Apr 152018
 
 April 15, 2018  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  


 

Russia Claims OPCW Manipulated Skripal Findings (AFP)
To Opt Out Of Facebook’s Tracking, I’m Going To Have To Join Facebook (Wired)
Tesla Is The Worst Car Manufacturer In The Developed World (F.)
New Lawsuit Alleges Musk Knowingly Lied About Model 3 Production (ZH)
Subprime Stages Comeback As ‘Non-Prime’ (CNBC)
247,977 Stories In The Vacant City (NYDN)
Judge Rules Exxon Can’t Stop Probe Into Whether They Lied For Decades (Ind.)
World May Hit 2ºC Warming in 10-15 Years Thanks to Fracking (NC)
‘There Is No Such Thing As Past Or Future’ (G.)
Time is Elastic (Rovelli)

 

 

Curiouser. You’d think Russia doesn’t just make up an entire Swiss lab.

Russia Claims OPCW Manipulated Skripal Findings (AFP)

Moscow on Saturday accused the chemical weapons watchdog of manipulating the results of its investigation into the poisoning of a former Russian spy, saying his samples had traces of a nerve agent used by the west. Britain says former double agent Sergei Skripal and his daughter Yulia were last month targeted with a nerve agent of the novichok family, which was developed in the Soviet Union. The attack shredded ties between Russia and Britain and led to a crisis in relations between Moscow and the west including a huge wave of tit-for-tat diplomatic expulsions. The Organisation for the Prohibition of Chemical Weapons has said it confirmed “the findings of the United Kingdom relating to the identity of the toxic chemical” without naming the substance involved.

On Saturday, Russia’s foreign minister, Sergei Lavrov, claimed the UN-linked Organisation for the Prohibition of Chemical Weapons (OPCW) had sent the Skripals’ biomedical samples to Swiss experts who found they contained traces of the nerve agent BZ, used by the west. “According to the results of the examination, the samples had traces of toxic chemical BZ and its precursors,” Lavrov said, citing what he said was “confidential information”. “Russia and the USSR never developed such chemical substances,” he said. “In this regard we are asking the OPCW why the information which reflected the conclusions of specialists from the Spiez laboratory was completely omitted from the final document.”

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Not a discussion we should leave up to Facebook. Or Congress.

To Opt Out Of Facebook’s Tracking, I’m Going To Have To Join Facebook (Wired)

Now I know what you’re thinking. What kind of person has never been on Facebook? I’d like to tell you it was all about privacy, but the truth is, I just had a bad feeling about it. You see, I went to Cambridge, so I was one of the first to get the chance to join what you insist on calling your “community.” And almost instantly, it was clear that it turned people into wankers. (Bigger wankers. This was Cambridge, after all.) If I remember correctly, in the early days everyone was desperate to have a higher friend count. Then it was obsessive tagging in photos. Yes, even in its earliest days, your system brought out the worst in people.

It’s not easy, not being on Facebook. At first, it was the parties. At a certain point, people stopped sending email invites. They just assumed you were on Facebook – and, if you weren’t, you didn’t find out. I’m 35 now, so I don’t get invited to parties, unless they’re for small children. Instead, I miss out on work, because I can’t contact people or share my articles. When you finally make journalism pivot to Facebook Groups, I’ll be completely screwed. I considered joining many times. But every time I aired the thought, I got the same reaction: “Don’t! It’s the worst!” I wasn’t sure if I remembered this correctly, so I called a few people to check. All agreed: they hate your service, but they have to use it, because everyone else does. (One person objected. She works in your London office.)

Every other social network, even Twitter, has a core of fans that genuinely wish it well. You’re the sole exception. Then I got into tech, and privacy, and data protection, and I learned that you were throttling internet freedoms in developing countries, and letting random strangers see your users’ most intimate details, so I started becoming one of those paranoid people who uses a VPN all the time, and puts a scrap of torn-off Post-It note on their laptop camera. Just like you! But you probably knew all this about me anyway. Which brings me back to my question. In your testimony to Congress, you said: “Anyone can turn off or opt out of any data collection for ads, whether they use our services or not.”

But, as you should know, while that’s possible for someone on Facebook, for me, a non-Facebook user, it’s not. Your illegal trackers follow me across 30 per cent of the internet, building a “shadow profile” you store in a nonanonymised format in your “Hive” analysis database. You claim to do it “for security purposes” (let me tell you, if Facebook’s security requires you to surveil the world’s population, then you have made a desert and called it peace). But reporters – and people who used to work in your advertising team – say the information is collected to improve the friend suggestions you’ll give me in case I do ever sign up. It’s one more growth hack on a whole site of them.

What can I do to stop you? I’ve installed tracker blockers on my browser, but, since you killed the media business, a lot of my favourite sites make me disable them. And your trackers work in the apps on my phone. Unless I go full tin-foil hat (and it’s tempting), you’ve basically left me with one option. To opt out of Facebook’s tracking, I’m going to have to join Facebook. So yeah: fuck you. Because, of course, this is exactly your plan. Forcing people onto Facebook is what you’re all about.

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“..that is a terrible way to produce a consumer product, and a terrible way to generate returns for shareholders.”

Tesla Is The Worst Car Manufacturer In The Developed World (F.)

I visited my first auto plant in 1992, and have been fortunate enough to visit plants in most countries where cars are made. I have seen workers sleeping under half-finished bodies in Brazil, seen employees trying to make doors fit by using rubber hammers at a now-closed Ford facility in New Jersey and, noted, that, yes, they do have beer in the vending machines at many German auto factories. To see a rack of die castings sitting outside exposed to the weather at a facility that is, according to Google Maps, 10.7 miles away from the actual Tesla assembly facility in Fremont is just mind-boggling. Tesla is the worst car manufacturer in the developed world. Bar none. Note that I didn’t write “designer” or “marketer,” but manufacturer.

Musk had zero auto industry experience when founding Tesla and CTO J.T. Straubel—who according to Tesla’s 10-K filing personally holds Tesla’s important patents—developed a love for electric vehicles by rebuilding golf carts. It’s just astounding to me that the markets are affording a $50 billion valuation to a company that can’t perform the most basic task for which it was incorporated. Famed VW purchasing chief José Ignacio López de Arriortúa famously walked into a plant and repeatedly pointed at boxes of yet-to-be-used parts and yelled the word “capital.” When capital is tied up in byzantine manufacturing processes that stunts the development of cash flow. It’s all connected. This is why Tesla has such dire cash flow problems.

This is why I believe—sorry, Elon—Tesla is going to have to issue equity this year. My favorite automotive mantra is “quality is designed in.” That’s the most damning piece of information in the CNBC article, actually, more damning than the pictures of parts racks. Here is the quote: “Current and former employees from the company’s Fremont, Calif. and Sparks, Nevada factories blame Tesla for spending less time to vet suppliers than is typical in auto manufacturing. These people said the company failed to comprehensively test “variance specs” with some vendors before embarking on Model 3 production.”

Tesla has cut corners in building up to current production, and published reports this week indicated Tesla was alerting suppliers of an incredibly fast 19-month design-to-job one timetable on the upcoming Model Y crossover. So, it would seem corner-cutting is continuing, and that is a terrible way to produce a consumer product, and a terrible way to generate returns for shareholders.

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He better hope he wins this one.

New Lawsuit Alleges Musk Knowingly Lied About Model 3 Production (ZH)

A new securities class action lawsuit filed in late March 2018, which names Elon Musk as a defendant, alleges that the Tesla CEO knew that the Model 3 was not going to be able to be produced as the rates he claimed – and that the company was not going to be able to meet production goals due to – get this – the production lines not even being assembled. The lawsuit alleges that this didn’t prevent Elon Musk from going out and telling the investing public otherwise, hence the allegation of securities fraud. First, the allegation that Musk was told by his own employees that the Model 3 couldn’t be mass produced by the end of 2017, which was the company’s stated goal.

Then, after claiming in May 2017 that the company was “on track” to meet its mass production goal, it’s alleged the company hadn’t even finished building its production lines, clearly meaning it wasn’t “on track”. The lawsuit alleges that Musk knew the line was “way behind”. The suit alleges that the company was building Model 3’s by hand at a “pilot shop” at the same time Tesla claimed to be on track for “mass production”; it also claims that it was “evident to anyone who visited the facility” – including Elon Musk – that the line wasn’t built and that “construction workers were spending most of their shifts sitting around with nothing to do”. We also read in the lawsuit that Tesla’s Gigafactory, at the time in question, was allegedly capable of producing only one battery pack per day – and that the production of one battery pack took “two shifts” to complete.

The suit alleges that the company’s former CFO, Jason Wheeler – who is one of more than 50 key executives and VPs to have left the company over the last half decade or so – told Elon Musk personally that they wouldn’t be able to mass produce by the end of 2017. The entire lawsuit is available at this link and some of the most interesting content was first shared by critics of the company on Twitter. The drumbeat of accountability for Elon Musk continues to pound louder and louder as each day progresses, with some analysts calling for the SEC to investigate him if the company doesn’t meet its stated cash flow positive and “no capital raise” guidance for the back end of 2018.

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Got to find the last sucker.

Subprime Stages Comeback As ‘Non-Prime’ (CNBC)

They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they’re coming back with a new name — nonprime — and, so far, some new standards. California-based Carrington Mortgage Services, a midsized lender, just announced an expansion into the space, offering loans to borrowers, “with less-than-perfect credit.” Carrington will originate and service the loans, but it will also securitize them for sale to investors.

“We believe there is actually a market today in the secondary market for people who want to buy nonprime loans that have been properly underwritten,” said Rick Sharga, executive vice president of Carrington Mortgage Holdings. “We’re not going back to the bad old days of ninja lending, when people with no jobs, no income, and no assets were getting loans.” Sharga said Carrington will manually underwrite each loan, assessing the individual risks. But it will allow its borrowers to have FICO credit scores as low as 500. The current average for agency-backed mortgages is in the mid-700s. Borrowers can take out loans of up to $1.5 million on single-family homes, townhomes and condominiums.

They can also do cash-out refinances, where borrowers tap extra equity in their homes, up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable. All loans, however, will not be the same for all borrowers. If a borrower is higher risk, a higher down payment will be required, and the interest rate will likely be higher. “What we’re talking about is underwriting that goes back to common sense sort of practices. If you have risk, you offset risk somewhere else,” added Sharga, while touting, “We probably are going to have the widest range of products for people with challenging credit in the marketplace.”

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It’s not about people, it’s about money. Fundamental flaw.

247,977 Stories In The Vacant City (NYDN)

There’s a hidden city in the five boroughs. Though its permanent population is zero, it is growing faster than any other neighborhood. Early numbers from the Census Bureau’s Housing and Vacancy Survey show the unoccupied city has ballooned by 65,406 apartments since 2014, an astonishing 35% jump in size in the three years since the last survey. Today, 247,977 units — equivalent to more than 11% of all rental apartments in New York City — sit either empty or scarcely occupied, even as many New Yorkers struggle to find an apartment they can afford. The Vacant City — let’s call it that, with a tip of the hat to the 1948 movie and old TV series “Naked City” — has tripled in 30 years.

A generation ago, there were just 72,051 apartments in the Vacant City. Back in 1987, when rents were cheap by today’s standards at a median $395 a month, the Vacant City made up less than 4% of rental apartments. Today, the median rent is $1,450, having risen twice as fast as inflation, even while the Vacant City tripled in size. The numbers just don’t add up the way conventional wisdom said they should. For years, development officials, the real estate industry and think tanks have told us that artificially low rents are holding the city back. Higher rents, the argument went, would free landlords to make a reasonable amount of money and serve as an incentive to increase the housing supply.

The new Census gleanings finally put the lie to that reasoning. We have higher prices for sure — but the only part of the city’s residential real estate that has grown is the Vacant City. More apartments are being held off the market than ever. Some remain vacant for legitimate reasons. Almost 28,000 of those unused units have been rented or sold but not yet occupied, or are awaiting a sale. Almost 80,000 are getting renovated, 9,600 tied up in court, and 12,700 vacant because the owner is ill or elderly or simply can’t be bothered. But that still leaves more than 100,000 units — 74,945 occupied temporarily or seasonally, and 27,009 held off the market for unexplained reasons.

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Shell, Exxon, they’ve all known all along. But they have lots of power.

Judge Rules Exxon Can’t Stop Probe Into Whether They Lied For Decades (Ind.)

A Massachusetts judge has ruled that ExxonMobil cannot stop a probe into whether the oil giant misled shareholders for decades about the dangers of climate change and its impact on their business. The judge, in a Friday ruling, found that Massachusetts Attorney General Maura Healey has grounds to pursue its civil investigation into the matter even though Exxon is not technically an in-resident corporation. The judgement follows after a federal judge in New York dismissed a similar lawsuit aimed at ending the climate change probe late last month. In that lawsuit, Exxon argued that Ms Healey and her New York counterpart, Eric Schneiderman, were pursuing their climate probes in bad faith. The judge dismissed the argument as “implausible”.

“For the second time this month, Exxon’s scorched earth campaign to block our investigation has been entirely rejected by the courts. In its decision today, our state’s highest court affirmed that Exxon is subject to our laws, and that our office has authority to investigate,” Ms Healey said in a statement following the decision. “Now Exxon must come forward with the truth, what it knew about climate change, when, and what it told the world. The people of Massachusetts — and people everywhere — deserve answers.” New York and Massachusetts first began their climate change probes after news reports in 2015 found that Exxon had known for years that reducing greenhouse gas emissions is necessary to combat climate change impacts, but did not reveal those concerns to shareholders or the public.

Exxon has denied that their public policies were in any way inconsistent with what their scientists’ findings that climate change poses a serious risk to its business and to the environment.

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It’s used to be 2100. Now it’s 2030.

World May Hit 2ºC Warming in 10-15 Years Thanks to Fracking (NC)

In 2011, a Cornell University research team first made the groundbreaking discovery that leaking methane from the shale gas fracking boom could make burning fracked gas worse for the climate than coal. In a sobering lecture released this month, a member of that team, Dr. Anthony Ingraffea, Professor of Engineering Emeritus at Cornell University, outlined more precisely the role U.S. fracking is playing in changing the world’s climate. The most recent climate data suggests that the world is on track to cross the two degrees of warming threshold set in the Paris accord in just 10 to 15 years, says Ingraffea in a 13-minute lecture titled “Shale Gas: The Technological Gamble That Should Not Have Been Taken,” which was posted online on April 4.

That’s if American energy policy follows the track predicted by the U.S. Energy Information Administration, which expects 1 million natural gas wells will be producing gas in the U.S. in 2050, up from roughly 100,000 today. An average global temperature increase of 2° Celsius (3.6° Fahrenheit) will bring catastrophic changes — even as compared against a change of 1.5° C (2.7° F). “Heat waves would last around a third longer, rain storms would be about a third more intense, the increase in sea level would be approximately that much higher and the percentage of tropical coral reefs at risk of severe degradation would be roughly that much greater,” with just that half-degree difference, NASA‘s Jet Propulsion Laboratory explained in a 2016 post about climate change.

A draft report from the Intergovernmental Panel on Climate Change (IPCC), which was leaked this January, concludes that it’s “extremely unlikely” that the world will keep to a 1.5° change, estimating that the world will cross that threshold in roughly 20 years, somewhat slower than Ingraffea’s presentation concludes.

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Hawking’s successor.

‘There Is No Such Thing As Past Or Future’ (G.)

Rovelli’s work as a physicist, in crude terms, occupies the large space left by Einstein on the one hand, and the development of quantum theory on the other. If the theory of general relativity describes a world of curved spacetime where everything is continuous, quantum theory describes a world in which discrete quantities of energy interact. In Rovelli’s words, “quantum mechanics cannot deal with the curvature of spacetime, and general relativity cannot account for quanta”. Both theories are successful; but their apparent incompatibility is an open problem, and one of the current tasks of theoretical physics is to attempt to construct a conceptual framework in which they both work.

Rovelli’s field of loop theory, or loop quantum gravity, offers a possible answer to the problem, in which spacetime itself is understood to be granular, a fine structure woven from loops. String theory offers another, different route towards solving the problem. When I ask him what he thinks about the possibility that his loop quantum gravity work may be wrong, he gently explains that being wrong isn’t the point; being part of the conversation is the point. And anyway, “If you ask who had the longest and most striking list of results it’s Einstein without any doubt. But if you ask who is the scientist who made most mistakes, it’s still Einstein.”

How does time fit in to his work? Time, Einstein long ago showed, is relative – time passes more slowly for an object moving faster than another object, for example. In this relative world, an absolute “now” is more or less meaningless. Time, then, is not some separate quality that impassively flows around us. Time is, in Rovelli’s words, “part of a complicated geometry woven together with the geometry of space”. For Rovelli, there is more: according to his theorising, time itself disappears at the most fundamental level. His theories ask us to accept the notion that time is merely a function of our “blurred” human perception.

We see the world only through a glass, darkly; we are watching Plato’s shadow-play in the cave. According to Rovelli, our undeniable experience of time is inextricably linked to the way heat behaves. In The Order of Time, he asks why can we know only the past, and not the future? The key, he suggests, is the one-directional flow of heat from warmer objects to colder ones. An ice cube dropped into a hot cup of coffee cools the coffee. But the process is not reversible: it is a one-way street, as demonstrated by the second law of thermodynamics. Time is also, as we experience it, a one-way street. He explains it in relation to the concept of entropy – the measure of the disordering of things.

Entropy was lower in the past. Entropy is higher in the future – there is more disorder, there are more possibilities. The pack of cards of the future is shuffled and uncertain, unlike the ordered and neatly arranged pack of cards of the past. But entropy, heat, past and future are qualities that belong not to the fundamental grammar of the world but to our superficial observation of it. “If I observe the microscopic state of things,” writes Rovelli, “then the difference between past and future vanishes … in the elementary grammar of things, there is no distinction between ‘cause’ and ‘effect’.”

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Extract from Carlo Rovelli’s The Order of Time.

Why do things fall? Because “..the movement of things inclines naturally towards where time passes more slowly..”

Time is Elastic (Rovelli)

Reality is often very different from what it seems. The Earth appears to be flat but is in fact spherical. The sun seems to revolve in the sky when it is really we who are spinning. Neither is time what it seems to be. Let’s begin with a simple fact: time passes faster in the mountains than it does at sea level. The difference is small but can be measured with precision timepieces that can be bought today for a few thousand pounds. This slowing down can be detected between levels just a few centimetres apart: a clock placed on the floor runs a little more slowly than one on a table. It is not just the clocks that slow down: lower down, all processes are slower. Two friends separate, with one of them living in the plains and the other going to live in the mountains.

They meet up again years later: the one who has stayed down has lived less, aged less, the mechanism of his cuckoo clock has oscillated fewer times. He has had less time to do things, his plants have grown less, his thoughts have had less time to unfold … Lower down, there is simply less time than at altitude. Einstein understood this slowing down of time a century before we had clocks precise enough to measure it. He imagined that the sun and the Earth each modified the space and time that surrounded them, just as a body immersed in water displaces the water around it. This modification of the structure of time influences in turn the movement of bodies, causing them to “fall” towards each other.

What does it mean, this “modification of the structure of time”? It means precisely the slowing down of time described above: a mass slows down time around itself. The Earth is a large mass and slows down time in its vicinity. It does so more in the plains and less in the mountains, because the plains are closer to it. This is why the friend who stays at sea level ages more slowly. If things fall, it is due to this slowing down of time. Where time passes uniformly, in interplanetary space, things do not fall. They float. Here on the surface of our planet, on the other hand, the movement of things inclines naturally towards where time passes more slowly, as when we run down the beach into the sea and the resistance of the water on our legs makes us fall headfirst into the waves. Things fall downwards because, down there, time is slowed by the Earth.

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Mar 082018
 
 March 8, 2018  Posted by at 11:01 am Finance Tagged with: , , , , , , , , , , , , ,  


Paul Gauguin Tahitian village 1892

 

We May Have Hit ‘Peak Trade’ Even Without Trump’s Tariffs – UBS (CNBC)
China’s Exports Surge At The Fastest Pace In 3 Years (R.)
42% of Americans Are Set To Retire Broke (CNBC)
Trump’s Volley (Lebowitz)
Divorced From Reality (RIA)
A Currency War Is Coming – With Japan (BBG)
Hallelujah! The Squid Regency At The White House Is Finally Over (Stockman)
Canada, Mexico to Get Initial Exemption From Trump Tariffs (BBG)
New iPhones Aren’t Selling In Asia (CNBC)
Vancouver Declares 5% Of Homes Empty And Liable For New Tax (G.)
More People Called David And Steve Lead FTSE 100 Companies Than Women (Ind.)
‘Why Would We Want A World Without Russia?’ – Putin (RT)
Sergei Skripal Is Not Litvinenko (Ind.)
Turkey Renews Threat Against Cyprus Offshore Gas Exploration (AP)
US State Department Stresses Cyprus’s Right To Develop Resources In EEZ (K.)
Tepco’s ‘Ice Wall’ Fails To Freeze Fukushima’s Toxic Water Buildup (R.)
Over 500 Quebec Doctors Protest Their Own Pay Raises (CNBC)

 

 

And not a day too soon. There’s nothing more destructive than schlepping 10 million things 10,000 miles across the planet that don’t neeed to be.

We May Have Hit ‘Peak Trade’ Even Without Trump’s Tariffs – UBS (CNBC)

The world may have hit ‘peak trade,’ according to an expert who pointed to robotics, digitization and localization as major game-changers for the sprawling supply chains that have defined globalization. Paul Donovan, global chief economist at UBS Wealth Management, said Wednesday that President Donald Trump’s recently announced trade tariffs are not to blame. “I don’t think that the modest taxes imposed by Trump are a driver of peak trade, at this stage. Trade protectionism — mainly non-tariff barriers to trade — have been rising for some years,” he told CNBC. Rather, Donovan said, the peak trade argument is based on “a reversal of the structural way in which globalization took place in recent years.” Globalization as we know it has meant long cross-border supply chains, where many different countries and entities would take part in the production or processing of goods.

The resulting value of trade rose for each country as a proportion of GDP. Trade to GDP, therefore, rose as supply chains lengthened. “What is now happening is that robotics and digitization mean we can produce efficiently, locally,” Donovan said. As an example, he compared the purchase of a compact disc — whose components, intellectual property and packaging would come from different places — a decade ago to downloading music now, which requires only one transaction of intellectual property. This reduces the ratio of trade to GDP. [..] “Robotics, digitization and localization mean that trade wars today are fighting battles from the past,” Donovan said. “I think global trade in goods (not services) revert to something like the old ‘imperial model’ of importing raw materials and then processing close to the consumer.”

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Cancer growth.

China’s Exports Surge At The Fastest Pace In 3 Years (R.)

China’s exports unexpectedly surged at the fastest pace in 3 years in February, suggesting its economic growth remains resilient even as trade relations with the United States rapidly deteriorate. Trade tensions have jumped to the top of the list of risks facing China this year, with proposed U.S. tariffs on steel and aluminium imports suggesting more measures may be on the way, Zhou Hao, senior emerging markets economist at Commerzbank, [said]. China’s February exports rose 44.5% from a year earlier, compared with analysts’ median forecast for a 13.6% increase, and an 11.1% gain in January, official data showed on Thursday. Imports grew 6.3%, the General Administration of Customs said, missing analysts’ forecast for 9.7% growth, and down from a sharper-than-expected 36.9% jump in January.

Analysts caution Chinese data early in the year can be heavily distorted by the timing of the Lunar New Year holiday, which fell in February this year but in January in 2017. But combined January-February trade data also showed a dramatic acceleration in export growth. Exports rose 24.4% on-year in Jan-Feb, much better than 10.8% in December and 4% growth in Jan-Feb last year. The government also releases combined data for the first two months in an attempt to smooth out seasonal distortions. The deceleration in import growth for February may be payback for the previous month’s unusual strength, rather than a sign there has been an abrupt weakening in demand. Robust import growth in January was mostly led by commodities as factories scrambled to restock inventories ahead of the long holiday. Imports in the first two months of the year rose 21.7%, compared with 4.5% in December.

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Jesse Colombo’s comment: “And what’s amazing is that these retirement stats are during a massive, Fed-driven asset bubble that has inflated the value of retirement accounts – and people STILL can’t retire! Stick a fork in it…we’re done.”

42% of Americans Are Set To Retire Broke (CNBC)

At this rate, retirement is more of a fantasy than a reality for many people in this country. About 42% of Americans have less than $10,000 saved for when they retire, according to a study by GoBankingRates released Tuesday. The No. 1 reason most people cited for not stashing more away was because they didn’t earn enough to save, followed by the fact that they were already struggling to pay bills, GoBankingRates said. The personal finance site polled more than 1,000 adults online in February.

For those with little or no savings, a serious lack of proper investment income and planning, coupled with a longer life expectancy, has destroyed any retirement expectations. Although millennials are most likely to have less than $10,000 saved, older Americans are also becoming steadily more pessimistic about their future economic prospects, according to a separate study by United Income, a start-up that aims to apply big-data analysis to financial planning.

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The role of teh reserve currency warrants way more attention.

Trump’s Volley (Lebowitz)

America relinquished its role as the world’s leading manufacturer in exchange for cheaper imported goods and services from other countries. The profits of U.S.-based manufacturing companies were enhanced with cheaper foreign labor, but the wages of U.S. employees were impaired, and jobs in the manufacturing sector were exported to foreign lands. This had the effect of hollowing out America’s industrial base while at the same time stoking foreign appetite for U.S. debt as they received U.S. dollars and sought to invest them. In return, debt-driven consumption soared in the U.S. The trade deficit, also known as the current account balance, measures the net flow of goods and services in and out of a country. The graph shows the correlation between the cumulative deterioration of the U.S. current account balance and manufacturing jobs.

Since 1983, there have only been two quarters in which the current account balance was positive. During the most recent economic expansion, the current account balance has averaged -$443 billion per year. To further appreciate the ramifications of the reigning economic regime, consider that China gained full acceptance into the World Trade Organization (WTO) in 2001. The trade agreements that accompanied WTO status and allowed China easier access to U.S. markets have resulted in an approximate quintupling of the amount of exports from China to the U.S. Similarly, there has been a concurrent increase in the amount of credit that China has extended the U.S. government through their purchase of U.S. Treasury securities as shown below.

To further understand why the current economic regime is tricky to change, one must consider that the debts of years past have not been paid off. As such the U.S. Treasury regularly issues new debt that is used to pay for older debt that is maturing while at the same time issuing even more debt to fund current period deficits. Therefore, the important topic not being discussed is the United States’ (in)ability to reduce reliance on foreign funding that has proven essential in supporting the accumulated debt of consumption from years past. Trump’s ideas are far more complicated than simply leveling the trade playing field and reviving our industrial base. If the United States decides to equalize terms of trade, then we are redefining long-held agreements introduced and reinforced by previous administrations.

In breaking with that tradition of “we give you dollars, you give us cheap goods (cars, toys, lawnmowers, steel, etc.), we will most certainly also need to source alternative demand for our debt. In reality, new buyers will emerge but that likely implies an unfavorable adjustment to interest rates. The graph below compares the amount of U.S. Treasury debt that is funded abroad and the total amount of publicly traded U.S. debt. Consider further, foreigners have large holdings of U.S. corporate and securitized individual debt as well. (Importantly, also note that in recent years the Fed has bought over $2 trillion of Treasury securities through QE, more than making up for the recent slowdown in foreign buying.)

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“Investors still believe in stocks as an asset class.”

Divorced From Reality (RIA)

There are many ways of assessing the value of the stock market. The Shiller PE (price relative to the past decade’s worth of real, average earnings) and Tobin’s Q (the value of companies’ outstanding stock and debt relative to their replacement cost) are likely the two best. That doesn’t mean those metrics are accurate crash indicators, or that one can use them profitably as trading signals. Expensive stocks can stay expensive or get more expensive, and cheap stocks can stay cheap or get cheaper for inconveniently long periods of time.

But those metrics do have a good record of forecasting future long-term (one decade or more) returns. And that’s important for financial planning and wealth management. Difficult though it is sometimes, everyone must plug in an estimated return into a formula for retirement savings. And if an advisor is plugging in a 7% or so return for a balanced portfolio currently, he or she is likely not doing their job well. Stocks will almost certainly return less than their long-term 10% annualized average for the next decade or two given a starting Shiller PE over 30. The long-term average of the metric, after all, is under 17.

[..] Companies are always manipulating items on income statements to arrive at a particular earnings number. Recently, record numbers of companies have supported net income numbers with non-GAAP metrics. That can be legitimate sometimes. For example, depreciation on real estate is rarely commensurate with reality. But it can also be nefarious[..] So I created a chart showing sales per share growth and price per share growth of the S&P 500 dating back to the end of 2008. From the beginning of 2009 through the end of 2016, companies in the index grew profits per share by nearly 4% annualized, a perfectly respectable number for a mature economy. But price per share grew by a whopping 14.5% over that time. Over that 8 year period, sales grew less than 50% cumulatively, while share prices tripled.

Anyone invested in stocks should worry about this chart. How do share prices get so divorced from underlying corporate sales? One likely answer is low interest rates. But there must be other reasons because we’ve had low interest rates and low stock prices before – namely in the 1940s. That was after the Great Depression, and stocks were still likely viewed as suspect investments. Today, by contrast, stocks are not viewed with much suspicion, despite the technology bubble peaking in 2000 and the housing bubble in 2008. Investors still believe in stocks as an asset class.

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Japan cannot do a strong yen for too long.

A Currency War Is Coming – With Japan (BBG)

As if a brewing trade war wasn’t enough to worry about, investors also need to be alert to the threat of a major currency conflict. Norihiro Takahashi, president of Japan’s Government Pension Investment Fund, dismissed Donald Trump’s tariffs plan as a “performance” for his supporters, and said U.S. assets are no longer expensive, in an interview with The Wall Street Journal this week. That marks a change in stance since the December quarter, when the world’s largest pension fund scaled back its exposure to foreign assets. Takahashi’s comments could well be a veiled expression of Japan’s displeasure at a stronger yen. The Japanese currency has soared 6.6% against the greenback this year — and we’re only three months into 2018. For a yen-based investor, Treasuries, in particular, do indeed look more reasonably priced than in December.

In theory, currency policy falls under the jurisdiction of Japan’s finance ministry. In practice, government agencies from the Bank of Japan to the GPIF co-ordinate their actions. Don’t forget that on Oct. 31, 2014, the central bank expanded its monetary policy on the same day the GPIF adopted a “new policy asset mix” that increased the fund’s exposure to foreign bonds. BOJ Governor Haruhiko Kuroda can deny it, but the central bank has every interest in seeking a weak yen. Japanese corporate earnings are highly cyclical: On a market-weighted basis, companies on the Topix index derive more than 37% of their revenue from abroad, data compiled by Gadfly show. A strengthening yen can cause stocks to plunge, depressing consumption and tipping the economy back into deflation.

