Nov 032017
 
 November 3, 2017  Posted by at 8:59 am Finance Tagged with: , , , , , , , , ,  8 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Edward S. Curtis Tipi in the snow 1908

 

Social Security Can Never Run Out Of Money – Just Ask Alan Greenspan (BI)
Inside Hillary Clinton’s Secret Takeover of the DNC (Donna Brazile)
Jay Powell – A Quiet Leader (DDMB)
Why Would Anyone Want The Fed Job? (Crudele)
The Borrower Is The Slave To The Lender (Lance Roberts)
US Manufacturing Worker Productivity Crashes Most In 8 Years (ZH)
Bitcoin Is the ‘Very Definition’ of a Bubble – Credit Suisse CEO (BBG)
One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week (MBV)
The Hidden Danger Bulls Are Missing (Rickards)
As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion (BBG)
China Issues Guidelines On Overseas Investment Amid Crackdown On Deals (R.)
US Spends $250 Million Per Day For The War On Terror (TeleS)
Barcelona Council Says Catalan Government Legitimate, Independence Is Not (CN)
Kim Dotcom Wins Settlement From New Zeland Police Over 2012 Dawn Raid (NZH)
Monsanto Halts Launch Of Chemical After Farmers Complain Of Rashes (R.)

 

 

“The United States can pay any debt it has because it can always print money to do that, so there is zero probability of default.”

Social Security Can Never Run Out Of Money – Just Ask Alan Greenspan (BI)

I asked Kelton why, given her counterintuitive argument that deficits don’t really matter, Americans should take her word for it. Her reply: Don’t. Instead, listen to what Alan Greenspan, the prominent Republican former Federal Reserve chairman who is a purported deficit hawk, had to say on the matter. In March 2005, he was pressed by a young congressman named Paul Ryan about the need for privatizing Social Security because of the prospect of a looming “entitlements crisis.” Greenspan replied rather bitingly that there was no such thing or even a remote possibility. “I wouldn’t say that the pay-as-you-go benefits are insecure in the sense that there’s nothing to prevent the federal government to create as much money as it wants and pays it to somebody,” Greenspan told an incredulous Ryan. “The question is how do you set up a system that assures that the real assets are created which those benefits are employed to purchase.

So it’s not a question of security — it’s a question of the structure of the financial system.” That’s what Democrats should be saying, rather than regurgitating the old Republican rouse — which even the GOP is willing to abandon when it’s convenient — about a looming government debt crisis that never comes. “Instead of repeating talking points that reinforce the idea that Social Security is somehow financially unsustainable, Democrats should play Greenspan’s remarks on a loop. They should call attention to what Greenspan said — under oath — about the program’s long-term sustainability,” Kelton said. “Instead of accepting the premise that Social Security is in trouble, Democrats should accept Greenspan’s challenge — put forward an agenda that will do more to promote future growth than anything the Republicans are offering.”

The financial crisis was instructive on this count. Many critics of both the federal government’s fiscal stimulus and the Federal Reserve’s bond purchases worried that the country was getting so deep into debt that one of two things was bound to happen: a crisis in the Treasury market or a bout of runaway inflation. Nine years into the recovery, Treasury yields remain near historic lows and inflation is not only contained but remains worryingly low. That last point is key: It’s not that folks like Kelton and Baker believe there is no risk to government spending. They simply argue that the only risks are the misallocation of resources and inflation — not some amorphous “debt crisis” or default of the sort some politicians and market analysts have shouted about.

Unlike Greece, which actually did default on its debt because of a lack of control over its own currency, the US could default only by choice. Trump flirted with that choice once as a candidate — but quickly backed away from the threat after he realized the catastrophic market and economic consequences such a debacle would have. In August 2011, after the US’s credit rating was downgraded for the fist time following a prolonged impasse over the US debt ceiling, Greenspan was asked during a “Meet the Press” interview about the issue of “unfunded liabilities” and “entitlements.” His response again spoke volumes: “The United States can pay any debt it has because it can always print money to do that, so there is zero probability of default.”

Read more …

Quite a reversal. Brazile was fired from CNN a year ago when it was discovered she fed the Clinton campaign debate questions. Still, what a mess. Will they clean it up or try to ignore?

Inside Hillary Clinton’s Secret Takeover of the DNC (Donna Brazile)

When I got back from a vacation in Martha’s Vineyard I at last found the document that described it all: the Joint Fund-Raising Agreement between the DNC, the Hillary Victory Fund, and Hillary for America. The agreement—signed by Amy Dacey, the former CEO of the DNC, and Robby Mook with a copy to Marc Elias—specified that in exchange for raising money and investing in the DNC, Hillary would control the party’s finances, strategy, and all the money raised. Her campaign had the right of refusal of who would be the party communications director, and it would make final decisions on all the other staff. The DNC also was required to consult with the campaign about all other staffing, budgeting, data, analytics, and mailings. I had been wondering why it was that I couldn’t write a press release without passing it by Brooklyn. Well, here was the answer.

When the party chooses the nominee, the custom is that the candidate’s team starts to exercise more control over the party. If the party has an incumbent candidate, as was the case with Clinton in 1996 or Obama in 2012, this kind of arrangement is seamless because the party already is under the control of the president. When you have an open contest without an incumbent and competitive primaries, the party comes under the candidate’s control only after the nominee is certain. When I was manager of Gore’s campaign in 2000, we started inserting our people into the DNC in June. This victory fund agreement, however, had been signed in August 2015, just four months after Hillary announced her candidacy and nearly a year before she officially had the nomination.

I had tried to search out any other evidence of internal corruption that would show that the DNC was rigging the system to throw the primary to Hillary, but I could not find any in party affairs or among the staff. I had gone department by department, investigating individual conduct for evidence of skewed decisions, and I was happy to see that I had found none. Then I found this agreement. The funding arrangement with HFA and the victory fund agreement was not illegal, but it sure looked unethical. If the fight had been fair, one campaign would not have control of the party before the voters had decided which one they wanted to lead. This was not a criminal act, but as I saw it, it compromised the party’s integrity.

Read more …

We’ll go with Danielle DiMartino Booth for now. Powell’s no PhD, and not a Yellen clone. But he’s been at the Fed for 5 years already, which doesn’t make him an obvious agent for change.

Jay Powell – A Quiet Leader (DDMB)

The sheer breadth of Powell’s experience is refreshing compared to what we’ve had for the past 30 years. Powell has a deep understanding of the law and politics. He worked in the Treasury Department under Nicholas Brady and was confirmed as Undersecretary of the Treasury under George H.W. Bush. His background in politics and the experience he has had at the Fed thus far have prepared him well for his role as liaison to Congress and the White House. Powell’s experience as an investment banker was critical in his carrying out the investigation and sanctioning of Salomon Brothers. Understanding the entirely different type of politics that exists in big banks will bode well for his capacity to regulate the banks. This attribute especially will dilute the power traditionally exerted by the NY Fed in recent years, a District that has a long history of conflicts of interest vis-à-vis the banks it regulates.

A stronger regulator as Fed chair in the years leading up to the financial crisis. At the Carlyle Group, Powell founded and ran the Industrial Group within the Buyout Fund. A separate missing characteristic among Fed leaders for the past 30 years has been a woeful lack of understanding as to how Fed policy effects corporations and the decisions CEOs and CFOs make driven by Fed policy, the most obvious of which has been debt-financed share buybacks at the expense of capital expenditures. Some in the media have questioned Powell’s being the wealthiest individual at the Fed. That is an extremely strong attribute. In his work between 2010 and 2012 at a bipartisan think tank, Powell worked for a salary of $1 per year to carry out his mission to raise the debt ceiling. His wealth affords him the luxury of having no preset agenda. His history of working for his country to its best end exemplifies that he is at the Fed because he truly believes he is doing a greater good in servicing his country.

Powell’s work on Too Big to Fail banks also speaks to his ability to be independent and objective in his approach to regulating big banks with deep-pocketed lobbyists who hold huge sway over politicians. If he is willing to go up against the biggest banks, he will hopefully prove to be a leader cast in the mold of William McChesney Martin, the longest serving Fed Chairman famous for testifying to Congress that it was the Fed’s job to take away the punch bowl just as the party gets going. [..] His experience in the financial markets suggests he will be less apt to keep rates too low for too long as has been the case with his three predecessors. Powell was not in favor of the third round of QE, but voted for its nevertheless. This is his biggest black eye and why market participants perceive him to be as dovish as they do.

Read more …

Savings and pensions need higher rates, fast. But…

Why Would Anyone Want The Fed Job? (Crudele)

No matter who is appointed, the next Fed chairman has a problem. Right now, the economy is looking healthy. The stock market is booming. Consumer confidence is high. Home prices are soaring. And some economic indicators seem to say, “Happy days are here again.” Just Wednesday, for instance, the Atlanta Federal Reserve raised its forecast for economic growth in the fourth quarter to a booming 4.5% annual rate. The nation’s gross domestic product, the standard for measuring economic growth, rose at a healthy 3% annual rate in the third quarter. That 3% figure was puzzling because hurricanes should have stunted growth, which means that number might be revised downward once better-quality statistics come in.

Or it could mean that growth is darn good, despite the weather. Nevertheless, the 4.5% estimate for the fourth quarter — on top of the 3% growth in the July to September quarter — is going to force whoever ends up running the Fed to seriously consider raising interest rates faster than usual. But that’s where it gets tricky. Once rates increase, the economy could slow because borrowing costs will rise for both consumers and companies. When the cost of borrowing money increases, people and companies tend to cut back on spending. But there’s another possible twist that could complicate the job of the next Fed boss even more. The relatively impressive growth in the third-quarter GDP and the even better performance in the fourth quarter could turn out to be another fake-out.

The GDP, for instance, rose by a 4.6% annual rate in the second quarter of 2014 and by a 5.2% rate in the third quarter of that year, only to collapse back to subpar growth in the next eight quarters. Also, the New York Fed, which is more influential, doesn’t agree with the Atlanta Fed. It had current GDP at closer to 3%. With all that’s going on, why would anyone want the Fed job?

Read more …

When anyone tells you the economy has recovered, show them any of these graphs.

The Borrower Is The Slave To The Lender (Lance Roberts)

Despite the bullish economic optics, the reality for the majority of Americans is they simply have not yet recovered from the financial crisis. As the chart below shows, while savings spiked during the financial crisis, the rising cost of living for the bottom 80% has outpaced the median level of “disposable income” for that same group. As a consequence, the inability to “save” has continued.

I discussed previously the problem of rising debt. Beginning in 1990, the gap between the “standard of living” and real disposable incomes went negative with the resultant “gap” filled through the use of debt. However, since the financial crisis, this has no longer been the case. I modified the previous chart with the savings rate which tells the same story, as the cost of living began outpacing incomes the difference came from savings, and a continuous increase in debt. Again, despite the temporary uptick in the savings rate following the financial crisis, the real cost of living continues to erode the middle class.

You can see the erosion of the savings rate more clearly when you look at the rate of Personal Consumption Expenditure (PCE) growth as compared to debt growth. As spending and debt accelerated, the savings rate declined. More importantly, in 2000 the growth rate of debt sharply accelerated above PCE growth. This debt-fueled consumption, however, has not led to stronger rates of economic growth.

Debt is a negative thing for the borrower. It has been known to be such a thing even in biblical times as quoted in Proverbs 22:7: “The borrower is the slave to the lender.” Debt acts as a “cancer” on an individual’s wealth as it siphons potential savings from income as those funds are diverted to debt service. Rising levels of debt means rising levels of debt service which reduces actual disposable personal incomes that could be saved or reinvested back into the economy. The mirage of consumer wealth has been a function of surging debt levels. “Wealth” is not borrowed but “saved” and as shown in the chart below, this is a lesson that too few individuals have learned. The reality is that since “savings” are the cornerstone of economic growth longer-term, as savings provide for productive investment and lending, it should be of NO surprise that, as shown in the next chart, there is a very high correlation between the savings rate, GDP, and PCE.

Read more …

What happens when you don’t make stuff anymore.

US Manufacturing Worker Productivity Crashes Most In 8 Years (ZH)

US worker productivity rose at 3.0% QoQ in Q3 – the best since 2014.

Unit labor costs rose at 0.5% annualized rate in Q3 (est. 0.4%) following 0.3% pace in Q2. Output rose at a 3.8% rate following 3.9%. Hours worked rose at a 0.8% pace after 2.4%. The latest figure compares with a 1.2% average over the period spanning 2007 to 2016. Weak productivity helps explain why companies are reluctant to raise workers’ wages, even as profit margins have improved. However, among manufacturers, productivity crashed 5% QoQ – the biggest drop since Q1 2009, when the economy was in recession – after rising 3.4% in Q2. Let’s hope that is storm-related.

Read more …

Insert your opinion here: “From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,..”

Bitcoin Is the ‘Very Definition’ of a Bubble – Credit Suisse CEO (BBG)

The speculation around bitcoin is the “very definition of a bubble,” Credit Suisse CEO Tidjane Thiam said as the currency exceeded $7,000 for the first time. “From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,” he said at a news conference in Zurich Thursday. He added that in the history of finance, such speculation has “rarely led to a happy end.” The digital currency got new impetus this week after CME, the world’s largest exchange owner, said it plans to introduce bitcoin futures by the end of the year, citing pent-up demand from clients. That pushes bitcoin closer to the mainstream by making it easier to trade without the hassles of owning bitcoin directly. Other bankers are also sounding warnings about the currency.

JPMorgan Chase CEO Jamie Dimon has called bitcoin “a fraud” that will eventually blow up. UBS Chairman Axel Weber said last month that bitcoin has no “intrinsic value” because it’s not secured by underlying assets. Bankers also are steering clear of bitcoin for fear that criminals could use its anonymity to hide their activities, Thiam said. “Most banks in the current state of regulation have little or no appetite to get involved in a currency which has such anti-money laundering challenges,” he said. While bitcoin remains a no-go with the industry, banks are racing to develop blockchain, the technology underpinning the currency. Thiam said blockchain may have many applications in banking. Credit Suisse is among more than 100 banks are working within the R3, a consortium created to find ways to use blockchain as to track money transfers and other transactions.

Read more …

It’s by design, and that remains worrisome.

One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week (MBV)

Bitcoin’s incredible price run to break over $6,000 this year has sent its overall electricity consumption soaring, as people worldwide bring more energy-hungry computers online to mine the digital currency. An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to “mine” more Bitcoins. That’s about as much as Nigeria, a country of 186 million people, uses in a year. This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day).

Since the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries’ index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes. Expressing Bitcoin’s energy use on a per-transaction basis is a useful abstraction. Bitcoin uses x energy in total, and this energy verifies/secures roughly 300k transactions per day. So this measure shows the value we get for all that electricity, since the verified transaction (and our confidence in it) is ultimately the end product. Since 2015, Bitcoin’s electricity consumption has been very high compared to conventional digital payment methods. This is because the dollar price of Bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it.

As the price rises, miners add more computing power to chase new Bitcoins and transaction fees. It’s impossible to know exactly how much electricity the Bitcoin network uses. But we can run a quick calculation of the minimum energy Bitcoin could be using, assuming that all miners are running the most efficient hardware with no efficiency losses due to waste heat. To do this, we’ll use a simple methodology laid out in previous coverage on Motherboard. This would give us a constant total mining draw of just over one gigawatt. That means that, at a minimum, worldwide Bitcoin mining could power the daily needs of 821,940 average American homes. Put another way, global Bitcoin mining represents a minimum of 77KWh of energy consumed per Bitcoin transaction.

Even as an unrealistic lower boundary, this figure is high: As senior economist Teunis Brosens from Dutch bank ING wrote, it’s enough to power his own home in the Netherlands for nearly two weeks. As goes the Bitcoin price, so goes its electricity consumption, and therefore its overall carbon emissions. I asked de Vries whether it was possible for Bitcoin to scale its way out of this problem. “Blockchain is inefficient tech by design, as we create trust by building a system based on distrust. If you only trust yourself and a set of rules (the software), then you have to validate everything that happens against these rules yourself. That is the life of a blockchain node,” he said via direct message.

Read more …

“Earnings are likely to fall short of expectations, which can lead to a correction. Once that happens, multiples can shrink as well. Soon you’re in a full-scale bear market with stock prices down 20% or more.”

The Hidden Danger Bulls Are Missing (Rickards)

Bull markets in stocks seem unstoppable right up until the moment they stop. Then comes a rapid crash-and-burn phase. Is there ever any warning that a collapse is about to happen? Of course there is. Analysts warn about it all the time and provide mountains of data and historical evidence to back up their analysis. The problem is that everyone ignores them! You can talk about the dangers represented by CAPE ratios, margin levels, computerized trading, persistent low volatility and complacency all you want, but nothing seems to slow down this bull market. Yet there is one thing that can stop a bull market in its tracks, and that’s corporate earnings. The simplest form of stock market valuation is to project earnings, apply a multiple and, voilà, you have a valuation. Multiples are already near record highs, so there’s not much room for expansion there.

The only variable left is projected earnings and that’s where Wall Street analysts are having a field day ramping up stock prices. Earnings did grow significantly in 2017 on a year-over-year basis, but that’s mainly because earnings were weak in 2016, so the year-over-year growth was relatively easy. Now comes the hard part. How do you expand earnings again in 2018 when 2017 was such a strong year? Wall Street just uses a simple extrapolation and says next year will be like this year, only better! But there is every reason to doubt that extrapolation. This is from a recent Bloomberg article:

“Ominously, Weekly Leading Index growth turned down early this year and is now at a 79-week low. Such cyclical downturns have historically telegraphed [growth-rate cycle] GRC downturns. That shows very clearly that economic growth is about as good as it gets and that a fresh growth slowdown may be on the way… ” “Over time, we find that stock price corrections — big and small — have historically clustered around GRC downturns. In other words, the risk of corrections rises around economic slowdowns… Today, there are rising rates, with quantitative tightening about to begin. This will take place during an economic slowdown, implying a likely downswing in corporate profit growth, delivering a proverbial one-two punch.”

Earnings are likely to fall short of expectations, which can lead to a correction. Once that happens, multiples can shrink as well. Soon you’re in a full-scale bear market with stock prices down 20% or more. That’s without even considering a war with North Korea and all of the dangers others have already mentioned. This may be your last clear chance to lighten up on listed equity exposure before the bubble bursts.

Read more …

Complex derivatives. What do they make you remember?

As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion (BBG)

The comeback in complex credit derivatives blamed for exacerbating the global financial crisis is picking up pace. That’s according to new research this week from Citigroup, one of the biggest arrangers of so-called synthetic collateralized debt obligations. Sales of the products may jump to as much as $100 billion this year from about $20 billion in 2015, Citigroup analysts wrote in an Oct. 31 report. While investors suffered billions of dollars in losses on similar bets a decade ago, the leverage offered by synthetic CDOs is luring back buyers in an era of low yields and dwindling volatility. “It would seem as if the low spread-low vol environment, similar to back in 2006-2007 (when investors couldn’t get enough of levered synthetic tranches) has revived some interest in portfolio credit risk,” Citigroup analysts led by Aritra Banerjee wrote.

“Investors may not have necessarily wanted to add leverage, but, simply put, they have had to, given the lack of alternatives.” While post-crisis deals are typically tied to corporate credit as opposed to the mortgage debt that helped spur the credit crunch, the return of synthetic CDOs is likely to generate unease among investors who worry that markets are too frothy. The controversial product’s resurgence coincides with a boom in other types of credit wagers, including options on credit derivative indexes and exchange-traded funds that provide quick and easy access to a broad swath of credit. There are some key differences in today’s synthetic CDOs versus the pre-crisis vintage. Citigroup said it has created over 50 “full capital structure” deals in recent years, which vary from the single-tranche bespoke deals that dominated before and just after the crunch.

Read more …

“China’s non-financial outbound direct investment (ODI) fell 41.9% in January-September from a year earlier to $78.03 billion. For September alone, it plummeted 42.5% on-year to $9.31 billion..”

China Issues Guidelines On Overseas Investment Amid Crackdown On Deals (R.)

After years of rapid growth, China’s outbound investment has slumped so far in 2017 as authorities crack down on “irrational” overseas deals which are suspected of being used to bypass capital controls and move money offshore, pressuring the yuan currency. The draft regulations, released to the public to solicit feedback until Dec. 3, aim to improve oversight, safeguard national security and increase support, according to a post on the website of the National Development and Reform Commission (NDRC). Some administrative hurdles, such as a rule requiring that Chinese companies investing over $300 million overseas seek approval from the state planner, would be reduced or removed under the new rules, the post said.

