Aug 192019
 


Edouard Vuillard The window 1894

 

Kudlow: ‘There’s No Recession On The Horizon’ (Hill)
White House Offers Reassurances Amid Recession Fears (Hill)
Trump: Purchasing Greenland ‘Strategically’ Interesting (Hill)
Hong Kong Readies For More Mass Protests After Huge, Peaceful Rally (R.)
China State Council Calls For Shenzhen Integration With Hong Kong, Macau (R.)
China Works To Turn Shenzhen Into The New Hong Kong (Nikkei)
‘Operation Yellowhammer’ Documents Reveal Brexit ‘Worst Case Scenario’ (NW)
UK Elderly In Severe Poverty Up Fivefold Since 1986 (G.)
Russia Hoax Coup and Epstein Interlocked – Kevin Shipp (USAW)
Palace In Damage Control Over Video Of Prince Andrew In Epstein Mansion (RT)
Where Did All The Cod Go? Fishing Crisis In The North Sea (G.)

 

 

Larry Kudlow in Dec. 2007: “Despite all the doom and gloom from the economic pessimistas, the resilient U.S. economy continues moving ahead.”

Kudlow: ‘There’s No Recession On The Horizon’ (Hill)

White House economic adviser Larry Kudlow on Sunday sought to allay fears of an economic downturn, saying, “I don’t see a recession at all.” The White House adviser demurred when asked by “Fox News Sunday” guest host Dana Perino whether the Trump administration is considering concrete steps to stave off a potential recession after short-term U.S. Treasury bonds last week fell below yields for longer-term bonds. The development, which can signal a forthcoming recession, sparked the worst single-day losses for stocks of 2019. “The Trump pro-growth program, which I believe has been succeeding, we’re going to stay with that,” Kudlow told Perino.


“There’s no recession on the horizon,” he added. “What’s wrong with a little optimism?” Kudlow echoed the comments in an interview on NBC’s “Meet the Press.” Host Chuck Todd noted, however, that Kudlow made similar remarks in 2007, shortly before the Great Recession began, and wrote, “There’s no recession coming. … The pessimistas were wrong.” “I plead guilty to that,” Kudlow responded on NBC. Fox’s Perino also asked Kudlow about President Trump’s frequent references ahead of the 2018 midterm elections to a 10 percent tax cut for middle-income earners that never materialized. Kudlow responded that the administration is “looking at it” and also touted a proposal by Sen. Rick Scott (R-Fla.) to offset tariffs with additional tax cuts.

Read more …

The Democrats think it’s a viable tactic to scare people on the economy?

White House Offers Reassurances Amid Recession Fears (Hill)

Chief White House trade advisor Peter Navarro echoed the optimism, saying on ABC’s “This Week,” “Before I came to the White House, I spent the better part of 20 years forecasting business cycle and stock market trends and what I can tell you with certainty is that we’re going to have a strong economy through 2020 and beyond.” Navarro made a similar claim Sunday on CBS’ “Face the Nation,” telling host Margaret Brennan, “What I’m seeing when I look at all the macro tea leaves is a very strong Trump economy.” Democratic presidential candidates, meanwhile, sounded the alarm on the economy Sunday morning, pointing to the effects it has had on Americans’ lives. South Bend, Ind., Mayor Pete Buttigieg said on CNN’s “State of the Union” that a recession is “probably” forthcoming.


However, Buttigieg said, the bigger issue was that even in a period of economic expansion, “most Americans can’t get ahead… and the president has made it abundantly clear he doesn’t care.” “[W]e’ve got an economy not working for most Americans,” he added. Buttigieg’s fellow presidential contender, Sen. Kirsten Gillibrand (D-N.Y.) also refuted the rosy outlook Sunday on ABC’s “This Week” following Navarro’s segment. “I don’t think [Navarro’s] world view is reflected in the everyday, kitchen-table issues that families are facing,” Gillibrand said, telling the program that in a meeting with out-of-work Ohio voters, she learned “[t]hey’re worried about their jobs, they’re worried about access to health care… they’re worried about providing for their kids.”

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Nothing to say? We’ll invent something.

Trump: Purchasing Greenland ‘Strategically’ Interesting (Hill)

President Trump on Sunday said buying Greenland is “strategically” interesting amid reported interest from the administration last week. Speaking to reporters as he left his Bedminster, N.J., golf club, Trump acknowledged that purchasing the landmass owned by Denmark has been discussed. “Denmark essentially owns it. We’re very good allies with Denmark. We protect Denmark like we protect large portions of the world,” he said. Trump added, “Strategically, it’s interesting, and we’d be interested, but we’ll talk to them a little bit. It’s not number one on the burner.”


Trump has reportedly mulled attempting to buy the largest island in the world that is home to more than 50,000 people from Denmark, though no official inquiries have been made yet. Trump compared buying the territory from Denmark to a “large real estate deal.” “A lot of things could be done. It’s hurting Denmark very badly because they’re losing almost $700 million a year carrying it. So they carry it at a great loss. And strategically for the United States, it would be nice. And we’re a big ally of Denmark, and we help Denmark, and we protect Denmark,” he said.

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Yesterday the press was talking about thousands of protesters. There were 1.7 million.

Hong Kong Readies For More Mass Protests After Huge, Peaceful Rally (R.)

Hong Kong is gearing up for more protests this week after hundreds of thousands of anti-government demonstrators braved heavy rain to rally peacefully on Sunday, marking a change to what have often been violent clashes. Sunday’s turnout of an estimated 1.7 million people, according to the rally’s organizers, showed that the movement still has widespread support despite chaotic scenes last week when protesters occupied the Chinese-ruled city’s airport. Some activists have apologized for events at the airport. The protests began more than 11 weeks ago as opposition to a now-suspended bill that would have allowed suspects to be extradited to mainland China for trial in Communist Party-controlled courts and have since swelled into wider calls for democracy.


[..] The protests have presented one of the biggest challenges for Chinese President Xi Jinping since he came to power in 2012. Further demonstrations are planned in coming weeks, including another strike in districts across the city. Police said on Monday that, while Sunday’s demonstration was mostly peaceful, acts of breaching public peace happened later when some protesters damaged government offices and aimed laser beams at police officers. Protesters spilled out from Victoria Park, the designated rally area on Hong Kong island, on Sunday and streamed onto major thoroughfares toward the city’s financial center, chanting for Beijing-backed leader Carrie Lam to step down.

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Two stories: Reuters says China wants to integrate Shenzhen with Hong Kong and Macau….

China State Council Calls For Shenzhen Integration With Hong Kong, Macau (R.)

China’s State Council has called for greater development of the southern city of Shenzhen and the integration of its culture and economy with neighboring Hong Kong and Macau. The directive comes as anti-government protests in Hong Kong threaten the status of the Asian financial hub. Hong Kong, one of the world’s busiest ports, is on the verge of its first recession in a decade as violent anti-government protests scare off tourists and bite into retail sales and investment. The State Council 19-point directive, published in state-media outlet People’s Daily, calls for Shenzhen’s “economic strength and development” to rank among the best in the world by 2025, and a “global benchmark” by the middle of the century.


In the 1990s, market-oriented reforms and government support transformed Shenzhen from an ordinary Chinese village to a major hub for China’s manufacturing and technology sectors. The city now houses the global headquarters for Tencent, China’s social media giant, and Huawei, the networking equipment maker that U.S. President Donald Trump effectively barred U.S. companies from supplying. The directive called for the “modernization of social governance” in Shenzhen via the “comprehensive application of big data, cloud computing, artificial intelligence and other technologies.” It called for the integration of the culture and economy of Shenzhen with Hong Kong and Macao via funding for hospitals, joint disaster relief efforts and cultural exchanges, and to further develop the Hong Kong-Macao Greater Bay Area and “enrich the new practice of the ‘one country, two systems’ policy.”

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…while Nikkei says Beijing wants to create a new Hong Kong on the mainland.

China Works To Turn Shenzhen Into The New Hong Kong (Nikkei)

The Chinese government aims to transform Shenzhen into a global business center, in an apparent gambit to position the southern city as a model of stable prosperity compared with neighboring Hong Kong. Shenzhen will receive business regulations that conform to international standards, as well as more favorable rules to spur investments and acquisitions, according to a document released Sunday by the State Council, China’s cabinet. China looks to draw multinationals worldwide to the tech hub, a move that essentially would rob Hong Kong of its forte as a magnet for investment. The guidelines come as Chinese paramilitary officers train in Shenzhen amid the weeks-old protests in Hong Kong, suggesting that Beijing may apply both economic pressure and armed force to the restive territory.


Shenzhen will serve as a “demonstration area” for Chinese socialism, the document reads. This will include upgraded health-care infrastructure, coupled with a world-class education system that includes job training. The city will accelerate the development of a fifth-generation wireless network. Talent from outside the mainland will find it easier to cross the border and reside in Shenzhen. Shenzhen will turn into “one of the leading cities in the world in terms of economic strength and quality of development” by 2025, the guidelines say. The city will become a “national model of high-quality development” by 2035 and a “top cosmopolis” worldwide by the middle of the 21st century.

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It was my understanding that it was not a worst case, but a middle one.

‘Operation Yellowhammer’ Documents Reveal Brexit ‘Worst Case Scenario’ (NW)

The United Kingdom could face food, medicine, and fuel shortages when it splits from the European Union on October 31, according to a government report leaked to British newspaper The Sunday Times. The report, entitled “Operation Yellowhammer,” outlines a laundry list of ways life on the British Isles could be disrupted if politicians can’t reach a trade deal with the EU in the next 11 weeks. The yellowhammer is a small bird that is on track for extinction. According to one BBC report, the document was leaked to the press by a former government minister hoping to influence negotiations with the EU. Starting on November 1, trade with Britain’s neighbors could slow to a trickle as Britain’s main route into Europe gets blocked.

“On Day 1 of No Deal, 50%-85% of [trucks] travelling via the short straits may not be ready for French customs,” according to the report, which would cause them to be turned back at the French border. It goes on to add that: “The worst disruption to the short Channel crossings might last 3 months before flow rates rise to about 50%-70%.” Currently, 56 percent of U.K. exports land in Europe. Such a major, prolonged reduction in those numbers could have a catastrophic impact on Britain’s economy. Inversely, the flow of important goods into Britain could also be cut off.


Three quarters of the medicines used in the U.K. come from Europe, according to the report. With no trade or customs agreements in place, imports “could be as low as 40% on Day 1 of No Deal…with significant disruption lasting up to six months.” Perhaps most alarmingly, “Certain types of fresh food supply will decrease. Critical elements of the food supply chain (such as ingredients, chemicals and packaging) may be in short supply.” If that weren’t bad enough, the Yellowhammer report goes on to foretell gas shortages in London and other areas, and the loss of 2,000 jobs at oil refineries that will be forced to close. Rule of law is also under threat, as “job losses are likely to result in protests and direct action with road blockades” and price increases “are likely to lead to the growth of the illegitimate economy.”

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State pensions are much lower than in for instance Germany, something like 75% lower.

UK Elderly In Severe Poverty Up Fivefold Since 1986 (G.)

The proportion of elderly people living in severe poverty in the UK is five times what it was in 1986, the largest increase among western European countries, according to a new study. The rise, from 0.9% of the elderly population to around 5%, is attributable to Britain’s state pension system and its “low basic payments and means-tested supplements”, says the author of the report, Pension Reforms and Old Age Inequalities in Europe. Professor Bernhard Ebbinghaus, of the University of Oxford, will tell a European Sociological Association conference this week that the UK is one of five countries out of 16 that he has studied where there has been an increase in people aged 65 and over who are living in “severe poverty”, which is defined as having an income of 40% or less of the median average.


“The United Kingdom is a good example of the Beveridge-lite systems that have historically failed to combat old-age poverty,” Ebbinghaus said. “These have rather ungenerous basic pensions with means-tested supplements, and this reproduces relatively high severe poverty rates among the elderly. British basic pensions are particularly low, 16% of average earnings, and require a long contribution period. Income-tested or means-tested targeted benefits are needed to supplement basic pensions and to lift them out of severe poverty – every sixth British pensioner receives such additional benefits.”

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Greg Hunter has videos of the interview. Click the link.

Russia Hoax Coup and Epstein Interlocked – Kevin Shipp (USAW)

Former CIA Officer and whistleblower Kevin Shipp says the Russian hoax and attempted coup of President Trump and the sex trafficking case against Jeffery Epstein are linked together by the same Deep State players. Shipp explains, “The FBI has completely raided his vault, and they have some pretty damning material. I don’t know why it took so long, but they have raided Epstein’s island . . . So, there is a lot of damning information the FBI has now on certain people. At the top of the list, and the one who flew the most, was Bill Clinton. Then he lied about it. They are intertwined in that regard and with the Clinton Foundation that we know is a fraud. It is known around the world, and you’ve got these two intersections with Bill and Hillary Clinton.

Of course, Hillary Clinton is tied to the dossier in an attempt to get rid of Donald Trump. So, these webs interlocked with each other, and these people interlock with each other. Welcome to the global elite. Welcome to human trafficking. These things are connected, and with Epstein dead, there are a lot of prominent people breathing a sigh of relief—for now. Is Barr aggressive enough? He says he is going to pursue this case anyway. Is he going to call in the people seen on the CD’s, videos and photographs? That remains to be seen.”

On Epstein’s officially ruled suicide while in prison, Shipp says, “Epstein tries to commit ‘suicide,’ and his cellmate, a four-time convicted murderer, said he didn’t see (or hear) it because he had his headphones on. Attorney General William Barr was in charge of the safety of Jeffery Epstein. There should have been an entire contingent of U.S. Marshals to protect this huge witness, but there were none. Why is that? . . . . It is just unbelievable how they left this huge witness to die in prison. The prison guards were off, as we know. The cameras were not functioning. He was taken off of suicide watch and on and on we go.


There are so many things that add up to this not being a suicide that it is remarkable. . . . We are all still hoping that Attorney General Barr will do his job and people are charged, but this is starting to bother me a little bit. A major witness that was connected to high level people in government and finance was left alone to die in prison, and I think he was murdered. This was all left to happen by William Barr. The pieces to this just don’t add up. . . .We’ve got so many strange things going on here that do not add up, and Attorney General Barr is ultimately responsible for this happening.”

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The original bumbling fool. Epstein kept him around for shady reasons.

Palace In Damage Control Over Video Of Prince Andrew In Epstein Mansion (RT)

A video showing the Duke of York waving off a young woman from inside financier Jeffery Epstein’s New York mansion has reignited speculation online, sending Buckingham Palace into full-on damage-control mode. A short, blurry video released by the Mail on Sunday shows a man, who the tabloid newspaper identifies as Prince Andrew, the second son of Queen Elizabeth, saying goodbye to a young, dark-haired woman at the doorstep of Epstein’s New York mansion – a notorious sex lair where the financier used to prey on young girls. After exchanging courtesies with the brunette, the prince gives her a nod, and then takes a quick look around the door as if to make sure that no paparazzi were in sight.


Moments before Prince Andrew appears in the doorway, Epstein himself can be seen leaving the house accompanied by a blonde girl. The video dates back to December 2010, two years after Epstein was convicted of soliciting a minor for prostitution and was sentenced to 18 months in an open-door prison after striking a sweetheart plea deal. But Buckingham Palace claims the prince was unaware of any wrongdoing going on at the mansion, saying he “has been appalled by the recent reports of Jeffrey Epstein’s alleged crimes.”

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I see jellyfish and chips in your future.

Where Did All The Cod Go? Fishing Crisis In The North Sea (G.)

By 7.30am all the cod at Peterhead fish market had been sold, snapped up by competing buyers wearing thick fleeces, woolly hats and rubber boots against the chill of the vast indoor warehouse. A gaggle of middle-aged men clutching books of brightly coloured “tallies” followed the auctioneer alongside crates of glassy-eyed fish nestling in ice. With a curt nod or a swift hand gesture, the price was settled, tallies thrown down to indicate the fish’s new owner, and the group moved on. It took less than 10 minutes to dispose of the night’s catch. Most of the fish would be heading south, to England or mainland Europe. The Scots are not big cod eaters, preferring haddock with their chips. This dates, apparently, from pre-refrigeration days: haddock is a fish best eaten really fresh, whereas cod is tastiest a couple of days after being caught.


The Peterhead buyers were cagey about naming their customers, but the fish they purchased was destined for supermarkets, fishmongers, restaurants, and a few of the classic takeaway chippies that are a national institution. But all this could now be under threat: a report published last month by the International Council for the Exploration of the Sea (Ices) revealed that North Sea cod stocks had fallen to critical levels. Warning that cod was being harvested unsustainably, it recommended a 63% cut in the catch – and that’s on top of a 47% reduction last year. Independent auditors are reviewing the Ices report, and by late September they will announce whether the fisheries can retain their Marine Stewardship Council (MSC) certificates of sustainability – issued only two years ago – or whether those certificates will be suspended. Depending on the decision, North Sea cod could soon be off the menu.

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Jan 222019
 


Pablo Picasso Female bust 1922

 

Pre-Davos Survey Shows Sixfold Rise In Global CEOs’ Gloom (G.)
In Versailles, Macron Vows To Reform To Avoid King’s Fate (R.)
The Garden Of Eden Is No More -David Attenborough (G.)
With Kamala Harris In The Race, Trump Stands No Chance Of Winning (Ind.)
Alexandria Ocasio-Cortez, Crusher of Sacred Cows (Matt Taibbi)
Theresa May: Second Referendum Would Threaten ‘Social Cohesion’ (G.)
Labour Calls For Vote On Holding Second Brexit Referendum (G.)
Xi Warns China Against ‘Black Swans’ Of Economic Volatility (G.)
US To Formally Seek Extradition Of Huawei Executive Meng Wanzhou (R.)
Greek Households Have Lost 28% Of Their Assets (K.)
Facebook And Twitter Can Work Out Who You Are Even If You Don’t Use Them (Ind.)
Greenland’s Ice Melting Four Times Faster Than In 2003 (Ind.)

 

 

And what are they gloomy about? Inequality? Species extinction? Warfare? Nope! They are gloomy about growth.

Pre-Davos Survey Shows Sixfold Rise In Global CEOs’ Gloom (G.)

Pessimism among chief executives has risen sharply in the past 12 months as the leaders of the world’s biggest companies have taken fright at rising protectionism and the deteriorating relationship between the US and China. The survey of chief executives conducted by the consultancy firm PwC to mark the start of the World Economic Forum in Davos showed a sixfold increase to 30% in the number of CEOs expecting global growth to slow during 2019. PwC said the rise in pessimism was unsurpassed in the 22 years it had been conducting the survey, with the downbeat mood a contrast to the bullishness of early 2018, when global growth was strong and stock markets were soaring.

The survey showed that the most pronounced shift was among CEOs in North America, where optimism about global growth dropped from 63% in 2018 to 37%. PwC said this was probably due to the fading impact of Donald Trump’s tax cuts and emerging trade tensions. “CEOs’ views of the global economy mirror the major economic outlooks, which are adjusting their forecasts downward in 2019,” PwC’s global chairman, Bob Moritz, said. “With the rise of trade tension and protectionism it stands to reason that confidence is waning.”

The unease about global economic growth had influenced CEOs’ confidence about their companies’ short-term prospects. Thirty-five percent of CEOs said they were very confident in their own organisation’s growth prospects over the next 12 months, down from 42% last year. While the US retained its position as the top international market for growth over the next year, many CEOs have been turning to other markets, PwC said.

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Macron does his own little Davos. And elects to huddle and hobnob with billionaires instead of talking to his people. Just like the King did 226 years ago.

Macron’s idea of reform is weakening labor laws, and more Europe. Precisely what the Yellow Vests don’t want.

In Versailles, Macron Vows To Reform To Avoid King’s Fate (R.)

President Emmanuel Macron told dozens of the world’s most powerful executives on Monday that he would not follow the path of guillotined French royals and would continue to reform the French economy despite a sometimes violent popular revolt. For the second year running, Macron hosted corporate A-listers like Microsoft Chief Executive Satya Nadella, Snapchat’s Evan Spiegel and JPMorgan CEO Jamie Dimon at a pre-Davos dinner at Versailles. Exactly 226 years after the decapitation of Louis XVI, who failed to plug the crown’s dismal finances and quell popular discontent over a sclerotic feudal society, Macron started his speech by invoking the king and his wife Marie-Antoinette. “If they met such an end, it is because they had given up on reforming,” Macron told the guests, according to his office.

His office said earlier that foreign companies including medical products company Microport, Mars, Procter & Gamble, Cisco and others would announce investments in France totaling more than 600 million euros. The dinner was an opportunity to reassure investors of Macron’s resolve to reform the economy after images of protesters angry at his policies attacking public monuments, boutiques, banks and riot police were beamed around the world. “There are questions about the protests’ magnitude, about the violence, because these images are shocking for foreigners,” a source at Macron’s office said before the summit. “Last year, the summit was in a totally different dynamic, it was all about ‘France is back’. Here we’re in a tougher part of the mandate domestically and that requires more explanations,” the source added.

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Really, David, you couldn’t have picked a place with more deaf ears for your message than Davos. All those politicians and wealthy folk owe their positions to the very process that eradicated the Garden of Eden.

The Garden Of Eden Is No More -David Attenborough (G.)

Sir David Attenborough has warned that “the Garden of Eden is no more”, as he urged political and business leaders from around the world to make a renewed push to tackle climate change before the damage is irreparable. Speaking at the start of the World Economic Forum (WEF) in Davos, Switzerland, the 92-year-old naturalist and broadcaster warned that human activity has taken the world into a new era, threatening to undermine civilisation. “I am quite literally from another age,” Attenborough told an audience of business leaders, politicians and other delegates. “I was born during the Holocene – the 12,000 [year] period of climatic stability that allowed humans to settle, farm, and create civilisations.” That led to trade in ideas and goods, and made us the “globally connected species we are today”.

