Oct 202015
 
 October 20, 2015  Posted by at 9:11 am Finance Tagged with: , , , , , , , , , ,  5 Responses »


Hans Behm Windy City tourists at Monroe Street near State 1908

Another Quarter Of Remarkably Precise China GDP Growth Data (Reuters)
China’s Better-Than-Expected GDP Prompts Skepticism From Economists (WSJ)
Chinese Economists Have No Faith In 7% Growth ‘Target’ (Zero Hedge)
China’s Capital Outflows Top $500 Billion (FT)
China Heads For Record Crude Buying Year (Reuters)
Britain’s Love Affair With China Comes At A Price (AEP)
The Perfect Storm That Brought Britain’s Steel Industry To Its Knees (Telegraph)
Deutsche Bank, Credit Suisse Set to Scale Back Global Ambitions (Bloomberg)
Wal-Mart Puts The Squeeze On Suppliers To Share Its Pain (Reuters)
Brazil’s Corruption Crackdown Can’t Be Stopped (Bloomberg)
US Supreme Court May Weigh In on a Student Debt Battle (Bloomberg)
New Canada PM Justin Trudeau: Out of Father’s Shadow and Into Power (Bloomberg)
Farewell Fossil Fools – Harper And Abbott Both Dispatched (CS)
Death by Fracking (Chris Hedges)
Is There A War Crime In What The Dutch Safety Board Is Broadcasting? (Helmer)
Stranded in Cold Rain, a Logjam of Refugees in the Balkans (NY Times)
Without Safe Access To Asylum, Refugees Will Keep Risking Their Lives (Crawley)
Merkel In Turkey: Trade-Offs And Refugees (Boukalas)
Greek Coast Guard Rescues 2,561 Migrants Over The Weekend (AP)

Maybe Beijing is just very good at predicting.

Another Quarter Of Remarkably Precise China GDP Growth Data (Reuters)

China GDP releases are starting to look like near-perfect landings each and every time, in all kinds of weather conditions and visibility. Yet another quarter has just gone by – literally less than three weeks ago – and already statisticians have reported that growth slowed a tiny sliver from Beijing’s 2015 target of 7% recorded for the first half of the year. Now it’s 6.9%, slightly above the Reuters consensus forecast from 50 economists of 6.8%. It is difficult to understate just how precise such figures are in the grand scheme of economic data reporting. It is also difficult to ignore just how remarkable this stability is considering the Chinese authorities are trying to rebalance the entire economy away from reliance on exporting manufacturing goods toward domestic consumer spending.

And that worry about a Chinese growth slowdown was one of the main reasons cited by the U.S. Federal Reserve for holding off last month on its first rate rise in nearly a decade. That’s also not to mention that China growth concerns dominated the International Monetary Fund and World Bank’s latest meetings in Lima, Peru. In the past three years, Chinese GDP data as reported have only missed the Reuters Polls consensus three times, and on each occasion it was because the reported growth figure beat by just 0.1 percentage point. For the periods of Q4 2013 through to Q1 of this year, the reported figure was exactly on forecast.

Other large and important global economies are nowhere near as accurate. U.S. growth data have taken even the most pessimistic forecaster completely off guard on several occasions since the financial crisis, most recently in the first quarter of last year. The initial report for Q1 GDP this year also matched the lowest forecast. Initial U.S. growth data have only actually been reported exactly in line with expectations three times in the last half decade. It seems implausible that economists, who are often widely panned as a group for failing to predict economic turning points, are uncannily able to nail Chinese GDP within a few tiny slivers of a percentage point each and every time.

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Not much use trying to analyze something so obvious.

China’s Better-Than-Expected GDP Prompts Skepticism From Economists (WSJ)

Within minutes of China’s publishing its rosier-than-expected numbers, a wave of skepticism emanated from economists over the accuracy of the official 6.9% third-quarter growth figure. Economists’ doubts centered in part on the apparent disconnect between the headline figure and the underlying data. Both exports and imports declined during the third quarter, and industrial production was weaker than expected. Factories have seen 43 consecutive months of falling prices and—despite a flood of government infrastructure spending—fixed-asset investment decelerated in September. While retail sales and services have held up, and new lending data in September point to a pickup in demand, these factors haven’t been enough to offset the parade of negative data, economists said.

“When you look at the numbers, it’s not entirely easy to see how GDP growth held up so well,” said Société Générale CIB economist Klaus Baader. The weak reports leading up to Monday’s GDP release had strengthened the impression that China is increasingly under siege to reach its 2015 growth target of about 7%, which already would be its slowest pace in a quarter century. Economists say the world’s second-largest economy is far from collapsing, though a number of them say they believe actual growth is one or two percentage points below the official figure. China’s official growth statistics have long been viewed with skepticism. Although the methodology has improved exponentially since the days of the 1958-61 Great Leap Forward, when cadres were encouraged to inflate production statistics to please Chairman Mao, many say there is still a focus on reaching a predetermined number, even when underlying conditions change.

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Much better index, and Pettis explaining how China is both much worse and not all that bad (I disagree).

Chinese Economists Have No Faith In 7% Growth ‘Target’ (Zero Hedge)

Earlier today in “The Truth Behind China’s GDP Mirage: Economic Growth Slows To 1999 Levels”, we pointed out that Beijing may be habitually understating inflation for domestic output, which has the effect of making “real” GDP less “real” than nominal GDP. This is what we’ve called the “deficient deflator math” problem and it raises questions about whether China is netting out import prices when they calculate the deflator. If they’re not, then the NBS is likely overstating GDP during periods of rapidly declining commodities prices. If Beijing is indeed understating the deflator it’s not entirely clear that it’s their fault, as robust statistical systems take time to implement, especially across an economy the size of China’s.

That said, there are plenty of commentators who believe that the practice of overstating GDP is policy and exists with or without an understated deflator. Put simply: quite a few people think China is simply lying about its economic output. To be sure, there’s ample evidence to suggest that Beijing’s critics are right. After all, the Li Keqiang index doesn’t appear to be consistent with the numbers coming out of the NBS and the degree to which the data tracks the Communist party’s “target” is rather suspicious (and that’s putting it nicely).

In effect, everyone is perpetually in an awkward scenario when it comes to Chinese GDP data. Economists are forced to “predict” a number that they know is gamed and while that’s pretty much always the case across economies (just see “double adjusted” US GDP data for evidence), with China it’s arguably more blatant than it is anywhere else, and one could run up a pretty impressive track record simply by betting with Beijing’s “target.” It’s with all of this in mind that we bring you the following clip from University of Peking economist Michael Pettis, whose outlook is apparently far more dour than his compatriots:

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I can’t see how or why this would stop.

China’s Capital Outflows Top $500 Billion (FT)

Capital outflows from China topped $500bn in the first eight months of this year, according to new calculations by the US Treasury that highlight the shifting fortunes in the global economy. The outflows, which peaked at about $200bn during the market turmoil in August according to the estimates released on Monday, have also contributed to a shift by Washington in its assessment of the valuation of China’s currency, the renminbi. In its latest semi-annual report to Congress on the global economy, the US Treasury dropped its previous assessment that the renminbi was “significantly undervalued”. Instead, the Treasury said the Chinese currency was “below its appropriate medium-term valuation”. “Given economic uncertainties, volatile capital flows and prospects for slower growth in China, the near-term trajectory of the RMB is difficult to assess,” Treasury economists wrote.

“However, our judgment is that the RMB remains below its appropriate medium-term valuation.” The new language reflects the cautious welcome that the Obama administration has given to Beijing’s efforts in recent months to prop up the renminbi since China announced on August 11 that it would allow a greater role for the market in setting the currency’s exchange rate. It is also a sign of the recognition in Washington that even as it believes China’s currency should strengthen in the longer term, in the short term the renminbi is facing downward pressures because of several factors including what amount to historic outflows from China and other emerging economies. “Market factors are exerting downward pressure on the RMB at present, but these are likely to be transitory,” the Treasury said. Among those factors, Treasury economists wrote, was the unwinding of carry trades betting on the appreciation of the renminbi.

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Q: what will happen to prices when Chinese storage has filled up its teapots?

China Heads For Record Crude Buying Year (Reuters)

As China closes in on the US as the world’s biggest crude oil importer, demand from private refiners and stockpiling of cheap oil is expected to keep imports at record levels after a wobble in the third quarter. Despite slower growth in recent months – crude imports rose just 1.3% in September on a year earlier – buying for October-November delivery has picked up strongly, traders and analysts say. The purchases will ease concerns of a sharp slowdown in Chinese buying and support prices in coming months, analysts said. The increased buying has shown up in tanker movements and freight rates, said Energy Aspects analyst Virendra Chauhan, and analysts are upgrading earlier forecasts for second half growth. “Despite a slowing Chinese economy, crude imports remain robust on the back of accelerated stockpiling activities into operating and commercial storage,” said Wendy Yong, analyst at oil consultancy FGE.

Since July, China has also granted nearly 700,000 barrels per day (bpd) of crude import quotas to small refiners, known as “teapots”, or roughly 10% of China’s current total imports, as part of efforts to boost competition and attract private investment, creating a new source of demand. “The teapots are super-active,” said one oil trader, with many racing to fill their new quotas. And state-owned refiners are restocking after a third-quarter lull. Unipec, the trading arm of Asia’s top refiner Sinopec, bought 6 million barrels of North Sea Forties crude and 2.9 million barrels of Russian ESPO for loading this month, and it has also stepped up Angolan crude purchases for November. To accommodate the oil, new storage tanks on southern Hainan island have either been put to use or are due to be filled with crude from end-2015.

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Something to do with licking certain body parts.

Britain’s Love Affair With China Comes At A Price (AEP)

It is a sobering experience to travel through eastern China with a British passport. Again and again you run into historic sites that were burned, shelled or sacked by British forces in the 19th century. The incidents are described in unflattering detail on Mandarin placards for millions of Chinese national pilgrims, spiced with emotional accounts of the Opium Wars. The crown jewel of this destructive march was the Summer Palace of the Chinese emperors outside Beijing, looted of its Qing Dynasty treasures by Lord Elgin in 1860, and burned to ground. It was a reprisal for the murder of 18 envoys by the Chinese court, but the exact “casus belli” hardly matters anymore. The defilement lives on in the collective Chinese mind as a high crime against the nation, the ultimate symbol of humiliation by the West.

The Communist Party has carefully nurtured the grievance under its “patriotic education” drive. David Marsh, from the Official Monetary and Financial Institutions Forum, says Britain’s leaders are implicitly atoning for a colonial past by rolling out the red carpet this week for Chinese President Xi Jinping, and biting their tongue on human rights. They are acknowledging that British officialdom is in no fit position to lecture anybody in Beijing. The exact line between good manners and kowtowing is hard to define, but George Osborne came close to crossing it on his trade mission to China last month, earning plaudits from the state media for his “pragmatism” and deference. But as the Chancellor retorted, you have to take risks in foreign policy. Moral infantilism is for the backbenches. “China is what it is,” he said.

The proper question for David Cameron and Mr Osborne is whether they have accurately judged the diplomatic and commercial trade-off in breaking ranks with other Western allies and throwing open the most sensitive areas of the British economy to Chinese expansion, and whether they will reap much in return. The US Treasury was deeply irritated when the Chancellor defied Washington and signed up to the Asian Infrastructure Investment Bank (AIIB), China’s attempt to create an Asian rival to the Bretton Woods institutions controlled by the West. Mr Osborne was correct on the substance. Congress acted foolishly in trying to smother the AIIB in its infancy and stem the rise of China as a financial superpower. It was tantamount to treating the country as an enemy, an approach that soon becomes self-fulfilling.

The AIIB is exactly what is needed to recycle China’s trade surpluses back into the world economy, just as the US Marshall Plan recycled American surpluses in the 1950s. The problem is that Britain carelessly undercut a close ally, putting immediate mercantilist interests ahead of a core strategic relationship. Anglo-American ties are now at their lowest ebb for years, a risky state of affairs at a time when the UK faces a showdown with the European Union.

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Overinvestment.

The Perfect Storm That Brought Britain’s Steel Industry To Its Knees (Telegraph)

Britain’s steel industry is caught in a “perfect storm”, ravaged by global economics and politics, reducing an industry that once led the world to a mere bit player on the global stage. Just 12m tonnes of the metal that is a basic raw material for the modern world were produced in the UK in 2013, according to the World Steel Association, out of a global total of 1.65bn. In 1983 this figure was 15m tonnes out of a total 663bn. However, the number of people employed making the metal in Britain has dropped from 38,000 in 1994 to less than 18,000 today. While productivity improvements account for some of the decline, with worldwide demand more doubling than in a generation, there are other factors that are inflicting a much heavier toll on the industry. Globalisation is the main one, according to Chris Houlden at commodities analyst CRU.

“The issue facing UK steel has been developing since the financial crisis,” he says. “Demand for steel in Britain and the EU has fallen and not recovered and there’s persistent global overcapacity.” While things weren’t all sunshine and roses ahead of the crash – the sector faced the universal pressures to find efficiencies and savings – Britain’s steel industry could function successfully with the growing global economy gobbling up available output, led by China’s burgeoning growth. Today things are different. Beijing is pencilling in annual growth of about 7pc, half the rate seen in heady pre-crisis times as its economy industrialised, placing huge demand on the country’s steel mills to turn out the beams and sheets needed for machines and construction.

Thanks to heavy investment in its steel industry, China is now responsible for half of the world’s steel output – up from 10pc a decade ago – and is reluctant to let it go to waste. As a result, China’s mills are dumping excess output abroad, and the country’s overcapacity is estimated to be 250m tonnes a year. “China’s production is not abating,” says Peter Brennan, European editor at steel industry data provider Platts. “You might have thought they would cut capacity but in a country where industry is effectively government controlled, it’s not happened. In what’s arguably a more unstable society, the government has no intention of cutting masses of jobs.”

The sentiment is echoed by the International Steel Statistics Bureau. “It would take a major reversal of the slowdown in the Chinese economy to prevent them pushing steel abroad,” says ISSB commercial manager Steve Andrews. “That’s why they are looking externally. There’s not the political will to remove capacity. They have taken some of the old and highly polluting plants out as they look at improving air quality but a lot of their stuff is big and modern.” The result is cheap steel coming on to the market, pushing prices down. But it’s not just China that is dumping output. “China is not unique,” says Houlden. “There’s low to no growth in a lot of other major steel producers such as Brazil and Russia, so they are doing it, too. Japan, the world’s second largest producer, is also looking to export more steel.”

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All banks are in deep shit.

Deutsche Bank, Credit Suisse Set to Scale Back Global Ambitions (Bloomberg)

Europe’s last global banks are caving in to pressure from regulators and preparing to tell investors just how much their aspirations will shrink. “The European banks were too long holding onto the past and not realizing that this change is for good – it’s permanent,” said Oswald Gruebel, a former chief executive officer of both UBS and Credit Suisse. “The main reason for reducing global investment banking is that with the capital requirements which the regulators put on these banks, you cannot make any decent return.” Deutsche Bank announced sweeping management changes on Sunday, less than two weeks before co-CEO John Cryan will present his plans to scale back the trading empire built by his predecessor.

On Wednesday, Tidjane Thiam will probably reveal a strategy to prune Credit Suisse’s investment bank in favor of wealth management. Barclays, BNP Paribas and Standard Chartered are also trimming operations. Europe’s global lenders are struggling to adapt to rising capital requirements, record-low interest rates and shrinking opportunities for growth. Their retrenchment risks further squeezing lending to economies in the region and handing more business to U.S. competitors, which were quicker to raise capital levels and are benefiting from growth at home. “Everything that’s being done should have been done years ago,” said Barrington Pitt Miller at Janus Capital in Denver. “The European muddle-through scenario has been proven not to be a terribly good one.”

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Very predictable, and very blind too: “..Wal-Mart believes it can grow sales by 3 to 4% a year over the next three years..”

Wal-Mart Puts The Squeeze On Suppliers To Share Its Pain (Reuters)

Suppliers of everything from groceries to sports equipment are already being squeezed for price cuts and cost sharing by Wal-Mart. Now they are bracing for the pressure to ratchet up even more after a shock earnings warning from the retailer last week. The discount store behemoth has always had a reputation for demanding lower prices from vendors but Reuters has learned from interviews with suppliers and consultants, as well as reviewing some contracts, that even by its standards Wal-Mart has been turning up the heat on them this year. “The ground is shaking here,” said Cameron Smith, head of Cameron Smith & Associates, a major recruiting firm for suppliers located close to Wal-Mart’s headquarters in Bentonville, Arkansas. “Suppliers are going to have to help Wal-Mart get back on track.”

For the vendors, dealing with Wal-Mart has always been tough because of its size – despite recent troubles it still generates more than $340 billion of annual sales in the U.S. That accounts for more than 10% of the American retail market, excluding auto and restaurant sales, and the company increasingly sells a lot overseas too. To risk having brands kicked off Wal-Mart’s shelves because of a dispute over pricing can badly hurt a supplier. On Wednesday, Wal-Mart stunned Wall Street by forecasting that its earnings would decline by as much as 12% in its next fiscal year to January 2017 as it struggles to offset rising costs from increases in the wages of its hourly-paid staff, improvements in its stores, and investments to grow online sales.

This at a time when it faces relentless price competition from Amazon.com, dollar stores and regional supermarket chains. Keeping the prices it pays suppliers as low as it can is essential if it is to start to claw back some of this cost hit to its margins. Helped by investments to spruce up stores and boost worker pay, Wal-Mart believes it can grow sales by 3 to 4% a year over the next three years, or by as much as $60 billion, offering suppliers new opportunities to boost their own revenues.

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Here’s hoping.

Brazil’s Corruption Crackdown Can’t Be Stopped (Bloomberg)

In a continent of peacocks, Brazilian federal judge Sergio Moro makes an unlikely celebrity. Laconic and poker-faced, he has little time for the spotlight, and yet his name is emblazoned on t-shirts and protest banners, and splashed across social media. Why the fuss? Check out the 13th federal district court, where Moro has presided over the largest corruption investigation in the country’s history, sent muckety-mucks to jail and helped restore civic pride in a land where too often justice has been honored in the breach. So after the Brazilian Supreme Court ruled last month to take a high-profile defendant named by witnesses in the landmark Petrobras case away from the 13th district, worried citizens hit the streets. Is the so-called Operation Carwash investigation into looting at the state oil company in danger of getting derailed, as some claim?

Brazil’s white-collar crooks should be so lucky. True, the scope of the scam at Latin America’s biggest corporation might never have come to light had it not been for the 43-year-old judge, who specializes in money-laundering cases, and a dedicated cadre of prosecutors. From their base in Curitiba, a city in southern Brazil, investigators exposed what Prosecutor General Rodrigo Janot called a “complex criminal organization” bent on skimming money from padded supply contracts with Petrobras into political coffers. But getting to Curitiba took the collaboration of the best minds in public service, from the federal police to the Finance Ministry’s financial intelligence unit. That web of sleuths and wonks is the best assurance that the effort to shut down Brazil’s most brazen political crime ring will carry on, no matter who holds the gavel.

The probe began when federal police watching a gas station and one-time car wash (hence the name) in the nation’s capital uncovered a money-changing scheme to spirit gains overseas. The public prosecutor’s office took up the chase and, tapping into finance ministry data, followed the money trail to Petrobras. Janot took the investigation across the Atlantic, where Swiss prosecutors found evidence pointing to the head of Brazil’s lower house, as well as to corporate leaders. Some of Brazil’s biggest oil and construction executives are behind bars, and dozens of politicians are under investigation, including the head of the senate. And despite recently ruling to spin off parts of the investigation, the Supreme Court has consistently buttressed Moro’s authority in the past.

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“One in four borrowers is either delinquent or in default on his or her student loans.”

US Supreme Court May Weigh In on a Student Debt Battle (Bloomberg)

Mark Tetzlaff is a 57-year-old recovering alcoholic who has been convicted of victim intimidation and domestic abuse. He may also be the person with the best shot at upending the way U.S. courts treat student debt for bankrupt borrowers. Tetzlaff has spent three years battling lawyers for the Department of Education over the right to have his student loans canceled in bankruptcy. On Thursday, he appealed his case to the Supreme Court. If the nation’s highest court takes the case on, it will be one of the rare occasions when it has addressed the $1.3 trillion pile of student debt held by 41 million Americans. Tezlaff also got a new attorney after representing himself for most of his case. The lawyer, Douglas Hallward-Driemeier, successfully argued part of the landmark June case that made same-sex marriage a legal right in all 50 states.

Hallward-Driemeier and his team have asked the court to clarify 1970s-era rules that prevent borrowers from getting rid of education debt in bankruptcy, except in cases in which repaying it would constitute an “undue hardship.” Lawmakers never fully defined “undue hardship,” leaving it to the courts to define these special, and rare, circumstances in individual cases. Tetzlaff has said that the standard being applied to his case is unconstitutional. The Supreme Court may be tempted to consider the case partly because it would be able to resolve a split between federal courts in their interpretation of the law, according to court documents. Courts disagree mainly on which of two tests should be used to determine whether someone can erase his or her debt in bankruptcy.

The so-called Brunner test is used in most federal courts and was applied in Tetzlaff’s case. It is the strictest version of the standard because it requires debtors to prove that they have diligently tried to repay their loans, that making any payments would deprive them of a “minimal” standard of living, and that the hardship affecting them today will persist long into the future. Over the past two decades, lawyers arguing on behalf of the government have further pushed courts to take the most stringent view of each one of those components. Tezlaff’s legal team has said the Supreme Court should instead apply a less harsh alternative to the Brunner test, known as the “totality of the circumstances” test, which has been gaining ground in courts across the country.

[..] It would be hard to overstate the significance of this case for people struggling with student debt. Student loans are the largest source of consumer debt aside from mortgages. The total amount of outstanding student debt is expected to double to $2.5 trillion in the next decade. One in four borrowers is either delinquent or in default on his or her student loans.

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Surprisingly nice write-up of Trudeau for Bloomberg. I wish Justin well, but Canada’s in for very hard times.

New Canada PM Justin Trudeau: Out of Father’s Shadow and Into Power (Bloomberg)

As a young man, Justin Trudeau continually sought respite from his father’s long shadow. He debated in university as Jason Tremblay, boxed as Justin St. Clair and eventually settled on Canada’s west coast – as far in Canada as he could get from being Pierre Trudeau’s eldest and still be close to great skiing. Now 43, he has come full circle, reviving a moribund Liberal Party to a solid majority amid a new wave of the Trudeaumania that swept his father to power in 1968. In ousting Stephen Harper Monday, he becomes the country’s first inter-generational prime minister and gets to move back into his childhood home. Trudeau campaigned on a brand of optimism, transparency and youthful energy – while promising government activism to stimulate a weak economy and address middle class anxiety over income inequality and retirement security.

In contrast to the departing Harper, he will run deficits willingly, reduce Canada’s combat role against the Islamic State and get behind the Iran nuclear deal. He’ll also rule out the purchase of F-35 fighters in favor of more spending on the navy and join President Barrack Obama in Paris in pushing for aggressive action on climate change. He is, in many ways, the happy faced anti-Harper. Trudeau’s political role model is not so much his beloved “papa,” whose public persona over 15 years as prime minister mixed charisma and aloofness, but his maternal grandfather, Jimmy Sinclair, a consummate glad-handing, baby-kissing Scottish immigrant to Canada and Rhodes scholar.

It was no accident that Trudeau held his final campaign event Sunday night in the Vancouver constituency his grandfather represented from 1940 to 1958. “I’m not sure if love of campaigning has any kind of genetic component, but if it does, I can trace my passion for it straight back to grandpa,” he told an enthusiastic crowd on what was the birthday of both his father and his eldest son, eight-year-old Xavier James, named for Sinclair. “He loved knocking on doors, getting out, meeting with people, taking the time to really listen to what they had to say. It’s his style that I’ve adopted as my own.”

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“Both of them had a penchant for using precisely the same words to describe the country’s future as an “Energy Superpower”.

Farewell Fossil Fools – Harper And Abbott Both Dispatched (CS)

The prospects for the forthcoming global climate conference to be held in Paris later this year have received a significant diplomatic boost. The two developed world leaders most intent on undermining the conference – Australia’s Tony Abbott and Canada’s Stephen Harper – have been dispatched to the political wilderness. Based on early Canadian election vote counting Monday night, Harper’s Conservative Party look set to lose office, with the centrist Liberals having been declared the winner of 173 seats at the time of writing and projected to win 184 of the 338 lower house seats (according to Canada’s Globe and Mail), giving them the ability to rule in their own right. The Conservatives have suffered big losses, with latest counting giving them 92 seats with a projection of 102 seats.

Back in June 2014 when Abbott visited Harper in Canada, the two put on an act of professing concern for climate change while describing a policy that would actually limit carbon emissions as something that would “clobber the economy” in Abbott’s words while being “job killing” in Harper’s words. As Climate Spectator noted in Harper and Abbott: Two fossils fooling no one, what was plainly obvious was that both Harper and Abbott had confused the interests of the coal mining industry (in Abbott’s case) and tar sands (Harper) with the interests of their respective country as a whole.

A year on it appears the two of them had far too narrowly focussed and deeply flawed economic strategies. [..] Harper and Tony Abbott have followed eerily similar strategies. Both of them had a penchant for using precisely the same words to describe the country’s future as an “Energy Superpower”. Unfortunately for them the plummeting price of a barrel of oil and a tonne of coal left them both floundering without a coherent economic narrative for how to drive their respective nations’ future prosperity. They then both resorted in desperation to the bottom of the barrel trying to using fears of terrorism in an attempt to restore their popularity.

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“Resistance will be local. It will be militant. It will defy the rules imposed by the corporate state. It will turn its back on state and NGO environmental organizations. And it will not stop until corporate power is destroyed or we are destroyed.”

Death by Fracking (Chris Hedges)

The maniacal drive by the human species to extinguish itself includes a variety of lethal pursuits. One of the most efficient is fracking. One day, courtesy of corporations such as Halliburton, BP and ExxonMobil, a gallon of water will cost more than a gallon of gasoline. Fracking, which involves putting chemicals into potable water and then injecting millions of gallons of the solution into the earth at high pressure to extract oil and gas, has become one of the primary engines, along with the animal agriculture industry, for accelerating global warming and climate change. The Wall Street bankers and hedge fund managers who are profiting from this cycle of destruction will—once clean water is scarce and crop yields decline, once temperatures soar and cities disappear under the sea, once droughts and famines ripple across the globe, once mass migrations begin—surely profit from the next round of destruction.

Collective suicide is a good business, at least until it is complete. It is a pity most of us will not be around to see the power elite go down. [..] The activists are waging a war against a corporate state that is deaf and blind to the rights of its citizens and the imperative to protect the ecosystem. The corporate state, largely to pacify citizens being frog-marched to their own execution, passes environmental laws and regulations that, at best, slow the ongoing environmental destruction. Corporations, which routinely ignore even these tepid restrictions, largely write the laws and legislation designed to regulate their activity. They rewrite them or overturn them as the focus of their exploitation changes. They turn public hearings on local environmental issues into choreographed charades or shut them down if activists succeed in muscling their way into the room to demand a voice.

They dominate the national message through a pliable and bankrupt corporate media and slick public relations. Elected officials are little more than corporate employees, dependent on industry money to stay in office and, when they retire from “public service,” salivating for jobs in the industry. Environmental reform has become a joke on the public. And the Big Green environmental groups are complicit because they rely on donors, at times from the fossil fuel and animal agriculture industries; they are silent about the reality of corporate power, largely ineffectual, and part of the fiction of the democratic process. Resistance will be local. It will be militant. It will defy the rules imposed by the corporate state. It will turn its back on state and NGO environmental organizations. And it will not stop until corporate power is destroyed or we are destroyed.

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John Helmer has written a deep-digging and extensive series on the Dutch MH17 report (h/t Yves Smith). I’ve left the topic alone, because Holland was never in a position to write a neutral analysis. From the get-go it was made clear that Russia and the rebels were responsible, proof be damned, because that fitted the overall anti-Russia mood whipped up by US and EU. What’s perhaps most galling is that the question of intent has been taken off the table altogether: whoever shot down the plane, did they do it on purpose? In ignoring that question, the answer is implied, and analysis makes way for propaganda. Victims’ families be damned.

Is There A War Crime In What The Dutch Safety Board Is Broadcasting? (Helmer)

Tjibbe Joustra, chairman of the Dutch Safety Board, wants it to be very clear that Russia is criminally responsible for the destruction of Malaysian Airlines Flight MH17 on July 17, 2014; that a Russian-supplied ground-to-air missile, fired on Russian orders from territory under Russian control, exploded lethally to break up the MH17 aircraft in the air, killing everyone on board; and that Russian objections to these conclusions are no more than cover-up and dissimulation for the guilty. Joustra also wants to make sure that no direct evidence for what he says can be tested, not in the report which his agency issued last week; nor in the three Dutch government organs which prepared and analysed the evidence of the victims’ bodies, the aircraft remains, and the missile parts on contract to the Dutch Safety Board (DSB) – the Dutch National Aerospace Laboratory (NLR), the Netherlands Organization for Applied Scientific Research (TNO), and the Netherlands Forensic Institute (NFI).

So Joustra began broadcasting his version of what he says happened before the release of the DSB report. He then continued in an anteroom of the Gilze-Rijen airbase, where the DSB report was presented to the press; in a Dutch television studio; and on the pages of the Dutch newspapers. But when he and his spokesman were asked today for the evidence for what Joustra has been broadcasting, they insisted that if the evidence isn’t to be found in the DSB report, Joustra’s evidence cannot be released. So, if the evidence for Joustra’s claims cannot be found in the NLR, TMO and NFI reports either, what exactly is Joustra doing – is he telling the truth? Is he broadcasting propaganda? Is he lying? Is he covering up for a crime?

In the absence of the evidence required to substantiate what the DSB chairman is broadcasting, is the likelihood that Joustra is concealing who perpetrated the crime equal to the probability that he is telling the truth? And if there is such a chance that Joustra is concealing or covering up, is this evidence that Joustra may be committing a crime himself? In English law, that may be the crime of perverting the course of justice. In US law, it might be the crime of obstruction of justice. In German law, it might be the crime of Vortäuschung einer Straftat. By the standard of World War II, Joustra’s crime might be propagandizing for the losing side, that’s to say the enemy of the winning side.

When William Joyce, an Anglo-American broadcaster on German radio during the war and known as Lord Haw-Haw, was prosecuted in London in 1945, he was convicted of treason and hanged. The treason indictment said he “did aid and assist the enemies of the King by broadcasting to the King’s subjects propaganda on behalf of the King’s enemies.” The legality of this indictment and the conviction was upheld by the Court of Appeal and the House of Lords.

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They’re going to die like flies.

Stranded in Cold Rain, a Logjam of Refugees in the Balkans (NY Times)

After weeks of warnings about the dangers involved in Europe’s migrant influx, and fears about winter’s arrival, the worries of public officials and humanitarian groups were realized on Monday when thousands of asylum seekers, many of them families with small children, began to back up at crossings and were stranded in a chilly rain. The backups came just two days after Hungary closed its border with Croatia, and occurred as countries on the north end of the Balkan route tightened border controls while states to its south quarreled over how to manage the unabated human flow into Europe.

The logjam followed a month of relative stability across the Balkans and Central Europe, as countries unofficially worked together to create a safe and relatively quick route north and west by transporting asylum seekers by bus or train from one border to the next, where they could exit on their way toward Germany, Sweden and other desired destinations. The arrangement filled the void left by the European Union, which has talked, bickered and failed to come up with a common solution to the problem of accommodating hundreds of thousands of new arrivals, many fleeing war in Syria, Iraq and Afghanistan, or repression in places like Eritrea in northern Africa.

A recent effort to stem the flow of migrants by keeping them in Turkey, and preventing them from entering the European Union through Greece, faltered over the weekend, when little progress was reported in talks between Chancellor Angela Merkel of Germany and Turkish leaders. No other plans appear to be on the table, and the safety of the migrants has depended upon the cooperation of the countries along the route, many of them dubious about the migration from the start and resentful that Germany has encouraged it by agreeing to accommodate asylum seekers. That policy by the government of Ms. Merkel has created tensions in Germany, as well, where the weekend stabbing of the politician in charge of refugee affairs in Cologne heightened the polemics surrounding the influx.

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“I could get there and back for just €30. That’s because I’m British. I am not Syrian, Afghan, Palestinian, Iraqi, Somali or Eritrean.”

Without Safe Access To Asylum, Refugees Will Keep Risking Their Lives (Crawley)

I stood in the corner of a dusty cemetery on the Greek island of Lesvos and watched a mother bury her child. As the tiny body of a baby boy wrapped in a white sheet was lifted from the boot of a car, she fell to her knees and howled with pain. The child had slipped from her arms into the cold waters of the Aegean as she made the journey from Turkey to join her husband, who had already travelled to Germany to seek protection from the war that is ravaging their home country, Syria. Her baby should not have died. The journey from Turkey to Lesvos is short and safe. If I wanted to take a ferry trip from the port of Mytiline to Ayvalik on the Turkish coast, the trip would take around an hour. I could get there and back for just €30. That’s because I’m British. I am not Syrian, Afghan, Palestinian, Iraqi, Somali or Eritrean.

I am not required to put my life at risk by paying a smuggler hundreds or even thousands of euros to sit in the bottom of a motorised dingy with 30 or 40 other people to take the exact same journey. I do not need to close my eyes and pray that my children and I will make it to the other side without drowning. After a long summer of protracted negotiations about how to respond to the crisis in the Mediterranean region, this is what European asylum policy still looks like in practice. Although (most) EU member states have reluctantly agreed to redistribute 160,000 of those who have already arrived, there is still no legal route for refugees to enter Europe. And with no hope of a better life at home, thousands of people continue to make the illegal, expensive and potentially dangerous journey across the sea. They know the risks, but the water seems like a better option than the alternatives.

Although Turkey offers temporary protection to Syrian refugees, it is not a signatory to the 1967 Protocol which extends the protection available under the 1951 Refugee Convention to those coming from outside Europe. That means no guaranteed access to employment, education or even basic health care. Conditions for Syrian refugees in Turkey are well documented and known to be deteriorating. There is no prospect that things will improve, no hope for a better future. Those who are not from Syria get nothing. And so they come to Europe. Since the beginning of 2015, more than a quarter of a million people have arrived on Lesvos by sea, and still more are coming. More than 70,000 people arrived in September alone and, according to the International Organisation for Migration (IOM), the numbers are set to be even higher for October.

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Cattle trade.

Merkel In Turkey: Trade-Offs And Refugees (Boukalas)

The gilded thrones may have been the perfect expression of Turkish President Recep Tayyip Erdogan’s sultanic ambitions but they appeared to make his guest, Angela Merkel, somewhat uncomfortable judging by the customary photographs. Maybe the German chancellor was thinking that such a lavish setting was not appropriate for discussing the fate of thousands of people whose only surviving assets are their bodies, their children and whatever dollars or euros they have managed to save up to pay their traffickers. Maybe Merkel, as she sat in the kind of showy opulence that usually reveals something deeper, was thinking that she was being used by the Turkish president as a propaganda tool, that her presence in Istanbul just a few days before elections in Turkey was giving Erdogan a powerful boost.

Particularly at a time when the Turkish government is facing so many accusations: of waging war against the Kurds and brushing off every proposal for a peace settlement in a bid to appeal to those who want authoritarian rule; of racism and intolerance; of persecuting its political rivals; and of quashing free speech by cracking down on “unorthodox” journalists who don’t propagate the Erdogan narrative. Merkel cannot be unaware of all this, and even if her own advisers failed to brief her 100 Turkish university professors did in an open letter. Let us accept that on a mission during which she was not just representing Germany but the EU as a whole, Merkel decided to strike a concessionary tone for the sake of the issue at hand: the protection of the refugees, or, rather, the stemming of the flow of refugees.

The idea is that the refugee influx will abate not as a result of peace in Syria but by convincing Turkey to be more vigilant of its borders, to accept the creation of camps on its territory where refugees can be identified and documented and to grant passage to Europe to those who are deemed eligible for refugee status. It is a technical solution to a political problem; ergo, no solution at all. Turkey, naturally, did not just demand financial remuneration for its cooperation. It asked that its own people be given easier to access to Europe. And it got it. It asked that its European accession be speeded up even though it has fulfilled only a handful of the 40 criteria. And it was promised this would happen by the most powerful voice in Europe: the German one.

And what about the refugees? If only they had been the main topic of discussion at that meeting. Instead, they will keep drowning. And if the complex war in Syria continues unabated, even the winter will not prevent them from trying to get across.

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Most shocking: nobody’s shocked by dead babies anymore.

Greek Coast Guard Rescues 2,561 Migrants Over The Weekend (AP)

Greece’s coast guard says it has rescued 2,561 people in dozens of incidents in the eastern Aegean over the weekend as Europe’s refugee crisis continues unabated. The coast guard said Monday the rescues occurred in 69 operations from Friday morning until Monday morning near eight Aegean islands. The number doesn’t include those who make it ashore themselves from the nearby Turkish coast, often in overcrowded and unseaworthy vessels. On Sunday, the bodies of two women, a baby and a teenager were recovered near the remote island of KastelLorizo after their vessel overturned, while 12 others were rescued by a passing sailing boat. The deaths came a day after a 7-year-old boy died after falling into the water from a boat carrying 80 people who reached the island of Farmakonisi.

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Aug 192015
 
 August 19, 2015  Posted by at 8:43 am Finance Tagged with: , , , , , , , , , ,  7 Responses »


Lewis Wickes Hine Newsies in St. Louis 1910

Asian Shares Plunge To Two-Year Lows As China Stocks Continue To Fall (Guardian)
Do Markets Determine The Value Of The Renminbi? (Michael Pettis)
China’s Devaluation May Be Bad News For FX Industry (Reuters)
China Shadow Banks Appeal For Government Bailout (FT)
China’s Richest Traders Are Fleeing Stocks as the Masses Pile In (Bloomberg)
US Lacks Ammo for Next Economic Crisis (WSJ)
Abe Aide Says Japan Needs $28 Billion Economic Package (Bloomberg)
Europe, Listen to the IMF and Restructure the Greek Debt (NY Times Ed.)
The Hot Thing for Wall Street Banks: Capital-Relief Trades (WSJ)
Oil Goes Down, Bankruptcies Go Up – The 5 Frackers Next To Fall (Forbes)
Brace For More Dividend Cuts As Canada’s Oil Patch Runs Out Of Cash (Bloomberg)
Brazil’s Political Crisis Puts the Entire Economy on Hold (Bloomberg)
Immigration – Issue of the Century (Patrick J. Buchanan)
Hungary Deploys ‘Border Hunters’ to Keep Illegal Immigrants Out (WSJ)
Europe Struggles To Respond As Migrants Numbers Rise Threefold (Reuters)
Germany May Receive Up To 750,000 Asylum Seekers This Year (Reuters)

Note: Shanghai plunge protection came in in late trading. It ended up 1.23%.

Asian Shares Plunge To Two-Year Lows As China Stocks Continue To Fall (Guardian)

Asian shares on Wednesday struggled at two-year lows after Chinese stocks extended their fall, stoking fears about the stability of China’s economy. The Shanghai Composite Index retreated 3.9% a day after worries that the central bank could be in no hurry to ease policy further pushed it down 6.1%. The plunge dented hopes of Chinese share markets stabilising after Beijing effectively pulled out all the stops to stem the rout. Japan’s Nikkei fell 0.5% and South Korea’s Kospi lost 1.3%. “Investors care about these two things: China’s economy and the timing of a US rate hike. These two concerns dominate their minds now,” said Masaru Hamasaki, head of market and investment information department at Amundi Japan.

MSCI’s broadest index of Asia-Pacific shares outside Japan slid to a two-year low and was last down 0.1%. Australian stocks bucked the trend and climbed 1.2%. Shares of importers and firms with high US dollar-denominated debt have been under pressure following last week’s yuan devaluation. The spectre of a slowdown in China’s economic growth and a US interest rate hike has hit asset markets in emerging economies hardest. MSCI’s emerging market index fell to its lowest level since October 2011. It has dropped more than 20% from the year’s peak it hit in April. Wall Street shares also retreated overnight, with the S&P 500 sliding 0.26%, pressured by weak earnings from retail giant Wal-Mart.

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Must read from Pettis.

Do Markets Determine The Value Of The Renminbi? (Michael Pettis)

One of the main questions being batted around is whether, under the new system, the value of the RMB is finally going to be determined by the market. If it is, it almost certainly means that the value of the RMB will decline. Why? Because the balance of payments, which is the sum of the current account surplus and the capital account deficit, is in deficit if we exclude PBoC interventions. At current prices there is more RMB selling than there is buying, and the PBoC has to sell reserves and buy RMB in order to keep the currency from depreciating. This, many people argue, proves that the RMB is overvalued. The “market”, they claim, has spoken, and it has told us that the RMB is overvalued. They are wrong. The “market” is not telling us that the RMB is overvalued.

It is telling us only that there is more supply of RMB than there is demand for RMB at the current exchange rate. Because “overvaluation” and “undervaluation” usually refer to the fundamental value of a currency, this excess of supply over demand would only imply an overvaluation of the RMB if supply and demand were driven primarily by economic fundamentals. Excluding central bank intervention, which is mainly a residual contributed automatically by the PBoC to balance supply and demand for foreign currency, all purchases or sales of foreign currency in China can be divided into current account activity, which mostly consists of the trade account, along with other transactions including tourism, royalty payments, interest payments, etc., and capital account activity, which consists of direct investment, portfolio investment, and official flows.

Imbalances in both the current account and the capital account can be driven by economic fundamentals, in which case it might make sense to say that the RMB’s “correct” exchange rate is broadly equal to the clearing price at which supply is equal to demand. In this case if the central bank were to purchase RMB, reserves would decline and it would be reasonable to assume that PBoC intervention would cause the RMB to become overvalued, while PBoC sales of RMB would cause reserves to increase and the RMB to become undervalued. But neither the current account nor the capital account is necessarily driven only by economic fundamentals. As an aside, most people, including unfortunately most economists, typically assume that the current account is independent and the capital account, if they think of it at all, simply adjusts to maintain the balance, but this is an extremely confused way to think about the balance of payments.

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“Her credit markets are fragile and they are unwinding what has been the world’s biggest ever credit boom, and capital outflows are meaningful..”

China’s Devaluation May Be Bad News For FX Industry (Reuters)

China’s currency devaluation should give a shot in the arm to global foreign exchange volumes as traders take advantage of and protect themselves against the surprise surge in volatility, but its longer-term impact on market activity may not be so benign. Investors with longer-term horizons than a day’s trading profit, from pension funds seeking stable returns to companies considering expanding overseas, will be alarmed by the prospect of wild swings in exchange rates triggered by another round of “currency wars”. Former Brazilian finance minister Guido Mantega coined the term “currency wars” in 2010. It refers to countries trying to make their exports more competitive – and ultimately boost their growth – at the expense of rivals, by weakening their exchange rates.

Policymakers fear Beijing’s move could accelerate this race to the bottom, particularly as most countries, including those in the developed and industrialized world, have few growth-boosting policy tools left open to them. It’s a worry for a troubled foreign exchange industry. After years of rapid growth, which made it the world’s largest financial market and a money-spinner for big banks, trading volumes are slowly shrinking and jobs are being lost. Tighter regulation, increased automation, greater competition, and a global market-rigging scandal all suggest its glory days are over. The depressive impact on investment of a lengthy currency war would do little to restore its fortunes. “Any prolonged uncertainty in the market resulting from this, and real-money players such as pension and mutual funds will be less inclined to invest,” said Neil Mellor at Bank of New York Mellon.

As analysts at Morgan Stanley point out, China accounts for 21% of the trade-weighted dollar index used by the Federal Reserve. It is the biggest single component of the equivalent euro trade-weighted index at around 23%. So what happens to the yuan has a growing influence on dollar and euro flows. Analysts at Cross Border Capital say China’s credit markets have grown 12-fold since 2000 and are now worth around $25 trillion – roughly the same size as U.S. credit markets. “Her credit markets are fragile and they are unwinding what has been the world’s biggest ever credit boom, and capital outflows are meaningful,” they wrote in a report last month. “China remains the key risk and reward for global investors.” In that, the foreign exchange industry is no exception.

