ECB Archives - Page 4 of 17 - The Automatic Earth

The last eurozone crisis was solved – or deferred – when the president of the European Central Bank, Mario Draghi, declared in July 2012 that the institution was ready to do “whatever it takes” to save the euro. Bond markets calmed down, weak banks got access to funding again and an economic recovery of sorts materialised. In terms of central bank rescue acts, it was a textbook operation. Unfortunately, there are no easy ECB fixes for the new Italian crisis. The ECB’s first problem is its own powers. Even if it were minded to try to reverse the dramatic sell-off in Italian bonds, the rules say it is only supposed to respond to emergency calls from countries that have agreed to budget conditions.

With new elections now likely in Italy in the autumn, it’s hard to see how a deal could be done. Even if a technical fudge could be found, the second problem is that the eurozone’s big powers might prefer the ECB to do nothing. Günther Oettinger, the EU’s budget commissioner, seems to believe a bout of market turmoil “might become a signal to [Italian] voters after all to not vote for populists on the right and left”. In practice, the experience might provoke a bigger vote for anti-euro parties, but the strategy seems set.

The third problem for the ECB will come if capital drains from Italian banks. In that case the ECB could in theory claim a clear need to intervene to prevent damage to eurozone banks outside Italy. But, again, there could be pressure to stay on the sidelines. Under the Target2 system, which is the way eurozone central banks keep account of liabilities to each other, Italy already owes £442bn. Any ECB-backed support for its banks would see that figure rise further, provoking fears over repayment. Note that Target2 imbalances are already a hot topic in Germany, where the Bundesbank is the single biggest creditor.

I’m sure it has the will. Draghi’s Plunge Protection Team is working hard today, euro’s up 0.5%. The problem is that everyone knows whatever the ECB does is only a temp stopgap.

• Investors Ask If ECB Has Will And Means To Save Euro From Italian Turmoil (R.)

Investors are again speculating what the ECB could do to solve the problem of a surge in Italy’s debt yields that is causing stress for Italian banks and reviving questions about a euro break up. The stakes will be huge if a repeat election in the euro zone’s third-largest economy become a de facto referendum on Italy’s membership of the euro and its role in the European Union. Italy’s economy is at least 10 times bigger than that of Greece, which needed 250 billion euros ($289 billion) of euro zone and IMF money to bail it out. If Italy needed a similar level of support, the numbers involved would be eyewatering.

Total IMF firepower would only add up to around 500 billion euros and even with the 400 billion euros that the European Stability Mechanism could conceivably get together, it still wouldn’t completely cover Italy. Perhaps it’s no wonder then that Italy’s bond markets saw their worst sell-off in 26 years on Tuesday and investors are starting to look inquisitively at the ECB. “If this continues for another couple of sessions, I think you will have to see some official (European) response,” said Saxo Bank’s head of foreign exchange strategy John Hardy. “It becomes a ‘whatever it takes’ kind of moment,” he added, recalling the promise made in 2012 by ECB President Mario Draghi to keep the euro intact.

Inflexibility killed the cat.

• Blanchard: Europe Should Be OK – But ‘I’m Very Worried About Italy’ (CNBC)

Political chaos in the euro zone’s third-biggest economy won’t be going away anytime soon, according to IMF former chief economist Olivier Blanchard, who on Tuesday issued an ominous assessment of the country. Panic roiled markets Tuesday as a political fight in Italy prompted one of its worst market sell-offs in years. Underlying investor fear was the prospect of Italy leaving the euro and others following suit, which Blanchard, now an economics professor at the Massachusetts Institute of Technology, described as more of a psychological fear than a realistic threat.

The potential concern, rather, involves Italy’s creditors, who would have to “move carefully,” the economist told CNBC’s Joumanna Bercetche in Paris. The rest of Europe may avoid a domino effect, but Italy looks to remain mired in a quagmire. “I suspect in this case the EU will do whatever is needed to prevent contagion, so I’m not terribly worried about contagion,” Blanchard said. “I’m very worried about Italy. Not worried about the rest of Europe. It will be tough, but the rest of Europe, the rest of (the) euro will be OK.” [..] “The writing was on the wall,” Blanchard said. “When you have capital mobility, and you give signals that you might not stay in the euro … then you expect investors to move, and I think that’s what we are seeing.”

Markets were already nervous about M5S and Lega’s economic plans for Italy. Though the parties did not in fact pledge to leave the euro, they signaled a disregard for the EU’s fiscal rules, such as those limiting states’ deficit levels. [..] Asked if there may be positives to the standoff in the form of EU concessions for Italy in order to prevent a pull-out, Blanchard responded, “No. I am not optimistic.” Unsurprisingly, he described himself as very bearish on the country. The best-case scenario, the economist said, would be for the winners of the next elections to provide a program that satisfies the voter base — victory is predicted for the populist parties again — but remains fiscally responsible.

Wolf Richter is dead on: “..Italian bonds – no matter what maturity – should never ever have traded with a negative yield..”

• NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades (WS)

On Tuesday, Italian bonds had their worst day in Eurozone existence, even worse than any day during the worst periods of the 2011 debt crisis. And this comes after they’d already gotten crushed on Monday, and after they’d gotten crushed last week. And this happened even as the ECB is carrying on its QE program, including the purchase of Italian government bonds; and even as it pursues its negative-interest-rate policy (NIRP). As bond prices plunge, yields spike by definition, and the spike in the two-year yield was spectacular, going from 0.3% on Monday morning to 2.73% on Tuesday end of day:

But note that until May 26, the two-year yield was still negative as part of the ECB’s interest rate repression. On that fateful day, the two-year yield finally crossed the red line into positive territory. To this day, it remains inexplicable why the ECB decided that Italian yields with maturities of two years or less should be negative – that investors, or rather pension beneficiaries, etc., who own these misbegotten bonds, would need to pay the Italian government, one of the most indebted in the world, for the privilege of lending it money. But that scheme came totally unhinged just now. The 10-year Italian government bond yield preformed a similar if not quite as spectacular a feat. Over Monday and Tuesday, it went from 2.37% to 3.18%:

But here’s the thing: Italian bonds – no matter what maturity – should never ever have traded with a negative yield. Their yields should always have been higher than US yields, given that the Italian government is in even worse financial shape than the US government. Italy’s debt-to-GDP ratio is 131%, and more importantly, it doesn’t even control its own currency and cannot on its own slough off a debt crisis by converting it into a classic currency crisis, which is how Argentina is dealing with its government spending. The central bank of Argentina recently jacked up its 30-day policy rate to 40% to keep the peso from collapsing further. That’s the neighborhood where Italy would be if it had its own currency. But the ECB’s QE shenanigans and NIRP drove even Italian yields below zero, and so now here is NIRP’s revenge.

Oettinger takes the prize for the biggest fool so far.

• Italy Could Be The Next Greece – Only Much Worse (CNBC)

Nearly a decade after a protracted Greek debt crisis spooked global markets, a fresh round of political turmoil in Italy has revived fears about the fate of the European financial system and its common currency. This time, the numbers are a lot bigger. “Italy’s economy is 10 times larger than that of Greece, whose debt crisis shook the euro area’s foundations,” wrote Desmond Lachman, a resident fellow at the American Enterprise Institute, in a recent blog post. “The single currency is unlikely to survive in its present form if Italy were forced to exit that monetary arrangement.”

Italy’s economy has been struggling since the Great Recession years with a debt load that rivals the heavy Greek borrowing that forced massive cuts in public services there and drove Greece into a deep recession. That Italian debt crisis has become central to the ongoing political instability, as multiple governments have failed to resolve it. [..] Even if the populist parties stop short of a clear call for exiting the euro, their strength has widened the political gap with EU officials in Brussels. In an echo of the Greek debt crisis, the latest turmoil has reopened a political rift between Germany and the “peripheral” economies of Greece, Italy and Spain. That political divide will further complicate ongoing efforts to resolve Italy’s crushing debt burden.

On Tuesday, EU officials promised to respect Italian voters’ right to choose their own government, after Germany’s European commissioner said Italians should not vote for the populists. “My worry, my expectation, is that the coming weeks will show that the markets, government bonds, Italy’s economy, could be so badly hit that these could send a signal to voters not to elect populists from the left or right,” Guenther Oettinger, a German commissioner who oversees the EU budget committee, said in a German television interview.

“..a relationship that was neither voluntary nor equal – the very opposite of the credo on which the EU was based.”

• “Everything Has Gone Wrong”: Soros Warns “Major” Financial Crisis Is Coming (ZH)

Until recently, it could have been argued that austerity is working: the European economy is slowly improving, and Europe must simply persevere. But, looking ahead, Europe now faces the collapse of the Iran nuclear deal and the destruction of the transatlantic alliance, which is bound to have a negative effect on its economy and cause other dislocations. The strength of the dollar is already precipitating a flight from emerging-market currencies. We may be heading for another major financial crisis. The economic stimulus of a Marshall Plan for Africa and other parts of the developing world should kick in just at the right time. That is what has led me to put forward an out-of-the-box proposal for financing it.

“The EU is in an existential crisis. Everything that could go wrong has gone wrong,” he said. To escape the crisis, “it needs to reinvent itself.” “The United States, for its part, has exacerbated the EU’s problems. By unilaterally withdrawing from the 2015 Iran nuclear deal, President Donald Trump has effectively destroyed the transatlantic alliance. This has put additional pressure on an already beleaguered Europe. It is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality.” “We may be heading for another major financial crisis,” Soros said explicitly.

“I personally regarded the EU as the embodiment of the idea of the open society. It was a voluntary association of equal states that banded together and sacrificed part of their sovereignty for the common good. The idea of Europe as an open society continues to inspire me. But since the financial crisis of 2008, the EU seems to have lost its way. It adopted a program of fiscal retrenchment, which led to the euro crisis and transformed the eurozone into a relationship between creditors and debtors. The creditors set the conditions that the debtors had to meet, yet could not meet. This created a relationship that was neither voluntary nor equal – the very opposite of the credo on which the EU was based.”

Interference in a country’s politics. Hmm.

• Soros-Backed Campaign To Push For New Brexit Vote Within A Year (G.)

A campaign to secure a second Brexit referendum within a year and save the UK from “immense damage” is to be launched in days, the philanthropist and financier George Soros has announced. The billionaire founder of the Open Society Foundation said the prospect of the UK’s prolonged divorce from Brussels could help persuade the British public by a “convincing margin” that EU membership was in their interests. In a speech on Tuesday ahead of the launch of the Best for Britain campaign – said to have already attracted millions of pounds in donations – Soros suggested to an audience in Paris that changing the minds of Britons would be in keeping with “revolutionary times”.

Best for Britain had already helped to convince parliamentarians to extract from Theresa May a meaningful vote on the final withdrawal deal, he said, and it was time to engage with voters, and Brussels, to pave the way for the UK to stay in the bloc. It is expected to publish its campaign manifesto on 8 June. Soros, 87, said: “Brexit is an immensely damaging process, harmful to both sides … Divorce will be a long process, probably taking more than five years. Five years is an eternity in politics, especially in revolutionary times like the present. “Ultimately, it’s up to the British people to decide what they want to do. It would be better however if they came to a decision sooner rather than later. That’s the goal of an initiative called the Best for Britain, which I support.

“Best for Britain fought for, and helped to win, a meaningful parliamentary vote which includes the option of not leaving at all. This would be good for Britain but would also render Europe a great service by rescinding Brexit and not creating a hard-to-fill hole in the European budget. “But the British public must express its support by a convincing margin in order to be taken seriously by Europe. That’s what Best for Britain is aiming for by engaging the electorate. It will publish its manifesto in the next few days.”

Recovery.

• Pace Of Greek Credit Contraction Increases In April (K.)

The funding deficit is growing in the Greek economy, as there was a sharper credit contraction in April, data from the Bank of Greece showed on Tuesday. The pace of financing Greek households and enterprises stood at -1.9% last month, from -1% in March and -0.9% in February. The flow of credit turned negative by 1.2 billion euros in April from the positive amount of 217 million euros in March. The negative flow means that loans repaid outweighed those issued, after factoring in loan write-offs and sales of nonperforming loans by banks.

In practice the fresh credit issued is offset by the burden of the increased write-offs and payments mostly by enterprises. Data analysis showed that the funding flow to the economy’s basic domains last month was negative by 2.4% for industry and by 1.7% for construction. At the same time the financing rate for tourism was marginally positive at 1%, while in commerce the rate was zero, against a positive 1% in March. The sector with the lowest funding rate in comparison with last year was electricity and water, which declined 12.6%.

Who blinked first?

• EU Plans To Boost Spending In South, Cut Funds For Eastern Europe (RT)

The European Commission proposed on Tuesday increased spending of EU money on Italy and other southern member states hit by the economic and migrant crises, while reducing funds for regions in the former communist eastern countries, Reuters reports. The proposal on the 2021-2027 budget comes as Italy is facing the prospect of snap elections after the summer. The commission proposed a new methodology to distribute funds that takes into account unemployment levels and the reception of migrants, and not just economic output as previously done. This will result in a reduction of regional funds for eastern countries because they have grown faster in recent years. The budget would increase to €1.1 trillion ($1.2 trillion) from €1 trillion in the current seven-year period. A third of spending would be allocated to help reduce the gap between rich and poor regions of the bloc.

Jim on Memorial Day.

• It’s Hard To Be An Empire (Jim Kunstler)

I suppose that military prowess is all we’ve got left in the national pride bag in these times of foundering empire. Few are fooled these days by the “land of opportunity” trope when so many young people are lucky to get a part-time gig on the WalMart loading dock along with three nights a week of slinging Seaside Shrimp Trios for the local Red Lobster. Of course, there are a few choice perches in venture capital out in Silicon Valley, or concocting collateralized loan obligations in the aeries of Wall Street — but nobody is playing Aaron Copeland’s Fanfare for the Common Man to celebrate these endeavors.

There’s a macabre equivalency between our various overseas war operations and the school shootings that are now a routine feature of American daily life. The purposes are equally obscure and the damage is just as impressive — many lives ruined for no good reason. But consider more lives are lost every year in highway crashes than in the Mexican War of the 1840s and more Americans are dying each year lately of opioid overdoses than the entire death toll of the Vietnam War. America’s soul is at war with its vaunted way-of-life.

It’s hard to be an empire, for sure, but it’s even harder, apparently, to be a truly virtuous society. First, I suppose, you have to be not insane. It’s hard to think of one facet of American life that’s not insane now. Our politics are insane. Our ideologies are insane. The universities are insane. Medicine is insane. Show biz is insane. Sexual relations are insane. The arts are insane. The news media is utterly insane. And what passes for business enterprise in the USA these days is something beyond insane, like unto the swarms of serpents and bats issuing from some mouth of hell in the medieval triptychs. How do you memorialize all that?

“..the trade renege could leave Washington dancing with itself..”

• China Slams Surprise US Trade Announcement, Says Ready To Fight (R.)

China on Wednesday lashed out at Washington’s unexpected statement that it will press ahead with tariffs and restrictions on investments by Chinese companies, saying Beijing was ready to fight back if Washington was looking to ignite a trade war. The United States said on Tuesday that it still held the threat of imposing tariffs on $50 billion of imports from China and would use it unless Beijing addressed the issue of theft of American intellectual property. The declaration came after the two sides had agreed earlier this month to look at steps to narrow China’s $375 billion trade surplus with America, and days ahead of a visit to Beijing by U.S. Commerce Secretary Wilbur Ross for further negotiations.

William Zarit, chairman of the American Chamber of Commerce in China, said Washington’s threat of tariffs appeared to have been “somewhat effective” thus far. “I don’t think it is only a tactic, personally,” he told reporters on Wednesday, adding that the group does not view tariffs as the best way to address the trade frictions. “The thinking became that if the U.S. doesn’t have any leverage and there is no pressure on our Chinese friends, then we will not have serious negotiations.” [..] The Global Times said the United States was suffering from a “delusion” and warned that the “trade renege could leave Washington dancing with itself”.

What you get with bogus claims of full employment.

• High Number Of Workers With No Pay Raise Says Inflation Worries Overblown (MW)

An unusually high percentage of American workers still aren’t getting pay raises nine years after the end of the Great Recession — and that suggests the threat of inflation is still quite low. Some senior Federal Reserve officials, including Kansas City Fed President Esther George, want to raise U.S. interest rates more rapidly to head off the potential for higher wages to stoke inflation. The specter of higher rates has pushed up interest rates and acted as a drag on stocks. Yet a new report by researchers at the regional central bank George leads to suggest there’s little cause for alarm.

The Kansas City Fed researchers found that an abnormally high share of employees still in the same jobs haven’t received a pay raise in the last 12 months despite a 3.9% unemployment rate that is the lowest in almost two decades. Economists refer to the phenomenon as “wage rigidity.” [..] The rate of future wage growth in the U.S. also tends to rise more slowly than usual when a high number of people aren’t getting any raises at all, the research suggests. In the most recent 12-month period ended in April, hourly U.S. wages increased at a 2.6% rate. Normally when the unemployment rate is as low as it is now, wages tend to rise 3.5% to 4.5% year.

What they claimed would never happen.

• industrial-Scale Beef Farming Comes To The UK (G.)

Thousands of British cattle reared for supermarket beef are being fattened in industrial-scale units where livestock have little or no access to pasture. Research by the Guardian and the Bureau of Investigative Journalism has established that the UK is now home to a number of industrial-scale fattening units with herds of up to 3,000 cattle at a time being held in grassless pens for extended periods rather than being grazed or barn-reared. Intensive beef farms, known as Concentrated Animal Feeding Operations (CAFOs) are commonplace in the US. But the practice of intensive beef farming in the UK has not previously been widely acknowledged – and the findings have sparked the latest clash over the future of British farming.

The beef industry says that the scale of operations involved enables farmers to rear cattle efficiently and profitably, and ensure high welfare standards. But critics say there are welfare and environmental concerns around this style of farming, and believe that the farms are evidence of a wider intensification of the UK’s livestock sector which is not being sufficiently debated, and which may have an impact on small farmers. In contrast to large intensive pig and poultry farms, industrial beef units do not require a government permit, and there are no official records held by DEFRA on how many intensive beef units are in operation. But the Guardian and the Bureau has identified nearly a dozen operating across England. [..] The largest farms fatten up to 6,000 cattle a year.

Stop the madness!

• Meat And Fish Multinationals ‘Jeopardising Paris Climate Goals’ (G.)

Meat and fish companies may be “putting the implementation of the Paris agreement in jeopardy” by failing to properly report their climate emissions, according to a groundbreaking index launched today. Three out of four (72%) of the world’s biggest meat and fish companies provided little or no evidence to show that they were measuring or reporting their emissions, despite the fact that, as the report points out, livestock production represents 14.5% of all greenhouse gas emissions. “It is clear that the meat and dairy industries have remained out of public scrutiny in terms of their significant climate impact.

For this to change, these companies must be held accountable for the emissions and they must have credible, independently verifiable emissions reductions strategy,” said Shefali Sharma, director of the Institute for Agriculture and Trade Policy European office. The new Coller FAIRR Protein Producers Index has examined the environmental and social commitments of 60 of the world’s largest meat and fish producers and found that more than half are failing to properly document their impact, despite their central role in our lives and societies.

Many of the names in the index will be unfamiliar, but their consolidated revenues of $300bn cover around one-fifth of the global livestock and aquaculture market – roughly one in every five burgers, steaks or fish. The companies looked at by the index include giants like the Australian Agricultural Company, which has the biggest cattle herd in the world; the Chinese WH Group, the largest global pork company; or the US’s Sandersons, which processes more than 10 million chickens a week.

This is the End of the Euro

May 252018

May 25, 2018 Posted by Raúl Ilargi Meijer at 2:20 pm Finance Tagged with: bonds, Draghi, ECB, euro, exchange rate, Germany, Italy, M5S, non-confidence, Rajoy, Spain, technology, trade 13 Responses »

René Magritte The therapeutist 1937

The Spanish government is about to fall after the Ciudadanos party decided to join PSOE (socialist) and Podemos in a non-confidence vote against PM Rajoy. Hmm, what would that mean for the Catalan politicians Rajoy is persecuting? The Spanish political crisis is inextricably linked to the Italian one, not even because they are so much alike, but because both combine to create huge financial uncertainty in the eurozone.

Sometimes it takes a little uproar to reveal the reality behind the curtain. Both countries, Italy perhaps some more than Spain, would long since have seen collapse if not for the ECB. In essence, Mario Draghi is buying up trillions in sovereign bonds to disguise the fact that the present construction of the euro makes it inevitable that the poorer south of Europe will lose against the north.

Club Med needs a mechanism to devalue their currencies from time to time to keep up. Signing up for the euro meant they lost that mechanism, and the currency itself doesn’t provide an alternative. The euro has become a cage, a prison for the poorer brethren, but if you look a bit further, it’s also a prison for Germany, which will be forced to either bail out Italy or crush it the way Greece was crushed.

Italy and Spain are much larger economies than Greece is, and therefore much larger problems. Problems that are about to become infinitely more painful then they would have been had the countries been able to devalue their currencies. If you want to define the main fault of the euro, it is that: it creates problems that would not have existed if the common currency itself didn’t. This was inevitable from the get-go. The fatal flaw was baked into the cake.

And if you think about it, today the need for a common currency has largely vanished anyway already. Anno 2018, people wouldn’t have to go to banks to exchange their deutschmarks or guilders or francs, they would either pay in plastic or get some local currency out of an ATM. All this could be done at automatically adjusting exchange rates without the use of all sorts of middlemen that existed when the euro was introduced.

Americans and British visiting Europe already use this exact same system. Governments can make strong deals that make it impossible for banks and credit card companies to charge more than, say, 1% or 0.5%, on exchange rate transactions. This would be good for all cross-border trade as well, it could be seamless.

Technology has eradicated the reason why the euro was introduced in the first place, and made it completely unnecessary. But the euro is here, and it is going to cause a lot more pain and mayhem. Any country that even thinks about leaving the system will be punished hard, even if that’s the by far more logical thing to do.

Europe is not ready to call for the end of the experiment. Because so much reputation and ego has been invested in it, and because the richer nations and their banks still benefit -hugely- from the problems the poorer face. The one country that got it right was Britain, when it decided to stay out of the eurozone.

But then they screwed up the next decision. And found themselves with the most incompetent ever group of ‘chosen few’ to handle the outcome. Still, anyone want to take out a bet on who’s going to be worse off when the euro whip comes down, Britain or for instance Italy or France? Not me. Close call is the best I can come up with.

The euro was devised and introduced, ostensibly, to solve problems. Problems with cross border trade between European nations, with exchange rates. But instead it has created a whole new set of problems that turn out to be much worse than the ones it was supposed to solve. That’s how and why M5S and the League got to form Italy’s government.

In Spain, if an election is called, and it looks that way, you will either get a left wing coalition or more of the Rajoy-style same. Left wing means problems with the EU, more of the same means domestic problems; the non-confidence vote comes on the heels of yet another corruption scandal for Rajoy’s party.

And let’s not forget that all economic numbers are being greatly embellished all over the continent. If you can claim with a straight face that the Greek economy is growing, anything goes. Same with Italy. It’s only been getting worse. And yeah, there’s a lot of corruption left in these countries, and yeah, Europe could have helped them solve that. Only, it hasn’t, that is not what Brussels focuses on.

Italy for now is the big Kahuna. The EU can’t save it if the new coalition is serious about its government program. But it also can’t NOT save it, because that would mean Italy leaving the euro. And perhaps the EU.

If Italian bonds are sufficiently downgraded by the markets, Mario Draghi’s ECB will no longer be permitted to purchase them. And access to other support programs would depend on doing the very opposite of what the M5S/League program spells out, which is to stimulate the domestic economy. Is that a bad idea? Hell no, it’s just that the eurozone rules forbid it.

The euro has entirely outlived its purpose, and then some. But it exists, and it will be incredibly painful to unravel. The new game for the north will be to unload as much of that pain as possible on the south.

