Dec 182017
 
 December 18, 2017  Posted by at 10:44 am Finance Tagged with: , , , , , , , , , , , ,  


Russell Lee Sign Along the Road Near Capulin New Mexico 1939

 

Bitcoin Futures Crash Over $2000 From Open (ZH)
Bitcoin’s Illiquidity Is Going To Be A Huge Problem (BI)
Japan Exports Boom, But Inflation Not Following Script (R.)
China Should Let Its Migrant Workers Roam Free (Pettis)
Desperate UK Homeowners Are Cutting Prices – Zoopla (G.)
UK Banks Tell May: A Canada-Style Brexit Deal Is Not Good Enough (G.)
Why Business Could Prosper Under A Corbyn Government (Pettifor)
Heretics Welcome! Economics Needs A New Reformation (G.)
Merkel’s Last Stand – Article 7 For Poland (Luongo)
Cash Still King For The Majority Of Greek Consumers, Employers (K.)
Greece Drafts Law to Accelerate Migrant Asylum Applications And Returns (K.)
If Money Rewarded Hard Work, Moms Would Be The Billionaires (CJ)

 

 

Shaky, but give it time before deciding.

Bitcoin Futures Crash Over $2000 From Open (ZH)

Update: Bitcoin and Bitcoin Futures have collapsed since the futures opened…

Dropping over $2200 to converge with spot…

Both CME and CBOE Bitcoin Futures contracts opened above $20,000 this evening (with Bitcoin spot hovering around $19,000). However, as soon as trading started, Bitcoin futures got hammered lower.

Those expecting a surge in futs volumes on the CME vs the CBOE will be disappointed: In fact, spoting actual trades in the first few minutes of trading is not heavy to say the least. Obviously Jan is seeing all the volume… And March not so much… (let alone the $1200 bid-offer spread).

The lack of trading will likely be a surprise to those who were expecting a more “vigorous” futures launch on the CME, such as Brooks Dudley, vice president of risk in New York at ED&F Man Capital Markets who told Bloomberg that “CME’s bitcoin contract may not be first, but they are a larger futures clearinghouse and we are looking forward to our clients trading their product on Sunday evening. Not all market participants have been able to short the Cboe bitcoin futures. We have allowed our clients to go long or short to take advantage of dislocations between the futures and the underlying spot market.” For now, nobody appears to be taking advantage of anything.

Read more …

This seems to be a reasonable fear.

Bitcoin’s Illiquidity Is Going To Be A Huge Problem (BI)

This chart shows a seven-day average of the total number of minutes it takes to confirm a bitcoin transaction, since May 2016. Like the price of bitcoin itself, transaction time has been rising as the months go by. At the time of writing, it took four-and-a-half hours to confirm a bitcoin trade, on average:

If you are holding bitcoin, and you’re worried that the price is a bubble – it cleared $17,000 last week – then bitcoin transaction times should really start to scare you. The price of bitcoin is shifting up and down by hundreds or thousands of dollars each day. No one knows what the price will be one hour from now, except that we know it will be very, very different. The schedule for the world’s largest ICO, the $500 million Dragon casino offering, has been pushed back two weeks, the company says, “due to the extreme congestion on both the Bitcoin and Ethereum Networks, [in which] ICO investors or contributors have faced significant challenges when transferring their Bitcoin and Ethereum to participate in the Dragon Pre-ICO.”

The transaction time is built into the system. Each transaction must be confirmed by six bitcoin miners, and that takes time. There is a finite number of miners, and the more transactions they have to confirm, the longer it takes as their network bandwidth gets filled. Worse, they charge for transactions and prioritise transactions based on price. Those who pay more get processed first. Imagine how bad this is going to get on the day some negative news hits the wires and the really significant holders of bitcoin decide, “I’ve had enough of this. I’ve made my money. I am bailing.” The majority of bitcoins are held by a tiny percentage of the market. 40% are held by 1,000 people. Those few major holders can crash the market whenever they want.

As anyone who remembers the market crashes of 2000 and 2008 knows, these things happen fast. Billions get wiped off the market in minutes. People who need to cash out now, but who are an hour or so behind the news, can lose their shirts. It is brutal. And blockchain just isn’t equipped to deal with it. Part of the increase in transaction time has, no doubt, been caused by the recent arrival of new, less knowledgeable investors who are coming into the market only because they have seen the headlines about the price of bitcoin going up, up, up. That gives us an idea of just how congested it will be on the way down. It will also be expensive. By some counts, transaction fees are doubling every three months. Ars Technica reported that fees reached $26 per trade recently.

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Abe’s going to have to force his people to spend at gunpoint. And then find out they can’t.

Japan Exports Boom, But Inflation Not Following Script (R.)

Japanese exports accelerated sharply in November, yet again pointing to growing momentum in the world’s third-biggest economy. There was just one catch: inflation remained stubbornly low and well off the central bank’s 2% target. The combination of steady growth and benign consumer prices mean the Bank of Japan will lag other major central banks in exiting crisis-era monetary stimulus, with analysts widely expecting BOJ Governor Haruhiko Kuroda to keep the liquidity tap wide open at a meeting later this week. “Inflation expectation is in a gradual recovery trend, but a gap between firm economic indicators and weak price indexes remains wide open,” said Yuichiro Nagai, economist at Barclays Securities.

Indeed, a BOJ survey on Monday showed companies’ inflation expectations heightened only a touch in December from three months ago, despite a tight labor market and business confidence at over a decade high. The persistently low inflation – with core prices running at an annual pace of 0.8% – was also hard to square off with the robust performance of Japan Inc., which has benefited from booming exports thanks to upbeat global demand. Separate data from the Ministry of Finance showed exports grew 16.2% in the year to November, beating a 14.6% gain expected by economists in a Reuters poll and accelerating from the prior month’s 14.0% increase, led by a stellar sales to China and Asia.

[..] “The BOJ will likely be forced into cutting its price projections once again in its quarterly outlook report in January. That will highlight a distance to an exit from the BOJ’s monetary stimulus,” said Barclays’ Nagai. The BOJ quarterly “tankan” survey on corporate inflation expectations survey showed companies expect consumer prices to rise 0.8% a year from now, slightly ahead of their projection for a 0.7% increase three months ago. The marginal nudge up in expectations underscored why inflation is still well off the BOJ’s target, with firms expecting consumer prices to rise an annual 1.1% three years from now and 1.1% five years ahead, unchanged from three months ago, the survey showed.

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They’ll all go to the same places though.

China Should Let Its Migrant Workers Roam Free (Pettis)

Over the past few weeks, people here in Beijing have been riveted by the so-called migrant “clean-out” – the government’s attempt to evict tens of thousands of migrant workers from their homes in the poorer parts of the city. What’s not being discussed, however, is how the crackdown could threaten one of the government’s other main priorities: managing debt. In China, mobility is legally restricted according to a household registration system, called the hukou. Chinese citizens receive an urban or rural hukou which officially identifies them as residents of a specific area and which allows them to live and work only in that area. Few if any of the migrant workers affected by the current sweep possess a Beijing hukou. Previously, this didn’t really matter.

For the past three decades, during the period of China’s furious economic growth, the country’s fastest-growing regions were desperate for cheap labor to fill factories and build infrastructure. With local government officials graded in large part on their ability to generate rapid growth, they largely ignored hukou restrictions and made migration into their cities easy. Hundreds of millions of workers traveled from their hukou areas to wherever there were jobs, in particular big cities such as Beijing, Shenzhen and Shanghai. The attitudes of local authorities may be changing now as the economy slows and officials become more concerned about unemployment and tensions over access to schools and other social services. One of the easiest tools the authorities have to manage both problems is to enforce the hukou rules that are already on the books.

In Beijing, the campaign is broadly popular among legal residents, who complain about overcrowding and rising rents. If it spreads, however, the crackdown could carry a significant macroeconomic cost. Enforcing the residency system nationally could severely limit labor mobility in China. This would in turn constrain monetary policy, which is critical to minimizing the cost to China of what’s likely to be a very difficult adjustment after decades of deeply unbalanced growth. How exactly would this happen? It’s important to remember that while China is a huge economy with a great deal of variety across different regions, it can nonetheless operate effectively with a single currency because it has most of the characteristics of an optimum currency area. In the 1960s, Columbia University’s Robert Mundell argued that four conditions were required to establish such an area.

They include high levels of labor mobility, high levels of capital mobility, a system of transfers that shares risks across the region, and coordinated business cycles. If labor mobility in China slows dramatically, growth rates in different parts of the country would diverge even more than they have already, rather than converge. As a result, monetary policies aimed at restraining credit growth overall might end up being too tight for some regions, leading to accelerating bankruptcies, and too loose for others, fueling out-of-control credit growth.

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Inevitable.

Desperate UK Homeowners Are Cutting Prices – Zoopla (G.)

Price cutting by homeowners desperate to shift their property in a slowing market has reached the highest levels in six years, according to an analysis by website Zoopla. Just over 35% of the homes marketed on the site have marked down their price in the hope of achieving a sale, with the biggest discounts in the London property market. The 35% figure compares with 29% just before the EU referendum in 2016, although it is below the levels recorded in the aftermath of the financial crisis. Sellers in Richmond and Kingston upon Thames in south-west London, both relatively prosperous areas, are among those to have made the deepest reductions in sale prices. Zoopla put the average mark-down by sellers in Kingston at £84,244.

It added that around half of all the properties for sale in Kingston and other nearby locations such as Mitcham and Camberley in Surrey have been reduced since their first listing, indicating that sellers are having to significantly readjust their hopes in the light of the Brexit vote. Lawrence Hall, at Zoopla, said it was good news for first-time buyers trying to get on the property ladder. “A slight rise in levels of discounting is to be expected at this time of year when house-hunters are likely to be delaying their property search until activity picks up in January,” Hall said. “Those on the look-out for a bargain should consider looking in Camberley or Kingston upon Thames in the south, or areas of the north-east – home to some of Britain’s biggest discounts.”

The average asking price reduction across the country currently stands at £25,562, according to Zoopla. The property website said towns in Scotland and northern England have proved more resilient to discounts. About 16% of homes in Edinburgh have been reduced in price, followed by 19% in Salford, 22% in Glasgow, and 25% in Manchester – all below the national average. In London, 39% of property listings have recorded a price reduction, up from 37% in July.

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Banks want to be no. 1 consideration.

UK Banks Tell May: A Canada-Style Brexit Deal Is Not Good Enough (G.)

Britain’s banks have written to Theresa May and Philip Hammond warning that a Canada-style free trade agreement with the EU post-Brexit is not ambitious enough and that alignment with EU rules on finance is crucial. The open letter from UK Finance, which represents major banks and other financial institutions, said the government must place the City at the centre of Brexit trade talks or risk dealing a major blow to the economy. “Ceta [the Comprehensive and Economic Trade Agreement between the EU and Canada] is an interesting template, but given the UK and the EU 27 start from a position of regulatory convergence that the UK and Canada didn’t have, we should seek to be far more ambitious,” said the letter.

The banks congratulated May on successfully negotiating a move to the second phase of withdrawal negotiations with the EU, which it called the first substantive evidence that a final deal could be agreed. But the trade body called on the government to avoid a cliff-edge Brexit and broker a smooth transition by focusing on alignment with Europe. “Pragmatic decisions to align the two regimes from a regulatory perspective … should be seen not as concessions, but as mechanisms to maximise benefits and choice within a deep regional capital market for the benefit of citizens and our economies,” it said. The alternative is “an unnecessary loss” of GDP, it added.

“A high degree of mutual cross-border market access is fundamental to the continued success of our financial services sector – and to the success of the economies and citizens which our sector serves in the UK and the EU 27,” UK Finance wrote.

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Stimulus instead of austerity.

Why Business Could Prosper Under A Corbyn Government (Pettifor)

[..] polling shows that the British people are disillusioned with the privatisation of key sectors, and favour nationalisation. They seek protection from the impact of deregulated market forces on their lives and livelihoods and on their children’s prospects. Business leaders have been made aware – by the IMF, the OECD and the Bank for International Settlements – that the Conservatives’ dependence on what David Cameron called his government’s “monetary radicalism and fiscal conservatism” has gone too far. There is now real concern about the long-term impact of quantitative easing which, coupled with austerity, has led to rocketing asset prices, falling wages and rising inequality. Those with access to central bank largesse have been enriched as the prices of assets have risen; while those without assets and dependent on earnings have suffered as incomes have fallen in real terms.

Falling incomes and spare capacity have not been good for business. While the Treasury, the Office for Budget Responsibility, an independent watchdog, and the National Institute of Economic and Social Research, a thinktank, have obsessed over supply-side issues, politicians have been persuaded by economists to sit on their hands, as Britain’s economy falters under huge, unused capacity. Howard Bogod, who runs a business with a turnover of under £20m, wrote recently: “Economic models have failed to explain why wages have not increased as unemployment has fallen so low. These same models are incorrect in their conclusions about productivity growth – indeed these two failures are linked. My conclusion based on observing actual businesses is that if nominal demand were to continue to grow then both productivity and real wages would start to grow more quickly, and economists would again be left scratching their heads.”

There is, nevertheless, anxiety over the scale of Labour’s public investment plans and their impact on the UK’s credit rating. But Labour has a record, in key respects, of being more fiscally conservative than Conservatives. For example, a review by economists at Policy Research in Macroeconomics of current budget deficits or surpluses (that is, excluding public investment) for the whole period before the global financial crisis, from 1956 to 2008, reveals that Conservative governments had an average annual surplus of 0.3% of GDP, while Labour governments had an average annual surplus of 1.1%.

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“Steve Keen, dressed in a monk’s habit and wielding a blow up hammer, could be found outside the London School of Economics last week. ..”

Heretics Welcome! Economics Needs A New Reformation (G.)

In October 1517, an unknown Augustinian monk by the name of Martin Luther changed the world when he grabbed a hammer and nailed his 95 theses to the door of the Castle Church in Wittenberg. The Reformation started there. The tale of how the 95 theses were posted is almost certainly false. Luther never mentioned the incident and the first account of it didn’t surface until after his death. But it makes a better story than Luther writing a letter (which is what probably happened), and that’s why the economist Steve Keen, dressed in a monk’s habit and wielding a blow up hammer, could be found outside the London School of Economics last week.

Keen and those supporting him (full disclosure: I was one of them) were making a simple point as he used Blu Tack to stick their 33 theses to one of the world’s leading universities: economics needs its own Reformation just as the Catholic church did 500 years ago. Like the mediaeval church, orthodox economics thinks it has all the answers. Complex mathematics is used to mystify economics, just as congregations in Luther’s time were deliberately left in the dark by services conducted in Latin. Neo-classical economics has become an unquestioned belief system and treats anybody who challenges the creed of self-righting markets and rational consumers as dangerous heretics. Keen was one of those heretics. He was one of the economists who knew there was big trouble brewing in the years leading up to the financial crisis of a decade ago but whose warnings were ignored.

The reason Keen was proved right was that he paid no heed to the equilibrium models favoured by mainstream economics. He looked at what was actually happening rather than having a preconceived view of what ought to be happening. Somewhat depressingly, nothing much has happened, even though it was a crisis neo-classical economics said could not happen. There was a brief dalliance with unorthodox remedies when things were really bleak in the winter of 2008-09, but by late 2009 and early 2010, there was a return to business as normal.

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“.. invoking Article 7 will eventually allow the European Parliament to rescind all economic aid to Poland and its voting rights within the body.”

Merkel’s Last Stand – Article 7 For Poland (Luongo)

As she fights for her political life Soon-to-be-ex-Chancellor of Germany Angela Merkel will go down swinging against her stiffest political opponents in the European Union, the Poles. Merkel and French President Emmanual Macron publicly agreed to back Article 7 proceedings against Poland for refusing to comply with EU immigration quotas and changes to its judicial system. Immigration quotas, I might add, that are becoming harder to defend as the war in Syria is mostly over and the flow of refugees from there has slowed to a trickle. But, those brought in and stranded in camps in Italy and Greece apparently need to go somewhere else. But, no one wants them. And the rest of the EU is trying to bully Poland and the rest of the Visigrad countries – Hungary, Czech Republic and Slovakia – into taking on their ‘fair share.’

The problem with this is that Merkel made this decision unilaterally and foisted it on the rest of the EU. And she is determined not to lose this fight to Poland, not because this is any kind of humanitarian issue at this point. No, this is about the primacy of EU diktats being enforced at the expense of logic and political cohesion. And, as I’ve been warning about all year, Merkel will put the EU before any practical consideration and bring Article 7 proceedings against Poland. Because she has to. Immigration and the destruction of individual European cultures is the guiding principle behind the EU’s biggest benefactors. This policy is part of the long-term strategic goals of the EU. It has created an army which will be used to quell secessionist movements in the name of ‘continental security.’ Because despite the fevered dreams of a few hundred Latvians, the Russians are not invading Europe anytime soon.

And I have to wonder who will staff this Grand Army of the Oligarchy? After impoverishing an entire generation of people thanks to a decade-long banking system bailout, you shouldn’t be expecting the crème de la crème of the vanishing European middle class. You can expect a number of these newly-integrated immigrants that Merkel invited at everyone else’s expense will be in their ranks. And only the most politically-acceptable members of the current armies of each country will be invited to positions of authority in this new EU army. Their loyalty will be to the EU first and their homes second. The very definition of a Vichy gendarme for the 21st century. Poland and the rest of the Visigrad Four – Hungary, Czech Republic and Slovakia – are headed for a collision course with the rest of Western Europe over this issue and many others.

And invoking Article 7 will eventually allow the European Parliament to rescind all economic aid to Poland and its voting rights within the body. While at that same time not allowing Poland free access to international trade because it will not be an independent nation at that point. Any move to extricate itself from the EU politically or practically will be met with the most strident opposition. Look no further than Brexit talks and the brutal put-down of Catalonia’s independence movement to see Poland’s future.

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They have that in common with Germans.

Cash Still King For The Majority Of Greek Consumers, Employers (K.)

Greeks love cash: Not only do they make most of their payments in cash – more than in any other eurozone country – but they also use it to pay their regular monthly obligations, such as utility bills, rent and even their taxes. The main reason for this proclivity for paper money is not an inherent aversion towards electronic payments, but that the vast majority of Greeks, far more than in other eurozone member states, still get paid in cash. This is evident in the recent European Central Bank survey on cash use in eurozone households, which showed that 57% of Greeks are paid in paper. Cyprus and Slovenia come a distant second, with a rate of 28%, while in the other eurozone countries the share of people getting paid “cash in hand” ranges between 5 and 20%.

Behind this particularly high rate of people paid in cash in Greece lies the large number of small or family owned enterprises and freelancers who work for cash. This also serves to illustrate the extensive tax evasion in this country, which tends to be focused on a series of professional categories, mainly among freelancers. The above figures concern 2016, while banks estimate that this picture has started changing considerably after the compulsory payment of salaried workers via a bank account from early 2017. The ECB figures show that the cash culture is not a strictly Greek phenomenon, as 79% of transactions in the eurozone – with great variations from country to country – are conducted with coins and banknotes.

Yet contrary to European habits, Greeks use cash for a series of transactions that are regular every month: 40% of Greeks pay their taxes in cash against just 9% in the eurozone, 50% use paper to pay for their insurance against 10% in the eurozone, and 70% pay for their medicines in cash against 31% in the eurozone. Similarly, electricity and phone bills are paid by 60% of Greeks in cash, compared to 16% in the eurozone, and 30% of rents are covered by cash against just 6% in the eurozone. ECB data also revealed that Greeks hold an average of 80 euros in cash on them, against the Spaniards’ 50 euros and the Italians’ 69 euros, while the Portuguese like to keep just 29 euros at hand.