With the Topix down more than 10% from its January high, that’s no idle threat. CPI ex-food, the BOJ’s inflation metric, was 0.9% in January, still nowhere near the 2% target that was last breached in 2015. Kuroda’s domestic toolbox, meanwhile, is starting to look empty. With a record 40% of government bonds already in its hands, the central bank is running out of assets to buy.

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I was wondering yesterday why not more people were happy about this. Question is: how far do the Squid’s tentacles still reach?

Hallelujah! The Squid Regency At The White House Is Finally Over (Stockman)

The financial commentariat and the robo-machines are all in a tizzy this morning because Gary Cohn up and quit. But we say good riddance: The man gave Trump bad advice on nearly every single issue – trade, taxes, fiscal policy and the Fed. We didn’t make any bones about that viewpoint during our appearance on Fox Business this AM. When Maria Bartiromo asked us about Cohn’s departure, our reply was: Hallelujah, the Goldman Sachs Regency in the White House is finally over! The fact is, we do have a trade crisis, but Gary Cohn and the Wall Street pseudo-free traders don’t care and never have. That’s because they fiercely support a perverted, self-serving monetary regime that systematically and massively inflates financial assets, even as it strip mines and deflates the main street economy.

As we have been pointing out in this series, there is a perverse symbiosis between the Fed and the Dirty Float central banks of the 10 major countries (China, Vietnam, Mexico, Japan, etc), which account for 90% of the nation’s $810 billion trade deficit (2017). Together they have ripped the guts out of the US industrial economy – effectively sending jobs and production abroad and cash flow and liquidated capital to Wall Street. For its part, the Fed has monkey-hammered US competitiveness. That’s the result of its insensible 2.00% inflation policy, which has fatally inflated nominal dollar wages in a world market drowning in cheap labor priced in artificially under-valued currencies. At the same time, its massive interest rate repression and price-keeping operations in the stock market have turned the C-suites of corporate America into financial engineering joints.

So doing, they have slashed real net business investment by nearly 3o% since the turn of the century, by 20% from the 2007 pre-crisis peak and, actually, to a level in 2016 that barely exceeded real net investment two decades earlier in 1997. Meanwhile, the C-suites shuttled upwards of $15 trillion of cash flow and debt capacity during the last decade alone into stock buybacks, vanity M&A deals and excess dividends and recaps.

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Re-negotiate.

Canada, Mexico to Get Initial Exemption From Trump Tariffs (BBG)

The Trump administration will initially exclude Canada and Mexico from stiff tariffs on steel and aluminum imports, an exemption they would lose if they fail to reach an updated Nafta agreement with the U.S., White House trade adviser Peter Navarro said on Wednesday. The two nations won’t be subject to tariffs on their steel and aluminum if they sign a new NAFTA that meets the satisfaction of the U.S., Navarro said, adding that other American allies could use a similar system to ask for an exemption. If Nafta talks fall through, Canada and Mexico would face the same tariff as other nations, expected to be 25% on steel and 10% on aluminum. “Here’s the situation, and the president has made this public,” Navarro said. “There’s going to be a provision which will exclude Canada and Mexico until the Nafta thing is concluded one way or another.”

The decision-making process regarding the tariffs has evolved and more changes could be made before President Donald Trump formally approves them. China on Thursday vowed to retaliate, its most forceful comments yet on the threatened tariffs. “A trade war is never the right solution,” China’s Foreign Minister Wang Yi told reporters in Beijing. “In a globalized world, it is particularly unhelpful, as it will harm both the initiator and the target countries. In the event of a trade war, China will make a justified and necessary response.” Earlier Wednesday, White House Press Secretary Sarah Huckabee Sanders said the tariff plan would feature “potential carve outs for Canada and Mexico based on national security” considerations and also possible exclusions for specific countries. Australia is among those making the case for exemption, with Foreign Minister Julie Bishop citing her nation’s status as a “close ally and partner” in a Sky News interview on Thursday.

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Good headline, followed by shameless promo.

New iPhones Aren’t Selling In Asia (CNBC)

Apple’s iPhone X may not have wooed Asian consumers during the Lunar New Year holiday — but the company has some new products in the pipeline, according to Rosenblatt Securities’ Jun Zhang. Zhang chopped 5.5 million units off expectations for iPhone X sales for the first half of this year in a Wednesday research note. But with sales of high-end smartphones shrinking, Apple could offset lower iPhone sales with new products. “We are not surprised with the quick cooldown of iPhone X sales following Chinese New Year,” Zhang wrote. “Further iPhone X cuts, in our view, suggest the high-end smartphone market upgrade cycle continues to extend. We are seeing similar issues for Samsung’s S9 model since our research suggests that preorders are weak.”

Apple and Samsung, like many tech companies, and rarely release data on new products or unit sales outside of quarterly reports or launch events. But, Zhang wrote, Apple could sell 6 million to 8 million iPad Pro units with more advanced 3-D sensing, as well as new phones in the fall. A new red iPhone model, lower-end iPhones and a lower-priced HomePod might also be in the works, Zhang said. (Apple has had a partnership with HIV/AIDS organization (RED) for over a decade, and often sells red-colored products to support AIDS research and prevention.) “Since we expect the overall smartphone market to be flat this year, particularly in the mid-to-high end markets, Apple’s upcoming lower priced iPhone model could drive Apple’s unit growth,” Zhang wrote.

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Why do I get the idea there’s not an actual plan behind any of this, or a philosophy?

Vancouver Declares 5% Of Homes Empty And Liable For New Tax (G.)

Thousands of homes in Vancouver have been declared unused and liable for a new empty homes tax as part of a government attempt to tackle skyrocketing home prices and soaring rents. About 4.6% or 8,481 homes in the western Canadian city stood empty or underutilised for more than 180 days in 2017, according to declarations submitted to the municipality by 98.85% of homeowners. Properties deemed empty will be subjected to a tax of 1% of their assessed value. Vancouver has rolled out a raft of measures to cool prices and improve housing affordability in the country’s most expensive real estate market. Empty houses, also a big issue in the UK, are only one aspect of the problem. In 2017 the provincial government of British Columbia raised its foreign buyer tax from 15% to 20% to target offshore investors blamed for pushing up prices.

Toronto, Canada’s biggest city, followed suit with a 15% tax in April. Before the foreign buyer tax, sales agents said investors in Hong Kong, China and other parts of Asia were acquiring up to 40% of Vancouver condominium projects marketed abroad, absorbing the more expensive units that domestic buyers could not afford. Nearly 61% of the homes declared empty in Vancouver were condos, and other multi-family properties made up almost 6%, according to the city government. More than a quarter of the empty properties were in downtown Vancouver. Property owners who did not submit a declaration and those who claimed exemptions, such as for renovations or if the owner was in hospital or long-term care, were included in the empty homes number.

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I’m a sucker for headlines. The original says “..women and ethnic minorities..”, but that had me wondering how many immigrants are named David or Steve. More than women, I’d bet.

More People Called David And Steve Lead FTSE 100 Companies Than Women (Ind.)

There are more people called David or Steve who head up FTSE 100 companies than there are women or ethnic minorities, underscoring the extent to which corporate Britain is still dominated by men. According to research conducted by INvolve, a group that champions diversity and inclusion in business, there are currently five ethnic minority and seven female chief executives of FTSE 100 companies. Nine are named David and four are called Steve. Later this month Royal Mail, which is headed up by Moya Greene, is set to join the index of the UK’s biggest publicly listed companies, taking the total number of female-led firms to eight.

The number highlights how women and ethnic minorities are still dramatically underrepresented on corporate boards across the UK. According to the Government’s Hampton-Alexander Review into female leaders across FTSE companies published last November, only five FTSE 250 companies had at the time achieved a gender-balanced board. Speaking at an event in London to mark International Women’s Day this week, Carolyn Fairbairn, director general of the Confederation of British Industry, said that women are now joining boards in greater numbers than ever, but often as non-executive directors.

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He doesn’t give an inch. Why would he?

‘Why Would We Want A World Without Russia?’ – Putin (RT)

President Vladimir Putin, who recently startled the world by unveiling Russia’s advanced nuclear arsenal, has again spoken of nuclear arms, clarifying the circumstances in which Moscow is prepared to enter a nuclear war. “Certainly, it would be a global disaster for humanity; a disaster for the entire world,” Putin said, in an interview for a Russian documentary “The World Order 2018,” adding that “as a citizen of Russia and the head of the Russian state I must ask myself: Why would we want a world without Russia?” Even though Putin admitted that any conflict involving the use of nuclear weapons would have dire consequences for humanity, he maintained that Russia would be forced to defend itself using all available means if its very existence is put at stake.

“A decision on the use of nuclear weapons may only be taken if our ballistic missile attack warning system not only detects a launch, but also predicts that the warheads would hit Russian territory. This is called a retaliation strike,” he said in the interview. Russia’s latest edition of its nuclear doctrine allows the use of nuclear weapons in response to a nuclear attack against Russia or its allies, or to a conventional attack that threatens the existence of Russia. Putin also denied Russia was interested in pursuing a nuclear arms race, saying that “to begin with, we did not start this… nuclear bomb was first developed not by us but by the US,” he said in the interview, pointing out that “we have never used nuclear weapons [although] the US used them against Japan.”

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A rare dose of reality in a British press -and politics- engaged in full-steam Russia bashing.

Sergei Skripal Is Not Litvinenko (Ind.)

Boris Johnson just about observed diplomatic protocol when he addressed MPs about the apparent poisoning of Sergei Skripal. He stopped short of accusing the Russian state directly. But his inference – a malevolent and unjustified inference for the Foreign Secretary of a country that harps on about the rule of law – was indeed of Russian guilt. And it was clearest in the parallel he invited MPs to draw with the death of Alexander Litvinenko. Now it may indeed be that Russia – or Russians (something rather different) – are responsible for whatever happened in Salisbury. And it is true that Russians in the UK seem disproportionately accident-prone. But it is premature in the extreme to blame the Russian state, and just as misleading to draw this particular parallel with the Litvinenko case.

Both men may have been Russians branded traitors by their homeland, and both may have been victims of poisoning, but there are important differences. In Russia, Litvinenko worked against organised crime; he was less a spy in the conventional sense than a criminal intelligence officer. He fled the country after blowing the whistle on his corrupt bosses, and applied for asylum in the UK. His first choice, the US, had turned him down on the apparent grounds that the information he had to offer was not valuable enough. Unlike Skripal, he started working for MI5/6 only after arriving in the UK, and even then seems to have had difficulty getting on the payroll. His widow, Marina, is still battling to get the intelligence agencies to pay a pension or recognise a duty of care. It is cruel to say so, but Litvinenko seems almost to have been more use to the UK in death – as a totem of Russia’s general badness – than he was in life.

[..] For the moment, though, I will resist the temptation to delve into my inner Le Carre and return to Litvinenko. As I said, there are crucial differences between the two – differences that should militate against state-sponsored assassination being the favoured explanation for Skripal’s plight. But there should be doubts, too, about this judgment in the case of Litvinenko. The conclusions of the Litvinenko inquiry, now treated as unimpeachable proof of Russian state culpability, are nowhere near as definitive – or credible – as they have since been presented. The much-trumpeted (and over-interpreted) conclusion of the judge, Sir Robert Owen, was that “the FSB operation to kill Litvinenko was probably approved by Mr Patrushev [then head of the FSB] and also by President Putin”. He said there was “a strong probability” that Andrei Lugovoy poisoned Litvinenko “under the direction of the FSB” and the use of polonium-210 was “at very least a strong indicator of state involvement”. What sort of proof is that?

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They better be careful….

Turkey Renews Threat Against Cyprus Offshore Gas Exploration (AP)

Turkey’s prime minister has renewed a threat against efforts to search for offshore gas around Cyprus. Turkey opposes what it says are “unilateral” efforts to search for gas, saying they infringe the rights of Turkish Cypriots to the ethnically split island’s resources. Binali Yildirim said Wednesday during a joint news conference with Tufan Erhurman, the so-called “prime minister” of the breakaway north of Cyprus, that “provocative activities will be met with the appropriate response.” Yildirim’s comments were in response to reports that an ExxonMobil vessel was heading toward the Mediterranean, coinciding with exercises in the area involving the US Navy. Last month, Turkish warships prevented a rig from reaching an area southeast of Cyprus where Italian company Eni was scheduled to drill for gas.

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….because the US must defend Exxon.

US State Department Stresses Cyprus’s Right To Develop Resources In EEZ (K.)

The United States recognizes the right of Cyprus to develop the resources in its Exclusive Economic Zone, and discourages any actions or statements that provoke a rise in tensions in the region, a State Department official has said. In a statement late on Wednesday, the official said that Washington’s policy on Cyprus’ EEZ was longstanding and has not changed, noting that the US “recognizes the right of the Republic of Cyprus to develop its resources in its Exclusive Economic Zone.” “We continue to believe the island’s oil and gas resources, like all of its resources, should be equitably shared between both communities in the context of an overall settlement,” the official said. “We discourage any actions or rhetoric that increase tensions in the region.” The official did not comment directly on threats from Ankara regarding the arrival in the region of a research vessel belonging to US company ExxonMobil.

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How is it possible that TEPCO is allowed to just keep on lying?

Tepco’s ‘Ice Wall’ Fails To Freeze Fukushima’s Toxic Water Buildup (R.)

A costly “ice wall” is failing to keep groundwater from seeping into the stricken Fukushima Dai-ichi nuclear plant, data from operator Tokyo Electric Power Co shows, preventing it from removing radioactive melted fuel at the site seven years after the disaster. When the ice wall was announced in 2013, Tepco assured skeptics that it would limit the flow of groundwater into the plant’s basements, where it mixes with highly radioactive debris from the site’s reactors, to “nearly nothing.” However, since the ice wall became fully operational at the end of August, an average of 141 metric tonnes a day of water has seeped into the reactor and turbine areas, more than the average of 132 metric tonnes a day during the prior nine months, a Reuters analysis of the Tepco data showed.

The groundwater seepage has delayed Tepco’s clean-up at the site and may undermine the entire decommissioning process for the plant, which was battered by a tsunami seven years ago this Sunday. Waves knocked out power and triggered meltdowns at three of the site’s six reactors that spewed radiation, forcing 160,000 residents to flee, many of whom have not returned to this once-fertile coast. Though called an ice wall, Tepco has attempted to create something more like a frozen soil barrier. Using 34.5 billion yen ($324 million) in public funds, Tepco sunk about 1,500 tubes filled with brine to a depth of 30 meters (100 feet) in a 1.5-kilometre (1-mile) perimeter around four of the plant’s reactors. It then cools the brine to minus 30 degrees Celsius (minus 22 Fahrenheit).

The aim is to freeze the soil into a solid mass that blocks groundwater flowing from the hills west of the plant to the coast. However, the continuing seepage has created vast amounts of toxic water that Tepco must pump out, decontaminate and store in tanks at Fukushima that now number 1,000, holding 1 million tonnes. It says it will run out of space by early 2021. “I believe the ice wall was ‘oversold’ in that it would solve all the release and storage concerns,” said Dale Klein, the former chairman of the U.S. Nuclear Regulatory Commission and the head of an external committee advising Tepco on safety issues.

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The people that see the threats to the entire system are not politicians.

Over 500 Quebec Doctors Protest Their Own Pay Raises (CNBC)

In Canada, more than 500 doctors and residents, as well as over 150 medical students, have signed a public letter protesting their own pay raises. “We, Quebec doctors who believe in a strong public system, oppose the recent salary increases negotiated by our medical federations,” the letter says. The group say they are offended that they would receive raises when nurses and patients are struggling. “These increases are all the more shocking because our nurses, clerks and other professionals face very difficult working conditions, while our patients live with the lack of access to required services because of the drastic cuts in recent years and the centralization of power in the Ministry of Health,” reads the letter, which was published February 25.

“The only thing that seems to be immune to the cuts is our remuneration,” the letter says. Canada has a public health system which provides “universal coverage for medically necessary health care services provided on the basis of need, rather than the ability to pay,” the government’s website says. The 213 general practitioners, 184 specialists, 149 resident medical doctors and 162 medical students want the money used for their raises to be returned to the system instead. “We believe that there is a way to redistribute the resources of the Quebec health system to promote the health of the population and meet the needs of patients without pushing workers to the end,” the letter says.

“We, Quebec doctors, are asking that the salary increases granted to physicians be canceled and that the resources of the system be better distributed for the good of the health care workers and to provide health services worthy to the people of Quebec.” A physician in Canada is paid $260,924 ($339,000 Canadian) for clinical services by the government’s Ministry of Health per year on average, according to a report from the Canadian Institute for Health Information published in September 2017. On average, a family physician is paid $211,717 ($275,000 Canadian) for clinical services and a surgical specialist is paid $354,915 ($461,000 Canadian), according to the same report.

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Dec 122017
 
 December 12, 2017  Posted by at 10:28 am Finance Tagged with: , , , , , , , , , , , , ,  


Wassily Kandinsky Clear connection 1925

 

How Fed Rate Hikes Impact US Debt Slaves (WS)
Why Obamacare Is Locked In An Inescapable Death Spiral (ZH)
Sitting Closer To The Exit (Roberts)
Oil Producers Turning to Crypto to Solve Sanctions Problems (Luongo)
Peak Bitcoin Media Mania Yet? (WS)
Bitcoin – Millennials’ “Fake Gold” (Katsenelson)
Next Bank of Japan Governor Faces a ‘Job From Hell’ (BBG)
Sweden: More Signs The World’s Biggest Housing Bubble Is Cracking (ZH)
Trump Tells NASA to Send Americans to the Moon (AFP)
Exxon To Provide Details On Climate Change Impact To Its Business (R.)
Apple Aims To Block Climate, Rights Using SEC Guidance (R.)
EU Could ‘Scrap Refugee Quota Scheme’ (G.)
Lesvos Authorities Block Ship With Container Homes For Refugees (AP)
Germany Rejects Additional Winter Aid For Refugees On Greek Islands (KTG)

 

 

“If the average interest rate on this debt is 20%, credit-cart interest payments alone add $233 a month to their household expenditures.”

How Fed Rate Hikes Impact US Debt Slaves (WS)

Revolving credit outstanding of $1 trillion, spread over 117.72 million households, would amount to $8,300 per household. But many households do not carry interest-bearing credit card debt; they pay their cards off in full every month. Finance charges are concentrated on households that use this form of debt to finance their spending and that cannot pay off their balances every month. Many of these households are already strung out and are among the least able to afford higher interest payments. Consumer credit bureau TransUnion shed some light on this in its Q3 2017 Industry Insights Report, according to which 195.9 million consumers had a revolving credit balance at the end of Q3, with total account balances of $1.35 trillion. This equals $6,892 per person with revolving credit balances.

If there are two people with balances in a household, this would amount to nearly $14,000 of this high-cost debt. If the average interest rate on this debt is 20%, credit-cart interest payments alone add $233 a month to their household expenditures. What is next for these folks? For now, the Fed has penciled in, and economists expect, three hikes next year. But recent developments – particularly the expected tax cuts and what the Fed calls “elevated asset prices” – suggest that the Fed might “surprise” the markets with its hawkishness in 2018. The Fed is currently pegging the “neutral” rate – the rate at which the federal funds rate is neither stimulating nor slowing the economy – at somewhere near 2.5% to 2.75%, so about five or six more rates hikes from today’s target range.

Interest rates on credit cards would follow in lockstep. These rate hikes to “neutral” would extract another $8 billion or so a year, on top of the additional $7.5 billion from the prior rate hikes. But that’s not all. Credit card balances continue to rise as our brave consumers are trying to prop up US consumer spending and thus the global economy by borrowing more and more. Thus, rising credit card balances combined with rising interest rates on those balances conspire to produce sharply higher interest costs. Since consumers with high-interest credit-card balances already don’t have enough money to pay off their costly debt, these additional interest payments will further curtail their efforts at making principal payments and thus inflate their credit card balances further.

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And if/when you manage to pay off your credit cards, there’s the next challenge…

Why Obamacare Is Locked In An Inescapable Death Spiral (ZH)

Ever since it was signed into law in 2010, defenders of Obamacare have dismissed staggering surges in annual premiums by highlighting only the rates paid by those fortunate enough to receive subsidies. In fact, last year we wrote about Marjorie Connolly’s, from Obama’s Department of Health and Human Services, response to the Tennessee insurance commissioner’s fear that the exchanges in his state were “very near collapse” after a staggering 59% premium surge: “Consumers in Tennessee will continue to have affordable coverage options in 2017. Last year, the average monthly premium for people with Marketplace coverage getting tax credits increased just $2, from $102 to $104 per month, despite headlines suggesting double digit increases,” said Marjorie Connolly, HHS spokeswoman, in a statement.

We’re unsure whether Connolly’s comment was just propaganda intended to defend a failing piece of legislation or an intentional, blatant admission that the Department of Health and Human Services just doesn’t care about the majority of Americans, the so-called 1%’ers, who are facing debilitating increases in healthcare costs simply because they manage to live above the poverty line. We’ll let you decide on that one. Be that as it may, as the Miami Herald points out this morning, roughly half of all Obamacare participants, nearly 9 million people in aggregate, don’t qualify for the subsidies that Connolly praised and have been forced to absorb debilitating premium increases for the past several years.

[..] As open enrollment for Affordable Care Act coverage nears the deadline of Dec. 15, and Florida once again leads all states using the federal exchange at healthcare.gov, Heidi and Richard Reiter sit at the kitchen table at their Davie home and struggle to piece together the family’s health insurance for 2018. The Reiters buy their own coverage, but they earn too much to qualify for financial aid to lower their monthly premiums. For 2017, they bought a plan off the exchange and paid $26,000 in premiums for family coverage, including their two sons, ages 21 and 17. Keeping the same coverage for 2018 would have cost the Reiters $40,000 in premiums, a 54% increase. So they selected a lower-priced plan that covers less but costs $29,000 in premiums. “That’s more than a lot of people’s mortgage payments,” Richard Reiter said. “For me, it’s a crisis situation.”

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The odds of a correction (reversion).

Sitting Closer To The Exit (Roberts)

While valuation risk is certainly concerning, it is the extreme deviations of other measures to which attention should be paid. When long-term indicators have previously been this overbought, further gains in the market have been hard to achieve. However, the problem comes, as identified by the vertical lines, is understanding when these indicators reverse course. The subsequent “reversions” have not been forgiving. The chart below brings this idea of reversion into a bit clearer focus. I have overlaid the real, inflation-adjusted, S&P 500 index over the cyclically-adjusted P/E ratio. Historically, we find that when both valuations and prices have extended well beyond their intrinsic long-term trendlines, subsequent reversions beyond those trend lines have ensued. Every. Single. Time.

Importantly, these reversions have wiped out a decade, or more, in investor gains. As noted, if the next correction began in 2018, and ONLY reverts back to the long-term trendline, which historically has never been the case, investors would reset portfolios back to levels not seen since 1997. Two decades of gains lost. With everyone crowded into the “ETF Theater,” the “exit” problem should be of serious concern. “Over the next several weeks, or even months, the markets can certainly extend the current deviations from long-term mean even further. But that is the nature of every bull market peak, and bubble, throughout history as the seeming impervious advance lures the last of the stock market ‘holdouts’ back into the markets.”

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“..the petrodollar is not the source of the U.S. dollar’s power around the world, but rather the U.S.’s main fulcrum by which to keep competition out of the markets..”

Oil Producers Turning to Crypto to Solve Sanctions Problems (Luongo)

Last week, Venezuela announced it would develop a national cryptocurrency backed by its oil reserves, the Petro. Now there is a report that Russia is considering the same thing. Iran will likely follow suit. As of right now this is just a rumor, but it makes some sense. So, let’s treat this rumor as fact for the sake of argument and see where it leads us. The U.S. continues to sanction and threaten all of these countries for daring to challenge the global status quo. There is no denying this. [..] at the heart of this is the petrodollar. Contrary to what many believe, the petrodollar is not the source of the U.S. dollar’s power around the world, but rather the U.S.’s main fulcrum by which to keep competition out of the markets. It is a secondary effect of the dollar’s dominance in global finance today. But it is not the main driver.

Financial market are simply too big relative to the size any one commodity market for it to be the fulcrum on which everything hinges. It was that way in the past. But it is not now. That said, however, getting out from underneath the petrodollar gives a country independence to begin building financial architecture that can be levered up over time to threaten the institutional control it helped create. U.S. foreign policy defends the petrodollar along with other systems in place – the IMF, the World Bank, SWIFT, LIBOR and the central banks themselves – to maintain its control. The main oil producers, however, can escape this control simply by selling their oil in currencies other than the U.S. dollar. That’s not enough to dethrone the dollar, but, like I just said, it is where the process has to start. Therefore, any and all means must be employed to defend the dollar empire by keeping everyone inside that system.

[..] The problem with backing any currency with physical reserves is the fluctuations in value of those reserves. It’s not like oil is a low-beta commodity or anything. But, like everything else in the commodity space, price movements are supposed to be smoothed out by the futures markets helping to coordinate price with time. But the bigger problem is the estimation of those reserves the coin’s value is based on. First, how do you accurately quantify them? Can holders of Petro or Neft-coin trust the Russian or Venezuelan governments to provide accurate assessments of their reserves? Second, there is the ability of the country to pull it out of the ground and sell it into the market at anything close to a fair price. This isn’t a concern for Russia, the world’s 2nd largest supplier of oil and very stable government but Venezuela is the opposite. And, its “Petro” would probably trade at quite a discount early on to the dollar price of oil.

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I doubt it. If only because as Taleb said, you can’t actually short BTC, and they should have introduced options along with futures. They didn’t. This story is far from over.

Peak Bitcoin Media Mania Yet? (WS)

Bitcoin mania is now everywhere. It’s hard to have a conversation with regular people without sooner or later getting into bitcoin. Some of this is just for fun. Manias breed amazement. Miracles are wonderful to behold. But some of it is pretty serious. “We’ve seen mortgages being taken out to buy bitcoin,” said Joseph Borg, president of the North American Securities Administrators Association and director of the Alabama Securities Commission, on CNBC’s Power Lunch today. “People do credit cards, equity lines,” he said. Bitcoin futures trading started Sunday night on the Cboe futures exchange. Next week, the CME will offer trading in bitcoin futures.

This way, speculators can bet with unlimited derivatives on an unregulated digital entity that is backed by nothing and whose cash trading takes place in unregulated opaque and easily hacked exchanges around the world. But Borg doesn’t think that futures contracts legitimize bitcoin. Innovation and technology always outrun regulation, he said. “You’re on this mania curve. At some point in time there’s got to be a leveling off,” he said. “Cryptocurrency is here to stay. Blockchain is here to stay. Whether it is bitcoin or not, I don’t know.” And so the media mania over bitcoin has become deafening.

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But there’s definitely a media bubble, even if there’s no BTC one yet.

Bitcoin – Millennials’ “Fake Gold” (Katsenelson)

If you cannot value an asset you cannot be rational. With Bitcoin at $11,000 today, it is crystal clear to me, with the benefit of hindsight, that I should have bought Bitcoin at 28 cents. But you only get hindsight in hindsight. Let’s mentally (only mentally) buy Bitcoin today at $11,000. If it goes up 5% a day like a clock and gets to $110,000 – you don’t need rationality. Just buy and gloat. But what do you do if the price goes down to $8,000? You’ll probably say, “No big deal, I believe in cryptocurrencies.” What if it then goes to $5,500? Half of your hard-earned money is gone. Do you buy more? Trust me, at that point in time the celebratory articles you are reading today will have vanished. The awesome stories of a plumber becoming an overnight millionaire with the help of Bitcoin will not be gracing the social media.

The moral support – which is really peer pressure – that drives you to own Bitcoin will be gone, too. Then you’ll be reading stories about other suckers like you who bought it at what – in hindsight – turned out to be the all-time high and who got sucked into the potential for future riches. And then Bitcoin will tumble to $2,000 and then to $100. Since you have no idea what this crypto thing is worth, there is no center of gravity to guide you or anyone else to make rational decisions. With Coke or another real business that generates actual cash flows, we can at least have an intelligent conversation about what the company is worth. We can’t have one with Bitcoin. The X times Y = Z math will be reapplied by Wall Street as it moves on to something else.

People who are buying Bitcoin today are doing it for one simple reason: FOMO – fear of missing out. Yes, this behavior is so predominant in our society that we even have an acronym for it. Bitcoin is priced today at $11,000 because the fool who bought it for $11,000 is hoping that there is another, greater fool who will pay $12,000 for it tomorrow. This game of greater fools is not new. The Dutch played it with tulips in the 1600s– it did not end well. Americans took the game to a new level with dotcoms in the late 1990s – that round ended in tears, too. And now millennials and millennial-wannabes are playing it with Bitcoin and few hundred other competing cryptocurrencies.

The counterargument to everything I have said so far is that those dollar bills you have in your wallet or that digitally reside in your bank account are as fictional as Bitcoin. True. Currencies, like most things in our lives, are stories that we all have (mostly) unconsciously bought into. Of course, society and, even more importantly, governments have agreed that these fiat currencies are going to be the means of exchange. Also, taxation by the government turns the dollar bill “story” into a very physical reality: If you don’t pay taxes in dollars, you go to jail. (The US government will not accept Bitcoins, gold, chunks of granite, or even British pounds).

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Compared to Japan, all other central banks are wimps and pussies.

Next Bank of Japan Governor Faces a ‘Job From Hell’ (BBG)

The next governor of the Bank of Japan faces a “job from hell.” That’s according to Takeshi Fujimaki, a banker-turned-lawmaker who sees any attempt by Japan’s central bank to exit its program of unprecedented easing as triggering a Greek-like debt crisis. “This is the calm before the battle,” Fujimaki, an opposition Japan Innovation Party politician who once served briefly as an adviser to George Soros, said in an interview at his Tokyo office on Monday. BOJ Governor Haruhiko Kuroda’s five-year term runs out in April, with recent praise from Prime Minister Shinzo Abe strengthening expectations that the 73-year-old will stay on for a second stint. His massive easing program has weakened the yen, bolstered exports and helped stock prices to more than double. But inflation is still short of the government’s 2% target, and critics say the BOJ’s swollen balance sheet is unsustainable.

Fujimaki, 67, said he agreed with the view expressed by Kuroda’s predecessor Masaaki Shirakawa in his 2013 resignation press conference, when he said no judgment could be made on non-traditional monetary easing in Japan and in other developed economies until exits had been completed. Last week, Kuroda said the BOJ can take the appropriate steps to exit when the time comes, but talking specifics of an exit now would end up confusing markets. Even so, Fujimaki said Kuroda should stay on to oversee an exit from the policies he introduced. “Because Mr. Kuroda has taken it this far, he should carry on until the end,” Fujimaki said. “Just taking the good part and running away would be unfair.”

