Jun 182017
 
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Fred Lyon Land’s End San Francisco 1953

 

Global Inequality Much Worse Than Previously Thought (Ind.)
The US Is Where the Rich Are the Richest (BBG)
UK Wealth Gap Rises As Home Ownership Falls (G.)
UK Debt Bubble Returns Millions To Days Of 2008 Crash (G.)
Macron Set To Dynamite Parties That Have Dominated For Half A Century (AFP)
Secret Plot To Oust Theresa May If She Fails To Deliver ‘Hard’ Brexit (Tel.)
Arrogance: The Greeks Had A Word For It (G.)
Illinois Finances In ‘Massive Crisis Mode’ (AP)
Metastability (Kocic)
Young Greeks Can’t Name EU Achievements (K.)
Abandoned and Abused: Syrian Refugee Children On Greek Detention Island (G.)

 

 

It’s like the mob rules the world.

Global Inequality Much Worse Than Previously Thought (Ind.)

The gap between rich and poor across the globe is even wider than we currently think, according to a new analysis. Official estimates of inequality only take into account the money that the tax man sees, according to a recent paper by economists, Annette Alstadsæter, Niels Johannesen and Gabriel Zucman. But recent leaks of vast caches of documents from secretive jurisdictions such as Panama and Switzerland have given a more accurate picture of the sheer scale of global tax evasion – most of it carried out by very wealthy people. The three economists have used this trove of data to make a new assessment of the true wealth of the planet’s richest people, and thus a potentially more accurate measure of just how much richer they are than those at the bottom.

Until now, most assessments of wealth have relied on random tax audits, which do not pick up hidden offshore assets. This would not impact measurements global inequality if the poor dodged paying their dues as much as the rich did. In fact the rich evade many multiples more than the poor, according to Alstadsæter, Johannesen and Zucman. They studied three sets of documents: the Panama Papers, leaked from a Central American law firm which helped people set up tax haven companies; the Swiss Leaks, which revealed the dealings of HSBC’s Swiss subsidiary; and Scandinavian tax records, which give an unusually detailed picture of the income of citizens of that region. By combining the data sets they were able to make an estimate of the true size and scope of tax evasion, and thus inequality.

They found the wealthiest 0.01% in Norway, Sweden and Denmark evaded 30% of their personal taxes on average, compared to just 3% in the total population. In Norway, which has particularly detailed data, the super-rich, ie the top 0.1% of the wealth pyramid, are 30% wealthier than previously thought, when their hidden offshore assets are taken into account. This means they actually own 10% of all wealth, not the 8% previously thought. The authors posit that the scale of tax evasion is likely to be even worse in many other countries which have far less stringent tax disclosure rules. Only when we can truly assess how much personal wealth is stashed offshore will the scale of global equality be known, the economists say.

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It’s also where this won’t last. You CAN go to far.

The US Is Where the Rich Are the Richest (BBG)

It’s an excellent time to be rich, especially in the U.S. Around the world, the number of millionaires and billionaires is surging right along with the value of their holdings. Even as economic growth has slowed, the rich have managed to gain a larger slice of the world’s wealth. Globally, almost 18 million households control more than $1 million in wealth, according to a new report from the Boston Consulting Group. These rich folk represent just 1% of the world’s population, but they hold 45% of the world’s $166.5 trillion in wealth. They will control more than half the world’s wealth by 2021, BCG said. Rising inequality is of course no surprise. Reams of data have shown that in recent decades the rich have been taking ever-larger shares of wealth and income—especially in the U.S., where corporate profits are nearing records while wages for the workforce remain stagnant.

In fact, while global inequality is simply accelerating, in America it’s gone into overdrive. The share of income going to the top 1% in the U.S. has more than doubled in the last 35 years, after dropping in the decades after World War II (when the rich were taxed at high double-digit rates). The tide shifted in the 1980s under Republican President Ronald Reagan, a decade when “trickle-down economics” saw tax rates for the rich fall, union membership shrink, and stock markets spike. Now, those policies and their progeny have helped put 63% of America’s private wealth in the hands of U.S. millionaires and billionaires, BCG said. By 2021, their share of the nation’s wealth will rise to an estimated 70%. The world’s wealth “gained momentum” last year, BCG concluded, rising 5.3% globally from 2015 to 2016.

The firm expects growth to accelerate to about 6% annually for the next five years, in both the U.S. and globally. But a lot of that can again be attributed to the rich. The wealth held by everyone else is just barely growing. Where is all this wealth coming from? The sources are slightly different in the U.S. compared with the rest of the world. Globally, about half of new wealth comes from existing financial assets—rising stock prices or yields on bonds and bank deposits—held predominately by the already well-off. The rest of the world’s new wealth comes from what BCG classifies as “new wealth creation,” from people saving money they’ve earned through labor or entrepreneurship. In the U.S., the creation of “new” wealth is a minor factor, making up just 28% of the nation’s wealth increase last year. It’s even lower in Japan, at 21%. In the rest of the Asia Pacific region, meanwhile, two-thirds of the rise is driven by new wealth creation.

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Whenever you see “rising pension wealth” anywhere these days, feel free to laugh out loud.

UK Wealth Gap Rises As Home Ownership Falls (G.)

A fall in home ownership is fuelling the return of rising wealth inequality across Britain, it has emerged. Booming house prices in the run-up to the financial crisis had led to a decade-long fall in the uneven distribution of the country’s wealth. However, comprehensive new analysis of the UK’s wealth divisions has now found that the trend has gone into reverse. The study by the Resolution Foundation thinktank found that just a tenth of adults own around half of the nation’s wealth. The top 1% own 14% of the total. It warned that even this figure may be an underestimate because of the difficulties in calculating the assets of the super-rich. By contrast, 15% of adults in Britain have either no share of the nation’s record £11.1 trillion of wealth, or have negative wealth. The study found that wealth is distributed far less evenly than earnings or household income.

The thinktank measured wealth inequality using the “Gini coefficient”, with 0 being perfect wealth equality and 1 representing a society where a single person has it all. Wealth inequality was almost twice as high as earnings inequality. Despite the perception that wealth inequality has been rising for decades, the research found that the inequality of net financial and property wealth fell steadily between 1995 and 2005, with the Gini coefficient falling from 0.71 to 0.64. The fall was driven by high and rising home ownership, with more households benefiting from the pre-crisis property price boom. As a result, the proportion of property wealth owned by the bottom four-fifths of adults grew from 35% in 1995 to 40% in 2005.

However, home ownership has been falling steadily since the mid-2000s, with the wealth held by the bottom four-fifths of the population dipping as a result. Since the financial crisis, home ownership among the least wealthy 50% of the population has fallen by about 12%. Meanwhile, it has risen by 1% for the wealthiest tenth. The shift in property ownership further towards the richest has contributed to the widening of wealth inequality. Including private pensions, the Gini coefficient rose from 0.67 to 0.69 from 2006-08 to 2012-14. Total wealth across Britain, which includes private pensions, property, financial and physical wealth, rose in the wake of the financial crisis from £9.9tn in 2006-08 to £11.1tn in 2012-14. This has been fuelled by rising pension wealth. [..] Private pensions account for 40% of the wealth total – the largest share at £4.5tn.

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Add this to all the other issues. A gutted society.

UK Debt Bubble Returns Millions To Days Of 2008 Crash (G.)

Charities and financial advisers are calling on the government to use the Queen’s speech to address the “bubble” of unmanageable debt that households are rapidly accumulating. Unsecured consumer credit – including credit cards, car loans and payday loans – is this year expected to hit levels not seen since the 2008 financial crash. There has been concern in the Bank of England that consumer spending is being underpinned by debt, amid comparisons to the run-up to the financial crash. In addition, figures published last week show inflation reached a four-year high in May, meaning shopping is getting increasingly expensive, further intensifying the squeeze on household budgets.

Debt advisers are urging the government to make good on fulfil a promise in the Conservative manifesto to introduce a scheme where those in serious debt are protected by law from further interest, charges and enforcement action for up to six weeks. Many campaigners would like to see this extended further, to up to a year. “It would be excellent if the government in the Queen’s speech committed to helping households who are struggling with debt. It really is one of the great problems of the time that politicians have to grapple with,” said Peter Tutton, head of policy at debt charity StepChange. “We are seeing more and more households struggling just to make basic ends meet – to pay their rent, to pay their council tax, to pay their gas bill. We would like to see the government say, ‘we need to do something about this’.”

The charity estimates that 2.9 million people in the UK are experiencing severe financial debt in the aftermath of the recession. One reason is that many who lost their jobs found new jobs that were less well paid. Sara Williams, the author of Debt Camel, a blog advising on money problems, said: “The recent large increases in consumer credit … look alarming to debt advisers – very much like a bubble building up.”

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I still want to see who paid for all this. It’s too fast and furious to be spontaneous.

Macron Set To Dynamite Parties That Have Dominated For Half A Century (AFP)

French voters went to the polls on Sunday for parliamentary elections set to hand a landslide victory to the centrist party of President Emmanuel Macron which would complete his stunning reset of national politics. The new assembly is due to be transformed with a new generation of lawmakers – younger, more female and more ethnically diverse – winning seats in the afterglow of Macron’s success in presidential elections last month. The scale of the change is forecast to be so large that some observers have compared the overhaul to 1958, the start of the present presidential system, or even the post-war rebirth of French democracy in 1945. It is also entirely unexpected: Macron was unknown three years ago and initially given little chance of emerging as president, but he and his 15-month-old Republic on the Move (REM) party have tapped into widespread desire for change.

“It’s like a science fiction movie for me,” REM candidate Beatrice Failles, a weapons inspector, writer and community activist, told AFP this week during campaigning in Paris. REM and its allies are forecast to win 400-470 seats in the 577-strong parliament, one of the biggest majorities post-war that would give the pro-EU Macron a free hand to implement his business-friendly programme. Sunday’s voting is the decisive second round of the election after a first round last weekend which was topped by REM. If confirmed, the victory will come at the expense of France’s traditional parties, the rightwing Republicans and Socialists, but also the far-right National Front which faces major disappointment. The Socialists are set to be the biggest victim of voters’ desire to reject establishment figures associated with years of high unemployment, terror attacks and lost national confidence.

Pollsters predict the party faces financial ruin with its strength in parliament falling from nearly 300 seats to around 20 after their five years in power under president Francois Hollande. The main concern for observers and critics is the likely absence of any political counterweight to Macron, leading some to forecast that opposition could be led through street protests or in the media. “Desperately seeking an opposition,” said the front page of Le Parisien newspaper on Saturday. [..] In the first round, REM won 32% of the total number of votes cast, but this represented only about 15% of the total number of registered voters. Around half of REM’s candidates are virtual unknowns drawn from diverse fields of academia, business or local activism. They include a mathematician, a bullfighter and a former Rwandan orphan. “You could take a goat and give it Macron’s endorsement and it would have good chance of being elected,” political analyst Christophe Barbier joked recently.

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Brexit negotiations will be insane. Multiple governments will fall over this.

Secret Plot To Oust Theresa May If She Fails To Deliver ‘Hard’ Brexit (Tel.)

Theresa May will face a “stalking horse” challenge to topple her as Prime Minister if she waters down Brexit, senior Tories have warned. Leading Eurosceptic MPs have told The Telegraph they are prepared to mount an immediate leadership challenge if Mrs May deviates from her original plan. The revelation comes after a torrid week for the Prime Minister in which she faced fierce criticism for her handling of the Grenfell Tower catastrophe. Conservative MPs – including Cabinet ministers – have concluded that Mrs May cannot lead them into the next election and they are now discussing when she could go. Eurosceptic MPs have warned that any attempt to keep Britain in the customs union and single market or any leeway for the European Court of Justice to retain an oversight function will trigger an “overnight” coup.

The plot has been likened to Sir Anthony Meyer’s 1989 challenge against Margaret Thatcher. One influential former minister said: “If we had a strong signal that she were backsliding I think she would be in major difficulty. The point is she is not a unifying figure any more. She has really hacked off the parliamentary party for obvious reasons. So I’m afraid to say there is no goodwill towards her.” They added: “What we would do is to put up a candidate to run against her, a stalking horse. You can imagine who would do it. It would be a rerun of the Margaret Thatcher scenario, with Anthony Meyer. Of course Meyer had no chance at all, but she lost support and she was gone. Bear in mind that she was a hell of a lot more popular than the current Prime Minister.” Another former minister said: “If she weakened on Brexit, the world would fall in… all hell would break loose.”

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Hubris. England.

Arrogance: The Greeks Had A Word For It (G.)

“I’m not absolutely certain of my facts, but I rather fancy it’s Shakespeare – or, if not, it’s some equally brainy lad – who says that it’s always just when a chappie is feeling particularly top-hole, and more than usually braced with things in general that Fate sneaks up behind him with a bit of lead piping.” So says the immortal Bertie Wooster at the start of the PG Wodehouse story Jeeves and the Unbidden Guest, and it is fairly certain that the hapless hero, in introducing his “fairly rummy” anecdote, is raking back through his sketchily absorbed education to reach for the word “hubris”, a word inherited from those brainy lads, the Greeks.

In the past week of political turmoil, “hubris” is a word that has been exercised rather more than usual. So have other Greek words, most notably “chaos” (the inchoate matter out of which the universe was formed, according to the poet Hesiod). And “crisis”, which began life meaning “a picking apart” or “a separation”; also a bringing to trial, or a moment of judgment. Though whether a universe will be formed from the current chaos, whether a judgment or a moment of clear-eyed seeing will drop neatly out of our present crisis, remains very much to be seen.

Bertie Wooster’s definition of hubris is a perfectly good one as far as our rather limited modern usage of the word goes. The lead piping came for the Tories, first in the shape of an exit poll on election night and, since then, perhaps in their slow, shocked and wholly inadequate reaction to the catastrophe at Grenfell Tower. But hubris, like chaos and crisis, began with a rather different meaning. For the Greeks, it did not simply signal that pride goes before a fall but, rather, something stronger and more morally freighted. Hubris described an act intentionally designed to dishonour its victim. Hubris was something expressly calculated to cause shame to the weak. Hubris was tinged with violence. Hubris was excessive and brutal.

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The first of many. I know I’ve said that before, but these things can be hidden, until they cannot.

Illinois Finances In ‘Massive Crisis Mode’ (AP)

It’s a new low, even for a state that’s seen its financial situation grow increasingly desperate amid a standoff between the Democrat-led Legislature and Republican Gov. Bruce Rauner. Illinois already has $15 billion in overdue bills and the lowest credit rating of any state, and some ratings agencies have warned they will downgrade the rating to “junk” if there’s no budget before the next fiscal year begins July 1. Rauner on Thursday said he was calling lawmakers back to Springfield for a special session, after the Legislature adjourned May 31 without approving a state spending plan — the third straight year lawmakers have been unable to agree on a budget. Legislators are due at the Capitol on Wednesday, and Rauner said the session will continue through June 30 or until the two sides have a deal.

