Warns Ultra-Low Interest Rates Pose Fresh Crisis Threat (Guardian)

A prolonged period of ultra-low interest rates poses the threat of a fresh financial crisis by encouraging excessive risk taking on global markets, the International Monetary Fund has said. The Washington-based IMF said that more than half a decade in which official borrowing costs have been close to zero had encouraged speculation rather than the hoped-for pick up in investment. In its half-yearly global financial stability report, it said the risks to stability no longer came from the traditional banks but from the so-called shadow banking system – institutions such as hedge funds, money market funds and investment banks that do not take deposits from the public.

José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.” He added that traditional banks were safer after the injection of additional capital but not strong enough to support economic recovery. Viñals said the IMF had analysed 300 large banks in advanced economies, making up the bulk of their banking system. It found that institutions representing almost 40% of total assets lacked the financial muscle to supply adequate credit in support of the recovery. In the eurozone, this proportion rose to about 70%. “And risks are shifting to the shadow banking system in the form of rising market and liquidity risks,” Viñals said. “If left unaddressed, these risks could compromise global financial stability.”

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At last. Let’s get some real prices.

• US Home Prices Headed For A Triple Dip (CNBC)

The headline for much of this year has been that home price gains are easing. Prices are still higher compared to last year, but not nearly as much as they had been. Now, suddenly, it looks as if home values could actually go negative on a national level. “That will be the first time collectively, as a nation, we’ve seen prices drop since the low point or the trough of the housing crisis,” said Alex Villacorta, vice president of research and analytics at data firm Clear Capital. Villacorta points to a 1% quarterly home price gain from the second to the third quarter of this year. Last year that quarterly gain was 3%. “The discouraging thing about that is, yes, we’re still in the positive, but that 1% has been waning from that three%, and this comes after what should have been the most active buying season in the housing market for the summer that just ended,” he added.

The West, which has some of the largest metropolitan markets in the nation, has seen a huge drop in distressed sales, as fewer properties go to foreclosure. At their peak in 2009, just over half of all sales in the West were of distressed properties; today that share is just over 12%, according to Clear Capital. Investors, consequently, are moving on to other markets in the South and Midwest, where there are still bargains to be had. The West is therefore seeing sharper drops in home price appreciation. “And that is why the West is really that leading indicator, the canary in the coal mine, because as the West goes, both on the downturn and in the recovery,we’ve seen the rest of the country go as well,” said Villacorta.

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Pretty useless ‘analysis’. Is Saudi battling America? I wouldn’t be so sure. There might be something else going on.

• Can Saudis Beat North Dakota In An Oil Price War? (MarketWatch)

With oil prices tumbling — and dragging gasoline prices at U.S. pumps further below $4 a gallon — investors wonder if Saudi Arabia will cut production in an effort to stop the slide. Don’t count on it. In a note, commodity strategists led by Seth Kleinman at Citi argue that the Saudis aren’t likely to throttle back output, in part because they apparently “think that they can win any price war” with U.S. shale producers. In other words, Saudi producers are playing a long game, confident that “full cycle” shale production costs are considerably more than their own. As Julian Jessop, head of commodities at Capital Economics points out, there is precedent. Saudi Arabia responded to a glut of non-OPEC oil in the latter half of the 1980s by increasing its own output, successfully eroding the profitability of other producers, including those in the North Sea, he said.

Oil futures remained under pressure Wednesday, with the price of light, sweet crude for November delivery on the New York Mercantile Exchange falling $1.54, or 1.7%, to $87.31 a barrel, hitting the lowest price for a most-active contract since April 2013 after data showed a further rise in U.S. crude supplies. ICE November Brent crude futures fell 58 cents, or 0.6%, to $91.53 a barrel, setting a two-year low. Saudi Arabia earlier this month cut the official selling price for its crude, according to news reports, a move that put additional pressure on oil prices at the time. The Citi analysts say the Saudis might be right to think they can win a price war, but only up to a point.

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What if they built a pipeline and nobody came?

• The Keystone Killer the Enviros Didn’t See Coming (Bloomberg)

When it comes to oil, U.S. is king. Discoveries in North Dakota and Texas have pushed American oil production past Saudi Arabia and Russia this year. The new supplies have boosted the economy and dialed down the price of oil everywhere – gasoline at $3 a gallon anyone? The price of oil has fallen so low it’s threatening the feasibility of controversial and expensive drilling projects proposed in the Canadian Oil Sands and the Arctic. West Texas Intermediate, the U.S. benchmark for crude, is going for less than $90 a barrel. That’s approaching the break-even point for profitability at many of the very wells driving the American oil boom.

“If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, told Bloomberg News reporter Isaac Arnsdorf. “It will be uncharted territory.” At the current price of about $87 a barrel, cheap American crude undercuts many of the most aggressive oil projects under consideration by the oil majors. About $1.1 trillion of capital expenditures have been earmarked through 2025 for projects that require a market price of more than $95 a barrel, according to a May study by the Carbon Tracker Initiative, a London-based think tank and environmental advocacy group.

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No, the US will.

• Will China Spark a Currency War? (Bloomberg)

Is China about to devalue? The question seems to pop up everywhere I go – most recently in Frankfurt, Sydney and New York. Economists here in Tokyo, too, are buzzing about the chances of a big decline in the yuan in the next few months. A new report from Lombard Street Research explains why all these folks may have reason for concern. According to London-based Charles Dumas, China’s slowdown will soon drag down gross domestic product growth below 5% (whether Beijing admits it or not). Dumas joins long-time Asia investor Marc Faber in thinking China will find itself in the 4% range by year end. A continued downtrend, Dumas says, would represent “a major, slow-motion shock for the world economy and financial markets” that will slam everything from commodities to growth rates from Japan to Germany.

Growth significantly below Beijing’s 7.5% target also complicates President Xi Jinping’s efforts to shift China to a services-based economy from an export-and-investment-led one. The obvious solution: a weaker exchange rate that boosts exports and thus buys Xi time to recalibrate growth drivers. While Chinese leaders aren’t dropping clear hints of a devaluation, it’s a logical next step. Even before the 2008 global crisis, Lombard Street says, capital spending in China had already reached an unsustainable 42% of GDP. Then the regime responded to the crisis with an unprecedented investment surge, beginning with a $651 billion stimulus package in 2009. By the end of that year, capital spending had jumped to 48% – where it remained until last year. It’s simply not possible for an economy that carries a consumer-spending ratio of about 36% to thrive long-term with an investment ratio on the cusp of 50%.

Since the crisis, Chinese corporate debt has also reached $14.2 trillion, topping that of the U.S., according to Standard & Poor’s. Recently, China’s central bank set out to measure activity in China’s $6 trillion shadow banking industry, implying that officials worry it’s even bigger than we know. And while estimates of the true size of liabilities facing local governments differ widely, roughly $1.65 trillion of their debt is already held by major banks, including Industrial and Commercial Bank of China and China Construction Bank. Borrowing more to gin up growth isn’t an option for a highly-indebted developing nation. Debt must be reduced.

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Ambrose wants you to spend! He also says France will overtake Germany soon because of the birthrate.

• German Model Is Ruinous For Germany, And Deadly For Europe (AEP)

The German economy has already stalled. Output contracted in the second quarter. Factory orders fell 5.7pc in August. Germany’s “Five Wise Men” council of economic experts will slash the country’s growth forecast to 1.2pc next year in a report on Friday. Prof Fratzscher accuses Germany’s elites of losing the plot in every important respect. Investment has fallen from 23pc to 17pc of GDP since the early 1990s. Net public investment has been negative for 12 years. Growth has averaged 1.1pc since the beginning of the decade, placing Germany 13th out of 18 in the eurozone (or 156th out of 166 countries worldwide over the past 20 years). This chronic weakness been masked by slightly better growth since the Lehman crisis, and by the creditor-debtor dynamics of the EMU debt crisis. German looks healthy only because half of Europe looks deathly. The Hartz IV reforms – so widely praised as the foundation of German competitiveness, and now being foisted on southern Europe – did not raise productivity, the proper measure of labour reform.

Data from the OECD show that German productivity growth slumped to 0.3pc a year in the period from 2007 to 2012, compared with 0.5pc in Denmark, 0.7pc in Austria, 0.9pc in Japan, 1.3pc in Australia, 1.5pc in the US and 3.2pc in Korea. Britain has been negative, of course, but that is no benchmark. Prof Fratzscher says the chief effect was to let companies compress wages through labour arbitrage. Real pay has fallen back to the levels of the late 1990s. The legacy of Hartz IV is a lumpen-proletariat of 7.4m people on “mini-jobs”, part-time work that is tax-free up to €450. This flatters the jobless rate, but Germany has become a split society, more unequal than at any time in its modern history. A fifth of German children are raised in poverty. Philippe Legrain, a former top economist at the European Commission, says Germany’s “beggar-thy-neighbour economic model” works by suppressing wages to subsidise exports, to the benefit of corporate elites. This is “dysfunctional”, and the more that EU officials try to extend the model across the eurozone, the more dangerous it becomes.

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The numbers keep coming in bad.

• German Exports Plunge 5.8%, Most Since 2009, as Economy Stumbles (Bloomberg)

German exports slumped the most since January 2009 in the latest sign Europe’s largest economy is struggling to rebound from its second-quarter contraction. Exports dropped 5.8% in August, after a 4.8% increase in July, the Federal Statistics Office in Wiesbaden said today. Economists surveyed by Bloomberg News predicted a decline of 4%. While the typically volatile data was influenced by the timing of German school holidays in late summer, it still depicts an economy that is stumbling as the euro-area recovery grinds to a halt. The European Central Bank has added unprecedented stimulus to try to revive inflation and economic growth in the 18-nation currency bloc.

German imports declined 1.3% in August, after dropping 1.4% in July, today’s report showed. The country’s trade surplus narrowed to €14.1 billion ($18 billion) from a record €23.5 billion. The current account surplus shrank to €10.3 billion from €20.1 billion. German gross domestic product fell 0.2% in the three months through June. Data earlier this week showed factory orders and industrial production each declined by the most since January 2009 in August.

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Power battle between France and Germany.

• Hollande Falls Into Line as Merkel Fends Off EU Spending (Bloomberg)

German Chancellor Angela Merkel sidestepped French President Francois Hollande’s call to use stimulus measures to counter Europe’s faltering recovery, saying investments need to be carefully considered. With Germany’s economy slowing, France barely growing and Italy in its third recession since 2008, Hollande arrived at a jobs summit in Milan yesterday saying Germany should “do more to support demand” and that the European Union as a whole should provide €20 billion ($25 billion) to support joblessness over six years. Barely four hours later Merkel shied away from any commitment and Hollande fell into line. “We need to invest, yes, but we need to know where to invest, we need to know where the jobs are,” Merkel said. “We need to know what the professions of the future are. In the whole digital area I see the opportunities for the future. That’s where we should train people.”

Hollande and Italian Prime Minister Matteo Renzi want the European Union to use flexibility in its budget rules in the face of slowing growth and are pushing for the bloc to spend more creating jobs for the one in five young people who are out of work. Currently €6 billion has been set aside for the issue in 2014 and 2015. “I’d like to see more by 2020,” Hollande said. “If Europe can’t provide opportunities for the young, then people will turn away from Europe,” he said. France and Italy are also under pressure as lack of growth distances them from deficit-cutting commitments made earlier in the year. France now expects its budget deficit to rise this year for the first time in half a decade and doesn’t see the shortfall shrinking to the EU limit of 3% of gross domestic product before 2017. Italy has pushed back its plan to achieve a structural balance to next year from this year.

After lobbying for more EU spending on job creation on the way into yesterday’s meeting, Hollande echoed Merkel’s view that existing funds must spent first as he sat alongside her at the press conference afterward. “I’d like to see more by 2020, I’ve spoken of €20 billion, but before we must see these sums are spent,” he said. “We need simplification and speeding up of this disbursement.” Euro-area countries including France and Italy have until Oct. 15 to submit their 2015 budgets to the European Commission under the region’s fiscal rules. The commission will have to then judge their plans and decide whether governments have made sufficient efforts or need to be prodded to do more. The 3% limit was “conceived more than 20 years ago, in a different world,” Renzi said. “I respect the decisions of other countries such as France today or Germany in the past with a different government to breach the limit,” adding that Italy will meet its target all the same to bolster its credibility.

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Better leave now, Mario.

• Draghi Policies Blunted in Berlin as German Protests Grow (Bloomberg)

Mario Draghi’s policy tools are being blunted in Berlin. The European Central Bank president has stopped short of large-scale sovereign-bond purchases as efforts to mollify Germany’s political elite do little to silence criticism of his ever-more expansionary measures. Support for anti-euro groups such as Alternative for Germany has risen and the ECB’s latest plan to buy assets sparked an outcry within all major parties. “German public opinion matters an awful lot,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “Draghi wants the ECB to be a central bank like any other, one that can go and buy government debt. But he’s perfectly aware of Germany’s opposition, and the storm now is a clear signal that it’ll be much more difficult.” Draghi may be pressured at the International Monetary Fund meetings in Washington this week to take further measures to revive the 18-nation currency bloc’s recovery.

That won’t be easy in the face of a German aversion to quantitative easing that is rooted in the 1920s, when money-printing laid the foundation for a society that still fears rising prices more than deflation. The debate over sovereign-debt purchases will be raised again on Oct. 14 when the European Union’s highest court hears arguments about the ECB’s still-unused OMT program. Germany’s Federal Constitutional Court has already expressed doubts about the legality of the two-year-old pledge to buy bonds of stressed countries after a challenge by a German lawmaker and a group of academics.

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The German ‘Strongman’ went home. And he’s going to stay there.

• Where Did The German ‘Strongman’ Go? (CNBC)

This week’s disappointing German manufacturing data are the latest sign the “strongman” of Europe is weakening, in what could mark a worrying turn for the rest of Europe. Tuesday’s industrial output numbers for Germany missed forecasts, with production slowing by 4% month-on-month in August. German factory orders, out on Monday, also showed a steep—and unexpected—decline. “The data from Germany is persistently dreadful,” said Societe Generale’s Kit Juckes in a note on Wednesday. The warning comes after the International Monetary Fund (IMF) cut Germany’s growth outlook for this year and next on Tuesday. It now sees the economy growing by 1.4% in 2014 and 1.5% in 2015. This is better than the euro zone average, but below peers like the U.K., where the economy is expected to expand by 3.2% this year and 2.7% next.

Here we take a look at some of the reasons why Germany could be losing its economic clout: France has criticized Germany for hoarding cash rather than using it to stimulate domestic demand, which could help boost growth throughout the euro zone. “Germany must fulfil its responsibilities,” French Prime Minister Manuel Valls declared at a policy meeting last month. Now, some economists say the zealous fiscal prudence exercised by Chancellor Angela Merkel and colleagues is harming Germany, as well as its neighbors. “The figures should provide something of a wake-up call to those in the German government still resisting calls to loosen the fiscal reins and provide the euro zone’s biggest economy with more support,” said Jonathan Loynes, chief European economist at Capital Economics, in a note on Wednesday.

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Sure, let’s turn to the rich to solve our problems.

• ‘Bad Choices’ Have Put French Economy Under Pressure, Says EDF Boss (TiM)

One of France’s leading businessmen has admitted the economy is ‘under pressure’ and lashed out against high taxes. Henri Proglio is the chairman and chief executive of EDF, the French energy giant with more than 150,000 employees worldwide. He was speaking as EDF received approval from the EU for its nuclear power plants at Hinkley Point in Somerset. Brussels revealed the price of the work has risen to £24.5billion from the projected £16billion once debt financing is included. It could rise to as high as £34billion in a worst-case scenario. Proglio’s comments on the French economy come only days after John Lewis boss Andy Street said that France was ‘finished’ because it is ‘sclerotic, hopeless and downbeat’.

The French Prime Minister Manuel Valls, on an official trip to Britain, subsequently responded to the comments by suggesting that the John Lewis chief had ‘drunk too much beer’. Speaking yesterday, Proglio said: ‘France today is in a poor situation. It’s a country under pressure.’ He admitted that France ‘made some bad choices for a few years’ that have led to ‘overtaxation’. He added: ‘It’s not a brilliant situation.’ He said the country should be ‘forced’ to slash government spending – currently at more than 50 per cent of GDP – and ‘drive more investment’.He said: ‘It’s too easy to say today France is doing bad, because it’s obvious. ‘How can you make it better? This is the point.’

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I’m bad, but you’re worse.

• ‘France Is Doing Badly, But German Energy Sector Is A Disaster’ (Telegraph)

France’s economy may be doing badly but Germany’s energy sector is a “disaster”, the head of French state-owned energy company EDF has said. Henri Proglio, EDF chief executive, acknowledged his country was “in a poor situation” and “under pressure”. But he said different industries should be considered in their own right, highlighting the German energy sector, where the country’s phase-out of nuclear power and drive for renewables has severely damaged its two biggest companies. “When it comes to energy they are in a disaster. Their two major companies – E.On and RWE – are under huge pressure. One is more or less dead, the other one is in a very difficult situation,” he said. By contrast, he said EDF was doing “quite well” and the French aerospace industry was “number one in the world”.

Mr Proglio was speaking after his company was granted EU state aid approval to build Britain’s first new nuclear plant in a generation at Hinkley Point in Somerset. “It’s too easy to say today France is doing bad, because it’s obvious,” he said, adding attention should focus on “how can you make it better”. “On the fiscal point of view, France, in my view, made some bad choices for a few years. Over-taxation is very negative for the country,” he said. “On the other hand, we have some very good companies.” Mr Proglio said it was “very important to consider industry as a key driver for growth”. “You have to force a country to make some improvements in overheads, public overheads and to drive more investment.” Earlier this week French Prime Minister Manuel Valls admitted the country’s economic growth had been in “long breakdown” but insisted that his government was “pro-business”.

Paul Massara, the head of RWE’s UK supply business npower, did attack the Hinkley Point subsidy deal, suggesting it was poor value for consumers. “We recognise the need for Britain to have modern, efficient energy infrastructure with a diverse mix of technologies, but this must happen at the lowest possible cost to the consumer. “We are concerned that today’s decision around guaranteed revenue from new nuclear power stations in return for their delivery could force the next three generations of British consumers to pay unnecessarily high energy bills,” he said.

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“We have already lost, under the euro, one decade because of these enormous capital flows into users in southern Europe which were not so productive and we will lose another decade if we don’t act … ”

• Europe In Danger Of Another ‘Lost Decade’: Ifo’s Sinn (CNBC)

If euro zone countries like France do not complete vital structural reforms, the currency union faces another “lost decade,” Hans-Werner Sinn, president of the Munich-based Ifo Institute, told CNBC. Rather than the breakup of the single currency, Sinn warned that the euro zone will see another prolonged period of stagnation with weak growth unless countries can boost productivity and complete tough rebalancing programs. “We have already lost, under the euro, one decade because of these enormous capital flows into users in southern Europe which were not so productive and we will lose another decade if we don’t act,” he told CNBC on Thursday.

The euro zone’s main problem over the last decade has been that savings have been shifted into southern European nations that have “eaten up” that capital rather than using it to increase productivity in their economies, he said. He now believes that struggling southern European nations should undergo painful devaluation in order for them to grow again. So, instead of continuing to borrow at low interest rates through the current period of low growth and low inflation, Sinn says that painful reforms need to be implemented. “If you take the pain anyway it won’t happen,” he said.

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With unemployment numbers like Greece has, this sounds like nonsense.

• Samaras ‘Fully Comfortable’ Seeking Early Exit for Greece (Bloomberg)

Prime Minister Antonis Samaras said he aims to sever the international lifeline that has kept Greece afloat since 2010 by forgoing disbursements of emergency loans scheduled over the next two years. “We feel fully comfortable” that Greece can cover its financing needs from the bond markets in the coming years, Samaras, 63, said in an interview in Milan yesterday after a European Union summit. An improvement in public finances and low interest rates have emboldened Samaras, who said the Greek parliament will discuss the end of aid from the euro area and International Monetary Fund, which have granted the country €240 billion ($306 billion) in bailout loans, in a confidence-vote debate scheduled to run through tomorrow. Greek bonds are the best-performing securities in the Bloomberg indexes this year, having earned 20% through yesterday.

The yield on 10-year debt fell as low 5.52% on Sept. 8, the lowest since early 2010. Even after a sell off in the past month, that compares to a record high of 44% in March 2012, on the eve of the world’s biggest-ever debt restructuring. Samaras’s confidence contrasts with fellow euro-area and IMF officials, who insist Greece should retain access to bailout funds next year. The prevailing view among those officials is that Greece’s market access remains fragile, according to two people directly involved in the negotiations. European Central Bank President Mario Draghi weighed into the debate last week, saying the country needs to remain in some kind of program for Greek banks’ junk-rated asset-backed securities to be eligible for the ECB’s ABS purchase program. The bailout loans came with belt-tightening conditions that exacerbated a six-year Greek recession, left more than a quarter of the workforce jobless and triggered a social backlash. Aid next year would also come with strings attached.

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“A plan by the Swedish Bankers’ Association to require borrowers to pay down new loans to 50% of property values may be enough”. Sounds like trouble for borrowers.

• Banks in Sweden Beat Regulator With Plan to Cut Record Debt Load (Bloomberg)

Sweden’s financial regulator may not push ahead with formal rules on amortization after the country’s banks presented a proposal targeting a reduction in mortgage debt. A plan by the Swedish Bankers’ Association to require borrowers to pay down new loans to 50% of property values may be enough, Martin Andersson, head of the Swedish Financial Supervisory Authority, said yesterday in a phone interview. If banks “present a proposal that’s very similar to what we ourselves think is a very good proposal it’s absolutely a conceivable alternative,” he said. Banks can implement such a plan quicker and it provides “the flexibility needed for particularly vulnerable households that for a period of time are unemployed, or sick, or whatever it may be that makes it hard to amortize,” Andersson said.

Sweden is trying to stem an increase in private debt that has soared to record levels while protecting the most vulnerable households from new requirements. Finance Minister Magdalena Andersson, Riksbank Deputy Governor Cecilia Skingsley and Klas Danielsson, chief executive officer of state-owned bank SBAB, have urged policy makers to exempt some demographic groups from amortization requirements. The Bankers’ Association this week proposed new guidelines that would force homeowners to pay down their mortgage debt to 50% of property values after lowering it to 70% from 75% in March. The group said it hopes the measure aimed at fostering a better amortization culture will prevent the regulator from introducing formal legislation.

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Let’s cheer?!

• Brussels Backs New UK Nuclear Plant As Cost Forecasts Soar (FT)

Britain won EU approval for a new nuclear power plant in Somerset on Wednesday, allowing the government to commit to 35 years of financial support for Europe’s biggest and most controversial infrastructure project. Hinkley Point C will cost £24.5bn to build, EU officials revealed – a much higher figure than the £16bn disclosed last year by EDF, the French utility running the project. The lower figure was in 2012 prices and excluded interest payments made during construction and other pre-building costs, said EDF. Joaquín Almunia, the EU competition commissioner, said the project’s total costs would be about £34bn, including cash the developers had to show they could come up with in the event of problems during construction.

Formal state aid approval from the European Commission, on the condition of some minimal revisions, came after a deeply divided debate that led to four EU commissioners voting against the decision. Mr Almunia said the final decision had been taken, despite initial doubts, because the UK had shown there was a “genuine market failure” which meant that “without public support this investment could not take place”. “This decision will not create any kind of precedent,” he added, describing Hinkley Point as a project of “unprecedented nature and scale”.

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Another baseload issue.

• Japan Solar Boom Fizzling as Utilities Limit Grid Access (Bloomberg)

Japan’s solar energy boom is starting to fizzle after two years of rapid expansion left utilities saying they’re unable to accept electricity from so many new sources that generate power only when the sun shines. At least five of the nation’s biggest utilities are restricting the access of new solar farms to their grids. Struggling to compensate for nuclear shutdowns after the Fukushima reactor meltdowns, the government of Prime Minister Shinzo Abe offers some of the highest incentives for solar in the world. That’s helped make Japan the second-biggest market for photovoltaic panels, providing an alternative to downturns in Germany and Spain, nations that once led the industry. “Everyone was entering the solar market because it was lucrative, and that has strained the market,” said Yutaka Miki, who studies clean energy at the Japan Research Institute.