Europe would have been much better off of it had never had the euro. But it does. The politicians and bankers will make sure they’re fine. But the people won’t be.

The euro will disappear because the reasons for it not to exist are much more pressing than for it to do. At least that bit is simple. The unwind will not be.

Debt Rattle April 16 2018

Apr 162018

April 16, 2018 Posted by Raúl Ilargi Meijer at 9:17 am Finance Tagged with: Comey, ECB, Facebook, Greece, Macron, Mueller, NATO, plastic, stock valuations, Trump, Turkey 5 Responses »

James McNeill Whistler Arrangement in Pink, Red and Purple 1883-4

• US Stock Valuations Are At Multiyear Highs – And Multiyear Lows (MW)

• Australia’s Lending Rules Are About to Batter Home Buyers (BBG)

• Macron Says He Convinced Trump To Stay In Syria (AFP)

• Trump Felt Misled, Angry Over Expulsion Of 60 Russian Diplomats (MW)

• Comey And Mueller Have Both Fallen Into Trump’s Trap (MW)

• A Third Of People Think Facebook Has A ‘Negative Impact On Society’ (MI)

• Who Owns The ‘Virtual You?’ (Escobar)

• How Many People Had Their Data Harvested By Cambridge Analytica? (G.)

• Where Does the ECB Go From Here? (Mervyn King)

• Stoltenberg Calls On NATO Allies To Provide More Support To Turkey (DS)

• Detained American Pastor Goes On Trial In Turkey (AFP)

• Greek-Turkish Tension ‘Not An Issue For NATO – Stoltenberg (K.)

• Greece Is Back in the Spotlight (BBG)

• Plastic Is Literally Everywhere: The Epidemic Attacking Australia’s Oceans (G.)

The new markets.

• US Stock Valuations Are At Multiyear Highs – And Multiyear Lows (MW)

With the start of the first-quarter earnings season, U.S. stock-market investors are waiting to see whether the results point to a business environment that is thriving and supportive of the market’s rally over the past several years, or whether the move has been overdone. Turns out, both bulls and bears have data they can marshal in their favor. According to data from FTSE Russell and Thomson Reuters, the U.S. stock market was recently trading at its most expensive levels since the dot-com era, and — even after the first correction for the DJIA and the S&P 500 in about two years — it continues to trade one standard deviation above a historical range. The data is based on the forward price-to-earnings ratio for stocks, which is currently above 17, compared with the long-term average of about 15.

This measure of valuation can be seen mapped out in the following chart. The recent peak of the forward P/E represented a nearly 20-year high, per FTSE Russell.

In another potential warning sign for investors, the cyclically-adjusted price-to-earnings (CAPE) ratio gives the S&P 500 a ratio of 31.6, nearly twice its long-term mean of 16.85, and at its highest level since the dot-com era. Both of these statistics may give investors pause, as they suggest a market’s that is overstretched and could have more room to fall. However, they only tell half the story. The forward P/E comes at a time when first-quarter earnings growth isn’t just expected to be strong, but coming in at its strongest rate in years. According to FactSet, earnings for companies in the S&P 500 are estimated to grow 17.3% in the first quarter, while sales grow 10%. For both, such rates would represent the fastest pace of growth since the first quarter of 2011.

Accounting for that high level of expansion paints a very different picture for stock valuations, so much so that they go from being at or near multiyear highs, to being at multiyear lows. FTSE Russell also provided the following chart to MarketWatch, which looks at the market in terms of its PEG, or a P/E ratio that accounts for earnings growth. Based on this metric, stocks have a PEG of 1.2, which means they’re not only trading one standard deviation below their long-term average of a little more than 1.3, but also at their cheapest level since 2012.

Really? Killing the golden eggs?

• Australia’s Lending Rules Are About to Batter Home Buyers (BBG)

A toughening of lax lending standards in Australia is threatening an already-cooling property market. An inquiry into misconduct in the financial industry is likely to lead to greater regulation of the nation’s A$1.6 trillion ($1.2 trillion) mortgage market. Banks have routinely relied on an unrealistically low estimate of homebuyers’ living expenses, and a more genuine assessment of spending could reduce borrowing power by as much as 35 percent, according to UBS analysts. That would mean many new buyers simply couldn’t afford current prices – a further drag on home prices that are already falling as a seven-year property boom tails off.

“What drives house prices is credit availability,” said Sean Fenton, director at Sydney-based Tribeca Investment Partners, which manages about A$2.5 billion. “A tightening of lending standards directly impacts the ability of the marginal buyer to buy a house.” The heat is already coming out of the housing market. Prices in Sydney, the world’s second-most expensive property market, fell 2.1 percent in March from a year earlier, according to CoreLogic Inc. A year ago, annual price growth was running at almost 16 percent. The top end of the market has recorded the biggest falls, the data shows.

[..] “It’s really obvious that a lot of people have a lot of unmanageable debt,” said Karen Cox, coordinator of Sydney’s Financial Rights Legal Centre, which fielded 25,000 calls last year from people seeking financial help. “Because it’s such a benign interest rate environment, the problems can only get worse.” Based on historic income and price relationships, property prices in Sydney and Melbourne are overvalued by between 25 percent and 30 percent, according to Paul Dales, chief Australian economist at Capital Economics. For now, he’s predicting prices will just edge lower, with the crunch coming if interest rate increases coincide with tighter credit conditions. “All properties in those cities are particularly vulnerable.”

Macron dreams big. About himself, mostly.

• Macron Says He Convinced Trump To Stay In Syria (AFP)

President Emmanuel Macron asserted Sunday that Paris had convinced Donald Trump to stay engaged in Syria “for the long-term”, adding that French air strikes did not amount to a declaration of war against the regime of Bashar al-Assad. A day after France joined the United States and Britain in launching unprecedented strikes against regime targets, Macron insisted the intervention was legitimate and urged international powers to now push for a diplomatic solution to the brutal seven-year war. “We have not declared war on the regime of Bashar al-Assad,” the 40-year-old centrist said at the start of a combative TV interview, stretching nearly three hours, to mark almost a year in office.

But Macron again argued his first major military intervention as president was necessary to send a signal that the use of chemical weapons against civilians would not go unpunished. Saturday’s strikes targeted three alleged chemical weapons facilities in response to what the West says was a gas attack on the town of Douma that killed dozens of people. “We have full international legitimacy in intervening in this case,” Macron said. He said the US, France and Britain targeted “extremely precise sites of chemical weapons use” in an operation that went off “perfectly”. And he further argued the operation was legitimate despite not being sanctioned by the UN, retorting that under a 2013 UN resolution Syria was supposed to destroy its chemical weapons arsenal. As for his allies, Macron suggested France played a pivotal role in changing Trump’s mind on the need to stay involved in the conflict.

Makes sense.

• Trump Felt Misled, Angry Over Expulsion Of 60 Russian Diplomats (MW)

President Donald Trump erupted in anger when he learned the U.S. was expelling 60 Russian diplomats in March, while France and Germany were only expelling four each, the Washington Post reported late Sunday. Trump reportedly only wanted to match the number of allies’ expulsions, and not to be seen as taking the lead. Trump believed his aides misled him, the Post said. “There were curse words,” one official told the Post, “a lot of curse words.” The expulsions were the most ever by the U.S. against Russia, and came in response to a suspected Russian nerve-agent attack on a former spy and his daughter in England. Separately, the Trump administration appears ready to impose more sanctions on Russia. Nikki Haley, the U.S. ambassador to the United Nations, said Sunday that a new round of sanctions will target Russian companies that aid Syria’s chemical weapons capabilities.

Playing on Trump’s field.

• Comey And Mueller Have Both Fallen Into Trump’s Trap (MW)

If there’s any strategy in the world of President Donald Trump, it’s a simple one: Play on my field. And the Trump playing field is a salacious one. The scandals and affairs are literally too numerous to be chronicled in a single article. Large and small, Trump University to Trump Steaks, bankruptcies and legal judgements, all manner of infidelity and aberrant behavior, real or imagined. Former FBI Director James Comey and Special Counsel Robert Mueller were each charged with looking into an allegation of the most serious variety — colluding with a foreign hostile power to alter the presidential election. This week the headlines emanating from Mueller’s investigation, and Comey’s book, involve a porn star, a Playboy bunny, a pee tape, the size of Trump’s hands and a doorman with a history of fibbing apparently alleging the existence of an illegitimate child.

That is playing on Trump’s field. But wait. Isn’t it a violation of campaign law if Trump’s lawyer Michael Cohen paid off Stormy Daniels just ahead of the election? If Cohen used a home-equity loan to fund the payment, did he lie to the bank? Doesn’t it speak to Trump’s truthfulness on a variety of a matters — including alleged collusion with Russia — whether his persistent denials of engaging with prostitutes in Moscow are truthful? Doesn’t it have relevance to the question of whether payoffs were legal if Trump bought off a doorman? And didn’t Mueller actually hand off the investigation on Daniels? Yeah, sure, all of that. Those are all on the level of the Ken Starr investigation into Bill Clinton’s perjury — legal matters, yes, that aren’t really the stuff of high crimes and misdemeanors.

They’re all gotchas reinforcing what we basically knew about Trump and his behavior before the election. By contrast, the consequences of playing on Trump’s field are enormous. For Comey, baiting Trump into a reaction, which sure as water is wet came on Friday morning, will result in better book sales. But it will come at the expense of holding any future higher office. His legacy as FBI director — already tarnished for the ridiculous, torturous inconsistencies in how he handled the investigation into Hillary Clinton’s emails — is forever tarnished. Who in Washington could hire this guy? “Untruthful,” as Trump called him? No. “Slime ball?” Hmm.

Mueller, too, looks set to emerge damaged, if perhaps not as fatally. The question of whether Trump can, or should, fire him has returned. Mueller, also a former FBI director, does still have the support of both House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell to finish his investigation, and a few key Republicans, including Sen. Chuck Grassley, have expressed willingness to support legislation to protect him. But the idea of his dismissal is definitely more plausible — and, for that matter, the outrage it would generate a good bit lessened.

“..how does it affect children, how does the platform create addiction..”

• A Third Of People Think Facebook Has A ‘Negative Impact On Society’ (MI)

Here’s another bone to pick with Facebook. Nearly one-third of Americans (31.7%) think the embattled social network is having a “negative impact on society,” according to a survey conducted in recent months by CEO Mark Zuckerberg’s former personal pollster, Tavis McGinn. That view was even more widely held among respondents in Australia (33.4%), Canada (33.3%) and the U.K. (32.2%), per the results reported by Recode. The survey research was conducted on 10,000 respondents across 10 nations in January and February, prior to recent revelations that the British data firm Cambridge Analytica had improperly harvested personal data from up to 87 million Facebook users to create targeted political ads.

Facebook had already come under fire for its role in the proliferation of fake news on the platform during the 2016 election. While McGinn and his Honest Data company didn’t delve into specifics of this “negative” societal impact, the pollster had some ideas. “In the U.S. obviously we’re very focused on election interference, and in the U.K. they’ve been focused on that as well with Brexit,” he told Recode. “But there are also things like, ‘how does it affect children, how does the platform create addiction, how does the platform encourage extremism, how does the platform push American values onto other countries?’”

Anyone but you does.

• Who Owns The ‘Virtual You?’ (Escobar)

While GAFA in the US essentially controls the politics limiting the capacity for regulation, Brussels will continue to insist the only path towards healthy regulation comes from the EU. The other model is of course China. Beijing has domesticated its sprawling digital industry – which is a de facto extension of the state apparatus as well as a growing instrument of global influence. When Zuckerberg was asked whether Facebook should be broken up – the monopoly issue once again – he said that would weaken the US’s competitive advantage against China, which by the way is fast disappearing. Facebook’s customer base though is not American; it’s global. Inside the Facebook HQ, the consensus is that it is a global company.

So all these issues at stake – from monopoly to regulation to privacy – are indeed global issues. Zuckerberg dodged extremely serious questions. Who owns “the virtual you?” Zuckerberg’s response was that you own all the “content” you upload, and can delete that content any time you want. Yet the heart of the matter is the advertising profile Facebook builds on each user. That simply cannot be deleted. And the user cannot alter it in any way. The GAFA galaxy, in fact, owns you when you click accepting those massive terms and conditions of use. As argued by philosopher Gaspard Koenig, director of the GenerationLibre think tank in France, data property should logically follow the evolution of property rights, land property, financial property and property of ideas, thus replacing the current figure of the “proletarian 2.0” at the heart of the value chain of the digital economy.

Why would the number be limited to Facebok’s users? Isn’t it clear yet? It’s everyone.

• How Many People Had Their Data Harvested By Cambridge Analytica? (G.)

Statistics are a staple of journalistic accuracy issues, but rarely is a number so big, consequential and hard to verify as the number of Facebook users directly affected by the still emerging Cambridge Analytica story. Is it no more than 30 million, as Cambridge Analytica says? Fifty million, as estimated by the Observer and Guardian journalists who have done so much to disclose the issue? Or 87 million, as Facebook has ventured? Facebook’s estimate has a fine-print caveat: “We do not know precisely what data the app shared with Cambridge Analytica or exactly how many people were impacted. Using as expansive a methodology as possible, this is our best estimate of the maximum number of unique accounts that directly installed the thisisyourdigitallife app as well as those whose data may have been shared with the app by their friends.”

The numbers seem to be calculated by multiplying the number of people known as “seeders” by the average number of Facebook friends seeders are thought to have. A seeder was a Facebook user who installed certain apps that permitted the apps’ controllers to harvest data from the user and the seeder’s (unknowing) Facebook friends. The wide variation in the estimates of people affected results partly from different estimates of seeders – 185,000, 275,000, 300,000 – and different average-number-of-friends figures – 160, 180, 250, 340.

Does it matter, in the sense that it is now evident that many, many other entities – academic, commercial, governmental – could have harvested the data of users under previous Facebook policies, for which Mark Zuckerberg, the company’s ethically callow controller, apologised before committees of the US Congress last week, without apparent loss of face? A sense of perspective was given by the Harvard professor Jonathan Zittrain, a sophisticated observer of the social and democratic impacts of digital technologies: “The Cambridge Analytica dataset from Facebook is itself but a lake within an ocean, a clarifying example of a pervasive but invisible ecosystem where thousands of firms possess billions of data points across hundreds of millions of people – and are able to do lots with it under the public radar.”

[..] Is it unreasonable to wonder whether the potential dataset for the team’s work is 2 billion, the total number of Facebook users?

Former BOE governor sees stormy days ahead. The ECB must save the euro system, and that won’t be easy.

• Where Does the ECB Go From Here? (Mervyn King)

Many observers have drawn comfort from the likelihood that Germany’s new “grand coalition” and French President Emmanuel Macron will indeed reform the basic architecture of monetary union. The language will be warm and encouraging, but the substance less so. In recent months I’ve been struck by the dissonance between, on the one hand, a common French and German determination to move ahead on the principle of reform to the monetary union, and, on the other, their governments’ clashing ideas about how to do it. Macron wants a fiscal union and a finance minister for the euro area. Germany doesn’t: It insists that countries must be responsible for their own fiscal position.

The likely compromise is that any fiscal transfers will be kept as small as possible – no larger than needed to get past the immediate problem. That might suffice in reasonably normal times, but not if market confidence disappears as it did in 2010-12. At that point, the issue can no longer be fudged. As these events unfold, Draghi and his successor, due to take over in October 2019, can expect to face many tests. The rise of populist parties in southern Europe is one — but the greatest challenge is likely to come from opinion in Germany. So far, the monetary union has been good for German exporters and politicians but less so for German consumers, who’ve been denied the higher standard of living that an appreciating currency would have delivered.

[..] U.S. President Lyndon B. Johnson famously remarked about his FBI Director J. Edgar Hoover: “It’s probably better to have him inside the tent pissing out, than outside the tent pissing in.” I’ve no doubt Johnson would be strongly recommending the appointment of Jens Weidmann, the current president of the Bundesbank, and I wouldn’t be surprised if Europe’s governments see it the same way. My advice to Jens? Think twice before accepting.

The NATO Secretary General is a dangerous man. He’s tasked with increasing NATO’s power.

• Stoltenberg Calls On NATO Allies To Provide More Support To Turkey (DS)

NATO Secretary General Jens Stoltenberg drew attention to already existing NATO presence in Turkey and called on all allies to provide more support to the country. “We also provide political support, because Turkey is the NATO ally that has suffered the most from terrorist attacks. NATO immediately condemned the coup attempt that targeted Turkey’s democratic institutions,” the secretary-general said. Stoltenberg spoke to Anadolu Agency (AA) at the NATO headquarters in Brussels ahead of his official visit to Turkey on April 16. The NATO chief said the aim of his trip to Ankara is to “to prepare for the upcoming [NATO] summit in Brussels in July..”

[..] Stoltenberg said he highly values the visit to Turkey, as he sees the country it is “a highly valued and key ally for many reasons, not just for its strategic location.” He added that during the visit he will “discuss the preparations for the important summit where we will address issues like how we continue to adapt NATO to a more demanding security environment.” He said that NATO functions with the solidarity principle “one for all and all for one” and added: “We have deployed missile batteries that are augmenting the missile air defenses of Turkey. We have Italy and Spain deploying Patriot batteries and also SAMP-T batteries, and we conduct surveillance flights with our AWACS planes over Turkey. We have also increased our naval presence in the eastern Mediterranean.

[..] When asked about NATO’s approach to Turkey’s Operation Olive Branch in northwestern Syrian region of Afrin, Stoltenberg said NATO welcomed Turkey’s transparency. “We’re aware that there are some challenges related to the situation in northern Syria and around Afrin. NATO has been a platform for direct dialogue between Turkey and the U.S. We recognize Turkey’s legitimate security concerns, which we expect to be addressed in a proportionate and measured way,” NATO chief said. “We all understand that Turkey has to address these threats. We welcome that Turkey has been transparent and briefed NATO several times on the operation in Afrin, both the military operations and the humanitarian assistance.”

Erdogan gambles on being needed by the US.

• Detained American Pastor Goes On Trial In Turkey (AFP)

An American pastor Monday went on trial in Turkey on terror-related charges after spending the last one-and-a-half years behind bars, in a case that has increased friction between Ankara and Washington. Andrew Brunson, who ran a protestant church in the western city of Izmir, was detained by Turkish authorities in October 2016 and then remanded in custody. If convicted, he risks up to 35 years in jail. Brunson, wearing a white shirt and a black suit, was present in court in the town of Aliaga north of Izmir for the hearing, an AFP correspondent said. In an indication of the importance of the case for Washington, also in court were Sam Brownback, the US ambassador at large for religious freedoms, and Senator Thom Tillis.

Turkish prosecutors have charged Brunson with engaging in activities on behalf of the group led by Muslim preacher Fethullah Gulen, who Ankara says is behind the failed 2016 coup, and the Kurdistan Workers’ Party (PKK). Both are banned by Turkey as terror groups. Brunson is also accused of espionage for political or military purposes. If convicted, he faces two separate terms of 15 years and 20 years in prison, his lawyer Cem Halavurt told AFP. [..] The Brunson case has further raised the temperature of heated relations between NATO allies Turkey and the United States, with US President Donald Trump raising the issue in talks with President Recep Tayyip Erdogan. Relations are already tense over American backing for a Kurdish militia in Syria despised by Ankara and the jailing of two employees at American missions in Turkey.

Gulen, who lives in self-exile in the US state of Pennsylvania, firmly denies any role in the failed coup and says his Hizmet (Service) movement promotes a peaceful form of Islam. Turkey has sent a spate of documents to back up its repeated request for Gulen’s extradition from the United States, which has so far shown no sign of interest in expelling the preacher. In September last year, Erdogan suggested that Turkey could free Brunson if Washington handed over Gulen, raising the idea of a swap deal. “They say ‘give us the pastor’. You have a preacher (Gulen) there. Give him to us, and we will try (Brunson) and give him back,” Erdogan said then. The idea was brushed off by the United States.

Turkey’s a neighbor of Syria. Stoltenberg will have no qualms about selling out Greece.

• Greek-Turkish Tension ‘Not An Issue For NATO – Stoltenberg (K.)

The leaders of Greece and Turkey need to address the issues that have been causing tension between the two countries in recent months and this is “not an issue for NATO,” the head of the alliance of which both countries are members said on Sunday. Speaking to Turkey’s Anadolou news agency ahead of a visit to Turkey on Monday, NATO Secretary-General Jens Stoltenberg said that Greece and Turkey are “two highly valued NATO allies” and “both contribute to our collective defense.” “I expect that the differences we see on some issues are solved between Turkey and Greece in the spirit of good relations,” he added.

“In this context, I welcome that the PMs of both countries have recently held a phone conversation and that they have agreed to resolve these differences through dialogue.” Stoltenberg’s visit is planned in preparation for a crucial NATO summit in Brussels in July, “where we will address issues like how we continue to adapt NATO to a more demanding security environment,” he said. Asked to respond to criticism that NATO is not doing enough to help Turkey in its fight against terrorism, Stoltenberg said “there’s a lot of NATO presence in Turkey but I call on the allies to provide even more support.” “We also provide political support, because Turkey is the NATO ally that has suffered the most from terrorist attacks,” the alliance chief told Anadolou.

Also about Turkey.

• Greece Is Back in the Spotlight (BBG)

Consider what Greek Prime Minister Alexis Tsipras is up against. As Greece prepares to free itself from an eight-year European bailout, its 43 year-old premier is confronting challenges at home and abroad. On the domestic front: preparations for post-bailout economic life and the first general election since the end of the program, including feuds with both allies and rivals. On the foreign-policy front: increased tensions with traditional rival Turkey and regional instability stemming from a dispute over a neighboring country’s name. Tsipras’s ability to navigate through all this could determine just how stable the country and its region will be in coming years, experts say, and the European Union, the U.S. and NATO are all watching with interest.

“The worst problem for Tsipras, for the government, but also for Greece is the evolving ‘rogueness’ of Turkey,” said Aristides Hatzis, a professor of law and economics at the University of Athens. “Diminishing American influence on the region is a destabilizing factor and the stakes are very high,” Hatzis said, adding that Greece is not a primary concern for Turkey, but a part of an overall plan by President Recep Tayyip Erdogan to establish hegemony in the region. Tensions between Greece and Turkey escalated in March after two Greek soldiers, who Greece says wandered across the border during a routine patrol, were arrested by Turkey. Greece has demanded their return. Relations between Greece and Turkey, always fraught, worsened further after a Greek court declined to extradite eight Turkish soldiers allegedly involved in a military coup attempt in July 2016.

“No location and no species is likely to remain immune for any period of time. It is ubiquitous. We are literally drowning in this stuff.”

• Plastic Is Literally Everywhere: The Epidemic Attacking Australia’s Oceans (G.)

The scientific literature is awash with research documenting plastics of all sizes in every environment that’s been studied – from the deep ocean to both the Arctic and Antarctic. Microplastic is the term used to describe any piece of plastic less than 5mm wide – it’s mostly the broken-apart remnants of straws, fishing nets and all manner of other plastic items, creating trillions of tiny pieces. Dr Jennifer Lavers, a marine biologist at the Institute for Marine and Antarctic Studies at the University of Tasmania, has spent the past 15 years studying the impacts of plastics.

In 2015 Lavers travelled to one of the most remote spots on the planet – the uninhabited Henderson Island in the middle of the Pacific – to find this world heritage-listed coral atoll’s beaches strewn with an estimated 37m pieces of plastic weighing about 17 tonnes – the equivalent of less than two seconds of global plastic production. Just one washed-up fishing net, barely a decade old, was disintegrating into trillions of plastic fibres that gave the surrounding sand a lucid green splash. “You can’t prepare yourself for moments like that,” she says.

Northern Australia is a known hotspot for these so-called “ghost nets” that are left to haunt the lives of marine animals. One project, GhostNets Australia, has collected more than 13,000 nets since 2004. A study analysed 9,000 nets found in the north of Australia and estimated that they alone had probably caught between 4,866 and 14,600 turtles. “Nowhere is safe, and plastic is literally everywhere,” says Lavers. “No location and no species is likely to remain immune for any period of time. It is ubiquitous. We are literally drowning in this stuff.”