Lawmakers from both parties have acknowledged Illinois needs to raise taxes to make up for revenue lost when a previous tax hike expired, leaving the state on pace to take in $6 billion less than it is spending this year — even without a budget. Rauner, a former businessman who is seeking a second term in 2018, wants Democrats to approve changes he says are needed to improve Illinois’ long-term financial health before he’ll support a tax increase. Among them are term limits for lawmakers, a four-year property tax freeze and new workers’ compensation laws that would reduce costs for employers. Democrats say they’re willing to approve some items on Rauner’s list, but that what he’s demanding keeps changing or goes too far and would hurt working families. Senate Democrats also note that they approved a $37 billion budget with $3 billion in cuts and an income tax increase in May. The House has not taken up that plan.

In the absence of a budget, funding has been reduced or eliminated in areas such as social services and higher education. Many vendors have gone months without being paid. And increasingly, they’re filing lawsuits to try to get paid. The courts already have ruled in favor of state workers who want paychecks, as well as lottery winners whose payouts were put on hold. Transit agencies have sued, as has a coalition of social service agencies, including one that’s run by Rauner’s wife. Health care plans that administer the state’s Medicaid program also asked a federal judge to order Mendoza’s office to immediately pay $2 billion in unpaid bills. They argued that access to health care for the poor and other vulnerable groups was impaired or “at grave risk” because the state wasn’t paying providers, causing them to leave the program.

Judge Joan Lefkow ruled June 7 that Illinois isn’t complying with a previous agreement to pay the bills and gave attorneys for the providers and the state until Tuesday to work out a level of payment. Mendoza says whatever that amount will be, it will likely put Illinois at the point where 100% of revenues must be paid to one of the office’s “core priorities,” such as those required by court order. And if this lawsuit doesn’t do it, the next court ruling against the state will. Then, she’s not sure what will happen, other than more damage. “Once the money’s gone, the money’s gone, and I can’t print it,” Mendoza said.

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A very useful concept. Reference to Minsky would be in order, though.

Metastability (Kocic)

Big changes threaten to explode not when uncertainty begins to rise, but when it is withdrawn. Excessive determinism is almost always the biggest enemy of stability. This seeming contradiction is behind the concept of metastability which captures the mode of market functioning in the last years. Imagine you have to balance a long stick on your finger. By placing it vertically on your fingertip, the stick could fall either left or right from its initial position because standing upright is unstable. However, in trying to keep the stick vertical, you instinctively (and randomly) wiggle your finger. The added randomness (noise) acts as a stabilizer of an otherwise unstable equilibrium. So long as the noise is administered carefully, the stick remains vertical, or metastable. The withdrawal of noise becomes destabilizing.

In general, there are three types of equilibria to distinguish: stable, unstable and metastable. The bottom of the valley is stable; top of the hill is unstable; a dimple at the top of the hill is metastable. Metastability is what seems stable, but is not – a stable waiting for something to happen. Avalanche is a good example of metastability to keep in mind – a totally innocuous event can trigger a cataclysmic event (e.g. a skier’s scream, or simply continued snowfall until the snow cover is so massive that its own weight triggers an avalanche). Complacency is a source of metastability. It has a moral hazard inscribed into it. Complacency encourages bad behavior and penalizing dissent – there is a negative carry for not joining the crowd, which further reinforces bad behavior.

This is the source of the positive feedback that triggers occasional anxiety attacks, which, although episodic, have the potential to create liquidity problems. Complacency arises either when everyone agrees with everyone else or when no one agrees with anyone. In these situations, which capture the two modes of recent market trading, current and the QE period, the markets become calm and volatility selling and carry strategies define the trading landscape. But, calm makes us worry, and persistent worrying causes fear, and fear tends to be reinforcing. Persistence of low volatility causes misallocation of capital. This is how complacency leads to buildup of risk – it is the avalanche waiting to happen. For a given level of uncertainty, on the risk/reward curve investors settle at a point that corresponds to their risk limits. This position is determined by the volatility cone on the risk frontier, its width commensurate with volatility.

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Insanely positive still.

Young Greeks Can’t Name EU Achievements (K.)

An 84% majority of Greeks aged between 16-25 say that peace is the most important result of the country’s membership in the EU, according to an upcoming survey, which also found that 24% are unable to name three or more achievements of the 28-member club. The online survey, which will be published in full on Wednesday, was conducted by pro-European think tank To Diktio (The Network) with the help of MAD TV on a sample of 1,173 high-school and university students using a multiple-choice questionnaire. Asked if they think that Greece’s membership of the 28-member bloc improves their daily life, just over 37% gave a negative answer.

Whereas most of those who took part in the poll said they are in favor of closer European integration, only a minority said they consider the establishment of welfare states a significant contribution of the EU process. Meanwhile, 86% agreed it is “very significant” that they can travel, live, study or work freely across the EU, while 72% said it is positive that “we have a common strong currency which makes our transactions easier.” Finally, 83% said that the union can play a key role in “protecting fundamental rights regardless of gender, race, religion, disability or age.” Greece joined the EEC, the predecessor of today’s EU, in 1981.

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Just to add the proper insult, the picture below comes from Yuan Yang on Twitter: “Five min into this international property fair & I’ve already been offered to emigrate to the UK, Australia & get my kids into school in US”.

While Syrians kids face abuse, Greece offers passports and ‘Easy Living’ to wealthy Chinese. Mankind has fully lost its compass.

Abandoned and Abused: Syrian Refugee Children On Greek Detention Island (G.)

Rasha went missing late afternoon last Saturday. Her peers describe hanging out as normal with the 20-year-old Syrian in the Greek refugee detention camp. Then she vanished. Last Tuesday her friend Amira, 15, received a flurry of images on her phone. Rasha was lying naked in bed with a man. Superimposed upon his head were grotesque cartoon faces and an accompanying message from the anonymous caller: “I promise I will kidnap you also.” This was far from being the first threat that the teenage refugee from the Syrian city of Qamishli has received since arriving on the Aegean island of Chios six months ago. Existence in the razor-wire-fenced detention centre, a former factory known as Vial, deep within the island’s mountainous interior, is fraught for a child hoping for a fresh start in Europe, preferably the UK.

Fellow refugees intimidate her routinely. “Men say they will attack me, they try and trap us by saying don’t go to Souda [another refugee camp on the island] or go into the town. They say: ‘If I see you there, I will attack you. I will kidnap you and kill you.’” Amira is among scores of unaccompanied minors on Chios who are eligible to claim asylum in the UK under the so-called Dubs amendment. A year ago the UK government announced it would urgently offer sanctuary to a sizeable proportion of Europe’s vulnerable child refugees, a figure widely understood to be about 3,000 minors until, in February, the Home Office unexpectedly stopped the scheme after helping just 480, one child for every 130,000 UK residents. Not a single unaccompanied minor has been transferred from Greece to the UK under the Dubs scheme.

On Tuesday the last chance to reopen Dubs will be heard in the high court in London, a legal challenge that describes the Home Office’s premature closure of Dubs as unlawful and “seriously defective”. The three-day hearing holds potentially profound ramifications for Chios, which is separated by a slim strip of water from Turkey, so close that Amira can see its summer homes and factories from the island’s coast. Beyond lie the borders with Syria and Iraq from where each day people board a motley flotilla of rubber boats and dinghies to attempt the short but perilous crossing to Europe’s gateway. What those that successfully make the crossing quickly encounter could hardly be further from their aspirations of a civilised and safe world. The child refugees of Chios describe being stabbed by local people, police beatings, attacks by the far right, knife fights among drunken adult asylum seekers, and sleepless nights in flimsy tents on pebble beaches.


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Apr 142017
 
 April 14, 2017  Posted by at 8:23 am Finance Tagged with: , , , , , , , , , , , ,  5 Responses »
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American Soldiers Observing Eruption of Mount Vesuvius 1944

 

‘Russia Thinks We’re Crazy, Completely Crazy’ (ZH)
We’re Heading Straight Into a Recession – Jim Rickards (MWS)
How’s This For Grade 1 Central Bank Hubris? (Albert Edwards)
Wall Street Fear Gauge Hits Fresh High For The Year (CNBC)
The Ethical Case For Taxing Foreign Home Buyers (Gordon)
UK Banks Crack Down On Credit Card Lending After Borrowing Binge (Tel.)
CIA Director Brands Wikileaks A ‘Hostile Intelligence Service’ (G.)
‘US Will Keep ‘Open Mind’ On Any IMF Aid To Greece’ (AFP)
American Energy Use, In One Diagram (Vox)
Macroscale Modeling Linking Energy and Debt (King)
Refugee Rescue Group Accuses EU Border Agency Of Plotting Against Them (AFP)
At Least 97 Migrants Missing As Boat Sinks Off Libya (AFP)
The Ultimate Lovebird (DM)

 

 

As Cohen indicates, Tillerson signed multi-billion contracts with Putin. That required a lot of trust. That trust is now being put at risk.

‘Russia Thinks We’re Crazy, Completely Crazy’ (ZH)

Lastly, Stephen Cohen, Professor of Russian studies at Princeton and NYU, an actual expert on China, weighed in, saying ‘Russia thinks we’re crazy, completely crazy.’ He even took some time to express his ‘disgust’ with Al Mattour, saying ‘your previous guest, I don’t mean to be rude to him. First of all, he doesn’t know what he’s talking about. And, secondly, he excludes the reality that Russia has a politics. And the politics in Russia today as we talk is […] the concern that America is preparing war against Russia. If not on Syria, then on the other two cold war fronts […] where NATO is building up in an unprecedented way. This is not good because they have nuclear weapons and because accidents happen.’

He then theorized what the conversation between Putin and Tillerson was like, pointing to the two having a history of trust together from the time Tillerson led Exxon Mobile. ‘Rex, says Putin, what in the world is going on in Washington?’ Professor Cohen, ominously, summed it up, ‘I’m not young. I’ve been doing this 40 years, sometimes as a Professor, sometimes inside. I have never been as worried as I am today about the possibility of war with Russia.’

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Any day now.

We’re Heading Straight Into a Recession – Jim Rickards (MWS)

Before the holiday weekend begins, best-selling author James Rickards joins Olivia Bono-Voznenko outside the NYSE to talk all about the markets and his latest book, “The Road to Ruin.” Jim discusses the currency wars, Trump’s turnaround on China & the Fed and an inevitable crisis amid a weak system.

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Though he defines it poorly, Edwards is right that deflation is still here.

How’s This For Grade 1 Central Bank Hubris? (Albert Edwards)

Peter Praet, the ECB’s chief economist said in a recent interview that, “Since the crisis, we have had serious concerns about deflationary risks on several occasions in the euro area, but now we can say they have disappeared.” Really? Has he seen the chart below, which shows core CPI in the Eurozone heading sharply lower and now approaching its all-time low seen at the start of 2015! Not only that, but Eurozone inflation expectations are also declining again, after surging in the aftermath of Donald Trump’s election. To be fair, Praet was focusing on the rise in headline inflation in the Eurozone, which touched 2% in February before dropping back in March to 1.5%.

After some 18 months bobbing around the zero mark, I can understand why central bankers might be heaving a sigh of relief, but for them to take credit for a recovery in headline inflation is totally disingenuous given it has been entirely driven by a recovery in the oil price. Similarly, Janet Yellen was quoted saying the Fed is “doing pretty well” in meeting its congressionally mandated goals of low and stable inflation and a full-strength labor market. It’s this sort of comment that has led Marc Faber to want to short central bankers, the only way being to buy gold. The increasing volume of central bank hubris may even explain the recent breakout of gold to the upside! It is not just eurozone inflation expectations that seem to be in retreat. The same thing is happening in the US too (see chart below).

I am always surprised how dominated 10y inflation expectations are by short-term movements in the oil price and headline inflation, but it was noticeable just how rapidly inflation expectations ran up in the wake of Trump’s election – way in advance of what might have been expected by the bounce in the oil price. One might have thought the surge in the oil price from its trough some 12-18 months ago might have had more impact on wage inflation, but so far that does not seem to be the case. Despite the euphoria in the markets about the “reflation trade”, survey inflation expectations have continued to drift downwards. One thing is certain: for central banks to call victory over deflation may prove very premature indeed. Nemesis awaits.

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Easter jitters.

Wall Street Fear Gauge Hits Fresh High For The Year (CNBC)

Stocks may be in for a deeper pullback, now that the so-called fear index is finally breaking out higher. The CBOE Volatility Index (.VIX), considered the best gauge of fear in the market, closed above its 200-day moving average for the first time since the election this week. The indicator jumped more than 2% Thursday afternoon at one point to a fresh high for the year. U.S. markets are closed for trading Friday for the Easter holiday. The recent spike in fear comes just as geopolitical risk heats up. The Pentagon said Thursday U.S. military forces dropped the largest non-nuclear bomb in Afghanistan, the first time the so-called mother of all bombs has ever been used in combat. U.S. stocks fell, with the S&P 500 and DJIA closed at two-month lows Thursday. “I’d say it’s probably more of a Trump trade [reversing] than the geopolitics, but going forward I think the geopolitics is the topic the market is focusing on,” said Andres Jaime at Barclays.

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Good argument: A foreign-buyer’s tax can be refunded to individuals to the extent they pay income taxes..

The Ethical Case For Taxing Foreign Home Buyers (Gordon)

Foreign capital is playing an important role in the real estate markets of Toronto and Vancouver, and has for some time. As political leaders debate its impact and possible policy measures to alleviate its attendant issues, it is important to think clearly about the ethics of foreign ownership. Predictably, those who want to stymie or avoid policy action in this area have alluded to “xenophobia” to deter critics. Even some well-intentioned people have given credence to these claims. Yet curtailing or taxing foreign ownership is not xenophobic, especially if policy is properly designed. Xenophobia is the irrational or unjustified fear of foreigners. Concerns about the impact of foreign ownership are about flows of money, not people, and they are certainly justified in Toronto and Vancouver.

Foreign ownership raises two main ethical problems. First, those who buy based on foreign income or wealth often have access to money in ways that are unavailable to local residents. This means that locals are potentially put into disadvantageous, or unfair, competition for real estate where they live. Second, people who buy property based on foreign income or wealth may not have contributed much in Canadian taxes, which is largely what makes the property so valuable in the first place. Canadian real estate has become an attractive place to stash international money for a variety of reasons – we don’t effectively enforce money laundering regulations, we have relatively low property-tax rates and the enforcement of capital gains taxes has been lax. But real estate in Canada is ultimately attractive because of the country’s stable institutions, its public infrastructure and its social cohesion.

These latter things are paid for, or fostered by, taxes collected from Canadians – income taxes in particular. At a minimum, then, Canadians should have preferential access to property ownership, since they are paying for what makes it so valuable. It is precisely for these reasons that we see nothing ethically problematic about charging foreign students more in tuition at Canadian universities. Residential property is no different. Concerns around foreign ownership are especially potent when money is arriving from societies where corruption is widespread, and when foreign money is playing a significant role in driving up prices. Both apply in the cases of Toronto and Vancouver.

[..] We can then better design a foreign-buyer’s tax, which is needed to calm Toronto’s frenzied market. A foreign-buyer’s tax can be refunded to individuals to the extent they pay income taxes – the amount they pay in the three years following a purchase, for instance. This makes it clear that the tax need not discourage entrepreneurial talent from abroad, as claimed by Toronto Mayor John Tory. This understanding of the issue also leads straightforwardly into the proposal by many economists in British Columbia, including my colleague Rhys Kesselman. Provincial governments should introduce an annual property surtax on expensive homes that can be offset by income taxes paid, while exempting seniors with sustained CPP contribution records. This continuous surtax would powerfully target foreign ownership, and would thereby reconnect the local housing market to the local labour market.

