Ivan Aivazovsky Palace rains in Venice by moonlight 1878
Me, personally, I can’t get rid of the notion that all the stablecoins and shitcoins and altcoins that have been initiated and “legalized”, are just a way of “shining” bitcoin in a light of uninvestable darkness. And for that, a bunch of “trading places” (pun intended) were called for. One of the biggest, FTX, just went from $32 billion to $0 in a single day. Not even Enron could beat that.
Dr. D., yes him again, ties together an interesting history behind it. Which in turn ties into the DNC too. And Dr. D. doesn’t even mention yet that just this morning, FDX claimed they were hacked: “FTX Possibly Hacked, $895m Drained From Customer Wallets.” Should I believe that? How do you drain $895m out of $0?
“Early Saturday morning, Mr Bankman-Fried resigned as chief executive officer and FTX commenced Chapter 11 bankruptcy proceedings due to a massive liquidity crunch. A rescue deal with rival exchange Binance fell through earlier this week, precipitating crypto’s highest-profile collapse in recent years. Mr Bankman-Fried’s quant trading business (aka quantitative cryptocurrency trading firm) Alameda Research has also filed for bankruptcy.”
Here’s thinking that the DNC links will sink this as a story. Bankman-Fried will be renditioned to Barbados -or Gitmo-, and we all live happily ever after. Except for those who put their money into FTX. But then, what were they thinking in the first place? Crazy thought: was Hunter Biden a investor? Or The Big Guy?
Dr. D.: We really need to keep a rogue’s gallery. It’s like Dick Tracy and Batman. Bernie Made Off. Mr. Kash-n-Karry. Sam the Bank Man, Fried. You can’t make this up.
Am I hearing this right, FTX was invented 16 days after the Biden Campaign? In a foreign nation not of his birth or residency, the Bahamas? His mother is involved with Vote Blue and other DNC money people? Then within a month or two, Sam has made so many billions he was the single largest donor to Biden? With this A-Mazing multi-billion influx that come out of nowhere? But everybody, all the “good” people instantly and telepathically KNEW they had, HAD to invest there? People like the Teacher’s Union?
And other exchanges knew they needed to invest too! Like Citi just KNEW the best investment was to buy Morgan stock, to give money, capital, to their direct competition. Really? When does it happen that Home Depot’s top investment is Lowes?
And how did “all the ‘right’ people” know to invest? Well The Bank Man was hanging out in a group house,coding away like any college kids! Financial knowledge, level = pizza. Give this man $10,000,000,000.00!!! Shut up and take my money! Why? Um, well, it seems Bank Man is related not only to DNC funding and the Biden administration, but also to Gary Gensler, the proposed and self-styled REGULATOR of all Crypto. The one who tied up Morgan, Barclays, BoA’s co-project XRP and has frozen it in the courts, unresolved, for YEARS? Who, so it would seem, would like to take down not just XRP but the entire Crypto world as a concept and going concern? A competition to his backers in Stocks and Banking?
So all the kids of all the Regulators, politicians, bankers, insiders, all HAPPEN to be involved in what may be the biggest money laundering, heist, and political funneling operation maybe ever? Where’d the Pension money of the Teacher’s Union go? Where go? It was there, an “Exchange” takes a FEE for each transaction. Your MONEY, like SIPC, is YOURS. It’s your account, your trades. They just facilitate them. It’s a money-minting machine, no need for leverage.
But like MF Global, they just took ALL the money in ALL the accounts and put it in their own? On day 1? AND all the money from “the Usual Suspects”, SoftBank, Pardigm, Sequoia? Their own co-company Alameda, and another largest insider scam ever called “Tether”? Tether being another insider-of-insiders, convicted felons, law-never-touches group like EOS (? check me?) was?
Yes. That’s not an accident, that’s not a blow up, that’s not an over leverage, that’s pre-meditated THEFT. Arranged by Gary Gensler, DNC, and other insiders. From day 1, since they haven’t been around long enough to slowly drift into danger. They were invented yesterday.
So if you wonder where the Ukraine money is going, to be back-laundered into the midterms, BY the same party GIVING Ukraine the money, here you go.
Says the Sam: “Oops. Sorry. I f—ked up. I should have done better.” Oh, in that case, well I guess no problem! We won’t look into your extensive, amazing, and some might say “unbelievable” list of insiders, contacts, and arrangers. All of whose money was stolen more or less the instant it hit your books. As one big amazing “accident.”
I’m sure the media will cover all this shortly because of the salacious names and DNC careers involved. NOT.
Okay, given this, who blew the whistle on them? This scam was going perfectly: who blew it? The GOP’s like-kind fund? But after the election, not before? Powell? Was it really organic ponzi and they just don’t care, didn’t even try to cover it? Who?
And it’s not the “Money”. They can print the money. You know what they can’t print? ETH. BTC. So when you’re an exchange and scalp coins as they fly across your books, and when you vanish, where’s the money, but more importantly, WHERE ARE THE COINS?
Why? Because you need ACTUAL coins to manipulate the market. You can get a run started, it’ll blow the stops and start a cascade collapse, but to get it started, you have to have an ACTUAL ante of ACTUAL product. That’s the cost of manipulation. And the blow up of FTX means someone, these same insiders who wish to halt and/or destroy all crypto as a concept, have the nuclear pre-charge somewhere to make a run on the markets.
We try to run the Automatic Earth on donations. Since ad revenue has collapsed, you are now not just a reader, but an integral part of the process that builds this site. Thank you for your support.
Support the Automatic Earth in virustime. Click at the top of the sidebars to donate with Paypal and Patreon.
As the world’s most important benchmark interest rate, approximately $10 trillion worth of loans and $350 trillion worth of derivatives use the Libor as a reference rate. Libor-based corporate loans are very prevalent in emerging economies, which is helping to inflate the emerging markets bubble that I am warning about. In Asia, for example, Libor is used as the reference rate for nearly two-thirds of all large-scale corporate borrowings. Considering this fact, it is no surprise that credit and asset bubbles are ballooning throughout Asia, as my report on Southeast Asia’s bubble has shown.
Like other benchmark interest rates, when the Libor is low, it means that loans are inexpensive, and vice versa. As with the U.S. Fed Funds Rate, Libor rates were cut to record low levels during the 2008-2009 financial crisis in order to encourage more borrowing and concomitant economic growth. Unfortunately, economic booms that are created via central bank manipulation of borrowing costs are typically temporary bubble booms rather than sustainable, organic economic booms. When central banks raise borrowing costs as an economic cycle matures, the growth-driving bubbles pop, leading to a bear market, financial crisis, and recession.
Similar to the U.S. Fed Funds Rate, the Libor has been rising for the last several years as central banks raise interest rates. While rising interest rates haven’t popped the major global bubbles just yet, it’s just a matter of time before they start to bite.
While most economists and financial journalists view the rising Libor as part of a normal business cycle, I’m quite alarmed due to my awareness of just how much our global economic recovery and boom is predicated on ultra-low interest rates. With global debt up 42% or over $70 trillion since the Global Financial Crisis, interest rates do not need to rise nearly as high as they were in 2007 and 2008 to cause a massive crisis.
When the Cold War officially ended in 1991, Washington could have pivoted back to the pre-1914 status quo ante. That is, to a national security policy of America First because there was literally no significant military threat left on the planet. Post-Soviet Russia was an economic basket case that couldn’t even meet its military payroll and was melting down and selling the Red Army’s tanks and artillery for scrap. China was just emerging from the Great Helmsman’s economic, political and cultural depredations and had embraced Deng Xiaoping proclamation that “to get rich is glorious”. The implications of the Red Army’s fiscal demise and China’s electing the path of export mercantilism and Red Capitalism were profound.
Russia couldn’t invade the American homeland in a million years and China chose the route of flooding America with shoes, sheets, shirts, toys and electronics. So doing, it made the rule of the communist elites in Beijing dependent upon keeping the custom of 4,000 Wal-Marts in America, not bombing them out of existence. In a word, god’s original gift to America—the great moats of the Atlantic and Pacific oceans—had again become the essence of its national security. After 1991, therefore, there was no nation on the planet that had the remotest capability to mount a conventional military assault on the U.S. homeland; or that would not have bankrupted itself attempting to create the requisite air and sea-based power projection capabilities—a resource drain that would be vastly larger than even the $700 billion the US currently spends on its global armada.
Indeed, in the post-cold war world the only thing the US needed was a modest conventional capacity to defend the shorelines and airspace against any possible rogue assault and a reliable nuclear deterrent against any state foolish enough to attempt nuclear blackmail. Needless to say, those capacities had already been bought and paid for during the cold war. The triad of minutemen ICBMs, Trident SLBMs (submarines launched nuclear missiles) and long-range stealth bombers cost only a few ten billions annually for operations and maintenance and were more than adequate for the task of deterrence.
Likewise, conventional defense of the U.S. shoreline and airspace against rogues would not require a fraction of today’s 1.3 million active uniformed force—to say nothing of the 800,000 additional reserves and national guard forces and the 765,000 DOD civilians on top of that. Rather than funding 2.9 million personnel, the whole job of national security under a homeland-based America First concept could be done with less than 500,000 military and civilian payrollers. In fact, much of the 475,000 US army could be eliminated and most of the Navy’s carrier strike groups and power projection capabilities could be mothballed. So, too, the air force’s homeland defense missions could be accomplished for well less than $50 billion per annum compared to the current $145 billion.
Something strange happened in the Empire State Manufacturing Survey released by the New York Fed this morning. The survey has two headline components: The index for current conditions and the index for future conditions six months down the road. The first index behaved reasonably well; the second index plunged the most ever. Executives are notoriously optimistic. In the survey, which goes back to 2001, expectations for future conditions are always higher than current conditions, and often by a big margin, even early on in the Financial Crisis before all heck was breaking loose. The index of future conditions reacts to events. For example, it spiked after Trump’s election. So today’s biggest plunge in survey history is a reaction to an event.
