Apr 292016
 
 April 29, 2016  Posted by at 8:40 am Finance Tagged with: , , , , , , , , , , ,  


Harris&Ewing Treasury Building, Fifteenth Street, Washington, DC 1918

Asia’s Two Biggest Stock Markets Have Become An $11 Trillion Headache (BBG)
Japan’s Abenomics ‘Dead In The Water’ After US Currency Warnings (AEP)
Debt Is Growing Faster Than Cash Flow By The Most On Record (ZH)
The Typical American Couple Has Only $5,000 Saved For Retirement (MW)
US Corporate Profits on Pace for Third Straight Decline (WSJ)
Dollar Drops to 11-Month Low as Asian Stocks Fall; Oil Near $46 (BBG)
Sluggish US Growth Part Of A Worrying Global Trend (G.)
Renting In London More Costly Than Living In Most European 4-Star Hotels (Ind.)
China Banks’ Profit Growth Stalls As Bad Debts Rise (R.)
China’s Central Bank Raises Yuan Fixing by Most Since July 2005 (BBG)
Puerto Rico Risks Historic Default as Congress Chooses Inaction (BBG)
El Niño Dries Up Asia As Its Stormy Sister La Niña Looms (AFP)
German Inflation Turns Negative In April (R.)
Greece’s Perfect Debt Trap (Kath.)
German Minister Proposes Law To Limit Social Benefits For EU-Foreigners (DW)
Finland Parliament, Pressured By Weak Economy, Debates Euro Exit (R.)
Italy Says Austria ‘Wasting Money’ In Migrant Border Row (AFP)
One Nation in Europe Wants Refugees But Is Failing to Get Enough (BBG)

$11 trillion is merely the start.

Asia’s Two Biggest Stock Markets Have Become An $11 Trillion Headache (BBG)

Asia’s two biggest stock markets are jostling for an ignominious prize. Japan’s Topix index and China’s Shanghai Composite Index have tumbled more than 13% in 2016 to rank along Nigerian and Mongolian shares as the world’s worst performers. In the two years through the end of December, the Asian gauges outperformed MSCI’s global measure by at least 20 percentage points. The Bank of Japan stood pat on monetary policy Thursday, sending Tokyo stocks tumbling, while the Shanghai measure fell to a one-month low. The benchmark gauges in two of the world’s largest stock markets, which have a combined value of almost $11 trillion, are declining as investors detect a reduced appetite from policy makers to boost monetary stimulus.

Thursday’s BOJ decision was the first under Governor Haruhiko Kuroda where a majority of economists expected easing that didn’t materialize, while strategists now see China’s central bank keeping its main interest rate on hold until the fourth quarter. “Neither China nor Japan have a solid plan on dealing with their slowing economies,” said Tomomi Yamashita at Shinkin Asset Management. “There is still scope for easing, and as for Japan there are fiscal policies they can carry out. There’s still hope. But today there was just too much hope on the BOJ.”

The Topix sank 3.2% on Thursday after the central bank kept bond-buying, interest rates and exchange-traded fund purchases unchanged. The stock gauge has fallen for four straight days, handing losses to foreign investors who piled the equivalent of $4.9 billion into the market last week, the most in a year. Overseas traders were net sellers of Japanese equities for the first 13 weeks of 2016. “I give up,” Ryuta Otsuka at Toyo Securities in Tokyo said. “It’s a really disappointing result and I feel like throwing in the towel. It cuts because we had so much hope.” The Topix posted four straight annual gains through 2015, while even a $5 trillion rout in Chinese shares last summer couldn’t stop the Shanghai Composite from being the world’s top-performing major market over the last two years. The declines for both gauges in 2016 compare with a 2.5% advance by the S&P 500, which is closing in on last year’s record.

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Sometimes I wonder why it takes people so long to figure things out. I’ve been saying ever since Abenomics was launched that it would fail. Because it was always pie in the sky only, not based on any understanding of what caused spending to plummet.

Japan’s Abenomics ‘Dead In The Water’ After US Currency Warnings (AEP)

The Bank of Japan has been forced to retreat from further emergency stimulus after a blizzard of criticism at home and abroad, and warnings that extreme measures may now be doing more harm than good. The climb-down by the world’s most radical central bank is the latest sign that the monetary experiments since Lehman crisis may have run their course. The authorities have not exhausted their ammunition but are hitting political and legal constraints. The yen surged 3pc against the US dollar in the biggest one-day move in eight months and equities skidded across Asia after the BOJ failed to take fresh action to stave off deepening deflation, catching markets badly off guard. Governor Haruhiko Kuroda dashed hopes for ‘helicopter money’, warning that direct monetary financing of spending would be “illegal”.

Mr Kuroda insisted that the BoJ still has plenty of firepower and can at any time push interest rates even deeper into negative territory or boost bond purchases beyond the current $74bn a month. “If additional easing is needed, we will do so promptly,” he said. The reality is that negative rates (NIRP) have backfired badly on every front. They have prompted bitter protests from banks and money market funds caught in a squeeze. The yen has appreciated by 10pc since the BoJ first embarked on the policy in January, the exact opposite of what was intended. The rising yen – ‘endaka’ – is pushing Japan deeper into a deflation trap and undercutting the whole purpose of ‘Abenomics’. Core inflation has fallen to minus 0.3pc. The Nikkei has dropped 13pc this year, with contractionary wealth effects that make the BoJ’s task even harder.

“Negative rates have completely failed,” said David Bloom from HSBC. Washington will not tolerate the use of NIRP in any case, deeming it a disguised attempt to drive down exchange rates and export problems to the rest of the world. Jacob Lew, the US Treasury Secretary, warned Japan and the eurozone at the G20 in Shanghai in February that the Obama administration is losing patience with use of beggar-thy-neighbour tactics by countries already running a current account surplus. They are in effect shifting their excess capacity abroad. Germany in particular is coming into the US cross-hairs. Richard Koo from Nomura said the US is now on the warpath against currency manipulators. Mr Lew’s threat effectively renders Abenomics “dead in the water”. The Japanese economy is contracting again, caught in a debt-deflation vice.

Growth has been negative for four of the last eight quarters. What was once a ‘Lost Decade’ is turning into a “Lost Quarter Century” with no remedy in sight. “Their options are diminishing. I can’t see any way out of the debt-trap, and it is an acid test for the western world,” said Neil Mellor from BNY Mellon. Public debt is rising fast on a shrinking economic base, pushing the public debt ratio to an estimated 250pc of GDP this year. “The debt will never be ‘repaid’ in the normal sense of the word,” said Lord (Adair) Turner from the Institute for New Economic Thinking. Olivier Blanchard, the former chief economist for the International Monetary Fund, warned recently that country is nearing the end-game as the pool of domestic funding for the bond market starts to dry up and the Japanese treasury is forced to rely on much more costly capital from global investors.

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The predictable culmination of decades of a failed system is a hockeystick.

Debt Is Growing Faster Than Cash Flow By The Most On Record (ZH)

By now it is a well-known fact that corporations have no real way of generating organic growth in this economy, so they are relying on two things to boost share prices: multiple expansion (courtesy of central banks) and debt-funded buybacks (courtesy of central banks), the latter of which requires the firm to generate excess incremental cash. Incidentally, as SocGen showed last year, all the newly created debt in the 21st century has gone for just one thing: to fund stock buybacks.

 

The problem with this is that if a firm is going to continue to add debt to its balance sheet in order to fund buybacks (and dividends), then it needs to be able to generate enough operational cash flow in order to service the debt. Even if one makes the argument that debt is cheap right now, which may be true, or that central banks are backstopping it, which is certainly true in Europe as of a month ago, the fact remains that principal balances come due eventually also, and while debt can be rolled over, at some point the inability to generate cash from the operations catches up with them; furthermore even a small increase in rates means the rolling debt strategy is dies a painful death, as early 2016 showed.

In the following chart we can see net debt growth skyrocketing nearly 30% y/y, while EBITDA (cash flow) has been contracting for the past year. In fact, as SocGen shows below, the difference in the growth rate between these two most critical data series is now over 35% – the biggest negative differential in recent history.

 

Of course, every finance 101 student knows that a firm which has to borrow more cash than it is able to produce from its core operations is not a sustainable business model, and yet today’s CFOs, pundits and central bankers do not. And the next question is: what happens if the Fed does raise rates, what happens to the feasibility of these companies servicing the debt while also spending on R&D and CapEx (assuming there is any), and who can only afford the rising interest expense as a result of ever smaller interest rates? The answer is, first, massive cost cutting, i.e. layoffs, which would be a poetic way for the Fed’s disastrous policies to be reintroduced to the real economy… and then, more to the point, mass defaults. 

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Our entire societies will have to change dramatically because of this. Parents will have to move in with their children again. The children who earn much less than the parents did.

The Typical American Couple Has Only $5,000 Saved For Retirement (MW)

When American companies began switching from traditional pensions to self-directed 401(k)-like plans in the 1980s and 1990s, it was supposed to lead to a golden age of retirement security. No longer would workers be at the mercy of the company’s generosity or of Social Security’s solvency; workers themselves would be responsible for saving enough for a comfortable retirement. Some 30 years later, the results are in: The median working-age couple has saved only $5,000 for their retirement, according to an analysis of the Federal Reserve’s 2013 Survey of Consumer Finances by economist Monique Morrissey of the Economic Policy Institute. The do-it-yourself pension system is a disaster.

Even as the traditional company-funded pension has nearly disappeared and even as Social Security benefits are being slowly eroded, most workers haven’t saved enough to offset those losses to their retirement income. 70% of couples have less than $50,000 saved. Even those on the cusp of retirement — the median couple in their late 50s or early 60s — has saved only $17,000 in a retirement savings account, such as a defined-contribution 401(k), individual retirement account, Keogh or similar savings account. How long does $5,000, or even $50,000, last? Until the first big medical bill? Morrissey figures that about 43% of working-age families have no retirement savings at all. Among those who are five to 10 years away from retirement, 39% have no retirement savings of their own.

The sad fact is that most Americans are less prepared for retirement than Americans were 30 years ago. Few have enough pension wealth to make much difference in their lives once they stop working. The lack of savings in 401(k) and individual retirement accounts wouldn’t be a such big deal if retirees could rely on other sources of income, such as a traditional defined-benefit pension or Social Security. But those other income sources are declining. Fewer and fewer newly retired people are covered by a regular pension that provides a guaranteed monthly check based on salary and years of service. In addition, Social Security benefits are already being reduced as the normal retirement age is gradually increased from 65 to 67. Further reductions in Social Security benefits — by limiting the cost-of-living adjustment or by increasing the normal retirement age to 70, for example – would be disastrous for tomorrow’s retirees.


The median working-age couple had $5,000 in a retirement savings account as of the most recent data. The top 10% of savers had accumulated $274,000, according to the Economic Policy Institute analysis of Federal Reserve survey data

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Forget growth. Think survival.

US Corporate Profits on Pace for Third Straight Decline (WSJ)

U.S. corporate profits, weighed down by the energy slump and slowing global growth, are set to decline for the third straight quarter in the longest slide in earnings since the financial crisis. Weakness was felt across the board, with executives from Apple to railroad Norfolk Southern and snack giant Mondelez saying the current quarter remains tough. 3M, which makes tapes, filters and insulation for consumer electronics, forecast continued weak demand for that industry. Procter & Gamble reported sales declines in its five business categories despite price increases. “It’s a difficult environment indeed,” said PepsiCo CEO Indra Nooyi. “Most of the developed world outside the United States is grappling with slow growth. GDP growth in developing and emerging markets is also challenged.”

The concerns from company executives echo weak economic data released Thursday morning, which showed U.S. gross domestic product rose just 0.5% in the first quarter. Business investment and consumer spending on goods slowed, while consumer spending on services climbed. “On the one hand, consumer spending continued to be the primary economic driver in the U.S. On the other hand, industrial production has been disappointing,” United Parcel Service Inc. CEO David Abney said Thursday after the delivery company reported a 3.1% revenue increase. Based on the 55% of companies in the S&P 500 index that had already reported results Thursday morning, Thomson Reuters expects overall earnings to decline by 6.1% in the first quarter compared with a year earlier.

Even excluding energy companies, which are expected to have their worst quarter since oil prices began to plunge in 2014, profits are on pace to fall by 0.5%. Revenues are expected to fall 1.4% overall, or rise 1.7% excluding energy, according to Thomson Reuters. This would mark the S&P 500’s third consecutive quarter of declining earnings—the longest streak since the financial crisis. Revenues will have declined for five quarters in a row, outstripping even the four-quarter slide in 2008 and 2009.

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The US dollar is set to rise like a mushroom cloud and break the global camel’s back.

Dollar Drops to 11-Month Low as Asian Stocks Fall; Oil Near $46 (BBG)

The dollar dropped against all of its G-10 peers after weaker-than-expected U.S. economic growth dimmed prospects for a Federal Reserve interest-rate increase at a time when monetary easing is being put on hold elsewhere. Asian stocks fell and crude oil traded near $46 a barrel. The Bloomberg Dollar Spot Index sank to an 11-month low, while the yen was headed for its biggest weekly jump since 2008 after the Bank of Japan unexpectedly refrained from adding to record stimulus on Thursday. Japanese financial markets are shut for a holiday and an MSCI gauge of shares in the rest of the Asia-Pacific region slid for the third day in a row. The greenback’s decline is proving a plus for commodities, which are poised for their best monthly gain since 2010. Crude has jumped 20% since the end of March, while gold and silver are at 15-month highs.

The BOJ’s surprise decision capped a week of fence-sitting for central banks, with the Fed keeping interest rates steady for a third straight meeting and policy makers from New Zealand to Brazil also holding the line. The slowest pace of American economic expansion in two years reignited some concern over the global outlook, and pushed out bets on the potential timeline for tighter Fed policy. “Central banks look like they have run out of bullets to a degree,” said Mark Lister at Wellington’s Craigs Investment Partners. “We’re getting to that point where there are limits to the results they can get from anything more they do. This points to a fragile outlook with still a lot of risks out there.”

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Worrying only if it surprises you perhaps?!

Sluggish US Growth Part Of A Worrying Global Trend (G.)

It would be easy to dismiss the slowdown in the US economy to near-stall speed as a piece of rogue data resulting from the inability of number crunchers at the Department of Commerce in Washington to take account of the fact that large parts of the country are blanketed by snow during the winter. Easy but wrong. Back in spring 2015, the world’s biggest economy was expanding at an annual rate of 3.9%. In the third quarter the growth rate halved to 2%, before falling again to 1.4% in the final three months of the year. Describing the further easing to 0.5% in the first three months of 2016 as a temporary aberration – which was the knee-jerk response of upbeat analysts on Wall Street – is pushing it a bit.

A better explanation is that the sluggishness of US growth is part of a global trend, in which all the major economies are expanding more weakly than they were in the middle of last year. That’s the story for China, the eurozone, Japan and the UK. Each quarter, the data company Markit compiles a global Purchasing Managers’ Index for JP Morgan, with the intention of providing an up-to-date picture of economic conditions. The result for the first three months of 2016 showed activity at its lowest level in more than three years. Nor is there much hint of an improvement in the near future. In the US, firms are hacking back at investment – normally the sign of a looming recession. Consumer confidence has weakened, in part because real incomes are being squeezed.

As export-driven economies, Japan and the eurozone rely on a thriving US to buy their goods, so it is no surprise to find both struggling. The Bank of Japan will be forced to revisit its decision not to provide additional stimulus, since the upshot of its inaction has been a sharp rise in the yen, which will lead to even slower growth. Mario Draghi may again have to lock horns with the Bundesbank president, Jens Weidmann, in order to force through measures aimed at boosting activity in Europe. But the law of diminishing returns is at work. Each cut in interest rates, each fresh dollop of quantitative easing, has less of an impact than the last. The global economy is running out of steam and the conventional weapons are increasingly ineffective. This is not about blizzards shutting factories in Michigan. It goes much deeper than that.

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Britain is a sad joke.

Renting In London More Costly Than Living In Most European 4-Star Hotels (Ind.)

It is now cheaper to live in a 4-star hotel in two-thirds of European capitals than it is to rent the average London flat. Latest figures show that the average rent for a London flat is now £1,676 per month – or £55 a night – having increased by 30% in the last four years. For the same amount of money you could live year round in a hotel in Dublin, Rome, Paris or Brussels. Among the hotels that are more affordable than the average London rent include the Mercure Warszawa Grand in Warsaw that boasts a fitness centre, business facilities and two restaurants.

The Best Western Plus Hotel in Paris, the Nordic Hotel Domicil in Berlin and the Relais Castrum Boccea in Rome can also all be booked for less than £55 a night on travel websites for the 5th May this year. The figures were highlighted by Labour’s Mayoral candidate Sadiq Khan. He said: “Renting a home shouldn’t be a luxury, but under the Tories Londoners could live in 4-star luxury in most of Europe for what they pay. “Rents have gone up by 30% with a Tory Mayor and it would be exactly the same under Zac Goldsmith – with rents soaring above £2,000 a month. Mr Khan said he would create a London-wide social letting agency as well as naming and shaming bad landlords and setting up a landlord licensing scheme.”

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And that’s before the bad debts are properly accounted for, and while the PBoC still issues record amounts of additional debt.

China Banks’ Profit Growth Stalls As Bad Debts Rise (R.)

Four of China’s five largest state-owned banks barely posted any growth in profit in the first quarter, as widely expected, with rising bad debt and narrower margins hitting their bottom lines. The country’s banks face challenges from both defaulting borrowers, who are struggling amid a slowing economy, and successive cuts in interest rates which have eaten away at margins. Industrial and Commercial Bank of China, China’s biggest lender by assets, announced a 0.6% rise in net profit on Thursday. Bank of Communications posted a 0.5% rise in net profit in the first quarter and Agricultural Bank of China a slightly better 1.1% rise in profit. On Tuesday, Bank of China recorded a 1.7% rise in net profit in the fist quarter.

Non-performing loan (NPL) ratios remained flat -or rose- at all four lenders, while bad loan volumes increased, helping to sink loan-loss allowance ratios. At ICBC, the volume of non-performing loans increased 14% in the three-month period to 204.66 billion yuan ($31.60 billion), from 179.52 billion yuan at the end of 2015, sending the bank’s NPL ratio to 1.66% from 1.5%. ICBC’s loan-loss allowance ratio fell to 141.21%, from 156.34% at the end of December. ICBC also pointed to “the continuing impact of five interest rate cuts by the People’s Bank of China” since 2015 as a source of stress. The bank reported its interest margin (NIM) – the difference between its lending rate and the cost of borrowing – fell to 2.28 at the end of the first quarter, from 2.47 at end-December.

At BoC, NIM fell to 1.97 at end-March from 2.12 at end-December. BoCom did not disclose its NIM, but reported a 2.78% decline in net interest income, even as the bank’s net income rose half a% to 19.07 billion yuan for the first quarter. AgBank also did not disclose its NIM. In a bid to relieve banks of the mounting pile of bad debts, China’s central bank is preparing regulations that would allow commercial lenders to swap non-performing loans of companies for stakes in those firms, sources told Reuters in February.

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Going through the motions.

China’s Central Bank Raises Yuan Fixing by Most Since July 2005 (BBG)

China’s central bank responded to an overnight tumble in the dollar by strengthening its currency fixing the most since a peg was dismantled in July 2005. The reference rate was raised by 0.6% to 6.4589 per dollar. A gauge of the greenback’s strength sank 1% on Thursday after the Bank of Japan’s decision to unexpectedly keep monetary policy unchanged sent the yen surging. The offshore yuan was little changed at 6.4834 after gaining 0.3% in the last session. While the change in the fixing is extreme relative to the small moves of recent years, analysts said it reflects increased volatility in the dollar against other major exchange rates rather than a policy shift by the People’s Bank of China. The yuan weakened against a basket of peers even as it climbed versus the greenback on Friday.

“The offshore yuan’s reaction is muted, so it seems the market was already expecting a much stronger fixing,” said Ken Cheung, a currency strategist at Mizuho Bank in Hong Kong. “This is a reaction to the dollar weakness overnight, and there’s not much in the way of policy intention to read into.” The dollar reached the lowest level since June after the yen jumped the most in almost six years and data showed U.S. gross domestic product expanded in the first quarter at the slowest pace in two years. A Bloomberg replica of the CFETS RMB Index, which measures the yuan against 13 exchange rates, fell 0.2% to a 17-month low. The onshore yuan climbed less than 0.1%.

“The fixing is no surprise, the expectation for a stronger yuan fix was laid by the gains for the yen after the Bank of Japan announcement yesterday,” said Patrick Bennett at Canadian Imperial Bank of Commerce in Hong Kong. “The trade weighted basket continues to depreciate, albeit at a modest pace. But the key to the lower trade-weighted rate does not really lie with the PBOC, rather it is the dollar weakness against other major currencies which is the main driver.”

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May 1 is big, but still just a transfer station. July 1 is much bigger.

Puerto Rico Risks Historic Default as Congress Chooses Inaction (BBG)

Even if Puerto Rico manages to strike a last-minute deal to defer bond payments due in three days, the commonwealth’s financial collapse is about to enter an unprecedented phase. Anything short of making the $422 million payment that Puerto Rico says it can’t afford would be considered a technical default. More importantly, it opens the door to larger and more consequential defaults on debt protected by the island’s constitution, and raises the risk of putting efforts to resolve the biggest crisis ever in the $3.7 trillion municipal market into turmoil. Nearly 10 months after Governor Alejandro Garcia Padilla said the commonwealth was unable to repay all its obligations, Puerto Rico has failed to reach an accord on a broad restructuring deal presented to bondholders.

During that time the administration has delayed payments to suppliers, postponed tax refunds, grabbed revenue originally used to repay other bonds and missed payments on smaller agency debt. With its options drying up, no bondholder agreement in sight and Congressional action delayed, defaulting may be the next step for Puerto Rico. “It’s a game changer because it starts an actual legal process with teeth on both sides that can finally advance settlement negotiations,” said Matt Fabian at Municipal Market Analytics. “Pre-default negotiations are really not going anywhere. Post default might have a better chance.” Puerto Rico and its agencies racked up $70 billion in debt after years of borrowing to fill budget deficits and pay bills as its economy shrunk and residents left the island for work on the U.S. mainland.

The island’s Government Development Bank, which lent to the commonwealth and its municipalities, is in talks with creditors to avoid defaulting on the $422 million that’s due May 1. The commonwealth may use a new debt moratorium law if it cannot defer that GDB payment, Jesus Manuel Ortiz, a spokesman for Garcia Padilla, said. While a GDB default would be the largest yet by Puerto Rico, a missed payment on its general obligations would signal to investors that the commonwealth is finally executing on its warnings that it cannot pay its debts. Puerto Rico and its agencies owe $2 billion on July 1, including a $805 million payment on its general-obligation bonds, which are guaranteed under the island’s constitution to be paid before anything else.

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“..60 million people worldwide requiring “urgent assistance..”..

El Niño Dries Up Asia As Its Stormy Sister La Niña Looms (AFP)

Withering drought and sizzling temperatures from El Nino have caused food and water shortages and ravaged farming across Asia, and experts warn of a double-whammy of possible flooding from its sibling, La Nina. The current El Nino which began last year has been one of the strongest ever, leaving the Mekong River at its lowest level in decades, causing food-related unrest in the Philippines, and smothering vast regions in a months-long heat wave often topping 40 degrees Celsius (104 Fahrenheit). Economic losses in Southeast Asia could top $10 billion, IHS Global Insight told AFP. The regional fever is expected to break by mid-year but fears are growing that an equally forceful La Nina will follow.

That could bring heavy rain to an already flood-prone region, exacerbating agricultural damage and leaving crops vulnerable to disease and pests. “The situation could become even worse if a La Nina event — which often follows an El Nino — strikes towards the end of this year,” Stephen O’Brien, UN under-secretary-general for humanitarian affairs and relief, said this week. He said El Nino has already left 60 million people worldwide requiring “urgent assistance,” particularly in Africa. Wilhemina Pelegrina, a Greenpeace campaigner on agriculture, said La Nina could be “devastating” for Asia, bringing possible “flooding and landslides which can impact on food production.” El Nino is triggered by periodic oceanic warming in the eastern Pacific Ocean which can trigger drought in some regions, heavy rain in others.

Much of Asia has been punished by a bone-dry heat wave marked by record-high temperatures, threatening the livelihoods of countless millions. Vietnam, one of the world’s top rice exporters, has been particularly hard-hit by its worst drought in a century. In the economically vital Mekong Delta bread basket, the mighty river’s vastly reduced flow has left up to 50% of arable land affected by salt-water intrusion that harms crops and can damage farmland, said Le Anh Tuan, a professor of climate change at Can Tho University. More than 500,000 people are short of drinking water, while hotels, schools and hospitals are struggling to maintain clean-water supplies. Neighbouring Thailand and Cambodia also are suffering, with vast areas short of water and Thai rice output curbed.

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You would think the reason to continue executing a policy lies in its success rate. Not so, you poor innocent you. In reality, the very failure of a policy is reason to continue it: if the strongest eurozone economy with low unemployment does not show any signs of inflationary pressures, the ECB after all might have a point in continuing its ultra-loose monetary policy

German Inflation Turns Negative In April (R.)

German consumer prices unexpectedly fell in April, data showed on Thursday, illustrating the scale of the task the ECB faces in trying to propel inflation back to its target range. The eurozone has struggled with little or no inflation for the past year and the ECB expects the bloc-wide figure to turn negative again before slowly ticking up, undershooting its goal of just under 2% for years to come. The ECB unveiled a surprisingly large stimulus package in March but falling inflation expectations have fueled expectations of even more easing, possibly as early as June, when the bank’s staff present new growth and inflation forecasts. “It might be hard for some German ECB critics to digest, but if the strongest eurozone economy with low unemployment does not show any signs of inflationary pressures, the ECB after all might have a point in continuing its ultra-loose monetary policy,” ING Bank economist Carsten Brzeski said.

Separate data on Thursday showed unemployment unexpectedly fell in April, with the jobless rate remaining at its lowest in more than 25 years. German consumer prices, harmonized to compare with other European countries (HICP), fell by 0.1% on the year after a 0.1% rise in March, the Federal Statistics Office said. The Reuters consensus forecast was for a zero reading. On a non-harmonized basis, consumer prices fell 0.2% on the month and inched up 0.1% on the year. A breakdown showed energy remained the main drag while the food, services and rental costs increased at a slower pace. Analysts said the German data suggested that the April inflation rate for the whole eurozone, due out on Friday, would also turn negative again.

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It’s high time now to see how the Greek debt trap is linked to the article above about German deflation. The link continues with the article below this one: Germany monopolizes the benefits of being in the EU.

Greece’s Perfect Debt Trap (Kath.)

The longer we spend in the hole the harder it is to get out. As long as the negotiations with the troika are not finished and the economy is starved of cash, as long as businesses cannot plan for the next day and citizens remain wary of returning cash to the banks, recovery becomes even more difficult. The government promises that after a positive evaluation by creditors the economy will bounce back like a spring released. Even if we were to accept this theory – which would also demand huge investments – a positive evaluation is still the prerequisite. Despite the progress made in the talks, the economy is deteriorating. Indicative of this is a growing inability to pay taxes. Today outstanding tax debts exceed €87 billion. At the end of 2012 they were at €55.1 billion.

They have grown by 32 billion euros since then, equaling the amount raised by tax rate increases over the same period (as Kathimerini reports on Friday). In the first quarter of 2016, outstanding debts increased by €3.22 billion and, by the end of the year, may exceed last year’s total of €13.48 billion. Nonperforming bank loans, which were at 8.2% of the total at the start of 2010, were at 36.4% at the end of 2015. Unpaid dues to social security funds came to €15.78 billion at the end of the first quarter, from €13.02 billion last September. The swelling of these debts did not begin under this government. Previous governments and opposition parties, as well as creditors, all played a role in this. From the start of the crisis, citizens/taxpayers have been buffeted by uncertainty, despair and anger.

