Jul 132018
 
 July 13, 2018  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh View of Saintes-Maries-de-la-Mer 1888

 

Stock Markets See the US Winning the Trade War, Defying Propaganda (WS)
A Decade On, Pre-Crisis Mortgages Linger For Big Banks, Homeowners (R.)
Fed’s Escape From Crisis Holdings Could Hit Dead End (R.)
Social Security, Medicare To Add Another $50 Trillion to Our National Debt (JM)
China’s Record Trade Surplus With US Further Inflames Trade Tensions (R.)
Approval Of Brexit Negotiations Lowest On Record (Orb)
No Brand Of Brexit Can Command A Commons Majority (G.)
Donald Trump Is Right. NATO Is A Costly White Elephant (G.)
Trump Ready To Help Some NATO States Buy US Arms (R.)
Who Wants To Disrupt Strategic Balance In The Black Sea Region? (SCF)
Germany Puts Last Bailout Tranche to Greece on Hold (GR)
Europe’s Remarkable Ability To Remain In Denial (Varoufakis)
US Judge Asked To Create Mental Health Fund For Migrant Children (R.)
Facebook Users Marked With “Treason” Label (ZH)

 

 

“Now they had a fig leaf – the threat of future tariffs – behind which to hide their long-planned offshoring strategies.”

Stock Markets See the US Winning the Trade War, Defying Propaganda (WS)

The trade war talk has been going on since the presidential campaign but markets just brushed it off and rallied. In 2018, the trade war verbiage moved to the foreground. But until June 14, the administration vacillated between thinking about tariffs and putting the trade war “on hold,” depending on who was doing the talking or tweeting. This vacillation ended on June 14 (Thursday) evening, when it was reported that Trump had approved to hit an initial list of $50 billion in goods (1,300 products) from China with tariffs of 25%. At the time, the administration was also preparing a second list of products, accounting for another $100 billion in imports from China.

On the evening of June 19 (Monday), Trump threatened to hit another $200 billion of imports from China with tariffs of 10%. And on Tuesday, the Shanghai stock market plunged. Markets were taking it seriously. Since then, Corporate America’s propaganda machine – the same that for the past two decades had extolled the unrivalled virtues of offshoring production to cheap countries – fired up the mainstream media, which launched into incessant, deafening, repetitive, and manipulative coverage of how these tariffs would hurt US jobs more than anything.

Two glorious examples are Harley-Davidson and GM, which had been laying off workers and shutting plants in the US for years as they were offshoring production to cheap countries. For example, in July 2017, Harley-Davidson announced layoffs in the US as it was building a factory in Thailand. GM has been laying off workers in the US since 2016, even as it opted to produce more models in Mexico. Now they had a fig leaf – the threat of future tariffs – behind which to hide their long-planned offshoring strategies.

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TBTF banks have no incentive to come clean.

A Decade On, Pre-Crisis Mortgages Linger For Big Banks, Homeowners (R.)

A decade on big U.S. banks are still running down and selling off crisis-era mortgages, a process executives point to as weighing on loan growth. Eager to see a turning point in loan books, analysts count these portfolios as one factor, along with home equity loan runoff and new mortgage demand, to watch for when deciphering the true loan growth picture as U.S. second-quarter bank earnings start on Friday. Wells Fargo and Bank of America executives have flagged portfolios from prior to the 2008-2009 crisis era where banks are no longer originating similar new products when they are asked to predict a turning point in consumer loans. “These are portfolios of a bygone era that were very, very painful for the banks,” said Gerard Cassidy at RBC Capital Markets.

“They are not plain vanilla portfolios, which means they are more costly to manage. It may just not be worth the headache.” Analysts have said higher loan growth is critical to driving bank’s stock prices, but they anticipate only a modest acceleration year over year, driven primarily by commercial and industrial loans, not residential. “Remember that there’s a portion of that book that, again, is pre-crisis,” Chief Executive Tim Sloan said about Wells Fargo’s mortgage book at a May conference. He added the bank continues to examine the older portfolio’s risk-return tradeoff and sells assets when the opportunity arises, factors “that could have some impact” on growth.

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Backpedalling.

Fed’s Escape From Crisis Holdings Could Hit Dead End (R.)

Not long ago the Federal Reserve expected to quietly shed nearly half of its $4.5-trillion portfolio by around 2022, leaving little trace of the extraordinary steps it took to face down the financial crisis. But an unexpected market kink could force the Fed to scrap the plan two or three years early and permanently leave it holding $1 trillion more than it wanted. The U.S. central bank is making adjustments on the fly and keeping its options open. “I don’t think that’s problematic in any way” to halt the process “somewhat earlier,” William Dudley, the former New York Fed president and key architect of the portfolio strategy, told reporters last month.

Yet if the world’s largest holder of U.S. bonds tossed out its play book and effectively took on a more accommodative stance, the result could be an across-the-board easing of market borrowing costs, the foreign-exchange value of the dollar, and of the growing strains on emerging markets. “The evidence that we have suggests that the ultimate size of the balance sheet will be bigger than what people expected,” said Matthew Luzzetti, senior economist at Deutsche Bank Securities in New York. All of this amounts to the final chapter in the Fed’s unprecedented decision over the last decade to buy some $3.5 trillion in mortgage and Treasury bonds in an effort to boost riskier investments, hiring and economic recovery from recession. In a nod to a stronger U.S. economy, the Fed since 2015 has raised interest rates well above zero and, since October of last year, begun shrinking its balance sheet to a more normal but yet-unspecified size.

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“As of this year, both programs are in negative cash flow, meaning Congress must provide additional cash to pay the promised benefits.”

Social Security, Medicare To Add Another $50 Trillion to Our National Debt (JM)

The official, on-the-books federal debt is currently about $21.2 trillion, according to the US National Debt Clock. $21.2T is the face amount of all outstanding Treasury paper, including so-called “internal” debt. This is about 105% of GDP and it’s only the federal government. If you add in state and local debt, that adds another $3.1 trillion to bring total government debt in the US to $24.3 trillion or more than 120% of GDP. Then there’s corporate debt, home mortgages, credit cards, student loans, and more. Add it all together and total debt is about 330% of GDP, according to the IIF data I cited in Debt Clock Ticking. We are in hock up to our ears. In calculating debt, however, we don’t factor in Social Security and Medicare. These aren’t yet debt because they have dedicated revenue streams: payroll taxes.

Most Medicare recipients also pay premiums. To date, these revenue sources have covered current expenditures and more, allowing the programs to build up reserves. But that’s about to change. As of this year, both programs are in negative cash flow, meaning Congress must provide additional cash to pay the promised benefits. It will get worse, too. The so-called “trust funds” are going to run dry sooner or later, and it may be sooner. This month’s annual trustee report estimated Social Security will run out of reserves in 2034, and the hospitalization part of Medicare will go dry in 2026. Just for the record, those “trust funds” don’t exist except as an accounting fiction. It is like you saving $100,000 for your child’s education and then borrowing all the money from your child’s education fund.

You can pretend that you have set aside $100,000 for your child’s future education, but when it comes time to make those payments, you’ll have to pull it out of current income or liquidate other assets. The US government has borrowed (or used or whatever euphemism you want to apply) all the money in those trust funds. So, talking about running out of reserves in 2034 or 2026 is rather meaningless. We’ve already run out of reserves. Any time a politician talks about putting a “lock box” around Social Security or Medicare trust funds, he or she is either staggeringly ignorant or lying.

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Stockpiling ahead of the crash?!

China’s Record Trade Surplus With US Further Inflames Trade Tensions (R.)

China’s trade surplus with the United States swelled to a record in June as its overall exports remained solid, a result that could further inflame a bitter trade dispute with Washington. The data came after the administration of U.S. President Donald Trump raised the stakes in its trade row with China on Tuesday, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports, including numerous consumer items. China’s trade surplus with the United States, which is at the center of the tariff tussle, widened to a record monthly high of $28.97 billion, up from $24.58 billion in May, according to Reuters calculations based on official data going back to 2008.

Trump, who has demanded Beijing cut the trade surplus, could use the latest result to further ratchet up pressure on China after both sides last week imposed tit-for-tat tariffs on $34 billion of each other’s goods. Washington has warned it may ultimately impose tariffs on more than $500 billion worth of Chinese goods – nearly the total amount of U.S. imports from China last year. The dispute has jolted global financial markets, raising worries a full-scale trade war could derail the world economy. Chinese stocks fell into bear market territory and the yuan currency has skidded, though there have been signs in recent days its central bank is moving to slow the currency’s declines.

[..] China’s exports to the United States rose 13.6 percent in the first half of 2018 from a year earlier, while its imports from the U.S. rose 11.8 percent in the same period. Separate data showed Chinese shipments to U.S. ports rose more than expected in June, suggesting some retailers moved up orders to insulate themselves from the intensifying trade war that threatens to send up costs on a growing number of consumer products. For January-June China’s trade surplus with the United States rose to $133.76 billion, compared with about $117.51 billion in the same period last year.

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May will have to find something else.

Approval Of Brexit Negotiations Lowest On Record (Orb)

Approval of the Brexit negotiations has seen a significant fall in July – now the lowest on record. Last month 36% approved of the negotiations and it is now 29%. In June, 32% agreed that Theresa May would get the right deal for Britain in the Brexit negotiations – this has now fallen to 26% – the lowest again on record. These 2,027 interviews were carried out before the resignation of Brexit Secretary David Davis and Foreign Secretary Boris Johnson.

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Perhaps the biggest one of a million problems.

No Brand Of Brexit Can Command A Commons Majority (G.)

Theresa May’s new cabinet has now rallied behind her Chequers plan, set out fully in the government’s white paper on future UK-EU relations. However, far from settling the Brexit debate, recent events have given rise to another nightmare scenario that is only just beginning to take shape: that every conceivable Brexit outcome may now not command a parliamentary majority. The conventional wisdom in Westminster is that since the general election last year, there is no House of Commons majority for a hard Brexit. With a working majority of only 13, including the Democratic Unionists, it would take just seven Tory MPs to oppose it. But there are at least 20-30 pro-European Tories minded to do so.

Yet May’s softer Brexit blueprint has also significantly increased the prospect of Eurosceptic Conservative MPs voting against her EU deal when it is put to parliament later this year. In the febrile atmosphere at Westminster this week, there have been rumours that up to 70 Tories could oppose it – especially if, as seems likely, May makes further concessions in order to win the EU’s backing for a bespoke deal, instead of having to choose between a Canada or Norway-style agreement. Hints in the white paper about a preferential system for EU migrants, despite May’s rhetoric about ending free movement of labour, will fuel the Tory revolt.

May’s embrace for a softer Brexit has therefore changed the Commons arithmetic – and the political calculations that come with it. It is now Labour MPs, rather than Tory ones, who may prove critical. In recognition of this, May has been reaching out to Labour MPs in the hope that soft Brexit supporters vote for her deal, neutralising the impact of the Eurosceptics voting against it. In an unusual move, David Lidington, the Cabinet Office minister and May’s de facto deputy, briefed Labour (as well as Liberal Democrat and SNP) MPs on the Chequers plan. But Labour won’t want to save May. Their leader, Jeremy Corbyn, will almost certainly whip Labour MPs to oppose May’s deal, in the hope that the ensuing chaos will result in an election.

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What I said a few days ago.

Donald Trump Is Right. NATO Is A Costly White Elephant (G.)

Nato was founded in 1949 in response to Stalin’s blockade of Berlin. It was meant to “keep the Soviet Union out, the Americans in, and the Germans down”. Since then, it has welcomed the American nuclear shield, at vast cost to America. Otherwise, its only military achievements have been the breakup of Yugoslavia and the loss of a squalid 17-year war in Afghanistan. Neither has anything to do with the North Atlantic. Nothing better symbolised this than Theresa May’s bizarre gift to Trump this week of 450 British troops for Kabul. Nato was about deterring an attack on Europe from Russia. In 1945, the west agreed the Potsdam settlement, accepting the Soviets’ “sphere of influence” over eastern Europe.

Thus when Russia invaded Hungary in 1956 and Czechoslovakia in 1968, there was no question of Nato, or Europe, retaliating. The iron curtain was iron. Come 1989 and the collapse of Potsdam Europe, Nato did not approach a broken Russia to agree some new settlement. It did the opposite. To protests from Russia’s weakened leader, Boris Yeltsin, it gathered former Warsaw Pact states under its wing and advanced its border east towards Russia. It embraced Poland, Czechoslovakia and Hungary, then the Baltic states, Romania and Bulgaria. It was like Khrushchev stationing missiles in Cuba. Only Germany counselled caution.

Nato’s provocation was so blatant as to be an open invitation to any new populist leader in Moscow to exploit Russia’s bruised patriotism: hence Vladimir Putin. He and his kleptocratic cronies are virtually a Nato creation. But the fact that America was party to the provocation does not invalidate Trump’s question. What is Nato’s policy beyond needling Russia and feebly relying on the American shield?

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But in the end, it’s all about money. That’s why NATO still exists. Nothing to do with security.

Trump Ready To Help Some NATO States Buy US Arms (R.)

U.S. President Donald Trump said on Thursday he was ready to help smaller NATO countries to buy U.S. weapons as he pushed them to spend more on their own defense. Speaking after a NATO summit, at which he said nations had agreed on new spending pledges, Trump said some less wealthy members had asked during meetings in Brussels if he could help them buy U.S. arms equipment, but did not name the countries. Asked about pressures on countries with weaker finances, he said, “We have many wealthy countries with us today but we have some that aren’t so wealthy and they did ask me if they could buy the military equipment, and could I help them out, and we will help them out a little bit,” he told a news conference.

“We are not going to finance it for them but we will make sure that they are able to get payments and various other things so they can buy – because the United States makes by far the best military equipment in the world: the best jets, the best missiles, the best guns, the best everything.” Trump claimed a personal victory at the summit after telling European allies to increase spending or lose Washington’s support. The White House has been pushing a “Buy American” initiative which aims to help drum up billions of dollars more in arms business. The initiative has raised concerns in Europe, where some see increased weapons sales as a key goal of Trump’s repeated calls for NATO members to increase their military spending.

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Americans have no business there. Go home.

Who Wants To Disrupt Strategic Balance In The Black Sea Region? (SCF)

The US-led series of drills in and around Ukraine’s Black Sea coastline is part of NATO exercise Sea Breeze that kicked off on July 9 to last until July 21. The training event involves an international armada representing 19 countries, including such non-NATO states as Ukraine, India, Georgia, the United Arab Emirates and Moldova. All in all, 29 warships, 1 submarine, and 25 aircraft are involved in the exercise held in Odessa and Mykolayiv and the northwestern Black Sea region. The Black Sea regional security is actually an issue paid little attention to. It’s not addressed by an international forum. NATO official documents adopt an openly provocative language to challenge Russia.

The North Atlantic Alliance always emphasizes the Black Sea’s role as a critical intersection. The US-led NATO activities have been intensifying since 2014 to turn the region into another hotbed along with the South China Sea and the Baltic. Turkey, Bulgaria, and Romania, three of the six Black Sea countries, are NATO members. Ukraine and Georgia are the bloc’s close partners aspiring for membership. The alliance has a significant military presence in Romania, including a US Aegis Ashore BMD system capable of firing long-range cruise missiles at Russia.

American military presence in Romania and Bulgaria is gradually growing. The US plans to deploy up to 2,500 troops at Novo Selo, Bulgaria. The facility is large enough to accommodate as many as 5,000 servicemen. Heavy tanks deployment is envisaged. The 1997 NATO-Russia Founding Act, where NATO pledged not to deploy “substantial forces” near Russia, seems to be forgotten. The US Navy’s policy is aimed at ramping up its presence there. The presence of American warships perilously close to Russia’s borders is undoubtedly provocative. For comparison, the Russian Navy does not stage regular maneuvers in the Caribbean Sea with such allies as Cuba, Nicaragua and Venezuela though nothing prevents it from doing so.

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First, Berlin forces Greece to keep the islands loaded with refugees. Then it forces them to load more taxes on the already destroyed economies there.

Germany Puts Last Bailout Tranche to Greece on Hold (GR)

Germany blocked a final 15 billion-euro ($17.5 billion) bailout payment to Greece after the government in Athens postponed a value-added tax (VAT) hike on a handful of islands that have been hit hard by the influx of migrants. For the tranche to be unblocked by early August, Finance Minister Euclid Tsakalotos pledged at yesterday’s Eurogroup that the measure to retain the 30 percent VAT discount on Lesvos, Chios, Samos, Leros and Kos will end in January 2019, and that the loss of 28 million euros of revenues will be offset from other sources.

The SYRIZA-led government postponed the VAT hike in the islands without consulting Greece’s creditors. Germany was eager to send a message to Athens that it will not tolerate any deviation from the program in the future. Commentators say that the Eurogroup decision shows how difficult it will be for the southern country to regain financial sovereignty even as it exits an eight-year bailout regime in August.

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Given how Greece gets treated, denial doesn’t sound like the correct term.

Europe’s Remarkable Ability To Remain In Denial (Varoufakis)

Europe’s establishment is luxuriating in two recent announcements that would have been momentous even if they were only partly accurate: the end of Greece’s debt crisis, and a Franco-German accord to redesign the eurozone. Unfortunately, both reports offer fresh proof of the European Union (EU) establishment’s remarkable talent for never missing an opportunity to miss an opportunity. The two announcements did not come in the same week by accident. The Greek debt implosion, back in 2010, was the ugly symptom of the eurozone’s design flaws, which is why it triggered a domino effect across the continent. Greece’s continuing insolvency reflects the deep disagreements within the Franco-German axis concerning eurozone redesign.

While three French presidents and the same German chancellor were failing to agree on the institutional changes that would render the eurozone sustainable, Greece was asked to bleed quietly. In 2015, the Greeks staged a rebellion, which Europe’s establishment ruthlessly crushed. Neither Brexit nor the EU’s steady delegitimation in the eyes of European voters managed to convince the establishment to change its ways. French President Emmanuel Macron’s election seemed the last hope for the new Berlin-Paris accord needed to prevent a suffocating Italy from triggering the next—this time lethal—domino effect.

Under Macron, new, hopeful ideas were proposed: a common budget for the eurozone; a new safe debt instrument and quasi-federal tax-raising capacities; a common unemployment insurance fund; common bank deposit insurance and a common pot from which to recapitalize failing banks. Moreover, a new investment fund would mobilize idle savings across Europe, without adding to the fiscal stress of member states. A year later, with Italy on a collision course with the EU, the Meseberg Summit between German Chancellor Angela Merkel and Macron delivered an agreement on eurozone reform. A few days later, the Eurogroup of eurozone finance ministers delivered its own “solution” to the Greek debt crisis.

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Sensible.

US Judge Asked To Create Mental Health Fund For Migrant Children (R.)

A civil rights group asked a federal judge on Thursday to order the U.S. government to provide mental health counseling for the around 2,000 immigrant children separated from their parents by officials at the U.S.-Mexican border. The request by the American Civil Liberties Union follows a chaotic week for U.S. immigration officials, who failed to meet a court-ordered deadline on Tuesday for reuniting children under the age of five. The government “must establish a fund to pay for professional mental health counseling, which will be used to treat children who are suffering from severe trauma as a result of their forcible separation from their parents,” said the ACLU in court papers filed late Thursday.

The group said the cost of the fund could be determined at a future date. The rights group brought the lawsuit that prompted U.S. Judge Dana Sabraw in San Diego last month to order the government to reunite families separated at the border. The family separation policy was instituted as part of President Donald Trump’s efforts to curtail illegal immigration. The administration ended the practice last month after widespread protests. The government, in the same court filing on Thursday, acknowledged that it had missed a Tuesday deadline for reuniting the youngest children with their parents, but said it had now complied with the judge’s order.

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How does anyone make this, too, about Russia? It’s your own people who use this for spying on you. Targeting ‘Russians’ is just a way to divert your attention from that.

Facebook Users Marked With “Treason” Label (ZH)

Beleaguered social media giant Facebook has removed “treason” from their database of the keywords assigned to users for advertising purposes, the company stated Wednesday after Danish state broadcaster DR reported its existence. Company spokesman Joe Osborne replied “National treason was an advertising interest because of its historical significance, but as it is an illegal act, we have removed it.” Facebook tags its more than 2 billion users with a wide variety of keywords depending on their interests – from shopping habits to political and religious views in order to sell more efficiently targeted advertising.

This makes Facebook a sublime sales channel for companies. Categorizing users in areas of interest means that companies with ads on Facebook can buy into an almost perfect audience. Eg. garden equipment for people with special interest in gardens, etc. But categorization also allows intelligence services in all countries to look at the population over the shoulder. DR suggests that the a government such as Russia could have used the “treason” tag to locate around 65,000 Facebook users who had been marked with the keyword. The article notes that they do not know “if the Russian authorities have used Facebook’s “treason” keyword” for nefarious purposes – adding “Only the Russian authorities know that.”

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Jul 072018
 
 July 7, 2018  Posted by at 9:10 am Finance Tagged with: , , , , , , , , ,  


Claude Monet Water lilies 1904

 

Fed Discards Flattening Yield Curve as Recession Indicator (WS)
Theresa May Secures Approval From Cabinet To Negotiate Soft Brexit (G.)
Boris Johnson’s Gang Outgunned By Theresa May At Chequers (G.)
UK Government Has No Clue How To Execute Brexit Without Harm – Airbus CEO (G.)
Despite 213K Jobs Gain, Unemployment Up by 499K (Mish)
Russia Hikes Duties On US Imports, Pledges More Retaliation (R.)
US Border Agents Stop Canadian Fishermen In Disputed Waters Off Maine (G.)
More Ways Your Phone Is Spying On You (ZH)
Summer of Tough Love (Jim Kunstler)
Twitter Suspends Over 70 Million Accounts In Two Months (R.)
Tax Arbitrage Is An Issue (Setser)
Mainstream Politicians Short-Sighted, Don’t See World Changing – Grillo (RT)
Number Of Planes In The Sky To More Than Double In Next 20 Years (Ind.)
Pope Warns Earth Turning Into Vast Pile Of ‘Rubble, Deserts And Refuse’ (AP)

 

 

Seems like a risky gamble.

Fed Discards Flattening Yield Curve as Recession Indicator (WS)

In the minutes of the FOMC meeting on June 12 and 13, released this afternoon, there was a doozie, obscured somewhat by the dynamics of the rate hike plus the indication that there would be two more rate hikes this year, for a total of four, up from three at the prior meeting, with more hikes to come in 2019, along with other changes [..] But the doozie in the minutes was about the flattening “yield curve.” The yield curve is formed by Treasury yields of different maturities: normally, the two-year yield is quite a bit lower than the 10-year yield. Over the last several decades, each time the yield curve “inverted” – when the two-year yield ended up higher than the 10-year yield – a recession followed. The last time, the Financial Crisis followed.

So this has become a popular recession indicator that has cropped up a lot in the discussions of various Fed governors since last year. Today, the two-year yield closed at 2.55% and the 10-year yield at 2.84%. The spread between them was just 29 basis points, the lowest since before the Financial Crisis. The chart below shows the yield curves on December 14, 2016, when the Fed got serious about raising rates (black line); and today (red line). Note how the red line has “flattened” between the two-year and the 10-year markers, and how the spread has narrowed to just 29 basis points:

The chart below shows the two-year yield (black) and the 10-year yield (red) going back to 1992. Note how the spread has been narrowing in recent months.

The chart below tracks this spread for every day back to 2008. Today, the spread, at just 29 basis points, is the lowest since before the Financial Crisis:

There has been a lot of handwringing about this being an indicator that the next recession is nearing and that the Fed should back off with its rate hikes. But this Fed is getting seriously hawkish: In the minutes today, it revealed that instead of thinking about backing off with its rate hikes, it’s throwing out the flattening yield curve.

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She’s threatened to fire them. But Brexit looks less likely to happen by the day.

Theresa May Secures Approval From Cabinet To Negotiate Soft Brexit (G.)

Theresa May has secured approval to negotiate a soft Brexit deal with the European Union, signing up her fractious cabinet at a Chequers awayday to a controversial plan to match EU standards on food and goods. The prime minister released a statement following the critical afternoon session of the long-awaited summit that alarmed Tory hard Brexiters, in which she confirmed she had won over the cabinet to new customs arrangements ending political deadlock on the issue. May said the cabinet had “agreed our collective position for the future of our negotiations with the EU”. That included a proposal to “create a UK-EU free trade area which establishes a common rule book for industrial goods and agricultural products” after Brexit.

