Oct 032017
 
 October 3, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  12 Responses »
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Fan Ho Obsession 1964

 

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)
The Pricing of Risk is Kaput (WS)
Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)
What You Are Not Being Told About The Economy – Steve Keen (RT)
An Accountant Smells a Rat in Our Global Credit Bubble (WS)
26 Recession-Free Years Hide a Darker Picture for Australia (BBG) >
Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)
Fall of the Great Pumpkin (Jim Kunstler)
Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)
Catalonia Set For General Strike Over Independence Poll Violence (AFP)
100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

 

 

 

 

A point I made again recentlly “It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.”

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)

It would be a dangerous bet to say interest rates are going to stay low forever, but I don’t see many people taking that bet. And you see, even if interest rates were to stay where they are, that would argue for P/E ratios to stay where they are. And if they do, then stocks will only appreciate at the same rate as earnings, which is not really fast; there would be no multiple expansion. This market is not built on some euphoric view of the future, but mainly on the unwillingness to accept zero or negative returns on cash and safe instruments. It’s based on the view that there is no alternative: people are afraid to be out of the market. But then again, a perceived lack of alternatives is not a good argument for chasing yield and taking big risks. That’s why I think this is the time to turn cautious.

It’s not smart, but people think that’s what they have to do now. You remember Chuck Prince, the CEO of Citigroup, who in July of 2007 said «when the liquidity dries up, this will end badly, but as long as the music is playing, you have to dance?» What does that even mean? People always say they’ll stay in the market, thinking it has further to go, but if it starts to turn down they will get out. Maybe that’s what people are thinking in today’s stock market: «It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.

[..] I see a lot of worries. One example: What’s going to happen when central banks start unwinding their balance sheets? We have no clue. There is no historical precedent for the measures they used to stimulate the economies in the past years, so we don’t know what will happen when they unwind them. If QE was stimulative, won’t the unwinding of it be the opposite of stimulative? I don’t know where the money came from for the QE programs, and I don’t know where the money will go to next. We don’t know what it will mean for interest rates and inflation.

Another worry is the low economic growth, combined with politics. All these right-wing populist movements – what are the implications of that? This is not imaginary. Where will the person with a low education level get a job in ten or twenty years, when all the cars are self-driving and all the stores have no clerks? I don’t know what the solution is. But I see a lack of political leadership around the world. Another worry concerns our pension systems. In the US and in other countries, defined benefit systems are hundreds of billions of dollars in the red. What’s going to happen to the people who expect to get their promised retirement payments? But today, nobody’s talking about the problems in our pension systems.

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“..when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.”

The Pricing of Risk is Kaput (WS)

US Treasury Securities with longer maturities fell this morning, with the 10-year Treasury yield rising above 2.37% early on and currently trading at 2.34%. This is still low by historical standards, and it’s still in denial of the Fed’s monetary tightening: Four rate hikes since it started this cycle, and the QE unwind has commenced as of today. But it cannot hold a candle to the Draghi-engineered negative-yield absurdity still unfolding in the Eurozone. The average yield of junk bonds denominated in euros hit a new all-time record low at the close on Friday of 2.30%. Let that sink in a moment. These euro corporate bonds are rated below investment grade. Companies, unlike the US, cannot print their own money to prevent default.

There is little liquidity in the junk bond market, and selling these bonds when push comes to shove can be hard or impossible. The reason they’re called “junk” is because of their high risk of default. And yet, prices of these junk bonds have been inflated by the ECB’s policies to such a degree that their yield, which falls as prices rise, is now lower than that of 10-year US Treasury securities that are considered the most liquid securities with the least credit risk out there. The average yield of the euro junk bonds is based on a basket of below-investment-grade corporate bonds denominated in euros. Issuers include junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

They include the riskiest bonds. Plenty of them will default. Losses will be painful. Investors know this. It’s not a secret. But they don’t mind. They’re institutional investors plowing other people’s money into these bonds, and they don’t need to mind, but they have to buy these bonds because that’s their job. This chart, based on BofA Merrill Lynch Euro High Yield Index Effective Yield via the St. Louis Fed, shows that the average euro junk bond yield is on the way to what? Zero?

During the peak of the Financial Crisis, the average junk bond yield hit 25%. During the dog days of the euro debt crisis in the summer of 2012, when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%. The yield dropped below 5% in October 2013, for the first time ever. This juxtaposition of the already low 10-year US Treasury yield and the even lower euro junk bond yield creates one of the most fascinating WTF-charts for our amusement at central-bank absurdist policies – and we’d be laughing at these bond investors gone nuts, if it weren’t so serious:

.. this is Draghi’s ultimate accomplishment in his nutty bailiwick: The total destruction of the market’s risk-pricing mechanism at the expense of other people’s money – this includes pension funds and life insurance companies that play a large role in Europe’s private pension system. They have to buy corporate bonds. Their beneficiaries that paid into the systems will have to bear the costs in future years. And then there’s the comforting thought that when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.

Read more …

“..when we had the taper tantrum they hadn’t even done anything yet, they’d just threatened to taper..”

Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)

Market veteran Art Cashin, the head of NYSE floor operations for UBS, made an interesting observation earlier today just minutes before the close, as US stocks headed for another record finish after shrugging off the worst mass shooting in US history. Asked by CNBC’s Kelly Evans to explain how US stocks have continued to outperform while the 10-year Treasury yield has remained anchored below 2.5%, Cashin acknowledged that, during a career that’s spanned more than six decades, he’s never seen anything like today’s market. “I’ve been doing this for over 50 years and I’ve never seen anything like it so it is rather odd.” And given global stocks’ strong performance this year, with markets weathering a series of political crises, natural disasters, terror attacks and other nominally destabilizing events (with a little help from central banks, of course) – Cashin says the outlook isn’t as dire as some would believe.

“Right now, Europe’s doing all right emerging markets are okay, and maybe they’re not going to take away the punchbowl that quickly – so we’ll see,” Cashin said. In September, the Fed suggested that while it would likely raise interest rates more quickly than previously believed during the coming quarters, median forecasts for the Fed funds rate in 2019, as well as the longer-run median target, declined compared with a set of forecasts released in July. Looking ahead to the fourth quarter, the most pressing questions that investors should be asking themselves is ‘is this the quarter where tapering – or the expectation of further tapering – finally triggers a market correction.

“What’s really going to be interesting to watch in this final quarter, is will there be an impact of quantitative tightening. As Peter Boockvar points out…it’s only going to be a token amount. But when we had the taper tantrum they hadn’t even done anything yet they’d just threatened to taper. When asked what it would take to spark a meaningful correction in stocks, Cashin said he expects investors will take notice once the 10-year yield climbs above 3%. “I think we’ve got to get a bit higher. Probably up around 3% you start to get everybody’s attention and you’ll start to hear that in the conversation more and more.”

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Are you rational? Economics is not.

What You Are Not Being Told About The Economy – Steve Keen (RT)

As Karl Marx’s ‘Das Kapital’ turns 150 and the global financial crisis enters its tenth year, we ask why it is that we are still no closer to creating an economy that actually works. Perhaps more importantly, why do mainstream economists continue to miss the fundamental drivers of financial instability? Host Ross Ashcroft talks about what’s next for the global economy with Professor Steve Keen, an economist who correctly predicted the financial crisis and the author of ‘Debunking Economics.’

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“Economists can’t see it. They can’t model money and credit. ”

An Accountant Smells a Rat in Our Global Credit Bubble (WS)

Twenty years ago Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis. However a coming implosion, he says, could be the biggest yet. “We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.” Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.

Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output. Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050. Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows. In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”

So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t? One possibility is because Noland, who studied accounting and finance in college and began his career as a CPA at Price Waterhouse, is not an economist. He is thus not burdened with the “dismal science’s” limitations. Although Noland eventually completed an MBA and some doctoral studies, he was never forced to buy into the econometrics groupthink that plagues the profession. Noland is thus free to incorporate historical, financial, geographical and other data into his analyses. Another possible reason is that Noland (unlike almost all professional economists who missed both major market implosions/recessions of the last two decades) doesn’t hide it when he makes a bad call.

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But Australians won’t believe it until it hits them in the head.

26 Recession-Free Years Hide a Darker Picture for Australia (BBG)

The global crown for the longest stretch of uninterrupted economic growth is within sight for Australia. But it’s limping to the line as policy paralysis weighs on the nation’s prospects. Twenty-six years without recession have put Australia within two years of overtaking the Netherlands’ record growth streak and government, central bank and economist forecasts all suggest it’ll take the mantle. After all, the economy has a head start with 2.5% growth virtually baked in – 1.5% from population gains that are among the developed world’s quickest and 1% from resource exports feeding Asia’s giant economies. Yet the reliance on rapid immigration is straining infrastructure, while mining profits fuel riches for stakeholders but do little for the vast majority of Australians living in major cities.

Meantime, wages are barely growing, households carry some of the world’s heaviest debt loads, and productivity gains from the economic reforms of the 1980s and early 1990s have petered out. There’s been no major economic reform since the turn of the century, with just about every attempt reversed or cannibalized by toxic politics. And the impact is starting to show. Just when the economy needs growth drivers outside of mining, a slide in global rankings for innovation and education suggest living standards could decline. The miracle economy that shrugged off the global recession is turning mediocre. “Now that we don’t have the benefit of the mining boom, there’s nothing really that replaces it in terms of driving economic activity,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments in Edinburgh and a former Reserve Bank of Australia economist.

“The really big task of governments over the next 5 to 10 years is to deal with these big structural issues that Australia is facing. Potential growth is relatively weak.” A decade of political infighting has seen the nation change prime ministers five times since 2007 and sidelined substantive policy debate. Meanwhile, attempts at reform have been held hostage by populists and single-issue parties who’ve harnessed voter frustration with mainstream politicians to take the balance of power in parliament’s upper house. That political dysfunction is threatening the nation’s prospects. A policy vacuum around energy has seen electricity prices surge to among the highest in the world, despite Australia holding some of the largest coal and gas reserves on the planet.

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“The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years. ”

Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)

Vladimir Putin is doing his part to keep the upswing in gold alive. Since the Russian president went on a geopolitical offensive in Ukraine in 2014, the haven asset had its first annual gain in four years in 2016 and is on track for another in 2017. A beneficiary of economic and political perils from North Korea to Brexit, it’s among the top-performing commodities this year. Meanwhile, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data. In the second quarter alone, it accounted for 38pc of all gold purchased by central banks. The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

It’s one of a handful of central banks to keep the faith as global demand for the precious metal fell to a two-year low in the second quarter. But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US. “Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.” Besides being the largest official buyer of gold, Russia is also among the world’s three biggest producers, with the central bank purchasing from domestic miners through commercial banks and not in the open market. Since starting to accelerate bullion purchases in 2007, Russia’s holdings have more than quadrupled to 1,556 tonnes at the end of June, just behind China and more than Turkey, India and Mexico combined, bringing its share in Russia’s $427bn (€361bn) reserves to near 17pc.

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“Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.”

Fall of the Great Pumpkin (Jim Kunstler)

Welcome to the witching month when America’s entropy-fueled death-wish expresses itself with as much Halloween jollity and merriment as the old Christmas spirit of yore. The outdoor displays alone take on a Babylonian scale, thanks to the plastic factories of China. I saw a half-life-size T-Rex skeleton for sale at a garden shop last week surrounded by an entire crew of moldering corpse Pirates of the Caribbean in full costume ho-ho-ho-ing among the jack-o-lanterns. What homeowner in this sore-beset floundering economy of three-job gig-workers can shell out four thousand bucks to decorate his lawn like the set of a zombie movie? The overnight news sure took on that Halloween tang as the nation woke up to what is probably a national record for a civilian mad-shooter incident.

So far, fifty dead and two hundred wounded at the Las Vegas at the Route 91 Harvest Festival (one up in fatalities from last year’s Florida Pulse nightclub massacre, and way more injured this time). The incident will live in infamy for maybe a day and a half in the US media. Stand by today as there will be calls far and wide, by personas masquerading as political leaders, for measures to make sure something like this never happens again. That’s rich, isn’t it? Meanwhile, the same six a.m. headlines declared that S &P futures were up in the overnight markets. Nothing can faze this mad bull, apparently. Except maybe the $90 trillion combined derivatives books of CitiBank, JP Morgan, and Goldman Sachs, who have gone back whole hog into manufacturing the same kind of hallucinatory collateralized debt obligations (giant sacks of non-performing loans) that gave Wall Street a heart attack in the fall of 2008.

Europe’s quaint doings must seem dull compared to the suicidal potlatch of life in the USA, but, believe me, it’s a big deal when the Spanish authorities start cracking the heads of Catalonian grandmothers for nothing more than casting a ballot. The video scenes of mayhem at the Barcelona polls looked like something out of the 1968 Prague uprising. And now that the Catalonia secession referendum passed with a 90% “yes” vote, it’s hard to imagine that a good deal more violent mischief will not follow. So far, the European Union stands dumbly on the sidelines. (For details, read the excellent Raul Ilargi Meijer column on today’s TheAutomaticEarth.)

[..] Finally — well, who know what else may pop up now — there is the matter of Puerto Rico. Halloween there is not like New England, with our nippy fall mornings, steaming mugs of hot cider, and quickening fall color. It will remain 90-degrees-plus down there in the fetid, stinking ruins, with lots of still-standing water, broken communications, shattered supply lines, and very little electricity. FEMA and the US Military may be doing all they can now, but they must be on watch for the ominous blossoming of tropical disease epidemics. The story there is far from over. Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.

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Catalonia wants to talk. But it will no longer accept many of the things it would have before Sunday.

Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)

In Madrid, Barcelona, Bilbao and beyond, the question is the same: Now what? Sunday’s vote for independence in Catalonia, one of Spain’s most populous and prosperous regions, has thrust the country into its gravest political crisis since the days of the dictator Francisco Franco. Few see an easy way out. The results of the referendum give Prime Minister Mariano Rajoy stark choices – try to deal a blow to the independence movement by suspending Catalonia’s semi-autonomous status, or meet the secessionists halfway and start talks with Catalan President Carles Puigdemont. Puigdemont said the vote, rejected by the central government as illegal, justifies a unilateral declaration of independence. That could come by the end of the week, if the regional parliament agrees.

The European Union refused to recognize the rebel region’s bid, but Spanish bonds and stocks fell Monday as the risks of a breakaway rose. The clash puts Rajoy in a tight corner. Head of a minority government that relies on support from regional parties to rule, he has pledged to protect Spain’s territorial integrity. His main ally in parliament, Ciudadanos party leader Albert Rivera, called on the prime minister to invoke a never-before-used article of the 1978 constitution and pull Catalonia’s special regional standing, which gives it certain administrative powers. “It’s the moment to act with calm but with firmness,” said Rivera, who is Catalan, after meeting with Rajoy on Monday. Rivera said an independence declaration may be 72 hours away and suggested invoking Article 155 would cut off any attempt to make such a move.

But Pedro Sanchez, head of the main Socialist opposition party, said after his own meeting with Rajoy that the central government should hold talks with the secessionists. While Sanchez made no mention of Article 155 in the statement he issued, socialists in Catalonia said the party wouldn’t support the prime minister taking that step. That means Rajoy will have little political cover if he opts to suspend Catalan self-government – the most powerful card he has left. The crisis has already caused him problems: Last week, he had to withdraw plans to present his 2018 budget after allies in the Basque PNV party withheld their support as they criticized his position on Catalonia.

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The Guardia Civil will have to leave Catalonia at some point. And what then?

Catalonia Set For General Strike Over Independence Poll Violence (AFP)

Large numbers of Catalans are expected to observe a general strike on Tuesday to condemn police violence at a banned weekend referendum on independence, as Madrid comes under growing international pressure to resolve its worst political crisis in decades. Flights and train services could be disrupted as well as port operations, after unions called for the stoppage to “vigorously condemn” the police response to the poll, in which Catalonia’s leader said 90% of voters backed independence from Spain. Barcelona’s public universities are expected to join the strike, as is the contemporary art museum, football club FC Barcelona and the Sagrada Familia, the basilica designed by Antoni Gaudi and one of the city’s most popular tourist sites. “I am convinced that this strike will be widely followed,” Catalan leader Carles Puigdemont said ahead of the protest.

The central government has vowed to stop the wealthy northeastern region, which accounts for a fifth of Spain’s GDP, breaking away from Spain and has dismissed Sunday’s poll as unconstitutional and a “farce”. Violent scenes played out in towns and cities across the region on Sunday as riot police moved in on polling stations to stop people from casting their ballots, in some cases charging with batons and firing rubber bullets to disperse crowds. UN rights chief Zeid Ra’ad Al Hussein said he was “very disturbed” by the unrest while EU President Donald Tusk urged Madrid to avoid “further use of violence”. The European Parliament will hold a special debate on Wednesday on the issue. “We call on all relevant players to now move very swiftly from confrontation to dialogue. Violence can never be an instrument in politics,” European Commission spokesman Margaritis Schinas said, breaking weeks of virtual EU silence on the Catalan issue.

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“Florida Gov. Rick Scott has declared a state of emergency in Florida..”

100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

As mayors of cities with large Puerto Rican populations continue to advocate for federal assistance to help with the resettlement of hundreds of thousands of Puerto Ricans who are expected to temporarily seek shelter with friends and families in the US, Florida Gov. Rick Scott has declared a state of emergency in Florida, allowing state agencies to take extraordinary measures to assist families that will soon be arriving in droves to cities like Orlando and Miami, both of which feature large Puerto Rican populations. The Orlando Sentinel reports that Scott announced that disaster relief centers will be set up at Orlando International Airport and in Miami to help those seeking refuge in Florida. “Puerto Rico is absolutely devastated and so many families have lost everything,” Scott said in a released statement.

“Our goal is to make sure that while [Puerto Rican] Governor [Ricardo] Rosselló is working to rebuild Puerto Rico, any families displaced by Maria that come to Florida are welcomed and offered every available resource from the state.” The relief center at OIA, and two others at Miami International Airport and the Port of Miami, open Tuesday, according to a release from Scott’s office, just days after Puerto Rican airports reopened following the devastation caused by Hurricane Maria. [..] Scott’s emergency order will allow state agencies broad autonomy to waive regulations and do whatever is necessary to help Puerto Ricans. Importantly, it could also help bring more federal funding to help the state cope with aid efforts.

State lawmakers have said they expect at least 100,000 Puerto Ricans to flee to Florida because of Maria, forcing the state to step up its education, housing and job-placement offerings. It’s expected that some of those displaced by the storm could resettle permanently, as the reconstruction effort in Puerto Rico is expected to take months, if not years. State Rep. Carlos Guillermo Smith, D-Orlando, said the Legislature should hold a special session, as he estimates hundreds of thousands of Puerto Ricans are coming to Florida. The 2018 regular session starts in January. “FL needs 2 deal w/humanitarian crisis + over 100K Boricuas who’ll seek refuge here right now, not in Jan.,” he tweeted.

We now wait to hear from New York Gov. Andrew Cuomo and New York City Mayor Bill De Blasio. NYC officials have said more than 100,000 Puerto Ricans could arrive in NYC alone.

Read more …

 

 

 

Aug 302017
 
 August 30, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

The Economy Minus Houston (Slate)
Harvey Didn’t Come Out Of The Blue (Naomi Klein)
The US Cities with the Biggest Housing Bubbles (WS)
“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)
China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)
Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)
The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)
US Defense Boost May Unravel Into a $65 Billion Cut (BBG)
England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)
UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)
We Need To Nationalise Google, Facebook and Amazon (G.)
As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)
Why Every European Country Has A Trump Or Sanders Candidate (Drake)

 

 

A huge number of people will not be able to rebuild, because they lack insurance. And in many cases, rebuilding on the same -flood prone- spot wouldn’t be a good idea to begin with. But where will the people go?

Time to stop talking about the damage to the economy, and focus on the people.

The Economy Minus Houston (Slate)

Houston, America’s fourth-largest city, has a massive, diversified economy. Sure, New Orleans sits near the mouth of the mighty Mississippi River and is an important entrepôt and site for export of raw materials, agricultural commodities chemicals, and petroleum products. But Houston is a larger, busier, and far more important node in the networked economy. Economies derive their power and influence from their connections to other cities, countries, and markets. And Houston is one of the more connected. It is one of the global capitals of the energy and energy services industries. Yes, there’s a degree to which consumption and other economic activity that is forestalled or foregone during a flood is consumption and economic activity deferred. And cleanup efforts tend to be additive to local economies. But in today’s economy, a lot of value can easily be destroyed very quickly.

With only a small portion of the housing stock carrying flood insurance, billions of dollars in property will simply be destroyed and not immediately replaced. People who get paid by the hour, or who work for themselves, won’t be able to make up for the income they’re losing a few weeks from now. Hotel rooms and airplane seats are perishable goods—once canceled, they can’t simply be rescheduled. Refineries won’t be able to make up all the time offline—they can’t run more than 24 hours per day. And given that supply chains rely on a huge number of shipments making their connections with precision, the disruption to the region’s shipping, trucking, and rail infrastructure will have far-reaching effects. If you’re a business in Oklahoma or New Mexico, there’s a pretty good chance the goods you are importing or exporting pass through the Port of Houston.

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Sorry, Naomi, but you can’t take individual events and blame them on cllmate change. The system is far too complex for that. We must stick to science, not lose ourselves in assumptions.

Harvey Didn’t Come Out Of The Blue (Naomi Klein)

Now is exactly the time to talk about climate change, and all the other systemic injustices — from racial profiling to economic austerity — that turn disasters like Harvey into human catastrophes. Turn on the coverage of the Hurricane Harvey and the Houston flooding and you’ll hear lots of talk about how unprecedented this kind of rainfall is. How no one saw it coming, so no one could adequately prepare. What you will hear very little about is why these kind of unprecedented, record-breaking weather events are happening with such regularity that “record-breaking” has become a meteorological cliche. In other words, you won’t hear much, if any, talk about climate change.

This, we are told, is out of a desire not to “politicize” a still unfolding human tragedy, which is an understandable impulse. But here’s the thing: every time we act as if an unprecedented weather event is hitting us out of the blue, as some sort of Act of God that no one foresaw, reporters are making a highly political decision. It’s a decision to spare feelings and avoid controversy at the expense of telling the truth, however difficult. Because the truth is that these events have long been predicted by climate scientists. Warmer oceans throw up more powerful storms. Higher sea levels mean those storms surge into places they never reached before. Hotter weather leads to extremes of precipitation: long dry periods interrupted by massive snow or rain dumps, rather than the steadier predictable patterns most of us grew up with.

The records being broken year after year — whether for drought, storm surges, wildfires, or just heat — are happening because the planet is markedly warmer than it has been since record-keeping began. Covering events like Harvey while ignoring those facts, failing to provide a platform to climate scientists who can make them plain, all while never mentioning President Donald Trump’s decision to withdraw from the Paris climate accords, fails in the most basic duty of journalism: to provide important facts and relevant context. It leaves the public with the false impression that these are disasters without root causes, which also means that nothing could have been done to prevent them (and that nothing can be done now to prevent them from getting much worse in the future).

It’s also worth noting that the Harvey coverage has been highly political since well before the storm made landfall. There has been endless talk about whether Trump was taking the storm seriously enough, endless speculation about whether this hurricane will be his “Katrina moment” and a great deal of (fair) point-scoring about how many Republicans voted against Sandy relief but have their hands out for Texas now. That’s politics being made out of a disaster — it’s just the kind of partisan politics that is fully inside the comfort zone of conventional media, politics that conveniently skirts the reality that placing the interests of fossil fuel companies ahead of the need for decisive pollution control has been a deeply bipartisan affair.

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Wolf Richter with a whole series of US cities, all with record new highs. How people can keep saying there is no bubble in the US, I don’t know.

The US Cities with the Biggest Housing Bubbles (WS)

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house. So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed). The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

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There is no easy way out for New Zealand.

“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call. “The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.” Prices across New Zealand have risen 34% the past three years, fanned by record immigration, historically low interest rates and a supply shortage.

That’s seen the portion of owner-occupied properties slump to 63% of the nation’s 1.8 million homes in the second quarter, down from a peak of 74% in the early 1990s. In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild. Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.” Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44% support in a poll published Aug. 17. Labour had 37% but could get across the line with the additional support of ally the Green Party, which had 4%, and New Zealand First, which got 10%.

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I think the estimates are still low.

China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report. By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates. “This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.” Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said. By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding.

Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges. [..] Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report. Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said.

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How is this NOT criminal intent? Where are the indictments?

Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)

A homeowner has filed a lawsuit accusing Wells Fargo of improperly charging thousands of customers nationwide to lock in interest rates when their mortgage applications were delayed. Filed on Monday in San Francisco federal court, the lawsuit said Wells Fargo managers pressured employees to blame homeowners for the delays, sometimes by falsely stating that paperwork was missing, so homeowners could be stuck with extra fees. Wells Fargo Spokesman Tom Goyda said the bank is reviewing past practices on rate lock extensions and will take steps for customers as appropriate. The lawsuit, which will request the court grant class action status, comes as Wells Fargo is trying to recover from a scandal last year when the bank was fined for opening accounts for customers without their authorization in order to boost sales figures.

Last month, a new lawsuit accused it of charging several hundred thousand borrowers for auto insurance they did not request. Monday’s lawsuit accuses the bank of violating state and federal consumer protection laws, including the U.S. Real Estate Settlement Procedures Act and the U.S. Truth in Lending Act. Earlier this month, Wells Fargo disclosed that the Consumer Financial Protection Bureau was investigating the fees the company charged to lock in interest rates for delayed mortgage loans. In a securities filing, the bank said it was working with regulators to see if customers had been harmed by the fees. Interest rate locks are guarantees by a lender to lock in a set interest rate, usually for several weeks, while a loan is processed. If the rate lock expires before a loan closes, lenders often cover the cost of extending the lock if the delay was their fault.

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Modi taking people’s incomes away. Reforms. Here’s thinking India is nowhere near ready for this.

The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)

India’s past and future are colliding in Anand Ghugre’s family jewelry shop in Mumbai. “We still operate the way my father did for 50 years,” said Ghugre, 52, explaining that transactions were typically in cash and were not always recorded. “For small jewelers and the unorganized sector, most of our sales happen through personal connections. Sometimes they don’t want bills, but the jewelers can’t say no to them.” That way of doing business is under threat as the world’s second-largest gold market faces Prime Minister Narendra Modi’s campaign to bring India’s informal economy to book. About three quarters of the estimated $45 billion of the precious metal that is traded in the country each year makes its way through thousands of family-run jewelry shops that have catered for centuries to the nation’s love of gold.