Japan’s trade ministry has approved plans for about 72 gigawatts of renewable energy projects since July 2012. The country installed almost 7.1 gigawatts of solar capacity last year, more than currently exists in all of Spain, according to Bloomberg New Energy Finance. A gigawatt is about the size of a nuclear reactor. Japan’s investment in the technology more than tripled to $29.6 billion in 2013 from 2010 levels, data from London-based BNEF show. Kyushu Electric Power, which supplies power to the southern island of Kyushu, said in late September that it will suspend giving new grid access to clean-energy producers while examining how much more capacity it can take on. The question is whether Japan’s grid can handle intermittent power deliveries from solar systems that only generate when the sun is shining.

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What good is this going to do?

• U.S. to Check Temperatures of West Africa Passengers at Five Airports (WSJ)

\The U.S. plans to start checking the temperatures of passengers arriving at major airports from West African countries with high rates of Ebola, federal officials said Wednesday. The measure is part of a growing list of steps aimed at detecting travelers infected with the disease to stop it from spreading inside the U.S. Authorities plan to start the new screenings at John F. Kennedy International in New York on Saturday. Next week, they’ll add it at O’Hare International in Chicago, Hartsfield-Jackson International in Atlanta, Washington Dulles International near Washington, D.C., and Newark Liberty International in Newark, N.J. Authorities said more airports may follow.

After their passports are reviewed, passengers arriving from Liberia, Guinea and Sierra Leone will be pulled aside to a separate screening area where U.S. Customs and Border Protection staff will question them about their health and exposure to Ebola, take their temperature with an infrared thermometer and collect their contact information in the U.S. If that screening suggests exposure to the disease, an officer from the Centers for Disease Control and Prevention will evaluate the traveler more, take his temperature again and decide whether the person needs to be taken to a hospital or be monitored by local health authorities. Coast Guard medical staff could also be involved in the screenings, according to a person briefed on the plans. “These measures are really just belt-and-suspenders,” President Barack Obama said in a conference call with state and local officials. “It’s an added layer of protection on top of the procedures already in place at several airports.”

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Real economics. And real scary too.

• Kondratieff Winter: The Consequences of the Economic Peace (Grant Williams)

In 1920, a year AFTER the Treaty of Versailles, a Russian economist called Nikolai Kondratieff founded something he named The Institute of Conjuncture, at which he and a team of fellow economists studied, yes, conjuncture — or business cycles, with a particular focus on the long waves they identified within those cycles. Over the years since Kondratieff first laid out his theory on long-wave cycles, a tremendous debate has ensued as to the usefulness of such long-term prognostication; but there is one very good reason why I (and many others) believe there to be a significant advantage gained through the study of long-wave cycles… (Wikipedia: Long-wave theory is not accepted by most academic economists.)

Kondratieff, being a Russian, of course took the long view. He took Schumpeter’s four stages (expansion, crisis, recession, and recovery) and equated them to the four seasons in a year. Once he had identified what he felt to be the length of each “Spring,” “Summer,” “Autumn,” and “Winter,” Kondratieff had his “Wave;” and, as it turned out, that Wave ran for approximately 53 years. In 1925, when he published his book The Major Economic Cycles, using existing data, Kondratieff overlaid his wave on world history and projected it forward — meaning that everything for the 89 years that followed was conjecture on his part… How’d he do? Well, as it turns out, surprisingly well. Kondratieff nailed far too many major turns to have his work simply dismissed, and his most recent turn into Winter occurred in 2000 or, for those of you who measure the passing of time by such things, precisely at the bursting of the tech bubble.

The blue shaded area shows how far into the current Kondratieff downwave we are and — far more importantly — how much farther we have to go before things are supposed to turn around. But what do the inner workings of a Kondratieff Winter look like? And are we in the middle of one, as a nearly 90-year-old forecast would have us believe? Like Schumpeter’s cycles, the four seasons in a Kondratieff Wave are broken down and characterised by the phenomena usually seen during each specific phase of the full cycle. I won’t go through all four seasons now, as we don’t have time, but rather we’ll focus on the longest phase — Winter — as it’s the one we find ourselves mired in.

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Debt Rattle October 8 2014

Oct 082014
 
 October 8, 2014  Posted by at 11:29 am Finance Tagged with: , , , , , , ,  1 Response »


Marjory Collins Third Avenue elevated railway at 18th Street, NYC Sep 1942

• Europe Sacrifices a Generation With 17-Year Unemployment Impasse (Bloomberg)
• Dollar Strength Will Rain on Upcoming Parade of Earnings (Bloomberg)
• US Auto Debt Nears $1 Trillion, And One Third Is Subprime (Zero Hedge)
• The IMF Explains Why It Keeps Overestimating Growth (BW)
• IMF Says Economic Growth May Never Return To Pre-Crisis Levels (Guardian)
• IMF Goes Back To The Future With Gloomy Talk Of Secular Stagnation (Guardian)
• US Government Debt Jumps By $1.1 Trillion in Fiscal Year (WolfStreet)
• The New AIG Lawsuit Should Enrage Every American Taxpayer (MarketWatch)
• US Said to Ready Charges Against Banks in Forex Rigging (Bloomberg)
• Merkel Eyes Measures to Ward Off Looming German Recession (Bloomberg)
• UK Retail Prices Fall By 1.8% In September (Guardian)
• China Banking Crisis Might Look Like A Hollywood Disaster Movie (CNBC)
• Oil Sinks To New Lows (MarketWatch)
• Shale Boom Tested as Sub-$90 Oil Threatens US Drillers (Bloomberg)
• Keystone Be Darned: Canada Finds Oil Route Around Obama (Bloomberg)
• Nearly 75% Of Australian Fund Managers Missing Targets (CNBC)
• Our Bullying Corporations Are The New Enemy Within (Monbiot)
• ‘This Changes Nothing’: Capitalism Still Wins, Climate Still Loses (Farrell)
• Europe To See More Ebola Cases After Spain (Reuters)
• First Hint Of ‘Life After Death’ In Biggest Ever Scientific Study (Telegraph)

Criminal.

• Europe Sacrifices a Generation With 17-Year Unemployment Impasse (Bloomberg)

Seventeen years after their first jobs summit European Union leaders are divided on how to create employment and a fifth of young people are still out of work. At a meeting in Milan today Italian Prime Minister Matteo Renzi plans to tout the new labor laws he’s pushing through. French President Francois Hollande will argue for more spending, a proposal German Chancellor Angela Merkel intends to reject. Britain’s prime minister David Cameron isn’t coming. Their lack of progress may increase the frustration of European Central Bank President Mario Draghi who has faced down internal dissent to deploy unprecedented monetary easing. He’s calling on the politicians to do their bit now and loosen the continent’s rigid labor markets even if that means facing the ire of protected workers. “An entire generation is being sacrificed in countries such as Spain,” Ludovic Subran, chief economist at credit insurer Euler Hermes said in an interview. “That has a real impact on productivity in the long run.”

The 18-nation euro area is still struggling to heal its debt-crisis scars, five years after Greece revealed that its deficit was more than twice its forecast, forcing it into two bailouts. Across the bloc, growth has ground to a halt and inflation is at its lowest for five years. When EU leaders met in Luxembourg in November 1997, the soon-to-be-born euro zone’s unemployment rate was about 11%. Jean-Claude Juncker, then prime minister of the host country, now president designate of the European Commission, promised a mix of free-market solutions and government plans would mean a “new start” for young people. Today the jobless rate is 11.5%. The Milan summit will focus on youth unemployment, which afflicts 21.6% of people under 25 across Europe, according to Eurostat. Even this number is almost identical to 1997, when it stood at 21.7%.

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Inevitable.

• Dollar Strength Will Rain on Upcoming Parade of Earnings (Bloomberg)

Earnings season can be a lot like Fashion Week, in that there are often common trends wherever one looks. For example, skipper hats, Members Only jackets and plaid Mighty Mighty Bosstones-style suits are destined to be all over the runways in Istanbul and Tokyo this month. OK fine, that one is made up, but here’s an earnings season trend you can count on: the phrase “unfavorable currency exchange rates” or something similar will show up in a lot of press releases over the next month or so. How unfavorable? The U.S. dollar surged more than 8% versus the euro in the quarter. That made American skipper hats a lot more expensive in comparison to equally fashionable and timeless French berets (excluding the cost of having your name stenciled on the front.) And it wasn’t just the euro. The Bloomberg Dollar Spot Index, a measure of the currency against 10 major peers, jumped 6.7% in the quarter for its biggest advance in six years.

Bank of America Corp. strategist Savita Subramanian estimates that a 5% rise in the dollar versus the euro results in a drop of about $1 for full-year Standard & Poor’s 500 Index per-share earnings, which she projects at $118. Partly because of the dollar and the related decline in oil prices, earnings estimates have seen “one of the largest downward revisions over the last few years” aside from the weather-beaten first quarter of this year, according to Subramanian. Earnings-per-share are projected to have grown 4.9% in the third quarter, according to analyst estimates compiled by Bloomberg. At the beginning of the quarter, they were estimated to increase 7.8%. At the end of March, they were forecast to grow 9%. And in January…well, you get the picture. The strong dollar may have an even greater impact on guidance for the fourth quarter, Subramanian said.

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Forget about the truth. Debt will set you free.

• US Auto Debt Nears $1 Trillion, And One Third Is Subprime (Zero Hedge)

And now for something funny. Earlier today, credit agency Equifax piggybacked on Experian’s auto loan data, and reported the following:

• The total balance of auto loans outstanding in August is $924.2 billion, an all-time high and an increase of 10.8% from same time a year ago

• The total number of auto loans outstanding stands at more than 65 million, a record high and an increase of more than 6% from the same time last year;

• The total number of new loans originated year-to-date through June for subprime borrowers, defined as consumers with Equifax Risk Scores of 640 or lower, is 3.9 million, representing 31.2% of all auto loans originated this year.

• Similarly, the total balance of newly originated subprime auto loans is $70.7 billion, an eight-year high and representing 27.8% of the total balance of new auto loans

At least we now know, definitively, what the reason for the US manufacturing surge in the late spring early summer was: a subprime credit-driven car buying binge. But wait, there’s more: because here is Equifax’ “conclusion” based on the above bullets:

“Auto sales continue to soar, crossing the 17.4 million mark on an annualized basis for new cars and light trucks in August,” said Amy Crews Cutts, Senior Vice President and Chief Economist at Equifax. “The abundance of high-quality vehicles for sale, the attractive financing options available, and the ever-increasing age of cars on the road today have created an environment that makes it easy for consumers to say ‘yes’ when it comes to purchasing a new or used car. Importantly, auto loan originations to borrowers with subprime credit scores remain stable, providing additional evidence that a bubble is not occurring in that space.”

To summarize: to Equifax a record car loan bubble with an 8 year high in subprime origination is “evidence” that there is no bubble.

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It’s their job?!

• The IMF Explains Why It Keeps Overestimating Growth (BW)

In what has become a seasonal ritual, the International Monetary Fund said today that it had been too optimistic about the global growth outlook and revised downward its forecast for 2015. This time, it included a five-page explanation of why it has kept overestimating the strength of the recovery. Bad guesses on growth in the BRIC countries—Brazil, Russia, India, and China—accounted for about half the error, even though their share of the global economy is only about 28%, the IMF said. In addition, “Four stressed economies in the Middle East account for another 20% of the global forecast error,” it said. Those four are Egypt, Iran, Iraq, and Libya. In the case of the BRICs, the IMF said it has been gradually revising down not only the countries’ near-term growth, but their long-term growth potential.

“After a sharp rebound following the global financial crisis, global growth declined every year between 2010 and 2013—from 5.4% to 3.3%,” the IMF said. Even taking into account unanticipated “shocks” such as the euro debt crisis, “global growth outturns have still surprised on the downside relative to each successive WEO forecast since 2011,” the IMF economists admit in the latest edition of the World Economic Outlook. The IMF now expects global growth to reach 3.3% in 2014 and 3.8% in 2015, down from estimates it made in April (3.6% and 3.9%, respectively) and July (3.4% and 4.0%, respectively). From 2011 through 2014, the average miss on the year-ahead forecasts was 0.6% percentage point, the IMF said in its post mortem.

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It just figured that out now?

• IMF Says Economic Growth May Never Return To Pre-Crisis Levels (Guardian)

The IMF has cut its global growth forecasts for 2014 and 2015 and warned that the world economy may never return to the pace of expansion seen before the financial crisis. In its flagship half-yearly world economic outlook (WEO), the IMF said the failure of countries to recover strongly from the worst recession of the postwar era meant there was a risk of stagnation or persistently weak activity. The IMF said it expected global growth to be 3.3% in 2014, 0.4 points lower than it was predicting in the April WEO and 0.1 points down on interim forecasts made in July. A pick-up in the rate of expansion to 3.8% is forecast for 2015, down from 3.9% in the April WEO and 4% in July. But the IMF highlighted the risk that its predictions would once again be too optimistic. “The pace of global recovery has disappointed in recent years”, the IMF said, noting that since 2010 it had been consistently forced to revise down its forecasts.

“With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialise or fall short of expectation.” The IMF’s economic counsellor, Olivier Blanchard, said the three main short-term risks were that financial markets were too complacent about the future; tensions between Russia and Ukraine and in the Middle East; and that a triple-dip recession in the eurozone could lead to deflation. Although the IMF believes the US Federal Reserve and the Bank of England will be the first two major central banks to start raising interest rates by the middle of 2015, it advised that official borrowing costs should be kept low so long as demand remained weak. It added that countries with healthy public finances, such as Germany, should spend more on infrastructure in order to boost growth and cautioned against over-aggressive attempts to reduce budget deficits.

From a medium-term perspective, low potential output growth and “secular stagnation” are still important risks, given that robust demand growth has not yet emerged. “In particular, despite continued very low interest rates and increased risk appetite in financial markets, a pick-up in investment has not yet materialised, possibly reflecting concerns about low medium-term potential growth rates and subdued private consumption (in a context of weak growth in median incomes).”

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There you go: we need more optimism no matter what happens.

• IMF Goes Back To The Future With Gloomy Talk Of Secular Stagnation (Guardian)

You’ll never have it so good again. That’s the message for the rich western economies from the IMF after yet another downgrade to its growth forecasts. For a quarter of a century Japan’s once-booming economy has struggled; now Europe is heading in the same direction. The IMF thinks there is a 40% chance of a recession in the eurozone over the next year and a 30% risk of deflation. Before the slump of 2008, the IMF boasted of how the global economy was enjoying its fastest period of sustained growth since the early 1970s. Now it talks openly of the possibility of secular stagnation: the notion that there has been a permanent downward shift in the potential growth rates of advanced economies. Olivier Blanchard, the IMF’s economic counsellor, said there had been a structural slowdown in the west, which was why the global economy was unlikely to return to the pace of expansion seen before the financial crisis.

But the IMF also believes these lower levels of potential growth will be achievable only if interest rates are kept very low. Returning monetary policy to the settings in place before the collapse of Lehman Brothers in September 2008 – with a bank rate of about 5% in the UK – would lead to even lower levels of activity and high unemployment. This is the scenario described by Alvin Hansen, the economist who coined the phrase “secular stagnation” in 1938. The date is important because despite a recovery from the great depression in the early 1930s, there was a relapse in 1937. Pessimism about the future was as strong then as it is now, yet during the next three decades the global economy expanded at rates not seen before – or since. It is possible, therefore, that the experience of the recent past skews forecasts of the future. When the world economy was humming along, the IMF expected the boom to be everlasting. Now it can see nothing other than a continuation of the sluggish performance of recent years.

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Insane. What other words are there?

• US Government Debt Jumps By $1.1 Trillion in Fiscal Year (WolfStreet)

When it comes to the Federal deficit, reliable numbers are as elusive as unicorns. Not that there aren’t plenty of numbers out there, but they don’t match reality. And reality is ultimately the change in the gross national debt which shows in its unvarnished manner just how much money the federal government actually had to borrow to fill the fiscal holes. Regardless of what has been proffered by the White House, the Congressional Budget Office, and others, the total gross national debt outstanding of the US of A hit $17.824 trillion in fiscal 2014 ended September 30. A jump for the fiscal year of $1.086 trillion. It could have been worse: note how it jumped on October 1, the first day of fiscal 2015, by another $51 billion. That’s certainly one elegant way of putting some lipstick on the debt in fiscal 2014 – by kicking part of it into the next fiscal year. But hey, we all do that.

The fact that the total debt taxpayers will have to deal with in the future soared by $1.1 trillion in fiscal 2014 is in part due to last year’s debt ceiling charade in Congress. Starting in March 2013, when Treasury debt outstanding hit the debt ceiling, the Treasury Department couldn’t sell additional debt to bring in the money that the government continued to spend. So it borrowed that money via “extraordinary measures” from other accounts, to be repaid later. Then on October 16 last year, so in fiscal 2014, President Obama signed a deal into law that avoided default. The next day, the gross national debt jumped $328 billion to $17.075 trillion. Most of the $328 billion should have fallen into fiscal 2013. If subtracted from the $1.086 trillion by which the debt ballooned in fiscal 2014, it reduces the increase in the debt to $758 billion.

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Very one-sided piece.

• The New AIG Lawsuit Should Enrage Every American Taxpayer (MarketWatch)

Imagine you have a friend who drinks a lot and often. Until now, they always seem to have a good time. He tells the best stories, gets all the girls. He’s the life of the party. Then, one day, he wrecks his car. And you and some buddies, who happened to be in the neighborhood, see your pal trapped. Of course, you rush to the rescue. You try to break open the door with a tire iron. Ultimately, you smash the window and pull the poor fellow out. And just when you’d think this guy would sober up and see the recklessness of his ways, he looks you in the eye and says without blinking: “You need to pay for my door and windshield.” This is the story of AIG and its longtime leader, Maurice “Hank” Greenberg. Greenberg, as I mentioned last week, is suing the U.S. government over the $180 billion bailout given to AIG in 2008. Up until then, AIG was the life of the party. Huge profits. Strong growth. AIG was an ATM. It earned $14 billion in 2006, $10.5 billion in 2005 and $11.05 billion in 2004.

But it was lubricated with risk. Oops. The insurer reported $99 billion in losses in 2008 and lost $3.37 billion through the first nine months of 2009. Greenberg and his companies (notably Starr International Co.) were the biggest AIG investors at the time, and the government’s bailout effectively crushed their shares. In August 2007, an AIG share was worth $1,320. Today, it’s $52.65. That’s a 96% drop. Maybe, if you’re “Hank” Greenberg, that doesn’t seem fair. On the other hand, it’s better than being dead. And that’s exactly where AIG shares would be without taxpayers’ aid. Yes, taxpayers. You. You’re the one who smashed the window and pulled AIG out of the burning car. And guess what? You’re the one who’s on trial now. Your buddy wants you to pay to fix his car. As your counsel, I have some good news and bad news. The good news is you have a great case. There is no legal precedent that suggests you’re at fault. It was the heat of the moment. You did what you had to do.

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Even looking for guilty pleas. Jail time?

• US Said to Ready Charges Against Banks in Forex Rigging (Bloomberg)

U.S. prosecutors are pressing to bring charges against a bank for currency-rate rigging by the end of the year, and actions against individuals will probably follow in 2015, according to people familiar with the probe. The Justice Department may seek guilty pleas from several firms, including at least one in the U.S., said one of the people, asking not to be named because details of the investigation aren’t public. While federal prosecutors have wrested convictions from foreign banks this year for wrongdoing, they’ve yet to win a guilty plea from a U.S. lender in that push, and they’re preparing for strong resistance if they attempt to do so. Justice Department officials have vowed to hold more institutions and individuals accountable for criminal conduct amid public frustration over the lack of prosecutions against top Wall Street executives for the worst financial crisis since the Great Depression. Starting currency-rigging prosecutions this year would help the Justice Department keep pace with regulators.

The U.K. Financial Conduct Authority, the U.S. Federal Reserve, and the Office of the Comptroller of the Currency are already in settlement talks with several banks with a goal of reaching some agreements next month, people familiar with the cases have said. The U.S. criminal investigation has moved quicker than U.K. prosecutors. The Serious Fraud Office opened an investigation in July and will announce any charges next year at the earliest, according to David Green, the London agency’s director. Attorney General Eric Holder, in his final speech about financial crime before announcing plans last month to step down, said the currency probe was advancing quickly thanks to undercover cooperators and would probably result in charges against bankers in the coming months. Investigators are looking into allegations that traders shared data about orders with people at other firms using instant-message groups with names such as “The Cartel” and “The Bandits’ Club.”

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She’ll sell the bad data as a one-off, and spend only at home, damn the rest of the EU. And then say: you’ll al do better once we do.

• Merkel Eyes Measures to Ward Off Looming German Recession (Bloomberg)

Chancellor Angela Merkel’s government is flirting with measures to stimulate growth, reviewing its options amid evidence that Europe’s largest economy risks plunging into recession. Among plans being discussed is lowering the mandatory pension contribution by 0.6 percentage point, which would funnel €6 billion ($7.6 billion) into the economy, said Michael Fuchs, deputy parliamentary leader of Merkel’s Christian Democratic Union in the lower house. “There is some leeway for measures to help growth,” Fuchs said in a telephone interview. Germany’s economy is losing steam as sluggish growth in the euro area and political tension with Russia weigh on demand. With next year’s target to balance the budget looming, Merkel’s coalition has resisted calls to boost spending to foster growth. “The government has been very reluctant, very often just pointing to an accountant’s point of view, saying everything is fine and we have our debt brake coming up and we can’t use this for more investment,” said Carsten Brzeski, chief economist at ING-DiBa in Frankfurt.

“This position is clearly changing now and the economic data is pushing the government to change.” German industrial production fell more than economists forecast in August, down a seasonally adjusted 4% from July, the Economy Ministry said yesterday. That was the steepest decline since January 2009, when the euro area was sliding into its debt crisis. The drop adds to a broader picture of Germany’s $3.6 trillion economy grinding to a halt. Factory orders slid 5.7% in August — also the most since 2009 — as manufacturing shrank in September. New orders fell at the fastest pace since 2012, a purchasing managers survey showed. Business confidence has also taken a hit, with the Ifo research institute showing it plummeting to the lowest level in almost a year and a half. Unemployment rose for a second month in September. The downward trend in economic data follows a 0.2% decline in gross domestic product in the second quarter.

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They say it’s due to competition. But how about that drop in spending, because people have less money and more debt?

• UK Retail Prices Fall By 1.8% In September (Guardian)

Prices in UK shops fell at an accelerated rate in September as supermarkets and other retailers slashed prices amid fierce competition in the retail sector. Shop prices were down for a seventh month, falling by 1.8% compared with September 2013, and at a faster rate than August, when prices were 1.6% lower, according to the British Retail Consortium (BRC) and Nielsen. Consumers are expected to benefit from the competitive price environment as retailers battle for customers in the runup to Christmas. Helen Dickinson, director general at the BRC, said: “Retailers are turning their attention to Christmas by reading current conditions and matching consumer sentiment well with their promotions and offers. Falling commodity prices, the strengthening of sterling, benign pressure in the supply chain and, critically, fierce competition across the retail industry suggests lower shop prices for consumers will continue.

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Zombies and empty apartments.

• China Banking Crisis Might Look Like A Hollywood Disaster Movie (CNBC)

It’s time to keep a close eye on China’s banks. As Beijing scrambles to prop up a slowing economy and cooling real estate market, the government last week announced measures to make it easier for households and developers to borrow more money. That may help in the short run. But the cure, say some observers, will do little to address the growing pile of bad loans that has left China’s financial system with deepening debt hangover. “In the overall level of debt, they can still push it without creating immediate problems,” said Diana Choyleva, head of Macroeconomic Research at Lombard Street Research. “But if you look at the rate of increase in debt since the global financial crisis it’s extremely alarming.” China’s debt has been piling up for years. To offset the financial collapse of 2008, Beijing borrowed and spent heavily on an epic building spree of roads, airports, rail lines and water projects. Now, to keep growing, China has to keep spending: More than half of gross domestic product comes from investment. (Consumer spending, while rising, makes up about a third of growth.)

Much of China’s borrowing and spending fueled an historic run-up in property prices that has recently stalled, raising fears that a wider, deeper slump could weaken China’s already slowing economy. In response to slumping property prices, China last week cut mortgage rates and down payment requirements for some homebuyers for the first time since the 2008 global financial crisis. The government’s latest effort to prop up a sagging real estate market also included steps to boost credit for cash-strapped developers, who risk getting stuck with too much debt if the slump deepens. China’s real estate market has survived similar slumps since 2008. But some economists warn the risks of a full-blown Chinese banking crisis are rising. If it happened, the reverberations would be felt around the world, according to a report this week from economists at Oxford Economics, who ran numbers through their computer models and came up with a scenario worthy of a Hollywood disaster movie.