Debt Rattle March 31 2018

Mar 312018

March 31, 2018 Posted by Raúl Ilargi Meijer at 10:08 am Finance Tagged with: Assange, bitcoin, China, dollar, dolphins, ECB, Ecuador, Libor, Mediterranean, Russia, social credit, Tesla, untrustworthy 11 Responses »

Giotto Lamentation 1306

• What Could Dethrone the Dollar as Top Reserve Currency? (WS)

• How Many Trillions In Debt Are Linked To Soaring LIBOR? (ZH)

• Bitcoin Is On Track For Its Worst First Quarter Ever (CNBC)

• Tesla’s ‘Day Of Reckoning’ Is Near (CNBC)

• ECB To Buy More German Bank Bonds To Keep Stimulus Flowing (R.)

• UK Must Bring Home ‘Just Over 50’ Of Its Diplomats From Russia (R.)

• Jammers Stop Assange From Using Internet (PA)

• China’s Social Credit System Punishes Untrustworthy Citizens (ABC.au)

• China ‘Environment Census’ Reveals 50% Rise In Pollution Sources (G.)

• Overfishing Turns Mediterranean Dolphins Into Thieves (Ind.)

Again: look at dollar-denominated debt in the world. And then check interest rates. The dollar will be in great demand.

• What Could Dethrone the Dollar as Top Reserve Currency? (WS)

What will finally pull the rug out from under the dollar’s hegemony? The euro? The Chinese yuan? Cryptocurrencies? The Greek drachma? Whatever it will be, and however fervently the death-of-the-dollar folks might wish for it, it’s not happening at the moment, according to the most recent data. The IMF just released its report, Currency Composition of Official Foreign Exchange Reserves (COFER) for the fourth quarter 2017. It should be said that the IMF is very economical with what it discloses. The COFER data for the individual countries – the total level of their reserve currencies and what currencies they hold – is “strictly confidential.” But we get to look at the global allocation by currency.

In Q4 2017, total global foreign exchange reserves, including all currencies, rose 6.6% year-over-year, or by $709 billion, to $11.42 trillion, right in the range of the past three years (from $10.7 trillion in Q4 2016 to $11.8 trillion in Q3, 2014). For reporting purposes, the IMF converts all currency balances into dollars. Dollar-denominated assets among foreign exchange reserves rose 14% year-over-year in Q4 to $6.28 trillion, and are up 42% from Q4 2014. There is no indication that global central banks have lost interest in the dollar; on the contrary:

Over the decades, there have been some efforts to topple the dollar’s hegemony as a global reserve currency, which it has maintained since World War II. The creation of the euro was the most successful such effort. Back in the day, the euro was supposed to reach “parity” with the dollar on the hegemony scale. And it edged up for a while until the euro debt crisis derailed those dreams. And now there’s the ballyhooed Chinese yuan. Effective October 1, 2016, the IMF added it to its currency basket, the Special Drawing Rights (SDR). This anointed the yuan as a global reserve currency. But not all central banks disclose to the IMF how their foreign exchange reserves are allocated. In Q4, the allocation of 12.3% of the reserves hadn’t been disclosed.

These “unallocated reserves” have been plunging. Back in Q4 2014, they still accounted for 41% of total reserves. They’re plunging because more central banks report to the IMF their allocation of foreign exchange reserves, and the COFER data is getting more detailed. So among the 87.7% of the “allocated” reserve currencies in Q4 2017, the pie was split up this way, with changes since 2014: Disappointingly for many folks, the Chinese yuan – the thin red sliver in the pie chart above — didn’t exactly soar since its inclusion in the SDR basket. Its share ticked up by a minuscule amount to a minuscule share of 1.2% of allocated foreign exchange reserves in Q4. In other words, central banks seem to lack a certain eagerness, if you will, to hold yuan-denominated assets.

Nobody has a clue why LIBOR rises, including whoever wrote this. A wild guess: $200 trillion?! It’s that dollar-denominated debt problem again.

• How Many Trillions In Debt Are Linked To Soaring LIBOR? (ZH)

[..] we have commented extensively on what may (or may not) be behind the Libor blow out: if as many claim, the move is a benign technicality and a temporary imbalance in money market supply and demand, largely a function of tax reform (including the Base Erosion Anti-Abuse Tax) or alternatively of the $300BN surge in T-Bill supply in the past month, the Libor move should start fading. If it doesn’t, it will be time to get nervous. But no matter what the reason is behind the Libor move, the reality is that financial conditions are far tighter as a result of the sharp move higher in short-term rates in general, and Libor in particular, which for at least a few more years, remains the benchmark rate referenced by trillions in fixed income instruments.

Which brings us to a logical follow up question: ignoring the reasons behind the move, how does a higher Libor rate spread throughout the financial system, and related to that, how much notional debt is at risk of paying far higher interest expense, if only temporarily, resulting in even tighter financial conditions. For the answer, we look at the various ways that Libor, and short-term rates in general “channel” into the economy. Here, as JPMorgan explains, the key driver is and always has been monetary policy, which controls short-term rates, which affect the economy via various channels and pathways.

45% feels like a lot.

• Bitcoin Is On Track For Its Worst First Quarter Ever (CNBC)

Bitcoin is having a terrible first quarter, in fact the worst its ever seen. The price of the cryptocurrency has fallen from $13,412.44 on January 1 to $7,266.07 on March 30, marking a more than 45% decline, according to data from CoinDesk, a site which tracks the price of different digital coins. The quarter ends on Saturday. So far this quarter, $114.9 billion of market capitalization or value has been wiped off of bitcoin. The price decline this quarter is the biggest first quarter decline in bitcoin’s history. The previous biggest decline was a near 38% fall in the price in the first quarter of 2014, according to data from CoinDesk. It tracks the price of bitcoin back to the middle of 2010.

CNBC looked at bitcoin’s price performance in the first quarters of each year beginning in 2011. Bitcoin has recorded a decline in 5 of the 8 first quarters tracked, which includes the current 2018 Q1. The biggest price rise was a 599% surge in the price of bitcoin in the first quarter of 2013. Bitcoin saw a huge run up in price in 2017 and hit a record high above $19,000 towards the end of last year. But it has faced tougher regulatory scrutiny in 2018 and some of the air has come out of the market. At a G-20 meeting this month, Argentina’s central bank governor outlined a summer deadline for members to have “specific recommendations on what to do” and said task forces are working to submit proposals by July. Italy’s central bank leader told reporters after the meeting in Buenos Aires, Argentina, that cryptocurrencies pose risks but should not be banned, according to Reuters.

What’s the recall of 123,000 cars going to cost?

• Tesla’s ‘Day Of Reckoning’ Is Near (CNBC)

Tesla’s big stock drop this month will have negative implications for its ability to raise critically-needed funds, according to Wall Street analysts. The company’s shares declined 22% in March on concerns over a fatal car crash in California last week and worries over its Model 3 production rate. Tesla’s 5.3% bond, issued last August and maturing in 2025, also fell 4% to 87.25 cents Wednesday with a yield of 7.6%, according to FactSet. The bond’s price declined 8% this month. Morgan Stanley on Wednesday warned Tesla shareholders the stock’s fall could be a “self-fulfilling” prophecy for further declines.

“A lower share price begets a lower share price … For a company widely expected to continue to fund its strategy through external capital raises, a fall in the share price can take on a self-fulfilling nature that further exacerbates the volatility of the share price,” analyst Adam Jonas wrote. Jonas said the company needs to accelerate its rate of Model 3 production if it wants to raise funds at an attractive price for the company. “The precise timing of when Tesla can achieve a 2,500/week and then a 5,000/week production run-rate for its mass market sedan can make the difference between whether Tesla is potentially raising capital from a position of weakness at a price near our $175 bear case or whether it can access capital from a position of strength with a stock price near our $561 bull case,” he wrote.

Another financial firm is already pessimistic over Telsa’s Model 3 manufacturing capability. Moody’s downgraded Tesla’s credit ratings after the close Tuesday and changed the outlook to negative from stable, citing the “significant shortfall” in the Model 3 production rate and its tight financial situation. Tesla had $3.4 billion in cash or cash equivalents at year end 2017. The company lost nearly $2 billion last year and burned about $3.4 billion in cash after capital investments. Given the company’s cash burn rate and how it has $230 million of debt due in Nov. 2018 and another $920 million in Mar. 2019, Moody’s believes the company has to raise new capital soon.

This is a week old, but we can’t repeat often enough how insane this is. Germany’s economy is supposedly soaring, but Draghi keeps saving its banks. “To boost inflation..” Bigger nonsense was never heard. Those banks are simply not doing well. But even then, let Germany solve the mess.

• ECB To Buy More German Bank Bonds To Keep Stimulus Flowing (R.)

The European Central Bank will start buying bonds from a further seven state-owned German banks under its stimulus program, it said on Thursday, in a bid to avoid running out of debt to buy after three years of massive purchases. The seven regional banks, which include the Investitionsbank Berlin and Bavaria’s LFA Förderbank Bayern, join a small group of German development lenders whose debt the ECB has already been buying as part of its efforts to boost inflation. The move slightly enlarges the pool of German debt which the ECB can tap as part of its 2.55 trillion euro ($3.14 trillion) quantitative easing scheme, thereby pushing back a looming cap on owning more than a third of any one country’s public debt.

With euro zone inflation now comfortably above 1%, the ECB is widely expected to wind down its bond purchases this year and even start raising interest rates towards the middle of 2019. With Germany running a fiscal surplus, however, finding enough German bonds to buy has already become harder for the ECB, which has reduced its purchases of debt from Europe’s largest economy more than for other large countries in recent months. The ECB has set out to buy government bonds in proportion to the amount of capital that each country has paid into the central bank, which in turn depends on the size of its economy. Deviations from this so called “capital key”, however, have been substantial, with France, Italy and Spain enjoying oversized purchases while smaller countries such as Estonia and Portugal have fallen behind.

And the whole time I’m thinking: why do they have so many people out there? What do they do all day long?

• UK Must Bring Home ‘Just Over 50’ Of Its Diplomats From Russia (R.)

Russia has told Britain it must send home “just over 50” more of its diplomats in a worsening standoff with the West over the poisoning of a former Russian spy and his daughter in Britain. Russia has already retaliated in kind against Britain and ejected 23 British diplomats over the poisoning of former Russian spy Sergei Skripal and his daughter Yulia. London says Moscow stood behind the attack, something Russia denies. British Ambassador Laurie Bristow was summoned again on Friday and told London had one month to cut its diplomatic contingent in Russia to the same size as the Russian mission in Britain.

On Saturday, Foreign Ministry Spokeswoman Maria Zakharova told Reuters that meant Britain would have to cut “a little over 50” of its diplomats in Russia. “We asked for parity. The Brits have 50 diplomats more than the Russians,” said Zakharova. When asked if that meant London would have to bring home exactly 50 diplomats, she said: “A little over 50.”

It doesn’t feel as if demanding internet access for Julian quite cuts it. He could be in much bigger trouble.

• Jammers Stop Assange From Using Internet (PA)

Electronic jammers have been placed inside the Ecuadorian embassy in London to prevent WikiLeaks founder Julian Assange having access to the internet or social media, sources say. The Ecuadorian government took the measure on Tuesday evening, stopping Assange from tweeting, using the internet or phone. He has also been refused any visitors to the embassy, where he has been living since June 2012, believing he will be extradited to the US for questioning over the activities of WikiLeaks if he leaves. The measures follow the publication of an article in the Ecuadorian press concerning Assange’s tweets about the arrest of former Catalan president Carles Puigdemont in Germany earlier this week.

In a phone call to Assange’s lawyer on Tuesday, an adviser to Ecuadorian Foreign Minister Maria Fernanda Espinosa said the WikiLeaks founder must stop tweeting about the Catalan issue. He was also asked to erase a tweet which said: “In 1940 the elected president of Catalonia, Lluis Companys, was captured by the Gestapo, at the request of Spain, delivered to them and executed. Today, German police have arrested the elected president of Catalonia, Carles Puigdemont, at the request of Spain, to be extradited.” Assange did not erase the tweet. His lawyer was told that a decision had been taken to isolate Assange by preventing him from communicating with the outside world and that this was “by order of the president”, say sources.

The serving Ecuadorian ambassador to Washington DC Francisco Carrion tweeted on Thursday: “The decision of the government of Ecuador to prevent Assange from tweeting is correct.” The Ecuador government said in a statement: “The government of Ecuador has suspended the systems that allow Julian Assange to communicate to the outside of the Ecuador embassy in London. “The measure was adopted due to Assange not complying with a written promise which he made with the government in late 2017, by which he was obliged not to send messages which entailed interference in relation to other states.” WikiLeaks sources said there was no such agreement.

Who needs Orwell? Or Facebook, for that matter?! Only difference is China does it openly.

• China’s Social Credit System Punishes Untrustworthy Citizens (ABC.au)

Chinese authorities claim they have banned more than 7 million people deemed “untrustworthy” from boarding flights, and nearly 3 million others from riding on high-speed trains, according to a report by the country’s National Development and Reform Commission. The announcements offer a glimpse into Beijing’s ambitious attempt to create a Social Credit System (SCS) by 2020 — that is, a proposed national system designed to value and engineer better individual behaviour by establishing the scores of 1.4 billion citizens and “awarding the trustworthy” and “punishing the disobedient”.

Liu Hu, a 43-year-old journalist who lives in China’s Chongqing municipality, told the ABC he was “dumbstruck” to find himself caught up in the system and banned by airlines when he tried to book a flight last year. Mr Liu is on a “dishonest personnel” list — a pilot scheme of the SCS — because he lost a defamation lawsuit in 2015 and was asked by the court to pay a fine that is still outstanding according to the court record. “No one ever notified me,” Mr Liu, who claims he paid the fine, said. Like the other 7 million citizens deemed to be “dishonest” and mired in the blacklist, Mr Liu has also been banned from staying in a star-rated hotel, buying a house, taking a holiday, and even sending his nine-year-old daughter to a private school. And just last Monday, Chinese authorities announced they would also seek to freeze the assets of those deemed “dishonest people”.

As the national system is still being fully realised, dozens of pilot social credit systems have already been tested by local governments at provincial and city levels. For example, Suzhou, a city in eastern China, uses a point system where every resident is rated on a scale between 0 and 200 points — every resident starts from the baseline of 100 points. One can earn bonus points for benevolent acts and lose points for disobeying laws, regulations, and social norms. According to a 2016 report by local police, the top-rated Suzhou citizen had 134 points for donating more than one litre of blood and doing more than 500 hours of volunteer work. The city said the next step was to use the credit system to punish people for transgressions such as dodging transport fares, cheating in video games, and restaurant no-shows.

Tried to make sense of this, several times. Still sounds entirely hollow.

• China ‘Environment Census’ Reveals 50% Rise In Pollution Sources (G.)

China’s environment ministry has said the number of sources of pollution in the country has increased by more than half in less than a decade. Releasing preliminary results of an ongoing “environmental census”, China’s ministry of ecology and environment said the number of sources of pollution in the country stands at about 9m, compared to 5.9m in its first census, in 2010. “The objectives and scope of the second census is different from those of the first one,” said Hong Yaxiong, head of the pollution survey at the ministry, Thursday. “But overall, there are more pollution sources.” The census did not say whether pollution had increased but declines in airborne pollution in major cities have been recorded in other studies.

Hong said factories flouting emissions standards were the main problem. The ministry found 7.4m sources of industrial pollution, compared to a million in rural areas and 500,000 in urban locations. Five years ago, China declared a “war against pollution.” Since then, new coal plants have been barred from opening and existing ones have been ordered to cut emissions. Major cities restrict the number of cars allowed on the roads. This past winter, residents in Beijing were left without heat after their coal boilers were removed. As part of the campaign, officials this month expanded the powers of the country’s 10-year-old ministry of environmental protection to include water management, emissions reductions, agricultural pollution, and other duties previously managed by half a dozen other ministries.

No, it’s not just the birds and the bees. Fish are gone too.

• Overfishing Turns Mediterranean Dolphins Into Thieves (Ind.)

Dolphins short on prey are resorting to underhand tactics to find a meal – tearing into nets to access the fish inside. Researchers studying interactions between dolphins and fishermen in northern Cyprus found nets were six times more prone to damage when dolphins were in the vicinity. They concluded that the marauding marine mammals were therefore the most likely culprits. “It seems that some dolphins may be actively seeking nets as a way to get food,” said Dr Robin Snape, an ecologist at the University of Exeter, who led the study. Net damage is irritating for the fishermen themselves, and can cost individuals thousands of euros every year. This is particularly problematic as most operations in the region are small scale.

However, the scientists suggested the fishermen must take some share of the blame, as overfishing in the region is a likely driver for the dolphins’ unusual behaviour. Dr Snape highlighted a “vicious cycle” that is “probably driven by falling fish stocks, which also result in low catches – meaning more nets are needed and higher costs for fishers”. “Effective management of fish stocks is urgently needed to address the overexploitation that is causing this vicious cycle,” he said.

Debt Rattle February 13 2018

Feb 132018

February 13, 2018 Posted by Raúl Ilargi Meijer at 10:58 am Finance Tagged with: ECB, fire sales, Greece, interest only, Novartis, Oxfam, peacekeepers, sex abuse, Unicef, VIX, whistleblower 4 Responses »

Camille Corot Study for “The Destruction of Sodom” 1843

• We Are Sitting On A “Full Tank Of Gas” (Roberts)

• ‘Whistleblower’ Alleges VIX Manipulation, Urges Regulatory Probe (R.)

• How A 5% Mortgage Rate Would Roil The US Housing Market (CNBC)

• Interest-Only Loan Cash Flow Crunch Sparks Fears Of Fire Sales (AFR)

• These Bonds Should Make ECB Hawks Apoplectic With Rage (BBG)

• China Real Estate Under Pressure (BBG)

• Greece Rocked By Claims Drug Giant Novartis Bribed Former Leaders (G.)

• Greece Is a Turkey, and the Market’s Going to the Dogs (BBG)

• An Englishman’s Home Is an Unreliable Pension Plan (BW)

• Charities Face Crackdown On ‘Horrific’ Culture Of Sexual Exploitation (Ind.)

• Unicef Admits Failings With Child Victims Of Sex Abuse By Peacekeepers (G.)

“Individuals just simply refuse to act “rationally” by holding their investments as they watch losses mount.”

• We Are Sitting On A “Full Tank Of Gas” (Roberts)

Yea….it’s that psychology thing. Individuals just simply refuse to act “rationally” by holding their investments as they watch losses mount. This behavioral bias of investors is one of the most serious risks arising from ETFs as the concentration of too much capital in too few places.

But this concentration risk in ETF’s is not the first time this has occurred: In the early 70’s it was the “Nifty Fifty” stocks, Then Mexican and Argentine bonds a few years after that; “Portfolio Insurance” was the “thing” in the mid -80’s; Dot.com anything was a great investment in 1999; Real estate has been a boom/bust cycle roughly every other decade, but 2006 was a doozy; Today, it’s ETF’s and Bitcoin.

Risk concentration always seems rational at the beginning, and the initial successes of the trends it creates can be self-reinforcing. Until it goes in the other direction. While the sell-off last week was not particularly unusual, it was the uniformity of the price moves which revealed the fallacy “passive investing” as investors headed for the door all at the same time. Such a uniform sell-off is indicative of what we have been warning about for the last several months. For price chasing investors, last week’s plunge should serve as a warning. “With everyone crowded into the ‘ETF Theater,’ the ‘exit’ problem should be of serious concern. Unfortunately, for most investors, they are likely stuck at the very back of the theater.

I warned of this previously: “At some point, that reversion process will take hold. It is then investor ‘psychology’ will collide with ‘margin debt’ and ETF liquidity. It will be the equivalent of striking a match, lighting a stick of dynamite and throwing it into a tanker full of gasoline. When the ‘herding’ into ETF’s begins to reverse, it will not be a slow and methodical process but rather a stampede with little regard to price, valuation or fundamental measures. Importantly, as prices decline it will trigger margin calls which will induce more indiscriminate selling. The forced redemption cycle will cause catastrophic spreads between the current bid and ask pricing for ETF’s.

As investors are forced to dump positions to meet margin calls, the lack of buyers will form a vacuum causing rapid price declines which leave investors helpless on the sidelines watching years of capital appreciation vanish in moments. Don’t believe me? It happened in 2008 as the ‘Lehman Moment’ left investors helpless watching the crash.” “Over a 3-week span, investors lost 29% of their capital and 44% over the entire 3-month period. This is what happens during a margin liquidation event. It is fast, furious and without remorse.” Make no mistake we are sitting on a “full tank of gas.”

No! “The flaw allows trading firms with advanced algorithms to move the VIX up or down by simply posting quotes on S&P options..”

• ‘Whistleblower’ Alleges VIX Manipulation, Urges Regulatory Probe (R.)

A scheme to manipulate Wall Street’s fear gauge, VIX, poses risk to the entire equity market and costs investors hundreds of millions of dollars a month, a law firm on behalf of an “anonymous whistleblower” told U.S. financial regulators and urged them to investigate before additional losses are suffered. The Washington-based law firm which represents an anonymous person who claims to have held senior roles in the investment business, told the Securities and Exchange Commission and Commodity Futures Trading Commission on Monday that he discovered a market manipulation scheme that takes advantage of a widespread flaw in the Chicago Board Options Exchange (CBOE) Volatility Index (VIX).

The CBOE Volatility Index measures the cost of buying options and is the most widely followed barometer of expected near-term stock market volatility. “The flaw allows trading firms with advanced algorithms to move the VIX up or down by simply posting quotes on S&P options and without needing to physically engage in any trading or deploying any capital,” it said in a letter. Those bets against volatility unraveled last week as the benchmark S&P 500 and the Dow Jones Industrial Average suffered their biggest respective percentage drops since August 2011. Investors using exchange-traded products linked to the VIX were pummeled and two banks, Credit Suisse and Nomura, said they would terminate two exchange traded notes that bet on low volatility in stock prices.

Try 6%, 7%.

• How A 5% Mortgage Rate Would Roil The US Housing Market (CNBC)

Mortgage rates are now at their highest level in four years and poised to move even higher. The timing couldn’t be worse, as the usually busy spring housing market kicked into gear early this year amid higher home prices and strong competition for a record low supply of homes for sale. Add it all up, and affordability is starting to hurt. The average rate on the popular 30-year fixed is now right around 4.50%, still low when looking historically, but buyers over the past six years have gotten more used to rates in the 3% range. Mortgage rates have not been at 5% since 2011. A 5% rate would cause more than a quarter of today’s homebuyers to slow their plans, according to a Redfin survey of 4,000 consumers at the end of last year. Just 6% said they would drop their plans to buy altogether.

About one-fifth of consumers said 5% rates would cause them to move with more urgency to purchase a home, fearing rates would rise even further. Another fifth said they would consider more affordable areas or just buy a smaller home. Despite rate concerns, the bigger issue for buyers is changes to tax laws that had lowered the cost of homeownership. Specifically, the deduction on property taxes is now limited to $10,000. While that does not affect homeowners in the majority of the country, it does hit those in high-cost states like New York, New Jersey and Illinois, and those in higher-priced housing markets like California. Some have claimed that higher rates and the new tax law will put downward pressure on home prices, alleviating some of the current sticker shock, but other factors are fighting that assertion.

“Tight credit, lack of inventory and high demand are the major factors that tell us there’s no housing bubble, despite rapid price increases,” said Redfin’s chief economist, Nela Richardson. “There are still many more buyers than the current housing supply can support, with no major relief in sight.”

From Australia. Check interest-only where you live. Big Threat.