Modi’s financial reforms, including demonetization and a new goods and services tax, combined with a younger generation that shops online, may usher in a wave of takeovers and mergers by big state-wide and national chains as small shops are swallowed up or close. “The one story that we hear is that the business is becoming problematic for smaller jewelers,” said Chirag Sheth at London-based precious metals consultancy Metals Focus. “The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete.” Modi in November banned higher denomination notes to bring unaccounted cash back into the system and introduced tougher proof of identity for purchases, capped the amount of cash used in transactions and topped it off with the uniform goods and services tax last month.

An overhaul of the fragmented industry is also on the cards with the government said to be planning a new policy on gold that will bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Fixing quality standards and allowing supply chains to be easily tracked are ways to enhance trust.

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Well, we can’t have that, can we?

US Defense Boost May Unravel Into a $65 Billion Cut (BBG)

U.S. national security funding may be slashed by about $65 billion in January as lawmakers forge ahead with a spending plan that collides with a budget ceiling under a six-year-old law. A $614 billion bill passed by the U.S. House in H.R. 3219 is caught in a political vise: President Donald Trump and most lawmakers want to see increases in Pentagon spending, yet that intention isn’t backed up by an agreement to undo the 2011 Budget Control Act. Without another budget agreement in place, the Defense Department faces automatic across-the-board cuts of 9% to 10% starting in mid-January, according to Chris Sherwood, a Pentagon spokesman. That’s about $65 billion, the Congressional Budget Office estimates.

Enforcement of the act’s caps are returning for the coming fiscal year that begins Oct. 1 after they were adjusted in fiscal 2016 and 2017 for discretionary domestic and national security spending. That was the third time since the act passed that the limits were adjusted, in those cases for both defense and domestic discretionary spending. Trump wants to cut domestic spending while adding to defense, a proposal opposed by Democrats and many Republicans. If the mandatory cuts go ahead, they would be leveled across thousands of Pentagon programs. The White House would have the option of exempting military personnel funds from the automatic cuts, known as sequestration. Such cuts are likely because all of the pending congressional defense bills so far propose busting the cap of $549 billion in national security spending for fiscal year 2018, or $522 billion for the Pentagon alone.

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Cameron and Osborne and May have gutted the entire country.

England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)

Fire services in England have lost more than a quarter of their specialist fire safety staff since 2011, a Guardian investigation has found. Fire safety officers carry out inspections of high-risk buildings to ensure they comply with safety legislation and take action against landlords where buildings are found to be unsafe. Figures released to the Guardian under the Freedom of Information Act showed the number of specialist staff in 26 fire services had fallen from 924 to 680, a loss of 244 officers between 2011 and 2017. Between 2011 and 2016, the government reduced its funding for fire services by between 26% and 39%, according to the National Audit Office, which in turn resulted in a 17% average real-terms reduction in spending power.

Warren Spencer, a fire safety lawyer, said the figures showed a “clear culture of complacency” about fire safety. “The government has tended to take the view that fewer people are dying in fires, fires occur less frequently, and therefore there’s no need to invest in fire prevention. So there’s been a total brain drain in fire safety knowledge and many experienced specialist officers have left the force,” he said. “But fire safety officers have been saying to me for years that one day, there would be a big fire in a multiple occupancy building, which would make everyone sit up and take notice of the lack of fire safety provision. Tragically, that’s what happened at Grenfell Tower.”

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As dividends keep being paid out.

UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)

The combined pension deficit of FTSE 350 companies has risen to £62bn, accounting for 70% of their profits. The deficit as a proportion of profits recorded for 2016 is higher than at any time since the financial crisis, following a £12bn rise since 2015. The 25% increase came in a second year of comparatively low profit for UK publicly listed companies. The deficit is the gap between the expected liabilities of pension commitments and the funds that companies hold to pay for pensions. While many have set aside billions in recent years, a trend towards rising life expectancy, combined with lower expectations for returns on investment, has put more pressure on pension schemes and seen the deficit grow. Actuaries have warned that even a slight fall in bond yields would see the pension deficit of the plcs outstrip their aggregate profits by 2019.

The figures, in a report from the actuarial consultancy Barnett Waddingham, show the deficit has risen sharply as a proportion of profits in the past five years, from 25% of the £214bn pre-tax profits of the FTSE 350 in 2011. Even in the aftermath of the financial crisis in 2009, the deficit was lower at 60%. For 21 plcs, the pensions shortfall is more than 10% of their value, which Barnett Waddingham described as alarming. However, the actuaries said recent data suggesting years of austerity had seen gains in UK life expectancy grind to a halt could provide “welcome respite for companies”. It showed that after a century in which the rate of increase in life expectancy had accelerated, the average age of death was levelling off at 79 for men and 83 for women.

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A discussion that must take place. But the political climate doesn’t lean towards nationalization. Besides, how do you nationalize companies that operate in many dozens of countries?

We Need To Nationalise Google, Facebook and Amazon (G.)

At the heart of platform capitalism is a drive to extract more data in order to survive. One way is to get people to stay on your platform longer. Facebook is a master at using all sorts of behavioural techniques to foster addictions to its service: how many of us scroll absentmindedly through Facebook, barely aware of it? Another way is to expand the apparatus of extraction. This helps to explain why Google, ostensibly a search engine company, is moving into the consumer internet of things (Home/Nest), self-driving cars (Waymo), virtual reality (Daydream/Cardboard), and all sorts of other personal services. Each of these is another rich source of data for the company, and another point of leverage over their competitors.

Others have simply bought up smaller companies: Facebook has swallowed Instagram ($1bn), WhatsApp ($19bn), and Oculus ($2bn), while investing in drone-based internet, e-commerce and payment services. It has even developed a tool that warns when a start-up is becoming popular and a possible threat. Google itself is among the most prolific acquirers of new companies, at some stages purchasing a new venture every week. The picture that emerges is of increasingly sprawling empires designed to vacuum up as much data as possible. But here we get to the real endgame: artificial intelligence (or, less glamorously, machine learning). Some enjoy speculating about wild futures involving a Terminator-style Skynet, but the more realistic challenges of AI are far closer.

In the past few years, every major platform company has turned its focus to investing in this field. As the head of corporate development at Google recently said, “We’re definitely AI first.” All the dynamics of platforms are amplified once AI enters the equation: the insatiable appetite for data, and the winner-takes-all momentum of network effects. And there is a virtuous cycle here: more data means better machine learning, which means better services and more users, which means more data. Currently Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.

What’s the answer? We’ve only begun to grasp the problem, but in the past, natural monopolies like utilities and railways that enjoy huge economies of scale and serve the common good have been prime candidates for public ownership. The solution to our newfangled monopoly problem lies in this sort of age-old fix, updated for our digital age. It would mean taking back control over the internet and our digital infrastructure, instead of allowing them to be run in the pursuit of profit and power. Tinkering with minor regulations while AI firms amass power won’t do. If we don’t take over today’s platform monopolies, we risk letting them own and control the basic infrastructure of 21st-century society.

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Of course the headline said “populists”… Fixed that.

As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)

“Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. The populist Five Star Movement “has imposed the issue on national politics. The mainstream parties are being forced to play catch-up.” Five Star is a fast-growing group fueled by anger at the old political class. Three years ago the movement rode economic concerns to power in Livorno, ending 70 years of rule by the Communists and other left-leaning parties. The new mayor, a former engineer named Filippo Nogarin, introduced a €500 ($590) monthly subsidy to the disadvantaged. That idea is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority.

A basic income can “give people back their dignity,” Grillo’s blog declared in April. “The current government is ignoring millions of families in difficulty.” The Five Star program echoes universal basic income schemes being considered around the world. Finland in January started an experiment in which 2,000 unemployed people receive a stipend of €560 per month. And the Canadian province of Ontario this summer began trials in three cities in which individuals can get almost C$17,000 ($13,600) per year. Five Star’s version would give Italians below the poverty line as much as €780 a month. Recipients must perform several hours of community service each week and actively seek work, and they’d be cut off after rejecting three job offers. Five Star says the plan would cost €17 billion a year, funded in part by spending cuts as well as tax hikes on banks, insurance companies, and gambling.

Opinion polls show Five Star neck and neck with the Democratic Party, led by ex-Premier Matteo Renzi, and a center-right bloc including Forza Italia, the party of former Premier Silvio Berlusconi. To keep Five Star from dominating the debate, Prime Minister Paolo Gentiloni, a Renzi ally, has approved a less ambitious plan he calls “the first universal tool against poverty.” The scheme, dubbed “inclusion income,” would give 1.7 million people as much as €485 a month as long as they’re actively seeking work, at a cost of about €2 billion a year. With industrial output down by about 25% from 2008 to 2013 in Italy’s worst postwar recession, either plan could be helpful, says Giuseppe Di Taranto, a professor of economic history at Rome’s Luiss University. “We lost lots of jobs, and poverty has risen so much that we’ve got to experiment.”

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More of the same. But the anti-EU, anti-globalization mood is obvious: “77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union.” While Macron and Merkel are planning a lot more EU. And claiming that the EU is doing fine.

Why Every European Country Has A Trump Or Sanders Candidate (Drake)

As a result of the methods used to promote globalization, the consequences for the West have been tragic. Work is becoming increasingly uncertain and insecure, or it is in the process of disappearing altogether. It would take Veblen’s talents for social satire, which are unsurpassed in all of American literature, to depict with the essential exactitude of artistic synthesis how far the United States has fallen away from democratic grace, the country’s dramatically widening gap between the haves and the have-nots being what it is. Clearly, we are on the wrong course. What the robotics revolution, now at an incipient stage, will do to further diminish opportunities for Western peoples to work can be easily imagined, if the economic imperative of corporate capitalism is the rule to go by.

The same desolating trends can be seen in Europe, where people increasingly regard the European Union as a Trojan horse. The economic elites and their political front-men responsible for this image-challenged contraption lose public support with each new poll. The people by and large blame the European Union and the other accessories of globalization for their worsening standard of living. When informed by the establishment media that thanks to globalization Europe has never been more prosperous and peaceful, Europeans in historic numbers are reacting with disbelief. Their deepening sense of betrayal propels the surge of populism that defines the politics of Europe today. Arguments long-settled in favor of deregulation, liberalization, open borders, and other globalization watchwords have been reopened.

The constituency is growing for a politics that puts the well-being of Europeans first. Political measures calling for the protection of European jobs and cultures have gained a following unforeseen prior to 2008. In Italy, for example, 77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union. 64% of them expressed hostility toward it. Eight Italian businesses out of 10 can find nothing positive to say about the European Union. It is seen to be a creature of the banks and the big financial houses. As public relations disasters go, this one has unfolded on an epic scale as the underlying populations, long left out of consideration by the economic elites, have begun to sense the fate their masters have in store for them.

Leaving underlying populations out of consideration was a special feature of the planning that went into globalization. They have been voiceless. In America, Trump gave them a voice, and they responded to him with their political support. It did not matter that he came before them without a plan for their deliverance. That he came to them at all mattered. He understood the depth of the anger and alienation in America against a status quo personified by his opponent, Hillary Clinton, whose repeated and munificently rewarded speeches before the captains of finance on Wall Street effectively branded her as the safe candidate for all who wanted to leave existing economic arrangements fundamentally undisturbed.

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Aug 122017
 
 August 12, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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Giorgio de Chirico The Enigma of the Hour 1910

 

The Logic of War (Jim Rickards)
Russia Says Bellicose Rhetoric On North Korea Is ‘Over The Top’ (R.)
US ‘Volatility Index’ Spikes To Highest Level Since Election (G.)
Chinese Foreign Real-Estate Spending Plunges 82% (ZH)
Battle of the Behemoths (Jim Kunstler)
US Poised To Become World’s Largest Public-Private Partnership Market (IBT)
The Fed Has 6,200 Tons of Gold in a Manhattan Basement—Or Does It? (WSJ)
UK Risks International Court Case Over Theresa May’s Brexit Plans (Ind.)
Greenspan’s Legacy Explains Current Conundrums (DDMB)
Social Security Requires Bailout 60x Greater Than 2008 Bank Bailout (Black)
All Is Not As It Seems In Venezuela (Ren.)
Asylum Seekers At Canada Border Tents Unfazed By Delays, Uncertainty (R.)
People Smugglers Pushing Refugees To Their Deaths At Sea Off Yemen (Ind.)

 

 

There are different kinds of logic. I hope for once Rickards is wrong.

The Logic of War (Jim Rickards)

This was the week that the logic of war collided with the illogic of bubbles. So far, the bubble is winning, but that’s about to change. The “logic of war” is an English translation of a French phrase, la logique de la guerre, which refers to the dynamic of how wars begin despite the fact that the war itself will be horrendous, counterproductive, and possibly end in complete defeat. [..] Given these outcomes, “logic” says that war should be prevented. This would not be difficult to do. If North Korea verifiably stopped its weapons testing and engaged in some dialogue, the U.S. would meet the regime more than halfway with sanctions relief and some expanded trade and investment opportunities.

The problem is that the logic of war proceeds differently than the logic of optimization. It relies on imperfect assessments of the intentions and capabilities of an adversary in an existential situation that offers little time to react. North Korea believes that the U.S. is bluffing based in part on the prior failures of the U.S. to back up “red line” declarations in Syria, and based on the horrendous damage that would be inflicted upon America’s key ally, South Korea. North Korea also looks at regimes like Libya and Iraq that gave up nuclear weapons programs and were overthrown. It looks at regimes like Iran that did not give up nuclear weapons programs and were not overthrown.

It concludes that in dealing with the U.S., the best path is not to give up your nuclear weapons programs. That’s not entirely irrational given the history of U.S. foreign policy over the past thirty years. But, the U.S. is not bluffing. Trump is not Obama, he does not use rhetoric for show, he means what he says. Trump’s cabinet officials, generals and admirals also mean what they say. No flag officer wants to lose an American city like Los Angeles on his or her watch. They won’t take even a small chance of letting that happen. The Trump administration will end the North Korean threat now before the stakes are raised to the nuclear level. Despite the logic of diplomacy and negotiation, the war with North Korea is coming. That’s the logic of war.

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It is crucial that Trump communicate with Putin and Lavrov. And Washington does all it can to prevent it. Let’s hope they’ve found a back channel.

Russia Says Bellicose Rhetoric On North Korea Is ‘Over The Top’ (R.)

Russian Foreign Minister Sergei Lavrov said on Friday the risks of a military conflict over North Korea’s nuclear program are very high, and Moscow is deeply worried by the mutual threats being traded by Washington and Pyongyang. “Unfortunately, the rhetoric in Washington and Pyongyang is now starting to go over the top,” Lavrov said. “We still hope and believe that common sense will prevail.” Asked at a forum for Russian students about the risks of the stand-off escalating into armed conflict, he said: “The risks are very high, especially taking into account the rhetoric.” “Direct threats of using force are heard… The talk (in Washington) is that there must be a preventive strike made on North Korea, while Pyongyang is threatening to carry out a missile strike on the U.S. base in Guam. These (threats) continue non-stop, and they worry us a lot.”

“I won’t get into guessing what happens ‘if’. We will do whatever we can to prevent this ‘if’.” “My personal opinion is that when you get close to the point of a fight breaking out, the side that is stronger and cleverer should take the first step away from the threshold of danger,” said Lavrov, in remarks broadcast on state television. He encouraged Pyongyang and Washington to sign up to a joint Russian-Chinese plan, under which North Korea would freeze its missile tests and the United States and South Korea would impose a moratorium on large-scale military exercises. “If this double freezing finally takes place, then we can sit down and start from the very beginning – to sign a paper which will stress respect for the sovereignty of all those parties involved, including North Korea,” Lavrov said.

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And that’s a good thing. Ultra low VIX means no price discovery.

US ‘Volatility Index’ Spikes To Highest Level Since Election (G.)

A US stock market gauge known as the “fear index” has spiked to its highest level since Donald Trump was elected president in a sign that his brinkmanship with North Korea is starting to unnerve investors. The Vix index has been at record lows in recent weeks but has been rattled by the remarks Trump has been making about North Korea. A breakthrough in Pyongyang’s weapons programme prompted Trump to warn on Tuesday that he would unleash “fire and fury like the world has never seen” on North Korea if the regime continued to threaten the US. On Friday the US president tweeted that US military options were “locked and loaded” for use if Pyongyang “acted unwisely”. The Vix index measures expectations of volatility on the S&P 500 index of the US’s largest publicly quoted companies.

Its rise in the early hours of Friday prompted Neil Wilson, a senior market analyst at financial firm ETX Capital, to comment: “Volatility is back.” “The Vix just popped to its highest since the election of Donald Trump as jitters about North Korea roil risk sentiment. It’s about time the market woke up – nothing like the prospect of a nuclear standoff to sharpen mind of investors who had become a tad complacent,” said Wilson. oshua Mahony, a market analyst at IG, said: “For a week that has been largely devoid of major economic releases, Donald Trump’s confrontational stance with North Korea has raised volatility across the board, pushing the Vix from a rock-bottom reading on Tuesday, to the highest level in almost a year. “This has been a week of two halves, with complaints over a lack of volatility giving way to complaints over unpredictable volatility,” he added.

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Does that cover all housing bubbles? Well, not Holland and Scandinavia, probably.

Chinese Foreign Real-Estate Spending Plunges 82% (ZH)

Earlier this month, Morgan Stanley warned that commercial real estate prices in New York City, Sydney and London would likely take a hit over the next two years as Chinese investors pull out of foreign property markets. The pullback, they said, would be driven by China’s latest crackdown on capital outflows and corporate leverage, which they argued would lead to an 84% drop in overseas property investment by Chinese corporations during 2017, and another 18% in 2018. Sure enough, official data released by China’s Ministry of Commerce have proven the first part of Morgan Stanley’s thesis correct. Data showed that outbound investment in real estate was particularly hard hit during the first half of the year, plunging 82%. “According to official data, outbound investment by China’s real estate sector fell 82% year-on-year in the first half, to comprise just 2% of all outbound investment for the period.”

Overall, outbound direct investment to 145 countries declined to $48.19 billion, an annualized drop of 45.8%, according to China Banking News. The decline is a result of a crackdown by Chinese authorities after corporations went on a foreign-acquisition spree that saw them spend nearly $300 billion buying foreign companies and assets, with China’s four most acquisitive firms accounting for $55 billion, or 18%, of the country’s total. The acquisitions aggravated capital outflows, creating a mountain of debt and making regulators uneasy. Late last month, Chinese authorities ordered Anbang Insurance Group to liquidate its overseas holdings. In June, authorities asked local banks to evaluate whether Anbang and three of its peers posed a “systemic risk” to the country’s financial system. As Morgan Stanley noted, these firms were responsible for billions of dollars of commercial real-estate investments in the US, UK, Australia and Hong Kong.

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“..a great deal of American suburbia will have to be abandoned..”

Battle of the Behemoths (Jim Kunstler)

This has been a sensational year for retail failure so far with a record number of brick-and-mortar store closings. But it is hardly due solely to Internet shopping. The nation was vastly over-stored by big chain operations. Their replication was based on a suicidal business model that demanded constant expansion, and was nourished by a regime of ultra-low interest rates promulgated by the Federal Reserve (and its cheerleaders in the academic econ departments). The goal of the business model was to enrich the executives and shareholders as rapidly as possible, not to build sustainable enterprise. As the companies march off the cliff of bankruptcy, these individuals will be left with enormous fortunes — and the American landscape will be left with empty, flat-roofed, throwaway buildings unsuited to adaptive re-use. Eventually, the empty Walmarts will be among them.

Just about everybody yakking in the public arena assumes that commerce will just migrate to the web. Think again. What you’re seeing now is a very short term aberration, the terminal expression of the cheap oil economy that is fumbling to a close. Apart from Amazon’s failure so far to ever show a corporate profit, Internet shopping requires every purchase to make a journey in a truck to the customer. In theory, it might not seem all that different from the Monkey Ward model of a hundred years ago. But things have changed in this land. We made the unfortunate decision to suburbanize the nation, and now we’re stuck with the results: a living arrangement that can’t be serviced or maintained going forward, a living arrangement with no future. This includes the home delivery of every product under sun to every farflung housing subdivision from Rancho Cucamonga to Hackensack.

Of course, the Big Box model, like Walmart, has also recruited every householder in his or her SUV into the company’s distribution network, and that’s going to become a big problem, too, as the beleaguered middle-class finds itself incrementally foreclosed from Happy Motoring and sinking into conditions of overt peonage. The actual destination of retail in America is to be severely downscaled and reorganized locally. Main Street will be the new mall, and it will be a whole lot less glitzy than the failed gallerias of yore, but it will represent a range of activities that will put a lot of people back to work at the community level. It will necessarily entail the rebuilding of local and regional wholesale networks and means of distribution that don’t require trucking.

Read more …

But then combine Jim Kunstler’s piece with this:

US Poised To Become World’s Largest Public-Private Partnership Market (IBT)

As the debate over infrastructure policy intensifies, there is no dispute that the Trump administration’s initiative could open up a huge new market for financial firms on Wall Street. The American Society of Civil Engineers estimates that there are $4.6 trillion worth of needed investments to maintain and upgrade infrastructure throughout the U.S. In light of that, recent reports from Moody’s and AIG project a financial jackpot for private investors, with the latter predicting that America “is poised to become the largest public-private partnership market in the world for infrastructure projects.” That market appears to be a ripe profit opportunity for politically connected firms. On top of Pence’s overtures to investors in Australia, a country that has aggressively embraced privatization, Trump recently secured a pledge from Saudi Arabia’s government to invest billions in American infrastructure.

The Saudi money is slated to flow through the private equity firm Blackstone, which has been eyeing opportunities to profit from American infrastructure privatization since its CEO, Stephen Schwarzman, was named by Trump to run a White House economic advisory panel shaping federal infrastructure policy. At the same time, Cohn’s former employer, Goldman Sachs, has said in its financial filings that it too has plans to expand investment in privatized infrastructure. (Neither Schwarzman or Cohn have recused themselves from working on White House infrastructure policy that could benefit the firms, even though both own stakes in the companies.)

In the United States, the recent enthusiasm for public-private partnerships has stemmed from the visible success of several late-1990s toll road projects such as California’s State Route 91, the first fully-automated toll road with electronic transponders in the U.S., and Virginia’s Dulles Greenway, according to Robert Poole, the director of transportation policy at the libertarian Reason Foundation. More recently, he noted, states like Florida have enacted laws streamlining the legislative approval process for public-private partnership transportation projects. Both the GOP and Democratic Party listed infrastructure spending as objectives in their 2016 platforms. The Republican platform explicitly embraced public-private partnerships and “outside investment.” Prominent Democrats from former President Barack Obama to Bill and Hillary Clinton have also warmed to the idea of public-private partnerships — and the party’s officials have led some of America’s earliest precedent-setting privatization projects.

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Do we send in Dan Brown and Tom Hanks?

The Fed Has 6,200 Tons of Gold in a Manhattan Basement—Or Does It? (WSJ)

Eighty feet below the streets of lower Manhattan, a Federal Reserve vault protected by armed guards contains about 6,200 tons of gold. Or doesn’t. The Fed tells visitors its basement vault holds the world’s biggest official gold stash and values it at $240 billion to $260 billion. But “no one at all can be sure the gold is really there except Fed employees with access,” said Ronan Manly, a precious-metals analyst at gold dealer BullionStar in Singapore. If it is all there, he said, the central bank has “never in its history provided any proof.” Mr. Manly is among gold aficionados who wonder if the bank is hiding something about what it’s hiding. Other theorists suspect the gold beneath the New York Fed’s headquarters at 33 Liberty St. may be gold-plated fakes. Some conspiracy-minded investors think the Fed has been secretly leasing out the gold to manipulate prices.

“There has to have been a central bank spewing their gold into the market,” said John Embry, an investment strategist for Sprott Asset Management in Toronto until 2014 who once managed its gold fund. “The gold price didn’t act right” during the time he was watching it and the likely explanation for the movement was Fed action, said Mr. Embry. Fed officials have heard theories about their gold holdings for many years and don’t think much of them. After this article was published, a Fed spokeswoman said the Fed doesn’t own any of the gold housed at the New York Fed, which “does not use it in any way for any purposes including loaning or leasing it out.” The Fed has been selective in giving details about the contents of the vault and in the past has said it can’t comment on individual customer accounts due to confidentiality agreements.

[..] The Fed gives some information about the vault on a website and offers tours. A guide on one tour gave some details: Inside is enough oxygen for a person to survive 72 hours, should someone get trapped; custodians wear magnesium shoe covers to help prevent injuries, should they drop 27-pound bars; the Fed charges $1.75 a bar to move gold but nothing to store it; most of the gold is owned by foreign governments. [..] Visitors on vault tours see only a display sample and can’t verify bars up close. “All you see is the front row of gold bars,” said James Turk, co-founder of Goldmoney, a gold custodian. “There’s no way of knowing how deep the chamber is or how many rows there are.” Mr. Turk, based in London, believes much of the gold has been “hypothecated,” or lent out to other parties, and then rehypothecated, or lent to multiple parties at once. In doing so, he says, “central banks actually own less gold than people believe.”

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A phenomenal mess lies in your future. Wait till various courts get involved, representing entirely different jurisdictions, different laws.

UK Risks International Court Case Over Theresa May’s Brexit Plans (Ind.)

Britain risks a new Brexit fight in international courts if it tries to quit the EU’s single market without giving other countries official notice, The Independent can reveal. Legal experts, including one who advised the Treasury, agree Theresa May will leave the UK open to legal action in The Hague if she pulls out of the European Economic Area (EEA) without formally telling its other members 12 months in advance, to avoid disrupting their trade. The notice is demanded by an international agreement, but ministers do not intend to follow the process because, insiders believe, they want to avoid a Commons vote on staying in the EEA – and, therefore, the single market – that they might lose. As well as the a court battle, experts warn the stigma from breaking the agreement could also make it harder for Britain to secure the trade deals it desperately needs to secure the economy after Brexit.

Pro-EU MPs hope the legal opinion will help persuade the Commons to force and win the vote on staying in the EEA planned for the autumn. The Government has insisted EEA membership will end automatically with EU withdrawal but former Treasury legal adviser Charles Marquand, said: “A failure by the UK to give notice of its intention to leave would, I think, be a breach of the EEA Agreement, which is an international treaty.” The barrister said it was difficult to predict how another EEA states might seek to take action, if it believed its single market rights had been removed wrongly. But he added: “I believe there is a potential for international proceedings. One possibility is the Permanent Court of Arbitration in The Hague.”

Read more …

Are we going to lock him up?