The expectation of debt relief encouraged delays in payments, while excessive taxation meant that outstanding payments multiplied. Also, the state, unable to meet its own obligations, held back on paying what it owed to taxpayers. With the worsening economy and the lack of trust, capital controls were inevitable and, of course, drove us deeper into trouble. This anxiety is set to continue. The government cannot undertake the burden of what creditors demand, and the creditors, in turn, appear disinclined to help out. As the Federation of Greek Industries noted in its weekly bulletin on Thursday: “The government’s insistence on raising taxes instead of cutting expenses, and the recessionary impact that this will have on the economy, leads to the troika’s shortsighted persistence on contingency measures which, unfortunately, increase further the recessionary wave and will be the final blow to the economy.”

We are caught in the perfect trap. As long as the negotiations drag on, the instability and lack of confidence will increase outstanding debt at all levels, prevent growth and, in turn, demand even harsher measures. The only way out is for both the government and creditors to show good will and trust each other. After the past year this seems a most unlikely leap of faith.

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Dividing and demolishing the Union brick by brick. Germany wants to be left with the benefits of that union only, and to shed the drawbacks. Not going to work out well.

German Minister Proposes Law To Limit Social Benefits For EU-Foreigners (DW)

EU foreigners living in Germany may soon have to wait five years before qualifying for social benefits, reported newspapers on Thursday, in reference to a new proposed law from German Labor Minister Andrea Nahles. “We have to stop immigration into the social security system,” Nahles said during an interview in December when she announced plans to restrict social benefits for non-German EU citizens. She added that the restrictions were a matter of “self defense” for Germany. Should the law pass, foreigners from fellow EU member states will be strictly excluded from social assistance if they do not work in Germany or have not acquired social security rights through previous work in Germany. With those same conditions, EU foreigners would also be shut out from Germany’s benefit system for the unemployed, which is known as “Hartz IV.”

EU citizens can eventually gain access to social benefits – but only if they have been living in Germany for five years without state assistance. The draft law, however, provides so-called “transition benefits” for those EU foreigners who no longer qualify for social assistance in Germany. For a maximum of four weeks, those affected will receive assistance to cover the costs of food, housing, and health care. They will also be given a loan to cover costs for a return trip to their home country, where they can then apply for social benefits. The new measures are a direct response to a decision by Germany’s Federal Social Court late last year concerning immigrants from EU countries. In December 2015, the court ruled that EU-foreigners would only acquire entitlement to social benefits after living in the country for at least six months. The decision led to backlash from local authorities, who feared the social system would be overburdened.

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This is something we’ll see a lot of. It’s over. What’s left is pretense.

Finland Parliament, Pressured By Weak Economy, Debates Euro Exit (R.)

Finnish lawmakers on Thursday held a rare debate on whether the Nordic country should quit the euro after 53,000 people signed a petition to force the issue into parliament. The petition, although very unlikely to lead to Finland’s exit of the 19-member currency bloc, highlights the growing level of frustration over the country’s economic performance amid rising unemployment, weak outlook and government austerity. The initiative demands a referendum on euro membership, but this would only go ahead if parliament backed such a vote. Although no political group has proposed a euro exit, some euro-sceptic parliamentarians cited lack of independent monetary policy as a problem and said Finland should have held a referendum before adopting the euro in 1998.

Nordic neighbors Sweden and Denmark voted against adopting the euro a few years later. “The euro is too cheap for Germany and too expensive for the rest of Europe, it does not fulfill requirements of an optimal currency union,” said Simon Elo, an MP from the co-ruling euro-sceptic Finns party. The Finnish economy grew by just 0.5% last year after three years of contraction. The stagnation stemmed from a string of problems, including high labor costs, the decline of Nokia’s former phone business and a recession in neighboring Russia. This year, Finland’s economy is expected to grow slower than in any other EU country, except Greece. Some economists say the country’s prospects would improve if it returned to the markka currency which could then devalue against the euro.

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Union? What union?! Get real.

Italy Says Austria ‘Wasting Money’ In Migrant Border Row (AFP)

Italy told Austria Thursday it would prove Vienna was “wasting money” on anti-migrant measures and closing the border between the two countries would be “an enormous mistake”. Austrian Interior Minister Wolfgang Sobotka, who has vigorously defended the controversial package which was driven by a surge of the far right, met his counterpart Angelino Alfano over the plans, which have infuriated Italians. Alfano said “the numbers do not support” fears of a mass movement of migrants and refugees across the famous Brenner Pass in the Alps. Sobotka said preparations would continue for the construction of a 370-metre (yard) barrier which would be up to four metres (13 foot) high in places, but Alfano said the feared-for crisis would not materialise and “we will show them it is money wasted”.

Italian Premier Matteo Renzi has warned that closing the pass would be a “flagrant breach of European rules” and is pushing the European Commission to force Austria to hold off on a move many fear could symbolise the death of the continent’s Schengen open border system. On Thursday he described the bid to close the border as being “utterly removed from reality”. A European Commission spokesman said the body had “grave concerns about anything that can compromise our ‘back to Schengen’ roadmap”. Its chairman Jean-Claude Juncker is expected to discuss the issue with Renzi at talks in Rome on May 5. The Vienna government is under intense domestic pressure to stem the volume of asylum seekers and other migrants arriving on its soil with the far-right surging in polls.

UN chief Ban Ki-moon hit out Thursday at what he called “increasingly restrictive” refugee policies in Europe, saying he was “alarmed by the growing xenophobia here” and elsewhere in Europe, in a speech to the Austrian parliament. More than 350,000 people, many of them fleeing conflict and poverty in countries like Syria, Iraq and Eritrea, have reached Italy by boat from Libya since the start of 2014, as Europe battles its biggest migration crisis since World War II. Wedged between the Italian and Balkan routes to northern Europe, Austria received 90,000 asylum requests last year, the second highest in per capita terms of any EU country. Legislation approved Wednesday by the Austrian parliament enables the government to respond to spikes in migrant arrivals by declaring a state of emergency which provides for asylum seekers to be turned away at border points.

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Portugal sees what Canada sees too. Question is how deliberate is the EU policy of being so slow in relocating refugees to countries asking for them? Portugal wants 10,000. Canada will take a multiple of that.

One Nation in Europe Wants Refugees But Is Failing to Get Enough (BBG)

Portugal has offered to host 10,000 of the refugees who’ve landed on Europe’s shores from the globe’s war-torn zones. So far, it has taken in 234. Not because it doesn’t want to. Rather, because few have come knocking at its door. “It’s difficult to quickly find refugees that can come to Portugal,” President Marcelo Rebelo de Sousa said on Friday as he met migrants in Evora, southern Portugal. As the refugee crisis stretches the struggling Greek government and rattles politics in Germany and beyond, Portugal’s willingness to share the burden isn’t getting a lot of attention. While the country blames a lack of coordination in Europe and administrative roadblocks, the contrast between its economic performance and that of Germany, which admitted more than 1 million migrants in 2015 alone, may also be playing a role.

Although the Portuguese economy recovered in 2014 and accelerated last year after shrinking for three years through 2013, joblessness remains high. Unemployment, which has eased to 12.3% after peaking at 17.5% in 2013, is still almost triple the German rate of 4.3%, and that may continue to dent Portugal’s allure. “It’s not a very appealing destination given the unemployment rate,” said Rui Serra, chief economist at Caixa Economica Montepio Geral in Lisbon. “It’s easier for an immigrant to go to the center of Europe where there is a more concentrated market than in some countries of the periphery like Portugal. In the center of Europe income per capita is higher.” Prime Minister Antonio Costa says there are structural problems in the euro zone that aggravate the disparities.

“That structural problem has to do with the asymmetry between the different economies,” he said in Athens on April 11. “It’s necessary to give a new impulse to the convergence of our economies with the more developed economies of the euro zone.” With the country’s demographics in mind, the Portuguese government has laid out the welcome mat for refugees. Portugal’s population has declined and aged every year from the end of 2011 to about 10.37 million at the end of 2014 as a weak economy has led many working-age residents to leave. Germany’s population, while also aging, still increased overall every year in the same period.

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Nov 182015
 
 November 18, 2015  Posted by at 10:56 am Finance Tagged with: , , , , , , ,  


Christopher Helin Fisk Service garage, San Francisco 1934

Corporate America Cannibalizes Itself With Stock Buybacks (Reuters)
Fear Spreads as China’s Finance Firms Face Arrests (Bloomberg)
Xi Says China’s Economy Resilient, Ample Room For Manoeuvring (AP)
Wall Street Is Running the World’s Central Banks (Bloomberg)
What Are The Economic Possibilities For Our Grandchildren? (Pettifor)
Arms Sales Becoming France’s New El Dorado, But At What Cost? (France24)
Eurodesperation (Coppola)
UK Plans to Prioritise Nuclear, Gas Over Renewables to Cut CO2 (Bloomberg)
El Nino Is Causing California Power Prices to Spike (Bloomberg)
US Pension Investment Giant TIAA-CREF Accused of Brazil Land Grabs (NY Times)
Police Civil Asset Forfeitures Exceed All Burglaries in 2014 (Martin Armstrong)
Putin Sets Up Commission To Combat Terrorism Financing (Reuters)
White House Rejects State Demands For Information On Syrian Refugees (Bloomberg)
Paris Terror Unites East Europe Against Merkel’s Refugee Plan (Bloomberg)
Flow Of Refugees Fueled by 80% Rise in Terrorist Killings in 2014 (Guardian)
EU Says Nations May Get Budget Reprieve on Refugee Spending (Bloomberg)
Volunteers At Greek Refugee Relief Facilities Brace For Bad Weather (Kath.)

Basically, these firms give up on their own future.

Corporate America Cannibalizes Itself With Stock Buybacks (Reuters)

When Carly Fiorina started at Hewlett-Packard Co in July 1999, one of her first acts as chief executive officer was to start buying back the company’s shares. By the time she was ousted in 2005, HP had snapped up $14 billion of its stock, more than its $12 billion in profits during that time. Her successor, Mark Hurd, spent even more on buybacks during his five years in charge – $43 billion, compared to profits of $36 billion. Following him, Leo Apotheker bought back $10 billion in shares before his 11-month tenure ended in 2011. The three CEOs, over the span of a dozen years, followed a strategy that has become the norm for many big companies during the past two decades: large stock buybacks to make use of cash, coupled with acquisitions to lift revenue.

All those buybacks put lots of money in the hands of shareholders. How well they served HP in the long term isn’t clear. HP hasn’t had a blockbuster product in years. It has been slow to make a mark in more profitable software and services businesses. In its core businesses, revenue and margins have been contracting. HP’s troubles reflect rapid shifts in the global marketplace that pressure most large companies. But six years into the current expansion, a growing chorus of critics argues that the ability of HP and companies like it to respond to those shifts is being hindered by billions of dollars in buybacks. These financial maneuvers, they argue, cannibalize innovation, slow growth, worsen income inequality and harm U.S. competitiveness. [..]

A Reuters analysis shows that many companies are barreling down the same road, spending on share repurchases at a far faster pace than they are investing in long-term growth through research and development and other forms of capital spending. Almost 60% of the 3,297 publicly traded non-financial U.S. companies Reuters examined have bought back their shares since 2010. In fiscal 2014, spending on buybacks and dividends surpassed the companies’ combined net income for the first time outside of a recessionary period, and continued to climb for the 613 companies that have already reported for fiscal 2015.

In the most recent reporting year, share purchases reached a record $520 billion. Throw in the most recent year’s $365 billion in dividends, and the total amount returned to shareholders reaches $885 billion, more than the companies’ combined net income of $847 billion. The analysis shows that spending on buybacks and dividends has surged relative to investment in the business. Among the 1,900 companies that have repurchased their shares since 2010, buybacks and dividends amounted to 113% of their capital spending, compared with 60% in 2000 and 38% in 1990.

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Shorts are allowed only if they make Xi look good.

Fear Spreads as China’s Finance Firms Face Arrests (Bloomberg)

The high-drama highway arrest of a prominent hedge fund manager. Seizures of computers and phones at Chinese mutual funds. The investigations of the president of Citic Securities Co. and at least six other employees. Now, add the probe of China’s former gatekeeper of the IPO process himself. The arrests or investigations targeting the finance industry in the aftermath of China’s summer market crash have intensified in recent weeks, creating a climate of fear among China’s finance firms and chilling their investment strategies. At least 16 people have been arrested, are being investigated or have been taken away from their job duties to assist authorities, according to statements and announcements compiled by Bloomberg News.

The authorities’ goal is to root out practices such as insider trading as part of China’s anti-corruption campaign, and a desire by “some in the political leadership to find scapegoats to blame” for the market crash, according to Barry Naughton, a professor of Chinese economy at the University of California in San Diego. “Together these are creating uncertainty and anxiety that can only undermine the effort to make these markets work better,” he said by e-mail. Chinese authorities have long encouraged funds and brokerages to create new investment products to keep the finance industry along a development path. Now that’s been halted by regulators’ raids, arrests by police and anti-corruption investigations of even regulators themselves by the Communist Party’s disciplinary committee.

JPMorgan and Credit Suisse have scaled back products that allowed foreign investors to bet on stock declines. At least one Chinese research firm has withdrawn information it used to provide to the market, calling it “too sensitive.” The government’s response to the market crash was intervention: state-directed purchases of shares, a ban on initial public offerings and restrictions on previously allowed practices, such as short selling and trading in stock-index futures. Next, high-ranking industry figures came under scrutiny as officials investigated trading strategies, decried “malicious short sellers” and vowed to “purify” the market.

Policy makers say “now we’re innovating, so you can all come in – using high-frequency trading, hedging, whatever – to play in our markets,” Gao Xiqing, a former vice chairman of the China Securities Regulatory Commission, told a forum in Beijing on Nov. 6. “A few days later, you say no, the rules we made are not right, there are problems with your trading, and we’re putting you in jail for a while first.”

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But of course. 6.5% growth for 5 years running. Because he says so.

Xi Says China’s Economy Resilient, Ample Room For Manoeuvring (AP)

Chinese President Xi Jinping on Wednesday sought to reassure regional economic and political leaders that his government will keep the world’s No. 2 economy growing. In a speech to a business conference on the sidelines of the Asia-Pacific Economic Cooperation summit, Mr. Xi said China is committed to overhauling its economy and raising the living standards of its people. China’s growth fell to a six-year low of 6.8% in the latest quarter as Beijing tries to shift the economy away from reliance on trade and investment. The slowdown, which has been unfolding for several years, has rippled around the world, crimping growth in countries such as South Korea and Australia that were big exporters to China. “The Chinese economy is a concern for everyone, and against the background of a changing world must cope with all sorts of difficulties and challenges,” Mr. Xi said. But China would “preserve stability and accelerate its development,” he said. “We will work hard to shift our growth model from just expanding scale to improving its structure.”

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And not just behind the scenes.

Wall Street Is Running the World’s Central Banks (Bloomberg)

Wall Street is again leading to the corridors of central banks. From Minneapolis to Paris, investors and financiers are increasingly being hired to help set monetary policy less than a decade since the banking crisis roiled the world economy and chilled their public-sector employment prospects. Academic studies of historical voting records at central banks suggest the new trend may mean an increased bias towards tighter monetary policy. Last week’s appointment of Neel Kashkari to run the Federal Reserve Bank of Minneapolis as of January means a third of the Fed’s 12 district banks will soon be run by officials with past ties to Goldman Sachs. Kashkari also worked for Pimco and managed the U.S. Treasury’s $700 billion rescue of banks during the financial crisis.

The New York Fed’s William Dudley was Goldman’s chief U.S. economist for almost a decade before joining the central bank in 2007, while recently appointed Dallas Fed President Robert Steven Kaplan spent 22 years at Goldman and rose to become its vice chairman of investment banking. Although Patrick Harker joined the Philadelphia Fed from the University of Delaware he also served as an independent trustee of Goldman Sachs Trust. Fed Vice Chairman Stanley Fischer and Atlanta Fed President Dennis Lockhart both spent time working for Citigroup Inc. Fed Governor Jerome Powell worked as an investment banker early in his career for Dillon, Read & Co., which eventually became part of Switzerland’s UBS.

It’s not just the Fed. Bank of England Governor Mark Carney and European Central Bank President Mario Draghi both famously worked for Goldman before entering central banking, yet they have recently been joined by others with financial backgrounds. The new head of the Bank of France, Francois Villeroy de Galhau, spent 12 years at BNP Paribas SA, becoming its chief operating officer in 2011. Meanwhile, in September, Gertjan Vlieghe joined the BOE’s Monetary Policy Committee from hedge fund Brevan Howard having also previously worked for Deutsche Bank. So what does the re-emergence of financiers in the halls of central banks mean for monetary policy at a time when it’s set to diverge internationally?

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I’ll go with ultra-slim.

What Are The Economic Possibilities For Our Grandchildren? (Pettifor)

The world desperately needs to recover Keynes, but to do so it also needs to confront some deeply uncomfortable truths about the nature of power and the acceptance or otherwise of ideas. In his 1902 Imperialism, John Hobson observed: “No one can follow the history of political and economic theory during the last century without recognizing that the selection and rejection of ideas, hypothesis, and formulae, the moulding of them into schools or tendencies of thought, and the propagation of them in the intellectual world, have been plainly directed by the pressure of class interests. In political economy…….we find the most incontestable example.” (Hobson, 1902, pp. 218-19)

Given the pressure of class interests on today’s economic ideas and on the economics profession, the long-standing neglect of Keynes’s ideas, most significantly here in Cambridge, comes as no surprise. The “moulds of schools of thought” now dominant in both economics, but also wider society, have led to a vast and prolonged failure of the global economy. A failure to provide people with work, stability, a decent standard of living – and in the light of this weekend’s events in Paris – security. According to the ILO around 200 million people are now unemployed. The Middle East and North Africa has the highest rate of youth unemployment in the world. Even before 2008, 170 million people had no work.

Today most economists regard unemployment as a non-event; not worthy of consideration as a major indicator of economic health. Instead the economics profession seeks only to impose the consequent failure of economic activity as the new norm – “Secular Stagnation”. The appalling conditions of the world today – in Europe, high levels of unemployment, the dominance of liberal, unfettered finance, an ‘independent’ central bank, political tensions and divisions and the rise of right-wing and even fascist parties – are precisely the conditions that Keynes sought to eradicate. From the time of his rejection of the gold standard, Keynes was concerned with the prevention of economic crises.

In the wake of the great depression, he wanted to establish conditions for the restoration of prosperity and to prevent such events ever recurring again. In this Keynes clearly failed. But this failure was through no fault of his own. For the Keynes that survived into conventional wisdom and most importantly, the Keynes that has survived into the lecture theatre – if he is mentioned at all – is a gravely distorted and diminished figure.

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They’re sending in soldiers to combat their own weapons. Quite the business model. Very profitable.

Arms Sales Becoming France’s New El Dorado, But At What Cost? (France24)

When Qatar agreed to buy 24 French Rafale fighter jets in a €6.3 billion contract at the end of April, it represented yet another major success for France’s arms industry, coming hot on the heels of further multi-billion euro sales of Rafales to Egypt and India. The deals have been hailed by Hollande and his government. According to France’s Minister of Defence Jean-Yves Le Drian, in comments made to the Journal du Dimanche newspaper Sunday, the Qatar contract brought the value of the country’s arms exports to more than €15 billion this year so far. That sum is already more than the €8.06 billion for the whole of 2014, which itself was the highest level seen since 2009 – suggesting a continued upward trajectory for the French arms trade and one that is providing a much-needed salve to the country’s economic woes.

But some of these deals have raised more than a few eyebrows, with anti-arms trade campaigners critical of France’s willingness to sell weapons to countries with less than stellar human rights records. These concerns are only set to rise when Hollande heads first to Doha on Monday and then Saudi Arabia’s capital of Riyadh the day after, where furthering the recent success of the French arms industry is likely to be one of his top priorities. Saudi Arabia has already proved a lucrative trading partner for French arms manufacturers, most recently in a deal signed in November that saw the kingdom buy €2.7 billion of French weapons and military equipment to supply the Lebanese army. The oil-rich country is currently on something of an arms spending spree.

Last year, the Saudis surpassed India to become the world’s biggest arms importer, upping its spending by 54% to €5.8 billion, according to a report by industry analyst IHS. France, thanks to some adept diplomatic manoeuvering in recent years, is well placed to take advantage of the Saudi cash cow. Paris has been an increasingly close ally of Riyadh ever since it was among the most vocal in backing military intervention against Syria’s President Bashar al-Assad, a key ally of Shiite Iran – one of Sunni Saudi Arabia’s main regional rivals. The strategic alliance has been boosted by France’s tougher stance on a nuclear deal with Iran than the Saudi’s traditional western partner, the US.

Furthermore, French Foreign Minister Laurent Fabius visited the kingdom in April to show France’s support for the Saudi-led military intervention in Yemen. If Hollande can help secure new arms deals with the Saudis, then he could make the sums involved in this year’s earlier successes look like small change. He may have to overlook certain moral issues to do so, however. The kingdom, where the ultra-conservative Wahhabi form of Islam dominates, is one of the world’s most restrictive and repressive states, where public executions are common practise, women are forbidden from obtaining a passport and blasphemers are punished with whippings.

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Very good from Frances. “We have a “single currency” in name, but not in reality.”

Eurodesperation (Coppola)

The present situation is untenable. We have a “single currency” in name, but not in reality. The price of money in the Eurozone depends not on the creditworthiness of businesses and households, but on the creditworthiness of the sovereign in the country in which they happen to be located. So businesses and households in Germany can obtain finance at lower rates than businesses and households in Italy. This gives Germany an enduring credit advantage over weaker countries, making it all but impossible for weaker countries to close the competitiveness gap. The Eurozone monetary system is a simply massive “postcode lottery”.

Despite their fine words about breaking the toxic link between sovereigns and banks, the Eurozone authorities have abjectly failed to do this. Indeed, at times the actions of Eurozone institutions have actually strengthened this link, rather than resolving it: the ECB’s LTROs, for example, were openly used to finance bank lending to governments in Spain and Italy. The failure to mutualise the costs of resolving failed banks leaves individual sovereigns on the hook for Europe-wide, and even global, financial disasters: while the principle of creditor bail-in simply exposes sovereigns in a different way. In 2012, the Greek PSI blew large holes in the balance sheets of Greek banks and pension funds, holes which were plugged by the Greek sovereign at a cost of yet more unsustainable borrowing, because the welfare costs to the Greek population of allowing the banks and pension funds to fail were far too great.

It is an insult to genuine monetary unions, such as those in the US, Canada, the UK and Switzerland, to call this a “monetary union”. The Euro is a common name for member state currencies, not a common currency. Politicians pay lip service to the idea of a common currency, insisting on independence of monetary policy and free flows of capital – when it suits them. But when it no longer suits them, they impose capital controls and pressure the ECB into doing their bidding. Successive crises have demonstrated that the coherence of the union comes a very poor second to national interests – along with notions of fairness, justice and social cohesion.

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Cameron knows no shame. Mind you, if coal prices keep sinking, it’s going to be too cheap to ignore.

UK Plans to Prioritise Nuclear, Gas Over Renewables to Cut CO2 (Bloomberg)

The U.K. plans to develop new nuclear reactors and gas-fired power plants to cut carbon emissions and limit costs to consumers. Gas and nuclear are both “central to our energy secure future,” Energy Secretary Amber Rudd will say in a speech Wednesday, according to prepared remarks e-mailed by her office. She’ll say they’re both needed to replace ageing coal-fired power stations, which are “not the future.” “In the next 10 years, it’s imperative that we get new gas-fired power stations built,” Rudd will say. “There are plans for a new fleet of nuclear power stations, including at Wylfa and Moorside. This huge investment could provide up to 30% of the low carbon electricity which we’re likely to need through the 2030s.”

The emphasis on nuclear and gas signals a further retreat from renewable energy after Rudd slashed several subsidy programs, arguing they risk exceeding Treasury spending limits. Renewables have taken a battering since Prime Minister David Cameron’s Conservatives came to power in May, with ministers announcing planned cuts to programs subsidizing solar power, onshore wind, biomass and energy efficiency. Rudd’s comments will come in a speech that her office has trailed for months as one that will “reset” energy policy in this country. She is expected to say that the new approach “means controlling subsidies and balancing the need to decarbonize with the need to keep bills as low as possible,” according to her department.

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The future knocks on the door. The El Niño may bring CA the rain relief it needs, though.

El Nino Is Causing California Power Prices to Spike (Bloomberg)

California has yet to see the full force of El Nino, and it’s already tripping up the state’s power-demand forecasters. The state saw “significant” electricity price spikes in the third quarter as El Nino made it difficult to predict how much power would be needed on hot summer and fall days, the California Independent System Operator Corp. said Monday in a report. Record rainfall and regional cloud cover in Southern California also perplexed forecasters, the grid operator said. “With El Nino, California and the Southwest tends to get more storminess and that is inherently more challenging to forecast,” Matt Rogers, president of Commodity Weather Group, said. “The extra cloudiness and sporadic storminess this autumn as well as some heat spikes early in the third quarter can be attributed to El Nino influences.”

El Nino describes the warming of the equatorial Pacific caused by weakening trade winds that normally push sun-warmed waters to the west. It is expected to bring higher-than-average rainfall to California, which is in the midst of a four-year drought. The weather phenomenon has already contributed to Pacific typhoons and drought concerns in parts of Southeast Asia. In California power markets, the odd weather led to “load forecast errors on several days with particularly high loads,” according to the report. In September, there was a “relatively high percentage of intervals” when prices spiked above $1,000 a megawatt-hour in the 5-minute market.

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“TIAA-CREF prides itself on upholding socially responsible values..”

US Pension Investment Giant TIAA-CREF Accused of Brazil Land Grabs (NY Times)

As an American investment giant that manages the retirement savings of millions of university administrators, public school teachers and others, TIAA-CREF prides itself on upholding socially responsible values, even celebrating its role in drafting United Nations principles for buying farmland that promote transparency, environmental sustainability and respect for land rights. But documents show that TIAA-CREF’s forays into the Brazilian agricultural frontier may have gone in another direction. The American financial giant and its Brazilian partners have plowed hundreds of millions of dollars into farmland deals in the cerrado, a huge region on the edge of the Amazon rain forest where wooded savannas are being razed to make way for agricultural expansion, fueling environmental concerns.

In a labyrinthine endeavor, the American financial group and its partners amassed vast new holdings of farmland despite a move by Brazil’s government in 2010 to effectively ban such large-scale deals by foreigners. While the measure thwarted the ambitions of other foreign investors, TIAA-CREF pressed ahead in a part of Brazil rife with land conflicts, exposing the company and its partners to claims that they acquired farms from a shadowy land speculator accused of employing gunmen to snatch land from poor farmers by force. The documents offer a glimpse into how one of America’s largest financial groups took part in what some in the developing world condemn as land grabs. Responding in 2010 to surging international interest in the country’s land, Brazil’s attorney general significantly limited foreigners from carrying out large-scale farmland acquisitions.

Investors sometimes view such deals as a way to diversify their portfolios. But some government officials and activists contend that they uproot poor farmers, transfer the control of vital food-producing resources to a global elite and destroy farming traditions in exchange for industrial-scale plantations producing food for export. “I had heard of foreign funds trying to get around Brazilian legislation, but something on this scale is astonishing,” said Gerson Teixeira, the president of the Brazilian Association for Agrarian Reform and an adviser to members of Congress, referring to the documents about TIAA-CREF’s farmland deals in Brazil.

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Hard to believe?

Police Civil Asset Forfeitures Exceed All Burglaries in 2014 (Martin Armstrong)

Between 1989 and 2010, U.S. attorneys seized an estimated $12.6 billion in asset forfeiture cases. The growth rate during that time averaged +19.4% annually. In 2010 alone, the value of assets seized grew by +52.8% from 2009 and was six times greater than the total for 1989. Then by 2014, that number had ballooned to roughly $4.5 billion for the year, making this 35% of the entire number of assets collected from 1989 to 2010 in a single year. Now, according to the FBI, the total amount of goods stolen by criminals in 2014 burglary offenses suffered an estimated $3.9 billion in property losses.