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How low?

• Oil Sinks To New Lows (MarketWatch)

Crude-oil futures sank to new lows for this year in Asian trade Wednesday, extending the recent selloff in oil markets and pushing the Brent crude benchmark below $91 a barrel. On the New York Mercantile Exchange, light, sweet crude futures for delivery in November traded at $87.77 a barrel, down $1.08 in the Globex electronic session. November Brent crude on London’s ICE Futures exchange fell $1.22 to $90.89 a barrel. Markets were still spooked by the International Monetary Fund’s dim global economic growth forecasts and cuts in the U.S. Energy Information Administration’s oil demand forecasts announced yesterday, Singapore-based traders said. The U.S. crude benchmark traded near its lowest since April 2013, while Brent crude was at its lowest since June 2012.

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Damage control wherever you look.

• Shale Boom Tested as Sub-$90 Oil Threatens US Drillers (Bloomberg)

The US shale boom is producing record amounts of new oil as demand weakens, pushing prices down toward levels that threaten to reduce future drilling. Domestic fields will add an unprecedented 1.1 million barrels a day of output this year and another 963,000 in 2015, raising production to the most since 1970, according to the U.S. Energy Information Administration. The Energy Department’s statistical arm forecasts consumption will shrink 0.2% to 18.9 million barrels a day this year, the lowest since 2012. More supply from hydraulic fracturing and horizontal drilling, and less demand, are contributing to the tumble in West Texas Intermediate crude. The U.S. benchmark is down 18% since June 20 and fell below $90 a barrel on Oct. 2 for the first time in 17 months. “If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,”

Ralph Eads, vice chairman and global head of energy investment banking at Jefferies, which advised 38% of U.S. energy mergers and acquisitions this year, said. “It will be uncharted territory.” WTI declined to as low as $87.39 a barrel today on the New York Mercantile Exchange, heading for the the lowest close since April 17, 2013. It traded at $87.75 a barrel in London. Prices in domestic fields such as North Dakota’s Bakken shale are several dollars lower because transportation bottlenecks raise the cost of reaching refiners. Shale oil is expensive to extract by historical standards and only viable at high-enough prices, Ed Morse, Citigroup’s head of global commodities research in New York, said by phone Sept. 23. Oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa, the Paris-based IEA estimates. “There is probably something to the notion that if prices fell suddenly to $60 a barrel, the production growth would turn negative,” he said.

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Across the whole country. And Canada is huge!

• Keystone Be Darned: Canada Finds Oil Route Around Obama (Bloomberg)

So you’re the Canadian oil industry and you do what you think is a great thing by developing a mother lode of heavy crude beneath the forests and muskeg of northern Alberta. The plan is to send it clear to refineries on the U.S. Gulf Coast via a pipeline called Keystone XL. Just a few years back, America desperately wanted that oil. Then one day the politics get sticky. In Nebraska, farmers don’t want the pipeline running through their fields or over their water source. U.S. environmentalists invoke global warming in protesting the project. President Barack Obama keeps siding with them, delaying and delaying approval. From the Canadian perspective, Keystone has become a tractor mired in an interminably muddy field. In this period of national gloom comes an idea — a crazy-sounding notion, or maybe, actually, an epiphany. How about an all-Canadian route to liberate that oil sands crude from Alberta’s isolation and America’s fickleness?

Canada’s own environmental and aboriginal politics are holding up a shorter and cheaper pipeline to the Pacific that would supply a shipping portal to oil-thirsty Asia. Instead, go east, all the way to the Atlantic. Thus was born Energy East, an improbable pipeline that its backers say has a high probability of being built. It will cost C$12 billion ($10.7 billion) and could be up and running by 2018. Its 4,600-kilometer (2,858-mile) path, taking advantage of a vast length of existing and underused natural gas pipeline, would wend through six provinces and four time zones. It would be Keystone on steroids, more than twice as long and carrying a third more crude. Its end point, a refinery in the blue-collar city of Saint John, New Brunswick, operated by a reclusive Canadian billionaire family, would give Canada’s oil-sands crude supertanker access to the same Louisiana and Texas refineries Keystone was meant to supply.

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Lovely. And that’s in ‘good’ times.

• Nearly 75% Of Australian Fund Managers Missing Targets (CNBC)

Despite consistent stock market highs this year, most large-cap fund managers in the U.S. have been unable to match the returns of the S&P 500 – and now it seems Australian fund managers are facing the same fate. Over five years, the majority of actively managed Australian equity funds in most categories failed to beat their comparable benchmark indices as of the end of June, according to data from S&P Dow Jones Indices. Some 75% of Australian large-cap equity funds have underperformed Australia’s main index the S&P/ASX 200 over the last five years and over three years, 66% of funds failed to match the returns of the market. Equity funds were not the only culprit, with 80% of bond funds also underperforming the S&P/ASX Australian Fixed Interest Index. The figures are similar to those released by S&P Capital IQ Fund Research in August on U.S. funds, which showed about 80% of large-cap mutual funds underperformed the S&P 500, which most analysts put down to a persistent lack of volatility in markets.

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It’s teh people the system selects for, as much as the system itself.

• Our Bullying Corporations Are The New Enemy Within (Monbiot)

The more power you possess, the more insecure you feel. The paranoia of power drives people towards absolutism. But it doesn’t work. Far from curing them of the conviction that they are threatened and beleaguered, greater control breeds greater paranoia. On Friday, the chancellor of the exchequer, George Osborne, claimed that business is under political attack on a scale it has not faced since the fall of the Berlin Wall. He was speaking at the Institute of Directors, where he was introduced with the claim that “we are in a generational struggle to defend the principles of the free market against people who want to undermine it or strip it away”. A few days before, while introducing Osborne at the Conservative party conference, Digby Jones, former head of the Confederation of British Industry, warned that companies are at risk of being killed by “regulation from ‘big government’” and of drowning “in the mire of anti-business mood music encouraged by vote-seekers”.

Where is that government and who are these vote-seekers? They are a figment of his imagination. Where, with the exception of the Greens and Plaid Cymru – who have four MPs between them – are the political parties calling for greater restraints on corporate power? When David Cameron boasts that he is “rolling out the red carpet” for multinational corporations, “cutting their red tape, cutting their taxes”, promising always to set “the most competitive corporate taxes in the G20: lower than Germany, lower than Japan, lower than the United States”, all Labour can say is “us too”. Its shadow business secretary, Chuka Umunna, once a fierce campaigner against tax avoidance, accepted a donation by a company which delivers “tailored tax solutions to individuals and organisations internationally”. The shadow chancellor, Ed Balls, cannot open his lips without clamping them around the big business boot. There’s no better illustration of the cross-party corporate consensus than the platform the Tories gave to Jones to voice his paranoia.

Jones was ennobled by Tony Blair and appointed as a minister in the Labour government. Now he rolls up at the Conservative conference to applaud Osborne as the man who “did what was right for our country. A personal pat on the back for that.” A pat on the head would have been more appropriate – you can see which way power flows. The corporate consensus is enforced not only by the lack of political choice, but by an assault on democracy itself. Steered by business lobbyists, the EU and the US are negotiating a Transatlantic Trade and Investment Partnership. This would suppress the ability of governments to put public interest ahead of profit. It could expose Britain to cases like El Salvador’s, where an Australian company is suing the government before a closed tribunal of corporate lawyers for $300m (nearly half the country’s annual budget) in potential profits foregone. Why? Because El Salvador refused permission for a gold mine that would poison people’s drinking water.

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I’m afraid Paul Farrell is largely right.

• ‘This Changes Nothing’: Capitalism Still Wins, Climate Still Loses (Farrell)

GOP conservatives, Big Oil, Exxon Mobil, Koch billionaires, and every other hard-right climate-science denier must love Naomi Klein’s new book, “This Changes Everything: Capitalism vs. The Climate.” Why? The book’s old news, the title should be: “This Changes Nothing: Capitalism Still Wins, Climate Still Loses.” Yes, the future looks brighter than ever for capitalism. This is the real WWIII. Klein has known the world was sinking deep into a “Capitalism vs. The Climate” global war since well before her last book, “The Shock Doctrine: Rise of Disaster Capitalism,” a historical survey of the conservative revolution launched after WWII by Nobel Economist Milton Friedman and “Atlas Shrugged” author Ayn Rand. That revolution sunk its roots deeper into American history under the leadership of President Ronald Reagan and Fed Chairman Alan Greenspan. Back in 2007 we were early fans. In our review of “Shock Doctrine” we called it one of the best economics book of the new 21st century. At the time, it was.

But in the past seven years the global zeitgeist moved past “Shock Doctrine,” while America got worse, sinking deeper into chaos — politically, economically, militarily, culturally. By detailing how conservatives emerged so successful in their power grab in the generation since the Reagan revolution, “Shock Doctrine” has actually motivated conservatives to keep grabbing more and more power. Yes, conservative strategies are working. And Klein’s new book is guaranteed to further emboldened conservatives to build on their power base … further accelerating America’s downward spiral … as capitalism keeps widening the global inequality gap … as the 67 billionaires who now own half the world will keep grabbing more … as Credit Suisse Bank’s prediction that by 2100 11 trillionaires will rule the planet seems more credible … as economist Tom Piketty’s warning that capitalism has become so powerful it is unstoppable, that it will continue widening the inequality gap, even though Pope Francis warns that inequality as the “root cause of all the world’s problems.”

Yes, it’s too late. Klein’s new book was to be a game-changer. Now it’s old news. Changed nothing. Capitalism keeps winning. Planet Earth keeps losing. The global capitalist ideology truly is the global zeitgeist, pouring more fuel on the fire, further accelerating the downward spiral.

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Undoubtedly. When will borders start closing?

• Europe To See More Ebola Cases After Spain (Reuters)

The World Health Organization said on Tuesday that Europe would almost certainly see more cases of Ebola after a nurse in Spain became the first person known to have caught the virus outside Africa. With concerns growing globally that the worst Ebola outbreak on record could spread beyond West Africa, where it has killed more than 3,400 people in three impoverished countries, Spanish officials tried to reassure the public they were tackling the threat. Health experts said the chances were slim of a full-blown outbreak outside Africa. Rafael Perez-Santamaria, head of the Carlos III Hospital in Madrid, where the infected nurse, Teresa Romero, had treated two Spanish missionaries who had contracted the disease in West Africa, said medical staff were “revising our protocols”. Four people including the nurse’s husband were admitted to hospital for observation. One of the four, another nurse, who had diarrhea but no fever, tested negative for the virus, a Spanish health source said.

Madrid’s regional government said it had ordered a dog belonging to Romero and her husband put down, despite the husband’s opposition. “The existence of this pet which has been in the home and in close contact with the patient affected by the Ebola virus … presents a possible transmission risk to humans,” a statement said. It would be killed in such way as to spare it any suffering and then be incinerated, the authorities said. Even though western European hospitals, unlike most of those in the affected parts of Africa, have the facilities to isolate an infected patient, WHO European director Zsuzsanna Jakab said it was “quite unavoidable … that such incidents will happen in the future because of the extensive travel from Europe to the affected countries and the other way around”. Nevertheless, she said that “the most important thing in our view is that Europe is still at low risk, and that the western part of the European region particularly is the best prepared in the world to respond to viral haemorrhagic fevers including Ebola”.

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Cute.

• First Hint Of ‘Life After Death’ In Biggest Ever Scientific Study (Telegraph)

Death is a depressingly inevitable consequence of life, but now scientists believe they may have found some light at the end of the tunnel. The largest ever medical study into near-death and out-of-body experiences has discovered that some awareness may continue even after the brain has shut down completely. It is a controversial subject which has, until recently, been treated with widespread scepticism. But scientists at the University of Southampton have spent four years examining more than 2,000 people who suffered cardiac arrests at 15 hospitals in the UK, US and Austria. And they found that nearly 40% of people who survived described some kind of ‘awareness’ during the time when they were clinically dead before their hearts were restarted.

One man even recalled leaving his body entirely and watching his resuscitation from the corner of the room. Despite being unconscious and ‘dead’ for three minutes, the 57-year-old social worker from Southampton, recounted the actions of the nursing staff in detail and described the sound of the machines. “We know the brain can’t function when the heart has stopped beating,” said Dr Sam Parnia, a former research fellow at Southampton University, now at the State University of New York, who led the study. “But in this case, conscious awareness appears to have continued for up to three minutes into the period when the heart wasn’t beating, even though the brain typically shuts down within 20-30 seconds after the heart has stopped. “The man described everything that had happened in the room, but importantly, he heard two bleeps from a machine that makes a noise at three minute intervals. So we could time how long the experienced lasted for. “He seemed very credible and everything that he said had happened to him had actually happened.”

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Debt Rattle October 7 2014

Oct 072014
 
 October 7, 2014  Posted by at 12:29 pm Finance Tagged with: , , , , ,  3 Responses »


Charlotte Brooks Marilyn Monroe and Navy Pilot 1952

• Global Banks Face 25% Loss-Absorbency Rule in FSB Plan (Bloomberg)
• ‘Nuanced’ Q4 Dollar Gains As Monetary Policy Diverges (CNBC)
• Why The Oil Price Decline Is Failing To Boost Europe (CNBC)
• German Industrial Output Drops Most Since 2009 (AN)
• France Cautions Germany Not To Push Europe Too Far On Austerity (AEP)
• France’s Stagnation Is Tragic To Watch (Telegraph)
• Europe Cash Pile Signals Savings Glut Sequel for Markets (Bloomberg)
• French PM To Bring In Sunday Shopping As Part Of Reform Program (Guardian)
• The Reserve Currency’s Exorbitant Burden (Pettis)
• Retirement Age To Rise By As Much As Six Months Per Year (Telegraph)
• China Private Sector Demand Continues To Decline (Zero Hedge)
• Chinese Investors Surged Into EU At Height Of Debt Crisis (FT)
• Beware a Chinese Slowdown (Rogoff)
• Zero Interest Loan Lets Low-income Borrowers Build Equity Fast (?!) (LA Times)
• Ukraine Insists Transit Of Russian Gas To Europe Should Be Revised (RT)
• $1,200 3-D Printer For Untraceable Guns Sells Out in 36 Hours (Wired)
• Nurse In Spain First Ebola Case Contracted Outside Africa (CNBC)
• CDC Clears US Ebola Victim’s Stepdaughter To Return To Work After 7 Days (DM)
• Senior Banker In UK Pleads Guilty In Libor Probe (Reuters)
• Must Be the Season of the Witch (Jim Kunstler)

Fool me once.

• Global Banks Face 25% Loss-Absorbency Rule in FSB Plan (Bloomberg)

The largest global banks will have to hold more capital and liabilities than previously reported that can automatically be written off in a crisis — as much as a quarter of risk-weighted assets — as regulators take on lenders deemed too big to fail. The Financial Stability Board is developing minimum standards that will limit the double-counting of capital banks use to meet existing international rules, according to an FSB working document sent for comment to Group of 20 governments and obtained by Bloomberg News. The restriction means that, while the basic requirement will be set at 16% to 20% of risk-weighted assets, the final number will be higher because the banks must separately meet “other regulatory capital buffers,” according to the document, dated Sept. 21. The FSB in Basel, Switzerland, declined to comment on the non-public document.

“These standards are an important step in developing a strategy which will limit taxpayers’ exposure to failing banks, but of course a lot of work still has to be done to determine how much flexibility national regulators will have or even need when applying the rules,” said Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland. The FSB, which consists of regulators and central bankers from around the world, plans to present the draft rules to a G-20 summit in Brisbane, Australia, next month. The plans, which will be published for comment and completed next year, are part of a package of measures designed to make sure taxpayers are no longer on the hook when banks fail. The FSB maintains a list of globally systemic banks that it updates each November. The latest list included 29 banks and identified HSBC and JPMorgan as the banks whose failure would do the most damage to the global economy.

The FSB plan would force the world’s most systemically important banks to issue junior debt and other securities that could be written down in a straightforward manner and cover costs associated with winding down or restructuring. The rule would fully apply in 2019 at the earliest. Bank of England Governor Mark Carney, the FSB’s chairman, has said that the measure is needed to prevent taxpayer-funded bailouts of banks. “It is essential that systemically important institutions can be resolved in the event of failure without the need for taxpayer support, while at the same time avoiding disruption to the wider financial system,” Carney wrote in a letter to the G-20 last month.

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Beware the analysts and experts.

• ‘Nuanced’ Q4 Dollar Gains As Monetary Policy Diverges (CNBC)

The divergence in global monetary policy – as the Federal Reserve prepares for its first rate hike in mid-2015 while counterparts in Japan and Europe consider adding stimulus – will drive the U.S. dollar higher this quarter, a CNBC survey of currency strategists and traders shows. The rise of the dollar index – a gauge of the greenback’s value against a basket of six major currencies – has been virtually unassailable, racking up gains for a record 12 straight weeks – its longest winning streak since its 1971 free float under President Nixon. “We expect a strategically strong dollar over an extended period measured in months and years,” said David Kotok, chief investment officer at U.S. money manager Cumberland Advisors with $2.3 billion in assets under management. “Our central bank is at neutral and unlikely to revert to QE (quantitative easing) again. The rest of the world has not reached that stage.”

Kotok is not alone. Eighty one% of respondents expect the greenback to set new highs, while just under a fifth believes the rally will fade. In a research report on September 30, Deutsche Bank flagged the dollar’s ascent as a major headwind for the commodities complex and predicted that the move has further to go. “A new long-term uptrend in the U.S. dollar is now firmly entrenched and will continue to pose risks to large parts of the commodities complex,” Deutsche Bank strategists said in their Commodities Quarterly. “On our reckoning we are only half way through the current U.S. dollar cycle in duration and magnitude terms.” Fed policymakers last month indicated that they expect faster rate hikes next year and the year after. The central bank in its mid-September meeting pushed up its expected path of interest rate increases – the so-called Fed ‘dots’ forecast. That’s likely to set the tone for further dollar gains, though yields on U.S. treasuries – on short and medium-dated notes – suggest the bond market remains unconvinced.

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Obvious.

• Why The Oil Price Decline Is Failing To Boost Europe (CNBC)

Forget quantitative easing by the European Central Bank. Surely the precipitous oil price decline in the last couple of weeks will finally be the catalyst to give the down-trodden European economy the big boost it needs. I mean, after three years of prices north of $100 a barrel surely a big cut in the European energy bill will provide the stimulus effect that ECB President Mario Draghi could only dream of? Well, I’m afraid it appears there will be no energy-induced bonanza as, like many other peculiar aspects of the European economy, consumers will hardly see the benefits of market falls in commodities. To recap, the likes of OPEC are only getting circa $90 per barrel for their oil nowadays compared with around $107 per barrel as recently as June this year. So you could be forgiven for thinking that if the producers are getting less bang per barrel then the consuming nations of Europe would be a major beneficiary. Well that’s not quite the case it seems.

Yes, the big red top headlines talk of the ‘a couple of pence per liter’ off pump prices but the major benefits will never come our way in Europe. Why? Simple. Europe is overwhelmed by taxation, subsidy, over-capacity and green incentivization plans that have conspired make hydrocarbons a dirty and expensive source of energy. Europe’s biggest economy, Germany, is at the heart of the issue in its noble pursuit to reduce greenhouse gases. Great ambition but stunningly expensive. By 2050 the Germans want to have 60% of their energy coming from renewables. This will be an impressive feat but may well seriously dent European competitiveness further.

Daniel Lacalle, Senior Portfolio Manager at Ecofin is worried. “Since the beginning of the crisis in 2008, average European power prices are up 38% whereas wholesale prices have actually fallen. The problem is that we don’t see any of the benefits in Europe of the lower oil prices as we subsidize too many energy industries, we have oversupply and subsidies. In addition, there are so many green taxes that gasoline prices have been going up instead of down.”

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Factory orders down 5.7%, capital goods down 8.8%. Europe lost its engine. Get ready for the freefall.

• German Industrial Output Drops Most Since 2009 (AN)

German industrial production declined at the fastest pace since January 2009 underlining that the largest euro area economy is moving further down after contracting in the second quarter. Industrial production fell 4% month-on-month in August following the revised 1.6% rise in July. This was the biggest annual decline since January 2009 and was much larger than the expected fall of 1.5%. Last month, Bundesbank had warned against a decline in August industrial production after the timing of school holidays boosted July output. The drop is too strong to explain it by one-offs, Carsten Brzeski, an economist at ING Bank NV, said. This means that increased uncertainty but also real slowing of the Eurozone economy, Eastern European economies and emerging markets are all currently taking their toll on the German economy, he said. Looking beyond the third quarter, the German industry is looking into a more difficult future, Brzeski said.

Jonathan Loynes, an economist at Capital Economics said the big drop in industrial production underlined the need for both the ECB and the German government to give the economy much more policy support. The European Central Bank kept its key rates unchanged at a record low early this month as economic momentum in the euro area remains subdued. ECB President Mario Draghi unveiled details of its Asset Backed Securities and covered bond buying programs. The Organization for Economic Cooperation and Development, in its interim economic assessment published on September 15, recommended more monetary support to boost demand as slow growth in the euro area was the most worrying feature of the projections. The think-tank projected that the German economy would grow by 1.5% in both 2014 and 2015. Data today showed that production of capital goods declined the most, by 8.8%. Production of intermediate goods and consumer goods slid 1.9% and 0.4%, respectively.

Construction output decreased 2%, while energy production rose 0.3% in August. Industrial production, excluding energy and construction, fell 4.8%. Year-on-year, industrial production fell 2.8% in August in contrast to a 2.7% rise in July. The ministry said the sector is going through a period of weakness. The third quarter is likely to see soft production. Data released on Monday showed that factory orders declined the most since 2009 in August. Orders fell 5.7% after rising 4.9% in July.

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Full panic mode soon to come.

• France Cautions Germany Not To Push Europe Too Far On Austerity (AEP)

France has denounced the eurozone’s austerity regime as deeply misguided and issued a blunt warning to Germany and the EU institutions that demands for further belt-tightening may set off a political backlash, endangering European stability. “Be careful how you talk to the countries in the South, and be careful how you to talk to France,” said the French premier, Manuel Valls. “The adjustment has been brutal and it has turned millions of people against Europe. It is putting the European project itself at risk.” Mr Valls said Europe’s fiscal rules have been overtaken by deflationary forces and a protracted slump. “You cannot enforce the Treaty rigidly in these circumstances. The austerity policies are becoming absurd, and we have to examine the situation,” he told journalists in London.

The reformist French premier said the eurozone’s failure to recover risked leaving the region on the margins of the world economy, stuck in a Japanese-style trap. France had pushed through €30bn of fiscal cuts from 2010 to 2012, and another €30bn since then in an effort to comply with EU deficit rules, only to see the gains overwhelmed by the economic downturn. The deficit will remain stuck at 4.3pc of GDP in 2015. A further €50bn of cuts are coming over the next three years. “If they make us reach a 3pc deficit, the country will be totally on its knees. It’s not possible,” he said. The warnings came amid reports the European Commission may strike down France’s draft budget for 2015, refusing to give Paris two extra years until 2017 to meet the 3pc limit. Brussels is also threatening “infringement proceedings”, a process that could ultimately lead to fines. This would put the new Juncker Commission on a dangerous collision course with both France and Italy, two of the eurozone’s big three, now closely aligned in a joint push for EMU-wide reflation and New Deal policies.

[..] “When we came to power, we made a strategic error. We didn’t tell the French people what the condition of the country really was: the level of the deficit, the debt and the trade balance,” he said. “The welfare state and everything the Left stands for has been blown up by the shock of globalisation, which was much greater than people realised. When we were beaten, we fell back on our Old Left ideology. We spent 10 years failing to prepare, and now we have to push through our ideological revolution while in government, which is much more difficult,” he said Mr Valls plays down any suggestion that he is pursuing an Anglo-Saxon market agenda. “We will not get rid of the 35-hour working week. We are not a Thatcherite government,” he said. Yet his aim is to slash the size of the French state from 56pc of GDP to average European levels, a drastic overhaul of the French model..