Tory Brexiters voiced concern at the agreement, while soft Brexiters expressed relief. Andrea Jenkyns, a hardline MP, complained that “British businesses will continue to be a rule taker from the EU” and said she would “pray” that the detail was not as bad as she feared. Heidi Allen, a moderate, said she was “pleased to report Theresa May has secured cabinet agreement for a sensible, soft Brexit”. On Thursday, when the common rule book proposal was first leaked, hardline Brexiter cabinet ministers and Conservative MPs voiced alarm that it could prevent the UK striking a trade deal with the US, which has different standards in goods and foods, such as allowing chickens to be washed in chlorine.

But May was able to release the text of a three-page agreed statement before cabinet, following a relatively undramatic day of discussions, sat down for dinner to listen to No 10 communications chiefs make a presentation on how to sell the new proposals. Michel Barnier, the EU’s chief Brexit negotiator, appeared to react warmly to the proposals, noting in a tweet that the “Chequers discussion on future to be welcomed. I look forward to white paper. We will assess proposals to see if they are workable and realistic”. The prime minister made clear that she expected ministers would be sacked if they did not remain in line with her soft Brexit blueprint.

She wrote to Tory MPs to explain her plans and included a clear warning about discipline: “As we developed our policy on Brexit, I have allowed cabinet colleagues to express their individual views. Agreement on this proposal marks the point where that is no longer the case and collective responsibility is now fully restored.”

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It doesn’t matter one bit unless the EU agrees.

Boris Johnson’s Gang Outgunned By Theresa May At Chequers (G.)

Theresa May has won the battle with her Brexiter rebels in the cabinet, but the war will be a long one. She gambled that the Brexit purists – those who gathered on the eve of the Chequers summit at the Foreign Office with Boris Johnson – would be outgunned at Chequers when the full cabinet was assembled. The choreography was impressive – May locked her ministers inside the Buckinghamshire retreat without their phones or special advisers. The final agreement – sent out on behalf of “HM government” came to journalists an hour before advisers had even seen it – and before they could get in contact with their ministers to know what concessions had been made. Within the hour, out came a letter to Conservative MPs warning the days of debate over the government’s Brexit position were over.

“Collective responsibility is now fully restored,” May warned. The deal clinched with her most difficult members of her cabinet, architects of the leave campaign such as Johnson and Michael Gove, gave May the leverage to demand similarly hardline MPs get in line. Downing Street has been briefing in a strident tone, practically daring hard Brexiter ministers to give it all up to walk down the Chequers drive. The numbers that will matter now are those in her parliamentary party. Some will express predictable fury, though in the hours since the deal was reached, Jacob Rees-Mogg was telling MPs to keep their powder dry. Key will be whether this is a deal that can win over mainstream backbenchers.

In recent weeks, a number of Conservative MPs had begun to express frustration that the prime minister was not prepared to face down one side of her party and lead. [..] On Monday, the prime minister will address the 1922 committee of backbenchers, though the timing of the summit means angry MPs will have the weekend to either cool off or come to the boil. “I’ll wait to see if this collective responsibility lasts the weekend,” another MP said. Perhaps just as crucially there are still some concerns about the future deal for UK services, around 80% of the UK economy. The agreement states the UK would “strike different arrangements for services, where it is in our interests to have regulatory flexibility, recognising the UK and the EU will not have current levels of access to each other’s markets”.

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And that’s the whole point.

UK Government Has No Clue How To Execute Brexit Without Harm – Airbus CEO (G.)

The chief executive of Airbus has accused the government of having “no clue” on how to leave the EU without harming the economy, as the prime minister aimed at uniting the cabinet behind a Brexit plan. The criticism from the aerospace firm, which employs 14,000 people in the UK, is the strongest intervention yet from the business community on the risk of a hard Brexit and came in the same week that Jaguar Land Rover, Britain’s largest carmaker, warned its were under threat. Speaking at a briefing in London before the Farnborough air show later this month, the Airbus chief executive, Tom Enders, said: “The sun is shining brightly on the UK, the English team is progressing towards the [World Cup] final, the RAF is preparing to celebrate its centenary and Her Majesty’s government still has no clue, no consensus on how to execute Brexit without severe harm.”

Enders said Airbus, a Franco-German group that supports a further 100,000 UK jobs in its supply chain, was wary of all types of Brexit, including a worst-case no-deal scenario. “Rest assured that we are taking first preparations as we speak in order to mitigate consequences from whatever Brexit scenario may follow,” he said. “Brexit in whatever form, soft or hard, light or clean, whatever you call it, will be damaging for industry, for our industry and damaging for the UK, whatever the outcome will be.”

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600,000 more looking for a job. Out of 95 million not in labor force. All new jobs are part-time. Full-time jobs fell.

Despite 213K Jobs Gain, Unemployment Up by 499K (Mish)

Today’s establishment survey shows jobs rose by 213,000. Revisions were positive. The unemployment rate rose from 3.8% to 4.0% as the labor force rose by 601,000. More people are starting to look for jobs but employment only rose by 102,000. Nonfarm wage growth was +0.2% vs an Econoday consensus of +0.3%. The Phillips’ curve is a joke, but it’s still widely believed. The change in total nonfarm payroll employment for April was revised up from +159,000 to +175,000, and the change for May was revised up from +223,000 to +244,000. With these revisions, employment gains in April and May combined were 37,000 more than previously reported

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Putin meets Trump in 9 days.

Russia Hikes Duties On US Imports, Pledges More Retaliation (R.)

Russia said on Friday it was imposing additional import duties on some U.S. industrial goods after the United States slapped tariffs on steel and aluminum imports, and warned that more retaliatory steps could be in the pipeline. The economy ministry said Russia would impose extra tariffs on some goods from the United States for which there are Russian-made substitutes.The extra duties of 25 to 40 percent will apply to imports of fiber optics and equipment for road construction, the oil and gas industries and metal processing and mining.

The ministry said the measures, signed by Russian Prime Minister Dmitry Medvedev, were intended to compensate for $87.6 million of damage suffered by Russian export-focused companies as a result of the U.S. metals tariffs. The U.S. tariff hike will cost an overall $537.6 million and Russia has the right to impose more compensatory measures in the future, the economy ministry said.

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Feels like Python.

US Border Agents Stop Canadian Fishermen In Disputed Waters Off Maine (G.)

Canada’s government is investigating reports that US border patrol officers have intercepted and questioned crew members on more than 20 Canadian vessels in disputed waters off the coast of Maine. The reports have thrust a longstanding territorial dispute between the two countries into the spotlight; since the late 1700s tensions have simmered over a pair of tiny, treeless islands that sit between Maine and the Canadian province of New Brunswick. Primarily inhabited by nesting puffins, the islands of North Rock and Machias Seal remain the only disputed lands between US and Canada, with both claiming sovereign jurisdiction over the islands and their surrounding waters.

As a result, the area has long hosted lobster fisherman from both sides of the border. The question of jurisdiction flared up recently after the Grand Manan Fishermen’s Association said a Canadian vessel had been stopped by US border patrol while fishing in the waters near Machias Seal Island in late June. “He informed them he was a Canadian vessel legally fishing in Canadian waters,” wrote Laurence Cook of the association on Facebook. He said he was “not surprised to see the Americans trying to push people around”, describing them as “typical American bullies.”

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In ways we didn’t yet know.

More Ways Your Phone Is Spying On You (ZH)

For years, conspiracy theories about smart phones listening to users without their permission to show them advertisements have abounded. While some researchers have shown this could happen, a first of its kind study just found something far more insidious. Academics at Northeastern University have just proven that your phone is recording your screen – as in taking video – and uploading it to third parties. For the last year, Elleen Pan, Jingjing Ren, Martina Lindorfer, Christo Wilson, and David Choffnes ran an experiment involving more than 17,000 of the most popular Android apps using ten different phones. Their findings were alarming, to say the least.

As Gizmodo points out, during the study, the researchers started to see that screenshots and video recordings of what people were doing in apps were being sent to third-party domains. For example, when one of the phones used an app from GoPuff, a delivery start-up for people who have sudden cravings for junk food, the interaction with the app was recorded and sent to a domain affiliated with Appsee, a mobile analytics company. The video included a screen where you could enter personal information – in this case, their zip code.

GoPuff did not disclose in its terms of use that its app was recording users screens and uploading this data to a third party. What’s more, when they were contacted by the researchers GoPuff merely added a disclosure to their policy acknowledging that “ApSee” might receive users PII. The fact that these apps can record your screen without you knowing and use this data is chilling. It illustrates how easy it would be for a malicious actor to be able to look at your private messages, personal information, passwords, photos, and videos. None of this is stopped by your phone’s security either as it is a function built into the apps and you don’t have an option to disallow it.

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“Mr. Mueller will come up with someone to indict on something, even if it’s ninety-seven ham sandwiches.”

Summer of Tough Love (Jim Kunstler)

The blowup of the bond and stock markets later this year will put to a gloomy rest the ludicrous notion that America has been enjoying a great economic boom. It’s actually been an engineered hallucination, thanks to the global monetary authorities applying the magic of limitless credit to a bad habit of credulous speculation. The central banks have launched a program of so-called “quantitative tightening (QT)” — an idiotic phrase meant to counterpoise the equally fatuous “quantitative easing (QE),” PhD economist-speak for grotesque interference in the bond markets — that will choke down the credit supply at exactly the moment that governments and giant corporations need new loans to pay the interest on old loans. The trajectory there is obvious.

The big question, of course — hardly ever asked in the public arena — is what that will do to currencies, i.e., money. It can really only go two ways: either make money very scarce, in which case a lot of people and enterprises go broke, or, if the monetary authorities respond to the predicament by enabling a return to bottomless credit issuance, the money will become worthless — they’ll be plenty of it, but it won’t buy much. Such a turn of events will make an already-unhinged nation fly apart. [..] Oh, yes, there is also that Hieronymus Bosch Garden of Earthly Delights known as the Mueller Investigation, with its dreary outposts in the executive suite of the FBI, and all the tangled mysteries entailed there.

Mr. Mueller will come up with someone to indict on something, even if it’s ninety-seven ham sandwiches. I suspect Mr. Trump will manage to dump Attorney General Jeff Sessions and Deputy AG Rod Rosenstein. And then the pardons will fly, like so many winged demons flapping from the mouth of Hades. Constitutional crisis may be too mild a word for what ensues. By holiday time in early winter, much will clarified about the actual direction of the country. By then, the “Walk Away” movement may even include the obdurate shills at CNN and The New York Times, and the Intellectual-Yet-Idiots on the college campuses. And the Golden Golem of Greatness will lie upended in the swamp that he just didn’t try hard enough to drain.

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How many fake accounts do they have?

Twitter Suspends Over 70 Million Accounts In Two Months (R.)

Twitter Inc suspended more than one million accounts a day in recent months to reduce the flow of misinformation on the platform, the Washington Post reported. Twitter and other social media platforms such as Facebook Inc have been under scrutiny by U.S. lawmakers and international regulators for doing too little to prevent the spread of false content. The companies have been taking steps such as deleting user accounts, introducing updates and actively monitoring content to help users avoid being a victim to fake content. Twitter suspended more than 70 million accounts in May and June, and the pace has continued in July, the Post reported on Friday, citing data it obtained.

“It’s hard to believe that 70 million accounts were affected when Twitter has only 336 million monthly active users (MAU),” Wedbush analyst Michael Pachter said. Twitter’s MAU is expected to grow nearly 3 percent to 337.06 in the second quarter, according to Thomson Reuters I/B/E/S. “My guess is that a large number of these suspended accounts were dormant … it should have little impact on the company,” Pachter told Reuters. If the 70 million were mostly active accounts, the affected accounts would have been “screaming bloody murder”, added the analyst.

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Tax havens.

Tax Arbitrage Is An Issue (Setser)

The impact of the U.S. tax reform on the U.S. trade balance was a hot item of debate last December. There was an argument that reducing the headline tax rate—and creating an even lower tax for the export of intangibles—would reduce the incentive for firms to book profits abroad in offshore tax centers. Booking those profits at home would raise U.S. services exports—while the service “exports” of countries like Ireland and Luxembourg (really re-exports of intellectual property created in the U.S) would fall. This would have no overall effect on the balance of payments. The rise in the recorded exports of intellectual property from the U.S. would be offset by a fall in the offshore income of U.S. firms.

For example, Google (U.S.) would show a bigger profit as offshore sales would be booked as exports of IP held in the U.S. (a service export) while Google (Bermuda) would show a smaller profit —and that would translate both into a smaller trade deficit and a smaller surplus on foreign direct investment income.* But shifting paper profits around would bring down the measured trade deficit—a potential win for Trump. It is obviously too soon to assess the full impact of the tax reform. But it isn’t too soon to start looking for some clues. The q1 balance of payments data doesn’t suggest that firms have lost their appetite for booking profits abroad, or their appetite for booking the bulk of their offshore profits in low tax jurisdictions. This shouldn’t be a surprise—the lowest rate in the new U.S. tax code is the new global minimum rate on intangibles.

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The existing “ideologies have outlived their usefulness,” Grillo said. “There are just good and bad ideas..”

Mainstream Politicians Short-Sighted, Don’t See World Changing – Grillo (RT)

Mainstream political parties have outlived their purpose as they cannot adapt to the changes in the political system and are out of step with the voters, Beppe Grillo, the founder of the Italian Five Star Movement (M5S), said. “The world of the old politics and old political parties,” which expect the people to trust them with defending the public interests, is “slowly dying out,” Grillo, a former Italian satirist and activist, told Ex-Ecuador President Rafael Correa during the “Conversations with Correa” show on RT Spanish. People are no more willing to just blindly follow some political forces, they are much more informed now, they seek for information in the internet and want to form their own opinions, he explained.

“The world is changing at a fantastic speed. However, the current generation of politicians does not feel these changes. They just do not see it,” Grillo said, adding that the politicians are oriented “on a short-term horizon.” Meanwhile, the society, particularly the young people, is no longer attracted by the ideas propagated by the mainstream parties. The existing “ideologies have outlived their usefulness,” Grillo said. “There are just good and bad ideas,” he added, explaining that “they are not divided into ‘right’ and ‘left’ anymore.” The self-described anti-establishment activist then criticized the mainstream politicians for hiding their own inability to adapt behind the warnings about the perceived threat of populism.

As for the populism, I am proud to be a populist, if the word ‘populus’ (the people) is still of some importance,” Grillo told Correa. “Our goal is to reach out to people, to encourage them to think for themselves, to give them instruments to fulfill their own ideas,” he added. He agreed with Correa’s statement that the so-called “anti-populism” is what really poses a threat to the modern society as it seeks to keep the system unchanged. He particularly agreed that “anti-populism” is in fact a “means of attack” as it sees everything that challenges the system as populism and seeks to clamp it down.

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It’s going to be so annoying people will stop flying.

Number Of Planes In The Sky To More Than Double In Next 20 Years (Ind.)

The number of aircraft in the skies will more than double by 2037, according to the latest Global Market Forecast by Airbus. The Toulouse-based plane maker says half the present 21,450 aircraft flying will still be aloft in 20 years. With 37,390 new planes predicted to take off, the world’s total will increase by 123 per cent to 47,990. The expected total number of aircraft is 11.3 per cent higher than it was in the last big forecast by Airbus, a year ago. The vast majority of the new planes will be smaller, narrow-bodied jets. More than three-quarters of deliveries will be from the Airbus A320 and Boeing 737 families, or aircraft of a similar scale from other manufacturers.

Assuming the 737 is still being made in 2037, it will be the most enduring aircraft in aviation history, having first flown 70-years earlier. Of the 28,550 predicted new narrow-bodied planes, one of Airbus’s leading hopes is the A321 NEO, a re-engined version of an aircraft that attracted little attention when it was launched as a stretched A320 in the early 1990s. The latest version can hold up to 244 passengers, and the long-range variant can fly 4,600 miles – the distance from Manchester to Seattle. The economics of the A321 are very tempting to 21st-century airlines, particularly for “long, thin” routes.

[..] Last month, Eamonn Brennan, director general of the air-traffic provider, Eurocontrol, warned: “On our most likely scenario, there won’t be enough capacity for approximately 1.5 million flights or 160 million passengers in 2040. “Many airports will become much busier, with higher delays. By 2040, 16 airports will be highly congested operating at close to capacity for much of the day, up from six airports today. “As a result of this congestion the number of passengers delayed by between one and two hours will grow from around 50,000 each day now to around 470,000 a day in 2040.”

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You’re going to need a lot tougher words than that.

Pope Warns Earth Turning Into Vast Pile Of ‘Rubble, Deserts And Refuse’ (AP)

Pope Francis urged governments on Friday to make good on their commitments to curb global warming, warning that climate change, continued unsustainable development and rampant consumption threatens to turn the Earth into a vast pile of “rubble, deserts and refuse”. Francis made the appeal at a Vatican conference marking the third anniversary of his landmark environmental encyclical “Praise Be.” The document, meant to spur action at the 2015 Paris climate conference, called for a paradigm shift in humanity’s relationship with Mother Nature. In his remarks, Francis urged governments to honor their Paris commitments and said institutions such as the IMF and World Bank had important roles to play in encouraging reforms promoting sustainable development.

“There is a real danger that we will leave future generations only rubble, deserts and refuse,” he warned. The Paris accord, reached by 195 countries, seeks to avoid some of the worst effects of climate change by curbing global greenhouse gas emissions via individual, non-binding national plans. President Donald Trump has said the US will pull out of the accord negotiated by his predecessor unless he can get a better deal. Friday’s conference was the latest in a series of Vatican initiatives meant to impress a sense of urgency about global warming and the threat it poses in particular to the world’s poorest and most marginalised people. Recently, Francis invited oil executives and investors to the Vatican for a closed-door conference where he urged them to find alternatives to fossil fuels. He warned climate change was a challenge of “epochal proportions”.

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Jun 152018
 
 June 15, 2018  Posted by at 8:10 am Finance Tagged with: , , , , , , , , , , , , ,  


OR LIGHT Compassion 2018

 

Argentina’s Peso Collapses Even Further Despite $50 Billion IMF Bailout (WS)
ECB Calls Halt To Quantitative Easing, Despite ‘Soft’ Euro (G.)
Japan’s Central Bank Dials Down Inflation View, Complicates Stimulus-Exit (R.)
Powell Orchestrates a Masterful Move (DDMB)
The Fed Creates Problems For Itself (Macleod)
The Art of the Deal Worked On Sentosa Island (AT)
Absence of “CVID” In Joint Statement? (Hani)
Optimism (Caitlin Johnstone)
Blackstone Becomes Biggest Hotel & Property Owner in Spain (WS)
‘Tourism Pollution’: Japanese Crackdown Costs Airbnb $10 Million (G.)
Greeks Are Least Satisfied In The EU (K.)
Turkey: Even Birds Need Our Consent To Fly In The Aegean (K.)
Comey et al Just Made It More Difficult For Mueller To Prosecute Trump (Hill)
A Closer Look At Extreme FBI Bias Revealed In OIG Report (ZH)

 

 

Money has left the building.

Argentina’s Peso Collapses Even Further Despite $50 Billion IMF Bailout (WS)

Today the Argentina peso plunged another 5.5% against the US dollar. It now takes ARS 27.7 to buy $1. Over the past 16 years, the peso has gone through waves of collapses. This collapse began on April 20. The central bank of Argentina (BCRA) countered it by selling $1 billion per day of scarce foreign exchange reserves and buying pesos. The peso fell more quickly. The BCRA responded with three rate hikes, to finally 40%! On May 8, the government asked the IMF for a bailout. On May 16, after a chaotic plunge of the peso, the BCRA was able to refinance about $26 billion in maturing peso-denominated short-term debt (Lebacs) at an annual interest of 40%, and the peso bounced. It was a dead-cat bounce, however, and the peso plunged another 13% against the dollar through today.

Since April 20, the peso has plunged 27.5%. The annotated chart shows the daily moves of the collapse, and the various failed gyrations to halt it (the chart depicts the value of 1 ARS in USD). The collapse of the peso comes despite an endless series of measures to halt it. Just this week so far: On Tuesday, the BCRA decided to keep its key interest rate at 40%; and on Wednesday, the Ministry of Finance announced it would hold daily auctions to sell $7.5 billion in foreign exchange reserves and buy pesos, to prop up the peso. But it was apparently the only one buying pesos. With inflation at 25.5% and heading to 27% by year-end, according to government estimates, with a rising budget deficit, a surging current account deficit, soaring borrowing costs, and burned investors, what else is there to do?

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Not Draghi’s finest hour.

ECB Calls Halt To Quantitative Easing, Despite ‘Soft’ Euro (G.)

The European Central Bank has shrugged off evidence of a slowdown in the eurozone and announced that it will phase out the stimulus provided by its massive three-year bond-buying programme to the eurozone economy by the end of the year. Despite warning that the single currency area was going through a soft patch at a time when protectionist risks were rising, the ECB said it would wind down its bond purchases over the next six months. The ECB is currently boosting the eurozone money supply by buying €30bn of assets each month, but this will be reduced to €15bn a month after September and ended completely at the end of 2018.

The move follows strong pressure from some eurozone countries, led by Germany, that were uncomfortable about the more than €2.4tn of assets accumulated by the ECB since it launched its quantitative easing programme at the start of 2015. Mario Draghi, the ECB’s president, said at the end of a meeting of the bank’s governing council in Latvia that the QE programme had succeeded in its aim of putting inflation on course to meet its target of being below but close to 2%. Eurozone activity has accelerated markedly over the past three years, with some estimates suggesting that QE contributed 0.75percentage points a year to the average 2.25% annual growth rate.

The ECB’s statement reflected the battle between hawks and doves on the bank’s council, with the decision on QE matched by a softening of its approach to interest rates. Draghi said there would be no prospect of an increase in the ECB’s key lending rate – currently 0.0% – until next summer at the earliest. “We decided to keep the key ECB interest rates unchanged and we expect them to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with our current expectations of a sustained adjustment path,” Draghi said.

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No, really, Abenomics is dead.

Japan’s Central Bank Dials Down Inflation View, Complicates Stimulus-Exit (R.)

The Bank of Japan maintained its ultra-loose monetary policy on Friday and downgraded its view on inflation in a fresh blow to its long-held 2% price goal, further complicating the central bank’s path to rolling back its crisis-era stimulus. Markets are on the lookout for clues from BOJ Governor Haruhiko Kuroda’s post-meeting briefing on how long the central bank could hold off on whittling down stimulus given recent disappointingly weak price growth. As widely expected, the Bank of Japan kept its short-term interest rate target at minus 0.1% and a pledge to guide 10-year government bond yields around zero%.

The move contrasts with the European Central Bank’s decision to end its asset-purchase program this year and the U.S. Federal Reserve’s steady rate increases, which signaled a break from policies deployed to battle the 2007-2009 financial crisis. “Consumer price growth is in a range of 0.5 to 1%,” the BOJ said in a statement accompanying the decision. That was a slightly bleaker view than in the previous meeting in April, when the bank said inflation was moving around 1%. The BOJ stuck to its view the economy was expanding moderately, unfazed by a first-quarter contraction that many analysts blame on temporary factors like bad weather.

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He just likes the attention.

Powell Orchestrates a Masterful Move (DDMB)

Federal Reserve Chairman Jerome Powell has taken the first steps in remaking the central bank in his “plain-English” image, which can only be a good thing for financial markets. Earlier this week, news leaked that the central bank was considering holding a press conference following each Federal Open Market Committee meeting instead of after every other one like it does now. The reports set off a mini-storm. Speculation rose the Fed would implement this new policy immediately, which could mean the central bank was considering accelerating the pace of interest-rate increases as soon as August. After all, investors had become accustomed to the Fed only making a major policy move at meetings followed by a press conference. Now, every meeting would be “live.”

But in a masterful move, Chairman Jerome Powell managed to confirm the policy while also putting financial markets at ease. Rather than announcing the change in the official statement outlining the Fed’s plan to raise its target for the federal funds rate for the seventh time since December 2015, Powell waited until the start of his press conference to drop the bomb, noting that the policy wouldn’t start until January. Here’s Powell’s reasoning: “My colleagues and I meet eight times a year and take a fresh look each time at what is happening in the economy and consider whether our policy needs adjusting. We don’t put our interest rate decisions on auto-pilot because the economy can always evolve in unexpected ways.

History has shown that moving interest rates either too quickly or too slowly can lead to bad economic outcomes. We think the outcomes are likely to be better overall if we are as clear as possible about what we are likely to do and why. To that end, we try to give a sense of our expectations for how the economy will evolve and how our policy stance may change. As Chairman, I hope to foster a public conversation about what the Fed is doing to support a strong and resilient economy. And one practical step in doing so is to have a press conference like this after every one of our scheduled FOMC meetings. We’re going to do that beginning in January. That will give us more opportunities to explain our actions and to answer your questions.

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“..the unsustainable excesses of unprofitable debt created by suppressing interest rates..”

