May 282017
 
 May 28, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Fred Stein Little Italy New York 1943

 

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)
New Home Prices Are Over 50% Higher In Canada Than The US (BD)
Low Volatility Is Market’s Most Significant Danger (BBG)
Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)
Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)
We’re Dealing With a New Type of War Lie (Swanson)
Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)
Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)
US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)
10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

 

 

It’ll take Europe a while to recover from Trump.

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)

U.S. President Donald Trump has told “confidants,” including the head of the Environmental Protection Agency Scott Pruitt, that he plans to leave a landmark international agreement on climate change, Axios news outlet reported on Saturday, citing three sources with direct knowledge. On Saturday, Trump said in a Twitter post he would make a decision on whether to support the Paris climate deal next week. A source who has been in contact with people involved in the decision told Reuters a couple of meetings were planned with chief executives of energy companies and big corporations and others about the climate agreement ahead of Trump’s expected announcement later in the week. It was unclear whether those meetings would still take place.

“I will make my final decision on the Paris Accord next week!” he tweeted on the final day of a G7 summit in Italy at which he refused to bow to pressure from allies to back the landmark 2015 agreement. The summit of G7 wealthy nations pitted Trump against the leaders of Germany, France, Britain, Italy, Canada and Japan on several issues, with European diplomats frustrated at having to revisit questions they had hoped were long settled. [..] Although he tweeted that he would make a decision next week, his apparent reluctance to embrace the first legally binding global climate deal that was signed by 195 countries clearly annoyed German Chancellor Angela Merkel. “The entire discussion about climate was very difficult, if not to say very dissatisfying,” she told reporters. “There are no indications whether the United States will stay in the Paris Agreement or not.”

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Is optimism your friend?

New Home Prices Are Over 50% Higher In Canada Than The US (BD)

The price of new homes is quickly diverging in Canada and the US. Data from the Canadian Housing and Mortgage Corporation (CMHC) show that new homes are selling for substantially more than the same time last year. Meanwhile south of the border, data from the US Bureau of Census show that new home prices are on the decline. This has lead to an even wider gap between the average price of a new home in Canada and the US. The price of a new home across Canada is up for the second month in a row. The average sale price in April was CA$751,881 (US$559,123). This represents an 11% increase from the same time last year, when measured in Canadian dollars. When compared in US dollars, that increase drops to a much more conservative 2.64%. Even after factoring in the loonie’s decreased buying power in Canada, new home prices still climbed.

American new home builders aren’t seeing such steep climbs in sale prices. Actually, they aren’t seeing climbs at all. The average price of a new home in the US was CA$495,271 (US$368,300). This represents a 3% decline from the same time last year, when measured in US dollars. In Canadian dollars, this was a 0.49% decline from the same time last year. Both forms of measurement show declining home prices in the US, curious since their economy is in a much better state than Canada right now. New homes are trading at substantially higher values in Canada than the US in April. The average new home in April 2017 was 51% higher in Canada than the US. The same time last year, prices in Canada were only 36% higher. It appears in a post-crash United States, new home buyers are taking much more conservative strides. In a hasn’t-crashed-in-decades Canada, new home buyers are optimistic about future values.

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When markets don’t function, i.e. there is no price discovery, why would there be volatility?

Low Volatility Is Market’s Most Significant Danger (BBG)

Of all the dangers in the world of finance, the enduring low level of market volatility is the most significant. How quiet is quiet? Recently, the six-month realized volatility for the S&P 500 dipped to 6.7 percent, lower than even the period leading up to the financial crisis of 2008-09. During the mid-’90s, volatility was as low as it is now, but the size, complexity and interlinkages of financial market exposures were far less significant. Now, fluctuations are severely muted, and thus send a false signal of safety to both investors and policy makers who misread the calm as an “all clear” sign, dismissing the events above as insufficiently relevant. The result is an inability to appreciate how quickly market conditions can change, especially as trading strategies that capitalize on quiet markets become vulnerable to unwind, serving to amplify a risk-off event.

[..] There is an important debate in markets now about the causes of low realized volatility. A decline in the correlation among stocks, a global economy on more stable footing and a decline in perceptions of systemic risk (a euro-zone unraveling, for example) are among the factors. We should appreciate the importance of money flows as well. According to ETF.com, the exchange-traded fund industry is on pace for $500 billion in new asset growth in 2017. These vehicles can provide cheap, liquid access to market risk exposures. They simply put the money received to work in passive fashion, without evaluating the risk/return trade-off. The flows themselves are a factor in the positive returns and the low volatility that, in turn, attract additional flows.

What results is a dangerous circularity. Recall the period of wonderful outcomes preceding the financial crisis. The demand for housing spurred price appreciation, which enabled mortgage credit to be supplied at increasingly generous terms. The most suspect credit cannot default if the value of the collateral keeps appreciating and, as a result, the supply of credit keeps expanding. The fear of missing out is also supremely powerful. The conservative individual becomes less so when he or she sees a neighbor flipping houses with success. Similarly, the conservative lender is forced to compete with more aggressive suppliers of credit. For lenders, not being accommodative enough during the go-go years can amount to an existential business question.

Today’s risks differ meaningfully from those of a decade ago. However, the excess amount of capital chasing opportunity at increasingly aggressive terms is similar. The competition to put money to work, then, like now, results in low volatility. Investors are in danger of misinterpreting this tranquility as conveying safety when crowded positioning is resulting in more, not less, risk. While spending money on hedging is especially difficult in a seemingly benign environment, investors should be actively vigilant to market risks, devoting time to an action plan that helps protect portfolio wealth against the inevitable return of volatility.

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Different polls have very different numbers.

Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)

In the first week of the General Election campaign our ComRes poll for the Sunday Mirror gave Theresa May a magic 50% of the vote. She looked unstoppable. Today’s ComRes poll shows Jeremy Corbyn has narrowed her lead to 12 points , six points up on two weeks ago. As the man who invented the Swingometer says he’s never seen swings like it. If the PM goes into polling day on June 8th with this kind of lead she would not be unhappy. It would give her an overall majority of 62. Not the landslide she wished for perhaps, but with enough MPs to get her own way every time. But we are still 11 days from polling day – and on present form that’s enough for Mr Corbyn to pick up another 12 points. And that puts him in striking distance of No10. Our survey puts the Conservatives on 46%, Labour on 34% and the Lib Dems down two points on 8%.

Ukip are unchanged in fourth place at 5%. But the most striking findings are that the Labour leader’s personal ratings are up in every category while Mrs May’s are down in all but one. Mrs May’s Dementia Tax on the elderly and her U-turn over how to pay for it has clearly boomeranged. The Manchester bombing appears to have had little effect on voting intention. Mrs May is still way ahead of Mr Corbyn as being best to deal with terrorism. But she’s five points down on two weeks ago. Only a fifth of voters say she is most likely to protect elderly people dependent on social care while Mr Corbyn scores 43%. Curiously the mess she made of the Dementia Tax has not damaged her among voters aged 65 plus with nearly seven in ten saying they will still vote for her. But Mr Corbyn is ahead in every age group until pollsters get to those 44 or older.

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“..what comes next will be an era in which there is a new order..”

Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)

From the Balkans to the US, walls are going up, not down, according to demographer and The Fourth Turning author Neil Howe. Speaking to a packed crowd at Mauldin Economics’ Strategic Investment Conference in Orlando, Howe said we are reliving many of the same trends and changes of the 1930s. “Worldwide, people are losing trust in institutions,” he said. “Trust in the military, small business, and police is still there. But trust in democracies, media, and politicians is dropping.” When was the last time we saw these changes and the rise of right-wing populism?” he asked. “The 1930s.” Howe’s statement is borne out of a June 2016 Gallup poll. When poll takers were asked how much confidence they had in institutions in American society, the results were troubling.

Just 15% said they had a “great deal” of confidence in the US Supreme Court. Banks trailed behind at 11%, followed by the criminal justice system (9%), newspapers (8%), and big business (6%). Meanwhile, just 16% expressed a “great deal” of confidence in the presidency, with that number plummeting to 3% for Congress. In his keynote, Howe shared his forecasting logic: “My method is to step back and realize one thing: There is something we know about the world in 20 years’ time. The people who live there will be all of us, 20 years older and playing a different role. I call this ‘looking along the generational diagonal.’ The critical thing to remember about the current crisis period is that what comes next will be an era in which there is a new order.

According to the Strauss-Howe generational theory, as this new order takes root, individualism declines and institutions are strengthened. “History is seasonal, and winter is coming,” Howe has said. But after winter, comes spring. As the American Revolution was followed by calm, as the Civil War was followed by reconstruction and a gilded age, and as the Great Depression and World War II were followed by an age of peace and prosperity, so too will this crisis period be followed by a calm, stable era. It’s simply a matter of time.

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Russiagate.

