Mar 012018
 
 March 1, 2018  Posted by at 11:03 am Finance Tagged with: , , , , , , , , , , ,  


Paramount Theater, Times Square NYC 1956

 

Donald Trump Stuns Allies By Signalling Backing For Tighter Gun Control (G.)
Members of Congress Are Petrified of The NRA, Says Trump (Ind.)
Where Did The Republican Trump-Haters Go? (BBC)
This Has Predicted Every Market Crash in History (Bonner)
US January Pending Home Sales Crash Most Since 2010 (ZH)
Hawk Or Dove? Fed’s Powell Showed Markets Both Sides In Debut (R.)
Trump Says US Will Use “All Available Tools” To Pressure China On Trade (BBG)
South Korea Cuts 68-Hour Working Week (G.)
John Major Tears Into Theresa May’s ‘Grand Folly’ Brexit Strategy (Ind.)
Russia Says US Is Training Europe To Use Nuclear Weapons Against It (CNBC)
American Hellenic Institute Urges Trump To Condemn Turkish Aggression (K.)
Greece Loosens Capital Controls, Raises Cash Withdrawal Limit (R.)
Greek Jan-Feb 2018 Retail Sales Down 8.8% y-o-y (K.)

 

 

I don’t normally like to open Debt Rattles with politics, but this leads the news.

Trump’s stance here should be a huge opening for Democrats, but it can’t be: they‘re too far gone in their demonizing of him. So if nothing happens -again- you’re going to have to wonder whose fault that is.

Note: a first reaction to a school shooting is easy, but you are talking fiddling with about the US constitution here.

Donald Trump Stuns Allies By Signalling Backing For Tighter Gun Control (G.)

Donald Trump has repeatedly endorsed a series of gun control proposals that put the Republican president at odds with the National Rifle Association and stunned lawmakers within his own party. The president made the remarks during an extraordinary, hour-long White House meeting on Wednesday with congressional Republicans and Democrats who are under pressure to address gun violence in the aftermath of the massacre at a Florida high school earlier this month. During the meeting, Trump called for a “beautiful” comprehensive bill that would expand background checks on gun purchases, remove guns from the hands of the mentally ill, bolster security on school campuses and restrict young people from purchasing certain weapons.

Within hours of the meeting’s conclusion, conservatives and some Republicans turned on Trump, who was elected with broad support from the gun lobby and claimed on Wednesday that the National Rifle Association had “no bigger fan”. Breitbart, the far-right news organization that fanned the flames of Trump’s rise, denounced the president as a “gun grabber” who “cedes” to Democrats. [..] Trump, who ran the meeting like a boardroom CEO, pointing at lawmakers for updates on their legislation, called on Congress to be “very strong” on background checks, repeatedly offering his support for a plan that failed to pass the Senate in April 2013, months after a gunman killed 20 young children and six staff members at Sandy Hook elementary school.

“You have to be very, very powerful on background checks. Don’t be shy,” Trump said during the televised session. He added: “I’d rather have you come down on the strong side than the weak side. The weak side is easier to do.” Two senators, Democrat Joe Manchin and Republican Pat Toomey, both of whom attended the meeting, plan to reintroduce their bill that would have imposed universal background checks for commercial gun purchases, including at gun shows and over the internet. 84% of Americans favor such a law [..] In a surprising exchange with Toomey, Trump asked if his measure included a provision to raise the age to buy assault weapons from 18 to 21. Toomey replied that it did not, and Trump shot back: “You know why? Because you’re afraid of the NRA.”

Trump rejected a demand by conservatives in the House that this so-called Fix Nics bill be paired with controversial concealed carry legislation, which is favoured by the NRA and would loosen restrictions by enabling gun owners with concealed-carry permits in their home states to take their firearms across state lines. “If you add concealed carry to this, you’ll never get it passed,” Trump told Steve Scalise, the House majority whip, who was last summer by a gunman targeting a congressional baseball practice. “Let it be a separate thing.” Trump repeatedly berated his Republican colleagues, accusing them of being afraid of the NRA, and appeared to take pleasure in stating his willingness to take on the gun lobby. “Some of you people are petrified of the NRA. You can’t be petrified,” he said.

Read more …

And they get their funding there.

Members of Congress Are Petrified of The NRA, Says Trump (Ind.)

President Donald Trump has accused members of Congress of being afraid of the National Rifle Association (NRA), as he called for an increase in the minimum age for buying a rifle. “[The NRA] has great power,” Mr Trump said at a bipartisan meeting with members of Congress on school safety. “They have great power over you people. They have less power over me. I don’t need it. What do I need? But I’ll tell you, they are well-meaning … We have to do what is right.” Members of Congress have again been anxious to find a solution to prevent mass shootings after an alleged 19-year-old gunman on Valentine’s Day open fired at Marjorie Stoneman Douglas high school in Florida, killing 17 people.

On the first day students of the school resumed their lessons following the shooting, several legislators gathered at the White House to discuss school safety and legislation aimed at combatting gun violence. One such proposal, drafted by Republican Senator Pat Toomey and Democratic Senator Joe Manchin, is primarily focused on expanding background checks for gun purchases. Mr Trump asked Mr Toomey about a proposal to raise the age limit for purchasing assault weapons from 18 to 21, a measure the NRA does not support.

“Now, this is not a popular thing in terms of the NRA, but I’m saying it anyway,” Mr Trump said. “Right now, you have to wait to buy a handgun until you’re 21, but you can buy the type of weapon used in a school shooting at 18. I can say the NRA is opposed to it… These are great patriots, they love our country, but that doesn’t mean we have to agree on it.” Mr Toomey said the age issue is not addressed in his bill with Mr Manchin. “You know why, because you’re afraid of the NRA,” the President responded.

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This fits in nicely with the gun issue. Scott “Dilbert” Adams’ view on Twitter: “Persuasion Phase 1 is complete. He’s coming for Democrats next.”

Where Did The Republican Trump-Haters Go? (BBC)

Once upon a time there was an active, vocal resistance among conservatives to the prospect of Donald Trump’s presidency. One year in, and the signs of dissent are rapidly fading. On Friday morning at the Conservative Political Action Conference on the outskirts of Washington, DC, Donald Trump took the stage and reminded the packed hall just how far he’d come. “Remember when I first started running?” the president asked. “People said, ‘Are you sure he’s a conservative?’ I think I proved I’m a conservative.” Mr Trump then launched into nearly an hour and a half of his trademark campaign-style oratory, often acknowledging that he was deviating from his “boring” speech text. On script and off, however, it was clear his intended objective was to drive home the point that he has governed as a true conservative.

He boasted of his tax cuts, right-wing judicial nominations, regulatory rollbacks and defence of religious liberty. Those are the sort of accomplishments attendees of this annual conference of young Republicans, grassroots activists, party functionaries, conservative media pundits, assorted merchants and special interests longed for through eight years of the Obama presidency, and now they’re getting. That’s got to make them thrilled, right? Well, sort of. According to straw poll of conference attendees, 93% approve of the job Mr Trump is doing in the White House. It’s a number not too far from the 80% of Republicans across the US who continue to tell pollsters they support the president. That, as the president acknowledged, was not always the case.

In 2016 – at the beginning of his long march to the Republican nomination and the presidency, Mr Trump abruptly cancelled an appearance at Cpac when faced with the prospect of a walkout from “never-Trump” conservatives. [A 2015] straw poll had Mr Trump as the presidential pick of just 3.5% of attendees, in eighth place, far behind libertarian-leaning Senator Rand Paul’s 25.7%. Another Republican presidential hopeful at that conference, former Texas Governor Rick Perry, would just a handful of months later describe Mr Trump’s politics as “a toxic mix of demagoguery and mean-spiritedness and nonsense” and call his candidacy a “cancer on conservatism”. Last week, Mr Perry – now Mr Trump’s energy secretary – was back at Cpac, referring to himself as “footsoldier in the army”. Donald Trump’s army, that is.

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Should that say “predicted after the fact”? (From Bill Bonner, Mish and Semper Augustus)

This Has Predicted Every Market Crash in History (Bonner)

“Buy the dip” has worked for the last 38 years. And now, investors are more than 100% convinced that it will work again. But they are wrong. Semper Augustus: “Every major stock market decline and every recession in the last 100 years was preceded by the Federal Reserve raising short-term interest rates by enough to provide the pin to prick the balloon. Note the emphasis on every. Yes, there have been periods where the Fed raised rates and a recession didn’t ensue. Everyone knows the famous saying about the stock market having predicted nine of the past five recessions! That may be true, that rising rates don’t necessarily cause a recession. But as an investor, you must be aware that every major stock market decline occurred on the heels of a tightening phase by the Fed. More importantly, there have been no substantive Fed tightening phases that did not end with a stock market decline”.


