Apr 172018
 
 April 17, 2018  Posted by at 8:44 am Finance Tagged with: , , , , , , , , , , ,  


DPC Times Square, New York Times building under construction 1903

 

How Libor’s Surge Will Help Pop The Global Bubble (Colombo)
America First – R.I.P. (David Stockman)
Optimism of US Manufacturers “Plunged” the Most Ever (WS)
US Planning To Open “Third Front” In China Trade Spat (ZH)
US Cuts Off China’s ZTE From American Tech for Seven Years (BBG)
China Industrial Output, Investment Growth Miss Expectations (R.)
Is Tesla The Next Enron? (MW)
Tesla Puts the Brakes on Model 3 Production Line (BBG)
Facebook’s Next Big Headache: Europe (Axios)
Facebook Hit With Class Action Suit Over Facial Recognition Tool (AFP)
US Freight Expenditures Surge 15.6% from Year Ago (WS)
US and UK Blame Russia For ‘Malicious’ Cyber-Offensive (G.)
One In Three UK Millennials Will Never Own A Home (G.)
Scientists Accidentally Create Mutant Enzyme That Eats Plastic Bottles (G.)
More Than 95% Of World’s Population Breathe Dangerous Air (G.)

 

 

Debt has grown everywhere. Ever less is needed to make it pop.

How Libor’s Surge Will Help Pop The Global Bubble (Colombo)

As the world’s most important benchmark interest rate, approximately $10 trillion worth of loans and $350 trillion worth of derivatives use the Libor as a reference rate. Libor-based corporate loans are very prevalent in emerging economies, which is helping to inflate the emerging markets bubble that I am warning about. In Asia, for example, Libor is used as the reference rate for nearly two-thirds of all large-scale corporate borrowings. Considering this fact, it is no surprise that credit and asset bubbles are ballooning throughout Asia, as my report on Southeast Asia’s bubble has shown.

Like other benchmark interest rates, when the Libor is low, it means that loans are inexpensive, and vice versa. As with the U.S. Fed Funds Rate, Libor rates were cut to record low levels during the 2008-2009 financial crisis in order to encourage more borrowing and concomitant economic growth. Unfortunately, economic booms that are created via central bank manipulation of borrowing costs are typically temporary bubble booms rather than sustainable, organic economic booms. When central banks raise borrowing costs as an economic cycle matures, the growth-driving bubbles pop, leading to a bear market, financial crisis, and recession.

Similar to the U.S. Fed Funds Rate, the Libor has been rising for the last several years as central banks raise interest rates. While rising interest rates haven’t popped the major global bubbles just yet, it’s just a matter of time before they start to bite.

While most economists and financial journalists view the rising Libor as part of a normal business cycle, I’m quite alarmed due to my awareness of just how much our global economic recovery and boom is predicated on ultra-low interest rates. With global debt up 42% or over $70 trillion since the Global Financial Crisis, interest rates do not need to rise nearly as high as they were in 2007 and 2008 to cause a massive crisis.

Read more …

What could have been. Excellent piece.

America First – R.I.P. (David Stockman)

When the Cold War officially ended in 1991, Washington could have pivoted back to the pre-1914 status quo ante. That is, to a national security policy of America First because there was literally no significant military threat left on the planet. Post-Soviet Russia was an economic basket case that couldn’t even meet its military payroll and was melting down and selling the Red Army’s tanks and artillery for scrap. China was just emerging from the Great Helmsman’s economic, political and cultural depredations and had embraced Deng Xiaoping proclamation that “to get rich is glorious”. The implications of the Red Army’s fiscal demise and China’s electing the path of export mercantilism and Red Capitalism were profound.

Russia couldn’t invade the American homeland in a million years and China chose the route of flooding America with shoes, sheets, shirts, toys and electronics. So doing, it made the rule of the communist elites in Beijing dependent upon keeping the custom of 4,000 Wal-Marts in America, not bombing them out of existence. In a word, god’s original gift to America—the great moats of the Atlantic and Pacific oceans—had again become the essence of its national security. After 1991, therefore, there was no nation on the planet that had the remotest capability to mount a conventional military assault on the U.S. homeland; or that would not have bankrupted itself attempting to create the requisite air and sea-based power projection capabilities—a resource drain that would be vastly larger than even the $700 billion the US currently spends on its global armada.

Indeed, in the post-cold war world the only thing the US needed was a modest conventional capacity to defend the shorelines and airspace against any possible rogue assault and a reliable nuclear deterrent against any state foolish enough to attempt nuclear blackmail. Needless to say, those capacities had already been bought and paid for during the cold war. The triad of minutemen ICBMs, Trident SLBMs (submarines launched nuclear missiles) and long-range stealth bombers cost only a few ten billions annually for operations and maintenance and were more than adequate for the task of deterrence.

Likewise, conventional defense of the U.S. shoreline and airspace against rogues would not require a fraction of today’s 1.3 million active uniformed force—to say nothing of the 800,000 additional reserves and national guard forces and the 765,000 DOD civilians on top of that. Rather than funding 2.9 million personnel, the whole job of national security under a homeland-based America First concept could be done with less than 500,000 military and civilian payrollers. In fact, much of the 475,000 US army could be eliminated and most of the Navy’s carrier strike groups and power projection capabilities could be mothballed. So, too, the air force’s homeland defense missions could be accomplished for well less than $50 billion per annum compared to the current $145 billion.

Read more …

New York Fed report.

Optimism of US Manufacturers “Plunged” the Most Ever (WS)

Something strange happened in the Empire State Manufacturing Survey released by the New York Fed this morning. The survey has two headline components: The index for current conditions and the index for future conditions six months down the road. The first index behaved reasonably well; the second index plunged the most ever. Executives are notoriously optimistic. In the survey, which goes back to 2001, expectations for future conditions are always higher than current conditions, and often by a big margin, even early on in the Financial Crisis before all heck was breaking loose. The index of future conditions reacts to events. For example, it spiked after Trump’s election. So today’s biggest plunge in survey history is a reaction to an event.

“Optimism tumbles,” the New York Fed’s report called it. And more emphatically: “Optimism about the six-month outlook plunged among manufacturing firms.” The headline index is based on a question about “general business conditions.” The sub-indices are based on questions about specific aspects of the manufacturing business, such as new orders, shipments, unfilled orders, employment, etc. [..] This chart shows the General Business Condition indices for current conditions (black line) and forward-looking conditions (blue line) with the plunge circled. The thin vertical red line indicates the last survey period before the November 2016 election:

The 25.8-point April plunge took the index from 44.1 points in March to 18.3 points in April, the largest monthly plunge ever. The second largest plunge (25.1 points) occurred in January 2016 as credit in the energy sector was freezing up and as the S&P 500 index was on its way to drop 19%. The third steepest plunge (24.3 points) occurred in January 2009, during the Financial Crisis. The chart below shows the month-to-month changes in the forward-looking general business conditions index:

Read more …

China doesn’t need US in cloud computing.

US Planning To Open “Third Front” In China Trade Spat (ZH)

In news that broke (conveniently, we should add) shortly after the market closed on Monday, the Wall Street Journal is reporting that the White House is gearing up for what would be the third front in its nascent trade spat with China. As the paper points out, Trade Representative Robert Lighthizer is preparing a fresh trade complaint – again under Section 301 of the Trade Act of 1974 – the same section of the trade act under which the US filed its complaint about China’s intellectual property abuses, aka the first salvo in the US’s trade war. This time, Lighthizer is aiming at China’s unfair restrictions on US companies trying to establish a foothold in China in high-tech industries like cloud computing.