We’re Dealing With a New Type of War Lie (Swanson)

The “Russian interference in the 2016 United States elections” even exists as a factual event in Wikipedia, not as an allegation or a theory. But the factual nature of it is not so much asserted as brushed aside. Former CIA Director John Brennan, in the same Congressional testimony in which he took the principled stand “I don’t do evidence,” testified that “the fact that the Russians tried to influence resources and authority and power, and the fact that the Russians tried to influence that election so that the will of the American people was not going to be realized by that election, I find outrageous and something that we need to, with every last ounce of devotion to this country, resist and try to act to prevent further instances of that.” He provided no evidence. Activists have even planned “demonstrations to call for urgent investigations into Russian interference in the US election.”

They declare that “every day we learn more about the role Russian state-led hacking and information warfare played in the 2016 election.” (March for Truth.) Belief that Russia helped put Trump in the White House is steadily rising in the U.S. public. Anything commonly referred to as fact will gain credibility. People will assume that at some point someone actually established that it was a fact. Keeping the story in the news without evidence are articles about polling, about the opinions of celebrities, and about all kinds of tangentially related scandals, their investigations, and obstruction thereof. Most of the substance of most of the articles that lead off with reference to the “Russian influence on the election” is about White House officials having some sort of connections to the Russian government, or Russian businesses, or just Russians.

It’s as if an investigation of Iraqi WMD claims focused on Blackwater murders or whether Scooter Libby had taken lessons in Arabic, or whether the photo of Saddam Hussein and Donald Rumsfeld shaking hands was taken by an Iraqi. A general trend away from empirical evidence has been extensively noted and discussed. There is no more public evidence that Seth Rich (a Democratic National Committee staffer who was murdered last year) leaked Democratic emails than there is that the Russian government stole them. Yet both claims have passionate believers. Still, the claims about Russia are unique in their wide proliferation, broad acceptance, and status as something to be constantly referred to as though already established, constantly augmented by other Russia-related stories that add nothing to the central claim. This phenomenon, in my view, is as dangerous as any lies and fabrications coming out of the racist right.

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Blackwater 2.0

Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)

A shadowy international mercenary and security firm known as TigerSwan targeted the movement opposed to the Dakota Access Pipeline with military-style counterterrorism measures, collaborating closely with police in at least five states, according to internal documents obtained by The Intercept. The documents provide the first detailed picture of how TigerSwan, which originated as a U.S. military and State Department contractor helping to execute the global war on terror, worked at the behest of its client Energy Transfer Partners, the company building the Dakota Access Pipeline, to respond to the indigenous-led movement that sought to stop the project. Internal TigerSwan communications describe the movement as “an ideologically driven insurgency with a strong religious component” and compare the anti-pipeline water protectors to jihadist fighters.

One report, dated February 27, 2017, states that since the movement “generally followed the jihadist insurgency model while active, we can expect the individuals who fought for and supported it to follow a post-insurgency model after its collapse.” Drawing comparisons with post-Soviet Afghanistan, the report warns, “While we can expect to see the continued spread of the anti-DAPL diaspora … aggressive intelligence preparation of the battlefield and active coordination between intelligence and security elements are now a proven method of defeating pipeline insurgencies.” More than 100 internal documents leaked to The Intercept by a TigerSwan contractor, as well as a set of over 1,000 documents obtained via public records requests, reveal that TigerSwan spearheaded a multifaceted private security operation characterized by sweeping and invasive surveillance of protesters.

As policing continues to be militarized and state legislatures around the country pass laws criminalizing protest, the fact that a private security firm retained by a Fortune 500 oil and gas company coordinated its efforts with local, state, and federal law enforcement to undermine the protest movement has profoundly anti-democratic implications. The leaked materials not only highlight TigerSwan’s militaristic approach to protecting its client’s interests but also the company’s profit-driven imperative to portray the nonviolent water protector movement as unpredictable and menacing enough to justify the continued need for extraordinary security measures. Energy Transfer Partners has continued to retain TigerSwan long after most of the anti-pipeline campers left North Dakota, and the most recent TigerSwan reports emphasize the threat of growing activism around other pipeline projects across the country.

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Not much use talking to Erdogan. He needs his strongman image to much at home.

Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)

The best hope yet of reuniting war-partitioned Cyprus has been dashed after reconciliation attempts were brought to an abrupt halt following two years of intense negotiations. The optimism engendered by talks seen as a once-in-a-generation opportunity to unite the Mediterranean island ended when the United Nations special envoy, Espen Barth Eide, announced that he was terminating negotiation efforts. “Without a prospect for common ground, there is no basis for continuing this shuttle diplomacy,” the Norwegian former foreign minister said in a short statement. Eide now enters the long list of diplomats who, for the best part of 50 years, have attempted to solve one of the world’s most intractable diplomatic disputes.

Split between the majority population of Greeks in the south and Turks in the north, Cyprus has been divided since 1974 when Ankara ordered troops to invade the island in response to an Athens-organised coup to unite it with Greece. In Nicos Anastasiades and Mustafa Akinci – the respective leaders of the island’s Greek and Turkish communities – the two sides had found men who were not only moderate and born in the same town – Limassol – but willing to make the sort of concessions necessary to find a solution. Both had got to the point of poring over maps outlining territorial adjustments in a envisaged bi-zonal, bi-communal federation. In January, the first international conference on Cyprus was held at the UN headquarters in Geneva with representatives from Greece, Turkey and Britain – the island’s three guarantor powers.

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Hundreds of people are collateral damage.

US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)

Dozens of relatives of Islamic State group fighters were killed Friday in Syria in US-led strikes, regime or Russian raids, after the UN urged nations striking the jihadists to protect civilians. Raids by the US-led coalition have pounded IS positions across Iraq and Syria since the jihadist group claimed responsibility for the devastating bombing of a concert in Manchester on Monday. Scores of civilians, many of them families of IS members, have been killed in bombing raids in recent days on the eastern Syrian town of Mayadeen, held by IS since 2014. Early Friday, at least 80 relatives of IS fighters were killed in US-led coalition bombardment, according to the Syrian Observatory for Human Rights.

“The toll includes 33 children. They were families seeking refuge in the town’s municipal building,” said Observatory head Rami Abdel Rahman. “This is the highest toll for relatives of IS members in Syria,” he told AFP. Coalition strikes on the town killed 37 civilians on Thursday night after 15 had been killed on Wednesday, according to the Britain-based Observatory. The US military on Friday confirmed that it had struck “near Mayadeen” on May 25 and 26, but said it was “still assessing the results of those strikes”, according to Pentagon spokesman Eric Pahon. The US military insists that it takes every precaution to avoid hitting civilians, but the United Nations on Friday urged parties bombing IS to do more.

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No moral values left: “The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.“

10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

Nearly 10,000 migrants were rescued off the coasts of Italy and Libya this week, as the leaders of G7 gathered for a summit coincidentally held in Sicily. And at least 54 people have drowned in the Mediterranean since Tuesday. Large-scale rescue efforts off the Italian coast on Friday saved 2,200 migrants who risked their lives traveling in unworthy sea vessels to reach Italy. Italian coastguard and commercial boats delivered those rescued to reception centers in Italy. A further 1,200 people were rescued by Libyan ships and taken to Tripoli or Zawiya. Some 6,400 migrants were rescued from the Mediterranean between Tuesday and Thursday. The Italian coastguard also discovered another 10 bodies, bringing to 54 the total number of officially registered deaths this week, officials told AFP.

The biggest tragedy occurred on Wednesday, when 35 migrants drowned, including at least 10 children, after they fell off an overloaded vessel that was hit by a huge wave while being rescued by an aid boat. At least 1,400 people have drowned so far this year trying to make the perilous journey across the sea to Italy, according to UN figures, while more than 50,000 migrants reached Italian coasts, most of them through Libya. Italy has on numerous occasions said that it barely has enough resources to deal with the migrant influx from Libya. The situation has become an EU-wide concern in recent years, with Brussels facing mounting pressure from human rights groups over its handling of the migrant crisis in the Mediterranean.

G7 leaders, who met in Sicily, discussed providing greater assistance to African countries to persuade migrants to stay at home rather than make the dangerous journey across the Mediterranean. However, no concrete plan of action was agreed upon at the end of the two-day summit in Taormina. The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.”

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Sep 262016
 
 September 26, 2016  Posted by at 8:50 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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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.

Read more …

“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.

Read more …

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.

Read more …

“..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.

Read more …

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.

Read more …

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.

Read more …

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).

Read more …

Apr 052015
 
 April 5, 2015  Posted by at 11:01 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Underwood&Underwood Chicago framed by Gothic stonework high in the Tribune Tower 1952

For the second time in three years, I’m fortunate enough to spend some time in New Zealand (or Aotearoa). In 2012, it was all mostly a pretty crazy touring schedule, but this time is a bit quieter. Still get to meet tons of people though, in between the relentless Automatic Earth publishing schedule. And of course people want to ask, once they know what I do, how I think their country is doing.

My answer is I think New Zealand is much better off than most other countries, but not because they’re presently richer (disappointing for many). They’re better off because of the potential here. Which isn’t being used much at all right now. In fact, New Zealand does about everything wrong on a political and macro-economic scale. More about that below.

I’ve been going through some numbers today, and lots of articles, and I think I have an idea what’s going on. Thank you to my new best friend Grant here in Northland (is it Kerikeri or Kaikohe?) for providing much of the reading material and the initial spark.