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The 800 pound blind spot in Beijing’s financial Ponzi politics comes back to haunt it.

China Shadow Banks Appeal For Government Bailout (FT)

The collapse of a state-owned credit guarantee company in China’s rust belt has shone a new spotlight on risk from bad debt and moral hazard in the country’s shadow banking system. As China’s economy slows, concerns are mounting over rising defaults, especially on loans from non-bank lenders, which provide credit to risky borrowers at high interest rates. Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province asking for a bailout that would enable the bankrupt credit guarantee company to continue to backstop loans to borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs).

Analysts worry that a series of bailouts in recent years has encouraged irresponsible lending by fuelling the perception the government will not tolerate default. The latest appeal for a bailout will again force officials to choose between ensuring short-term financial stability or imposing market discipline on investors, which should improve lending practices in the long term. Hebei Financing Investment has guaranteed Rmb50bn ($7.8bn) in loans from nearly 50 financial institutions, according to Caixin, a respected financial magazine. More than half of this total is from non-bank lenders, mainly trust companies, who lent to property developers and factories in overcapacity industries. The letter appeals directly to the government’s concern about social stability and the fear of retail investors protesting the loss of “blood and sweat money”.

The 11 companies sold 24 separate WMPs worth Rmb5.5bn. “The domino effect from the successive and intersecting defaults of these trust products involves a multitude of financial institutions, an immense amount of money, and wide-ranging public interests,” 10 trust companies and a fund manager wrote to Zhao Kezhi, Hebei party secretary. “In order to prevent this incident from inciting panic among common people and creating an unnecessary social influence, we represent more than a thousand investors, more than a thousand families, in asking for a resolution.” Most trust products are distributed through state-owned banks, leaving unsophisticated investors with the impression that the bank and ultimately the government stands behind them, even when the fine print says otherwise.

There has been a series of technical defaults on bonds and high-yield trust products in recent years, but bailouts have shielded retail investors from losses in most if not all cases, often following public protests by angry investors at bank branches. Trust lending has exploded since 2010 amid a pullback by traditional banks. Trusts sell WMPs to investors, marketing the products as a higher-yielding alternative to traditional savings deposits. They use the proceeds for loans to property developers, coal miners and manufacturers in overcapacity sectors to which banks are reluctant to lend. Trust loans outstanding rose from Rmb1.7tn in 2011 to Rmb6.9tn at the end of June. Hebei Financing stopped paying out on all loan guarantees in January, when its chairman was replaced and another state-owned group was appointed as custodian.

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Much of it is fleeing abroad.

China’s Richest Traders Are Fleeing Stocks as the Masses Pile In (Bloomberg)

The wealthiest investors in China’s equity market are heading for the exits. The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28% in July, even as those with less than 100,000 yuan rose by 8%, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June. Investors with the most at stake are finding fewer reasons to own Chinese shares amid weak corporate earnings and some of the world’s highest valuations.

With this month’s devaluation of the yuan adding to outflow pressures, bulls have started to question whether there’s enough buying power to prop up prices once the government pares back its unprecedented rescue effort – a concern that contributed to the Shanghai Composite Index’s 6% plunge on Tuesday. “The high net worth clients are the ones who moved the market,” Francis Cheung, the head of China and Hong Kong strategy at CLSA, wrote in an e-mail. “They tend to be more savvy.” The median stock on mainland bourses traded at 72 times reported earnings on Monday, more expensive than any of the world’s 10 largest markets. The ratio was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.

More than 62% of companies in the Shanghai Composite trailed analysts’ 2014 earnings estimates as the economy expanded at its weakest pace since 1990. Profits at Chinese industrial firms declined by 0.3% in June, versus a 0.6% gain in the previous month. “There is not a lot of fundamental support for the A-share market,” Cheung said. “Earnings are weak.” “This lack of a clear trend in the market causes overreactions by investors” The ranks of investors with at least 10 million yuan in stocks dropped to about 55,000 in July from 76,000 in June. Those with between 1 million yuan and 10 million yuan declined by 22%, according to data compiled by China Securities Depository and Clearing Corp. “Wealthy investors, who have been through bear markets, are better at exiting,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology.

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From Fed mounthpiece Hilsenrath.

US Lacks Ammo for Next Economic Crisis (WSJ)

The U.S. over the past quarter century regularly turned to the Fed to provide stimulus when the economy stumbled. In the most recent recession, short-term interest rates were pushed to near zero, then the central bank embarked on massive—and controversial—bond-buying programs to drive down long-term interest rates. The Fed also promised to keep short-term interest rates low for an extended period. The tactics were meant to make it easier for households to pay off debts, encourage new borrowing and promote risk-taking; officials hoped that would push investment and consumer spending higher.

The next downturn could further expand Fed bondholdings, but with the central bank’s balance sheet already exceeding $4 trillion, there are limits to how much more the Fed can buy. Mr. Bernanke said he was struck by how central banks in Europe recently pushed short-term interest rates into negative territory, essentially charging banks for depositing cash rather than lending it to businesses and households. The Swiss National Bank, for example, charges commercial banks 0.75% interest for money they park, an incentive to lend it elsewhere. Economic theory suggests negative rates prompt businesses and households to hoard cash—essentially, stuff it in a mattress. “It does look like rates can go more negative than conventional wisdom has held,” Mr. Bernanke said.

Others, including Sen. Bob Corker (R.,Tenn.), see only the Fed’s limits. “They have, like, zero juice left,” he said. Many economists believe relief from the next downturn will have to come from fiscal policy makers not the Fed, a daunting prospect given the philosophical divide between the two parties. Republicans doubt federal spending expands the economy, and they seek to shrink rather than grow government. Democrats, meanwhile, say government austerity hobbles the economy, especially in a downturn. At issue is how much the U.S. can afford to borrow and spend to goose the economy out of the next recession. The experience of the past recession has set off sharp disagreement among economists.

Federal debt has grown to 74% of national output, from 39% in 2008. To restrain short-term budget deficits, Congress and the White House agreed earlier this decade on a mix of spending cuts and tax increases. In all, total state, local and federal government spending, adjusted for inflation, shrank 3.3% since the recovery began in 2009, compared with an average increase of 23.5% over comparable periods in past postwar expansions.

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Sure, throw some more oil on the fire.

Abe Aide Says Japan Needs $28 Billion Economic Package (Bloomberg)

Japan needs an economic injection of as much as 3.5 trillion yen ($28 billion) to shore up consumption and stave off a further economic contraction, said Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe. “Households feel their income has been reduced,” Honda, 60, said in an interview Tuesday at the Prime Minister’s Office in Tokyo. “The negative legacy of the previous tax hike is waning, but increases in wages are lower than expected and prices of food and daily commodities are rising.” The world’s third-biggest economy shrank an annualized 1.6% in the three months through June as households and businesses cut spending and exports tumbled.

While the tailwind from the weaker yen and the Bank of Japan’s unprecedented monetary stimulus have helped propel stocks to an eight-year high, consumer confidence has slumped. Honda said a package of 3-3.5 trillion yen is needed to help lower-income households and pensioners. He suggested it should be delivered as subsidies such as child-care support or coupons, rather than spending on public works. Additional spending can be funded from higher-than-expected tax revenues, rather than issuing new government bonds, he said. Economy Minister Akira Amari said Monday he doesn’t expect to add fiscal stimulus, and Bank of Japan Governor Haruhiko Kuroda is counting on growth returning this quarter as he pursues a distant 2% inflation target with unprecedented monetary stimulus.

Honda said fiscal stimulus would be more effective than further central bank easing right now because it kicks in quicker. He said additional central bank easing wasn’t needed now, but didn’t rule it out later should inflationary expectations fall. “We should be on alert. There should be some possibility, of course, for the BOJ to pursue its next round” of easing, he said. Honda, a former Ministry of Finance official, has known Abe since they met at a wedding reception around 30 years ago. They played golf together at the weekend.

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Everyone knows what should happen, but that doesn’t mean it will.

Europe, Listen to the IMF and Restructure the Greek Debt (NY Times Ed.)

The IMF is doing the right thing by not participating in a deeply flawed loan agreement that European leaders have negotiated with Greece. Years of misguided economic policies sought by Germany and other creditors have helped to push Greece into a depression, left more than a quarter of its workers unemployed and saddled it with a debt it cannot repay. The latest European attempt to bail out Greece will make the situation even worse by requiring the country’s government to cut spending and raise taxes while increasing the country’s debt to 200% of its GDP, from about 170% now. The IMF, which joined European countries in their first two loan programs for Greece, says it cannot lend more money because Greece’s debt has become unsustainable.

In a statement on Friday, the fund’s managing director, Christine Lagarde, said Greece’s creditors had to provide “significant debt relief” to the country. Last month, the fund said creditors needed to either reduce the amount of money Greece owes or extend the maturity of that debt by up to 30 years. This is a much tougher position than the IMF has taken before. In 2010, it did not insist that Greek debt be restructured. That was a big mistake because it left Greece with more debt than it had before the crisis and reduced the government’s ability to stimulate the economy. What Ms. Lagarde, a former French finance minister, says matters because European leaders like Chancellor Angela Merkel of Germany want the fund to be a part of the loan program since it has extensive expertise in dealing with financial crises.

European officials have said only vaguely that they might be willing to consider debt relief. Many lawmakers and voters in other European nations oppose providing more help because they think the Greek government has failed to carry out the economic and fiscal reforms that would make the country more productive. There is no question that Prime Minister Alexis Tsipras of Greece needs to do more to raise economic growth. But even if he does everything European leaders are asking him to do — a list that includes cutting pensions, simplifying regulations, privatizing state-owned businesses — the country will still not be able to pay back the €300 billion it owes. Rather than go through a messy default in a few years, it is in Europe’s interest to heed the IMF’s advice and restructure Greece’s debt now.

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There are still plenty instruments available to hide risks and losses.

The Hot Thing for Wall Street Banks: Capital-Relief Trades (WSJ)

Faced with new global regulations requiring them to strengthen their capital, big lenders in the U.S. and Europe have turned to a trading tactic that flatters their positions without actually raising extra funds. Banks that have done such “capital-relief trades” include some of the largest in the world: Citigroup, Bank of America, Deutsche Bank and Standard Chartered. But the Office of Financial Research, a U.S. Treasury office created to identify financial-market risks, is suggesting the trades run the risk of “obscuring” whether a bank has adequate capital and pose other “financial stability concerns.” The Securities and Exchange Commission and the Federal Reserve also have also voiced concerns about the trades.

Capital-relief trades are opaque, little-disclosed transactions that make a bank look stronger by reducing its ” risk-weighted” assets. That boosts key ratios that measure the bank’s capital as a%age of those assets, even as capital itself stays at the same level. In a capital-relief trade, a bank can keep a risky asset on the balance sheet, using credit derivatives or securitizations to transfer some of the risk to a hedge fund or other investor. The investor potentially gets extra yield and the credit risk of smaller borrowers in a way it would be hard for them to get otherwise, while the bank gets to remove part of the asset’s value from its closely watched “risk-weighted asset” count. Banks say the trades help them manage their risk, even if they don’t go as far as a bona fide asset sale, and are just one tool among many they are using to meet new capital requirements.

Some say the Office of Financial Research is mischaracterizing the transactions, or that the trades didn’t significantly affect their capital ratios. Bank of America, for example, disclosed $11.6 billion in purchased capital protection in 2014 regulatory filings, but said the impact of the trades on its capital ratios was less than 0.01 %age point. Critics fear the trades can spread risk to unregulated parts of the financial system–just as similar trades did before the financial crisis. “It just seems like another repackaging of risk to mask who’s holding the bag,” said Arthur Wilmarth, a George Washington University law professor and banking expert.

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Pretty funny: “KKR and its partners might at least feel cold comfort that some of their cash is going to a good cause.”

Oil Goes Down, Bankruptcies Go Up – The 5 Frackers Next To Fall (Forbes)

With West Texas Intermediate crude now below $42 a barrel, the edifice of America’s oil and gas boom is finally crumbling. The number of companies in bankruptcy or restructuring has increased, and the clouds will only grow darker in the months ahead. Declining revenues, evaporating earnings and shrinking values of oil and gas reserves will put the crunch on oil companies’ ability to refinance loans, let alone borrow new cash or sell shares. Last week two companies showed that having a heroic name is no defense. Hercules Offshore, a Gulf of Mexico drilling contractor, announced it had reached a prepackaged bankruptcy with creditors to convert $1.2 billion in debt into equity and raise $450 million in new capital.

While Samson Resources on Friday said it is negotiating a restructuring that will see second lien holders inject another $450 million into the company in return for all the equity in the reorganized company. Samson is the biggest bankruptcy of the oil bust so far, and a huge black eye to private equity giant KKR, which in 2011 led a $7.2 billion leveraged buyout of the company. The deal was a classic LBO: about $3 billion in equity backed by more than $4 billion in debt. It seemed like a good idea at the time. Tulsa, Oklahoma-based Samson, founded in the 1970s by Charles Schusterman, had grown to be one of the biggest privately owned oil companies in the nation. It held vast swaths of acreage in North Dakota, Texas and Louisiana seemingly ripe for redevelopment.

The sophisticated KKR team assumed it could squeeze a lot of value out of Samson, which since Schusterman’s death in 2001 had been run by his daughter Stacy. Charles would be proud of her for inking the deal of a lifetime, selling the family jewels at what turned out to be the top of the market for shale-y acreage. It didn’t take long for KKR and its equity partners to realize they had overpaid tremendously. The pain has been spread around. Japan’s Itochu Corp. put up $1 billion in the LBO for a 25% equity stake. Two months ago it sold back its shares to Samson for $1. KKR and its partners might at least feel cold comfort that some of their cash is going to a good cause. The Schusterman family, led by matriarch Lynn, contributed $2.3 billion of their windfall to the Charles & Lynn Schusterman Foundation, which is devoted to Jewish charities and education projects in Tulsa.

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Dying breaths?!

Brace For More Dividend Cuts As Canada’s Oil Patch Runs Out Of Cash (Bloomberg)

Dividend cuts among Canadian energy producers are poised to accelerate as cost reductions fail to boost shrinking cash flow. Companies from Canadian Oil Sands to Baytex Energy are in line for deeper payout decreases, according to analysts, after Crescent Point Energy Corp. slashed its dividend for the first time last week as crude sank to a six-year low. Just 38% of the 63 energy companies in Canada’s Standard & Poor’s/TSX Energy index had positive free cash flow, defined as operating cash flow minus capital expenditures, as of Aug. 17. That’s down from 43% in 2013, data compiled by Bloomberg show. The dwindling cash flow comes even after Canadian companies joined some US$180 billion in global cutbacks this year, the most since the oil crash of 1986, according to Rystad Energy.

“There’s so much cash being spent on dividends,” said Greg Taylor at Aurion Capital Management in Toronto. “You can get increased cash flow by cutting costs but that’s not a sustainable model. The idea dividends are a sacred cow, that’s being put on the backburner.” Companies most likely to cut their dividends include Canadian Oil Sands, Baytex and Pengrowth Energy, said Sam La Bell at Veritas Investment in a telephone interview in Toronto. All three have already cut their dividends, though Baytex and Pengrowth will become more vulnerable if oil prices remain low as their hedges begin to roll off as soon as the second half of this year, La Bell said.

Canadian Oil Sands, which chopped its payout by 86% in January, may be better off canceling the dividend altogether as it struggles to generate cash, he said. “We know the dividend is important to our investors, but even more so is protecting the long-term value of their investment,” said Siren Fisekci, a spokeswoman at Canadian Oil Sands, in an e-mailed response. “We will continue to consider dividends in the context of crude oil prices and Syncrude operating performance.”

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Wile E.

Brazil’s Political Crisis Puts the Entire Economy on Hold (Bloomberg)

In Brazil, General Motors has been halting factories and laying off thousands. Latam Airlines, the region’s biggest, is cutting flights. And the world’s third-largest planemaker, Embraer, is delaying its biggest new aircraft. In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus. “Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-CEO at homebuilder MRV Engenharia, in an Aug. 5 interview. In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.” Even luncheonettes are hurting.

Carambola’s, a juice and sandwich shop in Sao Paulo’s financial district, saw a 30% drop during lunch starting a couple of months ago. The corner store fired two employees, and closes earlier as customers stop coming in after-hours. “People are bringing lunch from home,” Rafael Bruno da Silva, the afternoon manager, said on a recent day as a lone customer sipped coffee. “We’ve lowered the prices of juice, but it doesn’t seem to be making much of a difference.” Opposition lawmakers and many in the public are calling for the resignation of President Dilma Rousseff, whose popularity has sunk to a record low. The senate and lower house presidents are being investigated in an alleged kickback scheme that funneled money from state-run Petrobras, the world’s most indebted oil company, to political parties in the biggest corruption scandal in history.

On top of that, inflation is above the central bank’s target and unemployment is at a five-year high. Moody’s Investors Service said in a report Monday the economy will contract about 2% in 2015. Brazil’s real is the worst-performing major currency in the world this year. The crisis is reminiscent of the 1990s, when clerks were hired to re-sticker prices at grocery stores throughout the day because of hyperinflation. For others, it is a new and frightening experience. “Younger generations haven’t lived through any volatility,” said Fernando Perlatto, a professor of sociology at the federal university of Juiz de Fora. “That contributes to uncertainty. People are cutting costs, not getting married, and such. At the university, we’re not booking any conferences, trips or academic events.”

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A view from the right.

Immigration – Issue of the Century (Patrick J. Buchanan)

“Trump’s immigration proposals are as dangerous as they are stunning,” railed amnesty activist Frank Sharry. “Trump … promises to rescind protections for Dreamers and deport them. He wants to redefine the constitutional definition of U.S. citizenship as codified by the 14th Amendment. He plans to impose a moratorium on legal immigration.” While Sharry is a bit hysterical, he is not entirely wrong. For the six-page policy paper, to secure America’s border and send back aliens here illegally, released by Trump last weekend, is the toughest, most comprehensive, stunning immigration proposal of the election cycle. The Trump folks were aided by people around Sen. Jeff Sessions who says Trump’s plan “reestablishes the principle that America’s immigration laws should serve the interests of its own citizens.”

The issue is joined, the battle lines are drawn, and the GOP will debate and may decide which way America shall go. And the basic issues — how to secure our borders, whether to repatriate the millions here illegally, whether to declare a moratorium on immigration into the USA — are part of a greater question. Will the West endure, or disappear by the century’s end as another lost civilization? Mass immigration, if it continues, will be more decisive in deciding the fate of the West than Islamist terrorism. For the world is invading the West. A wild exaggeration? Consider. Monday’s Washington Post had a front-page story on an “escalating rash of violent attacks against refugees,” in Germany, including arson attacks on refugee centers and physical assaults.

Burled in the story was an astonishing statistic. Germany, which took in 174,000 asylum seekers last year, is on schedule to take in 500,000 this year. Yet Germany is smaller than Montana. How long can a geographically limited and crowded German nation, already experiencing ugly racial conflict, take in half a million Third World people every year without tearing itself apart, and changing the character of the nation forever? Do we think the riots and racial wars will stop if more come? And these refugees, asylum seekers and illegal immigrants are not going to stop coming to Europe. For they are being driven across the Med by wars in Libya, Syria, Iraq, Afghanistan and Yemen, by the horrific conditions in Eritrea, Ethiopia, Somalia and Sudan, by the Islamist terrorism of the Mideast and the abject poverty of the sub-Sahara.

According to the U.N., Africa had 1.1 billion people by 2013, will double that to 2.4 billion by 2050, and double that to 4.2 billion by 2100. How many of these billions dream of coming to Europe? When and why will they stop coming? How many can Europe absorb without going bankrupt and changing the continent forever? Does Europe have the toughness to seal its borders and send back the intruders? Or is Europe so morally paralyzed it has become what Jean Raspail mocked in “The Camp of the Saints”? The blazing issue in Britain and France is the thousands of Arab and African asylum seekers clustered about Calais to traverse the Eurotunnel to Dover. The Brits are on fire. Millions want out of the EU. They want to remain who they are.

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The ugly side of the response.

Hungary Deploys ‘Border Hunters’ to Keep Illegal Immigrants Out (WSJ)

Hungary’s government said Tuesday it will deploy police units of “border hunters” at its frontier with Serbia to keep illegal immigrants out of the country amid a flood of refugees from the Middle East and North Africa. The head of the prime minister’s office said several thousand police will be placed along Hungary’s 175-kilometer border with non-European Union member Serbia, where most of the migrants enter the country. Hungary “is under siege from human traffickers,” Janos Lazar told a press briefing, adding that the police “will defend this stretch of our borders with force.” The government will also tighten punishments for illegal border crossing and human trafficking, steps aimed at “defending the country,” he said.

“[Migrants’] demands to be let in to then take advantage of the EU’s asylum system are on the rise, aggressiveness is increasing. Police have seen that on several occasions,” Mr. Lazar added. The majority of the migrants, whom the government labels as illegal immigrants, are refugees from war-torn Afghanistan, Syria and Iraq, according to human-rights groups. Hungary has registered some 120,000 asylum requests so far this year, an increase of almost 200% from last year. This year’s total could reach 300,000, the country said last week. “Hungary is joining Italy and Greece as the member states most exposed, on the front line” of migration, Dimitris Avramopoulos, EU commissioner in charge of migration, said Friday.

Last week, Hungary requested €8 million from the European Commission in emergency assistance to expand its capacities to house migrants. Brussels will treat the request without delay, Mr. Avramopoulos said. With an estimated 4,500 migrants housed in its overflowing immigration camps, Hungary is a transit country for the vast majority of the migrants. Once in Hungary—and thus within the EU’s Schengen zone where internal borders aren’t guarded—the migrants typically travel on to countries such as Germany and Sweden. Hungary is now building a double fence on its border with Serbia to reduce the number of migrants crossing the border through woods and meadows.

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Europe is in desperate need of leadership on the issue, but there ain’t none.

Europe Struggles To Respond As Migrants Numbers Rise Threefold (Reuters)

More than three times as many migrants were tracked entering the European Union by irregular means last month than a year ago, official data showed on Tuesday, many of them landing on Greek islands after fleeing conflict in Syria. While the increase recorded by the European Union’s border control agency Frontex may be partly due to better monitoring, it highlighted the scale of a crisis that has led to more than 2,000 deaths this year as desperate migrants take to rickety boats. Italian police said they had arrested eight suspected human traffickers that they said had reportedly forced migrants to stay in the hold of a fishing boat in the Mediterranean as 49 of them suffocated on engine fumes.

Some of those traffickers were accused of kicking the heads of the migrants when they tried to climb out of the hold as the air became unbreathable, prosecutor Michelangelo Patane told a news conference in Catania, Sicily. The dead migrants were discovered last weekend, packed into a fishing boat also carrying 312 others trying to cross the Mediterranean to Italy from North Africa. It was the third mass fatality in the Mediterranean this month: last week, up to 50 migrants were unaccounted for when their rubber dinghy sank, a few days after some 200 were presumed dead when their boat capsized off Libya.

Greece appealed to its European Union partners to come up with a comprehensive strategy to deal with what new data showed were 21,000 refugees landed on Greek shores last week alone. A spokesman for the United Nations refugee agency UNHCR in Geneva said the European Union should help Greece but that Athens, which is struggling with a debt crisis, also needed to show ‘much more leadership’ on the issue. Greek officials said they needed better coordination within the European Union. “This problem cannot be solved by imposing stringent legal processes in Greece, and, certainly, not by overturning the boats,” said government spokeswoman Olga Gerovassili. Nor could it be addressed by building fences, she said.

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Merkel’s inaction now leads to her being completely overwhelmed. That’s her fault, her failure.

Germany May Receive Up To 750,000 Asylum Seekers This Year (Reuters)

Germany expects up to 750,000 people to seek asylum this year, a business daily cited government sources as saying, up from a previous estimate of 450,000, as some cities say they already cannot cope and hostility towards migrants surges in some areas. The influx has driven the issue of asylum seekers high up Germany’s political agenda. Chancellor Angela Merkel has tried to address fears among some voters that migrants will eat up taxpayers’ money and take their jobs. The number of attacks on refugee shelters has soared this year. The interior ministry declined to comment on the figures reported in the Handelsblatt but is set to issue its latest predictions this week. Its previous estimate for asylum applications in 2015 was already double those recorded in 2014.

Germany is the biggest recipient of asylum seekers in the European Union, which has been overwhelmed by refugees fleeing war and poverty in countries such as Syria, Iraq and Eritrea. There is also a flood of asylum seekers from Balkan countries. Almost half of the refugees who came to Germany in the first half of the year came from southeast Europe. Along with a shortage of refugee lodgings in cities including Berlin, Munich and Hamburg, Germany also struggles to process applications, which can take over a year. Merkel has long said this must be accelerated.

On Tuesday, the finance ministry seconded 50 customs officials to the National Office for Migration and Refugees for six months to get through the backlog. After Germany, Sweden is the next most generous recipient of asylum seekers in Europe. In 2014, it recorded 81,200 application and anti-immigration sentiment is on the rise.

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 April 23, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , , ,  12 Responses »


Harris&Ewing Camp Meade, Maryland 1917

Half of US Fracking Companies Will Be Dead or Sold This Year (Bloomberg)
The ‘Grexit’ Issue And The Problem Of Free Trade (Stratfor)
If Greece Can Survive 2015, It’s Home Free (MarketWatch)
Greek Banks Win More Emergency Cash as Talks Loom (Bloomberg)
Greece: Of Parents And Children, Economists And Politicians (Wren-Lewis)
Greek Contagion Risks May Be Higher Than You Think (CNBC)
We’re Just Learning the True Cost of China’s Debt (Bloomberg)
‘Goldman Advising On The Economy Like Dracula On Running A Blood Bank’ (RT)
Russell Brand Eyes Cryptocurrency As Integral Part Of Global Revolution (RT)
More Than A Million Brits Have Used Food Banks In The Past Year (Guardian)
Petrobras, World’s Most Indebted Company, Gets Audited (CNBC)
Petrobras To Book Nearly $17 Billion In Charges (MarketWatch)
Most Migrants Crossing Mediterranean Will Be Sent Back (Guardian)
EU Borders Chief Says Saving Migrants’ Lives ‘No Priority’ (Guardian)
‘Maidan Snipers Trained In Poland’: Polish MP (RT)
US Accuses Russia Of ‘Ramping Up’ Ukraine Presence (BBC)
If A Clinton Were To Marry A Bush, The US Could Cancel Elections (RT)
Fed Refuses to Comply With Lawmakers’ Request For Names in Probe (WSJ)
Wolves Shot From Choppers Shows Oil Harm Beyond Pollution (Bloomberg)
What California Can Learn About Drought From ‘Chinatown’ (MarketWatch)

“It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

Half of US Fracking Companies Will Be Dead or Sold This Year (Bloomberg)

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford said. There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.

There were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Consolidation among bigger players began with Halliburton announcing plans to buy Baker Hughes in November for $34.6 billion and C&J Energy buying the pressure-pumping business of Nabors Industries Ltd. Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.

Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35% this year, according to PacWest, a unit of IHS. While many large private-equity firms are looking at fracking companies to buy, the spread between buyer and seller pricing is still too wide for now, Alex Robart, a principal at PacWest, said in an interview at CERAWeek. Fulks declined to say whether Weatherford is seeking to acquire other fracking companies or their unused equipment. “We go by and we see yards are locked up and the doors are closed,” he said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

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Not a big Stratfor fan, but smart analysis by Friedman: “The main assumption behind European integration was that a free trade zone would benefit all economies. If that assumption is not true, then the entire foundation of the EU is cast into doubt..”

The ‘Grexit’ Issue And The Problem Of Free Trade (Stratfor)

The Greek crisis is moving toward a climax. The issue is actually quite simple. The Greek government owes a great deal of money to European institutions and the International Monetary Fund. It has accumulated this debt over time, but it has become increasingly difficult for Greece to meet its payments. If Greece doesn’t meet these payments, the IMF and European institutions have said they will not extend any more loans to Greece. Greece must make a calculation. If it pays the loans on time and receives additional funding, will it be better off than not paying the loans and being cut off from more? Obviously, the question is more complex. It is not clear that if the Greeks refuse to pay, they will be cut off from further loans.

First, the other side might be bluffing, as it has in the past. Second, if they do pay the next round, and they do get the next tranche of funding, is this simply kicking the can down the road? Does it solve Greece’s underlying problem, which is that its debt structure is unsustainable? In a world that contains Argentina and American Airlines, we have learned that bankruptcy and lack of access to credit markets do not necessarily go hand in hand. To understand what might happen, we need to look at Hungary. Hungary did not join the euro, and its currency, the forint, had declined in value. Mortgages taken out by Hungarians denominated in euros, Swiss francs and yen spiraled in terms of forints, and large numbers of Hungarians faced foreclosure from European banks.

In a complex move, the Hungarian government declared that these debts would be repaid in forints. The banks by and large accepted Prime Minister Viktor Orban’s terms, and the European Union grumbled but went along. Hungary was not the only country to experience this problem, but its response was the most assertive. A strategy inspired by Budapest would have the Greeks print drachmas and announce (not offer) that the debt would be repaid in that currency. The euro could still circulate in Greece and be legal tender, but the government would pay its debts in drachmas. In considering this and other scenarios, the pervading question is whether Greece leaves or stays in the eurozone. But before that, there are still two fundamental questions.

First, in or out of the euro, how does Greece pay its debts currently without engendering social chaos? The second and far more important question is how does Greece revive its economy? Lurching from debt payment to debt payment, from German and IMF threats to German and IMF threats is amusing from a distance. It does not, however, address the real issue: Greece, and other countries, cannot exist as normal, coherent states under these circumstances, and in European history, long-term economic dysfunction tends to lead to political extremism and instability. The euro question may be interesting, but the deeper economic question is of profound importance to both the debtor and creditors.

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Won’t the Troika even give it that one year?

If Greece Can Survive 2015, It’s Home Free (MarketWatch)

For the third time in five years, Greece’s parlous financial state is shaking up global markets. In 2010 and 2012, the country was saved from default by two massive rescue packages organized by the EU, the ECB and the IMF. This time, the question is whether Greece, which owes about €320 billion to its creditors, really wants to save itself. Its government, run by radical left-wing group Syriza, says it doesn’t want to default, but it also won’t make the economic reforms creditors demand. In fact, Syriza has vowed to protect pensioners and public employees’ salaries even as debt payments come due. With nearly 20 billion euros owed to creditors over the next six months, the two sides are far apart, and the risks of a default or “Grexit” — Greece’s exit from the euro — are rising.

Still, all may not be lost. If Greece can get through 2015, it won’t have to pay creditors very much until the next decade. “People are saying this is the crunch year,” said Franklin Allen, an expert on financial crises who is executive director of the Brevan Howard Centre and professor at Imperial College London. In fact, we’re in the crunch months. Athens owes around €2.5 billion to the IMF by mid-June. It made a payment to the IMF in early April. Greece and its creditors meet again on Friday in Riga, Latvia, although few expect a deal. Both Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis have said Greece will meet its obligations, but on Monday Tsipras ordered local governments to transfer funds to the Greek central bank.

That amounts to confiscating €2 billion in reserves local governments hold in commercial banks. The money could be used to pay salaries and part of the debt to the IMF. The yield on Greece’s two-year bonds soared to near 30% on Tuesday. Yikes! The Greek government wants €7.2 billion in emergency bailout funds to get it over the hump. So far, creditors aren’t budging. IMF Managing Director Christine Lagarde last week warned against any payment delays and told Varoufakis to accelerate reforms, such as privatizations and labor-market changes. It’s a recipe for a stalemate. That’s why Allen, who also has taught finance at The Wharton School of the University of Pennsylvania, thinks “there’s about a 40% chance they’ll default on something.”

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What’s a few billion among friends?

Greek Banks Win More Emergency Cash as Talks Loom (Bloomberg)

The ECB almost doubled an increase in emergency funding to Greek banks from last week before political talks shift to Brussels and Latvia over the country’s bailout review. The European Central Bank’s Governing Council raised the cap on Emergency Liquidity Assistance by about €1.5 billion to €75.5 billion on Wednesday, people familiar with the decision said. ELA is funding provided by national central banks at their own risk and is extended against lower-quality collateral than the ECB accepts. “The ceiling increase shows that deposit outflows from Greek lenders continue,” said Andreas Koutras at In Touch Capital Markets Ltd. in London. “The question now is when will the collateral against ELA be exhausted — in other words how much time is left?”

Euro-area finance ministers will meet in Riga, Latvia, on Friday in their latest attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel are due to meet on the sidelines of a European Union immigration summit in Brussels on Thursday, according to a Greek government official. Greek stocks and bonds rose Wednesday after Finance Minister Yanis Varoufakis saw a “convergence” of views and ECB Executive Board member Benoit Coeure said progress was being made.

“In recent days, there has been tangible progress in the quality of the discussions,” Coeure said in an interview with the Athens-based newspaper Kathimerini. “Significant differences on substance remain.” There are signs Greece’s creditors are curbing demands for far-reaching reforms as part of current talks, focusing on a number of key actions instead, Medley Global Advisors said in a client report on Wednesday. The softening stance comes on condition Greece stays co-operative on fiscal targets, according to Medley.

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“..from the perspective of the Eurozone and IMF, this is all extremely small beer. You would think the key players on that side had more important things to do with their time.”

Greece: Of Parents And Children, Economists And Politicians (Wren-Lewis)

Chris Giles has a recent FT article where he describes how non-Greek policymakers (lets still call them the Troika) see themselves like parents trying to deal with the “antics” of the problem child, Syriza in Greece. He splits these parents into different types: those that want to act as if the child is grown up (though they believe they are not), those who want to be disciplinarians etc. As a description of how the Troika view themselves, and present themselves to the public, the analogy rings true. It certainly accords with the constant stream of articles in the press predicting an impending crisis because the Greeks ‘refuse to be reasonable’.

[..] We know that if Greece was not part of the Euro, but just another of a long line of countries that have borrowed too much and had to partially default, its remaining creditors would be in a weak position now that Greece has achieved primary surpluses (taxes>government spending). The reason why the Troika is not so weak is that they have additional threats that come from being the issuer of the Greek currency.

It is important to understand what the current negotiations are about. Running a primary surplus means that Greece no longer needs additional borrowing – it just needs to be able to roll over its existing debts. Part of the argument is about how large a primary surplus Greece should run. Common sense would say that further austerity should be avoided so that the economy can fully recover, when it will have much greater resources to be able to pay back loans. Instead the creditors want more austerity to achieve large primary surpluses. Of course the former course of action is better for Greece: which would be better for the creditors is unclear! The negotiations are also about imposing additional structural reforms. Greece has already undertaken many, and is prepared to go further, but the Troika wants yet more.

As Andrew Watt points out, from the perspective of the Eurozone and IMF, this is all extremely small beer. You would think the key players on that side had more important things to do with their time. The material advantages to be gained by the Troika playing tough are minimal from their perspective, but the threats hanging over the Greek economy are damaging – not just to investment, but also to the very primary surpluses that the Troika needs. So why do the Troika insist on continuing with brinkmanship? Can it be that this is really about ensuring that an elected government that challenges the dominant Eurozone political and economic ideology must be forced to fail?

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This has always been obvious no matter what Draghi or Schäuble say. They have no way of knowing, they can just wish.

Greek Contagion Risks May Be Higher Than You Think (CNBC)

A perception in financial markets that Greece exiting the euro zone would have limited knock-on effects is misguided, some analysts say. Euro zone officials meet in Latvia this week to discuss a rescue deal between Greece and its creditors amid growing talk that time is running out for Athens to avoid defaulting on its debt and being ejected from the 19-member euro zone. “UBS does not believe, as its base case that Greece, will leave the euro,” Paul Donovan, UBS global economist, said in a video published by the bank’s research team. “However, there seems to be a belief in financial markets that if Greece were to be forced from the euro area it should be regarded as an isolated incident,” he said. “This belief, seems to us, to be dangerous.”

Donovan said that the view that Greek problems were distinct from the rest of the euro zone was reflected in recent online search patterns: Searches on Google for the term “Grexit” had soared, while those for “euro crisis” or “euro collapse” had not, even though they did during the 2012 euro zone debt crisis. In the latest crisis, government bond yields in peripheral euro zone countries—in the past viewed as most vulnerable to any Greek contagion—have not followed Greek bond yields higher. Greek bond yields have risen sharply this week, reflecting the greater risk attached to holding them. Greece’s benchmark 10-year bond yielded over 13% on Tuesday, well above Spain’s 10-year yield at 1.48% and Portuguese yields at 2.12%.

Although this can partly be explained by the ECB’s massive monetary stimulus program, which is putting downward pressure on yields, it also reflects diminished contagion fears. “I don’t get the sense that there is a widespread view that if a deal is not made and Greece exits the euro zone, you would have this massive contagion effect,” Ben White, Politico’s chief economic correspondent, told CNBC on Monday. UBS’ Donovan said any contagion from a Grexit would come from the banking system. He said that if Greece did leave the euro area, any money in Greek banks would be redenominated into a new currency, which would probably plunge in value, distressing depositors.

Depositors in other countries may think their holdings are safe, since their country is not going to leave the euro zone–or they may decide to avoid any risk and withdraw their savings, Donovan said. “Why take the risk that your country probably won’t leave the euro, if it’s a relatively simple operation to withdraw your savings and hold them in cash?” Donovan asked. “A euro held as cash today is a euro tomorrow,” he said. “A euro held in a bank account today may be an entirely different currency tomorrow, if the irrevocable monetary union has been revoked. Investors are thus likely to choose cash over deposits.”

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We haven’t a clue yet.

We’re Just Learning the True Cost of China’s Debt (Bloomberg)

The true cost of the debt that China’s real estate developers peddled to eager international investors during a five-year property boom is now becoming clear. Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four – Kaisa, Fantasia, Renhe, Glorious Property – raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted. China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble.

Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years. “It was an unintended consequence of the Chinese government that property developers are selling equity and debt to offshore investors,” said Ben Sy, a Hong Kong-based managing director in JPMorgan’s private banking division. “There happened to be huge demand from international investors in the past few years driven by the intense search for yield.” Kaisa was the first to debut in the dollar note market in 2010, selling $650 million of five-year bonds that April.

The securities paid a 13.5% coupon, more than twice the 6.3% average yield for Bank of America Merrill Lynch’s U.S. Real Estate index at the time. The Shenzhen-based developer was among nine real estate companies that raised $4 billion selling offshore bonds that year, a record at the time and fourfold the previous high. Six of the nine had listed their shares on the Hong Kong stock exchange in the previous 24 months. Chinese developers’ move into the international capital markets started in earnest in 2007. From January to December, as the rest of the world slid deeper into recession, homebuilders raised $7.2 billion. Since 2008, another $11.5 billion has been raised via IPOs in Hong Kong.

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The Dracula Squid.

‘Goldman Advising On The Economy Like Dracula On Running A Blood Bank’ (RT)

Goldman Sachs’ claim that a Labour victory in the general election would impact negatively on Britain’s economy has been dismissed by leading British economists, who say the Wall Street giant’s outlook is laughable and colored by self-interest. In a research document sent to clients earlier this week, Goldman claimed a Labour-led government could spark an exodus of investors from the City of London to more business-friendly pastures. The bank’s warning adds to a growing chorus of concern emanating from the City that Ed Miliband’s party would formulate fiscal and economic policy in the interest of people rather than profit. Speaking to RT on Wednesday, British economist James Meadway insisted Goldman Sachs is not a credible voice on economic policy.

“Listening to Goldman Sachs for advice on how to run the economy is like listening to Dracula on how to run a blood bank,” he said. UK economist and anti-austerity campaigner Michael Burke added Goldman Sachs’ general election analysis amounts to “laughably bad economics.” Burke told RT Goldman’s assessment of Labour’s prospective role in government appears to “confuse the economy with the well-being of its own bankers.” He added the Wall Street banking giant’s prognosis is “blatantly political” and born of self-interest. Goldman Sachs is a powerful player in the City of London and across the European Union.

However, the investment bank has been the focus of a firestorm of criticism in recent years over allegations of insider trading, corruption, aggressive investment vehicles with profound social impacts, and its role in compounding Europe’s sovereign debt crisis. Despite the bank’s less-than-gleaming reputation, its condemnation of Labour will likely be welcomed by City financiers and Conservatives. Speaking to its clients earlier this week, the investment bank said a victory for Labour would be understood as “more problematic by the business community” than victory for the Tories. Goldman billed a coalition between Labour and the Scottish National Party (SNP) as the most toxic combination of parties that could enter government next month.

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I’m not sure I find the celebrity contest that seems to go along with this thing all that appealing. Nothing against Russell, or Max.

Russell Brand Eyes Cryptocurrency As Integral Part Of Global Revolution (RT)

In his quest for a global revolution, political activist Russell Brand is eyeing crypto currency and crowd funding as a way of negating and avoiding the capitalist system. Such combination can set the stage for a new era, believes RT’s Max Keiser. Russel Brand has long been promoting organized civil disobedience to bring about a political revolution and fair distribution of wealth unfeasible under capitalism. With his calls sometimes bordering on anarchy, Brand has emerged as a leftist political figure seeking social justice and decentralization of state control over the individual.

“I think what is important is to organize and to disobey. To be really, really disobedient. Revolution is required. It is not a revolution of radical ideas, but simply the implementation of the ideas that they say we already have,” Brand was telling his supporters as he campaigned for resistance. Now Brand has taken one of these revolutionary ideas, the cryptocurrency, and teamed up with StartJoin crowdfunding platform to help people break away from conventional monetary and financial systems. “Essentially what we need is alternative systems and models, and alternative currency is an integral part of that,” Brand told Max Kaiser, the co-guru behind the financial side of the StartCOIN project and the host of RT’s Kaiser Report.

“I’m very interested in setting up social enterprises, such as our cafe that we’ve started, replicating that model more and more,” Brand explained. “Small businesses, practical, functional things where people can come together in an entrepreneurial spirit, creatively, and work together – hopefully ultimately using an alternative currency and completely negating and avoiding the system.” “The more I deal with bureaucracy, the more I deal with consumerism, the more I think that there is really very little it can offer us,” he added. Brand’s latest project is aimed at promoting digital literacy, to further boost online activism. By raising £150,000 for at least 1,000 laptops he is planning to give away for free, Brand wants to make the voices of even the most marginalized individuals in the community heard.

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Land of shame.

More Than A Million Brits Have Used Food Banks In The Past Year (Guardian)

More than 1 million people, including rising numbers of low-paid workers, were forced to use food banks in the last 12 months, challenging claims that the dividends of Britain’s economic recovery are being equally shared. The latest figures from the Trussell Trust, which coordinates a network of food banks in the UK, show a 19% year-on-year increase in food bank users, demonstrating that hunger, debt and poverty are continuing to affect large numbers of low-income families and individuals. Nearly 1.1 million people received at least three days of emergency food from the trust’s 445 food banks in 2014-15 – up from 913,000 the previous year. Back in 2009-10, before the Liberal Democrat-Conservative coalition took power, the then little-known charity fed 41,000 people from its 56 food banks.

Chris Mould, the Trussell Trust chairman, said the figures showed many people were experiencing “catastrophic” problems as a result of low incomes, despite signs of a wider economic recovery. He said: “These needs have not diminished in the last 12 months.” Experts warned that the figures were the “tip of the iceberg” of food poverty in the UK, while doctors said the inability of families to buy enough food had become a public health issue. The Trussell Trust figures show the biggest proportion, 44%, of food bank referrals last year – marginally lower than the previous year – were triggered by people pitched into crisis because their benefit payments had been delayed, or stopped altogether as a result of the strict jobcentre sanctions regime. More than a fifth, 22%, of food bank users were referred because of low income – meaning they were unable to afford food due to a relatively small financial crisis such as a boiler breaking down or having to buy a school uniform.

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This should have been one of the richest entities in the world. And look at it! What came out, see below, is they say they lose $2 billion to ‘graft’. $2 billion? Try $200 billion. These guys spend $2 billion on champagne alone.