That stability allowed businesses to grow, nations to co-operate and people to share ideas, Attenborough explained, before warning sombrely: “In the space of my lifetime, all that has changed. “The Holocene has ended. The Garden of Eden is no more. We have changed the world so much that scientists say we are in a new geological age: the Anthropocene, the age of humans,” he declared. In a stark warning to the world leaders and business chiefs flocking to the WEF this week, Attenborough warned that the only conditions that humans have known are changing fast. “We need to move beyond guilt or blame, and get on with the practical tasks at hand.”

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This old-guard wishful thinking seems the point to the opposite of what the headline says. Or maybe it was meant as humor?!

With Kamala Harris In The Race, Trump Stands No Chance Of Winning (Ind.)

Kamala Harris just ruined Donald Trump’s day. With her much anticipated declaration today, she immediately installed herself as a front-runner in the race to be the Democrat intent on taking down the president in 2020. “Let’s do this together: For ourselves, for our children, for our country,” she said. And with those carefully chosen words, Trump’s chances of reelection entered a death spiral. She is everything he is not. In US elections the White House often swings to the opposite of what has gone before. And whether it is gender, race, age, or ideals, Harris represents the diametric opposite of the present incumbent. She is, in many ways, the “female Obama”.

The political symbolism of a woman of colour declaring her candidacy on Martin Luther King Jr Day was lost on precisely no one. Certainly not on Trump, who will be feverishly trying to dream up a dismissive nickname for Harris. Such schoolyard tactics are unlikely to work. This daughter of a Jamaican-born father and Indian-born mother is a candidate of substance. She will spend the next year hammering Trump on his race relations record, specifically his comments after the neo-Nazi riots in Charlottesville. And voters will soon come to know the story of how, as a toddler, Harris was taken to civil right marches by her parents and shouted “Fweedom!” from her stroller. Within her own party too Harris is breaking the mould. Joe Biden and Bernie Sanders are widely expected to enter the race in the coming weeks. But both are septuagenarian white men.

Beto O’Rourke, for all his progressive credentials, is a millionaire internet entrepreneur. None of that is representative of the Democratic Party today. It was notable in a recent analysis of social media interactions that Harris was an easy second to Alexandria Ocasio-Cortez, the young congresswoman, for the most engagement among Democrat politicians. She is connecting with the youth of the party. At 54 she is two decades younger than Biden and Sanders. Videos of her questioning of Brett Kavanaugh, Trump’s controversial pick for the US Supreme Court, went viral, as have other episodes from her time on the Senate Judiciary Committee. And although she was only elected to the Senate in 2016, inexperience does not seem an argument that will fly for her opponents.

[..] When it came to announcing, Harris got one of the biggest platforms, a spot on Good Morning America, a sign the US TV networks know she is the real deal. It was a typically direct announcement, and Harris sought to address some of the concerns more national security-focused Democrat voters might have. She stressed her 20 years as a prosecutor in California, and her commitment to “keeping America safe”. Spelling out areas where she would take on Trump, she vowed to restore “America’s moral authority in the world”, working with allies he has snubbed. Most of all, she vowed to “stand up and fight”. And that is what the Democratic base most wants to hear.

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Forget Kamala. Chris Cillizza of all people gets it right: “..the social media profiles of both [AOC and Trump] allow them to “end-run the so-called ‘media filter’ and deliver their preferred message… directly to supporters.” Both expose the hollow sound of the system, each from their own side, but in the end it’s the same thing, because it’s the same system.

AOC is too young to be elected, but not to become very powerful inside the party. Incumbent heads will roll because of her, and whoever becomes the candidate can’t risk losing her support.

For me it’s nothing more to do with supporting AOC than it does with supporting Trump. It’s about exposing the rot in the system. Davos and all that.

Alexandria Ocasio-Cortez, Crusher of Sacred Cows (Matt Taibbi)

The Beltway press mostly can’t stand her. A common theme is that, as a self-proclaimed socialist, she should be roaming the halls of Rayburn and Cannon in rags or a barrel. Washington Examiner reporter Eddie Scarry tweeted a photo of her in a suit, saying she didn’t look like “a girl who struggles.” High priest of conventional wisdom Chris Cillizza, with breathtaking predictability, penned a column comparing her to Donald Trump. He noted the social media profiles of both allow them to “end-run the so-called ‘media filter’ and deliver their preferred message… directly to supporters.” The latter issue, of course, is the real problem most of Washington has with “AOC”: her self-generated popularity and large social media presence means she doesn’t need to ask anyone’s permission to say anything.

[..] I have no idea if Ocasio-Cortez will or will not end up being a great politician. But it’s abundantly clear that her mere presence is unmasking many, if not most, of the worst and most tired Shibboleths of the capital. Moreover, she’s laying bare the long-concealed fact that many of their core policies are wildly unpopular, and would be overturned in a heartbeat if we could somehow put them all to direct national referendum. Take the tax proposal offered by Ocasio-Cortez, which would ding the top bracket for 70 percent taxes on all income above $10 million. The idea inspired howls of outrage, with wrongest-human-in-history Alan Greenspan peeking out of his crypt to call it a “terrible idea,” Wisconsin’s ex-somebody Walker saying a 5th grader would know it was “unfair,” and human anti-weathervane Harry Reid saying “you have to be careful” because voters don’t want “radical change quickly.”

Except polls show the exact opposite. Almost everyone wants to soak the rich. A joint survey by The Hill and Harris X showed 71 percent of Democrats, 60 percent of Independents, and even 45 percent of Republicans endorse the Ocasio-Cortez plan. Is it feasible? It turns out it might very well be, as even Paul Krugman, who admits AOC’s rise makes him “uneasy,” said in a recent column. He noted the head of Barack Obama’s Council of Economic Advisers estimated the top rate should be even higher, perhaps even 80 percent. We’ve been living for decades in a universe where the basic tenets of supply-side economics — that there’s a massive and obvious benefit for all in dumping piles of money in the hands of very rich people — have gone more or less unquestioned.

Now we see: once a popular, media-savvy politician who doesn’t owe rich donors starts asking such questions, the Potemkin justifications for these policies can tumble quickly. There is a whole range of popular policy ideas the Washington political consensus has been beating back for decades with smoke and mirrors, from universal health care to legalized weed to free tuition to expanded Social Security to those higher taxes on the rich. As we’ve seen over and over with these swipes on Ocasio-Cortez, the people defending those ideas don’t realize how powerful a stimulant for change is their own negative attention. If they were smart, they’d ignore her. Then again, if politicians were smart, they’d also already be representing people, not donors. And they wouldn’t have this problem.

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First one to jump party lines wins.

Theresa May: Second Referendum Would Threaten ‘Social Cohesion’ (G.)

Theresa May reiterated her opposition to a second Brexit referendum on Monday night, claiming it would threaten Britain’s “social cohesion” and insisting the centrepiece of her strategy remained negotiating changes to the Irish backstop. With just 67 days to go until Britain is due by law to leave the European Union, May exasperated MPs and business groups by offering scant evidence that she was willing to change course. Giving a statement in the House of Commons, the prime minister outlined three changes she claimed had emerged from discussions with colleagues in the six days since her Brexit deal was rejected by MPs with a crushing margin of 230:

• A more consultative approach to the next phase of negotiations, with MPs, business groups and unions more involved. • Stronger reassurances on workers’ rights and environmental standards, “with a guarantee that not only will we not erode protections for workers’ rights and the environment but we will ensure this country leads the way”. • Another attempt to address the concerns of Tory and Democratic Unionist party MPs about the Irish backstop – which she could then discuss with Brussels. May dismissed the idea of extending article 50 and stepped up warnings about the potential consequences of asking the public to vote again on Brexit. “There has not yet been enough recognition of the way that a second referendum could damage social cohesion by undermining faith in our democracy,” she said.

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Corbyn doesn’t want a referendum. He dreams of elections, and even of winning those.

Labour Calls For Vote On Holding Second Brexit Referendum (G.)

Labour has said the Commons should be able to vote on whether to hold a second referendum in an amendment the party submitted on Monday night to Theresa May’s Brexit update. It is the first time the party has asked MPs to formally consider a second poll, although the carefully worded compromise amendment did not commit the party’s leadership to backing a referendum if such a vote were to take place. The wording called for May’s government to hold a vote on two options – its alternative Brexit plan and whether to legislate “to hold a public vote on a deal or a proposition” that is supported by a majority in the Commons.

The intervention came as the party’s leadership seeks to deal with divisions between Jeremy Corbyn and some of the leader’s closest allies who are sceptical about a second referendum and those who are more enthusiastic such as Brexit spokesman Sir Keir Starmer. The party’s alternative Brexit plan, which would be the subject of a separate vote if the amendment were carried, proposes that the UK remain in a post-Brexit customs union with the European Union and have a strong relationship with the single market. Citizens’ rights and consumer standards would be harmonised with the EU’s. Corbyn said: “Our amendment will allow MPs to vote on options to end this Brexit deadlock and prevent the chaos of a no-deal. It is time for Labour’s alternative plan to take centre stage, while keeping all options on the table, including the option of a public vote.”

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Xi gets nervous.

Xi Warns China Against ‘Black Swans’ Of Economic Volatility (G.)

Chinese president Xi Jinping has warned officials to be vigilant against any threats to the party’s “political security”, underlining uncertainty in Beijing as the economy falters. Xi spoke at a study session for top provincial leaders, ministers, and other party leaders on Monday, the same day official economic data showed the Chinese economy last year grew at its weakest pace in almost 30 years, pulled down by weakening spending, investment, and trade. Yet Xi’s remarks focused more on the “political” and “ideological security” as the country’s main priorities going forward. He stressed the campaign would be focused on training the next generation to uphold “socialism with Chinese characteristics”, the Chinese Communist party’s adaptation of Marxism-Leninism.

“Now the main front of the ideological struggle is on the internet, and the main audience of the internet is young people. Many domestic and foreign forces are trying to develop supporters of their values and even to cultivate opponents of the government,” Xi said. A slowing Chinese economy risks rising rates of unemployment and financially squeezed households and businesses, threatening social stability. “There is no political security. There is only regime security,” said Li Datong, a former journalist and outspoken commentator. “They see the risks of rebellion. As the economy becomes worse, people from all walks of the society can become opponents.”

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Canada’s ambassador to the United States complains that Canadians pay the price for Justin bending over backwards for the US.

US To Formally Seek Extradition Of Huawei Executive Meng Wanzhou (R.)

The United States will proceed with the formal extradition from Canada of Huawei executive Meng Wanzhou, Canada’s ambassador to the United States told the Globe and Mail, in a move certain to ratchet up tensions with China. David MacNaughton, in an interview with the Canadian newspaper published on Monday, said the U.S. has told Canada it will request Meng’s extradition, but he did not say when the request will be made. The deadline for filing is Jan. 30, or 60 days after Meng was arrested on Dec. 1 in Vancouver. Meng, the daughter of Huawei Technologies Co Ltd founder Ren Zhengfei, was arrested at the request of the United States over alleged violations of U.S. sanctions on Iran.

She was released on bail last month and is due in court in Vancouver on Feb. 6. Relations between China and Canada turned frosty after the arrest, with China detaining two Canadian citizens and sentencing to death a Canadian man previously found guilty of drug smuggling. [..] In an article published on Monday, a former Canadian spy chief said Canada should ban Huawei from supplying equipment for next-generation telecoms networks, while Canada’s government is studying any security implications. Some of Canada’s allies such as the United States and Australia have already imposed restrictions on using Huawei equipment, citing the risk of it being used for espionage. Huawei has repeatedly said such concerns are unfounded, while China’s ambassador to Canada last week said there would be repercussions if Ottawa blocked Huawei.

[..] In Monday’s interview, MacNaughton said he had complained to the United States that Canada was suffering from Chinese revenge for an arrest made at the U.S.’s request. “We don’t like that it is our citizens who are being punished,” the Globe and Mail cited MacNaughton as saying. “(The Americans) are the ones seeking to have the full force of American law brought against (Ms. Meng) and yet we are the ones who are paying the price. Our citizens are.”

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Strange headline. What they mean is value. And yeah, property prices are ‘recovering’, because foreigners are buying up the country. If you don’t think that’s a problem, imagine the same happening where you live.

Greek Households Have Lost 28% Of Their Assets (K.)

Greek households lost 27.9 percent of their assets in the decade from 2008 to 2018, Alpha Bank notes in its weekly financial bulletin. The lender’s analysts say that this drop was the biggest in the eurozone, followed by those recorded in Spain, Italy and Cyprus, while Germany recorded significant gains during the same period. Portugal also saw a rise, even though the country also went through an economic streamlining program, as it has benefited from the increase in property prices in recent years.

Households in Greece have recorded the biggest decline in the eurozone’s non-financial wealth after their counterparts in Spain, a development that mainly results from the slide in the Greek property market in previous years. Nevertheless, realty is currently showing signs of recovery in terms of both residential and commercial properties, with the house price index climbing 1.3 percent in January-September 2018 on an annual basis, while the price indexes for offices and retail spaces have climbed 7.4 percent and 3.1 percent respectively. The Alpha bulletin notes that household expectations regarding their spending capacity, employment conditions and the general economic situation are on the rise.

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For Facebook and Twitter, read CIA and MI6.

Facebook And Twitter Can Work Out Who You Are Even If You Don’t Use Them (Ind.)

Facebook and Twitter can be used to work out huge details of your personal life – even if you never actually use them, according to a new study. It is still possible to predict the kind of things you might say simply by looking at the sort of people you hang around with, a new study has found. The research undermines the idea that personal choice is the central part of privacy and that it is possible to opt out of tracking and data collection by social networks on your own, the researchers say. In the research, a team of scientists from the University of Vermont and the University of Adelaide took more than more than thirty million public posts on Twitter from 13,905 users.

They found it was possible to use the messages from eight or nine of a person’s contacts to predict what a person might post next – as accurately as if they were looking at a person’s own Twitter feed. Even if a person left the social network or never actually joined, researchers can guess a person’s future posting or activities with 95 per cent accuracy, the scientists write. It also means that signing up to a social network like Facebook really means you are handing over possible data on your friends, too, the researchers warn. “There’s no place to hide in a social network,” says Lewis Mitchell, a co-author on the new study.

The researchers actually showed that there is a mathematical upper limit on how much predictive information about a person can be held on a social network. But it doesn’t matter whether that information is being provided by the person being profiled or someone else entirely, they found. “You alone don’t control your privacy on social media platforms,” said UVM professor Jim Bagrow. “Your friends have a say too.”

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Oh well, talk to Davos and they’ll solve it all.

Greenland’s Ice Melting Four Times Faster Than In 2003 (Ind.)

Greenland‘s ice is melting far faster than initially thought and may have reached a “tipping point”, with the rate of ice loss now four times quicker than it was in 2003, a new study suggests. Scientists researching rises in global sea levels examined the country’s southeast and northwest regions and found that the largest amount of ice loss was sustained away from Greenland’s glaciers. “Whatever this was, it couldn’t be explained by glaciers, because there aren’t many there,” said Michael Bevis, the study’s lead author. “It had to be the surface mass – the ice was melting inland from the coastline. It’s because the atmosphere is, at its baseline, warmer,” Mr Bevis added. “What’s happening is sea surface temperature in the tropics is going up; shallow water gets warmer and the air gets warmer.”

The team’s study suggests that an increasing amount of water will flow from Greenland into the ocean during the summer months, further contributing to the rising sea levels. “We knew we had one big problem with increasing rates of ice discharge by some large outlet glaciers,” said Mr Bevis. “But now we recognise a second serious problem: increasingly, large amounts of ice mass are going to leave as meltwater, as rivers that flow into the sea.”

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Apr 142016
 


Unknown Butler’s dredge-boat, sunk by Confederate shell, James River, VA 1864

SocGen: Corporate America Is Nearing A ‘Toxic’ Debt Crisis (BI)
US Corporations Have $1.4 Trillion Hidden In Tax Havens: Oxfam (G.)
US Banks Not Prepared For Another Financial Crisis (G.)
The Beginning of the End of Central Bank Easing (BBG)
Negative Swap Rates Impede Kuroda’s Push To Boost Japan Lending (BBG)
Currencies Across Asia Fall Sharply Against US Dollar (WSJ)
China’s Trade Data Has Never Been This Fake (ZH)
China’s Leaders Are Blowing Their Last Chance To Avert An Economic Crisis (AEP)
Panama Papers Reveal Hong Kong’s Murky Financial Underbelly (AFP)
IMF: $1.3 Trillion In Corporate Bank Loans At Risk Of Default In China (Sky)
Is The IMF ‘Consistently Wrong’? (CNBC)
OPEC Warns of Deeper Cuts to Oil Demand (BBG)
Seen From The Future, Ours Is The Era Of Plastic (BBG)
Greenland’s Melt Season Started Nearly Two Months Early (CC)
EU Nations Use Foreign Aid Budgets To Pay For Refugee Costs (G.)

Where would they be without a stock market bubble, and without ZIRP?

SocGen: Corporate America Is Nearing A ‘Toxic’ Debt Crisis (BI)

US companies have a looming problem of their own making, and it may soon come back to crush them. According to Andrew Lapthorne, head of quantitative analysis at Societe Generale, the amount of debt that businesses have accumulated over the last five to six years has put them on the verge of a serious crisis. Lapthorne wrote in a note to clients on Tuesday: “This level of borrowing in some sectors of the economy is now booming (with the risk of spinning out of control) to such an extent that we think that the build-up of debt on US non-financial corporate balance sheets represents one of the largest mispriced risks in terms of future market stability, downside risk and future economic growth.”

Lapthorne’s argument is essentially that US corporations have decided to borrow money in order to fuel growth larger than that warranted by economic demand. But now with the assets backing this debt starting to decline in value, the wheels are going to fall off. Lapthorne believes there has been one cause of this behavior: central banks. “Aggressive monetary policy in the form of QE and zero or negative interest rates is all about encouraging (forcing?) borrowers to take on more and more debt in an attempt to boost economic activity, effectively mortgaging future growth to compensate for the lack of demand today,” he wrote. From the supply end, making financing debt easier through low interest rates and quantitative easing “encouraged” corporations to take on the debt loads.

On the demand end, investors loved the higher-yielding corporate debt, since US Treasury yields remained so low. Put it together and you have a central-bank-fueled bubble, which Lapthorne called “toxic.” And so with little economic growth to speak of or invest in, corporations have funneled this debt-financed money into share buybacks and mergers in order to improve profitability and the illusion of growth. In fact, Lapthorne said, companies are spending 35% more than their incoming cash flows, higher than previous peaks in 1998 and 2008. The upside is that as stock prices have risen, companies have been able to pay back debt either through raising new debt or still-growing profits. But now with profits on the decline and shakier asset markets, the danger is coming to a head.

So no matter how you look at it, argued Lapthorne, companies have mountains of debt. And as profits and eventually stock prices start to get squeezed from all-time highs, the ability of companies to pay back their debt will get worse.

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Something tells me the real number is much higher.

US Corporations Have $1.4 Trillion Hidden In Tax Havens: Oxfam (G.)

US corporate giants such as Apple, Walmart and General Electric have stashed $1.4tn (£980bn) in tax havens, despite receiving trillions of dollars in taxpayer support, according to a report by anti-poverty charity Oxfam. The sum, larger than the economic output of Russia, South Korea and Spain, is held in an “opaque and secretive network” of 1,608 subsidiaries based offshore, said Oxfam. The charity’s analysis of the financial affairs of the 50 biggest US corporations comes amid intense scrutiny of tax havens following the leak of the Panama Papers. And the charity said its report, entitled Broken at the Top was a further illustration of “massive systematic abuse” of the global tax system. Technology giant Apple, the world’s second biggest company, topped Oxfam’s league table, with some $181bn held offshore in three subsidiaries.

Boston-based conglomerate General Electric, which Oxfam said has received $28bn in taxpayer backing, was second with $119bn stored in 118 tax haven subsidiaries. Computing firm Microsoft was third with $108bn, in a top 10 that also included pharmaceuticals giant Pfizer, Google’s parent company Alphabet and Exxon Mobil, the largest oil company not owned by an oil-producing state. Oxfam contrasted the $1.4tn held offshore with the $1tn paid in tax by the top 50 US firms between 2008 and 2014. It pointed out that the companies had also enjoyed a combined $11.2tn in federal loans, bailouts and loan guarantees during the same period. Overall, the use of tax havens allowed the US firms to reduce their effective tax rate on $4tn of profits from the US headline rate of 35% to an average of 26.5% between 2008 and 2014.

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A bit moot as long as they’re TBTF?!

US Banks Not Prepared For Another Financial Crisis (G.)

Some of the US’s biggest banks still lack a proper plan for bankruptcy, in the event of another major financial crisis, US regulators said on Wednesday. In the wake of the great recession banks were required to come up with “living wills” to prove they had a credible plan for bankruptcy that would not require another bailout from the taxpayers. But after reviewing the plans of five institutions – JP Morgan Chase, Wells Fargo, Bank of America, Bank of New York Mellon and State Street Corp – the Federal Reserve and the Federal Deposit Insurance Corp (FDIC) have determined that the banks have yet to meet that requirement. “The goal to end too big to fail and protect the American taxpayers by ending bailouts remains just that: only a goal,” said Thomas Hoenig, FDIC vice-chairman. The banks are to submit revised proposals by 1 October.

According to feedback from the regulators, one of the main concerns with JP Morgan’s proposal was the bank’s liquidity in a time of need. Regulators were concerned the bank would not be able to shift money around to fund some of its operation during a time of stress or bankruptcy. “Obviously we were disappointed,” said Marianne Lake, JP Morgan’s chief financial officer. “The most important thing is that we work with our regulators to understand their feedback in more detail.” Bank of America also needs better processes for estimating its liquidity needs, the regulators said. And while Wells Fargo was deemed to have “firm-wide, high-quality liquid assets”, regulators raised concerns over “quality control, senior management oversight, and recovery and resolutions planning staffing”. In its statement, Wells Fargo said it was disappointed its plan was “determined to have deficiencies” but the feedback was “constructive and valuable to our resolution planning process”.