Going back to 1950, every U.S. recession (gray shaded area) has been preceded by the Fed hiking interest rates

A little debt may be a good thing; a lot of it is not. At a certain point, you have more than “too much debt,” and it becomes toxic. Where exactly in the cycle we are, we don’t know. But our guess is we are already way beyond the place where we are fully indebted. This is an economy built on debt. The whole capital structure – stocks, bonds, and real estate – now depends on excess debt… and more of it. In a correction, the only way to stop stock prices from falling and the economy from shrinking is to bring in some more debt. But when you do that a few times, you are soon beyond Peak Debt… which is to say, you’re way over the legal limit.

Debt has been growing three to six times faster than income for more than an entire generation. This makes the old 1.5-to-1 ratio of debt to income seem quaint. It is now 3.5-to-1 nationwide. Which is why deficits still matter. Every penny in debt that we add now is a penny that cannot be repaid, not by any plausible combination of economic projections. Because there is no way to “grow your way out of debt” when your income is falling while your debt is still increasing. Instead, you have to suffer the indignities of a correction, including a major reset in the stock market. That’s what happens when stocks that are more than fully priced meet a debt load that is beyond 100% of capacity.

Read more …

As noted earlier, new home sales were down 33.3% in the northeast. Pending home sales feel by 9% there.

US January Pending Home Sales Crash Most Since 2010 (ZH)

After New- and Existing-Home-Sales have already disappointed, Pending Home-Sales just collapsed too (to the lowest since Oct 2014) to confirm January was a bloodbath for the real estate market. Pending Home Sales plunged 4.7% in January (massively below the 0.5% expected rise in sales) – this is the biggest drop since May 2010. Year-over-year Pending home sales are down 1.7%. Purchases fell 9% in the Northeast, 6.6% in the Midwest, 3.9% in the South and 1.2% in the West.

NAR is desperate to convince home-buyers and sellers that this is nothing but an inventory issue, but it is affordability that is the real driver here. “There’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” Lawrence Yun, NAR’s chief economist, said in a statement. “With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment.” So, will higher rates break housing market momentum? The following chart suggest ‘yes’ – that surge in rates will have a direct impact on home sales (or prices will be forced to adjust lower) as affordability collapses…

And Homebuilder stocks are starting to look a lot less invincible…

As Bloomberg notes, economists consider pending sales a leading indicator because they track contract signings; purchases of existing homes are tabulated when a deal closes, typically a month or two later.

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Something for everyone. Useless.

Hawk Or Dove? Fed’s Powell Showed Markets Both Sides In Debut (R.)

Financial markets barely batted an eye on Tuesday when Jerome Powell’s first public statement as Federal Reserve chief saw daylight, interpreting it as a steady-handed commitment to the U.S. central bank’s policy of gradual interest rate increases. The calm evaporated about a couple of hours later, at 10:42 a.m. EST, when Powell, testifying before a U.S. House of Representatives committee, struck a bullish, and personal, tone on the strength of the economy. U.S. bond yields jumped as investors raised their bets for four rate increases this year, rather than the three that Fed policymakers projected in late December, and began asking one key question: Is a hawk or a dove now running the Fed?

“The message coming from the written portion of the testimony did not signal any change,” analysts from Barclays wrote on Tuesday, drawing a contrast with Powell’s live remarks that “point to a risk of a steeper policy rate path.” Fed policymakers consider their public statements an important tool in shaping public perceptions and, in doing so, making monetary policy more effective. Fed chiefs try to avoid off-the-cuff remarks that cause impromptu repricing, preferring to hew close to their job of representing the views of the Fed’s rate-setting committee and avoiding disclosing much about their personal opinions. Veteran Fed analysts were split over whether Powell had broken that unwritten rule in his remarks, which came just weeks after he took over from Janet Yellen.

“The tone of the testimony was definitely NOT hawkish,” said Cornerstone Macro economist and former Fed staffer Roberto Perli, who emphasized Powell’s written comments might be read as a willingness to allow the economy to run hot in order to boost inflation to the Fed’s 2% target on a sustained basis. “Powell more confident on growth, putting 2018 dots in play,” is how JP Morgan’s Michael Feroli summed up the day, referring to the quarterly “dot plot” of projected interest rates that Fed policymakers submit. Feroli argued that Powell’s “modestly hawkish” appearance in Congress strengthened the chance that policymakers’ rate outlook would rise when the central bank issues its next set of economic projections next month.

Read more …

Xi advocating against protectionism is a keeper.

Trump Says US Will Use “All Available Tools” To Pressure China On Trade (BBG)

President Donald Trump is warning the U.S. will use “all available tools” to prevent China’s state-driven economic model from undermining global competition, the latest warning to Beijing as America readies a host of trade actions. China hasn’t lived up to the promises of economic reforms it made when it joined the World Trade Organization in 2001, and actually appears to be moving further away from “market principles” in recent years, according to the president’s annual report to Congress on his trade-policy agenda. China’s “statist” policies are causing a “dramatic misallocation” of global resources that is leaving all countries poorer than they should be, said the report. Chinese President Xi Jinping has dispatched one of his top economic advisers, Liu He, this week to Washington to meet with senior administration officials amid signs of growing tension between the world’s two biggest economies.

“China is free to pursue whatever trade policy it prefers. But the United States, as a sovereign nation, is free to respond,” according to the report, which is prepared by the U.S. Trade Representative’s office. Xi has called for countries to avoid protectionism and stick to the current path of globalization. At the same time, Chinese officials are weighing raising tariffs on U.S. soybeans as tensions escalate. Trump’s warning comes as his administration considers a range of actions either directly aimed at China, or that could impact the Asian power. The president is weighing several options for curbing imports of steel and aluminum, and Trump has told confidants he’s considering a global tariff on steel of 24%, the most punitive alternative recommended by his officials. The administration is ready to act unilaterally if necessary to fight unfair trading practices, according to trade report.

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Well, it did get them the Olympics…

South Korea Cuts 68-Hour Working Week (G.)

Employees in one of the most overworked countries in Asia are about to get a break after South Korea passed a bill to reduce the typical work week in an effort to improve quality of life and boost employment. South Korea’s National Assembly overwhelmingly passed the law which cut the maximum weekly work hours to 52, down from 68. The law comes into force in July and will apply to large companies before being rolled out to smaller businesses. The cut was a campaign promise by President Moon Jae-in, who also secured a 16% increase in the minimum wage this year. The law faced opposition from businesses but was seen as necessary to improve living standards, create more jobs and boost productivity. It is also aimed at increasing the country’s birth rate, which hit record lows last year.

As South Korea’s economy boomed in the 80s and 90s, a workaholic culture took hold and the birth rate plummeted. Chung Hyun-back, the gender equality and family minister, has called the country’s working hours “inhumanely long” and said they were a factor in the South’s rapidly ageing society. South Koreans workers have some of the longest weeks in the developing world, behind only Mexico, according to data from the Organisation for Economic Co-operation and Development. The group of mostly developed economies does not include countries such as China and India, and developing countries tend to work more. But South Koreans still work about 400 more hours a year compared with workers in the UK and Australia, about 10 additional standard work weeks, despite having relatively similar average incomes.

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Just as she tries to strike a defiant pose…

John Major Tears Into Theresa May’s ‘Grand Folly’ Brexit Strategy (Ind.)

Former Conservative leader John Major has launched a devastating attack on Theresa May’s approach to Brexit, just 48 hours before the Prime Minister sets out her plans for future relations with the EU. In a significant intervention, Mr Major tore into Ms May’s negotiating red lines as “bad politics” and “grand folly” dictated by “ultra Brexiteers”. He demanded MPs be freed from the party whip and allowed to vote with their conscience on her final deal, and said Britain may need a second referendum to avoid years of damaging rows over Brexit. His explosive speech sparked a ferocious backlash from Tories that back hard Brexit, with one saying his arguments were “grubbing around in the weeds”.

The surgically timed intervention comes as Ms May prepares to reveal the final text of her next big Brexit speech to the Cabinet, before meeting European Council president Donald Tusk in Downing Street on Thursday. Mr Major’s intervention also appears to have been choreographed with another speech from ex-prime minister Tony Blair in Brussels on Thursday, in which the ex-Labour leader will address European politicians on Brexit. When the ex-Tory leader stood to make his speech on Wednesday, Ms May had already locked horns with Brussels negotiators who had in the morning published what she called an “unacceptable” draft withdrawal agreement.

Despite Ms May having repeatedly claimed she settled the withdrawal agreement last year, she argued in the Commons that a new draft had crossed her Brexit red lines. It was those very “red lines” that Mr Major took aim at when he began talking in London minutes later, claiming they had “boxed” Ms May in. He said: “They are so tilted to ultra-Brexit opinion, even the Cabinet cannot agree them – and a majority in both Houses of Parliament oppose them. “If maintained in full, it will be impossible to reach a favourable trade outcome.”

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The western press will simply continue to claim that Russia’s the aggressor, not NATO or the US. Case solved.