“Optimism tumbles,” the New York Fed’s report called it. And more emphatically: “Optimism about the six-month outlook plunged among manufacturing firms.” The headline index is based on a question about “general business conditions.” The sub-indices are based on questions about specific aspects of the manufacturing business, such as new orders, shipments, unfilled orders, employment, etc. [..] This chart shows the General Business Condition indices for current conditions (black line) and forward-looking conditions (blue line) with the plunge circled. The thin vertical red line indicates the last survey period before the November 2016 election:
The 25.8-point April plunge took the index from 44.1 points in March to 18.3 points in April, the largest monthly plunge ever. The second largest plunge (25.1 points) occurred in January 2016 as credit in the energy sector was freezing up and as the S&P 500 index was on its way to drop 19%. The third steepest plunge (24.3 points) occurred in January 2009, during the Financial Crisis. The chart below shows the month-to-month changes in the forward-looking general business conditions index:
In news that broke (conveniently, we should add) shortly after the market closed on Monday, the Wall Street Journal is reporting that the White House is gearing up for what would be the third front in its nascent trade spat with China. As the paper points out, Trade Representative Robert Lighthizer is preparing a fresh trade complaint – again under Section 301 of the Trade Act of 1974 – the same section of the trade act under which the US filed its complaint about China’s intellectual property abuses, aka the first salvo in the US’s trade war. This time, Lighthizer is aiming at China’s unfair restrictions on US companies trying to establish a foothold in China in high-tech industries like cloud computing.
As a general rule, China requires foreign firms to partner with a domestic firm in a “revenue-sharing agreement” before they can gain entry to the Chinese market. By comparison, the US allows Chinese firms like Alibaba to function almost totally unfettered. To be sure, Lighthizer has yet to decide whether to go ahead with the complaint, leaving the tariffs on steel and aluminum and the investigation into IP abuses as the only concrete actions that the White House has taken to hold China accountable for what Trump has described as decades of abuses on trade (threatening to impose tariffs on $150 billion in goods doesn’t count).
The U.S. government said Chinese telecommunications-gear maker ZTE Corp. violated the terms of a sanctions settlement and imposed a seven-year ban on purchases of crucial American technology needed to keep it competitive. The Commerce Department determined ZTE, which was previously fined for shipping telecommunication equipment to Iran and North Korea, subsequently paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to U.S. authorities, the department said. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them,” Commerce Secretary Wilbur Ross said in the statement.
“This egregious behavior cannot be ignored.” The ZTE rebuke adds to U.S.-China tensions over trade between the world’s two biggest economies. President Donald Trump threatened tariffs on $150 billion in Chinese imports for alleged violations of intellectual property rights, while Beijing vowed to retaliate on everything from American soybeans to planes. Trump on Monday accused China along with Russia of devaluing their currencies, opening a new front in his argument that foreign governments are exploiting the U.S. China’s Ministry of Commerce rapidly responded to the ZTE ban, saying it would take necessary measures to protect the interests of Chinese businesses.
It said the Shenzhen-based company has cooperated with hundreds of U.S. companies and contributed to the country’s job creation. For ZTE itself, the latest U.S. action means one of the world’s top makers of smartphones and communications gear will no longer be able to buy technology from American suppliers, including components central to its products. ZTE has purchased chips from Qualcomm and Intel, and optical components from Acacia Communications and Lumentum. A seven-year ban would effectively cover a critical period during which the world’s telecoms carriers and suppliers are developing and rolling out fifth-generation wireless technology. “All hell breaks loose,” wrote Edison Lee and Timothy Chau, analysts at Jefferies, after the export ban was announced.
China’s industrial output grew 6.0% in March from a year earlier, missing expectations, while fixed-asset investment growth slowed to 7.5% in the first quarter, also below forecasts, data showed on Tuesday. Analysts polled by Reuters had predicted industrial output growth would cool to 6.2% from 7.2% in the first two months of the year. Investment growth had also been expected to ease, to 7.6% in the first three months of the year, from 7.9% in January-February. Private-sector fixed-asset investment rose 8.9% in January-March, compared with an increase of 8.1% in the first two months, the National Bureau of Statistics said on Tuesday.
Private investment accounts for about 60% of overall investment in China. Retail sales rose 10.1% in March from a year earlier, beating expectations of an increase of 9.9%, compared with a rise of 9.7% in the first two months. The government has set an economic growth target of around 6.5% this year, the same goal as in 2017. Actual growth last year came in much stronger at 6.9%, due largely to an infrastructure-led construction boom, resurgent exports and record bank lending.
There’s more than enough to get distracted by — and be nervous about — over the next few days, but judging from the upbeat premarket action on Monday, investors aren’t exactly scrambling around to load up on risk-off assets. Geopolitics aside, hope abounds that the next leg up could be fueled by what corporate leaders have to say this week regarding their quarterly results. “It is still early in the earnings season, and as we hear from the CEOs we will find out if the market will refocus on fundamentals and away from the macro news,” says Jill Carey Hall, equity strategist at Bank of America Merrill Lynch.
Tesla however, doesn’t report its results for a while. Until then, you can expect the FUD to keep flying as the haters tangle with the Musk faithful — and Musk himself — over where the company is ultimately headed. Count Harris Kupperman of Praetorian Capital among those outspoken bears, and, just like renowned short-seller Jim Chanos did late last year, he recently compared Tesla to one of the biggest fails Wall Street’s ever seen — Enron. He used this overlay, our chart of the day, to illustrate his prediction:
Elon Musk relishes the opportunity to return fire at his critics, like when he recently threw shade at the Economist for questioning Tesla’s stability. That hardly convinced Kupperman. “He hasn’t hit on any target or deliverable with any sort of reliability for years now. Why should I believe him now?” he writes. “Remember in 2016 when he said they’d be profitable and didn’t need any more money? Or when they said that in 2017? He’ll probably be saying the same thing at the bankruptcy hearing.”
Tesla is temporarily suspending production of the Model 3 sedan for at least the second time in roughly two months, just after Elon Musk admitted to mistakes that hindered his most important car. The company informed employees that the pause will last four to five days, Buzzfeed reported Monday. A Tesla spokesman referred back to a statement provided last month, when Bloomberg News first reported that Model 3 production was idled from Feb. 20 to 24. The carmaker said then that it planned periods of downtime at both its vehicle and battery factories to improve automation and address bottlenecks. The hiatus is another setback for the first model Musk has tried to mass-manufacture.
In addition to trying to bring electric vehicles to the mainstream, the chief executive officer had sought to build a competitive advantage over established automakers by installing more robots to quickly produce vehicles. Last week, he acknowledged “excessive” automation at Tesla was a mistake. “Traditional automakers adjust bottlenecks on the fly during a launch,” Dave Sullivan, an analyst at AutoPacfic Inc., said in an email. “This is totally out of the ordinary.” Tesla employees are expected to use vacation days or stay home without pay during the Model 3 downtime, though a small number may be offered paid work elsewhere at the factory in Fremont, California, Buzzfeed reported.
The shutdown is taking place a week after Musk gave CBS This Morning a tour of Tesla’s assembly plant and said the company should be able to sustain producing 2,000 Model 3 sedans a week. He said manufacturing issues that had been crimping output were being resolved and that Tesla probably will make three or four times as many of the cars in the second quarter. Tesla built 9,766 Model 3 sedans in the first quarter. The company said in an April 3 statement that the process of boosting production and addressing bottlenecks during the first three months of the year included “several short factory shutdowns to upgrade equipment.”
The risk to Facebook’s business coming out of last week’s Mark Zuckerberg hearings is minimal. The threat to its business in the EU, where aggressive regulation has already passed, is massive. The latest: The European Parliament has issued a second invitation to Facebook CEO Mark Zuckerberg to appear at a joint committee heating. EU Justice Commissioner Vera Jourova had a phone exchange with Facebook COO Sheryl Sandberg urging Zuckerberg to pay the Parliament a visit, according to the Associated Press. “I expect that Mr Zuckerberg will take this invitation because I believe that face-to-face communication and being available for such communication will be a good sign that Mr. Zuckerberg understands the European market,” Jourova told CNBC Friday.
“Facebook has more active users in Europe than in the US,” tweeted parliament member Guy Verhofstadt. “We expect Mark Zuckerberg to come to the European Parliament and explain how he will make sure Facebook respects [the forthcoming General Data Protection Regulation].” Facebook spent more than $2.5 million on its in-house lobbying in Europe last year, according to disclosure records. The company says that a total of 15 staff are involved in its EU lobbying efforts. European regulation was a prime topic of discussion even during Zuckerberg’s congressional hearings last week. Sandberg visited Brussels in January to discuss Facebook’s commitment to privacy and compliance with Europe’s new sweeping privacy rules.
Facebook faces several very real threats to its business model in Europe this spring.
• GDPR: The sweeping General Data Protection Regulation will go into effect in late May, putting in place strict new privacy rules. U.S. tech firms face punitive fines if they do not comply.
• ePrivacy: An updated version of the EU’s ePrivacy directive, which is set to go in effect in conjunction with GDPR in May 2018, will add greater regulation of data tracking through cookies and users’ ability to opt-out of data collection.
• Antitrust: Facebook was fined by EU antitrust commissioner Margrethe Vestager last May for allegedly misleading officials when it acquired WhatsApp. She signaled to reporters in Washington last week that she’s still keeping an eye on the social giant, but noted that the European government has no official stance on whether the company is a monopoly. She said a German probe and new data rules could mitigate some concerns about Facebook’s power.