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As confidence recedes…

The Beginning of the End of Central Bank Easing (BBG)

Traders are now taking the long view on central bank easing, shifting focus to which monetary policymakers will be the first to change course and withdraw stimulus, according to Bank of America Merrill Lynch FX Strategist Athanasios Vamvakidis. The euro-area, Japan, Norway, New Zealand, and Sweden are the five major developed economies in which central banks have eased policy this year—and by some financial metrics, they don’t have much to show for it. In all of these instances, currencies have strengthened relative to the U.S. dollar in the wake of more accommodative monetary policy (denoted by a circle on the chart below.)

A possible counterpoint: it’s not necessarily that fighting central banks has worked, but that the Federal Reserve’s dovish surprise in March has meant more to these currency pairs than outright easing. That argument might not fully pass the smell test, however, as most of these domestic stocks markets have also declined since monetary policy became more accommodative. So with currencies getting stronger and equities falling (with the exception of New Zealand), Vamvakidis argues “that positioning for a scenario in which some central banks give up easing is worth the cost.” His observations support the notion that the marginal efficacy of stimulus is waning—or as this worry is more commonly expressed, that central banks are running out of ammunition.

He adds, “It is unlikely, in our view, that the next big FX trade will be from a central bank that surprises markets by easing policies more, which was the case in recent years.” A soft global economic backdrop prompted the Federal Reserve to telegraph a slower path for higher interest rates in March. As such, this shift to a focus on exit strategies might seem premature or optimistic, but the opposite may also be true. For instance, in the case of Japan, there are technical limits to the amount of sovereign bonds that can be bought, a dynamic which might force the central bank to begin dialing down this part of its asset-purchasing program. “Markets have already started testing central banks and have been reacting counterintuitively to policy easing,” concludes Vamvakidis. “Central banks can fight back, as the Fed has successfully done recently, but we do not believe that this is sustainable as long as the global recovery continues.”

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Boomerang.

Negative Swap Rates Impede Kuroda’s Push To Boost Japan Lending (BBG)

Negative rates for swapping interest payments are hindering the ability of corporate borrowers to hedge their liabilities – another way in which the Bank of Japan’s unorthodox attempt to revive lending could backfire. The fixed rate paid in exchange for floating-rate payments for a year in Japan’s interest rate swap market fell below zero after the BOJ started charging banks for reserves in February, and was at minus 0.049% on Thursday. Floating-rate loans in Japan aren’t allowed to have repayment rates below zero, causing a disconnect with traditional hedging methods. “Interest-rate swaps aren’t functioning properly” as hedging tools, said Satoshi Oda at Credit Agricole in Tokyo. “Without swaps, banks will have trouble making floating-rate loans and will need to extend fixed-rate loans, but most banks don’t like lending at fixed rates, so they’re becoming hesitant about making new loans.”

Lending growth in Japan excluding trusts slowed to 2% in March from a year earlier, the weakest pace in three years, according to BOJ data released Tuesday. Sumitomo Mitsui Trust Bank sees a drop in swap-market activity as companies avoid using the contracts amid uncertainty about whether regulators will allow floating-rate repayments below zero. When companies take out such loans, they often enter into a derivative deal to hedge, agreeing to pay the fixed swap rate in return for a floating-rate payment that protects them if borrowing costs rise. However, while loan deals stipulate that repayment rates won’t be negative, depriving companies of that benefit, swap transactions do allow for negative payments, meaning the hedger could wind up exposed to risks in both the swap and loan market.

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Can’t keep the greenback down forever. It’s too costly.

Currencies Across Asia Fall Sharply Against US Dollar (WSJ)

Currencies across Asia including the Chinese yuan dropped sharply against the U.S. dollar Thursday, with markets caught off-guard as the Singapore central bank restrained the appreciation of its currency to stoke growth. The yuan saw its biggest one-day depreciation since January, and the Singapore dollar fell by the most within a day this year. Meanwhile, the South Korean won weakened after the ruling party lost its parliamentary majority. Asian currencies had firmed up against the greenback in recent weeks, partly thanks to the Federal Reserve having signaled it would raise interest rates at a slower rate this year than previously expected. Economic policy makers from the Group of 20 nations had pledged at a meeting in February to avoid sparking a currency war through competitive devaluation.

A weakening of the yuan against the U.S. dollar in its daily fix weighed on currencies across the region, after a 0.46% depreciation—the biggest since January. The region’s currency markets had started the day on the back foot as traders assessed first the impact of South Korea’s elections, followed by a surprise easing of monetary policy by Singapore’s central bank. Movements of the yuan fix, which determines the levels at which the currency can trade inside mainland China, have recently been more determined by market forces. Today’s depreciation reflects strength in the U.S. dollar on Wednesday. Thursday’s yuan depreciation was the biggest since Jan. 7, when markets had speculated that moves to weaken the yuan could trigger a global currency war. Competitive currency devaluation hasn’t materialized among major economies since then, but other central banks in smaller countries in Asia are loosening policy in the meantime.

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“China’s March imports from Hong Kong soared an implausible 116% YoY!”

China’s Trade Data Has Never Been This Fake (ZH)

The narrative is set – today’s rally is predicated on “strong” Chinese trade data. So what happens when one chart explodes that narrative as totally fallacious for three simple reasons… First, the data is clearly cooked… As Bloomberg’s Tom Orlik notes, China’s March imports from Hong Kong soared an implausible 116% YoY! As it is clearly disguising capital flows… “Trade mis-invoicing as a way to hide capital flows remains a factor. In the past, over-invoicing for exports was used as a way to hide capital inflows. The latest data show the reverse phenomenon, with over-invoicing of imports as a way of hiding capital outflows.” Does this look “real”?

Second, there is the base effect which EVEN CHINA warned would be a factor: “But beware two factors; the government itself has warned that the base line from March 2015 is low. A reminder that observers shouldn’t get complacent about the downward pressures still threatening China’s economy”. And then finally, there’s the figures themselves, can they be trusted? But did anyone really need an excuse to buy the record highs in stocks, or send Trannie sup 3% on the day? Of course not!

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Ambrose loses faith.

China’s Leaders Are Blowing Their Last Chance To Avert An Economic Crisis (AEP)

China panic has abated. The Shanghai Composite index is back above 3,000. The much-feared devaluation never happened. The yuan has strengthened against the dollar this year, to the consternation of Western macro-tourists. Outflows of money have slowed as dollar debt is paid off and Chinese investors wind down ‘carry trade’ positions. The central bank (PBOC) is no longer depleting the country’s $3.2 trillion foreign reserves to defend the exchange rate, and thereby tightening monetary policy as a nasty side-effect. China has the apparatus of an authoritarian state to curb capital flight, and is not shy about using it. The IMF has just raised its forecast for Chinese growth this year to 6.5pc, insisting that it is still far too early to talk about a hard-landing. Yet that is where the good news ends, for there is a poisonous sting in the tail.

Maurice Obstfeld, the IMF’s chief economist, said the trade-off for this year’s growth spurt is even more trouble down the road. “While we have upgraded near-term projections, we have downgraded the farther out projections,” he said. “Our concern is some of the stimulus is likely to take the form of higher credit growth, more support for sectors that are in a secular sense declining and not that productive. We worry about the quality of growth more than the quantity of growth,” he said. There you have the nub of the matter. Stripped of IMF circumlocutions, he is telling us that the Communist Party has once again let rip with debt-driven stimulus for the housing market and rust-bowl industries already chocking with overcapacity, stoking yet another mini-cycle to put off the day of reckoning.

The likelihood that China will fail to grasp the nettle of reform in time to avert a structural crisis is rising from probable to almost certain. As the well-meaning premier Li Keqiang keeps warning his colleagues in the Standing Committee, the current course leads straight into the middle income trap. We can put away those charts projecting China’s ‘sorpasso’, the moment when the country overtakes the US to become the world’s biggest economy. It is not going to happen in 2020, and will look even less likely in 2030, when China’s demographic dividend turns to deficit and the workforce goes into precipitous decline. “Implementation of a more ambitious and comprehensive policy agenda is urgently needed to stay ahead of rising financial sector vulnerabilities,” said the IMF today in its Global Financial Stability Report.

The section on China reads like a horror story. The “credit overhang” has exploded to 25pc of GDP, perpetuating a vicious circle of falling factory gate prices and plunging profits. While the IMF does not use the term, China is basically in a ‘debt-deflation’ trap. Earnings have been dropping more quickly than nominal interest rates, automatically tightening the noose. “The ability of many Chinese listed firms to service their debt obligations is eroding,” it said. The ratio of gross debt to earnings (EBITDA) has doubled to four since 2010. Debt at risk – where earnings do not cover interest payments – has risen from 4pc to 14pc in five years. It has reached 39pc for steel, 35pc for mining and retail, and 18pc for manufacturing and transport.

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And thereby China’s.

Panama Papers Reveal Hong Kong’s Murky Financial Underbelly (AFP)

Jasmine Li was still a student when she opened her first offshore bank account through Mossack Fonseca Hong Kong, but the shady world she entered that day had been part of the city’s underbelly for decades. The granddaughter of China’s then fourth-ranked politician was among dozens named in a vast cache of documents leaked from the Panama law firm that have given a glimpse into how the rich and powerful hide their money. But the so-called Panama Papers, released by the International Consortium of Investigative Journalists this month, have also exposed the key role played by Hong Kong and Singapore in funnelling that wealth into tax havens.

Mossack Fonseca’s Hong Kong offices were their busiest in the world, the ICIJ analysis showed, setting up thousands of shell companies including some linked to China’s top political brass, the city’s richest man, Li Ka-shing, and movie star Jackie Chan. Experts say the Asian financial hubs have already channelled billions into tax havens, and the Boston Consulting Group predicts they will be the world’s fastest-growing offshore centres over the next five years. “Hong Kong is set up to make it easy for people to do business, and it is very easy to do business here,” said Douglas Clark, a barrister with one of Hong Kong’s largest chambers.

“But when it’s easy to do business then it’s easy to do any type of business, legal or illegal.” Offshore companies are not necessarily illegal, but they operate on the fringes of what is allowed and their opaque structures make it easy to conceal ill-gotten or politically inconvenient wealth. They have proved a boon for Hong Kong and Singapore, which are known not only for their financial expertise but also light-touch regulation, discretion and non-cooperation with foreign tax authorities. Both are already on regulators’ radars – the EU briefly added Hong Kong to its tax blacklist last year – but experts say they are unlikely to do anything to jeopardise the lucrative offshore business.

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For what it’s worth (It’s IMF, after all): “These loans could translate into potential bank losses of approximately 7% of GDP..”

IMF: $1.3 Trillion In Corporate Bank Loans At Risk Of Default In China (Sky)

The IMF has warned that $1.3tn (£913bn) in corporate bank loans are at risk of default in China. The fund’s latest Global Financial Stability Report said the figure was recognised by the authorities in Beijing and was “manageable” given the country’s rate of economic growth – currently running just below 7%. But the world’s lender of last resort said the situation underlined the concerns of financial markets over the sustainability of China’s economic model, given the volatility witnessed last summer and in January when stock values plunged. It said: “The magnitude of these vulnerabilities calls for an ambitious policy agenda”.

The IMF said the issue of corporate debt could not be ignored and it called for a further strengthening of China’s financial institutions, suggesting that another global stock market rout could knock world GDP growth by as much as 4%. Investor confidence has been damaged by a slowdown in the world economy – blamed on the deterioration in Chinese growth as it moves to rebalance its economy from a heavy infrastructure and industrial powerhouse towards a more services-based model. The IMF said falling profitability in China, linked to lower GDP growth, was behind its concern for borrowings at risk of default. There was clear evidence, it said, that a growing number of companies were not earning enough to cover interest payments. “These loans could translate into potential bank losses of approximately 7% of GDP,” it added.

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All these parties chiming in on Brexit will achieve the opposite of what they want.

Is The IMF ‘Consistently Wrong’? (CNBC)

Supporters of a British exit from the European Union were left enraged this week after a new report by the IMF led to calls of inaccuracy and political bias. The Washington D.C.-based organization said the U.K. referendum on its membership of the EU had already created uncertainty for investors and said a so-called “Brexit” could do “severe regional and global damage by disrupting established trading relationships.” U.K. Prime Minister Cameron and Finance Minister George Osborne both used their Twitter accounts Tuesday to promote the IMF’s latest assessment with the latter calling it “one of most important interventions yet in EU debate.” Bookmaker Ladbrokes is currently predicting there’s a 33% chance that Britons will vote to leave the European bloc in an upcoming referendum on June 23.

The fierce debate has strained relationships and seen major political heavyweights put forward opposing views. The warning – just weeks before the June 23 vote – was heavily criticized by John Longworth, a former director-general of the British Chambers of Commerce, who resigned from his role in March after being drawn into the political row. The British government is officially campaigning to stay within a renegotiated EU and Longworth claimed that it had “friends in high places” with this latest backing by the IMF. The IMF did not respond immediately when asked by CNBC about claims of bias and inaccuracy. “I’m fully expecting a whole series of international organizations to make comments saying we ought to stay in the EU running up to the 23rd of June, no doubt orchestrated by the U.K. government,” Longworth told CNBC Wednesday.

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Real demand cuts will be much deeper than OPEC lets on.

OPEC Warns of Deeper Cuts to Oil Demand (BBG)

OPEC said it may deepen cuts to its forecast for global oil demand growth due to slowing economic expansion in emerging markets, warmer weather and the removal of fuel subsidies. OPEC trimmed estimates for demand growth in 2016 by 50,000 barrels a day because of a slowdown in Latin America, projecting worldwide growth of 1.2 million barrels a day. Weakness in Brazil’s economy, the removal of fuel subsidies in the Middle East and milder winter temperatures in the northern hemisphere could prompt further cutbacks, the group said. “Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oil demand growth, should existing signs persist going forward,” the organization’s Vienna-based secretariat said in its monthly market report.

“Economic developments in Latin America and China are of concern.” Oil climbed to a four-month high in London on Tuesday as OPEC nations prepare to meet with Russia and other non-members in Doha this weekend to complete an accord on freezing oil production, an effort to tame the global crude surplus. OPEC’s report said that “positive market sentiments continue to arise” from the freeze plan. The group’s data shows that the 11 OPEC members who are confirmed to attend the Doha talks are pumping 487,000 barrels a day below January levels, the benchmark proposed for the freeze deal.

Libya has said it won’t attend the meeting, and Iran has yet to decide. Saudi Arabia’s output has remained stable since January, the report showed. All 13 members pumped 32.25 million barrels a day in March, up 14,900 a day from February, according to external estimates compiled by OPEC. Global oil demand will average 94.18 million barrels a day in 2016, according to the report. This year’s growth rate of 1.2 million barrels a day is down from 1.54 million a day in 2015 amid a slowdown in consumption of industrial fuels and middle distillates in China and Latin America.

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The era of plastic is in fact simply the era of oil.

Seen From The Future, Ours Is The Era Of Plastic (BBG)

Historians may soon be looking back at the 20th and early 21st centuries as the time of computers and the Internet, bold ventures into space and the splitting of the atom. But what will scholars in the distant future find worthy of note? If there’s anyone around with a penchant for paleontology hundreds of thousands of years from now, a surprise awaits in the stratigraphic layers containing the remains of our time. Anyone digging into the earth would find a sudden, explosive increase in a new kind of material – plastic. Once underground, plastic will fossilize well, leaving a distinct signature. And there’s plenty of it. Until the 20th century, plastic was virtually nonexistent. Since then, humans have created 5 billion tons. The paleontologist Jan Zalasiewicz has calculated that if it were all converted into cling wrap, there would be enough to wrap the globe.

Until about 20 years ago, Zalasiewicz said, the idea that people could permanently change the planet was considered nonsense. Human beings were too puny and the planet too vast. “The scale of geological processes such as mountain building and volcanic eruptions have been held to be much greater than anything humans can rustle up,” he said. But over the last several decades, he added, it’s become clear that human-generated effects “can be big on a geological scale and can be more or less permanent.” Geologic maps of the future might refer to our time as the Slobocene era, or the Trashiferous period. Or maybe the name scientists recently coined – Anthropocene – will stick. It refers to the time when humankind started to make an indelible mark. Changes that characterize the Anthropocene include the widespread production of aluminum and concrete as well as plastics, and distinct changes in the chemistry of the atmosphere and oceans.

Plastics have been important for distributing clean food and water, for medical devices, surgical gloves and affordable clothing. They’ve played a big role in health and sanitation. The fact that they don’t dissolve or decay is a plus for most of their intended uses. But there are unintended consequences. Some plastics are recycled, but most go into landfills or become litter. Recently, scientists have come to realize that much of the plastic in the environment is in the form of invisible particles. Some of these come from the breakdown of bags and other floating trash in the oceans, some from toothpaste and cosmetics, and much of it from clothes, which are mostly made from synthetic materials and give off plastic fibers every time they go through a wash. These “microplastics” can be measured in sand from beaches around the world, and in the guts of many fish.

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Scary graph of the day.

Greenland’s Melt Season Started Nearly Two Months Early (CC)

To say the 2016 Greenland melt season is off to the races is an understatement. Warm, wet conditions rapidly kicked off the melt season this weekend, more than a month-and-a-half ahead of schedule. It has easily set a record for earliest melt season onset, and marks the first time it’s begun in April. Little to no melt through winter is the norm as sub-zero temperatures keep Greenland’s massive ice sheet, well, on ice. Warm weather usually kicks off the melt season in late May or early June, but this year is a bit different. Record warm temperatures coupled with heavy rain mostly sparked 12% of the ice sheet to go into meltdown mode. Almost all the melt is currently centered around southwest Greenland.

According to Polar Portal, which monitors all things ice-related in the Arctic, melt season kicks off when 10% of the ice sheet experiences surface melt. The previous record for earliest start was May 5, 2010. This April kickoff is so bizarrely early, scientists who study the ice sheet checked their analysis to make sure something wasn’t amiss before making the announcement. “We had to check that our models were still working properly” Peter Langen, a climate scientist at the Denmark Meteorological Institute (DMI), told the Polar Portal. But alas, the models are definitely working and weather data and stories coming out of West Greenland have borne that out. According to DMI, temperatures at Kangerlussuaq, a small village in southwest Greenland, set an April record for that location when they reached 64.4°F (17.8°C) on Monday. That’s just a scant .4°F (.2°C) off the all-time Greenland high for April. Heavy rain have also inundated local communities.

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As long as their own people don’t pay a penny….

EU Nations Use Foreign Aid Budgets To Pay For Refugee Costs (G.)

The amount of foreign aid money rich nations spend on dealing with the impact of the refugee crisis at home has almost doubled over the past year and now accounts for 9% of all development expenditure, according to the latest official figures. The preliminary statistics, from the OECD, show that wealthy donor countries spent a net total of $131.6bn (£92.5bn) on aid in 2015, compared with $135.2bn the previous year. Of that, $12bn went on domestic spending – or “in-donor refugee costs”, up from $6.6bn in 2014. Many of the European countries most affected by the mass migration of people recorded surges in their official development assistance (ODA) in 2015: Greece’s aid spending rose by 38.7%; Sweden’s by 36.8%; Germany’s by 25.9%; the Netherlands’ by 24.4%, and Austria’s by 15.4%. The OECD says that all these rises, to greater or lesser extents, were caused by growing in-donor refugee costs.

According to the organisation, members of its development assistance committee (DAC) spent 6.9% more in real terms in 2015 than they did the previous year, making it “the highest level ever achieved for net ODA”. It said ODA as a share of gross national income was 0.3%, putting it on a par with 2013, when aid reached a record, real terms high of $135.1bn. However, the European Network on Debt and Development (Eurodad) said many EU countries are now the biggest recipients of their own aid, adding that the latest figures had been “dramatically inflated” by the diversion of aid to cover the domestic costs of the refugee crisis. “While it is very important that we care for refugees arriving on our shores, our own costs should not be classed as international development aid, and money to cover this must come from other sources,” said Jeroen Kwakkenbos, Eurodad’s policy and advocacy manager.

“We must stop raiding aid budgets to solve our own problems at the expense of the poorest people who desperately need more and better aid. The figures presented today show clear issues with the reporting rules as the largest increases were for domestic budget gaps related to the refugee crisis.” Amy Dodd, of the Concord AidWatch initiative, said: “Unfortunately, official figures today confirm that despite some positive exceptions, the EU once again missed its overall aid target in 2015. “The figures are a real blow to the credibility of the EU and its member states at precisely the moment they should be demonstrating their commitment to implementing the promises they made to provide sufficient, high quality sustainable development financing for [the sustainable development goals].”

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Nov 132015
 
 November 13, 2015  Posted by at 10:08 am Finance Tagged with: , , , , , , , , , ,  7 Responses »


DPC Youngstown, Ohio. Steel mill and Mahoning River 1902

Fresh Wave Of Selling Engulfs Oil And Metals Markets (FT)
Fed Officials Lay Case For December Liftoff (Reuters)
China Banks’ Troubled Loans Hit $628 Billion – More Than Sweden GDP (Bloomberg)
China’s Demand For Cars Has Slowed. Overcapacity Is The New Normal. (Bloomberg)
China Apparent Steel Consumption Falls 5.7% From January-October (Reuters)
China Speeds Up Fiscal Spending in October to Support Growth (Bloomberg)
China Panics, Sends Fiscal Spending Sky-High As Credit Creation Tumbles (ZH)
China Learns What Pushing on a String Feels Like (WSJ)
Oil Slumps 4%, Nears New Six-Year Low (Reuters)
OPEC Says Oil-Inventory Glut Is Biggest in at Least a Decade (Bloomberg)
IEA Says Record 3 Billion-Barrel Oil Stocks May Weaken Prices (Bloomberg)
Number of First-Time US Home Buyers Falls to Lowest in Three Decades (WSJ)
Striking Greeks Take To Tension-Filled Streets In Austerity Protest (Reuters)
Europe’s Top Banks Are Cutting Losses Throughout Latin America (Bloomberg)
Collapsing Greenland Glacier Could Raise Sea Levels By Half A Meter (Guardian)
EU Leaders Race To Secure €3 Billion Migrant Deal With Turkey (Guardian)
PM Trudeau Says Canada To Settle 25,000 Syrian Refugees In Next 7 Weeks (G&M)

This has so much more downside to it.