Greenspan’s Legacy Explains Current Conundrums (DDMB)

On Aug. 11, 1987, the U.S. Senate confirmed Alan Greenspan as chairman of the Board of Governors of the Federal Reserve System. Thirty years later, the fallout from that occasion is still being felt around the world as the central bank’s focus shifted under Greenspan from economics and the banking system to the financial industry. Greenspan’s first speech as Fed chairman took place less than a month into his tenure when he dedicated the Jacksonville, Florida, branch of the Atlanta Fed. Some 73 miles north of where he stood was Jekyll Island, Georgia, where the foundations of the Fed were first laid in November 1910. Rather than look back at the Fed’s roots, however, Greenspan peered into its future: “We have entered the age of the truly global marketplace. Today the monetary policy decisions of our nation reverberate around the globe.”

Those words resonate today as policy makers worldwide struggle to extricate themselves from extraordinary levels of market intervention. How did we get to the point where central bankers endeavor to resolve structural issues with the power of the printing press? Greenspan’s legacy provides the answers. It is notable that in the days before the Senate vote, President Ronald Reagan cited the “banking system” as one of the Fed’s primary responsibilities. While Greenspan included banking system stability as one of the “instrumentalities” of the government’s designs of the Fed, he emphasized that the Fed was “NOT just another federal agency.” The Fed was also a leader “within the financial industry.” It wouldn’t take long for the financial system to stress test Greenspan’s resolve. On Oct. 19, 1987, the Dow Jones Industrial Average dropped 22.6% in what remains the steepest one-day loss on record. From his first day in office to that October closing low, the Dow was down by 35%.

Few recall that Greenspan was in the air on his way to Dallas during the worst of Black Monday’s selloff, where he was scheduled to address the American Bankers Association convention the next morning. It wasn’t until he landed that he learned of the day’s events. Against his wishes, Greenspan never made it to the podium; he thought the better way to communicate calm was by maintaining his scheduled appearance. Compelled back to Washington due to the gravity of the situation, Greenspan issued the following statement in his name at 8:41 a.m. that Tuesday, less than an hour before stocks opened for trading: “The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”

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Best reason ever for a Universal Basic Income.

Social Security Requires Bailout 60x Greater Than 2008 Bank Bailout (Black)

A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money. Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone. But that didn’t happen. The story was hardly picked up. It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history. That’s not hyperbole either– the numbers are very clear.

The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION. In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout. Fat chance. That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy. Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008. So this is a pretty big deal. More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic. In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future. What will interest rates be in the future? What will the population growth rate be? How high (or low) will inflation be?

These variables can dramatically impact the outcome for Social Security. For example, Social Security assumes that productivity growth in the US economy will average between 1.7% and 2% per year. This is an important assumption: the higher US productivity growth, the faster the economy will grow. And this ultimately means more tax revenue (and more income) for the program. But -actual- US productivity growth is WAY below their assumption. Over the past ten years productivity growth has been about 25% below their expectations. And in 2016 US productivity growth was actually NEGATIVE.

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Venezuela is dead simple. It has the largest oil reserves on the planet. Chavez kept Exxon and CIA out. Now they’re moving back in.

All Is Not As It Seems In Venezuela (Ren.)

An opposition backed by Exxon Mobil, a failed military coup that killed 40 people, staged photo-propaganda designed to create the perception of a failed state: Foreign powers have conspired to create the perfect conditions for yet another western ‘humanitarian’ intervention, this time in Venezuela. Former US Army solider turned documentary-maker, Mike Prysner, says the reality of Venezuela is very different from what we are being fed by the western press. [..] When I heard that Jeremy Corbyn had condemned violence on both sides in Venezuela, I was angry at first – because 80% or more of the violence is being committed by anti-government protesters. Their violence has far surpassed anything committed against them – and what has been done to them has been deliberately provoked. But then I began to recognise the skill in his statement – forcing everyone to confront the reality of what’s happening on the ground there. The reality bears little resemblance to what’s being presented to people.

The BBC is responsible for some of the most disingenuous portrayals. They’re showing violent protesters as if they’re some kind of defenders of peaceful protesters against a repressive police force, but in reality peaceful protests have been untouched by police. What happens is that the Guarimbas (violent, armed opposition groups) follow the peaceful protests and when they come near police, they insert themselves in between the two. They then push and push and push until there’s a reaction – and they have cameras and journalists on hand to record the reaction, so it looks like the police are being aggressive. We were once filming a protest and a group of Guarimbas challenged us. If we’d said we were with teleSur, at the very least they’d have beaten us and taken our equipment. But we told them we were American freelance journalists – they need Americans to film them and publicise them, so we were accepted.

The battles with police are actually quite small, but they’re planned, co-ordinated to disrupt different area each day to maximise their impact – but in most places life is pretty normal. It’s all about the portrayal. The US media mobilise everything for Guarimbas – there will be maybe 150 people but it’s made to look bigger and tactics are 100% violent – trying to provoke a response. And the level of police restraint is remarkable – the government knows the world is watching. One evening protesters were burning buildings for around two hours, with no intervention by the police. They only react when the protesters start throwing petrol bombs at the police or military, or their bases – but as soon as they do react, the Guarimbas film as if they’re victims of an unprovoked attack.

Read more …

Over 200 a day into Québec alone.

Asylum Seekers At Canada Border Tents Unfazed By Delays, Uncertainty (R.)

Asylum seekers, mainly from Haiti, clambering over a gully from upstate New York into Canada on Friday were undeterred by the prospect of days in border tents, months of uncertainty and signs of a right-wing backlash in Quebec. More than 200 people a day are illegally walking across the U.S. border into Quebec to seek asylum, government officials said. Army tents have been erected near the border to house up to 500 people as they undergo security screenings. Over 4,000 asylum seekers have walked into Canada in the first half of this year, with some citing U.S. President Donald Trump’s tougher stance on immigration. The cars carrying the latest asylum seekers begin arriving at dawn in Champlain, New York, across from the Canadian border.

On Friday, the first groups included two young Haitian men, a family of five from Yemen and a Haitian family with young twins. “We have no house. We have no family. If we return we have nowhere to sleep, no money to eat,” said a Haitian mother of a 2-year-old boy, who declined to give her name. Each family pauses a moment when a Royal Canadian Mounted police officer warns them they will be arrested if they cross the border illegally, before walking a well-trodden path across the narrow gully into Canada. Asylum seekers are crossing the border illegally because a loophole in a U.S. pact allows anyone who manages to enter Canada to file an asylum claim and stay in Canada while they await their application outcome.

Because the pact requires refugees to claim asylum in whatever country they first arrive, they would be turned back to the United States at legal border crossings. They Haitian family is arrested immediately and bussed to the makeshift camp. Border agents led a line of about two dozen asylum seekers on Friday into a government building at Saint-Bernard-de-Lacolle to be processed. The Red Cross is providing food, hygiene items and telephone access, spokesman Carl Boisvert said. He estimated the fenced-off camp, which has been separated into sections for families and single migrants, is about half full. Border staff and settlement agencies are straining to accommodate the influx, which has been partly spurred by false rumors of guaranteed residency permits.

Read more …

The values of our own lives are set by how we value other people’s lives.

People Smugglers Pushing Refugees To Their Deaths At Sea Off Yemen (Ind.)

At least 19 migrants are presumed to have drowned after 160 people were forced from a boat into rough seas off the coast of Yemen by smugglers in what may be a worrying new trend, the UN migration agency has said. The report from the International Organisation for Migration came less than a day after it said up to 50 migrants from Ethiopia and Somalia were “deliberately drowned” by smugglers who pushed them from a separate boat off the coast of Shabwa province in southern Yemen. “We’re wondering if this is a new trend,” Olivia Headon, an IOM spokesperson, told The Independent. “The smugglers are well aware of what’s happening in Yemen, so it may just be they’re trying to protect their own neck while putting other people’s lives at risk.” Six bodies were found on the beach, while 13 remain missing, presumed dead, Ms Headon said.

Read more …

Feb 232017
 
 February 23, 2017  Posted by at 2:47 pm Finance Tagged with: , , , , , , , , ,  16 Responses »
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Times Square New York City, 1958

 

A few days ago, I wrote an essay entitled “Not Nearly Enough Growth To Keep Growing”, in which I posited, among many other things, that “..the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s” along with the question “..was America at its richest right before or right after Nixon took the country off the gold standard in 1971?”

That same day, I received an email from (very) long time Automatic Earth reader and afficionado Ken Latta, who implied he thought the peak of American wealth was even earlier. That turned into a nice conversation. I really like the way his head works to frame his words. And Ken knows what he’s talking about by grace of the fact that he was a witness to it all.

I like that he defines wealth as “best measured by the capacity to be utterly wasteful”, and the early 1960’s in America as “a golden age, overshadowed, of course, by excess hubris.”. And I wonder many of you would agree that America was at the summit of its wealth perhaps as much as 55-60 years ago?

Here’s his first mail:

Ken Latta: Ilargi, A darned good editorial, but I would like to suggest a different baseline for America’s peak wealth. As experienced by the common man, now pronounced “deplorable”.

In my humble estimation based on having been there at the time. Peak wealth occurred somewhere in the neighborhood of 1963. It was a time when the Beach Boys and their music biz competitors were making money with songs about hi-powered cars and a life of surfing waves. Working Joes bought those cars and drove them on the street. Those on the coasts spent inordinate amounts of time surfing. A lot of ordinary car buyers were committed to trading in every three years. Some of the better off even thought every two years was the way to go. We wuz feelin invincible and we enjoyed such a comfortable way of life without forcing the majority of our wimmin into wage slavery. It was a golden age, overshadowed, of course, by excess hubris.

The national perception of wealthiness was such that the Pedernales Poltroon (LBJ) felt emboldened to declare simultaneous war on Poverty and Viet-Nam. When both had finished kicking our ass, wealth was something only to be found in the future. The best and the brightest immediately set about creating ways to steal that wealth. Most of the female population faced a choice between wage slavery or more privation than they were prepared to tolerate.

So, here we are in that future with the wealth thoroughly plundered and nothing much more comforting to anticipate than a new version of iPhone. Wealth is best measured by the capacity to be utterly wasteful and today for a large segment a new phone seems to be close to the limit. As for a big segment of new car buyers, instead of trying to calculate the optimal trade-in period, many focus on hiding it from the repo man.

To which I replied:

Yeah, there’s a good argument to be made for 1963 as well. But then, the whole Woodstock thing seems similar to that, in the terms you use. The carefree and wasteful. Where did the hippies get the time to be hippies? Then again, you could argue that Woodstock was already a first protest against that very attitude. On the finance front, Nixon couldn’t pay back everyone in gold anymore, so that’s a bad sign right there. His 1971 move was born of necessity.

And Ken said:

Ken Latta: I just picked 1963 because it happened to be a significant year for me personally. I don’t think it really useful to think of peaks as being so much like a curve with zero radius. I’d really put the period of peak actual American wealth as approximately 1958 to about 1967. Being a hippy didn’t cost much and in most cases their parents could comfortably provide their essentials. Hippies weren’t opposed to working, when they needed to, and they generally existed within a sharing economy.

Yes, Nixon had no choice on closing the gold window. The rumors of Fort Knox vault being more or less empty might well be true. What we know is that in recent times we always steal the bank gold from our conquests. Somali pirates are second raters in comparison.

I suspect that an important factor behind the gold rush might have been a consequence of an MIC logistical move prior to our little Viet-Nam adventure. A huge stockpile of decommissioned WW-II bomb casings had been sold for scrap to European companies. You know since we weren’t going to fight any more non-nuke wars. The Pentagon desperately bought them back because we had very limited production capacity at the beginning of the project for rapid promotion of military officers. That must have created a pretty big pile of Eurodollars and de Gaulle seems to have preferred gold.

When Tricky closed the window we were already poor and Detroit’s new cars were almost without exception, junk. They like to credit news anchor Walter Cronkite for ending the war when he told his audience that the war couldn’t be won. I suspect we was put up to it by Washington when they could no longer ignore that it was unaffordable. It has been downhill ever since. The borgified media cooperated in obscuring that by focusing our attention on acts of petty criminals, acts of god, the Kardashian sisters and their ilk. Plus, of course, random examples of techno dazzlement.

That’s when I thought getting an article out of him would be great:

You should write an article about this. It’s the most crucial thing, and I wasn’t there. Why that period was what it was, vs not being what this one is, will be a very big story.

And he complied. So here’s Ken Latta:

 

 

Ken Latta: A recent post on The Automatic Earth contained a question regarding the point of peak wealth in The United States and whether President Nixon’s closing of the gold window initiated the decline. Being now 73 years old and still able to recall many impressions of that era, I pondered the issue to see if I might come up with a somewhat acceptable answer.

Back in the day we commonly joked that statistics lie and we have the numbers to prove it. Us having the numbers was the joke part. When it comes to concepts like wealth, I do not see numbers such as GDP as being reliable indicators. As the French and Russian revolutions revealed, a grossly unequal society is a poor society. Though it might display an image of being rich and powerful, that is only a mirage.

As was once common knowledge to most Earthlings, the 1930’s saw wealth disappear all over the world. That was the common view, but it is wrong. The social wealth was well and truly squandered during the first three decades of the twentieth century. The creeping social impoverishment just burst into public view in the 30’s. As is the custom, when poverty haunts the land barbarians will appear at the gates. And so the first half of the fifth decade was devoted to destroying as much of civilization as was deemed feasible at the time.

The USA government borrowed massive amounts of money to create the means of wreaking such havoc. There are always consequences from such actions. At the beginning of USA mobilization almost all of its industrial capacity was re-engineered and expanded to efficiently produce war materiel. The factories hummed and employed large numbers of women on the production lines. A consequence was the very limited availability of consumer goods, which were subject to rationing. With steady pay envelopes and little available to buy, lots of small denomination war bonds were sold to the populace. We might assume that some of it found its way into mattresses.

 

When peace broke out the populace had surplus cash and claims against the government. They were exuberant over victory and tired of not having anything new to enjoy. Millions of men were being discharged from the armed forces and those young factory girls wanted some babies. Those men would replace many of the women in the factories, but the factories needed to retool again to produce the consumer goods everybody wanted. Part of the new consumer demand was met by selling military surplus goods to the public. A lot of jeeps, trucks, industrial tools, materials such as steel panels for Quonset Huts and even light aircraft and cargo planes ended up in the hands of former GI Joe’s.

The Industrial Concerns gained another respite when President Truman signed an executive order declaring the USA would be forever more a permanent war economy. So outfits like Boeing, Douglas, Lockheed, Martin et al could keep right on producing large numbers of warplanes. Shipyards continued building aircraft carriers, submarines, etc. New versions of battle tanks rolled off the lines every few years. And of course, the nuclear devices kept getting more powerful and numerous.

Those GI Joe’s had experienced in the services a sense of brotherhood and unity in the face of us versus them. They brought those ideas into the factories and cemented the gains made by prewar union organizers. Very lucrative contracts were forced on employers and for once national wealth was being spread fairly evenly across social strata.

 


Ad for Ford Woodie, 1960

 

The working class began to feel sufficiently wealthy that they turned to indulging their fantasies and emulating as best they could the actions of the truly rich. Around the middle of the 1950’s they increasingly opted for more luxuriously appointed and/or higher performance cars and trucks than the economical versions that had been the norm for that class. Many also embraced the published suggestions that these vehicles should be traded for a new one every three years, which at that time was the standard term for auto financing.

In other words, why enjoy the net worth benefits of driving a paid for vehicle when you could enjoy the increased status of once again driving a brand new car. The propaganda was quite effective and the practice quite wasteful. They discovered the joys of power boating and over time the boats kept getting bigger and fancier. It is with much justification that this period is often described as the Golden Age. It wasn’t just that so many people were living well. It was a time when the working class seemed to have been most comfortable with their civilization. I put it down to people having full permission to be as wasteful as they wanted.

 

It could not last. The rulers filled with hubris arrogantly declared simultaneous war on poverty, Viet-Nam and the Moon. While also running a bodacious arms race with the USSR. At first it seemed to bode well for old GI Joe. The already very active military industries had to gear up to supply the weapons, munitions and materiel. Not to mention moon rockets. More good jobs to be had. But, as it turned out only the Moon war went mostly as planned. Though there were casualties. The flamboyant Gus Grissom and two crew mates were burned alive in a sealed Apollo capsule while waiting for launch. The Moon war ended with a unilateral cease fire when it was finally determined there was nothing there worth destroying. Aside from some junk scattered across the Lunar landscape, the Moon was left largely unmolested. Except for a few pounds of stolen rocks.

The other two wars unleashed a whole lot of grief across the land. GI Joe found himself looking out across a land he no longer understood. His kids had become hippies, freedom riders and flag burners. A good many had fled to Canada. The kids that failed to avoid the draft, after too many bad experiences in pursuit of an apparently phantom goal started behaving mutinously. A not entirely rare action was to slip an armed hand grenade into an officers tent. It happened to a young Marine officer who the author had met at my fiancée’s family home prior to his shipping out.

 

The Golden Age was over. Worse yet, petroleum geologist M. King Hubbert’s prediction of a peak of US oil production in the early 70’s was about to come true. Confidence began to wain and habits changed. Auto buyers increasingly focused on finding a model that might last long enough to get it paid for and be economical to operate. The door was opened for Japan and Germany to sell cars here and they soon sold a lot of them. US manufacturers fell victim to a labor force that no longer believed and management hubris.

The nation was hemorrhaging dollars to Europe, Japan and the OPEC cartel. According to the Bretton Woods agreement, those dollars were convertible to gold. Some nations, in particular France under de Gaulle, decided they wanted the gold. As the gold pile diminished, Nixon had no choice and closed the so called gold window thus breaking the Bretton Woods agreement. The subsequent creeping expansion of poverty and financial insecurity has reduced our civilization to a sullen mockery of its glory days.

The period following WW-II was anomalous for the era in that the State was encumbered with enormous debt while private debt was very modest. According to economists like Michael Hudson and Steve Keen, that is a recipe for citizen prosperity. The post war era seems to be a good example. Prior to the war state debt had been very low and private debt had swollen enormously. That ended rather badly. As Keen insists, private debt is a killer. A good reason being for example that it’s hard to repossess a government, but things like cars and houses are fairly trivial exercises.

When people see themselves as at constant risk of losing almost everything they are rarely happy campers. During the 70’s buyers and their lenders began offering ridiculous prices for houses. Car dealers often marked desirable new cars above MSRP. In the years that followed almost everything was bought on credit. To paraphrase Sen. Dirksen, a debt here a debt there after a while it turns into a real nightmare.

 

According to Dr. Hudson, in ancient Babylon credit was widely used. The principle creditors were the palace and the temple. It mostly consisted of running a tab for citizens using their services and buying supplies and typically paid when the crop came in. A practice of our small town grocer back in the 50’s. Though not for such extended periods. The custom of their civilization was, on ascension of a new king or crop failure or a war, to forgive all the palace and temple debts. This was deemed necessary to prevent too many of the population from falling into bondservitude, which would have brought down the kingdom.

In more recent times that was called a debt jubilee. It could work because most debt was owed to entities that had ultimate claims on all wealth in the domain. They could handle writing off debt without suffering bankruptcy. Private creditors, written as banksters, cannot do so unless the Palace (White House) and Temple (Federal Reserve) pay them full price for their worthless paper. In 2008 even the intellectually challenged GW Bush observed that ‘this sucker could go down’. I would never bet that it won’t go down next time, which could be most any time now. The barbarians are already wearing war paint (well actually pussy hats) and brandishing war clubs (signs on sticks). One can guess that unaccredited schools may already be training a cadre of mixologists in the proper preparation of Mr Molotov’s favorite cocktail.

It seems like a cosmic joke that Hammurabi and his ilk had better economic advisors than any of our modern meathead leadership. Of course, in his time civilization and turning wasteful practices into wealth was still a fairly new idea. It’s an old idea now apparently closing in on its pull date. I am drawn to wonder if civilization could ever have worked any other way. I’m calling it not very likely.

 

 

Jan 062017
 
 January 6, 2017  Posted by at 4:52 pm Finance Tagged with: , , , , , , ,  4 Responses »
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Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

 

Since the new year will bring yuuge and bigly changes to us all (I truly hope both the year and the changes will leave you happy), I thought I’d start off by ‘reduxing’ two articles that contain further ‘reduxes’, Russian doll style. I do this because the man the articles are about is set to play a large role in those changes, certainly where Europe is concerned. And since the changes in Europe will be weally weally bigly, they will impact the entire world.

That is to say, we must seriously doubt if the EU -or rather, what’s left of it post-Brexit-, will live to see January 1 2018 in one piece. This is hardly an exaggeration, as you may be inclined to think. As I said recently, in Europe it’s not and-and, it’s if-or: with elections in Germany, France, Holland and probably Italy coming up, they don’t all have to turn out ‘badly’ for the pro-EU camp, if just one of them goes against the EU, it may well be game over.

Therefore Beppe Grillo, leader of the Five Star movement, is a man to keep an eye on. And not just for that. The first item below, a 1998 video, is an addition to my original article from November 14 2014, and it makes clear, once more, that Beppe is no fool. Nor is he a right wing nut, or anything remotely like that. Beppe actually understands what money is, much much better than any of the politicians and economists that rule the old continent. That makes him a threat to them.

Below that video from 1998, my November 14 2014 article, which in turn cites a 2013 article. I know some things will look dated, but you’ll get it, I’m sure. I hope you also get why I repost it all: 2017 has begun.

 

Beppe Grillo: Whom does the money belong to? Who does its ownership belong to? To the State, fine, so to us, we are the State.

You know that the State doesn’t exist, it is only a legal entity. WE are the state, the money is ours.

Then tell me one thing: if the money belongs to us, why do they lend it to us?

 

 

 

From November 14 2014: That says quite something, that title. And it’s probably not entirely true, it’s just that I can’t think of any others. And also, I’m in Europe myself right now, and I still have a European passport too. So there’s two of us at least. Moreover, I visited Beppe Grillo three years ago, before his 5-Star Movement (M5S) became a solid force in Italian politics. So we have a connection too.

Just now, I noticed via the BBC and Zero Hedge that Beppe not only expects to gather far more signatures than he said he would recently (1 million before vs 4 million today) for his plan to hold a referendum on the euro, he also claims to have a 2/3 majority in the Italian parliament. Well done. But he can’t do it alone.

Martin Armstrong thinks the EU may have him murdered for this before they allow it to take place. Which is a very good reason for everyone, certainly Europeans, to come out in support for the only man in Europe who makes any sense. I know many Italians find Beppe too coarse, but they need to understand he’s their only way out of this mess.

The smear campaigns against him are endless. The easier ones put him at the same level as Nigel Farage and Marine Le Pen, the more insidious ones paint him off as a George Soros patsy. There’ll be a lot more of that. And given the success of this year’s anti-Putin campaign in Europe, and the ongoing pro-Euro one, it’s going to take a lot not to have people believe whatever they are told to.

Just take this to heart: since Italy joined the euro, its industrial production has fallen by 25%. How is that not a disaster? Meanwhile, the eurozone economy is in awful shape, and the longer that lasts, the more countries like Italy will be disproportionally affected and dragged down further. There’s a reason for that numbers such as that: it’s not like Germany and Holland lost 25% of their production.

The eurozone must end before it starts to do irreversible damage, and before it turns Europe into a warzone, a far more real and imminent risk than anyone dares suggest.

The first bit here is from Zero Hedge, and then after that I will repost a lengthy piece about Beppe that I first published on February 12, 2013.

Italy’s Grillo Rages “We Are Not At War With ISIS Or Russia, We Are At War With The ECB”

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase.

Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

As Martin Armstrong asks rather pointedly…

Since the introduction of the euro, all economic parameters have deteriorated, the founder of the five-star movement in Italy is absolutely correct. The design or the Euro was a disaster. There is no fixing this any more. We have crossed the line of no return. Beppe is now calling for referendum on leaving euro. Will he be assassinated by Brussels? It is unlikely that the EU Commission will allow such a vote.

And then here’s my February 2013 article; it seems silly to try and rewrite it. There is nobody in Europe other than him who understands what is going on, and is willing to fight for it. Grillo is a very smart man, a trained accountant and an avid reader of anything he can get his hands on. The image of him as a populist loud mouthed good for little comedian is just plain false. It was Grillo who exposed the Parmalat scandal, and the Monte Dei Paschi one.

Never forget what political and behind the veil powers he’s up against in his country, and how they seek to define the image the world has of him. What Beppe Grillo does takes a lot of courage. Not a lot of people volunteer to be smeared and insulted this way, let alone run the risk of being murdered. Those who do deserve our support.

 

 

Beppe Grillo Wants To Give Italy Democracy

In the fall of 2011, The Automatic Earth was on another European lecture tour. Nicole Foss had done a series of talks in Italy the previous year, and there was demand for more. This was remarkable, really, since a knowledge of the English language sufficient to understand Nicole’s lectures is not obvious in Italy, so we had to work with translators. Certainly none of this would have happened if not for the limitless drive and energy of Transition Italy’s Ellen Bermann.

In the run-up to the tour I had asked if Ellen could perhaps set up a meeting with an Italian I found very intriguing ever since I read he had organized meetings which drew as many as a million people at a time for a new – political – movement. Other than that, I didn’t know much about him. We were to find out, however, that every single Italian did, and was in awe of the man. A few weeks before arriving, we got word that he was gracious enough to agree to a meeting; gracious, because he’d never heard of us either and his agenda was overloaded as it was.

So in late October we drove the crazy 100+ tunnel road from the French border to Genoa to meet with Beppe Grillo in what turned out to be his unbelievable villa in Genoa Nervi, high on the mountain ridge, overlooking – with a stunning view – the Mediterranean, and set in a lovely and comfortable sunny afternoon. I think the first thing we noticed was that Beppe is a wealthy man; it had been a long time since I had been in a home where the maids wear uniforms. The grand piano was stacked with piles of books on all sorts of weighty topics, politics, environment, energy, finance. The house said: I’m a man of wealth and taste.

 


Eugenio Belgeri, Raúl Ilargi Meijer, Beppe Grillo, Nicole Foss and Ellen Bermann in Genoa Nervi, October 2011

 

I don’t speak Italian, and Beppe doesn’t speak much English (or French, German, Dutch), so it was at times a bit difficult to communicate. Not that it mattered much, though; Beppe Grillo has been a super charged Duracell bunny of an entertainer and performer all his life, and he will be the center of any conversation and any gathering he’s a part of no matter what the setting. Moreover, our Italian friends who were with us – and couldn’t believe they were there – could do a bit of translating. And so we spent a wonderful afternoon in Genoa, and managed to find out a lot about our very entertaining host and his ideas and activities.

Beppe had set up his Five Star movement (MoVimento Cinque Stelle, M5S) a few years prior. He had been organizing V-day “happenings” since 2007, and they drew those huge crowds. The V stands for “Vaffanculo”, which can really only be translated as “F**k off” or “Go f**k yourself”: the driving idea was to get rid of the corruption so rampant in Italian politics, and for all sitting politicians to go “Vaffanculo”.