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• France’s Stagnation Is Tragic To Watch (Telegraph)

Most countries would welcome with open arms the prospect of hosting a major theme park attracting millions of tourists every year. Not so France – or at least, not in 1992. When Disneyland Paris opened 22 years ago, the fruit of a major foreign direct investment from Walt Disney, it was slammed as a “cultural Chernobyl” by one commentator and faced the wrath of its left-leaning, anti-American establishment. There were endless rows about dress codes, language and just about everything else, even though the American owners employed thousands of staff and millions of ordinary French families readily embraced the experience. I remember the row well as I grew up in France. These days, it is companies like Amazon that are discriminated against in statist France; the people may love US goods and services but the establishment all too often still sees trade as a form of imperialism, for all of prime minister Manuel Valls’ assurances to the contrary on Monday.

But it is not France’s protectionism – at least not directly – that caused Disneyland Paris’s latest woes and the need for a £783m injection of cash from its shareholders. The problem this time is simply the downturn: visitor numbers are declining on the back of economic growth expected by the OECD to come in at just 0.4pc this year. The unfortunate reality is that Disney would have been far better off building its European resort elsewhere – Germany has hardly boomed either in recent years but it would probably have made for a better base. The French economy is stagnating, with a horrifying 3.4m people out of work and millions more in unviable, state-subsidised jobs.

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Maybe a look at debt levels would shine some much-needed light on this claim.

• Europe Cash Pile Signals Savings Glut Sequel for Markets (Bloomberg)

Europe is becoming China without the economic growth. What that means is that the euro area is building history’s biggest current-account surplus. The result: mountains of money likely to buoy the world’s stock and bond markets. Deutsche Bank AG’s George Saravelos has coined a phrase for a pile he estimates has reached $400 billion: the euroglut. “It is Europe’s huge savings glut – what we call euroglut – that will drive global trends for the foreseeable future,” the London-based strategist wrote in a report yesterday. “Via large demand for foreign assets, it will play a dominant role in driving global asset-price trends for the remainder of this decade.” The cash is piling up because the world is buying European goods and services – especially Germany’s – and the euro area’s depressed consumers aren’t buying much of anything from home or abroad. The region’s current-account surplus is now 2.2% of gross domestic product having been in a deficit of almost 2% as recently as 2008.

In dollar terms, Deutsche Bank reckons it’s just above China’s peak last decade. As China learned, there’s a political angle too. The surplus provides a stick for international finance chiefs to beat sclerotic Europe with during the International Monetary Fund’s annual meetings in Washington this week. The pressure will fall mainly on Germany to ramp up domestic demand given its own current-account surplus is 7% of GDP. Since accounting rules dictate a current-account surplus is matched by a capital-account deficit, the implications are for investors around the world. For Deutsche Bank, these include the euro falling to 95 cents against the dollar by the end of 2017 and a cap on U.S. 10-year Treasury yields even if the Federal Reserve raises interest rates. Emerging-market assets are also likely to benefit. Think of it as a new version of what then-Fed Chairman Ben S. Bernanke called a “global savings glut” in 2005 when China’s surplus supported global asset prices.

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And people will spend like crazy?

• French PM To Bring In Sunday Shopping As Part Of Reform Program (Guardian)

The French prime minister, Manuel Valls, has told a City audience in London that his drastic reform programme will extend to the introduction of Sunday shopping in Paris, and the major towns of France. Valls is fighting on all fronts to lift the French economy out of the doldrums, and may face a confrontation with the new European commission to tolerate a deficit that breaches EU limits. Valls was in London to meet David Cameron and persuade fellow EU leaders that he is trying to take the French economy on the path to structural reform, including an end to the 35-hour working week. Describing it as “bad news to give you here in London”, Valls said shops would open on Sundays in Paris and promised museums will be open seven days week.

He said socialists were pro-business and he would use his time in power to transform the country. He said he had accepted the apology from the John Lewis managing director who described France as sclerotic, hopeless and downbeat. Valls pointed out that the French economy was the fifth largest in the world and second largest in Europe. Insisting his new government was pro-business, he said the top 75% tax rate would be gone by January. Cameron was told by Valls that he wanted Britain to remain a central figure in the EU but he also said the City of London would lose much if it turned its back on Europe. Cameron, who has mocked the socialist policies of the French president, François Hollande, will probably be delighted by Valls’ overall tone and list him as a potentially ally in any future negotiations on the EU.

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• The Reserve Currency’s Exorbitant Burden (Pettis)

This may be excessively optimistic on my part, but there seems to be a slow change in the way the world thinks about reserve currencies. For a long time it was widely accepted that reserve currency status granted the provider of the currency substantial economic benefits. For much of my career I pretty much accepted the consensus, but as I started to think more seriously about the components of the balance of payments, I realized that when Keynes at Bretton Woods argued for a hybrid currency (which he called “bancor”) to serve as the global reserve currency, and not the US dollar, he wasn’t only expressing his dismay about the transfer of international status from Britain to the US. Keynes recognized that once the reserve currency was no longer constrained by gold convertibility, the world needed an alternative way to prevent destabilizing imbalances from developing.

This should have become obvious to me much earlier except that, like most people, I never really worked through the fairly basic arithmetic that shows why these imbalances must develop. For most of my career I worked on Wall Street – at different times running fixed income trading, capital markets and liability management teams at various investment banks, usually focusing on Latin America – and taught classes at Columbia’s business school on debt trading and arbitrage, emerging markets finance and financial history. Both my banking work and my academic work converged nicely on the related topics of global capital flows, financial crises and the structure of balance sheets.

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“The number of over-65s in England is expected to increase by 51% over the next 20 years.”

• Retirement Age To Rise By As Much As Six Months Per Year (Telegraph)

Older people will be encouraged to work longer under a Government plan to increase the average retirement age by six months every year. Ministers believe that the retirement age needs to increase dramatically to reflect Britain’s ageing population and to avoid a health care crisis. The average age of retirement is 64.7 for men and 63.1 for women. The Department for Work and Pensions said in its business plan that it would like the average to rise by as much as six months every year. The number of over-65s in England is expected to increase by 51% over the next 20 years, and the numbers of those aged 85 and above will double by 2030. Ministers accept that the trend will hugely increase the costs to the NHS, elderly care and state pensions systems.

Steve Webb, the Liberal Democrat pensions minister, admitted that the target was “ambitious” but said the retirement age had already been rising for women. He said: “If someone works an extra year they can add 10 per cent to their pension for life. What we are doing is catching up with decades of longer living. “We are living longer but the labour market and people’s retirement age has not been keeping up. I have fought against a vague target of trying to get people to work longer to have something more specific.” The target is contained in a document released by the Department for Work and Pensions which makes clear that an increase of six months would be a “meaningful change”. “An increase in the average age of withdrawal of more than around 0.5 years would demonstrate an improvement,” the document states.

Mr Webb has said that the growing numbers of people living into their eighties and nineties would leave taxpayers with a rising bill and meant “the sums” would never add up if people continued to retire in their fifties. George Osborne announced earlier this year that increases in life expectancy will automatically trigger a rise in the state pension age, which is likely to rise to 70 within 50 years. The state pension age is currently 65 for men, and is rising from 60 for women to come into line with men at 66 by 2020. It will continue to rise so people in their late twenties are likely to have to work until their 70th birthdays, according to official projections. The Office for Budget Responsibility said that Coalition policies such as raising the state pension age and further cuts will reduce Britain’s debt as a proportion of national income by two thirds.

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Nobody invests?!

• China Private Sector Demand Continues To Decline (Zero Hedge)

China is slowing, mostly due to a gradual, steady decline in private sector activity. One example: the decline in fixed asset investment (e.g., business capital spending) at private sector firms relative to firms that are state-controlled. Premier Li Keqiang’s reforms are aimed at making it easier for entrepreneurs to start private sector firms, but in the current climate, private sector investment growth continues to fall.

 

 

The Chinese central bank injected some liquidity into the domestic banking system recently, but it was only for 3 months and not meant to address the more structural issue of declining private sector demand. While export growth and job creation still look pretty good, the overall picture is one of an economy growing at 7%, and that’s with the contribution from government spending. Government spending is set to slow in the second half of the year; the authorities continue to reduce the size of the shadow banking system which extends credit; and the overheated housing market is still in decline as well when looking at national home sales and a 70-city home price average. We expect continued weakness in Chinese data for the rest of 2014 and into next year as well.

Source: JPMorgan

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€27 billion is still not exactly a huge number.

• Chinese Investors Surged Into EU At Height Of Debt Crisis (FT)

As investors fled Europe in the worst days of its sovereign debt crisis, China-based companies moved in the other direction and surged in, with cash flowing from China into some of the hardest-hit countries of the eurozone periphery. In 2010, the total stock of Chinese direct investment in the EU was just over €6.1 billion – less than what was held by India, Iceland or Nigeria. By the end of 2012, Chinese investment stock had quadrupled, to nearly €27 billion, according to figures compiled by Deutsche Bank. The buying spree, analysts say, was nothing short of a transformation of the model of Chinese outbound investment. It is expected to increase steadily over the next decade. “We saw a massive spike in Chinese investment in Europe, particularly [mergers and acquisitions] during the height of the debt crisis,” says Thilo Hanemann, an expert in Chinese outbound investment and research director at Rhodium Group, a research consultancy.

“This was partly opportunistic buying because assets were cheap and partly it was a structural secular shift in Chinese outbound investment, from securing natural resources in developing countries to acquiring brands and technology in developed countries.” The Financial Times this week investigates the modern trail of Chinese investment, migration and ambition in Europe. A series of reports from Beijing to Milan to Madrid to Lisbon to Athens reveal the scale of China’s expansion in Europe, the flow of investment and the strategies of Chinese investors and migrants caught up in a national effort – a “going out” policy in place since 1999 – to find new markets and enhance China’s economic strength. The incursion has not been all plain sailing.

When a Chinese state-owned consortium won the bid to build a road from Warsaw to the German border, the government in Beijing presented the deal as a model for Chinese contractors in Europe. But after cost over-runs and repeated breaches of local labour law, the Polish government cancelled the contract with Covec, the Chinese consortium, in 2011 – less than two years into the project. What befuddled the Chinese company most were Polish environmental laws requiring tunnels for wildlife to be built beneath the road and a two-week work stoppage while seven rare species of frogs, toads and newts were moved out of the way.

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All you need to know: “… annual growth in electricity demand has fallen sharply to below 4% for the first eight months of 2014, a level recorded previously only in the depths of the global financial crisis”

• Beware a Chinese Slowdown (Rogoff)

While virtually every country in the world is trying to boost growth, China is trying to slow it down to a sustainable level. As the country shifts to a more domestic-demand driven, services-oriented economy, a transition to slower-trend growth is inevitable and desirable. But the challenges are immense, and no one should take a soft landing for granted. As China’s economy grows relative to those of its trading partners, the efficacy of its export-led growth model must inevitably fade. As a corollary, the returns on massive infrastructure investment, much of which is directed toward supporting export growth, must also fade. Consumption and quality of life need to rise, even as China’s air pollution and water shortages become more acute in many areas. But, in an economy where debt has exploded to more than 200% of GDP, it is not easy to rein in growth gradually without triggering widespread failure of ambitious investment projects.

Even in China, where the government has deep pockets to cushion the fall, one Lehman Brothers-size bankruptcy could trigger a major panic. Think of how hard it is to engineer a soft landing in market-based economies. Many a recession has been catalysed or amplified by monetary-tightening cycles; Alan Greenspan, the former US Federal Reserve chairman, was known as the “maestro” in the 1990s because he managed to slow inflation and maintain strong growth simultaneously. The idea that controlled tightening is easier in a more centrally planned economy, where policymakers must rely on noisier market signals, is questionable. If one were to judge by official and market growth forecasts, one would think the risks were modest. China’s official target growth rate is 7.5%. Anyone forecasting 7% is considered a “China bear”, and predicting a downshift to 6.5% makes one a downright fanatic. For most countries, such small differences would be splitting hairs. In the US, quarterly GDP growth has fluctuated between -2.1% and 4.6% in the first half of 2014.

Of course, Chinese growth almost surely fluctuates far more than the official numbers reveal, in part because local officials have incentives to smooth the data that they report to the central authorities. So where is China’s economy now? Most evidence suggests it has slowed significantly. One striking fact is that annual growth in electricity demand has fallen sharply to below 4% for the first eight months of 2014, a level recorded previously only in the depths of the global financial crisis that erupted in 2008. For most of China’s modernisation drive, electricity consumption has grown faster than output, not slower. Weakening electricity demand has tipped China’s coal industry into severe distress, with many mines, in effect, bankrupt. Falling house prices are another classic indicator of a vulnerable economy, though the exact pace of decline is difficult to assess. The main house price indices measure only asking prices and not actual sales prices. Data in many other countries, such as Spain, suffer from the same deficiency.

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The LA Times is part of the scam team? Wow.

• Zero Interest Loan Lets Low-income Borrowers Build Equity Fast (?!) LA Times

Two major banks have agreed to originate a new 15-year mortgage under pilot programs aimed at low- and moderate-income borrowers. In addition, the creators of the so-called Wealth Building Home Loan, which allows home buyers to build equity at a much faster clip than they would with a standard 30-year loan, are planning to bring their ideas to 10 other institutions over the next few weeks. Still, Edward Pinto thinks it might take months or even years for the product to become universal, if it becomes a regular offering at all. But Pinto and his co-conspirator, Bruce Marks, generated major buzz when they introduced the Wealth Building Home Loan at a mortgage conference in North Carolina in early September. The loan won the endorsement of several high-profile industry executives, including Lewis Ranieri, generally considered the father of the mortgage-backed security, and Joseph Smith, the former North Carolina bank regulator who was appointed to oversee the National Mortgage Settlement that created new mortgage servicing standards and provided some relief for distressed owners.

So what is everybody so excited about? The Wealth Building Home Loan is a 15-year mortgage with a fixed interest rate that can be bought down to zero. In addition, little or no down payment is required, there are no additional fees, and underwriters will pay far more attention to your residual income than to your credit score. Typically, the monthly payment on a 15-year loan is higher than that on a 30-year loan. But the loan amortizes much more quickly, meaning you build wealth — or equity — faster. To make the payments more affordable, the offering rate will be about three-quarters of a%age point below the 30-year FHA rate. And the rate can be bought down even further. For every 1% of the loan amount the borrower puts up as a down payment, the interest rate will be lowered by half a%age point, which is twice as much as usual. Consequently, a $6,000 down payment on a $100,000 mortgage at 3% would bring the rate down to zero, meaning that every penny spent on the monthly payment would go to principal.

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Shut up.

• Ukraine Insists Transit Of Russian Gas To Europe Should Be Revised (RT)

Agreements stipulating deliveries of Russian gas to Europe via Ukraine should be revisited, as they don’t comply with EU standards, insists Ukraine’s Energy Minister Yuri Prodan. “The process of revising the transit contract will be conducted surely, as the current contract does not comply with the European standards,” Prodan said in Brussels on Friday. “We are ready to discuss and reach a compromise agreement even tomorrow. But, once again we require compliance in accordance with European legislation. And we are ready to make any decision in this regard if that will be demanded by the European Commission,” the Minister of Energy added. According to him, there are two ways to resolve the gas problem between Kiev and Moscow: whether the decision will be achieved through the courts or an interim solution, “that we can achieve in the next week.” Initially it was reported that a meeting will take place before the end of this week, but the Russian Ministry of Energy and the European Commission announced that it is delayed to next week.

Prodan said that dates are still not confirmed. On September 26, Russia, Ukraine and the the EU conducted three-way gas negotiations in Berlin where they discussed a so-called “winter plan.” According to it Ukraine will pay Gazprom $2 billion as part of its gas debt by the end of October and an additional $1.1 billion in advance payment by year’s end for 5 billion cubic meters of gas, the EU Energy Commissioner Gunther Oettinger said. However, no final documents have been sealed, as price and payment schedule remain the stumbling blocks in the negotiations. Kiev is offering its own repayment schedule for $3.1 billion debt and does not agree with the proposed $100 per thousand cubic meters discount due to customs duty. Russian Minister of Energy Aleksandr Novak rejected Kiev’s conditions saying it calculated the $3.1 billion cost at its own virtual price at $268.5 per thousand cubic meters of gas.

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The land of the free.

• $1,200 3-D Printer For Untraceable Guns Sells Out in 36 Hours (Wired)

Americans want guns without serial numbers. And apparently, they want to make them at home. On Wednesday, Cody Wilson’s libertarian non-profit Defense Distributed revealed the Ghost Gunner, a $1,200 computer-controlled (CNC) milling machine designed to let anyone make the aluminum body of an AR-15 rifle at home, with no expertise, no regulation, and no serial numbers. Since then, he’s sold more than 200 of the foot-cubed CNC mills—175 in the first 24 hours. That’s well beyond his expectations; Wilson had planned to sell only 110 of the machines total before cutting off orders. To keep up, Wilson says he’s now raising the price for the next round of Ghost Gunners by $100. He has even hired another employee to add to Defense Distributed’s tiny operation. That makes four staffers on the group’s CNC milling project, an offshoot of its larger mission to foil gun control with digital DIY tools.

“People want this machine,” Wilson tells WIRED. “People want the battle rifle and the comfort of replicability, and the privacy component. They want it, and they’re buying it.” While the Ghost Gunner is a general-purpose CNC mill, capable of automatically carving polymer, wood, and metal in three dimensions, Defense Distributed has marketed its machine specifically as a tool for milling the so-called lower receiver of an AR-15, which is the regulated body of that semi-automatic rifle. The gun community has already made that task far easier by selling so-called “80-percent lowers,” blocks of aluminum that need only a few holes and cavities milled out to become working lower receivers. Wilson says he’s now in talks with San Diego-based Ares Armor, one of the top sellers of those 80-percent lowers, to enter into some sort of sales partnership.

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Scary.

• Nurse In Spain First Ebola Case Contracted Outside Africa (CNBC)

A nurse in Spain has become the first person to contract the potentially deadly Ebola virus outside of West Africa in the latest epidemic, the worst on record, authorities said Monday. The nurse had gone into a room in a Madrid hospital that had been used to quarantine an elderly priest, Manuel Garcia Viejo, who contracted Ebola doing missionary work with victims of the same disease in Sierra Leone. The priest died Sept. 25. About 30 other people who had cared for the missionary are also being monitored, officials said. Also, Monday, President Barack Obama said his administration was developing added protocols for screening airline passengers for Ebola. Obama also said he was ordered increased efforts to educated medical providers on how to handed such cases, and that he would also push other large national to provide financial aid to the West African countries were the epidemic is occurring.

Obama spoke to reporters after briefed on the Ebola situation by health advisers. The White House earlier said Monday it is not considering a ban on travel from the West African countries dealing with the Ebola epidemic, which has killed more than 3,400 people since March. “We feel good about the measures that are already in place,” White House spokesman Josh Earnest said. Meanwhile, the father of a freelance NBC News cameraman being treated in Nebraska said his son suspects he may have contracted the Ebola virus from helping clean a car in Liberia after someone else died from the disease in the vehicle. That journalist, Ashoka Mukpo, is “not certain” how he got Ebola, but “he was around the clinic … and he does remember one instance where he was helping spray-wash one vehicle with chlorine,” said Mukpo’s father, Dr. Mitchell Levy.

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What will it take to make Americans wake up? How many bodies?

• CDC Clears US Ebola Victim’s Stepdaughter To Return To Work, She Refuses (DM)

The stepdaughter of Texas Ebola victim, Thomas Duncan, who called 911 and rode in the ambulance with the man she calls ‘Daddy’ has been told she can return to work, MailOnline can reveal. Nursing assistant Youngor Jallah, 35, has been in ‘quarantine’ in her small Dallas apartment along with her husband, Aaron Yah, 43, and their four children ages 2 to 11 since Thomas Duncan’s devastating diagnosis last Monday. MailOnline has reported that Mr Yah, also a nursing assistant, had been told he could return to work at the end of last week. Ms Jallah whose contact with Mr Duncan – who remains in a critical condition – was far more intimate and prolonged than that of her husband, told MailOnline on Monday: ‘The CDC came yesterday. They said I can go back to work but I do not know what I will do. I will not go back yet.’

Doctors say that no-one is at risk of catching the virus unless they come into contact with a sufferer who is exhibiting symptoms. But it is unlikely that Youngor will return to work until the family have gone through the 21 days considered the latest time between exposure and manifestation of Ebola. She does not intend to allow her eldest child to return to school before the October 17. She has no child-care provisions either – as her mother, Louise Troh, 54, the woman who Mr Duncan traveled to the States to marry, provided childcare and remains in quarantine in a secret location along with her 13-year-old son, nephew and a friend.

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Reminder: “Libor, a key benchmark against which around $450 trillion of financial contracts are pegged from consumer loans to derivatives”

• Senior Banker In UK Pleads Guilty In Libor Probe (Reuters)

A senior banker at a leading British bank has pleaded guilty to conspiracy to defraud in connection with the manipulation of Libor benchmark interest rates, becoming the first person in the UK to plead guilty to such an offence. The banker submitted the plea on Friday and an English High Court judge on Tuesday lifted court reporting restrictions on the case. Two men have already pleaded guilty in the United States to fraud offences linked to the rigging of Libor, a key benchmark against which around $450 trillion of financial contracts are pegged from consumer loans to derivatives, amid a global investigation.

Paul Robson, a British citizen and former senior trader at Dutch Rabobank and his former colleague, Takayuki Yagami, have pleaded guilty to participating in a scheme to rig the London interbank offered rate. Seven banks and brokerages have so far settled U.S. and UK regulatory allegations of interest rate rigging as a result of a global investigation and 17 men have been charged with fraud-related offences.

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“There has never been a crazier moment in history. The weeks before the outbreak of the First World War seem like a garden party compared to the morbid antics of these darkening days. America, you’ve been wishing fervently for the Zombie Apocalypse. What happens when you discover you can’t just change the channel?”

• Must Be the Season of the Witch (Jim Kunstler)

As the Governor goblins at the Federal Reserve whistle past the graveyard of dead Quantitative Easing, and the US dollar magically expands like a prickly puffer fish, and Mario Drahgi does what it takes with Euro duct tape to patch all black holes of unpayable debt from Athens to Dublin, and Japan watches its once-wondrous economy congeal in a puddle of Abenomic sludge (with a radioactive cherry on top), and China chokes on its dollar-peg, and Russia waits patiently with its old friend, Winter, covering its back — and notwithstanding the violent chaos, beheadings, and psychopathic struggles across the old Levant, not to mention the doubling of Ebola cases every 20 days, which the World Health Organization did not have the nerve to project beyond 1.2 million in January (does the doubling just stop there?) — there is enough instability around the globe for the gentlemen of Wall Street to make one last fabulous fortune arbitraging the future before the boomerang of consequence circles this suffering planet and finally accomplishes what the Department of Justice under Eric Holder failed to do for six long years.

It’s the season of witch and you should be nervous. Especially if you live in apart of the world where money is used. Pretty soon nobody will know what any currency is really worth — at least for a while — or what anything else is worth, for that matter. Perhaps the fishermen of India will start using their worthless gold for sinkers. Jay-Z and Diddy will gaze down on their bling in despair, thinking, perhaps, they should have invested in Betamax players instead. In the time of anything-goes-and-nothing-matters, it’s dangerous to expect anything.

Here’s what I expect: the surge of the dollar is the crest of an historic Great Wave. A Great Wave is an awesome event, and its crest is a majestic sight, but soon the foam spits and hisses and the wave breaks and crashes down on the beach — say, out at the Hamptons — where hedge funders stroll to catch the last dwindling rays of a beautiful season, and all of a sudden they are being swept out to sea in the rip-tide that retracts all that lovely green liquidity, and no one is even left on the beach to weep for them. Indeed their Robert A. M. Stern shingled manor houses up behind the dunes are swept away, too, and the tennis courts, and the potted hydrangeas, and the Teslas, and all the temporal bric-a-brac of their uber-specialness.