Russia Says US Is Training Europe To Use Nuclear Weapons Against It (CNBC)

Russian Foreign Minister Sergei Lavrov said Wednesday that the U.S. was still deploying “strategic arms” in Europe and was training European countries to use nuclear weapons, violating a major nuclear arms agreement called the Non-Proliferation Treaty (NPT). Lavrov said that nuclear disarmament was impossible without taking into account factors which destabilize “strategic stability and international security today,” including, he said, “the deployment of a global anti-missile system” and “the deployment of U.S. strategic arms in Europe and the continuing destabilizing practice of ‘joint nuclear missions,’ as they call them.” “As we all know, these nuclear missions violate the Non-Proliferation Treaty and non-nuclear states plan and take part in the U.S. exercises and learn how to use the nuclear weapons,” he said.

For its part, he said Russia had reduced its nuclear arsenal by 85% compared to the Cold War era. The Russian Foreign Ministry has complained about what it calls “joint nuclear missions” and says the U.S. has many nuclear weapons located in Europe. It also says the U.S. is training European countries to use these weapons. Last April, the foreign ministry issued a statement in which it said that “Washington’s approach to compliance with its obligations under the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) is still of great concern. The U.S. and its non-nuclear NATO allies continue their nuclear skill training as part of the so-called “nuclear sharing”,” it said.

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But Merkel wants her refugee treaty. Or she’s done.

American Hellenic Institute Urges Trump To Condemn Turkish Aggression (K.)

The American Hellenic Institute (AHI) sent a letter to US President Donald J. Trump in the wake of acts of Turkish provocation and aggression in the eastern Mediterranean and broader region that have dire implications to American security interests. In the February 27 letter, AHI President Nick Larigakis requests President Trump to condemn strongly Turkish aggression and acts of provocations that have been directed at the United States, Greece, Cyprus, and international oil and gas companies – all of which have occurred in the month of February.

Larigakis cites: a Turkish coastguard vessel colliding with a stationary Greek coastguard vessel, the harassment of Italian oil company Eni’s surveying vessel by Turkish warships, which threatened to sink Eni’s surveying vessel because it was on its way to survey for energy resources in the exclusive economic zone of Cyprus; and Turkish President Erdogan’s threat of an “Ottoman slap” to United States military forces if they continued to partner with Syrian Kurds in Syria.

In addition, Larigakis raised the concern among NATO allies about Turkey’s purchase of four divisions of S-400 missiles from Russia and how it potentially subjects Turkey to US sanctions. “Turkey’s aggressive and provocative actions directed at the United States and U.S. allies, Greece and Cyprus, are overt, egregious and dangerous. I urge the administration to act to uphold the rule of law and to call on Turkey, the provocateur of these tensions, to cease and desist with its aggressive actions that are a threat to peace and stability and are not in the best interests of the United States,” Larigakis concludes.

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Just about nobody has that kind of cash to withdraw anymore. Thanks a lot.

Greece Loosens Capital Controls, Raises Cash Withdrawal Limit (R.)

Greece on Wednesday moved to ease capital restrictions imposed since the summer of 2015, raising the monthly limit of cash that can be withdrawn from bank accounts by 28%. Athens first imposed capital controls in July 2015 to stem a flight of cash from its banks at the height of a debt crisis which led to its third financial bailout since 2010. Based on a finance ministry decree published in the government’s gazette, individuals will be allowed to withdraw lump sums of up to 2,300 euros in cash per month from bank accounts from 1,800 euros currently, effective from March 1.

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Just imagine the added job losses that come with this. And still, as I keep on saying, things can still only get worse from here.

Greek Jan-Feb 2018 Retail Sales Down 8.8% y-o-y, Up To 20% In Cities (K.)

Retail sales in the first two months of the year were down some half a billion euros on the same period in 2017, as households were left with less spending money after their Christmas shopping and purchases made during the Black Friday promotional event at the end of November. According to a survey conducted by the Hellenic Confederation of Commerce and Enterprises (ESEE), retail turnover declined this past January and February by 8.8% compared to 2017. In absolute figures, this reduction translates into the loss of 484 million euros, with turnover up until Wednesday amounting to 5.02 billion, against 5.5 billion in January-February 2017.

In certain areas of the country the drop in sales turnover in the first two months of the year reached up to 40%, while out of Greece’s 65 traders’ associations, only one reported an increase from last year. In the cities of Athens and Thessaloniki, sales declined between 11 and 20% year-on-year. The ESEE survey showed that one in three enterprises offered discounts of between 21 and 40%, while two out of five offered discounts in excess of 40%.

Read more …

Apr 072017
 
 April 7, 2017  Posted by at 9:24 am Finance Tagged with: , , , , , , , , , , ,  


Fred Stein Times Square at Night 1947

 

Eyewitness Says Syrian Military Anticipated US Raid (ABC)
The Biggest Stock Bubble In US History (IRD)
The Unavoidable Pension Crisis (Roberts)
Americans Are Taking Out The Largest Mortgages On Record (MW)
Global Debt Explodes At ‘Eye-Watering’ Pace To Hit £170 Trillion (Tel.)
Wall Street Doubts Trump Wants to Split Up Biggest US Banks (BBG)
Fed’s Asset Shift To Pose New Test Of Economy’s Recovery, Resilience (R.)
M5S Plans To ‘Revolutionize Democracy’ With Online Voting, E-petitions (LI)
Arms Sales Becoming France’s New El Dorado, But At What Cost? (F24)
Guns Are The True Cause Of Hunger And Famine (G.)
Greece’s Dark Age: How Austerity Turned Off The Lights (R.)
On Dimitris Christoulas: ‘He Is A Part Of History Now’ (AlJ)

 

 

“I think Secretary of Defense [General] James Mattis gave the president a list of options, this being the smallest…”

Eyewitness Says Syrian Military Anticipated US Raid (ABC)

Syrian military officials appeared to anticipate Thursday’s night raid on Syria’s Shayrat airbase, evacuating personnel and moving equipment ahead of the strike, according to an eyewitness to the strike. Dozens of Tomahawk missiles struck the airbase near Homs damaging runways, towers and traffic control buildings, a local resident and human rights activist living near the airbase told ABC News via an interpreter. U.S. officals believe the plane that dropped chemical weapons on civilians in Idlib Province on Tuesday, which according to the Syrian Observatory for Human Rights killed 86 people, took off from the Shayrat airbase. The attack lasted approximately 35 minutes and its impact was felt across the city, shaking houses and sending those inside them fleeing from their windows. Both of the airport’s major runways were struck by missiles, and some of its 40 fortified bunkers were also damaged.

Local residents say the Russian military had used the airbase in early 2016 but have since withdrawn their officers, so the base is now mainly operated by Syrian and Iranian military officers. There is also a hotel near the airport where Iranian officers have been staying, though it was not clear whether it was damaged. The eyewitness believes human casualties, at least within the civilian population, were minimal, as there was no traffic heading toward the local hospital. [..] Former National Security Adviser and ABC News contributor Richard Clarke said this attack, one of the quickest displays of force by a new president in recent history, is largely “symbolic.”

Following a 2013 chemical weapons attack that killed more than 1400 people outside of Damascus which a U.S. government intelligence assessment concluded likely used a nerve agent, the Obama administration threatened retaliation but ultimately called off planned airstrikes after Assad agreed to turn over the majority of his chemical weapons arsenal to an international watchdog group. Trump has attempted to blame Obama’s “weakness” for the worsening violence in Syria. “This attack on one air base seems more symbolic,” Clarke said. “I think Secretary of Defense [General] James Mattis gave the president a list of options, this being the smallest. It was a targeted attack not designed to overwhelm the Syrian military … I think the president was trying to differentiate himself from his predecessor.”

Read more …

“Tesla has never made money and never will make money. Next to Amazon, it’s the biggest Ponzi scheme in U.S. history.”

The Biggest Stock Bubble In US History (IRD)

Please note, many will argue that the p/e ratio on the S&P 500 was higher in 1999 than it is now. However, there’s two problems with the comparison. First, when there is no “e,” price does not matter. Many of the tech stocks in the SPX in 1999 did not have any earnings and never had a chance to produce earnings because many of them went out of business. However – and I’ve been saying this for quite some time and I’m finally seeing a few others make the same assertion – if you adjust the current earnings of the companies in SPX using the GAAP accounting standards in force in 1999, the current earnings in aggregate would likely be cut at least in half. And thus, the current p/e ratio expressed in 1999 earnings terms likely would be at least as high as the p/e ratio in 1999, if not higher. (Changes to GAAP have made it easier for companies to create non-cash earnings, reclassify and capitalize expenses, stretch out depreciation and pension funding costs, etc).

We talk about the tech bubble that fomented in the late 1990’s that resulted in an 85% (roughly) decline on the NASDAQ. Currently the five highest valued stocks by market cap are tech stocks: AAPL, GOOG, MSFT, AMZN and FB. Combined, these five stocks make-up nearly 10% of the total value of the entire stock market. Money from the public poured into ETFs at record pace in February. The majority of it into S&P 500 ETFs which then have to put that money proportionately by market value into each of the S&P 500 stocks. Thus when cash pours into SPX funds like this, a large rise in the the top five stocks by market cap listed above becomes a self-fulfilling prophecy. The price rise in these stocks has nothing remotely to do with fundamentals. Take Microsoft, for example (MSFT). Last Friday the pom-poms were waving on Fox Business because MSFT hit an all-time high.