• Interest-Only Loan Cash Flow Crunch Sparks Fears Of Fire Sales (AFR)

Interest-only property investors seeking to switch their loan to principal and interest may be forced to sell because of lenders’ tough new serviceability requirements. A typical borrower paying 4.5% on a $400,000 loan will have to prove to their lender they can meet repayments for a 7.25% loan, or an increase in annual repayments from $18,000 to more than $32,700. The higher serviceability rates have been introduced after many investors took out their loans and are forcing borrowers to try and sell their properties, despite markets beginning to soften. It’s worse for many self-managed super fund investors who bought investment properties and are boxed in from making bigger payments because of annual caps on the size of their contributions. Real estate agents are warning the cash flow crunch is causing mortgage stress to rapidly spread from one-time mining boom towns and the outer suburbs into prestigious inner suburbs.

“Clients are ringing to say they need to refinance and their next call is that they need to sell,” said Andrew Fawell, director of Beller Property Group. Mr Fawell, whose business covers inner Melbourne within 10 kilometres of the central business district, has been asked to value four potential mortgagee property sales in the past month after having none in the past two years. “Many investors who bought two or three apartments with, in many cases, only 10% deposit with cheap interest-only loans are beginning to feel the heat,” Mr Fawell said. “These numbers will get a lot worse as investors find it harder to service their debt.”

The potential problem arises for many three- to five-year fixed rate loans that have reached the end of their terms and the much stricter regime introduced by the Australian Prudential Regulation Authority. Many borrowers deposited only 10%. In recent years most major lenders have introduced a 7.25% “floor for serviceability” for investor and owner-occupier loans, which is the minimum rate at which the bank will assess a home loan. Serviceability is the lenders’ assessment of the borrowers’ capacity to afford the loan and takes into account possibly higher future interest rates. It is usually assessed by a review of income and fixed commitments over the life of the loan and potential rental income.

The ECB supports those parties that don’t need it.

• These Bonds Should Make ECB Hawks Apoplectic With Rage (BBG)

This is tapering? With the economic recovery well under way in Europe the European Central Bank has cut its government bond purchases by two-thirds. Fair enough. However, it is not reining in its involvement in company debt. The securities now comprise about 20% of monthly purchases, up from 7% at the start of the program in mid-2016. The total amount could top €200 billion ($244 billion) before quantitative easing ends. If it had any self-knowledge the ECB should be aware of the problems it’s creating. The fact that, by its purchases, it has soaked up all the liquidity in the secondary market and has had to turn to the primary market should be a warning sign. The central bank’s growing involvement in company borrowing should be causing ructions among the hawks on the Governing Council, who seem alive to the dangers of being late in withdrawing stimulus.

Yet their silence is deafening. Through QE the ECB has invested in over 230 individual companies, and with an average maturity of 5.6 years it’s impossible to see them as being exposed only in the short term. Performance has been decent – spreads have tightened on about three-quarters of its holdings. The odd misstep, such as having to liquidate Steinhoff or German fertilizer maker K+S bonds when they fell below investment grade, can be overlooked. The knock-on effect of such largess is that corporate bond spreads have had a seemingly unending streak of achieving record lows. Support for credit markets in times of strife is one thing. But driving outsized performance isn’t just storing up trouble for an individual company or investor for the future, it’s a reckless refusal to allow financial discipline to inform the decision making of actors in the financial system.

[..] The surge of demand for additional tier one bank capital is another particularly worrying phenomenon. Investors face a total loss if the issuing bank’s capital ratios fall below regulatory requirements. Raiffeisen Bank was able in January to issue an AT1 perpetual bond at 4.5%, having issued a similar 6.125% AT1 security in June. Though there was a one-notch credit-rating upgrade, that can hardly justify such an enormous improvement. And 4.5% can never be enough compensation for the risk of getting completely wiped out.

Now Beijing wants to push rental housing. Easier to control?

• China Real Estate Under Pressure (BBG)

While all eyes are on China’s stocks rout after the U.S. swoon, there’s a troubled sector that’s garnering fewer headlines but will have broader reverberations – real estate. Chinese property stocks slumped last week, dragged down not just by the global sell-off but by worries this may be the year when housing finally takes a hit. To date, Beijing’s crackdown on risk amid soaring household debt has had little effect on prices. December data showed values in small cities continued to rise, while they were mostly flat in top-tier conurbations like Guangzhou, Shenzhen and Beijing. There are several reasons, though, why the 13-year rally in house prices must end at some point. First, banks are making borrowing tough, not only raising costs for home loans but also restricting supply, especially in major centers such as Beijing and Shenzhen, under a semi-official mortgage quota.

Even last year’s stars, the second- and third-tier cities that led price gains, may fade as China curtails easy home loans that were intended to help soak up a glut of property. Downpayments there ranged between 20 and 30%, compared with 40 to 80% in top-tier locations, according to Credit Suisse. As the curbs bite, mortgage lending has started to decline. (The other plank of household debt, consumer lending, has been an even bigger problem, surging 180% last year, according to Credit Suisse.) Second, perhaps further down the line, a property tax is looming. Finance Minister Xiao Jie indicated this might happen as early as 2020. When President Xi Jinping exhorted people to remember that houses are for living, not speculation, real estate investors must have grown nervous; a tax will make them quake.

With few investment options available to individuals beyond the volatile stock market and wealth-management products (more and more of which are being banned), it’s no surprise that as much as 25% of the demand for real estate is speculative, according to Bloomberg Economics. Third, there’s the more immediate threat to real estate prices of a supply-side push by Beijing. The government is starting to shift from tamping down demand to promoting new housing. Among measures the government is promoting, according to BNP Paribas economist Chen Xingdong, is encouraging homes where the government and buyers share property rights, and even allowing state-owned firms to sell apartments to their employees. The government is also encouraging the growth of a rental market. While much of the current stock of rental housing is of poor quality, that’s likely to change.

And only now does this reach European media. The upshot: Novartis pulled the same stunt in South Korea.

• Greece Rocked By Claims Drug Giant Novartis Bribed Former Leaders (G.)

The Greek prime minister, Alexis Tsipras, has called for parliament to investigate whether two of his predecessors and eight former ministers accepted bribes from the Swiss drugmaker Novartis, after allegations of industrial-scale bribery involving senior politicians. The former PMs Antonis Samaras and Panagiotis Pikrammenos, the governor of the Bank of Greece and the EU’s migration commissioner were all identified as alleged beneficiaries of bribes in a report compiled by anti-corruption prosecutors with the help of US authorities. Novartis is alleged to have bribed politicians to approve overpriced contracts and to have made payments to thousands of doctors as part of concerted efforts to boost sales between 2006 to 2015.

The claims have rocked Greek society since coming to light last week. One serving government minister claimed the kickbacks surpassed €50m and resulted in costs of more than €4bn to the Greek public health system. The deputy justice minister, Dimitris Papangelopoulos, said it was “the biggest scandal since the establishment of the Greek state” almost 200 years ago. Widening the net on Monday, Tsipras said it was imperative there could be no cover-up. “We will make use of every power afforded by national and international law to recover the money stolen from the Greek people down to the last euro,” the leftist leader told MPs in his Syriza party. “We will do everything we can to reveal the truth.”

MPs will vote on establishing a committee of inquiry later this month. Only parliament has the power to investigate politicians for alleged infractions during their term in office. The allegations have been rebutted vehemently by the accused. The report’s reliance on three unnamed witnesses – who are currently under government protection – has been especially criticised, and legal experts contend that the claims would not stand up in court. The EU commissioner Dimitris Avramopoulos demanded that the identity of the witnesses be revealed and expressed his “disgust” at what he said were fabrications created by “sick minds”. He stands accused of purchasing 16m anti-flu vaccines from Novartis while health minister between 2006 and 2009. [..] Novartis has faced similar investigations in recent years. Last year South Korea fined the company $48m for offering kickbacks to doctors.

Just as Greece starts selling bonds again, it faces increasing competition,

• Greece Is a Turkey, and the Market’s Going to the Dogs (BBG)

Greece almost makes it look easy. It issued a new €3 billion ($3.7 billion) seven-year bond on Thursday, at a very healthy 3.5% yield, stepping into a briefly open window for raising money during the most torrid week for markets in years. The security is now trading very close to 4%. Ouch. The benefits of going ahead with the sale went to Greece rather than to investors. With a €6 billion order book there was no lack of demand – but there is buyer’s remorse now. It’s the first sovereign syndicated new issue to perform badly in Europe so far this year. This could make it troublesome for the region’s other governments to bring deals on top of an already-heavy regular auction schedule. Greece may just be one turkey, but investor demand is going to become a lot pickier.

And there’s plenty to choose from. Governments have been crowding out the syndicated new issue market even more this year, comprising 26.5% of deals versus an already-strong 23% at this stage in 2017. If supra-nationals and agencies are included then half of all new syndicated deals are from an official institution. It’s a curious result, given that the European new-issue market is supposed to be much more about companies. For example, the European Financial Stability Facility – created to fund Greece’s bailout – has already issued half of its €28 billion annual plan. The EFSF has come three times in 2018 with €13.5 billion in maturities ranging from 6 to 23 years. That is an almost indecent rush to complete its annual funding schedule as early as possible. It’s smart for the issuer – less so for the investor.

Borrowers can try to front-load sales in a low-rate environment, but with more central banks getting comfortable with tightening, investors are not going to play that game unless the yield is generous. It’s an increasing struggle, given that the German benchmark 10-year yield has risen sharply since the mid-December lows of 30 basis points. The yield famine is easing up.

What a shame: too late!

• An Englishman’s Home Is an Unreliable Pension Plan (BW)

“A man’s house is his castle,” Sir Edward Coke wrote back in the 17th century. These days, Britons are relying on their properties not just for refuge but also to fund their retirements. It’s a strategy that could backfire badly. Along with the rest of the world, the U.K. has an aging population: a growing number of retirees are being supported by a shrinking pool of workers. The U.K.’s dependency ratio – calculated by adding together the over 65s and under 15s, then dividing by the working-age population and multiplying by 100 – will rise to 60% by 2027. That’s up from 55% in 2017 and from 54% in 1997. As the pyramid grows more inverted, how does the top-heavy non-working cohort propose to finance a life of leisure and superannuation? By releasing the equity they expect to have accumulated in their homes once they’re ready to hit the golf course.

One in five Brits agreed with the statement “when I retire, I plan to sell my house, downsize and live off the profit,” according to a survey commissioned by pension consultants LCP from polling firm YouGov. That gamble seems unwise. In recent years home values, like global stock markets, only ever seemed to increase. But, again as with global stock markets, the notion of ever-rising prices has taken something of a beating recently. According to a report published on Monday, U.K. house prices posted their first annual decline in six years in January. Moreover, with wage growth in recent years failing to keep pace with either rising property prices or inflation, it’s become harder for those of working age to get on the housing ladder in the first place. And the percentage of under 34s who own their own homes has slumped in the past decade.

This is so sick it makes one silent.

• Charities Face Crackdown On ‘Horrific’ Culture Of Sexual Exploitation (Ind.)

British charities are facing a government crackdown to combat the “horrific” sexual exploitation exposed at Oxfam, amid concerns about a wider culture of abuse. All British charities working overseas have been ordered to provide “absolute assurances” that they are protecting vulnerable people and referring complaints to authorities. Oxfam’s deputy chief executive resigned during crisis talks with the Government, saying she took “full responsibility” for the alleged use of prostitutes by senior staff in Haiti. But aid workers told The Independent sexual misconduct against both locals and staff remains “widespread” in humanitarian agencies and called for wholesale reforms.

Penny Mordaunt, the International Development Secretary, has written a letter to all UK charities working overseas demanding “absolute assurance that the moral leadership, the systems, the culture and the transparency needed to fully protect vulnerable people are in place”. “It is not only Oxfam that must improve,” she said. “My absolute priority is to keep the world’s poorest and most vulnerable people safe from harm. In the 21st century, it is utterly despicable that sexual exploitation and abuse continues to exist in the aid sector.” The Department for International Development (Dfid) has created a new unit dedicated to reviewing safeguarding in the aid sector and stopping “criminal and predatory individuals” being employed by other charities.

[..] “Oxfam made a full and unqualified apology – to me, and to the people of Britain and Haiti – for the appalling behaviour of some of their staff in Haiti in 2011, and for the wider failings of their organisation’s response to it,” said Ms Mordaunt. “They spoke of the deep sense of disgrace and shame that they and their organisation feel about what has happened, and set out the actions they will now take to put things right and prevent such horrific abuses happening in future.“

It’s not just Oxfam, it’s an industry-wide culture.

• Unicef Admits Failings With Child Victims Of Sex Abuse By Peacekeepers (G.)

The UN’s children’s agency has admitted shortcomings in its humanitarian support to children who allege that they were raped and sexually abused by French peacekeepers in Central African Republic. A statement by Unicef Netherlands is the first public acknowledgement of the agency’s recent failure to provide support to some of the victims of alleged abuse by peacekeepers in the African nation. It comes as the aid sector and the UN face increasing scrutiny for their failings in managing internal sexual misconduct by their own staff. Unicef was given the task of overseeing the support for children who said they had been abused by peacekeepers.

But in March last year, an award-winning investigation by Swedish Television’s Uppdrag Granskning (Mission Investigate) revealed that some of the children supposedly in the UN’s care were homeless, out of school and forced to make a living on the streets, despite UN assurances that they would be protected. Unicef’s representative in CAR told the programme that the children were in the agency’s assistance programme for minors and were being supported. He said he was not aware that some were on the streets. But earlier this month – ahead of a Dutch screening of the programme – Unicef Netherlands admitted to the Dutch television programme Zembla that Unicef had failed in its duty to help some of the alleged victims. But it said that since the programme had first aired, it had taken steps to locate the children featured in the programme and provide them with support.

Marieke van Santen, of Zembla, said she found the Swedish film “astonishing” because the children who were interviewed were known to Unicef, yet they were not being cared for. Van Santen said: “It is quite shocking to realise that not only once but twice UN agencies have failed to help these victims.” The statement from Unicef Netherlands was welcomed by Karin Mattisson, a reporter for Mission Investigate. “I hope it makes a difference to the children and gives them strength. They have said they were failed,” said Mattisson.Several boys who testified to having been sexually assaulted by French soldiers were living rough, Mattisson found, while a girl, who became pregnant at the age of 14 by a Congolese peacekeeper and had later found out she was HIV-positive, was out of school looking after her baby. Another boy, aged eight, who was too traumatised to be interviewed, was in an orphanage. “I hope they live up to this statement,” she said. “When we investigated the UN and Unicef it was a long journey into their culture of silence.”

Debt Rattle February 8 2018

Feb 082018

February 8, 2018 Posted by Raúl Ilargi Meijer at 11:06 am Finance Tagged with: antibiotics, debt slaves, ECB, ISIS, plunge protection, QE, refugees, Tesla, Turkey 6 Responses »

Paul Gauguin A Day of No Gods 1894

• The State of the American Debt Slaves (WS)

• Reality Returns to Wall Street (Rickards)

• Plunge Protection Team To The Rescue- Again (PCR)

• Weidmann: ECB Should Wind Down QE After September (WSJ)

• Tesla Announces Biggest Quarterly Loss Ever (G.)

• Turkey Accused Of Recruiting ISIS Fighters To Attack Kurds In Syria (Ind.)

• Huge Levels Of Antibiotic Use In Us Farming Revealed (G.)

• Concerns Grow Over Conditions At Greek Refugee Camps (K.)

Behind the curtain.

• The State of the American Debt Slaves (WS)

Total consumer credit rose 5.4% in the fourth quarter, year over year, to a record $3.84 trillion not seasonally adjusted, according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. December had been somewhat of a disappointment for those that want consumers to drown in debt, but the prior months, starting in Q4 2016, had seen blistering surges of consumer debt. Think what you will of the election – consumers celebrated it or bemoaned it the American way: by piling on debt. The chart below shows the progression of consumer debt since 2006 (not seasonally adjusted). Note the slight dip after the Financial Crisis, as consumers deleveraged – with much of the deleveraging being accomplished by defaulting on those debts. But it didn’t last long. And consumer debt has surged since. It’s now 45% higher than it had been in Q4 2008. Food for thought: Over the period, the consumer price index increased 17.5%:

Credit card debt and other revolving credit in Q4 rose 6% year-over-year to $1.027 trillion, a blistering pace, but it was down from the 9.2% surge in Q3, the nearly 10% surge in Q2, and the dizzying 12% surge in Q1. So the growth of credit card debt in Q4 was somewhat of a disappointment for those wanting to see consumers drown in expensive debt. The chart below shows the leap of the past four quarters over prior years. This pushed credit card debt in Q3 and Q4 finally over the prior record set in Q4 2008 ($1.004 trillion), before it came tumbling down via said “deleveraging.” These are not seasonally adjusted numbers, and you can see the seasonal surges in credit card debt every Q4 during shopping season (as marked), and the drop afterwards in Q1. But then came 2017. In Q1 2017, credit card debt skyrocketed to an even higher level than Q4, when it should have normally plunged – a phenomenon I have not seen before.

This shows what kind of credit-card party 2017 and Q4 2016 was. Over the four quarter period, Americans added $58 billion to their credit card debt. Over the five-quarter period, they added $109 billion, or 12%! Celebration or retail therapy. Auto loans rose 3.8% in Q4 year-over-year to $1.114 trillion. It was one of the puniest increases since the auto crisis had ended in 2011. Since then, the year-over-year increases were mostly in the 6% to 9% range. These are loans and leases for new and used vehicles. So the weakness in new-vehicle sales volume in 2017 was covered up by price increases in both new and used vehicles in the second half and strong used-vehicle sales:

[..] Student loans surged 5.6% in Q4 year-over-year. This seems like a shocking increase, but the year-over-year increases in Q3 and Q4 were the only such increases below 6% in this data series. Between 2007 – as far back as year-over-year comparisons are possible in this data series – and Q3 2012, the year-over-year increases ranged from 11% to 15%:

It hasn’t yet though. Wall Street can’t handle reality.

• Reality Returns to Wall Street (Rickards)

In a recent article, Yale scholar Stephen Roach points out that between 2008 and 2017 the combined balance sheets of the central banks of the U.S., Japan and the eurozone expanded by $8.3 trillion, while nominal GDP in those same economies expanded $2.1 trillion. What happens when you print $8.3 trillion in money and only get $2.1 trillion of growth? What happened to the extra $6.2 trillion of printed money? The answer is that it went into assets. Stocks, bonds, emerging-market debt and real estate have all been pumped up by central bank money printing. What makes 2018 different from the prior 10 years? The answer is that this is the year the central banks stop printing and take away the punch bowl. The Fed is already destroying money (they do this by not rolling over maturing bonds).

Last week, the Fed reduced its balance sheet by $22 billion. While that doesn’t seem like much when you’re talking about a $4 trillion balance sheet, it was the Fed’s largest cut to date. Funny how the market hit the skids just after this happened. But you haven’t heard the mainstream media mention that. By the end of 2018, the annual pace of money destruction will be $600 billion — if the Fed under new chairman Jerome Powell stays on course. The ECB and Bank of Japan are not yet at the point of reducing money supply, but they have stopped expanding it and plan to reduce money supply later this year. In economics everything happens at the margin. When something is expanding and then stops expanding, the marginal impact is the same as shrinking. Apart from money supply, all of the major central banks are planning rate hikes, and some, such as those in the U.S. and U.K., are actually implementing them.

Reducing money supply and raising interest rates might be the right policy if price inflation were out of control. But despite a recent uptick in some inflation measures, prices have mostly been falling. The “inflation” hasn’t been in consumer prices; it’s in asset prices. The impact of money supply reduction and higher rates will be falling asset prices in stocks, bonds and real estate — the asset bubble in reverse. [..] This will not be a soft landing. The central banks — especially the U.S. Fed, first under Ben Bernanke and later under Janet Yellen — repeated Alan Greenspan’s blunder from 2005–06. Greenspan left rates too low for too long and got a monstrous bubble in residential real estate that led the financial world to the brink of total collapse in 2008. Bernanke and Yellen also left rates too low for too long. They should have started rate and balance sheet normalization in 2010 at the early stages of the current expansion when the economy could have borne it. They didn’t.

Obviously.

• Plunge Protection Team To The Rescue- Again (PCR)

What happened? Did the market sneeze, cough, or was something misread and today perceived in a different light? In my opinion this is what happened: The Plunge Protection Team, as they have done on previous equity market drops, or the Federal Reserve operating for the Working Group on Financial Markets, sent a purchase order for S&P futures to the trading floor. The hedge funds, seeing the incoming bid, front-ran the bid by stepping in and buying S&P futures. This pushed the market back up, ended the correction, and prevented financial panic.

The Plunge Protection Team was created in 1987, approaching the end of the Reagan administration, in order to prevent a market correction from costing George H. W. Bush the presidential election as Reagan’s successor. The Republican Establishment was desperate to reestablish its control over the party. The Republican Establishment, convinced by Wall Street that the Reagan tax cut would result in high inflation, found themselves instead confronted with a long economic expansion. In those days that meant that the expansion could be nearing its end, and a stock market correction could deny the presidency to George H.W. Bush. To prevent any such correction, the US Treasury and Federal Reserve created a “working group” to intervene in the stock market in order to support values. Whenever the market starts to drop, the team purchases S&P futures which halts the market decline.

We have witnessed this on several occasions. And, most likely, again this week. Pundits who speak about “market forces” are speaking about something that doesn’t exist. “Market forces” are the interventions that support existing values with money infusions. How long can the fraudulent valuation of equities continue? My sometimes coauthor Dave Kranzler and I think it can continue until the dollar as reserve currency comes under attack. Neither of us believed that the fraud could be perpetrated this long. The two other world powers, Russia and China, are moving away from use of the US dollar, but the consequence for the dollar could still be in the future. In the meantime, liquidity supplied by central banks and the interventions of the Plunge Protection Team could send equity prices higher.

Time to replace Draghi.

• Weidmann: ECB Should Wind Down QE After September (WSJ)

The European Central Bank should wind down its giant bond-buying program after September despite a stronger euro currency and volatility on global financial markets, German central bank President Jens Weidmann said Thursday. Speaking at a conference in Frankfurt, Mr. Weidmann, who sits on the ECB’s 25-member rate-setting committee, said “substantial net [asset] purchases beyond the announced amount do not seem to be required” if economic growth “progresses as currently expected.” ECB officials are weighing how quickly to phase out their stimulus policies as the region’s economy heats up. The ECB has pledged to buy €30 billion a month of eurozone bonds at least through September under its €2.5 trillion quantitative easing program, and ECB President Mario Draghi has signaled that the program won’t end abruptly.

Mr. Weidmann didn’t rule out a short extension of QE. But he argued that the eurozone’s economic recovery might be more advanced than that in the U.S. when the Fed wound down its own QE program in 2014. “The favorable economic outlook lends credence to the expectation that wage growth and therefore domestic price pressures will gradually increase,” Mr. Weidmann said. This week’s pay deal in Germany’s engineering sector “is consistent with this picture,” suggesting that inflation will pick up in Germany as unemployment falls, he said. Crucially, he urged policy makers not to be distracted by a rising euro or the situation in financial markets, which have gyrated wildly in recent days amid concerns about the reduction of monetary stimulus from central banks. “U.S. equity prices rose over a prolonged period without any notable corrections, which was unusual given that valuations have been high overall, Mr. Weidmann said.

There’s more to this than meets the eye. Expected loss was more than three times that. A mixed bag.

• Tesla Announces Biggest Quarterly Loss Ever (G.)

The tech billionaire Elon Musk sent one of his Tesla electric cars into space yesterday, a day before the company that built it announced its biggest ever quarterly loss. Musk’s Tesla electric car and energy storage company lost $675.4m in the three months ending 31 December, the company announced on Thursday, compared with a loss of $121m for the same period last year. The company has been spending heavily as it rolls out the next generation of electric cars, the Model 3 sedan, a semi truck and other products. The company has struggled to keep up with is production targets for the Model 3 but said it would probably build about 2,500 Model 3s per week by the end of the first quarter and that it plans to reach its goal of 5,000 vehicles per week by the end of the second quarter. On Wednesday Musk’s private aerospace company, SpaceX, blasted a cherry red Tesla Roadster sports car into space in a successful test of its Falcon Heavy rocket.