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In a system as overwhelmed as it is, this does not spell a lot of good.

Greece Drafts Law to Accelerate Migrant Asylum Applications And Returns (K.)

In a bid to ease growing pressure on overcrowded refugee camps on Greece’s eastern Aegean islands, the government is drafting a law to accelerate the process of granting asylum to refugees with a bill expected to go to Parliament as early as this week. Arrivals of migrants from Turkey radically dropped after Ankara signed an agreement with the European Union to crack down on human smuggling over the Aegean. But the influx has picked up in recent months. Also the process of returning migrants to Turkey, as foreseen by the pact, is very slow, partly due to the influence of critics of the deal within leftist SYRIZA. “The only way to deal with the problem on the Greek islands is for the EU-Turkey agreement to be effectively enforced and for there to be a significant number of returns to Turkey,” an official at the Citizens’ Protection Ministry told Kathimerini.

Since the deal was signed in March 2016, around 48,600 migrants have arrived on the Greek islands, according to the United Nations refugee agency. During that time only some 1, 500 people have been returned to Turkey. Thousands of asylum applications are pending, chiefly because migrants generally appeal rejected claims. At a summit of EU leaders last week, German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker pledged to bolster Greek efforts to accelerate the asylum process and to help increase the presence of Frontex, the EU’s border monitoring agency, at the country’s frontiers with Turkey and Bulgaria, Greek officials said. Meanwhile, there are concerns that a decision by the government to move migrants from cramped island camps to the mainland could encourage smugglers to bring more migrants to Greece.

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“There’s something wrong with a valuing system that doesn’t recognize healthy humans, or the redistribution of goods, or the disappearing of problems forever.”

If Money Rewarded Hard Work, Moms Would Be The Billionaires (CJ)

Ask a woman right now how her Christmas is going and she will almost certainly unfurl her to-do list before your eyes, from the turkey to the costumes for the kids’ concerts. They should call it the Season of To-dos. For women, anyway. Christmas is the one time of the year when the gender pay gap is an open festering wound. Most of women’s work goes unvalued, unpaid, unseen by the patriarchal valuing system we call money. It’s invisible to money but it’s also pretty invisible even to ourselves. For a woman, it’s just what you do. For men, it’s stuff that just… happens. Don’t get me wrong, I don’t want to give up being Santa. I love it, I’m good at it, and I still do it for my kids even though they’re way past believing. That doesn’t mean it’s not work and it’s not worth something. People love their work and still get money for it.

(A little aside: isn’t it interesting that the man behind Santa is almost never a man? It’s almost like the patriarchy wants to take the credit for all of women’s work at Christmas time.) But whoever coined the term “holiday season” was clearly a bloke. It ain’t no holiday. For women, it’s the busiest time of the year. There’s something really broken about a valuing system that doesn’t recognize how much important work goes into bringing up children, socially integrating the tribe, bonding with each other and appreciating the beauty of each individual in the family and all the gifts they bring. A valuing system that doesn’t recognize the gains of having good-natured humans brought up in solid, loving environments that are closely networked in the goodwill economy. A family that will look after each other.

There’s something wrong with a valuing system that doesn’t recognize healthy humans, or the redistribution of goods, or the disappearing of problems forever. There’s something deeply sick about a valuing system that only knows how to pay people to make more problems, more sickness, more work for themselves. Invent a problem, and then sell your “solution” to it. That’s pretty much every business model ever. Libertarians will tell you earnestly that all our valuing decisions should be left up to “the markets.” If left to its own devices, the intelligence of money is meant to somehow create a handsome retirement savings package for a hardworking single mom of six. It’s somehow going to pay people to reuse and redistribute goods that they don’t need and fill all the unused houses with house-less people. It’s going to reward leaving minerals in the ground and pay for people to be healthy and live simply and for the environment to flourish and sustain life.

Read more …

Dec 132017
 
 December 13, 2017  Posted by at 10:22 am Finance Tagged with: , , , , , , , , , ,  


MC Escher Relativity 1953

 

‘Buy the Dip’ Has Never Been More Popular in US Stocks (BBG)
Bitcoin Bears Soon Able to Short Futures Through Interactive Brokers (BBG)
China’s GDP Growth Set To Plunge To Near 30-Year Low In 2018 – ADB (CNBC)
Free Money From China Comes With Strings (CNBC)
2700 By Christmas? (Roberts)
The Great Globalisation Lie (Rodrik)
Britain Doesn’t Appear To Be Collapsing As A Result Of Brexit (Bilbo)
Abracadabra (Jim Kunstler)
FBI Officials Said Clinton ‘Has To Win’ Race To White House (R.)
Former Facebook Executive: Social Media Is Ripping Society Apart (G.)
Japan Court Bars Restart of Nuclear Reactor Shut After Fukushima (BBG)
Greeks Crushed By Tax Burden (K.)
The Refugee Crisis In Greece Hasn’t Gone Away And Our Leaders Don’t Care (NS)
Arctic Permafrost Thawing Faster Than Ever (AP)

 

 

Full blast casino.

‘Buy the Dip’ Has Never Been More Popular in US Stocks (BBG)

“Buy the dip” has never been so popular. The practice of treating any and all pullbacks in risk assets as opportunities to accumulate more has become entrenched in global equity markets, especially in the U.S., according to analysts at Bank of America Merrill Lynch. “Investors no longer fear shocks but love them,” a team led by global equity derivatives researcher Nitin Saksena wrote in a note Tuesday. “Since 2013, central banks have stepped in (or communicated that they may step in) to protect markets, leaving investors confident enough to ‘buy-the-dip.’” Intraday realized volatility for the S&P 500 Index relative to the realized volatility in the open-close ratio for the benchmark gauge has soared to record highs this year, emblematic of an environment in which buying the dip has become gospel for traders, according to the bank’s analysis of price action going back to 2003.

This ratio is also above the 90th%ile for the Euro Stoxx 50 Index and Nikkei 225. In practice, this suggests any early weakness in stocks is being met with an onslaught of buying that propels the index back to where it opened by the time the closing bell sounds. BofA equity derivatives strategist Clovis Couasnon puts it this way: Imagine the S&P 500 Index is down 1% at midday, only to rebound and finish broadly unchanged. The open-to-close return would be close to zero, but under the surface there were two moves of about 1%. “So if the buy-the-dip behavior is strong enough to cause mean reversion, this will cause intraday vol to be more supported than open-to-close vol,” he explained.

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Buy the dip 2.0. Why does this make me feel nervous?

Bitcoin Bears Soon Able to Short Futures Through Interactive Brokers (BBG)

Interactive Brokers plans to let bitcoin bears bet against the digital currency’s recently debuted futures contracts. Starting this week, the brokerage will allow its users to take short positions on bitcoin futures under certain conditions, according to company spokeswoman Kalen Holliday, who said the decision was made “in response to client demand.” Interactive Brokers has accepted long positions with a margin requirement of at least 50% since the contracts debuted Sunday on Cboe Global Markets Inc. Shorting bitcoin futures, or betting that their price will fall, is potentially an even riskier strategy.

It’s possible to lose an unlimited amount of money on a short position, particularly if the cost of the digital currency and its derivatives continues to climb. Interactive Brokers has a few requirements for shorting bitcoin futures: the spread must be one-to-one, and the short leg must have the earlier expiry date so that once it expires the surviving leg will be long, according to Holliday. Trading won’t be offered in retirement accounts or to Japanese residents.

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That’s going to hurt.

China’s GDP Growth Set To Plunge To Near 30-Year Low In 2018 – ADB (CNBC)

China’s economy will expand a bit faster than expected this year on resilient consumption but growth will stutter in 2018, the Asian Development Bank said Wednesday. Growth on the mainland is now expected at 6.8% in 2017, up from the previous forecast of 6.7%, the Asian Development Bank (ADB) said in its latest forecasts released on Wednesday. Growth prospects in China for 2017 have been revised upward as spending by households has held up reasonably well. Still, persisting headwinds will weigh on economic impulses next year. The world’s second-largest economy is likely to grow by 6.4% in 2018 due to “controlled moderation” in the economy, Joseph Zveglich, ADB’s macroeconomic research director told CNBC. That would mark the slowest pace of expansion since 1990, according to World Bank data.

The Chinese government is treading a thin line between deleveraging and keeping its debt-fueled economy humming. Growth in the wider region will also be a bit better this year. Stronger-than-expected exports and domestic consumption likely lifted economic growth in developing Asia in 2017, the ADB said. The upgraded outlook saw GDP growth in the region of developing Asia moving up 0.1 percentage point to 6% in 2017. The region includes 45 ADB members including China, Hong Kong, South Korea and Singapore, but excludes Japan. The rosier prediction came after a year of uncertainty due to fears of trade protectionism. There was “stronger-than-expected growth in most of our economies especially in terms of the pickup in trade,” Zveglich said.

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Said it often before: China is exporting its credit Ponzi and its overcapacity. The countries along the Belt Road will end up paying.

Free Money From China Comes With Strings (CNBC)

China giveth, and China taketh away. Across Asia, the world’s second-largest economy has financed infrastructure projects as part of its massive, so-called Belt and Road program. But it’s entirely up to Beijing to decide which countries get funding and when — and Pakistan offers a cautionary tale. Pakistan is home to one of China’s central infrastructure schemes: a near $60 billion collection of land and sea projects known as the China-Pakistan Economic Corridor (CPEC). But Chinese President Xi Jinping’s administration said it would halt funding for three major roads that are part of the corridor, Pakistani newspaper Dawn reported last week, citing an Islamabad official. Beijing will resume funding after it releases “new guidelines,” the newspaper said.

[..] If true, the news is proof of China’s unilateral management style, analysts said. “What Beijing giveth, Beijing can also taketh away,” Ian Bremmer, president and founder of political consultancy Eurasia Group, wrote in a recent note. Unlike the Asian Infrastructure Investment Bank, another China-led program, Belt and Road projects “aren’t transparent or consensus driven,” he said. “The nature of Chinese economic decision-making has the potential to cause significant downside risks for those countries that become most dependent on the Belt Road initiative,” he said. Nations that suddenly fall out of political favor with Beijing, for whatever reason, could subsequently suffer weighty economic consequences.

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The Fed hasn’t even started to tighten yet. The feast of liquidity just goes on. But it can’t going forward, or Fed credibility is gone.

2700 By Christmas? (Roberts)

Following the early 2016 correction, the “carry trade” has picked up steam and has continued to force asset prices higher as liquidity seeks opportunity. With the “carry trade” now extremely extended currently, which is also highly leveraged, watch for a triggering of a “sell signal” as a sign to temporarily reduce equity-related risk. But wait, the Fed is reducing their liquidity flows into the financial system, right? Not so much. As shown in the first chart below, the Fed’s balance sheet continues to remain stable even as asset prices surge.

With global Central Banks still flooding the system with liquidity, the Fed has yet to begin rolling off their reinvestments as expected. In fact, the Fed made a timely reinvestment during the “Senate Tax Bill” debacle earlier this month.

Of course, that bump of liquidity sent asset prices rocketing higher. The question becomes just what will happen to the markets when the Fed actually does begin to aggressively decrease their “reinvestments” in the coming year. The projected decline in the balance sheet looks like the following. One can only imagine how a market which has been repeatedly driven higher on a “feast of liquidity,” either from the Fed or other Central Banks, will react to being put on a diet.

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“The gain to the US from Nafta: just 0.1 per cent of GDP. If the same effort had gone into creating decent jobs, would we have Trump?”

Globalization automatically leads to Misallocation.

The Great Globalisation Lie (Rodrik)

According to the celebrated Stolper-Samuelson theorem of trade theory, in places—like the US and western Europe—where skilled workers are plentiful, unskilled workers will see their wages decline under freer trade. Openness to trade always hurts some people in society, except in the extreme case (not relevant for any large economy) where the only things imported are things that are never produced at home. In theory, countries could always compensate their losers by redistributing from the winners, and in practice they sometimes did. With its extensive safety nets, Europe in the second half of the 20th century was relatively well prepared to deal with disruptive trade flows. In addition, trade negotiators initially carved out special regimes for garments and textiles exporters in the advanced economies, limiting their exposure.

Even in the best of circumstances, however, freeing up trade caused pain as well as gain. After the 1980s, the balance began to look worse and worse. When tariffs (like taxes) are too high they distort economic behaviour more, and do more damage to prosperity. Back in the 1950s and 1960s, tariffs were often very high and so their reduction did much to grow the overall economic pie. But four or five decades later, in a world where typical tariffs were in single figures, the picture was different. If you’re starting off with the tariffs of the post-war era, the standard economic models suggest that to achieve an overall net gain of $1 in national income through liberalising trade, you could expect to see around $4 or $5 of income being reshuffled across different groups within a particular country.

But under the tariffs that applied by the end of the 20th century, achieving that overall dollar of gain would be associated with as much as $20 being redistributed, implying the creation of an awful lot of losers. And what’s more, by the 1990s we were into an era of welfare state retrenchment rather than expansion. So it became less plausible than it used to be to believe that those losses will be compensated.

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Long read.

Britain Doesn’t Appear To Be Collapsing As A Result Of Brexit (Bilbo)

Do you remember back to May 2016, when the British Treasury, which is clearly full of mainstream macroeconomists who have little understanding of how the system actually operates released their ‘Brexit’ predictions? The ‘study’ (putting the best spin possible on what was a tawdry piece of propaganda) – HM Treasury analysis: the immediate economic impact of leaving the EU – was strategically released to have maximum impact on the vote, which would come just a month later. Fortunately, for Britain and its people, the attempt to provide misinformation failed. As time passes, while the British government and the EU dilly-dally about the ‘divorce’ details, we are getting a better picture of what is happening post-Brexit as the ‘market’ sorts what it can sort out.

Much has been said about the destructive shifts in trade that will follow Brexit. But these scaremongers fail to grasp that Britain has been moving away from trade with the EU for some years now and that process will continue into the future. I come from a nation that was dealt a major trading shock at the other end of Britain’s ill-fated dalliance with Europe. It also made alternative plans and prospered as a result. The outcomes of Brexit will be in the hands of the domestic policies that follow. Stick to neoliberalism and there will be a disaster. But the opportunity is there for British Labour to recast itself and seize the scope for better public infrastructure, better services and stronger domestic demand. Then the nation will see why leaving the corporatist, austerity-biased failure that the EU has become was a stroke of genius.

The only good thing about the Treasury Report was that it was “Printed on paper containing 75% recycled bre content minimum” but even then it was a waste of real resources.

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“.. the money that the Fed loaned to the US government (in exchange for a bond) was never there in the first place. The Fed prestidigitated it out of an alternate universe.”

Abracadabra (Jim Kunstler)

So, the Fed has this thing called a balance sheet, which is actually a computer file, filled with entries that denote securities that it holds. These securities, mostly US government bonds of various categories and bundles of mortgages wrangled together by the mysterious government-sponsored entity called Freddie Mac, represent about $4.5 trillion in debt. They’re IOUs that supposedly pay interest for a set number of years. When that term of years expires, the Fed gets back the money it loaned, which is called the principal. Ahhhh, here’s the cute part! You see, the money that the Fed loaned to the US government (in exchange for a bond) was never there in the first place. The Fed prestidigitated it out of an alternate universe. They gave this money to a “primary dealer” bank in exchange for the bond, which the bank abracadabraed up for the US Treasury.

Well, not really. In fact, the Fed just made a notation on the bank’s “reserve” account that the money from the alternate universe appeared there. Somehow that money was sent via a virtual pneumatic tube to the US Treasury, where it was used to pay for drones to blow up Yemeni wedding parties, and for the Secret Service to visit pole dancing bars when the president traveled to foreign lands. Here’s the fun part. The Fed announces that it is going to shed this nasty debt, at about $10 billion worth a month starting this past October. Their stated goal is to reach an ultimate wind-down velocity of $50 billion a month (cue laugh track). If they ever get there (cue laugh track) it would take 20 years to complete the wind-down. The chance of that happening is about the same as the chance that Janet Yellen will come down your chimney on December 24 with a sack-full of chocolate Bitcoins.

But never mind the long view for the moment. One way they plan to accomplish this feat is to “roll off” the bonds. That is, when the bonds mature — i.e. come to the end of their term — they will cease to exist. Poof! Wait a minute! When a bond matures, the issuer has to send the principal back to the lender. After all, the Fed lent the US Treasury X-billion dollars, the US Treasury paid interest on the loan for X-years, and now it has to fork over the full value of the loan (hopefully in dollars that have magically inflated over the years and are now worth less than when they were borrowed — another magic trick!). But that doesn’t happen.

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More calls for more special counsels.

FBI Officials Said Clinton ‘Has To Win’ Race To White House (R.)

Senior FBI officials who helped probe Donald Trump’s 2016 presidential campaign told a colleague that Democratic Presidential candidate Hillary Clinton had to win the race to the White House, the New York Times reported on Tuesday. Peter Strzok, a senior FBI agent, said Clinton “just has to win” in a text sent to FBI lawyer Lisa Page, the Times reported. The messages showed concern from Strzok and Page that a Trump presidency could politicize the FBI, the report said, citing texts turned over to Congress and obtained by the newspaper.

Justice Department Inspector General Michael Horowitz is investigating the texts in a probe into FBI’s handling of its investigation into Clinton’s use of a private email server for official correspondence when she was Secretary of State under former President Barack Obama, the report added. Strzok was removed from working on the Russia probe after media reports earlier this month suggested he had exchanged text messages that disparaged Trump and supported Clinton. Strzok was involved in both the Clinton email and Russia investigations.

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You don’t say.

Former Facebook Executive: Social Media Is Ripping Society Apart (G.)

A former Facebook executive has said he feels “tremendous guilt” over his work on “tools that are ripping apart the social fabric of how society works”, joining a growing chorus of critics of the social media giant. Chamath Palihapitiya, who was vice-president for user growth at Facebook before he left the company in 2011, said: “The short-term, dopamine-driven feedback loops that we have created are destroying how society works. No civil discourse, no cooperation, misinformation, mistruth.” The remarks, which were made at a Stanford Business School event in November, were just surfaced by tech website the Verge on Monday. “This is not about Russian ads,” he added. “This is a global problem. It is eroding the core foundations of how people behave by and between each other.”

Palihapitiya’s comments last month were made a day after Facebook’s founding president, Sean Parker, criticized the way that the company “exploit[s] a vulnerability in human psychology” by creating a “social-validation feedback loop” during an interview at an Axios event. Parker had said that he was “something of a conscientious objector” to using social media, a stance echoed by Palihapitaya who said that he was now hoping to use the money he made at Facebook to do good in the world. “I can’t control them,” Palihapitaya said of his former employer. “I can control my decision, which is that I don’t use that shit. I can control my kids’ decisions, which is that they’re not allowed to use that shit.” He also called on his audience to “soul-search” about their own relationship to social media. “Your behaviors, you don’t realize it, but you are being programmed,” he said. “It was unintentional, but now you gotta decide how much you’re going to give up, how much of your intellectual independence.

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It often seems that the only thinking people are in courts.

Japan Court Bars Restart of Nuclear Reactor Shut After Fukushima (BBG)

A Japanese court overturned a ruling that allowed a nuclear reactor in the country’s south to operate, frustrating the government’s push to bring online dozens of plants shut in the wake of the 2011 Fukushima disaster. The decision by the Hiroshima High Court, which cited risks from nearby volcanoes, sides with local citizens and reverses a lower court’s ruling that had cleared the way for Shikoku Electric Power to operate its Ikata No. 3 unit, according to an emailed statement Wednesday from the company. The reactor, which restarted last year under stricter safety regulations, has been shut for maintenance and was scheduled to restart on Jan. 20. Shikoku Electric fell as much as 11% in Tokyo, the biggest decline in more than four years, before paring the drop to 8.3%.