Fresh Wave Of Selling Engulfs Oil And Metals Markets (FT)

A renewed sell-off in oil and metals has shaken investors as fears grow that falling demand for commodities is signalling a sharper slowdown in China’s resource-hungry economy. Copper, considered a barometer for global economic growth because of its wide range of industrial uses, fell to a six-year low below $5,000 a tonne on Thursday. Oil, which has tanked almost 20% since a shortlived rally in October, dropped to under $45 a barrel on Thursday, less than half the level it traded at for much of this decade. The Bloomberg Commodity Index, a broad basket of 22 commodity futures widely followed by institutional investors, has fallen to its lowest level since the financial crisis.

Commodity prices have become a barometer for the health of China’s economy, whose rapid industrialisation over the past 10 years has been the engine of global growth. While markets already endured a commodity sell-off in August, traders and analysts say the drop is more worrying this time as it appears to be driven by concerns about demand rather than a glut of supply. “Whether it was power cable production [in China] or air conditioner data … activity in October continued to show deep contraction”, said Nicholas Snowdon, analyst at Standard Chartered. The slowdown is particularly concerning as many analysts and investors had expected an easing in Chinese credit conditions to stoke a modest increase in consumption in the fourth quarter.

Goldman Sachs said this week that recent data pointed to shrinking demand in China’s “old economy” as Beijing tries to manage a transition to more consumer-led growth. By some measures commodity prices are back where they were before China started on its path to urbanisation more than a decade ago. Other leading commodity indices are back at levels last seen in 2001, while shares in Anglo American fell to their lowest since the company s UK listing in 1999 on Thursday. A stronger US dollar has also weighed on raw material prices. “There are signs that oil demand growth is slowing down significantly relative to earlier this year”, said Pierre Andurand, one of the top performing energy hedge fund managers last year. “World GDP growth will keep on being revised down”.

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Forward narrativeance.

Fed Officials Lay Case For December Liftoff (Reuters)

U.S. Federal Reserve officials lined up behind a likely December interest rate hike with one key central banker saying the risk of waiting too long was now roughly in balance with the risk of moving too soon to normalize rates after seven years near zero. Other Fed policymakers argued that inflation should rebound, allowing the Fed to soon lift rates from near zero though probably proceed gradually after that. In New York, William Dudley said: “I see the risks right now of moving too quickly versus moving too slowly as nearly balanced.” Dudley, who as president of the New York Fed has a permanent vote on the Fed’s policy-setting committee, said the decision still required the central bank to “think carefully” because of the risk that the United States is facing chronically slower growth and low inflation that would justify continued low rates.

But his assessment of “nearly balanced” risks represents a subtle shift in the thinking of a Fed member who has been hesitant to commit to a rate hike, but now sees evidence accumulating in favor of one. For much of Janet Yellen’s tenure as Fed chair, policymakers at the core of the committee, and Yellen herself, have said they would rather delay a rate hike and battle inflation than hike too soon and brake the recovery. But Dudley said the current 5% unemployment rate “could fall to an unsustainably low level” that threatens inflation, while seven years of near-zero rates “may be distorting financial markets.” “I don’t favor waiting until I sort of see the whites in inflation’s eyes,” he said about monetary policy timing. Going sooner and more slowly, he said at the Economic Club of New York, may now be best for the Fed’s “risk management.”

In Washington, Fed Vice Chair Stanley Fischer said inflation should rebound next year to about 1.5%, from 1.3% now, as pressures related to the strong dollar and low energy prices fade. The second-in-command also noted that the Fed could move next month to raise rates, which could be taken as yet another signal the central bank is less willing to let low inflation further delay policy tightening. “While the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well,” Fischer told a conference of researchers and market participants at the Fed Board.

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I’d like to know what bad loans are at in the shadow banking sector.

China Banks’ Troubled Loans Hit $628 Billion – More Than Sweden GDP (Bloomberg)

Chinese banks’ troubled loans swelled to almost 4 trillion yuan ($628 billion) by the end of September, more than the gross domestic product of Sweden, according to figures released by the industry regulator. Banks’ profit growth slumped to 2% in the first nine months from 13% a year earlier, according to data released on Thursday night by the China Banking Regulatory Commission. The numbers come as a debt crisis at China Shanshui Cement Group Ltd. prompts lenders including China Construction Bank Corp. and China Merchants Bank Co. to demand immediate repayments and as weakness in October credit growth shows the risk of a deeper economic slowdown. While the official data shows non-performing loans at 1.59% of outstanding credit, or 1.2 trillion yuan, that rises to 5.4%, or 3.99 trillion yuan, if “special mention” loans, where repayment is at risk, are also included.

The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. “Evergreening,” which is when banks roll over debt that hasn’t been repaid on time, may contribute to the official bad-loan numbers being understated. The Bank for International Settlements cautioned in September that China’s credit to gross domestic product ratio indicated an increasing risk of a banking crisis in coming years. Bad-loan provisions, shrinking lending margins and weakness in demand for credit are eroding banks’ profits just as financial deregulation boosts competition. Ramped-up stimulus, with the central bank cutting interest rates six times in a year, failed to prevent the nation’s broadest measure of new credit slumping to the lowest in 15 months in October.

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“New Chinese factories are forecast to add a further 10% in capacity in 2016—despite projections that sales will continue to be challenged.”

China’s Demand For Cars Has Slowed. Overcapacity Is The New Normal. (Bloomberg)

For much of the past decade, China’s auto industry seemed to be a perpetual growth machine. Annual vehicle sales on the mainland surged to 23 million units in 2014 from about 5 million in 2004. That provided a welcome bounce to Western carmakers such as Volkswagen and General Motors and fueled the rapid expansion of locally based manufacturers including BYD and Great Wall Motor. Best of all, those new Chinese buyers weren’t as price-sensitive as those in many mature markets, allowing fat profit margins along with the fast growth. No more. Automakers in China have gone from adding extra factory shifts six years ago to running some plants at half-pace today—even as they continue to spend billions of dollars to bring online even more plants that were started during the good times.

The construction spree has added about 17 million units of annual production capacity since 2009, compared with an increase of 10.6 million units in annual sales, according to estimates by Bloomberg Intelligence. New Chinese factories are forecast to add a further 10% in capacity in 2016—despite projections that sales will continue to be challenged. “The Chinese market is hypercompetitive, so many automakers are afraid of losing market share,” says Steve Man, a Hong Kong-based analyst with Bloomberg Intelligence. “The players tend to build more capacity in hopes of maintaining, or hopefully, gain market share. Overcapacity is here to stay.” The carmaking binge in China has its roots in the aftermath of the global financial crisis, when China unleashed a stimulus program that bolstered auto sales.

That provided a lifeline for U.S. and European carmakers, then struggling with a collapse in consumer demand in their home markets. Passenger vehicle sales in China increased 53% in 2009 and 33% in 2010 after the stimulus policy was put in place. But the flood of cars led to worsening traffic gridlock and air pollution that triggered restrictions on vehicle registrations in major cities including Beijing and Shanghai. Worse, the combination of too many new factories and slowing demand has dragged down the industry’s average plant utilization rate, a measure of profitability and efficiency. The industrywide average plunged from more than 100% six years ago (the result of adding work hours or shifts) to about 70% today, leaving it below the 80% level generally considered healthy. Some local carmakers are averaging about 50% utilization, according to the China Passenger Car Association.

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We should use ‘apparent’ for all Chinese offcial data.

China Apparent Steel Consumption Falls 5.7% From January-October (Reuters)

Apparent steel consumption in China, the world’s biggest producer and consumer, fell 5.7% to 590.47 million tonnes in the first 10 months of the year, the China Iron and Steel Association (CISA) said on Friday. The figure was disclosed by CISA vice-secretary general Wang Yingsheng at a conference. China’s massive steel industry has been hit by weakening demand and a huge 400 million tonne per annum capacity surplus that has sapped prices. Producers have relied on export markets to offset the decline in domestic demand, but crude steel output still declined 2.2% in the first 10 months of the year, according to official data.

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“Fiscal spending jumped 36.1% from a year earlier..”

China Speeds Up Fiscal Spending in October to Support Growth (Bloomberg)

China’s government spending surged four times the pace of revenue growth in October, highlighting policy makers’ determination to meet this years’ growth target as a manufacturing and property investment slowdown weigh on the economy. Fiscal spending jumped 36.1% from a year earlier to 1.35 trillion yuan ($210 billion), while fiscal revenue rose 8.7% to 1.44 trillion yuan, the Finance Ministry said Thursday. In the first ten months of the year, spending advanced 18.1% and revenue increased 7.7%. China is turning to increased fiscal outlays as monetary easing, a relaxation on local government financing, and an expansion of policy banks’ capacity to lend, struggle to stabilize growth in the nation’s waning economic engines.

Meantime, government revenue has been strained as companies face overcapacity, factory-gate deflation and the slowest annual economic growth in a quarter century. “With downward economic pressure and structural tax and fee cuts, fiscal revenue will face considerable difficulties in the next two months,” the Ministry of Finance said in the statement. “As revenue growth slows, fiscal expenditure has clearly been expedited to ensure that all key spending is completed.” The stepped-up stimulus effort had taken the fiscal-deficit-to-gross-domestic-product ratio to a six-year high by the end of September, according to an October report by Morgan Stanley analysts led by Sun Junwei in Hong Kong.

“The central government has been taking the lead in fiscal easing to support growth” as local governments’ off budget spending through financing vehicles have slowed, the analysts wrote. The country plans to raise the quota for regional authorities to swap high-yielding debt for municipal bonds by as much as 25%, according to people familiar with the matter. The quota of the bond-swap program will be increased to as much as 3.8 trillion yuan to 4 trillion yuan for 2015, according to the people, who asked not to be identified because the move hasn’t been made public. Increases have been made throughout the year from an originally announced 1 trillion yuan.

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“..companies don’t need to invest and they’re already straining under mountainous debt loads they can’t service.”

China Panics, Sends Fiscal Spending Sky-High As Credit Creation Tumbles (ZH)

Earlier this week, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. That would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily. “One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn’t been seen for many years,” MNI reported. Given that, and given what we know about rising NPLs and a lack of demand for credit as the country copes with a troubling excess capacity problem, none of the above should come as a surprise. Well, the numbers are out and sure enough, they disappointed to the downside. RMB new loans came at just CNY514bn in October – consensus was far higher at CNY800bn. That was down 6.3% Y/Y. Total social financing fell 29% Y/Y to CNY447 billion, down sharply from September’s CNY1.3 trillion print.

As noted above, this is likely attributable to three factors. First, banks’ NPLs are far higher than the official numbers, as Beijing’s insistence on forcing banks to roll souring debt and the suspicion that nearly 40% of credit is either carried off the books or classified in such a way that it doesn’t make it into the headline print. Underscoring this is the rising number of defaults China has seen this year. Obviously, you’re going to be reluctant to lend if you know that under the hood, things are going south in a hurry. Here’s Credit Suisse’s Tao Dong, who spoke to Bloomberg: “Banks are still unwilling to lend. This is quite weak, even stripping out the seasonality. The rebound in bank lending, boosted by the PBOC’s injection to the policy banks, has been short lived.” Second, it’s not clear that demand for loans will be particularly robust for the foreseeable future. The country has an overcapacity problem. In short, companies don’t need to invest and they’re already straining under mountainous debt loads they can’t service.

Here’s Alicia Garcia Herrero, chief Asia Pacific economist at Natixis: “The reason is simple: too much leverage.” With those two things in mind, consider thirdly that this comes against the backdrop of lackluster economic growth. As Goldman points out, “China is likely to continue to slow credit growth over the medium to long term given credit growth is still running at roughly double the rate of GDP growth.” In short, it’s not clear why anyone should expect these numbers to rebound. Back to Bloomberg: “The “big miss for China’s credit growth in October rings alarm bells about the strength of the economy and significantly increases the chances of continued aggressive easing,” Bloomberg Intelligence economist Tom Orlik wrote in a note. “It lends support to the idea that a combination of falling profits, the high cost of servicing existing borrowing and uncertainty about the outlook has significantly reduced firms’ incentives to borrow and invest. That’s similar to the problem that afflicted Japan during its lost decades.”

So if these kind of numbers continue to emanate from China, expect the calls for fiscal stimulus to get much louder. Indeed consider that fiscal spending soared 36% on the month (via Bloomberg again): “China’s government spending surged four times the pace of revenue growth in October, highlighting policy makers’ determination to meet this years’ growth target as a manufacturing and property investment slowdown weigh on the economy. Fiscal spending jumped 36.1% from a year earlier to 1.35 trillion yuan ($210 billion), while fiscal revenue rose 8.7% to 1.44 trillion yuan, the Finance Ministry said Thursday. In the first ten months of the year, spending advanced 18.1% and revenue increased 7.7%.”

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“Total credit outstanding was up just 12% from a year earlier, close to its slowest pace in over a decade.” That’s still twice as fast as even the official GDP growth number..

China Learns What Pushing on a String Feels Like (WSJ)

The People’s Bank of China has been easing policy for nearly a year, but the economy hasn’t bounced back. Capital outflows and a tapped out banking system are holding it back. Data out Thursday showed lending in October to be decidedly lackluster. Banks extended 513.6 billion yuan ($80.7 billion) of new loans, down 3.3% from a year earlier. Total social financing, a broader measure of credit that includes various kinds of shadow loans, was also weak. Total credit outstanding was up just 12% from a year earlier, close to its slowest pace in over a decade. This will be disappointing to the central bank, which has been bending over backward to stimulate credit. Since November last year, it has slashed benchmark interest rates six times and cut the required level of reserves, which frees up funds for lending, four times.

Demand for loans is weak, as companies see fewer opportunities for profitable investment in a slowing economy. What’s more, disinflationary pressures mean that real, inflation-adjusted lending rates have fallen by not much or none at all, depending on what price index is used. Banks are also hesitant to lend aggressively, says Credit Suisse economist Dong Tao, as they are already facing a buildup of nonperforming loans. In the third quarter, profit growth at the country’s eight biggest lenders was close to zero, due to rising provisions for bad loans. Capital outflows are also making the PBOC’s job harder. Figures out on Wednesday indicated that there was a massive $224 billion of investment outflows in the third quarter.

Facing this, the PBOC has been intervening to keep the currency from depreciating, selling off dollars and buying up yuan. Unfortunately this shrinks the domestic money supply, thus counteracting much of the PBOC’s easing measures. The alternative would be to let the currency depreciate. That would lead to more outflows in the near term, until the currency falls to a level that would bring money back in. But if the economy keeps stalling, pressure for depreciation may be too strong to resist. Investors who have seen the yuan stabilize since the botched August devaluation shouldn’t rest too easy. The outflow situation appeared to improve in October. The PBOC’s forex reserves unexpectedly ticked up for the month, suggesting it didn’t have to intervene as much in the currency markets.

But economists such as Daiwa’s Kevin Lai believe the central bank was merely intervening more stealthily, for example by borrowing dollars from forward markets instead of spending its reserves. Regardless, unless the Chinese economy surges back soon, outflow pressures are likely to intensify again, especially if the Federal Reserve raises interest rates as expected in December. That will make it even more difficult to stimulate growth in China. Fiscal policy, including more infrastructure stimulus, will likely be needed to supplement monetary easing. Otherwise, the PBOC will just keep pushing on a string.

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The $30 handle is not far away.

Oil Slumps 4%, Nears New Six-Year Low (Reuters)

Oil prices tumbled almost 4% on Thursday, accelerating a slump that threatens to test new six-and-a-half year lows, with traders unnerved by a persistent rise in U.S. stockpiles and a downbeat forecast for next year. Benchmark Brent crude fell below $45 a barrel for the first time since August, its sixth decline of a seven-day losing streak of more than $6 a barrel, or 12%, in a slump that will vex traders who thought the year’s lows had already passed. The latest decline was triggered by data showing that U.S. stockpiles were still rising rapidly toward the record highs reached in April, despite slowing U.S. shale production. Weekly U.S. data showed stocks rose by 4.2 million barrels, four times above market expectations.

In its monthly report, OPEC said its output dropped in October but at current levels it could still produce a daily surplus above 500,000 barrels by 2016. Brent futures settled down $1.75, or 3.8%, at $44.06 a barrel. The tumble of the past week has left Brent less than $2 away from its August lows and a new 6-1/2 year bottom. U.S. crude futures finished down $1.18, or 2.8%, at $41.75. Its low in August was $37.75. “We’re going to have a lot of oil on our hands with the builds we’re seeing, talk of rising tanker storage and the yawning discount between prompt and forward oil,” said Tariq Zahir at New York’s Tyche Capital Advisors.

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And everyone’s pumping.

OPEC Says Oil-Inventory Glut Is Biggest in at Least a Decade (Bloomberg)

Surplus oil inventories are at the highest level in at least a decade because of increased global production, according to OPEC. Stockpiles in developed economies are 210 million barrels higher than their five-year average, exceeding the glut that accumulated in early 2009 after the financial crisis, the organization said in a report. Slowing non-OPEC supply and rising demand for winter fuels could “help alleviate the current overhang,” enabling a recovery in prices, it said. The group’s own production slipped last month because of lower output in Iraq. “The build in global inventories is mainly the result of the increase in total supply outpacing growth in world oil demand,” OPEC’s research department said in its monthly market report. Oil prices have lost about 40% in the past year as several OPEC members pump near record levels to defend their market share against rivals such as the U.S. shale industry.

While inventories peaked in early 2009 before OPEC implemented record production cuts, this time the group has signaled it won’t pare supplies to balance global markets and U.S. output is buckling only gradually in response to the price rout. The current excess is bigger than the surplus of 180 million barrels to the five-year seasonal average that developed in the first quarter of 2009, according to the report. The 2009 glut was the only other occasion in the past 10 years when the oversupply has topped 150 million barrels, it said. “The massive stockpile overhang is one more indicator, along with the ongoing slump in prices, that Saudi Arabia’s oil strategy isn’t working so far,” said Seth Kleinman, head of energy strategy at Citigroup Inc. in London. “The physical oil market is falling apart just as we are hitting the winter, when it’s all supposed to be getting better.”

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The entire market is collapsing, but the IEA sees a positive: ““Brimming crude oil stocks” offer “an unprecedented buffer against geopolitical shocks or unexpected supply disruptions..”

IEA Says Record 3 Billion-Barrel Oil Stocks May Weaken Prices (Bloomberg)

Oil stockpiles have swollen to a record of almost 3 billion barrels because of strong production in OPEC and elsewhere, potentially deepening the rout in prices, according to the International Energy Agency. This “massive cushion has inflated” on record supplies from Iraq, Russia and Saudi Arabia, even as world fuel demand grows at the fastest pace in five years, the agency said. Still, the IEA predicts that supplies outside OPEC will decline next year by the most since 1992 as low crude prices take their toll on the U.S. shale oil industry. “Brimming crude oil stocks” offer “an unprecedented buffer against geopolitical shocks or unexpected supply disruptions,” the Paris-based agency said in its monthly market report. With supplies of winter fuels also plentiful, “oil-market bears may choose not to hibernate.”

Oil prices have lost about 40% in the past year as the OPEC defends its market share against rivals such as the U.S. shale industry, which is faltering only gradually despite the price collapse. Oil inventories are growing because supply growth still outpaces demand, the 12-member exporters group said in its monthly report Thursday. Total oil inventories in developed nations increased by 13.8 million barrels to about 3 billion in September, a month when they typically decline, according to the agency. The pace of gains slowed to 1.6 million barrels a day in the third quarter, from 2.3 million a day in the second, although growth remained “significantly above the historical average.” There are signs the some fuel-storage depots in the eastern hemisphere have been filled to capacity, it said.

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Excuse me? … “..younger households are forgoing the opportunity to accumulate wealth..”

Number of First-Time US Home Buyers Falls to Lowest in Three Decades (WSJ)

The share of U.S. homes sold to first-time buyers this year declined to its lowest level in almost three decades, raising concerns that young people are being left out of an otherwise strong housing-market recovery. First-time buyers fell to 32% of all purchasers in 2015 from 33% last year, the third straight annual decline and the lowest%age since 1987, according to a report released Thursday by the National Association of Realtors, a trade group. The historical average is 40%, according to the group, which has been recording such data since 1981. The housing market is on track for its strongest year for sales since 2007, but the dearth of younger buyers could pose long-term challenges, economists said.

Without them, current owners have difficulty trading up or selling their homes when they retire. If home prices continue to rise sharply it will become even more difficult for new buyers to enter the market. The median price of previously built homes sold in September was $221,900, up 6.1% from a year earlier, according to the NAR. The median price for a newly built home rose to $296,900 in September from $261,500 a year ago, according to the Commerce Department. “The short answer is they can’t afford it,” said Nela Richardson, chief economist at Redfin, a real-estate brokerage. By delaying homeownership, younger households are forgoing the opportunity to accumulate wealth, said Ms. Richardson.

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For now, they look stuck with nowhere to turn.

Striking Greeks Take To Tension-Filled Streets In Austerity Protest (Reuters)

Striking Greeks took to the streets on Thursday to protest austerity measures, setting Alexis Tsipras’ government its biggest domestic challenge since he was re-elected in September promising to cushion the impact of economic hardship. Flights were grounded, hospitals ran on skeleton staff, ships were docked at port and public offices stayed shut across the country in the first nationwide walkout called by Greece’s largest private and public sector unions in a year. As Greece’s foreign lenders prepared to meet in central Athens to review compliance with its latest bailout, thousands marched in protest at the relentless round of tax hikes and pension cutbacks that the rescue packages have entailed.