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I’ll believe it when I see it. Nobody wants to see the economy crash, they’ll stick with loose lending standards to prevent it.

UK Banks Crack Down On Credit Card Lending After Borrowing Binge (Tel.)

Britain’s credit card binge could be at an end as banks tighten up controls on consumer debt. Borrowing growth hit rates of more than 10pc over the past year, a pace not seen since the boom years before the financial crisis, but now banks are touching the brakes. The Bank of England has warned that a consumer debt could be more of a risk to banks than mortgage lending, should there be an economic downturn. Fierce competition to win new customers has led banks to offer more credit to customers with increasingly long interest-free periods.But banks have started tightening lending criteria for credit card applicants in a move of an intensity not seen since the depths of the financial crisis in 2008 and 2009.

A net balance of 33pc of lenders expect to tighten standards in the coming three-month period, according to Bank of England data. When unsecured loans are also included, a net balance of 27pc plan to scrutinise applications more closely. There was also a fall in the number of credit card applications approved in the first quarter of the year, and banks expect the number to remain roughly steady in the coming quarter. By contrast credit scoring criteria for secured loans, such as mortgages, is holding broadly steady. “The recent rapid growth in consumer credit could principally represent a risk to lenders if accompanied by weaker underwriting standards,” warned the Bank of England’s Financial Policy Committee this month.

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After first praising it.

CIA Director Brands Wikileaks A ‘Hostile Intelligence Service’ (G.)

Mike Pompeo, the director of the CIA, has branded WikiLeaks a “hostile intelligence service,” saying it threatens democratic nations and joins hands with dictators. In his first public remarks since becoming chief of the US spy agency in February, Pompeo focused on the group and other leakers of classified information like Edward Snowden as one of the key threats facing the United States. “WikiLeaks walks like a hostile intelligence service and talks like a hostile intelligence service. It has encouraged its followers to find jobs at CIA in order to obtain intelligence… And it overwhelmingly focuses on the United States, while seeking support from anti-democratic countries and organisations,” said Pompeo. “It is time to call out WikiLeaks for what it really is – a non-state hostile intelligence service often abetted by state actors like Russia.”

[..] Last month, WikiLeaks embarrassed the CIA and damaged its operations by releasing a large number of files and computer code from the agency’s top secret hacking operations. The data showed how the CIA exploits vulnerabilities in popular computer and networking hardware and software to gather intelligence. Counterintelligence investigators continue to try to find out who stole the files and handed them to WikiLeaks. Assange meanwhile criticized the US agency for not telling the tech industry and authorities about those vulnerabilities so they can be fixed. Pompeo said Assange portrays himself as a crusader but in fact helps enemies of the United States, including aiding Russia’s interference in last year’s presidential election.

“Assange and his ilk make common cause with dictators today. Yes, they try unsuccessfully to cloak themselves and their actions in the language of liberty and privacy; in reality, however, they champion nothing but their own celebrity. Their currency is clickbait; their moral compass, nonexistent.” However, Pompeo did not comment on how Trump has previously lavished praise on Assange for the information he has made public. Nor did Pompeo mention that he himself had cited and linked to WikiLeaks in a tweet attacking the Democratic Party. Pompeo at the time was a Republican congressman and member of the House Intelligence Committee. The CIA declined to comment on that.

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Translation: get it done.

‘US Will Keep ‘Open Mind’ On Any IMF Aid To Greece’ (AFP)

The US government will keep an “open mind” on any new loan package from the IMF for debt-burdened Greece, a senior US Treasury official said Thursday. Despite criticism of international organizations by the Trump administration, the comments allay concerns that US Treasury Secretary Steven Mnuchin could veto any large new aid package for Athens. “We’re looking for the Europeans to help Greece to resolve its economic problems, and we think the IMF can play a supportive role,” the official told reporters. “And we’ll look at any potential future agreement with an open mind.” IMF chief Christine Lagarde on Wednesday said Greece and its eurozone creditors have made progress towards a new loan package that includes debt relief, but that is something the fund has been saying for months without a final deal.

Greece last week accepted a tough set of reforms demanded by its eurozone creditors in hopes of securing a new loan in time to avert a looming debt default in July, although it still must finalize the details. Athens has been deadlocked for months over reforms, and budget targets, which has put the IMF and EU at loggerheads over the need for debt relief in order to ensure an economic recovery, and the government’s ability to repay its loans. The eurozone is under heavy pressure to end the feud in order to avert a chaotic default and inflicting damage on an already stalled Greek recovery. Greece has about €7 billion in debt repayments due in July. All the key officials involved in the talks are expected to be in Washington next week to attend the IMF and World Bank annual meetings.

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We waste. That’s what we’re good at.

American Energy Use, In One Diagram (Vox)

Every year, Lawrence Livermore National Laboratory LLNL produces a new energy flow chart showing the sources of US energy, what it’s used for, and how much of it is wasted. If you’ve never seen it before, it’s a bit of a mind-blower. Behold US energy in 2016: So much information in so little space! (It’s worth zooming in on a larger version.)

[..] a British thermal unit (BTU) is a standard unit of energy — the heat required to raise the temperature of a pound of water by 1 degree Fahrenheit. If you prefer the metric system, a BTU is about 1055 joules of energy. A “quad” is one quadrillion (a thousand trillion) BTUs. [..] a few things equivalent to a quad: 8,007,000,000 gallons (US) of gasoline, 293,071,000,000 kilowatt-hours (kWh), 36,000,000 metric tons of coal The US consumed 97.3 quads in 2016, an amount that has stayed roughly steady (within a quad or so) since 2000.

Perhaps the most striking feature of the spaghetti diagram — what everyone notices the first time they see it — is the enormous amount of “rejected” energy. Not just some, but almost two-thirds of the potential energy embedded in our energy sources ended up wasted in 2016. (And note that some scholars think LLNL is being too optimistic, and that the US is not even 31% efficient but more like 13%.) What’s more, the US economy is trending less and less efficient over time. Here’s the spaghetti diagram from 1970 (LLNL has been at this a long time):

Back then, we only wasted half our energy! It’s important to put this waste in context. It is not mainly about personal behavior or inefficient energy end use — keeping cars idling or leaving the lights on, that kind of thing. That’s a part of it, but at a deeper level, waste is all about system design. The decline in overall efficiency in the US economy mainly has to do with the increasing role of inefficient energy systems. Specifically, the years since 1970 have seen a substantial increase in electricity consumption and private vehicles for transportation, two energy services that are particularly inefficient. (Electricity wastes two-thirds of its primary energy; transportation wastes about three-quarters.)

There is loss inherent in any system that converts raw materials to usable energy, or transports or uses energy, of course. That follows from the second law of thermodynamics. And it’s true both narrowly (a car is an energy system) and broadly (a city is an energy system). It’s not possible to achieve perfect efficiency, or anything close to it. But surely we can do better than 31%! Sixty-six quads is a truly mind-boggling amount of energy to vent into the atmosphere for no good purpose. It really highlights the enormous potential of better-designed systems — especially better electricity and transport systems, along with better urban systems (i.e., cities) — to contribute to the country’s carbon reduction goals. We could double our energy use, with no increase in carbon emissions, just by halving our energy waste.

Read more …

I like this, and it’s high time energy became a part of economic modeling; Steve Keen is working on it too. BUT: to understand today’s predicaments, you have to look -seperately- at what has happened in financial markets. The debt binge was not a result of what went on with energy; it stood -and stands- on and by itself.

Macroscale Modeling Linking Energy and Debt (King)

What if you realized that the fundamental economic framework of macroeconomics is insufficient to inform our most pressing concerns? The world is dynamic, in constant change, yet most economic models (even the most widely used “dynamic” model) lack fundamental feedbacks that govern long-term trends (e.g., regarding role of energy) and make assumptions that prevent the ability to describe important real-world phenomena (e.g., financial-induced recessions). Monetary models of finance and debt often assume that natural resources (energy, food, materials) and technology are not constraints on the economy. Energy scenario models often assume that economic growth, finance and debt will not be constraints on energy investment.


Energy and food costs have declined since industrialization, but no longer

These assumptions must be eliminated, and the modeling concepts must be integrated if we are to properly interpret the post-2008 macroeconomic situation: unprecedented low interest rates, high consumer and private debt, high asset valuations, and energy and food costs that are no longer declining. As we attempt to understand newer and more numerous options (e.g., electric cars, renewables, information) regarding energy system evolution, it is paramount to have internally consistent macro-scale models that take a systems approach that tracks flows and interdependencies among debt, employment, profits, wages, and biophysical quantities (e.g., natural resources and population). There is a tremendous research need to develop a framework to describe our contemporary and future macroeconomic situation that is consistent with both biophysical and economic principles. Unfortunately, this fundamental integration does not underpin our current thinking.


U.S. consumer costs of fundamental needs (energy, food, housing, transport) are no longer declining

• Debt is money.

• Money is created when commercial banks lend money to businesses, not when the U.S. Treasury prints money or when Federal Reserve Bank lowers interest rates. Those government and Fed actions are reactions to the creation or destruction of money (e.g., paying back loans) within the real economy.

• Businesses seek new loans when economic opportunities are present. Thus, a growing economy can support more debt.

• Economic opportunities are present when consumers have disposable income to spend (and when innovative technologies supplant old technologies, thus lowering prices, and enabling growth).

• Consumers have more money to spend when core needs (e.g., food, energy, housing) are getting cheaper relative to incomes. Thus, if these core needs are no longer getting cheaper, this is an indication of the lack of income growth to support business investment. In turn banks stop lending because there are fewer viable business opportunities.

• The conclusion is that without decreasing food and energy costs to consumers, real incomes do not rise.

• This is a viable explanation of the post-2008 economy, but one ignored by practically all policy makers, economists, and advisors!

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Frontex is a disaster.

Refugee Rescue Group Accuses EU Border Agency Of Plotting Against Them (AFP)

A Spanish group which has been rescuing migrants in the Mediterranean since 2016 accused the EU’s border control agency Frontex on Wednesday of plotting to discredit private aid organisations in order to put off donors. Allegations by Frontex that donor-funded rescue vessels may have colluded with traffickers at the end of last year prompted Italian prosecutors to begin an informal investigation into their funding sources. “The declarations by Frontex and political authorities are intended to discredit our actions and erode our donors’ trust,” said Proactiva Open Arms head Riccardo Gatti. “They are trying to say that we support the smuggling or the traffickers themselves,” he said. In a report cited in December by the Financial Times daily, Frontex raised the possibility that traffickers were putting migrants out to sea in collusion with the private ships that recover them and bring them to Italy “like taxis”.

Prosecutors then publicly wondered at the amount of money being spent, though they stopped short of opening a formal probe. “We feel there’s someone who wants to put a spoke in our wheels, though we do not really know who is behind it,” Gatti said. The organization said it had nothing to hide. “We have 35,000 donors. Some are well known – like Pep Guardiola, the current manager of Manchester City – others are anonymous,” said Oscar Camps, Proactiva Open Arms director. He said the group had so far received €2.2 million euros in donations for an op in the Med that costs between €5,000 and €6,000 a day. Pro-Activa Open Arms also heavily criticized a deal signed in February between Italy and Libya which purportedly hopes to stem the flow of migrants from the coast of North Africa to Italy.

Gatti said the deal was made with only part of the 1,700 militias he said control Libya and would therefore be ineffective. Human rights watchers have also warned the accord would put the lives of those fleeing persecution and war in greater danger. “Everything is controlled by the militias in Libya, even the coast guard, and 30 percent of the financial flows in the country come from human trafficking,” he said. The deal is in doubt after it was suspended in March by Tripoli’s Court of Appeal. Nearly 25,000 migrants have been pulled to safety and brought to Italy since the beginning of the year in a sharp increase in arrivals.

Read more …

Happy Easter.

At Least 97 Migrants Missing As Boat Sinks Off Libya (AFP)

At least 97 migrants were missing after their boat sank on Thursday off the Libyan coast, a navy spokesman said. Survivors said the missing include 15 women and five children, General Ayoub Qassem told AFP. He said the Libyan coastguard had rescued a further 23 migrants of various African nationalities just under 10 kilometres (6 miles) off the coast of Tripoli. The boat’s hull was completely destroyed and the survivors, all men, were found clinging to a flotation device, he said. Those who had disappeared were “probably dead”, but bad weather had so far prevented the recovery of their bodies, Qassem added. An AFP photographer said survivors had been given food and medical care at Tripoli port before being transferred to a migrant centre east of the capital.

Six years since the revolution that toppled dictator Moamer Kadhafi, Libya has become a key departure point for migrants risking their lives to cross the Mediterranean to Europe. Hailing mainly from sub-Saharan countries, most of the migrants board boats operated by people traffickers in western Libya, and make for the Italian island of Lampedusa 300 km away. Since the beginning of this year, at least 590 migrants have died or gone missing along the Libyan coast, the International Organization for Migration said in late March. In the absence of an army or regular police force in Libya, several militias act as coastguards but are often themselves accused of complicity or even involvement in the lucrative people-smuggling business. More than 24,000 migrants arrived in Italy from Libya during the first three months of the year, up from 18,000 during the same period last year, according to the UN High Commissioner for Refugees.

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Easter feel good.

The Ultimate Lovebird (DM)

A stork has melted hearts in Croatia by flying to the same rooftop every year for 14 years – to be reunited with its crippled partner. The faithful bird, called Klepetan, has returned once again to the village of Slavonski Brod in east Croatia after a 5,000 mile migration. He spends his winters alone in South Africa because his disabled partner Malena cannot fly properly after being shot by a hunter in 1993. Malena had been found lying by the side the road by schoolteacher Stjepan Vokic, who fixed her wing and kept her in his home for years before helping her to build a nest on his roof. After placing her there, she was spotted by Klepetan 14 years ago. And now every year they are reunited in the spring. Klepetan keeps a very strict timetable, usually arriving back at the same time on the same day in March to be welcomed by locals.

But this year he was running six days late, causing panic among local media and fans of the stork couple. Such is the popularity of the pair that there is even a live feed on the main square in the capital Zagreb showing the two storks. There was huge excitement when stork-watchers saw what they thought was Klepetan circling over the nest, and then coming in to land. But the new arrival turned out to be a different stork that was attempting to woo Malena. She quickly attacked him and drove him off and continued to wait for Klepetan. Stjepan Vokic, whose roof the couple nest on, said: ‘She was pretty clear about the message, I doubt he will be back again.’ Vokic has taken care of Malena since she was first injured by hunters and says that she – like her partner – is now part of the family.

During the winter, Vokic keeps her inside the house, and then lets her go to the roof each spring where she patiently waits for her partner. This year, Malena made a rare flight and the couple were reportedly inseparable for hours. She does have the ability to make very short flights but her wing has not healed well enough for her to make the trip to Africa, or even to properly feed herself. Every summer, the pair bring up chicks, with Klepetan leading their flying lessons in preparation for the trip south in summer. The oldest recorded living stork was 39. Locals are hopeful the couple’s long relationship will continue for years to come.

