Mar 032018
 
 March 3, 2018  Posted by at 11:11 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh Lilac Bush 1889

 

Juncker Threatens Tariffs On Harley-Davidson, Bourbon And Levi’s (G.)
Fed’s QE Unwind Marches Forward Relentlessly (WS)
S&P 500 Companies To Buy Back $800 Billion Of Their Own Shares This Year (MW)
End Times at the OD Corral (Jim Kunstler)
Theresa May Unveils Fragile Truce In Third Brexit Offering (G.)
Eliminate Fannie Mae and Freddie Mac (USNews)
Low-Level Courts Turned Into Dickensian “Debt Collection Mills” (ICept)
The Devil Is in the Details of Citi’s Sordid History (Martens)
The Future Of Economic Convergence (WEF)
Elon Musk to Open Tesla R&D Plant in Greece (G.)
EU’s Wieser: Six Months Of Varoufakis Cost Greece €200 Billion (K.)
‘This Is All Stolen Land’: Canadian Offers To Share His With First Nations (G.)

 

 

I got this one: Translation: Jean-Claude Juncker finally gets his revenge on the 1960s (probably couldn’t get laid back in the day).

Also note: just about every headline and article says Trump wrote: “..trade wars are good, and easy to win..” He did not, or only after explaining conditions for that to be true: “..When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with ..” That makes a big difference. And therefore must be included.

Juncker Threatens Tariffs On Harley-Davidson, Bourbon And Levi’s (G.)

The IMF has warned that Donald Trump’s plan to impose stiff new US tariffs on foreign imports of steel and aluminum would cause international damage – and also harm America’s own economy “The import restrictions announced by the US President (Donald Trump) are likely to cause damage not only outside the US, but also to the US economy itself, including to its manufacturing and construction sectors, which are major users of aluminum and steel,” the IMF said on Friday. The terse statement from the global body came as world leaders threatened retaliation against any fresh tariffs and the US president breezily asserted that “trade wars are good”.

In a morning tweet Trump wrote: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” The European Union, Germany, Canada and other countries have all threatened retaliation against plans to impose tariffs of 25% on steel and 10% on aluminum. The Canadian prime minister, Justin Trudeau, said US tariffs on steel and aluminum would be “absolutely unacceptable” and the European commission president, Jean-Claude Juncker, warned there would be consequences for the US.

“If the Americans impose tariffs on steel and aluminum, then we must treat American products the same way,” Juncker told German television stations. “We must show that we can also take measures. This cannot be a unilateral transatlantic action by the Americans,” he said. “I’m not saying we have to shoot back, but we must take action. “We will put tariffs on Harley-Davidson, on bourbon and on blue jeans – Levi’s,” he added.

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The consensus is more QE when this inevitably blows up. But maybe the Fed does see that coming, and has different plans.

Fed’s QE Unwind Marches Forward Relentlessly (WS)

The fifth month of the QE-Unwind came to a completion with the release this afternoon of the Fed’s balance sheet for the week ending February 28. The QE-Unwind is progressing like clockwork. Even during the sell-off in early February, the QE-Unwind never missed a beat. During QE, the Fed acquired Treasury securities and mortgage-backed securities (MBS) guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. During the QE-Unwind, the Fed is shedding those securities. According to its plan, announced last September, the Fed would reduce its holdings of Treasuries and MBS by no more than: • $10 billion a month in Q3 2017 • $20 billion a month in Q1 2018 • $30 billion a month in Q2 2018 • $40 billion a month in Q3 2018 • $50 billion a month in Q4 2018, and continue at this pace.

This would shrink the balance of Treasuries and MBS by up to $420 billion in 2018, by up to an additional $600 billion in 2019 and every year going forward until the Fed decides that the balance sheet has been “normalized” enough — or until something big breaks. For February, the plan called for shedding up to $20 billion in securities: $12 billion in Treasuries and $8 billion in MBS. On its January 31 balance sheet, the Fed had $2,436 billion of Treasuries; on today’s balance sheet, $2,424 billion: a $12 billion drop for February. On target! In total, since the beginning of the QE Unwind, the balance of Treasuries has dropped by $42 billion, to hit the lowest level since August 6, 2014:

[..] to determine if the QE Unwind is taking place with MBS, we’re looking for lower highs and lower lows on a very jagged line. Also today’s movements reflect MBS that rolled off two to three months ago, so November and December, when about $4 billion in MBS were supposed to roll off per month. The chart below shows that jagged line. Note the lower highs and lower lows over the past few months. Given the delay of two to three months, the first roll-offs would have shown up in early December at the earliest. At the low in early November, the Fed held $1,770.1 billion in MBS. On today’s balance sheet, also the low point in the chart, the Fed shows $1,759.9 billion. From low to low, the balance dropped by $10.2 billion, reflecting trades in November and December:

And the overall balance sheet? Total assets on the Fed’s balance sheet dropped from $4,460 billion at the outset of the QE Unwind in early October to $4,393 billion on today’s balance sheet, the lowest since July 9, 2014. A $67-billion drop:

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“The list includes Dow components Boeing, Coca-Cola, Procter & Gamble, Johnson & Johnson, Citigroup, American Express, Goldman Sachs, Mircrosoft, Apple, Cisco and Intel.”

S&P 500 Companies To Buy Back $800 Billion Of Their Own Shares This Year (MW)

S&P 500 companies will buy back a record $800 billion of their own shares in 2018, funded by savings on tax, strong earnings and the repatriation of cash held overseas, J.P. Morgan said Friday. That will far exceed the $530 billion in share buybacks that was recorded in 2017, analysts led by Dubravko Lakos-Bujas wrote in a note. Companies have already announced $151 billion of buybacks in the year to date. “There is room for further upside to our buyback estimates if companies increase gross payout ratios to levels similar to late last cycle when companies returned >100% of profits to shareholders (vs. 83% now),” said the note. “Corporates tend to accelerate buyback programs during market selloffs.”

The stock market has experienced two bouts of steep declines so far this year, the first in early February, when the Dow Jones Industrial Average fell 1,175 points in a single session to mark its biggest ever one-day point drop, driven by fears about interest rate hikes. There were $113.4 billion of buyback announcements in February, a three-year high, according to Trim Tabs Investment Research. The second selloff was ignited on Thursday, after President Donald Trump said he is planning to impose tariffs on imports of steel and aluminum, triggering a more than 500 point drop in the Dow at its worst level, on fears the move would spark a trade war. The Dow was down another 300 points in early trade Friday.

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“Enjoy the last few weeks of relative normality.”

End Times at the OD Corral (Jim Kunstler)

Surely, the Deplorables of Flyover Land will not like the dumping of their Golden champion one bit. I’d stay away from post offices and other parcels of federal property for a while. If a bunch decides to march on the nation’s capital, it will be a messier affair than anything the hippies pulled off back in the day, perhaps the first battle of Civil War 2. The financial markets wobbled and puked on Wednesday and Thursday of this week, finally mirroring the tremendous stresses in our politics. They’ve been every bit as jacked on unreality as the two major parties for years now. The markets, after all, are not the economy itself, just indexes of the supposed values of things, stocks, bonds, gold, soybeans, etc., and the Federal Reserve has been jamming hallucinogens down their craw since the last little seizure in 2008.