The Fed Creates Problems For Itself (Macleod)

Since Hayek’s time, monetary policy, particularly in America, has evolved away from targeting production and discouraging savings by suppressing interest rates, towards encouraging consumption through expanding consumer finance. American consumers are living beyond their means and have commonly depleted all their liquid savings. But given the variations in the cost of consumer finance (between 0% car loans and 20% credit card and overdraft rates), consumers are generally insensitive to changes in interest rates. Therefore, despite the rise of consumer finance, we can still regard Hayek’s triangle as illustrating the driving force behind the credit cycle, and the unsustainable excesses of unprofitable debt created by suppressing interest rates as the reason monetary policy always leads to an economic crisis.

The chart below shows we could be living dangerously close to another tipping point, whereby the rises in the Fed Funds Rate (FFR) might be about to trigger a new credit and economic crisis. Previous peaks in the FFR coincided with the onset of economic downturns, because they exposed unsustainable business models. On the basis of simple extrapolation, the area between the two dotted lines, which roughly join these peaks, is where the current FFR cycle can be expected to peak. It is currently standing at about 2% after yesterday’s increase, and the Fed expects the FFR to average 3.1% in 2019. The chart tells us the Fed is already living dangerously with yesterday’s hike, and further rises will all but guarantee a credit crisis.

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The view from Asia Times. Many people in that part of the world don’t understand the criticism.

The Art of the Deal Worked On Sentosa Island (AT)

Some statesmen by their sheer force of personality and unorthodox ways of politicking arouse disdain among onlookers. US President Donald is perhaps the most famous figure of that kind in world politics today. No matter what he does, Trump attracts criticism. He evokes strong feelings of antipathy among a large and voluble swathe of opinion within half of America. The making of history in a virtual solo act on his part, which is the rarest of efforts, on Sentosa Island in Singapore on Tuesday and which the world watched with awe and disbelief, will be instinctively stonewalled. Half of America simply refuses to accept the positive tidings about him coming from Singapore.

The skeptics are all over social media pouring scorn, voicing skepticism, unable to accept that if the man has done something sensible and good for his country and for world peace, it deserves at the very least patient, courteous attention. The problem is about Trump – not so much the imperative need of North Korea’s denuclearization. But western detractors – ostensibly rooting for the “liberal international order” – will eventually lapse into silence because what emerges is that North Korean leader Kim Jong-un has enough to “bite” here in the deal that Trump is offering – broadly, a security guarantee from the US and the offer of a full-bodied relationship with an incremental end to sanctions plus a peace treaty.

Succinctly put, Trump has offered a deal that Kim simply cannot afford to reject. The ending of the US-ROK military exercises forthwith; Trump’s agenda of eventual withdrawal of troops from ROK; the lure of possible withdrawal of sanctions once 20% of the denuclearization process gets underway, or once the process becomes irreversible; Trump’s hint that he has sought assurances from Japan and the ROK that they will be “generous” in offering economic assistance to the reconstruction of North Korea; China’s involvement in the crucial process – these are tangibles.

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The view from South Korea.

Absence of “CVID” In Joint Statement? (Hani)

The absence of any reference to “complete, verifiable, and irreversible dismantlement” (CVID) of North Korea’s nuclear program in the joint statement reached at US President Donald Trump and North Korean leader Kim Jong-un’s June 12 summit in Singapore is being seen by some as a “negotiation failure” on the US’s part. But an analysis of Trump’s subsequent remarks – and a reading between the lines of the Pyongyang’s official announcement – suggests the US achieved practical gains in terms of a commitment from the North in exchange for the face-saving measure of avoiding use of the “CVID” term due to possible North Korean objections to it.

To begin with, the Singapore joint statement’s language marks a step forward from the Panmunjeom Declaration of Apr. 27 in terms of the final goal of denuclearizing the Korean Peninsula. The latest statement refers to Kim having “reaffirmed his firm and unwavering commitment to complete denuclearization of the Korean Peninsula.” While the Panmunjeom Declaration referred to “realizing, through complete denuclearization, a nuclear-free Korean Peninsula,” the new statement includes the additional reference to a “firm and unwavering commitment.”

From the reference to Kim’s “firm and unwavering” commitment to denuclearization, some experts are suggesting North Korea may have agreed to verification in addition to denuclearization – in other words, that the language may be a substitute for the “verifiable” part of the CVID approach demanded by Washington. “You could see them as having used the term out of awareness of North Korea’s discomfort with the word ‘verification,’” Handong Global University professor Kim Joon-hyung said after a Korea Press Foundation debate at Singapore’s Swissotel on June 13. “It may be fair to say North Korea made a definite commitment on the implementation and verification issues,” Kim argued.

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“..while you can always count on Capitol Hill to make it incredibly easy for a president to deploy military personnel around the globe, giving that same office the power to bring troops home is a completely different matter. ”

Optimism (Caitlin Johnstone)

Off the top of my head I have a hard time thinking of anything sleazier than smearing peace talks in order to gain partisan political points, but that has indeed been the theme of the last few days when it comes to the Singapore summit. Liberal pundits everywhere have been busily circulating the narrative that Kim Jong-Un “played” Trump by getting him to temporarily halt military drills in exchange for suspended nuclear testing. It was the most fundamental beginning of peace negotiations and a slight deescalation in tensions on the Korean Peninsula, but the way they talk about it you’d think Kim had taken off from Singapore in Air Force One with the keys to Fort Knox and Melania on his lap.

I’m not sure how far up the military-industrial complex’s ass one’s head needs to be to think that one single step toward peace is a gigantic take-all-the-chips win for the impoverished North Korea, but many of Trump’s political enemies are taking it even further. Senate Democrats have introduced a bill to make it more difficult for Trump to withdraw US troops from South Korea, because while you can always count on Capitol Hill to make it incredibly easy for a president to deploy military personnel around the globe, giving that same office the power to bring troops home is a completely different matter.

Surprising no one, MSNBC’s cartoon children’s program The Rachel Maddow Show took home the trophy for jaw-dropping, shark-jumping ridiculousness with an eighteen-minute Alex Jones impression claiming that the chief architect of the Korean negotiations was none other than (and if you can’t guess whose name I’m going to write once we get out of these parentheses I deeply envy your ignorance on this matter) Vladimir Putin. [..] This president is facilitating acts of military violence and dangerous escalations around the world; anyone who isn’t relieved by the possibility of one powder keg being defused in that rampage actually has a lot more faith in Trump’s competence than they’re pretending to.

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Easy pickings.

Blackstone Becomes Biggest Hotel & Property Owner in Spain (WS)

Private equity firm Blackstone, the undisputed king of property funds, continues to bet big on global real estate. In the last week it raised $9.4 billion for Asian real estate. It was also given the green light to acquire Spain’s biggest real estate investment fund (REIT), Hispania, for €1.9 billion. The move, after its prior acquisitions, will cement its position as Spain’s biggest hotel owner and fully private landlord. Hispania’s 46 hotels, added to Blackstone’s other hotels, will turn the PE firm into Spain’s largest hotelier with almost 17,000 rooms, far ahead of Meliá (almost 11,000), H10 (more than 10,000) and Hoteles Globales (just over 9,000).

It took Blackstone just three moves to become market leader. First, it acquired the hotel group HI Partners from struggling Spanish lender Banco Sabadell for €630 million in October 2017. Then, a month ago, it bought 29.5% of the hotel chain NH Hoteles, which is currently in the hands of the Chinese conglomerate HNA. Now, by raising its stake in Hispania from 16.75% to 100%, it will take up a dominant position in one of the world’s biggest tourist markets. With this deal, it will also expand its residential property empire in Spain. Blackstone has over 100,000 real estate assets controlled via dozens of companies. Those assets include a huge portfolio of impaired real estate assets, including defaulted mortgages and real estate-owned assets (REOs).

Blackstone also owns 1,800 social housing units, which it acquired from Madrid City Hall in a controversial deal brokered by the son of former Spanish prime minister José María Aznar and former Madrid mayor Ana Botella. Blackstone paid €202 million for the apartments in 2013; they are now estimated to be worth €660 million — a 227% return in just five year! Since its purchase of the properties, Blackstone has hiked rents on the flats by 49%. Those who can’t pay have been evicted. Blackstone also played a starring role in one of the world’s biggest real estate operations of 2017, in which it payed €5.1 billion for the defaulted loans Banco Santander inherited from its shotgun-acquisition of Banco Popular.

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“..a dramatic drop in the number of Japanese properties available via Airbnb, from more than 60,000 this spring to just 1,000 on the eve of the law’s introduction.”

‘Tourism Pollution’: Japanese Crackdown Costs Airbnb $10 Million (G.)

It has become a familiar scene: tourists in rented kimonos posing for photographs in front of a Shinto shrine in Kyoto. They and other visitors have brought valuable tourist dollars to the city and other locations across Japan. But now the country’s former capital is on the frontline of a battle against “tourism pollution” that has already turned locals against visitors in cities across the world such as Venice, Barcelona and Amsterdam. The increasingly fraught relationship between tourists and their Japanese hosts has spread to the short-stay rental market. On Friday a new law comes into effect that requires property owners to register with the government before they can legally make their homes available through Airbnb and other websites.

The restriction has caused the number of available properties to plummet and has cost the US-based company millions of dollars. Thanks to government campaigns, the number of foreign tourists visiting Japan has soared since the end of a flat period caused by a strong yen and radiation fears in the aftermath of the 2011 Fukushima disaster. A record 28.7 million people visited last year, an increase of 250% since 2012. Almost seven million were from China, with visitors from South Korea, Taiwan, Hong Kong Thailand and the US taking the next five spots. By 2020, the year Tokyo hosts the Olympic Games, the government hopes the number will have risen to 40 million.

[..] Under the new private lodging law, which was supposed to address a legal grey area surrounding short-term rentals – known as minpaku – properties can be rented out for a maximum of 180 days a year, and local authorities are permitted to impose additional restrictions. The result has been a dramatic drop in the number of Japanese properties available via Airbnb, from more than 60,000 this spring to just 1,000 on the eve of the law’s introduction. The legislation has forced the firm to cancel reservations for guests planning to stay in unregistered homes after Friday and to compensate clients to the tune of about $10m.


A sign in Kyoto cautions against touching geishas, taking selfies, littering, sitting on fences and eating and smoking on the street. Photograph: Justin McCurry for the Guardian

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Surprise!

Greeks Are Least Satisfied In The EU (K.)

Greece is the least satisfied nation in the European Union, according to a Eurobarometer survey published Thursday. More specifically, the survey, conducted between March 17 and 28, showed that just 52% of Greeks said they were satisfied with their lives, compared to a 83% average for the 28-member bloc. Only 35% of Greeks surveyed said they were satisfied with the financial situation of their households, compared to 71% across the EU. A staggering 98% said the state of the country’s economy is bad while one in two Greeks said the country’s financial crisis is not over yet and that it will deteriorate even further. As for the country’s general situation, 94% said it is negative. Just 6% said the general situation was positive compared to the 51% average for EU member-states.

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Even turkeys?!

Turkey: Even Birds Need Our Consent To Fly In The Aegean (K.)

With Greece featuring prominently in Turkey’s election campaigning, Turkish Foreign Minister Mevlut Cavusoglu raised the tension a notch again Thursday, warning that not even a bird will fly over the Aegean without Ankara’s permission. Responding to criticism by Turkish ultra-nationalists that 18 islands have been “lost” to Greece in recent years, Cavusoglu said that since the crisis over the Imia islets in 1996 there have been no changes in the legal status of the Aegean. “Not only during our own rule, but before that there has been no change in the status of the Aegean. We will not allow this. Even in the case of research we will not give permission, not even to a bird in the Aegean,” he said during an interview with a Turkish radio station.

He went on to say that Turkey will make no concessions in the Aegean and Cyprus, and that Ankara will also begin gas exploration “around” the Eastern Mediterranean island. “We also have a drill,” he said. Turkey has vowed to stop Cyprus from drilling for gas and oil in its exclusive economic zone (EEZ), insisting there can be no development of the island’s natural resources without the participation of the Turkish Cypriots in the island’s Turkish-occupied north. “In the last few months we have prevented drilling and we drove the Italians away. We will not allow anyone to take away the rights of Turkish Cypriots,” he said. Cyprus government spokesman Prodromos Prodromou said that Nicosia will not be dragged into the “climate of tension” that Turkey is cultivating. He cited international law and said that Cyprus has an established EEZ. Moreover, he said the US, Russia and the European Union have all backed Cyprus’s rights.

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Wonder what the fallout will be.

Comey et al Just Made It More Difficult For Mueller To Prosecute Trump (Hill)

James Comey once described his position in the Clinton investigation as being the victim of a “500-year flood.” The point of the analogy was that he was unwittingly carried away by events rather than directly causing much of the damage to the FBI. His “500-year flood” just collided with the 500-page report of the Justice Department inspector general (IG) Michael Horowitz. The IG sinks Comey’s narrative with a finding that he “deviated” from Justice Department rules and acted in open insubordination. Rather than portraying Comey as carried away by his biblical flood, the report finds that he was the destructive force behind the controversy. The import of the report can be summed up in Comeyesque terms as the distinction between flotsam and jetsam.

Comey portrayed the broken rules as mere flotsam, or debris that floats away after a shipwreck. The IG report suggests that this was really a case of jetsam, or rules intentionally tossed over the side by Comey to lighten his load. Comey’s jetsam included rules protecting the integrity and professionalism of his agency, as represented by his public comments on the Clinton investigation. The IG report concludes, “While we did not find that these decisions were the result of political bias on Comey’s part, we nevertheless concluded that by departing so clearly and dramatically from FBI and department norms, the decisions negatively impacted the perception of the FBI and the department as fair administrators of justice.”

The report will leave many unsatisfied and undeterred. Comey went from a persona non grata to a patron saint for many Clinton supporters. Comey, who has made millions of dollars with a tell-all book portraying himself as the paragon of “ethical leadership,” continues to maintain that he would take precisely the same actions again. Ironically, Comey, fired FBI deputy director Andrew McCabe, former FBI agent Peter Strzok and others, by their actions, just made it more difficult for special counsel Robert Mueller to prosecute Trump for obstruction. There is now a comprehensive conclusion by career investigators that Comey violated core agency rules and undermined the integrity of the FBI. In other words, there was ample reason to fire James Comey.

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Many heads will roll at the Bureau.

A Closer Look At Extreme FBI Bias Revealed In OIG Report (ZH)

As we digest and unpack the DOJ Inspector General’s 500-page report on the FBI’s conduct during the Hillary Clinton email investigation “matter,” damning quotes from the OIG’s findings have begun to circulate, leaving many to wonder exactly how Inspector General Michael Horowitz was able to conclude: “We did not find documentary or testimonial evidence that improper considerations, including political bias, directly affected the specific investigative actions we reviewed” We’re sorry, that just doesn’t comport with reality whatsoever. And it really feels like the OIG report may have had a different conclusion at some point.

Just read IG Horowitz’s own assessment that “These texts are “Indicative of a biased state of mind but even more seriously, implies a willingness to take official action to impact the Presidential candidate’s electoral prospects.” Of course, today’s crown jewel is a previously undisclosed exchange between Peter Strzok and Lisa Page in which Page asks “(Trump’s) not ever going to become president, right? Right?!” to which Strzok replies “No. No he’s not. We’ll stop it.” Nevermind the fact that the FBI Director, who used personal emails for work purposes, tasked Strzok, who used personal emails for work purposes, to investigate Hillary Clinton’s use of personal emails for work purposes. Of course, we know it goes far deeper than that…

The Wall Street Journal’s Kimberley Strassel also had plenty to say in a Twitter thread:
1) Don’t believe anyone who claims Horowitz didn’t find bias. He very carefully says that he found no “documentary” evidence that bias produced “specific investigatory decisions.” That’s different
2) It means he didn’t catch anyone doing anything so dumb as writing down that they took a specific step to aid a candidate. You know, like: “Let’s give out this Combetta immunity deal so nothing comes out that will derail Hillary for President.”
3) But he in fact finds bias everywhere. The examples are shocking and concerning, and he devotes entire sections to them. And he very specifically says in the summary that they “cast a cloud” on the entire “investigation’s credibility.” That’s pretty damning.
4) Meanwhile this same cast of characters who the IG has now found to have made a hash of the Clinton investigation and who demonstrate such bias, seamlessly moved to the Trump investigation. And we’re supposed to think they got that one right?
5) Also don’t believe anyone who says this is just about Comey and his instances of insubordination. (Though they are bad enough.) This is an indictment broadly of an FBI culture that believes itself above the rules it imposes on others.
6) People failing to adhere to their recusals (Kadzik/McCabe). Lynch hanging with Bill. Staff helping Comey conceal details of presser from DOJ bosses. Use of personal email and laptops. Leaks. Accepting gifts from media. Agent affairs/relationships.
7)It also contains stunning examples of incompetence. Comey explains that he wasn’t aware the Weiner laptop was big deal because he didn’t know Weiner was married to Abedin? Then they sit on it a month, either cuz it fell through cracks (wow) or were more obsessed w/Trump
8) And I can still hear the echo of the howls from when Trump fired Comey. Still waiting to hear the apologies now that this report has backstopped the Rosenstein memo and the obvious grounds for dismissal.

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Jun 142018
 
 June 14, 2018  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , , , , ,  


Wassily Kandinsky Free Curve to the Point – Accompanying Sound of Geometric Curves 1925

 

This Fed Grows Relentlessly More Hawkish (WS)
ECB Gets Ready To Pull The Plug On Stimulus Scheme (R.)
The ECB, Not The Fed, Is The Match That Will Spark Bond Market Volatility (MW)
China Holds Fire On Rates, Posts ‘Shockingly Weak’ Activity Growth (R.)
Riskiest Junk Bonds Completely Blow Off the Fed, Face “Sudden” Reckoning (WS)
Cryptocurrency Bloodbath Continues, Tether Accused Of Manipulating Bitcoin (MW)
The Tories’ Chaotic Brexit Has Lost The Trust Of Business – Jobs Will Go (G.)
The North Korea Summit Through the Looking Glass (Jacobin)
Italy-France Relations Collapse Amid North-African Migrant Spat (ZH)
Apple Steps Up Encrytion To Thwart Police Cracking of iPhones (AFP)
FYROM and Greece Fail To Resolve Bitter Naming Dispute (G.)
Antarctic Ice Melting Faster Than Ever (G.)

 

 

Is there anyone alive who thinks that the US, EU, global economies are strong enough to withstand large scale liquidity withdrawal?

This Fed Grows Relentlessly More Hawkish (WS)

“The economy is in great shape,” Fed Chairman Jerome Powell said today at the press conference after the FOMC meeting. Inflation as measured by the Fed’s preferred low-ball measure “core PCE” has hit the Fed’s target of 2%, and the Fed expects it to hit 2.1% by year-end. Inflation as measured by CPI jumped to 2.8%. “Job gains have been strong,” today’s statement said. The “unemployment rate has declined,” while “growth of household spending has picked up,” and “business fixed investment has continued to grow strongly.” This is no longer the crisis economy of yore. But the interest rates are still low and stimulative, befitting for a crisis economy. So something needs to be done, and it’s getting done, if “gradually.”

There were all kinds of intriguing elements in the FOMC’s increasingly hawkish but “gradual” hoopla today. By unanimous vote, the FOMC raised its target for the federal funds rate by a quarter percentage point to a range between 1.75% and 2.0%. This was expected; what’s intriguing is the unanimous vote, unlike prior rate hikes. Four rate hikes in 2018 (two more this year) are now gradually being baked in, according to the median expectation of the 15 members of the FOMC, per the infamous “dot plot” with which the Fed tries to communicate potential rate moves: One member expects 5 rate hikes in 2018; seven members expect 4 hikes; five members expect 3 hikes, and two members expect no more hikes.

At the March meeting, four rate hikes had appeared in the dot plot as a real but more distant possibility. Two more hikes this year would bring the top end of the target range to 2.5% by year-end. This shows the 2018 section of the dot plot:

Rates are expected to continue to rise, three times in 2019 and once in 2020, nudging the federal funds rate to nearly 3.5%. A presser after every meeting – oh boy. During the press conference, Powell said that, starting next January, there will be a press conference after every FOMC meeting. This idea has been mentioned a couple of times recently to prepare markets for it. Now it’s official. As in every Fed announcement, it’s no biggie, really, trust us. The move is designed to “explain our actions and answer your questions,” Powell said. It was “only about improving communications.” It didn’t mean at all that the Fed would be speeding up its rate hikes, he said.

[..] Interest paid to the banks on excess reserves gets a makeover. Banks have about $1.89 trillion in “excess reserves” on deposit at the Fed. The Fed has been paying banks interest on these excess reserves at a rate that was equal to the top of the Fed’s target range – so 1.75% since the last rate hike, which amounts to an annual rate of $33 billion of easy profits for the banks. In theory with today’s rate hike, the FOMC would also have increased the rate it pays on excess reserves to 2.0%.

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But the European economy is not ready. What now, accelerate Target2 even more?

ECB Gets Ready To Pull The Plug On Stimulus Scheme (R.)

The ECB will debate on Thursday whether to end its huge asset purchases by year-end, in what would be its biggest step towards dismantling crisis-era stimulus credited with pulling the euro zone economy out of recession. Financial investors are coming to terms with the end of a decade of easy money from the world’s top central banks, with the Federal Reserve on Wednesday raising interest rates for a seventh time in 3-1/2 years in a further shift from policies used to battle the 2007-2009 financial crisis and recession. Meeting as growth is slowing and political populism threatens to set off market turbulence, the ECB is expected to argue that its 2.55 trillion euro bond-buying scheme has done its job in bringing the 19-member currency bloc back from the brink of collapse.

Whether policymakers take the actual decision at their meeting in Riga on Thursday or hold off until July appears secondary as they have long argued that the scheme, commonly known as quantitative easing (QE), should be concluded and the policy focus shift to the expected path of interest rates. The biggest complication could be the increasingly murky economic outlook, weighed down by a developing trade war with the United States, a populist challenge from Italy’s new government and softening export demand. But these factors could actually hasten the ECB’s decision rather than hold it back as the bank has little policy firepower left and a further weakening of the outlook could make a later exit more difficult.

“We believe the ECB may be in a hurry to close the QE chapter,” Bank of America Merrill Lynch said in a note to clients. “We think this is essentially political, as the ECB would not want its monetary policy to be affected by claims of supporting or conversely impairing the new policy course in Italy.”

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Don’t forget the BOJ and China.

The ECB, Not The Fed, Is The Match That Will Spark Bond Market Volatility (MW)

Rising real interest rates haven’t yet made for a sustained pickup in Treasury volatility, leaving some investors to ask what it would take to spark some turbulence. Danielle DiMartino Booth of Quill Intelligence said the European Central Bank, and not the Federal Reserve, holds the key as it looks to set a timetable for winding down its ultra-accommodative policies. With the Federal Reserve’s shrinking balance sheet unable to offset easy global financial conditions on its own, investors should closely watch the ECB at Thursday’s meeting where the central bank is expected to discuss the end of quantitative easing, though the actual wind-down almost certainly remains several months away at the earliest. “The culmination of ECB QE will remove a bond-volatility governor,” said Booth, in a note published on Tuesday.

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And there comes China. Xi fighting the shadows is like Don Quixote and the windmills.

China Holds Fire On Rates, Posts ‘Shockingly Weak’ Activity Growth (R.)

China’s economy is finally starting to cool under the weight of a multi-year crackdown on riskier lending that is pushing up borrowing costs for companies and consumers, with data on Thursday pointing to a broad slowdown in activity in May. China’s central bank sparked concerns over the health of the economy earlier in the day when it left short-term interest rates unchanged, surprising markets which had expected it to follow a hike by the Federal Reserve, as it has tended to do. Industrial output, investment and retail sales all grew less than expected, suggesting further weakness ahead if Beijing perseveres with its crackdowns on pollution, questionable local government spending and off-balance sheet “shadow” financing.

The data, which showed the slowest investment growth in over 22 years, “was all shockingly weak by Chinese standards,” economists at Rabobank said, adding that the readings may explain the central bank’s decision to keep rates on hold. “Get ready for headlines talking about Chinese deleveraging hitting the economy – except it isn’t even deleveraging yet! China is walking more of a tightrope than markets believe – and the data underline that issue clearly,” they said. China has been walking a fine line between rolling out measures to curb financial risks and pollution and tapping the brakes so hard that business activity slows sharply.

Much of their effort so far has focused on the banking sector rather than corporate debt reduction or deleveraging – possibly explaining why China’s headline growth has been so surprisingly solid. GDP has expanded at a steady 6.8 percent for three straight quarters. But official and unofficial gauges are now showing the regulatory crackdown is starting to filter through to the broader economy, with companies complaining it is harder to get financing and a growing number of firms defaulting on bonds.

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In a world of their own.