Read more …

Jul 252016
 
 July 25, 2016  Posted by at 2:08 pm Finance Tagged with: , , , , , , , , ,  8 Responses »
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Warren K. Leffler Ku Klux Klan members supporting Barry Goldwater, San Francisco 1964

John McDonnell, UK Shadow Chancellor of the Treasury (at least it sounds important) appealed to his -Labour- party on Sunday morning TV to “stop trying to destroy the party”, and of course I’m thinking NO, please don’t stop, keep at it, it’s so much fun. When you watch a building collapse, you want it to go all the way, not stop somewhere in the middle and get patched up with band-aids.

It’s alright, let it crumble, it’s had its day. And if it’s any consolation, you’re not alone. Nor is that some freak coincidence. ‘Labour’-like parties (the ‘formerly left’) all over the world are disintegrating. Which is no surprise; they haven’t represented laborers for decades. They’ve become the left wing -and even that mostly in name only- of a monotone bland centrist political blob.

The other ‘half’ of that blob, the ‘conservative’ side, is disintegrating just as rapidly, as evidenced by the rise of Trump and a motley crew of Boris Johnson ilk.

The spontaneous self-immolation of the US Democratic Party mirrors that of the British Labour Party, but admittedly, it has even more entertainment value. America does entertainment like nobody else can.

In both cases, we see entire parties turn on their own candidates, it truly is a sight to behold. Especially since people like Bernie Sanders and Jeremy Corbyn are the only ones who do have a tangible connection to the people left that they represent.

One might even say Donald Trump falls in that category too, though in a slightly different way. The others, whether they are from the supposed left or right -and it really makes no difference anymore- rely on pure hubris. The WikiLeaks files on the DNC make that so clear it hurts.

And if one thing exemplifies what’s going wrong, it’s that the DNC in all its superciliousness seeks to blame the fact that there were leaks for the mess, not the content of what was leaked. And replaces one chair with another who was just as guilty as the first one of trying to bring down one of their own candidates. As the leaks show.

The reason all this high value entertainment is presented to us is that the political system is toppling over in line with the economic one. As I’ve argued before, this is inevitable, because they are one and the same system. If one part falls, so must the other. I wrote 7 weeks ago:

The Only Thing That Grows Is Debt

What we have is a politico-economic system, with the former media establishment clinging to (or inside?!) its body like some sort of embedded parasite. A diseased triumvirate.

With the economy in irreversible collapse, the politico part of the Siamese twin/triplet can no longer hold. That is what is happening. That is why all traditional political parties are either already out or soon will be. Because they, more than anything else, stand for the economic system that people see crumbling before their eyes. They represent that system, they are it, they can’t survive without it.

Of course the triumvirate tries as hard as it can to keep the illusion alive that sometime soon growth will return, but in reality this is not just another recession in some cycle of recessions. Or, at the very minimum this is a very long term cycle, Kondratieff style. And even that sounds optimistic. The system is broken, irreparably. A new system will have to appear, eventually. But…

‘Associations’ like the EU, and perhaps even the US, with all the supranational and global entities they have given birth to, NATO, IMF, World Bank, you name them, depend for their existence on an economy that grows. The entire drive towards globalization does, as do any and all drives toward centralization. But the economy has collapsed. So all this will of necessity go into reverse, even if there are very powerful forces that will resist such a development.

And here’s the graph that I said depicts very well what is the problem with the economic system, in an ‘all you need to know’ kind of way:

 

 

We’d already be well aware of what’s wrong with our economies if our governments and media hadn’t consistently lied to us about it for all these years. These lies make sense from their point of view; they’d be out of a job and out of power once they would stop lying.

Outside of the media, in people’s own experience, there is no recovery, it’s a fairy tale. And there is no growth the way stock exchanges portray, or employment numbers. You can’t lie to all of the people all of the time. Again, though, the attempts are often good for many hours of solid amusement.

Take the way a word like populist is (ab-)used. Grab a handful of names of people who’ve been labeled populist recently, like Putin, Trump, Tsipras, Varoufakis, Sanders, Corbyn, Chávez, Maduro, Morales, Le Pen, Beppe Grillo, Wilders, etc etc, and you notice they are very different people in more ways than one.

But they have one thing in common: they reject the western establishment, at least to a degree (many merely want to ‘tweak’ it). Which makes it tempting for establishment media to slap the populist label on them, because it has such a bad connotation. Courtesy of the same media, of course.

Still, that’s only mildly funny, more in a subtle kind of way. There are better ones. Where do you think these buttons, for example, find their origin?:

 

 

 

Even better, Zero Hedge and Bryan MacDonald have a nice set of ‘plagiarized’ headlines. Altogether now on the all time favorite whipping boy, Vlad V. Putin. The DNC was at him again today as well, even though by the looks of it they don’t seem to need any help at self-destructing. That’s the one thing left they’re really good at.

 

 

 

And this one here is excellent as well, taking on America’s other favorite enemy no. 1. Again, altogether:

 

 

 

Everybody thought of the word ‘dark’ at the same time! A country full of kindred spirits. Telepathy. Yeah. In China original content is now banned in the media. But China has nothing on the west. Where the system clings together to paint a picture they all want you to believe in. A kind of propaganda Putin wouldn’t dream of. And Goebbels only considered in his wildest nightmares.

These are the death throes of a system. All parts, as separate as they may seem, or want to seem, fall apart together. Maybe not at the same time, but certainly in rapid succession. Still, it’s a bit surprising to see how fast alleged journalists -and the media they work for- have turned from reporting to endless repetition of opinions, most often not even their own.

The media feel they are under threat, and for good reason. Namely, the same reason politicians are. They’ve all been painting fake pictures, and people start to see through that for the simple reason that these pictures look nothing like what goes on in their own lives.

There’s no amount of Kardashians or other Walking Dead that can change that, and unless you let people watch this stuff 24/7, they are bound to notice sooner or later.

I see people saying the system is unstable. Fine, as long as they realize it has no chance of regaining stability, not with its present components. There will have to be a big clean-up. But it will be messy. A very limited number of people, with all of their minions, control the entire now unstable edifice, and they’ll fight tooth and nail to keep their power.

Nevertheless, they’ll lose. It’s just that they’ll drag a lot of other people down with them. They’re fully prepared to go to war just to keep the illusion of power alive. The ultimate hubris.

 

 

Feb 122016
 
 February 12, 2016  Posted by at 7:07 pm Finance Tagged with: , , , , , , , ,  28 Responses »
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Crowd outside Wall Street Stock Exchange on BlackThursday Oct 24 1929

What we see happening today is why we called our news overview the “Debt Rattle” 8 years ago. The last gasps of a broken system ravished by the very much cancer-like progress of debt. Yes, it took longer than it should have, and than we thought. But that’s pretty much irrelevant, unless you were trying to get rich off of the downfall of your own world. Always a noble goal.

There’s one reason for the delay only: central bank hubris. And now the entire shebang is falling to bits. That this would proceed in chaotic ways was always a given. People don’t know where to look first or last, neither central bankers nor investors nor anyone else.

It’s starting to feel like we have functioning markets again. Starting. Central bankers still seek to meddle where and when they can, but their role is largely done. It’s hard to pinpoint what exactly started it, but certainly after Kuroda’s negative rate ‘surprise’ fell as flat on its face as it did, and then fell straight through the floor and subsequently shot up through the midnight skies, a whole lot more ‘omnipotence credibility’ has disappeared.

Kuroda achieved the very opposite of what he wanted, the yen soared up instead of down -big!-, and that will reflect on Yellen, Draghi et al, because they all use the same playbook. And the latter so far still got a little bit of what they were shooting for, not the opposite. Still, one could also make a good case that it was Yellen’s rate hike that was the culprit. Or even Draghi’s ‘whatever it takes’. It doesn’t matter much anymore.

Though what should remain clear is that it was in their interference in markets to begin with, as extremely expensive as it has been extremely useless and dumb, that the real guilt resides. Or we could take it even a step further back and point to the credit bubbles blown in the west before 2008. Central banks could have let that one go, and allow it to run its natural course. Instead, they decided they should inflate their own balance sheets. What could go wrong?

Then again, these inane policies concocted by a bunch of bankers and bookworm academics who don’t even understand how their own field works, as Steve Keen once again explained recently, would have blown up in their faces long before if not for China’s decision to join in and then some. Some $35 trillion, that is.

Money, debt, spent on ghost cities and on what now turn out to be ghost factories. Ghost jobs, ghost prosperity,a ghost future. Makes us wonder all the time what people thought when they saw China used as much cement in 2011-2013 as the US did in the entire 20th century. Did anyone think that would continue for decades, even grow perhaps? Have we lost all sense of perspective?

How much cement or steel can one country need, even if it’s that large? How much coal and oil can it burn, let alone store? Blinded as we were, apart from the financial shenanigans, much of what the ‘developed nations’ engaged in since 2008 was overleveraged overinvestment, facilitated by ultra-low rates, in industries that would feed China’s hunger for ever more forever. Blind? Blinded?

And now we’re done. If Elon Musk doesn’t come back soon with a zillion little green Martians to pick up China’s slack, we’re all going to be forced to face just how distorted our media-fed visions of our economic futures have become, and how much pain it will take to un-distort them.

Which is what we’re watching crash down to mother earth now. And the central bankers’ loss of ‘omnipotence credibility’ is not something to be underestimated. It encourages people like Kyle Bass to dare the PBoC to show what it’s got left, even if, as Bass said, he’s got maybe a billion to go up against the multi-trillion Chinese state windmills of Beijing. It shouldn’t matter, but it does. Because the windmills are crumbling.

Bass won’t be alone in challenging global central banks. And that’s probably good. Without people like him, we would never see proper checks and balances on what the formerly omnipotent are up to. Kuroda has next to nothing left -or even less that that. Draghi and Yellen only have negative territory left to plow into, and at the very least that means putting positive spins on any economic numbers becomes exceedingly hard to do -and be believed.

Granted, they can still all go for helicopter money -and some will. But that will be the definite last step, and they know it. Dropping free money into a festering cesspool of debt is as useless and deadly as all previous QEs put together.

As we watch the world crash down to earth in epic fashion -and it ain’t even the 1st inning- people are already looking for a bottom to all of this (a waste of time). But if there’s one law in economics, it’s that when a bubble pops it always ends up below where it started. So look at where levels were before the bubble was blown, and then look out below.

Want to argue that this is not a bubble? Good luck. This is the mother of ’em all.

The Lunar New Year, and the breather it brings for Beijing -though we’re sure there’s not a lot of family time off for PBoC personnel- seems like a good moment to take stock of the multiple crises that simultaneously and in concert accelerated head first into the new year. And boy, the rest of the world decided not to wait for China, did it now? For those who’ve seen this coming and/or have no skin in the game, it’s an amusing game of whack-a-mole. For others perhaps not so much.

To take a few steps back, if you ever believed there was a recovery after 2008, or even that it was theoretically possible for that matter, you’re going to have a much harder time understanding what is happening now. If you’ve long since grasped that all that happened over the past 8 years of QE infinity-and-beyond, was nothing but “debt passed off as growth”, it’ll be much easier.

It’s stunning to see for everyone at first blush that the “book value” of global proven oil reserves is down by $120 trillion or so since summer 2014. And it certainly is a big number; the S&P has lost ‘only’ $2 trillion in 2016. But what counts is the speed with which that number sinks in, and that speed depends on one’s reference frame. In the same vein, what’s perhaps most important about all the seemingly separate crises developing before your eyes is how they feed on each other.

Or, rather, how they all turn out to be the same crisis, kind of like in the perfect whack-a-mole game, where there’s only one mole and you still can’t catch it. So try and whack these. Or better still, try and imagine central bankers doing it, or finance ministers, spin doctors. They’re all so out of their leagues it would be funny if they didn’t have the power to make you pay for their incompetence.

Feb 192015
 
 February 19, 2015  Posted by at 4:51 pm Finance Tagged with: , , , , ,  2 Responses »
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DPC Snow removal – Ford tractor Washington, DC 1925

As Germany is set to reject a Greek loan extension request (and no, international press, that is not the same as an extension of the bailout program), Steve Keen uses proprietary numbers issued by the OECD – which is supposed to be on Germany’s side?! – to show how dramatically austerity has failed in Europe- that is, if the recovery of the Greek and Spanish economies was ever the real target. It certainly failed the populations of the countries.

The problem is that nobody, not even the OECD can for Germany to answer to a report. But that does not make the case that is made, any less obvious, or bitter for that matter. Not many people remain ready to think that Greece will do what it has said it will, but I think they have been very consistent in their stated goals, and people get distracted too much by semantics at their own peril.

As Steve shows, and Syriza proclaims, more of the same is not on the table, for good reason. It will and can only make matters worse for Greece. Germany – and the ECB – choose to entirely ignore the consequences of their theories, in particular the humanitarian crisis they have caused in Greece. And any political union that ignores the misery it unloads upon its citizens has a short shelf life.

I see a majority voices out there claiming that Syriza is busy capitulating, but I don’t think that. They’ve always said they are willing to go far to reach consensus with Brussels in order to stay in the EU and eurozone. And that’s what they’re showing. In the world of political dealing and scheming, the Greeks have been remarkable consistent; so much so that this is itself leads people to claim they are not.

But I still wouldn’t rule out the possibility that Varoufakis has long come to the conclusion that the eurozone must and will implode no matter what anybody does, and that he’s simply jockeying for the best position when the time comes to leave the eurozone.

Germany’s bullying- which is how its actions are being perceived by fast growing numbers of people – will come back to hurt it. The eurozone is made up of independent nations, most with their own specific culture and their own language. Trying to browbeat them all into submission, and yes, that is where Germany’s stance is leading, will only lead to much bigger trouble.

But first, it’s still ‘merely’ and economic issue, and it’s therefore the economic ideas behind EU policies that need to be discussed and revised. Unleashing misery on entire nations is indefensible not only from a humanitarian point of view, but also from a historical one. Who in the present context would know that better than Germany?

What Germany holds in its hands, but does not at all realize, is the survival of the European common currency. It must realize that the euro will fail if it tries only to dictate all policies to everyone at every turn. If Germany insists on applying the kind of dictatorship to Europe that it has been doing, the euro is dead. Both for political and historical reasons – nobody will accept being bullied by the Germans for long – and for economic reasons, because Germany’s economic ideas are simply too damaging for other eurozone nations.

Germany – and Holland – are so full of themselves at present – both the politicians and the people – that they are busy blowing up the EU, their cash cow, without realizing this even one moment.

If Greece gives in, Germany will have won, but its bully status will come to bite it in the face. European nations don’t accept bullying, and certainly not from Germany. It’ll be a Pyrrhic victory: the beginning of the end. If Greece however stands firm in its demands, it’s also curtains for the EU. If Greece leaves, it won’t leave alone.

Only the third option, Germany caving to Greek demands, can save the EU. But Merkel and Schäuble have prepped their people to such an extent with the wasteful lazy Greeks narrative that they would have a hard time explaining why they want to give in. The EU may thus fall victim to its own propaganda. That would be funny, no matter how tragic it is at the same time. But it would be an open invitation to the far right as well.