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“(SEB) says 63% of households in Stockholm now expect prices to decline in the coming year while only 21% expect an increase; that’s “a dramatic shift compared with only two months’ ago..”

Sweden: More Signs The World’s Biggest Housing Bubble Is Cracking (ZH)

We like to highlight that although Sweden’s property bubble is not the longest running (that accolade goes to Australia at 55 years), it is probably the world’s biggest, even though it gets relatively little coverage in the mainstream financial media. A month ago, we noted that SEB’s housing price indicator suffered its second biggest ever drop, falling by 39 points, only lagging a steeper fall from ten years earlier. This month the indicator, which shows the balance between households forecasting rising or falling prices, fell into negative territory, dropping to -5 from +11 in November. Households expecting prices to rise has almost halved from 66% In October, to 43% in November and 36% this month. The percentage of households expecting prices to fall has risen from 16% in October, to 32% in November and 41% this month.

After the housing price indicator was published, the Swedish krona fell as much as 0.7% versus the Euro to 10.0118, its lowest level since 5 December 2017. Not surprisingly, the focal point of Sweden’s property boom has been Stockholm, where the decline in the housing price indicator in December 2017 was precipitous. According to Bloomberg. “SEB says sharp drop in home-price expectations in Stockholm was main culprit behind the decline in its Swedish home-price indicator, with the indicator falling to -42 in the Swedish capital in Dec. from -6 in Nov. That means the Stockholm indicator is now close to the record low of -47 that was reached in Dec. 2008, at the height of the global financial crisis. (SEB) says 63% of households in Stockholm now expect prices to decline in the coming year while only 21% expect an increase; that’s “a dramatic shift compared with only two months’ ago..”

Given the disproportionate rate of decline in December in Stockholm, SEB was minded to ask whether special factors are at work “rather than general drivers such as fears over rising interest rates or a weak business cycle”. Indeed, aside from south-eastern Sweden, the outlook in all other regions remains positive. With regard to Stockholm, the bank notes that a large increase in new supply of expensive residential property and what it terms “very negative media reporting” have had an impact. Whether that’s a fair assessment, or whether it’s realist reporting of a monumental asset bubble is a moot point. What is indisputable is that the number of Swedish homes for sale has surged in November 2017 compared with the same month last year.

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After talking to Musk and Bezos. Who target billions in profits from the bridges to nowhere on steroids.

Trump Tells NASA to Send Americans to the Moon (AFP)

US President Donald Trump directed NASA on Monday to send Americans to the Moon for the first time since 1972, in order to prepare for future trips to Mars. “This time we will not only plant our flag and leave our footprint,” Trump said at a White House ceremony as he signed the new space policy directive. “We will establish a foundation for an eventual mission to Mars and perhaps someday to many worlds beyond.” The directive calls on NASA to ramp up its efforts to send people to deep space, a policy that unites politicians on both sides of the aisle in the United States. However, it steered clear of the most divisive and thorny issues in space exploration: budgets and timelines.

Space policy experts agree that any attempt to send people to Mars, which lies an average of 140 million miles (225 million kilometers) from Earth, would require immense technical prowess and a massive wallet. The last time US astronauts visited the Moon was during the Apollo missions of the 1960s and 1970s. Trump, who signed the directive in the presence of Harrison Schmitt, one of the last Americans to walk on the Moon 45 years ago, said “today, we pledge that he will not be the last.” The better known Buzz Aldrin, the second man on the Moon after Armstrong and a fervent advocate of future space missions, was also present at the ceremony but not mentioned by Trump during his speech.

[..] Trump vowed his new directive “will refocus the space program on human exploration and discovery,” and “marks an important step in returning American astronauts to the Moon for the first time since 1972.” The goal of the new Moon missions would include “long-term exploration and use” of its surface. “We’re dreaming big,” Trump said. His administration has previously held several meetings with SpaceX boss Elon Musk and Amazon owner Jeff Bezos, who also owns Blue Origin.

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The article has two authors, and at least one editor (Reuters), and still it says this: “world temperatures are likely to rise by more than 2 degrees Celsius (35.6°F) this century..

Exxon To Provide Details On Climate Change Impact To Its Business (R.)

Exxon Mobil on Monday said it would publish new details about how climate change could affect its business in a move aimed at appeasing critics and forestalling another proxy fight next year. The largest U.S. oil and gas producer said in a filing to U.S. securities regulators that its board agreed to provide shareholders with information on “energy demand sensitivities, implications of two degree Celsius scenarios, and positioning for a lower-carbon future.” Scientists have warned that world temperatures are likely to rise by more than 2 degrees Celsius (35.6°F) this century, surpassing a “tipping point” that a global climate deal aims to avert. Exxon’s statement, which came three days before the deadline for its 2018 annual meeting resolution submissions, said additional information would be released in the near future, but did not provide details.

The company’s board originally opposed providing shareholders with a report outlining the potential impact of global warming on Exxon’s long-term outlook. Thomas P. DiNapoli, New York state’s comptroller, heads one the two lead sponsors of a shareholder resolution calling for Exxon to issue a climate-impact report. He called Monday’s decision “a win for shareholders and for the company’s ability to manage risk.” However, another sponsor noted the lack of specificity in the company’s statement. “This is giving no detail,” said Tim Smith, who leads shareholder engagement efforts at Walden Asset Management, a co-filer of last spring’s resolution. He said Exxon’s statement “needs to be expanded to assure shareowners that they’re responsive to last year’s request.”

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Apple, Exxon, everybody seeks to escape their own shareholders.

Apple Aims To Block Climate, Rights Using SEC Guidance (R.)

Apple is pushing back on shareholder proposals on climate issue and human rights concerns, an effort activists worry could sharply restrict investor rights. In letters to the U.S. Securities and Exchange Commission last month, an attorney for the California computer maker argued at least four shareholder proposals relate to “ordinary business” and therefore can be left off the proxy Apple is expected to publish early next year, ahead of its annual meeting. The attorney, Gene Levoff, cited guidance issued by the SEC on Nov. 1 saying that company boards are generally best positioned to decide if a resolution raises significant policy issues worth putting to a vote.

While companies routinely seek permission to skip shareholder proposals, Apple’s application of the new SEC guidance shows how it could be used to ignore many investor proposals by claiming boards routinely review those areas, said Sanford Lewis, a Massachusetts attorney representing Apple shareholders who had filed two of the resolutions. Were the SEC to side with Apple, “this would be an incredibly dangerous precedent that would essentially say a great many proposals could be omitted,” Lewis said. [..] Often seen as distractions in the past, shareholder measures have taken on new significance as big asset managers increasingly back those on areas like climate change or board diversity.

Apple cited the SEC’s new guidance among other things in seeking to omit the shareholder measures from its proxy, according to letters Apple sent to the SEC. These include calls for Apple to take steps such as establishing a “human rights committee” to address concerns on topics like censorship, and for Apple to report on its ability to cut greenhouse gas emissions.

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Tusk against the rest. Couldn’t be because he’s Polish, could it? And looking at big jobs back home?!

EU Could ‘Scrap Refugee Quota Scheme’ (G.)

The EU could scrap a divisive scheme that compels member states to accept quotas of refugees, one of the bloc’s most senior leaders will say this week. The president of the European council, Donald Tusk, will tell EU leaders at a summit on Thursday that mandatory quotas have been divisive and ineffective, in a clear sign that he is ready to abandon the policy that has created bitter splits across the continent. Tusk will set a six-month deadline for EU leaders to reach unanimous agreement on reforms to the European asylum system, but will propose alternatives if there is no consensus. “If there is no solution … including on the issue of mandatory quotas, the president of the European council will present a way forward,” states a draft letter from Tusk to national capitals, seen by the Guardian.

In effect this means scrapping mandatory quotas, because Hungary, Poland and Czech Republic are fiercely opposed to the idea of dispersing refugees around the bloc based on a formula drawn up in Brussels. Tusk is likely to face opposition, however, from other EU bodies, including the European commission. EU leaders introduced compulsory quotas in 2015 at the height of the migration crisis, as thousands of people arrived daily on Europe’s shores, many of whom were refugees from Syria, Iraq and Eritrea. Hungary, Slovakia, Romania and the Czech Republic voted against the move, but the policy was forced through by a majority vote. Hungary and Poland have defied the rest of the EU by not taking a single refugee under the scheme, which aimed to relocate about 120,000 refugees, mainly Syrians. The Czech republic has taken in only 12. All three countries were referred to the European court of justice last week for failing to implement the policy, the usual procedure for flouting EU rules.

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All refugees living on Lesbos should be evacuated.

Lesvos Authorities Block Ship With Container Homes For Refugees (AP)

Authorities on the Greek island of Lesvos say they have blocked a ship carrying container homes for refugees and other migrants in protest at the refusal of the government and the European Union to move more people to Greece’s mainland. A government-chartered ship carrying the containers remained anchored at Mytilene, the island’s main town, on Monday after municipal vehicles were used to block port facilities. The island’s municipal board was due to meet later on Monday to decide on whether to lift the blockade following talks with the government, state-run TV ERT said. The mayors of five Greek islands facing the coast of Turkey are demanding that the government and EU end a policy of containment for migrants – introduced last year as a deterrent against illegal migration – because living facilities are severely overcrowded.

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Merkel, the story of a great and bitter failure.

Germany Rejects Additional Winter Aid For Refugees On Greek Islands (KTG)

The German Foreign Ministry has made it clear that it will not provide additional winter assistance to refugees on the Aegean islands. In a related question from German newspapers, the foreign ministry replied that “responsibility for accommodating and feeding refugees falls under the jurisdiction of each country.” According to dpa, the Foreign Ministry recalled that Berlin recently funded the installation of 135 heated containers for a total of 800 people in two camps in the Thessaloniki region and that the EU has allocated up to now 1.4 billion euros to tackle the refugee crisis in Greece.

Meanwhile, there is media report that Greece has persuaded Turkey to accept migrant returns from the mainland in order to reduce critical overcrowding in its refugee camps. The Kathimerini daily said the agreement came during a strained two-day state visit by Turkish President Recep Tayyip Erdogan this week, during which he angered his hosts with talk of revising borders and complaints about Greece’s treatment of its Muslim minority. The deal is in addition to Turkey’s existing agreement to take back migrants from Aegean island camps, under the terms of an EU-Turkey pact.

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Feb 232017
 
 February 23, 2017  Posted by at 9:53 am Finance Tagged with: , , , , , , , , , ,  


Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC 1940

 

The Absolute Dominance Of The US Economy, In One Chart (MW)
Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It
The Problem with Gold-Backed Currencies (CHS)
What’s So Great About Europe? (BBG)
Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)
‘Spain Is Ruined For 50 Years’ (Exp.)
Why Greece’s Crisis Has Broken All Previous Records (K.)
Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)
Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)
Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)
Turkish Provocations Test Greek Resolve (K.)
Greece Okays Asylum Requests Of 10,000 Refugees (K.)

 

 

Not sure that’s what I get from the graph.

The Absolute Dominance Of The US Economy, In One Chart (MW)

Despite the bleak picture painted by President Donald Trump of the U.S. as a country in disarray, America’s status as an economic superpower is still very much intact, even as China steadily closes the gap. The U.S. economy, as measured by GDP, is by far the largest in the world at $18.04 trillion. China, the closest thing the U.S. has for a competitor, is No. 2 with a GDP of $11 trillion, while Japan is a distant third with $4.38 trillion. As the chart by HowMuch.net illustrates, the U.S. accounts for about a quarter of the global economy, nearly 10 percentage points more than China’s 14.84%. Put another way, the U.S. economy is roughly equivalent to the combined GDPs of the eight next-biggest countries after China — Japan, Germany, the U.K., France, India, Italy, Brazil and Canada.

However, the narrative shifts when countries are grouped by geography, with Asia clearly in the lead. The region, denoted in yellow in the chart, contributed 33.84% to the global GDP. “Asia’s economic center of gravity is in the east, with China, Japan and South Korea together generating almost as much GDP as the U.S.,” said Raul Amoros at HowMuch.net. North America follows Asia at 27.95%, and Europe trails at 21.37%. The three blocs combined represent about 83% of the world’s economic activity. The chart also highlights the chasm between wealthy and poor countries. South America’s four largest economies — Brazil, Argentina, Venezuela and Colombia — only add up to 4% of the global GDP, while Africa’s three biggest — South Africa, Egypt and Nigeria — account for around 1.5%.

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I picked the last bit of the article.

Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It

The IMF has already survived one major mission-change. It’s known today as the lender of last resort to countries facing balance-of-payments crises. But in its first three decades, the Fund managed the world’s currency order. That was the role assigned at Bretton Woods in 1944, when the IMF and World Bank were set up. Forty-five nations attended the summit, but two men dominated it: John Maynard Keynes and America’s Harry Dexter White. From the back of her car in Uganda, Lagarde calls them the “founding fathers.” Their goal was to avoid a repeat of the 1930s, when competitive devaluations and tariff wars led to the collapse of world trade. Keynes wanted the IMF to act as a central bank of central banks, denominating their accounts in a new global currency. It would let members devalue or borrow with relative ease. Both creditors and debtors would pay interest on their holdings, discouraging large trade surpluses as well as deficits.

White’s plan was more creditor-friendly, reflecting the U.S. position as world lender. There would be no new currency: IMF members would tie their money to the dollar. They couldn’t devalue without consulting the Fund, and were only supposed to borrow short-term to close balance-of-payments gaps. “The British wanted an automatic source of credit, the Americans a financial policeman,” wrote Keynes’s biographer Robert Skidelsky. The English economist was one of the 20th century’s sharpest thinkers, but it was the U.S. Treasury official who got his way. The system turned out to have a flaw: It depended on the supply of U.S. dollars backed by gold. That link came under pressure as America, financing social programs at home and war in Vietnam, slipped into persistent deficit. In 1971, President Richard Nixon took the dollar off the gold standard, ending phase one at the IMF.

Today there’s a patchwork of floating rates, pegs and currency unions like the euro. It’s not working to everyone’s satisfaction – notably Trump’s. His team has called out several countries, from China to Germany, for gaming the system. Money courses around that system on a scale that would have been unimaginable at Bretton Woods. Massive trade imbalances built up. The dollar remains central. The risks were laid bare in 2008, when a collapsed U.S. housing bubble led to world recession. Since then, some financial leaders – among them the governor of the People’s Bank of China, Zhou Xiaochuan, and his U.K. counterpart Mark Carney – have gently hinted that something more like Keynes’s plan might be in order, to reduce the world’s dollar dependency.

Lagarde doesn’t see that happening on her watch. “It didn’t happen in 1944, when the world had destroyed itself,” she said. “I’m not a dreamer.” She argues instead that what the IMF is doing today will remain useful tomorrow. Countries will always be getting in a financial mess. Someone has to clean it up. Ukraine needed money in 2015: without the IMF, “where would the $17.5 billion come from? Whose pocket would it be?”

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The curse of the reserve currency. And if you look a bit deeper, any gold-backed currency.

The Problem with Gold-Backed Currencies (CHS)

There is something intuitively appealing about the idea of a gold-backed currency –money backed by the tangible value of gold, i.e. “the gold standard.” Instead of intrinsically worthless paper money (fiat currency), gold-backed money would have real, enduring value–it would be “hard currency”, i.e. sound money, because it would be convertible to gold itself. Many proponents of sound money identify President Nixon’s ending of the U.S. dollar’s gold standard in 1971 as the cause of the nation’s financial decline. If our currency was still convertible to gold, the thinking goes, the system would never have allowed the vast pile of debt to accumulate. The problem with this line of thinking is that it is disconnected from the real-world mechanisms of capital flows and the way money is created in our financial system.

This article explains why Nixon took the USD off the gold standard: since the U.S. was running trade deficits, all of America’s gold would have been transferred to the exporting nations. America’s gold reserves would have disappeared, leaving nothing to back the dollar. The U.S. Empire Would Have Collapsed Decades Ago If It Didn’t Abandon The Gold Standard. The problem to sound-money proponents is trade deficits: if the U.S. only had trade surpluses, then the gold would not drain away. But Triffin’s Paradox explains why this doesn’t work for a reserve currency: a reserve currency has two distinct sets of users: domestic users and global users. Each has different needs, so there is a built-in conflict between the two sets of users.

Global users of the USD need enormous quantities of dollars to use as reserves, to pay debts denominated in USD and to facilitate international trade. The only way the issuing nation can provide enough currency to meet this global demand is to run large, permanent trade deficits–in effect, “exporting” dollars in exchange for goods and services. This is the paradox: to maintain the “exorbitant privilege” of a reserve currency, a nation must “export” its currency in size; a nation that runs trade surpluses cannot supply the world with enough of its currency to act as a reserve currency.

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That is one damning set of numbers.

What’s So Great About Europe? (BBG)

A woman said that maybe the problem with the European Union – or at least the common currency, the euro – was that it was too advantageous to Germany. “Because we have a common currency, we get an edge in exports,” she said. “I profit from this. Thanks!” “Do you think this is harming our neighbor countries?” Armbruster asked. “Yes, definitely,” she responded. “Germany was always a problem in Europe,” interjected Andre Wilkens, a Berlin-based policy wonk who was one of the evening’s featured speakers but mostly sat and listened. “The EU was formed to solve that problem.” Others got up to say that Europe needed more solidarity, with Germans leading the way. It needed more of a sense of community. More attention needed to be paid to the millions of jobless young people in Greece, Italy, Portugal and Spain.

Then things shifted to straight-out Euroenthusiasm. “To be totally honest, I think Europe is super,” said a woman sitting in the front row. Added a man a few rows back: “There are problems that we Germans alone can’t solve.” By working together with the rest of Europe, he went on, Germany had a better shot at fighting climate change and preventing war. It isn’t exactly news that a bunch of people gathered in a theater in downtown Stuttgart support the idea of Europe and even, for the most part, the reality of the European Union. The home of Daimler, Porsche and Robert Bosch is one of the continent’s great economic success stories – and its residents’ political views aren’t necessarily shared by other Germans. On the whole, Germans see the EU in a more positive light than the citizens of most other European countries (I’ve included the 10 most populous EU member countries in the chart below), but they’re still pretty negative about it.

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All Italy can do is pretend. And Brussels likes it that way.

Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)

The European Commission warned that Italy faces excessive economic imbalances as the country’s shaky center-left government struggles to control public debt, boost sluggish growth and mend ailing banks. Troubles including soured bank loans risk spilling into other euro-area countries, the commission said on Wednesday. Italy’s public debt is projected to rise to 133.3% of gross domestic product this year from an estimated 132.8% in 2016. “High government debt and protracted weak productivity dynamics imply risks with cross-border relevance looking forward, in a context of high non-performing loans and unemployment,” the European Union’s executive arm in Brussels said in a set of annual policy recommendations to EU governments. Italy is struggling to maintain government stability amid infighting in the ruling Democratic Party, where some members are pushing for early elections.

The country also faces sluggish GDP growth of 0.9% this year and lingering issues at domestic banks, which are weighed down by €360 billion of bad loans that have eroded profitability, undermined investor confidence and curtailed new lending. “The stock of non-performing loans has only started to stabilize and still weighs on banks’ profits and lending policies, while capitalization needs may emerge in a context of difficult access to equity markets,” the commission said. In May it plans to recommend whether Italy should be subject to a stricter oversight regime – one with fines as a last resort – for failing to keep public debt on a trajectory toward the EU limit of 60% of GDP. The assessment will take into account final economic data for 2016 and Italian government pledges to adopt by the end of April budget-austerity measures worth 0.2% of GDP.

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“We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory..”

‘Spain Is Ruined For 50 Years’ (Exp.)

A leading Spanish economist has hit out at the ECB saying “crazy” loans will ruin the lives of the population for the next 50 years.And it is only a matter of time before the Government is forced to default as a debt bubble and low wages effectively forge the worst declines in “living memory”. Leading economist Roberto Centeno, who was an advisor to US president Donald Trump’s election team on hispanic issues, says the country has borrowed €603 billion that it cannot conceivably pay back. And he says Spanish politicians including Minister of Economy Luis de Guindos are “insulting their intelligence” after doing back door deals with the ECB. In a blog post Mr Centeno says there needs to be audits so the country can understand the magnitude of its debt mountain.

He said Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” The expert added the doomed situation will “lead to the ruin of several generations of Spaniards over the next 50 years”. And that current Prime Minister Rajoy has employed 2500 special advisors in his central government as opposed to other leaders. He said: ”Our economic future requires drastic decisions to cut public waste, such as eliminating thousands of useless public companies, thousands of useless advisers, [Prime Minister Mariano] Rajoy has 2,500 in Moncloa, compared to Obama’s 600, Merkel’s 400 or the 250 working for Theresa May.

“There’s disastrous management of Health and Education, the cost of which has skyrocketed 60 per cent since they were transferred to the Autonomous Communities while the quality plummeted.” Mr Centento also said the Government and the European Union’s estimations of GDP are completely wrong and has presented them with figures he claims are accurate. He said the country is currently suffering from a “third world production model”. He added: “We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory, “And all this was completed with a broken pension system and an insolvent financial system.”

Forecasting an unprecedented shock to the European financial model, Mr Centento is calling for an immediate audit despite a recent revelation that the ECB is failing in its supervisory role over Europe’s banks. He also claimed the Spanish government and European Union leaders have been manipulating figures since 2008. Mr Centento said: “We will require the European Commission and Eurostat to audit and audit the Spanish accounting system for serious accounting discrepancies that may jeopardise stability. “The gigantic debt bubble accumulated by irresponsible governments, and that never ceases to grow, will be the ruin of several generations of Spaniards. “The Bank of Spain’s debt to the Eurosystem is the largest in Europe. “The day that the ECB minimally closes the tap of this type of financing or markets increase their risk aversion, the situation will be unsustainable.”

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A feature not a bug.

Why Greece’s Crisis Has Broken All Previous Records (K.)

How unique is the Greek crisis? Two charts tell the tragic tale. The first – from the International Monetary Fund’s recent Article IV report on Greece – compares four major economic crises that took place in the developed world in the last 100 years: the Great Depression in the United States, the Asian financial crisis of the late 1990s, the eurozone recession and Greece’s long collapse. Greece’s performance is by far the worse. The East Asian countries caught in the hurricane of 1997-8 returned to pre-crisis real GDP within three years. The eurozone needed six years, and today its real GDP is only 2% higher than the pre-crisis high point. The output of the US economy had shrunk by a quarter three years after the Wall Street Crash of 1929, but by 1936 it had recovered to pre-crisis levels. The Greek economy contracted by 26% in real terms between 2007 and 2013, and at the end of 2016 – nine years after the start of its own Great Depression – it remained stuck at the bottom.

The second chart, from the analysis service Macropolis, compares the performance of eight countries that have sought assistance from the IMF since 1997 seven years after the start of their programs. The Fund’s best student was Turkey, which doubled its GDP in real terms between 2000 and 2007. Russia was a close second, largely thanks to growth fueled by climbing oil and gas prices. South Korea comes next, with growth well above 50% from its baseline year, while Indonesia, Brazil and Thailand are hovering around 25%. The only countries which remained below their pre-crisis GDP levels seven years after seeking the Fund’s assistance are Argentina (in the aftermath of the 1998-2002 crisis) and Greece. At its low point, three years into its crisis, Argentina’s dollar-denominated GDP – largely because of the devaluation of the peso after the abolition of convertibility – had fallen by two-thirds compared to pre-crisis highs. At the seven-year mark, Argentina, unlike Greece, was experiencing a robust recovery.

Focusing on the comparison with the Great Depression in the United States, US unemployment peaked in May 1933 at 26%, to be cut by more than half by the end of 1936. In Greece it reached 28% in July 2013, and has since fallen to 23%. The Dow Jones Industrial index lost 85% of its value between August 1929 and May 1932, but it rose fourfold in the three-and-a-half years to the end of 1936 (another 23 years would pass, however, before it got back to pre-crisis levels).

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No, it’s not just the EU, or the euro.

“..an economic climate that is normalising low-income families having to live hand to mouth..”

Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)

As the cocktail of long-term austerity, rising living costs and a slumping post-Brexit economy hits, what’s really frightening is the crisis that is brewing but is barely being noticed. Look at this week’s finding that one in four families now have less than £95 in savings. That’s staggering, not simply because it gives an insight into how large swaths of families in Britain are clinging on financially in a climate of low wages, cut benefits and high rents, but also because it offers us a warning of how little it will take to push them over the edge. There are now 19 million people in this country living below the minimum income standard (an income required for what the wider public view as “socially acceptable” living standards), according to figures released by the Joseph Rowntree Foundation (JRF) this month.

Around 8 million of them could be classed as Theresa May’s “just about managing” families: those who can, say, afford to put food on the table and clothe their children but are plagued by financial insecurity. The other 11 million live far below the minimum income standard and are, the JRF warns, “at high risk of falling into severe poverty”. We are entering a period not simply of growing hardship in this country but of what I would call precarious poverty: the sort that isn’t characterised by the traditional image of lifelong, deep-seated deprivation, but which can hit in a matter of days: a broken washing machine, a late child tax credit payment, an injury that leads to time off work. In an economic climate that is normalising low-income families having to live hand to mouth, increasingly, for a whole economic class, one small unexpected cost can trigger a spiral into debt.

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And now they’re stuck. This is where it gets risky.

Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)

Fears of inflating housing bubbles in Sydney and Melbourne are stopping the Reserve Bank from cutting interest rates to boost the economy, the central bank governor conceded today. The stark admission by Reserve Bank governor Phillip Lowe about the RBA’s dilemma comes as soaring house prices in the eastern states have Australians carrying “more debt than they ever have before”. Dr Lowe delivered the reality check at the Australia Canada Economic Leadership Forum, where he said low interest rates made it attractive for borrowers in both countries to invest in real estate, making further rate cuts an undesirable option. “We are trying to balance multiple objectives at the moment,” he said in response to questions after the speech.

“We’d like the economy to grow a bit more quickly and we’d like the unemployment rate to come down a bit more quickly than is currently forecast. “But if we were to try and achieve that through monetary policy it would encourage people to borrow more money and it probably would put more upward pressure on housing prices and, at the moment, I don’t think either of those two things are really in the national interest.” For the moment, it looks like the Reserve Bank feels content — or locked in — to leaving official interest rates on hold at a record low 1.5%. However, Dr Lowe expressed optimism that this level of rates was low enough to spark business investment and stronger economic growth, and therefore there would be no need to lower rates further.

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That’s a lot of (not) oil.

Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)

ExxonMobil has taken a big hit to one of the pillars underlying its decades of braggadocio: its oil reserves. In an announcement today, Exxon said it had written down its proven oil reserves by a massive 19.3%, a stinging reduction to what is a primary measure of any oil company’s value. As of the end of 2016, Exxon had 20 billion barrels in proven reserves, compared with 24.8 billion a year earlier. This includes the erasure of all 3.5 billion barrels of Exxon’s proven oil sands reserves at Canada’s Kearl field. Last year’s low oil prices made it uneconomical to drill at Kearl, which had been at the core of Exxon’s growth strategy. In addition, for the second straight year, Exxon failed to replace all the reserves it pumped—in 2016, it replaced just 65% of its produced reserves. In 2015, it replaced just 67%.

Prior to these years, Exxon had replaced at least 100% of its production every year since 1993. As bad as that was, it was expected: Exxon had signaled that it would write down reserves in 2016, and analysts had expected the company not to replace what it pumped. What wasn’t anticipated was the impact on Exxon’s vaunted longer-term performance. Almost every year, when Exxon announces its earnings, dividend payouts, reserve replacement results—and nearly any other important annual result—it throws in its 10-year record in the respective category to demonstrate its steady, reliable hand on the tiller. This time, bringing up the 10-year record backfired: The replacement failures of the last two years and the 2016 writedown punched a hole in Exxon’s vaunted 10-year reserves replacement average—it plunged to 82% in 2016, from 115% a year earlier.

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Simmering conflict.

Turkish Provocations Test Greek Resolve (K.)

The recent spike in Turkish provocations in the Aegean and incendiary comments emanating from Ankara are aimed at testing Greece’s resolve, according to Greek analysts. In what was seen as its latest transgression, Turkey dispatched its Cesme research vessel to conduct surveys on Wednesday in international waters between the islands of Thasos, Samothrace and Limnos, but within the area of responsibility of the Hellenic Search and Rescue Coordination Center. The night before, Turkish coast guard vessels conducted patrols in the region around the Imia islets. At the same time, the Cyprus talks are being undermined over what Greeks believe is a minor detail – the decision by the Cyprus Parliament for schools to commemorate a 1950 referendum calling for union with Greece.

Greeks say it is an attempt to shift attention from the fundamental issues of the peace talks, namely post-settlement security and guarantees. In response, Athens has pursued the principle of proportionality by countering the presence of Turkish military and coast guard vessels with an equivalent number of Greek ones, while embarking on a diplomatic campaign at international organizations and in major capitals. Analysts also attribute the spike in tension to the Supreme Court’s refusal to extradite the Turkish servicemen that Ankara says were involved in the July coup attempt. But they also note that it serves as a convenient pretext for Turkey to up the nationalistic rhetoric ahead of the April 16 referendum called by President Recep Tayyip Erdogan in a bid to expand his powers.

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Think maybe rich Europe has slipped Tsipras a few bucks?

Greece Okays Asylum Requests Of 10,000 Refugees (K.)

At least 10,000 refugees, including around 2,000 minors, are expected to remain in Greece over the coming three years as their asylum applications have been approved. The approved asylum claims account for about a sixth of more than 60,000 migrants who are currently stranded in Greece following the decision last year by a series of Balkan states to close their borders amid a massive influx of refugees from Syria and other war-torn states. The arrival of migrants in Greece has slowed significantly following an agreement between the European Union and Turkey in March last year to crack down on human smuggling across the Aegean.

However, boatloads of migrants continue to arrive on Greek shores from neighboring Turkey. On Wednesday, another 145 migrants arrived on the eastern Aegean island of Chios alone. Authorities attribute the sudden spike in arrivals to the unseasonably good weather. According to the Greek Asylum Service, a total of 1,912 migrants lodged asylum applications in January of this year. Last year, when hundreds of thousands of migrants flooded through Greece toward other parts of Europe, a total of 51,091 people applied for asylum in Greece, compared to 13,195 in 2015, 9,432 in 2014 and 4,814 in 2013.

