Oct 092017
 
 October 9, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Joan Miro The tilled field 1924

 

CEO Stock Buybacks Parasitize the Economy (Ralph Nader)
The Economy Is Humming. Bankers Are Cheering. What Could Go Wrong? (NYT)
Flatliners (NT)
Schäuble: Another Financial Crisis Is Coming Due To Spiraling Global Debt (ZH)
EU Plan To Prevent Bank Runs Could Backfire, Create Panic (BBG)
Hackers And Fraudsters Are Causing Cryptocurrency Chaos (Ind.)
Is This The Geopolitical Shift Of The Century? (OP)
Tensions Rise As US, Turkey Halt Visitor Visas, Send Lira Tumbling (BBG)
Sanctions Against Russia Have Cost European Union €30 Billion (RT)
Spain is the Blueprint for How All Governments Will Act (Martin Armstrong)
Catalans Call for Talks as Spain Enters Crunch Week (BBG)
Greece Foreclosures Target Seems Unattainable (K.)
Nearly There, But Never Further Away (FP)

 

 

And the parasite is killing its host.

CEO Stock Buybacks Parasitize the Economy (Ralph Nader)

The monster of economic waste—over $7 trillion of dictated stock buybacks since 2003 by the self-enriching CEOs of large corporations—started with a little noticed change in 1982 by the Securities and Exchange Commission (SEC) under President Ronald Reagan. That was when SEC Chairman John Shad, a former Wall Street CEO, redefined unlawful ‘stock manipulation’ to exclude stock buybacks. Then after Clinton pushed through congress a $1 million cap on CEO pay that could be deductible, CEO compensation consultants wanted much of CEO pay to reflect the price of the company’s stock. The stock buyback mania was unleashed. Its core was not to benefit shareholders (other than perhaps hedge fund speculators) by improving the earnings per share ratio. Its real motivation was to increase CEO pay no matter how badly such burning out of shareholder dollars hurt the company, its workers and the overall pace of economic growth.

In a massive conflict of interest between greedy top corporate executives and their own company, CEO-driven stock buybacks extract capital from corporations instead of contributing capital for corporate needs, as the capitalist theory would dictate. Yes, due to the malicious, toady SEC “business judgement” rule, CEOs can take trillions of dollars away from productive pursuits without even having to ask the companies’ owners—the shareholders—for approval. What could competent management have done with this treasure trove of shareholder money which came originally from consumer purchases? They could have invested more in research and development, in productive plant and equipment, in raising worker pay (and thereby consumer demand), in shoring up shaky pension fund reserves, or increasing dividends to shareholders.

The leading expert on this subject—economics professor William Lazonick of the University of Massachusetts—wrote a widely read article in 2013 in the Harvard Business Review titled “Profits Without Prosperity” documenting the intricate ways CEOs use buybacks to escalate their pay up to 300 to 500 times (averaging over $10,000 an hour plus lavish benefits) the average pay of their workers. This compared to only 30 times the average pay gap in 1978. This has led to increasing inequality and stagnant middle class wages. [..] In a review of 64 companies, including major retailers such as JC Penny and Macy’s, these firms spent more dollars in stock buybacks “than their businesses are currently worth in market value”! [..] The scholars concluded that “Buybacks are a way of disinvesting – we call it ‘committing corporate suicide’..

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How much time do I have?

The Economy Is Humming. Bankers Are Cheering. What Could Go Wrong? (NYT)

For decades, the global economy has been defined by dissonance. There has been the Japanese recession. The financial crises in the United States and Europe. And drama in emerging markets throughout. But as central bankers, finance ministers and money managers descend on Washington this week for the fall meetings of the IMF, they will confront an unusual reality: global markets and economies rising in unison. Never mind political turmoil, populist uprisings and threats of nuclear war. From Wall Street to Washington, economists have been upgrading their forecasts for the global economy this year, with the consensus now pointing to an expansion of more than 3% — up noticeably from 2.6% in 2016. Economists from the IMF are likely to follow suit when the fund releases its biannual report on the global economy on Tuesday.

The rosy numbers are noteworthy. But what’s more startling is that virtually every major developed and emerging economy is growing simultaneously, the first time this has happened in 10 years. “In terms of positive cycles, it is difficult to find very many precedents here,” said Brian Coulton, the chief economist at Fitch, the debt ratings agency. “It is the strongest growth we have seen since 2010.” In Japan, a reform-minded government and aggressive action by the central bank have pushed growth to 1.5% — up from 0.3% three years ago. In Europe, strong domestic demand in Germany and robust recoveries in countries like Spain, Portugal and Italy are expected to spur 2.2% growth in the eurozone. That would be more than double its average annual growth in the previous five years.

Aggressive infrastructure spending by China; bold economic reforms by countries including Brazil, Indonesia and India; and rising commodities prices (helping countries such as Russia) have spurred growth in emerging markets. And in the United States, despite doubts about President Trump’s ability to pass a major tax bill, the economy and financial markets chug along. In fact, one of the few large economies not following an upward path is Britain, whose pending exit from the European Union is taking a toll. Having grown at an average annual pace of just over 2% from 2012 to 2016, the British economy is expanding just 1.5% this year. [..] “We are in a boom today, but we should not forget that the financial system is still relatively unstable,” said Jim Reid, a credit strategist at Deutsche Bank.

Mr. Reid, who spices up his market analyses by regaling clients with pop songs on the piano, recently published a detailed study on what he expects will be the causes of the next global financial crisis. Pick your poison: an abrupt slowdown in China, the rise of populism, debt problems in Japan or an ugly outcome to Britain’s move to leave the European Union. His overriding worry, though, is that investors and policy makers aren’t prepared for what will happen when global central banks put a halt to their easy-money policies. Since the 2008 crisis, Mr. Reid noted, central banks have accumulated more than $14 trillion in assets — an amount that exceeds the annual output of China by $3 trillion. What happens when the central banks all start to sell? “This is unprecedented,” Mr. Reid said. “And no one knows what the outcome will be.”

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Compressed volatility.

Flatliners (NT)

We find ourselves in a very unique point in history and in a world dominated by false narratives. It is a challenge to keep an analytical grip on reality, but I’ll try to tie a few threads together here to put everything in a macro context. Firstly the underlying base reality: Free money, easy money, whatever you want to call it, permeates everything we see in financial markets. Indeed I would argue price appreciation has been paid for with unprecedented and, in my view, unsustainable volatility compression. A couple of charts really highlight this. Most clearly perhaps is the precise trend line tagging we can observe in the correlated picture of price appreciation and volatility compression since the February 2016 lows:

The $VIX’s corollary, the inverse $XIV, embarked on an explosive near one way journey since the US election coinciding with over $2 trillion central bank intervention in just the first 9 months of 2017:

And it has continued to this day and just made another all time high this past week on a massive negative divergence. It is the magnitude of this volatility compression that explains the current trading environment we find ourselves in. Aside from the obvious artificial liquidity avalanche we’ve had speculated about the driver of all this and the answer may simply be the promise of even more free money, specifically tax cuts. As some of you may recall from my analysis over the past year I’ve been very clear that math ultimately will bring out truth in any narrative. In this case that notion that tax cuts pay for themselves is a fantasy. It always has been. Can it result in a short term bump in spending or even growth? Yes it is possible, especially if structured right.

But any historical analysis will show you that tax cuts, especially already coming from a relatively low base, will just add to debt via larger deficits. Recently the White House budget director finally acknowledged this very reality: “a tax plan that doesn’t add to the deficit won’t spur growth” My criticism has been that all this marketing talk is simply a lie and will structurally put the country further at risk of trillion dollar deficits and a massive debt explosion that is already baked in even without tax cuts.

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But he makes no attempt to apologize?!

Schäuble: Another Financial Crisis Is Coming Due To Spiraling Global Debt (ZH)

Schauble warned that the world was in danger of “encouraging new bubbles to form”. “Economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity and the growth of public and private debt. I myself am concerned about this, too,” he said echoing the concern voiced just one day earlier by IMF head Christine Lagarde, said the world was enjoying its best growth spurt since the start of the decade, but warned of “threats on the horizon” from “high levels of debt in many countries to rapid credit expansion in China, to excessive risk-taking in financial markets”. Schäuble also echoed the latest warning from the BIS, which last month said that the world had become so used to cheap credit that higher interest rates could derail the global economic recovery.

Meanwhile, Schäuble defended austerity, saying the word was, “strictly speaking, an Anglo-Saxon way of describing a solid financial policy which doesn’t necessarily see more, or higher deficits as a good thing.” The soon to be former finance minister also took a pot shot at the UK: “The UK always made fun of Rhineland capitalism,” he said, contrasting Germany’s consensus-driven, social market model with Anglo-American free markets and deregulation. “[But] we have seen that the tools of the social market economy were more effective at dealing with the [financial] crisis…than in the places where the crisis arose.”

Of course, Germany’s success – almost entirely a function of the common currency which has effectively kept the Deutsche Mark from soaring – has come at the expense of crisis after crisis among Europe’s southern states. Unfortunately it has resulted in an entire generation of unemployed youth in countries like Greece, Italy and Spain. Still, in keeping with his dour image, Schäuble’s last words were pessimistic: “We have to ensure that we will be resilient enough if we ever face a new economic crisis,” he added. “We won’t always have such positive economic times as we have now” concluded the jolly 75-year-old. Perhaps Wolfi is worrying too much: after all, according to Janet Yellen, “we will not see another crisis in our lifetime.” And if we do, well central banks are primed and ready to injects trillions more to keep the artificial “recovery” and market “all time highs” can kicked just a little bit further.

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They’ll screw this one up, too.

EU Plan To Prevent Bank Runs Could Backfire, Create Panic (BBG)

Three years since their banking union began to take shape, European Union regulators are seeking fresh powers to deal with lenders in trouble. Their plan would let them stop withdrawals from a failing bank for a few days while they address the problem, with the aim of preventing a run. But this approach could easily have the opposite effect, spreading panic to the whole financial system. There’s a better way. Instead of freezing bank accounts, EU governments should enable regulators to keep a bank going while they restructure it and search for a new owner. This will require EU governments to commit additional resources for the task. The ECB and the euro zone’s Single Resolution Board have been calling for the power to freeze bank accounts – a so-called moratorium – since the swift resolution of Banco Popular in June.

They succeeded in winding down the troubled Spanish lender by selling it to rival Banco Santander, but had to do it on a weekday night with a run on deposits in progress. The regulators say that next time it might be impossible to find a buyer overnight. A moratorium would relieve that pressure and perhaps allow them to sell the bank at a better price. This approach would mirror an arrangement which is currently in place in Germany, and it’s superficially appealing: Closing a bank would certainly stop a run. But it could also have unintended consequences. Depositors may run from a bank in trouble sooner — fearing that if they wait too long they may not be able to withdraw their money. It could also lead depositors to empty their accounts as soon as the bank re-opens. Most dangerous of all, freezing accounts in one bank could spread panic to the rest of the system, as other depositors fear the same will happen to them.

The idea also puts international cooperation on bank resolution at risk. The EU regulators’ plan threatens to disrupt measures put in place after the bankruptcy of Lehman Brothers in 2008. Bank of England economists recently warned in a working paper that adopting the new moratorium might prompt banks to back out of the existing arrangements for handling financial emergencies.

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An extensive look at crypto. Much better than the headline makes you think.

Hackers And Fraudsters Are Causing Cryptocurrency Chaos (Ind.)

Cryptocurrencies were supposed to offer a secure, digital way to conduct financial transactions but they have been dogged by doubts. Concerns have largely focused on their astronomical gains in value and the likelihood of painful price crashes. Equally perilous, though, are the exchanges where virtual currencies are bought, sold and stored. These exchanges, which match buyers and sellers and sometimes hold traders’ funds, have become magnets for fraud and mires of technological dysfunction, posing an underappreciated risk to anyone who trades digital coins. Huge sums are at stake. As the prices of bitcoin and other virtual currencies have soared this year – bitcoin has quadrupled – legions of investors and speculators have turned to online exchanges.

Billions of dollars’ worth of bitcoins and other cryptocurrencies, which aren’t backed by any governments or central banks, are now traded on exchanges every day. “These are new assets. No one really knows what to make of them,” said David L Yermack, chairman of the finance department at New York University’s Stern School of Business. “If you’re a consumer, there’s nothing to protect you.” Regulators and governments are still debating how to handle cryptocurrencies, and Mr Yermack says the US Congress will ultimately have to take action. Some of the freewheeling exchanges are plagued with poor security and lack investor protections common in more regulated financial markets. Some Chinese exchanges have falsely inflated their trading volume to lure new customers, according to former employees.

There have been at least three dozen heists of cryptocurrency exchanges since 2011; many of the hacked exchanges later shut down. More than 980,000 bitcoins have been stolen, which today would be worth about $4bn. Few have been recovered. Burned investors have been left at the mercy of exchanges as to whether they will receive any compensation. Nearly 25,000 customers of Mt. Gox, once the world’s largest bitcoin exchange, are still waiting for compensation more than three years after its collapse into bankruptcy in Japan. The exchange said it lost about 650,000 bitcoins. Claims approved by the bankruptcy trustee total more than $400m.

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Not without China, no.

Is This The Geopolitical Shift Of The Century? (OP)

The geopolitical reality in the Middle East is changing dramatically. The impact of the Arab Spring, the retraction of the U.S. military, and diminishing economic influence on the Arab world – as displayed during the Obama Administration – are facts. The emergence of a Russian-Iranian-Turkish triangle is the new reality. The Western hegemony in the MENA region has ended, and not in a shy way, but with a long list of military conflicts and destabilization. The first visit of a Saudi king to Russia shows the growing power of Russia in the Middle East. It also shows that not only Arab countries such as Saudi Arabia and the UAE, but also Egypt and Libya, are more likely to consider Moscow as a strategic ally.

King Salman’s visit to Moscow could herald not only several multibillion business deals, but could be the first real step towards a new regional geopolitical and military alliance between OPEC leader Saudi Arabia and Russia. This cooperation will not only have severe consequences for Western interests but also could partly undermine or reshape the position of OPEC at the same time. Russian president Vladimir Putin is currently hosting a large Saudi delegation, led by King Salman and supported by Saudi minister of energy Khalid Al Falih. Moscow’s open attitude to Saudi Arabia—a lifetime Washington ally and strong opponent of the growing Iran power projections in the Arab world—show that Putin understands the current pivotal changes in the Middle East.

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Direct result of Turkey’s deal with Russia on Syria.

Tensions Rise As US, Turkey Halt Visitor Visas, Send Lira Tumbling (BBG)

The U.S. and Turkey each suspended visa services for citizens looking to visit the other country, a sharp escalation of a diplomatic spat that sent the lira down more than 6% against the U.S. dollar. The moves followed the Oct. 4 arrest of a Turkish national who works at the U.S. consulate in Istanbul for alleged involvement in the July 2016 coup attempt against President Recep Tayyip Erdogan. Hours after the Trump administration halted visa services in Turkey on Sunday, Erdogan’s government responded in kind, even repeating verbatim much of the U.S. statement. Both sides said “recent events” had forced them to “reassess the commitment” of the other to the security of mission facilities and personnel.

Only two weeks ago, U.S. President Donald Trump had heaped praise on Erdogan when they met on the sidelines of the United Nations General Assembly in New York, saying the Turkish leader “is becoming a friend of mine” and “frankly, he’s getting high marks.” The U.S. on Thursday called charges against the man “wholly without merit,” saying it was “deeply disturbed” by the arrest and “by leaks from Turkish government sources seemingly aimed at trying the employee in the media rather than a court of law.” Turkey responded by saying the arrested Turkish citizen wasn’t part of the U.S. Consulate’s staff but a “local employee.” The lira was at 3.7323 per dollar as of 10:37 a.m. in Singapore on Monday, down more than 3% from Friday’s close, and touched as low as 3.8533. The currency is heading for a seventh day of declines, the longest stretch since May 2016.

Relations between Turkey, a NATO member, and some Western countries soured after the failed 2016 coup. Erdogan has accused U.S.-based Turkish preacher Fethullah Gulen of organizing the attempted overthrow, and has become increasingly impatient with the U.S. for not turning him over. “I would expect that there will be some sort of de-escalation at the leadership level – Trump and Erdogan will speak or meet,” said Murat Yurtbilir, who specializes in Turkish affairs at the Australian National University. “But the underlying problems won’t go away: the Gulen issue, Turkey’s slow switch toward Russia’s policy in Syria and the economy. ”

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But but but….

Sanctions Against Russia Have Cost European Union €30 Billion (RT)

New research by the Austrian Institute of Economic Research (WIFO) suggests the EU’s economic sanctions against Russia introduced three years ago have cost European countries billions of euro. The survey, which was conducted at the request of the European Parliament and published on Friday, showed EU exports to Russia declining annually by 15.7% since 2014. Up to 40% of that decrease was due to sanctions, it said. As a result of the penalties, Russia has lost its place as EU’s fourth largest trading partner and currently ranks fifth behind the US, Switzerland, China, and Turkey. WIFO calculated EU exports to Russia nosedived from €120 billion four years ago to €72 billion in 2016. According to the research, Cyprus was hit most as exports to Russia plunged 34.5% over the past two years. Greece suffered a 23.2% fall; Croatia’s exports were down 21%.

Austrian exports to Russia dropped by almost ten% or by €1 billion, WIFO said. Poland and the UK have lost €3 billion each. The researchers said the impact of sanctions was most damaging during the first year, as “not much progress has been made in switching trade flows to other countries.” EU sanctions against Russia were introduced in 2014 over the country’s alleged involvement in the conflict in eastern Ukraine. The penalties targeted Russia’s financial, energy, and defense sectors, along with some government officials, businessmen, and public figures. Moscow responded by imposing an embargo on agricultural produce and food and raw materials on countries that joined the anti-Russian sanctions. Since then the sides have repeatedly broadened and extended the restrictive measures.

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“You can always write a law and claim it is unconstitutional to separate. That does not make it legal, moral, or ethical.”

Moreover, it contradicts the UN Charter.

Spain is the Blueprint for How All Governments Will Act (Martin Armstrong)

What is going on in Spain is the blueprint what what other governments will do. The Spanish people themselves outside of Catalonia are deeply divided. Many see this as offensive and others see the government as offensive. We are looking at the breakup of the USA as well and do not forget the civil war to prevent separatists in America. The real issue is that people ban together for creating society and civilization and then government abuses its power and the process of decline begins. This is throughout history and it really does not matter what culture or country. It is all the same. Spain’s Constitutional Court, the puppet of Rajoy, on Thursday ordered the suspension of Monday’s session of the regional Catalan parliament. Rajoy is demonstrating that government will not tolerate losing power.

You can always write a law and claim it is unconstitutional to separate. That does not make it legal, moral, or ethical. Reuters reported: “The suspension order further aggravated one of the biggest crises to hit Spain since the establishment of democracy on the 1975 death of General Francisco Franco. But Spanish markets rose on perceptions the order might ward off, at least for now, an outright independence declaration.” The structure of the EU in attempting to federalize Europe required a single federal debt. That is what they failed to do so you ended up with a half-baked cake. This is why we have the problems in Europe as we do. But make no mistake about it, this is a political problem and what happens in Europe will be a contagion as it was in 1931. This will eventually cause major problems politically in the States as well.

Justice Scalia I greatly admired. However, his letter on the separatist movement in the USA said that the civil war decided there was no right to separate. I disagree with that opinion, but that is my opinion. There are those who object to my writing about Catalonia from the Madrid side. They create a list of hateful names directed at me personally and then say I know nothing of Spain. They are making the same mistake as government. They assume that government and Rajoy is Spain. The people are the sovereign of Spain – not Rajoy nor his Constitutional Court. If you cannot see that government is supposed to be “elected” by the people, they are not to be the ruler of the people as some monarch, they you have missed the entire point of history. You can hate me all you want, but it is your life you are surrendering to government and that of your posterity. We have a choice. We either understand that government when unchecked will go too far and surrender as sheep, or we stand up and try to make the future better for our posterity.

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Someone better intervene.

Catalans Call for Talks as Spain Enters Crunch Week (BBG)

A senior member of the Catalan administration called for dialogue with Spain, warning that all of Europe faces economic damage unless a resolution is found to his region’s standoff with the central government in Madrid. After a weekend of mass demonstrations in favor of Spanish unity, Raul Romeva, foreign affairs chief for the separatist government in Barcelona, insisted that the door was open for talks if Prime Minister Mariano Rajoy would grasp the chance of dialogue. “We need two to tango, we need the other side to be at the table,” Romeva said in an interview in Barcelona on Sunday. “We’re always going to be at the negotiation table, but to start negotiations we need the other party to negotiate with.”