At the time we met, the movement was focusing on local elections – they have since won many seats, have become the biggest party on Sicily (after Beppe swam there across the Straits of Messina from the mainland) and got one of their own installed as mayor of the city of Parma.

Grillo explained that M5S is not a political party, and he himself doesn’t run for office. He wants young people to step forward, and he’s already in his sixties. Anyone can become a candidate for M5S, provided they have no ties to other parties, no criminal record (Beppe does have one through a 1980 traffic accident); they can’t serve more than two terms (no career politicians) and they have to give back 75% of what they get paid for a public function (you can’t get rich off of politics).

I found it surprising that our friends at Transition Italy and the general left were reluctant to endorse Grillo politically; many even wanted nothing to do with him, they seemed to find him too coarse, too loud and too angry. At the same time, they were in absolute awe of him, openly or not, since he had always been such a big star, a hugely popular comedian when they grew up. Grillo offered to appear through a video link at Nicole’s next talk near Milan, but the organizers refused. It was only the first sign of a lot of mistrust among Italians even if they all share the same discontent with corrupt politics. Which have made trust a major issue in Italy.

 

 

This may have to do with the fact that Grillo is a comedian in the vein of perhaps people like George Carlin or Richard Pryor in the US. On steroids, and with a much wider appeal. Rough language, no holds barred comedy turns a lot of people off. Still, I was thinking that they could all use the visibility and popularity of the man to get their ideas across; they preferred anonymity, however.

By the way, the Five Stars, perhaps somewhat loosely translated, stand for energy, information, economy, transport and health. What we found during our conversation is that Beppe Grillo’s views on several topics were a little naive and unrealistic. For instance, like so many others, he saw a transition to alternative energy sources as much easier than it would realistically be. That said, energy and environment issues are important for him and the movement, and in that regard his focus on decentralization could carry real benefits.

Still, I don’t see the present naive ideas as being all that bad. After all, there are limits to what people can do and learn in a given amount of time. And Beppe certainly has a lot to do, he’s leading a revolution, so it’s fine if the learning process takes some time. Ideally, he would take a crash Automatic Earth primer course, but language will be a barrier there. I hope he finds a way, he’s certainly smart and curious enough.

 

 

When his career took off in the late 70’s, early 80’s, Beppe Grillo was just a funny man, who even appeared on Silvio Berlusconi’s TV channels. Only later did he become more political; but then he did it with a vengeance.

Grillo was first banned from Italian TV as early as 1987, when he quipped about then Prime Minister Bettino Craxi and his Socialist Party that if all Chinese are indeed socialists, who do they steal from? The ban was later made permanent. In the early 90’s, Operation Clean Hands was supposed to have cleaned up corruption in politics. Just 15 years later, Beppe Grillo started the Five Star movement. That’s how deeply engrained corruption is in Italy, stretching across politics, business and media.

We are- almost – all of us living in non-functioning democracies, but in Italy it’s all far more rampant and obvious. There’s a long history of deep-seated corruption, through the mafia, through lodges like P5 and Opus Dei, through many successive governments, and through the collaboration between all of the above, so much so that many Italians just see it as a fact of life. And that’s what Beppe Grillo wants to fight.

Ironically, he himself gets called a neo-nazi and a fascist these days. To which he replies that perhaps he’s the only thing standing between Italy and a next bout of fascism. I’ve read a whole bunch of articles the past few days, the international press discovers the man in the wake of the general elections scheduled for February 24-25, and a lot of it is quite negative, starting with the all too obvious notion that a clown shouldn’t enter politics. I don’t know, but I think Berlusconi is much more of a clown in that regard than Grillo is. A whole lot more of a clown and a whole lot less funny.

Beppe is called a populist for rejecting both right and left wing parties, a neo-nazi for refusing to block members of a right wing group from M5S, a Jew hater in connection with the fact that his beautiful wife was born in Iran, and a dictator because he’s very strict in demanding potential M5S candidates adhere to the rules he has set. Oh, and there are the inevitable right wing people calling him a communist.

There are of course tons of details that I don’t know, backgrounds, I’m largely an outsider, willing to be informed and corrected. And this would always be much more about the ideas than about the man. Then again, I did talk to the man in his own home and I don’t have the impression that Grillo is a fraud, or part of the same system he purports to fight as some allege, that he is somehow just the existing system’s court jester. He strikes me as being too loud and too embarrassing for that. And too genuinely angry.

Moreover, I think Italy is a perfect place for a nasty smear campaign, and since they can’t very well murder the man – he’s too popular – what better option than to make him look bad?! If anything, it would be strange if nobody did try to paint him off as a demagogue, a nazi or a sad old clown.

 


Photo: AFP: Marcello Paternostro

 

After being banned from TV, Grillo went on the build one of the most visited blogs/websites in the world, and the number one in Europe. Ironically, he is now in some media labeled something of a coward for not appearing in televised election debates. But Beppe doesn’t do TV, or – domestic – newspapers. For more than one reason.

Because he was banned from TV, because of the success of the internet campaign, and because Silvio Berlusconi incessantly used “lewd” talk shows on his own TV channels to conduct politics, Beppe Grillo insists his councilors and candidates stay off TV too, and he has his own unique way of making clear why and how: When a female Five Star member recently ignored this and appeared on a talk show anyway, Grillo said “the lure of television is like the G-spot, which gives you an orgasm in talk-show studios. It is Andy Warhol’s 15 minutes of fame. At home, your friends and relations applaud emotionally as they share the excitement of a brief moment of celebrity.”. Of course Beppe was labeled a sexist for saying this.

The internet is central to Grillo’s ideas. Not only as a tool to reach out to people, but even more as a way to conduct direct democracy. Because that is what he seeks to create: a system where people can participate directly. Grillo wants to bring (back) democracy, the real thing, and he’s long since understood that the internet is a brilliant tool with which to achieve that goal. One of his spear points is free internet access for all Italians. Which can then be used to let people vote on any issue that can be voted on. Not elections once every four years or so, but votes on any topic anytime people demand to vote on it. Because we can.

Since we had our chat in that garden in Genua, Beppe Grillo and M5S have moved on to bigger pastures: they are now set to be a major force in the general elections that will establish a new parliament. Polls differ, but they can hope to gain 15-20% of the vote (Grillo thinks it could be even much more). The leader in the polls is the Socialist Party, and then, depending on which poll you choose to believe, M5S comes in either second or third (behind Berlusconi). What seems certain is that the movement will be a formidable force, carrying 100 seats or more, in the new parliament, and that they could have a lot of say in the formation of any new coalition government.

In the run-up the elections, Beppe has now traded his home for a campaign bus, going from town to town and from one jam-packed campaign event to the next on what he has labeled the Tsunami Tour, in which he, in his own words, brings class action to the people.

As was the case in the local elections, Beppe Grillo says he wants “normal” people (“a mother of three, a 23-year-old college graduate, an engineer [..] those are the people I want to see in parliament”) to be elected, not career politicians who enrich themselves off their status and influence, and who he labels “the walking dead”, and though he acknowledges his candidates have no political experience, he says: “I’d rather take a shot in the dark with these guys than commit assisted suicide with those others.” In the same vein, another one of his lines is:“The average age of our politicians is 70. They’re planning a future they’re never going to see”.

On his immensely popular website beppegrillo.it, which has quite a bit of English language content, Grillo has some nice stats and tools. There is a list of Italian parlimentarians and Italian members of the EU Parliament who have been convicted of crimes. At this moment there are 24; their number has come down, but still. There is also a great little thing named “Map of Power of the Italian Stock Exchange” that graphically shows the links various politicians have with various corporations. I remember when Grillo proudly showed it to us, that after clicking just 2-3 politicians and 2-3 businesses, the screen was so full of lines depicting connections it had become an unreadable blur.

In between all the other activities, Beppe was instrumental 10 years ago in exposing the stunning $10 billion accounting fraud at dairy and food giant Parmalat before it went bankrupt, as well as the recent scandal at the world’s oldest bank, Monte Dei Paschi Di Siena, which will cost a reported $23 billion. Corruption is everywhere in Italy, which has a large political class that is all too eager to share in the spoils. Mr. Grillo was trained as an accountant, and he understands what he’s talking about when it comes to dodgy numbers. What he needs is the power to act.

 

 

Apart from the strong stance that Grillo and M5S take against corruption and for direct representation, critics say they have few clear policy objectives, that they don’t even know what they want. Being a movement instead of a party doesn’t help. But then, these critics think inside the very old system that M5S wants to replace with one that is far more transparent and direct. It’s more than obvious that existing powers have no interest in incorporating the possibilities for improvement offered by new technologies, but it should also be obvious that people, wherever they live, could potentially benefit from a better functioning political system.

There will be many who say that no such thing can be achieved, but perhaps it not only can, but is inevitable. All it could take is for an example to show that it can work. One might argue that the only reason our current systems continue to exist in all their opaqueness is that those who stand to profit from them are the ones who get to vote on any changes that could be applied. What Beppe Grillo envisions is a system in which every one can vote directly on all relevant issues, including changes to the system itself. It’s about class action, about taking back power from corrupt existing politics. Italy looks like a good testing ground for that, since its systemic rot is so obvious for all to see. But in other western countries, just like in Italy, it could return the power where it belongs: in the hands of the people.

Radical ideas? Not really, because when you think about it, perhaps it’s the technology itself that’s radical, not the use of it. And maybe it’s the fact that we’re so stuck in our existing systems that keeps us from using our new technologies to their full potential. Just like it keeps us from restructuring our financial systems and our energy systems for that matter. We continue to have systems and institutions guide our lives long after they’ve ceased to be useful for our present day lives, as long as we’re snug and warm and well-fed. And we do so until a real bad crisis of some sort comes along and makes it absolutely untenable, often with a lot of misery and blood thrown into the equation.

Beppe Grillo wants to break that chain. And he’s got a recipe to do it. It may not be perfect or foolproof, but who cares when it’s replacing something that no longer functions at all, that just drags us down and threatens our children’s lives? Who cares? Well, the Monti’s and Berlusconi’s and Merkel’s and Obama’s and Exxon’s and BP’s and Monsanto’s of the world do, because it is the old system that gave them what they have, and they don’t want a new one that might take it away. Our so-called democracies exist to please our leaders and elites, not ourselves. And we’re unlikely to figure that one out until it’s way too late.

Unless the Italians do our work for us and vote for the Cinque Stelle in huge numbers.

 

 

Dec 192016
 
 December 19, 2016  Posted by at 9:23 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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Oil wells in Venice, California, bringing oil up from beach area 1952

Amid The Bombs of Aleppo, All You Can Hear Are The Lies (Peter Hitchens)
Coup Or No Coup: The Electoral College Votes On Monday (ZH)
A Spy Coup in America? (Robert Parry)
Trump Wants To Hear Hacking Evidence Direct From FBI (WSJ)
The $12 Trillion Credit Risk Juggle (BBG)
Gone in 60 Seconds: Chinese Snap Up Dollars as Yuan Tanks (BBG)
As Yuan Weakens, Chinese Rush To Open Foreign Currency Accounts (R.)
China Central Bank Presses Banks To Help After Interbank Lending Freezes (R.)
China To Strictly Limit Property Speculation In 2017 (R.)
Italy Banking Crisis is Also a Huge Crime Scene (DQ)
Ireland Appeals EU Order To Collect €13 Billion In Back Taxes From Apple (AP)
Apple To Appeal EU Tax Ruling, Says It Was A ‘Convenient Target’ (R.)
India Has Less And Less Reason To Exist In Its Current Form (Bhandari)
Greek Migration Minister Eyes ‘Closed’ Facilities On Islands (Kath.)
The Seven Deadly Things We’re Doing To Trash The Planet (John Vidal)

 

 

Hitchens is a veteran. And western propaganda on Aleppo has gotten way out of hand.

Amid The Bombs of Aleppo, All You Can Hear Are The Lies (Peter Hitchens)

[..] the old cliche ‘the first casualty of war is truth’ is absolutely right, and should be displayed in letters of fire over every TV and newspaper report of conflict, for ever. Almost nothing can be checked. You become totally reliant on the people you are with, and you identify with them. If you can find a working phone, you will feel justified in shouting whatever you have got into the mouthpiece – as simple and unqualified as possible. And your office will feel justified in putting it on the front page (if you are lucky). And that is when you are actually there, which is a sort of excuse for bending the rules.

In the past few days we have been bombarded with colourful reports of events in eastern Aleppo, written or transmitted by people in Beirut (180 miles away and in another country), or even London (2,105 miles away and in another world). There have, we are told, been massacres of women and children, people have been burned alive. The sources for these reports are so-called ‘activists’. Who are they? As far as I know, there was not one single staff reporter for any Western news organisation in eastern Aleppo last week. Not one. This is for the very good reason that they would have been kidnapped and probably murdered. The zone was ruled without mercy by heavily armed Osama Bin Laden sympathisers, who were bombarding the west of the city with powerful artillery (they frequently killed innocent civilians and struck hospitals, since you ask).

That is why you never see pictures of armed males in eastern Aleppo, just beautifully composed photographs of handsome young unarmed men lifting wounded children from the rubble, with the light just right. The women are all but invisible, segregated and shrouded in black, just as in the IS areas, as we saw when they let them out. For reasons that I find it increasingly hard to understand or excuse, much of the British media refer to these Al Qaeda types coyly as ‘rebels’ (David Cameron used to call them ‘moderates’). But if they were in any other place in the world, including Birmingham or Belmarsh, they would call them extremists, jihadis, terrorists and fanatics. One of them, Abu Sakkar, famously cut out and sank his teeth into the heart of a fallen enemy, while his comrades cheered. This is a checked and verified fact, by the way.

Sakkar later confirmed it to the BBC, when Western journalists still had contact with these people, and there is film of it if you care to watch. There is also film of a Syrian ‘rebel’ group, Nour al-din al Zenki, beheading a 12-year-old boy called Abdullah Issa. They smirk a lot. It is on the behalf of these ‘moderates’ that MPs staged a wholly one-sided debate last week, and on their behalf that so many people have been emoting equally one-sidedly over alleged massacres and supposed war crimes by Syrian and Russian troops – for which I have yet to see a single piece of independent, checkable evidence.

Read more …

A real American Christmas comedy.

Coup Or No Coup: The Electoral College Votes On Monday (ZH)

With even Harvard’s Larry Lessig admitting that his efforts to flip the Electoral College against Trump have failed miserably, it’s a near certainty that Trump will, in fact, be elected President when the Electoral College casts their votes tomorrow. That said, there could always be surprises and, as such, The Hill has published a list of five things you should keep an eye on as electors get set to cast their ballots. First, here is how the 538 electors should cast their ballots if they all strictly follow the will of the voters in their respective states.

That said, we know that at least one Texas elector, Chris Suprun, has vowed to go rogue tomorrow and anxious eyes will be waiting to see if anyone decides to join him. As The Hill points out, there hasn’t been an election since 1836 in which more than 1 elector changed his vote, so even 2 defectors would make history.

There’s no evidence of a widespread number of Republican defections—just one Republican elector from Texas has gone public with plans to break from Trump. But there hasn’t been an election in which more than one elector jumped ship for reasons other than the death of a candidate since 1836, according to the nonprofit FairVote. So a defection by even one more Republican elector would make history.

The next thing to watch is whether any Democrat electors will cast protest votes. A small group of Democratic electors had vowed to join Larry Lessig’s coup attempt by throwing their support behind an alternative Republican candidate. While this now seems like a remote possibility, it is something to watch for.

Democratic electors are the ones beating the drums for the revolt, yet they’re largely powerless to change the outcome. A handful of electors are already planning on uniting around a Republican alternative as a protest, but it’s still unclear how many are willing to join the protest. In theory, a unified front of the 232 Democrats could join with 38 Republicans to elect an alternative president. But in practice, the anti-Trump electors will be lucky if more than a dozen Democrats break.

With 29 states and the District of Columbia binding their electors by law, it will also be interesting to see if anyone in those states choose to defect, and if so, what penalties will be levied upon them.

Read more …

Lots of info from Parry, but basically just confirms what we already knew.

A Spy Coup in America? (Robert Parry)

As Official Washington’s latest “group think” solidifies into certainty – that Russia used hacked Democratic emails to help elect Donald Trump – something entirely different may be afoot: a months-long effort by elements of the U.S. intelligence community to determine who becomes the next president. I was told by a well-placed intelligence source some months ago that senior leaders of the Obama administration’s intelligence agencies – from the CIA to the FBI – were deeply concerned about either Hillary Clinton or Donald Trump ascending to the presidency. And, it’s true that intelligence officials often come to see themselves as the stewards of America’s fundamental interests, sometimes needing to protect the country from dangerous passions of the public or from inept or corrupt political leaders.

It was, after all, a senior FBI official, Mark Felt, who – as “Deep Throat” – guided The Washington Post’s Bob Woodward and Carl Bernstein in their Watergate investigation into the criminality of President Richard Nixon. And, I was told by former U.S. intelligence officers that they wanted to block President Jimmy Carter’s reelection in 1980 because they viewed him as ineffectual and thus not protecting American global interests. It’s also true that intelligence community sources frequently plant stories in major mainstream publications that serve propaganda or political goals, including stories that can be misleading or entirely false. So, what to make of what we have seen over the past several months when there have been a series of leaks and investigations that have damaged both Clinton and Trump — with some major disclosures coming, overtly and covertly, from the U.S. intelligence community led by CIA Director John Brennan and FBI Director James Comey?

Read more …

The WSJ headline is: “Donald Trump’s Team Tones Down Skepticism on Russia Hacking Evidence”. But all he does is say: “show us the proof, show me and the American people.” So let’s have it.

Trump Wants To Hear Hacking Evidence Direct From FBI (WSJ)

Fresh signs emerged Sunday that President-elect Donald Trump could embrace the intelligence community’s view that the Russians were behind a computer-hacking operation aimed at influencing the November election. A senior Trump aide said Mr. Trump could accept Russia’s involvement if there is a unified presentation of evidence from the Federal Bureau of Investigation and other agencies. This followed weeks of skepticism from the president-elect and his supporters that there is sufficient evidence that Russia was responsible for cyberattacks against the Democratic National Committee or leak of stolen emails.

Speaking on Fox News Sunday, Mr. Trump’s incoming chief of staff, Reince Priebus, said the president-elect “would accept the conclusion if these intelligence professionals would get together, put out a report, show the American people that they are actually on the same page.” His statement follows an intensifying bipartisan push on Capitol Hill to launch a separate investigation into the matter. Mr. Trump has called for opening up new lines of cooperation with Russia, and some of his critics in both parties have said his refusal so far to say Russia tried to interfere in the election was a sign that he doesn’t believe that Moscow is a U.S. adversary.

Read more …

That’s quite the shift.

The $12 Trillion Credit Risk Juggle (BBG)

After the financial crisis, regulators were worried about too much risk being concentrated in too few hands.They are still concerned, but the hands have changed. The U.S. Treasury’s Office of Financial Research is devoted to worrying about everything and anything that could spur another financial crisis, and near the top of the list is the post-crisis explosion in corporate credit. This pile of debt is “a top threat to stability,” according to this Treasury unit’s latest report, as Bloomberg’s Claire Boston wrote on Tuesday. In particular, these researchers are wary of the changing composition of who owns these bonds. Big banks and hedge funds own a much smaller proportion, while insurers and mutual funds own much more of it.


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More specifically, banks and household and nonprofits, a category that includes hedge funds, have reduced their holdings of U.S. corporate credit by $1.6 trillion since 2008, while insurers, mutual funds and the rest of the world have increased it by $3.6 trillion, according to data compiled by Goldman Sachs that includes foreign sovereign debt and asset-backed securities. This is a salient matter. The Federal Reserve just raised rates for a second time in two years and predicts three rate increases next year, possibly marking the end of this era of financial repression that’s spurred a record pace of corporate-debt sales.

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With Goldman predicting the biggest fall for the yuan in 20 years, Beijing is in a bind.

Gone in 60 Seconds: Chinese Snap Up Dollars as Yuan Tanks (BBG)

Chinese savers, eager to convert their yuan before the currency keeps depreciating, are snapping up U.S. dollar investment products that offer options for keeping money at home instead of sending it overseas. The latest wealth management products from China Merchants Bank last week, paying 2.37% annual interest on U.S. dollars, sold out in 60 seconds flat. “You won’t be able to get it online because it’s gone in less than a minute,” said a branch manager, who would only give the surname Xu, and encourages customers to book a day in advance next time. A growing number of offerings of such U.S. dollar funds and how quickly they’re being purchased show the surging demand for foreign currency amid outflows that are estimated to have totaled more than $1.5 trillion since the beginning of 2015.

By shifting into dollars – U.S., Australian and Hong Kong are among the favorites – deposit holders are shielded from the yuan’s losses without having to take their money out of the country to seek returns. “It seems an attractive choice to convert the yuan into the dollar sooner rather than later,” Harrison Hu at NatWest Markets, a unit of RBS, wrote in a note. He estimates that household purchases of foreign exchange could double to $15 billion a month in the coming quarter, absent new controls. A more hawkish than expected outlook from the U.S. Federal Reserve after it lifted interest rates last week has helped accelerate a dollar rally, with analysts predicting further gains. As the yuan has declined, China’s authorities have tried to vigorously enforce strict rules on moving cash over the border, where it is often invested in purchases such as real estate.

In recent weeks, policy makers in Beijing have put the brakes on everything from companies buying assets overseas to offshore purchases of life insurance to stem the tide of cash outflows. The fresh measures include checks by the currency regulator on any capital account transactions involving foreign exchange of $5 million or more. That followed steps earlier this year to ban the sharing of foreign-exchange quotas. In November, banks sold 49% more foreign-currency denominated wealth management products, most of them in U.S. dollars, than in October, according to PY Standard. November’s foreign currency deposits increased 11.4% from a year earlier, more than double the 4.8% rise in October, according to the People’s Bank of China.

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If you’re really a market economy, what do you do?

As Yuan Weakens, Chinese Rush To Open Foreign Currency Accounts (R.)

Zhang Yuting lives and works in Shanghai, has only visited the United States once, and rarely needs to use foreign currency. But that hasn’t stopped the 29-year-old accountant from putting a slice of her bank savings into the greenback. She is not alone. In the first 11 months of 2016, official figures show that foreign currency bank deposits owned by Chinese households rose by almost 32%, propelled by the yuan’s recent fall to eight-year lows against the dollar. The rapid rise – almost four times the growth rate for total deposits in the yuan and other currencies as recorded in central bank data – comes at a time when the yuan is under intense pressure from capital outflows. The outflows are partially a result of concerns that the yuan is going to weaken further as U.S. interest rates rise, and because of lingering concerns about the health of the Chinese economy.

U.S. President-elect Donald Trump’s threats to declare China a currency manipulator and to impose punitive tariffs on Chinese imports into the U.S., as well as tensions over Taiwan and the South China Sea, have only added to the fears. “Expectations of capital flight are clear,” said Zhang, who used her yuan savings to buy $10,000 this year. “I might exchange more yuan early next year, as long as I’ve got money.” Household foreign currency deposits in China are not huge compared to the money that companies, banks and wealthy individuals have been directing into foreign currency accounts and other assets offshore. All up, households had $118.72 billion of foreign money in their bank accounts at the end of November, while total foreign currency deposits were $702.56 billion. But the high growth rate in the household forex holdings are symbolic of a growing headache for the government as it struggles to counter the yuan’s weakness

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Liquidity is one of the things central banks do not control. Not in the way China sees control.

China Central Bank Presses Banks To Help After Interbank Lending Freezes (R.)

China’s central bank stepped in to urge major commercial banks to lend to non-bank financial institutions on Thursday afternoon after many suspended interbank operations amid tight liquidity conditions, Caixin reported. The People’s Bank of China intervened to help institutions such as securities firms and fund managers after banks, including the big four state-owned banks, became reluctant to make loans, the financial magazine said, citing traders and institutional sources. Caixin said that traders pointed to worsening sentiment among banks about market conditions and growing caution over interbank lending, especially after the U.S. Fed triggered a sell-off in the bond futures market on Thursday by signaling more rate hikes in 2017. Liquidity has become a major factor affecting the market after the central bank increased the cost of capital through open market operations in the past month, the magazine added.

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Don’t believe a word of it.

China To Strictly Limit Property Speculation In 2017 (R.)

China will strictly limit credit flowing into speculative buying in the property market in 2017, top leaders said at an economic conference on Friday, as reported by the official Xinhua news agency. “Houses are for people to live in, not for people to speculate,” Xinhua said, citing a statement issued by the leaders after the Central Economic Work Conference concluded. “We must control credits in the macro sense,” they said in the statement. China will also boost the supply of land for cities where housing prices face stiff upward pressure, they said. China must quickly establish a long-term mechanism to restrain property bubbles and prevent price volatility in 2017, Xinhua said. Top leaders began the conference on Wednesday to map out economic and reform plans. The annual event is keenly watched by investors for clues to policy priorities and economic targets in the year ahead.

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That’s what the country always used to be good at after all.

Italy Banking Crisis is Also a Huge Crime Scene (DQ)

The Bank of Italy’s Target 2 liabilities towards other Eurozone central banks — one of the most important indicators of banking stress — has risen by €129 billion in the last 12 months through November to €358.6 billion. That’s well above the €289 billion peak reached in August 2012 at the height of Europe’s sovereign debt crisis. Foreign and local investors are dumping Italian government bonds and withdrawing their funding to Italian banks. The bank at the heart of Italy’s financial crisis, Monte dei Paschi di Siena (MPS), has bled €6 billion of “commercial direct deposits” between September 30 and December 13, €2 billion of which since December 4, the date of Italy’s constitutional referendum.

Italy’s new Prime Minister Paolo Gentiloni, who took over from Matteo Renzi after his defeat in the referendum,said his government — a virtual carbon copy of the last one — is prepared to do whatever it takes to stop MPS from collapsing and thereby engulfing other European banks. His options would include directly supporting Italy’s ailing banks, in contravention of the EU’s bail-in rules passed into law at the beginning of this year. Though now, that push comes to shove, the EU seems happy to look the other way. While attention is focused on the rescue of MPS, news regarding another Italian bank, Banca Etruria, has quietly slipped by the wayside. On Friday it was announced that the first part of an investigation concerning fraudulent bankruptcy charges, in which 21 board members are implicated, had been closed.

This strand of the investigation concerns €180 million of loans offered by the bank which were never paid back, leading to the regional lender’s bankruptcy and eventual bail-in/out last November that left bondholders holding virtually worthless bonds. The Banca Etruria scandal is a reminder — and certainly not a welcome one right now for Italian authorities — that a large part of the €360 billion of toxic loans putrefying on the balance sheets of Italy’s banks should never have been created at all and were a result of the widespread culture of corruption, political kickbacks, and other forms of fraud and abuse infecting Italy’s banking sector. Etruria is also under investigation for fraudulently selling high-risk bonds to retail investors — a common practice among banks in Italy (and Spain) during the liquidity-starved years of Europe’s sovereign debt crisis.