A US federal judge in California ruled Monday that Facebook will have to face a class action suit over allegations it violated users’ privacy by using a facial recognition tool on their photos without their explicit consent. The ruling comes as the social network is snared in a scandal over the mishandling of 87 million users’ data ahead of the 2016 US presidential election. The facial recognition tool, launched in 2010, suggests names for people it identifies in photos uploaded by users – a function which the plaintiffs claim runs afoul of Illinois state law on protecting biometric privacy. Judge James Donato ruled the claims by Illinois residents Nimesh Patel, Adam Pezen, and Carlo Licata were “sufficiently cohesive to allow for a fair and efficient resolution on a class basis.
“Consequently, the case will proceed with a class consisting of Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011,” he said, according to the ruling seen by AFP. A Facebook spokeswoman told AFP the company was reviewing the decision, adding: “We continue to believe the case has no merit and will defend ourselves vigorously.” Facebook also contends it has been very open about the tool since its inception and allows users to turn it off and prevent themselves from being suggested in photo tags. The technology was suspended for users in Europe in 2012 over privacy fears.
Also on Monday, Facebook confirmed that it collected information from people beyond their social network use. “When you visit a site or app that uses our services, we receive information even if you’re logged out or don’t have a Facebook account,” product management director David Baser said in a post on the social network’s blog. Baser said “many” websites and apps use Facebook services to target content and ads, including via the social network’s Like and Share buttons, when people use their Facebook account to log into another website or app and Facebook ads and measurement tools. But he stressed the practice was widespread, with companies such as Google and Twitter also doing the same.
Shipment volumes in the US by truck, rail, air freight, and barge combined surged 11.9% year-over-year in March, according to the Cass Freight Index. This pushed the index, which is not seasonally adjusted, to its highest level for any month since 2007 and for any March since 2006:
After the US transportation recession in 2015 and 2016, the industry was recovering at an every faster pace. In the chart above, note how the red line (2017) outpaced the black line (2016). And 2018 has turned into a transportation boom. March is normally still in the slow part of the year, but this March blew past even June 2014, the banner month since the Financial Crisis! “Volume has continued to grow at such a pace that capacity in most modes has become extraordinarily tight,” Cass explained. “In turn, pricing power has erupted in those modes.” The chart below shows the year-over-year percentage changes in the index for shipment volumes. Note the double-digits spikes over the past three months:
The index, which is based on $25 billion in annual freight transactions, according to Cass Information Systems, covers all modes of transportation — rail, truck, barge, and air — for consumer packaged goods, food, automotive, chemical, OEM, and heavy equipment but not bulk commodities, such as oil, coal, or grains. This kind of surge in volume has consequences in this cyclical business. During the “transportation recession,” orders for heavy Class 8 trucks collapsed, triggering lay-offs and throughout the truck and engine manufacturing industry. The opposite is now the case: Orders for heavy trucks are hitting records.
The cyberwar between the west and Russia has escalated after the UK and the US issued a joint alert accusing Moscow of mounting a “malicious” internet offensive that appeared to be aimed at espionage, stealing intellectual property and laying the foundation for an attack on infrastructure. Senior security officials in the US and UK held a rare joint conference call to directly blame the Kremlin for targeting government institutions, private sector organisations and infrastructure, and internet providers supporting these sectors. Rob Joyce, the White House cybersecurity coordinator, set out a range of actions the US could take such as fresh sanctions and indictments as well as retaliating with its own cyber-offensive capabilities. “We are pushing back and we are pushing back hard,” he said.
Joyce stressed the offensive could not be linked to Friday’s raid on Syria. It was not retaliation for the US, UK and French attack as the US and UK had been investigating the cyber-offensive for months. Nor, he said, should the decision to make public the cyber-attack be seen as a response to events in Syria. Joyce was joined in the call by representatives from the FBI, the US Department of Homeland Security and the UK’s National Cyber Security Centre (NCSC), which is part of the surveillance agency GCHQ.
The US and UK, in a joint statement, said the cyber-attack was aimed not just at the UK and US but globally. “Specifically, these cyber-exploits were directed at network infrastructure devices worldwide such as routers, switches, firewalls, network intrusion detection system,” it said. “Russian state-sponsored actors are using compromised routers to conduct spoofing ‘man-in-the-middle’ attacks to support espionage, extract intellectual property, maintain persistent access to victim networks and potentially lay a foundation for future offensive operations. “The current state of US and UK network devices, coupled with a Russian government campaign to exploit these devices, threatens our respective safety, security, and economic wellbeing.”
One in three of will never own their own home, with many forced to live and raise families in insecure privately rented accommodation throughout their lives, according to a report by the Resolution Foundation. In a gloomy assessment of the housing outlook for approximately 14 million 20- to 35-year-olds, the thinktank’s intergenerational commission said half would be renting in their 40s and that a third could still be doing so by the time they claimed their pensions. It predicted an explosion in the housing benefits bill once the millennial generation reaches retirement.
“This rising share of retiree renters, coupled with an ageing population, could more than double the housing benefit bill for pensioners from £6.3bn today to £16bn by 2060 – highlighting how everyone ultimately pays for failing to tackle Britain’s housing crisis,” the report read. It calls for a radical overhaul of the private rented sector, proposing a three-year cap on rent increases, which would not be allowed to rise by more than the consumer price index, currently 2.5%. The report adds to a growing chorus of demands for rent stabilisation. Jeremy Corbyn called for rent control during his speech at the Labour party conferencelast year.
The Resolution Foundation wants “indeterminate” tenancies as the sole form of contract in England and Wales. These would replaced the standard six-month or 12-month contracts demanded by most landlords. The thinktank said this would follow , where open-ended tenancies began in December 2017, and is the standard practice in Germany, the Netherlands, Sweden and Switzerland. Greater security of tenancy is vital as more families are raised in the private rented sector, the report said. The number of privately renting households with children has tripled from 600,000 in 2003 to 1.8m in 2016.
Scientists have created a mutant enzyme that breaks down plastic drinks bottles – by accident. The breakthrough could help solve the global plastic pollution crisis by enabling for the first time the full recycling of bottles. The new research was spurred by the discovery in 2016 of the first bacterium that had naturally evolved to eat plastic, at a waste dump in Japan. Scientists have now revealed the detailed structure of the crucial enzyme produced by the bug. The international team then tweaked the enzyme to see how it had evolved, but tests showed they had inadvertently made the molecule even better at breaking down the PET (polyethylene terephthalate) plastic used for soft drink bottles.
“What actually turned out was we improved the enzyme, which was a bit of a shock,” said Prof John McGeehan, at the University of Portsmouth, UK, who led the research. “It’s great and a real finding.” The mutant enzyme takes a few days to start breaking down the plastic – far faster than the centuries it takes in the oceans. But the researchers are optimistic this can be speeded up even further and become a viable large-scale process. “What we are hoping to do is use this enzyme to turn this plastic back into its original components, so we can literally recycle it back to plastic,” said McGeehan. “It means we won’t need to dig up any more oil and, fundamentally, it should reduce the amount of plastic in the environment.”
About 1m plastic bottles are sold each minute around the globe and, with just 14% recycled, many end up in the oceans where they have polluted even the remotest parts, harming marine life and potentially people who eat seafood. “It is incredibly resistant to degradation. Some of those images are horrific,” said McGeehan. “It is one of these wonder materials that has been made a little bit too well.” However, currently even those bottles that are recycled can only be turned into opaque fibres for clothing or carpets. The new enzyme indicates a way to recycle clear plastic bottles back into clear plastic bottles, which could slash the need to produce new plastic.
More than 95% of the world’s population breathe unsafe air and the burden is falling hardest on the poorest communities, with the gap between the most polluted and least polluted countries rising rapidly, a comprehensive study of global air pollution has found. Cities are home to an increasing majority of the world’s people, exposing billions to unsafe air, particularly in developing countries, but in rural areas the risk of indoor air pollution is often caused by burning solid fuels. One in three people worldwide faces the double whammy of unsafe air both indoors and out.
The report by the Health Effects Institute used new findings such as satellite data and better monitoring to estimate the numbers of people exposed to air polluted above the levels deemed safe by the World Health Organisation. This exposure has made air pollution the fourth highest cause of death globally, after high blood pressure, diet and smoking, and the greatest environmental health risk. Experts estimate that exposure to air pollution contributed to more than 6m deaths worldwide last year, playing a role in increasing the risk of stroke, heart attack, lung cancer and chronic lung disease. China and India accounted for more than half of the death toll.
Burning solid fuel such as coal or biomass in their homes for cooking or heating exposed 2.6 billion people to indoor air pollution in 2016, the report found. Indoor air pollution can also affect air quality in the surrounding area, with this effect contributing to one in four pollution deaths in India and nearly one in five in China. Bob O’Keefe, vice-president of the institute, said the gap between the most polluted air on the planet and the least polluted was striking. While developed countries have made moves to clean up, many developing countries have fallen further behind while seeking economic growth.
The Fed’s balance sheet for the week ending December 6, released today, completes the second month of the QE-unwind. Total assets initially zigzagged within a tight range to end October where it started, at $4,456 billion. But in November, holdings drifted lower, and by December 6 were at $4,437 billion, the lowest since September 17, 2014:
“Balance sheet normalization?” Well, in baby steps. But the devil is in the details. The Fed’s announced plan is to shrink the balance sheet by $10 billion a month in October, November, and December, then accelerate the pace every three months. By October 2018, the Fed would reduce its holdings by up to $50 billion a month (= $600 billion a year) and continue at that rate until it deems the level of its holdings “normal” – the new normal, whatever that may turn out to be. Still, the decline so far, given the gargantuan size of the balance sheet, barely shows up. As part of the $10-billion-a-month unwind from October through December, the Fed is supposed to unload $6 billion in Treasury securities a month plus $4 billion in mortgage-backed securities (MBS) a month.