At the same time, the new rules would also increase oversight on investments by overseas subsidiaries of Chinese companies, as well as for investments in sensitive sectors and countries, it said. Sensitive projects listed in the rules include those in countries that are at war, that do not have diplomatic ties with China or where investment is restricted by China’s commitments to international treaties, resolutions or requirements. Media organizations, weapons manufacturing, companies involved in multi-national water resources exploitation or those that China’s national macro policies restrict investment in were listed as sensitive sectors. A full list of sensitive areas would be released by the state planner in future, it said.

Punishments for companies that use dishonest measures to invest overseas, engage in unfair competition or damage national security will be increased, the rules said. The statement said that the new draft builds on previous regulations released in 2014. China’s non-financial outbound direct investment (ODI) fell 41.9% in January-September from a year earlier to $78.03 billion. For September alone, it plummeted 42.5% on-year to $9.31 billion, according to Reuters calculations.

Read more …

As Americans live paycheck to paycheck. Problem is, both parties support this lunacy.

US Spends $250 Million Per Day For The War On Terror (TeleS)

The Department of Defense’s “cost of war” report suggests that the U.S. has spent $250 million per day for the past 16 years on ‘defense.’ According to a newly published United States Department of Defense (DoD) “cost of war” report, U.S. taxpayers have shelled out $1.46 trillion for war since September 11, 2001, when the War on Terror began. This amounts to around $250 million per day. The report was published by the Federation of American Scientists Secrecy News blog and covers the period of September 11, 2001 to mid-2017. As the report notes, nearly $1.3 trillion of the total cost spent on the Iraq and Afghanistan wars alone. On top of this, continuing operations in Afghanistan and the U.S.-led air campaign in Iraq and Syria has totalled $120 billion.

U.S. President Donald Trump promised to rebuild America’s military which he sees as less extravagant than it ever has been. “Our active-duty armed forces have shrunk from 2 million in 1991 to about 1.3 million today,” he said in a speech. “The Navy has shrunk from over 500 ships to 272 ships during this same period of time. The Air Force is about one-third smaller than 1991. Pilots flying B-52s in combat missions today. These planes are older than virtually everybody in this room.” Part of Trump’s plan to ‘rebuild’ the U.S.’ military is to make sure that the military is “funded beautifully.” The Trump administration has proposed a $603 billion defense budget, which well exceeds the cap of $549 billion, and would require the U.S. Congress to make spending cuts in other areas.

In July, the House of Representatives approved $696.5 billion in defense spending, which includes a base budget of $621.5 billion and $75 billion in ‘Overseas Contingency Operations dollars’, commonly referred to as ‘war money’. Conversely, the Senate passed a $640 billion base defense budget with a $60 billion allocation for war money. Both versions of the budget well exceed the Trump administration’s proposal, making this defense budget, by far, the largest defense budget in U.S. history. While the U.S.’ current and proposed military spending is massive, the DoD’s “cost of war” report did not take into account other collateral costs of war, including veteran’s benefits and other related costs.

Read more …

Will Belgium extradite Puidgemont? 8 of his ministers are already in jail.

Barcelona Council Says Catalan Government Legitimate, Independence Is Not (CN)

Barcelona City Council has declared that the government dismissed by Spain after the application of Article 155 is “legitimate,” although it does not recognize Catalonia as an official republic. After meeting on Thursday, the council approved the proposal put forth by pro-independence party Esquerra Republicana (ERC) to “recognize the government that emerged from the polls on September 27 as the legitimate government of Catalonia,” with votes in favour from Barcelona en Comú (BeC), ERC, PDeCAt, and the anti-capitalist party CUP. Votes against came from the Socialists (PSC), the Catalan People’s Party (PP), and Ciutadans (Cs).

CUP also proposed a motion to “recognize the proclamation of the Catalan Republic approved by the Parliament of Catalonia on October 27.” Although this motion received support from ERC, PDeCAT, and the CUP, it received more votes against from BeC, Cs, PSC, and PP. Alfred Bosch, president of ERC warned that “the fact that the Catalan government has been dismissed, and its powers passed on to the Spanish government, will have an effect on Barcelona.” Barcelona’s mayor, Ada Colau, received criticism from CUP representative María José Lecha, who said the mayor cannot be “neutral or equidistant” in the face of the judicial persecution of the October 1 referendum, and that she must side either with “the oppressor or the oppressed.”

Read more …

What a story this still is.

Kim Dotcom Wins Settlement From New Zeland Police Over 2012 Dawn Raid (NZH)

Kim Dotcom and his former wife Mona have accepted a confidential settlement from the police over the raid which saw him arrested, saying he did so to protect their children and because the Government “recently changed for the better”. He said that their previous desire to see accountability had been trumped by wanting to “do what was best for our children” by bringing an end to the court case. The settlement came after a damages claim was filed with the High Court over what was considered an “unreasonable” use of force when the anti-terrorism Special Tactics Group raided his $30 million mansion in January 2012. The raid was part of a worldwide FBI operation to take down Dotcom’s Megaupload file-sharing website which was claimed to be at the centre of a massive criminal copyright operation.

Dotcom and three others were arrested and await extradition to the United States on charges which could land them in prison for decades. The NZ Herald has learned earlier settlements were reached between police and others arrested, including Bram van der Kolk and Mathias Ortmann. It was believed their settlements were six-figure sums and it is likely Dotcom would seek more as the main target in the raid. He was also the focus of risk assessments used to justify the use of the anti-terrorism squad which carried out a helicopter assault at dawn. Those assessments included photographs of Dotcom carrying shotguns – pictures taken while clay pigeon shooting – and descriptions of him as violent despite a lack of evidence to support the claim.

The court challenge also questioned “visual surveillance” which had not been authorised by the court. Evidence has emerged in court hearings of police watching the Dotcom Mansion from neighbouring properties, and scouting the mansion interior with a hidden camera carried on to the property by a local police officer on a goodwill meeting the day before the raid.

Read more …

Ban it. Ban the whole industry. We cannot afford this to continue. Let’s feed ourselves without poisoning ourselves in the process.

Monsanto Halts Launch Of Chemical After Farmers Complain Of Rashes (R.)

Monsanto put on hold the launch of a chemical designed to be applied to crop seeds on Wednesday following reports it causes rashes on people, in the latest instance of complaints about a company product that was approved by U.S. environmental regulators. Monsanto froze plans for commercial sales of the product called NemaStrike, which can protect corn, soybeans and cotton from worms that reduce yields. The company said it conducted three years of field tests across the United States in preparation for a full launch and that more than 400 people used it this year as part of a trial. The delayed launch of what Monsanto calls a blockbuster product is another setback for the company, which is already battling to keep a new version of a herbicide on the market in the face of complaints that it damaged millions of acres of crops this summer.

“There have been limited cases of skin irritation, including rashes, that appear to be associated with the handling and application of this seed treatment product,” Brian Naber, U.S. commercial operations lead for Monsanto, said in a letter to customers about NemaStrike. Some users who suffered problems may not have followed instructions to wear protective equipment, such as gloves, company spokeswoman Christi Dixon said. The company expected NemaStrike to launch across up to 8 million U.S. crop acres in fiscal year 2018, Chief Executive Hugh Grant said on a conference call last month. The product was “priced at a premium that reflects its consistent yield protection” against worms known as nematodes, he said.

The U.S. Environmental Protection Agency (EPA) did extensive evaluations of the product before approving it for use, according to Monsanto, which has described NemaStrike as “blockbuster technology.” [..] “The technology is effective and can be used safely when following label instructions,” Monsanto said. The EPA last year approved use of Monsanto’s new version of a weed killer using a chemical known as dicamba on crops during the summer growing season.Problems have also emerged with the herbicide since the agency’s approval. Farmers have complained it evaporates and drifts from where it is applied, causing damage to crops that cannot resist it.

Read more …

Aug 122017
 
 August 12, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , ,  4 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Giorgio de Chirico The Enigma of the Hour 1910

 

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

 

 

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

The Logic of War (Jim Rickards)

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

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

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

Read more …

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

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

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

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

Read more …

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

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

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

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

Read more …

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

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

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

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

Read more …

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

Battle of the Behemoths (Jim Kunstler)

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

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

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

Read more …

But then combine Jim Kunstler’s piece with this:

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

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

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

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

Read more …

Do we send in Dan Brown and Tom Hanks?

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

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

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

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

Read more …

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

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

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

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

Read more …

Are we going to lock him up?

Greenspan’s Legacy Explains Current Conundrums (DDMB)

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

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

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

Read more …

Best reason ever for a Universal Basic Income.

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

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

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

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

Read more …

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

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

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

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

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

Read more …

Over 200 a day into Québec alone.

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

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

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

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

Read more …

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

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

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

Read more …

Aug 012017
 
 August 1, 2017  Posted by at 8:45 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Paul Cézanne Young Italian Woman at a Table c1900

 

How Can The Richest Nation On Earth Be Lagging So Far Behind Its Peers? (BBG)
With LIBOR Dead, $400 Trillion In Assets Are Stuck In Limbo (ZH)
Amazon And The 110% Surge In US Retail Bankruptcies (ZH)
No Bubble in Stocks But Look Out When Bonds Pop, Greenspan Says (BBG)
Trump Got This One Right: Shutting Down The CIA’s Ghost War In Syria (WS)
The Tweet That Is Shaking the War Party (David Stockman)
Pentagon Offers To Arm Ukraine, McCain Delighted (ZH)
Killing Them is Killing Us (Robert Gore)
Scaramucci’s China Dealings Pushed Him Out Of White House – Rickards (CNBC)
Unsecured UK Consumer Credit Tops £200 Billion For First Time Since 2008 (G.)
Moody’s Warns Of Growing UK Household Debt As Brexit Downturn Looms (Ind.)
Facebook AI Creates Its Own Language In Creepy Preview Of Our Future (F.)
Narratives Are Not Truths (Jim Kunstler)
Aid Groups Snub Italian Code Of Conduct On Mediterranean Rescues (G.)

 

 

I blame Darwin.

How Can The Richest Nation On Earth Be Lagging So Far Behind Its Peers? (BBG)

What do the economists at the IMF see when they look at the U.S.? An economy in the midst of a long expansion (“its third longest expansion since 1850”), with “persistently strong” job growth, “subdued” inflation and something close to “full employment.” But also this: For some time now there has been a general sense that household incomes are stagnating for a large share of the population, job opportunities are deteriorating, prospects for upward mobility are waning, and economic gains are increasingly accruing to those that are already wealthy. This sense is generally borne out by economic data and when comparing the U.S. with other advanced economies. The IMF then goes on to compare the U.S. with 23 other advanced economies in the OECD in this chart:

[..] the overall point is that the U.S. has been losing ground relative to other OECD members in most measures of living standards. 1 And in the areas where the U.S. hasn’t lost ground (poverty rates, high school graduation rates), it was at or near the bottom of the heap to begin with. The clear message is that the U.S. – the richest nation on Earth, as is frequently proclaimed, although it’s actually not the richest per capita – is increasingly becoming the developed world’s poor relation as far as the actual living standards of most of its population go. This analysis is contained in the staff report of the IMF’s annual “consultation” with the U.S., which was published last week. Another IMF report released last week, an update to its World Economic Outlook that downgraded short-term growth forecasts for the U.S. and U.K., got a lot more attention. But the consultation report is more interesting.

Read more …

With Libor shut down to prevent revelations of involvement in manipulation by ‘higher-ups’, what will these same ‘higher-ups’ opt to use instead? Who has the political clout to make the decisions?

They better hurry: “moving an existing $9.6 trillion retail mortgage market, $3.5 trillion commercial real estate market, $3.4 trillion loan market and a $350 trillion derivatives market is a herculean task.”

With LIBOR Dead, $400 Trillion In Assets Are Stuck In Limbo (ZH)

In an unexpected announcement, earlier this week the U.K.’s top regulator, the Financial Conduct Authority which is tasked with overseeing Libor, announced that the world’s most important, and manipulated, benchmark rate will be phased out by 2021, catching countless FX, credit, derivative, and other traders by surprise because while much attention had been given to possible LIBOR alternatives across the globe (in a time when the credibility of the Libor was non-existent) this was the first time an end date had been suggested for the global benchmark, which as we explained on Thursday, had died from disuse over the past 5 years.

Commenting on the decision, NatWest Markets’ Blake Gwinn told Bloomberg that the decision was largely inevitable: “There had never been an answer as to how you get market participants to adopt a new benchmark. It was clear at some point authorities were going to force them. The FCA can compel people to participate in Libor. What can ICE do if they’ve lost the ability to get banks to submit Libor rates?” And while the rationale for replacing Libor is well understood (for those unfamiliar, read David Enrich’s “The Spider Network”), there are still no clear alternatives. Ultimately, as Bank of America calculates, “moving an existing $9.6 trillion retail mortgage market, $3.5 trillion commercial real estate market, $3.4 trillion loan market and a $350 trillion derivatives market is a herculean task.”

And with nearly half a quadrillion dollar in securities referncing a benchmark that is set to expire in under 5 years, the biggest problem is one of continuity: as Bloomberg calculated last week, in addition to the hundreds of trillion in referencing securities, there is also currently an open interest of 170,000 eurodollar futures contracts expiring in 2022 and beyond – contracts that settle into a benchmark that will no longer exist. “What are existing contract holders and market makers supposed to do?” Then there is the question of succession: with over $300 trillion in derivative trades, and countless billions in floating debt contracts, referening Libor, the pressing question is what will replace it, and how will the transition be implemented seamlessly?

Read more …

Tech monopolies are devastating economies.

Amazon And The 110% Surge In US Retail Bankruptcies (ZH)

As Amazon flirts with a $500 billion market cap, letting Jeff Bezos try on the title of world’s richest man on for size if only for a few hours, for Amazon’s competitors it’s “everything must go” day everyday, as the bad news in the retail sector continue to pile up with the latest Fitch report that the default rate for distressed retailers spiked again in July. According to the rating agency, the trailing 12-month high-yield default rate among U.S. retailers rose to 2.9% in mid-July from 1.8% at the end of June, after J. Crew completed a $566 million distressed-debt exchange. Meanwhile, with the shale sector flooded with Wall Street’s easy money, the overall high-yield default rate tumbled to 1.9% in the same period from 2.2% at the end of June as $4.7 billion of defaulted debt – mostly in the energy sector – rolled out of the default universe.

In a note, Fitch levfin sr. director Eric Rosenthal, said that “even with energy prices languishing in the mid $40s, a likely iHeart bankruptcy and retail remaining the sector of concern, the broader default environment remains benign.” He’s right: after the energy sector dominated bankruptcies in the first half of 2016, accounting for 21% of Chapter 11 cases, in H1 2017 the worst two sectors for bankruptcies are financials and consumer discretionary. And if recent trends are an indication, the latter will only get worse as Fitch expects Claire’s, Sears Holdings and Nine West all to default by the end of the year, pushing the default rate to 9%. “The timing on Sears and Claire’s is more uncertain, and our retail forecast would end the year at 5% absent these filings,” Rosenthal wrote. Putting the retail sector woes in context, Reorg First Day has calculated that retail bankruptcies soared 110% in the first half from the year-earlier period, accounting for $6 billion in debt.

Read more …

Oracle dementia.

No Bubble in Stocks But Look Out When Bonds Pop, Greenspan Says (BBG)

Equity bears hunting for excess in the stock market might be better off worrying about bond prices, Alan Greenspan says. That’s where the actual bubble is, and when it pops, it’ll be bad for everyone. “By any measure, real long-term interest rates are much too low and therefore unsustainable,” the former Federal Reserve chairman said in an interview. “When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.” While the consensus of Wall Street forecasters is still for low rates to persist, Greenspan isn’t alone in warning they will break higher quickly as the era of global central-bank monetary accommodation ends.

Deutsche Bank’s Binky Chadha says real Treasury yields sit far below where actual growth levels suggest they should be. Tom Porcelli, chief U.S. economist at RBC Capital Markets, says it’s only a matter of time before inflationary pressures hit the bond market. “The real problem is that when the bond-market bubble collapses, long-term interest rates will rise,” Greenspan said. “We are moving into a different phase of the economy – to a stagflation not seen since the 1970s. That is not good for asset prices.” Stocks, in particular, will suffer with bonds, as surging real interest rates will challenge one of the few remaining valuation cases that looks more gently upon U.S. equity prices, Greenspan argues. While hardly universally accepted, the theory underpinning his view, known as the Fed Model, holds that as long as bonds are rallying faster than stocks, investors are justified in sticking with the less-inflated asset.

Read more …

How on earth can Obama and Hillary have supported this?

Trump Got This One Right: Shutting Down The CIA’s Ghost War In Syria (WS)

Earlier this year, President Donald Trump was shown a disturbing video of Syrian rebels beheading a child near the city of Aleppo. It had caused a minor stir in the press as the fighters belonged to the Nour al-Din al-Zenki Movement, a group that had been supported by the CIA as part of its rebel aid program. The footage is haunting. Five bearded men smirk as they surround a boy in the back of a pickup truck. One of them holds the boy’s head with a tight grip on his hair while another mockingly slaps his face. Then, one of them uses a knife to saw the child’s head off and holds it up in the air like a trophy. It is a scene reminiscent of the Islamic State’s snuff videos, except this wasn’t the work of Abu Bakr al-Baghdadi’s men. The murderers were supposed to be the good guys: our allies.

Trump wanted to know why the United States had backed Zenki if its members are extremists. The issue was discussed at length with senior intelligence officials, and no good answers were forthcoming, according to people familiar with the conversations. After learning more worrisome details about the CIA’s ghost war in Syria—including that U.S.-backed rebels had often fought alongside extremists, among them al Qaeda’s arm in the country—the president decided to end the program altogether. On July 19, the Washington Post broke the news of Trump’s decision: “a move long sought by Russia,” the paper’s headline blared. Politicians from both sides of the aisle quickly howled in protest, claiming that Trump’s decision was a surrender to Vladimir Putin.

Read more …

I said it before: Stockman’s had enough.

The Tweet That Is Shaking the War Party (David Stockman)

Most of the Donald’s tweets amount to street brawling with his political enemies, but occasionally one of them slices through Imperial Washington’s sanctimonious cant. Indeed, Monday evening’s 140 characters of solid cut right to the bone: “The Amazon Washington Post fabricated the facts on my ending massive, dangerous, and wasteful payments to Syrian rebels fighting Assad…..” Needless to say, we are referencing not the dig at the empire of Bezos, but the characterization of Washington’s anti-Assad policy as “massive, dangerous and wasteful”. No stouter blow to the neocon/Deep State “regime change” folly has ever been issued by an elected public official. Yet there it is – the self-composed words of the man in the Oval Office. It makes you even want to buy some Twitter stock! Predictably, the chief proponent of illegal, covert, cowardly attacks on foreign governments via proxies, mercenaries, drones and special forces, Senator McWar of Arizona, fairly leapt out of his hospital bed to denounce the President’s action: “If these reports are true, the administration is playing right into the hands of Vladimir Putin.”

That’s just plain pathetic because the issue is the gross stupidity and massive harm that has been done by McCain’s personally inspired and directed war on Assad – not Putin and not Russia’s historic role as an ally of the Syrian regime. Since 2011, Senator McCain has been to the region countless times. There he has made it his business to strut about in the manner of an imperial proconsul – advising, organizing and directing a CIA recruited, trained and supplied army of rebels dedicated to the overthrow of Syria’s constitutionally legitimate government. At length, several billions were spent on training and arms, thereby turning a fleeting popular uprising against the despotic Assad regime during the 2011 “Arab spring” into the most vicious, destructive civil war of modern times, if ever. That is, without the massive outside assistance of Washington, Saudi Arabia and the emirates, the Syrian uprising would have been snuffed out as fast as it was in Egypt and Bahrain by dictators which had Washington’s approval and arms.

As it has happened, however, Syria’s great historic cities of Aleppo and Damascus have been virtually destroyed – along with its lesser towns and villages and nearly the entirety of its economy. There are 400,000 dead and 11 million internal and external refugees from an original population of hardly 18 million. The human toll of death, displacement, disease and disorder which has been inflicted on this hapless land staggers the imagination. Yet at bottom this crime against humanity – there is no other word for it – is not mainly Assad’s or Putin’s doing. It can be properly described as “McCain’s War” in the manner in which (Congressman) Charlie Wilson’s War in Afghanistan during the 1980’s created the monster which became Osama bin Laden’s al-Qaeda.