As a general rule, China requires foreign firms to partner with a domestic firm in a “revenue-sharing agreement” before they can gain entry to the Chinese market. By comparison, the US allows Chinese firms like Alibaba to function almost totally unfettered. To be sure, Lighthizer has yet to decide whether to go ahead with the complaint, leaving the tariffs on steel and aluminum and the investigation into IP abuses as the only concrete actions that the White House has taken to hold China accountable for what Trump has described as decades of abuses on trade (threatening to impose tariffs on $150 billion in goods doesn’t count).

Read more …

“All hell breaks loose..”

US Cuts Off China’s ZTE From American Tech for Seven Years (BBG)

The U.S. government said Chinese telecommunications-gear maker ZTE Corp. violated the terms of a sanctions settlement and imposed a seven-year ban on purchases of crucial American technology needed to keep it competitive. The Commerce Department determined ZTE, which was previously fined for shipping telecommunication equipment to Iran and North Korea, subsequently paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to U.S. authorities, the department said. “Instead of reprimanding ZTE staff and senior management, ZTE rewarded them,” Commerce Secretary Wilbur Ross said in the statement.

“This egregious behavior cannot be ignored.” The ZTE rebuke adds to U.S.-China tensions over trade between the world’s two biggest economies. President Donald Trump threatened tariffs on $150 billion in Chinese imports for alleged violations of intellectual property rights, while Beijing vowed to retaliate on everything from American soybeans to planes. Trump on Monday accused China along with Russia of devaluing their currencies, opening a new front in his argument that foreign governments are exploiting the U.S. China’s Ministry of Commerce rapidly responded to the ZTE ban, saying it would take necessary measures to protect the interests of Chinese businesses.

It said the Shenzhen-based company has cooperated with hundreds of U.S. companies and contributed to the country’s job creation. For ZTE itself, the latest U.S. action means one of the world’s top makers of smartphones and communications gear will no longer be able to buy technology from American suppliers, including components central to its products. ZTE has purchased chips from Qualcomm and Intel, and optical components from Acacia Communications and Lumentum. A seven-year ban would effectively cover a critical period during which the world’s telecoms carriers and suppliers are developing and rolling out fifth-generation wireless technology. “All hell breaks loose,” wrote Edison Lee and Timothy Chau, analysts at Jefferies, after the export ban was announced.

Read more …

But what to believe of the numbers?

China Industrial Output, Investment Growth Miss Expectations (R.)

China’s industrial output grew 6.0% in March from a year earlier, missing expectations, while fixed-asset investment growth slowed to 7.5% in the first quarter, also below forecasts, data showed on Tuesday. Analysts polled by Reuters had predicted industrial output growth would cool to 6.2% from 7.2% in the first two months of the year. Investment growth had also been expected to ease, to 7.6% in the first three months of the year, from 7.9% in January-February. Private-sector fixed-asset investment rose 8.9% in January-March, compared with an increase of 8.1% in the first two months, the National Bureau of Statistics said on Tuesday.

Private investment accounts for about 60% of overall investment in China. Retail sales rose 10.1% in March from a year earlier, beating expectations of an increase of 9.9%, compared with a rise of 9.7% in the first two months. The government has set an economic growth target of around 6.5% this year, the same goal as in 2017. Actual growth last year came in much stronger at 6.9%, due largely to an infrastructure-led construction boom, resurgent exports and record bank lending.

Read more …

Causation, correlation.

Is Tesla The Next Enron? (MW)

There’s more than enough to get distracted by — and be nervous about — over the next few days, but judging from the upbeat premarket action on Monday, investors aren’t exactly scrambling around to load up on risk-off assets. Geopolitics aside, hope abounds that the next leg up could be fueled by what corporate leaders have to say this week regarding their quarterly results. “It is still early in the earnings season, and as we hear from the CEOs we will find out if the market will refocus on fundamentals and away from the macro news,” says Jill Carey Hall, equity strategist at Bank of America Merrill Lynch.

Tesla however, doesn’t report its results for a while. Until then, you can expect the FUD to keep flying as the haters tangle with the Musk faithful — and Musk himself — over where the company is ultimately headed. Count Harris Kupperman of Praetorian Capital among those outspoken bears, and, just like renowned short-seller Jim Chanos did late last year, he recently compared Tesla to one of the biggest fails Wall Street’s ever seen — Enron. He used this overlay, our chart of the day, to illustrate his prediction:

Elon Musk relishes the opportunity to return fire at his critics, like when he recently threw shade at the Economist for questioning Tesla’s stability. That hardly convinced Kupperman. “He hasn’t hit on any target or deliverable with any sort of reliability for years now. Why should I believe him now?” he writes. “Remember in 2016 when he said they’d be profitable and didn’t need any more money? Or when they said that in 2017? He’ll probably be saying the same thing at the bankruptcy hearing.”

Read more …

“Traditional automakers adjust bottlenecks on the fly during a launch..” “This is totally out of the ordinary.”

Tesla Puts the Brakes on Model 3 Production Line (BBG)

Tesla is temporarily suspending production of the Model 3 sedan for at least the second time in roughly two months, just after Elon Musk admitted to mistakes that hindered his most important car. The company informed employees that the pause will last four to five days, Buzzfeed reported Monday. A Tesla spokesman referred back to a statement provided last month, when Bloomberg News first reported that Model 3 production was idled from Feb. 20 to 24. The carmaker said then that it planned periods of downtime at both its vehicle and battery factories to improve automation and address bottlenecks. The hiatus is another setback for the first model Musk has tried to mass-manufacture.

In addition to trying to bring electric vehicles to the mainstream, the chief executive officer had sought to build a competitive advantage over established automakers by installing more robots to quickly produce vehicles. Last week, he acknowledged “excessive” automation at Tesla was a mistake. “Traditional automakers adjust bottlenecks on the fly during a launch,” Dave Sullivan, an analyst at AutoPacfic Inc., said in an email. “This is totally out of the ordinary.” Tesla employees are expected to use vacation days or stay home without pay during the Model 3 downtime, though a small number may be offered paid work elsewhere at the factory in Fremont, California, Buzzfeed reported.

The shutdown is taking place a week after Musk gave CBS This Morning a tour of Tesla’s assembly plant and said the company should be able to sustain producing 2,000 Model 3 sedans a week. He said manufacturing issues that had been crimping output were being resolved and that Tesla probably will make three or four times as many of the cars in the second quarter. Tesla built 9,766 Model 3 sedans in the first quarter. The company said in an April 3 statement that the process of boosting production and addressing bottlenecks during the first three months of the year included “several short factory shutdowns to upgrade equipment.”

Read more …

Will Zuck ‘honor’ the invitation. Looks like he may have to.

Facebook’s Next Big Headache: Europe (Axios)

The risk to Facebook’s business coming out of last week’s Mark Zuckerberg hearings is minimal. The threat to its business in the EU, where aggressive regulation has already passed, is massive. The latest: The European Parliament has issued a second invitation to Facebook CEO Mark Zuckerberg to appear at a joint committee heating. EU Justice Commissioner Vera Jourova had a phone exchange with Facebook COO Sheryl Sandberg urging Zuckerberg to pay the Parliament a visit, according to the Associated Press. “I expect that Mr Zuckerberg will take this invitation because I believe that face-to-face communication and being available for such communication will be a good sign that Mr. Zuckerberg understands the European market,” Jourova told CNBC Friday.

“Facebook has more active users in Europe than in the US,” tweeted parliament member Guy Verhofstadt. “We expect Mark Zuckerberg to come to the European Parliament and explain how he will make sure Facebook respects [the forthcoming General Data Protection Regulation].” Facebook spent more than $2.5 million on its in-house lobbying in Europe last year, according to disclosure records. The company says that a total of 15 staff are involved in its EU lobbying efforts. European regulation was a prime topic of discussion even during Zuckerberg’s congressional hearings last week. Sandberg visited Brussels in January to discuss Facebook’s commitment to privacy and compliance with Europe’s new sweeping privacy rules.