Tensions briefly boiled over in the city’s main Syntagma Square, where a Reuters witness saw riot police fired tear gas at dozens of black-clad youths who broke off from the march to hurl petrol bombs and stones and smash shop windows near parliament. Some bombs struck the frontage of the Greek central bank. Police sources said three people were detained before order was restored. Five years of austerity since the first bailout was signed in 2010 have sapped economic activity and left about a quarter of the population out of work. “My salary is not enough to cover even my basic needs. My students are starving,” said Dimitris Nomikos, 52, a protesting teacher told Reuters. “They are destroying the social security system … I don’t know if we will ever see our pensions.”

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Losses wherever you look.

Europe’s Top Banks Are Cutting Losses Throughout Latin America (Bloomberg)

European banks are on the retreat all across Latin America Societe Generale announced in February that it’s dismissing more than 1,000 workers while exiting the consumer-finance business in Brazil. In August, HSBC sold its unprofitable Brazilian unit, with more than 20,000 employees. Two months later, it was Deutsche Banks turn. The German lender said it’s closing offices in Argentina, Mexico, Chile, Peru and Uruguay and moving Brazilian trading activities elsewhere. Barclays is shrinking its operations in Brazil too. The exodus threatens to deepen Latin America’s turmoil, making it harder for companies and consumers to obtain financing. The region already is out of favor as sinking commodity prices drive it toward the worst recession since the late 1990s.

European banks, meanwhile, are looking to cull weak businesses as they struggle to generate profits and meet tougher capital requirements back home. “All large European banks are under great pressure from regulatory changes and low stock prices to change their business models,” Roy Smith, a finance professor at New York University’s Stern School of Business, said in an e-mail. “These changes have to be quite significant to make enough difference.” The exits are opening opportunities for local rivals and global banks from the U.S., Spain and Switzerland willing to wait out the economic slump. Latin America’s economy will probably contract 0.5% this year, squeezed by falling commodity prices and a slowdown in Brazil that’s predicted to be the longest since the Great Depression.

That would make it the first recession in the region since 2009 and the biggest since 1999. Demand for investment-banking services is tumbling, with fees plunging 45% this year through Oct. 15 to a 10-year low of $817 million, Dealogic said. “European banks have fairly weak profits right now and in some cases low capital levels,” Erin Davis, an analyst from Morningstar, said in an e-mail. That leaves “little wiggle room” to absorb losses or low profits from Latin America, even if they believe in its long-term potential, Davis said.

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“..from 2002 to 2014 the area of the glacier’s floating shelf shrank by a massive 95%..”

Collapsing Greenland Glacier Could Raise Sea Levels By Half A Meter (Guardian)

A major glacier in Greenland that holds enough water to raise global sea levels by half a metre has begun to crumble into the North Atlantic Ocean, scientists say. The huge Zachariae Isstrom glacier in northeast Greenland started to melt rapidly in 2012 and is now breaking up into large icebergs where the glacier meets the sea, monitoring has revealed. The calving of the glacier into chunks of floating ice will set in train a rise in sea levels that will continue for decades to come, the US team warns. “Even if we have some really cool years ahead, we think the glacier is now unstable,” said Jeremie Mouginot at the University of California, Irvine. “Now this has started, it will continue until it retreats to a ridge about 30km back which could stabilise it and perhaps slow that retreat down.”

Mouginot and his colleagues drew on 40 years of satellite data and aerial surveys to show that the enormous Zachariae Isstrom glacier began to recede three times faster from 2012, with its retreat speeding up by 125 metres per year every year until the most recent measurements in 2015. The same records revealed that from 2002 to 2014 the area of the glacier’s floating shelf shrank by a massive 95%, according to a report in the journal Science. The glacier has now become detached from a stabilising sill and is losing ice at a rate of 4.5bn tonnes a year. Eric Rignot, professor of Earth system science at the University of California, Irvine, said that the glacier was “being hit from above and below”, with rising air temperatures driving melting at the top of the glacier, and its underside being eroded away by ocean currents that are warmer now than in the past.

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Wow, really?! Foreigners controlling your borders?: “..a pact that would see Turkey patrolling the EU’s southern border with Greece..”

EU Leaders Race To Secure €3 Billion Migrant Deal With Turkey (Guardian)

The German chancellor, Angela Merkel, and other EU leaders are racing to clinch a €3bn (£2.4bn) deal with Turkey’s strongman president, Recep Tayyip Erdogan, to halt the mass influx of migrants and refugees into Europe. All 28 national EU leaders are expected to host Erdogan at a special summit in Brussels within weeks to expedite a pact that would see Turkey patrolling the EU’s southern border with Greece and stemming the flow of hundreds of thousands of refugees, mainly from Syria. In return, Ankara would get €3bn over two years and the EU would also probably agree to resettle hundreds of thousands of refugees in Europe directly from Turkey. No EU country, not even Germany, has committed to paying its share of the €3bn bill except Britain.

In what appears to be a unique event in David Cameron’s chequered history of relations with the EU, the prime minister, while in the Maltese capital of Valletta, offered €400m for the Turkey plan, the only financial pledge yet delivered. That figure is roughly in line with a breakdown of expected national contributions by the European commission and would make Britain the second biggest participant after Germany. The prospect of a breakthrough with Turkey is tantalising for Merkel, for whom the refugee crisis has posed the biggest problem in 10 years of power. This week her finance minister, Wolfgang Schaeuble, likened the arrival of almost 800,000 newcomers in Germany this year to an avalanche and appeared to blame the chancellor for the situation by stating that “careless skiers can trigger avalanches”.

Facing tumult within her governing coalition and her own party, Merkel looks like a leader seeking relief in a hurry. An emergency EU summit in Valletta heard from EU negotiators on Thursday that Erdogan was demanding two quick moves by the Europeans to pave the way for a deal – €3bn over two years and a full summit. Senior EU sources said the message from Ankara was that the price tag would rise if it was not accepted now. Merkel wasted no time in agreeing, witnesses to the closed-door summit exchanges said. She told her fellow EU leaders that she was ready to put money on the table and proposed 22 November as the summit date. She later said the date was not set because it had to be agreed with Ankara, but that it would be around the end of the month.

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It’s a start.

PM Trudeau Says Canada To Settle 25,000 Syrian Refugees In Next 7 Weeks (G&M)

Prime Minister Justin Trudeau will use his first international trip as an opportunity to show other nations there is an economic – as well as humanitarian – case for welcoming large numbers of Syrian refugees. Less than two weeks after being sworn in as Prime Minister, Mr. Trudeau will participate in a summit of G20 leaders hosted by Turkey, Syria’s northern neighbour that is currently home to more than two million refugees. Mr. Trudeau said he expects Canada’s plan to settle 25,000 Syrian refugees this year will have a greater impact in terms of setting an example to others. “I think one of the things that is most important right now is for a country like Canada to demonstrate how to make accepting large numbers of refugees not just a challenge or a problem, but an opportunity; an opportunity for communities across this country, an opportunity to create growth for the economy,” he said.

Mr. Trudeau is departing on a whirlwind of foreign travel that will test his political skills as he attempts to strike positive first impressions with the world’s most influential leaders. The Liberals are promoting the trips as a message that Canada will now play a more constructive role in international affairs. The Prime Minister said his focus at the G20 will be to encourage global growth through government investment rather than austerity. The G20 pledged last year in Brisbane, Australia, to boost economic growth by 2% partly by increased spending on infrastructure, a plan that is in line with Mr. Trudeau’s successful election platform. The global economy has since moved in the opposite direction. The IMF has lowered its global growth forecasts for this year and next.

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Jan 122015
 
 January 12, 2015  Posted by at 11:34 am Finance Tagged with: , , , , , , , ,  1 Response »


DPC Pere Marquette transfer boat 18 passing State Street bridge Chicago River 1901

Why Falling Oil Prices Won’t Delay Fed Rate Increases (MarketWatch)
Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned (Bloomberg)
UK Oil Firms Warn Osborne: Without Big Tax Cuts We Are Doomed (Telegraph)
As Oil Plummets, How Much Pain Still Looms For US Energy Firms? (Reuters)
Oil’s Plunge Wipes Out S&P 500 Earnings (Bloomberg)
How Falling Gasoline Prices Are Hurting Retail Sales (MarketWatch)
Mind The Gap In Multi-Speed World Economy After Oil Plunge (Reuters)
$50 Oil Kills Bonanza Dream That Made Greenlanders Millionaires (Bloomberg)
Saudi Prince Alwaleed: $100-A-Barrel Oil ‘Never’ Again (Maria Bartiromo)
Here’s What Happens When Oil Prices Crash – Not Pretty For Producers (Guardian)
Greek PM Stuns Creditors With Election Promise To Ease Austerity (Guardian)
Banks Ready Contingency Plans in Case of Greek Eurozone Exit (WSJ)
ECB Plans QE According To Paid-In Capital (CNBC)
European Central Bank’s Bond-Acquiring Plans Face Doubt (WSJ)
Europe’s Economic Madness Cannot Continue (Joseph Stiglitz)
Japan Readies Record $800 Billion 2015-16 Budget (Reuters)
Steen Jakobsen Warns “Things Are About To Take A Different Turn In 2015” (ZH)
Kerry to Visit France After US Faulted for Rally Presence (Bloomberg)
The Curious Case Of New York’s Zero Crime Wave (Independent)
Birmingham, UK A ‘Totally Muslim’ City: Fox News ‘Terror Expert’ (Ind.)
The Economics Of Happiness Can Make For Sad Reading (Guardian)

This is the Fed narrative: “Ignore transitory volatility in energy prices.”

Why Falling Oil Prices Won’t Delay Fed Rate Increases (MarketWatch)

Financial markets have been shaken over the past several weeks by a misguided fear that deflation has imbedded itself not only into the European economy but the U.S. economy as well. Deflation is a serious problem for Europe, because the eurozone is plagued with bad debts and stagnant growth. Prices and wages in the peripheral nations (such as Greece and Spain) must fall still further in relation to Germany’s in order to restore their economies to competitiveness. But that’s not possible if prices and wages are falling in Germany (or even if they are only rising slowly). The prospect of what Mario Draghi has called “lowflation” will almost certainly push the European Central Bank to approve quantitative-easing measures very soon.

In Europe, deflation will extend the economic crisis, but that’s not an issue in the United States, where households, businesses and banks have mostly completed the necessary adjustments to their balance sheets after the great debt boom of the prior decade. The plunge in oil prices will likely push the annual U.S. inflation rate below 1%, further from the Federal Reserve’s target of 2%. At least one member of the Fed’s policy-setting Federal Open Market Committee thinks the Fed is risking its credibility by letting inflation dip closer to zero. Minneapolis Fed President Narayana Kocherlakota dissented from the FOMC’s last statement, saying the Fed should fight the disinflationary trend by signaling that it is not ready to raise interest rates this summer as is widely expected. But Kocherlakota’s colleagues don’t agree, and for a very good reason: Falling oil prices are a temporary phenomenon that shouldn’t alter anyone’s view about the underlying rate of inflation.

On Wednesday, the newly released minutes of the Fed’s latest meeting in December revealed that most members of the FOMC are ready to raise rates this summer even if inflation continues to fall, as long as there’s a reasonable expectation that inflation will eventually drift back to 2%. Fed Chairman Ben Bernanke got a lot of flak in the spring of 2011 when oil prices were rising and annual inflation rates climbed to near 4%, double the Fed’s target. Bernanke’s critics wanted him to raise interest rates immediately to fight the inflation, but he insisted that the spike was “transitory” and that the Fed wouldn’t respond. Bernanke was right then: Inflation rates drifted lower, just as he predicted. Now the situation is reversed: Oil prices are falling, and critics of the Fed say it should hold off on raising interest rates. The Fed’s policy in both cases is the same: Ignore transitory volatility in energy prices.

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“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer ..”

Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned (Bloomberg)

Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market. The bank cut its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York. The U.S. is pumping oil at the fastest pace in more than three decades, helped by a shale boom that’s unlocked supplies from formations including the Eagle Ford in Texas and the Bakken in North Dakota. Prices slumped almost 50% last year as OPEC resisted output cuts even amid a global surplus that Qatar estimates at 2 million barrels a day.

“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” Goldman said in the report. “The search for a new equilibrium in oil markets continues.” West Texas Intermediate, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter. Goldman reduced its six and 12-month WTI predictions to $39 a barrel and $65, from $75 and $80, respectively, while its estimate for Brent for the period were cut to $43 and $70, from $85 and $90, according to the report. “We forecast that the one-year-ahead WTI swap needs to remain below this $65 a barrel marginal cost, near $55 a barrel for the next year to sideline capital and keep investment low enough to create a physical re-balancing of the market,” the bank said.

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“If we don’t get an immediate 10pc cut, then that will be the death knell for the industry ..”

UK Oil Firms Warn Osborne: Without Big Tax Cuts We Are Doomed (Telegraph)

North Sea oil and gas companies are to be offered tax concessions by the Chancellor in an effort to avoid production and investment cutbacks and an exodus of explorers. George Osborne has drawn up a set of tax reform plans, following warnings that the industry’s future of the industry is at risk without substantial tax cuts. But the industry fears he will not go far enough. Oil & Gas UK, the industry body, is urging a tax cut of as much as 30pc and an overhaul of what it says is a complex, unfriendly and outdated tax structure. Mr Osborne asked Treasury officials to work on a new, more wide-ranging package than the 2pc tax cuts he promised in the Autumn Statement last month. The basic tax levy is currently 60pc but can run to 80pc for established oil fields. He plans to open talks with industry leaders this week on new options for the pre-election March Budget.

Mr Osborne acknowledged on Sunday that “more action” was needed. He said he could not pre-empt the Budget, but hinted strongly there could be a “further reductions in the burden of tax on investment in the North Sea”. Ed Davey, the Energy Secretary, is due in Aberdeen on Thursday for talks about investment, the jobs outlook and the help being provided by the new Government- backed Oil and Gas Authority. Industry leaders have presented the Chancellor with a bleak picture of the North Sea outlook after the big falls in the price of crude since the summer, and particularly the impact on the Scottish economy. Mike Tholen, the economics director at Oil and Gas UK, dramatically summed up the situation. “If we don’t get an immediate 10pc cut, then that will be the death knell for the industry,” he said.

The industry sees the 10pc cut as a “down payment” to be followed by a further 20pc reduction to provide an investment incentive. The speed and scale of the collapse in oil prices, down almost 60pc to below $50 a barrel over the past five months, has forced North Sea operators in a high-cost oil basin to take emergency action. A modest recovery in exploration is almost at a standstill, some projects have been mothballed and cost-cutting programmes accelerated. Oil contract workers’ pay has been slashed by 15pc and redundancy programmes are under review. The industry’s “rescue” programme is simple, but costly. Allowances, supplementary taxes and other additions have made North Sea taxation one of the most complex in the business. Companies operating fields discovered before 1992 can end up with handing over 80pc of their profits to the Chancellor; post-1992 discoveries carry a 60pc profits hit.

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“.. shipments have fallen by half since June when oil was fetching more than $100 a barrel ..”

As Oil Plummets, How Much Pain Still Looms For US Energy Firms? (Reuters)

With nearly a quarter of U.S. energy shares’ value wiped out by oil’s six-month slide, investors are wondering if the sector has taken enough punishment and whether it is time to pile back in ahead of earnings reports later this month. The broad energy S&P 1500 index gained more than 4% over the past month, suggesting many believe markets have already factored in the pain caused by oil prices tumbling by more than half since June below $50 a barrel. Yet since the start of this year, most energy stocks have given up some of those gains, revealing anxiety that some nasty surprises might still be lurking somewhere and that last month’s bounce may not last.

A closer look at valuations and interviews with a dozen of smaller firms ahead of fourth quarter results from their bigger, listed rivals, shows there are reasons to be nervous. What small firms say is that the oil rout hit home faster and harder than most had expected. “Things have changed a lot quicker than I thought they would,” says Greg Doramus, sales manager at Orion Drilling in Texas, a small firm which leases 16 drilling rigs. He talks about falling rates, last-minute order cancellations and customers breaking leases. The conventional wisdom is that hedging and long-term contracts would ensure that most energy firms would only start feeling the full force of the downdraft this year.

The view from the oil fields from Texas to North Dakota is that the pain is already spreading. “We have been cut from the work,” says Adam Marriott, president of Fandango Logistics, a small oil trucking firm in Salt Lake City. He says shipments have fallen by half since June when oil was fetching more than $100 a barrel and his company had all the business it could handle. Bigger firms are also feeling the sting. Last week, a leading U.S. drilling contractor Helmerich & Payne reported that leasing rates for its high-tech rigs plunged 10% from the previous quarter, sending its shares 5% lower.

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“People were only taking into account consumer spending and there was a sense that falling energy is ubiquitously positive for the U.S., but I’m not convinced.”

Oil’s Plunge Wipes Out S&P 500 Earnings (Bloomberg)

While stock investors wait for the benefits of cheaper oil to seep into the economy, all they can see lately is downside. Forecasts for first-quarter profits in the Standard & Poor’s 500 Index have fallen by 6.4 percentage points from three months ago, the biggest decrease since 2009, according to more than 6,000 analyst estimates compiled by Bloomberg. Reductions spread across nine of 10 industry groups and energy companies saw the biggest cut. Earnings pessimism is growing just as the best three-year rally since the technology boom pushed equity valuations to the highest level since 2010. At the same time, volatility has surged in the American stock market as oil’s 55% drop since June to below $49 a barrel raises speculation that companies will cancel investment and credit markets and banks will suffer from debt defaults.

“Either there is nothing to worry about and crude is going quickly back to $70 plus, or we have entered an earnings down cycle for an appreciable portion of the market,” said Michael Shaoul, CEO at Marketfield Asset Management in New York. “I don’t see much room for a middle ground and I don’t think the winners will cancel out the losers.” American companies are facing the weakest back-to-back quarterly earnings expansions since 2009 as energy wipes out more than half the growth and the benefit to retailers and shippers fails to catch up. Oil producers are rocked by a combination of faltering demand and booming supplies from North American shale fields, with crude sinking to $48.36 a barrel from an average $98.61 in the first three months of 2014.

Except for utilities, every other industry has seen reductions in estimates. Profit from energy producers such as Exxon Mobil and Chevron will plunge 35% this quarter, analysts estimated. In October, analysts expected the industry to earn about the same as it did a year ago. “My initial thought was oil would take a dollar or two off the overall S&P 500 earnings but that obviously might be worse now,” Dan Greenhaus at BTIG said in a phone interview. “The whole thing has moved much more rapidly and farther than anyone thought. People were only taking into account consumer spending and there was a sense that falling energy is ubiquitously positive for the U.S., but I’m not convinced.”

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“.. December is the most important month of the year for retailers, but economists polled by MarketWatch are expecting a flat reading, and quite a few say a monthly decline wouldn’t be a surprise.”

How Falling Gasoline Prices Are Hurting Retail Sales (MarketWatch)

Aren’t declining gasoline prices supposed to be good news for the economy? They certainly are to households not employed in the energy industry, but it might not seem so from the one of the biggest economic indicators due for release this week. On Wednesday, the Commerce Department is set to report retail sales for December. It’s the most important month of the year for retailers, but economists polled by MarketWatch are expecting a flat reading, and quite a few say a monthly decline wouldn’t be a surprise. That’s because of the tremendous drop in gasoline prices. Gasoline stations are a key component of the retail sales report, so their revenue quite naturally will fall as prices at the pump decline. So rather than the headline, economists say to examine other elements of the report.

“Apart from gasoline, we anticipate solid sales in December, reflecting strong holiday shopping,” said Peter D’Antonio, an economist at Citi. “The drop in sales at gas stations actually provides the cost savings for the expected gains in spending in coming months.” That said, Morgan Stanley’s Ted Wieseman cautions that consumer spending may not have been as aggressive in December as in November. After department stores saw a 1% monthly gain in November, the segment may reverse some of that advance in the final month of the year. Nonetheless, savings reaped by households on lower gasoline costs will likely show up in part of the consumer-inflation report released Friday by the Labor Department.

The expected fall in consumer prices last month may mean that average hourly wages actually rose in December when inflation is factored in. Hourly earnings not adjusted for inflation fell by 0.2% last month to mark the biggest drop since at least 2006, according to the government’s December employment report. The bigger question is whether the plunge in gasoline will spill over into so-called core prices that reflect the cost of a wide variety of other goods and services other than energy and food. That’s also a potential bonanza for consumers and a scenario that could prompt the Federal Reserve to keep interest rates ultra low even longer than expected.

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“It’s pretty rare that you have a price adjustment this significant in a market that is this significant and not have some corner of the market or the world really cause some instability.”

Mind The Gap In Multi-Speed World Economy After Oil Plunge (Reuters)

Robust recovery in the United States, a moribund euro zone and slowing Chinese growth reflect global splits which plunging oil prices are likely to widen. On the face of it, lower energy bills should give consumers and companies more money to spend and boost economic growth, at least for oil importers. But for those countries facing stagnation or even deflation the prospect of downward pressure on prices is more worrying. The likelihood is that a near 60% fall in the price of oil – from above $115 in mid-2014 to just $50 – will see those already growing strongly pick up further, leaving the laggards trailing in their wake. Central bankers in the United States and Europe have clearly expressed the divide over an oil dividend in recent weeks. “It is a huge plus for consumers, for businesses,” San Francisco Fed President John Williams said on Monday.

A drag from weak economies elsewhere in the world would not counteract that, he calculated. Williams is not alone. Minutes of the Fed’s December meeting said some of those present thought “the boost to domestic spending coming from lower energy prices could turn out to be quite large”. Compare that with European Central Bank chief economist Peter Praet, speaking on the last day of 2014, days before euro zone inflation turned negative for the first time since 2009. “With the recent oil prices, inflation would be even lower, even substantially lower than expected so far,” he said, noting that in the past the ECB would have looked past external shocks such as this but could no longer afford to. “In an environment … in which inflation expectations are extremely fragile we cannot simply ‘look through’.”