Read more …

And of course they just go on.

Pentagon Offers To Arm Ukraine, McCain Delighted (ZH)

The WSJ reports that, in what appears to be the next gambit by the U.S. Military-Industrial Complex (or “deep state” for those so inclined) to force Trump to “prove” that he did not, in fact, collude or have any ties with Russia or Vladimir Putin, Pentagon and State Department officials have devised plans to hit Russia where it hurts the most, and supply Ukraine with antitank missiles and other weaponry, and are now seeking White House approval at a time when ties between Moscow and Washington are as bad as during any point under the Obama administration. American military officials and diplomats say the arms, which they characterized as defensive, are meant to deter aggressive actions by Moscow, which the U.S. and others say has provided tanks and other sophisticated armaments as well as military advisers to rebels fighting the Kiev government.

The question of course is, “why now?” Since the start of the Crimean conflict, which in turn was the byproduct of a State Department-facilitiated presidential coup in Ukraine, the US has been supporting Russian-speaking insurgents in the country’s east however Washington, wary of escalating the conflict, has largely limited its support for Kiev’s military to so-called non-lethal aid and training. So one attempt at “why now”, is because with Trump reeling, and having already caved on the latest Congressional anti-Russia bill, why not push the president to escalate the Russia conflict to a point where not even his predecessor dared to take it. For now, Trump is unaware of the plan: “A senior administration official said there has been no decision on the armaments proposal and it wasn’t discussed at a high-level White House meeting on Russia last week. The official said President Donald Trump hasn’t been briefed on the plan and his position isn’t known.”

Read more …

“The blood never washes away.”

Killing Them is Killing Us (Robert Gore)

There is something eerily fascinating about cold-blooded murderers – a staple of Hollywood thrillers and crime dramas—killing without emotion or remorse. Ordinary humans, afflicted with guilt for minor, not even criminal transgressions, can’t conceive of pulling the trigger and then sitting down for dinner. In real life, the number of people who can is glancingly small. Even for those few, actions have consequences. The blood never washes away. “Live and let live,” is, in American mythology, a benevolent and almost uniquely American attitude. We destroyed Japan and Germany in World War II and then helped rebuild them. Live and let live goes down well with the living, the winners. However, it’s often nothing more than balm for an uneasy conscience, hand sanitizer for bloodstained hands.

A century and a half later, many Southerners lack this “unique” American attitude towards their conquerers in the War of Northern Aggression. The war on terror has laid waste to large swaths of the Middle East and Northern Africa. Cities, towns, and villages have been reduced to smoking, bombed-out rubble, chaos reigns, the carnage is ubiquitous. The US military keeps count of its own personnel wounded and killed, a number in the thousands. Civilian casualties —or collateral damage as the military calls it—across Chaostan (Richard Maybury’s apt coinage) are in the millions, as are the number of people displaced (an estimated 11 million in Syria alone).

Imagine the American fury and media sensationalism if a small US town was carpet-bombed by a foreign power. YouTube’s servers would melt from the overflow of viewers watching videos of parents pulling their dead children from collapsed homes. The war on terror’s refugee flows threaten to upend civic order and submerge the cultures of the countries receiving them. It’s a vicious act of intellectual corruption to maintain that the war on terror does not create terrorists, that those killed, wounded, or displaced have no friends or family who will exact what they consider justified vengeance. The terrorism we see now is lava trickling from a volcano of hatred that has boiled, bubbled, and occasionally erupted for centuries, and will continue to do so. There will be no live and let live. Blood will have blood, not banalities.

Read more …

A different perspective.

Scaramucci’s China Dealings Pushed Him Out Of White House – Rickards (CNBC)

The abrupt dismissal of White House communications director Anthony Scaramucci less than two weeks after his appointment may be linked to the outspoken financier’s China dealings. The firing has been widely attributed to Scaramucci’s verbal tirade to a reporter in addition to orders from new chief of staff John F. Kelly. But there’s a third issue that may have played into the decision, Jim Rickards, editor of investment newsletter Strategic Intelligence, told CNBC. The sale of Scaramucci’s hedge fund, SkyBridge Capital, to HNA Capital, a subsidiary of Chinese conglomerate HNA Group, was a red flag for Washington, according to Rickards. The acquisition, which was finalized in January and reportedly values SkyBridge at around $200 million, is currently pending approval from the Committee on Foreign Investment in the United States – or CFIUS – a government panel that reviews foreign purchases of American companies for national security risks.

Officially chaired by Treasury Secretary Steven Mnuchin, CFIUS involves multiple U.S. agencies, including the defense, commerce and state departments. Rickards, who previously worked with intelligence officials on CFIUS regarding foreign acquisitions of U.S. financial services firms, said he believes the Skybridge deal was “a sleeper story waiting to come back to haunt the White House.” HNA’s purchase is likely to get rejected amid concerns of Chinese control over U.S. hedge funds and investment banks — a decision that wouldn’t bode well for President Donald Trump’s administration, he said. “My recommendation would have been for CFIUS to turn the deal down…we had always warned ‘don’t let our adversaries such as China or Russia get plugged into the U.S. financial system’…When I was involved, this deal would have not gone through,” he said.

“In some ways, the White House is probably relieved to get rid of Scaramucci because now, no matter what happens to that deal, that burden won’t be with the White House,” Rickards continued. “Using the [New Yorker] interview was great cover to get rid of Scaramucci before the hedge fund deal and national security review blew up in his face.”

Read more …

Oh well, someone will always say it’s because of confidence…

Unsecured UK Consumer Credit Tops £200 Billion For First Time Since 2008 (G.)

The financial watchdog has announced fresh measures to protect consumers from spiralling debt as official data showed that borrowing through credit cards, overdrafts and car loans has topped £200bn for the first time since the global financial crisis. The Financial Conduct Authority said it was cracking down on the high cost of overdrafts and reviewing the booming car loan market. The regulator’s latest intervention came as credit ratings agency Moody’s also warned about the growing household debt mountain, saying that some borrowers would struggle to repay their debt as the economy weakened and inflation ate into their salaries. Unsecured consumer credit, which includes credit cards, car loans and overdrafts, peaked in the autumn of 2008 – just as the banking crisis was taking hold.

It fell in subsequent years, but has been rising again since 2014 and is now in touching distance of the pre-crisis lending boom. Data from the Bank of England on Monday showed that it grew by 10% in the year to June, to almost £201bn. The last time outstanding debt was above £200bn was December 2008. In a paper published on Monday, the FCA said that one in six people with debt on credit cards, personal lending and car loans – 2.2 million – were in financial distress. They are more likely to be younger, have children, be unemployed and less educated than others. As households grapple with rising living costs, charities and policymakers have raised concerns that consumers are increasingly turning to loans amid worrying signs of a return to reckless lending by the banks.

Read more …

… but in reality it’s not confidence, but poverty that rules Britannia.

Moody’s Warns Of Growing UK Household Debt As Brexit Downturn Looms (Ind.)

A credit rating agency has warned that soaring levels of household debt could leave Britain’s lower-income families dangerously exposed amid signs of an economic downturn linked to Brexit. Moody’s said the UK’s weak economic climate meant it had to downgrade four of the five consumer finance sectors to negative. The agency’s warning over credit came as the Bank of England revealed that the amount borrowed by UK consumers through credit cards, loans and overdrafts had reached £200bn for the first time since the financial crash of 2008. Inflation, triggered by the low pound, is now rising faster than wage growth and has put growing pressure on households, squeezing budgets and causing credit card spending to increase and savings to fall.

In this context, the Bank of England has expressed concerns over surging levels of unsecured consumer borrowing on credit cards, which is going up by more than 10 per cent a year and outstripping income. Moody’s analyst Greg Davies said: “Household debt is high and still growing, leaving consumers vulnerable to an economic downturn, while higher inflation, weaker wage growth and levels of indebtedness leaves those in lower-income brackets the most exposed. “An additional challenge is that households’ capacity to draw on savings to maintain consumption and/or service their consumer debts has significantly diminished.” The credit rating agency has also warned in recent weeks of the potential economic damage if the UK fails to secure an exit trade deal with the EU.

Read more …

“Our entire world is wired and connected. An artificial intelligence will eventually figure that out – and figure out how to collaborate and cooperate with other AI systems. Maybe the AI will determine that mankind is a threat, or that mankind is an inefficient waste of resources – conclusions that seems plausible from a purely logical perspective.”

Facebook AI Creates Its Own Language In Creepy Preview Of Our Future (F.)

Facebook shut down an artificial intelligence engine after developers discovered that the AI had created its own unique language that humans can’t understand. Researchers at the Facebook AI Research Lab (FAIR) found that the chatbots had deviated from the script and were communicating in a new language developed without human input. It is as concerning as it is amazing – simultaneously a glimpse of both the awesome and horrifying potential of AI. Artificial Intelligence is not sentient—at least not yet. It may be someday, though – or it may approach something close enough to be dangerous. Ray Kurzweil warned years ago about the technological singularity. The Oxford dictionary defines “the singularity” as, “A hypothetical moment in time when artificial intelligence and other technologies have become so advanced that humanity undergoes a dramatic and irreversible change.”

To be clear, we aren’t really talking about whether or not Alexa is eavesdropping on your conversations, or whether Siri knows too much about your calendar and location data. There is a massive difference between a voice-enabled digital assistant and an artificial intelligence. These digital assistant platforms are just glorified web search and basic voice interaction tools. The level of “intelligence” is minimal compared to a true machine learning artificial intelligence. Siri and Alexa can’t hold a candle to IBM’s Watson. Scientists and tech luminaries, including Elon Musk, Bill Gates, and Steve Wozniak have warned that AI could lead to tragic unforeseen consequences. Eminent physicist Stephen Hawking cautioned in 2014 that AI could mean the end of the human race. “It would take off on its own and re-design itself at an ever increasing rate. Humans, who are limited by slow biological evolution, couldn’t compete, and would be superseded.”

Why is this scary? Think SKYNET from Terminator, or WOPR from War Games. Our entire world is wired and connected. An artificial intelligence will eventually figure that out – and figure out how to collaborate and cooperate with other AI systems. Maybe the AI will determine that mankind is a threat, or that mankind is an inefficient waste of resources – conclusions that seems plausible from a purely logical perspective.

Read more …

Racketeering.

Narratives Are Not Truths (Jim Kunstler)

The American polity is not thriving. It has been incrementally failing to meet its needs for quite a while now, playing games with itself to pretend that it is okay while its institutional organs and economic operations decay. It turns this way and that way ever more desperately, over-steering like a drunk on the highway. It is drunk on the untruths it tells itself in the service of playing games to avoid meeting its real needs. Narratives are not truths. Here is a primary question we might ask ourselves: do we want to live in a healthy society? Do we want to thrive? If so, what are the narratives standing in the way of turning us in the direction? Let’s start with health care, so called, since the failure to do anything about the current disastrous system is so fresh. What’s the narrative there?

That “providers” (doctors and hospitals) can team up with banking operations called “insurance companies” to fairly allocate “services” to the broad population with a little help from the government. No, that’s actually not how it works. The three “players” actually engage in a massive racketeering matrix — that is, they extract enormous sums of money dishonestly from the public they pretend to serve and they do it twice: once by extortionary fees and again by taxes paid to subsidize mitigating the effects of the racketeering. The public has its own narrative, which is that there is no connection between their medical problems and the way they live. The fact is that they eat too much poisonous food because it’s tasty and fun, and they do that because the habits-of-life that they have complicitly allowed to ev0lve in this country offers them paltry rewards otherwise.

They dwell in ugly, punishing surroundings, spend too much time and waste too much money driving cars around it in isolation, and have gone along with every effort to dismantle the armatures of common social exchange that afford what might be called a human dimension of everyday living. So, the medical racket ends up being nearly 20 percent of the economy, while the public gets fatter, sicker, and more anxiously depressed. And there is no sign that we want to disrupt the narratives.

Read more …

Well, they got the NGOs fighting each other now. Mission accomplished.

Aid Groups Snub Italian Code Of Conduct On Mediterranean Rescues (G.)

Five aid groups that operate migrant rescue ships in the Mediterranean have refused to sign up to the Italian government’s code of conduct, the Interior Ministry said, but three others backed the new rules. Charity boats have become increasingly important in rescue operations, picking up more than a third of all migrants brought ashore so far this year against less than one percent in 2014, according to the Italian coastguard. Italy, fearing that the groups were facilitating people smuggling from North Africa and encouraging migrants to make the perilous passage to Europe, proposed a code containing around a dozen points for the charities. Those who refused to sign the document had put themselves “outside the organised system of sea rescues, with all the concrete consequences that can have”, the ministry said.

Italy had previously threatened to shut its ports to NGOs that did not sign up, but an source within the Interior Ministry said that in reality those groups would face more checks from Italian authorities. Doctors Without Borders (MSF), which has taken part in many of the rescues of the 95,000 migrants brought to Italy this year, attended a meeting at the Interior Ministry but refused to sign the code. MSF objected most strongly to a requirement that aid boats must take migrants to a safe port themselves, rather than transferring people to other vessels, which allows smaller boats to stay in the area for further rescues. “Our vessels are often overwhelmed by the high number of [migrant] boats … and life and death at sea is a question of minutes,” MSF Italy’s director, Gabriele Eminente, wrote in a letter to the interior minister, Marco Minniti.

“The code of conduct puts at risk this fragile equation of collaboration between different boats,” he continued, adding that MSF still wanted to work with the ministry to improve sea rescues. [..] “For us, the most controversial point … was the commitment to help the Italian police with their investigations and possibly take armed police officers on board,” Jugend Rettet coordinator Titus Molkenbur said. “That is antithetical to the humanitarian principles of neutrality that we adhere to, and we cannot be seen as being part of the conflict.”

Read more …

Jul 252017
 
 July 25, 2017  Posted by at 1:31 pm Finance Tagged with: , , , , , , , , , ,  6 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Walter Langley Never morning wore to evening but some heart did break 1894

 

If there’s one myth -and there are many- that we should invalidate in the cross-over world of politics and economics, it‘s that central banks have saved us from a financial crisis. It’s a carefully construed myth, but it’s as false as can be. Our central banks have caused our financial crises, not saved us from them.

It really should -but doesn’t- make us cringe uncontrollably to see Bank of England governor-for-hire Mark Carney announce -straightfaced- that:

“A decade after the start of the global financial crisis, G20 reforms are building a safer, simpler and fairer financial system. “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.”

Or, for that matter, to see Fed chief Janet Yellen declare that there won’t be another financial crisis in her lifetime, while she’s busy-bee busy building that next crisis as we speak. These people are now saying increasingly crazy things, and that should make us pause.

Central banks don’t serve people, or even societies, as that same myth claims. They serve banks. Even if central bankers themselves believe that this is one and the same thing, that doesn’t make it true. And if they don’t understand this, they should never be let anywhere near the positions they hold.

You can pin the moment central banks went awry at any point in time you like. The Bank of England’s foundation in 1694, the Federal Reserve’s in 1913, the ECB much more recently. What’s crucial in the timing is where and when the best interests of the banks split off from those of their societies. Because that is when central banks will stop serving those societies. We are at such a -turning?!- point right now. And it’s been coming for some time, ‘slowly’ working its way towards an inevitable abyss.

Over the past few years the Automatic Earth has argues repeatedly, along several different avenues, that American society was at its richest between the late 1960s and early 1980s. Yet another illustration of this came only yesterday in a Lance Roberts graph:

 

 

Anyone see a recovery in there? Lance uses 1981 as a ‘cut-off’ date, but the GDP growth rate as represented by the dotted line doesn’t really begin to go ‘bad’ until 1986 or so. At the tail end of the late 1960s to early 1980s period, as the American economy was inexorably getting poorer, Alan Greenspan took over as Federal Reserve governor in 1987. A narrative was carefully crafted by and for the media with Greenspan as an ‘oracle’ or even a ‘rock star’, but in reality he has been instrumental in saddling the economy with what will turn out to be insurmountable problems.

Greenspan was a major driving force behind the repeal of Glass-Steagall, which was finally established through the Gramm-Leach-Bliley act of 1999. This was an open political act by the Federal Reserve governor, something that everyone should have then protested, and still should now, but didn’t and doesn’t. Central bankers should be kept far removed from politics, anywhere and everywhere, because they represent a small segment of society, banks, not society as a whole.

Because of the ‘oracle’ narrative, Greenspan was instead praised for saving the world. But all that Greenspan and his accomplices, Robert Rubin and Larry Summers, actually did in getting rid of the 1933 Glass-Steagall act separation between investment- and consumer banking was to open the floodgates of debt, and even more importantly, leveraged debt. All part of the ‘financial innovations’ Greenspan famously lauded for saving and growing economies. It was all just more debt on top of more debt.

 

 

Greenspan et al ‘simply’ did what central bankers do: they represent the best interests of banks. And the world’s central bankers have never looked back. That most people still find it hard to believe that America -and the west- has been getting poorer for the past 30-40 years, goes to show how effective the narratives have been. The world looks richer instead of poorer, after all. That this is exclusively because of rising debt numbers wherever you look is not part of the narratives. Indeed, ruling economic models and theories ignore the role played by both banks and credit in an economy, almost entirely.

Alan Greenspan left as Fed head in 2006, after having wreaked his havoc on America for almost two decades, right before the financial crisis that took off in 2007-2008 became apparent to the world at large. The crisis was largely his doing, but he has escaped just about all the blame for it. Good PR.

With Ben Bernanke, an alleged academic genius on the Great Depression, as Greenspan’s replacement, the Fed just kept going and turned it up a notch. It was no longer possible in the financial world to pretend that banks and people had the same interests, so the former were bailed out at the expense of the latter. The illusionary narrative for the public, however, remained intact. What do people know about finance, anyway? Just make sure the S&P goes up. Easy as pie.

The narrative has switched to Bernanke, and Yellen after him, as well as Mario Draghi at the ECB and Haruhiko Kuroda at the Bank of Japan, saving the world from doom. But once again, they are the ones who are creating the crisis, not the ones saving us from it. They are saving the banks, and saddling the people with the costs.

In the past decade, these central bankers have purchased $20-$50 trillion in bonds, securities and stocks. The only intention, and indeed the only result, is to keep banks from falling over, increase their profits, and maintain the illusion that economies are recovering and growing.

They can only achieve this by creating bubbles wherever they can. Apart from the QE programs under which they bought all those ‘assets’, they used -and still do- another tool: lowering interest rates to the point where borrowing money becomes so cheap everyone can do it, and then do it some more. It has worked miracles in blowing stock market valuations out of all realistic proportions, and in doing the same for housing markets in locations all over the globe.

The role of China’s central bank in this is interesting too, but it is such an open and obvious political tool that it really deserves its own discussion and narrative. Basically, Beijing did what it saw Washington do and thought: why hold back?

 

Fast forward to today and we see that we’ve landed in a whole new, and next, phase of the story. The world’s central banks are all stuck in their own – self-created – bubbles and narratives. They all talk about how they solved all the issues, and how they will now return to normal, but the sad truth is they can’t and they know it.

The Fed stopped purchasing assets through its QE program a while back, but it could only do that because Frankfurt and Japan took over. And now they, too, talk about quitting QE. Slowly, yada yada, because of control, yada yada, but they know they must. They also know they can’t. Because the entire recovery narrative is a mirage, a fata morgana, a sleight of hand.

And that means we have arrived at a point that is new and very dangerous for the entire global economy and all of its people.

 

That is, the world’s central bankers now have an incentive to create the next crisis. This is because they know this crisis is inevitable, and they know their masters and protégés, the banks, risk suffering immensely or even going under. ‘Tapering’, or whatever you might call the -slow- end to QE and the -slow- hiking of interest rates, will prick and blow up bubbles one by one, and often in violent fashion.

When housing bubbles burst, economies lose the primary ingredient for maintaining -let alone increasing- their money supply: banks creating money out of thin hot air. Since the money supply is one of the key components of inflation, along with velocity of money, there will be fantastic outbursts of debt deflation. You’ve never seen -let alone imagined- anything like it.