The markets don’t seem to like the new chairman of the Fed, a cipher named Jay Powell. In his first big public performance since stepping into Janet Yellen’s tiny shoes this week, Powell managed to do a complete 180 in 24 hours on whether his outfit will stick to four rate hikes this year… or maybe just ride to the rescue of the floundering markets with their old tricks of lowering interest rates and “printing” shitloads of new “money” to get those animal spirits going again in the S & P. Absolutely nothing Powell’s Fed might try will work. In fact they will only make the cratering indexes fall deeper and harder, along with the value of the US dollar. Interest rates can’t go any higher, anyway, without blowing up half the paper obligations on earth.

Businesses will be terrified to transact. You can’t do much with a crippled financial system. The authorities and the news media will call it a “recession” but a sore-beset public will know it is the start of something a whole lot worse. As a nice side-dish to this banquet of consequences, the Democratic party will be deprived of its only reason to live the past two years: to shove Donald Trump off-stage. And the Republicans will be blamed twice over: once, for not coming to Trump’s defense, and again for getting behind him in the first place. Enjoy the last few weeks of relative normality.

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She’s never sounded more hollow. Theresa May is a certified masochist.

Theresa May Unveils Fragile Truce In Third Brexit Offering (G.)

If Theresa May’s first two speeches unfurled the promise of a “red, white and blue” Brexit, a cold grey day in March will be remembered as the moment a more faded flag was fluttered. As the nation took shelter from the beast from the east, this was intended to be May’s “reality bites” speech. Ten times she used the word “recognise” to underline she no longer believed Britain could have it all. “We recognise that we cannot have exactly the same arrangements with the EU as we do now,” she said. “We recognise this would constrain our ability to lower regulatory standards. We need to face up to facts. Our access to each other’s markets will be less”.

Little wonder that by the time it came for questions, and a German newspaper asked: “Is it all worth it?” The prime minister had to pause awkwardly before replying: “We are not changing our minds.” Much attention will focus on the remaining chasm between Downing Street’s hopes and the increasingly intransigent position adopted in Brussels. There was little to explain how they might solve the current crisis over Northern Ireland in the three weeks allotted. It would be churlish though not to acknowledge creeping realism from a politician whose heart has never really seemed in it. The weary call for “pragmatic common sense” was directed at both her own party and Europe.

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It’s useless to compare GSEs to the private sector. They exist to make ensure government control over the housing bubble.

Eliminate Fannie Mae and Freddie Mac (USNews)

Fannie Mae and Freddie Mac’s recent request for a bailout from the U.S. Treasury (read American taxpayers) has brought back into the public’s eye the unresolved legal status of these two government sponsored enterprises. In this debate, the assumption is that the GSEs, or some replacement entities benefiting from a government guarantee, are necessary for an effective housing finance market. The GSEs, however, do very little that cannot be done – and is not already done – by the private sector. In addition, these institutions pose a significant financial risk to U.S. taxpayers. Weighing this cost against the minimal benefits makes the case that the GSEs should be eliminated.

Without the GSEs, the mortgage market would not look radically different than it does today. Proponents argue that the GSEs lower mortgage rates, ensure the availability of the standard 30-year fixed rate mortgage, support home ownership and lend to people with lower incomes or weaker credit profiles, all of which the private sector presumably would not do. Not true on all fronts. First, the GSEs do not offer lower mortgage rates for consumers despite a government guarantee that allows them to raise capital at a lower cost than the private sector. In the past, the GSEs were able to charge lower mortgage rates by taking risks for which they were not compensated. The result was a massive build-up of housing risk in the run-up to the financial crisis of 2007-08.

Since 2009, the GSEs have been required to recognize risk in their pricing of mortgages, which has driven up their mortgage rates relative to the private sector. As a consequence, since 2014, new research undertaken with my colleague Steve Oliner shows that mortgage rates for private portfolio whole loans have been about one-quarter percentage point below GSE rates – after controlling for risk characteristics. And contrary to Treasury Secretary Steven Mnuchin’s recent statement, the private market could ensure the availability of the 30-year fixed-rate mortgages on its own. Data from CoreLogic show that 76% of private portfolio mortgages originated in 2017 were 30-year mortgages, not much below the GSE’s 85% share.

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Unstoppable.

Low-Level Courts Turned Into Dickensian “Debt Collection Mills” (ICept)

Federal law outlawed debt prisons in 1833, but lenders, landlords and even gyms and other businesses have found a way to resurrect the Dickensian practice. With the aid of private collection agencies, they file millions of lawsuits in state and local courts each year, winning 95 percent of the time. If a defendant fails to appear at post-judgement hearings known as “debtors’ examinations,” collectors can seek a warrant for contempt of court — even if the debtor didn’t realize they were being sued. [..] “A Pound of Flesh: the Criminalization of Private Debt,” the ACLU report, sheds light for the first time on the frequency of modern-day debt imprisonment, estimating that courts are issuing tens of thousands of arrest warrants each year for debtors owing as little as $30.

Forty-four states permit judges to issue these warrants, often known as “body attachments,” in civil cases. “This has been a largely invisible problem, because the people it’s happening to typically don’t have lawyers and aren’t speaking out,” says Jennifer Turner, a human rights researcher at ACLU. “Many low-level courts have essentially become debt-collection mills.” One in three Americans has a debt that’s been turned over to a private collection agency, and the ACLU found cases of warrants being issued over almost every kind of consumer debt—payday and auto loans, utility bills, even daycare fees. Many cases begin with an emergency expense that someone is unable to pay, sending them into a spiral of debt and imprisonment.

The use of cash bail often compounds the problem; debtors languish in jail for up to two weeks, according to the report. In some jurisdictions, judges routinely set bail at the exact amount of the debt owed, then surrender it to the collector once paid. In other cases documented by the ACLU, people with outstanding medical debt were too ill to go to court, as in the case of an Indiana mother of three who had been living with family in Florida while she recovered from thyroid cancer. Unbeknown to her, a small claims court had issued three warrants in a suit over her unpaid medical bills, and she was arrested when she returned home.

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In case anyone starts telling you about Kushner and Citi.

The Devil Is in the Details of Citi’s Sordid History (Martens)

Wall Street On Parade has extensively reported in the past on the dubious dealings of Citigroup in Washington. Citigroup is the bank that pressured the Bill Clinton administration into repealing the depression-era Glass-Steagall Act in 1999. That act had prevented Wall Street’s speculating investment banks and brokerage firms from owning commercial banks that take in FDIC insured deposits in order to prevent another 1929-1932 style Wall Street crash. Just nine years after the repeal of Glass-Steagall, Wall Street experienced another epic crash, with Citigroup playing a major role in the contagion. Citigroup received the largest taxpayer bailout in U.S. history, taking in $45 billion in equity from the U.S. Treasury;

A government guarantee on $300 billion of Citigroup’s dubious assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits; and the Federal Reserve secretly funneled $2.5 trillion in almost zero-interest loans to units of Citigroup between 2007 and 2010. Citigroup was created by the merger of Citicorp (parent of Citibank) and Travelers Group (which owned investment bank Salomon Brothers and brokerage firm Smith Barney). It would not have been allowed to exist but for the largess of the Clinton administration. And the Clintons needed a lot of financial help when they exited the White House.