This is in spite of the fact that MSFT’s revenues dropped 8.8% from 2015 to 2016 and its gross margin plunged 13.2%. So much for fundamentals. In addition to the onslaught of retail cash moving blindly into stocks, margin debt on the NYSE hit an all-time high in February. Both the cash flow and margin debt statistics are flashing a big red warning signal, as this only occurs when the public becomes blind to risk and and bet that stocks can only go up. As I’ve said before, this is by far the most dangerous stock market in my professional lifetime (32 years, not including my high years spent reading my father’s Wall Street Journal everyday and playing penny stocks).

Perhaps the loudest bell ringing and signaling a top is the market’s valuation of Tesla. On Monday the market cap of Tesla ($49 billion) surpassed Ford’s market cap ($45 billion) despite the fact that Tesla delivered 79 thousand cars in 2016 while Ford delivered 2.6 million. “Electric Jeff” (as a good friend of mine calls Elon Musk, in reference to Jeff Bezos) was on Twitter Monday taunting short sellers. At best his behavior can be called “gauche.” Musk, similar to Bezos, is a masterful stock operator. Jordan Belfort (the “Wolf of Wall Street”) was a small-time dime store thief compared to Musk and Bezos. Tesla has never made money and never will make money. Next to Amazon, it’s the biggest Ponzi scheme in U.S. history. Without the massive tax credits given to the first 200,000 buyers of Tesla vehicles, the Company would likely be out of business by now.

Read more …

And to think even without demographics pensions look screwed too, just from financial engineering and insane debt levels.

The Unavoidable Pension Crisis (Roberts)

There is a really big crisis coming. Think about it this way. After 8 years and a 230% stock market advance the pension funds of Dallas, Chicago, and Houston are in severe trouble. But it isn’t just these municipalities that are in trouble, but also most of the public and private pensions that still operate in the country today. Currently, many pension funds, like the one in Houston, are scrambling to slightly lower return rates, issue debt, raise taxes or increase contribution limits to fill some of the gaping holes of underfunded liabilities in their plans. The hope is such measures combined with an ongoing bull market, and increased participant contributions, will heal the plans in the future. This is not likely to be the case. This problem is not something born of the last “financial crisis,” but rather the culmination of 20-plus years of financial mismanagement.

An April 2016 Moody’s analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That’s the amount not covered by current fund assets, future expected contributions, and investment returns at assumed rates ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields average 2.6%. With employee contribution requirements extremely low, averaging about 15% of payroll, the need to stretch for higher rates of return have put pensions in a precarious position and increases the underfunded status of pensions. With pension funds already wrestling with largely underfunded liabilities, the shifting demographics are further complicating funding problems.

One of the primary problems continues to be the decline in the ratio of workers per retiree as retirees are living longer (increasing the relative number of retirees), and lower birth rates (decreasing the relative number of workers.) However, this “support ratio” is not only declining in the U.S. but also in much of the developed world. This is due to two demographic factors: increased life expectancy coupled with a fixed retirement age, and a decrease in the fertility rate. In 1950, there were 7.2 people aged 20–64 for every person of 65 or over in the OECD countries. By 1980, the support ratio dropped to 5.1 and by 2010 it was 4.1. It is projected to reach just 2.1 by 2050. The table below shows support ratios for selected countries in 1970, 2010, and projected for 2050:

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Happy days!

Americans Are Taking Out The Largest Mortgages On Record (MW)

For the past few years, the housing market has been unbalanced. Strong demand and lean supply keep pushing prices higher and higher. On Wednesday, a fresh piece of data confirmed that trend. The Mortgage Bankers Association’s weekly purchase loan data showed that the average size of a home loan was the largest in the history of its survey, which goes back to 1990. Higher prices have a few different effects on the market. Buyers have to make tradeoffs on the kinds of homes they can afford, or may be shut out of ownership altogether. They may also adjust their borrowing. Larger mortgage sizes may reflect not just more expensive properties, but also more leveraged ones.

The 20% down payment is a relic: the median down payment in 2016 was 10%. For first-time buyers, it was 6%. First-timers and other buyers of less-expensive homes are more leveraged now than they were at the height of the housing bubble a decade ago. Home loan sizes aren’t the only things that have changed in the years since MBA started its survey. Back at the start of the survey, the median mortgage size was only about 3.3 times the median annual income. It’s now over five times as big – though buyers get bigger homes and lower interest rates.

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Over $70 trillion since 2008.

Global Debt Explodes At ‘Eye-Watering’ Pace To Hit £170 Trillion (Tel.)

Global debt has climbed at an “eye-watering” pace over the past decade, soaring to a fresh high of £170 trillion last year, according to the Institute of International Finance (IIF). The IIF said total debt levels, including household, government and corporate debt, climbed by more than $70 trillion over the last 10 years to a record high of $215 trillion (£173 trillion) in 2016 – or the equivalent of 325pc of GDP. It said emerging markets posed “a growing source of concern” to financial stability and the global economy as debt burdens in these countries climb at a rapid pace. The IIF data showed the increase was partly driven by a “spectacular rise” in emerging markets, where total debt stood at $55 trillion at the end of 2016, or 215pc of total emerging market GDP.

Debt has risen from $16 trillion in 2006 and $7.4 trillion in 1996. The body, which represents the world’s top financial institutions, said a wave of maturing debt this year presented a “growing refinancing risk”. It estimates that more than $1.1 trillion of emerging market bonds and loans will mature this year, with dollar-denominated debt accounting for a fifth of all redemptions. It said China faced around $40bn of dollar-denominated redemptions this year, while Russia faced redemptions of $20bn. International bodies including the IMF and OECD have warned that rising interest rates in the US could bring an end to an emerging market corporate debt binge as companies in these countries see their debt servicing costs rise in local currency terms. “While risks associated with currency mismatches may not be as acute as during past emerging market debt crises, the overall emerging market debt burden – particularly as global interest rates head higher – is a growing source of concern,” the IIF said in a note.

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Goldman is not a consumer bank. They might actually profit from this.

Wall Street Doubts Trump Wants to Split Up Biggest US Banks (BBG)

President Donald Trump and his advisers have vowed to bring back a Depression-era law that would cleave the biggest U.S. lenders in half by separating commercial and investment banking operations. Wall Street doesn’t expect that to happen. After chief economic adviser Gary Cohn reiterated the administration’s stance toward the Glass-Steagall Act in a private meeting with lawmakers on Wednesday, analysts said they viewed any radical regulatory changes as unlikely. Shares of Bank of America and JPMorgan Chase, which would be most affected by the rule, rose Thursday after Bloomberg first reported on Cohn’s comments. Reinstating Glass-Steagall, which was created after the banking crises of the 1930s and repealed in 1999, would require a rewriting of U.S. banking rules. The Dodd-Frank Act took more than a year of work by Congress.

The Trump administration hasn’t put forward a detailed plan and the revisions proposed by House Republicans don’t involve the return of Glass-Steagall. “Anything resembling Glass-Steagall is so far from happening that it’s hard to envision,” said Ian Katz, an analyst at Capital Alpha. “It simply isn’t a priority issue in Congress.” The Republicans who control the House and the Senate want to loosen banking regulations, not make them stricter, Katz wrote. The Republican Party made restoring Glass-Steagall part of its platform, and Trump sometimes criticized the big banks during the campaign, saying “I’m not going to let Wall Street get away with murder.” Since taking office, he’s appointed Cohn and several other former Goldman Sachs bankers to top posts, and said that he’ll look to JPMorgan CEO Jamie Dimon for advice about regulatory reform.

Treasury Secretary Steven Mnuchin said during his confirmation hearing that he opposes the old Glass-Steagall, but supports a “21st Century” version. He didn’t elaborate on what he meant. “If you’ve listened to all the rhetoric on regulation, we’ve no real guidance on where we are going,” said Christopher Wheeler, an Atlantic Equities analyst in London. “The uncertainty is immense and what you have to believe is that things will continue as they are.” The regulation might not mean that commercial and investment banks have to be separated, Cowen Group analyst Jaret Seiberg wrote in a report. Instead, the government could require that broker-dealers be subsidiaries of holding companies, rather than banks, he said. That would mean that the brokerage arm would have to be separately funded. “Cohn was the most likely obstacle within the Trump White House,” Seiberg wrote. “With him supporting Glass-Steagall’s restoration, there is no one in the inner circle left to fight it.”

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More uncharted territory. We tend to forget, but for 10 years now they’re grasping in the dark. They have no idea what they do, all they have to go on are outdated textbooks that were flawed to begin with. Time to audit the Fed and then close it.

Fed’s Asset Shift To Pose New Test Of Economy’s Recovery, Resilience (R.)