The injunction issued by the court is a blow to Prime Minister Shinzo Abe’s goal of having nuclear power account for as much as 22% of the nation’s electricity mix by 2030. Public opposition through local courts and municipal governments has emerged as one of the biggest obstacles to that plan. Just four of Japan’s 42 operable nuclear reactors are currently online. The ruling was the first time a high court in Japan has overturned a lower court on the issue of nuclear restarts since the Fukushima disaster. A district court in Hiroshima sided with the utility in March in deciding not to issue a temporary injunction. Shikoku called Wednesday’s ruling “unacceptable” and said it will try to get it reversed. The injunction is effective through Sept. 30, 2018, according to court documents.

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That loud sucking sound.

Greeks Crushed By Tax Burden (K.)

Tax authorities have confiscated the salaries, pensions and assets of more that 180,000 taxpayers since the start of the year, but expired debts to the state have continued to rise, reaching almost €100 billion, as the taxpaying capacity of the Greeks is all but exhausted. In the month of October, authorities made almost 1,000 confiscations a day from people with debts to the state of more than €500. In the first 10 months of the year, the state confiscated some €4 billion, and the plans of the Independent Authority for Public Revenue provide for forced measures to be imposed on 1.7 million state debtors next year. IAPR statistics show that in October alone, the unpaid tax obligations of households and enterprises came to €1.2 billion. Unpaid taxes from January to October amounted to €10.44 billion, which brings the total including unpaid debts from previous years to almost €100 billion, or about 55% of the country’s GDP.

The inability of citizens and businesses to meet their obligations is also confirmed by the course of public revenues, which this year have declined by more than €2.5 billion. The same situation is expected to continue into next year, as the new tax burdens and increased social security contributions look set to send debts to the state soaring. Notably, since 2014, there has been a consolidated trend of a €1 billion increase each month in expired debts to the state. There are now 4.17 million taxpayers who owe the state money. This means that one in every two taxpayers is in arrears to the state, with 1,724,708 taxpayers facing the risk of forced collection measures. Of the €99.8 billion of total debt, just €10-15 billion is still considered to be collectible, as the lion’s share concerns debts from previous years, in many cases of bankrupt enterprises and deceased individuals.

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“It’s a spot where one can buy and sell drugs, or the bodies of underage boys who are stuck in Greece thanks to a recent law change that dictates they must stay here until they come of age.”

The Refugee Crisis In Greece Hasn’t Gone Away And Our Leaders Don’t Care (NS)

It’s just after nine on an ordinary Thursday night. About 50 people are gathered next to the main entrance of Pedion Tou Areos, the park at the northern limits of central Athens. The weather is now unmistakably cold, but the refugees gathering every night here seem to be increasing in number. It’s a spot where one can buy and sell drugs, or the bodies of underage boys who are stuck in Greece thanks to a recent law change that dictates they must stay here until they come of age. Both the drugs and the boys are cheap. A few euros for a hit of sisa, a synthetic drug called “the cocaine of the poor”, and a tenner for a session in the park’s bushes with kids as young as 14. The faces change, but the situation remains the same, or worse.

A 14-year-old boy from Afghanistan called Mohammed who was working in the park disappeared over the summer without a trace. He most probably made his way towards the border, to be smuggled out. If he’s lucky he will have made it to northern Europe. If not, he will just be one of thousands who have vanished in the Balkan corridor. It’s now December and winter is being felt across the country. Storms in October and November flooded parts of Greece, turning the open air camps that still hold thousands of refugees in more than 50 locations into mudpits. A video shared by refugees currently staying in Moria, the camp on the island of Lesvos that sits at the forefront of the Greek refugee crisis, shows a small child crying while walking through the camp’s grounds. Tents provided by the UNHCR and the Greek state are in bad shape.

Some have caved in. Floors are under mud and water. “They are trying to turn the island into Greece’s Guantanamo,” said the mayor of Mytilene, the capital of Lesvos, at a press conference. If you climb up a little hill on the side of the camp, you can get a good view of the compound. A year ago, the refugees had mostly been staying in prefabs, but fires, accidents and overcrowding brought the tents back. [..] An emergency relief programme is relocating people from Lesvos to camps across Greece, 30 to 50 at a time. But the rest of the camps are in is no better shape. Recently, a nine-year-old boy from Afghanistan tried to commit suicide on Chios, another Greek island. The doctors treating him suspected he had been abused inside the camp. It’s no suprise. Médecins Sans Frontières Greece said that “in our clinic in Lesvos, we have at least ten people per day who have self-harmed or attempted suicide. The situation in the islands is beyond desperate.”

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“The Arctic has traditionally been the refrigerator to the planet, but the door of the refrigerator has been left open..”

Arctic Permafrost Thawing Faster Than Ever (AP)

Permafrost in the Arctic is thawing faster than ever, according to a new US government report that also found Arctic seawater is warming and sea ice is melting at the fastest pace in 1,500 years. The annual report released on Tuesday by the National Oceanic and Atmospheric Administration showed slightly less warming in many measurements than a record hot 2016. But scientists remain concerned because the far northern region is warming twice as fast as the rest of the globe and has reached a level of warming that’s unprecedented in modern times. “2017 continued to show us we are on this deepening trend where the Arctic is a very different place than it was even a decade ago,” said Jeremy Mathis, head of NOAA’s Arctic research program and co-author of the 93-page report.

Findings were discussed at the American Geophysical Union meeting in New Orleans. “What happens in the Arctic doesn’t stay in the Arctic; it affects the rest of the planet,” said acting NOAA chief Timothy Gallaudet. “The Arctic has huge influence on the world at large.” Permafrost records show the frozen ground that many buildings, roads and pipelines are built on reached record warm temperatures last year nearing and sometimes exceeding the thawing point. That could make them vulnerable when the ground melts and shifts, the report said. Unlike other readings, permafrost data tend to lag a year. Preliminary reports from the US and Canada in 2017 showed permafrost temperatures are “again the warmest for all sites” measured in North America, said study co-author Vladimir Romanovsky, a professor at the University of Alaska in Fairbanks.

Arctic sea ice usually shrinks in September and this year it was only the eighth lowest on record for the melting season. But scientists said they were most concerned about what happens in the winter – especially March – when sea ice is supposed to be building to its highest levels. Arctic winter sea ice maximum levels in 2017 were the smallest they’ve ever been for the season when ice normally grows. It was the third straight year of record low winter sea ice recovery. Records go back to 1979. About 79% of the Arctic sea ice is thin and only a year old. In 1985, 45% of the sea ice in the Arctic was thick, older ice, said NOAA Arctic scientist Emily Osborne

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Dec 112017
 
 December 11, 2017  Posted by at 10:27 am Finance Tagged with: , , , , , , , , , ,  


MC Escher Balcony 1945

 

Bitcoin Futures Top $18,000, Soar 20% From Open – Halted for Second Time (ZH)
Investors Told to Brace for Steepest Rate Hikes Since 2006 (BBG)
The Struggle To Maintain The “Standard Of Living” (Roberts)
China Audit Finds Provinces Faked Data and Borrowed Illegally (BBG)
Markets Tell You What To Do If You Listen (Peters)
UK Seeking ‘Canada Plus Plus Plus’ EU Trade Deal (BBG)
Brexit’s Just A Distraction To The Real Problem: UK’s Clapped-Out Economy (G.)
Poland Risks Being the EU’s Rogue State (BBG)
Pentagon To Undergo First Ever Audit (ZH)
‘A Christmas Carol’, Money, Debt, and Success (MW)
Mass Starvation Is Humanity’s Fate (Monbiot)
Monsanto Offers Cash To US Farmers Who Use Controversial Chemical (R.)

 

 

You don’t have to own bitcoin anymore to bet on it.

Bitcoin Futures Top $18,000, Soar 20% From Open – Halted for Second Time (ZH)

Update: At 10:05pm ET, the CFE halted trading in Cboe Bitcoin Futures (XBT), in accordance with CFE Rule 1302(i)(ii) which defines the threshold for the halt as a 20% surge. XBT will re-open for trading approximately five (5)minutes from the time of the halt. Bitcoin Futures have topped $18,000 for the first time… It was reopened at 10:10pm ET. All of which is odd because Bob Pisani and the rest of the mainstream said that the opening of Bitcoin Futures would bring about the demise of the cryptocurrency due to the ability to short?

Update: At precisely 8:31pm ET, the CBOE instituted the first ever XBT trading halt, which lasted for two minutes according to a notice on Cboe’s website. XBT contracts have since resumed trading. As a reminder, the Cboe can halt trading for 2 minutes after 10% swings, and 5 minutes at 20%, an attempt to prevent wild swings.

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Things are a-changing.

Investors Told to Brace for Steepest Rate Hikes Since 2006 (BBG)

Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade. With the world economy heading into its strongest period since 2011, Citigroup Inc. and JPMorgan Chase & Co. predict average interest rates across advanced economies will climb to at least 1 percent next year in what would be the largest increase since 2006. As for the quantitative easing that marks its 10th anniversary in the U.S. next year, Bloomberg Economics predicts net asset purchases by the main central banks will fall to a monthly $18 billion at the end of 2018, from $126 billion in September, and turn negative during the first half of 2019. That reflects an increasingly synchronized global expansion finally strong enough to spur inflation, albeit modestly.

The test for policy makers, including incoming Federal Reserve Chair Jerome Powell, will be whether they can continue pulling back without derailing demand or rocking asset markets. “2018 is the year when we have true tightening,” said Ebrahim Rahbari, director of global economics at Citigroup in New York. “We will continue on the current path where financial markets can deal quite well with monetary policy but perhaps later in the year, or in 2019, monetary policy will become one of the complicating factors.” A clearer picture should form this week when the Norges Bank, Fed, Bank of England, European Central Bank and Swiss National Bank announce their final policy decisions of 2017. They collectively set borrowing costs for more than a third of the world economy. At least 10 other central banks also deliver decisions this week.

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Again, from an article with much more info and many more graphs.

The Struggle To Maintain The “Standard Of Living” (Roberts)

Economic cycles are only sustainable for as long as excesses are being built. The natural law of reversions, while they can be suspended by artificial interventions, cannot be repealed. More importantly, while there is currently “no sign of recession,” what is going on with the main driver of economic growth – the consumer? The chart below shows the real problem. Since the financial crisis, the average American has not seen much of a recovery. Wages have remained stagnant, real employment has been subdued and the actual cost of living (when accounting for insurance, college, and taxes) has risen rather sharply. The net effect has been a struggle to maintain the current standard of living which can be seen by the surge in credit as a percentage of the economy.

To put this into perspective, we can look back throughout history and see that substantial increases in consumer debt to GDP have occurred coincident with recessionary drags in the economy. No sign of recession? Are you sure about that?

There has been a shift caused by the financial crisis, aging demographics, massive monetary interventions and the structural change in employment which has skewed the seasonal-adjustments in economic data. This makes every report from employment, retail sales, and manufacturing appear more robust than they would be otherwise. This is a problem mainstream analysis continues to overlook but will be used as an excuse when it reverses. Here is my point. While the call of a “recession” may seem far-fetched based on today’s economic data points, no one was calling for a recession in early 2000 or 2007 either. By the time the data is adjusted, and the eventual recession is revealed, it won’t matter as the damage will have already been done. As Howard Marks once quipped: “Being right, but early in the call, is the same as being wrong.”

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You need an audit for that?

China Audit Finds Provinces Faked Data and Borrowed Illegally (BBG)

China found some local governments inflated revenue levels and raised debt illegally in a nationwide audit, a setback for Beijing in its bid to boost the credibility of economic data after a run of scandals. Ten cities, counties or districts in the Yunnan, Hunan and Jilin provinces, as well as the southwestern city of Chongqing, inflated fiscal revenues by 1.55 billion yuan ($234 million), the National Audit Office said in a statement on its website dated Dec. 8. Of that, 1.24 billion yuan was from the Wangcheng district in the provincial capital of Hunan, where officials faked the ownership transfer of local government buildings to boost income. The inspection, which covered the third quarter, also found that five cities or counties in the Jiangxi, Shaanxi, Gansu, Hunan and Hainan provinces raised about 6.43 billion yuan in debts by violating rules, such as offering commitment letters.

The findings are a blow to China’s bid to rein in data fraud, which has been widespread in some of the poorer provinces where officials were incentivized to inflate the numbers as a way of advancing their careers. Concern from investors wanting to be able to trust data out of the world’s second-largest economy led to the government trying to crack down on the practice, with President Xi Jinping saying in March that data fraud “must be throttled,” according to the state-run Xinhua News Agency. Rigid stability in provincial data on growth and employment has long sparked questions from economists, with the rust-belt province of Liaoning, in China’s northeast, famously admitting back in January that it had fabricated fiscal data from 2011 to 2014. Some regions and cities in Jilin province and Inner Mongolia also falsified reports, the Communist Party said in June, without providing details.

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“Near the highs, few opportunities exist to earn substantial returns, so you should take little risk..”

Markets Tell You What To Do If You Listen (Peters)

Anecdote” “What are the odds we come across an opportunity in the coming 4yrs to earn 20%?” the investor asked his team. “High,” they answered. “The odds are 100%,” he said, having seen this movie a few times. “So our cost of capital is 5% per year (20% divided by 4yrs), plus the 1% we earn on cash,” he said. His team nodded. “Under no circumstances should we deploy capital unless it earns well more than 6% per year from here on out.” It made sense. “What do we see that earns more than this hurdle?” he asked. His team’s list was as short today as it was long in 2016, 2011, 2009, 2003, 1998, 1997, 1994, 1992, 1990, 1987, etc. Today’s few opportunities have much in common with previous peaks: negative convexity, complexity, illiquidity, leverage, and/or all the above. “Investors confuse a 7.5% average annualized return target with a 7.5% annual return target,” he explained. “They’re entirely different things.”

Targeting average annualized returns allows you to accept what the market gives you, while targeting annual returns forces you to leverage investments near peak valuations to hit your bogey. “Typical pension and endowment boards want incoming investment returns to consistently exceed outgoing flows.” So most investors attempt to produce the highest return every year, no matter what it takes. “But that’s the wrong objective. Never underestimate the value of cash and patience in achieving the real goal; superior returns over the complete cycle,” he explained. “Markets tell you what to do if you listen,” he said. “Near the highs, few opportunities exist to earn substantial returns, so you should take little risk. Near the lows, opportunities to earn attractive returns are abundant.” You should take a lot of risk. “This sounds simple because it is. It’s obvious. But obvious is not easy.”

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But Canada says no.

UK Seeking ‘Canada Plus Plus Plus’ EU Trade Deal (BBG)

Britain wants a trade deal with the European Union that includes the best parts of the bloc’s agreements with Japan, Canada and South Korea, along with financial services, Brexit Secretary David Davis said, showing optimism a pact can be struck within a year. The chances of the U.K. leaving the EU without a deal, defaulting to World Trade Organization rules, have “dropped dramatically,’’ Davis said in a BBC TV interview on Sunday. Still, he signaled the painstaking agreement struck on Friday to end the first phase of Brexit negotiations isn’t binding, and that Britain’s exit payment of as much as 39 billion pounds ($52 billion) is contingent on reaching a free-trade agreement. Doing so, he said, “is not that complicated.”

“We start in full alignment: we start in complete convergence with the EU, so we then work it out from there,” Davis said on the Andrew Marr Show. “What we want is a bespoke outcome: We’ll probably start with the best of Canada, the best of Japan and the best of South Korea and then add to that the bits that are missing, which is services,” he said. “Canada plus plus plus would be one way of putting it.” The Brexit secretary’s bullishness belies the noise coming from his counterparts in the EU. It’s taken eight months of at times bitter haggling to make sufficient progress on what was supposed to be the easiest part of the talks – resolving Britain’s exit payment, its future border with Ireland, and the rights of EU and U.K. citizens living in each other’s territories.

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Don’t think I ever heard clapped-out before.

Brexit’s Just A Distraction To The Real Problem: UK’s Clapped-Out Economy (G.)

As Brexiteers shout “forward” and remainers chant “ back”, the battle over the EU dominates British politics. Yet it obscures a more basic British problem. Our clapped-out economy, brilliant at consumption, poor at production, is becoming unviable. A “nation of shopkeepers” has become a nation of shoppers, dependent on debt. Deindustrialisation and misguided economic policies have reduced the former workshop of the world to a level where Britain can neither pay its way, nor afford the defence and public services an advanced society needs. Everything in which we once were leaders – ships, railways, TV, great bridges, nuclear plants, bicycles, textiles, clothing, even Kit Kats – we now import.

We consume more than we produce, leading to an annual balance of payments deficit rising above 6% of GDP, financed by borrowing and selling companies, property and citizenship to survive. The result is a sluggish economy (a growing proportion of which is owned by foreigners); low productivity (because the manufacturing sector has shrunk to one-tenth of GDP); and static pay, as every sector except finance cuts costs to survive. Being in or out of the EU has little relevance to this basic problem. The EU is a market, not a mutual support system. Instead of redistributing growth to succour laggards it punishes them, as it has Greece. It drains us and proscribes the techniques of nurture by state aid, protectionism and devaluation by which Germany and France grew. Its “aid” is just our own money back, with the EU’s heavy costs taken out.

Even worse, Germany’s huge surpluses mean that deficit countries like the UK, with our £60bn-plus trade deficit, are compounded by the single market. Yet coming out offers no solution either. It generates uncertainty and deters investment. Most of world trade is controlled by multinationals, and Britain would be more vulnerable to their ministrations. Tory Brexiteers aim at turning us, down and dirty, into a low-wage, deregulated, cost-cutting tax haven-on-Thames. Hardly acceptable to an electorate that has already endured decades of that. The only solution is to rebalance an economy excessively dependent on finance and services by widening the manufacturing and production base and making it competitive. Neither free trade nor the single market will do that.

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The EU is going to make this ugly. It’s the only thing they know how to do.

Poland Risks Being the EU’s Rogue State (BBG)

Behind the noise of Brexit negotiations, the talk in the EU this year has been that there’s potentially a bigger problem in the east. And the prospect of another rupture looks to be increasing. Poland’s de facto leader, Jaroslaw Kaczynski, hand-picked his second prime minister in two years, opting last week for western-educated Finance Minister Mateusz Morawiecki as he seeks to boost the economy after revamping the judicial system. He is another Kaczynski acolyte who has backed the increasingly authoritarian Law & Justice party’s push to seize more control of the courts, a plan condemned by the European Parliament and European Commission The mood in Brussels is that EU institutions can no longer stand by and watch a country that’s the biggest net recipient of European aid thumb its nose without paying some sort of price. Few people are discussing Poland following Britain out of the bloc, but a protracted conflict is getting more likely.

Concerns about the shift in Poland triggered calls to limit access to EU funds for countries disrespecting the democratic rule of law. At a ministerial meeting on Nov. 15 in Brussels, the issue was raised during a discussion about the 2021-2028 budget by countries including Germany, France and the Nordic states, according to two EU officials with knowledge of the matter. Poland’s refusal to take in mainly Muslim refugees was referred last week to the European Court of Justice along with Hungary and the Czech Republic. “There is a growing feeling in Brussels that solidarity cannot be a one-way street, and that it becomes difficult to justify the 10 billion-euro per year net transfers for a country that is increasingly at odds with the bloc’s values,” said Bruno Dethomas, a senior policy adviser at GPLUS consultancy in Brussels and a former EU ambassador to Poland. “It is high time the EU reacted, or it risks losing its soul.”