In a June 9, 2014 interview with ABC’s Diane Sawyer, Hillary Clinton said this: “We came out of the White House not only dead broke, but in debt. We had no money when we got there, and we struggled to, you know, piece together the resources for mortgages, for houses, for Chelsea’s education. You know, it was not easy.” One institution that had big confidence in the Clintons’ future earning power was Citigroup. “According to PolitiFact, Citigroup provided a $1.995 million mortgage to allow the Clintons to buy their Washington, D.C. residence in 2000. That liability does not pop up on the Clinton disclosure documents until 2011, showing a 30-year mortgage at 5.375% ranging in face amount from $1 million to $5 million from CitiMortgage. The disclosure says the mortgage was taken out in 2001.

“Citigroup also paid Bill Clinton hundreds of thousands of dollars in speaking fees after he left the White House. It committed $5.5 million to the Clinton Global Initiative — a program which brings global leaders together annually to make action commitments. Citigroup employees have also been major campaign funders to Hillary Clinton’s political campaigns.”

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Oh, no!! Turns out developing markets have borrowed all their growth as well…

The Future Of Economic Convergence (WEF)

The world is now facing what observers are calling a “synchronized” growth upswing. What does this mean for the economic “convergence” of developed and developing countries, a topic that lost salience after the Great Recession began a decade ago? In the 1990s, developing economies, taken as a whole, began to grow faster than their advanced counterparts (in per capita terms), inspiring optimism that the two groups’ output and income would converge. From 1990 to 2007, the developing economies’ average annual per capita growth was 2.5 percentage points higher than in the advanced economies. In 2000-2007, the gap widened, to 3.5 percentage points.

Though not all countries made progress – many small economies did not do well – on an aggregate basis, the structure of the world economy was being transformed. Asian countries were catching up at a particularly rapid clip, driven by the large, dynamic economies of India and, even more so, China (which experienced nearly three decades of double-digit GDP growth). After the global financial crisis began in 2007, however, the dynamic changed. At first, it seemed that convergence was accelerating. With advanced-economy growth having ground to a halt, developing countries’ lead in per capita growth increased to four percentage points.

By 2013-2016, however, growth slowed in many emerging economies – particularly in Latin America, with Brazil experiencing negative growth in 2015 and 2016 – while growth in the United States picked up. Are we, as some observers have claimed, witnessing the end of convergence? The answer will depend on developing economies’ ability to find and tap new, more advanced sources of growth. In the past, the key engine of convergence was manufacturing. Developing countries that had finally acquired the needed skills and institutions applied advanced-country technologies locally, benefiting from plentiful, low-cost labor.

But, as Dani Rodrik has argued, that source of easy copycat catch-up has mostly been exhausted. The low-hanging fruit in manufacturing has already been picked. Technological catch-up is more difficult in the services sector, which now accounts for a larger share of total value-added. Moreover, today’s cutting-edge technologies – such as robotics, artificial intelligence (AI), and bioengineering – are more complex than industrial machinery, and may be more difficult to copy. And, because intelligent machines can increasingly fill low-wage jobs, developing countries’ cost advantage may have been diminished significantly.

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Musk makes his latest victim. There’s one question that must always be asked in these cases: How much in subsidies does he get for this project? Articles that do not ask this should not be published, because they’re mere propaganda.

Elon Musk to Open Tesla R&D Plant in Greece (G.)

Elon Musk may have plans to colonise Mars but back on planet Earth he is extending his reach to Athens, by opening an engineering facility called Tesla Greece. Musk’s electric car business is an unsung success story for the Greek diaspora, with three of Tesla’s top designers boasting degrees from the National Technical University of Athens. Tesla’s plans for the country have such “game-changing potential” that the head of the Hellenic Entrepreneurs’ Association, Vasilis Apostolopoulos, has pledged to hand over his own industrial plant for free as a testing ground for new products.

Addressing delegates at the annual Delphi economic forum, Apostolopoulos said: “I have personally emailed Musk to welcome Tesla Greece … and to say that for the next 10 years I will give, at zero cost to his company, my group’s own industrial plant outside Corinth so that Greece can be on the frontline of global innovation.” Describing the move as a “vote of confidence” in the debt-stricken country, Apostolopoulos, who is chief executive of the Athens Medical Group, a leading private healthcare provider, said he was also prepared to offer full medical coverage for a year to all of Tesla Greece’s staff members and international staff visiting the country on company business.

“It is the least we can do to thank and welcome Mr Musk’s vote of confidence in Hellenic business, research and technology,” he told the Guardian. Outside the UK, the Netherlands and Germany, the electric car manufacturer has no presence in Europe. Its Greek office is expected to attract at least 50 engineers to run a research and development centre out of the state-run Demokritos Centre for Scientific Research. The centre is expected to act as a base for southeast Europe. “Greece has a strong electric motor engineering talent, and technical universities offering tailored programmes and specialised skills for electric motor technology,” a spokesperson told Electrek, a US news website.

It is understood that Tesla’s three Greek designers – principal motor designer Konstantinos Laskaris; motor design engineer Konstantinos Bourchas; and staff motor design engineer Vasilis Papanikolaou – are preparing to move back to Athens under the company’s plans. Demokritos has welcomed the news. “We are very happy to receive all the talented engineers who are returning to work beside us,” it said in a statement.

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In his book ‘Adults in the Room’, Yanis had nothing good about ‘the most powerful man in the EU’. Now, Wieser comes with an unverifiable and fully nonsensical story, that he knows even many Greeks will swallow hook line and sinker.

EU’s Wieser: Six Months Of Varoufakis Cost Greece €200 Billion (K.)

The first six months of the leftist-led SYRIZA government cost Greece around €200 billion, former Euro Working Group chief Thomas Wieser told the Delphi Economic Forum on Friday, describing that estimate as “safe” and “conservative.” In a discussion being moderated by the executive editor of Kathimerini, Alexis Papachelas, Wieser noted that the SYRIZA-led government was basically provoking Grexit from its rise in late January to July of that year. Wieser noted that in 2010, the German government decided that the participation of the IMF in the rescue program for Greece was necessary, noting that the Eurozone lacked the technical knowhow for that sort of program. He noted that former US President Barack Obama took an active role during Greece’s crisis, adding that then Treasury Secretary Jack Lew would call the Eurogroup chairman at the time, Jeroen Dijsselbloem up to five times a week.

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“..Somehow it turns out I’m the first white person to think about giving the land back since Marlon Brando..”

‘This Is All Stolen Land’: Canadian Offers To Share His With First Nations (G.)