This means that the police are now taking more assets than the criminals. The police have been violating the laws to confiscate assets all over the country. A scathing report on California warns of pervasive abuse by police to rob the people without proving that any crime occurred. Even Eric Holder came out in January suggesting reform because of the widespread abuse of the civil asset forfeiture laws by police. Bloomberg News has reported now that Stop-and-Seize authority is turning the Police Into Self-Funding Gangs. They are simply confiscating money all under the abuse of this civil asset forfeiture where they do not have to prove you did anything.:

…in the U.S., I see some troubling signs of a shift toward low-end institutions. Bounty hunting was a recent example (now happily going out of style). Another example is the use of private individuals or businesses to collect taxes, a practice known as tax farming. A third has been the extensive use of mercenaries in lieu of U.S. military personnel in Iraq and elsewhere. Practices such as these can save money for the government, but they encourage abuses by reducing oversight. I’ve recently been reading about an even more worrying example of low-end statecraft: Stop-and-seize.

This term refers to a practice, increasingly common since the turn of the century, of police confiscating people’s property without making an arrest or obtaining a warrant. That may not sound legal, but it is! The police simply pull you over and take your money. A Washington Post investigative report from a year ago explains: “[A]n aggressive brand of policing [is spreading] that has spurred the seizure of hundreds of millions of dollars in cash from motorists and others not charged with crimes…Thousands of people have been forced to fight legal battles that can last more than a year to get their money back. Behind the rise in seizures is a little-known cottage industry of private police-training firms…

A thriving subculture of road officers…now competes to see who can seize the most cash and contraband, describing their exploits in the network’s chat rooms and sharing “trophy shots” of money and drugs. Some police advocate highway interdiction as a way of raising revenue for cash-strapped municipalities. “All of our home towns are sitting on a tax-liberating gold mine,” Deputy Ron Hain of Kane County, Ill., wrote in a self-published book under a pseudonym…Hain’s book calls for “turning our police forces into present-day Robin Hoods.” With government unable to pay police as much as they need or would like, police are confiscating their revenue directly from the populace.

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Russia targets the Middle East financiers that the west has never touched.

Putin Sets Up Commission To Combat Terrorism Financing (Reuters)

President Vladimir Putin on Wednesday set up a commission to combat terrorism financing, the Kremlin said, in another sign of the Russian leader’s heightened focus on what he says is a fight against Islamic State militants. After attacks in Paris killed 129 people on Friday, security dominated the G20 summit at the weekend, where the group’s leaders, in a rare departure from their usual focus on the global economy, agreed to step up border controls and aviation security and crack down on terrorist financing.

In a decree, effective immediately, Putin ordered the prosecutor general’s office, the central bank and regional authorities to submit any information they may have on suspicious activities to the commission. On Tuesday, the Kremlin said a bomb brought down the Russian passenger plane that crashed in the Sinai Peninsula in Egypt last month, killing all 224 people on board. The decree orders submission to the commission of any information on suspicious activities of organisations and individuals who are not on a list of those against whom there is sound information about their involvement in extremist activities or terrorism, in order to freeze their assets.

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America’s dark side.

White House Rejects State Demands For Information On Syrian Refugees (Bloomberg)

In a call with senior Obama administration officials Tuesday evening, several governors demanded they be given access to information about Syrian refugees about to be resettled by the federal government in their states. Top White House officials refused. Over a dozen governors from both parties joined the conference call, which was initiated by the White House after 27 governors vowed not to cooperate with further resettlement of Syrian refugees in their states. The outrage among governors came after European officials revealed that one of the Paris attackers may have entered Europe in October through the refugee process using a fake Syrian passport. (The details of the attacker’s travels are still murky.)

The administration officials on the call included White House Chief of Staff Denis McDonough, Deputy Secretary of Homeland Security Alejandro Mayorkas, State Department official Simon Henshaw, FBI official John Giacalone, and the deputy director of the National Counterterrorism Center John Mulligan. On the call several Republican governors and two Democrats – New Hampshire’s Maggie Hassan and California’s Jerry Brown – repeatedly pressed administration officials to share more information about Syrian refugees entering the United States. The governors wanted notifications whenever refugees were resettled in their states, as well as access to classified information collected when the refugees were vetted. “There was a real sense of frustration from all the governors that there is just a complete lack of transparency and communication coming from the federal government,” said one GOP state official who was on the call.

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And Europe’s dark side.

Paris Terror Unites East Europe Against Merkel’s Refugee Plan (Bloomberg)

Eastern European nations are toughening their opposition to German Chancellor Angela Merkel’s plan to force them to take in refugees, arguing that the EU’s immigration policies may have aided last week’s terrorist attacks in Paris. Bulgarian Foreign Minister Daniel Mitov on Tuesday called discussions on quotas for migrants “absurd” following the events in Paris, while Poland’s incoming Prime Minister Beata Szydlo said a day earlier the EU should review its stance on immigration, pledging to accept refugees only if they don’t endanger security. At least 129 people were killed in Paris on Friday, with a Syrian passport found next to the body of one of the suicide bombers registered on the Greek island of Leros, suggesting the holder may have come into Europe claiming to be a political refugee.

The EU is increasingly split along east-west lines over how to deal with the immigration crisis as the European Commission estimates 3 million asylum seekers may be heading toward the bloc by 2017. A group of formerly communist countries led by Hungary, one of the nations most affected by the flood of migrants, have opposed German-led efforts to introduce a quota system to settle them, drawing criticism that the recipients of billions of euros in aid from western Europe aren’t willing to help their richer neighbors. “The opposition to the quotas has already been there before the attacks,” said Otilia Dhand, an analyst at political-risk consultancy Teneo Intelligence in Brussels. “The attacks are now being used as an additional argument.”

Merkel, who allowed an estimated 1 million asylum seekers into Germany this year, seeks to relocate those fleeing war and civil strife in the Middle East and North Africa across the 28-nation EU. The plan is straining her ties with countries such as Poland and the Baltic nations, which count on German backing for continued sanctions on Russia following President Vladimir Putin’s annexation of Ukraine’s Crimean peninsula in 2014. Asked whether Syrian refugees can be successfully integrated into society, Merkel told reporters on Tuesday the answer is a “clear yes.” Integration means following the rules and laws of the host country, getting a chance to “participate in society” and being placed into a community prepared to be tolerant and more multi-ethnic, she said.

Such sentiment isn’t widely shared by eastern European politicians, who remain wary of opening their societies to foreigners, including those with different religious beliefs. “Discussing quotas at this point has become absurd,” top Bulgarian diplomat Mitov said in an interview with public radio on Tuesday. “This isn’t the way to solve the problem and to approach it.” Hungary plans to challenge the plan in EU courts, Justice Minister Laszlo Troscsanyi told reporters the same day.

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“We can see the trauma [terrorist attacks] create in the west, but think how much trauma they create in all these other countries in the world..”

Flow Of Refugees Fueled by 80% Rise in Terrorist Killings in 2014 (Guardian)

A surge in activity from Nigeria’s Islamist insurgency Boko Haram – now the world’s deadliest terrorist group – and Islamic State in Iraq and Syria has driven an 80% increase in the number of people killed by terrorists in 2014, this year’s Global Terrorism Index showed. In total, 32,658 people were killed in terrorist attacks in 67 countries last year, according to the index, released on Tuesday by the Institute for Economics and Peace (IEP). The world is reeling from the terrorist attacks in Paris last Friday, which killed at least 129 people. But the index showed that 80% of last year’s terrorist killings were carried out in just five countries: Iraq, Nigeria, Afghanistan, Pakistan and Syria. “We can see the trauma [terrorist attacks] create in the west, but think how much trauma they create in all these other countries in the world,” said Steve Killelea, executive chairman of the IEP.

The index showed a close link between terrorism and people being forced to flee. Of 11 countries with more than 500 deaths from terrorism, 10 had “the highest levels of refugees and [internal] migration in the world”, the index said. The sharp rise in terrorist activity noted in the report is fuelling migration out of areas controlled by Isis and into neighbouring countries. According to figures from the UN’s High Commissioner for Refugees, 369,904 people have fled Iraq and and 4.29 million have fled Syria. “There’s a strong relationship between terrorism and ongoing conflict. What we’re seeing is people are fleeing the conflicts, and so actually tackling the conflicts and terrorism are one and the same,” Killelea said.

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Refugees are still being used as a measure to pressure Greece. Disgrace squared.

EU Says Nations May Get Budget Reprieve on Refugee Spending (Bloomberg)

Refugee spending by European Union nations may receive some reprieve from the bloc’s budget rules if the governments can show proof that outlays are linked to extraordinary circumstances, the European Commission said. None of the draft budget plans submitted to the EU ran the risk of “particularly serious non-compliance” with debt and spending rules, the Brussels-based commission said on Tuesday. France’s budget plan suggests it won’t meet a 2017 deadline – already extended in a move to avoid unprecedented fines – to correct its deficit, it said. Italy, Austria and Lithuania were found to be at risk of not meeting their 2016 budget targets.

The EU executive said that when countries are faced with “unusual events outside the control of the government,” nations can increase spending without drawing budget-related sanctions. The commission said it is “willing to use these provisions” for 2015 and 2016 budget requirements, as long as countries can provide “observed data” to show they’re following the rules. “This means that deviations deriving only and directly from the net extra costs of the refugee crisis will not lead to any stepping up in the procedures,” the commission said. It also promised not to open new deficit-related proceedings if countries keep their deficit “close to” the 3% limit, even if refugee spending causes a breach.

In the wake of terrorist attacks that devastated Paris, French President Francois Hollande said extra spending to ensure France’s security is more important than European budget rules. “The security pact is more important than the stability pact,” he told lawmakers on Monday in Versailles. Debt is starting to fall across the EU for the first time since the beginning of the euro area’s debt and financial crisis, Commission Vice President Valdis Dombrovskis said in a statement. At the same time, he said, progress across Europe is uneven. “The problem of high debt is still holding back a faster recovery,” Dombrovskis said. “It is important for governments to continue implementing responsible fiscal policies and for others to continue cleaning up their public finances.”

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Greece has become a country run by overwhelmed volunteers.

Volunteers At Greek Refugee Relief Facilities Brace For Bad Weather (Kath.)

“The temperature inside the Olympic hockey stadium near the old Athens airport at Elliniko, which houses refugees, had started to drop. There was no hot water in the shower. I saw a newborn baby. Its Afghan mother had been gripped by labor pains on board the boat and she gave birth on a Lesvos beach. It was not possible for the baby to take a bath there because it would freeze, so I took it home along with its parents. We gave it a warm bath and something to eat before putting it down to sleep. When the family left the island two days later, we felt like relatives saying goodbye.” The stories shared by volunteers helping the thousands of migrants and refugees arriving in the country, such as this relayed to Kathimerini by George Vichas, a cardiologist and director of the Metropolitan Community Clinic at Elliniko, are deeply moving.

But they are also highly revealing of the huge challenges facing refugees as weather conditions worsen and state support remains sorely lacking. “The Elliniko venue is expected to house refugees and migrants also in the coming months. A few days ago, some 500 people were temporarily sheltered here. But how are they expected to stay here if the place is not heated?” Vichas says. At the reception center of the Metropolitan Community Clinic, Vichas has set up a second clinic. “On a daily basis, we receive help from one or two pediatricians, two to three pathologists, a cardiologist, an orthopedic surgeon and a pulmonologist,” Vichas says. Their work is aided by six to seven volunteers from the Fair Planet nonprofit organization. “They are very experienced in dealing with refugees as many of them have worked abroad,” he says.

As winter sets in, the clinic is trying to collect sleeping bags and thermal clothes and blankets. “We need people’s support, things will be pretty tough. The state is regrettably absent from all this,” Vichas says, adding that doctors from the Hellenic Center for Disease Control and Prevention (KEELPNO) only drop by the center for two hours between Monday and Friday. “When 500 refugees arrived here on a Saturday evening, they were examined by volunteer doctors,” he says. Nikitas Kanakis, president of Doctors of the World Greece, says the organization is concerned that, as the weather worsens, up to 200,000 refugees could find themselves trapped in Greece. “We are trying to prepare ourselves also for that scenario and have asked for help from branches in other countries,” he says.

Swiss volunteers are helping in Idomeni, near Greece’s northern border with the Former Yugoslav Republic of Macedonia (FYROM), while volunteers from the Netherlands and France are helping out on Chios and Lesvos. On an operational level, Doctors of the World is preparing small flexible groups that can reach more refugee facilities. “Our doctors are at the end of their tether. Over the past months they have been examining about 200 people per day. State care is nowhere to be seen. Greek society is providing clothes, food and care for refugees. How is the state helping?” says Kanakis, who is also critical of the European Union’s failure to deal with the mounting crisis. “Why does the EU not create a safe passage for refugees instead of leaving them at the mercy of traffickers and the Aegean Sea?”

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Oct 222015
 
 October 22, 2015  Posted by at 11:09 am Finance Tagged with: , , , , , , , , , , , ,  


Jack Delano Spectators at annual barrel rolling contest, Presque Isle, ME 1940

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)
HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)
Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)
Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)
Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)
China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)
China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)
Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)
ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)
Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)
3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)
The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)
The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)
The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)
UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)
EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)
Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)
A Cultural Revolution To Save Humanity (Serge Latouche)
Why Too Much Choice Is Stressing Us Out (Guardian)

Envy of the entire world. “We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.”

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)

In a move that would make many capitalists’ head explode if it ever happened here, Iceland just sentenced their 26th banker to prison for their part in the 2008 financial collapse. In two separate Icelandic Supreme Court and Reykjavik District Court rulings, five top bankers from Landsbankinn and Kaupping — the two largest banks in the country — were found guilty of market manipulation, embezzlement, and breach of fiduciary duties. Most of those convicted have been sentenced to prison for two to five years. The maximum penalty for financial crimes in Iceland is six years, although their Supreme Court is currently hearing arguments to consider expanding sentences beyond the six year maximum.

After the crash in 2008, while congress was giving American banks a $700 billion TARP bailout courtesy of taxpayers, Iceland decided to go in a different direction and enabled their government with financial supervisory authority to take control of the banks as the chaos resulting from the crash unraveled. Back in 2001, Iceland deregulated their financial sector, following in the path of former President Bill Clinton. In less than a decade, Iceland was bogged down in so much foreign debt they couldn’t refinance it before the system crashed. Almost eight years later, the government of Iceland is still prosecuting and jailing those responsible for the market manipulation that crippled their economy. Even now, Iceland is still paying back loans to the IMF and other countries which were needed just to keep the country operating.

When Iceland’s President, Olafur Ragnar Grimmson, was asked how the country managed to recover from the global financial disaster, he famously replied, “We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.” Meanwhile, in America, not one single banking executive has been charged with a crime related to the 2008 crash and U.S. banks are raking in more than $160 billion in annual profits with little to no regulation in place to avoid another financial catastrophe.

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Sweden, Norway, New Zealand, Australia. And the rest of the emerging markets.

HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)

“Forecasters spend much of their time finessing central projections. But sometimes by focusing on the most likely outlook for growth we lose track of vulnerabilities that are accumulating,” HSBC Economist James Pomeroy writes in the latest edition of the bank’s “Macro Health Check.” And while global markets may have stabilized since the volatile days of summer, there seems to be no shortage of potential vulnerabilities worth keeping an eye on. Here are the major trends Pomeroy is watching:

• Weakness in Asia: Lower commodity prices as well as capital flight is hurting a number of Asian economies, not to mention lowering their growth prospects. In particular, HSBC says it’s newly concerned about Malaysia and Indonesia thanks to their proximity to China – both geographically and in terms of trade. As Pomeroy puts it: “The downturn in Chinese data has hit sentiment. Currencies have weakened and borrowing costs have risen, putting the sustainability of the corporate sector at risk.”

• Bubbles in developed economies: Asset prices that are historically high as well as household debt levels well above the norm is concerning, according to Pomeroy. He notes that in Sweden and Norway, high levels of household debt and rising house prices are combining with central banks that have already cut interest rates to record lows. “This leaves them vulnerable to financial stability risks that could leave the economies exposed to any downturn or, at some later stage, a rise in rates,” he says.

• Commodities continue to struggle: Energy is still a huge topic for the world and emerging markets in particular, with Saudi Arabia and the United Arab Emirates on track to see big hits to their economies, the HSBC economist noted. There are also worries over the macroeconomic backdrops in countries like Brazil, Russia, Colombia, and Chile, where 50% of exports are commodities -related, Pomeroy adds.

Based on these concerns, HSBC presents a “diagnosis” showing how a number of economies are and are not seeing impacts from these and other macro factors. New entries on the bank’s list of concerns include the previously-mentioned Malaysia, Indonesia, Sweden and Norway, while New Zealand also makes the cut thanks to its links to China, rising asset prices and tumbling milk prices. “Although low risk, New Zealand may be one to watch,” Pomeroy says.

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Losing money way before the oil price crash… “..cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010..”

Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)

“Energy Investments After The Fall: Opportunity Or Slippery Slope?” So begins the latest presentation from renowned short-seller Jim Chanos. What follows is a powerful outlining of the spirally debt dynamics now dominating the future of the oil industry. At the heart of Chanos’s thesis is the contention that years of low interest rates, cheap financing, over-eager investors and ambitious managers have helped propel the boom in U.S. shale and imbue it with near unstoppable momentum; U.S. oil production is expected to grow 6% in 2015 despite a stunning 59% drop in the U.S. rig count over the past year. The extent of the capital market’s support for energy over the past half-decade is laid bare in the financial figures.

According to Chanos, cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010, meaning the firms have consistently outspent their income. That trend is present even at the larger “big oil” firms such as Exxon, Chevron and Royal Dutch Shell, Chanos claims, with cash flow following distributions to shareholders also firmly in the red. The question hovering over the energy sector now is whether the continuous flow of capital investment that has propped up shale firms for so long continues. There are signs that it might not. Spreads on the bonds issued by energy companies are currently 480 basis points wider than average yield on the debt of junk-rated companies, meaning investors are (finally) demanding extra return to compensate them for the added risk of E&P.

Many oil companies have large revolving credit facilities from which they could draw financing to help replace the hole left by suddenly skittish investors – an argument that has been picked up by energy bulls and managers with some aplomb. However, Chanos says that even the most reliable E&P firms will be reluctant to tap such revolvers, given the negative publicity around such a move. And while banks have so far largely continued to renew and extend credit lines to energy firms (opting perhaps to keep such companies afloat rather than cut them off and suffer the consequences on their own balance sheets) those renewals have been accompanied by a tightening of terms. It’s a reversal of an historic trend that has seen the balance of power firmly in favor of energy firms as the sheer amount of investors and bankers willing to lend to exploratory shale has meant the vast majority of debt and loans sold and issued in recent years came with far fewer protections for lenders, known as “covenants.”

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Trouble brewing. A very imbalanced society.

Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)

Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the IMF said, underscoring the need of measures to shore up public finances amid the drop in oil prices. The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said. Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit.

Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain. But the IMF said measures being considered by oil exporters “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” the IMF said. “Under current policies, countries would run out of buffers in less than five years because of large fiscal deficits.” Saudi Arabia accumulated hundreds of billions of dollars in the past decade to help the economy absorb the shock of falling prices. The kingdom’s debt as a percentage of GDP fell to less than 2% in 2014, the lowest in the world.

The recent decline in the price of crude, which accounts for about 80% of Saudi’s revenue, is prompting the government to delay projects and sell bonds for the first time since 2007. Net foreign assets fell to the lowest level in more than two years in August, with the kingdom fighting a war in Yemen and avoiding economic policies that could trigger social or political unrest. The IMF expects Saudi’s budget deficit to rise to more than 20% of gross domestic product this year after King Salman announced one-time bonuses for public-sector workers following his accession to the throne in January. The deficit is expected to be 19.4% in 2016.

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Pension funds, mom and pop.

Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)

Banks, when reporting earnings, are saying a few choice things about their oil-and-gas loans, which boil down to this: it’s bloody out there in the oil patch, but we made our money and rolled off the risks to others who’re now eating most of the losses. On Monday, it was Zions Bancorp. Its oil-and-gas loans deteriorated further, it reported. More were non-performing and were charged-off. There’d be even more credit downgrades. By the end of September, 15.7% of them were considered “classified loans,” with clear signs of stress, up from 11.3% in the prior quarter. These classified energy loans pushed the total classified loans to $1.32 billion. But energy loans fell by $86 million in the quarter and “further attrition in this portfolio is likely over the next several quarters,” Zions reported.

Since the oil bust got going, Zions, like other banks, has been trying to unload its oil-and-gas exposure. Wells Fargo announced that it set aside more cash to absorb defaults from the “deterioration in the energy sector.” Bank of America figured it would have to set aside an additional 15% of its energy portfolio, which makes up only a small portion of its total loan book. JPMorgan added $160 million – a minuscule amount for a giant bank – to its loan-loss reserves last quarter, based on the now standard expectation that “oil prices will remain low for longer.” Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

Once a borrower reached the limit of the revolving line of credit, the bank pushed the company to issue bonds to pay off the line of credit. The company could then draw again on its line of credit. When it reached the limit, it would issue more bonds and pay off its line of credit…. Banks made money coming and going. They made money from interest income and fees, including underwriting fees for the bond offerings. It performed miracles for years. It funded the permanently cash-flow negative shale revolution. It loaded up oil-and-gas companies with debt. While bank loans were secured, many of the bonds were unsecured. Thus, banks elegantly rolled off the risks to bondholders, and made money doing so. And when it all blew up, the shrapnel slashed bondholders to the bone.

Banks are only getting scratched. Then late last year and early this year, the hottest energy trade of the century took off. Hedge funds and private equity firms raised new money and started buying junk-rated energy bonds for cents on the dollar and they lent new money at higher rates to desperate companies that were staring bankruptcy in the face. It became a multi-billion-dollar frenzy. They hoped that the price of oil would recover by early summer and that these cheap bonds would make the “smart money” a fortune and confirm once and for all that it was truly the “smart money.” Then oil re-crashed.

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Coming from a steel man, this can only mean it’ll be much worse.

China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)

China’s steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country’s second-biggest mill by output, which raised the prospect that nationwide production may shrink 20%. Losses for the industry totaled 18 billion yuan ($2.8 billion) in the first eight months of the year compared with a profit of 14 billion yuan in the same period a year earlier, Shanghai Baosteel Group Corp. Chairman Xu Lejiang said on Wednesday. Output may eventually contract by a fifth, matching the experience seen in the U.S. and elsewhere, he said. After decades of expansion, China’s steel industry has been thrown into reverse as local demand contracts for the first time in a generation amid slowing economic growth and a property downturn.

The slowdown has pummeled steel and iron ore prices and prompted Chinese mills to seek increased overseas sales, boosting trade tensions. The country is the linchpin of the global industry, accounting for half of worldwide production. “If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20%,” Xu told reporters at a forum in Shanghai. “China will eventually get there as well, regardless how long it takes.” Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase was emblematic of the country’s emergence as Asia’s largest economy. Output probably peaked last year at 823 million metric tons, according to the China Iron & Steel Association.

The country produced 608.9 million tons in the first nine months, 2.1% less than the same period last year, the statistics bureau said on Monday. “The whole steel sector is struggling and no one can be insulated,” Xu said. “The sector is facing increasing pressure on funding as banks have been tightening lending to the sector – both loans and the financing provided for steel and raw material stockpiles.” Losses in China’s steel industry are unprecedented, Macquarie Group Ltd. said in a report on Monday that summarized deteriorating sentiment in the industry. While small mills have already cut production significantly, big mills are still holding out, the bank said, forecasting further cuts.

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When you can’t afford empire anymore.

China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)

The slowdown in the world’s second-largest economy has seen Chinese cross-border investment in Africa plunge. Beijing has invested just $568 million in greenfield projects and expansion of existing projects in the first 6 months of 2015, down from $3.54 billion the previous year. That investment has been focused on China’s primary interest in Africa, namely its raw materials, writes Adrienne Klasa for The Financial Times. While overall investment plunged, investment in extractive industries almost doubled from $141.4 million to $288.9 million over the period. Chinese investment in Africa has at times been controversial, but has played a major role in regional growth. The African growth story has been complicated by global headwinds such as low prices of oil and other commodities.

Many African states rely on raw materials for large parts of their revenues. Although foreign direct investment has fallen, China has been Africa’s main trade partner since 2009. In 2013 there was more than $170 billion in trade between China and sub-Saharan Africa, compared to less than $10 billion in 2002. “FDI has dipped across the board from emerging markets into other emerging markets, and into Africa in particular,” says Vera Songwe, the IFC’s director for West and Central Africa. FDI reflects changing patterns of investment. There are some concerns that a bursting Chinese real estate bubble could see demand for African raw materials reduce even further. This could have a knock-on effect on investment in the sector, and in Africa in general.

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“..if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks..”

Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)

The delayed fuse on the eurozone’s debt-deflation policies has finally detonated in a second country. Portugal has joined the revolt against austerity. The rickety scaffolding of fiscal discipline and economic surveillance imposed on southern Europe by Germany is falling apart on its most vulnerable front. Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF ‘Troika’. Against all assumptions, he has suspended his party’s historic feud with Portugal’s Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament.

The verdict from the markets has been swift. “We would be very reluctant to invest in Portuguese debt,” said Rabobank, describing the turn of events as a political shock. The country’s president has the constitutional power to reappoint the old guard – and may in fact do so over coming days – but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh. “The majority of the Portuguese people did not vote for the incumbent coalition. They want a change,” said Miriam Costa from Lisbon University. Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.

Mr Costa’s hard-Left allies both favour a return to the escudo. Each concluded that Greece’s tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency. The Communist leader, Jeronimo de Sousa, has called for a “dissolution of monetary union” for the good of everybody before it does any more damage to the productive base of the European economy. His party is demanding a 50pc write-off of Portugal’s public debt and a 75pc cut in interest payments, and aims to tear up the EU’s Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the “commanding heights of the economy”.

Catarina Martins, the Left Bloc’s chief, is more nuanced but says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks,” she said. She is surely right about that. The lesson of the Greek drama is that the ECB is the political enforcer of monetary union, willing to bring rebels to their knees by pulling the plug on a nation’s banking system.

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Any real action will send the message that there are problems.

ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)

Mario Draghi’s challenge on Thursday is to show that he’s readier than ever to step up stimulus, without panicking investors over the euro area’s health. In the run-up to the European Central Bank’s meeting in Malta, the institution’s president and most of his Governing Council said it’s too early to decide whether to expand their €1.1 trillion bond-buying program. Yet with economists seeing the need for a fresh boost before year-end, he’ll probably be pressured to provide reassurance that the penultimate monetary-policy session of 2015 won’t leave the ECB behind the curve. Officials sitting down to talk will have to deal with a complex scenario of mixed domestic economic signals, an uncertain global outlook, and divergent opinions on what’s needed to combat feeble inflation.

The paradox for Draghi is that when he holds his regular press conference, he may find himself addressing the risks to the recovery without yet committing to action. “The ECB seems more worried about the economy yet less inclined to act; markets are more confident in the economy yet expect something will be done,” said Francesco Papadia, chairman of Prime Collaterised Securities and a former director general of market operations at the ECB. “For Draghi, it’ll be difficult to even hint that something was discussed because it would send two messages: ‘Good, they’re doing something, and wait, the situation is worse than we thought.’

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Full insanity.

Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)

A modern diesel car pumps out more toxic pollution than a bus or heavy truck, according to new data, a situation described as a “disgrace” by one MEP. The revelation shows that effective technology to cut nitrogen oxides (NOx) pollution exists, but that car manufacturers are not implementing it in realistic driving conditions. Diesel cars tested in Norway produced quadruple the NOx emissions of large buses and lorries in city driving conditions, according to a report from the Norwegian Centre for Transport Research. A separate study for Transport for London showed that a small car in the “supermini” class emitted several times more NOx than most HGVs and the same amount as a 40-tonne vehicle.