Poles are accustomed to their government stirring up nationalist fervor with blistering attacks on the EU while welcoming the policies of U.S. President Donald Trump. It’s railed against taking in Muslim refugees, claimed the country has been enslaved and snapped at criticism of its power grab this year. But even by Kaczynski’s standards, his speech on Nov. 10 to mark Independence Day pulled no punches. It’s up to Poles to show “the sick Europe of today the path back to health, to fundamental values, to true freedom and to the strengthening of our civilization based on Christianity,” he said.

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How confident are you in this audit?

Pentagon To Undergo First Ever Audit (ZH)

After decades of waste, overpayments, trillions of missing or improperly accounted for dollars, and most recently losing track of 44,000 US soldiers, the Pentagon is about to undergo its first audit in history conducted by 2,400 auditors from independent public accounting firms to conduct reviews across the Army, Navy, Air Force and more – followed by annual audits going forward. The announcement follows a May commitment by Pentagon comptroller David Norquist, who previously served as the CFO at the Department of Homeland Security when the agency performed its audit. “Starting an audit is a matter of driving change inside a bureaucracy that may resist it,” Norquist told members of the Armed Services Committee at the time when pressed over whether or not he could get the job done at the DHS.

According to the DoD release: “The audit is massive. It will examine every aspect of the department from personnel to real property to weapons to supplies to bases. Some 2,400 auditors will fan out across the department to conduct it, Pentagon officials said. “It is important that the Congress and the American people have confidence in DoD’s management of every taxpayer dollar,” Norquist said. -defense.gov”. The Pentagon is no stranger to criticism over serious waste and purposefully sloppy accounting. A DoD Inspector General’s report from 2016 – which appears to be unavailable on the DoD website (but fortunately WAS archived)- found that in 2015 alone a staggering $6.5 trillion in funds was unaccounted for out of the Army’s budget, with $2.8 trillion in “wrongful adjustments” occurring in just one quarter.

In 2015, the Pentagon denied trying to shelve a study detailing $125 billion in waste created by a bloated employee counts for noncombat related work such as human resources, finance, health care management and property management. The report concluded that $125 billion could be saved by making those operations more efficient. On September 10th, 2001, Secretary of Defense Donald Rumsfeld announced that “According to some estimates we cannot track $2.3 trillion in transactions,” after a Pentagon whistleblower set off a probe. A day later, the September 11th attacks happened and the accounting scandal was quickly forgotten.

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Dickens was a big spender how had little.

‘A Christmas Carol’, Money, Debt, and Success (MW)

Karl Marx was so broke in 1859 he couldn’t afford the postage stamps to mail off his new manuscript, leading the philosopher to lament, “I don’t suppose anyone has ever written about ‘money’ when so short the stuff.” He was probably right about that. However, the most famous book about money written by someone strapped for cash wasn’t “Das Kapital” or “The Communist Manifesto.” It was “A Christmas Carol.” Charles Dickens suffered not only a personal-finance crisis but a creative one, as well, in the fall of 1843, when, in a sort of literary Hail Mary pass, he committed to writing a Christmas book in an impossible six weeks. And, in a plot twist as improbable as anything he himself could have come up with, this gambit actually worked: “A Christmas Carol” became one of the best-selling and most widely adapted books of all time, a work that shaped the very meaning of the holiday itself, and singlehandedly wiped out the goose market — more on that later.

This remarkable tale, recounted in Les Standiford’s biography, “The Man Who Invented Christmas,” and just turned into a highly entertaining new movie of the same name starring Dan Stevens and Christopher Plummer, holds financial lessons for everyone, especially those of us who’ve been tormented by the ghosts of bills past due and deadlines soon to come. Dickens was in debt: to begin with. There is no doubt whatever about that. Sales of his two most recent novels were so disappointing that his publishers cut his pay. Meanwhile, the 31-year-old author and social-justice warrior had just moved into a larger, and much more expensive, home to accommodate the birth of his fifth child (like Marx, his pecuniary troubles stemmed somewhat from the age-old failure to live within one’s means).

On top of all this, his relatives, including his chronically deadbeat dad, kept hitting him up for money. His father, who later inspired the beloved character Wilkins Micawber in “David Copperfield,” was so hopeless with money that Dickens rented his parents a cottage far out in the country, where he hoped it would be harder for them to overspend. For Dickens this was all kind of galling because he had been working so hard and he didn’t have much to show for it,” said Declan Kiely, curator of a terrific ongoing exhibit on Dickens at the Morgan Library in New York. When Scrooge berates his cheerful nephew Fred, “What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer?” that could just as well have been Dickens ranting.

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How inevitable is this?

Mass Starvation Is Humanity’s Fate (Monbiot)

[..] to keep pace with food demand, farmers in south Asia expect to use between 80 and 200% more water by the year 2050. Where will it come from? The next constraint is temperature. One study suggests that, all else being equal, with each degree celsius of warming the global yield of rice drops by 3%, wheat by 6% and maize by 7%. These predictions could be optimistic. Research published in the journal Agricultural & Environmental Letters finds that 4C of warming in the US corn belt could reduce maize yields by between 84 and 100%. The reason is that high temperatures at night disrupt the pollination process. But this describes just one component of the likely pollination crisis. Insectageddon, caused by the global deployment of scarcely tested pesticides, will account for the rest. Already, in some parts of the world, workers are now pollinating plants by hand. But that’s viable only for the most expensive crops.

[..] Because they tend to use more labour, grow a wider range of crops and work the land more carefully, small farmers, as a rule, grow more food per hectare than large ones. In the poorer regions of the world, people with fewer than five hectares own 30% of the farmland but produce 70% of the food. Since 2000, an area of fertile ground roughly twice the size of the UK has been seized by land grabbers and consolidated into large farms, generally growing crops for export rather than the food needed by the poor. While these multiple disasters unfold on land, the seas are being sieved of everything but plastic. Despite a massive increase in effort (bigger boats, bigger engines, more gear), the worldwide fish catch is declining by roughly 1% a year, as populations collapse. The global land grab is mirrored by a global sea grab: small fishers are displaced by big corporations, exporting fish to those who need it less but pay more.

About 3 billion people depend to a large extent on fish and shellfish protein. Where will it come from? All this would be hard enough. But as people’s incomes increase, their diet tends to shift from plant protein to animal protein. World meat production has quadrupled in 50 years, but global average consumption is still only half that of the UK – where we eat roughly our bodyweight in meat every year – and just over a third of the US level. Because of the way we eat, the UK’s farmland footprint (the land required to meet our demand) is 2.4 times the size of its agricultural area. If everyone aspires to this diet, how exactly do we accommodate it? The profligacy of livestock farming is astonishing. Already, 36% of the calories grown in the form of grain and pulses – and 53% of the protein – are used to feed farm animals. Two-thirds of this food is lost in conversion from plant to animal. A graph produced last week by Our World in Data suggests that, on average, you need 0.01m2 of land to produce a gram of protein from beans or peas, but 1m2 to produce it from beef cattle or sheep: a 100-fold difference.

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Monsanto is the no.1 risk to our food. Presented as our savior.

Monsanto Offers Cash To US Farmers Who Use Controversial Chemical (R.)

Monsanto will give cash back to U.S. farmers who buy a weed killer that has been linked to widespread crop damage, offering an incentive to apply its product even as regulators in several U.S. states weigh restrictions on its use. The incentive to use XtendiMax with VaporGrip, a herbicide based on a chemical known as dicamba, could refund farmers over half the sticker price of the product in 2018 if they spray it on soybeans Monsanto engineered to resist the weed killer, according to company data. The United States faced an agricultural crisis this year caused by new formulations of dicamba-based herbicides, which farmers and weed experts say harmed crops because they evaporated and drifted away from where they were sprayed. Monsanto says XtendiMax is safe when properly applied.

The company is banking on the chemical and soybean seeds engineered to resist it, called Xtend, to dominate soybean production in the United States, the world’s second-largest exporter. BASF SE and DowDuPont also sell versions of dicamba-based herbicides. Monsanto’s cash-back offer comes as federal and state regulators are requiring training for farmers who plan to spray dicamba in 2018 and limiting when it can be used. Weed specialists say the restrictions make the chemical more costly and inconvenient to apply, but Monsanto’s incentive could help convince farmers to use it anyway.

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Dec 092017
 
 December 9, 2017  Posted by at 10:33 am Finance Tagged with: , , , , , , , , , ,  


MC Escher Belvedere 1958

 

The Fed’s QE-Unwind is Really Happening (WS)
2017 US Wage Growth Failed To Pick Up Despite Unemployment Rate Decline (BBG)
The Bitcoin Whales: 1,000 People Who Own 40% of the Market (BBG)
Bitcoin Futures Could Be “A Clusterf*ck Of Monumental Proportions” (Blain)
Central Banks Or Bitcoin: What’s The Greater Bubble? (Jim Kunstler)
Chinese Banks Didn’t Object to New Asset Rules, Association Says (BBG)
Enron? Citi, BofA, HSBC, Goldman, BNP on the Hook as Steinhoff plunges (WS)
CNN Corrects a Trump Story, Fueling Claims of ‘Fake News’ (NYT)
Aim Of First Greek Memorandum: Rescue Foreign Investors – Dijsselbloem (Amna)
The Most Valuable Companies of All Time (VC)

 

 

They can because other CBs have taken over. Smart move?!

The Fed’s QE-Unwind is Really Happening (WS)

The Fed’s balance sheet for the week ending December 6, released today, completes the second month of the QE-unwind. Total assets initially zigzagged within a tight range to end October where it started, at $4,456 billion. But in November, holdings drifted lower, and by December 6 were at $4,437 billion, the lowest since September 17, 2014:

“Balance sheet normalization?” Well, in baby steps. But the devil is in the details. The Fed’s announced plan is to shrink the balance sheet by $10 billion a month in October, November, and December, then accelerate the pace every three months. By October 2018, the Fed would reduce its holdings by up to $50 billion a month (= $600 billion a year) and continue at that rate until it deems the level of its holdings “normal” – the new normal, whatever that may turn out to be. Still, the decline so far, given the gargantuan size of the balance sheet, barely shows up. As part of the $10-billion-a-month unwind from October through December, the Fed is supposed to unload $6 billion in Treasury securities a month plus $4 billion in mortgage-backed securities (MBS) a month.

The Fed doesn’t actually sell Treasury securities outright. Instead, it allows some of them, when they mature, to “roll off” the balance sheet without replacement. When the securities mature, the Treasury Department pays the holder the face value. But the Fed, instead of reinvesting the money in new Treasuries, destroys the money – the opposite process of QE, when the Fed created the money to buy securities. This happens only on dates when Treasuries that the Fed holds mature, usually once or twice a month. In October, the big day was October 31, when $8.5 billion of Treasuries on the Fed’s books matured. The Fed reinvested $2.5 billion and let $6 billion “roll off.” Hence, the amount of Treasuries fell by about $6 billion from an all-time record $2,465.7 billion on October 25 to $2,459.8 billion on November 1.

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If you can get two people to work for the same price as one did before, you have job growth.

2017 US Wage Growth Failed To Pick Up Despite Unemployment Rate Decline (BBG)

This rising tide isn’t lifting many boats. Wage growth in the U.S. has failed to pick up this year despite a steady decline in the unemployment rate. The sluggishness has been relatively broad-based across the labor market, including among low-skilled workers, who might seem to be the most likely candidates for bigger pay increases as labor becomes scarcer. The bottom 20% of workers by average industry pay received a 3.9% increase in hourly earnings in October from a year earlier, marking an acceleration from a 3.4% advance in the year through October 2016. The detailed industry numbers for October were released on Friday along with the Labor Department’s main employment report for November.

However, the following chart shows that the entire pickup over the last year can be traced to a single industry: security and armored car services, which only accounts for 0.6% of private-sector employment, but has seen wages shoot up by almost 20%. Removing security and armored car services from the picture knocks the 3.9% wage growth for the bottom quintile down to 3.3%. That means it’s been more than a year since workers in the other low-paying industries have seen any acceleration in wage growth. The biggest employers of low-skilled workers are restaurants, general merchandise retailers, grocery stores, elderly care services, janitorial services and child day-care. Among those industries, restaurants are doling out the biggest pay increases (4.4% in the year through October), even though wage growth for those workers has been decelerating this year. General merchandise stores are giving out the smallest raises of the group at 1.4%.

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Creating new elites and bolstering old ones.

The Bitcoin Whales: 1,000 People Who Own 40% of the Market (BBG)

On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency. Holders of large amounts of bitcoin are often known as whales. And they’re becoming a worry for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year. About 40% of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management.

What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market. “I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.” One reason to think so: At least some kinds of information sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Because bitcoin is a digital currency and not a security, he says, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes.

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Can’t see futures doing well, even if initially they may soar.

Bitcoin Futures Could Be “A Clusterf*ck Of Monumental Proportions” (Blain)

Crypto-‘currency’ or total carnage? Mike Novogratz doesn’t see “quick adoption” of Bitcoin as a currency, preferring to think of it as ‘digital gold’. Perhaps this is one reason why. Amid its meteroic rise, Bitcoin is now 20 times more volatile than the US Dollar… As MINT Partners’ Bill Blain exclaims, next week sees the improbable launch of Bitcoin futures:

“This looks like having the potential to be a clusterf*ck of monumental proportions when it bursts. Every bank knows BTC’s extraordinary gains are a crowd delusion fuelled by the extraordinary promise of free wealth! Yet, many will be willing to trade and settle them for their clients – largely retail. Bitcoin has become the ultimate Klondyke. Most folk don’t have a clue what BTC and the associated Blockchain ledger might be, but everyone knows what the price action has been. Where that price is going is clouded by a lack of clarity on the technological nuances, distorted by Libertarian/Geek monetary gobbledy-gook, confused by a plethora of me-too coin offerings, speculators who see the chance of a quick buck, and investors scared they are missing out.”

“I’ve spent most of this week learning more and more about the limitations of Blockchain and two things are crystal clear – it doesn’t work, and it’s an evolutionary dead end that nimbler cryptocurrencies will take the niche of. But I still don’t understand why we need them at all? If its central banks you object to, let’s have a private cryptocurrency based on gold, or oil, or something else tangible… but based on some computer babble? Not for me. On the other hand, the long-term possibilities that BTC exploits in terms of Blockchain distributed ledgers are very real. Blockchain applications are going to utterly change finance.

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The ZH graph is nice, since it only runs until BTC 11,000.

Central Banks Or Bitcoin: What’s The Greater Bubble? (Jim Kunstler)

The third round of QE was officially halted in 2014 in the USA. However, the world’s other main central banks acted in rotation — passing the baton of QE, like in a relay race — so that when the US slacked off, Japan, Britain, the ECB, and the Bank of China, took over money-printing duties. And because money flies easily around the world via digital banking, a lot of that foreign money ended up in “sure-thing” US capital markets (as well as their own ). Mega-tons of “money” were created out of thin air around the world since the near-collapse of the system in 2008. And magically, with no negative consequences! Yet. Now, Europe and Japan are making noises about dropping their batons. China’s banking system is so opaque and perverse — because it is unaccountable except to the ruling party with its own agenda — that it’s quite impossible to tell what they are really doing, though the signs of mal-investment are obvious and startling.

And the UK’s finances are tied up in its messy divorce proceedings with the EU (with the British standard of living dropping markedly meanwhile). In short, the torrent of global “liquidity” looks to be slowing to a trickle. The expectation is that this would make stock markets go down and bond interest rates to go up (fewer buyers), perhaps a lot. The dirty open secret here is that these central bank interventions are the only means for keeping the capital markets up, and that the markets are just a Potemkin false front for Western economies that are drying up and blowing away. That is certainly the experience here in the USA, where banking hocus-pocus now accounts for about 30% of GDP, and most of that activity is either out-and-out fraud or swindling, or collecting rents and dividends on past frauds and swindles.

Dem/Prog America in its Silicon Valley gourmet employee bistros and Hamptons lawn parties thinks that the flyover Trumpist Red State world of meth, joblessness, and anomie is some kind of a Netflix hallucination. But no, it’s for real. The center of the ole US of A is hollowed out. The bad news is that it probably has enough juice left in its disaffected youth, and certainly enough weaponry, to start a very serious insurrection if it continues to get dissed. Enter the joker in the deck: Bitcoin. Though it pulled back a couple of thou overnight, this strange investment vehicle blasted through $18,000-per-Bitcoin in the past 24 hours, roughly tripling from $6000 in one month. It even endured the hacking of one of its exchanges, NiceHash, where $70 million was looted without so much as a stutter in the upward thrust of the chart. Whatever else Bitcoin is — and I would suggest a “Ponzie,” a “mania,” a “con” — this thing is a message.

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They’re too scared of Xi.

Chinese Banks Didn’t Object to New Asset Rules, Association Says (BBG)

China’s banking association is organizing discussions on the nation’s proposed new asset-management rules, the group said in a social media posting, dismissing as “untrue” reports that some lenders have submitted a petition to policy makers on the subject. The statement comes after regulators last month proposed sweeping guidelines to curb risks in the nation’s $15 trillion of asset-management products, prompting a three-day drop in sovereign bonds and driving stocks to a two-month low before a late rally amid speculation state-backed funds would stem excessive losses.

The rules are scheduled to come into effect in 2019. Earlier this week, Reuters cited three people it didn’t identify as saying that some Chinese joint-stock banks had objected to the proposals, saying they would have a big impact on financial markets and possibly trigger systemic risks. The China Banking Association, in its WeChat post Friday, said it is helping formulate opinion on the draft. The new rules will be applied to the 29 trillion yuan ($4.4 trillion) of wealth-management products issued by banks, 17.5 trillion yuan of trust products, as well as asset-management plans sold by insurers, fund managers and brokerages, according to the regulators’ statement. Institutions will be required to set aside risk provisions equivalent to 10% of the management fees, they said.

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Mario Draghi and the ECB are heavily invested in Steinhoff.

Enron? Citi, BofA, HSBC, Goldman, BNP on the Hook as Steinhoff plunges (WS)

Steinhoff International Holdings – which acquired nine companies in the past two years, including Mattress Firm Holding in the US, and which presides over a cobbled-together empire of retailers and assorted other companies in the US, Europe, Africa, and Australasia – issued another devastating announcement today: It cancelled its “private” annual meeting with bankers in London on Monday and rescheduled it for December 19. This is the meeting when the company normally discusses its annual report with its global bankers. The annual report should have been released on Wednesday, December 6. But on precisely that day, the company announced cryptically that “accounting irregularities” had “come to light” that required “further investigation,” and that CEO Markus Jooste had been axed “with immediate effect,” and that it would postpone its annual report indefinitely.

This is raising serious questions about the company’s viability as a going concern. The lack of transparency doesn’t help. To soothe investors, the company announced on Thursday that it was trying to prop up its liquidity by selling some units ASAP. And it made more cryptic statements: It “has given further consideration to the issues subject to the investigation and to the validity and recoverability” of some assets of “circa €6 billion” ($7 billion). “The validity and recoverability” of assets worth $7 billion? The company is infamous for its opaque communications which equal its opaque corporate structure. It’s considering selling “certain non-core assets that will release a minimum of €1 billion of liquidity.” It also “committed” to wringing out €2 billion from its subsidiary Steinhoff Africa Retail Limited (STAR) by refinancing “on better terms” some debt that the subsidiary owes the parent company, which the subsidiary should be able to handle, “given the strong cash flow.”

With these measures, it hopes “to be able to fund its existing operations and reduce debt.” Shareholders and bondholders were aghast. The shares, traded in Frankfurt and held widely by international investors, had still been in the €5-range in June. But in August, German prosecutors said they were probing if Steinhoff had booked inflated revenues at its subsidiaries. Shares began to drop. By Tuesday, there were down 41% at €2.95. On Wednesday, after the “accounting irregularities” had “come to light,” shares crashed 64% to €1.07. By Friday, they’d dropped to €0.47. Market capitalization plunged by about €18 billion ($21 billion) since June to €2 billion.