Petrobras, World’s Most Indebted Company, Gets Audited (CNBC)

Petrobras, the Brazilian oil giant, is hoping to finally release audited financial results for the fourth quarter after U.S. markets close on Wednesday, including an estimate of how much has been stripped out of the company by years of alleged fraud. The state-controlled oil company is engulfed in what’s probably the largest financial scandal in Brazil’s history—a high bar, given the country’s record of corruption. And Wednesday’s earnings report has big implications for investors and maybe even the future course of the world’s seventh-biggest economy. Markets are closely examining the results for the level of write-offs and impairments on Petrobras assets, whose values may have been inflated by the fraud. Estimates on how big those numbers may be are staggering: anywhere from $6 billion to $30 billion.

Andre Gordon of AMEC, a Brazilian shareholders’ rights group, said he’s “waiting to see the balance sheet” and expects impairments and writeoffs of between $10 billion to $15 billion. AMEC is active in lobbying for better corporate governance at Petrobras and within Brazil in general. Gordon said he hopes for a turning point for the company that will lead to less government entanglement with Petrobras, “but I am skeptical.” “Not even the opposition party talks about privatization of Petrobras—only small insignificant parties with small market share,” he said. The scandal started with the arrest early last year of a company director, who subsequently struck a deal with prosecutors in September. Since then, details have emerged almost daily of a decade-long, alleged bribery scheme involving company officials.

The executive alleged to investigators that for nearly 10 years, Petrobras contracts were routinely padded by 3%, with the extra money used for bribes and kickbacks. Much of that money was supposedly funneled to the country’s ruling political parties. Other executives have since come forward, and nearly 50 people have been arrested or charged, ranging from more than a dozen CEOs to politicians to party officials, including the treasurer of Brazilian President Dilma Rousseff’s Workers Party.

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Rousseff must step down and open the prosecutorial floodgates here, or there’ll be severe damage for decades.

Petrobras To Book Nearly $17 Billion In Charges (MarketWatch)

Brazilian state-run oil company Petróleo Brasileiro SA on Wednesday finally put a price tag on the impact of a corruption scandal that has battered the company’s shares, writing off 6.2 billion reais ($2.1 billion) of alleged bribe payments
In addition, the company booked an impairment charge of 44.6 billion reais ($14.8 billion) for 2014 after determining that assets were overvalued on its balance sheet. As a result, the company reported a net loss of 26.6 billion reais for the fourth quarter on revenue of 85.04 billion reais. Earnings before interest, taxes, depreciation and amortization stood at 20.06 billion reais, up from 15.55 billion reais a year earlier.

The disclosures were part of the first audited financial statements released by Petrobras in more than eight months. Brazilian federal prosecutors since last year have been investigating allegations that the company’s suppliers conspired to overcharge Petrobras for major projects, funneling some of the illicit profit to former Petrobras executives and politicians in the form of bribes and illegal political donations. Petrobras has portrayed itself as a victim of the graft and says it has cooperated with authorities. Still, the company struggled to calculate the scheme’s impact on its balance sheet, leading auditor PricewaterhouseCoopers to refuse to sign off on its statements since the third quarter of 2014.

“With the publication of audited 2014 results, Petrobras has cleared a significant obstacle, after a collective effort, that shows our ability to overcome challenges in an adverse environment,” Chief Executive Aldemir Bendine said in a statement. The financials come just days before an April 30 deadline in Petrobras’s bond covenants that could have allowed the holders of billions of dollars of Petrobras debt to demand early repayment.

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“Only 5,000 resettlement places across Europe are to be offered to refugees..”

Most Migrants Crossing Mediterranean Will Be Sent Back (Guardian)

Only 5,000 resettlement places across Europe are to be offered to refugees who survive the dangerous Mediterranean sea crossing under the emergency summit crisis package to be agreed by EU leaders in Brussels on Thursday. A confidential draft summit statement seen by the Guardian indicates that the vast majority of those who survive the journey and make it to Italy – 150,000 did so last year – will be sent back as irregular migrants under a new rapid-return programme co-ordinated by the EU’s border agency, Frontex. More than 36,000 boat survivors have reached Italy, Malta and Greece so far this year. The draft summit conclusions also reveal that hopes of a major expansion of search-and-rescue operations across the Mediterranean in response to the humanitarian crisis are likely to be dashed, despite widespread and growing pressure.

The summit statement merely confirms the decision by EU foreign and interior ministers on Monday to double funding in 2015 and 2016 and “reinforce the assets” of the existing Operation Triton and Operation Poseidon border-surveillance operations, which only patrol within 30 miles of the Italian coast. The European council’s conclusions said this move “should increase the search-and-rescue possibilities within the mandate of Frontex”. The head of Frontex said on Wednesday that Triton could not be a search-and-rescue operation. Instead, the EU leaders are likely to agree that immediate preparations should begin to “undertake systematic efforts to identify, capture and destroy vessels before they are used by traffickers”. The joint EU military operation is to be undertaken within international law.

The statement describes the crisis as a tragedy and says the EU will mobilise all efforts at its disposal to prevent further loss of life at sea and to tackle the root causes of the human emergency, including co-operating with the countries of origin and transit. “Our immediate priority is to prevent more people dying at sea. We have therefore decided to strengthen our presence at sea, to fight the traffickers, to prevent illegal migration flows and to reinforce internal solidarity,” it says, before adding that the EU leaders intend to support all efforts to re-establish government authority in Libya and address key “push” factors such as the situation in Syria. But the detail of the communique makes it clear that the measures to be agreed fall far short of this ambition.

In particular in terms of sharing responsibility across the EU for those who survive the journey, the draft statement suggests only “setting up a first voluntary pilot project on resettlement, offering at least 5,000 places to persons qualifying for protection”, it says. The EU leaders also make a commitment to “increasing emergency aid to frontline member states” – taken to mean Italy, Malta and Greece – “and consider options for organising emergency relocation between member states”.

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“Leggeri ruled out putting his ships anywhere near the Libyan coast, saying stepping up search-and-rescue operations would only encourage desperate migrants to risk the passage.”

EU Borders Chief Says Saving Migrants’ Lives ‘No Priority’ (Guardian)

The head of the EU border agency has said that saving migrants’ lives in the Mediterranean should not be the priority for the maritime patrols he is in charge of, despite the clamour for a more humane response from Europe following the deaths of an estimated 800 people at sea at the weekend. On the eve of an emergency EU summit on the immigration crisis, Fabrice Leggeri, the head of Frontex, flatly dismissed turning the Triton border patrol mission off the coast of Italy into a search and rescue operation. He also voiced strong doubts about new EU pledges to tackle human traffickers and their vessels in Libya.

“Triton cannot be a search-and-rescue operation. I mean, in our operational plan, we cannot have provisions for proactive search-and-rescue action. This is not in Frontex’s mandate, and this is in my understanding not in the mandate of the European Union,” Leggeri told the Guardian. The capsizing of a trawler off Libya late on Saturday sparked a public outcry. EU foreign and interior ministers held an emergency meeting on Monday and a special summit on the issue has been called for Thursday in Brussels. The ministers and the European commission agreed to bolster the current Triton mission, to increase its funding and assets, and to expand its area of operation while also calling for new military measures to “systematically capture and destroy” traffickers’ vessels.

Thursday’s summit is to finalise the EU response. Donald Tusk, the president of the European council, who called and will chair the emergency summit, said the leaders had to agree on quick and effective action. “Our overriding priority is to prevent more people from dying at sea … to agree on very practical measures, in particular by strengthening search and rescue possibilities,” he said. But Leggeri ruled out putting his ships anywhere near the Libyan coast, saying stepping up search-and-rescue operations would only encourage desperate migrants to risk the passage. He signalled that Frontex was not asking for more boats, and voiced scepticism about the new talk of military action.

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More great stuff from ‘our’ side.

‘Maidan Snipers Trained In Poland’: Polish MP (RT)

Snipers who are thought to have operated in Kiev’s Independence Square amidst events that led to a coup in February 2014 were trained in Poland and sent to Ukraine to “do a favor” for the US, a Polish Euro-MP claimed in an interview. On February 20, 2014, riot police trying to restrain anti-government demonstrators on Maidan Nezalezhnosti in Kiev suddenly retreated up the street from whence they had come. As the protesters rushed forward, gunfire suddenly broke out, with many witnesses saying it was a sniper attack. In some two hours, 46 people were killed.

A year after the tragedy that provoked a huge backlash from the Ukrainians, ultimately leading to the rapid toppling of then-President Viktor Yanukovich, the events on the square are still pending investigation. Several Berkut riot police officers have been detained, but not much progress has been made, while murky details and speculation have been emerging in the press. In a new development, Polish former presidential candidate Janusz Korwin-Mikke told Wiadomosci media outlet that the snipers had actually been trained in Poland. Korwin-Mikke, 72, a European lawmaker and leader of Poland’s conservative KORWiN party, claimed this was a CIA operation. This came as a “Yes” reply to the question whether he believed the CIA was involved.

“Yes – but it was also our operation. The snipers were trained in Poland,” Korwin-Mikke said adding this was done “to provoke riots.” Poland trained those “terrorists” to please the US, which invested heavily into Ukrainian coup, the politician alleged. “Let me say this again: we are doing a favor to Washington,” Korwin-Mikke said. Challenged about his sources, the politician said he overheard this in the European Parliament as Estonia’s Foreign Affairs Minister Urmas Paet “admitted” to the then-EU foreign affairs chief Catherine Ashton that it was “our people who opened fire on Maidan, not those of Yanukovich or Putin.” It is not clear when the conversation took place, but in March previous year a tape with a telephone conversation between the two politicians was leaked which went among the same lines.

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And we don’t need to provide no steenking proof.

US Accuses Russia Of ‘Ramping Up’ Ukraine Presence (BBC)

The US has accused Russia of deploying more air defence systems in eastern Ukraine in breach of a ceasefire deal. The state department also said Russia was involved in training separatist forces in the area and building up its forces along the border. The Kremlin has not yet responded to the claims. A truce between Ukrainian forces and pro-Russian rebels in east Ukraine was brokered by the West in Minsk in February. State department spokeswoman Marie Harf said in a statement that “combined Russian-separatist forces” were violating the terms of the Minsk deal, keeping artillery and multiple rocket launchers in prohibited areas.

“The Russian military has deployed additional air defence systems into eastern Ukraine and moved several of these nearer the front lines,” she said. ‘Complex training’ “This is the highest amount of Russian air defence equipment in eastern Ukraine since August.” Ms Harf said the “increasingly complex nature” of training of pro-Russian forces in east Ukraine “leaves no doubt that Russia is involved”. “Russia is also building up its forces along its border with Ukraine,” she said. “After maintaining a relatively steady presence along the border, Russia is sending additional units there. These forces will give Russia its largest presence on the border since October 2014.” Earlier this month, about 300 US paratroopers arrived in western Ukraine to train with Ukrainian national guard units. At the time, Kremlin spokesman Dmitry Peskov warned the move “could seriously destabilise” the situation in Ukraine.

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It’s should be mandatory. Get us royal family of lying chimps.

If A Clinton Were To Marry A Bush, The US Could Cancel Elections (RT)

With apologies to their respective spouses, if Jeb Bush’s son, George P. Bush, had married Chelsea Clinton, Americans could have spared themselves the spectacle of Election 2016 and saved billions of dollars. All that the USA needs now is for a young Clinton to pair up with a junior Bush. Should the union produce an heir, a single line of monarchy would be established. This is the reality of the USA’s broken politics in 2015. A country pretty much established in opposition to hereditary elites now has the most closed political system in the Western world. In the past, America’s strange obsession with the British Royal Family was usually explained by fact that the US has no monarchy of its own. The bad news for Queen Elizabeth’s bunch is that this is increasingly the case in name only.

Right now, Hillary Clinton is close to an even money favorite to become the next American President. The only other short-odds candidate appears to be Jeb Bush. After the former Florida governor there’s a clutch of outsiders like Rand Paul, Scott Walker and Marco Rubio filling out the field. It’s depressing on so many levels. Should Hillary, as expected, secure the White House and serve two terms it’ll mean that America will have been ruled by either a Bush or Clinton for 28 out of 36 years. The only break coming during the 8-year Obama Presidency. Of course, the former first lady served as Secretary of State for half of Obama’s reign. Despite a common misconception that the Roosevelts, Teddy and Franklin D, were close relatives, (they weren’t) keeping things in the family has not been the American way.

In fact, George Bush Senior was the first President since FDR to have been born into the politically-connected WASP elite. Instead, post-war American Presidents have tended to be outsiders, coming from left field. Think Reagan, Nixon and Carter, for instance. Even the ultimate ‘silver-spoon’ Commander-in-Chief, John F. Kennedy, was far from an insider by dint of his Catholic religion. Indeed, despite their great wealth and celebrity, the Kennedy clan never came close to establishing the kind of dynasty that the Bush family has managed. However, the Boston brood remains powerful in the world of baby kissers and it’s commonly accepted that the late Edward was pivotal in securing Obama’s nomination for the 2008 contest.

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Audit it.

Fed Refuses to Comply With Lawmakers’ Request For Names in Probe (WSJ)

The Federal Reserve has not replied to a lawmakers’ request that it identify the individuals who had contact with a private consulting firm that published a report on the central bank’s market-sensitive internal policy deliberations. In October 2012, the day before the Fed released its minutes of its September 2012 policy meeting, Medley Global Advisors, sent a report to its clients with several sensitive details that subsequently appeared in the minutes. A central bank probe found a “few” Fed staffers had contact with Medley before the report, but did not identify them. Rep. Jeb Hensarling (R., Texas), Chairman of the House Financial Services Committee, sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22.

The deadline passed without any response by the Fed, a committee spokesman said Wednesday. The Fed declined to comment. Medley did not respond to a request for comment. The central bank’s policy-making Federal Open Market Committee makes decisions on interest rates that can cause huge swings in global financial markets. Confidential information about its internal deliberations or advance information about the minutes of its meetings or possible future actions can be worth huge sums of money to traders around the world.

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We won’t rest till all wildlife is gone.

Wolves Shot From Choppers Shows Oil Harm Beyond Pollution (Bloomberg)

Here’s one aspect of Canada’s energy boom that isn’t being thwarted by the oil market crash: the wolf cull. The expansion of oil-sands mines and drilling pads has brought the caribou pictured on Canada’s 25-cent coin to the brink of extinction in Alberta and British Columbia. To arrest the population decline, the two provinces are intensifying a hunt of the caribou’s main predator, the gray wolf. Conservation groups accuse the provinces of making wolves into scapegoats for man-made damage to caribou habitats. The cull carried out in winter when the dark fur of the wolves is easier to spot against the snow has claimed more than 1,000 animals since 2005. Hunters shoot them with high-powered rifles from nimble two-seat helicopters that can hover close to a pack or lone wolf.

In Alberta, some are poisoned with big chunks of bait laced with strychnine, leading to slow and painful deaths that may be preceded by seizures and hypothermia. “It’s an unhappy necessity,” Stan Boutin, a University of Alberta biologist, said of the government-sponsored hunt. “We’ve let the development proceed so far already that now, trying to get industry out of an area, is just not going to happen.” The energy industry has delivered a death blow to caribou by turning prime habitat into production sites and by introducing linear features on the landscape that give wolves easy paths to hunt caribou, such as roads, pipelines and lines of downed trees created by oil and gas exploration.

A drop in drilling after oil prices plunged can’t reverse the damage. More than C$350 billion ($285 billion) spent by Alberta’s oil-sands producers to build an industrial complex that’s visible from space have made the province’s boreal herds of woodland caribou the most endangered in the country. Their population is falling by about half every eight years, according to a 2013 study in the Canadian Journal of Zoology. Since 2005, Alberta has auctioned the rights to develop more than 25,000 square kilometers (9,652 square miles) of land in caribou ranges to energy companies, according to the Canadian Parks and Wilderness Society, an Ottawa-based charity. That’s equivalent to about three times New York’s metropolitan area.

“When the oil industry goes in there and cuts those lines and drills and puts in pipelines, it helps the wolves,” said Chad Lenz, a hunting guide with two decades of experience based in Red Deer, Alberta. Lenz has watched caribou herds shrink as the number of wolves soar. “There’s not a place in Alberta that hasn’t been affected by industry, especially the oil industry.” Home to the world’s third-largest proven crude reserves, Alberta depends on levies from the energy industry to build new roads, schools and hospitals.

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It’s no use staying. Your kids deserve better. California is yesterday.

What California Can Learn About Drought From ‘Chinatown’ (MarketWatch)

In the 1974 film “Chinatown,” a fictional Los Angeles politician issues a warning as he lays out his case for creating an aqueduct to bring water to the city from the inland valley more than 200 miles north: “Beneath every street there is a desert, and without water the dust will rise up and cover us as if this place never existed.” For California, these words still resonate as a severe drought drags into its fourth year, prompting the first-ever mandatory restrictions on water usage and stirring questions about how the drought will be handled as the climate becomes warmer and drier. With the mood of the present-day state becoming more unsettled, “Chinatown” is perhaps more timely than ever, offering a cautionary tale and a possible roadmap for our thinking about water.

“I can’t tell you how many times people have said, ‘Forget it, Jake. It’s Chinatown,’” said Jon Christensen at UCLA, speaking of the iconic movie’s staying power. Although the film itself is a fictional work, “like all great art,” Christensen said, “it captures a great truth about water in California and in the American West.” The film, starring Jack Nicholson, Faye Dunaway and John Huston, dramatizes the California water wars of the early 1900s, accenting corruption, deception and secret dealings within Los Angeles, a city whose character would be shaped by its growing thirst for water. The film is set in the 1930s but is loosely based on the events of 1913, when Los Angeles began siphoning off water from the Owens Valley, on the eastern side of the Sierra Nevada, through an aqueduct.

As the L.A. region flourished, businessmen involved in the deal to bring water to the city profited wildly, while farmers in the Owens Valley were left to watch their land go dry and their regional economy suffer. The tension between agricultural and residential interests has been a defining conflict in California’s history, according to many experts. In March, the Golden State’s cities and towns were ordered to reduce their water usage by 25%. Farmers were exempted from these restrictions, even though agriculture amounts to 80% of water use in the state. Gov. Jerry Brown defended agriculture’s water consumption but has said water rights may need to be re-examined.

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Mar 052015
 
 March 5, 2015  Posted by at 10:53 am Finance Tagged with: , , , , , , , ,  7 Responses »


Harris&Ewing Washington, DC, Storm damage..” Between 1913 and 1918

Liquidity Evaporates In China As ‘Fiscal Cliff’ Nears (AEP)
China Lowers Growth Target to About 7% as Headwinds Intensify (Bloomberg)
IMF Director Batista: Greek Bailout Was ‘To Save German & French Banks’ (KTG)
Why ECB Risks Running Out Of Ammunition (SocGen’s Olivier Garnier at FT)
Greece Struggles to Make Debt Math Work Amid Bailout Standoff (Bloomberg)
IMF Abdication On Greece (Peter Doyle)
Greek Officials Have Ruffled Feathers In Brussels Over Diplomatic Manners (AFP)
Denmark Can’t Print Money Fast Enough (Bloomberg)
US Running Out Of Room To Store Oil; Price Collapse Next? (AP)
London Property Boom Built On Dirty Money (Independent)
Warren: Wall Street Received $6 Trillion Backdoor Bailout from Fed (Martens)
David Zervos: Here’s Who’s Buying All That Debt at Negative Yields (Bloomberg)
Brazil Raises Rate to Highest Since 2009 After Prices Surge (Bloomberg)
Why This Tech Bubble is Worse Than the Tech Bubble of 2000 (Mark Cuban)
Russia Accuses US of Plot to Oust Putin Via Opposition Aid (Bloomberg)
Victoria Nuland: Russia’s Actions In Ukraine Conflict An ‘Invasion’ (Guardian)
Oklahoma Scientists Downplay Link Between Earthquakes And Fracking (Grist)
Italy Rescues 1000 Refugees From Mediterranean Over Two Days (AP)

“China is no longer buying US Treasuries and global bonds. It has become a net seller, stepping in to offset accelerating outflows of capital.” [..] “The PBOC’s reserve body, SAFE, was still buying $30bn a month of global bonds a year ago. It is now selling an estimated $10bn a month.”

Liquidity Evaporates In China As ‘Fiscal Cliff’ Nears (AEP)

Nobody can fault China’s leaders for lack of bravery. The Politburo has kept its nerve as the world’s most giddy experiment in credit-driven growth faces assault on three major fronts at once. Real interest rates have rocketed. The trade-weighted rise in the yuan over the past two years has been spectacular. Fiscal policy is about to tighten drastically as the authorities clamp down on big-spending local governments. Put together, China is pursuing the most contractionary mix of economic policies in the G20, relative to the status quo ante. Collateral damage is already visible in the sliding global prices of iron ore, copper, nickel, lead and zinc over recent months, as well as thermal coal, oil, corn and even sugar. Zhiwei Zhang, from Deutsche Bank, says China faces a “fiscal cliff” this year as Beijing attempts to rein in spending. “This year, China will likely face the worst fiscal challenge since 1981. This is not well recognised in the market,” he said.

The IMF says China’s budget deficit topped 10pc of GDP in 2014 if measured properly, including borrowing by the regions through “financing vehicles” as well as land sales – a patently unsustainable form of funding that makes up 35pc of local government revenue. This is the highest deficit of any major country in the world, and far above safe levels. A budget squeeze is already emerging as the property slump drags on. Zhiwei Zhang says land revenues fell 21pc in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said. China’s Development Research Centre (DRC) – the brain trust of premier Li Keqiang – has issued a new report on the bankruptcy of California’s Orange County in 1994. “It is a warning to China that the country needs to improve its tax system,” said the paper.

Interestingly, the DRC has also published a report recently on the decline in China’s electrical, mechanical and car industries, a finding that might surprise some in the West. The Chinese tax system is highly leveraged to the property cycle, like Ireland’s before the boom broke in 2007. The scale is epic. A study by the US Federal Reserve found that property investment in China has risen from 4pc to 15pc of GDP since 2008. This is even higher than in Japan in the blow-off years of the late 1980s. The denouement is well under way. Home prices fell 3.1pc in January from a year earlier. Average sales have dropped 7pc from a year ago in the large Tier 1 cities, 22pc for Tier 2 and 15pc for the Tier 3 towns. The inventory overhang has risen to 18 months, three times US levels. New floor space has dropped 30pc on a three-month moving average.

China is not the only country in Asia facing a hangover. Nomura’s Rob Subbaraman says housing booms in India, Hong Kong and Taiwan all match or exceed the US bubble in 2008, with Malaysia not far behind. “Asia is setting itself up for a major credit crunch,” [..] There is another twist to this. The PBOC’s reserve body, SAFE, was still buying $30bn a month of global bonds a year ago. It is now selling an estimated $10bn a month. This is a $40bn a month shift in central bank intervention in the asset markets, a lot more than the extra $15bn a month that the Bank of Japan has been buying since October. Or put another way, Asia is “tapering” at a pace of $25bn a month. You could argue that this neutralises half the quantitative easing soon to come from the ECB.

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Hey, everyone can set targets… I got some great ones, and a bridge in Brooklyn too.

China Lowers Growth Target to About 7% as Headwinds Intensify (Bloomberg)

China set the lowest economic growth target in more than 15 years as leaders tackle the side effects of a generation-long expansion that has spurred corruption, fueled debt risks and polluted skies and rivers. The goal of about 7% – down from last year’s aspiration of about 7.5% – was given in a work report that Premier Li Keqiang will deliver to the annual meeting of the legislature today in Beijing. The inflation target was set at about 3%. Headwinds that include a property slump, excess capacity in industry and disinflation prompted the second interest-rate cut in three months at the weekend. The government has vowed to move away from expansion at all costs as it tries to clean up the nation’s environment and control a debt surge.

“The government will lower its growth target for 2015 to focus more on the quality than the quantity of growth,” said Nomura Holdings Inc. economists led by Zhao Yang in a note on Feb. 27. “While reiterating that economic development is its primary task, we expect the NPC to also take a hard line on anti-corruption, committing to its clean governance efforts.” Li’s work report, which opens the meeting of the National People’s Congress, is his second since the 59-year-old was named premier toward the end of 2013’s legislative gathering. Along with President Xi Jinping, the pair are seeking to increase efficiencies and strengthen market forces. Policymakers are trying to balance the need to cushion the economy’s slowdown with monetary and fiscal stimulus against longer-term goals.

They’re seeking to increase the role of private business, promote innovation and reshape the fiscal framework as they shift the economy from reliance on debt-fueled investment toward greater consumption and services. Li has said a slower expansion is tolerable as long as enough jobs are created. Even after growth slowed to 7.4% last year, the weakest pace since 1990, the nation created 13.2 million new urban jobs, exceeding a target of 10 million and the previous year’s 13.1 million. The goal of about 7% compares to the IMF’s forecast of a 6.8% expansion this year and the World Bank’s 7.1% estimate.

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That has been clear for ages..

IMF Director Batista: Greek Bailout Was ‘To Save German & French Banks’ (KTG)

This was never said officially before! “They gave money to save German and French banks, not Greece,” Paolo Batista, one of the Executive Directors of the IMF told Greek private Alpha TV on Tuesday. Batista strongly criticized not only the euro zone and the ECB but also the IMF and the Fund’s managing Director Christine Lagarde for defending Europe much too much.. He urged Greece to directly negotiate with the IMF and favored the restructuring of the Greek debt that is been hold by the European partners.

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“.. the ECB is now close to running out of ammunition. The true constraints on further ECB intervention lie in the 25% issue limit and 33% issuer limit on its sovereign bond purchases.”

Why ECB Risks Running Out Of Ammunition (SocGen’s Olivier Garnier at FT)

The European Central Bank’s quantitative easing programme announced in January has been well received by financial markets. Its size (€60bn a month) and open-endedness have positively surprised. The fact that 80% of the bond purchases will not be subject to loss sharing between national central banks has rightly been seen as the price worth paying to get a bigger programme and a wider consensus within the ECB governing council. Indeed, this so-called risk-sharing issue has been overemphasised since all the monetary claims created by the programme will remain a joint and several liability of the eurosystem, whatever the loss-sharing arrangement on asset holdings. Having said that, the ECB is now close to running out of ammunition. The true constraints on further ECB intervention lie in the 25% issue limit and 33% issuer limit on its sovereign bond purchases.

These limits are not arbitrary and could not be easily raised or removed: they are the byproducts of the conditions set in January by the European Court of Justice Advocate General in its opinion on the legality of outright monetary transactions (OMTs), the sovereign bond-buying backstop revealed by Mario Draghi, ECB president, in 2012 after he promised to do “whatever it takes” to bring order to sovereign debt markets. Except for Greek debt, the 25% and 33% caps should not prove binding in a scenario where the ECB keeps its monthly asset purchase pace of €60bn. However, the limits could be reached in worst-case scenarios where the ECB would have to boost the size of its QE programme or implement OMTs targeted on specific sovereigns.

The first type of worst-case scenario would be a new global deflationary shock. It might be triggered by faltering US growth or a sharper than expected slowdown in China. The consequence would be fiercer currency wars with balance sheet expansion races among central banks. In this competition, the ECB would be handicapped: it would not have much room to significantly increase the size of its bond purchase programme. For instance, if monthly purchases had to be raised to €100bn, the 25% issue limit would be reached after only eight months in the case of German government debt. Given the narrow size of the eurozone corporate bond market, any substantial further expansion of the asset purchase programme would then have to include equities. But this could prove controversial within the ECB governing council.

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“We go into the negotiations with optimism, with especially good preparation, and I believe there won’t be a development..”

Greece Struggles to Make Debt Math Work Amid Bailout Standoff (Bloomberg)

As talks over the disbursement of bailout funds for Greece drag on into their seventh consecutive month, the deadlock threatens to pull the country back into a recession this quarter, or even a possible default within weeks. Greece needs to refinance or repay about €6.5 billion euros in debt and interest in the next three weeks, including Treasury bill redemptions, according to data compiled by Bloomberg. To top that, its budget forecasts a €2.1 billion cash deficit in March. A shortfall in tax revenue already opened a cash hole of €217 million in January, derailing budget targets. Having lost market access, Greece’s only lifeline is emergency loans extended by euro-area member states and the IMF.

Failure to secure an agreement on the disbursement of funds by them has triggered a liquidity squeeze, raising doubts about the country’s solvency, as well as the sustainability of its nascent economic recovery. “There’s no chance the quarrel won’t affect the economy” said Haris Theoharis, a lawmaker for Greece’s River party and a former secretary of public revenue. “Every investment has been put on hold, pending the result of the talks,” he said by phone on Wednesday. Greek Finance Minister Yanis Varoufakis said that the country has an alternative plan to plug its financing shortfall in March, without specifying what it was. “We go into the negotiations with optimism, with especially good preparation, and I believe there won’t be a development,” Varoufakis said in Athens, on Wednesday. The answer to the question of whether “there is an alternative is that there is one,” he said.

Greece’s month-old anti-austerity government led by Prime Minister Alexis Tsipras has yet to agree with its creditors on the terms for the disbursement of an outstanding aid tranche totaling about €7 billion. Negotiations that started in Paris in early September between the previous government and the troika of the European Commission, the IMF and the ECB didn’t yield any results. A snap election in January put an abrupt end to the talks. Two officials directly involved in Greece’s €240 billion bailout said the country could potentially use its available reserves to make it past the end of this month. A third official said Greek financing needs, including debt repayments to the IMF, are only safely covered for another two weeks. The officials asked not to be named while negotiations continue. A spokesman for Greece’s finance ministry declined to comment on when the country may run out of cash.

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“With so much in play, why did the IMF not clearly put that marker on the record?”

IMF Abdication On Greece (Peter Doyle)

In an otherwise sound critique of Mr. Varoufakis’ list of proposals for Greek government policies last week, Mme. Lagarde’s letter to Mr. Dijsselbloem contains an additional, unremarked, but revealing element. After saying that, in the IMF’s view, the Greek list was sufficiently comprehensive to be a valid starting point for a successful conclusion of the review, she added:

… but a determination in this regard should of course rest primarily on an assessment by Member States themselves and by the relevant European institutions.

One might casually read that phrase as throwaway diplomacy or simply as recognizing the facts of life. But either way, the IMF thereby washed its hands about what might follow if the Europeans determined that the letter was insufficient as a starting point. The message would have been very different had her phrase been:

… and I would [strongly?] encourage you and your European colleagues to reach a similar determination promptly.

With so much in play, why did the IMF not clearly put that marker on the record? The explanation is unlikely to be that it understood via midnight phone calls that the Europeans had pre-approved the letter. At the least, European officials on the other end of such calls had no assurance of how their various parliaments would respond to the IMF’s own substantive and strongly expressed concerns with Greek plans. Instead, the explanation is likely that, in the IMF view, Grexit was unlikely to follow a negative determination or/and that if it did, it would not be systemic even if, as Mme. Lagarde had just publicly stated, it would be disastrous for Greece itself.

The former judgement might have assumed that in the event of a negative determination by Euro parliaments, Mr. Varoufakis would quickly rewrite his letter. But to presume that and that nothing else would occur—despite the heated GreekEuro negotiations, the ongoing bank run, the prospect of ELA suspension, and broader peripheral political contagion—would have been to presume a great deal. The alternative explanation—the judgement that Grexit, if it occurred, would not be systemic—would contradict the IMF’s own detailed analysis of the Eurozone financial system.

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WHy should they act like the others, when the others is exactly who they don’t want to be?

Greek Officials Have Ruffled Feathers In Brussels Over Diplomatic Manners (AFP)

Strapped for cash and under pressure to deliver on reforms, Greece’s new radical government has ruffled feathers in Brussels by not respecting the diplomatic niceties of the negotiating table. From 40-year-old Prime Minister Alexis Tsipras downwards, Greek officials have gone into EU meetings in fighting mood, their hard talk taking many by surprise and leaving some aghast. Tsipras startled fellow European leaders on Saturday when he spoke of a “trap by aggressive conservative forces” led by an “axis” of Spain and Portugal to undermine the month-old Greek government by cutting off EU funds. Tsipras’ outburst was termed “unusual foul play” by Berlin, and German Finance Minister Wolfgang Schaeuble this week told the broadcaster ARD: “Greece has made its position worse with a rhetoric that is difficult for someone on the outside to understand.”

Maverick Finance Minister Yanis Varoufakis and bullish Foreign Minister Nikos Kotzias have also been involved in clashes as they insisted on Greece’s right to be treated as an equal partner despite its debts to the other members of the eurozone. “Some people thought that Greece should continue to be slapped around, as it had been for the past five years. We will no longer be slapped around,” Kotzias told Greek radio Alpha last week. A former communist, Kotzias in January forced EU foreign ministers to adopt a more conciliatory statement on Russian sanctions over the crisis in Ukraine. “We have the right to strengthen our relations with whichever state we think would benefit our country. We will not raise our hand for permission, like a pupil in class,” the minister said.

At a series of eurozone finance ministers meetings last month to hammer out a four-month loan extension for Athens, the Greeks again exasperated their peers by leaking draft documents and shedding light on secret negotiations. “It’s terrible – the Greeks seem to live on another planet,” a frustrated European official said after the first of three Eurogroup meetings ended in acrimony. The writing had been on the wall from when new finance minister Varoufakis had his first meeting in Athens with austere Eurogroup chief Jeroen Dijsselbloem on January 30. At the end of a frosty press conference – during which Varoufakis said Greece would no longer cooperate with EU-IMF auditors – Dijsselbloem stormed off to the joy of Greek social media, which had a field day with the spat. “Baldie, bring your crew to the square in Brussels in one hour,” the bespectacled Dutchman tells shaven-headed Varoufakis in a popular mock photo of the scene that did the rounds. “Four-eyes, I’ll break you in two like a twig,” Varoufakis responds.

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Going down in the race to the bottom.

Denmark Can’t Print Money Fast Enough (Bloomberg)

Denmark is unleashing huge amounts of ammunition in its battle to prevent the krone from appreciating. The cost of the campaign, though, suggests that any renewed assault by speculators could require an even more aggressive response — capital controls. The nation revealed yesterday that its foreign currency reserves soared by 173 billion kroner ($26 billion) in February – the biggest increase ever. The central bank has been cranking up the printing presses, minting domestic currency for sale on the foreign exchange market to stop the krone from straying too far from its target rate of about 7.46 per euro. As it offloads kroner, the central bank buys foreign currencies, which go into a reserve account that held a record 737 billion kroner last week.

Those sales, combined with four rate cuts this year – driving the benchmark deposit rate to minus 0.75% – are deterring traders from betting they can make money pushing the currency higher: The initial pressure on Denmark’s currency came after Switzerland abandoned its currency peg in January, and as the European Central Bank’s plan to unveil a government bond-buying program discouraged investors from wanting to own the euro. The Danish government says it’s determined not to let its exports take a hit from currency appreciation. But prices in the derivatives market suggest the war isn’t over. Traders who buy and sell contracts to speculate on where the krone will be in a year’s time are still anticipating it will strengthen. The current bet is for a 0.8% variation from the target rate, which is still within the official 2.25% range the central bank says it will tolerate, but outside the 0.5% band it has typically maintained.

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Yup.

US Running Out Of Room To Store Oil; Price Collapse Next? (AP)

The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week. If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude — and probably gasoline, too — plummeting.

“The fact of the matter is we are running out of storage capacity in the U.S.,” Ed Morse at Citibank said at a recent symposium at the Council on Foreign Relations in New York. Morse has suggested oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline.

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I see squatters in your future.

London Property Boom Built On Dirty Money (Independent)

Billions of pounds of corruptly gained money has been laundered by criminals and foreign officials buying upmarket London properties through anonymous offshore front companies – making the city arguably the world capital of money laundering. Some 36,342 properties in London have been bought through hidden companies in offshore havens and while a majority of those will have been kept secret for legitimate privacy purposes, vast numbers are thought to have been bought anonymously to hide stolen money. The flow of corrupt cash has driven up average prices with a “widespread ripple effect down the property price chain and beyond London”, according to property experts cited in the most comprehensive study into the long-suspected money laundering route through central London real estate, by anti-corruption organisation Transparency International.

Some sources claim it has skewed developers towards building high-priced flats and houses rather than ones ordinary people can afford. While corruption and tax evasion are likely to be the biggest sources of the illicit money, drug dealing, people trafficking and sanctions busting are also common, police say. TI’s research, which includes previously unreleased internal figures from the Metropolitan Police Proceeds of Corruption Unit, found that 75% of properties owned by people under criminal investigation for corruption are held through secret offshore companies. London has become a global magnet for corrupt funds, TI said, due to the high prices of property – enabling millions of pounds to be laundered at a time – and Britain’s notoriously lax rules on the disclosure of property ownership.

Any anonymous company in a secret location, such as the British Virgin Islands, can buy and sell houses in the UK with no disclosure of who the actual purchaser is. Meanwhile, TI said, estate agents only have to carry out anti-money-laundering checks on the person selling the property, leaving the buyers bringing their money into the country facing little, if any scrutiny. Anti-corruption activists including Boris Nemtsov, the Russian opposition figure murdered in Moscow last Friday, have repeatedly expressed frustration that the UK does so little to stem the flow of money stolen from their countries. Robert Barrington, executive director of TI, said: “This has a devastating effect on the countries from which the money has been stolen and it’s hard to see how welcoming the world’s corrupt elite is beneficial to communities in the UK.”

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Why are we still discussing this? Is anyone denying it?

Warren: Wall Street Received $6 Trillion Backdoor Bailout from Fed (Martens)

Yesterday, the Senate Banking Committee held the first of its hearings on widespread demands to reform the Federal Reserve to make it more transparent and accountable. Senator Elizabeth Warren put her finger on the pulse of the growing public outrage over how the Federal Reserve conducts much of its operations in secret and appears to frequently succumb to the desires of Wall Street to the detriment of the public interest. Warren addressed the secret loans that the Fed made to Wall Street during the financial crisis as follows:

“During the financial crisis, Congress bailed out the big banks with hundreds of billions of dollars in taxpayer money; and that’s a lot of money. But the biggest money for the biggest banks was never voted on by Congress. Instead, between 2007 and 2009, the Fed provided over $13 trillion in emergency lending to just a handful of large financial institutions. That’s nearly 20 times the amount authorized in the TARP bailout.

“Now, let’s be clear, those Fed loans were a bailout too. Nearly all the money went to too-big-to-fail institutions. For example, in one emergency lending program, the Fed put out $9 trillion and over two-thirds of the money went to just three institutions: Citigroup, Morgan Stanley and Merrill Lynch. “Those loans were made available at rock bottom interest rates – in many cases under 1%. And the loans could be continuously rolled over so they were effectively available for an average of about two years.”

One of the key reasons that the Fed wanted to keep this information buried from the public is that Citigroup was insolvent during the period it was receiving loans from the Fed. There is also growing distrust of how some Fed personnel appear to cozy up to Wall Street. During Federal Reserve Chair Janet Yellen’s appearance before the Senate Banking Committee a week earlier, Senator Warren severely criticized the actions of Scott Alvarez, the General Counsel of the Federal Reserve. Warren said Alvarez had delivered a speech before the American Bar Association challenging Dodd-Frank’s so-called push-out rule that would bar insured depository banks from holding dangerous derivatives and swaps on their books. Not long thereafter, Citigroup slipped a repeal of the provision into the must-pass spending bill that would keep the government running through this September.

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“Zervos says of those who are late to change: ” They will be fleeced! They will be the sheep of Wall Street!”

David Zervos: Here’s Who’s Buying All That Debt at Negative Yields (Bloomberg)

David Zervos at Jefferies takes a look at negative yielding European sovereign debt in a note sent to clients today. In the note he asks what seems like an obvious question: “Who in their right mind would ever buy this many negative yielding bonds? Or, put another way, how can an investor look themselves in the mirror after a day of hard work buying bonds with a ‘guaranteed’ loss?” His answer to the question, and what that answer means, should be of great interest to investors in the euro zone. He blames the index-driven world in which many investors live. Managers follow benchmarks, set under ” longstanding rules which never anticipated negative nominal yields.” The answer for these managers is to change the rules or mandates of their funds to allow them to ignore the rules that are currently forcing them to guarantee a loss on the funds they manage.

Zervos then argues that this change will turbocharge the portfolio effect in the euro zone. When the highest-rated sovereign debt carries a negative yield, it is no longer a risk-free asset; it is a guaranteed loser. Investors will therefore move into risk assets (e.g. quities).
According to Zervos, this move will happen over the coming quarters rather than over a period of years, as happened in the US. Zervos’s comments come as investors look to the European Central Bank to start sovereign bond purchases after its meeting tomorrow. With already negative yields across much of northern Europe and Mario Draghi saying that the ECB would be happy to buy at negative yields, investors will be rushing to change their investment mandates. Zervos says of those who are late to change: ” They will be fleeced! They will be the sheep of Wall Street!”

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Going going gone.

Brazil Raises Rate to Highest Since 2009 After Prices Surge (Bloomberg)

Brazil raised borrowing costs for a fourth straight meeting to the highest level in almost six years after monthly inflation jumped the most since 2003. The board, led by President Alexandre Tombini, maintained the pace of monetary policy tightening with a half-point increase to 12.75%, as expected by 59 of 63 economists surveyed by Bloomberg. Four analysts forecast a quarter-point increase. The vote was unanimous and took into consideration “the macroeconomic scenario and the inflation outlook,” according to the central bank statement. Pledging fiscal consolidation after a record budget deficit last year, President Dilma Rousseff’s new economic team, spearheaded by Finance Minister Joaquim Levy, is unwinding tax breaks and allowing government regulated prices to rise.

While the bank expected the fiscal adjustments to spur a brief pick-up in prices, the threat of faster inflation posed by the real’s plunge to a 10-year low gives the bank no flexibility to address Brazil’s looming recession, said Jankiel Santos, chief economist at BESI Brasil. “With the real at current levels, there’s nothing else the central bank could do, and there’s no good news on other fronts regarding inflation,” said Santos by telephone from Sao Paulo before the decision. Annual inflation accelerated to 7.36% in mid-February as prices surged 1.33% in the month. Policy makers in January raised their 2015 forecast for increases in regulated prices, such as energy, to 9.3% from 6%. They also saw gasoline prices soared 8% because of higher taxes.

Economists surveyed weekly by the central bank have increased their year-end inflation forecast to 7.47%, above the central bank’s target of 4.5%, plus or minus two%age points. Brazil last missed its target in 2003 when prices rose 9.3%. Policy makers’ concern over the pass-through effects of the real’s depreciation was probably key to the bank’s decision, Carlos Kawall, chief economist at Banco Safra, said by telephone. Since the bank’s January meeting, the real has declined 12.7% to extend its six-month slide against the dollar to 25%, the worst performance among the world’s 16-most traded currencies. The currency fell 1.6% Wednesday to 2.9798 per dollar from 2.9316 on Tuesday, its weakest level since 2004.

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“..unlike back then when the dream of riches was from a public company, now its from a private company. And there in lies the rub.”

Why This Tech Bubble is Worse Than the Tech Bubble of 2000 (Mark Cuban)

Ah the good old days. Stocks up $25, $50, $100 more in a single day. Day trading was all the rage. Anyone and everyone you talked to had a story about how they had made a ton of money on such and such a stock. In an hour. Stock trading millionaires were being minted by the week, if not sooner. You couldn’t go anywhere without people talking about the stock market. Everyone was in or new someone who was in. There were hundreds of companies that were coming public and could easily be bought and sold. You just pick a stock and buy it. Then you pray it goes up. Which most days it did. Then it ended. Slowly by surely the air came out of the bubble and the stock markets declined and declined till the air was completely gone.

The good news was that some people were able to see it coming and get out. The bad is that others were able to get out, but at significant losses. If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today. In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story. In the tech bubble it was Broadcast.com, AOL, Netscape, etc. Today its, Uber, Twitter, Facebook, etc. To the investor, its the hope of a huge payout. But there is one critical difference. Back then the companies the general public was investing in were public companies.

They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks. The bubble today comes from private investors who are investing in apps and small tech companies. Just like back then there were always people telling you their idea for a new website or about the public website they invested in, today people always have what essentially boils down to an app that they want you to invest in. But unlike back then when the dream of riches was from a public company, now its from a private company. And there in lies the rub. People we used to call individual or small investors, are now called Angels. Angels. Why do they call them Angels? Maybe because they grant wishes?

