Oct 032018
 
 October 3, 2018  Posted by at 9:30 am Finance Tagged with: , , , , , , , , , , , ,  


Paul Gauguin The ford 1901

 

Fed’s Powell Says US Outlook ‘Remarkably Positive’ (R.)
Another Market Volatility Surge Is Likely Ahead (Colombo)
White House Responds To “Misleading” NYTimes’ Trump Tax Fraud Story (ZH)
Italy Folds To Europe On Budget Deficit; Euro Surges (ZH)
Merkel’s End Could Spark EU Breakdown (Luongo)
Vancouver Home Sales Crash 44% As “For Sale” Inventory Soars (ZH)
Australia Banking Royal Commission Could Trigger House Price Collapse (ABC.au)
DMZ Demining Operations Lay Groundwork For Korean Peninsula Peace (YH)
Russia May Veto Greece-FYROM Name Deal at the UN (GR)
The Case For Paying Every American A Dividend On The Nation’s Wealth (MW)
Restaurants In Austin Banned From Throwing Away Food (Hill)
‘We Have Found Hell’: Trauma Runs Deep For Children At Dire Lesbos Camp (G.)

 

 

First, here’s Ted Koppel agreeing with me that Trump Sells Better Than Sex, and Stelter really doesn’t understand:

 

 

And then he closed the spigots…

Fed’s Powell Says US Outlook ‘Remarkably Positive’ (R.)

U.S. Federal Reserve Chairman Jerome Powell on Tuesday hailed a “remarkably positive outlook” for the U.S. economy that he feels is on the verge of a “historically rare” era of ultra-low unemployment and tame prices for the foreseeable future. It is a view, he said, based on how a changed economy is operating today, with businesses and households immunized by strong central bank policy from the inflationary psychology that caused unemployment, inflation and interest rates to swing wildly in the 1960s and 1970s. It is an outlook that includes an economic performance “unique in modern U.S. data,” with unemployment of below 4 percent expected for at least two more years and inflation remaining modest even as wages rise.

And it is an outlook he feels will even survive the Trump administration’s efforts to rewrite the global trading system, a policy shift Powell said may lead to one-time price hikes, but not to persistent changes in the annual rate of inflation going forward. “This forecast is not too good to be true,” Powell told the National Associate for Business Economics, but instead “is testament to the fact that we remain in extraordinary times.” “These developments amount to a better world for households and businesses which no longer experience or even fear the scourge of high and volatile inflation.”

Read more …

There can be no doubt.

Another Market Volatility Surge Is Likely Ahead (Colombo)

The U.S. stock market is climbing to record highs once again and volatility has calmed down dramatically from its panic-induced levels reached earlier this year. Traders have become complacent as they passively ride the stock market higher and bet on lower volatility again. While it may seem like all is well, several reliable indicators are warning that another powerful volatility surge is likely ahead.

The first indicator is the 10-year/2-year Treasury spread that is calculated by subtracting the 2-year Treasury note yield from the 10-year Treasury note yield. The 10-year/2-year Treasury spread is helpful for estimating when the next recession is likely to occur, as I explained in a recent Forbes piece. The chart below (which I recreated from a chart made by BofA’s Savita Subramanian) shows that the inverted 10-year/2-year Treasury spread leads the CBOE Volatility Index or VIX by approximately three years. If this historic relationship holds true, we are about to experience a whole lot more volatility over the next few years.

The next chart shows the positioning of the “smart money” and “dumb money” in the Volatility Index or VIX futures. The “smart money”, or commercial futures hedgers (who tend to be right at major market turning points), are building up another bullish position in VIX futures, just like they did one year ago ahead of the stock market correction and volatility spike. In addition, the “dumb money”, or large traders (who tend to be wrong at major turning points), have built up a large short position, like they did before the early-2018 volatility spike. The positioning of these groups of traders indicates that another volatility spike is likely ahead in the not-too-distant future.

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Decades old, started when Trump was a toddler, good luck. Of course they pay as little as they can, but once the IRS signs off on it…

White House Responds To “Misleading” NYTimes’ Trump Tax Fraud Story (ZH)

Update 2: The White House has finally responded to the NYTimes story…(via Sarah Sanders) “Fred Trump has been gone for nearly twenty years and it’s sad to witness this misleading attack against the Trump family by the failing New York Times. Many decades ago the IRS reviewed and signed off on these transactions. The New York Times’ and other media outlets’ credibility with the American people is at an all time low because they are consumed with attacking the president and his family 24/7 instead of reporting the news.

The truth is the market is at an all-time high, unemployment is at a fifty year low, taxes for families and businesses have been cut, wages are up, farmers and workers are empowered from better trade deals, and America’s military is stronger than ever, yet the New York Times can rarely find anything positive about the President and has tremendous record of success to report. Perhaps another apology from the New York Times, like the one they had to issue after they got the 2016 election so embarrassingly wrong, is in order.”

The NYT reported that Trump and his siblings set up a “sham” corporation to help disguise otherwise taxable income that came from gifts from their parents. The president also allegedly helped his father take improper tax deductions that amounted to millions of dollars and helped formulate strategy to undervalue his parents’ real estate holdings, with the Internal Revenue Service reportedly providing little pushback against the Trumps’ reported tactics. According to the leaked confidential filings, Trump’s parents left more than $1 billion to their children, which would have resulted in a roughly $550 million tax bill at the time.

However, the Trumps paid a total of $52.2 million on that source of income, according to the NYT report. To achieve this, the newspaper cited records that showed Trump helped undervalue his father’s real estate holdings, which led to a lower tax bill when he and his siblings inherited the properties. In total, Trump received the equivalent today of at least $413 million from his father’s real estate empire, based on questionable tax dealings starting when he was a toddler and continuing to this day. And, in what will attract the most attention, the newspaper wrote that Trump’s behavior amounted to fraud in some cases.

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I don’t think this one’s over yet.

Italy Folds To Europe On Budget Deficit; Euro Surges (ZH)

After two days of brutal punishment by the markets which sent Italian bond yields to 4 years highs and slammed the euro, the Italian government appears to have folded to pressure from Brussels (and the one place in the world where the bond vigilantes still operate, just ask Sylvio Berlusconi), and according to Corriere della Sera, Italy’s draft budget plan will pledge to cut the deficit to 2% in 2021, after Rome reversed a proposal to maintain a 2.4% shortfall in the face of pressure from the EU. As a result, while the 2019 deficit will still rise to 2.4% of GDP in 2019, it will decline by 0.2% to 2.2% in 2020, and another 0.2% the year after. In kneejerk reaction, futures lept to fresh session highs, Treasury yields jumped by 2bps to 3.07% and the EURUSD spiked 50 pips higher to 1.1590.

Italy is not out of the woods yet though: according to Mizuho, the sustainability of the euro’s rebound will depend on whether the EU sees Italy’s latest budget plan as appropriate. It could be that Italy has already made compromise with the EU, but hard to predict whether the euro’s rebound has more legs until we see a reaction from the EU: “It all boils down to the EU’s response”, and if the ongoing war of words is any indication, merely promising to trim the deficit in the next three years will hardly be smiled upon. Others were even more skeptical. According to bond fund manager Daintree Capital, “The euro’s definitely reacting to the headlines on Italian budget plans, and it will continue to do so for future headlines.” However, “anyone who believes a populist government is all of a sudden going to be particularly responsible in a fiscal sense, has a misguided view.”

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Merkel’s losing it.

Merkel’s End Could Spark EU Breakdown (Luongo)

I saw a recent poll from Die Welt which has Alternative for Germany (AfD) creep past Merkel’s Grand Coalition partner, the Social Democrats (SPD), and challenge the CDU itself. Because when you back out the Christian Social Union’s (CSU) total which runs between 8% and 9% AfD is now in a position to become the party with the highest backing in Germany. And this is happening on the eve of Bavarian State elections this month. [..] I’ve talked about AfD’s chances to achieve this result in the past in terms of them crossing the 16% Chasm. And it appears, that slowly, they are doing so. German politics, from what I understand, is not used to this kind of upheaval and certainly not these kinds of leadership challenges. Earlier this year Merkel barely survived a challenge by former CSU Leader Horst Seehofer over immigration.

So, where to things go from here? As Mercouris points out, Merkel has very skillfully gutted the landscape of the CDU to keep potential leaders from emerging within the party. The SPD is falling off a cliff having lost more than half of its support since the 2014 elections. And the CSU is primarily a Bavarian party so they don’t have the support of the entirety of Germany. This landscape is why we’ve seen the Greens rise to 15% as well as AfD’s rise. And that cannot be ignored. The hard left of German politics is now split and ineffectual. But, no party has emerged in this chaos to take the reins of power.

This is reminding me of Italy’s situation at the end of 2017 with no less than five parties polling in double digits. It’s a messy situation and it makes more sense in Germany that big shifts in voter preference would occur at a slower rate given the stability of German coalition governments since the modern state was founded after World War II. In other words Germans are loathe to make these kinds of changes. So, you know the situation must be bad if these numbers are changing this quickly. So, it shouldn’t be much of a surprise really to see this type of breakdown and the slow rise of AfD past the 16% chasm. It may be the riots in Chemnitz that finally begin pushing their poll numbers into the 20’s nationally.

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Glass half full: “”There’s more selection for home buyers to choose from today.”

Vancouver Home Sales Crash 44% As “For Sale” Inventory Soars (ZH)

What happens when prices rise so high that a chasm forms between bids and asks? The market grinds to a halt. That’s what happened in Vancouver housing in September, when according to the Real Estate Board of Vancouver (REBGV), residential property sales tumbled by 17.3% from August 2018, and a whopping 43.5% from one year ago. In fact, a total of only 1,595 transactions took place as both buyers and sellers continue to sit on their hands amid confusion whether the recent torrid price gains will continue or whether the housing bubble has burst. Sales of detached properties in July was just 508, a decrease of 40.4% from the 852 recorded in September 2017, and the 812 apartments sold was a 44% drop compared to the 1,451 sales in September 2017.

And no, it’s not seasonal: last month’s sales were a whopping 36.1% below the 10-year September sales average. The reason for the collapse in transactions: the formerly all too willing buyers, mostly Chinese oligarchs who would use Vancouver real estate as their offshore Swiss bank account, have disappeared. Meanwhile sellers are dumping properties in the market in hopes of a quick flip. “Fewer home sales are allowing listings to accumulate and prices to ease across the Metro Vancouver housing market,” Ashley Smith, REBGV president-elect said. “There’s more selection for home buyers to choose from today. Since spring, home listing totals have risen to levels we haven’t seen in our market in four years.”

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What would we do without our housing bubble?

Australia Banking Royal Commission Could Trigger House Price Collapse (ABC.au)

There is a lot riding on the policy recommendations from the banking royal commission, not least of which is the stability of the Australian property market, according to some respected analysts. Independent economist Saul Eslake said there was potential for the royal commission’s recommendations to have what economists refer to as “unintended consequences”. The unintended consequences Mr Eslake is referring to include a steep fall in house prices spurred on by a royal commission-inspired clampdown on bank lending. Capital Economics chief economist Paul Dales said while house price falls to date have been small, Australia could be in for a record housing decline, at least in its recent history.

“At the moment the trajectory is a bit worrying cause the house prices seem to be declining at a faster rate and, in our view at Capital Economics, this will eventually prove to be the largest downturn in Australia’s modern history,” he said. Mr Dales is forecasting a protracted slowdown in the housing market as a result of a crackdown in bank lending standards, the banking royal commission itself and rising interest rates. “There’s significant time delays with these things,” he said. “I would have thought over the next six to 12 months is where we would, if there was going to be a big pullback in lending, that’s when we would see it and then, thereafter as and when the royal commission makes any recommendations and the Government implements them, the next six to 12 months after that.

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Korea’s move on.

DMZ Demining Operations Lay Groundwork For Korean Peninsula Peace (YH)

After a 15-minute bumpy ride along a dusty, hilly path inside the Demilitarized Zone (DMZ), dozens of South Korean troops in full gear disembarked near a grisly site of intense battles during the 1950-53 Korean War. Accompanying them in the buffer zone separating the two Koreas was a phalanx of security guards, medical specialists and other personnel specializing in disposing of unidentified explosives and excavating war remains. They are part of the 120-member team tasked with removing landmines in the Arrowhead Ridge, or Hill 281 in Cheorwon, some 90 kilometers northeast of Seoul — a site that the two Koreas have designated for a joint project to retrieve war remains from April to October next year.

There were three key battles against communist forces on the notorious ridge from 1952-53. The remains of more than 200 South Korean soldiers and dozens of U.N. Command (UNC) forces, such as U.S. and French troops, are thought to be buried in it. “We have made preparations (for the landmine removal) for a long period and are well prepared now,” the commander in charge of the frontline areas told reporters on condition of anonymity on Tuesday, the second day of the demining work set to continue until Nov. 30. “We will not rush and will carry out our mission with the first and foremost priority placed on the safety of our troops,” he added.

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EU and NATO want to keep pushing, but how about democracy?

Russia May Veto Greece-FYROM Name Deal at the UN (GR)

Russia is implicitly threatening that it may block the Prespa agreement at the UN Security Council. In a statement on Monday, following the referendum in FYROM, the Russian foreign ministry says that the low turnout “means that the referendum cannot be recognised as valid.” It clearly indicates that the voters “chose to boycott the solutions imposed on Skopje and Athens.” The statement also blasts leading politicians from NATO and EU member states who participated in “large-scale propaganda campaign directly, freely interfering in the internal affairs of this Balkan state.” Despite the low turnout, Prime Minister Zoran Zaev vowed to push ahead with the name change on Monday.

The Russian foreign ministry condemned the move: “There is a clear drive to ensure Skopje’s entanglement in NATO despite the will of the Macedonian people.” Russia is traditionally wary of NATO’s enlargement in eastern Europe. The alliance’s 1999 bombings of its ally Serbia caused a major rift in Russia’s relations with the West at the time. Moscow says that a long-term solution can only be agreed upon by the two parties on their own, without any external interference, and only within the framework of the law and with broad public support.

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Inequality in Europe rises fast, too. Where are the breaking points?

The Case For Paying Every American A Dividend On The Nation’s Wealth (MW)

The newest research shows that unconditional cash transfers boost work productivity and quality of life, including better mental and physical health, and reduce crime. A study by the Roosevelt Institute in New York, a left-leaning think tank, concludes that giving $500 a month to every adult American could meaningfully grow the U.S. economy and address its widening wealth gap. (The top 1% of Americans now receive 20% of the national income, while those in the bottom 50% receive 13%; in 1980, the numbers were essentially reversed, at 11% and 20%, respectively, according to the 2018 World Inequality Report.)

Yet basic income in the U.S., characterized as a utopian solution by its true believers but as welfare, socialism or worse by its detractors, has gone nowhere. Basic income did enjoy a bit of a heyday in the U.S. in the 1960s and 1970s and was even embraced in conservative circles; free-market economist Milton Friedman went so far in 1962 as to propose a negative federal income tax that would guarantee a basic income to the poorest Americans while also incentivizing work. Other ideals of the era — the four-day workweek, the 30-hour workweek, the all but limitless vacation allotment — have fallen by the wayside, even as U.S. labor conditions have worsened.

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In France, this is a nation-wide law.

Restaurants In Austin Banned From Throwing Away Food (Hill)

Restaurants in Austin, Texas, will no longer be allowed to throw out food waste, the city announced this week. Under a new policy that began Monday, all food-permitted businesses in the city are required to keep organic material, such as food scraps and soiled paper products, from landfills. Businesses can dispose of their food waste by donating extra food, giving scraps to local farms for animals, or composting, the city government said in a press release announcing the policy.

The city’s Universal Recycling Ordinance also requires businesses to provide employees with training on organic waste diversion, and to post information about the plan. Official city data shows that 37 percent of material sent to landfills is organic and could have otherwise been donated or composted, the city said. Austin’s ordinance is the latest move by a major city to introduce eco-friendly policies. Dozens of cities and businesses nationwide have banned plastic straws and other single-use plastic items in an effort to cut down on waste.

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Welcome to Europe.

‘We Have Found Hell’: Trauma Runs Deep For Children At Dire Lesbos Camp (G.)

The drawings tell of trauma. Stormy seas dotted with terrified faces. Lifeless bodies of children floating among the waves. And planes dropping bombs, down on to homes and on to people. Eyes that weep blood. The pencil scrawls were made by children who are part of a growing phenomenon in the Moria refugee camp in Lesbos, Greece. All have attempted suicide or serious self-harm since they came to this place. Approximately 3,000 minors live in the Moria camp, which Médecins Sans Frontières (MSF) calls a giant open-air “mental asylum” owing to the overcrowding and dire sanitary conditions. Last Tuesday an adolescent attempted to hang himself from a pole. In August, a 10-year-old boy only just failed to take his own life.

The camp, among hills dotted with olive trees a few kilometres from the island’s capital town of Mytilene, is home to 9,000 asylum seekers living in a centre designed to hold one third of that number. Migrants live in groups of up to 30 people, crammed into tents or metal containers situated just centimetres apart. Rubbish, scattered everywhere, makes the air almost unbreathable. Most come from war-torn countries like Syria, Iraq and Afghanistan. They arrive in dinghies from the Turkish towns of Ayvalik or Canakkale. According to aid agencies, the controversial deal brokered between Brussels and Ankara aimed at stopping the flow of migrants to Europe via Turkey, combined with the refusal on the part of European countries to take in asylum seekers arriving in Greece, have transformed Lesbos into an Alcatraz, leaving people imprisoned on the island with no way out.

“Although the vast majority of migrants who arrive in Moria are traumatised, after having fled from violent conflicts in their home countries, conditions in the camp have exacerbated their trauma,” says Luca Fontana, field coordinator of MSF on the island. “After two years, some are still awaiting transferral, even if they know they could be deported to Turkey at a moment’s notice. I’ve worked in camps infested with Ebola in Sierra Leone and Guinea, but I guarantee you that this is the worst situation I’ve ever seen.”

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Sep 172018
 


René Magritte Companions of fear 1942

 

Repo 105 (Ben Hunt)
The Everything Bubble” Threatens $400 Trillion In Assets (ZH)
What Can Cause the Next Mortgage Crisis in the US? (WS)
Dollar Dominant & Dangerous, System Not Stable – Catherine Austin Fitts (USAW)
Shell Faces One Of The Biggest Corruption Cases In Corporate History (Ind.)
Only Alternative To Chequers Is No Brexit Deal, Says Theresa May (G.)
Brussels Nearing Impasse With May Over Irish Border Proposal (G.)
Four In 10 Think British Culture Is Undermined By Multiculturalism (G.)
Musk Says Tesla Now In ‘Delivery Logistics Hell’ (R.)
The EU Needs A Stability And Wellbeing Pact, Not More Growth (G.)
7 Endangered Species That Could (Almost) Fit In A Single Train Carriage (G.)

 

 

Lehman sold bad loans to banks for a fee so it could look better, only to buy them back days later. It was very basic fraud. And Dick Fuld walked away.

Repo 105 (Ben Hunt)

Every time Dick Fuld’s publicists succeed in getting a “redemption story” published in the Wall Street Journal or New York Times, I’m going to write an Epsilon Theory brief about Repo 105, the fraudulent scheme that Lehman Brothers ran for years to hide its deteriorating financial condition from investors and regulators alike.

[..] Repo 105 was a multiyear scheme by Lehman to defraud the government and its own investors by falsifying the actual amount of loans it had on the books, making Lehman look safer than it actually was. It worked like this. A few days before the end of the calendar quarter, Lehman would “sell” billions of dollars worth of loans to another bank. I put “sell” in quotation marks, because Lehman ALSO had an agreement with these other banks to buy the loans back a few days after the quarter ended for the same price as they were sold, plus enough money to cover whatever the going interest rate was on that cash for the few days it was in Lehman’s hands. This is what’s called a repurchase agreement, or repo, hence the name Repo 105 (the 105 refers to the 5% overcollateralization that counterparty banks required to lend the cash to Lehman even for a few days – THEY knew Lehman was in trouble).

Since financial reporting happens at the end of the quarter, Lehman’s books would look like they had more cash and fewer loans than they actually did. Surely, you say, no law firm would bless this blatant attempt to cook the books? And I say, don’t call me Shirley. I say, well … no US law firm would bless this, so naturally Lehman found a UK firm, Linklaters, to say that this was, in fact, technically a “true sale”. Even then, to pull this off Lehman had to run Repo 105 through their offshore subsidiaries, not through their US-chartered entities. It was really expensive for Lehman to run Repo 105. But also entirely necessary, or else the entire house of cards that WAS Lehman would have collapsed well before September, 2008.

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Risk. It’s back.

The Everything Bubble” Threatens $400 Trillion In Assets (ZH)

By now, it’s a very familiar question: how high can the Fed hike rates before it causes a major market “event.” Two weeks ago, Stifel analyst Barry Banister became the latest to issue a timeline on how many more rate hikes the Fed can push through before the market is finally impacted. According to his calculations, just two more rate hikes would put the central bank above the neutral rate – the interest rate that neither stimulates nor holds back the economy. The Fed’s long-term projection of its policy rate has risen from 2.8% at the end of 2017 to 2.9% in June. As the following chart, every time this has happened, a bear market has inevitably followed.

A similar argument was made recently by both Deutsche Bank and Bank of America, which in two parallel analyses observed last year that every Fed tightening cycle tends to end in a crisis. In a report issued on Friday, BCA’s strategists make the key point that the performance of bonds – and stocks – in an inflation scare would depend on the relative size of the inflationary impulse compared with the disinflationary impulse that resulted from sharply lower risk-asset prices. They make the point that if central banks were more concerned about the inflationary impulse, which at least for Fed chair Powell appears to be the case for now – Janet Yellen’s “lower for longer revised forward guidance” notwithstanding – they would have to keep tightening – in which case, bond yields would be liberated to reach elevated territory.

Conversely, if the bigger worry was the disinflationary impulse, which arguably is the case from a legacy standpoint, central banks would quickly reverse course, and bond yields would return to the lowlands. Thus, the disinflationary impulse from lower risk-asset prices would end up as the bigger issue. [..] BCA estimates that the total value of global risk-assets is $400 trillion, equal to about five times the size of the global economy. The takeaway is that any inflationary impulse would – through higher bond yields – undermine the valuation support of global risk-assets that are worth several times the size of the global economy.

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“In a rising housing market, delinquencies will always be low but are not an indicator of future default risks. But home prices are an indicator of default risk.”

What Can Cause the Next Mortgage Crisis in the US? (WS)

Mortgage delinquencies at all commercial banks in the US inched down to 3.14% in the second quarter, the lowest since Q2 2007, according to the Federal Reserve. But after those soothingly low delinquency rates in 2007, something happened. By Q3 2008, the delinquency rate hit 5.2%, and in Q4 2009, it went over 10%, and stayed in the double-digits until Q1 2013. This was the mortgage crisis. And we’re a million miles away from it, thank God. Or are we? This chart compares home prices in the US (green, left scale) to delinquency rates (red, right scale). Delinquency rates started surging after home prices started falling. The inflection point is marked by the vertical purple line, labeled “it starts”:

Home prices began falling in 2006. By 2008, some homeowners were seriously “underwater” – they owed more on their house than the house was worth. When they ran into financial trouble because they were in over their heads, or because one of the breadwinners in the household lost their jobs, or because they’d lied on their mortgage application and never had enough income to begin with, or because they were investors who couldn’t make the math work out anymore, or whatever, they were stuck. In a rising housing market, they would just sell the home and pay off the mortgage. But they couldn’t sell their home because it was worth less than the mortgage, and default was the only option. The chart above shows the relationship between home prices and delinquencies. In a rising housing market, delinquencies will always be low but are not an indicator of future default risks. But home prices are an indicator of default risk.

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“The U.S. government is “missing” $21 trillion between the DOD and HUD.”

Dollar Dominant & Dangerous, System Not Stable – Catherine Austin Fitts (USAW)

Investment advisor and former Assistant Secretary of Housing, Catherine Austin Fitts, predicts the global financial system “will take some big hits before the end of the year.” Fitts explains, “Right now, economists say the dollar is ‘dangerous and dominant.’ It’s still, if you look at the market shares around the world, it’s still very, very significant portion of total reserves. So, it’s still very important. At the same time, the U.S. dollar hegemony is probably not going to last forever . . . So, I think the long term dollar looks very weak. Short term, it doesn’t look like it’s coming apart anytime soon, as far as I can see. What that means is when you have something that is dangerous and dominant, you have the possibility of extreme volatility events.

That’s the new code word for the ‘you know what’ hits the, you know what. Whether it’s different countries exploding economically, or we whether are pressuring people that makes them very uncomfortable, these kinds of fights over shrinking pies are very dangerous because they mean covert wars. They mean overt wars, and the more we steal pies from each other instead of make new pies, the worse the situation gets. That’s what you are seeing. The system is not stable.” [..] There is good reason people are going to real assets. The U.S. government is “missing” $21 trillion between the DOD and HUD. This fact was uncovered by Fitts and economist Dr. Mark Skidmore last year.

What was the government’s answer to this gigantic accounting fraud that is the size of the federal deficit? Give the government’s budgets basically classified national security status. Fitts says, “Apparently, the people leading the audit have come to them and said if we do this audit, we will disclose classified projects. So, the board (Federal Accounting Standards Advisory Board – FASAB) came out with a new policy. I say it is illegal. You cannot do it under the financial management laws, and you certainly cannot do it under the Constitution, and it said you can keep classified off the books, which means you can cook the books and you can basically do whatever you want.

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What was that about reality and fiction?

Shell Faces One Of The Biggest Corruption Cases In Corporate History (Ind.)

Giant oil companies, offshore accounts, ex-MI6 agents, champagne lunches, a former Nigerian president and allegations of one of the biggest bribes ever paid – the corruption case against Shell and Italy’s Eni filed by prosecutors in Milan over a shady $1.3bn deal for a vast African oil field has all the elements of an espionage thriller. The latest twists thicken the plot further with a cache of documents seized in a raid on a Swiss financier’s apartment that could be crucial to the case, leaving prosecutors in a race against time to get them to Milan as trial hearings get underway this week. The Geneva raid uncovered a briefcase belonging to Emeka Obi, a middleman who received millions of dollars from the deal and is in the dock along with several senior Shell and Eni executives.

Inside the briefcase, Swiss prosecutors found a laptop, two Nigerian passports, five sim cards and a hard drive containing 41,000 documents that prosecutors believe could be crucial to the trial playing out on the other side of the Alps. The stakes are high. Italian prosecutors allege that, of the total $1.3bn fee paid by Shell and Eni for the oil field, $1.1bn went not into the coffers of the Nigerian state but the accounts of former oil minister Dan Etete who then distributed hundreds of millions to well-connected individuals, including former president Goodluck Jonathan. The amount distributed as bribes is more than the entire Nigerian healthcare budget for 2018, in a country where 87 million people live in extreme poverty – more than any other country on earth.