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Sep 212016
 
 September 21, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 21 2016


Harris&Ewing Preparations for the inauguration of Woodrow Wilson, Court of Honor before White House 1913

Unlike in 1986, This Time US Might Not Dodge a Recession: Deutsche Bank (BBG)
Get Ready For The Mother Of All Stock Market Corrections (Tel.)
Japan Exports Fall 11th Straight Month, 9.6% YoY, Imports Plunge 17.3% (R.)
Bank of Japan Overhauls Policy Framework, Sets Yield Curve Target (R.)
Bank of Japan Introduces Rate Target for 10-Year Government Bonds (WSJ)
Could Germany Allow Deutsche Bank To Go Under? (Golem XIV)
Keynesian Deflation Humbug (Mish)
Nobody Has Ever Shut Down The World’s Best Drilling Rigs – Until Now (BBG)
Crude Slips As Venezuela Says Market Is 10% Oversupplied (Dow Jones)
SEC Probes Exxon Over Asset Valuation, Climate Change Accounting (WSJ)
Court Says Hanjin Shipping Rehab Plan ‘Realistically Impossible’ (R.)
Elizabeth Warren to Wells Fargo CEO: Resign, Return Earnings, Face Inquiry (G.)
Mexico Police Raid Sawmills To Rescue Monarch Butterfly Refuge (AFP)
Italy PM Renzi: Merkel Is ‘Lying To The Public’, Europe Is a ‘GHOST’ (Exp.)
EU: Refugees Must Stay On Greek Islands Despite Lesbos Fire (AP)

 

 

There are few things more nonsensical than ‘experts’ saying things like “..there’s a 30% probability that the U.S. will succumb to a recession over the next 12 months..” Yet, people keep listening.

Unlike in 1986, This Time US Might Not Dodge a Recession: Deutsche Bank (BBG)

Falling corporate margins, weakness in the U.S. labor market and rising corporate default rates — all features of the U.S. economy in 1986, a year it avoided a recession. Even if this year markets are largely shrugging off the deterioration in those key indicators and betting grim readings are down to temporary forces, Deutsche Bank strategists say to take little hope from a 30-year old precedent. Investors jittery over bleak readings on a slew of macro and corporate data have seized on 1986, when the same signals for a U.S recession were in place but the economy ended up growing 3.5% after inflation.

But bets on the continued expansion in U.S. output over the next year might be misplaced, according to European equity strategists at Deutsche Bank, since the economy is on a significantly weaker footing compared to the year that saw the release of Ferris Bueller’s Day Off. They restate the bank’s call that there’s a 30% probability that the U.S. will succumb to a recession over the next 12 months. That compares pessimistically with the 20% that is the average expectations of analysts surveyed by Bloomberg — and even with other analysts at the bank.

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…when central banks stop printing…

Get Ready For The Mother Of All Stock Market Corrections (Tel.)

[..] According to Chris Watling at Longview Economics, a wide range of indicators confirm the message: recession risks are rising. And if a recession is indeed looming, it almost certainly means a bear market in equities. Looking at all the US recessions of the last 77 years, Mr Watling finds that there is only one (1945) which has not been accompanied by a stock market correction. Complicating matters further is an ever more worrisome phenomenon – that both bond and equity markets are being artificially propped up by central bank money printing. Further easing this week from the Bank of Japan would only deepen the problem. Yet eventually it must end, and when it does, share prices globally will return to earth with a bump. Only lack of alternatives for today’s ever rising wall of money seems to hold them aloft.

Over the last year, central bank manipulation of markets has reached ludicrous levels, far beyond the “quantitative easing” used to mitigate the early stages of the crisis. Through long use, “unconventional monetary policy” of the original sort has become ineffective, and, well, simply conventional in nature. To get pushback, central banks have been straying ever further onto the wild-west frontiers of monetary policy. Today it’s not just government bonds which are being bought up by the lorry load, but corporate debt, and in the case of the Bank of Japan and the Swiss National Bank (SNB), even high risk equities. [..] For global corporations at least, credit has never been so free and easy, encouraging aggressive share buy-back programmes.

This in turn further inflates valuations already in danger of losing all touch with underlying fundamentals. By the by, it also helps trigger lucrative executive bonus awards. Where’s the real earnings and productivity growth to justify the present state of stock markets? As long as the central bank is there to do the dirty work, it scarcely seems to matter. In any case, the situation seems ever more precarious and unsustainable. Conventional pricing signals have all but disappeared, swept away by a tsunami of newly created money. Globally, the misallocation of capital must already be on a par with what happened in the run-up to the financial crisis, and possibly worse given the continued build-up of debt since then.

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World trade summed up.

Japan Exports Fall 11th Straight Month, 9.6% YoY, Imports Plunge 17.3% (R.)

Japan’s exports fell 9.6% in August from a year earlier, posting an 11th straight month of decline, Ministry of Finance data showed on Wednesday, underscoring sluggish external demand. The fall compares with a 4.8% decrease expected by economists in a Reuters poll. It followed a 14.0% drop in July, the data showed. Imports fell 17.3% in August, versus the median estimate for a 17.8% decline. The trade balance swung to a deficit of 18.7 billion yen ($184 million), versus the median estimate for a 202.3 billion yen surplus. It was a first trade deficit in three months.

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Who says Kuroda has no sense of humor? After failing to lift inflation for years, he now says he will “..allow inflation to overshoot its target..

Bank of Japan Overhauls Policy Framework, Sets Yield Curve Target (R.)

The Bank of Japan added a long-term interest rate target to its massive asset-buying program on Wednesday, overhauling its policy framework and recommitting to reaching its 2% inflation target as quickly as possible. The central bank also said it will allow inflation to overshoot its target by maintaining an ultra-loose policy – beefing up its previous commitment to keep policy easy until the target was reached and kept in a stable manner. At the two-day rate review that ended on Wednesday, the BOJ maintained the 0.1% negative interest rate it applies to some of the excess reserves that financial institutions park with the central bank.

But it abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero %. The BOJ said it would continue to buy long-term government bonds at a pace that ensures its holdings increase by 80 trillion yen ($781 billion) per year. Under the new framework that adds yield curve control to its current quantitative and qualitative easing (QQE), the BOJ will deepen negative rates, lower the long-term rate target, or expand base money if it were to ease again, the central bank said in a statement announcing the policy decision. “The BOJ will seek to lower real interest rates by controlling short-term and long-term interest rates, which would be placed as the core of the new policy framework,” it said.

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But seriously, historians will look back on today wondering how on earth we could have all swallowed this continuing gibberish.

Bank of Japan Introduces Rate Target for 10-Year Government Bonds (WSJ)

Japan’s central bank took an unexpected step Wednesday, introducing a zero interest-rate target for 10-year government bonds to step up its fight against deflation, after an internal review of previous measures that fell short of expectations. he adoption of a long-term target, the first such attempt in the BOJ’s history, came as global central banks struggle to find ways to get prices rising. Financial markets gyrated following the Bank of Japan’s announcement of what it called a “new framework” to overcome deflation. Some thought it illustrated the limits of the BOJ’s powers, since the decision didn’t include any direct new stimulus measures, while others were encouraged by the BOJ’s tone.

“Investors are showing a positive response as they got the feeling that the BOJ will do whatever it can do to tackle deflation,” said Kengo Suzuki at Mizuho Securities in reference to the yen’s fall following the BOJ action. The dollar was around 102.60 yen in afternoon Tokyo trading, compared with around 101.90 yen before the decision. The 10-year Japanese government bond yield had already been near zero in recent weeks. It was minus 0.06% just before the decision and was minus 0.03% in Tokyo afternoon trading hours after the decision. The new framework puts 10-year interest rates at the center of policy, a contrast to the BOJ’s approach for the last 3 1/2 years under Gov. Haruhiko Kuroda, when asset purchases and expanding the monetary base were the key policy tool.

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Smart from Golem.

Could Germany Allow Deutsche Bank To Go Under? (Golem XIV)

[..] public bail outs are supposed to be strictly temporary. No holding 80% of RBS for most of a decade. Really? But that’s not the point which is important for Deutsche Bank. The important point is that in any sale of the viable parts of Germany’s only G-SIB, the brutal fact of the matter is that there is no other German financial institution that could afford to buy any of it. Commerzbank? Allianz? Letting an insurer buy a bank? So imagine the situation for Germany. They lose their seat at the top table and then they watch as France, England, American or perhaps China buy the crown of German financial might. So I don’t think it will ever happen. Or at least it will only happen when Germany is truly out of any other options. So if Deutsche is not going to be declared “no longer viable” what are the alternatives?

One option is the UniCredit route. UniCredit was a trillion euro bank. It was Italy’s flag carrier. It had bought Bavaria’s banks and some of Austria’s as well. And yet it’s share price was always paltry. Just 7.6 Euros at the market top in May ’07. And since then it has been a hollow and enfeebled giant. Lumbering and ineffectual. It has been the laughing stock of European banks. But Italy doesn’t seem to mind. They seem content to let UniCredit be the quintessential Zombie bank. Would Germany be as sanguine to leave Deutsche to go the same way? This would, I suggest, be almost as injurious to German pride and industrial policy as letting Deutsche go down completely.

But if Germany decided it could not face the financial consequences of obeying the letter of the resolution law nor leave the bank to be a bloated and useless zombie then the alternatives bring in their train even greater political upheavals. Imagine the German government decides that not bailing out Deutsche just inflicts too much damage on Germany – potentially reducing Germany from the front rank of globally significant nations to something lesser. It becomes a matter of national pride if not of survival. So Germany ignores all the FSB rules and regulations and bails Deutsche bringing it into government ownership/protection – call it what you like. In so doing it demolishes the entirety of European policy regarding bail outs, government debts and austerity.

Where then all the German insistence on fiscal discipline it has forced upon Greece, Ireland, Portugal, Spain and Italy? The Bundesbank, Berlin and the ECB would have no authority at all. Every country would have a green light to do the same for their flag carriers. It would be the end the European experiment. Or the European system would have to try to continue without Germany. And that could only happen if all debts to Germany were repudiated. I realise all this is speculation. But Deutsche has lost 90% of its value. Only RBS has lost more. Deutsche has 7000 legal cases against it. Frau Merkel is losing her grip, Brexit rocked the complacent rulers of Euroland and Madame Marine Le Pen would like to push France to do the same.

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Mish restates the obvious: “Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it’s precisely the opposite.”

Keynesian Deflation Humbug (Mish)

Hip, hip, hooray! The CPI is up more than expected, led by a huge 1.1% month-over-month surge in medical care supplies. Medical care services jumped 0.9%, and shelter jumped 0.3%. This will not help the economy. And it will subtract from consumer spending other than Obamacare and rent, but economists are cheering.

Real World Happiness

  • Food at home -1.9%
  • Energy -9.2%
  • Gasoline -17.3%
  • Fuel Oil -12.8%
  • Electricity -.07%
  • Used cars -4.0%

Unreal World Happiness

  • Food Away From Home +2.8%
  • Medical Care Commodities +4.5%
  • Shelter +3.4%
  • Transportation Services +3.1%
  • Medical Care Services +5.1%

Keynesian Theory vs. Practice Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it’s precisely the opposite. If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.

Reality Check Questions

  • If price of food drops will people stop eating?
  • If the price of gasoline drops will people stop driving?
  • If price of airline tickets drop will people stop flying?
  • If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
  • If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
  • If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
  • Will people delay medical procedures in expectation of falling prices?
  • If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

Anyone who thinks soaring Obamacare and rent is a good thing and will help the economy is crazy.

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Forget the OPEC output cut talks, here’s what’s really happening in oil.

Nobody Has Ever Shut Down The World’s Best Drilling Rigs – Until Now (BBG)

In a far corner of the Caribbean Sea, one of those idyllic spots touched most days by little more than a fisherman chasing blue marlin, billions of dollars worth of the world’s finest oil equipment bobs quietly in the water. They are high-tech, deepwater drillships – big, hulking things with giant rigs that tower high above the deck. They’re packed tight in a cluster, nine of them in all. The engines are off. The 20-ton anchors are down. The crews are gone. For months now, they’ve been parked here, 12 miles off the coast of Trinidad & Tobago, waiting for the global oil market to recover. The ships are owned by a company called Transocean Ltd., the biggest offshore-rig operator in the world. And while the decision to idle a chunk of its fleet would seem logical enough given the collapse in oil drilling activity, Transocean is in truth taking an enormous, and unprecedented, risk.

No one, it turns out, had ever shut off these ships before. In the two decades since the newest models hit the market, there never had really been a need to. And no one can tell you, with any certainty or precision, what will happen when they flip the switch back on. It’s a gamble that Transocean, and a couple smaller rig operators, felt compelled to take after having shelled out millions of dollars to keep the motors running on ships not in use. That technique is called warm-stacking. Parked in a safe harbor and manned by a skeleton crew, it typically costs about $40,000 a day. Cold-stacking – when the engines are cut – costs as little as $15,000 a day. Huge savings, yes, but the angst runs high.

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OPES helps the US bring Maduro to his knees.

Crude Slips As Venezuela Says Market Is 10% Oversupplied (Dow Jones)

Oil prices dipped to a new one-month low Tuesday as hopes for any deal between OPEC countries and Russia to freeze production continued to fade. U.S. crude for October delivery recently fell 14 cents, or 0.3%, to $43.18 a barrel on the New York Mercantile Exchange. The October contract expires at settlement, and the more actively traded November contract recently fell 27 cents, or 0.6%, to $43.59 a barrel. Brent, the global benchmark, fell 42 cents, or 0.9%, to $45.53 a barrel on ICE Futures Europe. Recent trade has been marked by fears that more OPEC members are intent on increasing production, even as leaders discuss the possibility of an output cap. Libya, Iran and Nigeria combined want to increase their output by about 1.5 million barrels a day this year.

Even Venezuela is raising exports, despite financial and production troubles, and the moves from all these countries are a clear message that none would be interested in agreeing to a cap, said Bjarne Schieldrop from Sweden’s SEB bank. He added that any deal would probably allow exceptions for Nigeria, Libya, Venezuela and Iran to lift production, possibly nullifying any agreement. “It doesn’t seem like any oil producers outside of North America are doing anything to control their production levels,” said Gene McGillian, research manager at Tradition Energy. Oil has been in a steady downtrend for the better part of two weeks with concerns over lingering oversupply. Prices are down 9.4% since they hit a high point for nearly the past month on Sept. 8.

The biggest drop came in two days last week after the International Energy Agency said a slowdown in global oil demand growth accelerated this quarter, sinking to 800,000 barrels a day – 1.5 million barrels a day lower than the third quarter of 2015. Despite that and talks of an output cap, data show OPEC members broadly producing near-record amounts of crude. “Fundamentals suggest the oil market is likely to remain in surplus for longer than many expected,” strategists at ING Bank said in a note.

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Exxon has not: 1) written down valuations of reserves as prices plunged, and 2) accounted for the financial consequences of climate change regulations.

SEC Probes Exxon Over Asset Valuation, Climate Change Accounting (WSJ)

The U.S. Securities and Exchange Commission is investigating how Exxon Mobil values its assets in a world of increasing climate-change regulations, a probe that could have far-reaching consequences for the oil and gas industry. The SEC sought information and documents in August from Exxon and the company’s auditor, PricewaterhouseCoopers, according to people familiar with the matter. The federal agency has been receiving documents the company submitted as part of a continuing probe into similar issues begun last year by New York Attorney General Eric Schneiderman, the people said.

The SEC’s probe is homing in on how Exxon calculates the impact to its business from the world’s mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects. The decision to step into an Exxon investigation and seek climate-related information represents a moment in the effort to take climate change more seriously in the financial community, said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based advocacy organization that has pushed for more carbon-related disclosure from companies.

“It’s a potential tipping point not just for Exxon, but for the industry as a whole,” he said. As part of its probe, the SEC is also examining Exxon’s longstanding practice of not writing down the value of its oil and gas reserves when prices fall, people familiar with the matter said. Exxon is the only major U.S. producer that hasn’t taken a write down or impairment since oil prices plunged two years ago. Peers including Chevron have lowered valuations by a collective $50 billion.

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Shipping prices will plummet.

Court Says Hanjin Shipping Rehab Plan ‘Realistically Impossible’ (R.)

The South Korean court overseeing Hanjin Shipping’s receivership said a rehabilitation plan is “realistically impossible” if top priority debt such as backlogged charter fees exceed 1 trillion won ($896 million), South Korea’s Yonhap newswire reported on Wednesday. Hanjin Shipping, the world’s seventh-largest container carrier, filed for receivership late last month in a South Korean court and must submit a rehabilitation plan in December. With debt of about 6 trillion won ($5.4 billion) at the end of June and the South Korean government’s unwillingness to mount a rescue, expectations are low that Hanjin Shipping will be able to survive. Top priority debt means claims for public interests, which are paid first to creditors and include cargo owners’ damages and unpaid charter fees, Yonhap reported citing the Seoul Central District Court.

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Shouldn’t such an inquiry be as obvious as common sense??

Elizabeth Warren to Wells Fargo CEO: Resign, Return Earnings, Face Inquiry (G.)

Wells Fargo chief executive John Stumpf should resign, return his pay and be criminally investigated over the bank’s illegal sales practices, Senator Elizabeth Warren said on Tuesday. The Massachusetts senator’s comments came moments after Stumpf said he was “deeply sorry” for the more than 2m unauthorized accounts his staff opened for the bank’s customers. The accounts, ranging from credit cards to checking accounts, were opened by thousands of the bank’s employees in an effort to meet Wells Fargo’s sales quotas and have already led to a record $185m fine. While testifying in front of the Senate banking committee, Stumpf said he was “deeply sorry” that the bank let down its customers and apologized for violating their trust.

“I accept full responsibility for all unethical sales practices in our retail banking business, and I am fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust,” Stumpf said in his prepared remarks. Warren accused Stumpf of “gutless leadership”, telling him that his definition of being accountable is to push the blame on lower-level employees who do not have a PR firm to defend them. Warren questioned Stumpf’s compensation, asking him: “Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?” “The board will take care of that,” Stumpf said after attempting to duck the question. He also told Warren that this “was not a scam”.

Warren pointed out that during the time that the unauthorized accounts were being opened, the share price of Wells Fargo went up by about $30. Stumpf personally owns about 6.75m shares of Wells Fargo stock and made more than $200m just off his stock during that time, Warren said. [..] At the hearing Stumpf pointed out that the lowest paid employees at Wells Fargo earn $12 an hour and that the employees let go for opening unauthorized accounts were making “good money”, earning $30,000 to $60,000 a year. “How much money did you make last year?” New Jersey senator Robert Menendez asked Stumpf. “$19.3m,” said Stumpf. “Now that’s good money,” said Menendez.

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Kudo’s.

Mexico Police Raid Sawmills To Rescue Monarch Butterfly Refuge (AFP)

A special Mexican police unit has raided seven sawmills near the monarch butterfly’s mountain sanctuary in a bid to prevent illegal logging threatening the insect’s winter migration, officials said Tuesday. Backed up by a helicopter, some 220 members of the country’s police force and 40 forestry inspectors participated in the September 12 operation in the western state of Michoacan. North American governments have taken steps since last year to protect the monarch butterfly, which crosses Canada and the United States each year to hibernate on the fir and pine trees of Mexico’s western mountains. Last week’s raid was the first since the government decided in April to add the police to protection efforts for the brilliant orange and black monarchs.

The force has been conducting foot patrols day and night, using drones and helicopters for surveillance when weather permits, Abel Corona, director of the special units, said at a news conference. [..] Illegal logging dropped by 40% between the 2014-2015 and 2015-2016 butterfly season, environmental protection authorities said last month. But March storms killed seven% of the monarchs. The cold spell came after authorities had reported a rebound in the 2015-2016 season, with the butterfly covering 4.01 hectares (9.9 acres) of forest, more than tripling the previous year’s figure.

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Renzi in his referendum desperation finally tells the truth, somewhat.

Italy PM Renzi: Merkel Is ‘Lying To The Public’, Europe Is a ‘GHOST’ (Exp.)

Angela Merkel has been lying to the public about European unity, Italian Prime Minister Matteo Renzi has said. In a brutal attack on his fellow EU members, he said the first EU summit without the UK amounted to no more than “a nice cruise on the Danube”. Having been excluded from a joint news conference by the German Chancellor, Mrs Merkel and French President Francois Hollande, he said he was dissatisfied with the Bratislava summit’s closing statement. The outspoken Italian premier hit out at the lack of commitments on the economy and immigration in the summit’s conclusions, despite signing it himself. In a fiery interview in Italian daily Corriere della Sera, Mr Renzi intensified his criticisms, although he remained vague on what commitments he would have liked the summit to produce.

The Prime Minister has staked his career on a referendum this autumn over plans for constitutional reform, promising to resign if he loses. Talking about his fellow leaders, he said: “If we want to pass the afternoon writing documents without any soul or any horizon they can do it on their own. “I don’t know what Merkel is referring to when she talks about the ‘spirit of Bratislava’. “If things go on like this, instead of the spirit of Bratislava we’ll be talking about the ghost of Europe.” Mr Renzi said he is preparing a 2017 budget which he claims will cut taxes despite a slowing economy and record high public debt. He added: “At Bratislava we had a nice cruise on the Danube, but I hoped for answers to the crisis caused by Brexit, not just to go on a boat trip.”

He was similarly belligerent about the Italian budget to be presented next month, saying there would be “no negotiation” with Brussels, and money he planned to spend on tackling immigration and making Italy safer from earthquakes would be excluded from EU rules on deficit limits. Other countries were more guilty than Italy of breaking budget rules and Italy had met its commitments on tackling the inflows of migrants crossing the Mediterranean, Renzi said. He said: “I’m not going to stay silent for the sake of a quiet life. “If someone wants to keep Italy quiet they have picked the wrong place, the wrong method and the wrong subject.”

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In case anyone still had any doubts about this, here’s more proof that it’s the EU, not Greece, that is responsible for the expanding misery. Europe wants the islands to serve as holding pens, so richer Europe doesn’t have to face the consequences of the policies it itself dictates.

“To avoid secondary movement to the rest of Europe, that means keeping asylum seekers on the islands..”

EU: Refugees Must Stay On Greek Islands Despite Lesbos Fire (AP)

Authorities on the island of Lesvos called for the immediate evacuation Tuesday of thousands of refugees to the Greek mainland after a fire gutted a detention camp following protests. But EU officials appeared cool to the idea. More than 4,000 people were housed at the camp in Moria on Lesvos where the fire broke out late Monday, destroying or damaging tents and trailers. No injuries were reported at the camp, about 8 kilometers north of the island’s main town. Nine migrants were arrested on public disturbance charges after the chaotic scenes. Families with young children hastily packed up their belongings and fled into the nearby fields as the fire raged after nightfall. Many were later given shelter at volunteer-run camps. “We have been saying for a very long time that overcrowding on the islands must be eased,” regional governor Christiana Kalogirou said.

“On the islands of the northeast Aegean, official facilities have a capacity of 5,450 places, but more than 10,500 people are there. There is an immediate need to take people off the islands because things will get even more difficult,” she said. More than 60,000 migrants and refugees are stranded in transit in Greece, and those who arrived after March 20 have been restricted to five Aegean islands under an EU-brokered deal to deport them back to Turkey. But the agreement has been fraught with delays. In Brussels, a spokeswoman for the European Commission, Natasha Bertaud, said the Greek government had described the situation as being under control. Transfers to the mainland, she said, would remain limited. “To avoid secondary movement to the rest of Europe, that means keeping asylum seekers on the islands for the most part,” Bertaud said.

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Apr 272016
 
 April 27, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , , , ,  


G. G. Bain Navy dirigible, Long Island 1915

Apple Just Wiped Out $40 Billion In Value (BI)
Rotten Apple: Stock Plunges 8% On Earnings, Revenue Miss (CNBC)
Apple China Sales Drop 26% (CNBC)
Alarm Over Corporate America’s Debt And Stalled Earnings (Authers)
Weak US Factory, Consumer Confidence Data Cloud Growth Outlook (R.)
Once Bustling Trade Ports in Asia and Europe Lose Steam (WSJ)
Exxon Mobil Downgrade Leaves Just Two AAA-Rated Companies In The US (MW)
China Ratings Downgrade Wave Seen as Next Driver of Bond Slump (BBG)
China’s Commodity Frenzy Spurs New Crackdown From Exchanges (BBG)
Eurogroup Meeting Cancelled, Tsipras To Ask For Special EU Summit (Kath.)
Greece Faces New IMF Curve Ball to Unlock Aid (BBG)
Moody’s Downgrades Canadian Province Of Alberta On Rising Debt (R.)
From Germany To The US, Authorities Want Access To Panama Papers (DW)
‘Largest Ever Airlift’ Flies 33 Circus Lions To Africa Sanctuary (AP)
How Less Stuff Could Make Us Happier – And Fix Stagnation (G.)
Europe’s Failure On Refugees Echoes The Moral Collapse Of The 1930s (G.)

A lot of people and funds are long Apple, and own sizable chunks of it.

Apple Just Wiped Out $40 Billion In Value (BI)

Apple’s disappointing earnings report on Tuesday sent the stock down more than 7% in after-hours trading. That’s a lot for any company, but particularly dramatic for Apple, which is the most valuable in the world. Before the market closed today, Apple’s market cap was $578 billion. That means a 7% drop erases more than $40 billion worth of value. But the bad news doesn’t end there. Shares of some of Apple’s suppliers are also down, with Bloomberg reporting that Cirrus Logic has lost more than 8%. By way of comparison, Alphabet’s market cap is around $485 billion. How long until it passes the leader?

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Peak Apple is now in the rearview mirror.

Rotten Apple: Stock Plunges 8% On Earnings, Revenue Miss (CNBC)

Apple reported quarterly earnings and revenue that missed analysts’ estimates on Tuesday, and its guidance for the current quarter also fell shy of expectations. The tech giant said it saw fiscal second-quarter earnings of $1.90 per diluted share on $50.56 billion in revenue. Wall Street expected Apple to report earnings of about $2 a share on $51.97 billion in revenue, according to a consensus estimate from Thomson Reuters. That revenue figure was a roughly 13% decline against $58.01 billion in the comparable year-ago period — representing the first year-over-year quarterly sales drop since 2003. Shares in the company fell more than 8% in after-hours trading, erasing more than $46 billion in market cap.

That after-hours loss is greater than the market cap of 391 of the S&P 500 companies. Importantly, the company announced a 10% dividend increase and a $50 billion increase to its capital return program. Under that new plan, Apple expects to spend a total of $250 billion of cash by the end of March 2018, it said. On the dividend, Apple said its board had declared a dividend of $.57 per share, payable on May 12, 2016 to shareholders of record as of the close of business on May 9. A key reason for the declining revenue was Apple’s year-over-year decrease in iPhone sales. Despite this, Apple CEO Tim Cook told CNBC Tuesday that the company is in “the early innings of the iPhone.”

In fact, Apple beat Wall Street’s estimates on iPhone shipments, reporting 51.19 million for the quarter. Analysts had expected 50.3 million, according to StreetAccount. Still, that iPhone unit count was a 16% decline from the 61.17 million shipped during the same period last year. For his part, however, Cook described the iPhone business as “healthy and strong” on the call. In fact, Cook said the company added more switchers from Android and other platforms in the first half of the year than in any other six month period ever.

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Tim Cook is spinning. Reality says the next great gadget is long overdue; the iPhone is a Jobs idea, the iWatch a failure, and what has Apple done for you lately?

Apple China Sales Drop 26% (CNBC)

Apple’s sales in China tumbled in the second quarter after currency headwinds hurt Hong Kong sales, the company said in Tuesday’s earnings. “The vast majority of the weakness sits in Hong Kong,” Apple CEO Tim Cook told analysts in an earnings call. “The Hong Kong dollar being pegged to the U.S. dollar, and therefore it carries the burden of strength of U.S. dollar. And that has driven tourism, trade and international shopping down significantly compared to what it was in the year ago.” The company reported quarterly earnings and revenue that missed analysts’ expectations, with revenue declining year-over-year in every region. But China saw the biggest share of declines: Greater China sales, once the tech giant’s fastest growing market, fell to $12.49 billion in the second quarter, the company said, a 26% year-over-year decline.

Excluding Hong Kong and Taiwan, mainland China saw sales decline 11% on a reported basis, and 7% on a constant currency basis, Cook said. But people need to look under the numbers, Cook said, as LTE adoption increases and more Apple stores open in the region. “When I look at the larger picture, I think China is not weak as is talked about,” Cook said. “I see China as … a lot more stable than what I think is the common view of it. We remain really optimistic about China.” Chief financial officer Luca Maestri said the business in China was “better than the numbers might suggest.” “We had significant inventory channel reductions and currency weakness which affected our reported revenue,” Maestri said in an earnings call.

“Keep in mind that we were up against an extremely difficult year-ago compare when our mainland China revenue grew 81%. We remain very optimistic about the China market over the long-term, and we are committed to investing there for the long run.” But speaking in January, Cook warned that the company had seen “some signs of economic softness” in the Greater China region. That business segment, which includes mainland China, Taiwan and Hong Kong, is a key area of growth for the U.S. tech giant, but Cook acknowledged in January that it had been something of a “turbulent environment.” China has seen its pace of economic expansion slowing in recent quarters, and its stock markets have taken investors on a roller coaster ride during that time.

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Buybacks are fizzling out. They’re too expensive an option to continue propping up shares.

Alarm Over Corporate America’s Debt And Stalled Earnings (Authers)

Corporate America is swimming in cash. There is no great news about this, and no great mystery about where it came from. Seven years of historically low interest rates will prompt companies to borrow. A new development, however, is that investors are starting to ask in more detail what companies are doing with their cash. And they are starting to revolt against signs of over-leverage. That over-leverage has grown most blatant in the last year, as earnings growth has petered out and, in many cases, turned negative. This has made the sharp increases in corporate debt in the post-crisis era look far harder to sustain. Perhaps the most alarming illustration of the problem compares annual changes in net debt with the annual change in earnings before interest, tax, depreciation and amortisation, which is a decent approximation for the operating cash flow from which they can expect to repay that debt. As the chart shows, debt has grown at almost 30% over the past year; the cash flow to pay it has fallen slightly.

According to Andrew Lapthorne of Société Générale, the reality is that “US corporates appear to be spending way too much (over 35% more than their gross operating cash flow, the biggest deficit in over 20 years of data) and are using debt issuance to make up the difference”. The decline in earnings and cash flows in the past year has accentuated the problem, and brought it to the top of investors’ consciousness. A further issue is the uses to which the debt has been put. As pointed out many times in the post-crisis years, it has generally not gone into capital expenditures, which might arguably be expected to boost the economy. It has instead been deployed to pay dividends, or to buy back stock — or to buy other companies. Shifts in these uses of cash are now affecting markets.