To begin with, official government data. We love those, don’t we, wherever we turn our inquisitive heads. Because no government would ever not be fully open and truthful. This is from Stuff.co.nz, March 19 2015:

New Zealand GDP grew 3.3% last year

New Zealand’s economy grew 3.3% last year, the fastest since 2007 before the global financial crisis, Statistics NZ said. Most forecasts expect the economy to keep growing this year and next, although slightly more slowly than in the past year. For the three months ended December 31, GDP grew 0.8%, in line with Reserve Bank and other forecasts. That was led by shop sales and accommodation.

That sounds great compared to most other nations. But then we find out where the alleged growth has come from (I say alleged because other data cast a serious doubt on the ‘official’ numbers):

The economy grew a revised 0.9% in the September quarter, down from 1% reported earlier. Retail and accommodation increased 2.3% in the December 2014 quarter, buoyed by a 15% increase in international tourist spending, as reported on Wednesday. New Zealand household spending also increased 0.6%. [..]

“Spending by Chinese, US, and UK visitors all increased in 2014, though Australians spent less.” Australia is New Zealand’s biggest tourism market, but the New Zealand dollar has been high against the Australian currency, trading at A96.5c on Thursday. The exchange rate was under A80c at the start of 2013. Total visitor spending last year hit $7.4 billion, up 13% on the previous year. [..]

(Note: $1 US = $1.3156 NZ today.)

Increased banking activity was reflected in a 1.1% rise in financial services this quarter, while housing investment rose 5.2%.

[..] The figures also showed the first fall in real incomes since the middle of 2012. The inflation-adjusted purchasing power of disposable income was down 0.5% in the December quarter.

We’ll get back to housing in a bit. And by all means, keep those last few numbers in mind: while the economy ostensibly grew by 3.3%, disposable income was down. That’s what you call a warning sign.

But let’s focus first on tourism and especially on China. While overall tourist spending rose 15% in 2014, as part of a later quote in this article we will even see that “tourism from China was up 40% in the first two months of this year from a year ago..”

Still, that cannot make up for that other big trade with China, exports, in particular of New Zealand’s biggest industry, dairy, and the second biggest, timber. There things are not looking nearly as rosy. And after reading the next piece, I’m wondering how the economy could possibly have grown by 3.3%. More from Stuff.co.nz, dated March 25:

Dairy Slump Hits New Zealand Exports To China

New Zealand posted a small trade surplus of just $50 million in February with dairy exports down heavily, especially to China, New Zealand’s top export market. Some economists had expected a monthly surplus of about $350 million. The trade shortfall for the year ended February 2015 was a deficit of $2.2 billion. Exports to China have boomed in the past few years, but melted down last year as dairy product prices plunged. Total exports to China in February were down more than 36% on the same month last year.

China remains New Zealand’s biggest export market, worth almost $9b in the past year, just slightly ahead of Australia. But the trend for exports to China has been falling for the past year, and is down 45% from the peak in late 2013. In fact, it has returned to levels seen in 2012. [..] Total exports were worth $3.9b for the month, just barely ahead of monthly imports which were also about $3.9b.

So sure, the 3.3% was over 2014, and this piece concerns this year. But it also says ‘the trend for exports to China has been falling for the past year,’ and ‘..The trade shortfall for the year ended February 2015 was a deficit of $2.2 billion..’ and that can only leave me wondering again what real GDP growth was. This is from RadioNZ, April 3:

Export Drop Rattles Companies

Confidence among manufacturers and exporters has taken a hit with export sales in February down 27% compared with a year ago. A survey found net confidence – which includes measures of cash flow, profitability, investment, staff and sales – fell into negative territory for the first time since April 2013. Net confidence was minus 13, down from 21 in January. The sample of Manufacturers and Exporters Association members covered companies with combined annual sales of $178 million, with 68% of those from exports. Association president Tom Thomson said currency volatility was the biggest issue for exporters, with the big jump in the US dollar forcing up the price of some raw materials.

Now I’m wondering which raw materials this fine man has in mind. See, I can imagine currency volatility being a bit of a drag, but not too much for New Zealand manufacturers, because as far as I can see the country’s exporters don’t seem to import much in the way of raw materials. The main exports, as I said, are dairy and timber, with a bit of meat thrown in, none of which require raw materials imports, and what the US dollar drives up in there would help New Zealand more than hurt it. That the New Zealand dollar itself has gained vs various other currencies, while true, is a whole other story.

New Zealand’s dairy industry has been thrown together since the start of the century in co-op Fonterra, good for 30% of global dairy exports – most dairy farmers are shareholders (mind you, no country the size of New Zealand should ever even think of exporting 30% of the world’s anything, of course, unless it’s something unique on the planet and it comes in small quantities). Fonterra’s by far biggest clients are the lactose-intolerant Chinese, who import about all the milkpowder – for their babies – they can lay their hands on, following a domestic tainted milk scandal a few years back. Still, to establish your biggest industry around one single client is obviously a very risky venture. And now there’s the added problem of dropping prices. The New Zealand Herald, April 2:

World Dairy Prices Slide 10.8% On Supply Concerns

International dairy prices continued to reverse gains made early this year at this morning’s GlobalDairyTrade (GDT) auction, putting downward pressure on Fonterra’s $4.70 a kg farmgate milk price forecast and raising concerns about next season’s likely payout. The GDT price index fell by 10.8% compared with the last sale a fortnight ago, when prices dropped by 8.8%. Big falls were recorded for the key products of wholemilk powder – down 13.3% to US$2,538 a tonne, skim milk powder – down 9.9% to US$2,467/tonne.

That 10.8% price drop occurred in just 2 weeks. There can be no doubt that if your economy depends so much on one sector and one client, you’re vulnerable. Probably as much as oil producers, who saw their prices drop more, but who mostly have higher profit margins. What hasn’t helped New Zealand dairy farmers is the Russian ban on EU milk products; these will now have to be sold on world markets. What won’t help either is the recent lifting of EU milk quotas, which will bring a huge flood of additional milk on the market. A market that is already drowning in milk. RadioNZ, April 2:

World ‘Awash With Milk’

The Government is blaming a slump in milk prices on the world market being awash with milk. But New Zealand First leader Winston Peters said National’s economic policies and the high value of the New Zealand dollar were not helping dairy farmers. In the Global Dairy Trade auction prices dropped 10.8% overnight to $US2746 a tonne, the second fall in a fortnight. Mr Peters said he predicted the fall and it was a sign of rural areas lagging behind. “I’ve been saying it for a long long time – what you’ve got is a fixation with Auckland, hollowing out the provincial economies and sucking all the attention and money to Auckland and that is not going to go on any longer.”

Mr Peters said New Zealand had a free market system that no other country followed and he would legislate to control the exchange rate, similar to Singapore’s system. “The one country that’s not devaluing at the moment is New Zealand – every other economy has. [..] Economic Development Minister Steven Joyce firmly rejected that idea. “Well, with the greatest respect to Winston I am old enough, and so is he, to remember the last time we tried to set the exchange rate in this country and it wasn’t that successful…

“What he is basically saying is that he would legislate, presumably, to put the exchange rate at a level it won’t naturally go and that means effectively increasing costs for the consumer and decreasing costs for exporters.” [..] Meanwhile, the Fonterra Shareholders Council said some frustrated farmers were considering leaving the co-operative due to the price slump.

For more than a few farmers, the situation has already proved too much. NZ Herald, Jan 11:

Stress Too Much For Farmers

At least four farmers have taken their lives since Fonterra cut its milk payout forecast for the coming season. On December 10, the dairy giant dropped its payout forecast for 2014-15 to an eight-year low of $4.70 a kilogram of milk solids. That’s nearly half the $8.40 paid in the 2013-14 season and is estimated to mean an income drop for farmers of $6.6 billion. Federated Farmers dairy industry group vice-chairman Kevin Robinson confirmed to the Herald on Sunday that it was aware of the December deaths. “There’s been discussion through Federated Farmers email about them,” he said.

Several industry experts blame high levels of rural debt for increased stress on farmers. In total, 14 farmers have taken their lives in the past six months, Chief Coroner Judge Neil MacLean said. The most recent four deaths were also confirmed by Te Aroha farmer Sue McKay, the administrator of a private Facebook-based support group. She added: “I also know some local hospitals have a number of farmers in them from attempted suicide. If there’s three in one ward alone, there will be more in other hospitals.”

Whole milk powder prices were down 11% in the month and 52% lower than a year earlier. Cheese also dropped 5% over the month.

But New Zealand also has a whole different side. If anything could explain the 3.3% GDP growth number for 2014, I’m guessing it must be this: a real estate bubble that would put most of Charles Ponzi’s heirs to shame. Not 10 years ago, mind you, Americans, but today. Will they never learn, you ask? No, they will have to have their faces pushed squarely through the stucco walls. And they’ll probably still have hope for a recovery when they come out at the other side. NZ Herald, April 5:

Hot Properties: Auckland Valuations Out Of Date Within Months

Council valuations are already out of date, with homes selling in Auckland’s overheated property market on average for more than 15% above their figure of six months ago. And previously unfashionable suburbs have recorded some of the biggest spikes as desperate buyers look for their first home. Mt Roskill made the biggest jump in the Real Estate Institute figures, which are based on Auckland sales in February and compared against capital valuations made in July last year. The valuations, which do not involve a property inspection or include chattels, were made public on October 1.