Facebook faces several very real threats to its business model in Europe this spring.

• GDPR: The sweeping General Data Protection Regulation will go into effect in late May, putting in place strict new privacy rules. U.S. tech firms face punitive fines if they do not comply.
• ePrivacy: An updated version of the EU’s ePrivacy directive, which is set to go in effect in conjunction with GDPR in May 2018, will add greater regulation of data tracking through cookies and users’ ability to opt-out of data collection.
• Antitrust: Facebook was fined by EU antitrust commissioner Margrethe Vestager last May for allegedly misleading officials when it acquired WhatsApp. She signaled to reporters in Washington last week that she’s still keeping an eye on the social giant, but noted that the European government has no official stance on whether the company is a monopoly. She said a German probe and new data rules could mitigate some concerns about Facebook’s power.

Read more …

When your defense is that others did it too, you’re not winning.

Facebook Hit With Class Action Suit Over Facial Recognition Tool (AFP)

A US federal judge in California ruled Monday that Facebook will have to face a class action suit over allegations it violated users’ privacy by using a facial recognition tool on their photos without their explicit consent. The ruling comes as the social network is snared in a scandal over the mishandling of 87 million users’ data ahead of the 2016 US presidential election. The facial recognition tool, launched in 2010, suggests names for people it identifies in photos uploaded by users – a function which the plaintiffs claim runs afoul of Illinois state law on protecting biometric privacy. Judge James Donato ruled the claims by Illinois residents Nimesh Patel, Adam Pezen, and Carlo Licata were “sufficiently cohesive to allow for a fair and efficient resolution on a class basis.

“Consequently, the case will proceed with a class consisting of Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011,” he said, according to the ruling seen by AFP. A Facebook spokeswoman told AFP the company was reviewing the decision, adding: “We continue to believe the case has no merit and will defend ourselves vigorously.” Facebook also contends it has been very open about the tool since its inception and allows users to turn it off and prevent themselves from being suggested in photo tags. The technology was suspended for users in Europe in 2012 over privacy fears.

Also on Monday, Facebook confirmed that it collected information from people beyond their social network use. “When you visit a site or app that uses our services, we receive information even if you’re logged out or don’t have a Facebook account,” product management director David Baser said in a post on the social network’s blog. Baser said “many” websites and apps use Facebook services to target content and ads, including via the social network’s Like and Share buttons, when people use their Facebook account to log into another website or app and Facebook ads and measurement tools. But he stressed the practice was widespread, with companies such as Google and Twitter also doing the same.

Read more …

We’re booming.

US Freight Expenditures Surge 15.6% from Year Ago (WS)

Shipment volumes in the US by truck, rail, air freight, and barge combined surged 11.9% year-over-year in March, according to the Cass Freight Index. This pushed the index, which is not seasonally adjusted, to its highest level for any month since 2007 and for any March since 2006:

After the US transportation recession in 2015 and 2016, the industry was recovering at an every faster pace. In the chart above, note how the red line (2017) outpaced the black line (2016). And 2018 has turned into a transportation boom. March is normally still in the slow part of the year, but this March blew past even June 2014, the banner month since the Financial Crisis! “Volume has continued to grow at such a pace that capacity in most modes has become extraordinarily tight,” Cass explained. “In turn, pricing power has erupted in those modes.” The chart below shows the year-over-year percentage changes in the index for shipment volumes. Note the double-digits spikes over the past three months:

The index, which is based on $25 billion in annual freight transactions, according to Cass Information Systems, covers all modes of transportation — rail, truck, barge, and air — for consumer packaged goods, food, automotive, chemical, OEM, and heavy equipment but not bulk commodities, such as oil, coal, or grains. This kind of surge in volume has consequences in this cyclical business. During the “transportation recession,” orders for heavy Class 8 trucks collapsed, triggering lay-offs and throughout the truck and engine manufacturing industry. The opposite is now the case: Orders for heavy trucks are hitting records.

Read more …

Yeah, it’s a vulnerable system we’ve built. And that goes for all sides.

US and UK Blame Russia For ‘Malicious’ Cyber-Offensive (G.)

The cyberwar between the west and Russia has escalated after the UK and the US issued a joint alert accusing Moscow of mounting a “malicious” internet offensive that appeared to be aimed at espionage, stealing intellectual property and laying the foundation for an attack on infrastructure. Senior security officials in the US and UK held a rare joint conference call to directly blame the Kremlin for targeting government institutions, private sector organisations and infrastructure, and internet providers supporting these sectors. Rob Joyce, the White House cybersecurity coordinator, set out a range of actions the US could take such as fresh sanctions and indictments as well as retaliating with its own cyber-offensive capabilities. “We are pushing back and we are pushing back hard,” he said.

Joyce stressed the offensive could not be linked to Friday’s raid on Syria. It was not retaliation for the US, UK and French attack as the US and UK had been investigating the cyber-offensive for months. Nor, he said, should the decision to make public the cyber-attack be seen as a response to events in Syria. Joyce was joined in the call by representatives from the FBI, the US Department of Homeland Security and the UK’s National Cyber Security Centre (NCSC), which is part of the surveillance agency GCHQ.

The US and UK, in a joint statement, said the cyber-attack was aimed not just at the UK and US but globally. “Specifically, these cyber-exploits were directed at network infrastructure devices worldwide such as routers, switches, firewalls, network intrusion detection system,” it said. “Russian state-sponsored actors are using compromised routers to conduct spoofing ‘man-in-the-middle’ attacks to support espionage, extract intellectual property, maintain persistent access to victim networks and potentially lay a foundation for future offensive operations. “The current state of US and UK network devices, coupled with a Russian government campaign to exploit these devices, threatens our respective safety, security, and economic wellbeing.”

Read more …

That’s a lot of potential clients you’re missing out on. And potential loans to issue.

One In Three UK Millennials Will Never Own A Home (G.)

One in three of will never own their own home, with many forced to live and raise families in insecure privately rented accommodation throughout their lives, according to a report by the Resolution Foundation. In a gloomy assessment of the housing outlook for approximately 14 million 20- to 35-year-olds, the thinktank’s intergenerational commission said half would be renting in their 40s and that a third could still be doing so by the time they claimed their pensions. It predicted an explosion in the housing benefits bill once the millennial generation reaches retirement.

“This rising share of retiree renters, coupled with an ageing population, could more than double the housing benefit bill for pensioners from £6.3bn today to £16bn by 2060 – highlighting how everyone ultimately pays for failing to tackle Britain’s housing crisis,” the report read. It calls for a radical overhaul of the private rented sector, proposing a three-year cap on rent increases, which would not be allowed to rise by more than the consumer price index, currently 2.5%. The report adds to a growing chorus of demands for rent stabilisation. Jeremy Corbyn called for rent control during his speech at the Labour party conferencelast year.

The Resolution Foundation wants “indeterminate” tenancies as the sole form of contract in England and Wales. These would replaced the standard six-month or 12-month contracts demanded by most landlords. The thinktank said this would follow , where open-ended tenancies began in December 2017, and is the standard practice in Germany, the Netherlands, Sweden and Switzerland. Greater security of tenancy is vital as more families are raised in the private rented sector, the report said. The number of privately renting households with children has tripled from 600,000 in 2003 to 1.8m in 2016.

Read more …

How bad is it? “About 1 million plastic bottles are sold each minute around the globe..”

Scientists Accidentally Create Mutant Enzyme That Eats Plastic Bottles (G.)