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She’s stuck. Dangerous position.

Only Alternative To Chequers Is No Brexit Deal, Says Theresa May (G.)

May said: “I believe we will get a good deal. We will bring that back from the EU negotiations and put that to parliament. I think that the alternative to that will be not having a deal.” The Chequers plan prompted the resignations of David Davis and Boris Johnson. May tried again to remake the case for it by claiming the other options put forward by the EU were unacceptable. “The European Union had basically put two offers on the table. Either the UK stays in the single market and the customs union – effectively in the EU – that would have betrayed the vote of the British people,” she said.

“Or, on the other side, a basic free trade agreement but carving Northern Ireland out and effectively keeping Northern Ireland in the European Union and Great Britain out. That would have broken up the United Kingdom, or could have broken up the United Kingdom. Both of those were unacceptable to the UK. “We said ‘no’ … we’re going to put our own proposal forward and that’s what Chequers is about … It unblocked the negotiations.”

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Preparing to blame the EU for failing.

Brussels Nearing Impasse With May Over Irish Border Proposal (G.)

The EU is proving unable to convince Theresa May that by using “trusted trader schemes” and technology its proposal to in effect keep Northern Ireland in the customs union and single market will not draw a border in the Irish sea. The Brexit negotiations have reached an impasse over the failure to find an acceptable solution to avoiding a hard border on the island of Ireland after the UK leaves the EU. The solution proposed by Brussels in which Northern Ireland has a different status from the rest of the UK has been rejected by the prime minister as involving the economic and constitutional “dislocation” of the country. The EU’s chief negotiator, Michel Barnier, has nevertheless repeatedly insisted that the issue can be “de-dramatised”.

Barnier has sought to show that the level of trade between Belfast and the rest of the UK is minimal, and that the checks that would be required do not pose a constitutional threat to the British government. But according to what is described as a diplomatic note seen by the Times, the EU is struggling to convince the UK that it is significant that checks at a border could be avoided entirely for many companies through trusted trade schemes. The diplomatic note, said to have been drafted following a meeting of EU ambassadors last Wednesday with Barnier’s deputy, Sabine Weyand, reports that the UK has not been “helpful” over the issue. The note says: “The biggest unsolved problem is Northern Ireland. There is a political mobilisation in the UK in this regard. Therefore, we are trying to clarify the EU position. The controls or checks only have to be organised in a way that would not endanger the EU single market.”

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How about you start by picking your own strawberries?

Four In 10 Think British Culture Is Undermined By Multiculturalism (G.)

A large minority of people in the UK believe multiculturalism has undermined British culture and that migrants do not properly integrate, according to some of the broadest research into the population’s attitudes to immigration. The study, conducted over the last two years, also reflects widespread frustration at the government’s handling of immigration, with only 15% of respondents feeling ministers have managed it competently and fairly. On balance, the UK population appears to be slightly more positive than negative about the impact of immigration; however, 40% of respondents agreed that having a wide variety of backgrounds has undermined British culture. More than a quarter of people believe MPs never tell the truth about immigration and half the population wants to see a reduction in the numbers of low-skilled workers coming into Britain from the EU.

The study was based on a survey of 3,667 adults carried out in June by ICM, as well as 60 citizens’ panels carried out on behalf of the thinktank British Future and the anti-racism group Hope Not Hate. “The lack of trust we found in the government to manage immigration is quite shocking,” said Jill Rutter, the director of strategy for British Future. “People want to have their voices heard on the choices we make, and to hold their leaders to account on their promises. While people do want the UK government to have more control over who can come to the UK, most of them are ‘balancers’ – they recognise the benefits of migration to Britain, both economically and culturally, but also voice concerns about pressures on public services and housing.”

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“Should be solved shortly..”

Musk Says Tesla Now In ‘Delivery Logistics Hell’ (R.)

Tesla Inc’s Chief Executive Officer Elon Musk on Sunday acknowledged that the electric carmaker’s problems have now shifted to delivery logistics from production delays, the latest speed bump in its efforts to achieve profitability. “Sorry, we’ve gone from production hell to delivery logistics hell, but this problem is far more tractable. We’re making rapid progress. Should be solved shortly,” Musk said in a tweet here in response to a customer complaint on delivery delay. The 47-year-old billionaire who earlier this month faced investor ire over smoking marijuana on a live web show, has indicated in the past that Tesla’s customers may face a longer response time because of a significant increase in vehicle delivery volume in North America.

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238 academics signed. But it’s not the conversation we’ll have.

The EU Needs A Stability And Wellbeing Pact, Not More Growth (G.)

This week, scientists, politicians, and policymakers are gathering in Brussels for a landmark conference. The aim of this event, organised by members of the European parliament from five different political groups, alongside trade unions and NGOs, is to explore possibilities for a “post-growth economy” in Europe. For the past seven decades, GDP growth has stood as the primary economic objective of European nations. But as our economies have grown, so has our negative impact on the environment. We are now exceeding the safe operating space for humanity on this planet, and there is no sign that economic activity is being decoupled from resource use or pollution at anything like the scale required. Today, solving social problems within European nations does not require more growth. It requires a fairer distribution of the income and wealth that we already have.

Growth is also becoming harder to achieve due to declining productivity gains, market saturation, and ecological degradation. If current trends continue, there may be no growth at all in Europe within a decade. Right now the response is to try to fuel growth by issuing more debt, shredding environmental regulations, extending working hours, and cutting social protections. This aggressive pursuit of growth at all costs divides society, creates economic instability, and undermines democracy. Those in power have not been willing to engage with these issues, at least not until now. The European commission’s Beyond GDP project became GDP and Beyond. The official mantra remains growth — redressed as “sustainable”, “green”, or “inclusive” – but first and foremost, growth. Even the new UN sustainable development goals include the pursuit of economic growth as a policy goal for all countries, despite the fundamental contradiction between growth and sustainability.

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Another way to put it. You could easily do this for 70 species, or 700, 7000.

7 Endangered Species That Could (Almost) Fit In A Single Train Carriage (G.)

Some species are so close to extinction, that every remaining member can fit on a New York subway carriage (if they squeeze). All estimates come from the IUCN Red List, 2018.

 

 

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Jun 282018
 
 June 28, 2018  Posted by at 8:59 am Finance Tagged with: , , , , , , , , , , ,  


Vincent van Gogh Courtesan (after Eisen) 1887

 

Same Old Greed In A Shiny New Wrapper (Felder)
Brexit To Put £29 Trillion In Derivatives Contracts At Risk – BOE (G.)
EU To Raise Pressure On May Over Chances Of No-Deal Brexit (G.)
Bank of Japan Now Owns Half the Country (ZH)
Trump Says Security Panel Can Protect US Technology From China (R.)
Whack-a-Mole: China Steps Up Property Crackdown In 30 Major Cities (R.)
Lobbyists And Business-Friendly Pundits Mourn Ocasio-Cortez’s Victory (IC)
An Upset in the Making: Joe Crowley Never Saw Defeat Coming (NYT)
Thomson Reuters Defends Its Work For ICE (IC)
How To Get Away With Financial Fraud (Davies)
After the Fall (John Lanchester)
Animals Are Becoming Nocturnal To Avoid Human Beings (Wef)

 

 

Everyone to the same side of the boat!

Same Old Greed In A Shiny New Wrapper (Felder)

The flows into tech funds of late have been absolutely astounding if not totally surprising. The FAANNG stocks have been the market darlings for quite some time now so it’s understandable investors would chase this performance just as they do during every bull market.

It’s not just tech-focused funds overweighting the FAANNG stocks. There is a huge number of non-tech-focused funds that own these stocks, as well, and in a significant way further supporting their popularity in the marketplace. You can find them represented in size today in everything from consumer discretionary, retail, media and entertainment to momentum, cloud computing, internet and social media. In fact, without Amazon and Netflix, the consumer discretionary sector would be down on the year rather than up.

What’s more, in many cases, the ownership of these companies in many funds appear to be clear violations of their implicit if not explicit mandates. To demonstrate, let’s just run through the FAANNG stocks by market cap beginning with the biggest: Apple. There are fully 92 ETFs, according to ETFdb.com, that not only own the stock but also have an overweight (relative to the S&P 500) allocation to the shares. So not only are Apple fans and traditional passive investors buying tons of Apple stock, these other ETF investors are even more aggressively acquiring shares.

What I found notable in this case was that Apple was found in both value and growth-focused ETFs. I guess this isn’t really much of a stretch theoretically. A high-growth stock can become cheap just like any other. What is strange in Apple’s case, though, is that the stock now trades at its highest price-to-free cash flow in years. At the same time, the company’s 5-year average revenue growth is now the lowest in its history. Still, these systematic funds somehow find reason to not just own it but to overweight it as both a value stock and as a growth stock.

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Deutsche Bank should be scared.

Brexit To Put £29 Trillion In Derivatives Contracts At Risk – BOE (G.)

Britain’s chief financial watchdog has warned that contracts worth trillions of pounds between UK and European Union banks remain at risk of collapse following Brexit, after Brussels’ failure to implement protective legislation. In a warning to EU officials that time is running out before next March to devise rules for EU banks, the Bank of England’s financial policy committee (FPC) said £29tn worth of contracts could be declared void. Derivatives contracts, which provide banks and corporations with protection from interest rate rises, could come to an end without fresh legislation from the UK and EU, the committee said in its latest quarterly health check on Britain’s financial services industry.

The warning will be seen as a direct response to the European Banking Authority, which argued earlier this week that the UK was dragging its feet preparing for Brexit. In an increasingly bitter war of words, EBA officials said there was little preparation by the UK authorities and individual banks for life outside the EU. The FPC hit back, saying the Treasury was well advanced in its efforts to bridge the gap between banks in London and those on the continent, but Brussels had made little obvious effort to support its own financial institutions. “The biggest remaining risks of disruption are where action is needed by both UK and EU authorities, such as ensuring the continuity of existing derivatives contracts. As yet the EU has not indicated a solution analogous to a temporary permissions regime,” it said.

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The incompetence is almost funny.

EU To Raise Pressure On May Over Chances Of No-Deal Brexit (G.)

The European Union’s 27 leaders are to ratchet up the pressure on Theresa May by giving her a strong warning about the growing risk of a no-deal Brexit, as countries across Europe confirmed they were intensifying work on their contingency plans for Britain crashing out of the bloc. With a complete absence of progress on key issues, including that of avoiding a hard border on the island of Ireland, the prime minister will be pressed at a summit in Brussels to reassure her fellow leaders about her intentions. The Danish prime minister, Lars Løkke Rasmussen, told his parliament in Copenhagen on Wednesday: “It is the first time we are saying clearly to the British that we can end, in the worst scenario, [with] no deal.”

May has agreed to address the leaders at a dinner on Thursday night after discussions with Donald Tusk, the European council president, earlier this week in Downing Street. She is expected to sketch out her intentions for the coming few weeks before they come to their conclusions on the state of the negotiations the following morning. Asked whether Tusk was more confident about the future following his last meeting with May, a senior EU official laughed, adding: “Well, I don’t think he is less optimistic.” On the so-called backstop solution for the Irish border – a default state to be in place until a free trade deal or bespoke technological solution is agreed – the official said there had “frankly been no progress, and that’s reason to express concern”.

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I made up that headline. It’s a little exaggerated. But only a little. It’s a crazy experiment Kuroda is in.

Bank of Japan Now Owns Half the Country (ZH)

The last time we looked at how much of the stock market the Bank of Japan controls, we found that as of September, Kuroda’s central bank owned a stunning 75% of all Japanese ETFs as the central bank keeps buying stocks under its ultraloose monetary policy. Since December 2010 – when The Bank of Japan held no ETFs at all – the central bank has been buying ETFs (doubling its annual buying target to 6 trillion yen in July 2016) as part of unprecedented economic stimulus. Over this period, the Nikkei 225 Stock Average has risen 89% since December 2010. It is safe to say the two are correlated. Fast forward to today, when according to the latest BOJ holdings update following even more ETF purchases, the Japanese central bank has also become a major shareholder in nearly 40% of listed companies.

According to Nikkei calculations, the bank was one of the top 10 shareholders in 1,446 listed companies out of 3,735 at the end of March. This means that just over the past year, when the BOJ was a major owner of 833 stocks, the BOJ’s equity holdings have expanded by a staggering 70%. In addition, the Central Bank bank is now the top shareholder in Tokyo Dome, Sapporo Holdings, Unitika, Nippon Sheet Glass and Aeon. This means that the BOJ has amassed an estimated 25 trillion yen ($227 billion) of equities as a result of purchasing exchange-traded funds. Putting these holdings in context, the BOJ holdings are equal to nearly 4% of the roughly 652 trillion yen aggregate market value of stocks traded on the first section of the Tokyo Stock Exchange.

In justifying the BOJ’s relentless takeover of the stock market, Kuroda has said that buying up stocks is an integral part of the BOJ’s strategy to lift inflation to 2%, a program which “has fulfilled its role to a certain extent,” according to Kuroda. But, as the Nikkei adds, the size of the buying spree could complicate an eventual exit strategy from the monetary easing and also distort basic market mechanisms.

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We’re still talking.

Trump Says Security Panel Can Protect US Technology From China (R.)

President Donald Trump on Tuesday endorsed U.S. Treasury Secretary Steven Mnuchin’s measured approach to restricting Chinese investments in U.S. technology companies, saying a strengthened merger security review committee could protect sensitive American technologies. Trump, in remarks to reporters at the White House, said the approach would target all countries, not just China, echoing comments from Mnuchin on Monday amid a fierce internal debate over the scope of investment restrictions due to be unveiled on Friday. “It’s not just Chinese” investment, Trump told reporters when asked about the administration’s plans. Mnuchin and White House trade adviser Peter Navarro sent mixed signals on Monday about the Chinese investment restrictions, ordered by Trump on May 29.

Mnuchin said they would apply to “all countries that are trying to steal our technology,” while Navarro said they would be focused specifically on China. The restrictions are being developed to help put pressure on China to address the administration’s complaints that it has misappropriated U.S. intellectual property through joint-venture requirements, unfair licensing policies and state-backed acquisitions of U.S. technology firms. Mnuchin would prefer to use new tools associated with pending legislation to enhance security reviews of transactions by the Committee on Foreign Investments in the United States (CFIUS), some administration officials have said.

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Property gains have been a substantial part of ‘growth’. Watch out Xi.

Whack-a-Mole: China Steps Up Property Crackdown In 30 Major Cities (R.)

China said on Thursday it would renew efforts to crack down on property irregularities in 30 major cities from July to end-December, mobilizing powers from seven major Chinese government agencies in a concerted effort to rein in rising prices. Property prices in China have soared since 2016, prompting the government to roll out tightening measures in more than 100 cities to dampen demand amid bubble fears. But new home prices in May posted their fastest growth in nearly a year even as prices cooled in big cities, suggesting buyers are shifting to smaller cities. Policymakers have been careful not to tap on the brakes too hard, as real estate remains a major driver of the economy.

Growth in the world’s second-largest economy is at risk of slowing as the authorities try to tame rapid domestic credit growth at a time when trade tensions are causing worries for the economic outlook. The crackdown would be carried out by government entities including the housing ministry and the Ministry of Public Security, and the banking and insurance regulators, according to a notice posted on the housing ministry’s website. They would focus on stemming speculation, cracking down on illegal agencies and developers, and fake advertisements.

Among the 30 cities that will be scrutinized are the country’s four largest or top tier cities, including Beijing and Shanghai, and tier 2 provincial capitals such as Wuhan and Chengdu, and also smaller cities, such as Yichang and Foshan. The notice said targeted irregularities include manipulating prices, deliberately holding off sales, illegally providing loans for downpayment and publishing false price information that mislead buyers.

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The party swung so far right the only way to go is left.

Lobbyists And Business-Friendly Pundits Mourn Ocasio-Cortez’s Victory (IC)

Several Democratic pundits appeared on Fox Business Network to raise the alarm about the election. “The party is swinging left,” said Robin Biro, a former DNC delegate supporting Hillary Clinton. “It’s concerning for someone who is more moderate like myself.” Mark Penn, a strategist who owns several corporate lobbying and public relations firms and previously advised both Bill and Hillary Clinton’s presidential campaigns, attempted to downplay the significance of Ocasio-Cortez’s victory. Asked by Fox Business host Maria Bartiromo if Ocasio-Cortez’s win signified a drift toward socialism, Penn said no. “I just don’t think that’s where the Democratic Party is going. I think that’s where that district is going,” said Penn.

“I think the national implications are being overblown,” he added. Crowley was seen as the next Democratic House leader and had won support from business executives as a leading moderate. As The Intercept reported, Crowley helped spearhead efforts against bank regulations, and, as a longtime leader of the New Democrat Coalition, was widely viewed as a point person for lobbyists to influence that caucus of centrist Democrats. He also voted in support of the Iraq War and the Patriot Act. The Wall Street-friendly wing of the Democratic Party similarly attempted to diminish Ocasio-Cortez’s victory.

Matt Bennett, co-founder of Third Way, a business-friendly Democratic think tank governed by a council of finance industry executives, told Axios that Crowley lost because of his gender and the particular dynamics of the district. Ocasio-Cortez’s victory “had more to do with the nature of her very blue district than it does with national politics,” Bennett said.

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Many similarities to Hillary’s loss.

An Upset in the Making: Joe Crowley Never Saw Defeat Coming (NYT)

It was less than three weeks until Primary Day and, on first blush, the poll that Representative Joseph Crowley had been shown by his team of advisers was encouraging: He led his upstart rival, Alexandria Ocasio-Cortez, by 36 percentage points. It was the last poll Mr. Crowley’s campaign would conduct. Despite his many reputed strengths — his financial might as one of the top fund-raisers in Congress, his supposed stranglehold on Queens politics as the party boss, his seeming deep roots in an area he had represented for decades — Mr. Crowley was unable to prevent his stunning and thorough defeat on Tuesday night. Ms. Ocasio-Cortez bested Mr. Crowley by 15 percentage points, delivering a victory expected to make her, at 28, the youngest woman ever elected to Congress.

If it takes a perfect storm to dislodge a congressional leader, then Ms. Ocasio-Cortez and her crusading campaign about class, race, gender, age, absenteeism and ideology proved to be just that. She and her supporters swept up Mr. Crowley in a redrawn and diversifying 14th Congressional District where the incumbent, despite two decades in Congress, had never run in a competitive primary. She flipped the levers of power he was supposed to have — his status as a local party boss and his money — against him, using that as ammunition in an insurgent bid that cut down a possible successor to Nancy Pelosi and the No. 4 Democrat in the House. No single factor led to Mr. Crowley’s defeat, more than a half-dozen officials inside and close to his campaign said in interviews, most on the condition of anonymity.

It was demographics and generational change, insider versus outsider, traditional tactics versus modern-age digital organizing. It was the cumulative weight of them all. [..] Ms. Ocasio-Cortez, in an interview on Wednesday, dismissed race as a driving factor in her win, though she had regularly highlighted her heritage on the campaign trail. “It would be a huge mistake to just say that this election happened because X demographics live here. That is to absolutely miss the entire point of what we just accomplished,” Ms. Ocasio-Cortez said. A former organizer for Bernie Sanders, Ms. Ocasio-Cortez won across the district, carrying Mr. Crowley’s home borough of Queens by a larger margin than she won the Bronx. “She won virtually everywhere,” said Steven Romalewski, a researcher at the Center for Urban Research [..], who mapped the results.

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It’s not just Facebook and Google, everyone wants a piece of the fat pie.

Thomson Reuters Defends Its Work For ICE (IC)

The reporters at Reuters have been providing crucial, unfliching coverage of the cruel treatment of would-be immigrants under policies pushed by President Donald Trump. Meanwhile, the news agency’s parent company, Thomson Reuters, has been supplying U.S. Immigration and Customs Enforcement with data from its vast stores as part of federal contracts worth close to $30 million. A letter from a Thomson Reuters executive shows that the company is ready to defend at least one of those contracts while remaining silent on the rest. Last week, advocacy and watchdog group Privacy International wrote to Thomson Reuters CEO James Smith to “express concern” over contracts between ICE and two of the company’s subsidiaries.

Thomson Reuters Special Services sells ICE “a continuous monitoring and alert service that provides real-time jail booking data to support the identification and location of aliens” as part of a $6.7 million contract, and West Publishing, another subsidiary, provides ICE’s “Detention Compliance and Removals” office with access to a vast license-plate scanning database, along with agency access to the Consolidated Lead Evaluation and Reporting, or CLEAR, system, which Thomson Reuters advertises as holding a “vast collection of public and proprietary records.” The two West contracts are together worth $26 million. The Privacy International letter cites the practice by U.S. authorities of separating children from their parents, as well as the Trump administration’s overall “zero tolerance” approach to immigration violations.

The children — thousands of them — are typically intercepted by U.S. Customs and Border Protection with their parents; the parents are then detained by ICE while the children, having been forcibly separated, are held in conditions that some have described in horrifying terms, under the supervision of Health and Human Services. (ICE agents have also been accused of sexual abusing hundreds of detainees, underhanded arrest tactics, and more.) Privacy International’s letter requested that Thomson Reuters “commit to not providing products or services to U.S. immigration agencies which may be used to enforce such cruel, arbitrary, and disproportionate measures.”

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Long read on how fraud takes place where no-one expects it. And on a scale that no-one thinks possible. Libor.

How To Get Away With Financial Fraud (Davies)

It is not a pleasant thing to see your industry subjected to criticism that is at once overheated, ill-informed and entirely justified. In 2012, the financial sector finally got the kind of enemies it deserved. The popular version of events might have been oversimplified and wrong in lots of technical detail, but in the broad sweep, it was right. The nuanced and technical version of events which the specialists obsessed over might have been right on the detail, but it missed one utterly crucial point: a massive crime of dishonesty had taken place. There was a word for what had happened, and that word was fraud. For a period of months, it seemed to me as if the more you knew about the Libor scandal, the less you understood it.

That’s how we got it so wrong. We were looking for incidental breaches of technical regulations, not systematic crime. And the thing is, that’s normal. The nature of fraud is that it works outside your field of vision, subverting the normal checks and balances so that the world changes while the picture stays the same. People in financial markets have been missing the wood for the trees for as long as there have been markets. Some places in the world are what they call “low-trust societies”. The political institutions are fragile and corrupt, business practices are dodgy, debts are rarely repaid and people rightly fear being ripped off on any transaction.

In the “high-trust societies”, conversely, businesses are honest, laws are fair and consistently enforced, and the majority of people can go about their day in the knowledge that the overall level of integrity in economic life is very high. With that in mind, and given what we know about the following two countries, why is it that the Canadian financial sector is so fraud-ridden that Joe Queenan, writing in Forbes magazine in 1989, nicknamed Vancouver the “Scam Capital of the World”, while shipowners in Greece will regularly do multimillion-dollar deals on a handshake? We might call this the “Canadian paradox”.

There are different kinds of dishonesty in the world. The most profitable kind is commercial fraud, and commercial fraud is parasitical on the overall health of the business sector on which it preys. It is much more difficult to be a fraudster in a society in which people only do business with relatives, or where commerce is based on family networks going back centuries. It is much easier to carry out a securities fraud in a market where dishonesty is the rare exception rather than the everyday rule.

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Long read on what happened since 2008.

After the Fall (John Lanchester)

Some of the more pessimistic commentators at the time of the credit crunch, myself included, said that the aftermath of the crash would dominate our economic and political lives for at least ten years. What I wasn’t expecting – what I don’t think anyone was expecting – was that ten years would go by quite so fast. At the start of 2008, Gordon Brown was prime minister of the United Kingdom, George W. Bush was president of the United States, and only politics wonks had ever heard of the junior senator from Illinois; Nicolas Sarkozy was president of France, Hu Jintao was general secretary of the Chinese Communist Party, Ken Livingstone was mayor of London, MySpace was the biggest social network, and the central bank interest rate in the UK was 5.5 per cent.

It is sometimes said that the odds you could get on Leicester winning the Premiership in 2016 was the single most mispriced bet in the history of bookmaking: 5000 to 1. To put that in perspective, the odds on the Loch Ness monster being found are a bizarrely low 500 to 1. (Another 5000 to 1 bet offered by William Hill is that Barack Obama will play cricket for England. I’d advise against that punt.) Nonetheless, 5000 to 1 pales in comparison with the odds you would have got in 2008 on a future world in which Donald Trump was president, Theresa May was prime minister, Britain had voted to leave the European Union, and Jeremy Corbyn was leader of the Labour Party – which to many close observers of Labour politics is actually the least likely thing on that list. The common factor explaining all these phenomena is, I would argue, the credit crunch and, especially, the Great Recession that followed.

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It may be smart but it can’t be good.

Animals Are Becoming Nocturnal To Avoid Human Beings (Wef)

On Thursday, ecologists at the University of California, Berkeley, released a study published in Science Magazine that indicates animals are adjusting their habits to avoid the stresses of human encroachment on their habitat. According to the research from Kaitlyn M. Gaynor, Cheryl E. Hojnowski, Neil H. Carter, and Justin S. Brashares, human population growth is having a profound influence on the way animals go about their business—specifically, when they choose to go about their business. It seems that a number of mammalian species have become nocturnal in an effort to avoid us. Scientists admit that this probably works for the animals, but could have potential “ecosystem-level consequences” we don’t yet fully understand.

It’s been acknowledged in the past that mammals have been adjusting to the presence of humans by moving less, retreating to remote areas, and spending less time looking for food, according to Phys.org, who spoke with Gaynor, the leader of the study. All these altered behaviors contribute to overall stress in the animals. Gaynor’s study indicates that even things like camping and hiking could be having a negative effect on wildlife. “It suggests that animals might be playing it safe around people,” said Gaynor. “We may think that we leave no trace when we’re just hiking in the woods, but our mere presence can have lasting consequences.”

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Dec 062017
 
 December 6, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , , ,  


Balthus Therèse dreaming 1938

 

Just How Big Could The Next Correction Be? (Roberts)
Second Canadian Mortgage Lender Crashes After Admitting Mortgage Fraud (ZH)
Toronto Housing Prices Fall Amid Growing Pool of Homes for Sale (BBG)
Plunder Capitalism (Paul Craig Roberts)
‘We Can’t Go On Like This’: Resignation In EU As Brexit Talks Stutter (G.)
Theresa May Faces New Brexit Revolt From Boris Johnson (BBG)
Most Brits Still Want Brexit But Expect It All to End Badly (BBG)
Juncker Seeks Greater Commission Control over Eurozone (Spiegel)
What Now? (Jim Kunstler)
The Premature Delisting of the Yellowstone Grizzly Bear (CP)
Greek Pension Cuts To Hit 70% Since The Start Of The Bailouts (K.)
Aid Groups Warn Of Looming Emergency At Greek Asylum Centres (G.)
Europe’s Migrant Crisis: Millions Still to Come (Kern)
US Homeless Population Rises For The First Time Since The Great Recession (G.)
Nearly 130,000 British Children To Wake Up Homeless This Christmas (Ind.)