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“It’s clear that the White House has been counting on a sharp deterioration in Russians’ standard of living, mass protests..”

Russia Accuses US of Plot to Oust Putin Via Opposition Aid (Bloomberg)

Russia’s Security Council accused the U.S. of plotting to oust President Vladimir Putin by financing the opposition and encouraging mass demonstrations, less than a week after a protest leader was murdered near the Kremlin. The U.S. is funding Russian political groups under the guise of promoting civil society, just as in the “color revolutions” in the former Soviet Union and the Arab world, council chief Nikolai Patrushev said in an e-mailed statement Wednesday. At the same time, the U.S. is using the sanctions imposed over the conflict in Ukraine as a “pretext” to inflict economic pain and stoke discontent, he said. U.S. officials have dismissed the suggestion of a plot. Secretary of State John Kerry said this week that Putin “misinterprets a great deal of what the United States has been doing and has tried to do.”

Will Stevens, a spokesman for the U.S. Embassy in Moscow, said by e-mail that sanctions on Russia are aimed at seeking a change in the country’s policies, not its government. More than 50,000 people turned out in central Moscow on Sunday to mourn the death of Boris Nemtsov, a former deputy premier-turned Putin opponent who was gunned down in one of the most heavily guarded areas of the capital late Friday. That was the biggest rally Russia has seen since 2011-2012, when Putin was preparing to return to the presidency for a third term. “It’s clear that the White House has been counting on a sharp deterioration in Russians’ standard of living, mass protests,” Patrushev said. Russia can withstand the pressure, though, thanks to its resilience and “decades of experience in combating color revolutions,” he said. [..]

Patrushev, like Putin an ex-KGB officer and former head of the Federal Security Service, said the U.S. is also working to undermine governments in the Middle East, including by promoting extremism and supporting militant groups. While the U.S. is leading an international coalition to fight the Islamic State in Iraq and Syria, it appears to be slowing its efforts to destroy the terrorist group to avoid bolstering Russia’s biggest ally in the region, Syrian President Bashar al-Assad, Patrushev said. “Our trans-Atlantic partners have a clear goal to divide the Muslim world and to weaken Russia and China at the same time,” Patrushev said.

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Why is this person still around?

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

Assistant secretary of state Victoria Nuland has admitted the US considers Russia’s actions in Ukraine “an invasion”, in what may be the first time a senior American official has used the term to describe a conflict that has killed more than 6,000 people. Speaking before the House committee on foreign affairs, Nuland was asked by representative Brian Higgins about Russia’s support of rebels in eastern Ukraine, through weapons, heavy armor, money and soldiers: “In practical terms does that constitute an invasion?” Nuland at first replied that “we have made clear that Russia is responsible for fielding this war,” until pressed by Higgins to answer “yes or no” whether it constitutes an invasion. “We have used that word in the past, yes,” Nuland said, apparently marking the first time a senior official has allowed the term in reference to Russia’s interference in eastern Ukraine, and not simply its continued occupation of the Crimean peninsula.

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

The leaders have probably avoided the word to prevent it from complicating already difficult diplomatic efforts, since it would probably exacerbate antagonistic rhetoric between the parties and diminish the Kremlin’s will to compromise. Samantha Power, US ambassador to the UN warned in August that continued Russian intervention would “viewed as an invasion”, but has not used the term since. Major James Brindle, a Pentagon spokesman, declined to characterize Russia’s actions as an invasion, using terms like “serious military escalation” and “blatant violation of international law”. “To be clear we care much less about what you call it, we’ve been focused on how to respond to it,” he said.

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America lost its spine.

Oklahoma Scientists Downplay Link Between Earthquakes And Fracking (Grist)

Oklahoma has been experiencing an earthquake boom in recent years. In 2014, the state had 585 quakes of at least magnitude 3. Up through 2008, it averaged only three quakes of that strength each year. Something odd is happening. But scientists at the Oklahoma Geological Survey have downplayed a possible connection between increasing fracking in the state and the increasing number of tremors. Even as other states (Ohio, for example) quickly put two and two together and shut down some drilling operations that were to blame, OGS scientists said that more research was needed before their state took similar steps.

Now, though, emails obtained by EnergyWire reporter Mike Soraghan reveal that the University of Oklahoma and its oil industry funders were putting pressure on OGS scientists to downplay the connection between earthquakes and the injection of fracking wastewater underground. In 2013, a preliminary OGS report noted possible correlation between the two, and OGS signed on to a statement by the U.S. Geological Survey that also noted such linkages. Soon after, OGS’s seismologist, Austin Holland, was summoned to meetings with the president of the university, where OGS is housed, and with executives of oil company Continental. Continental CEO Harold Hamm was a major university funder, while the university president David Boren serves on Continental’s board, for which he earned $272,700 in cash and stock in 2013. From EnergyWire:

“I have been asked to have ‘coffee’ with President Boren and Harold Hamm Wednesday,” [Holland] wrote in an Nov. 18, 2013, email to a co-worker. The significance was not lost on his colleague, OGS Public Information Coordinator Connie Smith. “Gosh,” Smith responded. “I guess that’s better than having Kool-Aid with them. I guess.” A meeting with such powerful figures in the state would be intimidating for a state employee such as Holland, said state Rep. Jason Murphey of Guthrie. “Wow. That’s a lot of pressure,” said Murphey, a Republican whose district has been rattled by numerous quakes. “That just sends chills up your spine if you’re from Oklahoma.”

Oklahoma geologist Bob Jackman, who has tried to get the word out about the connection between fracking and the quakes, recalls Holland saying last year that he couldn’t do the same. According to Jackman, Holland, when pressed, blurted out, “You don’t understand — Harold Hamm and others will not allow me to say certain things.”

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The original headline said 10,000, but that’s a bit much in 2 days. Still, what a disgrace.

Italy Rescues 1000 Refugees From Mediterranean Over Two Days (AP)

More than 1000 refugees have been saved in the Mediterranean north of Libya in the past two days but 10 people died at sea, Italian officials have said. A flotilla of rescue vessels, including from Italy’s coastguard and navy, and three cargo ships saved 941 people in seven separate operations on Tuesday. On Wednesday, the coastguard and two cargo ships rescued 94 migrants whose motorised dinghy was in distress 40 miles (65 km) north of Libya. Survivors were ferried to southern Italian ports. The migrants rescued on Tuesday had been aboard five motorised dinghies and two larger vessels. One of the larger boats capsized and 10 people were later found dead. For months now, hundreds – sometimes thousands – of migrants fleeing conflicts or poverty have been reaching Italy every week on smugglers’ boats from Libya.

Italy’s interior ministry said 7,882 migrants arrived in the first two months of this year, compared to 5,506 over the same time in 2014. A total of 170,000 migrants and asylum seekers were rescued at sea by Italy’s coast guard, navy and other vessels? including cargo ships last year. It is believed the tally will be higher this year. The coastguard said the migrants saved in the latest rescues claimed to be Syrians, Palestinians, Libyans, Tunisians and people from sub-Saharan Africa. More than 30 children were among those rescued. One of the 50 pregnant women aboard was urgently evacuated for medical treatment. A tug deployed at offshore oil platforms raised one of the first alarms before joining in the rescue operations about 50 miles north of Libya, the coast guard said.

For years, Italy has been appealing to the EU to help with ships, aircraft or funding. It points out that most of those rescued intend to reach relatives or jobs in other European countries. This year, an EU patrol mission known as Triton replaced Italy’s Mare Nostrum air and sea mission that had saved tens of thousands of lives. Triton patrols only EU national waters, while the Italians had carried out rescues off Libya’s coast, where many of the unseaworthy and overcrowded vessels founder. Italy says it won’t turn its back on those in danger. “Often the SOS call [arrives] when the migrant boats are outside the Italian rescue zone, 50 or 60 miles from the Libyan coast,” the coastguard commander Filippo Marini told the AP. International law obliges Italy to alert the coastal country with jurisdiction, he said, but calling on Libyan authorities would yield little help due to the country’s chaotic security situation.

“If there is no reaction or intervention for this country, we must rescue these people,” Marini said. The EU’s smaller-scale mission is fodder for rightwing Italian politicians, including Matteo Salvini, the leader of the anti-immigrant, anti-Europe Northern League party. “Ten more dead and 900 clandestine migrants ready to disembark,” Salvini said on Wednesday. “In Rome and in Brussels, there are full pockets and hands stained with blood.” The migrants’ traffickers are reportedly getting even more ruthless. An Italian child protection advocate, Carlotta Bellini of Save the Children, said migrants have recently reported that armed traffickers demanded they jump into the boat and depart even if weather is bad.

Italian lawmakers also demanded the EU do more. Khalid Chaouki, from premier Matteo Renzi’s Democratic party, lamented “this unexplainable European indifference”. In Brussels, the migration commissioner, Dimitris Avramopoulos, told reporters: “Now more than ever we need a comprehensive and long-term strategy.” He spoke after a commission orientation debate on the EU’s new migration policy. Italian officials have expressed concern that militants could mingle among migrants from Libya, where a group affiliating itself with Islamic State (Isis) has gained a foothold.

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Jan 182015
 
 January 18, 2015  Posted by at 11:27 am Finance Tagged with: , , , , , , , , , ,  1 Response »


DPC Main Street north from Sixth, Little Rock, Arkansas 1911

How The US Dollar Stacks Up Against Major World Currencies (AP)
This Is The Case For A ‘Large, Sharp Correction’ (CNBC)
Copper’s Rout May Be A Red Flag (MarketWatch)
Swiss Central Bank’s Shock Therapy Leaves Policy Vacuum (Reuters)
Swiss Franc Trade Is Said to Wipe Out Everest’s Main Fund (Bloomberg)
Making Sense Of The Swiss Shock (Project Syndicate)
Beware Of Politicians Bearing Household Analogies (Steve Keen)
Draghi Primes His Rocket, Could End Up Shooting Europe In The Foot (Observer)
Market to European Central Bank: Size of QE Matters! (CNBC)
A New Idea Steals Across Europe – Should Greece Debt Be Forgiven? (Observer)
Ireland ‘Not Dismissive’ Of EU Debt Conference SYRIZA Wants (Kathimirini)
Aberdeen: In Scotland’s Oil Capital The Party’s Not Yet Over (Observer)
Buying A Home In Britain Should Not Be An Impossible Dream (Observer)
Obama’s State Of The Union To Call For Closing Tax Loopholes (Reuters)
Russia May Lift Food Import Ban From Greece If It Quits EU (TASS)
Donetsk Shelled As Kiev ‘Orders Massive Fire’ On East Ukraine (RT)
New Snowden Docs Reveal Scope Of NSA Preparations For Cyber War (Spiegel)
Guantánamo Diary Exposes Brutality Of US Rendition And Torture (Guardian)
Price Tag Of Saving The World From A Pandemic: $344 Billion (CNBC)
Is Lancashire Ready For Its Fracking Revolution? (Observer)
Pope Francis: Listen To Women, Men Are Too Machista (RT)

“The dollar has soared a staggering 96% against the Russian ruble since June 30.”

How The US Dollar Stacks Up Against Major World Currencies (AP)

The U.S. dollar has been rolling. Since June 30, its value has jumped 16% against a collection of world currencies. Investors are embracing the dollar because the U.S. economy is strong, especially compared with most other nations. U.S. economic growth clocked in at a 5% annual rate from July through September, the fastest quarterly pace in more than a decade. During 2014, American employers added nearly 3 million jobs, the most in any year since 1999. Investors also like the safety of U.S. Treasurys, which pay a higher yield than government bonds in Japan and most big European countries do. Another lure: The Federal Reserve is expected to raise short-term interest rates this summer or fall, making U.S. rates even more attractive for investors. But the dollar’s strength also reflects weakness elsewhere:

• JAPAN: The dollar is up 16% against the Japanese yen since mid-2014. Japan slid into recession last quarter after the government imposed an ill-timed sales tax increase. The Bank of Japan has tried to revive the economy by buying bonds to lower rates, boost inflation and drive down the value of the yen to aid Japanese exporters.

• EURO: The dollar has surged 18% against the euro since June 30. Economic growth among the 19 countries that use the euro has flat-lined. Last year, the European Central Bank slashed rates and sought to stimulate lending by promising to buy bundles of bank loans. Next week, the ECB is expected to announce a program to buy bonds — a version of what the Fed did three times since 2008 — to lower long-term rates and stimulate the eurozone economy.

• BRAZIL: The dollar has gained nearly 20% against the Brazilian real since the middle of last year. The Brazilian economy is beset by a combination of slow growth and high inflation. The Brazilian Central Bank will likely raise rates next week to try to fight inflation and rally the real, economists at Barclays predict.

• RUSSIA: The dollar has soared a staggering 96% against the Russian ruble since June 30. Plummeting oil prices and economic sanctions have devastated the Russian economy, which is likely headed toward recession. Money is fleeing the country. In mid-December, the Russian central bank raised rates to try to salvage the currency. The move has at least slowed the free-fall.

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“People are underestimating what a strong U.S. dollar can do and oil is just one of those things.”

This Is The Case For A ‘Large, Sharp Correction’ (CNBC)

Pain in the market may just be getting started, according to Raoul Pal of the Global Macro Investor. “The chance of a large sharp correction? Absolutely, because volatility is there and people will be forced to reduce risk, ” Pal said on CNBC’s “Fast Money.” “I would put that as a reasonably high probability that the S&P falls possibly from here down to the 1,800 level.” Pal thinks there will be a lot of volatility in the market this year and currency volatility will be the driving force. He expects the sharp currency moves that have happened globally to hit the U.S. equity markets. A violent move in the Swiss franc on Thursday shook investors as the Switzerland National Bank removed its cap on its currency relative to the euro.

The cap was in place to prevent the franc from gaining ground against the euro while Europe remained in recovery mode. Switzerland has been a beacon of financial stability throughout the euro zone’s recession. Brokerage and financial firms reported millions of dollars of losses from the sudden gains in the Swiss franc on Thursday and that may not be the end of it. Currency swings are an issue at home with the U.S. dollar on a tear over the past year. “The biggest risk to U.S. equities is if the long dollar trades unwind. If that happens, then you may see people unwinding their stock positions as well,” said “Fast Money” trader Brian Kelly.

Pal also believes a strengthening dollar will be part of the U.S. market downfall this year, “People are underestimating what a strong U.S. dollar can do and oil is just one of those things.” Oil is down nearly 10% so far this year and that’s after a 45% drop in 2014. Pal isn’t alone in pointing to hard times ahead in the market. On Wednesday, Dennis Gartman told Fast Money he was now net short of stocks. “As of this afternoon, I am slightly, very slightly net short.” As the markets sold off, Gartman did say that he was long the tanker stocks, which had managed to rise on the back of falling oil prices.

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Chinese data coming this week.

Copper’s Rout May Be A Red Flag (MarketWatch)

Economists are bullish on growth, but copper’s big plunge on Wednesday appeared to be suggesting that +they’re wrong. For investors, the crucial question is ‘Who is right?’ An ugly 24-hour period drove copper to mid-2009 lows on Wednesday—it fell 5% to $2.1590 a pound. In New York on Tuesday, copper fell 8 cents, but the big crack came later in that day when it crashed through key support at $6,000 a tonne on the London Metal Exchange. That drop was followed by heavy falls in Shanghai on Wednesday, said Ole Hansen, Saxo Bank’s head of commodity strategy.

Known as Dr Copper, the commodity is a chief building and manufacturing material and to some a harbinger of the global economy. So when investors start to bail on it, some say that is a sign of the proverbial canary in the coal mine is starting to keel over. Some blamed copper’s losses on the World Bank, which cut its global-growth outlook, including for China, a country that is a big global buyer of copper. Investors inured to oil serving as the whipping boy for the market’s global-growth worries, were taken aback by yet another commodity caving. Copper falling alone would be less of a worry for Adam Sarhan, chief executive officer of Sarhan Capital. A range of commodities, hard and soft, have joined oil lower: gasoline, corn, sugar, to name a few, Sarhan said.

A combination of this pressure “supports that notion that deflation is getting stronger not weaker and if that is the case then that bodes poorly for both main street and Wall Street,” he said. For its part, oil has lost nearly 60% of its value since peaking in June. Equally concerned was Keith McCullough, CEO of Hedgeye Risk Management, who says he has been telling his clients to short copper for months. “Oil, copper, etc.—they are all legacy carry trades associated with the simple expectation that the Fed could perpetually inflate asset prices,” he said. “Now deflation is dominating expectations, and all of those who underestimated how nasty the deleveraging associated with deflation can be,” said McCullough.

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“.. a serious threat for tens of thousands of Swiss jobs.”

Swiss Central Bank’s Shock Therapy Leaves Policy Vacuum (Reuters)

The Swiss National Bank had little choice but to abandon its three-year-old cap on the franc but its execution of the move left a vacuum of policy uncertainty where a pillar of stability stood before. With the euro diving against the dollar as the European Central Bank gears up for fresh stimulus as early as next week, the SNB felt the 1.20-francs-per-euro cap was not sustainable and chose to give it up rather than accumulate further risk. Yet in pulling off the move, the SNB – a conservative institution in a safe-haven state – failed to tip off its peers and shocked investors, who were left wondering whether central banks are now less a source of stability and more one of a risk. “The bottom line: central banks are a lot less predictable than in the past few years,” said Christian Gattiker, chief strategist at Swiss bank Julius Baer. The SNB, whose three board members make their decisions behind closed doors, acted in isolation.

IMF Managing Director Christine Lagarde lamented the lack of a warning from SNB Chairman Thomas Jordan. “I find it a bit surprising that he did not contact me,” she said. For ECB policymaker Ewald Nowotny, the move was “a surprising decision”. In contrast with the ECB, which has 25 policymakers from across the continent who debate major decisions, just three men call the shots at the SNB, albeit in consultation with staff advisers. Details of ECB policy debates often leak because of the large numbers of officials also involved; if President Mario Draghi announces next week that the ECB is to launch quantitative easing, he will surprise no one. Draghi has made no secret of the fact that such a programme is under discussion on the ECB Governing Council.

While officials at central banks generally play down the idea that they offer each other advance notice, they almost always prepare financial markets, businesses and each other for important policy shifts by openly discussing their thinking in the run up to any move. But Adam Posen, a former Bank of England official who heads the Peterson Institute for Economics in Washington, said transparency at times needed to be sacrificed. “Central bank communication is overrated,” Posen said at an event in Washington when asked about the SNB’s move. It’s more important to get a policy right than to stick to a “foolish consistency” of communicating everything, he said. For exporters and the tourism industry in Switzerland, the move that has led to a near 18% rise in the franc against the euro is far from understandable. Christian Levrat, president of the left-wing Social Democrat party, called the move “a serious threat for tens of thousands of Swiss jobs”.

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And many more.

Swiss Franc Trade Is Said to Wipe Out Everest’s Main Fund (Bloomberg)

Marko Dimitrijevic, the hedge fund manager who survived at least five emerging market debt crises, is closing his largest hedge fund after losing virtually all its money this week when the Swiss National Bank unexpectedly let the franc trade freely against the euro, according to a person familiar with the firm. Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline. The SNB’s decision to end its three-year policy of capping the franc at 1.20 a euro triggered losses at Citigroup, Deutsche Bank and Barclays as well as hedge funds and mutual funds.

The franc surged as much as 41% versus the euro on Jan. 15, the biggest gain on record, and climbed more than 15% against all of the more than 150 currencies tracked by Bloomberg. Everest grew to $2.7 billion by the start of 1998 after navigating crises in Mexico and Southeast Asia. Russia’s default and currency devaluation proved trickier and assets fell by half amid losses. He revived the firm and a decade later Everest managed $3 billion. Then the global financial crisis hit, and assets shrunk by $1 billion. Last year, the main fund rose 14.1%, driven by Chinese equities and bets against currencies, including a wager that the Swiss franc would fall after citizens rejected a referendum that would require the central bank to hold at least 20% of its assets in gold, the investor report said.

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“The negative effects for the Swiss economy – through the decreased competiveness of its export industries (including tourism and medicine) – may already be showing that abandoning the euro peg was not a good idea.”

Making Sense Of The Swiss Shock (Project Syndicate)

There is historical precedent for the victory of political pressure, and for the recent Swiss action. In the late 1960s, the Bundesbank had to buy dollar assets in order to stop the Deutsche mark from rising, and to preserve the integrity of its fixed exchange rate. The discussion in Germany focused on the risks to the Bundesbank’s balance sheet, as well as on the inflationary pressures that came from the currency peg. Some German conservatives at the time would have liked to buy gold, but the Bundesbank had promised the Fed that it would not put the dollar under downward pressure by selling its reserves for gold. In 1969, Germany unilaterally revalued the Deutsche mark. But that was not enough to stop inflows of foreign currency, and the Bundesbank was obliged to continue to intervene. It continued to reduce its interest rate, but the inflows persisted. In May 1971, the German government – against the wishes of the Bundesbank – abandoned the dollar peg altogether and floated the currency.

Politics had prevailed over central-bank commitments. Within three months, the fallout destroyed the entire international monetary system, and US President Richard Nixon took the dollar off the gold standard. The credibility of the entire system of central bank commitments had collapsed, and international monetary policy became extremely unstable. The Deutsche mark appreciated, and life became very hard for German exporters. Today, the global ramifications of a major central bank’s actions are much more pronounced than in 1971. When the Bundesbank acted unilaterally, German banks were not very international. But now finance is global, implying large balance-sheet exposures to currency swings. Big Swiss banks fund themselves in Swiss francs, because so many people everywhere want the security of franc assets. They then acquire assets worldwide, in other currencies. When the exchange rate changes abruptly, the banks face large losses – a large-scale version of naive Hungarian homeowners’ strategy of borrowing in Swiss francs to finance their mortgages.

Though the SNB had given many warnings that the euro peg was not permanent, and though it had imposed a higher capital ratio on banks, the uncoupling from the euro came as a huge shock. Swiss bank shares fell faster than the general Swiss index. The risks created by the SNB’s decision – as transmitted through the financial system – have a fat tail. The negative effects for the Swiss economy – through the decreased competiveness of its export industries (including tourism and medicine) – may already be showing that abandoning the euro peg was not a good idea. But the consequences will not be limited to Switzerland. After years of wondering whether the exit of a small, fiscally weak country like Greece could undermine the euro, policymakers will have to deal with an even bigger shock stemming from the exit of a small, fiscally strong country that is not even a member of the European Union.

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Steve’s first piece for Forbes.

Beware Of Politicians Bearing Household Analogies (Steve Keen)

The British election campaign has begun, and Prime Minister David Cameron is running with the slogan that his Conservative Party will deliver “A Britain living within its means” by running a surplus on day-to-day government spending by 2017/18. It is, as the UK Telegraph noted, hardly an inspiring slogan. But it is one that resonates with voters, because it sounds like the way they would like to manage their own households. And a household budget—whether you balance yours or not—is something we can all understand. If a household spends less than it earns, it can save money, or pay down its debt, or both. So it has to be good if a country does the same thing, right? If only it worked that way. In fact, a government surplus has the opposite effect on Joe Public: a government surplus means that the public has to either run down its savings, or increase its debt.

And if the government runs a sustained surplus, then—unless the country in question has a huge export surplus, like Japan or Germany—a financial crisis is inevitable. That’s the opposite of what both politicians and most of the public think that running a government surplus will achieve—and yet it’s easy to prove that that is the outcome a sustained surplus will lead to. Firstly, a government surplus means that, in a given year, the taxes the government imposes on the public exceed the money it spends (and gives) to the public. There is therefore a net flow of money from the public to the government. As a once-off, that doesn’t have to be a problem. But if it’s sustained for many years, then the public has to provide a continuous flow of money to the government. Let’s call this flow NetGov: a sustained surplus requires the situation shown in Figure 1 (where a deficit is shown in red and a surplus in black).


Figure 1: A sustained government surplus requires the private sector to supply the government with a continuous flow of money

One way that the public can do this is to run down its own money stock—to reduce its savings. But that’s the opposite of what the policy is intended to achieve: the expectation of enthusiasts for government surpluses is that it will enable the public to save more, not less. But as a simple matter of accounting, increased public savings—increased balances in the public’s bank accounts—are only compatible with a government surplus if the public can produce more money than it pays to the government to maintain its surplus. This raises the question “how does the public produce money?”. Anyone in the private sector can produce goods and services for sale, but the production of money is a very different thing to production of goods. The public in general can’t “produce money”—but the banks can.

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Draghi should leave, and Weidmann be appointed head of the ECB.

Draghi Primes His Rocket, Could End Up Shooting Europe In The Foot (Observer)

Mario Draghi, the urbane boss of the European Central Bank, is about to print hundreds of billions of euros to rescue the faltering continental economy. The City expects him to launch his financial bazooka, otherwise known as quantitative easing (QE), on Thursday after the central bank governing council’s monthly meeting. His hand was forced last week by events in Zurich, where his Swiss counterpart said the policy of pegging the franc to the euro was no longer tenable. The markets were impatient for QE, the Swiss central bank chief said – they have already waited months for a decision. The ECB funds will begin to flow six years after the world’s other major economies adopted QE. The US has spent around $4 trillion, the UK £375bn, and last year the Japanese promised to spend almost $700bn a year, up from $560bn in 2013.

If Draghi goes ahead, the Super-Mario headlines will proliferate across Europe and gigabytes of the web will be devoted to analysing the consequences of the move for the 19-member currency zone – and for its trading partners, such as the UK. The ECB’s aim is to flood the eurozone banking system with money to boost lending after a collapse in the value of consumer and business borrowing. Draghi’s supporters say the very fact of taking action will increase confidence and invigorate a stuttering economic bloc. According to this argument, Brussels has done little apart from impose austerity. Now, with the ECB throwing its weight behind a strategy for growth, confidence and spending will begin to rise.

QE has clearly played a big part in rescuing the global economic system after the crash. But its usefulness as a spur for growth is less clear. As Labour’s Ed Balls has said, governments need to step in with their own funds – albeit borrowed – for investment that ensures growth is sustainable. QE is like an adrenalin shot to revive a stricken patient. It is useless when the patient is in recovery and crying out for something more substantial. But persistently printing vast quantities of a currency has one major effect. It drives down its value against other currencies. Since Christmas, the yen has been trading 50% below where it was in October 2012 against the dollar. That means Japanese exports of cars, TVs and kimonos cost 50% less in the US and, just as importantly, in China, which has pegged the renminbi to the dollar.

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No, it doesn’t. Well, other than for bringing down the euro. All else has long been priced in.

Market to European Central Bank: Size of QE Matters! (CNBC)

Earnings and economic reports all take a back seat to the European Central Bank in the holiday-shortened trading week ahead. Investors are looking to the ECB to on Thursday announce a program of government bond purchases, or quantitative easing. “The only thing that is important next week is the ECB meeting,” Mark Luschini, chief investment strategist at Janney Montgomery Scott, said. “The ECB is going to be the biggest driver next week, what they decide to do as far as rates and their QE should have a big impact on global markets,” said Paul Nolte at Kingsview Asset Management.

“The markets are expecting a very impressive QE, a la United States, a la Japan. Some investors may be playing both sides, and by that I mean playing for a big move. If they do come down with a big package, global markets will rally strongly, if they don’t do much of anything, you could see markets fall apart,” Nolte said. “There’s a huge amount of anticipation, and a lot of volatility around this ECB decision on Thursday. It’ll be a combination of what they say they’re going to do, and their intentions after that,” Scott Wren, senior equity strategist at Wells Fargo Investment Institute, said.

“I think the ECB will act next week, and make some type of announcement. But the market is likely to be disappointed by the magnitude that the ECB initially says they’re going to do, as the market would like to see a trillion. Let’s say they come out with €500 billion, and some sort of statement of more”. Switzerland’s central bank upended markets Thursday by removing its cap on the Swiss franc versus the euro, with the action viewed as a preemptive one to shield its currency from pressure should the ECB make a move. “I suspect (ECB President Mario) Draghi gave a wink to the Swiss National Bank and allowed them to get in front of that, the question mark at this juncture is the order of magnitude. The market is vulnerable to an underwhelming response. The key, basically, is trying to restore the balance sheet to 2012 levels, so we’d have to at least have to see €1.3 trillion,” Luschini said.

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“The country’s overall debt burden has actually increased in the almost five years since it was first “rescued..”

A New Idea Steals Across Europe – Should Greece Debt Be Forgiven? (Observer)

Forgiveness: it’s a rare enough quality in family life, let alone international policymaking. But if, as the polls suggest, the populist Syriza party wins next weekend’s Greek election, Athens will be asking its European brothers and sisters to forgive and forget some of the €317bn (£240bn) it still owes, so that its economy – and society – can recover from more than six years of austerity and recession. Instead of the defiant tone that once saw Syriza’s leader, Alexis Tsipras, threatening to ditch the euro altogether, the party now hopes to negotiate an agreement with Germany and other creditors that could allow Greece to remain in the single currency – but set it on the path to recovery.

London-based pressure group Jubilee Debt Campaign, which has studied the fate of heavily indebted countries around the world, says Greece is right to demand a more generous approach from its creditors, because although it has received an extraordinary €252bn in bailouts since 2010, just 10% of that has found its way into public spending. Much of the rest poured straight back out of the country: in debt repayments and interest to its creditors, many of them banks and hedge funds in the core eurozone countries, including Germany and France; and in sweeteners to persuade lenders to sign up to the 2012 bond restructuring that helped prevent the country crashing out of the euro. In effect, the “troika” of the European Central Bank, the International Monetary Fund and the European commission has simply replaced the banks and the hedge funds as Greece’s paymasters.

The country’s overall debt burden has actually increased in the almost five years since it was first “rescued”, and of the amount still outstanding, 78% is now owed to public sector institutions, primarily the EU. Stephany Griffith-Jones, an economist who is an expert on debt crises in developing countries, says: “They have got quite a lot of relief already; but a lot of that money that came to the government has gone to servicing the debt, including to the private banks. It wasn’t really money to help the Greeks. This is exactly like when I used to study Latin America in the 1980s: then, it was American and British banks, now it’s German and French banks.”

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Of coursethere should be such a conference. A fully public one.

Ireland ‘Not Dismissive’ Of EU Debt Conference SYRIZA Wants (Kathimirini)

SYRIZA leader Alexis Tsipras has seized on comments by Irish Finance Minister Michael Noonan as evidence that not just “progressive economists and the European Left” are coming round to his party’s argument that the European Union needs to hold a meeting to discuss how to reduce the debt of some of its members, including Greece. “In all of Europe, only Mr Samaras called this nonsene,” wrote Tsipras in Sunday’s Kathimerini. The Irish Times reported on Wednesday that Noonan told Irish ambassadors and civil servants he “would not be dismissive” of a European debt conference being held as long as the issue of Irish, Spanish and Portuguese debt could be discussed.

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“.. nobody believes the party’s over. That’s probably because most employees are older than 40 and have golden handshakes on a Midas scale.”

Aberdeen: In Scotland’s Oil Capital The Party’s Not Yet Over (Observer)

It has been a strange old week in the self-proclaimed oil capital of Europe. According to some members of Aberdeen’s energy sector, a group with a code of silence that would trump any Trappist throng, the North Sea is a busted flush, a dead zone of drilled-out fields with a long-term future to match. There will certainly be some transient pain in the industry; BP has confirmed 300 job losses and other subsidiaries will view the plummeting price of oil as a wonderful opportunity to trim any perceived excess fat. But if there is any panic in Aberdeen over the end of the gravy train, it is being well concealed. One executive told me on Friday: “Times are tough. And they might get tougher.” But nobody believes the party’s over. That’s probably because most employees are older than 40 and have golden handshakes on a Midas scale.

I walked along Aberdeen’s Union Street last week and one particular image struck me. It’s a once-glorious, now-dowdy thoroughfare with a few refulgent granite buildings surrounded by an excess of eyesores. On one side of the street, the Pound Shop announced that it was closing; on the other, the staff at the recently opened Eclectic Fizz champagne bar were preparing to welcome their steady stream of customers. At another location just outside the city on Thursday evening, a few hours after the BP news had broken, a group of four senior oil officials awaited their trip to the airport in Dyce. After a few minutes, four separate cabs arrived to pick them up: it didn’t matter the quartet were all travelling to the same destination. It may be a recession, Jim. But in Aberdeen, not as we usually know it.

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‘To make the impossible possible. To rise, and rise”

Buying A Home In Britain Should Not Be An Impossible Dream (Observer)

‘To make the impossible possible. To rise, and rise”. Uttered in a movie-trailer tone, it sounds like the mission statement for a Mars probe – but, set against the backdrop of the twinkling lights of night-time London, it’s actually the voiceover for a particularly obnoxious Redrow ad for flats in one of the capital’s now-ubiquitous glass and steel skyscrapers, launched and hastily withdrawn earlier this month after a furious outburst on social media. Its sharply suited, go-getting protagonist is whisked through the streets in a cab, reminiscing about all the hours he had to put in (“the mornings … that felt like night”); the calls from mates he was forced to ignore; and the terrible soul-searching he had to endure to succeed (apparently he felt the urge to “be more than individual”).

Without encountering another soul, our hero strides into an anonymous lobby and is whisked up to a vast, sparkling eyrie, worthy of a Bond villain’s hideout. An outraged viewer captured the ad for posterity; rival builder Berkeley Homes pulled its own equally nauseating effort (this one involving a private jet) a few days later. Prices for apartments at One Blackfriars, the tower block being marketed by Berkeley, range up to £23m. And judging by the ad, its lucky inhabitants in their hermetically sealed penthouses will never have to rub shoulders with hoi polloi down at ground level. It’s hard to think of a more powerful symbol of Britain’s divisive, winner-takes-all property market. Of course, the rich have always been with us, and to some extent have always cut themselves off. Strolling through the Geffrye Museum in east London recently, I was intrigued by a painting from 1936.

An elegant, bejewelled woman in a shimmering gown peers languorously out on to a crowded London thoroughfare, perhaps Regent Street or Piccadilly, from a plush, warmly lit salon, while a man faces away from the window with studied nonchalance, blowing smoke rings. Only on reading the inscription does it become clear that the lively scene outside the window is not a celebration or a festival, but the arrival of the Jarrow marchers. Britain in the 21st century is a very long way from the Great Depression; yet that well-heeled couple’s cosy imperviousness to their fellow humans’ suffering is all there in the “because I’m worth it” high-rise property porn churned out by Redrow, Berkeley and the rest (“They said nothing comes easy; but if it was easy, then it wouldn’t feel as good,” goes the voiceover).

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Yada yada.

Obama Speech To Call For Closing Tax Loopholes (Reuters)

– President Barack Obama’s State of the Union address will propose closing multibillion-dollar tax loopholes used by the wealthiest Americans, imposing a fee on big financial firms and then using the revenue to benefit the middle class, senior administration officials said on Saturday. Obama’s annual address to a joint session of Congress on Tuesday night will continue his theme of income equality, and the administration is optimistic it will find some bipartisan support in the Republican-dominated House of Representatives and Senate. The proposals administration officials listed on Saturday may still generate significant opposition from the Republicans because they would increase taxes.

In a conference call with reporters to preview the taxation aspect of Obama’s address, one official said some of the ideas the president is outlining already have “clear congressional bipartisan support or are ideas that are actually bipartisan in their nature.” Obama’s proposals call for reforming tax rules on trust funds, which the administration called “the single largest capital gains tax loophole” because it allows assets to be passed down untaxed to heirs of the richest Americans. They also would raise the capital gains and dividends rates to 28 percent, the level during the 1980s Republican presidency of Ronald Reagan. As a way of managing financial risk that could threaten the U.S. economy, Obama also wants to impose a fee of seven basis points on the liabilities of U.S. financial firms with assets of more than $50 billion, making it more costly for them to borrow heavily.

The changes on trust funds and capital gains, along with the fee on financial firms, would generate about $320 billion over 10 years, which would more than pay for benefits Obama wants to provide for the middle class, the official said. The benefits mentioned on Saturday would include a $500 credit for families with two working spouses, tripling the tax credit for child care to $3,000 per child, consolidating education tax incentives and making it easier for workers to save automatically for retirement if their employer does not offer a plan. The price tag on those benefits, plus a plan for free tuition at community colleges that Obama announced last week, would be about $235 billion, the official said. Specifics on the figures will be included in the budget Obama will send to Congress on Feb. 2. “We’re proposing more than enough to offset the new incremental costs of our proposals without increasing the deficit,” the administration official said.

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Greece has historically had close ties to Russia.

Russia May Lift Food Import Ban From Greece If It Quits EU (TASS)

Russia may lift its ban on food imports from Greece in the event it quits the European Union, Russian Minister of Agriculture Nikolai Fyodorov told a news conference in Berlin on Friday. Fyodorov is leading an official Russian delegation to the International Green Week public exhibition for the food, agriculture, and gardening industry. If Greece has to leave the European Union, we will build our own relations with it, the food ban will not be applicable to it, he said. He said that European Union countries, which felt discomfort from the slump in proceeds from exports of foods to Russia, were asking Russia to cushion the impacts of the Russian food import ban by expanding other types of imports.

We are looking at such possibility, he said, adding that these countries offer new formats of cooperation in those areas that are not covered by the Russian food sanctions. Meanwhile he stressed that Russia did not plan to toughen its sanctions. As concerns possible new sanctions, we are not looking at any such proposals from any structures, he added. Earlier on Friday, Fyodorov met with his German counterpart, Christian Schmidt, to discuss possible expansion of cooperation and mutual trade in agricultural products. The two ministers agreed that Russia and Germany may expand mutual trade in food products in the framework of the current laws.

“We cannot solve pressing political problems, but we can maintain dialogue in the current conditions, the German minister said. We can make trade between our countries more intensive. The Russian minister shared this opinion saying, the Berlin exhibitions was a non-political event working on problems of food security. We discussed possible expansion of cooperation and mutual trade in agricultural products and agreed to work in the new conditions strictly within the frameworks of the current legislation of Russia, the Customs Union, Germany and the European Union, Fyodorov said.

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This is effectively the US and EU killing women and children.

Donetsk Shelled As Kiev ‘Orders Massive Fire’ On East Ukraine (RT)

Violence escalated in eastern Ukraine as Kiev’s troops launched a massive assault on militia-held areas Sunday morning. The army was ordered to start massive shelling of all rebel positions, a presidential aide said. The order to launch the offensive was issued early approximately at 6:00 am, according to Yury Biryukov, an aide to President Petro Poroshenko. “Today we will show HOW good we are at jabbing in the teeth,” he wrote on his Facebook page, a mode of conveying information favored by many Ukrainian officials. In a later post he said: “They are now striking a dot. Uuu…” in a reference to Tochka-U (‘tochka’ means ‘dot’ in Russian), a tactical ballistic missile, one of the most powerful weapons Ukraine so far deployed against rebel forces. “That wasn’t a dot but ellipsis. Strong booms,” he added.

Reports from the ground confirmed a sharp escalation of clashes across the front line, with particularly heavy artillery fire reported at Gorlovka. “Locals in Donetsk said they haven’t heard such intensive shelling since summer,” Valentin Motuzenko, a military official in the self-proclaimed Donetsk People’s Republic, told Interfax news agency. “The Ukrainian military are using all kinds of weapons, Grad multiple rocket launchers, mortars…” Motuzenko said. Several residential buildings, a shop and a bus station have been seriously damaged by artillery fire in the city, RIA Novosti reported. There were also reports of attacks on the town of Makeevka and several nearby villages. The militia added that at least one shell hit a residential area in central Donetsk rather than the outskirts of the city. There were no immediate reports of how many casualties resulted from the offensive.

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“Canadian media theorist Marshall McLuhan foresaw these developments decades ago. In 1970, he wrote, “World War III is a guerrilla information war with no division between military and civilian participation.”

New Snowden Docs Reveal Scope Of NSA Preparations For Cyber War (Spiegel)

[..] the intelligence service isn’t just trying to achieve mass surveillance of Internet communication, either. The digital spies of the Five Eyes alliance – comprised of the United States, Britain, Canada, Australia and New Zealand – want more. According to top secret documents from the archive of NSA whistleblower Edward Snowden seen exclusively by SPIEGEL, they are planning for wars of the future in which the Internet will play a critical role, with the aim of being able to use the net to paralyze computer networks and, by doing so, potentially all the infrastructure they control, including power and water supplies, factories, airports or the flow of money. During the 20th century, scientists developed so-called ABC weapons – atomic, biological and chemical. It took decades before their deployment could be regulated and, at least partly, outlawed.

New digital weapons have now been developed for the war on the Internet. But there are almost no international conventions or supervisory authorities for these D weapons, and the only law that applies is the survival of the fittest. Canadian media theorist Marshall McLuhan foresaw these developments decades ago. In 1970, he wrote, “World War III is a guerrilla information war with no division between military and civilian participation.” That’s precisely the reality that spies are preparing for today. The US Army, Navy, Marines and Air Force have already established their own cyber forces, but it is the NSA, also officially a military agency, that is taking the lead. It’s no coincidence that the director of the NSA also serves as the head of the US Cyber Command. The country’s leading data spy, Admiral Michael Rogers, is also its chief cyber warrior and his close to 40,000 employees are responsible for both digital spying and destructive network attacks.

From a military perspective, surveillance of the Internet is merely “Phase 0” in the US digital war strategy. Internal NSA documents indicate that it is the prerequisite for everything that follows. They show that the aim of the surveillance is to detect vulnerabilities in enemy systems. Once “stealthy implants” have been placed to infiltrate enemy systems, thus allowing “permanent accesses,” then Phase Three has been achieved – a phase headed by the word “dominate” in the documents. This enables them to “control/destroy critical systems & networks at will through pre-positioned accesses (laid in Phase 0).” Critical infrastructure is considered by the agency to be anything that is important in keeping a society running: energy, communications and transportation. The internal documents state that the ultimate goal is “real time controlled escalation”.

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Chilling.

Guantánamo Diary Exposes Brutality Of US Rendition And Torture (Guardian)

The groundbreaking memoir of a current Guantánamo inmate that lays bare the harrowing details of the US rendition and torture programme from the perspective of one of its victims is to be published next week after a six-year battle for the manuscript to be declassified. Guantánamo Diary, the first book written by a still imprisoned detainee, is being published in 20 countries and has been serialised by the Guardian amid renewed calls by civil liberty campaigners for its author’s release. Mohamedou Ould Slahi describes a world tour of torture and humiliation that began in his native Mauritania more than 13 years ago and progressed through Jordan and Afghanistan before he was consigned to US detention in Guantánamo, Cuba, in August 2002 as prisoner number 760. US military officials told the Guardian this week that despite never being prosecuted and being cleared for release by a judge in 2010, he is unlikely to be released in the next year.

The journal, which Slahi handwrote in English, details how he was subjected to sleep deprivation, death threats, sexual humiliation and intimations that his torturers would go after his mother. After enduring this, he was subjected to “additional interrogation techniques” personally approved by the then US defence secretary, Donald Rumsfeld. He was blindfolded, forced to drink salt water, and then taken out to sea on a high-speed boat where he was beaten for three hours while immersed in ice. The end product of the torture, he writes, was lies. Slahi made a number of false confessions in an attempt to end the torment, telling interrogators he planned to blow up the CN Tower in Toronto. Asked if he was telling the truth, he replied: “I don’t care as long as you are pleased. So if you want to buy, I am selling.”

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“.. a massive flu outbreak could cost anywhere between $71 billion to $166.5 billion.”

Price Tag Of Saving The World From A Pandemic: $344 Billion (CNBC)

Infectious diseases are incubating everywhere across the world—ranging from the deadly Ebola virus to the more common yet debilitating influenza—to often devastating effect. It raises the question of how large a premium should world governments pay to insulate their economies from global pandemics. Would you believe $343.7 billion? That eye-popping figure is one of several takeaways of a group of scholars calling for a “global strategy” to mitigate the impact of threats to public health. In a recent paper published in the Proceedings of the National Academy of Sciences (PNAS) journal, economists and public health experts said emerging pandemics were increasing in their virulence and frequency.