Even suburbs among the 10 with lowest rises, such as Remuera and Te Atatu Peninsula, were up 13%. Properties sold by Bayleys Real Estate last month included a West Harbour home bought for $700,000 more than its capital valuation of $900,000 and a Glendowie home with a capital value of $1.13m that sold for $1.575m. An Avondale home sold for $590,000 — $130,000 above valuation.

REINZ chief executive Colleen Milne wasn’t surprised because city fringe suburbs were now out of reach for many. The hot market made it hard for capital values to keep up, Milne said. “There has been a 19.9% median movement in Auckland in the last 18 months. I thought the CVs seemed to be quite appropriate at the time, but the whole thing is just supply and demand — we have a lack of houses,” she told the Herald on Sunday.

A ‘19.9% median movement in Auckland in the last 18 months’ is about 13.25% per year, a doubling time of just over 7 years. Auckland apartment prices in the Trade.me graph below, which covers February 2014-February 2015, would double every 3-4 years.

It must be an Anglo-Saxon disease. You can see it in London, in Sydney, Melbourne, New York, Toronto. The new normal way to make your failing economy look ‘healthy’ is to sell assets to any rich foreigner or investment fund who comes knocking, no matter what the consequences, short term or long term. In all these cities, young people can forget about buying a home, that allegedly government supported dream.

And everyone but the rich are pushed out ever further into the boondock burbs. It’s a ‘policy’ that kills cities, of necessity. Cities need people, real people, all people, poor and rich and old and young, that have grown up where they live, they love where they live, they are interested in making it look good and feel good. This is an ongoing and organic process, because cities are alive, and yes, you can kill them. But that’s for another story.

Back to New Zealand’s reality for the vast majority of people, who will never be able to fork over 100s of 1000s of dollars for a house. People like the workers in the timber industry, who see slowing Chinese demand translated into job cuts both for those who cut the trees and those who transport them.

Again, a dumb idea to base a whole industry around one client, but the men and women who did the job were just glad they had work. And now they don’t anymore. Jobs that in all likelihood will never come back again. China won’t have another debt-financed growth spurt, and there are no other candidates waiting on the horizon.

And that’s all a big shame. New Zealand is not poor, but it’s by no means as rich as Australia or Canada or Germany or the US. What it does have is the potential to be largely self-sufficient. A potential that is being squandered in order to play with the big boys of globalized trade.

New Zealand has only 4.5 million citizens, one third of which live in Auckland. It has vast tracts of productive land that are now used to feed export oriented cows and American pines, neither of which are even native. It could have a great shoe industry, plenty of leather, and a textile industry, plenty of wool. But New Zealand, like everyone else, imports such basic needs from China. While having scores of unemployed people. When will that light go off?

The country’s prime minister since 2008, John Key, used to work at Merrill Lynch and the New York Fed, and that sort of background guarantees valiant efforts to sell anything in the country that’s not bolted down, and take an axe to what is. It also guarantees zero initiative to become self-sufficient.

But then there are many tragic countries and societies in the world who all suffer from the same maladie. I’ll leave you with some reflections by the man who I’m told is New Zealand’s best business writer, Bernard Hickey in the NZ Herald:

New Zealand’s Economic Winds Of Change

Chaos theory calls it the butterfly effect. It’s the idea that a butterfly flapping its wings in the Amazon could cause a tornado in Texas. The New Zealand economy has plenty of its own butterflies changing the weather for GDP growth, jobs, interest rates, inflation and house prices. [..] One of the flappiest at the moment is the global iron ore price.

It’s barely noticed here but it’s an indicator of growing trouble inside our largest trading partner, China, and it is knocking our second-largest partner, Australia, for six. It fell to a 10-year low of almost US$50 a tonne this week and is down from a peak of more than US$170 a tonne in early 2011.

China embarked on an infrastructure spree after the global financial crisis. Over the three years to 2013, China poured 6.4 gigatonnes of concrete, which was more than was poured in the US in the entire 20th century. All that concrete needed reinforcing with steel and China didn’t have enough iron ore and coking coal to make it. That building boom created a glut of apartments and debt, which China now needs to digest. [..]

.. iron ore production in Australia has only now ramped up to its peak levels. Weak demand met high supply to produce a price slump. This all may seem irrelevant to New Zealand, but it’s not. The Australian dollar has fallen in response to the iron ore crash, while New Zealand’s dollar has remained strong because our economy is humming along, thanks to building surges in Christchurch and Auckland and plenty of spending and investment.

That divergence between the Australasian economies drove the New Zealand dollar to a record high of well over AUD$98 this week. Dollar parity would make all those winter holidays on the Australia Gold Coast and trips to shows in Sydney and Melbourne cheaper and generate a fierce headwind for manufacturing exporters and tourism businesses here that sell to Australians.

President Xi has reinforced the contrasting effects of the changes in China on Australia and New Zealand by encouraging consumers and investors to spend more of China’s big trade surpluses overseas. Tourism from China was up 40% in the first two months of this year from a year ago, and there remains plenty of demand from investors in China for New Zealand assets.

The dark side of this tornado in New Zealand after the flapping of the butterfly’s wings in China was felt in Nelson this week. The region’s biggest logging trucking firm, Waimea Contract Carriers, was put into voluntary administration owing $14m, partly because of a slump in log exports to China in the past six months.

That’s because New Zealand’s logs are now mostly shipped to China to be timber boxing for the concrete being poured in its new “ghost” cities. The Chinese iron ore butterfly has flapped and now we’re seeing Gold Coast winter breaks become cheaper and logging contracts rarer.

Mar 262015
 
 March 26, 2015  Posted by at 8:25 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Jack Delano Residents of rooming house for rail workers, Clinton, Iowa 1943

US Economy Heads Toward Zero Growth in Q1 (WolfStreet)
US Home Prices Are Surging 13 Times Faster Than Wages (Bloomberg)
UK Household Debt Soars By 9% To Hit A Record £239bn (Independent)
ECB Bond Buying To Continue Till Inflation Reaches 2%: Draghi (WSJ)
Europe Blocks Desperate Greek Attempt To Stay Afloat (Telegraph)
Eurozone Said to Give Greece Five Days to Deliver Plan (Bloomberg)
Greek Central Bank Governor Stournaras Says Grexit Isn’t An Option (WSJ)
A Murky, Sloppy Muddle: How Greece’s Exit From Euro Could Happen (Bloomberg)
Athens Raids Public Health Coffers In Hunt For Cash (FT)
Greek Government Takes Desperate Measures In Battle To Stay Afloat (Guardian)
How Low Can Interest Rates Go? (BBC)
US Risks Epic Blunder By Treating China As An Economic Enemy (AEP)
China’s European Shopping Spree Shows No Signs Of Slowing (Ind.)
US Couldn’t Corral AIIB Due To Soaring Chinese Investments In Europe (Atimes)
Putin Security Council Slams Obama Attempts At “New World Order” (Zero Hedge)
The Central Banker Who Saved the Russian Economy From the Abyss (Bloomberg)
Banking Enclave of Andorra Shaken by US Accusations (Bloomberg)
Meet The Kagans: A Family Business Of Perpetual War (Robert Parry)
After a Twelve Year Mistake in Iraq, We Must Just March Home (Ron Paul)
We’re Treating Soil Like Dirt. It’s A Fatal Mistake (Monbiot)
No One Must Go Thirsty: Water In Public Hands Is A Right (Beppe Grillo)

Want to bet the ‘real’ number will be way above zero?

US Economy Heads Toward Zero Growth in Q1 (WolfStreet)

The consistency with which nearly every report on the US economy has deteriorated over the last few months is astonishing. Only the jobs report has been spared that sharp downdraft. So we blame the weather, which in parts of the US was truly atrocious, while in other parts, particularly in California, it was gorgeous. Too gorgeous. This is supposed to be our rainy season, but every day the sun is out as we’re heading into our fourth year of drought. Yet the drought isn’t what keeps people from shopping or companies from ordering equipment. So out here, we’re baffled when the weather gets blamed. Today’s durable goods report for February was another shot at this wobbly edifice of the US economy.

New orders for manufactured durable goods dropped by 1.4%, the Census Bureau reported. It was the third decrease in four months. Transportation equipment fell 3.5%, also the third decrease in four months. Excluding transportation, new orders – “core” durable goods – fell 0.4%, down for the fifth month in a row. And Core Capital Goods New Orders, considered an important gauge of business spending, fell 1.4%, down for the sixth month in a row. The weather is really hard to blame for this, so folks blamed the strong dollar and slack demand in the US and globally. The data was bad enough to push the Atlanta Fed’s GDPNow model of the US economy down another step toward zero growth in the first quarter.