The car and its dummy driver are now heading towards the asteroid belt. Tesla delivered 101,312 Model S sedans and Model X SUVs last year, up 33% over 2016 and ahead of its targets, according to preliminary figures released last month. But it fell woefully short on the Model 3, which went into production in July. Tesla made just 2,425 Model 3s in the fourth quarter, and has pushed back production targets multiple times. At one point, Tesla had 500,000 people on a waiting list for the Model 3, but it’s not clear if all of them are continuing to wait. On a call with analysts Musk said production was getting back on track. “If we can send a Roadster to the asteroid belt we can probably solve Model 3 production,” he said. Musk is set to collect a $55.8bn (£40bn) bonus – probably be the largest ever – if he can build Tesla into a $650bn company over the next decade. In the meantime the 46-year-old has agreed to work unpaid for the next 10 years.

WIll it really require Russia to halt this disaster? The US can’t do it?

• Turkey Accused Of Recruiting ISIS Fighters To Attack Kurds In Syria (Ind.)

Turkey is recruiting and retraining Isis fighters to lead its invasion of the Kurdish enclave of Afrin in northern Syria, according to an ex-Isis source. “Most of those who are fighting in Afrin against the YPG [People’s Protection Units] are Isis, though Turkey has trained them to change their assault tactics,” said Faraj, a former Isis fighter from north-east Syria who remains in close touch with the jihadi movement. In a phone interview with The Independent, he added: “Turkey at the beginning of its operation tried to delude people by saying that it is fighting Isis, but actually they are training Isis members and sending them to Afrin.” An estimated 6,000 Turkish troops and 10,000 Free Syrian Army (FSA) militia crossed into Syria on 20 January, pledging to drive the YPG out of Afrin.

The attack was led by the FSA, which is a largely defunct umbrella grouping of non-Jihadi Syrian rebels once backed by the West. Now, most of its fighters taking part in Turkey’s “Operation Olive Branch” were, until recently, members of Isis. Some of the FSA troops advancing into Afrin are surprisingly open about their allegiance to al-Qaeda and its offshoots. A video posted online shows three uniformed jihadis singing a song in praise of their past battles and “how we were steadfast in Grozny (Chechnya) and Dagestan (north Caucasus). And we took Tora Bora (the former headquarters of Osama bin Laden). And now Afrin is calling to us”.

SImply refuse all US food imports. It’s not that hard.

• Huge Levels Of Antibiotic Use In Us Farming Revealed (G.)

Livestock raised for food in the US are dosed with five times as much antibiotic medicine as farm animals in the UK, new data has shown, raising questions about rules on meat imports under post-Brexit trade deals. The difference in rates of dosage rises to at least nine times as much in the case of cattle raised for beef, and may be as high as 16 times the rate of dosage per cow in the UK. There is currently a ban on imports of American beef throughout Europe, owing mainly to the free use of growth hormones in the US. Higher use of antibiotics, particularly those that are critical for human health – the medicines “of last resort”, which the WHO wants banned from use in animals – is associated with rising resistance to the drugs and the rapid evolution of “superbugs” that can kill or cause serious illness.

The contrast between rates of dosage in the US and the UK throws a new light on negotiations on Brexit, under which politicians are seeking to negotiate trade deals for the UK independently of the EU. Agriculture and food are key areas, particularly in trading with the US, which as part of any deal may insist on opening up the UK markets to imports that would be banned under EU rules. When negotiating outside the EU for a new trade deal, the UK will come under severe pressure to allow such imports. Over the summer, a row broke out over the potential for imports of US chlorinated chicken – bleaching chicken, according to experts in the UK, is a dangerous practice because it can serve to disguise poor hygiene practices in the food chain.

But Ted McKinney, US under-secretary for trade and foreign agricultural affairs, told an audience of British farmers last month he was “sick and tired” of hearing British concerns about chlorinated chicken and US food standards, providing further indication that the US government is likely to strike a hard deal on agricultural products as part of any trade agreement. Antibiotic use in the US is three times higher in chickens than it is in the UK, double that for pigs, and five times higher for turkeys, according to research by the Alliance to Save Our Antibiotics [..]

Suzi Shingler, at the Alliance to Save Our Antibiotics, said: “US cattle farmers are massively overusing antibiotics. This finding shows the huge advantages of British beef, which is often from grass-reared animals, whereas US cattle are usually finished in intensive feedlots. Trade negotiators who may be tempted to lift the ban on US beef should not only be considering the impact of growth hormones, but also of antibiotic resistance due to rampant antibiotic use.”

Gorundhog Day in all its glory.

• Concerns Grow Over Conditions At Greek Refugee Camps (K.)

Concerns are rising about conditions at reception centers for migrants on the islands of the eastern Aegean amid delays in much-needed infrastructure upgrades and increasingly cramped conditions, with reports of a spike in cases of mental health problems. Last summer, authorities completed a feasibility study for an upgrade of the drainage and sewerage systems at Moria, the main reception center on Lesvos. But the plan appears to have become mired in bureaucracy. Originally designed to house 1,000 migrants, the camp at Moria is currently hosting nearly seven times that number. The overcrowded and dirty conditions, and the uncertainty, are taking their toll on the mental health of many camp residents, Gavriil Sakellaridis, the head of Amnesty International’s Greek chapter, said on Wednesday.

Following a visit to camps on Lesvos and Chios, Sakellaridis expressed concern at the large number of migrants suffering from depression and called for the transfer of asylum seekers to the mainland. “The living conditions of asylum seekers at Moria and Vial [on Chios] are an open wound for Greece and Europe and for human rights,” Sakellaridis said. “The lives of those people have been put on hold for a period of up to two years in some cases and as a result the cases of despair and mental distress are growing,” he said.

Debt Rattle January 29 2018

Jan 292018

January 29, 2018 Posted by Raúl Ilargi Meijer at 11:10 am Finance Tagged with: 5G, arms, bond yields, Brexit, debt relief, diesel, ECB, Facebook, QE, squalid, Trump, VW 11 Responses »

Fratelli Alinari Delphi c1920

• German Carmakers Take Another Hit With Diesel Testing on Monkeys, Humans (BBG)

• The Risks Facing Global Stocks As Money Printing Comes To An End (BI)

• Fire Sale By The Treasury Could Send Shock Waves Through Bond Market (CNBC)

• The Donald’s Davos Delusions (David Stockman)

• ECB’s Knot Says QE Must End ‘As Soon As Possible’ (BBG)

• The ECB And The Euro Are The Only Glue Holding Parts Of Europe Together (CNBC)

• Trump Administration Ponders Nationalizing 5G Mobile Network (CNBC)

• Facebook Makes Privacy Push Ahead Of Strict EU Law (R.)

• Hundreds Of Thousands Living In Squalid Rented Homes In England (G.)

• UK Brexit Bill ‘Constitutionally Unacceptable’ – House of Lords (Ind.)

• Australia Unveils Plan To Become One Of World’s Top 10 Arms Exporters (G.)

• Greek Debt Relief Will Depend On Continued Reforms – Regling (K.)

They get together to set up a testing group, but carefully far enough removed from their structures to deny any responsibility. “We paid millions into it, but we have no idea what they do”. And they will escape any real punishment. TBTF. Testing carcinogenics on people. In the past 10 years.

• German Carmakers Take Another Hit With Diesel Testing on Monkeys, Humans (BBG)

The reputation of Germany’s auto industry took a fresh hit from revelations it sponsored tests that exposed humans as well as monkeys to diesel exhaust fumes, which can cause respiratory illness and cancer. The study, supported by a little-known group founded by Volkswagen, Daimler and BMW in 2007, had 25 people breathe in diesel exhaust at a clinic used by the University of Aachen, Stuttgarter Zeitung reported Monday. The story, citing annual reports from the European Research Group on Environment and Health in the Transport Sector, or EUGT, which closed last year, followed a New York Times report earlier that the organization also conducted tests using monkeys. Germany’s auto industry, which is still reeling from Volkswagen’s diesel-cheating scandal where the company rigged emissions tests, distanced itself from the organization.

“We are appalled by the extent of the studies and their implementation,” Daimler said Monday in an emailed statement, adding it didn’t have any influence over the study and promised an investigation. “We condemn the experiments in the strongest terms.” The revelations are another bombshell undermining diesel’s image. The technology remains a key profit driver for German automakers, even as demand gradually slips in Europe, the main market for the diesel models. The reports also weaken the carmakers’ position in its efforts to counter criticism of the technology as cities mull bans and German politicians weigh more stringent upgrades to lower pollution levels. In an additional twist, the VW Beetle model used in the test with animals was among the vehicles rigged to cheat on emissions tests, the New York Times reported. Volkswagen apologized for the misconduct and lack of judgment of some individuals, calling the trials a mistake. VW on Monday again distanced itself from the activities of the group.

That rumbling roar in the distance.

• The Risks Facing Global Stocks As Money Printing Comes To An End (BI)

“Correlation does not imply causation” is a vital principle of statistics and numerical models which reminds us that just because two things correlate doesn’t mean one causes the other. For many investors, they’ll be hoping that the correlation shown in the chart below is not a sign for things to come for stock market returns. Because if this correlation holds, things could be about to get nasty. The chart, from Citi, shows the rolling annual change in central bank asset purchases overlaid against annual returns for the MSCI World Stock Market Index since the depths of the global financial crisis back in early 2009. Clearly, as asset purchase levels have changed, so too has the performance of global stocks, tending to rise when asset purchases increase and fall when asset purchases decline.

Until recently that is. As shown in the red circle on the chart, despite a recent deceleration in central bank purchases, stock market returns have actually increased recently, bucking the trend seen over much of the past nine years. “In a world where the global CB taper is well underway — and in any case largely announced — stocks are seemingly starting to decouple from the bearish implication of [the chart],” says Citi. “As we had hoped, in a strong cyclical backdrop, with earnings coming in strong, markets can focus on underlying fundamentals rather than the reduction in central bank accommodation.” Central bank asset purchases set to slow sharply over the next year, as seen in the dotted black line in the chart. If the relationship between asset purchases and stock market returns were to snap back into place, it suggests that stocks could fall by close to 50% over the next year or so. 50%!

To be clear, Citi isn’t saying that’s going to happen, but it is a reminder that we’re entering uncharted territory for financial markets. Ultra-easy monetary policy settings are slowly being reversed, and no one is really certain as to how it will all play out. Adding to the intrigue, it’s clear from this other chart from Citi that while stocks recently disconnected from central bank asset purchases, corporate credit markets have not, with spread compression in investment grade debt starting to reverse in line with lower asset purchases.

Bond yields are already soaring. Does the Fed have any control left, or is this it?

• Fire Sale By The Treasury Could Send Shock Waves Through Bond Market (CNBC)

Wells Fargo’s head of interest rate strategy is detecting a major trouble spot in the bond market. Michael Schumacher’s chief concern right now: Who’s going to buy all those extra Treasury notes? “They [people] are worried about Treasury issuance going up, up, up. You could see an increase in 2018 of 50% — maybe more versus last year. That’s got a lot of people very concerned, myself included,” he said recently on CNBC’s “Futures Now.” He anticipates the Treasury Department will likely announce within days a “pretty significant change” in the way it issues bonds. It comes just as the Fed is shrinking its balance sheet. With less demand coming from the Fed, a fire sale of sorts would increase supply and emerge as the major catalyst causing yields to jump.

“You could see a pretty significant sell-off not just in the 10-year, which people focus on quite a bit, but also on 30-year bonds. We’re very concerned about that,” Schumacher said. “Being the bond nerd that I am, I’d say the market wants to climb a wall of worry like it does in stocks.” Right now, 10-year Treasury yields are bouncing around 2.6% — up nearly 40 basis points during the past six months. Schumacher’s year-end forecast on the note is 2.95%. But he believes it’s not unreasonable to expect rates to push 3.25%. “Something around that level probably does get people pretty worked up. And, it’s such a contrast versus last year when bonds did very, very little,” he said. Yields for 30-year Treasurys, essentially flat for the past six months, appear to be waking up. They’re up about 17 basis points this year.

Too much swamp to be drained.

• The Donald’s Davos Delusions (David Stockman)

[..] above all else, the Donald has whiffed entirely on what is really killing the American economy. That is, the nation’s out-of-control central bank. Via its massive falsification of financial asset prices, the Fed has turned Wall Street into a gambling casino, the corporate C-suites into financial engineering joints and Washington into a profligate den of debt addicts. Likewise, its idiotic pursuit of more inflation (2%) through 100 straight months of ZIRP (or near zero interest rates) has savaged retirees and savers, enriched gamblers and leverage artists, eroded the purchasing power of stagnant worker paychecks and unleashed virulent speculation and malinvestment throughout the warp and woof of the financial system.

Of course, we did not really expect the Donald to take on the money printers – notwithstanding his campaign rhetoric about “one big, fat, ugly bubble”. After all, Trump has always claimed to be a “low interest man” and he did spend 40 years getting the worst financial education possible. To wit, he rode the Fed’s easy money fueled real estate bubble to a multi-billion net worth, or so he claims, and pronounced himself a business genius – mostly by virtue of piling cheap debt upon his properties and reaping the windfall gains. Stated differently, the Donald came to office wholly unacquainted with any notion of sound money and free market financial discipline. And now he has spent a year proving he is completely clueless as to why Flyover America has been shafted economically.

Rather than the top-to-bottom housecleaning that the Eccles Building desperately needed, Trump actually appointed a pedigreed Keynesian crony capitalist Washington lifer, Jerome Powell, to chair the Fed. Then and there, and whether he understood it or not (he didn’t), the Donald surrendered to the permanent rulers of the Imperial City. That’s because at the end of the day, it was the Fed’s serial financial bubbles and massive monetization of the public debt that has enabled Washington’s imperial hegemony abroad, welfare state largesse at home and the egregious inflation of financial asset prices for the rich and the bicoastal elites coupled to them.

Knot is from Holland, an export-dependent country that suffers from a strong euro.

• ECB’s Knot Says QE Must End ‘As Soon As Possible’ (BBG)

The European Central Bank has to end its quantitative easing as soon as possible, according to ECB Governing Council member Klaas Knot, who said there’s not a single reason anymore to continue with the program. “The program has done what could realistically be expected of it,” Knot, who also heads the Dutch Central Bank, said in an interview on the television talk show Buitenhof on Sunday. The ECB is inching closer to unwinding unprecedented stimulus. At their December meeting, officials held out the prospect of a change in policy language early in the year, and some governors have since expressed their favor for taking a first step in March. While President Mario Draghi said Thursday that confidence in a sustained pickup in inflation has increased, patience and persistence are still warranted as progress so far remains muted.

“The program is fixed until September,” Knot said, with Draghi’s reasoning being that the central bank doesn’t have to commit yet to what will happen after that month. “We don’t have to communicate yet that it will be over after September, but I think that’s where we’re headed.” He said there is enough proof to make that clear. [..] Knot said the lack of commitment to any communication by the ECB as to what might happen to the QE program beyond September could have a dampening affect on the euro. A 6% surge in the euro since mid-December is threatening to become a thorn in the economy’s side if it curbs exports and damps prices.

And that’s definitely not enough.

• The ECB And The Euro Are The Only Glue Holding Parts Of Europe Together (CNBC)

Many German political observers estimate that, under the best circumstances, their country is unlikely to have a new three-party coalition government before Easter — April 1. They realize that this might be an optimistic forecast given the fundamental differences separating those who want a status quo stability (two right-wing parties) and a radical change of “governing culture” (the left-wing Social Democratic Party of Germany). Expectations are so dire, and so low, that the unfolding political events in Germany could mean the end of stability in the entire EU. In spite of that, the euro was soaring last Thursday to $1.2537 during the press conference at the European Central Bank. That was the highest reading since the middle of December 2014. And that had little to do with the talking down of the dollar by a U.S. delegation having fun in the Alps.

As of last Friday, the euro was up 16% against the dollar and 5.4% in trade-weighted terms since the Trump administration came to power a year ago. That puzzling paradox of a strong currency in a politically disintegrating economic system owes mainly to the euro area’s improving cyclical growth dynamics, engineered by a supportive monetary policy, and to trading bets ignoring the convulsions of the European project. The project in question has been a difficult work-in-progress for the past 59 years, as the relentless French-German rivalry failed to define mutually acceptable terms for a fairy tale called the European economic and political union. The euro is a result of such a political struggle between the two nations: Fearful of an overwhelming power of a reunited Germany, France insisted on a monetary union to dilute the influence of its erstwhile arch-enemy across the Rhine.

Reluctantly, Germany accepted to part with the Deutsche mark while imposing a legal and institutional infrastructure that would make the euro a clone of it. And to make sure that happened, Germany dictated the rules for the ECB — a supra-national institution and the world’s only genuinely independent monetary authority. Born out of fear of German domination, the euro is, arguably, the only major achievement of a project that was supposed to make another French-German war an impossibility. Still, a war by other means did happen, and France, Italy, Spain, Portugal, Ireland and Greece – 54% of the euro area GDP – have only the ECB to thank for rescuing them from an assault of disastrous German-imposed austerity policies.

When will we talk about making Facebook a public utility?

• Trump Administration Ponders Nationalizing 5G Mobile Network (CNBC)

National security officials in the Trump administration are looking at options where the U.S. government could take over a part of the country’s mobile network as a way of guarding against China, news outlet Axios reported. Axios, citing sensitive documents it obtained, said there are two options up for consideration: First, the U.S. government could pay for and build a single, super-fast mobile network and could then rent access to national carriers. The move, according to Axios, could see an unprecedented nationalization of infrastructure that has historically been privately-owned. But, the news outlet reported, a source familiar with the matter said a newer version of the document is neutral about whether the government should build and own such a network.

The alternative, according to Axios, is that wireless providers in the U.S. build their own 5G networks that would compete with one another — an option the document said could be costly and more time-consuming, but would be less commercially disruptive to the industry. The reason for even considering nationalization of part of the system is that China “has achieved a dominant position in the manufacture and operation of network infrastructure” and it’s “the dominant malicious actor in the Information Domain,” the document said, according to Axios. Reuters reported that a senior administration official on Sunday said that the government wants to build a secure 5G network and it’ll have to work with the industry to figure out the best way to do it. “We want to build a network so the Chinese can’t listen to your calls,” the official told Reuters.

“We have to have a secure network that doesn’t allow bad actors to get in. We also have to ensure the Chinese don’t take over the market and put every non-5G network out of business.” The matter was being debated at a lower level, the official said to Reuters, adding that it would take between six to eight months before it reaches President Donald Trump for consideration. The fifth generation (hence the 5G name) of mobile networks aims to provide faster data speeds and more bandwidth to carry ever-growing levels of web traffic. Late last year, the first specification for 5G was completed, which was considered a huge step toward commercializing the technology. Market watchers have predicted the technology will have more than one billion users by 2023, with more than half based in China. U.S. carriers are already working on deploying 5G networks.

Facebook gets nervous.

• Facebook Makes Privacy Push Ahead Of Strict EU Law (R.)

Facebook said on Monday it was publishing its privacy principles for the first time and rolling out educational videos to help users control who has access to their information, as it prepares for the start of a tough new EU data protection law. The videos will show users how to manage the data that Facebook uses to show them ads, how to delete old posts, and what happens to the data when they delete their account, Erin Egan, chief privacy officer at Facebook, said in a blog post. Facebook, which has more than 2 billion users worldwide, said it had never before published the principles, which are its rules on how the company handles users’ information.

Monday’s announcements are a sign of its efforts to get ready before the European Union’s General Data Protection Regulation (GDPR) enters into force on May 25, marking the biggest overhaul of personal data privacy rules since the birth of the internet. Under GDPR, companies will be required to report data breaches within 72 hours, as well as to allow customers to export their data and delete it. Facebook’s privacy principles, which are separate from the user terms and conditions that are agreed when someone opens an account, range from giving users control of their privacy, to building privacy features into Facebook products from the outset, to users owning the information they share. “We recognize that people use Facebook to connect, but not everyone wants to share everything with everyone – including with us. It’s important that you have choices when it comes to how your data is used,” Egan wrote.

No-one can be surprised by this anymore: “..Rats, mouldy walls, exposed electrical wiring, leaking roofs and broken locks ..” and “..holes in external walls, insect-infested beds, water pouring through ceilings and mould-covered kitchens ..”

• Hundreds Of Thousands Living In Squalid Rented Homes In England (G.)

Rented housing so squalid it is likely to leave tenants requiring medical attention is being endured by hundreds of thousands of young adults in England, an analysis of government figures has revealed. Rats, mouldy walls, exposed electrical wiring, leaking roofs and broken locks are among problems blighting an estimated 338,000 homes rented by people under 35 that have been deemed so hazardous they are likely to cause harm. It is likely to mean that over half a million people are starting their adult lives in such conditions, amid a worsening housing shortage and rising rents, which are up 15% across the UK in the last seven years. Visits by the Guardian to properties where tenants are paying private landlords up to £1,100 a month have revealed holes in external walls, insect-infested beds, water pouring through ceilings and mould-covered kitchens.

A 30-year-old mother near Bristol said her home is so damp that her child’s cot rotted. A 34-year-old woman in Luton told of living with no heating and infestations of rats and cockroaches, while a 24-year-old mother from Kent said she lived in a damp flat with no heating and defective wiring for a year before it was condemned. “Young adults have very little option but to rent from a private landlord, so we should at least expect a decent home in return for what we pay,” said Dan Wilson Craw, director of the Generation Rent campaign group. “Relying on cash-strapped councils to enforce our rights means that too many of us are stuck with unsafe housing.” The extent of the impact on young people emerged as a cross-party bid to give tenants new powers to hit back against rogue landlords gathers strength.

And the House of Commons passed the bill without noticing?!

• UK Brexit Bill ‘Constitutionally Unacceptable’ – House of Lords (Ind.)

An influential group of peers have warned Theresa May’s flagship Brexit legislation is “constitutionally unacceptable” and will need to be substantially rewritten. The stark warning comes as peers in the upper chamber gear up to begin the lengthy process of debating the legislation – passed with a seal of approval from the Commons earlier this month. The EU (Withdrawal) Bill seeks to transpose all existing EU law onto the UK statue book in time for Britain formally leaving the bloc in March 2019. More than 180 members are already lined up to speak during the two-day debate accompanying the legislation’s second reading this Tuesday and Wednesday, and there are likely to be impassioned interventions from both prominent Leave and Remain voices.

But peers on the Lords Constitution Committee warn in a report to be released on Monday that, while the legislation is necessary to ensure legal continuity after Brexit, it has “fundamental flaws” in its current state. The committee claims that at present the bill risks “undermining the legal certainty it seeks to provide” and gives “overly broad” powers to government ministers. Baroness Taylor of Bolton, who chairs the committee, said: “We acknowledge the scale, challenge and unprecedented nature of the task of converting existing EU law into UK law, but as it stands this bill is constitutionally unacceptable. “In our two previous reports we highlighted the issues this raised and we are disappointed that the Government has not acted on a number of our recommendations.

Words fail.

• Australia Unveils Plan To Become One Of World’s Top 10 Arms Exporters (G.)

Australia is set to become one of the world’s largest arms exporters under a controversial Turnbull government plan. The prime minister, Malcolm Turnbull, has unveiled a new “defence export strategy” setting out the policy and strategy to make Australia one of the world’s top 10 weapons exporters within the next decade. Hailing it a job-creating plan for local manufacturers, the Coalition says Australia only sells about $1.5bn to $2.5bn in “defence exports” a year and it wants the value of those exports to increase significantly. It has identified a number of “priority markets”: the Middle East, the Indo-Pacific region, Europe, the United States, the United Kingdom, Canada and New Zealand. It will set up a new Defence Export Office to work hand in hand with Austrade and the Centre for Defence Industry Capability to coordinate the commonwealth’s whole-of-government export efforts and provide a focal point for more arms exports.