Joel Holmberg had been batting the idea around for years. But the final decision came last month, as he scrolled through the online vitriol that erupted after a white farmer was acquitted of killing a young Cree man in the Canadian province of Saskatchewan. Holmberg turned to social media, but instead of joining in the often-vicious debate surrounding that case, he offered to share his family’s five-acre property in northern Alberta with a First Nations family. There would be no bills, no rent, he explained. Instead the family could join him, his wife and two children in living off the land; hunting, fishing and growing food.

“I wanted to offer some sort of hope,” said Holmberg. “It was really disgusting to see the way the racist people were speaking. I wanted to let them know that it’s not everyone in Canada that feels that way.” The invitation to share his acreage near Barrhead, about 100km north-west of Edmonton, seemed like a fair one. “We all know in our heart the truth, that this is all stolen land,” said the 45-year-old. “They’re our hosts and we’re their guests and they’ve been criminally abused for far too long and it has to stop.” Holmberg said his appreciation for First Nations culture began as a child growing up in British Columbia, when members of the Sinixt First Nation began bringing him along as they hunted and fished.

“I had the opportunity to do sweats with them and learn about their culture from them and learn about the real history of Canada,” he said. He continued to delve into Canada’s rich tapestry of indigenous cultures as he moved around the country, from the Northwest Territories to Manitoba and Saskatchewan. “They’re the kindest people I’ve ever met. They’ve been there for me in the worst times in my life when I needed help the most,” he said. “It is very clear to my family and I, that it is us that will be blessed by this thing happening most of all.”

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Apr 192016
 
 April 19, 2016  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  


G.G. Bain Pelham Park Railroad, City Island monorail, NY 1910

The Hole at the Center of the Rally: S&P Margins in Decline (BBG)
US Nonfinancial Debt Rises 3.5 Times Faster Than GDP (Mauldin)
Asia’s Rich Urged to Buy US Dollars (BBG)
It’s All Suddenly Going Wrong in China’s $3 Trillion Bond Market (BBG)
China Will Bring All The BRICS Tumbling Down (Forbes)
China March Home Prices Rise At Fastest Rate In Two Years (Reuters)
Why Obama Administration Tries to Keep 11,000 Documents Sealed (Matt Taibbi)
Obama Official: Seed Money That Created Al Qaeda Came From Saudi Arabia (P.)
Saudis Are Going For The Kill But The Oil Market Is Turning Anyway (AEP)
A New Map for America (NY Times)
No One Worries Enough About Black Swans (ZH)
Credit Suisse: Germany’s Large Surplus Is The Problem, Not the ECB (BBG)
Talks With Creditors To Resume But Athens Rejects Fresh Austerity (Kath.)
Every Move You Make Is Being Monitored (Whitehead)
The Elephant Cometh (Jim Kunstler)
Over 400 Migrants Drown On Their Way To Italy (Reuters)

“Without the Federal Reserve chipping in with quantitative easing, investors have to go back to valuations and earnings..”

The Hole at the Center of the Rally: S&P Margins in Decline (BBG)

Stocks are rising, the worst start to a year is a memory, and short sellers are getting pummeled. And yet something is going on below the surface of earnings that should give bulls pause. It’s evident in quarterly forecasts for the Standard & Poor’s 500 Index, where profits are declining at the steepest rate since the financial crisis relative to revenue. The divergence reflects a worsening contraction in corporate profitability, with net income falling to 8% of sales from a record 9.7% in 2014. Bears have warned for years that such a deterioration would sound the death knell for a bull market that is about two weeks away from becoming the second-longest on record even as productivity sputters and industrial output weakens.

While none of it has prevented stocks from advancing in seven of the last nine weeks, rallies have seldom weathered a decline in profitability as violent as this one – and the squeeze is often a bad sign for the economy, too. “Analysts have seen the string pull as far as it can go, and there is no way for it to go but to reverse for the moment,” said Barry James at James Investment Research in Xenia, Ohio. “Without the Federal Reserve chipping in with quantitative easing, investors have to go back to valuations and earnings, and both of those – one is high and the other is low – that’s not a very good recipe for stocks.” James said his firm is raising cash amid the recent rally in stocks.

While energy producers are expected to suffer the biggest contraction in margins because of plunging oil prices, with a 28% drop in sales accompanying a first-quarter loss, analyst predicted six of the other 10 S&P 500 industries will also report lower profitability. Financial and raw-materials companies will see income growth trailing sales by at least 12 percentage points.

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It’s just like China.

US Nonfinancial Debt Rises 3.5 Times Faster Than GDP (Mauldin)

In my recent Outside the Box, good friend Dr. Lacy Hunt of Hoisington Investment Management gave us more ammunition to take on those who just don’t seem to get that the endless piling up of debt is not a sustainable way to run an economy. The most striking feature of the US economy’s performance in 2015, according to Lacy, was a massive advance in nonfinancial debt that kept the economy stuck in the doldrums of subpar growth.

US nonfinancial debt rose 3.5 times faster than GDP last year. (Nonfinancial debt is the sum of household debt, business debt, federal debt, and state and local government debt. Lacy also points out unfavorable trends in each component of nonfinancial debt.

Household debt: Delinquencies in household debt moved higher even as financial institutions continued to offer aggressive terms to consumers, implying falling credit standards. Furthermore, the New York Fed said subprime auto loans reached the greatest%age of total auto loans in ten years. Moreover, they indicated that the delinquency rate rose significantly.

Business debt: Last year business debt, excluding off balance sheet liabilities, rose $793 billion, while total gross private domestic investment (which includes fixed and inventory investment) rose only $93 billion. Thus, by inference this debt increase went into share buybacks, dividend increases, and other financial endeavors…. When business debt is allocated to financial operations, it does not generate an income stream to meet interest and repayment requirements. Such a usage of debt does not support economic growth, employment, higher paying jobs, or productivity growth. Thus, the economy is likely to be weakened by the increase of business debt over the past five years.

Federal debt: US government gross debt, excluding off balance sheet items, gained $780.7 billion in 2015 or about $230 billion more than the rise in GDP…. The divergence between the budget deficit and debt in 2015 is a portent of things to come. This subject is directly addressed in the 2012 book The Clash of Generations, published by MIT Press, authored by Laurence Kotlikoff and Scott Burns. They calculate that on a net present value basis the US government faces liabilities for Social Security and other entitlement programs that exceed the funds in the various trust funds by $60 trillion. This sum is more than three times greater than the current level of GDP.

State and local government debt: State and local governments … face adverse demographics that will drain underfunded pension plans…. The state and local governments do not have the borrowing capacity of the federal government. Hence, pension obligations will need to be covered at least partially by increased taxes, cuts in pension benefits or reductions in other expenditures.

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The currency wars simmer on. Time for the vigilantes.

Asia’s Rich Urged to Buy US Dollars (BBG)

Money managers for Asia’s wealthy families are telling clients to buy U.S. dollars as a rally this year in regional currencies begins to sputter. Credit Suisse is advising its private-banking clients to bet the greenback will gain versus a basket of peers that includes the South Korean won, Taiwan dollar, Thai baht and Philippine peso. UBS said investors should buy the currency against the Singapore dollar and yen. Stamford Management, which oversees about $250 million for Asia’s rich, urged clients to buy the U.S. dollar each time it falls below S$1.35. The Monetary Authority of Singapore’s unexpected easing on April 14 has fueled speculation that other policy makers, concerned about a worsening global economic outlook, will follow suit.