Scientists have created a mutant enzyme that breaks down plastic drinks bottles – by accident. The breakthrough could help solve the global plastic pollution crisis by enabling for the first time the full recycling of bottles. The new research was spurred by the discovery in 2016 of the first bacterium that had naturally evolved to eat plastic, at a waste dump in Japan. Scientists have now revealed the detailed structure of the crucial enzyme produced by the bug. The international team then tweaked the enzyme to see how it had evolved, but tests showed they had inadvertently made the molecule even better at breaking down the PET (polyethylene terephthalate) plastic used for soft drink bottles.

“What actually turned out was we improved the enzyme, which was a bit of a shock,” said Prof John McGeehan, at the University of Portsmouth, UK, who led the research. “It’s great and a real finding.” The mutant enzyme takes a few days to start breaking down the plastic – far faster than the centuries it takes in the oceans. But the researchers are optimistic this can be speeded up even further and become a viable large-scale process. “What we are hoping to do is use this enzyme to turn this plastic back into its original components, so we can literally recycle it back to plastic,” said McGeehan. “It means we won’t need to dig up any more oil and, fundamentally, it should reduce the amount of plastic in the environment.”

About 1m plastic bottles are sold each minute around the globe and, with just 14% recycled, many end up in the oceans where they have polluted even the remotest parts, harming marine life and potentially people who eat seafood. “It is incredibly resistant to degradation. Some of those images are horrific,” said McGeehan. “It is one of these wonder materials that has been made a little bit too well.” However, currently even those bottles that are recycled can only be turned into opaque fibres for clothing or carpets. The new enzyme indicates a way to recycle clear plastic bottles back into clear plastic bottles, which could slash the need to produce new plastic.

Read more …

Most intelligent species ever.

More Than 95% Of World’s Population Breathe Dangerous Air (G.)

More than 95% of the world’s population breathe unsafe air and the burden is falling hardest on the poorest communities, with the gap between the most polluted and least polluted countries rising rapidly, a comprehensive study of global air pollution has found. Cities are home to an increasing majority of the world’s people, exposing billions to unsafe air, particularly in developing countries, but in rural areas the risk of indoor air pollution is often caused by burning solid fuels. One in three people worldwide faces the double whammy of unsafe air both indoors and out.

The report by the Health Effects Institute used new findings such as satellite data and better monitoring to estimate the numbers of people exposed to air polluted above the levels deemed safe by the World Health Organisation. This exposure has made air pollution the fourth highest cause of death globally, after high blood pressure, diet and smoking, and the greatest environmental health risk. Experts estimate that exposure to air pollution contributed to more than 6m deaths worldwide last year, playing a role in increasing the risk of stroke, heart attack, lung cancer and chronic lung disease. China and India accounted for more than half of the death toll.

Burning solid fuel such as coal or biomass in their homes for cooking or heating exposed 2.6 billion people to indoor air pollution in 2016, the report found. Indoor air pollution can also affect air quality in the surrounding area, with this effect contributing to one in four pollution deaths in India and nearly one in five in China. Bob O’Keefe, vice-president of the institute, said the gap between the most polluted air on the planet and the least polluted was striking. While developed countries have made moves to clean up, many developing countries have fallen further behind while seeking economic growth.

Read more …

Jan 052016
 
 January 5, 2016  Posted by at 10:20 am Finance Tagged with: , , , , , , , , , ,  


DPC Broadway at night from Times Square 1911

The $289 Billion Wipeout That Blindsided US Bulls (BBG)
A Stock Market Crash Of 50%+ Would Not Be A Surprise (BI)
Bank of America Thinks The Probability Of A Chinese Crisis Is 100% (ZH)
China Injects $20 Billion Into Markets, Hints At Curbs On Share Sales (Reuters)
China Said to Intervene in Stock Market After $590 Billion Rout (BBG)
China Rail Freight Down 10.5% In 2015, Biggest Ever Annual Fall (Reuters)
China Could ‘Spook’ Global Markets Again in 2016: IMF Chief Economist (BBG)
Supermines Add to Supply Glut of Metals (WSJ)
Debt Payments Set To Balloon For Detroit Public Schools (DN)
New Year Brings Financial Headache For Millions Of British Families (Guardian)
Brazil Heads for Worst Recession Since 1901 (BBG)
Volkswagen Faces Billions In Fines As US Sues In Emissions Scandal (Reuters)
Portugal’s Bank Bail-In Sets a Dangerous Precedent (BBG)
Russia Stands Up To Western Threats, Pivots To East (Xinhua)
Will US Fall For Saudi’s Provocation In Killing Of Shia Cleric? (Reuters)
Pretend to the Bitter End (Jim Kunstler)
Fortress Scandinavia Sinks Into Blame Game Over Refugee Crisis (BBG)
Bodies Of Four Migrants Found In Eastern Aegean (Kath.)
Nine Drowned Refugees Wash Up On Turkish Beach (AP)

“A report in the U.S. showed manufacturing contracted at the fastest pace in more than six years..”

The $289 Billion Wipeout That Blindsided US Bulls (BBG)

As losses snowballed in U.S. stocks around midday, the best thing U.S. bulls had to say about the worst start to a year since 2001 was that there are 248 more trading days to make it up. “My entire screen is blood red – there’s nothing good to talk about,” Phil Orlando at Federated Investors said around noon in New York, as losses in the Dow Jones Industrial Average approached 500 points. “On days like today you need to take a step back, take a deep breath and let the rubble fall.” Taking a break and breathing helped: the Dow added almost 150 points in the last 30 minutes to pare its loss to 276 points.

Still, investors returning to work from holidays were greeted by the sixth-worst start to a year since 1927 for the Standard & Poor’s 500 Index, which plunged 1.5% to erase $289 billion in market value as weak Chinese manufacturing data unnerved equity markets. The selloff started in China and persisted thanks to a flareup in tension between Saudi Arabia and Iran. A report in the U.S. showed manufacturing contracted at the fastest pace in more than six years added to concerns that growth is slowing.

Read more …

50% seems mild.

A Stock Market Crash Of 50%+ Would Not Be A Surprise (BI)

By many, many historically predictive valuation meassures, stocks are overvalued to the tune of 75%-100%. In the past, when stocks have been this overvalued, they have often “corrected” by crashing (1929, 1987, 2000, 2007, for example) . They have also sometimes corrected by moving sideways and down for a long, long time (1901-1920, 1966-1982, for example). After long eras of over-valuation, like the period we have been in since the late 1990s (with the notable exceptions of the lows after the 2000 and 2007 crashes), stocks have also often transitioned into an era of undervaluation, often one that lasts for a decade or more. In short, stocks are so expensive on historically predictive measures that the annual returns over the next decade are likely to net out to about 0% per year.

How we get there is anyone’s guess. But… A stock-market crash of ~50% from the peak would not be a surprise. It would also not be the “worst-case scenario,” by any means. The “worst-case scenario,” which has actually been a common scenario over history, is that stocks would drop by, say 75% peak to trough. Those are the facts. Why isn’t anyone talking about those facts? Three reasons: First, as mentioned, no one in the financial community likes to hear bad news or to be the bearer of bad news when it comes to stock prices. It’s bad for business. Second, valuation is nearly useless as a market-timing indicator. Third, yes, there is a (probably small) chance that it’s “different this time,” and all the historically predictive valuation measures are out-dated and no longer predictive. The third reason is the one that everyone who is bullish about stocks these days is implicitly or explicitly relying on: “It’s different this time.”

Read more …

At least I’m not alone in my assessment of China.

Bank of America Thinks The Probability Of A Chinese Crisis Is 100% (ZH)

Some sobering words about China’s imminent crisis, not from your friendly neighborhood doom and gloom village drunk, but from BofA’s China strategist David Cui. Excerpted from “2016 Year-Ahead: what may trigger financial instability”, a must-read report for anyone interested in learning how China’s epic stock market experiment ends.