The Federal Reserve’s coming decision to reduce its massive asset holdings will set off a complex dance with global investors and the U.S. Treasury as it tries to put a final end to policies used to fight the 2007 financial crisis without upending the economy along the way. It is a feat with no clear precedent, according to analysts and officials involved in the process: a central bank trying to squeeze trillions of dollars out of markets it has supported for a decade, and in the process likely pushing up the cost of home buying, corporate finance and an array of other activities. Though final decisions have not been made, the Fed may shift policy as soon as the end of this year, and over 2018 begin pulling anywhere from $20 billion to $60 billion a month out of bond markets, according to a review of current Fed asset holdings.

For several years during the crisis, the Fed added to its holdings of U.S. Treasury bonds and securities backed by home mortgages to the tune of $85 billion a month before the program was slowed. The purchases were an emergency measure made necessary because the Fed’s short-term interest rate – its primary tool to encourage people and businesses to spend and invest – had already been cut to zero. With the economy still in freefall, the asset purchases added to demand for financial securities, and are thought to have held down long-term interest rates in general, a boost to the home-building and other industries in particular. The central bank is already raising its short-term interest rate and has managed a series of increases without slowing the economy. When it starts to scale back the size of its $4.5 trillion stockpile of Treasury bonds and mortgage-backed securities – essentially reversing the purchases it made during the crisis – it will pose a stiff new test of the economy’s resilience.

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This was always the plan. Use technology to strengthen democracy.

M5S Plans To ‘Revolutionize Democracy’ With Online Voting, E-petitions (LI)

Italy’s anti-establishment Five Star Movement party plans to introduce online voting and public referendums to increase “democracy and transparency” in the country’s capital. Five Star councillors presented the draft resolution at Rome’s city hall on Monday, where it will be debated. They claimed the proposed ideas would take the city “from Mafia Capitale [the ongoing corruption scandal which has seen dozens of Rome politicians and businessmen put on trial] to direct democracy and transparency in five years”. The ideas suggested included online consultations and participatory budgeting. The latter process would give citizens more say in how Rome money is spent, and has already been introduced by Five Star-led local authorities in some areas, including Mira and Ragusa.

In a blog post, leader Beppe Grillo said that within a year, a Five Star government would introduce public petitions which can be created online and sent directly to the Italian parliament for discussion – a system which already exists in the UK, for example. “It should be the citizens and the local community who govern cities through the Internet, using collective intelligence,” said Grillo. “The web is revolutionizing the relationship between citizens and institutions making direct democracy feasible, as applied in ancient Greece.” Angelo Sturni, one of the councillors behind the proposal, said: “We also want to experiment with electronic voting in referendums, using the American model.” Discontent over widespread corruption in Rome, as revealed in the Mafia Capitale trial, was one of the main factors in Five Star candidate Virginia Raggi’s victory in mayoral elections last June.

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UK, France, Germany, Holland, Belgium: merchants of death. Government sponsored murder.

Arms Sales Becoming France’s New El Dorado, But At What Cost? (F24)

When Qatar agreed to buy 24 French Rafale fighter jets in a €6.3 billion contract at the end of April, it represented yet another major success for France’s arms industry, coming hot on the heels of further multi-billion euro sales of Rafales to Egypt and India. The deals have been hailed by Hollande and his government. According to France’s Minister of Defence Jean-Yves Le Drian, in comments made to the Journal du Dimanche newspaper Sunday, the Qatar contract brought the value of the country’s arms exports to more than €15 billion this year so far. That sum is already more than the €8.06 billion for the whole of 2014, which itself was the highest level seen since 2009 – suggesting a continued upward trajectory for the French arms trade and one that is providing a much-needed salve to the country’s economic woes.

But some of these deals have raised more than a few eyebrows, with anti-arms trade campaigners critical of France’s willingness to sell weapons to countries with less than stellar human rights records. These concerns are only set to rise when Hollande heads first to Doha on Monday and then Saudi Arabia’s capital of Riyadh the day after, where furthering the recent success of the French arms industry is likely to be one of his top priorities. Saudi Arabia has already proved a lucrative trading partner for French arms manufacturers, most recently in a deal signed in November that saw the kingdom buy $3 billion-worth (€2.7 billion) of French weapons and military equipment to supply the Lebanese army. The oil-rich country is currently on something of an arms spending spree. Last year, the Saudis surpassed India to become the world’s biggest arms importer, upping its spending by 54% to €5.8 billion, according to a report by industry analyst IHS.

France, thanks to some adept diplomatic manoeuvering in recent years, is well placed to take advantage of the Saudi cash cow. Paris has been an increasingly close ally of Riyadh ever since it was among the most vocal in backing military intervention against Syria’s President Bashar al-Assad, a key ally of Shiite Iran – one of Sunni Saudi Arabia’s main regional rivals. “You’re seeing political fractures across the region, and at the same time you’ve got oil, which allows countries to arm themselves, protect themselves and impose their will as to how they think the region should develop,” Ben Moores, author of the IHS report, told AP in March. France, of course, is not alone in striking lucrative arms deals in the region. The US remains the biggest arms exporter to the Middle East, with $8.4 billion (€7.5 billion) worth of weapon sales in 2014, while the UK and Germany are also major players.

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And this is what the merchants of death leave behind.

Guns Are The True Cause Of Hunger And Famine (G.)

Last year, the World Bank revised its position on conflict – upgrading it from being one of many drivers of suffering and poverty, to being the main driver. In Somalia, despite some political progress the conflict has put more than half the population in need of assistance, with 363,000 children suffering acute malnutrition. In north-east Nigeria, conflict with Boko Haram has left 1.8m people still displaced, farmers unable to grow crops, and 4.8 million people need food. In Yemen, an escalation in conflict since 2015 has worsened a situation already made dire by weak rule of law and governance. Now more than 14 million people need food aid. Only if we understand conflict can we understand hunger. South Sudan is another example. I worked there for two years following the signing of the comprehensive peace agreement in 2005.

Right now a place called Koch, where Mercy Corps works, is in what the famine early warning systems network calls a “level 4 emergency phase”. This means that people will start to die of hunger in a matter of months if they don’t receive enough aid. Until recent years, Koch was a thriving community with fertile land. It has been destroyed in armed clashes since conflict broke out in South Sudan in December 2013. Families have had to move time and time again and disease is rampant due to the lack of clean water. As one father of five told our team in Koch: “My house was burnt, everything was looted and I do not know how to rebuild my life.” Across the places where we work and where people are facing starvation, the pattern is the similar.

Hunger is not some freak environmental event; it is human-made, the result of a deadly mix of conflict, marginalisation and weak governance. Yet watching some of the news and the crisis appeals, one could be forgiven for thinking that what we need is another Live Aid song and airdrops of food. Red Nose Day has been criticised for portraying Africa as a place where “nothing ever grows”. A recent social media campaign to send a plane filled with food to Somalia gathered support: a noble gesture, but not a long-term solution. Mercy Corps’ own emergency response is not the long-term answer either.

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It’s easy to label something ‘theft’, but for Greeks it’s either go illegal or sit in the dark, freeze etc. Still can’t believe this is the European Union.

Greece’s Dark Age: How Austerity Turned Off The Lights (R.)

Kostas Argyros’s unpaid electricity bills are piling up, among a mountain of debt owed to Greece’s biggest power utility. His family owe €850 to the Public Power Corporation (PPC), a tiny fraction of the state-controlled firm’s 2.6 billion euros ($2.8 billion) in unpaid bills. Argyros picks up only occasional work as an odd-job man. “When you only work once a week, what will you pay first?” said the 35-year-old, who lives in a tiny apartment in an Athens suburb with his unemployed wife and four small children. The Argyros family are emblematic of deepening poverty in Greece following seven years of austerity demanded by the country’s international creditors. They burn wood to heat their home in winter, food is cooked on a small gas stove, and hot water is scarce.

The only evening light is the blue glare of a TV screen, for fear of racking up more debt. Five-watt lightbulbs provide a dim glow and Argyros worries about the effect on their eyesight. More than 40% of Greeks are behind on their utility bills, higher than anywhere else in Europe. People in poor neighborhoods are also increasingly turning to energy fraud, meaning that the problem for PPC is much higher than the mountain of unpaid bills suggests. Power theft is costing PPC around €500-600 million a year in lost income, an industry official said, requesting anonymity because he was not authorized to divulge the numbers. Public disclosures by the Hellenic Electricity Distribution Network Operator HEDNO, which checks meters, show that verified cases of theft climbed to 10,600 last year, up from 8,880 in 2013 and 4,470 in 2012.

Authorities believe theft is far higher than the cases verified by HEDNO, another official said, declining to be named. Households in the country are equipped with analog meters, which are easy to hack. One of the most common tricks is using magnets, which slow down the rotating coils to show less consumption than the real amount, a HEDNO official said. Some websites even offer consumers tips and tricks on power fraud. For households who have had their electricity cut off, a group of activists calling themselves the “I Won’t Pay” movement have taken it upon themselves to reconnect the supply. The group says it has done hundreds this year. PPC, which has a 90% share of the retail market and 60% of the wholesale market, is supposed to reduce this dominance to less than 50% by 2020 under Greece’s third, 86 billion euro bailout deal.