“It is crackers,” said emissions expert James Tate from the University of Leeds. His own research, which uses roadside equipment to measure passing traffic, also shows the latest diesel models cars produce at least as much NOx as far heavier buses and trucks. The issue of NOx pollution, thought to kill 23,500 people a year in the UK alone, gained prominence when VW diesels were discovered to be cheating official US emissions tests. The scandal also led to revelations that the diesels of many car manufacturers produce far more NOx on the road than in EU lab tests, though not via illegal means. The UK government say the failure to keep NOx from vehicles low in the real world means road transport is “by far the largest contributor” to the illegal levels of NOx in many parts of the country.

“It is disgraceful that car manufacturers have failed to reduce deadly emissions when the technology to do so is affordable and readily available,” said Catherine Bearder, a Liberal Democrat MEP and a lead negotiator in the European parliament on the EU’s new air quality law. “The dramatic reduction in NOx emissions from heavier vehicles is a result of far stricter EU tests, in place since 2011, that reflect real-world driving conditions. If buses and trucks can comply with these limits, there’s no reason cars can’t as well.”

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VW is set to shrink a lot.

3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)

Volkswagen will need hardware fixes for about 3 million cars in Europe affected by the diesel-emission manipulations as the region’s largest automaker scrambles to meet demands from regulators. Cars featuring a 1.6-liter engine require technical tweaks, while software updates are sufficient to make the other affected engines compliant, a VW spokesman said by phone. VW said last week it will recall about 8.5 million cars across Europe through 2016 and acknowledged efforts to fix all cars might drag on until 2017. VW has also stated the fallout from the scandal will cost more than the €6.5 billion already set aside.

Worldwide some 11 million cars with diesel engines are affected by the wide-ranging emissions rigging that was uncovered by U.S. regulators and triggered the resignation of Chief Executive Officer Martin Winterkorn. Moody’s Investors Service said Wednesday that uncertainties about the potential impact on VW’s reputation, earnings and cash flows could weigh on the manufacturer’s credit profile into 2017. New CEO Matthias Mueller said last week protecting the company’s credit rating is a top priority. The manufacturer can recover from the scandal in two-to-three years if the right decisions are made now to make VW more efficient, agile and cost competitive, he said.

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“The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.”

The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)

One of the planet’s exemplars in preventing climate change, the EU has instituted tough emissions rules and strong support for renewable energy. Yet this doesn’t necessarily mean more solar panels or wind turbines dotting Europe’s skyline. Nope, the EU’s biggest source of renewable energy is old-school: burning wood. There’s just one problem with this. Torching wood has the potential to warm the atmosphere faster than burning coal does. So why does Europe get nearly half of its renewable energy that way? As Climate Central argues in this three-part piece, a legal loophole in the EU’s climate rules means it turns a blind eye to tens of millions of CO2 emissions that it pumps into the atmosphere each year. Worse, this policy means European governments issue hundreds of millions of dollars in incentives to encourage power plants to burn even more wood.

The core issue lies in how to count the CO2 pollution released when wood is burned for electricity and heat. Because trees grow back, EU law deems wood a “renewable energy” just like solar or wind (a source of fuel, in other words, that can be used to meet its fairly tough climate action target of sourcing 20% of its final energy consumption to come from renewable energy by 2020). But in many ways, wood is more like coal or oil—it must be burned to generate power. This process releases a lot of CO2, which traps heat in the atmosphere, warming the planet. But since trees also absorb CO2, they act as what’s been described as a “brake” on the rate of global warming. The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.

This makes complete sense—provided the wood you’re burning comes from already-dead wood that would release its carbon as it decomposed anyway. This includes dust and chips from sawmills, for example. And since the energy created when that wood is burned isn’t coming from fossil fuels, it’s ultimately a net positive for the atmosphere, as the CarbonBrief explains. However, that equation changes once you start clear-cutting forests for the sole purpose of fueling power plants. Wood tends to emit more carbon than fossil fuels to generate the same amount of energy, according to the Natural Resources Defense Council (pdf). Eventually, trees grow back and absorb this carbon. However, a growing body of peer-reviewed research suggests it can take decades—or even centuries—before a forest grows back enough to balance out the atmospheric CO2 created when its trees were burned.

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Like the Bloomberg title.

The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)

It has choked Singapore with smoke, triggered Pacific typhoons and left Vietnamese coffee growers staring nervously at dwindling reservoirs. In Africa, cocoa farmers are blaming it for bad harvests, and in the Americas, it has Argentines bracing for lower milk production and Californians believing that rain is finally, mercifully on the way. El Nino is back and in a big way. Its effects are just beginning in much of the world – for the most part, it hasn’t really reached North America – and yet it’s already shaping up potentially as one of the three strongest El Nino patterns since record-keeping began in 1950. It will dominate weather’s many twists and turns through the end of this year and well into next. And it’s causing gyrations in everything from the price of Colombian coffee to the fate of cold-water fish.

Expect “major disruptions, widespread droughts and floods,” Kevin Trenberth, distinguished senior scientist at the National Center for Atmospheric Research in Boulder, Colorado. In principle, with advance warning, El Nino can be managed and prepared for, “but without that knowledge, all kinds of mayhem will let loose.” In the simplest terms, an El Nino pattern is a warming of the equatorial Pacific caused by a weakening of the trade winds that normally push sun-warmed waters to the west. This triggers a reaction from the atmosphere above. Its name traces back hundreds of years to the coast of Peru, where fishermen noticed the Pacific Ocean sometimes warmed in late December, around Christmas, and coincided with changes in fish populations. They named it El Nino after the infant Jesus Christ. Today meteorologists call it the El Nino Southern Oscillation.

The last time there was an El Nino of similar magnitude to the current one, the record-setting event of 1997-1998, floods, fires, droughts and other calamities killed at least 30,000 people and caused $100 billion in damage, Trenberth estimates. Another powerful El Nino, in 1918-19, sank India into a brutal drought and probably contributed to the global flu pandemic, according to a study by the Climate Program Office of the National Oceanic and Atmospheric Administration. As the Peruvian fishermen recognized in the 1600s, El Nino events tend to peak as summer comes to the Southern Hemisphere. The impact can be broken down into several categories. Coastal regions from Alaska to the Pacific Northwest in the U.S., as well as Japan, Korea and China may all have warmer winters. The southern U.S., parts of east Africa and western South America can get more rain, while drier conditions prevail across much of the western Pacific and parts of Brazil.

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Strong graphs. More El Niño.

The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)

If there is one chart that might finally put to rest debate of a pause or “hiatus” in global warming, this chart created by the US National Oceanic and Atmospheric Administration has just supplied it. For years, climate change sceptics relied on a spike in global temperatures that occurred during the monster 1997-98 El Nino to say the world had stopped warming because later years struggled to set a higher mark even as greenhouse gas emissions continued to rise. Never mind that US government scientists found the hiatus was an illusion because the oceans had absorbed most of the extra heat that satellites could tell the Earth was trapping. Nor that 2005, 2010 and 2014 all set subsequent records for annual heat.

Those record years were too incrementally warmer compared with the 1997 mark to satisfy those who wanted to believe climate change was a hoax. But it is 2015, which is packing an El Nino that is on track to match the record 1997-98, that looks set to blow away previous years of abnormal warmth. “This one could end the hiatus,” said Wenju Cai, a principal research scientist specialising in El Nino modelling at the CSIRO. “Whether it beats [the 1997-98 El Nino] will be academic – it’s already very big.” NOAA data released overnight backs up how exceptional this year is in terms of warming, with September alone a full quarter of a degree above the corresponding month in 1997. As the chart above shows, for the first nine months, 2015 has easily been the hottest year on record, with sunlight second.

[..] El Ninos typically add 0.1-0.2 degrees to the background global warming. US climate expert John Abraham has estimated how year-to-date temperatures are adding another step-up to temperatures, as seen in this chart published by Think Progress. Climate change sceptics will probably not concede in their battle to avoid action to curb emissions. Satellite or meteorological data must have been manipulated, the oceans might be producing chemical compounds never detected before that counter carbon dioxide, or perhaps the sun is about to burn a lot less brightly. Still, they now have one more inconvenient chart they have to find a reason to ignore.

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114 people. That’s the whole story. But the UK won’t have none of it.

UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)

The UN refugee agency, the UNHCR, has said that the UK is legally obliged to resettle more than a hundred Syrian refugees who arrived by boat at a British military base in Cyprus, contradicting claims from the Ministry of Defence (MoD) that they were a Cypriot responsibility. Two overloaded wooden boats carrying 114 refugees from Syria, including 28 children, have been transferred to a temporary reception area in the sovereign base at Akrotiri on the southern coast of the Mediterranean island. According to the Cypriot coastguard, the refugees were abandoned offshore by people smugglers and left to fend for themselves.

The arrival on British territory of asylum seekers fleeing the Syrian conflict intensifies the scrutiny on the UK’s response to Europe’s worst refugee crisis since the second world war. David Cameron has offered to take in 20,000 Syrian refugees over five years – significantly less than most other western European countries, though the government has pointed out it gives more aid for refugee camps along Syria’s borders. Reacting to the arrivals at Akrotiri, the MoD said: “At the moment our key priority is ensuring everybody on board is safe and well. We have had an agreement in place with the Republic of Cyprus since 2003 to ensure that the Cypriot authorities take responsibility in circumstances like this.”

Asked whether the refugees would be able to claim asylum in Britain, an MoD official said: “That’s not our understanding.” A spokeswoman for the Home Office also stated: “The resettlement of refugees landing on the southern bases in Cyprus is not the responsibility of the United Kingdom.” But the UNHCR said in a statement that the 2003 UK-Cyprus memorandum made it clear that “asylum seekers arriving directly on to the SBA [Sovereign Base Area] are the responsibility of the UK but they would be granted access to services in the republic at the cost of the SBA.”

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They’ll throw -promises of- more money around. And that’ll be it, again.

EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)

The EU has called a mini summit with Balkan countries on the migrant crisis as Slovenia became the latest state to buckle under a surge of refugees desperate to reach northern Europe before winter. The leaders of Austria, Bulgaria, Croatia, Germany, Greece, Hungary, Romania and Slovenia will meet in Brussels on Sunday with their counterparts from non-EU states Macedonia and Serbia, the office of EC president Jean-Claude Juncker said. “In view of the unfolding emergency in the countries along the western Balkans migratory route, there is a need for much greater cooperation, more extensive consultation and immediate operational action,” a statement said. The continent has been struggling to find a unified response on how to tackle its biggest migration crisis since 1945.

More than 600,000 migrants and refugees, mainly fleeing violence in Syria, Iraq and Afghanistan, have braved the dangerous journey to Europe so far this year, the UN said. Of these, more than 3,000 have drowned or gone missing as they set off from Turkey in inflatable boats seeking to reach Greece, the starting point for the migrants’ long trek north. With the crisis showing no sign of abating, France’s interior minister Bernard Cazeneuve reinforced security in the port city of Calais from where migrants and refugees try to cross to Britain. He also announced that women and children would be given heated tents, as arrivals in a makeshift camp face a dip in temperature.

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EU police? Don’t think that exists. So, German and French cops patrolling in Slovenia? Really?

Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)

Slovenia has asked the European Union for police to help regulate the inflow of migrants from Croatia, Interior Minister Vesna Gyorkos Znidar told TV Slovenia. Over the past 24 hours, more than 10,000 migrants, many fleeing violence in Syria, have arrived in Slovenia, the smallest country on the Balkan migration route, on their way to Austria. “Slovenia has already asked other EU member states for police units,” Znidar said late on Wednesday. European Commissioner for Migration and Home Affairs Dimitris Avramopoulos on Thursday will visit Slovenia to discuss the migrant crisis, while Commission President Jean-Claude Juncker called an extraordinary meeting of several European leaders for Sunday.

Juncker invited the leaders of Austria, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia. Slovenia’s parliament has given more power to the army which is helping police control the border, while the country also plans to rehire retired police to help. Huge number of migrants started coming to Slovenia on Saturday after Hungary on Friday sealed its border with Croatia with a bottleneck building up through the Balkans.

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I’m all for it, but not for the We Must.. It will take a lot more than that.

A Cultural Revolution To Save Humanity (Serge Latouche)

We’ve reached a point that means we can no longer go on as we are doing! Everyone’s talking about crisis and it’s slightly paradoxical because I’ve always been hearing about a crisis ever since 1968 when there was a cultural crisis, then in 1972, with the publication of the work by The Club of Rome, there was talk of an ecological crisis, then there was the neoliberal counter-revolution and the social crisis with Margaret Thatcher and Reagan, and now there’s the financial crisis and the economic crisis after the collapse of Lehmann Brothers. Finally, all these crises are getting mixed up and we re seeing a crisis of civilisation, an anthropological crisis. At this point, the system can no longer be reformed – we have to exit from this paradigm – and what is it? It s the paradigm of a growth society.

Our society has been slowly absorbed by an economy based on growth, not growth to satisfy needs – and that would be a good thing – but growth for the sake of growth and this naturally leads to the destruction of the planet because infinite growth is incompatible with a finite planet. We need a real reflection when we talk about an anthropological crisis. We need to take this seriously because we need a decolonisation of the imagination. Our imagination has been colonised by the economy. Everything has become economics. This is specific to the West and it’s fairly new in our history. It was in the seventeenth century when there was a great ethical switch with the theory expounded by Bernard Mandeville. Before, people said that altruism was good and then: “no, we have to be egoists, we have to make as much profit as possible; greed is good . Yes – to destroy our “oikos (our home) more quickly. And we have actually got to that point.

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“Monstromart’s slogan was “where shopping is a baffling ordeal”.

Why Too Much Choice Is Stressing Us Out (Guardian)

Once upon a time in Springfield, the Simpson family visited a new supermarket. Monstromart’s slogan was “where shopping is a baffling ordeal”. Product choice was unlimited, shelving reached the ceiling, nutmeg came in 12lb boxes and the express checkout had a sign reading, “1,000 items or less”. In the end the Simpsons returned to Apu’s Kwik-E-Mart. In doing so, the Simpsons were making a choice to reduce their choice. It wasn’t quite a rational choice, but it made sense. In the parlance of economic theory, they were not rational utility maximisers but, in Herbert Simon’s term, “satisficers” – opting for what was good enough, rather than becoming confused to the point of inertia in front of Monstromart’s ranges of products.

This comes to mind because Tesco chief executive Dave Lewis seems bent on making shopping in his stores less baffling than it used to be. Earlier this year, he decided to scrap 30,000 of the 90,000 products from Tesco’s shelves. This was, in part, a response to the growing market shares of Aldi and Lidl, which only offer between 2,000 and 3,000 lines. For instance, Tesco used to offer 28 tomato ketchups while in Aldi there is just one in one size; Tesco offered 224 kinds of air freshener, Aldi only 12 – which, to my mind, is still at least 11 too many. Now Lewis is doing something else to make shopping less of an ordeal and thereby, he hopes, reducing Tesco’s calamitous losses. He has introduced a trial in 50 stores to make it easier and quicker to shop for the ingredients for meals.

Basmati rice next to Indian sauces, tinned tomatoes next to pasta. What Lewis is doing to Tesco is revolutionary. Not just because he recognises that customers are time constrained, but because he realises that increased choice can be bad for you and, worse, result in losses that upset his shareholders. But the idea that choice is bad for us flies in the face of what we’ve been told for decades. The standard line is that choice is good for us, that it confers on us freedom, personal responsibility, self-determination, autonomy and lots of other things that don’t help when you’re standing before a towering aisle of water bottles, paralysed and increasingly dehydrated, unable to choose.

That wasn’t how endless choice was supposed to work, argues American psychologist and professor of social theory Barry Schwartz in his book The Paradox of Choice. “If we’re rational, [social scientists] tell us, added options can only make us better off as a society. This view is logically compelling, but empirically it isn’t true.”

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Jul 182015
 
 July 18, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing State, War & Navy Building, Washington DC 1917

Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)
Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)
Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)
China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)
China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)
Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)
Wolfgang Schäuble, The Trust Troll (Steve Keen)
Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)
Greece, Europe, and the United States (James K. Galbraith)
The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)
Blame the Banks (The Atlantic)
Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)
Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)
Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)
Greece Made The Wrong Choice (John Lloyd)
The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)
The End Of Capitalism Has Begun (Paul Mason)
The Freakish Year in Broken Climate Records (Bloomberg)

Absolutely must see Farage video.

Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)

Nigel Farage may be the only practical politician these days because he came from the trading sector. He explains the Euro-Project and its failures. He makes it clear that the Greek people never voted to enter the euro, and explains that it was forced upon them by Goldman Sachs and their politicians. Nigel also explains that the Euro project idea that a trade and economic union would then magically produce a political union – the United States of Europe and eliminate war. He has warned that the idea of a political union would end European wars has actually turned Europe into a rising resentment in where there is now a new Berlin Wall emerging between Northern and Southern Europe.

The Euro project was a delusional dream for it was never designed to succeed but to cut corners all in hope of creating the United States of Europe to challenge the USA and dethrone the dollar, That dream has turned into a nightmare and will never raise Europe to that lofty goal of the financial capitol of the world. The IMF acts as a member of the Troika, yet has no elected position whatsoever. The second unelected member is Mario Draghai of the ECB. Then the head of Europe is also unelected by the people. The entire government design is totally un-Democratic and therein lies the crisis.

Not a single member of the Troika ever needs to worry about polls since they do not have to worry about elections. This is authoritarian government if we have ever seen one. The ECB attempts by sheer force to manipulate the economy with zero chance of success employing negative interest rates and defending banks as the (former?) Goldman Sachs man Mario Draghai dictates. Now, far too many political jobs have been created in Brussels. This is no longer about what is best for Europe, it is what is necessary to retain government jobs. The Invisible Hand of Adam Smith works even in this instance – those in power are only interested in their self-interest and will risk war and civil unrest to maintain their failed dreams of power.

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If true, a main argument for Greece.

Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)

The legal advisor to the former government has said it WOULD have been legally possible to burn the bondholders of Ireland’s banks, without customers having to lose their deposits. The advice from the former attorney general Paul Gallagher appears to contradict the claims of some former ministers. Ministers in the former administration have consistently claimed that it would have been impossible to ‘burn’ bondholders without also enforcing a haircut on deposits, because the two were considered legally equal. However today Mr Gallagher has said that although it would have been difficult, it was legally possible to break this link and enforce losses on bondholders without depositors also taking a hit.

He said this had also been accepted by the Troika – but that the lenders simply refused to allow any burden-sharing under the bailout programme, making the prospect obsolete. Unsecured senior bondholders were paid around €14.3 billion under the period of the bank guarantee – much of it as a result of the state’s huge investment in the banking sector. Mr Gallagher’s evidence seems to suggest that these payments could have been avoided without depositors also facing any losses, but for the Troika’s stance.

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If Argentina can do it…

Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)

Argentina’s fight with foreign banks and bondholders is more than just business. It’s part of the national psyche, enshrined in a special museum at the business school at the University of Buenos Aires. The Museum of Foreign Debt is nothing fancy. There are a few flimsy panels plastered with grainy photos, dates, text, and graphs. Oh, but the saga portrayed on those panels! Banks, bond investors, and the International Monetary Fund flood crooked regimes with overpriced credit. The Argentine economy collapses, and the people suffer. International markets are roiled. It happens time and time again. The story has all the emotions of a good tango. Argentina has reneged on foreign debt obligations at least seven times, starting in 1827.

The latest was in July 2014, when Argentina defaulted rather than give in to pressure from Paul Singer of Elliott Management. The fight with Singer has been going on for a dozen years, and the term vulture investor—rather esoteric in much of the world—is now pretty much universally known in Argentina. It’s so much on people’s minds that Buenos Aires toy stores carry a homegrown board game called Vultures, packaged in a box depicting a pair of the birds picking at a pile of dollars. “We planted the anti-vulture flag in the world,” President Cristina Fernández de Kirchner said in a speech in mid-May. “We gave a name to international usury and despotism.” One May morning at the debt museum, guide Antonella Fagnano, a 21-year-old business major, describes Argentines’ attitude toward default.

She pauses by a black-and-white photo of the late General Jorge Videla, who led a 1976 coup that ushered in a seven-year dictatorship. Successive presidents in that period loaded up on foreign debt to finance, among other things, the 1982 Falklands War with the U.K. Today’s Argentina, Fagnano says, has no moral obligation to make good on debts like those. In fact, it would be wrong to pay. “Foreigners financed a lot of leaders, like these dictators. They didn’t do what they were supposed to do with the money, and left future generations the debt,” she says, shaking her head. “So, of course, you cannot allow that.” Fernandez is nearing the end of her term, and it doesn’t look like things will change under the next president. Daniel Scioli, the front-runner for October elections, vows to carry on the fight against paying the vultures in full.

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And counting.

China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)

China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout that threatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.

That’s probably enough to restore confidence among China’s 90 million individual investors, says Bocom International Holdings Co. The Shanghai Composite Index jumped 3.5 % on Friday, capping a two-week rally that’s turned it into one of the world’s best-performing equity gauges. “It doesn’t have to use up all the money, as long as it can make the rest of the market believe that it has enough ammunition,” said Hao Hong, a China strategist at Bocom International in Hong Kong. “It is a game of chicken. For now, it seems to be working.” CSF, founded in 2011 to provide funding to the margin-trading businesses of Chinese brokerages, has transformed into one of the key government vehicles to combat a 32 % selloff in the Shanghai Composite from mid-June through July 8.

At 3 trillion yuan, its funding would be about five times bigger than the new proposed bailout for Greece and exceed China’s 2.3 trillion yuan of regulated margin financing during the height of the stock-market boom last month. “What the authorities are demonstrating to the market is that if panic does take hold, they have the resources at their disposal to deal with that,” said James Laurenceson, the deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. “Monetary authorities around the word regularly send the same signal in credit and foreign exchange markets.”

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“Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral.”

China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)

During the Vietnam War, surveying the shelled wreckage of Ben Tre, an American officer famously remarked, “It became necessary to destroy the town to save it.” His comment came to epitomize the sort of self-defeating “victory” that undoes what it aims to achieve. Last week, China destroyed its stock market in order to save it. Faced with a crash in share prices from a bubble of its own making, the Chinese government intervened ruthlessly, and recklessly, to turn those prices around. Its heavy-handed approach seemed to work, for the moment, but only by severely damaging far more important goals and ambitions. Prior to the crash, China’s stock market had enjoyed a blissful disconnect from reality. As China’s economy slowed and corporate profits declined, share prices soared, nearly tripling in just 12 months.

By the peak, half the companies listed on the Shanghai and Shenzhen exchanges were priced above a preposterous 85-times earnings. It was a clear warning flag — one that Chinese regulators encouraged people to ignore. Then reality caught up. At first, when prices began to fall, the central bank responded by cutting interest rates and bank reserve requirements — measures to inject more money that had never failed to juice the market. But prices continued to fall. Then the government rallied the major brokerages to form a $19 billion fund to buy shares and waded directly into the market to buy stocks too. A few stocks rose, but most fell even further. The relentless crash was intensified by a new factor in Chinese markets: margin lending.

Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral. At the peak, according to Goldman Sachs, formal margin lending alone accounted for 12% of the market float and 3.5% of China’s GDP, “easily the highest in the history of global equity markets.” Margin loans served as rocket fuel for the market on its way up, but prices began to fall and borrowers received “margin calls” that forced them to liquidate their positions, pushing prices down further in a kind of death spiral.

Chinese regulators, who had been trying (ineffectually) to rein in risky margin lending, now suddenly reversed course. They waved rules requiring brokerages to ask for more collateral when stock prices fall and allowed them to accept any kind of asset — including people’s homes — as collateral for stock-buying loans. They also encouraged brokerages to securitize and sell their margin-lending portfolios to the public so that they could go out and make even more loans. All these steps knowingly exposed major financial institutions, and their customers, to much greater risk. Yet no one will borrow if no one is confident enough to buy, and the market continued to fall, wiping out nearly all its gains since the start of the year.

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The deal “has an ownership problem for Tsipras and the Greeks in general..”

Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)

Greek Prime Minister Alexis Tsipras replaced some ministers in a cabinet reshuffle after almost a quarter of his lawmakers rejected measures he agreed on with creditors to keep the country in the euro. The prime minister’s office said Friday that Panagiotis Skourletis will replace Panagiotis Lafazanis, who heads the Left Platform fraction of Tsipras’s Syriza party, as energy minister. George Katrougalos will succeed Panagiotis Skourletis as labor minister. The Greek parliament in the early hours of Thursday backed the deal with creditors, needed to unblock further financing aid, with decisive votes from the opposition. With 38 of 149 Syriza lawmakers refusing to support further spending cuts and tax increases, that marked a blow for Tsipras, who came to power on an anti-austerity platform in January.

Tsipras told his associates after the parliament vote that he would be forced to lead a minority government until a final deal with creditors is concluded. The European Union finalized a €7.2 billion bridge loan to Greece on Friday that will help provide the debt-ravaged nation with a stop-gap until its full three-year bailout is settled. In all, 64 of the parliament’s 300 lawmakers voted against the bill. Half of the “no” votes came from Syriza, including from Lafazanis and former Finance Minister Yanis Varoufakis. Finance Minister Euclid Tsakalotos, called in by Tsipras to replace Varoufakis before the final bailout negotiations, discussed on Friday with Joseph Stiglitz, a Nobel-prize winning economist, about the difficulties expected in the implementation of the deal with Greece’s creditors.

The deal “has an ownership problem for Tsipras and the Greeks in general,” said Paolo Manasse, a professor of economics at the University of Bologna, Italy. “It’s a liberal program to be carried out by a radical-left premier and imposed on a country that’s just voted no in a referendum.”

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“To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish.”

Wolfgang Schäuble, The Trust Troll (Steve Keen)

Paul Krugman invented the term “confidence fairy” to characterize the belief that all that was needed for growth to resume after the Global Financial Crisis was to restore ‘confidence’. Impose austerity and the economy will not shrink, but will instead grow immediately, because of the boost to confidence:

.. don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. The idea that austerity measures could trigger stagnation is incorrect, declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because confidence-inspiring policies will foster and not hamper economic recovery. ( Myths of Austerity , July 1 2010)

To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish. The identity of the Confidence Fairy was never revealed, but the identity of the Trust Troll is obvious. It‘s German Finance Minister Wolfgang Schäuble. Schäuble was clearly the primary architect of the Troika’s dictat for Greece. One only has to compare its language to that used by Schäuble in his OpEd in the New York Times three months ago (Wolfgang Schäuble on German Priorities and Eurozone Myths , April 15 2015). There he stated that ‘My diagnosis of the crisis in Europe is that it was first and foremost a crisis of confidence, rooted in structural shortcomings , and that the essential factor in ending the crisis was the restoration of trust:

The cure is targeted reforms to rebuild trust in member states finances, in their economies and in the architecture of the European Union. Simply spending more public money would not have done the trick nor can it now.

Compare this to the first line of the communique:

The Eurogroup stresses the crucial need to rebuild trust with the Greek authorities as a pre requisite for a possible future agreement on a new ESM programme.

The policies in the document match those in Schäuble’s OpEd as well. Schäuble called for:

.. more flexible labor markets; lowering barriers to competition in services; more robust tax collection; and similar measures.

The Troika’s document forces these measures upon Greece. These include ‘the broadening of the tax base to increase revenue’, ‘rigorous reviews of collective bargaining, industrial action and collective dismissals’ and ‘ambitious product market reforms’. At the same time, Greece is required to aim to achieve a government surplus equivalent to 3.5% of GDP -the opposite of ‘spending more public money’ which Schäuble rejected in his OpEd. Rather than debt reduction and rescheduling as even the IMF now calls for, “The Euro Summit acknowledges the importance of ensuring that the Greek sovereign can clear its arrears to the IMF and to the Bank of Greece and honour its debt obligations”.