Put simply, “misselling” subordinated debt to unsuspecting depositors was “the way they recapitalized the banking system,” as Jim Millstein, the U.S. Treasury official who led the restructuring of U.S. banks after the financial crisis, told Bloomberg earlier this year.

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Yeah, it’s unfair!!

Ireland Appeals EU Order To Collect €13 Billion In Back Taxes From Apple (AP)

Ireland will appeal the European Union’s order to force it to collect a record €13bn in taxes from Apple, the Irish government has said. The Irish finance department’s announcement on Monday comes nearly four months after EU competition authorities hit Apple with the back-tax bill based on its longtime reporting of European-wide profits through Ireland. The country charges the American company only for sales on its own territory at Europe-low rates that in turn have been greatly reduced by the controversial use of shell companies at home and abroad. In its formal legal submission, the Dublin says its low taxes are the whole point of its sales pitch to foreign investors — and said it is perfectly legal to levy far less tax on profits than imposed by competitors.

It accuses EU competition authorities of unfairness, exceeding their competence and authority, and seeking to breach Ireland’s sovereignty in national tax affairs. The ruling unveiled 30 August by the European competition commissioner Margrethe Vestager called on Apple to pay Ireland the €13bn for gross underpayment of tax on profits across the bloc from 2003 to 2014. Her report concluded that Apple used two shell companies incorporated in Ireland to permit Apple to report its Europe-wide profits at effective rates well under 1%. The scope of the order could have been even greater because EU time limits meant the judgment could include potential tax infringements dating only from 2003, not all the way back to Apple’s original 1991 tax deal with Ireland. But Irish specialists in corporate tax estimate that the EU’s order, if enforced, actually would total €19bn because of compounding interest from delayed payment.

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Everybody appeals.

Apple To Appeal EU Tax Ruling, Says It Was A ‘Convenient Target’ (R.)

Apple will launch a legal challenge this week to a record $14 billion EU tax demand, arguing that EU regulators ignored tax experts and corporate law and deliberately picked a method to maximize the penalty, senior executives said. Apple’s combative stand underlines its anger with the European Commission, which said on Aug. 30 the company’s Irish tax deal was illegal state aid and ordered it to repay up to €13 billion to Ireland, where Apple has its European headquarters. European Competition Commissioner Margrethe Vestager, a former Danish economy minister, said Apple’s Irish tax bill implied a tax rate of 0.005% in 2014. Apple intends to lodge an appeal against the Commission’s ruling at Europe’s second highest court this week, its General Counsel Bruce Sewell and CFO Luca Maestri told Reuters.

The iPhone and iPad maker was singled out because of its success, Sewell said. “Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines. It allows the commissioner to become Dane of the year for 2016,” he said, referring to the title accorded by Danish newspaper Berlingske last month. Apple will tell judges the Commission was not diligent in its investigation because it disregarded tax experts brought in by Irish authorities. “Now the Irish have put in an expert opinion from an incredibly well-respected Irish tax lawyer. The Commission not only didn’t attack that – didn’t argue with it, as far as we know – they probably didn’t even read it. Because there is no reference (in the EU decision) whatsoever,” Sewell said.

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A police state that bans gold and creates a huge underground market in it.

India Has Less And Less Reason To Exist In Its Current Form (Bhandari)

Assaults on people’s private property and the integrity of their homes through tax-raids continue. In a recent notification, government has made it clear that any ownership of jewelry above 500 grams of gold per married woman will be put under the microscopic scrutiny of tax authorities. Steep taxes and penalties will be imposed on those who cannot prove the source of their gold. In India’s Orwellian new-speak this means that because bullion has not been explicitly mentioned, its ownership will be deemed to be illegal. Courts will do what Modi wants. Huge bribes will have to be paid. Sane people are of course cleaning up their bank lockers. The secondary consequence of this will be a steep increase in unreported crimes, for people will be afraid of going to the police after a theft, fearing that the tax authorities will then ask questions.

At the same time, the gold market has mostly gone underground, and apparently the volume of gold buying has gone up. The salaried middle class is the consumption class, often heavily indebted. Poor people have limited amounts of gold. The government is merely doing what pleases the majority and their sense of envy, to the detriment of small businesses and savers. Now, the middle class is starting to face problems as well. This will worsen once the the impact of the destruction of small businesses becomes obvious. India has always had a negative-yielding economy. It has suddenly become even more negative-yielding. Business risk has gone through the roof. Savers will be victimized. It is because of negative yields that Indian savers buy gold. They will buy more going forward.

Sane Indians should stay a step ahead of their rapacious government and the evolving totalitarian society, which are less and less inhibited by any institutions or values in support of liberty. India will become a police state, likely with the full support of most Indians. Nationalism will be the thread that weaves them together. But it is a fake thread, devoid of any value. Eventually, there will be far too many stresses in the system, whose institutions are already in an advance stage of decay. India as it exists today is a British creation. With the British now gone for 69 years, it is an entity has less and less reason to exist in its current form.

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Yeah, let’s all get crazy when Brussels says so.

Greek Migration Minister Eyes ‘Closed’ Facilities On Islands (Kath.)

Despite widespread opposition in the ranks of SYRIZA to such a prospect, Migration Minister Yiannis Mouzalas has called for the creation of “closed” reception centers for migrants on Aegean islands, saying they will help minimize tensions amid local communities. A key reason for building tensions at existing centers on the islands is the slow pace at which migrants’ asylum applications are being processed. German Chancellor Angela Merkel made a pointed reference to the slow pace of migrant returns from Greece to Turkey last week. However, official figures show that an agreement signed in March between the European Union and Ankara significantly curbed arrivals in Greece. Of the 172,699 migrants that arrived in Greece from Turkey this year, only 20,457 have landed on the islands since the beginning of April, when the EU-Turkey deal went into effect.

Asylum officials on the Aegean islands have received a total of 21,314 applications, while 2,110 have appealed against initial rejections. The government hopes to create new facilities to accommodate migrants who have displayed delinquent behavior in a bid to curb the outbreak of rioting at larger centers and to stop thefts and other petty crimes that have been testing tolerance in local communities. “We propose small facilities for 150-200 people,” Mouzalas told Kathimerini, adding that authorities were not seeking the tolerance but the “solidarity” of islanders to help “normalize the situation.” As for the prospect of transferring some migrants from island centers to facilities on the mainland, Athens has asked EU officials about it but has failed to receive a response amid fears that such a move would constitute a violation of the EU-Turkey pact, Mouzalas said.

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There’s far more than seven, but hey, it’s John Vidal. Who spent half his life doing this.

The Seven Deadly Things We’re Doing To Trash The Planet (John Vidal)

A baby ibex on a precipitous cliff edge. The hyenas of Harar eating from a human hand. Leopards in Mumbai, whales breaching and baby turtles heading blindly away from the sea. We are amazed by images of wildlife seen in ever more beautifully filmed natural history documentaries. They raise awareness, entertain, inform and amuse. We weep when we hear there are fewer birds in the sky, or that thousands of species are critically endangered. But there are some metaphorical megafauna that the BBC and we in the media really do not want everyone to see. After half a lifetime writing for the Guardian about the decline of the natural world, I have to report that there is a herd of enormous elephants in the forest that are trashing the place. We avert our eyes and pretend they are not there. We hope they will go away, but they appear to be breeding. But it is now clear that they are doing so much damage that unless confronted, there is little chance that the rest of the animals, including us, will survive very long.

Hyper-consumerism is the dominant matriarch of this destructive herd and the dysfunctional economic model that supports it, generating waste and ecological damage on a massive scale. The average US supermarket offers nearly 50,000 products; in the UK we throw away millions of tonnes of food a year; mobile phones have an average lifespan of just over a year; computers and cars just a few years more. The free market economy that has been built around it celebrates speed, obsolescence and quantity over longevity and efficiency. But we know that hyper-consumerism leads directly to deforestation, over-extraction of minerals, the waste of natural resources and pollution. We simply have too much stuff that no one possibly needs. To avoid ecological disaster, it must be culled.

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May 262016
 
 May 26, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »
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NPC Graf Zeppelin over Capitol 1928

Britain’s Property Market Is Going To Implode (BI)
Trillions in Debt—but for Now, No Reason to Worry (WSJ)
IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)
China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)
Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)
Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)
Varoufakis: Australia Lives In A Ponzi Scheme (G.)
Venezuela Sells Gold Reserves As Economy Worsens (FT)
Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)
Quantitative Easing and the Corruption of Corporate America (DMB)
Brexit, And The Return Of Political Lying (Oborne)
We Have Entered The Looting Stage Of Capitalism (PCR)
France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)
Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)
Bayer Could Get ECB Financing For Monsanto Bid (R.)
Putin Closes The Door To Monsanto (DDP)

No doubt here. Ditto for all bubbles.

Britain’s Property Market Is Going To Implode (BI)

Property prices in Britain may be surging due to a horrendous imbalance of supply and demand — but the market is poised to implode. Why? Because Britons are not earning enough money to either get on the housing ladder or are spending such a large portion of their wages on mortgages that may not be sustainable. Well, not unless everyone suddenly gets a huge pay rise over the next year or so. That’s the assumption in the latest figures from think tank Resolution Foundation, which show that lower- and middle-income households are spending 26% of their salaries on housing, compared to 18% back in 1995. In London, households spend 28% of their income on housing. The think tank said this is the equivalent to adding 10 percentage points onto income tax.

Only the rich are not feeling the pressure of rising house prices. Higher-income households spend 18% of their income on housing, compared to 14% in 1995. The average price to buy a house in Britain now stands at £291,504, according to the Office for National Statistics. Meanwhile, the average London property price is at a huge £551,000. To put this into perspective, Resolution Foundation estimated that median income, at £24,300, is only around 3% higher than it was when the credit crunch hit in 2007/2008. [..] the house price-to-earnings ratio is near the pre-crisis peak. Considering the average deposit to secure a home is around 10% of the total property price, this means Britons are taking on huge amounts of debt and eating into the little savings they have to buy a home.

[..] the market is poised on a knife edge between interest rates and wages. If interest rates were to rise — and they will eventually — it could prove a major problem for the Britons who already spend 25-28% of their salaries on housing. Similarly, if another downturn depresses wages, mortgage payments will become an increasing portion of their income even without an interest rate increase. That situation is pricing out low- and middle-income people from the market, as the chart shows. Ownership rates in this group have sunk from nearly 60% in 1997 to just 25% today. That’s how fragile the housing market is: With those buyers unable to afford to buy, the market is dependent on a thinner slice of owners, whose incomes are increasingly stretched by housing costs, who can’t afford a decrease in wages, and who may not be able to afford any increase in interest.

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“Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter.”

Trillions in Debt—but for Now, No Reason to Worry (WSJ)

If current trends persist through the end of the year, U.S. households will owe as much as they did at the peak of borrowing in 2008. Global debt has already topped 2008 levels and keeps rising. That’s pretty astonishing so soon after debt-driven crises in the U.S. and Europe and endless worries about too much borrowing in Japan, China and emerging markets. But for all the hand-wringing, a near-term debt crisis is unlikely. Lower interest rates mean debt payments are far lower than they were before the crisis. In the U.S., household debt compared with the overall economy is way down. And overseas, loans can easily be rolled over. Yet even with low rates, the cycle of borrowing and rolling over loans has a cost. People, governments and businesses spend now instead of later, likely reducing future growth.

The cycle also allows borrowing to go on for years, which can be good—allowing reform to take hold—or not, allowing bad policies to go on almost indefinitely. U.S. households owed $12.25 trillion at the end of the first quarter, up 1.1% from the end of 2015, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, released Tuesday. If the first quarter repeats itself through the end of the year, U.S. household debt will approach its peak of $12.68 trillion, which it hit in the third quarter of 2008. Many people remember that quarter because it’s when the global financial system went off a cliff. This time is different because short-term interest rates have been stuck near zero since then. For U.S. consumers, that means household debt-service payments as a percent of disposable personal income are at their lowest level since at least 1980, despite a much higher debt load. In addition, more loans are going to higher-quality borrowers.

[..] Low rates have had an even more dramatic impact overseas, where economies are weaker or less stable. Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter. But the cost of interest payments, as a share of GDP, has fallen to 7% from a peak of 11%, according to J.P. Morgan. Japan is the prime example of how low interest rates can change the rules of the game. At 400% of GDP, Japan’s debt level is by far the highest in the world. One of the great mysteries of finance is why investors lend the government money for negligible or negative yields when it seems impossible for Japan to pay off its debt.

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“..no one does what’s in Greece’s best interests..”

IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)

A senior IMF official Wednesday said it can’t help Europe with fresh emergency financing for Greece because Athens’s creditors haven’t yet committed to detailed debt relief. The comments show that the agreement touted by European finance ministers last night to release fresh bailout cash for Greece hasn’t nailed down the key elements the IMF says are critical to finally return the debt-laden country to health. Rather, the IMF’s reserved support for the deal has paved the way for Germany to approve new funds and sets the stage for more tough negotiations later this year. “Fundamentally, we need to be assured that the universe of measures that Europe will to commit to…is consistent with what we think is needed to reduce debt,” the senior official told reporters on a conference call. “We do not yet have that.”

But the official said Europe’s acknowledgment that debt relief is needed and would be detailed later this year was enough to win the fund’s conditional backing. “All the stakeholders now recognize that Greek debt is…highly unsustainable,” the official said. “They accept that debt relief is needed, they accept the methodology that is needed to calibrate the necessary debt relief. They accept the objectives of gross financing needs in the near term and in the long run. They even accept the time tables.” Many outside economists see the deal as papering over the differences and once again prolonging the crisis. “Summary of Eurogroup: Germany always wins, IMF caves under pressure from Germany and U.S., no one does what’s in Greece’s best interests,” said Megan Greene at Manulife and John Hancock Asset Management. Marc Chandler at investment bank Brown Brothers Harriman called the deal a “paper charade” that saves Europe more than it does Greece.

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Li wants more debt, Xi at least sees the danger in that.

China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)

It was hardly a headline to set the pulse racing. “Analysing economic trends according to the situation in the first quarter: authoritative insider talks about the state of China’s economy,” read the front page of the Communist party’s official mouthpiece on the morning of Monday 9 May. Yet this headline – and the accompanying 6,000-word article attacking debt-fuelled growth – has sparked weeks of speculation over an alleged political feud at the pinnacle of Chinese politics between the president, Xi Jinping, and the prime minister, Li Keqiang, the supposed steward of the Chinese economy.

“The recent People’s Daily interview not only exposes a deep rift between [Xi and Li], it also shows the power struggle has got so bitter that the president had to resort to the media to push his agenda,” one commentator said in the South China Morning Post. “Clear divisions have emerged within the Chinese leadership,” wrote Nikkei’s Harada Issaku, claiming the two camps were “locking horns” over whether to prioritise economic stability or structural reforms. The 9 May article – penned by an unnamed yet supposedly “authoritative” scribe – warned excessive credit growth could plunge China into financial turmoil, even wiping out the savings of the ordinary citizens.

As if to hammer that point home, a second, even longer article followed 24 hours later – this time a speech by Xi Jinping – in which the president laid out his vision for the Chinese economy and what he called supply-side structural reform. “Taken together, the articles signal that Xi has decided to take the driver’s seat to steer China’s economy at a time when there are intense internal debates among officials over its overall direction,” Wang Xiangwei argued in the South China Morning Post. Like many observers, he described the front page interview as a “repudiation” of Li Keqiang-backed efforts to prop up economic growth by turning on the credit taps.

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“A less aggressive Fed stance is in China’s interest.” Look, the dollar will rise no matter what the Fed does. China must devalue.

Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)

Chinese officials plan to ask their American counterparts in annual talks next month about the chance of a Fed interest-rate increase in June, according to people familiar with the matter. The Chinese delegation will try to deduce whether a June or a July rate rise is more likely, as their nation’s policy makers prepare for the potential impact on financial markets and the yuan, the people said, asking not to be named as the discussions were private. In China’s view, if the Fed does lift borrowing costs, a July move would be preferable, the people said. China’s exchange rate has already been weakening as expectations rise for the U.S. central bank to boost its benchmark rate for the first time since it ended its near-zero policy in December with a quarter%age point increase.

It’s not unusual for senior officials to press each other on their policies, and any inquiries by the Chinese about the Fed would follow repeated expressions of concern from the U.S. about China’s intentions with its exchange rate. The Treasury Department put China on a new currency watch list last month to monitor for unfair trade advantages. “The Chinese side will argue that the U.S. should tread cautiously as it tightens monetary policy and avoid any surprises,” said Mark Williams, chief Asia economist at Capital Economics in London, who participated in U.K.-China meetings when working at Britain’s Treasury. “The Federal Reserve will make its decision solely on what it deems best for the U.S. economy, but it is clear that concerns about China have influenced its thinking about the balance of risks facing the U.S.”

[..] “Chinese officials are pretty anxious about the Fed as a June rate hike – which is not fully discounted in the market – may boost the dollar,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. “This could pose a threat or make it difficult for the PBOC to keep a stable RMB exchange rate,” he said, referring to the People’s Bank of China’s management of the renminbi, another term for the yuan. “A less aggressive Fed stance is in China’s interest.”

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Trying to rewrite UK pensions laws just to sell one company. Wow.

Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)

Tata has refused to rule out holding on to its crisis-hit British steel division, raising fears that the business could suffer “a death by a thousand cuts”. Delivering annual results for the Tata’s global steel business, Koushik Chatterjee, executive director, declined to give details on the board’s thoughts on the seven bids the company has received for the loss-making UK plants. But pressed on whether Tata could do a U-turn and hold on to the business – which the Government has said it is willing to take a 25pc stake in and offer financial support to if this will keep it alive – he refused to deny this was an option “I don’t think we have a case as yet,” said Mr Chatterjee. “There is lots of focus only on a sale.” The results announcement – which showed Tata Steel’s revenues down 6pc to £11.9bn and an annual loss of £309m – echoed Mr Chatterjee, saying: “The board… is actively reviewing all options for the Tata Steel UK business, including a potential sale.”

Sajid Javid, the Business Secretary, met with Tata’s directors on Monday night for several hours ahead of their monthly meeting, which considered the bids. It is thought Mr Javid sees Tata keeping the UK business as a way of retaining a viable steel industry in the Britain, after bidders signalled their reluctance to take on the Tata pension scheme, which has a £500m deficit. Ministers are this week expected to start consultations on controversial proposals to restructure the pension scheme [..] The changes would alter the way pension payments are calculated by swapping from RPI inflation to the lower CPI, potentially shaving billions from the scheme’s liabilities. However, such a move would require a change off law and could set what some pensions experts have described as a dangerous precedent.

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Like Britain, like New Zealand, like Canada.

Varoufakis: Australia Lives In A Ponzi Scheme (G.)

Varoufakis’s answers are quick, sharp and eloquent – and ready. He barely needs a pause when asked what he’d do if suddenly installed as Australia’s treasurer, before he’s firing off a prescription for the economy. “The first thing that has to happen in this country is to recognise two truths that are escaping this electorate, and especially the elites. “Firstly, Australia does not have a debt problem. The idea that Australia is on the verge of becoming a new Greece would be touchingly funny if it were not so catastrophic in its ineptitude. Australia does not have a public debt problem, it has a private debt problem. “Truth number two: the Australian social economy is not sustainable as it is. At the moment, if you look at the current account deficit, Australia lives beyond its means – and when I say Australia, I mean upper-middle-class people. The luxurious lifestyle is not supported by the Australian economy.

It’s supported by a bubble, and it is never a good idea to rely on the proposition that a bubble will always be there to support you. “So private debt is the problem. And secondly, because of this private debt, you have a bubble, which is constantly inflated through money coming into this country for speculative purposes.” Varoufakis is unequivocal in his conviction that current growth – which he likens to a Ponzi scheme – needs to be replaced with growth that comes from producing goods. “Australia is switching away from producing stuff. Even good companies like Cochlear, who have been very innovative in the past, have been financialised. They’re moving away from doing stuff to shuffling paper around. That would be my first priority [if I were Australian treasurer]: how to go back to actually doing things.”

Varoufakis wouldn’t be the first to compare the Australian economy to a Ponzi scheme. Economist Lindsay David has made a similar criticism of the housing market, and has also heavily criticised Australia’s reliance on Chinese investment. David and fellow economist Philip Soos have predicted the economy is heading for a crash, and Varoufakis thinks they might be right. He is quick to point out that crashes can never be predicted, but he is in little doubt that it will happen if Australia doesn’t change direction soon. “There is no doubt, if you look at the pace of house prices over the past 20 years in Australia and the pace of value creation; they’re so out of kilter that something has to give.”

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US revenge on Chavez is nearing completion.

Venezuela Sells Gold Reserves As Economy Worsens (FT)

Venezuela’s gold reserves have plunged to their lowest level on record after it sold $1.7 billion of the precious metal in the first quarter of the year to repay debts. The country is grappling with an economic crisis that has left it struggling to feed its population. The OPEC member’s gold reserves have dropped almost a third over the past year and it sold over 40 tonnes in February and March, according to IMF data. Gold now makes up almost 70% of the country’s total reserves, which fell to a low of $12.1 billion last week. Venezuela has larger crude reserves than Saudi Arabia but has been hard hit by years of mismanagement and, more recently, depressed prices for oil. Oil accounts for 95% of its export earnings. Despite the recent price rebound, declining oil output is likely to take a further toll on the economy. The IMF forecasts the economy will shrink 8% this year, and 4.5% in 2017, after a 5.7% contraction in 2015.

Inflation is forecast to exceed 1,642% next year, fueled by printing money to fund a fiscal deficit estimated at about 20% of GDP. Venezuela began selling its gold reserves in March 2015, according to IMF data. At roughly 367 tonnes, Venezuela has the world’s 16th-biggest gold reserves, according to the World Gold Council. In contrast, China and Russia both added to their gold holdings this year, the data show. Gold prices have risen 15% this year. Last year Venezuela’s central bank swapped part of its gold reserves for $1 billion in cash through a complex agreement with Citi. The late president Hugo Chávez had said he would free Venezuela from the “dictatorship of the dollar” and directed the central bank to ditch the US dollar and start amassing gold instead. In 2011, as a safeguard against market instability, Chávez brought most of the gold stored overseas back to Caracas.

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What an incredible charade this has turned into.

Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)

The Wall Street Journal examined 156 criminal and civil cases brought by the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009. In 81% of those cases, individual employees were neither identified nor charged. A total of 47 bank employees were charged in relation to the cases. One was a boardroom-level executive, the Journal’s analysis found. The analysis shows not only the rarity of proceedings brought against individual bank employees, but also the difficulty authorities have had winning cases they do bring. Most of the bankers who were charged pleaded guilty to criminal counts or agreed to settle a civil case, with those facing civil charges paying a median penalty of $61,000.

Of the 11 people who went to trial or a hearing and had a ruling on their case, six were found not liable or had the case dismissed. That left a total of five bank employees at any level against whom the government won a contested case. They include Mr. Heinz, the former UBS employee. One of the few successful government cases was overturned Monday. A federal appeals court tossed civil mortgage-fraud charges and a $1 million penalty against Rebecca Mairone, a former executive at Countrywide Financial Corp., now part of Bank of America Corp. The court also threw out a related $1.27 billion penalty against Bank of America. Representatives of Ms. Mairone and the bank this week welcomed the verdict, while the Justice Department, which brought the cases, declined to comment.

There are plenty of possible explanations for the small number of successful cases. For starters, much of the institutional conduct during and after the financial crisis didn’t break the law, said law-enforcement officials. Even when the government has been able to prove illegal activity, it has rarely been traced to the upper echelons of big banks. “The typical scenario is not that the bank has this plan for world domination being cooked up by the chairman and CEO,” said Adam Pritchard, a law professor at the University of Michigan. “It’s some midlevel employee trying to keep his job or his bonus, and as result the bank gets into trouble.”

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“The Fed might want to imitate the ECB but may be restricted from doing so by its charter..” “We wouldn’t discount the possibility it will try to amend, or get around, any prohibitions, however.”

Quantitative Easing and the Corruption of Corporate America (DMB)

[..] corporate leverage is hovering near a 12-year high and domestic capital expenditures have plunged. In the interim, reams of commentary have been devoted to share buybacks and with good reason. Companies reducing their share count have, at least in recent years, been where the hottest action is, courtyard-seat level action. But now, it looks as if the trend is finally cresting. A fresh report by TrimTabs found that companies have announced 35% less in buybacks through May 19th compared with the same period last year. And while $261.5 billion is still respectable (for the purpose of placating shareholders), it is nevertheless a steep decline from 2015’s $399.4 billion. Even this tempered number is deceiving – only half the number of firms have announced buybacks vs last year.

Have U.S. executives and their Boards of Directors finally found religion? We can only hope. The devastation wrought by the multi-trillion-dollar buyback frenzy is what many of us learned in Econ 101 as the ‘opportunity cost,’ or the value of what’s been foregone. As yet, the value of lost investment opportunities remains a huge unknown. In the event doing right by future generations does not suffice, executives might be motivated to renounce their errant ways because shareholders appear to have stopped rewarding buybacks. According to Marketwatch, an exchange traded fund that affords investors access to the most aggressive companies in the buyback arena is off 0.8% for the year and down 9.8% over the last 12 months.

The hope is that Corporate America is at the precipice of an investment binge that sparks economic activity that richly rewards those with patience over those with the burning need for instant gratification. The risk? That central bankers whisper sweet nothings the likes of which no Board or CFO can resist. Mario Draghi may already have done so. In announcing its latest iteration of QE, the ECB added investment grade corporate bonds to the list of eligible securities that can satisfy its purchase commitment. Critically, U.S. multinationals with European operations are included among qualifying issuers. As Evergreen Gavekal’s David Hay recently pointed out, McDonald’s has jumped right into the pool, issuing five-year Euro-denominated paper at an interest rate of a barely discernible 0.45%.

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Yeah, like it was ever gone.

Brexit, And The Return Of Political Lying (Oborne)

During the run-up to the Iraq invasion, intelligence officers would hand ministers an estimate, an allegation, a straw in the wind, in certain cases (the 45-minute claim being the most notorious example) an outright fabrication. Tony Blair’s office would then bless it with the imprimatur of a government assessment, usually employing vague wording — in the hope that the media would repeat and then amplify the message. Cameron and Osborne have become masters of this kind of politics. ‘We’re paying down Britain’s debts,’ said David Cameron in 2013. This was a straight lie: the national debt was soaring as he spoke. ‘When I became Chancellor,’ observed Osborne last year, ‘debt was piling up.’ True – and he has been piling it up ever since, even now rising by £135 million a day.