Riskiest Junk Bonds Completely Blow Off the Fed, Face “Sudden” Reckoning (WS)

High-grade corporate bonds are “gradually” – the key word in everything the Fed says – and reluctantly coming to grips with the new era: Yields are rising and bond prices are falling. The Fed has been laboring to accomplish that. With high-grade debt, the Fed’s plan is working “gradually.” But investors in the riskiest corporate junk debt are totally blowing off the Fed. They’re floating around in their own dream world, facing a very rude awakening. In terms of high-grade corporate bonds, the sell-off has been significant, even if it’s just the beginning. The S&P index for AA-rated bonds is down 2.7% so far this year. As prices have declined, yields have surged, with the average AA yield now at 3.51%, up from around 2.2% in mid to late-2016 (data via ICE BofAML US AA Effective Yield Index):

These are the types of bonds that Apple and other large companies hold in their “cash or cash equivalent” accounts that are registered overseas, and that are now being “repatriated” and sold, and the proceeds from the sales are now being plowed into mega-share buyback programs. These corporations, once avid buyers of this high-grade corporate debt, have turned into sellers.

[..] at the riskiest end of the corporate bond spectrum, with bonds rated CCC or below (deep junk), the party that started at the end of the oil bust in February 2016 simply continued. The S&P bond index for CCC-rated bonds has risen 4.5% so far this year (compared to a 2.7% decline for AA-rated index). Since February 2016, when Wall Street decided to plow new money into junk-rated energy companies, the CCC-rated index has skyrocketed 82%. The average yield of bonds rated CCC or lower is now at 9.56%, down from 12.5% in December 2016, when the Fed got serious, and down from 22% during the peak of the oil bust. This is the lowest yield since the bygone era of “QE Infinity” in June 2014:

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“Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in bitcoin and 64% of other top cryptocurrencies..”

Cryptocurrency Bloodbath Continues, Tether Accused Of Manipulating Bitcoin (MW)

The bloodbath in the digital currency market showed no sign of abating, with all major coins trading in the red Wednesday. In the past 24-hours, a further $25 billion has been wiped off the total value of all cryptocurrencies, led by bitcoin, the world’s biggest digital currency, which reached its lowest level since Feb. 5. A single bitcoin traded to an intraday low of $6,133.31 and has since bounced to $6,280.18, down 3.8%, since Tuesday 5 p.m. Eastern Time on the Kraken Exchange. The total value of all cryptocurrencies dipped below $270 billion in late afternoon New York trading, the lowest level since April 11, according to data from CoinMarketCap. The move lower came after a research report found data that it said suggested the price of bitcoin may have been manipulated in late 2017.

In the University of Texas paper, researchers said they uncovered data that they believe shows Tether, a stable coin that is pegged to the U.S. dollar, was used to artificially push up the price of bitcoin during its late 2017 rally towards $20,000. “Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in bitcoin and 64% of other top cryptocurrencies,” wrote John M. Griffin, a finance professor and Amin Shams, a graduate student. Questions have surrounded Tether and crypto exchange Bitfinex, which were both subpoenaed by the Commodity Futures Trading Commission in 2017 seeking data on Tether and its backing of U.S. dollars. Today’s findings will bring the 11th most traded cryptocurrency back into the spotlight.

“Overall, we find that Tether has a significant impact on the cryptocurrency market. Tether seems to be used both to stabilize and manipulate bitcoin prices,” they said.

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Losing business support may prove fatal for May.

The Tories’ Chaotic Brexit Has Lost The Trust Of Business – Jobs Will Go (G.)

[..] away from parliament, and far from the tabloid front pages, a serious breach is opening up in British politics. Last week some of the most senior business leaders in Britain came out of a Brexit meeting at No 10, and promptly tore the prime minister to shreds. “We’re playing economics; [the politicians] are playing politics,” said Paul Drechsler, president of the bosses’ organisation, the Confederation of British Industry. “In the world of business, we’re frustrated. We’re angry.” An extraordinary statement, especially from an executive invited to tea and biscuits with May. If supposedly tame industrialists now talk like this, you have to wonder what sounds come out of the feral lot.

Yet the CBI’s impatience is shared by many. Once the long-haul arm of the Tory movement, the Freight Transport Association lashed out at May last week for “playing chicken with crucial parts of the British economy and the livelihoods of … 7 million Britons”. These are close friends of the Conservative party.As one senior representative of a leading business organisation says: “Over the past two years, most company bosses would never risk saying openly that Brexit is turning out to be a disaster, in case it scared off their best staff.” With fewer than 290 days before Britain formally leaves the EU, their caution is running out.

This is a far bigger story than the one on the front pages about who promised which amendment to which band of Tories. One of the fundamental relationships in the establishment is fracturing – and the consequences for government and economy could prove to be historic.

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“Not Trump” is not an identity.

The North Korea Summit Through the Looking Glass (Jacobin)

On Tuesday, as Donald Trump and Kim Jong-un shook hands for their much-anticipated summit in Singapore, one Korean reporter observed a curious episode. Koreans watching the scene unfold on a TV screen at a railway station in Seoul began applauding. Meanwhile, some nearby Western tourists, perturbed by this development, scratched their heads in confusion. “I am actually baffled to see them clapping here,” said one British tourist. There’s perhaps no better symbol of the gulf in worldwide reactions to the summit than this episode. While South Koreans cautiously celebrated a historic step in the thawing of hostilities that have hung over them for almost seventy years, the Western media seemed to look on with alarm — even anger.

Hostility to the summit, much of it from Democrats and liberals, had been a staple of press coverage in the months leading up to it, often from commentators who just a few months earlier had been panicking about exactly the opposite outcome. But it reached a fever pitch over the last few days. There was, for example, the collective hyperventilation over a symbolic arrangement of North Korean and US flags. There was MSNBC’s Nicole Wallace, who warned that the whole summit was actually a “Trumpian head fake,” a mere artifact of Trump’s “midterm strategy” and his “get out of sitting with Bob Mueller strategy.” Sue Mi Terry of the defense contractor–funded Center for Strategic and International Studies cautioned that “a peace treaty is not okay” and should “come at the end of the process” because it “undermines the justification of our troops staying in South Korea.”

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Let’s see what happens when the next ship comes.

Italy-France Relations Collapse Amid North-African Migrant Spat (ZH)

Italy has postponed high-level discussions with France on Wednesday after French President Emmanuel Macron criticized Rome for refusing to take in a migrant rescue ship full of 629 shipwrecked North Africans – forcing it to divert to Valencia, Spain. After the ship ran out of supplies, the Italian Navy agreed to escort them across the Mediterranean. “Italy’s new Economy Minister Giovanni Tria said he was cancelling a meeting with his French counterpart Bruno le Maire in Paris. The French economy ministry later said the ministers had “agreed that Mr Tria will come to Paris in the coming days”. -AFP

Italy’s decision to refuse the migrants came after their new Interior Minister, Matteo Salvini, said in early June that “the good times for illegals are over” – writing an urgent letter ordering Malta to accept the 629 migrants picked up by the non-governmental organization (NGO) ship MV Aquarius, run by the group SOS Mediterranee. Salvini called Malta the “safest port” for the passengers, advising that Rome would not offer refuge. After Malta refused leading to several days in limbo, Spain agreed to take the passengers. In response to the ordeal, French President Emmanuel Macron accused Italy of “cynicism and irresponsibility,” adding that their EU neighbor is “playing politics” with the refugees.

Meanwhile Gabriel Attal, the spokesman for Macron’s party, called Italy’s actions “nauseating”. Italian Interior Minister Matteo Salvini responded – saying on Tuesday that he would not “accept hypocritical lessons from countries that have preferred to look the other way on immigration,” and adding on Wednesay that unless France issues an “official apology” for Macron’s inflammatory comments, a Friday meeting between Italian Prime Minister Guiseppe Conte and Macron should be canceled.

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What will the police do when quantum computing gets involved?

Apple Steps Up Encrytion To Thwart Police Cracking of iPhones (AFP)

Apple said Wednesday it was strengthening encryption on its iPhones to thwart police efforts to unlock handsets without legitimate authorization. The move by Apple, the latest in an ongoing clash with law enforcement, comes amid reports of growing use of a tool known as GrayKey which can enable police to bypass iPhone security features. Apple said the new features are not designed to frustrate law enforcement but prevent any bypassing of encryption by good or bad actors. “At Apple, we put the customer at the center of everything we design,” the company said in a statement.

“We’re constantly strengthening the security protections in every Apple product to help customers defend against hackers, identity thieves and intrusions into their personal data. We have the greatest respect for law enforcement, and we don’t design our security improvements to frustrate their efforts to do their jobs. Apple said it was working a fix to mitigate the possibility of accessing data from GrayKey or similar tools. Apple said that it has a team that responds to law enforcement and national security requests 24 hours a day. But the company has been a target of some in law enforcement for rejecting efforts to allow easy access to iPhones.

Two years ago, Apple went to court to block an FBI effort to force it to weaken iPhone encryption on the device of a mass shooter in San Bernardino, California, but officials dropped the case after finding a tool to unlock the phone.

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As square pegs and round holes go, this one will linger… Greeks don’t want the name Macedonia used in any way, Skopje wants nothing else.

FYROM and Greece Fail To Resolve Bitter Naming Dispute (G.)

Governments in Skopje and Athens have faced a furious backlash as the challenge of solving one of the world’s most bitter diplomatic feuds hit home just a day after Macedonia announced it was willing to change its name. Hours after the two neighbours declaring they had reached a landmark accord that would see the tiny Balkan state rename itself the Republic of North Macedonia, the nation’s president refused point-blank to sign the deal. “My position is final and I will not yield to any pressure, blackmail or threats,” president Gjorge Ivanov, who is backed by the nationalist opposition, told a news conference in Skopje. The agreement had conceded far too much to Greece – even if its ultimate aim was the country’s future membership of Nato and the EU, he said.

The backlash came despite officials in Brussels, London and Washington reacting with unbridled enthusiasm to the breakthrough. Nato secretary general, Jens Stoltenberg welcomed the accord, saying: “This is really an historical agreement by [politicians] who have shown courage and great political leadership.” Greece has long argued that the state’s name – adopted when it broke away from Yugoslavia in 1991 – conveys thinly disguised irredentist claims on its own northern province of Macedonia. The appropriation of figures associated with ancient Greek history – not least Alexander the Great – had reinforced fears in a region prone to shifting borders.

But opposition to the deal was also pronounced in Greece. As in Skopje – where prime minister Zoran Zaev’s leftist coalition was accused of leading the country to national humiliation – prime minister Alexis Tsipras and his leftist Syriza party was also charged with surrendering cherished national rights. One newspaper ran a front-page graphic showing Tsipras, the Greek foreign minister and president being shot by firing squad for treason.

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84 scientists from 44 international organisations..

Antarctic Ice Melting Faster Than Ever (G.)

Ice in the Antarctic is melting at a record-breaking rate and the subsequent sea rises could have catastrophic consequences for cities around the world, according to two new studies. A report led by scientists in the UK and US found the rate of melting from the Antarctic ice sheet has accelerated threefold in the last five years and is now vanishing faster than at any previously recorded time. A separate study warns that unless urgent action is taken in the next decade the melting ice could contribute more than 25cm to a total global sea level rise of more than a metre by 2070. This could lead eventually to the collapse of the entire west Antarctic ice sheet, and around 3.5m of sea-level rise.

Prof Andrew Shepherd, from Leeds University and a lead author of the study on accelerating ice loss, said: “We have long suspected that changes in Earth’s climate will affect the polar ice sheets. Thanks to our satellites our space agencies have launched, we can now track their ice losses and global sea level contribution with confidence.” He said the rate of melting was “surprising.” “This has to be a cause for concern for the governments we trust to protect our coastal cities and communities,” Shepherd added. The study, published in Nature, involved 84 scientists from 44 international organisations and claims to be the most comprehensive account of the Antarctic ice sheet to date.

It shows that before 2012, the Antarctic lost ice at a steady rate of 76bn tonnes per year – a 0.2mm per year contribution to sea-level rise. However since then there has been a sharp increase, resulting in the loss of 219bn tonnes of ice per year – a 0.6mm per year sea-level contribution. The second study, also published in Nature, warns that time is running out to save the Antarctic and its unique ecosystem – with potentially dire consequences for the world. The scientists assessed the probable state of Antarctica in 2070 under two scenarios. The first in which urgent action on greenhouse gas emissions and environmental protection is taken in the next few years, the second if emissions continue to rise unabated and the Antarctic is exploited for its natural resources.

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Jun 092018
 
 June 9, 2018  Posted by at 12:37 pm Finance Tagged with: , , , , , , , , , ,  


Dorothea Lange Children and home of cotton workers at migratory camp in southern San Joaquin Valley, CA 1936

 

My long time pal Jesse Colombo, now at Real Investment Advice, recently linked on Twitter to a Zero Hedge article, which quoted CoreLogic as saying more than half of American homes are overvalued. CoreLogic calls itself “a leading provider of consumer, financial and property data, analytics and services to business and government.”

Well, CoreLogic is way off. All American homes are overvalued. How can we tell? It’s easy. It’s so easy it’s perhaps no wonder that people overlook the reasons why. But we all know them: The Fed has pushed some $20 trillion down the throats of the financial system. It has also lowered interest rates to near zero Kelvin. Then the government added a “relaxation” of lending standards and an upward tweak of credit scores. And Bob’s your uncle.

These measures haven’t influenced just half of US homes, they’ve hit every single one of them. Some more than others, not every bubble is as big as San Francisco’s, but the suggestion that nearly half of homes are not overvalued is simply misleading. It falsely suggests that if you buy a home in the ‘right’ place, you’ll be fine. You won’t be. The Washington-induced bubble will and must pop, and precious few homes will be ‘worth’ what they are ‘worth’ today.

Here’s what Jesse tweeted along with his link to the Zero Hedge article:

“Almost half of the US housing market is overvalued” – this is why U.S. household wealth is also overvalued/in an unsustainable bubble.

He followed up with:

U.S. household wealth is in a bubble thanks to Fed-inflated asset prices. This is creating a “wealth effect” that is helping to drive our spurious economic recovery. This economy is nothing but a sham. It’s smoke and mirrors. Wake the F up, everyone!!!

My reaction to this:

Sorry, my friend Jesse, but every single US home is overvalued. It just depends on the vantage point you look from. All prices have been distorted by the Fed’s policies, not just half of them. Arguably some more than others, but can that be the core argument here?

Jesse’s reply:

Yes, that’s a good point.

Another long time pal, Dave Collum, chimed in with a good observation:

I think even us bunker monkeys start recalibrating, no matter how hard we try to maintain what we believe to be perspective.

Yes, we’ve been at this for a while. Even if Jesse was still a student when he started out. We’ve been doing it so long that he recently wrote an article named: Why It’s Right To Warn About A Bubble For 10 Years. And he’s right on that too.

Let’s get to the article the conversation started with:

 

More Than Half Of American Homes Are Overvalued, CoreLogic Warns

CoreLogic reports that residential real estate prices nationwide increased 6.9% year over year from April 2017 to April 2018. The firm’s Home Price Index (HPI) also shows a 1.2% rise on the month-over-month basis from March to April 2018. This has certainly sparked the debate of housing affordability across the nation with many millennials struggling to achieve the American dream.

CoreLogic Market Condition Indicators showed that 40% of the 100 largest metropolitan areas were overvalued in April, compared to 28% undervalued, and 32% in line with valuations. The report uncovers a shocking discovery that of the nation’s top 50 largest residential real estate markets, 52% were overvalued in April.

CoreLogic’s methodology behind overvalued housing markets “as one in which home prices are at least 10% higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10% below the sustainable level.”

The CoreLogic people probably mean well, but they also probably don’t want to rattle the cage. It’s not really important. As soon as someone starts talking about a ‘sustainable level’ for home prices, you can tune out. Because no such thing exists. Unless you first take those $20 trillion out of the ‘market’, free up interest rates, tighten lending standards and lower credit scores. Only then MAY you find a ‘sustainable level’ for prices.

Historically a house in the US cost around 3 to 4 times the median annual income. During the housing bubble of 2007 the ratio surpassed 5 – in other words, the median price for a single-family home in the United States cost more than 5 times the US median annual household income. According to Mike Maloney, this ratio is heavily influenced by interest rates. When interest rates go down the affordability of a house goes up, so people spend more money on a house. Interest rates have now been falling since 1981 when they peaked at 15.32% (for a 10-year US treasury bond).

Mike Maloney, another longtime friend of the Automatic Earth, is dead on. Price to income is a useless point unless you include interest rates in the calculation. And then you can get large differences. Since interest rates have been falling for 37 years, count on them to rise. And see what that does to your model.

“The best antidote for rising home prices is additional supply,” said Dr. Frank Nothaft, chief economist for CoreLogic. “New construction has failed to keep up with and meet new housing growth or replace existing inventory. More construction of for-sale and rental housing will alleviate housing cost pressures,” Nothaft added.

Right, yeah. Now we know the CoreLogic mindset. The more you build, the better home prices will be. Just one of many problems with that is that if you really expect prices to fall once you build, people will build fewer houses, because profit margins fall too. The whole idea that we can save housing markets by simply building ever more has never rung very true. But that’s for another day.

In a recent op-ed piece via The Wall Street Journal, Paul Kupiec and Edward Pinto place the blame on the government for creating another real estate bubble through “loose mortgage terms pushing home prices up.” They claim that mortgage underwriters need to tighten standards.

“Home prices are booming. So far, 2018 has posted the strongest growth since 2005. “About 60% of all U.S. metros saw an acceleration in the rate of price increases through February this year,” according to Housing Wire. Since mid-2012, real home prices have increased 28%, according to data from the American Enterprise Institute. Entry-level home prices are up about double that rate. In contrast, over the same period household income has barely kept pace with inflation. The current pace of home-price inflation is increasing the risk of another housing bubble.

The Fed is raising rates -finally- and home prices grow at the fastest rate in 13 years. Over the past 6 years prices are up 28%. Entry level homes are up more than 50% in that time frame. That is just profoundly scary. It’s like Dante’s descent into hell. And no, it’s not true that “The current pace of home-price inflation is increasing the risk of another housing bubble”. We’re already caught up head first in a new housing bubble.

“The root of the problem is declining underwriting standards. In April Freddie Mac announced an expansion of its 3% down-payment mortgage, the better to compete with the Federal Housing Administration and Fannie Mae . Such moves propel home prices upward. Because government agencies guarantee about 80% of all home-purchase mortgages, their underwriting standards guide the market.

Making lending even more dangerous, CNBC recently reported that “credit scores may go up” because new regulatory guidance allows delinquent taxes to be excluded when calculating credit scores. These are only some of the measures that “expand the credit box” and qualify ever-shakier borrowers for mortgages.”

As I said before: if you lower lending -and underwriting- standards and artificially raise credit scores, then yes, you can keep the bubble going for a while longer. But it overvalues properties. You’re just moving goalposts.

“During the last crisis, easy credit led home prices to rise at an unsustainable pace, leading marginally qualified borrowers to stretch themselves thin. Millions of Americans’ dreams became nightmares when the housing market turned. The lax underwriting terms that helped borrowers qualify for a mortgage haunted many households for the next decade.”

No, it’s not just homes. Stocks and bonds as just as overvalued. Because of a behemoth attempt at making the economy look good, even though it’s entirely fake. No price discovery, no market, just central banks and tweaking standards and surveys. C’mon, we all know where this must go. We just don’t want to know. So this Marketwatch piece gets a wry smile at best:

 

America Is House-Rich But Cash-Poor

The housing market has not only recovered from the Great Recession, it’s heated up. According to an analysis from Attom Data, nearly 14 million Americans are now “equity rich” – meaning they have at least 50% equity in their homes. It bears repeating that many owners and communities are not so lucky: over a million Americans are underwater, and some cities and towns are still reeling under the weight of abandoned and vacant homes and stagnant micro-economies. But for most of the country, rapidly rising home prices and a dearth of anything else to buy means people are staying in their homes longer, allowing them to accrue more and more equity: $15 trillion worth, to be exact.

 

 

Jun 072018
 
 June 7, 2018  Posted by at 8:17 am Finance Tagged with: , , , , , , , , , , ,  


Ivan Aivazovsky Stormy Night at Sea 1850

 

Is Draghi Risking Everything To Teach Rome A Lesson? (ZH)
The Next Economic Crisis Begins in the European Union (Bruno)
David Stockman: Stocks Will Plunge 50% In This ‘Daredevil Market’ (CNBC)
Euro Recovers On Rising Bets ECB May Unwind Stimulus (R.)
Indonesia Joins India In Begging Fed To Stop Shrinking Its Balance Sheet (ZH)
Fed Clambers Back To Positive Real Rates, Now Debate Is When To Stop (R.)
Social Security To Tap Into Trust Fund For First Time In 36 Years (MW)
Opioids Are Responsible For 20% Of US Millennial Deaths (ZH)
The ‘Doomsday Brexit Plan’ Document Should Frighten Us All (TP)
Nearly 4 Million UK Adults Forced To Use Food Banks (Ind.)
How We Created The Anthropocene (BBC)

 

 

“..watch as the EUR and bond yields tumble, and the dollar resumes its relentless push higher.”

Is Draghi Risking Everything To Teach Rome A Lesson? (ZH)

[..] as Bloomberg’s Lisa Abramowicz said in a podcast today, it was the ECB “basically just giving the finger to Italy.” Confirming as much, Anne Mathias, Global Rates and FX strategist for Vanguard, responded that “part of the vocal nature of the ‘talking about the talking about’ [the end of QE] probably has something to do with Italy, especially as they’ve been paring their purchases of Italian debt. What the ECB is trying to say is hey, “this is our party, and you’re welcome to it, but if you’re going to leave it’s not going to be easy for you.” The ECB is trying to show Italy a future without the ECB as backstop.”

A spot-on follow up question from Pimm Fox asked if this is “a situation in which the ECB is cutting off its nose to spite its face, because you can stick to rules for the sake of sticking to rules, but when you have a potential crisis, why wait for it to be a real crisis such as Italy, which the new government has pledged to spend a lot of money, to lower taxes, while they still have a huge government deficit. Why would the ECB do this.” The brief answer is that yes, it is, because sending the Euro and yields higher on ECB debt monetization concerns, only tends to destabilize the market, and sends a message to investors that the happy days are ending, in the process slamming confidence in asset returns, a process which usually translates into a sharp economic slowdown and eventually recession, or even depression if the adverse stimulus is large enough.

As for the punchline, it came from Abramowicz, who doubled down on Pimm Fox’ question and asked if the “European economy can withstand the shock” of the ECB’s QE reversal, which would send trillions in debt from negative to positive yields. While the answer is clearly no, what is curious is that the ECB is actually tempting fate with the current “tightening” scare, which may send the Euro and bond yields far higher over the next few days, perhaps even to a point where Italy finds itself in dire need of a bailout… from the ECB. Then again, don’t be surprised if during next Thursday’s ECB press conference, Mario Draghi says that after discussing the end of QE, no decision has been made or will be made for a long time. At that moment, watch as the EUR and bond yields tumble, and the dollar resumes its relentless push higher.

Read more …

Downsize Germany or else.

The Next Economic Crisis Begins in the European Union (Bruno)

Mercantilism is a practice of conducting economic affairs that Europe practiced especially during the period between the 16th and 17th centuries. It’s the progenitor of colonialism and favors the idea that a state’s—or nation’s—power increases in direct proportion to its ability to export. The more a nation exports, producing a trade surplus, the stronger it becomes. The current “imperfection” of the euro stems from this concept. Germany has become a mercantilist power within a union of nation states (the EU) that had agreed to pursue common as well as national interests. The result has not only been an imbalance of trade; rather, it’s been a complete political and economic disparity.

Some EU countries, of which Germany represents the best example, have also used their surplus to lower their inflation rate below the eurozone-accepted two-percent standard. Indeed, Germany’s trade surplus formula was predicated on a minimal increase in salaries—and reduced government spending on infrastructure and other public services. The result has been the accumulation of significant competitive advantages. Ironically, whenever the euro drops in value, Germany gains with respect to the PIGS. The products that make up the core of its surplus become even more competitive within and beyond the EU.

That explains President Donald Trump’s ever more vociferous suggestions to ban the import of German cars in the United States. It’s no accident that Trump launched a literal trade war, focusing on Germany and China, just days before the start of the G7 Summit in Canada. Germany’s accumulated gains from the low inflation and the more competitive conditions allow it to literally “colonize” (financially speaking) the so-called less virtuous or “deficit” nations. Germany can buy up their best businesses and services. In the meantime, Germany has also acquired a political dominance to match its surplus within the EU itself.