The Atlanta Fed started the model in 2011 to offer a more immediate picture where the economy is headed. It takes into account economic data as released and adjusts its GDP forecast for the quarter as it goes. The model is volatile. It reacts to incoming monthly data that are themselves volatile and subject to sharp revisions. So a few strong releases for March could turn this thing around on a dime. But we’re still dealing with the reality of January and February; the data has been crummy, and the Atlanta Fed’s “nowcast” is increasingly depicting an economy that is losing its struggle with growth.

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SO what exactly did the Fed purchase $1 trillion in mortgage-backed securities for? Riddle me that.

US Home Prices Are Surging 13 Times Faster Than Wages (Bloomberg)

For most people, buying a home is no cheap venture. That’s especially the case when the growth in U.S. home prices is beating wage increases 13 to 1. Wages climbed by 1.3% from the second quarter of 2012 to the second quarter of 2014, compared to a 17% increase in home prices around that time, according to a new report from RealtyTrac. The real-estate data provider used the Labor Department’s weekly earnings data to measure wage growth, while home prices were derived from sales-deed data in December 2014 and compared to December 2012 on the hypothesis that a change in average wages would take at least six months to affect home prices.

Using localized earnings data, RealtyTrac also found that 76% of housing markets posted increases in home prices that exceeded the wage growth there during that time frame. How could this happen? Enter the investor. In many markets, the housing recovery has “largely been driven over the last two years by buyers who are not as constrained by incomes – namely the institutional investors coming in and buying up properties as rentals, and international buyers coming in and buying, often with cash,” Daren Blomquist, vice president at RealtyTrac and author of the report, said in an interview.

For demand from traditional buyers to improve, “either wages are going to need to go up or prices are going to need to at least flatten out and wait for wages to catch up,” he said. “You might say the third alternative is interest rates go down so you give people more buying power with their wages, but interest rates are about as low as they can go.” The trend illustrates the limited impact of the Federal Reserve’s decision to include mortgage-backed securities in its unprecedented asset-buying program. The Fed bought more than $1 trillion of those securities to prop up the housing market after it collapsed and helped trigger the worst recession in the post-World War II era.

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How Britain fell back in love with debt.

UK Household Debt Soars By 9% To Hit A Record £239bn (Independent)

The average UK household is set to hold close to £10,000 in unsecured debt by the end of 2016, according to a leading accountancy firm. The forecast, by PricewaterhouseCoopers, was made after 2014 saw a sharp rise in unsecured debt, which bounced back to an all-time high of £239bn. The 9% rise in borrowing last year brings the average to close to £9,000, but PwC reckons that will grow. That would mean households will be closing in on the £10,000 figure if trends continue. The household debt to income ratio is projected to reach 172% by 2020, exceeding its previous peak set before the financial crisis. It includes mortgages and other debt secured on property.

Most banks all but ceased lending during the 2007/2008 shock. While mortgage lending is more strictly controlled than it was, the tap has gradually loosened when it comes to unsecured debt. PwC’s Precious Plastic: How Britons fell back in love with borrowing, published today, finds that most consumers are confident that they can manage their debt, with fewer worried about job security and pay rises as the economy improves. But the report says that despite consumers’ confidence, affordability will increasingly be called into question as the debt to income ratio steadily increases over coming years.

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To get inflation to 2%, people would need to massively raise spending. They won’t.

ECB Bond Buying To Continue Till Inflation Reaches 2%: Draghi (WSJ)

The European Central Bank will purchase large amounts of public and private debt for at least 18 months and until it is convinced that inflation will stabilise near annual rates of 2%, the bank s president Mario Draghi has said, underscoring the ECB’s willingness to flood the eurozone with freshly minted money far into the future. In testimony to European parliament, Mr Draghi also urged Greece to commit to fully honouring its debt obligations. Its government also must be specific about areas of economic and fiscal reforms where it is in agreement with its international creditors and, where there is disagreement, how (the reforms) are going to be replaced has to be specified , he said.

Referring to the ECB s bond purchase program, now entering its third week, Mr Draghi said: We intend to carry out our purchases at least until end-September 2016, and in any case until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. Mr Draghi’s testimony comes two weeks after the ECB launched a program to purchase more than €1 trillion in bonds mostly government debt by September 2016. The purpose of the program, known as quantitative easing, or QE, is to raise inflation rates closer to the ECB’s target of near 2%.

The ECB has said it would buy bonds at a monthly clip of €60 billion and that the purchases could even extend beyond September of next year. The Governing Council will take a holistic perspective when assessing the path of inflation. It will evaluate the likelihood for inflation not only to converge to levels that are closer to 2%, but also to stabilise around those levels with sufficient confidence thereafter, Mr Draghi said. Consumer prices were down 0.3% from year-ago levels in February, the third-straight decline on an annual basis.

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Say uncle first!

Europe Blocks Desperate Greek Attempt To Stay Afloat (Telegraph)

The Greek government will not receive €1.2bn in European rescue funds after officials ruled the Leftist government had no legal claims on the cash. Athens requested a return of the funds it said were erroneously handed to creditors from Greece’s own bank recapitalisation fund, the Hellenic Financial Stability Facility (HFSF). The transfer was originally arranged by the previous Greek administration. But eurozone officials have blocked the claim, saying it is “legally impossible” transfer the money back to the debt-stricken country. “There was agreement that, legally, there was no over payment from the HFSF to the EFSF,” said a fund spokesman. Germany’s finance ministry was also reluctant to allow the release, claiming there was “no reason” to make the transfer.

The decision is a further blow to the Greek government’s attempts to stay afloat over the next few weeks. Athens has been scrambling to make repayments to its creditors and continue to pay wages and pensions. The government now faces another €2.4bn cash squeeze in April, including a €450m loan repayment to the IMF on April 9. As part of its efforts to stay solvent, the Leftist government has also requested a €1.9bn transfer of profits held by the European Central Bank, from the holdings of Greek government bonds. So far, the ECB has rebuffed all Greek pleas to alleviate their cash squeeze. The central bank has moved to officially ban the country’s banks from increasing their holdings of short-term government debt.

Greek banks are being kept alive through the provision of an expensive form of emergency liquidity (ELA) which is rapidly being used up as capital flees the country. The ECB decided to incrementally raise the limit on ELA to €71bn – a bigger hike than in previous weeks.
Speaking in London on Wednesday, the ECB’s chief economist Peter Praet declined to comment on the Bank’s actions, saying it was important to exercise “verbal restraint” in moments of crisis. Worsening deposit flight has placed the squeeze on Greek lenders, who are only eligible for ELA as long as they are deemed to be solvent. Mr Praet said the country’s banks remained counterparties in their operations with the ECB, suggesting they remained healthy enough to continue receiving ELA.

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One plan after another.

Eurozone Said to Give Greece Five Days to Deliver Plan (Bloomberg)

Greece has until Monday to show how it will follow through on reform commitments after the euro area ruled out speedy access to aid funds, three officials said following a conference call of finance ministry deputies. The euro zone’s other 18 members were adamant on Wednesday’s call that Greece needs to deliver specific plans to see any more bailout cash, the officials said. Prime Minister Alexis Tsipras needs to show that Greece can rebuild trust in its promises, they said. Finance deputies left the door open to €1.2 billion that has been allocated to aid the banking system, as the deputies concluded that Greece can’t tap those funds on a technicality.

As a result, Greece will have to show it will move ahead with the changes its creditors are seeking to get the bank-aid money or other bailout funds. Greece won some financial breathing room Wednesday when the European Central Bank raised the ceiling for Emergency Liquidity Assistance to Greek banks by more than €1 billion to more than €71 billion, according to two people with knowledge of the decision who asked not to be named. The ECB’s move alleviates some near-term cash needs in the banking system while keeping pressure on Tsipras to find a longer-term solution. European officials have said that Greece could default on its obligations within weeks unless there’s a breakthrough.

Greece needs to act faster so its actions can be more effective, Eurogroup Chairman Jeroen Dijsselbloem, who heads the euro-area finance ministers’ group, said in Rotterdam on Wednesday. “The main problem is the same in every country in Europe: getting things done.” Monday will be a test of whether Greece can convince its peers that it will meet their demands for an economic overhaul, the officials said. Once Greece submits its next documents, they’ll need to be reviewed by the country’s official creditors and then the finance ministry deputies in the first few days of next week, ahead of Easter holidays, one of the officials said.

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Oh, yes it is.

Greek Central Bank Governor Stournaras Says Grexit Isn’t An Option (WSJ)

Bank of Greece Governor Yannis Stournaras said Wednesday that ditching the euro and exiting the single currency union is “not an option” for Greece. Mr. Stournaras told an audience at the London School of Economics that a Greek exit–dubbed “Grexit” in financial markets–risks triggering another severe downturn in the stricken Mediterranean economy. Greece has already improved its global competitiveness by driving down wages and prices, he said, and growth is returning. “Grexit would deliver no benefit, but a lot of pain,” Mr. Stournaras said. Quitting the eurozone would probably lead to even deeper austerity than Greece already has implemented, he said, while the adoption of an alternative currency would risk fueling runaway inflation.