 

 

From a larger article by Lance, This is Nuts. A 40% crash is starting to sound like a lowball.

Just How Big Could The Next Correction Be? (Roberts)

Just how big could the next correction be? As stated above, just a correction back to the initial “critical support” set at the 2016 lows would equate to a 29.1% decline. However, the risk, as noted above, is that a correction of that magnitude would begin to trigger margin calls, junk bond defaults, blow up the “VIX” short-carry and trigger a wave of automated selling as the algorithms begin to sell in tandem. Such a combination of events could conceivably push markets to either strong support at the previous two bull market peaks or to support at the 2011 peak which coincides with the topping formations of 2000 and 2007. Such a correction would entail either a 41.1% to 49.2% decline.

I won’t even mention the remote, but real, possibility of a nearly 75% retracement to the previous lows of the last two “bear markets.” That can’t happen you say? It wouldn’t even match the decline following the 1929 crash of 85%. Furthermore, as technical analyst J. Brett Freeze, CFA, recently noted: “The Wave Principle suggests that the S&P 500 Index is completing a 60-year, five-wave motive structure. If this analysis is correct, it also suggests that a multi-year, three-wave corrective structure is immediately ahead. We do not make explicit price forecasts, but the Wave Principle proposes to us that, at a minimum, the lows of 2009 will be surpassed as the corrective structure completes.” Anything is possible.

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Behing every bubble there is fraud.

Second Canadian Mortgage Lender Crashes After Admitting Mortgage Fraud (ZH)

Back in April/May, Canada’s biggest mortgage lender, Home Capital Group, crashed its way into the headlines, coming clean over its balance sheet-full of liar loans, suffered a bank run, and was forced to take emergency liquidty from taxpaying pensioners, and was eventually bailed out by good old Warren Buffett. “Probably nothing…”

Well just when everyone though that crisis was over, a second cockroach in the Canadian mortgage bubble fiasco just emerged… Laurentian Bank of Canada fell the most in almost nine years after reporting it found customer misrepresentations on some mortgage loans it sold to another firm.

Echoing problems that almost sunk Home Capital Group, Bloomberg reports that: An audit “identified documentation issues and client misrepresentations” with some mortgages from its B2B Bank unit that were sold to a third-party firm, the lender said Tuesday in its annual report. Laurentian said it will repurchase about C$89 million ($70 million) of those mortgages in the first quarter, or 4.9% of such loans sold to the firm. It will buy back an additional C$91 million of mortgages “inadvertently” sold to the firm, also in the first quarter. Just as we saw with Home Capital, the CEO initially shrugged it off as immaterial: “This is largely a documentation and securitization-eligibility issue,” Chief Executive Officer Francois Desjardins said in a call with analysts. “It is not material for the bank, its operations, its funding nor its capital. We have worked to change processes to ensure that this issue is resolved.”

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Pop.

Toronto Housing Prices Fall Amid Growing Pool of Homes for Sale (BBG)

Canada’s largest housing market continues to see prices fall amid a widening pool of homes for sale, though there are signs the correction is beginning to lure in some new buyers. The Toronto Real Estate Board’s benchmark home price index fell for the sixth consecutive month, down another 0.4% from October. The index has fallen 8.8% since May – the largest six-month decline in the history of data back to 2000. For the first time since 2009, the average price of a home sold in Toronto – at C$761,757 ($600,991) in November – failed to surpass levels from a year earlier.

Toronto’s housing market, dubbed one of the riskiest housing bubble cities by UBS, has slumped over the past few months amid government rules and harsher mortgage guidelines aimed at curbing demand. That’s coincided with a sharp increase in supply with new listings up 37% from a year earlier. [..] Toronto realtors sold 7,374 units in November. While that’s down 13% from a year earlier, the number is one of the highest readings for the month over the past decade. The correction in Toronto’s housing market has been primarily in Toronto’s detached market, where average prices surpassed C$1.2 million earlier this year. The price index for single family detached homes is down 12% since May. The condominium price index is little changed from record levels earlier this year.

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“..the tax cut edges us closer to revolution resulting from complete distrust of government..”

Plunder Capitalism (Paul Craig Roberts)

I deplore the tax cut that has passed Congress. It is not an economic policy tax cut, and it has nothing whatsoever to do with supply-side economics. The entire purpose is to raise equity prices by providing equity owners with more capital gains and dividends. In other words, it is legislation that makes equity owners richer, thus further polarizing society into a vast arena of poverty and near-poverty and the One%, or more precisely a fraction of the One% wallowing in billions of dollars. Unless our rulers can continue to control the explanations, the tax cut edges us closer to revolution resulting from complete distrust of government. The current tax legislation drops the corporate tax rate to 20%. This means that global corporations registered in the US will be taxed at a lower income tax rate than a licensed practical nurse making $50,000 per year.

The nurse, if single, faces in 2017 a 25% marginal tax rate on all income over $37,950. A single person is taxed at a rate of 33% on all income above $191,651. 33% was the top tax rate extracted from medieval serfs, and approaches the tax rate on US 19th century slaves. Such an upper middle class income as $191,651 sounds extraordinary to most Americans, but it is so far from the multi-million dollar annual incomes of the rich as to be invisible. In America, it is the shrinking middle and upper middle class incomes that bear the burden of income taxation. The rich with their capital gains from their equity holdings are taxed at 15%. Even single individuals who earn between $1 and $9,325 are taxed at 10% on their pittance.

The neoliberal economists who are the shills for the rich, Wall Street, and the Banks-Too-Big-Too-Fail claim, erroneously, that by cutting the corporate income tax rate to 20% all sorts of offshored profits will be brought back to the US and lead to a booming economy and higher wages. This is absolute total nonsense. The money won’t come back, because it is invested abroad where labor costs are lower, if invested at all instead of buying back the corporation’s stock or buying other existing companies. After 20 years of offshoring US manufacturing and professional tradable skills and the incomes associated with the jobs, who is going to invest in America? The American population has no income with which to purchase the goods and services from new investment, and the American population’s credit cards are maxed out.

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“We have to treat the UK political system like a rotten egg..”

‘We Can’t Go On Like This’: Resignation In EU As Brexit Talks Stutter (G.)

Theresa May has less than a week to salvage a Brexit deal that would open the way to trade talks before the end of the year, amid increasing signs of impatience within the EU over her handling of the process. EU negotiators expect the prime minister to return to Brussels very soon, but have said time is running out to strike a deal at a European summit next week. “The show is now in London,” said the chief spokesman of the European commission president, Jean-Claude Juncker. “We stand ready here in the commission to resume talks with the United Kingdom at any moment in time when we get the sign that London is ready.” While the next “final” deadline for stage one has not been defined publicly, several EU sources said the deal would have to be struck by the end of the week, with either Friday or Sunday as the last resort.

One EU ambassador told the Guardian the failure to reach a deal on Northern Ireland was a microcosm of a wider problem. “At root the problem is that [May] seems incapable of making a decision and is afraid of her own shadow,” the source said. “We cannot go on like this, with no idea what the UK wants. She just has to have the conversation with her own cabinet, and if that upsets someone, or someone resigns, so be it. She has to say what kind of trading relationship she is seeking. We cannot do it for her, and she cannot defer forever.” For weeks, European officials have walked a tightrope between sticking to the EU’s tough negotiating stance and seeking to avoid action or words that could destabilise the fragile May government. “We have to treat the UK political system like a rotten egg,” said one EU source in the run-up to Monday’s talks, suggesting that if “the realities of the world” dawned too soon, the British government could become more fragile.

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Cats in a sack.

Theresa May Faces New Brexit Revolt From Boris Johnson (BBG)

Prime Minister Theresa May is facing a revolt from inside her Cabinet over her plan to keep U.K. regulations aligned with the European Union after Brexit, a split that threatens to undermine her hopes of breaking the deadlock in negotiations. Efforts to rescue Brexit talks from an embarrassing breakdown on Monday prompted fresh divisions in the U.K. Cabinet on Tuesday, as leading Brexit-backers challenged the prime minister just days before a key deadline in talks. Brexit Secretary David Davis told Parliament he wanted the whole country to remain close to EU economic regulations after the split, a move that could have helped unblock talks that broke down over the issue of the Irish border.

Keeping the whole U.K. close to EU regulation would make it easier to avoid a border on the island of Ireland without putting up a new barrier between Northern Ireland and the rest of the U.K. The prospect of a border within the U.K. is a red line for the Northern Irish party that keeps Theresa May in power in London. Foreign Secretary Boris Johnson and Environment Secretary Michael Gove, who together led the Brexit campaign in last year’s referendum, raised concerns about the plan, according to people familiar with the matter. The ministers believe the proposals threaten to dilute Brexit and Johnson raised his fears during a meeting of May’s Cabinet on Tuesday. Part of the Brexit narrative in the last 18 months has been that the split will allow the U.K. to break free from EU rules and chart its own course with free-trade deals around the world.

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“What’s clear, is that May will be blamed for any failure.”

Most Brits Still Want Brexit But Expect It All to End Badly (BBG)

British voters increasingly think Brexit is being mishandled. But that doesn’t mean they’re turning their backs on the idea of abandoning the EU – just on Prime Minister Theresa May’s Conservative government. A report by the National Centre For Social Research published Wednesday found that 52% of people believe the country will get a bad deal, compared to 37% in February, a month before May began divorce proceedings. Even before this week’s embarrassing breakdown, only one in five Brits said the government was handling the talks well. Among those supporting Brexit, 61% thought May was conducting talks badly. The survey of 2,200 people was completed in October, before reports that May was increasing the amount of money she was willing to pay to leave and also before the recent dramatic turn of events that has May at the mercy of a Northern Irish ally.

The findings speak to the sense of disconnect between how the population feels about a process they triggered with the 2016 referendum – and the political realities of a fragile government riven with divisions and bogged down in increasingly technical negotiations. The survey found little change in people’s attitude to Brexit itself. [..] this suggests that rather than regretting their vote, Leave supporters are coming to see it as a good idea badly implemented, something that could help Jeremy Corbyn’s opposition Labour Party. While Britons wonder what is going on – and perhaps even why leaving needs to be so complicated – the EU gave May until the end of the week to deliver a solution to an intractable problem – how to avoid a hard border in Ireland after Northern Ireland leaves the bloc along with the rest of the U.K.

Britain needs to provide an answer that satisfies all sides to move on to trade. What’s clear, is that May will be blamed for any failure. She set the clock for Britain’s exit in March 2019 and was relying on a summit next week to get EU leaders to allow discussions to begin on commerce, as well as a grace period to give businesses time to adapt.

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Merkel blinking will have far reaching repercussions. But Europeans don’t want more centralization.

Juncker Seeks Greater Commission Control over Eurozone (Spiegel)

Jean-Claude Juncker never lets others outshine him if he spots an opportunity to give the European project a boost. And that goes for friends and enemies alike. Indeed, the European Commission president has now come up with a project that not only transgressions the mandate given him by the leaders of the European Union member states, but also pits him against all the Eurozone finance ministers as well. Juncker was supposed to reach an agreement with finance ministers from the common currency area on proposals for deepening European integration he will present at the forthcoming EU summit later this month. Plans for greater EU integration are currently in vogue, a trend started by French President Emmanuel Macron, who presented his ideas for a better Europe two days after the German election in late September.

But instead of getting the finance ministers on board, Juncker has embarked on an ego trip. On Wednesday, the Commission is to present its plan without any input from the finance ministers whatsoever. The Eurogroup of 19 Eurozone finance ministers met in Brussels on Monday and on Tuesday it was the turn of Ecofin, which represents the EU finance ministers, but officially neither group was consulted on the Commission’s plans. “The entire approach is a disaster,” one participant complained. And because the national experts had no input, it’s unlikely that EU heads of state and government will do more than simply take note of Juncker’s proposals. The timing is an expression of rivalry between the Commission and the EU member states when it comes to questions relating to theeconomic and currency union. And the finance ministers aren’t likely to be impressed with the content, either. After all, the Commission’s proposals are designed to increase its own influence at the expense of the member states.

But there is more at stake than just a few bruised Brussels egos. The clash over competencies between European institutions risks torpedoing the French president’s drive for reform. For the first time in years, the French have seized the opportunity to once again set the tone in the EU. Yet, their call to arms is being met with hardly any response. Germany is preoccupied with forming a new government – and nothing much happens in Brussels without Chancellor Angela Merkel. Juncker, though, does not want to stand accused of wasting the chance to implement reforms. His central idea is to turn the EU bailout fund, the European Stability Mechanism, into an EU institution.

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How much longer for Mueller now the WSJ has called for his head?

What Now? (Jim Kunstler)

“Contact with Russians.” Grown men and women, doubling and re-doubling down on a political fantasy, repeat this prayer hour after hour on the cable channels and Web waves as if trying to exorcise a nation possessed by the unholy hosts of Hell. But such vicars of the news as Wolf Blitzer, Rachel Maddow, Chuck Todd, and Dean Baquet (of The New York Times) only shove the country closer to a cliff of constitutional crisis. To a certain class of people — a class that includes a lot of Intellectuals-Yet-Idiots, as Nassim Taleb has dubbed them — President Donald Trump is a figure of supernatural malignity who must be ousted at all costs. I did not vote for Donald Trump and I do not admire him; but I rather resent the dishonesty that is being marshaled against him, especially the mis-use of judicial procedure and the mendacious propagandizing of the nation in service to that end.

This is what it comes down to: General Mike Flynn, designated National Security Advisor, conferred with Russian Ambassador Sergey Kislyak after the 2016 election about two pressing matters: a vote in the UN orchestrated against Israel, and sanctions imposed against Russia by outgoing President Obama on December 28, two weeks before the inauguration. Both these matters could be viewed as bits of mischief designed deliberately to create foreign policy problems for the incoming administration. Flynn’s discussions with Ambassador Kislyak amounted to what are called “back channel talks.” These informal, probing communications occur all the time and everywhere in American foreign policy, especially the transitional months every four or eight years when a new president comes in. They are necessarily secret because they concern issues of high sensitivity.

Every incoming presidential staff in my lifetime (going back to Dwight Eisenhower) has conducted back-channel talks with foreign diplomats in order to directly assess where things stand, minus public posturing and bloviating. And so that is what Mike Flynn did, as incoming National Security Advisor, after an eight-year run of worsening relations with Russia under Obama that Trump publicly pledged to improve. And now he’s been charged with lying to the FBI about it. Which raises some enormous and troubling questions well beyond the simple charge, questions that suggest a US government at war against itself.

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What’s America without grizzlies?

The Premature Delisting of the Yellowstone Grizzly Bear (CP)

The Fish and Wildlife Service (FWS) has decided to delist the Yellowstone grizzly bears, removing them from the protection afforded by the Endangered Species Act (ESA). And state wildlife agencies in Wyoming and Montana are anxious to start sport hunting the bears. If you follow environmental politics, it is very clear why industries like the oil and gas industry, livestock industry and timber industry and the politicians they elect to represent their interests are anxious to see the bear delisted. Without ESA listing, environmentally destructive practices will have fewer restrictions, hence greater profits at the expense of the bear and its habitat. Delisting is opposed by a number of environmental groups [..] Conspicuously absent from the list of organizations opposing delisting is the Greater Yellowstone Coalition.

Proponents of delisting, including the FWS, argue that with as many as 700 grizzlies in the Greater Yellowstone Ecosystem, thus ensuring the bears are now safe from extinction. Seven hundred bears may sound like a big number. But this figure lacks context. Consider that the Greater Yellowstone Ecosystem is nearly 28 million acres in total area. That is nearly the same acreage as the state of New York. Now ask yourself if 700 bears spread over an area the size of New York sounds like a lot of bears? Many population ecologists believe 700 bears is far too small a number of animals to ensure long-term population viability. Rather than hundreds, we need several thousand bears.

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But politicians talk of growth.

Greek Pension Cuts To Hit 70% Since The Start Of The Bailouts (K.)

The next batch of pension cuts, voted through in the last couple of years and set to come into force within the next two years, will take total losses for pensioners since the start of the bailout period in 2010 up to 70%. A recent European Commission report on the course of Greece’s bailout program revealed that the reforms passed since 2015 will slash up to 7% of the country’s GDP up to 2030. The United Pensioners network has made its own calculations and estimates that the impending cuts will exacerbate pensioners’ already difficult position, with 1.5 million of them threatened with poverty. The network argues that when the cuts expected in 2018 and 2019 are added to those implemented since 2010, the reduction in pensions will reach 70%.

Network chief Nikos Hatzopoulos notes that “owing to the additional measures up until 2019, the flexibility in employment and the reduction of state funding from 18 billion to 12 billion euros, by 2021, one in every two pensioners will get a net pension of 550 euros [per month]. If one also takes into account the reduction of the tax-free threshold, the net amount will come to 480 euros.” Pensioners who retired before 2016 stand to lose up to 18% of their main and auxiliary pensions, while the new pensions to be issued based on the law introduced in May 2016 by then minister Giorgos Katrougalos will be up to 30% lower.

More than 140,000 retirees on low pensions will see their EKAS supplement decrease in 2018, as another 238 million euros per year is to be slashed from the budget for benefits for low income pensioners. The number of recipients will drop from 210,000 to 70,000 in just one year. There will also be a reduction in new auxiliary pensions (with applications dating from January 2015), a 6% cut to the retirement lump sum, and a freeze on existing pensions for another four years, as retirees will not get the nominal raise they would normally receive based on the growth rate and inflation.

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A few hundred have been moved, but thousands more must be.

Aid Groups Warn Of Looming Emergency At Greek Asylum Centres (G.)

Humanitarian groups have warned of a looming emergency on Greece’s eastern Aegean islands, the day after residents converged on Athens in protest at policies that have seen thousands of migrants and refugees marooned in reception centres. A surge in arrivals from neighbouring Turkey has seen numbers soar with officials speaking of a four-fold increase in men, women and children seeking asylum on Chios, Kos, Leros, Lesbos and Samos. Conditions are deteriorating in the vastly overcrowded camps in a situation that Médecins Sans Frontières (MSF) on Wednesday warned was “beyond desperate”. “In Lesbos, entire families who recently arrived from countries including Syria, Afghanistan and Iraq are packed into small summer tents, under the rain and in low temperatures struggling to keep dry and warm,” said Aria Danika, MSF’s project coordinator on the island.

“In our mental health clinic we have received an average of 10 patients with acute mental distress every day, including many who tried to kill themselves or self-harm. The situation on the island was already terrible. Now it’s beyond desperate.” Demonstrators – led by delegations of officials from Chios, Lesbos and Samos – gathered in the Athens sunshine on Tuesday to demand that the government move people out of camps. “Action has to be taken now, before it is too late,” said Panos Pitsios, president of the town council of Mytilene, Lesbos’s capital. “We are heading towards an eruption, a situation that is on the verge of getting out of control.”

The strategy of stranding migrants and refugees in remote camps where tensions have also mounted between rival ethnicities has also been condemned by human rights groups. Organisations increasingly fear that unless asylum seekers are transferred to the mainland where facilities are less crowded and better equipped, thousands could be left out in the cold as winter approaches.

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Biblical proportions.

Europe’s Migrant Crisis: Millions Still to Come (Kern)

The African Union-European Union (AU-EU) summit, held in in Abidjan, Côte d’Ivoire, on November 29-30, 2017, has ended in abject failure after the 55 African and 28 European leaders attending the event were unable to agree on even basic measures to prevent potentially tens of millions of African migrants from flooding Europe. Despite high expectations and grand statements, the only concrete decision to come out of Abidjan was the promise to evacuate 3,800 African migrants stranded in Libya. More than six million migrants are waiting in countries around the Mediterranean to cross into Europe, according to a classified German government report leaked to Bild. The report said that one million people are waiting in Libya; another one million are waiting in Egypt, 720,000 in Jordan, 430,000 in Algeria, 160,000 in Tunisia, and 50,000 in Morocco.

More than three million others who are waiting in Turkey are currently prevented from crossing into Europe by the EU’s migrant deal with Turkish President Recep Tayyip Erdogan. The former head of the British embassy in Benghazi, Joe Walker-Cousins, warned that as many as a million migrants from countries across Africa are already on the way to Libya and Europe. The EU’s efforts to train a Libyan coast guard was “too little and too late,” he said. “My informants in the area tell me there are potentially one million migrants, if not more, already coming up through the pipeline from central Africa and the Horn of Africa.” The President of the European Parliament, Antonio Tajani, said that Europe is “underestimating” the scale and severity of the migration crisis and that “millions of Africans” will flood the continent in the next few years unless urgent action is taken.

In an interview with Il Messagero, Tajani said there would be an exodus “of biblical proportions that would be impossible to stop” if Europe failed to confront the problem now: “Population growth, climate change, desertification, wars, famine in Somalia and Sudan. These are the factors that are forcing people to leave. “When people lose hope, they risk crossing the Sahara and the Mediterranean because it is worse to stay at home, where they run enormous risks. If we don’t confront this soon, we will find ourselves with millions of people on our doorstep within five years. “Today we are trying to solve a problem of a few thousand people, but we need to have a strategy for millions of people.”

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Recovery.

US Homeless Population Rises For The First Time Since The Great Recession (G.)

America’s homeless population has risen this year for the first time since the Great Recession, propelled by the housing crisis afflicting the west coast, according to a new federal study. The study has found that 553,742 people were homeless on a single night this year, a 0.7% increase over last year. It suggests that despite a fizzy stock market and a burgeoning gross domestic product, the poorest Americans are still struggling to meet their most basic needs. “The improved economy is a good thing, but it does put pressure on the rental market, which does put pressure on the poorest Angelenos,” said Peter Lynn, head of the Los Angeles homelessness agency. The most dramatic spike in the nation was in his region, where a record 55,000 people were counted. “Clearly we have an outsize effect on the national homelessness picture.”

Ben Carson, secretary of the Department of Housing and Urban Development, which produced the report, said in a statement: “This is not a federal problem – it’s everybody’s problem.” Advocates who have witnessed the homelessness crisis unfold since it emerged in the early 1980s are grimly astonished by its persistence. “I never in a million years thought that it would drag on for three decades with no end in sight,” said Bob Erlenbusch, who began working in Los Angeles in 1984. The government mandates that cities and regions perform a homeless street count every two years, when volunteers fan out everywhere from frozen parks in Anchorage to palm-lined streets in Beverly Hills and enumerate people by hand. Those numbers are combined with the total staying in shelters and temporary housing. The tally is considered a crucial indicator of broad trends, but owing to the difficulties involved it is also widely regarded as an undercount.

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There is neither a valid reason nor a justification for this. It’s simply a lack of basic values.

Nearly 130,000 British Children To Wake Up Homeless This Christmas (Ind.)

Nearly 130,000 children in Britain will wake up homeless and in temporary accommodation this Christmas as child homelessness reaches a 10-year high, new research shows. The number of youngsters who will be spending the festive period in temporary accommodation such as B&Bs and hostels – often with a single room for the whole family and no kitchen – is up 7% on last year, amounting to an additional 8,000 children, according to a report by charity Shelter. Interviews carried out by the charity reveal a quarter of families in temporary accommodation have no access to a kitchen, with many having to eat meals on the bed or floor of their room. The vast majority live in a single room, with more than a third of parents saying they have to share a bed with their children.

An analysis of government figures by Shelter shows that one in every 111 children is currently homeless in the UK, with at least 140 families becoming homeless every day. In England, where the highest number of families are placed into B&Bs, 45% stay beyond the six-week legal limit. The report also lays bare the psychological turmoil experienced by families living in these cramped conditions for often long periods of time, with three-quarters of parents saying their children’s mental health had been badly affected by living in such settings.

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Dec 052017
 
 December 5, 2017  Posted by at 10:01 am Finance Tagged with: , , , , , , , , , ,  


The Kennedies

 

China’s Property Binge Fuels Mortgage Fraud Frenzy (R.)
This Time IS Different, It Just Ends The Same (Roberts)
What Sowed The Seeds Of The Bitcoin Mania? (TM)
Bitcoin Is A ‘Dangerous Speculative Bubble’ – Stephen Roach (CNBC)
The Two-Tiered European Community (Bilbo)
This Could Mean The End Of May – And The Beginning Of Corbyn (Ind.)
Theresa May Humiliated As DUP Scuppers Border Deal (Ind.)
Confused May In Alignment Only With Herself Over Irish Issue (G.)
White House Weighing Plans For Private Spies To Counter “Deep State” (IC)
Apple Agrees To Pay Over $15 Billion To Ireland In Back Taxes (ArsT)
China, the Digital Giant (PS)
Pilots Across Germany Are Blocking The Deportation Of Asylum Seekers (IBT)
Push To Move Refugees From Greek Islands To Mainland (K.)
The World’s Oceans Are Under The Greatest Threat In History – Attenborough (G.)

 

 

It’s all fraud, and none of it is persecuted: “When everyone is doing it, you can’t put everyone in jail..”

“Operating out of small, cramped offices, often in residential blocks, loan agents “re-package” – or falsify documents for mortgage applications. “Around 60% of property buyers in Shanghai are involved in some kind of re-packaging..”

China’s Property Binge Fuels Mortgage Fraud Frenzy (R.)

[..] across China, unqualified borrowers use fake documents to secure mortgages, while loans deceptively obtained for other purposes are funnelled into property. These frauds are often committed with the consent and encouragement of other parties to the transactions, including lending brokers, property agents, valuation companies and the banks themselves. And these alleged crimes are rarely punished. Hu Weigang, a senior partner at Guangdong Shen Dadi Law Firm, would like to see the law enforced on the mainland as it is in Hong Kong, where creating a bogus document can lead to jail. But, he acknowledges, the scale of this cheating makes it virtually impossible. “When everyone is doing it, you can’t put everyone in jail,” says Hu, who specializes in real estate litigation.

While property prices in China continue to rise, mortgage fraud remains largely a hidden danger, much as subprime loans in the United States remained mostly out of sight ahead of the 2008 global financial crisis. The fear is that in a property correction, fraudulent mortgages would unravel, accelerating a collapse of housing prices in the world’s second biggest economy. This, in turn, would imperil China’s debt-laden financial system. The danger from gravity-defying home prices is clear to the ruling Communist Party. In his marathon speech at the 19th Party Congress in October, Chinese President Xi Jinping warned about the overheated property market. “Houses are built to be lived in, not for speculation,” he said. Top bank officials are also worried. Xu Zhong, head of the research bureau at the central bank, the People’s Bank of China, sees pitfalls ahead.