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With every false report, more credibility is lost of the MSM. And they still don’t understand that.

CNN Corrects a Trump Story, Fueling Claims of ‘Fake News’ (NYT)

CNN on Friday corrected an erroneous report that Donald Trump Jr. had received advance notice from the anti-secrecy group WikiLeaks about a trove of hacked documents that it planned to release during last year’s presidential campaign. In fact, the email to Mr. Trump was sent a day after the documents, stolen from the Democratic National Committee, were made available to the general public. The correction undercut the main thrust of CNN’s story, which had been seized on by critics of President Trump as evidence of coordination between WikiLeaks and the Trump campaign. It was also yet another prominent reporting error at a time when news organizations are confronting a skeptical public, and a president who delights in attacking the media as “fake news.”

Last Saturday, ABC News suspended a star reporter, Brian Ross, after an inaccurate report that Donald Trump had instructed Michael T. Flynn, the former national security adviser, to contact Russian officials during the presidential race. The report fueled theories about coordination between the Trump campaign and a foreign power, and stocks dropped after the news. In fact, Mr. Trump’s instruction to Mr. Flynn came after he was president-elect. Several news outlets, including Bloomberg and The Wall Street Journal, also inaccurately reported this week that Deutsche Bank had received a subpoena from the special counsel, Robert S. Mueller III, for President Trump’s financial records. The president and his circle have not been shy about pointing out the errors.

[..] CNN’s erroneous scoop, about the email to Donald Trump Jr., rocketed around cable news and social media on Friday morning. But it fell apart after The Washington Post reported that the email — which included a decryption key to access hacked documents — was dated Sept. 14, not Sept. 4, as CNN initially reported. WikiLeaks publicized links to the documents in question on Sept. 13. CNN said that its report had been based on information from two sources and vetted by the network’s in-house fact-checking team. But both sources were apparently incorrect about the date of the message. [..] “Between this and Brian Ross’ Flynn mistake, the mainstream media is doing a great job of bolstering Trump’s claims about fake news,” wrote James Surowiecki, a former columnist for The New Yorker. “It’s the most obvious thing to say, but reporters need to SLOW DOWN. Being right is more important than being first.”

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Only AFTER destroying an entire economy, the EU explains why. Lock them up!

Aim Of First Greek Memorandum: Rescue Foreign Investors – Dijsselbloem (Amna)

The main aim of the first Greek memorandum, especially, was to rescue investors outside Greece, outgoing Eurogroup chief Jeroen Dijsselbloem admitted in the Europarliament on Thursday. “There were mistakes in the first programmes, we improvised. The way we dealt with the banks was expensive and ineffective. It is true that our aim was to rescue investors outside Greece and for this reason I support the rules for bail-ins, so that investors aren’t rescued with tax-payers’ money,” said Dijsselblem in reply to independent Greek MEP Notis Marias. Dijsselbloem noted that it had been a huge crisis because the fiscal sector had faced the risk of a total collapse that would have left many countries with a high debt. However, he pointed out that banks had only needed €4.5 billion in the third programme because the private sector had a huge participation.

Referring to the non-performing loans, he said that a private solution that did not once again place the burden on tax-payers was near. He also pointed to measures being taken in Greece for the protection of the socially weaker groups, to make sure that they were not the victims of the auctions. Referring to the early payment of the IMF loans with the remaining money of the programme, the Eurogroup chief said that this made sense financially, given that the IMF’s loans were more expensive than those of the Europeans. However, from a political point of view, the Eurogroup prefers that the IMF remain fully involved in the Greek programme, with its own responsibilities, he added. In any case, he noted that the final decisions on debt relief will be made later, when the programme is concluded and the sustainability of the Greek debt has been examined.

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Perspective. Large number of bubbles.

The Most Valuable Companies of All Time (VC)

Before speculative bubbles could form around Dotcom companies (late-1990s) or housing prices (mid-2000s), some of the first financial bubbles formed from the prospect of trading with faraway lands. Looking back, it’s pretty easy to see why. Companies like the Dutch East India Company (known in Dutch as the VOC, or Verenigde Oost-Indische Compagnie) were granted monopolies on trade, and they engaged in daring voyages to mysterious and foreign places. They could acquire exotic goods, establish colonies, create military forces, and even initiate wars or conflicts around the world. Of course, the very nature of these risky ventures made getting any accurate indication of intrinsic value nearly impossible, which meant there were no real benchmarks for what companies like this should be worth.

The Dutch East India Company was established as a charter company in 1602, when it was granted a 21-year monopoly by the Dutch government for the spice trade in Asia. The company would eventually send over one million voyagers to Asia, which is more than the rest of Europe combined. However, despite its 200-year run as Europe’s foremost trading juggernaut – the speculative peak of the company’s prospects coincided with Tulip Mania in Holland in 1637. Widely considered the world’s first financial bubble, the history of Tulip Mania is a fantastic story in itself. During this frothy time, the Dutch East India Company was worth 78 million Dutch guilders, which translates to a whopping $7.9 trillion in modern dollars.

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Jan 062016
 
 January 6, 2016  Posted by at 10:48 am Finance Tagged with: , , , , , , , ,  


William Henry Jackson Eureka, Colorado 1900

Contracting US Industrial Output Associated With Onset Of A Recession (WSJ)
“We Frontloaded A Tremendous Market Rally” Former Fed President Admits (ZH)
“It’s A Really Messy Start To The Year” For Markets (BBG)
Saudis Slash European Oil Prices as Middle East Tensions Grow (WSJ)
Saudi Arabia Hikes Domestic Gas Prices By 50% Amid Budget Cuts (CNN)
Spread Between Onshore, Offshore Yuan Widest Since September 2011 (Reuters)
Dow Futures Off 170 Points, Yuan Falls To 5-Year Low, PBOC Loses Control (ZH)
China’s Terrible Start to 2016 Has Beijing Fighting Market Fires (BBG)
China’s Strategic Reserve Board Is Buying Up More Copper
Foreign Banks In China Could Face Curbs If They Snub Gold Benchmark (Reuters)
UK Consumer Lending Growing At Fastest Rate In A Decade (Ind.)
Sanders Vows To Break Up Banks During First Year In Office (AP)
Note To Sanders: Forget The Octopus Arms … Go For The Head (Rossini)
Volkswagen Struggling To Agree On Fix For US Test Cheating Cars (Reuters)
Volkswagen’s American Nightmare (BV)
My Financial Road Map For 2016 (Nomi Prins)
December 2015 Was Wettest Month Ever Recorded In UK (Guardian)
Refugees In Lesbos: Are There Too Many NGOs On The Island? (Guardian)
Refugees: EU Resettles Just 0.17% Of Pledged Target In Four Months (Guardian)
Turkish Authorities Find Bodies Of 34 Refugees, Search For Survivors (Reuters)

Not all numbers lie.

Contracting US Industrial Output Associated With Onset Of A Recession (WSJ)

When the Federal Reserve announced in mid-December that it would begin raising short-term interest rates, Fed officials characterized domestic spending as “solid” and the risks to economic growth as “balanced.” They also said they were “reasonably confident” that inflation would move back up to the Fed’s 2% target over the next several years. Data released the past few weeks, however, underscore concerns about the economic outlook that were apparent even before the Fed’s announcement.

The same day it announced its monetary policy decision, the Federal Reserve released its latest measure of industrial production. As the chart below shows, the industrial sector contracted 1.2% in November from a year earlier. That contraction was initially played down as largely reflecting the effects of warm weather on utility production. But subsequent data point to a broader and more persistent contraction. In the manufacturing survey published Monday by the Institute of Supply Managers, the index of business conditions declined further in December; this index stands at its lowest level since 2009.

Turning to domestic spending, the term “solid” implies substantial strength and resilience. Yet recent indicators paint a gloomier picture. Shipments of core capital goods (that is, nondefense items excluding aircraft) contracted at an annual rate of nearly 2% over the three months ending in November. Private non-residential construction contracted about 4%. Meanwhile, growth in real personal consumption expenditures dropped from 4% last spring to 3% over the summer and slowed further, to around 2%, over the three months ending in November. In light of those readings, the Atlanta Fed’s current “now-cast” analysis indicates that real GDP barely increased during the fourth quarter of 2015.

These data reinforce the view that the U.S. economy may be operating at stall speed. Consequently, the possibility of falling into recession poses a much more significant risk than the prospect of economic overheating. As the first chart shows, every episode of contracting industrial output since 1970 has been associated with the onset of a recession. These downside risks make a compelling case for Fed officials to refrain from further monetary tightening and, instead, refocus on contingency planning for scenarios in which such risks materialize.

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A strange confession.

“We Frontloaded A Tremendous Market Rally” Former Fed President Admits (ZH)

In perhaps the most shocking of mea culpas seen in modern financial history, former Dallas Fed head Richard Fisher unleashed some seriously uncomfortable truthiness during a 5-minute confessional interview on CNBC. While talking heads attempt to blame China for recent US market volatility, Fisher explains “It is not China,” it is The Fed that is at fault: “What The Fed did, and I was part of it, was front-loaded an enormous rally market rally in order to create a wealth effect… and an uncomfortable digestive period is likely now.” Simply put he concludes, there can’t be much more accomodation, “The Fed is a giant weapon that has no ammunition left.”

Must watch!!! A shocked Simon Hobbs (at 5:10) is a must-see… “Will The Fed come on and say ‘we’re sorry, we over-inflated the market’ when it crashes?” Fisher appears to be undertaking a major “cover-your-ass” episosde, proclaiming that he was against QE3 which is what has forced “valuations to be very richly priced.” “In my tenure at The Fed, every market participant was demanding we do more… “It was The Fed, The Fed, The Fed… in my opinion they got lazy.. and it is time to go back to fundamental analysis… and not just expect the tide to lift all boats… and as [The Fed] tide recedes we are going to see who is wearing a bathing suit and who is not”

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European markets now falling 3rd day in a row.

“It’s A Really Messy Start To The Year” For Markets (BBG)

Stocks declined around the world for a second day and the yen advanced after China’s efforts to prop up its stock market failed to quell investor misgivings over the strength of the global economy. Investor optimism in Europe proved short-lived as shares in the region erased an advance of more than 1%, while U.S. equity-index futures pointed to further declines after the Standard & Poor’s 500 Index posted its sixth-worst start to a year in data compiled by Bloomberg going back to 1927. The yen strengthened against all its major counterparts on demand for the safest assets and gold gained a second day. Industrial metals advanced after China’s authorities succeeded in stabilizing that nation’s equities.

“It’s a really messy start to the year – everyone is really on edge,” said William Hobbs at Barclays’ wealth-management unit in London. “Not much is expected of the world in terms of growth, risk appetite is biased to the downside and weak data from China to the U.S. hasn’t helped at all. Plenty of people out there believe that the next global recession is imminent.” The declines come even after China moved to support its stock market with state-controlled funds buying equities and regulators signaling a selling ban on major investors will remain beyond this week’s expiration date, according to people familiar with the matter. A 7% slump in mainland China shares on Monday triggered a trading halt, and the rout spread throughout Asia, Europe and the U.S. as a report showing the fastest contraction in U.S. manufacturing in six years.

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In more ways than one: “The Saudis are preparing for Iran’s return..”

Saudis Slash European Oil Prices as Middle East Tensions Grow (WSJ)

Saudi Arabia on Tuesday sharply cut the prices it charges for crude oil in Europe, a move that could undercut Iran as sectarian tensions escalate between the rival Middle Eastern nations. The Saudi move appears to pave the way for a competition over European oil markets later this year when Iran is expected to increase its exports after the expected end of western sanctions over its nuclear program. Italy and Spain relied on Iran for 13% and 16% of their oil imports before the European Union banned such purchases under sanctions related to its nuclear program in 2012. Although the country was replaced in the market by Saudi Arabia and other countries such as Russia, Tehran is counting on rekindling those ties when it resumes exports.

The price cut comes after a diplomatic chasm opened this week between Saudi Arabia and Iran, and by extension, the Sunni and Shiite Muslim worlds. Riyadh and a number of Sunni Muslim capitals have severed or downgraded diplomatic ties with Iran after the Saudi embassy was set on fire in Tehran following the execution in Saudi Arabia of Shiite cleric Nemer al-Nemer. Iran and Saudi Arabia are at odds elsewhere in the Middle East. In Yemen, Iran has supported militants fighting a Saudi-backed regime. In Syria, Saudi Arabia is supporting rebel groups trying to topple Iranian-backed President Bashar al-Assad. Saudi Aramco, the kingdom’s state-owned oil company, didn’t mention the conflict in its news release about the price cuts.

Aramco prices are set every month at a discount or premium to various regional benchmark prices, which go up and down based on supply, demand and other factors considered by the market. On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery. Iranian oil professionals interpreted the move as a way to compete with Iran returning to the oil markets. The European Union is set to lift an embargo on Tehran as soon as next month. “The Saudis are preparing for Iran’s return,” said Mohamed Sadegh Memarian, who recently retired as the head of petroleum market analysis at Iran’s oil ministry..

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Slash Europe prices, cut perks at home. Doesn’t even look like a short-term strategy.

Saudi Arabia Hikes Domestic Gas Prices By 50% Amid Budget Cuts (CNN)

While the world’s attention is focused on Saudi Arabia’s latest flare up with Iran, many Saudis are concerned about the “economic bomb” at home. The government is slashing a plethora of perks for its citizens. The cash crunch is so dire that the Saudi government just hiked the price of gasoline by 50%. Saudis lined up at gas stations Monday to fill up before the higher prices kicked in. “They have announced cutbacks in subsidies that will hurt every single Saudi in their pocketbook,” says Robert Jordan, a former U.S. ambassador to Saudi Arabia and author of “Desert Diplomat: Inside Saudi Arabia Following 9/11.” Gas used to cost a mere 16 cents a liter in Saudi Arabia, one of the cheapest prices in the world. Many Saudis drive large SUVs and “have no concept of saving gas,” says Jordan.

The gas hike is just the beginning. Water and electricity prices are also going up, and the government is scaling back spending on roads, buildings and other infrastructure. Those cuts might sound normal for any government that is running low on cash. But it’s especially problematic in Saudi Arabia because the vast majority of Saudis work in the public sector. About 75% of the Saudi government’s budget comes from oil. The price of oil has crashed from over $100 a barrel in 2014 to around $36 currently. Most experts don’t expect a rebound anytime soon. The Saudi government used its vast oil wealth to provide generous benefits to its citizens. When the Arab Spring rocked the Middle East in 2011, the Saudi king spent even more in an effort to subdue any discontent in the country.

Here are some of the perks Saudis receive:
-Heavily subsidized gas (It used to be 16 cents a liter. Now it’s gone up to 24 cents.)
-Free health care
-Free schooling
-Subsidized water and electricity
-No income tax
-Public pensions
-Nearly 90% of Saudis are employed by the government
-Often higher pay for government jobs than private sector ones
-Unemployment benefits (started in 2011 in reaction to the Arab Spring)
-A “development fund” that provides interest-free loans to help families buy homes and start businesses.

Now Saudi Arabia can’t pay for all those benefits. It ran a deficit of nearly $100 billion last year and expects something similar this year, if not worse. The IMF recently predicted that Saudi Arabia could run out of cash in five years or less if oil stays below $50 a barrel. “The Saudis have used their economic power to buy off their population,” says Jordan, who is currently serving as diplomat in residence at Southern Methodist University. He predicts Saudi Arabia may even have to start collecting an income tax or sales tax. “Part of the leverage the regime has had on their people is that they don’t impose taxes and therefore people don’t expect representation,” Jordan says. “But once they pay taxes, you’re likely to see an increase in political unrest.”

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Money flowing out.

Spread Between Onshore, Offshore Yuan Widest Since September 2011 (Reuters)

The spread between onshore and offshore yuan hit its widest level in more than four years on Tuesday after the central bank was suspected to have intervened in the onshore market to support the currency. The People’s Bank of China set the midpoint rate at 6.5169 per dollar prior to the market open, weaker than the previous fix of 6.5032 and the weakest level since April 2011. In the onshore spot market, the yuan strengthened immediately after the opening. The spot rate is allowed to trade with a range 2% above or below the official fixing on any given day. “It’s quite obvious that the central bank has intervened in the market via big Chinese banks in the morning and trading was very active,” said a trader at a Chinese bank in Shanghai. Despite the interventions, the trader said his strategy was to continue shorting the yuan given China’s weak economic fundamentals.

The trader expected the Chinese currency to fall to 6.6 per dollar by the end of the year. China struggled to shore up shaky sentiment on Tuesday a day after its stock indexes and yuan currency tumbled, rattling markets worldwide, but analysts warned investors to buckle up for more wild price swings in the months ahead. “State-owned banks were offering dollar liquidity around 6.52 per dollar,” said a Shanghai trader at a major European bank. “They were apparently trading on behalf of the PBOC to help control the pace of yuan depreciation.” In the offshore market, where the central bank usually takes a hands-off attitude, the yuan hit 6.6488 in late afternoon trade, the lowest in more than four years. It was 2% weaker than the onshore yuan midpoint. The spread between onshore and offshore yuan widened to more than 1,200 pips, the highest level since September 2011.

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“China is going to have to dramatically devalue its currency..” Dramatically. 25% just for starters.

Dow Futures Off 170 Points, Yuan Falls To 5-Year Low, PBOC Loses Control (ZH)

Dow futures are down over 170 points from the cash close, testing the lows of the day following carnage in the Chinese currency markets. Despite the biggest drop in onshore Yuan since August devaluation, Offshore Yuan has collapsed to its lowest since September 2010. What is more worrisome (or positive for Kyle Bass) is that the spread between onshore and offshore Yuan has blown out to 1250 pips – a record – indicating dramatic outflows and/or expectations of further devaluation to come.

Yuan is in free-fall… Offshore Yuan is down over 400 pips from intraday highs, testing 6.6800

 

CNH-CNY spread is now over 1320 pips – as it appears The PBOC is losing control.

And although Chinese stocks are "stable" thanks to some National Team play…

 

US equity futures are tumbling off the bounce close, trading back near the day's lows…

 

It appears Kyle Bass was right:

Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."

And it is – sanctioned by The IMF…

 

Charts: Bloomberg

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Chinese can’t short the markets. We can.

China’s Terrible Start to 2016 Has Beijing Fighting Market Fires (BBG)

China has started 2016 in fire-fighting mode. After three months of relative calm in the nation’s $6.5 trillion stock market, a 7% rout to open the new year prompted government funds to prop up share prices on Tuesday, according to people familiar with the matter. The central bank injected the most cash since September into the financial system to keep a lid on borrowing costs, while the monetary authority was also said to intervene in the currency market to prevent excessive volatility. With Chinese shares and the yuan posting their worst starts to a year in at least two decades, the ruling Communist Party is being forced to scale back efforts to let markets have more sway in the world’s second-largest economy.

Private data this week showed the nation’s manufacturing sector ended last year with a 10th straight month of contraction, amplifying concern that the weakest economic growth in 25 years will fuel capital outflows. “There’s no doubt China wants to liberalize markets, but it’s happening at such a time that it’s very difficult to do in an orderly manner,” said Ken Peng at Citigroup in Hong Kong. While Chinese policy makers have said freer markets are integral to their plans to make the country’s economic expansion more sustainable, authorities are also concerned that sinking asset prices will weigh on business and consumer confidence. Capital outflows from China swelled to an estimated $367 billion in the three months ended November, according to data compiled by Bloomberg.