The hint of an olive branch came as both sides hurtle toward crunch time in a dispute that threatens the breakup of Spain. Catalan President Carles Puigdemont has vowed to press ahead with his independence drive in a declaration due as soon as Tuesday, while Rajoy pledged that “national unity will be maintained” by using all instruments available to him. “The risk of this getting a lot worse, with correspondingly bad market development for Spanish assets, is still too great for my risk appetite,” said Erik Nielsen, chief economist at UniCredit. He predicted at least another week of pressure on Spanish and Catalan debt and assets before “things will eventually normalize.”

[..] Romeva invoked the crisis in the euro area that sent yields soaring on Spanish government debt and curbed access to finance, warning that the economic fallout of any worsening of the situation won’t be limited to Catalonia. “This simply won’t affect the Catalan economy, it’s going to affect the Spanish economy, it’s going to affect the European economy,” Romeva said. He blamed Madrid for causing the political uncertainty that’s prompted a stampede for the exit. “What causes uncertainty is the incapability of the political central state – or the Spanish state – to provide a political solution,” he said.

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Since Greece entered the bailout mechanism, foreclosures are down by 89%. Good.

Greece Foreclosures Target Seems Unattainable (K.)

Foreclosures, which have been practically frozen for the last eight years, represent the credit system’s Achilles’ heel. The impact from the paralysis of the auction system is already obvious in banks’ financial results on the reduction of nonperforming loans and threatens to undermine the target set for containing nonperforming exposures (NPEs). The ECB’s Single Supervisory Mechanism (SSM) has asked Greek lenders to bring down their NPEs by €11.5 billion through liquidations (property auctions) up to 2019. Meeting this target requires foreclosures worth €5.5 billion per year while takings from auctions have been poor.

The foreclosures scheduled for this year only concern 5,600 properties, worth €1.1 billion. This is the smallest number of auctions in recent years, given that 2016 (when auctions were held for 4,800 properties) was practically wasted due to protracted strikes by Greece’s lawyers and notaries. This year’s figures actually concern mostly auctions demanded by the state or private lenders, while banks have only instigated few auctions, mainly concerning commercial or industrial properties. For comparison purposes, one has to see the statistics from 2009, before Greece entered the bailout mechanism, when foreclosures numbered 52,000 and their value reached €4.2 billion. This means an 89% drop since then.

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I’ve said it before: the EU is the mafia.

Nearly There, But Never Further Away (FP)

The guard forced the migrants to kneel and began barking orders in Arabic, a language that few of the once-hopeful souls who had traveled to Libya from sub-Saharan Africa spoke. A gaunt, elderly man in ripped jeans and a tattered T-shirt failed to comply. The guard, wearing a crisp new uniform emblazoned with the insignia of Libya’s anti-illegal immigration police division, raised his wooden club and brought it down hard on the man’s back, driving him face down into the ground with the first blow. It was early May, three weeks after the staff at the Triq al-Sikka migrant detention center in the Libyan capital of Tripoli had received human rights training from the International Organization for Migration (IOM). The guard struck the elderly man again on the back and clubbed the back of his legs.

Then he moved methodically down the line of kneeling migrants, beating each man as if he were responsible for his fellow prisoner’s infraction. Cries of pain echoed through the barren, warehouse-like facility, where more than 100 half-starved migrants were locked away in crowded cells. Some had been there for months, enduring regular beatings and surviving on a few handfuls of macaroni and a single packet of juice each day. Others had recently been rounded up off the streets in raids targeting black African migrants. Soon after the beatings began, other guards at the facility noticed my presence and quickly ushered me into a waiting area outside the well-appointed office of Col. Mohamed Beshr, the urbane head of Libya’s anti-illegal immigration police.

Beshr is a key player in recent joint EU-Libyan efforts to halt migration to Europe, including intercepting migrants at sea and detaining them on land. He has welcomed high-level European diplomats and U.N. representatives to the Triq al-Sikka facility, and his office is filled with certificates from workshops run by IOM, the European Union, and Britain’s development agency. Yet Beshr seemed frustrated by my questions about the abuses openly taking place at the detention center he oversaw. To hear him tell it, his European partners cared about only one thing, even if they wouldn’t say it: preventing migrants from showing up on Italy’s shores. “Are they looking for a real solution to this humanitarian crisis?” Beshr asked, smirking and raising his eyebrows. “Or do they just want us to be the place where migrants are stopped?”

Eighteen months after the EU unveiled its controversial plan to curb illegal migration through Libya — now the primary point of departure for sub-Saharan Africans crossing the Mediterranean Sea to Europe — migrants have become a commodity to be captured, sold, traded, and leveraged. Regardless of their immigration status, they are hunted down by militias loyal to Libya’s U.N.-backed government, caged in overcrowded prisons, and sold on open markets that human rights advocates have likened to slave auctions. They have been tortured, raped, and killed — abuses that are sometimes broadcast online by the abusers themselves as they attempt to extract ransoms from migrants’ families.

The detention-industrial complex that has taken hold in war-torn Libya is not purely the result of a breakdown in order or the work of militias run amok in a state of anarchy. Visits to five different detention centers and interviews with dozens of Libyan militia leaders, government officials, migrants, and local NGO officials indicate that it is the consequence of hundreds of millions of dollars in pledged and anticipated support from European nations as they try to stem the flow of unwanted migrants toward their shores.

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Oct 302014
 
 October 30, 2014  Posted by at 12:14 pm Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle October 30 2014
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John Collier Japanese restaurant, Monday after Pearl Harbor, San Francisco Dec 8 1941

Fed Unshaken by Global Market Turmoil Bets on Job Gains (Bloomberg)
QE: Giving Cash To The Public Would Have Been More Effective (Guardian)
Fed’s Lonesome Dove Dissents as Brighter Outlook Appeases Hawks (Bloomberg)
Number Of Billionaires More Than Doubles In 5 Years Since Financial Crisis (CNBC)
Global Financial System ‘Incendiary’ Risk To Stability: BoE (Guardian)
Zombie Foreclosures Rise In 16 States And 60 Metro Areas (MarketWatch)
Greek Bond Investors Face Rollercoaster Ride On Euro Dilemma (Bloomberg)
‘China’s Property Prices May Decline Up to 10% This Year’ (Bloomberg)
China Backs Growth in Housing Again as Slowdown Prompts U-Turn (Bloomberg)
As Inflation Deadline Looms, Bank Of Japan Runs Out Of Options (Reuters)
Japan Pension Fund To Double Domestic Stocks Holdings to 24% (Bloomberg)
A New Twist in the Argentine Debt Saga (BW)
Why Oil Prices Went Down So Far So Fast (Bloomberg)
Ukraine Gas Supplies In Doubt As Russia Seeks EU Payment Deal (Reuters)
Can Europe Keep the Lights On This Winter? (Bloomberg)
The Benefits Of Living In A Teeny House (Next Avenue)
In US Ebola Fight, No Two Quarantines Are Quite The Same (Reuters)
Ebola: Danger In Sierra Leone, Progress In Liberia (AP)

And so we boldly go.. To infinity and beyond.

Fed Unshaken by Global Market Turmoil Bets on Job Gains (Bloomberg)

Federal Reserve officials dismissed recent turmoil in global financial markets, and focused instead on “solid” employment gains that will keep them on a path toward an interest-rate increase next year. A majority of U.S. policy makers at their meeting yesterday also set aside concerns, both among their own members and in financial markets, about too-low inflation, voting to proceed with plans to end their third round of asset purchases. “The FOMC is making a pretty bold call here,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The economy’s momentum is strong enough to push through the headwinds of slower world growth.”

While bond and commodities markets have signaled concern about a global slowdown since Fed officials last met Sept. 16-17, U.S. central bankers decided to go with the facts in hand, said Paul Mortimer-Lee, chief economist for North America at BNP Paribas in New York. “They have concentrated on what they are sure of: the labor side of the economy is improving,” Mortimer-Lee said. On inflation, the message was, “We are going to take our time and look.” The Federal Open Market Committee maintained its commitment to keep interest rates low for a “considerable time.” The committee cited “solid job gains and a lower unemployment rate” since its last gathering in September. It said “underutilization of labor resources is gradually diminishing,” modifying earlier language that referred to “significant underutilization.”

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But ….

QE: Giving Cash To The Public Would Have Been More Effective (Guardian)

It’s 2008. Your name is Ben Bernanke, the world’s most powerful central banker. The world’s financial system is going through its own version of the China Syndrome. Do you: a) do nothing and trust the self-correcting properties of capitalism; b) cut interest rates as far and as fast as you can in the hope that cheap money will avert catastrophe; or c) go for broke by trying something different? Bernanke, an expert on the 1930s, chose c). He embraced the idea of quantitative easing, which involves increasing the money supply in order to stimulate economic activity. The Bank of England quickly followed suit. Neither Bernanke nor Mervyn King wanted to be known as the central banker who failed to prevent a deep recession becoming a second Great Depression. The decision by Bernanke’s successor, Janet Yellen, to call time on QE is an appropriate juncture to ask some fundamental questions.

Has QE worked? Does it mean the end of economic stimulus? Who really gained from the policy? Were there any better alternatives? The answer to the first question is that QE has worked, up to a point. Sure, this has been a tepid recovery in the US and a non-existent recovery in Europe, but the outcome would almost certainly have been a lot worse had central banks not augmented ultra-low interest rates with their money creation programmes. The comparison between the US and Europe is telling: monetary policy has been far more proactive and expansionary in the US than it has been in the eurozone, which helps to explain the disparity in growth and unemployment rates. It is also the case, though, that the impact of QE has been blunted in the US and the UK by the combination of unconventional monetary policies with conservative fiscal policies. There has been a tug of war between stimulus and budgetary austerity.

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Don’t be fooled by the theater.

Fed’s Lonesome Dove Dissents as Brighter Outlook Appeases Hawks (Bloomberg)

To understand the direction that the Federal Reserve is taking in its new policy statement released today, look at who dissented – and who didn’t. Minneapolis Fed President Narayana Kocherlakota cast a dovish dissent, saying policy makers should have continued their asset purchases and done more to ensure inflation gets up to their 2% target. Last time it was hawkish Presidents Richard Fisher of Dallas and Philadelphia’s Charles Plosser, who voted against the September Federal Open Market Committee statement as being too downbeat about strength in the economy. “If you go by the dissents, we’re now leaning more to one side of the bird cage than the other,” said Beth Ann Bovino, chief U.S. economist at Standard & Poor’s. “We’re now seeing dissent from someone considered dovish.”

Today’s statement emphasized “solid job gains” as the FOMC ended its third round of asset purchases and kept mute about slowdowns in China and Europe. It maintained a commitment to keep interest rates low for a “considerable time.” Kocherlakota’s dissent, which echoed comments he’s made in recent speeches, cited falling inflation expectations. “The Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2% and should continue the asset purchase program at its current level,” he said, according to today’s FOMC statement.

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” … a levy of 1.5% on billionaire’s wealth over $1 billion would raise $74 billion, which would generate enough each year to get every child into school and deliver health care in the poorest countries.”

Number Of Billionaires More Than Doubles Since Financial Crisis (CNBC)

The super-rich club has become less exclusive, with the amount of billionaires doubling since the financial crisis, according to a report from global charity Oxfam. There were 1,645 billionaires globally as of March 2014, according to Forbes data cited in the Oxfam report, up from 793 in March 2009. Oxfam honed in on this figure to highlight the growing gap between the world’s rich and poor. Hundreds of millions of people live in abject poverty without healthcare or education, while the super-rich continue to amass levels of wealth they may never be able to spend. The report ‘Even it Up: Time to End Extreme Inequality’ noted that the world’s richest 85 people saw their wealth jump by a further $668 million per day collectively between 2013 and 2014, which equates to half a million dollars a minute. In January Oxfam issued a report highlighting that the world’s 85 richest people’s collective wealth is equal to that the poorest half of the world’s population.

“Far from being a driver of economic growth, extreme inequality is a barrier to prosperity for most people on the planet,” said Winnie Byanyima, international executive director of Oxfam. “Inequality hinders growth, corrupts politics, stifles opportunity and fuels instability while deepening discrimination, especially against women,” she added. The Oxfam report is the opening salvo of a fresh Oxfam campaign – Even it Up – which aims to push world leaders into helping ensure the poorest people get a fairer deal. “Action is needed to clamp down on tax dodging carried out by multinational corporations and the world’s richest individuals,” the authors of the report added. Oxfam suggests a levy of 1.5% on billionaire’s wealth over $1 billion would raise $74 billion, which would generate enough each year to get every child into school and deliver health care in the poorest countries.

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This from the Bank of England’s chief economist. Who is very much a part of the global financial system.

Global Financial System ‘Incendiary’ Risk To Stability: BoE (Guardian)

The global monetary system has become so deeply interconnected that it poses an “incendiary” threat to stability unless a radical new international approach is taken, the Bank of England’s chief economist has warned. Andy Haldane said the world is not currently equipped to deal with the “darkest consequences” of an international monetary system and said a new set of rules and tools at a multilateral level would be needed to lessen the risks it posed. “The international monetary and financial system has undergone a mini-revolution in the space of a generation as a result of financial globalisation. It has become a genuine system.

This has altered fundamentally the risk-return opportunity set facing international policymakers: larger-than-ever opportunities, but also greater-than-ever threats,” he said in a speech at Birmingham University. “Today, cross-border stocks of capital are almost certainly larger than at any time in human history. We have hit a new high-water mark. The same is probably true of cross-border flows of goods and services and is most certainly true of cross-border flows of information.” He suggested measures to improve resilience might include an enhanced role and increased resources for the International Monetary Fund, with responsibility for tracking the global flow of funds and as a quasi-international lender of last resort.

Haldane said that part of the problem was that global investors tended to behave in the same way. “There is greater co-movement among similar asset types across countries than among different asset types within countries.” He said new macro-prudential tools at an international rather than national level would also potentially help. “If credit cycles are global in nature, there may in future be a case for national macro-prudential policies leaning explicitly against these global factors. This would help curb the global credit cycle at source. It would take international macro-prudential policy co-ordination to the next level.”

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There were still some 600,000 homes in foreclosure in Q3 2014.

Zombie Foreclosures Rise In 16 States And 60 Metro Areas (MarketWatch)

Zombie foreclosures are on the decline, but they’re still scaring people in 60 metro areas and 16 states. There were 117,298 owner-vacated foreclosures nationwide in the third quarter of 2014, representing 18% of total properties in foreclosure, down from 141,406 in the second quarter of 2014 (17% of all foreclosures) and down 152,033 (23% of foreclosures) in the same period last year, according to data released Thursday by the real estate website RealtyTrac. “Zombie” foreclosures occur when the owner leaves the property, but the bank has yet to take possession of it. Contrary to this national trend, there were increases in owner-vacated foreclosure in the third quarter in 16 states, including New Jersey, where zombie foreclosures surged 75% year-over-year, North Carolina (up 65%), Oklahoma (up 37%), and New York (up 30%) and Alabama (up 29%).

The New York metro area had the most zombie foreclosures (13,366) in the third quarter, followed by Miami (9,869), Tampa (7,509), Chicago (7,326), Philadelphia (5,405) and Orlando (3,732). A short and efficient foreclosure prevents zombies, says Daren Blomquist, vice president at RealtyTrac. Some states passed laws to give homeowners more time to avoid foreclosure through face-to-face mediation and other means, which sometimes just delays the inevitable, he says. “The best antidote for a zombie foreclosure infestation is a pro-active land bank program like that in Cleveland and, more recently, Chicago designed to aggressively take possession of vacant foreclosures or demolish them.”

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That’s quite the quote: “Volatility is caused by the fear of snap elections and the possibility that these will be won by a party which is not normal.“ here’s rooting for Syriza.

Greek Bond Investors Face Rollercoaster Ride On Euro Dilemma (Bloomberg)

Greek bond investors face a rollercoaster ride for the next four months as the government tries to contain the risk of snap elections, Minister of Administrative Reform Kyriakos Mitsotakis said. Prime Minister Antonis Samaras has until February to pull together a supermajority in the national parliament to elect a new president or the anti-bailout opposition party Syriza will force a snap election. That would return Greek voters to their 2012 dilemma when the country’s membership of the single currency hung by a thread, Mitsotakis said in an interview. “The reality is that there will be a climate of uncertainty until February,” Mitsotakis, 46, said in his Athens office overlooking the Acropolis. “Volatility is caused by the fear of snap elections and the possibility that these will be won by a party which is not normal.”

A two-year rally in Greek government bonds has fizzled out over the past month, as investors wake up to the political risks still at large in Greece as Samaras struggles to hold onto office. The prime minister is trying to shake off the euro area and International Monetary Fund officials who have policed the budget cuts that have angered voters while retaining enough financial backup to keep investors onside. Asked whether investors should just dump their Greek bond holdings until the next president has been installed, Mitsotakis said: “Don’t ask me, I’m just doing my job. Ask Syriza.”

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This means millions of people will lose 10% on the bulk of their savings. Better place the army on alert right now.

‘China’s Property Prices May Decline Up to 10% This Year’ (Bloomberg)

China property prices may decline as much as 10% this year and the slump may extend into 2015, according to SouFun Holdings Ltd. “Chinese property prices are seeing an adjustment after the rapid increase in the past two years,” Vincent Mo, founder of China’s biggest real estate information website, said in a Bloomberg Television interview with Haslinda Amin in Singapore yesterday. “Prices should stabilize by the middle of next year.” China’s new-home prices fell in all but one city monitored by the government last month from August, the most since January 2011 when the way the date is compiled changed, as the easing of property curbs failed to stem a market downturn amid tight credit.

Home sales slumped 11% in the first nine months, prompting the central bank to ease mortgage restrictions on Sept. 30. All but five of the 46 cities that imposed limits on home ownership since 2010 have removed or relaxed such restrictions amid the property downturn that has dented local revenues from land sales. The People’s Bank of China’s new rules give homeowners who have paid off their mortgages and want a second property the same advantages as first-time buyers, including a 30% minimum down payment, compared with at least 60% previously.

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They can’t manipulate property prices the way they do growth numbers. Property is what people feel directly in their pockets.

China Backs Growth in Housing Again as Slowdown Prompts U-Turn (Bloomberg)

With China headed for its slowest full-year expansion in a generation, the government has listed housing as one of the six consumption areas to be encouraged after years of trying to cool the property industry. China will “stabilize” property-related consumption and make it easier for people to access mandatory housing savings, the State Council said in a statement late yesterday after Premier Li Keqiang presided at a regular meeting. The last time China’s State Council documents mentioned “stabilizing” housing consumption was in April 2009, when the government was rolling out a massive stimulus plan to shield the economy from a global slowdown. Gross domestic product expanded 7.3% in the third quarter from a year earlier, the weakest pace in more than five years.

“The announcement marks a U-turn in stance towards the property sector after years of attempts to cool it down,” Dariusz Kowalczyk, a Credit Agricole strategist in Hong Kong, wrote in a note today. It’s the first time in recent years that the central government officially declared direct support for the housing market, according to Credit Suisse Group. New-home prices fell in 69 out of 70 cities monitored by the government last month from August. Property prices may decline as much as 10% this year and the slump may extend into 2015, according to SouFun Holdings Ltd.

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Desperate illusions. Won’t be long now.

As Inflation Deadline Looms, Bank Of Japan Runs Out Of Options (Reuters)

There is almost no way the central bank can hit the two-year, 2% inflation target Kuroda set when he unleashed unprecedented monetary stimulus in April 2013. Economists think it is unlikely to even get close in the foreseeable future. That could undermine Kuroda’s so far unchallenged authority to implement radical policies and cast doubt on his money-printing drive to revive Japan’s economy, interviews with more than a dozen current and former BOJ officials and insiders show. “The board members gave Kuroda’s experiment a one-year moratorium,” said a former central bank board member who still has close contacts with incumbent policymakers. “They decided to wait-and-see for a year. But now it’s time of reckoning.”

A divided board could undermine the public confidence essential to Kuroda’s success in embedding expectations of inflation, and leave markets fretting about how authorities will deal with the central bank’s massively expanded balance sheet. Kuroda has been relentlessly optimistic even as the economy, hit by a sales tax hike in April, flirts with recession and falling oil prices threaten to pull inflation below 1%. But most of his policymaking board has always been quietly skeptical of his signature “quantitative and qualitative easing” (QQE), a policy that floods liquidity into the banking system to end 15 years of falling prices, and now the fissures are widening.

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Bitter tears and violent protests. The only possible outcome of this.