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It’s time to make this personal. Against Schäuble and Dijsselbloem, Merkel and Rutte and Hollande. They are killing people. There’s nothing innocent about that. Making it personal is the only thing that’ll work. Bring it to their doorstep. Literally to their doorstep.

On Dimitris Christoulas: ‘He Is A Part Of History Now’ (AlJ)

On the morning of April 4, 2012, a gunshot sounded amid the city’s hustle and bustle. As passers-by rushed to work through Syntagma Square in central Athens, Dimitris Christoulas had taken his life with a shotgun a few metres from the Greek parliament. The 77-year-old pensioner, a former pharmacist, had left a note in his pocket. “The occupation government literally annihilated my ability to survive,” he wrote. “I depended on my decent pension, which I alone and without the support of the state, paid for 35 years.” His only daughter, Emmy Christoula, had known nothing about his plans. But, speaking as the fifth anniversary of his death approached, she confidently described her father’s public suicide as a political act. Her father woke up in the morning, got dressed, and wrote two identical notes – putting one in his pocket and leaving the other on his kitchen table for his daughter to read.

He took the subway to the square, site of the country’s most important protests for more than a century. When Dimitris arrived at Syntagma, he texted his daughter – “It’s the end, Emmy,” he wrote – and switched off his phone. Greek morning television talk shows broke the news of Christoulas’s suicide a few minutes after it happened. Hundreds soon gathered to pay their respects. Flowers, letters and notes of resistance were left by the tree where he chose to take his life. Spaniards wrote songs of his resistance. Irish poets wrote odes to him. His funeral turned into a rally against the austerity measures imposed on Greece, when the country’s debt payments became too onerous to pay amid the worldwide recession. The country’s creditors called for harsh spending cuts and steep tax increases so that Athens could make the payments. Protests and riots became a staple of life in Athens in the years that followed.

Five years on from Christoulas’ suicide, the crisis has only grown deeper. Greece’s debt is 175% of its GDP. Greek officials have cut retirees’ pensions 17 times to around half of their value before the recession, according to the Greek Association of Pensioners. Budget cuts have also been implemented in education, health, and welfare services. Lenders must improve most government decisions. Unemployment stands at more than 23%. A fourth bailout agreement is expected soon. According to the Greek Statistical Service, suicides have increased by 68% since 2008, the first year Greek economic growth stagnated. “I’m of a certain age and don’t have the power of dynamically reacting,” wrote Christoulas in his suicide note. “I can’t find another solution to a dignified end, as soon I’d have to start scavenging through the garbage to find my own food.”

Christoulas’ suicide became a symbol of the devastating effects of austerity on the Greek people. Until then, the majority of the stories published in the international media on the issue were about lazy Greeks who deserved their comeuppance for living off debt for so many years. “[My father] taught me that you shouldn’t just follow history, you should write it,” said Emmy, adding that she has accepted her father’s decision but still aches from his absence. Emmy describes her father as a wiry and lean man who had long participated in public life. Her first childhood memories include sitting on his shoulders at pro-democracy rallies against Greece’s military government in the 1970s. The police brutality didn’t deter father and daughter from participating.

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Sep 262016
 
 September 26, 2016  Posted by at 8:50 am Finance Tagged with: , , , , , , , , ,  


NPC Fire at Thomas Somerville plant, Washington DC 1926

Asian Markets Drop As Pessimism Increases Ahead Of OPEC Meeting (MW)
Deutsche Bank Slumps to Fresh Record Low on Capital Concerns (BBG)
China’s Smaller Banks Are Funding Each Other’s Lending (BBG)
China Launches $52.5 Billion Restructuring Fund For State-Owned Firms (R.)
A Weaker Currency Is No Longer the Economic Elixir It Once Was (BBG)
US Home Prices Rose 76% Since 1999 As Real Income Grew Less Than 2% (BBG)
Justin Trudeau’s Canadian Honeymoon Is About to End (BBG)
The Know-Nothing Economists Who Created This Mess Blast Trump’s Plan (MW)
Amazon “Tweaks” Hillary Book Stats: ‘5-Star’ Reviews Double Overnight (ZH)
Cracks Showing In Germany’s Fragile Truce With The ECB (R.)
German Minister: Britain Won’t Stop EU Army (Pol.)
50% Of Guns In America Owned By Just 3% Of Population (ZH)
African Elephants ‘Suffer Worst Decline In 25 Years’ (AFP)

 

 

And Europe’s falling faster.

Asian Markets Drop As Pessimism Increases Ahead Of OPEC Meeting (MW)

Asian shares were broadly lower Monday, as relief over a delay by the U.S. Federal Reserve in raising interest rates wore off. Japan’s Nikkei was down 0.8%, while Hong Kong’s Hang Seng Index retreated 0.7%. South Korea’s Kospi slipped 0.4%. “Asia Pacific investors are bracing for a sell day after European and U.S. traders took some hard won risk off the table,” wrote Michael McCarthy, chief market strategist at CMC Markets, in a note. On Friday, the S&P 500 and Nasdaq both fell 0.6% and the Dow Jones Industrial Average shed 0.7% as energy stocks slid with oil prices Friday. Investors were also pessimistic on Monday over any breakthroughs in oil-production cuts when OPEC gathers for an informal meeting later this week.

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Merkel’s comments weigh in.

Deutsche Bank Slumps to Fresh Record Low on Capital Concerns (BBG)

Deutsche Bank shares dropped to a record low amid concerns that the lender’s capital buffers will be undermined by mounting legal charges including a settlement tied to the sale of U.S. securities The shares dropped 4.2% to €10.93 at 9:15 a.m. in Frankfurt, an all-time low. The 38-member Bloomberg Europe Banks and Financial Services Index slipped 1.5%, with Deutsche Bank the worst performer. A potential $14 billion bill to settle a U.S. probe into residential mortgage-backed securities is more than twice the €5.5 billion ($6.2 billion) Deutsche Bank has set aside for litigation. The lender also faces inquiries into legal issues including currency manipulation, precious metals trading and billions of dollars in transfers out of Russia, complicating CEO John Cryan’s efforts to bolster profitability and capital ratios.

Germany’s biggest bank would be “significantly under-capitalized” even assuming enough provisions to cover an eventual settlement with the U.S. Justice Department, Andrew Lim at Societe Generale said in a note earlier this month. A settlement range of $3 billion to $3.5 billion would leave the German lender room to settle other legal issues, while any additional $1 billion in litigation charges would erode 24 basis points in capital, JPMorgan analysts wrote. Chancellor Angela Merkel has ruled out any state assistance for Deutsche Bank in the year heading into the national election in September 2017.

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Big warning sign. Circle jerking tail eating snakes.

China’s Smaller Banks Are Funding Each Other’s Lending (BBG)

[..] China’s banking regulator told city banks last week to learn the lesson of the global financial crisis and get back to traditional businesses. CLSA estimates total debt may reach 321% of GDP in 2020 from 261% in the first half. “Contagion risks are definitely rising,” said Liao Qiang, Beijing-based senior director for financial institution ratings at S&P Global Ratings. “The pace of the development is concerning. If this isn’t stopped in time, the central bank will lose some control and flexibility of its monetary policy.” Shanghai Pudong Development Bank said in an e-mailed response on Sept. 24 it has been using appropriate financing and its regular deposits and interbank borrowing have been developing properly and in synchronization.

Total liabilities will be kept under control in the long run and all liquidity gauges meet regulatory requirements, it said. Rising short-term borrowing doesn’t mean its risks have climbed as well, the bank said. “City commercial banks should change as soon as possible the situation of allocating more funds into investing than lending, and developing their off-balance-sheet businesses too fast,” Shang Fulin, chairman of the China Banking Regulatory Commission, said. The PBOC resumed longer-term reverse repos to boost borrowing costs in August and deputy governor Yi Gang said in a television interview earlier this month that the nation’s short-term goal is to curb leverage. It gauged demand for such auctions today. The benchmark 10-year government bond yield climbed slightly, to 2.73% from a decade low of 2.64% on Aug. 15.

[..] The higher the reliance on wholesale funds and investment in illiquid assets, the greater the risk of a liquidity crunch, said Christine Kuo at Moody’s. “When banks face fund withdrawals by other financial institutions, this will in turn prompt them to call back their own funds,” she said. Banks are also buying each others’ wealth-management products and accounting for the transactions as investment receivables. A record 26.3 trillion yuan of WMPs were outstanding as of June 30, doubling over two years, official data showed. Investment receivables at 25 listed banks grew 13.4% in the first half to 11 trillion yuan.

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Doesn’t sound like real restructuring.

China Launches $52.5 Billion Restructuring Fund For State-Owned Firms (R.)