The stock market’s selloff on Monday was triggered by this week’s disappointing manufacturing data, along with investor worries that an expiring ban on stake sales by major shareholders would unleash a flood of sell orders at the end of this week. Those concerns eased on Tuesday as people familiar with the matter said regulators plan to keep the restrictions in place beyond Jan. 8. To support share prices, government funds targeted companies in the finance and steel sectors, among others, said the people, who asked not to be identified because the buying wasn’t publicly disclosed. The plunge on Monday triggered the nation’s circuit breakers on their first day, dealing a blow to regulatory efforts to restore calm to a market where individuals drive more than 80% of trading.

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They don’t understand. They can’t afford to buy enough copper to stabilize prices.

China’s Strategic Reserve Board Is Buying Up More Copper

China’s State Reserve Bureau is seeking as much as 150,000 metric tons of domestically produced refined copper for its stockpiles amid a collapse in prices to six-year lows, according to people with knowledge of the situation. The state agency issued the tender, which closes Jan. 10, to multiple sellers including smelters at a meeting in Beijing on Tuesday, the people said, asking not to be identified because the information is private. The tender was reported late Tuesday by FastMarkets.com. Smelters in China, the world’s largest producer and consumer of metals, are contending with a collapse in prices as the nation’s growth slows to its weakest in a quarter century.

The SRB’s move to soak up excess supply follows industry pledges in December to cut output and sales, and lobbying of the government to step in to support the market. China’s refined copper surplus was forecast to narrow last year to 1.14 million tons as imports fell, according to state-run researcher Beijing Antaike Information Development Co. in October. At the same time, Antaike projected that domestic production would grow 7.7% to 7.42 million tons.

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Curious idea.

Foreign Banks In China Could Face Curbs If They Snub Gold Benchmark (Reuters)

China has warned foreign banks it could curb their operations in the world’s biggest bullion market if they refuse to participate in the planned launch of a yuan-denominated benchmark price for the metal, sources said. The world’s top producer and consumer of gold has been pushing to be a price-setter for bullion as part of a broader drive to boost its influence on global markets. Derived from a contract to be traded on the state-run Shanghai Gold Exchange, the Chinese benchmark is set to launch in April, potentially denting the relevance of the current global standard, the U.S. dollar-denominated London price. China needs the support of foreign banks, especially those who import gold into the mainland, but they could be wary given the global scrutiny on benchmarks following the manipulation of Libor rates in the foreign exchange market.

Banks with import licenses will face “some action” if they do not participate in the benchmark, said a source who did not want to be named as he was not authorized to speak to media. “Maybe China won’t cancel the license but we won’t give them the import quota or will reduce the amount under the quota,” the source said. Banks with licenses must apply to regulators for annual import quotas. Banks had been told China would take “some measures” if they did not participate in the fix, a banking source said. “They passed on the impression that ‘maybe your quota will be limited or you cannot be a market maker for swaps or forwards’,” he said.

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It’s a death trap, it’s a suicide rap, we gotta get out while we’re young…

UK Consumer Lending Growing At Fastest Rate In A Decade (Ind.)

Near-zero inflation and Black Friday discounts helped trigger the biggest pre-Christmas spending spree for nearly a decade in November, Bank of England figures showed yesterday. The Bank’s data showed consumer lending through personal loans and credit card debts up 8.3% year on year over the month – the fastest pace of growth since February 2006, back in the pre-credit crunch era. But along with another big surge in mortgage lending in November and more evidence of waning momentum among manufacturing companies, the figures fuelled concerns over the unbalanced nature of the UK recovery. In cash terms, £1.48bn in consumer credit was advanced, the most for a single month since February 2008. The data included both the Black Friday and Cyber Monday events, which ushered in a six-week price-cutting drive among retailers.

Shoppers are benefiting from cheap food and petrol, with the cost of living at just 0.1%. But recent real-terms pay increases have been largely fuelled by tumbling inflation rather than improved productivity, while the Bank has also voiced fears over the vulnerability of indebted households to an interest rate rise. The IMF has also highlighted the risk of deeply indebted people succumbing to “income and interest rate shocks”, with household debt still standing at around 144% of incomes. The pick-up in unsecured loans follows recent data from the Office for National Statistics showing that the household savings ratio dipped to 4.4% in the third quarter of 2015, equalling the lowest rate since 1963. “Consumers are borrowing more and saving less to finance their spending, which is likely a consequence of relatively high consumer confidence and extended low interest rates,” Howard Archer of IHS Global Insight said. Consumer credit lending has now topped £1bn for nine months in a row.

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Sounds noble…

Sanders Vows To Break Up Banks During First Year In Office (AP)

Characterizing Wall Street as an industry run on “greed, fraud, dishonesty and arrogance,” Democratic presidential candidate Bernie Sanders pledged to break up the country’s biggest financial firms within a year and limit banking fees placed on consumers, should he become president, in a fiery speech on Tuesday. He coupled that promise, delivered in front of a raucous crowd just a few subway stops from Wall Street, with a series of attacks on rival Hillary Clinton, arguing her personal and political ties make her unable to truly take on the financial industry. “To those on Wall Street who may be listening today, let me be very clear: Greed is not good,” said Sanders, in a reference to Oliver Stone’s 1980s film, “Wall Street.” “If Wall Street does not end its greed, we will end it for them,” he said, as a cheering audience jumped to its feet.

Sanders has made regulating Wall Street a focus of his primary bid, with calls to curb the political influence of “millionaires and billionaires” at the core of his message. But the attacks on Clinton marked an escalation in his offensive against the Democratic front-runner. Clinton’s policies, he said, would do little more than “impose a few more fees and regulations.” “My opponent says that, as a senator, she told bankers to ‘cut it out’ and end their destructive behavior,” he said, to laughter. “But, in my view, establishment politicians are the ones who need to cut it out,” he said. Clinton responded at a campaign event in Sioux City, Iowa, on Tuesday evening, saying her policies would take on a wide range of financial actors, including insurance companies and investment houses that helped spark the 2008 recession. “I have a broader, more comprehensive set of policies about everything including taking on Wall Street,” she said. “I want to go after everybody who poses a risk to our financial system.”

[..] Sanders vowed to create a “too-big-to-fail” list of companies within the first 100 days of his administration whose failure would pose a grave risk to the U.S. economy without a taxpayer bailout. Those firms would be forced to reorganize within a year. Sanders also said he wants to cap ATM fees at two dollars and cap interest rates on credit cards and consumer loans at 15%. He also promised to take a tougher tact against industry abuses, noting that major financial institutions have been fined only $204 billion since 2009. And he promised to restructure credit rating agencies and the Federal Reserve, so bankers cannot serve on the body’s board. “The reality is that fraud is the business model on Wall Street,” he said. “It is not the exception to the rule. It is the rule.”

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…but does Bernie really get it?

Note To Sanders: Forget The Octopus Arms…Go For The Head (Rossini)

Bernie Sanders is attacking Wall Street. He’s campaigning to break up the “too big to fail” banks. It’s easy to see why such an idea would get some fanfare. After all, there are many Americans that remember the great $700 billion heist during the George W. Bush administration…the one that bailed out the most-favored banking cronies. Sanders says: “We need a movement which tells Wall Street that when a bank is too big to fail, it is too big to exist.” Again, superficially, it makes sense as to why people would hitch their wagons onto such an idea. Sadly though, Sanders is taking a swing that can only end up as a major whiff. The American banking system is like an octopus. The head of the octopus is the central bank, known as The Federal Reserve. That is where the source of our problems originate.

It all starts and ends with The Fed. The banks are nothing but appendages. They’re like the Fed’s octopus arms. Sanders wants to attack the arms. That’s a poor strategy, and the results would be fruitless. The size of a bank doesn’t matter. In fact, how does Sanders know what the “right” size would be? At what point is a bank no longer “too big”? How can he know such a thing? The truth is, he can’t, and like most government decisions, such a move would be totally arbitrary. Even if Sanders were to succeed in breaking up the big banks, were the Federal Reserve to still exist, those new banks would retain their “lender of last resort”. The banks would still operate in an environment drowning in moral hazard. They would still have a call option on our purchasing power and would continue to loot us via inflation.

They would still be The Fed’s instruments in creating the illusionary booms that are followed by the bone-crushing busts. That’s why they call it The Federal Reserve “System”. It’s a “system” of enriching the few at the expense of the many. Sanders isn’t going to touch the “system”. In fact, with all the free stuff and new “rights” that he’s concocted, Bernie’s going to need The Federal Reserve around to finance them. Bottom line? Tangling with the Fed’s octopus arms would accomplish virtually nothing. The only change that must occur is to End The Fed. The Eccles Building needs to be turned into a museum where future generations can walk through and learn about one of the biggest mistakes that was ever made in America. Will Sanders call for an end to The Fed? Don’t count on it.

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Goldman estimates they’ll end up paying just half a billion?!

Volkswagen Struggling To Agree On Fix For US Test Cheating Cars (Reuters)

Volkswagen is struggling to agree with U.S. authorities a fix for vehicles capable of cheating emissions tests, a VW source said on Tuesday, showing how relations between the two sides remain strained four months after the cheating came to light. The source said the German carmaker would hold further talks with the Californian Air Resources Board this week and with the U.S. Environmental Protection Authority (EPA) next week, and still hoped to reach a solution by a mid-January deadline. But finding a fix was proving more difficult than expected, in part because this involved producing new components which then required testing, said the person, who declined to be named as the talks are confidential.

The difficulties highlight the lack of progress VW has made in winning back the confidence of U.S. regulators and drivers almost four months after it admitted to cheating diesel emissions tests and promised to turn over a new leaf. On Monday, the U.S. Justice Department said it was suing Europe’s biggest carmaker for up to $90 billion for allegedly violating environmental law – five times the initial estimate of regulators. The move threw VW’s U.S. problems back into focus after it seemed to be recovering ground in Europe, sending its shares down more than 8% to a six-week low on Tuesday. “The announcement serves as a reminder/reality check of VW’s still unresolved emissions issues,” Goldman Sachs analysts said of the lawsuit.

VW Chief Executive Matthias Mueller is expected to meet EPA representatives and politicians in Washington next week after visiting the Detroit Auto Show, the VW source said, on what will be Mueller’s first trip to the United States since the scandal broke in September. VW declined to comment on the progress of talks with the EPA, on whose behalf the U.S. Justice Department filed the lawsuit, or on Mueller’s plans. The lawsuit claim of up to $90 billion is based on fines of as much as $37,500 per vehicle for each of four violations of the law, with illegal devices installed in nearly 600,000 vehicles in the United States, according to the complaint. U.S. lawsuits are typically settled at a fraction of the theoretical maximum. Goldman has estimated the likely costs at $534 million.

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“VW cannot afford to lose more time in the United States. It needs to ditch the ill-fated plan to repair the 580,000 U.S. vehicles. A swift buyback of all these would be far more effective, as it would end the extra air pollution at once.”

Volkswagen’s American Nightmare (BV)

The United States is reversing Volkswagen’s recent progress in tackling its emissions scandal. The U.S. Department of Justice on Jan. 4 issued a strongly worded lawsuit against the German carmaker, upending a six-week rally in VW shares. Wolfsburg needs something big to stop American lawmakers wielding a scarily large stick. Last year ended on a relatively positive note for the battered company. German regulators rubberstamped an inexpensive and simple fix for the majority of the 11 million vehicles sold in the European Union. Suspected manipulation of fuel efficiency data uncovered by VW’s internal investigation turned out to be much less widespread and severe than initially feared.

Yet both precedent and the lawsuit’s content suggest the United States will be tougher. The Department of Justice accuses Volkswagen of four different violations of the Clean Air Act. Most strikingly, VW’s theoretical maximum fine if found guilty has more than quadrupled to $90 billion – almost 125% of its market capitalisation. Moreover, Volkswagen has done little to win the goodwill of U.S. authorities. It admitted wrongdoing in September 2015 only after months of stonewalling. The company still lacks a technical fix to lower toxic emissions of its affected U.S. diesels to pass the country’s more demanding emission regimes and effectively reduce exhaust fumes. And the complaint filed on Jan. 4 also accuses VW of continuing to impede and obstruct its investigations “by material omissions and misleading information” after the September confession.

VW cannot afford to lose more time in the United States. It needs to ditch the ill-fated plan to repair the 580,000 U.S. vehicles. A swift buyback of all these would be far more effective, as it would end the extra air pollution at once. These benefits would by far outweigh the initial costs Evercore ISI analysts see at €5.8 billion. More sweeping changes in Volkswagen’s governance are also important. Chairman Hans Dieter Poetsch should go. The former finance director was one of Volkswagen’s most senior managers during the emissions cheating era. A credible outsider, who is unburdened by the past and embodies a new culture, could then set about trying to limit the fallout across the Atlantic.

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Do read.

My Financial Road Map For 2016 (Nomi Prins)

As a writer and journalist covering the ebbs and flows of government, elite individual, central bank and private industry power, actions, co-dependencies, and impacts on populations and markets worldwide, I often find myself reacting too quickly to information. As I embark upon extensive research for my new book, Artisans of Money, my resolution for the book – and the year – is to more carefully consider small details in the context of the broader perspective. My travels will take me to Brazil, Mexico, China, Japan, Germany, Spain, Greece and more. My intent is to converse with people in their respective locales; those formulating (or trying to formulate) monetary, economic and financial policy, and those affected by it.

We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever. The butterfly effect – the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part – is on center stage. There is much information to process. So, I’d like to share with you – not my financial predictions for 2016 exactly – – but some of the items that I will be examining from a geographical, political and financial perspective as the year unfolds.

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Wow! Beating ‘wetness’ records in Britain is quite the achievement. Britons might as well start walking around in wetsuits all day now.

December 2015 Was Wettest Month Ever Recorded In UK (Guardian)

December was the wettest month ever recorded in the UK, with almost double the rain falling than average, according to data released by the Met Office on Tuesday. Last month saw widespread flooding which continued into the new year, with 21 flood alerts in England and Wales and four in Scotland in force on Tuesday morning. The record for the warmest December in the UK was also smashed last month, with an average temperature of 7.9C, 4.1C higher than the long-term average. Climate change has fundamentally changed the UK weather, said Prof Myles Allen, at the University of Oxford: “Normal weather, unchanged over generations, is a thing of the past. You are not meant to beat records by those margins and if you do so, just like in athletics, it is a sign something has changed.”

The Met Office records stretch back to 1910 and, while December saw a record downpour particularly affecting the north of England, Scotland and Wales, 2015 overall was only the sixth wettest year on record. The high temperatures in December would normally be expected in April or May and there was an almost complete lack of air frost across much of England. The average from 1981-2010 was for 11 days of air frost in December, but last month there were just three days. Across 2015, the average UK temperature was lower than in 2014, though globally 2015 was the hottest year on record. Allen said it has been predicted as far back as 1990 that global warming would mean warmer, wetter winters for the UK, with more intense rainstorms.

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What happens when the -overly- well funded EU, UNHCR and Red Cross don’t do what they’re supposed to.

Refugees In Lesbos: Are There Too Many NGOs On The Island? (Guardian)

Moria refugee camp, on the Greek island of Lesbos, is full of volunteers who have come from all over the world to help displaced people. Burly Dutch men carry huge water tanks, Cypriot doctors erect a new medical tent at the foot of Afghan Hill and major organisations such as Médecins Sans Frontières and Action Aid make their presence felt. But locals are anxious – they’re worried this huge influx of international volunteers is creating more chaos on their small island rather than a coordinated response, resulting in refugees being given bad information and the Greek community’s needs going ignored. At last count there were 81 NGOs operating on the island, and local media say that just 30 have registered with the local authorities.

The island has a population of about 90,000, yet saw almost 450,000 refugees pass through during 2015. The mayor of Lesbos, Spyros Galinos, says he is heartened by the outpouring of generosity but the presence of NGOs and volunteers doesn’t always have a positive effect. “I am grateful to the ones that immediately responded to our first call for help addressed to the international community to help us cope with refugee crisis,” Galinos has said. “However, more recently I have seen many NGOs and individuals coming without official registration and showing no cooperation with our municipality. This causes everyone upset and these NGOs arouse doubt and mistrust among the residents of Lesbos. I would say their presence is disruptive rather than useful.”

One local fixer says that it’s “like a party for the NGOs”: some are working closely with the municipality, but many others “have no idea and are just doing their own thing”. Hotel owner Aphroditi Vati is one resident who has witnessed first-hand the recent spike in volunteers on the ground. Refugee boats have been landing on the beach right outside her hotel in Molyvos, in the north of the island, since April, and she says it was only in mid-September that more people who wanted to help started arriving. There were often seven boats arriving each day and while the hotel was in desperate need of the assistance, she says the NGOs brought their own problems, too.

“We had all these other people speeding onto the property, not respecting where they were, not respecting that they were in a business location, parking their cars wherever they wanted – reporters and photographers, yes, but mainly a lot of volunteers and NGOs,” she says. Vati says that the newcomers would rush into the water and try to pull refugees off the boats in a way that frightened the already distressed travellers. “You would have all this commotion that was not necessary, and we had people giving out wrong information, saying there were no buses when there were and telling refugees to walk [to the registration point],” she says.

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Europe’s politicians do not care.

Refugees: EU Resettles Just 0.17% Of Pledged Target In Four Months (Guardian)

European countries have resettled just 0.17% of the asylum seekers they promised to welcome four months ago, it has emerged, in a revelation that campaigners say is the latest failure of Europe’s confused response to the continent’s refugee crisis. EU officials announced this week that just 272 Syrians and Eritreans have been formally transferred (pdf) from the countries on the frontline of the migration crisis, Greece and Italy, to countries elsewhere in the continent. It constitutes 0.17% of the 160,000 refugees that EU members pledged to share at a summit in September, and 0.03% of the 1,008,616 asylum seekers who arrived by sea in 2015. Europe’s slow response stands in sharp contrast to the accelerating nature of the crisis, with the daily arrival rate to Greece now 11 times higher than it was in January 2015.

On Tuesday, at least 34 people died in the Aegean sea between Greece and Turkey in the first such shipwrecks of 2016. Many of those who do reach Greece are nominally supposed to be shared between other countries in the EU, under the terms of the September agreement. But according to figures released this week, 19 EU countries have not relieved Greece and Italy of any asylum seekers, while those that have are largely the countries that are already bearing a significant share of the continent’s refugee burden, such as Sweden and Germany. European countries have also failed to provide the full quota of border guards they pledged to send to Greece and Italy in September – with just 447 guards provided out of a promised 775. Hungary, one of the loudest proponents of a more heavily fortified European border, has seconded just four guards to border duty in Greece and Italy.

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I have no more tears. How about you, Barack?

Turkish Authorities Find Bodies Of 34 Refugees, Search For Survivors (Reuters)

Turkish authorities said they found the bodies of 34 migrants, at least three of them children, at two locations on the Aegean coast on Tuesday after they apparently tried to cross to the Greek island of Lesvos. The flow of mostly Syrian refugees and migrants braving the seas to seek sanctuary in Europe dipped towards the end of last year with the colder weather, but the total still reached 1 million last year, nearly five times more than in 2014. The migrants died after their boat or boats apparently capsized in rough seas. It was not known how many vessels were involved or how many people were on board. Twenty-four of the bodies were discovered on the shoreline in the district of Ayvalik, the Turkish coast guard command told Reuters. Ten others were found in the district of Dikili, a gendarmerie official in the local headquarters said.

Reuters TV footage showed a body in an orange life jacket lying at the grey water’s edge in Ayvalik, lapped by waves. The nationalities of those drowned were not immediately clear. “We heard a boat sank and hit the rocks. I surmise these people died when they were trying to swim from the rocks. We came here to help as citizens,” an unnamed eyewitness said. Increased policing on Turkey’s shores and colder weather conditions have not deterred refugees and migrants from the Middle East, Asia and Africa from embarking on the perilous journey in small, flimsy boats. “Migrants and refugees continue to enter Greece at a rate of over 2,500 a day from Turkey, which is very close to the average through December,” International Organization for Migration (IOM) spokesman Joel Millman told reporters in Geneva. “So we see the migrant flows are continuing through the winter and obviously the fatalities are continuing as well.”