Japan Pension Fund To Double Domestic Stocks Holdings to 24% (Bloomberg)

Japan’s $1.2 trillion pension fund will double its allocation target for local stocks, according to analysts, who’ve ratcheted up expectations for equity buying while sticking with projections for a reduction in bonds. The Government Pension Investment Fund will increase its domestic equity allocation to 24% of assets from 12%, according to the median estimate of 12 fund managers, strategists and economists polled by Bloomberg over the past two weeks. That’s up from 20% in a similar survey in May. The Topix index soared 4% on Oct. 20 on a Nikkei newspaper report that the fund would set a 25% local-share target.

Speculation about the behemoth’s new strategy has held Japan’s markets in sway since a government-picked panel said almost a year ago that GPIF was too reliant on domestic bonds. The fund will slash its local debt allocation to 40% from 60%, unchanged from May, the median survey prediction shows. Credit Agricole and Barclays say anticipation for the shift is so high that equities are vulnerable to a sell-off on the announcement. “I think investors will sell Japanese stocks on the fact after buying on the rumor,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole. “Over the medium and longer term, the changes will buoy demand for shares and gradually support the market.”

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More vultures.

A New Twist in the Argentine Debt Saga (BW)

A new player has emerged in the Argentine debt drama. The question is why, and what does it mean? Last week, Kenneth Dart, the billionaire heir to a Styrofoam cup fortune, jolted the Argentine debt negotiations by asking a New York judge to force Argentina to pay his bonds in full, too. Like Elliott Management’s Paul Singer, who has led a group of holdout bond investors trying to compel the Argentine government to reach a settlement with them, Dart is known as a “vulture investor” who has made a career of buying defaulted debt and then suing to be repaid at full value. Dart, it turns out, owns more defaulted Argentine bonds through his fund EM Ltd. than Singer’s fund NML Capital does, with $595 million worth to NML’s $503 million. Until now, though, he has remained quietly behind the scenes, as Singer and four other investors publicly battled the Argentine government through the U.S. court system.

His sudden appearance shows that settling with Singer’s group of holdouts may not actually solve Argentina’s problems. Argentina went into default on July 30 after a $539 million bond payment was blocked by a federal judge who said that the country can’t pay any of its exchange bondholders, who participated in the country’s two debt restructurings, until a group of holdout hedge funds are paid on their bonds. In addition to exacerbating what is already a difficult economic climate in Argentina, it has put the country’s leaders in something of a pickle. Argentine President Cristina Fernandez de Kirchner has made her battle against the American “vulture” hedge funds a central theme of her politics. To reverse course now, and pay Singer and the others what they want, would likely come at a high political cost. The goal then, from Argentina’s perspective, is to reach a resolution with the holdouts at the lowest price possible, and that can only be accomplished by diluting their leverage.

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Anything but squeezing Russia. Not a terribly clever approach.

Why Oil Prices Went Down So Far So Fast (Bloomberg)

The reasons oil prices started sliding in June were hiding in plain sight: growth in U.S. production, sputtering demand from Europe and China, Mideast violence that threatened to disrupt supplies and never did. After three-and-a-half months of slow decline, the tipping point for a steeper drop came on Oct. 1, said Ray Carbone, president of broker Paramount Options Inc. That’s when Saudi Arabia cut prices for its biggest customers. The move signaled that the world’s largest exporter would rather defend its market share than prop up prices. “That, for me, was the giveaway,” Carbone said in an Oct. 28 phone interview. “Once it started going, it was relentless.” The 29% drop since June of the international price caught traders and forecasters by surprise.

After a steady buildup of supply and weakening demand, the outbreak of an OPEC price war is casting doubt on investments in new oil resources while helping the global economy, keeping inflation in check and giving motorists a break at the pump. Brent crude, the global benchmark, declined to $82.60 a barrel on Oct. 16, the lowest in almost four years, from $115.71 on June 19. In the U.S., West Texas Intermediate touched $79.44 on Oct. 27, the lowest since June 2012. U.S. regular unleaded gasoline is averaging close to a four-year low of $3.023 a gallon nationwide, according to AAA. The bear market exceeded the decline anticipated in exchange-traded futures, used by producers to hedge price swings. As recently as a month ago, Brent for delivery in November traded at $97.20 a barrel, 12% above the current price.

OPEC Secretary-General Abdalla el-Badri denied the existence of a price war. “Our countries are following the market,” he said yesterday at the Oil & Money conference in London. “People are selling according to the market price.” Prices stayed higher earlier this year as traders focused on the risk that armed conflicts in Libya, Iraq and Ukraine could interfere with oil production, according to Jeff Grossman, president of New York-based BRG Brokerage. The disruptions never materialized. “This one caught a few people off guard because they were still worried about some of these geopolitical things that were happening all over the world that never came to fruition,” said Grossman, a New York Mercantile Exchange floor trader. “We probably never should have been over $100.”

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Why does it take so long to get a bill paid?

Ukraine Gas Supplies In Doubt As Russia Seeks EU Payment Deal (Reuters)

Ukraine’s efforts to unblock deliveries of Russian gas as winter sets in were deadlocked on Thursday as Moscow’s negotiators were quoted demanding firmer commitments from the European Union to cover Kiev’s pre-payments for energy. EU-hosted talks were adjourned after running late into the night, Energy Minister Alexander Novak and the head of Russian gas firm Gazprom told Russian news agencies. They would resume later in the day if Ukraine and the EU had a firm financing deal in place, Gazprom head Alexei Miller said.

There has already been agreement on the price Kiev will pay for gas over the winter, the amount to be supplied and the repayment of some $3.1 billion in unpaid Ukrainian bills but Moscow, which cut off vital pipelines in June as the conflict with Ukraine and the West deepened, wants more legal assurances that Kiev can pay some $1.6 billion for new gas up front. Some critics of Russia question whether its motivation is financial or whether prolonging the wrangling with ex-Soviet Ukraine and its Western allies suits Moscow’s diplomatic agenda. Ukraine is in discussions with existing creditors the EU and the IMF and German Chancellor Angela Merkel, concerned about vital Russian gas supplies to the rest of Europe has spoken of bridging finance for Kiev. But the Russian negotiators said they wanted to see a signed agreement on EU financing for Ukraine.

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Europe is on the verge of an energy squeeze. Time for smart people to stand up. I haven’t seen them yet.

Can Europe Keep the Lights On This Winter? (Bloomberg)

Europe may struggle to keep the lights on as temperatures drop as the switch to greener sources of energy complicates the balance between supply and demand in the region. The inconvenience of brownouts, though, should have the welcome effect of forcing governments to address their attitudes toward both nuclear power and fracking for shale gas. About 7% of the world’s population lives in Europe, yet regional spending of 500 billion euros ($625 billion) on renewable energy investment between 2004 and 2013 accounts for half of total global spending on wind farms, solar installations and the like. Renewable sources now provide more than 14% of the Europe’s energy, up from 8.3% in 2004, according to a report published this week by consulting firm Cap Gemini. The bigger the contribution from renewables, though, the more difficult it is to manage power-transmission grids. And that shift to greener energy coincides with disruptions in a host of Europe’s more traditional power-generation methods.

Governments are committed to curbing carbon emissions from coal-burning plants, and there’s a post-Fukushima aversion to nuclear power. Utilities have reduced output from natural-gas fired plants in response to Europe’s economic slowdown, and the region’s aging thermal generators are being retired from service. Global politics is also a threat; 30% of Europe’s gas comes from Russia, and about half of that travels through Ukraine. The result, according to Cap Gemini, is a market in need of massive investment: This winter, security of supply is already threatened in certain European countries. The present situation of chaotic wholesale markets, with negative wholesale prices and increasing prices for retail customers, is likely to prevail in coming years.

By 2035, Europe will need to invest $2.2 trillion in electricity infrastructure alone. With the present uncertain situation and the difficult financial environment for utilities, these investments could be delayed and security of the electricity supply could be at risk in the long term also. Fracking remains almost taboo in Europe. France has banned it, with Environment Minister Segolene Royal calling it a “very dangerous technique” and the benefits of shale gas a “mirage.” Germany said in July it would ban fracking at depths of less than 3 kilometers (1.9 miles), which effectively outlaws the practice for most companies. A July joint report by Scientists for Global Responsibility and the Chartered Institute of Environmental Health said U.K. rules governing shale-gas exploration don’t do enough to safeguard public health.

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Always a sunny topic.

The Benefits Of Living In A Teeny House (Next Avenue)

What if you could live in a house that was mortgage-free and takes about 10 minutes to clean – a house that leaves you unburdened by possessions and the full-time job required to pay for them? The trade-off: Your new house is about the size of a biggish, albeit charming, storage shed. That’s the journey Dee Williams recounts in her new book, “The Big Tiny: A Built-It-Myself Memoir.” Williams got rid of her normal-size house, most of her possessions and her job as a hazardous waste inspector after suffering a heart attack 10 years ago. She built, and now lives with her dog in, an 84-square-foot house on a trailer parked in a friend’s backyard in Olympia, Wash.

Next Avenue spoke with Williams, 51, about discovering a larger life in a smaller house: Next Avenue: Your heart problems (heart attack and a congestive heart failure diagnosis) sent you into a sort of existential crisis. Williams: It wasn’t that I was unhappy in my life before my heart attack. I was clipping along building my career, hoping to meet Mr. Right and fall in love and do all of that stuff. I loved my house. I wasn’t struggling to make the mortgage. It was just that I didn’t have any freedom to be able to quit my job if I wanted to. After my heart attack, what became clear was that I wanted my time.

I wanted every minute of my day for whatever I wanted to do. And I wasn’t going to be able to get that with a $250,000 mortgage. Your solution was to build an 84-square-foot house on a trailer. This idea floated in front of me in the doctor’s office when I read an article about (tiny house builder and advocate) Jay Shafer. It seemed like a logical solution for housing for me. I wasn’t sure how long my health would last. I wasn’t sure what that would mean for me as a single person. Would I move in with my friends? Would my brother come back from Iowa and take care of me? Where would I would be most comfortable if I got sick? The other part was when I saw a little pointy-roofed house — it was so cute. I was enamored.

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If you didn’t know any better, you’d presume ebola was an American issue.

In US Ebola Fight, No Two Quarantines Are Quite The Same (Reuters)

In the U.S. battle against Ebola, quarantine rules depend on your zip zode. For some it may feel like imprisonment or house arrest. For others it may be more like a staycation, albeit one with a scary and stressful edge. If they are lucky, the quarantined may get assigned a case worker who can play the role of a personal concierge by buying groceries and running errands. Some authorities are allowing visitors, or even giving those in quarantine permission to take trips outside to walk the dog or take a jog. A month after the first confirmed case of Ebola in the United States, state and local health authorities across the country have imposed a hodgepodge of often conflicting rules.

Fears about a possible U.S. outbreak were reignited after American doctor Craig Spencer was hospitalized with Ebola in New York last Thursday after helping treat patients in West Africa, the epicenter of the worst outbreak on record. Some states, such as New York and New Jersey, have gone as far as quarantining all healthy people returning from working with Ebola patients in West Africa. Others, such as Virginia and Maryland, said they will monitor returning healthcare workers and only quarantine those who had unprotected contact with patients. In Minnesota, people being monitored by the state’s health department are banned from going on trips on public transit that last longer than three hours – the aim being to reduce exposure to others if someone does start to develop symptoms during a journey. But people with known exposure to Ebola patients will be restricted to their homes without any physical contact allowed.

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But in reality, it’s a real problem only in West Africa.

Ebola: Danger In Sierra Leone, Progress In Liberia (AP)

Liberia is making some progress in containing the Ebola outbreak while Sierra Leone is “in a crisis situation which is going to get worse,” the top anti-Ebola officials in the two countries said. The people of both countries must redouble efforts to stop the disease, which has infected more than 13,000 people and killed nearly 5,000, the officials said. Their assessments underscore that Ebola remains a constant threat until the outbreak is wiped out. It can appear to be on the wane, only to re-emerge in the same place or balloon elsewhere if people don’t avoid touching Ebola patients or the bodies of those who succumb to the disease. “We need to go ahead to stop the transmission in order to arrest the situation,” Palo Conteh said late Wednesday in the Sierra Leone capital, in his first press conference since the president this month appointed him CEO of the National Ebola Response Center. Conteh was previously the defense minister.

“Our proud country has faced so many challenges, but none more serious than today,” he said. “Today we have a new and vicious enemy, an enemy that does not wear uniform, that … attacks anyone that comes into contact with (it) and if unchecked will ravage our beautiful land and its fine people.” Although the outbreak is now hitting areas in and around Sierra Leone’s capital, posing a huge threat, Conteh noted that it is on the wane in the former Ebola hotpots of Kenema and Kailahun, across the nation in the east. “If people in other areas of the country copy the example of eastern Kailahun and Kenema Districts, then the spread of the disease will subside like in Kailahun and Kenema. As I speak, people (near the capital) are still touching people suspected with the Ebola disease, people are still burying corpses at night of those who have died of the disease,” he said.

With international assistance growing, Conteh said up to 700 beds would be set up in treatment centers and that the United Nations has four helicopters in the country. A British hospital ship is expected to dock in Freetown on Thursday. In neighboring Liberia, the rate of Ebola infections appears to be declining, perhaps by as much by 25% week over week, the World Health Organization said Wednesday.

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Oct 172014
 
 October 17, 2014  Posted by at 11:15 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Marjory Collins 3rd shift defense workers, midnight, Baltimore April 1943

Greek Bond Rout Drags Down Markets From Ireland to France (Bloomberg)
World Braces As Deflation Tremors Hit Eurozone Bond Markets (AEP)
Greek Drama: Bond Yields Near 9% Threshold (CNBC)
Eurozone Crisis, 5 Years On: No Happy Ending For Greek Odyssey (Guardian)
European Bonds: It’s Every Country For Itself Now (CNBC)
Euro Economy’s Managers Aren’t Blinking in Market Rout (Bloomberg)
Volckerized Wall Street Dumping Bonds With Rest of Herd (Bloomberg)
Pimco To Blackstone Preparing To Feast On Junk Bonds (Bloomberg)
High-Speed Traders Put a Bit Too Much Gravy on Their Meat (Bloomberg)
10 States Where Foreclosures Are Soaring (MarketWatch)
‘Stunning’ Fed Move Put Bottom Under Stocks (CNBC)
Russia Takes EU To Court Over Ukraine Sanctions (FT)
The Big Perk Of Oil’s Wild Slide (CNBC)
Gloves Off Over Oil: Saudi Arabia Versus Shale (CNBC)
The New Defensives: High Yield And The Dollar (CNBC)
Is The ‘Lucky Country’ Headed For Gloomy Times? (CNBC)
Don’t Hold Your Breath Waiting For QE4 (CNBC)
Bank of England Chief Economist ‘Gloomier’ About UK Prospects (Guardian)
Is Asia Ready for Another Wild Ride? (Bloomberg)
Japan No.1 Pension Fund Would Be ‘Stupid’ to Give Asset Goals First (Bloomberg)
‘Ebola Epidemic May Not End Without Developing Vaccine’ (Guardian)
WHO Response To Ebola Outbreak Foundered On Bureaucracy (Bloomberg)

Greek bond yields have slid back into danger territory. They were at 9% last night, far higher than the 7% ‘barrier’ generally assumed to separate acceptable from unsustainable. Someone better do something quick. Left wing Syriza party chief Tsipras is waiting to take over.

Greek Bond Rout Drags Down Markets From Ireland to France (Bloomberg)

Greece’s government debt is back in the spotlight and investors are looking for the exit. As the four-day rout in Greek bonds sent yields to the highest since January, the selloff started to infect nations from Ireland to Portugal and even larger countries such as France. In Spain, a debt auction fell short of the government’s maximum target, and European stocks extended their longest losing streak since 2003. German 10-year bunds fell for the first time in three days, pushing the yield on the euro region’s benchmark securities up from a record low. “We are in a typical flight-to-quality environment with substantial losses in stock markets and wider spreads,” said Patrick Jacq, a fixed-income strategist at BNP Paribas SA in Paris. “The Spanish auction suffered from the environment, not from domestic reasons. It’s the market environment which is not favorable.”

[..] It’s five years since a change in government in Greece set in motion the debt crisis by unveiling a budget deficit that was larger than previously reported by its predecessor. The country was eventually granted a €240 billion lifeline that has kept it afloat since 2010. Markets slid this week after euro-area finance ministers clashed with the nation’s leaders over their plan to leave their safety net, sparking concern that Greece won’t be able to finance itself at sustainable rates without the support of its regional partners. The lack of supervision may lead to the country backtracking on reforms agreed with the EU and the IMF. “Whether that’s a bellwether for more problems to come or not, I’m doubtful of, but we certainly saw the periphery sell off,” Andrew Wilson at Goldman Sachs said in an interview with Bloomberg TV, referring to the slump in Greek bonds yesterday. “It was a flight to quality, it was a bit of a scary story for a while there and I think that’s all it’s reflecting.” Greek bonds have lost 17% in the past month, cutting their return this year through yesterday to 9.9%.

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“The yields are not just discounting a protracted slump, they are also starting to price default risk yet again, or even EMU break-up risk.”

World Braces As Deflation Tremors Hit Eurozone Bond Markets (AEP)

Eurozone fears have returned with a vengeance as deepening deflation across Southern Europe and fresh turmoil in Greece set off wild moves on the European bond markets. Yields on 10-year German Bund plummeted to an all-time low on 0.72pc on flight to safety, touching levels never seen before in any major European country in recorded history. “This is not going to stop until the European Central Bank steps up to the plate. If it does not act in the next few days, this could snowball,” said Andrew Roberts, credit chief at RBS. Austria’s ECB governor, Ewald Nowotny, played down prospects for quantitative easing, warning that the markets had “exaggerated ideas about purchase volumes” and that no asset-backed securities (ABS) would be bought before December. Calls for action came as James Bullard, the once hawkish head of St Louis Federal Reserve, said the Fed may have to back-track on bond tapering in the US, hinting at yet further QE to fight deflationary pressures and shore up defences against a eurozone relapse.

“The forces of monetary deflation are gathering,” said CrossBorderCapital. “Global liquidity is declining and central banks are not doing enough, either in the West or the East to offset the decline. This may not be a repeat of 2007/2008, but it is starting to look more and more like another 1997/1998 episode.” This is a reference to the East Asia crisis and Russian default triggered by withdrawal of dollar liquidity. Ominously, French, Italian, Spanish, Irish, and Portuguese yields diverged sharply from German yields in early trading today, spiking suddenly in a sign that investors are again questioning the solidity of monetary union. The risk spread between Bunds and Italian 10-year yields briefly jumped 38 basis points. This was the biggest one-day move since the last spasm of the debt crisis in 2012. This sort of price action suggests that the markets fear deflation is becoming serious enough to threaten the debt dynamics of weaker EMU states. The yields are not just discounting a protracted slump, they are also starting to price default risk yet again, or even EMU break-up risk.

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” … well beyond the 7%-threshold which many analysts believe is unsustainable”.

Greek Drama: Bond Yields Near 9% Threshold (CNBC)

Greek government bond yields spiked beyond 8% on Thursday, in a sign of growing concern about the country’s economic stability given the possibility of snap elections and plans to exit its bailout early. The 10-year note yielded 8.9% on Thursday at Europe market close, well beyond the 7%-threshold which many analysts believe is unsustainable. It is the first time yields have passed this point since January. On Wednesday evening, the sovereign note yielded 7.863%. The volatility comes amid growing concerns about Athens’ plans to exit its bailout ahead of schedule. On Saturday, Prime Minister Antonis Samaras won a confidence vote in parliament, forcing lawmakers to back his plans to exit its international aid program early – a prospect that is looking increasingly unlikely. Samaras’ government has also been plagued by the prospect of snap elections early next year if the prime minister fails to gain the support of opposition lawmakers for his candidate for president. A promise to exit the painful program early was key in securing that backing.

The concerns have led to a turbulent few days for Greek markets, with the Athens’ benchmark index tanking up to 9% on Wednesday. On Thursday, the ASE closed down around 2.2% lower and is now down around 25% this year. It also proved to be the spark that turned markets south on Thursday morning after equities bounced back slightly at the session open. “This smacks of the ‘risk off’ move of old,” Richard McGuire, a senior rate strategist at Rabobank told CNBC via email. “The peripherals are under pressure across the board which is potentially an alarming sign that fundamental risk is returning.” In a bid to free up some more money for the country’s banks, the European Central Bank cut the haircut it applies on bonds submitted by Greece’s banks as collateral to raise money. The new discount meant an extra 12 billion euros of liquidity could be tapped by Greek banks, the country’s central bank governor Yannis Stournaras told reporters.

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There we go again.