A case for financial instability – It’s widely accepted that the best leading indicator of financial instability is rapid debt to GDP growth over a period of several years as it’s a strong sign of significant malinvestment. Based on Bank of International Settlement’s (BIS) private debt data and the financial instability episodes identified in “This time is different”, a book by Reinhart & Rogoff, we estimate that once a country grows its private debt to GDP ratio by over 40% within a period of four years, there is a 90% chance that it may run into financial system trouble. The disturbance can be in the form of banking sector re-cap (with or without a credit crunch), sharp currency devaluation, high inflation, sovereign debt default or a combination of a few of these. As Chart 1 demonstrates, China’s private debt to GDP ratio rose by 75% between 2009 and 2014 (i.e., since the Rmb4tr stimulus), by far the highest in the world (we suspect a significant portion of the debt growth in HK went to China). At the peak speed, over four years from 2009 to 2012, the ratio in China rose by 49%.

Other than sovereign debt default, China has experienced all the other forms of financial instability since the open-door reform started in late 1970s, including a sharp currency devaluation in the early 1990s (Chart 3) and hyper-inflation in the late 1980s and early 1990s (Chart 4). China also needed to write-off bad debt and recap its banks every decade or so. Banking sector NPL reached some 40% in the late 1990s and early 2000s and the government had to strip off some 20% of GDP equivalent of bad debt from the banking system between 1999 and 2005.

When the debt problem gets too severe, a country can only solve it by devaluation (via the export channel), inflation (to make local currency debt worth less in real terms), writeoff/re-cap or default. We judge that China’s debt situation has probably passed the point of no-return and it will be difficult to grow out of the problem, particularly if the growth continues to be driven by debt-fueled investment in a weak-demand environment. We consider the most likely forms of financial instability that China may experience will be a combination of RMB devaluation, debt write-off and banking sector re-cap and possibly high inflation. Given the sizeable and unstable shadow banking sector in China and the potential of capital flight, we also think the risk of a credit crunch developing in China is high. In our mind, the only uncertainty is timing and potential triggers of such instabilities.

Read more …

“The economy is poor, stock valuation is still high, and the yuan keeps sliding. The market drop is overdue.”

China Injects $20 Billion Into Markets, Hints At Curbs On Share Sales (Reuters)

The Chinese authorities were battling to prop up the country’s stock markets on Tuesday after a surprise cash injection from the central bank failed to calm jitters among investors. The unexpected 130 billion yuan ($19.94 billion) injection by the central bank – the largest such move to encourage more borrowing since September – came after a 7% crash on Monday triggered a “circuit-breaker” mechanism to suspend trading for the day. The measures initially helped Chinese mainland indexes recover quickly from a steep initial fall but the selling gained the upper hand in the afternoon to leave the Shanghai Composite index down 2.16% at 5.30am GMT. Elsewhere in Asia Pacific, Japanese stocks fell for a second day in choppy trade to their lowest point since October. In Australia the ASX/S&P200 closed down 1.6% as the outlook for China continued to drag on the country’s resource-heavy market.

However, markets in Europe and the US were expected to open higher on Tuesday, according to futures trading. Beijing’s intervention on Tuesday appeared timed to reassure Chinese retail investors, who are always sensitive to liquidity signals, that the bank would support the market with cash. The People’s Bank of China offered the liquidity in the form of what are known as seven-day reverse repos at an interest rate of 2.25%, according to the statement. China’s securities regulator said it was studying rules to regulate share sales by major shareholders and senior executives in listed companies. This would address concerns that the end of a six-month lockup on share sales by major institutional investors timed for this Friday – and scheduled to free up an estimated 1.2 trillion yuan worth of shares for sale next Monday – would result in a massive institutional evacuation from stocks.

The PBOC also published nine new financial service standards that will come into effect on 1 June, to protect consumers. The China securities regulatory commission also defended the functioning of the new “circuit breaker” policy that caused Chinese stock markets to suspend trade on Monday, triggering the mechanism on the very first day it came into effect. While some analysts criticised the design of the circuit breaker, saying it inadvertently encouraged bearish sentiment, the regulator said the mechanism had helped calm markets and protect investors – although it said the mechanism needed to be further improved. Analysts and investors warned that the success of the interventions was not assured. Repeated and often heavy handed interventions by Beijing have kept stock valuations at what many consider excessively high given the slowing economy and falling corporate profits.

“We’ve been waiting for a market drop like this for a long time,” said Samuel Chien, a partner of Shanghai-based hedge fund manager BoomTrend Investment Management. “The economy is poor, stock valuation is still high, and the yuan keeps sliding. The market drop is overdue.”

Read more …

XI didn’t sleep well last night.

China Said to Intervene in Stock Market After $590 Billion Rout (BBG)

China moved to support its sinking stock market as state-controlled funds bought equities and the securities regulator signaled a selling ban on major investors will remain beyond this week’s expiration date, according to people familiar with the matter. Government funds purchased local stocks on Tuesday after a 7% tumble in the CSI 300 Index on Monday triggered a market-wide trading halt, said the people, who asked not to be identified because the buying wasn’t publicly disclosed. The China Securities Regulatory Commission asked bourses verbally to tell listed companies that the six-month sales ban on major stockholders will remain valid beyond Jan. 8, the people said.

The moves suggest that policy makers, who took unprecedented measures to prop up stocks during a mid-year rout, are stepping in once again to end a selloff that erased $590 billion of value in the worst-ever start to a year for the Chinese market. Authorities are trying to prevent volatility in financial markets from eroding confidence in an economy set to grow at its weakest annual pace since 1990. The sales ban on major holders, introduced in July near the height of a $5 trillion crash, will stay in effect until the introduction of a new rule restricting sales, the people said. Listed companies were encouraged to issue statements saying they’re willing to halt such sales, they said.

Read more …

Was already down 4.7% in 2014. Also: “The country’s top economic planner said last month that November rail freight volumes fell 15.6% from a year earlier.”

China Rail Freight Down 10.5% In 2015, Biggest Ever Annual Fall (Reuters)

The total volume of goods transported by China’s national railway dropped by a tenth last year, its biggest ever annual decline, business magazine Caixin reported on Tuesday, a figure likely to fan concerns over how sharply the economy is really slowing. Citing sources from railway operator National Railway Administration, Caixin said rail freight volumes declined 10.5% year-on-year to 3.4 billion tonnes in 2015. In comparison, volumes fell 4.7% in 2014. The amount of cargo moved by railways around China is seen as an indicator of domestic economic activity. The country’s top economic planner said last month that November rail freight volumes fell 15.6% from a year earlier.

Weighed down by weak demand at home and abroad, factory overcapacity and cooling investment, China is expected to post its weakest economic growth in 25 years in 2015, with growth seen cooling to around 7% from 7.3% in 2014. But some China watchers believe real economic growth is already much weaker than official data suggest, pointing to falling freight volumes and weak electricity consumption among other measures. Power consumption in November inched up only 0.6% from a year earlier. A private survey published on Monday showed that the factory activity contracted for the 10th straight month in December and at a sharper pace than in November, suggesting a continued gradual loss of momentum in the world’s second-largest economy.

Read more …

If this is only halfway true, Obstfeld just labeled himself, and the IMF, grossly incompetent: “Global spillovers from China’s slowdown have been “much larger than we could have anticipated..”