Cash-funded mergers and acquisitions are at a record. In the four quarters to the end of last September, according to Ned Davis Research, S&P 500 companies spent $376bn on acquisitions, 43% above the prior high in 2007, ahead of the credit crisis. Buyback activity remains intense. According to S&P Dow Jones, for each of the seven quarters up to the third quarter of last year, between 20% and 23% of S&P 500 companies bought back enough shares to reduce their total shares outstanding at a rate of 4% per year. In the last quarter of 2015, 25.8% of companies did so.

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“First-quarter GDP growth estimates are as low as a 0.3% rate.”

Weak US Factory, Consumer Confidence Data Cloud Growth Outlook (R.)

Orders for long-lasting U.S. manufactured goods rebounded far less than expected in March as demand for automobiles, computers and electrical goods slumped, suggesting the downturn in the factory sector was far from over. Tuesday’s report from the Commerce Department also implied that business spending and economic growth were weak in the first quarter. Prospects for the second quarter darkened after another report showed an ebb in consumer confidence in April. The data came as Federal Reserve officials started a two-day policy meeting. The U.S. central bank is expected to leave its benchmark overnight interest rate unchanged on Wednesday. The Fed raised rates in December for the first time in nearly a decade.

“These disappointing reports will likely add to the caution at the Fed. Given the weak performance in these two key segments of the economy, we expect the rebound in growth momentum in the second quarter to be quite weak,” said Millan Mulraine, deputy chief economist at TD Securities in New York. The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, increased 0.8% last month after declining 3.1% in February. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged after a downwardly revised 2.7% decrease in the prior month. These so-called core capital goods orders were previously reported to have decreased 2.5% in February.

Economists had forecast durable goods orders advancing 1.8% last month and core capital goods increasing 0.8%. Shipments of core capital goods – used to calculate equipment spending in the gross domestic product report – rose 0.3% after slumping 1.8% in February. Manufacturing, which accounts for 12% of the U.S. economy, is struggling with the lingering effects of the dollar’s past surge and sluggish overseas demand. [..] The durable goods report added to recent reports on retail sales, trade and industrial production in suggesting economic growth slowed further in the first quarter. The economy grew at an anemic 1.4% annualized rate in the fourth quarter. First-quarter GDP growth estimates are as low as a 0.3% rate. The government will publish its advance first-quarter GDP growth estimate on Thursday.

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It’ll take a long time for people to acknowledge that globalization, centralization, global trade, are declining and are in essence over, since they are shrinking. And shrinkage=death in our system.

Once Bustling Trade Ports in Asia and Europe Lose Steam (WSJ)

At a logistics park bordering Shanghai’s port last month, the only goods stored in a three-story warehouse were high-end jeans, T-shirts and jackets imported from the U.K. and Hong Kong, most of which had sat there for nearly two years. Business at the 108,000-square-foot floor warehouse dwindled at the end of 2015 after several Chinese wine importers pulled out, said Yang Ying, the warehouse keeper, leaving lots of empty space. The final blow came after a merchant turned away a shipment in December at the dock. “The client told the ship hands, just take the wine back to France,” Ms. Yang said. “Nobody wants it.” Pain is increasing among the world’s biggest ports—from Shanghai to Hamburg—amid weaker growth in global trade and a calamitous end to a global commodities boom.

Overall trade rose just 2.8% in 2015, according to the World Trade Organization, the fourth consecutive year below 3% growth and historically weak compared with global economic expansion. The ancient business of ship-borne trade has been whipsawed, first by a boom that demanded more and bigger vessels, and more recently by an abrupt slowing. That turnabout has roiled the container-shipping industry, which transports more than 95% of the world’s goods, from clothes and shoes to car parts, electronic and handbags. It has set off a frenzy of consolidation and costs cutting across the world’s fleets. Ashore, it is also slamming ports and port operators, the linchpin to global commerce. Nowhere is the carnage more painful than along the Europe-Asia trade route, measuring roughly 28,000 miles round trip.

A cooling Chinese economy and a high-profile crackdown by Beijing on corruption has damped demand for everything from commodities like iron ore to designer scarves and shoes. Meanwhile, Europe’s still sputtering recovery from the global economic crisis is hitting the flow of goods in the other direction. On Friday, the Hong Kong Marine Department reported throughput for its port in the first quarter was off 11% from the first three months of last year. Throughput for all of 2015 also dropped 11%. “It is the first time you see people in shipping being really scared,” said Basil Karatzas, of New York-based Karatzas Marine Advisors and Co.

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Things are not well.

Exxon Mobil Downgrade Leaves Just Two AAA-Rated Companies In The US (MW)

In a sign of deteriorating credit quality, Standard & Poor’s on Tuesday stripped oil giant Exxon Mobil of its pristine AAA rating, leaving just two U.S. non-financial companies with what is the highest possible rating on their debt. Microsoft and consumer goods giant Johnson & Johnson are now the only companies to enjoy an AAA rating, the strongest possible vote of confidence in their financial strength and discipline in meeting all of their debt obligations. As recently as 2008, there were six AAA-rated companies, but General Electric, Pfizer and Automatic Data Processing have been downgraded since then. “This shows that the corporate market is not immune from secular industry changes and deep cyclical troughs that materially impact the immediate-term credit outlook,” said Brian Gibbons at research firm CreditSights.

S&P cut Exxon’s rating by two notches to AA-plus, and said the outlook is stable, meaning it does not expect to adjust the rating in the near term. The rating agency had placed the rating on CreditWatch negative on Feb. 2, in the light of the lengthy slump in oil prices. “We believe Exxon Mobil’s credit measures will be weak for our expectations for a ‘AAA’ rating due, in part, to low commodity prices, high reinvestment requirements, and large dividend payments,” the agency wrote in a statement. Exxon has more than doubled its debt load in recent years, as it spends generously on major projects, said S&P. But the oil giant has also been rewarding its shareholders with dividend payments and share buybacks “that substantially exceeded internally generated cash flow.”

Exxon is likely to benefit from near-term production gains as some of those projects are completed, but maintaining production and replacing reserves will require more spending. “We believe the company may return cash to shareholders rather than building cash or reducing debt, limiting improvement in our projected credit measures when commodity prices improve,” said S&P. Gibbons said the two-notch downgrade is harsh, given Exxon’s status as the best-of-breed oil and gas company in the world, the strength of its balance sheet and earnings diversity through upstream and downstream businesses. “Its global reach positions it much better than any other energy peer, but it too is not immune to the depths of the cycle,” he said.

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Zombie nation.

China Ratings Downgrade Wave Seen as Next Driver of Bond Slump (BBG)

China’s slumping onshore bond market is braced for rating cuts, as companies report weaker earnings and prepare for unprecedented debt maturities. China Securities and HFT Investment Management predict downgrades will surge as a slumping economy makes financial reports due by April 30 a gloomy read. Companies in China must repay 547 billion yuan ($86 billion) of onshore notes in May, the most in any month ever, data compiled by Bloomberg show. Investors are avoiding risky debt, with the yield premium on three-year AA- rated local bonds, considered junk in China, widening 43 basis points in April, the most since 2014. “An explosion of credit risks is spreading,” said He Qian at HFT Investment Management. “The risks are spreading from privately held companies to state-owned companies, from overcapacity industries to all other industries.”

At least seven companies missed bond payment this year, up from only two in the same period of 2015 as Premier Li Keqiang tries to rid industries with overcapacity of zombie producers. Onshore agencies have cut 33 issuer ratings, almost double the 17 for the first four months of 2015, according to China Chengxin International Credit Rating Co. There have been 34 upgrades versus 37% a year ago. “We will see a wave of rating downgrades in the middle of this year,” said Wei Zhen at Bosera Asset Management. She oversees the Bosera Anfeng 18-Month Interval Bond Fund, whose 17% return in the past year was the best among fixed-income funds tracked by research firm Howbuy. “The rising credit risks may lead to a further correction in the corporate bond market.” Chinese investors have complained onshore ratings don’t fully reflect issuers’ credit risks.

More than 50% of Chinese locally-rated AAA bonds issued by listed firms may have default risk consistent with what Bloomberg’s quantitative, independent default-risk model deems below-investment-grade companies. Shi Yuxin at HuaAn Fund Management said in a report on April 18 that China’s “inflated” ratings will be under pressure to have “substantial” downgrades in 2016 as local governments cut their support for troubled companies. About 14.9% of listed Chinese companies have forecast losses for 2015, compared with 12.7% in 2014, according to data compiled by China International Capital Corp. Ministry of Finance data released on Tuesday showed that profit at state-owned companies slid 13.8% in the first quarter from a year earlier. Investors are fleeing the bond market. The market value of assets held by 718 onshore bond funds dropped last week, accounting for 95.6% of all the fixed-income funds tracked by Shanghai-based research firm Howbuy.

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Beijing has lost the narrative.

China’s Commodity Frenzy Spurs New Crackdown From Exchanges (BBG)

China’s commodity exchanges stepped up efforts to curb speculation in trading in everything from steel to iron ore and coking coal after prices soared amid a credit-fueled binge. Futures slumped on Wednesday. Bourses in Dalian, Shanghai and Zhengzhou have announced further measures, including higher fees and a reduction in night hours, adding to a raft of moves this month that have made it more expensive for investors to trade. Goldman Sachs said this week it was concerned about the surge in speculative trading in iron ore, adding daily volumes were so large that they sometimes exceed annual imports. Ore prices have surged 34% this year in Dalian, while steel reinforcement bar is up 39% in Shanghai.

Morgan Stanley said the spike in speculative trading had stunned global markets, citing a jump in activity for eggs, garlic and cotton as well as iron ore and steel. The explosive growth in trading has stoked concerns that the frenzy was triggered by a credit-fueled surge in liquidity echoing the stock market bubble in 2015 and is destined for a similar bust, according to Zheng Ge at CEFC Wanda Futures. China’s investors have been honing in on raw materials amid signs of a pickup in demand after policy makers talked up growth, added stimulus and the property market rebounded. Among the latest changes, the Dalian exchange raised trading fees for iron ore, coking coal and coke, while Shanghai said it would increase margin requirements for steel reinforcement bar and hot-rolled coil, and shorten trading hours.

The Zhengzhou exchange raised trading charges and margin requirements for some commodities. Iron ore futures plunged 4.1% on Wednesday, extending their decline in the past four days to 8.9%. Steel reinforcement bar lost 3.2% and coking coal slid 4.6% as prices responded to the exchange moves. “We’re trying to clampdown firmly on the trend of excessive speculation in some commodity trading,” the Dalian bourse said in a statement. “We’ll be highly vigilant and adopt further measures if necessary.”

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Does SYRIZA have any fight left? If not, Europe is going to walk all over it.

Eurogroup Meeting Cancelled, Tsipras To Ask For Special EU Summit (Kath.)

Greece and its lenders were unable on Tuesday to reach an agreement on how to line up €3.6 billion in contingent austerity measures, leading to plans for an extra meeting of eurozone finance ministers on Thursday being dropped. A spokesman for Eurogroup President Jeroen Dijsselbloem confirmed on Tuesday night that there would be no meeting this week to rubber-stamp an agreement between Athens and the institutions and conclude the first review of the third Greek bailout program. “More time needed,” tweeted Michel Reijns. “Meeting of first review, contingency package and debt at later stage,” he added, without suggesting when eurozone finance ministers might meet to discuss Greece.

Prime Minister Alexis Tsipras is expected to call European Council President Donald Tusk today to ask for an extraordinary EU leaders’ summit to discuss the Greek program as the SYRIZA leader feels that Athens has met its bailout commitments and that the lenders’ side is standing in the way of an agreement. Greek government sources said earlier that the details of an initial €5.4 billion package of tax hikes and pension cuts had been finalized. However, the standby measures, which total 2% of GDP, proved to be a stumbling block. Athens proposed that the government should commit to adopting corrective measures if fiscal targets are missed but that these interventions should only be specified after Greece’s fiscal data has been ratified by Eurostat.

This proposal is thought to have been rejected by the IMF and some eurozone member-states, which want Greece to legislate specific measures now and have them on standby in case they are needed. Sources said that Finance Minister Euclid Tsakalotos spoke with some of his eurozone counterparts on Tuesday in order to explain the situation to them. The Greek government believes that German Finance Minister Wolfgang Schaeuble showed understanding for Greece’s position and appeared to support the Greek proposal for a permanent mechanism to reduce spending when the adjustment program is not on track. Athens is adamant that the IMF’s insistence on specific standby measures being legislated now was the only factor that prevented Greece and the institutions reaching an agreement on Tuesday.

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This battle is about contingency plans, not even actual ones, but what-ifs.

Greece Faces New IMF Curve Ball to Unlock Aid (BBG)

Greek Prime Minister Alexis Tsipras has promised voters he’ll reject even one euro cent more of budget austerity than is needed under the country’s bailout. Greece’s international creditors say the program’s requirements may include €3.5 billion in extra fiscal tightening he hadn’t bargained for. The demand by the euro area and the IMF is a potential bombshell for the government, raising the threat of renewed instability in Greece. Tsipras rode to power in January 2015 railing against austerity and nearly steered Greece out of the euro before flip-flopping last summer to secure the nation’s third bailout in six years. Since then the Greek economy has slipped back into recession, unemployment has stayed stubbornly high at around 25% and public support for the euro has weakened.

Just like last year, Tsipras needs financial aid to avoid defaulting on payments to the ECB that come due in three months time. The prime minister’s current dilemma stems from a disagreement between the euro area and the IMF. While the European creditors say the government in Athens has committed to enough austerity to reach the targeted budget surplus before interest payments of 3.5% of gross domestic product in 2018, the IMF projects current Greek measures will produce an excess of just 1.5%. With Germany insisting on continued IMF involvement in the Greek aid program, the conflicting forecasts have led the creditors as a whole to call for “contingency measures” equal to 2% of GDP. These would kick in should the government in Athens stray off its budgetary course as the IMF projects.

So Tsipras and Finance Minister Euclid Tsakalotos face the delicate task of drawing up measures that can satisfy the creditors without breaking apart their coalition with the nationalist Independent Greeks. That balancing act would be a challenge for any Greek government, let alone one with an anti-austerity base, a deep dislike of the Washington-based IMF and a three-seat majority in parliament.

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The fastest growing economy in North America for years. Gone.

Moody’s Downgrades Canadian Province Of Alberta On Rising Debt (R.)

Moody’s Investors Service stripped Alberta of its Aaa credit rating on Monday, becoming the latest ratings agency to downgrade the Canadian province after the oil price shock pushed its finances deep into the red. Citing its worsening fiscal position and resulting rapid rise in debt, Moody’s downgraded the province’s long-term rating to Aa1 from Aaa and maintained a negative outlook. The downgrade “reflects the province’s growing and unconstrained debt burden, extended timeframe back to balance, weakened liquidity, and risks surrounding the success of the province’s medium-term fiscal plan,” Moody’s Assistant Vice President Adam Hardi said in a statement. Earlier this month, Dominion Bond Rating Service also downgraded the province after the provincial government forecast a budget deficit of C$10.4 billion ($8.21 billion) this fiscal year.

Standard & Poor’s stripped Alberta of its AAA credit rating in December. Alberta’s left-leaning NDP government expects the once-booming province to be C$57.6 billion in debt by 2019, while Finance Minister Joe Ceci said Alberta could run deficits until 2024. Ceci described the latest downgrade as a “disappointment” and reiterated the government’s commitment to maintaining funding for public services and infrastructure spending in a bid to spur growth. The province is home to Canada’s vast oil sands and is the No. 1 exporter of crude to the United States but the government expects oil and gas revenues this year to be almost 90% lower than 2014. Earlier this month the Canadian Association of Petroleum Producers said capital investment in the industry has dropped C$50 billion in two years and more than 100,000 oil and gas workers have been laid off.

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In order to pre-empt ‘authorities’, what the journalists should do is reach out to Wikileaks and find a means to release the data after redacting them in a way that prevents people from getting hurt. The ICIJ does not seem to have that ability. They will come to regret that, because pressure will rise.

From Germany To The US, Authorities Want Access To Panama Papers (DW)

Germany’s federal states on Friday called for increased measures against tax havens and for media outlets to allow prosecutors to examine the contents of a cache of 11.5 million documents known as the “Panama Papers,” which had been leaked to the press. “If the data sets from the ‘Panama Papers’ are not made accessible, then we cannot draw any consequences,” said Lower Saxony’s Finance Minister Peter-Jürgen Schneider, Reuters news agency reported. However, the Munich-based newspaper Süddeutsche Zeitung’s (SZ) investigative unit on Tuesday said it would not hand over the cache nor would it publish the leak online, despite calls to do so by government officials and representatives of the whistleblowing organization WikiLeaks.

“As journalists, we have to protect our source: we can’t guarantee that there is no way for someone to find out who the source is with the data. That’s why we can’t make the data public,” the team said during an “Ask Me Anything” session on Reddit, which included journalist Bastian Obermayer, who was first contacted by the anonymous source. “You don’t harm the privacy of people, who are not in the public eye. Blacking out private data is a task that would require a lifetime of work – we have eleven million documents,” the unit added. In a letter to the International Consortium of Investigative Journalists (ICIJ) obtained by British newspaper The Guardian this week, US attorney for Manhattan Preet Bharara said the Justice Department “has opened a criminal investigation regarding matters to which the Panama Papers are relevant.”

“The office would greatly appreciate an opportunity to speak as soon as possible with any ICIJ employee or representative involved in the Panama Papers project in order to discuss this matter further,” Bharara said. ICIJ Director Gerard Ryle said on Thursday that the organization would not release unpublished data to the Justice Department or other government entities, although it welcomed the “US Attorney’s Office reviewing all of the information from the Panama Papers.” “ICIJ does not intend to play a role in that investigation. Our focus is journalism … ICIJ, and its parent organization, the Center for Public Integrity, are media organizations shielded by the First Amendment and other legal protections from becoming an arm of law enforcement,” Ryle said in a statement.

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Thank you.

‘Largest Ever Airlift’ Flies 33 Circus Lions To Africa Sanctuary (AP)

Thirty-three lions rescued from circuses in Peru and Colombia are being flown back to their homeland to live out the rest of their lives in a private sanctuary in South Africa. The largest ever airlift of lions will take place on Friday and has been organised and paid for by Animal Defenders International. The Los Angeles-based group has for years worked with lawmakers in the two South American countries to ban the use of wild animals in circuses, where they often are held in appalling conditions. The lions suffered in captivity: some were declawed, one lost an eye and many were recovered with broken or rotting teeth.

The group said the first group of nine lions would be collected in the capital, Bogota, on a McDonnell Douglas cargo plane, which would pick up 24 more in Lima before heading to Johannesburg. From there they would be transported by land to their new home at the Emoya Big Cat Sanctuary in Limpopo province, where they would enjoy large natural enclosures. “It will be hugely satisfying to see these lions walking into the African bush,” said Tom Phillips, ADI’s vice-president, as he inspected the cages that will be used to transport the lions. “It might be one of the finest rescues I’ve ever seen; it’s never happened before taking lions from circuses in South America all the way to Africa,” he added. “It’s like a fairytale.”

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Or, more likely, we’ll bash each other’s heads in. Bit too dreamy for me.

How Less Stuff Could Make Us Happier – And Fix Stagnation (G.)

Has western society reached “peak stuff”? If reports that once-insatiable shoppers are starting to cut back are true, what are the consequences for the old economic theory that more consumption equals greater happiness? That is a question a Bank of England blogger has posed, with interesting and upbeat conclusions. Writing on Bank Underground, a blog where Bank of England staff can challenge prevailing orthodoxies, Dan Nixon wondered if rather than shopping our way to satisfaction, a Buddhism-inspired trend of mindfulness has taught us that less is more. Inspired by its message to appreciate the moment, perhaps we can achieve greater happiness by seeking to simplify our desires, rather than satisfy them, wrote Nixon, who works in the Bank’s stakeholder communications and strategy division.

The result of less consumption but greater wellbeing could be “especially important for debates around secular stagnation and ecological sustainability”, he says. In other words, if secular stagnation is nigh and there is a permanent downward shift in the potential growth rates of advanced economies, increased attention will naturally turn to alternative ways to increase wellbeing. “‘Less is more’ ideas could form one part of the solution,” said Nixon. There are also interesting implications in the field of environmental economics, given human wellbeing and ecological sustainability are often assumed to be in conflict. “The neat thing about the less is more critique is that it achieves less consumption without constraining people’s decisions,” said the Bank blogger.

The repeated Black Friday sales frenzies that have spilled across the Atlantic from the US to the UK and the continuing fortunes of big online retailers such as Amazon may feel at odds with all the less is more talk. But the rise of mindfulness, in media coverage, schools and workplaces – including at the Bank of England – has coincided with signs that shopping may be losing its appeal as our national pastime. Ikea, purveyor of flatpacks and tealights, recently claimed the appetite of western consumers for home furnishings had reached its peak. The Swedish furniture giant’s UK crammed car parks and long hotdog queues may suggest otherwise but Ikea’s head of sustainability, Steve Howard, has spoken of “peak curtains”.

His views were followed weeks later by official figures showing the amount of “stuff” used in the UK – including food, fuel, metals and building materials – had fallen dramatically since 2001. The Office for National Statistics data revealed that on average people used 15 tonnes of material in 2001 compared with just over 10 tonnes in 2013.

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Fully in line with what I’ve often said. In a situation like this, you have to put people first, not politics, or you will create mayhem. This is a certainty. It’s too late already for Europe. The goodwill and moral high ground wasted over the past 18 months will take 100 years to regain, if ever.

Europe’s Failure On Refugees Echoes The Moral Collapse Of The 1930s (G.)

In 1938, representatives from 32 western states gathered in the pretty resort town of Evian, southern France. Evian is now famous for its water, but back then, the delegates had something else on their minds. They were there to discuss whether to admit a growing number of Jewish refugees, fleeing persecution in Germany and Austria. After several days of negotiations, most countries, including Britain, decided to do nothing. On Monday, I was reminded of the Evian conference when British MPs voted against welcoming just 600 child refugees a year over the next half-decade. The two moments are not exactly comparable. History doesn’t necessarily repeat itself. But it does echo, and it does remind us of the consequences of ethical failure. Looking back at their inaction at Evian, delegates could claim they were unaware of what was to come.

In 2016, we no longer have that excuse. Nevertheless, both in Britain and across Europe and America, we currently seem keen to forget the lessons of the past. In Britain, many of those MPs who voted against admitting a few thousand refugees are also campaigning to unravel a mechanism – the EU – that was created, at least in part, to heal the divisions that tore apart the continent during the first and second world wars. Across Europe, leaders recently ripped up the 1951 refugee convention – a landmark document partly inspired by the failures of people such as the Evian delegates – in order to justify deporting Syrians back to Turkey, a country where most can’t work legally, despite recent legislative changes; where some have allegedly been deported back to Syria; and still more have been shot at the border.

Emboldened by this, the Italian and German governments have since joined David Cameron in calling for refugees to be sent back to Libya, a war zone where – in a startling display of cognitive dissonance – some of the same governments are also mulling a military intervention. Where many migrants work in conditions tantamount to slavery. Where three separate governments are vying for control. And where Isis runs part of the coastline.

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 February 3, 2016  Posted by at 11:19 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle February 3 2016


DPC Jai alai hall, Havana, Cuba 1904

Recession Risks Warn Of ‘Severe’ Drop In The Stock Market (MW)
Exxon Faces First Downgrade in 86 Years (BBG)
Iraq Sells Oil At $22, Fiscal Cliff Looms (BI)
Goldman Sachs Questions Capitalism (BBG)
Eurozone Manufacturing & Service Industries Cut Prices (BBG)
Plan To Increase The Yuan’s Trading Flexibility Gains Momentum (BBG)
Spring Festival Travel A One-Way Journey For Many Chinese (CNBC)
Buying A Home Is Overrated (MW)
The Bank of Japan Is Selling Out Its People (Gefira)
Hedge Funds, Wall Street not Happy with the New Spain (Don Quijones)
Thousands Of Greek Firms Flee To Bulgaria (Kath.)
Australian Asylum Ruling Paves Way For Deportation Of Infants (Reuters)
Greek Military To Oversee Response To Refugee Crisis (Kath.)
More Than 62,000 Migrant Arrivals In Greece Last Month (Reuters)
UN Says One-Third Of Refugees Sailing To Europe Are Children (Guardian)
Nine Migrants, Including Two Babies, Drown En Route To Greece (Reuters)

That graph feels so scary it gives me the shivers. And Deutsche sees ‘healthy’ growth return later this year? Who are they kidding?

Recession Risks Warn Of ‘Severe’ Drop In The Stock Market (MW)

Another brokerage firm has used the “R” word on Tuesday, warning investors to wake up to the idea that rising risks of a recession could send the stock market over a steep cliff. Based on current valuations, the prices of most stocks don’t appear to have factored in a recession scenario, “hence the downside should we see a recession could be rather severe,” RBC Capital Markets’ global equity team wrote in a research note to clients. Applying a stress test to their coverage universe, using worst-case, price-to-earnings valuations seen during the 2008-to-2009 recession, RBC analysts said they believe the shares of most companies could still fall another 50% or more from current levels. The concern for RBC analysts stems from the recently volatility in the stock market, caused by macro weakness, softness in China and commodity market challenges.

On Monday, Deutsche Bank strategist David Bianco said the second-half of 2015 was “clearly a profit recession” for S&P 500 companies, and suggested it probably won’t be until the second half of this year that “healthy” growth returns. Nearly half of S&P 500 companies have now reported fourth-quarter results through Tuesday morning, and earnings-per-share is headed for a 5.8% decline on the year, according to FactSet, compared with an estimated 5.7% decline as of Friday. That’s the data provider’s blended growth rate, which combines those companies that have reported with the estimates for the rest. That would be the third-straight quarter of an EPS decline, the longest such streak since the Great Recession. Among Tuesday’s culprits for the earnings decline, Exxon Mobil reported a 58% profit plunge and Pfizer reported a 50% earnings drop. Royal Caribbean Cruises reported earnings that nearly doubled, but the stock plunged 16% after the company provided a weak first-quarter outlook.

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We write history.

Exxon Faces First Downgrade in 86 Years (BBG)

Exxon Mobil, one of three U.S. companies with Standard & Poor’s highest rating, is facing its first downgrade in 86 years as the worst crude-market collapse in a generation strangles oil producers of cash. For Exxon, that would be a historic event: the global explorer that traces its roots to the 19th century and John D. Rockefeller’s Standard Oil Trust has been rated AAA by S&P since 1930. The oil giant was placed on credit watch with negative implications because its credit measures probably will remain weak through 2018, S&P said Tuesday.

“We get value from our AAA credit rating in our business,” Exxon’s Vice President of Investor Relations Jeffrey Woodbury said during a conference call with analysts before the credit review was announced. “Whether it be access to financial markets or access to resources, there is a benefit that we get from it, and we see it as being important.” The world’s five largest oil explorers had their credit ratings cut or threatened with downgrade as the market crash undermines their ability to pay debts, dividends and rig leases. For most of the oil industry, slashing drilling budgets and other cost-cutting “are insufficient to stem the meaningful deterioration expected in credit measures over the next few years,” S&P said.

In a sweeping review that also included many of the top U.S. shale drillers, Chevron had its rating cut by S&P, to AA- from AA, for the first time in almost 30 years, a day after Shell’s rating was reduced to the lowest since S&P began coverage in 1990. Exxon, Totaland BP may be next, the rating company said. S&P said it’ll decide whether to downgrade Irving, Texas-based Exxon within 90 days. If it does cut the rating, it’ll probably only be by a single notch, S&P said. Shell’s long-term credit rating was reduced on Monday by one level to A+, the fifth-highest investment grade, from AA-, and was placed on watch for another possible reduction, the ratings company said Tuesday. S&P also assigned negative outlooks to BP, Eni, Repsol, Statoil and Total.

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Bail out.

Iraq Sells Oil At $22, Fiscal Cliff Looms (BI)

The plunge in oil prices is already having far-reaching effects on countries whose economies are dependent on oil exports. But in Iraq, the stakes of cheap oil are even higher than in Saudi Arabia, which is instituting unprecedented taxation and austerity, or in Nigeria, which is now asking for an $11 billion World Bank loan. What little remains of Iraq’s government and social order might collapse if oil remains in its current price trough — with dire consequences. According to a Monday AFP report, Iraq is now selling oil at half of the country’s apparent fiscal break-even price. Right now, Iraq is selling its oil at around $22 a barrel, half of what it would need to fetch for the country to be able to fund the upcoming year of government budgetary obligations, the report said.

But Iraq’s situation is actually even worse. As recently as the 2014 fiscal year, Iraq was formulating its national budget on the assumption that oil would remain at around $90 a barrel and that the country’s oil exports would continue to climb (which they have). Iraqi government revenue experienced dramatic annual increases between 2009 and 2013, almost entirely because of oil. That’s all over, now that oil is expected to stay under $40 a barrel through the end of the year. Though Iraqi oil is comparatively cheap to extract, it also contains unusually high levels of sulfur, meaning that it typically sells for around 10% less than Brent crude, the global price benchmark.

The Iraqi government is still making money pumping oil — just not nearly enough to fund the country’s anticipated national budget. Such a daunting fiscal cliff would be challenging for a stable or politically coherent country. But it’s potentially disastrous in a place like Iraq, where the majority of territory is split between the terrorist group ISIS and the Kurdistan Regional Government. Even the areas still under some semblance of federal control are fought over by a constellation of militia groups with ties to recognized political parties.

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Shouldn’t they question the Fed instead?

Goldman Sachs Questions Capitalism (BBG)

One of the most heated debates among investors is the question of whether corporate profit margins can maintain their elevated level, or whether they will inevitably mean revert. Here’s a quick look at S&P 500 profit margins, for example, going back over 25 years. They remain high by by historical standards.

A new note from Goldman Sachs analysts led by Sumana Manohar looks at the bull and bear arguments for the profit margins debate. Manohar argues that profit margins have expanded thanks to three key trends: strong commodities prices, emerging market cost arbitrage (companies making things more cheaply in emerging markets), demand growth from emerging markets, and improved corporate efficiency driven by the use of new technology. Continuing one of its major analytical themes of recent months, Goldman also notes that the market has rewarded companies that have undertaken mergers and share buybacks, compared to companies that have invested internally, further bolstering margins. So will profit margins inevitably roll over?

Goldman goes through both sides of the argument. On the bull side, the bank says that ongoing consolidation in industries, cost deflation, and tighter purse strings help keep a floor under margins. Ultimately though, it thinks that the above trends, coupled with weak demand and general industrial overcapacity, mean that margins are likely to come down. But what if margins stay elevated? That too is possible, and the implications could be unsettling. Goldman writes: “We are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism.”