A $3.8bn Defence Export Facility, to be administered by the Export Finance and Insurance Corporation, will provide the finance local companies need to help them sell their defence equipment overseas. A new Australian Defence Export Advocate position, set up to support the Australian Defence Export Office, will provide industry with the constant high-level advocacy needed to promote Australian-made weapons overseas. “It is an ambitious, positive plan to boost Australian industry, increase investment, and create more jobs for Australian businesses,” Turnbull said. “A strong, exporting defence industry in Australia will provide greater certainty of investment, support high-end manufacturing jobs and support the capability of the Australian defence force.”

Them’s fighting words. Greece needs debt relief no matter what. Blackmailing the country with it is amoral.

• Greek Debt Relief Will Depend On Continued Reforms – Regling (K.)

If Greece wants to see its debt burden lightened further it must ensure that it enacts agreed-to reforms and be prepared for the supervision of its foreign creditors to continue, European Stability Mechanism (ESM) Managing Director Klaus Regling told Sunday’s Kathimerini in an interview in which he also stressed that markets would like to see the IMF join the country’s third bailout. “If Greece wants additional debt relief, which means for creditor countries to grant something extra, there is the legitimate question that creditor countries would want to make sure that agreed policies are implemented and that there is no backtracking, on promises in relation to the primary surplus for instance, on future tax policies and on privatizations, or on the reduction of non-performing loans,” Regling said.

He added that there would be no additional conditions for further debt relief but that reforms must be fully implemented, noting that greater “ownership” of the bailout program will help achieve this. “Ownership has improved,” he said, adding however that, “sometimes there are still signals that it’s not fully there the way we would like. For example, on privatizations there are different voices.” As for continued foreign supervision of Greece after its scheduled exit from the third bailout in August, Regling said this was “normal,” noting that there is “post-program surveillance” in other countries that borrowed from the ESM. He added that “markets are always happy if a country is under the surveillance of its creditors.”

As for the potential participation of the IMF in Greece’s third bailout, Regling said it was “one of the elements that could play a positive role to further strengthen the good impression that the markets have.” He added, however, that the markets will also “look for statements by the Greek government that show there is real ownership of the program.”

Debt Rattle December 19 2017

Dec 192017

December 19, 2017 Posted by Raúl Ilargi Meijer at 9:40 am Finance Tagged with: arctic, bitcoin, Brexit, Catalonia, China, ECB, Greece, materialism, Russiagate, submarine, Uber 7 Responses »

Edwin Rosskam Store in alley-dwelling section of Washington, DC 1941

• China’s Growth Story… Don’t Look For A Happy Ending! (Hamilton)

• One Of The Co-Founders Of Bitcoin.com Has Sold All Of His Bitcoin (BI)

• Germany Backs French-Led Push for Global Bitcoin Regulation (BBG)

• The EU’s Top Court Will Decide Whether Or Not Uber Is A Taxi Company (BBG)

• UK Cannot Have A Special Brexit Deal For The City – EU (G.)

• Bad Moon: (Trouble) Rising (Crooke)

• The RussiaGate Witch-Hunt -The Deep State’s “Insurance Policy” (Stockman)

• The Darkest Hours (Jim Kunstler)

• As Catalan Vote Looms, Jailed Leader Offers Olive Branch To Spain (R.)

• Germany’s Entire Submarine Fleet Is Paralyzed (ZH)

• We’re Buying More Stuff We Don’t Need (BBG)

• ECB Sued Over Decision To Freeze Help To Greek Banks (R.)

• Let It Go: The Arctic Will Never Be Frozen Again (Grist)

No domestic consumers, no foreign clients. But a truckload of debt going forward.

• China’s Growth Story… Don’t Look For A Happy Ending! (Hamilton)

Many economists suggest China is on the cusp of significant growth in domestic consumer demand. That this rising domestic demand coupled with continued growth as the global exporter will push the global economy further. However, I’ll briefly show why neither of these outcomes is remotely likely.

Problem #1- China as Consumer: According to the UN data, China’s 15-40yr/old childbearing population peaked in 2005 and has been rapidly shrinking since. Since ’05, China’s population capable of producing more Chinese has fallen by 83 million persons or a 14.3% decline. By 2030, China’s childbearing population will have declined by 157 million or a 27% reduction of those capable of childbirth (no estimate here…this is simply moving the existing population forward in adulthood). Couple a massive decline in the childbearing population and the ongoing negative birthrate and serious depopulation (particularly among the rural regions) is not only possible but growing more likely. Minor increases in wages will be no match for the massive declines in the consumer base. The chart below shows China’s total 15 to 40 year old population (in blue) and the annual change (in red).

Problem #2- China as Exporter:
Who will China continue to export to? The primary importers of China’s goods are N. America (US/Canada), Europe (including Russia and Eastern Europe), Australia/New Zealand. These nations represent roughly one seventh of the world’s population but consume over half of all the worlds oil production. But here again I have the same problem; combined childbearing population peaked in 1988 and has been declining since. The population capable of childbirth has fallen over 40 million or nearly 10% since the ’88 peak. By 2030, despite many of these nations allowing, promoting, and/or enduring large immigrations of precisely this age of migrants, the population is anticipated to be 60 million fewer than during the peak, or a 15% fall from peak. The basis of present and future demand growth simply is non-existent.

Illiquidity.

• One Of The Co-Founders Of Bitcoin.com Has Sold All Of His Bitcoin (BI)

Bitcoin.com is one of the world’s largest bitcoin sites, having grown its profile thanks to the insane price surge of the cryptocurrency this year. But its co-founder and CTO, Emil Oldenburg, a Swedish native, is extremely skeptical of bitcoin’s future. “I would say an investment in bitcoin is right now the riskiest investment you can make. There’s an extremely high risk,” he says in an interview with Swedish tech site Breakit. “I have in fact sold all my bitcoins recently and switched to bitcoin cash,” says Oldenburg, referring to the problems with bitcoin’s high transaction costs and lead times. Indeed, by some counts, bitcoin transaction fees are doubling every three months, and it now takes on average 4.5 hours to confirm a bitcoin transaction. Ars Technica reported that fees reached $US26 ($34) per trade recently. Bitcoin.com operates in everything that has to do with bitcoins.

Today, the site – based out of Tokyo but registered on St Kitts – has tens of millions of unique monthly visitors, according to Similarweb, a web analytics site. The company’s biggest single revenue stream is its so called bitcoin “mining pool”, where it forges new units of the cryptocurrency that are released on the market. Oldenburg doesn’t want to disclose any revenue numbers, more than revealing “it’s an awfully lot of money”, he says to Breakit. Even on a personal level. “All my salary in the past three years has come in bitcoin,” just as those of his 60 colleagues in Tokyo, Oldenburg says. But according to the Swedish bitcoin expert, it’s time to change to bitcoin cash. There’s a big reason for that switch, and it’s all about the market liquidity — or lack thereof — of bitcoin.

The reason why people haven’t understood the risks inherent in owning bitcoins, according to Oldenburg, is simply because most have so far only bought the cryptocurrency — but never sold or traded with them. “As soon as people realise that this is how it works, they will start to sell,” he tells Breakit. “The old bitcoin network is as good as unusable.” While buying, selling or trading in bitcoins is not an issue today, according to Oldenburg, the problems surface when bitcoin transactions are recorded on the blockchain, the digital ledger that records each transaction. The problem centres on the limited amount of transactions per second you can make in the bitcoin network, which in turn depends on the formation of the memory “block size” that store the transactions. This, according to Oldenburg, makes for a very illiquid and unusable cryptocurrency.

[..] In what may be considered somewhat ironic, Oldenburg says bitcoin.com is distancing itself from bitcoin and has even stopped developing services for it — to mostly focus on bitcoin cash, the currency that split from bitcoin back in August, and recently overtook Ethereum as the world’s second-largest cryptocurrency. “It only costs $0.012 (10 Swedish “öre”, the centesimal subdivision of krona) to send a [Bitcoin Cash transaction] and there are no lead times. The only drawback is that you need larger hard drives, but that’s not a problem for most people,” Oldenburg says to Breakit.

One tiny problem: how can you regulate something you don’t understand: “I don’t like it,” Le Maire said of bitcoin. [..] we need to look at it, study it,” he said.

• Germany Backs French-Led Push for Global Bitcoin Regulation (BBG)

Germany joined European governments pushing for global bitcoin regulation amid mounting alarm that the world’s most popular digital currency is being used by money-launderers, drug traffickers and terrorists. Germany’s Finance Ministry said it welcomed a proposal by French Finance Minister Bruno Le Maire to ask his counterparts in the Group of 20 to consider joint regulation of bitcoin. The concerns are shared by the Italian government, which is also open to discussing regulation, while the European Union is bringing in rules backed by the U.K. that would apply to bitcoin. “It makes sense to discuss the speculative risks of virtual currencies and their impact on the financial system at international level,” the Finance Ministry in Berlin said in an email. The next meeting of G-20 finance ministers and central bank governors would be “a good opportunity to do so.”

Signs of growing European concern came as bitcoin took another step toward acceptability with the launch of futures trading Sunday night at CME’s venue. That’s a week after Chicago rival Cboe Global Markets introduced similar derivatives on the volatile cryptocurrency that was created in the wake of the 2008 financial crisis as an alternative to banks and government-issued currencies. Bitcoin was closing in on a fresh record of $20,000 on Monday. The Finance Ministry in Germany, Europe’s biggest economy, “monitors developments in the financial market very closely,” it said. “This also applies to the current development of bitcoin.” While Europe’s concerns have been voiced before in select forums about a currency which is stepping further into the mainstream financial world, Le Maire made those worries public in a weekend interview. “I don’t like it,” Le Maire said of bitcoin. “It can hide activities such as drug trafficking and terrorism,” and he has concerns for savers. “There is an obvious speculative risk, we need to look at it, study it,” he said.

You can’t forever hide behind the word ‘tech’. Or every company can do it.

• The EU’s Top Court Will Decide Whether Or Not Uber Is A Taxi Company (BBG)

Uber Technologies is set to reach the end of the road in a legal battle over a question that’s reached the European Union’s top court – is the world’s most valuable startup a taxi company or not? Uber has argued that it’s a technology platform connecting passengers with independent drivers, not a transportation company subject to the same rules as taxi services. The decision is being closely watched by the technology industry because it could set a precedent for how other companies in the burgeoning gig economy are regulated across the 28-nation bloc. “The judgment will either promote the digital single market or lead to more market fragmentation for online innovators,” said Jakob Kucharczyk, of the Computer & Communications Industry Association, which speaks for companies like Uber, Amazon.com, Google and Facebook. “The court should make a clear distinction between the online intermediation and the underlying service it facilitates.”

The case centers around UberPop, an inexpensive ride-hailing service Uber launched in several European cities that allowed drivers without a taxi license to use their own cars to pick up passengers. Legal challenges have forced Uber to shutter its UberPop services in most major European companies in favor of UberX, which requires drivers to get a license. A loss for Uber would mean countries in the EU will have to classify Uber as a transportation service. While Uber adheres to many taxi laws in countries where it operates, the case could lead to new regulations and fees. “Any ruling will not change things in most EU countries where we already operate under transportation law,” Uber said in a statement. “However, millions of Europeans are still prevented from using apps like ours. As our new CEO has said, it is appropriate to regulate services such as Uber. We want to partner with cities to ensure everyone can get a reliable ride at the tap of a button.”

The question of whether Uber is a transport service has long vexed regulators and lawmakers across Europe. Uber has faced roadblocks, real and regulatory, across Europe, amid complaints brought by taxi drivers who say the company tries to unfairly avoid regulations that bind established competitors. Without the pressure from regulators, companies in the gig economy will force other businesses to employ similarly aggressive business practices, said Andrew Taylor, who earlier this year was commissioned by U.K. Prime Minister Theresa May to come up with recommendations to regulate the gig economy. “There’s a danger of a race to the bottom,” said Taylor. “Major American companies are treating national norms, culture, regulators and tax systems in a cavalier way.”

What’s going to be left of Britain without the City?

• UK Cannot Have A Special Brexit Deal For The City – EU (G.)

Britain cannot have a special deal for the City of London, the European Union’s chief Brexit negotiator has told the Guardian, dealing a blow to Theresa May’s hopes of securing a bespoke trade agreement with the bloc. Michel Barnier said it was unavoidable that British banks and financial firms would lose the passports that allow them to trade freely in the EU, as a result of any decision to quit the single market. “There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist.” He said the outcome was a consequence of “the red lines that the British have chosen themselves. In leaving the single market, they lose the financial services passport.”

The stark declaration quashes the hopes of the Brexit secretary, David Davis, for a unique trade deal that would include financial services. The Brexit secretary has called for a “Canada plus plus plus” deal with the EU, a reference to the free trade agreement struck between Ottawa and Brussels in 2016, but with the crucial addition of financial services. In an exclusive interview with European newspapers, including the Guardian, Barnier gave examples of his own three pluses – judicial cooperation, defence and security and aviation.

The negotiator also said: • A trade deal could be agreed within a two-year transition period, but would have to be ratified by more than 35 national and regional parliaments. • The UK could not stop Brexit unilaterally, arguing that overturning the decision to leave would require the consent of 27 EU member states – a view at odds with one of the authors of article 50, Lord Kerr. • The UK must follow all rules and regulations of the EU during the transition period, including new laws passed after the UK has left. • The UK could negotiate trade agreements with the rest of the world during the transition, but they could not come into force. • He would not confirm British estimates that the final Brexit bill – the UK’s outstanding obligations to the EU – would be no more than €45bn (£39bn).

Boy, what a failure Russiagate has been. How do you recover from that?

• Bad Moon: (Trouble) Rising (Crooke)

President Obama lay very much in the globalist ‘struggle for a democratic-liberal world’ mould, (though he did try to make the ‘ruling interests’ understand that there were limits: that there had to be boundaries to US commitments). In other words, Obama accepted the globalist premise, though he tried to mitigate some of its military impulses. Notably however, he acquiesced to re-heating the Russia ‘threat’ (after Medvedev gave place to Mr Putin (thus ending Obama’s hope to seduce Russia into the embrace of the global economic order). But then Donald Trump, elected President by his deplorables’ base, made clear that he wished for détente with Russia, and even disdained the claims made on ordinary Americans by the maintenance of America’s unipolar global ‘order’.

For this heresy, he has been punished by the manufactured ‘Russiagate’ non-scandal. “Can a president, concerned that he might be removed from office by a special prosecutor or possibly assassinated, resist the march toward war?” – asks Paul Craig Roberts, who asserts that the President has been effectively caged, by a trifecta of Establishment generals, on the one hand; and by a Goldman Sachs posse, on the other. That the ‘ruling interests’ have managed substantially to contain President Trump is undeniable, but what is new, and perhaps – or perhaps, not – alters the calculus, is that these ‘ruling interests’ have had to come out from the shadows into the open.

The former Acting Director of the CIA, Mike Morrell, an early voice peddling the Russian collusion meme now publicly admits in a surprisingly frank interview with Politico, his leading role in the intelligence community waging political war against President Trump, describing his actions as something he didn’t “fully think through”, adding that maybe it wasn’t such a great idea to leak against, and bash a new president: “There was a significant downside”, Morrell acknowledges. Just to recall: Not only had Morell in an early NY Times op-ed piece asserted that he was committed to doing “everything I can to ensure that she [Hillary Clinton] is elected as our 45th president”, but he went so far as to call then candidate Trump “a threat to our national security”, while making the extraordinary claim that “in the intelligence business, we would say that Mr. Putin had recruited Mr. Trump as an unwitting agent of the Russian Federation.”

A list of people who never worked an honest job.

• The RussiaGate Witch-Hunt -The Deep State’s “Insurance Policy” (Stockman)

There was a sinister plot to meddle in the 2016 election, after all. But it was not orchestrated from the Kremlin; it was an entirely homegrown affair conducted from the inner sanctums – the White House, DOJ, the Hoover Building and Langley – of the Imperial City. Likewise, the perpetrators didn’t speak Russian or write in the Cyrillic script. In fact, they were lifetime beltway insiders occupying the highest positions of power in the US government. Here are the names and rank of the principal conspirators: John Brennan, CIA director; Susan Rice, National Security Advisor; Samantha Power, UN Ambassador; James Clapper, Director of National Intelligence; James Comey, FBI director; Andrew McCabe, Deputy FBI director; Sally Yates, deputy Attorney General, Bruce Ohr, associate deputy AG; Peter Strzok, deputy assistant director of FBI counterintelligence; Lisa Page, FBI lawyer; and countless other lessor and greater poobahs of Washington power, including President Obama himself.

To a person, the participants in this illicit cabal shared the core trait that made Obama such a blight on the nation’s well-being. To wit, he never held an honest job outside the halls of government in his entire adult life; and as a careerist agent of the state and practitioner of its purported goods works, he exuded a sanctimonious disdain for everyday citizens who make their living along the capitalist highways and by-ways of America. The above cast of election-meddlers, of course, comes from the same mold. If Wikipedia is roughly correct, just these 10 named perpetrators have punched in about 300 years of post-graduate employment – and 260 of those years (87%) were on government payrolls or government contractor jobs.

As to whether they shared Obama’s political class arrogance, Peter Strzok left nothing to the imagination in his now celebrated texts to his gal-pal, Lisa Page: “Just went to a southern Virginia Walmart. I could SMELL the Trump support……I LOATHE congress….And F Trump.” You really didn’t need the ALL CAPS to get the gist. In a word, the anti-Trump cabal is comprised of creatures of the state.

“..even hogs busy fattening up don’t have a clue about their imminent slaughter.”

• The Darkest Hours (Jim Kunstler)

The Tax “Reform” bill working its way painfully out the digestive system of congress like a sigmoid fistula, ought be re-named the US Asset-stripping Assistance Act of 2017, because that’s what is about to splatter the faces of the waiting public, most of whom won’t have a personal lobbyist / tax lawyer by their sides holding a protective tarpulin during the climactic colonic burst of legislation. Sssshhhh…. The media has not groked this, but the economy is actually collapsing, and the nova-like expansion of the stock markets is exactly the sort of action you might expect in a system getting ready to blow. Meanwhile, the more visible rise of the laughable scam known as crypto-currency, is like the plume of smoke coming out of Vesuvius around 79 AD — an amusing curiosity to the citizens of Pompeii below, going about their normal activities, eating pizza, buying slaves, making love — before hellfire rained down on them.

Whatever the corporate tax rate might be, it won’t be enough to rescue the Ponzi scheme that governing has become, with its implacable costs of empire. So the real aim here is to keep up appearances at all costs just a little while longer while the table scraps of a four-hundred-year-long New World banquet get tossed to the hogs of Wall Street and their accomplices. The catch is that even hogs busy fattening up don’t have a clue about their imminent slaughter. The centerpiece of the swindle, as usual, is control fraud on the grand scale. Control fraud is the mis-use of authority in applying Three-Card-Monte principles to financial accounting practice, so that a credulous, trustful public will be too bamboozled to see the money drain from their bank accounts and the ground shift under their feet until the moment of freefall.

Control fraud is at work in the corporate C-suites, of course, because that is its natural habitat — remember that silver-haired CEO swine from Wells Fargo who got off scot-free with a life-time supply of acorns after scamming his account-holders — but their errand boys and girls in congress have been superbly groomed, pampered, fed, and trained to break trail and cover for them. The country has gotten used to thinking that the game of pretend is exactly the same as what is actually going on in the world. The now-seminal phrase coined by Karl Rove, “we make our own reality,” is as comforting these days to Republicans from Idaho as it is to hairy, “intersectional” professors of post-structural gender studies in the bluest ivory towers of the Ivy League. Nobody in this Republic really wants to get his-hers-zhe’s-they’s reality on.

How can you have a fair election with so many people either in jail or in exile?

• As Catalan Vote Looms, Jailed Leader Offers Olive Branch To Spain (R.)

The jailed leader of Catalonia’s main pro-independence party has backed away from demands for unilateral secession from Spain, days before a regional election that polls suggest will produce a hung parliament. The independence drive has tipped Spain into its worst political crisis since the return of democracy in the 1970s, dividing opinion in the region, denting an economic rebound and prompting a business exodus to other parts of the country. In reply to written questions from Reuters passed to him in prison where he is being held on allegations of rebellion and sedition, Oriol Junqueras struck a conciliatory tone. He wrote that he would continue to pursue independence if he became Catalonia’s next president, but also “build bridges and shake hands” with representatives of the Spanish state.

“I can assure you that we are democrats before we are separatists and that the aim (of gaining independence) does not always justify the means,” he said in comments that appeared to drop his party’s earlier demand for unilateral secession. Junqueras’ Esquerra Republicana (Republican Left) party is tipped to become the largest separatist force in parliament in Thursday’s ballot, but surveys suggest neither the pro-independence nor the pro-unity camp will win a majority. He was deputy leader of the Catalan government that was sacked in October after the regional assembly unilaterally declared independence following a referendum that central authorities had deemed illegal. Madrid also dissolved the assembly and called fresh elections.

The Spanish justice system’s actions against the region’s leaders has since then hamstrung the pro-independence camp and further muddied the electoral waters before Thursday’s vote. Catalonia’s ex-president Carles Puigdemont is campaigning from self-imposed exile in Brussels and Junqueras doing so from jail along with several other politicians. It is unclear if many of those likely to be elected will be able to attend parliament.

The Russians did it.

• Germany’s Entire Submarine Fleet Is Paralyzed (ZH)

Throughout 2017, America’s control of NATO policymaking has become more evident than ever, with the sole objective of war-making against Russia. NATO and Russia continue to build up arms, equipment, and troops along the eastern region of Europe, but there is a new development that has NATO worried. Germany’s operational readiness of its entire submarine fleet is dead in the water. Yes, you heard that correctly, Germany’s prized submarines are currently on maintenance calls or in desperate need of repairs. On October 15, Germany lost the last of its submarines when the Type 212a vessel was performing a diving maneuver off the Norweigan coast when it suffered a catastrophic blow to one of its four fins after the submarine struck a boulder. The submarine was quickly rendered not operational and had to be towed back to the German port of Kiel for maintenance work.

In the latest operational summary provided by RT, there are six submarines in the German fleet and all are out of service. Two Type 212a vessels are undergoing scheduled maintenance, and will be redeployed in the second half of 2018, while another two are in a critical state for repairs, with no estimated time of completion. The fifth submarine, as we mentioned above, crashed in October. The sixth submarine was commissioned in October and is currently undergoing rigorous sea trials before it will become operational in May 2018. Germany’s submarine fleet will be paralyzed for the next 4-5 months, which presents an enormous national security risk for the country. The submarines’ most fundamental feature is stealth, coupled with defense capabilities and surveillance, but as mentioned above, there is currently a major gap in Germany’s military defense at the moment, which we hope is not exploited by an adversary.

The German parliament’s Defense Commissioner Hans-Peter Bartels told ARD, “this a real disaster for the navy and it’s the first time in history that none [of the U-boats] would be operational for months.” Bartels blamed the lack of spare parts for the broken submarines with the lack of government funding. Ever since the Cold War, German authorities have decided against stockpiling spare parts due to its high costs.

Without waste our economies collapse.

• We’re Buying More Stuff We Don’t Need (BBG)

Here’s a Grinchian question for the holidays: How much do Americans spend on stuff they don’t really need? A very rough analysis suggests they’re blowing more money on nonessential items than they have in more than 17 years. Back in the 1950s, the economist John Kenneth Galbraith made a bleak argument about modern capitalism: Advertising can create artificial wants – say, for the latest gadget or skin cream – that spur ever-greater consumption without actually making people better off. As a result, economies can grow without improving the lot of humanity. Whether or not he’s right – it remains a matter of debate – the idea raises an interesting empirical question: How much of what we consume is related to wants rather than needs?