“We must be very aware that rapidly rising housing prices could not only hamper our economic development, but could easily result in systemic risks and negatively impact the macroeconomy..” The motive for widespread mortgage fraud is simple: fear of missing out. Millions of homeowners are enjoying the sensation of ever-expanding wealth. The average value of residential housing in China more than tripled between 2000 and 2015 as a huge property market emerged from the early decades of economic reforms. So far, China’s new home-owning class has yet to experience a sustained downturn in housing values. Official data showed prices grew 12.4% in 2016, the fastest rate since 2011. A report tracking home price trends by the Chinese Academy of Social Sciences, a state think tank, showed prices in 33 major cities soared 42% in 2016. Private estimates and anecdotal evidence suggest prices in most big Chinese cities actually doubled or tripled since late 2015.

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Look at them bubbles…

This Time IS Different, It Just Ends The Same (Roberts)

“Market bubbles have NOTHING to do with valuations or fundamentals.” [..] Stock market bubbles are driven by speculation, greed, and emotional biases – therefore valuations and fundamentals are simply a reflection of those emotions. In other words, bubbles can exist even at times when valuations and fundamentals might argue otherwise. Let me show you a very basic example of what I mean. The chart below is the long-term valuation of the S&P 500 going back to 1871.

The pattern of bubbles is interesting because it changes the argument from a fundamental view to a technical view. Prices reflect the psychology of the market which can create a feedback loop between the markets and fundamentals. This pattern of bubbles can be clearly seen at every bull market peak in history. The chart below utilizes Dr. Robert Shiller’s stock market data going back to 1900 on an inflation-adjusted basis with an overlay of the asymmetrical bubble shape.

There is currently a strong belief that the financial markets are not in a bubble. The arguments supporting those beliefs are all based on comparisons to past market bubbles. The inherent problem with much of the mainstream analysis is that it assumes everything remains status quo. However, the question becomes what can go wrong for the market? In a word, “much.” Economic growth remains very elusive, corporate profits appear to have peaked, and there is an overwhelming complacency with regards to risk. Those ingredients combined with an extraction of liquidity by the Federal Reserve leaves the markets more vulnerable to an exogenous event than currently believed.

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I can hear the protests from here…

What Sowed The Seeds Of The Bitcoin Mania? (TM)

2017 was an unusual year where financial conditions actually eased despite the Federal Reserve raising rates. The financial tightness in 2015 and 2016 was catalyzed by weakness in the energy market. With the help of central banks, as we have previously stated, the economy narrowly avoided a recession. It’s still remarkable to see how much financial conditions have eased since. According to the Taylor Rule, financial conditions are the easiest since 1970. The Chicago Fed’s net financial conditions index has financial conditions the easiest since 1993.


Chicago Fed- Financial Conditions Index

This explains why GDP growth was above 3% in Q2 and Q3 2017 for the first time since 2004-2005. It also explains why stock volatility has been very low; the S&P 500 has been up for 13 straight months which is the longest streak since at least 1928 (the index was created in 1923). With low interest rates and easy financial conditions, it’s not surprising that we’ve seen intense speculation in bitcoin. The cryptocurrency space has had other years with great performance, but the break out in 2017 is partially a result of the easy monetary environment. As you can see, the financial conditions in the 1990s and in the past year have both been very loose. The economic expansions were both elongated which further increases speculation as traders forget what a recession is. The chart below compares bitcoin’s rally since 2016 with other bubbles.

As you can see, Qualcomm’s performance in the 1990s is like bitcoin’s rally. This is a great analogy because Qualcomm saw its stock collapse in the dot com bust, but it has had a viable business model recently, making the Snapdragon chips in smartphones. The tech bubble was based on optimism which ended up being realized with the expansion of the mobile internet. However, the tech bubble witnessed exaggerated valuations, much like cryptocurrencies are experiencing today. Most of the blockchain startups today will fail like Pets.com did in the 1990s. However, blockchain technology in the future will likely become as synonymous with daily life as the internet is today.

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And more protests. Lots of older economists speak out against bitcoin.

Bitcoin Is A ‘Dangerous Speculative Bubble’ – Stephen Roach (CNBC)

With the price of bitcoin moving toward $12,000, a top economist on Tuesday sent a stark warning to investors: The cryptocurrency is in a “dangerous speculative bubble.” “This is a toxic concept for investors,” said Stephen Roach, Yale University senior fellow and the former Asia chairman and chief economist at investment bank Morgan Stanley. Roach, described by Yale as one of Wall Street’s most influential economists, spent the bulk of his 30-year career at Morgan Stanley heading up a highly regarded team of economists around the world. He had a critical take on the explosion of buying the world’s most popular cryptocurrency. “This is a dangerous speculative bubble by any shadow or stretch of the imagination,” he told CNBC’s “The Rundown.” “I’ve never seen a chart of a security where the price really has a vertical pattern to it. And bitcoin is the most vertical of any pattern I’ve ever seen in my career,” he added.

Bitcoin has surged more than 1,000% this year, accelerated by rising interest from retail and institutional investors who view the digital currency as a possible future means of exchange and store of value. Major exchanges like the CME and CBOE have also legitimized the currency’s investment credentials by saying they plan to introduce futures contracts to their respective exchanges, likely further supporting the price. Roach suggested that exchange legitimization makes bitcoin “somewhat dangerous” for investors, given what he described as a “lack of intrinsic underlying economic value to the concept.” Many investors admit to not understanding the technicalities of the instrument or the blockchain technology that underpins its existence, hoping instead to profit on the expectation that bitcoin as an investment will simply continue to rise. “Like all bubbles, they burst,” Roach said. “They go down, and the one who’s made the last investment gets hurt the most, there’s no question about it.”

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But the Troika demands 3.5% surpluses! “My estimate is that Greece should be running deficits close to 8 to 10% of GDP to move the economy in the right direction.”

The Two-Tiered European Community (Bilbo)

This is the final part of my four-part discussion of a so-called progressive proposal advanced by German academic Fritz Sharpf to reform the Eurozone into two tiers: a ‘Northern’ hard currency tier and a ‘Southern’ non-euro tier with the latter nations tying their currencies to the euro. We have seen that rather than providing a framework for convergence between the current Eurozone Member States, Sharpfs’ proposal would not liberate the weaker nations from the yoke of the euro, In fact, the proposal would just tie the exiting nations to the euro in a slightly different way – one that will not provide sufficient flexibility to make much difference.

In questioning the current orthodoxy, Sharpf also notes that if the ECB strictly behaved within the Maastricht rules then the need for even more aggressive internal devaluation would be required as the “sanctions would be inflicted by anonymous market forces”. That is, the Member States currently in trouble would soon go broke as they would have trouble raising funds from the bond markets at acceptable yields, given they do not issue their own currencies. In this context, Sharpf concludes that: “It is hard to see why Southern governments, after all the sacrifices that they have already been forced to make under the present regime, should opt for an alternative that would not loosen economic constraints but remove the present protections against state insolvency.” The same might be said of his Proposal 2.

Why would the Southern states, who would be forced to exit under his plan, not then fully exploit their new found currency capacities to improve domestic demand conditions immediately, which would then, after a while push their external balances into deficit, and once there was sufficient volumes of their own currency in the system, place downward pressure on their exchange rates? Greece only has a current account close to balance because the enduring Depression has killed import growth. Turn the growth back on and they will soon be back in deficit. As I noted in Part 1, the real exchange rate data shows that despite the painful internal devaluation that has been imposed on many Eurozone nations, only Ireland has improved its international competitiveness against Germany.

I also cannot see the ECB agreeing to unconditionally provide euro and other foreign currency reserves to the exiting nations who are running their fiscal policy outside the parameters of the Northern states. Can you imagine Germany, which proudly runs fiscal surpluses while its major transport network is falling apart (bridges etc) tolerating Greece running the fiscal deficits it needs to restore some sense of prosperity? While Germany sits on current account surpluses of around 7-8% and thus creating massive imbalances within the Eurozone, they lecture everyone else about fiscal rectitude. My estimate is that Greece should be running deficits close to 8 to 10% of GDP to move the economy in the right direction.

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More entertainment.

This Could Mean The End Of May – And The Beginning Of Corbyn (Ind.)

Is this it? The moment when the May premiership is over? Could Corbyn end up taking power in a matter of weeks? It’s at least possible, though I concede it sounds far-fetched at first. In history, some British Prime Ministers have had their premierships wrecked by the “Irish Question”. Others, in more recent times, have been destroyed by Europe. Theresa May is unique in managing to combine both famously intractable and insoluble issues into one lethal cocktail. And so, it seems she is about to swallow the poison. Her premiership may be even shorter than many anticipated, and a Jeremy Corbyn-led government could be a fact of British life by the time the snows melt next year. Here’s how.

From what we can discern, the Government is perfectly happy to concede “special status” for Northern Ireland / Ireland in the Brexit talks – anathema to the Ulster Unionists. This is because the Government desperately needs to get onto the second phase of the process – the trade talks for the whole UK – and MPs, without being too crude about it, are happy to sign whatever the EU sticks under their nose and worry about the consequences later. In the end, they will risk their support from the DUP to get moving on Brexit. Jobs (Tory MPs’ included) are at stake. After all, ministers such as David Davis always say that “nothing’s agreed until everything’s agreed”, so having now ratted on the Democratic Unionists, they can, in due course, re-rat on the Irish and the EU, after a trade deal is sorted out.

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This looks very amateurish. And everybody knows.

Theresa May Humiliated As DUP Scuppers Border Deal (Ind.)

Theresa May’s Brexit strategy is in disarray after the Irish Prime Minister dramatically accused her of reneging on an agreement that would have ended the deadlock in the talks. On a day of drama, the Prime Minister pulled the plug on a deal on the Irish border after it was rejected by the Democratic Unionist Party which props her up in power – triggering claims she is being “held to ransom”. The embarrassment left Ms May scrambling to arrange crisis talks with the DUP before she heads back to Brussels later this week, with the clock ticking on the negotiations. EU leaders have demanded she guarantee there will no hard land border in Ireland before a summit next week, if the talks are to move on to discussing future trade and a transitional deal.

The unravelling of the deal also left many Conservatives questioning Ms May’s handling of the talks, amid disbelief that the DUP had not been squared off in advance. The talks broke down after Arlene Foster, the DUP leader, ruled out any move “which separates Northern Ireland economically or politically from the rest of the United Kingdom”. “We have been very clear. Northern Ireland must leave the EU on the same terms as the rest of the United Kingdom,” she said, speaking at Stormont. The party – despite being the Tories’ partner in government – appeared to be blindsided by the UK’s apparent concession of “regulatory alignment” on both sides of the border, to avoid checks. Within 20 minutes, Ms May interrupted her talks with Jean-Claude Juncker, the EU Commission President, to telephone Ms Foster. When she went back to the lunch, the deal was off.

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“By the time Cornwall had got in on the act by insisting its dogs be allowed to surf wherever they wanted..”

Confused May In Alignment Only With Herself Over Irish Issue (G.)

“Are you sure we can’t fudge the Northern Ireland border issue just a little bit?” she had asked Juncker on arrival in Brussels. Juncker had sniggered. Absolutely not. What bit of “regulatory alignment” did she not get? Theresa had another go. How about we say that pigs, cheese and a few cows are allowed to wander across the border without a passport? So you’re basically giving in and accepting that Northern Ireland must stay inside the single market and the customs union, Juncker had observed. Mmm, yes and no, Theresa whispered, checking over her shoulder to make sure no one was listening. It was like this. Regulatory divergence and regulatory alignment could almost mean exactly the same thing. It just depended which side you were looking at it from. The secret was to persuade the divergers that you weren’t aligning and the aligners you weren’t diverging by drafting something that was equally open to misinterpretation by both.

“Whatever,” Juncker had yawned. Having persuaded herself she had got a deal she could sell – to herself if no one else – Theresa set about drafting an agreement with the Irish government. As the news seeped out that an agreement had been reached, all hell broke loose. If the Northern Irish could have a special nod and a wink for pigs, the Scots must have the same exemptions for scotch. And heather. Then London started making demands. Just because it could. It had never fancied leaving the EU anyway. By the time Cornwall had got in on the act by insisting its dogs be allowed to surf wherever they wanted, it dawned on the prime minister that maybe she ought to run the agreement past the DUP. Arlene Foster’s response had been unequivocal. Theresa could keep her £1bn. Any deal that didn’t make Northern Ireland exactly the same as the rest of the UK was unacceptable. No special status, no nothing. And if push came to shove, she’d bring down the UK government.

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Erik Prince and Oliver North. Yeah, those are the guys I would trust.

White House Weighing Plans For Private Spies To Counter “Deep State” (IC)

The Trump administration is considering a set of proposals developed by Blackwater founder Erik Prince and a retired CIA officer — with assistance from Oliver North, a key figure in the Iran-Contra scandal — to provide CIA Director Mike Pompeo and the White House with a global, private spy network that would circumvent official U.S. intelligence agencies, according to several current and former U.S. intelligence officials and others familiar with the proposals. The sources say the plans have been pitched to the White House as a means of countering “deep state” enemies in the intelligence community seeking to undermine Trump’s presidency. The creation of such a program raises the possibility that the effort would be used to create an intelligence apparatus to justify the Trump administration’s political agenda.

“Pompeo can’t trust the CIA bureaucracy, so we need to create this thing that reports just directly to him,” said a former senior U.S. intelligence official with firsthand knowledge of the proposals, in describing White House discussions. “It is a direct-action arm, totally off the books,” this person said, meaning the intelligence collected would not be shared with the rest of the CIA or the larger intelligence community. “The whole point is this is supposed to report to the president and Pompeo directly.” Oliver North, who appears frequently on Trump’s favorite TV network, Fox News, was enlisted to help sell the effort to the administration. He was the “ideological leader” brought in to lend credibility, said the former senior intelligence official.

Some of the individuals involved with the proposals secretly met with major Trump donors asking them to help finance operations before any official contracts were signed. The proposals would utilize an army of spies with no official cover in several countries deemed “denied areas” for current American intelligence personnel, including North Korea and Iran. The White House has also considered creating a new global rendition unit meant to capture terrorist suspects around the world, as well as a propaganda campaign in the Middle East and Europe to combat Islamic extremism and Iran. “I can find no evidence that this ever came to the attention of anyone at the NSC or [White House] at all,” wrote Michael N. Anton, a spokesperson for the National Security Council, in an email. “The White House does not and would not support such a proposal.”

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“The deal had allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003, down to as low as 0.005% in certain years..”

Apple Agrees To Pay Over $15 Billion To Ireland In Back Taxes (ArsT)

According to a top Irish official, Apple has agreed to to pay Ireland around $15.4 billion in back taxes. “We have now reached agreement with Apple in relation to the principles and operation of the escrow fund,” Finance Minister Paschal Donohoe told reporters before a meeting with European Competition Commissioner Margrethe Vestager. “We expect the money will begin to be transmitted into the account from Apple across the first quarter of next year.” Ireland was formally referred to the European Court of Justice after it failed to implement a 2016 order that required the island nation to collect the same amount in unpaid taxes. Over a year ago, as Ars reported, the EU’s competition chief Vestager said that a two-year investigation into so-called sweetheart tax deals in 1991 and 2007 had found Apple guilty of receiving illegal state aid from the Emerald Isle.

The deal had allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003, down to as low as 0.005% in certain years, according to Vestager. Apple has denied any wrongdoing and has also said that it received no “special deal.” “We have a dedicated team working diligently and expeditiously with Ireland on the process the European Commission has mandated,” Apple said in a Monday statement according to UPI. “We remain confident the General Court of the EU will overturn the Commission’s decision once it has reviewed all the evidence.” Both Apple and Ireland have challenged the EU’s court order.

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Why not check this for fraud too?

China, the Digital Giant (PS)

China has firmly established itself as a global leader in consumer-oriented digital technologies. It is the world’s largest e-commerce market, accounting for more than 40% of global transactions, and ranks among the top three countries for venture capital investment in autonomous vehicles, 3D printing, robotics, drones, and artificial intelligence (AI). One in three of the world’s unicorns (start-ups valued at more than $1 billion) is Chinese, and the country’s cloud providers hold the world record for computing efficiency. While China runs a trade deficit in services overall, it has lately been running a trade surplus in digital services of up to $15 billion per year. Powering China’s impressive progress in the digital economy are Internet giants like Alibaba, Baidu, and Tencent, which are commercializing their services on a massive scale, and bringing new business models to the world.

Together, these three companies have 500-900 million active monthly users in their respective sectors. Their rise has been facilitated by light – or, perhaps more accurate, late – regulation. For example, regulators put a cap on the value of online money transfers a full 11 years after Alipay introduced the service. Now, these Internet firms are using their positions to invest in China’s digital ecosystem – and in the emerging cadre of tenacious entrepreneurs that increasingly define it. Alibaba, Baidu, and Tencent together fund 30% of China’s top start-ups, such as Didi Chuxing ($50 billion), Meituan-Dianping ($30 billion), and JD.com ($56 billion). With the world’s largest domestic market and plentiful venture capital, China’s old “copy-cat” entrepreneurs have transformed themselves into innovation powerhouses.

They fought like gladiators in the world’s most competitive market, learned to develop sophisticated business models (such as Taobao’s freemium model), and built impregnable moats to protect their businesses (for example, Meituan-Dianping created an end-to-end food app, including delivery). As a result, the valuation of Chinese innovators is many times higher than that of their Western counterparts. Moreover, China leads the world in some sectors, from livestreaming (one example is Musical.ly, a lip-syncing and video-sharing app) to bicycle sharing (Mobike and Ofo exceed 50 million rides per day in China, and are now expanding abroad).

Most important, China is at the frontier of mobile payments, with more than 600 million Chinese mobile users able to conduct peer-to-peer transactions with nearly no fees. China’s mobile-payment infrastructure – which already handles far more transactions than the third-party mobile-payment market in the United States – will become a platform for many more innovations.

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Merkel is losing ground fast. First inviting refugees and then paying them to leave, what is that?

Pilots Across Germany Are Blocking The Deportation Of Asylum Seekers (IBT)

Pilots across Germany are refusing to carry out deportations of asylum seekers and have prevented at least 222 planned flights so far, the government said on Monday (4 December) Germany’s main airline Lufthansa and its subsidiary Eurowings halted at least 85 flights in the first eight months of this year, according to a freedom of information request obtained by the Left party. The majority of the cancellations took place at Frankfurt airport, Germany’s largest and most important transport hub. A large number of the flights were scheduled to repatriate refugees to Afghanistan, a move which has been widely condemned by human rights organisations. Earlier this year, Amnesty International called on European governments to “implement a moratorium on returns to Afghanistan until they can take place in safety and dignity”.

Anna Shea, Amnesty International’s Researcher on Refugee and Migrant Rights, said that government was being “wilfully blind” to the fact that violence was at a record high in Afghanistan. Despite an increase in deportations, Germany remains the top destination for refugees in the European Union. This year, Germany has taken in more asylum seekers than all other 27 EU countries combined. In the first six months of 2017 the country processed 388,201 asylum cases, Die Welt reported, quoting statistics agency Eurostat. To try and curb the numbers, the German government is offering rejected asylum seekers up to €1000 in benefits if they voluntarily return home. Families who agree to leave are entitled to receive up to €3000. Interior Minister Thomas de Maizière (CDU) told the Süddeutsche Zeitung on Sunday (3 December): “If you decide by the end of February for a voluntary return, you will get in addition to first aid, a housing aid for the first 12 months in your country of origin.”

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Tsipras has to ask Brussels (re: Merkel) for permission.

Push To Move Refugees From Greek Islands To Mainland (K.)

Municipal officials from the islands of Lesvos, Chios and Samos, which are bearing the brunt of an increased influx of migrants from neighboring Turkey, are due in Athens on Tuesday to press the government for action to ease the pressure on their local communities. The officials decided to coordinate their protests and seek a meeting with Migration Minister Yiannis Mouzalas to speed up the transfer of migrants from the islands to mainland Greece. There are currently more than 15,000 migrants living in state-run camps on Lesvos, Chios, Samos, Leros and Kos. More than 15,000 have been transferred to the mainland over the past year. Of those more than 3,500 were transferred in the last month alone. But islanders say more action is needed due to growing tensions in the reception centers and among the local communities as arrivals from Turkey have increased.

Hopes that a European Union refugee relocation program could ease some of the pressure have been largely frustrated as the process is a slow one. European Migration Commissioner Dimitris Avramopoulos has said the so-called Dublin Regulation, which dictates that refugees apply for asylum in the first EU country they enter, must be reformed for pressure on countries such as Greece and Italy to ease. In a related development on Monday, a court on Lesvos indicted 16 North African migrants who participated in the occupation of a central square in Mytilene, the main port of Lesvos. Authorities on the island detained a total of 25 protesters late on Sunday but the other nine were released as they are minors. The migrants had staged the protest in a bid to press authorities to accelerate their asylum applications and their transfer to mainland Greece.

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No question there.

The World’s Oceans Are Under The Greatest Threat In History – Attenborough (G.)

The world’s oceans are under the greatest threat in history, according to Sir David Attenborough. The seas are a vital part of the global ecosystem, leaving the future of all life on Earth dependent on humanity’s actions, he says. Attenborough will issue the warning in the final episode of the Blue Planet 2 series, which details the damage being wreaked in seas around the globe by climate change, plastic pollution, overfishing and even noise. Previous BBC nature series presented by Attenborough have sometimes been criticised for treading too lightly around humanity’s damage to the planet. But the final episode of the latest series is entirely dedicated to the issue. “For years we thought the oceans were so vast and the inhabitants so infinitely numerous that nothing we could do could have an effect upon them. But now we know that was wrong,” says Attenborough.

“It is now clear our actions are having a significant impact on the world’s oceans. [They] are under threat now as never before in human history. Many people believe the oceans have reached a crisis point.” Attenborough says: “Surely we have a responsibility to care for our blue planet. The future of humanity, and indeed all life on Earth, now depends on us.” BBC executives were reportedly concerned about the series appearing to become politicised and ordered a fact-check, which it passed. The series producer, Mark Brownlow, said it was impossible to overlook the harm being caused in the oceans: “We just couldn’t ignore it – it wouldn’t be a truthful portrayal of the world’s oceans. We are not out there to campaign. We are just showing it as it is and it is quite shocking.”


Strict management of the herring fishery in Norway has saved it from collapse. Herring now draw in humpback whales and orca. Photograph: Audun Rikardsen

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Aug 252017
 
 August 25, 2017  Posted by at 8:30 am Finance Tagged with: , , , , , , , ,  


Sergio Larraín Valparaiso Passage Bavestrello 1952

 

78% of Americans Live Paycheck To Paycheck (CNBC)
Systemic Banking Fraud Means Next Crisis Will Be Worse (Feierstein)
Did the Economy Just Stumble Off a Cliff? (CHS)
Central Bank Balance Sheets Are Headed for a Great Divergence (BBG)
Low World Inflation Dogs Central Bankers, Even As Economies Grow (R.)
Amazon’s Plans to Cut Food Prices Will Be a Headache for the Fed (BBG)
Has The Fed Completely Lost Control (Roberts)
No Alternative To Austerity? That Lie Has Now Been Nailed (G.)
Germany Slammed For Domestic Under-Spending (Ind.)
EU States Begin Returning Refugees To Greece As German Reunions Slow (G.)
Yemen: The War No One Is Allowed To Know About (NS)
3,700-Year-Old Babylonian Clay Tablet Just Changed The History of Maths (SA)
Hurricane Harvey Has All the Ingredients to Become a Monster (AP)

 

 

Forget about Jackson Hole. This is America.

78% of Americans Live Paycheck To Paycheck (CNBC)

No matter how much you earn, getting by is still a struggle for most people these days. 78% of full-time workers said they live paycheck to paycheck, up from 75% last year, according to a recent report from CareerBuilder. Overall, 71% of all U.S. workers said they’re now in debt, up from 68% a year ago, CareerBuilder said. While 46% said their debt is manageable, 56% said they were in over their heads. About 56% also save $100 or less each month, according to CareerBuilder. The job-hunting site polled over 2,000 hiring and human resource managers and more than 3,000 full-time employees between May and June.

Most financial experts recommend stashing at least a six-month cushion in an emergency fund to cover anything from a dental bill to a car repair — and more if you are the sole breadwinner in your family or in business for yourself. While household income has grown over the past decade, it has failed to keep up with the increased cost-of-living over the same period. Even those making over six figures said they struggle to make ends meet, the report said. Nearly 1 in 10 of those making $100,000 or more said they usually or always live paycheck to paycheck, and 59% of those in that salary range said they were in the red.

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“Someone once alerted me to the Bohica syndrome. Bohica? I asked.

He sneered: “Bend Over, Here It Comes Again.”

Systemic Banking Fraud Means Next Crisis Will Be Worse (Feierstein)

Henry Paulson. Hank. Remember him? Of the crisis in 2008, he said: “Where I come from, if someone takes a risk and they’re going to make the profit from that risk, they shouldn’t have the taxpayer pay for the losses.” Quite the wisdom one expects from the 74th US Secretary of the Treasury. Yet, as Paulson played pass the parcel with the rest of us, it was he who unwrapped the final layer when the music stopped, and discovered that the prize within was a grenade. Understandable, therefore, that he offered a second opinion somewhat in contrast to his first: “It’s better to have the taxpayer pay for the losses than have the United States of America become an economic wasteland. If the financial system collapses, it’s really, really hard to put it back together again.”

Well, it did, and it was. Two years after the fall of Lehman Brothers, former Federal Reserve chairman Alan Greenspan was still reflecting on the solution. “There are two fundamental reforms we need — to get adequate capital and… far higher levels of enforcements of… fraud statutes.” So what progress has been made in the efforts to reduce the risks of another crisis? Not enough. In a letter this year to Bank of England’s Governor, Mark Carney, (in his capacity as chairman of the Financial Stability Board), the Senior Supervisors Group reported that “firms’ progress toward consistent, timely, and accurate reporting of top counterparty exposures fails to meet supervisory expectations”. It said there is still too little reform, and too little essential knowledge of counterparty risk.

But what of Greenspan’s assertions of criminal behaviour in financial markets? Again, no change. Market manipulation is not a conspiracy theory. The Bank of Japan has manoeuvred its bond market to a point where bond futures no longer trade. Its interventions have distorted free-market pricing mechanisms to the point that risk is virtually impossible to quantify. But the most pressing concern is the behaviour of central banks, which had previously appeared a solid safe haven.

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Guess where the trillions went?!