It can control the rules of the EU economy and influence their evolution. That’s why there are few options for the PIGS. And that’s why society and political discourse have deteriorated. The rise of the so-called populist—I prefer the term “protest”—parties, Left or Right, in countries like Italy is a trend destined to expand throughout the EU and cause irreparable fissures. If the EU does not change (and by change, I mean a downsizing of Germany’s stature), the fissures will be irreparable, and one or more states will leave, breaking the union.

Read more …

“It’s all risk and very little reward in the path ahead..”

David Stockman: Stocks Will Plunge 50% In This ‘Daredevil Market’ (CNBC)

David Stockman is intensifying his bear case. President Ronald Reagan’s Office of Management and Budget director blames a bull market that’s getting longer in the tooth — paired with headwinds ranging from President Donald Trump’s leadership to fiscal policy decisions to questionable earnings. “I call this a daredevil market. It’s all risk and very little reward in the path ahead,” Stockman said Tuesday on CNBC’s “Futures Now.” “This market is just way, way over-priced for reality.” His thoughts came as the Nasdaq was reaching all-time highs again, while S&P 500 rose slightly but the Dow failed to extend its win streak to three days in a row.

“The S&P 500 could easily drop to 1,600 because earnings could drop to $75 a share the next time we have a recession,” Stockman warned. “We’re about eight or nine years into this expansion. Everything is crazily priced. I mean the S&P 500 at 24 times at the end, tippy top of a business cycle.” One of his biggest gripes with the bulls is the notion that President Donald Trump’s tax cuts are providing a fundamental lift to stocks. “These tax cuts are going to add to the deficit in the 10th year of an expansion. It’s just irresponsible crazy,” he said. “It’s all going to stock buybacks and M&A deals anyway. That doesn’t cause the economy to grow. It’s just a short-term boost to the stock market that doesn’t last.”

Read more …

All it takes is some hollow words.

Euro Recovers On Rising Bets ECB May Unwind Stimulus (R.)

The euro stayed near two-week highs against many of its rivals on Thursday, on rising bets the ECB may soon announce it will start winding down its massive bond purchase program. Jens Weidmann, the head of Germany’s central bank, said expectations the ECB would taper its bond-buying program by the end of this year were plausible while his Dutch counterpart, Klaas Knot, said there was no reason to continue a quantitative easing program. The trio of comments drove the euro to a two-week high of $1.1800 sharp. The common currency last traded at $1.1781, extending its gains so far this week to 1.15%.

“In the near term, we are likely to see event-driven trading on the euro. We should expect the euro to jump 100 pips (one cent) quite easily on comments from key officials,” said Kyosuke Suzuki, director of forex at Societe Generale. The ECB has been debating whether to end the unprecedented 2.55 trillion euro ($2.99 trillion) bond purchase program this year as the threat of deflation has passed. Still many market players were surprised by the flurry of comments as they had thought uncertainty caused by a political crisis in Italy could make policymakers cautious about indicating an end to stimulus at its policy meeting on June 14.

Indeed, the yield spread of Italian debt to German Bunds widened on Wednesday as Italian bonds are seen as the biggest beneficiary of the ECB’s buying. “This euro buying is essentially short-term trade. People don’t know when Italian debt problems will be solved but they do know when the ECB might announce an exit from stimulus,” said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities.

Read more …

But then Europe and Japan signal they’ll do the same.

Indonesia Joins India In Begging Fed To Stop Shrinking Its Balance Sheet (ZH)

On the same day that the governor of Malaysia’s central bank quit, and just days after Urjit Patel, governor of the Reserve Bank of India, took the unprecedented step of writing an oped to the Federal Reserve, begging the US central bank to step tightening monetary conditions, and shrinking its balance sheet, thereby creating a global dollar shortage which has slammed emerging markets (and forced India into an unexpected rate hike overnight), Indonesia’s new central bank chief joined his Indian counterpart in calling on the Federal Reserve to be “more mindful” of the global repercussions of policy tightening amid the ongoing rout in emerging markets.

As Bloomberg reports, in his first interview with international media since he took office two weeks ago, Bank Indonesia Governor Perry Warjiyo echoed what Patel said just days earlier, namely that the pace of the Fed’s balance sheet reduction was a key issue for central bankers across emerging markets. As a reminder, the RBI Governor made exactly the same comments earlier this week, arguing that slowing the pace of stimulus withdrawal at a time when the US Treasury is doubling down on debt issuance, would support global growth, as the alternative would be an emerging markets crisis that would spill over into developed markets.

Read more …

Get the hell out. Take their powers away.

Fed Clambers Back To Positive Real Rates, Now Debate Is When To Stop (R.)

The Federal Reserve will likely raise its target interest rate to above the rate of inflation for the first time in a decade next week, igniting a new debate: when to stop. The Fed has been gradually hiking rates since late 2015 with little sign of tighter conditions hampering economic recovery. The expected June increase will raise the stakes as the Fed seeks to sustain the second-longest U.S. expansion on record while continuing to edge rates higher. With inflation still tame, policymakers are aiming for a “neutral” rate that neither slows nor speeds economic growth. But estimates of neutral are imprecise, and as interest rates top inflation and enter positive “real” territory, analysts feel the Fed is at higher risk of going too far and actually crimping the recovery.

The Fed is “gradually entering a new world when rates are at 2 percent,” nearing zero on a real basis and approaching where they are no longer felt to be stimulating economic activity, said Thomas Costerg, senior U.S. economist at Pictet Wealth Management. The last time rates moved into positive real territory on a sustained basis was the spring of 2005 when the Fed began tightening rapidly after a period of arguably too-lax monetary policy, ending just months before the start of the 2007-2009 financial crisis. The debate over the current cycle’s end point “came earlier than I expected,” Costerg said, with the Fed facing imminent calls on where the neutral rate of interest lies.

Read more …

Opaque topic, but this is obviously not good.

Social Security To Tap Into Trust Fund For First Time In 36 Years (MW)

Medicare’s finances were downgraded in a new report from the program’s trustees Tuesday, while the projection for Social Security’s stayed the same as last year. Medicare’s hospital insurance fund will be depleted in 2026, said the trustees who oversee the benefit program in an annual report. That is three years earlier than projected last year. This year, like last year, Social Security’s trustees said the program’s two trust funds would be depleted in 2034. For the first time since 1982, Social Security has to dip into the trust fund to pay for the program this year. It should be stressed that the reports don’t indicate that benefits disappear in those years.

After 2034, Social Security’s trustees said tax income would be sufficient to pay about three-quarters of retirees’ benefits. Congress could at any time choose to pay for the benefits through the general fund. Medicare beneficiaries also wouldn’t face an immediate cut after the trust fund is depleted in 2026. The trustees said the share of benefits that can be paid from revenues will decline to 78% in 2039. That share rises again to 85% in 2092. The hospital fund is financed mainly through payroll taxes. Social Security trustees said that reserves for the fund that pays disability benefits would be exhausted in 2032. Combined with the fund that pays benefits to retirees, all Social Security reserves would be exhausted by 2034, they said.

Read more …

Better start acting.

Opioids Are Responsible For 20% Of US Millennial Deaths (ZH)

The opioid crisis has become a significant public health emergency for many Americans, especially for millennials, so much so that one out of every five deaths among young adults is related to opioids, suggested a new report. The study is called “The Burden of Opioid-Related Mortality in the United States,” published Friday in JAMA. Researchers from St. Michael’s Hospital in Toronto, Ontario, found that all opiate deaths — which accounts for natural opiates, semi-synthetic/ humanmade opioids, and fully synthetic/ humanmade opioids — have increased a mindboggling 292% from 2001 through 2016, with one in every 65 deaths related to opioids by 2016. Men represented 70% of all opioid-related deaths by 2016, and the number was astronomically higher for millennials (24 and 35 years of age).

According to the study, one out of every five deaths among millennials in the United States is related to opioids. In contrast, opioid-related deaths for the same cohort accounted for 4% of all deaths in 2001. Moreover, it gets worse; the second most impacted group was 15 to 24-year-olds, which suggests, the opioid epidemic is now ripping through Generation Z (born after 1995). In 2016, nearly 12.4% of all deaths in this age group were attributed to opioids. “Despite the amount of attention that has been placed on this public health issue, we are increasingly seeing the devastating impact that early loss of life from opioids is having across the United States,” said Dr. Tara Gomes, a scientist in the Li Ka Shing Knowledge Institute of St. Michael’s.

“In the absence of a multidisciplinary approach to this issue that combines access to treatment, harm reduction and education, this crisis will impact the U.S. for generations,” she added. Over the 15-year period, more than 335,000 opioid-related deaths were recorded in the United States that met the study’s criteria. Researchers said this number is an increase of 345% from 9,489 in 2001 (33.3 deaths per million population) to 42, 245 in 2016 (130.7 deaths per million population).

Read more …

“At what stage of their hapless fiddling, constant arguing and pitiful attempts to administer the kiss of life to the corpse that Brexit has turned out to be, does a politician officially earn the title of – stupid idiot?”

The ‘Doomsday Brexit Plan’ Document Should Frighten Us All (TP)

This is the first paragraph of The Times article (paywall) regarding Britain’s now famous Doomsday Brexit plan. “Britain would be hit with shortages of medicine, fuel and food within a fortnight if the UK tries to leave the European Union without a deal, according to a Doomsday Brexit scenario drawn up by senior civil servants for David Davis.” The Times confirms that the port of Dover will collapse “on day one” if Britain crashes out of the EU, leading to critical shortages of supplies. This was the middle of three scenarios put forward by senior advisors. A type of best guestimate if you like. You simply do not want to know the outcome of the worst of those three scenarios. Indeed, we have been spared from such details.

The article states that the RAF would have to be deployed to ferry supplies around Britain. And yes, we’re still on the middle scenario here. “You would have to medevac medicine into Britain, and at the end of week two we would be running out of petrol as well,” a contributing source said. The report continues to describe matters such as cross-channel disruption for heavy goods vehicles, which would also be catastrophic. Massive carparks will be required. A senior official said in the ‘Doomsday’ Brexit plan: “We are entirely dependent on Europe reciprocating our posture that we will do nothing to impede the flow of goods into the UK. If for whatever reason, Europe decides to slow that supply down, then we’re screwed.”

Let’s not worry about the fact that French borders are often left in chaos due to the all too familiar strikes that appear almost monthly during holiday season for one reason or another. Home secretary Sajid Javid makes an unconvincing comment stating he’s ‘confident’ a deal will be done. That’s hardly the type of assurance we need is it? UK officials emphasised that the June EU summit due on the 28th was heading for a “car crash” because “no progress has been made since March” to devise plans for a long-term deal. If your confidence in Brexit is starting to wane, don’t worry, half the nation are not just anxious but downright fearful – mainly because, neither in or out has given any concreate evidence of likely outcomes. This is probably because Brexit hasn’t been done before – and was designed that way. Deliberately.

At what stage of their hapless fiddling, constant arguing and pitiful attempts to administer the kiss of life to the corpse that Brexit has turned out to be, does a politician officially earn the title of – stupid idiot? “Just bloody get on with it” shout the Brexiteers, except both they and the UK government still can’t decide what ‘it’ is.

Read more …

I’ve asked it before: where will Britain be 10 years from now?

Nearly 4 Million UK Adults Forced To Use Food Banks (Ind.)

Nearly 4 million adults in the UK have been forced to use food banks due to ”shocking” levels of deprivation, figures have revealed for the first time. An exclusive poll commissioned by The Independent reveals one in 14 Britons has had to use a food bank, with similar numbers also forced to skip meals and borrow money as austerity measures leave them “penniless with nowhere to turn”. The findings come as a major report by the Joseph Rowntree Foundation (JRF) shows more than 1.5 million people were destitute in the UK last year alone, a figure higher than the populations of Liverpool and Birmingham combined. This includes 365,000 children, with experts warning that social security policy changes under the Tory government were leading to “destitution by design”.

Destitution is defined as people lacking two “essential needs”, such as food or housing. The polling on food poverty, from a representative sample of 1,050 UK adults carried out for The Independent by D-CYFOR, suggests that 7 per cent of the adult population – or 3.7 million people – have used a food bank to receive a meal. A million people have decreased the portion size of their child’s meal due to financial constraints, the survey says. The results come after it emerged in April that the number of emergency meals handed out at food banks had risen at a higher rate than ever, soaring by 13 per cent in a year, with more than 1.3 million three-day emergency food supplies given to people in crisis in the 12 months to March.

Read more …

I haven’t read the book -and it’s not out yet- but this seems, let’s say, naive. If you figure that a constant increase in energy use is the culprit, how can you say renewable nergy is the solution, and not call for using less energy?

How We Created The Anthropocene (BBC)

Factories and farming remove as much nitrogen from the atmosphere as all of Earth’s natural processes, and the climate is changing fast because of carbon dioxide emissions from fossil fuel use. Beyond these grim statistics, the critical question is: will today’s interconnected mega-civilisation that allows 7.5 billion people to lead physically healthier and longer lives than at any time in our history continue from strength to strength? Or will we keep using more and more resources until human civilisation collapses? To answer this, we re-interpret human history using the tools of modern science, to provide a clearer view of the future.

Tracing the ever-greater environmental impacts of different human societies since our march out of Africa, we found that there are just five broad types that have spread worldwide. Our original hunter-gatherer societies were followed by the agricultural revolution and new types of society beginning some 10,500 years ago. The next shift resulted from the formation of the first global economy, after Europeans arrived in the Americas in 1492, which was followed in the late 1700s by the new societies following the Industrial Revolution. The final type is today’s high-production consumer capitalist mode of living that emerged after WWII.

A careful analysis shows that each successive mode of living is reliant on greater energy use, greater information and knowledge availability, and an increase in the human population, which together increase our collective agency. These insights help us think about avoiding the coming crash as our massive global economy doubles in size every 25 years, and on to the possibilities of a new and more sustainable sixth mode of living to replace consumer capitalism. Seen in this way, renewable energy for all takes on an importance beyond stopping climate breakdown; likewise free education and the internet for all has a significance beyond access to social media – as they empower women, which helps stabilise the population.

Read more …

Jun 052018
 
 June 5, 2018  Posted by at 8:40 am Finance Tagged with: , , , , , , , , , , , , ,  


John French Sloan East Entrance, City Hall, Philadelphia 1901

 

Carbon Bubble To Destroy Trillions Of Dollars Of Global Wealth (Ind.)
The Effects Of Trump’s Steel Tariffs On Red State Energy (F.)
US Firms To Pour $2.5 Trillion Into Buybacks, Dividends, M&A This Year (CNBC)
India Central Banker Sees Sudden “Evaporation” Of Dollar Funding (ZH)
China’s Debt Crackdown To Hurt Emerging Markets, Oil, Metals – Fitch (R.)
Italy’s Long, Hot Summer (Carmen Reinhart)
Why The Euro Was Created (ZH)
Toronto’s House Price Bubble Not Fun Anymore (WS)
Why Australia’s Great Banking Boom Has Ended (SMH)
Apple Jams Facebook’s Web-Tracking Tools (BBC)
A West Coast State of Mind (Jim Kunstler)
Edward Snowden: ‘The People Are Still Powerless, But Now They’re Aware’ (G.)
Who Should Feed The World: Real People Or Faceless Multinationals? (Vidal)

 

 

Don’t think it will happen without an overall economic collapse.

Carbon Bubble To Destroy Trillions Of Dollars Of Global Wealth (Ind.)

Trillions of dollars of fossil fuel wealth will be wiped out at some point over the next 17 years even if governments fail to impose binding carbon emissions limits on industry to curb global warming, according to a major new study. Environmentalists and policymakers have long warned of the threat of a “carbon bubble” and “stranded assets” for listed energy companies, based on the possibility they will never be able to realise the value of their vast stores of oil, gas and coal if politicians actually deliver on their decarbonisation promises.

But today a group of scientists and analysts from Cambridge, Nijmegen, Macao and the Open University take that warning a step further by arguing that these assets are destined to be stranded regardless of official policies to discourage the use of fossil fuels because clean energy technologies are now developing so rapidly that those polluting assets will be worthless in any case. “Our analysis suggests that, contrary to investor expectations, the stranding of fossil fuels assets may happen even without new climate policies. This suggests a carbon bubble is forming and it is likely to burst,” said Professor Jorge Viñuales from Cambridge University. If policymakers did deliver on the decarbonisation programmes, the loss for investors would be even more rapid.

The research is at odds with work from the International Energy Agency, which projects steady price rises for fossil fuels until 2040. And Donald Trump’s decision last year to pull the United States out of the Paris Agreement on climate change has also done nothing to persuade most investors to take the stranded assets warning seriously. But the researchers’ new “simulation-based, energy-economy-carbon-cycle climate” model suggests investing in fossil fuel firms today is likely to prove a disastrous bet, suggesting that between $1 trillion and $4 trillion could be wiped off the value of global fossil fuel assets by 2035.

Read more …

Steel and concrete prices better not rise.

The Effects Of Trump’s Steel Tariffs On Red State Energy (F.)

Electricity production is heavily dependent on materials like steel, concrete, copper and aluminum, for both producing electricity and moving it around to where it’s needed (see figure). Solar and Wind energy take more steel than any other energy source. Natural gas and nuclear take the least. Solar needs 1,600 tons of steel per MW, wind energy needs over 400 tons of steel, while gas and nuclear need only 4 and 40 tons, respectively. Wind and solar also require ten times more transmission, also heavily steel-intensive, since they are usually sited far away from where the energy is used.

The average high-voltage transmission tower includes about 30 tons of steel and transmission wire contains about a ton of steel per mile. Going from our biggest solar array, located in the Mohave Desert, to Los Angeles is almost 300 miles, requiring on the order of 10,000 tons of steel depending on specific design. While we tend to think of renewables as associated with Blue States, they are actually growing faster in Red States. Four of the five states with the most installed wind energy are Texas (20,321 MW), Iowa (6,917 MW), Oklahoma (6,645 MW) and Kansas (4,451 MW). The only Blue State in the top five is California (5,662 MW).

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Prop up your stock some more.

US Firms To Pour $2.5 Trillion Into Buybacks, Dividends, M&A This Year (CNBC)

Money is pouring into the U.S. economy and in turn helping provide support for the otherwise struggling stock market. If current conditions persist, corporations are likely this year to inject more than $2.5 trillion into what UBS strategists term “flow” — the combination of share buybacks, dividends, and mergers and acquisitions activity. The development comes as companies find themselves awash in cash, thanks primarily to years of stashing away profits plus the benefits of a $1.5 trillion tax break this year that slashed corporate rates and encouraged firms to bring back money idling overseas. Companies have nearly $2.5 trillion in cash parked domestically, according to the Federal Reserve, and as much as $3.5 trillion overseas, various estimates have shown.

When all is said and done for 2018, UBS expects dividend issuance to top $500 billion, buybacks to range from $700 billion to $800 billion, and M&A to constitute about $1.3 trillion. If the numbers pan out, they would equate to about 10% of the S&P 500’s market cap and 12.5% of GDP. “Assuming improving growth and stable rates, we expect the positive positioning/flow backdrop to support US equities, which is important as the daily corporate flow slows from mid-June to mid-July,” UBS strategist Keith Parker said in a note. Parker pointed out that the firm has overweight positions in both tech and health care as the two sectors are leading the buyback boom.

Buybacks specifically have been on a torrid pace and are helping provide a floor to a market that for much of 2018 had looked tired and volatile after a 20% S&P 500 gain the year before. Repurchases are up 83% year to date, far ahead of the 9% gain in dividends, while M&A activity involving U.S. companies has surged 130%, according to UBS. [..] UBS estimates that the combination of buybacks, dividends and demand flows account for some 40% in performance this year. The S&P 500 has nudged 2.6% higher and the Dow industrials are just ahead of breakeven.

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The Fed retreats and the Treasury issues new debt.

India Central Banker Sees Sudden “Evaporation” Of Dollar Funding (ZH)

In an op-ed published overnight in the FT, a central banker writes that when it comes to the turmoil gripping the world’s Emerging Markets, whether it is the acute, idiosyncratic version observed in Argentina and Turkey, which according to JPM may be doomed, or the more gradual selloffs observed in places like Indonesia, Malaysia, Brazil, Mexico and India, don’t blame the Fed’s rate hike cycle. Instead blame the “double whammy” of the Fed’s shrinking balance sheet coupled with the dollar draining surge in debt issuance by the US Treasury.

That’s the message from the current Reserve Bank of India, Urjit Patel, who writes that “unlike previous turbulence, this episode cannot be attributed to the US Federal Reserve’s moves on interest rates, which have been rising steadily since December 2016 in a calibrated manner.” But does that mean that the Fed is not to blame for what increasingly looks like another budding EM crisis? Not at all: according to Patel, the dollar funding shortage “upheaval” stems from what he sees as the confluence of two significant events of which the Fed’s balance sheet reduction is one, while the second is the dramatic increase in US Treasury issuance to pay for Trump’s tax cuts; what is notable is that both events are drastically soaking up dollar liquidity.

As a result, Patel blames a lack a coordination between the Fed and Treasury on the adverse flow through across global funding markets as a result of this decline in dollar liquidity, and writes that “given the rapid rise in the size of the US deficit, the Fed must respond by slowing plans to shrink its balance sheet. If it does not, Treasuries will absorb such a large share of dollar liquidity that a crisis in the rest of the dollar bond markets is inevitable.” Putting these two parallel processes – which threaten to materially impair dollar funding markets – in context, on one hand there is QT, or the gradual decline in the Fed’s balance sheet which is set to peak at a rate of $50BN/month by October, while at the same time US net Treasury issuance is set to jump to $1.2 trillion in 2018 and 2019 to cover the forecasted budget deficit of $804BN and $981BN in 2018 and 2019, respectively.

And in a curious coincidence, the withdrawal of dollar funding by the Fed in monthly terms, as it reduces its reinvestment of income received, is proceeding at roughly the same pace as that of net issuance of debt by the US government. Furthermore, both processes are open ended which means that over the next few years, the government’s net issuance will stabilize, albeit at a high level, whereas the Fed’s balance-sheet reduction will keep rising. Both are terrible news for Emerging Markets, which are in desperate need of reversing the ongoing dollar outflows; however as long as Trump continues to make America great, and funds said stimulus with excess debt issuance, emerging market turmoil is virtually guaranteed.

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China retreats, too.

China’s Debt Crackdown To Hurt Emerging Markets, Oil, Metals – Fitch (R.)

China’s debt crackdown is a key risk to the country’s economic growth and will have significant knock-on effects for the global economy, particularly emerging markets with high commodity dependence or close Chinese trade links, Fitch Ratings said. Beijing’s campaign to put a lid on debt could also lead to a sharp slowdown in business investment, Fitch said late on Sunday, forecasting that growth in the world’s second-biggest economy would slow to around 4.5% over the medium term. Fitch said the implications of this scenario for the global economy would be significant but not dramatic, unlike a full-scale hard landing.

One of the most significant effects would be on commodity prices, with Fitch expecting oil and metal prices to fall 5 to 10% from its baseline scenario, reflecting China’s large role as a commodity consumer. In April, a Reuters poll of 72 institutions showed economists expected China’s economic growth to slow to 6.5% this year and 6.3% next year as Beijing extends its crackdown on riskier lending practices. GDP in 2017 expanded 6.9% in real terms and 11.2% in nominal terms. Beijing’s financial crackdown, now in its third year, has slowly pushed up borrowing costs and is choking off alternative, murkier funding sources for companies such as shadow banking.

The ratio of Chinese corporate debt to GDP is already very high by international standards – at 168% in 2017 – and is expected to start rising again as nominal GDP growth declines towards 8% from the unusually high rate of more than 11% in 2017, Fitch said. If the government aims to stabilize its corporate debt ratio by 2022, Fitch said China’s nominal economic growth rate could fall by 1 percentage point a year over the medium term while business investment growth would drop 5percentage points per year.

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Restructuring Target2. That should be fun.

Italy’s Long, Hot Summer (Carmen Reinhart)

The political upheaval and social unrest fueling the current crisis in Italy should surprise no one. On the contrary, the only uncertainty was when exactly matters would come to a head. Now they have. Italy’s per capita GDP in 2018 is about 8% below its level in 2007, the year before the global financial crisis triggered the Great Recession. And the International Monetary Fund’s projections for 2023 suggest that Italy will still not have fully recovered from the cumulative output losses of the past decade. Among the 11 advanced economies that were hit by severe financial crises in 2007-2009, only Greece has suffered a deeper and more protracted economic depression.

Greece and Italy were the two economies carrying the highest debt burdens at the outset of the crisis (109% and 102% of GDP, respectively), leaving them poorly positioned to cope with major adverse shocks. Since the crisis erupted a decade ago, economic stagnation and costly banking weaknesses have propelled debt burdens higher still, despite a decade of exceptionally low interest rates. Greece has already faced more than one “credit event” and, while Italy has also had a couple of close calls, the spring of 2018 is turning out to be its most tumultuous episode yet. The summer will probably be worse, bringing Italy closer to a sovereign debt crisis. On the surface, general government debt appears to have stabilized since 2013, at around 130% of GDP. However, as I have stressed here and elsewhere, this “stability” is misleading.