A gauge of 10 Asian currencies excluding the yen has fallen 0.1% this month. The Bloomberg-JPMorgan Asia Dollar Index climbed 1.9% in the first three months of the year, the first gain in seven quarters, as traders adjusted bets on the timing of U.S. interest-rate increases. “We see good opportunity now to hedge against U.S. dollar strength after the strong rally in Asian currencies in the first quarter,” said Koon How Heng at Credit Suisse in Singapore. “There are risks that other Asian central banks may follow up with some more easing in the second half if their respective growth outlooks deteriorate further.” The prospect of renewed weakness in the Chinese yuan and two interest rate increases by the Federal Reserve in the second half of the year will boost the greenback, Heng said.

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“China’s aggregate financing – a broad measure of credit that includes corporate bonds – almost doubled from a year earlier to 2.34 trillion yuan [..] Yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year.”

It’s All Suddenly Going Wrong in China’s $3 Trillion Bond Market (BBG)

The unprecedented boom in China’s $3 trillion corporate bond market is starting to unravel. Spooked by a fresh wave of defaults at state-owned enterprises, investors in China’s yuan-denominated company notes have driven up yields for nine of the past 10 days and triggered the biggest selloff in onshore junk debt since 2014. Local issuers have canceled 60.6 billion yuan ($9.4 billion) of bond sales in April alone, while Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003. While bond yields in China are still well below historical averages, a sustained increase in borrowing costs could threaten an economy that’s more reliant on cheap credit than ever before.

The numbers suggest more pain ahead: Listed firms’ ability to service their debt has dropped to the lowest since at least 1992, while analysts are cutting profit forecasts for Shanghai Composite Index companies by the most since the global financial crisis. “The spreading of credit risks is only at its early stage in China,” said Qiu Xinhong at First State Cinda Fund Management. “Many people have turned bearish.” China’s leaders face a difficult balancing act. On one hand, allowing troubled companies to default forces investors to pay more attention to credit risk and accelerates government efforts to curb overcapacity. The danger, though, is that investor panic leads to tighter credit conditions, dealing a blow to President Xi Jinping’s plan to keep the economy growing by at least 6.5% over the next five years.

Economic figures for March reveal a growing dependence on debt. China’s aggregate financing – a broad measure of credit that includes corporate bonds – almost doubled from a year earlier to 2.34 trillion yuan, exceeding all 24 forecasts in a Bloomberg survey as policy makers turned on the taps to support economic growth. Yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year. Three of those were part-owned by China’s government, seen not long ago as a provider of implicit guarantees for bondholders. Dongbei Special Steel on April 13 missed a third payment since its chairman was found dead by hanging last month, while Chinacoal Group failed to make a distribution on April 6.

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And not just the BRICS.

China Will Bring All The BRICS Tumbling Down (Forbes)

The concept of the BRICs isn’t heard much these days beyond some cooperative institution building efforts. Originally a Goldman Sachs authored attempt to identify growth opportunities for investors (referring to Brazil, Russia, India and China), it was picked up by those countries to symbolise a hoped-for rotation in the world order: away from the old hierarchy of the West and the Rest, towards a more balanced configuration of global economic progress. For inclusiveness, the ‘s’ was eventually capitalised into ‘South Africa’ so that the African continent was not left out. With hindsight, it remains curious that the idea was ever taken seriously beyond the confines of investor advice. The nominated states have little in common, although the public diplomacy of developing economy cooperation has a lingering appeal.

The Russian economy was always based largely on hydrocarbons, and Brazil’s expansion was a broader commodity play. Each, therefore, nurtured an important relationship with China. Now, though, as commodity prices have sunk, China is the only buyer left and has no qualms about driving a hard bargain. Massive Chinese infrastructure investment created the temporary illusion of wealth while global debt levels grew relentlessly. The commodity curse then undermined real economic progress around the world, as elites chased diminishing surplus for patronage and popularity. This has left producers exposed; one – Venezuela – rapidly becoming a wasteland. In other countries, what limited democracy there was has been hollowed out, leaving Russia in a state of egregious industrial and demographic decline, and Brazil confirming stereotypes about Latin American corruption.

All because the orders are drying up and the money has run out. Both Brazil and Russia are facing the possibility of imminent collapse. India, by contrast, is its own story, a perpetual tale of slow promise that plays tortoise to China’s hare. The only real story behind the BRICs was always just the ‘C,’ as in China, and the huge investment boom that powered commodity prices towards the fantasy of a ‘super-cycle’ – another word we don’t hear much anymore – drove the whole world mad. There was money for social programs in Brazil to lift up the poor, money for Putin’s new model army in Russia to restore imperial prestige, and money for the Olympics and World Cup in both countries. Then there was money for London palaces, money for Panamanian bank accounts, money for small wars and some leftover for the supposed institutions of a ‘new world order,’ since deferred.

Now, China’s policy dilemma belongs to everyone. Having spent 15 years sucking consumption and investment from everywhere, China now has a productive capacity it cannot possibly sustain, and faces a world reluctant any longer to make up for the deficiencies in Chinese demand. It therefore confronts a build up of debts it will struggle to pay and investors who expect a return they may not receive.

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Beijing still can’t seem to see the danger.

China March Home Prices Rise At Fastest Rate In Two Years (Reuters)

China’s home prices in March gained at the fastest pace in almost two years but that growth may slow as local authorities tighten home purchase requirements in the two top performing cities on fears of a bubble forming. The southern city of Shenzhen continued to be the top performer, with home prices surging 61.6% from a year ago, followed by Shanghai with a 25% gain. Prices in the two cities were up 3.7% and 3.6% respectively from a month earlier. Average new home prices in 70 major cities rose 4.9% last month from a year ago, picking up from February’s 3.6% rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) on Monday. March prices were up 1.1% compared to a month ago.

China’s housing market bottomed out in the second half of 2015 on a series of government support measures, but a strong rebound in prices in the biggest cities has sparked concerns that some markets may be overheating, driving Shanghai and Shenzhen’s authorities to tighten downpayment requirements for second homes and raising the eligibility bar for non-residents. While home sales in the two cities plunged as much as 52% after the tightening, prices eased only by single digit, according to data from China Real Estate Index System (CREIS). April’s official data, which will reflect the impact of the tightening measures, is due to be released in mid-May. Area of property sold in the first quarter grew 33.1% to a near three-year high, according to data from the National Bureau of Statistics (NBS) on Friday.

While property in China’s top-tier cities is booming, prices in smaller centers, where most of China’s urban population lives, are still sinking and complicating government efforts to spread wealth more evenly and arrest slowing economic growth. “(Monthly) price rises among cities still showed big differences. Cities with big rises were concentrated in the first-tier and, in part, the hot tier-two cities. Their growth is much faster than other cities, with the rest of the second-tier and third-tier cities relatively stable,” Liu Jianwei, a senior statistician at the NBS, said in a statement accompanying the data. The NBS data showed 40 of 70 major cities tracked by the NBS saw year-on-year price gains, up from 32 in February.