A private equity fund worth 350 billion yuan ($52.5 billion) has been launched in China to help with the restructuring of state firms, a newspaper run by Xinhua news agency reported on Monday. The China State-owned Enterprises Restructuring Fund will be managed by the State-owned Assets Supervision and Administration Commission (SASAC), according to the Economic Information Daily. The report said 10 state-owned enterprises have established the fund to help with restructuring of state firms, including M&A deals, as part of government efforts to advance supply side reform. The 10 firms have provided initial registered capital of 131 billion yuan, the newspaper said.

No detail was provided on the source of the rest of the equity fund. The 10 firms include China Mobile, China Railway Rolling Stock, China Petroleum & Chemical and China Chengtong, a restructuring platform supervised by SASAC that will lead the fund. China is embarking on a revamp of its massive but debt-ridden state sector, which has struggled under a system that requires firms to maximize economic gains while fulfilling government policy objectives. The government has vowed to create innovative and globally competitive enterprises through mergers, asset swaps and management reforms.

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Caveat: a weak currency doesn’t automatically spur more exports. But they should also ask where exports would be if the currency had remained strong. Maybe they would have plummeted. Maybe global trade is falling fast.

A Weaker Currency Is No Longer the Economic Elixir It Once Was (BBG)

A weaker currency, once the cure-all for ailing economies around the world, isn’t the panacea it once was. Just look at Japan, where the yen plunged 28% in the two years through 2014, yet net exports to America still fell by 10% in the span. Or at the U.K., where the pound’s 19% tumble in the two years through 2009 couldn’t stave off a 26% decline in shipments to the U.S. In fact, since the turn of the century, the ability of exchange-rate movements to affect trade and growth in major economies has fallen by more than half, according to Goldman Sachs. The findings suggest that weaker currencies may not provide much assistance to officials in countries like Japan and the U.K. that are relying on unprecedented easy-money policies to help boost tenuous growth and inflation.

On the flip side, the data also indicate that concerns U.S. growth will be derailed as rising interest rates drive investors into the dollar are also overblown. A shift in the structure of advanced-economy trade to less price-elastic goods and services, combined with the prolonged effects of the financial crisis, have stunted the sensitivity of trade volumes relative to global exchange rates, according to Goldman Sachs analysts led by Jari Stehn. “If you’re a central banker, yes you’re paying attention to currency levels, but the more-developed market economies aren’t reacting to currency debasing policies like they used to,” said Philippe Bonnefoy, the founder of hedge fund Eleuthera. “The impact has been diluted.”

Global central banks have cut policy rates 667 times since 2008, according to Bank of America Corp. During that period, the dollar’s 10 main peers have fallen 14%, yet Group-of-Eight economies have grown an average of just 1%. Since the late 1990s, a 10% inflation-adjusted depreciation in currencies of 23 advanced economies boosted net exports by just 0.6% of GDP, according to Goldman Sachs. That compares with 1.3% of GDP in the two decades prior. U.S. trade with all nations slipped to $3.7 trillion in 2015, from $3.9 trillion in 2014.

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“Since 1999 year-end through 2015 home prices have risen 76% while household mean real income has grown less than 2%..”

US Home Prices Rose 76% Since 1999 As Real Income Grew Less Than 2% (BBG)

U.S. home prices appear to be getting out of hand again as the gap between home price growth and household real income growth is close to where it was just before the housing collapse. It’s also notable, and worrying, that the housing market is back in a “flipping frenzy” with non-bank actors climbing aboard to fund the speculation. Since 1999 year-end through 2015 home prices have risen 76% while household mean real income has grown less than 2%; the millennium-to-date gap between the two growth rates peaked at 84% during 2005-2006 and has risen back to 74% as of 2015 year-end. Gap at year-end 2007 was 75%. This millennium through 2015 has seen average new and existing home sale prices rise 84% and 55%, respectively, despite the lack of income growth.

Existing and new home sales average prices peaked at $280.2k in June 2015 and $384k in Oct. 2014, respectively; both peaks exceeded levels seen during housing boom. Over the same period outstanding home mortgage debt has risen 14%, though it’s notable that with the end of easy mortgage credit it has fallen 11% from its June 2008 peak. Concurrent with this 11% fall, the homeownership rate (63.8% at 2015 year-end) has slid back to levels last seen in the mid-1960s. Monthly U.S. single-family home price y/y growth hit a post-crisis peak of 10.85% in Oct. 2013 and has since leveled off at ~5% each month since July 2015; this is still easily outpacing growth in real income.

The disconnect between home price growth and the lack of real income growth has led homebuilders’ to turn to the higher-end of the market and for Ginnie Mae to take the lead in mortgage lending. GNMA offers taxpayer-guaranteed loans to first-time homebuyers who have lower credit scores and smaller down payments than those who obtain loans through Fannie Mae or Freddie Mac. Whereas from 2005-2007 GNMA pct share of net MBS issuance was ~2% each year, during 2014, 2015 and 2016 YTD it is ~67%, according to BofAML data. Another severe downturn in home prices would be unlikely to play out in the agency MBS market in like manner to 2007-2008 as the Fed now holds ~33% of the outstanding universe and the U.S. taxpayer now guarantees almost all of the market with Fannie and Freddie remaining under government conservatorship.

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A big bad hornet’s nest. And that’s before the economic poisoned chalice is served.

Justin Trudeau’s Canadian Honeymoon Is About to End (BBG)

Along Canada’s evergreen-draped west coast, the fate of a multi-billion-dollar energy project and a nation’s reconciliation with its dark, colonial past hang in the balance. Beating rawhide drums and singing hymns, occupiers of Lelu Island—where Malaysia’s state oil company plans a $28 billion liquefied natural gas project—assert indigenous claims to the area where trees bear the markings of their forefathers and waters run rich with crimson salmon they fear the project will obliterate. “The blood of my ancestors is on my hands if I don’t defend this land,” says Donald Wesley, 59, a hereditary chief of the Gitwilgyoots tribe which has inhabited the area for more than 6,000 years.

That claim is about to test Justin Trudeau, the country’s telegenic 44-year-old prime minister, who swept to power a year ago vowing to be many things to many people—to tackle climate change, revive the economy, and reset Canada’s fraught relationship with its indigenous communities. Those pledges are set for collision in British Columbia—home to more First Nations communities than any other province and the crucible where a resource economy seeks to reinvent itself. Trudeau has promised to decide on the LNG project on Lelu Island by Oct. 2. He has big spending plans to spur growth in a commodities downturn, and B.C., the birthplace of Greenpeace, is where most energy projects able to support that growth are located.

Indigenous groups, essential to public support, are divided, with some seeking to preserve their habitat and traditions, and others arguing that the projects offer a path out of poverty, addiction and suicide. Facing five major energy initiatives in B.C., Trudeau will choose which constituency to abandon. He’s allowed a hydroelectric dam to proceed; pending are decisions on Enbridge’s Northern Gateway crude pipeline, Petroliam Nasional’s LNG project on Lelu Island, a pipeline expansion by Kinder Morgan, as well as a ban on crude oil tankers. He’s said to want at least one pipeline, and favor Kinder Morgan. Trudeau says regularly it’s a prime minister’s job to get the country’s resources to market, and a pipeline approval would demonstrate Canada can get major projects completed as warnings mount that the complex web of regulatory rules is spurring a flight of capital.

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“It was refreshing to hear that Trump economic adviser Stephen Moore responded to a question from Pethokoukis about all the red ink in Trump’s plan with, “Whether it’s going to pay for itself, I don’t really care.”

The Know-Nothing Economists Who Created This Mess Blast Trump’s Plan (MW)

Establishment economists ranging from austere neoliberals to spendthrift Keynesians are united in branding Donald Trump’s proposed economic policies as “disastrous.” He must be on to something. These economists are the distinguished experts, after all, who have championed the globalization that gutted American manufacturing, promoted the offshoring and outsourcing of American jobs, encouraged American companies to keep trillions (trillions!) of dollars of profit abroad, and enabled the tax inversions allowing American companies to move to the country most willing to beggar its neighbor. These are the celebrity academics who have championed the deficit-reducing, budget-balancing, tax-cutting policies that have crippled our infrastructure, degraded our schools, and cut public services from police and fire protection to garbage collection.

And now this gaggle of Washington insiders is warning us that Trump’s policies will throw the country into recession, ignite a trade war, launch the national debt into the stratosphere, and create more unemployment rather than jobs. Why, really, should anyone listen to them? There is Mark Zandi, whose title as chief economist of Moody Analytics makes this sometime adviser to Barack Obama and backer of Democratic nominee Hillary Clinton seem nonpartisan, even though he clearly is not. Not surprisingly, Zandi had his team at Moody’s produce some modeling this summer that concluded that Trump’s economic proposals would result in a less global economy, lead to larger government deficits and more debt, will largely benefit very high-income households, and will result in a weaker U.S. economy.