China Could ‘Spook’ Global Markets Again in 2016: IMF Chief Economist (BBG)

China could once again “spook” global financial markets in 2016, the IMF’s chief economist warned. Global spillovers from China’s slowdown have been “much larger than we could have anticipated,” affecting the global economy through reduced imports and weaker demand for commodities, IMF Economic Counselor Maurice Obstfeld said in an interview posted on the fund’s website. After a year in which China’s efforts to contain a stock-market plunge and make its exchange rate more market-based roiled markets, the health of the world’s second-biggest economy will again be a key issue to watch in 2016, Obstfeld said. “Growth below the authorities’ official targets could again spook global financial markets,” he said as global equities on Monday got off to a rough start to the year.

“Serious challenges to restructuring remain in terms of state-owned enterprise balance-sheet weaknesses, the financial markets, and the general flexibility and rationality of resource allocation.” Obstfeld, who took over as chief economist at the International Monetary Fund in September, said emerging markets will also be “center stage” this year. Currency depreciation has “proved so far to be an extremely useful buffer for a range of economic shocks,” he said. “Sharp further falls in commodity prices, including energy, however, would lead to even more problems for exporters, including sharper currency depreciations that potentially trigger still-hidden balance sheet vulnerabilities or spark inflation,” he said. With emerging-market risks rising, it will be critical for the U.S. Federal Reserve to manage interest-rate increases after lifting its benchmark rate in December for the first time since 2006, Obstfeld said.

Read more …

Q: who suffers the losses on the investments?

Supermines Add to Supply Glut of Metals (WSJ)

Cerro Verde, Peru – In this volcanic desert, a dusty moonscape patrolled by bats, snakes and guanacos, America’s biggest miner is piling on to the new force in industrial resources: supermines. It’s a strategy that could be driving miners into the ground. Freeport-McMoRan is completing a yearslong $4.6 billion expansion that will triple production at its Cerro Verde copper mine, turning a once-tiny, unprofitable state mine into one of the world’s top five copper producers. As Cerro Verde’s towering concrete concentrators grind out copper to be made into pipes and wires in Asia, it will add to production coming from newly built giant mines around the world, in a wave of supply that is compounding the woes of the depressed mining sector.

Slowing growth in China and other emerging markets has dragged metals prices into a deep downturn, just a few years after mining companies and their investors bet billions on a so-called supercycle, the seemingly never-ending growth in demand for commodities. Back then, miners awash in cheap money set out to build the biggest mines in history, extracting iron ore in Australia, Brazil and West Africa, and copper from Chile, Peru, Indonesia, Arizona, Mongolia and the Democratic Republic of Congo. They also expanded production of minerals such as zinc, nickel and bauxite, which is mined to make aluminum. Those giant mines are now giving the industry an extra-bad hangover during the bust.

The big mines cost so much to build and extract minerals so efficiently that mothballing them is unthinkable—running them generates cash to pay down debts, and huge mines are expensive to simply maintain while idle. But as a result, their scale means they are helping miners dig themselves even deeper into the price trough by adding to a glut. The prolonged price slump has forced miners to make painful cuts. In December, Anglo American, which recently completed a supermine in Brazil that went over budget by $6 billion, announced 85,000 new job cuts, asset sales and a suspended dividend. On the same day, Rio Tinto, which has built supermines in Western Australia, cut spending plans, while in September, Glencore suspended its dividend and raised $2.5 billion in stock as part of a plan to cut debt.

Read more …

Absolutely nuts.

Debt Payments Set To Balloon For Detroit Public Schools (DN)

The debt payments of Detroit Public Schools — already the highest of any school district in Michigan — are set to balloon in February to an amount nearly equal to the school district’s payroll and benefits as the city school system teeters on the edge of insolvency. Detroit Public Schools has to begin making monthly $26 million payments starting in less than a month to chip away at the $121 million borrowed this school year for cash flow purposes and $139.8 million for operating debts incurred in prior years. The city school system’s total debt payments are 74% higher from last school year. The debt costs continue to mount while Gov. Rick Snyder and the Legislature remain at odds over how to rescue Michigan’s largest school district.

A bankruptcy of the district could leave state taxpayers on the hook for at least $1.5 billion in DPS debt. The school district’s payroll and health care benefits are projected to cost $26.8 million in February — meaning the debt payments will be 97% of payroll. General fund operating debt payments that exceed 10% of payroll are “a major warning flag,” municipal bond analyst Matt Fabian said. “That’s extremely high,” said Fabian, managing director of Municipal Market Advisors in Concord, Massachusetts, who also followed the city of Detroit’s bankruptcy case. “That’s no longer, really, a normal school district. The school district has turned into a debt-servicing entity. It’s making its own mission impossible.” As a result, the Detroit district won’t have enough cash to pay any bills in four months.

Read more …

As a result of holiday spending?

New Year Brings Financial Headache For Millions Of British Families (Guardian)

More than 2.5 million families in England are being forced to cut back on essentials such as heating and clothing this winter to pay their rent or mortgage, according to housing charity Shelter. Its research also found that one in 10 parents were worried about whether they would be able to afford to meet their housing payments this month. The charity’s findings coincided with separate research from National Debtline showing that more than 5.5 million Britons said they were likely to fall behind with their finances in January as a result of Christmas spending. The two surveys underline the strain that many individuals and families are under as the new year begins, with some so worried about their situation that they sought online advice on Boxing Day.

As part of the Shelter research, YouGov questioned more than 4,500 adults during November, including around 850 parents with children aged 18 and under. It found that 27% of parents – the equivalent of almost 2.7 million people in England – said they had already cut back on either using energy to heat their home or buying warm clothing to help meet their rent or mortgage payments this winter. Around 10% of parents said they were worried about being able to afford to pay their monthly rent or mortgage, while 15% told the researchers they were already planning to cut back on buying festive food, or had used savings meant for Christmas presents to help meet their housing costs this winter. Shelter said a shortage of affordable homes had left many families struggling with “sky-high” housing costs, and was part of the reason why more than 100,000 people had sought advice on housing debt from its online, phone-based and face-to-face services in the past year.

Read more …

When will Brazil blow up? How on earth can the country host the Olympics?

Brazil Heads for Worst Recession Since 1901 (BBG)

Brazil’s economy will contract more than previously forecast and is heading for the deepest recession since at least 1901 as economic activity and confidence sink amid a political crisis, a survey of analysts showed. Latin America’s largest economy will shrink 2.95% this year, according to the weekly central bank poll of about 100 economists, versus a prior estimate of a 2.81% contraction. Analysts lowered their 2016 growth forecast for 13 straight weeks and estimate the economy contracted 3.71% last year. Brazil’s policy makers are struggling to control the fastest inflation in 12 years without further hamstringing a weak economy.

Finance Minister Nelson Barbosa, who took the job in December, has faced renewed pressure to moderate austerity proposals aimed at bolstering public accounts and avoiding further credit downgrades. Impeachment proceedings and an expanding corruption scandal have also been hindering approval of economic policies in Congress. “We’re now taking into account a very depressed scenario,” Flavio Serrano, senior economist at Haitong in Sao Paulo, said by phone. Central bank director Altamir Lopes said on Dec. 23 the institution will adopt necessary policies to bring inflation to its 4.5% target in 2017.

Less than a week later, the head of President Dilma Rousseff’s Workers’ Party, Rui Falcao, said Brazil should refrain from cutting investments and consider raising its inflation target to avoid higher borrowing costs. Consumer confidence as measured by the Getulio Vargas Foundation in December reached a record low. Business confidence as measured by the National Industry Confederation fell throughout most of last year, rebounding slightly from a record low in October. The last time Brazil had back-to-back years of recession was 1930 and 1931, and has never had one as deep as that forecast for 2015 and 2016 combined, according to data from national economic research institute IPEA that dates back to 1901.