In other words, profit margins should naturally mean-revert and oscillate. The existence of fat margins should encourage new competitors and pricing cycles that cause those margins to erode while conversely, at the bottom of the cycle, low margins should lead to weaker players exiting the business and giving stronger companies more breathing space. If that cycle doesn’t continue, then something strange is taking place. Needless to say, it’s not every day you see a major investment bank say they might have to start asking broader questions about capitalism itself.

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Deflation’s in the driver’s seat, and there’s nothing anyone can do. Cutting prices is just one step in the process.

Eurozone Manufacturing & Service Industries Cut Prices (BBG)

The euro area’s manufacturing and services industries cut prices at the fastest pace in almost a year in January, underlining concerns about weak inflation in the region. Markit Economics said its composite Purchasing Managers Index for January was “disappointing” and raises the prospect that the ECB will once again pump up its stimulus program. The PMI declined to 53.6 – a 4-month low – from 54.3 in December, and the measure of output prices dropped to the lowest since March. “Most worrying of all from a policy maker’s perspective is the intensification of deflationary pressures.,” said Chris Williamson, chief economist at Markit in London. “This raises the question of whether existing stimulus has simply been insufficient, or whether monetary policy is proving ineffective.”

ECB President Mario Draghi has said the Governing Council will review its stimulus in March amid signs that falling oil prices will push the euro region’s inflation rate back to zero. The Bank of Japan has already responded to the deteriorating outlook with negative interest rates and investors see a slower pace of tightening by the Federal Reserve. In the euro area, Markit said the PMI had some “mildly positive signs,” with rising levels of employment and backlogs of work. The headline composite number was also marginally better than the initial estimate, and it remains above the key 50 level that divides expansion from contraction. The services index slipped to 53.6 from 54.2, matching the preliminary reading. The composite report continued to point to divergences in the 19-nation economy, with Spain and Germany leading growth. France offered a disappointing reading, with the index at just 50.2, lower than the 50.5 initial estimate.

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They sent them a what? “The PBOC didn’t immediately reply to a fax seeking comment.”

Plan To Increase The Yuan’s Trading Flexibility Gains Momentum (BBG)

A proposal to fix the yuan’s quandary is gaining momentum among some economists. The plan, put forward by at least three analysts, calls for China to let the yuan fluctuate freely against a basket of currencies within a trading band. Outside the range – which would be as narrow as 4% or as wide as 15% under different versions of the proposal – the central bank will intervene in the market. Similar to what Singapore has adopted, the plan could be China’s get-out-of-jail card after a slew of changes in its opaque currency policy since August whipsawed investors and cost the central bank more than $500 billion in reserves, said the economists, including a former central bank adviser and a visiting scholar from the IMF.

Under the current system, the yuan is allowed to trade 2% above or below a reference rate versus the dollar set by the People’s Bank of China. Critics say that the regime fixates investors’ attention on the dollar-yuan exchange rate, even as the authorities aim to break its tie to the strengthening U.S. currency. The lack of transparency on how it sets the reference rate, or fixing, keeps investors guessing about the intentions of policy makers. “They are sort of stuck, I don’t think the market knows what exactly the policy is,” Tamim Bayoumi, a senior fellow at Peterson Institute for International Economics and an economist at the IMF since 1988, said from Washington. “The proposal is one way out of that,” said Bayoumi, who pitched the idea in a blog in December, favoring a 4% trading band.

By targeting a broader range of currencies and a wider band, the proposed system attempts to give market forces more sway in determining the exchange rates, save foreign reserves while shifting investors’ focus away from the dollar and provide clarity on policy. The PBOC didn’t immediately reply to a fax seeking comment. Chinese policy makers have been struggling to restore calm in the yuan since August when it revamped its currency system to make it more flexible. While the authorities have repeatedly said they aim to keep the exchange rate stable against a basket of currencies even if it falls versus the dollar, they have had little success convincing investors. The onshore yuan’s 5.6% slide versus the dollar over the past six months fueled expectations for a further depreciation and boosted capital outflows.

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I see a lot of unhappy people in our future.

Spring Festival Travel A One-Way Journey For Many Chinese (CNBC)

A giant annual human migration is underway in China, and it’s a bonanza for some but a painful process for others. Some 2.9 billion trips are expected to be undertaken between the start of China’s annual travel season on January 24 and the end on March 3, according to China’s transport ministry, with this week leading up to Spring Festival or Lunar New Year, which starts on February 8, being the busiest. [..] According to a real-time travel map by Chinese internet giant Baidu, the Beijing-to-Shanghai route on Wednesday afternoon in Asia was the most heavily traveled across all forms of transport, followed by Xian to Beijing and Shenyang to Beijing. For many migrant workers, however, this year’s journey home may be their final one, as slowing growth puts paid to their city dreams.

China’s factory activity skidded to a three-year low point in January, adding to gloom about the state of the world’s second-largest economy. Although growth in the service sector held above the key 50 expansionary level, the January official non-manufacturing purchasing manager’s index slowed to 53.5 from 54.4 in December. Restaurant workers Du Lijuan and Song Yaoguo told CNBC that they would not be among the crush of travelers this week. Both are waiting in Beijing for unpaid salaries of about $1,000 each before heading back home to the countryside, after losing their at a restaurant when it ran into financial difficulties in September. “We have no money to buy tickets, to buy gifts for our family or children,” Du said. “Normally, we spend $650 every Lunar New Year. I am not coming back [to Beijing].”

For years, migrant workers have been the backbone of China’s economic growth, by working in factories and constructing buildings, but many are considering new lives in the countryside after this Spring Festival, because they fear being unable to find jobs if they return to the cities. The migrant population fell by 5.7 million to 247 million in 2015, its first drop in about three decades.

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It’s the debt, stupid!

Buying A Home Is Overrated (MW)

Is buying a house instead of renting really the best financial decision? It’s a question that’s frequently debated, with traditional thinking being that renting is akin to throwing money out the window. But there are some good reasons to believe that buying a home instead of renting isn’t as great of an investment as Americans once thought. “Housing is overrated as a financial investment,” according to economist Alex Tabarrok, an economics professor at George Mason University and a research fellow at the university’s Mercatus Center, which conducts research on financial markets. He addressed the question of what economists think about buying compared to renting on Marginal Revolution, a blog he runs with fellow economist and George Mason professor Tyler Cowen.

“First, it’s not good to have a significant share of your wealth locked into a single asset,” he wrote. “Diversification is better and it’s easier to diversify with stocks. Second, unless you are renting the basement, houses don’t pay dividends. Stocks do. You can hope that your house will accumulate in value but don’t count on it. Indeed, you should expect that as an investment your house will appreciate less than does the stock market.” Owning a home makes it harder for many people to change locations for new job opportunities, leading to homeowners holding onto homes even while prices fall, Tabarrok said. Still, Americans don’t seem to be giving up on homeownership yet. Sales of existing homes rose 14.7% in December, the biggest monthly increase ever recorded, after depressed sales in November. Sales in 2015 were the best since 2006, at 5.26 million.

Americans are also buying homes that are larger and pricier; average home size was 2,720 square feet in 2015, up from 2,660 square feet in 2014. And the average price of new homes for sale in 2015 was $351,000, up from $100,000 in 2009. (Still, this doesn’t necessarily reflect the housing market’s strength, as new construction has mostly happened in the high-end market.) Of course, there are some benefits to homeownership, and they aren’t just avoiding unexpected rent hikes and unpredictable landlords. Many people simply enjoy interior decorating and entertaining, Tabarrok added. And perhaps more importantly, home ownership is often tied to access to better public schools. The U.S. tax code also subsidizes houses. Still, he cautioned against the seduction of a large home. “Behavioral economics tells us that we quickly get used to big houses, but we never get used to commuting,” he wrote. “So when you have a choice, go for the smaller house closer to work.”

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h/t ZH

The Bank of Japan Is Selling Out Its People (Gefira)

The Bank of Japan’s unexpected rate cuts to negative are a desperate attempt to help out the FED and to support the dollar at the expense of the aging Japanese population. The negative market reaction to the FED’s rate hike of December shows that investors do not believe an economic recovery in the US is underway. Two reasons make central banks start to raise interest rates. The first is that economy is doing well, and central banks have to prevent an overheated economy. But it is also a signal to investors everything is going well. In this situation, the first reaction of investors will be the opposite as central bankers planned they will and increase their investments and markets will go up. The second reason central banks raise interest rates is the defensive one; the moment the economy is out of control, investors are beginning to abandon the sinking ship.

The continually increasing interest rate has the task of keeping the investors aboard. Central banks in less developed economies raise rates to defend the national currency, thus preventing investors from fleeing. An increase in the interest rate can add fuel to the fire and in many cases has the opposite effect. Investors start smelling angst of the authorities and start abandoning the sinking ship. In such a situation stock markets are coming crashing down because investors withdraw from them. We saw this last pattern happening in the US economy after the December FED’s rate hike. As a result, the dollar-yen exchange rate is starting to decline, with the value of the dollar falling off as Japanese investors start panicking and fleeing the US market. Surely, Japanese investors know that a rate hike without an accompanying economic growth will erode every existing investment.

There is a general misconception according to which countries drive their currency down to generate growth. People adhere to the simplistic belief that a weak currency drives exports and helps the nation to prosper. The fact is that a cheap currency creates growth by giving away real goods in exchange for IOU (I Owe Yous) or paper debt obligations that will never be repaid. The US is the beneficiary or the receiving end of the weak yen policy. Because the US continues to maintain its world hegemony, it needs a strong dollar. A strong dollar makes everything the US empire buys in the world cheap. A strong dollar causes the world to be willing to exchange real goods for printed paper dollars that have no intrinsic value, and that are issued by a country that does not have the industrial capacity to ever repay what it owes its debtors.

The endless trade deficit the US has with Japan shows how the Japanese are prepared to provide the US with real goods without demanding tangible goods in return. Because the international press publishes trade data in dollars, the trade balance deficit seems to have been shrinking over the last years. The actual situation becomes apparent if we look at the trade deficit in yens. The US trade deficit with Japan is growing bigger and bigger year after year, as Japanese producers are giving away a big chunk of their production to US consumers in return for more and more US paper debt. By manipulating the yen, Japanese authorities are giving away a real part of their GDP that they take from their people to the US empire.

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Very good. Do read the whole thing. The socialists have been asked to form a government.

Hedge Funds, Wall Street not Happy with the New Spain (Don Quijones)

Plunging shares, shrinking profits, and a spate of new regulations and court cases that could end up setting it back billions of euros – that’s what the Spanish banking sector is facing. But now, banks are also grappling with the complete absence of a friendly central government to insulate them from the cruel vagaries of the global economic downturn. And the strain is beginning to show. “The political parties must reach an agreement as soon as possible and form a government that is stable,” pleaded Francisco González, president of Spain’s second biggest bank, BBVA. Such a government must not “think about utopias, which only serve to create frustration,” must be “realistic” and (most important of all) must “continue with the policies of the last three of four years.”

González cautioned that foreign investors “are phoning less often” than before. Those “investors” probably include firms like Blackstone and Goldman Sachs, which made a fortune in the immediate aftermath of Spain’s real estate collapse and EU-funded bailout, by picking up publicly subsidized housing on the cheap and either flipping them or renting them at much higher rates. In those days, the city council was led by Ana Botella, the then Mayor and wife of Spain’s former President José María Aznar. One of the main brokers in the deals struck between the city council’s two housing agencies and international funds like Goldman and Blackstone was José María Aznar Botella – their son!

Despite his lack of investment banking experience, Aznar Botella served as an advisor and go-between at the Madrid-based real estate firm Gesnova Gestión Inmobiliaria Integral, which enjoyed close ties with firms like Blackstone subsidiary Fidere, Lone Star, Apollo, KKR, Goldman’s Madrid-based subsidiary Azora, and U.S. private equity firm Cerberus Capital Management LP, whom Aznar-Botella also serves as an advisor. Here’s how the scheme worked: in the aftermath of Spain’s real estate bust, the Rajoy government set up a bad bank by the name of Sareb, a public-private venture responsible for managing distressed assets transferred from the four nationalized financial institutions BFA-Bankia, Catalunya Banc, NGC Banco-Banco Gallego, and Banco de Valencia.

As soon as the bad bank was operational, global investment firms began flocking to Madrid to pick up the juiciest pieces at the best prices, part-subsidized by Spanish taxpayers. To get their hands on the really good stuff, however, investors needed someone on the inside, which is presumably where the Aznar-Botello mother & son partnership came in. But it’s one thing to sell tranches of unoccupied or foreclosed properties to foreign investors to help put a floor under Spain’s property market; it’s quite another when you start selling huge batches of social housing at a ridiculous discount to some of the biggest financial firms on the planet, in a country that has one of the smallest stocks of social housing in Europe. It didn’t take long before rents began soaring and the police began knocking doors down.

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The Troika making sure Greece will never recover.

Thousands Of Greek Firms Flee To Bulgaria (Kath.)

According to the president of the Hellenic Confederation of Professionals, Craftsmen and Merchants (GSEVEE), some 6,000 Greek enterprises have emigrated to Bulgaria in the last couple of years alone. At the same time, the GSEVEE chief says, Greeks are behind about 60,000 new tax registrations and bank accounts in the neighboring country. Giorgos Kavathas on Tuesday cited the above figures from an ongoing survey by GSEVEE, adding that the interventions planned for the social security system can only be expected to lead to more Greek firms emigrating. The survey will be presented in the next few days, he noted.

He was speaking at a press conference held jointly by GSEVEE and the Hellenic Confederation of Commerce and Enterprises (ESEE) regarding their participation in tomorrow’s general strike against the government’s planned pension reforms. The two unions warned that manufacturers and merchants will not stop at this strike, and will escalate their industrial action further. “The social security matter is a major national issue and we agree there has to be a reform, although no actuarial study would lead to safe conclusions given the existence of 1.5 million jobless,” argued the president of ESEE, Vassilis Korkidis.

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Trying to rival the EU in inhumanity.

Australian Asylum Ruling Paves Way For Deportation Of Infants (Reuters)

Australia’s High Court threw out a challenge to offshore immigration detention camps on Wednesday, clearing the way for the deportation of dozens of infants born in Australia to detained asylum seekers. The court rejected a legal test case brought by an unidentified Bangladeshi woman that challenged Australia’s right to deport detained asylum seekers to the tiny South Pacific island nation of Nauru. The detention centre on Nauru houses about 500 people and has been widely criticised by the United Nations and human rights agencies for harsh conditions and reports of systemic child abuse. The Bangladeshi woman was on a boat intercepted by Australian authorities in October 2013. She was detained on Australia’s remote Christmas Island and later sent to Nauru.

She gave birth to a daughter after she was transferred to Australia for medical treatment in 2014 and has remained there with her child. Other families with children born in Australia in similar circumstances are now in line to be returned to the camps. Lawyers from the Human Rights Law Centre (HRLC) acting for the Bangladeshi woman had argued it was illegal for Australia to operate and pay for offshore detention in a third country. “I hope that the immigration minister and the prime minister, just like other decent Australians, can see that there is simply no excuse to take 37 babies, to rip children from their classrooms, and warehouse them on a tiny island,” HRLC Director of Legal Advocacy Daniel Webb told reporters. “Now, the legality may be complex. The politics may be complex. But the morality is simple. It is fundamentally wrong.”

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It’s all aimed at streamlining the process to move refugees north. But that’s not what Europe wants.

Greek Military To Oversee Response To Refugee Crisis (Kath.)

Defense Minister Panos Kammenos on Tuesday heralded the creation of a central body to oversee and improve Greece’s response to the migration and refugee crisis and ensure the country safeguards its position in the Schengen passport-free area, noting that the new body will be led by a senior military official. Greece’s military is to have the oversight of the “Central Coordinating Body for the Management of Migration” until the Migration Ministry and the Hellenic Police gain the necessary know-how and experience to tackle the problem independently, Kammenos indicated at Tuesday’s press conference.

The center, which is to be operational by February 15, is to be based at the Defense Ministry headquarters and coordinate with the Hellenic Police, Coast Guard, Migration Ministry and nongovernmental organizations working with migrants and refugees. The aim is to increase the efficiency of transferring migrants from the islands to the mainland, to improve the provision of food as well as medical and healthcare to migrants, and to monitor the creation of five screening centers, or hot spots, for migrants on the eastern Aegean islands of Lesvos, Chios, Samos, Kos and Leros. Referring to the growing pressure on the islands of the eastern Aegean that receive thousands of migrants daily from neighboring Turkey, Kammenos explained that the new plan aims to spread the burden.

The five hot spots to be set up on the islands are to accommodate migrants for only 24 hours while two relocation centers, on the outskirts of Athens and Thessaloniki, will host new arrivals for up to 72 hours. The screening and relocation centers are to operate in a similar way to the central body, under a local military official who is to coordinate with police and coast guard officers. As the European Union increases the pressure on Greece to manage its borders more effectively, French Interior Minister Bernard Cazeneuve is due in Athens on Thursday and Friday for talks expected to focus on the migration crisis.

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Wow! Imagine what spring will bring.

More Than 62,000 Migrant Arrivals In Greece Last Month (Reuters)

The total number of migrants and refugees arriving in Greece in January topped 62,000, the International Organization for Migration said on Tuesday. “(It) is many, many times what we saw a year ago in the previous January,” IOM spokesman Joel Millman said. He added that there were more than 360 deaths among migrants in the waters off Greece, Turkey and Italy during the month.

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When are we going to get real about this?

UN Says One-Third Of Refugees Sailing To Europe Are Children (Guardian)

Children now make up over a third of the people making the perilous sea crossing from Turkey to Greece, the UN has said, as two more babies drowned off Europe’s shores. For the first time since the start of the migration crisis in Europe, there are also now more women and children crossing the border from Greece to Macedonia than adult males, according to UN children’s agency Unicef. The figures emerged as Europe struggles with its biggest movement of people crisis since the second world war, with more than a million people fleeing war, violence and poverty risking life and limb to reach its shores last year. “Children currently account for 36% of those risking the treacherous sea crossing between Greece and Turkey,” the Unicef spokeswoman Sarah Crowe said.

“Children and women on the move now make up nearly 60%” of those entering from Macedonia, she added. The figures mark a significant shift since June, when 73% of refugees were adult males and only one in 10 were under the age of 18. Marie Pierre Poirier, Unicef’s special coordinator for the refugee and migrant crisis in Europe, said women and children were even more vulnerable to the dangers of trying to travel to Europe. “The implication of this surge in the proportion of children and women on the move are enormous,” she said in a statement. “It means more are at risk at sea, especially now in the winter, and more need protection on land.” Underlining her point, the International Organisation for Migration (IOM) said on Tuesday that one in every five who drowned last month while trying to sail from Turkey to Greece was a child, with minors accounting for 60 of the 272 deaths.

Including January, a total of 330 children have died in those waters over the last five months, many of them just metres from shore, the organisation said. The drownings continue a grim trend that accelerated last year when nearly 4,000 people died trying to reach Europe by sea. The plight of children was brought home last year when the body of Syrian toddler Alan Kurdi was found washed up on the shore close to Bodrum, Turkey, horrifying the international community. The bodies of two more babies were recovered by the Turkish coastguard in the Izmir province on Tuesday along with seven dead adults, just days after another 37 people drowned off another part of the coast.

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Europe will not be pardoned for this.

Nine Migrants, Including Two Babies, Drown En Route To Greece (Reuters)

The bodies of nine people, including two babies, were found drowned off the coast of western Turkey on Tuesday, after a boat carrying refugees and migrants to Greece partly capsized, the Turkish coast guard said in a statement. The fiberglass vessel partially capsized at 0535 local time (0335 GMT) off the coast of Seferihisar in Izmir province, close to the Greek Island of Samos. Two people were rescued swimming to the shore, the coast guard said. A crackdown on illegal crossing and the dangerous winter conditions has failed to deter tens of thousands from boarding flimsy boats and attempting to cross the Mediterranean waves in the first few weeks of the year.

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Nov 062015
 
 November 6, 2015  Posted by at 11:08 am Finance Tagged with: , , , , , , , , , , ,  


William Henry Jackson Hand cart carry, Adirondacks, New York 1902

European Union Predicts 3 Million More Refugees By End Of Next Year (WaPo)
UN Expects Daily Refugee Flow Of 5,000 To Europe This Winter (Reuters)
From Lesvos, Tsipras Says Greece Cannot Cope With Refugees (Reuters)
Tsipras To Hold Emergency Meeting On Refugees With Mayors And Governors (AP)
A Hand in the Water is not Like a Hand in the Fire (Press Project)
Merkel Hit By Refugee Crisis Setback As Berlin Drops Transit Zones Plan (Guar.)
The Economic Impact of the European Refugee Crisis (Atlantic)
Is Europe’s Economy So Bad the ECB Will Run Out of Things to Buy? (Bloomberg)
EU Cuts Growth and Inflation Outlook as ECB Decision Looms (Bloomberg)
Brussels Demands More Austerity ‘Measures’ In Greece (Kath.)
How China Broke the World’s ‘Bubble Machine’ (Bonner)
The Valeant Scandal and Steve Keen on China and Portugal (RT)
China’s Stock-Market Bulls Are Back, But Where Are the Earnings? (Bloomberg)
China’s Bonds Set for Worst Week Since May as PBOC Seen on Hold (Bloomberg)
Monetary Bazookas Or Not, “Global Crisis Is Inevitable” (Saxobank)
Deflation Risks May Warrant Radical New Central-Bank Thinking: IMF (WSJ)
Standard Chartered’s Shares Plunge 7% After Fitch Downgrade (Bloomberg)
MSF Says US Planes Attacked Staff Fleeing Kunduz Hospital (Reuters)
Exxon Mobil Investigated for Possible Climate Change Lies (NY Times)
World Only Half Way To Meeting Emissions Target With Current Pledges (Guardian)

Mayhem foretold.

European Union Predicts 3 Million More Refugees By End Of Next Year (WaPo)

The European Union predicted Thursday that up to 3 million additional asylum seekers could enter the 28-member bloc by the end of next year, suggesting the staggering pace of new arrivals in recent months shows no sign of abating. The forecast, buried in a 204-page report on the future of the European economy, will add to an already burning debate in Europe about whether the continent can handle the influx, which has broken all modern records. So far this year, more than 760,000 people have entered the continent seeking refuge or jobs, according to the U.N.’s refugee agency. The new arrivals have badly strained government resources in countries all along the trail, which leads from the Mediterranean Sea in the south to richer nations in Europe’s north.

One of the more affluent countries, Sweden, said Thursday that it would apply for emergency E.U. aid, an admission that it is failing to cope. Sweden, which has taken the largest per capita share of refugees of any E.U. country, is expecting 190,000 asylum seekers this year — double its previous record. “The major problem today is that the number of asylum seekers is growing faster than we can arrange for accommodation,” Morgan Johansson, the minister for justice and migration, told reporters. “Sweden can no longer guarantee accommodation to everyone who comes. Those who are arriving could be met with the news that there isn’t anywhere to stay.” [..] Despite the unprecedented scale of the flows, the overall population of the European Union was forecast to rise only 0.4% as a result of the influx.

In a separate forecast, the U.N. High Commissioner for Refugees said it predicted that an average of up to 5,000 migrants a day would travel from Turkey to Greece over the next four months. That would mark a substantial departure from the migrant travel patterns in previous years, when winter’s harsh weather vastly reduced the numbers. The refugee agency appealed for nearly $100 million to winterize tents and sanitation systems while it warned of more deaths among refugees if adequate measures are not taken. Peter Sutherland, the U.N. secretary general’s special representative on migration issues, told the BBC that there was no sign that the flow of migrants was diminishing, despite a rising death toll from rougher autumn seas. He called for Europe to take collective action to deal with the crisis. “This is now a global responsibility, but it is a particular European responsibility”, he said. “And in Europe we can’t say simply that those who are the closest to the problem, and therefore receive most of the migrants, have to handle it themselves”.

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At 5,000 a day, you don’t get to 3 million. Actually, you get to 1,825 million.

UN Expects Daily Refugee Flow Of 5,000 To Europe This Winter (Reuters)

Refugees and migrants are likely to continue to arrive in Europe at a rate of up to 5,000 per day via Turkey this winter, the United Nations said on Thursday, appealing for more funds to avert tragedy in Greece and the Balkans in coming months. More than 760,000 people have already crossed the Mediterranean so far this year, mainly to Greece and Italy, after fleeing wars in Syria, Afghanistan and Iraq, as well as conflicts in Eritrea and other parts of Africa. “Harsh weather conditions in the region are likely to exacerbate the suffering of the thousands of refugees and migrants landing in Greece and travelling through the Balkans, and may result in further loss of life if adequate measures are not taken urgently,” the U.N. High Commissioner for Refugees (UNHCR) said.

“UNHCR’s new winter plan anticipates that there could be up to 5,000 arrivals per day from Turkey between November 2015 and February 2016,” it said. The agency is seeking an additional $96.15 million to support Croatia, Greece, Serbia, Slovenia and the former Republic of Macedonia, bringing the total amount that it is trying to raise for Europe’s refugee crisis to $172.7 million. The fresh funds will be used to upgrade shelter and reception facilities for winter conditions, and to supply family tents and housing units equipped with heating, the statement said. Sanitation and water supply systems will also be improved. “Winter clothing and blankets, as well as other essential items for protecting people from the elements, will be included in the aid packages to be distributed to individuals with specific needs,” it said.

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He should be much more vocal on this.

From Lesvos, Tsipras Says Greece Cannot Cope With Refugees (Reuters)

Greece’s prime minister conceded on Thursday that the country was unable to cope with the thousands of migrants arriving daily on its shores, just days after saying that he was shamed by Europe’s handling of the crisis. Alexis Tsipras was visiting Lesvos the Greek island which has received the bulk of arrivals and where aid groups condemned living conditions for refugees as dire. ”I think we are battling something which is beyond our abilities, and everyone should understand that,” he said, on a visit to a packed migrant registration center with Martin Schulz, head of the European Parliament. Cash-strapped Greece has been struggling to handle an influx of hundreds of thousands of migrants fleeing from war and hardship in the Middle East. Aid organisations estimate more than 601,000 have entered Europe through Greece this year.

With at least 430 people having died this year trying to make the short sea crossing along Greece’s border with Turkey, Tsipras said it was “imperative” to reach a deal with Ankara to stem the flow. About 15,000 refugees and migrants were effectively stranded on Lesvos on Thursday because a ferry strike had stopped reception centres forwarding arrivals onto the Greek mainland. “It’s an asphyxiating situation,” Tsipras said. International aid agency IRC, which has a unit on Lesbos, said conditions at one main centre were unacceptable and that Greece had struggled for years to cope with far fewer migrants. At Moria, an army camp converted into a refugee centre, Schulz and Tsipras got a taste of some of the frustration. “We are here three days. We are hungry. I have two children, my children are sick,” one man shouted at Tsipras.

Tsipras patted his arm. “We will do our best.” The United Nations refugee agency UNHCR launched a new funding appeal on Thursday, saying it needed $96.15 million in additional support for Greece and affected Balkan countries. Greece has had €5.9 million in EU aid so far this year. UNHCR forecasts up to 5,000 arrivals per day from Turkey between now and February. With a recent bout of bad weather, people smugglers have started offering discounts on journeys with flimsy inflatables and charging more for trips on boats. “We were unfortunate enough to see an improvised dinghy as we were heading in, full of refugees,” Tsipras said. “It’s criminal.” ”It is imperative that we reach an agreement with Turkey to stop the flows by targeting the smugglers.”

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Far too late, and wrong meeting. What’s needed is something much higher up: UN.

Tsipras To Hold Emergency Meeting On Refugees With Mayors And Governors (AP)

Greek Prime Minister Alexis Tsipras has invited mayors of eastern Aegean islands bearing the brunt of the current refugee influx to Athens for an emergency meeting on how to deal with the crisis. The meeting, scheduled for midday Friday, was also to be attended by the north and south Aegean regional governors as well as mayors and religious officials from the islands of Lesvos, Samos, Kos, Leros and Chios, and government officials.

Greece is the main gateway into the European Union for hundreds of thousands of people fleeing war and poverty at home. The vast majority arrive after a short but dangerous sea journey to Greek islands from the nearby Turkish coast and then head to the mainland and on to more prosperous northern EU countries through the Balkans. Hundreds have drowned, including many children, when their overcrowded and unseaworthy boats have sunk or capsized.

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“Before the war, Syria had a population of 23ml, it was a middle income country and had one of the best education systems in the Arab world with 90% literacy rate. Today, more than half, 12.5ml people cannot survive without humanitarian aid..”

A Hand in the Water is not Like a Hand in the Fire (Press Project)

The number of internally displaced people in Syria is estimated at 7.6ml while the number of those who fled to neighboring countries; Turkey, Lebanon, Jordan and Iraq is more that 4ml. Before the war, Syria had a population of 23ml, it was a middle income country and had one of the best education systems in the Arab world with 90% literacy rate. Today, more than half, 12.5ml people cannot survive without humanitarian aid. 50% of the children no longer attends school, half of the population has no access to running water and electricity-not simply because they have no money to pay for it but, mostly, because the war has destroyed 50% of the water and electricity infrastructure. Syria used to host 12 refugee camps which accommodated 560.000 Palestinians.

Today, after the war, 450.000 Palestinians are still in the country, scattered everywhere. Jordan closed its borders to Palestinians from Syria at the beginning of the war while Lebanon did the same on May, 2015. In all, 80.000 Palestinians from Syria have found refuge in Turkey, Lebanon, Jordan, and Egypt hoping to be able to cross over to Europe. Almost all of them fear extradition back to Syria due to their particular circumstances. As expected, the first Syrian refugees fled to the neighboring countries; Jordan, Lebanon, Turkey and, in smaller numbers, Iraq and Egypt. The Syrians who chose to move to those countries usually did it because they could not pay the trafficker’s fees for a passage to Europe- during the first years the prices were three times higher than today. Another reason was that some of them believed that the war would not last long and they would be able to return to their country relatively soon.

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As Rome burns and babies drown…

Merkel Hit By Refugee Crisis Setback As Berlin Drops Transit Zones Plan (Guar.)

Angela Merkel has suffered a setback in her attempt to stabilise the influx of refugees into Germany by setting up “transit zones” on the border with Austria. The zones, denounced as detention camps by the Social Democrats (SPD), the German chancellor’s junior coalition partner, were rejected at crisis talks in Berlin on Thursday. Instead, her government announced it would establish up to five reception centres inside Germany for the swifter processing of asylum claims and the prompt deportation of those with little chance of obtaining refugee status, mainly people from the Balkans. Merkel’s climbdown came as the European commission predicted the arrival of up to 3 million people in the EU by 2017.