His remarks come a day after the ECB instructed Greece’s biggest banks to refrain from taking on anymore short-term Greek government debt, adding to the pressure on Prime Minister Alexis Tsipras’s leftwing government in Athens to reach a deal with creditors over the terms of the nation’s €240 billion bailout package. Mr. Tsipras was elected in January on a pledge to reverse many of the budget cuts and other economic reforms demanded by Greece’s creditors in exchange for financial aid. But he has struggled to persuade lenders led by Germany and the IMF to back down, raising the specter of a disorderly Greek exit from the eurozone.

Greece now has just weeks to secure a deal to unlock billions of euros in badly needed funds to keep paying public-sector salaries and service the nation’s debts. Mr. Stournaras said Greece’s government has a unique opportunity to implement bold economic reforms and forge a durable recovery. “This is in my view a historical opportunity which should not be missed,” he said. He added that he’s more optimistic that Mr. Tsipras’s government is serious about reform than he was a month ago.

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Scenario’s.

A Murky, Sloppy Muddle: How Greece’s Exit From Euro Could Happen (Bloomberg)

With the fight to keep Greece in the euro now in its sixth year, everyone is running out of patience. More importantly, Prime Minister Alexis Tsipras’s government in Athens is running out of money. While bond yields suggest investors expect Greece to stay in the euro, economists such as UniCredit Bank AG’s Erik Nielsen say it may be just a matter of time before he’s forced to print a new currency. Adopting the euro was always supposed to be a one-way ticket, so there is no legal precedent or political roadmap for an exit. If you’re waiting for a formal announcement of a clear resolution, you may be waiting a long time.

Next steps for Greece range from retaining the euro to catastrophic divorce; half-measures like having multiple currencies circulate, with aid recycled to repay foreign-currency debts, are also in the cards. Equally unclear is who would tell the world – and how – that Greece has entered an economic afterlife. Possible messengers include Tsipras, the ECB, EU President Donald Tusk and European Commission President Jean-Claude Juncker, among others.

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Strip mining.

Athens Raids Public Health Coffers In Hunt For Cash (FT)

Greece’s government has raided the coffers of its public health service and the Athens metro as it widens a hunt for funds to keep itself afloat and service debts. Athens faces a €1.7bn bill for wages and pensions at the end of the month and then a €450m loan payment to the IMF on April 9. Greek government and eurozone officials believe Athens does not have funds to cover both. In another constraint on Greece’s ability to raise cash, the ECB decided to impose stricter curbs on the issuance of short-term government debt. EU officials expressed hope that a marathon Monday night meeting between Alexis Tsipras and Angela Merkel, would spark long-stalled talks over economic reforms Greece must implement to unlock €7.2bn in frozen bailout aid.

Athens has promised to deliver a list of reforms to eurozone authorities by Monday. But officials cautioned that the list would still have to be agreed with bailout inspectors before eurozone authorities could make progress on any deal to free up new funding. Though Mr Tsipras discussed his reform plans with Ms Merkel on Monday night, there were few signs that talks in Athens with bailout inspectors had become more active following the Berlin meeting. “The big ‘if’ is that they seem to move at such a glacial pace,” said an official. Greek authorities have also been seeking €1.2bn in funding that they believe was wrongly taken out of the country’s bank recapitalisation fund by eurozone authorities.

But EU officials said a quick decision on the matter was unlikely and even if Athens was awarded the cash it could only go towards bank rescues, not general government coffers. In the absence of progress, some EU officials were accelerating their preparations in case Athens runs out of cash before it agrees a reform programme. In Brussels, European Commission officials have begun looking again at EU law governing capital controls in case the growing uncertainty, or a non-payment to the IMF, spurs a renewed run on bank deposits.

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“They are scraping the bottom of the barrel for everything they can find.”

Greek Government Takes Desperate Measures In Battle To Stay Afloat (Guardian)

The Greek government is resorting to increasingly desperate measures to keep afloat amid dire warnings the debt-stricken country could go bust within weeks. In a balancing act not seen by any European administration in recent times, the cash-strapped coalition has sequestered the reserves of public bodies, seized EU subsidies destined for farmers and postponed all payments for state supplies in the scramble to continue servicing its debt and paying salaries and pensions. Pension funds have been raided to raise money for Treasury bill auctions. “It is clear we are reaching the end and very soon won’t be able to pay,” former finance minister, Stefanos Manos, said. “They are scraping the bottom of the barrel for everything they can find.”

To cover the credit crunch, corporations in which the state has a majority stake, including the Athens Metro, have been tapped. The scheme of repo transactions – where government bonds are used for short-term borrowing requirements – is believed to have raised upwards of €600m in recent weeks. Earlier this month the leftist-led coalition suspended some €300m of EU subsidies for farmers to help pay €1.7bn in public sector wages and pensions due next week. Greek subsidiaries of multinationals have also been approached for loans.

The last-resort measures came as Deutsche Bank warned that Athens was at risk of being pushed into default on 9 April when it must meet a €450m debt repayment to the International Monetary Fund. The precarious state of Athens’ finances has been exacerbated by a precipitous decline in tax revenues – more than €1bn below target since January – said the bank’s economists. Deposit flight has also ratcheted up the pressure. More than €20bn has fled the country since the beginning of the year as savers rush to withdraw funds, worried about Greece’s ability to remain in the euro. “The risk of capital controls continues to rise,” noted the Deutsche report.

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“..the nearer Bank Rate approaches zero, the bigger the squeeze on the profits banks earn from borrowing and lending.”

How Low Can Interest Rates Go? (BBC)

The Bank of England’s website says that the “effective lower bound” for the interest rate it sets, Bank Rate, is the current rate of 0.5%. This is the level, according to the Bank, “below which it cannot be set” – the lowest practicable official interest rate. But on this important issue the website is behind the thinking of the Bank of England’s Monetary Policy Committee, which sets Bank Rate as its main tool to keep inflation on target. Because just over a month ago, the Bank’s governor said that if low inflation were to begin to depress expectations of inflation and wage growth, the MPC could “cut Bank Rate further towards zero”.

And with inflation well below the 2% target at zero, the Bank’s chief economist, Andy Haldane, has said – as a personal rather than institutional view – that there is a meaningful chance that Bank Rate will be cut. So what has happened to demonstrate to the Bank that 0.5% is not the practicable minimum. Partly it is the example of central banks – the European Central Bank and those of Switzerland, Sweden and Denmark – whose official rates are negative: banks that place funds with them are having interest deducted from their deposits, rather than receiving interest. Their rates are less than zero. The other contributor to the fall in the effective lower bound is the recovery of Britain’s banks.

This matters because the nearer Bank Rate approaches zero, the bigger the squeeze on the profits banks earn from borrowing and lending. Think of it this way. Competition between banks should bring down the interest rate on loans when Bank Rate is cut towards zero. But savings rates would be kept by competition above zero. So the gap between the interest rate paid and received by banks would narrow: the profits on this most basic of banking activities would fall. Also the windfall received by banks from all those interest-free deposits the banks hold would be significantly cut.

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“China must recycle its trade surpluses and its $3.8 trillion reserves by one means or another. It can buy US Treasuries, Bunds, or Gilts, perpetuating a global bond bubble.”

US Risks Epic Blunder By Treating China As An Economic Enemy (AEP)

The United States has handled its economic diplomacy with shocking myopia. The US Treasury’s attempt to cripple the Asian Infrastructure Investment Bank (AIIB) before it gets off the ground is clearly intended to head off China’s ascendancy as a rival financial superpower, whatever the faux-pieties from Washington about standards of “governance”. Such a policy is misguided at every level, evidence of what can go wrong when a lame-duck president defers to posturing amateurs in Congress on delicate matters of global geostrategy. Washington has enraged Britain by trying to browbeat Downing Street into boycotting the project. It has forced allies and friendly countries across the Far East to make a fatal choice between the US and China that none wished to make, and has ended up losing almost everybody. Germany, France, and Italy are joining. Australia and South Korea may follow soon.

The AIIB is exactly what the world needs. China must recycle its trade surpluses and its $3.8 trillion reserves by one means or another. It can buy US Treasuries, Bunds, or Gilts, perpetuating a global bond bubble. It can make surgical investments abroad to acquire technology for its champions and pursue a narrow national interest. Or it can recycle the money in concert with other members of the AIIB – with a start-up capital of $50bn – for sewage projects, clean energy, ports, roads, and railways in Asia, helping to plug a $700bn shortfall in infrastructure investment that the World Bank is too small to cover and which is of collective benefit to the world. Britain recycled its surpluses in the 19th Century by building the world’s railways.

America did so in the 1950s through the Marshall Plan. China must do likewise, and it is hard to see why the AIIB is considered such a villainous variant. American officials castigated Britain for breaking ranks and embracing the project, as if it were kowtowing to an enemy. “We are wary about a trend of constant accommodation of China, which is not the best way to engage a rising power,” one US official told the Financial Times. One is left breathless at the historical folly of such a view in any case. As Henry Kissinger told Caixin magazine this week, the greater danger is that the US fails to accommodate the rise of China in an enlightened fashion, repeating errors made by the status quo powers faced with a prickly Germany before the First World War.