Did the Economy Just Stumble Off a Cliff? (CHS)

The signs are everywhere for those willing to look: something has changed beneath the surface of complacent faith in permanent growth. This is more intuitive than quantitative, but my gut feeling is that the economy just stumbled off a cliff. Neither the cliff edge nor the fatal misstep are visible yet; both remain in the shadows of the intangible foundation of the economy: trust, animal spirits, faith in authorities’ management, etc. Since credit expansion is the lifeblood of the global economy, let’s look at credit expansion. Courtesy of Market Daily Briefing, here is a chart of total credit in the U.S. and a chart of the%age increase of credit. Notice the difference between credit expansion in 1990 – 2008 and the expansion of 2009 – 2017. Credit expanded by a monumental $40+ trillion in 1990 – 2008 without any monetary easing (QE) or zero-interest rate policy (ZIRP). The expansion of 2009 – 2017 required 8 long years of massive monetary/fiscal stimulus and ZIRP.

This chart of credit change (%) reveal just how lackluster the current expansion of credit has been, despite unprecedented trillions of stimulus pumped into the financial sector.

Back in the real world, have you noticed a slowing of animal spirits borrowing and spending? Have you tightened up your household budget recently, or witnessed cutbacks in the spending habits of friends and family? Have you noticed retail parking lots aren’t very full nowadays, and once-full cafes now have empty tables? According to the conventional economic statistics, everything’s going great: there are millions of job openings, unemployment is near historic lows, GDP is expanding nicely and of course, everyone’s favorite signifier of wonderfulness, the stock market, is hovering near all-time highs.

The possibility that the real economy just stumbled off a cliff creates instant cognitive dissonance, as the official narrative is the economy is expanding slowly but surely and everything is nominal: there’s plenty of everything, from oil/gas to consumer credit to jobs to student loans. Nonetheless, I feel a disturbance in the Force: once credit expansion slows or ceases, the economy will roll over into recession, as wages have been stagnant for the past 17 years, and the bottom 95% of households can only spend more if they borrow more.

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The Fed is going to raise rates as Japan and Europe continue to buy everything not bolted down? Boy, I’d like to see that happen…

Central Bank Balance Sheets Are Headed for a Great Divergence (BBG)

A brief convergence this year in the dollar value of the balance sheets of the Federal Reserve, the European Central Bank and the Bank of Japan has passed and the trio are now set to take very different paths. After all three touched $4.5 trillion in April, they’ve split, mostly due to a rally in the euro and strength in the yen. With expectations that Janet Yellen may begin whittling away at the Fed’s balance sheet in the next few months, and the BOJ set to carry on with its unprecedented asset purchases, the Japanese central bank may find itself carrying something approaching double the load of its American counterpart two years from now. The ECB’s picture is much more difficult to discern, and investors will be listening intently on Friday when Mario Draghi speaks at the annual Jackson Hole summit of central bankers in Wyoming. With Europe’s recovery gathering pace, officials may start talks this fall about a strategy for 2018 that could include gradually reducing net purchases to zero.

When it comes to the size of the balance sheets relative to the economies of the U.S., Europe and Japan, Haruhiko Kuroda’s BOJ is already the uncontested heavyweight, and will keep extending its lead. The BOJ doesn’t expect to hit its 2% inflation target until sometime around the fiscal year starting in April 2019, dictating the need for hefty asset purchases for years to come. This divergence has big implications for the central banks the next time crisis threatens the global economy. The Fed and the ECB are likely to have more room to dive back into asset purchases or cut interest rates, while the BOJ may find itself pinned down unless it can find a way out of its current predicament before the next problem comes along.

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Are central bankers really this dumb?

Low World Inflation Dogs Central Bankers, Even As Economies Grow (R.)

The world’s top central bankers gather in Jackson Hole, their confidence bolstered by a sustained return to economic growth that may eventually allow the European Central Bank and the Bank of Japan to follow the Federal Reserve in winding down their crisis-era policies. Yet in one key area, none of the world’s central banks has found the answer. Inflation remains well below their 2% targets, stoking a debate about whether they are missing signals of a less than healthy economy and the need for a slower path of “rate normalization”, or that they simply don’t understand how inflation works in a globalized world. In Japan, officials have researched behavioral causes, wondering whether businesses and families are just slower to react to economic signals than thought. European officials have blamed slow-moving union wage contracts and online shopping, while U.S. policymakers have cited a lengthy sequence of “one-offs” in pricing from oil to cellphones to prescription drugs.

In each case the response of policymakers has been the same: wait it out and talk confidently about inflation’s return, as the Fed has put it since 2013, over “the medium term”. “Yes, our models aren’t perfect… Certainly the fact that we have had some low inflation readings is something that we take very seriously,” said Cleveland Fed President Loretta Mester. Yet Mester is convinced the problem is not a weakening economy, but changes in how businesses set prices – a supply side issue she says leaves her comfortable pressing ahead with slow but steady interest rate increases. Not everyone is convinced by Mester’s approach. Concerns over the significance of a recent slide in inflation have renewed questions about whether a global tightening of monetary policy can proceed, with U.S. investors betting the Fed will have to hold off on more rate changes until later next year.

[..] The use of inflation targeting has been an important innovation in central banking, rooted in theories of how public expectations, central bank communication and other factors shape economic behavior. It was a recognition that how policymakers talked about inflation, and what households believed, would in part determine the outcome. But the developed world’s alignment around a 2% target has become a headache as much as a policy guide, with central banks trying to estimate and regulate something they acknowledge they don’t fully understand. Bank of Japan consultants have puzzled over whether people shop and save as if they fully see the future, or whether they look at the past and only slowly adapt to change. If the latter, then what central banks say is less important. [..] “Look, inflation is hard to forecast,” Mester said in an interview with Reuters, noting that the most elaborate models don’t do much better than simply saying inflation will be 2% and leaving it at that.

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Finance humor.

Amazon’s Plans to Cut Food Prices Will Be a Headache for the Fed (BBG)

Amazon’s plans to cut prices at Whole Foods is great news for shoppers, but not so much for Federal Reserve officials wondering whether they’ll ever hit their 2% inflation target. A low unemployment rate is supposed to boost inflation, or so the economic theory goes. One possible reason it’s not happening, according to the minutes of the central bank’s latest meeting in July: “Restraints on pricing power from global developments and from innovations to business models spurred by advances in technology.” Chicago Fed President Charles Evans earlier this month mused that “people are utilizing newer technologies, competition is emerging from unexpected places – not necessarily your nearest competitor but somebody else – and that could lead to reduced margins and downward price pressure for some period of time.”

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Many years ago.

Has The Fed Completely Lost Control (Roberts)

An interesting thing happened on the way to World Domination, uhh, I mean “Stability” – the data quit cooperating with the Federal Reserve’s carefully devised plan. Just recently the Federal Reserve quit updating their carefully constructed “Labor Market Conditions Index” which failed to support their ongoing claims of improving employment conditions. The chart below is the last iteration before it was discontinued which showed a clear deterioration in underlying strength.

The problem for the Fed in making the decision to discontinue their own Labor Market Conditions Index, which is likely providing a more accurate picture of the real conditions, is being forced to remain tied to an outdated U-3 employment index. As noted recently by Morningside Hill:

“There is sufficient evidence to suggest the Bureau of Labor Statistics (BLS) calculation method has been systemically overstating the number of jobs created, especially in the current economic cycle. Furthermore, the BLS has failed to account for the rise in part-time and contractual work arrangements, while all evidence points to a significant and rapid increase in the so-called contingent workforce as full-time jobs are being replaced by part-time positions, resulting in double and triple counting of jobs via the Establishment Survey. Lastly, a full 93% of the new jobs reported since 2008 and 40% of the jobs in 2016 alone were added through the business birth and death model – a highly controversial model which is not supported by the data. On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship.”

This last point was something I have addressed many times previously, the chart below shows the actual employment roles in the U.S. when stripping out the Birth/Death Adjustment model. With such a large overstatement of actual employment, the flawed model does support the idea of a tight labor market.

Unfortunately, despite arguments to the contrary, there is little support for why the bulk of Americans that should be working, simply aren’t.

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Not everyone is completely nuts.

No Alternative To Austerity? That Lie Has Now Been Nailed (G.)

Ever since the banks plunged the western world into economic chaos, we have been told that only cuts offer economic salvation. When the Conservatives and the Lib Dems formed their austerity coalition in 2010, they told the electorate – in apocalyptic tones – that without George Osborne’s scalpel, Britain would go the way of Greece. The economically illiterate metaphor of a household budget was relentlessly deployed – you shouldn’t spend more if you’re personally in debt, so why should the nation? – to popularise an ideologically driven fallacy. But now, thanks to Portugal, we know how flawed the austerity experiment enforced across Europe was. Portugal was one of the European nations hardest hit by the economic crisis. After a bailout by a troika including the IMF, creditors demanded stringent austerity measures that were enthusiastically implemented by Lisbon’s then conservative government.

Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, and the working day was extended. In a two-year period, education spending suffered a devastating 23% cut. Health services and social security suffered too. The human consequences were dire. Unemployment peaked at 17.5% in 2013; in 2012, there was a 41% jump in company bankruptcies; and poverty increased. All this was necessary to cure the overspending disease, went the logic. At the end of 2015, this experiment came to an end. A new socialist government – with the support of more radical leftwing parties – assumed office. The prime minister, António Costa, pledged to “turn the page on austerity”: it had sent the country back three decades, he said. The government’s opponents predicted disaster – “voodoo economics”, they called it.

Perhaps another bailout would be triggered, leading to recession and even steeper cuts. There was a precedent, after all: Syriza had been elected in Greece just months earlier, and eurozone authorities were in no mood to allow this experiment to succeed. How could Portugal possibly avoid its own Greek tragedy? The economic rationale of the new Portuguese government was clear. Cuts suppressed demand: for a genuine recovery, demand had to be boosted. The government pledged to increase the minimum wage, reverse regressive tax increases, return public sector wages and pensions to their pre-crisis levels – the salaries of many had plummeted by 30% – and reintroduce four cancelled public holidays. Social security for poorer families was increased, while a luxury charge was imposed on homes worth over €600,000 (£550,000).

The promised disaster did not materialise. By the autumn of 2016 – a year after taking power – the government could boast of sustained economic growth, and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved, to 2.1% – lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules.

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But it’s about political power, not economics: “Germany has a bigger surplus even than China, they should spend it in the European economy.” By bleeding Europe dry, Germany expands its dominance.

Germany Slammed For Domestic Under-Spending (Ind.)

A Nobel economics laureate, Sir Christopher Pissarides, has hit out at Germany’s refusal to increase its domestic state spending in order to help entrench the eurozone’s recovery. Speaking at the Lindau meetings in Germany on Wednesday, Sir Christopher said that despite the bounce back in the single currency zone in recent months after years of crisis, the Continent’s largest economy was still exerting a damaging and unnecessary drag. “German fiscal policy is not at all what some countries still need,” he said, arguing that demand across the single currency zone was still too low. “Why is there no demand? Because of German fiscal policies! There is austerity, there is low infrastructure spending and therefore companies are hesitating [on] investment.” “Where is expansion going to come from? It’s going to come from the surplus countries spending more. Germany has a bigger surplus even than China, they should spend it in the European economy.”

The German government is running a fiscal budget surplus and its current account surplus (the difference between its total national spending and total national income) of $294bn in 2016 has drawn criticism from a host of economic bodies, including the IMF, for similar reasons as those advanced by Sir Christopher. Sir Christopher, who was awarded the Nobel in 2010 for his theoretical breakthroughs on labour market analysis, said that countries such as Spain had pushed through major and necessary job market reforms in 2010 and 2011 in the teeth of its sovereign debt crisis. The official headline Spanish unemployment rate currently stands at 17.3%, down from a 2013 peak of 27%. But Sir Christopher said it should be falling faster and that higher German state spending would help. “It’s certainly the case that if the European economy as a whole expanded faster we would see faster positive results from these [labour market] reforms,” he said.

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Completely nuts.

EU States Begin Returning Refugees To Greece As German Reunions Slow (G.)

European countries are poised to begin the process of returning refugees to Greece, as migrants seeking reunification with their family members – mostly in Germany – step up protests in Athens. In a move decried by human rights groups, EU states will send back asylum seekers who first sought refuge in Greece, despite the nation being enmeshed in its worst economic crisis in modern times. Germany has made nearly 400 resettlement requests, according to officials in Berlin and sources in Athens’ leftist-led government. The UK, France, the Netherlands and Norway have also asked that asylum seekers be returned to Greece. Greece’s migration minister told the Guardian the first returns were expected imminently.

“The paperwork has begun and we expect returns to begin over the next month,” said Yannis Mouzalas. “It will start with a symbolic number as an act of friendship [towards other EU nations]. Greece has already accepted so many [refugees], it has come under such pressure, that to accept more would be absurd, a joke if it weren’t such a tragedy.” Mouzalas said he had no idea where the returnees would be placed or whether they would ever leave Greece. “I don’t know where they will go. It could be Athens, it could be Thebes … they are accommodated in an apartment scheme,” he said. “Whatever [happens], conditions will be good, they have improved greatly and will meet EU criteria.”

[..] On Monday a reported 330 migrant arrivals were registered on Greece’s eastern Aegean isles, piling the pressure on overcrowded and vastly overstretched reception centres in Lesvos, Chios, Kos, Leros and Samos. An estimated 14,335 people are currently in limbo in accommodation centres on the Greek islands, according to figures released by the country’s interior ministry on Thursday. Conditions in the centres are described as deplorable, and protests and riots are commonplace. Human Rights Watch recently said self-harm and suicide attempts along with aggression, anxiety and depression were all on the rise. Local services complain about being unable to cope.

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Our friends and allies.

Yemen: The War No One Is Allowed To Know About (NS)

Ten thousand people have died. The world’s largest cholera epidemic is raging, with more than 530,000 suspected cases and 2,000 related deaths. Millions more people are starving. Yet the lack of press attention on Yemen’s conflict has led it to be described as the “forgotten war”. The scant media coverage is not without reason, or wholly because the general public is too cold-hearted to care. It is very hard to get into Yemen. The risks for the few foreign journalists who gain access are significant. And the Saudi-led coalition waging war in the country is doing its best to make it difficult, if not impossible, to report from the area. Working in Sana’a as a fixer for journalists since the start of the uprisings of the so-called Arab Spring in 2011 has sometimes felt like the most difficult job in the world.

When a Saudi-led coalition started bombing Yemen in support of its president, Abdrabbuh Mansour Hadi, in March 2015, it became even harder. With control of the airspace, last summer they closed Sana’a airport. The capital had been the main route into Yemen. Whether deliberately or coincidentally, in doing so, the coalition prevented press access. The media blackout came to the fore last month, when the Saudi-led coalition turned away an extraordinary, non-commercial UN flight with three BBC journalists on board. The team – including experienced correspondent Orla Guerin – had all the necessary paperwork. Aviation sources told Reuters that the journalists’ presence was the reason the flight was not allowed to land. The refusal to allow the press to enter Yemen by air forced them to find an alternative route into the country – a 13-hour sea crossing.

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Sorry, Greece… (btw, it took a century to figure this out)

3,700-Year-Old Babylonian Clay Tablet Just Changed The History of Maths (SA)

A Babylonian clay tablet dating back 3,700 years has been identified as the world’s oldest and most accurate trigonometric table, suggesting the Babylonians beat the ancient Greeks to the invention of trigonometry by over 1,000 years. The tablet, known as Plimpton 322, was discovered in the early 1900s in what is now southern Iraq, but researchers have always been baffled about what its purpose was. Thanks to a team from the University of New South Wales (UNSW) in Australia, the mystery may have been solved. More than that, the Babylonian method of calculating trigonometric values could have something to teach mathematicians today. “Our research reveals that Plimpton 322 describes the shapes of right-angle triangles using a novel kind of trigonometry based on ratios, not angles and circles,” says one of the researchers, Daniel Mansfield.

“It is a fascinating mathematical work that demonstrates undoubted genius.” Experts established early on that Plimpton 322 showed a list of Pythagorean triples, sets of numbers that fit trigonometry models for calculating the sides of a right-angled triangle. The big debate has been about what those triples were actually for. Are they just a series of exercises for teaching, for example? Or are they something more profound? Babylonian mathematics used a base 60 or sexagesimal system (like the minute markers on a clock face), rather than the base 10 or decimal system we use today. By applying Babylonian mathematical models, the researchers were able to show that the tablet would originally have had 6 columns and 38 rows. They also show how the mathematicians of the time could’ve used the Babylonian system to come up with the numbers on the tablet.

The researchers suggest that the tablet may well have been used by ancient scribes to make calculations for building palaces, temples, and canals. But if the new study is right, then the Greek astronomer Hipparchus, who lived about 120 BC, is not the father of trigonometry that he’s long been regarded as. Scholars date the tablet to around 1822-1762 BC. What’s more, because of the way the Babylonians did their maths and geometry, it’s the most accurate trigonometric table as well as the oldest. The reason is that a sexagesimal system has more exact fractions than a decimal system, which means less rounding up. Whereas only two numbers can divide 10 with nothing left over – 2 and 5 – a base 60 system has far more. Cleaner fractions means fewer approximations and more accurate maths, and the researchers suggest we can learn from it today.

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Don’t want to cry wolf, but.. Be safe!

Hurricane Harvey Has All the Ingredients to Become a Monster (AP)

Hurricane Harvey is following the perfect recipe to be a monster storm, meteorologists say. Warm water. Check. Calm air at 40,000 feet high. Check. Slow speed to dump maximum rain. Check. University of Miami senior hurricane researcher Brian McNoldy said Harvey combines the worst attributes of nasty recent Texas storms: The devastating storm surge of Hurricane Ike in 2008; the winds of Category 4 Hurricane Brett in 1999 and days upon days of heavy rain of Tropical Storm Allison in 2001. Rainfall is forecast to be as high as 35 inches through next Wednesday in some areas. Deadly storm surge — the push inwards of abnormally high ocean water above regular tides — could reach 12 feet, the National Hurricane Center warned, calling Harvey life-threatening. Harvey’s forecast path is the type that keeps it stronger longer with devastating rain and storm-force wind lasting for several days, not hours.

“It’s a very dangerous storm,” National Weather Service Director Louis Uccellini told AP. “It does have all the ingredients it needs to intensify. And we’re seeing that intensification occur quite rapidly.” Warm water is the fuel for hurricanes. It’s where storms get their energy. Water needs to be about 79 degrees (26 Celsius) or higher to sustain a hurricane, McNoldy said. Harvey is over part of the Gulf of Mexico where the water is about 87 degrees or 2 degrees above normal for this time of year, said Jeff Masters, a former hurricane hunter meteorologist and meteorology director of Weather Underground. A crucial factor is something called ocean heat content. It’s not just how warm the surface water is but how deep it goes. And Harvey is over an area where warm enough water goes about 330 feet (100 meters) deep, which is a very large amount of heat content, McNoldy said.

“It can sit there and spin and have plenty of warm water to work with,” McNoldy said. If winds at 40,000 feet high are strong in the wrong direction it can decapitate a hurricane. Strong winds high up remove the heat and moisture that hurricanes need near their center and also distort the shape. But the wind up there is weak so Harvey “is free to go nuts basically,” McNoldy said.

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Dec 262016
 
 December 26, 2016  Posted by at 10:09 am Finance Tagged with: , , , , , , , , , , ,  


Paul Gauguin Christmas Night (The Blessing of the Oxen) , 1902-1903

One Industry Will Keep Holding North America Together (CNBC)
China Bank Calls Documents ‘Fake’ After Bond Default Linked To Alibaba (R.)
The Trump Rally Is Young (CNBC)
What Is Productivity And Why Is The UK’s So Poor? (G.)
What’s Behind Obama’s Attacks On Putin (Carley)
British Councils Admit Massive Use Of Spying Powers On Public (G.)
Humankind Has Created 30 Trillion Tons Of Stuff (F.)
Being Busy Is Not Cool (Awl)
The Man Who Saved 200 Syrian Refugees (TL)

 

 

Brilliant headline.

One Industry Will Keep Holding North America Together (CNBC)

Texas-refined gasoline fuels Mexican cars. Natural gas from Canada helps heat the Midwest and cool California. Electricity flows over the northern and southern U.S. borders in both directions. The interconnections in the North American energy industry are huge and growing — and could grow even closer during the Trump administration unless it decides to alter the flow of a key U.S. export (and import) — at the border. The U.S., Canada and Mexico have intentionally worked to combine the advantages of their energy resources. President-elect Donald Trump has said he would renegotiate NAFTA between the U.S., Canada and Mexico. While the new administration seems to be very friendly to the energy sector, there are still questions about whether there could be changes that affect the intricate web of energy connections between the three countries.

“It’s not so simple to say we’re going to renegotiate the trade deals. We set up the system to create those inter-linkages. You just can’t overnight legislate or executive order that away. If you try to do that, it’s going to have negative economic impacts, not just for the economies on the border but for these specific industries, like energy,” said Scott Anderson, chief economist at Bank of the West. Trump’s selection of former Texas Gov. Rick Perry as energy secretary, is seen as a positive for the oil and gas industry. Perry has spoken favorably about North America as an energy power house, including Mexico and Canada. Perhaps one of the most surprising recent developments is the boom in U.S. natural gas that’s flowing across the southern border, and the ambitious plans by the Mexican government to build more pipelines to take U.S. natural gas throughout Mexico and as far as Mexico City.

[..] The energy picture changed dramatically for North America in the last decade. The push by the U.S. energy industry into hydraulic fracking and horizontal drilling unleashed an energy boom, making the U.S. the world’s biggest producer of natural gas and placing it firmly among the top three oil producers. That has changed the situation for all of North America, at a time when Mexico’s oil and gas output was in decline and Canada found some of its potential oil output landlocked. The ties between the three countries go way back. In the early 1900s, the U.S. began sharing electricity with its neighbors, and Canada is now a significant net exporter of electricity to the U.S.

One catalyst has been Mexico’s program of energy reform, intended to break the hold of state-owned Pemex on its industry and bring new private investment to Mexico’s energy industry. The decline in big part was due to a lack of investment by the government in Petroleos Mexicanos, and its increasing reliance on Pemex revenue stream for its own budget. “Before shale, the U.S. was importing a lot more gas from Canada,” said Anthony Yuen, global energy analyst at Citigroup. The U.S. was also worried not that long ago that it would need to import LNG, liquefied natural gas. But the shale boom changed everything.

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Fraud and shadow banking. Makes you wonder how pervasive this is. I have an idea.

China Bank Calls Documents ‘Fake’ After Bond Default Linked To Alibaba (R.)

The fate of a defaulted $45 million Chinese corporate bond sold through an Alibaba-backed online wealth management platform was thrown into doubt on Monday, after a bank said letters of guarantee for the bonds were counterfeit. China Guangfa Bank said guarantee documents, official seals and personal seals presented by the insurer of the bonds “are all fake” and that it has reported the matter to the police. The dispute highlights challenges in China’s loosely regulated online finance industry, where retail investors often buy high-yielding bonds and other assets, expecting them to be “risk-free” due to guarantees provided by various parties. At the center of the latest dispute are 312 million yuan ($45 million) worth of high-yielding bonds issued by southern Chinese phone maker Cosun Group that defaulted this month.

The bonds were sold through Zhao Cai Bao, an online platform run by Ant Financial Services Group, the payment affiliate of e-commerce firm Alibaba. Ant Financial has asked Zheshang Property and Casualty Insurance, which wrote insurance on the bonds, to repay investors. On Sunday, Zheshang Insurance published two documents on its website that it said were from CGB carrying the bank’s official seals, and that guaranteed Zheshang Insurance policies for the Consun bonds. The letters were issued at CGB’s Huizhou branch in December 2014, when the Cosun bonds were sold, Zheshang Insurance said.On Monday, CGB said the documents were fake and that it had reported the incident to police as “suspected financial fraud.” The dispute follows instances of financial fraud this year including forged bond agreements that led to brokerage Sealand Securities sharing potential losses of up to $2.4 billion. In May, the government advised banks to be vigilant after several cases of bill fraud.

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Well, yeah, that too.

The Trump Rally Is Young (CNBC)

A trade war with China – a country with a $473 billion of bilateral trade with America in the first ten months of this year – is an implausible assumption. But a serious conversation about the fact that Chinese exports to America represent three-quarters of that business is long overdue and entirely appropriate. The President-elect Donald Trump is seeking a better deal for America. That should be easy to understand and support for any fair- and free-trader. And, rest assured, Washington’s intent to correct its huge trade imbalance with China is not coming as a surprise to Beijing. The Zhongnanhai mandarins know that their trade surpluses with the U.S. – $366 billion in 2015 and $289 billion in the first ten months of this year – are difficult issues that must be addressed. That is the substance of the problem.The rest is rhetoric.

Mr. Trump’s opening salvo used legitimate trade remedies,such as import tariffs, anti-dumping investigations, and possibly other measures if China was recognized as an exchange-rate manipulator. China has announced that it would respond with unspecified retaliatory measures, but President Xi Jinping talked about the need for Sino-American cooperation in his congratulatory phone call to Mr. Trump. The Chinese also liked the appointment of Iowa Governor Terry Branstad as an envoy to Beijing. They called him a “friend of China” and noted that he has known Mr.Xi since 1985. Difficult trade negotiating rounds are quite common. In this particular case, Washington also has the option of using non-confrontational measures to reduce the existing trade imbalance.

A change in the corporate taxation is one of them. That could bring back American manufacturing producing Chinese exports to the U.S. Some leaders of the U.S. Business Roundtable – a forum of 192 companies that account for most of investment activity in the United States – doubt that a large amount of that business can be quickly repatriated. They feel confident, however, that appropriate corporate tax cuts would keep firms producing and reinvesting their profits in the U.S. The corporate tax reform is at the top of Mr. Trump’s agenda, and that is perhaps one of the most effective trade signals he can send to China. Indeed, reducing the incentive for the exodus of American manufacturing, and bringing some of it back, would also stop large technology transfers that are part of mandatory Sino-American joint ventures for American firms doing business in China.

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Lazy?

What Is Productivity And Why Is The UK’s So Poor? (G.)

Productivity is a guide to how good a country is at delivering the goods and services that are bought and sold. Technically, it is the rate of output per unit of input, measured per worker or by the number of hours worked. In layman’s terms, it is a measure of what goes in and what comes out. In some sectors, productivity is easy to measure. A factory that makes 1,000 cars a day with 50 workers is twice as productive as a factory that requires 100 workers to do the same job. In other parts of the economy, assessing whether productivity has improved is harder and less objective. At face value a fast-food joint that employed the same number of chefs to cook the same number of hamburgers as they did a year earlier would not be showing any increase in productivity.

But if the quality of the hamburgers improved, that would be a productivity gain and statisticians would try to capture the improvement in the official figures. There are a number of ways in which a firm can make itself more productive. It can invest in new machinery that makes the production process more efficient. It can employ more highly skilled staff. It can train workers so that they can fully exploit the equipment they are using. It is through productivity improvements that living standards rise. For many years, the annual increase in productivity in the UK averaged around 2%, although there were periods when it was lower and periods when it was higher. Each year since the early 1990s, the Office for National Statistics has published an international comparison of productivity.