Steve Keen:

For Greece And Many Others, Economic Reform Is Bad For Your Economic Health

A quick quiz: which four countries do you think have done the most to reform their economies over the last seven years? OK, who said Greece, Portugal, Ireland and Spain? No one? Actually, someone did: the OECD. Yes, I kid you not, according to the OECD, the country that has done the most to reform its economy over the last seven years—that is, from before the 2008 economic crisis until well after it—is Greece. Followed at some distance by Portugal, Ireland and Spain.

I saw this in a tweet, and I simply had to go searching to see for myself. And there it was, on page 111 of the OECD’s publication Going For Growth 2015, released on February 9. The top economic reformers were the basket cases of Europe and the world in general. Unemployment in Greece is 27%; in Portugal it’s 15%, Ireland 12%, and Spain 25%. Those are very, very sick economies. And yet they are also the OECD’s top reformers.

You are, I hope, wondering “how come? Isn’t reform supposed to be good for you?” Well, that’s the fairy story—sorry, theory: reform your economies according to our recommendations, and—whatever else happens—your economy will grow more rapidly and be more stable to boot. Unfortunately for those purveying this fairytale, they also developed metrics by which the degree of reform could be measured, so that a decade later, we can compare the fairy story to the reality.

The EU program that Greece is currently refusing to continue implements part of what is known as the ”Stability and Growth Pact” or SGP—which a radio interviewer last week realized has (with just a slight rearrangement of the letters) a much more apt acronym of GASP. And the other countries that are also under the control of GASP include… Portugal, Ireland and Spain.

Greece is refusing to continue with this program, not because it is “refusing its medicine”, but because the medicine is actually poison. And Greece itself is not the proof of that: the other countries on this list are—especially Spain. Spain did everything that the GASP and mainstream economics recommended, not merely after the crisis but before it as well. The GASP required that member countries of the Eurozone have a government debt to GDP ratio of 60% or below, and run a maximum deficit of 3% or less of GDP.

Spain was doing both before the crisis. Its government debt ratio was below 60% from early 2000, and trending down—hitting a low of below 40% shortly after the crisis began.

Its deficit was even better—not only was it below 3% of GDP at the introduction of the Euro, by 2001 it was in surplus—hitting a peak of 2.5% of GDP in 2007.

Before the crisis hit, Spain was being lauded as a success story for the GASP, and superficially for good reason: not only was it following the GASP program by running surpluses, and reducing its government debt, its economy was booming. Unemployment, which had always been high, trended down from 12.5% at the start of the Euro to 8% by 2007. And then it all went pear-shaped.

This raises two questions, the answers to which cement the case that the EU’s austerity program should end everywhere—and not just in Greece. Firstly, how did Spain appear to be doing so well, and then collapse so badly? And did the EU’s policies contribute to Spain’s problems?

The answer to the first question involves what happened to the debt that GASP ignores (as do conventional economists everywhere): private debt. While the GASP imposed strict controls on government debt, it ignored the blowout in private debt on the erroneous argument that private debt is economically unimportant. Private debt rose from about 120% of GDP in early 2000 to over 200% by the time the crisis began, and peaked at 225% of GDP when the GASP’s austerity program kicked in, as Figure 5 shows.

The growth in private debt gave the economy an enormous boost as it financed Spain’s housing bubble, and the tax revenue from this bubble was the main reason that the government was in surplus from 2000 until the crisis hit. The rise in private debt dwarfed the decline in government debt, and the huge stimulus from private sector borrowing more than compensated for the drag on the economy from the government surplus. As the government was “salting away pennies”, the private sector was wallowing in new debt-financed spending.

But to do so, the private non-bank sector had to get more indebted to the banks—as Figure 5 shows. When growth in private debt turned around, the housing bubble collapsed and private sector borrowing went into free-fall. Then, and only then, did government debt rise—as increased government spending slightly compensated for the plunge in private debt-financed spending. Ultimately, by 2010, the stimulus from rising government spending slowed down the decline in private borrowing. But then austerity kicked in and the government stimulus stalled. Consequently the private sector went from mild deleveraging into heavy deleveraging—reducing its debt by as much as 20% of GDP per year.

Don’t get me wrong here: I am a critic of private debt financed spending when it finances Ponzi Schemes like Spain’s housing bubble, and I believe that sustained recovery will not happen until private debt levels are drastically reduced. But when a private debt bubble bursts, government spending attenuates the downturn. To limit the growth in the government deficit makes the crisis worse, without doing much to reduce private debt compared to GDP because GDP collapses along with the falling private debt.

So these crises—in the OECD’s pin-up countries of Greece, Spain, Italy and Portugal—are the product of the EU’s policies. The only way out of the crisis is to end the policies themselves, as Greece is demanding now.

And if Syriza gives in and the EU’s policies are maintained? Then this will go from being an economic and social tragedy to a political one as well. If Syriza caves in, then the Greeks who voted for a left anti-austerity party will switch allegiance to a right anti-austerity party—the fascist Golden Dawn—because they will claim that only they have the balls to actually do in office what they promise in opposition.

Dec 042014
 
 December 4, 2014  Posted by at 9:05 pm Finance Tagged with: , , , , , ,  28 Responses »
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Dorothea Lange Homeless mother and child walking from Phoenix to Imperial County CA Feb 1939

So, Matthew Lynn, I’m sure you’re a fine young man and your mommy loves you to bits, but you’re obviously in the wrong line of work. Or maybe the right one, come to think of it, since if you can make enough people see the world your way, in the end you’ll be right. That’s how journalism is defined these days. Anything goes, provided you can make people believe what you write. The problem is, that process can only end up with everyone a lot dumber than they already are. The lowest common denominator wins the day, every day.

My problem with that is, why does someone work for a finance site like MarketWatch who has no clue what finance actually is, and how it works? Your ignorance leads you, I’m sure without any bad intentions, to insult millions of people who are having a very bad time. Does that mean anything to you? See, I’m guessing it doesn’t. I think you don’t know bad times, because if you did, you would never write the offensive blubber you do.

But Matthew, this once, and only once, I’m going to say what I have to say about your mindless drivel. Because I don’t care one bit about the investor crowd whose fancy you’re trying to tickle, I’m here for the people you aim to leave by the wayside (yeah, I know, you had no idea..). And you know, normally I don’t care anymore, I can’t get angry every single time some nutjob gets his stuff upside down. But this goes too far, you’ve overstretched even your lowest common standards.

In your article, you paint the perfect example of why seeing deflation only as falling prices is so completely useless, numbing and dumbing. Hey, maybe I should thank you for that.

If you refuse to look a WHY prices fall, you never learn a thing, and you will always be behind. Apart from the fact that the idea of Greece and Spain doing well can easily be refuted by 1000 other data sources, there’s the simple fact that looking at one day or week or month tells you nothing. You need to look at consumer spending over at least the past few years. That would also show more respect for the over 25% of the working population, and over 50% of youth, who are unemployed in both Greece and Spain, and who are the topic of your ‘article’.

Here’s you, Matthew:

If Deflation Is So Terrible, Why Are Spain, Greece Growing?

Prices are starting to fall across the European continent. Mass unemployment, and a grinding recession are forcing companies with too much capacity to charge less for their products. Company profits will soon be collapsing, while government debt ratios threaten to spiral out of control. The threat of deflation is so worrying, the European Central Bank is expected to throw everything in its armory to prevent it, and to get prices rising again. It may even move towards full-blown quantitative easing as early as Thursday.

You get it awfully wrong from the get-go. What you call “companies with too much capacity” are simply those who could sell their products before the recession set in, and would now have to fire people to get rid of that ‘overcapacity’, thereby lowering spending capacity, which would lead to even more ‘overcapacity’, and therefore more unemployed. I’m thinking you must have studied economics, because that’s the only place people pick up such warped notions. It’s a chicken and egg thing, Matthew, a horse and a cart, and getting them the wrong way around is not going to help.

What you describe but don’t understand is deflation. It starts with a drop in spending, caused by lower or no wages, saving or simply the demise of confidence. It doesn’t start with overcapacity. It starts with people losing their jobs.

But here’s a puzzle. The two countries with the worst deflation in Europe are Greece and Spain. And two of the countries with the best growth? Funnily enough, that also happens to be Greece and Spain. So if deflation is so terrible, how come those two are recovering fastest? The answer is that deflation is not nearly as bad as it sometimes made out to be by mainstream economists.

Matthew, I’m not a mainstream economist. I’m not an economist at all, and I see that as my saving grace. Steve Keen is a good friend, but I don’t know any other economists who make any sense to me (Steve says he know a few, so we’re covered). But I don’t think even Steve fully gets deflation either. Which of course he’ll deny.

Still, saying that Greece and Spain are doing just great despite their deflation is simply meaningless. Deflation is not about prices, it’s about spending. And people in Greece have been forced to lower their spending for years now. So much so that one single extra boat of tourists would suffice to raise its GDP. But that makes no difference for the population. Which means Greece is not doing well. Yeah, the highest GDP growth in Europe, but that only says something about the rest. Still, selling a few additional retsinas and tzatzikis may lift Greece, but not Europe. Here’s more you:

The real problem is debt. But if that is true, perhaps the eurozone would be better off trying to fix its debt crisis than campaigning to raise prices – especially as it probably won’t have much success with that anyway. There is no question that the eurozone is sliding inexorably towards deflation. Only last week, we learned that the inflation rate across the zone ratcheted down to 0.3% last month, from 0.4% a month earlier, and a significantly lower figure than the market expected. It has been going steadily down for some time. Consumer inflation has not hit the ECB’s target level of 2% since the start of 2013. It has been falling steadily since it peaked at 3% in late 2011.

I must admit, after reading that again, I have no idea where you’re going with it. The problem is debt, I get that, and I agree too, and that should be fixed, kudos, but after that, you don’t seem to have much of a train of thought, just numbers.

It would be rash to expect that to change any time soon. The oil price has collapsed, and other commodity prices are coming down as well. That will all feed into the inflation rate. Retail sales are still weak, and unemployment is still rising. People who have lost their job don’t spend money – and companies don’t hike prices when the shops are empty.

What you’re describing there is not so much deflation itself, but its consequences. And you yourself just claimed that deflation is not all that bad, didn’t you?

Most economists will tell you that is very worrying — and that the ECB needs to act immediately to stop it getting worse. People will postpone buying anything because they think it will be cheaper next month. Companies will be reluctant to invest because they see their prices and profits going down. Confidence will be sapped, and the economy will suffer. Even worse, the debts of peripheral eurozone countries will spiral out of control — because the amount they owe will remain the same, but there will be less income to service it. But there is something odd about that analysis. The two countries with the worst price data are also the two countries doing best within Europe.

What happens is that Greece and Spain have become so cheap that tourists from other countries come and spend their money on their beaches. That lifts their GDP. Nothing to do with the people in the street. Nor does it have anything to do with deflation. Deflation is defined by the speed at which people spend their money (provide the money supply remains reasonably high). If no-one spends, prices fall. The reason people don’t spend is because they’re too poor. I’m lousy at rocket science, but I do get that one.

Just take a look at the figures. In Greece, prices are falling at an annual rate of 1.7%. In Spain, they are falling by 0.4%. So presumably those are the two countries that have been hit hardest? Well, it has not quite worked out like that. The fastest growing economy in the eurozone right now is none other than Greece. True, it is not exactly China, but it is expanding at an annual rate of 1.9% right now. And how about Spain? Its economy is also growing again, at an annualized rate of 1.6%.

You see, this is where you start to be insulting. You have a nation full of people who don’t even know anymore how to pay for a doctor, and because of some empty government massaged number you want to tell those same people they’re actually doing fine? They’re still as poor as they were before Samaras published that number, and before you reported on it.

By contrast, the economies where prices are still rising are not doing as well. Over in Germany, the supposed powerhouse of Europe, the inflation rate is still just in positive territory, at an annual rate of 0.5%. But growth in the third quarter was only 0.1%, narrowly avoiding recession. The same is true in France – inflation just about stayed positive, but growth has completely stalled.

Yeah, I know, it’s shooting fish in a barrel here for me: if you don’t know what inflation or deflation is, you’re bound to get everything wrong and upside down. But even then, don’t you at least think when you write “the economies where prices are still rising are not doing as well”, that that is weird? Because it would mean that countries who are already knee deep in deflation, whether it’s your definition or mine, with lower prices and therefore higher unemployment, do better than those who have fewer jobless. Doesn’t that strike you as odd?

So there does not appear to be much of a connection between rising prices and stronger growth. Nor do falling prices appear to be hurting very much.

See, now I’m getting pissed off. Did you even read that? Falling prices, Matthew, are the result of having more than half of your young people out of work for years on end. What the f*ck do you mean, they don’t appear to be hurting that much?

So what is going on? In reality, there is nothing terrible about prices falling. It is what happens in a competitive economy. Most of us like it when the stuff we buy gets cheaper. There is no serious evidence to suggest that it deters people from buying things. If it did, no one would ever buy a television or a smartphone, because they know perfectly well that they can get a better one for less money next year. In reality, they buy plenty of both.

This is where I give up on you, Matthew, and where I call on the MarketWatch board to fir your ass. Chances are, I know, that they agree with this absurdity, but what the heck, I’m calling anyway. I mean, what the hell is this supposed to mean: “There is no serious evidence to suggest that it deters people from buying things. If it did, no one would ever buy a television or a smartphone ..”

There’s plenty evidence, go to Athens, go to their soupkitchens and hospitals, and you’ll see that deflation DOES deter people from buying smartphones. Because they need the money, if they even have any, to pay for treatments to keep their children alive that we don’t even have to think twice about. It doesn’t deter them becise deflation loewred prices, but because deflation took their jobs away.

People buy things when they need them, taking price trends into account – after all, you can’t take either the money or the phone with you when you die, so you can’t postpone the purchase forever. Neither is there much evidence that it saps the confidence of companies. Again, if it did, no one would make any kind of consumer electronics. Businesses will invest where they think they can make money, and so long as costs are falling as well it is fine for prices to come down.

No people don’t buy things when they need them when they can’t afford them, you ignorant drip. You’re completely clueless about the world out there. And I take that personal, because these are my people. They’re all my people.

The threat to growth from deflation is wildly oversold. Indeed, for most of the 19th century deflation was completely normal — and that didn’t stop the industrial revolution in its tracks. Indeed, mild deflation may actually be helping Spain and Greece. As things get cheaper, consumers feel a bit more confident – and start spending again.

Yeah, the 19th century was a great period, wasn’t it, Matthew, and completely normal to boot, whatever that may mean. Just ask Marx and Dickens how normal it was, or the millions who came to America escaping the hell that was much of Europe. All Oliver Twist needed was a bit more confidence, so he could start spending again…

The one thing that is a problem is where there are high debts, as there certainly are across the eurozone. If prices fall, then those debt ratios are just going to get worse and worse. At a certain point, they will be unsustainable. But in that case, surely the right response is to deal with the debt, not the deflation. Many eurozone countries have debts that they probably won’t ever be able to repay.