The worst part of it is not government debt, though that, when financed with bond sales, is not not an instrument to infinity and beyond either. But the big hit to economies will be private debt. Where in many bubble areas, and they’re too numerous too mention, eager potential buyers today fret over affordable housing supply, it’ll all turn on a dime and owners won’t be able to sell without being suffocated by crippling losses.

Pension funds, which have already suffered perhaps more than any other parties because of low interest ZIRP and NIRP policies, have switched en masse to riskier assets like stocks. Well, another whammy, and a bigger one, is waiting just outside the door. Pensions will be so last century.

 

That another crisis is waiting to happen, and that politics and media have made sure that just about no-one at all is aware of it, is one thing. We already knew this, a few of us. That the world’s main central bankers have an active incentive to bring about the crisis, if only by sitting on their hands long enough, is new. But they do.

Yellen, Draghi and Kuroda may opt to leave before pulling the trigger, or be fired soon enough. But whoever is in the governor seats will realize that unleashing a crisis sooner rather than later is the only option left not to be blamed for it. Let the house of dominoes crumble now, and they can say “nobody could have seen this coming”, while at the same time saving what they can for the banks and bankers they serve. That option will not be on the table for much longer.

We should have never given them, let alone their member/master banks, the power to conjure up trillions out of nothing, and use that power as a political tool. But it is too late now.

 

 

Jun 282016
 
 June 28, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , ,  5 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Walker Evans Saint Charles Street. Liberty Theatre, New Orleans 1935

Stocks Halt Brexit Selloff as Pound Rebounds With Commodities (BBG)
Asian Stocks Erase Losses as Japan Shares Gain on Stimulus Bets (BBG)
Jim Rogers On Brexit: Worse Than Any Bear Market You’ve Seen In Your Life (Y!)
Greenspan Warns A Crisis Is Imminent, Urges A Return To The Gold Standard (ZH)
European Banks Crash To Worst 2-Day Loss Ever As Default Risk Soars (ZH)
Brexit Is the Sum of China’s Fears (Balding)
Brexit To ‘Drive Tectonic Plate Shifts In European Bank Investing’ (R.)
Italy Eyes €40 Billion Bank Rescue As First Brexit Domino Falls (AEP)
Preparing For Brexit, Britain May See New PM By Early September (R.)
S&P Strips UK of Last Top-Notch Credit Rating After Brexit (R.)
UK Credit Default Swap Rates Spike After Wave Of Rating Downgrades (CNBC)
The Reaction to Brexit Is the Reason Brexit Happened (Matt Taibbi)
Some Bad And Some Worse News For Stock Buybacks (ZH)

And all of your problems are solved. It was only a dream….

Stocks Halt Brexit Selloff as Pound Rebounds With Commodities (BBG)

The pound, European stocks and commodities were all headed for their first gains since Britain’s shock vote to leave the European Union, while Asian shares erased losses amid signs policy makers are taking steps to limit any economic fallout. Sterling and the Stoxx Europe 600 Index both rebounded after tumbling 11% in the last two trading sessions. A gauge of the greenback’s strength snapped its steepest rally since 2011. The Bloomberg Commodity Index climbed from a three-week low as oil rose to about $47 a barrel and industrial metals rose. Sovereign bond yields plumbed new lows in Australia, Japan and South Korea as futures indicated that the next move in U.S. interest rates is now likely to be a cut.

Read more …

What? “Japan’s Prime Minister Shinzo Abe said he wants his finance minister and the central bank governor to watch markets more closely.” You mean they didn’t?

Asian Stocks Erase Losses as Japan Shares Gain on Stimulus Bets (BBG)

Asian stocks erased losses and most Tokyo shares rose amid speculation policy makers will move to shore up financial markets after Britain’s vote to leave the European Union. The MSCI Asia Pacific Index was little changed as of 4 p.m. in Tokyo after being down as much as 1.2% earlier. Most Japanese shares rose after a drop in the Nikkei 225 Stock Average below 15,000 spurred buying. South Korea’s Kospi index rose 0.5%, reversing a decline of 1%. Investors are watching closely for signs that central banks and governments will help to ease the post-Brexit market turmoil.

Japan’s Prime Minister Shinzo Abe said he wants his finance minister and the central bank governor to watch markets more closely. Toshihiro Nikai, chairman of the ruling party’s general council, proposed a 20 trillion yen ($196 billion) package to Abe, the Nikkei newspaper reported. South Korea said it’s planning a fiscal stimulus package of more than 20 trillion won ($17 billion). “We are probably going to have looser policy settings than before the vote,” said Tim Schroeders at Melbourne-based Pengana Capital. “You’d have to suspect that the bias is to the downside for global growth and as a result that stimulus remains in light of increased uncertainty.”

Read more …

“The bear case is the pound disappears…” “The EU as we know it will not exist,” he said. “The euro as we know it will not exist…”

Jim Rogers On Brexit: Worse Than Any Bear Market You’ve Seen In Your Life (Y!)

The UK’s decision to leave the European Union will lead to an economic crisis more severe than what the world faced in 2008, according to legendary investor Jim Rogers, chairman of Rogers Holdings. “This is going to be worse than any bear market you’ve seen in your lifetime,” he said. “2008 was bad because of debt. The debt all over the world is much, much higher now. Stocks in the US, for instance, have been going sideways for 18 months to 24 months. That’s called a distribution by many people. When you have distribution for a year and a half, it usually leads to bad things.” Rogers – who cofounded the Quantum Fund with George Soros in the 1970s – believes the “leave” movement’s victory last week may threaten the British union.

While any negotiated deal may help assuage the market’s Brexit fears, Rogers foresees a “bad case scenario” where Scotland and Northern Ireland leave the UK and London’s clout diminishes significantly as financial institutions move towards continental Europe. “The UK already has huge international debts and it has balance of trade problems and budget problems,” he said. “The bear case is the pound disappears. England becomes Spain or Poland or Italy or something.” While he doesn’t see an immediate collapse of England’s economy, Rogers anticipates a long-term decline in the country’s prospects.

“The deterioration will continue and make stocks go down a lot,” he warned. Brexit’s win will also embolden other countries to leave the EU and separatist movements to break up a few states, Rogers predicted. That could make the world to look significantly different in just a half a decade. “The EU as we know it will not exist,” he said. “The euro as we know it will not exist.

Read more …

But no mea culpa. he wants to die a revered oracle.

Greenspan Warns A Crisis Is Imminent, Urges A Return To The Gold Standard (ZH)

On Friday afternoon, after the shocking Brexit referendum, while being interviewed by CNBC Alan Greenspan stunned his hosts when he said that things are about as bad as he has ever seen. “This is the worst period, I recall since I’ve been in public service. There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23%? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away. I’d love to find something positive to say.” Strangely enough, he was not refering to the British exodus but to America’s own economic troubles.

Today, Greenspan was on Bloomberg Surveillance where in an extensive, 30 minutes interview he was urged to give his take on the British referendum outcome. According to Greenspan, David Cameron miscalculated and made a “terrible mistake” in holding a referendum. That decision led to a “terrible outcome in all respects,” Greenspan said. “It didn’t have to happen.” Greenspan then noted that as a result of Brexit, “we are in very early days a crisis which has got a way to go”, and point to Scotland which he said will likely have another referendum on its own, predicting the vote would be successful, and Northern Ireland would “probably” go the same way.

His remarks then centered on the Eurozone which he defined as a truly “vulnerable institution,” primarily due to Greece’s inclusion in its structure. “Get Greece out. They’re a toxic liability sitting in the middle of a very important economic zone.” Ironically, the same Eurozone has spent countless hours doing everything in its power to show just how unbreakable the union is by preserving Greece, while it took the UK just one overnight session to break away. Luckily the UK was not part of the monetary union or else it would be game over. But speaking of crises, Greenspan warned that fundamentally it is not so much an issue of immigration, or even economics, but unsustainable welfare spending, or as Greenspan puts it, “entitlements.”

“The issue is essentially that entitlements are legal issues. They have nothing to do with economics. You reach a certain age or you are ill or something of that nature and you are entitled to certain expenditures out of the budget without any reference to how it’s going to be funded. Where the productivity levels are now, we are lucky to get something even close to two% annual growth rate. That annual growth rate of 2% is not adequate to finance the existing needs. I don’t know how it’s going to resolve, but there’s going to be a crisis. This is one of the great problems of democracy. It goes back to the founding fathers. How do you handle a situation like this? And it’s very troublesome, but eventually you get things like Margaret Thatcher showing up in Britain.”

Read more …

Enter Captain Fantastic.

European Banks Crash To Worst 2-Day Loss Ever As Default Risk Soars (ZH)

So much for George “Panic-Monger” Osborne’s calming statement this morning, European banks have collapsed this morning to close down between 20% and 30% since the Brexity vote. The last 2 days plunge in EU banks (down 23%) is the largest in history (double the size of Lehman) and pushes European bank equity market cap to its lowest (in USD terms) ever. Worst. Drop. Ever…

Read more …

Giving people a vote in their lives is not Xi’s idea of fun…

Brexit Is the Sum of China’s Fears (Balding)

In voting to leave the EU, the U.K. has confirmed many of the Chinese Communist Party’s worst fears about democracy. Now the question is whether Brexit will also impede its attempts at economic reform. At least one major target of “Leave” campaigners in the U.K. – an unaccountable bureaucracy in Brussels, enjoying the fruits of power – will certainly resonate with Chinese citizens. Despite a recent corruption crackdown, dissatisfaction with officials is simmering in many parts of China – over land grabs, unpaid wages, layoffs and more. For the Communist Party, a popular rejection of distant bureaucrats isn’t to be taken lightly. Brexit also confirms the party’s fears about the capriciousness of the people. As an editorial in the Global Times, a state-run tabloid, put it, Brexit is a “Pandora’s box,” a “lose-lose situation” and a “major setback.”

The Chinese people, it went on, “will continue to watch the consequence of Britain’s embracing of a `democratic’ referendum.” Such skepticism of the wisdom of crowds is widespread in Beijing’s halls of power – and it has real-world consequences for democracy advocates. A deeper worry for the party is instability. The political and business classes in China are extremely risk-averse. Banks lend to state-owned enterprises in the belief that the government stands behind them, students from the best schools aspire to the civil service, and changes to policy flow from on high. Party technocrats tend to see political and financial instability as intimately linked. And as Premier Li Keqiang stressed repeatedly yesterday at the World Economic Forum, Brexit has increased both.

The immediate economic consequences for China are likely to be minimal. As Bloomberg economists Tom Orlik and Fielding Chen have pointed out, only 2.6% of Chinese exports head to the U.K. But the indirect consequences could be substantial. After Britain voted out, the yuan suffered the biggest one-day drop since its devaluation last August. In the worst case, Brexit may act as a long-term drag on China’s exports, increase its spare capacity, spur capital flight, impede foreign direct investment and generally weaken the forces that have sustained its growth over the past few decades. Amid that kind of pressure, expect China’s leadership to double down on economic and financial policies intended to keep growth humming and minimize any disruption, no matter what the price.

Read more …

“The FTSE 100 ended 2.6% lower [..] ..wiping off nearly $132 billion since the referendum results early on Friday..”

Brexit To ‘Drive Tectonic Plate Shifts In European Bank Investing’ (R.)

Britain’s top share index extended the previous session’s steep losses on Monday as the country’s vote last week to leave the European Union hurled it into political and economic uncertainty, hitting banks, housebuilders and airlines hard. Some investors took refuge in firms producing gold, seen as a safe-haven asset, with Fresnillo closing up 7% after hitting a three-year high and Randgold Resources gaining 9%. The FTSE 100 ended 2.6% lower at 5,982.20 points, taking total losses to 5.6% in two sessions and wiping off nearly 100 billion pounds ($132 billion) since the referendum results early on Friday. Shares in easyJet recorded their biggest one-day percentage drop in 12 years.

The domestically-focused mid-cap index .FTMC lost nearly 7% after reaching its lowest since late 2014 following growing concerns about the country’s growth and earnings outlook after the poll outcome. “These uncertainties pose significant risks for the investment outlook,” said Larry Hatheway, chief economist and head of multi-asset portfolio solutions at GAM. “Against the backdrop of an already slowing UK economy, Brexit anxiety could precipitate a large enough reduction in consumer and business spending to tip the UK economy into recession.” British financial stocks declined the most, with the sector index ending 7.3% weaker after a seven-year low. RBS and Barclays dropped 15% and 17.3% respectively, also hit by broker downgrades and by JP Morgan’s cutting its rating on all domestic banks.

The mid-cap bank Shawbrook plummeted 30%. “The UK’s vote to leave the EU will drive tectonic plate shifts in European bank investing. We move to a slow growth/modestly recessionary scenario for UK banks,” analysts at Jefferies said in a note, downgrading RBS to “hold” and Barclays to “underperform”. Investors seemed to ignore finance minister George Osborne’s assertion on Monday that the British economy remained strong, his first public statement on the Brexit vote.

Read more …

“Italian officials are studying a direct state recapitalisation of the banks, to be funded by a special bond issue.” Remember Cyprus. Italy wants to change bail-in rules, but it can’t.

Italy Eyes €40 Billion Bank Rescue As First Brexit Domino Falls (AEP)

Italy is preparing a €40bn rescue of its financial system as bank shares collapse on the Milan bourse and the powerful after-shocks of Brexit shake European markets. An Italian government task force is watching events hour by hour, pledging all steps necessary to ensure the stability of the banks. “Italy will do everything necessary to reassure people,” said premier Matteo Renzi. “This is the moment of truth we have all been waiting for a long time. We just didn’t know it would be Brexit that set the elephant loose,” said a top Italian banker. The share price of banks crashed for a second trading day, with Intesa Sanpaolo off 12.5pc, and falls of 12pc for Banka MPS, 10.4pc for Mediobana, and 8pc for Unicredit. These lenders have lost a third of their value since Britain’s referendum.

“When Britain sneezes, Italy catches a cold. It is the weakest link in the European chain,” said Lorenzo Codogno, former director-general of the Italian treasury and now at LC Macro Advisors. The country is the first serious casualty of Brexit contagion and a reminder that the economic destinies of Britain and the rest of Europe are intimately entwined. Morgan Stanley warned in a new report that eurozone GDP would contract by almost as much as British GDP in a “high stress scenario”. Italian officials are studying a direct state recapitalisation of the banks, to be funded by a special bond issue. They also want a moratorium of so-called ‘bail-in’ rules and bondholder write-downs, but these steps are impossible under EU laws.

Mr Renzi raised the subject urgently at a meeting with Merkel and Hollande at a Brexit summit in Berlin on Monday. “There has to be a suspension of the bail-in rules and state aid rules at the highest political level in the EU, otherwise I don’t see how this can work,” said Mr Codogno. Unlike the eurozone debt crisis in 2011-2012, there is no serious trouble yet in the sovereign debt markets. The ECB is effectively capping yields under quantitative easing. The stress gauge in this episode is the health of the private banks. The Euro STOXX index of bank stocks has collapsed by half since last July, and is now probing depths seen in the white heat of the debt crisis. British bank shares have also plummeted since Brexit but this has no systemic implication so far.

It chiefly reflects recession fears, and potential loss of access to the EU market for business. Italy’s banks are the Achilles Heel of the eurozone financial system. Non-performing loans have ratcheted up to 18pc of total balance sheets as a result the country’s slide into depression after the Lehman crisis. The new bail-in reform this year has brought matters to a head, catching EU authorities off guard. It was intended to protect taxpayers by ensuring that creditors suffer major losses first if a bank gets into trouble, but was badly designed and has led to a flight from bank shares. The Bank of Italy has called for a complete overhaul of the bail-in rules. It is now almost impossible for Italian banks to raise capital.

Read more …

Lots of bitter infighting will ensue. Sort of a cross between Coronation Street and Absolutely Fabulous.

Preparing For Brexit, Britain May See New PM By Early September (R.)

Britain could have a new prime minister by early September, the ruling Conservative Party said on Monday, after David Cameron started laying the groundwork for his successor to trigger the country’s exit from the EU. The government is under pressure to fill a vacuum left when Cameron announced he would resign by October after Britain ignored his advice and voted to leave the 28-member bloc in last week’s referendum. Triggering a leadership battle that could draw in some of his closest advisers, Cameron urged ministers to work together in the meantime. But he also formed a separate unit, staffed by public servants, to help advise Britain on its departure and its options for a future outside the EU. “Although leaving the EU was not the path I recommended, I am the first to praise our incredible strengths as a country,” Cameron told parliament.

“As we proceed with implementing this decision and facing the challenges that it will undoubtedly bring, I believe we should hold fast to a vision of Britain that wants to be respected abroad, tolerant at home, engaged in the world.” Asked about the possibility of a second EU referendum, Cameron said the result of Thursday’s vote must be accepted. Graham Brady, chair of the “1922 Committee” of Conservative lawmakers, which sets the party’s ground rules in parliament, said the group had recommended that the leadership contest should begin next week and conclude no later than Sept. 2. That recommendation will almost certainly be passed. “Both the Conservatives and the country more generally really want certainty. We would like a resolution and we think it would be a good thing to conclude this process as soon as we practicably can,” Brady told Sky News.

Read more …

There are so few AAAs left that it doesn’t matter much anymore. And to label Britain AAA is of course silly to begin with.

S&P Strips UK of Last Top-Notch Credit Rating After Brexit (R.)

Ratings agency Standard & Poor’s stripped Britain of its last remaining top-notch credit rating on Monday, slashing it by two notches from AAA and warning more downgrades could follow after Britons voted to leave the European Union last week. “In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK,” S&P said in a statement, adding it saw a higher risk of Scotland breaking away from the United Kingdom. S&P had warned that Britain’s coveted top-notch credit rating was no longer tenable after last Thursday’s referendum result.

The loss of the last remaining “AAA” rating represents a fresh blow to Britain’s economic standing after the referendum, with sterling tanking to a 31-year low against the dollar and the country’s stock markets plunging. Rival ratings agencies Fitch and Moody’s stripped Britain of their AAA ratings long before the referendum campaign began. They too have warned of further cuts to their gradings of Britain’s creditworthiness. Protecting Britain’s credit rating was a top priority of Conservative finance minister George Osborne when he came to power in 2010.

Read more …

The kind of thing that can get very expensive very fast.

UK Credit Default Swap Rates Spike After Wave Of Rating Downgrades (CNBC)

In case you’re wondering how Brexit impacts the U.K.’s creditworthiness, the derivatives market may offer different clues than the bond market. The cost of buying protection against a default on British sovereign debt using credit default swaps rose to a three-year high on Tuesday, after rating agencies rushed to slash the U.K.’s debt rating following last week’s vote to leave the EU. It now costs $48,500 a year to protect $10 million of U.K. sovereign debt for five years, compared with levels near $32,000 before the June 23 referendum. This came despite a sharp fall in yields on U.K. government debt, or gilts. On its own, the absolute cost of insurance remains low, especially when compared with euro zone countries such as Italy and Spain.

The sharp pace of the increase, however, underscored how uncertainty over the U.K.’s position in Europe had undermined its credit-worthiness. Sterling has already plunged to more-than-30-year lows and stock markets have tumbled. On Monday Standard & Poor’s downgraded the U.K.’s debt rating by two notches, from AAA to AA, citing last week’s referendum that approved a British exit from the EU, depriving the U.K. of its last triple A rating. Fitch Ratings, meanwhile, moved its rating from AA+ to AA. “In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating,” S&P said in a news release.

Read more …

“It’s become perilously fashionable all over the Western world to reach for non-democratic solutions whenever society drifts in a direction people don’t like…”

The Reaction to Brexit Is the Reason Brexit Happened (Matt Taibbi)

Were I British, I’d probably have voted to Remain. But it’s not hard to understand being pissed off at being subject to unaccountable bureaucrats in Brussels. Nor is it hard to imagine the post-Brexit backlash confirming every suspicion you might have about the people who run the EU. Imagine having pundits and professors suggest you should have your voting rights curtailed because you voted Leave. Now imagine these same people are calling voters like you “children,” and castigating you for being insufficiently appreciative of, say, the joys of submitting to a European Supreme Court that claims primacy over the Magna Carta and the Bill of Rights. The overall message in every case is the same: Let us handle things. But whatever, let’s assume that the Brexit voters, like Trump voters, are wrong, ignorant, dangerous and unjustified.