This showed that UK productivity was 9% lower than the average of the other six members of the G7 (the US, Japan, Germany, France, Italy and Canada) but this gap narrowed to 4% by the time of the 2007 financial crisis. Since then, however, productivity in the UK has barely grown and the gap with the rest of the G7 has widened to 18%. The gap with Germany is 35% and with the US 30%. There have been a number of explanations for the dramatic deterioration in productivity: the availability of unskilled cheap labour has deterred firms from investment; the poor quality of UK roads, railways and broadband network; the shrinkage of the financial sector, which had been a source of high-productivity jobs in the boom before the 2007 crisis; and the misallocation of capital to “zombie” firms kept alive by ultra-low interest rates rather than to dynamic new enterprises.

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“Maybe the Americans [..] can use high tech trampolines to get into space and do without Russian technology.”

What’s Behind Obama’s Attacks On Putin (Carley)

Relations between Russian president Vladimir Putin and US president Barack Obama are poisoned and irretrievably damaged. It’s therefore a good thing that Obama is leaving office on 20 January. Bad US-Russian relations are of course nothing new. Since the Anglo-American war against Iraq in 2003, the US-Russian relationship has been headed downhill. For Obama, it appears that everything has gotten personal. The US president often acts like a petulant adolescent, jealous of a high school rival. You know, the kid who does everything better than he does. The lad takes it badly and won’t let it go. He challenges his nemesis to some new contest at every opportunity only to lose again and again. That’s got to be hard on the ego. Between Obama and Putin there have been many such encounters. Nor can it help that western cartoonists so often ridicule Obama as out of his depth in comparison to Putin.

Let’s consider Obama’s remarks at his last press conference on Friday, 16 December. «The Russians can’t change us or significantly weaken us», said Obama: «They are a smaller country. They are a weaker country. Their economy doesn’t produce anything that anybody wants to buy, except oil and gas and arms. They don’t innovate». This was insulting both Putin and his country, but not enough apparently for Obama. «They [the Russians] can impact us if we lose track of who we are. They can impact us if we abandon our values. Mr. Putin can weaken us, just like he’s trying to weaken Europe, if we start buying into notions that it’s okay to intimidate the press, or lock up dissidents, or discriminate against people because of their faith or what they look like».

What on earth is Mr. Obama talking about? Intimidate the press? The Moscow newspapers and television media are loaded with «liberals». Many Russians call them «fifth columnists». They are «people with ‘more advanced’ worldview[s] who do not tolerate ‘Russian propaganda’ themselves», according to one colleague in Moscow. But Mr. Putin tolerates them and pays them no mind. «Lock up dissidents… discriminate against people»? What alternate reality does Mr. Obama live in? Doesn’t produce anything people want to buy? The United States buys rocket engines that it does not now produce at home. Maybe the Americans, a Russian commentator joked, can use high tech trampolines to get into space and do without Russian technology.

[..] You have to give credit to Obama; he was ambitious, aiming for a big prize and the humiliation of Russia and its president. Again, he was thwarted not so much by President Putin but by the Russian people of the Crimea who immediately mobilised their local self-defence units backed by «polite people», Russian marines stationed in Sevastopol, to kick out the Ukrainians with scarcely a shot fired. They organised a referendum to approve entry into the Russian Federation. Reunification was quickly approved by a huge majority and celebrated in Moscow. Putin gave a remarkably candid speech, explaining the Russian position. «NATO remains a military alliance,’ he said, «and we are against having a military alliance making itself at home right in our backyard or in our historic territory. I simply cannot imagine that we would travel to Sevastopol to visit NATO sailors. Of course, most of them are wonderful guys, but it would be better to have them come and visit us, be our guests, rather than the other way round».

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And why not?

British Councils Admit Massive Use Of Spying Powers On Public (G.)

Councils were given permission to carry out more than 55,000 days of covert surveillance over five years, including spying on people walking dogs, feeding pigeons and fly-tipping, the Guardian can reveal. A mass freedom of information request has found 186 local authorities – two-thirds of the 283 that responded – used the government’s Regulation of Investigatory Powers Act (Ripa) to gather evidence via secret listening devices, cameras and private detectives. Among the detailed examples provided were Midlothian council using the powers to monitor dog barking and Allerdale borough council gathering evidence about who was guilty of feeding pigeons. Wolverhampton used covert surveillance to check on the sale of dangerous toys and car clocking; Slough to aid an investigation into an illegal puppy farm; and Westminster to crack down on the selling of fireworks to children.

Meanwhile, Lancaster city council used the act, in 2012, for “targeted dog fouling enforcement” in two hotspots over 11 days. A spokeswoman pointed out that the law had since changed and Ripa could only now be used if criminal activity was suspected. The permissions for tens of thousands of days were revealed in a huge freedom of information exercise, carried out by the Liberal Democrats. It found that councils then launched 2,800 separate surveillance operations lasting up to 90 days each. Critics of the spying legislation say the government said it would only be used when absolutely necessary to protect British people from extreme threats. Brian Paddick, the Lib Dem peer who represents the party on home affairs, said: “It is absurd that local authorities are using measures primarily intended for combating terrorism for issues as trivial as a dog barking or the sale of theatre tickets. Spying on the public should be a last resort not an everyday tool.”

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Masters of destruction. Who think they’re creators.

Humankind Has Created 30 Trillion Tons Of Stuff (F.)

Over the course of history, humans have made a lot of stuff — buildings, bottles, oil tankers, iPhones. Some of it is useful; a lot of it ends up being junk. It’s more than enough to leave behind a fossil legacy, were humanity to disappear. And as a species, our collection of stuff is only getting bigger. Researchers publishing in the peer-reviewed journal The Anthropocene Review now estimate that the sum material output of humankind exceeds 30 trillion tons. Spread evenly, that would amount to 110 lbs of human-made stuff for every square meter of Earth’s surface, as FORBES contributor Eric Mack pointed out. That’s a huge number. Here are some other, totally massive ways to conceive of our collective output: That’s about 16.8% of the weight of Mount Everest.

Now let’s visualize that number in terms of human-made things. It takes 5.9 billion Type D GVWR school buses at 10,000 lbs each to match all of humanity’s creations on Earth. If you’d prefer to view it in terms of larger objects such as Boeing 747-8 jet liners or International Space Stations, you’ll be looking at totals of 123 million and 66 million, respectively. If doomed cruise liners are your preferred unit of measurement, you would need over 647,ooo Titanics to come close to the immense weight of humanity’s creations. Increasing the size of your vessel to a 102-thousand ton Nimitz-class aircraft carrier, and you cut down the number of boats you’ll need to 293 thousand.

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“Oh you’re in a hurry? Now we’re definitely not crossing the river.”

Being Busy Is Not Cool (Awl)

Because I personally only understand the world through different types of animals, I’m going to use an animal analogy to describe what I think. Let’s say you’re leading a horse and a donkey toward a river. When you reach the little slope that dips down to the riverbank, both of them are gonna pause and be like, “Hey, is this a good idea?” Typically, with a horse, maybe you tug the rope a little and, even though he’s still skeptical, a lot of the time he’ll defer to your logic. “I must be missing something here, it must be safe if you’re saying it is.” He’ll walk down the bank to investigate. The donkey is the opposite. If he has stopped to assess a situation and you try to force his hand before he’s ready, he digs in even deeper. “Oh you’re in a hurry? Now we’re definitely not crossing the river.”

Convincing behavior can be a signal of emotional bias, which can be a signal of poor judgment. In other words, if you need me to cross this river so badly, you’re probably not thinking of my best interest too closely, so let me look over your work. And if you want to rush me along? Seems like a tally mark in the “scam” column tbh. Busyness is the river our culture is trying to get us to cross. To use another example, let’s say someone bursts into the office on Monday morning announcing that everyone has to see the new Star Wars movie because it’s amazing and they’ve never seen anything like it. I’d immediately assume, “This person doesn’t know what they’re talking about.” Why? Because I am a donkey. I know anyone who’s seen a movie that moved them emotionally or made them them think some new thoughts doesn’t automatically burst through a door like a manic sitcom character evangelizing everyone they encounter. That’s not how that feeling acts. And it’s the same with being busy: signifying is not the same as being.

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“When we think of Italians or Irish, we don’t think of them as immigrants. They’re just people.”

The Man Who Saved 200 Syrian Refugees (TL)

When Jim Estill decided to sponsor 50 Syrian refugee families, he didn’t tell anyone about it at first—not his accountant, not his friends, not even his wife. It was the summer of 2015, and the death toll in Syria had reached a quarter of a million people, while another four million had fled the country. All summer long, the news reported horror stories of Syrians drowning in the Mediterranean. Humanitarian aid programs were being cut across the Middle East. As he watched the news, Estill got worked up. “I didn’t want to be 80 years old and know that I did nothing during the greatest humanitarian crisis of my time,” he says. Estill was disturbed by the wave of xenophobia that had emerged during the Harper administration.

He wanted to demonstrate how refugees could help enrich our society. One of his best friends, Franz Hasenfratz, was a refugee who fled Communist Hungary. Hasenfratz went on to establish Linamar, a car-parts manufacturer, which is Guelph’s largest employer, with nearly 10,000 employees. “I was trying to drown out the xenophobes,” Estill says. “When we think of Italians or Irish, we don’t think of them as immigrants. They’re just people.” So he did some math. He checked Kijiji to find out how much apartments in Guelph were renting for, googled child tax benefits and GST/HST rebates in Ontario, and formulated a monthly food budget. He estimated that $30,000 could support a family of five for one year. He multiplied that number by 50 and realized the total cost—$1.5 million—was one he could easily afford.

[..] After Labour Day, Estill called a slew of local religious organizations—including three churches, a mosque, a Hindu temple and a synagogue—and aid agencies like the Salvation Army. On September 29, 10 civic leaders sat down in Estill’s boardroom at Danby. He’d made a PowerPoint presentation titled Refugees: The Right Thing to Do. Muhammed Sayyed, the president of the Muslim Society of Guelph, was amazed that so many faith groups were participating, even though most of the refugees would be Muslim. When he met Estill, he was filled with gratitude. “I thought, Wow, there are still people like him,” he said. An hour after the group sat down, the project was launched. The Muslim Society of Guelph would create the infrastructure, handle the paperwork and lead the volunteers. Estill would sustain the program with monthly donations. The group partnered with the Islamic Foundation of Toronto, which was a sponsorship agreement holder. This meant Estill could choose which refugees he wanted to sponsor.

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Sep 162016
 
 September 16, 2016  Posted by at 8:56 am Finance Tagged with: , , , , , , , , , ,  


DPC Maumee River waterfront, Toledo, OH 1910

Many Presidential Swing States Lag Behind in Income Gains (WSJ)
Mediocre Fundamentals Mean Meteoric Markets Are 70% Overvalued (GMO)
US Seeks $14 Billion From Deutsche Bank Over Mortgage Securities Fraud (AFP)
Deutsche Bank Shares Plunge After Rebuffing $14 Billion US Fine (BBG)
Observations About US Corporate Debt (ZH/Kestel)
This is How You Will Bail Out Municipal Pension Funds (WS)
The Next Bubble: China’s Housing Gets Scarily Expensive (Balding)
Europe, Japan Banking Sectors Threaten Revolt Over Basel Rules (BBG)
It’s A Long Way Down In Australia’s Looming Apartment Fall (Aus.com.au)
EU Leaders Search For Way Out Of ‘Existential Crisis’ (R.)
Greece Raids Home Of Central Bank Head (ZH)
Jay Z: ‘The War on Drugs Is an Epic Fail’ (NYT)
Les Déplorables (WSJ)
The Cold War Is Over (Hitchens)

 

 

This is it. This will decide the US elections the same way it did Brexit, and many European elections over the next 2 years and change.

Many Presidential Swing States Lag Behind in Income Gains (WSJ)

Key swing states such as Nevada, North Carolina and Florida have seen some of the weakest income growth in the country since the last non-incumbent presidential contest in 2008, new census figures show. A Wall Street Journal analysis of state-by-state income data set for release on Thursday shows that more than half of the 13 states where the presidential race appears closely contested have seen below-average income growth since 2008. Among the eight laggards, three states saw the lowest wage growth in the U.S. during that time—Nevada, Georgia and Arizona. The new data show how America’s uneven economic recovery is adding another layer of unpredictability to an already volatile electoral map.

The traditional realm of battleground states has expanded, putting into play states such as Arizona and Georgia, which haven’t gone to a Democratic presidential candidate in at least 20 years. The Census Bureau also said income inequality across the country increased in 2015. The recovery’s income gains have been concentrated in central cities, with suburbs and rural areas largely lagging behind for years. “You actually see the bottom and the top pulling apart a little bit more in some of these keys states,” said David Damore, professor of political science at the University of Nevada Las Vegas. On a national basis, most states still haven’t seen income recover to pre-recession levels. Americans’ median household income in 2015 was 2.6% lower than in 2008, census figures show.

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“Much of the run-up over the past few years has been primarily about multiple expansions. And the scary thing about multiple expansions is that they are reliably mean-reverting—if they run too far, the market always takes it back, sometimes with a vengeance. And we are currently almost 70% too far.”

Mediocre Fundamentals Mean Meteoric Markets Are 70% Overvalued (GMO)

While all eyes were on Federal Reserve Chair Janet Yellen in Jackson Hole, we were watching something else. In August, the Shiller P/E, a well-regarded metric for measuring the valuation of U.S. equities, breached 27. Given that its normal range is something a bit above 16, valuations are looking rather stretched. Further, the last time the Shiller P/E was above 27 was in October … 2007. And we all know how that movie ended. While nobody here at GMO is saying that a crash is imminent (and there’s no law that says stocks cannot become even more expensive), we continue to maintain our bias against U.S. stocks. We will also take this end-of-summer moment to point out the yawning disconnect between fundamentals (of the U.S. economy and even corporate America) and their stocks. It really is a tale of two cities, one of mediocre fundamentals versus a meteoric rise in markets (see the chart below).

We pulled together some meaningful metrics on the health of the economy and some top-line/bottom-line numbers on the S&P 500 Index: GDP growth, productivity, and household income, as well as a few others, including revenue and earnings for U.S. stocks, for good measure. It is a tale of mediocrity, at best. Then, we contrasted those with the actual market returns of the S&P 500 Index over the past five years. Truly meteoric. (As an aside, we at GMO have always been leery of drawing too many investment conclusions from staring at economic data—we are more valuation-oriented, after all—but even we are struck by the divergence.) Which brings us back to the Shiller P/E. Much of the run-up over the past few years has been primarily about multiple expansions. And the scary thing about multiple expansions is that they are reliably mean-reverting—if they run too far, the market always takes it back, sometimes with a vengeance. And we are currently almost 70% too far.

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“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited..” “..the bank is aiming for an amount between $2 billion and $3 billion..”

US Seeks $14 Billion From Deutsche Bank Over Mortgage Securities Fraud (AFP)

Authorities in the US are seeking as much as $14 billion from Deutsche Bank to resolve allegations stemming from the sale of mortgage securities in the 2008 crisis, the German financial giant confirmed Thursday. The payout would be the largest ever inflicted on a foreign bank in the United States, easily surpassing the $8.9 billion that French bank BNP Paribas paid in 2014 for sanctions violations. But in a quick reaction, Deutsche Bank rejected the $14 billion figure, which the bank said was an opening proposal in settlement talks with US prosecutors. “Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the statement said. “The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”

The US investment bank Goldman Sachs in April agreed to pay more than $5 billion to settle similar allegations. US authorities have accused major banks of misleading investors about the values and quality of complex mortgage-backed securities sold before the 2008 financial crisis. Much of the underlying lending was worthless or fraudulent, delivering billions of dollars in losses to holders of the mortgage bonds when the housing market collapsed, bringing down numerous banks and touching off the country’s worst recession since the 1930s. According to securities filings, Deutsche Bank as of June 30 had set aside $5.5 billion to resolve pending legal matters. In the mortgage-backed securities matter, the bank is aiming for an amount between $2 billion and $3 billion, according to knowledgeable sources.

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“They have declined about 46% this year.”

Deutsche Bank Shares Plunge After Rebuffing $14 Billion US Fine (BBG)

Deutsche Bank shares slumped after receiving a $14 billion claim from the U.S. Justice Department to settle an investigation into the firm’s sale of residential mortgage-backed securities, a figure the German lender said it won’t pay. “Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement early Friday in Frankfurt. “The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.” Bank of America paid $17 billion to reach a settlement in a similar case in 2014, the biggest such accord to date.

Goldman Sachs agreed to a $5.1 billion settlement with the U.S. earlier this year, including a $2.4 billion civil penalty and $875 million in cash payments, to resolve U.S. allegations that it failed to properly vet mortgage-backed securities before selling them to investors as high-quality debt. The settlement included an admission of wrongdoing. “Overall it’s very negative for the share price if you look at the Justice Department figure but you don’t know where it will end up,” said Andreas Plaesier at Warburg Research with a hold recommendation on the shares. “If you come down to the Goldman amount they may not need to do much in terms of reserves.” The shares dropped as much as 8.2% and were down 7.8% at 12.08 euros at 9:04 a.m. in Frankfurt. They have declined about 46% this year.

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“..we project global corporate credit demand (flow) of $62 trillion over 2016-2020, with new debt representing two-fifths and refinancing the rest.”

Observations About US Corporate Debt (ZH/Kestel)

Extraordinary low interest rates around the world have delivered a monumental blow to many investors. Falling interest rates have translated into rising liabilities for (defined benefit) pension plans and, secondly, millions of retirees, who depend on income from savings to take them through retirement, are struggling to make a decent living. Consequently, investors take risks that they weren’t previously prepared to take. Take US corporate high yield bonds. The prevailing view seems to be that US corporates (ex. energy) are in very good shape with loads of cash on their balance sheet, and that they therefore offer a relatively attractive, and a comparatively safe, investment opportunity. I beg to disagree. Firstly, we are late in the economic cycle, and it is usually a bad idea to buy corporate high yield bonds late in an economic upturn. Secondly, let me share some facts with you that undermine the perception outlined above:

  1. The 1% most cash-rich of all US companies control over 50% of all US corporate cash.
  2. The five most cash-rich US companies (Apple, Microsoft, Google, Cisco and Oracle) control 30% of all US corporate cash.
  3. Total US corporate debt (the other side of the balance sheet) was $5.03 trillion at the end of 2015- up from $2.62 trillion at the end of 2007.
  4. Net debt (i.e. debt ex. cash) amongst US corporates was $3.39 trillion at the end of 2015 vs. $1.88 trillion at the end of 2007.
  5. US corporate debt has risen by $2.8 trillion over the last five years, while corporate cash has only risen by $600 billion.
  6. If you back out the top 1% referred to in (1) above, the cash holdings of the remaining 99% fell 6% in 2015 to stand at just $900 billion by the end of December vs. $6.6 trillion of debt.

Based on those numbers, I think it is fair to say that, with the exception of a few extremely cash-rich companies, corporate America is increasingly indebted and not at all as cash-rich as widely perceived. This also explains why corporate investments in the US are at a 60-year low.

Governments globally are persisting with monetary expansion to support economic growth and prop up inflation, to the detriment of credit quality, particularly for over-indebted Chinese corporates and U.S.leveraged borrowers. In our base-case scenario, we project global corporate credit demand (flow) of $62 trillion over 2016-2020, with new debt representing two-fifths and refinancing the rest. Outstanding debt would expand by half to $75 trillion, with China’s share rising to 43% from 35%.

We estimate that two-fifths (43%) to half (47%) of nonfinancial corporates (unrated and rated) are highly leveraged-of which 2% to 5% face negative earnings or cash flows, based on a sample of about 14,400 corporates. With weakened borrower credit quality, a credit correction is inevitable. Our base case is for an orderly credit slowdown stretching over several years (‘slow burn’ scenario), but a series of major economic or political shocks, such as the recent Brexit vote in the U.K., could trigger a more system-wide credit contraction (‘Crexit’ scenario).

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I see big protests in the offing as public pensions get bailed out by taxpayers who see their private plans left to die.

This is How You Will Bail Out Municipal Pension Funds (WS)

[..] the beneficiaries are voters and employees of the government, and politicians of all stripes bought their votes with promises of low contributions and rising benefits. They got away with it for decades because no one cares about “underfunded pensions.” Even the term makes people’s eyes glaze over. But someone is going to pay. And it’s not going to be the politicians. This is how they will pay for it in Chicago – the city whose credit rating Moody’s cut by two notches to junk in April last year, and whose interest payments, despite historically low interest rates, have continued to skyrocket as it borrows more and skids deeper into the sinkhole of its own making.

On Wednesday, the City Council approved Mayor Rahm Emanuel’s scheme to bail out its largest and worst-off pension fund, the Municipal Employees’ Annuity and Benefit fund, which would otherwise be insolvent within ten years – and a lot quicker if markets have a hissy fit. Despite seven years of rampant asset price inflation, and asset bubbles nearly everywhere, the fund’s obligations are only 20% funded. It forms part of Chicago’s $34 billion in retirement debt, accumulated over the decades by politicians making promises to buy votes and support from special interest groups. But neither the beneficiaries nor taxpayers via the city contributed enough to pay for those promises.

To save this one pension fund out of its four pension funds from insolvency, the city is jacking up water and sewer levies by 33%, phased in over a few years. Property owners in Chicago will pay, one way or the other, $3 billion into the fund by 2022, up from $1 billion under the prior scheme. Despite these billions of dollars involved, the fund covers only 77,000 workers and retirees.

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“A 100-city index compiled by SouFun surged by a worrisome 14% in the last year.”

The Next Bubble: China’s Housing Gets Scarily Expensive (Balding)

For many years, China’s authorities took a Goldilocks approach to housing prices: They wanted a market that was neither too hot nor too cold, and took measures as needed to control prices. Although an explicit asset-price target was never announced, it was widely assumed that the government wanted home prices to grow in line with the rate of economic growth. To accomplish this, technocrats in Beijing deployed a combination of monetary stimulus and regulatory measures. When prices overheated, they put the brakes on credit growth, required higher down payments for mortgages and placed administrative restrictions on who could buy in which cities. When prices started to drop, they tried loosening credit and boosting the number of units people could own.

But in the past few years, with economic growth sluggish, the planners became much more tolerant of rising prices, even as signs of a bubble emerged. Official data shows the price-to income-ratio hitting 9.2 at the end of 2015; housing prices have continued to rise significantly since. All this has led to some widespread distortions. China’s homeowners have come to see near double-digit real-estate returns as a birthright, a bet on par with death and taxes. According to one study, more than 70% of Chinese household wealth is in housing. Investors believe there’s an implicit guarantee that the government won’t let home prices drop, even as many buildings sit empty.

Meanwhile, banks have gone on a lending spree: Total outstanding mortgage loans rose more than 30% and new mortgage growth clocked in at 111% in the past year. Since June 2012, outstanding mortgage loans have grown at an annualized rate of 30%. Predictably, that’s pushed prices higher and higher. In urban China, the average price per square foot of a home has risen to $171, compared to $132 in the U.S. In first-tier cities such as Beijing and Shenzhen, prices have increased by about 25% in the past year. A 100-city index compiled by SouFun surged by a worrisome 14% in the last year. Developers are buying up land in some prime areas that would need to sell for $15,000 per square meter just to break even.

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Break their power!

Europe, Japan Banking Sectors Threaten Revolt Over Basel Rules (BBG)

Europeans told the world’s top banking regulator that they’ve had enough. In two heated meetings in the past week, regulators from countries including Germany and Italy told the Basel Committee on Banking Supervision that proposed changes to how banks assess credit, market and operational risks must be scaled back and slowed down, according to two people with knowledge of the matter. Some European officials went so far as to say they wouldn’t adopt the proposals on the table, according to the people, who asked not to be identified because the deliberations were private. If the EU – home to nearly half of the world’s most systemically important banks – balks at implementing the Basel Committee’s rules, it could undermine the global regulator’s authority and contribute to fragmentation of the industry.

The Basel Committee is racing to finish work on the post-crisis capital framework known as Basel III by the end of the year, and it’s under instructions not to increase capital requirements significantly in the process. The debate in Basel pits bank regulators from Tokyo to Frankfurt against a U.S.-backed push for stiffer standards, which take effect when they’re implemented by national governments. The industry says the proposed revisions to risk-assessment rules and limits on banks’ use of their own models to make these calculations would send capital requirements spiraling. Key policy makers have heeded their message. German FinMin Schaeuble last week insisted that the Basel Committee not only keep any overall increase in capital requirements to a minimum, but also ensure the rules have no “particularly negative consequences for specific regions,” such as Europe.

Shunsuke Shirakawa, vice commissioner for international affairs at Japan’s Financial Services Agency, has said the regulator needs to “make adjustments” to bring the new rules in on target. The Basel Committee’s members include Japan’s FSA, Germany’s Bundesbank and the U.S. Federal Reserve. Large European banks may be more vulnerable than their global peers to the changes under discussion. The biggest European banks had an average common equity Tier 1 capital ratio – a key measure of financial strength – higher than their global peers at end-2015, according to data from the European Banking Authority and the Basel Committee.

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“..mass failure of many Chinese buyers to settle on apartment contracts..”

It’s A Long Way Down In Australia’s Looming Apartment Fall (Aus.com.au)

While Australia debates its interest rate policy, the mass failure of many Chinese buyers to settle on apartment contracts is looming as a much bigger catastrophe than markets are expecting. This emerged from the comments of a reader to my commentary yesterday on the Sydney and Melbourne apartment markets. One of my readers who did not allow his full name to be published but used the name “James” complained that I had grossly understated the problem. James revealed that he owned and ran a debt and equity funding business that is on the frontline of the apartment settlement problem. His business deals with the developers of the apartment complexes rather than rather than the investors. James describes what is ahead this way:

“The problem is much worse than what you have described. Our analysis of every development in the country suggests that settlement failures will be between $1 billion and $1.5bn every month for the next 12 months. This is from the Chinese alone, but when settlement prices start coming more than 10% under purchase prices, we will also start to see local buyers attempting to walk away from settling. As Julius Caesar famously said: ‘the die is cast.’” To understand the implication of what James’ analysis reveals we need to step back and see how the apartment boom was funded. Most developers of apartments in Australia collect their Chinese off-the-plan deposits and then use them to gain security for a bank loan. Those bank loans can constitute 40, 50 or even 60% of the cost of the apartment complex.