The Fed doesn’t actually sell Treasury securities outright. Instead, it allows some of them, when they mature, to “roll off” the balance sheet without replacement. When the securities mature, the Treasury Department pays the holder the face value. But the Fed, instead of reinvesting the money in new Treasuries, destroys the money – the opposite process of QE, when the Fed created the money to buy securities. This happens only on dates when Treasuries that the Fed holds mature, usually once or twice a month. In October, the big day was October 31, when $8.5 billion of Treasuries on the Fed’s books matured. The Fed reinvested $2.5 billion and let $6 billion “roll off.” Hence, the amount of Treasuries fell by about $6 billion from an all-time record $2,465.7 billion on October 25 to $2,459.8 billion on November 1.
This rising tide isn’t lifting many boats. Wage growth in the U.S. has failed to pick up this year despite a steady decline in the unemployment rate. The sluggishness has been relatively broad-based across the labor market, including among low-skilled workers, who might seem to be the most likely candidates for bigger pay increases as labor becomes scarcer. The bottom 20% of workers by average industry pay received a 3.9% increase in hourly earnings in October from a year earlier, marking an acceleration from a 3.4% advance in the year through October 2016. The detailed industry numbers for October were released on Friday along with the Labor Department’s main employment report for November.
However, the following chart shows that the entire pickup over the last year can be traced to a single industry: security and armored car services, which only accounts for 0.6% of private-sector employment, but has seen wages shoot up by almost 20%. Removing security and armored car services from the picture knocks the 3.9% wage growth for the bottom quintile down to 3.3%. That means it’s been more than a year since workers in the other low-paying industries have seen any acceleration in wage growth. The biggest employers of low-skilled workers are restaurants, general merchandise retailers, grocery stores, elderly care services, janitorial services and child day-care. Among those industries, restaurants are doling out the biggest pay increases (4.4% in the year through October), even though wage growth for those workers has been decelerating this year. General merchandise stores are giving out the smallest raises of the group at 1.4%.
On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency. Holders of large amounts of bitcoin are often known as whales. And they’re becoming a worry for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year. About 40% of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management.
What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market. “I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.” One reason to think so: At least some kinds of information sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Because bitcoin is a digital currency and not a security, he says, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes.
Crypto-‘currency’ or total carnage? Mike Novogratz doesn’t see “quick adoption” of Bitcoin as a currency, preferring to think of it as ‘digital gold’. Perhaps this is one reason why. Amid its meteroic rise, Bitcoin is now 20 times more volatile than the US Dollar… As MINT Partners’ Bill Blain exclaims, next week sees the improbable launch of Bitcoin futures:
“This looks like having the potential to be a clusterf*ck of monumental proportions when it bursts. Every bank knows BTC’s extraordinary gains are a crowd delusion fuelled by the extraordinary promise of free wealth! Yet, many will be willing to trade and settle them for their clients – largely retail. Bitcoin has become the ultimate Klondyke. Most folk don’t have a clue what BTC and the associated Blockchain ledger might be, but everyone knows what the price action has been. Where that price is going is clouded by a lack of clarity on the technological nuances, distorted by Libertarian/Geek monetary gobbledy-gook, confused by a plethora of me-too coin offerings, speculators who see the chance of a quick buck, and investors scared they are missing out.”
“I’ve spent most of this week learning more and more about the limitations of Blockchain and two things are crystal clear – it doesn’t work, and it’s an evolutionary dead end that nimbler cryptocurrencies will take the niche of. But I still don’t understand why we need them at all? If its central banks you object to, let’s have a private cryptocurrency based on gold, or oil, or something else tangible… but based on some computer babble? Not for me. On the other hand, the long-term possibilities that BTC exploits in terms of Blockchain distributed ledgers are very real. Blockchain applications are going to utterly change finance.
The third round of QE was officially halted in 2014 in the USA. However, the world’s other main central banks acted in rotation — passing the baton of QE, like in a relay race — so that when the US slacked off, Japan, Britain, the ECB, and the Bank of China, took over money-printing duties. And because money flies easily around the world via digital banking, a lot of that foreign money ended up in “sure-thing” US capital markets (as well as their own ). Mega-tons of “money” were created out of thin air around the world since the near-collapse of the system in 2008. And magically, with no negative consequences! Yet. Now, Europe and Japan are making noises about dropping their batons. China’s banking system is so opaque and perverse — because it is unaccountable except to the ruling party with its own agenda — that it’s quite impossible to tell what they are really doing, though the signs of mal-investment are obvious and startling.
And the UK’s finances are tied up in its messy divorce proceedings with the EU (with the British standard of living dropping markedly meanwhile). In short, the torrent of global “liquidity” looks to be slowing to a trickle. The expectation is that this would make stock markets go down and bond interest rates to go up (fewer buyers), perhaps a lot. The dirty open secret here is that these central bank interventions are the only means for keeping the capital markets up, and that the markets are just a Potemkin false front for Western economies that are drying up and blowing away. That is certainly the experience here in the USA, where banking hocus-pocus now accounts for about 30% of GDP, and most of that activity is either out-and-out fraud or swindling, or collecting rents and dividends on past frauds and swindles.
Dem/Prog America in its Silicon Valley gourmet employee bistros and Hamptons lawn parties thinks that the flyover Trumpist Red State world of meth, joblessness, and anomie is some kind of a Netflix hallucination. But no, it’s for real. The center of the ole US of A is hollowed out. The bad news is that it probably has enough juice left in its disaffected youth, and certainly enough weaponry, to start a very serious insurrection if it continues to get dissed. Enter the joker in the deck: Bitcoin. Though it pulled back a couple of thou overnight, this strange investment vehicle blasted through $18,000-per-Bitcoin in the past 24 hours, roughly tripling from $6000 in one month. It even endured the hacking of one of its exchanges, NiceHash, where $70 million was looted without so much as a stutter in the upward thrust of the chart. Whatever else Bitcoin is — and I would suggest a “Ponzie,” a “mania,” a “con” — this thing is a message.
China’s banking association is organizing discussions on the nation’s proposed new asset-management rules, the group said in a social media posting, dismissing as “untrue” reports that some lenders have submitted a petition to policy makers on the subject. The statement comes after regulators last month proposed sweeping guidelines to curb risks in the nation’s $15 trillion of asset-management products, prompting a three-day drop in sovereign bonds and driving stocks to a two-month low before a late rally amid speculation state-backed funds would stem excessive losses.
The rules are scheduled to come into effect in 2019. Earlier this week, Reuters cited three people it didn’t identify as saying that some Chinese joint-stock banks had objected to the proposals, saying they would have a big impact on financial markets and possibly trigger systemic risks. The China Banking Association, in its WeChat post Friday, said it is helping formulate opinion on the draft. The new rules will be applied to the 29 trillion yuan ($4.4 trillion) of wealth-management products issued by banks, 17.5 trillion yuan of trust products, as well as asset-management plans sold by insurers, fund managers and brokerages, according to the regulators’ statement. Institutions will be required to set aside risk provisions equivalent to 10% of the management fees, they said.
Steinhoff International Holdings – which acquired nine companies in the past two years, including Mattress Firm Holding in the US, and which presides over a cobbled-together empire of retailers and assorted other companies in the US, Europe, Africa, and Australasia – issued another devastating announcement today: It cancelled its “private” annual meeting with bankers in London on Monday and rescheduled it for December 19. This is the meeting when the company normally discusses its annual report with its global bankers. The annual report should have been released on Wednesday, December 6. But on precisely that day, the company announced cryptically that “accounting irregularities” had “come to light” that required “further investigation,” and that CEO Markus Jooste had been axed “with immediate effect,” and that it would postpone its annual report indefinitely.
This is raising serious questions about the company’s viability as a going concern. The lack of transparency doesn’t help. To soothe investors, the company announced on Thursday that it was trying to prop up its liquidity by selling some units ASAP. And it made more cryptic statements: It “has given further consideration to the issues subject to the investigation and to the validity and recoverability” of some assets of “circa €6 billion” ($7 billion). “The validity and recoverability” of assets worth $7 billion? The company is infamous for its opaque communications which equal its opaque corporate structure. It’s considering selling “certain non-core assets that will release a minimum of €1 billion of liquidity.” It also “committed” to wringing out €2 billion from its subsidiary Steinhoff Africa Retail Limited (STAR) by refinancing “on better terms” some debt that the subsidiary owes the parent company, which the subsidiary should be able to handle, “given the strong cash flow.”
With these measures, it hopes “to be able to fund its existing operations and reduce debt.” Shareholders and bondholders were aghast. The shares, traded in Frankfurt and held widely by international investors, had still been in the €5-range in June. But in August, German prosecutors said they were probing if Steinhoff had booked inflated revenues at its subsidiaries. Shares began to drop. By Tuesday, there were down 41% at €2.95. On Wednesday, after the “accounting irregularities” had “come to light,” shares crashed 64% to €1.07. By Friday, they’d dropped to €0.47. Market capitalization plunged by about €18 billion ($21 billion) since June to €2 billion.
CNN on Friday corrected an erroneous report that Donald Trump Jr. had received advance notice from the anti-secrecy group WikiLeaks about a trove of hacked documents that it planned to release during last year’s presidential campaign. In fact, the email to Mr. Trump was sent a day after the documents, stolen from the Democratic National Committee, were made available to the general public. The correction undercut the main thrust of CNN’s story, which had been seized on by critics of President Trump as evidence of coordination between WikiLeaks and the Trump campaign. It was also yet another prominent reporting error at a time when news organizations are confronting a skeptical public, and a president who delights in attacking the media as “fake news.”