Even stipulating to that, the reaction to both Brexit and Trump reveals a problem potentially more serious than either Brexit or the Trump campaign. It’s become perilously fashionable all over the Western world to reach for non-democratic solutions whenever society drifts in a direction people don’t like. Here in America the problem is snowballing on both the right and the left. Whether it’s Andrew Sullivan calling for Republican insiders to rig the nomination process to derail Trump’s candidacy, or Democratic Party lifers like Peter Orszag arguing that Republican intransigence in Congress means we should turn more power over to “depoliticized commissions,” the instinct to act by diktat surfaces quite a lot these days. “Too much democracy” used to be an argument we reserved for foreign peoples who tried to do things like vote to demand control over their own oil supplies.

Read more …

A dead end street after all.

Some Bad And Some Worse News For Stock Buybacks (ZH)

For those 17-year-old hedge fund managers used to BTFD on hopes corporate buybacks will “have their back” and provide the bid on which momentum-chasing HFT algos will piggyback, we have some bad news and some worse news. The bad news is that we are entering yet another quiet period for buybacks. This means that for the next 45 days, the biggest – and supposedly only – buyer of stocks will be mostly out of the market, and bank buyback desks will not be able to provide much needed support during distressed (read: more sellers than buyers) times. The worse news is that even without the buyback blackout period, following months of surging stock repurchasing activity by corporate treasurers… buybacks have now ground to a virtual halt.

According to TrimTabs, stock buyback announcements by U.S. companies have fallen sharply, sending a longer-term negative signal for U.S. equities. “Corporate America announced $2.8 trillion in stock buybacks in the past five years, and these buybacks have provided a key source of fuel for the bull market,” said David Santschi, chief executive officer of TrimTabs. “Corporate actions this year suggest this support is going to diminish.” In a research note, TrimTabs reported that U.S. companies have announced a mere $11.8 billion in stock buybacks in June through Friday, June 24. This month’s pace is the lowest this year. Only four companies have announced plans to repurchase at least $1 billion this month.

“Even if some of the too-big-to-fails roll out buybacks after the release of the second part of the Fed’s stress test results, this month’s volume is likely to be among the lowest in the past three years,” noted Santschi. TrimTabs also explained that stock buyback announcements by U.S. companies have totaled $291.7 billion this year, which is 32% lower than the $432.0 billion in the same period last year. “The sharp decline in buyback announcements suggests corporate leaders are becoming more cautious, and it doesn’t bode well for the U.S. stock market,” said Santschi.

Read more …

Jun 252016
 
 June 25, 2016  Posted by at 8:26 am Finance Tagged with: , , , , , , , ,  3 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Harris&Ewing Underwood Typewriter Co., Washington, DC 1919

World’s 400 Richest People Lose $127 Billion on Brexit (BBG)
Global Markets Lose $2.1 Trillion In Brexit Rout (AFP)
[Friday Was] The Appetizer For Monday (ZH)
Alan Greenspan Says Brexit Is The ‘Tip Of The Iceberg’ For Europe (MW)
Bravo Brexit! (David Stockman)
The Sky Has Not Fallen After Brexit But We Face Years Of Hard Labour (AEP)
They Got It Wrong: Swarms of Global Chatterers Misread Brexit (BBG)
UK ‘Leave’ Vote Deflates Hopes For TTIP (R.)
Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come (ZH)
A Look At The Global Economic Malaise Through Deutsche Bank (MW)
Electoral Surge Of Far Left Likely To Shake Up Spanish Politics (R.)
Regling: Varoufakis’ FinMin Tenure Cost Greece €100 Billion (Kath.)
Hillary Clinton Adopts The Shorthand Of The Hyperinflation Fearmongers (Dayen)
Rural Pennsylvanians Say Fracking ‘Just Ruined Everything’ (CPI)
Italy Coastguard Rescues 7,100 In Mediterranean In Two Days (G.)

Try and feel sorry. I dare you.

World’s 400 Richest People Lose $127 Billion on Brexit (BBG)

The world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2% of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.

Read more …

Meaningless. If the euro loses against the dollar, what is lost exactly? Besides, it’s all virtual overkill anyway.

Global Markets Lose $2.1 Trillion In Brexit Rout (AFP)

Britain’s shock vote to pull out of the European Union wiped $2.1 trillion from global equity markets Friday as traders panicked in the face of a new threat to the global economy. Investors fled to the safety of gold, the yen and blue-chip bonds as the seismic shift in the structure of Europe left many huge questions hanging, including who will lead Britain following the resignation of Prime Minister David Cameron. The Brexit vote sparked 8% losses in the Tokyo and Paris bourses, nearly 7% in Frankfurt and more than 3% in London and New York. Central banks stepped in to bolster confidence, promising to inject liquidity where needed and appearing to mitigate some of the sharpest losses.

Still, the pound crashed 10% to a 31-year low at one point, before rebounding slightly for a 9.1% loss against the greenback in late trade. The euro also plummeted, dropping 2.6% on the dollar. Benefitting from a massive safety selloff, gold jumped nearly 5% and the yen surged 4.2% against the dollar and 7.0% on the euro. The dollar at one point fell below 100 yen for the first time since November 2013. US 10-year treasury bond yields hit their lowest since 2012 at 1.42% before edging higher, while the German 10-year bund fell into negative territory for the second time in history.

Read more …

Try Italian banks: “..Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today..”

[Friday Was] The Appetizer For Monday (ZH)

RBC’s Charlie McElligott: “I do feel that Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the delta one flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing.

FTSE (UKX, benchmark equities index) is an absolute CHAMP right, trading -8.7% within the first 10 minutes of the open before clawing-back to all but -1.9% at ‘highs.’ Wrap your head around this: week-to-date, UKX is up over 2.8%! What’s the driver of today’s massive rally? People are getting their arms around the impact of this extraordinarily weak Sterling as a backdoor stimulus for exporters (ironic the power of what a departure from the EU can do vs what x # of kagillions of QE purchases couldn’t get done) and the inevitable rate cut from the BoE.

What I have to continue keeping one eyeball on is SX7E (EU banks index); the thing cannot get off mat. And if that can’t get off the mat, peripheries (and their sovereign debt) won’t either, as we re-enter the EU-crisis-era “Doom Loop” where widening sovereign spreads drag down the banks who are stuffed to the gills with them….vicious cycle, what else is new. FWIW, as I write and we’ve had this massive bounce in equities, Italian stocks (FTSEMIB) are back at their lows. This will likely be the next “hot zone” as we begin playing EU existential dominos (Spanish elections Sunday too).

My model Equity L/S portfolio is -285bps today. That is NOT cool. Elsewhere, from a thematic or factor perspective, we see the implications we spoke about earlier of the RAGINGLY STRONGER DOLLAR smashing the reflation / cyclical beta trade (value, energy, beta all struggling, while momentum mkt neutral works with defensive longs + and fins / biotech / energy -)”

Read more …

Of his own making.

Alan Greenspan Says Brexit Is The ‘Tip Of The Iceberg’ For Europe (MW)

The global economy is suffering from even bigger woes than the decision by U.K. voters to leave the European Union, Former Federal Reserve Chairman Alan Greenspan said Friday. ”This is just the tip of the iceberg,” Greenspan said in an interview on CNBC. “The global economy is in real serious trouble.” The rejection of British voters of the status quo in Europe was fueled by a “massive slowing” in the growth rate of real incomes that is widespread across Europe, Greenspan said. This, he said, is creating serious political problems that are not easy to resolve. Behind the slowdown in income is the sharp drop in worker productivity, according to Greenspan. Governments have to cut entitlements to reflect this weakness, he said.

The biggest concern is not a recession, but stagnation, the former Fed chief said. “The euro-area…is failing,” Greenspan said. “Greece is in real serious trouble and it is not going to continue in the euro very much longer irrespective of what is going on currently,” he said. Asked what he would do if he was still Fed chief, Greenspan said: “I would worry.” “This is the worst period I recall since I’ve been in public service,” he said. “There is nothing like it,” he said, including the 23% drop in the Dow Jones Industrial Average on a single day in October 1987.

Read more …

“..there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.”

Bravo Brexit! (David Stockman)

At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible. The central banks and their compatriots at the EU, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity. So there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.

On the immediate matter of Brexit, the British people have rejected the arrogant rule of the EU superstate and the tyranny of its unelected courts, commissions and bureaucratic overlords. As Donald Trump was quick to point out, they have taken back their country. He urges that Americans do the same, and he might just persuade them. But whether Trumpism captures the White House or not, it is virtually certain that Brexit is a contagious political disease. In response to today’s history-shaking event, determined campaigns for Frexit, Spexit, NExit, Grexit, Italxit, Hungexit and more centrifugal political emissions will next follow. Smaller government – at least in geography – is being given another chance. And that’s a very good thing because more localized democracy everywhere and always is inimical to the rule of centralized financial elites.

The combustible material for more referendums and defections from the EU is certainly available in surging populist parties of both the left and the right throughout the continent. In fact, the next hammer blow to the Brussels/German dictatorship will surely happen in Spain’s general election do-over on Sunday (the December elections resulted in paralysis and no government). When the polls close, the repudiation of the corrupt, hypocritical lapdog government of Prime Minister Rajoy will surely be complete. And properly so; he was just another statist in conservative garb who reformed nothing, left the Spanish economy buried in debt and gave false witness to the notion that the Brussels bureaucrats are the saviors of Europe. So the common people of Europe may be doubly blessed this week with the exit of both David Cameron and Mariano Rajoy. Good riddance to both.

Read more …

“..It was the first episode of a pan-Europe uprising against the Caesaropapism of the EU Project and its technocrat priesthood.”

The Sky Has Not Fallen After Brexit But We Face Years Of Hard Labour (AEP)

It is time for Project Grit. We warned over the final weeks of the campaign that a vote to leave the EU would be traumatic, and that is what the country now faces as markets shudder and Westminster is thrown into turmoil. The stunning upset last night marks a point of rupture for the post-war European order. It will be a Herculean task to extract Britain from the EU after 43 years enmeshed in a far-reaching legal and constitutional structure. Scotland and Northern Ireland will now be ejected from the EU against their will, a ghastly state of affairs that could all too easily lead to the internal fragmentation of the Kingdom unless handled with extreme care. The rating agencies are already pricing in a different British destiny. Standard & Poor’s declared that Brexit “spells the end” of the UK’s AAA status.

The only question is whether the downgrade is one notch or two, and that hangs on Holyrood. Moody’s has cocked the trigger too. Just how traumatic Brexit will be depends on whether Parliament can rise to the challenge and fashion a credible trade policy – so far glaringly absent – to safeguard access to European markets and ensure the viability of the City, and it depends exactly how Brussels, Berlin, Paris, Rome, Madrid, and Warsaw react once the dust settles. Both sides are handling nitroglycerin. Angry reproaches are flying in all directions, but let us not forget that the root cause of this unhappy divorce is the conduct of the EU elites themselves. It is they who have pushed Utopian ventures, and mismanaged the consequences disastrously.

It is they who have laid siege to the historic nation states, and who fatally crossed the line of democratic legitimacy with the Lisbon Treaty. This was bound to come to a head, and now it has. The wild moves in stocks, bonds, and currencies this morning were unavoidable, given the positioning of major players in the market, and given that the Treasury, the IMF, and the Davos brotherhood have been deliberately – in some cases recklessly – stirring up a mood of generalized fear.

[..] Some in Europe accuse the British people of strategic nihilism, of setting in motion the disintegration of the EU. It is true that French, Dutch, Italian, and Swedish eurosceptics are now agitating even more loudly for their own referenda, but voters are rising up across the EU in defence of national self-government and cultural ‘terroir’ for parallel reasons. Brexit is not the cause and this is not contagion. The latest PEW survey shows that anger with Brussels is just as great in most of Northwest Europe as it is Britain, and in France it is higher at 61pc. This referendum was never a fight between Britain and Europe, as so widely depicted. It was the first episode of a pan-Europe uprising against the Caesaropapism of the EU Project and its technocrat priesthood. It will not be the last.

Read more …

No-one got it more wrong than the bookmakers. At least, what they said.

They Got It Wrong: Swarms of Global Chatterers Misread Brexit (BBG)

A global cohort said before Thursday’s Brexit vote that Britain was unlikely to pull out of the European Union, the post-World War II international project that brought an unprecedented era of prosperity and peace. Yet some were led astray by the belief that free trade’s money and material goods outweighed nationalism and the tug of nostalgia. Conservative U.K. Prime Minister David Cameron called the referendum, presumably confident he would win. He lost, and he’s now resigning. “Brits don’t quit,” Cameron said in an impassioned plea on Tuesday to voters to support remaining in the EU. “We get involved, we take a lead, we make a difference, we get things done.” The Brits quit.

Opinion polls on Brexit were all over the place; the theoretical lead had changed hands dozens of times since September, although “leave” never reached 50% support. Still, betting odds put the chance of remaining at 90% as the polls closed on Thursday. Ladbrokes was offering 4-to-1 on a leave vote, according to The Guardian. Even though most players in the market were actually backing leave, more money was bet on remain by the affluent, who were generally behind staying, Matthew Shaddick, head of political betting at Ladbrokes, wrote in a blog post. Bookies are trying to make money, not help people forecast results, so the vote worked out fine for Ladbrokes, he said.

“Is this just one of the inevitable, normal occasions where an outsider wins, or a fatal blow to the idea of betting markets as being a useful forecasting tool?” Shaddick said. “Maybe unsurprisingly, I tend to think the former, but that doesn’t mean we don’t have to reflect on all of their potential flaws and decide how we best interpret them in the future.” The London-based Political Studies Association surveyed members, journalists, academics and pollsters from May 24 to June 2. Every group got it wrong. Overall, 87% of respondents said Britain was more likely to stay in the EU, 5% said it was likely to leave, and 8% said both sides had an exactly equal chance. The predicted probability of Britain voting to leave the EU: academics, 38%; pollsters, 33%; journalists, 32%; other, 38%; mean, 38%.

Read more …

The advantages keep coming in.

UK ‘Leave’ Vote Deflates Hopes For TTIP (R.)

Britain’s looming exit from the European Union is another huge setback for negotiations on a massive U.S.-EU free trade deal that were already stalled by deeply entrenched differences and growing anti-trade sentiment on both sides of the Atlantic. The historic divorce launched by Thursday’s vote will almost certainly further delay substantial progress in the Transatlantic Trade and Investment Partnership (TTIP) talks as the remaining 27 EU states sort out their own new relationship with Britain, trade experts said on Friday. With French and German officials increasingly voicing skepticism about TTIP’s chances for success, the United Kingdom’s departure from the deal could sink hopes of a deal before President Barack Obama leaves office in January.

“This is yet another reason why TTIP will likely be postponed,” said Heather Conley, European program director at the Center for Strategic and International Studies, a think tank in Washington. “But to be honest, TTIP isn’t going anywhere, I believe, before 2018 at the earliest,” she said. U.S. Trade Representative Michael Froman said in a statement on Friday that he was evaluating the UK decision’s impact on TTIP, but would continue to engage with both European and UK counterparts. “The importance of trade and investment is indisputable in our relationships with both the European Union and the United Kingdom,” Froman said. “The economic and strategic rationale for TTIP remains strong.”

Read more …

Xi can no longer hold off the tide. Q1: what happens to the unemployed? Q2: how are the shadow banks paid off?

Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come (ZH)

Two months ago, when looking at the soaring number of bond issuance cancellations and postponements as calculated by BofA, we commented that it was only a matter of time before the long overdue tide of corporate defaults, held by for so many years by the Chinese government which would do anything to delay the inevitable, was about to be unleashed. This prediction has indeed been validated and as the FT reports overnight, Chinese bankruptcies have surged this year “as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy.”

In just the first quarter of 2016, Chinese courts have accepted 1,028 bankruptcy cases, up a whopping 52.5% from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015. This is surprising because while China’s legislature had approved a modern bankruptcy law in 2007 it had barely been used for years, with debt disputes often handled through backroom negotiations involving local governments. “Bankruptcy isn’t just about creditor-borrower relations. It also touches on social issues like unemployment,” said Wang Xinxin, director of the bankruptcy research centre at Renmin University law school in Beijing. “For a long time many local courts weren’t willing to accept them, or local governments didn’t let them accept.”

However, following the dramatic collapse of global commodity prices, which as we showed last October meant that more than half of local companies could not afford to even make one coupon payment with cash from operations, Beijing had no choice but to throw in the towel. And as the FT adds, “bankruptcy courts have been recruited into China’s drive for “supply-side reform”, which centres on reduction of overcapacity in sectors such as steel, coal and cement.”

Read more …

Deflation.

A Look At The Global Economic Malaise Through Deutsche Bank (MW)

I like to keep an eye on major financials, as they are the backbone of the global economy. If the banks have problems, not much else will be doing all that great from a macro perspective. I know there are serious issues with European financials, as collapsing (and in some cases negative) government-bond yields, coupled with negative short-term policy rates, have basically shrunk their net-interest margins as their loans are priced off those rates. The same is the case in Japan. In the U.S, despite a massive flattening of the Treasury yield curve, we have so far been spared from this rather unfortunate banking situation.

So I punched out the ticker “DB” on my screen two Fridays ago and looked at the TV before the chart would load. I looked back at the screen, and I thought I had made a mistake as sometimes the web browser will “remember” ticker symbols on the drop-down quote menu and occasionally the wrong chart would load. It had to be a mistake, as I was looking at the 10-year Treasury yield chart that was just shown on the TV screen seconds earlier, with some futures trader making the comment that the U.S. Treasury market was “breaking out.” I looked closer, and I was stunned. There was no mistake. To that moment, I had not realized that Deutsche Bank’s stock was tracking the 10-year Treasury note yield almost tit for tat. If the Treasury market is breaking out, that would mean Deutsche Bank stock is breaking down, I thought.

It did not take long to figure out why the stock of a major global financial firm — DB, the largest bank in Germany — would follow the 10-year U.S. Treasury yield so closely. As I have explained on numerous occasions in this column, I think we face a global deflationary problem. There are numerous implications for this, but economic growth cycles driven by too much borrowing in the developed world and in many emerging markets — the largest of which is China — are causing that mountain of debt to catch up with faltering economies. Falling long-term U.S. interest rates at a time when the Federal Reserve has not officially given up on a hopelessly-misguided rate-hiking cycle are a symptom of this global deflation.

Banks tend to perform very poorly in a deflationary environment as weak nominal corporate revenues make servicing debts problematic and lending growth tends to suffer. In a deflationary environment, the real value of debts rises as they stay nominally constant; but the assets those debts are financing tend to fall in price, causing rising non-performing loan (NPL) ratios. Combine this with the unorthodox global QE monetary policies and negative short-term interest rates, and you have collapsing net interest margins for many global banks like Deutsche Bank as many yield curves globally, including the one in Germany, have vanished.

Read more …

One more technocrat government gone on Monday?

Electoral Surge Of Far Left Likely To Shake Up Spanish Politics (R.)

The parched olive groves and tranquil towns of Spain’s southern Cordoba province are an unlikely backdrop for a political upset that could reverberate across Europe. Yet some locals like 57-year-old Lorenzo Molina, an unemployed librarian, hope they can help deliver just that in a fresh nationwide election on June 26 following an inconclusive December ballot. Gains for an anti-austerity alliance led by the young Podemos party in tightly-contested provinces like this could tip the balance in its bid to lead the next government, and this could turn Spain into the European Union’s next headache after Britain’s June 23 referendum on EU membership. A surge into second place for Unidos Podemos (“Together We Can”) ahead of Spain’s Socialists would make the far-left front a serious contender to form a coalition government, cementing the decline of Spain’s once-mighty center-left in the process.

After radical leftist Syriza’s success in crushing the social democratic Pasok in Greece, a Podemos breakthrough could also buoy euro-skeptic anti-establishment movements in the likes of Italy or France as worsening inequality fuels discontent. For Molina, a dyed-in-the-wool backer of the ex-communists now part of the leftist alliance, it’s a momentous prospect after decades on the fringes of Spanish politics, hankering after this so-called “sorpasso” (eclipse) of the Socialists. “It’s time to air things out,” Molina said on a balmy evening in the city of Cordoba, as an eclectic mix of families and people waving hammer and sickle flags arrived at a rally in a local park. “The Socialists have been in charge of our institutions for many years,” he added, as cries of “Yes we can” rang out among the crowd of several hundred.

Read more …

The cost of not doing what you’re told. Take heed, Britain and everyone else. All your base are belong to us.

Regling: Varoufakis’ FinMin Tenure Cost Greece €100 Billion (Kath.)