If they thought inflation was going to deal with that for them, they will be disappointed. It isn’t going to happen. By far the best thing for them to do now would be to restructure their debts. The ECB will throw everything it has at fighting deflation. But it is probably not going to work – and it might well be better if it didn’t.

See, Matthew, you actually know some things. But you don’t understand them. I know, if only because you end with this cracker:

Deflation is not nearly as bad as everyone thinks.

I don’t really know what to say in the face of so much, what do you call this, nonsense, propaganda, ignorance? I write because I don’t like what happens to the people that folks like Matthew Lynn couldn’t care less about, as long as their little economic theories seem to fit whatever little rich lives they lead.

I have nothing with that. I have something with the people. And I therefore find comments like the ones above by Matthew Lynn repulsive.

Here’s real life:

Is The Greek Economy Improving?

The Guardian’s Greece correspondent, Helena Smith, is deeply sceptical about the heralded recovery having any real impact on the ground. “The ‘success story’ peddled by the government differs wildly to what life is really like on the ground – with plummeting living standards, unprecedented unemployment and the inability of most to keep up with bills, including the barrage of new taxes that can change with lightning speed on any given day,” she says.

“Five years down the road the crisis, to great degree, has been ‘normalised’ but the disconnect is evident in the collateral damage caused by the massive devaluation Greece has been forced to undergo in return for emergency funding: suicides, homelessness, a middle class pauperised by austerity. “And all eclipsed by a level of uncertainty, shared by all who live in a country whose debt load – the biggest impediment to real economic recovery – has actually grown since the crisis began.” [..]

Catherine Moschonas, from Thessaloniki: “Wages still much lower than a few years ago but taxes are MUCH higher, especially land taxes – the state is now taxing real estate that people can’t find tenants for and can’t sell because nobody’s buying. Generally policies are driving rather than limiting tax evasion – otherwise people can’t make ends meet (quite apart from perceived lack of social justice in measures taken).

“For families, healthcare increasingly a major financial concern as hospitals or sections close and social insurance is cut – but most people can’t afford private healthcare. People with relatively decent paychecks are one sick parent away from disaster. I don’t see any sign that things are improving”

Greece’s Recovery Is Deceptive

A small economic recovery is little consolation when one considers that in the past 5 years of recession, the Greek economy has lost a fifth of its total volume. And in a country that has seen unemployment rise to 28%, a drop of half a percentage point is not particularly noticeable.

.. the conservative Prime Minister Antonis Samaras desperately needs successes to mobilize his core voters. But real life is not helping him much. Growth in Greece is still very fragile, restructuring of inefficient state apparatuses is still very slow, tax avoidance has not been clamped down on, privatization is stalling, and austerity measures are driving more and more people to despair – younger generations in particular are struggling with a dearth of opportunities ..

.. even in these unusual circumstances, the Greek parties are not in a position to achieve even a basic consensus on how to rescue the country. Even now, they are feverishly preparing for a new election instead of trying to establish some political stability and continuity. Leading members of Syriza have even suggested demanding leftover war reparations from Germany and use them in calculations for a new budget. This might sound like a farce from the periphery of the eurozone, but it is testament to the backwardness of political culture in Greece. Anyone who wants to help the Greek people needs to keep their politicians and governments under control first.

Greeks Struggle To Get By Despite Economic ‘Recovery’

The number of Greeks at risk of poverty has more than doubled in the last five years – from about 20% in 2008 to 44% in 2013, according to a report by the International Labor Organization.

Sorry if I get too emotional for your taste at times, but I have a hard time with sheer and especially mean hubris. Telling people things are great since their basic necessities just got cheaper, exactly BECAUSE they can no longer afford them (because that IS deflation), that must be the pits. Still, it’s how 99% of economists ‘understand’ the world. Now you know why it’s all such a mess.

Aug 282014
 
 August 28, 2014  Posted by at 4:41 pm Finance Tagged with: , , , , ,  9 Responses »
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NPC Robey Motor Co., 1429 L Street, Washington, DC 1926

More accusations fly across the media, like so many flocks of Canada geese, of direct Russian involvement in Ukraine. Much is made of an interview with Donetsk National Republic leader Alexander Zakharchenko, in which he “admits” there are Russian volunteers fighting on his side.

To the west, that’s all the proof they need. There are 1000 Russians in Ukraine, cries NATO. That doesn’t make them the Russian army though. If there are only 1000, that would be disappointing. These are people who are seeing their family just across the border shot to bits.

That Zakharchenko also said there were French and other nationals fighting on the same side is not deemed worth reporting. Just like not much has been made of the many thousands of German, British, French, Belgian, Dutch, Canadian and American nationals fighting in Syria and Iraq, mostly on the side of the IS. Other than the British guy in the beheading video, and the US citizen who got killed.

So the Commerce Department really just raised its Q2 US GDP estimate to 4.2%, one day after the CBO lowered its 2014 estimate to 1.5%? Oh my. What’s next?

I’m still thinking that even if Russia were involved in Ukraine, why would that make Putin a devil? After all, we know where the Ukraine army gets its financing from, and it too has many – foreign – mercenaries on its payroll.

Does anyone still think Putin is going to call uncle on this one? You should have been reading the Automatic Earth over the past year. He won’t, and he can’t.

Can we truly deny Russia, and Russian family members of east Ukrainian Russian-speaking people, the right to help out their people when they’re attacked by bombers and swastikas, while they have exactly zero planes themselevs? On what basis exactly? And what gives Kiev the right to bomb its own citizens?

But let’s not get into that again today. In the slipstream of the talks this weekend in Minsk between Putin and Poroshenko, a precious little detail seems to have escaped the western press entirely. But I think all our fine journalists will soon have to address it.

You may remember that in an earlier phase of the dispute between Ukraine and Russia (not to be confused with the Kiev vs rebels fight), no agreement was reached on the payment of a $4.5 billion gas bill that Russian Gazprom said was overdue from Ukraine’s Naftogaz. And Gazprom demanded pre-payment for any future gas deliveries to Ukraine.

Kiev, instead of paying the bill, claimed Russia had overcharged it for the already delivered gas, by $6 billion, going back to 2010. And brought its argument before the Arbitration Institute of the Stockholm Chamber of Commerce.

Now maybe, just maybe, someone in the Kiev camp should have paused right before that moment, and consulted with their western backers in Brussels and Washington. Perhaps not so much Washington, but Brussels for sure, and Berlin. And Athens. Rome. Prague. Warsaw.

You see, a pending case before the Arbitration Institute of the Stockholm Chamber of Commerce can apparently take 12-15 months to resolve. And perhaps Europe doesn’t have that much time. Which is what Putin hinted at at a press-op he did after the weekend Minsk talks. What it comes down is that even if Russia wanted to accommodate Ukraine, it can’t. On strictly legal terms, nothing political.

What’s more, Gazprom had already paid Naftogaz in advance for the use of Ukraine pipelines, but the payment was returned. And that can have grave consequences not just for Kiev, but for almost all of Europe. Lots of countries get their gas through these pipelines.

It looks like the EU, and especially Germany, has started to smell – potential – trouble:

EU Suggests Russia, Ukraine Sign Interim Gas Agreement

The E.U. has suggested an interim agreement on the gas supplies between Russia and Ukraine without waiting for a Stockholm arbitrary court decision, E.U. Energy Commissioner Gunther Oettinger said in a news conference following his meeting with Ukrainian President Petro Poroshenko late Tuesday Two cases are before the Stockholm court, but the hearings will take 12-15 months, which is too long, while Europe needs an interim solution for this winter, Oettinger said In June, Russian gas giant Gazprom switched Ukraine off gas over the unpaid debt and filed a $4.5 billion suit to the Stockholm arbitration court. Later, Kiev reciprocated by sending a suit to the court against Gazprom for making Ukraine overpay $6 billion for gas since 2010, setting too high prices in its contract.

The Russian Legal Information Agency has this:

Putin: Naftogaz Suit Against Gazprom Axes Discount For Ukraine

The fact that Ukraine’s Naftogaz has invoked arbitration proceedings against Gazprom prevents Russia from giving Ukraine a gas price discount, President Vladimir Putin said in Minsk where he met with Ukrainian President Petro Poroshenko. “We cannot even consider any preference solutions for Ukraine since it pursues arbitration,” Putin said. “Russia’s possible actions in this sphere could be used against it in the court. We couldn’t do it even if we wanted to.” After Gazprom switched to a prepayment system for gas deliveries to Ukraine on June 16, Naftogaz turned to the Arbitration Institute of the Stockholm Chamber of Commerce. Naftogaz wants Gazprom to cut the price for gas and to get back $6 billion that Ukraine has allegedly overpaid since 2010.

Gazprom in turn is seeking to recover Ukraine’s $4.5 billion debt for gas deliveries. Putin said Russia offered a compromise solution during the talks held before Gazprom switched to the prepayment scheme. “We reduced the price by $100,” Russian President said. Gas talks between Russia, Ukraine and the European Union went on from April to mid-June. Kiev said it would not repay its $4.5 billion debt unless Russia agreed to supply gas at a lower price. Russia offered a discount, but Ukraine turned down the offer. Russia then said it would only resume gas supply talks after Ukraine paid off its debt.

More signs of German nerves are here in a piece from the European Council on Foreign Relations – I kid you not, they exist -, along with a nice but curious admission:

Has Germany Sidelined Poland In Ukraine Crisis Negotiations?

As Germany takes over leadership of the European Union’s efforts to solve the Ukrainian crisis, Poland is questioning the motivations and strategies behind Berlin’s new diplomatic activism. The initiatives of German Foreign Minister Frank-Walter Steinmeier and Chancellor Angela Merkel are being followed closely in Warsaw – and often with mixed feelings. Is Berlin trying to mastermind a compromise with Russia on Moscow’s terms, ignoring Kyiv’s vital interests? And as Poland is increasingly edged out of the conflict resolution process, has Berlin-Warsaw co-operation on EU Ostpolitik broken down?

Poland was, along with France and Germany, one of the countries that orchestrated the political shift in Ukraine in February. Since then, Warsaw has played a central role in forging a bolder EU response to Russia’s aggression and in providing meaningful assistance to the Ukrainian government. However, as the conflict has worsened, Warsaw has become less visible as an actor in crisis diplomacy. Polish Foreign Minister Radek Sikorski was not invited to join his German, French, Russian, and Ukrainian counterparts in the negotiations on conflict resolution held in Berlin in early July and early August. Before Ukrainian President Petro Poroshenko and Russian President Vladimir Putin agreed to meet at the Customs Union summit in Minsk on 26 August, the idea had been floated of holding another high-level meeting in the “Normandy format” of France, Germany, Russia, and Ukraine.

Kiev is either so high on the EU, US and NATO support it was promised, or so desperate over its latest battlefield losses, that it goes for all on red, probably thinking, and probably rightly so, that the western press will swallow anything whole. Tyler Durden:

Ukraine Accuses Russia Of Imminent Gas Cut-Off, Russia Denies, Germans Anxious

So much for the Russia-Ukraine talks bringing the two sides together as even Germany’s Steinmeier could only say it’s “hard to say if breakthrough made.” Shortly after talks ended, Ukrainian Premier Yatsenyuk stated unequivocally that “we know about the plans of Russia to cut off transit even in European Union member countries,” followed by some notably heavy-on-the-war-rhetoric comments. The Russians were quick to respond, as the energy ministry was “surprised” by his statements on Ukraine gas transits and blasted that comments were an “attempt at EU disinformation.”

Here’s what Putin said at the press op after the talks:

Answers To Journalists’ Questions Following Working Visit To Belarus

Currently, we are in a deadlock on the gas issue. You see, this is very serious matter for us, for Ukraine and for our European partners. It is no big secret that Gazprom has advanced payment for the transit of our gas to Europe. Ukraine’s Naftogaz has returned that advance payment. The transit of our gas to European consumers was just about suspended. What will happen next? This is a question that awaits a painstaking investigation by our European and Ukrainian partners.

We are fulfilling all the terms of the contract in full. Right now, we cannot even accept any suggestions regarding preferential terms, given that Ukraine has appealed to the Arbitration Court. Any of our actions to provide preferential terms can be used in the court. We were deprived of this opportunity, even if we had wanted it, although we already tried to meet them halfway and reduced the price by $100.

The ball is squarely in the western court. Of course many will think and hope that Russia will give in because it needs the revenue, but the problem with that is it could cost the country too much (admittedly, that’s not the only problem). $6 billion to Ukraine for starters, then potentially many more billions on future deliveries to Kiev, and then there’s the rest of its contracts with two dozen or so European nations.

From a legal point of view, this may not be about what Moscow wants to do anymore, but about what it can. The Arbitration Court case may have tied its hands. And unless Europe wants a cold winter, it must seek a solution. Putin, who holds degrees in both judo AND law, understands this. But he didn’t set this up. Western and Kiev hubris did. Certain people got first too pleased with, and then ahead of, themselves.

So what now? There are several options. Ukraine can withdraw the case it has pending in Stockholm. A huge loss of face when you’re waging a war, even if it’s just against your own people. And it would still have to find money it doesn’t have, to pay its past and future gas bills. The fact that Naftogaz returned the Gazprom advance payment doesn’t bode well for that.

The west could end up – having to – withdraw its support for Kiev. But a lot of money has been poured into that support, NATO is erecting new bases on Russia’s borders, there is a war party sentiment, if not exuberance, building up.

There’s a lot of talk of Putin trying to save face, but I’m not so sure that comes from, let’s say, an ‘adequate’ understanding of what’s on the table. A more appropriate question might be: how does the Brussels bureaucracy save face? Angela Merkel may end up having to force them into humility, just so her people don’t freeze.

Or, of course, we could all go to war. Only, we wouldn’t even be able to figure out who’d be fighting whom, or for what reason. It would seriously risk repeating the very past the EU was designed to prevent.

Putin pointed to another rather difficult but highly interesting legal ‘technicality’ as well, which involves Ukraine moving closer to the EU economically:

We once again pointed out to our partners – both European and Ukrainian partners – that implementation of the association agreement between Ukraine and the EU carries significant risks for the Russian economy. We have shown this in the text of the agreement, directly pointing to specific articles in that agreement. Let me remind you that this concerns nullifying Ukraine’s customs tariffs, technical regulations, and phytosanitary standards.

The standards in Russia and Europe currently do not correspond. But, as you recall, the most classic example is the introduction of EU technical regulations in Ukraine. In that case, we would not be able to supply our goods to Ukraine at all. We have different technical standards. And according to the European Union’s standards, we will not be able to supply our machine-building products there, or any industrial goods. If that happens, we cannot accept Ukrainian agricultural production goods in our territory, because we have different approaches to phytosanitary standards. We feel that many problems would occur.

If we do not achieve any agreements and our concerns are not taken into account, then we will be forced to take measures to protect our economy. And we explained what those measures would be. So our partners must weigh everything and make corresponding decisions.

I think Ukraine, through Yatsenyuk and now Poroshenko, has grossly overplayed its hand. Encouraged by Brussels, which is also not nearly big enough for the chair it resides in, and Washington, which is partly simply clueless about the region and partly all too eager to engage in yet another campaign of “smart” bombing and regime change. And which, besides, stuck its neck so deep into the Middle East cesspool once again it has no chance of maintaining focus on an issue that mainly concerns Europe.