Eurozone Crisis, 5 Years On: No Happy Ending For Greek Odyssey (Guardian)

Greece loves its epic tales and the greatest of them is the story of Odysseus, the hero who took 10 years to find his way back to Ithaca at the end of the Trojan War. A modern version of the Odyssey began in Greece five years ago this weekend when the government in Athens admitted that it had cooked the books to make its budget deficit look much smaller than it actually was. Few thought then that the scandal would have serious ramifications or that the journey through the stormy seas of crisis would have taken so long. Back in October 2009, the mood in the eurozone was one of cautious optimism.

The year had started with Europe caught up in the global economic crash that followed the collapse of Lehman Brothers, but co-ordinated action by the G20 during the winter of 2008-09 had created the conditions for a recovery in growth that appeared to be gaining strength as the year wore on. The admission by George Papandreou’s new socialist government of a black hole in Greece’s public finances was unwelcome but not viewed as something to be unduly worried about. But the policy makers in Brussels and Frankfurt were wrong. Greece did matter. What has become clear subsequently is that the eurozone crisis is similar to Scylla, the monster that devoured many of Odysseus’s men: a many-headed beast.

The first sign of the crisis to come was the deterioration in government finances, not just in Greece but in other eurozone countries. In truth, though, rising deficits were symptoms of three bigger problems. The first was that many countries in the eurozone had a competitiveness problem. Monetary union had given all the members of the single currency a common interest rate and no freedom to adjust their exchange rates. This meant that if a country had a higher inflation rate than its neighbour, its goods for export would gradually become more expensive. This is what had happened regularly to Italy during the post-war period, when its inflation rate was invariably higher than that in Germany. This time, however, Italy could not devalue.

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Samaras’ game is up.

European Bonds: It’s Every Country For Itself Now (CNBC)

The honeymoon for European bond rates appears to be over for the Continent’s most-troubled economies. After more than a year of interest rates across the Continent moving lower in lockstep—regardless of the country—the last 24 hours show a breakdown in the relationship. Investors are still pouring into German bunds, much as they are still moving into U.S. Treasurys. But they are selling Italian, Spanish, Portuguese and especially Greek debt. Doug Rediker, CEO of International Capital Strategies, told CNBC that the differentiation represents “a more rational recognition of both credit risks and economic performance within the euro zone.” Investors are once again differentiating between countries based on the ability of their economies to grow—and for their governments to eventually pay back their debts.

Peter Boockvar, chief market analyst at The Lindsey Group, said that the end of easy money from quantitative easing and the “impotence” of the European Central Bank have alerted investors to a region that is not growing and where “debt-to-GDP ratios continue to rise.” Regarding Europe’s biggest economy, Rediker noted that “the German economy is underperforming, but overall its domestic economic performance is considered strong. Countries like Italy and France have far less to shout about in terms of economic performance and reform efforts.” The rise in Greek bond yields is particularly sharp. The country’s 10-year yield stood at nearly 9% on Thursday, after being below 6% just last month. The current Greek government, led by Antonis Samaras, is trying to make an early exit from a bailout program it got from the European Union and International Monetary Fund, but investors are nervous about the country’s ability to live without a financial backstop that would provide them cheap money in the event of a shortfall.

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“They’ll be hoping this turmoil will pass on its own.”

Euro Economy’s Managers Aren’t Blinking in Market Rout (Bloomberg)

German Chancellor Angela Merkel and European Central Bank President Mario Draghi aren’t blinking yet. The longest losing streak in European stocks in 11 years and the weakest inflation since 2009 has intensified pressure on the managers of the euro area’s already ailing economy to deliver fresh stimulus programs. Battle-hardened by the debt crisis that almost broke the euro two years ago, policy makers are refusing to panic as they argue enough help is in the pipeline. The lesson of that last turmoil is nevertheless that investors may ultimately force action with taboo-busting quantitative easing from the ECB likely drawing closer as deflation fears intensify. “The main story really is that the recovery is very weak, very fragile, and something has to happen,” said Martin Van Vliet, an economist at ING Groep NV in Amsterdam. “Markets are increasingly expecting they’ll have to do sovereign QE.”

The euro area is again at the epicenter of a global rout in financial markets as investors increasingly fret its toxic mix of weak growth and sliding inflation may become the norm elsewhere as central banks run out of ways to provide support. With Europe straining amid tit-for-tat sanctions on Russia, Germany this week showing fresh signs that it is no longer immune to the slowdown in its neighbors. Confirmation yesterday that inflation slowed to just 0.3% in September helped drive down the Stoxx Europe 600 Index for an eighth day. Germany’s 10-year bond yield hit a record low. For the moment, policy makers are holding to their view that the region needs time rather than new stimulus even with prices already shrinking in Italy, Spain, Greece, Slovakia and Slovenia. “I think they’re surprised by the market correction,” Michael Schubert, an economist at Commerzbank AG in Frankfurt, said in a telephone interview. “They’ll be hoping this turmoil will pass on its own.”

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Risk off.

Volckerized Wall Street Dumping Bonds With Rest of Herd (Bloomberg)

Corporate bond values are swinging the most in more than a year and here’s one reason why: Wall Street’s biggest banks are following the crowd and selling, too. Take junk bonds, which have lost 2% in the past month. Dealers, which traditionally used their own money to take bonds off clients desperate to sell during sinking markets, sold about $2 billion of the securities during the period, according to data compiled by Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Banks have cut debt holdings in the face of higher capital requirements and curbs of proprietary trading under the U.S. Dodd-Frank Act’s Volcker Rule. Their lack of desire to take risks has had the unintended consequence of exacerbating price swings amid the rout now, said Jon Breuer, a credit trader at Peridiem Global Investors LLC in Los Angeles, California.

“There just isn’t the appetite and ability to warehouse the risk anymore,” he wrote in an e-mail. “Everyone is afraid to catch the falling knife.” High-yield bonds have lost 1.1% this month, following a 2.1% decline in September. That was the worst monthly performance since June 2013 for the $1.3 trillion market that’s ballooned 82% since 2007, according to the Bank of America Merrill Lynch U.S. high-yield index. Debt of speculative-grade energy companies has been particularly hard hit along with oil prices, tumbling 3.4% this month with relatively few buyers willing to step in to mitigate the drop. For example, notes of oil and gas producer Samson Investment Co. have lost 25% since the end of August. The market’s indigestion was brought on by many reasons: signs of a global economic slowdown, Ebola spreading and concern that U.S. energy companies will struggle to meet their debt obligations after financing their expansion by issuing bonds.

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But obviously there’s money to be made in a rout like this.

Pimco To Blackstone Preparing To Feast On Junk Bonds (Bloomberg)

In a junk-bond market that has been anything but high-yield for almost two years, the world’s biggest debt-fund managers have been stockpiling cash for a selloff. After the worst one in three years, they’re getting ready to pounce. Firms from Pacific Investment Management Co. to Blackstone Group LP say they are poised to scoop up speculative-grade corporate bonds after yields rose to the highest levels in more than a year. They’re looking for bargains after building up the highest levels of cash in almost three years. “Credit is a buy here, specifically high yield” bonds and loans, Mark Kiesel, one of three managers who oversee Pimco’s $202 billion Total Return Fund, said yesterday in a Bloomberg Television interview. At Blackstone, Chief Executive Officer Stephen Schwarzman told investors yesterday that the firm’s $70.2 billion credit unit is ready to “feast” on lower-rated, long-term debt, particularly in Europe, after “waiting patiently for something bad to happen.”

Taxable corporate-bond mutual funds tracked by the Investment Company Institute increased the proportion of cash and cash-like instruments they set aside to 8.5% of their $1.96 trillion of assets in August. That’s up from a three-year low of 4.9% in April 2013 and the most since November 2011, ICI data show. By amassing cash or parking money in easy-to-sell debt such as Treasuries, fund managers have been maintaining flexibility to swoop in and buy securities at discounts. Average yields on speculative-grade bonds sold by companies from the U.S. to Japan climbed to 6.67% yesterday, jumping more than 1 percentage point from a record-low 5.64% in June, according to Bank of America Merrill Lynch index data. The debt is now paying 5.3 percentage points more than government bonds, the widest spread since July 2013 and up from 3.6percentage points in June. The market hasn’t moved that much since the European debt crisis in 2011, the index data show.

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“The SEC caught Athena ‘placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of thousands of Nasdaq-listed stocks.’ ”

High-Speed Traders Put a Bit Too Much Gravy on Their Meat (Bloomberg)

One good general rule is that it’s harder than you think it is to figure out what’s market manipulation and what isn’t. Trading a lot, cancelling a lot of orders, putting in orders or doing trades on both sides of the market, trading a lot right before a close or fixing — all of those things could be signs of nefarious manipulation, or just normal risk management. No single event or pattern proves manipulation. You often need to look for subtle clues to figure out whether a trade is actually manipulative One subtle clue is, if you name your algorithms “Meat” and “Gravy,” there is probably something wrong with you! And your trading, I mean. But also your aesthetic sensibilities. Here is a Securities and Exchange case against Athena Capital Research, which the SEC touts as “the first high frequency trading manipulation case.”

The SEC caught Athena “placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of thousands of Nasdaq-listed stocks.” That period was in late 2009, by the way. Athena settled for $1 million, and while it did so “without admitting or denying the findings,” the SEC’s order has the usual litany of dumb, so you can tell that Athena was fairly caught. In fact, the SEC is kind enough to put the dumb quotes in boldface, so they’re easy to find,1 though somehow this didn’t make it into bold: Athena referred to its accumulation immediately after the first Imbalance Message as “Meat,” and to its last second trading strategies as “Gravy.

Heehee that’s dumb. What is going on here? It starts with the fact that Nasdaq basically does two sorts of trading in the late afternoon. One is just its regular continuous order book trading, the kind it does all day. There are bids, there are offers, and there are lots of little trades that are constantly updating the price of every stock. Someone trades 100 shares at $20.01, 100 shares at $20.02, 200 shares at $20.03, 100 more at $20.02 again, etc., all within a fraction of a second. There is also the closing auction, which is more or less a separate institution. This is an auction that occurs at a single point in time, just after the 4:00 p.m. close. People put in buy orders and sell orders throughout the day, and then they all trade with each other simultaneously just after 4 p.m. at the clearing price of the auction.

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This ain’t over by a long shot. Wait till prices start dropping.

10 States Where Foreclosures Are Soaring (MarketWatch)

The property market is improving and foreclosures are falling — except in these 10 markets. Some 317,171 U.S. properties had foreclosure filings in the third quarter, down 16% on the same period last year, according to real-estate website RealtyTrac. However, default notices in the third quarter increased from a year ago in certain states, including Indiana (up 59%), Oklahoma (up 49%), Massachusetts (up 38%), New Jersey (up 19%), Iowa (up 12%) and New York (up 2%). States with the five highest foreclosure rates in the third quarter were among those hit hardest by the 2008 property crash: Florida, Maryland, New Jersey, Nevada, and Illinois. Some 58,589 Florida properties had a foreclosure filing in the third quarter of 2014.

That was down 4% from the previous quarter and down 17% from a year ago, but it still meant that in every 153 housing units had a foreclosure filing. Orlando, Fla., Atlantic City, N.J., and Macon, Ga., had the top metro foreclosure rates in the third quarter. With one in every 117 housing units with a foreclosure filing, Orlando had the highest foreclosure rate among metropolitan areas with a population of 200,000 or more. A total of 8,052 Orlando-area properties had a foreclosure filing, down 1% on the quarter but up 16% from a year ago.

While the Ohio property markets have seen a decline in the number of available foreclosures on the market over the last year, “We have equally noticed an increase in activity of lender servicers acquiring properties at sheriff sales and deed-in-lieu workouts,” says Michael Mahon, who covers the Cincinnati, Columbus and Dayton markets as executive vice president at HER Realtors. One explanation: Many Americans are choosing foreclosure over short sales. A couple of years ago, 18 out of 20 clients underwater who couldn’t afford to keep their home chose a short sale, says Frank Duran, a broker in Denver, but now only 2 out of 20 opt for a short sale. One explanation: In a short sale, canceled debt — or the difference between the value and sale price of the house — is often treated as taxable income.

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Why anyone would trust even one word from the Fed anymore is beyond me.

‘Stunning’ Fed Move Put Bottom Under Stocks (CNBC)

After a swift and serious selloff, stocks have managed to rise on Thursday’s session with help from the soothing words of St. Louis Federal Reserve President James Bullard. And after dropping just shy of 10% from high to low, the S&P 500 looks to have finally bottomed out, some traders say. “Whether the complete correction is over I’m not positive yet, but there looks to be some relative calm,” said Jim Iuorio of TJM Institutional Services. “I think the next leg is going to be higher.” Iuorio is focusing on the comments Bullard made Thursday morning on Bloomberg TV, where he discussed the quantitative easing program, which the Fed is currently winding down.

He said, “We have to make sure that inflation expectations remain near our target. And for that reason, I think a reasonable response by the Fed in this situation would be to … pause on the taper at this juncture, and wait until we see how the data shakes out in December.” Bullard’s comments come two days after those of San Francisco Fed President John Williams (who, like Bullard, is a non-voting member of the Fed Open Market Committee). Williams told Reuters “If we get a sustained, disinflationary forecast… then I think moving back to additional asset purchases in a situation like that should be something we seriously consider.”

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The proper theater for these matters. Courts require proof.

Russia Takes EU To Court Over Ukraine Sanctions (FT)

Russia is taking the EU to court over sanctions imposed on some of its biggest companies. The move is a sign of the pain that the companies’ exclusion from global capital markets is inflicting on the Russian economy. Rosneft, the state oil company, and Arkady Rotenberg, a long-time friend and former judo sparring partner of President Vladimir Putin, have both launched legal challenges to the sanctions, imposed over Russia’s actions in Ukraine. The EU bans, with similar measures adopted by the U.S., have all but frozen Russian companies and banks out of western capital markets, at a time when they have to refinance more than $130 billion of foreign debt due for redemption by the end of 2015. Rosneft filed a case against the EU’s European Council in the general court under the European Court of Justice on October 9, requesting an annulment of the council’s July 31 decision that largely barred it and other Russian energy companies and state banks from raising funds on European capital markets.

Mr Rotenberg, who was hit with an EU visa ban and asset freeze in July, filed a legal case in the same court on October 10 challenging the move. The challenges follow verdicts that have gone against the council in relation to similar measures imposed on Iran and Syria. In particular, the court has ruled that in implementing sanctions, European states have been too reliant on confidential sources, which impair the targets’ ability to mount an effective defense. A Russian lawyer who advises one company on legal strategies over sanctions said the challenges by Rosneft and Mr Rotenberg might help sway some EU member states when the bloc begins to discuss whether to renew its sanctions against Russia next spring.

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Oh, yeah, big-screen TVs for everyone!

The Big Perk Of Oil’s Wild Slide (CNBC)

Crude oil is plummeting – down some $25 bucks a barrel from the yearly high set just a few months ago. And those lower prices mean lower gasoline prices for people like you and me, which should result in a few extra dollars in your pocket. This is big news, guys, because the biggest and most celebrated holiday of the year is coming up for many of you — Black Friday! (Oh, you thought I was going to say something like Thanksgiving or Christmas. Please! Those holidays are just a goofy excuse to miss work.) I digress. But if the current trend remains intact, we’re going to hear about record breaking sales on Black Friday, which is awesome for retailers and the economy. I say spend, spend, spend those pennies you’re saving while gassing up the F-150. And, according to Moody’s, you should have a lot of dough to play with.

A 10-cent decrease in gas prices translates to an extra $93.25 in gasoline and diesel expenditures per year for the average American household, which equates to $11 billion in consumer spending. Over the past month, gasoline prices have declined 6%, or 20 cents per gallon. That, Mr. math wizard, is $22 billion in available cash. And, knowing many Americans prefer to spend than save, I would be thinking about opening a big-screen TV store if I were you. If you prefer happy endings and would rather stay away from reality, I would suggest stop reading; because this is where I tell you lower gas prices will likely have a dramatic and terrifying impact on violence around the globe.

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These guys sure don’t understand the Saudis. or shale, for that matter.

Gloves Off Over Oil: Saudi Arabia Versus Shale (CNBC)

Oil prices might have halted their earlier slide below $80 a barrel this week but analysts believe the dog fight between major oil producers over reducing the supply of oil could lead to lower prices yet. Oil markets have seen prices fall sharply over the last four months, as faltering global growth in major economies has cut demand at a time of over-supply. On Thursday, WTI crude fell below $80 a barrel for the first time since June 2012 before recovering to 82.88 on Friday. The global oil benchmark Brent crude climbed by almost a dollar to near $86 a barrel on Friday morning – up from a near four-year low at below $83 on Thursday – after more positive economic data from the U.S. Prices have fallen over 20% since June, however, when turmoil in Iraq lifted prices to $116 a barrel.

“The bearishness in the global oil market is all being driven by the U.S. shale revolution,” Seth Kleinman, head of Global Energy Strategy at Citi, told CNBC. “It’s being driven by this massive infrastructure build out that we’ve seen over the last few years and it’s taken the market a lot more time to catch up and act more rationally.” The U.S. shale gas industry has boomed over the last decade with shale gas and oil producers proliferating and production surging in the country, becoming a competitor for major oil-exporting countries such as Saudi Arabia.

The drop in oil prices has led to expectations that OPEC could cut output in an attempt to shore up prices, but OPEC members Saudi Arabia and Kuwait played down such a move at the start of the week. That could pile pressure on the U.S. shale industry and its producers to cut supply themselves if and when prices decline further. “Everyone was assuming that the Saudis were going to pull back and defend prices,” Kleinman told CNBC Europe’s “Squawk Box” on Friday. “They probably could have defended $100 but they sent the message loudly, clearly and by every venue possible of ‘we’re not going to defend prices here.’ In fact, they started slashing prices to Asia.”

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Stay with the dollar.

The New Defensives: High Yield And The Dollar (CNBC)

As world markets tumble and the euro zone crisis seemingly reared its head once more, investors have scrambled to find somewhere safe to house their cash. Equities on both sides of the Atlantic have been hammered as volatility has peaked to 2011 levels amid worries over global growth and the spread Ebola. A flight to traditional safe haven U.S. Treasurys pushed yields down around 1.8% on Thursday, levels not seen since 2013 – making it an expensive option for investors as prices move inverse to yields. “Sometimes, when markets fall, you get to a ‘no-brainer’ moment, when you can afford to ignore short-term concerns and take advantage of sudden decline in prices. This is not such a moment for equities,” chief investment officer at Cazenove Capital Management, Richard Jeffrey said. “Markets are not cheap, and could fall further. Indeed, although we might expect it to remain so, the U.S. market looks quite expensive,” he said.

Cash levels jumped and bearish sentiment reached levels not seen for two years according to Bank of America’s monthly fund manager survey, but managers have also taken another look at high yield bonds as stocks have been hit. “The current environment presents the opportunity to take another look at asset classes that had sold off and now look more attractive,” BlackRock’s global chief investment strategist Russ Koesterich said. One such asset class is high yield bonds as the yield difference between high yield bonds and higher-quality, lower-yielding U.S. Treasurys has widened out to the highest level in a year, he said. “This indicates high yield bonds offer better value. Given that corporate America remains strong and default rates low, high yield now looks likely to provide a reasonable level of income relative to the rest of the fixed income market,” he said.

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Australia will get badly hurt by China’s rising tariffs and falling economic reality.

Is The ‘Lucky Country’ Headed For Gloomy Times? (CNBC)

Sentiment in the so-called ‘lucky country’ has deteriorated sharply, analysts told CNBC. Australia’s stock market has fallen 8% since the start of September, weighed by concerns over global economic growth, steep declines in commodity prices and the state of Australia’s property market. “Investor sentiment has certainly collapsed across a range of measures,” Shane Oliver, head of investment strategy at AMP Capital, told CNBC. Investors are much more concerned about the prospect of a market downturn and the state of Australia’s housing market than they were in the second quarter of this year, a survey of fixed income investors by Fitch Ratings showed on Wednesday. 79% of respondents flagged a downturn as a high or moderate risk, up from 43% in Fitch’s second quarter survey.

The frothy housing market was high on respondents’ worry list; 53% expect house prices to rise by 2 to 10% in 2015. “The concerns demonstrated in the Fitch Ratings survey are very clearly the case,” said Evan Lucas, market strategist at IG. “Housing is a major part of Australia confidence, [so] any issues around housing and wages are going to see sentiment fall.” Australian dwelling values rose 9.3% over the 12 months to September, spurred by a record 15-month run of historically low interest rates. Values in Sydney and Melbourne rose 14.3% and 8.1%, respectively, over that period, RP Data figures show. And in recent months, the Reserve Bank of Australia warned of regulatory steps to rein in loans to investors.