This cannot in any sense be seen as an economic document, since an economic document would have to assess the feasibility of its proposals. Instead it simply states Schäuble s ideology: regardless of your economic circumstances, simply implement these (so-called) market-oriented reforms, restore trust, and your economy will grow. With the government debt that Greece currently labours under, this is a fantasy. Even if Greece were to pay a mere 3% on its debt, interest payments alone would absorb over 5% of GDP. To do that, and run a primary surplus of 3.5% of GDP in an economy where 25% of the population is unemployed is simply impossible.

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Karl Whelan makes much the same point as Steve Keen: “..the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.”

Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)

After trying his best to chuck Greece out of the euro last weekend, Germany’s finance minister Schäuble has continued to openly undermine the deal that was agreed by European leaders and endorsed by the Greek parliament. A key argument he has been putting forward is that a debt write-down for Greece “would be incompatible with the currency union’s rules” but that such a write-down would be possible if Greece left the euro. While this claim is being widely repeated in the German press, the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.

The rules of the EU and Eurozone are so byzantine that it is quite easy to make false claims about these rules and get away with it. However, I do not believe there is anything in the European Union or Eurozone rules that would preclude a debt write-down inside the euro. The basis for Schäuble’s argument appears to be Article 125.1 of the consolidated treaty on the functioning of the EU. Here is the article in full.

The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

This is the article that used to be called “the no bailout clause”. However, it is nothing of the sort. It simply says that member states cannot take on the debts of another member state. This did not rule out member states “bailing out” other countries by making loans to them. And indeed, the European Court of Justice in its Pringle decision established that the European Stabilisation Mechanism bailout fund was consistent with Article 125. Also worth noting about Article 125 are all the things it doesn’t mention. It doesn’t rule out loans being member states and doesn’t discuss these loans being restructured. And it makes no mention whatsoever of the Eurozone. So there is simply no legal basis for the idea that Greek debt being written down is illegal while they remain in the Eurozone but is fine if they leave the euro.

It is conceivable that someone could still take a case to the ECJ objecting to a write-off on the grounds that the granting and write-off of loans to Greece would result in more debt for European countries and allowed Greece to pay off other creditors. So you could argue that this was effectively the same thing as the other member states assuming Greece’s other debt commitments. To my mind, this line of argumentation moves far away from the simple and clear language of Article 125.1. I also don’t see much in the Pringle decision to suggest the ECJ would uphold such a case. There would be even less case for a legal argument against an “effective write-off” involving postponing interest payments and principal payments for some very long period of time, such as 100 years.

So there is no “Eurozone rule” against a writing off Greek debt. Conversely, despite Schäuble’s enthusiastic support, the rules don’t allow for a euro exit. Rules it appears, mean whatever Mr. Schäuble wants them to mean.

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“After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that.”

Greece, Europe, and the United States (James K. Galbraith)

SYRIZA was not some Greek fluke; it was a direct consequence of European policy failure. A coalition of ex-Communists, unionists, Greens, and college professors does not rise to power anywhere except in desperate times. That SYRIZA did rise, overshadowing the Greek Nazis in the Golden Dawn party, was, in its way, a democratic miracle. SYRIZA’s destruction will now lead to a reassessment, everywhere on the continent, of the “European project.” A progressive Europe—the Europe of sustainable growth and social cohesion—would be one thing. The gridlocked, reactionary, petty, and vicious Europe that actually exists is another. It cannot and should not last for very long.

What will become of Europe? Clearly the hopes of the pro-European, reformist left are now over. That will leave the future in the hands of the anti-European parties, including UKIP, the National Front in France, and Golden Dawn in Greece. These are ugly, racist, xenophobic groups; Golden Dawn has proposed concentration camps for immigrants in its platform. The only counter, now, is for progressive and democratic forces to regroup behind the banner of national democratic restoration. Which means that the left in Europe will also now swing against the euro.

As that happens, should the United States continue to support the euro, aligning ourselves with failed policies and crushed democratic protests? Or should we let it be known that we are indifferent about which countries are in or out? Surely the latter represents the sensible choice. After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that. So why should the euro—plainly now a fading dream—be propped up? Why shouldn’t getting out be an option? Independent technical, financial, and moral support for democratic allies seeking exit would, in these conditions, help to stabilize an otherwise dangerous and destructive mood.

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The story comes from everywhere now: non-euro countries fare much better than euro nations. Even in Germany, workers are being stiffed.

The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)

The euro might be worse for you than bankruptcy. That, at least, has been the case for Finland and the Netherlands, which have actually grown less than Iceland has since 2007. Iceland, you might recall, went bankrupt in 2008. Now, it’s true that Finland and the Netherlands have had their fair share of economic problems, but those should have been manageable. Neither country is a basket case, and both have done what they were supposed to do. In other words, they’ve followed the rules, and the results have still been a catastrophe. That’s because the euro itself is. Or, if you want to be polite, the common currency is “imperfect, and being imperfect is fragile, vulnerable, and doesn’t deliver all the benefits it could.” That was ECB chief Mario Draghi’s verdict on Thursday.

So what’s happened to them? Well, just your run-of-the-mill bad economic news. It’s only a slight exaggeration to say that Apple has kneecapped Finland’s economy. Its two biggest exports were Nokia phones and paper products, but, as the country’s former prime minister Alex Stubb has said, the iPhone killed the former and the iPad killed the latter. Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn’t have a currency to devalue anymore. It has the euro. So instead it’s had to cut costs by cutting wages, which not only takes longer, but also causes more economic damage since you have to fire people to convince them to take pay cuts. The result has been a recession longer than anything in Finland’s living memory, longer even than its great depression in the early 1990s. It hasn’t helped, of course, that the rules of the euro zone have forced Finland’s government to cut its budget at the same time that all this has been happening.

It’s been a different kind of story in the Netherlands. Its goods are more than competitive abroad—its trade surplus is an absurd 10 % of economic output—but its domestic spending is a problem. The Netherlands had a huge housing bubble, fueled, in part, by the fact that interest payments are fully tax deductible, that has since deflated some 20%. That’s left Dutch households with a bigger debt burden than anyone else in the euro zone. On top of that, there’s been the usual austerity to keep its recovery from being much—or any—of one. Indeed, the Netherlands’ economy was slightly smaller at the end of 2014 than it was at the end of 2007. That’s a lot better than Finland, whose economy has shrunk 5.2% during that time, but it still lags the 1.1% growth Iceland has eked out.

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Excellent.

Blame the Banks (The Atlantic)

In buying various assets European banks were doing what banks are supposed to do: lending. But by doing so without caution they were doing exactly what banks are not supposed to do: lending recklessly. The European banks weren’t lending recklessly to only the U.S. They were also aggressively lending within Europe, including to the governments of Spain, Portugal, and Greece. In 2008, when the U.S. housing market collapsed, the European banks lost big. They mostly absorbed those losses and focused their attention on Europe, where they kept lending to governments—meaning buying those countries’ debt—even though that was looking like an increasingly foolish thing to do:

Many of the southern countries were starting to show worrying signs. By 2010 one of those countries—Greece—could no longer pay its bills. Over the prior decade Greece had built up massive debt, a result of too many people buying too many things, too few Greeks paying too few taxes, and too many promises made by too many corrupt politicians, all wrapped in questionable accounting. Yet despite clear problems, bankers had been eagerly lending to Greece all along. That 2010 Greek crisis was temporarily muzzled by an international bailout, which imposed on Greece severe spending constraints. This bailout gave Greece no debt relief, instead lending them more money to help pay off their old loans, allowing the banks to walk away with few losses.

It was a bailout of the banks in everything but name. Greece has struggled immensely since then, with an economic collapse of historic proportion, the human costs of which can only be roughly understood. Greece needed another bailout in 2012, and yet again this week. While the Greeks have suffered, the northern banks have yet to account financially, legally, or ethically, for their reckless decisions. Further, by bailing out the banks in 2010, rather than Greece, the politicians transferred any future losses from Greece to the European public. It was a bait-and-switch rife with a nationalist sentiment that has corrupted the dialogue since: Don’t look at our reckless banks; look at their reckless borrowing.

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Legalese.

Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)

A vote in the Greek parliament means little to Germany’s finance minister, Wolfgang Schäuble. The self-appointed guardian of the EU’s financial rulebook says Athens can vote as many times as it likes in favour of a deal that promises, even in the vaguest terms, to write off some of its colossal debts, but that doesn’t mean the rules allow it. In fact, as Schäuble delights in pointing out, any attempt at striking out Greek debt is, according to his advice, illegal. Yet Schäuble knows Greece’s debts are unsustainable unless some of them are written off – he has said as much on several occasions. So faced with its internal contradictions, he posits that the deal must fail and the poorly led Greeks exit the euro.

As a compromise, he repeated his suggestion on Tuesday that Greece leave the euro temporarily. Those who care more for maintaining the current euro currency bloc as a 19-member entity immediately spotted this manoeuvre as a one-way ticket with no way back for Greece. The Austrian chancellor, Werner Faymann, a centre-left social democrat, said Schäuble was “totally wrong” to create the impression that “it may be useful for us if Greece falls out of the currency union, that maybe we pay less that way”. Faymann, who has consistently taken a sympathetic line on Greece, showed his growing irritation at the German minister’s stance: “It’s morally not right, that would be the beginning of a process of decay … Germany has taken on a leading role here in Europe and in this case not a positive one.”

Greece and Faymann’s problem is that there are plenty of other forces at play pulling at the loose threads of the latest bailout deal. The IMF has said a big debt write-off is needed to prevent a proposed €86bn deal collapsing under the sheer weight of future liabilities and a reluctance in Greece to carry through reforms.

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Bernanke weighs in.

Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country’s sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone’s leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.

Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone. The poor overall performance is illustrated by Figure 1 below, which shows the euro area unemployment rate since 2007, with the U.S. unemployment rate shown for comparison.

In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10% of the labor force. Today the unemployment rate in the United States is 5.3%, while the unemployment rate in the euro zone is more than 11%. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe’s longer-term growth potential. The unevenness in economic outcomes among countries within the euro zone is illustrated by Figure 2, which compares the unemployment rate in Germany (which accounts for about 30% of the euro area economy) with that of the remainder of the euro zone.

Currently, the unemployment rate in the euro zone ex Germany exceeds 13%, compared to less than 5% in Germany. Other economic data show similar discrepancies within the euro zone between the “north” (including Germany) and the “south.” The patterns illustrated in Figures 1 and 2 pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.

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How Wolfie asset-stripped East Germany.

Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)

It was 25 years ago, during the summer of 1990, that Schäuble led the West German delegation negotiating the terms of the unification with formerly communist East Germany. A doctor of law, he was West Germany’s interior minister and one of Chancellor Helmut Kohl’s closest advisers, the go-to guy whenever things got tricky. The situation in the former GDR was not too dissimilar from that in Greece when Syriza swept to power: East Germans had just held their first free elections in history, only months after the Berlin Wall fell, and some of the delegates from East Berlin dreamed of a new political system, a “third way” between the west’s market economy and the east’s socialist system – while also having no idea how to pay the bills anymore.

The West Germans, on the other side of the table, had the momentum, the money and a plan: everything the state of East Germany owned was to be absorbed by the West German system and then quickly sold to private investors to recoup some of the money East Germany would need in the coming years. In other words: Schäuble and his team wanted collateral. At that time almost every former communist company, shop or petrol station was owned by the Treuhand, or trust agency – an institution originally thought up by a handful of East German dissidents to stop state-run firms from being sold to West German banks and companies by corrupt communist cadres. The Treuhand’s mission: to turn all the big conglomerates, companies and tiny shops into private firms, so they could be part of a market economy.

Schäuble and his team didn’t care that the dissidents had planned to hand out shares of companies to the East Germans, issued by the Treuhand – a concept that incidentally led to the rise of the oligarchs in Russia. But they liked the idea of a trust fund because it operated outside the government: while technically overseen by the finance ministry, it was publicly perceived as an independent agency. Even before Germany merged into a single state in October 1990, the Treuhand was firmly in West German hands. Their aim was to privatise as many companies as possible, as soon as possible – and if you were to ask most Germans about the Treuhand today they would say it achieved that objective. It didn’t do so in a way that was popular with the people of East Germany, where the Treuhand quickly became known as the ugly face of capitalism. It did a horrible job in explaining the transformation to shellshocked East Germans who felt overpowered by this strange new agency. To make matters worse, the Treuhand became a hotbed of corruption.

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“As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?”

Greece Made The Wrong Choice (John Lloyd)

Former Greek Finance Minister Yanis Varoufakis has, as Macbeth put it, “strutted and fretted his hour upon the stage.” But he will still be heard some more. While Prime Minister Alexis Tsipras pleaded for support Wednesday for a European Union “rescue” plan in which he said he didn’t believe, Varoufakis was busy ripping it apart. In a widely circulated blog, Varoufakis boiled down his belief to this: Greece had been reduced to the status of a slave state. While his words were clearly driven by anger and spite, he’s not entirely out of line. The agreement is, as Tsipras said, a kind of blackmail. The economist Simon Tilford described it as an order to “acquiesce to all our demands or we will evict you from the currency union.”

Pensions will be cut further, labor markets liberalized, working lives extended, collective bargaining “modernized,” and hiring and firing made easier. For a government that takes its inspiration from Karl Marx, this is a neo-liberal dousing. There are few enthusiasts for the deal: the most important of the skeptics is the IMF, which called for the euro zone creditors to allow a partial write-off of its €300+ billion debt, or at least permit a repayment pause for 30 years. In an ironic twist, the IMF, the creditor the Tsipras government most despised, is now its (partial) friend. Skeptics have focused not just on the impossibility of debt repayment, but also on the deepening poverty that will result from the agreement.

Francois Cabeau, an economist in Barclays Bank, told the French daily Figaro that the economy would continue to shrink by between 6 and 8% a year. Because the Greek economy has so few sectors where significant value is added other than shipping and tourism, it depends heavily on consumption — which is being further cut, thus prompting a vicious cycle and a further immiseration of the poor, elderly and sick. These conditions validate Varoufakis’ analysis. Greece is a country so firmly under the unremitting pressure of its creditors and so tied to foreign demands, that it may soon resemble an East European communist state in the high tide of Soviet power. Like two of these states — Hungary in 1956, Czechoslovakia in 1968 — Syriza made a failed attempt at a revolt, and was crushed.

[..] So should it leave the euro zone? The objections to a Grexit are twofold: first, that its currency — presumably a newly issued drachma — would be walloped by an unfavorable exchange rate as a result. Foreign goods and foreign travel would be priced out of many families’ reach. At the same time, as euro zone leaders have warned continually, a Grexit would also shake the euro to its foundations — and though the remaining 18 members could be protected, a precedent would be set that this is a contingent currency, with membership dependent on national conditions. That it would be bad is certain: but how much worse than staying in and swallowing bitter medicine? As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?

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“The key (overlooked) question here is: Is this EU reflecting Europeans’ will? ”

The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)

Fears, disillusionment, uncertainty, and astonishment are mixed together by the hot wind blowing from Greece and the cold rain coming from some of Northern Europe. No, it is not a weather forecast. After the Greek referendum and the recent night-long negotiations, these are the feelings of many people across Europe. Even if the reality will probably be less apocalyptic, the truth is that democracy is being ridiculed around the EU. Some media from all around the world are, in fact, suggesting that Greece has been excessively humiliated and there is a strong attempt to force it out from the Eurozone. And this is not merely because one of the proposals from the summit stated that €50bn of Greek assets had to be handed over to an institution fundamentally controlled by Berlin.

These days Greece has been constantly at the centre of Europe’s microcosm. The “mother” of western democracy and inner culture, according to some, has to learn the lesson. It is a matter of mere power. They rejected austerity, potentially provoking another European downturn, and a default with unclear outcomes. Stories of poverty and unemployment are indeed in the eyes of everyone willing to see them. The situation is undermining the future of the European community. It is not simply opening the way for member states to be essentially pushed out by the strongest ones. Referring to the Greek early approach and a possible “exit”, EU Commission president Jean-Claude Juncker said that he could not “pull a rabbit out of a hat”. This is very true.

But early post-war politicians pulled many rabbits out when Europe had to be rebuilt after the war, and so one would expect a similar proficiency. This contemporary generation of European leaders might be instead remembered like the one leading to the disappearance of many transnational bonds established by Europeans. Europe is, then, really navigating with no compass. It has not a single voice. Socially, there seems to be no concern with people’s living standards. Politically, they lack any preoccupations with geo-politics, as some of the Mediterranean might fall under Putin’s influence. Budget and austerity are the main interests. As Pierre Moscovici, the socialist EU economic commissioner, in fact, put it, the “integrity” of the Eurozone has been saved with the novel agreement.

The key (overlooked) question here is: Is this EU reflecting Europeans’ will? Its image (and also Germany’s image) is seriously damaged even if all Greeks voted yes. For this reason the statement by the German European MP and chairman of the leading centre-right European People’s Party, Manfred Weber, that Europe is “based on solidarity, not a club of egoists” looks highly paradoxical, especially after what it is happening to Greece.

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From Mason’s upcoming new book. Lots of technohappiness.

The End Of Capitalism Has Begun (Paul Mason)

The 2008 crash wiped 13% off global production and 20% off global trade. Global growth became negative – on a scale where anything below +3% is counted as a recession. It produced, in the west, a depression phase longer than in 1929-33, and even now, amid a pallid recovery, has left mainstream economists terrified about the prospect of long-term stagnation. The aftershocks in Europe are tearing the continent apart. The solutions have been austerity plus monetary excess. But they are not working. In the worst-hit countries, the pension system has been destroyed, the retirement age is being hiked to 70, and education is being privatised so that graduates now face a lifetime of high debt. Services are being dismantled and infrastructure projects put on hold.

Even now many people fail to grasp the true meaning of the word “austerity”. Austerity is not eight years of spending cuts, as in the UK, or even the social catastrophe inflicted on Greece. It means driving the wages, social wages and living standards in the west down for decades until they meet those of the middle class in China and India on the way up. Meanwhile in the absence of any alternative model, the conditions for another crisis are being assembled. Real wages have fallen or remained stagnant in Japan, the southern Eurozone, the US and UK. The shadow banking system has been reassembled, and is now bigger than it was in 2008. New rules demanding banks hold more reserves have been watered down or delayed. Meanwhile, flushed with free money, the 1% has got richer.

Neoliberalism, then, has morphed into a system programmed to inflict recurrent catastrophic failures. Worse than that, it has broken the 200-year pattern of industrial capitalism wherein an economic crisis spurs new forms of technological innovation that benefit everybody. That is because neoliberalism was the first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class. If we review the take-off periods studied by long-cycle theorists – the 1850s in Europe, the 1900s and 1950s across the globe – it was the strength of organised labour that forced entrepreneurs and corporations to stop trying to revive outdated business models through wage cuts, and to innovate their way to a new form of capitalism.

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“This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.”

The Freakish Year in Broken Climate Records (Bloomberg)

The annual State of the Climate report is out, and it’s ugly. Record heat, record sea levels, more hot days and fewer cool nights, surging cyclones, unprecedented pollution, and rapidly diminishing glaciers.
The U.S. National Oceanic and Atmospheric Administration (NOAA) issues a report each year compiling the latest data gathered by 413 scientists from around the world. It’s 288 pages, but we’ll save you some time. Here’s a review, in six charts, of some of the climate highlights from 2014.

1. Temperatures set a new record It’s getting hot out there. Four independent data sets show that last year was the hottest in 135 years of modern record keeping. The map above shows temperature departure from the norm. The eastern half of North America was one of the few cool spots on the planet.

2. Sea levels also surge to a record The global mean sea level continued to rise, keeping pace with a trend of 3.2 millimeters per year over the last two decades. The global satellite record goes back only to 1993, but the trend is clear and consistent. Rising tides are one of the most physically destructive aspects of climate change. Eight of the world’s 10 largest cities are near a coast, and 40 % of the U.S. population lives in coastal areas, where the risk of flooding and erosion continues to rise.

3. Glaciers retreat for the 31st consecutive year Data from more than three dozen mountain glaciers show that 2014 was the 31st straight year of glacier ice loss worldwide. The consistent retreat of glaciers is considered one of the clearest signals of global warming. Most alarming: The rate of loss is accelerating over time.

4. There are more hot days and fewer cool nights Climate change doesn’t just increase the average temperature—it also increases the extremes. The chart above shows when daily high temperatures max out above the 90th %ile and nightly lows fall below the lowest 10th %ile. The measures were near their global records last year, and the trend is consistently miserable.

5. Record greenhouse gases fill the atmosphere By burning fossil fuels, humans have cranked up concentrations of carbon dioxide in the atmosphere by more than 40 % since the Industrial Revolution. Carbon dioxide, the most important greenhouse gas, reached a concentration of 400 parts per million for the first time in May 2013. Soon we’ll stop seeing concentrations that low ever again.
The data shown are from the Mauna Loa Observatory in Hawaii. Data collection was started there by C. David Keeling of the Scripps Institution of Oceanography in March 1958. This chart is commonly referred to as the Keeling curve.

6. The oceans absorb crazy amounts of heat The oceans store and release heat on a massive scale. Over shorter spans of years to decades, ocean temperatures naturally fluctuate from climate patterns like El Niño and what’s known as the Pacific Decadal Oscillation. Longer term, oceans are absorbing even more global warming than the surface of the planet, contributing to rising seas, melting glaciers, and dying coral reefs and fish populations. In 2015 the world has moved into an El Niño warming pattern in the Pacific Ocean. El Niño phases release some of the ocean’s stored heat into the atmosphere, causing weather shifts around the world. This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.

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May 182015
 
 May 18, 2015  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  


Harris&Ewing Car exterior. Washington & Old Dominion R.R. 1930

Q Ratio: Today’s Stock Market Has at Least One Similarity to 1929 (Bloomberg)
Greece’s Debt Battle Exposes Deeper Eurozone Flaws (WSJ)
Would Staying In The Euro Be A Catastrophe For Greece? (Guardian)
Greek Endgame Nears for Tsipras as Bank Collateral Hits Buffers (Bloomberg)
Greek Lessons for UK’s David Cameron (WSJ)
David Blanchflower: Bank of England In Cloud-Cuckoo Land On Wages (Independent)
UK Police Warn Big Budget Cuts Will Lead To ‘Paramilitary’ Force (Guardian)
If Numbers Don’t Lie Then… (Mark St. Cyr)
China Home Prices Drop Over 6% In April (Reuters)
China Struggles To Make Its Debt Problems Go Away (MarketWatch)
Merkel Under Pressure To Reveal Extent Of German Help For US Spying (Reuters)
A Diplomatic Victory, and Affirmation, for Putin (NY Times)
The Democratic Party Would Triangulate Its Own Mother (Matt Taibbi)
TPP: Fast-Track Measure Will Pass ‘This Week’, McConnell Says (Guardian)
The American Press Tried To Discredit Seymour Hersh 40 Years Ago, Too (Ames)
Huge El Niño Becoming More Likely In 2015 (Slate)
Antarctic Larsen B Ice Shelf In Last Throes Of Collapse (Livescience)

“It is very strongly indicated .. that we’re looking at a stock market which is something like 80% over-priced.”

Q Ratio: Today’s Stock Market Has at Least One Similarity to 1929 (Bloomberg)

If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you’d have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality. The concept is embodied in a measure known as the Q ratio developed by James Tobin, a Nobel Prize-winning economist at Yale University who died in 2002. According to Tobin’s Q, equities in the U.S. are valued about 10% above the cost of replacing their underlying assets – higher than any time other than the Internet bubble and the 1929 peak. Valuation tools are being dusted off around Wall Street as investors assess the staying power of the bull market that is now the second longest in 60 years.

To Andrew Smithers, the 77-year-old former head of SG Warburg’s investment arm, the Q ratio is an indicator whose time has come because it illuminates distortions caused by quantitative easing. “QE is a very dangerous policy, in my view, because it has pushed asset prices up and high asset prices, we know from history, are very dangerous,” Smithers, of Smithers & Co. in London, said in a phone interview. “It is very strongly indicated by reliable measures that we’re looking at a stock market which is something like 80% over-priced.” Acceptance of Tobin’s theory is at best uneven, with investors such as Laszlo Birinyi saying the ratio is useless as a signal because it would have kept you out of a bull market that has added $17 trillion to share values. Others see its meaning debased in an economy whose reliance on manufacturing is nothing like it used to be.

To Smithers, the ratio’s doubling since 2009 to 1.10 is a symptom of companies diverting money from their businesses to the stock market, choosing buybacks over capital spending. Six years of zero-percent interest rates have similarly driven investors into riskier things like equities, elevating the paper value of assets over their tangible worth, he said. Standard & Poor’s 500 Index members last year spent about 95% of their profits on buybacks and dividends, with stock repurchases exceeding $2 trillion since 2009, data compiled by S&P Dow Jones Indices show. In the first four months of this year, almost $400 billion of buybacks were announced, with February, March and April ranking as three of the four busiest months ever, according to data compiled by Birinyi Associates Inc.

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“Our discussions on the Greek side progressed a lot more easily than the discussions on the European side..”

Greece’s Debt Battle Exposes Deeper Eurozone Flaws (WSJ)

Since there is no international bankruptcy court, sovereign restructurings always face political challenges as the debtor and creditor countries’ taxpayers, and the shareholders of private lending institutions all duke it out to determine how to distribute the losses. But in this case, it’s further complicated by the close financial integration between eurozone member countries. It brings a heightened level of contagion risk to the table – the idea that investors in other eurozone countries’ bonds will sell them to cover losses incurred in Greece and unleash a vicious cycle of market pressure. To forestall that risk, eurozone authorities were always reluctant to let private-sector creditors suffer big “haircuts” on their investments – which inevitably translated into a bigger burden for taxpayers.

Yet there were no pan-European political institutions to pool fiscal resources and automatically apportion how to share those burdens. Without a U.S.-style centralized federal government, the 17 member states would fight over every dollar. The result was something close to paralysis. “The technological and capital market integration was so advanced, and the world was so fragile after the 2008 crisis, that in order to really create freedom of decision-making in Greece you needed a huge amount of institutional buffers that weren’t there — buffers against contagion,” says Georgetown law professor Anna Gelpern, a long-time scholar of sovereign debt markets.

It’s tempting to suggest that bankers and hedge funds exploited this dysfunction at taxpayers’ expense. But one fund manager who participated in the private sector involvement, or PSI, talks of 2012, complained that even when the creditor committee was poised to sign a deal, the 16 EU finance ministers couldn’t agree on the terms among themselves. “Our discussions on the Greek side progressed a lot more easily than the discussions on the European side,” he said. This tortured process looms over the eurozone’s future, even if Greece finally gets a successful debt restructuring. The same flawed structure means that contagion could rear its head again in Portugal – or worse, in Spain or Italy – currently low bond yields could spike again and the panic that of 2012 could return.

While we are a long ways from those levels, this month’s rapid selloff in the region’s bond markets hints at how quickly things could unwind. For now, the ECB’s massive bond-buying program functions as the de facto institutional buffer that the eurozone politicians failed to build. But its powers aren’t limitless – the ECB can only act within a narrow mandate of achieving price stability and suffers internal political divisions of its own. Such alternative “buffer institutions are cushions to buy space to find a political solution,” said Ms. Gelpern. “If you run through those buffers without getting a political solution, then the system is going to crack. We are closer than ever to that.”

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It would if the German attitude towards power doesn’t change.

Would Staying In The Euro Be A Catastrophe For Greece? (Guardian)

Yanis Varoufakis rues the day when Greece joined the euro. The Greek finance minister says his country would be better off if it was still using the drachma. Deep down, he says, all 18 countries using the single currency wish that the idea had been strangled at birth but understand that once you are in you don’t get out without a catastrophe. All of that is true, and explains why Greece is involved in a game of chicken with all the other players in this drama: the International Monetary Fund, the European commission, the European Central Bank and the German government. Varoufakis wants more financial help but not if it means sending the Greek economy into a “death spiral”. Greece’s creditors will not stump up any more cash until Athens sticks to bailout conditions that Varoufakis says would do just that.