The developers obtain the rest of their funding from businesses like those operated by James. This is an area of finance which we know very little about because it is hidden from public view. The banks feel they are safe in their loans to developers because there is a big difference between their loans and the cost of the buildings. But the banks are often funding other players in the apartment development. Apart from the developer, the people at risk include unsecured suppliers and the enterprises that are providing the second mortgage funding. If the Chinese fail to settle on the scale that Harry Triguboff is warning about, then there will be a deep problem. But if James’ study is correct that deep problem will develop into an economic catastrophe.

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It’s over. Wind it down peacefully please.

EU Leaders Search For Way Out Of ‘Existential Crisis’ (R.)

Shaken by Britain’s decision to leave the European Union, the leaders of its other 27 countries meet on Friday to try to inject new momentum into their ailing communal project amid deep-seated divisions over migration and economic policy. The Brexit vote in June ended more than half a century of EU enlargement and closer integration. Long seen as a guarantor of peace and prosperity, the bloc is now struggling to convince its citizens that it remains a force for good. Years of economic and financial crisis have pushed up unemployment in many member states, while a spate of attacks by Islamist militants and a record influx of refugees from the Middle East and Africa have unsettled voters, who are turning increasingly to populist, anti-EU parties.

“After the vote in the UK the only thing that makes sense is to have a sober and brutally honest assessment of the situation,” European Council President Donald Tusk told reporters in Bratislava on the eve of the meeting. “We must not let this crisis go to waste.” European Commission President Jean-Claude Juncker said earlier this week the EU was in an “existential crisis”. Despite the pressure to lay out a new vision, leaders have played down expectations of real breakthroughs in the Slovak capital, in part because of intractable differences on the biggest issues, notably how to handle the influx of migrants.

Instead they are expected to focus on areas where there is common ground, pledging closer defence cooperation, bolstering security at the EU’s external borders and boosting the capacity of an EU investment fund meant to generate growth and jobs. The aim is to present more concrete proposals at a summit in March of next year that coincides with the 60th anniversary of the bloc’s founding Rome Treaty. But some officials admit in private that major initiatives may not be possible until elections in the Netherlands, France and Germany are out of the way by late 2017.

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Many Greeks accuse Stournaras of exaggerating deficits in order to bring in the Troika.

Greece Raids Home Of Central Bank Head (ZH)

While the US the media lashes out at Trump every time he dares to tell the truth that the central bank is a biased, engaged, political member of the decision-making landscape, other “developed” countries are happily willing to demonstrate just how apolitical the central bank truly is. Take Greece, for example, where today the chief prosecutor ordered a raid of the home of the governor of the Greek central bank, Yannis Stournaras and the company office of his wife, Lina. The searches were part of a probe conducted by the Financial Police in connection to the alleged mismanagement of more than €1 million in state funding by the Hellenic Center for Disease Control and Prevention, KEELPNO.

The investigation related to funds that KEELPNO allegedly received through a company owned by Nikolopoulou as well as complaints regarding the disappearance of documents tied to the case. According to the WSJ, the raid was part of a continuing investigation into business Stournaras’ wife has done with a state entity, officials said, in a probe that may heighten tension between the top bank official and the left-wing government. Lina Nikolopoulou-Stournaras, the wife of central bank Governor Yannis Stournaras and owner of an communications company specializing in the medical sector, is under investigation from Greek authorities for business she has done with the Hellenic Center for Disease Control and Prevention, or Keelpno.

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Any and all wars declared on nouns are epic fails. But follow the money.

Jay Z: ‘The War on Drugs Is an Epic Fail’ (NYT)

This short film, narrated by Jay Z (Shawn Carter) and featuring the artwork of Molly Crabapple, is part history lesson about the war on drugs and part vision statement. As Ms. Crabapple’s haunting images flash by, the film takes us from the Nixon administration and the Rockefeller drug laws – the draconian 1973 statutes enacted in New York that exploded the state’s prison population and ushered in a period of similar sentencing schemes for other states – through the extraordinary growth in our nation’s prison population to the emerging aboveground marijuana market of today. We learn how African-Americans can make up around 13% of the United States population – yet 31% of those arrested for drug law violations, even though they use and sell drugs at the same rate as whites.

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Quite a statement for the Wall Street Journal to publish.

Les Déplorables (WSJ)

To repeat: “racist, sexist, homophobic, xenophobic, Islamophobic.” Those are all potent words. Or once were. The racism of the Jim Crow era was ugly, physically cruel and murderous. Today, progressives output these words as reflexively as a burp. What’s more, the left enjoys calling people Islamophobic or homophobic. It’s bullying without personal risk. Donald Trump’s appeal, in part, is that he cracks back at progressive cultural condescension in utterly crude terms. Nativists exist, and the sky is still blue. But the overwhelming majority of these people aren’t phobic about a modernizing America. They’re fed up with the relentless, moral superciliousness of Hillary, the Obamas, progressive pundits and 19-year-old campus activists.

Evangelicals at last week’s Values Voter Summit said they’d look past Mr. Trump’s personal résumé. This is the reason. It’s not about him. The moral clarity that drove the original civil-rights movement or the women’s movement has degenerated into a confused moral narcissism. One wonders if even some of the people in Mrs. Clinton’s Streisandian audience didn’t feel discomfort at the ease with which the presidential candidate slapped isms and phobias on so many people. Presidential politics has become hyper-focused on individual personalities because the media rubs them in our face nonstop. It is a mistake, though, to blame Hillary alone for that derisive remark. It’s not just her.

Hillary Clinton is the logical result of the Democratic Party’s new, progressive algorithm—a set of strict social rules that drives politics and the culture to one point of view. A Clinton victory would enable and entrench the forces her comment represents. Her supporters say it’s Donald Trump’s rhetoric that is “divisive.” Just so. But it’s rich to hear them claim that their words and politics are “inclusive.” So is the town dump. They have chopped American society into so many offendable identities that only a Yale freshman can name them all. If the Democrats lose behind Hillary Clinton, it will be in part because America’s les déplorables decided enough of this is enough.

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Lovely piece.

The Cold War Is Over (Hitchens)

Perhaps we would understand Russia’s situation better if we imagined that NATO has been dissolved and that the Confederate States and the territories conquered in the Mexican-American War have declared independence. The U.S. retains a precarious hold on the naval station at San Diego, sharing it with the Mexican Navy on an expensive lease that Mexico regularly threatens to cancel. Americans still living in San Diego are compelled to adopt Spanish names on their drivers’ licenses, and movie theaters are instructed to show films only in Spanish. Schools teach anti-American history. Quebec has seceded from Canada, and is being wooed by a Russo-Chinese economic union, with a pact including military and political clauses.

Russian politicians are in the streets of Montreal, urging on a violent anti-American mob, which eventually succeeds in overthrowing Quebec’s pro-American president and replacing him with a pro-Russian one—violating Quebec’s constitution in the process. This brings military forces aligned with Russia right up to the border with New York, Maine, New Hampshire, and Vermont. In such a case, I cannot see the U.S. sitting about doing nothing, especially if it had repeatedly warned in major diplomatic forums against this expansion of Russian power on its frontiers, and been repeatedly ignored over fifteen years or so. If a Marxist takeover in Grenada was considered good enough reason for military action, what would these circumstances provoke?

Mikhail Gorbachev’s feline spokesman, Gennadi Gerasimov, once teased suspicious Western correspondents by sneering at them in the early days of the great perestroika and glasnost experiment, “We have done the cruelest thing to you that we could possibly have done. We have deprived you of an enemy.” He was laughing at us, but he was dead right. The Cold War was a period of moral clarity when the other side really was an evil empire, and when armed resolve for once succeeded in defeating the expansion of evil in the world. It allowed my own poor country to feel more important than it really was, and it suppressed the seething impulses and rivalries of the European continent.

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Sep 092016
 
 September 9, 2016  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 9 2016


NPC Daredevil John “Jammie” Reynolds, Washington DC 1917

ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)
ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)
German July Exports, Imports Plunge (Street)
Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)
China’s Reviving the American Heartland – One Low Wage at a Time (BBG)
Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)
Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)
Coal Rises From the Grave to Become One of Hottest Commodities
Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)
Goldman Sachs Just Launched Project Fear in Italy (DQ)
Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

 

 

Why does it seem so normal to use the word ‘magic’ in this context? When did that start?

ECB’s Mario Draghi Has Run Out Of Magic As Deflation Closes In (AEP)

Large parts of the eurozone are slipping deeper into a deflationary trap despite negative interest rates and €1 trillion of quantitative easing by the ECB, leaving the currency bloc with no safety buffer when the next global recession hits. The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle. Mario Draghi, the ECB’s president, said there are limits to monetary policy and called on the rest of the eurozone to act “much more decisively” to lift growth, with targeted spending on infrastructure.

“It is abundantly clear that Draghi is played out and we’re in the terminal phase of QE. The eurozone needs a quantum leap in the nature of policy and it has to come from fiscal policy,” said sovereign bond strategist Nicholas Spiro. Mr Draghi dashed hopes for an expansion of the ECB’s monthly €80bn programme of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject. “The bar to further ECB action is higher than widely assumed,” said Ben May from Oxford Economics. The March deadline threatens to become a neuralgic issue for markets given the experience of the US Federal Reserve, which suggests that an abrupt stop in QE stimulus amounts to monetary tightening and can be highly disruptive.

The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1pc for three years. Officials are even more worried about the underlying trends. Data collected by Marchel Alexandrovich at Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1pc has crept up to 58pc. This is a classic precursor to deflation and suggests that the eurozone is acutely vulnerable to any external shock. The figure has spiked to 67pc in Italy, and is now significantly higher that it was when the ECB launched QE last year. The eurozone should have reached economic “escape velocity” by now after a potent brew of stimulus starting last year: cheap energy, a cheaper euro, €80bn a month of QE, and the end of fiscal austerity. [..] “The euro is far stronger than they want, and stronger than the economy deserves, but they don’t know how to weaken it. This is exactly what happened to the Japanese,” said Hans Redeker, currency chief at Morgan Stanley.

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Draghi’s starting to come down on Germany, but it’s too late: their exports just fell 10%.

ECB Stands Pat on Stimulus as Draghi Defends Policy (WSJ)

The ECB left its €1.7 trillion stimulus unchanged at a policy meeting Thursday, brushing off concerns over economic shock waves from Britain’s vote to leave the EU and disappointing investors expecting the ECB to act again soon. The decision to stand pat, even as new forecasts showed the ECB missing its inflation target for years, underlines how central banks are approaching the limits of what they can achieve without support from other policy areas, notably governments. In China earlier this month, Group of 20 leaders warned that monetary policy alone can’t fix the world’s economic ills, and pledged to boost spending and adopt overhauls aimed at boosting growth.

At a news conference here, ECB President Mario Draghi said he was concerned about persistently low eurozone inflation, which has fallen short of the ECB’s near-2% target for more than three years. Fresh ECB staff forecasts, published Thursday, showed inflation rising very gradually, to 1.2% next year and 1.6% in 2018. Despite that, Mr. Draghi said policy makers didn’t even discuss fresh stimulus, and praised the effectiveness of the bank’s existing policy measures, which include negative interest rates and €80 billion a month of bond purchases. He also aimed an unusually direct rebuke at Germany, criticizing Berlin for not boosting spending to support the economy. “Countries that have fiscal space should use it,” Mr. Draghi said. “Germany has fiscal space.”

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Germany looks a lot like Japan and China.

German July Exports, Imports in Shock Plunge (Street)

German imports and exports unexpectedly shrunk in July, with a sharp export contraction causing a surprise narrowing in Germany’s trade balance. Federal Statistical Office data showed seasonally adjusted exports fell by 2.6% – analysts had expected about 0.3% growth – whereas imports fell by 0.7%, as against expectations for a 0.8% rise. On the year exports slumped by 10% and imports shriveled by 6.5%. The foreign trade balance shrunk to €19.4 billion from €21.4 billion in June, as against expectations for a balance of €22 billion. The Federal Statistical Office said the pace of German exports to other EU countries fell by 7% in July, while imports from the region fell by 4.5%. The falls were slightly narrower for trade with other eurozone countries.

German trade outside the 28-nation EU fared worse, with exports plunging by 13.8% and imports by 10.1%. Faltering German exports amid lackluster worldwide growth and emerging-market volatility has long been a drag on German growth. But the sharper-than-expected export fall challenges expectations of a second-half pickup in German trade with the rest of the world, and the surprise – albeit small -import decline suggests domestic demand isn’t robust enough to step into the breach. The trade data come in a week that the statistics office reported weaker-than-expected industrial output and manufacturing production for July. But the euro held firm against the dollar after the figures and was recently up 0.11% at $1.1272.

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“..some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.”

Goldman Calculates True Growth Rate Of China’s Debt: 40% of GDP Per Year (ZH)

For a long time when it came to Chinese loan creation, analysts would only look at the broadest reported aggregate: the so-called Total Social Financing. And, for a long time, it was sufficient – TSF showed that in under a decade, China had created over $20 trillion in new loans, vastly more than all the “developed market” QE, the proceeds of which were used to kickstart growth after the 2009 global depression, to fund the biggest capital misallocation bubble the world has ever seen and create trillions in nonperforming loans. However, a problem emerged about a year ago, when it was revealed that not even China’s TSF statistic was sufficient to fully capture the grand total of total new loan creation in China.

[..] according to Goldman, “a substantial amount of money was created last year, evidencing a very large supply of credit, to the tune of RMB 25tn (36% of 2015 GDP).” This massive number was 9% higher than the TSF data, which implied that “only” a quarter of China’s 2015 GDP was the result of new loans. As Goldman further noted, the “divergence from TSF has been particularly notable since Q2 last year after a major dovish shift in policy stance.” In short, in addition to everything else, China has also been fabricating its loan creation data, and the broadest official monetary aggregate was undercutting the true new loan creation by approximately a third. The reason for this is simple: China does not want the world – or its own population – to realize just how reliant it is on creating loans out of thin air (and “collateralized” by increasingly more worthless assets), as it would lead to an even faster capital outflow by the local population sensing just how unstable the local banking system is.

Here is the good news: compared to late 2015, the record credit creation has slowed down fractionally, and the gap with the TSF total has shrunk. The smaller gap seems to be in line with recent reports that listed banks’ “investment receivables” expanded less rapidly in 2016 H1, and it might partly reflect the regulators’ tougher stance against shadow lending in recent months. And now, the bad news: this “tougher stance” has not been nearly tough enough, because as the following chart shows on a 1-year moving average, nearly 40% of China’s “economic growth” is the result of new credit creation, or in other words, new loans. What this really means, is that China’s debt/GDP, estimated most recently by the IIF at 300%…

… is now growing between 30% and 40% per year, when one accounts for the unaccounted for “shadow” credit conduits. Here is how Goldman concludes this stunning observation: “The PBOC appears to have shifted to a less dovish, though still supportive, policy bias in the last few months. However, given the prospective headwinds from slower housing construction and tighter on-budget fiscal stance in the coming months, there remains a clear need to sustain a high level of infrastructure investment, which is credit intensive, to achieve the minimum 6.5% full-year growth target. This poses constraints on how much further the PBOC can keep reining in credit, in our view.”

Translating Goldman, some time around 2019, China’s total Debt/GDP will be over 400%, an absolutely ridiculous number, and one which assures a banking, if not global, financial crisis.

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The resounding success of globalization.

China’s Reviving the American Heartland – One Low Wage at a Time (BBG)

For six years, the General Motors factory that used to make Chevy Trailblazers in Moraine, Ohio, sat abandoned, a rusting monument to the decline of the American auto industry. These days, the plant is humming again, fueled by a resurgent U.S. consumer – but now under Chinese management. On the shop floor, Chinese supervisors in sky-blue uniforms that carry the logo of the new owners, Fuyao Glass, teach American employees how to assemble windshields. Drive along Interstate 75, through America’s industrial heartland, and you’ll find no shortage of Chinese-owned firms like Fuyao. They’re setting up shop in states such as Ohio and Michigan, key voter battlegrounds in November, where traditional manufacturing has been hollowed out – in many cases, by trade. With China.

[..] Fuyao acquired roughly half the old GM plant in 2014, spending $450 million to buy and remodel it. For a company that started out as a small producer of covers for water-meters and is now the world’s second-biggest auto-glass supplier, the acquisition capped a decade-long push into U.S. markets. For the Dayton area, it meant employment: the city, hometown of the Wright brothers, was hit hard by the shutdown of the GM plant two days before Christmas in 2008. [..] “Hey, 1,700 jobs is 1,700 jobs,” said Shawn Kane, a 28-year-old chef shopping at the Kroger grocery store in Moraine last month. “At least it’s not sitting empty anymore.” They’re jobs that tend not to pay as well as factory work once did, though – and there probably aren’t as many of them.

To keep its production in the U.S. viable, Fuyao uses more automation than it does in China, said John Gauthier, president of Fuyao Glass America. “Our customers, all they care about is that their cost doesn’t increase,” he said. A line worker at Fuyao starts at $12 per hour, equivalent to an annual salary of about $25,000. GM workers at the old Moraine plant could make at least twice that, topped off by perks like defined-benefit pensions, according to union officials and former employees. “When you don’t have enough protections for American workers, and when you’ve got a globalized economy, this is what happens,” said Chris Baker, a 40-year-old sales rep based near Moraine. “This is the new normal. It’s very sad.”

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WHen will they start buying people’s homes? Cars perhaps?

Bank of Japan Risk: Running Out of Bonds to Buy (WSJ)

Japan’s central bank is facing a new problem: It could be running out of government bonds to buy. The Bank of Japan is snapping up the equivalent of more than $750 billion worth of government debt a year in an effort to spur inflation and growth. At that rate, analysts say, banks could run out of government debt to sell within the next 18 months. The looming scarcity is a powerful sign of the limits central banks face as they turn to ever-more aggressive means of stimulating their economies. The problem is mirrored in Europe, where self-imposed rules limit how many eurozone government bonds the ECB can buy from individual governments. Facing a diminishing supply of sovereign bonds, the ECB started buying corporate debt in June.

Some economists have even called for the ECB to start buying stocks. The central bank left its bond-buying program and interest-rate policy unchanged at its meeting Thursday. The Japanese central bank has fewer options if the country’s banks, which have to hold a certain amount of safe debt to use as collateral in everyday transactions, ever become unwilling to sell more of their holdings. Its most obvious alternatives—pushing rates deeper into negative territory or buying other types of assets—have practical limitations. Meanwhile, the BOJ’s economic goals remain out of reach: Inflation is stubbornly low, and the yen has strengthened about 18% this year.

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Does nobody have any common sense down under?

Australia, New Zealand Housing Booms Set Currencies On Course For Parity (BBG)

Housing booms in New Zealand and Australia could be putting the neighbors’ currencies on course to reach parity for the first time ever. Both nations have seen house prices surge in recent years, but the underlying causes are fundamentally different, according to Deutsche Bank analysis. Australia’s boom is largely home-grown, whereas New Zealand’s is being fueled by record immigration. That’s affecting the countries’ current accounts differently. While Aussies are feeling richer due to house-price gains, prompting them to spend more on imports and boosting their current account deficit, New Zealand is sucking more offshore capital into its housing market, narrowing its current account gap. Currencies are sensitive to trends in the current account – a country’s balance with the rest of the world – because they are a gauge of risk for investors.

“The nature of the real estate boom in Australia should have bearish currency implications because it leads to deterioration in the basic balance,” Robin Winkler, a London-based strategist for Deutsche Bank, said in a research note. “This is not the case in New Zealand and adds to our conviction that AUD/NZD should drop to parity.” The two currencies have never converged in the free-floating era that began in the 1980s. They came close in April last year, when the kiwi briefly reached 99.79 Australian cents or, to express it the other way, the Aussie dollar fell below NZ$1.01. The New Zealand dollar was worth 96.8 Australian cents at 12:35p.m. in Wellington Friday.

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Burn baby burn.

Coal Rises From the Grave to Become One of Hottest Commodities

For all the predictions about the death of coal, it’s now one of the hottest commodities in the world. The resurrection may have further to run. A surge in Chinese imports to compensate for lower domestic production has seen European prices jump to near an 18-month high, while Australia’s benchmark is set for the first annual gain since 2010. At the start of the year, prices languished near decade lows because of waning demand from utilities seeking to curb pollution and amid the International Energy Agency’s declaration that the fuel’s golden age in China was over. Now, traders are weighing the chances of extreme weather hitting major producers and China further boosting imports as factors that could push prices even higher.

“It’s a commodity that’s been on a slippery slide for the past four years and it’s making a remarkable recovery,” said Erik Stavseth, an analyst at Arctic Securities in Oslo, who’s tracked the market for almost a decade. “There’s a strong pulse.” What could light up the market further is the occurrence of a La Nina weather pattern later this year. Last time it happened in 2010 and 2011, heavy rains flooded mines in Australia and Indonesia, the world’s two largest exporters. While some meteorologists have toned down their predictions for the weather phenomenon forming, “another strong forecast” would cause prices to rise further, according to Fitch’s BMI Research.

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Still don’t think I know what exactly the fraud was. Though I read the piece twice.

Historic Tax Fraud Rocks Denmark As Loss Estimates Keep Growing (BBG)

About two weeks after Denmark revealed it had lost as much as $4 billion in taxes through a combination of fraud and mismanagement, the minister in charge of revenue collection says that figure may need to be revised even higher. Speaking to parliament on Thursday, Tax Minister Karsten Lauritzen said he “can’t rule out” that losses might be bigger than the most recent public estimates indicate. It would mark the latest in a string of revisions over the past year, in which Danes learned that losses initially thought to be less than $1 billion somehow ended up being about four times as big. The embarrassment caused by the tax fraud, which spans about a decade of successive administrations, has prompted Lauritzen to consider debt collection methods not usually associated with Scandinavian governments.

Denmark has long had one of the world’s highest tax burdens – government revenue as a percentage of GDP – and a well-functioning tax model is essential to maintaining its fabled welfare system. “We’re entertaining new ideas, considering more new measures,” Lauritzen told Bloomberg. Danish officials are now prepared to pay anonymous sources for evidence from the same database that generated the Panama Papers. Jim Soerensen, a director at Denmark’s Tax Authority, says the first batch of clues obtained using this method is expected by the end of the month.

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Project Fear didn’t work in Britain either.

Goldman Sachs Just Launched Project Fear in Italy (DQ)

Project Fear began two years ago in the run up to Scotland’s national referendum. It then spread to the rest of the UK in the lead up to this summer’s Brexit referendum. But it keeps on moving. Its latest destination is Italy, where the campaign to instill fear and trepidation in the hearts and souls of Italy’s voters was just inaugurated by the world’s most influential investment bank, Goldman Sachs. It just released a 14-page report warning about the potentially dire consequences of a “no” vote in Italy’s upcoming referendum on the government’s proposed constitutional reforms. The reforms seek, among other things, to streamline Italy’s government process by dramatically restricting the powers of the senate, a major source of political gridlock, while also handing more power to the executive.

The polls in Italy are currently neck and neck, though the momentum belongs to the reform bill’s opponents. If the Italian public vote against the bill, the response of the markets could be extremely negative, warns Goldman, putting in jeopardy the latest attempt to rescue Italy’s third largest and most insolvent bank, Monte dei Paschi di Siena. The rescue is being led by JP Morgan Chase and Italian lender Mediobanca, and includes the participation of a select group of global megabanks that are desperate to prevent contagion spreading from Italy’s banking system to other European markets, and beyond. In the event of a “no” vote, MPS’ planned €5 billion capital increase would have to be put on ice, while investors wait for the political uncertainty to clear before pledging further funds.

This being Italy, the wait could be interminable and the delay fatal for Monte dei Paschi and other Italian banks, Goldman warns. It also points out that Italy is the only European country where a substantial portion of its bank bonds are held in household portfolios (about 40% according to data from Moody’s, four times more than Germany and eight times more than France and Spain). In other words, things could get very ugly, very fast, if those bank bonds collapse! As for Italian government bonds and Europe’s broader debt markets, they would be insulated from any fallout by former Goldmanite Mario Draghi’s bond binge buying.

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We are unstoppable.

Humans Have Destroyed A Tenth Of Earth’s Wilderness In 25 Years (G.)

Humans have destroyed a tenth of Earth’s remaining wilderness in the last 25 years and there may be none left within a century if trends continue, according to an authoritative new study. Researchers found a vast area the size of two Alaskas – 3.3m square kilometres – had been tarnished by human activities between 1993 and today, which experts said was a “shockingly bad” and “profoundly large number”. The Amazon accounted for nearly a third of the “catastrophic” loss, showing huge tracts of pristine rainforest are still being disrupted despite the Brazilian government slowing deforestation rates in recent years. A further 14% disappeared in central Africa, home to thousands of species including forest elephants and chimpanzees.

The loss of the world’s last untouched refuges would not just be disastrous for endangered species but for climate change efforts, the authors said, because some of the forests store enormous amounts of carbon. “Without any policies to protect these areas, they are falling victim to widespread development. We probably have one to two decades to turn this around,” said lead author Dr James Watson, of the University of Queensland and Wildlife Conservation Society. The analysis defined wilderness as places that are “ecologically largely intact” and “mostly free of human disturbance”, though some have indigenous people living within them. The team counted areas as no longer wilderness if they scored on eight measures of humanity’s footprint, including roads, lights at night and agriculture.

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May 012016
 
 May 1, 2016  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , ,  


George N. Barnard Nashville, Tennessee. Rail yard and depot 1864

This is The Biggest Fraud In The History Of The World (SHTF)
China’s Debt Reckoning Cannot Be Deferred Indefinitely (Magnus)
The Cult Of Central Banking Is Dead In The Water (Stockman)
The Real Story Behind The US New Home Sales Collapse (Adler)
Recent Rise In Yen ‘Extremely Worrying’: Japan Finance Minister (AFP)
UK ‘Is In The Throes Of A Housing Crisis’ (G.)
No, Russia Is Not In Decline – At Least Not Any More And Not Yet (FT)
Germany Should Stop Whining About Negative Rates (Economist)
Could Italy Be The Unlikely Saviour Of Project Europe? (PS)
Future Of Scandal-Hit Mitsubishi Motors In Doubt – Again (AFP)
Trump Saves American TV (Brown)
Greece Concludes Agreement With Creditors On Sale Of NPLs (Kath.)
EU Has Made A Mess Of Refugee Reception System In Greece: Oxfam (Kath.)
84 Migrants Missing After Boat Sinks Off Libya’s Coast (AFP)

“..We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function…”

This is The Biggest Fraud In The History Of The World (SHTF)

The stock market may be hovering near all-time highs, but according to Greg Mannarino of Traders Choice that doesn’t mean the valuations are actually real: We exist, beyond any shadow of any doubt, in an environment of absolute fakery where nothing is real… from the prices of assets to what’s occurring here with regard to the big Wall Street banks, the Federal Reserve, interest rates and everything in between. …All of this is being played in a way to keep people believing, once again, that the system is working and will continue to work:

President Obama has suggested that people like Greg Mannarino who are exposing the fraud for what it is are just peddling fiction. And just this week the President argued that he saved the world from a great depression and that the closing credits of the 2008 crash movie “The Big Short” were inaccurate when they claimed that nothing has been done to fundamentally curb the fraud and fix the system under his administration. But as Mannarino notes, the President and his central bank cohorts are making these statements because the system is so fragile that if the public senses even the smallest problem it could derail the entire thing:

“Let’s just look at the stock market… there’s no possible way at this time that these multiples can be justified with regard to what’s occurring here with the price action of the overall market… meanwhile, the market continues to rise. … Nothing is real. I can’t stress this enough… and we’re going to continue to see more fakery… and manipulation and twisting of this entire system… We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function… and that’s very scary. … We’ve never seen anything like this in the history of the world… The Federal Reserve has never been in a situation like this… we are completely in uncharted territory where the world’s central banks have gone negative interest rates… it’s all an illusion to keep the stock market booming.