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Indeed. Not going to happen.

Don’t Hold Your Breath Waiting For QE4 (CNBC)

Suggestions quantitative easing (QE) might go on a reunion tour in the U.S. helped to staunch market losses Thursday, but don’t hold your breath waiting for the Federal Reserve to whip out the checkbook, analysts said. “It’s part of a strategy to calm markets down, to remind them that ‘we still have your back and we’re on top of this’ from a central bank point of view,” Mikio Kumada, global strategist at LGT Capital Partners, told CNBC. “Whether they will actually do it, I’m not so sure. At least as far as the U.S. is concerned, the economic conditions are decent enough.”

Stocks bounced back Thursday after a rough opening, with the S&P 500 ending the day less than a point higher, after St. Louis Federal Reserve President James Bullard Thursday morning suggested to Bloomberg TV, that the Fed should consider pausing its taper of the quantitative easing program. “We have to make sure that inflation expectations remain near our target. And for that reason, I think a reasonable response by the Fed in this situation would be to… pause on the taper at this juncture, and wait until we see how the data shakes out in December,” Bullard said. The Federal Reserve had expected to complete the taper later this month. Those comments come two days after those of San Francisco Fed President John Williams (who, like Bullard, is a non-voting member of the Fed Open Market Committee).

Williams told Reuters: “If we get a sustained, disinflationary forecast… then I think moving back to additional asset purchases in a situation like that should be something we seriously consider.” Some are extremely skeptical of a QE encore performance. “The only thing that could justify QE4 is a high probability of a downturn in the real economy and/or falling core inflation,” said Eric Chaney, chief economist at AXA Group, in a note. “The probability of a U.S. recession is close to zero,” he said. “Overall, there is not one single indicator flashing red, as far as the risk of recession is concerned,” he added, citing indicators such as the consumer debt-to-income ratio back at end-2002 levels, high corporate profitability and even the declining federal deficit.

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That’s what you get for telling fairy tales all teh time.

Bank of England Chief Economist ‘Gloomier’ About UK Prospects (Guardian)

The chances of an early rise in UK interest rates have fallen, says the Bank of England’s chief economist, Andrew Haldane, who admits he is “gloomier” about the prospects for the economy than he was a few months ago. In a speech on Friday morning, which will reinforce market views that rates are unlikely to rise from their record low of 0.5% until the middle of next year, Haldane said: “That reflects the mark-down in global growth, heightened geo-political and financial risks and the weak pipeline of inflationary pressures from wages internally and commodity prices externally. “Taken together, this implies interest rates could remain lower for longer, certainly than I had expected three months ago, without endangering the inflation target,” said Haldane, a member of the Bank’s nine-member interest rate setting committee. The prospect that interest rates will stay lower for longer sent sterling tumbling on the foreign exchanges, with the pound losing half a cent against the dollar.

Haldane also warned that Britain was vulnerable to another explosion in the eurozone crisis. He told ITV News: “It’s a concern. It [the eurozone] is our biggest trading partner by far. We know we’ve seen recently that any event on the continent laps back to the UK very quickly through our trade links, but also through our financial links and, indeed, increasingly just because of confidence. If confidence is ebbing on the continent, it appears to leak across here pretty quickly.” In June, Haldane had put even weight on moving interest rates sooner and moving them later. He used the cricketing terms “being on the front foot” and being on the “back foot”. On Friday, he said: “While still a close-run thing, the statistics now appear to favour the back foot. Recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail. Put in rather plainer English, I am gloomier.”

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No, but it will come anyway.

Is Asia Ready for Another Wild Ride? (Bloomberg)

From Ebola to debt to deflation, fear once again stalks the global economy. With bewildering speed, concerns about of credit defaults, slowing demand and political instability have eclipsed exuberance over America’s falling jobless rate and Alibaba’s record-breaking IPO. The most-asked question isn’t where to make profits, but where to find a safe haven from the coming storm. Could it be Asia again? Sadly, unlike during the most recent global recession, even this region finds itself in an increasingly dangerous position this time around. That’s not to say Asia doesn’t have enviable fundamentals. Even given China’s worsening data, the stalling of “Abenomics” in Japan and structural headwinds that challenge officials almost everywhere, Asia may yet ride out renewed turbulence better than the West — just as it did in 2008. If one thinks of investment destinations as beauty contestants, Asia is still hands-down the least ugly candidate.

But the region’s growth over the last six years has been driven more by asset bubbles than genuinely sustainable economic demand. Already, we are seeing structural slowdowns from Seoul to Jakarta. These strains will become even more pronounced as Europe’s debt troubles re-emerge and the Federal Reserve’s record stimulus loses potency. Asian policymakers also have less latitude going forward to support growth. “A full recovery of demand in the West, sufficient to pull Asia out of its malaise, remains a distant prospect,” says Qu Hongbin, Hong Kong-based co-head of Asian economic research at HSBC Holdings. “Rather, reviving growth in Asia, whether in China, Japan, India or anywhere in between, requires deep structural reforms: pruning subsidies, spending more on quality infrastructure, boosting education, opening further to foreign direct investment, and, perhaps most important of all, introducing greater competition in local markets. These are politically tough choices to make. But they will grow only more difficult, the longer they are put off.”

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GPIF moving away from Japan sovereign bonds is Abe’s riskiest move yet. And it will end where all his policies lead: into misery.

Japan No.1 Pension Fund Would Be ‘Stupid’ to Give Asset Goals First (Bloomberg)

Japan’s $1.2 trillion retirement fund would be “stupid” to announce its new investment strategy before adjusting asset allocations, said Takatoshi Ito, a top government adviser on overhauling public pensions. Publishing target weightings in advance would move markets, forcing the Government Pension Investment Fund to buy at highs and sell at lows, Ito said in an interview in Tokyo on Oct. 14. GPIF should shift holdings as much as possible now, he said, while noting that the fund doesn’t seem to be doing so. Deciding the new asset split is taking time partly due to a debate on whether to make it public before or after changing the portfolio, Ito said.

Investors are waiting for the bond-heavy fund to confirm it will cut Japanese debt to buy local stocks and overseas assets, after a government-picked panel led by Ito advised GPIF to sell bonds in a report last year. Yasuhiro Yonezawa, the chairman of GPIF’s investment committee, said in July that while it would be ideal to adjust the fund’s assets before the announcement, it must also avoid disrupting markets. “Saying ‘we’re going to purchase as much as whatever%’ before buying anything is a stupid idea,” Ito said. “It’s tantamount to not fulfilling their fiduciary responsibilities and not appropriately investing the money entrusted to them. It’s wrong, and I’m against it.”

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“Something that is easy to control got completely out of hand …”

‘Ebola Epidemic May Not End Without Developing Vaccine’ (Guardian)

The Ebola epidemic, which is out of control in three countries and directly threatening 15 others, may not end until the world has a vaccine against the disease, according to one of the scientists who discovered the virus. Professor Peter Piot, director of the London School of Hygiene and Tropical Medicine, said it would not have been difficult to contain the outbreak if those on the ground and the UN had acted promptly earlier this year. “Something that is easy to control got completely out of hand,” said Piot, who was part of a team that identified the causes of the first outbreak of Ebola in Zaire, now the Democratic Republic of Congo, in 1976 and helped bring it to an end. The scale of the epidemic in Sierra Leone, Liberia and Guinea means that isolation, care and tracing and monitoring contacts, which have worked before, will not halt the spread. “It may be that we have to wait for a vaccine to stop the epidemic,” he said.

On Thursday night, a Downing Street spokesman said a meeting of the government’s emergency response committee, Cobra, was told the chief medical officer still believed the risk to the UK remained low. “There was a discussion over the need for the international community to do much more to support the fight against the disease in the region,” the spokesman said. “This included greater coordination of the international effort, an increase in the amount of spending and more support for international workers who were, or who were considering, working in the region. The prime minister set out that he wanted to make progress on these issues at the European council next week.” Dr Tom Frieden, director of the Centers for Disease Control (CDC), in evidence to Congress, said he was confident the outbreak would be checked in the US, but stressed the need to halt the raging west African epidemic. “There are no shortcuts in the control of Ebola and it is not easy to control it. To protect the United States we need to stop it at its source,” he said.

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How we blunder our way into disaster. Time and again.

WHO Response To Ebola Outbreak Foundered On Bureaucracy (Bloomberg)

Poor communication, a lack of leadership and underfunding plagued the World Health Organization’s initial response to the Ebola outbreak, allowing the disease to spiral out of control. The agency’s reaction was hobbled by a paucity of notes from experts in the field; $500,000 in support for the response that was delayed by bureaucratic hurdles; medics who weren’t deployed because they weren’t issued visas; and contact-tracers who refused to work on concern they wouldn’t get paid. Director-General Margaret Chan described by telephone how she was “very unhappy” when in late June, three months after the outbreak was detected, she saw the scope of the health crisis in a memo outlining her local team’s deficiencies. The account of the WHO’s missteps, based on interviews with five people familiar with the agency who asked not to be identified, lifts the veil on the workings of an agency designed as the world’s health warden yet burdened by politics and bureaucracy.

“It needs to be a wakeup call,” said Lawrence Gostin, a professor of global health law at Georgetown University in Washington. The WHO is suffering from “a culture of stagnation, failure to think boldly about problems, and looking at itself as a technical agency rather than a global leader.” Two days after receiving the memo about her team’s shortcomings, Chan took personal command of the agency’s Ebola plan. She moved to replace the heads of offices in Guinea, Liberia and Sierra Leone, and upgraded the emergency to the top of a three-tier level, said the five people, who declined to be identified because the information isn’t public. Chan agreed to respond to their accounts in an interview. “I was not fully informed of the evolution of the outbreak,” she said today. “We responded, but our response may not have matched the scale of the outbreak and the complexity of the outbreak.”

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Oct 152014
 
 October 15, 2014  Posted by at 11:29 am Finance Tagged with: , , , , , , , ,  10 Responses »
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John Vachon Rear of grocery store in Baltimore Jul 1938

BIS Warns On ‘Violent’ Reversal Of Global Markets (AEP)
No Happy Ending for Investors in Central Bank Fairy Tale (Bloomberg)
Saudi Prince Alwaleed Says Falling Oil Prices ‘Catastrophic’ (Telegraph)
Crumbling US Fix Seen With Global Trillions of Dollars (Bloomberg)
Americans Face Post-Foreclosure Hell As Wages, Assets Seized (Reuters)
The $11 Trillion Advantage That Shields U.S. From Turmoil (Bloomberg)
No Stock Salvation Seen in Bank Results as VIX Surges (Bloomberg)
Triple-Dip Eurozone Recession Fears As Germany Cuts Growth Forecast (Guardian)
Merkel Vows Austerity Even as Growth Projection Cut (Bloomberg)
‘Bank of Japan Should Quit While It’s Ahead’ (Bloomberg)
UK Economy Sinks at the Checkout Line (Bloomberg)
On The Precipice Of A Breakdown In Confidence (Ben Hunt)
Average UK Worker £5,000 A Year Worse Off (Guardian)
Youth Unemployment In Rich Middle East A ‘Liability’ (CNBC)
Russia-US Relations Reset ‘Impossible’: PM Medvedev (CNBC)
New US Price Tag for War Against ISIS: $40 Billion a Year (Fiscal Times)
Real Life is Not Spin Art (Jim Kunstler)
‘Star Trek’ Time Capsule 2047 Launches As Earth Burns (Paul B. Farrell)
UK Waterways Face ‘Invasional Meltdown’ From European Organisms (BBC)
Ebola Outbreak Boosts Odds of Mutation Helping It Spread (Bloomberg)
Second Health Care Worker Tests Positive For Ebola In Texas (CNBC)
WHO Sees 10,000 Ebola Cases a Week in West Africa by Dec. 1 (Bloomberg)

“The biggest worry is a precipitous sell-off in the bond markets once the US Federal Reserve and the other major central banks begin to tighten in earnest. Mr Debelle cited the US bond crash in 1994, but warned that it could be even more violent this time with a “fair chance that volatility will feed on itself”.”

BIS Warns On ‘Violent’ Reversal Of Global Markets (AEP)

The global financial markets are dangerously stretched and may unwind with shock force as liquidity dries up, the Bank of International Settlements has warned. Guy Debelle, head of the BIS’s market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to “blow up” as the first sign of stress. In a speech in Sydney, Mr Debelle said: “The sell-off, particularly in fixed income, could be relatively violent when it comes. There are a number of investors buying assets on the presumption of a level of liquidity which is not there. This is not evident when positions are being put on, but will become readily apparent when investors attempt to exit their positions. “The exits tend to get jammed unexpectedly and rapidly.” Mr Debelle, who is also chief of financial markets at Australia’s Reserve Bank, said any sell-off could be amplified because nominal interest rates are already zero across most of the industrial world.

“That is a point we haven’t started from before. There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer close to zero, these positions will blow up,” he said. The BIS warned earlier this summer that the world economy is in many respects more vulnerable to a financial crisis than it was in 2007. Debt ratios are now far higher, and emerging markets have also been drawn into the fire over the last five years. The world as whole has never been more leveraged. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since the Lehman Brothers crash. The new twist is that emerging markets have also been on a debt spree, partly as a spill-over from quantitative easing in the West. This has caused a flood of dollar liquidity into these countries that they have struggled to control. It has pushed up their debt ratios by 20 percentage points to 175pc, and much of the borrowing has been at an average real rate of 1pc that is unlikely to last.

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It was never in the cards. Unless perhaps you’re free to come and go as you please. Most institutional investors are not. So they must get burned.

No Happy Ending for Investors in Central Bank Fairy Tale (Bloomberg)

You know it’s a special moment in the financial markets when analysts ditch the jargon and reach for artistic references. Ed Yardeni cited “The Wizard of Oz.” IMF Managing Director Christine Lagarde went with both “Alice in Wonderland” and Harry Potter. Stephen King – the HSBC chief economist, not the author – trolled the fantasy aisle. Their message for investors: Even after the MSCI World Index’s lurch to its lowest since February, sentiment risks souring for a while longer. The reason is that just as global growth is weakening again, central bankers who sustained much of the expansion are running out of ammunition. “Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni. “Even the wizards are admitting that their powers to do so are limited.” To King, markets spent most of this year caught up in a fairy tale that policy makers were on top of things.

In the rosy scenario, the Federal Reserve would next year cool U.S. growth with tighter monetary policy and the European Central Bank would revive expansion with quantitative easing. Everyone would win. “Like most fairy tales it can’t be true in reality,” King told a conference in Washington last week. “There’s something wrong with it.” A case in point is the reliance of the ECB on the weaker euro to deliver an economic boost. That’s not likely to work because what matters is its trade-weighted value. On that basis, he calculates sterling and the yen both fell 20% when their authorities pursued easier monetary policy in recent years.

The problem for the ECB is that countries are now more resistant to their own exchange rates strengthening. Switzerland and the Czech Republic are capping their currencies against the euro; Sweden is unhappy with gains in the krona. The Bank of Japan would likely push back against any gain in the yen. Australia and New Zealand also have signaled disquiet with strength in their dollars. To compensate for all that, the euro would have to fall to parity against the greenback. “That’s way bigger than anything that anyone is currently forecasting,” says King, whose colleagues forecast the euro to fall to $1.19 by the end of 2015 from $1.27 today, which would amount to a 3% decline on a trade-weighted basis. The upshot? Either the ECB’s stimulus efforts fall short or the dollar goes through the roof, preventing the Fed from raising interest rates and hitting dollar-reliant economies in Latin America and China.

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Throwing in a bit – or two bits – of confusion. Just like the Fed.

Saudi Prince Alwaleed Says Falling Oil Prices ‘Catastrophic’ (Telegraph)

Saudi Arabia’s most high-profile billionaire and foreign investor, Prince Alwaleed bin Talal, has launched an extraordinary attack on the country’s oil minister for allowing prices to fall. In a letter in Arabic addressed to ministers and posted on his website, Prince Alwaleed described the idea of the kingdom tolerating lower prices below $100 per barrel as potentially “catastrophic” for the economy of the desert kingdom. The letter, first reported online by the FT, is a significant attack on Saudi’s highly respected 79-year-old oil minister Ali bin Ibrahim Al-Naimi who has the most powerful voice within the Organisation of Petroleum Exporting Countries (Opec). Prince Alwaleed – who is a member of the ruling house of Saud – is also a major international investor, who holds significant stakes in companies from News Corp through to Citigroup.

The publication of the letter comes as Brent oil prices crashed under $87 after the International Energy Agency slashed its forecast for oil demand this year amid signs of weaker global economic growth and a glut of crude. Saudi Arabia is the world’s largest exporter and has the capacity to pump 12.5m barrels per day (bpd) if needed, giving it tremendous power both within Opec but also the international market. Reuters had earlier reported that Iran had rowed back on its earlier concerns over falling prices and was more willing to leave production unchanged at the next meeting of Opec in Vienna in November. Prince Alwaleed had taken particular issue with a remark attributed to Saudi Arabia’s oil minister, in which he said that falling prices were “no cause for alarm”.

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America can no longer afford to maintain its own infrastructure. All the new debt goes towards keeping banks look presentable.

Crumbling US Fix Seen With Global Trillions of Dollars (Bloomberg)

The concrete piers of two new bridges are rising out of the Ohio River between Louisville, Kentucky, and southern Indiana, as crews blast limestone and move earth to build the roads and tunnels that will soon connect the twin spans to nearby interstate highways. For more than two decades, the project languished. Business and political leaders on both sides of the river couldn’t agree on how to relieve snarled traffic, improve safety and spur development that was bypassing the region for Indianapolis and Nashville. The Ohio River Bridges project is an American anomaly that has the potential to become a model while lack of money and political will are allowing many of the nation’s roads and bridges to crumble. Along the shores of the Ohio, Democrat-led Kentucky and Republican-run Indiana have forged a partnership to rebuild U.S. infrastructure at a time of partisan gridlock and untapped trillions in private dollars.

“It’s an enduring irony that the U.S., allegedly the home of innovation, is absolutely block-headed and backwards in this one respect,” former Indiana Governor Mitch Daniels, now the president of Purdue University in West Lafayette, Indiana, said in an interview. “America needs the upgrade and modernization of our infrastructure, and I don’t think you’ll get there if you keep excluding, or at least discouraging, private capital.” President Barack Obama’s administration, which had resisted private financing of public works, is starting a new center to serve as a one-stop shop for bringing capital into government projects. During a Sept. 9 infrastructure conference with investors, U.S. Treasury Secretary Jacob J. Lew said while direct federal spending is indispensable in such cases, tight budgets demand creative ways for unlocking private money.

His cabinet colleague, Transportation Secretary Anthony Foxx, put it more bluntly when he announced the Build America Investment Initiative in July. “There will always be a substantial role for public investment,” Foxx said. “But the reality is we have trillions of dollars internationally on the sidelines that are not being put to work.” Fixing those roads and bridges also boosts employment. Every $1 billion in new infrastructure investment creates about 18,000 jobs, according to a 2009 report by economists at the University of Massachusetts’ Political Economy Research Institute.

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Brace yourself for the debt collectors.

Americans Face Post-Foreclosure Hell As Wages, Assets Seized (Reuters)

Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets. By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago. Using a legal tool known as a “deficiency judgment,” lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity.

Some of the biggest banks still feel that way. But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes. “Just because they don’t have the money to pay the entire mortgage, doesn’t mean they don’t have enough for a deficiency judgment,” said Florida foreclosure defense attorney Michael Wayslik. Advocates for the banks say that the former homeowners ought to pay what they owe. Consumer advocates counter that deficiency judgments blast those who have just recovered from financial collapse back into debt — and that the banks bear culpability because they made the unsustainable loans in the first place.

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The stupidest thing I’ve seen in a while. The US consumer will save the economy … Yeah. The US consumer is broke and in debt, guys.

The $11 Trillion Advantage That Shields U.S. From Turmoil (Bloomberg)

Call it America’s $11 trillion advantage: Consumer spending is likely to steer the U.S. economy safely through the shoals of deteriorating global growth and turbulent financial markets. The combination of more jobs, falling gasoline prices and low borrowing costs will help lift household purchases. Such tailwinds probably matter more than Europe’s struggles or the slackening in emerging markets that caused the Dow Jones Industrial Average last week to erase its gains for the year. “We’ve got a lot of things working in favor of the consumer right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, at IHS Inc. “To have that kind of strength is the biggest asset for the U.S. It’s a pretty rock solid footing.” Household purchases make up almost 70% of the $16.8 trillion U.S. economy and have climbed an average 2% in the recovery that’s now in its sixth year. Spending growth will accelerate to 2.7% next year after 2.3% in 2014, according to the latest Bloomberg survey of economists.