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Another A-class piece from Taibbi.

Why Obama Administration Tries to Keep 11,000 Documents Sealed (Matt Taibbi)

[..] Even after the state took over the companies in September of 2008, Fannie and Freddie continued to buy as much as $40 billion in bad assets per month from the private sector. Fannie and Freddie weren’t just bailed out, they were themselves a bailout, used to sponge up the sins of private firms. The original takeover mechanism was a $110 billion bailout, followed by a move to place Fannie and Freddie in conservatorship. In exchange, the state received an 80% stake and the promise of a future dividend. All told, the government ended up pumping about $187 billion into the companies. But now here’s the strange part. Within a few years after the crash, the housing markets improved significantly, to the point where Fannie and Freddie started to make money again. Lots of money. The GSEs became cash cows again, and in 2012 the government unilaterally changed the terms of the bailout.

Now, instead of taking a 10% dividend, the government decided that the new number it preferred was 100%. The GSE regulator, the Federal Housing Finance Agency (FHFA), explained the new arrangement. “The 10% fixed-rate dividend was replaced with a variable structure, essentially directing all net income to the Treasury,” the FHFA wrote. “Replacing the current fixed dividend in the agreements with a variable dividend based on net worth helps ensure stability [and] fully captures financial benefits for taxpayers.” “I’m not worried about Fannie and Freddie’s health,” said former House Financial Services Committee chair Barney Frank. “I’m worried that they won’t do enough to help out the economy.” Translation: We’re taking all your money, not just the money you owe. In court filings later on, the government offered a strange excuse for this sudden and dramatic change in the bailout terms. It explained that at the time, the GSEs “faced enormous credit losses” and “found themselves in a death spiral.”

The government claimed that the poor financial condition of the GSEs would force the Treasury to throw more money at the operations, increasing the total commitment of taxpayers and leading quickly to insolvency. It absolutely denied any foreknowledge that the firms were on the verge of massive profitability. It got weirder. Despite the fact that the GSEs went on to pay the government $228 billion over the next three years, or $40 billion more than they owed, none of that money went to paying off Fannie and Freddie’s debt. When Sen. Chuck Grassley asked aloud how it was that the company and its shareholders were not yet square with the government, the Treasury Department testily answered, in essence, that the bailout had not been a loan, but an investment. This was not a debt that could be paid back. Like a restaurant owner who borrows money from a mobster, the GSEs found themselves in an unseverable relationship.

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Obama visits SA on Wednesday…

Obama Official: Seed Money That Created Al Qaeda Came From Saudi Arabia (P.)

President Barack Obama’s deputy national security adviser said that the government of Saudi Arabia had paid “insufficient attention” to money that was being funneled into terror groups and fueled the rise of Al Qaeda. Ben Rhodes was speaking to David Axelrod in his podcast “The Axe Files” out Monday when he was asked about the validity of the accusation that the Saudi government was complicit in sponsoring terrorism. “I think that it’s complicated in the sense that, it’s not that it was Saudi government policy to support Al Qaeda, but there were a number of very wealthy individuals in Saudi Arabia who would contribute, sometimes directly, to extremist groups. Sometimes to charities that were kind of, ended up being ways to launder money to these groups,” Rhodes said.

“So a lot of the money, the seed money if you will, for what became Al Qaeda, came out of Saudi Arabia,” he added. “Could that happen without the government’s awareness?” Axelrod asked. Rhodes said he doesn’t believe the government was “actively trying to prevent that from happening.” But he said that certain people, within the government or their family members, were able to operate on their own which allowed for the money flows. “So basically there was, at certainly, at least kind of a insufficient attention to where all this money was going over many years from the government apparatus,” Rhodes said. The remarks from Rhodes come as Obama prepares to head to Saudi Arabia on Wednesday and confront the strained relations between the two allies.

The Saudis are still fuming over an Atlantic magazine article that described Obama’s frustrations with Saudi Arabia’s religious ideology, its treatment of women and its rivalry with Iran. Obama also suggested in the piece that Saudi Arabia and other Gulf Arab states are “free riders” who rely too much on the U.S. military. Friction has also been created by a push from relatives of people who died on 9/11 and a bipartisan group of lawmakers to allow U.S. courts to hold the Saudi government responsible if it is found to have played a role in the 2001 attacks.

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Ambrose is always hit and miss. This one is BIG miss: “The scare earlier this year was misguided. It is the next oil supply crunch we should fear most.” No, it’s demand.

Saudis Are Going For The Kill But The Oil Market Is Turning Anyway (AEP)

The collapse of OPEC talks with Russia over the weekend makes absolutely no difference to the balance of supply and demand in the global oil markets. The putative freeze in crude output was political eyewash. Hardly any country in the OPEC cartel is capable is producing more oil. Several are failed states, or sliding into political crises. Russia is milking a final burst of production before the depleting pre-Soviet wells of Western Siberia go into slow run-off. Sanctions have stymied its efforts to develop new fields or kick-start shale fracking in the Bazhenov basin. Saudi Arabia’s hard-nosed decision to break ranks with its Gulf allies at the meeting in Doha – and with every other OPEC country – punctures any remaining illusion that there is still a regulating structure in global oil industry.

It told us that the cartel no longer exists in any meaningful sense. Beyond that it was irrelevant. Hedge funds were clearly caught off guard by the outcome since net ‘long’ positions on the futures markets were trading at a record high going into the meeting. Brent crude plunged 7pc to $41 a barrel in early Asian trading, but what is more revealing is how quickly prices recovered. Market dynamics are changing fast. Output is slipping all over the place: in China, Latin America, Kazakhstan, Algeria, the North Sea. The US shale industry has rolled over, though it has taken far longer than the Saudis expected when they first flooded the market in November 2014. The US Energy Department expects total US output to drop to 8.6m barrels per day (b/d) this year from 9.4m last year.

China is filling up the new sites of its strategic petroleum reserves at a record pace. Its oil imports have jumped to 8m b/d this year from 6.7m in 2015, soaking up a large part of the global glut. Some is rotating back out again as diesel: most is being consumed in China. Goldman Sachs says the twin effect of rising demand and supply disruptions across the world is bringing the market back into balance, leading to a “sustainable deficit” as soon as the third quarter. The inflexion point could come sooner than almost anybody expects if a strike this week in Kuwait drags on as oil workers fight pay cuts. The outage is already costing 1.6m b/d. Kuwait’s woes are the first taste of how difficult it will be for the petro-sheikhdoms to impose austerity measures or threaten the cradle-to-grave social contracts that keep a lid on dissent across the Gulf.