The grim circumstances, which include the Ebola outbreak ravaging parts of Africa and an increasingly tough flu season in the U.S., calls for “globally coordinated strategies to combat” the hydra-headed threats posed by widespread disease—which the scientists say have their origins in animals. By pooling resources and implementing a host of programs and policies, governments could curtail the spread of infectious viruses by 50% if the measures were implemented within a 27-year span, the paper said. Of course, there’s the matter of the price tag, which is more than South Africa’s nominal GDP and is nearly as large as the U.S. Defense Department’s fiscal year 2015 budget. In response to questions, co-author Peter Daszak said the money would be funneled into “mitigation programs” that isolate the first cluster of cases at their source. The funds would also be spent on hospitals and diagnostic labs in West Africa, and creating a web of information to identify and track diseases. [..]

The study arrives at a time when public health officials are struggling to contain a blitz of mysterious outbreaks. In recent months, isolated cases of Ebola, Legionnnaire’s disease, enterovirus and Chikungunya—all sicknesses most common in developing economies—have all appeared in the U.S. In the larger scheme, the nearly $344 billion call to arms may be a reasonable price to pay to prevent yet another shock to global growth, one that’s already taking a heavy toll on African economies. In a December study, the World Bank said West Africa’s Ebola pandemic had shaved off about two-thirds of Liberia’s and Sierra Leone’s growth. For those who think the flu isn’t that pernicious, think again: A Centers for Disease Control study once estimated that a massive flu outbreak could cost anywhere between $71 billion to $166.5 billion.

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Absolute madness.

Is Lancashire Ready For Its Fracking Revolution? (Observer)

The Fylde, the flat, rich pasture land and villages stretching from Preston and the M6 to the Blackpool coast, is set to host the UK’s first full-scale fracking exploration, if Lancashire county council gives planning permission at the end of January. Nationally David Cameron and the government have declared they are “going all out” for fracking, hoping to emulate the shale gas revolution in the US. But on the frontline the mood is more equivocal. Fears of the effects on health and plummeting house prices compete with the promise of jobs and money for communities, accompanied by accusations of misinformation and hysteria from both sides.

The site owned by Sanderson’s uncle and aunt is near Roseacre, and as you wind down the pot-holed lanes towards it, past the huge communication masts of the Royal Navy’s Inskip site, placards of opposition appear: “Don’t frack with Fylde”, “Health not wealth” and “What price fracking? Clean air? Clean water?” At the site, an unspectacular stretch of grassland whose only current features are a black water butt and a dull rumble from the M55, Cuadrilla’s head of well development, Eric Vaughan, explains the company’s plans for up to four wells, each of which would see dozens of fracking blasts to release gas. “I am excited we may finally get going again,” he says. “You have to be optimistic. We have tried to answer every question. Hopefully the planning permission will go through, so we can show people what it really looks like.”

A single frack at Cuadrilla’s Preese Hall site on the Fylde in 2011 produced good flow results, says Vaughan, but it also produced two small earthquakes, a government investigation and a false start for the company. “Because we had the earthquake, we decided to abandon that well,” says Vaughan, who is originally from Kentucky and for the past 30 years has been fracking all over the world, from the US to Thailand to Turkmenistan. Fracking at Roseacre, and at a second proposed site at nearby Preston New Road, will be under way by Christmas, if all goes Cuadrilla’s way. On Friday, the Environment Agency granted the environmental permits Cuadrilla needs for Preston New Road, and has already said it is minded to grant the permits for Roseacre as well.

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So true.

Pope Francis: Listen To Women, Men Are Too Machista (RT)

Pope Francis has called on men to listen to women as they have “much to tell us.” Women are able to ask questions that men can’t grasp, the pontiff told an audience in the Philippines, where his comments drew instant applause. “Women have much to tell us in today’s society,” Francis told a mostly male audience at the Catholic University of Santo Tomas in Manila, on the last day of a weeklong visit to Philippines and Sri Lanka. His impromptu comments were welcomed with applause from the audience, which according to organizers’ estimates was 30,000 people. “At times we men are too ‘machista’, the Argentinian pontiff said using word for the term for extreme male chauvinism in his native Spanish. According to the 78-year-old Catholic leader, we “don’t allow room for women but women are capable of seeing things with a different angle from us, with a different eye.”

His comments come after he noted that four out of five people who asked him questions on the stage were male. “There is only a small representation of females here, too little,” he said, to laughter. He added that it was a 12-year-old girl who posed the toughest question to him. Glyzelle Palomar, who was living on the streets before being taken in by a church charity, broke into tears when she was posing her question. “Many children are abandoned by their parents. Many children get involved in drugs and prostitution. Why does God allow these things to happen to us? The children are not guilty of anything,” Palomar said. Francis took her into his arms and hugged her for a few seconds. “She is the only one who has put a question for which there is no answer and she wasn’t even able to express it in words, but in tears,” he said.

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Dec 102014
 
 December 10, 2014  Posted by at 12:36 pm Finance Tagged with: , , , , , , , , , , ,  4 Responses »


Marjory Collins “Crowds at Pennsylvania Station, New York” Aug 1942

China Inflation Eases To Five-Year Low (BBC)
Popping The Chinese Stock Market Mania (Zero Hedge)
Easy Credit Feeds Risky Margin Trades In Chinese Stocks (Reuters)
Why Beijing’s Troubles Could Get a Lot Worse (Barron’s)
OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (Bloomberg)
Don’t Look For Oil Glut To End Any Time Soon (CNBC)
Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (Bloomberg)
“Yes, it Was a Brutal Week for the Oil & Gas Loan Sector” (WolfStreet)
US Shale Contractors To See Net Income Cut By 25% In 2015 (Bloomberg)
This Time Is The Same: The Fed Ignores The Shale Bubble (David Stockman)
Thanksgiving Weekend Box Office Plunges 20% vs 2013 To 16-Year Low (Alhambra)
Greece Lurches Back Into Crisis Mode (Bloomberg)
Japan Threatened With Credit Rating Downgrade (CNBC)
Citigroup Sets Aside $2.7 Billion For Legal Costs (BBC)
This Is What 6 Years Of Central Bank Liquidity Injections Look Like (Zero Hedge)
Big US Banks Face Capital Requirement of 4.5% on Top of Global Minimum (BBG)
Stop Believing The Lies: America Tortured More Than ‘Some Folks’ (Guardian)
Defeat is Victory (Dmitry Orlov)
Rising Inequality ‘Significantly’ Curbs Growth (CNBC)
TTIP Divides A Continent As EU Negotiators Cross The Atlantic (Guardian)
Ebola Virus Still ‘Running Ahead Of Us’, Says WHO (BBC)

The economy allgedly grows at 7%, and official inflation is 1.4%?

China Inflation Eases To Five-Year Low (BBC)

Inflation in China eased to a five-year low in November, suggesting continued weakness in the Asian economic giant. The inflation rate fell to 1.4% in November from 1.6% in October, which is the lowest since November 2009. The reading was also below market expectations of a 1.6% rise. Producer prices, which have been entrenched in deflation, also fell more than forecast, down 2.7% from a year ago – marking a 33rd consecutive monthly decline. Economists had predicted a fall of 2.4% after drop of 2.2% in the previous month as a cooling property market led to slowing demand for industrial goods. The figures are the latest in a string of government data that showed a deeper-than-expected slowdown in the Chinese economy.

Dariusz Kowalczyk, an economist at Credit Agricole, said the data partly reflected low commodity and food prices but also confirmed softness in domestic demand. “It will likely convince policymakers to ease their policy stance further and we continue to expect a RRR (bank reserve requirement ratio) cut in the near term, most likely this month,” he told Reuters. Last month, the country’s central bank unexpectedly cut interest rates for the first time in more than two years to spur activity. In reaction to the data, Chinese shares continued their downward trend after the Shanghai Composite fell more than 5% on Tuesday.

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“On both prior occasions of such a maniacal surge in speculative accounts, the Shanghai Composite made a significant top and fell dramatically in the ensuing months.”

Popping The Chinese Stock Market Mania (Zero Hedge)

If you are wondering what triggered the PBOC to pull the punchbowl of leveraged collateral away from the ‘wealth-creating’ stock market exuberance in China… wonder no more. The last 2 weeks saw the biggest surge in new Chinese brokerage accounts ever, with this week alone the highest since October 2010 and January 2008 with a stunning 228,000 new accounts opened. On both prior occasions of such a maniacal surge in speculative accounts, the Shanghai Composite made a significant top and fell dramatically in the ensuing months.

How oddly dis-similar the PBOC is to the Fed!! Instead of encouraging open leveraged speculation, the central bank of China appears more risk averse, recognizing the potential medium-term disastrous consequences from such boom-bust moves (and likely has no cheer-leading CNBC channel to take care of).

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Oh boy: “Some might already be regretting taking those risks [..] Especially those who might have pledged their property to get in on the rally and offset the slide in house prices.”

Easy Credit Feeds Risky Margin Trades In Chinese Stocks (Reuters)

“High leverage, low thresholds!” the website says. “(China’s) A shares are heating up; if you don’t allocate capital now, then when?” Many, it appears, are choosing now, gorging on cheap credit to ride a wild stock market rally. The website, Jinfuzi.com, will let investors borrow up to 10 times their principal with only 2,000 yuan ($323) down in order to buy stocks and futures. The peer-to-peer lender has an easy sell; Chinese benchmark indexes have posted record-smashing trading volumes in recent weeks, with average share values up over 30% in just 12 trading days. Ordinary investors, who conduct 60-80% of China’s stock trades, charged into the market after a surprise interest rate cut by Beijing on Nov. 21, and brokerages and shadow bankers have rushed in to help them trade on margin – essentially borrowed money.

“Margin trading has clearly played a big role in the recent rally, and government is worried,” wrote Oliver Barron of NSBO in a research note on Tuesday, estimating that gross margin trading purchases accounted for 164 billion yuan ($26.5 billion) on Monday, the equivalent of 17% of total turnover on Chinese bourses. There has been a steady relaxation of restrictions on margin trading in the last two years, and while in good times it allows investors to make a lot of money with only a small amount of their own cash, it also carries big risks when the market falls.

Some might already be regretting taking those risks after the Shanghai Composite Index lost over 5% on Tuesday, its largest single-day drop in five years. Especially those who might have pledged their property to get in on the rally and offset the slide in house prices. “We provide our customers with service to borrow money with their property as collateral,” said Mr. Yu, president of Qianteng Asset Management Company in Hangzhou. “We have plenty of funds on hand, which makes it easy for our customers to get money ASAP once they sign the contract.”

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“In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior.”

Why Beijing’s Troubles Could Get a Lot Worse (Barron’s)

Few foreigners know China as intimately as Anne Stevenson-Yang does. She has spent the bulk of her professional life there since first arriving in 1985, working as a journalist, magazine publisher, and software executive, with stints in between heading up the U.S. Information Technology office and the China operations of the U.S.-China Business Council. She’s now research director of J Capital, an outfit that works for foreign investors in China doing fundamental research on local companies and tracking macroeconomic developments.

Barron’s: Investors seem far more concerned about Europe’s sinking into economic despond than slowing growth in China. Are they whistling past the graveyard?

Stevenson-Yang: I think so. China, for all its talk about economic reform, is in big trouble. The old model of relying on export growth and heavy investment to power the economy isn’t working anymore. Sure, the nation has been hugely successful over recent decades in providing its people with literacy, a decent life, basic health care, shelter, and safe cities. But starting in 2008, China sought to counter global recession with huge amounts of ill-advised investment in redundant industrial capacity and vanity infrastructure projects—you know, airports with no commercial flights, highways to nowhere, and stadiums with no teams. The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt. The recent lowering of benchmark deposit rates by the People’s Bank of China won’t accomplish much because it won’t offer more income to households. It also gave China’s biggest banks the discretion to raise their deposit rates back up to old levels, which would give them a competitive advantage

Barron’s: How bad can the situation be when the Chinese economy grew by 7.3% in the latest quarter?

Stevenson-Yang: People are crazy if they believe any government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross- domestic-product figures. It didn’t take long for Beijing to figure this out and start doctoring those numbers, too. I put much stock in estimates by various economists, including some at the Conference Board, that actual Chinese GDP is probably a third lower than is officially reported. And as for the recent International Monetary Fund report calling China the world’s biggest economy on a purchasing-power-parity basis, how silly was that? China is a cheap place to live if one is willing to eat rice, cabbage, and pork, but it’s expensive as all get out once you factor in the cost of decent housing, a car, and health care.

I’d be shocked if China is currently growing at a rate above, say, 4%, and any growth at all is coming from financial services, which ultimately depend on sustained growth in the rest of the economy. Think about it: Property sales are in decline, steel production is falling, commercial long-and short-haul vehicle sales are continuing to implode, and much of the growth in GDP is coming from huge rises in inventories across the economy. We track the 400 Chinese consumer companies listed on the Shanghai and Shenzhen stock markets, and in the third quarter, their gross revenues fell 4% from a year ago. This is hardly a vibrant economy.

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Demand is way down.

OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (Bloomberg)

OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and reduced estimates for global consumption. The Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. That’s about 1.15 million a day less than the group’s 12 members pumped last month, and the 30-million barrel target they reaffirmed at a meeting in Vienna on Nov. 27. The impact of this year’s 40% price collapse on supply and demand remains unclear, OPEC said. “The downward revision reflects the upward adjustment of non-OPEC supply as well as the downward revision in global demand,” the group’s Vienna-based research department said in its monthly oil market report.

Brent crude futures collapsed to a five-year low of $65.29 a barrel in London yesterday amid speculation that OPEC’s decision to maintain output levels despite swelling North American supplies will intensify the glut in global oil markets. Demand for OPEC’s crude will slump to 28.92 million barrels a day next year, according to the report. That’s below the 28.93 million required in 2009, and the lowest since the 27.05 million a day level needed in 2003, the group’s data show. Output from the 12 members declined by 390,000 barrels a day in November to 30.05 million a day amid lower production in Libya, according to data from analysts and media organizations referred to in the report as ‘‘secondary sources.” Libyan output dropped last month by 248,300 barrels a day to 638,000 a day. Pumping at the Sharara oil field, the country’s biggest-producing asset, and the neighboring El Feel site, was halted after Sharara was seized by gunmen, according to the International Energy Agency.

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But OPEC will fight for market share, or rather its separate mebers will.

Don’t Look For Oil Glut To End Any Time Soon (CNBC)

The global oil glut is expected to get much bigger before it’s over, keeping pressure on oil prices well into next year. Companies like ConocoPhillips and Chevron are reducing spending on new projects, but the impact of already planned increases in U.S. production into the first half of the year is likely to keep the world well supplied before the flow of new supply starts to slow in the second half of the year. Besides shale production, U.S. Gulf of Mexico production is also expected to increase with new projects coming on line. Within a year, the projects will take U.S. Gulf production from 1.3 million barrels to roughly 1.6 million barrels a day. “It’s not like the supply reaction is instantaneous. It takes time to wind these things down,” said John Kilduff of Again Capital. “I wouldn’t expect a decrease in the rate of (production) growth until next year at the earliest.”

The U.S. Energy Information Administration on Tuesday cut its forecast for daily U.S. production by another 100,000 barrels, to 9.3 million. That follows a reduction in its forecast of 100,000 barrels per day last month. The U.S. produced 9.08 million barrels a day in the week of Nov. 28 and has been producing over 9 million barrels a day for the past month. The government’s forecast for 2015 is now below some private analysts’ assumptions that oil production can continue to grow at a higher rate of anywhere from 500,000 to more than 1 million barrels per day next year, depending on oil prices. The EIA on Monday issued a new report on U.S. oil production showing the increase in production in the three main shale plays—Bakken, Permian and Eagle Ford—is growing by more than 100,000 barrels a day in December over November, and is expected to increase at about the same rate in January.

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Discord is all that’s left at OPEC. Nobody can risk the initial losses of an output cut. And nobody trusts the others.

Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (Bloomberg)

Brent resumed its decline as an Iranian official predicted a further slump in prices if solidarity among OPEC members falters. West Texas Intermediate in New York also erased yesterday’s gains. Futures slid as much as 1.6% in London after snapping a five-day losing streak. Crude could fall to as low as $40 a barrel amid a price war or if divisions emerge in OPEC, said an official at Iran’s oil ministry. The 12-member group, which supplies 40% of the world’s oil, may need to call an extraordinary meeting in the first quarter if the drop continues, according to Energy Aspects Ltd. Brent has collapsed 40% this year as OPEC agreed at a Nov. 27 gathering not to cut output to force a slowdown in U.S. production, which has risen to the highest level in three decades. Saudi Arabia and Iraq this month widened discounts on crude exports to their customers in Asia, bolstering speculation that group members are fighting for market share.

“With OPEC looking like a dysfunctional family, no pullback in U.S. production and a lack of geopolitical concerns, it’s all adding up to lower prices,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone today. Brent for January settlement decreased as much as $1.06 to $65.78 a barrel on the London-based ICE Futures Europe exchange and was at $66.25 at 3:12 p.m. Singapore time. The contract climbed 65 cents to $66.84 yesterday. The European benchmark crude traded at a premium of $3.12 to WTI. WTI for January delivery fell as much as $1, or 1.6%, to $62.82 a barrel in electronic trading on the New York Mercantile Exchange. It increased 77 cents to $63.82 yesterday. The volume of all futures traded was about 2% below the 100-day average.

Oil’s collapse has left the market below equilibrium, according to Mohammad Sadegh Memarian, the head of petroleum market analysis at the oil ministry in Tehran. Iran, hobbled by economic sanctions over its nuclear program, wants to raise production to 4.8 million barrels a day once the curbs are removed, he said at a conference in Dubai yesterday. OPEC pumped 30.56 million barrels a day in November, exceeding its collective target of 30 million for a sixth straight month, a Bloomberg survey of companies, producers and analysts showed. Financially strapped members such as Iran, Iraq and Venezuela may press for discussions before the group’s next scheduled meeting on June 5, predicted Amrita Sen, the chief oil market analyst at Energy Aspects.

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And more’s to come.

“Yes, it Was a Brutal Week for the Oil & Gas Loan Sector” (WolfStreet)

Yesterday, I discussed how the plunging price of oil is wreaking havoc on leveraged loans in the energy sector. These loans are issued by junk-rated corporations already burdened by a large amount of debt. Banks that originate these loans can retain them on their balance sheets or sell them in various creative ways, including by repackaging them into synthetic structured securities, called Collateralized Loan Obligations. Earlier today, I discussed how the current generation of leveraged loans in general compares to the leveraged loans issued at the cusp of the Financial Crisis. Spoiler alert: by almost every metric, they’re bigger and crappier now than they were in 2007.

So here’s a chart of S&P Capital IQ’s energy-sector leveraged-loan index for the latest week, and it was such a doozie that it caused leveraged-loan focused LCD News, a unit of S&P Capital IQ, to tweet: “Yes, it Was a Brutal Week for the Oil & Gas Loan Sector.” The average bid price of first-lien oil & gas Index loans fell to 90.35 cents on the dollar for the week, from 94.90 at the November 28 close and down from 96.77 at the end of October, S&P Capital IQ’s LeveragedLoan.com reported. And yields soared: the spread to maturity implied by the average bid jumped from Libor plus 500 basis points in August to Libor plus 600 basis points at the end of November, to Libor plus 731 basis points at the end of the latest week. The US dollar Libor rate is about 0.1%, so yields jumped from 5.1% in August to 7.4% in the latest week. An exponential increase:

Note how offshore drillers (blue line) got hammered the most, though they had the lowest yields of the bunch for most of the year. Their spreads nearly doubled from 400 basis points over Libor in March to nearly 800 basis points over Libor last week. That’s a move from about 4% in March to nearly 8% now, and a big part of it within a single month. It’s really brutal out there. In the oil and gas sector, revenues are already plunging. Earnings will get hit. Earnings estimates are crashing at a rate not seen since crisis year 2009. Liquidity is drying up. And stocks got eviscerated. It’s tough out there.

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And that’s just for the four biggest ones.

US Shale Contractors To See Net Income Cut By 25% In 2015 (Bloomberg)

Oilfield contractors hired to drill wells and fracture rock to raise crude and natural gas to the surface will have to lower prices by as much as 20% to help keep their cash-strapped customers working. Ultimately, that could carve out more than $3 billion from the 2015 earnings outlined by analysts for the world’s four biggest oil-service companies – Schlumberger, Halliburton, Baker Hughes and Weatherford International. The potential losses loom just as the service providers were looking ahead to higher rates after a glut in pressure-pumping gear dragged prices down in past years. Now, crude oil prices that have fallen more than 40% since June are squeezing them once again. As they look for ways to cut costs, oil producers will be pushing for discounts wherever they can find them.

“They’re already going to confront significant cash-flow pressures with the decline in oil prices,” Bill Herbert, an analyst at Simmons in Houston, said in a phone interview. “They’re going to need all the help they can get.” The price cuts may begin to take shape as early as this month, Herbert said. Hydraulic fracturing, in which high-pressure streams of water, sand and chemicals are used to crack rock underground to allow oil and gas to flow, may see the biggest chunk of pricing discounts because it’s the largest part of the cost of drilling a new well. Earnings estimates for service companies that have been cut since last week will continue to be revised lower as analysts don’t usually reduce their forecasts in one go when the outlook for an industry worsens, James Wicklund, an analyst at Credit Suisse in Dallas, said by phone. “We’ve just gotten started.”

Lower prices and lost business will probably reduce about $14.5 billion of net income estimated for the big four service companies in 2015 by as much as 25%, or about $3.6 billion, Wicklund said. Jeff Tillery, an analyst at Tudor Pickering Holt & Co. predicts roughly the same. After two years of declining service prices, providers were finally able to stop the slide this year and start pushing rates back up to help compensate for their own rising costs for fracking materials such as sand. Dave Lesar, chief executive officer of Halliburton, the top provider of fracking work, declared less than two months ago that better days were ahead. “This quarter things are clearly accelerating out of that turn and we do not see momentum slowing any time soon,” Lesar told analysts and investors Oct. 20 on a conference call.

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The Fed has helped blow the bubble.

This Time Is The Same: The Fed Ignores The Shale Bubble (David Stockman)

We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch. Call them monetary bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.” To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.

Never mind. The Fed simply doubled-down. Instead of expanding its balance sheet by 50%, as happened during the eight years between 2000 and 2008, it went into monetary warp drive, ballooning its made-from-thin-air liabilities by 5X in only six years. Yet even after Friday’s ballyhooed jobs report there were three million fewer full-time breadwinner jobs in November 2014 than there were in the early 2000s. That’s right. Two cycles of lunatic monetary expansion and what they have to show for it is two short-lived bursts of part-time job creation that vanish when the underlying financial bubble bursts. So, yes, our monetary central planners forget nothing. It doesn’t matter what the actual results have been.

Like the original Bourbons, the small posse of unelected academics and policy apparatchiks which control the nation’s all-powerful central bank most surely believe they have a divine right to run the printing presses as they see fit—even if it accomplishes nothing for the 99% of Americans who don’t have family offices or tickets to the hedge fund casino. Still, you would think that the purported “labor economist” who is now chair person of the joint would be at least troubled by the chart below. Even liberals like Yellen usually do acknowledge that that the chief virtue of the state is that it purportedly generates “public goods” that contribute to societal welfare—-not that it is a fount of productivity and new wealth generation. For that you need private enterprise and business driven efficiency.

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20% is a big number.

Thanksgiving Weekend Box Office Plunges 20% vs 2013 To 16-Year Low (Alhambra)

The recession-like “stimulus” of recent vintage doesn’t seem to have affected the movie business. The Thanksgiving weekend is typically devoid of tremendous or blockbuster new titles for obvious reasons. However, just like people failed to show up at the mall they also skipped the theater. As I have noted before, this is not because movies are mostly narrowly-tailored junk, as they are, but that 2014 has seen a conspicuous drop in theater revenue despite offering largely the same junk as last year. The weekend following Thanksgiving 2014 was 20% below 2013. But we also have an almost direct comparison of “blockbuster” activity as the second installment of the Hunger Games is nearly 25% behind the first in the same number of days. Having taken in about $257 million (which is still quite good) in 17 days, the first version grabbed $335 million in the same timeframe.

Revenue over the summer was already 15% below 2013 despite having about the same number of “can’t miss” titles. Every single one underperformed every expectation. The “mystery” persists as the only plausible explanation offered is that people are staying home and watching Netflix or Amazon Prime. I think that is a big part of it, but, just as online shopping takes the bite out of holiday spending in-store, that isn’t enough for me to explain the size of these declines. Both movie revenue and bricks and mortar shopping are so far far below all expectations, as especially online spending has failed tremendously to fill the gap this year.

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Where else could it have gone?

Greece Lurches Back Into Crisis Mode (Bloomberg)

Greek stocks fell more than at any point during Europe’s debt crisis today after Prime Minister Antonis Samaras gambled his political future on bringing forward a parliamentary vote on a new head of state. Greek stocks tumbled the most since 1987 and three-year yields surged in response to the prime minister’s move. Unless he can persuade 25 opposition lawmakers to support his choice, Samaras will be forced to call a parliamentary election that anti-austerity party Syriza would be favorite to win. “Investors have taken a second look at Syriza and understood that at this point in time it’s more radical than the traditional left in Greece,” said Nicholas Veron, a fellow at the Bruegel research institute in Brussels. “If Syriza takes over it won’t be a smooth ride.”

Less than a month before Samaras had hoped to lead Greece out of the bailout program that has ravaged the country for the past four years, the resistance to his policies is fueling doubts about whether he can stay the course. While Syriza has pledged to stick with the euro, its plans to roll-back Samaras’s budget cuts evoke memories of the financial chaos that threatened to bust apart the currency union in 2012. Greece’s benchmark stock index dropped 13% and the bond market signaled investors are concerned about short-term disruptions, as the yield on 3-year debt jumped 176 basis points to 8.23%, surpassing 10-year rates. “It’s possibly a good decision, but in the end it’s in the hands of the decision makers in parliament and the population,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels.

Greece’s reform program is “not yet over the hill,” he added. Samaras nominated Stavros Dimas, a 73-year-old former European Union commissioner, for the largely ceremonial post of president. Voting will begin next week, on Dec. 17, with two further rounds possible. Under Greece’s constitution, a supermajority of at least 180 lawmakers in the 300-seat chamber is needed to elect a successor to the incumbent, President Karolos Papoulias. The government has the support of just 155 lawmakers. Failure to install a candidate after three attempts would force Samaras to dissolve parliament.

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Tha Japan elections are a big story this week.

Japan Threatened With Credit Rating Downgrade (CNBC)

Japan’s “A-plus” credit rating is under threat, after Fitch Ratings placed the country’s debt on negative watch on Tuesday. The ratings agency said it could cut Japan’s rating in the first half of next year, following the government’s decision to delay a consumption tax hike to April 2017 from October 2015. “The delay implies it will be almost impossible to achieve the government’s previously-stated objective of reducing the primary budget deficit to 3.3% of GDP by the fiscal year April 2015-March 2016,” said Fitch in a report on Tuesday. Fitch estimates the proportion of Japan’s debt to the size of its gross domestic product would reach 241% by the end of this year, up from 184% at end-2008. The 57 percentage point rise in the ratio would be the second-highest over the period in the A or double-A category after Ireland, the agency noted.

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If you can say a bank belongs to its shareholders, it’s teh latter who pay for the criminal activities of the traders and managers. And nowhere in there does the Justice department see a taks?

Citigroup Sets Aside $2.7 Billion For Legal Costs (BBC)

Michael Corbat, the chief executive of US bank Citigroup, has said the firm is setting aside $2.7bn (£1.7bn) for legal costs in the fourth-quarter. Costs have risen due to US investigations into Citigroup’s behaviour in currency markets, setting the Libor rate, as well as an anti-money-laundering probe. In October, the bank was forced to restate its third-quarter results. It wrote off $600m due to the “rapidly evolving regulatory inquiries”. Mr Corbat made the remarks during a presentation at an investor conference, in which he also said that bank would write down $800m in expenses related to real estate and employee headcount. He said he expects the bank to remain “marginally profitable” during the period. Shares in Citigroup fell 2.5% after his remarks.

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Lovely. And that’s without counting China.

This Is What 6 Years Of Central Bank Liquidity Injections Look Like (Zero Hedge)

Curious how over the past 6 years we got to a point where the market is now so irreparably broken, even the BIS couldn’t take it anymore and threw up all over the the world’s central bankers? Then look no further than the following chart summarizing 6 years of global central bank liquidity injections that have made it imperative to use quotation marks every time one writes the word “market”

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They’re still TBTF, so what does it matter?

Big US Banks Face Capital Requirement of 4.5% on Top of Global Minimum (BBG)

Big U.S. banks face capital surcharges of as much as 4.5% as the Federal Reserve readies new capital rules that single out firms reliant on short-term market funding as posing the greatest systemic risk. The Fed today proposed two methods to calculate what capital surcharges eight big U.S. firms will face on top of those already levied on the world’s largest banks by international regulators. While the central bank stopped short of listing the surcharges for each firm, it said they probably will range from 1% to 4.5% based on 2013 data – exceeding the maximum of 2.5% set under global rules. The aggregate amount the eight banks need to meet the surcharges from current levels is $21 billion, Federal Reserve officials said.

While stiffer rules can lower returns for shareholders of companies that hold onto profits to build capital, the Fed said “almost all” of the firms already meet the new requirements, and all are on their way to meeting them by the end of a phase-in period that runs from 2016 to 2019. The new U.S. regulations will focus in part on how much the banks borrow from institutional investors in short-term contracts, a form of funding deemed as riskier during a crisis. “Reliance on short-term wholesale funding is among the more important determinants of the potential impact of the distress or failure of a systemically important financial firm on the broader financial system,” Fed Governor Daniel Tarullo said. “Unfortunately, the surcharge formula developed by the Basel Committee does not directly take into account reliance on short-term wholesale funding.”

In the wave of rules meant to prevent a repeat of the 2008 financial crisis, the Fed has made global agreements tougher when applying them to U.S. lenders. The eight U.S. firms covered by today’s proposal are JPMorgan, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of New York Mellon and State Street. “The U.S. once again chooses to go its own way and exceed international minimums,” Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc., said before today’s announcement. “If they squeeze the big banks too much, they’ll force some out of some businesses.”

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America will pay a dear price for these crimes.

Stop Believing The Lies: America Tortured More Than ‘Some Folks’ (Guardian)

The torture defenders from the CIA and the Bush administration probably won’t even make a serious attempt to say they didn’t torture anyone – just that it was effective, that there were “serious mistakes”, but that “countless lives have been saved and our Homeland is more secure” – with a capital H. This highlights the mistake of the Senate committee, in a way. Instead of focusing on the illegal nature of the torture, Senator Dianne Feinstein’s investigators worked to document torture’s ineffectiveness. The debate, now, is whether torture worked. It clearly didn’t. But the debate should be: Why the hell aren’t these torturous liars in jail?

Worse still, the CIA has still largely succeeded in stripping the landmark report of anything that could lead to accountability. The agents who were not only protected from discipline for their actions but were promoted now have their names completely redacted. So, too, are the names of the dozens of countries that helped the CIA carry out its torture regime. That includes many of the world’s worst dictators – the very men America now claims to hate, including Egypt’s Hosni Mubarak, Syria’s Bashar al-Assad, and Libya’s Muammar Gaddafi.

But make no mistake: there’s still an extraordinary amount to take away from this report. If there is one tragic story, out of the many, that is emblematic of the CIA program, as its supporters defend it in the days, it’s that of Gul Ruhman. It may be two stories – it’s hard to know, so much has been redacted and the atrocities are so countless – but at least one Gul Ruhman we know was tortured at the notorious CIA black site known as the Salt Pit, chained to the floor and frozen to death. The CIA’s inspector general referred this person’s case to CIA leadership for discipline, but was overruled. Four months after the incident, the officer who gave the order that led to Rahman’s death was recommended for a $2,500 “cash reward” for his “consistently superior work”.

Footnote 32 explains why a dead prisoner ended up in CIA custody in the first place: “Gul Ruhman, another case of mistaken identity.”

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“Ignorance is not just strength – it is the most awesome force in the universe. Consider this: knowledge is always limited and specific, but ignorance is infinite and completely general ..”

Defeat is Victory (Dmitry Orlov)

America is the world’s indispensable nation, world’s (second) greatest economic power (but rising fast), and American leadership is respected throughout the world. When President Obama said so in a recent speech he gave in China, the audience did not at all laugh out loud right in his face, roll their eyes, make faces or move their heads side to side slowly while frowning.

How can you avoid recognizing the importance of such things, and the fact that they spell DEFEAT? Easy! Ignorance to the rescue! Ignorance is not just strength – it is the most awesome force in the universe. Consider this: knowledge is always limited and specific, but ignorance is infinite and completely general; knowledge is hard to convey, and travels no faster than the speed of light, but ignorance is instantaneous at all points in the known and unknown universe, including alternate universes and dimensions of whose existence we are entirely ignorant. In short, there is a limit to how much you can know, but there is no limit at all to how much you don’t know but think you do!

Here is something that you probably think you know. The American empire is an “empire of chaos.” Yes, it sort of fails somehow to achieve peace, prosperity, democracy, stability, avert humanitarian crises, or stop lots of horrible crimes. But it does achieve chaos. What’s more, it achieves a wunnerful new type of chaos just invented, called “controlled chaos.” It’s much better than the old kind; sort of like “clean coal” – which you can rub all over yourself, go ahead, try it! Yes, there are naysayers out there that say things like “You reap what you sow, and if you sow chaos, you shall reap chaos.” I guess they just don’t like chaos. To each his own. Whatever.

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They have to do research to figure that out?!

Rising Inequality ‘Significantly’ Curbs Growth (CNBC)

The chasm between the richest and poorest is at a 30-year high in developed countries, dragging down world economic growth, according to a new international report. Worsening income inequality is estimated by the Organisation for Economic Co-operation and Development (OECD) to have knocked nearly 9 percentage points off growth in the U.K. between 1990 and 2010, and between 6 and 7 percentage points off growth in the U.S. “This long-term trend increase in income inequality has curbed economic growth significantly,” said the OECD, which is made up of 34 major economies, in a report out Tuesday.

Looking ahead, the organization forecast that over a 25 year period, inequality would reduce growth by an average of 0.35% points per year in OECD countries. “The biggest factor for the impact of inequality on growth is the gap between lower income households and the rest of the population,” said the OECD. “These findings imply that policy must not (just) be about tackling poverty, it also needs to be about addressing lower incomes more generally.” Worst hit between 1990 and 2010 were Mexico and New Zealand, where the OECD estimated that rising inequality had knocked more than 10 percentage points off growth. “On the other hand, greater equality prior to the crisis helped increase GDP per capita in Spain, France and Ireland,” said the OECD.

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We should never let this through. Once signed, it’ll be very hard to get rid off, and it benefits the wrong people.

TTIP Divides A Continent As EU Negotiators Cross The Atlantic (Guardian)

Rarely has a trade agreement invited such hyperbole and paranoia. The Transatlantic Trade and Investment Partnership (TTIP) – or proposed free trade pact between the US and the European Union – has triggered apocalyptic prophecies: the death of French culture; an invasion of transatlantic toxic chickens into Germany; and Britain’s cherished NHS will become a stripped-down Medicare clone. From the point of view of free-trade cheerleaders, EU carmakers will more than double their sales, Europe will be seized by a jobs and growth bonanza and city halls from Chicago to Seattle will beg European firms to build their roads and schools. The world’s biggest trading nations will have no choice but to play by the west’s rules in the new world created by TTIP. Such are some of the claims made for TTIP which is now stoking a propaganda war on a scale never seen before in the arcane world of tariffs and non-tariff trade negotiations.

“It’s the most contested acronym in Europe,” said Cecilia Malmström of Sweden, the EU trade commissioner about to take charge of the European side of the negotiations. She stepped into the fray on Sunday, her first trip to Washington since taking up her post in November. TTIP dominates her intray. Eighteen months after the launch and seven rounds of talks, everything remains up in the air. The Americans are worried. Those in Brussels running the negotiations sound crestfallen. The opposition in Europe to a transatlantic free trade area believes it has the momentum, buoyed by scare stories regularly amplified by the European media. A petition against the trade pact surpassed the 1m mark this week. It will be handed to Jean-Claude Juncker, the European commission chief, in Brussels on Tuesday, as a present on his 60th birthday. “There is mistrust,” Matthew Barzun, the US ambassador in London, told the Guardian. A key EU official put it another way: “[TTIP is] more sensitive politically in Europe than in the US.”

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“The risk to the world “is always there” while the outbreak continues ..”

Ebola Virus Still ‘Running Ahead Of Us’, Says WHO (BBC)

The Ebola virus that has killed thousands in West Africa is still “running ahead” of efforts to contain it, the head of the World Health Organization has said. Director general Margaret Chan said the situation had improved in some parts of the worst-affected countries, but she warned against complacency. The risk to the world “is always there” while the outbreak continues, she said. She said the WHO and the international community failed to act quickly enough. The death toll in Guinea, Liberia and Sierra Leone stands at 6,331. More than 17,800 people have been infected, according to the WHO. “In Liberia we are beginning to see some good progress, especially in Lofa county [close to where the outbreak first started] and the capital,” said Dr Chan.

Cases in Guinea and Sierra Leone were “less severe” than a couple of months ago, but she said “we are still seeing large numbers of cases”. Dr Chan said: “It’s not as bad as it was in September. But going forward we are now hunting the virus, chasing after the virus. Hopefully we can bring [the number of cases] down to zero.” The official figures do not show the entire picture of the outbreak. In August, the WHO said the numbers were “vastly under-estimated”, due to people not reporting illnesses and deaths from Ebola. Dr Chan said the quality of data had improved since then, but there was still further work to be done.

She said a key part of bringing the outbreak under control was ensuring communities understood Ebola. She said teams going into some areas were still being attacked by frightened communities. “When they see people in space suits coming into their village to take away their loved ones, they were very fearful. They hide their sick relatives at home, they hide dead bodies. “[This is] extremely dangerous in terms of spreading disease. So we must bring the community on our side to fight the Ebola outbreak. Community participation is a critical success factor for Ebola control. “In all the outbreaks that WHO were able to manage successfully – that was a success element and this [is] not happening in this current situation.”

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Dec 062014
 
 December 6, 2014  Posted by at 12:01 pm Finance Tagged with: , , , , , , , ,  1 Response »


Louise Rosskam General store in Lincoln, Vermont Jul 1940

The ‘You Want Fries With That?’ Jobs Report (CNBC)
Full-Time Jobs Down 150K, Participation Rate Stays At 35-Year Lows (Zero Hedge)
US Factory Orders Tumble, Miss By Most Since January (Zero Hedge)
The New Economics Of Oil (Economist)
More than $150 Billion of Oil Projects Face the Axe in 2015 (Reuters)
Energy Bond Crash Contagion Suggests Oil Will Stay Lower For Longer (Zero Hedge)
Natural Gas: The Fracking Fallacy (Nature)
Draghi’s Authority Drains Away As Half ECB Board Joins Mutiny (AEP)
EU Sanctions Relief For Russia’s Top Banks, Oil Companies (RT)
Crashing Yen Leads To Record Number Of Japanese Bankruptcies (Zero Hedge)
A Comprehensive Breakdown of America’s Economic House of Cards (Beversdorf)
S&P Wakes Up, Cuts Italy to One Notch Above Junk (WolfStreet)
Russia’s Gazprom Receives Prepayment From Ukraine For Gas Supplies (Reuters)
Reckless Congress ‘Declares War’ on Russia (Ron Paul)
Chief Constable Warns Against ‘Drift Towards (Thought) Police State’ (Guardian)
The Tragedy of America’s First Black President (Spiegel)
Adapting To A Warmer Climate To Cost Three Times As Much As Thought (Guardian)
One Man’s 40-Year Fight Against Africa’s Ivory Poachers (John Vidal)

“Friday’s turbocharged jobs headline came thanks to seasonal adjustments and other wizardry at the Bureau of Labor Statistics ..”

The ‘You Want Fries With That?’ Jobs Report (CNBC)

Consider it a brutal lesson in government math. Friday’s turbocharged jobs headline came thanks to seasonal adjustments and other wizardry at the Bureau of Labor Statistics, which reported that U.S. job growth hit 321,000 even as the unemployment rate held steady at 5.8%. Those numbers, courtesy of establishment survey estimates, sound nice on the surface, and they certainly present reasons if not for unbridled optimism then at least confidence that the job market continues to mend and is on a pretty steady trajectory higher. However, the household survey, which is an actual head count, presents details that show there’s still plenty of work to do. A few figures to consider: That big headline number translated into just 4,000 more working Americans. There were, at the same time, another 115,000 on the unemployment line. That disparity can be explained through an expanding labor force, which grew 119,000, though the participation rate among that group remained at 62.8%, which is just off the year’s worst level and around a 36-year low.

But wait, there’s more: The jobs that were created skewed heavily toward lower quality. Full-time jobs declined by 150,000, while part-time positions increased by 77,000. Analysts, though, mostly gushed over the report. Fixed income strategist David Harris at Schroders said it was “unquestionably strong and significantly exceeded expectations.” Economist Lindsey Piegza at Sterne Agee called it “impressive,” while Paul Ashworth at Capital Economics termed the headline gain “massive” with “labor market conditions improving at breakneck speed.” As for the unseemly nature of the internals, Michelle Meyer of BofAML said the “gift” of a report should override those concerns. “Household jobs were only up 4,000, which on the surface is a disappointment. However, this follows an outsized gain of 683,000 in October and 232,000 in September, leaving the three-month moving average still up a healthy 306,000,” Meyer said in a report for clients. “The monthly survey of household jobs tends to be quite noisy, suggesting caution when reacting to a given month of data.”

But there were several other points not to like in the report. Families, for instance, also were under pressure: There were 110,000 fewer married men at work, while married women saw their ranks shrink by 59,000. And there was an exceedingly huge disparity between expectations and results: ADP’s report Wednesday showed just 208,000 new private sector positions, compared with the 314,000 in the BLS report. That’s a miss of 51%, the worst showing for ADP’s count since April 2011 even though the firm has touted its partnership since then with Moody’s Analytics as a way to make its count more accurate. Some Wall Street analysts had been scaling back their calls, and Goldman Sachs, which has had a good history of picking the number, was expecting gains of 220,000. Even the most buoyant economist on the street, Joe LaVorgna at Deutsche Bank, was looking for 250,000. [..]

Finally, there was a rather startling numerical coincidence: That same 321,000 figure was repeated later in the report—as the total number of bar and restaurant jobs created over the past 12 months. Taken in total, a peek beneath the hood of these numbers suggests a job market that still has a ways to go.

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“.. the Household Survey was nowhere close to confirming the Establishment Survey data, suggesting jobs rose only by 4K from 147,283K to 147,287K, and furthermore, the breakdown was skewed fully in favor of Part-Time jobs, which rose by 77K while Full-Time jobs declined by 150K.”

Full-Time Jobs Down 150K, Participation Rate Stays At 35-Year Lows (Zero Hedge)

While the seasonally-adjusted headline Establishment Survey payroll print reported by the BLS moments ago may be indicative of an economy which the Fed will soon have to temper in an attempt to cool down, a closer read of the November payrolls report shows several other things that were not quite as rosy. First, the Household Survey was nowhere close to confirming the Establishment Survey data, suggesting jobs rose only by 4K from 147,283K to 147,287K, and furthermore, the breakdown was skewed fully in favor of Part-Time jobs, which rose by 77K while Full-Time jobs declined by 150K.

And then for those keeping tabs on the composition of the labor force, the same adverse trends indicated over the past 4 years have continued, with the participation rate remaining flat at 62.8%, essentially the lowest print since 1978, driven by a 69K worker increase in people not in the labor force.

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” .. the only other time we had 3 straight months of factory orders declines was in the recession and the 2012 decline was saved by QE3.”

US Factory Orders Tumble, Miss By Most Since January (Zero Hedge)

But, but, but payrolls data was awesome!! US Factory Orders tumbled -0.7% in October (missing 0.0% expectations) for the 3rd month in a row (for the first time since June 2012). Rather notably, the only other time we had 3 straight months of factory orders declines was in the recession and the 2012 decline was saved by QE3. The data was ugly across the board: Non-durable orders -1.5%, non-defense, ex-air tumbled -1.6%, and inventories-to-shipments levels are at the year’s highs. More problematically for GDP enthusiasts, October inventories of manufactured nondurable goods decreased -0.5% to $249.0 billion driven by petroleum and coal products (but wait, lower oil prices are unequivocally good right?)