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Debt Rattle October 6 2014

Oct 062014
 
 October 6, 2014  Posted by at 10:45 am Finance Tagged with: , , , , ,  Comments Off on Debt Rattle October 6 2014


Marjory Collins New York Times linotype operatots Sep 1942

• Surging Dollar May Be Triple Whammy For US Earnings (Reuters)
• Can The US Dollar Save The World? (CNBC)
• Betting On Massive Central Bank Puts (CNBC)
• The $100 Trillion Global Bond Market Is Much More Fragile Than You Think (AP)
• Tumbling Oil Prices Punish Hedge Funds Betting on Gains (Bloomberg)
• The Surprising Impact Of Plunging Oil Prices (CNBC)
• S&P 500 Companies Spend Almost All Profits on Buybacks, Payouts (Bloomberg)
• German Orders Post Biggest Drop Since Start Of 2009 In August (Reuters)
• Faltering Demand Weighs On Eurozone Business Growth In September (Reuters)
• EU Prepares to Reject France’s 2015 Budget, Set Up Clash Over Deficit (WSJ)
• Have The Aussie Dollar Bears Won The Argument? (CNBC)
• Your Winter Heating Bills: It Won’t Be Pretty (CNBC)
• RIP Abenomics: ‘This Week Japan Will State It Is In Recession’ (Zero Hedge)
• Catalan Standoff to Hit Spanish Economy, Whoever Wins (Bloomberg)
• WWF International Accused Of ‘Selling Its Soul’ To Corporations (Observer)
• Economists Are Blind to the Limits of Growth (Bloomberg)
• The New Washington Consensus – Time To Fight Rising Inequality (Guardian)
• Carmen Segarra, The Whistleblower Of Wall Street (Guardian)
• ‘In 1976 I Discovered Ebola, Now I Fear An Unimaginable Tragedy’ (Observer)
• Ebola Is In America – And, Finally, Within Range Of Big Pharma (Observer)

You better move to a domestic industry.

• Surging Dollar May Be Triple Whammy For US Earnings (Reuters)

The suddenly unstoppable U.S. dollar is posing a triple threat to American companies’ profits: driving up the costs of doing business overseas, suppressing the value of non-U.S. sales and, perhaps most worryingly, signaling weak international demand. The dollar has been on a tear, with an index tracking it against six other major currencies notching roughly an 8% gain since the end of June. Few analysts see its breakout performance stalling out anytime soon since the U.S. economy stands on much firmer footing than most others around the world, Europe’s in particular. For companies in the benchmark S&P 500, that’s a big headwind because so many are multinationals, and as a group they derive almost half of their revenue from international markets. “You will get some companies that have failed to meet expectations based on the weakness we’re seeing overseas, so it is going to be a source of disappointment,” said Carmine Grigoli, chief investment strategist at Mizuho Securities in New York.

Moreover, that weakness, especially in Europe, “is going to be critical here,” he said. “It’s an important component of (U.S.) earnings going forward.” And while investors and analysts have begun to figure in the negative effects of a fast-strengthening dollar with regard to the approaching third-quarter reporting period, the risk to the fourth quarter and 2015 remains largely unaccounted for. For instance, third-quarter profit-growth expectations for S&P 500 companies have fallen back to 6.4% from about 11% two months ago, Thomson Reuters data showed. By contrast, the fourth-quarter growth forecast is down just slightly, to 11.1% from a July 1 forecast of 12.0%. And profit-growth estimates for 2015 have actually increased in that time from 11.5% to 12.4%. “If you try and extrapolate out to the fourth quarter and how much that currency effect is going to be, your guidance is probably going to come down for a good slug of the multinationals on the S&P,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

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No, but it will save the banks. Again.

• Can The US Dollar Save The World? (CNBC)

The U.S. dollar rally has much further to run, and could help out countries dealing with excessively low inflation, a report from HSBC argues. The dollar index, which measures the strength of the greenback against the major currencies, has risen near 7% this year, amid positive economic data out of the U.S. and increased expectations that as the U.S. Federal Reserve ends its massive bond-buying program, it will hike interest rates. But the rally has only just begun, analysts at HSBC said in a note published this week, who argue the greenback should rein supreme as the world’s strongest currency both this year and next. “The current U.S. dollar rally is unlike any we have seen before…[the rally] so far has only been roughly 5% yet history shows a 20% rise would not be implausible,” the analysts said.

And the dollar’s relative strength could be the perfect antidote for other global economies, such as the euro zone, struggling to fend off the threat of deflation, said HSBC. The single currency union this week saw its annual inflation rate fall further below the European Central Bank’s target of 2% in September to 0.3%. The idea is that if U.S. goods start to look too expensive due to the stronger dollar, buyers of those goods will start to look at alternatives nearer home, therefore increasing demand and consequently leading to a rise in prices. “While the scale of a U.S. dollar rally required to bring inflation all the way back to target in the likes of the euro zone would likely be unpalatable to U.S. policymakers, U.S. dollar strength will still help stave off the deflation threat,” added the HSBC analysts. “The U.S. dollar on its own may not be able to save the world but it will certainly buy these economies time,” they added.

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How much longer will Draghi be able to keep his post after his plans are shot down?

• Betting On Massive Central Bank Puts (CNBC)

Here is a bet based on the latest episode in a long-running policy dispute. Last Thursday (October 2), the meeting of the governing council of the European Central Bank (ECB) in the splendors of the Capodimonte (“top of the hill”) Palace in Naples, Italy, reaffirmed with overwhelming majority the zero (0.05%) interest rate policy and a program of security purchases that could expand the bank’s balance sheet by an estimated €1 trillion. Policy deliberations at this regal venue were greeted by some 2,000 protesters clashing with police and braving waves of teargas in a city (Naples) whose unemployment rate of 25% is exactly double Italy’s average, and whose per capita economic output is more than 30% below that of the country as a whole. True to form, Germany continued to strongly oppose this ECB policy. The German member of the ECB’s governing council maintains that the euro area banks don’t need virtually free loanable funds and security purchases that will, in his view, again lead to banks’ mischief requiring bailouts with taxpayers’ money.

His position was supported by his Austrian colleague (16:2, in case you want to keep the score). Who will win? Can Germany again bull its way through this one as it did with the widely condemned austerity policies? (Hint: if you look at the euro’s exchange rate, you will see that markets have already voted.) Staying within the policy mandate, the vast majority of the ECB’s governing council is inclined to look for additional measures that would restore the transmission mechanism (i.e., the financial intermediation system) between easy credit conditions and real economy. The ECB’s purchases of asset-backed securities are aiming to achieve that, because they are designed to provide incentives to the banking system to significantly expand lending to euro area businesses and households.

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Bond volatility is set to cause great damage. What does ‘fixed income’ mean anymore?

• The $100 Trillion Global Bond Market Is Much More Fragile Than You Think (AP)

A bottleneck is building in the global market for bonds. Main Street investors have poured a trillion dollars into bonds since the financial crisis, and helped send prices soaring. As fund managers and regulators fret about an inevitable sell-off, the bigger fear is that when people go to unload, there won’t be anyone to buy. Too many funds own the same bonds, making them difficult to sell in a sudden downturn. On top of that, the banks that used to bring bond buyers and sellers together have pulled back from the role. Investors looking to sell would be slow to find buyers, spreading fear through the $100 trillion global bond market and sending prices tumbling. It’s a situation known as “liquidity risk” and some bond pros are scrambling to prepare for it. Portfolio managers are hoarding cash. BlackRock, the world’s largest fund manager, is suggesting regulators consider new fees for investors pulling out of funds. Apollo Management, famous for profiting from a bond collapse 25 years ago, is launching a fund to bet against bonds.

Mohamed El-Erian, former CEO of bond fund giant Pimco, thinks ordinary investors are too blase about the flaws in the trading system. Investors today are like homeowners who only discover there’s a clog under the sink when it’s too late and they’re staring at a mess. “It’s only when you try to put a lot of things through the pipes that you realize” you’ve got a problem, says El-Erian, now chief economic adviser to global insurer Allianz. “You get an enormous backup.” What’s at risk is more than money in retirement accounts. Big investors often borrow when buying bonds and so losses can be magnified. Trillions of dollars of bets using derivatives ride on bonds, too. A small fall in prices could lead to losses that reverberate throughout the financial system. “The market is so tightly wound,” says JPMorgan’s William Eigen, head of its Strategic Income Opportunities fund, who has put 63% of his portfolio in cash. “There’s no place to hide.” In such a fragile situation, even news with no bearing on bond fundamentals can trigger losses.

[..] Since the financial crisis, the Federal Reserve’s efforts to hold down borrowing costs for businesses and consumers have pushed interest payments on many bonds to record lows. That’s set off a rush by investors into riskier ones offering higher payments. The buying has pushed up prices, and added to the risk. Since the start of 2009, funds invested in junk bonds have returned an average 14% each year and municipal bond funds 6%, according to the Investment Company Institute, double their averages in the prior six years. Even seemingly “safe” government debt looks dangerous now, according to a September report by Deutsche Bank. Many bonds sold by wealthy countries like France, Australia and Britain recently are so high-priced you’d have to go back centuries to find more expensive ones, the report notes. And since corporate bonds are priced off government ones, much of that market is also at risk for a fall.

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The energy casino.

• Tumbling Oil Prices Punish Hedge Funds Betting on Gains (Bloomberg)

Hedge funds increased bets on rising oil prices just before crude futures tumbled to a 17-month low on signs that global supply is outstripping demand. Prices capped the biggest weekly decline in two months after money managers boosted net-long positions in West Texas Intermediate by 4.1% in the seven days ended Sept. 30. Long positions climbed 2.7%, U.S. Commodity Futures Trading Commission data show. WTI sank below $90 on Oct. 2 after Saudi Arabia, the world’s largest oil exporter, cut its prices to Asia. U.S. production is the highest since 1986, while OPEC output expanded to the most in a year. The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook.

“Oil isn’t looking like a good bet anymore,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Oct. 3. “Production continues to rise, flooding the market, while on a good day the demand picture looks anemic.” Crude declined 0.4% to $91.16 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures were little changed in today’s electronic trading after sliding $1.27 to close at $89.74 on Oct. 3, the lowest settlement since April 2013. Saudi Arabia reduced the price for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest since December 2008. Official selling prices are regional adjustments Aramco makes to price formulas to compete against oil from other countries.

Production by the 12-member Organization of Petroleum Exporting Countries rose to 30.935 million barrels a day in September, the highest since August 2013, a Bloomberg survey of oil companies, producers and analysts showed. U.S. crude output reached 8.867 million barrels a day in the week ended Sept. 19, the most since March 1986. Production will climb to 9.53 million in 2015, a 45-year high, the Energy Information Administration said in its monthly Short-Term Energy Outlook on Sept. 9. “Earlier this week there was a debate over whether prices had reached a bottom,” John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, said by phone Oct. 3. “Investors took a chance and gathered length. Sometimes when you put your toe in the water it gets snapped off.”

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But who understands what’s happening?

• The Surprising Impact Of Plunging Oil Prices (CNBC)

Sliding crude oil prices are giving consumers relief at the pump, which is bound to provide a fillip for consumer spending. But whether that is good news for the stock market is another story. Crude oil futures have been demolished over the last four months, falling some 17% from their June highs, and settling at a 17-month low on Friday. And as oil prices have fallen, consumer gasoline prices have dropped to a nationwide average of $3.32 a gallon, the lowest since February, according to AAA. The motor club group also notes that in 26 states, gas can be found for cheaper than $3.00 per gallon. And AAA predicts that gas prices will continue to fall in October. Given the massive role gasoline plays in American life (in a February 2013 report, the U.S. Energy Information Administration estimated that Americans spend about 4% of their pre-tax income on gasoline) the drop in gas prices is naturally expected to have an impact on consumer spending.

“The per capita usage is about 400 gallons of gas used per year for each person in this country. That’s a lot of money going back into the economy when you have cheaper gas,” said Jim Iuorio of TJM Institutional Services. “Gasoline is down noticeably, and I know it’s noticeable, because I noticed it when I filled up my car,” remarked Jonathan Golub, chief U.S. market strategist at RBC Capital Markets. “That is a big deal, and it immediately hits consumption.” But that doesn’t necessarily mean it’s time to buy stocks. Golub notes that between oil stocks, the materials sector, and industrial and utilities names in commodity-related businesses, “17 or 18% of the S&P is a loser with falling oil prices.” rom a market perspective, then, the benefit to the consumer is “100% offset” by losses in oil-exposed names, making it a mere “rotation issue.” In other words, the market as a whole shouldn’t be expected to rise or sink on a big drop in energy prices, but those oily names should sink, and consumer-exposed names should get a boost.

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The perversion of ultra-low rates and central banks buying and pushing up stocks. There will be a huge price to pay.

• S&P 500 Companies Spend Almost All Profits on Buybacks, Payouts (Bloomberg)

Companies in the Standard & Poor’s 500 Index really love their shareholders. Maybe too much. They’re poised to spend $914 billion on share buybacks and dividends this year, or about 95% of earnings, data compiled by Bloomberg and S&P Dow Jones Indices show. Money returned to stock owners exceeded profits in the first quarter and may again in the third. The proportion of cash flow used for repurchases has almost doubled over the last decade while it’s slipped for capital investments, according to Jonathan Glionna, head of U.S. equity strategy research at Barclays. Buybacks have helped fuel one of the strongest rallies of the past 50 years as stocks with the most repurchases gained more than 300% since March 2009.

Now, with returns slowing, investors say executives risk snuffing out the bull market unless they start plowing money into their businesses. “You can only go so far with financial engineering before you actually have to have a business with real growth,” Chris Bouffard, chief investment officer who oversees $9 billion at Mutual Fund Store, said. “Companies have done about all that they can in terms of maximizing the ability to do those buybacks.” S&P 500 constituents will probably say earnings rose 4.9% in the third quarter when they begin reporting results this week, according to more than 10,000 analyst estimates compiled by Bloomberg. Alcoa, Yum! Brands. and Monsanto are among nine companies scheduled to announce financial details.

While the ratio to earnings shows how buybacks and dividends compare to past economic expansions, it doesn’t indicate companies are struggling to fund them. Five years of profit growth have left S&P 500 constituents with $3.59 trillion in cash and marketable securities and they’ve raised almost $1.28 trillion in 2014 through bond sales, headed for a record. “Buybacks are something corporations can take control of and at low borrowing costs, they’re a viable option,”Randy Bateman, chief investment officer of Huntington Asset Advisors, which manages about $2.8 billion, said by phone on Oct. 1. At the same time, he said, “If management can’t unearth future opportunities for growth, as a shareholder, I lose confidence.”

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It’s called ‘recession’.

• German Orders Post Biggest Drop Since Start Of 2009 In August (Reuters)

German industrial orders posted their biggest drop in August since the height of the global financial crisis in 2009 due to the subdued euro zone economy and uncertainty caused by crises abroad, data from the Economy Ministry showed on Monday. Contracts plunged by 5.7% on the month, undershooting by far the Reuters consensus forecast for a 2.5% drop. Bookings from the euro zone slumped by 5.7% while domestic orders decreased by 2.0%. The data for July was revised up to a rise of 4.9% from a previously reported gain of 4.6%.

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Growth? We’re still talking growth in Europe?

• Faltering Demand Weighs On Eurozone Business Growth In September (Reuters)

Euro zone business grew at its slowest rate this year in September on tumbling demand, surveys showed on Friday, as the bloc struggles to add momentum to its fragile economic recovery. Germany’s private sector expanded at a robust pace last month, pointing to an economic rebound between July-September after Europe’s biggest economy unexpectedly shrank the quarter before. However, business growth in the euro zone’s number two and three economies – France and Italy – contracted, suggesting stagnation or worse there could continue. Despite firms cutting prices more deeply, the common thread across most of the surveys in the euro zone was that of weak demand, with businesses and consumers lacking the confidence to spend in economies plagued by high unemployment and years of austerity.

This mirrors order book conditions for factories in much of Asia as well. The data are likely to disappoint policymakers yet again, a day after the European Central Bank outlined its plans to buy securitised debt in a bid to revive lending and boost demand. “The PMIs reflect a familiar dangerous trend of low demand and weak producer pricing power which reinforces concerns on the effectiveness of the ECB’s stimulus,” said Lena Komileva, chief economist at G+ Economics in London. “The ECB does not have much room for error with the starting point of close to zero rate of inflation and growth.”

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“What people underestimate is that what’s at stake is the entire credibility of the rules …”

• EU Prepares to Reject France’s 2015 Budget, Set Up Clash Over Deficit (WSJ)

The European Union is preparing to reject France’s 2015 budget, according to European officials, setting up a clash that would be the biggest test yet of new powers for Brussels that were designed to prevent a repeat of the eurozone’s sovereign-debt crisis. French Finance Minister Michel Sapin said last month that his country would run a budget deficit of 4.3% of gross domestic product next year—far from the 3% deficit it had previously pledged. Stripping out the effects of the weak economy, the government’s planned cost cuts would amount to just 0.2% of GDP, falling short of cuts worth 0.8% that it had agreed upon with Brussels.

That could put France’s budget in “serious noncompliance” with tightened EU deficit rules, likely leading the commission to send it back to Paris for revisions, European officials said. So far, the French government has said it won’t take any extra belt-tightening measures beyond what it proposed in the spring, indicating it is ready to risk a public clash with Brussels. “People are ready to let the big boys in Brussels reject the budget,” a European official said. The conflict with France could be joined by a budget fight with Italy, which has also said that it will miss budget targets. Italy has more leeway because its past budgets have run lower deficits than France’s, but a senior EU official called a decision about whether to confront Italy “borderline.”

The credibility of Brussels’ new powers threatens to be seriously undermined if big countries such as France and Italy are able to flout the new rules—which give the European Commission the right to demand changes to proposed budgets before they are presented to national parliaments. It would signal the tough budget regime can only be imposed on the eurozone’s smaller economies, such as Greece and Portugal. Some European officials have drawn parallels with the way France and Germany ignored deficit limits a decade ago without consequences, a step that they believe fatally weakened budget discipline in the bloc. “What people underestimate is that what’s at stake is the entire credibility of the rules,” one of the officials said.

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Currencies around the world are going through a major reset, courtesy of the buck. Many will have a hard time with the transition, few are prepared.

• Have The Aussie Dollar Bears Won The Argument? (CNBC)

Despite a long downtrend in commodity prices, the Australian dollar has managed to keep a loyal set of diehard fans among currency traders and analysts — but now some of them are throwing in the towel. “We’ve been constructive on Australian dollar throughout 2014, consistently forecasting it to be the relative G-10 outperformer after the U.S. dollar,” Geoffrey Kendrick and Vandit Shah, analysts at Morgan Stanley, said in a note last week. But since the payrolls data release last month, the bank’s bullish assumptions have been called into question. Morgan Stanley cut its forecast for the Australian dollar to $0.84 by the end of 2014 and $0.76 by the end of 2015, a sharp drop from its previous expectation of $0.95 by the end of this year and $0.88 by the end of next. A number of analysts have long been calling for the Aussie to fall as low as 80 cents – a level it hasn’t seen since 2009 – as economic fundamentals come back into play, and the central bank continues to talk the currency lower.

Over the past year, Reserve Bank of Australia Governor Glenn Stevens repeatedly voiced his opinion that he would like to see the Aussie at 85 cents against the U.S. dollar. The Australian dollar is fetching $0.8655 in early Monday trade, down a bit more than 7% since the beginning of September, touching its lowest levels since January. Morgan Stanley’s bullish call had been premised on the assumption that non-resident buyers of Australian government debt and Japanese buyers of Australian-dollar assets would remain keen, as well as an expectation that the country’s terms of trade would stabilize. But with U.S. yields starting to rise again and increased volatility in markets, Australian government bonds became less attractive, Morgan Stanley said adding that it expected the Aussie dollar to depreciate further “especially with G-10 foreign exchange becoming increasingly sensitive to moves in the belly of the U.S. curve.”

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There we go again.

• Your Winter Heating Bills: It Won’t Be Pretty (CNBC)

The ongoing U.S. energy boom may be driving gasoline prices lower, but homeowners who heat with natural gas may be in for another winter of sticker shock. “It is now looking almost certain that stocks of natural gas in the U.S. will be significantly lower than the five-year average” when temperatures begin falling in November,” said Tom Pugh, commodities economist for Capital Economics. “Another cold winter, combined with lower stocks than last year, could lead to even higher price spikes than last year.” Thanks to big surges in seasonal demand, natural gas producers are busy this time of year building up supplies. But despite record production, natural gas storage levels are still below their five-year range heading into the winter heating season. The latest data from the Energy Department shows that producers are playing catch-up, with storage levels more than 10% lower than last year’s levels.

That means homeowners who heat with gas could see the same price spikes they saw last winter during cold snaps. Despite mild weather so far this fall, the gas storage shortfall already has helped nudge natural gas higher, well before households begin nudging up the thermostat despite mild temperatures. Last winter’s record demand for natural gas included a single day in January that sent demand to nearly double the average daily consumption, according to the American Gas Association. That pushed the average bill for gas customers up 10% over the year before—mostly due to gas furnaces working overtime, the AGA said. But the cold weather demand surge also produced a big jump in prices. The average weekly spot price peaked in February more than 80% higher than the end of November.

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In reality, Abenomics died before it was conceived.

• RIP Abenomics: ‘This Week Japan Will State It Is In Recession’ (Zero Hedge)

We have been waiting for this particular bolded sentence ever since we predicted it would take place back in December 2012 when a bunch of Keynesians, a disgraced former/current prime minister with a diarrhea problem and, of course, the Goldman Sachs’ corner suite, first unleashed Abenomics. From Goldman’s Naohiko Baba, previewing this week’s key Japanese economic events

The Cabinet Office makes an assessment of the state of the economy based on the trend in the coincident CI, using a set of objective criteria. The August coincident CI is set to print negative mom. In this case, the Cabinet Office’s economic assessment will likely shift downward to “signaling a possible turning point” from the current level of “weakening”. According to the Cabinet Office, such a change in assessment provisionally indicates a likelihood that the economy has already fallen into recession. This is effectively akin to the government acknowledging that the economy is in recession.

And because every Keynesian lunacy has to end some time, RIP Abenomics: December 2012 – October 2014.

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For the sake of all of Europe, Rajoy must be careful not to incite violence.

• Catalan Standoff to Hit Spanish Economy, Whoever Wins (Bloomberg)

Spanish Prime Minister Mariano Rajoy is battling to keep his country together, facing down Catalan separatists. Even if he wins, the standoff risks weakening the economy that the two sides are fighting over. Catalan President Artur Mas, backed by about two-thirds of the region’s lawmakers, is defying orders from Spain’s highest court and pressing ahead with a vote on independence on Nov. 9. The wrangling last week pushed the gap between Spanish and German bond yields to the widest since Scotland voted to remain in the U.K. “Investors are pricing the risk of political instability in Catalonia,” said Francesco Marani, a fixed-income trader at Auriga Global Investors SA in Madrid, who trades government and regional debt. “The independence issue has already been hurting the Spanish economy, and it’s not over.” Spain’s economy is losing momentum amid a slowdown in its European trading partners.

Uncertainty over the future of Catalonia, whose contribution to the Spanish economy is twice that of Scotland’s to the U.K., risks undermining investment as well as pushing up borrowing costs and distracting politicians from tackling the 24% jobless rate. “Boosting growth requires an ambitious policy mix as political tensions over Catalonia may last for months, maybe till the next general elections, weighing on confidence and investment,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. Rajoy’s four-year mandate finishes at the end of next year. “Now is where the uncertainty begins,” Justin Knight, a London-based European rates strategist at UBS said in a telephone interview after the Constitutional Court declared the vote illegal last week. Despite that ruling, a poll commissioned by the Catalan regional government and published on Oct. 3 showed 71% of Catalans want the independence vote to be held next month.

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A big problem with most of the big charities: “On the one hand it protects the forest; on the other it helps corporations lay claim to land not previously in their grasp.”

• WWF International Accused Of ‘Selling Its Soul’ To Corporations (Observer)

WWF International, the world’s largest conservation group, has been accused of “selling its soul” by forging alliances with powerful businesses which destroy nature and use the WWF brand to “greenwash” their operations.The allegations are made in an explosive book previously barred from Britain. The Silence of the Pandas became a German bestseller in 2012 but, following a series of injunctions and court cases, it has not been published until now in English. Revised and renamed Pandaleaks, it will be out next week. Its author, Wilfried Huismann, says the Geneva-based WWF International has received millions of dollars from its links with governments and business.

Global corporations such as Coca-Cola, Shell, Monsanto, HSBC, Cargill, BP, Alcoa and Marine Harvest have all benefited from the group’s green image only to carry on their businesses as usual. Huismann argues that by setting up “round tables” of industrialists on strategic commodities such as palm oil, timber, sugar, soy, biofuels and cocoa, WWF International has become a political power that is too close to industry and in danger of becoming reliant on corporate money. “WWF is a willing service provider to the giants of the food and energy sectors, supplying industry with a green, progressive image … On the one hand it protects the forest; on the other it helps corporations lay claim to land not previously in their grasp.