Things will come to a head this summer because it is clear Greece cannot make all the debt repayments that are coming up. It has to find €10bn (£7.3bn) in redemptions to the IMF, the ECB and other bondholders before the end of August and the money is not there. Greece’s creditors know that and are prepared to let the government in Athens stew. They know that Greece really has only two choices: surrender or leave the euro, and since it has said it wants to stay inside the single currency, they expect the white flag to be fluttering any time soon. Greece’s willingness to go ahead with the privatisation of its largest port, Piraeus, will be seen as evidence by the hardliners in Brussels and Berlin that they have been right to take a tough approach in negotiations with the Syriza-led government.

But before he admits he has lost the game of chicken, Alexis Tsipras, the Greek prime minister, should think hard about Varoufakis’s analysis. Was it a mistake for Greece to join the euro? Clearly, the answer is yes. Would Greece be better off with the drachma? Given that the economy has shrunk by 25% in the past five years and is still shrinking, again the answer is yes. Can you leave the euro and return to the drachma without a catastrophe? Undoubtedly there would be massive costs from doing so, including credit controls to prevent currency flight, and a profound shock to business and consumer confidence. There are also the practical difficulties involved in substituting one currency for another.

In a way, though, this is not the question the Greek government should be asking itself. Greece has been suffering an economic catastrophe since 2010. It is suffering from an economic catastrophe now and will continue to suffer from an economic catastrophe if it stays in the euro without generous debt forgiveness and policies that facilitate, rather than impede, growth. So the real question is not whether leaving the euro would be a catastrophe, because it would. The real question is whether it would be more of a catastrophe than staying in.

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Turning into a long endgame.

Greek Endgame Nears for Tsipras as Bank Collateral Hits Buffers (Bloomberg)

Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors. As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say. “The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients May 15. “Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June.”

European policy makers are losing patience with Tsipras who said as recently as May 14 that he won’t compromise on any of his key demands. While talks are centering on whether to give Greece more money, the European Central Bank could raise the stakes if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance program. Such a move might inadvertently prompt a further outflow of bank deposits and pressure Tsipras to choose between doing a deal and putting his country on the road to capital controls. “We are in an endgame,” ECB Executive Board member Yves Mersch said Saturday. “This situation is not tenable.”

The arithmetic goes as follows: Greek lenders have so far needed about €80 billion under the ELA program. Banks have enough collateral to stretch that lifeline to about €95 billion under the terms currently allowed by the ECB, a person familiar with the matter said. With the central bank raising the ELA by about €2 billion every week, that could take banks to the end of June. A crunch will come if the ECB increases the haircut on Greek collateral to levels not seen since last year. That could be prompted by anything from a complete breakdown in talks to a missed debt payment, the official said. A continuation of the current impasse could even be all that’s needed, the official said. An increased haircut would reduce the ELA limit to about €88 billion, the person said. While that gives banks about four weeks before hitting the buffers, the leeway is so limited that Greece might need to impose capital controls, limiting transactions such as ATM withdrawals, to conserve the cushion.

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Nice comparison.

Greek Lessons for UK’s David Cameron (WSJ)

David Cameron and Alexis Tsipras are miles apart politically, but they share more in common than either may care to admit. Both the U.K. and Greek prime ministers took office after elections in which their parties secured just 37% of the vote. Both claim a strong mandate to reform their country’s relationship with the European Union—and boast that their real aim is to reform the EU itself. Both face pressure from party hard-liners who would rather risk a permanent rupture than accept any compromise. And both leaders believe the rest of Europe will do anything to avoid such a rupture and so will ultimately have to accept their demands. Mr. Tsipras will find out soon enough if his assessment was right: Greece’s debt negotiations are approaching their drop-dead moment when failure to agree on a new funding deal will push the government into a messy default.

But Mr. Cameron’s EU odyssey has only just begun: He must now follow through on his election pledge to hold a referendum on Britain’s continued membership of the EU by the end of 2017. The stakes could hardly be higher. Many analysts think a Greek euro exit would be destabilizing but ultimately containable. But a British exit from the EU would diminish the union in the eyes of the world, weakening its capacity to secure trade deals, deepen the European single market and to confront threats from Russia and the Mediterranean. Just as Mr. Tsipras says he wants to keep Greece in the euro, Mr. Cameron has no desire to lead the U.K. out of the EU. And as in Greece, there is little public appetite for an exit. A recent poll showed British voters back EU membership by 45%—against 33% who want out—rising to 56% to 20% if Mr. Cameron can renegotiate the terms of membership.

Like Mr. Tsipras, Mr. Cameron’s problem lies with his party, not the public. Up to a quarter of his 331 parliamentarians look certain to campaign to leave the EU since their demands for opt-outs for large swaths of EU law, a U.K. veto on future EU rules and an end to the right of EU citizens to seek work in the U.K. can never be met. Mr. Cameron’s objective is to avoid an even bigger split that would damage his authority and could become permanent. For a prime minister who has bet his country’s strategic future on his ability to renegotiate the terms of EU membership, the lack of detailed planning is striking. U.K. officials say that as things stand, Downing Street has no clear process, no team, no detailed policy proposals, no clear view on what is needed to declare the renegotiation a success and no decision on the timing of the referendum.

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“There is no such thing as an expansionary fiscal contraction.”

David Blanchflower: Bank of England In Cloud-Cuckoo Land On Wages (Independent)

In his reply to a letter from the Monetary Policy Committee this week outlining why CPI inflation was 2% below the target he had set for them, the Chancellor made clear there was more austerity heading everyone’s way. “Ultimately, the credibility of our economic policy rests on the strength of our public finances. This new Government now has a clear mandate to take the steps needed to return them to surplus and ensure continued economic security.” Here we go again, and this time he thinks he has a “mandate’ to slash and burn. It really is amazing that he hasn’t learnt from his past errors. In 2010 George Osborne imposed austerity and the economy stalled for two years; he relaxed austerity and went to plan B, and growth picked up.

So Slasher Osborne is back to his old tricks. Sadly for Slasher this time he has a slowing economy to deal with, rather than the rapidly growing one he inherited in 2010. Now the bond markets really do seem to be in free-fall, just as they weren’t in 2010. As the Governor of the Bank of England, Mark Carney, made clear in his press conference this week, “there is persistent fiscal drag … just as there has been over the last several years”. That’s one of the headwinds that weighs on the economy. The headwinds are once again going to become hurricane force. Hurricane Slasher is heading your way. Austerity is likely to smash growth once again. It seems almost inevitable that monetary policy will have to compensate for such tightening, so I fully expect the next interest rate move to be downwards, with another significant round of quantitative easing, if this austerity is implemented.

There is no such thing as an expansionary fiscal contraction. Just to remind readers, GDP growth was 1% in Q2 2010 and 0.3% in Q1 2015, the latest data that we have. To put this in context, the first chart plots quarterly GDP growth rates for the 19 EU countries that to this point have produced estimates. The UK’s growth rate of 0.3% is below both the EU and the eurozone averages of 0.4%, and is growing at half France’s growth rate of 0.6%. The UK ranks joint 11th with Belgium, Germany and Italy. There are several other countries who are yet to report for 2015 but whose growth rates for Q4 2014 were higher than 0.3%: the Czech Republic, Denmark, Luxembourg, Malta, Poland and Sweden, plus two non-EU members, Norway and Switzerland. The UK is now one of the slowest-growing European economies.

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A very valuable insight: “You police by consent by having a relationship with local communities.”

UK Police Warn Big Budget Cuts Will Lead To ‘Paramilitary’ Force (Guardian)

Police will be forced to adopt a “paramilitary” style of enforcement if the government inflicts big budget cuts on them, the head of the police officers’ organisation has warned. Steve White, chair of the Police Federation, said his 123,000 members, from police constables to inspectors, fear a move towards a more violent style of policing as they try to keep law and order with even fewer officers than now. White told the Guardian that more cuts would be devastating: “You get a style of policing where the first options are teargas, rubber bullets and water cannon, which are the last options in the UK.” White said cuts would see the bedrock principle of British law enforcement, policing by consent, ripped apart. The week ahead sees the federation stage its annual conference, which starts on Tuesday 19 May.

The key day will be Wednesday when the home secretary, Theresa May, will address rank-and-file officers. Last year May stunned delegates with a speech telling them to reform or be taken over by government, and telling them policing was failing too often. Police leaders have a fine line to walk in opposing cuts. Rank-and-file members are furious at the effects of austerity on their terms and conditions, as well as falling officer numbers nationally. But May and her advisers believe some members of the police force use over-the-top rhetoric in predictions that cuts would lead to chaos on the streets, and instead believe they should squeeze maximum value out of the public money given. White said police had already endured five years of austerity and were braced for more “swingeing cuts” after the election of a Conservative government with a majority.

White said that since 2010, when the Conservative-led coalition started slashing its funding to police by 20%, the service had been cut by 17,000 officers and 17,000 civilian staff, but had managed to limit the effect on the public. He said the service was now “on its knees”, with some internal projections within policing of a further 20% to 25% of cuts by the end of the next parliament in 2020. This would lead to more than 15,000 officers disappearing off the streets, only being seen when responding to crime or serious events such as disorder on the streets. White said: “You are left with a police service who you only speak to in the direst of circumstances, a police service almost paramilitary in style.”

“You police by consent by having a relationship with local communities. “If you don’t have a relationship, because the officers have been cut, you will lose the consent which means the face and style of policing changes. “The whole service, from top to bottom, is deeply concerned about the ability to provide the service that the public have come to expect over the next five years.”

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First, falling gas prices were supposed to boost the economy. Now rising prices are to do the same thing.

If Numbers Don’t Lie Then… (Mark St. Cyr)

One argument now being proposed to help bolster the projections that Q2 will be closer to 3% as opposed to the abysmal print of Q1 is (even as the Atlanta Fed. is now predicting the same if not worse) that this jump will be fueled by (wait for it…) “Cap-ex spending relating to the bump up in crude prices over the recent weeks…” (insert rimshot here) This wasn’t coming from some ancillary small fund manager. This line of thought and analysis was coming from one of our “too big to fail” taxpayer-funded bail-out houses of financial acumen. As this “insight” was simultaneously broadcast throughout television and radio, heralded as “This is why we have people like you on – for exactly this type of insightful analysis and perspective.” I couldn’t help myself but to agree.

For this is what “financial” brilliance across the financial media now represents: Financial spin. My analysis? With analysis like this? Taxpayers better get ready – again! This objective “seasoned” analysis is being professed by one of the same that expected the prior GDP print to show “great improvement” based on “the gas savings made possible from lower crude prices.” The result? If the build in inventory hadn’t been “adjusted” in formulations Pythagoras would marvel at – the print would have been negative. So now you’re being led to believe with the recent rise in crude prices: drillers, refiners, etc., etc., are going to load up on cap-ex only months after many have scuttled rigs, buildings, employees, and more? Again, soon enough to effect Q2?

If cap-ex can be effected that soon, and to that degree as to pull GDP prints from near negative to 3% in a single quarter all by itself – as every other macro data point is collapsing? Why would lower gas prices have ever been wanted let alone touted as “good for the economy?”I’ll just remind you that this “insightful analysis” was coming from one of the many who loved to tout endlessly how the U.S. economy is based on “consumer spending” and “more money in consumers wallets based on lower prices at the pump was inevitable.”

All I’ll ask is: when does “inevitable” materialize? Before? Or, after the next revisions? Again, now since it’s been shown that the “inevitable consumer” spent nothing of their gas savings to help prop up the prior GDP. (sorry I forgot, yes they did in higher health insurance costs) Where the case was made to bludgeon any doubters of their analysis: i.e., “lower crude prices resulting in lower gas prices = more consumer spending.” We are now supposed to embrace the inverted narrative where: “GDP for Q2 will show growth of around 3% based on higher crude prices resulting in increased cap-ex?”

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Still, nothing the media can’t put a positive spin on.

China Home Prices Drop Over 6% In April (Reuters)

Average new home prices in China’s 70 major cities dropped 6.1% last month from a year ago, the same rate of decline as in March, according to Reuters calculations based on official data published today. But nationwide prices steadied from March, further narrowing from a 0.1% fall in the previous month. Beijing saw prices rise, albeit modestly, for the second month in a row, while those in Shanghai rose for the first time in 12 months. But prices in many smaller cities, which account for around 60% of national sales, continued to fall. Analysts said that property investment, which comprises around 20% of China’s GDP, may grow less than 5% this year, compared with 10.5% in 2014, knocking 1 %age point off economic growth.

Data last week showed home sales measured by floor area rebounded 7.7% in April from a year ago, the first growth since November 2013. But property investment growth continued to slow in the first four months of 2015 to the lowest since May 2009 as new construction slumped, impacting demand for everything from steel and cement to appliances and furniture. However, government measures seem to be slowing enticing some buyers back into the market. Mortgages rose 2.1% in the months from Janaury to April from the same time a year earlier. China relaxed tax rules and downpayment requirements on second homes in late March. Earlier this month, the central bank cut interest rates for the third time since November to lower companies’ borrowing costs and stimulate loan demand.

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“..the interest-cost burden of servicing debt has risen to 15% of GDP.”

China Struggles To Make Its Debt Problems Go Away (MarketWatch)

China’s latest plan to tackle its local-government-debt problem appears to be pretending there isn’t one. This might actually stave off a wave of unpleasant corporate busts and bankruptcies, but investors need to be alert for other signs of distress in China’s repressed financial system. In recent weeks, plans floated to address local government debt — estimated to be some 22 trillion yuan ($3.54 trillion) — have included swapping loans for bonds and even potential quantitative easing by the central bank. But as these initiatives appeared to lose steam, it emerged Friday that Beijing had reverted to a more traditional plan: Tell banks to keep lending to insolvent state projects and roll over such loans.

The directive was jointly issued by the Ministry of Finance, the banking regulator and the central bank, saying that financial institutions should keep extending credit to local-government projects, even if borrowers are unable to make payments on existing loans. The positive take is that this latest maneuver postpones a painful debt reckoning and will help protect the property market and broader economy from another leg down after more weak economic data for April. Caution is understandable, as local-government debt presents numerous contagion risks. SocGen describes it as the “critical domino” in the chain of China’s credit risk. This is not just because of the size of the problem, but also due to the labyrinth of funding which straddles special-purpose-funding vehicles and the shadow-banking market.

Further, local governments are inextricably linked to the property market, as they rely on land sales for their revenue. So if the implicit guarantee on state debt were to be removed at the local-government level, the potential for a messy unraveling looks high. It’s also easy to see how this represents a larger systematic risk, as Fitch estimates banks’ total exposure to property could exceed 60% of credit if non-loan financing is also taken into account. Yet any relief that funding taps will not be switched off will also be balanced by concerns over the dangers of building up an even larger debt burden. Fitch warns that the more authorities permit loans by weak entities to be rolled over, the greater the build-up and cost of servicing that debt, and the greater the strain on banks and the overall economy. They calculate that the interest-cost burden of servicing debt has risen to 15% of GDP.

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Apparently, the BND now claims it was instrumental in catching Osama Bin Laden. Get in line!

Merkel Under Pressure To Reveal Extent Of German Help For US Spying (Reuters)

The German chancellor, Angela Merkel, is coming under increasing pressure to divulge a list of targets, including the IP addresses of individual computers, that German intelligence tracked on behalf of the US National Security Agency (NSA). Critics have accused Merkel’s staff of giving the BND foreign intelligence agency the green light to help the NSA spy on European firms and officials. The scandal has strained relations between Merkel’s conservative Christian Democratic Union and its junior coalition partner, the Social Democrats, whose leader, Sigmar Gabriel, has publicly challenged her over the affair.

Gabriel told the German newspaper Bild am Sonntag that parliament needed to see the list, which contains names, search terms and IP addresses. The government has said it must consult the US before revealing the list, whose contents are thought crucial to establishing whether the BND was at fault in helping the NSA. Gabriel, who is also Germany’s vice-chancellor, said: “Imagine if there were suspicions that the NSA had helped the BND to spy on American firms. Congress wouldn’t hesitate for a second before looking into the documents.”

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Big victory indeed. That’s why we read so little about it.

A Diplomatic Victory, and Affirmation, for Putin (NY Times)

For Russia, victory came three days after Victory Day, in the form of Secretary of State John Kerry’s visit this week to the Black Sea resort city of Sochi. It was widely interpreted here as a signal of surrender by the Americans — an olive branch from President Obama, and an acknowledgment that Russia and its leader are simply too important to ignore. Since the seizure of Crimea more than a year ago, Mr. Obama has worked aggressively to isolate Russia and its renegade president, Vladimir V. Putin, portraying him as a lawless bully atop an economically failing, increasingly irrelevant petrostate. Mr. Obama led the charge by the West to punish Mr. Putin for his intervention in Ukraine, booting Russia from the Group of 8 economic powers, imposing harsh sanctions on some of Mr. Putin’s closest confidants and delivering financial and military assistance to the new Ukrainian government.

In recent months, however, Russia has not only weathered those attacks and levied painful countersanctions on America’s European allies, but has also proved stubbornly important on the world stage. That has been true especially in regard to Syria, where its proposal to confiscate chemical weapons has kept President Bashar al-Assad, a Kremlin ally, in power, and in the negotiations that secured a tentative deal on Iran’s nuclear program. Mr. Putin, who over 15 years as Russia’s paramount leader has consistently confounded his adversaries, be they foreign or domestic, once again seems to be emerging on top — if not as an outright winner in his most recent confrontation with the West, then certainly as a national hero, unbowed, firmly in control, and having surrendered nothing, especially not Crimea, his most coveted prize.

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“..you’ve been had.”

The Democratic Party Would Triangulate Its Own Mother (Matt Taibbi)

Barack Obama made headlines this week by taking on Sen. Elizabeth Warren in a dispute over our latest labor-crushing free trade deal, the Trans-Pacific Partnership. The president’s anger over Warren’s decision to lead the Senate in blocking his authority to fast-track the TPP was heavily covered by the Beltway media, which loves a good intramural food fight. It was quite a show, which was the first clue that something wasn’t quite right in this picture. The Beltway press made a huge spectacle out of how the “long-simmering” Obama-Warren “feud” had turned “personal.”

And there were lots of suggestions that the president, in his anger toward Warren, simply let his emotions get the best of him – that he let slip impolitic and perhaps sexist words in his attacks on Warren, whom he described as “absolutely wrong” and “a politician like everyone else.” Reuters, taking the cheese all the way with this “it just got personal” storyline that people on both sides of the Warren-Obama spat have been pimping to us reporters all week, quoted observers who put it like this: The president miscalculated in making this about Elizabeth Warren, that backfired badly. It only served to raise awareness of the issue and drive people away from his position,” said Chris Kofinis, a Democratic strategist who has worked with labor unions opposed to the pact. “It never makes sense to make these kinds of issues personal,” he said.

Politicians do get angry. They even sometimes get angry in public. They are, after all, human, in some cases anyway. But politicians mostly only take their masks off when cornered: stuck in a televised argument with an expert irritant, called to speak in a legislative chamber just as that nagging case of intermittent explosive disorder kicks in, surprised by a ropeline question on the campaign trail, etc. But if you think that Barack Obama, one of the coolest cucumbers ever to occupy the White House, sat down for a scheduled interview in front of a professional softballer like ex-Times and current Yahoo pundit Matt Bai – a setup that’s the presidential media equivalent of a spa treatment – and just suddenly “lost it” in a discussion about the TPP, you’ve been had.

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GOP praise for Obama. Can’t be a good sign.

TPP: Fast-Track Measure Will Pass ‘This Week’, McConnell Says (Guardian)

Republican majority leader Mitch McConnell said on Sunday the Senate will pass “fast-track” authority to negotiate major trade deals this week, despite opposition to the measure from many of President Barack Obama’s fellow Democrats. “Yes, we’ll pass it. We’ll pass it later this week,” McConnell said in an interview with ABC. The trade issue has made unlikely allies of the Republican majority leader and the Democratic president. McConnell said on Sunday that Obama has “done an excellent job” on the trade issue. The Senate voted last week to consider the fast-track measure, two days after Democrats had blocked debate on the bill, which would clear the way for a 12-nation Pacific trade agreement.

The strong support on the second vote suggested senators were unlikely to reject the trade measure. Heated debate is still expected in the Senate over amendments and later in the House of Representatives, where many Democrats staunchly oppose the Trans-Pacific Partnership on fears trade liberalisation will cost US jobs. The Republican representative Paul Ryan said on CNN that he was confident the measure would pass the House. “We will have the votes,” said Ryan, who is chairman of the House ways and means committee. “We’re doing very well. We’re gaining a lot of steam and momentum.”

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How many investigative journalists are left?

The American Press Tried To Discredit Seymour Hersh 40 Years Ago, Too (Ames)

Seymour Hersh found himself in the middle of an F-5 shitstorm this week after breaking his biggest blockbuster story of the Obama Era, debunking the official heroic White House story about how Navy SEALs took out Osama Bin Laden in a daring, secret nighttime raid in the heart of Pakistan. According to Hersh’s account, OBL was given up by one of his Pakistani ISI prison wardens—our Pakistaini allies had been holding him captive since 2006, with backing from our Saudi allies, to use for leverage. Hersh’s account calls into question a lot of things, starting with the justification for the massive, expensive, and brutal US GWOT military-intelligence web, which apparently had zilch to do with taking out the most wanted terrorist in the world. All it took, says Hersh, was one sleazy Pakistani ISI turncoat walking into a CIA storefront in Islamabad, handing them the address to Bin Laden’s location, and picking up his $25 million bounty check. About as hi-tech as an episode of Gunsmoke.

The celebrated Navy SEAL helicopter raid and killing of OBL was, according to Hersh, a stage production co-directed by the US military and Pakistan’s intelligence agency, who escorted the SEALs to Bin Laden’s room, pointed a flashlight at the captive, and watched the SEALs unload hot lead on the old cripple, turning him into spaghetti bolognese. (Raising other disturbing questions—such as, why would the White House want to silence forever the one guy with all the names, the most valuable intelligence asset in the world… unless of course that was the whole point of slaughtering him in his Abbottabad cell? Which leads one to wonder why the US wanted to make sure Bin Laden kept his secrets to himself, should one bother wondering.)

Hersh has pissed off some very powerful people and institutions with this story, and that means the inevitable media pushback to discredit his reporting is already underway, with the attacks on Hersh led by Vox Media’s Max Fisher, CNN’s Peter Bergen, and even some on the left like Nation Institute reporter Matthieu Aikins. Yesterday Slate joined the pile-on, running a wildly entertaining, hostile interview with Hersh. Such attacks by fellow journalists on a Sy Hersh bombshell are nothing new—in fact, he used to relish them, and probably still does. He got the same hostile reaction from his media colleagues when he broke his biggest story of his career: The 1974 exposé of the CIA’s massive, illegal domestic spying program, MH-CHAOS, which targeted tens, maybe hundreds of thousands of Americans, mostly antiwar and leftwing dissidents.

Hersh is better known today for his My Lai massacre and Abu Ghraib exposés, but it was his MH-CHAOS scoop, which the New York Times called “the son of Watergate,” that was his most consequential and controversial—from this one sensational exposé the entire intelligence apparatus was nearly taken down. Hersh’s exposés directly led to the famous Church Committee hearings into intelligence abuses, the Rockefeller Commission, and the less famous but more radical Pike Committee hearings in the House, which I wrote about in Pando last year. These hearings not only blew open all sorts of CIA abuses, assassination programs, drug programs and coups, but also massive intelligence failures and boondoggles.

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“At the top end, this El Niño could be the strongest in recorded history.”

Huge El Niño Becoming More Likely In 2015 (Slate)

For the first time since 1998—the year of the strongest El Niño on record, which played havoc with the world’s weather patterns and was blamed for 23,000 deaths worldwide—ocean temperatures in all five El Niño zones have risen above 1 degree Celsius warmer than normal at the same time. That’s the criteria for a moderately strong event, and the latest forecast models are unanimous that it’s going to keep strengthening for the rest of the year. A sub-surface wave of warm water is driving this trend, which has reached off-the-charts levels during the first four months of 2015. That data was enough for Australia’s Bureau of Meteorology to officially upgrade the Pacific Ocean to El Niño conditions this week. David Jones, head of climate monitoring for the BOM, told reporters that the 2015 El Niño is shaping up to be “quite a substantial event … not a weak one or a near miss.”

The U.S. weather service, which uses slightly different criteria, declared official El Niño conditions back in March. The U.S. updated its outlook on Thursday, boosting odds of a continuation of El Niño until this summer to around 90%—what they called a “pretty confident forecast.” Autumn outlooks made this time of year normally have an error of plus-or-minus 0.6 degrees Celsius, meaning the current forecast of a 2.2 degree warming of the tropical Pacific by December essentially locks in a strong event. At the low end, we can expect the biggest El Niño since the last one in 2009-2010, a moderately strong event. At the top end, this El Niño could be the strongest in recorded history.

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“The Larsen B ice shelf existed for 12,000 years before it fell apart in 2002..”

Antarctic Larsen B Ice Shelf In Last Throes Of Collapse (Livescience)

A vast Antarctica ice shelf that partly collapsed in 2002 has only a few years left before it fully disappears, according to a new study. Radar data reveals that the Larsen B ice shelf could shatter into hundreds of icebergs by 2020, researchers reported Thursday (March 14) in the journal Earth and Planetary Science Letters. “It’s really startling to see how something that existed on our planet for so long has disappeared so quickly,” lead study author Ala Khazendar, a scientist at NASA’s Jet Propulsion Laboratory in Pasadena, California, told Live Science. An ice shelf is like a floating ice plateau, fed by land-based glaciers. The Larsen B ice shelf existed for 12,000 years before it fell apart in 2002, separate studies showed.

The ice shelf is on the Antarctica Peninsula, the strip of land that juts northward toward South America. Larsen B is about half the size of Rhode Island, some 625 square miles (1,600 square kilometers). Because the ice shelf is already in the ocean, its breakup won’t further boost sea level rise. But Khazendar and his co-authors also discovered that the glaciers feeding into Larsen B’s remaining ice shelf have dramatically thinned since 2002. “What matters is how much more ice the glaciers will dump into the ocean once this ice shelf is removed,” Khazendar said. “Some of these glaciers are most likely already contributing to sea level rise because they are in the process of accelerating and thinning.”

The Leppard and Flask glaciers thinned by 65 to 72 feet (20 to 22 meters) between 2002 and 2011, the new study reported. The fastest-moving part of Flask Glacier sped up by 36%, to a speed of 2,300 feet (700 m) a year. The glaciers that were behind the vanished section of the Larsen B ice shelf sped up by as much as 8 times their former rate after the ice crumbled over a six-week period in 2002, earlier studies showed. The northwestern part of the Larsen B ice shelf is also becoming more fragmented, the researchers said. But the southeastern part is cracking up. A huge rift has appeared just 7.5 miles (12 km) from the grounding line, where the ice loses contact with the ground and starts floating on the ocean, the study reported. This crack marks where the ice shelf may start to break apart, the researchers said.

Read more …

Mar 062015
 
 March 6, 2015  Posted by at 12:20 pm Finance Tagged with: , , , , , , ,  


Harris&Ewing War-bond rally on Penn. Avenue, Washington DC 1918

Dollar-Euro Parity A Matter Of When Not If (CNBC)
“Chinese Economic Activity Has Probably Slowed To Less Than 3%” (Zero Hedge)
Mario Draghi’s Yield of Dreams (WSJ)
Greece Seeks To Plug Its ‘Bermuda Triangle’ Of Lost Taxes (AFP)
Draghi Declares Victory for Bond-Buying Before It Starts (Bloomberg)
Nowhere But Down? Euro Reacts To QE (CNBC)
Is Greece Already Rolling Back On Its Pledges? (CNBC)
Wall Street Will Crush Obama’s Plan To Protect 401(k) Savers (Paul B. Farrell)
Storage Dearth May Drive Oil Prices To $30 (MarketWatch)
UK Trade Deal Finances ‘Dirty Energy’ Projects In Mexico (Guardian)
The American Woman Who Stands Between Putin and Ukraine
Victoria Nuland: Russia’s Actions In Ukraine Conflict An ‘Invasion’
‘Nuland Ensconced In Neocon Camp Believes In Noble Lie’ (Ron Paul Inst. at RT)
A Mediterranean Diet Is Even Better For You Than You Thought (Independent)
El Nino Declared As Climate Scientists Watch On With ‘Amazement’ (SMH)

Major shift afoot.