Last Saturday, ABC News suspended a star reporter, Brian Ross, after an inaccurate report that Donald Trump had instructed Michael T. Flynn, the former national security adviser, to contact Russian officials during the presidential race. The report fueled theories about coordination between the Trump campaign and a foreign power, and stocks dropped after the news. In fact, Mr. Trump’s instruction to Mr. Flynn came after he was president-elect. Several news outlets, including Bloomberg and The Wall Street Journal, also inaccurately reported this week that Deutsche Bank had received a subpoena from the special counsel, Robert S. Mueller III, for President Trump’s financial records. The president and his circle have not been shy about pointing out the errors.
[..] CNN’s erroneous scoop, about the email to Donald Trump Jr., rocketed around cable news and social media on Friday morning. But it fell apart after The Washington Post reported that the email — which included a decryption key to access hacked documents — was dated Sept. 14, not Sept. 4, as CNN initially reported. WikiLeaks publicized links to the documents in question on Sept. 13. CNN said that its report had been based on information from two sources and vetted by the network’s in-house fact-checking team. But both sources were apparently incorrect about the date of the message. [..] “Between this and Brian Ross’ Flynn mistake, the mainstream media is doing a great job of bolstering Trump’s claims about fake news,” wrote James Surowiecki, a former columnist for The New Yorker. “It’s the most obvious thing to say, but reporters need to SLOW DOWN. Being right is more important than being first.”
The main aim of the first Greek memorandum, especially, was to rescue investors outside Greece, outgoing Eurogroup chief Jeroen Dijsselbloem admitted in the Europarliament on Thursday. “There were mistakes in the first programmes, we improvised. The way we dealt with the banks was expensive and ineffective. It is true that our aim was to rescue investors outside Greece and for this reason I support the rules for bail-ins, so that investors aren’t rescued with tax-payers’ money,” said Dijsselblem in reply to independent Greek MEP Notis Marias. Dijsselbloem noted that it had been a huge crisis because the fiscal sector had faced the risk of a total collapse that would have left many countries with a high debt. However, he pointed out that banks had only needed €4.5 billion in the third programme because the private sector had a huge participation.
Referring to the non-performing loans, he said that a private solution that did not once again place the burden on tax-payers was near. He also pointed to measures being taken in Greece for the protection of the socially weaker groups, to make sure that they were not the victims of the auctions. Referring to the early payment of the IMF loans with the remaining money of the programme, the Eurogroup chief said that this made sense financially, given that the IMF’s loans were more expensive than those of the Europeans. However, from a political point of view, the Eurogroup prefers that the IMF remain fully involved in the Greek programme, with its own responsibilities, he added. In any case, he noted that the final decisions on debt relief will be made later, when the programme is concluded and the sustainability of the Greek debt has been examined.
Before speculative bubbles could form around Dotcom companies (late-1990s) or housing prices (mid-2000s), some of the first financial bubbles formed from the prospect of trading with faraway lands. Looking back, it’s pretty easy to see why. Companies like the Dutch East India Company (known in Dutch as the VOC, or Verenigde Oost-Indische Compagnie) were granted monopolies on trade, and they engaged in daring voyages to mysterious and foreign places. They could acquire exotic goods, establish colonies, create military forces, and even initiate wars or conflicts around the world. Of course, the very nature of these risky ventures made getting any accurate indication of intrinsic value nearly impossible, which meant there were no real benchmarks for what companies like this should be worth.
The Dutch East India Company was established as a charter company in 1602, when it was granted a 21-year monopoly by the Dutch government for the spice trade in Asia. The company would eventually send over one million voyagers to Asia, which is more than the rest of Europe combined. However, despite its 200-year run as Europe’s foremost trading juggernaut – the speculative peak of the company’s prospects coincided with Tulip Mania in Holland in 1637. Widely considered the world’s first financial bubble, the history of Tulip Mania is a fantastic story in itself. During this frothy time, the Dutch East India Company was worth 78 million Dutch guilders, which translates to a whopping $7.9 trillion in modern dollars.
Alfred Palmer Nose section of B-17F “Flying Fortress”, Douglas Aircraft, Long Beach, CA. October 1942
That’s how I feel these days, or I should say these years. Since the name of this site comes from Paul Simon’s song by that title, it comes easily. Funny enough, I watched one of the Making of Graceland docs on Sunday night, and then on Monday morning read that the grand small 70-year old songwriter has been arrested because his wife’s mother had called 911 for a domestic disturbance situation. Given that Edie Brickell is about a foot taller than Simon, that made me smile. All the more so because in the documentary he’s talking about how he’s not good at writing angry songs, and that’s why Graceland came out the way it did, instead of being filled with loud protests against the injustices of South Africa. But, he said, outside of my songs, I’m very capable of expressing my anger, and I do get angry. Got ya, Paul.
Personally, I perhaps find it harder to not get angry all the time, and try to channel it into expressing amazement at what I see around me in this bubble I find myself in. For instance, I’ve seen more than one person claim this week alone that London real estate is not in a bubble – because there’s just so much demand -. And then I read that the average price of a 3-bedroom house in London’s plushest neighborhoods has gone up in “value” by $8000 per week, $1150 per day, over the past year, which represents a 20% rise overall. But I’m supposed to believe that that’s not a bubble. That all those buyers who owe their fortunes to Russia’s energy bubble and China’s $14 trillion stimulus bubble somehow represent the new normal. Let’s see what lifelong Londoners have to say about that who are getting pushed out ever further from the city center.
And in the US, to my utter bewilderment, there’s a second Enron, 12 years after the demise of the first one. the ghost of Kenny-Boy haunts the hallways of Wall Street. I’d say there were quite a few faces outside of Kenny Lay and Jeffrey Skilling, like amongst regulators, who should have been looked at at the end of 2001. But to let it happen again?! TXU slash Energy Future Holdings goes broke with a $40 billion debt. And Bernie Madoff is still in jail?! It’s not always easy to define what exactly is wrong with America, but whatever it is, it’s huge. The largest leveraged buy-out in history gambled on gas prices, and they lost. Investors thought they’d make a killing and got killed. Check your pension fund, I’d say. If only because Energy Future CEO John Young had this comment: “We are pleased to have the support of our key financial stakeholders for a consensual restructuring .. [..] We fully expect to continue normal business operations during the reorganization.” These guys lost $40 billion at the crap table, and they’re allowed to restructure, stiff junior investors, and get more loans? Where’s this going?
In the energy corner, there’s shale. Automatic Earth readers have known for a long time what shale is really about: land speculation. But how many other people realize that? The entire industry runs on junk debt, and you know what the collateral is? Land. Which is supposed to deliver enormous profits through the resources underneath it. But never quite does. I’ve asked it before: why do you think Shell and Exxon quit shale to the extent that they did, two companies who would kill their CEO’s grandma’s for some proven reserves? Bloomberg spells it out neatly:
The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays.
That’s what keeps the shale revolution going even as companies spend money faster than they make it. “There’s a lot of Kool-Aid that’s being drunk now by investors,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Peritus Asset Management.
“People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.” Rice Energy was able to borrow so easily because of the quality of its assets, which are in some of the best areas of the Marcellus, a shale formation beneath western Pennsylvania and West Virginia, and the company’s drilling success there, said Gray Lisenby, Rice’s chief financial officer. [..]
“Who can, or will want to, fund the drilling of millions of acres and hundreds of thousands of wells at an ongoing loss?” Ivan Sandrea, a research associate at the Oxford Institute for Energy Studies in England, wrote in a report last month. “The benevolence of the U.S. capital markets cannot last forever.” The spending never stops, said Virendra Chauhan, an oil analyst with Energy Aspects in London. Since output from shale wells drops sharply in the first year, producers have to keep drilling more and more wells to maintain production. That means selling off assets and borrowing more money. “The whole boom in shale is really a treadmill of capital spending and debt,” Chauhan said.
“It’s a perfect set-up for investors to lose a lot of money,” Gramatovich said. “The model is unsustainable.”
Not a bubble? I’m not a vindictive person, but sometimes I think people deserve what they get. Serves them right for not reading The Automatic Earth. Shell has written off billions in its investments in shale, this morning it announced a drop in net profit of -45%, and you still think Shell wouldn’t be all over this if it could find a way to make a buck? At least you must admit this article makes the claims of exporting US oil and gas look even funnier than they already did. And like with Enron and TXU, you should wonder who the people in government are that allow for this kind of trickery to happen.
And then, timely ahead of Fed announcements later today, David Stockman tells it like it is:
The Fed is “a posse of academic zealots and unreconstructed Keynesians who think debt is the magic elixir, and they won’t stop printing money and putting their foot on the floorboard until they really blow something up …” At this point, his biggest concern is the impact that the Fed’s stimulative policies have had on equities. “I think the Fed is now inflating the greatest and third bubble yet of this century [..] The Russell 2000, even though it’s come off a little bit, is still trading at 80 time trailing earnings. That’s crazy, and you can say that about many other sectors of the market.” “What we need to do is get the Fed out of there, free interest rates, let the money market find the natural balance and purge some of this enormous speculation …”
There are people who know a bubble when they see one. But not everyone does, and it’s not in everyone’s interest either. Politicians can be made to look good inside a bubble, and businessmen can make a lot of money off the public purse. And you yourself get to feel for a fleeting moment in time as if you’re richer than you actually are. Because make no mistake about it, when this bubble bursts, it’s going to hurt. A lot worse than the last one. A comment in the Guardian on the “benefits” of austerity said: “… how does the logic of austerity sound in Britain? The country is richer, but its people are poorer. This now counts as a recovery.” That is a nice way to put it. Except that the country, too, will be poorer after the bubble pops, and a lot. And that will, of course, make the people poorer too. A lot.