General government debt is not the whole story for Italy, even setting aside the private debt loads and the recent renewed upturn in nonperforming bank loans (a daunting legacy of the financial crisis). When evaluating Italy’s sovereign risk, the central bank’s debts (Target2 balances) must be added to those of the general government. As the most recent available data (through March) show, these balances increase the ratio of public-sector debt to GDP by 26%. With many investors pulling out of Italian assets, capital flight in the more recent data is bound to show up as an even bigger Target2 hole. This debt, unlike pre-1999, pre-euro Italian debt, cannot be inflated away. In this regard, it is much like emerging markets’ dollar-denominated debts: it is either repaid or restructured.

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What the euro has meant for Greece and Italy: lower wages, higher unemployment and higher current account deficit.

Why The Euro Was Created (ZH)

[..] we thought it would be a good idea to remind readers why the euro exists in the first place. The briefest possible answer: to make sure the Deutsche Mark does not. As presented in the chart below – which shows the performance for each of the EU12 countries against the German DEM in every decade from the 1950s to the start of the Euro in 1999 – apart from a small revaluation of core countries in the 1990s, every country devalued to Germany in every decade between the 1950s and the start of the Euro. Said otherwise, the Deutsche Mark appreciated in value against all of its European peers for 5 consecutive decades, a condition which if left unchanged, would have led to an economic and trade crisis.

And as a bonus chart, here is same data (with the US and UK added) from the end of the Bretton Woods system in 1971 to the start of the Euro (Lira -82% devaluation to German DM) and during the 1990s (-24% devaluation) – the decade immediately leading up to the Euro start. As can be seen Italy is amongs the weakest performers relative to the German DM over these periods and showed the momentum that existed in the period leading up to the start of the Euro.

And while the fixed exchange of the Euro for European nations allowed the German export industry to go into overdrive, the lack of the possibility for an external, i.e. currency, devaluation, meant that Italy has been forced to do it all by engaging in internal devaluation, i.e., lower wages, higher unemployment and boosting its current account deficit, which however is made virtually impossible given Italy’s deteriorating demographics. This is what DB’s Jim Reid said of Italy’s potential future: Looking forward, Italy will not find it easy to grow out of its problems as its facing one of the worst set of demographics of the G20 countries. Its population size has peaked (according to the UN) and is expected to decline out to 2050. Its working age population (15-64 year olds as a proxy) is set to fall -24% over the same period and is again one of the worst placed in the G20.

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“Home sales plunged 22% in May compared to a year ago..”

Toronto’s House Price Bubble Not Fun Anymore (WS)

Housing in the Greater Toronto Area is, let’s say, retrenching. Canada’s largest housing market has seen an enormous two-decade surge in prices that culminated in utter craziness in April 2017, when the Home Price Index had skyrocketed 32% from a year earlier. But now the hangover has set in and the bubble isn’t fun anymore. Home sales plunged 22% in May compared to a year ago, to 7,834 homes, according to the Toronto Real Estate Board (TREB). It affected all types of homes, even the once red-hot condos: • Detached houses -28.5% • Semi-detached houses -29.4% • Townhouses -13.4% • Condos -15.5%.

It was particularly unpleasant at the higher end: Sales of homes costing C$1.5 million or more plummeted by 46% year-over-year to 508 homes in May 2018, according to TREB data. Compared to the April 2017 peak of 1,362 sales in that price range, sales in May collapsed by 63%. But it’s not just at the high end. At the low end too. In May, sales of homes below C$500,000 – about 68% of them were condos – fell by 36% year-over-year to 5,253 homes. The TREB publishes two types of prices – the average price and its proprietary MLS Home Price Index based on a “composite benchmark home.” Both fell in May compared to a year ago.

The average price in May for the Greater Toronto Area (GTA) fell 6.6% year-over-year to C$805,320, and is now down 12.3%, or an ear-ringing C$113,000, from the crazy peak in April 2017. There are no perfect measures of home prices in a market. Each has its own drawbacks. Average home prices can be impacted by the mix and by a few large outliers – but over the longer term, it gives a good impression of the direction. The chart below shows thepercentage change in average home prices in the GTA compared to a year earlier:

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Because the boom was a bubble.

Why Australia’s Great Banking Boom Has Ended (SMH)

It doesn’t feel all that long ago that Australian banks were the envy of the world. In March 2009, when stress-testing of US financial institutions drove the final spasm of the previous year’s credit crisis, you could have bought all the shares in Citigroup, Royal Bank of Scotland Group and Barclays with their $US8.4 trillion ($11 trillion) of gross assets for less than you’d pay for the equity of Westpac, with $US347 billion of assets. Commonwealth Bank of Australia’s share price peaked six years later just a sliver south of three times the value of its net assets, an extraordinary level in a business where price-book ratios have struggled to break above one times over the past decade.

With the current Royal Commission inquiring into practices in the country’s financial services industry and a slew of court cases, those high-flyers have come to earth with a bump. CBA on Monday agreed to pay $700 million to settle a money laundering case in which it admitted that a software update allowed about 54,000 reportable transactions to go unreported over a period of almost three years. On Friday, ANZ and local units of Deutsche Bank and Citigroup announced they were facing possible criminal cartel charges over their handling of a $2.5 billion placement of ANZ shares in 2015. Having executives hauled up before government inquiries and paying out hundreds of millions in court settlements isn’t great for headlines, but it would be a mistake to see the declines in Australia’s banking sector as purely a result of this.

When your annual net income is in the region of $10 billion, as CBA’s is, a $700 million charge is more than just a rounding error. But the 1.2 per cent jump in the company’s stock after the settlement was announced Monday is an indication that the cost is worth less to shareholders than the benefit of putting the issue firmly in the past. The greater risk to Australia’s banks lurks not in the papers of regulators and inquisitors, but on the streets of the country’s sprawling suburbs. As we’ve argued before, the most ominous indicator to watch is also a favourite one of the Reserve Bank of Australia. Rents, as measured by the Australian Bureau of Statistics, have been increasing at less than 1 per cent for nine consecutive quarters , the worst performance for the measure since the housing crash of the early 1990s.

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The spirit of Steve Jobs?!

Apple Jams Facebook’s Web-Tracking Tools (BBC)

Apple will attempt to frustrate tools used by Facebook to automatically track web users, within the next version of its iOS and Mac operating systems. “We’re shutting that down,” declared Apple’s software chief Craig Federighi, at the firm’s developers conference. He added that the web browser Safari would ask owners’ permission before allowing the social network to monitor their activity. The move is likely to add to tensions between the two companies. Apple’s chief executive Tim Cook had previously described Facebook’s practices as being an “invasion of privacy” – an opinion Facebook’s founder Mark Zuckerberg subsequently denounced as being “glib”.

At the WWDC conference – held in San Jose, California – Mr Federighi said that Facebook keeps watch over people in ways they might not be aware of. “We’ve all seen these – these like buttons, and share buttons and these comment fields. “Well it turns out these can be used to track you, whether you click on them or not.” He then pointed to an onscreen alert that asked: “Do you want to allow Facebook.com to use cookies and available data while browsing?” “You can decide to keep your information private.”

One cyber-security expert applauded the move. “Apple is making changes to the core of how the browser works – surprisingly strong changes that should enable greater privacy,” said Kevin Beaumont. “Quite often the changes companies make around privacy are small, incremental, they don’t shake the market up much. “Here Apple is allowing users to see when tracking is enabled on a website – actually being able to visually see that with a prompt is breaking new ground.”

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Building on the Ring of Fire.

A West Coast State of Mind (Jim Kunstler)

It’s only been in the last thirty years that Seattle hoisted up its tombstone cluster of several dozen office and condo towers. That’s what cities do these days to demonstrate their self-regard, and Seattle is perhaps America’s boomingest city, what with Microsoft’s and Amazon’s headquarters there — avatars of the digital economy. A megathrust earthquake there today would produce a scene that even the computer graphics artistes of Hollywood could not match for picturesque chaos. What were the city planners thinking when they signed off on those building plans?

I survived the journey through the Seattle tunnel, dogged by neurotic fantasies, and headed south to California’s Bay Area, another seismic doomer zone. For sure I am not the only casual observer who gets the doomish vibe out there on the Left Coast. Even if you are oblivious to the geology of the place, there’s plenty to suggest a sense of impossibility for business-as-usual continuing much longer. I got that end-of-an-era feeling in California traffic, specifically driving toward San Francisco on the I-80 freeway out in the suburban asteroid belt of Contra Costa County, past the sinister oil refineries of Mococo and the dormitory sprawl of Walnut Creek, Orinda, and Lafayette.

Things go on until they can’t, economist Herb Stein observed, back in the quaint old 20th century, as the USA revved up toward the final blowoff we’ve now entered. The shale oil “miracle” (so-called) has given even thoughtful adults the false impression that the California template for modern living will continue indefinitely. I’d give it less than five years now.

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Snowden deserves as much support as Assange does.

Edward Snowden: ‘The People Are Still Powerless, But Now They’re Aware’ (G.)

Edward Snowden has no regrets five years on from leaking the biggest cache of top-secret documents in history. He is wanted by the US. He is in exile in Russia. But he is satisfied with the way his revelations of mass surveillance have rocked governments, intelligence agencies and major internet companies. In a phone interview to mark the anniversary of the day the Guardian broke the story, he recalled the day his world – and that of many others around the globe – changed for good. He went to sleep in his Hong Kong hotel room and when he woke, the news that the National Security Agency had been vacuuming up the phone data of millions of Americans had been live for several hours.

Snowden knew at that moment his old life was over. “It was scary but it was liberating,” he said. “There was a sense of finality. There was no going back.” What has happened in the five years since? He is one of the most famous fugitives in the world, the subject of an Oscar-winning documentary, a Hollywood movie, and at least a dozen books. The US and UK governments, on the basis of his revelations, have faced court challenges to surveillance laws. New legislation has been passed in both countries. The internet companies, responding to a public backlash over privacy, have made encryption commonplace.

Snowden, weighing up the changes, said some privacy campaigners had expressed disappointment with how things have developed, but he did not share it. “People say nothing has changed: that there is still mass surveillance. That is not how you measure change. Look back before 2013 and look at what has happened since. Everything changed.” The most important change, he said, was public awareness. “The government and corporate sector preyed on our ignorance. But now we know. People are aware now. People are still powerless to stop it but we are trying. The revelations made the fight more even.”

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Bayer-Monsanto: “It will effectively control nearly 60% of the world’s supply of proprietary seeds, 70% of the chemicals and pesticides used to grow food, and most of the world’s GM crop genetic traits..”

Who Should Feed The World: Real People Or Faceless Multinationals? (Vidal)

Unless there is a major hiccup in the next few days, an incredibly powerful company will shortly be given a licence to dominate world farming. Following a nod from Donald Trump, powerful lobbying in Europe and a lot of political arm-twisting on several continents, the path has been cleared for Monsanto, the world’s largest seed company, to be taken over by Bayer, the second-largest pesticide group, for an estimated $66bn (£50bn). The merger has been called both a “marriage made in hell” and “an important development for food security”.

Through its many subsidiary companies and research arms, Bayer-Monsanto will have an indirect impact on every consumer and a direct one on most farmers in Britain, the EU and the US. It will effectively control nearly 60% of the world’s supply of proprietary seeds, 70% of the chemicals and pesticides used to grow food, and most of the world’s GM crop genetic traits, as well as much of the data about what farmers grow where, and the yields they get. It will be able to influence what and how most of the world’s food is grown, affecting the price and the method it is grown by. But the takeover is just the last of a trio of huge seed and pesticide company mergers.

Backed by governments, and enabled by world trade rules and intellectual property laws, Bayer-Monsanto, Dow-DuPont and ChemChina-Syngenta have been allowed to control much of the world’s supply of seeds. You might think that these mergers would alert the government, but because political parties in Britain are so inward-looking, and because most farmers in rich countries already buy their seeds from the multinationals, opposition has barely been heard.

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 May 31, 2018  Posted by at 9:07 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh The sower 1888

 

Liquidity Crisis Coming: Here, There, Everywhere (Mish)
The Trump Effect Is Keeping Bull Market Alive – Robert Shiller (CNBC)
Global Growth Too Dependent On Cheap Borrowing – OECD (G.)
The Euro Has To Be Abandoned If Europe Is To Be Saved (Syll)
Italy Crisis: Workers Are Paying For Decisions Made Nearly 30 Years Ago (Clark)
Italy Crisis Dents Greek Hopes Of Returning To Bond Markets (G.)
Eurozone, IMF Seek Last-Minute Deal On Greek Debt Relief At G7 This Week (R.)
Fed Proposes Changes To Rule Limiting Risky Trading On Wall Street (AP)
US To Hit EU With Steel And Aluminum Tariffs (G.)
Abe Slams US Vehicle Tariff Hikes As ‘Unacceptable’ (JT)
George Osborne’s London Evening Standard Sells Its Editorial Independence (OD)
Bayer Wins US Nod For Monsanto Deal To Create Agrochemical Giant (R.)
The British Countryside Is Being Killed By Herbicides And Insecticides (G.)

 

 

Nuts all around.

Liquidity Crisis Coming: Here, There, Everywhere (Mish)

The problem is global. Central bank actions explain most of what you need to know. Italian bonds provide a good example. Despite the recent, massive selloff in Italian bonds, 10-year Italian bonds still trade at roughly the same yield as US 10-year bonds. Is there no default risk? No eurozone exit risk? Of course there is. But those bonds trade where they do because the ECB is engaged in QE to a far greater extent than the the Fed ever did. How nuts is that? 88% of the S&P is with Vanguard, BlackRock, and State Street. How nuts is that? Close to $7 trillion in bonds trade with a negative yield. The figure was close to $10 trillion at one point. How nuts is that?

According to LCD, covenant-lite loan now account for a record 75% of the roughly $970 billion in outstanding U.S leveraged loans. Covenant-lite agreements vary, but they allow things like paying interest with more debt rather than cash or skipping repayments entirely for periods of time. How nuts is that? This is totally nuts, across the board. Puplava calls it “mindless”. I suspect he would be the first to admit that he seriously understated the concern. My “totally nuts” position is also too mild, but I also struggle for the precise words. A global liquidity crisis looms. It is entirely central-bank sponsored. Just don’t expect me, Puplava, or anyone else to tell you precisely when the crisis will hit. But it will. And when it does, don’t fool yourself into believing that you can necessarily escape in time.

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How to keep everything overpriced.

The Trump Effect Is Keeping Bull Market Alive – Robert Shiller (CNBC)

Nobel Prize-winning economist Robert Shiller hasn’t been the most optimistic voice on Wall Street, but he isn’t writing off the bull market. His chief reason: President Donald Trump’s pro-business influence. “There is a sort of optimism about the markets under Trump, and that’s continuing. I don’t see a reason for it about to change,” the Yale professor said Tuesday on CNBC’s “Trading Nation.” “There’s something about how the world is reacting to the president. Something about his self-confidence which is gradually lifting our spirits.” Shiller believes the momentum is so powerful, it’s essentially propping up a bull market that is getting long in the tooth.

“We’ve seen an overpriced stock market. We’ve seen concerns about that for years now,” he said. Shiller acknowledged it’s definitely possible the U.S. stock market could generate gains this year, but he warned the Trump effect “is not a very reliable thing.” So, he said the best strategy is to diversify abroad in this environment. “If you have been overexposed to the United States in your portfolio, this is a time to reconsider that,” Shiller said. “Not to pull out, but to balance things … Europe is cheaper than the U.S..”

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These clowns really believe this: “self-sustaining growth”.

Global Growth Too Dependent On Cheap Borrowing – OECD (G.)

Unemployment will drop to its lowest level since 1980 across the world’s richest nations, but global growth remains dependent on cheap borrowing and government spending, the Organisation for Economic Cooperation & Development (OECD) has warned in its latest global economy health check. The rise of tit-for-tat protectionist trade barriers, the return of volatile financial markets, and soaring oil prices also spell trouble for the global economy as it heads towards the 10-year anniversary of the 2008 banking collapse, the OECD said.

“The economic expansion is set to continue for the coming two years, and the short-term growth outlook is more favourable than it has been for many years,” said Angel Gurría, secretary general of the OECD, the Paris based thinktank for the world’s 35 richest nations, including the US, Britain, Brazil, Mexico and Russia. “However, the current recovery is still being supported by very accommodative monetary policy, and increasingly by fiscal easing. This suggests that strong, self-sustaining growth has not yet been attained.” Central banks in Britain, the eurozone, Japan and the US have kept interest rates low and pumped funds into their economies via quantitative easing to maintain investment and promote growth. Governments have eased back on austerity measures, allowing more state funds for infrastructure projects and welfare payments, especially pensions.

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In the end, people want to keep sovereignty. Which has largely been sold off by their leaders.

The Euro Has To Be Abandoned If Europe Is To Be Saved (Syll)

The euro has taken away the possibility for national governments to manage their economies in a meaningful way – and in Italy, just as in Greece a couple of years ago, the people have had to pay the true costs of its concomitant misguided austerity policies. The unfolding of the repeated economic crises in euroland during the last decade has shown beyond any doubts that the euro is not only an economic project but just as much a political one. What the neoliberal revolution during the 1980s and 1990s didn’t manage to accomplish, the euro shall now force on us.

But do the peoples of Europe really want to deprive themselves of economic autonomy, enforce lower wages and slash social welfare at the slightest sign of economic distress? Is increasing income inequality and a federal Uberstate really the stuff that our dreams are made of? I doubt it. History ought to act as a deterrent. During the 1930s our economies didn’t come out of the depression until the folly of that time, the gold standard, was thrown on the dustbin of history. The euro will hopefully soon join it.

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Countries will be forced to leave.

Italy Crisis: Workers Are Paying For Decisions Made Nearly 30 Years Ago (Clark)

You could say that Italy’s current problems – indeed all of Europe’s economic woes – go back to the early 1990s, when wrong-headed decisions were made by the European elite and enshrined in the Maastricht Treaty – which workers have been paying for ever since. Cuts in public spending have increased unemployment, which in turn has increased the deficit, which has led to more cuts, and so on and so on. Italy‘s National Debt is now 132% of its GDP. Although growth rates are now positive, its average annual rate of growth from 1999-2016 was zero. With 31.7% youth unemployment, La Dolce Vita and Ryan Paris’s catchy song, is a long distance memory.

The tragedy is that it was all so predictable. One man who warned what Europe was letting itself in for in the rush to squeeze as many countries as possible into the Eurozone, was the late Labour politician Peter Shore, the UK’s secretary of state for economic affairs from 1967-69 and trade minister from 1974-6. In the early-to-mid 1990s I was teaching economics in Switzerland and was in correspondence with Shore. He very kindly sent me copies of parliamentary debates where he had railed against the Maastricht Treaty and its imposition of a financial strait-jacket on EEC/EU members – regardless of the state of their economies.

Shore told the House of Commons on March 24, 1993: “The most astonishing omission from the treaty is the fact that it never faces the issue of the counter-recession policy, about which it contains not a word. One lesson that we should have learned from the disasters of the inter-war years was that tendency to go too high in a boom, and too low in recession and slump. “Why is that aspect not written into the protocol? Why does it not say that we must recognise those counter-cyclical problems, and will certainly do so if unemployment grows by X per cent? Instead of having merely 3% and 60% for borrowing and debt, why not have 3, 4 or 5% of the level of unemployment or the fall in GDP?”

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“Events in Italy are changing everything.”

Italy Crisis Dents Greek Hopes Of Returning To Bond Markets (G.)

Greece is watching the unfolding crisis in Italy with growing nervousness. Events in Rome are eliciting a sense of deja vu in Athens, the capital long on the frontline of the eurozone crisis. And nerves are being rattled. “We want a stable, democratic and pro-European Italy,” the country’s foreign minister, Nikos Kotzias, told reporters. “We are worried that if there is instability and it has an impact on the financial situation, this could create problems for us.” The turmoil in Italy could not come at a worse time for Greece. After almost a decade of exclusion from international markets, the debt-stricken nation had set its sights on returning to much-needed normality this summer.

Hopes had been high that when it emerged from its third multi-billion EU-funded bailout programme, Athens would regain market access. But on Wednesday government officials, bankers and analysts were decidedly downbeat. All agreed that with political uncertainty raging across the Ionian Sea, and global investors jittery, the prospect of Greece tapping markets any time soon was beginning to resemble a pipe dream. With soaring bond yields – interest rates on government borrowing – it was out of the question the country could afford the interest rates that would allow it to assume the mantle of post-bailout normality.

“What is happening in Italy worries us immensely,” a senior Bank of Greece official said. “The bond markets have gone mad in southern Europe. With such yields it is totally prohibitive that Greece could return to them when the programme ends.” [..] Italy’s financial turmoil has put hopes of “a clean exit,” on the back burner. “The government’s narrative of clean breaks, and going it alone, is over for now,” a well-placed official conceded. “Events in Italy are changing everything.”

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With Italy on the horizon? It amkes little difference, nobody wants to reduce the principal of the debt. And that is what is needed.

Eurozone, IMF Seek Last-Minute Deal On Greek Debt Relief At G7 This Week (R.)

Euro zone policy-makers will seek last-minute backing this week from the IMF for their debt-relief offer to Greece, to ensure it is credible with markets and draws investors back to Greece after it exits its bailout. The talks are to take place on the sidelines of a meeting of in Canada of finance ministers and central bankers from the world’s top seven economies, the G7, in June, officials involved in the negotiations said. The bailout ends on Aug. 20. “This thing has to be done now,” one senior official involved in the talks said. If no deal is agreed by next Monday, the official said, the IMF would most likely not take part in the bailout at all.

After three successive bailouts since Athens lost market access in 2010, euro zone governments are now Greece’s main creditors, with total loans of €230 billion so far. The IMF took part in the first two bailouts, but has refused to join in the third, which began in 2015. It says the euro zone must agree on how to make Greek debt, now at 179% of GDP, sustainable. Euro zone finance ministers have argued they can only give such details towards the end of the three-year bailout. So the IMF has remained only an observer over the past three years. [..] The IMF and the euro zone agree there should be no “haircut” – a reduction in the principal of the debt – but only an extension of maturities and grace periods.

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I smell bailouts.

Fed Proposes Changes To Rule Limiting Risky Trading On Wall Street (AP)

The Federal Reserve is proposing to ease a rule aimed at defusing the kind of risk-taking on Wall Street that helped trigger the 2008 financial meltdown. The Fed under new leadership on Wednesday unveiled proposed changes to the Volcker Rule, which bars banks’ risky trading bets for their own profit with depositors’ money. The high-risk activity is known as proprietary trading. The proposed changes would match the strictest applications of the rule to banks that do the most trading – 18 banks with at least $10bn in trading assets and liabilities. They account for 95% of all US bank trading and include some foreign banks with US operations, Fed officials said.

Less stringent requirements would apply to banks that do less trading. The idea is to make it easier for banks to comply with the Volcker Rule without sacrificing the banks’ safety and soundness, the officials said. “The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance,” Fed chair Jerome Powell said at a meeting of the Fed governors. “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

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The EU is not about to give in.

US To Hit EU With Steel And Aluminum Tariffs (G.)

The Trump administration is reportedly planning to impose import tariffs on European steel and aluminum after finding no satisfaction in its effort to win trading concessions on the issue. An announcement dropping the EU from an exemption to global tariffs of 25% on imported steel, and 10% on aluminum, could come on Thursday, according to the Wall Street Journal. The move is likely to bring retaliatory action from European Union trade regulators who have warned they will target American products as motorcycles, jeans and bourbon if additional US tariffs are imposed.

Signs of increasing friction between the US and Europe over trade came early Wednesday when Wilbur Ross, the US commerce secretary, drew a sharp line with the EU over Chinese trade negotiations, telling counterparts at a trade development panel in Paris that Europe is using tariffs as an “excuse” to refuse trade negotiations. “China are paying their tariffs,” Ross told the panel. “China hasn’t used that as an excuse not to negotiate … It’s only the EU that is insisting we can’t negotiate if there are tariffs,” he added. Ross’s comments were made in response to EU criticism of import tariffs the Trump administration imposed on dozens of trade partners in March. On Tuesday, the White House added $50bn in new tariffs despite telling China the trade dispute was “on hold” while negotiations continued.

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Make Detroit great again.