The poll, taken from Oct. 3 to Oct. 8 in the midst of the meltdown in equities, showed little change in the median projections from the prior month. The economy is forecast to expand 3% in 2015 after 2.2% growth this year, according to the survey. “We’ve got the proverbial 800-pound gorilla – the consumer,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Households are more fixated on the good news here, and a big part of that is the labor market. The U.S. is going to be pretty immune to the rest of the world.” Economic weakness in Europe, slowing growth in China and tensions in the Middle East sparked a $3.5 trillion loss in value for global equities through last week since a record in September. Brent crude oil yesterday sank to an almost four-year low and the dollar has climbed almost 5% since June.

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See my article yesterday: The Fed Must Feed The Beast.

No Stock Salvation Seen in Bank Results as VIX Surges (Bloomberg)

Options traders are skeptical this week’s bank earnings will deliver calming news to a stock market enduring its worst losses in two years. U.S. stocks have fallen for the past three days on concerns about global growth, the future of interest rates and the spread of Ebola. With companies from JPMorgan to Goldman Sachs and Bank of America scheduled to report this week, demand for bearish options on the largest U.S. financial firms has increased to the highest since May 2013. Even though banks have escaped the worst losses in the recent selloff, the companies will struggle to boost profits if the Federal Reserve keeps interest rates near zero. Analyst projections tracked by Bloomberg show financial companies in the S&P 500 increased earnings 3.1% in the third quarter and 1.6% in the fourth. “There’s an anticipation that a significant percentage of earnings are going to lower forward guidance relatively significantly, including some of the big banks,” Jeff Sica at Sica Wealth Management said.

“That’s going to have a very negative impact on the stock market.” JPMorgan, Citigroup and Wells Fargo are scheduled to provide quarterly results this morning. Bank of America, Goldman Sachs and Morgan Stanley report later in the week. Low interest rates have crimped lending profits for banks, which benefit from higher loan yields. Net interest margins, the difference between what a firm pays in deposits and charges for loans, were a record-low 3.1% in the second quarter, according to St. Louis Fed data on U.S. banks with average assets greater than $1 billion. Fed Vice Chairman Stanley Fischer said during the weekend that U.S. rate increases could be delayed by slowing growth elsewhere. The central bank should be “exceptionally patient” in adjusting monetary policy, Chicago Fed President Charles Evans said yesterday. Federal fund futures show the likelihood of a September 2015 rate increase fell to 46%, from 56% on Oct. 10, and 67% two months ago, according to data compiled by Bloomberg.

“If you get rates rising, you can price that into loans,” Peter Sorrentino, who manages shares of Wells Fargo and JPMorgan for Huntington Asset Advisors, said. “We haven’t seen much shift in the yield curve, even though people thought this would be the year for it because of the Fed easing on QE. There’s a disappointment that we haven’t seen better margin growth this year.”

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The eurozone is a straightjacket that will crush everything inside.

Triple-Dip Eurozone Recession Fears As Germany Cuts Growth Forecast (Guardian)

Germany has slashed its growth forecasts for this year and 2015, sparking calls for a public spending boost to prevent the eurozone falling into a triple-dip recession. Berlin now expects growth of just 1.2% this year and the same in 2015, it said on Tuesday, down from 1.8% and 2%, in the face of slowing export growth. It came as official Eurostat figures showed that industrial production across the eurozone slumped in August by an alarming 1.8% month-on-month, meaning it was 1.9% lower than a year ago. With reports mounting of slowing industrial output in Germany and declining business confidence, the eurozone’s largest economy is now expected to expand at less than half the pace of the UK and US over the next year.

The economy minister, Sigmar Gabriel, blamed geopolitical tensions and global economic problems overseas. He said: “The German economy is steering through rough foreign waters. Geopolitical crises have also increased uncertainty in Germany and moderate growth is weighing on the German economy.” An October survey showed a big fall in investor sentiment in Germany, mirroring reports through the summer months of stumbling business confidence following the erosion of previously buoyant demand for German goods. Across the eurozone business optimism in the last three months fell from net 35% to just 5%, according to Grant Thornton’s International Business Report, dragged down by a dramatic fall in German optimism, which plummeted from a net 79% to 36% over the period.

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Haven’t the read the great Keynes?

Merkel Vows Austerity Even as Growth Projection Cut (Bloomberg)

Chancellor Angela Merkel told lawmakers that Germany won’t raise public spending to stimulate the economy even after her government slashed growth forecasts for this year and next, a party official said. Europe’s biggest economy will probably grow by 1.2% this year and by 1.3% in 2015, marking respective drops from 1.8% and 2.0% forecast in April, the Economy Ministry said today. Merkel, addressing a closed-door meeting of members of her Christian Democratic Union-led bloc in Berlin today, vowed that her government will pursue its balanced budget goal regardless of the outlook, according to the CDU official, who asked not to be named because the session was private.

“We’re agreed in the German federal government that we must stay the course even in difficult times,” Finance Minister Wolfgang Schaeuble told reporters in Luxembourg today after a meeting of European Union finance ministers. A separate party official who attended the Berlin meeting told reporters later that Merkel said it’s more important than ever for the EU to hold to its rules and that Germany’s stance is crucial. If Germany deviates from its fiscal position, it would give other countries a reason to do likewise, she said. “This, in a word, is silly: Germany should borrow money and invest in infrastructure to boost growth,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by phone. “Merkel and others have invented a story about how Germany always had an austere budget. Yet in postwar history, Germany has repeatedly shown far more fiscal policy flexibility to lift growth.”

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But it won’t, it’ll keep going until the end.

‘Bank of Japan Should Quit While It’s Ahead’ (Bloomberg)

The Bank of Japan should quit while it’s ahead. That’s the advice of the central bank’s former chief economist, Hideo Hayakawa. The BOJ should start paring its unprecedented easing soon or risk hurting people, Hayakawa said in an interview. Pushing inflation to a 2% target in a short period will raise living costs without boosting employment or growth, he said. “It’s important to quit while you’re ahead,” said Hayakawa, who was an executive director at the BOJ until March 2013. “Basically, drop the two-year reference, keep the 2% target and taper slowly.” The remarks underscore the risks Governor Haruhiko Kuroda is taking to reflate the world’s third-biggest economy with a stimulus program he began in April last year. While the BOJ is still winning its “gamble” with its stimulus, it shouldn’t push its luck, Hayakawa said. “The secret to success is declare victory while you’re winning,” he said.

With prices rising by about 1% and a labor shortage intensifying, the central bank will eventually achieve the inflation goal and shouldn’t rush, according to Hayakawa. Masayoshi Amamiya, BOJ’s executive director in charge of monetary affairs, said today in a parliamentary committee that the central bank’s easing helps invigorate the economy. With the BOJ buying assets at a record pace, it could face huge losses should interest rates start to rise, according to Hayakawa. The central bank buys about 7 trillion yen of Japanese government bonds a month. Growing public criticism of the yen’s recent weakness means the BOJ can’t stick to its current plan to reach 2% inflation, he said. “The short cut to achieving the 2% target is through a weak yen but that goes against public sentiment,” Hayakawa said. “It’s not good to go too far and get wounded later.”

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US and UK are supposedly doing well. But in reality, just like in the US, there are no consumers in Britain left either.

UK Economy Sinks at the Checkout Line (Bloomberg)

The U.K. supermarket scene is a microcosm of the British economy and holds up a mirror to the global backdrop in developed economies. Low wages and so-called flexible working contracts make it hard for workers to feel they’re sharing in the economic recovery, undermining consumer confidence; the grocery companies themselves, meantime, have no pricing power and are in a beggar-thy-neighbor race to the bottom, sacrificing margins to maintain sales. It’s a combination that should loom large in the Bank of England’s monetary policy deliberations, curtailing its instincts to raise interest rates. Similar considerations should be high on the Federal Reserve’s checklist of things to watch out for when it begins normalizing policy. And in Europe, this should be lighting a fire under the European Central Bank’s efforts to rejuvenate growth.

The price war among U.K. supermarkets has erased more than half of the value of Tesco in a year, making Britain’s biggest retailer the highest-profile victim of the battle. Tesco’s local difficulties notwithstanding — ditching the chief executive for his disastrous attempt to emulate Jeff Bezos’s strategy, followed by accounting irregularities that may turn out to be fraudulent and have led to eight employees being suspended – the discounting by two German retailers, Aldi and Lidl, have depressed food prices for the entire U.K. industry: Aldi increased its market share to 4.8% from 3.7% in the 12 weeks to Sept. 14, according to market researcher Kantar, while Lidl expanded to 3.5% from 3.0%. In response, Wm Morrison Supermarkets said this month it’s introducing a new loyalty card. Customers will be automatically reimbursed for the difference between what they pay in a Morrison store and any cheaper price available at Aldi, Lidl, Tesco, Sainsbury or Asda. Despite their protestations, all of the U.K. supermarkets are now discount stores.

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“The words are not lies. But they’re only not-lies because if they were found to be lies that would be counterproductive to the social policy goals, not because there’s any fundamental objection to lying.”

On The Precipice Of A Breakdown In Confidence (Ben Hunt)

Here is the most fundamental idea behind game theory, the one concept you MUST understand to be an effective game player. Ready? You are not a super genius, and we are not idiots. The people you are playing with and against are just as smart as you are. Not smarter. But just as smart. If you think that you are seeing more deeply into a repeated-play strategic interaction (a game!) than we are, you are wrong. And ultimately it will cost you dearly. But if there is a mutually acceptable decision point – one that both you and we can agree upon, full in the knowledge that you know that we know that you know what’s going on – that’s an equilibrium. And that’s a decision or outcome or policy that’s built to last. Fair warning, this is an “Angry Ben” email, brought on by the US government’s “communication policy” on Ebola, which is a mirror image of the US government’s “communication policy” on markets and monetary policy, which is a mirror image of the US government’s “communication policy” on ISIS and foreign policy.

We are being told what to think about Ebola and QE and ISIS. Not by some heavy-handed pronouncement as you might find in North Korea or some Soviet-era Ministry, but in the kinder gentler modern way, by a Wise Man or Woman of Science who delivers words carefully chosen for their effect in constructing social expectations and behaviors. The words are not lies. But they’re only not-lies because if they were found to be lies that would be counterproductive to the social policy goals, not because there’s any fundamental objection to lying. The words are chosen for their truthiness, to use Stephen Colbert’s wonderful term, not their truthfulness. The words are chosen in order to influence us as manipulable objects, not to inform us as autonomous subjects. It’s always for the best of intentions. It’s always to prevent a panic or to maintain confidence or to maintain social stability. All good and noble ends. But it’s never a stable equilibrium. It’s never a lasting legislative or regulatory peace.

The policy always crumbles in Emperor’s New Clothes fashion because we-the-people or we-the-market have not been brought along to make a self-interested, committed decision. Instead the Powers That Be – whether that’s the Fed or the CDC or the White House – take the quick and easy path of selling us a strategy as if they were selling us a bar of soap. This is what very smart people do when they are, as the Brits would say, too clever by half. This is why very smart people are, as often as not, poor game players. It’s why there aren’t many academics on the pro poker tour. It’s why there haven’t been many law professors in the Oval Office. This isn’t a Democrat vs. Republican thing. This isn’t a US vs. Europe thing. It’s a mass society + technology thing. It’s a class thing.

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Yeah, they’re doing absolutely fab.

Average UK Worker £5,000 A Year Worse Off (Guardian)

The protracted squeeze on pay packets since the financial crisis means the average worker in Britain is £5,000 a year worse off, a leading labour market expert warns on Wednesday. In advance of official figures expected to show that pay growth has again lagged far behind inflation over the summer months, Prof Paul Gregg of Bath University says that because wages have fallen in real terms since 2008, today they are nearly 20% below where they would be had wage growth continued. His calculations are likely to be seized on by Labour as it seeks to keep the “cost-of-living crisis” centre-stage before the election.

Labour market data on Wednesday is expected to underscore the pressure on household finances, with wage growth forecast at just 0.7% on the year over the three months to August, less than half the pace of inflation in August. That would mark just a small pick-up in pay growth from 0.6% in the three months to July. Gregg’s report for the university’s Institute for Policy Research (IPR) casts doubt on predictions from other economists that wage growth will start to pick up significantly in coming months. He warns that the government cannot rely on falling unemployment alone to restart sustained wage growth. Instead, Britain must turn around its relatively poor performance on productivity. “Continued falls in unemployment will lead to modest wage recovery, but this alone will not go far enough,” says Gregg.

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I’d use a much stronger term than that.

Youth Unemployment In Rich Middle East A ‘Liability’ (CNBC)

Youth unemployment across the wealthy Middle East is one of the region’s greatest challenges and liabilities, according to a report by the World Economic Forum (WEF). The Middle East and North Africa (MENA) might have abundant wealth as a result of natural resources such as oil and gas but the region has the highest regional youth unemployment rate in the world with 27.2% of under-25s unemployed in the Middle East. More than 29% are out of work in North Africa — more than double the global average, according to WEF’s report. With more than half of its population under 25 years old the MENA region now “stands at a critical juncture,” according to the report. It warns the youthful populace could turn into a “liability” rather than a “youth dividend” if an environment in which youth aspirations can be fulfilled is not created soon. “The demographic ‘youth bulge’ represents one of the greatest opportunities, as well as one of the greatest challenges, faced by the Arab World, ” the report, released in October, warns.

“Solutions to date show little progress in confronting the challenge of youth unemployment in a structural manner, in spite of existing financial means, ” the report which was compiled from a range of consultations with business, government and civil society leaders and academics in the region said. Countries belonging to the Gulf Cooperation Council (GCC), including Kuwait, Qatar, Saudi Arabia and the United Arab Emirates have persistently high youth unemployment rates, with the highest found in oil-rich Saudi Arabia where the rate hovers around 30%, data from the G20 organization showed this year. Despite the economic support of a spectacular rise in oil prices (the WEF estimates that today oil revenues account for at least 80% of total government revenues in all GCC countries), the fast economic expansion of the GCC during the past decades has not translated into jobs for the under-25s “suggesting that economic expansion is not enough to solve the youth unemployment challenge in the region,” WEF said.

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On Obama’s UN speech: “It’s sad, it’s like some kind of mental aberration.”

Russia-US Relations Reset ‘Impossible’: PM Medvedev (CNBC)

Russia’s Prime Minister has said a “reset” of relations with the United States is “impossible” and that ties between the two powers had been damaged by “destructive” and “stupid” sanctions imposed on the country in response for its role in the conflict in neighboring Ukraine. In an exclusive interview with CNBC, Dmitry Medvedev said any suggestion of a “reset”, as mooted by Russia’s foreign minister, Sergei Lavrov, in September, was out of the question.”No, of course not. It’s absolutely impossible. Let’s be clear: we did not come up with these sanctions. Our international partners did,” Medvedev said. Western countries have imposed wide-ranging sanctions on Russia since its annexation of the Crimean peninsula in March, targeting banks, oil producers and defense companies. In response, Russia has imposed retaliatory measures such as banning imports of European and U.S. fruit and vegetables.

Medvedev said the country would overcome the sanctions and believed they would be lifted in the near future. But they had “no doubt” damaged relations. He said he understood former Soviet countries’ concerns over Ukraine. But he felt that the “foundations international relations” were being undermined by the punishing sanctions. The position was “destructive” and “stupid”, he said. Medvedev expressed dismay at U.S. President Barack Obama’s speech before the UN General Assembly in which he labeled Russia a key threat, second only to the deadly Ebola virus and ahead of the terrorist threat posed by Islamic State. “I don’t want to dignify it with a response. It’s sad, it’s like some kind of mental aberration. We need to come back to a normal position, and only after that we can elaborate on how we are going to elaborate our positions in the future,” he said. He said the country hadn’t closed its doors to anyone however.

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Make that a month.

New US Price Tag for War Against ISIS: $40 Billion a Year (Fiscal Times)

With the war against ISIS off to a rocky start, there are signs that the Obama administration is getting ready to up the ante substantially on weaponry, manpower and aid to allies – at a cost of an additional $30 billion to $40 billion a year. Earlier, Gordon Adams, a military analyst at American University, told The Fiscal Times that the mission to stop ISIS will cost $15 billion to $20 billion annually, based on his “back of the envelope” calculations. Other analysts have made similar forecasts. But based on soundings of the defense establishment, Adams said Thursday that the Defense Department would almost certainly request funding of twice that level later this year.

The estimated $30 billion to $40 billion of new spending would come on top of the Pentagon’s $496 billion fiscal 2015 operating budget for personnel and contractors and the roughly $58.6 billion in an “Overseas Contingency Operation” fund that is used to finance U.S. war operations in the Middle East. The OCO, as it is known, has paid for the protracted U.S. military engagement in the Middle East with borrowing that adds to the long-term U.S. debt. If Adams’ projections are correct, then the OCO would total as much as $80 billion to $90 billion in the coming year.

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“Welcome to the diminishing returns of the global economy. They’ve been there all along, but none previously were sufficiently vivid or horrifying as ebola.”

Real Life is Not Spin Art (Jim Kunstler)

The authorities keep emphasizing that the nurse who caught ebola from Thomas Eric Duncan was sealed in her haz-mat suit the whole time she cared for the poor fellow and blah blah nobody knows how she could possibly catch the darn thing…. But the newspapers and cable news networks are not asking: What about all the people, ordinary civilians, that this nurse was consorting with off-work, after she took off her haz-mat suit and, let’s say, at some point stopped by the Kroger Store’s fabulous steam table display of take-out goodies behind the helpful and reassuring sneeze-guard on her way back home? It sounds like a new Netflix drama – The Fatal Mac and Cheese.

If one more person in that chain of circumstance falls ill, Rick Perry will have to ring-fence Dallas faster than you can say Guadalupe Hidalgo and then we’ll be off to the quarantine races in America. It will be interesting to see who’s shorting the airline stocks a few hours from now. I’ve got to pass through Dulles airport tomorrow myself, and then two more foreign hubs after that, and return to freakin’ Newark International at the end of the week when a fullblown ebola panic may be underway. For the moment, I’m in Washington for a conference on population and immigration. Believe it or not there are some people who want to have an honest national conversation about these issues amid all the disingenuous chatter about “dreamers” emanating from the Oval Office in this miserable era of politics-as-spin-art. And along comes the galvanizing event of a really serious disease to finally force the issue. Nothing concentrates a nation’s attention like the specter of the people next door bleeding out through their ears and noses.

Welcome to the diminishing returns of the global economy. They’ve been there all along, but none previously were sufficiently vivid or horrifying as ebola. The Chinese FoxConn workers throwing themselves out the factory windows in despair just seemed like some kind of fraternity prank in comparison. Now something has got loose from the Heart of Darkness like the hissing beastie that burst out of John Hurt’s ribcage in Alien and water-skied out of the sick bay into the bowels of the cargo ship Nostromo. Sometimes a metaphor is just a figure of speech and sometimes it’s liable to set your hair on fire.

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Farrell’s still on his climate and population quest.

‘Star Trek’ Time Capsule 2047 Launches As Earth Burns (Paul B. Farrell)

One very special “Star Trek: The Next Generation” episode haunts me. From stardate 45944.1: “The Inner Light” gives us a brief glance at the star-crossed future of two civilizations. One boldly exploring new worlds. The other leaving behind a brief snapshot of its mysterious death. A bold metaphor for our own planet, in the near future, perhaps 2047? The facts: The U.S.S. Enterprise is on a research mission, completing a magnetic survey of the Parvenium system when it encounters a probe floating in space. Suddenly a telepathic energy bolt drops Capt. Jean-Luc Picard on the deck, unconscious. He wakes up on a strange planet. Dazed, recovering from a fever as “Kamin.” He cannot recognize his wife. Friends think he’s delusional, mumbling about being a starship captain. Time passes. He gradually adapts to this new reality on this far-off world. Memories of his prior life slowly fade. He falls in love with his wife again, raises a family, his children give him grandchildren. He lives the quiet, peaceful life he never imagined in his space travels.

The planet’s natural resources gradually disappear as temperatures rise. Water gets scarce. Desert lands replace forests and rich farmlands. Food supplies depleted. The planet is dying. Near the end, he stands alone, a wide brimmed hat shielding his eyes from the blinding sun, watching the launch of a rocket, soaring into the clouds, contrails disappearing into the heavens, carrying the final record of a great civilization on a once-rich planet. Suddenly the probe powers off. Picard wakes up on the floor of the Enterprise bridge. Only a few minutes had passed. Back in command. Engines power up. They accelerate to warp, continuing on their mission, boldly going where no one has gone before. Picard is left with long memories of a simpler life on a planet that vanished thousands of years earlier. Alone in his quarters, Picard begins playing the flute retrieved from within the drifting space probe. A haunting melody fills his ship … time and space fade to black.