There are lots of you, probably most, who like to live in a bubble. As long as you don’t feel forced to see it for what it is. It’s like the Truman Show. Exactly like that. But I know full well I live in a bubble. And I want to get out. It’s suffocating. Because I know what’s going to happen once it bursts, and it will, and the longer that takes, the worse the outcome will be. For the man in the street. Who I care more for than for those who seek only money or power. That, after all, is why there’s an Automatic Earth. Unlike the original boy in the bubble, you and I are not going to drop dead as soon as the bubble bursts. But just like him, the bubble keeps us from experiencing real human contact. That’s a huge price to pay. It’s not all that great to be a boy in a bubble. I should know.
Energy Future Holdings, the Texas power company Henry Kravis and David Bonderman took private in 2007 with Goldman Sachs in the biggest-ever leveraged buyout, filed for bankruptcy after reaching a deal to cut billions in debt. Today’s filing in Delaware is the result of months of wrangling among creditors, owners and management, and represents the failure of a bet that natural-gas prices would rise enough to justify the company’s $48 billion price. Instead, the financial crisis, coupled with booming shale production, sent gas prices down starting in 2008. “We are pleased to have the support of our key financial stakeholders for a consensual restructuring,” Chief Executive Officer John Young said in a statement. “We fully expect to continue normal business operations during the reorganization.”
Energy Future said it seeks to exit bankruptcy in 11 months. The Dallas-based company, formerly known as TXU Corp., also said it has commitments for financing totaling more than $11 billion, including $7.3 billion for Energy Future Intermediate Holding. The bankruptcy ranks with Enron’s $48.9 billion collapse in 2001. Billionaire Warren Buffett called his $2 billion investment in Energy Future bonds “a big mistake.” Today’s petition listed assets of $36.4 billion and debt of of $49.7 billion. Texas’s largest electricity provider traces its roots to a business that first powered electric lights in Dallas in 1882. The 2007 going-private deal, coming at the peak of a three-year boom in leveraged buyouts, turned into a big loss for Kravis’s KKR, as well as Bonderman’s TPG Capital and Lloyd Blankfein’s Goldman Sachs, which loaded the company with debt.
Energy Future Holdings Corp., the Texas power company that plans to leave bankruptcy in less than a year, can’t reduce its $50 billion in debt without fighting junior creditors who face losing their investment. The Dallas-based electricity provider, taken private seven years ago by Henry Kravis and David Bonderman in a record leveraged buyout, filed for bankruptcy yesterday in Wilmington, Delaware, after months of wrangling among creditors, owners and management yielded a restructuring proposal. Second-lien noteholders owed about $1.6 billion say they were shut out of those talks and want court permission to probe what they call management’s “disabling conflicts of interest.” They also want the case moved to Texas.
Managers artificially drove down the true value of Energy Future “to allow the senior lenders and management to print cheap reorganized equity and wipe out billions in legitimate creditor claims,” the trustee representing the junior creditors said in court papers filed minutes after the Chapter 11 petition. Under the proposal announced yesterday, the company’s deregulated Texas Competitive Electric Holdings unit would separate from Energy Future. The plan would hand ownership of Texas Competitive to creditors in exchange for eliminating $23 billion in debt. That deal could give senior lenders “recoveries in excess of their claim,” the trustee for the junior creditors said in its filing.
The average price of a three-bedroom home in London’s most expensive neighbourhoods has increased by £729 ($1150) a day over the past year, according to estate agent Marsh & Parsons. The firm said the price rise of 19% since April 2013, to an average of £1.6m was equivalent to £5,120 a week – or eight times the £658-a-week median salary for Londoners. Overall, the agent said the cost of homes in upmarket London areas including Chelsea, Kensington, Notting Hill, Clapham and Fulham was up by 12.9% in the last year and by 4.3% in the last quarter, to £1.5m, and if growth continued at the current rate the average would reach £2m by 2016.
Marsh & Parsons said it had seen “a huge surge” in the number of UK buyers purchasing prime London property in the last three months, with this group making up 78% of the market. In areas including Kensington & Chelsea, typically a stronghold for overseas buyers, the proportion of purchases by overseas and foreign nationality buyers had fallen to a two-year low of 21%. During 2012 and 2013, overseas and foreign nationality buyers accounted for around 40% of all purchases.
Peter Rollings, chief executive of Marsh & Parsons, said these were “extraordinary times” for the prime London property market. “It’s always difficult to call the ‘top’ of the market. But while comparisons are being drawn with 2007, the current conditions are actually remarkably different,” he said. “It’s difficult to see how prices can fall while demand for property remains so high. Compared to the same point last year, we have seen a 20% increase in demand and a 25% fall in the supply of property. Prime London is still a strong sellers’ market and jackpot prices are fast becoming the norm.”
The Federal Reserve will release its next policy statement on Wednesday, and it is broadly expected to announce an addition $10 billion reduction in quantitative easing. But for David Stockman, who memorably served as director of the Office of Management and Budget under President Ronald Reagan, the Fed’s reduction in accommodative policies is coming far too late. “I don’t have any expectations at all” for what the Fed is set to announce “because I think the Fed is hopelessly lost and completely incompetent, if you want to put it starkly,” as Stockman certainly did on Tuesday’s episode of “Futures Now.”
The Fed is “a posse of academic zealots and unreconstructed Keynesians who think debt is the magic elixir, and they won’t stop printing money and putting their foot on the floorboard until they really blow something up,” Stockman said. At this point, his biggest concern is the impact that the Fed’s stimulative policies have had on equities. “I think the Fed is now inflating the greatest and third bubble yet of this century,” Stockman said. “The Russell 2000, even though it’s come off a little bit, is still trading at 80 time trailing earnings. That’s crazy, and you can say that about many other sectors of the market.” So what’s his preferred course of action now? “What we need to do is get the Fed out of there, free interest rates, let the money market find the natural balance and purge some of this enormous speculation,” he said.
Royal Dutch Shell on Wednesday reported a fall in first-quarter profit after taking a $2.86 billion impairment charge largely on its refineries in Asia and Europe. The oil major also raised its dividend and said it is considering the sale of certain marketing assets in Norway. The results were the first for the oil giant under the leadership of Ben van Beurden, who took over as chief executive in January. “The impairments we have announced today in downstream reflect Shell’s updated views on the outlook for refining margins,” Mr. van Beurden said. Shell first-quarter profit on a current cost of supplies basis—a figure that factors out the impact of inventories, making it equivalent to the net profit reported by U.S. oil companies—fell 44% to $4.47 billion.
First-quarter revenue fell to $109.66 billion in the quarter, from $112.81 billion a year earlier, while net profit fell to $4.51 billion, compared with $8.18 billion. Oil and gas production during the quarter was 3.25 billion barrels of oil equivalent a day, 4% below the first quarter of 2013. Shell has declared a dividend of $0.47 per ordinary share, in line with its previous guidance of $0.47 a share and 4% above last year’s $0.45. Shell, like other big, integrated oil companies, has seen costs jump over the past few years as the refining business has grown more difficult, dragging down profits. Shell’s cash flow last year was less than its spending on capital projects, acquisitions and dividends, and the company in January issued its first profit warning in a decade.
Rice Energy Inc., a natural gas producer with risky credit, raised $900 million in three days this month, $150 million more than it originally sought. Not bad for the Canonsburg, Pennsylvania company’s first bond issue after going public in January. Especially since it has lost money three years in a row, has drilled fewer than 50 wells and said it will spend $4.09 for every $1 it earns in 2014. The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays.
That’s what keeps the shale revolution going even as companies spend money faster than they make it. “There’s a lot of Kool-Aid that’s being drunk now by investors,” Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Peritus Asset Management. “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.” Rice Energy was able to borrow so easily because of the quality of its assets, which are in some of the best areas of the Marcellus, a shale formation beneath western Pennsylvania and West Virginia, and the company’s drilling success there, said Gray Lisenby, Rice’s chief financial officer.
“Who can, or will want to, fund the drilling of millions of acres and hundreds of thousands of wells at an ongoing loss?” Ivan Sandrea, a research associate at the Oxford Institute for Energy Studies in England, wrote in a report last month. “The benevolence of the U.S. capital markets cannot last forever.” The spending never stops, said Virendra Chauhan, an oil analyst with Energy Aspects in London. Since output from shale wells drops sharply in the first year, producers have to keep drilling more and more wells to maintain production. That means selling off assets and borrowing more money. “The whole boom in shale is really a treadmill of capital spending and debt,” Chauhan said.
Down is up. Sick is healthy. The RMS Titanic is seaworthy. Topsy-turvy logic is a speciality of the austerity brigade, and here they come dishing up a third helping. First, in 2010-11, they pledged that making historic cuts amid a global slump would definitely, absolutely secure a strong recovery. Then things went predictably belly-up, forcing Cameron and Osborne to dump their deficit-reduction plans and the eurocrats to make more bailouts. Yet these reversals were, naturally, “sticking to the course”. Now things don’t look quite as awful as they did a couple of years ago – and this somehow gets chalked up as a miraculous rebound. Only a prude would expect their politicians not to exaggerate. But getting to such upside-down conclusions requires more than that: it requires fictionalising and even lying.
Let’s have a look at two examples from the past few days, one in Britain the other in Greece. Athens was declared last week to have passed a big milestone. Officials in Brussels certified that Antonis Samaras and his government had racked up a primary budget surplus in 2013. Cue much celebration by Greek ministers: not only had they climbed a couple of rungs on the ladder of fiscal probity, they now also qualified for easier terms on their outstanding debt. The prime minister must have known well in advance that the European seal of approval was coming his way, because he was peacocking for days beforehand.
Take last week’s boast: “We don’t need more money. We have no fiscal gap.” Of course, saying this even while petitioning for easier repayment on Greece’s mountain of debt is just another example of austerity’s topsy-turvyism. In any case, it’s rubbish. For a country to have a primary surplus means that its income covers its spending – once you set aside previous borrowing. Imagine ignoring a person’s credit-card debt and just looking at whether his or her wages exceed their outgoings: if so, that’s a primary surplus. And that’s what Greece doesn’t have. The only way Athens gets to a primary surplus is by the European Commission ignoring all sorts of things the country does have to pay for, the biggest of all being the bailout of its banks.