The cost of Yanis Varoufakis’s tenure as Greece’s Finance Minister during the January-August 2015 period was estimated at around €100 billion, Klaus Regling, head of the European Financial Stability Facility (EFSF) and first managing director of the European Stability Mechanism, told Skai TV. In the interview that aired on Wednesday, Regling noted that during the Varoufakis era, relations between Greece and its lenders were not good, that reforms were halted and that the overall situation at the time did not serve the interests of the Greek economy.

Regling also urged the current Greek government to stick to agreed reforms and noted that the next two months would see negotiations between Greece and its creditors regarding changes in the country’s labor laws, among others, before a second review of the country’s bailout program in September. Regling also argued that some members of the coalition administration did not seem committed to the bailout program, particularly with regard to privatizations and the privatization fund. On the subject of debt relief for Greece, Regling noted that the institutions had agreed on principle, but disagreed over the time frame.

Read more …

“..Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that..”

Hillary Clinton Adopts The Shorthand Of The Hyperinflation Fearmongers (Dayen)

Deficit hawks often raise the specter of hyperinflation to scare people who disagree with them. And that’s exactly what Hillary Clinton did on Tuesday. Speaking in Columbus, Clinton criticized Donald Trump for saying last month that the U.S. can never default on its debt obligations “because you print the money.” “We know what happened to countries that tried that in the past, like Germany in the ‘20s and Zimbabwe in the ‘90s,” Clinton said. “It drove inflation through the roof and crippled their economies.” But printing money — otherwise known as increasing the money supply – is a routine occurrence for governments that control their own currency.

The Federal Reserve has increased its balance sheet by over $3 trillion since the financial crisis, explicitly to support the economy. (The Fed does this by buying stocks and bonds with electronic cash that didn’t exist before.) In fact, an increasingly influential school of economics, known as Modern Monetary Theory, argues that deficit spending, including through money printing, is critical to promote full employment. Even Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that,” Greenspan told “Meet the Press.”

“If you think about it, it is precisely this power that makes U.S. Treasuries [T-Bonds] so safe in the first place,” said Stephanie Kelton, an economics professor at the University of Missouri-Kansas City and a former chief economist to Bernie Sanders on the Senate Budget Committee. Kelton is one of the leading proponents of Modern Monetary Theory. But deficit hawks – typically members of the economic elite who favor small government and correspondingly low taxes, and are terrified of the effect inflation would have on their investments and cash reserves — have repeatedly warned that these perfunctory monetary policy actions would lead to Weimar Germany-levels of chaos.

Read more …

A mess in the name of Mammon.

Rural Pennsylvanians Say Fracking ‘Just Ruined Everything’ (CPI)

Sixty years after his service in the Army, Jesse Eakin still completes his outfits with a pin that bears a lesson from the Korean War: Never Impossible. That maxim has been tested by a low-grade but persistent threat far different than the kind Eakin encountered in Korea: well water that’s too dangerous to drink. It gives off a strange odor and bears a yellow tint. It carries sand that clogs faucets in the home Eakin shares with his wife, Shirley, here in southwestern Pennsylvania. The Eakins told the state environmental agency about their bad water nearly seven years ago and hoped for a quick resolution. Like thousands of others who live in the natural gas-rich Marcellus Shale, however, they learned their hopes were misplaced.

Today, the state is still testing their water. The results of those tests will dictate whether a gas exploration and production company is held responsible for providing them with a clean supply. Meanwhile, the Eakins drink donated bottled water and in late 2014 began paying for deliveries of city water to avoid showering in contaminants such as lead and manganese. Since 2007, at least 2,800 water-related complaints have been investigated by the Pennsylvania Department of Environmental Protection’s Oil and Gas Program. Officials found ties to the drilling industry in 279. Another 500 or so cases, including the Eakins’, are open. While regulators try to catch up to natural gas exploration, some residents of the state have gone months, even years, without access to clean water at their homes.

Responding to a public-records request by the Center for Public Integrity, the Department of Environmental Protection, or DEP, provided data on 1,840 complaints lodged since 2010. More than half took longer than the agency’s target of 45 days to resolve. Almost one in 10 took more than a year. The state’s often-plodding response has left hundreds of rural Pennsylvanians in a sort of forced drought, scrambling to pay for water deliveries, seek remedies in court, take out second mortgages or even abandon their homes.

Read more …

Off the top of my head, over 150,000 landed in Italy so far this year. And Germany has a backlog of 450,000 asylum applications.

Italy Coastguard Rescues 7,100 In Mediterranean In Two Days (G.)

Ship crews have pulled more than 2,000 refugees from overcrowded boats in the Mediterranean, Italy’s coastguard has said, as people-smugglers stepped up operations during two consecutive days of good weather. More than 7,100 people have now been rescued from international waters since Thursday, many of them on the dangerous journey from Libya. Europe’s worst immigration crisis since the second world war is in its third year, and there has been little sign of any let-up in the flow of people coming from North African to Italy.

Ships belonging to Doctors without Borders, Migrant Offshore Aid Station, Italy’s navy, the EU’s border agency Frontex and the bloc’s anti-people-smuggling mission Sophia all helped take the migrants off nine boats on Friday. About 60,000 boat refugees have been brought to Italy so far this year, according to the interior ministry.

Read more …

Feb 092015
 
 February 9, 2015  Posted by at 8:07 pm Finance Tagged with: , , , , , , ,  18 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Arthur Rothstein Going to church to pray for rain, Grassy Butte, North Dakota Jul 1936

Greek PM Alexis Tsipras yesterday laid out Syriza’s stance, and from what I saw he didn’t pull even one punch. Despite all the suggestions from the financial press throughout the past week that Tsipras and Varoufakis reneged on campaign promises to seek debt write-downs, they didn’t, and never have – other than perhaps in semantics.

Which I don’t find the slightest bit surprising. I would have been very surprised if they had. The misinterpretation, and the faulty expectations, are easily explained through the fact that – most of – these guys are not politicians, which they very deliberately expressed in the way they dressed for their meetings with ‘Europe’s finest’.

They don’t see the ‘space’ career politicians see to negotiate away the mandate their voters have given them. For them it’s simple: we were elected on our program – which in this case happens to be to end the misery forced upon Greece by the European and Troika schemes -, and we’re not going to move away from that just because ‘the other side’ starts threatening us, or (a crucial difference in politics) because our voters may not vote for us again in a next election.

In their view, trying to scare Greece into even more submission, which is the overlying message emanating from Brussels and beyond, is entirely null and void because Greece can’t – and shouldn’t – sink any lower than it has. Very and refreshingly simple. No surprise there, but, at least on my part, just support and admiration. Syriza is fighting the fight many others don’t have the intellect, the chutzpah and/or the courage for.

The first thing they did, apart from hiring back the government offices’ cleaning ladies the Troika got fired, was to say they wanted nothing to do with that same Troika. That to me is the most important statement so far by Yanis Varoufakis and his crew. Because that goes to the heart of why Greece is where it is, and why the entire world is.

I saw a headline last night that said something like ‘Greece doesn’t want to talk to the EU’. But that’s not true. Syriza merely wants the IMF out of the picture. And then it would prefer to talk to separate EU nations and offices, rather than top down Brussels bureaucrats. Not just because of the Colonel Blotto game theory I talked about before, but because they recognize how insidious and ruthless the IMF is. I’ll get back to that in a minute.

The most remarkable ‘news item’ for me yesterday came not from Tsipras (or Greenspan), but from former French President Nicolas Sarkozy, who did something he would never have when he was in office. Sarkozy went against the grain of the official western narrative vis à vis Ukraine and Russia. He said what no acting French president could possibly say (including himself), because as president he would have been beholden to the US and NATO dictated doctrine, that Putin is evil, and Ukraine should be ‘liberated’.

Sarkozy: Crimea Cannot Be Blamed For Joining Russia

Crimea cannot be blamed for seceding from Ukraine – a country in turmoil – and choosing to join Russia, said former president of France, Nicolas Sarkozy. He also added that Ukraine “is not destined to join the EU.” “We are part of a common civilization with Russia,” said Sarkozy [..]. “The interests of the Americans with the Russians are not the interests of Europe and Russia,” he said adding that “we do not want the revival of a Cold War between Europe and Russia.”

Regarding Crimea’s choice to secede from Ukraine when the country was in the midst of political turmoil, Sarkozy noted that the residents of the peninsula cannot be accused of doing so. “Crimea has chosen Russia, and we cannot blame it [for doing so],” he said pointing out that “we must find the means to create a peacekeeping force to protect Russian speakers in Ukraine.” In March 2014 over 96% of Crimea’s residents – the majority of whom are ethnic Russians – voted to secede from Ukraine to reunify with Russia.

That is pretty close to 180º different from what the official western position is. Putin has taken note. Because it destroys everything the West, as represented by Germany’s Merkel and France’s Hollande, brought to the talks in Moscow this weekend (and Minsk today). More importantly, it throws out what NATO wants and prepares for. In the exact same way that Greece seeks to throw out the IMF.

And that is no coincidence. Sarkozy reveals his dismay at being told what to do, when he was in office, by the supranational NATO. Tsipras and Varoufakis refuse being told what to do by the supranational IMF. Same difference. Well, to an extent: Sarkozy did the NATO and IMF’s bidding when he was in office, Syriza never has.

Merkel, meanwhile, ceased resisting Mario Draghi’s mad €1 trillion+ QE program recently, and along that same vein she may today, as she’s talking to Obama in Washington, give up her resistance to the west arming Kiev. Which would be equal to a declaration of war against Russia. The pressure on her is obviously huge and increasing, but Angela should be smart enough to know that it’s impossible for Russia to stop looking out for the Donbass.

Because just about every Russian citizen has family connections in the region, who’ve been shelled by their own government for close to a year now. And if Russia were to retreat, chances are these people will be obliterated in very ugly ways. What Merkel should be demanding at the ‘peace’ talks is for not-so-very-democratically-elected PM Yatsenyuk and his shady government to step down, and nationwide fair elections to be held that include the Donbass. But she won’t.

And then Greenspan came, in what will probably be noted as one of his final lucid moments. The man who did so much damage seeks to atone for that while he still can. And do note that the Oracle was in charge of the Fed during the entire set-up and launch of the euro (yeah, yeah, he was a long term ‘critic’ – but not while it made his Wall Street banks a lot of dough off the project, just remember Goldman in Athens).

Greenspan Predicts Greece Exit From Euro Inevitable

The former head of the US central bank, Alan Greenspan, has predicted that Greece will have to leave the eurozone. He told the BBC he could not see who would be willing to put up more loans to bolster Greece’s struggling economy. Greece wants to re-negotiate its bailout, but Mr Greenspan said “I don’t think it will be resolved without Greece leaving the eurozone”. Mr Greenspan, chairman of the Federal Reserve from 1987 to 2006, said: “I believe [Greece] will eventually leave. I don’t think it helps them or the rest of the eurozone – it is just a matter of time before everyone recognises that parting is the best strategy.

Alan Greenspan has long been a critic of the European single currency. Now, the 88-year-old former chairman of the US Fed has repeated a claim that nothing short of full political union – a United States of Europe – can save the euro from extinction. Given that few (if any) of the current 19 sovereign governments which make up the eurozone would choose to create such an entity at this time, that means – for Greenspan at least – the euro is doomed. Before all that, though, he foresees Greece quitting the single currency, but the euro surviving intact.

Greenspan turns against what the Troika – IMF – wants the same way Sarkozy turns against NATO. Once you get them out of their official roles, turns out they’re not as stupid as they pretend to be when they were ‘in function’. That says something about the capture the ‘leaders’ are in, and also about the extent to which they actually represent their voters. Which is not a lot. And that’s the core of the issue.

The entire system has been pre-empted by, first, the wrong kind of organizations, second, the wrong kind of people, and third, the wrong kind of multinational corporations. As in, Wall Street banks, Big Oil, Big Ag -including Monsanto and Sygenta – and a few handfuls of the likes of GE, Boeing, a bunch of carmakers, plus Halliburton etc. They control the planet, they send us to war, they decide what does and does not go. And we’re not going to get rid of them until and unless we realize, loudly and screamingly, that they must go or else.

To illustrate this, please allow me to quote myself a few times from last year:

Oct 7 2014

Germany’s Bad Numbers Are Great News For All Of Us

Nobody in Europe has anything to lose from the demise of the eurozone, at least nothing that they wouldn’t lose anyway, but every single European save for a cabal of power brokers and narcissists has a ton and a half of happiness and self-fulfillment and independence to lose from the continuation of the failed project. [..] What’s wrong with the EU is the same as what’s wrong with NATO, the IMF, the World Bank.

They are institutions that start with noble ideals, but soon start to gobble up ever more power, and with no-one to hold them to account. That kind of structure in turn attracts a certain kind of people, the ones who don’t like to be held to account. And though I’m a little hesitant to include the US in all this, since its so much older, I certainly wouldn’t discard Washington offhand as a place where the wrong kind of people have gathered far too much power.

Oct 18 2014

Wealth Inequality Is Not A Problem, It’s A Symptom

.. the IMF, the World Bank, UN, NATO and the EU absolutely all fit the picture of organizations that have – happily – grown beyond our range of view, and that exhibit the exact same inverted pyramid characteristics we see on wealth inequality, only for these organizations it’s not wealth that floats and concentrates increasingly from the bottom to the top, it’s power. Wealth comes after that. And one shouldn’t confuse that order. Because power buys wealth infinitely faster than wealth buys power.

..but then we forgot, ignored, to check on them, and they accumulated ever more power when we weren’t watching.. And what we see now is that any effort, any at all, to break up the IMF, World Bank, UN, NATO and EU would be met with the same derision that an effort to break up the USA would be met with. We have built, in true sorcerer’s apprentice or Frankenstein fashion, entities that we cannot control. And they have taken over our lives. They serve the interests of elites, not of the people. So why do we let them continue to exist?.

Nov 8 2014

The Broken Model Of The Eurozone

I stumbled upon these few words in an Ambrose Evans Pritchard article the other day, and they hit me almost like some sort of epiphany, which in turn made me feel a little stupid, because it’s all so obvious. What Ambrose wrote (and this time I’m not making fun of him), was about the eurozone (EMU), of which he said:

The North is competitive. The South is 20% overvalued.

And I realized that’s all you need to know about the eurozone, and about why it will fail. Or has already failed, to put it more accurately. [..] Northern Europeans see their lifestyles being cramped from many sides in the ongoing crisis, and they would not accept more being taken from them to be handed to Greece. Even if 50%+ of young Greeks have no jobs, and over 40% of Greek children grow up in poverty. That’s not how the union was explained to them. And they would not have agreed if it had been.

The fact that Brussels has attracted a highly dubious breed of politician and bureaucrat certainly hasn’t helped, and still doesn’t. But it’s not the core problem. The core problem is that there never was a mechanism to reconcile the 20% differences, which means we’re fast on our way to 30% and more. Nothing anybody can do about that other than to leave the union.

Nov 10 2014

A World Run On Broken Economic Models

Leaders of entities like the US, the EU or China have little in common with the people they supposedly represent, and they don’t have to, nobody expects them to. The US midterms were mostly a a battle of the bulge, as in candidates’ bulging wallets. And on top large scale national politics we have created yet another, even more anonymous layer of power. UN, World Bank, IMF, NATO, there’s an ever growing collection of supra-national organizations that keep on guzzling up more power and more money every single day.

Like ‘smaller’ entities such as the US and EU, only more, the supra-nationals attract a certain kind of people, those that like to assert power without being held directly accountable. In structures that far exceed the human scale, they are like fish in water. And that’s why we should never accept having them in those positions. IMF and World Bank have a history of at best disputable and at worst very bloody interventions in nations across the globe.

We should have today celebrated the end of NATO along with that of the Berlin Wall 25 years ago. But it’s still there, and playing an active role in the flaring up of the Ukraine civil war. As for the UN, there should be a place for an organization like it, but not with the money gobbling corporate structure, serving shady interests, that it has today.

Our political systems don’t work. Our economic systems don’t work. We live on a steady – but hardly nutritious – diet of debt and propaganda. Our societies are no longer productive enough to allow for the numbers of intermediaries they have given birth to. But it’s the intermediaries who have more often than not taken up the most powerful positions in our societies. So they will fight, and initially often successfully, to keep their positions, at the cost of the more productive segments. It’s a mechanism that’s much easier to understand than it is to fight.

We, as in mankind, the human species, didn’t develop to have just a few of us take decisions for hundreds of millions of us. It is simply too much for our brains to comprehend, and that is true for both the brains of the rulers and of the ruled. For some of us, though, the brains developed in such a way that they are geared towards seeking maximum power over others. Those people are called sociopaths or psychopaths, depending on the case.

We’re not going to solve this the way we are. We need a much deeper and more comprehensive change to how we’ve organized our societies. Syriza understand this, and they’re acting on it, but they can’t do it alone, and besides their priority must be the Greek population, not the systems that are strangling the world, because that’s what they were voted into office for. We need to support them much more than we have so far, or both their fight and ours will end in defeat.

Supranational organizations will all tend towards developing dictatorial traits, both because of their very structures, and because of the type of people they attract to rise in their ranks.

I’m by no means the only one to say that NATO should be disbanded, Ron Paul made a passionate speech about it in 2008. The problem is that if NATO is not disbanded, it will run amok (it already has). NATO’s purpose was to defend Europe from the Soviet Union’s communist threat. When Russia was no longer a threat, some 25 years ago, the whole apparatus was still left intact, albeit with a few budget cuts, and so NATO went looking for a purpose. I give you: Ukraine.

Whether it’s NATO, or the IMF, or the EU, they’re all part of the same problem. A problem that won’t be solved as long as these institutions are in place. That is not possible. They are organizations that find their purpose in NOT solving problems, because once they’re solves, they no longer have a reason to exist. And they’re not going to volunteer to become obsolete. They’re going to find a reason to find relevance, even if that hurts whoever it is they’re supposed to represent.

We’re never ever going to find a solution to problems like Ukraine or the Eurozone, because we’ve – all over the world – allowed an alphabet soup of institutions to build up that we have no control over, and that we claim can and will solve the issues for us.

We have put the sociopaths in charge, in an international and largely anonymous dictatorship. Who really pulls the levers in the IMF, or NATO etc? We have no way of knowing. And that’s the problem. And that is what Syriza, and precious few besides them, are set to fight. And why they deserve – and need – our support. Because if they don’t win, we don’t.

Feb 092015
 
 February 9, 2015  Posted by at 11:25 am Finance Tagged with: , , , , , , , ,  3 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


NPC Ezra Meeker’s Wild West show rolls into town, Washington DC May 11 1925

The Swiss Leaks (60 Minutes)
HSBC Files: Swiss Bank Helped Clients Dodge Taxes And Hide Millions (Guardian)
US Government Faces Pressure After Biggest Leak In Banking History (Guardian)
Greek Leader Tsipras Pledges to Press Ahead on Undoing Austerity Measures (WSJ)
Greenspan Predicts Greece Exit From Euro Inevitable (BBC)
Greek Finance Minister Says Euro Will Collapse If Greece Exits (Reuters)
If Greece Exits, Here Is What Happens – Redux (Zero Hedge)
UK Is Readying Contingency Plans for Possible Greek Eurozone Exit (WSJ)
Historically Speaking Germany A Bigger Deadbeat Than Greece (Joe Schlesinger)
A Greece Debt Deal Is By All Means Not Impossible (Guardian)
War and Default in Europe Pose Merkel’s Biggest Challenge (Bloomberg)
Obama Joins the Greek Chorus (Ashoka Mody)
Bernie Sanders Asks Janet Yellen to Explain Her Apparent Inaction on Greece (NC)
In The Eternal City, The Euro Remains The Eternal Problem (Guardian)
Italy Lenders Seen Cleansing Books Amid Bad-Bank Plans (Bloomberg)
US Banks Say Soaring Dollar Puts Them at Disadvantage (WSJ)
Global Economy Will Shrink By $2.3 Trillion In 2015 (Zero Hedge)
Trouble For China As Money Flows Out (MarketWatch)
Citi Fears 23% Downside Correction in Chinese Stocks (Zero Hedge)
Will US Consumers Ever Go On Spending Spree? (MarketWatch)
Albert Edwards: Core Inflation In The US And Europe Are The Same (Zero Hedge)
OECD: Changes Must Cut Inequality, Not Just Boost Economic Growth (Guardian)
US Locks In Cheap Financing (Bloomberg)

“For these big banks, the fines that have been imposed amount to a parking ticket..”