A metaphor for Earth? Perhaps, but which one? We live with 7.3 billion people today. By 2047 the United Nations estimates the population will rocket to 10 billion, with everyone competing with America’s 400 million capitalists for ever-scarcer resources. Yes, huge odds against us, with the rest of the world outnumbering us 22 to 1. Every nation, every society, everyone fighting for their own version of the American Dream, in an unsustainable lifestyle war that will require the resources of not one but six planets. An impossible quandary in a world where population demographics – the bubble of all bubbles – becomes the force driving all other bubbles, economic, political, cultural. The ultimate force driving us in an accelerating trajectory into an unsustainable reality on a planet that can never feed 10 billion people.

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No native species left soon.

UK Waterways Face ‘Invasional Meltdown’ From European Organisms (BBC)

Scientists are warning that an army of species from Turkey and Ukraine is poised to invade Britain’s waterways. One organism, the quagga mussel, was discovered in a river near London just weeks ago. At least 10 others are established in the Netherlands and there is a “critical risk” of them coming here. Researchers are also concerned that invaders, including the killer shrimp, will rapidly spread and devastate native species. The research has been published in the Journal of Applied Ecology. In the study, the team from the University of Cambridge looked at 23 invasive species that originate from the waters of the Black, Azov and Caspian seas. They believe these creatures have spread across Europe in recent years because of canal construction that has helped them move outside their native range.

At least 14 of the species are now well established in the Rhine estuary and in Dutch ports. Four, including the bloody red shrimp, have recently crossed the Channel and established themselves here. Others are likely to follow. According to the authors, Britain faces an “invasional meltdown”. “I think we are at a tipping point,” said Dr David Aldridge, the report’s co-author. “We’ve been watching species heading our way from the Ponto-Caspian region for the past 20 years or so. They are all building up in the Rhine system just over the ocean. “We think that particularly now that the quagga mussel has just arrived, we are about to have a big meltdown.”

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Well, obviously. The more hosts a virus has to replicate in, the more mutations.

Ebola Outbreak Boosts Odds of Mutation Helping It Spread (Bloomberg)

The Ebola virus circulating in West Africa is already different from previous strains. While scientists don’t fully understand what the changes mean, some are concerned that alterations in the virus that occur as that pathogen continues to evolve could pose new dangers. Researchers have identified more than 300 new viral mutations in the latest strain of Ebola, according to research published in the journal Science last month. They are rushing to investigate if this strain of the disease produces higher virus levels — which could increase its infectiousness. So far, there is no scientific data to indicate that. The risk, though, is that the longer the epidemic continues, the greater the chance that the virus could change in a way that makes it more transmissible between humans, making it harder to stop, said Charles Chiu, an infectious disease physician who studies Ebola at the University of California at San Francisco.

“If the outbreak continues for a prolonged period of time or it becomes endemic, it may mutate into a form that is more virulent,” said Chiu. “It is really hard to predict.” Viruses such as Ebola, whose genomes are made from ribonucleic acid, are constantly mutating. Some mutations are good for the virus and some are bad for the virus, said Ian Mackay, a virologist at the University of Queensland. It’s the ones that are good for the virus that tend to stick around. “Viruses don’t think. They make mutations that are good for them,” he said. “If it helps the virus spread or replicate faster it will be around more.” “It is a numbers game, the more cases you have the more likely there are going to be mutations that could change the virus” in a significant way, said David Sanders, a professor of biological sciences at Purdue University who studies Ebola. “The more it persists, the more likely we are going to be thrown a curve.”

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Scared yet? What’s with the protocol?

Second Health Care Worker Tests Positive For Ebola In Texas (CNBC)

A second health care worker has tested positive for Ebola in the U.S., the Texas Department of Health said on Wednesday. The person, who was employed at Texas Health Presbyterian Hospital, was among those who took care of Thomas Eric Duncan after he was diagnosed with Ebola. “Health officials have interviewed the latest patient to quickly identify any contacts or potential exposures, and those people will be monitored,” the Texas Department of Health said in a statement. “The type of monitoring depends on the nature of their interactions and the potential they were exposed to the virus.”

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And counting.

WHO Sees 10,000 Ebola Cases a Week in West Africa by Dec. 1 (Bloomberg)

The number of new Ebola cases in three West African nations may jump to between 5,000 and 10,000 a week by Dec. 1 as the deadly viral infection spreads, the World Health Organization said. The outbreak is still expanding geographically in Guinea, Sierra Leone and Liberia and accelerating in capital cities, Bruce Aylward, the WHO’s assistant director-general in charge of the Ebola response, said in a briefing with reporters in Geneva. There have been about 1,000 new cases a week for the past three to four weeks and the virus is killing at least 70% of those it infects, he said. “Any sense that the great effort that’s been kicked off over the last couple of months is already starting to see an impact, that would be really, really premature,” Aylward said. “The virus is still moving geographically and still escalating in capitals, and that’s what concerns me.”

The WHO’s forecast shows the magnitude of the task facing governments and aid groups as they try to bring the worst-ever Ebola outbreak under control. More than 8,900 people have been infected with Ebola in the three countries, with more than 4,400 deaths, the WHO said. The effects of the epidemic have rippled outward in recent weeks, adding to concern that Ebola may spread in the U.S. and Europe. The first two cases of Ebola being contracted outside Africa occurred, with health workers in Madrid and Dallas falling ill after caring for infected patients. The U.S. and the U.K. began screening some airline passengers on arrival in the past few days. [..] To bring the outbreak under control, there needs to be a common operational plan among all aid groups and governments, Aylward said. That means having people in every county or district responsible for burials, finding infected people and tracing who they’ve been in contact with, and isolating those who are ill and managing their care, he said. “Those pieces are not systematically in place,” he said.

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 May 21, 2014  Posted by at 1:25 pm Finance Tagged with: , ,  27 Responses »
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Toni Frissell Fashion model in dolphin tank, Marineland, Florida 1939

According to a new Zillow report, 40% of all US mortgage holders can’t afford to sell their homes. That is 20 million Americans homeowners, 10 million who are downright underwater and another 10 million who are so close to being there that they don’t have the money to cover the cost of selling. And those are still numbers across the spectrum; things are far towards the bottom. ‘30% of homes in the bottom price tier are in negative equity, while 18.1% of homes in the middle tier and 10.7% in the top tier are underwater’. If we assume that at the bottom, like across the spectrum, as many people are close to being submerged as those who already are, that would mean 60% of bottom tier borrowers are too poor to sell their homes (i.e. have less than 20% equity).

Pretty stunning numbers when you realize that this comes after 7-9 million homes were already foreclosed on (RealtyTrac lists 16.5 million foreclosure filings from 2006 through 2013), and millions more are still stalled in one or another step of the foreclosure process because banks don’t want to be forced to put the losses on their books. It also comes after 6 years in which many trillions of dollars were pumped into the top of the financial system to prevent it from crumbling. The problem is, of course, that those trillions were absorbed by the top. and never reached the bottom. It’s like watering a severely parched parcel of land.

A perhaps unexpected consequence of all this is that – potential – starters, a group already severely hindered by skyrocketing student loans and high levels of unemployment, find the starter home they might be able to afford remains occupied by people the market until recently would have penciled in for a move higher up the ladder. The US housing market is seriously congested. It could be opened with much lower prices, but that would significantly raise the number of underwater owners. As David Stockman writes: “Monetary central banking is an economy wrecker.” Just to make sure the market is eligible for awards in the absurd theater category, median prices have gone up by 11% since 2012. It should be obvious that such a market place in inherently self-defeating. Or should we really say American Dream-defeating?

Here’s what the Wall Street Journal takes away from the report:

Mortgage, Home-Equity Woes Linger

• At the end of the first quarter, some 18.8% of U.S. homeowners with a mortgage – 9.7 million households – were “underwater” on their mortgage, according to a report scheduled for release Tuesday by real-estate information site Zillow Inc. Z -3.19% While that is an improvement from 19.4% at the end of last year and a peak of 31.4% 2012, those figures understate the problem.

• In addition to the homeowners who are underwater, roughly 10 million households have 20% or less equity in their homes, which makes it difficult for them to sell their homes without dipping into their savings. Most move-up homeowners typically use their home equity to cover broker fees, closing costs and a down payment for their next home. Without those funds, many homeowners can’t sell.

• “It’s a sobering appreciation that negative equity is going to be with us for a while to come,” said Stan Humphries, Zillow’s chief economist. “Negative equity is central to understanding a lot of the distortions in the marketplace right now.”

• … prices have risen about 11% over the past two years, and several times that in rebounding markets like Las Vegas, Phoenix and much of California. Rising prices, combined with higher mortgage rates, have given sticker shock to buyers looking for a deal. This has been particularly hard on first-time home buyers who are usually in the market for a lower-priced home.

• Many underwater homeowners have gone into foreclosure or executed a short sale, where they sell the home for a loss. But many aren’t budging. “There are people who still have their jobs and they’re not late on their payment, but they can’t move,” said Vita Deveaux, a real-estate agent at Keller Williams Realty First Atlanta.

That’s essentially still just a bunch of numbers. But it’s not as if they’re some freak result of immaculate conception or spontaneous combustion. Therefore, David Stockman provides a wider perspective:

The Greenspan Housing Bubble Lives On: 20 Million Homeowners Can’t Trade-Up Because They Are Still Underwater

One of the most deplorable aspects of Greenspan’s monetary central planning was the lame proposition that financial bubbles can’t be detected, and that the job of central banks is to wait until they crash and then flood the market with liquidity to contain the damage. In fact, after the giant housing bubble crashed and left millions of Main Street victims holding the bag, Greenspan evacuated the Eccles Building, and then spent nearly a whole chapter in his memoirs explaining how this devastation wasn’t his fault.

Instead, he blamed Chinese peasant girls who came by the millions to the east China export factories where they lived a dozen at a time cramped in tiny dormitory rooms working 14 hour days. According to the Maestro, they “saved” too much, thereby enabling American’s to overdo it on the mortgage borrowing front. Yes, in so many words he said exactly that! Lets see. The Maestro was allegedly a data hound. Did he not notice that housing prices in the US rose for 111 straight months from late 1994 to 2006, and during that period increased by nearly 200% on average across US neighborhoods. How in the world could this giant aberration have escaped the notice of the money printers around Greenspan in the Eccles Building?

How in the world could any adult thinker blame this on factory girls in China – that is, a policy regime that caused excessive savings? In fact, it is plainly evident that the People’s Printing Press of China attempted to protect its exchange rate from appreciating against the flood of dollars emitted from the Eccles Building. It did this in mercantilist fashion by pegging the RMB exchange rate and thereby accumulating a massive hoard of US treasury notes and Fannie/Freddie paper. In short, China didn’t “save ” America into a housing crisis; the Greenspan Fed printed America into a cheap debt binge that ended up impairing the residential housing market for years to come. So the problem with central bank inflation of financial bubbles is that when they burst the damage is extensive, capricious and long-lasting.

It is no great mystery that historically trade-up borrowers have been the motor force that drove the US housing market. Selling their existing home for a better castle, trade-up buyers vacated the bottom-end of the market so that first time buyers could find a foothold. Now thanks to Washington’s eternal conviction that debt it the magic elixir of economic growth, first time buyers are few and far between because they are buried in student debt – about $1.1 trillion to be exact. Each graduating class has more students with loans to carry forward, and in higher and more onerous amounts. Fully 70% of the class of 2014 has student loans, and they average of about $30,000 each. Both figures are triple what they were just a decade ago.

As prices rise, and millions of homeowners and their families are drowning in the American dream, housing is a perfect reflection of what America has become: a nation in which the less affluent working men and women, those who were once known as the middle class, are sinking deeper, albeit slowly for the time being, along with the millions who abandoned the dream of homeownership as time went by.

That makes America already a radically different nation from what it once was, with only one way to go, but how many people fully acknowledge that change? I’m pretty sure most still think their dreams will return, and be fulfilled, at some point in the future. But that’s not going to happen, because all the credit that props up the top tier of society today was largely borrowed from the bottom tier, so things can only get worse when payback time comes. And it will, when interest rates rise. They can’t go any lower, unlike the fast growing contingent of less affluent Americans. Interest rates can only go up from here, and at some point it won’t matter anymore how skilled a swimmer you are.

9.7 Million Americans Still Have Underwater Homes, Zillow Says (Forbes)

A total of 9.7 million American households still have “underwater” mortgages, meaning they owe more on the home than it is currently worth. Homes in the lowest price tier are most affected, according to data released today from Zillow. 30% of homes in the bottom price tier are in negative equity, while only 18.1% of homes in the middle tier and 10.7% in top tier are underwater, according to Zillow’s Negative Equity Report. Homes are defined as top, middle, or bottom tier based on their estimated value compared to the median home price for that area. (Nationally, the median price in the top tier is $306,700; middle tier, $163,400; bottom, $98,400.) Overall, 18.8% of homeowners were underwater during the first quarter of 2014. And more than one-third of all homeowners with a mortgage were “effectively” underwater, meaning they have less than 20% equity in their home.

Zillow’s figures for homes with negative equity are higher than other recent reports looking at the same problem. This is in part because the Zillow report captures the current amount a homeowner owes on a mortgage via data from Transunion, while other reports estimate the current loan balance based on public records. But there are also differences in the way various data companies estimate a home’s current value. Different methodologies lead to different findings. For example, CoreLogic’s most recent report shows far fewer homes with negative equity than Zillow’s: nearly 6.5 million homes (13.3% of mortgaged propertes) were in negative equity at the end of 2013, according to CoreLogic. That’s 3 million less than the negative equity homes Zillow is counting.

What’s particularly significant about the Zillow report is that it underscores a reason for the low prevalence of first-time homebuyers in the market: many owners of less expensive homes can’t afford to sell. “The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow Chief Economist Dr. Stan Humphries via a release. “It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers. Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable.”

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20 Million Homeowners Can’t Trade-Up Because They’re Underwater (Stockman)

Here we are 96 months after the housing peak, yet there are still 20 million households which are either underwater on their mortgages or do not have enough embedded equity to cover the transaction costs and down payment needed to move. Since there are only 50 million households with mortgages, that means that as a practical matter 40% of mortgage borrowers are precluded from trading-up. It is no great mystery that historically trade-up borrowers have been the motor force that drove the US housing market. Selling their existing home for a better castle, trade-up buyers vacated the bottom-end of the market so that first time buyers could find a foothold.

Now thanks to Washington’s eternal conviction that debt it the magic elixir of economic growth, first time buyers are few and far between because they are buried in student debt—-about $1.1 trillion to be exact. Each graduating class has more students with loans to carry forward, and in higher and more onerous amounts. Fully 70% of the class of 2014 has student loans, and they average of about $30,000 each. Both figures are triple what they were just a decade ago. In any event, for those Millennials who do manage to accumulate a down payment by the time they are in their early 30s there is precious little starter home inventory available. The Greenspan mortgage debt serfs from the previous generation are blocking the way.

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Mortgage, Home-Equity Woes Linger (WSJ)

Nearly 10 million U.S. households remain stuck in homes worth less than their mortgage and a similar number have so little equity they can’t meet the expenses of selling a home, trends that help explain recent sluggishness in the housing recovery. At the end of the first quarter, some 18.8% of U.S. homeowners with a mortgage—9.7 million households—were “underwater” on their mortgage, according to a report scheduled for release Tuesday by real-estate information site Zillow Inc. While that is an improvement from 19.4% at the end of last year and a peak of 31.4% 2012, those figures understate the problem. In addition to the homeowners who are underwater, roughly 10 million households have 20% or less equity in their homes, which makes it difficult for them to sell their homes without dipping into their savings.

Most move-up homeowners typically use their home equity to cover broker fees, closing costs and a down payment for their next home. Without those funds, many homeowners can’t sell. “It’s a sobering appreciation that negative equity is going to be with us for a while to come,” said Stan Humphries, Zillow’s chief economist. “Negative equity is central to understanding a lot of the distortions in the marketplace right now.” Those distortions include the inventory of homes for sale, which, while rising, is low by historical standards. It also helps explain why first-time home buyers are having such a hard time cracking the market. Real estate is in some ways like a ladder, Mr. Humphries notes, so when underwater homeowners don’t trade up it makes it harder for newcomers to get in.

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Blackrock CEO Says US Housing “Structurally More Unsound” Now (Bloomberg)

BlackRock CEO Laurence D. Fink said the U.S. housing market is “structurally more unsound” today than before the financial crisis because it depends more on government-backed mortgage companies such as Fannie Mae and Freddie Mac. “We’re more dependent on Fannie and Freddie than we were before the crisis,” Fink said today at a conference held by the Investment Company Institute in Washington, noting that he was one of the first Freddie Mac bond traders on Wall Street. Fink, who has built New York-based BlackRock into a $4.4 trillion money manager, said today that with strong underwriting standards, ownership of affordable homes can again become a foundation for American families.

The U.S. Senate Banking Committee is working to overhaul the housing-finance system, after casting a narrow vote this month to advance a bill that would wind down Fannie Mae and Freddie Mac. Current shareholders of Fannie Mae and Freddie Mac would be in line behind the U.S. for compensation from the wind-down. Restructuring the mortgage market is the largest piece of unfinished U.S. business from the 2008 credit crisis, when regulators seized Fannie Mae and Freddie Mac as they neared insolvency. The companies, which buy mortgages and package them into securities, were bailed out with $187.5 billion from the Treasury and backed a growing share of mortgages as private capital dried up.

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Traders asleep at the wheel?

An Incredible Explanation For The Relentless Stock Rally (Yahoo!)

Cal Ripken’s 2,632 consecutive starts. DiMaggio’s 56 straight games with a hit. Those streaks pale in comparison to what’s happening in the market right now. That’s because the S&P has gone 468 days since experiencing a correction of 10% or more. That’s the fourth longest streak on record, according to Newedge. Still not impressed? How about this: The S&P hasn’t closed below its 200-day moving average in over 18 months. Waiting for the correction has become an absurdist activity, the financial equivalent of “Waiting for Godot.” “We’ve been above trend for far too long. It’s been four years since we’ve had a close below the 150-day moving average. We have to go back to 2003 – 2007 to find a similar run,” said Rich Ross of Auerbach Grayson. “The stage is set for a serious 10% correction. Maybe even 20%”.

Of course, identifying the catalyst for said correction has been a near impossible task for most market participants. But some are starting to point to the composition of the recent leg of the run as a warning sign. “We’ve had a defensive rally all year long,” said Chantico Global’s Gina Sanchez. “Defensive stocks continue to be the better bets, and the rotation continues into value. I don’t know what will be the straw that breaks the camel’s back, but the pace of earnings can’t continue to be stronger than the pace of the economic recovery.” Still, just because history or logic says something should happen doesn’t mean it will. And to some investors, there could be a simpler explanation for this decade’s unstoppable rally.

“As more portfolios become passive in nature, less attention is paid to the daily ups and downs for the news cycle for a given asset class. Suppression of volatility is a symptom of this,” wrote Josh Brown, CEO of Ritholtz Wealth Management. “People who attribute this purely to the Fed probably have it half wrong.” According to Brown, assets under fee-based accounts have swelled to $1.3 trillion in 2013 from $200 billion in 2005. Most of this money is not being actively managed and is being put to work in a methodical, passive fashion each month. This provides a constant bid to the market as wealth managers become less incentivized to jump in and out of stocks and more rewarded to buy, and buy more. “This means a bias toward buying equities every day and almost never selling,” wrote Brown. “It means adding to stocks sheepishly on up days and voraciously on the (rarely occurring) down ones.”

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No, really?

Bank of England’s Bean Says Stimulus Exit May Be Difficult (Bloomberg)

Bank of England Deputy Governor Charlie Bean said policy makers face potential “potholes” when it comes to exiting the extraordinary stimulus measures they implemented during the recession, many of which put central banks into uncharted territory. “I do not expect central banks’ collective management of the exit from the present exceptionally stimulatory monetary stance will be easy,” Bean said in a speech in London yesterday. “Market interest rates are bound to become more volatile along the exit path, however well central banks communicate their intentions.”

The challenge of how and when to remove stimulus is one that Bean won’t have to face, as he retires at the end of next month after a 14-year career at the BOE. Governor Mark Carney said last week that while the U.K. is moving closer to a point that it will need tighter policy, the inflation outlook and the need to use up more spare capacity in the economy weigh against an immediate increase in the key interest rate. With the benchmark at record-low 0.5% and the recovery strengthening, U.K. policy makers are battling rate-increase expectations. Bean echoed language the BOE used in its Inflation Report last week, saying that when it comes time to begin rate increases, the Monetary Policy Committee will move “gradually.”