Read more …

“..the automaker will seek to negotiate a lower penalty by arguing that the maximum would be “crippling to the company and lead to massive layoffs..”

Volkswagen Faces Billions In Fines As US Sues In Emissions Scandal (Reuters)

The U.S. Justice Department on Monday filed a civil lawsuit against Volkswagen for allegedly violating the Clean Air Act by installing illegal devices to impair emission control systems in nearly 600,000 vehicles. The allegations against Volkswagen, along with its Audi and Porsche units, carry penalties that could cost the automaker billions of dollars, a senior Justice Department official said. VW could face fines in theory exceeding $90 billion – or as much as $37,500 per vehicle per violation of the law, based on the complaint. In September, government regulators initially said VW could face fines in excess of $18 billion. “The United States will pursue all appropriate remedies against Volkswagen to redress the violations of our nation’s clean air laws,” said Assistant Attorney General John Cruden, head of the departments environment and natural resources division.

The Justice Department lawsuit, filed on behalf of the Environmental Protection Agency, accuses Volkswagen of four counts of violating the U.S. Clean Air Act, including tampering with the emissions control system and failing to report violations. The lawsuit is being filed in the Eastern District of Michigan and then transferred to Northern California, where class-action lawsuits against Volkswagen are pending. “We’re alleging that they knew what they were doing, they intentionally violated the law and that the consequences were significant to health,” the senior Justice Department official said. The Justice Department has also been investigating criminal fraud allegations against Volkswagen for misleading U.S. consumers and regulators. Criminal charges would require a higher burden of proof than the civil lawsuit.

The civil lawsuit reflects the expanding number of allegations against Volkswagen since the company first admitted in September to installing cheat devices in several of its 2.0 liter diesel vehicle models. The U.S. lawsuit also alleges that Volkswagen gamed emissions controls in many of its 3.0 liter diesel models, including the Audi Q7, and the Porsche Cayenne. Volkswagen’s earlier admissions eliminate almost any possibility that the automaker could defend itself in court, Daniel Riesel of Sive, Paget & Riesel P.C, who defends companies accused of environmental crimes, said. To win the civil case, the government does not need to prove the degree of intentional deception at Volkswagen – just that the cheating occurred, Riesel said. “I don’t think there is any defense in a civil suit,” he said. Instead, the automaker will seek to negotiate a lower penalty by arguing that the maximum would be “crippling to the company and lead to massive layoffs,” Riesel said.

Read more …

This can -re: will- happen all over the EU.

Portugal’s Bank Bail-In Sets a Dangerous Precedent (BBG)

As Europe belatedly gets around to repairing its weakest banks, investors who have lent to financial institutions by buying bonds face a brave new world. Their money can effectively be confiscated to plug balance-sheet holes. Recent events in Portugal suggest that the authorities should be wary of treating bondholders as piggybanks, or risk destroying a key source of future funds for the finance industry. Let’s begin with the “what” before we get to the “why.” Here’s what happened to the prices of five Portuguese bank bonds in the past few days: Picture the scene. You left the office on Dec. 29 owning Portuguese bank debt that was trading at about 94% of face value. In less than 24 hours, you lost 80% of your money. So what happened? Last year, Portugal divided Banco Espirito Santo, previously the nation’s largest lender, into a “good” bank and a “bad” bank.

If you owned any of those five bonds on Tuesday, you were owed money by Novo Banco, the good bank. On Wednesday, you were told that your bonds had been transferred to BES, the bad bank. The Portuguese central bank selected five of Novo Banco’s 52 senior bonds, worth about €1.95 billion, and reassigned them – thus backfilling a €1.4 billion hole in the “good” bank’s balance sheet that had been revealed in November by the ECB’s stress tests of the institution. At the time of those tests, the value of Novo Banco bonds rose because the capital shortfall was lower than some investors had feared, and the good bank was widely expected to be able to mend the deficit by selling assets. Instead, the Dec. 30 switcheroo means selected bondholders are footing that bill.

Here is where the shoe pinches. The documentation for senior debt typically stipulates that all such debt is what’s called “pari passu”; that is, all securities rank equally, and none should get preferential treatment. But by moving just five bonds off the healthy bank’s balance sheet, Portugal has destroyed the principle of equality between debt securities. There’s nothing inherently wrong with “bailing in” bondholders who’ve lent to a failing institution. It’s certainly preferable to the old solution of using taxpayers’ money to shore up failed banks, and it’s enshrined in the EU’s new Bank Resolution and Recovery Directive, which came into effect on Jan. 1. But the principle of equal treatment for ostensibly identical securities is a key feature of the bond market. If investors fear they’re at the mercy of capricious regulatory decisions in a restructuring, they’ll think more than twice before lending to banks.

Read more …

China’s take on Russia’s strategy document.

Russia Stands Up To Western Threats, Pivots To East (Xinhua)

Russia has updated a bunch of strategies to fight against threats to its national security, as demonstrated by the document “About the Strategy of National Security of the Russian Federation,” which President Vladimir Putin signed on New Year’s Eve. Amid ongoing clashes with the West over Ukraine and other fronts, leaders of the country have chosen to stand up to Western threats, while attaching growing importance to security cooperation across the Asia-Pacific. On the one hand, the West has shown substantial willingness, following visits to Moscow by leaders or senior representatives of major Western powers, to work with the Kremlin on a global anti-terror campaign and a political settlement of the protracted conflict in Syria.

On the other hand, one can hardly deny new friction and tensions would arise during this engagement, considering the fact that the West remains vigilant about a Russia that aspires to regain its global stature. Taking into account the enormous changes in the geopolitical, military and economic situation, the document, a revised version of the 2009 one, calls for the consolidation of “Russia’s status of a leading world power.” Russia believes it is now confronted with a host of threats, both traditional and new, such as the expansion of NATO, military build-up and deployment in its neighboring countries, a new arms race with the United States, as well as attempts to undermine the Moscow regime and to incite a “color revolution” in the country. Last year has witnessed repeated saber-rattling between Russia and NATO.

The expansion of the alliance, which saw a need to adapt to long-term security challenges with special interests in deploying heavy weapons in Eastern Europe and the Baltic countries, was blamed for the current military situation in the region and its cooling relationship with Moscow that has warned it would respond to any military build-up near Russian borders. At the same time, sanctions imposed by the United States and its allies over Moscow’s takeover of the Black Sea peninsula Crimea and its alleged role in the Ukraine crisis, together with the ongoing fall in oil prices, have once again drawn attention to Russia’s over-reliance on exports of raw materials and high vulnerability to the fluctuations in foreign markets, which the new document described as “main strategic threats to national security in the economy.”

Moreover, the daunting provocation and infiltration of the Islamic State terrorist group have just made Russia’s security concerns even graver. Domestically, Moscow has tightened security measures since Islamic extremists threatened attacks and bloodshed in the country. Globally, it has long been calling for a unified coalition, including collaboration with the United States, to double down on the anti-terror battle. As antagonism between Russia and the West currently shows little signs of receding, Moscow has begun to turn eastward, a strategic transition that is reflected by the national security blueprint. Mentioning specific relations with foreign countries, the document noted firstly that the strategic partnership of coordination with China is a key force to uphold global and regional stability. It then mentioned the country’s “privileged strategic partnership” with India.

Read more …

Can’t really discuss this without involving Russia.