Dollar-Euro Parity A Matter Of When Not If (CNBC)

Parity between the dollar and euro is likely “a matter of when not if,” a strategist told CNBC on Thursday. Sameer Samana of Wells Fargo said on “Squawk on the Street” that it would depend on quantitative easing in Europe and economic data in the U.S. “The economic surprises in Europe have been getting a little bit better and the ones in the U.S. are getting a little more negative so I would say appreciation probably starts to happen at a much-slower pace,” he said. “Parity is probably only a matter of when not if.”

Meanwhile, Ward McCarthy, Jefferies chief financial economist, expects money to flow to the U.S. “Investors who sell bonds to the ECB are going to look for some place to put their money,” he also said on “Squawk on the Street.” “The dollar should strengthen and the U.S. bond market continues to be high yield, so I think expectations are a lot of this money will find its way over here and I think that is exactly what’s going to happen.” Samana recommends investors stay in stocks with diversified portfolios. “Going forward it looks like Europe has the chance to actually surprise to the upside.”

Read more …

I’ve been saying this forever: there’s no way they get 7% in a 1% at best world.

“Chinese Economic Activity Has Probably Slowed To Less Than 3%” (Zero Hedge)

In a world in which sell-side research (and even that of independent third-parties) is not only meaningless – because as we first said in 2010 the only thing that matters in the New Paranormal is ‘the Fed’s H.4.1 statement’ – there are few sources of insightful, non-conflicted analysis. One place which stands out is Cornerstone Macro – yes, it costs a lot of money, but it’s worth it. Cornerstone is the one place which actually turned bearish a little over a month ago, purely on fundamental factors (FX, oil, global recession), and has been pointing out many of the discrepancies in the narrative (then again, as we showed before, in a world in which central banks are set to have the greatest amount of nominal “intervention” surpassing even the post-Lehman period…

… one doesn’t have to be a rocket surgeon to realize that things are not only not good, but have rarely been worse even with the benefit of $13 trillion in central bank liquidity).

We bring it up because Cornerstone’s analysis of recent developments in China bears keeping a very dose eye on. We won’t spoil it, especially for those who are paying subscribers to the paid (and quite expensive) service, but we will present what they have chosen to broadcast publicly on their research section, which in light of last night’s official news of yet another confirmation the slowdown in China is getting worse (not only on the unprecedented debt build up which we have covered extensively in the past, and where monetary ‘austerity’ is suddenly a very hot topic, but where capital outflows have become the number one focal issue) has released several key research reports. Here are the key publicly-available excerpts from some of their salient recent reports:

From Hello Beijing, We Have a Problem:
China is likely to continue to ease, for 3 reasons:
1. Chinese economic activity has probably slowed to less than 3%.
2. China is likely to experience broad-based deflation.
3. China is Nicely to continue to experience net capital outflows. That last bullet, net capital outflows, is the focus of the report today.

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“Mr. Draghi’s open-mouth operations to talk down the euro..”

Mario Draghi’s Yield of Dreams (WSJ)

The ECB begins its much-anticipated purchases of sovereign bonds on Monday, and ECB President Mario Draghi says the program known as quantitative easing is working before it has even begun. He’s right about that, as strange as it sounds, and therein lies the paradox of Europe’s dive into QE: It may already have had the most effect it is going to have through Mr. Draghi’s salesmanship and Europe’s will to believe. Recall how the ECB got here. Demands have grown for years for an ECB program to match the bond purchases by central banks in the U.S., U.K. and Japan. Mr. Draghi started hinting at a willingness to play along in his August speech at the global central banking conference at Jackson Hole, Wyo. By the time Mr. Draghi in September announced a plan to buy private securities, investors viewed it as a stepping-stone to buying sovereign debt too.

As investors came to view QE as inevitable, prices responded, especially the price of the euro. As a result of Mr. Draghi’s open-mouth operations to talk down the euro—coupled with an expectation that interest rates might rise soon in the U.S.—the euro has declined steadily against the dollar and other currencies. On Thursday it hit an 11-year low of $1.10, compared to about $1.40 last summer. QE boosters hope the euro devaluation will enhance European export competitiveness, although there’s little evidence so far. The euro’s fall might also have produced some inflation through higher euro-denominated import prices had the global price of oil not fallen by some 50% in the past few months. Above all, by demonstrating his commitment to bold steps to avert full-blown deflation, Mr. Draghi has been trying to jolt market expectations about future price moves.

QE expectations have driven down bond yields across Europe, which is supposed to be another benefit. Yields on government bonds have fallen significantly, some into negative territory. Large companies are also starting to line up to issue ultralow yield debt. French energy company GDF Suez on Wednesday sold bonds worth €500 million ($551 million) with a zero coupon, the first such deal in Europe in more than 14 years. Berkshire Hathaway on Thursday raised €3 billion in its first euro-denominated bond issue. So Mr. Draghi has some cause to say, as he did Thursday, that “we have already seen a significant number of positive effects” from the ECB’s January QE announcement.

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“.. the only efficient way of countering smuggling was to cut the tax on cigarettes..”

Greece Seeks To Plug Its ‘Bermuda Triangle’ Of Lost Taxes (AFP)

It could be a scene from a thriller: a ghost ship abandoned in the crystal-clear bay of a Greek island, its hold crammed with millions of illegal cigarettes, the crew nowhere to be seen. And no one knows where the freighter Amaranthus or its cargo were bound for when it beached on the island of Zanthe off the Ionian coast of western Greece in December. But such discoveries are now almost routine for police as cigarette and petrol smuggling has become big business in crisis-hit Greece. Every country in Europe has a problem with cigarette smuggling but in Greece – which has the highest proportion of smokers of any developed country – it has mushroomed since the economy sank into crisis. A security official told AFP corruption and a lack of resources had caused “major failings in the Greek Customs system” with few major seizures or investigations into smuggling rings.

Yet it is by cracking down on this multi-billion euro business, and the even more lucrative trade in petrol smuggling, that the new left-wing government hopes to find some of the money it needs to pay off Greeces gigantic debts. Prime Minister Alexis Tsipras has made stamping out fuel and cigarette fraud one of his priority reforms, with the state losing an estimated €1.5 billion a year in petrol tax alone, and between €500 and €600 million in lost revenue on tobacco. According to the market research company Nielsen, which used official Greek data, more than one cigarette in five smoked in Greece last year was smuggled, compared with only 3% in 2009 when the crisis that has devastated the Greek economy first struck.

But with the price of cigarettes rocketing, and cash-strapped governments raising taxes on them five times in as many years, researcher Ioannis Michaletos of the Institute of Defence Studies and Analyses said “the only efficient way of countering smuggling was to cut the tax on cigarettes”. This is not, however, what the government, desperate to fill the states empty coffers, want to hear, and it seems determined instead to tighten controls and fully implement European rules on the traceability of cigarettes. Michaletos is sceptical any such crackdown would work “given that European states better equipped than Greece have not had much success.”

Read more …

No kidding: “We don’t have any experience with this quantitative easing, so anybody who knows this now should speak up.”

Draghi Declares Victory for Bond-Buying Before It Starts (Bloomberg)

Mario Draghi is claiming victory for his quantitative-easing program before it even starts. As the European Central Bank president set a start date of Monday for his 1.1 trillion euro ($1.2 trillion) bond-buying program, he said the stimulus will spur the euro area’s fastest economic growth since 2007 and return inflation to the ECB’s goal within three years. The bullish tone after policy makers met in Nicosia on Thursday signals optimism that what Draghi called the ECB’s “final set of measures” will restore the 19-nation currency bloc to health. The risk is that this is just yet another false dawn, leaving the central bank needing to do more. “Draghi had a tough battle to reach the QE compromise, now of course he wants to promote it as much as possible,” said Thomas Harjes at Barclays in Frankfurt. “He gave a strong statement that QE will deliver.”

Draghi’s faith in quantitative easing, which he pushed through against German-led opposition, was reflected in the ECB’s new economic forecasts. After consumer prices fell 0.3% in February, the central bank now sees a deflationary spiral averted. Prices are projected to be flat over the whole of 2015. Inflation should average 1.5% next year, twice as much as the 0.7% estimate in December, and 1.8% in 2017. The ECB’s goal is just below 2%, a level not seen since early 2012. As for economic growth, the ECB’s economists lifted their outlook for this year to 1.5% from 1%, for 2016 to 1.9%, and projected 2.1% in 2017. The economy hasn’t expanded faster than 2% since 2007. “Our monetary-policy decisions have worked,” Draghi told reporters in the Cypriot capital.

He may be catching a lucky break. Critics of quantitative easing, such as Bundesbank President Jens Weidmann, said the euro-zone economy would enjoy an uplift anyway after oil prices fell by half, the euro tumbled, and stimulus in recent months such as interest-rate cuts take effect. Whether QE will work “is not that easy to answer,” Bundesbank board member Andreas Dombret said on Bloomberg TV on Thursday. “We don’t have any experience with this quantitative easing, so anybody who knows this now should speak up.”

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“Killing three birds with one stone…”

Nowhere But Down? Euro Reacts To QE (CNBC)

With the ECB about to launch its €1 trillion bond-buying program on Monday, foreign exchange experts are already preparing to readjust their forecasts for the single currency. After the ECB announced its massive quantitative easing (QE) campaign would start Monday, the euro fell below $1.1000 for the first time since September 2003. On Friday, the currency was hovering around 1.1012. Against sterling, the euro had also fallen to near seven-year lows of 72.29 pence. Whether the euro could recover after the ECB announced that it was to begin purchasing €60 billionworth of assets a month has prompted analysts to question their forecasts for the currency. One market analyst said the euro was being “brutally punished” by traders. “Volatility is the name of the game for today,” Naeem Aslam at Ava Trade said.

“Short the euro and buy the dollar is probably the most crowded trade for the last year, and yet till this day, investors are not afraid to put more chips on the table. This is causing a tremendous amount of pressure for the euro zone currency.” Derek Halpenny at Bank of Tokyo-Mitsubishi, said in a note Thursday that his year-end forecasts for euro/dollar “might quickly look too conservative.” “(The) ECB press conference certainly highlighted the determination of the ECB to implement the QE program but the forecasts suggest the markets should not expect more,” Halpenny said in a note Thursday. Currencies tend to weaken during QE as there is more money in circulation and lower interest rates tend to encourage consumers to spend and businesses to invest. Killing three birds with one stone, a cheaper euro is expected to help combat deflation and stimulate both the region’s economy and exports, which become more attractive with a cheaper currency.

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At this point, it’s not Greece that’s the problem.

Is Greece Already Rolling Back On Its Pledges? (CNBC)

It’s payback time for Greece. Despite securing a four-month lifeline on its loans, the bills are already piling up. On top of this month’s repayments to the International Monetary Fund worth a total of 1.5 billion euros, the country faces debt obligations amounting to €22.5 billion for 2015. And there are mounting concerns that, in spite of the extension, Greece still won’t be able to pay its way. A snap election on January 25th led to a new government headed by left-wing Syriza party, which has pledged to make a break from the past austerity measures imposed on it by its lenders. 5 years down the line, and Greece is still tied to two loan programs worth €240 billion overseen by the so-called Troika of the EC, the ECB and the IMF. The bailout, that was due to expire at the end of last year, has been extended twice to give time to Greece’s international creditors to negotiate with the new government.

State revenues, key to helping Greece repay its loans, dropped dramatically in January as people stopped paying taxes in the hope of new legislation. Banks, meanwhile, have been hit by a big wave of capital flight as depositors took money abroad in fear of a “Grexit”.
Meanwhile, Spain’s finance minister, Luis de Guindos, said this week that a third bailout on top of the 240 billion euros already doled out is inevitable. “It is absolutely clear from a market’s perspective that Greece will have to continue relying on official sector financing if it likes to stay in the euro. The new government may try different ways to raise tax revenue etc. than previous governments, but investors have heard the same song over and again”, David Schnautz, interest rates strategist for Commerzbank in New York told CNBC.

The new Greek government is pushing for the money that it thinks is rightfully theirs. Finance minister Yanis Varoufakis has been arguing that the ECB should release €1.9 billion that it gained in interest from its Greek bond holdings. These proceeds, currently held by other euro zone countries, would be returned to Greece once the final review of the country’s bailout programme was concluded. A further €7.2 billion, the last tranche of aid from this second package, is also to be released. Eurogroup President Jeroen Dijsselbloem said this week that a first disbursement could be made as soon as this month, if Greece picked up the speed of its reforms – as the country agreed on February 20th.

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“Janet Yellen’s Fed favors too-greedy-to-fail banks versus America’s 95 million Main Street investors..”

Wall Street Will Crush Obama’s Plan To Protect 401(k) Savers (Paul B. Farrell)

President Obama’s new fiduciary rule for retirement advice is DOA. Why? Not just because a 2004 GOP Senate killed the fiduciary rule Vanguard’s Jack Bogle has been pushing for over a half century. Not just because Wall Street banks will defeat any and every proposed fiduciary rule, just like they’ve been killing all bank reforms like Dodd-Frank since the 2008 crash. And not just because Janet Yellen’s Fed favors too-greedy-to-fail banks versus America’s 95 million Main Street investors. Even if Obama’s fiduciary rule is not dead on arrival, it will get buried soon in Washington’s deadly partisan graveyard. No such rule will ever go far in today’s hostile GOP Congress, any more than Bogle’s Fidelity Rule did a decade ago. Why? Because banks will fight to the death to protect the hundred of billions in fees generated without any fiduciary rules.

Banks and the financial industry a ideologically selfish. They will never voluntarily put the investor’s interests first, never! Even without a fiduciary rule, America’s 95 million Main Street investors can beat Wall Street at its own game, building a bigger, better retirement portfolio. Here’s how: Last year we built our own new set of rules based on a comparison of fees in the Wall Street Journal. Listen: “For example, imagine putting $200,000 in stock ETFs averaging 0.04% fees. Do that and you’ll have $2 million for your retirement in three decades. But put the same $200,000 in mutual funds charging the industry average, an annual fee of 1.25%, and you’d have only $1.4 million in 30 years. Yes, you lose $600,000. You’d have $600,000 less for your retirement years. Meanwhile, some clever advisers would pocket your $600,000 into their retirement accounts.”

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Or $10.

Storage Dearth May Drive Oil Prices To $30 (MarketWatch)

As the U.S. runs out of space to store its glut of crude-oil supplies, prices for the commodity could sink to as low as $30 a barrel. When storage is full, there is pressure on those holding oil in storage to “dump that inventory,” said Charles Perry, chief executive officer of energy-consulting firm Perry Management. So a space shortage could cause a drop in prices to the $30 to $40-per-barrel range, he said. West Texas Intermediate crude – the U.S. benchmark — has already seen its prices halved from a year ago. A cost of $30 per barrel of oil represents a 40% drop from the current level, which stands near $51. At Cushing, Okla., the “mecca” of oil storage in the U.S., “the Motel 6 may have a vacancy sign out, but the storage terminals really don’t,” said Kevin Kerr, president of Kerr Trading International.

Here’s why storage plays such a big part: While there are several storage options such as pipelines, very large crude carriers, also known as VLCCs, aboveground tanks and underground salt caverns, the costs for these have “dramatically increased, forcing some companies to sell their inventory as a cheaper option, thus putting significant pressure on prices,” said John Macaluso at Tyche Capital Advisors. It’s not clear how much costs have increased but Perry, an oil-and-gas industry veteran, points out that he’s always heard the going rate for aboveground storage at Cushing was, more or less, 50 cents a barrel a month. Oil tanker storage is the most expensive, with prices likely in the $1 to $1.25 a barrel a month range, he said. Total utilization of crude storage capacity in the U.S. is at about 60% as of the week ended Feb. 20, and capacity at Cushing, the delivery point for WTI futures contracts, is about 67% full, the EIA reported Wednesday.

Coincidentally, the CME Group announced plans Wednesday for what it calls the “first-ever physically delivered crude-oil storage futures contract.” Storage is a major component of the supply-glut dilemma. U.S. crude inventories are at their highest level on record, according to EIA records dating back to the 1980s. Supplies have climbed for eight weeks straight. Capacity for many of the storage locations will be at or near capacity in several weeks to a few months, Kerr estimates — and if storage facilities “begin to turn away supplies and/or dump them on the market en masse,” the market could see oil prices at or below the $45 level. “The scenario could keep us in cheap oil for some time to come,” Kerr said. “We don’t see much spare storage opening up anytime soon. What we do expect are higher rates for storage and a glut of supply.”

Read more …

Anything for a buck.

UK Trade Deal Finances ‘Dirty Energy’ Projects In Mexico (Guardian)

The UK government has become embroiled in a row over financial support for fossil fuel companies after announcing a $1bn (£660m) funding package involving Pemex, the Mexican state oil group. Greenpeace said the move to provide credit for “dirty” energy projects under the UK Export Finance (UKEF) scheme flew counter to the government’s commitments to fighting climate change. The Tories and Lib Dems pledged in 2010 that export finance would be used to champion British companies that developed and exported innovative green technologies around the world, “instead of supporting investment in dirty fossil fuel energy production”.

“The truth is that the ‘greenest government ever’ has spent the last five years bankrolling some of the dirtiest energy developments on the planet, from Russian coal mining to the Saudi oil industry,” said Lawrence Carter, a Greenpeace UK energy campaigner. “Our ministers should stop acting like the merchant bankers of climate change and start using export finance to promote the cutting-edge clean technologies that are reshaping energy markets the world over.” The financing agreement was revealed during a visit to Aberdeen by Matthew Hancock, the UK energy minister, alongside Mexico’s president Enrique Peña Nieto who is on a wider state trip to the UK.

Mexico’s energy system is undergoing significant reform and Nieto was visiting Scotland to speak to energy leaders across the business and education sectors, as well as signing agreements with the UK government for greater collaboration in the areas of energy and climate change. “This visit today by President Peña Nieto to the UK’s energy capital cements the already close links between our two countries and heralds an era of closer collaboration in energy,” said Hancock. “The government of Mexico expects $50bn of investment by 2018 in the wake of its energy reforms – boosting the economy and creating jobs while rejuvenating production,” he added.

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See my artcile March 5.

The American Woman Who Stands Between Putin and Ukraine

Ukraine is a nation at war, which is why Natalie Jaresko, the minister of finance, has traveled 20 miles from Kiev to the town of Irpin, a settlement of 40,000 on the edge of a pine forest. She’s here to visit a rearguard army hospital and to console convalescing veterans of recent battles against Russian forces and their proxies in the Ukrainian east. “Where did you serve?” she asks, moving slowly from room to room. “How were you wounded?” She may be from Chicago’s West Side, but she speaks Ukrainian fluently, and if anyone notices her American accent, no one seems to care. Jaresko tells the soldiers they’re heroes, the country’s national accountant handling a job for generals. The crisis has thrust people into unlikely roles.

Three months ago, Jaresko, 49, left the private equity firm that she co-founded in Ukraine in 2006 to join the government of Petro Poroshenko. At the time, Jaresko didn’t even have Ukrainian citizenship. Now, as the country’s top economic official, she’s Ukraine’s liaison to the World Bank, the IMF, and the European Bank for Reconstruction and Development. Tax reform is hers. So is the treasury.

[..].. whether Ukraine succeeds as an independent democratic nation arguably depends as much on the efforts of Jaresko and her colleagues as it does on the military battles. Together they must rebuild a shattered economy and restore international confidence in Ukraine while confronting the corruption and cronyism that have haunted the country since the fall of communism. And they must somehow do so as state-owned banks teeter on the brink of collapse, the national treasury counts its last foreign notes, and inflation is at 28% and rising. The longer the war carries on and reforms are delayed, the more hostile Ukrainians will become to their government and its Western supporters, leaving the country even more vulnerable to Vladimir Putin.

Get rid of the freak already.

Victoria Nuland: Russia’s Actions In Ukraine Conflict An ‘Invasion’

Assistant secretary of state Victoria Nuland has admitted the US considers Russia’s actions in Ukraine “an invasion”, in what may be the first time a senior American official has used the term to describe a conflict that has killed more than 6,000 people. Speaking before the House committee on foreign affairs, Nuland was asked by representative Brian Higgins about Russia’s support of rebels in eastern Ukraine, through weapons, heavy armor, money and soldiers: “In practical terms does that constitute an invasion?”

Nuland at first replied that “we have made clear that Russia is responsible for fielding this war,” until pressed by Higgins to answer “yes or no” whether it constitutes an invasion. “We have used that word in the past, yes,” Nuland said, apparently marking the first time a senior official has allowed the term in reference to Russia’s interference in eastern Ukraine, and not simply its continued occupation of the Crimean peninsula.

Obama administration officials across departments have strenuously avoided calling the conflict an invasion for months, instead performing verbal contortions to describe an “incursion”, “violation of territorial sovereignty” and an “escalation of aggression”. In November Vice-President Joe Biden, who has acted as one of Obama’s primary liaisons with the Ukrainian president, Petro Poroshenko, rapidly corrected himself after breaking from the White House’s careful language on CNN, saying “When the Russians invaded – crossed the border – into Ukraine, it was, ‘My god. It’s over.’”

“.. the US does not want peace to break out.” “..the US hasn’t provided one piece of proof, except for Ambassador Geoffrey Pyatt’s Rorschach tests he passes off as a satellite photo.”

‘Nuland Ensconced In Neocon Camp Believes In Noble Lie’ (Ron Paul Inst. at RT)

RT:World leaders and international monitors agree the situation in Ukraine is generally improving. Why are we still witnessing aggressive rhetoric from some US officials?

Daniel McAdams: Because the US does not want peace to break out. The US is determined to see its project through. But unfortunately like all of its regime change projects this one is failing miserably. Victoria Nuland completely disregards the role of the US in starting the conflict in Ukraine. She completely glosses over the fact that the army supported by Kiev has been bombarding Eastern Ukraine, as if these independent fighters in the east are killing themselves and their own people. Victoria Nuland was an aid to Dick Cheney; she is firmly ensconced in the neocon camp. The neocons believe very strongly in lying, the noble lie… They lied us into the war in Iraq; they are lying now about Ukraine. Lying is what the neocons do.

RT: Nuland listed a lot of hostile actions by Russia without providing any reliable proof. Do you think she can be challenged on these topics?

DM: Maybe she is right but the US hasn’t provided one piece of proof, except for Ambassador Geoffrey Pyatt’s Rorschach tests he passes off as a satellite photo. Maybe they are true but we have to present some evidence because we’ve seen now the neocons have lied us into the war. This is much more serious than the attack on small Iraq. This has the potential for a global nuclear war. So I think they should be held to a higher level of scrutiny. Thus far they have not provided any. We do know however that the US is providing military aid. As the matter of fact this week hundreds of American troops are arriving in Ukraine. Why is that not an escalation? Why is it only an escalation when the opponents of the US government are involved?

RT: How probable is that the Western nations ship lethal aid to Ukraine?

DM: It is interesting because Victoria Nuland this week spent some time with Andriy Parubiy, one of the founders of the fascist party in Ukraine and I believe one of the founders of the Joseph Goebbels Institute. She met with him this week and had a photo taken with him. He came back to Ukraine and assured his comrades that the US will provide additional, non-lethal weapons – whatever that means – and felt pretty strongly that they would provide lethal weapons. The Chairman of the Joint Chiefs of Staff, General Martin Dempsey has been urging the US government to provide lethal weapons as has the new US defense secretary [Ashton Carter], both of whom come from the military industrial complex which is thrilled by prospect of a lot more arms to be sold.

RT: Nuland has said the State Department is in talks with EU leaders for another round of sanctions on Russia. Do you think the EU will agree?

DM: I think they will be pressured into agreeing. It is interesting that Nuland said that the new Rada, the new Ukrainian parliament, in this first four months has been a hive of activity. I was just watching some videos from the fights in the Ukrainian parliament. So that was one bit of unintentional humor probably in her speech. It looks like a fight club over there.

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Or just stop eating crap.

A Mediterranean Diet Is Even Better For You Than You Thought (Independent)

You’ve heard the evidence before but one can never be too sure – yet another study has shown that adopting a Mediterranean diet is good for your health. Filling up on oily fish, nuts, whole grains and fruit and vegetables – and even the odd glass of red wine – could cut your risk of developing heart disease by almost half over a 10-year period. Scientists at Harokopio University in Athens found that the benefits even outweigh those of regular exercise – and it doesn’t matter whether you’re a man or a woman, old or young. The study, which will be presented at the American College of Cardiology’s 64th Annual Scientific Session in San Diego later this month, reinforces previous research. But it is also the first of its kind, in that it tracked heart disease risk in a general population. Most other studies have focused on middle-aged people.

Ekavi Georgousopoulou, a PhD candidate, who conducted the study along with Professor Demosthenes B Panagiotakos, said: “Our study shows that the Mediterranean diet is a beneficial intervention for all types of people – in both genders, in all age groups, and in both healthy people and those with health conditions. “It also reveals that the Mediterranean diet has direct benefits for heart health, in addition to its indirect benefits in managing diabetes, hypertension and inflammation.” More than 2,500 Greek adults, aged 18 to 89, provided researchers with details about their health each year from 2001 to 2012. The participants also completed comprehensive surveys about their medical records lifestyle and dietary habits three times throughout the study: at the start, after five years and after 10 years.

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Weak little kid.

El Nino Declared As Climate Scientists Watch On With ‘Amazement’ (SMH)

Unusual warming of waters in the central equatorial Pacific has prompted the US government to declare an El Nino event and predict a better-than-even chance that it will linger through the middle of the year. The US National Oceanic and Atmospheric Administration said the above-average sea-surface temperatures had exceeded key thresholds, triggering the declaration of the “long-anticipated” El Nino. However, the location of the main warming – about 10 degrees west of the International Dateline rather than to the east – and its timing early in the year are puzzling climate experts looking for similar events. “Climate scientists are monitoring this with amazement,” said Cai Wenju, a principal CSIRO research scientist who has published widely on the El Nino Southern Oscillation (ENSO) climate pattern. “We only understand what we have seen.”

El Ninos involve the relative warming of sea-surface temperatures in the eastern equatorial Pacific, compared with western regions. In such events, the typical east-to-west trade winds abate or reverse, and large areas of the western Pacific including eastern Australia receive reduced rainfall. Currently, the area of most anomalous warmth is located about 7000 kilometres west of the area where El Ninos are typically centred. They also tend to appear in the late autumn to winter period for the southern hemisphere. “All these are very different from a classic El Nino,” Dr Cai said. While Japanese researchers have identified similar central Pacific warming events – dubbing them El Nino Modoki, or “same but different” in Japanese – the current pattern is about 1500 kilometres further to the west than previous ones, Dr Cai said.

Earlier this week, the Bureau of Meteorology upgraded its ENSO Tracker to “watch” level, reflecting the recent warming. “Weakened trade winds are forecast to continue, and this may induce further warming,” the bureau said. Andrew Watkins, the bureau’s supervisor of its Climate Prediction Services unit, said Australia’s definition differs from the NOAA’s so it is yet to declare an El Nino event. “Even by their definition, it’s very weak,” Dr Watkins said. “It just scrapes over the line.” For the bureau to declare an El Nino event, greater warmth needs to persist in the monitored areas – 0.8 degrees above average compared with 0.5 degrees – and the atmosphere must begin to “couple” with the changed ocean conditions, reinforcing them.