IOM said 3,771 migrants died trying to cross the Mediterranean to reach Europe last year, compared with 3,279 recorded deaths in 2014. The coast guard and gendarmerie rescued 12 people from the sea and the rocks on the Ayvalik coastline. A coast guard official said three boats and a helicopter were searching for any survivors. In a deal struck at the end of November, Turkey promised to help stem the flow of migrants to Europe in return for cash, visas and renewed talks on joining the EU. Turkey is host to 2.2 million Syrians and has spent around $8.5 billion on feeding and housing them since the start of the civil war nearly five years ago. But it has faced criticism for lacking a longer term integration strategy to give Syrians a future there. Almost all of the refugees have no legal work status and the majority of children do not go to school.

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This little girl is one the 34 drowned refugees washed ashore on the Turkish Aegean coast. RIP sweetheart.

Sep 092015
 
 September 9, 2015  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  


DPC St. Catherine Street, Montréal, Québec 1916

Japan Shares Jump Most in Seven Years (WSJ)
Bond Market Sends Fed All-Clear to Raise Interest Rates (Bloomberg)
World Bank Economist Warns Fed Hike Could Harm Emerging Economies (WSJ)
Deutsche Bank: The U.S. Dollar Rally Is “Rotating, not Ending” (Bloomberg)
Market Volatility Has Changed Immensely (Tracy Alloway)
China Just Killed the World’s Biggest Stock-Index Futures Market (Bloomberg)
Perfect Storm Continues To Hammer EM Currencies (BNE)
China Slowdown Hits Major African Economies Hard (WSJ)
Boom, Bust And Broken Trust Mark The Ages Of Finance (John Kay)
Germany To Receive More Than 800,000 Refugees This Year (Reuters)
Europe’s Alarming Lack Of Unity Over Refugees Could Break Up The EU (Ind.)
Concern Over Burgeoning Trade In Fake And Stolen Syrian Passports (Guardian)
Citi: Capital Markets Now Control Oil Prices (Tracy Alloway)
China Intends To Oust Dollar From Oil Trade (RT)
Obscure Hedge Fund Is Buying Tens of Billions of Dollars of US Treasurys (WSJ)
Yet Another Measure Of Risk In Junk-Bond Market Flashing Red (MarketWatch)
The City’s Stranglehold Makes Britain An Oh-So-Civilised Mafia State (Monbiot)
Majority of Greeks Say Adopting Euro Has Harmed Country (Gallup)
EU Nations Must Support UN Sovereign Debt Restructuring Proposals (19 Economists)
Russia Demands Answers As Bulgaria, Greece Deny Syria Flights (AFP)
How Europe Crushed Greece (Yanis Varoufakis)
Can Hobbits Save New Zealand? (CNBC)

With a graph that offers perspective.

Japan Shares Jump Most in Seven Years (WSJ)

Stocks in Japan jumped the most in more than seven years on Wednesday, shaking off unease about slowing growth in China amid a tentative rebound in Chinese stocks. The Nikkei Stock Average jumped 7.7%, or 1343.43, to 18770.51, marking the benchmark’s biggest daily percentage gain since October 2008. In point terms, it was the biggest gain since January 1994. A broad rally for shares and currencies comes after markets in the region fell Tuesday on weak Chinese trade data that had stoked concerns about a further slowdown in the world’s second-largest economy. Japanese stocks hit a seven-month low Tuesday. But on Wednesday, investor sentiment toward China took a positive turn.

China’s finance ministry said Tuesday evening that the country would roll out a “more forceful” fiscal policy to stimulate economic growth, which it said faced downward pressure. The Ministry of Finance said in a statement that it would allocate more funds to support some infrastructure projects and implement tax cuts for small businesses. It also said it would accelerate the approval process for duty-free stores to boost construction. “Authorities [have] released a slew of policies aimed at rebuilding investor confidence by introducing mid-to-long term market-regulating measures,” said Jacky Zhang, an analyst at BOC International.

Optimism that China was taking steps to help its economy gave the Shanghai Composite Index a 1.7% boost and sent the Hang Seng Index 3% higher. “Any signal that [China’s] government is going to do more to support growth is going to help sentiment,” especially measures on top of monetary easing, added Bernard Aw, market analyst at IG. Beijing has approved nearly 200 billion yuan of infrastructure projects since July, according to an article by state-owned Securities Daily Wednesday.

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The Fed is in a bind. Not hiking rates would mean losing credibility after all the talk about it, and it would signal they don’t think the US economy is all that strong, after all the talk about that. Mind you, if it does raise rates, it will be on the back of made-up numbers, but that’s all we have left for the US, as for China.

Bond Market Sends Fed All-Clear to Raise Interest Rates (Bloomberg)

Janet Yellen has the fixed-income market just where she wants it: ripe for the first increase in U.S. interest rates since 2006. Just about every indicator is telling the Federal Reserve Chair a move at next week’s policy meeting would cause government bonds little disruption. Her guidance has money markets pricing an extraordinarily slow pace of tightening, volatility metrics show no signs of panic, and forwards indicate benchmark rates will remain contained. Differences between shorter- and longer-term yields are flashing a positive signal for the economy. A green light from Treasuries is vital to avoid derailing the recovery that Yellen has nurtured because they help determine borrowing costs for businesses and consumers. Acting decisively now may even lend investors greater confidence in the outlook for growth.

“The debt markets have priced in a lot and it’s now time for the Fed to take advantage of that,” said Peter Tchir at Brean Capital, which has clients ranging from hedge funds and pension funds to money managers specializing in fixed-income markets. “The 10-year Treasury is at a very comfortable point, with forwards showing even a Fed hike won’t move yields much higher,” Tchir said. “Once we get through the first increase, and see the economy can do fine, it will remove the looming worry.” Bond investors have had plenty of time to get comfortable with the idea that interest rates are going to rise from near zero. As long ago as March, the Fed introduced the possibility of a move in 2015.

Policy makers said more recently they intended to act before year-end, assuming continued improvement in the labor market, as they were confident inflation would move back toward their 2% goal. With the unemployment rate at a seven-year low, futures trades are pricing in a 30% likelihood of an increase this month and 59% odds of a tightening before Dec. 31. The Fed will announce its next policy decision on Sept. 17. Even when the Fed does move, communication tools such as officials’ estimates for the future evolution of interest rates and Yellen’s own press conference may help assuage market nerves. “It’s not only about the move itself, it’s also about the statement,” said Christoph Kind at Frankfurt Trust. If “the Fed makes clear that there is a lot of time until the next hike, then there might be some relief and that could be good news.”

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But does the Fed care? Surely emerging markets are not part of its mandate?!

World Bank Economist Warns Fed Hike Could Harm Emerging Economies (WSJ)

The Federal Reserve should hold off raising rates at its policy-setting meeting later this month until global economies are stronger, Kaushik Basu, chief economist at the World Bank, said in a newspaper interview published Tuesday. An increase in rates at the Fed’s meeting next week would risk creating “panic and turmoil” in emerging markets, and would lead to “fear capital” leaving those nations along with swings in their currencies, Mr. Basu told the Financial Times. “I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” he told the newspaper. With the world economies “looking so troubled,” he said, “if the U.S. goes in for a very quick move in the middle of this, I feel it is going to affect countries quite badly.”

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Where the Fed can find fodder to raise rates despite all predictions that it won’t.

Deutsche Bank: The U.S. Dollar Rally Is “Rotating, not Ending” (Bloomberg)

Depending on which index you look at, King Dollar either gave back ground in August’s market turmoil or continued to grind higher. The most commonly cited U.S. dollar index, the DXY, retreated over the course of the month, while the Federal Reserve’s broad trade-weighted dollar index rose to its highest level since September 2003. The euro and the yen account for more than a 70% weighting in the DXY, while the broad trade-weighted dollar index, as the name suggests, tracks the greenback’s value relative to a greater array of foreign currencies. The yen and euro both gained, while stock markets tumbled, as investors unwound the popular bets made against these currencies, which also benefited from safe-haven flows.

“Fed rate expectations adjusted more than [European Central Bank] and [Bank of Japan] QE expectations (markets delayed Fed hikes but didn’t price-in more ECB/BoJ easing),” wrote researchers at Deutsche Bank, who expect the U.S. dollar to recoup its recent losses against those currencies over the next six months. The Chinese yuan, which is included in the trade-weighted dollar index but not the DXY, was devalued during the month. These two factors are at the heart of the gap between the two dollar indexes in August. And this divergence, according to Deutsche, reinforces that the U.S. dollar “upcycle” that began in 2011 is “rotating, not ending: from developed markets, to commodity foreign exchange, and now to China and Asia foreign exchange.”

Meanwhile, Goldman Sachs’s Aleksandar Timcenko and Kamakshya Trivedi have pointed out that the broad gains made by the U.S. dollar were much more a function of weakness in the other part of the currency pairs. They looked at emerging market currencies more generally, seeking to isolate how much of those foreign exchange moves over the past month could be attributed only to a U.S. dollar factor. They found that “the degree of focus on the USD factor in emerging market foreign exchange markets has waned substantially over the past month, and is near the lowest levels of the year.” Issues specific to emerging markets, they concluded, have been in the driving seat for the past month.

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“..the explosion in the popularity of volatility trading is now feeding on itself..”

Market Volatility Has Changed Immensely (Tracy Alloway)

On Aug. 24, as global markets fell precipitously, one thing was shooting up. The Chicago Board Options Exchange’s Volatility Index, the VIX, briefly jumped to a level not seen since the depths of the financial crisis. Behind the scenes, however, its esoteric cousin, the VVIX, did one better. For years, the VIX has been Wall Street’s go-to measure for expected stock market volatility. Derived from the price of options on the S&P 500, the volatility index has evolved into an asset class of its own and now acts as a benchmark for a host of futures, derivatives and exchange-traded products to be enjoyed by both big, professional fund managers and ‘mom and pop’ retail investors.

The dramatic events of last month underscore the degree to which the explosion in the popularity of volatility trading is now feeding on itself, creating booms and busts in implied volatility. Even as the VIX reached a post-crisis intraday high, the VVIX, which looks at the price of options on the VIX to gauge the implied volatility of the index itself, easily surpassed the levels it reached in 2008. Analysts, investors and traders point to two market developments that have arguably increased volatility in the world’s most famous volatility index, beginning with the rise of systematic strategies.

Such strategies fall under a host of names including commodity trading advisers (CTAs), volatility overlays, dynamic hedging and risk parity*, though it’s worth noting that many types of buy-side players have been dabbling in such techniques as they seek to boost returns in an era of historically low interest rates and suppressed market moves. When there’s a sudden spike in volatility, as there was last month, the price of near-term VIX futures rises. Meanwhile, volatility players – notably hedge funds and CTAs – scramble to buy protection as they either seek to hedge or cover short positions, causing a feedback loop that encourages near-term futures to rise even more.

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A biggie.

China Just Killed the World’s Biggest Stock-Index Futures Market (Bloomberg)

Add the world’s biggest stock-index futures market to the list of casualties from China’s interventionist campaign to stop a $5 trillion equity rout. Volumes in the country’s CSI 300 Index and CSI 500 Index futures sank to record lows on Tuesday after falling 99% from their June highs. Ranked by the World Federation of Exchanges as the most active market for index futures as recently as July, liquidity in China has dried up as authorities raised margin requirements, tightened position limits and started a police probe into bearish wagers. While trading in Chinese equities has also slumped amid curbs on short sales and an investigation into computer-driven orders, the tumble in futures volumes may cause even greater damage because of their central role in the investment strategies of domestic hedge funds and other institutional money managers.

A failure to revive the market would undercut the government’s own efforts to attract professional investors to local stock exchanges, where individuals still account for more than 80% of trades. “It is further evidence that the Chinese authorities are not yet ready to commit to freely trading markets,” said Tony Hann at Blackfriars Asset Management. “Fully functioning developed financial markets in China will take many years.” Chinese policy makers, intent on ending a selloff that has eroded confidence in their management of the economy, are targeting the futures market because selling the contracts is one of the easiest ways for investors to make large wagers against stocks.

It’s also a favored product for short-term speculators because the exchange allows participants to buy and sell the same contract in a single day. In the cash equities market, there’s a ban on same-day trading. Yet futures are also a popular tool among sophisticated investors with longer-term horizons. For hedge funds, they provide an easy way to adjust exposure to market swings. And large institutions use them to make cost-effective asset-allocation changes. As an example, selling index futures might be cheaper than unloading a large block of shares – an order that could put downward pressure on prices. A sustained slump in liquidity may spur some institutional investors to “give up hedging in futures, unwind futures positions and reduce their stock positions,” said Dai Shenshen at SWS Futures in Shanghai.

Read more …

There are lots of them.

Perfect Storm Continues To Hammer EM Currencies (BNE)

The Belarusian ruble was the world’s worst performing currency last week, hitting a record low against the dollar on August 28. A combination of market jitters over China’s economy and rising geopolitical tensions has had damaging consequences for many emerging market (EM) currencies, with the Turkish lira also hitting historic lows against the dollar. The Belarusian currency has been following the Russian ruble’s downward spiral, hit by a slump in oil prices and emerging market sell-offs. The Turkish lira also weakened to an all-time low and Turkish stocks fell on September 7 after the Kurdistan Workers’ Party (PKK) killed 16 soldiers in a single attack on September 6 in the conflict-riven southeast of the country.

The teetering Turkish currency combined with the unrest has rattled investors, causing more concerns over security ahead of the November snap election. The political uncertainty emerged after June’s inconclusive parliamentary elections kept the local currency under pressure. Falling as much as 1.29% in early trading following news of the attack on September 7, the lira weakened beyond the psychological barrier of TRY3 to the dollar. Shares dropped 1.28% on the back of the sharp decline in the lira. The lira has tumbled more than 20% this year against the dollar, making it one of the worst performing currencies on the EM landscape.

Concerns about the local currency are amplified by the prospects of a US interest rate increase later this year. Investors are also unnerved by the Turkish central bank’s reluctance to raise interest rates to defend the currency. Falling commodity prices and economic slowdowns in trading partner nations mean that Belarus and Turkey are not alone in their currency crises, with nearly all currencies in the former Soviet space taking a hit over the last month. China’s renminbi devaluation and the resultant crash in commodity prices have had a huge impact in emerging market sentiment across the globe, breeding anxiety in investors and hitting currency markets hard.

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“The country hasn’t prepared itself by developing in other areas.” Channel New Zealand, Australia et al.

China Slowdown Hits Major African Economies Hard (WSJ)

As the global oil-price slump passed its one-year anniversary in June, Angola’s President José Eduardo dos Santos booked a trip to Beijing. The long-serving autocrat hoped fresh loans and investment from China, Angola’s top trading partner, would buoy his country’s oil-dependent economy through choppy waters, according to financiers who do business with his government. On a weeklong visit, he signed a deal for China to build a $4.5 billion hydroelectric dam and a series of other projects. “China and Angola are good brothers and long-lasting strategic partners,” China’s President Xi Jinping said during meetings with Mr. dos Santos at the Chinese capital’s Great Hall of the People.

Now, Angola’s economic links to Beijing illustrate a broader problem across Africa: Nations that tied their fortunes to China find themselves hostage to its economy’s turbulence. President Xi is straining to arrest an economic slowdown in China, and that is aggravating a painful correction for oil-rich Angola, Beijing’s top African trading partner. Angolan importers are struggling to pay for critical items like medicine and grain. Moody’s Investors Service last week said rising government debt has put Angola at risk of a rating downgrade. Since January, the country’s kwanza currency has shed a quarter of its value against the U.S. dollar.

“Without the Chinese, there’s no money,” said one Angola-based financier, who said he feared retribution from Mr. dos Santos, whose family controls much of the economy. “The country hasn’t prepared itself by developing in other areas.” While forging closer economic ties with China, Angola and others also sought to consolidate their political power and aspire to Beijing’s state-led growth model. But those that bet on China’s demand for their oil and iron ore are realizing Beijing might not always be buying—and might not be able to teach them how to hang on to power indefinitely, either.

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History rhymes.

Boom, Bust And Broken Trust Mark The Ages Of Finance (John Kay)

In 1776, Adam Smith warned of the dangers of limited liability. Company directors were “the managers of other people’s money”. They could not be expected to watch over it with the “anxious vigilance” that partners would apply to their own cash. “Negligence and profusion,” Smith concluded, “must always prevail.” The South Sea bubble and other scandals of the early 18th century provided the background to Smith’s observation. For the next 150 years, corporate organisation was viewed with deep suspicion. But the huge capital requirements of rail transport paved the way for the extension of the limited liability model, which capped shareholders’ losses when their companies could not pay their debts. Still, partnership (which offers no such protection) remained the norm in finance.

The failure in 1866 of Overend Gurney, the iconic British banking collapse of the 19th century, happened just a year after its incorporation. When the House of Baring faced collapse in 1890, the Bank of England co-ordinated a rescue, but the partners were ruined. Louis Brandeis, a progressive lawyer who became a distinguished Supreme Court Justice, borrowed Smith’s “other people’s money” as the title of his excoriation of American finance sector at the beginning of the 20th century. Brandeis’s concern was the intermingling of industry and finance that was characteristic of America’s “gilded age”. It had allowed JP Morgan and Andrew Carnegie, Henry Clay Frick and John D Rockefeller to create a self-reinforcing cycle of economic and political power.

That power, Brandeis stressed, was acquired with the savings of the American public. The progressive backlash led by Brandeis and hostile journalists — the “muckrakers”, such as Ida Tarbell and Upton Sinclair — enjoyed some success in exposing the excesses of capitalism. The great industrialists of the interwar era, such as Alfred Sloan and Henry Ford, treated finance with disdain. Smith was not alone in warning that those who staked other people’s money would not treat it as carefully as their own: “When I speak of high finance as a harmful factor in recent years, I am speaking about a minority which includes the type of individual who speculates with other people’s money.” This was President Franklin Roosevelt in 1936.

The Wall Street crash and the introduction of securities regulation imposed new discipline on finance and its relationship to business. That worked for 50 years. But when Barings failed again in 1995, the organisation had become a limited company. The wealth of managers who supervised “rogue trader” Nick Leeson survived the crash; their business did not.

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“I think it’s clear to all of us that the number won’t stay at 800,000..”

Germany To Receive More Than 800,000 Refugees This Year (Reuters)

More than 800,000 refugees will come to Germany this year, the state premier of Germany’s biggest state, North Rhine-Westphalia, said on Tuesday. “I think it’s clear to all of us that the number won’t stay at 800,000,” Hannelore Kraft said, adding that this government forecast was three weeks old. She also pointed to an influx of 20,000 over the weekend. “So that the number will need to be revised upwards,” she said.

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Germany says it can take in 500,000 refugees per year for years (and it will have taken closer to a million by the end of this year – 100,000 in August alone). On the other hand, France has announced it will take 24,000 refugees, and Britain 20,000 over five years (20,000 arrived in Europe just over the weekend). Other European nations refuse any refugees, and Finland, just to name an example, has so far put its quota at 800. Meanwhile, EC president Juncker prepares a grand plan to ‘resettle’ 160,000 refugees, which can’t be far from the number that arrive in one single month.

How long do you think the EU will continue to exist?

Europe’s Alarming Lack Of Unity Over Refugees Could Break Up The EU (Ind.)