There are echoes of the Korean War in this Atlantic spat, though thankfully the stakes are less violent today. Britain tried to restrain General Douglas MacArthur and Washington’s hawks as they sent US forces charging through North Korea to the Yalu River and the Manchurian border in 1950, warning that it would force China to respond. MacArthur’s contemptuous riposte was to liken British reflexes to the betrayal of Czechoslovakia at Munich, of “desiring to appease the Chinese Communists by giving them a strip of Northern Korea.” The British experts were right. China threw four armies across the Yalu. America had arrogantly stumbled into a shooting war with the Chinese revolution, a cataclysmic mistake.

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More strip mining.

China’s European Shopping Spree Shows No Signs Of Slowing (Ind.)

A planned takeover of the Italian tyre maker Pirelli by ChemChina is the latest in a string of Chinese acquisitions in Europe, topping up total foreign investment from China worth $18 billion in 2014, double 2013. Pirelli, the world’s fifth largest tyre maker, will be in Chinese hands after ChemChina confirmed a $7.7 billion bid on Sunday. The deal will give Pirelli a slice of the Chinese tyre market and could see its global market share rise to 10%. It’s one of the biggest European acquisitions by a Chinese company yet. But that’s unlikely to be the case for long. Chinese investors have shown increasing interest in Europe as a centre for investment in the last year, spurred on by the cheap euro and the opportunity to invest in legacy brands.

“Chinese investment in Europe has become much more diverse in recent years and is now extending into all parts of Europe.” said Thomas Gilles, Chairman of the EMEA-China Group at Baker & McKenzie. “What we’re seeing is the maturing and normalization of Chinese investment processes in line with the international economy.” The UK is top of the list. Last year, Chinese investors acquired several billion-dollar British investments. Pizza Hut went for a cool £940 million ($1.4 billion), while property bought by Chinese firms includes Chiswick Park for £875 million ($1.3 billion) and 10 Upper Bank Street for £497 million ($740 million).

Last week it emerged that a Chinese company backed by billionaire Guo Guangchang is looking acquire 18 buildings in Berlin’s Potsdamer Platz square, in what could be the biggest German property sale since 2007. Last year France sold Peugeot for £740 million ($1.1 billion).

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“.. the yuan has increased in value against the Euro almost 25% in one year..”

US Couldn’t Corral AIIB Due To Soaring Chinese Investments In Europe (Atimes)

Stopping a stampede isn’t easy – as that old cowpoke Uncle Sam’s discovering as more European nations bolt to join China’s Asian Infrastructure Investment Bank (AIIB). The weak Euro’s drawing a conga line of Chinese investments to Europe. The money’s being plunked down not only in “typical” Chinese sectors of historic interest like resources or transportation. It’s focusing geographically across the entire European opportunity and capability spectrum. The uplifting effects of this investment hasn’t been lost on the European countries who are now eager to climb aboard China’s AIIB. Ever since Europe embarked on their QE, and China has maintained stability in the yuan.

As we have noted, this is viewed as pre-condition for the non-convertible yuan to join the IMF’s SDR currency basket later this year. And the yuan has increased in value against the Euro almost 25% in one year – a trend likely to continue through the year with the long-term policies of the respective central banks likely to stay in place for the foreseeable future. According to the EU Observer: “Even before the crisis, these flows surged, tripling from less than US$1 billion per year in 2004-8 to roughly $3 billion in 2009-10. As the Eurozone crisis kicked in, Chinese investment tripled again to $10 billion in 2011. And last year, Chinese investors doubled their money in Europe to a record $18 billion.”

Chinese capital’s typically poking around for each European country’s relative market advantages. In the UK as with many foreign investors, the Chinese have focused on prime property, while in Germany they look for advanced technology. “The UK is the top destination for Chinese investment at $5.1 billion, followed by Italy at $3.5 billion,” the Observer said. As the capital needs of Southern Europe grow, Chinese capital has focused on privatisations and distressed opportunities, from the Greek ports connecting to their new Silk Road to Europe, to Portugal’s Espirito Santo Bank and Spain’s real estate foreclosures.

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They’re on to us.

Putin Security Council Slams Obama Attempts At “New World Order” (Zero Hedge)

Moscow – which may or may not have to nuke Denmark – says the US has adopted a national security strategy that is decidedly anti-Russian. Although attempts to prove how “isolated” Putin truly is on the geopolitical stage haven’t fared very well of late (what with Russian bombers refueling at former U.S. air bases and Putin plotting Eurasian currency unions) and although Washington’s experience with China’s AIIB membership drive seems to indicate it may be the US that is in fact isolated, The Kremlin doesn’t think The White House is likely to give up on its attempts to ostracize Russia any time soon. From a Russian Security Council statement entitled “About The US National Security Strategy”:

In the long term, the United States, in cooperation with its allies will continue the policy of political and economic isolation of Russia, including limiting its ability to export energy and the displacement of all markets for military products, while making it difficult for the production of high-tech products in Russia.

Putin’s security council then proceeds to deliver a remarkably accurate description of Washington’s foreign policy aims including the desire to show off NATO military capabilities (on full display along the Russian border currently), installing puppet governments and propping them up with financial and military support (which is precisely what’s going on now in Ukraine as the US is set to provide military assistance and also financial assistance via a Ukrainian bond issue back by the full faith and credit of the US government), and preserving US hegemony by taking unilateral action across the globe at Washington’s behest (something the US does all the time):

The Strategy emphasizes the US desire to proceed with the formation of a new global economic order. A special place in this order should take a Trans-Pacific Partnership and transatlantic trade and investment partnership that will enable the US central position in the free trade zones, covering two-thirds of the world economy. The armed forces are considered as the basis of US national security and military superiority is considered a major factor in the American world leadership. While maintaining the continuity of the plans to use military force unilaterally and anywhere in the world, as well as to maintain a military presence abroad…

Significant efforts by the US and its allies will be directed to the formation of anti-Russian policy states, with which Russia has established partnership relations, as well as to reduce Russian influence in the former Soviet Union. Continue the policy of preserving the global dominance of the United States, increasing the combat capabilities of NATO, as well as to strengthen the US military presence in the Asia-Tihokeanskom region. Military force will continue to be considered as the primary means of ensuring national security and interests of the United States. Becoming more widespread to eliminate unwanted US political regimes acquire advanced technology “color revolutions” with a high probability of their application in relation to Russia.

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“Russia would no longer fight the market. Speculators needed a cold shower, she said.”

The Central Banker Who Saved the Russian Economy From the Abyss (Bloomberg)

Panic reached the inner sanctum of the Russian central bank. It was Dec. 16 – the day Russian traders would later christen Black Tuesday – and the ruble was in a freefall.“Intervene! Intervene!” a central bank official shouted. Governor Elvira Nabiullina watched the currency on her tablet screen react to her emergency rate increase. No, she said, not this time: Russia would no longer fight the market. Speculators needed a cold shower, she said. That daring decision, related by two people with knowledge of the meeting, has begun to pay off for Nabiullina, 51, and her patron, President Vladimir Putin. Despite sanctions meant to punish Russia for its foray into Ukraine a year ago, the ruble has stabilized. Since Black Tuesday, when it plunged to a record low, the ruble has rebounded 19% against the dollar, the most among 24 emerging-market currencies.

Russia still confronts a painful recession brought on by the collapse in oil, and many of its banks are hurting. But for now, at least, the economy has stepped back from the abyss. Finance Minister Anton Siluanov last week declared the worst was over. Inside the central bank, near Red Square, the lull passes for victory. Nabiullina no longer has to squander foreign-exchange reserves in vain attempts to prop up the ruble. Now she faces the equally daunting task of binding up the wounded economy. While her central bank is nominally independent, analysts agree Putin is ultimately in charge. Yet Nabiullina has emerged as a power in her own right, with a direct line to the president.

Nabiullina isn’t afraid to speak up. When aides urged Putin to impose capital controls last year, she fought against the move and pushed for a freely floating ruble, according to people with knowledge of the matter. Putin heeded her advice — and then let Nabiullina sort out the details. “It was a historic moment because she convinced Putin to accept a market solution to a problem that threatened the whole banking system,” UBS AG Russia Chairman Rair Simonyan said. Russia might well have veered into economic isolation, he said. What Nabiullina came up with turned out to be one of the biggest financial gambles of Putin’s 15-year rule. First she raised interest rates to punishingly high levels, lifting the benchmark rate to 17% from 10.5% in one stroke. Then she stepped back from intervening on the currency market.

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“..a primary money-laundering concern..”

Banking Enclave of Andorra Shaken by US Accusations (Bloomberg)

Juan Ovelar made a quick decision when he heard the U.S. government had accused his Andorran bank of money-laundering, and immediately withdrew most of his funds. “I’m worried that everyone will do the same as I did and there will be a knock-on effect that could affect other banks,” said Ovelar, 27, a computer expert from Argentina, in an interview outside the headquarters of Banca Privada d’Andorra in the capital Andorra La Vella. The U.S. Treasury named Banca Privada d’Andorra, the country’s fourth-largest bank, a “primary money-laundering concern” on March 10. That led to its seizure by Andorran authorities, the arrest of the chief executive officer and a run on customer funds at the lender’s Spanish unit.