This kind of deception works: polls show that only a minority of voters realise that the national debt is still rising. George Osborne has now converted the Treasury into a partisan tool to sell the referendum, exactly as Tony Blair used the Joint Intelligence Committee to make the case for war against Iraq. Before becoming Chancellor, Osborne was critical of Gordon Brown’s Treasury, and rightly so, because it had been so heavily politicised. He rightly stripped the Treasury of its forecasting function and created an independent Office for Budget Responsibility — an encouraging sign that he was determined to avoid the culture of deceit which was such a notable feature of the Brown/Blair era. It is therefore very troubling that the Office for Budget Responsibility has not come anywhere near the two Treasury dossiers that make the case for the EU.

It’s easy to see why – they would point out straight away that the Chancellor has been engaged in fabrication. For example, let’s take a hard look at how he induced Treasury officials to endorse his central claim that families would be £4,300 ‘worse off’ if Britain left the EU. The main technique that Osborne used was his conflating GDP with household income – and referring to ‘GDP per household’, a phrase that has never been used in any Budget. As the Chancellor used to argue, GDP is a misleading indicator which can be artificially inflated by immigration. Immigration of 5% may well raise GDP by the same amount, but nobody would be any better off. ‘GDP per capita is a much better indicator,’ said Osborne when newly in office. He made no mention at all of GDP per capita when launching the Brexit documents published by the Treasury.

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“We have entered the looting stage of capitalism. Desolation will be the result.” Paul Craig Roberts doesn’t hold back.

We Have Entered The Looting Stage Of Capitalism (PCR)

Having successfully used the EU to conquer the Greek people by turning the Greek “leftwing” government into a pawn of Germany’s banks, Germany now finds the IMF in the way of its plan to loot Greece into oblivion . The IMF’s rules prevent the organization from lending to countries that cannot repay the loan. The IMF has concluded on the basis of facts and analysis that Greece cannot repay. Therefore, the IMF is unwilling to lend Greece the money with which to repay the private banks. The IMF says that Greece’s creditors, many of whom are not creditors but simply bought up Greek debt at a cheap price in hopes of profiting, must write off some of the Greek debt in order to lower the debt to an amount that the Greek economy can service.

The banks don’t want Greece to be able to service its debt, because the banks intend to use Greece’s inability to service the debt in order to loot Greece of its assets and resources and in order to roll back the social safety net put in place during the 20th century. Neoliberalism intends to reestablish feudalism—a few robber barons and many serfs: the 1% and the 99%. The way Germany sees it, the IMF is supposed to lend Greece the money with which to repay the private German banks. Then the IMF is to be repaid by forcing Greece to reduce or abolish old age pensions, reduce public services and employment, and use the revenues saved to repay the IMF. As these amounts will be insufficient, additional austerity measures are imposed that require Greece to sell its national assets, such as public water companies and ports and protected Greek islands to foreign investors, principallly the banks themselves or their major clients.

So far the so-called “creditors” have only pledged to some form of debt relief, not yet decided, beginning in 2 years. By then the younger part of the Greek population will have emigrated and will have been replaced by immigrants fleeing Washington’s Middle Eastern and African wars who will have loaded up Greece’s unfunded welfare system. In other words, Greece is being destroyed by the EU that it so foolishly joined and trusted. The same thing is happening to Portugal and is also underway in Spain and Italy. The looting has already devoured Ireland and Latvia (and a number of Latin American countries) and is underway in Ukraine. The current newspaper headlines reporting an agreement being reached between the IMF and Germany about writing down the Greek debt to a level that could be serviced are false. No “creditor” has yet agreed to write off one cent of the debt.

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Euro Cup starts in a few weeks, but “The French government said it was prepared to endure weeks of strikes at refineries..” Oh, sure.

France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)

The French government said it was prepared to endure weeks of strikes at refineries and began releasing strategic oil reserves to help ease nationwide fuel shortages. While panic-buying by motorists drove demand to three times the normal level Tuesday, France has enough stocks even if the strikes persist for weeks, Transport Minister Alain Vidalies said. The problem isn’t about supply but about delivery, he said. Oil companies have mobilized hundreds of trucks to ship diesel and gasoline around the country since the start of the week as filling stations ran dry after all the nation’s refineries experienced disruptions or outright shutdowns. By Wednesday Exxon Mobil reported that its Gravenchon plant was operating normally and able to transport fuel while elsewhere strikers have blocked refineries to try to bring shipments to a halt.

Workers are protesting against President Francois Hollande’s plans to change labor laws to reduce overtime pay and make it easier to fire staff in some cases. While the government has watered down its proposals since first floating them in February, unions are calling for them to be scrapped altogether. The new law will not be withdrawn and police will continue to ensure access to fuel depots, Prime Minister Manuel Valls told Parliament Wednesday. Total’s Feyzin refinery near Lyon and its Normandy plant have stopped production. La Mede was working at a lower rate Wednesday, while the facilities at Grandpuits near Paris and Donges close to Nantes will come to a complete halt later this week, according to a company statement.

Total may reconsider a plan to spend €500 million to upgrade the Donges facility as workers take the plant “hostage,” CEO Patrick Pouyanne said Tuesday. He urged motorists not to rush to gas stations and create an “artificial” shortage. Some 348 of Total’s 2,200 gas stations ran out of fuel and 452 faced partial shortages as of Wednesday morning, the company said. The figures are little changed from Tuesday. About one in five of the country’s 12,200 stations were facing shortages Tuesday afternoon, the government said.

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All Marine Le Pen has to do is to sit back and watch.

Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)

As smoke rises from burning tyres on French oil refinery picket-lines, motorists queue for miles to panic-buy rationed petrol, and train drivers and nuclear staff prepare to go on strike. With the 2017 French presidential election nearing, the Socialist president François Hollande is facing his toughest and most explosive crisis yet. It is not just Hollande’s political survival at stake, though, but the image of France itself. The country is preparing to host two million visitors at the showpiece Euro 2016 football tournament in two weeks, and the back-drop is not ideal: strikes and feared fuel shortages, potential transport paralysis, a terrorist threat, a state of emergency and a mood of heightened tension and violence between street protesters and police.

Hollande, the least popular leader in modern French history whose approval ratings are festering, according to various polls, at between 13% and 20%, might not seem as though he has further to fall. But in fact he is clinging, white-knuckled, to the edge of a cliff. The Socialist was supposed to be spending May and June testing the waters for a possible re-election bid by repeating his new mantra “things are getting better” – even if more than 70% of French people don’t believe that that is true. Instead, France has been hit by an explosive trade union revolt over Hollande’s contested labour reforms. The beleaguered president has framed these reforms as a crucial loosening of France’s famously rigid labour protections, cutting red-tape and slightly tweaking some of the more cumbersome rules that deter employers from hiring.

This would, he has argued, make France more competitive and tackle stubborn mass employment that tops 10% of the workforce. But after more than two months of street demonstrations against the labour changes, the hardline leftist CGT union radically upped its strategy and is now trying to choke-off the nation’s fuel supply to force Hollande to abandon the reforms.

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Win win win squared. That’s why you feel so happy right now; look in the mirror. You get to finance a winning proposition!

Bayer Could Get ECB Financing For Monsanto Bid (R.)

Bayer could receive financing from the European Central Bank that would help to fund a takeover of Monsanto, according to the terms of the ECB’s bond-buying program. U.S.-based Monsanto, the world’s largest seed company, turned down Bayer’s $62 billion bid on Tuesday, but said it was open to further negotiations. The ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements. The purpose for which the bonds are issued is not among the criteria set by the ECB, which will start buying corporate bonds on the market and directly from issuers next month.

This means that, in theory, the ECB could buy debt issued by Bayer, which said on Monday it would finance its cash bid for Monsanto with a combination of debt and equity. “It will be interesting to observe how much of such a deal would be absorbed by the central bank,” credit analysts at UniCredit wrote in a note. The ECB is buying €80 billion worth of assets every month in an effort to revive economic growth in the euro zone by lowering borrowing costs. Central bank sources told Reuters that it would not be the ECB’s first choice if the money it spent ended up financing acquisitions. But even this would have a silver lining if consolidation made an industry or sector more efficient and if it gave fresh impetus to the stock market, the source added. And if issuers ended up exchanging the euros raised through bond sales for dollars, that would also help the euro zone by weakening the euro against the greenback, the sources said.

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“Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost..”

Putin Closes The Door To Monsanto (DDP)

Russia’s Vladimir Putin is taking a bold step against biotech giant Monsanto and genetically modified seeds at large. In a new address to the Russian Parliament Thursday, Putin proudly outlined his plan to make Russia the world’s ‘leading exporter’ of non-GMO foods that are based on ‘ecologically clean’ production. Perhaps even more importantly, Putin also went on to harshly criticize food production in the United States, declaring that Western food producers are no longer offering high quality, healthy, and ecologically clean food. “We are not only able to feed ourselves taking into account our lands, water resources – Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost, especially given the fact that demand for such products in the world market is steadily growing,” Putin said in his address to the Russian Parliament.

And this announcement comes just months after the Kremlin decided to put a stop to the production of GMO-containing foods, which was seen as a huge step forward in the international fight to fight back against companies like Monsanto. Using the decision as a launch platform, it’s clear that Russia is now positioning itself as a dominant force in the realm of organic farming. It even seems that Putin may use the country’s affinity for organic and sustainable farming as a centerpiece in his economic strategy. “Ten years ago, we imported almost half of the food from abroad, and were dependent on imports. Now Russia is among the exporters. Last year, Russian exports of agricultural products amounted to almost $20 billion – a quarter more than the revenue from the sale of arms, or one-third the revenue coming from gas exports,” he added.

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May 152016
 
 May 15, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , , ,  13 Responses »
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Jack Delano Brakeman H.B. Van Santford on the AT&SF line from Summit to San Bernardino 1943

Steve Keen Talks Debt, Trump and Gold (RT)
Economists Disagree With Voters Who See US Worse Off Today Than in 1960s (WSJ)
China: “It Appears That All The Engines Suddenly Lost Momentum” (R.)
Chinese Banks’ New Loans Plunge By More Than Half In April (R.)
Shell Eyes $40 Billion Non-Core Asset Spin-Off To Cut Its Huge Debt Pile (Tel.)
Moody’s Downgrades Saudi Arabia, Bahrain, Oman (AP)
German Professors And Entrepreneurs File Complaint Against ECB Policy (R.)
The Vultures’ Vultures: New Hedge-Fund Strategy Corrupts Washington (HuffPo)
Farmland Values Fall Sharply in Parts of the Midwest (WSJ)
Cameron’s Anti-Brexit ‘Remain’ Campaign Has A Major Trust Issue (Ind.)
German Government Plans To Spend €93.6 Billion On Refugees By End 2020 (R.)

Very interesting. I’ve said it a thousand times: everyone should let sink in what Steve has to say. It’s curious to see that people like Max agree with everything Steve says -as far as they can understand him-, but disagree with him on gold.

Steve Keen on Debt, Trump and Gold (RT)

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No, really, this is a serious WSJ article. Economists claim they know better then you about your own situation, and the paper gives them the space to utter their blubber. “You’re not really hungry, you’re just imagining that, and your hospital bill is not REALLY higher than it was 40 years ago, and in student debt was this high in 1970 too, don’t you remember?!”

Economists Disagree With Voters Who See US Worse Off Today Than in 1960s (WSJ)

When was America at its best? Put the question to voters and many will point as far back as the 1960s. Put the question to economists and they identify a much more recent peak in U.S. living standards. Forecasters in The Wall Street Journal’s monthly survey of business, academic and financial economists were asked to rate whether U.S. living standards were higher today or at various points in the past. Around 80% say those standards are higher today than during the 1990s or earlier. The 2016 presidential campaign has exposed worries among many voters about a U.S. in decline. The sentiment played a particular role in boosting the candidacy of businessman Donald Trump, with a campaign slogan pledging to “Make America Great Again.”

While many economists view the U.S. as not fully recovered from the recession that began in 2007 or the previous recession in 2001, that still leaves a 40-year disconnect compared to voters who see the U.S. in a half-century of decline. The Pew Research Center recently polled voters on the question “Compared with 50 years ago, life for people like you in America is better or worse?” A plurality of 46% said things were worse now. Only 34% said life today is better than in the 1960s. A Morning Consult poll asked voters whether the 1960s or 1980s were better than today. In that survey, 31% said the ‘60s were better and 37% said the 1980s were better. By contrast, 88% of economists said the U.S. is better today than in 1960 and 87% see today as better than 1980.

“Between technology and health advances, today is much better than in 1960,” said Amy Crews Cutts, chief economist at Equifax. By many of the measures economists are inclined to look at, it is not a close call. In 1960, the life expectancy of the average American was a full decade shorter than it is today, according to the Centers for Disease Control and Prevention. The median personal income, after adjusting for inflation, is 55% higher today than in 1960, according to the Census Bureau. These measures of overall well-being continued to rise throughout the 1980s and 1990s. Why do so many voters put such little stock in the past 50 years? Economists point to a few culprits.

First, wages or available jobs have deteriorated for some demographic groups, particularly men without a high-school diploma and men who worked in manufacturing (two groups with some overlap). Second, we have just lived through the “first decade where the average worker lost ground,” said Joel Naroff, chief economist of Naroff Economic Advisers. Overall incomes declined during the two most recent recessions, but not enough to set people back to a 1960s standard of living. About 53% of respondents in the Journal’s survey said the U.S. today is “about the same” or “worse” than it was in 2000. About 63% said the same about 2007. The survey of 70 economists was conducted from May 6 to May 10, though not every economist answered every question.

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And these are ‘official’ numbers, which for a reason that escapes me we‘re still clinging on to. So I ‘adapted’ the title.

China: “It Appears That All The Engines Suddenly Lost Momentum” (R.)

China’s investment, factory output and retail sales all grew more slowly than expected in April, adding to doubts about whether the world’s second-largest economy is stabilizing. Growth in factory output cooled to 6% in April, the National Bureau of Statistics (NBS) said on Saturday, disappointing analysts who expected it to rise 6.5% on an annual basis after an increase of 6.8% the prior month. China’s fixed-asset investment growth eased to 10.5% year-on-year in the January-April period, missing market expectations of 10.9%, and down from the first quarter’s 10.7%.

Fixed investment by private firms continued to slow, indicating private businesses remain skeptical of economic prospects. Investment by private firms rose 5.2% year-on-year in January-April, down from 5.7% growth in the first quarter. “It appears that all the engines suddenly lost momentum, and growth outlook has turned soft as well,” Zhou Hao, economist at Commerzbank in Singapore, said in a research note. “At the end of the day, we have acknowledge that China is still struggling.”

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The PBoC’s bizarro explanation:“..the figures don’t include new local government bond issuance to refinance debt previously issued by local government financing vehicles.” As if to say: don’t worry, we’re still borrowing like crazy, only now half of it is to refi what we couldn’t pay back.

Chinese Banks’ New Loans Plunge By More Than Half In April (R.)

China’s central bank said it has not changed its “prudent” monetary policy stance despite a disappointing release of April data showing banks had cut back sharply on new loans. Banks made 555.6 billion yuan ($85.21 billion) in net new yuan loans in April, much lower than expected and less than half the 1.37 trillion yuan seen in March, data showed on Friday. The People’s Bank of China (PBOC), in a question and answer posted on its website on Saturday, attributed the slide to seasonal and technical factors, including the fact that the figures don’t include new local government bond issuance to refinance debt previously issued by local government financing vehicles.

“If this is factored in, new loans in April were more than 900 billion yuan,” the PBOC said, in answer to a question as to whether the figures indicated a decline in the real economy. That number would match analysts previous forecasts for April. However, the bank also pointed to a decline in corporate bond financing, which came in over 500 billion less than March – while still up slightly from the same period last year, and noted that banks remain cautious given increased focus on asset quality control. “On the whole, current financial support to the real economy is still strong,” it said. “Prudent monetary policy has not changed.”

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Curious attempt to make deeply troubling problems look like great opportunities instead. Nobody wants to buy these assets and everyone knows they MUST sell, which is why Shell try to sell as much as $40 billion of it now, and in the way they do (IPO?!). And that would “..let Shell benefit from a sustained oil price recovery?!”

Shell Eyes $40 Billion Non-Core Asset Spin-Off To Cut Its Huge Debt Pile (Tel.)

Oil giant Royal Dutch Shell is eyeing a possible $40bn spin-off of non-core assets around the globe as it grapples with a $70bn debt pile following a takeover of BG Group earlier this year. Chief financial officer Simon Henry told analysts last week that a float of Shell’s non-core assets is “very much on the agenda”. The comments were made after the Anglo-Dutch multinational announced its intention to sell off assets totalling $30bn over the next three years in an attempt to protect its dividend, after the merger with BG left it with a stretched balance sheet. Analysts at Exane BNP Paribas are now concerned that despite its attempts to offload assets, “a dry market for asset sales leaves Shell exposed”.

Reducing Shell’s debt burden is “critical for shares to perform”, said Aneek Haq, of Exane BNP Paribas, but failure to do so may force management to “bite the bullet” and make a radical move, such as an initial public offering of the parts of Shell’s empire it wants to offload. Henry said: “There are no prima facie reasons why we would not look at such a monetisation route, if that was the best way to create value.” However, given the foundering oil price, he said it was “not obvious in today’s market” where such value would be. Unlike a divestment, an IPO of the company’s mature assets, which has been dubbed “Baby Shell” would let Shell benefit from a sustained oil price recovery. Mr Haq also believes such a move would refocus management on core assets and reduce net debt by more than $50bn over four years.

The non-core upstream assets, from markets such as the UK, Norway, New Zealand, Italy and Nigeria, are cash-generative, averaging at $4bn a year free cash flow, and adding additional assets from Kazakstan could “prove attractive for shareholders”, said Haq. Although a $40bn listing would be cumbersome, it is not unfamiliar territory. In 2014, Shell raised $920m by spinning off a pipeline of US assets, Shell Midstream Partners. Given its previous form, Henry said: “It should be clear that not only are we open to innovation, [but also] we are able to deliver such complicated deals and execute over a period of time.”

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These downgrades are expensive.

Moody’s Downgrades Saudi Arabia, Bahrain, Oman (AP)

Saudi Arabia’s credit rating has been downgraded by Moody’s because of the long and deep slump in oil prices. Moody’s Investors Service said it also downgraded Gulf oil producers Bahrain and Oman. It left ratings unchanged for other Gulf states including Kuwait and Qatar. Saudi Arabia is the world’s largest oil exporter. Moody’s cut the country’s long-term issuer rating one notch to A1 from Aa3 after a review that began in March. Crude prices fell from more than $100 in mid-2014 to under $30 a barrel in February, although they have recovered into the mid-$40s. Benchmark international crude settled on Friday at $47.83 a barrel.

“A combination of lower growth, higher debt levels and smaller domestic and external buffers leave the Kingdom less well positioned to weather future shocks,” Moody’s said in a note. Moody’s lowered Oman to Baa1 from A3 and Bahrain to Ba2 from Ba1. The ratings agency did not downgrade Kuwait, Qatar, the United Arab Emirates or Abu Dhabi, but it assigned a negative outlook to each. Oil prices slumped because of production that grew faster than demand. Surging production from shale operators in the US contributed to the glut. So did OPEC, which decided in November 2014, several months after prices began falling, to continue pumping rather than give up market share.

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Germany’s Constitutional Court has been asked for opinions on the ECB a dozen times now, but not much has come of it.

German Professors And Entrepreneurs File Complaint Against ECB Policy (R.)

A group of professors and entrepreneurs in Germany filed a complaint against the ECB’s monetary policy this week at the country’s top court, the Welt am Sonntag newspaper said. A complaint would open a new chapter in a long-running legal battle between the ECB and groups within the euro zone’s biggest economy who want to curb the bank’s power. A challenge to an emergency plan the ECB made at the height of the euro zone crisis is also back at Germany’s Constitutional Court after being rejected by Europe’s top court in June. The German court will make a final ruling this year. There has been widespread criticism in Germany of the ECB’s monetary policy in recent weeks, with politicians complaining that low interest rates are hitting the retirement provisions of ordinary Germans and could boost the right wing.

Welt am Sonntag said the issue in the latest complaint filed at the Constitutional Court was whether the ECB had overstepped its mandate by extensively buying government bonds and with its plan to start buying corporate bonds. The newspaper said the professors and entrepreneurs thought the ECB was starting programs that contained incalculable risks for the German central bank’s balance sheet, and hence for German taxpayers – under the pretence of reaching its inflation target of just under 2% in the medium term. “The ECB’s current policy is neither necessary nor appropriate to directly revive the economy in the euro zone by increasing the inflation rate to around 2% in terms of consumer prices,” Markus Kerber, a lawyer and professor of public finance who initiated the complaint, was quoted as saying.

Kerber said the ECB was losing sight of the principle of the “proportionality” of its measures, according to Welt am Sonntag. In March, the ECB unveiled a large stimulus package that included cutting its deposit rate deeper into negative territory, expanding it asset buying program and offering free loans to the corporate sector to stimulate growth. German central bank governor Jens Weidmann, who sits on the ECB’s Governing Council, said on Wednesday the ECB’s expansionary monetary policy stance was “justified for now” while Bundesbank board member Andreas Dombret also said the ECB’s policy was justified by a subdued growth outlook in the euro zone.

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“They may have finally gone too far. A backlash is brewing, threatening not just their current bets, but their various tax benefits too. One senior House Republican aide who’s worked closely with the hedge funds says that members of Congress have seen enough. “I think on the Fannie stuff, they’ve hurt themselves,” he said. “We’re like, fuck em. If they’re not your friends, they’re your enemies.”

The Vultures’ Vultures: New Hedge-Fund Strategy Corrupts Washington (HuffPo)

Take Robert Shapiro. A Harvard-trained political economist, Shapiro is the head of a consulting firm called Sonecon. That business card doesn’t do it for you? He’s got a few more in his wallet: Senior fellow at the Georgetown University School of Business. Adviser to the International Monetary Fund. Director of the Globalization Initiative at NDN, a progressive think tank. Shapiro, a Democrat, has advised presidents and presidential candidates, and has held powerful government posts. It stands to reason, then, that when he has thoughts on public policy, he can find an outlet ready to publish them. Recently, he’s had ideas on how the government can address the debt crisis in Puerto Rico and how it can end the conservatorship of Fannie Mae and Freddie Mac by moving them into the private market.

Before that, he had a take on how to deal with Argentina’s debt crisis. For all three, he produced academic-looking papers, complete with footnotes and charts. All three situations have one thing in common: If they were resolved the way Shapiro suggested, a variety of bets placed by a select group of the most politically powerful hedge funds would pay off in a huge way. In the case of Argentina, they mostly have. Fights over how to resolve the other two issues are still raging in Washington. For this article, we called Shapiro to ask on whose behalf he has been waging these intellectual battles. His answer was surprising in its honesty: He’s working with DCI Group, a political dark arts master known to be advocating on behalf of a group of powerful hedge funds that are changing how Washington works.

Shapiro, it turns out, is but one foot soldier in the hedge fund infantry. A review of public documents, tax filings and interviews with people involved finds that in each of the three campaigns, hedge funds have enlisted the same set of lobbyists, political operatives, dark money groups and think-tank experts spanning the political spectrum. No single document or set of disclosures ties all of these groups together. They don’t put out joint press releases, parade themselves around Washington as part of a coalition, or chat together on conference calls. Finding the players in this game, instead, is more a process of deduction. For a group of firms and experts to be working for vulture funds on the issue of Argentine debt is normal Washington practice. (Vulture’s meaning here isn’t pejorative: it refers to an investment strategy that feeds off of assets the market has left for dead.)

For the exact same people and groups to be working on the next big issue that these funds care about — the Puerto Rican debt crisis — could be a coincidence. But now, the hedge funds are focused on a third issue — government-sponsored enterprise reform, which refers to the effort to establish new housing finance policy in the wake of the federal takeover of lenders Fannie Mae and Freddie Mac. And it’s the same political firms and the same independent experts that are once again weighing in — coincidentally, all on the side of the hedge funds. Maybe it’s all coincidence, but let’s run the traps either way.

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Make basic human needs part of speculative financial markets and mayhem is inevitable. Some things do not belong in a casino. When will we learn? When we run out of water and food?

Farmland Values Fall Sharply in Parts of the Midwest (WSJ)

Real farmland values in parts of the Midwest fell at their fastest clip in almost 30 years during the first quarter, according to a regional Federal Reserve report on Thursday. Falling crop prices have weighed on land values from Kansas to Indiana over the past two years as farm income declined and investors who had piled into the asset at the start of the decade retrenched. Three regional Federal Reserve banks all reported year-over-year declines in farmland values in their districts and said the drops would continue, though their forecasts were based on surveys taken before the recent rally in corn and soybean prices.

The St. Louis Fed region that includes parts of the U.S. agricultural heartland in Illinois, Indiana and Missouri reported the steepest decline, with the average price of “quality” farmland falling 6.4% in the quarter, the biggest decline since its survey began in 2012. The Chicago Fed said prices for similar land in its district fell 4% from a year ago, the seventh successive quarterly decline. Adjusted for inflation, prices in an area that includes parts of Illinois, Indiana, Iowa, Michigan and Wisconsin fell 5%, the biggest quarterly drop since 1987. Declines in the Kansas City Fed’s district, which includes Kansas and Nebraska, were less pronounced, but the bank said prices for nonirrigated cropland fell 4% in the quarter.

Though some agricultural markets have rallied in recent weeks, prices for corn and wheat are still more than 50% lower than their 2012 peak, and the U.S. Department of Agriculture has projected that net U.S. farm income will fall this year to the lowest level in more than a decade. Commodity prices have declined as farmers in the U.S. and elsewhere harvested bumper crops, adding to already generous stockpiles. U.S. farmers have also been hit by the strength of the dollar, which has stymied demand to export their crops. The drop in land values has been accompanied by deteriorating credit conditions, with more loans taken out to cover farm operations even as repayment rates fell on existing debt.

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Wow: “Boris Johnson is trusted to tell the truth about Europe by twice as many voters as trust David Cameron..” I can’t imagine anyone trusting Boris, so what does that say about trust in Cameron?

Cameron’s Anti-Brexit ‘Remain’ Campaign Has A Major Trust Issue (Ind.)

Boris Johnson is trusted to tell the truth about Europe by twice as many voters as trust David Cameron, according to a ComRes poll for The Independent. By a two-to-one margin, 45% to 21%, voters say that Mr Johnson is “more likely to tell the truth about the EU” than Mr Cameron. By a smaller margin, 39% to 24%, campaigners for Leave generally are considered “more likely to tell the truth” than campaigners for Remain.