It’s no secret that the bulk of new jobs created since the Great Recession ended pay low wages, but the extent of the gap between low and high-paying jobs may surprise you. The National Employment Law Project reports that that low wage industries employ 1.85 million MORE workers now than at the start of the recession while mid-and higher-wage industries employ 1.83 million LESS. Low wage industries account for 44% of employment growth over the past four years but only 22% of job losses during the recession. As a result of this imbalance, the take home pay for households has fallen, averaging $51,000 in 2012, or 8% less than the average $55,000 in 2007, adjusted for inflation, according to the NELP.
“The average American continues to lose ground while the wealthiest … continue to do phenomenally well,” says The Daily Ticker’s Aaron Task. “People are saying there’s a problem not because that guy’s getting rich but because (they’re) falling behind.” [..] And in Washington this week, the Senate is expected to vote this week on raising the minimum wage to $10.10 by 2016, as President Obama has proposed. But whether or not the bill passes the Senate it’s not expected to pass the House–and may not even come to a vote there.
“I hate the idea that it has to be mandated,” Henry Blodget says about raising the minimum wage. “But until we can convince the owners of companies…to take some of that profit and share it with the folks who are creating that value … we need a higher minimum wage.” And companies can afford to pay it, says Blodget. Companies today now “are more profitable than they have ever been,” he says. “They should reward the workers who have created that increased value. Instead, he says “people working full time for McDonalds, Starbucks and Walmart are still poor.”
Be careful if you are planning to buy a house in France. The EU stress test for banks released this morning expects French property to fall 1.6% this year and another 1% in 2015 even if things go well. The “adverse scenario” is a cumulative drop of 31% by the end of 2016. This reflects the worries of French regulators who fed the data to the European Banking Authority. Romania competes for horror. Italians deem their country less volatile. Property prices fall 3.4% this year and 0.7% next if all goes well, but only drop 16% in a rout by 2016.
Spain falls 4.3% this year, then starts to recover. The worst case is a 10.4% drop over the next two years with rebound by 2016 even in a crisis. The Spanish regulators are delightfully optimistic as usual, seemingly living in a parallel universe. So, if the EBA’s global shock were to occur – with a surge in 10-year US yields by 250 basis points this year, a further “tantrum” (the EBA’s word) in emerging markets that culminates in a “sudden stop”, and a fall in world trade – we are told that Spain could dodge the bullet deftly. This stretches credulity. Madrid consultants RR de Acuna say there is still an overhang of around 2m homes in Spain if you include the properties in foreclosure, on the books of banks, or yet to be finished.
The Bank of England is to subject the UK’s biggest banks and building societies to a series of stringent tests to see if they are strong enough to withstand the shock of a 35% crash in house prices, along with a jump in interest rates to 4% and soaring unemployment. Policymakers in Threadneedle Street will stress-test the UK’s eight largest financial firms with a set of hypothetical scenarios over a three-year period between 2014 and 2016. The exercise will assume that house prices fall back to levels last seen in 2002, unemployment would soar to 12% and interest rates increase eightfold from their record low of 0.5%. As a comparison, house prices fell by around 20% during the recent crisis and have never fallen by 35% in the past.
Under the scenario, which the Bank stresses is not a forecast, the economic downturn that occurred following the banking crisis would be followed by another severe downturn. “A cumulative contraction in activity to that implied by the stress scenario or larger has happened only in a single episode over the past 150 years – and that was in the immediate aftermath of the first world war,” the Bank said. An unemployment rate as high as 12% was last seen in the late 1980s and early 1990s while the subsequent marked downturn in economic activity would see GDP trough at about 3.5% below its 2013 fourth-quarter level.
In 20% of American families in 2013, according to new data released by the Bureau of Labor Statistics (BLS), not one member of the family worked. A family, as defined by the BLS, is a group of two or more people who live together and who are related by birth, adoption or marriage. In 2013, there were 80,445,000 families in the United States and in 16,127,000—or 20%–no one had a job. The BLS designates a person as “employed” if “during the survey reference week” they “(a) did any work at all as paid employees; (b) worked in their own business, profession, or on their own farm; (c) or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family.”
Members of the 16,127,000 families in which no one held jobs could have been either unemployed or not in the labor force. BLS designates a person as unemployed if they did not have a job but were actively seeking one. BLS designates someone as not in the labor force if they did not have a job and were not actively seeking one. (An elderly couple, in which both the husband and wife are retired, would count as a family in which no one held a job.)
The budget deficit for the latest fiscal year (which ended on September 30) was reported to be around $700 billion. However, this figure would be many times higher if the government’s unfunded entitlement programs were included. Even before taking into account liabilities stemming from the Affordable Care Act (ACA), which cannot even be calculated yet because so many of its assumptions are either erroneous or outright fabrications, and because many of its provisions keep getting delayed by the Administration for purposes of political advantage, the present value of the future obligations of the federal government is currently around $92 trillion. These obligations have been growing by over 10% per year since 2000, during which time nominal GDP has risen just 3.8% per year. At this rate, the federal government will owe an estimated $200 trillion on the entitlement programs by 2021 (again, excluding the effects of ACA) and $300 trillion by 2025.
These numbers are not fantasies. At present, there is no acknowledgement by a large portion of the American political establishment that this insolvency even exists. Nor have the leaders of this establishment made any concrete progress toward restoring solvency by taking up serious proposals to rein in unpayable promises. Quite the contrary: Politicians and policymakers continually tell people that such entitlement obligations will be met – a claim they must know cannot possibly be true.
Recently, we had a conversation with a mainstream economist who told us that the government is not actually insolvent because the long-term entitlements are not really liabilities that need to be counted, any more than the military budget for the year 2030 needs to be counted. This assertion is incorrect. Military spending, like any other form of discretionary spending, can be cut quickly and arbitrarily, as Washington recently made clear. And such spending is in exchange for goods and services delivered at the time the money is spent. In 2030, the government can buy many more tanks, or many fewer, than it is buying today. It has not promised to buy any amount.
In fact, aside from military entitlements such as veterans’ health care, there is no obligation to spend any money at all on the military in 2030. By contrast, entitlements represent concrete governmental promises that are being made today about future spending – promises on which people are being (falsely) told that they can rely. And at the time the money is scheduled to be delivered, the recipient is delivering no goods or services. Only someone who has never run a business could say with a straight face that such obligations are not really liabilities and need not be included in the accounting.
As we noted previously, for the past year Abenomics has had the “get out of a jail free” card because while the plunging yen was crushing Japanese purchasing power, and sending nominal regular wages ever lower, at least the stock market was higher – so (some of the) locals could delude themselves they are getting richer, if only on paper. However, following the most recent 15% correction in the Nikkei which may soon become an all out rout if the 102 level in the USDJPY is ever “allowed” to break, all Japan suddenly has left, is the shock of soaring food and energy prices, and the hangover of declining wages that refuse to stop dropping. Case in point, tonight the Japan labor ministry reported that monthly wages excluding overtime and bonus payments fell 0.4% in March from a year earlier (the biggest drop in 2014), a series of declines which has now stretched to 22 consecutive months.
Not much to add to this total and utter disaster… Markit’s Japan Manufacturing PMI plunged from 53.9 to 49.4 – it’s first contractionary print since Feb 2013 and its biggest MoM drop on record. Under the surface the picture is just as bad with output falling at the fastest pace since December 2012 and New orders also down. The blame for all this – the tax hike… hhm (well, it’s better than the weather we guess). Both prices charged and input prices rose in April with some panellists attributing inflation to an increase in raw material prices (stunned?). And if you think this terrible news is great news (because more QQE), forget it – Kuroda already say no and inflation is near the BoJ’s target.
Hugh Short wants you to invest in an emerging economy with few people, fewer buildings, and which is melting at the fastest pace in millennia. He’s talking about the Arctic, which Scott Minerd, the chief investment officer of Guggenheim Partners LLC, calls “not just the best opportunity of our generation, but of the last 12,000 years.” Short, a native of Alaska, said Pt Capital LLC, which he co-founded last year, is the first and only U.S. private-equity firm dedicated to investing in the Arctic. Short, 41, is attempting to raise $250 million for the firm’s first fund by year-end. The ex-mayor of the frontier town of Bethel and former head of Alaska’s state investment arm plans to leverage his local connections and financial experience to develop the Arctic’s resources for the people who live there.
Investors are wary while environmental groups warn of risks from oil spills and mining that would ravage the landscape. “Unlike most of the planet, the Arctic still contains uncharted mysteries,” Santa Monica, California-based Minerd, whose firm is considering investing with Pt Capital, said in an e-mailed response to questions on April 7. “With a great deal of the development still in the planning stages, few investors are fully aware of just how great the opportunities are.” Climate change is making the Arctic’s natural resources accessible for the first time, including about 22% of the world’s undiscovered oil and natural gas, the U.S. Geological Survey estimates. The region, about 5.5 million square miles (14.5 million square kilometers) comprising parts of the U.S., Canada, Greenland, Iceland, Norway, Finland, Sweden and Russia, is also home to deposits of gold, silver, copper, zinc and diamonds.
Exxon Mobil’s dream of drilling in the Russian Arctic may risk running aground on the politics of Ukraine. The company plans to start drilling in August in the Arctic’s remote Kara Sea – the centerpiece of Exxon’s global alliance with Russian state-controlled OAO Rosneft. The partnership, which includes shale exploration in Siberia and joint venture fields in Texas, will come under greater scrutiny after the U.S. placed sanctions on Rosneft’s Chief Executive Officer Igor Sechin. “With Sechin being sanctioned it may complicate relations for Rosneft with Western companies,” said Mattias Westman, who oversees about $3.3 billion in Russia assets as CEO of Prosperity Capital.