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The Economist has no idea what is going on. Not the first time. All they see is a rising global GDP because of lower oil prices.

The New Economics Of Oil (Economist)

The official charter of OPEC states that the group’s goal is “the stabilisation of prices in international oil markets”. It has not been doing a very good job. In June the price of a barrel of oil, then almost $115, began to slide; it now stands close to $70. This near-40% plunge is thanks partly to the sluggish world economy, which is consuming less oil than markets had anticipated, and partly to OPEC itself, which has produced more than markets expected. But the main culprits are the oilmen of North Dakota and Texas. Over the past four years, as the price hovered around $110 a barrel, they have set about extracting oil from shale formations previously considered unviable. Their manic drilling – they have completed perhaps 20,000 new wells since 2010, more than ten times Saudi Arabia’s tally – has boosted America’s oil production by a third, to nearly 9m barrels a day (b/d). That is just 1m b/d short of Saudi Arabia’s output. The contest between the shalemen and the sheikhs has tipped the world from a shortage of oil to a surplus.

Cheaper oil should act like a shot of adrenalin to global growth. A $40 price cut shifts some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off—equivalent to a 2% pay rise. Big importing countries such as the euro area, India, Japan and Turkey are enjoying especially big windfalls. Since this money is likely to be spent rather than stashed in a sovereign-wealth fund, global GDP should rise. The falling oil price will reduce already-low inflation still further, and so may encourage central bankers towards looser monetary policy. The Federal Reserve will put off raising interest rates for longer; the European Central Bank will act more boldly to ward off deflation by buying sovereign bonds.

There will, of course, be losers. Oil-producing countries whose budgets depend on high prices are in particular trouble. The rouble tumbled this week as Russia’s prospects darkened further. Nigeria has been forced to raise interest rates and devalue the naira. Venezuela looks ever closer to defaulting on its debt. The spectre of defaults and the speed and scale of the price plunge have unnerved financial markets. But the overall economic effect of cheaper oil is clearly positive. Just how positive will depend on how long the price stays low. That is the subject of a continuing tussle between OPEC and the shale-drillers. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.

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But this the reality: loss of investment, defaults and job losses.

More than $150 Billion of Oil Projects Face the Axe in 2015 (Reuters)

Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, data shows, potentially curbing supplies by the end of the decade. As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil. Now the outlook for onshore and offshore developments – from the Barents Sea to the Gulf or Mexico – looks as uncertain as the price of oil, which has plunged by 40% in the last five months to around $70 a barrel.

Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy. But with analysts forecasting oil to average $82.50 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, head of analysis at Rystad Energy Per Magnus Nysveen said. “At $70 a barrel, half of the overall volumes are at risk,” he said. Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining. Of those 20 billion barrels, around half are located in Canada’s oil sands and Venezuela’s tar sands, according to Nysveen.

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“.. credit markets – the most sensitive to cashflows at this stage – are signalling either prices have considerably further to fall or will remain at these thinly-profitable-if-at-all prices for considerably longer ..”

Energy Bond Crash Contagion Suggests Oil Will Stay Lower For Longer (Zero Hedge)

When we first explained to the public that the excessive leverage and currently squeezed cashflow of many US oil producers could “trigger a broader high-yield market default cycle,” the world’s smartest TV-anchors shrugged off lower oil prices as ‘unequivocally good’ for all. Now, as a 40% collapse in new well permits and liquidations occurring at the well-head, the world outside of credit markets is starting to comprehend the seriousness of the crash of a sector that was responsible for 93% of jobs created in this ‘recovery’. The credit risk of HY energy corporates has more than doubled to a record 815bps (over risk-free-rates) crushing any hopes of cheap funding/rolling debt loads. Suddenly expectations of 1/3rd of energy firms restructuring is not so crazy… The chart below suggests another problem for hopers… credit markets – the most sensitive to cashflows at this stage – are signalling either prices have considerably further to fall or will remain at these thinly-profitable-if-at-all prices for considerably longer…

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.. “we’re setting ourselves up for a major fiasco“ ..

Natural Gas: The Fracking Fallacy (Nature)

When US President Barack Obama talks about the future, he foresees a thriving US economy fuelled to a large degree by vast amounts of natural gas pouring from domestic wells. “We have a supply of natural gas that can last America nearly 100 years,” he declared in his 2012 State of the Union address. Obama’s statement reflects an optimism that has permeated the United States. It is all thanks to fracking — or hydraulic fracturing — which has made it possible to coax natural gas at a relatively low price out of the fine-grained rock known as shale. Around the country, terms such as ‘shale revolution’ and ‘energy abundance’ echo through corporate boardrooms.

Companies are betting big on forecasts of cheap, plentiful natural gas. Over the next 20 years, US industry and electricity producers are expected to invest hundreds of billions of dollars in new plants that rely on natural gas. And billions more dollars are pouring into the construction of export facilities that will enable the United States to ship liquefied natural gas to Europe, Asia and South America. All of those investments are based on the expectation that US gas production will climb for decades, in line with the official forecasts by the US Energy Information Administration (EIA). As agency director Adam Sieminski put it last year: “For natural gas, the EIA has no doubt at all that production can continue to grow all the way out to 2040.”

But a careful examination of the assumptions behind such bullish forecasts suggests that they may be overly optimistic, in part because the government’s predictions rely on coarse-grained studies of major shale formations, or plays. Now, researchers are analysing those formations in much greater detail and are issuing more-conservative forecasts. They calculate that such formations have relatively small ‘sweet spots’ where it will be profitable to extract gas. The results are “bad news”, says Tad Patzek, head of the University of Texas at Austin’s department of petroleum and geosystems engineering, and a member of the team that is conducting the in-depth analyses. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we’re setting ourselves up for a major fiasco”.

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“.. a full six months after Mr Draghi first talked loosely of a €1 trillion blitz to head off deflation risks [..] the ECB balance sheet has shrunk by over €100bn.”

Draghi’s Authority Drains Away As Half ECB Board Joins Mutiny (AEP)

The European Central Bank is facing a full-blown leadership crisis. Mario Draghi’s authority is ebbing, with powerful implications for financial markets and the long-term fate of monetary union. Both Die Zeit and Die Welt report that three members of the ECB’s six-strong executive board refused to sign off on Mr Draghi’s latest statement, an unprecedented mutiny in the sanctum sanctorum of the ECB’s policy making machinery. The dissenters are reportedly Germany’s Sabine Lautenschläger, Luxembourg’s Yves Mersch, and more surprisingly France’s Benoît Cœuré, an indication that Paris is still hoping to avoid a breakdown in relations with Berlin over the management of EMU. The reality is that a full six months after Mr Draghi first talked loosely of a €1 trillion blitz to head off deflation risks, almost nothing has actually happened. The ECB balance sheet has shrunk by over €100bn. Talk has achieved a weaker euro but that is not monetary stimulus. It does not offset the withdrawal of $85bn of net bond purchases by the US Federal Reserve for the global economy as a whole.

It is a zero-sum development. The clash comes at a delicate moment amid Italian press reports that Mr Draghi may soon go home, drafted to take over the Italian presidency as the 89-year old Giorgio Napolitano prepares to step down. Such an outcome is unlikely. Yet there is no doubt that Mr Draghi has pressing family reasons to return to Rome, and he barely disguises his irritation with Frankfurt any longer. This incendiary column in the ARD Tagesschau gives a flavour of what is being said in Germany. Fairly or not, Mr Draghi is accused of losing his temper, refusing to listen to objections, cutting off Bundesbank chief Jens Weidmann, and retreating to a “narrow kitchen cabinet”. The latest dispute was over a change in the wording of the ECB statement on its balance sheet. While it appears semantic and trivial – whether the €1 trillion boost is “expected” or “intended” – the underlying clash is serious. The hawks will not be bounced into full-fledged quantitative easing before they are ready. They are patently playing for time, still hoping that the Rubicon may never be crossed.

Mrs Lautenschläger raised eyebrows last weekend by violating the pre-meeting ‘Purdah’, warning that the bar on QE is still very high. She decried “activism” for the sake of it and warned that QE would do more harm than good at this point. Purchases of government bonds amount to fiscal transfer. They create a “serious incentive problem”, she said. She is of course backed by the Bundesbank’s Jens Weidmann, who said this morning that monetary policy is too loose for German needs – even as the Bundesbank halves its economic growth forecast for Germany to 1pc next year, and even as the share of goods in Germany’s price basket in deflation reaches 31.2pc. Mr Weidmann says the crash in oil prices is a “mini-stimulus”, seeming to imply that it therefore reduces any need for QE. The Germans suspect that Mr Draghi is trying rush through sovereign QE so that there will be a lender of last resort in place for Club Med bonds next year as banks sell their holdings, following the repayment of ECB loans (LTROs).

Italian lenders have doubled their portfolio of Italian state bonds (BTPs) to roughly €400bn since Mr Draghi launched his first €1 trillion carry trade three years ago. Mediobanca expects this to fall by €100bn in 2015. Who is going to buy this flood of supply on the market, and at what price? Mr Draghi made clear that the ECB can override Germany on bond purchases if need be. “We don’t need to have unanimity,” he said, though he could hardly have answered otherwise when questioned explicitly on the point. One can imagine the scandal if he had suggested instead that Germany has a veto.

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Seen any coverage of this in the western press?

EU Sanctions Relief For Russia’s Top Banks, Oil Companies (RT)

The European Union has amended sanctions against Russia’s biggest lenders like Sberbank and VTB on long-term financing, and eased some sanctions on the oil industry. The EU says Russia’s biggest lenders – Sberbank, VTB, Gazprombank, Vnesheconombank and Rosselkhozbank – will now be allowed access to long –term financing should the solvency of their European subsidiaries be at risk. The announcement released Friday refers to “loans that have a specific and documented objective to provide emergency funding to meet solvency and liquidity criteria for legal persons established in the Union, whose proprietary rights are owned for more than 50% by any entity referred to in Annex III [Russian banks – Ed.].” The EU has also specified the terms and conditions on which it can lift the ban on providing equipment for oil exploration.

Its supply is still banned to Russia itself, or the exclusive economic zone and offshore territories. However, EU said it may “grant an authorization where the sale, supply, transfer or export of the items is necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment.” This basically clarifies the position of the latest set of EU sanctions. The notion of “Arctic oil exploration” means the embargo is applied to oil exploration on the offshore Arctic. “Deep water exploration” means any operation extracting oil carried out deeper than 150 meters below the surface.

The sanctions target the finance, energy and defense sectors. In July 2014 the EU issued a “sectoral list” which includes Sberbank, VTB, Gazprombank, Russian Agricultural Bank (Rosselkhozbank) and Vnesheconombank. The lenders were cut off from long-term (over 30 days) international financing. The EU has banned three Russian energy companies Rosneft, Gazpromneft and Transneft from raising long-term debt on European capital markets. It has also halted services Russia needs to explore oil and gas in the Arctic, deep sea and shale extraction projects. On Friday Russia’s gas major Gazprom said it had inked a €390 million loan agreement with UniCredit bank. The EU however refused to comment on the news, with the EU foreign affairs department saying that the implementation of adopted restrictive measures is the responsibility of each EU country’s national authorities.

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Well done Shinzo!

Crashing Yen Leads To Record Number Of Japanese Bankruptcies (Zero Hedge)

Last week, Zero Hedge first showed a chart so simple, even a Krugman could get it: at this point (and really ever since USDJPY 110 and higher), any incremental Yen devaluation is destructive for the Japanese economy, leading to an unprecedented surge in corporate bankruptcies and, ultimately, economic depression.

The obvious logic here led even the Keynesian studs at Goldman to declare that “Further yen depreciation could be a net burden.” Unfortunately for Abe and Kuroda, halting the Yen devaluation here would be suicide, as Japan now needs its currency to devalue every single day to mask the fact of the underlying economic devastation, or else the Japanese people may (and should) vote Abe out, which would lead to a prompt end to Abenomics, an epic collapse in the Nikkei, and put thousands of weak-Yen chasing Mrs. Watanabes in margin call purgatory. Sadly, that will not happen. We say “sadly” because an end end to Abenomics, which is really Krugmanomics now, is the only thing that could save Japan now. And just to prove that, here is Japan Times confirming what we said, with a report that “Corporate bankruptcies linked to the yen’s slide hit a new record in November, highlighting the strains on small and midsize companies as Prime Minister Shinzo Abe campaigns for re-election on his deflation-busting economic strategy.”

42 of the companies that failed in November cited the weakened currency as a contributing cause, bringing total bankruptcies associated with the yen so far this year to 301, almost triple that of the same period in 2013, according to a survey by Teikoku Databank Ltd. It said surging costs of imported food, metals and construction materials are squeezing small companies. The yen broke through 120 per dollar on Thursday in New York for the first time since 2007, as Abe’s handpicked Bank of Japan governor pumps a record amount of funds into the economy to stoke inflation. [..] “The business conditions for small and medium-size companies are severe,” said Norio Miyagawa, an economist at Mizuho Securities Co. “The more the yen weakens, the more the drawbacks will become evident, unless the benefits big companies are seeing spill over to consumption through an increase in wages.”

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“There is simply no way to escape the need for ever more debt once you get locked into this economic catch 22.”

A Comprehensive Breakdown of America’s Economic House of Cards (Beversdorf)

If we face the worse case projection, let’s call it 200% debt to GDP by 2039, 10 yr Treasuries cannot be more than around 2% yield in order to remain within the historical debt service to GDP range. This is where things really break down. Because if we cannot entice lenders today at 2.5% or 3% interest with 70% debt to GDP there is simply no way lenders will be attracted at 2% with debt to GDP at 200%. So let’s think about what this means. Now the CBO budget projections predict deficits will increase forever after 2018. And we will see why this is true shortly. This will require massive amounts of debt over the next 25 years.

And if we don’t have willing lenders we’re back to monetizing most of that debt as we’ve done for the past several years. This means massive amounts of money printing. And so we put ourselves into a downward spiral of devaluation, which means inflation. Inflation perpetuates larger deficits as spending increases and even more money printing and so the downward spiral worsens. This will be made much worse by the winding down currently taking place of the petrodollar as demand for dollars will see significant declines. Alternatively to monetizing debt, we can raise interest rates to attract lenders to the market. Let’s say we get to the 20 year average of 7.5%. That means 7.5% of 200% of GDP, so 15% of GDP. Well, we’ve already stated that total tax revenues equate to about 17% of GDP.

This means total debt service will eat up virtually every bit of tax revenue, again leading to massive deficits so even more debt will be required to cover all other expenditures. That leads to more borrowing and worsening balance sheet metrics requiring even higher interest rates. And so we can see very quickly this alternative also leads to a downward spiral. Further, we see that under both scenarios of monetizing debt or incentivizing lenders, a debt driven economy will result in endlessly rising deficits requiring ever more debt. There is simply no way to escape the need for ever more debt once you get locked into this economic catch 22.

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And bond yields keep falling … A topsy turvy world, until it turns back around and right side up with a vengeance.

S&P Wakes Up, Cuts Italy to One Notch Above Junk (WolfStreet)

Italy has one of the most troubled economies in the EU. Businesses and individuals are buckling under confiscatory taxes that everyone is feverishly trying to dodge. Banks are stuffed with non-performing loans that have jumped 20% from a year ago. The economy is crumbling under an immense burden of government debt that, unlike Japan, Italy cannot slough off the easy way by devaluing its own currency and stirring up a big bout of inflation – because it doesn’t have its own currency. Devaluation and inflation used to be Italy’s favorite methods of dealing with its economic problems. It went like this: Politicians made promises that they knew couldn’t be kept but that bought a lot of votes. When everything ground down as industries were getting hammered by competition from across the border, the government stirred up inflation, and then over some weekend, the lira would be devalued.

It was bitter medicine. It was painful. It didn’t even cure anything. It impoverished the people. But it temporarily made Italy competitive with its neighbors once again. Most recently, Italy devalued in 1990 and then again 1992 against the European Exchange Rate Mechanism, a predecessor to the euro. Having to take this bitter medicine time and again had made Italians the most eager to adopt the euro. The idea of a currency that would be out of reach of politicians and that would function as a reliable store of value, run by the Germans as if it were the mark, and in turn, keep politicians honest – all that seemed like paradise. But it just hasn’t kept Italian politicians honest. Only this time, their favorite tools are gone. The economy is now a mess.

Economic “growth” has been negative or zero for the last 13 quarters. And the country’s debt, no matter of how hard the government tries to fudge the numbers, just keeps ballooning. So, on Friday, ratings agency Standard & Poor’s woke up and cut Italy’s sovereign credit rating to BBB–, just one notch above junk, which is the dreaded BB. It cited the economy’s perennial shrinkage and lousy competitiveness. The deteriorating economic fundamentals and a political unwillingness to address the deficit were making the mountain of public debt increasingly unsustainable. The ECB has been busy doing “whatever it takes” to keep the cost of funding this wobbly construct as low as possible. It lowered its own benchmark interest rate to near zero. It instituted negative deposit rates, it’s contemplating a big round of QE, all to keep Italy (and some of its cohorts) afloat a little while longer.

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Wonder where they got the money.

Russia’s Gazprom Receives Prepayment From Ukraine For Gas Supplies (Reuters)

Russian natural gas producer Gazprom said on Saturday it had received a prepayment of $378.22 million from Ukraine for natural gas supplies, paving the way for the first shipments to Kiev since Moscow cut supplies in June. Ukraine’s state energy firm, Naftogaz, said on Friday it had transferred the sum to Gazprom for December. A Gazprom spokesman confirmed the money had been received. In line with a deal signed by Naftogaz and Gazprom in October, flows to Ukraine from Russia, which were severed in a dispute over prices and debts, will resume within 48 hours from when the Russian firm receives the transfer. Naftogaz did not say how much gas it planned to buy, but earlier the energy ministry said this could be about 1 billion cubic metres. Russian news agencies also put the amount at 1 billion cubic metres on Saturday.

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Ron Paul has had it right all the way since this nonsense started. But the Putin bashing in the western media keeps running at a fever pitch.

Reckless Congress ‘Declares War’ on Russia (Ron Paul)

Today the US House passed what I consider to be one of the worst pieces of legislation ever. H. Res. 758 was billed as a resolution “strongly condemning the actions of the Russian Federation, under President Vladimir Putin, which has carried out a policy of aggression against neighboring countries aimed at political and economic domination.” In fact, the bill was 16 pages of war propaganda that should have made even neocons blush, if they were capable of such a thing. These are the kinds of resolutions I have always watched closely in Congress, as what are billed as “harmless” statements of opinion often lead to sanctions and war. I remember in 1998 arguing strongly against the Iraq Liberation Act because, as I said at the time, I knew it would lead to war. I did not oppose the Act because I was an admirer of Saddam Hussein – just as now I am not an admirer of Putin or any foreign political leader – but rather because I knew then that another war against Iraq would not solve the problems and would probably make things worse.

We all know what happened next. That is why I can hardly believe they are getting away with it again, and this time with even higher stakes: provoking a war with Russia that could result in total destruction! If anyone thinks I am exaggerating about how bad this resolution really is, let me just offer a few examples from the legislation itself: The resolution (paragraph 3) accuses Russia of an invasion of Ukraine and condemns Russia’s violation of Ukrainian sovereignty. The statement is offered without any proof of such a thing. Surely with our sophisticated satellites that can read a license plate from space we should have video and pictures of this Russian invasion. None have been offered. As to Russia’s violation of Ukrainian sovereignty, why isn’t it a violation of Ukraine’s sovereignty for the US to participate in the overthrow of that country’s elected government as it did in February?

We have all heard the tapes of State Department officials plotting with the US Ambassador in Ukraine to overthrow the government. We heard US Assistant Secretary of State Victoria Nuland bragging that the US spent $5 billion on regime change in Ukraine. Why is that OK? The resolution (paragraph 11) accuses the people in east Ukraine of holding “fraudulent and illegal elections” in November. Why is it that every time elections do not produce the results desired by the US government they are called “illegal” and “fraudulent”? Aren’t the people of eastern Ukraine allowed self-determination? Isn’t that a basic human right? The resolution (paragraph 13) demands a withdrawal of Russia forces from Ukraine even though the US government has provided no evidence the Russian army was ever in Ukraine. This paragraph also urges the government in Kiev to resume military operations against the eastern regions seeking independence.

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Wise man. So no-one will listen.

Chief Constable Warns Against ‘Drift Towards (Thought) Police State’ (Guardian)

The battle against extremism could lead to a “drift towards a police state” in which officers are turned into “thought police”, one of Britain’s most senior chief constables has warned. Sir Peter Fahy, chief constable of Greater Manchester, said police were being left to decide what is acceptable free speech as the efforts against radicalisation and a severe threat of terrorist attack intensify. It is politicians, academics and others in civil society who have to define what counts as extremist ideas, he says. Fahy serves as chief constable of Greater Manchester police and also has national counter-terrorism roles. He is vice-chair of the police’s terrorism committee and national lead on Prevent, the counter radicalisation strategy. He stressed he supported new counter-terrorism measures unveiled by the government last week, including bans on alleged extremist speakers from colleges.

Fahy said government, academics and civil society needed to decide where the line fell between free speech and extremism. Otherwise, he warned, it would be decided by the security establishment, so-called “securocrats”, including the security services, government and senior police chiefs like Fahy. Speaking to the Guardian, Fahy said: “If these issues [defining extremism] are left to securocrats then there is a danger of a drift to a police state”. He added: “I am a securocrat, it’s people like me, in the security services, people with a narrow responsibility for counter-terrorism. It is better for that to be defined by wider society and not securocrats.” Fahy said officers were also having to decide issues such as when do anti-gay or anti-women’s rights sentiments cross the line, as well as when radical Islam veers into extremism: “There is a danger of us being turned into a thought police,” he said. “This securocrat says we do not want to be in the space of policing thought or police defining what is extremism.”

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Der Spiegel has a go at this. Interesting in that it is a view from abroad, but not all that good.

The Tragedy of America’s First Black President (Spiegel)

At the beginning of his term, Barack Obama likely never imagined that a new wave of violence would take place during his presidency. But it is not an accident. After all, he himself raised hopes that progress would be made. Yet after six years in office, little has changed for blacks in the US. Obama held the speech that raised the hopes of black Americans on March 18, 2008 as a candidate in Philadelphia. It was a reaction to comments made by his Chicago pastor and friend Jeremiah Wright, who had accused the US government of crimes against blacks. “God damn America … for killing innocent people,” he intoned from the pulpit in a sermon that threatened to derail Obama’s candidacy. “The profound mistake of Reverend Wright’s sermons is not that he spoke about racism in our society,” Obama said in his speech. “It’s that he spoke as if our society was static; as if no progress has been made; as if this country … is still irrevocably bound to a tragic past.”

Obama was referring to a time when blacks were forced to serve whites as slaves; a time when they weren’t even second-class citizens, instead being treated as commodities to be raised and sold at market. But he also was referring to the decades leading up to the 1960s when blacks were not allowed to use the same park benches as whites and were forced to sit at the back of the bus. In that speech, Obama promised to create “a more perfect union,” in reference to the preamble of the US Constitution. He sought to finally fulfill the promise made 50 years earlier by fellow Democrat Lyndon B. Johnson. In remarks at the signing of the Civil Rights Bill on July 2, 1964, Johnson said he hoped to “eliminate the last vestiges of injustice in our beloved country” and to “close the springs of racial poison.” Many observers believe that Obama’s speech was a decisive factor in his becoming the first black president in American history half a year later. It is still widely considered to be one of his best.

But the final push to realize Johnson’s dream has still not taken place. The situation today gives the impression that African-Americans are adequately represented “without giving them the possibility to really take advantage” of that representation, says Kareem Crayton, a law professor at the University of North Carolina. Eduardo Bonilla-Silva, sociology professor at Duke University, agrees. “Having a black president doesn’t mean much in our day-to-day lives.” [..] “It’s the age of Obama, and yet civil rights have gone backwards. What went wrong? asked the New Republic on its cover in August. The issue, which appeared after Michael Brown’s death in Ferguson, spoke of a “new racism.” Indeed, the kinds of deadly events that took place in Ferguson and Cleveland have now convinced many blacks that it wasn’t Obama who was right back in the spring of 2008. Rather, it was his angry pastor, Jeremiah Wright.

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Attempts to put numbers on this don’t strike me as useful, they’ll just change all the time anyway. It seems far more important to make clear that this is not about money.

Adapting To A Warmer Climate To Cost Three Times As Much As Thought (Guardian)

Adapting to a warmer world will cost hundreds of billions of dollars and up to three times as much as previous estimates, even if global climate talks manage to keep temperature rises below dangerous levels, warns a report by the UN. The first United Nations Environment Programme (Unep) ‘Adaptation Gap Report’ shows a significant funding gap after 2020 unless more funds from rich countries are pumped in to helping developing nations adapt to the droughts, flooding and heatwaves expected to accompany climate change. “The report provides a powerful reminder that the potential cost of inaction carries a real price tag. Debating the economics of our response to climate change must become more honest,” said Achim Steiner, Unep’s executive director, as ministers from nearly 200 countries prepare to join the high level segment of UN climate talks in Lima, Peru, next week.

“We owe it to ourselves but also to the next generation, as it is they who will have to foot the bill.” Without further action on cutting greenhouse gas emissions, the report warns, the cost of adaptation will soar even further as wider and more expensive action is needed to protect communities from the extreme weather brought about by climate change. Delegates from the Alliance of Small Islands States at the UN climate conference in Lima, which opened on Monday, are already feeling those impacts. They have appealed for adaptation funds for “loss and damage” as their homelands’ very existence is threatened by rising sea levels. “We’re keen to see the implementation of the Green Climate Fund – we’re still waiting,” Netatua Pelesikoti, director of the climate change office at the Secretariat of the Pacific Environment Programme, referring to a fund set up to hope poorer countries cope with global warming.

“The trickle down to each government in the Pacific is very slow but we can’t abandon the process at this stage,” said the Tongan delegate. Rich countries have pledged $9.7bn to the Green Climate Fund but the figure is well short of the minimum target of $100bn each year by 2020. The Adaptation Gap Report said adaptation costs could climb to $150bn by 2025/2030 and $250-500bn per year by 2050, even based on the assumption that emissions are cut to keep temperature rises below rises of 2C above pre-industrial levels, as governments have previously agreed. However, if emissions continue rising at their current rate – which would lead to temperature rises well above 2C – adaptation costs could hit double the worst-case figures, the report warned.

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We need a lot more people like this man, or we will see the twilight of Africa’s wildlife in our lifetimes.

One Man’s 40-Year Fight Against Africa’s Ivory Poachers (John Vidal)

Most tourists who walk into Hong Kong’s many licensed ivory stores and carving factories, browse the displays of statues, pendants and jewellery and accept the official assurances that it all comes from sustainable sources. But not the reserved middle-aged man who last month went into a Kowloon shop. What started with a few polite questions about the provenance of the objects on show turned swiftly to confrontation. Within minutes he was furious and the owner had threatened to call the police. Having spent nearly 40 years trying to protect elephants and other African wildlife from poachers, Richard Bonham says he was shocked to see, for the first time, the Hong Kong stores where most of the world’s ivory ends up. The statistics, he says, show that Africa’s elephant population has crashed from 1.3 million in 1979 to around 400,000 today.

In the last three years alone, around 100,000 elephants have been killed by poachers and more are now being shot than are being born. Rhinos are on the edge too. For a Hong Kong shopkeeper, each trinket is something to profit from. But for Bonham, they tell a story of cruelty, desperation and exploitation. “I wanted to see for myself. Yes, I was angry. There’s no other word for it. I saw the shops with huge stocks that, despite the import ban, are not dwindling. Yet the [Hong Kong] government has chosen not to recognise or address the lack of legitimacy of their trade. “The experience of seeing the end destination of ivory was important to me. It completed the circle from seeing elephant herds, stampeding in terror at the scent of man, from seeing the blood-soaked soil around lifeless carcasses to whimsical trinkets in glass display cases.”

In London last week to receive the Prince William lifetime achievement award conservation, he produced a Hong Kong government document that showed how the former British colony holds over 100 tonnes of ivory stocks despite a 25-year-old import ban that was meant to eliminate all stocks 10 years ago. It is proof, he says, that the Hong Kong government knows that its traders have been topping up their stocks with “black”, or illegal ivory from poached elephants, yet do nothing. Back in Africa, he said, the trade ends in carnage and impoverished environments. “I have watched elephants in the Selous game reserve in Tanzania drop from over 100,000 animals to probably less than 10,000 today and that number is still falling. During a one-hour drift down the Rufiji river three years ago I was seeing up to six different elephant herds coming down to drink.

Now I see none – they’ve gone, back to dust and into the African soil, with their ivory shipped off to distant lands. There is a silence on that river that will take decades to return – if at all.” But despite the statistics, he says he is upbeat for conservation, at least in the Amboseli national park in Kenya, where he lives among the Maasai. “It’s not all bad news, it’s not too late. We have got poaching there more or less under control. We are seeing elephants on the increase and lions, that 15 years ago where on the verge of local extinction, have increased by 300%. But probably more importantly we are seeing local communities setting aside land for conservancies and wildlife.

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Nov 142014
 
 November 14, 2014  Posted by at 12:13 pm Finance Tagged with: , , , , , , , , , ,  1 Response »


DPC St. Catherine Street, Montréal, Québec 1916

Most US Cities Unaffordable For Average Americans To Live In (MarketWatch)
US Wealth Inequality: Top 0.1% Worth As Much As The Bottom 90% (Guardian)
US Foreclosure Filings Climb 15% In October (MarketWatch)
Sub-$2-a-Gallon Gasoline Futures Hand US Motorists Gift (Bloomberg)
Albert Edwards: USDJPY 145, “Tidal Wave Of Deflation Westward” (Zero Hedge)
Oil, Other Commodities Will Be In The Dumps For Another Decade (MarketWatch)
Oil Price Rout To Deepen Amid Supply Glut, Warns IEA (Telegraph)
Keystone Left Behind as Canadian Oil Pours Into US (Bloomberg)
Putin Stockpiles Gold As Russia Prepares For Economic War (Telegraph)
It May Be Too Late for Japan PM to Fix World’s Third Largest Economy (TIME)
Europe’s Debt Fight May Undermine Push for Growth Deal (Bloomberg)
Cold Comfort As France, Germany Eke Out Tiny Q3 Growth (Reuters)
Italy’s Slump Enters Fourth Year, Complicating Renzi’s Plans (Bloomberg)
World Outlook Darkening as 89% in Poll See Europe Deflation Risk (Bloomberg)
China Busts Underground Banks Linked to $23 Billion Transactions (Bloomberg)
Stock Market Fear, Stress And Tensions Climbing (MarketWatch)
Apple Could Swallow Whole Russian Stock Market (Bloomberg)
Fracking Boom Spurs Demand for Sand and Clouds of Dust (Bloomberg)
Massive OW Bunker Bankruptcy: Questions Of Governance And Oversight (SeaTrade)
Aboriginals Decry G-20 Host Australia as Leaders Gather (Bloomberg)

This is what we’ve come to, and it’s hardly surprising. Where are the raised voices, though?

Most US Cities Unaffordable For Average Americans To Live In (MarketWatch)

Most big American cities are no longer affordable for the average worker. Home buyers earning a median income can only afford a median-priced home in 10 of the 25 largest metropolitan areas in the U.S., according to a survey by personal finance site Interest.com. That’s still a slight improvement on last year when only 8 of those metropolitan areas were affordable, but still lower than 2012 when 14 of those 25 areas were affordable for people on a median income in those regions. Being priced out of buying a home in the country’s major cities means more multi-family buildings in big cities and more people moving into second-tier cities and rural areas, says Stuart Gabriel, director of UCLA’s Richard S. Ziman Center for Real Estate.

“The consequences are large,” he says, “and they’re not just about affordability. It affects economic growth and economic viability of our major metropolitan areas.” While some people will find ways to work from home, for instance, spiraling housing costs also hurt people who need to work in cities. “Teachers, firefighters and police, these are people who are absolutely essential to the functioning of our urban areas, are priced out of those areas and have to commute long distances to get to work,” Gabriel says. “It’s certainly true here in L.A.” Sacramento had the biggest drop in home affordability over the past 12 months, falling to No. 18 this year from No. 12 in 2013. But it’s still more affordable than the other three California metro areas on the list: Los Angeles (No. 22), San Diego (No. 24) and San Francisco (No. 25) where the median income is 46% less than what is required to buy a median-priced home here. New York is No. 23 on the list.

The cheapest areas are Minneapolis, Atlanta, St. Louis and Detroit. “Low mortgage rates are helping home affordability to some extent, but the key ingredient — which has been missing to this point — is substantial income growth,” says Mike Sante, managing editor of Interest.com. “Millennials, in particular, are struggling to overcome their student loans and save enough money for a down payment.” The Interest.com survey reflects a broader trend: 52% of Americans have made at least one major sacrifice to cover their rent or mortgage over the last three years, according to research commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation released earlier this year. These sacrifices include getting a second job, deferring saving for retirement and cutting back on health care.

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Here’s why Americans can’t afford their own cities anymore.

US Wealth Inequality: Top 0.1% Worth As Much As The Bottom 90% (Guardian)

Wealth inequality in the US is at near record levels according to a new study by academics. Over the past three decades, the share of household wealth owned by the top 0.1% has increased from 7% to 22%. For the bottom 90% of families, a combination of rising debt, the collapse of the value of their assets during the financial crisis, and stagnant real wages have led to the erosion of wealth. The research by Emmanuel Saez and Gabriel Zucman [pdf] illustrates the evolution of wealth inequality over the last century. The chart shows how the top 0.1% of families now own roughly the same share of wealth as the bottom 90%. The picture actually improved in the aftermath of the 1930s Great Depression, with wealth inequality falling through to the late 1970s. It then started to rise again, with the share of total household wealth owned by the top 0.1% rising to 22% in 2012 from 7% in the late 1970s. The top 0.1% includes 160,000 families with total net assets of more than $20m (£13m) in 2012.

In contrast, the share of total US wealth owned by the bottom 90% of families fell from a peak of 36% in the mid-1980s, to 23% in 2012 – just one percentage point above the top 0.1%. The growing indebtedness of most Americans is the main reason behind the erosion of the wealth share of the bottom 90%, according to the report’s authors. Many middle-class families own their homes and have pensions, but too many have higher mortgage repayments, higher credit card bills, and higher student loans to service. The average wealth of bottom 90% jumped during the stock market boom of the late 1990s and the housing bubble of the early 2000s. But it then collapsed during and after the most recent financial crisis. Since then, there has been no recovery in the wealth of the middle class and the poor, the authors say. The average wealth of the bottom 90% of families is equal to $80,000 in 2012— the same level as in 1986. In contrast, the average wealth for the top 1% more than tripled between 1980 and 2012.

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No surprise here either.

US Foreclosure Filings Climb 15% In October (MarketWatch)

The pace of new foreclosures picked up last month as more troubled properties were pushed through the system, according to data released Thursday. In October, there were default notices and other foreclosure filings reported on more than 123,000 U.S. homes, up 15% from September — the largest monthly growth since foreclosure activity peaked in early 2010, online foreclosure marketplace RealtyTrac reported. Last month’s pop was driven by seasonal factors — banks were trying to “get ahead of the usual holiday foreclosure moratoriums,” said Daren Blomquist, vice president at RealtyTrac.

October’s spike narrowed the year-over-year contraction in foreclosure filings to 8%, the slowest annual drop since May 2012. “Distressed properties that have been in a holding pattern for years are finally being cleared for landing at the foreclosure auction,” Blomquist said. Despite October’s increase in filings, the pace of the foreclosure-related notices is trending closer to levels seen before the U.S. housing bubble burst. In 2006, as home prices were near their peak, there were average monthly foreclosure filings on 105,000 properties. October’s 123,000 foreclosure filings were down about 66% from a peak of 367,000 hit in 2010.

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Not going to boost holiday sales.

Sub-$2-a-Gallon Gasoline Futures Hand US Motorists Gift (Bloomberg)

U.S. drivers will have some extra money in their pockets this holiday season as gasoline futures tumbling below $2 a gallon mean lower prices at the pump. “The drop in futures is eventually going to translate into further declines at the pump,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone yesterday. “There will be a little extra discretionary spending that consumers can use somewhere else this holiday season.” The nation’s largest motoring club says retail prices “have a very good chance” of being the lowest for the Nov. 28 Thanksgiving holiday in five years. Motorists are already paying the least since 2010 after crude oil tumbled more than 20% in the past four months. Gasoline futures added 0.7 cent, or 0.3%, to $2.0085 a gallon in electronic trading at 12:12 p.m. Singapore time.

Yesterday the contract closed at the lowest since September 2010. The average retail price for regular gasoline fell 0.6 cent to $2.917 a gallon on Nov. 12, the least since December 2010, according to Heathrow, Florida-based AAA. Based on the drop in the futures market, pump prices could fall to $2.70 or thereabouts, Michael Green, a Washington-based spokesman for AAA, said by telephone yesterday. “At this point, the market refuses to stabilize, the price of crude oil continues to fall and refiners are making more gasoline. There’s no end in sight.” Almost one-fourth of filling stations in the U.S. are selling gasoline for less than $2.75 a gallon, Green said. Less than 1% are under $2.50, he said. “We’re still a long way from getting down to $2,” Green said. “But I didn’t think it was going below $3, and here we are.”

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Edwards is one scary guy. Because he’s mostly right.

Albert Edwards: USDJPY 145, “Tidal Wave Of Deflation Westward” (Zero Hedge)

Less than two months ago, Albert Edwards presented “The Most Important Chart For Investors” in which he predicted, correctly, that the real action will come not in the Euro but the Japanese Yen, and at a time when the USDJPY was trading around 108, Edwards forecast a sharp move to 120. A month later, Abe’s just as shocking “all in” bet on boosting QE to a level where it matches the Fed’s peak monthly POMO despite an economy that is a third the size of the US, proved Edwards correct and has since sent the USDJPY some 800 pips higher and just 400 pips shy of Edwards’ 120 forecast. At this rate, the 120 target may be taken out within weeks not months. So what happens next? Here, straight from the horse’s mouth that got the first part of the rapid Yen devaluation so right, is the answer.

As Edwards updates with a note from this morning, “the yen is set to follow the US dollar DXY trade-weighted index by crashing through multi-decade resistance – around ¥120. It seems entirely plausible to me that once we break ¥120, we could see a very quick ¥25 move to ¥145, forcing commensurate devaluations across the whole Asian region and sending a tidal wave of deflation westwards.” Edwards, never one to beat around the bush, slams strategists who are at best willing to get the direction of a given move, if not the magnitude. So he will be the outlier:

… in the foreign exchange (FX) world, extreme volatility is often readily apparent but seldom ever predicted. We explained recently that investors were overly focusing on the euro/US$ when a further round of Japanese QE would make the yen the dominant currency story. I expect the key ¥120/$ support level to be broken soon and the lows of June 2007 (¥124) and Feb 2002 (¥135) to be rapidly taken out. If you want a target to reflect historic volatility, think about the Y145 low of August 1998 (see chart). That is my Q1 forecast.

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I see little value in predicting anything 10 years out today. The US dollar looks strongest, stocks definitely do not, they’re way too overvalued. in 2024, who says there’ll be much of any financial markets remaining? But hey, someone has to lose all that money going forward. Might as well this guy.

Oil, Other Commodities Will Be In The Dumps For Another Decade (MarketWatch)

Remember the commodities supercycle, that seemingly endless 2000s commodities boom? It drove oil, gold, copper and other commodities to record levels. The supercycle was driven by exploding demand from China and other emerging countries, supply bottlenecks caused by years of not developing wells and mines, and rock-bottom interest rates that inflated demand for hard assets all around the world. But now gold, oil and other commodities are well off their peaks, so far off, in fact, and for so long that they can only be described as in a supercycle in reverse, or a secular bear market. If that’s true – and I’m pretty sure it is – investors who piled in to commodities are in for a bruising decade ahead unless they take profits or cut their losses.

Meanwhile, stocks, which run counter to commodities, may well go much higher, along with the U.S. dollar. “We believe that we are in the initial years of a secular down cycle in commodities,” wrote Shawn Driscoll, manager of the natural resource-focused T. Rowe Price New Era Fund in the fund’s most recent semiannual report. “Commodity cycles are very long on the way up and the way down,” he told me in a phone interview. They last around 13 to 15 years, because it takes that long for fundamentals of supply and demand to go to extremes. When the most recent supercycle began in 1998, Driscoll said, commodities prices had plummeted, so producers shuttered old mines and wells and hadn’t opened new ones in a while. But when demand revived, it took years for producers to catch up. Ultimately, companies built too much capacity just in time for the next peak.

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“With this key level out of the way a move towards $75 now looks likely as the hunt for a real floor in oil prices goes on.” WTI at $74 this morning, Brent at $78.

Oil Price Rout To Deepen Amid Supply Glut, Warns IEA (Telegraph)

The rout which has sent oil prices to a four-year low is expected to deepen, the International Energy Agency warned in its latest monthly market report. The Paris-based watchdog said Friday: “While there has been some speculation that the high cost of unconventional oil production might set a new equilibrium for Brent prices in the $80 to $90 range, supply/demand balances suggest that the price rout has yet to run its course.” Against a backdrop of weakening demand, oil supply in October increased adding further downward pressure on prices, the IEA said in its monthly market report. According to the watchdog, global oil supply inched up by 350,000 barrels per day (bpd) in October to 94.2m bpd.

However, in London Brent crude bounced at the open up almost 1pc at around $78 per barrel after heavy losses overnight in the US saw West Texas Intermediate blend crude fall to $74 per barrel. “Crude prices are enduring another hefty move lower, with Brent shifting below $80 for the first time since late 2010,” said Chris Beauchamp, Market Analyst, IG. “With this key level out of the way a move towards $75 now looks likely as the hunt for a real floor in oil prices goes on.” The supply glut will add to pressure on the Organisation of Petroleum Exporting Countries to sharply cut back on production at their meeting on November 27. However, the group’s major producers may be reluctant to do so due to the risk of losing more market share to shale oil drillers in the US.

The IEA’s warning on prices follows the US Energy Department, which this week pared back its forecasts for prices in 2015. The US Energy Information Administration (EIA) – part of the Department of Energy – has slashed its price forecasts for 2015. The EIA now expects US crude blends to average $77.75 per barrel next year, down from a previous forecast of $97.72, and Brent to average $83.42 in 2015, down from its old estimate of $101.67. The EIA has also revised down its global demand forecast by 200,000 barrels per day (bpd) to average 92.5m bpd in 2015, based on weaker global economic growth prospects for next year.

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The US doesn’t produce enough domestically yet, or so I guess.

Keystone Left Behind as Canadian Oil Pours Into US (Bloomberg)

Delays of the Keystone XL pipeline are providing little obstacle to Western Canadian oil producers getting their crude to the U.S. Gulf Coast, with shipments set to more than double next year. The volume of Canadian crude processed at Gulf Coast refineries could climb to more than 400,000 barrels a day in 2015 from 208,000 in August, according to Jackie Forrest, vice president of Calgary-based ARC Financial. The increase comes as Enbridge’s Flanagan South and an expanded Seaway pipeline raise their capacity to ship oil by as much as 450,000 barrels a day. Canadian exports to the Gulf rose 83% in the past four years.

The expansion shows Canadians are finding alternative entry points into the U.S. while the Keystone saga drags on. In the latest chapter, a Democratic senator and a Republican representative are seeking votes in their chambers to set the project in motion. The two are squaring off in a runoff election for a Senate seat from Louisiana, a state where support for the project is strong. “Keystone is kind of old news,” Sandy Fielden, director of energy analytics at Austin, Texas-based consulting company RBN Energy, said Nov. 12 in an e-mail. “Producers have moved on and are looking for new capacity from other pipelines.” TransCanada’s Keystone XL, which would transport Alberta’s heavy oil sands crude to refineries on the Gulf, has been held up for six years, awaiting Obama administration approval.

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Over the top headline and commentary. Russia buys gold because sanctions make access to dollar markets harder.