The Referendum Campaigns
• Following key speeches this week, Britons are more than twice as likely to say Boris Johnson would tell the truth about the EU than David Cameron (45% v 21%).
• Conservative voters also say Boris Johnson is more likely to tell the truth about the EU than the Prime Minister (42% v 27%).
• Similarly, Britons tend to say the campaigners for leaving the EU are more likely to tell the truth than the remain campaigners (39% v 24%), although a significant minority say they don’t know (38%).

The EU Referendum
• The British public remain divided over whether they would be personally better off if Britain left the EU or remained part of it (29% v 33%). Around two in five (38%) say they don’t know how the referendum outcome would personally affect them.
• There has been a rise in the proportion of Britons saying national security would be better if Britain left the EU – 42% say it would be stronger if Britain left, compared to 38% who say it would be stronger if Britain remained. This represents an increase of 7 points from March in favour of leaving (35% in March 2016).
• However, attitudes towards immigration are clear; British adults are more than twice as likely to say the government could control Britain’s borders better if it left the EU (57% v 27% if Britain remains).

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Presenting it this way makes it look like the money is lost. Presenting it as an investment would be a lot fairer.

German Government Plans To Spend €93.6 Billion On Refugees By End 2020 (R.)

Germany’s government expects to spend around €93.6 billion by the end of 2020 on costs related to the refugee crisis, a magazine said on Saturday, citing a draft from the federal finance ministry for negotiations with the country’s 16 states. The figure is likely to stoke concerns, particularly among growing anti-immigration movements, on the impact of new arrivals on Europe’s largest economy which took in more than a million people last year, many from Syria and other war zones. The numbers arriving have fallen this year, helped by a deal between the EU and Turkey that was designed to give Turks visa-free travel to Europe in return for stemming the flow of migrants.

German weekly news magazine Der Spiegel said the finance ministry’s calculations included the costs for accommodating and integrating refugees as well as tackling the root causes for people fleeing from crisis-stricken regions. Officials based their estimates on 600,000 migrants arriving this year, 400,000 next year and 300,000 in each of the following years, the report said, adding that they expected 55% of recognized refugees to have a job after five years. A spokesman for the finance ministry declined to comment on the figures but pointed to ongoing talks between the government and states, saying they would meet again on May 31 to discuss how to divide up the costs between them.

The report said that €25.7 billion would be needed for jobless payments, rent subsidies and other benefits for recognized asylum applicants by the end of 2020. Another €5.7 billion would be needed for language courses and €4.6 billion would be required for measures to help migrants get jobs, it added. The annual cost of dealing with the refugee crisis would hit €20.4 billion in 2020, up from around €16.1 billion this year, the report said.

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Apr 152016
 
 April 15, 2016  Posted by at 9:34 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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Gottscho-Schleisner Plaza buildings from Central Park, NY 1933

A Year After European Stocks Hit Record, Crash Angst Hits Traders (BBG)
The One Chart That Shows ECB Money Printing Is Failing (Ind.)
Oil Demand Falls Much Faster Than Supply (Berman)
Oil Producers Head For Doha Counting $315 Billion Cost Of Slump (BBG)
Soured Corporate Loans Surge at Biggest US Banks on Oil (BBG)
China’s Economy Faces Recovery Without Legs (WSJ)
China’s Giant Bonfire Of Debt Needs One Spark To Become An Inferno (MW)
Funny Numbers Show Money Leaving China (Balding)
China Is Set to Allow Banks to Swap Bad Loans for Equity in Borrowers (WSJ)
China’s Giant Steel Industry Just Churned Out Record Supply (BBG)
What Negative Interest Rates Mean for the World (WSJ)
Negative Rates: Danish Couple Gets Paid Interest on Their Mortgage (WSJ)
Deutsche Bank Settles Silver, Gold Price-Manipulation Suits (BBG)
IMF Says Greek Debt Numbers Don’t Add Up as EU Defends Its Plan (BBG)
UK and European Allies Plan To Deal ‘Hammer Blow’ To Tax Evasion (G.)
Spanish Industry Minister Resigns After Panama Papers Revelations (AFP)
Ten European Nations Want Military Planes For Refugee Deportations (AP)

Let that graph sink in.

A Year After European Stocks Hit Record, Crash Angst Hits Traders (BBG)

A year ago today, European equities hit their highest levels ever. But the euphoria about Mario Draghi’s stimulus program didn’t last, and trader skepticism is now rampant. The Stoxx Europe 600 Index has lost 17% since its record, and investors who piled in last year are now unwinding bets at the fastest rate since 2013 as analysts predict an earnings contraction. The trading pattern looks familiar: a fast run to just over 400 on the gauge, then disaster. Optimism has turned to doubt with ECB President Draghi’s bond-buying program doing little to bolster the economy while sowing concerns about bank profitability. To Benedict Goette of Crossbow Partners, the odds of another crisis are higher than a rally to fresh records.

“The 2009-2015 rally originated from two main drivers: a massive stimulus, and credit expansion in China,” said Goette. “European earnings have not followed suit so far. Skepticism regarding central-bank operations has started to emerge.” Even with a recent rebound, the Stoxx 600 remains 6% lower for the year, and strategists are predicting the gauge will end 2016 at about the same level where it started. Analysts, who in January called for earnings growth, are now expecting declines of 2.8%. Investors have withdrawn money from funds tracking the region’s equities for nine straight weeks, the longest streak since May 2013, according to a Bank of America note dated April 7 that cited EPFR Global data.

Since last year’s peak, all industry groups in the Stoxx 600 have fallen, with lenders, miners and automakers down more than 25%. Traders have had to contend with a rebound in the euro despite additional ECB stimulus, persistently low inflation and slowing growth from China. Fewer than one in five fund managers are confident Draghi’s easing will be a major source of growth for Europe, a Bank of America survey showed April 12.

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In case that wasn’t clear yet.

The One Chart That Shows ECB Money Printing Is Failing (Ind.)

Good news: prices are no longer falling in the eurozone. But don’t break out the champagne. According to the European number crunchers Eurostat consumer prices across the 19 nation bloc were flat on a year earlier in March. The inflation rate was zero. This means the eurozone remains very much within the deflationary danger zone. The ECB has been trying to break the grip of deflation – which can be lethal for economic growth – on the bloc for more than a year now. To this end the ECB’s president Mario Draghi announced a major programme to buy up eurozone government bonds and company debt in January 2015.

The central bank has been buying €60bn of these assets a month in the hope that that flood of money entering the continent’s financial system would lift inflation into positive territory. The trouble is, as the chart below shows, is that all that money printing doesn’t seem to be working in pushing up prices. But the ECB is not giving up. In December it announced that it would continue its programme until March 2017 “or beyond”. The programme was originally supposed to end in September 2016. And in March it upped the size of the monthly bond purchases to €80bn. In other words, the ECB will continue printing money until inflation rises to the central bank’s target of (just below) 2% a year.

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“Supply increased only 20,000 barrels per day in March. Consumption, however, decreased by 250,000 barrels per day.”

Oil Demand Falls Much Faster Than Supply (Berman)

Oil prices have increased 60% since late January. Is this an oil-price recovery? Two previous price rallies ended badly because they had little basis in market-balance fundamentals. The current rally will probably fail for the same reason. Although oil prices reached the highest levels so far in 2016 during the past few days, the global over-supply of oil worsened in March. EIA data released this week shows that the net surplus (supply minus consumption) increased to 1.45 million barrels per day (Figure 1). Compared to February, the surplus increased 270,000 barrels per day. That’s a bad sign for the durable price recovery that some believe is already underway.

The production freeze that OPEC plus Russia will discuss this weekend has already arrived. Supply increased only 20,000 barrels per day in March. Consumption, however, decreased by 250,000 barrels per day. That’s not good news for the world economy although first quarter consumption is commonly lower than levels during the second half of the year. Meanwhile on Wednesday, April 12, Brent futures closed at almost $45 and WTI futures at more than $42 per barrel, the highest oil prices since early December 2015.


Figure 1. EIA world liquids market balance (supply minus consumption). Source: EIA STEO April 2016 Labyrinth Consulting Services, Inc.

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Any agreement willl exist on paper only.

Oil Producers Head For Doha Counting $315 Billion Cost Of Slump (BBG)

The world’s top oil exporters are burning through their petrodollar assets at an accelerating pace, increasing the pressure to reach a deal to freeze production to bolster prices. The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves – about a fifth of their total – since the oil slump started in November 2014, according to data compiled by Bloomberg. In the last three months of 2015, reserves fell nearly $54 billion, the largest quarterly drop since the crisis started. The petrodollar burn has consequences beyond the oil nations, affecting international fund managers like Aberdeen Asset Management and global currencies markets.

Oil nations have traditionally held their reserves in U.S. Treasuries and other liquid securities. Nonetheless, the impact in credit markets has been muted as central banks continue to buy debt. “We expect 2016 to be yet another painful year for most of the oil states,” said Abhishek Deshpande, oil analyst at Natixis in London. The gathering in Doha will comprise both OPEC and non-OPEC states, though any deal to boost prices will probably be largely cosmetic as countries are already pumping nearly at record levels. In a letter inviting countries to the Doha meeting, Qatar Energy Minister Mohammed Al Sada said oil countries need to stabilize the market in “the interest of a healthier world economy as the present low price is seen to be benefiting no one.”

Saudi Arabia accounts for nearly half of the decline in foreign-exchange reserves among oil producers, with $138 billion – or 23% of its total – followed by Russia, Algeria, Libya and Nigeria. In the final three months of last year, Saudi Arabia burned through $38.1 billion, the biggest quarterly reduction in data going back to 1962.

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“Soured loans to companies jumped 67% at the three biggest U.S. banks in the first quarter..”

Soured Corporate Loans Surge at Biggest US Banks on Oil (BBG)

Soured loans to companies jumped 67% at the three biggest U.S. banks in the first quarter, the latest sign that corporate credit quality is eroding after energy prices plunged. At Bank of America, JPMorgan and Wells Fargo, bad loans to companies reached their highest levels since at least 2013. For now, weakness is mainly confined to oil and gas and related industries, executives said. U.S. crude has tumbled more than 60% since June 2014, although they have rallied since February. Troubled loans have broadly been declining at big banks for years, and at JPMorgan and Bank of America, are less than 1% of total assets.

But there are signs that default risk is rising in sectors outside of energy, including health care, James Elder, a director in corporate and financial institutions at Standard & Poor’s, said in a presentation this week. Charles Peabody, a banking analyst at Portales Partners, downgraded JPMorgan to “underperform” from “market perform” in February in part because of concerns about the potential for mounting credit losses. “We’re at the very early stages of an inflection point in corporate credit quality, and it’s getting worse from here,” Peabody said. Pri de Silva, an analyst at CreditSights, is among those who see current credit problems as limited to oil and gas and related industries. “At this point, I don’t see much contagion,” he said.

Banks have been getting ready for loans to deteriorate – the industry added $1.43 billion in the fourth quarter to the total money it has set aside to cover bad loans, according to Federal Deposit Insurance Corp. data compiled by Bloomberg, the first time banks in aggregate added to reserves since 2009. Banks usually classify loans to companies as “nonperforming” after the borrower is delinquent for 90 days. Loans that are unlikely to be repaid are also typically designated as “nonperforming.” Now loans are actually souring. At JPMorgan, bad loans to companies more than doubled to $2.21 billion from $1.02 billion in the fourth quarter, according to company filings. Bank of America said they rose 32% to $1.6 billion. And at Wells Fargo, they rose 64% to $3.97 billion, which includes $343 million from loans it acquired from GE Capital.

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This is such a contradiction in terms it’s crazy the WSJ prints it: “China’s economy may have stabilized for now, thanks to gobs of new debt..”

China’s Economy Faces Recovery Without Legs (WSJ)

China’s economy may have stabilized for now, thanks to gobs of new debt and a reflating property bubble. Dipping into that old bag of tricks, however, seems likely to dredge up the same old problems. Official data showed China’s GDP slowed to 6.7% in the first quarter from a year earlier. As expected, that is the slowest in years, but underlying data showed activity picked up toward the end of the quarter. Home buyers, for instance, continued to splash out for new property, with residential sales rising 54% in the first quarter from a year earlier. That has emboldened developers to start to build again, with housing starts rising 16% in the first quarter, after falling 15% last year. That augurs well for employment and demand for raw materials. But it is hard to see China’s property market—which in past years generated directly and indirectly up to a third of all economic activity—returning to its past glory.

Much of the recovery in prices and activity has been in China’s so-called tier one cities—the four largest cities—and regulators there are already clamping down to prevent things from getting out of hand. In the rest of China, the property recovery is far more subdued, and inventories of unsold apartments remain substantial. Around 95% of real estate sales occur outside of those top four cities, notes Louis Kuijs of Oxford Economics, so unless the boom spreads, the impact on the broader economy will remain muted. China’s old economy sectors also seem to have awoken somewhat from their slumber. Industrial production grew 6.8% in March, the fastest in nine months. Fixed asset investment, spending on things like factories and infrastructure, grew 11.2%, much faster than the 6.8% low it hit in December.

Driving all this activity: easy money. Real interest rates have fallen. And nominal GDP grew faster than real GDP for the first time in five quarters, which in theory makes servicing debt easier. What should trouble investors is that while China’s economic activity is ticking up, debt is piling up faster. The stock of total financing in the economy, including bond issuance as part of a local government bailout program, rose 15.8% in March from a year ago, the fastest rate since mid-2014. With nominal GDP growing 7.2%, Beijing’s plans to deleverage the economy continue to be overwhelmed by the need to support growth. China bulls will be pleased by the data, hoping that a proper recovery is at hand. Those hopes may prove short lived. The more the recovery is fueled by debt and property, the more concerned Beijing will be that it is pushing the gas too hard and will have to ease off sooner than people think.

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“In a developed economy, Ponzi lending of such an enormous scale would lead to widespread bankruptcies, unemployment and massive losses for investors and lenders. This hasn’t happened yet because Chinese debt has been expanding at an ever-faster rate.”

China’s Giant Bonfire Of Debt Needs One Spark To Become An Inferno (MW)

China’s debt bonfire has been building for decades, but recent news and data points to it growing faster than ever with a greater risk of becoming an economy-scorching inferno. There are three key components to this analogy: the wood, the accelerant and the matches. First the wood, which is an ever-growing stockpile of debt that cannot be serviced from profits. Macquarie Research found that 23% of bonds issued were by companies that don’t generate enough operating profit to cover their interest. This aligns with a Bloomberg report that the median Chinese listed company generates enough operating profit to cover their interest two times, down from a ratio of six times in 2010. Another report found that 45% of new company debt is raised to pay interest on existing debt.

In a developed economy, Ponzi lending of such an enormous scale would lead to widespread bankruptcies, unemployment and massive losses for investors and lenders. This hasn’t happened yet because Chinese debt has been expanding at an ever-faster rate. China’s total debt levels grew to about 300% of GDP last year from about 250% of GDP in 2014 and set a new record for a single month in January, growing at roughly 5% of the size of the economy. Problems have been covered over as the Chinese banking regulator is forcing banks to lend to companies that can’t pay their interest and would otherwise default. We know the bonfire is big and the wood is dry. The next step is to figure how quickly a fire could spread once it begins.

The second key component is the accelerant, which is the relatively high proportion of debt borrowed for short periods. Chinese wealth management products are typically sold by banks as an alternative to term deposits that pay much higher interest rates. Borrowers are almost always promised their money back within six months. The underlying investments are typically loans to companies that banks are unwilling to lend to. These borrowers have little prospect of repaying the debt at maturity unless someone else is willing to provide more debt. Another source of short-term funding is peer-to-peer platforms. However, 28% of these are thought to be fraudulent. In the institutional funding market, there’s commercial paper, which is composed of corporate debts of 270 days or less. Outstanding Chinese commercial paper was $1.61 trillion at the end of 2015, far larger than the U.S. equivalent at $1.05 trillion.

As shown by the financial crisis in 2008, short-term debt is an accelerant to fires in credit systems. Within a week of the collapse of Lehman Brothers, 26% of U.S. commercial paper disappeared. Investors were no longer willing to lend without asking questions and borrowers were sent scurrying for other sources of capital. A run on short-term funding sources quickly spreads the fire from one bankrupt borrower to many other borrowers.

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“Chinese customs officials reported $1.68 trillion in imports last year. Banks, on the other hand, claimed to have paid $2.2 trillion for those same imports. While the official balance-of-payments records a current account surplus of $331 billion in 2015, banks’ payments and receipts show a $122 billion deficit.”

Funny Numbers Show Money Leaving China (Balding)

News that China’s foreign-exchange reserves rose by $10 billion in March rather than declining has quieted doomsayers. Worries that the reserves could dip to dangerous levels as soon as this summer – after shrinking by an estimated $1 trillion last year – appear to have been premature. Still, questions linger over exactly how much money is leaving China and why. The true picture may not be as rosy as the headline numbers suggest. Before the March upturn, capital had been flooding out of China at a rapid clip – an average of $48 billion per month over the previous six months, according to official bank data. The reasons were several. Fearing further declines in the value of the yuan, several companies paid off their dollar loans; others pursued big acquisitions abroad. Individual investors sought out higher returns as the Fed prepared to raise rates.

The government spent billions to prop up the value of the currency. Some individuals and companies reduced their offshore yuan deposits. Still others looked to spirit money out of the country to safer havens. The question is how much money has been leaving for which reasons. Some analysts, including economists at the Bank for International Settlements, have argued that the bulk of these outflows are healthy, mostly involving companies paying down their foreign debt. However, the BIS study, which estimates that such repayments accounted for nearly a quarter of the $163 billion of non-reserve outflows in the third quarter of 2015, focuses on a very narrow slice of time. Foreign debt obligations grew rapidly in late 2014 and the first half of 2015, then shrunk dramatically in the third quarter.

Moreover, what those official figures miss are hidden outflows, disguised primarily as payments for imports, which appear to have created a $71 billion current account deficit in the same quarter, according to bank payments data. In effect, enterprising Chinese are overpaying massively for the products they’re importing. Chinese customs officials reported $1.68 trillion in imports last year. Banks, on the other hand, claimed to have paid $2.2 trillion for those same imports. While the official balance-of-payments records a current account surplus of $331 billion in 2015, banks’ payments and receipts show a $122 billion deficit. Overpaying for imported goods and services is a clever way for Chinese companies and citizens to move money out of the country surreptitiously.

Let’s say a foreign country exports $1 million worth of goods to China. Chinese customs officials will faithfully record $1 million in imports. But when the importer goes to the bank, he’ll either use fraudulent documentation or bribe a bank official to record a $2 million payment to the foreign counterparty. Presumably, the excess $1 million ends up in a private bank account. While some discrepancies are to be expected in data like this, the size and steady increase in the gap since 2012 implies that something shadier is going on. When Chinese companies pay down debt, or make big acquisitions abroad, they do so openly. These other outflows – which topped half a trillion dollars last year – seem far more likely to be driven by individuals and companies simply seeking to get their money out of the country.

The timing is also telling. The discrepancy began to grow rapidly in 2012, just as growth peaked and concerns began to rise among affluent Chinese about the economy and a political transition. Since then, fake import payments have grown from $140 billion to $524 billion in 2015. During that period, growth in China has slowed, rates of return on investment have declined and surplus capacity has exploded. Investment opportunities have shrunk, while state-owned enterprises have crowded out private investors. Certainly the latter have good reason to seek better returns elsewhere.

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“Corporate debt now amounts to 160% of China’s GDP… That is up from 98% in 2008 and compares with a current U.S. level of 70%.”

China Is Set to Allow Banks to Swap Bad Loans for Equity in Borrowers (WSJ)

China is planning a debt-for-equity swap program that could provide large companies mired in overcapacity a way to reduce their debt burdens, the country’s top central banker said on Thursday. The deepening slowdown in the world’s second-largest economy has heightened the need for Chinese authorities to come up with ways to help the country’s heavily-indebted corporate sector deleverage. A plan in the works involves enabling banks to exchange bad loans for equity in companies they lend to. Speaking at a small-business financing event hosted by the OECD on Thursday, Zhou Xiaochuan, Gov. of the People’s Bank of China, said the planned debt-for-equity swap program would mainly help large companies plagued with excessive industrial capacity cut bank debt.

The event was held on the sidelines of a Group of 20 finance-chief meeting this week. Small Chinese companies, Mr. Zhou said, aren’t expected to benefit significantly from this program as they’re less indebted than their bigger brethren. He pointed to a persistent challenge faced by China’s policy makers: Despite a relative high leverage ratio in China’s economy, small businesses “still have difficulty in accessing bank loans.” In the past couple of years, the central bank has taken a number of steps—such as targeted credit-easing measures—to encourage banks to lend to small and private companies. But so far progress has been slow as large state banks, which dominate corporate lending in China, still prefer to lend to large state-owned corporate clients.

“We don’t have enough community banks to lend to small- and medium-sized enterprises,” Mr. Zhou said. The planned debt-for-equity swap program is a potentially controversial step that many Chinese bankers say could saddle banks with near-worthless stock and squeeze their liquidity. Analysts also say the move could risk keeping “zombie” companies afloat while making lenders even more strapped for capital. [..] Corporate debt now amounts to 160% of China’s GDP, according to Standard & Poor’s Ratings Services. That is up from 98% in 2008 and compares with a current U.S. level of 70%.

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Steel exports are Beijing’s only window to avert widespread job losses and hence unrest.

China’s Giant Steel Industry Just Churned Out Record Supply (BBG)

The world’s biggest steel producer pushed output to a record in March as mills in China fired up plants to take advantage of a price surge since the start of the year that’s rescued profit margins. Output rose 2.9% to 70.65 million metric tons from a year earlier, the National Bureau of Statistics said on Friday. That’s the highest ever, according to data from state-owned researcher Beijing Antaike Information. Still, for the first quarter, supply fell 3.2% to 192 million tons. The country’s steelmakers are ramping up output after cuts at the end of 2015 fueled a major price surge that has rippled out to world markets. The mills’ busiest-ever month came as figures showed that China’s economy stabilized, aided by a rebound in the property market.

Last year, the country’s steel output shrank for the first time since 1981 as demand contracted and mills battled surging losses and too much capacity, and forecasters including Australia’s government expect a further decline in 2016. “It’s normal to see higher output in March but this is a significant increase,” said Kevin Bai, a Beijing-based researcher at consultancy CRU Group. “Right now, the mills are making money. The market is still relatively tight and this has encouraged some producers to return.”

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They mean price discovery is dead for the moment. But it will be back. And what will central banks do then?

What Negative Interest Rates Mean for the World (WSJ)

Central bankers around the world are pushing deeper into the once-unthinkable world of negative interest rates — essentially charging customers to hold their cash. Denmark set negative interest rates as early as 2012, followed by the ECB in 2014. Since then, they’ve been joined by Switzerland and Sweden. In Asia, the Bank of Japan announced a negative interest rate policy in January this year. Hungary became the first emerging market to experiment with negative rates, taking the plunge in March. With more of the world’s central banks joining in, and rates pushing further below zero, The Wall Street Journal this week explores how negative rates appear to be working in various settings and what they mean for policymakers and markets.

In Denmark: Some mortgage holders are the envy of home owners around the world. With negative interest rates, they’re actually receiving interest payments from the banks they initially borrowed from.

In Switzerland: Few banks are dealing with negative interest rates by passing them on to their customers, but Alternative Bank Schweiz in Switzerland is bucking the trend, and charging clients to hold their deposits.

In Germany: Life insurance companies with long term liabilities are feeling the squeeze of negative interest rates. Some groups require an annual yield of more than 5% to sustain their businesses, driving a typically low risk industry into increasingly risky assets.

In Japan: The announcement of negative interest rates spurred a massive rise in prices on the government’s 40 year bond, gains only usually seen on bonds in emerging markets like Venezuela. But even in Japanese government bonds, investors are taking on a new risk: duration. Money market trading is also withering in Japan, as the new interest rates set into place. The trading confirmation system used by domestic banks wasn’t fully updated until a month after the Bank of Japan’s rate cut.

In the U.S: policymakers are weighing up whether the policy could work for them. The U.S. economy is preparing for higher rather than lower rates, but even the Federal Reserve is investigating whether going negative might work in the event of another downturn.

And for monetary policy: What comes after negative rates? Helicopter money is one answer, according to James Mackintosh, as perverse effects of negative rate policies begin to crop up. Around the world, it looks like negative interest rates are here to stay. And like it or not, so are their effects.

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“The ECB and the Bank of Japan, grappling with stagnant economies, are using subzero rates to stimulate growth.” Which clearly doesn’t work.

Negative Rates: Danish Couple Gets Paid Interest on Their Mortgage (WSJ)

Hans Peter Christensen got some unusual news when he opened his most recent mortgage statement. His quarterly interest payment was negative 249 Danish kroner. Instead of paying interest on the loan he got a decade ago to buy a house in [Aalborg] , his bank paid him the equivalent of $38 in interest for the quarter. As of Dec. 31, his mortgage rate, excluding fees, stood at negative 0.0562%. It has been nearly four years since Denmark entered the world of negative monetary policy, and borrowers and lenders alike are still trying to make sense of the upside-down world it has brought. “My parents said I should frame it, to prove to coming generations that this ever happened,” said Mr. Christensen, a 35-year-old financial consultant, about his bank statement.

Denmark isn’t the only place where central bankers are experimenting with negative rates. The ECB and the Bank of Japan, grappling with stagnant economies, are using subzero rates to stimulate growth. Switzerland and Sweden, like Denmark, are trying negative rates to keep their currencies in line with the struggling euro. Denmark, where the central bank’s benchmark rate stands at minus 0.65%, has lived in negative territory longer than any other country. Neighboring Sweden has been below zero for 14 months, and its central bank has said it would go lower than the current benchmark of negative 0.5% if it needs to. In Norway, the central bank still has positive rates, but it is considering resorting to negative ones to prop up an economy hit hard by the prolonged spell of low oil prices.

Scandinavia’s experience has given economists a chance to study what happens when rates drop below zero—long considered an inviolable floor on rates. Already, there are concerns about undesirable side effects. Consumer savings accounts pay no interest, and there is pressure on bank profitability. A boom in real-estate borrowing has kindled fears that problems will arise if rates bounce back up. “If you had said this would happen a few years ago, you would have been considered out of your mind,” said Torben Andersen, a professor at Denmark’s Aarhus University who serves on the government’s economic-advisory council.

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Watch derivatives.