The Swiss Leaks (60 Minutes)

The largest and most damaging Swiss bank heist in history doesn’t involve stolen money but stolen computer files with more than 100,000 names tied to Swiss bank accounts at HSBC, the second largest commercial bank in the world. A 37-year-old computer security specialist named Hervé Falciani stole the huge cache of data in 2007 and gave it to the French government. It’s now being used to go after tax cheats all over the world. 60 Minutes, working with a group called the International Consortium of Investigative Journalists, obtained the leaked files.

They show the bank did business with a collection of international outlaws: tax dodgers, arms dealers and drug smugglers – offering a rare glimpse into the highly secretive world of Swiss banking. This is the stolen data that is shaking the Swiss banking world to its core. It contains names, nationalities, account information, deposit amounts – but most remarkable are these detailed notes revealing the private dealings between HSBC and its clients. Few people know more about money laundering and tax evasion by banks than Jack Blum. He’s a former U.S. Senate staff investigator. We asked him to analyze the files for us.

Jack Blum: Well, the amount of information here that has come public is extraordinary. Absolutely extraordinary. [..] If you read these notes, what you understand is the bank is trying to accommodate the secrecy needs of the client. And that’s the first concern.

Read more …

Jailtime!

HSBC Files: Swiss Bank Helped Clients Dodge Taxes And Hide Millions (Guardian)

HSBC’s Swiss banking arm helped wealthy customers dodge taxes and conceal millions of dollars of assets, doling out bundles of untraceable cash and advising clients on how to circumvent domestic tax authorities, according to a huge cache of leaked secret bank account files. The files – obtained through an international collaboration of news outlets, including the Guardian, the French daily Le Monde, BBC Panorama and the Washington-based International Consortium of Investigative Journalists – reveal that HSBC’s Swiss private bank:
• Routinely allowed clients to withdraw bricks of cash, often in foreign currencies of little use in Switzerland.
• Aggressively marketed schemes likely to enable wealthy clients to avoid European taxes.
• Colluded with some clients to conceal undeclared “black” accounts from their domestic tax authorities.
• Provided accounts to international criminals, corrupt businessmen and other high-risk individuals.

The HSBC files, which cover the period 2005-2007, amount to the biggest banking leak in history, shedding light on some 30,000 accounts holding almost $120bn of assets. The revelations will amplify calls for crackdowns on offshore tax havens and stoke political arguments in the US, Britain and elsewhere in Europe where exchequers are seen to be fighting a losing battle against fleet-footed and wealthy individuals in the globalised world. Approached by the Guardian, HSBC, the world’s second largest bank, has now admitted wrongdoing by its Swiss subsidiary. “We acknowledge and are accountable for past compliance and control failures,” the bank said in a statement. The Swiss arm, the statement said, had not been fully integrated into HSBC after its purchase in 1999, allowing “significantly lower” standards of compliance and due diligence to persist.

Read more …

The chance of Washington coming clean is zero.

US Government Faces Pressure After Biggest Leak In Banking History (Guardian)

The US government will come under intense pressure this week to explain what action it took after receiving a massive cache of leaked data that revealed how the Swiss banking arm of HSBC, the world’s second-largest bank, helped wealthy customers conceal billions of dollars of assets. [..] .. the Swiss files, made public for the first time by the Guardian and other media, are likely to raise questions in Washington over whether there is evidence to prosecute HSBC or its executives in the US. Lawmakers are also expected to question the rigour of IRS investigations into undeclared assets hidden by US taxpayers in Geneva.

The IRS said it “remains committed to our priority efforts to stop offshore tax evasion wherever it occurs”, and pointed out it has collected more than $7bn from a program, introduced in 2009, that allows US taxpayers to voluntarily disclose previously undeclared offshore accounts. However the IRS declined to say how much it has retrieved in back taxes, interest and penalties as a result of investigations stemming from the leaked HSBC Swiss data. The IRS also declined to say how many US taxpayers have been investigated as a result of the leak, citing taxpayer privacy and the Tax Information Exchange Agreement (TIEA), a treaty that renders secret information shared between the US and France.

The DoJ said it “does not confirm or deny the existence of an investigation”. Senior Senate sources said government officials are likely to be questioned on Capitol Hill over what action was taken after the US received the leaked HSBC data almost five years ago. On Tuesday, Maryann Hunter, who is on the board of governors of the Federal Reserve, and has some responsibility for regulation of foreign banking organisations operating in the US, will give evidence to the Senate banking committee. Two days later, Geoffrey Graber, a deputy associate attorney general at the DoJ who oversees settlements with Wall Street banks, will appear before a House judiciary subcommittee. Both are expected to be questioned about the leak.

Read more …

“The more our partners want austerity, the more the problem with the debt will get worse..“

Greek Leader Tsipras Pledges to Press Ahead on Undoing Austerity Measures (WSJ)

Greece unveiled plans Sunday to undo several austerity measures that were a condition of its international bailout, ranging from tax cuts to increasing the minimum wage, putting the country firmly on a collision course with its European partners. In a speech to lawmakers, Prime Minister Alexis Tsipras reiterated that Greece would seek a bridge loan from its international creditors until June, refusing to accept an extension of its current bailout, as demanded by European partners. “We know very well that talks won’t be easy and that we are facing an uphill path but we believe in our abilities,” he said, presenting his newly-elected government’s policy statement to lawmakers. “The more our partners want austerity, the more the problem with the debt will get worse,“ he said.

Among the changes announced by Mr. Tsipras are raising the taxable income threshold; gradually increasing the minimum wage, starting next year; and dropping a recently introduced property tax. He also promised the retirement age wouldn’t be changed. These changes are aimed at providing the country with a growth push, he added, after the economy contracted by about a quarter in the last five years and unemployment shot up to more than 25%. It is not clear, however, where the savings will come from in order to pay for these changes, given that Mr. Tsipras promises that the country will avoid creating fresh budget deficits. Greece’s current €240 billion rescue runs out at the end of the month, and the government has warned it could run out of money in weeks unless it can gain access to additional funds.

The Greek government also has said that it wants to change the terms of its funding agreement, which require the new leftist government to adhere to austerity measures agreed to by its predecessors. But Greece’s partners in the European Union—led by Germany—have insisted that promises made by the previous Greek government have to be kept if Athens wants to receive further assistance. Eurozone officials have asked Greece to come up with a specific funding plan by Wednesday, when finance ministers, meeting in Brussels, will try to move closer to a deal on the paralyzed bailout program. A day later, Mr. Tsipras will sit down for his first talks with German Chancellor Angela Merkel at a European summit in Brussels.

Read more …

The oracle comes clean with his last breath.

Greenspan Predicts Greece Exit From Euro Inevitable (BBC)

The former head of the US central bank, Alan Greenspan, has predicted that Greece will have to leave the eurozone. He told the BBC he could not see who would be willing to put up more loans to bolster Greece’s struggling economy. Greece wants to re-negotiate its bailout, but Mr Greenspan said “I don’t think it will be resolved without Greece leaving the eurozone”. Earlier, UK Chancellor George Osborne said a Greek exit would cause “deep ructions” for Britain. Mr Greenspan, chairman of the Federal Reserve from 1987 to 2006, said: “I believe [Greece] will eventually leave. I don’t think it helps them or the rest of the eurozone – it is just a matter of time before everyone recognises that parting is the best strategy.

“The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated – actually even just fiscally integrated won’t do it.” Following the election in Greece of the anti-austerity Syriza party, Greek ministers have been touring European capitals trying to drum up support for a re-negotiation of its bailout terms. However, there appears little willingness in Berlin, or at the European Central Bank, to alter the terms of its €240bn rescue by the EU, ECB and IMF. “The [bailout] conditions with Greece were generous, beyond all measure,” German Finance Minister Wolfgang Schaeuble said last week. He saw no justification for relaxing them further. Mr Greenspan said: “All the cards are being held by members of the eurozone.”

He also warned that trying to hold the 19-nation euro bloc together “is putting strain on everybody”. He said as well as Greece leaving the eurozone, there was a real risk of a “much bigger break-up” with other southern European countries forced out. Alan Greenspan has long been a critic of the European single currency. Now, the 88-year-old former chairman of the US Federal Reserve has repeated a claim that nothing short of full political union – a United States of Europe – can save the euro from extinction. Given that few (if any) of the current 19 sovereign governments which make up the eurozone would choose to create such an entity at this time, that means – for Greenspan at least – the euro is doomed. Before all that, though, he foresees Greece quitting the single currency, but the euro surviving intact. Grexit, he says, is more manageable now than it would have been when Greece got its first EU bailout in 2010.

Read more …

“The euro is fragile, it’s like building a castle of cards, if you take out the Greek card the others will collapse.”

Greek Finance Minister Says Euro Will Collapse If Greece Exits (Reuters)

– If Greece is forced out of the euro zone, other countries will inevitably follow and the currency bloc will collapse, Greek Finance Minister Yanis Varoufakis said on Sunday, in comments which drew a rebuke from Italy. Greece’s new leftist government is trying to re-negotiate its debt repayments and has begun to roll back austerity policies agreed with its international creditors. In an interview with Italian state television network RAI, Varoufakis said Greece’s debt problems must be solved as part of a rejection of austerity policies for the euro zone as a whole. He called for a massive “new deal” investment program funded by the European Investment Bank.

“The euro is fragile, it’s like building a castle of cards, if you take out the Greek card the others will collapse.” Varoufakis said according to an Italian transcript of the interview released by RAI ahead of broadcast. The euro zone faces a risk of fragmentation and “de-construction” unless it faces up to the fact that Greece, and not only Greece, is unable to pay back its debt under the current terms, Varoufakis said. “I would warn anyone who is considering strategically amputating Greece from Europe because this is very dangerous,” he said. “Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?”

Varoufakis and his Prime Minister Alexis Tsipras received friendly words but no support for debt re-negotiation from their Italian counterparts when they visited Rome last week. But Varoufakis said things were different behind the scenes. “Italian officials, I can’t tell you from which big institution, approached me to tell me they backed us but they can’t tell the truth because Italy also risks bankruptcy and they are afraid of the reaction from Germany,” he said. “Let’s face it, Italy’s debt situation is unsustainable,” he added, a comment that drew a sharp response from Italian Economy Minister Pier Carlo Padoan, who said in a tweet that Italy’s debt was “solid and sustainable.”

Read more …

Pretty ugly.

If Greece Exits, Here Is What Happens – Redux (Zero Hedge)

Now that the possibility of a Greek exit from the euro is back to being topic #1 of discussion, just as it was back in the summer of 2012 and the fall of 2011, and investors are propagandized by groundless speculation posited by journalists who have never used excel in their lives and are merely paid mouthpieces of bigger bank interests, it is time to rewind to a step by step analysis of precisely what will happen in the moments before Greece announces the EMU exit, how the transition from pre- to post- occurs, and the aftermath of what said transition would entail, courtesy of one of the smarter minds out there at the time (before his transition to a more status quo supportive tone), Citi’s Willem Buiter, who pontificated precisely on this topic previously. Three words: “not unequivocally good.” From Willem Buiter (2012): What happens when Greece exits from the euro area?

Were Greece to be forced out of the euro area (say by the ECB refusing to continue lending to Greek banks through the regular channels at the Eurosystem and stopping Greece’s access to enhanced credit support (ELA) at the Greek central bank), there would be no reason for Greece not to repudiate completely all sovereign debt held by the private sector and by the ECB. Domestic political pressures might even drive the government of the day to repudiate the loans it had received from the Greek Loan Facility and from the EFSF, despite it having been issued under English law.

Only the IMF would be likely to continue to be exempt from a default on its exposure, because a newly ex-euro area Greece would need all the friends it could get – outside the EU. In the case of a confrontation-driven Greek exit from the euro area, we would therefore expect to see around a 90% NPV cut in its sovereign debt, with 100% NPV losses on all debt issued under Greek law, including the debt held, directly or directly, by the ECB/Eurosystem. We would also expect 100% NPV losses on the loans by the Greek Loan Facility and the EFSF to the Greek sovereign.

Read more …

Everyone is, of course.

UK Is Readying Contingency Plans for Possible Greek Eurozone Exit (WSJ)

The U.K. government is stepping up contingency planning to prepare for a possible Greek exit from the eurozone and the market instability such a move would create, U.K. Treasury chief George Osborne said on Sunday. The U.K. government has said the standoff between Greece’s new antiausterity government and the eurozone is increasing the risks to the global and U.K. economy. “That’s why I’m going tomorrow to the G-20 [Group of 20] to encourage our partners to resolve this crisis. It’s why we’re stepping up the contingency planning here at home,” Mr. Osborne told the BBC in an interview. “We have got to make sure we don’t, at this critical time when Britain is also facing a critical choice, add to the instability abroad with instability at home.”

Mr. Osborne is on Monday heading to Istanbul for talks with other finance officials from the G-20. Alan Greenspan , former chairman of the U.S. Federal Reserve, said in a separate interview that he believed Greece would eventually leave the eurozone. He told the BBC he couldn’t see who would be willing to put up more loans to bolster the country’s struggling economy. “I believe [Greece] will eventually leave. I don’t think it helps them or the rest of the eurozone—it is just a matter of time before everyone recognizes that parting is the best strategy,” he was quoted as saying by the BBC.

Ahead of the U.K. general election in May, Prime Minister David Cameron and Mr. Osborne have used the Greek situation to argue their case for a continuation of the government’s austerity plans. Mr. Osborne noted that Greece had chosen to stay in the eurozone and had worked hard to do so. “If Greece left the euro that would create real instability in financials markets in Europe,” he said. “That’s why we have got to avoid this crisis getting out of control, which is why we have got to make sure we have an international effort to resolve the standoff and here in Britain we step up our contingency planning to prepare for whatever is thrown at us.”

Read more …

“In the 1920s, according to a prominent German economic historian, Germany was “like Greece on steroids.”

Historically Speaking Germany A Bigger Deadbeat Than Greece (Joe Schlesinger)

In its attempt to bust the austerity shackles that lenders have imposed, Greece’s new leftist government is finding a particularly unsympathetic ear in Germany, the EU’s paymaster, which says it is done writing off Greek debt. That warning from German Chancellor Angela Merkel and others is overwhelmingly backed by a German public outraged by the contrast between Greece’s spendthrift ways, with its penchant for treating tax bills as junk mail, and their own obsession with a tight hold on the purse strings, both personal and as a country. What the Germans are conveniently ignoring is their own record as one of history’s biggest deadbeats. In the 1920s, according to a prominent German economic historian, Germany was “like Greece on steroids.”

Albrecht Ritschl, a professor at the London School of economics and adviser to Germany, says that Germany’s current prosperity was built on borrowed — mostly American — money, much of it written off. It all started in 1918 when Germany lost the First World War. In the peace settlement that followed, the victors exacted payment of 269 billion marks or 96,000 tonnes of gold. Mirroring the Greeks’ current sentiments regarding debt repayment and forced austerity, Germans after WWI saw the reparations as a national humiliation and rejected the validity of that Versailles Treaty. They did pay, though. But they made their payment by printing ever more money, which led to the kind of hyperinflation where money was carried around in suitcases. By 1923, one U.S. dollar was worth billions of marks. In Berlin, a streetcar ticket cost 15 billion marks.

The collapse of the German economy led to the demise of the country’s Weimar Republic democracy and the rise of Adolf Hitler, who promptly stopped the payments once he came to power. It is often said that the debacle of the Versailles settlement thus led directly to Second World War. But once that war was over, with Germany having lost again, the lesson of Versailles was finally heeded. Instead of punishing the Germans, the victorious Western allies decided to help them get back on their feet again. Not all Germans, of course, because by that time the country was divided between the Soviet satrapy of Communist East Germany and the budding democracy of West Germany. The Cold War was on, and the allies wanted to make sure that Western Europe didn’t succumb to Joseph Stalin, as it had a decade earlier to Hitler and his collaborators. The problem, though, was that Western Europe lay in ruins and its people were starving. There was only one possible rescuer — the U.S.[..]

In 1947, the U.S. Congress voted $13 billion in aid to the Europeans, a massive sum at the time. The Germans got $1.45 billion of that money. They were also allowed to put off paying, and indeed never did fully repay the money they already owed to other Europeans as well as the Americans. [..] As for the money they owed, in 2010 the Germans made a last payment of €69.9 million to settle all their debts from both wars. That settlement, though, was more symbolic than real as the original debt was repeatedly reduced over the decades.

Read more …

“..nor does she want to be the politician responsible for rolling back more than half a century of closer European integration.”

A Greece Debt Deal Is By All Means Not Impossible (Guardian)

Tsipras is not going to get everything he wants. He might only get a fraction of what he wants. But he will get something. Why? Because this is Europe, where horse-trading and deal-making is the natural order of things. Because the Greek people have spoken by voting for Syriza. Because there is an acceptance that the country has suffered grievously in the past five years. But, above all, because sending Tsipras off with a flea in his ear would mean risking Greece leaving the eurozone. And nobody wants that: not Juncker, not Mario Draghi, not Angela Merkel. The German chancellor may not be prepared to offer Tsipras much, but nor does she want to be the politician responsible for rolling back more than half a century of closer European integration.

A deal will be done despite what appeared to be a hardening of positions in the second half of last week. The mood darkened after the European Central Bank said it would no longer accept Greek bonds as collateral for lending to Greek banks. That was seen as an aggressive act, since it means the Greek central bank will have to provide its own emergency assistance at a higher interest rate. And even that source of funding could be ended by the ECB if it thought there was no prospect of a deal between Athens and its eurozone partners. Were this to happen, it would precipitate a financial crisis. Greece’s banks would become insolvent very quickly, leaving Tsipras with the choice of either abject surrender or exit from the euro, followed by debt default and devaluation.

It is, though, unlikely to get to this point. Indeed, there are some commentators – such as the US prizewinning economist Paul Krugman – who believe that far from being a crude act of belligerence this was actually another one of Draghi’s subtle ploys, designed to make it clear to Merkel just how close the eurozone was to losing one of its 19 members. By refusing to be provoked by the ECB move, Tsipras and his finance minister, Yanis Varoufakis, pitched their response just about right. That said, any concessions to Greece will be limited. That was clear in the two days I spent in Brussels last week talking to officials and politicians. Valdis Dombrovskis, commissioner for the euro and social dialogue, said: “We are respecting the democratic choice of the Greek people. The European commission is willing to engage with Greece. The basis of the negotiations is that all sides stick with their own commitments.”

Read more …

Merkel has largely morphed into a tool.

War and Default in Europe Pose Merkel’s Biggest Challenge (Bloomberg)

After almost a decade as German chancellor, Angela Merkel faces a moment of truth as a resurgent Russia and fed-up Greeks challenge her blueprint for Europe’s future. As bloodshed in eastern Ukraine escalates and the new Greek government rejects austerity championed by Merkel, her deliberate leadership style may be reaching the limit of its effectiveness. With Europe’s post-Cold War order and its unifying currency at stake, the weight of global and domestic expectations is pushing Merkel out of her comfort zone and into two direct confrontations. Both adversaries and allies have repeatedly underestimated Merkel’s determination as she rose from obscurity in an East German lab to become the world’s most powerful woman.

“It underscores how much Germany is really the pivotal power in Europe and Angela Merkel is the pivotal leader,” Daniel Hamilton, head of the Center for Transatlantic Relations at the Paul H. Nitze School of Advanced International Studies in Washington, said in an interview. “Much of it has to do with Germany’s success, but much of it also has to do with default by other powers. It’s not like she or Germany aspires to this role.” Merkel’s status as Europe’s go-to leader will be on display when President Barack Obama hosts her at the White House on Monday. In the run-up, she’s resisting pressure by U.S. politicians to send arms to Ukraine’s government. The biggest risk for Merkel is if either crisis spiraled out of control. At that point, she would have failed to address “German concern about stability,” Hamilton said.

While Merkel, 60, doesn’t deliver grand visions of European unity and reconciliation like her mentor Helmut Kohl, she has a practical set of values that are now under threat. For the 19-nation currency bloc, her goal is to make economies from Greece to Ireland more like her export-driven powerhouse. She says changes are vital to adapt to globalization and Europe’s aging populations. Even so, bailouts she backed have spawned a challenge by the anti-euro Alternative for Germany party that limits her leeway for cutting another deal with Greece.