There is little doubt that Mohammad bin Salman, the deputy-crown prince and de facto ruler of Saudi Arabia, wanted an excuse to sabotage the Doha deal. He added a fresh demand that non-OPEC Norway should also limit output – a non-starter – as well as hardening the Saudi objection to Iran’s full return to pre-sanctions output. The calculus is that his country has the deepest pockets and will ultimately stand to gain by shaking out weaker players. This is a gamble. Saudi Arabia is running through $10bn of foreign exchange reserves a month to plug its fiscal deficit. The fixed riyal peg makes it much harder to roll with the budgetary punches as Russia is able to do with the floating rouble. Saudi Arabia is not as rich as often supposed. Per capita income is the same as in Greece. Standard & Poor’s has cut its credit rating twice to A-, and for good reason. The Saudis never built up a proper sovereign wealth fund in good times. Their reserve coverage is two-thirds less than in Kuwait, or Abu Dhabi.

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Decentralization goes global.

A New Map for America (NY Times)

These days, in the thick of the American presidential primaries, it’s easy to see how the 50 states continue to drive the political system. But increasingly, that’s all they drive — socially and economically, America is reorganizing itself around regional infrastructure lines and metropolitan clusters that ignore state and even national borders. The problem is, the political system hasn’t caught up. America faces a two-part problem. It’s no secret that the country has fallen behind on infrastructure spending. But it’s not just a matter of how much is spent on catching up, but how and where it is spent. Advanced economies in Western Europe and Asia are reorienting themselves around robust urban clusters of advanced industry. Unfortunately, American policy making remains wedded to an antiquated political structure of 50 distinct states.

To an extent, America is already headed toward a metropolis-first arrangement. The states aren’t about to go away, but economically and socially, the country is drifting toward looser metropolitan and regional formations, anchored by the great cities and urban archipelagos that already lead global economic circuits. The Northeastern megalopolis, stretching from Boston to Washington, contains more than 50 million people and represents 20% of America’s gross domestic product. Greater Los Angeles accounts for more than 10% of G.D.P. These city-states matter far more than most American states – and connectivity to these urban clusters determines Americans’ long-term economic viability far more than which state they reside in. This reshuffling has profound economic consequences.

America is increasingly divided not between red states and blue states, but between connected hubs and disconnected backwaters. Bruce Katz of the Brookings Institution has pointed out that of America’s 350 major metro areas, the cities with more than three million people have rebounded far better from the financial crisis. Meanwhile, smaller cities like Dayton, Ohio, already floundering, have been falling further behind, as have countless disconnected small towns across the country. The problem is that while the economic reality goes one way, the 50-state model means that federal and state resources are concentrated in a state capital – often a small, isolated city itself – and allocated with little sense of the larger whole. Not only does this keep back our largest cities, but smaller American cities are increasingly cut off from the national agenda, destined to become low-cost immigrant and retirement colonies, or simply to be abandoned.

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Taleb’s take-down of Noah Smith on Twitter has been epic.

No One Worries Enough About Black Swans (ZH)

Over the weekend, Bloomberg View’s quasi-economist wrote his latest laughable article, one which supposedly “explained” how “Everyone Worries Too Much About ‘Black Swans'”, which in addition to being a rambling, meandering stream of consciousness that as is regularly the case with this particular author, made little sense, sparked a Twitter feud with the Nassim Taleb, the person who made the concept of a Black Swan into a household name. We were therefore very amused to note that none other than former FX trader and fund manager, Richard Breslow, who also writes for Bloomberg, seemingly had an epileptic fit upon reading the abovementioned drivel and wrote his own scathing reaction from the perspective of an actual trader, a rection which not only threw up on every argument of the so-called economist’s logic, but on everything else that now is passed off simply as, well, “the new normal.” Here is Richard Breslow:

No One Worries Enough About Black Swans

Trading is a hard business. The world is becoming a more complicated place: a number out of China may do more to the price of your U.S. shares in a retailer than, well, U.S. retail sales. Yet creeping, dangerously, into the investment advice dialog is the argument that buying and holding no matter what the event is the winning strategy. If you ever needed a “past results don’t guarantee…” disclaimer it’s especially true now. It’s not surprising that such shallow reasoning is becoming commonplace. Sure beats staying late at the office doing cash-flow analysis. Bad things happen and the Fed will cut rates. Worked time and again. Presto chango, that financial crisis was a buying event, stupid.

It’s gotten much worse post the latest financial crisis, as it’s assumed asset prices are the main (sole) focus of the all powerful central banks. To buy (pun intended) into this you have to presuppose that Black Swan events are easily controllable episodes that last short amounts of time. That the authorities have unlimited firepower to counteract every natural and man-made disaster. Equally scary, academics as well as analysts have taken to arguing that investors are overestimating the probability of crisis events. You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years. Did a crisis happen, if you made money?

This flawed logic argues not only buy every dip, but why waste money on hedges? It assumes unlimited deep pockets and the nerve of a non-sentient computer. Just go “all in.” Looking more like today’s world all the time. Portfolio theory thrown right out the window. Perhaps Harry Markowitz will have his Nobel revoked. A portfolio built to only withstand stress thanks to central bank intervention is one destined to blow-up spectacularly. The embedded flaw in this new logic is that central banks give investors perfect foresight. And nothing can go wrong. Re-read the Investment Process section of those prospectuses.

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“His words sounded like a request of a bailout for his countries’ saving industry and savers, in an ironic twist from previous bailout requests coming from the periphery.”

Credit Suisse: Germany’s Large Surplus Is The Problem, Not the ECB (BBG)

Forget about Greek debt sustainability. Another part of the continent is in need of relief—and this time, it’s a part of the core, not the periphery. That’s how Credit Suisse analysts led by Peter Foley characterized comments from German Finance Minister Wolfgang Schaeuble earlier this month. “The German Finance minister said record low interest rates were causing ‘extraordinary problems’ for German financial institutions and pensioners and risked undermining voters’ support for European integration,” writes Foley. “His words sounded like a request of a bailout for his countries’ saving industry and savers, in an ironic twist from previous bailout requests coming from the periphery.” A common criticism of unconventional central bank policy is that the ultra-low interest rates are too onerous for savers. At present, the average German bund yield is barely above zero:

Some analysts have expressed more than a modicum of sympathy for Schaeuble’s position, indicating that the ECB’s policy represents a form of John Maynard Keynes’ prophesied ‘euthanasia of the rentier’ and is not justified by its positive side effects. But instead of blaming the ECB, Foley suggests that German fiscal policymakers should pull the levers at their disposal to help remedy this situation. “Germany has continued to run a large current account surplus, and has increased it further–from 5.7% of GDP in 2009 to 8.5% in 2015,” wrote the analyst, noting that this surplus constituted the largest imbalance among major economies by this metric. “In an environment short on aggregate demand, Germany’s surplus is a problem, both globally and to the rest of the euro area.”

Foley recommends that the German authorities move to more aggressively reduce financial imbalances by increasing public investment, support private demand in certain soft segments, and implement more structural reforms. This would support Germany’s growth as well as that of its European partners, and as an added bonus, would address Schauble’s concerns about the woes of savers all in one fell swoop, the analyst concludes, by lessening the ECB’s need to support the currency union with unconventional stimulus.

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I see a hot summer.

Talks With Creditors To Resume But Athens Rejects Fresh Austerity (Kath.)