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Zzzzz.

Germany Finance Watchdog Finds Evidence Of Forex Manipulation (Reuters)

Germany’s financial watchdog has discovered clear evidence that market participants attempted to manipulate reference currency rates, widening the probe to include many more banks and saying international investigations into the matter were far from over. Regulators globally are looking at traders’ behaviour on key benchmarks, spanning interest rates, foreign exchange and commodities. Eight financial firms have been fined billions of dollars for manipulating reference interest rates, and the probe into the largely unregulated $5.3 tn-a-day foreign exchange market could prove even costlier. The head of banking supervision at German watchdog Bafin, Raimund Roeseler, said the latest discoveries in the forex probe were worrying and it was “much, much bigger” than the investigation into benchmark interest rates, such as Libor.

“There were clearly attempts to manipulate prices, that’s what was disturbing,” Roeseler said on Tuesday at the regulator’s annual news conference. Market participants had attempted to manipulate daily fixing rates for a number of different currencies, he said without specifying what evidence had been gleaned. “It’s not the really big currencies, not the dollar/euro, but several currencies were involved,” he said, noting the Mexican peso was one of the currencies involved. More than 30 foreign exchange traders at many of the world’s biggest banks have already been put on leave, suspended or fired as forex probes in various countries expand.

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The Germans are not entirely blinded yet. But they have 27 other nations they must lead.

Bundesbank Warns Market Calm Hides Risks Of Low Interest Rates (Bloomberg)

New risks to financial stability could emerge from the combination of generous central bank policies and investors’ search for yield in a low-interest rate environment, Bundesbank board member Andreas Dombret said. “We do see risks, despite the fact that the markets are calm,” Dombret said in an interview in Frankfurt yesterday. “Real-estate markets in some European countries are pretty high, corporate bond valuations seem stretched and high. The low volatility leads to market participants thinking that they don’t need to hedge.”

Record-low yields on debt from Spain to Ireland are adding to evidence that investors are leaving the euro area’s debt crisis behind them, and Germany’s DAX Index of stocks is near an all-time high. Even so, consumer prices are proving slow to pick up, prompting the European Central Bank to consider adding yet more stimulus as soon as next month. A risk measure that that uses options to forecast fluctuations in equities, currencies, commodities and bonds fell to its lowest level in almost seven years last week. Bank of America Corp.’s Market Risk Index dropped to minus 1.22 on May 14, the lowest level since June 2007. The measure was at minus 1.19 yesterday.

Dombret, 54, will this month take charge of banking and financial supervision at Germany’s Bundesbank, after previously leading the financial stability department. His new role gives him a seat on the ECB’s Supervisory Board, which will be responsible from November for overseeing about 130 euro-area banks. A challenge facing the ECB is bringing order to the array of models for assessing risk deployed by the region’s lenders. Dombret said regulators shouldn’t attempt completely to harmonize those models. “If we unify risk models this could lead to herd behavior, with all those negative effects, and would also exclude the institute-specific measures, which are important for diversity,” he said. “I am a big believer in continuing to use risk models, and counter-checking them with leverage ratios.”

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Europe’s faking it all the way.

Europe’s Debt Time Bomb (Bloomberg)

One of the consequences of the European debt crisis is that some of the region’s biggest borrowers will face big debt repayments sooner than they might have otherwise. In simple terms, Spain and Italy found it easier and cheaper to take out short-term loans, rather than longer-term funding. The result, though, is a repayment hump in 2015 that will need to be financed with fresh debt sales. Here’s a chart of the how the average length of time until Italy’s debts come due has changed year by year:

In the first quarter of 2011, Italy had an average of 7.25 years to repay its debts. As it sold more debt with shorter maturities, that average has dropped to 6.27 years.

Here’s the same chart for Spain:

In the first quarter of 2010, Spain had an average of 6.51 years to repay its debts. That figure is down to 5.76 years.

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Could get nice if the elections this week turn sour.

Are European Bonds Signaling Trouble? (CNBC)

The quick move higher in the yields of Europe’s weakest sovereigns from historic lows may be just the beginning and on the edges it could start to affect other low-rated credits where investors have hunted for yield—such as U.S. junk bonds. Driven by speculation about the European Central Bank and selling by major investors, the prices of peripheral European bonds have been weakening since last week. As a result, the yields of sovereigns—Spain, Italy, Greece, Portugal and Ireland—have all moved higher, while the core German bund yield has edged just slightly higher. The 10-year Spanish bond, for instance, was yielding 3.008% Tuesday, after reaching a low of 2.832% last Thursday, its lowest level in 20 years. As investors sell, Greece’s 10-year yield is creeping back toward 7%, after making a four-year low of 5.85% in April.

“I think this has more room to go. It’s been about a year in the making. We’ve barely seen much of it yet,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman. “Some large funds like BlackRock have indicated they are beginning to take profits on it. Then the EU and IMF expressed concern that those bond market rallies were not going to be sustainable.” Trader chatter has increased about the fact the selloff in Europe could lead to more caution about risk exposure in other areas of global fixed-income markets. “While there’s not been wholesale selling and aggregate index performance has turned in solid results, underlying trends suggest a consolidation in risk exposure,” said Adrian Miller, director fixed-income strategy at GMP Securities.

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Moody’s Turns Negative On China Property (CNBC)

Moody’s joined the drumbeat of pessimism on China’s property industry, cutting its outlook to negative from stable, but it still expects most rated developers’ finances will remain on an even keel. “We expect a significant slowdown in residential property sales growth, high inventory levels and weakening liquidity over the coming 12 months,” Moody’s said in a report Wednesday. “A differentiation in the credit quality of developers will become more apparent.” Concerns that China’s property market is a popping bubble recently moved to the front burner, with home sales in the four months ended April down 9.9%, after slumping 7.7% in the first quarter. Property is estimated to account for around 20% of the mainland’s gross domestic product (GDP).

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Money Won’t Come Cheap For China Banks’ $120 Billion Funding Spree (Reuters)

Chinese banks are poised to raise a record $120 billion in the next two years to shore up their balance sheets in the face of slowing growth and rising bad debts, but the funds could prove expensive and hurt earnings as investors demand a premium. For the first time, banks will raise capital by issuing preference shares and other so-called hybrid securities, a funding technique that avoids the need for issuing ordinary shares into a badly hit stock market. Just in the past two weeks, Agricultural Bank of China and Bank of China announced plans to raise about $29 billion in preferred shares between them. As growth slows and bad debts build up, the banks are rushing to replenish their balance sheets to meet new global capital rules known as Basel III.

The Chinese government has been rigorously enforcing these regulations in its efforts to ward off a financial crisis following a huge run-up in debt since 2008 and a marked slowdown in the economy. Analysts say the flood of regulatory capital will help investors diversify their portfolio, but they are expected to drive a hard bargain given the concerns about transparency in China’s opaque financial system and the worrying rise of toxic debt in recent years. “Given the size of the proposed capital issues and the concerns about transparency in the Chinese banking system, it may be hard to price aggressively versus the western structures currently out there,” said Ivan Vatchkov, chief investment officer of Algebris Investments (Asia).

The first few deals should give banks an idea of returns that investors will demand on hybrid capital securities. China CITIC Bank International, a Hong Kong-based affiliate of China CITIC Bank , in April sold capital securities in the offshore market at an interest rate about 100 basis points over the same bank’s subordinate bonds. Benchmark five-year subordinate debt from China’s top-rated banks currently trades at a yield of 5.25%, suggesting banks will have to price yields at around 6.3% for preferred shares to lure investors – a side effect of an economy growing at its slowest pace in decades. Some analysts warn that forcing banks to pay hefty yields on new hybrid capital instruments would not only pressure their profitability, but also threaten their ability to continue lending aggressively as bad loans rise in a slowing economy. Chinese banks’ non-performing loan figures rose to a two-year high at the end of 2013, according to official data.

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The amount means nothing. Trading restrictions are the clincher.

BNP Falls as US Probe Said to Cost More Than $5 Billion (Bloomberg)

BNP Paribas fell to a seven-month low in Paris on concern U.S. authorities will seek more than $5 billion from the bank to settle a probe into alleged violations of U.S. sanctions. The stock fell as much as 3% and was down 2.7% at 50.39 euros as of 9:03 a.m., the lowest since Oct. 1. U.S. authorities are seeking the penalty to settle federal and state investigations into the lender’s dealings with countries including Sudan and Iran, according to a person with knowledge of the matter. The amount sought has escalated and now far exceeds the $2.6 billion that Credit Suisse agreed to pay in a settlement with the U.S. for helping Americans evade taxes. Discussions are continuing and the final number could change, the person said.

Last week, four people with knowledge of the matter told Bloomberg News that U.S. authorities were asking for at least $3.5 billion to settle the BNP case. As they did with Credit Suisse, U.S. prosecutors are seeking a guilty plea from BNP, which said last month it may need more than the $1.1 billion it has set aside to settle the case. The settlement, which would be the largest penalty for sanctions violations, could be announced as soon as next month, said the person, who asked not to be identified because a final decision hasn’t been made.

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Wall Street getting rid of the competition?

BNP Paribas Risks Client Flight as Ban on Transfers Looms (Bloomberg)

Credit Suisse Group emerged from a guilty plea this week relatively unscathed. The punishment that prosecutors are now holding over BNP Paribas’s head could have more severe consequences. A temporary ban on transferring money into and out of the U.S., floated by New York’s Superintendent of Financial Services Benjamin Lawsky, would be in addition to more than $5 billion in fines and a guilty plea to criminal charges for violating U.S. sanctions, according a person with knowledge of the talks. No similar punishment targeting a business was imposed when Credit Suisse’s main bank subsidiary admitted helping U.S. citizens evade taxes.

Regulators haven’t determined how harsh the BNP Paribas prohibition would be, according to one of the people who asked not to be identified because the negotiations are private. If the French lender isn’t allowed to pay another bank to provide the service, it could push some customers to competitors. “When your client has to go to a rival bank to get the most basic banking service, even for a few months, you’ll lose them,” said Fred Cannon, New York-based head of research at Keefe, Bruyette & Woods Inc. “Not all, but some will take their business completely to that rival and not come back.”

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German Unease With ECB Simmers as Anti-Euro Party Gains (Bloomberg)

Lawmakers from Chancellor Angela Merkel’s party are criticizing European Central Bank policies as a German anti-euro party gains support before elections across Europe this week. Misgivings by Finance Minister Wolfgang Schaeuble about the ECB’s threat of unlimited bond-buying and Merkel’s warning of “deceptive calm” in financial markets are the latest signs that German policy makers and economists don’t want to discount the lingering risk to taxpayers from the debt crisis.

As polls suggest the anti-euro Alternative for Germany may win as much as 7% of the German vote for the European Parliament on May 25, members of Merkel’s Christian Democratic Union in the Bundestag, or lower house, questioned the underpinnings of ECB President Mario Draghi’s pledge in July 2012 to do “whatever it takes” to save the euro. “The Bundestag would certainly have major concerns to clear the way for unlimited bond purchases by the ECB,” Norbert Barthle, the budget spokesman for the Christian Democrats in parliament, said by phone. “I said back then that the ECB is making itself strongly dependent on political decisions” because lawmakers in Berlin would have a say in the process if the central bank ever decided it wants to buy a euro-area country’s bonds as part of an aid package, he said.

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This is presented as a good sign?!

Lower Consumer Spending, Imports Shrink Japan Trade Deficit (Bloomberg)

Japan’s trade deficit shrank in April as imports rose the least in 16 months after the first sales-tax increase in 17 years crimped consumer spending. Inbound shipments rose 3.4% from a year earlier, the Ministry of Finance said today in Tokyo. Exports increased 5.1%, leaving a deficit of 808.9 billion yen ($8 billion), down 7.8% from a year earlier. Reductions in the nation’s trade deficits, which extended their record run to 22 months, would help Prime Minister Shinzo Abe’s efforts to drive a sustained economic recovery and an exit from deflation. So far, the nation’s export gains have been limited, even with a 17% slide in the yen against the dollar since he took office in December 2012.

“Imports boosted by front-loaded demand before the sales-tax hike dropped off in April,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo, said before the report. “We have to wait for exports to recover strongly before we will see a real drop in the trade deficit and that situation is still way out of sight,” said Shinke, the most accurate forecaster of Japan’s economy for two years running in data compiled by Bloomberg. [..] Abe increased the sales levy to 8% in April from 5%, as he tries to contain the world’s biggest debt burden. An environmental tax on energy, which also took effect from April 1, undercut imports of oil and coal, according to Nomura Holdings Inc. economists led by Minoru Nogimori, writing in a research report before the data.

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What if Chinese demand plunges?

Russia, China Sign Long Awaited $400 Billion Mega Gas Deal (Reuters)

Russia’s state-controlled Gazprom signed a long-awaited gas supply agreement with energy-hungry China today. There were no pricing details on the deal, which is believed to involve Russia supplying 38 billion cubic metres of gas per year to China via a new eastern pipeline linking the countries. It has been unofficially valued at over US$400 billion. Alexey Miller, chief executive officer of OAO Gazprom, Russia’s biggest company, signed the contract with Chinese officials in Shanghai during a two-day visit to China by President Vladimir Putin, according to a Bloomberg report. The move comes as Moscow diversifies away from the European market – but the price for the deal has been a sticking point. In return, it would help to ease Chinese gas shortages and heavy reliance on coal.

Talks on the proposed 30-year contract between Gazprom and state-owned China National Petroleum Corporation began more than a decade ago. A tentative agreement signed in March last year calls for Gazprom to deliver the 38 billion cubic metres per year of gas beginning in 2018, with an option to increase that to 60 billion cubic metres. Analysts have previously said the agreement would give advantages for both sides and tie the two countries closer together. The gas deal would mean China would be in a “de facto alliance with Russia”, according to Vasily Kashin, a China expert at the Centre for Analysis of Strategies and Technologies in Moscow. In exchange, Moscow might lift restrictions on Chinese investment in Russia and on exports of military technology, Kashin said. “In the more distant future, full military alliance cannot be excluded.”

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As I said. 1000 times.

Green Cars Won’t Save the Planet(Bloomberg)

A massive polar ice cap seems to be melting. What are we going to do to stop it? The answer, as I’ve often posited in this space, is “likely nothing.” Oh, I don’t mean literally “nothing”; I’m sure people will continue to write angry editorials and buy “green” consumer products. But I don’t think we’re likely to do much in the way of actually reducing greenhouse-gas emissions, which contribute to the climate change that is melting the ice caps. A few weeks back, this drew a censorious e-mail from a longtime commenter who noted that he was making a serious commitment to emissions reduction by, among other things, buying a Chevrolet Volt. My response to him is that “buying a Volt” does not constitute getting serious about carbon emissions. The idea that we can save the planet while barely changing our consumption patterns is one of the reasons that we are not going to actually “get serious” about global warming.

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Shell’s desperate defense from reality. Well, it’s a cover up mostly. Climate rules don’t matter, they’re simply running out of reserves.

Shell Hits Back At ‘Carbon Bubble’ Claims (Guardian)

Shell has hit back at claims that its multi-billion dollar investments in tar sands, fracking and other unconventional oil and gas exploration will create a “carbon bubble” which may backfire catastrophically because of expected global climate change legislation. Previous research by economists, campaigners, and MPs has suggested that the majority of coal, oil and gas reserves of publicly listed companies, including Shell, are “unburnable” if the world is to have a chance of not exceeding global warming of 2C, the level governments have agreed to limit rises to. That is leading to a so-called carbon bubble, an overvaluation of oil companies’ financial value, they have said. But in a 20 page response to its shareholders who are meeting on Tuesday in The Hague, Netherlands, for the company’s annual meeting, Shell strongly refutes the criticism that it is vulnerable to such a bubble.

“Shell believes that the risks from climate change will continue to rise up the public and political agenda. We are already taking steps to minimise our emissions and we are preparing the company for when legislation and markets will support a more significant action to mitigate CO2,” said JJ Traynor, vice president of investor relations at Royal Dutch Shell. “We do not believe that any of our proven reserves will become stranded. While the ‘stranded asset’ notion may appear to be strong and thought-through, it does have some fundamental flaws and there is a danger that some interest groups use it to trivialise the important societal issue of rising levels of CO2 in the atmosphere,” he wrote.

Shell claimed that the methodology used by its critics was wrong because it failed to acknowledge that global energy demand was likely to increase with population growth and with increasing global prosperity. “As GDP rises in China and India… energy demand will increase on this journey,” said Traynor. “Energy demand growth, in our view, will lead to fossil fuels continuing to play a major role in the energy system – accounting for 40-50% of energy supply in 2050 and beyond. The huge investment required to provide energy is expected to require high energy prices and not the drastic price drop envisaged for hydro carbons in the carbon bubble concept”.

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Nice piece.

Just Imagine… If Russia Had Toppled The Canadian Government (RT)

Just imagine if the democratically-elected government of Canada had been toppled in a Russian-financed coup, in which far-right extremists and neo-Nazis played a prominent role. That the new unelected ‘government’ in Ottawa cancelled the law giving the French language official status, appointed a billionaire oligarch to run Quebec and signed an association agreement with a Russian-led trade bloc. Just imagine… If Russia had spent $5 billion on regime change in Canada and then a leading Canadian energy firm had appointed to its board of directors the son of a top Russian government politician.

Just imagine… If the Syrian government had hosted a meeting in Damascus of the ‘Friends of Britain’- a group of countries who supported the violent overthrow of David Cameron’s government. That the Syrian government and its allies gave the anti-government ‘rebels’ in Britain millions of pounds and other support, and failed to condemn ‘rebel’ groups when they killed British civilians and bombed schools, hospitals and universities. That the Syrian Foreign Minister dismissed next year’s scheduled general election in the UK as a ‘parody of democracy’ and said that Cameron must stand down before any elections are held.

Just imagine… If in 2003, Russia and its closest allies had launched a full-scale military invasion of an oil-rich country in the Middle East, having claimed that that country possessed WMDs which threatened the world and that afterwards no WMDs were ever found. That up to 1 million people had been killed in the bloodshed that followed the invasion and that the country was still in turmoil over 10 years later. That Russian companies had come in to benefit from the reconstruction and rebuilding work following the ‘regime change’.

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Cool!

Santa Cruz Becomes First California County To Ban Fracking (RT)

Santa Cruz County has become the first county in California to implement a “permanent” ban on hydraulic fracturing, or fracking, in addition to all other onshore oil and gas development. The county’s Board of Supervisors voted 5 to 0 on Tuesday to pre-emptively outlaw fracking in the county. “Some would say this is a symbolic gesture,” said Supervisor Bruce McPherson, according to KQED. “But I think it’s a message that needs to be sent out and listened to, especially on our quality of life and particularly about the impact it might have on our water supply, whether it occurs inside this county or in adjacent counties.”

Injection wells used to dispose of highly-toxic fracking wastewater have contributed to heightened earthquake activity across the nation. The wastewater – riddled with hazardous and often undisclosed chemicals and contaminants – has been linked to a host of human and environmental health concerns. A recent study found that some of the most drought-ravaged areas of the US are also heavily targeted for oil and gas development using fracking, which exacerbates water shortages. In California, 96 percent of new fracking wells were found to be located in areas where competition for water is high. A drought emergency for the entire state – which has traditionally dealt with water-sharing and access problems – was declared in January. The city of Santa Cruz instituted mandatory water rationing for residents last month.

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Oh mother …

French Rail Company Orders 2,000 Trains Too Wide For Platforms (Reuters)

France’s national rail company SNCF said on Tuesday it had ordered 2,000 trains for an expanded regional network that are too wide for many station platforms, entailing costly repairs. A spokesman for the RFF national rail operator confirmed the error, first reported by satirical weekly Canard Enchaine in its Wednesday edition. “We discovered the problem a bit late, we recognize that and we accept responsibility on that score,” Christophe Piednoel told France Info radio. Construction work has already begun to reconfigure station platforms to give the new trains room to pass through, but hundreds more remain to be fixed, he added.

The mix-up arose when the RFF transmitted faulty dimensions for its train platforms to the SNCF, which was in charge of ordering trains as part of a broad modernization effort, the Canard Enchaine reported. The RFF only gave the dimensions of platforms built less than 30 years ago, but most of France’s 1,200 platforms were built more than 50 years ago. Repair work has already cost €80 million ($110 million). Transport Minister Frederic Cuvillier blamed an “absurd rail system” for the problem, referring to changes made by a previous government in 1997. “When you separate the rail operator (RFF) from the user, SNCF, it doesn’t work,” he told BFMTV.

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