The implication is that these are all bad things. Those for whom Trump’s economic message resonates might consider a less global U.S. economy a good thing. To brand deficits and debts as terrible you would first have to prove that they do more harm than good.

[..] those establishment economists who through several administrations have served so ably on the president’s Council of Economic Advisers, in the Treasury Department and the Federal Reserve — the people, in short, who have delivered us into the economic morass they blithely call secular stagnation — are training their heavy artillery on poor, dumb Trump. Progressive economist Joseph Stiglitz, who chaired the CEA under President Bill Clinton, gives Trump an “F” in economics because the nominee apparently doesn’t understand the principle of comparative advantage in global trade — as if we lived in a world where currency manipulation, dumping subsidies, and substandard environmental and labor conditions don’t keep this pristine economic principle from working its magic.

And conservative analyst James Pethokoukis, a fellow at the American Enterprise Institute, labeled Trump’s economic plan “a complete and utter joke” as he took the Republican nominee to task for potentially adding $2.6 trillion to $3.9 trillion to the national debt over the next 10 years — even though the $9 trillion in debt added during the 7.5 years of the Obama administration has caused no detectable harm. It was refreshing to hear that Trump economic adviser Stephen Moore responded to a question from Pethokoukis about all the red ink in Trump’s plan with, “Whether it’s going to pay for itself, I don’t really care.” High time someone influencing policy fully appreciated the dynamic flexibility of a fiat currency in government finance. We don’t really need to care whether the plan “pays for itself” in the short term, if it does indeed produce the accelerated growth promised.

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For entertainment purposes only.

Amazon “Tweaks” Hillary Book Stats: ‘5-Star’ Reviews Double Overnight (ZH)

Two short weeks ago, we exposed the gaping difference between Amazon reader reviews of Hillary Clinton’s “Stronger Together” book (14% 5-Stars) and Donald Trump’s “Great Again” book (74% 5-Stars)… As The New York Times reported at the time, the book was a disaster. Both Mrs. Clinton and her running mate, Senator Tim Kaine, have promoted the book on the campaign trail, but the sales figure, which tallies about 80% of booksellers nationwide and does not include e-books, firmly makes the book what the publishing industry would consider a flop. [..] So, as with everything else in this ‘new normal rigged’ world, something had to be done and WaPo-owner Jeff Bezos’ Amazon reviews appear to have been ‘tweaked’ – more than doubling Hillary’s top reviews.

But, as WND.com explains, Amazon’s steps to ‘fix’ Hillary’s book rviews has resulted in 5-star ratings with scathingly negative comments… If you can’t even win when the rules are changed in your favor, things must be REALLY bad. That’s how it looks for Hillary Clinton’s new 2016 campaign book, “Stronger Together,” co-authored with running mate Tim Kaine. WND reported just days ago when the book was being savaged on Amazon.com with negative reviews, with 81% one-star ratings and an average of only 1.7. Clinton supporters lashed out at “trolls” they said were criticizing the book only because they oppose the Democrat’s presidential candidacy. WND previously reported there were more than 1,200 reviews, and the number grew to than 2,000.

But Thursday afternoon, there were only 255, with many of the most critical reviews removed by Amazon, whose CEO, Jeff Bezos, owns the Washington Post, which created an army of 20 reporters and researchers to investigate the life of Donald Trump. Victory for the Clinton book, however, remains out of grasp, with the negative, one-star responses, outnumbering positive, five-star responses nearly 2-1. The one-star ratings Thursday were 62%, to 35% for five-star ratings.

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“..the political landscape in Germany has become decidedly more toxic for the ECB over the past months.”

Cracks Showing In Germany’s Fragile Truce With The ECB (R.)

Michael Stuebgen, a conservative member of the German parliament, was speaking with the head of a local savings bank recently about the ECB’s QE program. “He told me the bond market was being emptied out,” Stuebgen recalled. “He likened it to going into a supermarket where everything has been bought up. You might find a shriveled old carrot or potato. Pretty soon you’re starving.” Stuebgen, a spokesman on European affairs for Chancellor Angela Merkel’s party in the Bundestag, credits the ECB and its President Mario Draghi with saving the euro zone from collapse four years ago. But conversations like the one with the banker have convinced him that its policies, in particular the massive bond-buying program known as QE, have gone too far. He is not alone.

[..] Instead of changing course, as Stuebgen and his colleagues want, the ECB is widely expected to announce an extension of its QE program by the end of the year. The program is due to expire in March. As early as next month, it could also announce steps to broaden the scope of what it can buy in response to a dwindling pool of available assets. The most controversial change would be abandoning the so-called “capital key”, which limits the proportion of government bonds the ECB can buy from any given member state, based on its size and economic weight. “The big challenge for Mario Draghi will be to prepare the Bundestag and German public for a further easing of monetary policy,” said Marcel Fratzscher, head of the DIW economic institute and a former senior official at the ECB.

That message is unlikely to go down well in Berlin. In addition to concerns about the distorting effects of QE on financial markets and the impact of low interest rates on German savers and insurers, the political landscape in Germany has become decidedly more toxic for the ECB over the past months.

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Better get rid of the EU before they acutally do this.

German Minister: Britain Won’t Stop EU Army (Pol.)

Ursula von der Leyen, Germany’s defense minister, does not believe the U.K. will stand in the way of deepened defense cooperation between EU member countries, she told Reuters in an interview Sunday night. Von der Leyen said she was confident Britain would “make good its promise that it will not hinder important EU reforms.” Michael Fallon, Britain’s defense secretary, said earlier this month Britain will veto measures to build an EU army for as long as it remains a member of the bloc. Von der Leyen said she told Fallon the plans were not directed against Britain, but “designed for a strong Europe” instead.

Martin Schulz, the president of the European Parliament, said during a speech in London last week that a British veto was “counterproductive and anyway not possible in this case.” EU defense ministers will discuss common military proposals on Monday and Tuesday. Federica Mogherini, the European Commission’s foreign policy chief, said earlier this month that member countries could combine their defense capabilities via a so-far unused provision in the Lisbon Treaty.

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Feel safe?

50% Of Guns In America Owned By Just 3% Of Population (ZH)

A recent Harvard study of the demographics of gun ownership in the United States yielded a fairly shocking discovery, namely the emergence of the Obama gun “Super Owner.” The study, entitled “The Stock and Flow of US Firearms: Results from the 2015 National Firearms Survey”, was conducted by the Harvard School of Public Health and found that just 14% of all gun owners, or 7.6mm adults and 3% of the total U.S. population, possessed 50% of all guns owned by civilians in the country. Moreover, with a total stock of 270mm civilian-owned guns in the U.S., that implies that these “super owners” possess an average of nearly 18 guns per person.

“Gun owning respondents owned an average of 4.85 firearms (range: 1-140); the median gun owner reported owning approximately two guns. As can be seen in Figure 3, approximately half (48%) of gun owners report owning 1 or 2 guns, accounting for 14% of the total US gun stock, while those who own 10 or more guns (8% of all gun owners), own 39% of the gun stock. Put another way, one half of the gun stock (~130 million guns) is owned by approximately 86% of gun owners, while the other half is owned by 14% of gun owners (14% of gun owners equals 7.6 million adults, or 3% of the adult US population).”

Another startling discovery in the data, though “oddly” not highlighted in the report, is that the surge in gun ownership per capita seemed to coincide with the start of the Obama presidency and growing rhetoric over new gun regulations. Per the chart below, over the past 20 years, gun ownership per U.S. adult hovered around 1 from 1993 through 2007 but then surged starting in 2008 as an Obama presidency became increasingly likely. This trend is also reflected in annual guns sales which floated between 4-6mm units per year before surging in 2008.

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Tears. I still have tears left.

African Elephants ‘Suffer Worst Decline In 25 Years’ (AFP)

Africa’s elephant population has suffered its worst drop in 25 years, the International Union for Conservation of Nature (IUCN) said Sunday, blaming the plummeting numbers on poaching. Based on 275 estimates from across the continent, a report by the conservation group put Africa’s total elephant population at around 415,000, a decline of around 111,000 over the past decade. It is the first time in 25 years that the group’s African Elephant Status Report has reported a continental decline in numbers, with the IUCN attributing the losses in large part to a sharp rise in poaching. “The surge in poaching for ivory that began approximately a decade ago – the worst that Africa has experienced since the 1970s and 1980s – has been the main driver of the decline,” said IUCN in a statement.

Habitat loss is also increasingly threatening the species, the group said. IUCN chief Inger Andersen said the numbers showed “the truly alarming plight of the majestic elephant”. “It is shocking but not surprising that poaching has taken such a dramatic toll on this iconic species,” she said. The IUCN report was released at the world’s biggest conference on the international wildlife trade, taking place in Johannesburg. Thousands of conservationists and government officials are seeking to thrash out international trade regulations aimed at protecting different species. A booming illegal wildlife trade has put huge pressure on an existing treaty signed by more than 180 countries – the Convention on International Trade in Endangered Species (CITES).

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