Markets are certain the ECB will launch a Fed-style government bond-buying program with new money. Given that it may be curbed in some way to meet German concerns, there is much less certainty that it will deliver a jolt. Most economists agree the U.S. economy will benefit from low oil, which will harden expectations of an interest rate rise this year, but some see real stress elsewhere. “You’ve got a handful of places that are seemingly doing very well – like the U.S., the UK, Canada – but it trails off pretty quickly after that,” said Carl Tannenbaum, chief economist at Northern Trust. “It’s pretty rare that you have a price adjustment this significant in a market that is this significant and not have some corner of the market or the world really cause some instability.”

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“Deputy Prime Minister Andreas Uldum says Greenland’s hope of growing rich quickly on fossil fuels was “naïve.” “I myself believed back when I was first elected”

$50 Oil Kills Bonanza Dream That Made Greenlanders Millionaires (Bloomberg)

Greenland, an island that may be sitting on trillions of dollars of oil, has had to acknowledge that its dream of tapping into that wealth looks increasingly far-fetched. Back when oil was headed for $150 a barrel, Greenlanders girded for a production boom after inviting in some of the world’s biggest explorers, including Chevron and Exxon Mobil. Now, with Brent crude dipping below $50 last week, Deputy Prime Minister Andreas Uldum says Greenland’s hope of growing rich quickly on fossil fuels was “naïve.” “I myself believed back when I was first elected” to parliament in 2009 “that billions from oil and minerals would start flowing to us the next year or the year after that,” he said in an interview in Copenhagen.

“However, that’s just not the reality. I don’t know any politician in Greenland today who won’t admit to having fueled the hysteria.” The nation of about 56,000 had imagined its oil and mineral production would turn every citizen into a millionaire. Instead, Greenland continues to rely on an annual 3.68 billion-krone ($586 million) subsidy from Denmark to stay afloat, a sum that’s equivalent to almost half its gross domestic product. Talk of severing ties from its former colonial master has also faded as Greenlanders see little prospect of achieving economic independence anytime soon. “Now we know what is realistic and what isn’t, and we should not expect any revenue or pseudo-figure flowing into our budget from this and that,” Uldum said.

“That’s simply not realistic. We’ll conduct a responsible economic policy.” Less than a decade ago, the combination of a hotter planet melting the ice around Greenland and a booming Chinese economy driving up commodities prices looked destined to turn the world’s largest island into an Arctic El Dorado. But none of the companies awarded licenses was able to make any commercial finds, even before the oil price dropped to a level that would make production unprofitable.

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“There’s less demand, and there’s oversupply. And both are recipes for a crash in oil. And that’s what happened. It’s a no-brainer.”

Saudi Prince Alwaleed: $100-A-Barrel Oil ‘Never’ Again (Maria Bartiromo)

Saudi billionaire businessman Prince Alwaleed bin Talal told me we will not see $100-a-barrel oil again. The plunge in oil prices has been one of the biggest stories of the year. And while cheap gasoline is good for consumers, the negative impact of a 50% decline in oil has been wide and deep, especially for major oil producers such as Saudi Arabia and Russia. Even oil-producing Texas has felt a hit. The astute investor and prince of the Saudi royal family spoke to me exclusively last week as prices spiraled below $50 a barrel. He also predicted the move would dampen what has been one of the big U.S. growth stories: the shale revolution.

In fact, in the last two weeks, several major rig operators said they had received early cancellation notices for rig contracts. Companies apparently would rather pay to cancel rig agreements than keep drilling at these prices. His royal highness, who has been critical of Saudi Arabia’s policies that have allowed prices to fall, called the theory of a plan to hurt Russian President Putin with cheap oil “baloney” and said the sharp sell-off has put the Saudis “in bed” with the Russians.

Q: Can you explain Saudi Arabia’s strategy in terms of not cutting oil production?
A: Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth. Because the minister of oil in Saudi Arabia just in July publicly said $100 is a good price for consumers and producers. And less than six months later, the price of oil collapses 50%. Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.

Q: So this is about not losing market share?
A: Yes. Although I am in full disagreement with the Saudi government, and the minister of oil, and the minister of finance on most aspects, on this particular incident I agree with the Saudi government of keeping production where it is.

Q: What is moving prices? Is this a supply or a demand story? Some say there’s too much oil in the world, and that is pressuring prices. But others say the global economy is slow, so it’s weak demand.
A: It is both. We have an oversupply. Iraq right now is producing very much. Even in Libya, where they have civil war, they are still producing. The U.S. is now producing shale oil and gas. So, there’s oversupply in the market. But also demand is weak. We all know Japan is hovering around 0% growth. China said that they’ll grow 6% or 7%. India’s growth has been cut in half. Germany acknowledged just two months ago they will cut the growth potential from 2% to 1%. There’s less demand, and there’s oversupply. And both are recipes for a crash in oil. And that’s what happened. It’s a no-brainer.

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“A vast transfer of wealth from exporters to importers is occurring.” Yeah, sure, but a lot of money/credit is ismply vanishing.

Here’s What Happens When Oil Prices Crash – Not Pretty For Producers (Guardian)

The longest and biggest oil boom in history is over. In a boom – and the latest one lasted almost 10 years – everything shines for producer nations: the economy grows, consumption explodes, businesses make fat profits regardless of their productivity, poverty declines even if social protection programmes are ineffective, politicians are popular and get re-elected even if they are incompetent and corrupt, and people tend to be happier. But oil prices tend to be cyclical, so when the downturn comes, the party ends. During the oil price decline of the 1980s, most oil-dependent countries suffered the consequences of the resulting collapse in investment and consumption. A few, such as Oman and Malaysia, were able to compensate for the price collapse by increasing production, but many oil exporters suffered, also due to the production cuts agreed by OPEC.

Some recovered better than others, but in general between 1982 and 2002 they fared much more poorly than the rest of the developing world. Those that fared worst were typically the ones that got into debt during the boom. Poverty and unemployment rose sharply. In fact, such underperformance led to the widespread idea that having oil is a curse, which has generated extensive literature. The reality is more complex, as shown by economic overperformance during the past decade’s boom. In fact, taking out those two “bust” decades, oil countries have outperformed their peers over the past 70 years. So the real “curse” is in fact an oil price collapse. The current price collapse – for the first time since 2009 prices are below the symbolic $50 a barrel – is largely a result of the boom in shale oil production in the US, adding more than 3m barrels over the past few years. High prices bring investment and supply, and this boom was no different.

Oil prices are notoriously difficult to predict, so we do not know if the current bust will last, despite evidence that points to at least two more years of lower prices. Moreover, prices are still above historical standards. For the majority of the more than 120 years of history of the oil industry the price has been below $50 in today’s money. But geopolitics or renewed consumption could alter the oversupply scenario and surprise us once again. In fact, oil busts tend to lead to booms down the road precisely because investment in oil exploration dries up. Net importers, like most European countries, will benefit from the oil price decline. In the US, citizens will pay significantly less for gasoline than they have over the past five years, leading them to spend more on other goods. A vast transfer of wealth from exporters to importers is occurring.

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Tsipras: “Greece is fated to become a “colony” without a future ..”

Greek PM Stuns Creditors With Election Promise To Ease Austerity (Guardian)

In a move likely to stun international creditors keeping debt-stricken Greece afloat, the prime minister, Antonis Samaras, has stepped up his electoral campaign with a promise to ease the austerity policies demanded in exchange for financial aid, two weeks before crucial snap elections. Unveiling a “roadmap” of measures for a “post-bailout Greece”, the leader pledged he would restrict spending cuts and reforms that have seen the popularity of the main opposition radical left Syriza party soar. “I personally guarantee there will be no more pension or wage cuts,” he told his centre-right party members in Athens at the weekend as electioneering intensified ahead of the vote on 25 January. “The next breakthrough in our growth plan includes tax cuts across the board which can happen gradually, step by step.”

Both pension reform and streamlining of the profligate public sector have been set as conditions for the future financial assistance Athens so desperately needs from the European Union and International Monetary Fund. Failure to agree on the painful measures, nearly five years after its near-economic collapse, has prevented Greece concluding talks with lenders consenting to provide bailout funds only until the end of February. With a workforce of 2.7 million paying for retirees of roughly the same number, creditors have insisted that pensions be pared back. The demand has been the centrepiece of Athens receiving a new “precautionary credit line” when its €240bn financial assistance programme runs out. It is also a condition of any future talks over the rescheduling of Greek debt, at 177% of GDP not only the largest in the EU but by far the biggest drain on the economy. [..]

Stepping up his own campaign, Syriza’s leader, Alexis Tsipras, announced on Sunday that his party was seeking “a clear mandate” that would allow it to renegotiate the tough conditions attached to financial assistance. Latest polls show that while the radical leftists are leading by a 3 to 5% margin, they are still unlikely to win an outright majority in the 300-seat parliament. “We are asking the Greek people to give us a strong mandate so that the memorandum [bailout accord] won’t become a permanent status quo [causing] social catastrophe for the country,” he told Real News. “So that the commitments [agreed by] today’s government are not enforced … and so that there won’t be a new memorandum of austerity.” Earlier, the leader had told supporters that Greece is fated to become a “colony” without a future if the cost-cutting policies imposed by the bailout terms continued unabated.

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“Italy could follow Greece’s steps if the exit will prove successful in providing some relief to the country’s economic crisis ..”

Banks Ready Contingency Plans in Case of Greek Eurozone Exit (WSJ)

Banks and other financial institutions in Europe are stress-testing their internal systems and dusting off two-year-old contingency plans for the possibility that Greece could leave the region’s monetary union after a key election later this month. Among the firms running through drills are Citigroup, Goldman Sachs and brokerage ICAP, according to people familiar with the matter. The firms’ plans include detailed checks on counterparties that could be significantly affected by a Greek exit, looking at credit exposures and testing how they would provide cross-border funding to local operations. Some firms are also preparing for the impact on payment systems and conducting trial runs of currency-trading platforms to see how they would cope with adding a new Greek currency or dealing with potential capital controls.

The moves come as Greek leftist opposition party Syriza continues to lead in recent public opinion polls ahead of national elections on Jan. 25. The ruling coalition government has framed the election as a de facto poll on whether the country stays in the eurozone, saying Syriza’s antiausterity policies would force a break with eurozone partners. Syriza, though, hasn’t campaigned on an exit and most Greek voters want to stay in the monetary union, according to recent polls. Most analysts still say the chances of a Greek exit are quite low. Economists at Commerzbank rate the chances on an exit at below 25%. “Hope for the best, plan for the worst,” said Frederic Ponzo, managing partner at consultancy Grey Spark. Financial firms often test their systems for events such as a rapid change in oil prices or the recent referendum on Scottish independence, he added.

At some European banks, that currently means dusting off plans drawn up a couple of years ago, when a eurozone breakup was a hot topic. In 2011 and 2012, banks, brokers and companies with significant exposure to Greek assets put in place contingency plans to minimize the fallout from a breakup. In late 2011, former ICAP Chief Executive David Rutter said the firm had stress-tested its currency trading platform EBS for all 17 currencies that would have resurfaced in the case of a complete breakup of the eurozone. The brokerage conducted similar tests earlier this month, two people familiar with the matter said. Other European banks are running similar tests on trading platforms to ensure they would be capable of dealing with a rash of new currencies, according to several people familiar with the matter.

The head of currencies trading at a large European bank said that reintroducing the Greek drachma to its trading system wouldn’t be too difficult, but dealing with a larger breakup would be more challenging. “Italy could follow Greece’s steps if the exit will prove successful in providing some relief to the country’s economic crisis,” he said.

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Dead end.

ECB Plans QE According To Paid-In Capital (CNBC)

The European Central Bank could be ready to announce a quantitative easing program based on the contributions made from national central banks, a source close to the central bank has told CNBC. The source said that the central bank is planning to design a sovereign debt purchase program based on the paid-in capital contributions made by euro zone central banks. Every national central bank pays a certain amount of capital into the ECB. For example Germany pays in 17.9% of the total contributions, while France contributes 14.2%. Cyprus, meanwhile, pays the least with 0.15% of the total. The level of this paid-in capital contribution would determine how much of that country’s sovereign debt the central bank would purchase, according to the source, although nothing has been finalized yet.

The comments were made ahead of the ECB’s next meeting on January 22, at which it is widely expected that it could announce a full-blown quantitative easing program in order to stimulate growth and demand in the deflation-hit euro zone. On Friday, sources told Reuters that the bank was considering a hybrid approach to government bond purchases which would combine the ECB buying debt with risk sharing across the euro zone and separate purchases by national central banks. The latter element of such a design would hope to ease German concerns over the central bank taking on the debt of struggling nations such as Greece.

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“.. quantitative easing has faced significant obstacles even in areas exactly where it has scored apparent successes.”

European Central Bank’s Bond-Acquiring Plans Face Doubt (WSJ)

The European Central Bank is widely expected to follow the U.S. Federal Reserve’s lead this month with a new system of bond purchases meant to stimulate the eurozone’s limp economy. Whether or not it performs is an additional matter. Bond-shopping for programs, identified as quantitative easing, are meant to drive down borrowing expenses to encourage households and companies to borrow, invest and commit. They also aim to enhance the value of assets such as stocks and encourage far more risk-taking. In addition, they have a tendency to push down the value of a nation’s currency, which helps to boost exports. The currency element is specially critical in Europe, where the euro has tumbled to a nine-year low against the dollar.

Yet quantitative easing has faced significant obstacles even in areas exactly where it has scored apparent successes. These obstacles could be even much more formidable in Europe, where gross domestic item remains beneath 2008 levels and unemployment remains in double digits. The Fed, for instance, accumulated a portfolio of $1.7 trillion worth of mortgage-backed securities, but its efforts to push down mortgage prices didn’t support millions of Americans who had been locked out of refinancing at reduce prices or taking out new mortgages for the reason that they have been burdened by bad credit and faced tighter bank standards.

Some research of the effectiveness of quantitative easing in the U.S. have recommended it was most potent when aimed at private securities markets such as those primarily based on mortgages, even with the impediments in these markets. But private debt-securities markets in Europe are too smaller for the ECB to tap aggressively. About 80% of corporate lending in Europe is completed by means of the region’s monetary institutions, rather than via bond markets. And the banking method is hugely fragmented along national boundaries. For instance, compact firms in Germany are able to borrow at two.eight% interest, according to ECB figures, versus 4% in Spain.

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“The EU’s malaise is self-inflicted, owing to an unprecedented succession of bad economic decisions, beginning with the creation of the euro. Though intended to unite Europe, in the end the euro has divided it ..”

Europe’s Economic Madness Cannot Continue (Joseph Stiglitz)

At long last, the United States is showing signs of recovery from the crisis that erupted at the end of President George W. Bush’s administration, when the near-implosion of its financial system sent shock waves around the world. But it is not a strong recovery; at best, the gap between where the economy would have been and where it is today is not widening. If it is closing, it is doing so very slowly; the damage wrought by the crisis appears to be long term. Then again, it could be worse. Across the Atlantic, there are few signs of even a modest US-style recovery: the gap between where Europe is and where it would have been in the absence of the crisis continues to grow. In most European Union countries, per capita GDP is less than it was before the crisis. A lost half-decade is quickly turning into a whole one. Behind the cold statistics, lives are being ruined, dreams are being dashed, and families are falling apart (or not being formed) as stagnation – depression in some places – runs on year after year.

The EU has highly talented, highly educated people. Its member countries have strong legal frameworks and well-functioning societies. Before the crisis, most even had well-functioning economies. In some places, productivity per hour – or the rate of its growth – was among the highest in the world. But Europe is not a victim. Yes, America mismanaged its economy; but, no, the US did not somehow manage to impose the brunt of the global fallout on Europe. The EU’s malaise is self-inflicted, owing to an unprecedented succession of bad economic decisions, beginning with the creation of the euro. Though intended to unite Europe, in the end the euro has divided it; and, in the absence of the political will to create the institutions that would enable a single currency to work, the damage is not being undone.

The current mess stems partly from adherence to a long-discredited belief in well-functioning markets without imperfections of information and competition. Hubris has also played a role. How else to explain the fact that, year after year, European officials’ forecasts of their policies’ consequences have been consistently wrong? These forecasts have been wrong not because EU countries failed to implement the prescribed policies, but because the models upon which those policies relied were so badly flawed. In Greece, for example, measures intended to lower the debt burden have in fact left the country more burdened than it was in 2010: the debt-to-GDP ratio has increased, owing to the bruising impact of fiscal austerity on output. At least the IMF has owned up to these intellectual and policy failures.

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They’ve completely lost it.

Japan Readies Record $800 Billion 2015-16 Budget (Reuters)

Japan’s government will propose a record budget for next fiscal year of more than $800 billion but cut borrowing for a third year, government officials said on Sunday, as Prime Minister Shinzo Abe seeks to maintain growth while curbing the heaviest debt burden in the industrial world. The third annual budget since Abe swept to power in late 2012 also highlights his struggle to contain bulging welfare costs for the fast-ageing society while increasing discretionary spending in areas such as the military. Abe’s 96.3 trillion yen ($813 billion) draft budget for the year from April, to be approved by the Cabinet on Wednesday and submitted to an upcoming session of Parliament, is up from this fiscal year’s initial 95.9 trillion, the two officials told Reuters.

But spending restraint and a surge in tax revenues as the economy recovers allows the government to cut bond issuance by 4.4 trillion yen to 36.9 trillion, the third decrease in a row and the lowest level in six years, the officials said. The improved fiscal picture helps Abe trim Japan’s public debt, which is well over twice the country’s GDP after years of sluggish growth and huge stimulus spending. The budget for the coming year follows an extra budget of 3.1 trillion yen for this fiscal year, approved last week. With the budget deficit – excluding new bond sales and debt servicing – projected at roughly 3% of gross domestic product for the 2015-16 fiscal year, Abe will meet the government’s promise of halving the debt ratio from 2010-11 levels. But Finance Ministry calculations show that the goal of balancing the budget by 2020-21 remains ambitious.

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“.. Mr. Jakobsen argues that the real challenge is if the central banks become successful in raising interest rates. That, he says, will cure everything. However,every single goal stated by central banks and policy makers actually makes things worse.”

Steen Jakobsen Warns “Things Are About To Take A Different Turn In 2015” (ZH)

Jakobsen is a firm believer in the business cycle, and sees a seven-year cycle in play. The last peaks in the cycle were in 2000 and 2007. Before that, it was in 1993, and before that, it was in 1986. There are exactly 7 years between the peaks and the lows that followed and that is why he is so optimistic about 2015. We will see a new low for everything next year, which could trigger a significant improvement towards year-end. Mr. Jakobsen believes that things are so bad they can only get better. Take Russia, for instance. Today it is minutes, maximum days away from having capital restrictions. Capital restrictions are also in place in Cyprus and in Iceland. This suggests that the world is turning inwards and not outwards. But, according to Jakobsen that creates more crises and not less crises, and that is good news!

The West is over-indebted, growth is near zero and there are no growth impulses on the horizon. There are not many options left. Politicians would prefer to create inflation. But Jakobsen believes the only solution is haircuts. The investor will take a loss but everything will be better the next day. He clearly and firmly believes that a haircut for Greece and a haircut for Portugal is exactly what they need because underneath all of this, their competitiveness is now at a level with Germany for the first time since the introduction of the Euro. He goes on to explain that they have taken the internal devaluation, but they are still being front-loaded with interest on debt which they pay off in the first six months of every year.

Central banks understand that interest rates cannot go up. At zero interest rate you can carry debt for a long time. But Mr. Jakobsen argues that the real challenge is if the central banks become successful in raising interest rates. That, he says, will cure everything. However,every single goal stated by central banks and policy makers actually makes things worse. According to Jakobsen, what needs to happen is to have low interest rates for a considerable time and have the real economy take over. If the haircuts do not take place, the world will face a huge risk where a collapse in the long-term debt cycle would take place.

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Jeez, how did they manage to bungle that one?

Kerry to Visit France After US Faulted for Rally Presence (Bloomberg)

Secretary of State John Kerry will travel to France to consult with President Francois Hollande and express solidarity in the wake of last week’s terrorist attacks. The White House has come under criticism for failing to show a visible presence at a rally in Paris yesterday that was attended by 56 world leaders. The largest crowd in French history – more than 3.7 million strong – turned out for rallies across the country. “The United States has been deeply engaged with the people of France since this occurred,” Kerry told reporters in Gujarat, India, when asked about criticism that the U.S. didn’t have a senior official present for the Unity March. “We have offered from the first moment our intel,” and help, Kerry said.

At the time of the march, Kerry – a French speaker with long ties to France – was in India for meetings with Prime Minister Narendra Modi and to attend a business event. The U.S. was represented by the Ambassador to France, Jane Hartley. Thousands of police and soldiers were deployed for the march to mark France’s worst terrorist attack in more than half a century. Among world leaders present were Prime Minister David Cameron of the U.K., German Chancellor Angela Merkel, King Abdullah of Jordan, Palestinian President Mahmoud Abbas and Israel’s Benjamin Netanyahu. Kerry said the U.S. had offered France security assistance. “The president and our administration have been coordinating very, very closely with the French on FBI matters, intel, law enforcement across the board, and we will continue to make available any assistance that may be necessary,” he said.

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Someone (Obama) better get De Blasio around the table with his policemen.

The Curious Case Of New York’s Zero Crime Wave (Independent)

Is it really possible that no one among the roughly one million revellers who jammed Times Square on New Year’s Eve did anything naughty at all? No double-parking, no sipping from a vodka flask, not one person relieving a stretched bladder in the open air? According to the police crime statistics, yes. A big fat zero is the answer if you ask how many tickets were issued on New Year’s night for petty crimes at the crossroads of the world. Actually, it was still zero if you counted the week after Christmas. My, how well behaved everyone was this year. Or is there, perchance, another explanation? It now seems plain that the curious case of collapsing crime in Gotham City has very little to do with societal self-improvement and everything to do with the pique of the city’s police force with their leader, Mayor Bill de Blasio. He incensed rank-and-file officers at the end of last year by seeming to side with those protesting at the deaths of unarmed black men at the hands of white officers.