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Dec 242014
 
 December 24, 2014  Posted by at 1:09 pm Finance Tagged with: , , , , , , ,  


Frances Benjamin Johnston Courtyard, 620-621 Gov. Nicholls Street, New Orleans 1937

Merry Christmas!

Here Is The Reason For The “Surge” In Q3 GDP (Zero Hedge)
The US Economy ‘Grew’ By $140 Billion As Americans Became Poorer (Zero Hedge)
China’s Bubble Looks Bigger Than America’s, Says Steve Keen (Straits Times)
UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile (Bloomberg)
Oil Drillers Under Pressure to Scrap Rigs to Cope With Downturn (Bloomberg)
Can Canadian Oil Sands Survive Falling Prices? (BW)
T. Boone Pickens Says Oil Down Due To “Weak Demand” (Zero Hedge)
Existing Home Sales Collapse Most Since July 2010 (Zero Hedge)
U.S. Minimum Wage Hikes To Impact 1,400-Plus Walmart Stores (Reuters)
20 Stunning Facts About Energy Jobs In The US (Zero Hedge)
Asian Currencies Set For A Wild Ride In 2015 (CNBC)
Greeks Used to Years of Chaos Dismiss Samaras’s Warnings (Bloomberg)
US Families Prepare For ‘Modern Day Apocalypse’ (Sky News)
El Nino Seen Looming by Australia as Pacific Ocean Heats Up (Bloomberg)

How to cut through the crap.

Here Is The Reason For The “Surge” In Q3 GDP (Zero Hedge)

Back in June, when we were looking at the final Q1 GDP print, we discovered something very surprising: after the BEA had first reported that absent for Obamacare, Q1 GDP would have been negative in its first Q1 GDP report, subsequent GDP prints imploded as a result of what is now believed to be the polar vortex. But the real surprise was that the Obamacare boost was, in the final print, revised massively lower to actually reduce GDP! This is how the unprecedented trimming of Obamacare’s contribution to GDP looked like back then.

Of course, even back then we knew what this means: payback is coming, and all the BEA is looking for is the right quarter in which to insert the “GDP boost”. This is what we said verbatim:

Don’t worry though: this is actually great news! Because the brilliant propaganda minds at the Dept of Commerce figured out something banks also realized with the stub “kitchen sink” quarter in November 2008. Namely, since Q1 is a total loss in GDP terms, let’s just remove Obamacare spending as a contributor to Q1 GDP and just shove it in Q2. Stated otherwise, some $40 billion in PCE that was supposed to boost Q1 GDP will now be added to Q2-Q4. And now, we all await as the US department of truth says, with a straight face, that in Q2 the US GDP “grew” by over 5% (no really: you’ll see).

Well, we were wrong: it wasn’t Q2. It was Q3, albeit precisely in the Q2-Q4 interval we expected. Fast forward to today when as every pundit is happy to report, the final estimate of Q3 GDP indeed rose by 5% (no really, just as we predicted), with a surge in personal consumption being the main driver of US growth in the June-September quarter. As noted before, between the second revision of the Q3 GDP number and its final print, Personal Consumption increased from 2.2% to 3.2% Q/Q, and ended up contributing 2.21% of the final 4.96% GDP amount, up from 1.51%. So what did Americans supposedly spend so much more on compared to the previous revision released one month ago? Was it cars? Furnishings? Housing and Utilities? Recreational Goods and RVs? Or maybe nondurable goods and financial services? Actually no. The answer, just as we predicted precisely 6 months ago is… well, just see for yourselves.

In short, two-thirds of the “boost” to final Q3 personal consumption came from, drumroll, the same Obamacare which initially was supposed to boost Q1 GDP until the “polar vortex” crashed the number so badly, the BEA decided to pull it completely and leave this “growth dry powder” for another quarter. That quarter was Q3.

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“Of note: real spending on gasoline and other energy goods rose 4.1%. Wait, what? Wasn’t spending on energy supposed to drop?”

The US Economy ‘Grew’ By $140 Billion As Americans Became Poorer (Zero Hedge)

This is simply stunning. Regular readers will recall that last month, at the same time as the US Bureau of Economic Analysis reported was a far better than expected 3.9% GDP (since revised to 5.0% on the back of the previously noted Obamacare spending surge), it also released its Personal Spending and Income numbers for the month of October, or rather revised numbers, because as we explained exactly one month ago “Americans Are Suddenly $80 Billion “Poorer”” thanks to (upward) revised spending data and (downward) revised income. What this meant a month ago is that as a result of a plunge in the imputed US savings rate, some $80 billion in personal savings was revised away from the average American household and right into the US economy. After all, something had to grow the US GDP by a massive amount in order to give the Fed the green light it needs to hike rates eventually, just so it can then ease when the global dry powders from all the other central banks is used up.

And sure enough, this is how just one month ago, personal income was revised lower…

… Even as personal spending was revised higher:

Leading to an $80 billion revision lower in personal saving, and by mathematical identity, a comparable growth in US GDP. Fast forward to today when we find that… absolutely nothing has changed, and in order to boost US GDP some more, the BEA engaged in precisely the same data revision trick! On the surface, today’s Personal Income and Spending data were inline to a little bit better than expected: Personal Income supposedly rose 0.4% in November, up from a 0.3% revised growth in October, and in line with expectations. Personal Spending supposedly also rose, this time by 0.6%, up from an upward revised 0.3%, and just above the 0.5% expected. Of note: real spending on gasoline and other energy goods rose 4.1%. Wait, what? Wasn’t spending on energy supposed to drop?

So far so good: nothing abnormal (except for the clearly made up spending data), and in isolation this data would be good, suggesting the US consumer is getting more confident and is spending ever more as the year closes, on expectations of higher paying jobs, stronger economy, etc. And then we looked at the Personal Savings number: it was reported at 4.4% in November, down from 4.6% in October. Which is odd because last month, the October savings rate was disclosed as 5.0%, in turn down from a downward revised 5.6% in September. Wait, could the BEA be engaging in precisely the same deception in November as it did in October. Why yes, Virgina: not only did the US Department of Economic Truth completely fabricate its GDP numbers earlier, but the way it got to said fabrication is by fudging – for the second month in a row – both the entire Personal Income and Personal Spending data series.

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“The Chinese private sector debt… is higher now than America’s at its peak. And the acceleration of debt was faster… “The bubble in China is bigger and faster than the sub-prime bubble was in America.”

China’s Bubble Looks Bigger Than America’s, Says Steve Keen (Straits Times)

“Did you wake up before or after the sunrise today?” asks Professor Steve Keen “After,” I mutter sheepishly. “That’s a trick question. The sun doesn’t rise,” he says before letting out a guffaw. “The earth rotates… (But) it’s more natural for us to use that language than to say what actually happens.” The analogy is rather fitting for an Australian academic who wrote a book called Debunking Economics, and is now the chief economist of a global network of thinkers that declares it is “dedicated to the reform of economics”. In Bangkok recently for the launch of the Institute for Dynamic Economic Analysis, the 61-year-old professor in Britain’s Kingston University London equates mainstream economic theory with spurious astronomy assumptions.

Strangely enough, he says, it overlooks the role of money. Instead, it likens governments to households which ought to prize prudence, which in government terms means generating consistent surpluses. But the private sector, in order to pay the government enough to generate its surplus, has two options: It either “runs down the money it’s got, which means the economy is shrinking”, or borrows money to make such payments. Countries that run a trade surplus with others can maintain a permanent surplus without forcing its private sector into a debt crisis, but the good times don’t last. China – the world’s largest economy – is an example where the rise of private sector debt is bringing the country dangerously close to a crisis, he says.

Its central bank made a surprise cut in interest rate in November amid weakening economic data. Growth in the third quarter slackened to 7.3%, which is already its lowest since 2009. Prof Keen, who accurately predicted the last financial crisis before the 2008 crash, warns that another even bigger bubble is brewing in China. Chinese private sector debt, he points out, has risen from roughly 100% of its gross domestic product in 2008 to about 180% now, as the government encouraged lending to stimulate demand and make up for the shortfall in exports. “That’s an enormous increase,” he says. “The Chinese private sector debt… is higher now than America’s at its peak. And the acceleration of debt was faster… “The bubble in China is bigger and faster than the sub-prime bubble was in America.”

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“.. mainland companies deposit 20% to get a letter of credit from an onshore lender. They take that document to get a low-interest dollar loan from a Hong Kong bank, which treats it like a no-risk check fully backed by the guarantor. The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit..”

UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile (Bloomberg)

UBS is flagging risks from China’s $1 trillion worth of unhedged foreign debt as forecasters see bets against the greenback unwinding in 2015. The world’s second-largest economy is exposed to shifts in currency and interest rates as never before because of expanding international trade and easing foreign-exchange regulations, said Stephen Andrews, head of Asia banks research in Hong Kong at UBS. Daiwa Capital Markets has a $1 trillion estimate for carry-trade inflows since 2008, bets on the difference between yields in China and overseas. It sees a 5.7% drop in the yuan next year. The renminbi is heading for a 2.8% drop in 2014 as the dollar gains on Federal Reserve plans to raise interest rates and the People’s Bank of China cuts borrowing costs to support a flagging economy. Capital controls and record foreign-exchange reserves will help the PBOC cope with any similar situation to 1997’s Asian financial crisis, when firms struggled to repay debt as regional currencies slumped, Andrews said.

“This could get very uncomfortable very quickly,” he said in a Dec. 12 interview. “I boil it down to its basics. You’ve borrowed unhedged and leveraged: you’re at risk.” Andrews says the mechanics of what’s happening are this: mainland companies deposit 20% to get a letter of credit from an onshore lender. They take that document to get a low-interest dollar loan from a Hong Kong bank, which treats it like a no-risk check fully backed by the guarantor. The companies flip those dollars back to the mainland, where they use them as collateral to get even more letters of credit, leveraging even further, said Andrews. That money is then used to invest in China’s high-yield and often risky trust products or in the booming stock market. The profits are then used to pay off dollar borrowings.

Hong Kong banks mainland-related lending stood at HK$3.06 trillion ($394 billion) at the end of September, 14.7% of total assets, according to the city’s monetary authority. Andrews said his estimate is higher as he includes trade bills and other forms of lending not captured by the data, such as between sister companies in intergroup corporate transfers or letters of credit between onshore and offshore bank branches. “There were too many cheap dollars in the market for everyone to borrow,” Kevin Lai, an economist at Daiwa in Hong Kong, said Dec. 16. “If you just put the money in China, the carry plus appreciation is about 5%, so why not, right?” Lai estimates $1 trillion of carry-trade inflows since the first round of quantitative easing in 2008, of which $380 billion entered China disguised as commerce flows.

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Hundreds of rigs will be dropped.

Oil Drillers Under Pressure to Scrap Rigs to Cope With Downturn (Bloomberg)

Offshore oil-drilling contractors, who last year were able to charge record rates for their vessels, are now under pressure to scrap old rigs at an unprecedented pace. The recent five-year low in oil prices is threatening an industry already grappling with a flood of new vessels and weakening demand. More than 200 new rigs are scheduled to be delivered in the next six years. That’s a 25% jump from the number currently under contract. To cope, many rig owners will try to keep revenue up by culling older vessels to balance supply and demand. “The older assets, particularly those built before the 2000 time period, are really less desired by the industry,” James West, an analyst at Evercore ISI in New York, said in a phone interview.

Those vessels “are only causing the customer base to use those rigs against higher quality rigs to get pricing lower.” About 140 older rigs would need to be scrapped to make way for the new vessels scheduled for delivery by 2020, according to Andrew Cosgrove, an analyst at Bloomberg Intelligence. That pace would double the number scrapped in the previous six years and even eclipse the 123 vessels retired since 2000, according to data compiled by Bloomberg. Booming offshore exploration earlier in the decade encouraged a flurry of rig orders. That’s now leading to a potential market crash in a global industry pegged to generate revenue of $61.5 billion this year. Low oil prices are compounding the problem, alarming investors.

Three of the six worst performers in the Standard & Poor’s 500 Index this year are offshore rig contractors: Transocean, Noble and Ensco. Hercules Offshore, the largest provider of shallow-water rigs in the Gulf of Mexico, has fallen 84% as producers consolidated and drilling was postponed. “There is an old saying: If our customers get a cold, we get pneumonia,” John Rynd, chief executive officer of Houston-based Hercules, told investors this month. “We’re getting pneumonia right now.” Next year may be worse. Explorers and producers are expected to cut offshore spending by 15%, with “grievous” cuts coming for exploration, Bill Herbert, an analyst at Simmons & Co., said in an e-mail.

Read more …

“CNBC: “Peak Oil didn’t happen” .. Pickens: “That’s all bullshit .. I am the expert, not you.”

T. Boone Pickens Says Oil Down Due To “Weak Demand” (Zero Hedge)

Narrative, we have a problem! No lesser oil-man than T. Boone Pickens made quite an appearance on CNBC this morning – stunning the cheerleaders into first defense then silence as he broke the facts on oil’s collapse to them. Oil is down “mainly due to weak demand,” he explains… the anchors deny, “I am the expert, not you” Pickens rages as he warns drilling rigs will be laid down on a very wide scale (just as we have noted previously). Arguing over ‘peak oil’, he calls CNBC chatter “bullshit” and laid out a rather dismal short- to medium-term outlook for the oil & gas sector – not what the cheerleading tax-cut slurping media narrative wants to hear at all…

“demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months” Capex cuts coming… oil prices may be back at $90-100 Brent in 12-18 months but not without rig counts plunging. At 4:15 Pickens starts to discuss Peak Oil… enjoy – CNBC: “Peak Oil didn’t happen” .. Pickens: “That’s all bullshit… I am the expert not you” CNBC: “well you’re not much of an expert if you thought Peak Oil happened”

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Not a terribly intelligent piece.

Can Canadian Oil Sands Survive Falling Prices? (BW)

As oil prices have crashed over the past six months, a lot of attention has focused on what this means for frackers in the U.S., as well as the national budgets of a lot of large oil producing countries, such as Russia and Venezuela. In short, it’s not good. But what about Canada? The country is the world’s fifth-largest oil producer, and only Saudi Arabia and Venezuela have more proven reserves of crude. Almost all of Canada’s reserves (and production) are in the form of oil sands, which are among the most expensive types of crude to produce. There are pretty much two ways to do it. One is to inject steam into wells deep underground to heat up a thick, gooey type of oil called bitumen. The other is basically to strip mine large tracts of land and extract a synthetic blend of oil out of the earth and sand. Taken together, both methods require about 17% more energy and water than conventional oil wells and also result in similarly higher levels of carbon emissions.

That’s made oil sands a particular target of environmentalists. Now the Canadian oil sands producers have to contend with an even greater opposing force: economics. If Canadian oil sands are more expensive to produce than most other oil, how can they survive in the face of prices that are nearly 50% cheaper since June? A few things play to their favor. The first is that their costs are more akin to a mining operation than conventional oil drilling. Oil sands projects require massive upfront investments, but once those are made, they can go on producing for years with relatively low costs. That’s made oil sands, and the companies that produce them, quite profitable over the past few years. Suncor and Cenovus are two of the biggest oil sands producers in Canada. Both have profit margins that would be the envy of a lot of major oil companies.

At Suncor, earnings before interest, taxes, depreciation, and amortization (Ebitda), a basic measure of a company’s financial performance, have risen from 11.7% in 2009 to 31% through the first nine months of 2014. Exxon Mobil’s Ebitda so far this year is about half that at 14.3%. That cost structure may give oil sands producers an advantage over frackers in the U.S., who operate on a much shorter time horizon. Fracked wells in the U.S. tend to produce most of their oil within about 18 months or so. That means that to maintain production and rates of return, frackers need to keep reinvesting in projects with fairly short lifespans, whereas an oil sands project, once up and running, can continue to chug along, even in the face of lower prices, since its costs are spread out over a decade or more rather than over a couple years. That should keep overall oil sands production from falling and help insulate oil sands producers from lower prices, at least for now.

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But we’re doing great!

Existing Home Sales Collapse Most Since July 2010 (Zero Hedge)

Having exuberantly reached its highest level since September 2013 last month (despite the total collapse in mortgage applications), it appears the ugly reality of the housing market has peeked its head out once again. As prices rose, existing home sales plunged 6.1% – the most since July 2010 (against an expected 1.1% drop) to 4.93mm SAAR (the lowest in 6 months). So what was it this time: the polar vortex, the crude collapse, the crude vortex? Neither: According to the NAR’s endlessly amusing Larry Yun, this time it was the stock market: “The stock market swings in October may have impacted some consumers’ psyche and therefore led to fewer November closings. Furthermore, rising home values are causing more investors to retreat from the market.”

Supposedly he is referring to the tumble, not the resulting Bullard “QE4” mega-explosion in stocks that pushed everyhting to new all time highs. In other words, according to the NAR, even the tiniest downtick in stocks, and the housing market gets it. Sure enough, it is time to boost confidence in a rigged, manipulated ponzi scheme: DROP IN NOVEMBER COULD BE ONE-MONTH ‘ABERRATION,” YUN SAYS .. Unless, of course, stocks drop again, in which case all bets are off. Meanwhile, it appears investors have left the building…

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That’s what you get in a fake recovery.

U.S. Minimum Wage Hikes To Impact 1,400-Plus Walmart Stores (Reuters)

Minimum wage increases across the United States will prompt Wal-Mart Stores Inc to adjust base salaries at 1,434 stores, impacting about a third of its U.S. locations, according to an internal memo reviewed by Reuters. The memo, which was sent to store managers earlier this month, offers insight into the impact of minimum wage hikes in 21 states due to come into effect on or around Jan. 1, 2015. These are adjustments that Wal-Mart and other employers have to make each year, but growing attention to the issue has expanded the scope of the change. Thirteen U.S. states lifted the minimum wage in 2014, up from 10 in 2013 and 8 in 2012. Wal-Mart spokeswoman Brooke Buchanan said the company was making the changes to “ensure our stores in the 21 states comply with the law.”

For Wal-Mart, the biggest private employer in the United States with 1.3 million workers, minimum wage legislation is not a small thing. Its operating model is built on keeping costs under close control as it attracts consumers with low prices and operates on tight margins. In recent years, it has been struggling to grow sales after many lower-income Americans lost jobs or income in the financial crisis. The Wal-Mart memo shows that there will be changes to its pay structure, including a narrowing of the gap in the minimum premium paid to those in higher skilled positions, such as deli associates and department supervisors, over lower grade jobs. Wal-Mart will also combine its lowest three pay grades, which include cashiers, cart pushers and maintenance, into one base rate.

The changes appear in part to be an effort to offset the anticipated upswing in labor costs, according to a manager who was implementing the changes at his store. “Essentially that wage compression at the upper level of the hourly associate is going to help absorb that cost of the wage increase at the lower level,” said the manager, who spoke on condition of anonymity. Wal-Mart’s critics – including a group of its workers backed by labor unions – say the retailer pays its hourly workers too little, forcing some to seek government assistance that effectively provides the company with an indirect taxpayer subsidy. Labor groups have been calling for Wal-Mart, other retailers and fast-food chains to pay at least $15 an hour.

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Do read the entire piece, it has lots of goodies.

20 Stunning Facts About Energy Jobs In The US (Zero Hedge)

For all those who think the upcoming carnage to the shale industry will be “contained” we refer to the following research report from the Manhattan Institute for Policy Research:

  • The United States is now the world’s largest and fastest-growing producer of hydrocarbons. It has surpassed Saudi Arabia in combined oil and natural gas liquids output and has now surpassed Russia, formerly the top producer, in natural gas. [ZH: that’s about to change]
  • The increased production of domestic hydrocarbons not only employs people directly but also radically reduces the drag on growth and job formation associated with America’s trade deficit.
  • As the White House Council of Economic Advisors noted this past summer: “Every barrel of oil or cubic foot of gas that we produce at home instead of importing abroad means more jobs, faster growth, and a lower trade deficit.” [the focus now is not on the oil produced at home, which is set to plunge, but the consumer “tax cut” from plunging oil prices]
  • Since 2003, more than 400,000 jobs have been created in the direct production of oil & gas and some 2 million more in indirect employment in industries such as transportation, construction, and information services associated with finding, transporting, and storing fuels from the new shale bounty.
  • All told, about 10 million Americans are employed directly and indirectly in a broad range of businesses associated with hydrocarbons.
  • There are 16 states with more than 150,000 people employed in hydrocarbon-related activities. Even New York, which continues to ban the production of shale oil & gas, is seeing job benefits in a range of support and service industries associated with shale development in adjacent Pennsylvania.

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We all are, would be my guess.

Asian Currencies Set For A Wild Ride In 2015 (CNBC)

Asian currencies could be in for a wild ride in 2015, with central bank policy on track for further divergence as the Federal Reserve prepares to raise interest rates, analysts say. “The U.S. Federal Reserve will be hiking interest rates next year, while some Asian central banks will be acting in the opposite direction. Growth momentum is firmly in favor of the U.S., while structural and cyclical slowdowns in certain parts of Asia will see growth differentials narrow,” ANZ said in a note last week. The Federal Reserve is widely expected to hike interest rates in July after unwinding its quantitative easing program this year, according to CNBC’s latest Fed survey of economists, strategists and fund managers, released last week. By contrast, most of Asia’s central banks are easing.

The People’s Bank of China cut interest rates for the first time in two years in October, while the Bank of Korea cut rates to a record low that month. Meanwhile, the Bank of Japan remains committed to its massive stimulus effort, while calls for rate cuts in Thailand and Australia are growing. ANZ forecasts 3% depreciation in Asian currencies over 2015, “a similar decline to that seen in 2014,” noting that “risks are tilted towards a larger depreciation should tighter U.S. monetary policy lead to larger portfolio outflows from the region.” Saxo Capital Markets agrees. “The world’s major central banks and economies are entirely out of sync and the oil price collapse has added a dramatic new geopolitical and economic twist to global markets,” Saxo’s head of foreign-exchange strategy John Hardy said in a note last week.

He anticipates “U.S. dollar strength on U.S. outperformance” next year. There are four potential ‘what if’ catalysts for currency volatility next year, according to Hardy: U.S. junk bond outflows, the resignation of European Central Bank (ECB) president Mario Draghi, Chinese yuan devaluation and a substantial weakening in the Japanese yen. “There are already signs that the junk bond market in the U.S. is under severe strain here late in 2014. Liquidity is terrible in these bonds,” Hardy said. “Junk bonds related to the U.S. shale oil are the most clearly in the danger zone and investor flow out of bonds could see mayhem and see the Fed ceasing all thoughts of hiking rates,” which would see the dollar weaken sharply.

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“Evoking the fear of euro exit may not work this time with lawmakers and voters.”

Greeks Used to Years of Chaos Dismiss Samaras’s Warnings (Bloomberg)

As Prime Minister Antonis Samaras’s political maneuvers to avoid early elections edge toward a dead end, his warning of turmoil risks falling on deaf ears among Greeks numbed by years of upheaval. After losing a second vote in parliament yesterday on his candidate for a new president, Samaras needs to win over a dozen lawmakers before a final ballot on Dec. 29. Should he fail, the constitution dictates that elections must be called, with opposition party Syriza leading opinion polls. “We’ve already been living through chaos for years now,” said Kostas Grekas, a 23-year-old computer-technology student in Athens who graduates next year. “I’d prefer there to be elections now so that Syriza gets in, just to break up the old party system and to see something different.”

Greece marked 2014 by exiting a six-year recession that cost the country about a quarter of its economic output and tripled the unemployment rate. While Samaras’s pitch is that a change of government would endanger the incipient recovery, Syriza promises to abandon austerity measures tied to the country’s international bailout. Samaras, 63, garnered 168 votes out of 300 members of parliament to get approval for Stavros Dimas as the country’s largely ceremonial head of state. He needed 200 votes for victory and the threshold next week falls to 180 lawmakers. In the third vote, “each MP will come face to face with the anguish of the Greek people and the interests of the nation,” the prime minister said after the result.

The prospect of early parliamentary elections has roiled financial markets in Greece, evoking memories of the height of the financial crisis in 2012 when the country’s euro membership was in jeopardy and Samaras took power after two knife-edge ballots in the space of six weeks. Samaras says Syriza has revived the prospect of a euro exit, yet polls show the party would prevail in a vote. A survey by polling company Rass published on Dec. 21 showed Syriza ahead of Samaras’s New Democracy by 3.4 percentage points, albeit down from 5.3 points in November. “Samaras has cried wolf too many times,” said Dimitrios Triantaphyllou, assistant professor in the international relations department at Kadir Has University in Istanbul. “Evoking the fear of euro exit may not work this time with lawmakers and voters.”

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“Dangerous weather, terrorist attacks and economic collapses are all best dealt with by higher authorities, he said.”

US Families Prepare For ‘Modern Day Apocalypse’ (Sky News)

“We’re not talking about folks walking around wearing tin foil on their heads,” Jay tells Sky News. “We’re not talking about conspiracy theorists. “I’m talking about professionals: doctors and lawyers and law enforcement and military. Normal, everyday people. They can’t necessarily put their finger on it. But there’s something about the uncertainty of our times. They know something isn’t quite right.” Jay is a celebrity in the strange but increasingly mainstream world of preppers, writing prepper books and touring America, speaking at prepper expos where a bewildering range of survival supplies and techniques are on offer. Why is it happening? Partly, no doubt, because it allows Americans to indulge in some of their favourite pastimes: consuming, camping and buying lots and lots of guns.

And partly because fear sells, drives up numbers for cable news, and increases sales for everything from dried food to assault rifles. But it’s also arguably a sign of a country coping with economic decline. The end of the American Dream has left people more uncertain about their future, and their country’s. Katy Bryson is in Jay’s prepper network. Prepping, she says, puts Americans back in charge of their destiny. They’re not in control of whether they lose their job or not but they are in control of whether they are prepared. So I feel like that’s why the industry is just booming right now for preparedness,” Katy added. It is also a fundamentally American phenomenon. In a country built on the radical individualism of its founding fathers, people have an inbuilt mistrust in their government’s ability to protect them.

Sociologist Barry Glastner wrote The Culture of Fear. He told Sky News: “Americans are fairly unique as world citizens in that we tend to believe that we control our own destiny as individuals to a much greater extent than we really do.” Ironically, he points out preppers may actually be reacting to their fears in the least effective way. Dangerous weather, terrorist attacks and economic collapses are all best dealt with by higher authorities, he said. “Where there are real dangers, to take an individualistic approach is usually exactly the wrong thing to do. So the kinds of things that the preppers are preparing to protect themselves from are much better handled on a community-wide basis than they are in your own home.”

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It’s been predicted for a while now.

El Nino Seen Looming by Australia as Pacific Ocean Heats Up (Bloomberg)

El Nino-like weather may persist in coming months as the Pacific Ocean continues to warm and indicators approach thresholds for the event that brings drought to Asia and heavier-than-usual rains to South America. Sea-surface temperatures have exceeded the thresholds for a number of weeks and the Southern Oscillation Index has generally been negative for the past few months, Australia’s Bureau of Meteorology said today. While trade winds have been near-average along the equator, they have been weaker in the broader tropical belt, it said. A sustained weakening of trade winds is needed for the phenomenon to develop, the bureau says. El Ninos, caused by periodic warmings of the Pacific, can roil world agricultural markets as farmers contend with drought in Asia or too much rain in South America.

Palm oil, cocoa, coffee and sugar are among crops most at risk, Goldman Sachs says. Forecasters, including Australian scientists, raised the possibility of an El Nino earlier this year before tempering their outlook as conditions didn’t develop. “The tropical Pacific Ocean continues to border on El Nino thresholds, with rainfall patterns around the Pacific Ocean basin and at times further afield displaying El Nino-like patterns over recent months,” the bureau said. “If current conditions do persist, or strengthen into next year, 2014–2015 is likely to be considered a weak El Nino.” El Nino conditions appear to have formed and will probably continue, the Japan Meteorological Agency said on Dec. 10. The surface temperature of the Pacific was higher than normal in almost all areas in November, it said.

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