Putin Stockpiles Gold As Russia Prepares For Economic War (Telegraph)

Russia has taken advantage of lower gold prices to pack the vaults of its central bank with bullion as it prepares for the possibility of a long, drawn-out economic war with the West. The latest research from the World Gold Council reveals that the Kremlin snapped up 55 tonnes of the precious metal – far more than any other nation – in the three months to the end of September as prices began to weaken. Vladimir Putin’s government is understood to be hoarding vast quantities of gold, having tripled stocks to around 1,150 tonnes in the last decade. These reserves could provide the Kremlin with vital firepower to try and offset the sharp declines in the rouble. Russia’s currency has come under intense pressure since US and European sanctions and falling oil prices started to hurt the economy.

Revenues from the sale of oil and gas account for about 45pc of the Russian government’s budget receipts. The biggest buyers of gold after Russia are other countries from the Commonwealth of Independent States, led by Kazakhstan and Azerbaijan. In total, central banks around the world bought 93 tonnes of the precious metal in the third quarter, marking it the 15th consecutive quarter of net purchases. In its report, the World Gold Council said this was down to a combination of geopolitical tensions and attempts by countries to diversify their reserves away from the US dollar. By the end of the year, central banks will have acquired up to 500 tonnes of gold during the latest buying spell, according to Alistair Hewitt, head of market intelligence at the World Gold Council.

“Central banks have been consistently adding to their gold holdings since 2009,” Mr Hewitt told the Telegraph. In the case of Russia, Mr Hewitt said that the recent increases in its gold holdings could be a sign of greater geopolitical risk that has arisen since it seized Crimea sparking a dispute with Ukraine and the West. Overall, the World Gold Council said that global demand for gold was down 2pc year-on-year to 929 tonnes in the third quarter amid signs that buying in China, one of the main markets, had tailed off. Jewellery demand in the quarter ending in September was down 39pc to 147 tonnes, signalling weaker consumer sentiment in the world’s second-largest economy.

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After 2.5 years, and countless comments at TAE about Abe’s inevitable failure, mainstream America is catching on. Even a jibe at Krugman here.

It May Be Too Late for Japan PM to Fix World’s Third Largest Economy (TIME)

Tokyo is abuzz with speculation that Prime Minister Shinzo Abe is about to dissolve the Diet, as the country’s legislature is known, and call a snap election. He by no means has to take such action. It has only been two years since his Liberal Democratic Party, or LDP, swept to power in a massive landslide, and the opposition is in such disarray that there is little doubt Abe would be returned to office in a new election. Nevertheless, Abe apparently feels the need for another vote of confidence from the public, likely in part to bolster support for his radical program to revive Japan’s economy, nicknamed Abenomics. The problem is that it could already be too late. Abenomics is a failure, and Abe isn’t likely to fix it, no matter how many seats his party holds in parliament.

When Abe first introduced Abenomics, many economists – most notably, Nobel laureate Paul Krugman – believed the unconventional program would finally end the economy’s two-decade slump. The plan: the Bank of Japan (BOJ), the country’s central bank, would churn out yen on a biblical scale to smash through the economy’s endemic and destructive cycle of deflation, while Abe’s government would pump up fiscal spending and implement long-overdue reforms to the structure of the economy. Advocates argued that Abenomics was just the sort of bold action to jump-start growth and fix a broken Japan, and we all had reason to hope that it would work. Japan is still the world’s third largest economy, and a revival there would add another much-needed pillar to hold up sagging global economic growth.

However, I had my concerns from the very beginning. In my view, Japan’s economy doesn’t grow because there is a lack of demand. Pumping more cash into the economy, therefore, will not restart growth. Only deep reform to raise the potential of the economy can do that — by improving productivity and unleashing new economic energies. Unless Abe changed the way Japan’s economy works — and I doubted he would — all of the largesse from the BOJ would at best come to nothing. In a worst-case scenario, Abe’s program could turn Japan into an even bigger economic mess than it already is.

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The G20 is the most useless gathering on the planet. They see one thing only, growth, whether it’s there or not.

Europe’s Debt Fight May Undermine Push for Growth Deal (Bloomberg)

Europe’s infighting over debt rules may be the biggest challenge to its ambitions for a new commitment to growth at the Group of 20 summit in Australia. World leaders have already expressed their frustration with the European Union’s German-mandated obsession with budget deficits. When they sit down in Brisbane this weekend to consider the 28-nation bloc’s call for a “comprehensive” growth strategy that seeks to boost private investment and rein in fiscal excess, the G-20 group will include France and Italy, the euro nations that have most publicly fought the EU view. Germany and its allies say the debt rules are essential for the EU’s credibility yet the euro area’s six-year slump has already weakened the bloc’s reputation for economic management, regardless of whether the 18 euro members can eventually wrestle their budget deficits under control.

As global growth wanes, the rest of the world’s capacity to keep indulging Europe’s budget focus is narrowing too. “Europe has, from a global perspective, been too tight for years,” said Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington. Even if the euro area relaxes its stance somewhat, “the global economy is growing slower now, so any undershoot matters more.” Behind the united facade European leaders will present in Brisbane, France and Italy are straining at the budget limits they’ve been set, spurred on by calls from European Central Bank President Mario Draghi for nations to supplement his “whatever it takes” monetary policy stance.

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A big relief, was the announcement. So why are EU stocks falling?

Cold Comfort As France, Germany Eke Out Tiny Q3 Growth (Reuters)

European stocks were flat on Friday after gross domestic product numbers showed both France and Germany grew marginally in the third quarter, while the dollar rose further against the yen on expectations of a snap election in Japan. The European data confirmed that the outlook for much of the world economy still looks much shakier than for the United States, although France beat expectations. Asian stocks fell following the latest signs that growth in China is slowing. Energy stocks were depressed as crude oil hovered near a four-year low in an oversupplied market and the Russian ruble, hammered in recent weeks as world oil prices fell, was again testing record lows around 48 rubles per dollar. Germany’s economy eked out growth of 0.1% on the quarter, while France – generally seen as in deeper trouble than its neighbor – grew by 0.3%. Overall euro zone data was due later. “The German number is slightly positive in line with expectations but it’s still soft,” said Patrick Jacq, a rate strategist at BNP Paribas in Paris.

“The (French) growth in Q3 is only driven by inventories. It’s just a one-off positive figure in a very weak environment and therefore this is not something which could lead the market to think that the economic situation is improving in France.” A Reuters poll showed Japanese companies overwhelmingly want Prime Minister Shinzo Abe to delay or scrap a planned tax increase, a move expected to come along with a decision, expected by many, to call a new election. The yen, down more than 3% against a stronger dollar this month, fell another half% to a seven-year low of 116.385 yen per dollar. “The argument is that delaying the sales tax hike means the impulse to CPI inflation will start to drop,” said Alvin Tan, a currency strategist at French bank Societe Generale in London. “If there’s no additional sales tax hike, the impulse to higher inflation starts to fade away quite rapidly. So in order to push inflation higher, which is what everybody wants, you need the currency to weaken a lot more.”

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All those years lost for growth that will never come. Renzi is not a smart guy.

Italy’s Slump Enters Fourth Year, Complicating Renzi’s Plans (Bloomberg)

Italy’s economy shrank in the third quarter pushing the nation into a fourth year of a slump that has complicated Prime Minister Matteo Renzi’s efforts to revive growth and keep public finances in check. Gross domestic product fell 0.1% from the previous three months, when it declined 0.2%, the national statistics institute Istat said in a preliminary report in Rome today. That matched the median forecast in a Bloomberg survey of 22 economists. Output was down by 0.4% from a year earlier. GDP in the euro region’s third-biggest economy has fallen in all but two of the last 13 quarters as the jobless rate rose to the highest on record.

Renzi is relying on estimated 0.6-percent growth next year to rein in a public debt of more than €2 trillion ($2.50 trillion) and preserve a tax rebate to low-paid employees aimed at reviving consumer demand. The Bank of Italy said yesterday in a report that the country needs to avoid a “recessionary demand spiral” due to the “persistence of economic difficulties, which have been exceptional in terms of duration and depth.” Italians rallied in Rome last month to protest an overhaul of labor market rules tha Renzi proposed to make it easier for businesses to hire and fire workers. The premier has repeatedly said the plan is a way to attract investments and that its framework will get parliamentary approval by year’s end before being fully implemented in 2015.

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Finally a Bloomberg poll that gets something right?

World Outlook Darkening as 89% in Poll See Europe Deflation Risk (Bloomberg)

The world economy is in its worst shape in two years, with the euro area and emerging markets deteriorating and the danger of deflation rising, according to a Bloomberg Global Poll of international investors. A plurality of 38% of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession. Much of the concern is again focused on the euro area: Almost two-thirds of those polled said its economy was weakening while 89% saw disinflation or deflation as a greater threat there than inflation over the next year. Respondents said the European Central Bank and the region’s governments are making the situation worse by pursuing too-tight policies, and fewer expressed confidence in ECB President Mario Draghi and German Chancellor Angela Merkel.

“The euro-zone economy has deteriorated and will get worse if there are no fiscal policy actions from core European countries, mainly Germany,” poll participant Sanwook Lee, a senior portfolio manager at Shinhan Bank in Seoul, said in an e-mail. Europe isn’t the only source of concern in the global economy, according to the quarterly poll of 510 investors, traders and analysts who are Bloomberg subscribers. More than half of those contacted said conditions in the BRIC economies – Brazil, Russia, India and China – are getting worse, compared with 36% who said so in July.

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China is filled to its credit boom with this kind of shady deals.

China Busts Underground Banks Linked to $23 Billion Transactions (Bloomberg)

Beijing police raided and shut down more than 10 underground banks that were involved in 140 billion yuan ($23 billion) of transactions over the past few years. The banks were raided on Sept. 18, with 59 people arrested and 264 bank accounts frozen, Beijing Municipal Public Security Bureau said in a statement today. The investigation started in February when Beijing police found that a man with surname Yao had transferred more than $5 million abroad in a year, according to the statement. Yao, who had a number of bank accounts, frequently bought $50,000 of foreign exchange, the police said. That’s the most overseas currency that a Chinese citizen can buy annually. The underground banks, most of which are family-run and operating out of homes, use online and mobile payment devices to buy or sell foreign exchange and illegally transfer funds abroad, according to the statement. Beijing police said they would continue to crackdown on crimes that threaten China’s economic and financial security.

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Investors are clueless and befuddled. Ideal patsies.

Stock Market Fear, Stress And Tensions Climbing (MarketWatch)

What happens if we get another melt-up, maybe to 18,000 on the Dow Jones Industrial Average before we see 17,000 again? I’m in a less aggressive mode for now, but feet to fire, if this bubble-blowing bull market is to keep on blowing, why not a total melt-up into and above 18,000 before year-end? Stranger things have happened. I often ask, who’s more scared right now, the bulls or the bears because when there’s an overwhelming consensus in the answer to that question, it’s often time for the markets to put on a big contrarian move opposite that sentiment. Are you a bull or one of the few bears remaining? Are you scared right now? Do you think most bulls are scared right now?

Fear, stress and tensions have been climbing along with the markets, which isn’t what you’d expect, is it? I’ve noticed throughout this week that tensions have been very high on Latest Scuttles and that’s a reflection of the stress felt by most traders and investors right now. There’s likely a lot of money managers who missed this last leg higher from the Ebola lows and now find themselves drastically behind their market benchmarks with just 45 days to go into year-end. That kind of technical setup into year-end could be a catalyst for the winners to keep their momentum heading higher. I personally am not trying and wouldn’t suggest trying to game the next market move, but it’s something to think about.

And what if you’ve missed this bull run over the last five years and still aren’t in the markets or even if you just find yourself like the aforementioned money managers and feel underinvested here? Like I said, I don’t think the continuing bubble-blowing bull market that I’ve predicted would play out like this is over yet. I wouldn’t be aggressive, but if you don’t think you own enough stocks (or any for that matter) then I do suggest scaling into some of the best stocks you can find, including some of the very best, most revolutionary growth stocks you can find.

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The take-away: Apple is an 800-pound bubble.

Apple Could Swallow Whole Russian Stock Market (Bloomberg)

If you owned Apple Inc., and sold it, you could purchase the entire stock market of Russia, and still have enough change to buy every Russian an iPhone 6 Plus. The CHART OF THE DAY shows the total market capitalization of all public companies in the world’s largest country slipped below that of the world’s most-valued company for the first time on record. The gap, at $121 billion on Nov. 12, is about the price of 143 million contract-free 64-gigabyte iPhones, based on Apple Store prices. The value of Russian equities has slumped $234 billion to $531 billion this year, while Apple gained $147 billion to $652 billion, according to data compiled by Bloomberg.

The technology company’s innovation and brand value attract investors, while Russia’s political conflicts, sanctions and the threat of economic stagnation next year make them nervous, according to Vadim Bit-Avragim, a portfolio manager who helps oversee about $4 billion at Kapital Asset Management LLC in Moscow. “Apple works with shareholders to maximize returns and is based where property is protected by law,” Bit-Avragim said. “In Russia, the legislative protection for property is not as good, most state-run companies have poor corporate governance, resources are concentrated in state hands and borrowing costs are shooting up. After all this, when you get involved in conflicts with your neighbors, it becomes very hard to persuade investors from all over the world to invest here.”

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Destruction is our middle name.

Fracking Boom Spurs Demand for Sand and Clouds of Dust (Bloomberg)

A little sand mine down the road didn’t seem like a big deal 17 years ago, when Alphonse Dotson picked the site for a vineyard in the Texas Hill Country. Today he’s surrounded by four mines blasting sand from the earth, filling the air with a fine dust that drifts across acres of sensitive grape vines. A fifth will open soon, and he says he’s worried. “I don’t want us to be smothered to death,” he said. Add sand mining to the list of industries transformed by the U.S. oil boom. The tiny grains of silica are what keep frackers fracking, propping open cracks punched into rock so oil and natural gas can flow. As drilling surged, so has demand for sand. Sand production has more than doubled in the U.S. over the past seven years. By the end of 2016, oil companies in North America will be pumping 145 billion pounds (66 billion kilograms) of it down wells annually. That’s enough to fill railcars stretching from San Francisco to New York – and back.

That’s triggering complaints from local communities, according to a Grant Smith, senior energy policy adviser at the Civil Society Institute. Dust from sand can penetrate deep into lungs and the bloodstream; mines consume massive amounts of water; sand-laden trucks are damaging roads; and property values can be affected. The surge in mining is a “little-understood danger of the fracking boom,” Smith said in a September call with reporters. Energy companies are paying 6% more for sand this year at a time when oil prices are plunging. While low prices may slow down drilling, that won’t make up for a supply bottleneck, said Samir Nangia, a principal at the Houston-based research company PacWest Consulting Partners. Fracking companies are struggling to get enough sand because there aren’t enough trucks and railcars to deliver it. Higher transportation costs are eating into profits at oil-services companies like Schlumberger, Halliburton and Baker Hughes.

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A company that had revenues of $17 billion in 2013 just topples over, and no-one pays attention, because it happened to be in Denmark and SIngapore.

Massive OW Bunker Bankruptcy: Questions Of Governance And Oversight (SeaTrade)

The rapid collapse into bankruptcy of OW Bunker just 48 hours after it revealed a $125m fraud at Singapore subsidiary Dynamic Oil Trading, as well as $150m in risk management losses announced at the same time, leaves an awful lot of unanswered questions. OW Bunker was not a two-bit marine fuel supplier, it had revenues of $17bn in 2013 and claimed a 7% share of the global marine fuel supply market. In March this year its IPO on Copenhagen’s NASDAQ exchange valued the company at DKK5.33bn ($900m), making it one of Denmark’s largest IPOs in recent years. In May this year OW Bunker made Forbes list of top 2,000 list of the world’s biggest public companies. As it stands just seven months on the from the IPO some 20,000 investors will have lost everything they put into the company, based on the statement when it filed for in-court restructuring of its main operating subsidiaries that it “must be assumed that the group’s equity is lost”.

Suppliers and sub-contractors will find themselves with large unpaid bills, something which P&I insurers Skuld have warned shipowners about. And more than 600 employees of the group worldwide face a very uncertain future. Trading is a risky business, and anyone investing in it needs to understand this, but this is also why corporate governance and oversight are so important. It is worth noting that according to reports in the Danish media the company did not actually uncover the fraud at Dynamic itself; one of its senior executives flew to Denmark and tearfully confessed to it. How long it would have gone on if this had not happened we can only speculate. Two employees have since been reported to the Danish police as OW Bunker filed for bankruptcy. What fraud was actually committed we do not know, although we do know it was over a six month period, so its open to question whether it was actual embezzlement or the hiding of losses as the market turned against the executives involved.

Certainly the recent sharp falls in the oil and bunker price point to the latter as a possibility. The case bears certain parallels to then Singapore-based, British national, rogue trader Nick Leeson who caused the collapse of Barings Bank in 1995 having run up losses on speculative trades that eventually totaled in the region of $1.4bn. Indeed the BBC is reporting the fraud at Dynamic could be one of Singapore’s largest financial scandals in the last 10 years, joining what is already a huge scandal in Denmark. The fraud revelations came on top of the $150m in risk management losses that resulted in the firing of OW Bunker head of risk management and evp Jane Dahl Christensen. The full extent of the fallout of OW Bunker’s sudden bankruptcy will most likely take years to unravel. However, lessons do need to be learned on corporate governance and oversight for the benefit of all going forward.

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That Tony Abbott is one dumb f*ck: “Sydney before British settlement was “nothing but bush.”

Aboriginals Decry G-20 Host Australia as Leaders Gather (Bloomberg)

Across the Brisbane River from where some of the world’s biggest leaders will soon gather, a group of 200 indigenous Australians is seeking to present another side to the country’s image as host and regional power. “We want to talk to the people of the world,” said twenty-seven-year-old Meriki Onus, who joined the Aboriginal people protesting in a city park after a two-day, 1,100-mile bus ride to the Queensland state capital. “The police system here is racist, the government systems here are racist and we’ve used the G-20 as an opportunity to tell the world that it’s not OK.” Australia’s first inhabitants – who lived on the continent at least 40,000 years prior to British settlement in 1788 and now make up about 3% of the population – are among groups using the draw of leaders like U.S. President Barack Obama at the Group of 20 meetings to highlight their causes.

The indigenous people gathered in the subtropical city, where police outnumber the 7,000 delegates and media, say the system of government has entrenched poverty. “This country is occupied by force, like what happened in Poland and France during War War II, but for us this has been going on for more than two centuries,” Wayne Wharton, spokesman for the Brisbane Aboriginal Sovereign Embassy, said today at the park protest. “Our people want our rightful place in the world, and that means economic benefits, social benefits, responsibility and services.” Speaking at a business breakfast today in Sydney with U.K. Prime Minister David Cameron, Australia’s leader Tony Abbott, a self-declared prime minister for Aborigines and host of this weekend’s G-20 summit, said Sydney before British settlement was “nothing but bush.”

“As we look around this glorious city, as we see the extraordinary development, it’s hard to think that back in 1788 it was nothing but bush and that the marines and the convicts and the sailors that straggled off those 12 ships just a few hundred yards from where we are now must have thought they’d come almost to the moon,” Abbott said. Daubed with “mourning paint” across his face and torso to highlight indigenous deaths in police custody, Wharton said the G-20 won’t help his people or other Aboriginal races throughout the world because it’s designed to make rich nations wealthier at the expense of the poor. “It all comes back to having the ability to accumulate and then distribute wealth – my people have never had that,” he said.

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Nov 062014
 
 November 6, 2014  Posted by at 3:02 pm Finance Tagged with: , , , , , ,  1 Response »


Dorothea Lange Country store, Person County, NC Jul 1939

Dollar-Yen Breaks Above 115, What Next? (CNBC)
BoJ’s Surprise Easing Showers Wealth On Japan’s Top Billionaires (Bloomberg)
Kuroda Has Draghi in a Bind as Euro Soars Against Yen (Bloomberg)
Kuroda Stimulus Drives Government Borrowing Costs to Record Low (BW)
Japan Union Boss Criticises Pension Fund Strategy Shift (FT)
Ben Bernanke: Quantitative Easing Will Be Difficult For The ECB (CNBC)
BOJ Runs Into Critical Analysts After Kuroda Easing Shock (Bloomberg)
Mario Draghi’s Efforts To Save EMU Have Hit The Berlin Wall (AEP)
It’s Now Total War Against The BRICS (Pepe Escobar)
‘Devil’s Metal’ Burns Investors As Gold Melts Down (CNBC)
Luxembourg Rubber-Stamps Tax Avoidance On Industrial Scale (Guardian)
Interest Rates Are So Low Germans Pay To Keep Money In Banks (Telegraph)
French Banks Warn On Country’s ‘Difficult’, ‘Incoherent’ Economy (CNBC)
Pace Of UK Economic Growth Expected To Halve As Service Sector Slows (Guardian)
300,000 More British Live In Dire Poverty Than Already Thought (Guardian)
The Trouble With Mass Delusions (Paul Singer)
Uncertainties Surround Nicaragua’s New Panama Canal Competitor (Spiegel)
What’s The Environmental Impact Of Modern Warfare? (Guardian)
Texas Oil Town Makes History As Residents Say No To Fracking (Guardian)

120 is the alleged big breaking point. We’re getting close and moving fast.

Dollar-Yen Breaks Above 115, What Next? (CNBC)

The dollar-yen broke above the 115 level for the first time in seven years on Thursday. Active U.S. dollar buying pushed the pair as high as 115.40 in the Asian trading session, according to market participants. The Bank of Japan’s (BoJ) second round of monetary easing, announced last Friday, has ignited a powerful rally in dollar-yen, which is up over 9% year to date. Despite the rapid rise, analysts believe the rally is far from over. “The fact that the easing move on Friday was a surprise provides the market with some scope to ‘chase’ as USD/JPY rises to reflect the policy surprise, and any pull-back is likely to be shallow as market participants use the opportunity to ‘buy the dip’,” Fiona Lake strategist at Goldman Sachs wrote in a note late Wednesday. The bank, which has a target of 125 by end-2016, expects the yen will continue to weaken against the greenback as a function of diverging monetary policies and likely deterioration in Japan’s external balance as the Government Pension Investment Fund (GPIF) buys more external assets.

GPIF, the world’s largest pension fund, last week announced new asset allocation targets. Under the new allocation guidelines, Japanese stocks and foreign stocks will account for 25% of the fund’s holdings, up from 12% each previously. The fund will put 35% of its money in domestic bonds, down from 60%, while the ratio for overseas bonds will rise to 15% from 11%. Nomura expects swifter gains in the dollar-yen, forecasting 121 by end-June 2015 and 125 by end-December. “USD/JPY has already reacted very positively to the two policy announcements, but we still see upside risks for USD/JPY, both in the short and medium term,” Yujiro Goto, foreign-exchange strategist at Nomura wrote in a note this week.

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It’s like cosmic background radiation: The world looks the same wherever you look.

BoJ’s Surprise Easing Showers Wealth On Japan’s Top Billionaires (Bloomberg)

The Bank of Japan’s unexpected stimulus has already made the country’s richest even wealthier, adding more than $3 billion to the four top billionaires’ net worth. Fast Retailing Co. Chairman Tadashi Yanai, Japan’s richest person, saw his fortune grow by about $2 billion in the three trading days since the central bank’s Oct. 31 announcement that sparked a plunge in the yen and a rally in stocks. While billionaires such as Yanai gained, the central bank’s unprecedented asset purchases to support economic growth have yet to show evidence of spreading beyond Japan’s wealthiest people and corporations. Toyota, the country’s biggest company, yesterday cited the weaker yen in raising its annual profit forecast to a record 2 trillion yen ($17 billion). “The top 10% or 20% are getting richer, on the other hand the bottom 20% to 30% are becoming poorer,” said Tatsushi Maeno, head of Japanese equities at Pinebridge Investments Japan Co. “The equity market rally could accelerate this trend.”

Masayoshi Son, founder of SoftBank Corp. and Japan’s second-richest person, is up by $182 million since the BOJ decision, according to the Bloomberg Billionaires Index. Keyence Corp. Chairman Takemitsu Takizaki, the country’s No. 3 billionaire, added $434 million to his fortune and Rakuten Inc. President Hiroshi Mikitani, the next richest, saw an extra $393 million, based on closing prices yesterday. Estimates of billionaires’ net worths were compiled based on the billionaires’ shareholdings and other assets, and the yen’s value versus the dollar as of yesterday. Stocks also rallied after Japan’s $1.1 trillion Government Pension Investment Fund said it would buy more local shares. “The short-term result is good for everybody,” said Masayuki Kubota, chief strategist at Rakuten Securities Economic Research Institute. “It’s the government directly intervening in the Japanese equity market.”

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Looks like Draghi’s in a bind from many different sides. When’s he going to pick up the message and go away?

Kuroda Has Draghi in a Bind as Euro Soars Against Yen (Bloomberg)

Mario Draghi has something new to worry about as he prepares for tomorrow’s European Central Bank policy meeting: the euro-yen exchange rate. The yen approached a six-year low versus the shared European currency after Bank of Japan Governor Haruhiko Kuroda surprised investors late last week by extending his record stimulus program. Kuroda’s actions jeopardize the weaker euro that analysts say Draghi needs to reflate the economy, heaping pressure on him to come up with a policy response. “Kuroda has thrown down the gauntlet to Draghi,” Robert Rennie, the head of currency and commodity strategy at Westpac Banking Corp., said yesterday by phone from Sydney. “Whether Draghi will, or can, accept the challenge remains to be seen.”

Unless Draghi emulates the large-scale government-bond purchases, or quantitative easing, of his BOJ counterparts, money borrowed cheaply in Japan could increasingly flow into European assets, propping up the 18-nation currency, Rennie said. Most analysts expect policy makers to refrain from changes at tomorrow’s meeting, while they remain split over the odds of sovereign asset purchases. Some see a higher likelihood of additional easing at the December gathering. The BOJ got out ahead of many of its peers by announcing on Oct. 31 that it raised the annual target for enlarging its monetary base to 80 trillion yen ($704 billion) from 60 to 70 trillion yen previously.

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Problem is, it’s all so destructive: going back to a normally functioning economy gets harder every day.

Kuroda Stimulus Drives Government Borrowing Costs to Record Low (BW)

Bank of Japan Governor Haruhiko Kuroda’s unexpected expansion of stimulus last week has driven government borrowing costs to an unprecedented low. An auction of 10-year government debt today resulted in the lowest average yield on record at 0.439%, according to Ministry of Finance data. The previous low was 0.470% in June 2003. Last month, investors began paying the government to lend at sales of three-month debt for the first time ever, with average yields as low as minus 0.0041%. The BOJ surprised investors last week by raising the annual target for an increase in Japanese government bond holdings by 60%. Kuroda reiterated today the central bank will do “whatever it can” to end deflation, a pledge he has made since before embarking on quantitative easing in April last year, and driving yields to record lows.

“This isn’t quite a level where you can buy, but with the BOJ basically snapping up all new issuance, there’s no need to worry about the supply-demand balance,” said Takeo Okuhara, a senior fund manager in Tokyo at Daiwa SB Investments Ltd. The central bank’s expanded plan to buy 8 trillion yen to 12 trillion yen of JGBs per month gives Kuroda leeway to soak up all of the 10 trillion yen in new bonds that the Ministry of Finance sells in the market each month. The central bank is already the largest single holder of Japan’s bonds, topping insurers at the end of March for the first time ever. Japan’s 10-year borrowing costs rose 3 1/2 basis points to 0.475% at 2:51 p.m. in Tokyo from yesterday, when they reached 0.435% for a second day, the lowest since April 5 last year, when the record low of 0.315% was set, a day after Kuroda’s initial quantitative easing announcement.

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The argument: it’s very selfish for the older people to want safe pensions, and the young can only get them if we go to the casino. I can see Japan go to war not too long from now, it’ll seem the only thing left.

Japan Union Boss Criticises Pension Fund Strategy Shift (FT)

The head of Japan’s most powerful federation of labour unions has criticised the shake-up at the national pension fund, arguing that the world’s biggest institutional investor should have consulted workers before committing half of its Y127tn ($1.1tn) in assets to stocks. Last week the Government Pension Investment Fund (GPIF) surprised markets by saying it would more than double its allocation to domestic and foreign equities over the next few years, while cutting its target share of Japanese government bonds from 60% to 35%. The new mix was billed as a way to address rising payments to pensioners, while making the GPIF – which has long had a passive, conservative approach compared with similar bodies outside Japan – a more aggressive, returns-minded investor.

But Nobuaki Koga, the 62-year-old president of the federation known as Rengo, was unimpressed, describing the shift as a “big problem”. “Workers and management have had no say in the decision-making process, even though the money the GPIF is investing belongs to them,” Mr Koga told the Financial Times. “If there are big losses on the stock market, who will take responsibility?” The comments reflect concerns among some senior officials in Japan that the GPIF has been co-opted by the administration of Shinzo Abe in its attempt to haul the economy out of years of deflation. Higher stock prices are seen as a key part of that effort, prompting complaints that the prime minister is in effect gambling with the savings of millions of workers.

Friday’s announcement from the GPIF came within hours of another burst of monetary stimulus from the Bank of Japan and confirmation from the finance ministry that it was preparing a fiscal stimulus package. The measures combined to push up the Nikkei 225 stock average by about 8% in two days. Supporters of the GPIF’s move say criticism is to be expected, as people of Mr Koga’s generation have witnessed the Nikkei sink from a peak of almost 40,000 on the last business day of 1989 to a post-Lehman low of 7,054 in March 2009. “Stocks seem risky if you look at the volatility of month-to-month or year-to-year returns but this is a fund for the next 100 years. We can be patient,” said Takatoshi Ito, former chair of a committee advising on the portfolio reallocation and now deputy chair of a committee on reforming the GPIF’s governance. “Our view is that holding JGBs with coupons of 0.5% presents a significant risk in itself.”

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You think, gnome?

Ben Bernanke: Quantitative Easing Will Be Difficult For The ECB (CNBC)

Former Federal Reserve Chairman Ben Bernanke predicted that the European Central Bank (ECB) would have a rough time implementing U.S-style monetary easing. Speaking Wednesday at the Schwab IMPACT conference, the ex-central bank chief said the ECB faces political barriers to enacting such an aggressive program. “The barriers to doing it are not really economic,” he said. “The legal and political barriers being thrown up are going to make it very difficult to do that.” Bernanke also fired back at critics of the Fed’s own easing programs, accusing them of “bad economics” for saying that QE, which has pushed the institution’s balance sheet past the $4.5 trillion mark, would lead to inflation. The easing program began in 2009 and has had two additional versions since, the latest of which the Janet Yellen-led Open Market Committee terminated last week.

“There never was any risk of inflation. The economy was in great slack. If anything we were worried about deflation,” Bernanke said of economic conditions when QE was first launched. “Four years later there’s not a sign of inflation. The dollar is strengthening. They’re saying, ‘Wait another five years, it’s going to happen.’ It’s not going to happen.” QE came into being after the economy fell into recession during the financial crisis. Bernanke and a team that included then-Treasury Secretary Hank Paulson and his eventual successor, Timothy Geithner, who at the time headed the New York Fed, devised a series of alphabet-soup programs that helped stabilize the financial system. Since the advent of the Troubled Asset Relief Program, QE and other initiatives, the stock market also has rebounded, gaining about 200% off its March 2009 lows.

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The experts think they’re part of the plan.

BOJ Runs Into Critical Analysts After Kuroda Easing Shock (Bloomberg)

Hours after the Bank of Japan caught central-bank watchers off guard by boosting stimulus, officials were fending off complaints about its communications. A meeting on Oct. 31 with about 50 analysts and economists on the BOJ’s new outlook ran on for two hours – twice the usual time – as the discussion turned to how well Governor Haruhiko Kuroda and other officials telegraphed their views before the decision, said people who were present. The questions came like a torrent, with some complaining about the BOJ’s bond purchase plan and its communications with the market, according to analysts who asked not to be named as the gathering was private.

While Kuroda said he didn’t intend to surprise anyone with the decision to bolster already-unprecedented easing, springing the news on the market added to the punch. The risk for Kuroda is that he may undermine the BOJ’s credibility with some people in the market who count on central bank officials for clear and timely communication. “We shouldn’t take Kuroda’s comments at face value,” said Noriatsu Tanji, chief rates strategist at RBS Securities in Tokyo. “He offered a completely different view from what he said just three days earlier. Instead of listening to Kuroda, we should look at prices and the distance to the BOJ’s inflation target.”

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Go Mario, while you can with your face intact.

Mario Draghi’s Efforts To Save EMU Have Hit The Berlin Wall (AEP)

Mario Draghi has finally overplayed his hand. He tried to bounce the European Central Bank into €1 trillion of stimulus without the acquiescence of Europe’s creditor bloc or the political assent of Germany. The counter-attack is in full swing. The Frankfurter Allgemeine talks of a “palace coup”, the German boulevard press of a “Putsch”. I write before knowing the outcome of the ECB’s pre-meeting dinner on Wednesday night, but a blizzard of leaks points to an ugly showdown between Mr Draghi and Bundesbank chief Jens Weidmann. They are at daggers drawn. Mr Draghi is accused of withholding key documents from the ECB’s two German members, lest they use them in their guerrilla campaign to head off quantitative easing. This includes Sabine Lautenschlager, Germany’s enforcer on the six-man executive board, and an open foe of QE.

The chemistry is unrecognisable from July 2012, when Mr Draghi was working hand-in-glove with Ms Lautenschlager’s predecessor, Jorg Asmussen, an Italian speaker and Left-leaning Social Democrat. Together they cooked up the “do-whatever-it-takes” rescue plan for Italy and Spain (OMT). That is why it worked. We now learn from a Reuters report that Mr Draghi defied an explicit order from the governing council when he seemingly promised to boost the ECB’s balance sheet by €1 trillion. He also jumped the gun with a speech in Jackson Hole, giving the very strong impression that the ECB was alarmed by the collapse of the so-called five-year/five-year swap rate and would therefore respond with overpowering force. He had no clearance for this. The governors of all northern and central EMU states – except Finland and Belgium – lean towards the Bundesbank view, foolishly in my view but that is irrelevant. The North-South split is out in the open, and it reflects the raw conflict of interest between the two halves.

The North is competitive. The South is 20pc overvalued, caught in a debt-deflation vice. Data from the IMF show that Germany’s net foreign credit position (NIIP) has risen from 34pc to 48pc of GDP since 2009, Holland’s from 17pc to 46pc. The net debtors are sinking into deeper trouble, France from -9pc to -17pc, Italy from -27pc to -30pc and Spain from -94pc to -98pc. Claims that Spain is safely out of the woods ignore this festering problem.

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The higher dollar is all it takes.

It’s Now Total War Against The BRICS (Pepe Escobar)

Fasten your seat belts: the information war already unleashed against Russia is bound to expand to Brazil, India and China. Brazil, Russia, India and China, as it’s widely known, are the top four members of the BRICS group of emerging powers, which also includes South Africa and will incorporate other Global South nations in the near future. The BRICS immensely annoy Washington – and its Think Tankland – as they embody the concerted Global South push towards a multipolar world. Bottles of Crimean champagne could be bet that the US response to such a process couldn’t be but a sort of total information war – not dissimilar in spirit to the NSA’s deep state Total Information Awareness (TIA), a crucial element of the Pentagon’s Full Spectrum Dominance doctrine. The BRICS are seen as a major threat – so to counteract them implies domination of the information grid.

Vladimir Davydov, director of the Russian Academy of Sciences’ Institute of Latin America, was spot on when he remarked, “The current situation shows that there are attempts to suppress not only Russia but also the BRICS given that the global role of this association has only intensified.” Russia demonization has quickly escalated in the US from sanctions related to Ukraine to Putin as the “new Hitler” and the resurrection of the time-tested Cold War scare “The Russians are coming”. In the case of Brazil the information war already started way before the reelection of President Dilma Rousseff. As much as Wall Street and its local comprador elites were doing everything to tank what they define as a “statist” economy, Dilma was also personally demonized. Not so far-fetched steps in the near future might include sanctions on China because of its “aggressive” position in the South China Sea, or Hong Kong, or Tibet; sanctions on India because of Kashmir; sanctions on Brazil because of human rights violations or excess deforestation.

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A world of hurt.

‘Devil’s Metal’ Burns Investors As Gold Melts Down (CNBC)

Gold and silver have been crushed this week, burned by the rising dollar and the outflow of money looking for a home in stocks and other investments. Some analysts said the metals look like they should be close to a floor, but they stop short of calling a bottom based on the factors that are driving prices lower, including ETF withdrawals. Even a rush of coin buying, causing the U.S. Mint to temporarily run out of silver American Eagle coins, hasn’t yet turned the tide, “I’ve been pretty morose on gold for quite some time. Maybe it’s a little bit lower than we would have thought. … We had a one-two punch and a knockout,” said Bart Melek, head of commodities strategy at TD Securities. He said the hawkish tone of the Fed last week helped send gold reeling, and any positive moves in the dollar add to its decline. “It’s not likely we’re going to see an outright rout at this point. We’re kind of holding on key support levels. I think it will very much depend on how equity markets do and how the economy looks.”

The December Gold contract fell below $1,150 an ounce, and is now off more than 6.5% in the past five days. Silver is even weaker, and Melek said it could fall into the $14.50 zone. Silver is down more than 10.5% in the same time, and the December futures contract was down 3.2% at $15.44 an ounce in afternoon trading Wednesday. “It’s even more slaughtered. Although the fundamentals of silver are much stronger than the fundamentals of gold, who cares? The only thing that matters is what the dollar is doing. Money still wants to flow to stocks and that’s what it will continue to do,” said Dennis Gartman, publisher of the Gartman Letter.

Silver is much more volatile than gold and can lead prices higher, but also lower as it is doing now. “It burns investors. That’s why they call it the devil’s metal,” said one analyst. Gold also has been selling off as the world appears to be more concerned about disinflation than inflation, with weaker economies and the drop in crude. The dollar index is up 1.7% in the past five days. “The strength in the dollar is so substantial. The crude market weakness is so substantial. Where else can it go? It will keep going until it stops. It’s a bull market for the dollar, and that trumps all other concerns,” said Gartman.

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Brilliant.

Luxembourg Rubber-Stamps Tax Avoidance On Industrial Scale (Guardian)

An unprecedented international investigation into tax deals struck with Luxembourg has uncovered the multi-billion dollar tax secrets of some of the world’s largest multinational corporations. A cache of almost 28,000 pages of leaked tax agreements, returns and other sensitive papers relating to over 1,000 businesses paints a damning picture of an EU state which is quietly rubber-stamping tax avoidance on an industrial scale. The documents show that major companies — including drugs group Shire, City trading firm Icap and vacuum cleaner firm Dyson, who are headquartered in the UK or Ireland — have used complex webs of internal loans and interest payments which have slashed the companies’ tax bills. These arrangements, signed off by the Grand Duchy, are perfectly legal.

The documents also show how some 340 companies from around the world arranged specially-designed corporate structures with the Luxembourg authorities. The businesses include corporations such as Pepsi, Ikea, Accenture, Burberry, Procter & Gamble, Heinz, JP Morgan and FedEx. Leaked papers relating to the Coach handbag firm, drugs group Abbott Laboratories, Amazon, Deutsche Bank and Australian financial group Macquarie are also included. [.] Stephen Shay, a Harvard Law School professor who has held senior tax roles in the US Treasury and who last year gave expert testimony on Apple’s tax avoidance structures in a Senate investigation, said: “Clearly the database is evidencing a pervasive enabling by Luxembourg of multinationals’ avoidance of taxes [around the world].” He described the Grand Duchy as being “like a magical fairyland.”

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We live in a distorted world.

Interest Rates Are So Low Germans Pay To Keep Money In Banks (Telegraph)

Record low interest rates around the world have been hitting savers’ holdings for years, but things have become even worse in Germany. Deutsche Skatbank, a medium-sized co-operative based in Altenburg, East Germany, has introduced an interest rate of -0.25pc for certain clients, blaming the European Central Bank’s negative rates. The ECB cut one of its three key rates to less than zero in June and has since reduced them further in a desperate attempt to ward off deflation. “We can no longer offer cover costs due to the current interest rate environment,” the bank said. “The lowering of the interest rate for certain deposits with Deutsche Skatbank [is due to] the negative results from the analogous changes in interest rates, both at the ECB and in the interbank market.” Those with deposits of more than €500,000 (£393,000), will, rather than receiving interest on their deposits, have an interest rate of -0.25pc per annum. However, the bank said it would only actually apply this if balances went above €3m.

To put it another way, certain depositors are better off putting their money under the mattress. Because of the threshold, it only applies to very rich savers and institutions, but further ECB attempts to boost growth may have see this trend continue. The ECB is under pressure to introduce quantitative easing in a last-ditch attempt to boost growth, and has already started a version dubbed “QE-lite”. In June, when the ECB introduced negative rates, it said: “There will be no direct impact on your savings. Only banks that deposit money in certain accounts at the ECB have to pay.” However, it added: “Commercial banks may of course choose to lower interest rates for savers.” Low interest rates and quantitative easing have hit savers’ returns since the financial crisis.Additionally, banks’ extremely low funding costs due to the Funding for Lending Scheme and low market rates supported by implict government subsidies, have meant they do not have to attract savers to raise funds. There is a very direct correlation between interest rates and savings rates, which have been below inflation for years.

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Wonder what their true numbers are, their derivatives portfolio’s etc.

French Banks Warn On Country’s ‘Difficult’, ‘Incoherent’ Economy (CNBC)

French lender Societe Generale posted a 56% rise in third quarter net profit on Thursday, to €836 million ($1.04 billion), in spite of what the bank’s deputy chief executive described as a “difficult environment.” This sentiment was backed by the CEO of rival Credit Agricole who criticized a “lack of coherence” in French economic policy. SocGen’s net profit figures beat estimates from analysts polled by Reuters of €794 million. However, revenues slipped in the same period, down 1.8% at €5.9 billion, slightly above analysts’ forecasts. Deputy chief executive Severin Cabannes gave three reasons why the group saw such a rise in profit. “Firstly, we had a good commercial dynamic across all our businesses, secondly we had a strict control of all our costs which decreased in absolute terms compared to last year and third, we had a sharp drop in the cost of risk as anticipated.” Loan loss provisions were down by 41% and provisions for litigation remained at €900 million.

The latest figures come after the lender, which is France’s second-largest by market value, reported a 7.8% rise in net profits, to €1.030 billion ($1.38 billion) in the second quarter, and increased its litigation provisions. Elsewhere Thursday, French bank Credit Agricole also reported an increase in third-quarter net profit to €758 million, up 4.1% year on year. Revenues rose 4.0% year-on-year in the same period to €4.0 billion. The bank said there was good business momentum and a continued fall in the cost of risk “despite a challenging economic, regulatory and fiscal environment,” chief executive Jean-Paul Chifflet said in an earning’s statement. However, Chifflet added that a weakness in the French economy weighed on the business and criticized a “lack of coherence” in French economic policy. Speaking to reporters in a conference call, Chifflet said “signs of recovery are proving elusive, unemployment is high, the real estate market is in correction, the public deficit continues to overshoot amid insufficient spending cuts,” Reuters reported.

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So can we shut up now about that great economy?

Pace Of UK Economic Growth Expected To Halve As Service Sector Slows (Guardian)

The pace of Britain’s recovery is expected to almost halve by the end of the year after a survey showed the service sector expanded at the slowest pace in almost 18 months in October. In the first quarter of the year, the UK registered a rise in GDP of 0.9%, but analysts said the slowdown since the summer meant the final quarter was likely to see growth fall to 0.5%, taking pressure off the Bank of England to raise interest rates. Echoing similar trends in manufacturing and construction, the Markit/CIPS services purchasing managers’ index (PMI) fell from 58.7 in September to 56.2, the lowest level of expansion since April 2013. Britain’s rate of growth still continues to outstrip that of the eurozone, with businesses reporting and businesses reported that they intend to hire more staff. Robert Wood, chief UK economist at Berenberg bank, said the latest figures revealed that growth rates had returned to “more reasonable levels” and showed that Britain would continue to grow strongly. “Keep some perspective, the PMI is still strong and the sharp slowdown may be a flash in the pan,” he said.