With talks set to resume on Tuesday with Greece’s international creditors, Athens said on Monday it has no intention of implementing austerity measures beyond the commitments it signed on to in the third bailout last July and plans to seek “allies” among European countries that believe now is not the time create political instability in Greece. Government spokeswoman Olga Gerovasili said on Monday that Athens will abide by the commitments it made last July, “nothing more, nothing less.” Her comments came after the IMF and the EU, which overcame their differences at the weekend over Greece’s budgetary outlook, took the wind out of the government’s sails by seeking another package of austerity measures to the tune of more than €3 billion (or 2% of GDP) in case there are target shortfalls over the next three years as a “guarantee” that Greece will achieve a primary budget surplus of 3.5% of GDP in 2018.

The government’s apparent defiance on Monday is a departure from its initial response at the weekend, when it implied that it could be open to discussion over the new measures – which relate to 2018 – as long as it received reassurances that it will get debt relief. Failure to wrap up the review could see negotiations drag on into June, which would put a further strain on the SYRIZA-led coalition’s fragile government, already struggling to stay afloat with a very slim majority of three deputies in Parliament. However, the new turn of events could foil the government’s ambitions, which include reaching a staff level agreement by Friday’s Eurogroup meeting in Amsterdam, to unlock vital tranches of rescue funds and pave the way for debt relief talks – a key demand by Greece.

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“..Simply by liking or sharing this article on Facebook or retweeting it on Twitter, you’re most likely flagging yourself as a potential renegade, revolutionary or anti-government extremist—a.k.a. terrorist.”

Every Move You Make Is Being Monitored (Whitehead)

“The way things are supposed to work is that we’re supposed to know virtually everything about what [government officials] do: that’s why they’re called public servants. They’re supposed to know virtually nothing about what we do: that’s why we’re called private individuals. This dynamic – the hallmark of a healthy and free society – has been radically reversed. Now, they know everything about what we do, and are constantly building systems to know more. Meanwhile, we know less and less about what they do, as they build walls of secrecy behind which they function. That’s the imbalance that needs to come to an end. No democracy can be healthy and functional if the most consequential acts of those who wield political power are completely unknown to those to whom they are supposed to be accountable.” – Glenn Greenwald

 

Government eyes are watching you. They see your every move: what you read, how much you spend, where you go, with whom you interact, when you wake up in the morning, what you’re watching on television and reading on the internet. Every move you make is being monitored, mined for data, crunched, and tabulated in order to form a picture of who you are, what makes you tick, and how best to control you when and if it becomes necessary to bring you in line. Simply by liking or sharing this article on Facebook or retweeting it on Twitter, you’re most likely flagging yourself as a potential renegade, revolutionary or anti-government extremist—a.k.a. terrorist. Yet whether or not you like or share this particular article, simply by reading it or any other articles related to government wrongdoing, surveillance, police misconduct or civil liberties is enough to get you categorized as a particular kind of person with particular kinds of interests that reflect a particular kind of mindset that might just lead you to engage in a particular kinds of activities.

Chances are, as the Washington Post reports, you have already been assigned a color-coded threat score—green, yellow or red—so police are forewarned about your potential inclination to be a troublemaker depending on whether you’ve had a career in the military, posted a comment perceived as threatening on Facebook, suffer from a particular medical condition, or know someone who knows someone who might have committed a crime. In other words, you might already be flagged as potentially anti-government in a government database somewhere—Main Core, for example—that identifies and tracks individuals who aren’t inclined to march in lockstep to the police state’s dictates. The government has the know-how.

As The Intercept recently reported, the FBI, CIA, NSA and other government agencies are increasingly investing in and relying on corporate surveillance technologies that can mine constitutionally protected speech on social media platforms such as Facebook, Twitter and Instagram in order to identify potential extremists and predict who might engage in future acts of anti-government behavior. Now all it needs is the data, which more than 90% of young adults and 65% of American adults are happy to provide.

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“This will go on until it can’t, which is what discontinuity is all about.”

The Elephant Cometh (Jim Kunstler)

The elephant’s not even in the room, which is why the 2016 election campaign is such a soap opera. The elephant outside the room is named Discontinuity. That’s perhaps an intimidating word, but it is exactly what the USA is in for. It means that a lot of familiar things come to an end, stop, don’t work the way they are supposed to — beginning, manifestly, with the election process now underway in all its unprecedented bizarreness. One reason it’s difficult to comprehend discontinuity is because so many operations and institutions of daily life in America have insidiously become rackets, meaning that they are kept going only by dishonest means. If we didn’t lie to ourselves about them, they couldn’t continue.

For instance the automobile racket. Without a solid, solvent middle-class, you can’t sell cars. Americans are used to paying for cars on installment loans. If the middle class is so crippled by prior debt and the disappearance of good-paying jobs that they can’t qualify for car loans, well, the answer is to give them loans anyway, on terms that don’t really pencil out — such as 7-year loans at 0% interest for used cars (that will be worth next to nothing long before the loan expires). This will go on until it can’t, which is what discontinuity is all about. The car companies and the banks (with help from government regulators and political cheerleaders) have created this work-around by treating “sub-prime” car loans the same way they treated sub-prime mortgages: they bundle them into larger packages of bonds called collateralized loan obligations.

These, in turn, are sold mainly to big pension fund and insurance companies desperate for “yield” (higher interest) on “safe” investments that ostensibly preserve their principal. The “collateral” amounts to the revenue streams of payments that are sure to stop because the payers are by definition not credit-worthy, meaning it was baked in the cake that they would quit making payments — especially when they go “under water” owing ever more money for junkers that have lost all value. It’s easy to see how that ends in tears for all concerned parties, but we “buy into it” because there seems to be no other way to a) boost the so-called “consumer” economy and b) keep the matrix of car-dependant suburban sprawl in operation. We took what used to be a fairly sound idea during a now-bygone phase of history, and perverted it to avoid making any difficult but necessary changes in a new phase of history.

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There is a very strange silence in western media about this.

Over 400 Migrants Drown On Their Way To Italy (Reuters)

Somalia’s government said on Monday about 200 or more Somalis may have drowned in the Mediterranean Sea while trying to cross illegally to Europe, many of them teenagers, when the boat they were on capsized after leaving the Egyptian shore. Italian President Sergio Mattarella had said earlier on Monday that several hundred people appeared to have died in a new tragedy in the Mediterranean, after unconfirmed reports spoke of up to 400 victims of capsizing near Egypt’s coast. More than 1.2 million African, Arab and Asian migrants have streamed into the EU since the start of last year, many of them setting off from North Africa in rickety boats that are packed full of people and which struggle in choppy seas.

“We have no fixed number but it is between 200 and 300 Somalis,” Somali Information Minister Mohamed Abdi Hayir told Reuters by telephone when asked about possible Somali deaths in the latest incident. Another Somali government statement, which offered condolences, put the number at “nearly 200”, saying they were mostly teenagers. It said the boat they were on had capsized after leaving Egypt. “There is no clear number since they are not traveling legally,” the minister said, adding that he understood the boat might have been carrying about 500 people, of which 200 to 300 were Somalis “and most of them had died”. He did not give a precise timing for the incident.

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