This isn’t easy to answer using even the most detailed data on consumer spending, because many categories could go either way. A car, for example, could be pure transportation or a Ferrari. That said, a number of categories – such as gambling, hairdressers and recreational vehicles – are pretty clearly nonessential. Following them consistently over time can give at least a sense of trend. So how are we doing? In the third quarter of this year, nonessential items (of my own subjective selection 1) accounted for almost 18.5 percent of total U.S. consumer spending. That’s the highest share since June 2000. Here’s a chart:

This is about liquidity, not about the refusal to include in the ECB bond purchases. But it’s equally unjustifiable politically as well as economically. The ECB should not be able to do these things under cover of darkness.

• ECB Sued Over Decision To Freeze Help To Greek Banks (R.)

Former Greek finance minister Yanis Varoufakis and a German parliamentarian are suing the ECB to gain access to a document underpinning the ECB’s decision to freeze vital funding to Greek banks in 2015. That move left Alexis Tsipras’ government with little choice but to shut down banks and impose capital controls, weakening his negotiating position with the country’s international lenders during bailout negotiations. Eventually, hard-liner Varoufakis resigned and Tsipras made a deal that gave Greece cash in return for austerity measures and reforms. Varoufakis and a German leftist parliamentarian, Fabio De Masi, are asking the EU’s top court to force the ECB to disclose a legal opinion that informed that decision, which they say might be unlawful.

“By restricting liquidity to the Greek banking sector to force cuts in pensions, tax increases and fire-sale privatizations, the ECB overstepped its mandate,” De Masi said. After their request was rejected by the ECB, Varoufakis and De Masi are turning to the General Court of the European Union to obtain the document. An ECB spokesman said the legal opinion preceded the decision to withhold funding by at least two months. The ECB decided not to disclose it to protect its legal advisers and its internal deliberations, he said. The ECB’s Agreement on Emergency Liquidity Assistance (ELA), published earlier this year, prohibits national central banks from providing ELA if it “interferes with the objectives and tasks” of the Eurosystem, such as maintaining price stability and safeguarding payments.

“There is an overriding public interest in knowing how far the ECB … weighed different goals against each other and how they themselves and their legal experts have interpreted the legal framework in this respect,” the complainants’ lawyer, Andreas Fischer-Lescano, said in the appeal.

No more Santa. Or reindeer, polar bears.

• Let It Go: The Arctic Will Never Be Frozen Again (Grist)

Last week, at a New Orleans conference center that once doubled as a storm shelter for thousands during Hurricane Katrina, a group of polar scientists made a startling declaration: The Arctic as we once knew it is no more. The region is now definitively trending toward an ice-free state, the scientists said, with wide-ranging ramifications for ecosystems, national security, and the stability of the global climate system. It was a fitting venue for an eye-opening reminder that, on its current path, civilization is engaged in an existential gamble with the planet’s life-support system. In an accompanying annual report on the Arctic’s health — titled “Arctic shows no sign of returning to reliably frozen region of recent past decades” — the National Oceanic and Atmospheric Administration, which oversees all official U.S. research in the region, coined a term: “New Arctic.”

Until roughly a decade or so ago, the region was holding up relatively well, despite warming at roughly twice the rate of the planet as a whole. But in recent years, it’s undergone an abrupt change, which now defines it. The Arctic is our glimpse of an Earth in flux, transforming into something that’s radically different from today. At a press conference announcing the new assessment, acting NOAA Administrator Timothy Gallaudet emphasizes the “huge impact” these changes were having on everything from tourism to fisheries to worldwide weather patterns. “What happens in the Arctic doesn’t stay in the Arctic — it affects the rest of the planet,” Gallaudet said.

[..] Take, for instance, the hypothesis of University of Alaska-Fairbanks permafrost scientist Vladimir Romanovsky: So far, 2017 has seen the highest permafrost temperatures in Alaska on record. If that warming continues at the current rate, widespread thawing could begin in as few as 10 years. The impact of such defrosting “will be very very severe,” Romanovsky says, and could include destruction of local infrastructure — like roads and buildings — throughout the Northern Hemisphere and the release of additional greenhouse gases that have been locked for generations in the ice.

Debt Rattle November 20 2017

Nov 202017

November 20, 2017 Posted by Raúl Ilargi Meijer at 9:52 am Finance Tagged with: autistic, Brexit, deposits, ECB, Gresham, Merkel, Mugabe, overleveraged, shadow, yield curve 3 Responses »

Stanley Kubrick Laboratory at Columbia University 1948

• Banks Show An Almost Autistic Disregard For The Law – Australia Senator (Abc)

• ECB Proposes End To Deposit Protection (GC)

• Europe Faces a Hamstrung Germany as Merkel’s Coalition Bid Fails

• 3 Things That Could Destroy One Of The Greatest Stock Rallies Of All Time (BI)

• China’s Clampdown On Shadow Banking Hits The Stock Market (BBG)

• Mugabe Faces Impeachment as He Holds on as Zimbabwe Leader (BBG)

• Yield Curve Flattening Could Derail Fed Interest Rate Hikes (BI)

• Everything Is Overvalued And Implicitly Overleveraged (Peters)

• Gresham’s Law (Rivelle)

• Britain’s Gravest Economic Challenge Isn’t Brexit (R.)

• UK Christmas Spending Expected To Fall For First Time Since 2012 (Ind.)

• Many Americans Are Still Paying Off Debt From Last Christmas (CNBC)

Headline of the day. Will they actually get their inquiry?

• Banks Show An Almost Autistic Disregard For The Law – Australia Senator (Abc)

Pressure for a commission of inquiry into the banking sector is growing, with Nationals senator Barry O’Sullivan warning he might have the numbers to push his private members bill through Parliament. The banks “show an almost autistic disregard for prudential regulation and law and it’s time for these people to have their day in court”, the senator told ABC’s RN Breakfast on Monday. Senator O’Sullivan said he has support from as many as four colleagues. These include maverick Liberal National (LNP) MP George Christensen, who has already threatened to cross the floor, and fellow Queensland LNP MP Llew O’Brien, who has indicated “50-50” support. While a commission of inquiry would be an embarrassment for the Turnbull Government given its resistance to a royal commission, Senator O’Sullivan said it was time for the Prime Minister to listen.

“There’s no more important piece of business — millions and millions of Australians have been affected by the behaviour of the banks over time,” he said. “If both houses of Parliament think this is a good thing to do … then I think the Prime Minister has to … sit up and take note of that, and support the parliamentary decision.” But Senator O’Sullivan refused to comment on whether his move would embarrass and further destabilise the Prime Minister. “I am not going to be drawn on the question of the impacts on the Prime Minister and the Government — this is about democracy at work.” The proposed commission of inquiry would have similar powers to a royal commission. It would also look beyond banking and include superannuation, insurance and services associated with the scandal-plagued sector.

Time to be afraid in Europe.

• ECB Proposes End To Deposit Protection (GC)

It is the ‘opinion of the European Central Bank’ that the deposit protection scheme is no longer necessary: ‘covered deposits and claims under investor compensation schemes should be replaced by limited discretionary exemptions to be granted by the competent authority in order to retain a degree of flexibility.’ To translate the legalese jargon of the ECB bureaucrats this could mean that the current €100,000 (£85,000) deposit level currently protected in the event of a bail-in may soon be no more. But worry not fellow savers, as the ECB is fully aware of the uproar this may cause so they have been kind enough to propose that: “…during a transitional period, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request.”

So that’s a relief, you’ll only need to wait five days for some ‘competent authority’ to deem what is an ‘appropriate amount’ of your own money for you to have access to in order eat, pay bills and get to work. The above has been taken from an ECB paper published on 8 November 2017 entitled ‘on revisions to the Union crisis management framework’. It’s 58 pages long, the majority of which are proposed amendments to the Union crisis management framework and the current text of the Capital Requirements Directive (CRD). It’s pretty boring reading but there are some key snippets which should be raising a few alarms. It is evidence that once again a central bank can keep manipulating situations well beyond the likes of monetary policy. It is also a lesson for savers to diversify their assets in order to reduce their exposure to counterparty risks.

According to the May 2016 Financial Stability Review, the EU bail-in tool is ‘welcome’ as it: “…contributes to reducing the burden on taxpayers when resolving large, systemic financial institutions and mitigates some of the moral hazard incentives associated with too-big-to-fail institutions…” As we have discussed in the past, we’re confused by the apparent separation between ‘taxpayer’ and those who have put their hard-earned cash into the bank. After all, are they not taxpayers? This doesn’t matter, believes Matthew C.Klein in the FT who recently argued that “Bail-ins are theoretically preferable because they preserve market discipline without causing undue harm to innocent people.” Ultimately bail-ins are so central banks can keep their merry game of easy money and irresponsibility going. They have been sanctioned because rather than fix and learn from the mess of the bailouts nearly a decade ago, they have just decided to find an even bigger band-aid to patch up the system.

Feels like the FDP never wanted the talks to succeed. But they will support a minority government.

• Europe Faces a Hamstrung Germany as Merkel’s Coalition Bid Fails (BBG)

Angela Merkel may be running out of road after 12 years at the helm in Germany. With the chancellor’s attempt to form a fourth-term government in disarray, Merkel’s once unquestioned ability to steer Europe is waning as the region’s biggest economy heads into uncharted waters and possibly a protracted political stalemate. Markets reacted with unease, with the euro slumping the most in three weeks against the dollar. The breakdown in coalition talks late Sunday – amid disputes over migration and other policies between a grab-bag of disparate parties – raised the prospect of fresh elections, which probably would be held next spring. Relying on a minority administration with shifting alliances to pass legislation would run counter to Merkel’s promise to provide a stable government.

However she attempts to move forward, European decisions on everything from Brexit and Greece to Russian sanctions and French President Emmanuel Macron’s proposals for strengthening the euro will now be hemmed in by Merkel’s weakened role as a caretaker chancellor. “What it means is that Germany is pulled inward because it has to manage its political transition,” said Daniel Hamilton, executive director of the Center for Transatlantic Relations at Johns Hopkins University in Washington. “So the state of drift in Europe continues and now Germany, which has been the stabilizer of the last number of years, is part of that.” Merkel, 63, said she plans to stay on as acting chancellor and will consult with Germany’s president later Monday on what comes next.

We can all name 27 more.

• 3 Things That Could Destroy One Of The Greatest Stock Rallies Of All Time (BI)

Extreme leverage build-up Morgan Stanley points out that previous comparable cycles have been derailed by steep increases in a measure of US debt to GDP. While the firm doesn’t see conditions as dire as they were around the Great Depression or the most recent financial crisis, it notes that deleveraging has stalled. While this situation may be sustainable in the near-term, since interest rates are still locked near zero, that could soon change with the Federal Reserve signaling multiple rate hikes by the end of 2018. Morgan Stanley also notes that interest coverage — or the ability to service debt — has been declining for both US investment-grade and junk debt since 2015. The chart below shows the ratio of debt/GDP, which has gone sideways in the past few years, implying that companies are no longer reducing debt burdens like they did when they were trying to dig out of the last market crash.

Exuberant sentiment This next driver is one that was briefly addressed in the introduction: investor overconfidence. The thinking here is that when the market gets too cocky, it becomes blind to potential risks and therefore more susceptible to downward shocks. As Morgan Stanley puts it, when there’s a “descent from thinking to feeling,” that could spell trouble. Morgan Stanley doesn’t think the market is too exuberant quite yet. While one measure shows that expectations around the economy have gotten overly optimistic, it’s still lower than where it was during the last financial crisis or the dotcom bubble. Still, the chart below shows that US consumer confidence is the highest it’s been since 2000, including a precipitous surge since the start of the bull market in 2009.

Excessive policy tightening When Morgan Stanley says that cycle downturns follow prolonged periods of monetary policy tightening, it speaks from experience. After all, the Federal Reserve persistently hiked interest rates in the periods leading up to both the dotcom bubble and the financial crisis. And while the firm doesn’t see excessive tightening yet, it warns that it could be right around the corner. “We have a bit of a ‘runway’ to the cycle peak, but not much,” a group of Morgan Stanley strategists wrote in a recent client note. “Over the next 12 months, our US economists expect further hikes in excess of core inflation, which would take us to ~190bp of cumulative hikes over 24 months, in line with the typical end-of-cycle policy environment.”

But before you start to panic, Morgan Stanley would like to remind you that the stock market can continue to soar, even in the final year of an expansion cycle. They point out that in the past, the S&P 500 has rallied an average of 15% in the last 12 months of an equity bull market. “The final year of the bull market can still be uncomfortably profitable,” the Morgan Stanley strategists wrote. “Timing is everything.”

A thin line.

• China’s Clampdown On Shadow Banking Hits The Stock Market (BBG)

China’s sweeping new plan to rein in its shadow banking industry rippled through the nation’s stock market on Monday, sending the Shanghai Composite Index to a two-month low. Investors pushed the benchmark gauge down as much as 1.4% amid concern that the government’s latest attempt to tighten supervision of $15 trillion in asset-management products will siphon funds from the market. Developers and brokerages paced losses. While analysts applauded the plan as an important step toward curbing risk in China’s financial system, they also warned of turbulence as markets adjust to outflows from popular shadow-banking products. The government directives, which are set to take effect in 2019, add to signs that President Xi Jinping is willing to sacrifice growth as he tries to put the world’s second-largest economy on a more stable financial footing.

“The rules dealt a blow to the market,” said Zhang Gang, a Shanghai-based strategist with Central China Securities Co. “A lot of such products had positions in the equity market, and those that don’t qualify under new rules may choose to exit some small and medium caps.” The Shanghai Stock Exchange Property Index dropped 1.3%, with Gemdale Corp. losing as much as 2.6% and Poly Real Estate Group Co. declining 3.2%. China Vanke Co. sank as much as 4.9% in Shenzhen. A measure of securities firms fell to a five-month low, with Citic Securities Co. tumbling 3.7%.

He reportedly has just agreed to step down.

• Mugabe Faces Impeachment as He Holds on as Zimbabwe Leader (BBG)

President Robert Mugabe shocked Zimbabwe on Sunday night with a televised address that failed to announce his highly anticipated resignation, a dramatic twist that means the 93-year-old may face immediate impeachment hearings. Whether the final act of defiance was planned or simply the result of reading the wrong remarks, three senior party officials who spoke on the condition of anonymity said Mugabe deviated from an agreed-upon-text announcing he was leaving office. His ruling Zimbabwe African National Union-Patriotic Front will start a bid in parliament on Monday to force an end to this 37 years in power, the officials said. Delivering the nationally televised address with the armed forces commanders who took power last week looking on, Mugabe, who is the world’s oldest serving leader at 93, frequently lost his place and had to repeat himself.

He said the southern African nation must not be guided by “bitterness” and urged Zimbabweans to “move forward.” “Mugabe is dragging down the process as he tries to look for a dignified exit on his own terms,” Rashweat Mukundu, an analyst with the Harare-based Zimbabwe Democracy Institute, said by phone. “The impeachment process will still go ahead while on the other hand he will try and resign on his own terms.” Earlier Sunday, Zanu-PF central committee decided to fire Mugabe as its leader and ordered him to step down. Emmerson Mnangagwa, who Mugabe dismissed as vice president this month, will be reinstated, take over as interim president and be Zanu-PF’s presidential candidate in elections next year, the party said. It also expelled the president’s wife, Grace, the nation’s other vice president, Phelekezela Mphoko, along with several other senior officials.

“..an inverted yield curve, where long-term interest rates fall below their short-term counterparts, has been a reliable predictor of recessions.”

• Yield Curve Flattening Could Derail Fed Interest Rate Hikes (BI)

The Federal Reserve’s plan to keep raising interest rates could soon run into a wall of its own making: low long-term borrowing costs that signal expectations for weak economic growth and anemic investment returns for the foreseeable future. Why is the Fed to blame? They’re not the only culprits, but the subdued economic recovery from the Great Recession and continued expectations for weakness stem in part from an insufficient, halting policy reaction to the deepest downturn in generations — both from monetary, and importantly, fiscal policy. In the past, including before the Great Recession of 2007-2009, an inverted yield curve, where long-term interest rates fall below their short-term counterparts, has been a reliable predictor of recessions.

The bond market is not there yet, but a sharp recent flattening of the yield curve has many in the markets watchful and concerned. The US yield curve is now at its flattest in about 10 years — in other words, since around the time a major credit crunch of was gaining steam. The gap between two-year note yields and their 10-year counterparts has shrunk to just 0.63 percentage point, the narrowest since November 2007. In fact, Shyam Rajan, Carol Zhang, and Olivia Lima, rate strategists at Bank of America Merrill Lynch, think low long-term bond yields could actually prevent the central bank from hiking interest rates further, as it plans to do. “We believe a precondition for the Fed to continue its hiking cycle in 2018 should be higher intermediate and long term rates,” they wrote in a research note to clients. “Without the latter, we would have doubts on the former.”

Eric Peters gets the style price again.

• Everything Is Overvalued And Implicitly Overleveraged (Peters)

“People ask, ‘Where’s the leverage this time?’” said the investor. Last cycle it was housing, banks. “People ask, ‘Where will we get a loss in value severe enough to sustain an asset price decline?’” he continued. Banks deleveraged, the economy is reasonably healthy. “People say, ‘What’s good for the economy is good for the stock market,’” he said. “People say, ‘I can see that there may be real market liquidity problems, but that’s a short-lived price shock, not a value shock,’” he explained. “You see, people generally look for things they’ve seen before.” “There’s less concentrated leverage in the economy than in 2008, but more leverage spread broadly across the economy this time,” said the same investor. “The leverage is in risk parity strategies. There is greater duration and structural leverage.”

As volatility declines and Sharpe ratios rise, investors can expand leverage without the appearance of increasing risk. “People move from senior-secured debt to unsecured. They buy 10yr Italian telecom debt instead of 5yr. This time, the rise in system-wide risk is not explicit leverage, it is implicit leverage.” “Companies are leveraging themselves this cycle,” explained the same investor, marveling at the scale of bond issuance to fund stock buybacks. “When people buy the stock of a company that is highly geared, they have more risk.” It is inescapable. “It is not so much that a few sectors are insanely overvalued or explicitly overleveraged this time, it is that everything is overvalued and implicitly overleveraged,” he said. “And what people struggle to see is that this time it will be a financial accident with economic consequences, not the other way around.”

For some reason, people fail to apply Gresham’s law to all assets.

• Gresham’s Law (Rivelle)

There is a tale told by a lesser known Nobel laureate, Kenneth Arrow. As a World War II weather officer, he was tasked with analyzing the reliability of the army’s long-range weather forecasts. His conclusion: statistically speaking, the forecasts weren’t worth the paper they were printed on. Captain Arrow sent along his report only to be told, “Yes, the General is well-aware the forecasts are completely unreliable. But, he needs them for planning his military operations.” Okay, maybe you don’t actually need a Nobel prize to know that rationality in the decision-making department is often lacking. Case in point: the capital markets. While subtle and ingenious in construction, the capital markets are, nonetheless, driven by the mass action of millions. They are a reflection of ourselves and necessarily express both the summit of our knowledge as well as the pit of our fears, and everything else in-between.

And, this brings us to the subject at hand: Gresham’s Law. Sir Thomas Gresham was a financier in the time of King Henry VIII and his name is, of course, attached to the principle that “bad money drives out good money.” Coin collectors of a certain age are familiar with the near immediate disappearance from circulation of all silver American coins once Congress had mandated the use of base metals beginning with the 1965 vintage. While all coins – silver and copper alike – carried identical legal tender value, it was the silver coins that vanished. Perhaps you are wondering what this has to do with bond investing? Everything! Consider the state of financial markets as witnessed by metrics of implied volatility:

VIX Index

MOVE Index

Both indices hover at generational low levels. If markets were “run” today by humanity’s better angels of wisdom and rationality, you would have to conclude that Mr. Market has drawn on his collective insight and pronounced the capital markets to be safer now than at any other time in the past quarter-century. That is a stunning conclusion! But if rationality can’t explain a 25-year trough in expected risk, then we must necessarily conclude that there must be some other, less rational explanation. How about this: investors are, by and large, famished for yield and willing to underwrite most any risk to get some income. In short, the marginal price setter is “irrationally exuberant”, or dare we say it out loud? “Greedy.”

It’s productivity.

• Britain’s Gravest Economic Challenge Isn’t Brexit (R.)

Few British budgets have mattered as much as the one that Philip Hammond will deliver to the House of Commons on Nov. 22. The chancellor of the exchequer must shore up Theresa May’s perilously shaky government ahead of a vital Brexit summit of European leaders in mid-December. At the same time Hammond has to keep a grip on the public finances. But the gravest challenge he faces is economic: Britain’s persistent productivity blight.Productivity – output per hour worked – is the mainspring of economic growth. In the decade before the financial crisis of 2007-08 productivity was increasing in Britain by just over 2% a year, outpacing the average for the other economies of the G7. But since the crisis British performance has been dismal. Although productivity jumped in the third quarter of 2017, prolonged weakness means that it is barely higher than its pre-crisis peak a decade ago.

The recovery in GDP has been driven overwhelmingly by more labor input, a source of growth that is running dry – not least since the vote to leave the European Union delivered a message to curb immigration. Other advanced economies have also experienced setbacks to productivity growth following the financial crisis. Where Britain stands out is in the severity of its reverse. The shortfall in productivity is the main reason real wages are now 4% lower than 10 years ago, a potent reason why the leave campaign prevailed in the Brexit referendum. Productivity is so central to prosperity and to macroeconomic management – by determining how fast the economy can sustainably grow – that a gaggle of economic researchers have been busy in their labs trying to diagnose the now decade-long disease.

It could be disastrous.

• UK Christmas Spending Expected To Fall For First Time Since 2012 (Ind.)

Christmas spending across the UK is expected to fall for the first time since 2012, research by Visa and IHS Markit shows. According to a report published on Monday, a challenging economic environment, in which real wages are falling and economic growth is sluggish, will likely lead to a 0.1% fall in consumer spending during the 2017 festive season. That’s in sharp contrast to last year, when spending increased by 2.8% over the Christmas period. “While it still looks likely that consumers will be hitting stores and websites in search of bargains this Black Friday and Cyber Monday, we expect spending for the duration of the festive season to be lower in comparison to last year,” said Mark Antipof, chief commercial officer at Visa.

“Looking back, consumers were in a sweet spot in 2016 – low inflation and rising wages meant there was a little extra in household budgets to spend on the festive period,” he said. “2017 has seen a reversal of fortunes – with inflation outpacing wage growth and the recent interest rate rise leaving shoppers with less money in their pockets.” The research anticipates that high street spending will be particularly hard hit, falling by 2.1% compared to equivalent figures for last year – the biggest contraction since 2012. Online spending, however, is still expected to rise – by 3.6% over this Christmas period – meaning that it will account for a record share of this year’s Christmas spend. Visa said that of every £5 spent during the period, almost £2 will likely be spent online.

There’ll be more next Christmas.

• Many Americans Are Still Paying Off Debt From Last Christmas (CNBC)

As the holiday season approaches, the pressure to spend spikes. This year, gift-buying Americans plan to spend $660 on average. That’s according to new data from NerdWallet’s 2017 Consumer Holiday Shopping Report, which analyzed spending and behavior trends of more than 2,000 Americans aged 18 and over. And holiday-induced debt is a growing problem. Although survey respondents say they plan to spend roughly the same amount as they spent last year, 24% of shoppers say they overspent in 2016, while 27% admit to not making a budget at all. Even a budget is only a good start.

“There’s this myth that planning ahead and budgeting always ensures you don’t overspend. But in reality, creating and even sticking to a budget won’t make you immune to holiday debt,” Courtney Jespersen, a consumer savings expert at NerdWallet, says in the survey. “It’s so important to set a realistic ceiling for your spending.” During the 2016 season, boomers proved most likely to take on debt to finance their purchases, with 63% of respondents copping to the habit. Other generations took on debt as well, including 58% of Gen-Xers and 40% of millennials. What’s alarming about this pattern is that many Americans are still carrying last year’s debt as they head into yet another holiday season. Millennials are the worst culprits here: 24% still haven’t paid off credit card debt incurred during the 2016 shopping season, while 16% of Gen-Xers haven’t and only 8% of boomers haven’t.