WWF helps sell the idea of voluntary resettlement to indigenous peoples,” says Huismann. WWF’s conservation philosophy has changed considerably in 50 years, but until recently it was widely thought that people and wildlife could not live together, which led to the group being accused of complicity in evictions of indigenous peoples from Indian and African forests. The book also argues that WWF, which was set up by Prince Philip and Prince Bernhart of the Netherlands in 1961, runs an elite club of 1,001 of the richest people in the world, whose names are not revealed. Industrialists, philanthropists and ultra-conservative, upper-class naturalists, they are said to make up an “old boys’ network with influence in the corridors of global and corporate and policy-making power”.

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Rehash of 100 different Automatic Earth articles.

• Economists Are Blind to the Limits of Growth (Bloomberg)

For all their calculating nature, economists are surprisingly optimistic about humanity’s ability to have as much prosperity as it wants. Express concern about the negative impact of excessive growth on our planet’s ecosystems, and many will simply chuckle and say you don’t understand what growth means. Nobel laureate Paul Krugman, for example, chides natural scientists for thinking of growth as a “crude, physical thing, a matter simply of producing more stuff.” They fail to appreciate, he suggests, that growth is about innovation and deciding which technologies and resources to use. Allow me to explain why I am one of those scientists who are preoccupied with the physical. Economists are correct in saying that growth doesn’t necessarily require more pollution, more carbon pumped into the atmosphere or more deforestation, even though we’re getting all of the above today. Humans can learn, and we might figure out how to grow differently in the future, separating the benefits from the environmental costs. There’s just one crucial exception: energy.

Growth inevitably entails doing more stuff of one kind or another, whether it’s manufacturing things or transporting people or feeding electricity to Facebook server farms or providing legal services. All this activity requires energy. We are getting more efficient in using it: The available data suggest that the U.S. uses about half as much per dollar of economic output as it did 30 years ago. Still, the total amount of energy we consume increases every year. Data from more than 200 nations from 1980 to 2003 fit a consistent pattern: On average, energy use increases about 70% every time economic output doubles. This is consistent with other things we know from biology. Bigger organisms as a rule use energy more efficiently than small ones do, yet they use more energy overall. The same goes for cities. Efficiencies of scale are never powerful enough to make bigger things use less energy. I have yet to see an economist present a coherent argument as to how humans will somehow break free from such physical constraints.

Standard economics doesn’t even discuss how energy is tied into growth, which it sees as the outcome of interactions between capital and labor. Why does using ever more energy matter? For one, it feeds directly into all the bad things we’re trying to stop doing – polluting, destroying forests, wiping out habitats, covering the planet with an ever-denser network of roads. Our energy use – either by design or by accident – always ends up changing the environment in one way or another. Then there’s the issue of climate change. Even if by some miracle we act to fix carbon-dioxide levels soon, that won’t actually be a lasting solution. If energy consumption follows the historical trend, by 2150 or so the waste heat alone will warm the Earth as much as carbon dioxide is doing now. We’ll have yet another global warming problem. I’m not sure how economics broke free from the laws of physics and biology. Maybe we’ll eventually leave the planet and live among the stars, escaping the limits of our Earth. Those dreams aside, the physical limits to growth apply as much to us as they would to a colony of bacteria expanding into a jar of sugar water.

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The wrong people for the right cause. Watch out.

• The New Washington Consensus – Time To Fight Rising Inequality (Guardian)

The theme of this week’s annual meetings of the International Monetary Fund and the World Bank is shared prosperity. In years gone by, the Washington consensus was all about opening up markets and cutting public spending. The new Washington consensus is the need to tackle inequality. Everybody is getting in on the act. Justin Welby, the archbishop of Canterbury, will share a platform with Christine Lagarde, the head of the IMF, and Mark Carney, the governor of the Bank of England, next weekend to discuss how to make global capitalism more inclusive. The World Economic Forum – the body that organises the Davos shindig – thinks it can go one better. It is angling to get the pope along for its annual meeting in January. No question, 2014 has been the year when the need to tackle inequality has gone mainstream. Oxfam kicked it off with the report showing that 85 billionaires owned as much wealth as half the world’s population.

Thomas Piketty’s Capital in the 21st Century provided some intellectual underpinning, with its thesis that a rawer, 19th-century version of capitalism was reasserting itself. It’s not hard to see why both struck a chord: a tepid global economy, high unemployment, stagnant living standards and trickle up to those at the top have created an environment of sullen unease. No political speech these days is complete without a reference to the need to ensure that a rising tide lifts all boats. But talk is one thing, action another. How does Lagarde’s pledge to fight inequality square with the wage cuts and austerity the IMF has imposed on Greece and Portugal as part of its bailout packages? Is there not a disparity between the commitment of the World Bank president, Jim Kim, to raise the incomes of the bottom 40% of the world’s population with his organisation’s Doing Business report, an annual study that ranks countries by the progress they are making in cutting corporate taxes, keeping minimum wages at low levels and ensuring that paid holidays and sick pay are not excessive?

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“If wealthy, guilty people have to remain free to make money, and the living standards of working people have to decline, so be it. It’s just livelihoods on the line.”

• Carmen Segarra, The Whistleblower Of Wall Street (Guardian)

The key implications from this exposé are twofold. First, it shows who’s really running the country. The Fed is supposed to be working for the people, not the banks. Goldman is a private institution rescued by public money that has paid billions in settlements after selling dubious products that contributed to a major financial crisis. Segarra is told to show some humility; in reality that is an attribute Goldman would do well to acquire. Instead its chief executive still believes it is doing “God’s work”. So the state genuflects before capital, with those sole task it is to enforce the law deferring to those whose sole task is to make money.

Second, it indicates that America has apparently learned nothing from the financial crisis. As recently as 2012, a Goldman employee wrote on the day he left the company: “I don’t know of any illegal behaviour, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.” When terrorists strike, we are told nothing will ever be the same. The full power of the state is marshalled to prevent a recurrence. If innocent people have to go to jail and basic human rights are violated, so be it. Lives are on the line. But when banks defraud the country into crisis, precious little changes. The bonuses keep coming. Profits keep rising. Regulation remains weak. If wealthy, guilty people have to remain free to make money, and the living standards of working people have to decline, so be it. It’s just livelihoods on the line.

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Very interesting interview.

• ‘In 1976 I Discovered Ebola, Now I Fear An Unimaginable Tragedy’ (Observer)

Professor Piot, as a young scientist in Antwerp, you were part of the team that discovered the Ebola virus in 1976. How did it happen?

I still remember exactly. One day in September, a pilot from Sabena Airlines brought us a shiny blue Thermos and a letter from a doctor in Kinshasa in what was then Zaire. In the Thermos, he wrote, there was a blood sample from a Belgian nun who had recently fallen ill from a mysterious sickness in Yambuku, a remote village in the northern part of the country. He asked us to test the sample for yellow fever.

These days, Ebola may only be researched in high-security laboratories. How did you protect yourself back then?

We had no idea how dangerous the virus was. And there were no high-security labs in Belgium. We just wore our white lab coats and protective gloves. When we opened the Thermos, the ice inside had largely melted and one of the vials had broken. Blood and glass shards were floating in the ice water. We fished the other, intact, test tube out of the slop and began examining the blood for pathogens, using the methods that were standard at the time.

But the yellow fever virus apparently had nothing to do with the nun’s illness.

No. And the tests for Lassa fever and typhoid were also negative. What, then, could it be? Our hopes were dependent on being able to isolate the virus from the sample. To do so, we injected it into mice and other lab animals. At first nothing happened for several days. We thought that perhaps the pathogen had been damaged from insufficient refrigeration in the Thermos. But then one animal after the next began to die. We began to realise that the sample contained something quite deadly.

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And that’s supposed to be a good thing.

• Ebola Is In America – And, Finally, Within Range Of Big Pharma (Observer)

As the Ebola epidemic continues to rage in west Africa, with more than 3,000 dead and infections doubling every few weeks, the first confirmed case in the US last week stepped up global fears over the rapid spread of the incurable virus. But behind the gruesome headlines, the scale of the outbreak has been raising hopes that it could focus minds at the world’s biggest pharmaceutical groups, boosting research on other devastating tropical diseases that have been neglected for years by the drugs makers. There are already an estimated 12 million Americans suffering from life-threatening or debilitating infections such as Chagas disease, dengue fever or West Nile virus.

“Ebola helps us realise we are a global planet: the health of one region affects the rest of us,” says Julie Jacobson, senior programme officer for infectious diseases at the Bill and Melinda Gates Foundation. Mike Turner, head of infection and immunobiology at the Wellcome Trust, says that “almost certainly, Ebola will increase the visibility” of tropical diseases. The worst Ebola outbreak in history has infected more than 6,500 people, mainly in Guinea, Liberia and Sierra Leone. The World Health Organisation (WHO) has declared the outbreak an international health emergency, warning that the deadly virus could infect up to 20,000 people by November. When last week a man was hospitalised with the disease in Dallas, Texas, it was the first case diagnosed outside Africa.

GlaxoSmithKline has started making 10,000 doses of its experimental Ebola vaccine – the most advanced product around – and could supply it to the WHO for an emergency vaccination programme early next year, assuming clinical trials go well. The vaccine has been rushed into tests on healthy human volunteers in the UK and US. Other Ebola vaccines in development, from Johnson & Johnson’s Crucell division and NewLink Genetics, are close to entering the laboratory. ZMapp, made by a San Diego-based company, is the most advanced of the experimental treatments and has cured some patients, including the British nurse Will Pooley, but stocks have now run out. ZMapp’s development was supported by the US military’s main biodefence research facility, amid fears that the virus could be turned into a biological weapon.

Read more …

Debt Rattle October 4 2014

Oct 042014
 
 October 4, 2014  Posted by at 1:24 pm Finance Tagged with: , , , , , ,  5 Responses »


John Vachon “Career Girl” New York 1955

Hi, Ilargi here. As per October 3, the Daily Links that used to be in the top space on every page will now become part of a daily separate post, entitled Debt Rattle +date (to be found below where all posts are, at about 8am ET every day), which will also include the quotes from these same links, which used to be below our own daily essays. The latter will now stand on themselves, and also be separate posts. So the only change for you is that to get to the links, you will need to execute one extra click, but then you get everything I read everyday presented in one go.

If you think this is the worst idea ever, or if you think it’s great, please do let me know at ilargi •AT• theautomaticearth •DOT• com. And thanks for your support. Talking of which: our donate box is at the top of the left hand column, below the ad; please donate what you can. This site runs well below the poverty line these days, and that’s neither right nor sustainable. I want to bring back a lot more Nicole Foss here, but she does have to make a living.

Yours, Raúl Ilargi Meijer

• King Dollar Rules: Betting On The Buck (CNBC) • American Exceptionalism Thrives Amid Struggling Global Economy (Bloomberg)
• OPEC Price War Signaled by Saudi Move Risks Deeper Drop (Bloomberg) • Record Low Labor Participation Rate, Record High Not In Labor Force (ZH)
• ECB’s Treatment Of Ireland And Italy Is A Constitutional Scandal (AEP) • Draghi Breathing Life Into Moribund ABS Bond Market (Bloomberg)
• How Payday Loans Leave Cash-Strapped Borrowers Unbankable (Bloomberg) • Loan Borrowers Pinched as Banks Increase Rates (Bloomberg)
• John Lewis Boss Sorry For Calling France ‘Hopeless’ And ‘Finished’ (Guardian) • Finished And Hopeless? That’s Just How We Like Things In France (Guardian)
• Secret Leveraging of Junk Bonds Revealed in Stock Trade (Bloomberg) • When Schoolgirls Dream Of Jihad, Society Has A Problem (Guardian)
• Australia’s Investment In Renewable Energy Slumps 70% In One Year (Guardian) • Deforestation In West Africa Linked To Ebola Epidemic (Guardian)

The boys don’t sound too convinced yet.

• King Dollar Rules: Betting On The Buck (CNBC)

Amid wild fluctuations in stocks and range-bound trading in bonds this week, the U.S. dollar marched ever higher. The currency is set to finish another week stronger, which would mark 12-straight weeks of gains, the longest winning streak ever. And pros say though the move has been sharp, the uptrend is still firmly intact. First, a warning: Buying the dollar is the trade du jour. As the U.S. economy flexes its muscles amid an increasingly uncertain global backdrop, more investors have jumped on the strong dollar bandwagon. Weekly data from the Commodities Futures Trading Commission show hedge funds and other large speculators’ positions have increased substantially in the past few weeks, and the net long dollar bet now stands at $35.81 billion, not far from its its highest ever. Net shorts on the euro and yen grew larger as well. Those crowded trades mean the dollar is vulnerable to a painful drop when momentum turns on any given day and trades unwind. However, it doesn’t change the logic for buying the dollar and the currency’s trajectory.

“As the Fed steps away from ultra-loose policies, the dollar should gain against the chief beneficiaries of those policies, namely emerging market and commodity currencies,” currency strategists led by Kit Juckes at Societe Generale wrote in a note this week. That goes for the dollar against emerging markets’ currencies, too. “The jump in total debt levels in the emerging markets in recent years leaves them vulnerable to rising interest rates and a resurgent dollar,” Juckes wrote. In the third quarter, the dollar index shot up 7%, the biggest gain since the third quarter of 2008, when investors everywhere were scrambling for safe-haven assets as the financial crisis gripped the globe. Lee Hardman, currency strategist at Bank of Tokyo Mitsubishi, found that after a strong quarterly performance, there’s still scope for further gains. “Looking back over the last 20 years, we found that similarly large quarterly gains have tended to be followed by further, although more modest, gains in the following quarter,” Hardman wrote in a note this week.

Read more …

If only they didn’t need to trade ….

• American Exceptionalism Thrives Amid Struggling Global Economy (Bloomberg)

The U.S. is proving to be an oasis of prosperity in the midst of a troubled world economy. Unemployment dropped to a six-year low of 5.9% in September as payrolls rose by a greater-than-forecast 248,000, a Labor Department report showed yesterday. Other data this week showed U.S. factories had their strongest quarter in more than three years, while exports rose to a record in August. St. Louis-based Macroeconomic Advisers bumped up its estimate of third-quarter growth to 3.3%, from 2.8%, after government data published yesterday showed the U.S. trade deficit shrank in August to its lowest level in seven months. “The internal dynamics of the economy are very strong right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, for consultants IHS Inc. “We can withstand a lot of shocks.” U.S. stocks rose with the dollar as the jobs data boosted confidence in the economy. After weakening earlier in the week on concerns about global growth, the Standard & Poor’s 500 Index rose 1.1% to 1,967.9 yesterday in New York.

The Bloomberg Dollar Spot Index climbed to a four-year high. The solid performance by the U.S. contrasts with what’s happening in much of the rest of the world. The euro area’s economy stagnated in the second quarter and is suffering from the softest inflation in five years, while a consumer-tax increase in Japan triggered its biggest economic contraction since 2009. China’s economy, which helped bring advanced economies out of the recession in 2009, this year may undershoot the government’s growth target of about 7.5% amid a property slump and the slowest expansion in factory output in five years. “Matters can be described as American exceptionalism,” said Larry Hatheway, chief economist at UBS AG in London. “The U.S. is the only large economic bloc experiencing an acceleration of growth, preparing for a tightening of monetary policy and enjoying an appreciating currency.”

Read more …

Did the Saudis make another deal with Washington, this time to cripple Putin and IS? Remember, they reported a deficit recently.

• OPEC Price War Signaled by Saudi Move Risks Deeper Drop (Bloomberg)

Crude oil is poised to extend the biggest slump in more than two years after Saudi Arabia signaled it’s ready for a price war with other OPEC members, according to Commerzbank and Citigroup. Saudi Aramco, the state-run oil producer of the world’s biggest exporter, cut prices on Oct. 1 for all its exports, reducing those for Asia to the lowest level since 2008. The move suggests that the biggest member of the Organization of Petroleum Exporting Countries is prepared to let prices fall rather than cede market share by paring output to clear a supply surplus, according to Commerzbank. “There is no indication whatsoever that the Saudis are going to put a floor into this market,” Seth Kleinman, head of European energy research at Citigroup in London, said by e-mail.

“Saudi market share in Asia is really under assault. It is a price war. The Saudis will win, but it won’t be painless.” Saudi Arabia has acted in the past to stop a plunge in prices. It made the biggest contribution to OPEC’s production cuts of almost 5 million barrels a day in 2008 and 2009 as demand contracted amid the financial crisis. The kingdom would need to reduce output about 500,000 barrels a day to eliminate the supply glut now stemming from the highest U.S. output in three decades, Citigroup and Barclays Plc estimate. While the banks said Saudi Arabia’s strategy may weaken prices in the short-term, they forecast a recovery later. Commerzbank projects Brent will average $105 a barrel in 2015, Citigroup predicts $97.50. Brent for November settlement traded for $93.54 as of 10:07 a.m. local time.

Aramco reduced official selling prices, or OSPs, for all grades of crudes to all regions for November. It lowered the OSP for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest level since December 2008. OSPs are regional adjustments Aramco makes to price formulas to compete against oil from other countries. “OPEC appears to be gearing up for a price war,” Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said in a report yesterday. “We therefore do not expect prices to stabilize until this impression disappears and OPEC returns to coordinated production cuts.”

Read more …

These graphs are so damning it’s positively crazy that job numbers still get presented as positive by just about all media.

• Record Low Labor Participation Rate, Record High Not In Labor Force (ZH)

While by now everyone should know the answer, for those curious why the US unemployment rate just slid once more to a meager 5.9%, the lowest print since the summer of 2008, the answer is the same one we have shown every month since 2010: the collapse in the labor force participation rate, which in September slid from an already three decade low 62.8% to 62.7% – the lowest in over 36 years, matching the February 1978 lows. And while according to the Household Survey, 232,000 people found jobs, what is more disturbing is that the people not in the labor force, rose to a new record high, increasing by 315,000 to 92.6 million!

And that’s how you get a fresh cycle low in the unemployment rate.

 

So the next time Obama asks you if you are “better off now than 6 years ago” show him this chart of employment to the overall population: it speaks louder than the president ever could.

Read more …

As I said repeatedly before. Democracy in Europe is dead. Elect a eurosceptic government and you’ll find out for yourself.

• ECB’s Treatment Of Ireland And Italy Is A Constitutional Scandal (AEP)

So the truth comes out at last. The EU/IMF Troika – actually the ECB – compelled the Irish state to take on the vast liabilities of Anglo-Irish and other banks in the white heat of the financial crisis. It threatened to pull the plug on ECB support for the Irish banking system, in breach of its own core duty to act as a lender-of-last resort, unless the Irish taxpayer took the full losses. This protected bondholders from their condign fate, even though these creditors were fully complicit in Ireland’s credit bubble. Indeed, they helped to cause it, along with the ECB’s ultra-loose monetary policy and negative real rates (set for German needs) during the boom. Even the riskiest tranches of junior bank debt were deemed off limits. Working class youths in Cork, Limerick, and Dublin will have to service a very high public debt – currently 124pc of GDP, up from 25pc in 2007 – for a very long time. Patrick Honohan, Ireland’s central bank governor, told a group of foreign journalists in Dublin some time ago that this had occurred.

We knew, but were sworn to silence, forced to bite our tongues every time we had to listen to the usual pack of lies from certain quarters. Now he has spoken out in a new book on the former Irish finance minister, the late Brian Lenihan. Extracts were published in the Irish Independent on Sunday. Those who follow Ireland will already be aware of this, so forgive me for coming to it late. Mr Honohan was in an impossible position in 2010. The ECB could at any time have withheld emergency support, sending the Irish financial system crashing down in flames. Yet the ECB’s terms for a rescue programme were that Ireland protect all creditors. (Many of them British, Dutch, Belgian, and German) “The Troika staff told Brian in categorical terms that burning the bondholders would mean no programme and, accordingly, could not be countenanced,” he said. “For whatever reason, they waited until after this showdown to inform me of this decision, which had apparently been taken at a very high-level teleconference to which no Irish representative was invited.”

Read more …

Sounds cute and all, but he’s already been whistled back by the two biggest economies in the eurozone.

• Draghi Breathing Life Into Moribund ABS Bond Market (Bloomberg)

For the first time in four years there are signs of life in Europe’s market for asset-backed securities. Mario Draghi’s plan to kick-start growth by buying the securities spurred more than €10 billion ($12.7 billion) of issuance in September. That’s almost double the monthly average for the year, signaling a revival in a market that’s shrunk more than 40% since 2010, according to JPMorgan Chase. The European Central Bank president said yesterday that purchases of asset-backed debt will start before the end of the year and may include notes from the junk-rated nations of Greece and Cyprus. He’s made the revival of the market a top priority because he says it will allow banks to increase lending and boost economic growth. “ABS sales have been pretty low over the past few years so the ECB’s plans could be the jolt the market needs to get started again.” said Gareth Davies, the London-based head of European asset-backed securities research at JPMorgan.

“With all the questions about what it can buy, an obvious area of supply would be the new-issue market, which we expect to become more active.” There are two new deals in the market now, including bonds backed by a loan financing a Westfield Corp. shopping center in London, JPMorgan data show. Even after the surge in transactions over the past month, issuance of €57 billion of asset-backed debt issuance this year is the least since 2009, the data show. Draghi’s plans have cut borrowing costs for issuers of the notes to the lowest level in seven years, according to data compiled by Barclays Plc. The extra yield investors demand to hold Spanish and Italian residential mortgage-backed securities, compared with benchmark rates, fell below 1 percentage point in September, data compiled by JPMorgan show.

Read more …

What are we coming to? You pay 10% a week, banks pay 0.1% a year?

• How Payday Loans Leave Cash-Strapped Borrowers Unbankable (Bloomberg)

Thousands of Americans exit the banking system after turning to last-resort lenders, according to a study released yesterday by the Pew Charitable Trusts. Of 252 online payday-loan borrowers surveyed by Pew as part of a three-year research project, 22% closed a checking account or had one closed for them. Payday lending is migrating to the Internet as states from New York to California restrict the costly short-term loans, which are secured by a borrower’s next paycheck. The websites charge twice as much on average as payday stores and account for a disproportionate share of consumer complaints about fraudulent charges or harassment by debt collectors, according to Pew. “Abusive practices in the online payday-loan market not only exist but are widespread,” Nick Bourke, director of the Pew project, said in a statement. Pew is releasing the study as the U.S. Consumer Financial Protection Bureau weighs the first federal payday-loan guidelines. Regulators should require lenders to make more affordable loans and disclose the cost clearly, Pew said.

Payday lenders say they provide a valuable service to people who lack access to cheaper forms of credit. The Online Lenders Alliance, a lobbying group, said in a statement responding to the Pew study that “its members are working to ensure consumers are treated fairly.” Some of the borrowers surveyed by Pew who closed their bank accounts said lenders were making unauthorized withdrawals, while others said they couldn’t keep up with the payments. The average interest on a $100 loan is about $25 every two weeks, or an annual rate of 652%, according to Pew. About a third of borrowers said their loans were set up to only withdraw those fees, meaning they ended up making several payments without reducing the principal. “Their business model is based on churning — getting people a loan and then having people re-up it so they stay in debt indefinitely,” said Liz Murray, policy director for National People’s Action, a network of community organizations that ran protests against payday lenders in August that it called “Shark Week.”

Read more …

A lot of hurt is in the air.

• Loan Borrowers Pinched as Banks Increase Rates (Bloomberg)

Borrowers are feeling the pinch in the U.S. loan market as the Federal Reserve boosts its oversight of high-risk corporate debt. Banks increased interest rates on almost 54% of the leveraged loans they arranged last month, up from 36% in August and the most since January 2013, data compiled by Bloomberg show. Micro Focus International Plc may pay 1 %age point more than it initially sought on a $1.35 billion loan backing its purchase of Attachmate Group Inc. as prices in the $800 billion market for corporate loans drop to a 21-month low. The Fed, which along with other regulators has been asking banks for more than a year to adhere to guidelines aimed at curbing risky underwriting practices, will now start reviewing individual deals after previous warnings were largely ignored.