The Berlin agreement – reached at crisis talks between Merkel’s Christian Democrats, its Bavarian sister party, the Christian Social Union, and the SPD – represented an unusual defeat for the centre-right and a victory for Sigmar Gabriel, the SPD leader and vice-chancellor. The German interior ministry indicated the massive scale of the movement of people towards Germany this year when it supplied the latest figures on Thursday for registered refugees – 758,000, a record-breaking figure that suggests the number will exceed 1 million this year. They mainly came from Syria and Iraq, Afghanistan, Albania and Kosovo. The migrants from the latter two places are likely to be deported promptly under the tighter regime Merkel is trying to create while remaining open to those viewed as bona fide refugees.

The Merkel’s climbdown on transit zones came as the EU prepares for a crucial week of summitry devoted for the fifth time in a matter of months to the migration emergency. EU interior and justice ministers are to meet on Monday to ponder their options amid growing evidence that their governments are failing to come up with coherent policies or to come good on repeated pledges of money, resources and refugee-sharing by quotas.

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Economic models on 3 million extra refugees are completelyt useless: nobody has a clue.

The Economic Impact of the European Refugee Crisis (Atlantic)

Three million refugees and migrants could arrive in Europe by the end of 2017, the European Commission says in its economic forecast for the fall of 2015. The report says the newcomers will have a relatively small economic impact in the medium term, with GDP rising between 0.2% and 0.3% above the baseline by 2020. But, the EC notes, that could vary by country with destination countries such as Germany seeing a more significant impact than transit countries. Here’s more:

“The impact from higher public spending and a larger labour force with a skillset similar to the existing one in the EU is expected to: “contribute to a small increase in the level of GDP this year and next, compared to a baseline scenario, rising to about 0.25% by 2017”. This however is less than the rise in the underlying population, implying a small, negative impact on GDP per capita throughout the period; and “strengthening the outlook for employment (which is expected to improve gradually to about 0.3% more employed persons by 2017), in part from a wage response.”

The EC reports points out that, typically, non-EU migrants typically receive less in individual benefits than they contribute in taxes and social contributions. And their employment is the most important factor of net fiscal contribution. The influx excluding failed asylum applications will increase the EU’s population by 0.4%, the forecast says. The report further says:

“For Member States with an ageing population and shrinking workforce, migration can alter the age distribution in a way that may strengthen fiscal sustainability yet, if the human potential is not used well, the inflow can also weaken fiscal sustainability. Moreover, while migration flows can partly offset unfavourable demographic developments, earlier studies have shown that immigration could not on its own solve the problems linked to ageing in the EU.”

Economic models examining the integration of 3 million extra people over the next two years notwithstanding, Europe is deeply divided over how to handle the most severe refugee crisis since World War II. More than 760,000 refugees and migrants have entered the EU in the first nine months of this year, but the bloc has only agreed on relocating 160,000 of them. Of these, as we reported Wednesday, 116 have been sent to their new homes. About 1.2 million people have sought asylum in the EU since the start of 2014. Many of them are people fleeing the Syrian civil war, and unrest in Afghanistan, Iraq, Eritrea, and elsewhere. Others, however, are economic migrants, and will likely be turned away by Europe.

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The ECB should not be buying a single piece of paper.

Is Europe’s Economy So Bad the ECB Will Run Out of Things to Buy? (Bloomberg)

With European Central Bank President Mario Draghi hinting at further easing by the central bank next month, markets are busy trying to work out whether the next move will be to lower deposit rates even further into negative territory or ramp up asset purchases. Or perhaps both. The terms of the ECB’s quantitative easing, or QE, program mean that it theoretically has a fixed universe of assets to purchase – a limit that could be hit earlier than its intended September 2016 deadline if the bank substantially increases the size of its purchases. Under its current rate of €60 billion a month, the ECB should be more than capable of purchasing the 893 billion euros of agency and government bonds with yields above the deposit rate planned through next September.

However, if the rate of purchases is ramped up then it could come close to running out of available assets, according to Bloomberg Intelligence economist David Powell. Instead, he said, the ECB could cut the deposit rate to increase the investible universe of assets, as well as significantly increasing QE purchases. “BI Economics calculates that a decline in bond yields of 25 basis points across the curve would shrink the universe of bonds to €1.3 trillion,” he said. “In that instance, a cut to the deposit rate would be required to implement asset purchases of €90 billion much beyond September 2016 – the total through September would be roughly €1.2 trillion of overall purchases of agency and government bonds.”

Rather than relying on a rate cut to free up assets, the ECB could simply shift the mix of purchases to agency debt, corporate debt, or even debt from other countries. In December last year, Draghi directly addressed the issue of eligible assets under the ECB’s QE program. Asked whether the board had discussed buying gold or U.S. Treasuries, he replied: “On what sort of assets should be included in QE, my sense and recollection is that we discussed all assets, but gold.” In other words, asset scarcity should not be a problem. However, lowering the deposit rate might be.

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Only blatant nonsense spouts from Brussels. Europe is toast.

EU Cuts Growth and Inflation Outlook as ECB Decision Looms (Bloomberg)

The European Commission cut its euro-area growth and inflation outlook for next year, citing more challenging global conditions and fading impetus from lower oil prices and a weaker euro. GDP in the 19-nation bloc is set to grow 1.8% in 2016, down from a previous projection of 1.9% in May, the Commission said in its autumn forecast published Thursday. Inflation is seen accelerating to 1.6% in 2017 from 0.1% this year. The economic recovery in the 19-nation region is resting on unprecedented stimulus by the European Central Bank. With a slowdown in emerging markets weighing on global trade, risks have increased that growth won’t be strong enough to sustain the decline in unemployment and bring inflation back in line with the ECB’s goal of just below 2%.

“Today’s economic forecast shows the euro-area economy continuing its moderate recovery,” Valdis Dombrovskis, vice president of the European Commission, said in a statement. “Sustaining and strengthening the recovery requires taking advantage of” temporary tailwinds including “low oil prices, a weaker euro exchange rate and the ECB’s accommodative monetary policy,” he said. While noting that the recovery has proved to be resilient to external shocks so far, uncertainty surrounding the economic outlook shows few signs of abating. Risks include a larger-than-anticipated slowdown in China and financial-market volatility triggered by a normalization of U.S. monetary policy, according to the report.

In Germany, factory orders dropped 2.8% in the third quarter from the previous one amid a slump in demand from outside the euro area, the Economy Ministry in Berlin said in a separate release on Thursday. Orders from within the country and the currency bloc are still supporting manufacturing, it said. The Commission upgraded its euro-area growth forecast for this year 1.6%, from a previous estimate of 1.5%. Output should accelerate to 1.9% in 2017, it said. Breaking down growth components, the Commission predicts domestic demand will pick up this year and continue to maintain its momentum over the near term, supported by a boost to nominal income, purchasing power and improving labor-market conditions.

Meanwhile, investment is forecast to strengthen “gradually,” albeit at a lower pace than in past recoveries, pointing to subdued demand expectations, credit-supply constraints and persistent corporate deleveraging pressures. Reacting to the report, EU Commissioner for Economic and Financial Affairs Pierre Moscovici said the recovery “remains on course,” but warned improvement is still unevenly spread across the euro area and major challenges remain going into next year. “These require bold and determined policy responses in 2016, especially in the face of an uncertain global outlook,” he said in a statement.

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Cutting spending in a contracting economy. Who still thinks Greece is better off inside the EU?

Brussels Demands More Austerity ‘Measures’ In Greece (Kath.)

The European Commission expects the recession that returned to Greece this year to continue into 2016 and is calling on the government to immediately draw up additional measures for 2017. Along with the release of its fall forecasts on Thursday, Brussels also criticized Athens for reversing the positive momentum recorded in the economy last year, which is attributed to the renewed uncertainty during 2015 and the introduction of capital controls. The Commission expects the Greek economy to contract 1.4% this year and 1.3% in 2016, before rebounding by 2.7% in 2017.

It blamed the loss of the 2014 momentum on the uncertainty created by the unsuccessful completion of the second bailout program, the referendum called by Prime Minister Alexis Tsipras in July, the three-week bank holiday and the capital controls, which came into effect on June 28. Despite the above constraints, the Greek economy expanded 1% in the first half of the year, although this was due to the rise in consumption as Greeks feared for their incomes and savings. It further reflected the decline in imports, while the very positive course of tourism for a second year in a row also helped. In the current second half of the year, Brussels believes that the Greek economy is burdened by the great volume of tax obligations that have to be paid out by the end of the year, the wait-and-see attitude of investors and the lack of credibility in the economy.

The Commission hopes that the stabilization of the credit sector after a successful recapitalization, the recovery of confidence and the return of investors through the privatizations program could lead the economy back to growth in the latter half of next year. It stressed that the application of the agreed reforms is key to a Greek recovery. Regarding the necessary primary budget surplus, the Commission says that besides the measures for 2015-17 already taken, amounting to 4% of gross domestic product, the government should take extra measures adding up to another 1.75% of GDP for 2017.

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“Imports into China – mostly raw materials – are dropping at a double-digit rate. Exports are rolling over, too. There is nothing like easy money to cause people to make mistakes. Americans overspent. China overproduced. Now, Americans can’t step up their buying (they owe too much already)… and China has too much capacity.”

How China Broke the World’s ‘Bubble Machine’ (Bonner)

Here’s how it worked: Once the world’s money lost its golden anchor in 1971, things got a little funny. Americans spent money they never earned and never saved – dollars created “out of nothing” with nothing more than keystrokes on a computer. Much of this new money went overseas, where foreign nations – notably China – had to print their own currency to keep up with it. But you’ve heard this story before. China makes. The U.S. takes. In the process, a glut of dollars ends up in the hands of the Chinese feds as foreign exchange reserves. The buildup of these reserves is both the cause and the measure of the globalized boom the world has enjoyed since the early 1980s. As Americans bought more goods from China than they sold to China, they sent more dollars to the Middle Kingdom.

These dollars boosted the world’s money supply… and set heads a’spinning, wheels a’turning, and chimneys a’smokin’. China (and other countries) filled the orders and banked the dollar sales. Of course, you can’t easily spend dollars in China. So the Chinese central bank, the People’s Bank of China (PBoC) exchanged merchants’ and manufacturers’ dollars for renminbi at a fixed rate (otherwise, the demand for renminbi would push up its exchange value – something the Chinese have been keen to avoid). This left the PBoC with lots of dollars. What could it do with its stash? Buy U.S. Treasury bonds! As China recycled its export dollars into U.S. government debt, it lowered U.S. interest rates and increased the amount of money bidding for U.S. financial assets.

That – roughly – is how we got to where we are today. China’s supply of foreign currency reserves rose from zero in 1979 to $4 trillion in 2014. Worldwide, reserves grew by $12 trillion. Here, you can easily see the difference between this new credit-based system and the gold-backed system it replaced. You could never add $12 trillion to the world’s money supply in the same way if it was linked to gold. All the gold ever mined has a present value of only about $6 trillion. This big increase in the global money supply was what set off the booms and bubbles of the last 35 years. But now, what’s this? The bubble machine is broken? The PBoC is no longer adding to its dollar reserves. Instead, it is offloading them. About $400 billion has been clipped from China’s foreign exchange reserves since 2014.

This drop is a big change for China… and for the world’s financial system. Imports into China – mostly raw materials – are dropping at a double-digit rate. Exports are rolling over, too. There is nothing like easy money to cause people to make mistakes. Americans overspent. China overproduced. Now, Americans can’t step up their buying (they owe too much already)… and China has too much capacity. China’s growth, by the way, has been heavily concentrated on building factories and infrastructure – capital investment. China spent $4.3 trillion on fixed capital investment in 2013 – 10 times more than in 2000. But when you produce too much already, building more factories only makes the situation worse. Prices fall; on a year-over-year basis, producer prices in China haven fallen every month for the last three and half years.

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Steve comes in at 13 minutes+.

The Valeant Scandal and Steve Keen on China and Portugal (RT)

The European Union cuts its Eurozone growth forecast for 2016. Despite this being the third year of consecutive growth for the European Union, growth is slow and will slow even further. Ameera David weighs in. Ameera also highlights a new smart Gmail feature that will be able to scan your email and offer quick replies. Then, Ameera and RT correspondent Manuel Rapalo update their earlier discussion on Airbnb’s fight in to stay legal in San Francisco and discuss Expedia’s $3.9 billion deal to buy Airbnb competitor HomeAway. Afterwards, Paul Craig Roberts gives us his take on the elimination of two popular social security claiming measures, part of his interview with Boom Bust’s Bianca Facchinei that will air Friday.

After the break, Boom Bust’s Edward Harrison sits down with Steve Keen, head of economics, history, and politics at Kingston University to get his thoughts on the path forward for China, emerging markets, and the global economy, as well as to assess whether politics in Portugal are radicalizing. And in The Big Deal, Ameera and Edward Harrison talk about the scandal surrounding former stock darling Valeant Pharmaceuticals.

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Casino.

China’s Stock-Market Bulls Are Back, But Where Are the Earnings? (Bloomberg)

Hao Hong has seen this movie before, and it didn’t end well for China’s stock-market bulls. Five months after an equity boom built on weak corporate profits turned into a $5 trillion crash, a similar scenario is playing out in China today. The benchmark Shanghai Composite Index has surged 20% from its Aug. 26 low, despite third-quarter profits that trailed analyst estimates at 68% of companies in the index, the eighth straight quarter of disappointing results. The absence of a rebound in earnings is one reason why Hong at Bocom International says the latest surge in stocks is a “bear market rally.” Foreign investors seem to agree: they’ve been selling mainland equities through the Shanghai-Hong Kong exchange link for four straight weeks, cutting holdings by the most in two months on Thursday.

“It’s very difficult to see this rally sustaining without an earnings recovery,” said Tony Chu at RS Investment. Foreign investors “don’t have a very strong medium-to-longer-term view.” The rally in China follows an unprecedented government campaign to prop up share prices, along with increased monetary stimulus to combat the deepest economic slowdown in 25 years. The official support has helped revive confidence among local investors, spurring a pick-up in trading activity and sending the Shanghai Composite to an 11-week high on Thursday. The $1.6 trillion recovery in Chinese share prices is also boosting valuations as earnings shrink. Trailing 12-month profits at Shanghai Composite companies have dropped 10% so far this year, leaving the index with a price-to-earnings ratio of 18. While that’s still below the multiple of 25 reached at the height of the boom in June, it’s about 38% more expensive than the five-year average.

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From bonds to stocks and back?

China’s Bonds Set for Worst Week Since May as PBOC Seen on Hold (Bloomberg)

China’s 10-year sovereign bonds headed for the biggest weekly drop in five months on speculation investors are taking profits amid signs the central bank is done cutting borrowing costs for now. The People’s Bank of China has lowered benchmark deposit and lending rates six times since November and reduced lenders’ reserve ratios in an attempt to spur a slowing economy. The monetary authority will leave its policy rates unchanged through the end of next year, a Bloomberg survey showed last week. China’s local-currency sovereign debt rallied for five months through October and the 10-year yield fell to a six-year low last week. The yield on the notes due October 2025 climbed six basis points from Oct. 30 and two basis points on Friday to 3.14% as of 10 a.m. in Shanghai, according to National Interbank Funding Center prices.

That’s the biggest weekly increase for a benchmark of that maturity since May. “Profit-taking will probably continue to be the theme through to the end of the year, especially for active traders,” said Qu Qing at Huachuang Securities. “Given the slide in yields earlier, this may not be a good time to enter the market.” The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, rose three basis points this week to 2.35% and declined one basis point on Friday. The seven-day repo rate, a gauge of interbank funding availability, fell four basis points from Oct. 30 and three basis points on Friday to 2.26%, a weighted average from the National Interbank Funding Center shows.

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What we have said for almost ten years now.

Monetary Bazookas Or Not, “Global Crisis Is Inevitable” (Saxobank)

Until recently, the consensus assumed a strengthening of the global economy in 2016. It won’t happen. If the global economic growth manages to reach 3.1% next year, as forecast by the IMF, it will be a miracle. We haven’t realised that the global economic recovery is already here for over six years. This recovery phase is weaker than previous ones and much more disparate. Since the onset of the global financial crisis in 2007, the potential growth rate has been much lower everywhere: from 3% to 2% for the US, from 9.4% to 7.20% for China and from over 5% to below 4% for Poland. Many regions, such as the euro area, have remained on the sidelines and experienced stalling economic growth. Over the last two decades, economic cycles have been shortened due to the financialization of the economy, trade globalization, deregulation and the acceleration of innovation cycles.

Since the 1990s, the US went through three recessions: in 1991, 2001 and 2009. It is erroneous to believe that the recovery has just begun. We are close to the end of the current economic cycle. The outbreak of a new global crisis in the coming years is inevitable. The lack of economic momentum next year and short periods of deflation related to falling oil prices will certainly push central banks to pursue their disastrous “extend-and-pretend” strategy which will increase the price of financial assets and global debt. The ECB could push further interest rates into negative territory and could increase or lengthen the purchase program. Several options are on the table: the central bank could drop the 25% purchase limit on sovereign bonds with AAA rating or could add a program to help the corporate bond market.

Following the same path, China could take out the monetary bazooka in the first half of 2016 by launching its own version of QE-style bond buys. Along with a dovish monetary policy, China could implement a massive Keynesian stimulus programme, relying on the already-expected bond issue plan which could raise 1 billion yuan. This move could temporarily reassure world markets. The only central bank that has a leeway to hike rates is the US Federal Reserve. 52% of investors expect a tightening of US monetary policy in December. However, the speed and magnitude of tightening will remain low. It is unlikely the rates will be back anytime soon to where they were before the global financial crisis. Too high interest rates could cause a myriad of bankruptcies in heavily indebted industries, such as the shale oil sector in the US.

The Fed and other central banks are in a dead-end having fallen in the same trap as the Bank of Japan. If they increase rates too much, they will precipitate another financial crisis. It is impossible to stop the accommodative monetary policy.

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Let’s get rid of the absurd idea that central banks can control economies. Not even the Soviet Union succeeded in that.

Deflation Risks May Warrant Radical New Central-Bank Thinking: IMF (WSJ)

The Bank of Japan and other central banks around the world may need to try radical new easy-money policies to stave off the rising specter of deflation and revive sickly economic prospects, the IMF’s new chief economist warns. “I worry about deflation globally,” new IMF Economic Counselor Maurice Obstfeld said in an interview ahead of an annual IMF research conference that focuses this year on unconventional monetary policies and exchange rate regimes. “It may be time to start thinking outside the box.” Weak—and in some cases falling—price growth has plagued Japan, Europe, the U.S. and other major economies since the financial crisis. Plummeting commodity prices are exacerbating the so-called “lowflation” and deflation problems that curb investment, spending and growth.

Surveying several dozen of the largest economies around the world, Mr. Obstfeld said the number of countries experiencing low inflation is rising. Combined with slowing emerging market output, ballooning government debt and monetary policy constrained by the lower limits of interest rates, the deflation risk is fueling fears the global economy could be fast stuck into a deep low-growth mire. In the wake of the financial crisis, the Federal Reserve, the Bank of Japan and the ECB launched unprecedented easy-money stimulus programs to avert economic disaster and jumpstart growth. The Fed’s efforts have cut the unemployment rate but failed to sufficiently juice inflation. Tokyo has struggled to pull the long-listless economy out of the doldrums. And the ECB’s efforts have only narrowly avoided a triple-dip recession. Some economists argue the ECB’s actions have pumped up corporate cash reserves, but done little to boost employment or investment.

So, what would be thinking outside the box for Mr. Obstfeld? One option is a proposal by Adair Turner, a member of the Bank of England’s Financial Policy Committee, for central bankers to overtly finance increased budget stimulus with permanent increases in the money supply. By contrast, the increased money supply resulting from recent central bank bond-buying programs is meant to be temporary. In a paper prepared for the IMF conference, Mr. Turner contends Japan will be forced to use such “monetary financing” within the next five years and says the policy should become a normal central bank tool for all economies facing stagnation. Such an option would be highly provocative to fiscal hawks and those who fear giving central banks too much power, especially when many economists question both the returns and financial-turmoil side effects from existing easy-money policies.

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2016 will be a very bad year for banks.

Standard Chartered’s Shares Plunge 7% After Fitch Downgrade (Bloomberg)

Standard Chartered shares slumped in Hong Kong after Fitch Ratings downgraded the bank, citing the outlook for the lender’s profits and asset quality. The London-based bank this week unveiled plans to tap investors for $5.1 billion, eliminate thousands of jobs and cut risky assets across Asia. The bank’s shares fell as much as 7.1% Friday in Hong Kong. They were down 4.8% as of 11:30 a.m. local time, extending this year’s decline to 35%. The benchmark Hang Seng Index slipped 0.9%. Standard Chartered is now lagging behind the Bloomberg World Banks Index by the most since the gauge started in 2003. While Chief Executive Officer Bill Winters’s measures to restructure the lender and boost capital address some of Fitch’s concerns about the bank, implementing the plan could be challenging because of credit risks and high management and staff turnover, the ratings firm said in a statement.

Fitch on Thursday cut the lender’s credit rating one grade to A+ from AA-, with a negative outlook. Winters, who took over in June, on Tuesday unveiled 15,000 job losses to help save $2.9 billion by 2018, with the bank scrapping the second-half dividend. Standard Chartered will also restructure or exit $100 billion of assets and reduce its riskiest lending in Asia after loan impairments surged. The bank reported an unexpected third-quarter loss of $139 million, compared with a profit of $1.5 billion a year earlier. The bank’s impaired-loan ratios remain above its peers’ and appear to have become more volatile as a result of concentrated sector and country exposures, Fitch said. “Standard Chartered remains vulnerable to volatility from a difficult operating and regulatory environment.” The bank’s shares fell 6.3% in London on Thursday.

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Apparently, the US army called the hospital prior to the attack to ask if there were any Taliban present.

MSF Says US Planes Attacked Staff Fleeing Kunduz Hospital (Reuters)

Medical aid group Medicins Sans Frontieres (MSF) said Thursday it was hard to believe a U.S. strike on an Afghan hospital last month was a mistake, as it had reports of fleeing people being shot from an aircraft. “All the information that we’ve provided so far shows that a mistake is quite hard to understand and believe at this stage,” MSF General Director Christopher Stokes told reporters while presenting the group’s internal report on the incident. The report said many staff described “seeing people being shot, most likely from the plane” as they tried to flee the main hospital building, which was under attack by U.S. military aircraft. At least 30 people were killed when the hospital in Kunduz was hit by a powerful U.S. attack aircraft on Oct. 3 while Afghan government forces were battling to regain control of the northern city from Taliban forces who had seized it days earlier.

The United States has said the hospital was hit by accident and two separate investigations by the U.S. and NATO are underway. But the circumstances of the incident, one of the worst of its kind during the 14-year conflict, are still unclear. Stokes told reporters the organisation was still awaiting an explanation from the U.S. military. “From what we are seeing now, this action is illegal in the laws of war,” Stokes said. “There are still many unanswered questions, including who took the final decision, who gave the targeting instructions for the hospital.” Capt. Jeff Davis, a Pentagon spokesman, said MSF shared the report in advance with the U.S. Defence Department. “Since this tragic incident, we have worked closely with MSF to determine the facts surrounding it,” he said in a statement, which did not address the report’s specifics.

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Exxon knew it all. But that means so did everybody else.

Exxon Mobil Investigated for Possible Climate Change Lies (NY Times)

The New York attorney general has begun an investigation of Exxon Mobil to determine whether the company lied to the public about the risks of climate change or to investors about how such risks might hurt the oil business. According to people with knowledge of the investigation, Attorney General Eric T. Schneiderman issued a subpoena Wednesday evening to Exxon Mobil, demanding extensive financial records, emails and other documents. The investigation focuses on whether statements the company made to investors about climate risks as recently as this year were consistent with the company’s own long-running scientific research.

The people said the inquiry would include a period of at least a decade during which Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences — and uncertainties — to company executives. Kenneth P. Cohen, vice president for public affairs at Exxon Mobil, said on Thursday that the company had received the subpoena and was still deciding how to respond. “We unequivocally reject the allegations that Exxon Mobil has suppressed climate change research,” Mr. Cohen said, adding that the company had funded mainstream climate science since the 1970s, had published dozens of scientific papers on the topic and had disclosed climate risks to investors.

Mr. Schneiderman’s decision to scrutinize the fossil fuel companies may well open a new legal front in the climate change battle. The people with knowledge of the New York case also said on Thursday that, in a separate inquiry, Peabody Energy, the nation’s largest coal producer, had been under investigation by the attorney general for two years over whether it properly disclosed financial risks related to climate change. That investigation was not previously reported, and has not resulted in any charges or other legal action against Peabody. Vic Svec, a Peabody senior vice president, said in a statement, “Peabody continues to work with the New York attorney general’s office regarding our disclosures, which have evolved over the years.”

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Here’s the only safe bet: nothing will happen that costs too much money.

World Only Half Way To Meeting Emissions Target With Current Pledges (Guardian)

Current global efforts to cut greenhouse gas emissions leave about half of the reductions needed still to be found, according to a new analysis by the UN. The report suggests that governments will have to go much further in their pledges to limit future carbon dioxide emissions, which have been submitted to the UN ahead of the crunch conference on climate change taking place this December in Paris. Ways for governments to ramp up their commitments in future are one of the key components of the Paris talks. The UN Environment Programme (Unep) published a report showing that global emissions levels should not exceed 48 gigatonnes (GT) of carbon dioxide equivalent by 2025, and 42 GT in 2030, if the world is to have a good chance of holding global warming to no more than 2C on average above pre-industrial temperatures.

The 2C threshold is regarded by scientists as the limit of safety, beyond which the ravages of climate change – such as droughts, floods, heatwaves and sea level rises – are likely to become catastrophic and irreversible. But current pledges, known as Intended Nationally Determined Contributions (INDCs), are likely to lead to emissions of 53 to 58 GT of carbon dioxide equivalent in 2025, and between 54 and 59 GT in 2030. This means that emissions in 2030 are likely to be about 11GT lower than they would have been without the INDCs. But, according to Unep, they need to be about 12GT lower than that to give the world a two-thirds chance of avoiding more than 2C of warming. This leaves a large “emissions gap” to be made up.

Much work has gone into analysing the emissions pledges that countries have made, with branches of the UN, the International Energy Agency, the New Climate Economy group, and other independent organisations producing reports on what can be expected if the Paris pledges are fulfilled. There is broad consensus that the commitments that have so far been made are not yet adequate to meet the 2C limit. However, the commitments – which will come into force from 2020, when current international commitments on emissions, agreed at the Copenhagen summit in 2009, are scheduled to run out – represent a marked improvement on “business as usual”. The IEA has calculated that, if followed through, the emission plans would result in the growth of emissions from the energy sector slowing to near zero by the end of the next decade.

This would not be enough to meet scientific advice, but would be a remarkable reversal of the near-relentless upward trend of greenhouse gas emissions in modern times. Other analyses, endorsed by the UN, have suggested that warming would be limited to about 2.7C to 3C by the end of this century, under the current INDCs. While this would still not satisfy scientific advice, it would put the world on a much better footing than it is at present, as on current trends warming would reach as much as 5C above pre-industrial levels by 2100.

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Jul 292014
 
 July 29, 2014  Posted by at 3:49 pm Finance Tagged with: , , , , ,  


Arthur Rothstein Elm Street, Theater Row, Dallas Jan 1942

I don’t think it’s ever a good sign, no matter how funny it may look, when the US state Department makes one think of Monty Python. But it does. With a Silly Claims instead of Silly Walks department. Would these people really sit around a big table in the evening and brainstorm about what anti-Russia statement to feed to the press the next morning? What else could possibly be going on here? I mean, just look at this bit from the New York Times:

US Says Russia Tested Cruise Missile, Violating Treaty

The United States has concluded that Russia violated a landmark arms control treaty by testing a prohibited ground-launched cruise missile, according to senior American officials, a finding that was conveyed by President Obama to President Vladimir V. Putin of Russia in a letter on Monday. It is the most serious allegation of an arms control treaty violation that the Obama administration has leveled against Russia [..]

At the heart of the issue is the 1987 treaty that bans American and Russian ground-launched ballistic or cruise missiles capable of flying 300 to 3,400 miles. That accord, which was signed by President Ronald Reagan and Mikhail S. Gorbachev, the Soviet leader, helped seal the end of the Cold War and has been regarded as a cornerstone of American-Russian arms control efforts.

Russia first began testing the cruise missiles as early as 2008, according to American officials, and the Obama administration concluded by the end of 2011 that they were a compliance concern. In May 2013, Rose Gottemoeller, the State Department’s senior arms control official, first raised the possibility of a violation with Russian officials. The New York Times reported in January that American officials had informed the NATO allies that Russia had tested a ground-launched cruise missile [..]

If we are to believe the NYT, Russia started testing the system 6 years ago, it then took the US at least 3 years to ‘conclude’ it was ‘a compliance concern’, another 18 months or so to ‘raise the possibility of a violation with Russian officials’, 8 more months after that to inform NATO – and have the NYT write it up – and another half year on top of that for Obama to write a letter to ‘President Vladimir V. Putin of Russia’ (excellent choice of title, love the extra V.) and feed the press.

Whereas we can all agree that timing is everything, how many of you recognize that any and every single day over the past 6 years and change would have been better to go public with this than today? In all the papers, we can read that ‘Senior American officials’ stress that this is ‘a serious violation’.

Look, we know you’re trying to make Russia look bad. We get it. But we also know that if this would have been such a serious violation, you would have spoken out a long time ago. We therefore have no other choice but to file this under ‘whatever’. And wait with glee for what you come up with tomorrow.

By the way, while reading up on this, I happenstanced upon something else in the field of nuclear treaties. And since you guys insisted on putting us in Python mood, here goes. This is from the Santa Barbara Independent:

Feds Looks to Quash Nuclear Treaty Lawsuit

Federal attorneys have made their first big move to dismiss a lawsuit that alleges the United States, along with eight other countries, has violated a 46-year-old treaty to dismantle its nuclear arsenal. The lawsuit was filed in April — in U.S. Federal Court as well as in the International Court of Justice in The Hague – by the tiny Pacific nation of the Marshall Islands, which the U.S. bombarded with nuclear weapons tested between 1946 and 1958. Marshall Islands officials maintain that radioactive fallout from the tests sickened citizens and rendered some territories unlivable.

“Our people have suffered the catastrophic and irreparable damage of these weapons,” said Marshall Islands Foreign Minister Tony de Brum in May, “and we vow to fight so that no one else on Earth will ever again experience these atrocities.” The Treaty on the Non-Proliferation of Nuclear Weapons (NPT) was signed in 1968 and mandates that the United States, Russia, United Kingdom, France, China, Israel, India, Pakistan, and North Korea “pursue negotiations in good faith” to end the nuclear arms race “at an early date and to work toward worldwide nuclear disarmament.”