The bank’s fate sent tremors through Andorra, a 181-square-mile (469 km2) Catalan-speaking microstate in the eastern Pyrenees with an economy based on skiing, tax-free shopping and banking. The scandal raises risks for its financial industry, which makes up almost a fifth of the €1.8 billion economy and is too big to be bailed out by the state, said Xavier Puig, a professor at Barcelona’s Universidad Pompeu Fabra. Customers lined up at the bank’s branches to take out their money after it limited cash withdrawals to 2,500 euros a week, starting March 16. The bank’s new management, appointed by local regulators, imposed the limit after international banks severed credit lines, a person with knowledge of the situation said.

Andorra’s government is trying to convince international banks to open credit lines so customers won’t be cut off from funds, said the person, who asked not to be identified because the talks are private. Options under consideration for the bank include the sale of assets or liquidation, the person said, adding that officials are seeking a quick solution to limit the effect on other banks. “The government is acting quickly to find a solution because the consequences can be very serious,” said Puig. “They need to amputate this part so that the gangrene doesn’t extend to the rest of the body.” Fitch Ratings put the three largest Andorran banks on watch for a possible downgrade on Monday because of “potential spill-over effects.”

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A comprehensive overview of behind the scenes US war mongering.

Meet The Kagans: A Family Business Of Perpetual War (Robert Parry)

Neoconservative pundit Robert Kagan and his wife, Assistant Secretary of State Victoria Nuland, run a remarkable family business: she has sparked a hot war in Ukraine and helped launch Cold War II with Russia – and he steps in to demand that Congress jack up military spending so America can meet these new security threats. This extraordinary husband-and-wife duo makes quite a one-two punch for the Military-Industrial Complex, an inside-outside team that creates the need for more military spending, applies political pressure to ensure higher appropriations, and watches as thankful weapons manufacturers lavish grants on like-minded hawkish Washington think tanks.

Not only does the broader community of neoconservatives stand to benefit but so do other members of the Kagan clan, including Robert’s brother Frederick at the American Enterprise Institute and his wife Kimberly, who runs her own shop called the Institute for the Study of War. Robert Kagan, a senior fellow at the Brookings Institution (which doesn’t disclose details on its funders), used his prized perch on the Washington Post’s op-ed page on Friday to bait Republicans into abandoning the sequester caps limiting the Pentagon’s budget, which he calculated at about $523 billion (apparently not counting extra war spending). Kagan called on the GOP legislators to add at least $38 billion and preferably more like $54 billion to $117 billion.

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“..the greatest strategic disaster in US history.”

After a Twelve Year Mistake in Iraq, We Must Just March Home (Ron Paul)

Twelve years ago last week, the US launched its invasion of Iraq, an act the late General William Odom predicted would turn out to be “the greatest strategic disaster in US history.” Before the attack I was accused of exaggerating the potential costs of the war when I warned that it could end up costing as much as $100 billion. One trillion dollars later, with not one but two “mission accomplished” moments, we are still not done intervening in Iraq. President Obama last year ordered the US military back into Iraq for the third time. It seems the Iraq “surge” and the Sunni “Awakening,” for which General David Petraeus had been given much credit, were not as successful as was claimed at the time.

From the sectarian violence unleashed by the US invasion of Iraq emerged al-Qaeda and then its more radical spin-off, ISIS. So Obama sent the US military back. We recently gained even more evidence that the initial war was sold on lies and fabrications. The CIA finally declassified much of its 2002 National Intelligence Estimate on Iraq, which was the chief document used by the Bush Administration to justify the US attack. According to the Estimate, the US Intelligence Community concluded that:

‘[W]e are unable to determine whether [biological weapons] agent research has resumed…’ And: ‘the information we have on Iraqi nuclear personnel does not appear consistent with a coherent effort to reconstitute a nuclear weapons program.’

But even as the US Intelligence Community had reached this conclusion, President Bush told the American people that Iraq, “possesses and produces chemical and biological weapons” and “the evidence indicates that Iraq is reconstituting its nuclear weapons program.” Likewise, Defense Secretary Donald Rumsfeld’s “bulletproof” evidence that Saddam Hussein had ties with al-Qaeda was contradicted by the National Intelligence Estimate, which concluded that there was no operational tie between Hussein’s government and al-Qaeda. Even National Security Advisor Condolezza Rice’s famous statement that the aluminum tubes that Iraq was purchasing “are only really suited for nuclear weapons programs, centrifuge programs,” and “we don’t want the smoking gun to be a mushroom cloud,” was based on evidence she must have known at the time was false. According to the NIE, the Energy Department had already concluded that the tubes were “consistent with applications to rocket motors” and “this is the more likely end use.”

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“..soil in allotments contains a third more organic carbon than agricultural soil and 25% more nitrogen..”

We’re Treating Soil Like Dirt. It’s A Fatal Mistake (Monbiot)

Imagine a wonderful world, a planet on which there was no threat of climate breakdown, no loss of freshwater, no antibiotic resistance, no obesity crisis, no terrorism, no war. Surely, then, we would be out of major danger? Sorry. Even if everything else were miraculously fixed, we’re finished if we don’t address an issue considered so marginal and irrelevant that you can go for months without seeing it in a newspaper. It’s literally and – it seems – metaphorically, beneath us. To judge by its absence from the media, most journalists consider it unworthy of consideration. But all human life depends on it. We knew this long ago, but somehow it has been forgotten. As a Sanskrit text written in about 1500BC noted: “Upon this handful of soil our survival depends. Husband it and it will grow our food, our fuel and our shelter and surround us with beauty. Abuse it and the soil will collapse and die, taking humanity with it.”

The issue hasn’t changed, but we have. Landowners around the world are now engaged in an orgy of soil destruction so intense that, according to the UN’s Food and Agriculture Organisation, the world on average has just 60 more years of growing crops. Even in Britain, which is spared the tropical downpours that so quickly strip exposed soil from the land, Farmers Weekly reports, we have “only 100 harvests left”. To keep up with global food demand, the UN estimates, 6m hectares (14.8m acres) of new farmland will be needed every year. Instead, 12m hectares a year are lost through soil degradation. We wreck it, then move on, trashing rainforests and other precious habitats as we go. Soil is an almost magical substance, a living system that transforms the materials it encounters, making them available to plants.

That handful the Vedic master showed his disciples contains more micro-organisms than all the people who have ever lived on Earth. Yet we treat it like, well, dirt. The techniques that were supposed to feed the world threaten us with starvation. A paper just published in the journal Anthropocene analyses the undisturbed sediments in an 11th-century French lake. It reveals that the intensification of farming over the past century has increased the rate of soil erosion sixtyfold. Another paper, by researchers in the UK, shows that soil in allotments – the small patches in towns and cities that people cultivate by hand – contains a third more organic carbon than agricultural soil and 25% more nitrogen. This is one of the reasons why allotment holders produce between four and 11 times more food per hectare than do farmers.

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Bravo.

No One Must Go Thirsty: Water In Public Hands Is A Right (Beppe Grillo)

“Why is the water bill so high? In the last few years, have you ever tried to understand why something that should be a right is now something that makes a big hole in your savings? Someone would like to ruin the results of the 2011 referendum, in which a massive majority of the Italian people said “no” to every law that could place the handling of public water into private hands. However, in Italy, strange things are happening: water is cut off indiscriminately and without warning on a regular basis, the price of water has gone up by 95.8% in the last few years, the profits of the municipal companies are no longer being reinvested to reduce leakage but to maximise profits. Basically, those who are now managing water resources are today thinking more about making profits, rather than about providing a service.

The money we are paying in water bills is going to enrich the shareholders with generous dividends. This is a camouflaged privatisation and it is going against what was expressed as the will of the people. The 5 Star MoVement is taking to the European Parliament one of its historical battles: that of defending one of its five stars, keeping water in public hands. The proposal is simple: NO ONE MUST GO THIRSTY The World Health Organization has done the calculations: for an individual’s minimum needs between 50 and 100 litres of water a day are required. This amount must be guaranteed for all. This is why the 5 Star MoVement is proposing a service that provides a guaranteed minimum water supply for each person. It’s not acceptable to get rich by trading in water. That’s the message from the European citizens that have signed a petition asking European institutions NOT to privatise water.

1 million 800 thousand signatures for the first example of direct democracy in Europe. The Commission’s response has been disappointing because it hasn’t put forward any new legislative proposal. The principles contained in its communication are sacred but these need to be reinforced with laws, not just words. Furthermore, as regards the dreaded liberalization of public water, the Commission has underlined that it is up to the member States to make the laws. in particular, it has emphasised that the supply of water is the responsibility of the local authorities within the member State, and it is up to them to make the decisions as to whether to manage the supply directly, indirectly or by using private suppliers.

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