The heightened scrutiny adds to the difficulty in finding loan buyers willing to accept lower margins after investors pulled money from funds that invest in the debt in each of the last 12 weeks, bringing withdrawals for the year to $6.9 billion. “People are taking a step back from risk at the moment, and you can sense the market is uneasy,” Tim Anderson, chief fixed-income officer at Richmond, Virginia-based RiverFront Investment Group, said in a telephone interview. “Regulators have picked up on underwriting standards, and when people see and read that, they realize that they aren’t being compensated enough for some of the risks they are taking.”

Read more …

Foot in mouth.

• John Lewis Boss Sorry For Calling France ‘Hopeless’ And ‘Finished’ (Guardian)

John Lewis’s managing director has apologised for a string of derogatory remarks about France, as the deputy mayor of Paris dismissed his tirade as “false and idiotic”. Andy Street told a gathering of British entrepreneurs on Thursday night that France was “sclerotic, hopeless and downbeat” and urged them to get out if they had investments there because the country was “finished”. His comments sparked outrage in France and a sharp rebuttal from Jean-Louis Missika, a deputy Paris mayor in charge of economic development and the attractiveness of Paris to investors. He told the Guardian that if Andy Street was joking, perhaps Paris should respond in kind. “What he says is false and idiotic. As we say, everything excessive is exaggerated, but then it seems French bashing is all the fashion chez vous.

“Factually it’s false because figures show that last year Paris attracted more foreign investment than London, and because Paris is a dynamic city with a quality of service that is often better than in London. “But this guy has shops in London, right, so of course he wants to attract people away from the shops in Paris. I think it’s called publicity.” Street, who is launching a French-language version of John Lewis’s website soon, apologised on Friday afternoon as the reaction to his comments snowballed. Waitrose, the John-Lewis-owned supermarket, also has a deal to sell food on Eurostar. “The remarks I made were supposed to be lighthearted views, and tongue in cheek,” said Street. “On reflection I clearly went too far. I regret the comments, and apologise unreservedly.”

Read more …

There you go. That’ll show ’em.

• Finished And Hopeless? That’s Just How We Like Things In France (Guardian)

Business students’ textbooks have an addition for their “PR disasters” chapters. With John Lewis planning to launch a French-language version of its website, allowing customers to pay in euros, its managing director, Andy Street, returning from a short trip in Paris to collect an award for the group, said France was “finished”. And that’s not all. Street is the coloratura soprano of French-bashing: his repertoire is colourful and flowery, with a high range. His savoury piques include, “I have never been to a country more ill at ease … nothing works and worse, nobody cares about it”. British entrepreneurs with investments in the country should “get them out quickly”, he advised; while the award he got in Paris at the World Retail Congress was “made of plastic and is frankly revolting”. “If I needed any further evidence of a country in decline, here it is. Every time I [see it], I shall think, God help France.”

Meanwhile, “In Salle Wagram, this beautiful salon, just off the Champs-Élysées, we were treated to the naffest troupe of modern dance you’ve ever known and, literally, a chap’s trousers fell down.” The French embassy in London had the embarrassing task of defending France against Street’s attacks with figures and facts. I won’t. France doesn’t need defending, especially from fools. What I’d like to do is to help Street understand a thing or two about France that probably never crossed his mind. Street has since said his comments were “tongue in cheek”. So are mine. Finished, hopeless, sclerotic and downbeat are precisely how we like things. Love is finished, life is hopeless, we are in essence a grumpy and downbeat people and nobody will ever take it away from us. Heard of Jean-Paul Sartre? Probably not. He was a joyous human being, very funny, very ugly and supremely intelligent. He gave us the greatest gift of all, a philosophy called existentialism. We and we alone are responsible for our own misery. We have never looked back since.

Read more …

“… the $1.3 trillion U.S. junk-bond market is being inflated by a growing amount of leverage being used by buyers”. Please act surprised.

• Secret Leveraging of Junk Bonds Revealed in Stock Trade (Bloomberg)

If stock investors are any guide, the $1.3 trillion U.S. junk-bond market is being inflated by a growing amount of leverage being used by buyers. Both stock and junk-bond managers tend to deploy more leverage when markets are booming, and more than ever is being used to purchase U.S. equities, based on levels of margin debt on the New York Stock Exchange, according to UBS analysts. That suggests junk-debt buyers are engaging in similar financing activities. As investors use more borrowed cash, they increase the potential for bigger losses in a downturn. This trend adds to concern that six years of unprecedented Federal Reserve stimulus has produced a bubble in the junk-bond market — and one that will be all the more painful when it eventually pops.

“Rising debt levels will be a problem going forward,” UBS analysts Stephen Caprio and Matthew Mish wrote in a report dated Oct. 2. Investors increase “leverage to meet return hurdles that are more challenging to hit as prices rise.” Measuring leverage in the junk bond market with any kind of precision is a tricky thing. Caprio said in an interview that he doesn’t know of a direct way to do it. Margin debt has surged to more than 2.5% of U.S. gross domestic product, about the highest level in data going back to the early 1990s, the UBS analysts wrote. The measure of leverage tends to be a leading indicator of relative yields on speculative-grade bonds, with a rising level of margin debt increasing the odds of future spread widening.

Read more …

I’d say.

• When Schoolgirls Dream Of Jihad, Society Has A Problem (Guardian)

Teenage angst can cause all kinds of unfortunate behaviour, but when schoolgirls tell their parents they want to join the fight in Syria and Iraq, then society has a serious problem. Alarmingly, this is increasingly happening in France, as young Muslims express their desire for jihad. Worse still, an estimated 100-150 young women and girls have actually joined groups such as the self-styled Islamic State (Isis), travelling to a war zone to devote their lives to setting up a highly militarised caliphate and, if necessary, dying for the cause. The situation has been replicated in Britain, but in smaller numbers, and women tend to be far less hateful of the country where they were often born and raised. There are no verified figures on either side of the Channel, but anecdotal evidence suggests that, in France, alienation from society is a far greater incentive to join a conflict than it is in Britain. Thus, in June, a 14-year-old girl known as Sarah disappeared from her home in a Parisian suburb, heading for Syria.

She texted her parents, telling them to search her bedroom where, under the mattress, they found a pained letter saying she was “heading for a country where they do not prevent you from following your religion”. Rather than a fanatical interpretation of Islamic teaching, or anger at western attacks on countries such as Iraq and Afghanistan, Sarah’s motivations were based on what she regards as homegrown discrimination. This is markedly different from British jihadis, who tend to position themselves in a worldwide struggle against aggressive interference in the Muslim world. Numerous other girls in France regularly fill social media sites with reasons why they would consider fleeing abroad. Two, aged 15 and 17, are under judicial supervision after apparently corresponding with Sarah with a view to joining her in Syria, where they would almost certainly take husbands among the French combatants already there, as well as being trained in the use of weaponry. All of the would-be women militants rally against France’s distrust of Islam, which has manifested itself in a range of discriminatory legislation.

Read more …

It seems an Anglo-Saxon movement.

• Australia’s Investment In Renewable Energy Slumps 70% In One Year (Guardian)

Australia’s investment in renewable energy projects has slumped below that of Algeria, Thailand and Myanmar, new figures have shown, with the sector “paralysed” by the government’s review of the Renewable Energy Target. Just $193m was invested in new large-scale clean energy projects in the third quarter of 2014, according to Bloomberg New Energy Finance. Investment in the year to date is $238m. This represents a massive 70% slump on 2013 investment and has resulted in Australia slipping from the world’s 11th largest investor in clean energy to 31st in 2014. This ranking is below Algeria, Myanmar, Thailand and Uruguay. By comparison, Canada has invested $US3.1bn in large clean energy projects so far in 2014. The slowdown in renewable energy investment is pinned squarely by Bloomberg on the government’s review of the RET, which mandates that 41,000 gigawatt hours of Australia’s energy comes from renewable sources by 2020.

A recent review of the RET by businessman Dick Warburton found that although it has created jobs and driven investment, it should either be suspended or shut down completely. The government has yet to formally respond to the report, instead holding talks with Labor on a “compromise” position that may see the RET altered in some way without being scrapped entirely. Labor, the Greens and the Palmer United Party all oppose any change to the RET. Kobad Bhavnagri, an analyst at Bloomberg New Energy Finance, told Guardian Australia that the renewables sector is “in the doldrums.” “The government’s position has caused this, it has had some pretty strong anti-renewables rhetoric, particularly anti-wind, and wants to close certain clean energy programs,” he said. “The review has been particularly protracted. The industry was fearful the recommendations would be extreme and they were. It has been shattering.

Read more …

Unintended consequences.

• Deforestation In West Africa Linked To Ebola Epidemic (Guardian)

The world now knows in great detail how Thomas Eric Duncan, a man who just a few weeks ago showed admirable compassion for a sick, pregnant neighbor in Liberia, has become the first person to come down with Ebola in the United States. What is less well known is how the virus came to West Africa to infect Duncan’s neighbor. Knowing and acting on that story is absolutely critical if we hope to contain future outbreaks of Ebola and other scary diseases before they turn into global headlines. The Ebola epidemic in West Africa may have surprised most of the medical establishment – this is the first such outbreak in the region – but the risk had been steadily rising for at least a decade. The risk had grown so high, in fact, that this outbreak was almost inevitable and very possibly predictable.

All that was needed was to see the danger was a bat’s eye view of the region. Once blanketed with forests, West Africa has been skinned alive over the last decade. Guinea’s rainforests have been reduced by 80%, while Liberia has sold logging rights to over half its forests. Within the next few years Sierra Leone is on track to be completely deforested. This matters because those forests were habitat for fruit bats, Ebola’s reservoir host. With their homes cut down around them, the bats are concentrating into the remnants of their once-abundant habitat. At the same time, mining has become big business in the region, employing thousands of workers who regularly travel into bat territory to get to the mines. The result: virus, bats and people have had more opportunities to meet.

Fruit bats carry the Ebola virus, but generally don’t die from it. The virus could easily have migrated from Central to West Africa inside them in much the same way that birds spread West Nile virus across North America: passing it among flocks during seasonal migrations. Although bats have long been on the menu in West Africa, there are other transmission routes for the virus besides bushmeat. It is conceivable the two-year-old boy in Guinea thought to be the first case in this outbreak was infected after eating bat-contaminated fruit. This mode of transmission may also explain how the disease gets into wild gorilla populations.

Read more …

Debt Rattle October 3 2014

Oct 032014
 
 October 3, 2014  Posted by at 1:44 pm Finance Tagged with: , , , , , ,  6 Responses »


Dorothea Lange Negro women near Earle, Arkansas July 1936

Hi, Ilargi here. As per today, October 3, I’m going to make some changes I’ve been thinking about for a while, for a number of reasons. That is, the Daily Links that used to be in this space will now become part of a daily separate post, entitled Debt Rattle +date (to be found below where all posts are, at about 8am ET every day), which will also include the quotes from these same links, which used to be below our own daily essays. The latter will now stand on themselves, and also be separate posts. So the only change for you is that to get to the links, you will need to execute one extra click, but then you get everything I read everyday presented in one go.

If you think this is the worst idea ever, or if you think it’s great, please do let me know at ilargi •AT• theautomaticearth •DOT• com. And thanks for your support. Talking of which: please check our donate box, top of the left hand column, below the ad, and donate what you can. This site runs well below the poverty line these days, and it shouldn’t. I want to bring back a lot more Nicole Foss here, but she does have to make a living.

Yours, Raúl Ilargi Meijer

• Albert Edwards Says Watch Japanese Yen and Be Very Afraid (Bloomberg) • “When Bad News Becomes Bad News Again”: Albert Edwards (Zero Hedge)
• Japanese Stocks Have Crashed Over 1000 Points Since Friday (Zero Hedge) • Yen’s Steepest Decline in 20 Months Spreads Unease in Japan (Bloomberg)
• Emerging Stocks Pummeled as Weak Yen Boosts Japan (Bloomberg) • Japan Inc. Begins To Turn Against The Weak Yen (MarketWatch)
• European Stocks Plunge Most In 16 Months As Draghi Disappoints (Zero Hedge) • Eurozone Private-Sector Growth Slows More Sharply (MarketWatch)
• Draghi Keeps QE Herd Waiting With Stimulus Goal Shrouded (Bloomberg) • Mario Draghi Stung By Austerity Critics As Naples Hit By Protests (Guardian)
• Mario Draghi’s QE: Too Little For Markets, Too Much For Germany (AEP) • France’s Noyer Is Third ECB Dissenter Against ABS Buying Plan (Bloomberg)
• Bank of England To Hike Rates Before Fed But At Slower Pace: Goldman (CNBC) • China Debt Fix Is ‘Short-Term Pain, Long-Term Gain’ (CNBC)
• Oil Heads To Bear Market As Saudis Signal Price War (CNBC) • JP Morgan: 76 Million Households Hit In Largest Ever Data Breach (Guardian)
• Is the New York Fed a Pushover for Big Banks? Dudley Fires Back (Bloomberg) • How to Collect Argentina Bond Payment Is An Unsolved Riddle (Bloomberg)
• Humans Lose to Machines in $500 Billion-a-Day Bond Market (Bloomberg) • Four People Close To US Ebola Patient Quarantined In Dallas (Reuters)
• NBC Cameraman Becomes 4th American To Test Positive For Ebola (Telegraph) • Ebola ‘Could Become Airborne’: UN Warns Of ‘Nightmare Scenario’ (Telegraph)

“What happened in March 2009, when the S&P 500 touched 666, that was just a brief stop,” he said. “We will go lower than that.”

• Albert Edwards Says Watch Japanese Yen and Be Very Afraid (Bloomberg)

The Japanese yen goes into freefall. China’s fragile economy tips over the edge. A wave of profit-crushing deflation comes washing over the U.S. and Europe. Investors panic. That’s the view of perennial pessimist Albert Edwards. The London-based analyst and his team at investment bank Societe Generale SA have been ranked No. 1 for global strategy in surveys by Thomson Reuters Extel every year since 2007, even with a history of saying unpleasant things that few want to hear. “My role is to step back from the excessive enthusiasm that builds up in the market, and to just say, ‘This is wrong. This is going to go horribly wrong,’” the 53-year-old said by phone last week. The cliche is that when the U.S. sneezes, Japan catches a cold. Edwards says Japan is just as apt to lead the way.

When the Internet bubble burst in 2000, Japan’s tech-heavy Jasdaq index started to slide weeks before the Nasdaq. Japan also pioneered the deflation that now threatens the West. In 1997, it was a plunging yen that helped trigger Asia’s currency crisis. With the yen’s drop this week to a six-year low of 110 versus the dollar, Japan’s currency may once again be the first domino to fall in a chain of events that could be bad for everyone, according to Edwards. The U.S. stock market rally has been going for 66 months since the financial crisis bottomed in March 2009, a streak that’s already a year longer than average. A disconnect between buoyant equity prices and corporate profit growth in the low single-digits makes the situation especially precarious. “Almost 100% of investors think we’re at the start of a long recovery,” Edwards said.

“It’s already a long recovery. Forget about starting from here.” In an hour-long interview, during which he made the global economy sound like a game of Mousetrap, Edwards explained why investors should be watching Japan for clues about what may happen in the next big trouble-spot: China, whose economy is already headed for its slowest full-year growth since 1990. The argument was this: if the yen falls, it will take other Asian currencies down with it. Eventually China will be forced to weaken the yuan, by adjusting its trading range and expanding its money supply, to keep its exports competitive. That will squeeze developed economies that have yet to fully recover from the financial crisis.

[..] In 2006, when the S&P 500 was rising ever higher and then-Fed Chairman Alan Greenspan was being feted as “the Maestro,” Edwards called him “an economic war criminal.” Two years later financial markets were in crisis. Edwards’ aversion to equities stems from watching the experience of Japan, where the market took more than two decades to find a bottom after the 1989 bust. According to Edwards’ view, it’s a template for the extended bear market that will unfold in the U.S. and Europe, as stocks recover only to crash again and plumb ever-new lows. “What happened in March 2009, when the S&P 500 touched 666, that was just a brief stop,” he said. “We will go lower than that.” The structural bear market ends when equities are dirt cheap.”

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“Investors are beginning to see how impotent the Fed and ECB’s efforts are to prevent deflation”.

But:

” … investors once again chose to tilt their ears towards the reassuring siren songs of the Central Bankers and away from the increasingly hysterical ramblings of the perma-bears and doomsayers.”

• “When Bad News Becomes Bad News Again”: Albert Edwards (Zero Hedge)

One of Albert Edwards’ trademark terms to define the New (and not so New) Normal, is the so-called Ice Age: a period of prolonged stagnation marked by pervasive deflation, deteriorating living conditions and a sliding stock market. It was to defeat the oncoming “Ice Age” that the global central banks embarked on a massive, coordinated (and largely failed) money printing monetary experiment some 6 years ago. Now, in what Albert Edwards dubs his “second most important chart for investors”, (as a reminder his “most important chart” is here), he warns that as a result of the central banks to offset broad deflationary headwinds, the Ice Age is once again just around the corner. From his most recent note, here is what Albert Edwards believes is the chilly chart that is the “second most important for investors.”

Inflation expectations in the US have just followed the eurozone by plunging lower. Until very recently, the Fed and the ECB had been quite successful at keeping inflation expectations in their normal range – this despite their clear failure to control actual inflation itself, which has consistently undershot expectations. Investors are beginning to realise that contrary to their confident actions and assurances, the Fed and the ECB have failed to prevent a dreaded replay of Japan’s deflationary template a decade earlier in the West. The Ice Age is once again about to exert its frosty embrace on markets as investors wake up to a new and colder reality. There were two key parts to our Ice Age thesis. First, that the West would drift ever closer to outright deflation, following Japan’s template a decade earlier. And second, financial markets would adjust in the same way as in Japan. Government bonds would re-rate in absolute and relative terms compared to equities, which would also de-rate in absolute terms.

This would take many economic cycles to play out. Previous US equity valuation bear markets have taken 4-6 recessions to complete; we’ve only had two thus far. Another associated element of the Ice Age we also saw in Japan is that with each cyclical upturn, equity investors have assumed with child-like innocence, that central banks have somehow ‘fixed’ the problem and we were back in a self-sustaining recovery. Those hopes would only be crushed as the next cyclical downturn took inflation, bond yields and equity valuations to new destructive lows. In the Ice Age, hope is the biggest enemy. Investors must pay close attention to the (second most important) chart below. Investors are beginning to see how impotent the Fed and ECB’s efforts are to prevent deflation. And as the scales lift from their eyes, equity, credit and other risk assets trading at extraordinary high valuations will take their next giant Ice Age stride towards the final denouement.

They may be impotent to prevent deflation, but they are quite omnipotent at printing money, either electronically or in paper format, and while so far they have focused on outside money, soon they will shift to “inside” money creation, also known as Bernanke’s helicopter paradrop. That will be the moment when the status quo finally uses the nuclear option at pervasive global deflation, leading to a collapse in sequential, or parallel, collapse in fiat. But even before that, there is something, that to the current generation of traders may be even scarier: a return to normalcy, or as Edwards calls it: bad news being bad news again, something which traders haven’t experienced in nearly 6 years.

… “amid the inevitable impending global economic and financial carnage, when people, like Queen Elizabeth ask, as she did in November 2008, why no-one saw this coming, tell them that many did. But just like in 2006, before the Great Recession, investors once again chose to tilt their ears towards the reassuring siren songs of the Central Bankers and away from the increasingly hysterical ramblings of the perma-bears and doomsayers.”

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Let’s talk Japan, shall we? This is what you call deep trouble.

• Japanese Stocks Have Crashed Over 1000 Points Since Friday (Zero Hedge)

After ticking just above 110.00, USDJPY has been a one-way street lower and that means only one thing… Japanese stocks are cratering. From Friday’s highs, The Nikkei 225 has crashed over 1000 points (despite Abe’s promises yet again of more pension reform buying of stocks). Of note, perhaps, is that, Japanese investors bought a net $3.6 billion of foreign stocks last week – the most since January 2009 – perfectly top-ticking global equities… Well played Mrs. Watanabe.

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What seemed so nice and benign, the weaker yen, threatens to turn into a nightmare.

• Yen’s Steepest Decline in 20 Months Spreads Unease in Japan (Bloomberg)

The yen’s steepest decline in 20 months is prompting concern in Japan that the central bank’s support for a weaker currency may hurt consumers and companies. Monetary authorities intervention to curb the slump is “possible,” according to Hirohisa Fujii, a former finance minister and member of the opposition party, after the currency’s steepest drop last month since January 2013. Some companies are suffering from the weaker yen, Nobuhide Minorikawa, Japan’s vice finance minister said this week, following comments from the nation’s economy minister on the risk of excessive gains or declines in the yen. The chorus of dissent against the Bank of Japan’s accommodative monetary policy, which has seen 60 trillion yen ($553 billion) to 70 trillion yen committed to annual asset purchases, is growing louder, as consumer prices remain depressed and growth is anemic. The weaker yen puts Japan at risk of recession, Kazumasa Iwata, deputy governor of the central bank until 2008, warned last month.

“The whole notion of devaluing the currency has been a bad policy,” Robert Sinche, a global strategist at Pierpont Securities, said by phone. “They think the yen is overvalued, but we’ve just had a very extreme move and I think their concern was that it could destabilize markets and destablize the economy.” Sinche forecasts the currency will slump to 120 yen per dollar by the end of 2015. The currency slumped 5.3% last month and is down 2.8% this year. The weaker yen is driving up the price of imported energy and hurting small companies, consumers, and Japan’s regional economies, Vice Finance Minister Minorikawa said in Tokyo yesterday. A weaker currency is positive for companies that have overseas business or rely on exports, he said. BOJ Governor Haruhiko Kuroda said last month, after the dollar rose above 109 yen, that he didn’t see any big problems with current movements in exchange rates.

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Everybody will get hit by the higher dollar. Everybosy except Wall Street banks, that is.

• Emerging Stocks Pummeled as Weak Yen Boosts Japan (Bloomberg)

The yen’s slide to a six-year low is amplifying a rout in emerging-market stocks as investors shift their focus to Japanese companies with earnings in dollars, according to Morgan Stanley. The CHART OF THE DAY shows the MSCI Emerging Market Index tumbled 7.6% in September, the most since May 2012, led by China and Hong Kong. That compares with a 3.8% drop for the Topix Index in the period. The yen depreciated 5.1% versus the dollar to the weakest level since August 2008 last month, while a gauge tracking developing-nation currencies retreated 3.8%. “Asset allocation away from emerging markets was in part because Japan was back and that yen weakness is a positive catalyst,” Jonathan Garner, Hong Kong-based head of Asia and emerging-market strategy at Morgan Stanley, said by phone on Sept. 25.

“We don’t have a large export-industrial dollar earnings sector for EM, while Japan’s corporate-sector earnings responded positively to yen weakness.” Japan’s exporters are benefiting from a weaker currency, which boosts overseas income when repatriated, while developing-nation assets have come under pressure as the prospect for higher Federal Reserve interest rates dents demand for riskier assets. Toyota, the world’s biggest carmaker by market value which derives most of its revenue from the U.S., rallied 9% last month. Net inflows to U.S. exchange-traded funds that invest in emerging-markets tumbled 82% to $977.9 million in September, led by a 90% decline to China and Hong Kong, data compiled by Bloomberg show.

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All the promised exports ain’t going anywhere either. As we predicted.

• Japan Inc. Begins To Turn Against The Weak Yen (MarketWatch)

When the Japanese yen began its long descent in late 2012 — around the time it became clear Shinzo Abe would be elected to another prime-ministership — the executives running Japan’s top corporations seemed to believe that the lower the currency, the better, regardless of all else. But since then, the yen has trekked steadily, inexorably downward against the dollar, with the greenback rising from around ¥78 two years ago to ¥110 earlier this week. And, at least according to a Nikkei news survey out Friday, some senior corporate officers are having second thoughts about the race to the bottom for forex. The survey covered responses from 65 chief financial officers at the largest Japanese corporations, an admittedly small sample. But it’s notable that more than half said they’d prefer the dollar to range between ¥100 and ¥104, a level last seen in early September.

The next most popular forex range was for a dollar just above ¥108 — but only just: A mere 3% called for a rate between ¥110 and ¥114 rate. And not a single CFO said they wanted to see the dollar breach above ¥115. Of course not all companies see the yen in the same way. While some follow the classic exporter model of making stuff at home to sell abroad, many corporations do not. Consider Honda: The cars it sells in North America, for instance, are generally made in North America, with the costs incurred in foreign currencies. Of course, it does eventually repatriate the profit, but its geographic diversity means there’s no special rush to do so. And of course, for companies that need to import materials — especially fuel — the falling yen is no good at all. Meanwhile, the Nikkei survey said roughly 20% of CFOs surveyed are looking at further forex hedging on the futures market to guard against any further dramatic currency moves.