… Every single asset now… I don’t care what asset… you want to look at currency, debt, housing, metals, the stock market… pick an asset… there’s no price discovery mechanism behind it whatsoever… it’s all fake… it’s all being distorted. … The system is built upon on one premise and that is confidence that it will work… if that confidence is rattled the whole thing will implode… our policy makers are well aware of this… there is collusion between central banks and their respective governments… and it will not stop until it implodes… and what I mean by implode is, correct to fair value.”

And when that confidence is finally lost and the fraud exposed – and it will be as has always been the case throughout history – the destruction to follow will be one for the history books. In a previous interview Mannarino warned that things could get so serious after the bursting of such a massive bubble that millions of people will die on a world-wide scale:

“It’s created a population boom… a population boom has risen in tandem with the debt. It’s incredible. So, when the debt bubble bursts we’re going to get a correction in population. It’s a mathematical certainty. Millions upon millions of people are going to die on a world-wide scale when the debt bubble bursts. And I’m saying when not if… … When resources become more and more scarce we’re going to see countries at war with each other. People will be scrambling… in a worst case scenario… doing everything that they can to survive… to provide for their family and for themselves. There’s no way out of it.”

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“..credit growth is probably running at about 25-30%, or about twice as fast as official data suggest, and roughly four times the growth in money GDP..”

China’s Debt Reckoning Cannot Be Deferred Indefinitely (Magnus)

[..] there is a bit of folklore about the topping out of skyscrapers: the builders’ ceremonial placing of the final beam often heralds the onset of grim economic news, coinciding with the end of a credit cycle that has funded a frenzy of lending for ever-bigger projects. And indeed, as the economy slows markedly, China is increasingly dependent on credit creation. The share of total credit in the economy is approaching 260% and, on current trends, could surpass 300% by 2020 – exceptional for a middle-income country with China’s income per head. The debt build-up must sooner or later end — and when it does it will have a significant impact on the global economy.

Back in 2008, as the western financial crisis spread, China tried to insulate itself with a big credit stimulus programme to counter factory closures and an accompanying return of millions of migrants to the countryside. By 2011 the growth rate had peaked. Its decline was led by a fall in investment in property, then manufacturing. Subsequent stimulus measures have not altered the trend for long but one constant is a relentless build-up in the indebtedness of property companies, state enterprises and local governments. Conventional measures of credit, however, do not fully reflect the growth of total banking assets. Local and provincial governments have been allowed to issue new bonds on yields a bit below bank loans, bought by banks — but they have not paid down more expensive earlier debts to banks as planned.

Banks, moreover, have also increased their lending, often through instruments such as securitised loans, to non-banking financial intermediaries, such as insurance companies, asset managers and security trading firms. When this is taken into account, credit growth is probably running at about 25-30%, or about twice as fast as official data suggest, and roughly four times the growth in money GDP, the cash value of national output. For now, China’s credit surge seems to have stabilised the economy after a sharp slowdown around the turn of the year. The property market has picked up, attracting funds from a stock market that has fallen out of favour with investors after pronounced instability in the middle of last year and early in 2016. The volume of property transactions has risen and prices have rebounded, especially in the biggest cities.

Timing the end of a credit boom is more luck than judgment. There is no question that lenders own bad loans, reckoned unofficially by some banks and credit rating agencies to amount to about 20% of total assets, the equivalent of around 60% of GDP. These will have to be written off or restructured, and the costs allocated to the state, banks, companies or households. Yet in a state-run banking system, where loans can be extended and there are institutional obstacles to realising bad debts, the day of reckoning can be postponed for some time. More likely, the other side of the lenders’ balance sheets, or their liabilities, is where the limits to the credit cycle will appear sooner.

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“..Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work..”

The Cult Of Central Banking Is Dead In The Water (Stockman)

The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months. There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest-free money for eight years running ever even imagined in the entire history of monetary thought. So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression? Alas, there is none. And that’s as in nichts, nada, nope, nothing! There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway.

By contrast, there is no inflation deficiency – even by the Fed’s preferred measure. Indeed, the very idea of a central bank pumping furiously to generate more inflation comes straight from the archives of crank economics. The following two graphs dramatize the cargo cult essence of today’s Keynesian central banking regime. Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%, while the amount of labor hours used in the US economy has increased by 2%. At a ratio of 400:1 you can’t even try to argue the counterfactual. That is, there is no amount of money printing that could have ameliorated the “no growth” economy symbolized by flat-lining labor hours.

 

Owing to the recency bias that dominates mainstream news and commentary, the massive expansion of the Fed’s balance sheet depicted above goes unnoted and unremarked, as if it were always part of the financial landscape. In fact, however, it is something radically new under the sun; it’s the footprint of a monetary fraud breathtaking in its magnitude. In essence, during the last 15 years the Fed has gifted the US economy with a $4 trillion free lunch. Uncle Sam bought $4 trillion worth of weapons, highways, government salaries and contractual services but did not pay for them by extracting an equal amount of financing from taxes or tapping the private savings pool, and thereby “crowding out” other investments.

Instead, Uncle Sam “bridge financed” these expenditures on real goods and services by issuing US treasury bonds on a interim basis to clear his checking account. But these expenses were then permanently funded by fiat credits conjured from thin air by the Fed when it did the “takeout” financing. Central bank purchase of government bonds in this manner is otherwise and cosmetically known as “quantitative easing” (QE), but it’s fraud all the same. In essence, Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work of catalyzing, coaxing and stimulating more jobs and growth out of the US economy. No it wasn’t! What it was actually doing was not stimulating the main street economy, but falsifying and inflating the price of financial assets.

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“ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas.”

The Real Story Behind US New Home Sales Collapse (Adler)

Comparing the growth in the number of full time jobs versus the growth in new home sales starkly illustrates both the horrible quality of the new jobs, and how badly ZIRP has served the US economy. Growth in new home sales has always been dependent on growth in full time jobs. For 38 years until the housing bubble peaked in 2006, home sales and full time jobs always trended together, subject to normal cyclical swings. With the exception of 1981-83 when Paul Volcker pushed rates into the stratosphere, new home sales always fluctuated between 550 and 1,100 sales per million full time workers in the month of March. But in the housing crash in 2007-09 sales fell to a low of 276 per million full time workers. Since then the number of full time jobs has recovered to greater than the peak reached in 2007. In spite of that, new home sales per million workers remain at depression levels.

With 30 year mortgage rates now at 3.6% sales are lower today than they were when mortgage rates were above 17% in 1982. Sales have never reached 400 sales per million workers in spite of the recovery in the number of jobs, in spite of ZIRP, in spite of mortgage rates often under 4%. ZIRP has actually made the problem worse. It has caused raging housing inflation which has caused median monthly mortgage payments for new homes to rise by 20% since 2009. ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas. That leaves the US economy to create only low skill, low pay jobs that do not pay enough for workers to be able to purchase new homes. The perverse incentives of ZIRP are why the housing industry languishes at depression levels.

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At WHAT point does WHO become a currency manipulator? The US issued a warning, also to Japan, this week. But Tokyo is being taken to task by the markets. The question becomes: what will seal the fate of Abenomics? A high yen or a low one?

Recent Rise In Yen ‘Extremely Worrying’: Japan Finance Minister (AFP)

Japan’s finance minister said late Saturday the recent sharp rise in the yen is “extremely worrying”, adding Tokyo will take action when necessary. The remarks, which suggest Tokyo’s possible market intervention, came after the Japanese unit surged to an 18-month high against the dollar in New York Friday. It extended the previous day’s rally, which was boosted by a surprising monetary decision made by the BoJ. On Thursday, the central bank shocked markets by failing to provide more stimulus, confounding expectations it would act after a double earthquake and a string of weak readings on the world’s number three economy. The dollar tumbled to 106.31 yen in New York Friday, its lowest level since October 2014, from 108.11 yen. The greenback had bought 111.78 yen in Tokyo before the BoJ announcement on Thursday.

“The yen strengthened by five yen in two days. Obviously one-sided and biased, so-called speculative moves are seen behind it,” Japanese Finance Minister Taro Aso told reporters. “It is extremely worrying,” he said. The finance minister left on a trip, which will also take him to an annual Asian Development Bank meeting in Germany. “Tokyo will continue watching the market trends carefully and take actions when necessary,” he added. A strong currency is damaging for Japan’s exporting giants, such as Toyota and Sony, as it makes their goods more expensive overseas and shrinks the value of repatriated profits. Aso has reiterated that Japan could intervene in forex markets to stem the unit’s steep rise, saying moves to halt the currency’s “one-sided, speculative” rally would not breach a G20 agreement to avoid competitive currency devaluations.

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You don’t say… Who figured that out?

UK ‘Is In The Throes Of A Housing Crisis’ (G.)

David Cameron’s pledge to build a property-owning democracy is called into serious question by a landmark survey revealing that almost four in 10 of those who do not own a home believe they will never be able to do so. According to an exclusive poll for the Observer on attitudes to British housing, 69% of people think the country is “in the throes of a housing crisis”. A staggering 71% of aspiring property owners doubt their ability to buy a home without financial help from family members. More than two-thirds (67%) would like to buy their own home “one day”, while 37% believe buying will remain out of their reach for good. A further 26% think it will take them up to five years. With affordable homes in short supply and demand for social housing rising, more than half of Britons cite immigration and a glut of foreign investment in UK property as factors driving prices beyond reach.

The findings cast doubt on the prime minister’s claim before last year’s general election that Tory housing policies would transform “generation rent” into “generation buy”. In April last year, as he launched plans to force local authorities to sell valuable properties to fund new “affordable homes”, Cameron said: “The dream of a property-owning democracy is alive and well and we will help you fulfil it.” The poll – which found that 58% of people want more, not less, social housing as a way to ease the crisis – comes as the government’s highly controversial housing and planning bill returns to the Commons on Tuesday. The bill will force councils to sell much of their social housing and curb lifelong council tenancies, introducing “pay to stay” rules that will force better-off council tenants to pay rents closer to market levels.

Described by housing experts as the beginning of the end of social housing, the bill has been savaged by cross-party groups in the Lords. They have inflicted a string of defeats on ministers and forced numerous concessions. The government’s flagship plan for “starter homes” has also been widely attacked on the grounds that the properties – which in London will cost up to £450,000 – will not be affordable. With local elections and the London mayoral election on Thursday, ministers now face the dilemma of whether to back down and accept many of the Lords’ amendments to the bill or face legislative deadlock.

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There is no credible news about Russia left in the west.

No, Russia Is Not In Decline – At Least Not Any More And Not Yet (FT)

A survey of recent writings on Russia by western scholars reveals a widely-held view that the largest of the 15 post-Soviet republics has continued to decline in the 21st century. Yet an examination of the data suggests that Russia has actually risen in comparison with some of its western competitors. Neil Ferguson, the British, Harvard-based historian, wrote in 2011 that Vladimir Putin’s Russia was in decline and “on its way to global irrelevance.” His Harvard colleagues Joseph Nye and Stephen Walt hold similar views. “Russia is in long-term decline,” Nye wrote in April 2015; also last year, Walt wrote of Russia’s decline at least twice. Other western thinkers who have pronounced Russia’s decline in the 21st century include John Mearsheimer of the University of Chicago, Ian Bremmer of Eurasia Group, Nicholas Burns of Harvard University and Stephen Blank of the American Foreign Policy Council.

Others go further. Alexander Motyl of Rutgers University recently wrote of a “coming Russian collapse”. Lilia Shevtsova, a Russian scholar affiliated with the Brookings Institution, believes the collapse has already begun. But is Russia really in decline, as western scholars claim? A comparison of its performance with the world as a whole or with the west’s leading economies suggests that the claim that post-Communist Russia has continued its decline into the 21st century is highly contestable at the very least. I have compared Russia with the US, the UK, France, Germany and Italy – the west’s biggest economy, western Europe’s four biggest and all of the west’s nuclear powers – in the period 1999 to 2015 (with some exceptions when data is not available). I relied on data supplied by the World Bank, the Stockholm International Peace Research Institute and the World Steel Association, turning to data from national governments only in the absence of data from the three organisations.

One traditional way of measuring nations’ power relative to each other is to compare their GDP. By this measure, Russia gained economically on all of its competitors as well as on the world as a whole in 1999-2015. Russian GDP was equal to less than 5% of US GDP in 1999. That share grew to 6% in 2015, a 36% increase. Over the same period, Russia’s share of global GDP increased by 23%, from 1.32% in 1999 to 1.6% in 2015. Meanwhile, the US, UK, French, German and Italian shares in global GDP declined by 10%, 11%, 19%, 20% and 32%, respectively. It is well known that the Russian economy has been declining since 2014. According to the World Bank, it is poised to contract by 1% yet again in 2016 before it resumes growth. However, this projected decline will not erase the cumulative gains that the Russian economy has made since 1999 against those of the US, UK, France, Germany and Italy and against the world as a whole.

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Germany doesn’t want a union, it wants a sales market.

Germany Should Stop Whining About Negative Rates (Economist)

Germany and the Netherlands are usually great supporters of central-bank independence. In the 1990s Germany blocked France’s push for a political say over monetary policy in the new ECB. The Dutchman who first headed that bank, Wim Duisenberg, said that it might be normal for politicians to express views on monetary policy, but it would be abnormal for central bankers to listen to them. That was then. Now German and Dutch politicians are trying to browbeat Mario Draghi, the ECB’s current president, into ending the bank’s policy of negative interest rates. The German finance minister, Wolfgang Schäuble, accused Mr Draghi of causing “extraordinary problems” for his country’s financial sector; wilder yet, he also pinned on the ECB half of the blame for the rise of the populist Alternative for Germany (AfD) party.

Both countries’ politicians attack low rates as a conspiracy to punish northern European savers and let southern European borrowers off the hook. ECB autonomy was sacred when rates suited Germany; now that rates do not fit the bill, and are imposed by an Italian to boot, it is another matter. The critics are not just hypocritical. They are partly responsible—let’s say 50% to blame—for the mess. As Mr Draghi has pointed out, his mandate is to raise the euro zone’s inflation rate back towards 2%. It is currently at zero, and periodically dips into negative territory. There is a legitimate debate to be had about how far a negative-interest-rate policy can go. The banks are unwilling to pass on negative rates to depositors, which means their own earnings are dented. And yes, savers are undoubtedly suffering at the moment. But raising rates would squash the recovery, and with it any chance of a normalisation of monetary policy.

The ECB’s policies of ultra-low rates and quantitative easing (printing money to buy bonds) are the same as those used by other central banks in the rich world since the onset of the financial crisis. Even the Bundesbank, whose allergy to inflation largely explains why the ECB was slower to embrace unconventional monetary policy than its peers, has felt compelled to defend Mr Draghi from attacks in Germany. The fundamental reason for Europe’s low interest rates and bond yields is the fragility of its economy. Its unemployment rate is stuck at 10%. While the ECB has been doing what it can to press down the accelerator, however, the austerity preached by the likes of the German and Dutch governments has slammed on the brakes. For years, Mr Draghi has been saying that monetary policy alone cannot speed up the economy, and that creditworthy governments must use fiscal policy as well, ideally by raising public investment.

If Mr Schäuble wants higher yields for German savers, he should be spending more money. Instead, his government is running a budget surplus. A hesitation to spend might be understandable if it were difficult for the German government to find good investment opportunities. But Germany has suffered from low infrastructure spending for decades. Investment by municipalities has fallen by about half since 1991, according to a 2015 report by the German Institute for Economic Research; since 2003 it has failed even to keep pace with the deterioration of infrastructure.

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Kaletsky’s dreaming in technicolor: “..The enormous programme of quantitative easing that Draghi pushed through, against German opposition, has saved the euro…”

Could Italy Be The Unlikely Saviour Of Project Europe? (PS)

As the EU begins to disintegrate, who can provide the leadership to save it? German chancellor Angela Merkel is widely credited with finally answering Henry Kissinger’s famous question about the Western alliance: “What is the phone number for Europe?” But if Europe’s phone number has a German dialling code, it goes through to an automated answer: “Nein zu Allem.” This phrase –“No to everything” –is how Mario Draghi, the ECB president, recently described the standard German response to all economic initiatives aimed at strengthening Europe. A classic case was Merkel’s veto of a proposal by Italian prime minister Matteo Renzi to fund refugee programmes in Europe, North Africa, and Turkey through an issue of EU bonds, an efficient and low-cost idea also advanced by leading financiers such as George Soros.

Merkel’s high-handed refusal even to consider broader European interests if these threaten her domestic popularity has become a recurring nightmare for other EU leaders. This refusal underpins not only her economic and immigration policies, but also her bullying of Greece, her support for coal subsidies, her backing of German carmakers over diesel emissions, her kowtowing to Turkey on press freedom, and her mismanagement of the Minsk agreement in Ukraine. In short, Merkel has done more to damage the EU than any living politician, while constantly proclaiming her passion for “the European project”. But where can a Europe disillusioned with German leadership now turn? The obvious candidates will not or cannot take on the role: Britain has excluded itself; France is paralysed until next year’s presidential election and possibly beyond; and Spain cannot even form a government.

That leaves Italy, a country that, having dominated Europe’s politics and culture for most of its history, is now treated as “peripheral”. But Italy is resuming its historic role as a source of Europe’s best ideas and leadership in politics, and also, most surprisingly, in economics. Draghi’s transformation of the ECB into the world’s most creative and proactive central bank is the clearest example of this. The enormous programme of quantitative easing that Draghi pushed through, against German opposition, has saved the euro by circumventing the Maastricht Treaty’s rules against monetising or mutualising government debts. Last month, Draghi became the first central banker to take seriously the idea of helicopter money – the direct distribution of newly created money from the central bank to eurozone residents.

Germany’s leaders have reacted furiously and are now subjecting Draghi to nationalistic personal attacks. Less visibly, Italy has also led a quiet rebellion against the pre-Keynesian economics of the German government and the European commission. In EU councils and again at this month’s IMF meeting in Washington, DC, Pier Carlo Padoan, Italy’s finance minister, presented the case for fiscal stimulus more strongly and coherently than any other EU leader. More important, Padoan has started to implement fiscal stimulus by cutting taxes and maintaining public spending plans, in defiance of German and EU commission demands to tighten his budget. As a result, consumer and business confidence in Italy have rebounded to the highest level in 15 years, credit conditions have improved, and Italy is the only G7 country expected by the IMF to grow faster in 2016 than 2015 (albeit still at an inadequate 1% rate).

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“It would be silly to buy a Mitsubishi car after this..”

Future Of Scandal-Hit Mitsubishi Motors In Doubt – Again (AFP)

Sales are falling off a cliff. Its reputation is in tatters. And even its top executive is talking about whether the automaker will survive. Mitsubishi Motors’ future is hanging in the balance for the second time in a decade after a bombshell admission that it has been cheating on fuel-economy tests for years. The crisis is threatening to put the company into the ditch permanently, but some analysts think the vast web of shareholdings among Japanese firms may just save it from the scrap yard. “I really think the future of Mitsubishi Motors is grim,” said Hideyuki Kobayashi, a business professor at Hitotsubashi University, who authored a book about the company’s struggles with an earlier cover-up. “It would be silly to buy a Mitsubishi car after this (scandal). This isn’t the first time this has happened.”

In 2005, the maker of the Outlander SUV and Lancer cars was pulled back from the brink of bankruptcy after it was discovered that it covered up vehicle defects that caused fatal accidents. The vast Mitsubishi group of companies stepped in with a series of bailouts, saving the embattled firm. But it is not clear if they would be so willing to help this time around as the automaker faces possibly huge fines, lawsuits and customer compensation costs. The scandal has shone a light on the cozy relationships between Japanese firms – including the big equity stakes they hold in each other – which have come under renewed scrutiny in recent years.

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Lowest common denominator.

Trump Saves American TV (Brown)

My friends in the TV news business are in a state of despair about Donald Trump, even as their bosses in the boardroom are giddy over what he’s doing for their once sagging ratings. “It feels like it’s over,” one old friend from my television days told me recently. Any hope of practicing real journalism on TV is really, finally finished. “Look, we’ve always done a lot of stupid shit to get ratings. But now it’s like we’ve just given up and literally handed over control hoping he’ll save us. It’s pathetic, and I feel like hell.” Said another friend covering the presidential campaign for cable news, “I am swilling antidepressants trying to figure out what to do with my life when this is over.” I’ve been there, and I sure am sympathetic.

When I left cable news in 2010 after 14 years as a correspondent and anchor for NBC News and CNN, this kind of ratings pressure was a big reason why (and I don’t take for granted that I had the luxury of being able to walk away). I was not so interested in night-after-night coverage of Michael Jackson’s death or Britney Spears’ latest breakdown—topics that were “breaking news” at the time. And yes, as my friend reminded me, we did “stupid shit” to get the numbers up when it came to political coverage then, too. (Anyone remember the correspondent’s hologram that appeared on set during CNN’s 2008 election coverage?) But it was nothing like what we’re seeing today. I really would like to blame Trump. But everything he is doing is with TV news’ full acquiescence. Trump doesn’t force the networks to show his rallies live rather than do real reporting.

Nor does he force anyone to accept his phone calls rather than demand that he do a face-to-face interview that would be a greater risk for him. TV news has largely given Trump editorial control. It is driven by a hunger for ratings—and the people who run the networks and the news channels are only too happy to make that Faustian bargain. Which is why you’ll see endless variations of this banner, one I saw all three cable networks put up in a single day: “Breaking news: Trump speaks for first time since Wisconsin loss.” In all these scenes, the TV reporter just stands there, off camera, essentially useless. The order doesn’t need to be stated. It’s understood in the newsroom: Air the Trump rallies live and uninterrupted. He may say something crazy; he often does, and it’s always great television.

This must be such a relief for the TV executives managing a business in decline, suffering from a thousand cuts from social media and other new platforms. Trump arrived on the scene as a kind of manna from hell. I admit I have been surprised by the public candor about this bounty. A “beaming” Jeff Zucker, president of CNN Worldwide, told New York Times media columnist Jim Rutenberg, “These numbers are crazy—crazy.” But if their bosses are frank about the great ratings, some of my friends left at the cable networks are in various degrees of denial. “Give me a break,” one told me. “You can’t put this on us. Reality has changed because of technology. Look at the White House. They’re basically running their own news organization. They bypass us every day. We’re just trying to keep up.” And then there’s this attempt to put the best face on things, which is the most universal comment I hear: “At least this shows how much we still matter.”

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Anything the EU agrees to can be seen as inconsequential.

Greece Concludes Agreement With Creditors On Sale Of NPLs (Kath.)

An agreement between Greece and its lenders will lead to the vast majority of non-performing loans (NPLs) linked to primary residences with a taxable value under 140,000 euros being protected from sale until 2018, Economy Ministry sources have said. The government said on Saturday that the framework for the sale to distressed debt fund of overdue bank loans had been agreed, a necessary condition for the current bailout review to be concluded. According to the Economy Ministry, income criteria will not apply to the primary residence-backed NPLs that will be excluded from sale.

When coupled with the 140,000-euro “objective value” ceiling, this means that 94% of mortgages linked to main homes will be exempt from sale, the government says. The ministry added that the homeowners whose loans will be sold by banks will not experience any major change. The organizations that buy the loans will be required to use debt collection agencies that are registered in Greece and which have been licensed by the Bank of Greece.

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And on purpose too.

EU Has Made A Mess Of Refugee Reception System In Greece: Oxfam (Kath.)

The EU is failing to deliver a fair and safe system for receiving people in Greece, according to charity group Oxfam. The Greek government’s limited capacity and the pressure to meet the terms of the EU-Turkey agreement has led to refugees and migrants being kept in poor conditions, stressed the humanitarian organization in a statement on Friday. “Europe has created this mess and it needs to fix it in a way that respects people’s rights and dignity,” said Giovanni Riccardi Candiani, Oxfam’s representative in Greece. “The EU says it champions the rights of asylum-seekers beyond its borders but these rights are not being respected within EU countries.” Oxfam highlighted problems at the hotspots on Lesvos, where there have been riots in the past few days.

“Moria center is now very overcrowded, holding more than 3,000 people. Non-Syrians are unable to access asylum processes and about 80 unaccompanied children are among those being held,” said the humanitarian organization. “Nearby Kara Tepe camp, which has freedom of movement and provides care for vulnerable people such as unaccompanied children, pregnant women and the elderly, is almost full, leaving people in need of special care and support stranded at Moria center,” added Oxfam. The organization said it is working at six sites across Greece: Kara Tepe on Lesbos island, and in Katsika, Doliana, Filipiada, Tsepelovo and Konista camps in North-West Greece. Oxfam suspended its presence at Moria after the EU-Turkey deal was agreed and the site was converted into a closed facility.

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Europe’s shame continues.

84 Migrants Missing After Boat Sinks Off Libya’s Coast (AFP)

84 migrants are still missing after an inflatable craft sank off the coast of Libya, according to survivors cited by the International Organization for Migration (IOM) on Saturday. Twenty-six people were rescued from the boat which sank on Friday and were questioned overnight. “According to testimonies gathered by IOM in Lampedusa 84 people went missing,” IOM spokesperson in Italy Flavio Di Giacomo wrote on his Twitter feed. Di Giacomo told AFP that the survivors indicated 110 people, all from assorted west African states, had embarked in Libya. In an email, he added that the vessel “was in a very bad state, was taking on water and many people fell into the water and drowned”.

“Ten fell very rapidly and several others just minutes later.” Earlier Saturday, Italy’s coastguard said an Italian cargo ship had rescued 26 migrants from a flimsy boat sinking off the coast of Libya but voiced fears that tens more could be missing. The coastguard received a call from a satellite phone late Friday that helped locate the stricken inflatable and called on the merchant ship to make a detour to the area about four miles (seven kilometres) off the Libyan coast near Sabratha. Rough seas and waves topping two metres (seven feet) hampered attempts to find any other survivors.

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