Their union leaders have so far denied it is so, but there is no longer any doubt that the police in New York have joined together in a quiet act of mass insubordination by turning a blind eye to every kind of low-level infraction. The enforcement go-slow was certainly under way over Christmas and the New Year. New statistics due out on Monday will show if it’s still happening. It took Police Commissioner William Bratton until Friday to admit he had a discipline problem. “We’ll work to bring things back to normal,” he told clamouring reporters. He signalled a degree of forbearance, however, pointing to the “extraordinarily stressful situations” members of his force had faced. New York was one of many cities that witnessed huge anti-police protests late last year after two notable cases of grand juries declining to indict police officers involved in the killings of unarmed black men.

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“Birmingham is home of Black Sabbath and other terrifying Muslim musicians.”

Birmingham A ‘Totally Muslim’ City: Fox News ‘Terror Expert’ (Ind.)

Birmingham is a “totally Muslim” place where “non-Muslims just simply don’t go”, a self-proclaimed terrorism expert told the US Fox News channel, sparking a tidal wave of mockery. Steve Emerson’s comments saw the Twitter hashtag foxnewsfacts trend worldwide on Twitter as people made things up about Birmingham, Fox News or pretty much anything. Mr Emerson was taking part in a television discussion about supposed Muslim-controlled areas in Europe. “In Britain, it’s not just no-go zones, there are actual cities like Birmingham that are totally Muslim where non-Muslims just simply don’t go in,” he said. “Parts of London, there are actually Muslim religious police that actually beat and actually wound seriously anyone who doesn’t dress according to Muslim, religious Muslim attire.”

He said there were sharia courts in Birmingham “where Muslim density is very intense, where the police don’t go in, and where it’s basically a separate country almost, a country within a country”, adding that the UK government did not “exercise any sovereignty” there. Jeanine Pirro, the host of the Judge Pirro show, replied: “You know what it sounds like to me, Steve? It sounds like a caliphate within a particular country.” Their laughable remarks saw British politicians, leading journalists, novelists and others take part in the general derision of the news channel on Twitter. Labour MP Tom Watson retweeted a message which said: “Birmingham is home of Black Sabbath and other terrifying Muslim musicians. #FoxNewsFacts.” Fellow writer Irvine Welsh said: “I warn you, @FoxNews, I have an Ocean Colour Scene download and I’m not afraid to use it! (Well, maybe a wee bit…).” Broadcaster Robin Lustig came up with: “Jihadi extremists have forced the city of Oxford to rename the Thames the River Isis. #foxnewsfacts”

And even ITN newsreader Alastair Stewart, joined in “If you do not clean your finger-nails regularly, potatoes will grow in your stomach, crush your lungs & suffocate you. #FoxNewsFacts,” he wrote. Sean Kelly, who describes himself as a “regular bald guy”, tweeted: “Extremist rock group Showaddywaddy have reformed and changed their name to Jihaddywaddy #foxnewsfacts.” Mr Emerson later apologised but did not provide a full explanation of how he came to make the remarks. He told ITV News: “I have clearly made a terrible error for which I am deeply sorry. My comments about Birmingham were totally in error. And I am issuing an apology and correction on my website immediately for having made this comment about the beautiful city of Birmingham. “I do not intend to justify or mitigate my mistake by stating that I had relied on other sources because I should have been much more careful. There was no excuse for making this mistake and I owe an apology to every resident of Birmingham.

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“This economic model has been based on the idea that consumer wants and needs are inexhaustible and that is the job of companies and the state to satisfy those demands as best they can.”

The Economics Of Happiness Can Make For Sad Reading (Guardian)

From the collapse of the Roman empire to the dawn of the industrial age, incomes per head barely grew at all. The standard of living for the average European peasant when Attila the Hun was attacking the Roman empire was little different from that when Frederick the Great was on the throne of Prussia in the mid-18th century. Since then, though, there has been a steady and spectacular increase in living standards. People in developed countries are richer, live longer and are healthier than they were 250 years ago. Growth has brought benefits. This economic model has been based on the idea that consumer wants and needs are inexhaustible and that is the job of companies and the state to satisfy those demands as best they can.

There has yet to be a political party that has won an election on the slogan: vote for us and we will make you worse off. A company’s share price is not based on what is happening to its global footprint. For businesses, even right-on businesses, the imperative is to expand. The “more is better” model is, if anything, stronger now than it was before the financial crisis. That’s partly the result of the state of the economic cycle: environmentalism and alternative measures of progress to incomes per head rise in prominence during the good times, then slip down the political agenda when times are tougher. That, though, is not the only factor. There have been challenges to the idea that there is no link between rising incomes and happiness. Betsey Stevenson and Justin Wolfers, for example, produced a 2013 study showing that money does matter.

They say that happiness rises as income rises, and that this holds true in comparisons both between and within countries. The relationship between incomes and happiness does not diminish as incomes rise. “If there is a satiation point we have yet to reach it,” the pair conclude. The debate between the two rival camps will rumble on. But the falls in living standards seen during the Great Recession and its aftermath should shed fresh light. Studies showing no link between income and happiness go back to Richard Easterlin’s work in 1974, but this came at the end of the long postwar boom. It will be interesting to see whether levels of happiness hold up even when living standards are falling.

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Dec 162014
 
 December 16, 2014  Posted by at 11:16 am Finance Tagged with: , , , , , , , , ,  2 Responses »


DPC Conover Building, Third and Main, Dayton, Ohio 1904

Oil Has Become The New Housing Bubble (CNBC)
Oil’s Crash Is the Canary In the Coal Mine for a $9 Trillion Crisis (Phoenix)
Oil Slides Below $55 as U.S. Output Seen Steady Amid OPEC Fight (Bloomberg)
Brent Seen Falling to $50 in 2015 as OPEC Fails to Act (Bloomberg)
Crash-O-Matic Finance (James Howard Kunstler)
Russia Central Bank Raises Interest Rate To 17% On Ruble Collapse (Guardian)
How China’s Interest-Rate Cut Raised Borrowing Costs (Bloomberg)
China Manufacturing In Contraction (BBC)
Why Paul Krugman Is Wrong (AEP)
You Are Hereby Baffled With Bullshit (Zero Hedge)
Bill Gross: US Structural Growth Rate To Be About 2% Or Less (CNBC)
Did Wall Street Need the Swaps Budget to Hedge Against Oil Plunge? (Yves)
Greek Central Bank Boss Warns Of ‘Irreparable’ Economic Damage (BBC)
German Economy at Risk of Downturn as Growth Seen Weak at Best
Russia Says US, NATO Increased Spy Flights Seven-Fold (Bloomberg)
All I Want for Christmas is a (Real) Government Shutdown (Ron Paul)
Peat Is Amazon’s Carbon Superstore (BBC)
Denmark Claims North Pole Via Greenland Ridge Link (AP)
Welcome To Manus, Australia’s Asylum Seeker Dumping Ground Gulag (Guardian)
Only Five Northern White Rhinos Now Exist On The Entire Planet (MarketWatch)
Is The Lima Deal A Travesty Of Global Climate Justice? (Guardian)
Bad News For Florida: Models Of Greenland Ice Melting Could Be Way Off (NBC)

And there’s another nice comparison.

Oil Has Become The New Housing Bubble (CNBC)

The same thing that happened to the housing market in 2000 to 2006 has happened to the oil market from 2009 to 2014, contends well-known trader Rob Raymond of RCH Energy. And he believes that just as we witnessed the popping of the housing bubble, we are in the midst of the popping of the energy bubble. “It’s the outcome of a zero interest rate policy from the Federal Reserve. What’s happened from 2009 to 2014 is, the energy industry has outspent its cash flow by $350 billion to go drill all these wells, and create this supply ‘miracle,’ if you will, in the United States,” Raymond said Thursday on CNBC’s “Futures Now.” “The issue with this has become, what were houses in Florida and Arizona in 2000 to 2006 became oil wells in North Dakota and Texas in 2009 to 2014, and most of that was funded in the high-yield market and by private equity.”

And now that a barrel of West Texas Intermediate crude oil has fallen from $100 to $60 in five months, those energy producers are in trouble. “The popping of the credit bubble in the energy industry as a result of the downside volatility in oil is likely to result in a collapse of the U.S. rig count,” Raymond said. “From a longer-term standpoint, what it does is it really impairs the industry’s ability to invest capital.” That said, when it comes to the price of a barrel of oil itself, Raymond expects to see a rebound once U.S. production dries up. “We live in a $90 to $100 world,” he said. “We just don’t live in it today.”

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Phoenix confirms what I’ve been saying all along; the problem is not oil.

Oil’s Crash Is the Canary In the Coal Mine for a $9 Trillion Crisis (Phoenix)

The Oil story is being misinterpreted by many investors. When it comes to Oil, OPEC matters, as does Oil Shale, production cuts, geopolitical risk, etc. However, the reality is that all of these are minor issues against the MAIN STORY: the $9 TRILLION US Dollar carry trade. Drilling for Oil, producing Oil, transporting Oil… all of these are extremely expensive processes. Which means… unless you have hundreds of millions (if not billions) of Dollars in cash lying around… you’re going to have to borrow money. Borrowing US Dollars is the equivalent of shorting the US DOLLAR. If the US Dollar rallies, then your debt becomes more and more expensive to finance on a relative basis. There is a lot of talk of the “Death of the Petrodollar,” but for now, Oil is priced in US Dollars. In this scheme, a US Dollar rally is Oil negative. Oil’s collapse is predicated by one major event: the explosion of the US Dollar carry trade. Worldwide, there is over $9 TRILLION in borrowed US Dollars that has been ploughed into risk assets.

Energy projects, particularly Oil Shale in the US, are one of the prime spots for this. But it is not the only one. Emerging markets are another. Just about everything will be hit as well. Most of the “recovery” of the last five years been fueled by cheap borrowed Dollars. Now that the US Dollar has broken out of a multi-year range, you’re going to see more and more “risk assets” (read: projects or investments fueled by borrowed Dollars) blow up. Oil is just the beginning, not a standalone story. If things really pick up steam, there’s over $9 TRILLION worth of potential explosions waiting in the wings. Imagine if the entire economies of both Germany and Japan exploded and you’ve got a decent idea of the size of the potential impact on the financial system And that’s assuming NO increased leverage from derivative usage. The story here is not Oil; it’s about a massive bubble in risk assets fueled by borrowed Dollars blowing up. The last time around it was a housing bubble. This time it’s an EVERYTHING bubble. And Oil is just the canary in the coalmine.

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No bottom in sight.

Oil Slides Below $55 as U.S. Output Seen Steady Amid OPEC Fight (Bloomberg)

Oil in New York fell below $55 a barrel for the first time in more than five years amid speculation that U.S. producers may further increase output as they battle OPEC for market share. Crude in London traded below $60. West Texas Intermediate futures dropped as much as 2.1%, after closing yesterday at the lowest level since May 2009. U.S. crude drillers are benefiting as costs fall almost as quickly as prices, according to Goldman Sachs Group Inc. Brent, the benchmark for more than half the world’s oil, may decline to $50 a barrel in 2015, a Bloomberg survey of analysts showed. Oil has slumped almost 45% this year as OPEC sought to defend market share amid a U.S. shale boom that’s exacerbating a global glut.

The group, responsible for about 40% of the world’s supply, will refrain from curbing output even if crude drops to $40 a barrel, according to the United Arab Emirates. “It seems like the market is no longer able to respond to the issue of oversupply,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, said by phone. “On the demand side, the global economy continues to slow while it takes time for U.S. shale production to pull back on the supply side.” West Texas Intermediate for January delivery fell as much as 66 cents to $55.25 a barrel in electronic trading on the New York Mercantile Exchange and was at $55.62 at 1:18 p.m. Singapore time. It decreased $1.90 to $55.91 yesterday. The volume of all futures traded was about 3% above the 100-day average. Prices are set for the biggest annual loss since a 54% collapse in 2008.

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Almost there. What happens after is a more interesting question.

Brent Seen Falling to $50 in 2015 as OPEC Fails to Act (Bloomberg)

Crude oil prices are poised to fall below half where they were six months ago, before producers begin dealing with a global glut. Brent, the global benchmark, will slide to as low as $50 a barrel in 2015, according to the median in a Bloomberg survey of 17 analysts, down from the $115.71 a barrel high for the year on June 19. The grade has already collapsed 47% since then and needs to fall further before producers clear the current glut, said five out of six respondents who gave a reason. Brent futures sank in the weeks after the Organization of Petroleum Exporting Countries decided to maintain output even as the highest U.S. production in three decades swells a global surplus. The organization will stand by its decision even if prices fall to $40, United Arab Emirates Energy Minister Suhail Al-Mazrouei said.

“This won’t stop until oil producers are on their backs,” Bjarne Schieldrop, chief commodities analyst at SEB AB, Sweden’s fourth-biggest bank, said by phone from Oslo. “There will be better demand in the second half, hopefully some demand effects from lower prices, and definitely softer growth in U.S. shale.” The group decided at the Nov. 27 meeting to keep output unchanged to protect OPEC’s market share, even if it has a negative effect on crude prices, the official Kuwait News Agency reported, citing Oil Minister Ali al-Omair. The U.S. pumped 9.12 million barrels a day in the period ended Dec. 5, the most in weekly Energy Information Administration started in 1983. The gain came as horizontal drilling and hydraulic fracturing unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.

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“In the good old days of the late 20th century, before Federal Reserve omnipotence, they could depend on a regular annual interest rate churn of between 5 and 10% and do what they had do – write pension checks, pay insurance claims, and pay clients, with a little left over for company salaries.”

Crash-O-Matic Finance (James Howard Kunstler)

“Oil prices have dropped $50 a barrel. That may not sound like much. But when you take $107 and you take $57, that’s almost a 47% decline…!”
–James Puplava, The Financial Sense News Network

May not sound like much? I guess when you hunker down in the lab with the old slide rule and do the math, wow! Those numbers really pop! This, of course, is the representative thinking out there. But then, these are the very same people who have carried pompoms and megaphones for “the shale revolution” the past couple of years. Being finance professionals they apparently failed to notice the financial side of the business, for instance the fact that so much of the day-to-day shale operation was being run on junk bond financing. It all seemed to work so well in the eerie matrix of zero interest rate policy (ZIRP) where investors desperate for “yield” — i.e. some return more-than-zilch on their money — ended up in the bond market’s junkyard. These investors, by the way, were the big institutional ones, the pension funds, the insurance companies, the mixed bond smorgasbord funds.

They were getting killed on ZIRP. In the good old days of the late 20th century, before Federal Reserve omnipotence, they could depend on a regular annual interest rate churn of between 5 and 10% and do what they had do – write pension checks, pay insurance claims, and pay clients, with a little left over for company salaries. ZIRP ruined all that. In fact, ZIRP destroyed the most fundamental index in the financial universe: the true cost of borrowing money. In doing so, it twerked and torqued the concept of “risk” so badly that risk no longer had any meaning. In “risk-on” financial weather, there was no longer any risk. Imagine that? It also destroyed the entire relationship between borrowed money and the cost-structure of the endeavors it was borrowed for. Take shale oil, for instance.

The fundamental limiting factor for shale oil was that the wells were only good for about two years, and then they were pretty much shot. So, if you were in that business, and held a bunch of leases, you had to constantly drill and re-drill and then drill some more just to keep production up. The drilling cost between $6 and $12-million per well. What happened the past seven years is that the drillers and their playmates on Wall Street hyped the hoo-hah out of the business — it was a shale revolution! In a few short years they drilled to beat the band and the results seemed so impressive that investment money poured into the sector like honey, so they drilled some more. It was going to save the American way of life. We were going to be “energy independent,” the “new Saudi America.” We would be able to drive to Wal-Mart forever!

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Let’s all open a bank account in Russia.

Russia Central Bank Raises Interest Rate To 17% On Ruble Collapse (Guardian)

Russia’s central bank has taken drastic action to halt the rouble’s freefall on the foreign exchanges by raising interest rates by 6.5 percentage points to 17%. After a day of turmoil dominated by fears that a crashing global oil price would devastate Russia’s energy-dominated economy, an after-hours meeting of the central bank in Moscow decided emergency action was needed to prevent the rouble’s collapse. The bank said the increase in borrowing costs – which will deepen Russia’s recession if sustained for a prolonged period – was needed to end currency depreciation and to combat inflation. Higher interest rates tend to make currencies more attractive to foreign investors and the rouble rose against the dollar in the wake of the surprise announcement. Earlier, a 10% fall in the value of the rouble against the dollar had badly rattled global markets, with the FTSE 100 index in London closing at its lowest level of 2014.

Investors dumped shares as they weighed up the risk that a deepening economic crisis would destabilise Russia and make it more difficult for the west to deal with its president, Vladimir Putin, adding to geopolitical tensions in eastern Europe and the Middle East. The huge jump in interest rates was seen by analysts as an attempt by the central bank to show that it was determined to protect the rouble. A smaller one-point rise to 10.5% last week had failed to impress financial markets at a time when the price of oil was plunging to a five and a half year low. Earlier, Russia bought roubles for dollars on the foreign exchanges but failed to prevent the biggest one-day decline in the currency since Russia’s debt default in 1998. The fall meant it took 63 roubles to buy a dollar, a decline of 45% since the start of a year that has seen the price of oil drop from $115 a barrel (£73) to barely $60 a barrel.

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“We don’t think the call for aggressive interest rate or reserve-requirement ratio cuts are well-grounded under current circumstances, as it could fuel bubbles in stocks.”

How China’s Interest-Rate Cut Raised Borrowing Costs (Bloomberg)

What if a central bank cut interest rates and borrowing costs rose? Since the People’s Bank of China surprised markets with the first benchmark rate reduction in two years on Nov. 21, the five-year sovereign bond yield climbed 15 basis points, that for similar AAA corporate notes surged 37 and AA debt yields jumped 76. While finance companies did start charging less for mortgages, their funding costs rose as the one-week Shanghai interbank lending rate added 37 basis points. The PBOC move misfired as it triggered an 18% surge in the Shanghai Composite Index of shares, prompting investors to raise cash by selling bonds and seeking loans, driving interest rates higher. Costs for riskier issuers of notes rose as regulators banned the use of riskier debt as collateral for financing. Investors dialed back expectations for further monetary easing as policy makers seek to cool the stock rally. “Financing costs moved in the opposite way than the central bank wished,” said Deng Haiqing at Citic Securities, China’s biggest brokerage.

“We don’t think the call for aggressive interest rate or reserve-requirement ratio cuts are well-grounded under current circumstances, as it could fuel bubbles in stocks.” The central bank reduced the one-year benchmark lending rate by 40 basis points to 5.6% and the deposit rate by 25 basis points to 2.75% starting from Nov. 22. The one-week Shanghai Interbank Offered Rate climbed to 3.59% on Dec. 12, the highest since Aug. 29, while the yield on top-rated five-year company bonds rose to 5.17% on Dec. 10, the highest since Sept. 18. The outstanding value of shares bought with borrowed money climbed to a record 122 billion yuan ($19.7 billion yuan) on Dec. 9, helping lift the benchmark stock index 39% this year. “The fund flows into the stock market could nurture prosperity in the capital market, but the real economy may not necessarily benefit in the short term,” Haitong Securities analysts wrote in a note on Dec. 7. “On the contrary, it could lead to further scarcity of funds, leading to an increase in interest rates.”

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More confirmation of what I’ve been saying for a long time.

China Manufacturing In Contraction (BBC)

China’s factory activity is in contraction, based on a private survey, reinforcing calls for more stimulus. The HSBC/Markit manufacturing purchasing manager’s index’s initial reading fell to 49.5 in December from November’s final reading of 50. A reading above 50 indicates expansion, while one below 50 points to contraction on a monthly basis. China will release its official PMI reading for December in the new year. The state’s official PMI came in at 50.3 for November. This morning’s latest reading from HSBC marks a seven-month low. Qu Hongbin, Chief Economist for China at HSBC said “Domestic demand slowed considerably and fell below 50 for the first time since April 2014. Price indices also fell sharply. The manufacturing slowdown continues in December and points to a weak ending for 2014.”

Earlier this week, China’s central bank said growth could slow to 7.1% next year from about 7.4% this year, because of a property market slump. Growth in the world’s second largest economy fell to 7.3% in the third quarter, which was the slowest pace since the global financial crisis. The risk that China might miss its official growth target of 7.5% this year for the first time in 15 years is growing because economic data is weaker than expected, economists said. A struggling property market, uneven export growth and cooling domestic demand and investment are some of the major factors weighing on overall growth. Last month the People’s Bank of China cut its one year deposit rate to 2.75% from 3.0% to try to revive its economy.

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I thought they were twins?! But Ambrose here just about does a Steve Keen as far as banks’ role in money supply is concerned.

Why Paul Krugman Is Wrong (AEP)

Professor Paul Krugman is the world’s most influential commentator on economic issues by a wide margin. It is a well-deserved ascendancy. He is brilliant, wide-ranging, readable, and the point of his rapier is very sharp. He correctly predicted and described the Long Slump; though whether he did so entirely for the right reasons is an interesting question. He demolished claims by hard-money totemists that zero rates and quantitative easing would lead to spiralling inflation in a global liquidity trap, as he calls it – or in a China-led world of excess supply and deficient demand, as others would put it. He correctly scolded those who claimed that rich developed countries with their own sovereign currencies are at risk of a bond market crisis unless they retrench into the downturn, or might go the way of Greece. So it is disconcerting to find myself on the wrong side of his biting critique. On other occasions I might submit to his Nobel authority, bruised, but wiser. This time I stand my ground.