It is time for some cool heads to come to the fore, and for accusations and allegations and innuendo and spin to fade into the background, or this can get way out of hand.

European economies are easily doing bad enough for all efforts to be directed there, not to use this as an added motivation to incite trouble outside of EU borders.

If Kiev announces it’ll stop bombing its own citizens, and follows up on that, there’s no doubt the other side will calm down as well.

Ukraine and the west invited the lawyers in through the case they brought before the Stockholm court. Let’s leave it to the lawyers, and stop killing civilians while we do. Word.

Word.

US Housing Market Is Falling Apart, Recovery Is An Illusion (MarketWatch)

Most real estate experts believe the U.S. housing market is roaring back. Few have anything to negative to say about real estate. But what if they’re wrong? Real estate analyst Keith Jurow, author of the Capital Preservation Real Estate Report, is warning that the real estate market is not as strong as it seems. Says Jurow: “I never bought into the idea that we had a recovery at all.” His research leads him to conclude that home prices will be heading lower. Why? Largely because home listings are going up but sale prices are not. Jurow discovered that as of June 2014, listings in Ft. Lauderdale increased by 89.3% year-over-year. In Miami, listings are up by 65.7% In Charlotte, N.C. they are up 51%, and in Riverside, Calif. they’re up 28.1%. In 10 major metro areas around the country, listings have increased. Jurow gets his data from Redfin.com and Raveis.com.

“Many people waited for prices to rise before putting their house on the market, and they have,” Jurow says. “But now listings are increasing because everyone has the same idea. Unfortunately, May and June are traditionally the strongest months for sales, and these home sellers have missed the peak season.” Jurow points out that Redfin.com’s latest figures show that in 21 out of 29 major metro areas, sales volume is down year-over-year. “If sales are weakening and listings are going up substantially, prices will fall,” he says. The problems in housing are much deeper than many people realize, Jurow contends. Another nagging concern is the large number of homeowners who are delinquent. “Delinquent means you haven’t paid the mortgage,” Jurow says. “The lender or servicer can file an official notice of default, which begins the foreclosure proceeding.” However, to keep prices from falling further, mortgage servicers have sharply reduced the number of homes placed into default.

Millions of homeowners are already seriously delinquent. “The average length of time that houses remain delinquent nationwide is 995 days,” Jurow says. “The worst culprit is New York State. The average delinquency period there is four years.” Many homeowners are aware that banks are not in a rush to file foreclosures, so they stay in their houses mortgage-free. “The banks are not initiating foreclosure proceedings because once the servicer forecloses, the lender takes a hit on earnings,” Jurow says. “They also have to manage the property, and most banks don’t want to do that.”

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Let’s make sure we all stay stupid.

CBO Revises Its 2014 GDP Forecast, Hilarity Ensues – As Always (Zero Hedge)

The gross, in fact epic, incompetence of the Congressional Budget Office when it comes to doing its only job, forecasting the future state of the US economy, has previously been extensively documented here. This incompetence is in the spotlight once again this morning with the CBO’s release of its latest forecast revision of its original February 2014 projection. And while every aspect of the revised projection has changed, in an adverse direction of course, the punchline is the chart below: the CBO’s revised projection for 2014 GDP. It’s one of those “no comment necessary” visuals.

Surprising? Hardly. After all the CBO is swarming with indoctrinated Keynesian cultists whose only achievement in life is to be wrong about everything (and then to blame the Fed for not “easing enough”). Here is how the CBO “explains” this 50%+ cut in its forecast in just 6 months:

CBO has lowered its projection of real growth of GDP in 2014 from 3.1% to 1.5%, reflecting the surprising economic weakness in the first half of the year.

Which as other Keynesian talking heads have already made quite clear was due to snow. That’s right: over $100 billion in forecast economic growth “evaporated” from the US economy because it… snowed. The good news? The CBO refuses to forecast the “harsh weather” for the foreseeable future, and has kept all of its 2015 and onward GDP estimates as is. So when things go horribly wrong to the CBO’s forecast, which is 100% guaranteed to happen, the CBO can again blame “surprising economic weakness” because, well, everyone else is doing it.

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I could have written about this today, a crucial line: banks realized the bulk of the benefit of very low interest rates years ago. That’s why rates will rise. So banks can get back to stellar profits. As simple as that.

Big US Banks Set For Huge Profits When Interest Rates Rise (MarketWatch)

An expected rise in interest rates over the next year will help the largest U.S. banks earn billions of dollars in additional net interest income, setting up their cheap stocks for what could be a stellar run. You might be surprised to be reading anything positive about big banks, in light of Bank of America’s $16.65 billion mortgage settlement with the Department of Justice and several states last week. The epic settlement followed a similar $7 billion settlement by Citigroup in July and a then-record $13 billion settlement by J.P. Morgan last November. While these companies still face continued investigations and litigation over their mortgage lending and securitization activities heading into the housing blowup of 2008, as well as several regulatory investigations of Libor reporting and foreign-exchange trading, it appears that the period of huge settlements is over. Looking ahead, 2015 promises to be a fresh start for the industry, as the interest rate environment improves and the banks move past the settlements.

The Federal Reserve has kept the short-term federal funds rate locked in a range of zero to 0.25% since late 2008, in an effort to increase loan demand and jump-start the economy. This policy and the “QE3” bond purchases that will end this year seem to have worked, with the U.S. economy expanding at a 4% annual rate during the second quarter and continuing to add over 200,000 jobs a month. But the debate at the Federal Reserve has now shifted to the timing of interest rate increases. Most economists expect the federal funds rate to begin climbing in the second half of 2015, but it could well happen sooner than that. For most banks, the extended period of low interest rates has become quite a drag on earnings. Net interest margins — the spread between the average yield on loans and investments and the average cost for deposits and borrowings — are still being squeezed, since banks realized the bulk of the benefit of very low interest rates years ago, while their assets continue to reprice downward.

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Normal correction coming right up.

Two Experts Warn Market Correction Could Total 60% (CNBC)

Markets could soon face a fall of up to 60%, two experts told CNBC on Wednesday. A jolt to international confidence in central banks will lead to a 30 to 60% market decline, David Tice, president of Tice Capital and founder of the Prudent Bear Fund, told CNBC’s “Power Lunch.” When this happens, he said, markets will face a “period of extreme turmoil.” This crash will be precipitated, he said, by a disillusionment with the Federal Reserve’s “confidence game,” which will then see inflation rise, and the Fed scramble to raise rates. At that point, Tice added, “the Fed starts to lose control.” Another market watcher also called for an impending fall. The Fed’s low interest rates could bring a “scary” 50-60% market correction, said technical analyst Abigail Doolittle. “Unfortunately, I think it could come on a crash similar to what happened in 2007,” Doolittle, the founder of Peak Theories Research, said on “Squawk Box” a day after the S&P 500 closed above the 2,000 level for the first time ever.

“It’s tough to know what the exact catalyst will be. But that’s the very nature of that kind of selloff. They start slowly and then happen very suddenly.” Doolittle pointed to a 20-year chart of the Dow Jones Industrial Average. “When we take the long-term chart of the Dow … we see that it’s trading in a multiyear trading range, hitting up on resistance. … What makes this so important [is] you can see that the entire bull market trend over the past five years has started to reverse.” “When you see that kind of gyration around the trend, typically it suggests you’re going to see some severe volatility,” she said. “As scary as it is, I think that we could see possibly a 50% or 60% correction—an equal and opposite reaction to all these unusual policy moves.” Doolittle called Tuesday’s S&P 2,000 close a psychological milestone that means very little technically. “As high as these stocks markets go, I’ve become bearish because the underlying technicals from the long-term really support this view.”

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They can go until they burst. Soon.

How Low Can They Go? Traders Eyeing Global Bond Rates (CNBC)

Stock traders will be watching a brief flurry of economic reports Thursday, but the main attraction could be the bond market. Reputed to be dull, bonds have been anything but this week. Caught in a tug of war between the opposing policy modes of a tightening U.S. Fed and an easing European Central Bank, bond yields have taken dramatic turns as investors also adjust portfolios ahead of month’s end. While the S&P 500 broke through the 2,000 mark for the first time, bond traders this week have been watching yields creep ever lower in Europe, with yields on shorter duration sovereign debt from Germany and Belgium to the Netherlands and Finland turning negative. The benchmark German 10-year bund fell through 0.90% for the first time Wednesday, while Italian and Spanish 10-year yields traded beneath the U.S. 10-year yield. It was not that long ago that those peripheral euro zone securities were seen as risky high yielders.

Meanwhile, yields on shorter duration Treasurys, while slightly lower Wednesday, have been inching higher on expectations that the Fed will ultimately move to raise rates next year. Headlines from Europe Wednesday, including from German Finance Minister Wolfgang Schaeuble, attempted to squash speculation that the ECB would take some further easing action next week, but bond yields still moved lower. Traders said concerns about Ukraine, and reports that Russia was sending troops inside that country, also weighed slightly on the long end of the curve “It’s yield grab and geopolitics at the back end, and policy speculation at the front end,” said Adrian Miller, director of fixed-income strategy at GMP Securities. “Every time the yields tick lower is because someone thinks the ECB is going to drop another pile of cash on the market, and it’s going to spill over to the U.S.”

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How many ways are there to screw this up?

What’s the Real US Unemployment Rate? Report Says Nobody Knows (BW)

No U.S. economic statistic is more important than the unemployment rate, which was officially reported as 6.2% in July. But a new academic paper finds that a long-known source of potential error in the unemployment rate “has worsened considerably over time.” The actual rate may be higher than the reported one, though it’s hard to know for sure, the paper says. The unemployment rate is calculated by averaging the results from eight separate samples of the population, known as rotation groups. In theory, the people in all eight rotation groups should have the same likelihood of being unemployed, but they don’t. In the first half of 2014, the newest rotation groups had an unemployment rate of 7.5%. The oldest rotation groups had an unemployment rate of just 6.1%. That disparity of 1.4 percentage points is huge, considering that economists pay close attention to changes in the jobless rate down to the tenth of a percentage point.

The Bureau of Labor Statistics puts a heavier weighting on the older rotation groups, so the official unemployment rate for the first half of 2014 was 6.5%. The new paper is important not just because of its finding but also because one of its authors is Alan Krueger, a Princeton University economist who was chairman of President Obama’s Council of Economic Advisers from 2011 to 2013. His co-authors are Alexandre Mas of Princeton and Xiaotong Niu of the Congressional Budget Office. Gary Steinberg, a spokesman for the Bureau of Labor Statistics, says the agency has done its own research on the topic of what’s known as “rotation group bias” but would have no immediate comment on the paper. The BLS creates a new rotation group each month by drawing a random sample of people from the U.S. population for the Current Population Survey (CPS).

A rotation group is included in the calculation of the unemployment rate for four months, then left out of it for eight months, and then brought back in for four months before being dropped for good. The first researcher to notice discrepancies in the unemployment rates of the various rotation groups, way back in 1975, was a statistician named Barbara Bailar, who later became executive director of the American Statistical Association. At the time, the discrepancy between rotation groups was on the order of half a percentage point. Krueger and his co-authors write that while other economists have delved into the topic, “the magnitude and evolution of rotation group bias in the CPS has not been documented since Bailar’s (1975) study.”

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A trend that has just started.

Eurozone Business, Consumer Confidence Decline (WSJ)

Business and consumer confidence across the 18 nations that use the euro deteriorated in August, as managers and households took a gloomier view of their economic prospects. The weakening in confidence was one of several pieces of data Thursday that suggest the euro-zone economy remains fragile, adding further pressure on officials at the European Central Bank to pursue more aggressive policies to help lift the 18-nation economy out of its funk. The European Commission said its European Sentiment Indicator, a broad measure of business and consumer confidence in the euro zone, weakened to 100.6 in August from 102.1 a month earlier, when it posted a surprising increase. The fall was bigger than expected. Economists polled by The Wall Street Journal expected the commission’s gauge of confidence to dip, but only to 101.5. The European Commission said economic confidence weakened significantly in Italy and dipped in Germany, the bloc’s biggest economy. There were milder contractions in France and the Netherlands, while confidence remained flat in Spain.

Business confidence deteriorated because managers gave a more downbeat assessment of their expectations for future production, the commission said. Households, meanwhile, became gloomier about their job prospects and their financial security. The euro-zone economy stagnated in the second quarter, growing by a mere 0.2% in annualized terms. The economy’s prospects have been further undermined by tensions with Russia over unrest in Ukraine and conflict in the Middle East, both of which threaten energy supplies and could hurt trade. Data due Friday are expected to show inflation in the euro zone cooled further in August, heaping pressure on ECB officials to broaden their stimulus efforts. The central bank has already cut interest rates and in September plans to roll out a new program of long-term funding for banks to encourage greater lending. But officials led by ECB President Mario Draghi continue to face calls to embark on a large-scale program of asset purchases, or quantitative easing, to fuel growth and lift inflation back toward its target of just under 2%.

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France has many more jobless than its numbers indicate. They just call them something else.

French Unemployment Hits New Record (MarketWatch)

The number of unemployed people in France rose 0.8% in July from June, setting yet another record high at a time when President Francois Hollande is struggling to convince the French, and even his political allies, that he has the right recipe to solve the country’s economic woes. The number of unemployed – defined as registered job seekers who are fully unemployed – reached 3,424,400 in July. “The rise stems from zero economic growth in the euro zone and in France,” labor minister Francois Rebsamen said in a statement. Mr. Rebsamen said state sponsored jobs, particularly for young people, will continue to boost employment. The president’s plan to cut taxes for employers to fuel job creation will also help, Mr. Rebsamen said. Mr. Hollande’s plans have come under fire from within his own camp in recent days. Dissidents criticized painful public spending cuts and said households, as well as employers, should face more tax cuts. The president reacted quickly by dissolving his government and expelling the dissidents.

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This is how deflation works. Discard all the talk of inflation. Fast growing number of people don’t habe any money. That’s what the pretend recovery is built on.

Falling Italian Fruit Prices Signal Deflation Woe for Draghi (BW)

Matteo Tosato saw deflation coming months ago as he hauled his traveling fruit and vegetable stand to outdoor markets around the northern Italian city of Padua while his country slid back into recession. “Wherever a factory closed down and people got fired, demand collapsed and I had to lower prices to keep my business running,” said Tosato, 38, who sells peaches, apples, carrots and other farm-fresh goods in as many as four town squares a week. Tosato says his cuts have been as much as 30% to 40% compared with last year. Across Italy, prices are dropping for everything from food to hotels and clothing, leading economists in a Bloomberg survey to predict the country, already in its third economic slump since 2008, is about to join Greece, Spain and Portugal in recording annual consumer-price declines.

Weakening prices across the euro area are ratcheting up pressure on European Central Bank President Mario Draghi to do more to spur inflation and the euro region’s sputtering economy. Draghi said last week that policy makers will use “all the available instruments needed to ensure price stability.” Key inflation figures are due this week. Italian consumer prices probably fell 0.1% in August from a year earlier, according to a survey of 12 economists before a report in Rome tomorrow. That would be the first decline in five years. Euro-area data scheduled to be released at the same time may show inflation in the 18-nation bloc slowed to 0.3% this month from 0.4%, a separate poll showed. That compares with the ECB’s goal of close to 2%. Consumer prices in Spain fell 0.5% in August from a year ago, the sharpest decline since Oct. 2009, even as the economy expanded 0.6% in the second quarter.