A three-year-old refugee child drowns while trying to reach the safety of a muddled and largely unwelcoming EU. Syrian refugee families are herded on and off trains in Budapest. Other refugees have their arms marked with identity numbers by Czech police. Razor-wire fences are built in Hungary – and in Calais. Germany (stiff, unyielding Germany) says: “Never mind the rules. Let them all come in.” So does Sweden. Some East European countries say: “Only Christian refugees are welcome; and not too many of those please.” Italy and Greece, swamped by refugees, demand more help from their partners. France and Austria vacillate. Spain says that it has problems enough. Britain tries, as usual, to make and play by its own rules. North vs south; east vs west; Britain vs the rest; German leadership or German dominance.

The refugee crisis is like a diabolical stress test devised to expose simultaneously all the moral and political fault lines of the European Union. The EU was born out of calamity. Over the last six decades, its policies have often been forged by resolving conflicts between member states. And yet this crisis seems more profound, more acute, more tangled, more poisonous, than any that has gone before. It is not about currencies or net contributions or farm subsidies but about the core issues of common humanity and solidarity that the EU claims to epitomise. The refugee crisis coincides with, and threatens to complicate, other existential challenges: Greek debt and the survival of the eurozone; EU reform and Britain’s in/out referendum next year. “The world is watching us,” the German Chancellor Angela Merkel said last week.

“If Europe fails on the refugee question, its close bond with universal human rights will be destroyed, and it will no longer be the Europe we dreamed of.” Open continental borders, one of the greatest of EU achievements, may be destroyed, Chancellor Merkel warned, unless the crisis is rapidly resolved. It is absurd to blame the EU for being “divided”. All the countries in Europe, and many political parties and many families, are split on how we should respond to the greatest refugee crisis on our continent for 70 years. There are no easy answers. The problem will grow even larger in the months and maybe years ahead. How could the EU not also be divided? Some of the divisions reflect genuine and honourable divergences in analysis and strategy, in geography or economic strength. Other statements hint at darker forces of extreme nationalism and racial intolerance. Disagreement is one thing. Irreconcilable differences are another.

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Brilliant side effect.

Concern Over Burgeoning Trade In Fake And Stolen Syrian Passports (Guardian)

When Mohamed paid an Afghan smuggler several hundred euros to drive him and his friends from Thessaloniki to the Greek-Macedonian border in July, he thought the money was all the smuggler would want. Instead, once on road the driver feigned a problem with the engine and persuaded the Syrians to leave the car on the pretext of avoiding detection by the police. “And then he stole our passports,” said Mohamed. Mohamed and his friends are the latest victims of a burgeoning trade in Syrian identity documents. Though most European nations have been slow to welcome more than a few Syrian refugees, the well-known preferential treatment Syrians receive within the German and Swedish asylum system has turned their passports into desired accessories for other immigrants who otherwise would not be likely qualify as refugees.

The head of the European border agency, Frontex, said this week that Arabs from outside Syria were buying counterfeit Syrian passports. Fabrice Leggeri told a French television channel that the appeal to buyers lay in how “they know Syrians get the right to asylum in all the member states of the European Union”. It’s a trade that is concerning not just Frontex, but Syrian refugees themselves, who feel that it may harm their own chances of asylum or at least slow their applications down. Hashem Alsouki, whose quest for refuge in Sweden was profiled by the Guardian earlier this year, said: “The situation with the passports is very worrying, and it might be the reason why my application for asylum is taking a long time. The officials have to spend more time working out if someone is a genuinely a Syrian citizen.”

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Shale can only survive on credit.

Citi: Capital Markets Now Control Oil Prices (Tracy Alloway)

From the concrete canyons of Lower Manhattan to the shale basins of West Texas, a new report from Citigroup underscores the degree to which Wall Street has financed the U.S. oil boom, with analysts warning that the slow grind of lower oil prices could spell tough times ahead for shale producers and their creditors. Cash-hungry shale producers have relied on a mix of bond sales and loans to finance capital-intensive gas explorations, with the interplay between the two types of financings now under the spotlight as oil companies face an intensifying credit crunch. “The shale sector is now being financially stress-tested by low prices, exposing shale’s dirty secret: many shale producers outspend cash flow and thus depend on capital market injections to fund ongoing activity,” Citi analysts wrote in research published on Tuesday.

Shale financing has zoomed into focus as U.S. oil companies embark on the latest round of semiannual discussions with lenders, known as the “redetermination of the borrowing base.” The discussions take place twice a year, in April and October, and involve shale producers and banks renegotiating the worth of oil assets securing credit facilities. With the price of crude now down 59% from its 2013 peak of $110 a barrel, October redeterminations are likely to crimp the amount of funding available to shale companies. The Citi analysts expect this year’s redeterminations to result in a 5% to 15% reduction in the borrowing base, which could in theory help spur the long-awaited shakeout in U.S. shale as producers either have to find fresh capital, merge with competitors, or simply shutter their businesses.

When it comes to the latter option, Citi argues that capital markets now wield unrivaled influence on who lives and who dies as investors choose how and at what price to fund shale producers. The wrinkle, however, is that shale companies may hang on for dear life as long as possible, thanks to perverse incentives in their corporate structure. “In an additional twist of capital markets’ influence on supply, incentives created by the capital markets may actually slow the supply rationalization for some producers in a classic case of ‘risk shifting,'” said the Citi analysts.

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Brent is grossly overrated as a benchmark.

China Intends To Oust Dollar From Oil Trade (RT)

China is planning to launch its own oil benchmark in October, similar to Brent and WTI, striving for a more important role in establishing crude prices. Unlike the Western benchmarks, the Chinese contracts will be nominated in the yuan, not the US dollar. Shanghai International Energy Exchange sent a draft futures contract to market players in August, Reuters reported quoting sources. Oil futures will be the first Chinese contract to permit direct participation of foreign investors. However, this is not the first step for greater oil market openness in China. In July, Beijing allowed private companies to import crude.

Previously importing was only done by state-run majors such as Sinopec, China National Petroleum Corporation and China National Offshore Oil Corporation, the Xinhua news agency reported. A Shanghai-based contract will compete in the crude futures market, which is worth of trillions of dollars and is dominated by two contracts, London’s Brent, seen as the global benchmark, and WTI, the key U.S. price. North Sea, Brent oil was first developed in the 1970s. The ICE Brent futures contract was developed in 1988. With an approximate output of only 1 million barrels per day, this blend is considered a benchmark and its contracts are now used to set prices for roughly 2/3 of the world’s oil. China is one of the world’s largest oil buyers. Nearly 60% of its oil consumption comes from imports.

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Casino.

Obscure Hedge Fund Is Buying Tens of Billions of Dollars of US Treasurys (WSJ)

A little-known New York hedge fund run by a former Yale University math whiz has been buying tens of billions of dollars of U.S. Treasury debt at recent auctions, drawing attention from the Treasury Department and Wall Street. Element Capital Management, led by trader Jeffrey Talpins, has been the largest purchaser in dozens of government-bond auctions over the past 10 months, people familiar with the matter said. The buying is part of an apparent effort by the fund to use borrowed money to exploit small inefficiencies in the world’s most liquid securities market, a strategy that is delivering sizable profits, said people close to the matter. Mr. Talpins is an intense and reserved trader formerly at Citigroup and Goldman Sachs.

He is known for a tenacious style that can grate on rivals and once tested the patience of former Federal Reserve Chairman Ben Bernanke. Element has been the largest bidder in many of the 62 Treasury note and bond auctions between last November and July, these people said. At many recent auctions, some of which involved sales of more than $30 billion of debt, Element purchased about 10% of the issue, these people said. That is an unusually large figure, analysts said. Element’s activity has raised questions because the cumulative purchases far exceed the hedge fund’s $6 billion in assets under management.

Treasury officials, who frequently meet with large auction participants, have asked Element about its activity, said someone close to the matter. “Their buying is eyebrow-raising,” said a trader who once worked for a firm that deals in government securities and witnessed Element’s bidding. These primary dealers often know the identity of other auction bidders. Element “never shared its strategy, but we often asked,” the trader said.

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More casino.

Yet Another Measure Of Risk In Junk-Bond Market Flashing Red (MarketWatch)

Yet another measure of risk in the U.S. junk-bond market is flashing an alarming signal. Moody’s Investors Service said its Covenant Quality Index deteriorated to its worst level on record in August from July, blowing past the previous record low set in November 2014. The index measures the degree of protection afforded to holders of junk, or high-yield, bonds sold by North American issuers. Covenants are provisions that aim to protect the credit quality of an issuer over time as a way to safeguard the bondholder’s investment. For the issuer, they are the strings attached to a deal that regulate its behavior and prevent it from further increasing its risk profile.

The Moody’s index uses a three-month rolling average covenant quality score that is weighted by each month’s total bond issuance. The scale runs from 1.0 to 5.0, where a lower score is a sign of stronger covenant quality, and a higher score is the opposite. The index rose to 4.53 in August from 4.37 in July and 4.42 in November 2014. It is now a full 116 basis points weaker than its best-ever score of 3.37 set in April 2011. “Single-month record weak scores in June and July drove the CQI to 4.53 in August for its worst score to date,” Moody’s analysts wrote in a report.

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No doubt about it.

The City’s Stranglehold Makes Britain An Oh-So-Civilised Mafia State (Monbiot)

It is not just that the very rich no longer fall while the very poor no longer rise. It’s that the system itself is protected from risk. Through bailouts, quantitative easing and delays in interest-rate rises, speculative investment has been so well cushioned that – as the Guardian economics editor, Larry Elliott, puts it – financial markets are “one of the last bastions of socialism left on Earth”. Public services, infrastructure, the very fabric of the nation: these too are being converted into risk-free investments. Social cleansing is transforming central London into an exclusive economic zone for property speculation. From a dozen directions, government policy converges on this objective. The benefits cap and the bedroom tax drive the poor out of their homes.

The forced sale of high-value council houses creates a new asset pool. An uncapped and scarcely regulated private rental market turns these assets into gold. The freeze on council-tax banding since 1991, the lifting of the inheritance tax threshold, and £14bn a year in tax breaks for private landlords all help to guarantee stupendous returns. And for those who wish simply to sit on their assets, the government can help here too, by ensuring there are no penalties for leaving buildings empty. As a result, great tracts of housing are removed from occupation. Agricultural land has proved an even better punt for City money: with the help of capital gains, inheritance and income tax exemptions, as well as farm subsidies, its price has quadrupled in 12 years.

Property in this country is a haven for the proceeds of international crime. The head of the National Crime Agency, Donald Toon, notes that “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.” It’s hardly surprising, given the degree of oversight. Private Eye has produced a map of British land owned by companies registered in offshore tax havens. The holdings amount to 1.2m acres, including much of the country’s prime real estate. Among those it names as beneficiaries are a cast of Russian oligarchs, oil sheikhs, British aristocrats and newspaper proprietors. These are the people for whom government policy works – and the less regulated the system that enriches them, the happier they are.

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Offer Greece a safe way out and people will vote for it.

Majority of Greeks Say Adopting Euro Has Harmed Country (Gallup)

As the Greek debt crisis came to a head again earlier this summer, it’s no surprise that leaders in more solvent eurozone countries expressed doubts about Greece’s participation in the monetary union — but these doubts are also widespread among Greeks themselves. A majority of adults in the country -55%- said in a poll conducted May 14-June 16 that they think converting from the Greek drachma to the euro in 2001 has harmed Greece, while one-third (34%) said the common currency has benefited the country. The situation in Greece reached a critical point on June 30 -shortly after the survey was completed- when Greece became the first developed country to default on a loan payment to the IMF. In a July 5 referendum, Greeks resolutely voted against an extension of the country’s second eurozone bailout, in protest against the new austerity measures it would have carried.

Greeks’ doubts about the euro reflect the effects of austerity measures over the past five years, including higher taxes and deep cuts in public spending, that many economists say have contributed to the country’s sharp economic contraction and soaring unemployment. Whether Greece would have been better off had it never joined the euro remains a matter of debate, however, as the country saw increased economic growth and a much-improved inflation rate through most of the 2000s. Greeks are less likely to harbor doubts about their country’s membership in the European Union. In fact, responses to this question are essentially the inverse of those regarding eurozone participation: 54% of Greeks say EU membership benefits the country, while 35% believe the opposite.

The EU has a much longer history than the euro, and Greece has been a member since 1981; thus, a much larger proportion of the Greek population is too young to remember a time when the country wasn’t an EU member. That generational difference may be reflected in the finding that the Greeks aged 60 and older are somewhat less likely to feel EU membership is a benefit (48%) than those younger than 60 (56%). While Greeks are less likely to say EU membership harms the country than they are to say the same about participation in the euro, the finding that about one-third overall feel this way is remarkable in light of the fervor with which many southern and eastern European countries have pursued membership over the past 20 years.

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Piketty, Varoufakis, Steve Keen etc. And yes, the world is in dire need of international restructuring laws. They could protect Greece from Brussels, for one thing.

EU Nations Must Support UN Sovereign Debt Restructuring Proposals (19 Economists)

On September 10, the United Nations General Assembly will vote on nine principles concerning the restructuring of sovereign debts. Abiding by such principles would have avoided the pitfalls of the Greek crisis, in which political representatives gave in to creditor demands despite their lack of economic sense and their disastrous social impact. This public interest resolution must be supported by all European states and brought into the public debate. The Greek crisis has made clear that individual states acting alone cannot negotiate reasonable conditions for the restructuring of their debt within the current political framework, even though these debts are often unsustainable over the long term.

Throughout its negotiations with creditor institutions, Greece faced a stubborn refusal to consider any debt restructuring, even though this refusal stood in contradiction to the IMF’s own recommendations. At the UN in New York exactly one year ago, Argentina, with the support of the 134 countries of the G77, proposed creating a committee aimed at establishing an international legal framework for the restructuring of sovereign debts. This committee, backed up by experts of the UNCTAD, today submits to vote nine principles that should be respected when restructuring sovereign debt: sovereignty, good faith, transparency, impartiality, equitable treatment, sovereign immunity, legitimacy, sustainability and majority restructuring.

In recent decades, a debt market has emerged that states are constrained to submit to. Argentina, standing at the forefront of these efforts, has been fending off “vulture funds” ever since it restructured its debt. These funds recently succeeded in freezing Argentina’s assets in the United States through the intervention of the American courts. Yesterday Argentina, today Greece, and tomorrow perhaps France as well: any indebted country can be blocked from restructuring its debt in spite of all common sense. Establishing a legal framework for debt restructuring, allowing each state to solve its debt problems without risking financial collapse or the loss of its sovereignty, is a matter of great urgency in promoting financial stability.

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Key qeustion: could Russia mess up Syria even worse than “we” have done?

Russia Demands Answers As Bulgaria, Greece Deny Syria Flights (AFP)

Moscow on Tuesday demanded answers from Greece and Bulgaria after Sofia banned Russian supply flights to Syria from its airspace and Athens said it had been asked by Washington to do the same. “If anyone – in this case our Greek and Bulgarian partners – has any doubts, then they, of course, should explain what the problem is,” deputy foreign minister Mikhail Bogdanov told the Interfax news agency. “If we are talking about them taking some sort of restrictive or prohibitive measures on the Americans’ request, then this raises questions about their sovereign right to take decisions about planes from other countries – Russia in particular – crossing their air space,” he said. “We explain where our planes are flying to, and what their purpose and their cargo is,” he added.

He said that ferrying cargo, which included humanitarian and military aid, through the airspace of a third party – as well as obtaining permission to do so – should be a routine procedure. “We’ve never had any problems before,” he said. Washington has expressed concern following reports suggesting Moscow may be boosting military support to Syrian President Bashar al-Assad and had sent a military advance team to the war-torn country. Earlier on Tuesday, NATO member Bulgaria confirmed it had refused permission late last night for an unspecified number of Russian aircraft to cross its airspace. Greece said on Monday that Washington had asked it to ban Russian supply flights to Syria from its airspace. It said it was examining the US request but gave no further details. Moscow has dismissed US concerns about its alleged Syria buildup, saying its military aid to the Assad regime was nothing out of the ordinary.

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Advice from Larry Summers? C’mon, Yanis…

How Europe Crushed Greece (Yanis Varoufakis)

[..] Mr. Schäuble felt that accepting an alternative plan for Greece’s recovery, in place of the troika’s program, would weaken Germany’s hand vis-à-vis the French. Thus little Greece was crushed while the elephants tussled. We had such a plan. In March, I undertook the task of compiling an alternative program for Greece’s recovery, with advice from the economist Jeffrey Sachs and input from a host of experts, including the former American Treasury Secretary Larry Summers, and the former British chancellor of the Exchequer Norman Lamont. Our proposals began with a strategy for debt swaps to reduce the public debt’s burden on state finances. This measure would allow for sustainable budget surpluses (net of debt and interest repayments) from 2018 onward.

We set a target for those surpluses of no more than 2% of national income (the troika program’s target is 3.5%). With less pressure on the government to depress demand in the economy by cutting public spending, the Greek economy would attract investors of productive capital. As well as making this possible, the debt swaps would also render Greek sovereign debt eligible for the European Central Bank’s quantitative easing program. This in turn would speed up Greece’s return to the money markets, reducing its reliance on loans from European institutions. To generate homegrown investment, we proposed a development bank to take over public assets from the state, collateralize them and so create an income stream for reinvestment.

We also planned to set up a “bad bank” that would use financial engineering techniques to clear the Greek commercial banks’ mountain of nonperforming loans. A series of other reforms, including a new, independent I.R.S.-like tax authority, rounded out our proposals. The document was ready on May 11. Although I presented it to key European finance ministers, including Mr. Schäuble, as the Greek Finance Ministry’s official plan, it never received the endorsement of our own prime minister. The reason? Because the troika made it abundantly clear to Mr. Tsipras that any such document would be seen as a hostile attempt to backtrack from the conditions of the troika’s existing program. That program, of course, had made no provision for debt restructuring and therefore demanded cripplingly high budget surpluses.

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No. Sorry.

Can Hobbits Save New Zealand? (CNBC)

As New Zealand’s dairy industry – a key pillar of the economy – crumbles under the pressure of a supply glut and slowing demand out of China, tourism in the land of hobbits is picking up some of the slack. But, this won’t be sufficient to reverse the slowdown in growth in the once “rock star” economy, say analysts, flagging the likelihood of further monetary easing as soon as this week. “With very low dairy prices and confidence falling sharply, New Zealand’s economy is slowing from the rapid pace of growth recorded in 2014,” said Paul Bloxham and Daniel Smith, economists at HSBC. Dairy products are the country’s biggest export earner, totaling 12 billion New Zealand dollars ($7.5 billion) in the year to June 30. However, this was down almost a quarter compared to the same period a year earlier, reflecting the slump in global diary prices.

Dairy prices sank to a 12-1/2-year low in August as the slowdown in China, the Middle East and other emerging markets damped on demand for protein and other producers stepped up production. [..] Weakness in the dairy sector not only hurts farm incomes, it has implications for the broader economy, say economists. “Low prices will reduce farm incomes, with many farmers facing negative cash-flow for the second season in a row. More worryingly, the malaise in the dairy sector appears to be spreading to other sectors,” said Bloxham and Smith. “Confidence has fallen sharply in the agricultural sector, but has also declined to varying degrees across all other business sectors.”

Lucky for New Zealand, as demand for its milk product cools, it is enjoying an uptick in inbound tourists, many of them inspired by the highly successful The Lord of Rings films trilogy shot in the country. Arrivals have also flocked from China – the country’s second largest visitor market after Australia. Over 315,000 mainland tourists traveled to the country between August 2014 and July 2015, up 30% on year, according to Tourism New Zealand. [..] tourism is set to overtake dairy as New Zealand’s biggest export earner as visitor arrivals continue to set new records, according to analysts.

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