The dispute is over whether central banks can generate inflation even when interest rates are zero. He says they cannot do so, and that it is jejune to float such an outlandish idea. Monetary policies are to all intents and purposes impotent at that point. He goes on to suggest that the historical and global evidence has demonstrated this beyond any possible doubt, and here he ventures into flinty terrain. Let me counter – and I will return to this – that his own theoretical model of how the economy works has broken down in one key respect over the last six years. Things are happening that he strongly implied would not and could not happen. He has so far been frugal in acknowledging the limitations of his theory, let alone in exploring why it has gone wrong. He has fallen back to a default setting: the IS-LM model. Developed in 1936, it defines the relationship between interest rates and real output. He returns to the IS-LM invariably and reflexively, almost as if were a religious incantation.

He rebukes me for quoting Tim Congdon from International Monetary Research, specifically for invoking traditional monetary theory to suggest that QE can work even when bond yields are hyper-compressed. The precise quote: “The interest rate is totally irrelevant. What matters is the quantity of money. Large scale money creation is a very powerful weapon and can always create inflation.” Mr Congdon’s claim is a self-evident truism. Central banks can always create inflation if they try hard enough. As Milton Friedman said, they can print bundles of notes and drop from them helicopters. The modern variant might be a $100,000 electronic transfer into the bank account of every citizen. That would most assuredly create inflation. I don’t see how Prof Krugman can refute this, though I suspect that he will deftly change the goal posts by stating that this is not monetary policy. To anticipate this counter-attack, let me state in advance that the English language does not belong to him. It is monetary policy. It is certainly not interest rate policy.

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Fun with US stats.

You Are Hereby Baffled With Bullshit (Zero Hedge)

Just in case you were confidently reflecting on America’s decoupling recovery… we present – today’s baffle ’em with bullshit meme:

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“Gross said it would be “very difficult” for oil prices to stabilize.”

Bill Gross: US Structural Growth Rate To Be About 2% Or Less (CNBC)

Bill Gross said in an exclusive interview with CNBC on Monday that economic growth will likely fall to 2%. “Yes, we’re starting from a 3% growth economy that will probably persist for another quarter or so,” he said. “We get back to a relatively new structural growth rate, which is not 3 but probably 2 or even less. “He attributed the decline to falling oil prices, which in turn affects industries such as fracking. Oil’s slide also “determines currency movements,” setting off a chain reaction. “Then financial markets try and readjust,” he said. “Hedge funds reduce leverage and sell other positions.”

Gross said it would be “very difficult” for oil prices to stabilize. Financial conditions are also a problem, Gross said. “Why would the Federal Reserve raise interest rates in order to slow economic growth if in fact inflation was moving lower? They have a dual mandate from that standpoint,” he said. “I think the market basically doesn’t respect the second part of that mandate.” He also sees the 10-year yield holding near 2%.”I think high quality bonds are a safe bet, just not a high returning bet,” he said.

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Interesting point from Yves Smith.

Did Wall Street Need the Swaps Budget to Hedge Against Oil Plunge? (Yves)

Conventional wisdom among banking experts is that Wall Street’s successful fight last week to get a pet provision into the must-pass budget bill (or in political junkies’ shorthand, Cromnibus) as more a demonstration of power and a test for gutting Dodd Frank than a fight that mattered to them. But the provision they got in, which was to undo a portion of Dodd Frank that barred them from having taxpayer-backstopped deposits fund derivative positions, may prove to be more important than it seemed as the collateral damage from the 40% fall in oil prices hits investors and intermediaries. Mind you, all the howling by Big Finance over this measure can’t be seen as an indicator of its importance. Yes, they have been trying to get this passed for two years. In fact, as Akshat Tewary of Occupy the SEC points out:

The provision that just got passed by the House (Section 630 of the Cromnibus) is identical to another bill already passed by the House last year – HR 992 (Swaps Regulatory Improvement Act). So the House has basically passed the same bill twice. Last year the Senate wouldn’t approve it and the banks were not happy…so the Republicans thought they would hide it in the budget bill so the Senate was forced to approve it this time.

Industry participants view any incursion on their right to make profit (as in pay themselves big bonuses) as a casus belli. That leads to regular histrionics about minor restrictions, like the TARP’s pathetically weak limits on executive bonuses. Exerts on regulation said that the Dodd Frank provision at issue, known as derivatives push-out, was simply about the big US financial firms keeping their profit margins via continued access to cheap funding. Banks weren’t barred from engaging in this type of business but they’d have to do it in different legal entities.

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Election propaganda wars.

Greek Central Bank Boss Warns Of ‘Irreparable’ Economic Damage (BBC)

Greece’s economy faces “irreparable” damage from the ongoing political crisis, the boss of its central bank has warned. “The crisis in recent days is now taking serious dimensions…and the risk of irreparable damage for the Greek economy is now great,” said Yannis Stournaras. Greek politicians will start voting on Wednesday for a new Greek president. There will be a snap general election if the government nominee loses. The political uncertainty has rattled Greek markets over the past week. Greece’s economy emerged from a six-year long recession in the first quarter of the year.

However, the size of Greece’s economy is still about a quarter below the peak it reached before the severe recession and debt crisis triggered by the global financial crash. And conservative Prime Minister Antonis Samaras’s decision to call an early vote in parliament to elect a new president has caused fresh concerns. His conservative-led coalition needs the support of other parties if its candidate is to obtain the backing of MPs. On Thursday an official in the governing coalition said it was still short of the support needed to stop the government collapsing in the parliamentary vote. Greece’s government has warned of a catastrophe if snap elections are called and left-wing anti-bailout party Syriza wins, but Syriza has accused the government of fear mongering.

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“The German “data are consistent with only marginal gross-domestic-product growth in the fourth quarter at best ..”

German Economy at Risk of Downturn as Growth Seen Weak at Best

German private-sector growth slowed to the weakest in 18 months in December, increasing the risk that a soft phase will turn into a more pronounced economic downturn. Markit Economics said a Purchasing Managers Index for manufacturing and services fell to 51.4 this month from 51.7 in November. Economists forecast an increase to 52.3. A factory gauge rose to 51.2 from 49.5, crossing the 50 mark that divides expansion from contraction, while a measure for services fell to 51.4 from 52.1. While German data showed this month that the economy, Europe’s largest, had a modest start into the last quarter of the year, the Bundesbank has pointed to signs that growth could strengthen. As the rest of the euro area struggles to expand and inflation hovers close to zero, the European Central Bank has held out the prospect of expanding its range of asset-purchases next year.

The German “data are consistent with only marginal gross-domestic-product growth in the fourth quarter at best,” said Oliver Kolodseike, an economist at London-based Markit. “The possibility of a renewed downturn at the start of next year is clearly becoming more and more likely, especially if the survey data continue to disappoint.” The German economy narrowly escaped recession in the third quarter, recording growth of 0.1% after shrinking by the same extent in the April-June period. Economists predict growth of 0.2% in the final three months of the year. Companies signaled a second consecutive monthly decline in new business in December, citing a lack of investment and increased competition, according to today’s report.

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“NATO jets escorted Russian planes 140 times in 2014, a 70% increase on the previous year, while they flew missions that were “in strict compliance with international rules ..”

Russia Says US, NATO Increased Spy Flights Seven-Fold (Bloomberg)

Russia has reported a seven-fold increase in reconnaisance missions by U.S. and NATO aircraft near its border on the Baltic Sea since April as tensions flared over the crisis in Ukraine. Russian fighter jets also flew more than 300 missions in response to NATO and other foreign military aircraft approaching the country’s borders this year, compared with more than 200 in 2013, Lieutenant-General Mikhail Mizintsev, head of the Russian Defense Ministry’s joint military command center, said. The sharp increase in air activity by NATO and countries including Sweden and Finland is taking place without “any mutual exchange of information,” Mizintsev said today in his first interview with foreign media. “All achievements in the field of trust-building and voluntary transparency that NATO and Russia have formed over the years have ceased.” Russia’s disclosures about NATO activities around its borders come as it’s embroiled in the worst standoff since the Cold War with the U.S. and its allies over the conflict in Ukraine.

It mirrors NATO reports of a jump in Russian military flights close to the borders of member states. The number of flights by NATO’s tactical aircraft close to the borders of Russia and Belarus doubled to about 3,000 this year, Mizintsev said. He rejected NATO’s claim that it had intercepted Russian aircraft some 400 times this year, a 50% increase on 2013. NATO jets escorted Russian planes 140 times in 2014, a 70% increase on the previous year, while they flew missions that were “in strict compliance with international rules,” Mizintsev said. NATO will remain vigilant in tracking Russian flights, Secretary General Jens Stoltenberg told reporters today after a meeting at the military alliance’s Brussels headquarters with Ukrainian Prime Minister Arseniy Yatsenyuk. Mizintsev said Russia registered 55 cases of foreign jets flying in “dangerous proximity” to its long-range military aircraft, at a distance of less than 100 meters, in 2013-14. Russia’s missions were “as risky as NATO aircraft flights near the Russian border can be considered risky,” he said.

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Amen.

All I Want for Christmas is a (Real) Government Shutdown (Ron Paul)

The political class breathed a sigh of relief Saturday when the US Senate averted a government shutdown by passing the $1.1 trillion omnibus spending bill. This year’s omnibus resembles omnibuses of Christmas past in that it was drafted in secret, was full of special interest deals and disguised spending increases, and was voted on before most members could read it. The debate over the omnibus may have made for entertaining political theater, but the outcome was never in doubt. Most House and Senate members are so terrified of another government shutdown that they would rather vote for a 1,774-page bill they have not read than risk even a one or two-day government shutdown. Those who voted for the omnibus to avoid a shutdown fail to grasp that the consequences of blindly expanding government are far worse than the consequences of a temporary government shutdown.

A short or even long-term government shutdown is a small price to pay to avoid an economic calamity caused by Congress’ failure to reduce spending and debt. The political class’ shutdown phobia is particularly puzzling because a shutdown only closes 20% of the federal government. As the American people learned during the government shutdown of 2013, the country can survive with 20% less government. Instead of panicking over a limited shutdown, a true pro-liberty Congress would be eagerly drawing up plans to permanently close most of the federal government, staring with the Federal Reserve. The Federal Reserve’s inflationary policies not only degrade the average American’s standard of living, they also allow Congress to run up huge deficits.

Congress should take the first step toward restoring a sound monetary policy by passing the Audit the Fed bill, so the American people can finally learn the truth about the Fed’s operations. Second on the chopping block should be the Internal Revenue Service. The federal government is perfectly capable of performing its constitutional functions without imposing a tyrannical income tax system on the American people. America’s militaristic foreign policy should certainly be high on the shutdown list. The troops should be brought home, all foreign aid should be ended, and America should pursue a policy of peace and free trade with all nations. Ending the foreign policy of hyper-interventionism that causes so many to resent and even hate America will increase our national security.

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And what do you think happens when the water evaporates as temperatures rise?

Peat Is Amazon’s Carbon Superstore (BBC)

The most dense store of carbon in Amazonia is not above ground in trees but below ground in peatlands, a study has calculated. An international team of researchers said their work, which uses satellite data and field measurements, provides the “most accurate estimates to date”. Protecting these landscapes is vital if efforts to curb climate change are to be successful, they added. The findings appear in the journal Environmental Research Letters. Writing in the paper, the scientists observed: “This investigation provides the most accurate estimates to date of the carbon stock of an area that is the largest peatland complex in the Neotropics.” They said it also confirmed “the status of the [Pastaza-Marañón foreland basin in north-west Peru] as the most carbon-dense landscape in Amanozia”.

“We expected to find these peatlands but what was more of surprise was how extensive they were, and how much this relatively small area contributed to Peru’s carbon stock,” explained co-author Freddie Draper from the University of Leeds. The 120,000 sq km basin accounts for just about 3% of the Peruvian Amazon, yet it stores almost 50% of its carbon stock, which equates to about three billion tonnes. Mr Draper told BBC News that the team used a new approach to produce their figures: “We used quite a novel method, combining a lot of field data – for about 24 months, we measured how deep the peat was, how dense it was and how much of it was carbon. “That measured how much carbon was in the ground, and then we estimated how much carbon was in the trees.

“Probably the most novel part, because the study covered such a large area, we used different satellite products (radar and images) to identify where these peatlands were.” The team said that the basin remains “almost entirely intact”, but threats are increasing. “Maintaining intact peatlands is crucial for them to continue to act as a carbon sink by continuing to form peat and contribute fully to regional habitat and species diversity,” explained co-author Katy Roucoux from the University of St Andrews. Dr Roucoux told BBC News that scientists are still learning about the contribution these landscapes make to the global carbon cycle. “An important issue is the extent to which the peatland ecosystems are continuing to lock up and store carbon as peat today. It certainly looks as though they are as the environmental conditions are right, ie water-logged.”

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It will take forever to solve this issue.

Denmark Claims North Pole Via Greenland Ridge Link (AP)

Scientific data shows Greenland’s continental shelf is connected to a ridge beneath the Arctic Ocean, giving Danes a claim to the North Pole and any potential energy resources beneath it, Denmark’s foreign minister said. Foreign Minister Martin Lidegaard said Denmark will deliver a claim on Monday to a United Nations panel in New York that will eventually decide control of the area, which Russia and Canada are also coveting. The five Arctic countries – the United States, Russia, Norway, Canada and Denmark – all have areas surrounding the North Pole, but only Canada and Russia had indicated an interest in it before Denmark’s claim. Lidegaard told the AP that the Arctic nations so far “have stuck to the rules of the game” and he hoped they would continue to do so.

In 2008, the five pledged that control of the North Pole region would be decided in an orderly settlement in the framework of the United Nations, and possible overlapping claims would be dealt with bilaterally. Interest in the Arctic is intensifying as global warming shrinks the polar ice, opening up possible resource development and new shipping lanes. The area is believed to hold an estimated 13% of the world’s undiscovered oil and 30% of its untapped gas. Lidegaard said he expects no quick decisions, with other countries also sending in claims. “This is a historical milestone for Denmark and many others as the area has an impact on the lives of lot of people. After the U.N. panel had taken a decision based on scientific data, comes a political process,” Lidegaard told The Associated Press in an interview on Friday. “I expect this to take some time. An answer will come in a few decades.”

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Oh boy …

Welcome To Manus, Australia’s Asylum Seeker Dumping Ground Gulag (Guardian)

The 60,000 people of Manus province, a remote island outpost of Papua New Guinea, had no say in the decision by Australian and local leaders to detain, process and at least temporarily resettle foreign asylum seekers on their shores. “We heard about it on the radio,” says Nahau Rooney, a pioneering political leader, former PNG justice minister and Manus’ most famous daughter. In the 14 months since Australia’s “PNG solution” was brokered, sending asylum seekers trying to reach Australia by boat to Manus for processing and eventual resettlement in PNG, the operation has also sent a tsunami of change crashing through every dimension of island life. It has delivered a booming economy, jobs and desperately needed services.

It has also brought social and environmental damage, deaths, dislocation, disputes and deep anxiety about what will come next. What is certain is that life in Manus will never be the same. […] Two years ago there were only a couple of flights a week to faraway Manus province. Today aircraft sweep in every day over the Bismarck Sea, crossing 370km of open water from the Papua New Guinea mainland to bump down on a strip carved into the jungle by Japanese soldiers 72 years ago. It’s here, since November 2012, that more than 1,650 asylum seekers who once tried to sail to a new life in Australia have instead found themselves unloaded on to PNG soil. Most of the first wave, about 300, did fly back to Australia for processing when the regional resettlement arrangement with PNG was signed in August 2013.

But under its terms all who have arrived since have been assured that even if they are ultimately recognised as refugees, they will never live in Australia. PNG will be their home. None of these asylum seekers have yet been released, though this is said to be close. Two have died. More than 240 have flown away again, “voluntary returns” to their homelands. At last count 1,056 remain in detention, 20 minutes from where they landed. They are held in a compound at a place called Lombrum. Though it long predates them, the name in local language refers to the bottom of a canoe where captives are kept. Momote airport has also seen the coming and going of the legions of guards, tradespeople, medics, interpreters and officials required to wrangle, secure, house, assess and care for the asylum seekers.

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Well, done, y’all!

Only Five Northern White Rhinos Now Exist On The Entire Planet (MarketWatch)

One of six known remaining northern white rhinoceroses died at the San Diego Zoo Safari Park on Sunday. The rhino, Angalifu, was around 44 and died of old age, the Associated Press reported. “Angalifu’s death is a tremendous loss to all of us,” said the park’s curator, Randy Rieches, in a statement, according to the AP. “Not only because he was well-beloved here at the park but also because his death brings this wonderful species one step closer to extinction.” The zoo took to Twitter to memorialize Angalifu and draw attention to the plight of the northern white rhino via the #EndExtinction hashtag:

The white rhino is the second largest land mammal and has two subspecies: the northern and southern white rhino. The southern white is currently classified as “near threatened,” with a population of about 20,000, according to the World Wildlife Fund. With the death of Angalifu, only five northern white rhinos exist — all of them in captivity. There are no northern white rhinos known to be in the wild. Of the remaining rhinos, one is at the same San Diego zoo, another is at a zoo in the Czech Republic, and three are at a wildlife conservancy in Kenya.

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Of course it is, there’s no other way. These kinds of conferences never solve a thing.

Is The Lima Deal A Travesty Of Global Climate Justice? (Guardian)

At one point on Saturday night it looked quite likely that the Lima climate talks would collapse in disarray. Instead of the harmony expected between China and the US following their pre-talks pact, the world’s two largest economies were squaring off; workmen were dismantling the venue; old faultlines between rich and poor countries were opening up again and some countries’ delegations were rushing to catch their planes. In the end, after a marathon 32-hour session where everyone stared into the abyss of total failure, a modicum of compromise prevailed. Some deft changes of emphasis in the revised text and the inclusion of key words such as “loss” and “damage” proved just enough for diplomats to bodge a last-minute compromise. There were cheers and tears as the most modest of agreements was reached. The Peruvian president of the UN climate change convention, or Cop20, could say without irony: “With this text, we all win without exception.”

Not so. Countries may technically still be on track to negotiate a final agreement in Paris next year, but the gaps between them are growing rather than closing and the stakes are getting higher every month. We have now reached the point where everyone can see clearly that whatever ambition there once was to respect science and try to hold temperatures to an overall 2C rise has been ditched. We also know that developing countries will not get anything like the money they need to adapt their economies and infrastructure to climate change and that those countries that have been historically responsible for getting the world into its current climate mess will be able to do much what they like. As it stands, 21 years of tortuous negotiations may have actually taken developing countries backwards on tackling climate change.

From an imperfect but legally binding UN treaty struck in 1992, in which industrialised countries accepted responsibility and agreed to make modest but specific cuts over a defined period, we now have the prospect of a less than legally binding global deal where everyone is obliged to do something but where the poor may have to do the most and the rich will be free to do little. In 1992, rich countries were obliged to lead and to help the poor, but we now have a situation where those who had little or no historical responsibility for climate change are likely to cut emissions the most. This travesty of global climate justice, say many developing countries, is largely the fault of the US, which, backed by Britain and others industrialised countries like Canada and Australia, has helped build up distrust in developing countries by continually trying to deregulate the international climate change regime by weakening the rules, shifting responsibility to the south and making derisory offers of financial help.

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“Existing computer models may be severely underestimating the risk to Greenland’s ice sheet..”

Bad News For Florida: Models Of Greenland Ice Melting Could Be Way Off (NBC)

Existing computer models may be severely underestimating the risk to Greenland’s ice sheet — which would add 20 feet to sea levels if it all melted — from warming temperatures, according to two studies released Monday. Satellite data were instrumental for both studies — one which concludes that Greenland is likely to see many more lakes that speed up melt, and the other which better tracks large glaciers all around Earth’s largest island. The lakes study, published in the peer-reviewed Nature Climate Change, found that what are called “supraglacial lakes” have been migrating inland since the 1970s as temperatures warm, and could double on Greenland by 2060. The study upends models used by the Intergovernmental Panel on Climate Change because they “didn’t allow for lake spreading, so the work has to be done again,” study co-author Andrew Shepherd, director of Britain’s Centre for Polar Observation and Modelling, told NBCNews.com.

Those lakes can speed up ice loss since, being darker than the white ice, they can absorb more of the sun’s heat and cause melting. The melt itself creates channels through the ice sheet to weaken it further, sending ice off the sheet and into the ocean. “When you pour pancake batter into a pan, if it rushes quickly to the edges of the pan, you end up with a thin pancake,” study lead author Amber Leeson, a researcher at Britain’s University of Leeds, explained in a statement. “It’s similar to what happens with ice sheets: The faster it flows, the thinner it will be. “When the ice sheet is thinner,” she added, “it is at a slightly lower elevation and at the mercy of warmer air temperatures than it would have been if it were thicker, increasing the size of the melt zone around the edge of the ice sheet.”

The mix of IPCC models have Greenland contributing 8.7 inches to global sea level rise by 2100 without the doubling of supraglacial lakes, but the team fears that a doubling could add almost as much as that over the next century. Such a rise in sea level would have serious repercussions for heavily populated low-lying areas, like Florida or Bangladesh, which could see beach and barrier island erosion and salt water encroachment, scientists say. The glaciers study, published in the peer-reviewed Proceedings of the National Academy of Sciences, used NASA satellite data to reconstruct how the height of the ice sheet has changed at nearly 100,000 locations from 1993 to 2012.

The team found significant variations that aren’t factored in by existing computer models for future changes on Greenland because they focus on just four glaciers. “The problem is that these models have been applied to four glaciers only, one of which has not been changing much, to predict how these glaciers may change in the future,” Kees van der Veen, a study co-author and University of Kansas geographer, told NBCNews.com. “Results for these four glaciers have been extrapolated to the entire ice sheet to estimate the contribution of the entire ice sheet to sea level rise,” he adds. “Our results show that this is not appropriate because of how differently individual glaciers have changed over the last decade.”

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