“Maybe some transactions will be threatened as a result and perhaps Russia will counter and they will be less keen for American companies to work on Arctic projects.” Patrick McGinn, a spokesman for Exxon’s exploration arm, said on April 25 that the company’s Kara Sea project was on schedule. He declined to make any additional comment after the U.S. extended the reach of sanctions yesterday. Rosneft assures its “shareholders and partners, including those in America,” that cooperation won’t be hurt by sanctions, Sechin said in a statement yesterday. “Our cooperation won’t suffer.”
China’s systemically important banks may see their capital adequacy ratio fall to 10.5% in the event bad loans surge fivefold, according to a stress test by the nation’s central bank. The average capital adequacy ratio of the 17 banks, which account for 61% of China’s banking assets, may fall to 10.5% from the end-2013 level of 11.98% should nonperforming loans increase 400% in the worst-case scenario, the People’s Bank of China said in its annual financial stability report yesterday. China introduced stricter capital requirements for banks in January 2013, posing a challenge for an industry facing slower loan growth and rising bad debts amid more competition and interest-rate deregulation.
Industrial & Commercial Bank of China Ltd. and its three closest rivals will face a capital shortfall of $87 billion under the new rules by 2019, according to an estimate by Mizuho Securities Asia. The government is requiring the biggest Chinese banks to have a minimum common equity Tier-1 ratio of 8.5% and total buffer of 11.5% by the end of 2018. Banks’ bad loans increased for a ninth straight quarter as of December to the highest level since 2008, data from the China Banking Regulatory Commission show. The stress test also examined the effect of changes in economic growth, bond yields and foreign exchange rate. The results show that “Chinese banks’ asset quality and capital adequacy level are relatively high,” the central bank said in the report. “The banking system, as represented by the 17 banks, has relatively strong absorbent capacity.”
China is poised to overtake the U.S. as the world’s biggest economy, while India has vaulted into third place, ahead of Japan, using calculations that take exchange rates into account. China’s economy was 87% of the size of that of the U.S. in 2011, assessed according to so-called purchasing power parity, the International Comparison Program said in a statement in Washington yesterday. The program, which involves organizations including the World Bank and United Nations, had put the figure at 43% in 2005. Changes in methodology contributed to the speed of China’s rise and India jumping to third-biggest in 2011 from 10th in 2005. Purchasing power parity seeks to compare how far money goes in each country. Using market rates, U.S. gross domestic product was $16.2 trillion in 2012, compared with China’s $8.2 trillion.
Moody’s Investors Service said the risk more Chinese property developers will default, after the collapse of Zhejiang Xingrun Real Estate Co., will make it harder for them to raise funds just as apartment sales cool. The builders have issued $500 million of offshore yuan or dollar bonds this month, compared with $1.6 billion in the same period last year and a record $9.2 billion in the first quarter, data compiled by Moody’s show. Notes in Bank of America Merrill Lynch’s emerging markets index of Chinese corporates including property companies returned 0.8% in the past year. That compares with a 1.5% total gain for bonds globally, according to Bank of America.
“Investors are concerned certain developers will go into more defaults,” Franco Leung, an analyst at Moody’s said in an interview on April 23, predicting a drop in developers’ offshore debt issuance in the coming six months. “While China’s economy is slowing, there will be stress on companies with weaker credit profiles.” The world’s second-largest economy expanded 7.4% in the first three months, the weakest pace in six quarters, spurring speculation that the government will be forced to ease curbs on real-estate investment. Property sales in the period fell 5.2% from a year earlier and the floor space of new property construction dropped 25.2%, statistics bureau data showed on April 16.
The Russian Foreign Ministry responded with a scathing statement to the EU’s new round of sanctions against Russia, saying Europe apparently has no insight into the political situation in Ukraine. “Instead of forcing the Kiev clique to sit down with south-eastern Ukraine to negotiate the country’s future political system, our partners are toeing Washington’s line to take more unfriendly gestures towards Russia,” the statement declared. “If somebody in Brussels hopes to stabilize the situation in Ukraine by this, it is evidence of a total lack of understanding of the internal political situation in that country and invites local neo-Nazis to continue their lawlessness and thuggery towards the peaceful civilians of the south-east,” the statement said. “Are you not ashamed?”
” … he is quite incorrect that the general conditions we enjoy at this moment in history will continue a whole lot longer – for instance the organization of giant nation-states and their ability to control populations.”
Piketty and his fans assume that the industrial orgy will continue one way or another, in other words that some mysterious “they” will “come up with innovative new technologies” to obviate the need for fossil fuels and that the volume of wealth generated will more or less continue to increase. This notion is childish, idiotic, and wrong. Energy and technology are not substitutable with each other. If you run out of the former, you can’t replace it with the latter (and by “run out” I mean get it at a return of energy investment that makes sense). The techno-narcissist Jeremy Rifkins and Ray Kurzweils among us propound magical something-for-nothing workarounds for our predicament, but they are just blowing smoke up the collective fundament of a credulous ruling plutocracy.
In fact, we’re faced with an unprecedented contraction of wealth, and a shocking loss of ability to produce new wealth. That‘s the real “game-changer,” not the delusions about shale oil and the robotic “industrial renaissance” and all the related fantasies circulating among a leadership that checked its brains at the Microsoft window. Of course, even in a general contraction wealth will still exist, and Piketty is certainly right that it will tend to remain concentrated (where it isn’t washed away in the deluge of broken promises to pay this and that obligation). But he is quite incorrect that the general conditions we enjoy at this moment in history will continue a whole lot longer – for instance the organization of giant nation-states and their ability to control populations.
There will be a three-part campaign to get the euro down, and it will play out like this. First, plenty of talk. Expect to hear a lot more from the likes of Noyer over the next few weeks about how the euro is too strong. Currency traders listen to this stuff, and if they think that a central bank is determined to push a currency lower they will get out before the carnage begins. You can’t usually talk a currency a lot lower, but you can often get it down a bit.
Second, direct intervention in the markets. It was a long time ago, but the ECB has been willing to intervene in the market when it needs to. It last moved back in November 2000 when the newly launched currency was plunging on the markets, and briefly managed to get it rising again, although over the month as a whole the operation was not a success. If it has done it once, it can do it again. There is nothing to stop the ECB selling euros for dollars or yen, and that would have a big and immediate impact.
Finally, start printing money. There is already a long list of reasons for starting up euro-zone quantitative easing. A flat lining economy and falling prices are two good ones. But it is also one of the best ways of getting a currency down. The dollar has remained weak despite the strengthening U.S. economy because the Federal Reserve is still printing money. The yen has been forced lower by massive QE. So was the British pound. A full-scale blitz of QE from the ECB — and its program is likely to out-gun even the Fed — will send the euro tumbling. European assets have been among the best performing in the world over the past twelve months, with stocks and bonds all sharply higher. But if the currency starts to fall, that will change — and it would be better to get out now while there is still time.
French bank BNP Paribas has warned it might be hit with a U.S. fine far in excess of the $1.1 billion that it set aside last year to cover litigation costs linked to potential breaches of U.S. sanctions on countries including Iran. The warning from France’s biggest bank comes as the global banking industry faces mounting legal woes due to investigations into a string of alleged misdeeds, including fixing benchmark interest rates and manipulating foreign-exchange markets. A big U.S. fine could have ramifications for BNP beyond the immediate financial hit, as the bank is targeting expansion in North America as a key plank of a new strategy to grow revenue and profits outside traditional European markets.
“There is uncertainty with respect to the amount and the nature of penalties the U.S. will impose,” Chief Financial Officer Lars Machenil told Reuters Insider television. “It’s not impossible that the fine is far in excess of the ($1.1 billion) provision.” U.S. federal prosecutors are considering criminal charges against BNP for doing business with countries subject to U.S. sanctions, such as Iran, Sudan and Cuba, a person with knowledge of the matter has said. Regulators may consider suspending the bank’s ability to conduct dollar clearing in New York – the process by which transactions are quickly settled and cleared within the banking system – and are looking at possible penalties for individual employees, the person said.
Thirty years after the year-long miners’ strike, councillors, MPs and trade unionists from former coalfields will today gather at Westminster to endorse a 10-point plan aimed at reviving Britain’s old industrial heartlands. Far from being a hand-wringing event, mired in nostalgia, this, hopefully, could prove a wake-up call to those who believe Britain has turned the corner from recession to expansion with an improving economy delivering new jobs, whether real or imagined. Away from a largely house-price fuelled upturn in London and the south-east, another nation lurks behind the veneer of prosperity portrayed by senior ministers talking up recovery. [..]
The scars of the ruthless pit closure programme, representing de-industrialisation on a scale never experienced in Britain, still remain. Fothergill says many areas have still not recovered from the “crucifying blow” of large-scale job losses, with hidden unemployment still dragging down many communities – and masking the real scale of social and economic disparities. Welfare reform has further widened the rich-poor gap; a report last year from Sheffield Hallam University showed that older industrial areas, seaside towns and some London boroughs had been hit the hardest – with Blackpool losing £900 for every working age adult, and other places not far behind.
The 10-point revival plan, Rebuilding the Economy of Britain’s Industrial Communities, launched today, calls for co-ordinated social, education, training and employment schemes – tied to a job creation programme – to turn round the fortunes of these seemingly forgotten former pit communities and older industrial towns. With the scrapping of eight English regional development agencies three years ago – effectively ending a regional policy which began earlier in the last century – England’s former industrial heartlands have been cast adrift. True, some remnants of a once-successful national coalfields programme, aimed at clearing derelict sites and creating jobs – often through the regional agencies – remain. But the impetus has gone.