Attorneys for the Marshall Islands argue that the countries have instead increased and modernized their nukes over the decades. [..] In the fed’s Motion to Dismiss, the government claims the lawsuit should be thrown out because of procedural and jurisdictional issues. “The U.S.… does not argue that the U.S. is in compliance with its NPT disarmament obligations,” the NAPF explained in a prepared statement. “Instead, it argues in a variety of ways that its non-compliance with these obligations is, essentially, justifiable, and not subject to the court’s jurisdiction.”

That doesn’t exactly make that claim against Russia look better, does it? Anything else? Alright then, moving on. The Financial Times has a particularly spicy rendering of the Yukos lawsuit story in which Russia was ordered to pay $50 billion in damages:

‘Yukos Is Insignificant, There Is A War Coming In Europe’

Beleaguered shareholders of Yukos could scarcely have imagined when they launched arbitration in 2005 they would one day be awarded $50bn in damages – nor that the ruling would be released into the febrile atmosphere that exists between Russia and the west today.

Just six months ago, say legal experts, Russia still seemed interested in being part of international “clubs” like the Organisation for Economic Co-operation and Development, the group of mainly rich countries. As the Ukraine crisis worsens, protecting its international reputation no longer seems a priority. “If one were to be quite cynical, I think the reputational consequences for Russia [of not paying] will be very limited indeed, because they have already been through a lot of things,” said Loukas Mistelis, director of the School of International Arbitration at Queen Mary University of London. “I think they would be prepared to take quite a bit of risk.” [..]

… if Russian state businesses find themselves hit both by western sanctions and attempts to seize assets by Yukos shareholders, relations between the Kremlin and the west could sour further. One person close to Mr Putin said the Yukos ruling was insignificant in light of the bigger geopolitical stand-off over Ukraine.

“There is a war coming in Europe,” he said. “Do you really think this matters?”

I don’t know. I catch myself thinking at times that there’s already a war going on in Europe. It could certainly expand and accelerate a lot further, but the sanctions the US and EU intend to slam on Russia sure look like economic warfare to me. As do the innuendo, the lack of evidence, the constant stream of smear stories leaked through fuzzy channels, it all fits the picture.

The Yukos case is already causing people to wake up from various stages of slumber. BP reported ‘great’ profits today, largely from their interest in Russian oil giant Rosneft (got to love the irony), but it also said the sanctions that are being prepared could hurt its shares, because it has a 19% stake in Rosneft.

What it didn’t say out loud, but what is certainly an added threat, is that the parties who won the case can now go sue BP to get their $50 billion. Because of the same 19% stake. And given that many of the stakeholders of the other 81% will be hard to go after, BP could face a bit of a problem.

But something tells me that’s still not Beyond Petroleum’s biggest worry: the deals with Rosneft gave it the prospect of actual recognized fossil fuel reserves, something BP, like all western oil behemoths, has far too little of. Exxon, too, has Rosneft deals, as does Norway’s Statoil, both for Arctic drilling projects. Shell, though Sakhalin developement(s), may well be the largest foreign investor in Russia.

At some point Big Oil will need to write down reserves; at some point their shares will fall for real. That sanctions originating in western anti-Putin sentiments may accelerate the process is something that, I’m not even sorry to say it, amuses me.

To get some perspective on the whole story, here are a few principle ideas it is based on. The west – US and EU – tries to squeeze Russia, and Rosneft. The west also – so far – seems to think this would surprise Putin and hurt his plans. Many people for instance claim that he will lose popularity at home if his economy takes a southbound turn.

Me, I’m not so sure. I think Putin must have seen all of this coming from a long time and a long distance away. The US keeps trying to pull him into proxy wars, but he’s not biting (which is why they turn to unsubstantiated claims).

Russian speaking Ukrainians are getting killed by the dozen with western support, and he must detest that. But sending in his troops would be just what the west wants, and it would lead to far more bloodshed. As long as he and his people officially stay on sovereign Russian soil, he’s OK.

As for economic sanctions, Russia is not that vulnerable. While the US tries to break the bond between Russia and Europe, Russia can try the same for the bond between US and EU. What’s more, Putin knows the ‘leadership’ in Brussels is not overly competent, and dreams away in grand visions of power, of an equal partnership with their American friends. Vladimir V. knows the US has no intention of granting Brussels any such power.

The sanctions will eventually lead to either a break between US and EU -because European business interests get hurt too much -, or – more likely for now – it will lead to $200 a barrel oil, huge increases in EU heating costs and a sharp dip in the euro that will make that $200 a lot more still.

Putin’s fine either way. Sell 50% less to Europe at 100% higher prices, why not? Let’s see EU member Slovakia send Russian gas back to Ukraine – or however that reverse flow is supposed to work -. Putin can simply cut overall gas delivery to Europe by 25%, and 50% if they try it again. There’s no love lost between Putin and Europe in the aftermath of the crash and the things that have been said about him.

And I think Vladimir must know how the US feels about this. Washington sees the advantages of making Europe their bitch, pardon my French. With half of the old world in the cold come winter, the US can greatly enhance its influence there. The Americans think that with their domestic shale wealth – they’re wrong, but they think it -, $200 a barrel oil in international markets would suit them just fine for a while.

As I said last week, we have entered the next phase in the energy equals power battle, and we entered it for good. This should be evident from looking at the sanctions and the Yukos case, and the fall-out this will have on western oil companies. You can be a big wig in Brussels and feel nice about yourself negotiating punishments for Vladimir V. Putin, but that doesn’t mean you’re ready to play with the big boys. And from here on in, it’s a big boys game only.

Note: Holland announced today that 195 of the 298 people who died in the MH17 crash had the Dutch nationality; some had dual citizenship. The one person they added to the list was a 2-year old girl. Isn’t that just the saddest thing on the planet? And then the US and EU have the audacity to play a propaganda war over that, blaming people for killing that little girl without any proof? Also, finally, 12 days after the crash, the Dutch government is calling on Ukraine to stop the fighting on the crash site and let forensic experts do their job. President Poroshenko has promised for while that they would. But nothing changed. There are still dozens of bodies and body parts decomposing in the fields. Best remember who your friends are. Same question again: who’s commanding that army?

But hey, stock markets are up … What more can we ask for?

‘Yukos Is Insignificant, There Is A War Coming In Europe’ (FT)

Beleaguered shareholders of Yukos could scarcely have imagined when they launched arbitration in 2005 they would one day be awarded $50bn in damages – nor that the ruling would be released into the febrile atmosphere that exists between Russia and the west today. The award is a landmark not just for its size – 20 times the previous record for an arbitration ruling. The tribunal also found definitively that Russia’s pursuit of Yukos and its independently-minded main shareholder, Mikhail Khodorkovsky, a decade ago was politically motivated. Through inflated tax claims, the ruling said, senior officials set out to destroy Russia’s then biggest oil company, transfer its assets to a state-controlled competitor – Rosneft – and put Mr Khodorkovsky in jail. “The tribunal confirmed what the [Yukos shareholders] have been saying all along,” said Tim Osborne, director of GML, the Yukos holding company. [..]

Just six months ago, say legal experts, Russia still seemed interested in being part of international “clubs” like the Organisation for Economic Co-operation and Development, the group of mainly rich countries. As the Ukraine crisis worsens, protecting its international reputation no longer seems a priority. “If one were to be quite cynical, I think the reputational consequences for Russia [of not paying] will be very limited indeed, because they have already been through a lot of things,” said Loukas Mistelis, director of the School of International Arbitration at Queen Mary University of London. “I think they would be prepared to take quite a bit of risk.” [..]

Emmanuel Gaillard of Shearman & Sterling, which represented the Yukos claimants, said he was confident of eventually “piercing the veil” around assets of Russian state companies such as Rosneft, the oil company, and the natural gas monopoly, Gazprom. He added that the principle that state-controlled businesses could be a kind of proxy for the state was already inherent in sanctions over Ukraine against companies such as Rosneft – which has been targeted by the US. But if Russian state businesses find themselves hit both by western sanctions and attempts to seize assets by Yukos shareholders, relations between the Kremlin and the west could sour further. One person close to Mr Putin said the Yukos ruling was insignificant in light of the bigger geopolitical stand-off over Ukraine. “There is a war coming in Europe,” he said. “Do you really think this matters?”

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BP: Russia Still Key As Production Set To Dip (CNBC)

BP, the U.K. oil giant, announced a 34% rise in profits Tuesday – but its results highlighted concerns over its important Russian joint venture. The company’s 19.75% stake in Rosneft is regularly cited as one of the most lucrative deals which could be threatened if sanctions imposed against Russia in the light of the Ukrainian crisis escalate. The company confirmed these concerns in the statement accompanying its second-quarter results: “If further international sanctions are imposed on Rosneft or new sanctions are imposed on Russia or other Russian individuals or entities, this could have a material adverse impact on our relationship with and investment in Rosneft, our business and strategic objectives in Russia and our financial position and results of operations.”

BP also warned that third-quarter production would be lower than the second quarter, blaming seasonal slowing. Output from the Gulf of Mexico helped push overall underlying production of oil and gas, excluding Russia, up by over 3% compared to a year earlier. The company also hiked its provision for litigation related to the Gulf of Mexico oil by $260 million, bringing the total potential bill for the accident to $43 billion.

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BP Warns On Russia Sanctions Despite Rosneft Profits (Guardian)

BP has earned bumper profits from its stake in the Kremlin-controlled oil company Rosneft since the start of the year, but warned investors that it could be hurt by western sanctions against Russia. The FTSE 100 company, which owns one fifth of Russia’s largest oil company, made $1.6bn (£950m) from Rosneft in the first six months of 2014, an 80% increase on last year. On top of this BP was paid a $700m dividend from Rosneft in July. But with the European Union poised to announce tougher sanctions against Russia, BP acknowledged that its reputation was at stake over its ties with the Russian state oil giant. “Further economic sanctions could adversely impact our business and strategic objectives in Russia, the level of our income, production and reserves, our investment in Rosneft and our reputation,” the company said. Earlier this month the United States added Rosneft to its sanctions list and EU is expected to approve a ban on the export of advanced technology that could be used to drill for oil in Russia.

Igor Sechin, the chairman of Rosneft and a close friend of President Vladimir Putin, has been on the US sanctions list since April. As EU leaders have struggled to keep a united front amid the conflict in eastern Ukraine, BP has stuck to a business-as-usual policy with Russia. In May BP and Rosneft struck a deal to exploit shale reserves in the Urals at a ceremony attended by Putin at the St Petersburg Economic Forum, a Russian Davos that was shunned by many other western business leaders. BP’s exposure to Russia was highlighted on Monday when a tribunal in the Hague ruled that Rosneft had been the prime beneficiary from a “devious and calculated expropriation” by the Russian government against Yukos, once Russia’s largest private oil company, broken up by the Russian government after its boss fell foul of Putin. Rosneft went on to acquire Yukos’s prime assets at rock-bottom prices. Shareholders have vowed to pursue Rosneft for a $50bn damages claim and indicated they may also pursue BP.

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Ambrose gets a lot wrong here.

BP’s Faustian Pact With Russia Goes Horribly Wrong With Yukos Verdict (AEP)

The Permanent Court of Arbitration in The Hague has thrown the book at the Russian state, or more specifically at Vladimir Putin and his Soliviki circle from the security services. The $51.5bn ruling against the Kremlin unveiled this morning has no precedent in international law. The damages are 20 times larger than any previous verdict. Lawyers for the Yukos-MGL-Khodorkovsky team tell me that they cannot pursue the foreign bond holdings of the Russian central bank if the Kremlin refuses to pay up when the deadline expires on January 15, as seems likely. Moscow has already dismissed the case as “politically motivated”. Nor can they go after embassies and other sovereign assets that enjoy diplomatic immunity, though they are eyeing a list of Russian state targets that slipped through the net. What they can certainly do – and have every intention of doing – is attacking the assets of state-owned companies that act as instruments of the Russian government.

Above all, they intend to pursue Rosneft, the venture built from the expropriated assets of Yukos. That means they also intend to pursue BP (indirectly), since BP owns a fifth of Rosneft shares as a legacy from the TNK-BP debacle. Rosneft is the world’s biggest traded oil company with production of 4m barrels a day. It is run by Mr Putin’s close friend Igor Sechin, a former KGB operative in Africa, a loyalist in Mr Putin’s political machine in St Petersburg, and the architect of Russia’s energy strategy for the last decade. The Court’s ruling made it clear that Rosneft is not a commercial company with a (passive) state shareholder. It said the Rosneft was “the vehicle” used to expropriate Yukos and has acted as an instrument of the state. Mr Putin himself said at the time that the purpose was to reverse the giveaway privatisation of Russia’s natural resources and sovereign heirlooms in the bandit era of the 1990s. “The State, resorting to absolutely legal market mechanisms, is looking after its own interest,” he said.

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US Says Russia Tested Cruise Missile, Violating Treaty (NY Times)

The United States has concluded that Russia violated a landmark arms control treaty by testing a prohibited ground-launched cruise missile, according to senior American officials, a finding that was conveyed by President Obama to President Vladimir V. Putin of Russia in a letter on Monday. It is the most serious allegation of an arms control treaty violation that the Obama administration has leveled against Russia and adds another dispute to a relationship already burdened by tensions over the Kremlin’s support for separatists in Ukraine and its decision to grant asylum to Edward J. Snowden, the former National Security Agency contractor. At the heart of the issue is the 1987 treaty that bans American and Russian ground-launched ballistic or cruise missiles capable of flying 300 to 3,400 miles. That accord, which was signed by President Ronald Reagan and Mikhail S. Gorbachev, the Soviet leader, helped seal the end of the Cold War and has been regarded as a cornerstone of American-Russian arms control efforts.

Russia first began testing the cruise missiles as early as 2008, according to American officials, and the Obama administration concluded by the end of 2011 that they were a compliance concern. In May 2013, Rose Gottemoeller, the State Department’s senior arms control official, first raised the possibility of a violation with Russian officials. The New York Times reported in January that American officials had informed the NATO allies that Russia had tested a ground-launched cruise missile, raising serious concerns about Russia’s compliance with the Intermediate-range Nuclear Forces Treaty, or I.N.F. Treaty as it is commonly called. The State Department said at the time that the issue was under review and that the Obama administration was not yet ready to formally declare it to be a treaty violation.

In recent months, however, the issue has been taken up by top-level officials, including a meeting early this month of the Principals’ Committee, a cabinet-level body that includes Mr. Obama’s national security adviser, the defense secretary, the chairman of the Joint Chiefs of Staff, the secretary of state and the director of the Central Intelligence Agency. Senior officials said the president’s most senior advisers unanimously agreed that the test was a serious violation, and the allegation will be made public soon in the State Department’s annual report on international compliance with arms control agreements. “The United States has determined that the Russian Federation is in violation of its obligations under the I.N.F. treaty not to possess, produce or flight test a ground-launched cruise missile (GLCM) with a range capability of 500 kilometers to 5,500 kilometers or to possess or produce launchers of such missiles,” that report will say.

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US Looks to Quash Nuclear Treaty Lawsuit (Santa Barbara Independent)

Federal attorneys have made their first big move to dismiss a lawsuit that alleges the United States, along with eight other countries, has violated a 46-year-old treaty to dismantle its nuclear arsenal. The lawsuit was filed in April — in U.S. Federal Court as well as in the International Court of Justice in The Hague, Netherlands — by the the tiny Pacific nation of the Marshall Islands, which the U.S. bombarded with nuclear weapons tested between 1946 and 1958. Marshall Islands officials maintain that radioactive fallout from the tests sickened citizens and rendered some territories unlivable.

“Our people have suffered the catastrophic and irreparable damage of these weapons,” said Marshall Islands Foreign Minister Tony de Brum in May, “and we vow to fight so that no one else on Earth will ever again experience these atrocities.” The Treaty on the Non-Proliferation of Nuclear Weapons (NPT) was signed in 1968 and mandates that the United States, Russia, United Kingdom, France, China, Israel, India, Pakistan, and North Korea “pursue negotiations in good faith” to end the nuclear arms race “at an early date and to work toward worldwide nuclear disarmament.”

Attorneys for the Marshall Islands – and with the law firm Keller Rohrback LLP, which has an office in Santa Barbara and specializes in constitutional and treaty law – argue that the countries have instead increased and modernized their nukes over the decades. Santa Barbara’s Nuclear Age Peace Foundation (NAPF) is a consultant to the Marshall Islands on the legal and moral issues involved in the case, which has received attention all over the globe and the support of Nobel Prize winners. In the fed’s Motion to Dismiss, the government claims the lawsuit should be thrown out because of procedural and jurisdictional issues. “The U.S.… does not argue that the U.S. is in compliance with its NPT disarmament obligations,” the NAPF explained in a prepared statement. “Instead, it argues in a variety of ways that its non-compliance with these obligations is, essentially, justifiable, and not subject to the court’s jurisdiction.”

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Very good point.

Fed Creates Asset Bubbles To Paper Over Decline In Quality Of Life (Phoenix)

Many commentators have previously argued that the Fed is too dumb or too inept to identify of categorize asset bubbles. By focusing on the Fed’s mental acuity, these commentators are overlooking a key factor: the Fed WANTS asset bubbles. The reason for this? Asset bubbles, at least according to the Fed’s models, will paper over the steady decline in quality of life that began in the US roughly 50 years ago. This fact is staring everyone in the face, though few people make it explicit. Back in the 1950s, the average American family had one working parent and was able to get by just fine. Today, most families have two working parents, sometimes working more than two jobs and they’re still not able to live a stable life. Indeed, a 2012 study by NYU Professor Edward Wolff found that the median net worth of American households was at a 43-YEAR LOW. The average American in the 21st century was in worse shape than his 1970s counterpart. This process began to accelerate in the late ‘90s. Indeed, looking at real media household income, one can see clearly that things have generally been downhill for nearly 20 years now.

It is not coincidence that the Fed began blowing serial bubbles starting in the late ‘90s. The Fed is aware on some level that quality of life in the US has fallen. The Fed’s answer, rather than focus on items that it doesn’t understand (job growth, income growth, etc.) was to blow bubbles to paper over this decline. This is why we’ve had bubble after bubble after bubble in the last 15 years. The Fed doesn’t have a clue how to create jobs or boost incomes. Why would it? Most of the Fed’s Presidents are academics with no real world business experience. Instead, the Fed believes in the “wealth effect” or the theory that when housing prices or stock prices soar, people feel wealthier and so go out and spend more money. This theory is baloney. People spend based on their incomes, NOT the value of their homes or portfolios.

After all, both assets only convert into actual cash once the owner sells the asset. Anyone who goes out and spends more money because their home went up in value will only end up with credit card debt, which combined with their mortgage, puts an even greater strain on their financial resources. The Fed wants asset bubbles because they hide the rot within the US economy. If the Fed didn’t raise stock or housing prices, people might actually start to wonder… “hey, why is my life getting more and more difficult despite the fact that I’m working all the time?” The Fed wants bubbles. So we’re doomed to keep experiencing them and the subsequent crashes.

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Agree.

Housing Bubble May Pop Entire U.K. Economy (Bloomberg)

You may not want to bring this up at any London dinner parties, but there are tentative signs that the bubble in U.K. housing prices that’s helped boost the economic recovery by underpinning consumer confidence may be running out of puff. Given the British obsession with home ownership, any evidence of real-estate deflation will complicate the Bank of England’s efforts to nudge borrowing costs higher. July marked the first month of no growth in London house prices since December 2012, according to figures last week from research company Hometrack Ltd. A different gauge showed the slowest pace of London gains in 15 months in June, according to the Royal Institution of Chartered Surveyors. And today, Lloyds Banking Group’s mortgage-lending unit reported that only five% of people say the coming year is a good time to buy a home, a 29-point drop in just three months.

With earnings still in the dumps – wages grew just 0.3% in May, while annual inflation was 1.5% – houses are becoming less and less affordable, hence the U.K. central bank’s imposition of new rules on mortgage lending in recent months. Some 71% of U.K. couples with at least one child own their own homes, rising to 80% for childless couples; U.S. home ownership is 65%, while in the euro region the rate is about 67%. Prices in the futures market suggest investors are currently less concerned about the Bank of England’s appetite for interest-rate increases than they were five weeks ago, when Mark Carney first raised the prospect of a shot across the bows of the monetary-policy landscape.

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How much longer till Nippon sinks into the ocean?

Japan’s Retail Sales Drop in Challenge to Abe Reflation (Bloomberg)

Japan’s retail sales fell more than forecast in June, capping a weak quarter that challenges Prime Minister Shinzo Abe’s bid to reflate the economy while heaping a heavier tax burden on consumers. Sales dropped 0.6% from a year earlier, the trade ministry said in Tokyo today, steeper than a median forecast for a 0.5% decline in a Bloomberg News survey. In the second quarter, sales slumped 7% from the previous three months. Prime Minister Shinzo Abe is counting on consumers to bear a higher sales levy even as the Bank of Japan drives the cost of living upward with record monetary easing. The risk is that spending fails to regain vigor, sapping strength from an economy lacking support from exports.

“The government and the BOJ say the economy is recovering from the slowdown after the sales-tax increase, but it’s too early to tell,” said Koya Miyamae, senior economist at SMBC Nikko Securities Inc. in Tokyo. “There’s a chance consumption will remain below year-earlier levels in the July-September quarter.” Abe’s effort to stoke a sustained recovery in domestic demand is running up against a failure of companies to pass along record cash holdings in the form of higher wages that could help households cope with rising prices and the heavier tax burden.

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China Trade Numbers Still Don’t Add Up Post-Fake Exports (Bloomberg)

China’s trade numbers still don’t add up. A discrepancy between Hong Kong and Chinese figures for bilateral trade remains even after a crackdown last year on Chinese companies’ use of fake export-invoicing to evade limits on importing foreign currency. China recorded $1.31 of exports to Hong Kong in June for every $1 in imports Hong Kong tallied from China, for a $6.4 billion difference, based on government data compiled by Bloomberg News. Analysts offered at least three possible explanations for the gap, including differences in how China and Hong Kong record trade in goods that pass through the city, as well as a persistence in fraud at a lower level. Any discrepancies make it tougher to gauge the impact of global demand on a Chinese economy that’s projected for the slowest growth in 24 years. “Sporadic fake exports certainly still exist,” said Hu Yifan, chief economist at Haitong International Securities Co. in Hong Kong.

The longer the data gap remains at this level, the more likely it’s a permanent fixture: “If the ratio stays at 1.3 throughout the year, I think that’s consistent,” Hu said. Distortions in China’s trade data have abated since the State Administration of Foreign Exchange started a campaign in May 2013 to curb money flows disguised as trade payments. The initial crackdown may have failed to eliminate deception. SAFE said in December that it would boost scrutiny of trade financing and that banks should prevent companies from getting financing based on fabricated trade. The State Administration of Taxation said earlier this month that it found instances of fraudulent exports used to obtain tax rebates by some companies. “You can’t exclude the possibility that capital flows are being disguised as exports” in the China-Hong Kong figures, said Yao Wei, China economist at Societe Generale SA in Paris. “As the capital account becomes more open, the flows will show up in the places they should.”

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Mind you: ‘Unexpectedly’.

Pending Sales of U.S. Existing Homes Unexpectedly Decrease (Bloomberg)

Fewer Americans than forecast signed contracts to buy previously owned homes in June, a sign residential real estate is struggling to strengthen. The index of pending home sales declined 1.1% from the month before after rising 6% in May, figures from the National Association of Realtors showed today in Washington. The median forecast of 39 economists surveyed by Bloomberg projected sales would rise 0.5%. Limited availability of credit and sluggish wage growth are making it harder for prospective buyers to take the plunge, threatening to throttle the pace of the housing recovery.

Continued gains in employment and a bigger supply of available homes will be needed to help accelerate the industry’s progress, which Federal Reserve Chair Janet Yellen has said is lackluster. “Unfortunately, I don’t see much of an acceleration in housing demand going forward until we get a significant improvement in the labor market and the income part of it in particular,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who forecast a 1% decrease in pending sales. “An uneven recovery in the housing market is really one of the biggest concerns of the Fed.”

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Short on moral values. Not uncommon among the rich.

Qatar World Cup Migrant Workers Not Paid For A Year (Guardian)

Migrant workers who built luxury offices used by Qatar’s 2022 football World Cup organisers have told the Guardian they have not been paid for more than a year and are now working illegally from cockroach-infested lodgings. Officials in Qatar’s Supreme Committee for Delivery and Legacy have been using offices on the 38th and 39th floors of Doha’s landmark al-Bidda skyscraper – known as the Tower of Football – which were fitted out by men from Nepal, Sri Lanka and India who say they have not been paid for up to 13 months’ work. The project, a Guardian investigation shows, was directly commissioned by the Qatar government and the workers’ plight is set to raise fresh doubts over the autocratic emirate’s commitment to labour rights as construction starts this year on five new stadiums for the World Cup.

The offices, which cost £2.5m to fit, feature expensive etched glass, handmade Italian furniture, and even a heated executive toilet, project sources said. Yet some of the workers have not been paid, despite complaining to the Qatari authorities months ago and being owed wages as modest as £6 a day. By the end of this year, several hundred thousand extra migrant workers from some of the world’s poorest countries are scheduled to have travelled to Qatar to build World Cup facilities and infrastructure. The acceleration in the building programme comes amid international concern over a rising death toll among migrant workers and the use of forced labour.

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The Agricultural Holocaust Explained: GMOs (Natural News)

Here are the top 10 ways GMOs threaten us all:

#1) Every grain of GM corn contains poison
#2) GMOs have never been safety tested for human consumption
#3) GMOs transform farming freedom into farming servitude
#4) GMOs run the very real risk of runaway self-replicating genetic pollution and ecocide
#5) GMO agriculture is breeding a new generation of chemical-resistant superweeds
#6) GMOs may have long-term unintended consequences on the environment
#7) GMOs collapse biodiversity
#8) GMOs put control over the food supply into the hands of profit-driven corporations
#9) GMOs may be harming pollinators
#10) The kind of scientists who collaborate with biotech companies are the most dishonest, corrupt and unethical scientists in our world

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I’m shocked!

UK Bee Research Funded By Pesticide Manufacturers (Guardian)

Criticial future research on the plight of bees risks being tainted by corporate funding, according to a report from MPs published on Monday. Pollinators play a vital role in fertilising three-quarters of all food crops but have declined due to loss of habitat, disease and pesticide use. New scientific research forms a key part of the government’s plan to boost pollinators but will be funded by pesticide manufacturers. UK environment ministers failed in their attempt in 2013 to block an EU-wide ban on some insecticides linked to serious harm in bees and the environmental audit select committee (EAC) report urges ministers to end their opposition, arguing there is now even more evidence of damage. Millions of member of the public have supported the ban.

“When it comes to research on pesticides, the Department of Environment, Food and Rural Affairs (Defra) is content to let the manufacturers fund the work,” said EAC chair Joan Walley. “This testifies to a loss of environmental protection capacity in the department responsible for it. If the research is to command public confidence, independent controls need to be maintained at every step. Unlike other research funded by pesticide companies, these studies also need to be peer-reviewed and published in full”. The EAC report found: “New studies have added weight to those that indicated a harmful link between pesticide use and pollinator populations.” Walley said: ”Defra should make clear that it now accepts the ban and will not seek to overturn it when the European commission conducts a review next year.” She added that ministers should make it clear that attempts to gain “emergency” exemptions, as pesticide-maker Syngenta did recently, will be turned down.

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No more hobbits.

New Zealand Dramatic Ice Loss Causes Severe Decline Of Glaciers (Guardian)

New Zealand’s vast Southern Alps mountain range has lost a third of its permanent snow and ice over the past four decades, diminishing some of the country’s most spectacular glaciers, new research has found. A study of aerial surveys conducted by the National Institute of Water and Atmospheric Research (Niwa) discovered that the Southern Alps’ ice volume has shrunk by 34% since 1977. Researchers from the University of Auckland and University of Otago said this “dramatic” decrease has accelerated in the past 15 years and could lead to the severe decline of some of New Zealand’s mightiest glaciers. Glaciers, made up of ice that collects above the permanent snowline, have their size and shape altered by various conditions, such as temperature, wind and rainfall.

The Niwa data shows that New Zealand’s glaciers experienced three growth spurts during the 1970s and 1980s due to a change in the Pacific climate system that generated more wind. But since that wind circulation has returned to its previous state, rising global temperatures have caused the glaciers to retreat dramatically. About 40% of the recorded ice loss has been in the dozen largest New Zealand glaciers, including the Tasman, Murchison and Maud glaciers. These huge slabs of ice and snow, supported by rock, take many years to respond to changing temperatures but are now collapsing, according to researchers. “We are losing the bottom half of these large glaciers as they sink into lakes,” Trevor Chinn, a glaciologist at Niwa, told Guardian Australia. “We are also losing access to the upper glaciers. We used to be able to walk up them but it’s much harder now because the ridges are turning into gravel cliffs and they collapse.

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“With global carbon emissions already too high because of fossil-fuel use, he says, “why do we have to look for more?”

For New Zealand Town, Oil Brings Debate Over Economy, Environment (WSJ)

A government push to lure oil companies to New Zealand offers the promise of diversifying the country’s economy, long dependent on wool and, more recently, Hobbit-inspired tourism. But in the university town of Dunedin, the oil push has also locked residents in a debate over how to balance economic gains with environmental consequences. Local business leaders welcome the boats that have been prospecting offshore over the past few years. “It would be a real boon to have an industry that would be able to employ a lot of people,” says Peter Brown, the head of Dunedin’s port. Business from exploration vessels is “massive for us,” says Nicky Gibbs, who runs a business supplying boats from a quay-side warehouse here. “Our income will at least double in any month that you have them here.”

But ecotourism entrepreneurs and environmental activists say looking for oil undermines New Zealand’s work to conserve land and reduce carbon emissions, especially because the country itself has scant demand for new oil and gas sources. “You’d have to have rocks in your head” to believe petroleum prospecting is good for Dunedin ecotourism, says Lisa King. For three generations, her family has brought tourists to see endangered yellow-eyed penguins that nest on their 1,500-sheep farm. Driving a 1980s-vintage bus atop a bluff where penguins nest in the scrub below, Ms. King’s brother Brian McGrouther says watching helicopters fly to exploration ships “right out there on the horizon” this year unsettled him. An oil spill off the coast could hurt the birds or the already-waning fish populations they depend on for food. “Our community has concerns around risk,” says Dunedin Mayor Dave Cull. With global carbon emissions already too high because of fossil-fuel use, he says, “why do we have to look for more?”

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