“New business flows remain very strong and firms are sufficiently enamoured with the UK’s prospects that they are still hiring strongly.” Markit said new business growth was the main prop to higher levels of activity. In its monthly report, the financial data provider said: “October’s data indicated the 22nd successive monthly increase in incoming new work, and respondents commented on success in securing new work via higher marketing and improved client engagement.” Reflecting the weaker outlook, sterling sank to a one-year low of $1.59. In July, the currency topped $1.70 but has fallen back as the prospect of interest rate rises began to wane. Warning signs of a sharper than expected deceleration towards the end of the year was reflected in comments about the uncertainty for exports. While the US remains a strong export market for the UK businesses, the eurozone has entered a period of contraction, with several countries falling back into a third recession since the 2008 banking crash.

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This is what I find a disgrace.

300,000 More British Live In Dire Poverty Than Already Thought (Guardian)

The number of people living in dire poverty in Britain is 300,000 more than previously thought due to poorer households facing a higher cost of living than the well off, according to a study released on Wednesday. A report produced by the Institute for Fiscal Studies found that soaring prices for food and fuel over the past decade have had a bigger impact on struggling families who spend more of their budgets on staple goods. By contrast, richer households had been the beneficiaries of the drop in mortgage rates and lower motoring costs. The study by the IFS for the Joseph Rowntree Foundation said the government method for calculating absolute poverty – the number of people living below a breadline that rises each year in line with the cost of living – assumed that all households faced the same inflation rate. But in the six years from early 2008 to early 2014, the cost of energy had risen by 67% and the cost of food by 32%. Over the same period the retail prices index – a measure of the cost of a basket of goods and services – had gone up by 22%.

The IFS report said the poorest 20% of households spent 8% of their budgets on energy and 20% on food, while the richest 20% spent 4% on energy and 11% on food. Poorer households allocated 3% of their budgets to mortgage interest payments, which have fallen by 40% since 2008 due to the cut in official interest from 5% to 0.5%. Richer households spend 8% of their budgets on servicing home loans. As a result, the IFS concluded that since 2008-09 the annual inflation rate faced by the poorest 20% had been higher than it was for the richest 20% of households. That meant the official measure of absolute poverty understated the figure by 0.5% – or 300,000. The report said, however, that poverty had not been systematically understated, and that in earlier years absolute poverty would have been lower using its new definition based on the different inflation rates facing rich and poor.

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Word.

The Trouble With Mass Delusions (Paul Singer)

The trouble with mass delusions is that they are recognized as such only when they are over – when the dazzling absurdity of certain widely held beliefs is unmasked by subsequent events. Interestingly, many delusions relate to war. At the beginning of World War I, there was a widespread misconception that the war would be over in months. In hindsight, this delusion was fueled by a deep misunderstanding, among citizens and military experts alike, of the impact that evolving technology would have on modern warfare. Parenthetically, we would argue that the current drawdown of military capability throughout the developed world is based on a delusion that ignores thousands of years of immutable, or at least always repeating, human history of almost continuous (in the grand scheme of things) warfare. Economics also provides its share of delusions, including the debt-fueled bubbles of both the 1920s stock market and the first dotcom boom.

The real estate boom of the 2000s was another one, as excess demand was fueled by the combination of near-free money, the most marginal financial products ever invented, and the frenetic selling of houses to people who could not afford them and did not actually own them in any meaningful sense of the word. These examples are easy, because they were mass beliefs that were unreasonable in the extreme at the time they were held. Of course, at the time not everyone held the same deluded views, but the disbelievers were (and always are) discredited, demoralized and ignored while the delusions were alive. The problem is that while the delusions remain intact there is no proof available to convince the believers of their folly. Simply repeating that a mass belief is crazy does not make it so (nor convince anyone else that it is nuts). Furthermore, the amount of time necessary to reveal the truth is sometimes too long for nonbelievers to bear, so they just stop trying.

There is a current set of delusions that is powerful and dangerous: that monetary debasement can be infinitely pursued without negative consequences; that the financial system is now solid and sound; that the low volatility and high prices of stocks, high-end real estate and bonds are real; that bonds are a safe haven; and that large financial institutions which get into trouble in the future can be unwound in a much safer way than they could be in 2008 We have discussed each of these elements in the pages of this report and previous ones in an attempt to reveal the fallacy and unsustainability of such beliefs. But, as stated above, they will only enter the history books as mass delusions if they are unmasked in the future as unjustifiable and erroneous beliefs at the time they were held. We think that test will be met, perhaps soon.

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Yeah, we reallly need to prepare for more transport and bigger ships and more trade and what not, in the face of peak oil. We are so smart it hurts. But the techno happy majority among us will not be stopped by anything but harsh reality.

Uncertainties Surround Nicaragua’s New Panama Canal Competitor (Spiegel)

Wearing orange overalls and sun hats, the Chinese arrived in Río Brito by helicopter before being escorted by soldiers to the river bank – right to the spot where José Enot Solís always throws out his fishing net. The Chinese drilled a hole into the ground, then another and another. “They punched holes all over the shore,” the fisherman says. He points to a grapefruit-sized opening in the mud, over one meter deep. Next to it lie bits of paper bearing Chinese writing. Aside from that, though, there isn’t much else to see of the monumental and controversial project that is to be built here: The Interoceanic Grand Canal, a second shipping channel between the Atlantic and Pacific. The waterway is to stretch from Río Brito on the Pacific coast to the mouth of the Punta Gorda river on the Caribbean coast. Beyond that, though, curiously little is known about the details of the project.

Only Nicaraguan President Daniel Ortega and his closest advisors know how much money has already been invested, what will happen with the people living along the route and when the first construction workers from China arrive. Studies regarding the environmental and social impact of the undertaking don’t exist. The timeline is tight. The first ship is scheduled to sail into Río Brito, which will become part of the canal, in just five years. When completed, the waterway will be 278 kilometers (173 miles) long, 230 meters (755 feet) wide and up to 30 meters (100 feet) deep, much larger than the Panama Canal to the south. A 500-meter wide security zone is planned for both sides of the waterway. And it will be able to handle enormous vessels belonging to the post-panamax category, some of which can carry more than 18,000 containers.

Thus far, only a few dozen Chinese experts are in Nicaragua and have been carrying out test drilling at the mouth of the river since the end of last year. They are measuring the speed at which the river flows, groundwater levels and soil properties. Not long ago, police established a checkpoint at the site and it is possible that the entire area will ultimately be closed off. For now, though, the region remains a paradise for natural scientists and surfers. Sea turtles lay their eggs on the beach and a tropical dry forest stretches out behind it to the south, reaching far beyond the border into Costa Rica. But if the river here is dredged and straightened out as planned, the village on Río Brito will cease to exist.

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” .. only 11 countries in the world are not involved in any conflict – despite this being “the most peaceful century in human history.”

What’s The Environmental Impact Of Modern Warfare? (Guardian)

UN secretary general Ban Ki-moon has called on nations to do more to protect the environment from the devastation wrought by warfare. “The environment has long been a silent casualty of war and armed conflict. From the contamination of land and the destruction of forests to the plunder of natural resources and the collapse of management systems, the environmental consequences of war are often widespread and devastating,” said Ban in a statement for the UN’s International Day for Preventing the Exploitation of the Environment in War and Armed Conflict on Thursday. “Let us reaffirm our commitment to protect the environment from the impacts of war, and to prevent future conflicts over natural resources.” War changes our parameters. In the face of actual or perceived threat, acts that would normally be abhorrent become acceptable and even routine. One of the first of our sensibilities to be discarded is the protection of the environment, says Catherine Lutz, a professor on war and its impacts at the Watson Institute for International Studies.

“There is this notion that it is life or death for a nation so you don’t worry about niceties. We have this idea that human beings are separate from their environment and that you could save a human life through military means and military preparation and then worry about these secondary things later,” she says. According to the Institute for Economics and Peace, only 11 countries in the world are not involved in any conflict – despite this being “the most peaceful century in human history”. In war, the environment suffers from neglect, exploitation, human desperation and deliberate abuse. But even in relatively peaceful countries the forces assembled to maintain security consume vast resources with relative impunity. During the first Gulf War, the US bombed Iraq with 340 tonnes of missiles containing depleted uranium. Mac Skelton, a researcher at Johns Hopkins University, has conducted extensive field work in Iraq on the increased rate of radiation-related cancers, which has been linked to the shells used by the US and UK militaries.

Skelton and others suggest the radiation from these weapons has poisoned the soil and water of Iraq, making the environment carcinogenic. The UK government says these accusations are false. No comprehensive study has been done to establish or disprove the link between cancer and depleted uranium weapons.

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“The town is probably the most heavily fracked in the country.”

Texas Oil Town Makes History As Residents Say No To Fracking (Guardian)

The Texas town where America’s oil and natural gas boom began has voted to ban fracking, in a stunning rebuke to the industry. Denton, a college town on the edge of the Barnett Shale, voted by 59% to ban fracking inside the city limits, a first for any locality in Texas. Organisers said they hoped it would give a boost to anti-fracking activists in other states. More than 15 million Americans now live within a mile of an oil or gas well. “It should send a signal to industry that if the people in Texas – where fracking was invented – can’t live with it, nobody can,” said Sharon Wilson, the Texas organiser for EarthWorks, who lives in Denton. An energy group on Wednesday asked for an immediate injunction to keep the ban from being enforced. Tom Phillips, an attorney for the Texas Oil and Gas association, told the Associated Press the courts must “give a prompt and authoritative answer” on whether the ban violates the Texas state constitution.

Athens in Ohio and San Benito and Mendocino counties in California also voted to ban fracking on Tuesday. Similar measures were defeated in Gates Mills, Kent and Youngstown, Ohio, as well as Santa Barbara, California. Denton remains a solidly Republican town, and oil companies reportedly spent $700,000 to defeat the ban, according to the Denton Record-Chronicle – nearly $6 for every resident. “It was more like David and Godzilla then David and Goliath,” Wilson said. But she said residents were fed up with the noise and disruption of fracking, and the constant traffic and fumes from wells and trucks operating in residential neighbourhoods. The town is probably the most heavily fracked in the country.

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Apr 092014
 
 April 9, 2014  Posted by at 3:15 pm Finance Tagged with: , , , ,  6 Responses »


Ben Shahn Farmer’s daughter near Mechanicsburg, Ohio Summer 1938

The eurocrisis is over, the US Navy makes fuel from seawater, and America will be energy independent by 2037, according to the EIA. Boy, where do we begin? We’re getting flooded with an increasing amount of sheer nonsense wrapped in sheep’s clothing, and it’s hard to keep up. We not only live in a pretend economy, by now most of what we think we see isn’t really there at all. Indeed, there’s not even a there there anymore. Look, if you believe that the Navy can power its fleet with fuel made from seawater, you should probably know there’s a lot of gold in the oceans as well. Which means that you are potentially very wealthy. All you have to do is dig it out.

On a slightly – but only so – more serious plane, do you guys realize that the folks at the EIA get paid hefty salaries to produce reports like the new one that predicts the US will be energy independent in a mere 23 years? I kid you not. See, I think the US propaganda machine for Ukraine is insane and unworthy, but then you get this on top of all that.

US To Become Oil Independent By 2037 – EIA (RT)

US may stop importing oil by 2037 as abundant domestic crude supplies, including North Dakota’s Bakken field and Texas’s Eagle Ford formation, may push production to the level of consumption, according to the US government. The US Energy Department’s branch that collects and analyzes data – the Energy Information Administration (EIA) says that within 23 years the world’s largest economy may become energy independent …

Alright then, once again, there we go. First, Rune Likvern on decline ratio’s in the Bakken Play’s Reunion Bay:


Do note the increase in total well numbers, which sort of mask the decline per well.

Then, Chris Hughes on the Bakken and Eagle Ford plays:


And the North Dakota government on production in a typical Bakken play well:


We have Roger Blanchard on total Eagle Ford production:


And Likvern again on accumulated typical Bakken well production:


Are there any further questions on for instance how many wells would have to be drilled to overcome the decline rates? In Bakken’s Reunion Bay (1st graph) the number increased five-fold in 2.5 years. If that rate continued, and there’s little to no reason to assume otherwise, there are some 50,000 wells in that play today. At an average price of $8 million per well, that’s $400 billion.

What, you thought Shell and Exxon left shale alone for no reason? If the deplete/invest trend holds up till the EIA dream date of 2037, we’re talking millions of wells, an utterly ravaged landscape and trillions of dollars of “investment”. You think that’s going to happen? Thing is, because of the depletion rate of shale wells, the investment would have to continue for another 20 years, at the present rate, for shale to just play even. And that’s provided those millions of new wells will be drilled. By whom?

The real question is: Why do US government agencies issue reports like this? What are they seeking to achieve? The entire shale industry has been fully exposed by the likes of Rune Likvern and Chris Hughes for quite a while, so it all looks to be purely a propaganda game, where the mass media convey to their audience whatever it is the government would like them to believe. But that just turns the US into Bizarro world more every step of the way. And whatever that may be, or why it may be happening, it’s certainly not going to solve the problems, energy or finance, of the American people. Who happen to pay those cushy salaries the EIA “scientists” are on the payroll for.

Of course this all plays wonderfully into the whole tale of the US exporting LNG to Europe so it can free from itself from Russian gas dependence. We get it, boys. And that’s at least part of why it’s fed through the media to the Great American Unwashed. More of whom go hungry among OECD nations than in any other country save Hungary and Estonia. Let the eagle soar. So we can shoot it and feed our children.

What is this? Is some foreign desert they have no reason to be in the only place where America’s best and bravest will show what they think they’re made of? Can’t show courage at home anymore? What was that number? I think it was that 8000 US soldiers got killed in action abroad since 9/11, while 100,000 committed suicide. I mean, honestly, people, where do you see this going?

When the recession ended, everyone knows it didn’t.

Investing In A Pretend Economy (EconomicNoise)

We live in a pretend economy. It is important to recognize this condition, especially if you are an investor. Current market behavior is concerning. Bonds and stocks remain volatile and near record levels. Markets ignore the continuing stagnation in the pretend economy, buoyed apparently by government liquidity injections. To justify investing today in these markets, one must anticipate one or both of the following:

  1. Economic growth is about to surge.
  2. Market values can continue to rise from here, potentially further widening the already large gap between valuations and fundamental economics.

No reading of the economic tea leaves suggests a surge in economic growth is coming. Indeed, a critical analysis of the data makes one question whether there has been a recovery at all. Certainly any recovery has to be labeled as abnormal. If economic conditions look like they will continue to be sub-par, then an investor has to believe that it is realistic to expect market valuations to continue to ignore economic conditions. That assumption worked last year when markets rose about 30%. Is it reasonable to expect the divergence to continue for another year? No divergence can continue forever but that doesn’t mean it can’t persist for a while.

The recession ended (according to the National Bureau of Economic Research) in June 2009. Rapid economic expansion normally occurs during the first three or four quarters after a recession ends. The typical recovery period is characterized by three to four quarters of unsustainably high growth rates. That take-off growth never occurred when this recession was declared over. Nevertheless, government went into full propaganda mode and the pretend economy began.

At no time in my recollection has the word “recovering” been used to describe an economy five years after a recession was declared over. Perhaps the term was borrowed from “recovering” alcoholic which I understand is a forever state. Either the government is lying about a recovery or something has radically changed in terms of the economy. Both are likely. The current “recovery” does not conform to other recoveries. After five years, history suggests we may be close to the next recession, not still “recovering” from the previous one. However, history is not economics. It may repeat or rhyme, but it doesn’t rule. [..]

There has been no real economic recovery. What has occurred is a pretend recovery. The pretend is not limited to this recent cycle. It has been going on for many years. In a sense, what we now have and have had for the last decade or more is a pretend economy. Government interventions have been the driving force in this pretend economy. Government has no incentive to not have a real recovery. It would prefer one, but that is no longer possible as a result of an accumulation of distortions that have built up over decades. A pretend economy is the next best thing. Interventions cover up reality (for awhile) but they also add to the economic distortions and damage.

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Dominoes falling.

China’s Next Bond Default Looms As Polyester Firm Declares Bankruptcy (Bloomberg)

A small manufacturer of polyester yarn based in China’s wealthy Zhejiang province has declared bankruptcy, threatening its ability to meet an interest payment on a high-yield bond due in July. Zhejiang Huatesi Polymer Technical Co Ltd asked a local court for bankruptcy protection in early March, according to an announcement on the website of the Anji County People’s Court.

The firm sold 60 million yuan ($9.7 million) in bonds in a private placement in January 2013 at an interest rate of 11%. The next interest payment is due on July 23, while the bond matures in January next year. A string of credit defaults in recent weeks has highlighted rising credit risks in China, partly fuelled by signs that the economy is slowing down.

Analysts widely expect more defaults on loans, bonds, and shadow bank products this year. Semiconductor, software, and commodities firms are among the most at risk for default, a Reuters analysis of more than 2,600 Chinese companies showed. The Xuzhou Zhongsen default marked the first ever in China’s high-yield bond market, which the securities regulator launched in June 2012 in a bid to offer a new financing channel for small, private firms. Such firms often struggle to access credit in China’s state-dominated financial system.

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No bleeping kidding!

Kerry, Congress Agree: Superpower Status Not What It Was (Bloomberg)

Secretary of State John Kerry and members of the Senate Foreign Relations Committee agreed on one thing yesterday: Being a superpower isn’t what it used to be. At a hearing on the U.S. State Department budget, Republicans and Democrats alike raised concerns about America’s limited ability to cope with global challenges, from Russian aggression in Ukraine to Iran’s nuclear program, China’s assertiveness in the Pacific and Syria’s civil war. While some Republicans blamed the administration for decisions that they say have eroded U.S. influence, Kerry pointed to a “changed world.”

“The United States has power, enormous power,” he said, “but we can’t necessarily always dictate every outcome the way we want, particularly in this world where we have rising economic powers — China, India, Mexico, Korea, Brazil, many other people who are players.” The two-hour Senate hearing was only one place where lawmakers and others challenged President Barack Obama’s foreign policy yesterday. The jousting underscored the U.S. struggle to defend its global interests and allies as technology and the diffusion of economic and military power erode its post-Cold War position as the lone superpower.

Halfway around the world, Chinese Defense Minister General Chang Wanquan told Defense Secretary Chuck Hagel that the U.S. rebalancing to Asia won’t contain China or affect its claims to territory in the region. “With the latest developments in China, it can never be contained,” he said.

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How useless can one man get?

Draghi Hunts for QE Assets in “Dead” Market (Bloomberg)

Mario Draghi’s asset-purchase plan to ward off deflation may be lacking one key element: enough assets to buy. Since the European Central Bank President buoyed investors last week by saying policy makers backed quantitative easing as a way to boost prices if needed, officials including Governing Council member Ewald Nowotny have signaled any purchases may center on asset-backed securities. While that makes sense in an economy funded mostly by bank loans, it’s also a market Draghi once described as “dead.”

The ECB’s focus on ABS for monetary easing risks guiding it toward a policy that might be slow to evolve and far smaller than the $1 trillion ($1.4 trillion) in bond purchases it has already simulated. Draghi has said international regulators must change the rules on ABSs, yet those officials are steering against the easy creation of complex products because of the role they played in the global financial crisis. “A preference for ABSs has been expressed time and again – and in fact it is the first asset class that would make sense for the ECB to buy,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. “The market’s revival is conditional on the regulator changing capital requirements. Until this changes, jump-starting the ABS market is difficult and demand for these securities will remain weak.”

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The truth behind the headlines.

Europe Not Moving Away From Russian Energy (RT)

Europe has no plans to move away from Russian gas, with the major energy projects like South Stream expected to remain in place, according to Reiner Hartmann, Chairman of the Association of European Businesses. The US and EU both have condemned Russian action in Ukraine. The US responded with economic sanctions on banks and individuals thought to be close to Russian President Putin, but Europe’s economy is much more closely integrated with Russia’s, which has kept tough sanctions off the table. “We are very aware of the situation; that we are in a very comfortable position. We are close to Russian gas fields,” Hartmann said on Monday following a meeting at the Association of European Businesses’ office in Moscow.

Business between European clients and Moscow will continue as usual, Hartmann, Managing Director at E.ON Ruhrgas Russia, said. “And during the past 40 years not one cubic meter of gas was not delivered according to contracts.” Ukraine, along with some EU officials, have accused Russia of “gas wars” and of using hydrocarbons as a diplomatic weapon, however, the AEB is able to separate business from politics. “And during the last 40 years Russia also never used gas as a weapon in political issues, etc. And, we believe, this will not be the case in the future,” said Hartmann. [..]

Projects already in the works – like the Southern Corridor and the South Stream gas pipelines, won’t be affected by political tension in Ukraine, according to Hartmann. A leaked briefing by European Commission chief Jose Manuel Barroso indicated the EU may try and use the South Stream project as a gambit to negotiate with Russia over Ukraine. South Stream, Gazprom’s $45 billion project that is due to partially open in 2015 and reach full capacity in 2018 and deliver 64 billion cubic meters of gas to Europe, runs through EU countries Bulgaria, Croatia, Greece, Hungary, and soon to be a EU member Serbia. The line connects Russia to Europe via the Black Sea. The route will supply Europe with 15% of its gas needs. The Bulgarian press reported that Barroso said it needed “to be very careful” in its South Stream dealings, hinting that the country must align with EU, and not Russian interests.

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US To Become Oil Independent By 2037 – EIA (RT)

US may stop importing oil by 2037 as abundant domestic crude supplies, including North Dakota’s Bakken field and Texas’s Eagle Ford formation, may push production to the level of consumption, according to the US government. The US Energy Department’s branch that collects and analyzes data – the Energy Information Administration (EIA) says that within 23 years the world’s largest economy may become energy independent, while demand for crude is expected to be modest. “This is the first time the Annual Energy Outlook has projected that net imports’ share of liquid fuels consumption could reach zero,” Bloomberg quotes John Krohn a spokesman for the EIA.

The most optimistic assessment by the EIA assumes that production will increase to about 13 million barrels a day over the next two decades. The projection is based on more favorable assumptions relating to technological improvements and the productivity of wells. Net oil imports have already fallen to about 5 million barrels a day from a peak of almost 13 million barrels in 2006. The shift is mostly due to advances in techniques such as hydraulic fracturing and horizontal drilling into shale rock.

The EIA also calculated a low resource scenario. According to estimates, after the moderate growth of up to 9.1 million barrels a day in 2017 the production of oil may nosedive to 6.6 million barrels a day by 2040. In the worst-case scenario in terms of imports the EIA assessed the net import share of petroleum and other liquids to fall to 25% in 2016 and then again rise up to 32% in 2040.

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The Born Again Jobs Scam: The Ugly Truth Behind “Jobs Friday” (David Stockman)

The mainstream recovery narrative has an astounding “recency bias”. According to all the CNBC talking heads, the 192,000 NFP jobs gain reported on Friday constituted another “strong” report card. Well, let’s see. Approximately 75 months ago (December 2007) at the cyclical peak before the so-called Great Recession, the BLS reported 138.4 million NFP jobs. When the hosanna chorus broke into song last Friday, the reported figure was 137.9 million NFP jobs. By the lights of old-fashioned subtraction, therefore, we are still 500k jobs short—notwithstanding $3.5 trillion of money printing in the interim.

The truth is, all the ballyhooed “new jobs” celebrated on bubblevision month-after-month have actually been “born again” jobs. That is, jobs which were created during the Fed’s 2002-2007 bubble inflation; lost in the aftermath of the September 2008 meltdown; and then “recovered” during the renewed bubble inflation now underway. Stated differently, back when the NFP jobs count first clocked in at 137.9 million in the fall of 2007, the talking heads assured us that we were in a permanent “goldilocks economy” thanks to the brilliant management skills of the Fed. So here we are nearly 7 years later, still a half million jobs short, and the talking heads are gumming once again about the same old illusory “goldilocks”. Who actually pays these people to bloviate!

Setting aside the utterly superficial recency bias, its not hard to see the dire reality lurking in the actual trends. To be precise, 75 months into the post-2000 cycle the US economy had generated 5 million net new jobs—that is, it was way above its prior high water mark. Likewise, 75 months on from the 1990 peak, it had produced 10 million net new jobs. So the fact that we are still in negative jobs territory this far into a recovery cycle is literally off-the-historical-charts. And the fact that we are already in month 57 of this business expansion when the ten expansions since 1950 have averaged only 53 months in duration is even more telling. Notwithstanding Bernanke’s hubristic proclamation of the Great Moderation, the Fed has not abolished recessions—so this time the cyclical clock may run out long before many actual “new jobs” are created.

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The US is busy falling into its own knife.

Housing Pain Could Halt Stocks’ Gain (Marketwatch)

[..] while I’m not too worried about stocks, I do think the housing market may take a hit. And the fallout of negative sentiment could affect other assets and consumer spending as a result. A big narrative of our economic recovery has been a resurgent housing market. As a result, a slowdown or decline could be bad news for investors of all stripes. Here’s what I think investors and homeowners should be watching in the real estate market, and the warning signs worth noting.

As it becomes increasingly clear that the Federal Reserve is on track to raise key interest rates in the next 12 to 18 months, the rate on mortgages has been creeping higher too. Mortgage rates were elevated in March, and interest rates are flirting with a monthly average of 4.5% on a 30-year fixed – which, according to Freddie Mac mortgage survey data, would mark the highest levels since July 2011. Consider that a $200,000 loan at a 3.5% rate works out to about $900 per month, while a 4.5% rate is just shy of $1,015 — a difference of $115 monthly for the same home. And for more expensive houses, the difference is even more dramatic.

This additional cost burden could price people into smaller homes or deter them from shopping altogether. And, remember, this recent rate increase has occurred even without a Fed-driven rate hike behind it, so mortgage interest rates could move significantly higher across the coming months. And let’s not even get into what an increase in rates could do to those without fixed mortgages who will see payments adjust up as a result. The bottom line is that higher borrowing costs will undoubtedly cool some of the demand for housing by the time we hit the key house-shopping months of spring and summer 2015.

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But wait! What are we going to pay the bonuses with?

Banks Set to Report Lower Earnings as Debt Trading Slumps (Bloomberg)

Surging stocks, booming initial public offerings and rising employment all pointed to a feast of first-quarter bank profits. Debt markets crashed the party. Fixed-income trading slid 15% in the first three months of 2014, analysts estimate, as the Federal Reserve slowed its bond purchases. Combine that with a drop in mortgage revenue and a $9.5 billion legal settlement, and profit for the nation’s five biggest banks probably fell 14% to $16.5 billion from a year earlier. Only sixth-ranked Morgan Stanley, which relies less on those businesses, is seen bucking the trend.

“There’s been a lot less fixed-income activity than we typically see in the first quarter,” David Konrad, Macquarie Group Ltd.’s head of U.S. bank research, said in a telephone interview. “The environment is more challenging when rates are increasing and liquidity is being pulled from the market and regulation’s coming in.” The slump in bond trading, a business that fueled Wall Street’s rebound after the credit crisis and generates more revenue than equities at most big banks, may erode earnings at firms such as Goldman Sachs Group Inc. Profit there probably fell 23% to $1.73 billion. Morgan Stanley, owner of the world’s biggest brokerage, may be alone among the largest U.S. banks in posting higher earnings as it relies more on equities. Its profit surged 23% to $1.19 billion, according to analysts’ estimates compiled by Bloomberg.

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It just ain’t fair!

US Banks to Face Tougher Leverage Caps Than Competitors (Bloomberg)

The biggest U.S. bank holding companies will need to round up as much as $68 billion more in loss-absorbing capital under supplemental leverage ratio rules adopted by regulators in Washington today. Eight lenders, including JPMorgan Chase and Bank of America, face greater restrictions on borrowing power than their overseas competitors as they meet a demand to hold capital equal to at least 5% of total assets. The rules designed to curtail financial-system risk surpass the 3% minimum set in a global agreement by the Basel Committee on Banking Supervision.

“The leverage ratio serves as a critical backstop to the risk-based capital requirements – particularly for the most systemic banking firms,” Daniel Tarullo, the Federal Reserve governor responsible for financial regulation, said in a statement. The leverage rule, which also affects Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street, is meant to work alongside risk-based capital standards approved by U.S. regulators last year and a pending rule that would require banks to keep a high level of ready-to-sell assets to weather a crisis.

The rule was approved by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency. Bankers had argued that the leverage demand – often described by the agencies as a backstop – would become the dominant capital standard, and Tarullo agreed today that it will be the most binding constraint for some banks.

Fed Governor Jeremy Stein said he had “misgivings” about possible “unintended consequences” of the rule. “I do think it is possible to go too far with a simple leverage ratio if it gets raised to the point where it is binding or near-binding rather than being a backstop.” Fed Chair Janet Yellen said regulators should “watch carefully” for such consequences. Most of the banks have said they already or soon will meet the demand for 5% capital at the bank holding company level and 6% at banking units. The holding companies are about $68 billion short, and the banking subsidiaries face a $95 billion shortfall, regulators said.

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Look for ugly.

IMF Cuts Japan Growth Forecast As Abenomics Stalls (AFP)

The International Monetary Fund on Tuesday cut its 2014 growth forecast for Japan and warned that Prime Minister Shinzo Abe must follow through on promised reforms to cement a turnaround in the world’s number-three economy. In its World Economic Outlook, the IMF said it expected Japan’s economy to grow 1.4% this year, down from an earlier 1.7% forecast, before slowing to 1.0% in 2015. The Washington-based Fund has previously been upbeat on Abe’s growth policy blitz — a mixture of big government spending and central bank monetary easing dubbed Abenomics, which is designed to drag the economy out of years of deflation and laggard growth.

The plan’s so-called “third arrow” — reforms that include more flexible labour markets and free-trade deals — have been more talk than action so far, although Tokyo on Monday agreed on a long-awaited trade deal with Australia. The agreement was the first time Japan had negotiated a comprehensive economic partnership agreement or free trade deal with a major economy. But separate negotiations involving the United States, Japan and 10 other nations, known as the Trans-Pacific Partnership, have stalled.

Japan has long been accused of protecting its domestic industries — including the politically powerful agricultural sector — with high trade and other non-tariff barriers, while many of its own exports, including vehicles and electronics, enjoy big sales overseas. Abe has pledged to make changes and grow the long-laggard economy, while battling to contain one of the rich world’s heaviest debt burdens. But “Abenomics still needs to translate into stronger domestic private demand”, the IMF said. “Implementation of the remaining two arrows of Abenomics — structural reform and plans for fiscal consolidation beyond 2015 — is essential to achieve the inflation target and higher sustained growth.”

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Lip service.

IMF Warns Eurozone And ECB On Deflation Threat (RTE)

The International Monetary Fund has identified deflation as the biggest risk to economic recovery in the Euro Area. In its latest World Economic Outlook, the IMF said the Euro Area needs more monetary easing – including unconventional measures, such as quantitative easing – to sustain recovery and reach the ECB’s inflation target of 2%. Last week ECB President Mario Draghi was critical of IMF managing director Christine Lagarde for urging the ECB to effectively print more money to head off the risk of deflation. But today’s IMF publication contains numerous calls for monetary intervention from Frankfurt to deal with deflation.

Overall the IMF said the global recovery is expected to strengthen this year, led by the advanced economies. It said that emerging market and developing economies will only grow modestly this year, adding that a worrying development is a downgrade of growth rates in some of the larger emerging market economies notably Brazil, Russia, South Africa and Turkey. It said the main risk to advanced economies comes mainly from “prospects of low inflation and the possibility of protracted stagnation, especially in the Euro Area and Japan”.

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UK Fails To Notice The Beam In Its Own Eye (RT)

Rather than the exception, corruption is now the norm within the key institutions at the heart of the British establishment. The latest reminder of it is the recent story to dominate British newspapers and the broadcast media involves the UK Culture Secretary and member of Prime Minister David Cameron’s government, Maria Miller, who is the latest in a long line of politicians to become embroiled in scandal over their expenses.

It comes as a reminder that for a country whose political leaders, intelligentsia and media commentators have made a habit of pointing the finger at governments, countries, and political systems around the world, adjudging them to be corrupt and morally deficient, the scale of the hypocrisy in this regard is astounding. In recent years we have witnessed scandals involving the City of London, the main driver of the UK economy, surrounding the greed and recklessness responsible for an economic crisis that has delivered thousands of people into destitution.

Yet at time of writing not one British banker has been prosecuted or faced any legal sanction for the economic chaos that has engulfed the country. Worse, the bonus culture that is prevalent in the City of London, and in corporate boardrooms in general, rather than being curtailed, has remained in place, thus ensuring that an emphasis on short-term profits and personal enrichment continues to take priority over long-term investment and sustainability when it comes to the UK economy. [..]

Corruption within the British political system is now so commonplace that when another example of it is made public, it no longer shocks or surprises. What it does do is re-enforce the view that a sense of entitlement and privilege is so embedded within the British establishment as to make a mockery of words such as integrity and democracy. Making it even worse is that it comes at a time when the most economically vulnerable in Britain are on the receiving end of a vicious assault by the government, seeing their benefits, wages, and conditions cut to the bone on the justification they are no longer affordable because of an economic crisis they weren’t responsible for creating in the first place.

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Ha! HAHAHA!

OPEC Plans to Make Room for Extra Oil From Iran, Iraq, Libya (Bloomberg)

OPEC, which supplies 40 percent of the world’s oil, will accommodate additional output from members Iraq, Iran and Libya, Secretary-General Abdalla El-Badri said, without explaining how it will do so under the group’s ceiling. The Organization of Petroleum Exporting Countries will wait until 2015 to discuss output targets with Iraq, which currently operates outside the production-quota system for each of the group’s other 11 member countries, El-Badri told reporters today in Doha, Qatar.

OPEC foresees gradual increases from Iraq and Iran, while Libya is capable of boosting output by as much as 1 million barrels within a month, he said. “There is no problem for OPEC to absorb any production increment from Iraq and Iran in 2014,” El-Badri said. “When Libya output comes back, we will accommodate it because its production is in our numbers.” OPEC is set to boost output as its second-biggest producer Iraq pumps at a 35-year high and Libya’s government makes progress in talks with rebels who control fields and export terminals in the country’s oil-rich east.

Sanctions on Iran over its nuclear program have constrained the country’s production and sales of crude. OPEC plans to meet on June 11 in Vienna to review its output target, now at 30 million barrels a day. Global demand will increase by 1.1 million barrels a day in 2014, and the group will produce up to 30 million barrels a day for the rest of the year, El-Badri said. “Of course, ministers can change that when they meet,” he said. OPEC pumped 30.3 million barrels a day in March, data compiled by Bloomberg show.

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Sail it to the moon, I’d say.

US Navy Creates Ship Fuel From Seawater (RT)

Researchers working for the United States Navy say they are around a decade away from mastering a procedure that will make high-powered fuel for the military’s fleet of ships out of run-of-the-mill seawater. The US Naval Research Laboratory’s Materials Science and Technology Division have already demonstrated that a new, state-of-the-art conversion method can turn ordinary seawater into a liquid hydrocarbon fuel potent enough to power a small model aircraft. Soon, though, they say the same process will provide the Navy with a way of refueling any of its hundreds of ships at sea without relying on the comparably meager fleet of 15 military oil tankers currently tasked with delivering nearly 600 million gallons of fuel to those vessels on an annual basis.

Scientists say it will be another 10 years before ships will likely be able to successfully convert seawater into super-powerful fuel, but the technology is already being hailed as a game changer and is expected to substantially cut costs for the Pentagon. The process at hand involves extracting carbon dioxide molecules from the ocean water outside of a ship’s hull and using it to produce hydrogen gas, “catalytically converting the CO2 and H2 into jet fuel by a gas-to-liquids process,” according to an article published this week on the Naval Research Laboratory’s website.

“The potential payoff is the ability to produce JP-5 fuel stock at sea reducing the logistics tail on fuel delivery with no environmental burden and increasing the Navy’s energy security and independence,” Dr. Heather Willauer, a research chemist who has worked on the procedure for years, explained to the NRL back in 2012. “With such a process, the Navy could avoid the uncertainties inherent in procuring fuel from foreign sources and/or maintaining long supply lines,” she said.

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Everyone buy USD, You know you want to!

Norway’s Biggest Bank Says Krone Caught in Emerging Market Trade (Bloomberg)

Investing in Norway’s krone is becoming more hazardous as the central bank steers the currency and global trading desks lose their appetite for risk, according to DNB Markets head Ottar Ertzeid. “The Norwegian krone is almost following the emerging markets currencies,” Ertzeid, who heads the investment banking and markets unit at DNB, Norway’s largest bank, said yesterday in an interview in Oslo. “Norges Bank has contributed to this. The last year has been even less liquid than it used to be and some more liquidity could be helpful.”

The krone has plunged 10% against the euro since last year, following central bank steps to halt its gains. Policy makers were blindsided in 2009 as Europe’s debt crisis turned the krone into a haven for investors fleeing the euro. The central bank cut rates in 2011 and 2012. In June last year, it warned it won’t hesitate to ease policy again in an effort to bring inflation back to its 2.5% target. Jon Nicolaisen, who took over as deputy governor at Norges Bank last week, said in an interview there’s no plan to change policy on the krone, and that he doesn’t view it as being significantly riskier than other currencies. “The volatility of the Norwegian krone isn’t particularly scary when you compare it to Australia, New Zealand or Canada — similar economies,” Nicolaisen said. “I don’t see a need to change that policy. If it ain’t broke, don’t fix it.”

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Wikileaks: Internet Governance Body Trying To Stop NSA (RT)

WikiLeaks has published what the anti-secrecy organization says is the penultimate draft agreement expected to be discussed later this month in Brazil at a global internet governance meeting co-hosted by 12 countries including the United States. The 11-page document published on Tuesday by the secret-spilling website is based off of the recommendations submitted by more than 180 international contributors who cared to weigh in with their take on how they think the internet and its infrastructure should be governed ahead of a conference on the matter scheduled to be held in Sao Paulo, Brazil April 23-24.

According to the draft published by WikiLeaks this week and dated April 4, the committee tasked with preparing for the upcoming Global Multistakeholder Meeting on the Future of Internet Governance — or NETmundial — are concerned about the impact that government-sanctioned surveillance is having on the privacy of the planet’s web-connected population and the infrastructure of the internet, as well as the repercussions being brought to light as cyber-weapons continue to be waged between adversarial states around the world as warfare remains a central yet shadowy activity within the digital realm.

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Does this include Capitol Hill?

US Prisons Hold 10 Times More Mentally Ill People Than State Hospitals (RT)

More than 356,000 people with mental illnesses are incarcerated in the United States, as opposed to around 35,000 receiving treatment in state hospitals, a new study found, highlighting the dire state of the nation’s mental health care system. The lead author of the report, conducted by the Treatment Advocacy Center and the National Sheriffs’ Association, said the ten-to-one ratio of patients in prison versus those receiving qualified care is on par with the US mental health system of the 1830s.

“We’ve basically gone back to where we were 170 years ago,” Dr. E. Fuller Torrey, founder of the Treatment Advocacy Center, told Kaiser Health News. “We are doing an abysmal job of treating people with serious mental illnesses in this country. It is both inhumane and shocking the way we have dumped them into the state prisons and the local jails.” The report found 44 states and the District of Columbia have at least one jail that holds more people coping with a mental illness than the largest state psychiatric hospital in the US does.

As states have drastically cut funding for mental health services in the last several years, the number of available beds in psychiatric hospitals has plunged to the lowest level since 1850. Thus, many of these patients are shuffled into the prison system simply because there is nowhere else for them to go. The US prison population has steadily increased as mental health funding has decreased, the National Alliance on Mental Illness has found. Prisoners with mental health issues are often put in solitary confinement for long periods of time, stay incarcerated longer than other prisoners, and are disproportionately abused, beaten, and raped by other inmates, the new report noted. Without treatment, the condition of ill inmates often worsens.

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Cars Become Biggest Driver of Greenhouse-Gas Increases (Bloomberg)

The greatest emerging threat to the global climate may rest in the side pocket of your trousers – or wherever you keep the car keys. Emissions from transportation may rise at the fastest rate of all major sources through 2050, the United Nations will say in a report due April 13. Heat-trapping gases from vehicles may surge 71% from 2010 levels, mainly from emerging economies, according to a leaked draft of the most comprehensive UN study to date on the causes of climate change.

Rising incomes in nations like China, India and Brazil have produced explosive demand for cars and for consumer goods that must be delivered by highway, rail, ship or air. The new pollution, measured in millions of tons of greenhouse gases, may exceed all of the savings achieved through initiatives like subsidies for public transport and fuel efficiency. Cutting back on transportation gases “will be challenging, since the continuing growth in passenger and freight activity could outweigh all mitigation measures unless transport emissions can be strongly decoupled from GDP growth,” the report’s authors wrote.

In China, gross domestic product will jump to $10,661 per capita this year from $3,614 a decade earlier, according to estimates by the International Monetary Fund. That vaulted it to rank 92 worldwide by that measure, from 114 in 2004. The countries that jumped even more in ranking were Timor-Leste, up 43 levels, followed by Azerbaijan, Belarus and Turkmenistan. The warning in the 2,061-page report forms the third part of the UN’s study into global warming. Hundreds of scientists and government officials are meeting through at least April 11 in Berlin to finalize the wording of a smaller document summarizing their findings. It will guide UN envoys as they try to devise a plan to fight climate change and stop temperatures from rising to dangerous levels.

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Exxon speaks truth to power=energy=money. And time is money, so …..

Exxon Mobil Dismisses Low Carbon Future, Puts Faith In Oil Markets (Guardian)

When an international group of 77 institutional investors with more than $3trillion in assets asked the world’s 45 largest fossil fuel companies to assess the risks that climate change poses to their business, they were aware they were asking a tough, complex question. Knowing this, investors launched the Carbon Asset Risk Initiative to spur fossil fuel companies to assess the risks climate change poses to their business based on two scenarios: a business-as-usual scenario under which the world’s fossil fuel use continues to grow, warming the earth to levels society may not be able to adapt to; and a low-carbon scenario where governments achieve their stated goal of limiting the average temperature rise to below 2C.

Many of the 45 companies that received this request are responding – among those, Exxon Mobil, the world’s largest publicly traded energy company, which agreed to publish a report after investors agreed to withdraw a pair of related shareholder resolutions. This agreement was considered by many to be groundbreaking. And if the company had in fact provided the information requested by investors, the report itself would have been. While the report is a positive step, providing investors with useful information about the company’s views on managing climate risk, it mostly sidesteps investors’ concerns by dismissing a low carbon scenario as “highly unlikely” and glossing over the climate change implications of the company’s own Outlook for Energy.

According to the report, Exxon Mobil does expect increasing government action to curb emissions, but not to the level required to limit global warming to below 2C, which the company claims would be unaffordable. In fact, the report says the emissions projections in the company’s Outlook for Energy are comparable to the Intergovernmental Panel on Climate Change scenario that projects a temperature rise well above the international two degree goal. The company focuses on the costs of action and largely ignores the costs of inaction, suggesting that policymakers should balance mitigation, adaptation, and other social priorities.

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Yeah, we’re a great species.

Gulf Oil Spill “Not Over”: Dolphins, Turtles Dying in Record Numbers (NatGeo)

Four years after the biggest oil spill in U.S. history, several species of wildlife in the Gulf of Mexico are still struggling to recover, according to a new report released today. In particular, bottlenose dolphins and sea turtles are dying in record numbers, and the evidence is stronger than ever that their demise is connected to the spill, according to Doug Inkley, senior scientist for the National Wildlife Federation, which issued the report.

The Deepwater Horizon oil rig exploded on April 20, 2010, killing 11 people and spewing more than 200 million gallons (750 million liters) of oil into the Gulf of Mexico. Since then, various government agencies and nonprofits, including the National Wildlife Federation, have been studying the region’s wildlife to track the impacts of the oil.

The report, a compilation of published science since the spill, reveals that “the Gulf oil spill is far from over,” Inkley said. “The oil is not gone: There is oil on the bottom of the Gulf, oil is washing up on the beaches, and oil is still on the marshes,” he said. “I am not surprised by this. In Prince William Sound, 25 years after the wreck of Exxon Valdez, there are still some species that have not fully recovered.”

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