Read more …

They all start to admit their failures, but still insist Greece pay for them.

Obama Joins the Greek Chorus (Ashoka Mody)

US President Barack Obama’s recent call to ease the austerity imposed on Greece is remarkable – and not only for his endorsement of the newly elected Greek government’s negotiating position in the face of its official creditors. Obama’s comments represent a break with the long-standing tradition of official American silence on European monetary affairs. While scholars in the United States have frequently denounced the policies of Europe’s monetary union, their government has looked the other way. Those who criticize the euro or how it is managed have long run the risk of being dismissed as Anglo-Saxons or, worse, anti-Europeans. British Prime Minister Margaret Thatcher accurately foresaw the folly of a European monetary union. Gordon Brown, as British Chancellor of the Exchequer, followed in Thatcher’s footsteps.

When his staff presented carefully researched reasons for not joining the euro, many Europeans sneered. And that is why Obama’s statement was such a breath of fresh air. It came a day after German Chancellor Angela Merkel said that Greece should not expect more debt relief and must maintain austerity. Meanwhile, after days of not-so-veiled threats, the European Central Bank is on the verge of cutting funding to Greek banks. The guardians of financial stability are amplifying a destabilizing bank run. Obama’s breach of Europe’s intellectual insularity is all the more remarkable because even the IMF has acquiesced in German-imposed orthodoxy. As IMF Managing Director Christine Lagarde told the Irish Times: “A debt is a debt, and it is a contract. Defaulting, restructuring, changing the terms has consequences.”

The Fund stood by in the 1990s, when the eurozone misadventure was concocted. In 2002, the director of the IMF’s European Department described the fiscal rules that institutionalized the culture of persistent austerity as a “sound framework.” And, in May 2010, the IMF endorsed the European authorities’ decision not to impose losses on Greece’s private creditors – a move that was reversed only after unprecedented fiscal belt-tightening sent the Greek economy into a tailspin. The delays and errors in managing the Greek crisis started early. In July 2010, Lagarde, who was France’s finance minister at the time, recognized the damage incurred by those initial delays, “If we had been able to address [Greece’s debt] right from the start, say in February, I think we would have been able to prevent it from snowballing the way that it did.”

Read more …

The US, too, is at risk.

Bernie Sanders Asks Janet Yellen to Explain Her Apparent Inaction on Greece (NC)

Senator Bernie Sanders issued a letter over the weekend asking Janet Yellen to “make it clear to the leadership of the European Central Bank that the United States and the Federal Reserve object to actions that affect our national interest and risk U.S. and global financial stability through the unnecessary and counterproductive implementation of deflationary policies.” The full letter is embedded below. Also note that Senator Sanders wrote Christine Lagarde at the IMF on January 28, two days after Syriza’s victory, expressing his concern about the humanitarian costs and political risks of continuing to pursue failed austerity policies. If you are a Vermont voter, please e-mail him and thank him for taking this stand. And the rest of you who are moved to help, please write Hillary Clinton’s office and ask why, as the Democratic party Presidential nominee-in-waiting, why she is silent on this important topic.

Read more …

Greece 2.

In The Eternal City, The Euro Remains The Eternal Problem (Guardian)

You see, for decades, the Italian economy trundled along quite nicely, with a strong industrial sector, a great name for design, and the ability to devalue the lira from time to time, when wages got out of control and international competitiveness suffered. That is to say, for all its “structural rigidities” and “Italian practices”, the economy performed reasonably well. In recent decades, it has been hit by a succession of blows, not least the financial crisis – which struck after great strides had been made in reducing the budget deficit – and the economic straitjacket of the eurozone. Membership of the single currency not only removes the freedom to devalue against, for example, Germany: it also subjects Italy to the kind of fiscal sadism against which the Greeks have just revolted.

The many “rigidities” of Italy’s economy are highlighted in the film Girlfriend in a Coma, made by Annalisa Piras and former Economist editor Bill Emmott, described by Le Monde as “a desperate love letter to Italy”. Well, the Italians are having another go. One reform which might not be too popular with Pessina is yet another attempt to crack down on tax avoidance – generally considered something of a national sport. They are trying to speed up the justice system as part of an effort to stimulate more inward investment, and – especially important for so many of the young, who are effectively excluded from the labour market – the Renzi administration aims to reduce the imbalance in labour contracts between those with a “job for life” and those desperate to get a job.

Meanwhile, rays of hope as the sun was setting in Venice last Saturday were: first, although Italy cannot devalue against Germany, the entire eurozone may gain some relief from both the ECB QE programme – boosting money and credit – and the devaluation of the euro. Then there is the potential boost to spending from the lower oil price.Nevertheless, macroeconomic policy in the eurozone remains far too restrictive. I think we are talking of alleviation of the Italian economy’s problems, rather than a cure.

Read more …

In your dreams: “Appropriate tax relief or state guarantees on assets backed by bad debts would smooth the way for the creation of a private market in non-performing loans..”

Italy Lenders Seen Cleansing Books Amid Bad-Bank Plans (Bloomberg)

Italian banks, under pressure to bring their balance sheets in line with the ECB’s health check, will probably set aside billions more for loan losses in the fourth quarter as the government considers a national plan for offloading their troubled assets. Banca Monte dei Paschi the weakest performer in the 130-bank review, is likely to almost triple its loan-loss provisions to €3.2 billion, according to the average of six analyst estimates compiled by Bloomberg for Italy’s third-biggest bank. In total, the top five banks may set aside about €8 billion, estimates show.

The nation’s lenders are saddled with a record €181 billion of nonperforming loans that are hindering their ability to expand lending and holding back the country’s recovery from its third recession in six years. More than two years after the balance-sheet clean-up started, the government is considering creating a bad bank to accelerate disposals of problematic assets. Government support would help generate economic growth, Bank of Italy Governor Ignazio Visco said Saturday. “Appropriate tax relief or state guarantees on assets backed by bad debts would smooth the way for the creation of a private market in non-performing loans,” he said in a speech in Milan.

“A bad bank vehicle combined with structural reforms would be a key tool to improve Italian bank profitability,” analysts at Morgan Stanley including Francesca Tondi wrote in a report Friday. Fabrizio Bernardi, an analyst at Fidentiis Equities, said banks with a lower-than-average asset quality profile would benefit the most from a bad bank. All five banks are scheduled to publish fourth-quarter earnings this week. Leading the pack, UniCredit and Intesa Sanpaolo will probably set aside about €3 billion between them. Both banks posted full-year losses in 2013 after writing down billions of non-performing loans. Banco Popolare, the country’s fifth-biggest lender, may post €1.27 billion in provisions, according to the surveys.

Read more …

Boo hoo hoo.

US Banks Say Soaring Dollar Puts Them at Disadvantage (WSJ)

The strengthening U.S. dollar is rippling through the financial system in unexpected ways, revealing what bankers say is a hidden flaw in a Federal Reserve proposal to increase capital cushions at the nation’s largest banks. Big U.S. banks say that, under the rule proposed in December, the recent steep rise in the dollar’s value would force some U.S. firms to hold billions of dollars more in capital than foreign competitors, including weaker European banks, because of how the Fed plans to calculate a so-called surcharge levied on the eight most systemically important U.S. banks. The Fed rule is aimed at forcing big banks to add extra layers of financing to protect against losses.

The banks believe it would wind up penalizing U.S. banks if the dollar remains strong against the euro, as many economists expect, because the high exchange rate makes their dollar-denominated assets and operations look larger relative to their European peers. Officials from banks including Citigroup, Goldman Sachs, Bank of America and Morgan Stanley met privately with Fed officials in January to discuss the threat and other concerns about the rule, according to people who attended. The banks plan to file an official comment letter later this month detailing those concerns and seeking changes to how the proposal calculates the extra capital required. The currency’s potential impact on big U.S. banks is the latest example of how a strengthening dollar is affecting the U.S. economy.

The strong dollar is hitting the profits and sales of a wide swath of corporate America, including firms that expanded overseas aggressively, like consumer-products giant Procter & Gamble and pharmaceuticals company Pfizer, but are now finding that sales abroad are suffering or not keeping up with dollar-based costs. The impact has weighed on U.S. stocks and raised worries about the health of the U.S. economy. U.S. banks say the currency volatility exposes underlying problems with the Fed’s proposal, which is aimed at forcing banks to shrink by putting a price on bigness but ties their capital requirements in part to forces beyond their control. Banks have already expressed concern that the Fed’s surcharge proposal is tougher than what European regulators are expected to require.

Read more …

In dollar terms.

Global Economy Will Shrink By $2.3 Trillion In 2015 (Zero Hedge)

Via BofAML: The $2.3 Trillion Global GDP Write-Off

Global nominal GDP is likely to contract by about $2.3tn in 2015, a consequence of the USD strengthening. It will be the sixth time since 1980 that global nominal GDP contracts in dollar terms and the second biggest contraction since 2009. This change will have far reaching implications across markets, principally for commodity prices. The world is going to be about $2.37tn smaller in 2015 than what we thought when we prepared our Year Ahead forecasts. This is not insignificant, as it represents 3.2% of last year’s estimated global GDP. For perspective, that would be as if an economy of the size between Brazil’s and the UK’s would have just disappeared.

In our calculation, we include the US, the Euro area, Japan, the UK, Australia, Canada and all the emerging markets we cover. Together they totaled $70.9tn last year, or 91% of the world output as measured by the IMF. The change is mostly attributed to the stronger USD. We barely changed our real growth forecasts from the time of the Year Ahead publication. In fact, we expect global real growth to accelerate to 3.5% in 2015 from 3.3% in 2014. The number of goods and services produced will increase at a faster rate; it is just that most of them are going to be produced in countries where the currency has weakened against the USD, and will continue to weaken, according to our forecast.

Read more …

“The dilemma for the People’s Bank of China is how to keep liquidity flowing without prompting more outflows.”

Trouble For China As Money Flows Out (MarketWatch)

China’s reserve requirement cut last week failed to provide much of a lift as it was more about replacing hot money outflows than adding new money. It also helped to bring into focus the central bank’s tricky position: In an environment of capital outflows how do you fine-tune policy so that both a credit crunch and currency crunch are avoided? Without signs the economy is regaining momentum, investors should watch out for unexpected policy moves — such as meaningful currency depreciation or new measures to trap capital inside its borders. Concerns will be compounded by terrible trade figures released at the weekend, with exports unexpectedly down 3.3% in January from a year earlier and imports falling almost 20%.

After running the reserve-reduction numbers, analysts poured cold water on last week’s half-percentage-point cut, as it merely tops up liquidity after recent outflows. Fitch Ratings calculates the 570 billion yuan ($91.4 billion) freed up almost equals exactly the 575 billion yuan in net capital outflows in 2014. The dilemma for the People’s Bank of China (PBOC) is how to keep liquidity flowing without prompting more outflows. If it loosens aggressively during a period of capital outflows and dollar strength, this could just help facilitate capital flight. Expectations of a weakening yuan would also have the same effect.

Here, the consensus remains that authorities will be resolute in defending the loosely pegged exchange rate, with Bank of America saying it expects the PBOC will stabilize the rate in order to stem capital flight. Keeping the currency stable is widely viewed as a key policy objective of Beijing as it seeks to elevate the yuan to a means of settlement for international trade and even as a reserve currency. What’s more, Chinese corporations hold a sizeable amount of foreign-currency debt. However, analysts warn that pressure is building on the exchange rate. TD Securities estimates monetary conditions in China are the tightest in a decade, with a real effective exchange rate at 15-year highs and growth in credit at decade lows. January’s decline in exports will put the yuan’s level under renewed scrutiny.

Read more …

“We suggest you take a look at a chart of Chinese retail margin debt, but not just right before bedtime. It looks something like the U.S. figures heading for 1929.”

Citi Fears 23% Downside Correction in Chinese Stocks (Zero Hedge)

The Chinese stock market is “looking prercarious” according to Citi FX Technicals’ team. A bearish outside day on the Shanghai Composite could represent just the first of a series of technical patterns that suggest a potential 23% correction… as 100s of thousands of newly minted margin’d retail equity ‘investors’ find out the hard what a tap on the shoulder feels like. As Paul Singer warned, “take a look at a chart of Chinese retail margin debt, but not just right before bedtime. It looks something like the U.S. figures heading for 1929.” Via Citi FX,
• The Shanghai Composite Index posted a bearish outside day in today’s trading
• This suggests a return to the recent low from January 14th at 3,095. A breach of that level would confirm a double top that would target a decline to 2,785
• Such a move would break through the 55dMA for the first time since July 2014 (on a closing basis).
• Given the stretched moving average dynamic a breach of the 55dMA would leave the way open for a move to the 2,415 – 2,445 range, where the 200dMA converges with support from the February 2013 high
Everything’s fine…

Perhaps – more fundamentally speaking – Elliott’s Paul Singer sums it up best… “A universal belief underlying global financial markets is that the Chinese government has complete control over its economy and financial system. We cannot know whether the corruption, bad loans, see-through projects, and internal dynamics of the Chinese system are bad, very bad, or headed for a crack-up, but any set of developments that challenge the widespread assumption of complete Chinese control over its destiny would be a very large shock to global markets.

We suggest you take a look at a chart of Chinese retail margin debt, but not just right before bedtime. It looks something like the U.S. figures heading for 1929. But there is no way for outsiders to know the net of the balance of forces, and whether the negatives are overwhelmed by the Chinese economic growth juggernaut. To paraphrase Senator Everett Dirksen: A trillion dollars of margin debt, a couple of trillion dollars of sour loans, a trillion dollars of wasted capital projects, and pretty soon you are talking about real money.”

Read more …

“Although consumers are better off than they’ve been in years, they sure haven’t acted like it.” That’s because they’re only better off in accounting models.

Will US Consumers Ever Go On Spending Spree? (MarketWatch)

There are more jobs now, for more money, than any time since the recession ended in mid-2009. Gas prices are at a six-year low, while the stock market is near near an all-time high. The question is whether Americans will spend that newfound wealth. So far, the answer has been no. The pace of consumer spending continues to disappoint even though unemployment has tumbled below 6% and U.S. added 3.1 million jobs in 2014 — the biggest gain since 1999. Although consumers are better off than they’ve been in years, they sure haven’t acted like it. Americans are still saving more and shopping frugally. Just look at what’s happened in the past few months. The savings rate rose in December to 4.9% to mark the highest level since midsummer, government data showed.

At the same time, both retail sales and consumer spending fell sharply. There’s a big asterisk to that last factoid: in both cases the negative readings reflected lower prices, namely at the gas pump. Even so, inflation-adjusted consumer spending fell slightly in December. Which again raises the question heading into Thursday’s report on retail sales. When will consumers start to spend that extra cash — and pump up the U.S. economy? Retailers seem to expect it will happen soon, as they’ve added 113,000 new positions over the last three months. Traders are expecting the headline figure again to decline in January, reflecting the lower revenue coming in for gas stations. Auto sales also will be lower, according to what the auto companies themselves have reported.

Read more …

“..the US deflation threat is every bit as immediate as that in the eurozone.”

Albert Edwards: Core Inflation In The US And Europe Are The Same (Zero Hedge)

.. one thing the SocGen strategist revealed which most certainly was not widespread public knowledge is that if one uses the inflation-measurement methodology of Europe, then not only is core CPI in the US below that of “deflationary” Europe, but is in fact negative! The US deflationary predicament, which is hiding between the lines, is why Edwards maintains his “view that the market is far too convinced that the US is in the spring of its economic recovery, whereas I believe we could well be in the autumn. What matters though is not my view, but the overconfidence of investors together with the very rich equity valuations.” The catalyst would be investor realization “that, despite the US having recently been the single engine of global growth, the US deflation threat is every bit as immediate as that in the eurozone.” Edwards explains:

The US CPI shelter component is made up of rent (7% of total CPI) and owner-occupier equivalent rent (OER, a massive 24% of the CPI). Now, when we exclude food and energy from the CPI we often hear people complain that we shouldn’t as food and energy are real expenditures that cannot be avoided. In contrast, the OER is a totally made-up number which no homeowner actually pays! OER is meant to measure the implied rent they incur by living in their home rather than renting it out – economists debate its inclusion in the CPI.

Typically OER mirrors actual rents which tend to lag house price inflation, which rose strongly in 2013 but is now slowing sharply. Hence OER inflation will probably slow too this year, revealing the underlying deflation threat. But whatever the whys and wherefores, the bottom line is simple – OER is not part of the eurozone CPI and to compare like-with-like we should exclude it. If we do, the yoy rate of core US CPI inflation is the same as in the eurozone.

But, perhaps more significantly, the 6m change in core US CPI inflation (using the eurozone definition) is actually already negative, unlike the eurozone series. Who then do you think has the bigger deflation problem ? the US or the eurozone? Which sadly means that not only all those “whopping” job gains of the past 3 months will be promptly “seasonally-adjusted” away during the next major revision opportunity, but that all the talk of a rate hike at a time when the US has a worse deflation problem than the Eurozone, will quickly and quietly disappear.

Read more …

“..the thinktank’s annual “Going for Growth” report..” Oh boy..

OECD: Changes Must Cut Inequality, Not Just Boost Economic Growth (Guardian)

Politicians must focus on policies that ensure stronger economic growth goes hand in hand with fairer distribution of the gains if they are to stem rising inequality, a leading economic thinktank has said. Analysing the effects of pro-growth policies on inequality, the Paris-based Organisation for Economic Co-operation and Development (OECD) has identified widening gaps in wealth distribution in many rich nations, with the the poorest hardest hit. The OECD urges governments to prioritise policies that help reduce inequality while also boosting growth, such as more education for low-skilled workers and measures to get more women into work.

The recommendations, part of the thinktank’s annual “Going for Growth” report, are being unveiled in Istanbul on the first day of the G20 finance ministers’ meeting. The OECD suggestion that some pro-growth policies have widened inequality will further fuel the heated debate over how countries can best restore sustainable economic growth six years after the global financial crisis. “The financial crisis and continued subdued recovery have resulted in lower growth potential for most advanced countries, while many emerging-market economies are facing a slowdown,” says the report. “In the near term, policy challenges include persistently high unemployment, slowing productivity, high public-sector budget deficit and debt, as well as remaining fragilities in the financial sector.

The crisis has also increased social distress, as lower-income households were hit hard, with young people suffering the most severe income losses and facing increasing poverty risk.” The report comes as Greece’s new leftwing government faces off with its international creditors and argues that relentless cuts under the terms of its bailout package have stifled the economy and caused widespread hardship. The OECD report highlights large increases in income inequality and poverty in Greece, alongside other countries hit hardest by the crisis: Iceland, Ireland and Spain.

Read more …

Understatement of the year; “Treasuries are “becoming detached from U.S. economic fundamentals..”

US Locks In Cheap Financing (Bloomberg)

Uncle Sam is going long. As the insatiable demand for Treasuries pushes down yields, the U.S. has locked in low-cost financing for years to come by issuing more long-term debt. The average maturity of Treasuries is now poised to reach an all-time high this year. The shift is saving money for American taxpayers – but it’s also made Treasuries more perilous for bond investors as the strength of the U.S. economy bolsters the Federal Reserve’s case for raising interest rates. Holders stand to lose about $570 billion if yields rise by a%age point, data compiled by Bloomberg show. In 2009, it was $170 billion. Treasuries are “becoming detached from U.S. economic fundamentals,” said William Irving at Fidelity Investments, which oversees about $2 trillion. “I don’t think it’s a great time to buy.”\

Long-term Treasuries have been some of the best investments around in the past year as oil tumbled, deflation emerged in Europe and a global slowdown threatened to drag on the U.S. recovery. The 30-year bond, the longest maturity security issued by the Treasury, returned 29%, double that for U.S. equities. The rally accelerated in 2015, pushing down yields to a record-low 2.22% on Jan. 30. A year ago, yields were closer to 4%. The demand for long bonds helped the Obama administration trim the nation’s short-term borrowing, which ballooned as U.S. ran trillion-dollar deficits to restore demand after the credit crisis. Treasuries due three years or less make up 48% of the market for U.S. debt, versus 58% six years ago.

The share of bills, due in one year or less, is approaching the least since the 1950s. That’s given the U.S. more time to repay its obligations. The average maturity has reached 68.7 months, or two months short of its high in 2001. With the U.S. budget deficit falling to a six-year low, the government is in better shape to finance its record debt burden when interest rates do rise.

Read more …