Will US Fall For Saudi’s Provocation In Killing Of Shia Cleric? (Reuters)

There should be little doubt that Saudi Arabia wanted to escalate regional tensions into a crisis by executing Shi’ite cleric Nimr al-Nimr. On the same day, Riyadh also unilaterally withdrew from the ceasefire agreement in Yemen. By allowing protestors to torch the Saudi embassy in Tehran in response, Iran seems to have walked right into the Saudi trap. If Saudi Arabia succeeds in forcing the US into the conflict by siding with the kingdom, then its objectives will have been met. It is difficult to see that Saudi Arabia did not know that its decision to execute Nimr would cause uproar in the region and put additional strains on its already tense relations with Iran. The inexcusable torching of the Saudi embassy in Iran -Iranian President Hassan Rouhani condemned it and called it “totally unjustifiable,” though footage shows that Iranian security forces did little to prevent the attack- in turn provided Riyadh with the perfect pretext to cut diplomatic ties with Tehran.

With that, Riyadh significantly undermined U.S.-led regional diplomacy on both Syria and Yemen. Saudi Arabia has long opposed diplomatic initiatives that Iran participated in– be it in Syria or on the nuclear issue — and that risked normalizing Tehran’s regional role and influence. Earlier, Riyadh had successfully ensured Iran’s exclusion from Syria talks in Geneva by threatening to boycott them if Iran was present, U.S. officials have told me. In fact, according to White House sources, President Barack Obama had to personally call King Salman bin Abdulaziz Al Saud to force the Saudis to take part in the Vienna talks on Syria this past fall. Now, by having cut its diplomatic relations with Iran, the Saudis have the perfect excuse to slow down, undermine and possibly completely scuttle these U.S.-led negotiations, if they should choose to do so.

From the Saudi perspective, geopolitical trends in the region have gone against its interests for more than a decade now. The rise of Iran – and Washington’s decision to negotiate and compromise with Tehran over its nuclear program – has only added to the Saudi panic. To follow through on this way of thinking, Riyadh’s calculation with the deliberate provocation of executing Nimr may have been to manufacture a crisis — perhaps even war — that it hopes can change the geopolitical trajectory of the region back to the Saudi’s advantage. The prize would be to force the United States to side with Saudi Arabia and thwart its slow but critical warm-up in relations with Tehran. As a person close to the Saudi government told the Wall Street Journal: “At some point, the U.S. may be forced to take sides [between Saudi Arabia and Iran]… This could potentially threaten the nuclear deal.”

Read more …

“The coming crackup will re-set the terms of civilized life to levels largely pre-techno-industrial.”

Pretend to the Bitter End (Jim Kunstler)

Forecast 2016 There’s really one supreme element of this story that you must keep in view at all times: a society (i.e. an economy + a polity = a political economy) based on debt that will never be paid back is certain to crack up. Its institutions will stop functioning. Its business activities will seize up. Its leaders will be demoralized. Its denizens will act up and act out. Its wealth will evaporate. Given where we are in human history — the moment of techno-industrial over-reach — this crackup will not be easy to recover from; not like, say, the rapid recoveries of Japan and Germany after the brutal fiasco of World War Two. Things have gone too far in too many ways. The coming crackup will re-set the terms of civilized life to levels largely pre-techno-industrial. How far backward remains to be seen.

Those terms might be somewhat negotiable if we could accept the reality of this re-set and prepare for it. But, alas, most of the people capable of thought these days prefer wishful techno-narcissistic woolgathering to a reality-based assessment of where things stand — passively awaiting technological rescue remedies (“they” will “come up with something”) that will enable all the current rackets to continue. Thus, electric cars will allow suburban sprawl to function as the preferred everyday environment; molecular medicine will eliminate the role of death in human affairs; as-yet-undiscovered energy modalities will keep all the familiar comforts and conveniences running; and financial legerdemain will marshal the capital to make it all happen.

Oh, by the way, here’s a second element of the story to stay alert to: that most of the activities on-going in the USA today have taken on the qualities of rackets, that is, dishonest schemes for money-grubbing. This is most vividly and nauseatingly on display lately in the fields of medicine and education — two realms of action that formerly embodied in their basic operating systems the most sacred virtues developed in the fairly short history of civilized human endeavor: duty, diligence, etc. I’ve offered predictions for many a year that this consortium of rackets would enter failure mode, and so far that has seemed to not have happened, at least not to the catastrophic degree, yet.

I’ve also maintained that of all the complex systems we depend on for contemporary life, finance is the most abstracted from reality and therefore the one most likely to show the earliest strains of crackup. The outstanding feature of recent times has been the ability of the banking hierarchies to employ accounting fraud to forestall any reckoning over the majestic sums of unpayable debt. The lesson for those who cheerlead the triumph of fraud is that lying works and that it can continue indefinitely — or at least until they are clear of culpability for it, either retired, dead, or safe beyond the statute of limitations for their particular crime.

Read more …

The same people who criticized Balkan countries for doing the same.

Fortress Scandinavia Sinks Into Blame Game Over Refugee Crisis (BBG)

Gliding high above the Baltic Sea under pylons that stretch 669-feet into the air, the daily commute across Europe’s longest rail and road link was once a symbol of integration in the region. But for many of the 15,000 people who commute daily across the Oeresund Bridge between Malmoe, Sweden’s third-largest city, and Copenhagen, the trip to work and back just became a lot more difficult. On Monday, Sweden imposed identification checks on people seeking to enter by road, rail or ferry after the country was overwhelmed by a record influx of refugees. The development “doesn’t fit with anyone’s vision for the Oeresund region,” Ole Stavad, a former Social Democrat minister once in charge of Nordic cooperation, said in an interview. “This isn’t just about Oeresund, Copenhagen, Malmoe or Scania. It’s about all of Sweden and Denmark.”

He predicts economic pain for both countries “unless this issue is resolved.” If not even Sweden and Denmark can get along, that doesn’t bode well for the rest of Europe, which is now grappling with the ever-present threat of terrorism, a groundswell in nationalism and sclerotic economic growth. And the ripple effects are already starting. Twelve hours after the Swedish controls came into force, Denmark introduced spot checks on its border with Germany, threatening the passport-free travel zone known as Schengen. The move, which has yet to be approved by Schengen’s guardian, the EU, has not pleased Berlin. And mutual recriminations are flying in Scandinavia. The Danes say they were forced to impose their measures after Sweden enforced its controls.

The Swedes blame the Danes for not sharing the burden of absorbing refugees. Sweden received around 163,000 asylum applications in 2015, compared with Denmark’s 18,500. The controls are placing an unexpected burden on workers who had bought into the idea of an international business area of 3.7 million inhabitants. The Malmoe-based Oeresund Institute, a think-tank, estimates the daily cost of checks on commuters alone are 1.3 million kroner ($190,000). Denmark’s DSB railway says it costs it 1 million kroner in lost ticket sales and expenses for travel across a stretch made famous by the popular Scandinavian crime series “The Bridge.”

Read more …

“..in an advanced state of decomposition..” Makes you wonder what the real death toll is, as opposed to the official one.

Bodies Of Four Migrants Found In Eastern Aegean (Kath.)

Greek coast guard officers found the bodies of four people, thought to be migrants, in the sea near the islands of Fournoi in the eastern Aegean. The bodies, of three men and one woman, were found on Sunday in an advanced state of decomposition, according to authorities. The coast guard also rescued 160 migrants and arrested two traffickers off Samos on Sunday.

Read more …

And on and on.

Nine Drowned Refugees Wash Up On Turkish Beach (AP)

A Turkish news agency says the bodies of nine drowned migrants, including children, have washed up on a beach on Turkey’s Aegean coast after their boat capsized in rough seas. The Dogan news agency says the bodies were discovered early on Tuesday in the resort town of Ayvalik, from where migrants set off on boats to reach the Greek island of Lesvos. Turkish coasts guards were dispatched to search for possible survivors. Eight migrants were rescued. Dogan video footage showed a body, still wearing a life jacket, being pulled from the sea onto the sandy beach. There was no immediate information on the migrants’ nationalities.

Read more …