Debt Rattle November 18 2017

Nov 182017

November 18, 2017 Posted by Raúl Ilargi Meijer at 9:58 am Finance Tagged with: Bailouts, broke, Christmas, consumer, ECB, land tax, Lebanon, Norway, oil, pensioners, Qatar, Saudi, Trump 4 Responses »

Henri Cartier Bresson Juvisny, France 1938

• Consumers Are Both Confident And Broke (John Rubino)

• You Have Been Warned (Lance Roberts)

• Norway Plan to Sell Off $35 Billion in Oil, Gas Stocks Rattles Markets (BBG)

• The World’s Biggest Wealth Manager Won’t Touch Bitcoin (BBG)

• Trump’s Saudi Scheme Unravels (Alastair Crooke)

• Saudi ‘Corruption’ Probe Widens: Dozens Of Military Officials Arrested (ZH)

• Hariri Arrives in Paris With Family Amid Saudi-Iran Tensions (BBG)

• Qatar Says It Has US Backing in Lingering Gulf Crisis (BBG)

• House Prices Aren’t The Issue – Land Prices Are (G.)

• ECB Denies EU Auditors Access To Information On Greek Bailouts (EuA)

• Greek Pensioners Forced To Return ‘Social Dividend’ (K.)

• UK Considers Tax On Single-Use Plastics To Tackle Ocean Pollution (G.)

• Irish Catholic Priest Urges Christians To Abandon The Word Christmas (G.)

Powerful graph from Bob Prechter.

• Consumers Are Both Confident And Broke (John Rubino)

Elliott Wave International recently put together a chart (click here or on the chart to watch the accompanying video) that illustrates a recurring theme of financial bubbles: When good times have gone on for a sufficiently long time, people forget that it can be any other way and start behaving as if they’re bulletproof. They stop saving, for instance, because they’ll always have their job and their stocks will always go up. Then comes the inevitable bust. On the following chart, this delusion and its aftermath are represented by the gap between consumer confidence (our sense of how good the next year is likely to be) and the saving rate (the portion of each paycheck we keep for a rainy day). The bigger the gap the less realistic we are and the more likely to pay dearly for our hubris.

“Prior to 2000, debt was able to support a rising standard of living..” Two decades later, it can’t even maintain the status quo. That’s what you call a breaking point.

• You Have Been Warned (Lance Roberts)

There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week. On Tuesday, we saw the release of the Producer Price Index (PPI) which ROSE 0.4% for the month following a similar rise of 0.4% last month. This surge in prices was NOT surprising given the recent devastation from 3-hurricanes and massive wildfires in California which led to a temporary surge in demand for products and services.

Then on Wednesday, the Consumer Price Index (CPI) was released which showed only a small 0.1% increase falling sharply from the 0.5% increase last month.

This deflationary pressure further showed up on Thursday with a -0.3 decline in Export prices. (Exports make up about 40% of corporate profits) For all of you that continue to insist this is an “earnings-driven market,” you should pay very close attention to those three data points above. When companies have higher input costs in their production they have two choices: 1) “pass along” those price increase to their customers; or 2) absorb those costs internally. If a company opts to “pass along” those costs then we should have seen CPI rise more strongly. Since that didn’t happen, it suggests companies are unable to “pass along” those costs which means a reduction in earnings. The other BIG report released on Wednesday tells you WHY companies have been unable to “pass along” those increased costs.

The “retail sales” report came in at just a 0.1% increase for the month. After a large jump in retail sales last month, as was expected following the hurricanes, there should have been some subsequent follow through last month. There simply wasn’t. More importantly, despite annual hopes by the National Retail Federation of surging holiday spending which is consistently over-estimated, the recent surge in consumer debt without a subsequent increase in consumer spending shows the financial distress faced by a vast majority of consumers. The first chart below shows a record gap between the standard cost of living and the debt required to finance that cost of living. Prior to 2000, debt was able to support a rising standard of living, which is no longer the case currently.

With a current shortfall of $18,176 between the standard of living and real disposable incomes, debt is only able to cover about 2/3rds of the difference with a net shortfall of $6,605. This explains the reason why “control purchases” by individuals (those items individuals buy most often) is running at levels more normally consistent with recessions rather than economic expansions.

If companies are unable to pass along rising production costs to consumers, export prices are falling and consumer demand remains weak, be warned of continued weakness in earnings reports in the months ahead. As I stated earlier this year, the recovery in earnings this year was solely a function of the recovering energy sector due to higher oil prices. With that tailwind now firmly behind us, the risk to earnings in the year ahead is dangerous to a market basing its current “overvaluation” on the “strong earnings” story.

Another way to push up prices?

• Norway Plan to Sell Off $35 Billion in Oil, Gas Stocks Rattles Markets (BBG)

Norway’s proposal to sell off $35 billion in oil and natural gas stocks brings sudden and unparalleled heft to a once-grassroots movement to enlist investors in the fight against climate change. The Nordic nation’s $1 trillion sovereign wealth fund said Thursday that it’s considering unloading its shares of Exxon Mobil, Royal Dutch Shell and other oil giants to diversify its holdings and guard against drops in crude prices. European oil stocks fell. Norges Bank Investment Management would not be the first institutional investor to back away from fossil fuels. But until now, most have been state pension funds, universities and other smaller players that have limited their divestments to coal, tar sands or some of the other dirtiest fossil fuels. Norway’s fund is the world’s largest equity investor, controlling about 1.5% of global stocks. If it follows through on its proposal, it would be the first to abandon the sector altogether.

“This is an enormous change,” said Mindy Lubber, president of Ceres, a non-profit that advocates for sustainable investing. “It’s a shot heard around the world.” The proposal rattled equity markets. While Norwegian officials say the plan isn’t based on any particular view about future oil prices, it’s apt to ratchet up pressure on fossil fuel companies already struggling with the growth of renewable energy. Norway’s Finance Ministry, which oversees the fund, said it will study the proposal and will take at least a year to decide what to do. The fund has already sold off most of its coal stocks. “People are starting to recognize the risks of oil and gas,” said Jason Disterhoft of the Rainforest Action Network, which pushes banks to divest from fossil fuels.

From the biggest wealth fund to the biggest wealth manager.

• The World’s Biggest Wealth Manager Won’t Touch Bitcoin (BBG)

UBS, the world’s largest wealth manager, isn’t prepared to make portfolio allocations to bitcoin because of a lack of government oversight, the bank’s chief investment officer said. Bitcoin has also not reached the critical mass to be considered a viable currency to invest in, UBS’s Mark Haefele said in an interview. The total sum of all cryptocurrencies is “not even the size of some of the smaller currencies” that UBS would allocate to, he said. Bitcoin has split investors over the viability of the volatile cryptocurrency and UBS is among its critics. Bitcoin capped a resurgent week by climbing within a few dollars of a record $8,000 on Friday. Still, events such as a bitcoin-funded terrorist attack are potential risks which are hard to evaluate, he said.

“All it would take would be one terrorist incident in the U.S. funded by bitcoin for the U.S. regulator to much more seriously step in and take action, he said. “That’s a risk, an unquantifiable risk, bitcoin has that another currency doesn’t.” While skeptics have called bitcoin’s rapid advance a bubble, it has become too big an asset for many financial firms to ignore. Bitcoin has gained 17% this week, touching a high of $7,997.17 during Asia hours before moving lower in late trading. The rally through Friday came after bitcoin wiped out as much as $38 billion in market capitalization following the cancellation of a technology upgrade known as SegWit2x on Nov. 8.

Former (and current?!) TAE contributor Alastair Crooke draws his conclusions.

• Trump’s Saudi Scheme Unravels (Alastair Crooke)

Aaron Miller and Richard Sokolsky, writing in Foreign Policy, suggest “that Mohammed bin Salman’s most notable success abroad may well be the wooing and capture of President Donald Trump, and his son-in-law, Jared Kushner.” Indeed, it is possible that this “success” may prove to be MbS’ only success. “It didn’t take much convincing”, Miller and Sokolski wrote: “Above all, the new bromance reflected a timely coincidence of strategic imperatives.” Trump, as ever, was eager to distance himself from President Obama and all his works; the Saudis, meanwhile, were determined to exploit Trump’s visceral antipathy for Iran – in order to reverse the string of recent defeats suffered by the kingdom.

So compelling seemed the prize (that MbS seemed to promise) of killing three birds with one stone (striking at Iran; “normalizing” Israel in the Arab world, and a Palestinian accord), that the U.S. President restricted the details to family channels alone. He thus was delivering a deliberate slight to the U.S. foreign policy and defense establishments by leaving official channels in the dark, and guessing. Trump bet heavily on MbS, and on Jared Kushner as his intermediary. But MbS’ grand plan fell apart at its first hurdle: the attempt to instigate a provocation against Hezbollah in Lebanon, to which the latter would overreact and give Israel and the “Sunni Alliance” the expected pretext to act forcefully against Hezbollah and Iran.

Stage One simply sank into soap opera with the bizarre hijacking of Lebanese Prime Minister Saad Hariri by MbS, which served only to unite the Lebanese, rather than dividing them into warring factions, as was hoped. But the debacle in Lebanon carries a much greater import than just a mishandled soap opera. The really important fact uncovered by the recent MbS mishap is that not only did the “dog not bark in the night” – but that the Israelis have no intention “to bark” at all: which is to say, to take on the role (as veteran Israeli correspondent Ben Caspit put it), of being “the stick, with which Sunni leaders threaten their mortal enemies, the Shiites … right now, no one in Israel, least of all Prime Minister Benjamin Netanyahu, is in any hurry to ignite the northern front. Doing so, would mean getting sucked into the gates of hell”.

Targeting the military means MbS does not feel safe. How desperate is he?

• Saudi ‘Corruption’ Probe Widens: Dozens Of Military Officials Arrested (ZH)

After jailing dozens of members of the royal family, and extorting numerous prominent businessmen, 32-year-old Saudi prince Mohammed bin Salman has widened his so-called ‘corruption’ probe further still. The Wall Street Journal reports that at least two dozen military officers, including multiple commanders, recently have been rounded up in connection to the Saudi government’s sweeping corruption investigation, according to two senior advisers to the Saudi government. Additionally, several prominent businessmen also were taken in by Saudi authorities in recent days. “A number of businessmen including Loai Nasser, Mansour al-Balawi, Zuhair Fayez and Abdulrahman Fakieh also were rounded up in recent days, the people said. Attempts to reach the businessmen or their associates were unsuccessful.”

It isn’t clear if those people are all accused of wrongdoing, or whether some of them have been called in as witnesses. But their detainment signals an intensifying high-stakes campaign spearheaded by Saudi Arabia’s 32-year-old crown prince, Mohammed bin Salman. There appear to be three scenarios behind MbS’ decision to go after the military: 1) They are corrupt and the entire process is all above board and he is doing the right thing by cleaning house; 2) They are wealthy and thus capable of being extorted (a cost of being free) to add to the nation’s coffers; or 3) There is a looming military coup and by cutting off the head, he hopes to quell the uprising. If we had to guess we would weight the scenarios as ALL true with the (3) becoming more likely, not less.

So far over 200 people have been held without charges since the arrests began on November 4th and almost 2000 bank accounts are now frozen, which could be why, as The Daily Mail reports, Saudi prince and billionaire Al-Waleed bin Talal has reportedly put two luxury hotels in Lebanon up for sale after being detained in his country during a corruption sweep. The Saudi information ministry previously stated the government would seize any asset or property related to the alleged corruption, meaning the Savoy hotel could well become the state property of the kingdom. ‘The accounts and balances of those detained will be revealed and frozen,’ a spokesman for Saudi Arabia’s information ministry said. ‘Any asset or property related to these cases of corruption will be registered as state property.’

France and Germany play completely different roles. Hariri has said he will return to Lebanon by Wednesday.

• Hariri Arrives in Paris With Family Amid Saudi-Iran Tensions (BBG)

Saad Hariri arrived in France with his family amid mounting concern that his country, Lebanon, may once again turn into a battleground for a showdown between Saudi Arabia and Iran. The Lebanese prime minister and his family were invited to France by President Emmanuel Macron. French officials say they can’t say how long Hariri will stay. On Saturday, Macron and Hariri will meet at noon for talks, following which the Lebanese leader and his family will have lunch at the Elysee Palace. Hariri, 47, hasn’t returned to Lebanon since his shock resignation announcement from Saudi Arabia on Nov. 4, which sparked fears of an escalating regional conflict between the kingdom and Iran. The Saudi government has denied accusations it was holding Hariri against his will. The kingdom recalled its ambassador to Germany in response to comments made by Foreign Minister Sigmar Gabriel.

Hariri weighed in on the spat, suggesting that Gabriel has accused the kingdom of holding him hostage. “To say that I am held up in Saudi Arabia and not allowed to leave the country is a lie. I am on the way to the airport, Mr. Sigmar Gabriel,” he said on Twitter. In limited public comments and on Twitter, Hariri has sought to dispel speculation that Saudi Arabia asked him to resign because he wouldn’t confront Hezbollah, an Iranian-backed Shiite Muslim group that plays a key role in Lebanon’s fragile government. The group is considered a terrorist organization by countries including Israel and the U.S., and it has provided crucial military support to President Bashar al-Assad’s regime in Syria’s war.

Macron, who met with Saudi Arabia Crown Prince Mohammed bin Salman in Riyadh, said last week that the two agreed that Hariri “be invited for several days to France.” He also reiterated France’s pledge to help protect Lebanon’s “independence and autonomy.” Hariri will be welcomed in France “as a friend,” Foreign Minister Jean-Yves Le Drian said a press conference in Riyadh on Thursday after meeting with Saudi authorities. French officials have said they still regard Hariri as Lebanon’s prime minister since the country’s president, Michel Aoun, rejected his resignation on the grounds that it must be handed over on Lebanese soil.

And if you weren’t confused enough yet, there’s this:

• Qatar Says It Has US Backing in Lingering Gulf Crisis (BBG)

Qatar’s foreign minister said the tiny emirate has U.S. backing to resolve the ongoing crisis with a Saudi-led alliance, but the country is also prepared should its Gulf Arab neighbors make military moves. The Trump administration is encouraging all sides to end the dispute and has offered to host talks at the Camp David presidential retreat, but only Qatar has agreed to the dialogue, Foreign Minister Sheikh Mohammed Al-Thani said Friday. Four countries in the Saudi-led bloc severed diplomatic and transport links with Qatar in June, accusing it of backing extremist groups, a charge Doha has repeatedly denied. Saudi Arabia closed Qatar’s only land border. Sheikh Mohammed said he will meet Secretary of State Rex Tillerson next week after having talks this week with Senate Foreign Relations Committee chairman Bob Corker and ranking member Ben Cardin as well as other congressional leaders.

“The Middle East needs to be addressed as the top priority of the foreign policy agenda of the United States,” he told reporters in Washington on Friday. “We see a pattern of irresponsibility and a reckless leadership in the region, which is just trying to bully countries into submission.” The Middle East has been a key foreign policy issue for the Trump administration, with much of it centered around support for the Saudis. The White House has backed the kingdom’s “anti-corruption” campaign that has ensnared top princes and billionaires once seen as U.S. allies, it has provided support for the Saudis in their war in Yemen and it has been muted in criticism of the crisis sparked when Lebanon’s prime minister unexpectedly resigned this month while in Saudi Arabia. Meanwhile, mediation attempts by Kuwait and the U.S. have failed to settle the spat with the Saudi-led bloc and Qatar.

Sheikh Mohammed accused Saudi Arabia of interfering in other countries’ affairs, citing the resignation of Lebanese Prime Minister Saad Hariri as an example of the oil-rich kingdom’s overreach and warning that other countries could be next. Asked about the prospect of the Saudi-led bloc taking military action, Sheikh Mohammed said though Qatar hopes that won’t happen, his country is “well-prepared” and can count on its defense partners, including France, Turkey, the U.K. and the U.S., which has a base in Qatar. “We have enough friends in order to stop them from taking these steps,” but “there is a pattern of unpredictability in their behavior so we have to keep all the options on the table for us,” he said. On the U.S. military presence, “if there is any aggression when it comes to Qatar, those forces will be affected,” he added.

There is nothing secret about land tax. Nor is it anything new. It can be implemented tomorrow morning.

• House Prices Aren’t The Issue – Land Prices Are (G.)

While reporting on the recent court case where controversial landlord Fergus Wilson defended (but lost) his right to refuse to let to Indians and Pakistanis, I learned something about how he’s now making money. He is now far from being Britain’s biggest buy-to-let landlord. He’s down to 350 homes, from a peak of 1,000. And what’s he doing with the cash made from sales? Buying agricultural land close to Kent’s biggest towns. One plot he bought for £45,000 is now worth, he boasted, £3m with development permission. And therein lies the reason why we have a housing crisis.

As long ago as 1909, Winston Churchill, then promoting Lloyd George’s “people’s budget” and its controversial measures to tax land, told an audience in Edinburgh that the landowner “sits still and does nothing” while reaping vast gains from land improvements by the municipality, such as roads, railways, power from generators and water from reservoirs far away. “Every one of those improvements is effected by the labour and the cost of other people … To not one of those improvements does the land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced … he contributes nothing even to the process from which his own enrichment is derived.”

When Britain’s post-war housebuilding boom began, it was based on cheap land. As a timely new book, The Land Question by Daniel Bentley of thinktank Civitas, sets out, the 1947 Town and Country Planning Act under Clement Attlee’s government allowed local authorities to acquire land for development at “existing use value”. There was no premium because it was earmarked for development. The New Towns Act 1946 was similar, giving public corporation powers to compulsorily purchase land at current-use value. The unserviced land cost component for homes in Harlow and Milton Keynes was just 1% of housing costs at the time. Today, the price of land can easily be half the cost of buying a home..

Democracy in 2017.

• ECB Denies EU Auditors Access To Information On Greek Bailouts (EuA)

The European Central Bank (ECB) challenged an attempt by the European Court of Auditors (ECA), the watchdog of EU finances, to examine the Bank’s role in the Greek bailout and reform programmes and refused to provide access to some requested information, citing banking confidentiality. The European Court of Auditors published a report assessing the effectiveness and results of the Greek bailouts on Thursday (16 November). “In line with the ECA’s mandate to audit the operational efficiency of the management of the ECB, we have attempted to examine the Bank’s involvement in the Greek Economic Adjustment Programmes. However, the ECB questioned the Court’s mandate in this respect,” the report reads. The auditors examined the role of the European Commission and found some shortcomings in its approach, which they said overall lacked transparency.

They made a series of recommendations to improve the design and implementation of the Economic Adjustment Programmes. “These recommendations have been accepted in full,” the report said. However, the ECB had invoked the banking confidentiality and denied access to specific information. “It [ECB] did not provide sufficient amount of evidence and thus we were unable to report on the role of the ECB in the Greek programmes,” the auditors said. The report pointed out that the European Parliament had specifically asked the Court to analyse the role of the ECB in financial assistance programmes. It noted that EU auditors had faced similar problems with obtaining evidence from the ECB when reviewing the Single Supervisory Mechanism.

The report highlighted the ECB’s decision on 4 February 2015 to suspend the waiver for accepting Greek government bonds as loan collateral, thereby automatically increasing short-term borrowing costs for the banks. That happened during the tough negotiations between Greece’s leftist government and its international lenders before the third bailout. Many believed it was meant to put additional pressure on Alexis Tsipras’ government to back down and respect the obligations undertaken by the country’s previous governments.

It just gets crazier all the time. If your intention was to make sure an economy slowly dies, this is the way to go.

“Retirees on low pensions will effectively have to return the handout they get in late December at the end of January..”

• Greek Pensioners Forced To Return ‘Social Dividend’ (K.)

Salary workers, retirees on low pensions, property owners and families with three or more children will bear the brunt of the new austerity measures accompanying the 2018 budget, which come to 1.9 billion euros. Next year the primary budget surplus will have to rise to 3.5% of GDP, therefore more cuts will be required, with low-income pensioners – the recipients of next month’s so-called “social dividend” – set to contribute most, according to the new measures. Retirees on low pensions will effectively have to return the handout they get in late December at the end of January, as the cost of pension interventions according to the midterm fiscal strategy plan amounts to 660 million euros. This is just 60 million euros shy of the social dividend’s 720 million euros that Prime Minister Alexis Tsipras promised this week.

The new measures for 2018 are set to be reflected in the final draft of the budget that is to be tabled in Parliament on Tuesday. They are likely to further increase the amount of expired debts to the state, after the addition of 34 billion euros from unpaid taxes and fines in the last three years, owing to the inability of most taxpayers to meet their obligations to the tax authorities. Plans for next year provide for the further reduction of salaries in the public sector in the context of the single salary system, additional cuts to pensions and family benefits, as well as the abolition of the handout to most low-income pensioners (EKAS). Freelance professionals are also in for an extra burden in 2018, due to the increase in their social security contributions that will be calculated on the sum of their taxable incomes and the contributions they paid in 2017.

The UN should be all over this.

• UK Considers Tax On Single-Use Plastics To Tackle Ocean Pollution (G.)

The chancellor, Philip Hammond, will announce in next week’s budget a “call for evidence” on how taxes or other charges on single-use plastics such as takeaway cartons and packaging could reduce the impact of discarded waste on marine and bird life, the Treasury has said. The commitment was welcomed by environmental and wildlife groups, though they stressed that any eventual measures would need to be ambitious and coordinated. An estimated 12m tonnes of plastic enters the oceans each year, and residues are routinely found in fish, sea birds and marine mammals. This week it emerged that plastics had been discovered even in creatures living seven miles beneath the sea. The introduction just over two years ago of a 5p charge on single-use plastic bags led to an 85% reduction in their use inside six months.

Separately, the environment department is seeking evidence on how to reduce the dumping of takeaway drinks containers such as coffee cups through measures such as a deposit return scheme. Announcing the move on plastics, the Treasury cited statistics saying more than a million birds and 100,000 sea mammals and turtles die each year from eating or getting tangled in plastic waste. The BBC series Blue Planet II has highlighted the scale of plastic debris in the oceans. In the episode to be broadcast this Sunday, albatrosses try to feed plastic to their young, and a pilot whale carries her dead calf with her for days in mourning. Scientists working with the programme believed the mother’s milk was made poisonous by pollution. The call for evidence will begin in the new year and will take into account the findings of the consultation on drinks containers.

Tisha Brown, an oceans campaigner for Greenpeace UK, said the decades-long use of almost indestructible materials to make single-use products “was bound to lead to problems, and we’re starting to discover how big those problems are”. She said: “Ocean plastic pollution is a global emergency, it is everywhere from the Arctic Ocean at top of the world to the Marianas trench at the bottom of the Pacific. It’s in whales, turtles and 90% of sea birds, and it’s been found in our salt, our tap water and even our beer.

It’s either Christ or Santa Claus. Makes sense.

• Irish Catholic Priest Urges Christians To Abandon The Word Christmas (G.)

An Irish Catholic priest has called for Christians to stop using the word Christmas because it has been hijacked by “Santa and reindeer”. Father Desmond O’Donnell said Christians of any denomination need to accept Christmas now has no sacred meaning. O’Donnell’s comments follow calls from a rightwing pressure group for a boycott of Greggs bakery in the UK after the company replaced baby Jesus with a sausage roll in a nativity scene. “We’ve lost Christmas, just like we lost Easter, and should abandon the word completely,” O’Donnell told the Belfast Telegraph. “We need to let it go, it’s already been hijacked and we just need to recognise and accept that.”

O’Donnell said he is not seeking to disparage non-believers. “I am simply asking that space be preserved for believers for whom Christmas has nothing to do with Santa and reindeer. “My religious experience of true Christmas, like so many others, is very deep and real – like the air I breathe. But non-believers deserve and need their celebration too, it’s an essential human dynamic and we all need that in the toughness of life.”

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