Abe Slams US Vehicle Tariff Hikes As ‘Unacceptable’ (JT)

Prime Minister Shinzo Abe on Wednesday condemned U.S. President Donald Trump’s reported move to impose tariffs of up to 25% on imported vehicles as unwarranted and offensive. “If the U.S. slaps Japan, its ally, with tariffs like this, that would be incomprehensible and unacceptable,” Abe told the head of the Democratic Party for the People, Yuichiro Tamaki, during a debate between party leaders in the Diet. The Trump administration recently launched a Section 232 national security probe into whether vehicle and parts imports are harming the U.S.’s domestic auto industry — a step that could provide Trump with the legal basis to institute tariffs.

The move followed yet another surprise announcement by the Trump administration in March that Japan, unlike Washington’s other key allies and partners, wouldn’t be excluded from steel and aluminium tariffs. Tamaki said the hike, if realized, would “deal a severe blow to Japan’s economy.” “Did you get an advance notice on this measure?” Tamaki asked Abe. “You yourself often claim that Japan and the U.S. are 100% together. If there had been no heads-up from the U.S. side on this matter, I’d have to suspect that we may not be seen as their ally.” Abe dodged Tamaki’s question, but stressed he had explained to Trump in their past conversations that Japanese automobile makers are “vastly contributing” to the U.S. economy by creating jobs.

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Why am I not surprised?

George Osborne’s London Evening Standard Sells Its Editorial Independence (OD)

London’s Evening Standard newspaper, edited by the former chancellor George Osborne, has agreed a £3 million deal with six leading commercial companies, including Google and Uber, promising them “money-can’t-buy” positive news and “favourable” comment coverage, openDemocracy can reveal. The project, called London 2020, is being directed by Osborne. It effectively sweeps away the conventional ethical divide between news and advertising inside the Standard – and is set to include “favourable” news coverage of the firms involved, with readers unable to differentiate between “news” that is paid-for and other commercially-branded content.

Leading companies, most operating global businesses, were given detailed sales presentations by Evening Standard executives at the newspaper’s west London offices in an effort to sign them up to the lucrative deal. Among those that have paid half a million pounds each to be involved are international taxi-app firm Uber, which is facing an imminent court appeal against the decision to cancel its licence to operate in London. The Evening Standard has previously come under fire for not declaring Osborne’s £650,000-a-year part time job with the fund managers BlackRock, who hold a £500m stake in Uber.

The global tech giant, Google, still recovering from reputational damage over its low UK tax bills and criticism over its close relationship to the Cameron-Osborne government, has also signed up. Some companies, including Starbucks, walked away from the Evening Standard’s pitch, rejecting the offer of paying to boost their reputations through tailored news and comment. London 2020 is scheduled to start on June 5. Unbranded news stories, expected to be written by staff reporters – but paid for by the new commercial “partners” as part of the 2020 deal – have already been planned for inclusion in the paper’s news pages within a week of the project’s launch.

The London Evening Standard has a circulation of close to 900,000 and distributes more copies within a two-mile radius of Westminster than the Times does across the UK nationally. Many London commuters, who pick up their free copy of the Standard at underground and rail stations, will be unaware that they will be reading paid-for news coverage that is part of a wider commercial deal. An increasing number of British newspapers often carry “native advertising”, essentially paid-for commercials designed to look like independent editorial articles.

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It is a sad day.

Bayer Wins US Nod For Monsanto Deal To Create Agrochemical Giant (R.)

Bayer won U.S. approval for its planned takeover of Monsanto after agreeing to sell about $9 billion in assets, clearing a major hurdle for the $62.5 billion deal that will create by far the largest seeds and pesticides maker. Makan Delrahim, who heads the U.S. Justice Department’s (DoJ) Antitrust Division, said the asset sales agreed to by Bayer were the “largest ever divestiture ever required by the United States.” A Bayer spokesman said the planned sale of businesses with 2.2 billion euros ($2.54 billion) in sales to BASF already agreed to address antitrust concerns, mainly in Europe, were not materially different from the DoJ’s demands. “Receipt of the DOJ’s approval brings us close to our goal of creating a leading company in agriculture,” Bayer CEO Werner Baumann said in a statement.

Bayer’s move to combine its crop chemicals business, the world’s second-largest after Syngenta, with Monsanto’s industry-leading seeds business, is the latest in a series of major agrochemicals tie-ups. U.S. chemicals giants Dow Chemical and DuPont merged in September 2017 and are now in the process of splitting into three units. In other consolidation in the sector, China’s state-owned ChemChina purchased Syngenta and two huge Canadian fertilizer producers merged to form a new company, now called Nutrien. Bayer committed to selling its entire cotton, canola, soybean and vegetable seeds businesses and digital farming business, as well its Liberty herbicide, which competes with Monsanto’s Roundup.

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As the industry that produces them gets bigger.

The British Countryside Is Being Killed By Herbicides And Insecticides (G.)

In June 2011 I took a long drive up the A1, the Great North Road. At Scotch Corner I turned for Barnard Castle. The villages were well kept, the countryside was green, the fields dotted with sheep. Everything was normal. Or so I thought. Beyond Barnard Castle I took a narrow lane into part of Upper Teesdale and suddenly colours exploded along the roadside. I stopped the car and jumped out. There was a bed of orchids, hundreds of them, and behind that, billowing banks of violet, scarlet, white, yellow and cornflower blue. I had seen alpine meadows, but this took my breath away. Further into the dale I found a footpath that led me down beside a shady brook. There were more orchids of a different species and a grass snake hunting frogs in a pool.

Out in the open again, there was the haunting cry of curlews overhead, then redshanks, plovers and snipe. I spent two days up there, talking to environmentalists and farmers involved in the upland hay meadow project for the North Pennines area of outstanding natural beauty (AONB). The landowners were being paid to restrict the use of fertiliser, not employ herbicides, and stop grazing after mid-May. Together with some seeding programmes and careful monitoring, the meadows had become magnificent. When I drove back home, I came down to a countryside where the only flowers were dandelions, watched over by crows. The monotonous green of the rye grass was unbroken. Compared to what I had just experienced, it felt like a desert. I felt cheated. My entire adult life had been spent admiring a shoddy and simplified reproduction, a poor impersonation of a much-loved friend.

[..] Seven years on, the statistics for the British countryside are heartbreaking. Over a quarter of all British birds are under threat, eight species are almost extinct. Three-quarters of all flying insects have disappeared since 1945, including a staggering 60 different moths. Orchid ranges have shrunk by half; two species are gone. The State of Nature 2016 report described Britain as being “among the most nature-depleted countries in the world”. [..] 40% of all species are in moderate or steep decline. Over a quarter of the hedgehog population has disappeared in a decade. Toads are down 68% in 30 years, water voles are no longer found in 94% of the places where they once lived. Likewise mountain hares are in steep decline, as are rabbits. Even that great survivor, the fox, has lost over 40% of its population.

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May 282018
 


Brassaï La Bande du Grand Albert 1931-32

 

President Mattarella Of Italy: From Moral Drift To Tactical Blunder (Varoufakis)
Italy President Vetoes Savona As Economy Minister, May Mean New Election (R.)
Italy’s President Calls In Former IMF Official Amid Political Turmoil (R.)
First Greece, Now Italy, Portugal Next? (ZH)
Corporate Debt Soars While Credit Ratings Fall (Harry Dent)
Fed Relies On Biased Data That Makes ‘B- Economy’ Look Like ‘A+’ – Bianco (CNBC)
Blowing Up the Iran Deal Brings Eurasia Closer to Integration (Pieraccini)
Sudden Chaos In Spanish Politics (Spain Report)
Spain Struggling To Deal With Escalating Migration Crisis (G.)
Google, Facebook Hit With $8.8 Billion In Lawsuits on New EU Privacy Rules (ZH)
US Congressman: F-35s Could Be ‘Used Against Greece’ If Sold To Turkey (K.)
Huge Rise In Food Redistribution To People In Need Across UK (G.)
In Britain, Austerity Is Changing Everything (NYT)
‘We’re Gonna Keep Riding Till We Get Everybody Back Home, From All Wars’ (AFP)

 

 

“The formation of another ‘technical’ government, under a former IMF apparatchik, is a fantastic gift to Mr Salvini.”

President Mattarella Of Italy: From Moral Drift To Tactical Blunder (Varoufakis)

I concede that there are issues over which I would welcome the Italian President’s use of constitutional powers that (in my humble opinion) he should not have. One such issue is the outrageous policy of the Lega and the promise of its leader, Mr Salvini, to expel five hundred thousand migrants from Italy. Had President Mattarella refused Mr Salvini the post of Interior Minister, on the basis that he rejects such a monstrous project, I would be compelled to support him. But, no, Mr Mattarella had no such qualms. Not even for a moment did he consider vetoing the formation of a 5S-Lega government on the basis that there is no place in a European country for scenes involving security forces rounding up hundreds of thousands of people, caging them, and forcing them into trains, buses and ferries before expelling them goodness knows where.

No, Mr Mattarella vetoed the formation of a government backed by an absolute majority of lawmakers for another reason: His disapproval of the Finance Minister designate. And what was this disapproval based on? The fact that the said gentleman, while fully qualified for the job, and despite his declaration that he would abide by the EU’s eurozone rules, has in the past expressed doubts about the eurozone’s architecture and has favoured a plan of euro exit just in case it is needed. It was as if President Mattarella were to declare that reasonableness in a prospective Finance Minister constitutes grounds for his or her exclusion from the post!

Let’s face it: There is no thinking economist anywhere in the world who does not share a concern about the eurozone’s faulty architecture. And there is no prudent finance minister who does not have a plan for euro exit; indeed, I have itr on good authority that the German finance ministry, the ECB, every major bank and corporation have plans in place for the possible exit from the eurozone of Italy, even of Germany. Is Mr Mattarella telling us that only the Italian Finance Minister is not allowed to imagine having such a plan? Beyond his moral drift (as he condones Mr Salvini’s industrial-scale misanthropy while vetoing a legitimate concern about the eurozone’s capacity to let Italy breathe in its midst), President Mattarella has made a major tactical blunder.

In short, he fell right into Mr Salvini’s trap. The formation of another ‘technical’ government, under a former IMF apparatchik, is a fantastic gift to Mr Salvini. Mr Salvini is secretly salivating at the thought of another election – one that he will fight not as the misanthropic, divisive populist that he is but as the defender of democracy against the Deep Establishment. Already last night hescaled the high moral with the stirring words: “Italy is not a colony, we are not slaves of the Germans, the French, the spread or finance.”

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More than half of Italy feel utterly betrayed by their own president.

Italy President Vetoes Savona As Economy Minister, May Mean New Election (R.)

Italy’s president rejected Prime Minister-designate Giuseppe Conte’s pick for the economy ministry, a political source said on Sunday, a veto that may lead to another election this year.Conte, a little-known law professor with no political experience, took his list of ministers to President Sergio Mattarella, but the president rejected Conte’s candidate to the Economy Ministry, the 81-year-old eurosceptic economist Paolo Savona. Before Conte or Mattarella had finished their meeting, far-right League leader Matteo Salvini said that the only option now was to hold another election, probably later this year, without directly confirming the president’s veto.

“In a democracy, if we are still in democracy, there’s only one thing to do, let the Italians have their say,” Salvini said in a fiery speech to supporters in central Italy. Salvini and 5-Star leader Luigi Di Maio had met Mattarella informally on Sunday to try to find a solution. “The problem is Savona,” the coalition source said, explaining that the economist had not sufficiently softened some of his more eurosceptic positions. On Sunday, Savona tried to allay concerns about his views in his first public statement on the matter. Savona has been a vocal critic of the euro and the EU, but he has distinguished credentials, including as industry minister in the early 1990s. “I want a different Europe, stronger, but more equal,” Savona said in a statement.

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Another technocrat. That won’t go well this time around.

Italy’s President Calls In Former IMF Official Amid Political Turmoil (R.)

Italy’s president is expected to ask a former IMF official on Monday to head a stopgap government amidst political and constitutional turmoil, with early elections looking inevitable. President Sergio Mattarella has called in Carlo Cottarelli after two anti-establishment parties angrily abandoned their plans to form a coalition in the face of a veto from the head of state over their choice of economy minister. In a televised address, Mattarella said he had rejected the candidate, 81-year-old eurosceptic economist Paolo Savona, because he had threatened to pull Italy from the single currency. “The uncertainty over our position has alarmed investors and savers both in Italy and abroad,” he said, adding: “Membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion.”

Financial markets tumbled last week on fears the coalition being discussed would unleash a spending splurge and dangerously ramp up Italy’s already huge debt, which is equivalent to more than 1.3 times the nation’s domestic output. After Mattarella’s move, the euro gained ground, adding 0.6% against the Japanese yen and ticking up against other major trading partners as well. The far-right League and anti-establishment 5-Star Movement, which had spent days drawing up a coalition pact aimed at ending a stalemate following an inconclusive March vote, responded with fury to Mattarella, accusing him of abusing his office.

5-Star leader Luigi Di Maio called on parliament to impeach the mild-mannered Mattarella, while League chief Matteo Salvini threatened mass protests unless snap elections were called. “If there’s not the OK of Berlin, Paris or Brussels, a government cannot be formed in Italy. It’s madness, and I ask the Italian people to stay close to us because I want to bring democracy back to this country,” Salvini told reporters. [..] Cottarelli would be a calming choice for the financial markets, but any technocratic administration would likely only be a short-term solution because the majority of parliamentarians have said they would not support such a government.

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Portugal is supposed to be the Prince of the PIIGS.

First Greece, Now Italy, Portugal Next? (ZH)

While most investors are focused on Italian politics – the parallel currency ‘mini-BoT’ fears and potential for a constitutional crisis – Spain is now facing its own political crisis amid calls for a no-confidence vote against Rajoy. However, ‘Spaxit’ remains a distant concern for investors as another member of the PIIGS peripheral problems is starting to signal concerns about ‘Portugone’?

And the fundamental data confirms Portugal is next in line for a debt crisis… As Statista’s Brigitte van de Pas notes, on average, European Union countries had a gross government debt of roughly 81% of GDP in 2018. This average disguises real differences between EU countries. Whereas Greece had a government debt of 177.8% in 2018, Estonia had a debt of only 8.8% – the lowest in the entire EU zone.

While, the high Greek debt is well-known, a number of other countries however also have a debt that is higher than their own GDP. The Italian debt, for example, is lower than the Greek but still significant, at over 130% of GDP. Portugal, in third place, had a debt of 122.5%. One small positive note though: all three countries had even higher debts in 2017, and the European Commission forecasted a slow, but further decrease of their government debt in 2019. Whether this holds true for Italy, with their newly-elected government of Movimento 5 Stelle and Lega remains to be seen.

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“U.S. corporate debt has risen from $40 trillion to $70 trillion since the top of the last bubble in 2007. That’s 63% in 10 years. It’s risen 135% since 2000! [..] China is the worst by far, going from $6 to $36 trillion or a 500% increase!”

Corporate Debt Soars While Credit Ratings Fall (Harry Dent)

[First], Congress’s approving a bill to roll back the Dodd-Frank Act. If this passes, smaller financial institutions will find relief from the strict rules that have applied to Wall Street banks since after the 2008 crisis. This is sheer idiocy! It will not end well. The second is the U.S. corporate debt is suffering one of its worst sell-offs since 2000. This is another disaster in the making. U.S. corporate debt has risen from $40 trillion to $70 trillion since the top of the last bubble in 2007. That’s 63% in 10 years. It’s risen 135% since 2000! Only government debt has risen faster, from $35 to $64 trillion, or 83%. China is the worst by far, going from $6 to $36 trillion or a 500% increase! Of course, many of these bonds are simply financial engineering to buy back stock to increase earnings per share.

Uber-low long-term interest rates thanks to QE have allowed companies to do this cheaply. The problem is these long-term rates have been rising since just July 2016. They’ve gone from 1.38% to 3.10%. That’s an increase of 172 basis points in the risk-free 10-year Treasury bond. That naturally reverberates up through the risk spectrum from investment grade corporate bonds to junk bonds. You see, here’s the thing…Governments have artificially pushed down bond yields for so long that companies have embraced speculation rather than productive investment (i.e. they’re not spending money on productive assets that will serve them and the economy well in the long-term). This mentality only creates financial asset bubbles that burst.

When companies buy back their own shares at historically high valuations, they’re speculating, just like an investor or hedge fund. When stocks crash ahead, shareholders will demand to know why these corporations used the money they will need to survive the crisis to speculate in their own stock… at the highest prices in history! Well, as the numbers are now showing, this corporate bond bubble is starting to burst, and of course that will ultimately hit junk bonds the worst… then stocks and real estate. But the real story here is that we’ve been in this bond bubble since 1981. And the quality of this corporate debt has been falling for nearly 40 years now. QE has only accelerated the decline. We’re now at the point where the median corporate bond rating is borderline junk…

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You don’t say…

Fed Relies On Biased Data That Makes ‘B- Economy’ Look Like ‘A+’ – Bianco (CNBC)

A veteran market researcher is out with a warning — saying the Federal Reserve is relying too heavily on economic surveys skewed by social media to mold their policies. According to Bianco Research President James Bianco, most economists mistakenly believe that leading indicators are signaling an “A+” economy that can withstand rising interest rates. “It’s more like a B- economy,” he told CNBC’s “Trading Nation” on Friday. “It’s not this screaming home run that everybody thinks it is based on the survey data.” Bianco said social media is creating the bandwagon effect among survey respondents, a psychological phenomenon characterized by people following the herd.

“The advent of social media is allowing us basically to be inundated with financial news or economic news,” he said, adding the bulk of the news about the world’s largest economy has been largely favorable. “When somebody is asked ‘what do you think about the economy,” they are not answering ‘what do you think about the economy,’ Bianco said. “They are answering ‘What have you read about the economy?'” Bianco fears the Fed will make a policy error based on respondents’ answers. “Economists like at the Fed say ‘Wow, look at that data. It’s even better than we thought. We have to raise rates even faster,'” he said, adding that the tightening could derail the bull market. “The 10-Year [yield] could very well be at 3% by the end of next year with a 3% funds rate,” Bianco said. “[That’s when] you get an inverted yield curve.”

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Nobo’s popular at home anymore. Except for Putin.

Blowing Up the Iran Deal Brings Eurasia Closer to Integration (Pieraccini)

Washington finds itself increasingly isolated in its economic and military policies. Merkel’s visit to Russia reaffirms the desire to create an alternative axis to the one between Brussels and Washington. The victory in Italy of two parties strongly opposed to new wars and the annulment of the JCPOA, and especially the sanctions against Russia, serves to form a new alliance, accentuating internal divisions within Europe. Macron, Merkel and May are all grappling with a strong crisis of popularity at home, which does not aid them in their decision-making. Exactly the same problems affect MbS, Trump, and Netanyahu in their respective countries. These leaders find themselves adopting aggressive policies in order to alleviate internal problems.

They also struggle to find a common strategy, often displaying schizophrenic behavior that belies the fact that they are meant to be on the same side of the barricades in terms of the desired world order. In direct contrast, China, Russia, Iran, and now India, are trying to respond to Western madness in a rational, moderate, and mutually beneficial way. And as a result, Europeans may perhaps begin to understand that the future lies not in piggybacking on Israel, Saudi Arabia and the United States. Trump seems to have offered the perfect occasion for European leaders to assert their sovereignty and start to move away from their traditional servility shown towards Washington.

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“This, as the saying goes, could be it.”

Sudden Chaos In Spanish Politics (Spain Report)

PSOE leader Pedro Sánchez really wants to be Prime Minister. The Socialist Party has been mostly flat in the polls for months, slowly trending down from 23% at the beginning of the year to 19% in the Metroscopia poll in El País on May 13. Articles had recently appeared wondering if Mr. Sánchez had anything relevant to say at all. His only notable intervention of late had been a meeting with Mariano Rajoy at Moncloa, the Prime Minister’s office, to agree on a joint response to the challenge posed by Quim Torra, the new separatist First Minister of Catalonia, whom Mr. Sánchez then decided to frame as “Spain’s Le Pen”, “a racist and a supremacist”.

With the publication of the Gürtel fraud case judgement on Thursday, the Socialist Party, which holds 84 out of 350 seats in Congress, has seized on an opportunity to move back into the political spotlight and oust the Popular Party from power with a motion of no confidence. Mariano Rajoy, famously unresponsive as political scandals erupt and opponents die off, wants to stay on as Prime Minister, of course, but this is a serious crisis: El País has characterised it as a “national emergency”. It is such a big mess that the PM felt he had to cancel his trip to Kiev to watch Real Madrid in the Champions League final.

He gave an unscheduled press conference on Friday afternoon, accompanied by his ministers, and accused Mr. Sánchez of wanting to destabilise Spain and wreck the country’s economic recovery. Moncloa sent out an unsigned, unofficial, unstamped “economic report” on Saturday, warning that the socialist motion of no confidence would cost €5 billion and 6,500 jobs. PP spokesman Fernando Martínez Maíllo said Mr. Sánchez would become the “Judas of Spanish politics” if he did a deal with Catalan separatists to take power. The Popular Party and Mr. Rajoy himself—also sliding inexorably downwards in the polls—sense real danger in the PSOE’s move. This, as the saying goes, could be it.

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“By early May this year, 4,409 people had reached Spain and 217 people had died in the attempt.”

Spain Struggling To Deal With Escalating Migration Crisis (G.)

Spain’s maritime rescue service has rescued hundreds of people trying to cross the Mediterranean into Europe this weekend amid growing concerns that the country is struggling to cope with the migration crisis. The service said its crews had rescued 293 people from nine boats on Saturday. On Sunday, a further 250 migrants were rescued from eight boats, three of which were in poor condition and later sank, they added. The migrants were from various countries in North and sub-Saharan Africa. On a single day in August last year, Spanish rescuers saved 593 people from 15 small paddle boats – including 35 children and a baby – after they attempted to cross the seven-mile Strait of Gibraltar.

According to statistics from the International Organisation for Migration (IOM) 21,468 migrants and refugees arrived in Spain by sea in 2017, with 224 people dying on the journey. The arrival figures showed a threefold increase on 2016, when 6,046 people reached Spain and 128 people died en route. By early May this year, 4,409 people had reached Spain and 217 people had died in the attempt. The UN refugee agency, UNHCR, has already warned that Spain is facing “another very challenging year” when it comes to helping and protecting those arriving on its shores.

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His case looks solid. But we’re talking the heart of these companies’ business models.

Google, Facebook Hit With $8.8 Billion In Lawsuits on New EU Privacy Rules (ZH)

Accusing Facebook, Google, WhatsApp, and Instagram of “intentionally” violating Europe’s strict new privacy rules that officially went into effect on Friday, Austrian lawyer and privacy activist Max Schrems filed four lawsuits against the tech companies arguing they are still “coercing users into sharing personal data” despite rolling out new policies ostensibly aimed at complying with the new regulations.

Titled the General Data Protection Regulation (GDPR), the new rules require companies to explicitly and clearly request consent from users before mining their data, and Schrems argues in his complaints – which seek fines totaling $8.8 billion – that Google, Facebook, and the Facebook-owned Instagram and WhatsApp are still utilizing “forced consent” strategies to extract users’ data when “the law requires that users be given a free choice unless a consent is strictly necessary for provision of the service,” TechCrunch explains. “It’s simple: Anything strictly necessary for a service does not need consent boxes anymore. For everything else users must have a real choice to say ‘yes’ or ‘no,'” Schrems wrote in a statement.

“Facebook has even blocked accounts of users who have not given consent. In the end users only had the choice to delete the account or hit the ‘agree’-button—that’s not a free choice.” While Facebook—which is currently embroiled in international controversy following the Cambridge Analytica scandal—insists that its new policies are in compliance with Europe’s new regulatory framework, Schrems argues that Facebook and Google aren’t even attempting to follow the new law. “They totally know that it’s going to be a violation, they don’t even try to hide it,” Schrems told the Financial Times. Schrems believes that courts can curtail companies’ ability to poke around in our private lives and wean them off their idea that, “ ‘We’re Silicon Valley, we know what’s right for everybody else.’ ”

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Strong lobby for this in Washington.

US Congressman: F-35s Could Be ‘Used Against Greece’ If Sold To Turkey (K.)

The United States should freeze the sale of the Lockheed Martin F-35 fighter jets to Turkey because they are more likely to used against Greece than against terrorists, Democratic US Congressman Brad Sherman told US Secretary of State Mike Pompeo, during a Foreign Affairs Hearing on May 23. “I hope that the administration will oppose and prevent the sale of F-35s [to Turkey]. They are not a weapon to be used against terrorists. They are a weapon to be used against Greece,” he said.

A US Senate committee passed earlier this week a defense policy bill that includes a measure to prevent Turkey from purchasing the F-35s, citing the country’s detention of US citizen Andrew Brunson and its agreement with Russia to buy its weapons systems in December. Sherman also called on the State Department not to block a House resolution on genocidal campaigns committed by the Ottoman Empire. “I hope the State Department will at least be neutral should Congress consider, as we are considering, the remembrance of the millions of Armenian, Greek, Assyrian, Chaldean and Syriac victims of the Ottoman Empire at the beginning of the last century,” he added.