Deutsche Bank Settles Silver, Gold Price-Manipulation Suits (BBG)

Deutsche Bank has reached settlements in lawsuits over allegations it manipulated gold and silver prices, lawyers for traders of the commodities said in court filings. Attorneys for futures contract traders in two private lawsuits said in letters filed Wednesday and Thursday in Manhattan federal court that the bank has executed term sheets and is negotiating final details for the accords. The German financial firm also agreed to help the plaintiffs pursue similar claims against other banks as part of the settlements, according to the letters. Vincent Briganti and Robert Eisler, attorneys for traders in the silver-fixing lawsuit, said Deutsche Bank will turn over instant messages and other communications to help further their case. Financial terms of the settlements weren’t disclosed.

“In addition to valuable monetary consideration to be paid into a settlement fund, the term sheet also provides for other valuable consideration such as provisions requiring Deutsche Bank’s cooperation in pursuing claims against the remaining defendants,” attorneys Daniel Brockett and Merrill Davidoff said in their letter Thursday in the gold-fixing lawsuit. Silver and gold futures traders sued groups of banks in 2014 alleging they rigged prices for the precious metals and their derivatives. Silver traders brought claims against Deutsche Bank, HSBC, Bank of Nova Scotia and UBS. Gold traders additionally sued Barclays and Societe Generale.

The traders alleged the banks abused their positions of controlling daily silver and gold fixes to reap illegitimate profits from trading and hurting other investors in those markets who use the benchmark in billions of dollars of transactions, according to versions of the complaints filed in 2015. Of those banks, only Deutsche Bank has reached a settlement.

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This discussion is sinking to Forrest Gump levels.

IMF Says Greek Debt Numbers Don’t Add Up as EU Defends Its Plan (BBG)

The IMF raised doubts about Greece’s ability to keep up repayments under a plan being negotiated with its European creditors, who insisted they’ve already provided plenty of debt relief. “Currently, as envisaged, the debt is not sustainable and what is required is a debt operation,” IMF Managing Director Christine Lagarde said Thursday in Washington, where finance ministers and central bankers are attending the fund’s spring meetings. Lagarde said she’s skeptical about Greece’s ability to meet the budget surplus target set under an €86 billion bailout by euro-area governments, who are reviewing whether to release the loan’s second installment. Under the EU program, Greece is committed to posting a fiscal surplus before interest payments of 3.5% of gross domestic product within two years.

The IMF has said it might be willing to pitch in a new loan itself, but Lagarde said the fund wants the country’s recovery plan to be based on “realism and sustainability.” “We cannot have far-fetched fantasy hypotheticals concerning the future of the Greek economy,” said the IMF chief, who was reappointed in February for a second five-year term. She said debt relief by euro-area countries doesn’t necessarily have to involve a “haircut” on principal, and could take the form of maturity extensions, interest reductions or a “debt holiday.” The more Greece cuts spending through reforms, the less debt restructuring will be required, Lagarde said. “Bottom line, it needs to all add up,” she said. The EU line has been that the numbers already add up.

On Thursday, a spokesman for euro-area finance ministers rejected the notion that Greece’s debt is unsustainable. “We did already a lot to make it more sustainable – lowering the interest rates, lengthening the maturities,” said Jeroen Dijsselbloem of the Netherlands, president of the Eurogroup, made up of the currency zone’s finance ministers. “So for the coming five to 10 years, I don’t think there is a big debt-service issue. I think the Greeks can pay on an annual basis.”

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What you find in the dictionary under both ‘Useless’ and ‘Lip service’. Nothing happened for years and years, and one leak later they’re all knights of justice?!

UK and European Allies Plan To Deal ‘Hammer Blow’ To Tax Evasion (G.)

Britain and its European allies have announced new “hammer blow” rules against tax evasion in direct response to the Panama Papers leak that exposed how the world’s richest and most powerful people hide their wealth from the taxman. George Osborne announced on Thursday, in partnership with his counterparts from France, Germany, Spain and Italy, new rules that will lead to the automatic sharing of information about the true owners of complex shell companies and overseas trusts. The chancellor said the new rules, agreed this week in direct response to the Panama Papers leak, were “a hammer blow against those that would illegally evade taxes and hide their wealth in the dark corners of the financial system.

“Britain will work with our major European partners to find out who really owns the secretive shell companies and trusts that have been used as conduits for evading tax, laundering money and benefiting from corruption. “Strong words of condemnation are not enough, populist outrage doesn’t by itself collect a single extra pound or dollar in tax or put a single criminal in jail,” Osborne said at the spring meetings of the IMF in Washington. “What we need is international action now, and that’s precisely what we are doing today with real concrete action in the war against tax evasion.” He said the transparency rules on beneficial ownership showed that Britain and other governments are working to shine a spotlight on “those hiding spaces, those dark corners of the global financial system”.

He said he hoped the rules, which will come into effect in January 2017, would be followed up by other countries. Ángel Gurría, the secretary general of the OECD, said the release of the Panama Papers showed that there was no room for complacency in the international effort to crack down on tax evasion. He said it was no surprise that the rich and the powerful were using Panama to evade tax as “it is one of the few jurisdictions that has pushed against” international measures to improve tax and ownership transparency. “We have to crack down on the professional enablers – lawyers, accountants, financial institutions – that play a key role in maintaining the veil of secrecy,” he said.

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Whackamole.

Spanish Industry Minister Resigns After Panama Papers Revelations (AFP)

Spain’s industry minister resigned Friday after he was named in the Panama Papers and other media revelations that claimed he had links to offshore firms, the latest political victim from the global scandal. Jose Manuel Soria said in a statement that he had tendered his resignation “in light of the succession of mistakes committed along the past few days, relating to my explanations over my business activities… and considering the obvious harm that this situation is doing to the Spanish government.” Soria’s troubles began on Monday when Spanish online daily El Confidencial, which has had access to the Panama Papers – files leaked from law firm Mossack Fonseca – said he had was an administrator of an offshore firm for two months in 1992.

Soria called a news conference to deny any link to any Panamanian company, but as the week went by, more allegations emerged from other media outlets, revealing further alleged connections to offshore havens. It is unclear as yet whether any of his alleged actions were illegal. Soria is the latest political victim of the Panama Papers, which resulted from what the law firm blamed on a computer hack launched from abroad, and revealed how the world’s wealthy stashed assets in offshore companies. Iceland’s Prime Minister Sigmundur David Gunnlaugsson was also forced to resign over the leaks.

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We keep thinking it’s not possible, but Europe keeps finding ways to sink deeper in its moral morass. It’s almost an achievement.

Ten European Nations Want Military Planes For Refugee Deportations (AP)

Austria and nine East European and Balkan states are calling for an EU declaration endorsing the use of military aircraft for the deportation of migrants who have no chance for asylum, or whose request for that status have been rejected. The Austria Press Agency says the request is being made in a letter to EU foreign policy chief Federica Mogherini, signed by Austrian Defense Minister Hans Peter Doskozil on behalf of Austria and the other countries. APA on Thursday quoted the letter as saying the use of military aircraft should be “seen as an integral and decisive element of a full repatriation program.” The agency said the letter asked for the issue to be on the agenda of the next EU foreign ministers’ meeting in Luxembourg on April 19.

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Jan 012016
 
 January 1, 2016  Posted by at 10:29 am Finance Tagged with: , , , , , , ,  1 Response »
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Unknown Gurley-Lord service station, San Francisco 1929

US Stocks Close Out The Worst Year For The Market Since 2008 (AP)
Oil Drops 31% In 2015 On Global Crude Glut (MarketWatch)
Gold Sinks 10% For 3rd Annual Loss as Platinum, Palladium Hit Hard (Reuters)
Copper Ends Dismal Year on a Low Note (WSJ)
Half a Million Bank Jobs Have Vanished Since 2008 Crisis (BBG)
China December Factory Activity Shrinks (Reuters)
Chicago PMI Plummets To Lowest Since 2009 (MarketWatch)
VW Buybacks, Payments For Hard-to-Fix Diesels Will Be Very Costly (GCR)
Keiser Report feat. Gerald Celente: ‘Bankism’, Oil Prices And More (RT)
EU’s Trillion Euro Bank Bail-Outs Are Over (Telegraph)
In Europe, 2016 Will Be The Year Of Lawsuits (Coppola)

“A very unrewarding year.” Yeah, well, brace yourselves.

US Stocks Close Out The Worst Year For The Market Since 2008 (AP)

U.S. stocks closed lower on Thursday, capping the worst year for the market since 2008. The Standard & Poor’s 500 index ended essentially flat for the year after the day’s modest losses nudged it into the red for 2015. Even factoring in dividends, the index eked out a far smaller return than in 2014. The Dow Jones industrial average also closed out the year with a loss. The tech-heavy Nasdaq composite fared better, delivering a gain for the year. “It’s a lousy end to a pretty lousy year,” said Edward Campbell, portfolio manager for QMA, a unit of Prudential Investment Management. “A very unrewarding year.” Trading was lighter than usual on Thursday ahead of the New Year’s Day holiday. Technology stocks were among the biggest decliners, while energy stocks eked out a tiny gain thanks to a rebound in crude oil and natural gas prices.

The Dow ended the day down 178.84 points, or 1%, to 17,425.03. The S&P 500 index lost 19.42 points, or 0.9%, to 2,043.94. The Nasdaq composite fell 58.43 points, or 1.2%, to 5,007.41. For 2015, the Dow registered a loss of 2.2%. It’s the first down year for the Dow since 2008. The Nasdaq ended with a gain of 5.7%. The S&P 500 index, regarded as a benchmark for the broader stock market, lost 0.7% for the year. According to preliminary calculations, the index had a total return for the year of just 1.4%, including dividends. That’s the worst return since 2008 and down sharply from the 13.7% it returned in 2014. While U.S. employers added jobs at a solid pace in 2015 and consumer confidence improved, several factors weighed on stocks in 2015.

Investors worried about flat earnings growth, a deep slump in oil prices and the impact of the stronger dollar on revenues in markets outside the U.S. They also fretted about the timing of the Federal Reserve’s first interest rate increase in more than a decade. The uncertainty led to a volatile year in stocks, which hit new highs earlier in the year, but swooned in August as concerns about a slowdown in China’s economy helped drag the three major stock indexes into a correction, or a drop of at least 10%. The markets recouped most of their lost ground within a few weeks. “The market didn’t go anywhere and earnings didn’t really go anywhere,” Campbell said.

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From $114(?) to $37 in two years time.

Oil Drops 31% In 2015 On Global Crude Glut (MarketWatch)

Oil futures ended higher Thursday in the final trading session of 2015, but posted a steep annual drop for the second year in a row as markets continue to wrestle with a global glut of crude. On the New York Mercantile Exchange, light, sweet crude futures for delivery in February rose 44 cents, or 1.2%, to finish at $37.04 a barrel. For the year, the U.S. benchmark dropped 30.5% and has lost 62.4% over the last two years. Crude hadn’t dropped two years in a row since 1998. February Brent crude, the global benchmark, rose 82 cents, or 2.3%, on London’s ICE Futures exchange to settle at $37.28 a barrel. Brent fell 35% in 2015, marking its third straight yearly drop. Oil trimmed gains somewhat after oil-field services firm Baker Hughes said the total number of U.S. oil rigs fell by two this week to 536.

Oil’s bounceback on Thursday likely reflected some short covering ahead of year-end and a three-day weekend, said Phil Flynn at Price Futures. U.S. markets will be closed Friday for the New Year’s Day holiday. Flynn said traders might be nervous about maintaining short positions amid rising tensions within Iran that could threaten the implementation of a nuclear accord that was expected to result in the lifting of sanctions that have prevented the country from exporting oil. Iran’s president has ordered his defense minister to expedite the country’s ballistic missile program following newly planned U.S. sanctions, he said Thursday, according to The Wall Street Journal. With U.S. production “growing for the last few weeks and global inventories being near storage limits, this is yet another reminder that the supply glut could take a long time to clear, which may mean even lower oil prices in the near term,” said Fawad Razaqzad at Forex.com.

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Platinum and palladium are the more interesting metals when it comes to determining where economies are going.

Gold Sinks 10% For 3rd Annual Loss as Platinum, Palladium Hit Hard (Reuters)

Gold was steady on Thursday, ending the year down 10% for its third straight annual decline, ahead of another potentially challenging year in 2016 amid the prospect of higher U.S. interest rates and a robust dollar. Largely influenced by U.S. monetary policy and dollar flows, the price of gold fell 10% in 2015 as some investors sold the precious metal to buy assets that pay a yield, such as equities. The most-active U.S. gold futures for February delivery settled at $1,060.2 per ounce on Thursday, almost flat compared with Wednesday’s close of $1,059.8 and close to six-year lows of $1,046 per ounce earlier in December. Spot gold was down 0.2% at $1,061.4 an ounce at 1:57 p.m. EDT, during the last trading session of the year. Volumes were thin ahead of the New Year holiday on Friday.

“The key factor for gold remains the strong dollar and that ultimately trumps all other issues including the economy and the geopolitics,” said Ross Norman, CEO of bullion broker Sharps Pixley. The dollar was on track for a 9% gain this year against a basket of major currencies, making dollar-denominated gold more expensive for holders of other currencies. Other precious metals have also been hit by dollar strength and the gold slump, and were headed for sharp annual declines. The most-active U.S. silver futures settled at $13.803 per ounce on Thursday, down 0.3% from Wednesday and ending the year down 12%. Spot prices were down 0.2% at $13.83 an ounce. Industrial metals platinum and palladium were harder hit, notching up big yearly losses partly due to oversupply from mines and concerns about growth in demand. Platinum futures settled at $893.2 per ounce, down 26% from a year ago, while the most-active palladium futures ended at $562, down 30% on the year.

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Copper and zinc -25%, nickel -42%, palladium -30%, platinum -26%.

Copper Ends Dismal Year on a Low Note (WSJ)

Copper prices fell in London on Thursday ending a dismal year as industrial metals were battered by a toxic mix of oversupply and concern over demand from China. Analysts don’t expect much respite for copper in 2016, with the oversupply expected to continue and the macroeconomic picture still uncertain. Among other factors, commodity prices have been hit by a stronger dollar, and few economists expect the greenback to weaken in any meaningful way. “I think that the bear market is not totally complete,” said Boris Mikanikrezai, an analyst at financial markets research company Fastmarkets. “Although a temporary rally in metal prices is possible over a one-to-three-month horizon, the macro fundamental picture may warrant lower prices.”

On Thursday, the London Metal Exchange’s three-month copper contract was down 0.5% at $4,720.50 a metric ton in midmorning European trade. Other base metals were mixed. Copper has lost about a quarter of its value this year. Among other base metals, nickel has lost 42%, zinc is down 25% while aluminum fell 18% over the year. “In retrospect, 2015 will be considered a year that can be safely forgotten when it comes to copper,” analysts at Aurubis, Europe’s largest copper producer, said in a report.

Worries about the health of the Chinese economy will continue to roil metals markets in 2016, analysts said. The country is the biggest source of global demand for metals, accounting for nearly half of total global zinc consumption, 45% of global copper consumption and 40% of lead production. “It will be another challenging year for China and that will affect metals,” said Xiao Fu, head of commodity markets strategy at BOCI Global Commodities. “Still, we expect the government’s fiscal stimulus package announced this year to provide some support for demand in 2016.”

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More to come.

Half a Million Bank Jobs Have Vanished Since 2008 Crisis (BBG)

Staff reductions at some of the world’s biggest banks are far from over. Deutsche Bank, which has held employment close to its 2010 peak, plans to slash 26,000 positions by 2018, following a trend that began with the financial crisis. Announced cuts in the fourth quarter total at least 47,000, following 52,000 lost jobs in the first nine months of 2015. That would bring the aggregate figure since 2008 to about 600,000. UniCredit says it will eliminate about 18,200 positions. Citigroup, which has reduced its workforce by more than a third, plans to eliminate at least 2,000 more jobs next year.

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Not growing slower, but contracting.

China December Factory Activity Shrinks (Reuters)

China looked set for a soggy start to 2016 after activity in the manufacturing sector contracted for a fifth straight month in December, suggesting the government may have to step up policy support to avert a sharper slowdown. While China’s services sector ended 2015 on a strong note, the economy still looked set to grow at its slowest pace in a quarter of a century despite a raft of policy easing steps, including repeated interest rate cuts, in the past year or so. The world’s second-largest economy faces persistent risks this year as leaders have pledged to push so-called “supply-side reform” to reduce excess factory capacity and high debt levels.

The official manufacturing Purchasing Managers’ Index (PMI) stood at 49.7 in December, in line with expectations of economists polled by Reuters and up only fractionally from November. A reading below 50 suggests a contraction in activity. Still, economists seemed to find some comfort that there were no signs of a sharper deterioration which has been feared by global investors. The slight pick up in the manufacturing PMI “suggests that (economic) growth momentum is stabilizing somewhat … however, the sector is still facing strong headwinds, said Zhou Hao, China economist at Commerzbank in Singapore. “In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive.”

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More contracting economic activity.

Chicago PMI Plummets To Lowest Since 2009 (MarketWatch)

Economic activity in the Midwest contracted at the fastest pace in more than six years in December, according to the Chicago Business Barometer, also known as the Chicago PMI. The index fell to 42.9 from 48.7 in November. Economists had expected it to rise 1.3 points to 50 in the December reading. The index has spent much of the year below the 50 mark that separates expansion from contraction. Order backlogs were the biggest drag in December, dropping 17.2 points to 29.4. That’s the lowest since May 2009 and marked the 11th-straight month in contraction. The last time such a sharp decline was registered was 1951. New orders also sank to the lowest level since May 2009. That’s bad news for activity down the road. Still, 55.1% of survey respondents said they expect stronger demand in 2016 than in 2015.

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TBTF banks will still be protected.

EU’s Trillion Euro Bank Bail-Outs Are Over (Telegraph)

Europe has called an end to the era of mass bank bail-outs as new rules to stop taxpayers from footing the cost of financial rescues come into force. Private sector creditors will be forced to take the hit for bank failures as the EU seeks to end the age of “too big to fail”, which has cost member states more than €1 trillion since 2008. The measures – which will come into force on January 1 and apply to eurozone states – are designed to break the vicious cycle between lenders and governments that bought the single currency to its knees four years ago. Senior bondholders and depositors over €100,000 will be in line to be “bailed-in” if a bank goes bust, a departure from the mass government-funded rescues seen in Ireland, Portugal, Spain and Greece in the wake of the financial crisis.

Brussels’ tough new Bank Recovery and Resolution Directive (BRRD) will require shareholders and bond owners to incur losses of at least 8pc of their total liabilities before receiving official sector aid. Britain will not be subject to the rules. The EU’s commissioner for financial stability, Britain’s Jonathan Hill, said: “No longer will the mistakes of banks have to be borne on shoulders of the many”. Struggling banks in Italy, Portugal and Greece have rushed to recapitalise themselves in a bid to avoid falling foul of the new regime. The rules resemble the bail-in of creditors first seen in the eurozone during Cyprus’ banking crash in 2013, where savers were forced to endure losses as part of the international rescue package.

More than €1.6 trillion (£1.18 trillion) has been pumped into troubled banks by member states between October 2008 and December 2012, according to figures from the European Commission. This amounts to 13pc of the bloc’s total economic output (GDP) and imperiled the public finances of Ireland and Spain. “We now have a system for resolving banks and of paying for resolution so that taxpayers will be protected from having to bail-out banks if they go bust”, said Lord Hill. A new eurozone wide insolvency fund, the Single Resolution Mechanism, will also become operational on January 1. It will build up contributions from the banking industry over the next eight years to use in cases of financial collapse. Europe’s banks have been required to beef up their capital buffers and comply with tough new regulations in the wake of the financial crisis.

The ECB has also assumed direct supervisory responsibility for 129 “systemically” important lenders in a bid to create a fully-fledged banking union in the currency bloc. However, analysts have warned Brussels’ tentative steps towards banking union remain incomplete and could cause more uncertainty for ordinary depositors after January 1. “Taking 8pc losses from creditors has never been tested in reality”, said Nicolas Veron, of think-tank Bruegel. “The first few test cases will be very important . There is the combination of uncertainty over how the SRM will work with ECB, and then additional uncertainty over how creditor losses will work in practice.”

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$10 billion in the US alone, before lawsuits?!

VW Buybacks, Payments For Hard-to-Fix Diesels Will Be Very Costly (GCR)

Hundreds of thousands of diesel-VW owners are waiting to find out how their cars will be updated to meet emissions standards, once modifications are approved by regulators. And Volkswagen Group has clearly been tarnished by the emission-cheating scandal, which affects 11 million cars worldwide. But the costs of the entire affair remain to be tallied; some analysts have said that the $7.1 billion set aside several months ago will not be nearly enough. A Bloomberg article earlier this month cites an estimate by Bloomberg Intelligence that payments and buybacks for owners in the U.S. alone could range from $1.5 billion to $8.9 billion. And those are just the damages or buyback payments that “customers should get for being duped into buying high-polluting vehicles,” it notes.

About 157,000 of the 482,000 affected 2.0-liter TDI diesel cars sold in the U.S. with “defeat device” software are already fitted with Selective Catalytic Reduction after-treatment systems (also known as urea injection). They’re likely to require no more than software updates or perhaps minor hardware tweaks to bring them into compliance. VW then might only have to pay owners for diminished value, plus some penalty. But for 325,000 VW Golfs, Jettas, and Beetles and Audi A3 cars without the SCR systems fitted, the prognosis is much grimmer. Most analysts agree that the cost and complexity of retrofitting a urea tank, a different catalyst, and all the associated plumbing could exceed the value of cars that are now as much as seven years old. Those cars, some suggest, may all have to be bought back and either destroyed or exported.

Using an average price of $15,000, that would cost $4.9 billion alone–before any civil or criminal penalties are levied. On top of the hundreds of thousands of 2.0-liter four-cylinder TDI cars, 85,000 more VW, Audi, and Porsche vehicles were sold in the U.S. with a 3.0-liter V-6 TDI engine. That engine contains several undisclosed software routines, and one of those qualifies as a “defeat device” as well. The admission by Volkswagen that it cheated makes the case close to unique, suggests Paul Hanly, a plaintiffs’ lawyer quoted in the Bloomberg article. It may point to an early settlement, he says, since culpability doesn’t have to be established first. All that’s left is to settle on the costs and penalties. That just applies, however, to more than 450 lawsuits filed by Volkswagen customers in the wake of the mid-September disclosure.

On December 8, those lawsuits were consolidated and will be heard in California, where a high proportion of the affected TDI diesel vehicles were sold. The state also has a large number of VW dealers. Volkswagen had opposed the designation of California, asking that the suits be heard in Detroit instead. That did not happen. On top of the customer lawsuits, which will lead to cash payments and perhaps buybacks, Volkswagen faces criminal investigations in several states. But no settlements can move forward until regulators agree on modifications to the various sets of vehicles to bring them into compliance with tailpipe emission laws. Volkswagen submitted its proposals for those updates to the U.S. EPA and the California Air Resources Board in November.On December 18, CARB extended its own deadline for responding to VW’s proposal until mid-January. That leaves owners in a holding pattern at least until then, and likely far longer.

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Andrew Jackson: “One man of courage makes a majority.”

Keiser Report feat. Gerald Celente: ‘Bankism’, Oil Prices And More (RT)

In this special New Year’s Eve episode of the Keiser Report, Max Keiser and Stacy Herbert talk to trends forecaster Gerald Celente of TrendsResearch.com about the upcoming trends for 2016. They recall that a few years ago, Celente forecasted on the Keiser Report that we would see currency war, trade war and hot war, and they ask whether or not this has come true in 2015. They discuss ‘bankism’, oil prices and US election insanity and what they hold for the future of the global economy.

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They should have devised a template long ago. They didn’t because the more chaos the more calls for more union.

In Europe, 2016 Will Be The Year Of Lawsuits (Coppola)

2016 is fast approaching, and with it another phase in the EU’s attempts to make creditors pay for failed banks. The European Bank Recovery and Resolution Directive (EBRRD) has been law in all EU countries since January 2015, but up till now the bail-in rules have not been fully implemented. The EBRRD provides bank regulators with four main tools for resolving a failed bank:

• Sale of the failed bank partly or entirely to another entity
• Creation of a “bridge bank” containing the good assets, which would be sold to another entity or floated as an independent business
• Creation of a “bad bank”, or asset management vehicle, which would be gradually wound down over time (to prevent state aid rules being breached, this tool must be used in conjunction with at least one of the other tools)
• Write-down of creditor claims (or conversion to equity) in order of rank.

Mergers, “bad banks” and even “bridge” banks are all familiar tools from the financial crisis. But writing down creditor claims or converting them to shares (haircut or bail in) is more controversial. During the financial crisis, creditors – and sometimes even shareholders – were made good at taxpayer expense. But these expensive bailouts have left a very sour taste, and no-one has any appetite for them anymore. These days, creditors are expected to pay. Well, some of them, anyway. In all recent bank failures (apart from Duesseldorfer Hypothekenbank), subordinated debt holders have been bailed in, leaving senior creditors untouched. This sounds straightforward: subordinated debt holders rank junior to senior unsecured bondholders and all depositors, so should expect to lose their investments first in the event of bank insolvency.

However, bailing in subordinated debt holders has proved to be anything but simple. A roll-call of recent bail-ins shows just how difficult it can be:

• In 2013, the UK’s Co-Op Bank attempted to bail in its subordinated debt holders; but the deal failed and the subordinated debt holders took over the bank, to the considerable annoyance of the Co-Op Group (the bank’s owner), which lost the majority of its stake.

• In 2014, Portugal’s Banco Espirito Santo was split in two: subordinated debt holders were left in the residual “bad bank” along with the bank’s impaired assets, while senior and official creditors sailed off into a new entity, the aptly named Novo Banco, along with all the good assets. But the Bank of Portugal now faces lawsuits from disgruntled subordinated debt holders who claim they were never given a chance to provide more capital and rescue the bank themselves, Co-Op Bank style.

• In Austria – and increasingly in Germany too – the tangled web of claims and counterclaims in the Heta mess becomes ever more complex. These days it is not even clear exactly how the claims are ranked. The settlement agreement between Heta and the State of Bavaria in October effectively converted 60% of BayernLB’s subordinated claim into a senior claim, diluting the other senior creditors – many of whom are themselves only “senior” because of deficiency guarantees from the Province of Carinthia, which the Austrian federal government has repeatedly tried (but so far failed) to repudiate.

• In the Netherlands, the government was forced to offer compensation to SNS Reaal subordinated debt holders for its expropriation of their claims.

But why should a few problems with bail-in of subordinated debt holders spoil a good directive? Undeterred, the EU is pressing ahead with the next phase. From January 2016, senior as well as subordinated creditors will be bailed in in the event of bank insolvency. Bail-in of 8% of total liabilities (plus complete wiping of equity, of course) will be required before state aid can be granted.

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