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The ECB spells infighting these days.

• European Stocks Plunge Most In 16 Months As Draghi Disappoints (Zero Hedge)

Broad European stocks plunged into the red for 2014 today as a rattled Mario Draghi disappointed a hungry-for-more risk market. Bloomberg’s BE500 index dropped its most since June 2013 to 2-month lows led by weakness in Italian banks. UK stocks underperformed (-3.6%) but Spain, Italy, and Portugal all tumbled 2-3%. The selling pressure interestingly stayed in stocks as bond spreads rose only modestly and EURUSD roundtripped to only a small rise from pre-ECB. Notably, US equities are cratering as they are so used to the pre-EU-close pump that did not happen.

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And the eurozone is sick.

• Eurozone Private-Sector Growth Slows More Sharply (MarketWatch)

Activity in the eurozone’s private sector slowed more sharply in September than initially estimated, an indication that the currency area’s economy remains trapped in a period of low or no growth. Data firm Markit’s monthly composite purchasing managers index–a measure of activity in the currency bloc’s manufacturing and services sectors–fell to 52.0 from 52.5 in August, and was lowered from an initial estimate of 52.3. The average PMI for the third quarter was lower than in either of the two previous periods. But there are some parts of the economy that may be benefiting from low inflation for now. Figures released by the European Union’s statistics agency on Friday showed the volume of retail sales rose by 1.2% in August from July, the largest increase since Dec. 2009 and likely reflecting a pickup in real wages.

European Central Bank President Mario Draghi Thursday acknowledged that recent surveys have pointed to a “weakening in the euro area’s growth momentum,” but said the ECB governing council continues to expect a recovery in 2015. However, he warned those expectations could be disappointed, noting in particular that the economy’s second-quarter stagnation, and signs the third quarter wasn’t much better, “could dampen confidence and, in particular, private investment.” The governing council took no new action at its meeting Thursday, despite inflation weakening to a five-year low, signaling that it will wait to see if stimulus measures undertaken in recent months lift the eurozone’s weak economy. The surveys of 5,000 businesses across the currency area indicated that the annual rate of inflation is unlikely to quickly move back toward the central bank’s target of just below 2%, and may fall further below it. Manufacturers and service providers said they cut their prices again in September, and more steeply than in any month since July 2013.

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Too much dissent. Draghi is stuck.

• Draghi Keeps QE Herd Waiting With Stimulus Goal Shrouded (Bloomberg)

Mario Draghi hasn’t moved any closer to full-blown quantitative easing. Focusing on plans to buy private debt as soon as this month to buoy the weakest euro-area inflation in five years, the European Central Bank president yesterday left the option of purchasing government bonds in his toolbox. He also backpedaled on indications that he could boost the central bank’s balance sheet by as much as €1 trillion ($1.3 trillion). Draghi’s reluctance to spell out how many assets officials might buy disappointed investors pushing him to go all-in. With the outlook for consumer prices worsening and the 18-nation economy closer to renewed recession, they’re pressuring him to honor his pledge to take further action if needed. “For a dove, that was hawkish,” said Lars Peter Lilleore, chief analyst at Nordea Markets in Copenhagen. “The herd of market participants pining for QE will have to wait a bit longer.”

The ECB will start buying covered bonds this month and asset-based securities this quarter and continue for at least two years, Draghi said yesterday after the 24-member Governing Council met in Naples, Italy. He also reiterated that he wants to “steer” the ECB’s assets toward early-2012 levels, when they were at more than €3 trillion, compared with €2 trillion currently. Yet he also said investors shouldn’t place too much emphasis on the precise size of the balance sheet. “Draghi seemed to back away from his previous commitment to expand the ECB’s balance sheet back to 2012 levels,” said Marchel Alexandrovich, an economist at Jefferies International Ltd. in London. “What the markets were hoping for were some ballpark figures for what the ECB was likely to achieve.”

Spanish and Italian bonds dropped and the euro rose as the lack of a target conflicted with Draghi’s claim that policy makers are taking greater control over the level of stimulus they inject. “The door to quantitative easing didn’t widen or narrow,” said Hetal Mehta, a London-based economist at Legal & General Investment Management, which oversees 450 billion pounds ($726 billion). “The ECB is very much in a wait-and-see mode.” The refusal to lock in a number may reflect division among policy makers or a suspicion that a lack of available assets limits any swelling of stimulus, said Azad Zangana, European economist at Schroder Investment Management Ltd. in London.

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Stuck on both sides, that is.

• Mario Draghi Stung By Austerity Critics As Naples Hit By Protests (Guardian)

Mario Draghi gave an impassioned defence of the European Central Bank’s role in the eurozone crisis as anti-austerity protestors took to the streets of Naples blaming the central bank for economic misery. The ECB’s president rejected the suggestion that the bank had been an agent of doom for the people of Italy and the wider economic bloc because of its role in pushing spending cuts and tax rises in some of the worst hit countries in the region. Speaking after the October meeting of the ECB’s governing council in Naples, he insisted the it had instead taken radical steps in recent months to breathe some life into the eurozone’s flagging economy. “I think the description of the ECB here as the guilty actor needs to be corrected. Go back and ask yourself how you were two and a half, three years ago. The financial system seemed on the verge of collapsing.” Draghi appeared to be stung as the bank became the subject of protests in his home country. Protestors held banners declaring “block the ECB” and “job insecurity, poverty, unemployment, speculation. Free us from the ECB.”

Reeling out a list of measures introduced by the ECB over recent months to combat weak growth and low inflation, Draghi said they were expected to have a “sizeable impact” on the eurozone economy. He added: “We have done a lot since June, quite unprecedented. We have decided a massive amount of measures now and we haven’t yet seen the impact on the economy.” Last month the ECB took markets by surprise, further cutting the main interest rate from 0.15% to 0.05%. Policymakers also made it more expensive for banks to park money with the ECB – cutting the deposit rate, which was already negative, from -0.1% to -0.2% in the hope of persuading banks to lend more to businesses and consumers. The ECB announced no new measures on Thursday, and failed to reveal the scale of an asset purchasing scheme announced last month. Investors were left disappointed, contributing to a large scale selloff of equities across Europe.

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“Mr Draghi is facing a severe credibility problem” alright, but that’s not the whole story. He has a rock and a hard place problem.

• Mario Draghi’s QE: Too Little For Markets, Too Much For Germany (AEP)

European stocks have suffered the steepest one-day fall in 15 months after the European Central Bank retreated from pledges for a €1 trillion blitz of stimulus and failed to clarify the scale of quantitative easing. The sell-off came amid a mounting political storm in Europe as leading German economists and jurists reacted with fury to the ECB’s first asset purchases, denouncing the move as monetary debauchery, and threatening a blizzard of lawsuits in the German courts. “Our worst fears are being fulfilled,” said Hans Werner Sinn, head of Germany’s IFO Institute. The Milan bourse tumbled almost 4pc, led by sharp falls in Italian banks counting on fresh ECB liquidity. The Eurostoxx 600 index was off 2.4pc and the FTSE 100 fell 1.7pc to its lowest level this year, with effects spreading through global markets. The CRB index of commodities slumped to 2004 levels, before the onset of the resource boom, and Brent crude fell to a two-year low of $92.83 on rising Libyan supply and fears of a deepening industrial slowdown in China.

Mario Draghi, the ECB’s president, seemed unable to secure backing for far-reaching measures from Germany’s two ECB members or from the German finance ministry, forcing him to play down earlier hints for a €1 trillion boost to the ECB’s balance sheet. As he spoke inside a renaissance palace in Naples, riot police doused crowds of protesters on the street outside with water cannon. The city has become a political cauldron, with the highest “misery index” Europe. Youth unemployment in Italy’s Mezzogiorno is still rising, topping 56pc in the second quarter. Mr Draghi said the ECB would start to buy covered bonds and asset-backed securities (ABS) as soon as this month, but gave no concrete figure and deflected all questions on the scope of stimulus. “I wouldn’t want to emphasise the balance sheet size per se,” he said. Sovereign bond strategist Nicholas Spiro said the ECB was “backtracking” on earlier pledges and seemed to be losing confidence in its ability to halt deflation at all. “Mr Draghi is facing a severe credibility problem,” he said.

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The central bankers of Germany, France and Austria are all against the ABS plan. That’s what you get when you want to buy junk loans.

• France’s Noyer Is Third ECB Dissenter Against ABS Buying Plan (Bloomberg)

France’s Christian Noyer joined European Central Bank policy makers from Germany and Austria in opposing a program to buy asset-backed securities, according to two euro-area officials. His dissent leaves President Mario Draghi facing a clash with policy makers from the region’s two largest economies, albeit for different reasons. While Noyer disapproved of the way the purchases will be conducted, Austrian central bank Governor Ewald Nowotny shared Bundesbank President Jens Weidmann’s view that the measure involves too much balance-sheet risk, said the people, who asked not to be identified because the talks are private.

Draghi unveiled details of the program yesterday, pledging to buy both covered bonds and ABS before the end of the year. He shied away from a definitive goal for the plan, saying total stimulus may fall short of the 1 trillion euros ($1.3 trillion) he had signaled in September. Noyer opposed the design of the program because it will exclude national central banks from its implementation, said the people. ECB policy is generally conducted in a decentralized way, with national institutions responsible for refinancing their banks and purchasing securities. In this case, the ECB has opted to involve outside brokers to buy ABS, the people said, even though the French central bank has a long-standing expertise in assessing the quality of ABS. It was the euro-area hub for valuing the assets until 2012, when it was replaced by a regional initiative.

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How smart is this when the dollar is rising?

• Bank of England To Hike Rates Before Fed But At Slower Pace: Goldman (CNBC)

The Bank of England (BoE) will start to tighten the screws of monetary policy earlier than the Federal Reserve but will raise rates at a slower pace than its U.S. counterpart, according to Goldman Sachs. The BoE will begin raising interest rates in the first quarter of 2015, while the Fed will wait until the third quarter, Goldman Sachs economists led by Huw Pill wrote in a note on Friday. The U.K. central bank appears more hawkish than its U.S. counterpart, they said. “We expect U.K. rates to rise by around 75 basis points per year vs. 100-125 basis points per year in the U.S. [between 2015-2018],” Pill said. The difference in the speed of interest rate hikes comes down to the different cyclical positions of each economy. “Looking forward, we expect U.K. GDP (gross domestic product) growth and the pace of the decline in U.K. unemployment to moderate in the quarters ahead, both in absolute terms and relative to the U.S. All else equal, this would imply the need for a slower pace of tightening in the U.K.,” Pill said.

Britain’s economy grew 0.9% in the three months from April to June this year, the quickest increase since the third quarter of 2013. The U.S. economy, meanwhile, expanded at a 4.6% annual rate over the same period, its fastest pace in 2-1/2 years. Looking back over the past quarter-century, the BoE has typically tightened more slowly than the Fed, according to Goldman. On the basis of five tightening cycles for the U.K. and three for the U.S. over this period, the Fed has raised rates on average by 2.1 percentage points in the first year, while the BoE has raised rates by just 1.3 percentage points. One reason they have risen more gradually is that the U.K.’s private sector has been more highly leveraged compared with the U.S. In addition, the average duration of debt held by British households is shorter than their American counterparts.

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China debt fix is desperate.

• China Debt Fix Is ‘Short-Term Pain, Long-Term Gain’ (CNBC)

China’s debt loads have long loomed as a serious economic risk, and while analysts say new plans to clean up local government borrowing will bring near-term pain, a longer-term fix may be in sight. “[The new plan] represents the first concrete step by the central government to clean up the debt problems at the local governments,” analysts at Bernstein Research said in a note Friday. Provincial governments’ debt, often issued via local government financing vehicles, or LGFVs, has worried economists for years. Outstanding debt climbed to around 17.9 trillion yuan ($2.92 trillion) by the end of the first half of 2013, according to the most recent national audit, from around 10.7 trillion in 2010. On Thursday, China’s State Council, its highest authority, set quotas on the amount of debt that local governments can issue, required it to be used for public projects rather than operational spending and tied debt levels to local officials’ performance reviews.

It also barred local governments from using LGFVs and state-owned enterprises (SOEs) to raise debt and from guaranteeing or covering the liabilities of financial institutions or local corporates. “It’s a tick in the right box,” said Freya Beamish, an economist at Lombard Street Research, noting it indicates Beijing is willing to accept slower growth as a step toward avoiding an “Armageddon” scenario over its debt. “While this may bring short-term pain in terms of slowing economic growth and accelerating credit losses at LGFVs, we think the reform will benefit the economy and the Chinese banking sector in the long term,” Bernstein said. It expects the reforms will weaken economic growth in debt-laden provinces as they incorporate existing and new debt into their budgets, as well as spurring an increase in the number of defaults among existing LGFV and local SOE debts.

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Saudis are dumping. Couldn’t have anything to do with putting the squeeze on Putin?!

• Oil Heads To Bear Market As Saudis Signal Price War (CNBC)

Oil could continue its deep slide, possibly dipping into bear market territory, under new pressure from Saudi Arabia’s decision to defend market share, as opposed to cutting production to battle falling prices. A well-supplied oil market, helped by increased North American production and softer global demand as Europe’s economy falters and Chinese demand growth slows, has created a supply imbalance that has driven prices sharply lower. The Saudi move is counter to expectations that it would further cut its 9.6 million barrel-a-day production to bring back oil prices. West Texas Intermediate oil futures for November hit a 17-month low early Thursday, falling below the $90 mark for the first time since April 2013. That was a 16% decline from its June high. Brent, the international benchmark, fell to a 27-month low of $91.55 per barrel, before recovering at about $93 per barrel for November futures. Brent, at the low, was about 19% off its high. A weaker dollar helped lift oil off its lows.

Oil analysts expect oil to fall another couple%, which could take both WTI and Brent into bear market territory—a 20% decline from recent highs. “It’s both supply and demand. it’s basically the perfect storm that brought oil prices down,” said Fadel Gheit, Oppenheimer senior energy analyst. “You have plenty of supply which you never thought possible, and all of a sudden, demand is shrinking, China’s slowing down, Europe never recovered.” He said the fact that the Saudis are willing to play hardball with prices makes it difficult for other oil-based economies like Russia. Saudi Aramco, the state-run oil company, surprised markets Wednesday when it announced it would cut official prices for Asian customers in November. The cuts come as the Organization of Petroleum Exporting Countries was expected to be on course to cut back on production instead, to protect prices.

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That’s a lot of people.

• JP Morgan: 76 Million Households Hit In Largest Ever Data Breach (Guardian)

JP Morgan Chase, one of the largest banks in the US, said on Thursday that a massive computer hack affected the accounts of 76 million households and about seven million small businesses, making it one of the largest of its kind ever discovered. The attack was under way for a month before it was discovered in July, and when it was disclosed in August, the bank estimated that about one million accounts had been compromised. But the latest information revealed on Thursday showed the attack was vastly more serious than earlier thought. The bank said financial information was not compromised and that there had been no breach of login information such as account or social security numbers, passwords or dates of birth. However names, email addresses, phone numbers and addresses of account holders were captured by hackers. “As of such date, the firm continues not to have seen any unusual customer fraud related to this incident,” the bank said in a regulatory filing. It said customers would not be liable for unauthorized transactions on their account.

JP Morgan, the largest bank in the country by assets, is working with the Federal Bureau of Investigation and the US secret service to determine the roots of the attack. The scale of the hack, one of the largest ever, comes after a series of massive data breaches at US institutions and follows in the wake of attacks on Target and Home Depot. In September, Home Depot confirmed its payment systems were breached in an attack that some estimated impacted 56 million payment cards. Last year’s attack on Target impacted 40 million payment cards and compromised the personal details of some 70 million people. But the JP Morgan hack is considerably more serious, as banks holds far more sensitive information than retailers. In August, Bloomberg reported that the attack on JP Morgan had been linked to Russian hackers who FBI sources said had been able to extract “gigabytes of sensitive data”.

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Integrity!

• Is the New York Fed a Pushover for Big Banks? Dudley Fires Back (Bloomberg)

William C. Dudley, president of the Federal Reserve Bank of New York, defended his bank-supervision staff following allegations that they had been too deferential to large financial firms. “I completely stand behind the integrity and work of our supervision staff,” he said after a speech today in New York. “They are operating completely in the public interest.” Dudley’s remarks, his first addressing allegations of lax supervision aired last week by former employee Carmen Segarra, highlight the New York Fed’s difficulties in overcoming perceptions that it’s too close to Wall Street. “This is a zero-credibility era for big banks and their regulators,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington. As a result, stories like Segarra’s “have a lot of resonance regardless of their truth,” she added. Dudley turned voluntarily to the topic after getting no questions about it from the audience at New York University’s Stern School of Business.

He said there had been a “significant reorganization” following a report commissioned by the regional Fed bank, and that “improving supervision has been and remains an ongoing priority for me.” The 2009 report, by Columbia University Professor David Beim, made recommendations to improve bank supervision, including that Fed officials should seek to keep their distance and be more skeptical of the banks they oversee. Dudley’s comments follow reports last week on the radio program “This American Life” and ProPublica, a nonprofit news organization. The radio program broadcast excerpts of conversations it said were secretly recorded by Segarra, a former New York Fed bank examiner fired in 2012, with some of her colleagues and her supervisor. In a transcript of the broadcast, Segarra described how she felt that her Fed colleagues were afraid of Goldman Sachs and handled it with kid gloves.

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Disgraceful.

• How to Collect Argentina Bond Payment Is An Unsolved Riddle (Bloomberg)

After announcing a plan to sidestep a U.S. court order that prevented Argentina from paying its bondholders, Economy Minister Axel Kicillof scoffed at the idea that it would be hard to pull off. “No one’s going to have to take a plane,” he told reporters Aug. 20. “These days even your gas and electricity bills can be paid by the Internet. We’re not going to have an influx of bond tourists coming to get paid.” Six weeks later, holders of the nation’s foreign-currency bonds still have no idea how the plan will actually enable them to get paid. While Argentina has deposited $161 million with a local bank in downtown Buenos Aires to make good on an interest payment due Sept. 30, the government hasn’t given bondholders any instructions on how they can go about collecting their cash, said Emso Partners, which owns Argentine notes.

“It’s a completely symbolic gesture designed to allow Argentina to continue to claim that it’s fulfilling its obligations to bondholders,” Patrick Esteruelas, an analyst at Emso, a New York-based hedge fund, said by telephone. “Without being able to secure the information and effectively confirm who it is that is the holder of the bond, you don’t have a verifiable mechanism to impart payment or collect payment.” Argentina’s attempt to honor its debt underscores how bondholders remain in limbo two months after the court order blocked a debt payment and caused the nation to default on July 30, its second in 13 years. The government, which has been entangled in a legal dispute with unpaid creditors from its $95 billion default in 2001, was barred from paying other bondholders until it settled with the so-called holdouts.

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And everywhere else too.

• Humans Lose to Machines in $500 Billion-a-Day Bond Market (Bloomberg)

While investors traditionally negotiated prices for U.S. Treasuries by telephone, they’re increasingly turning to computer-based marketplaces for a range of price quotes from different dealers. Human traders are increasingly losing out to machines in the world’s biggest bond market. While investors traditionally negotiated prices for U.S. Treasuries by telephone, they’re increasingly turning to computer-based marketplaces for a range of price quotes from different dealers. A record 48% of trades in U.S. government debt have occurred on electronic platforms this year, up from 31% in 2012, according to a Greenwich Associates study released yesterday. Bond managers are looking for more efficient ways to determine values in a $12 trillion market as banks use less of their own money to opportunistically buy and sell, giving them less of an edge when they pitch their brokerage services. “Investment firms are much more focused on being able to prove they’re getting good execution than ever before,” said Kevin McPartland, head of research at Greenwich Associates.

“In Treasuries, the market seems ripe for electronic trading.” The trend is squeezing profits on Wall Street, where firms are already facing lower trading revenues in a sixth year of record Federal Reserve stimulus that’s suppressing yields and volatility. (Bloomberg LP, the parent company of Bloomberg News, and Tradeweb Markets LLC are the dominant providers of electronic systems for Treasuries trading, according to the Greenwich Associates study.) The biggest banks reduced their rates-trading balance sheets by almost one-third, or about $200 billion, since the 2010 peak, Credit Suisse Group AG analysts Ira Jersey and William Marshall wrote in a May report. While electronic trading systems may allow for faster price discovery, the trend may also discourage some investors from selling bigger chunks of less-traded securities out of concern they may move prices against themselves.

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Too many hiccups in this case.

• Four People Close To US Ebola Patient Quarantined In Dallas (Reuters)

Four people close to the first person diagnosed with Ebola in the United States were quarantined in a Dallas apartment, where sheets and other items used by the man were sealed in plastic bags, as health officials widened their search for others who had direct or indirect contact with him. In Liberia, an American freelance television cameraman working for NBC News in Liberia has contracted Ebola, the fifth U.S. citizen known to be infected with the deadly virus that has killed at least 3,300 people in the current outbreak in West Africa. The 33-year-old man, whose name was not released, will be flown back to the United States for treatment, the network said on Thursday. Immediately after beginning to feel ill and discovering he was running a slight fever, the cameraman quarantined himself. He then went to a Doctors Without Borders treatment center and 12 hours later learned he tested positive for Ebola.

The entire NBC crew will fly back to the United States on a private charter plane and will place themselves under quarantine for 21 days, the maximum incubation period for Ebola. U.S. health officials said they were confident they could prevent the spread of Ebola in the United States after the first case was diagnosed this week on U.S. soil. Up to 100 people had direct or indirect contact with Thomas Eric Duncan, a Liberian citizen, and a handful were being monitored, said Dr. Thomas Frieden, director of the U.S. Centers for Disease Control and Prevention (CDC). None of those thought to have had contact with Duncan were showing symptoms of Ebola, Dallas County officials said at a news conference.

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And counting.

• NBC Cameraman Becomes 4th American To Test Positive For Ebola (Telegraph)

An American freelance television cameraman has contracted Ebola in Liberia, becoming the fourth US national to be diagnosed with the deadly disease. He had been hired on Tuesday to work with NBC News chief medical editor Dr Nancy Snyderman covering the outbreak which has so far killed more than 3,000 people in West Africa. A statement on the news network’s website said; “The freelancer came down with symptoms on Wednesday, feeling tired and achy. As part of a routine temperature check he discovered he was running a slight fever. He immediately quarantined himself and sought medical advice.” He went to a Medecins Sans Frontieres treatment centre on Thursday and a positive result for Ebola came back 12 hours later. Mr Mukpo, who has been working in Liberia for three years, is the fourth American to contract Ebola in Liberia during the current outbreak. The others were Christian missionaries.

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A slim chance for now, but …

• Ebola ‘Could Become Airborne’: UN Warns Of ‘Nightmare Scenario’ (Telegraph)

There is a ‘nightmare’ chance that the Ebola virus could become airborne if the epidemic is not brought under control fast enough, the chief of the UN’s Ebola mission has warned. Anthony Banbury, the Secretary General’s Special Representative, said that aid workers are racing against time to bring the epidemic under control, in case the Ebola virus mutates and becomes even harder to deal with. “The longer it moves around in human hosts in the virulent melting pot that is West Africa, the more chances increase that it could mutate,” he told the Telegraph. “It is a nightmare scenario [that it could become airborne], and unlikely, but it can’t be ruled out.” He admitted that the international community had been “a bit late” to respond to the epidemic, but that it was “not too late” and that aid workers needed to “hit [Ebola] hard” to rein in the deadly disease.

Mr Banbury was speaking shortly before the first Ebola diagnosis was made in the US on Tuesday evening. The man, who contracted Ebola in Liberia before flying to Dallas, Texas, is the first case to be diagnosed outside Africa, where the disease has already killed more than 3,000 people. The number of people infected with Ebola is doubling every 20 to 30 days, and the US Center for Disease Control and Prevention has forecast that there could be as many as 1.4m cases of Ebola by January, in the worst case scenario. More than 3,300 people have been killed by the disease this year. Mr Banbury, who has served in the UN since 1988, said that the epidemic was the worst disaster he had ever witnessed.

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