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Fastest growing industry.

Huge Rise In Food Redistribution To People In Need Across UK (G.)

The UK’s largest food redistribution charity is helping to feed a record 772,000 people a week – 60% more than the previous year – with food that would otherwise be , new figures reveal. One in eight people in the UK go hungry every day – with the most needy increasingly dependent on – yet perfectly good food is wasted every day through the food production supply chain. FareShare said it was now redistributing food that otherwise would have been wasted with an annual value of £28.7m, up from £22.4m last year. “Three years ago we were helping to feed 211,000 people a week – today it’s three-quarters of a million,” said FareShare’s chief executive, Lindsay Boswell. “We reported in 2015 that we provided food across 320 towns and cities – now it’s 15,000. It’s not rocket science to see there has been a massive hike in demand for food from frontline charities.”

FareShare currently redistributes about 13,500 tonnes of surplus food every year donated by supermarkets, wholesalers and suppliers to 9,653 charities including hospices, homeless shelters, care homes and women’s refuges, but its annual target is 100,000 tonnes. Demand for surplus food has soared against a background of growing dependence on food banks and rising in the UK. FareShare says it has the capacity – and a waiting list of charities wanting help – but needs access to more food. Its solution is a government fund that would cover the costs of storage and transport. Available to any charity or producer that incurs the costs of redistributing food, it would also save charities and other beneficiaries £150m by making free food available to them. A public petition supporting this move attracted more than 16,000 signatures, which guarantees a government response.

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People will start leaving in droves sson.

In Britain, Austerity Is Changing Everything (NYT)

For a nation with a storied history of public largess, the protracted campaign of budget cutting, started in 2010 by a government led by the Conservative Party, has delivered a monumental shift in British life. A wave of austerity has yielded a country that has grown accustomed to living with less, even as many measures of social well-being — crime rates, opioid addiction, infant mortality, childhood poverty and homelessness — point to a deteriorating quality of life. When Ms. Lewis and her husband bought their home a quarter-century ago, Prescot had a comforting village feel. Now, core government relief programs are being cut and public facilities eliminated, adding pressure to public services like police and fire departments, just as they, too, grapple with diminished funding.

By 2020, reductions already set in motion will produce cuts to British social welfare programs exceeding $36 billion a year compared with a decade earlier, or more than $900 annually for every working-age person in the country, according to a report from the Center for Regional Economic and Social Research at Sheffield Hallam University. In Liverpool, the losses will reach $1,200 a year per working-age person, the study says. “The government has created destitution,” says Barry Kushner, a Labour Party councilman in Liverpool and the cabinet member for children’s services. “Austerity has had nothing to do with economics. It was about getting out from under welfare. It’s about politics abandoning vulnerable people.”

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They should do that for all Americans stationed abroad today. Bring the living ones home while they’re still alive.

‘We’re Gonna Keep Riding Till We Get Everybody Back Home, From All Wars’ (AFP)

Wearing bandanas, cowboy hats or gleaming helmets, tens of thousands of bikers descended on Washington Sunday to parade in honor of US soldiers missing in action in foreign wars, a now 30-year-old tradition known as “Rolling Thunder.” “We’re gonna keep riding until we get everybody back home, from all wars,” said Jack Richardson, who at 73 crossed the country from California for the 13th time to participate in the annual Memorial Day weekend spectacular. Dressed in a leather jacket emblazoned with patches, this Vietnam War veteran had assembled with thousands of other bikers in a parking lot near the Pentagon, awaiting the start of the parade.

The route will take them into the center of official Washington, past the monuments on the National Mall and the austere black marble memorial engraved with the names of the nearly 60,000 US soldiers killed during the Vietnam War. “Still there are families waiting back home here in the United States that have not found out where their dads, their fathers, their brothers – they don’t know where they are,” said Richardson, a retired Los Angeles police officer who served two tours in Vietnam in the 1960s. “They don’t know if they’re still in Vietnam, they don’t know if they’re still alive, they don’t know if they’re dead, they don’t know if they’re captured,” he said.

According to organizers, more than 85,000 US soldiers remain unaccounted for in conflicts as far back as World War I. Most are from World War II, but 1,598 of the missing are from the war in Vietnam, a conflict still fresh in the memories of older veterans. The parade was begun in 1988 with some 2,500 motorcycles under the motto “We will never forget” to press for an accounting of the Vietnam missing. It has grown every year since into a rumbling, roaring extravaganza that organizers say attracts over a million people, including spectators. Besides the missing, the bikers also come to remember their fallen comrades.

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May 242018
 
 May 24, 2018  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , , , ,  


Wassily Kandinsky Contrasting Sounds 1924

 

Every Fed Tightening Cycle ‘Creates A Meaningful Crisis Somewhere’ (MW)
Fed Minutes Show Support For June Hike And Calm About Inflation Outlook (MW)
US Launches Auto Import Probe (R.)
China Signals To State Giants: ‘Buy American’ Oil And Grains (R.)
Turkey Halts Lira’s Free Fall – But It’s Not Out Of The Woods Yet (MW)
Argentines Brace For Another Crisis As Nation Again Seeks IMF Help (R.)
US Birth Rates Are Falling Because This Is A Harsh Place To Have A Family (G.)
Yulia Skripal Gives First Interview (RT)
NHS Needs £2,000 In Tax From Every Household To Stay Afloat (Ind.)
Trump’s Blocking Of Critics On Twitter Violates Constitution – US Judge (R.)
Hitting Toughest Climate Target Will Save World $30 Trillion In Damages (G.)
The Mediterranean Diet Is Gone: Region’s Children Are Fattest In Europe (G.)

 

 

Take their power away?!

Every Fed Tightening Cycle ‘Creates A Meaningful Crisis Somewhere’ (MW)

Federal Reserve rate increases are a lot like shaking an overripe fruit tree. That’s the analogy offered by Deutsche Bank macro strategist Alan Ruskin in a note late Wednesday, in which he urged clients not to “overcomplicate” the macro picture. “A starting point should be that every Fed tightening cycle creates a meaningful crisis somewhere, often external but usually with some domestic (U.S.) fallout,” he wrote. To back it up, Ruskin offered the following history lesson:

“Going back in history, the 2004-6 Fed tightening looked benign but the US housing collapse set off contagion and a near collapse of the global financial system dwarfing all post-war crises. The late 1990s Fed stop/start tightening included the Asia crisis, LTCM and Russia collapse, and when tightening resumed, the pop of the equity bubble. The early 1993-4 tightening phase included bond market turmoil and the Mexican crisis. The late 1980s tightening ushered along the S&L crisis. Greenspan’s first fumbled tightening in 1987 helped trigger Black Monday, before the Fed eased and ‘the Greenspan put’ took off in earnest. The early 80s included the LDC/Latam debt crisis and Conti Illinois collapse. The 1970s stagflation tightening was when the Fed was behind ‘the curve’ and where inflation masked a prolonged decline in real asset prices.”

So what about now? The fed funds rate stands at 1.50% to 1.75% following a series of slow rate increases that began in December 2015, lifting it from near zero. The degree of tightening might seem pretty tame, but Ruskin notes that it comes after a period of “extreme and prolonged” accommodation and is also taking forms that economists and investors don’t fully understand as swollen balance sheet begins to shrink.

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The stronger the dollar the more likely rate hikes get.

Fed Minutes Show Support For June Hike And Calm About Inflation Outlook (MW)

Federal Reserve officials in their meeting in early May confirmed they planned to raise interest rates in June and were not concerned they were behind the curve on inflation. “Most participants judged that if incoming information broadly confirmed their economic outlook, it would likely soon be appropriate for the FOMC to take another step in removing policy accommodation,” the minutes said. Traders in the federal funds futures market see more than a 90% chance of a June rate hike. Although inflation hit the Fed’s 2% target in the latest reading for March, for the first time in a year, officials were not convinced it would remain there for long.

“It was noted that it was premature to conclude that inflation would remain at levels around 2%, especially after several years in which inflation had persistently run below the Fed’s 2% objective,” the minutes said. Only a “few” officials thought inflation might move “slightly” above the 2% target. “It has taken them so long to get there, with so many fits and starts, they are not quite sure it’s going to stay there,” said Michael Arone, chief investment strategist for State Street Global Advisors. Arone said the minutes were consistent with three total hikes this year although the Fed gave itself wiggle room if inflation picks up markedly. “They didn’t take [a fourth hike] off the table,” he said.

On the trade dispute with China, officials said the possible outcome on inflation and growth remained “particularly wide,” but there was some concern the dispute would hurt business confidence.

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Up to 25% tariffs. How about building better cars? Or weaning yourself off the addiction?

US Launches Auto Import Probe (R.)

The Trump administration has launched a national security investigation into car and truck imports that could lead to new U.S. tariffs similar to those imposed on imported steel and aluminum in March. The national security probe under Section 232 of the Trade Expansion Act of 1962 would investigate whether vehicle and parts imports were threatening the industry’s health and ability to research and develop new, advanced technologies, the Commerce Department said on Wednesday. “There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” Commerce Secretary Wilbur Ross said in a statement, promising a “thorough, fair and transparent investigation.”

Higher tariffs could be particularly painful for Asian automakers including Toyota, Nissan, Honda and Hyundai, which count the United States as a key market, and the announcement sparked a broad sell-off in automakers’ shares across the region. The governments of Japan, China and South Korea said they would monitor the situation, while Beijing, which is increasingly eyeing the United States as a potential market for its cars, added that would defend its interests. “China opposes the abuse of national security clauses, which will seriously damage multilateral trade systems and disrupt normal international trade order,” Gao Feng, spokesman at the Ministry of Commerce, said at a regular news briefing in Beijing on Thursday which focused largely on whether it is making any progress in its trade dispute with Washington.

[..] Roughly 12 million cars and trucks were produced in the United States last year, while the country imported 8.3 million vehicles worth $192 billion. This included 2.4 million from Mexico, 1.8 million from Canada, 1.7 million from Japan, 930,000 from South Korea and 500,000 from Germany, according to U.S. government statistics. At the same time, the United States exported nearly 2 million vehicles worldwide worth $57 billion. German automakers Volkswagen, Daimler and BMW all have large U.S. assembly plants. The United States is the second-biggest export destination for German auto manufacturers after China, while vehicles and car parts are Germany’s biggest source of export income. Asked if the measures would hit Mexico and Canada, a Mexican source close to the NAFTA talks said: “That probably is going to be the next battle.”

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For now it’s all opaque.

China Signals To State Giants: ‘Buy American’ Oil And Grains (R.)

China will import record volumes of U.S. oil and is likely to ship more U.S. soy after Beijing signalled to state-run refiners and grains purchasers they should buy more to help ease tensions between the two top economies, trade sources said on Wednesday. China pledged at the weekend to increase imports from its top trading partner to avert a trade war that could damage the global economy. Energy and commodities were high on Washington’s list of products for sale. The United States is also seeking better access for imports of genetically modified crops into China under the deal. As the two sides stepped back from a full-blown trade war, Washington neared a deal on Tuesday to lift its ban on U.S. firms supplying Chinese telecoms gear maker ZTE, and Beijing announced tariff cuts on car imports.

But U.S. President Donald Trump indicated on Wednesday that negotiations were still short of his objectives when he said any deal would need a “different structure”. China is the world’s top importer of both oil and soy, and already buys significant volumes of both from the United States. It is unclear how much more Chinese importers will buy from the United States than they would have otherwise, but any additional shipments would contribute to cutting the trade surplus, as demanded by Trump. Asia’s largest oil refiner, China’s Sinopec will boost crude imports from the United States to an all-time high in June as part of Chinese efforts to cut the surplus, two sources with knowledge of the matter said on Wednesday.

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Erdogan defeated?

Turkey Halts Lira’s Free Fall – But It’s Not Out Of The Woods Yet (MW)

Turkey’s central bank intervened to halt the free fall of the Turkish lira on Wednesday, but it isn’t clear whether policy makers will be able to stave off a full-fledged currency crisis. The Central Bank of the Republic of Turkey raised its late liquidity window lending rate by 300 basis points on Wednesday, in a surprise move that put a halt to the lira selloff — at least for now. The lending rate now sits at 16.5%, compared with 13.5% before. The U.S. dollar had rallied to a historic high against Turkey’s lira on Wednesday, buying 4.9233 lira at the high, before the path reversed on the back of the CBRT’s action and the lira found its feet again. The buck last bought 4.7015 lira. In the year to date, the Turkish currency has dropped more than 20% against the dollar, according to FactSet data.

The euro-lira pair behaved similarly, first rallying to an all-time high but paring the rise after the rate increase. The euro last bought 5.5084 lira. The U.S. and eurozone are two of Turkey’s most important trading partners. The central bank has been operating in a peculiar environment given that Turkey’s inflation has been hitting double digits and its currency keeps sliding to historic lows. Moreover, the government of President Recep Tayyip Erdogan has been critical of the central bank, calling for lower interest rates.

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Rising dollar.

Argentines Brace For Another Crisis As Nation Again Seeks IMF Help (R.)

Maria Florencia Humano opened a clothing store in 2016, convinced that Argentina’s long history of economic crises had ended under pro-business President Mauricio Macri. She will shutter it later this month, unable to make rent or loan payments. Soaring interest rates and a plunging currency have upended her dream and returned Argentina to a familiar place: asking the IMF for a lifeline. Humano’s decision comes just weeks after a somber Macri announced in a televised May 8 speech that Argentina would start talks with the IMF. He is seeking a credit line worth at least $19.7 billion to fund the government through the end of his first term in late 2019. The unexpected move surprised investors and stoked Argentines’ fears of a repeat of the nation’s devastating 2001-2002 economic collapse.

Many here blame IMF-imposed austerity measures for worsening that crisis, which impoverished millions and turned Argentina into a global pariah after the government defaulted on a record $100 billion in debt. Word of a potential bailout sent thousands of angry Argentines into the streets this month, some with signs declaring “enough of the IMF.” As recently as a few months ago, analysts were hailing Argentina as an emerging-market success story. Now some are predicting recession. Macri’s popularity has plummeted. [..] Macri’s free-market credentials earned him a 2017 invitation to the White House to meet U.S. President Donald Trump, who just last week on Twitter hailed the Argentine leader’s “vision for transforming his country’s economy.”

But economists say Macri badly damaged his credibility in December when his administration weakened tough inflation targets. The central bank followed with a January rate cut to goose growth, even as consumer prices kept galloping. Rising U.S. interest rates did not help. Argentina is saddled with more than $320 billion in external debt, equivalent to 57.1% of GDP, much of it denominated in dollars. Jittery investors hit the exits. The peso swooned. The central bank sold $10 billion in reserves trying to prop up the peso, forcing Macri to seek assistance from the IMF.

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And getting harsher all the time.

US Birth Rates Are Falling Because This Is A Harsh Place To Have A Family (G.)

America’s birth rate has fallen to a 30-year low, let the hand-wringing and finger-pointing begin. It’s those selfish women, wanting careers before kids! Or, gasp, not wanting kids at all! It’s all those abortions! It’s Obama’s fault! The reality is, for all its pro-family rhetoric, the US is a remarkably harsh place for families, and particularly for mothers. It’s a well-known fact, but one that bears repeating in this context, that the US is one of only four countries in the world with no government-subsidized maternity leave. The other three are Lesotho, Swaziland, and Papua New Guinea, countries that the US doesn’t tend to view as its peer group.

This fact is met with shrugs from those who assume that companies provide maternity leave. Only 56% do, and of those, just 6% offer full pay during maternity leave. This assumption also ignores the fact that 36% of the American workforce, a number expected to surpass 50% in the next 10 years, are contract laborers with no access to such benefits. That gig economy you keep hearing so much about, with its flexible schedule and independence? Yeah, it sucks for mothers. That doesn’t stop companies and pundits from pushing it as a great way for working moms to balance children and career. As a gig-economy mother myself, I can tell you exactly how great and balanced it felt to go back to work two hours after giving birth.

If they return to work, mothers can look forward to an increasingly large pay gap for every child they have, plus fewer promotions. Who could resist? The option for one parent to stay home with kids is increasingly not economically viable for American families, either. A data point that got far less attention than the falling birth rate was released by the Bureau of Labor Statistics last month: 71.1% of American mothers with children under 18 are in the workforce now. It’s not just because they want to be (not that there’s anything wrong with that), but increasingly because they have to be in order to support the family.

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Scripted interview?

Yulia Skripal Gives First Interview (RT)

In her first interview since surviving an alleged nerve agent attack, Yulia Skripal said she eventually wants to return to Russia. She has not shed any light on what happened in March in Salisbury. “I came to the UK on the 3rd of March to visit my father, something I have done regularly in the past. After 20 days in a coma, I woke to the news that we had both been poisoned,” Skripal said in a video that was recorded by Reuters. She reiterated her words in a handwritten statement. She and her father, Sergei Skripal, a former Russian double-agent, were found unconscious on a public bench in the British city of Salisbury on March 4. The UK government immediately accused Russia of being behind their poisoning, but it has yet to provide evidence for the claim.

Skripal did not comment on who she thought was to blame for her poisoning. “I still find it difficult to come to terms with the fact that both of us were attacked. We are so lucky to have both survived this attempted assassination. Our recovery has been slow and extremely painful,” she said. “The fact that a nerve agent was used to do this is shocking. I don’t want to describe the details but the clinical treatment was invasive, painful and depressing.” She also said that she was “grateful” for the offers of assistance from the Russian Embassy, “but at the moment I do not wish to avail myself of their services.” Skripal reiterated what she had said in an earlier written statement released by British police: “no one speaks for me, or for my father, but ourselves.”

Following the release of the interview, Russia’s Foreign Ministry spokeswoman addressed Yulia Skripal in a comment to RT. “We’d like Yulia Skripal to know that not a single day passed without the Foreign Ministry, Russia’s Embassy in London trying to reach her with the main purpose to make sure she was not held against her will, she was not impersonated by somebody else, to get the first-hand information about her and her father’s condition,” Maria Zakharova said.

Russia’s Embassy in the UK welcomed the release of the interview, stating: “we are glad to have seen Yulia Skripal alive and well.” The video itself and the wording of the written statements, however, raised concerns with Russian diplomats, who urged London once again to allow consular access to Yulia “in order to make sure that she is not held against her own will and is not speaking under pressure.” Skripal said that the ordeal had turned her life “upside down,” both “physically and emotionally.” She added that she was now focused on helping her father to make a full recovery, and that “in the long term I hope to return home to my country.”

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With the level of incompetence in UK politics, the NHS looks beyond salvation.

NHS Needs £2,000 In Tax From Every Household To Stay Afloat (Ind.)

Taxes will “almost certainly” have to rise over the coming years simply to prevent the National Health Service and social care system from slipping further into crisis, a major new report concludes. The Institute for Fiscal Studies and the Health Foundation state that the NHS, which has been suffering the most severe fiscal squeeze since its foundation over the past eight years, now requires an urgent increase in government spending in order to cope with an influx of older and sicker patients. Funding the projected increases in health spending through the tax system would need taxes to rise by between 1.6 and 2.6% of GDP – the equivalent of between £1,200 and £2,000 per household, the experts said.

The two organisations say that state funding growth rate, which has been just 1.4% a year since 2010, will have to more than double to between 3.3% and 4% over the next 15 years if government pledges, such as bringing down waiting times and increasing the provision of mental health services, are to stand any chance of being delivered. They also say that to finance this increase the government would “almost certainly need to increase taxes”. “If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax,” said the IFS’s director Paul Johnson.

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Raises some interesting questions. I can block him, but he cannot block me. I can all him “Corrupt Incompetent Authoritarian” and much much worse, and he’s going to have to swallow it.

Trump’s Blocking Of Critics On Twitter Violates Constitution – US Judge (R.)

Trump has made his @RealDonaldTrump Twitter account an integral and controversial part of his presidency, using it to promote his agenda, announce policy and attack critics. He has blocked many critics from his account, which prevents them from directly responding to his tweets. U.S. District Judge Naomi Reice Buchwald in Manhattan ruled that comments on the president’s account, and those of other government officials, were public forums, and that blocking Twitter users for their views violated their right to free speech under the First Amendment of Constitution. Eugene Volokh, a University of California Los Angeles School of Law professor who specializes in First Amendment issues, said the decision’s effect would reach beyond Trump.

“It would end up applying to a wide range of government officials throughout the country,” he said. The U.S. Department of Justice, which represents Trump in the case, said, “We respectfully disagree with the court’s decision and are considering our next steps.” Twitter, which is not a party to the lawsuit, declined to comment on the ruling. Buchwald’s ruling was in response to a First Amendment lawsuit filed against Trump in July by the Knight First Amendment Institute at Columbia University and several Twitter users. The individual plaintiffs in the lawsuit include Philip Cohen, a sociology professor at the University of Maryland; Holly Figueroa, described in the complaint as a political organizer and songwriter in Washington state; and Brandon Neely, a Texas police officer.

Cohen, who was blocked from Trump’s account last June after posting an image of the president with words “Corrupt Incompetent Authoritarian,” said he was “delighted” with Wednesday’s decision. “This increases my faith in the system a little,” he said. Novelists Stephen King and Anne Rice, comedian Rosie O’Donnell, model Chrissy Teigen, actress Marina Sirtis and the military veterans political action committee VoteVets.org are among the others who have said on Twitter that Trump blocked them. Buchwald rejected the argument by Justice Department lawyers that Trump’s own First Amendment rights allowed him to block people with whom he did not wish to interact.

“While we must recognize, and are sensitive to, the president’s personal First Amendment rights, he cannot exercise those rights in a way that infringes the corresponding First Amendment rights of those who have criticized him,” Buchwald said. She said Trump could “mute” users, meaning he would not see their tweets while they could still respond to his, without violating their free speech rights.

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Said it before: putting it in monetary terms is counter-productive. Only when we recognize that it’s not about money will we do something.

Hitting Toughest Climate Target Will Save World $30 Trillion In Damages (G.)

Achieving the toughest climate change target set in the global Paris agreement will save the world about $30tn in damages, far more than the costs of cutting carbon emissions, according to a new economic analysis. Most nations, representing 90% of global population, would benefit economically from keeping global warming to 1.5C above pre-industrial levels, the research indicates. This includes almost all the world’s poorest countries, as well as the three biggest economies – the US, China and Japan – contradicting the claim of US president, Donald Trump, that climate action is too costly. Australia and South Africa would also benefit, with the biggest winners being Middle East nations, which are threatened with extreme heatwaves beyond the limit of human survival.

However, some cold countries – particularly Russia, Canada and Scandinavian nations – are likely to have their growth restricted if the 1.5C target is met, the study suggests. This is because a small amount of additional warming to 2C would be beneficial to their economies. The UK and Ireland could also see some restriction, though the estimates span a wide range of outcomes. The research, published in the journal Nature, is among the first to assess the economic impact of meeting the Paris climate goals. Data from the last 50 years shows clearly that when temperatures rise, GDP and other economic measures fall in most nations, due to impacts on factors including labour productivity, agricultural output and health.

The scientists used this relationship and 40 global climate models to estimate the future economic impact of meeting the 1.5C target – a tough goal given the world has already experienced 1C of man-made warming. They also assessed the long-standing 2C target and the impact of 3C of warming, which is the level expected unless current plans for action are increased.

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It’s not gone. But it is under threat.

The Mediterranean Diet Is Gone: Region’s Children Are Fattest In Europe (G.)

For kids in Greece, Spain and Italy, the Mediterranean diet is dead, according to the World Health Organisation, which says that children in Sweden are more likely to eat fish, olive oil and tomatoes than those in southern Europe. In Cyprus, a phenomenal 43% of boys and girls aged nine are either overweight or obese. Greece, Spain and Italy also have rates of over 40%. The Mediterranean countries which gave their name to the famous diet that is supposed to be the healthiest in the world have children with Europe’s biggest weight problem. Sweets, junk food and sugary drinks have displaced the traditional diet based on fruit and vegetables, fish and olive oil, said Dr Joao Breda, head of the WHO European office for prevention and control of noncommunicable diseases.

“The Mediterranean diet for the children in these countries is gone,” he said at the European Congress on Obesity in Vienna. “There is no Mediterranean diet any more. Those who are close to the Mediterranean diet are the Swedish kids. The Mediterranean diet is gone and we need to recover it.” Children in southern Europe are eating few fruit and vegetables and drinking a lot of sugary colas and other sweet beverages, said Breda. They snack. They eat sweets. They consume too much salt, sugar and fat in their food. And they hardly move. “Physical inactivity is one of the issues that is more significant in the southern European countries,” he said. “A man in Crete in the 60s would need 3,500 calories because he was going up and down the mountain.”

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