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No QE. Says Germany.

ECB’s Draghi Has Been “Overinterpreted”, Says Germany’s Schaeuble (Reuters)

Germany’s Finance Minister Wolfgang Schaeuble told a newspaper on Wednesday that European Central Bank chief Mario Draghi had been “overinterpreted” after suggesting that fiscal policy could play a greater role in promoting growth. The comments, made last Friday have been widely seen as a shift of emphasis towards support for greater fiscal stimulus over austerity. “I know Mario Draghi very well, I think he is being overinterpreted,” Schaeuble told the Passauer Neue Presse in an interview, adding he respected the independence of the central banker. Schaeuble also said he wasn’t pleased about comments made by France’s former economy minister Arnaud Montebourg on Germany’s “obsession” with austerity but that this was a domestic debate in France and consequences had been drawn. French President Francois Hollande ejected Montebourg from his cabinet earlier this week.

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China’s housing is way worse than we, let alone the Chinese, acknowledge. Huge numbers of homes were built as investments, not to live in. If you live in a home and the price goes down, you may still be able to pay the mortgage. If it’s just an investment, the rules change.

China Property Launches To Add To Inventory, Lower Prices (Reuters)

Property launches in China are set to surge in the latter half of the year with developers sticking to their schedules despite mounting inventories, spelling double trouble for a market hammered by months of falling prices. Prices started to decline in March as the slowing economy hit demand, inventories ballooned and developers began offering discounts. The current slump was confirmed by official data only around the middle of the year, way after developers had already committed themselves to completing projects for 2014. Developers also have little choice but to heap even more supply in a bloated market due to regulations that stop them from sitting on undeveloped land. Those that fail to break ground on new projects a year after purchasing land will face fines, while those that wait more than two years could have their land confiscated. The rush to expedite projects will worsen chronic oversupply that analysts warn may take years to clear.

Unsold properties will also have broader implications – the sector accounts for over 15% of the economy and its fortunes are tied to other industries such as concrete and steel. Earlier this month, Kaisa Group and China Merchants Land confirmed that they planned to launch around 70% of their 2014 projects in the second half. Country Garden said it aimed to meet 60% of its sales target during the period. Price cuts and promotions are the most common methods that developers use to clear inventory. But tight mortgage credit lines from banks and discrepancies in price expectations between developers and home buyers are not helping, analysts say. “Buyers’ attitude has changed. They feel they can wait,” said CIFI Holdings Chief Financial Officer Albert Yau. China’s once white-hot housing market is slowing this year, weighed by the cooling economy and the government’s five-year-long campaign to curb price rises. New home prices fell in July for a third consecutive month, with declines spreading to a record number of big cities including Beijing.

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Chinese Developers Offer Hefty Discounts In Strained Housing Market (FT)

In the latest sign of Chinese developers’ desperation to unload inventory into a weak property market, China Vanke Co is offering discounts of up to $325,000 to home buyers who shop on Alibaba’s Taobao, an e-commerce platform. The country’s biggest developer will give discounts that match shoppers’ spending of up to Rmb 2 million ($325,000) on the eBay-like service. Homes in real estate developments in Beijing, Shanghai, Guangzhou and Chongqing, among other cities, will qualify, according to an advertisement on Taobao’s website.

Developers began cutting prices this year but have so far failed to revive flagging volumes. More than 30 cities have also removed purchase restrictions introduced in 2010 to restrain price growth amid public anger over high prices. Residential property sales fell 9.4% in floor space terms in the first seven months of the year compared with the same period in 2013, according to government statistics. Developers are increasingly resorting to creative sales tactics to drum up interest. An office tower in Henan province offered carwashes by bikini-clad models to people who referred a friend to the building’s account on WeChat, the instant messaging service run by Tencent Holdings. A residential developer in Wuhuan offered new iPhone 6s to potential buyers who showed up at the sales office.

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Did China Just Announce A New Mini-Stimulus Package? (CNBC)

The Chinese government launched a “fresh round of mini-stimulus” to counter growth headwinds, according to a Bank of America Merrill Lynch (BofA-ML) report published Thursday. The measures aim to support the agricultural sector, boost investment in public facilities and improve environmental protection. The People’s Bank of China (PBOC) has given banks a larger re-lending quota at lower rates to support the farm sector. It granted a 20 billion yuan ($3.26 billion) re-lending quota to its local branches to guide rural financial institutions to step up lending support to the sector, it said on its website late Wednesday. Re-lending is a monetary tool used by the central bank to increase financial institutions’ liquidity and guide credit flows.

Other measures include a “push for ramping up investment in clean energy and public facilities such as hospitals, nursing homes and fitness centers, and a promise for delivering the target on social housing and more spending on environmental protection,” Ting Lu and Sylvia Sheng, economists at BofA-ML wrote. These steps will help China deliver the “around 7.5%” growth target, BofA-ML said, noting that it’s comfortable maintaining its gross domestic product (GDP) growth forecast of 7.4% for the second half. A slew of disappointing economic data – from manufacturing to credit growth – over the past month raised concerns that the world’s second-largest economy may be headed into a renewed soft patch.

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Oh Jeez.

Portugal’s Espirito Santo Clan In 11th-Hour Borrowing Spree In 2014 (Reuters)

The corporate empire of Portugal’s Espirito Santo family issued €5 billion ($6.6 billion) of new debt in the first six months of 2014, according to people familiar with the matter, just as the clan’s businesses were nearing bankruptcy. The bonds were sold via a complex transatlantic scheme involving companies in Panama and Europe, the people said. Much of the debt ended up with Banco Espirito Santo and its customers, they added, accelerating the financial woes that led to the lender’s state bailout earlier this month. The 11th-hour borrowing gambit uncovered by Reuters is being examined by Portuguese financial regulators who are trying to determine whether it was legally permissible, according to people close to the examination.

It shines new light on the lengths to which Portugal’s biggest corporate dynasty went to save their empire from collapse, mixing family affairs with those of the country’s then largest listed bank, in which until recently they were the single-largest shareholder. The collapse of the 145-year-old Espirito Santo group has caused turmoil in international markets and rocked Portugal’s political and business world. Regulators and prosecutors are examining possible fraudulent behaviour behind the fall. As part of their investigation, regulators are looking into how the bonds issued in the first six months of the year were packaged, marketed and sold to clients, according to the people familiar with the examination.

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Fun down under.

Is Kim Dotcom A Threat To The Kiwi Dollar? (CNBC)

What on earth is the connection between Kim Dotcom – one of the world’s biggest internet pirates – and the New Zealand dollar, you ask? Dotcom, who is fighting extradition to the United States on piracy charges, launched a political party earlier this year to contest New Zealand’s general elections on September 30. In late-May, his Internet Party entered an alliance with the Mana Party, a small party that advocates for the nation’s indigenous Maori, to improve his chances of gaining political clout. Their joint party, Internet Mana, is gaining popularity among young voters and is in striking distance of the five% threshold needed to guarantee representation in parliament, according to the One News-Colmar Brunton poll published on August 17. “Fears that the infamous web entrepreneur Kim Dotcom may be starting to influence the New Zealand election is affecting the currency.

Mr. Dotcom’s party has aligned itself with the Maori party and is polling at 5% – a big enough swing in New Zealand politics that could possibly give the ruling majority to the opposition Labour party,” Boris Schlossberg, Managing Director of FX Strategy at BK Asset Management wrote in a note. “Such a move leftward would no doubt shake up the currency markets which have been caught by surprise expecting yet another win by the National party that would maintain the economic status quo,” he said. The National Party-led coalition – headed by Prime Minister John Key and Deputy and Finance Minister Bill English – is lauded for its success in steering the country through the global financial crisis and aftermath of the devastating Christchurch earthquake of 2011. A government led by the main opposition Labor party is viewed as unfavorable by investors.

“A Labor/Green-led government most likely with the support of the more radical small Internet/Mana left element and a populist centrist NZ First would be regarded as unstable and damaging for business confidence,” said Greg Gibbs, head of Asia Pacific markets strategy at RBS. The National Party is currently leading the Labor Party in the polls by a wide margin, at 50% and 26%, respectively. However, the National Party has been losing support. Earlier this month, Key predicted a close general election, saying, “If we could poll 50% on election night that would be great, but the truth is MMP [Multi-Party Proportional voting system] is an environment that’s tough, it’s hard fought and it’s always close.” The complex MMP voting system tends to emphasize the role of minor parties and force the major players into coalition governments. Schlossberg says any significant chance that the left-leaning Labor may wrest control of the government could push the New Zealand dollar-U.S. dollar pair towards $0.80 over the next few weeks.

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Excellent piece by Butler; good summary of all the things I’ve written about MH17 and the larger Ukraine situation.

Death & Lies: The Only Truth Of Flight MH17 (Philip Butler)

The day Malaysian Airlines flight MH17 fell to Earth in pieces, everyone in our world was told Russia and Vladimir Putin murdered the 298 people aboard. It is over a month since the biggest ‘shoot-down’ incident in air passenger history, and this is what we know for sure. Whatever happened in the skies above eastern Ukraine on July 17, we’ve been set on a reactionary course charted by either fools or the adjunct henchmen of some unseen game. Was all this conjecture to risk the outbreak of World War III over hearsay and rumor? A mouthy leadership in the West has revealed the only real truth of this matter: credibility and trust was ‘blown out of the sky’ over Ukraine. At 1:15pm in the afternoon on July 17, 2014, the air traffic controllers at Kiev lost radar and voice contact with flight MH17. The Boeing 777-200ER, flying from Schiphol Airport in Amsterdam to Kuala Lumpur, fell in pieces on Ukraine’s eastern frontier. The earliest reports the public received on the catastrophe came from the various mainstream media.

Those outlets basically parroted what officials in Kiev and the US State Department released. From the outset, officials in the West started a blame game, and one of massive proportions. Within a few hours of the event, nearly all media reflected assurances that Russia, and the pro-Russian fighters in eastern Ukraine were guilty. We know now that almost all the initial information on the Malaysian Airlines downing was misleading at best. Allegations, ‘cooked up’ evidence from social media, and illogical theories took the place of news reporting for days on end. US intelligence sources said sophisticated BUK surface-to-air missile systems were used to down the plane. Supposedly, these launchers were expertly operated by guerrilla fighters who were surrounded by Ukrainian security forces in contested territory. Meanwhile, the same trillion-dollar security and defense industry that the NSA spies on the world for claimed MH17 was shot down by “Vladimir Putin’s Missile.”

We were expected to believe Russia’s president ordered his military to drive a BUK system across Russia’s border, to deliver it to separatist forces there in order to shoot down a friendly aircraft, and then to drive the launcher back into Mother Russia. Moreover, this was all to be accomplished secretly, and in broad daylight through the most hotly-contested real estate in Europe. Western leadership and once-trusted media asked the world to be complete idiots, hapless peons ready for a Ukrainian ‘shock and awe’ campaign. But today we have a dozen plausible theories of what happened. The most legitimate at the moment, an air-to-air engagement by Ukrainian SU 25 attack aircraft, has been largely ignored even though key experts abide by the theory. The Kiev/US/NATO/GCHQ/EU/White House narrative has quieted down somewhat now, since Russia’s Defense Ministry sent the message that it had all the evidence. But we’re left with crippling counter-sanctions here in Europe. Sanctions levied on Russia based on a heap of lies, for all we know.

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Sort of good piece, but misses the issues of depletion rates and and ballooning debts.

US Shale: What Lies Beneath (FT)

In a clearing in a cornfield in the Eagle Ford region of south Texas, the rig drilling the Sisti A3 well for ConocoPhillips looks very similar to the ones that have been working in the state’s shale reserves for more than a decade. But a mile or two below the surface, the way the wells operate has changed radically. Since 2012, Conoco has doubled the volume of ceramic proppant – a sand-like material – it uses for hydraulic fracturing. Mixed with water and pumped into wells at high pressure, the proppant forces open the cracks in the rocks where oil and gas is trapped. Using more proppant has increased the output of each well by 30% – giving a healthy boost to Conoco’s bottom line. Now its engineers are examining ways to double the amount of proppant again. This kind of experimentation has made Eagle Ford and other shale formations, including Bakken in North Dakota and Permian Basin in west Texas, the oil industry’s equivalents of Silicon Valley.

The shale boom is not a one-off event but a permanent revolution, with companies constantly pushing back the frontiers of the technology to cut costs and improve well productivity. “We are a gigantic innovation machine,” says Greg Leveille, Conoco’s general manager for unconventional resources such as shale. “We put a lot of effort into trying to find the optimal combination of fracturing techniques.” Horizontal drilling, which opens up layers of resource-bearing shale, and hydraulic fracturing, or “fracking”, has raised US crude output by more than 65% in the past six years, helped by historically high oil prices that have made the techniques commercially viable. The big question now is how much longer the US shale industry’s growth spurt will last. Few issues are more significant for the future of the world economy. Threats to global crude supplies have risen this year, with turmoil in Iraq, mounting tensions between Russia and the west, and unrest in other oil-producing countries such as Libya.

Yet prices have fallen, with internationally traded Brent crude dropping from about $108 per barrel at the start of the year to about $102 today. In large part, that has been a result of booming US production. Between 2011 and 2013, the US raised its output by 2.2m b/d, more than the entire increase in global demand. While the immediate outlook for global oil supplies is benign, longer-term prospects are more troubling. If emerging economies – above all China – continue to grow, their demand for oil will rise as well. A few countries, including Canada, Brazil and Mexico, have realistic prospects of increasing their production to meet that demand. But there is still a great burden of expectation riding on the US.

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Lowballing.

Ebola Cases Could Eventually Reach 20,000 (AP)

The Ebola outbreak in West Africa eventually could exceed 20,000 cases, more than six times as many as doctors know about now, the World Health Organization said Thursday. A new plan to stop Ebola by the U.N. health agency also assumes that in many hard-hit areas, the actual number of cases may be two to four times higher than is currently reported. The agency published new figures saying that 1,552 people have died from the killer virus from among the 3,069 cases reported so far in Liberia, Sierra Leone, Guinea and Nigeria. At least 40% of the cases have been in just the last three weeks, the U.N. health agency said, adding that “the outbreak continues to accelerate.” In Geneva, the agency also released a new plan for handling the Ebola crisis that aims to stop Ebola transmission in affected countries within six to nine months and prevent it from spreading internationally.

Dr. Bruce Aylward, WHO’s assistant director-general, told reporters the plan would cost $489 million over the next nine months and require the assistance of 750 international workers and 12,000 national workers. The 20,000 figure, he added, “is a scale that I think has not ever been anticipated in terms of an Ebola outbreak.” “That’s not saying we expect 20,000,” he added. “But we have got to have a system in place that we can deal with robust numbers.” Aylward said the far-higher caseload is believed to come from cities. “It’s really just some urban areas that have outstripped the reporting capacity,” he said.

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